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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Morses Club Plc | LSE:MCL | London | Ordinary Share | GB00BZ6C4F71 | ORD GBP0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.21 | 0.20 | 0.40 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMMCL
RNS Number : 0870J
Morses Club PLC
18 December 2020
18 December 2020
Morses Club PLC
Interim results for the 26 weeks ended 29 August 2020
Innovation-led response to Covid-19 to meet changing customer needs
Morses Club PLC ("the Company" or "the Group"), an established provider of non-standard financial services , is pleased to announce its interim results for the 26 weeks ended 29 August 2020.
Operational Highlights:
-- Rapid and comprehensive response to Covid-19, leveraging existing digital technology and expertise
-- Reconfiguration of lending, collecting and operating processes to ensure the safety of customers, employees and agents
-- Remote lending to existing HCC customers recommenced just three weeks after March lockdown, in strict accordance with government guidance
-- Focus on quality of lending which gives confidence in future repayment levels -- Remote lending to new HCC customers launched in July 2020 -- Very positive customer response to digital HCC offering
-- Significant progress in the development of a new loan management platform, now in final test phase to go live in December
-- Customer satisfaction maintained at 97%
-- Over 117,000 customers registered for customer portal as at 29 August 2020, rising to 124,000 currently (H1 FY20: nil)
-- New service agreement with Modulr will provide enhanced products and services for U Account customers, due from early Spring 2021
-- No staff furloughed nor any Government debt or other support packages applied for -- Total Group customer numbers: 205,000 (H1 FY20: 276,000)
Financial Highlights:
-- Revenue decreased by 24.3% to GBP50.2m (H1 FY20: GBP66.3m) -- Total credit issued to all customers of GBP60.2m (H1 FY20: GBP91.0m) -- Total credit issued to HCC customers was 40.2% lower at GBP51.1m (H1 FY20: GBP85.5m) -- Net loan book of GBP55.6m, reduced 23.0% (H1 FY20: GBP72.2m) -- Adjusted profit before tax (1) of GBP2.3m (H1 FY20: GBP9.6m) -- Statutory profit before tax of GBP0.8m (H1 FY20: GBP6.7m) -- Adjusted HCC profit before tax (1) of GBP6.8m, a decrease of 48.1% (H1 FY20: GBP13.1m) -- Statutory HCC profit before tax of GBP5.6m, a decrease of 52.1% (H1 FY20: GBP11.7m)
-- Adjusted loss before tax (1) in Digital division of (GBP4.5m) as a result of enhancing scale and capability of recent acquisitions (H1 FY20: (GBP3.5m))
-- Statutory loss before tax in Digital division (GBP4.8m) (H1 FY20: (GBP5.0m)) -- Impairment as a percentage of revenue (1) for the period 23.5% (H1 FY20: 19.0%) -- Adjusted return on assets (1) of 9.9% (H1 FY20: 24.0%) -- Adjusted EPS(1) of 0.6p (H1 FY20: 5.9p) -- Statutory EPS of 0.5p (H1 FY20: 4.1p) -- Proposed interim dividend of 1.0p pence per share (H1 FY20: 2.6p)
1. Definitions are set out in the Glossary of Alternative Performance Measures on page 35
Alternative Performance Measures & Key Performance Indicators
Hot Features
Premium
26-week 27-week % +/-
period period
ended 29 ended 31
August August
Key performance indicators 2020 2019
Revenue GBP50.2m GBP66.3m (24.3%)
Net Loan Book GBP55.6m GBP72.2m (23.0%)
Adjusted Profit Before
Tax (1) GBP2.3m GBP9.6m (76.0%)
Statutory Profit Before
Tax GBP0.8m GBP6.7m (88.1%)
Adjusted Earnings per share
(1) 0.6p 5.9p (89.8%)
Statutory Earnings per
Share 0.5p 4.1p (87.8%)
Cost / Income ratio 67.5% 63.9% (5.6%)
Return on Assets 7.0% 19.1% (63.4%)
Adjusted Return on Assets
(1) 9.9% 24.0% (58.8%)
Return on Equity 9.5% 22.6% (58.0%)
Adjusted Return on Equity
(1) 13.4% 28.4% (52.8%)
Tangible Equity / average
receivables (1) 74.2% 84.5% (12.2%)
No of customers (000's) 205 276 (25.7%)
Number of agents 1,584 1,817 (12.8%)
Credit Issued GBP60.2m GBP91.0m (33.8%)
Impairment as % of Revenue
(1) 23.5% 19.0% (23.7%)
---------- ---------- --------
1. Definitions are set out in the Glossary of Alternative Performance Measures on page 35
Paul Smith, Chief Executive Officer of Morses Club, commented:
"In response to the Covid-19 pandemic, Morses Club responded decisively, leveraging its digital expertise and capabilities to accelerate its strategy of servicing customers remotely.
"Within just three weeks of lockdown in March, we recommenced lending to existing HCC customers and launched digital lending to new HCC customers in July 2020. Credit issued and collections in the HCC division were inevitably impacted by the loss of face-to-face interaction, but customers responded very positively to our remote HCC lending product with c. 65% of loans now being delivered through bank transfer. The acceleration of the digitalisation of our business can only serve to improve choice and flexibility for our customers, employees and agents.
"Our Digital division continues to make strong progress. In August, we announced a new strategic relationship with Modulr, which will enable us to offer services not typically available outside of mainstream banking providers. The forthcoming launch of our improved mobile application and new lending products by the end of this financial year will deepen and broaden our customer base further.
"The way in which Morses Club has responded to the unprecedented challenges posed by Covid-19 is something that I am extremely proud of. I am hugely grateful to our colleagues across the company, all of whom went the extra mile to ensure that our customers' needs were met and continued to receive excellent customer service.
"The speed of progress we have made across the Group in the period is testament to our investment in technology over a number of years and Morses Club is well-placed to become a more complete financial services provider in the growing and fragmented non-standard credit sector.
"Whilst we are pleased with the undoubted resilience shown by the business during H1, we are fully cognisant of the impact on consumer confidence due to the ongoing lockdowns across the UK, which directly affects the communities we serve. We accept that market conditions remain challenging but are confident that our approach will continue to deliver improvements."
Sell-side Analyst Presentation
The Company will be holding a virtual sell-side analyst presentation at 09:30 on Friday 18(th) December Please contact morses@camarco.co.uk if you would like to attend.
Forward looking statements
This announcement includes statements that are, or may be deemed to be, "forward-looking statements". By their nature, forward-looking statements involve known and unknown risks and uncertainties since they relate to future events and circumstances. Actual results may, and often do, differ materially from any forward-looking statements.
Any forward-looking statements in this announcement reflect Morses Club's view with respect to future events as at the date of this announcement. Save as required by law or by the AIM Rules for Companies, Morses Club undertakes no obligation to publicly revise any forward-looking statements in this announcement following any change in its expectations or to reflect events or circumstances after the date of this announcement.
For further information please contact:
Morses Club PLC Tel: +44 (0) 330 Paul Smith, Chief Executive Officer 045 0719 Andy Thomson, Interim Chief Financial Officer Peel Hunt (Nomad) Tel: +44 (0) 20 7418 Andrew Buchanan / James Britton / Rishi 8900 Shah / Duncan Littlejohns (Investment Banking Division) Camarco Tel: +44 (0) 20 3757 Jennifer Renwick / Oliver Head 4994
Notes to Editors
About Morses Club
Morses Club is an established provider of non-standard financial services in the UK. The Group consists of Morses Club, the UK's second largest home collected credit ("HCC") provider, and Shelby Finance Limited, Morses Club's Digital division, which operates under two online brands, Dot Dot Loans, an online lending provider, and U Account, which offers online e-money current accounts. The Group's growing Digital capabilities and scalable, highly invested IT platform has enabled Morses Club to deliver an inc reasingly broad range of financial products and services to the non-standard credit market.
UK HCC is considered to be a specialised segment of the broader UK non-standard credit market. UK HCC loans are typically small, unsecured cash loans delivered dir e ctly to customers' homes. Repayments are collected in person during weekly follow-up visits to customers' homes. UK HCC is considered to be stable and well-established, with approximately 1.6 million (1) people using the services of UK HCC lenders.
Morses Club's HCC division is the second largest UK Home Collected Credit (HCC) lender with 170,000 customers throughout the UK. The majority of the Company's customers are repeat borrowers and the HCC division enjoys consistently high customer satisfaction scores of 97% (2) . In 2016, the Morses Club Card, a cashless lending product, was introduced and in 2019 the Company introduced an online customer portal for its HCC customers, which now has over 124,000 registered customers.
The Group's growing Digital division, Shelby Finance, operates under two online brands. Dot Dot Loans provides online instalment loans of up to 48 months to c. 20,000 active customers. U Account is a leading digital current account provider offering an altern ative to traditional banking by providing a fully functional agency banking service. U Account currently has c. 15,000 customers.
Morses Club listed on AIM in May 2016.
About the UK non-standard credit market
The UK non-standard credit market, of which UK HCC is a subset, consists of both secured and unsecured lending and is estimated to comprise around 10 million consumers (3) and total loan receivables of GBP10.7bn (4) .
Non-standard credit is the provision of secured and unsecured credit to consumers other than through mainstream lenders. Lenders providing non-standard credit principally lend on an unsecured basis and the market is characterised by high frequency borrowin g. Approximately 2 million people move annually between standard and non-standard markets (4) .
Since February 2014, unsecured personal lending has grown from GBP161 billion to GBP225 billion in February 2020. It has since contracted to GBP206 billion in October 2020(5) .
(1 High Cost Credit Review ANNEX 1 - July 2017)
(2 Independent Customer Satisfaction Survey conducted by Mustard 3 FCA High Cost Credit Review Technical Annex 1: CRA data analysis of UK personal debt - July 2017 4 Apex Insight - Non-Prime Consumer Credit: UK Market Insight Report - September 2019 5 Table A5.2, Bank of England Money and Credit Bank stats October 2020)
(Review ANNEX 1 - July 2017)
Chief Executive Officer's Statement
Overview
The first half of FY21 posed unprecedented challenges due to Covid-19. The impact of the national lockdown in March required an immediate response as face-to-face lending and the home collection practices of our HCC business became temporarily unworkable.
The Group responded decisively, quickly leveraging our existing technology and expertise to ensure that we could continue to provide an effective solution for our customers. Testament to our focus over the last few years on building the right team and infrastructure to deliver what we believe to be a best-in-class digital offering, in just three weeks we were able to recommence lending to existing HCC customers remotely. By July, we had developed a platform which enabled us to restart lending remotely to new HCC customers.
The customer response to our cashless lending and remote collections model has been extremely positive and I am delighted to report that the customer portal had over 117,000 customers as at August 2020 and this has since risen to over 124,000.
In August 2020, the Group recommenced revised face-to-face lending and collection activity in customer homes, in strict accordance with government social distancing guidelines. Remote lending represented 58% of HCC loans issued in the six months to August 2020, rising to 61% in November 2020, demonstrating that a greater number of customers are choosing to utilise Morses Club's remote lending product.
Despite the extreme challenges we faced, our unstinting focus has been on providing our customers with exceptional service. I am delighted that customer satisfaction has been maintained at 97% or above during the period from March 2020, in no small part due to the tireless efforts of our colleagues and agents to support our customers at a time of need.
Alongside digital innovation in our HCC division, our Digital division has continued to make progress. In August, we announced a new service agreement with Modulr, which will provide an enhanced product and service platform for our U Account customers. We are currently working on the roll-out of a new app and several new product launches, which will position us to take advantage of opportunities in the wider non-standard credit market.
Driven by the challenges of lending to new and existing HCC customers and lower customer demand during lockdown, total credit issued decreased by 33.8% to GBP60.2m (H1 FY20: GBP91.0m) and revenue decreased by 24.3% to GBP50.2m (H1 FY20: GBP66.3m).
The Group has continued to implement structural changes to the business, with a transformative rationalisation of its property portfolio, reducing its regional administration branches from 94 properties to 20 currently, and operationally closing its Support Centre. All staff continue to work from home, with a recent survey showing that 90% of them are satisfied with this arrangement.
HCC
As a consequence of the limitations of the early period of lockdown, when the Company could not lend to existing customers until April and new customers until July, credit issued in HCC was lower at GBP51.1m (H1 FY20: GBP82.2m).
Customer loan repayments for the period were GBP104.5m (H1 FY20: GBP133.2m). This reduction reflects the decrease in the size of the loan book and customer numbers, an inevitable outcome when cash collections have remained relatively strong whilst credit issued has been suppressed, as new customer lending only recommenced in July.
Despite the speed with which the HCC division had to adapt, the collections performance to terms has remained robust. Having initially dropped to 79% of historical expectations in April 2020, it quickly recovered to 98% by July 2020. Since the half year, total collections have continued to be at 95% of historical expectations. However, this is due to a higher proportion of customers making part payments as a result of being directly affected by Covid-19. The remaining customers are performing in line with historical expectations.
Remote collections for H1 FY21 make up 78% of all collections (H1 FY20: 39%), with remote debit card payments making up 57% (H1 FY20: 35%) and portal payments 18% (H1 FY20: 2%).
Digital
We have made continued progress in the Digital division over the period. The significant restructuring activity in Shelby Finance is broadly complete and the business is now focused on building an improved offering to our customers. The infrastructure we worked hard to put in place prior to the onset of Covid-19 has stood us in good stead and I am delighted by the depth of the changes we continue to make to enhance our product offering.
We will be introducing a new loan management platform in the second half of the financial year which will act as a launchpad for the next phase of the Group's digital strategy, positioning the division for market share growth in the expanding non-standard credit market. The integration of linked banking and credit products planned for the months ahead is particularly exciting. This is testament to the work being done by Gary Marshall, COO of Shelby Finance, and his team.
The Digital division posted strong credit issued figures, which increased by 66% to GBP9.1m over the period, and robust collection figures, which in Q2 FY21 were up 39% year-on-year (partly driven by stronger credit issued volumes, but also by an improvement in debt quality). This strong performance despite the impact of the pandemic is evidence of the work that has been done over the past year to re-engineer U Holdings Limited and CURO Transatlantic Limited into a coherent product offering. As a result of the significant re-engineering of the acquired business into Shelby Finance, credit issued was relatively low in the comparative first quarter of FY20. However, credit issued in the second quarter of FY21 was still 15% ahead of last year, despite a combination of tightening credit score requirements for customers as well as the impact of lower consumer demand.
The announcement in August of a supplier relationship with Modulr Finance Limited for Shelby Finance is a significant step for the Group. The Modulr platform will provide our customers with an enhanced payments service, along with a superior customer service experience for their e-money and payment needs. The superior performance of Modulr's platform allows the Group to increase its scale in e-money accounts and leverage the wider suite of Modulr products. It is the Group's intention to offer complementary products to these customers, including revolving and fixed-lending products, enabling Morses Club to offer an enhanced and integrated digital offering to all its customers, who have strongly indicated their demand for these products. This wide-ranging digital payment solution, which is not typically available outside of mainstream banking lenders, leaves us well-placed to capitalise on opportunities in the wider non-standard credit market.
We remain encouraged by customer demand for linked banking and credit products. Independent market research has found that 50% of customers would like a linked banking and credit product to be available, with strong demand in the younger age customer demographic for these products, rising to more than 67% in the 36-55 age bracket. This validates and underpins our continued focus on becoming a more well-rounded and complete financial services provider to the non-standard credit market.
Furthermore, the demand for e-banking current account products remains stable, with active, fee-generating customers standing at c.15,000 at the end of August 2020. Further brand and product enhancements are underway in H2 FY21, with the introduction of a much-improved mobile app for U Account and the introduction of the U Money brand.
We have made the strategic decision to move away from offering 3-month credit products. This is an extremely competitive sub-sector and the margins were proving insufficient to cover the cost of customer acquisition and credit losses. This has resulted in a material change in the average product mix compared to H1 FY20. The average product length at the period end was 6.9 months, compared to 5.2 months in the previous period. We continue to monitor competition in the 3-month product sector and will revisit this product should market conditions change.
Customer numbers
We expected customer numbers in HCC to fall during the first half of the year, but the decrease in the number of customers has been considerably higher than expected. This is mainly due to restrictions on lending to new customers in place from March 2020 to mid-July 2020, which directly resulted in 25,000 fewer new customers. Combined with weaker customer demand which resulted in an increase in good paid-up customers of 9,000, this contributed to an overall reduction in customer numbers of 71,000 in the half-year.
The rate of decline in HCC customer numbers more than halved in August 2020, following the recommencement of lending to new customers. The Company expects its customer base to continue to stabilise in H2 FY21.
For the Digital division, customer numbers ended the period where they began. Numbers fell between March and June 2020 as the impact of Covid-19 on customer demand and increasingly stringent lending criteria suppressed credit issued, before a robust recovery in July and August 2020.
External market
We are of the belief that the Covid-19 pandemic is likely to have a medium-term impact on the non-standard credit market. Economic conditions are likely to push some prime borrowers into the non-standard market. There are already c.2m people who move between standard and non-standard markets due to credit scores and this is only likely to increase, with Morses Club well-positioned to cater for this customer base.
Executive team
Post period-end we announced the appointment of Graeme Campbell as Chief Financial Officer, subject to FCA approval, which was confirmed on 10 December 2020. Graeme brings a wealth of experience to the business, including broader digital and commercial skills and I am delighted to welcome him to the Group.
I would like to pay thanks to Andy Thomson for his work as Interim Chief Financial Officer, particularly in such a challenging trading environment, and I am delighted that he will remain with Morses Club, resuming his role as Non-Executive Director following an extensive handover.
Dividend
The Board is delighted to declare an interim dividend of 1.0p per share (H1 FY20: 2.6p), demonstrating its confidence in the Group's prospects.
The dividend of 1.0p per share will be paid on 9 April 2021 to ordinary shareholders on the register on 12 March 2021.
Outlook
Whilst Covid-19 has impacted Morses Club and the wider sector, I am delighted by the way the business has responded and risen to the challenge. We had to respond quickly to a fast-moving and unprecedented situation, and the first six months of the financial year have accelerated the Group's existing digitalisation strategy.
This acceleration is benefiting Morses Club, with the investments we have made over the past few years and the acquisitions of U Holdings Limited and CURO Transatlantic Limited starting to bear fruit. The past six months have enabled Morses Club to develop into a more complete provider of financial services to the non-standard credit market, and we believe we are well-positioned to capture a larger portion of this market through our technological offering.
Paul Smith
Chief Executive Officer
Date: 18 December 2020
Financial Review
26-week 27-week
period ended period ended
29 August 31 August
2020 2019
----------------------------------------- -------------- --------------
Customer numbers ('000's) 205 276
========================================= ============== ==============
Period end receivables GBP55.6m GBP72.2m
----------------------------------------- -------------- --------------
Average receivables GBP66.9m GBP76.3m
----------------------------------------- -------------- --------------
Revenue GBP50.2m GBP66.3m
========================================= -------------- --------------
Impairment (GBP11.8m) (GBP12.8m)
-------------- --------------
Agent Commission (GBP10.6m) (GBP14.5m)
========================================= -------------- --------------
Gross Profit GBP27.8m GBP39.0m
-------------- --------------
Administration expenses (GBP23.5m) (GBP29.5m)
========================================= -------------- --------------
Depreciation (GBP2.0m) (GBP1.4m)
-------------- --------------
Operating Profit before amortisation of GBP2.3m GBP8.1m
acquisition intangibles
========================================= -------------- --------------
Amortisation of acquisition intangibles (GBP0.2m) (GBP0.5m)
----------------------------------------- -------------- --------------
Operating profit GBP2.1m GBP7.6m
----------------------------------------- -------------- --------------
Gain arising on acquisitions - GBP0.6m
Funding costs (GBP1.3m) (GBP1.5m)
--------------
Statutory Profit Before Tax GBP0.8m GBP6.7m
----------------------------------------- -------------- --------------
Tax (GBP0.2m) (GBP1.3m)
----------------------------------------- -------------- --------------
Profit After Tax GBP0.6m GBP5.4m
----------------------------------------- -------------- --------------
Basic EPS 0.5p 4.1p
----------------------------------------- -------------- --------------
Reconciliation of Statutory Profit Before Tax to Adjusted
profit before tax and explanation of Adjusted EPS
------------------------------------------------------------------------------------
GBP'm (unless otherwise stated) 26-week 27-week % change
period ended period ended
29 August 31 August
2020 2019
Statutory Profit Before Tax 0.8 6.7 (88.1%)
============== ============== =========
Amortisation of acquired intangibles(2) 0.2 0.5 (60.0%)
========================================= ============== ============== =========
Gain arising on acquisitions - (0.6) n/a
========================================= ============== ============== =========
Non-recurring costs(3) 1.3 3.0 n/a
========================================= ============== ============== =========
Adjusted Profit Before Tax(1) 2.3 9.6 (76.0%)
============== =========
Tax on Adjusted Profit Before Tax (0.4) (1.9) (78.9%)
========================================= ============== ============== =========
Adjusted Profit After Tax 1.8 7.7 (76.6%)
=========
Adjusted EPS(1) 0.6 5.9 (89.8%)
========================================= ============== ============== =========
Adjusted Return on Assets(1) 9.9% 24.0% (58.8%)
=========
Adjusted Return on Equity(1) 13.4% 28.4% (52.8%)
========================================= ============== ============== =========
1 Definitions are set out in the Glossary of Alternative Performance Measures
2 Amortisation of acquired customer lists and agent networks
3 Includes redundancy, professional fees and property rationalisation expenses
Group Highlights
Group statutory profit before tax for the six-month period to 29 August 2020 decreased by 88.1% to GBP0.8m (H1 FY20: GBP6.7m). The adjusted profit before tax for the six-month period to 29 August 2020 decreased by 76.0% to GBP2.3m (H1 FY20: GBP9.6m).
The costs recognised in the current period due to the impact of Covid-19 and reported in our FY20 accounts compared to the estimates are detailed in the table below.
Actual charge PBSE estimate Variance
Increased expected credit
losses 5.8 5.8 -
-------------- -------------- ---------
Loss of forward flow income 0.6 0.3 (0.3)
-------------- -------------- ---------
Extended loan lives 0.6 0.8 0.2
Total 7.0 6.9 (0.1)
-------------- -------------- ---------
Less: IFRS9 provision in
FY20 (1.7) (1.7) -
-------------- -------------- ---------
Net charge 5.3 5.2 (0.1)
-------------- -------------- ---------
For expected credit losses in HCC we have been able to compare actual debt write offs compared to the historical norms. This was calculated by looking at the actual write off in the first 26 weeks of FY21 of GBP16.0m and comparing it to last year's write off over the same period of GBP13.8m. Last year's number was adjusted down by reference to the relative loan book size in FY21 which is smaller than in FY20 to calculate the normal expected write off. This is offset by the shrinkage in the loan book as explained further below.
The normalised adjusted profit before tax, having taken into account the impact of Covid-19 that was identified as a non-adjusting post balance sheet event of GBP5.2m in the February 2020 accounts, was GBP7.5m, a decrease of 21.9% (H1 FY20: GBP9.6m).
Total Group revenue for the 26-week period ended 29 August 2020 decreased by 24.3% to GBP50.2m (H1 FY20: GBP66.3m). This decrease resulted from the sharp decrease in consumer demand and, in the HCC business, our temporary inability to lend to new customers which then fed through to lower levels of revenue.
Impairment increased to 23.5% of revenue (H1 FY20: 19.0%), however this includes the impact of Covid-19 which was reported as a post balance sheet event in the FY20 annual report and accounts. Excluding this impact gives a normalised adjusted impairment charge of 16.5% which is artificially very low due to the favourable impact under IFRS9 from a shrinking loan book, particularly on the HCC business, the disproportionate weighting of credit issued to existing customers and higher credit criteria put in place for new lending early in the financial year.
Whilst administration costs and depreciation as a percentage of revenue increased to 50.8% (H1 FY20: 46.6%), in absolute terms they reduced by 17.5% to GBP25.5m (H1 FY20: GBP30.9m). Agent commission costs also reduced significantly to GBP10.6m (H1 FY20: GBP14.5m), bringing the total operating cost savings for the six-month period to GBP7.8m.
Funding costs of GBP1.3m were slightly down from last year (GBP1.5m) reflecting the Group starting the period with a higher level of debt and ending the period with a lower level of debt compared to the equivalent period last year.
Total customer numbers, including Shelby Finance, were 205,000 as at the end of August 2020, a reduction of 25.7% compared with the prior year (H1 FY20: 276,000) of which 20,000 were due to a stricter classification of a live digital customer and the balance entirely in HCC.
Home Collect Credit
Key performance indicators Aug-20 Aug-19 % +/-
GBP'm unless otherwise stated
Customer numbers ('000's) 170 224 (24.1%)
Period end receivables 50.4 68.2 (26.1%)
Average receivables 61.5 69.9 (12.0%)
Revenue 44.2 59.4 (25.6%)
Impairment (8.3) (10.9) (23.9%)
Agent commission & other cost
of sales (10.3) (14.4) (28.5%)
-------------- -------------
Gross profit 25.6 34.1 (24.9%)
Admin expenses (16.2) (18.1) (10.5%)
Depreciation (1.9) (1.7) 11.8%
-------------- -------------
Normalised operating profit 7.5 14.3 (47.6%)
Financing costs (0.7) (1.2) (41.7%)
-------------- -------------
Adjusted PBT 6.8 13.1 (48.1%)
Covid-19 impact identified in
PBSE 4.3 -
Normalised adjusted PBT 11.1 13.1 (15.3%)
============== =============
Covid-19 impact identified in
PBSE (4.3) -
Acquisition, restructuring and
non-recurring costs (1.0) (0.8) 25.0%
Amortisation of acquisition
intangibles (0.2) (0.5) (60.0%)
Statutory PBT 5.6 11.7 (52.1%)
============== =============
Impairment/revenue 18.8% 18.4% 1.4%
Agent commission/revenue 23.3% 24.2% (3.2%)
Admin (inc Depn) exp/revenue 41.0% 33.3% 22.9%
1. Definitions are set out in the Glossary of Alternative Performance Measures on page 35
Credit issued for the 26 weeks to 29 August 2020 was GBP51.1m compared to GBP82.2m in the 26-week equivalent period in H1 FY20, a decline of 37.8%, and compared to GBP85.5m reported for the 27-week period to 31 August 2019. Credit issued recovered during the period from the initial reductions experienced in April and May 2020. This reduction in April to June 2020 was due to lending only being available to existing customers. By August 2020, the year on year reduction in credit issued reflected mostly the reduced customer numbers although customer demand remained slightly weaker as regional lockdowns were implemented.
Customer loan repayments for the 26 weeks to 29 August 2020 were GBP104.5m, compared to GBP133.2m in the 26-week equivalent period the previous year, a reduction of 21.5% and GBP138.2m reported for the 27-week period to 29 August 2019. Repayments compared to last year remained much more consistent during the period, recovering from a low of 72.3% in April 2020 to 78.3% at the end of August 2020, with a 26-week average of 78.4%.
The reduction in loan repayments reflects the decrease in the size of the loan book and customer numbers, an inevitable outcome when cash collections remained relatively strong whilst credit issued was suppressed, as new customer lending only recommenced in July. Although customer numbers had been expected to decline over the first half of the year, this decline was considerably more marked, primarily due to the restrictions on lending to new customers from March 2020 to mid-July 2020, which directly resulted in 25,000 fewer new customers.
We also experienced a 9,000 year on year increase in customers repaying their loans and not requesting further credit, which is thought to be due to a combination of lower spending needs and the economic uncertainties brought on by Covid-19, making customers more cautious about borrowing.
As a result of the market conditions detailed above, income fell by 25.6% to GBP44.2m (H1 FY20: GBP59.4m). We were able to partly mitigate this with GBP4.0m reduction in agent commission to GBP10.3m (H1 FY20: GBP14.3m) and reductions in administration expenses and depreciation in total of GBP1.7m to GBP18.1m (H1 FY20: GBP19.8m).
Impairment of (GBP8.3m) was 18.8% of revenue and is below our guidance range of 21% to 26%. This result is a combination of the high proportion of lending to known performing existing customers, and the IFRS9 impact on impairment when credit issued is significantly lower than collections and overall balances are in decline. Our long-term guidance remains unchanged.
The statutory profit before tax of GBP5.6m was down 52.1% (H1 FY20: GBP11.7m) whilst the adjusted profit before tax of GBP6.8m was 48.1% down (H1 FY20: GBP13.1m). The normalised adjusted profit, excluding the impact of Covid-19 as identified as a post balance sheet event, was down 15.3% to GBP11.1m (H1 FY20: GBP13.1m).
As at August 2020, the gross loan balances of customers had reduced by 21.5% compared to August 2019.
Digital Lending
Key performance indicators Aug-20 Aug-19 % +/-
GBP'm unless otherwise stated
Customer numbers ('000's) 35 52 (32.7%)
Period end receivables 5.2 4.0 30.0%
Average receivables 5.4 1.7 217.6%
Revenue 6.0 6.9 (13.0%)
Impairment (3.5) (1.6) 118.8%
Agent commission & other cost
of sales (0.3) (0.4) (25.0%)
-------------- --------------
Gross profit 2.2 4.9 (55.1%)
Admin expenses (5.9) (7.6) (23.4%)
Depreciation (0.2) (0.5) (60.0%)
-------------- --------------
Normalised operating profit (3.9) (3.2) 18.2%
Financing costs (0.6) (0.3) 100.0%
-------------- --------------
Adjusted PBT (4.5) (3.5) 25.0%
Covid-19 impact identified in
PBSE 0.9 -
Normalised adjusted PBT (3.6) (3.5) -
============== ==============
Covid-19 impact identified in
PBSE (0.9) -
Acquisition, restructuring and
non-recurring costs (0.3) (2.1) (85.7%)
Exceptional gain - 0.6 (100.0%)
Statutory PBT (4.8) (5.0) (5.9%)
============== ==============
Impairment/revenue 58.3% 23.2% 151.6%
Agent commission/revenue 5.0% 5.8% (13.8%)
Admin (inc Depn) exp/revenue 101.7% 118.8% (14.8%)
1 Definitions are set out in the Glossary of Alternative Performance Measures
Credit issued for the 26 weeks to 29 August 2020 was GBP9.1m compared to GBP5.5m in the 26-week period in H1 FY20, an increase of 65.5%. In part this reflects the low credit issued in the first quarter of last year due to re-platforming of the business.
The impact of Covid-19 on the overall business has impacted the trajectory of Morses Club's Digital business to profitability and, whilst performance compared to last year is very positive, the trajectory of cash and credit issued has been impacted by the fall in customer demand, as Morses Club's focus on the quality of its lending has led to much lower volumes of credit issued than our pre-Covid-19 forecast anticipated.
Revenue declined by 13.0% to GBP6.0m (FY20 H1: GBP6.9m) as a result of the collection of the acquired CURO Transatlantic Limited loan book inflating the numbers in FY20.
Impairment is reported as being 58.3% of revenue, however this includes the impact of Covid-19 reported as a post balance sheet event in the FY20 full year accounts of GBP0.9m. Excluding this adverse impact the underlying impairment rate was 43.3% which is likely to be below what we would expect longer term due to benefitting from the IFRS9 impact on impairment when credit issued is relatively low compared to collections. We have not previously given guidance for our expected impairment for Digital lending but now see it as being in the range of 45%-55% which is in line with our business plans at the commencement of developing this business proposition.
Administration costs (including depreciation) decreased by 24.7% to GBP6.1m (H1 FY20: GBP8.1m) and as a percentage of revenue fell to 102% from 119% in H1 FY20. This cost management is even more impressive given that we only had the costs of digital banking for two months of the first half year last year. Had the cost base in July and August 2019 been in place throughout H1 FY20 then last year's costs for the period would have been GBP1.5m higher.
As at August 2020, the net loan balances of customers had increased by 30.0% to GBP5.2m (August 2019: GBP4.0m).
The adjusted loss before tax of (GBP4.5m) compares adversely to (GBP3.5m) reported for last year, however the normalised loss excluding the Covid-19 impact reported as a post balance sheet event in the FY20 accounts is similar (GBP3.6m). However, given the profit upside last year from the collect out of the CURO Transatlantic Limited loan book, the additional costs this year of operating the banking division for six months as opposed to two months last year and the 30.0% growth in net receivables, the underlying trend is one of positive improvement.
We therefore leave our guidance unchanged that the Digital business will reach a break-even position during FY22.
Funding
During the period, the Group agreed a new loan facility with its existing funding syndicate until the end of November 2021 and further extended this to December 2021 in December 2020. There is a reduction in the size of the facility from GBP50 million to GBP40 million to better reflect the requirements of the business.
It is testament to the resilience of the Group that the business was able to secure funding in this challenging time with a high-class syndicate who have shown their faith in the business.
The Group has reduced its debt position through the period with borrowings at GBP14m at the period end. This compares favourably to both August 2019 (GBP23m) and February 2020 (GBP34m). The Group has sufficient headroom through its peak lending period in the month of December.
Principal Risks and Uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the Company's performance over the remaining 26 weeks of the financial year and could cause results to differ materially from expected and historical results. The Directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the 53 weeks ended 29 February 2020. These should be read in the context of the cautionary statement regarding forward looking statements at the beginning of these Interim Results. A detailed explanation of the risks summarised below, and how the Company seeks to mitigate the risks, can be found on page 24 of the annual report which can be found at www.morsesclubplc.com/investors/.
The Company's principal financial assets are loan book receivables, cash and other receivables.
Conduct Risk
Treating Customers Fairly is a fundamental part of the Company's culture. Comprehensive and verifiable training and oversight of agents and staff is undertaken. First and second-line quality assurance operates alongside an automated, mobile technology-based credit issued & collections' process. The HCC division has implemented enhanced affordability procedures incorporating additional external data. This, together with the new loan optimisation system has enhanced our affordability process and the customer journey for agents and customers at the point of sale. The HCC division enhanced the digital loan process to facilitate remote lending
Regulatory Risk
A gap analysis is undertaken when any rules or regulatory guidance changes. Governance, risk and compliance are independently and externally reviewed by our lawyers. We maintain continuous communication with key external stakeholders and professional contacts to keep our information updated.
Credit Risk
Group policy prescribes business oversight and control. Weekly management information allows the Group to monitor the effects of lending decisions. Regular reviews of policies and outcomes are undertaken by the Credit Risk Committee.
Reputational Risk
Effective corporate governance provides business oversight and control. We undertake independent monitoring, for example market surveys and mystery shopping. In 2020, we continued surveys of all types of customer, including those who benefited from our policy of forbearance. The number and nature of complaints are closely monitored. We have widened customer access to online documentation through a customer portal and provided customers with a more robust and customer-centric experience.
Strategic and Business Risk
A full Committee-based corporate governance structure operates with Board oversight. The Board and Executive Team hold an annual 2-day strategy planning meeting. Detailed strategic planning and oversight are implemented alongside horizon scanning. The recruitment application process for additional staff, prior to interview, is highly automated and efficient. We are involved in lobbying through our trade associations. Following the Covid-19 outbreak, the Company put into place contingency plans to minimise the risks to the health and safety of its employees and agents. All staff were able to operate from home effectively and the HCC business is able to lend and collect both remotely and through doorstep activities.
Wider Industry Risk
During the past year, the Group has seen a noticeable increase in the level of complaints received from Claims Management Companies (CMCs). In many cases, these have been spurious or allegedly sent by individuals who have never been customers or have been sent without the customer's knowledge or consent. CMCs are now regulated by the FCA and it is hoped that they will act more responsibly in the future. The Group is actively engaging with FOS and the FCA through the sector trade associations.
Operational Risk
The Group has a comprehensive suite of policies and procedures covering its operational activities that is subject to regular review and revision. All agents and staff participate annually in a personal safety review and follow our home/remote working policy. A comprehensive business continuity policy and procedure is in place and a third-party disaster recovery site is now available should it be required. Disaster recovery tests are performed periodically on critical systems. The Group's business interruption insurance cover has been increased substantially, following the increase in revenue resulting from the acquisitions made in 2019. We responded rapidly to the outbreak of Covid-19, successfully adapting our operating model to enable all our agents to work from home and replacing face-to-face customer visits with a remote customer communication strategy. We made use of our existing technology platform and payment methods to maintain customer contact and collection activity. We launched a new cashless remote lending product, which is available to all existing Morses Club HCC customers and is compliant with all regulatory requirements. All necessary checks and agreements are transacted via our online Customer Portal, leveraging our existing technology platform. Customers using the new remote lending product can choose to have funds deposited directly into their bank account or loaded onto a Morses Club Card, ensuring that existing customers can continue to access our products and services during this time. The Digital division reviewed operating practices so all employees are working from home. Assessment of credit risk was also reviewed to ensure that risk appetite for credit risk and TCF were maintained.
Liquidity Risk
The Group currently has a revolving debt facility of GBP40m, secured by a debenture on the assets of the business. The revolving credit facility expires at the end of December 2021. It is the Group's policy to renew its facilities well in advance of the dates of these facilities expiring. This is sufficient to fund planned business growth. The Group actively monitors its compliance with the covenants set out in the facilities, in order to avoid the debt being recalled. Positive discussions have started with the existing lenders, and the renewal will be a major focus for the incoming CFO, Graeme Campbell.
IT and Cyber Risk
The Group has an ongoing programme to conduct regular vulnerability assessments against our core infrastructure services. The Group recognises the increased relevance of this risk as the move to digitise the business continues and has plans to increase the frequency and scope of its testing. We have a dedicated information security resource and undertake penetration testing of our external and internal networks which helps to identify new or emerging security concerns. Failover tests of our IT facilities have also been carried out successfully. Since the outbreak of Covid-19 we have engaged with suppliers to ensure increased resilience for all key IT services. During the year, we have undertaken phishing exercises in order to educate our staff. Most of our data is now encrypted at rest. The Group's cyber insurance cover has been increased once more in consultation with the Group's insurers. The business change team closely monitors demand and resource plans.
Agents' self-employed status
The Company carefully monitors the position with its advisers and conducts an ongoing review of business processes, systems and contracts in order to maintain self-employed status for its agents.
Covid-19 pandemic
The Group has rapidly developed systems whereby customers can apply for loans and repay them remotely - by telephone or through the customer portal; at the time of writing, all staff are working from home effectively, including the customer call centres; the reduction in demand for loans is addressed by constantly monitoring the cost base of the business.
Emerging risks:
Leaving the EU without a trade deal
As a Company operating solely in the UK, with no foreign currency exposure, EU supply chain, or key dependency on overseas staff, the Company has not identified any adverse direct consequences of Brexit, in whatever form it may take. We therefore do not foresee any issues or changes being made to the business model or any impact on our accounting policies of critical judgements.
Senior Managers and Certification Regime
Morses Club is an enhanced firm for the purposes of this legislation which became effective on 9 December 2019. The Group appointed a project team, advised by our external lawyers, with the result that the required processes were introduced in readiness for this new regime.
Climate change
Climate change is not currently seen as a principal risk to the business, but this is kept under review, with all our main strategic initiatives resulting in reducing our impact on the environment. Customers can request loans and make payments under the new customer portal. Technology has been introduced which allows for more meetings to be conducted remotely. Both of these initiatives have significantly reduced the need to travel unnecessarily. The Group's environmental policy is reviewed annually.
Andy Thomson
Interim Chief Financial Officer
Date: 18 December 2020
INDEPENT REVIEW REPORT TO MORSES CLUB PLC
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 29 August 2020 which comprises the income statement, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 15. 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.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, 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.
Conclusion
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 29 August 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules of the London Stock Exchange.
Use of our report
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review 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, for our review work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
18 December 2020
MORSES CLUB PLC Registered Number: 06793980
CONSOLIDATED INCOME STATEMENT
FOR THE 26 WEEK PERIODED 29
AUGUST 2020
26 weeks 27 weeks 53 weeks
ended ended ended
29.08.20 31.08.19 29.02.2020
Notes GBP,000 GBP,000 GBP,000
(Unaudited) (Unaudited) (Audited)
TURNOVER
Existing Operations 50,221 60,602 128,528
Acquisitions during the period - 5,689 5,123
------------ ------------ -----------
50,221 66,291 133,651
Impairment (11,789) (12,851) (36,358)
Cost of sales (10,627) (14,461) (27,669)
------------ ------------ -----------
GROSS PROFIT 27,805 38,979 69,624
Administration expenses (25,692) (31,350) (54,918)
OPERATING PROFIT BEFORE AMORTISATION
OF INTANGIBLES 2,288 8,137 13,593
Amortisation of acquisition intangibles 8,9 (175) (508) (1,222)
Exceptional costs 4 - - 2,335
----------------------------------------- ------ ------------ ------------ -----------
OPERATING PROFIT
Existing Operations 2,113 12,977 11,667
Acquisitions during the period - (5,348) 3,039
------------ ------------ -----------
2,113 7,629 14,706
Gain arising on acquisitions - 585 -
Finance costs (1,355) (1,478) (3,255)
------------ ------------ -----------
PROFIT BEFORE TAXATION 2 758 6,735 11,451
Tax on profit on ordinary activities 5 (155) (1,347) (1,974)
------------ ------------ -----------
PROFIT AFTER TAXATION 603 5,388 9,477
------------ ------------ -----------
All results derive from continuing operations. A Statement of Comprehensive Income is not included as there is no other income or losses, other than those presented in the Income Statement.
26 weeks 27 weeks 53 weeks
ended ended ended
29.8.20 31.8.19 29.2.20
EARNINGS PER SHARE Pence Pence Pence
Basic 7 0.46 4.13 7.26
--------- --------- ----------------
Diluted 7 0.46 4.08 7.21
--------- --------- ----------------
CONSOLIDATED BALANCE SHEET
FOR THE 26 WEEK PERIODED 29
AUGUST 2020
26 weeks 27 weeks 53 weeks
ended ended ended
29.08.20 31.08.19 29.02.20
(Unaudited) (Unaudited) (Audited)
ASSETS Notes GBP'000 GBP'000 GBP'000
Non-current assets
Goodwill 8 12,981 13,281 12,981
Other intangible assets 9 8,919 7,423 7,362
Property, plant and equipment 791 758 818
Right of Use Assets 10 2,089 3,619 2,783
Deferred Tax 677 920 659
Amounts receivable from customers 11 687 198 657
26,144 26,199 25,260
------------ ------------ ----------
Current Assets
Amounts receivable from customers 11 54,864 72,010 72,171
Taxation receivable 1,519 - 501
Other receivables 11 6,318 4,095 4,256
Cash and cash equivalents 6,524 7,465 11,868
69,225 83,570 88,796
------------ ------------ ----------
Total assets 95,369 109,769 114,056
------------ ------------ ----------
LIABILITIES
Current Liabilities
Trade and other payables (7,752) (11,820) (6,723)
Taxation payable - (1,382) -
Lease liabilities (1,027) (3,519) (1,286)
(8,779) (16,721) (8,009)
------------ ------------ ----------
Non-current liabilities
Bank and other borrowings 12 (13,690) (22,707) (33,838)
Lease Liabilities (1,139) - (1,553)
(14,829) (22,707) (35,391)
------------ ------------ ----------
Total liabilities (23,608) (39,428) (43,400)
------------ ------------ ----------
NET ASSETS 71,761 70,341 70,656
------------ ------------ ----------
Equity
Called up share capital 1,312 1,310 1,312
Retained Earnings 70,449 69,031 69,344
------------ ------------ ----------
TOTAL EQUITY 71,761 70,341 70,656
============ ============ ==========
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE 26 WEEK PERIODED 29
AUGUST 2020
Called
up
share Retained Total
capital Earnings Equity
GBP'000 GBP'000 GBP'000
--------------- ------------- -------------
As at 23 February 2019 (Audited) 1,298 69,681 70,979
--------------- ------------- -------------
Impact of adoption of IFRS 16 'Leases' - 154 154
As at 24 February 2019 (Unaudited) 1,298 69,835 71,133
--------------- ------------- -------------
Total comprehensive income for the
period - 5,388 5,388
Share Issue 12 - 12
Share based payment charge - 525 525
Dividends paid - (6,749) (6,749)
------------- -------------
As at 31 August 2019 (Unaudited) 1,310 69,000 70,310
--------------- ------------- -------------
Total comprehensive income for the
period - 4,089 4,089
Deferred Tax on Acquisitions - 39 39
Share Issue 2 - 2
Share based payment charge adjustment - (370) (370)
Dividends paid - (3,413) (3,413)
As at 29 February 2020 (Audited) 1,312 69,344 70,656
--------------- ------------- -------------
Total comprehensive income for the
period - 603 603
Share based payment charge - 502 502
As at 29 August 2020 (Unaudited) 1,312 70,449 71,761
--------------- ------------- -------------
CONSOLIDATED STATEMENT OF CASH
FLOWS
FOR THE 26 WEEK PERIODED 29
AUGUST 2020
26 weeks 27 weeks 53 weeks
ended ended ended
29.08.20 31.08.19 29.02.20
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
Net cash inflow from operating
activities 1 20,206 17,332 21,418
Dividends Paid 6 - (6,749) (10,162)
Proceeds from additional long-term
debt 2,000 18,500 36,000
Arrangement costs associated with (351) - -
additional funding
Repayment of long-term debt (22,000) (10,000) (16,500)
Principal paid under lease liabilities (758) (682) (1,385)
Interest received - - 13
Interest Paid (1,023) (1,298) (2,533)
Interest paid (lease liabilities) (182) - (472)
----------------- ----------------- -----------------
Net cash (outflow)/inflow from
financing activities (22,314) (229) 4,961
Purchase of intangibles (2,889) (2,552) (4,277)
Purchase of property, plant and
equipment (347) (949) (2,180)
Acquisitions - (14,030) (15,947)
Net cash (outflow) from investing
activities (3,236) (17,531) (22,404)
(Decrease)/Increase in cash and
cash equivalents (5,344) (428) 3,975
================= ================= =================
Reconciliation of increase in
cash and cash
equivalents to movement in cash
equivalents
Movement in cash and cash equivalents
in the period (5,344) (428) 3,975
Movement in cash and cash equivalents
in the period (5,344) (428) 3,975
Cash and cash equivalents, beginning
of year 11,868 7,893 7,893
Cash and cash equivalents, end
of year 6,524 7,465 11,868
================= ================= =================
1 RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
Group
------------------- --------------- ----------------
29.8.20 31.8.19 29.2.20
GBP'000 GBP'000 GBP'000
Profit before tax and exceptional costs 757 5,388 9,116
Exceptional costs - - 2,335
------------------- --------------- ----------------
Profit before taxation 757 5,388 11,451
Interest received included in financing
activities - - (13)
Interest paid included in financing
activities 1,023 1,181 2,533
Interest paid (leases liabilities) 182 249 472
Share issue - 12 14
Depreciation charges 990 1,406 2,436
Loss on disposal of tangible fixed 78 - -
assets
Share based payments charge 502 525 155
Impairment of goodwill - - 16
Amortisation of intangibles 1,332 766 3,136
Write off of Right-of-Use Asset - - 142
Decrease/(increase) in debtors 15,418 (849) 6,702
Increase/(decrease) in creditors 1,114 10,460 (1,466)
---------------
20,639 13,750 14,127
Taxation paid (1,190) (1,806) (4,160)
------------------- --------------- ----------------
Net cash inflow from operating activities 20,206 17,332 21,418
=================== =============== ================
2 RECONCILIATION OF LIABILITIES ARISING FROM FINANCIAL
ACTIVITIES
Long term Lease
borrowings liabilities Total
Group GBP'000 GBP'000 GBP'000
At 24 February 2019 14,075 3,391 17,466
----------- ------------ ---------
Non-cash changes
- Amortised fees 263 - 263
- Interest (2,533) (472) (3,005)
Cash flows:
- Repayments (16,500) (1,385) (17,885)
- Drawdown 36,000 - 36,000
- Lease additions & disposals - 833 833
- Interest 2,533 472 3,005
- Arrangement costs associated with - -
additional funding -
------------ ---------
At 29 February 2020 33,838 2,839 36,677
=========== ============ =========
Non-cash changes
- Amortised fees 203 203
- Interest (1,023) (182) (1,205)
Cash flows:
- Repayments (22,000) (758) (22,758)
- Drawdown 2,000 2,000
- Lease additions & disposals 85 85
- Interest 1,023 182 1,205
- Arrangement costs associated with
additional funding (351) - (351)
------------ ---------
At 29 August 2020 13,690 2,166 15,856
=========== ============ =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 26 WEEK PERIODED 29 August 2020
1. ACCOUNTING POLICIES
General information
The Company is a public limited company incorporated and domiciled in the UK. The address of its registered office is Kingston House, Centre 27 Business Park, Woodhead Road, Birstall, Batley, West Yorkshire, WF17 9TD.
The information for the year ended 29 February 2020 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The report of the auditor on those financial statements was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
The unaudited condensed interim financial statements for the 26 weeks ended 29 August 2020 have been reviewed, not audited, and were approved by the Board of Directors on 18 December 2020.
Going concern
The Directors have considered the appropriateness of adopting the going concern basis in preparing these Condensed financial statements.
The Group has prepared a three-year business plan which is a continuation of its strategy of generating growth through organic and acquisitive means.
In addition to standard internal governance, the Group is also monitored against key financial covenants tied in with the current funding facilities. These are produced and submitted on a monthly basis, with key schedules included in the monthly Board Papers.
The Group is subject to a number of risks and uncertainties which arise as a result of the current economic environment. In determining that the Group is a going concern these risks, which are described in the principal risks and uncertainties section, have been considered by the Directors. The Directors have considered these risks in the Group's forecasts and projections which highlight continued profitability for the foreseeable future. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.
With regards to a going concern review or a 3-year viability period, the major challenge for the business will be one of operational resilience and adapting to the demands of Covid-19 world, whilst maintaining good customer outcomes, appropriate oversight and financial prudence.
For the year to February 2020, rather than taking the approach of adopting a base case and then running upside and downside cases, management have opted to conduct the going concern against what it considers to be the worst case under Covid-19. The financial model which contains these assumptions was initially drawn up and shared with funders to support the new funding facility entered into on 28 April 2020.
Management consider this to be a prudent foreseeable worst case plan against which to assess the going concern and viability of the Group. This plan reflects both the impact on operational challenges and future prospects mentioned above.
Within the worst case the Group has assessed a number of possible events and scenarios which resulted in:
-- Revision of future cash flows impacting the IFRS 9 Loan Loss Impairment Provision at the reporting date as well as cash flows in future periods
-- Reduced customer numbers, loan book size and collections as a result of continued operational limitations
-- Revised operational model resulting from a different sized business
-- Maintenance of adequate cash headroom whilst maintaining appropriate cash conservation measures such as non-payment of external dividend
These comments do not represent managements confirmed actions, they represent a number of possible mitigants which may need to be implemented if the worst case transpires.
During the first six months of the year, the performance has exceeded the Covid-19 plan in most key metrics including credit issued, collections and adjusted PBT. As the impact of the pandemic on customer behaviour and trading performance have become clearer, we have updated the plan. Management consider this to be a prudent foreseeable plan against which to assess the going concern and viability of the Group. This plan reflects both the impact on operational challenges and future prospects mentioned above
During the period the Group agreed a new loan facility with its existing funding syndicate until the end of November 2021 and further extended to December 2021 in December 2020. There is a reduction in the size of the facility from GBP50 million to GBP40 million to better reflect the requirements of the business.
Accounting convention
The statutory annual financial statements of Morses Club PLC are prepared under International Financial Reporting Standards (IFRS) adopted by the European Union. The condensed set of financial statements included in this half yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.
Accounting policies
There are no other new IFRSs or International Financial Reporting Interpretations (IFRIC) that are effective for the first time for the 26 weeks ended 29 August 2020 which have a material impact on the Group. As such the accounting policies applied in preparing the unaudited condensed interim financial statements are consistent with those used in preparing the statutory financial statements for the year ended 29 February 2020
In preparation for the year end FY20 and within the 12 month timeframe allowed under IFRS 3, we amended the fair values of the identified assets and liabilities associated to the acquisitions and also revised the methodology used for revenue recognition in U Holdings to align with the requirements of IFRS 15.
Key sources of estimation uncertainty
Impairment and EIR have previously been calculated using a flat five-year average of historical payment performance. The cash curves and expected lives are based on view of the loan book at the end of December each year, with an average of the previous five years used in the calculation. Management have considered the best way to deal with the Covid-19 impact on the impairment provision and income recognition. We believe that in lieu of a management overlay as in FY20, we have decided to use a weighting to give more prominence to the most recent data cohort. Continuing to use a flat five-year average calculation would materially understate the provision.
The Impairment and EIR weighting options considered were (please note option 1 is the methodology used in previous years):
Dec 15 Dec 16 Dec 17 Dec 18 Dec 19
Option
1 20% 20% 20% 20% 20%
------- ------- ------- ------- -------
Option
2 15% 15% 15% 15% 40%
------- ------- ------- ------- -------
Option
3 10% 10% 10% 10% 60%
------- ------- ------- ------- -------
Option
4 0% 0% 0% 0% 100%
------- ------- ------- ------- -------
The table below highlights the range of impairment and deferred revenue under each option considered:
As at end August Option 1 Option 2 Option 3 Option 4
2020
Gross Loan Book GBP109.6m GBP109.6m GBP109.6m GBP109.6m
----------- ----------- ----------- -----------
Deferred Income (GBP21.0m) (GBP21.6m) (GBP21.6m) (GBP21.6m)
----------- ----------- ----------- -----------
Impairment Provision (GBP37.8m) (GBP37.3m) (GBP37.7m) (GBP38.6m)
----------- ----------- ----------- -----------
Net Loan Book GBP50.8m GBP50.7m GBP50.4m GBP49.4m
----------- ----------- ----------- -----------
The range of impairment is from GBP37.8m to GBP38.6m and deferred income range is from GBP21.0m to GBP21.6m. Management believes that weighting option 3 is this most reflective of the impact of Covid-19 on the group's revenue and impairment.
Please note that the remote lending and collection model of our Digital lending business has resulted in a smaller Covid-19 impact, and therefore management have not applied this weighting to the Digital Division. The Impairment numbers above are for Home Collected Credit only.
Impairment of non-financial assets and goodwill
In assessing impairment, management estimates the recoverable amount of each asset or cash generating unit based on expected future cash flows and uses a Weighted Average Cost of Capital (WACC) of 13% to discount them. The Compound Average Growth Rate (CAGR) for the first 3 years at Group level is 24% and every +/- 1% change in the CAGR results in a +/- GBP1.9m change to the Group cumulative discounted cash flow over the same period. Every +/- 1% change in the discount rate results in a +/- GBP1.8m change in the estimated recoverable amount. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate and future growth rates.
2. SEGMENTAL REPORTING
Profit/(loss)
before
Revenue taxation
--------- --------- --------- --------- -------------- ---------
27 weeks 27 weeks 53 weeks 27 weeks 27 weeks 53 weeks
ended ended Ended ended ended Ended
29.8.20 31.08.19 29.2.20 29.8.20 31.08.19 29.2.20
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Group
Home Collect Credit 44,189 59,424 119,269 6,837 13,086 22,940
Digital 6,032 6,867 14,382 (4,748) (5,586) (11,225)
Total Group before
amortisation of
acquisition intangibles
and exceptional
items 50,221 66,291 133,651 2,089 7,500 11,715
--------- --------- --------- --------- -------------- ---------
Intra-group elimination - - - - - 750
Group acquisition
costs - - - - - (213)
Gains arising
on acquisition - - - - 585 -
Amortisation of
intangibles - - - (1,331) (1,350) (3,136)
Exceptional items - - - - - 2,335
Total
Group 50,221 66,291 133,651 758 6,735 11,451
--------- --------- --------- --------- -------------- ---------
Segment assets Segment liabilities
--------- -------------------- ----------- ----------------------
29.8.20 31.08.19 29.2.20 29.8.20 31.08.19 29.2.20
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Home Collect Credit 108,399 124,303 124,462 (21,361) (47,695) (42,543)
Digital 24,542 19,765 21,145 (23,014) (20,158) (22,691)
Total before intra-group
elimination 132,941 144,068 145,607 (44,375) (67,853) (65,234)
--------- --------- --------- ----------- ---------- ----------
Eliminations* (17,656) (20,590) (11,103) 851 14,716 1,386
Intra-group elimination (19,916) (13,709) (20,448) 19,916 13,709 20,448
Total
Group 95,369 109,769 114,056 (23,608) (39,428) (43,400)
========= ========= ========= =========== ========== ==========
Net assets/(liabilities)
----------- ---------------------------
29.8.20 31.08.19 29.2.20
Group GBP'000 GBP'000 GBP'000
Home Collect Credit 87,038 76,608 81,919
Digital 1,528 (393) (1,546)
Total before intra-group
elimination 88,566 76,215 80,373
----------- ------------- ------------
Eliminations* (16,805) (5,874) (9,717)
Intra-group elimination - - -
Total Group 71,761 70,341 70,656
=========== ============= ============
3. SEASONALITY
The Group's peak period of lending to customers is in the run-up to Christmas in the second half of the financial year. Typically, approximately 54% of the loans issued are made in the second half of the financial year and the peak lending and collections period leads the Group to operate with a materially higher draw down on debt facilities in December. In addition, the Group's accounting policies relating to revenue and impairment are an important influence on the recognition of the Group's profit between the first and second halves of the financial year.
4. EXCEPTIONAL (INCOME)/ COSTS
26 weeks 27 weeks 53 weeks
ended ended ended
29.8.20 29.8.20 29.2.20
GBP'000 GBP'000 GBP'000
Deferred consideration
on acquisition - - (2,335)
Total Exceptional (Income) - - (2,335)
=========== ================= =========
Exceptional income is made up of the release of Deferred Consideration in relation to the acquisition of U Holdings Limited.
5. TAXATION
The tax charge for the period has been calculated by applying the directors' best estimate of the effective tax rate for the financial year of 20% (H1 FY20 - 20%) (H1 FY19 - 17%), to the profit before tax for the period. The tax rate reflects the reduction in the mainstream UK corporation tax rate from 20% to 19% which was effective from 1 April 2017.
6. DIVIDS
26 weeks 27 weeks 53 weeks
Ended Ended ended
29.8.20 31.8.19 29.2.20
GBP'000 GBP'000 GBP'000
Amounts recognised as distributions
to equity holders in the period:
Final dividend for the 53 weeks
ended 29 February 2020 - 6,749 10,162
- 6,749 10,162
======================================================== ========= =========
The directors have declared an interim dividend in respect of the 26 weeks ended 29 August 2020 of 1.0p per share (H1 FY20: 2.6p) (FY20: 3.6p) to be paid on 9 April 2021 to ordinary shareholders on the register at close of business on 12 March 2021. This dividend is not reflected in the balance sheet as it was declared after the balance sheet date. It will result in a total half year dividend pay-out of approximately GBP1.3m (H1 FY20: GBP3.4m) (FY20: GBP4.7m). No dividends were paid during the period (H1 FY20: GBP6.7m) (FY20: GBP10.2m).
Subject to shareholder approval at the General Meeting on 7 January 2021, the Board proposes to pay a final dividend of 1.0 pence per Ordinary Share in respect of 53 weeks ended 29 February 2020. This is anticipated to be payable on 12 February 2021 to all shareholders on the register at the close of business on 15 January 2021.
7. EARNINGS PER SHARE
26 weeks 27 weeks 53 weeks
Ended Ended ended
29.8.20 31.8.19 29.2.20
Earnings (GBP'000) 603 5,388 9,477
============== ========= =========
Number of shares
Weighted average number of shares
for the purposes of basic earnings
per share ('000s) 131,244 130,462 130,531
Effect of dilutive potential ordinary
shares through share options ('000s) 631 1,729 843
-------------- --------- ---------
Weighted average number of shares
for the purposes of diluted earnings
per share ('000s) 131,876 132,191 131,374
============== ========= =========
Basic per share amount (pence) 0.46 4.13 7.26
============== ========= =========
Diluted per share amount (pence) 0.46 4.08 7.21
============== ========= =========
Diluted earnings per share calculated the effect on earnings per share assuming conversion of all dilutive potential ordinary shares. Dilutive potential ordinary shares are calculated for awards outstanding under performance related share incentive schemes such as the Deferred Share Plan. The number of dilutive potential ordinary shares is calculated based on the number of shares which would be issuable if the performance targets have been met.
8. GOODWILL
The contingent consideration was payable 5 years after acquisition based on various performance targets and although management still expects to achieve these targets the contingent consideration has been released as the individuals qualifying for this have left the business during the year, and forgone this additional remuneration.
8. GOODWILL - continued
COST GBP'000
At 28 February 2019 3,834
Additions 9,496
At 31 August 2019 13,330
At 29 February 2020 13,330
At 29 August 2020 13,330
--------
Impairment
At 28 February 2019 (333)
At 31 August 2019 (333)
Impairment loss for the period (17)
--------
At 29 February 2020 (349)
Impairment loss for the period -
--------
At 29 August 2020 (349)
--------
NET BOOK VALUE
At 29 August 2020 12,981
========
At 29 February 2020 12,981
========
At 31 August 2019 12,997
========
At 28 February 2019 3,501
========
9. OTHER INTANGIBLE ASSETS
Software, Acquired Acquired Totals
Servers Customer Agent
& Licences Lists Networks
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 24 February 2019 8,864 21,241 874 30,979
Additions 2,279 273 - 2,552
----------- --------- --------- --------
At 31 August 2019 11,143 21,514 874 33,531
Additions 1,618 107 - 1,725
----------- --------- --------- --------
At 29 February 2020 12,761 21,621 874 35,256
Additions 2,889 - - 2,889
At 29 August 2020 15,650 21,621 874 38,145
----------- --------- --------- --------
ACCUMULATED AMORTISATION
At 24 February 2019 4,226 19,724 808 24,758
Charge for period 842 492 16 1,350
----------- --------- --------- --------
At 31 August 2019 5,068 20,216 824 26,108
Charge for period 1,072 699 15 1,785
----------- --------- --------- --------
At 29 February 2020 6,140 20,915 839 27,894
Charge for period 1,156 167 9 1,332
At 29 August 2020 7,296 21,082 848 29,226
----------- --------- --------- --------
NET BOOK VALUE
At 29 August 2020 8,354 539 26 8,919
At 29 February 2020 6,621 706 35 7,362
=========== ========= ========= ========
At 31 August 2019 6,075 1,298 50 7,423
=========== ========= ========= ========
10. RIGHT OF USE ASSETS
Building Equipment Vehicles Totals
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 24 February 2019 1,193 920 1,507 3,620
Additions 706 97 - 803
Disposals - (9) (10) (19)
------------- ------------- ------------- -------------
At 31 August 2019 1,899 1,008 1,497 4,404
Additions 73 - 124 197
Disposals (84) (38) (84) (206)
------------- ------------- ------------- -------------
At 29 February 2020 1,888 970 1,537 4,395
Additions 14 - 170 184
Disposals (155) - (29) (184)
At 29 August 2020 1,747 970 1,678 4,395
============= ============= ============= =============
Depreciation
At 24 February 2019 - - - -
Charged to the income
statement 215 166 407 788
Disposals - - (3) (3)
------------- ------------- ------------- -------------
At 31 August 2019 215 166 404 785
Charged to the income
statement 338 169 401 908
Disposals (38) (7) (36) (81)
------------- ------------- ------------- -------------
At 29 February 2020 515 328 769 1,612
Charged to the income
statement 272 169 359 800
Disposals (89) - (17) (106)
At 29 August 2020 698 497 1,111 2,306
============= ============= ============= =============
Net Book Value
At 29 August 2020 1,049 473 567 2,089
============= ============= ============= =============
The group is undertaking a property rationalisation programme as the majority of the properties it leases are not being used due to the restrictions of Covid-19. The resulting assessment of the discount forecast cash flows show headroom and thus no indication of impairment.
11. TRADE AND OTHER RECEIVABLES
Amounts receivable from customers
29.8.20 31.8.19 29.2.20
GBP'000 GBP'000 GBP'000
Amounts falling due within one year:
Net receivable from advances
to customers 54,864 72,010 72,171
Amounts falling due after one year:
Net receivable from advances
to customers 687 198 657
-------- ----------------- --------
Net loan book 55,551 72,208 72,828
Other debtors 2,962 1,555 1,718
Prepayments 3,356 2,532 3,039
-------- ----------------- --------
Trade and other receivables 61,869 76,295 77,585
-------- ----------------- --------
The fair value of the loan book not presented at fair value in the balance sheet is GBP75,787k (H1 FY20 - GBP98,857k) (YE FY20 - GBP113,513k).
An analysis of receivables by IFRS 9 stages
is set out below:
29 August 2020
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Gross carrying value 48,340 23,234 24,553 96,127
Loan Loss Provision (7,274) (12,547) (20,755) (40,576)
Net receivables 41,066 10,687 3,798 55,551
--------- ---------- --------- ---------
29 February 2020
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Gross carrying value 60,346 34,602 25,998 120,946
Loan Loss Provision (9,110) (16,887) (22,121) (48,118)
Net receivables 51,236 17,715 3,877 72,828
--------- ---------- --------- ---------
31 August 2019
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Gross carrying value 59,872 30,337 33,445 123,654
Loan Loss Provision (8,732) (13,898) (28,816) (51,446)
Net receivables 51,140 16,439 4,629 72,208
--------- ---------- --------- ---------
12. BANK AND OTHER BORROWINGS
Group
-------------------------------------
29.8.20 29.2.20 31.8.19
GBP'000 GBP'000 GBP'000
Bank loans 14,000 34,000 23,000
Unamortised arrangement fees (310) (162) (293)
-------- ----------------- --------
13,690 33,838 22,707
======== ================= ========
In November 2018 the Company signed a GBP10,000,000 loan facility to bring its total revolving credit facilities to GBP50,000,000. In addition, the Company has also signed a GBP15,000,000 mezzanine facility of which GBP5,000,000 is committed and GBP10,000,000 is uncommitted. No fees were incurred in relation to these transactions and prior arrangement fees continue to be amortised over the life of the arrangements.
In April 2020 an extension of the funding arrangement from August 2020 to the end of November 2021 was signed with the incumbent lender consortium and further extended to the end of December 2021 in December 2020. The facility limit was reduced from GBP55m committed to GBP40m to better match the needs of the business post Covid-19. By reducing this unused headroom and repaying the GBP5m mezzanine layer, non-utilisation charges for any given level of borrowing will be reduced and therefore the overall cost of funding.
Total bank and other borrowings, including unamortised arrangement fees, are GBP13,690,415 as at 29 August 2020 (31 August 2019: GBP22,707,000).
Funding totalling GBP20,000,000 was repaid against the loan facility during the period, in line with the terms of the loan agreement.
13. RESERVES
Details of the movements in reserves are set out in the statement of changes in equity. Share capital as at 29 August 2020 amounted to GBP1,312,000 (31 August 2019: GBP1,310,000).
14. RELATED PARTY TRANSACTIONS
Hay Wain Group Limited holds a 36.8% interest in the Company. The Directors consider there to be no ultimate Parent Company. Shelby Finance Limited and Shopacheck Financial Services Limited are subsidiaries of Morses Club PLC. U Holdings Limited is a subsidiary of Shelby Finance Limited.
The Company undertook the following transactions with Hay Wain Group Limited and Shelby Finance Limited during the period:
Dividends
Received
/ (Paid)
GBP'000
26 Weeks ended 29 August 2020
Hay Wain Group Limited -
----------
-
==========
27 Weeks ended 31 August 2019
Hay Wain Group Limited (2,480)
----------
(2,480)
==========
26 Weeks ended 25 August 2018
Hay Wain Group Limited (2,287)
----------
(2,287)
==========
At the period-end the following balances
were outstanding
29-Aug-20 31-Aug-19 29-Feb-20
GBP'000 GBP'000 GBP'000
---------------------------------- ---------- ---------- ----------
Hay Wain Holdings Limited - - -
Hay Wain Group Limited - - -
Shopacheck Financial Services
Limited (1,321) (1,321) (1,321)
Shelby Finance Limited 19,916 13,782 20,448
----------------------------------- ---------- ---------- ----------
Amounts owed from / (to) Related
Parties 18,595 12,461 19,127
----------------------------------- ---------- ---------- ----------
15. CONTINGENT LIABILITY
As disclosed in the Annual Report and Accounts for February 2020, the directors are aware of a contingent liability in connection with a claim against Shelby Finance Limited ("Shelby"). This relates to the acquisition of U Holdings Limited which in turn had acquired certain assets of Ffrees Family Finance Limited (in Administration) ("FFFL"). The Administrator of FFFL has asserted that the acquisition of U Holdings by Shelby Finance Limited has triggered an anti-embarrassment clause in their sale document of FFFL to Shelby, and that a further sum of GBP850k is due to them.
The directors do not believe that the administrators of FFFL have a valid claim since they are basing it on wording that does not appear in the sale document. However, in a preliminary hearing held in July 2020, the Master determined that the contract could be re-written, and that Shelby Finance should place the disputed sum of GBP850k into an escrow account. Shelby Finance has appealed this decision, their legal advisors believe there to have been a material error on the part of the Master and remain confident that the claim is baseless. However, given the Master's initial verdict, there is a chance of the liability arising and therefore a contingent liability has been disclosed. There has been no change regarding this since the publication of the Annual Report and Accounts.
Alternative performance measures
This Interim Report and Financial Statements provides alternative performance measures (APMs) which are not defined or specified under the requirements of International Financial Reporting Standards. 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 where relevant and a glossary indicating the APMs that we use, an explanation of how they are calculated and why we use them.
Closest
Statutory
APM Measure Definition and Purpose
--------------------- ----------- -------------------------------------------------
Income Statement
Measures
--------------------- ----------- -------------------------------------------------
Impairment as None Impairment as a percentage of revenue
% of Revenue (%) is reported impairment divided by reported
revenue and represents a measure of credit
quality that is used across the business
and within the sector.
--------------------- ----------- -------------------------------------------------
Normalised adjusted None Impairment as a % of revenue adjusted
impairment as for the impact of Covid-19 which was
% of Revenue (%) reported as a post balance sheet event
in the FY20 annual accounts
--------------------- ----------- -------------------------------------------------
Agent Commission None Agent commission, which is included in
as % of Revenue cost of sales, divided by reported revenue.
(%) This calculation is used to measure operational
efficiency and the proportion of income
generated which is paid to agents
--------------------- ----------- -------------------------------------------------
Cost / Income None The cost-income ratio is cost of sales
Ratio or Operating and administration expenses, excluding
Cost ratio (%) exceptional items, finance costs and
amortisation divided by reported revenue.
This is used as another efficiency measure
of the company's cost base.
--------------------- ----------- -------------------------------------------------
H1 FY20 cost base None As U Holdings Limited was acquired at
comparison the end of June 2019, the costs of digital
banking are only included in two months
of the prior year figures. In order to
provide a like for like comparison with
the current half year figures, the costs
in the accounts for March to June 2019
were increased by the average Digital
Banking costs for July and August 2019
of GBP375k per month.
--------------------- ----------- -------------------------------------------------
Credit Issued None Credit issued is the principal value
(GBPm) of loans advanced to customers and is
an important measure of the level of
lending in the business.
--------------------- ----------- -------------------------------------------------
Sales Growth (%) None Sales growth is the period-on-period
change in Credit Issued
--------------------- ----------- -------------------------------------------------
Normalised operating Operating Operating profit per the Income Statement
profit Profit adjusted for the impact of Covid-19 which
was reported as a post balance sheet
event in the FY20 annual accounts
--------------------- ----------- -------------------------------------------------
Adjusted Profit Profit Profit Before Tax per the Income statement
Before Tax (GBPm) Before adjusted for exceptional costs, non-recurring
Tax costs and amortisation of goodwill and
acquisition intangibles. This is used
to measure ongoing business performance.
--------------------- ----------- -------------------------------------------------
Normalised adjusted Profit Profit Before Tax per the Income statement
Profit Before Before adjusted for; exceptional costs, non-recurring
Tax (GBPm) Tax costs, amortisation of goodwill and acquisition
intangibles and the PBSE reported in
the FY20 accounts. This is used to measure
ongoing business performance.
--------------------- ----------- -------------------------------------------------
Adjusted Earnings Earnings Adjusted Profit After Tax divided by
Per Share Per Share the weighted average number of shares.
This gives a better reflection of underlying
earnings generated for shareholders
--------------------- ----------- -------------------------------------------------
Reconciliation of Statutory Profit Before Tax to Adjusted
profit before tax and explanation of Adjusted EPS
-----------------------------------------------------------------------------------------------------------
GBP'm (unless otherwise stated) 26-week 27-week Increase
period ended period ended
29 August 31 August
2020 2019
Statutory Profit Before Tax 0.8 6.7 (88.1%)
========================== ========================= =========
Amortisation of acquired intangibles(2) 0.2 0.5 (60.0%)
========================================= ========================== ========================= =========
Gain arising on acquisitions - (0.6) n/a
========================================= ========================== ========================= =========
Non-recurring costs(3) 1.3 3.0 n/a
========================================= ========================== ========================= =========
Adjusted Profit Before Tax(1) 2.3 9.6 (76.0%)
========================== =========
Tax on Adjusted Profit Before Tax (0.4) (1.9) (78.9%)
========================================= ========================== ========================= =========
Adjusted Profit After Tax 1.8 7.7 (76.6%)
=========
Adjusted EPS(1) 0.6 5.9 (89.8%)
========================================= ========================== ========================= =========
Adjusted Return on Assets(1) 9.9% 24.0% (58.8%)
=========
Adjusted Return on Equity(1) 13.4% 28.4% (52.8%)
========================================= ========================== ========================= =========
1 Definitions are set out in the Glossary of Alternative Performance Measures
2 Amortisation of acquired customer lists and agent networks
3 Includes redundancy, professional fees and property rationalisation expenses
26 weeks 27 weeks 53 weeks
ended 29.8.20 ended ended
31.8.19 29.2.20
GBP'000 GBP'000 GBP'000
Adjusted basic earnings per share
Basic earnings 603 5,388 9,477
Amortisation of acquisition intangibles 175 508 1,222
Gain arising on acquisitions - (584) -
Non-recurring (income)/costs 1,378 2,990 2,822
Tax effect of the above (431) (554) (1,173)
Normalised Adjusted earnings
after tax 1,725 7,748 12,349
=================== ========= =========
Covid-19 adjustments to impairment - (1,669)
Tax effect of the above - - 317
Adjusted earnings 1,725 7,748 10,996
=================== ========= =========
Weighted average number of shares
for the purposes of 131,244 130,462 130,531
=================== ========= =========
basic earnings per share ('000s)
=================== ========= =========
Normalised Adjusted earnings
per share amount (pence) 1.3p 5.9p 9.5p
=================== ========= =========
Adjusted earnings per share amount
(pence) 0.6p 5.9p 8.4p
=================== ========= =========
Closest
Statutory
APM Measure Definition and Purpose
----------------------- ----------- ----------------------------------------------------
Balance sheet
and returns measures
----------------------- ----------- ----------------------------------------------------
Tangible Equity Equity Net Assets less intangible assets less
(GBPm) acquisition intangibles.
----------------------- ----------- ----------------------------------------------------
Adjusted Return None Calculated as adjusted profit after tax
on Equity (%) divided by rolling 12 month average of
tangible equity. This calculation has been
adjusted to an IFRS 9 basis. It is used
as a measure of overall shareholder returns
adjusted for exceptional items. This is
presented within the interim report as
the directors believe they are more representative
of the underlying operations of the business
----------------------- ----------- ----------------------------------------------------
Adjusted Return None Calculated as adjusted profit after tax
on Assets (%) divided by 12 month average Net Loan Book.
This calculation has been adjusted to an
IFRS 9 basis. It is used as a measure of
profitability generated from the loan book.
Net Loan Book is Amounts owing from customers
less provisions for deferred income and
impairments. This is presented within the
interim report as the directors believe
they are more representative of the underlying
operations of the business
----------------------- ----------- ----------------------------------------------------
Tangible Equity None Net Assets less intangible assets less
/ Average Receivables acquisition intangibles divided by 12 months
Ratio (%) average receivables. This calculation has
been adjusted to an IFRS 9 basis.
----------------------- ----------- ----------------------------------------------------
Adjusted Return on Assets and
Adjusted Return on Equity
GBPm to Aug 20 to Aug 19
----------
Adjusted Profit After Tax (Rolling
12 months) 6.6 17.2
------------------- ----------
12 month average Net Loan Book 67.3 71.7
------------------- ----------
Adjusted Return on Assets 9.9% 24.1%
------------------- ----------
12 month average Equity 49.5 60.6
------------------- ----------
Adjusted Return on Equity 13.4% 28.4%
------------------- ----------
Other measures
----------------------- ------------ -----------------------------------------------
Customers None Customers who have an active loan and from
whom we have received a payment of at least
GBP3 in the last 17 weeks.
----------------------- ------------ -----------------------------------------------
Agents None Agents are self-employed individuals who
represent the Group's subsidiaries and
are engaged under an agency agreement.
----------------------- ------------ -----------------------------------------------
Cash from Operations Cash from Cash from Operations (excluding investment
(excluding investment Operations in the loan book) is Cash from Operations
in loan book) excluding the growth in the loan book due
(GBPm) to either acquisition or movement in the
net receivable otherwise (see reconciliation
below).
----------------------- ------------ -----------------------------------------------
Adjusted Net Margin None Adjusted Profit before tax (which excludes
amortisation of intangibles on acquisitions,
the one-off costs of the IPO and other
non-operating costs) divided by reported
revenue. This is used to measure overall
efficiency and profitability.
----------------------- ------------ -----------------------------------------------
Cash from funding None Cash from Funding is the increase / (decrease)
(GBPm) in the Bank Loan balance.
----------------------- ------------ -----------------------------------------------
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END
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