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NSF Non-standard Finance Plc

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Share Name Share Symbol Market Type Share ISIN Share Description
Non-standard Finance Plc LSE:NSF London Ordinary Share GB00BRJ6JV17 ORD GBP0.05
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Non-Standard Finance PLC Audited full year results to 31 December 2022 (8457X)

28/04/2023 8:21am

UK Regulatory


Non-standard Finance (LSE:NSF)
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TIDMNSF

RNS Number : 8457X

Non-Standard Finance PLC

28 April 2023

PRESS RELEASE

Non-Standard Finance plc

('Non-Standard Finance', 'NSF', the 'Company' or the 'Group')

Audited full year results to 31 December 2022

28 April 2023

-- The Group continued to face significant regulatory and financial challenges in 2022, many of which have continued into 2023.

-- The Net loan book of the Group reduced from GBP208m to GBP177m as a result of the administration of the home credit division and continued collect out of guarantor loans. Despite the ongoing uncertain macroeconomic and regulatory environment, the net loan book of the branch-based lending division increased by 6% from GBP157.2m to GBP167.0m.

   --    Normalised and reported revenue was down 25% to GBP98.3m (2021: GBP131.4m) 
   --    Normalised loss before tax of GBP24.6m (2021: normalised loss before tax of GBP16.7m) 

-- Total exceptional charges of GBP31.8m (2021: GBP12.9m) meant that the reported loss before tax was GBP56.4m (2021: reported loss of GBP29.6m).

-- Following the impact of the Covid-19 pandemic and regulatory issues, the home credit division went into administration on 15 March 2022.

-- Regulatory reviews resulted in the guarantor loans division being placed into managed run-off in 2021.

-- The launch of a scheme of arrangement (the "Scheme") in March 2023 is designed to reach a resolution with regard to the payment of redress to customers with valid claims both in respect of the guarantor loans division and the branch-based lending division (although there were no systemic issues with branch-based lending, claims in relation to the division have been included in the Scheme to ensure an equitable treatment of customers).

-- Should the Scheme be sanctioned, the Group's intention is to proceed with its planned restructuring and recapitalisation (the "Proposed Recapitalisation") to fund the partial payment of redress claims, restore the Group's balance sheet and return the branch-based business to profitable trading.

-- The Proposed Recapitalisation has the support in principle of NSF's largest shareholder and the Group's secured lenders, subject to agreement on the terms and other conditions described below and, in the case of NSF's largest shareholder, further diligence on and its assessment of the Group's revised business plan and financial projections. Completion of the Proposed Recapitalisation is subject to the agreement of terms between lenders and the Group's largest shareholder, and a number of conditions, including Court sanction of the Scheme, shareholder approval, the take-up of shares under the equity raise and execution of definitive documents. Assuming all the above outlined conditions are satisfied ("the Conditions") NSF expects the Proposed Recapitalisation to complete at the end of Q2 2023 or the start of Q3 2023.

-- The Group has also agreed with its secured lenders to implement an alternative transaction (the "Alternative Transaction") if the Scheme is sanctioned but the Conditions to the Proposed Recapitalisation are not satisfied and / or the Proposed Recapitalisation fails, which would preserve the Group's branch-based lending business as a going concern but which, if implemented, would result in no recovery for the Group's current shareholders,

-- Should the Scheme fail, there would be a material risk of the entire Group becoming insolvent.

-- Cash balances decreased to GBP32.8 million (2021: GBP114.6 million) predominantly because of the repayment of the Group's revolving credit facility and a repayment towards the debt facility.

-- Whilst the Group's loan to value ratio was higher than the level permitted under its loan to value covenant at each quarter end in 2022, it remains a going concern and has received temporary waivers to enable it to pursue a Scheme and raise additional capital which would reduce loan to value levels, fund customer redress, and strengthen the Group's balance sheet.

-- Current trading - Since the start of 2023 we have seen growth in loan issuance in branch-based lending and better than expected collection performance, and are consequently trading ahead of budget.

Financial summary

 
                                         2022      2021 
  Year to 31 December                  GBP000    GBP000  % change 
-----------------------------------  --------  --------  -------- 
  Normalised revenue(1)                98,337   131,387      -25% 
  Reported revenue                     98,337   131,387      -25% 
 
  Normalised operating profit(1)        4,460     9,299      -52% 
  Reported operating profit             4,460     7,092       37% 
 
                                                             -47% 
  Normalised loss before tax(1)      (24,591)  (16,680)       (3) 
                                                             -90% 
  Reported loss before tax           (56,359)  (29,610)       (3) 
 
                                                             -47% 
  Normalised loss after tax(1)       (24,591)  (16,755)       (3) 
                                                             -90% 
  Reported loss after tax            (56,359)  (29,685)       (3) 
 
                                                             -47% 
  Normalised earnings per share(2)    (7.87)p   (5.36)p       (3) 
                                                             -90% 
  Reported (loss) per share          (18.04)p   (9.50)p       (3) 
 
  Full-year dividend per share          0.00p     0.00p        0% 
-----------------------------------  --------  --------  -------- 
 

1 See glossary of alternative performance measures and key performance indicators in the Appendix.

2 Basic and diluted (loss) earnings per share is calculated as normalised loss after tax of GBP(24.6)m (2021: GBP(18.6)m) divided by the weighted average number of shares in issue of 312,437,422 (2021: 312,437,422).

3 Adverse movement.

Jono Gillespie, Group Chief Executive Officer, said

"Despite facing ongoing regulatory and liquidity challenges throughout the year, the underlying performance of Everyday Lending Ltd (trading as Everyday Loans) was pleasing as it sought to rebuild the loan book.

The Group is working hard to resolve the regulatory challenges faced with the convening hearing for the Group's Scheme of Arrangement taking place later today.

Having worked extensively with the Scheme Customer Committee, our lenders and key shareholder to reach a sustainable solution for the business and partial payment of customer redress, we are hopeful that the Scheme will progress and be sanctioned.

We are hopeful that the Scheme process will conclude towards the end of June 2023 and that this will then enable us to proceed with the recapitalisation of the business, through either the Proposed Recapitalisation or Alternative Transaction as previously announced.

If successful, the Proposed Recapitalisation or Alternative Transaction fund the partial payment of redress claims and underpin the future growth of the Group's branch-based lending business - Everyday Loans.

The Group's loan to value ratio was higher than the levels permitted at each quarter end in 2022, but we have continued to trade throughout with the support of our secured lenders, who have granted fortnightly waivers (currently until 17 May 2023) pending a conclusion to the Scheme process and the recapitalisation (or alternative lender-led transaction).

If the Scheme is not sanctioned by the Court, or the Scheme is sanctioned but the Proposed Recapitalisation and the Alternative Transaction fail, then the Group would remain insolvent and the most likely outcome would be a Group-wide insolvency (most likely administration), resulting in no return for the current shareholders, a significantly reduced return for secured lenders and minimal or no cash recovery for customers with valid redress claims. In the event that the Scheme is sanctioned, and the Alternative Transaction takes place (due to the failure of the Proposed Recapitalisation), there would be no recovery for the Company's shareholders.

It is clear that consumers face a difficult period as the cost of living crisis continues. However, experience suggests this could increase the demand for credit and present a significant opportunity for companies in a non-standard credit sector that fulfils a vital role by supporting millions of consumers who have limited savings. Previous recessions have shown that prime lenders tend to be particularly risk averse, tightening their lending criteria and leaving a large and expanding pool of higher quality applicants seeking access to regulated and responsible credit markets. Assuming we are able to raise capital as planned, the Group will be well placed to serve any such increase in demand."

Context for results

On 15 March, 2022 it was announced that the Group's home credit division had gone into administration and so the 2022 results include the home credit division up to 14 March 2022, after which the division was derecognised from the Group in line with IFRS accounting standards. The results therefore include exceptional items totalling GBP19.4m in relation to the derecognition and impairments associated with the home credit division. Exceptional items also include GBP12.4m in relation to the Scheme being pursued by the Group with further detail provided below (refer note 6 to the financial statements for further information).

Normalised divisional results

The table below provides an analysis of the 'normalised' results for the Group for the 12-month period to 31 December 2022. Management believes that by removing the impact of exceptional items, the normalised results provide a clearer view of the underlying performance of the Group

 
                          Branch-based               Guarantor    Central 
Year ended 31 Dec              lending  Home credit      loans      costs      Group 
 2022 Normalised(1)             GBP000       GBP000     GBP000     GBP000     GBP000 
------------------------  ------------  -----------  ---------  ---------  --------- 
Revenue                         84,470        7,315      6,552          -     98,337 
Other operating income             173            -          -          -        173 
Modification loss                (250)            -       (12)          -      (262) 
Derecognition loss                   -                       -          -          - 
Impairments                   (26,704)      (2,781)      1,595          -   (27,890) 
Administration expenses       (50,493)      (5,065)    (7,300)    (3,040)   (65,898) 
------------------------  ------------  -----------  ---------  ---------  --------- 
Operating profit/(loss)          7,196        (531)        835    (3,040)      4,460 
Finance cost                  (14,925)        (257)    (2,000)   (11,869)   (29,051) 
------------------------  ------------  -----------  ---------  ---------  --------- 
Loss before tax                (7,729)        (788)    (1,165)   (14,909)   (24,591) 
Taxation                         (102)          123          -       (21)          - 
------------------------  ------------  -----------  ---------  ---------  --------- 
Loss after tax                 (7,831)        (665)    (1,165)   (14,930)   (24,591) 
------------------------  ------------  -----------  ---------  ---------  --------- 
 
Normalised loss per 
 share                                                                       (7.87)p 
Dividend per share                                                             0.00p 
------------------------  ------------  -----------  ---------  ---------  --------- 
 
 
                          Branch-based               Guarantor    Central 
Year ended 31 Dec              lending  Home credit      loans      costs      Group 
 2021 Normalised(1)             GBP000       GBP000     GBP000     GBP000     GBP000 
------------------------  ------------  -----------  ---------  ---------  --------- 
Revenue                         79,940       38,401     13,046          -    131,387 
Other operating income             384          587          1         11        983 
Modification loss              (1,383)            -    (1,478)          -    (2,861) 
Derecognition loss                   -                       -          -          - 
Impairments                   (18,994)      (6,230)      1,061          -   (24,163) 
Administration expenses       (46,294)     (34,962)   (10,695)    (4,096)   (96,047) 
------------------------  ------------  -----------  ---------  ---------  --------- 
Operating profit/(loss)         13,653      (2,204)      1,935    (4,085)      9,299 
Finance cost                  (14,491)      (1,102)    (4,350)    (6,036)   (25,979) 
------------------------  ------------  -----------  ---------  ---------  --------- 
Loss before tax                  (838)      (3,306)    (2,415)   (10,121)   (16,680) 
Taxation                            48          158        299      (580)       (75) 
------------------------  ------------  -----------  ---------  ---------  --------- 
Loss after tax                   (790)      (3,148)    (2,116)   (10,701)   (16,755) 
------------------------  ------------  -----------  ---------  ---------  --------- 
 
Normalised loss per 
 share                                                                       (5.36)p 
Dividend per share                                                             0.00p 
------------------------  ------------  -----------  ---------  ---------  --------- 
 

(1) See glossary of alternative performance measures and key performance indicators in the Appendix.

 
 Net loan book           31 December   31 December 
                                2022          2021 
                                GBPm          GBPm 
----------------------  ------------  ------------ 
 Branch-based lending          167.0         157.2 
 Guarantor loans                10.1          26.8 
 Home credit(2)                    -          24.0 
----------------------  ------------  ------------ 
 Total                         177.1         208.0 
----------------------  ------------  ------------ 
 

(2) Home credit division placed into administration on 15 March 2022 and therefore derecognised from the Group.

Online presentation on 28 April 2023

There will be webcast presentation of the results at 09:30 on 28 April 2023 given by Jono Gillespie, Group Chief Executive. To access the webcast, please register here or via the Group's website or dial in using the number below . A copy of the slides presented will also be available on the Group's website, http://www.nsfgroupplc.com later today.

For more information:

 
 Non-Standard Finance plc 
  Jono Gillespie Group Chief Executive 
  Sarah Day Group Company Secretary and Chief         +44 (0) 20 3869 
  ESG Officer                                          9020 
 H/Advisors Maitland 
  Neil Bennett                                        +44 (0) 20 7379 
  Finlay Donaldson                                     5151 
 

Group Chief Executive's Report

Summary

The past year presented several challenges for the Group as we sought to resolve a number of outstanding regulatory issues, dealt with the impact of rising inflation and an uncertain UK economic environment on our operations whilst also managing the impact on our balance sheet which remains in a net liabilities position.

Following the reviews which started with the FCA's multi-firm review into the guarantor loan business in March 2020, it also became clear that Loans at Home, the Group's home credit business (trading out of the legal entity S.D.Taylor Limited), was no longer viable and so it went into administration on 15 March 2022. Whilst deeply saddened and disappointed with this outcome, it was clear that administration was the only option available to preserve value for creditors. As the operations and activities of Loans at Home were separate from the rest of the Group, the Board of NSF confirms that, having received certain waivers from the Group's secured lenders, the administration of Loans at Home has had minimal impact on the rest of the Group's business.

In addition, the Group has been in the process of developing an appropriate redress scheme for Guarantor Lending customers since August 2020 and more latterly development of the Scheme since June 2022 to address redress claims in relation to its historical unaffordable lending. As noted in the 2022 half year announcement, although the independent review of the branch-based lending division carried out in 2021 identified no systemic issues requiring redress, as this division and the guarantor loans division (now in collect-out) trade out of the same legal entity (Everyday Lending Limited), the Scheme encompasses potential claims from both divisions in order to ensure equitable treatment of customers. The practice statement letter for the scheme was published on 17 March 2023 and the Board considers that there is a reasonable prospect of the Scheme being successfully sanctioned by the Court.

Due to the developments described above, the Group is seeking to progress the Proposed Recapitalisation or Alternative Transaction in readiness, should the Court sanction the Scheme. As the Group's loan to value ratio during the year was higher than the level allowed under its loan to value covenant, the Group has received the requisite waivers and extensions to avoid a covenant breach so that it can progress with the Scheme and, if successfully sanctioned by the Court, the Proposed Recapitalisation. The Group's secured lenders continue to provide temporary waivers and have expressed their support for the business. As such, they have agreed to enter into the Alternative Transaction in the event that the Scheme is successfully sanctioned, but that the Conditions, to the Proposed Recapitalisation are not satisfied, such that the branch-based lending business would be preserved as a going concern, but which, if implemented, would result in no recovery for the Group's current shareholders and the Company (ultimate parent company) may enter into an insolvency process . Both the Proposed Recapitalisation and the Alternative Transaction include both significant debt write offs and extensions to the term of the Group's existing debt facilities to support the business going forward.

The Group's strong market position, in combination with a number of both external and internal profit drivers, means that the Board is confident that, subject to the timely completion of the Proposed Recapitalisation or Alternative Transaction (which themselves are subject to the sanctioning of the Scheme and the Conditions), the prospects for branch-based lending remain positive, driven by a planned recovery of ground lost over the past two years that should result in a marked improvement in the Group's financial performance. Further details regarding our future plans can be found in the 2022 financial review below.

Whilst there remain a number of material uncertainties which may cast significant doubt on the ability of both the Group and Company to continue as a going concern and remain viable, it remains the Directors' reasonable expectation that, if the Scheme and the subsequent Proposed Recapitalisation go ahead, the Group and Company will have raised sufficient capital in the timeframe required and will continue to operate and meet their respective liabilities as they fall due for the next 12 months and beyond. The Board has therefore concluded that, whilst a material uncertainty remains, the business is viable and remains a going concern.

If successful, the Proposed Recapitalisation or Alternative Transaction will reduce high levels of gearing, fund the partial payment of redress claims and underpin the future growth of the Group's branch-based lending business. In addition, whilst there would be no need for access to further debt funding beyond the extension of the term of the Group's existing debt facilities in the short term, given the significant cash balance that would then be at the Group's disposal, it is hoped that in due course, the Group would be better placed to broaden its sources of debt funding.

Without the successful completion of the Scheme and the Proposed Recapitalisation (or the Alternative Transaction in the event the Conditions, to the Proposed Recapitalisation are not satisfied, which, if implemented, would result in no recovery for the Group's current shareholders and the Company (ultimate parent company) may enter into an insolvency process ), the balance sheet remains deeply insolvent. In the event that the Scheme is not sanctioned by the court, or in the event that both the Proposed Recapitalisation and the Alternative Transaction fail, there would be a very significant likelihood of a Group-wide insolvency (most likely administration), resulting in no return for current shareholders and a significantly reduced return for secured lenders. However, the Directors continue to believe there is a reasonable prospect of resolving this position through the Scheme, which was recently launched on 17 March 2023, and the Proposed Recapitalisation with the Group's largest shareholder and secured lender support, which remains subject to the Conditions, or, in case of the Alternative Transaction, the support of the secured lenders (noting, as above, that the Alternative Transaction may result the Company (ultimate parent company) entering into an insolvency process).

2022 full year results

Since emerging from the effects of the pandemic, a new set of economic challenges has presented itself, particularly the inflationary environment causing a cost-of-living crisis. However, these circumstances have proven to be supportive for the need for non-standard finance and created a liquidity gap for those not served by traditional lenders.

The Group reported an increased normalised loss before tax of GBP24.6m (2021: normalised loss before tax of GBP16.7m). Once again, the full year results were impacted by a number of non-operating items as well as the home credit division being placed into administration and derecognised from the Group on 15 March 2022. The guarantor loans division collect out continues to progress well whilst the b ranch-based lending business continues to deliver good financial performance driven by higher revenues and loan book growth. Group revenues decreased 25% from GBP131.4m to GBP98.3m due to the aforementioned derecognition of the home credit division in Q1 and collect out of guarantor loans, however this was partly offset by the higher revenue at branch-based lending which increased 6% to GBP84.5m (2021: GBP79.9m) as a result of higher revenue yields, with yields having reduced during 2020 and 2021 following an increase in the number of customers utilising forbearance measures during the pandemic. Impairments at branch-based lending were higher in the current period at GBP26.7m (2021: GBP19.0m) due to 2021 benefitting from lower lending volumes, however despite this, collections performance remained strong throughout 2022. Administrative expenses for the Group were lower by 31% at GBP65.9m (2021: GBP96.0m) as 2021 included a full year of the home credit division. Excluding this, the Group saw savings in expenses at its guarantor loans division with a decrease of 32% to GBP7.3m (2021: GBP10.7m) as the division continues to wind down and savings in staff costs, professional fees and complaints costs are realised . The branch-based lending division however saw increased spend on employee costs following investment in expanding the operational headcount to drive the growth in new lending resulting in administrative expenses increasing by 9%. The Group also remains in a net liability position, due to the net losses over the past few years, the derecognition of the home credit division and the continued non-recognition of deferred tax assets. The Group is progressing with plans to resolve its regulatory issues via the Scheme and support from the Group's secured lenders and largest shareholder (subject to the Conditions), means the Board continue to believe that there is a reasonable prospect of resolving the current position subject to the implementation of the Scheme and the Proposed Recapitalisation (or the Alternative Transaction) .

A summary of the other key performance indicators for each of our businesses for 2022 is shown below:

 
Key performance indicators(1)       Branch-based  Guarantor 
 Year ended 31 Dec 22                    lending   loans(3) 
----------------------------------  ------------  --------- 
Loan book growth                            6.2%    (62.1)% 
Revenue yield                              52.3%      38.3% 
Risk adjusted margin                       35.8%      47.7% 
Impairments/revenue                        31.6%    (24.4)% 
Impairments/average net loan book          16.5%     (9.3)% 
Cost: income ratio                         59.8%     111.4% 
Operating profit margin                     8.5%      12.8% 
Return on assets                            4.5%       4.9% 
----------------------------------  ------------  --------- 
 
 
Key performance indicators(1)       Branch-based                  Guarantor 
 Year ended 31 Dec 21                    lending  Home credit(2)   loans(3) 
----------------------------------  ------------  --------------  --------- 
Loan book growth                          (8.3)%         (10.8)%    (55.2)% 
Revenue yield                              48.8%          157.2%      32.1% 
Risk adjusted margin                       37.2%          131.7%      34.7% 
Impairments/revenue                        23.8%           16.2%     (8.1)% 
Impairments/average net loan book          11.6%           25.5%     (2.6)% 
Cost: income ratio                         57.9%          91.0 %      82.0% 
Operating profit margin                    17.1%        ( 5.7 )%      14.8% 
Return on assets                            8.3%        ( 9.0 )%       4.8% 
----------------------------------  ------------  --------------  --------- 
 

1 See glossary of alternative performance measures and key performance indicators in the Appendix.

2 The home credit division went into administration on 15 March 2022.

3 The Guarantor Loans Division was placed into managed run-off on 30 June 2021 and did not issue any new loans in 2021 and 2022.

The reduction in the net loan book from the collect out of the guarantor loans division and administration and subsequent derecognition of the home credit division was the main driver behind the 25% reduction in normalised and reported revenue to GBP98.3m (2021: GBP131.4m). Higher interest rates in 2022 also contributed to 12% higher finance costs in the year. This meant that the Group produced a normalised loss per share of 7.87p (2021: normalised loss per share of 5.36p).

The Group's 2022 and 2021 reported, or statutory results were both affected by exceptional items, a summary of which is shown in the table below. The 2022 results saw greater impact from the derecognition and impairments related to the home credit division and the provision for customer redress and scheme costs.

 
Year ended 31 December                                        2022       2021 
 Exceptional items                                          GBP000     GBP000 
-------------------------------------------------------  ---------  --------- 
Advisory fees                                                    -    (1,580) 
Write down of balance sheet relating to home credit 
 division                                                        -    (8,542) 
Loss on derecognition of the home credit division          (5,647)          - 
Impairment of intercompany receivable with home credit    (13,714) 
 division                                                                   - 
Scheme of arrangement customer redress and costs          (12,407)    (2,207) 
Restructuring costs                                              -      (601) 
-------------------------------------------------------  ---------  --------- 
Total                                                     (31,768)   (12,930) 
-------------------------------------------------------  ---------  --------- 
 

The Group reported a statutory loss before interest and tax of GBP27.3m (2021: loss before interest and tax of GBP3.6m) and a statutory loss before tax of GBP56.4m (2021: GBP29.6m).

A summary of the performance of each division in 2022 is given below with further details in the 2022 financial review.

Branch-based lending

While the impact of the pandemic on lending volumes meant that the net loan book declined in both 2020 and 2021, the positive recovery in lending volumes has resulted in the net loan book returning to growth in 2022 and it ended the year up 6% at GBP167.0m (2021: GBP157.2m). We continually look to enhance our lending processes, including the assessment of creditworthiness and the refinement of credit scorecards and strategies. Whilst acutely aware of the cost-of-living crisis, the collections performance of the business remains ahead of expectation with customer payment levels particularly strong, whilst early settlements continue below pre-pandemic levels. Delinquency performance has returned to historically normal levels. The nature of IFRS 9 accounting meant that lower lending volume in the prior years also helped to reduce impairment charges however, as lending volumes have continued to recover throughout 2022, impairment rates are gradually seeing a corresponding reversal of the recent low levels, though remain below expectations. The result of this was the division reported a normalised operating profit of GBP7.2m (2021: GBP13.7m). The impact of higher finance costs and exceptional costs relating to the Scheme meant the division reported a statutory loss before tax of GBP20.1m (2021: loss before tax of GBP0.8m).

The Board continues to believe that the branch-based lending division has potential for future growth once the Group has resolved its outstanding regulatory issues and completed the planned Proposed Recapitalisation or Alternative Transaction (noting, as above, that the Alternative Transaction may result in the Company (ultimate parent company) entering into an insolvency process).

Although the independent review of the Group's branch-based lending business carried out in 2021 identified no systemic issues requiring redress, since this business and the guarantor loans division trade out of the same legal entity (ELL), the Scheme will encompass potential claims from both businesses to ensure equitable treatment of customers. As a result, provisioning for the scheme redress and operational costs have now been included within the branch-based lending reporting.

As outlined below, due to the need to launch the Scheme which encompasses both branch-based lending and guarantor loan customers, to ensure equitable treatment of customers within the same legal entity, an added exceptional charge for Scheme costs and customer redress of GBP12.4m has been recorded in the 2022 accounts.

Home credit

The Group's home credit division, which traded as Loans at Home ('LAH') out of S.D.Taylor Limited, was placed into administration on 15 March 2022. In the first two and a half months of the year the division performed ahead of budget although it delivered a negative contribution with a normalised operating loss of GBP0.5m (2021: normalised operating loss GBP2.2m).

In the current period, exceptional items of GBP5.6m in relation to losses on derecognition of the home credit division were recognised as well as an additional GBP13.7m (2021: GBPnil) of impairments of related receivable balances held with the division in order to reflect the fact that these may not be recovered directly by the Group. Whilst the Group will not recover the balances held directly with LAH following the conclusion of the administration, as LAH remains a guarantor of the Group's financing facilities, proceeds from the administration will be paid directly to its secured lenders, thereby reducing the external debt balance held by the Group at that point. During H2 2022 GBP10m of such proceeds were paid from the LAH administration and a further GBP3m in February 2023.

Guarantor loans

The Group's guarantor loans division was placed into a managed run-off on 30 June 2021. Since then, the Group has continued to collect out its loan book balance with the result that the division delivered a positive contribution to normalised operating profits in the year.

The loan book, net of provisions, has now fallen to GBP10.1 million (2021: GBP26.8m) and the Group continues to focus on collecting out the remaining book. The ELL Directors, supported by the Group Directors, decided to pursue the Scheme to address the Group's redress liabilities. As noted in the 2022 Half Year announcement, although the independent review of the branch based lending division carried out in 2021 identified no systemic issues requiring redress, as this division and the guarantor loans division (now in collect-out) trade out of the same legal entity (ELL), the Scheme encompasses potential claims from both divisions in order to ensure equitable treatment of customers.

The FCA's current views in relation to the Scheme are set out in its letter of 25 April 2023. The FCA has stated that it does not, at this stage, anticipate that it will oppose the Scheme from being sanctioned should the requisite majorities of Scheme Creditors vote in favour of the Scheme. The FCA has confirmed that it does, however, fully reserve its position in respect of the Scheme and its right to object to the Scheme in due course, if the FCA considers it appropriate to do so

Liquidity, funding and going concern

As at 31 December 2022 the Group had cash at the bank of GBP32.8m (2021: GBP114.6m) and gross borrowings of GBP255.0m (2021: GBP330.0m). As at 31 March 2023, cash balances were GBP15.8m and gross borrowings reduced to GBP252m.

The Group's active loan facility comprises a GBP285m term loan facility that matures in August 2023 ('Existing Facilities'), which at the year end had been partially repaid, with GBP255m remaining drawn down at 31 December 2022. Having received appropriate waivers from its secured lenders ensuring that the administration of Loans at Home would have minimal impact on the rest of the Group, the Board and its advisers have discussed and reached agreement on the extension of the existing facilities and the terms under which interest is paid, dependent upon the successful sanctioning of the Scheme.

The Group's multi-year GBP200m securitisation facility, which was undrawn at the start of the year, was closed during the course of the year as it was unlikely to have been available for use, owing to the associated covenant requirements embedded in the facility agreement.

As noted in the 2022 Half Year Results, the Group's subsidiary S.D. Taylor Limited (Loans at Home) was placed into administration on 15 March 2022. As the operations and activities of Loans at Home were separate from the rest of the Group, having received certain waivers from the Group's secured lenders, the administration of Loans at Home has had minimal impact on the existing funding arrangements of the Group.

For the quarters ended 31 March 2022, 30 June 2022, 30 September 2022 and 31 December 2022, the Group's loan to value (LTV) ratio was higher than the level permitted under its LTV covenant. The Group has agreed extensions with its secured lenders such that the LTV covenant will not be formally tested, and no covenant breach or event of default will arise, until the Group provides its compliance certificates for the aforementioned quarter dates. The date on which the Group is required to supply these compliance certificates has been extended until 17 May 2023, with a mechanism for this date to be extended further with lender support.

The Group is now pursuing the Scheme in order to provide certainty as to the amount that will be paid to customers with valid redress claims, which, as explained above, is one of the Conditions to the Group's largest shareholder and secured lenders being willing to participate in the Proposed Recapitalisation (or the Alternative Transaction). Although the independent review of the Group's branch-based lending division carried out in 2021 identified no systemic issues requiring redress, as this division and the guarantor loans division (now in collect-out) trade out of the same legal entity (Everyday Lending Limited), the Scheme encompasses potential claims from both divisions in order to ensure equitable treatment of customers. On 17 March 2023, the Group sent out a practice statement letter to its creditors and a first court hearing is scheduled for 28 April 2023.

The Group and Company can reasonably expect to raise sufficient new capital to enable them to continue to operate and meet their respective liabilities as they fall due for the next 12 months. The Board has therefore adopted the going concern basis of accounting. The Board's position is, in part, informed by the fact that the Group's largest shareholder and secured lenders remain supportive of the Proposed Recapitalisation subject to the Conditions, while the Group also has contractual commitments from its secured lenders to support the Alternative Transaction (noting, as above, that the Alternative Transaction may result in the Company (ultimate parent company) entering into an insolvency process and, that although the Group has contractual commitments from its secured lenders to support the Alternative Transaction, there is a risk that it will not be possible to implement either the Proposed Recapitalisation nor the Alternative Transaction. In these circumstances, if neither the Proposed Recapitalisation or the Alternative Transaction has been implemented by 31 December 2023, it will not be possible to pay the Scheme fund into a nominated trust account and the Scheme will fail ).

In adopting the going concern assumption in preparing the financial statements, the Directors have considered the activities of its principal subsidiaries, as well as the Group's principal risks and uncertainties as set out in the Governance Report and Viability Statement within the Group's 2022 Annual Report.

The assumption of support from the Group's largest shareholder and secured lenders for the Proposed Recapitalisation and the extension of existing financing facilities and the satisfactory conclusion of regulatory and redress matters within or close to the assumptions made in the Group's base case, each as outlined above and in the Conditions, form a significant judgement of the Directors in the context of approving the Group's going concern status (see note 1 to the financial statements).

The Board will continue to monitor the Company and the Group's financial position (including access to liquidity and balance sheet solvency) carefully as a better understanding of the impact of these various factors are developed. The Board recognises the importance of the success of the Scheme and the Proposed Recapitalisation to mitigate the uncertainties noted above and to support the future growth prospects of the Group. If the Scheme was not to be sanctioned or if the Group was otherwise unable to implement the Proposed Recapitalisation (or the Alternative Transaction in the event the Conditions, to the Proposed Recapitalisation are not satisfied) following the successful sanctioning of the Scheme, there would be a material risk of the Group entering insolvency.

Regulation

Concluding all the Group's outstanding regulatory issues has been a key priority over the past 24 months. As previously outlined, whilst the conclusion from the two independent reviews carried out at the request of the FCA was that there was no requirement for systemic customer redress in branch-based lending, the Directors of the Group's home credit business, Loans at Home (trading out of the legal entity S.D. Taylor Limited), reluctantly concluded that it was no longer viable and so the business was put into administration on 15 March 2022. As the operations and activities of Loans at Home are separate from the rest of the Group and following the receipt of certain waivers from the Group's secured lenders. The administration of Loans at Home has had minimal impact on the rest of the Group's business. As a result, the Group is fully committed to the growth of its branch-based lending business.

Scheme

The Group has decided to pursue the Scheme and, as noted in the half year 2022 announcement, although the independent review of the Group-based lending division carried out in 2021 identified no systemic issues requiring redress, as this division and the guarantor loans division (now in collect-out) trade out of the same legal entity (ELL), the Scheme encompasses potential claims from both divisions in order to ensure equitable treatment of customers.

As set out in the Practice Statement Letter as published on 17 March 2023, the Scheme will compromise:

-- subject to certain limited exceptions, the redress claims (i.e. claims in relation to any activity which occurred on or before 31 March 2021 in connection with a loan provided by Everyday Loans, George Banco or Trust Two; and

-- case fees owed to the Financial Ombudsman Service arising from complaints referred to the FOS on or after 17 March 2023 in relation to any activity which occurred on or before 31 March 2021 in connection with a loan provided by Everyday Loans, George Banco or Trust Two (the "FOS Fees").

Under the current expected timetable, the Court convening hearing will be held on 28 April 2023 and the Court sanction hearing on 22 June 2023, with the creditors' meeting where the scheme creditors will vote on the Scheme being held virtually between these dates.

The FCA's current views in relation to the Scheme are set out in its letter of 25 April 2023. The FCA has stated that it does not, at this stage, anticipate that it will oppose the Scheme from being sanctioned should the requisite majorities of Scheme Creditors vote in favour of the Scheme. The FCA has confirmed that it does, however, fully reserve its position in respect of the Scheme and its right to object to the Scheme in due course, if the FCA considers it appropriate to do so.

The Proposed Recapitalisation and Alternative Transaction

The Scheme is a key component of the Proposed Recapitalisation, which will ensure the future of the Group and the Everyday Loans business. The Group's intention is for the Proposed Recapitalisation to be implemented shortly following Court sanction of the Scheme.

The Proposed Recapitalisation will involve:

-- NSF raising gross proceeds of approximately GBP95 million through a public equity raise, part of which will be applied towards the cost of the equity raise and part of which will be used to fund the Scheme Fund and cover the costs of the Scheme, with the remainder being invested in the Everyday Loans business;

-- the Group's secured lenders releasing a portion of their secured debt in exchange for shares in NSF;

-- the extension of the maturity date under the Group's secured debt facilities from August 2023 to June 2027; and

-- the Company and its advisers exploring the cancellation of NSF's listing on the Main Market of the London Stock Exchange plc and its admission of its enlarged share capital to trading on AIM.

The Proposed Recapitalisation has the support in principle of NSF's largest shareholder and the Group's secured lenders, subject to the Conditions.

NSF expects the equity raise to include both a placing with new and existing institutional investors as well as an open offer component, whereby existing shareholders will be provided with an opportunity to participate in the capital raise. The structure, detailed terms and viability of the equity raise are expected to be confirmed in Q2 2023 following consultation with major shareholders and potential investors.

Although the Proposed Recapitalisation will ensure the future of the Group and the Everyday Loans business, it will materially dilute the interests of the Company's existing equity holders, most likely to negligible value, unless they choose to participate in the equity raise.

Completion of the Proposed Recapitalisation is subject to the Conditions. Assuming all the Conditions are satisfied, NSF expects the Proposed Recapitalisation to complete at the end of Q2 2023 or the start of Q3 2023.

The Group has also agreed with its secured lenders to implement the Alternative Transaction if the Scheme is sanctioned but the Conditions to the Proposed Recapitalisation are not satisfied. The Alternative Transaction would involve a transfer of the ownership of the Group's business to the secured lenders (pursuant to a share pledge enforcement) in exchange for the release of a portion of their secured debt and the provision of a new lending facility. Part of the proceeds from this new lending facility would be used to fund the Scheme Fund and cover the costs of this Scheme. Under the Alternative Transaction, there would be no recovery for the Company's shareholders and the Company (ultimate parent company) may enter into an insolvency process.

However, if the Scheme is not sanctioned by the Court, or the Scheme is sanctioned but the Proposed Recapitalisation and the Alternative Transaction both fail, then the Group would remain insolvent and the most likely outcome would be a Group-wide insolvency (most likely administration), resulting in no return for the Company's shareholders, a significantly reduced return for secured lenders and minimal or no cash recovery for customers with valid redress claims. In the event that the Scheme is sanctioned and the Alternative Transaction takes place (due to the failure of the Proposed Recapitalisation), there would be no recovery for the Company's shareholders.

Complaint handling

Whilst the overall number of complaints received by the Group reduced in 2022, this was largely due to the closure of Loans at Home which had, until that point, been on an upwards trend of complaint volumes. The remaining two divisions saw contrasting trends where branch-based lending increased by 14% and guarantor loans fell by 23%. The majority of complaints came from three CMCs in branch-based lending, all of which sent more complaints than the previous year, and one CMC in guarantor loans. FOS decisions fell significantly across these two divisions after FOS aimed to clear their outstanding backlog in the early part of the year.

Consumer Duty

One of the most significant regulatory initiatives in recent years was the introduction of the new consumer duty which aims to raise the standard for how firms should be treating consumers. The new principle, rules and guidance were issued in July 2022 with an expectation to implement within 12 months. Following on from the issued guidance, the business has created a gap analysis, a detailed action plan and an implementation plan to fulfil the requirements ahead of the July 2023 deadline. ELL Directors sit on a steering group to oversee the project, whilst an experienced project manager has been employed to drive the project forward and report back to the steering group. Six separate work streams consisting of senior management have been, and are currently working on, ensuring all actions are satisfactorily completed within the expected timeframes. Much of the work done over the past few years has put the branch-based lending in an excellent position ahead of the new regulations. However, the project remains a priority and the business is confident that all elements of the consumer duty will be met.

Further details on the consumer duty and the other pertinent regulatory developments during 2022 and into 2023 are available on the Group's website: www.nsfgroupplc.com .

Current trading and outlook, no final dividend

Whilst the fallout from the pandemic, Brexit and more recently the Ukrainian crisis means that macroeconomic uncertainty remains high, recent trading in branch-based lending and the collect out of guarantor loans has been slightly ahead of management's expectations. Lending volumes in the first quarter of 2023 were a little better than expected and collections and impairment performance have been much better with the result that the Group's overall early performance for the year to date has been promising.

Given the financial position of the Company and the fact that as at 31 December 2022 the Company did not have any distributable reserves, no final dividend has been declared. Assuming the Court sanctioning of the Scheme and the subsequent Proposed Recapitalisation is successful, the Company intends to create additional distributable reserves so that, when and if appropriate, the Board can consider the payment of cash dividends to shareholders at some point in the future.

The outlook for the Group is such that, without the successful completion of the Scheme and the Proposed Recapitalisation (or the Alternative Transaction in the event the Conditions to the Proposed Recapitalisation) are not satisfied), the balance sheet remains deeply insolvent. If the Scheme is not sanctioned by the Court, or the Scheme is sanctioned but the Proposed Recapitalisation and the Alternative Transaction both fail, then the Group would remain insolvent and the most likely outcome would be a Group-wide insolvency (most likely administration), resulting in no return for the current shareholders, a significantly reduced return for secured lenders and minimal or no cash recovery for customers with valid redress claims. In the event that the Scheme is sanctioned and the Alternative Transaction takes place (due to the failure of the Proposed Recapitalisation), there would be no recovery for the Company's shareholders and the Company (ultimate parent company) may enter into an insolvency process.

The Directors continue to believe there is a reasonable prospect of resolving this position through the Scheme and the Proposed Recapitalisation with the support in principle of the Group's largest shareholder and secured lenders, which support remains subject to the Conditions, or, in case of the Alternative Transaction, the support of the secured lenders .

Assuming the Proposed Recapitalisation or Alternative Transaction is completed as planned, our focus in 2023 is to re-energise the business following the enormous structural changes over the past few years and the regulatory changes to the industry more generally. As outlined in the 2022 financial review, this recovery will be dependent on us restoring the momentum in our branch-based lending business through a combination of investment in staffing, technology and process-driven productivity improvements and a steady recovery in demand for non-standard consumer credit.

Given the Group's pre-eminent position in branch-based lending, the Board continues to believe that, subject to funding, the current business environment represents a significant opportunity for NSF. In the past, when UK consumers have faced periods of macroeconomic difficulty and stress, the non-standard consumer lending sector saw a marked increase in demand as the number of consumers that were unable to access mainstream credit increased. At the same time, we have seen a significant reduction in the supply of regulated non-standard consumer credit that may provide an additional opportunity for the Group to gain market share as we continue to serve the very large numbers of UK consumers that are unable or unwilling to access regulated mainstream credit.

Annual General Meeting

The AGM of the Company is scheduled to take place on 23 June 2023. A separate notice of meeting will be being sent to shareholders nearer the time of the meeting and will be available from the Group's website: www.nsfgroupplc.com .

Jono Gillespie

Group Chief Executive

28 April 2023

2022 Financial Review

Group results

Since emerging from the effects of the pandemic, a new set of economic challenges has presented itself, particularly the inflationary environment causing a cost-of-living crisis. However, these circumstances have proven to be supportive for the need for non-standard finance and created a liquidity gap for those not served by traditional lenders.

The Group reported an increased normalised loss before tax of GBP24.6m (2021: normalised loss before tax of GBP16.7m). Once again the full year results were impacted by a number of non-operating items as well as the home credit division being placed into administration and derecognised from the Group on 15 March 2022. The guarantor loans division collect out continues to progress well whilst the b ranch-based lending business continues to deliver good financial performance driven by higher revenues and loan book growth. Group revenues decreased 25% from GBP131.4m to GBP98.3m due to the aforementioned derecognition of the home credit division in Q1 and collect out of guarantor loans, however this was partly offset by the higher revenue at branch-based lending which increased 6% to GBP84.5m (2021: GBP79.9m) as a result of higher revenue yields, with yields having reduced during 2020 and 2021 following an increase in the number of customers utilising forbearance measures during the pandemic. Impairments at branch-based lending were higher in the current period at GBP26.7m (2021: GBP19.0m) due to 2021 benefitting from lower lending volumes, however despite this, collections performance remained strong throughout 2022. Administrative expenses for the Group were lower by 31% at GBP65.9m (2021: GBP96.0m) as 2021 included a full year of the home credit division. Excluding this, the Group saw savings in expenses at its guarantor loans division with a decrease of 32% to GBP7.3m (2021: GBP10.7m) as the division continues to wind down and savings in staff costs, professional fees and complaints costs are realised . The branch-based lending division however saw increased spend on employee costs following investment in expanding the operational headcount to drive the growth in new lending resulting in administrative expenses increasing by 9%.

There were GBP31.8m of exceptional items (2021: GBP12.9m) comprised of GBP5.7m in relation to the derecognition of the home credit division following the business being placed into administration on 15 March 2022, a GBP13.7m charge in relation to impairment of intercompany receivable balances following the administration of the home credit division, and an additional GBP12.4m of costs and redress provisions in relation to the Scheme. 2021 exceptional costs comprised GBP2.2m of additional customer redress, GBP1.6m of advisory fees, GBP8.5m relating to the write-down of assets and the recognition of liabilities in the home credit division triggered by the business going into administration on 15 March 2022 and GBP0.6m of restructuring costs.

Cash balances decreased to GBP32.8m (2021: GBP114.6m) following the full repayment of the RCF and part repayments of the term loan made during the year. The high interest environment however adversely impacted net finance costs and the total charge in the period was GBP29.1m (2021: GBP26.0m).

The net effect was that the Group reported a statutory loss before tax of GBP56.4m (2021: loss of GBP29.6m) and with no tax charge/credits recognised in the year, the reported loss after tax was GBP56.4m (2021: loss of GBP29.7m). The resulting reported loss per share was 18.0p (2021: loss per share of 9.5p).

The Group also remains in a net liability position, due to the net losses over the past few years, the derecognition of the home credit division and the continued non-recognition of deferred tax assets. The Group is continuing is progressing with plans to resolve its regulatory issues via the Scheme and support in principle from the Group's secured lenders and largest shareholder means the Board continue to believe that the balance sheet situation will be remedied subject to a successful completion of the Scheme and Proposed Recapitalisation (or the Alternative Transaction in the event the Conditions, to the Proposed Recapitalisation are not satisfied) noting, as above, that the Alternative Transaction may result in the Company (ultimate parent company) entering into an insolvency process .

Normalised figures are before exceptional items.

 
                                                              2022 
                                                2022   Exceptional       2022 
                                       Normalised(1)         items   Reported 
Year ended 31 December                        GBP000        GBP000     GBP000 
------------------------------------  --------------  ------------  --------- 
Revenue                                       98,337             -     98,337 
Other operating income                           173             -        173 
Modification loss                              (262)             -      (262) 
Impairments                                 (27,890)             -   (27,890) 
Administration expenses                     (65,898)             -   (65,898) 
------------------------------------  --------------  ------------  --------- 
Operating profit / (loss)                      4,460             -      4,460 
Exceptional items                                  -      (31,768)   (31,768) 
------------------------------------  --------------  ------------  --------- 
Profit / (Loss) before interest and 
 tax                                           4,460      (31,768)   (27,308) 
Finance cost                                (29,051)             -   (29,051) 
------------------------------------  --------------  ------------  --------- 
Loss before tax                             (24,591)      (31,768)   (56,359) 
Taxation                                           -             -          - 
------------------------------------  --------------  ------------  --------- 
Loss after tax                              (24,591)      (31,768)   (56,359) 
------------------------------------  --------------  ------------  --------- 
 
Loss per share                                (7.86)                  (18.04) 
Dividend per share                             0.00p                    0.00p 
------------------------------------  --------------  ------------  --------- 
                                                              2021 
                                                2021                     2021 
                                                       Exceptional 
                                       Normalised(1)         items   Reported 
Year ended 31 December                        GBP000        GBP000     GBP000 
------------------------------------  --------------  ------------  --------- 
Revenue                                      131,387             -    131,387 
Other operating income                           983             -        983 
Modification loss                            (2,861)             -    (2,861) 
Impairments                                 (24,163)             -   (24,163) 
Exceptional provision for customer 
 redress                                           -       (2,207)    (2,207) 
Administration expenses                     (96,047)             -   (96,047) 
------------------------------------  --------------  ------------  --------- 
Operating profit / (loss)                      9,299       (2,207)      7,092 
                                                                     ( 10,723 
Other exceptional items                            -      (10,723)          ) 
------------------------------------  --------------  ------------  --------- 
Profit / (Loss) before interest and 
 tax                                           9,299      (12,930)    (3,631) 
Finance cost                                (25,979)             -   (25,979) 
------------------------------------  --------------  ------------  --------- 
Loss before tax                             (16,680)      (12,930)   (29,610) 
Taxation                                        (75)             -       (75) 
------------------------------------  --------------  ------------  --------- 
Loss after tax                              (16,755)      (12,930)   (29,685) 
------------------------------------  --------------  ------------  --------- 
 
Loss per share                               (5.36)p                  (9.50)p 
Dividend per share                             0.00p                    0.00p 
------------------------------------  --------------  ------------  --------- 
 

1 See glossary of alternative performance measures and key performance indicators in the Appendix.

Normalised divisional results

The table below provides an analysis of the 'normalised' results for the Group for the 12-month period to 31 December 2022. Management believes that by removing the impact of exceptional items, the normalised results provide a clearer view of the underlying performance of the Group

 
                          Branch-based               Guarantor    Central 
Year ended 31 Dec              lending  Home credit      loans      costs      Group 
 2022 Normalised(1)             GBP000       GBP000     GBP000     GBP000     GBP000 
------------------------  ------------  -----------  ---------  ---------  --------- 
Revenue                         84,470        7,315      6,552          -     98,337 
Other operating income             173            -          -          -        173 
Modification loss                (250)            -       (12)          -      (262) 
Derecognition loss                   -                       -          -          - 
Impairments                   (26,704)      (2,781)      1,595          -   (27,890) 
Administration expenses       (50,493)      (5,065)    (7,300)    (3,040)   (65,898) 
------------------------  ------------  -----------  ---------  ---------  --------- 
Operating profit/(loss)          7,196        (531)        835    (3,040)      4,460 
Finance cost                  (14,925)        (257)    (2,000)   (11,869)   (29,051) 
------------------------  ------------  -----------  ---------  ---------  --------- 
Loss before tax                (7,729)        (788)    (1,165)   (14,909)   (24,591) 
Taxation                         (102)          123          -       (21)          - 
------------------------  ------------  -----------  ---------  ---------  --------- 
Loss after tax                 (7,831)        (665)    (1,165)   (14,930)   (24,591) 
------------------------  ------------  -----------  ---------  ---------  --------- 
 
Normalised loss per 
 share                                                                       (7.87)p 
Dividend per share                                                             0.00p 
------------------------  ------------  -----------  ---------  ---------  --------- 
 
 
                          Branch-based               Guarantor    Central 
Year ended 31 Dec              lending  Home credit      loans      costs      Group 
 2021 Normalised(1)             GBP000       GBP000     GBP000     GBP000     GBP000 
------------------------  ------------  -----------  ---------  ---------  --------- 
Revenue                         79,940       38,401     13,046          -    131,387 
Other operating income             384          587          1         11        983 
Modification loss              (1,383)            -    (1,478)          -    (2,861) 
Derecognition loss                   -                       -          -          - 
Impairments                   (18,994)      (6,230)      1,061          -   (24,163) 
Administration expenses       (46,294)     (34,962)   (10,695)    (4,096)   (96,047) 
------------------------  ------------  -----------  ---------  ---------  --------- 
Operating profit/(loss)         13,653      (2,204)      1,935    (4,085)      9,299 
Finance cost                  (14,491)      (1,102)    (4,350)    (6,036)   (25,979) 
------------------------  ------------  -----------  ---------  ---------  --------- 
Loss before tax                  (838)      (3,306)    (2,415)   (10,121)   (16,680) 
Taxation                            48          158        299      (580)       (75) 
------------------------  ------------  -----------  ---------  ---------  --------- 
Loss after tax                   (790)      (3,148)    (2,116)   (10,701)   (16,755) 
------------------------  ------------  -----------  ---------  ---------  --------- 
 
Normalised loss per 
 share                                                                       (5.36)p 
Dividend per share                                                             0.00p 
------------------------  ------------  -----------  ---------  ---------  --------- 
 

(1) See glossary of alternative performance measures and key performance indicators in the Appendix.

 
 Net loan book           31 December   31 December 
                                2022          2021 
                                GBPm          GBPm 
----------------------  ------------  ------------ 
 Branch-based lending          167.0         157.2 
 Guarantor loans                10.1          26.8 
 Home credit(2)                    -          24.0 
----------------------  ------------  ------------ 
 Total                         177.1         208.0 
----------------------  ------------  ------------ 
 

(2) Home credit division placed into administration on 15 March 2022 and therefore derecognised from the Group.

Impairment provisioning - coverage ratios

Consistent with prior year, the below shows coverage ratios excluding adjustments for modification and derecognition gains and losses in order to allow more direct comparability with sector companies:

 
                         31 December 2022  31 December 2021   Change 
 
 Branch-based lending         17.6%             19.0%         -1.4% 
 Home credit                   N/A              46.7%          N/A 
 Guarantor loans              38.3%             33.2%          5.1% 
                        -----------------  ----------------  ------- 
 Group                        19.1%             25.5%         -6.4% 
----------------------  -----------------  ----------------  ------- 
 

Coverage ratios at branch based lending improved whilst worsening at guarantor loans due to the reducing size of the loan book as the division remains in collect-out. The Group coverage ratio fell 6.4% as a result of the home credit division no longer being part of the Group.

Divisional review

Branch-based lending

Financial results

 
 Year ended 31 December                            2022                2022        2022 
                                          Normalised(3)   Exceptional items    Reported 
                                                GBP'000             GBP'000     GBP'000 
---------------------------------------  --------------  ------------------  ---------- 
 Revenue                                         84,470                   -      84,470 
 Other operating income                             173                   -         173 
 Modification gain/(loss)                         (250)                   -       (250) 
 Impairments                                   (26,704)                   -    (26,704) 
 Admin expenses                                (50,493)                   -    (50,493) 
                                         --------------  ------------------  ---------- 
 Operating profit                                 7,196                   -       7,196 
 Exceptional items                                    -            (12,407)    (12,407) 
                                         --------------  ------------------  ---------- 
 Profit/(loss) before interest and tax            7,196            (12,407)     (5,211) 
 Finance costs                                 (14,925)                   -    (14,925) 
                                         --------------  ------------------  ---------- 
 Loss before tax                                (7,729)            (12,407)    (20,136) 
 Taxation                                         (102)                   -       (102) 
                                         --------------  ------------------  ---------- 
 Loss after tax                                 (7,831)            (12,407)    (20,238) 
                                         ==============  ==================  ========== 
 
 
 
 Year ended 31 December                             2021                                   2021                   2021 
                                                                                    Exceptional 
                                           Normalised(3)                                  items               Reported 
                                                 GBP'000                                GBP'000                GBP'000 
-----------------------------  -------------------------  -------------------------------------  --------------------- 
 Revenue                                          79,940                                      -                 79,940 
 Other operating income                              384                                      -                    384 
 Modification gain/(loss)                        (1,383)                                      -                (1,383) 
 Impairments                                    (18,994)                                      -               (18,994) 
 Admin expenses                                 (46,294)                                      -               (46,294) 
                               -------------------------  -------------------------------------  --------------------- 
 Operating profit                                 13,653                                      -                 13,653 
 Exceptional items                                     -                                      -                      - 
                               -------------------------  -------------------------------------  --------------------- 
 Profit/(loss) before 
  interest 
  and tax                                         13,653                                      -                 13,653 
 Finance costs                                  (14,491)                                      -               (14,491) 
                               -------------------------  -------------------------------------  --------------------- 
 Loss before tax                                   (838)                                      -                  (838) 
 Taxation                                             48                                      -                     48 
                               -------------------------  -------------------------------------  --------------------- 
 Loss after tax                                    (790)                                      -                  (790) 
                               -------------------------  -------------------------------------  --------------------- 
 
 

The business saw a 20% increase in the volume of qualifying 'applications to branch' ('ATBs') during 2022 versus the full year 2021. This drove an increase in the total number of loans booked, with new money lent to customers increasing 19% in comparison to 2021. While the impact of the pandemic on lending volumes meant that the net loan book declined in both 2020 and 2021, the positive recovery in lending volumes has resulted in the net loan book returning to growth in 2022 and it ended the year up 6% at GBP167.0m (2021: GBP157.2m). The number of active customers has seen a small increase to 66,500 at December 2022 (December 2021: 66,000).

We continually look to enhance our lending processes, including the assessment of creditworthiness and the refinement of credit scorecards and strategies. Whilst acutely aware of the cost-of-living crisis, the collections performance of the business remains ahead of expectation with customer payment levels particularly strong, whilst early settlements continue below pre-pandemic levels. Delinquency performance has returned to historically normal levels. The nature of IFRS 9 accounting meant that lower lending volume in the prior years also helped to reduce impairment charges however, as lending volumes have continued to recover throughout 2022, impairment rates are gradually seeing a corresponding reversal of the recent low levels, though remain below expectations.

 
 Key Performance Indicators(3)                               2022              2021 
 Number of branches                                            77                75 
 Period end customer numbers (000)                           66.5              66.0 
 Period end loan book (GBPm)                                167.0             157.2 
 Average loan book (GBPm)                                   161.5             163.7 
 12 Month Rolling: 
 Revenue yield                                              52.3%             48.8% 
 Risk adjusted margin                                       35.8%             37.2% 
 Impairments/revenue                                        31.6%             23.8% 
 Impairments (including modifications)/revenue              31.9%             25.5% 
 Impairment/average loan book                               16.5%             11.6% 
 Cost to income ratio                                       59.8%             57.9% 
 Operating profit margin                                     8.5%             17.1% 
 Return on asset                                             4.5%              8.3% 
-----------------------------------------------  ----------------  ---------------- 
 

(3) (See glossary of alternative performance measures and key performance indicators in the Appendix.)

Revenues increased 6% to GBP84.5m (2021: GBP79.9m) despite lower average receivables due to a higher revenue yield. Yields reduced during 2020 and 2021 following an increase in the number of customers utilising forbearance measures during the pandemic. Modification losses were lower at GBP0.3m (2021: GBP1.4m) with the prior year seeing an increased level of deferred and rescheduled loans as the business utilised forbearance measures as a result of the pandemic. Impairments were higher in the current period at GBP26.7m (2021: GBP19.0m) with corresponding increases in the impairment ratios, due to 2021 benefitting from lower lending volumes (whereby the nature of IFRS 9 means lower lending helps reduce impairment charges). Despite the higher impairment costs, collections performance remained strong throughout 2022, supported by continued tight underwriting with a rigorous creditworthiness assessment and strengthening of the credit scorecards and strategies.

Increased spend on employee costs following investment in expanding the operational headcount to drive the growth in new lending and the filling of support staff vacancies has resulted in administrative expenses increasing by 9% to GBP50.5m (2021: GBP46.3m). The net impact of all of these factors was that normalised operating profit fell to GBP7.2m (2021: GBP13.7m).

As detailed above, the Group has now launched the Scheme to address its redress liabilities, which will provide certainty as to the amount that will be paid to customers with valid redress claims . Although the independent review of the Group's branch-based lending business carried out in 2021 identified no systemic issues requiring redress, since this business and the guarantor loans division trade out of the same legal entity, the Scheme encompasses potential claims from both businesses in order to ensure equitable treatment of customers. The exceptional charge in the year of GBP12.4m relates to costs and redress associated with the Scheme.

Finance costs increased by 3% to GBP14.9m (2021: GBP14.5m) funding growth in the loan book. As a result of the reasons noted above, the business produced a normalised pre-tax loss of GBP7.7m (2021: loss before tax of GBP0.8m).

In branch-based lending, the key performance drivers that underpin the operational and financial performance of the business include network capacity, lead volume and quality, network productivity and impairment management. A summary of how these factors were affected during 2022 is summarised below:

Network capacity - Qualifying application levels have grown steadily through 2021 and 2022 and the recruitment of in-branch employees has increased alongside this to take advantage of the return to growth. In-branch full time employee numbers have increased from 341 at December 2021 to 377 at the end of December 2022 with plans to increase further throughout 2023. The branches that were originally planned to be opened in late 2020 but were deferred by the pandemic were successfully opened in 2022, splitting larger branches in the North West and North East conurbations to take advantage of the growth opportunities in these areas. This increases the total number of branch locations to 77. Two further branches are planned to open in the second half of 2023.

Lead volumes - The number of qualified new borrower applications increased by 19% in 2022 compared to 2021 levels. Due to a more cautious approach to lending post-pandemic, new borrower conversion rates dipped slightly to 6.1% (2021: 6.5%) whilst new borrower loans written increased by 13%. We credit scored 2.5 million new borrower applications in 2022 (2021: 1.7 million) of which 485,055 (2021: 403,800) applications passed our screening criteria to qualify as applications to branch (ATBs).

Productivity and quality - The total number of loans issued in 2022 reached 38,781 (2021:37,150) a 4% increase over the prior year. The focus on better quality customers led to new cash lent increasing 19% to GBP121m compared to GBP102m in 2021. We continue to invest in the enhancement of our technology. A new integrated telephony solution was implemented in the current year, this alongside continued strengthening of our creditworthiness process and open banking improvements will drive efficiencies in our lending processes whilst continuing to deliver good customer outcomes and improved customer journeys.

Delinquency management -Increasing costs of living were a key concern for our customers across the year. A continual review process ensured that our underwriting remained appropriate from both credit risk and affordability perspectives and we maintained a high quality of new lending. Pro-active communication and monitoring of forbearance tools ensured that existing customers continued to have the support they need. This was further enhanced by the introduction of a central collections team, utilising available capacity from within the Guarantor Loans business as that loan book runs down. As a result, collections performance was consistently ahead of expectations throughout the year, and by year end the proportion of the loan book that was up-to-date and not rescheduled or deferred had recovered to the pre-Covid levels of early 2020.

Plans for 2023

We remain focused on our commitment to servicing the needs of those consumers that may have been excluded from mainstream lenders, using our face-to-face lending model. We continue to evolve our credit risk assessment processes in order to maintain the highest standards of responsible lending, ensuring that we continue to deliver good customer outcomes for all our customers. The ability to grow the business efficiently and enhancing the customer journey are key areas of focus in 2023. Investment in in-branch recruitment, a focus on streamlining back-office tasks and embracing technology opportunities such as 'Open Banking' will reduce waiting times for customers through a smoother application process.

We continue to expect that the demand for our products and services will increase given the current macroeconomic environment as well as from some of the structural changes in the market regarding both potential customer population and companies operating in the market. As a result, and whilst we remain vigilant given the rapidly changing environment, based on our performance to-date and the steps already taken, we continue to focus on operational efficiency and loan book growth through 2023 and beyond. Future growth plans will require the Group to complete the Scheme and the Proposed Recapitalisation or Alternative Transaction, but once achieved, the business will be well placed to realise that vision.

Home credit

Following the conclusions of the review into home credit, the Directors of S.D. Taylor Limited ('Loans at Home') concluded that the Loans at Home business was no longer viable and so the business was placed into administration on 15 March 2022. Whilst deeply saddened and disappointed with this news, the Boards of both Loans at Home and NSF were clear that administration was the only option available in order to preserve value for creditors. As the operations and activities of Loans at Home were separate from the rest of the Group, having received certain waivers from the Group's secured lenders, the administration of Loans at Home has had minimal impact on the rest of the Group's business.

The results of the home credit division for the period ended 14 March 2022 are shown below:

Financial results

The home credit division contributed a normalised operating loss of GBP0.5m to the Group (2021: normalised operating loss of GBP2.2m). An exceptional charge of GBP5.6m was recognised in 2022 in relation the derecognition of the remaining net assets of the division existing at the date of administration.

 
 Period to 14 March                       2022                2022       2022 
                                 Normalised(4)   Exceptional items   Reported 
                                       GBP'000             GBP'000    GBP'000 
------------------------------  --------------  ------------------  --------- 
 Revenue                                 7,315                   -      7,315 
 Other income                                -                   -          - 
 Impairments                           (2,781)                   -    (2,781) 
 Admin expenses                        (5,065)                   -    (5,065) 
                                --------------  ------------------  --------- 
 Operating loss                          (531)                   -      (531) 
 Exceptional items                           -             (5,647)    (5,647) 
                                --------------  ------------------  --------- 
 Loss before interest and tax            (531)             (5,647)    (6,178) 
 Finance cost                            (257)                   -      (257) 
                                --------------  ------------------  --------- 
 Loss before tax                         (788)             (5,647)    (6,435) 
 Taxation                                  123                   -        123 
                                --------------  ------------------  --------- 
 Operating loss                          (665)             (5,647)    (6,312) 
 
 
 
                                         2021          2021       2021 
                                                Exceptional 
                                Normalised(4)         items   Reported 
Year ended 31 December                 GBP000        GBP000     GBP000 
-----------------------------  --------------  ------------  --------- 
Revenue                                38,401             -     38,401 
Other income                              587             -        587 
Impairments                           (6,230)             -    (6,230) 
Administration expenses              (34,962)             -   (34,962) 
                               --------------  ------------  --------- 
Operating loss                        (2,204)             -    (2,204) 
                                                    ( 8,542 
Exceptional items                           -             )    (8,542) 
-----------------------------  --------------  ------------  --------- 
                                                              (10, 746 
Loss before interest and tax          (2,204)       (8,542)          ) 
Finance cost                          (1,102)             -    (1,102) 
-----------------------------  --------------  ------------  --------- 
Loss before tax                       (3,306)       (8,542)   (11,848) 
Taxation                                  158             -        158 
-----------------------------  --------------  ------------  --------- 
Loss after tax                        (3,148)       (8,542)   (11,690) 
-----------------------------  --------------  ------------  --------- 
 

(4) (See glossary of alternative performance measures and key performance indicators in the Appendix.)

Guarantor loans

The Group's guarantor loans division was placed into a managed run-off in June 2021 and so continues not to issue any new loans. Therefore the financial performance of the business has been driven by collections from the outstanding loan book.

Financial results

The reduction in the net loan book meant that revenue declined by 49% to GBP6.6m (2021: GBP13.0m). Collections performance during 2022 has remained strong, leading to impairments of GBP(1.6)m (2021: GBP(1.1m). Administration costs fell by 32% to GBP7.3m (2021: GBP10.7m) as the division continues to wind down and savings in staff costs, professional fees and complaints costs are realised. The division achieved a normalised operating profit of GBP0.8m (2021: GBP1.9m) whilst strong cashflow has contributed to lower finance costs that reduced the normalised loss before tax to GBP1.2m (2021: loss before tax of GBP2.4m).

 
 Year ended 31 December                    2022          2022       2022 
                                                  Exceptional 
                                  Normalised(5)         items   Reported 
                                        GBP'000       GBP'000    GBP'000 
-------------------------------  --------------  ------------  --------- 
 Revenue                                  6,552             -      6,552 
 Other income                                 -             -          - 
 Modification gain/(loss)                  (12)             -       (12) 
 Impairments                              1,595             -      1,595 
 Admin expenses                         (7,300)             -    (7,300) 
                                 --------------  ------------  --------- 
 Operating profit/(loss)                    835             -        835 
 Exceptional items                            -             -          - 
 Profit/(loss) before interest 
  and tax                                   835             -        835 
 Finance costs                          (2,000)             -    (2,000) 
                                 --------------  ------------  --------- 
 Loss before tax                        (1,165)             -    (1,165) 
 Taxation                                     -             -          - 
                                 --------------  ------------  --------- 
 Loss after tax                         (1,165)             -    (1,165) 
                                 ==============  ============  ========= 
 
 
 
 Year ended 31 December                                      2021          2021                  2021 
                                                                    Exceptional 
                                                    Normalised(5)         items              Reported 
                                                          GBP'000       GBP'000               GBP'000 
-----------------------------------  ----------------------------  ------------  -------------------- 
 Revenue                                                   13,046             -                13,046 
 Other income                                                   1             -                     1 
 Modification gain/(loss)                                 (1,478)             -               (1,478) 
 Impairments                                                1,061             -                 1,061 
 Exceptional provisions                                         -       (2,207)               (2,207) 
 Admin expenses                                          (10,695)             -              (10,695) 
                                     ----------------------------  ------------  -------------------- 
 Operating profit/(loss)                                    1,935       (2,207)                 (272) 
 Exceptional items                                              -         (601)                 (601) 
 Profit/(loss) before interest and 
  tax                                                       1,935       (2,808)                 (873) 
 Finance costs                                            (4,350)             -               (4,350) 
                                     ----------------------------  ------------  -------------------- 
 Loss before tax                                          (2,415)       (2,808)               (5,223) 
 Taxation                                                     299             -                   299 
                                     ----------------------------  ------------  -------------------- 
 Loss after tax                                           (2,116)       (2,808)               (4,924) 
                                     ============================  ============  ==================== 
 
 
 
 Key Performance Indicators(5)                      2022     2021 
 
 Period end customer numbers (000)                   6.8     14.5 
 Period end loan book (GBPm)                        10.1     26.8 
 Average loan book (GBPm)                           17.1     40.6 
 12 Month Rolling: 
 Revenue yield                                     38.3%    32.1% 
 Risk adjusted margin                              47.7%    34.7% 
 Impairment/revenue                              (24.4)%   (8.1)% 
 Impairment (including modifications)/revenue    (24.2)%     3.2% 
 Impairment/average loan book                     (9.3)%   (2.6)% 
 Cost to income ratio                             111.4%    82.0% 
 Operating profit margin                           12.8%    14.8% 
 Return on asset                                    4.9%     4.8% 
----------------------------------------------  --------  ------- 
 

(5) (See glossary of alternative performance measures and key performance indicators in the Appendix.)

Plans for 2023

The collect-out of the outstanding loan book is progressing well and as planned.

Central costs

 
 Year ended 31 December                2022           2022        2022 
                              Normalised(6)    Exceptional    Reported 
                                                     items 
                                     GBP000         GBP000      GBP000 
--------------------------  ---------------  -------------  ---------- 
 Revenue                                  -              -           - 
 Other income                             -              -           - 
 Admin expenses                     (3,040)              -     (3,040) 
                            ---------------  -------------  ---------- 
 Operating loss                     (3,040)              -     (3,040) 
 Exceptional items                        -       (13,714)    (13,714) 
 Loss before interest and 
  tax                               (3,040)       (13,714)    (16,754) 
 Finance costs                     (11,869)              -    (11,869) 
                            ---------------  -------------  ---------- 
 Loss before tax                   (14,909)       (13,714)    (28,623) 
 Taxation                              (21)              -        (21) 
                            ---------------  -------------  ---------- 
 Loss after tax                    (14,930)       (13,714)    (28,644) 
                            ===============  =============  ========== 
 
 
 
                                                       2021 
                                         2021   Exceptional       2021 
                                Normalised(6)         items   Reported 
Year ended 31 December                 GBP000        GBP000     GBP000 
-----------------------------  --------------  ------------  --------- 
Revenue                                     -             -          - 
Other income                               11             -         11 
Administration expenses               (4,096)             -    (4,096) 
-----------------------------  --------------  ------------  --------- 
Operating loss                        (4,085)             -    (4,085) 
Exceptional items                           -       (1,580)    (1,580) 
-----------------------------  --------------  ------------  --------- 
Loss before interest and tax          (4,085)       (1,580)    (5,665) 
Finance cost                          (6,036)             -    (6,036) 
-----------------------------  --------------  ------------  --------- 
Loss before tax                      (10,121)       (1,580)   (11,701) 
Taxation                                (580)             -      (580) 
-----------------------------  --------------  ------------  --------- 
Loss after tax                       (10,701)       (1,580)   (12,281) 
-----------------------------  --------------  ------------  --------- 
 

(6) (See glossary of alternative performance measures and key performance indicators in the Appendix.)

Normalised administrative expenses fell by 26% to GBP3.0m (2021: GBP4.1m) driven principally by lower staff, rent and professional fees. Finance fees increased due to surplus cash held at Group level alongside higher interest rates.

An exceptional charge of GBP13.7m relates to impairments recognised on intercompany receivable balances held with the home credit division. Prior year exceptional costs comprised GBP1.6m of advisory fees.

Balance sheet

As at 31 December 2022, the Group had increased its cash balances to GBP32.8m (2021: GBP114.6m) and gross debt reduced to GBP255m (2021: GBP330m). The Group's balance sheet remained in a negative net tangible assets position. A summary of the Group's balance sheet at December 2022 is shown below:

 
                                                  2022       2021 
Year ended 31 December                          GBP000     GBP000 
-------------------------------------------  ---------  --------- 
Loan book                                      177,104    207,984 
Cash                                            32,783    114,577 
Trade receivables and other assets               1,363      4,003 
Property, plant and equipment, intangibles 
 and right of use assets                        12,719     14,574 
Payables and provisions                       (59,055)   (44,018) 
Lease liability                                (7,460)    (9,545) 
Debt                                         (255,000)  (328,762) 
-------------------------------------------  ---------  --------- 
Net (liabilities)/assets                      (97,546)   (41,187) 
 

The clear priority for the Group is to complete the Proposed Recapitalisation that, if successful, is expected to, amongst other things, fund the Scheme, strengthen the Group's balance sheet and restore it to a positive net assets position. However, the Directors note that a material uncertainty exists regarding the success of the Scheme and execution of the Proposed Recapitalisation (or the Alternative Transaction, noting, as above, that the Alternative Transaction may result in the Company (ultimate parent company) entering into an insolvency process ) which casts significant doubt on both the Group's and the Company's ability to continue as a going concern.

Principal risks

The principal risks facing the Group are:

-- Going concern, solvency and liquidity - the Directors note that material uncertainties exist regarding the: (i) success of the Scheme, including positive creditor votes and the court sanction of the Scheme within the timeframes required; (ii) the ability of the Group to raise sufficient capital in the timeframes required (iii) the agreement of extensions to the testing dates and other forms of waivers from secured lenders in relation to potential future covenant breaches and implementation of the Scheme prior to completion of the Proposed Recapitalisation (or the Alternative Transaction); (iv) the contractual commitments from secured lenders to extend the term of existing debt facilities and to write off a portion of their debt as well as agree other changes to the facilities (including the covenant levels); and (v) the impact of macroeconomic uncertainties and other unforeseen factors on the financial performance of the Group. The range of assumptions and the likelihood of them all proving correct creates material uncertainty and therefore the impact on liquidity and solvency under both the base case and downside scenarios may cast significant doubt on both the Group's and individual division's ability to continue as a going concern. The Director's note that although the Group has contractual commitments from its secured lenders to support the Alternative Transaction, there is a risk that it will not be possible to implement either the Proposed Recapitalisation or the Alternative Transaction. In these circumstances, if neither the Proposed Recapitalisation nor the Alternative Transaction has been implemented by 31 December 2023, it will not be possible to pay the Scheme fund into a nominated trust account and the Scheme will fail. Refer to the going concern statement in note 1 of the financial statements for further detail on the base and downside case;

-- Regulation - the Group faces significant operational and financial risk through changes to regulations, changes to the interpretation of regulations or a failure to comply with existing rules and regulations, some of which have crystallised in the year. Due to the need to bring this uncertainty to a resolution, the Group has launched the Scheme to address the redress claims which will provide certainty as to the amount that will be paid to customers with valid redress claims . As outlined above, the review into branch-based lending concluded that there was no need for systemic customer redress, although claims in relation to the branch-based lending business have been included in the Scheme. The conclusion of the home credit review resulted in the administration of the business as it was concluded that the business model was no longer viable and that an administration was the only option available to preserve value for creditors.

-- Conduct - risk of poor outcomes for our customers or other key stakeholders as a result of the Group's actions;

-- Credit - risk of loss through poor underwriting or a diminution in the credit quality of the Group's customers;

-- Business strategy - risk that the Group's strategy fails to deliver the outcomes expected;

-- Business risks:

o operational - the Group's activities are large and complex and so there are many areas of operational risk that include technology failure, fraud, staff management and recruitment risks, underperformance of key staff, the risk of human error, taxation, increasing numbers of customer complaints, health and safety as well as disaster recovery and business continuity risks;

o reputational - a failure to manage one or more of the Group's principal risks may damage the reputation of the Group or any of its subsidiaries which in turn may materially impact the future operational and/or financial performance of the Group;

o cyber - increased connectivity in the workplace coupled with the increasing importance of data and data analytics in operating and managing consumer finance businesses means that this risk has been identified separately from operational risk;

o aftermath of pandemic - a large pandemic such as COVID-19, coupled with the possibility of the return of restrictions on face-to-face contact by HM Government, may cause significant disruption to the Group's operations and severely impact the supply and level of demand for the Group's products. As a result, any sustained period where such measures are in place could result in the Group suffering significant financial loss; and

o cost of living crisis - the significant pressure of the cost of living at the current time increases the risk of delinquency for some customers, whilst also presenting an opportunity for the business in terms of those potential customers who may previously have been served by the prime financial services sector.

Emerging risks that may impact the future performance of the Group include the anticipated increase in the cost of living, climate change and technology where we plan to become more agile and independent with greater control over our ability to augment and improve our lending proposition. Further details are included on page 27 of the 2022 Annual Report.

On behalf of the Board of Directors

Jono Gillespie

Group Chief Executive

28 April 2023

Consolidated statement of comprehensive income

for the year ended 31 December 2022

 
                                                    Before               Year ended 
                                               exceptional  Exceptional      31 Dec 
                                                     items     items(3)        2022 
                                        Note        GBP000       GBP000      GBP000 
--------------------------------------  ----  ------------  -----------  ---------- 
Revenue(1)                                 3        98,337            -      98,337 
Other operating income                                 173            -         173 
Modification loss                         10         (262)            -       (262) 
Impairment of financial assets(2)                 (27,890)            -    (27,890) 
Administrative expenses                           (65,898)            -    (65,898) 
--------------------------------------  ----  ------------  -----------  ---------- 
Operating profit/(loss)                    4         4,460            -       4,460 
Exceptional items                          6             -     (31,768)    (31,768) 
--------------------------------------  ----  ------------  -----------  ---------- 
Profit/(loss) on ordinary activities 
 before interest and tax                             4,460     (31,768)    (27,308) 
Finance costs                                     (29,051)            -    (29,051) 
--------------------------------------  ----  ------------  -----------  ---------- 
Loss on ordinary activities before 
 tax                                              (24,591)     (31,768)    (56,359) 
Tax on loss on ordinary activities         7             -            -           - 
--------------------------------------  ----  ------------  -----------  ---------- 
Loss for the year                                 (24,591)     (31,768)    (56,359) 
--------------------------------------  ----  ------------  -----------  ---------- 
                                                                           ( 56,359 
Total comprehensive loss for the year                                             ) 
--------------------------------------  ----  ------------  -----------  ---------- 
 
   1    Revenue comprises interest income calculated using the EIR method. 

2 Impairments comprise expected credit losses on amounts receivable from customers. Refer to note 10 in the notes to the financial statements for further detail.

3 Refer to the appendix for detail of alternative performance measures used ('APMs'). Refer to note 6 in the notes to the financial statements for further detail.

 
Loss attributable to: 
                                               ( 56,359 
  *    Owners of the Parent                           ) 
                                                      - 
  *    Non-controlling interests 
---------------------------------  ----  -------------- 
 
Loss per share 
                                                   Year 
                                                  ended 
                                                 31 Dec 
                                                   2022 
                                   Note           Pence 
---------------------------------  ----  -------------- 
Basic and diluted                     8         (18.04) 
---------------------------------  ----  -------------- 
 

There are no recognised gains or losses other than disclosed above and there have been no discontinued activities in the year.

Consolidated statement of comprehensive income

For the year ended 31 December 2021

 
                                                                             Before                    Year ended 
                                                                        exceptional  Exceptional           31 Dec 
                                                                              items     items(3)             2021 
                                                                 Note        GBP000       GBP000           GBP000 
--------------------------------------------  -----------------------  ------------  -----------  --------------- 
Revenue(1)                                                          3       131,387            -          131,387 
Other operating income                                                          983            -              983 
Modification loss                                                  10       (2,861)            -          (2,861) 
Impairment of financial assets(2)                                          (24,163)            -         (24,163) 
Exceptional provision for customer 
 redress                                                            6             -      (2,207)          (2,207) 
Administrative expenses                                                    (96,047)            -         (96,047) 
--------------------------------------------  -----------------------  ------------  -----------  --------------- 
Operating profit/(loss)                                             4         9,299      (2,207)            7,092 
Other exceptional items                                             6             -     (10,723)         (10,723) 
--------------------------------------------  -----------------------  ------------  -----------  --------------- 
Profit/(loss) on ordinary activities 
 before interest and tax                                                      9,299     (12,930)          (3,631) 
Finance costs                                                              (25,979)            -         (25,979) 
--------------------------------------------  -----------------------  ------------  -----------  --------------- 
Profit/(loss) on ordinary activities 
 before tax                                                                (16,680)     (12,930)         (29,610) 
Tax on profit/(loss) on ordinary activities                         7          (75)            -             (75) 
--------------------------------------------  -----------------------  ------------  -----------  --------------- 
Profit/(loss) for the year                                                 (16,755)     (12,930)         (29,685) 
--------------------------------------------  -----------------------  ------------  -----------  --------------- 
Total comprehensive loss for the year                                                                    (29,685) 
--------------------------------------------  -----------------------  ------------  -----------  --------------- 
1 Revenue comprises interest income calculated using the EIR method, 
 refer to note 1 in the notes to the financial statements for further 
 detail. 
 2 Impairments comprise expected credit losses on amounts receivable 
 from customers. Refer to notes 1 and 18 in the notes to the financial 
 statements for further detail. 
 3 Refer to the appendix for detail of alternative performance measures. 
 Refer to note 7 in the notes to the financial statements for further 
 detail. 
Loss attributable to: 
 
  *    Owners of the Parent                                                                              (29,685) 
                                                                                                                - 
  *    Non-controlling interests 
--------------------------------------------  -----------------------  ------------  -----------  --------------- 
Loss per share 
                                                                                                       Year ended 
                                                                                                           31 Dec 
                                                                                                             2021 
                                                                                            Note            Pence 
--------------------------------------------  -----------------------  ------------  -----------  --------------- 
Basic and diluted                                                                              8         (9.50) 
--------------------------------------------  -----------------------  ------------  -----------  --------------- 
 
 

Consolidated statement of financial position

as at 31 December 2022

 
                                             31 Dec     31 Dec 
                                               2022       2021 
                                    Note     GBP000      GBP000 
----------------------------------  ----  ---------  ---------- 
ASSETS 
Non-current assets 
Intangible assets                             2,886       2,772 
Deferred tax asset                    11          -           - 
Right-of-use asset                            6,834       7,877 
Property, plant and equipment                 2,999       3,925 
Amounts receivable from customers     10    101,969      98,836 
----------------------------------  ----  ---------  ---------- 
                                            114,688     113,410 
Current assets 
Amounts receivable from customers     10     75,135     109,148 
Trade and other receivables                   1,363       2,526 
Corporation tax asset                             -       1,477 
Cash and cash equivalents                    32,783     114,577 
----------------------------------  ----  ---------  ---------- 
                                            109,281     227,728 
----------------------------------  ----  ---------  ---------- 
Total assets                                223,969     341,138 
----------------------------------  ----  ---------  ---------- 
LIABILITIES AND EQUITY 
Current liabilities 
Trade and other payables              12     28,365      18,375 
Provisions                            24     30,690      25,643 
Lease liability                               1,765       2,129 
Loans and borrowings                        255,000           - 
----------------------------------  ----  ---------  ---------- 
Total current liabilities                   315,820      46,147 
----------------------------------  ----  ---------  ---------- 
Non-current liabilities 
Lease liability                               5,695       7,416 
Loans and borrowings                              -     328,762 
----------------------------------  ----  ---------  ---------- 
Total non-current liabilities                 5,695     336,178 
----------------------------------  ----  ---------  ---------- 
Equity 
Share capital                         15     15,621      15,621 
Share premium                         16    180,019     180,019 
Other reserves                                  255         255 
Retained loss                             (293,441)   (237,082) 
----------------------------------  ----  ---------  ---------- 
Total equity                               (97,546)    (41,187) 
----------------------------------  ----  ---------  ---------- 
Total equity and liabilities                223,969     341,138 
----------------------------------  ----  ---------  ---------- 
 

These financial statements were approved by the Board of Directors on 28 April 2023

Signed on behalf of the Board of Directors.

Jono Gillespie

Group Chief Executive

Consolidated statement of changes in equity

for the year ended 31 December 2022

 
                                                                                                      Non- 
                                                      Share     Share      Other    Retained   controlling 
                                                    capital   premium   reserves        loss      interest       Total 
                                             Note    GBP000    GBP000     GBP000      GBP000        GBP000      GBP000 
--------------------------------  ---------------  --------  --------  ---------  ----------  ------------  ---------- 
At 31 December 2020                                  15,621   180,019        551   (207,727)             -    (11,536) 
--------------------------------  ---------------  --------  --------  ---------  ----------  ------------  ---------- 
Total comprehensive loss 
 for the year                                             -         -          -    (29,685)             -    (29,685) 
Transactions with owners, 
 recorded directly in equity: 
Dividends paid                                  9         -         -          -           -             -           - 
Credit to equity for 
 equity-settled 
 share-based payments                                     -         -         34           -             -          34 
Transfer of share-based payments 
 on vesting 
 of share awards                                          -         -      (330)         330             -           - 
--------------------------------  ---------------  --------  --------  ---------  ----------  ------------  ---------- 
At 31 December 2021                                  15,621   180,019        255   (237,082)             -    (41,187) 
--------------------------------  ---------------  --------  --------  ---------  ----------  ------------  ---------- 
Total comprehensive loss 
 for the year                                             -         -          -    (56,359)             -    (56,359) 
Transactions with owners, 
 recorded directly in equity: 
Dividends paid                                  9         -         -          -           -             -           - 
                                                                                   ( 293,441 
At 31 December 2022                                  15,621   180,019        255           )             -    (97,546) 
--------------------------------  ---------------  --------  --------  ---------  ----------  ------------  ---------- 
 

Consolidated statement of cash flows

for the year ended 31 December 2022

 
                                                                 Year 
                                                                ended  Year ended 
                                                               31 Dec      31 Dec 
                                                                 2022        2021 
                                                       Note    GBP000      GBP000 
-----------------------------------------------------  ----  --------  ---------- 
Net cash from/(used in) operating activities             17    17,916      57,762 
Cash flows from/(used in) investing activities 
Purchase of property, plant and equipment                       (315)       (261) 
Purchase of software intangibles                              (1,092)     (2,514) 
Proceeds from sale of property, plant and equipment                 4          17 
Reduction in cash resulting from derecognition 
 of home credit division in administration                    (7,062)           - 
-----------------------------------------------------  ----  --------  ---------- 
Net cash from/(used in) investing activities                  (8,465)     (2,758) 
-----------------------------------------------------  ----  --------  ---------- 
Cash flows from/(used in) financing activities 
Finance cost                                                 (24,549)    (15,832) 
Repayment of principal portion of lease liabilities           (1,696)     (2,551) 
Repayment of loans and borrowings                            (65,000)           - 
Dividends paid                                            9         -           - 
-----------------------------------------------------  ----  --------  ---------- 
Net cash from/(used in) financing activities                 (91,245)    (18,383) 
-----------------------------------------------------  ----  --------  ---------- 
Net increase/(decrease) in cash and cash equivalents         (81,794)      36,621 
Cash and cash equivalents at beginning of year                114,577      77,956 
-----------------------------------------------------  ----  --------  ---------- 
Cash and cash equivalents at end of year                       32,783     114,577 
-----------------------------------------------------  ----  --------  ---------- 
 

Notes to the financial statements

1. Basis of preparation

Basis of preparation

The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 December 2022 or 2021.

The financial information for the year ended 31 December 2021 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified and did not contain a statement under s498(2) or (3) of the Companies Act 2006, but did include a section highlighting a material uncertainty that may cast significant doubt on the Group and Company's ability to continue as a going concern.

The statutory financial statements for the year ended 31 December 2022 will be filed with the Registrar of Companies following the General Meeting to be held on 23 June 2023. The report of the auditor was unqualified and did not contain a statement under s498(2) or (3) of the Companies Act 2006, but did include a section highlighting a material uncertainty that may cast significant doubt on the Group and Company's ability to continue as a going concern.

The financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share -- based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IFRS 16 Leases, and measurements that have some similarities to fair value but are not fair value, such as value in use ('VIU') in IAS 36 Impairment of Assets.

On 15 March 2022, the Company's indirect subsidiary S.D Taylor Limited (trading as 'Loans at Home' and forming the home credit division of the Group) was placed into administration. As a result, the financial statements of the home credit division for the prior year ended 31 December 2021 were prepared on a basis other than going concern. This required carrying value of the assets to be at the amounts they were expected to realise and the liabilities included any amounts for onerous contracts as a result of the administration. In all other respects the financial statements have been prepared in accordance with the accounting framework.

As Non-Standard Finance plc retained control of the division up to the date of administration, the financial statements of S.D. Taylor have been consolidated and are reported in the Group financial statements for the current year up to 14 March 2022 and the prior year for the full year. The financial statements of the Group have been prepared on a going concern basis with the exception of the home credit division which was prepared on non-going concern basis (as described above).

This announcement has been agreed with the Company's auditor for release.

Basis of consolidation

The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) prepared to 31 December 2022. Control is achieved where the Company is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration the existence and effect of potential voting rights that currently are exercisable or convertible.

The results of any subsidiaries acquired during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition.

As noted above, the Group's home credit division (S.D. Taylor Limited) was placed into administration on 15 March 2022. Up to the date of administration, Non-Standard Finance plc retained control of the division and as such, in line with IAS 10, its results have been consolidated to 14 March 2022 for the purposes of these financial statements. The appointment of an administrator on 15 March 2022 represents a loss of control by Non-Standard Finance plc, and as such, the home credit division has been derecognised from this date and the effect of this reflected in the current year ended 31 December 2022 financial statements.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-Group transactions and balances and any unrealised gains and losses arising from intra-Group transactions are eliminated in preparing the consolidated financial statements.

The Company has taken advantage of the exemption under section 408 of the Companies Act 2006 from publishing its individual statement of comprehensive income and related notes.

Going concern

As noted in the 2022 Half Year Results, the Group's subsidiary S.D. Taylor Limited (which traded as Loans at Home) was placed into administration on 15 March 2022. As the operations and activities of Loans at Home were separate from the rest of the Group, having received certain waivers from the Group's secured lenders, the administration of Loans at Home has had minimal impact on the existing funding arrangements of the Group.

For the quarters ended 31 March 2022, 30 June 2022, 30 September and 31 December 2022, the Group's loan to value (LTV) ratio was higher than the level permitted under its LTV covenant. The Group has agreed extensions with its lenders such that the LTV covenant will not be formally tested, and no covenant breach or event of default will arise, until the Group provides its compliance certificates for the aforementioned quarter dates. The date on which the Group is required to supply these compliance certificates has been extended until 17 May 2023, with a mechanism for this date to be extended further with lender support.

The Group is pursuing a scheme of arrangement (the "Scheme") in order to resolve its outstanding regulatory issues, so as to allow it to proceed with its planned restructuring and recapitalisation ( the "Proposed Recapitalisation"). The Proposed Recapitalisation has the support in principle of the Company's largest shareholder and the Group's secured lenders, subject to agreement on the terms and other conditions described below and, in the case of the Company's largest shareholder, further diligence on and its assessment of the Group's revised business plan and financial projections.

Completion of the Proposed Recapitalisation is subject to the agreement of terms between lenders and the Company's largest shareholder, and a number of conditions, including Court sanction of the Scheme, shareholder approval, the take-up of shares under the equity raise and execution of definitive documents. Assuming all the above outlined conditions are satisfied (the "Conditions"), the Group expects the Proposed Recapitalisation to complete at the end of Q2 2023 or the start of Q3 2023. The Group has also agreed with its secured lenders to implement an alternative transaction if the Scheme is sanctioned but the Conditions , to the Proposed Recapitalisation are not satisfied (the "Alternative Transaction").

Although the independent review of the Group's branch-based lending division carried out in 2021 identified no systemic issues requiring redress, as this division and the guarantor loans division (now in collect-out) trade out of the same legal entity (Everyday Lending Limited), the Scheme encompasses potential claims from both divisions in order to ensure equitable treatment of customers. On 17 March 2023, the Group sent out a practice statement letter to its creditors and a first court hearing is scheduled for 28 April 2023.

In light of the above, the Group has produced two possible scenarios as part of its going concern assessment:

   (i)         the base case scenario assumes: 
   a.   the Scheme is successful; 
   b.   the Scheme is sanctioned by the court by the end of June 2023; 

c. a substantial equity injection is received in late Q2 or early Q3 2023 (the Proposed Recapitalisation);

d. the Group has obtained extensions to the testing dates and/or other forms of waivers from its secured lenders for potential covenant breaches to enable it to proceed with the Proposed Recapitalisation;

e. the extension of the term of the Group's debt facilities and write-off of a portion of the debt on terms acceptable to investors;

f. the Group is able to raise a revolving credit facility at a level acceptable to its lenders and potential investors; and

g. should the Proposed Recapitalisation be unsuccessful, the Alternative Transaction is implemented which would preserve the branch-based lending business and a going concern, but which, if implemented, would result in no recovery for the Company's current shareholders and the Company may enter into an insolvency process .

   (ii)         the downside scenario assumes: 
   a.   the Scheme is unsuccessful; 

b. the Group is unable to complete the Proposed Recapitalisation (or the Alternative Transaction), whilst no acceptable alternative to the base case that is capable of implementation is agreed between the Group and its secured lenders, resulting in the secured lenders enforcing their security and the Group going into an insolvency process;

c. the Group is not granted extensions to the testing dates and/or other forms of waivers from its secured lenders of covenant breaches and the Group's secured lenders become entitled to enforce their security, resulting in the Group entering an insolvency process; and

d. as a result of the Group entering into an insolvency process, no return for current shareholders and a significantly reduced return for secured lenders.

The above downside assumptions are not mutually exclusive. The Group's ability to complete the Proposed Recapitalisation or the Alternative Transaction is entirely dependent on the success of the Scheme.

The base case scenario is entirely dependent upon the base case assumptions listed above proving true. In addition, it is dependent on factors such as the impact of the cost-of-living crisis and other macroeconomic uncertainties on performance as well as any further changes in the environment not varying materially from that assumed in the base case.

The Directors continue to maintain a regular dialogue with key stakeholders including the Company's largest shareholder and Group's secured lenders regarding the above matters.

The Directors acknowledge the considerable challenges presented by the uncertainty around the:

   --      success of the Scheme; 
   --      the ability of the Group to raise sufficient capital in the timeframes required; 

-- the agreement of extensions to the testing dates and other forms of waivers from secured lenders in relation to potential future covenant breaches and the implementation of the Scheme and the Proposed Recapitalisation (or the Alternative Transaction) ;

-- the agreement from secured lenders to extend the term of existing debt facilities and to write off a portion of their debt as well as agree other changes to the facilities (including the covenant levels); and

-- the impact of macroeconomic uncertainties and other unforeseen factors on the financial performance of the Group.

In making their overall assessment on going concern, the Directors considered both the balance sheet solvency and the liquidity position of the Group and Company. In connection with the former, the Proposed Recapitalisation would create a positive net asset position. In connection with the latter the Directors have taken into consideration the impact of the Proposed Recapitalisation on the existing cash balances which would then be available to the business. This combination would provide sufficient liquidity throughout the going concern period. Whilst essential for the future of the Group and Company, the Proposed Recapitalisation would materially dilute the interest of current shareholders, most likely to negligible value unless they chose to participate in the Proposed Recapitalisation. However, the Proposed Recapitalisation is dependent on the Conditions, including the sanctioning of the Scheme by the Court, and this dependency creates a material uncertainty.

The secured lenders continue to provide short-term waivers of the Group's loan to value covenant, ensuring the Group has the liquidity to pursue the Scheme and the Proposed Recapitalisation (or the Alternative Transaction in the event the Conditions, to the Proposed Recapitalisation are not satisfied, which, if implemented, would result in no recovery for the Group's current shareholders), however the Directors recognise that, in the absence of the secured lenders granting the necessary extensions to the testing dates or other forms of waivers in respect of potential future covenant breaches, cash balances may not be available to the Group or Company. With regard to the balance sheet solvency of the Group, the Directors noted that under the base case scenario, assuming the Group is able to raise sufficient equity within the timeframes required, the Group returns to a net asset position post Proposed Recapitalisation and remains there for the going concern period.

As noted above, the Group has agreed the Alternative Transaction in the event that the Scheme is sanctioned but the Proposed Recapitalisation is unsuccessful, which would preserve the branch-based lending business as a going concern. However, there is no certainty that the Alternative Transaction would necessarily be successful and, in this scenario, there would be no recovery for the Company's current shareholders and the Company may enter into an insolvency process. Should the going concern assumption not be appropriate, the assets of the Company would have to be reduced to their market value which is expected to be GBPnil and require the recognition of contractual commitments which would become onerous in relation to the lease liability held at the Company totalling GBP62k as at 31 December 2022.

Despite the material uncertainties associated with the forecast assumptions, the Directors note that the Group's largest shareholder and secured lenders are supportive in principle, of the Proposed Recapitalisation, subject to agreement on the terms and the satisfaction of certain conditions, including further diligence on and its assessment of the Group's revised business plan and financial projections as outlined in the Conditions noted earlier.

The Directors believe that if the actual outcomes do not differ materially from the assumptions outlined in the base case, the Group can reasonably expect to continue to operate and meet its respective liabilities as they fall due for at least the next 12 months. In regards to the Company, the Directors believe that under the base case which assumes a successful Proposed Recapitalisation, the Company can reasonably expect to continue to operate and meet its respective liabilities as they fall due for at least the next 12 months. However, should the Alternative Transaction be implemented, there would be no recovery for the Company's current shareholders and the Company may enter into an insolvency process. Accounting standards require that financial statements are prepared on a going concern basis unless the Directors either intend to liquidate the entity or to cease trading or have no realistic alternative but to do so. The Directors therefore believes it remains appropriate to prepare the financial statements on a going concern basis whilst recognising the material uncertainties that remain. The Directors acknowledge that, whilst a scheme of arrangement is complex, time consuming and not guaranteed to be successful, they believe that there is a reasonable chance of success . The Directors' position is, in part, informed by the favourable performance to date against plan, support the Group has received from its secured lenders to date, including a contractual commitment to the Alternative Transaction, in the event the Proposed Recapitalisation fails, and the fact that the Company's largest shareholder remains supportive in principle of the Proposed Recapitalisation subject to the Conditions. The Director's notes that although the Group has contractual commitments from its secured lenders to support the Alternative Transaction, there is a risk that it will not be possible to implement either the Proposed Recapitalisation or the Alternative Transaction. In these circumstances, if neither the Proposed Recapitalisation nor the Alternative Transaction has been implemented by 31 December 2023, it will not be possible to pay the Scheme fund into a nominated trust account and the Scheme will fail .

As previously mentioned, the Directors recognise there are a high number of assumptions and variables in the modelling of the base case which are not directly within the Group's control and have therefore concluded that a material uncertainty exists which may cast significant doubt over the Group and Company's ability to continue as a going concern and therefore, that the Group and Company may be unable to realise their assets and discharge their liabilities in the normal course of business.

Should the going concern assumption not be appropriate, the assets of the Group would have to be reduced to their market values and the liabilities would have to include any amounts for onerous contracts and in addition, is likely to result in an increase in the amount of the redress provision.

The Directors will continue to monitor the Group and Company's financial position (including access to liquidity and balance sheet solvency) carefully as a better understanding of the impact of these various factors is developed. The Directors recognise the importance of the success of the Scheme and the Proposed Recapitalisation to mitigate the uncertainties noted above and to support the future growth prospects of the Group. The Directors will also continue to monitor the Group and Company's risk management and internal control systems.

Significant judgement

The below factors form a significant judgement of the Directors in the context of approving the Group and Company's going concern status:

   --      the assumption of a successful completion of the Scheme, 

-- support in principle from the Group's largest shareholder for the Proposed Recapitalisation,

   --      lender support for waivers and the Proposed Recapitalisation, 

-- the extension of existing financing facilities and partial write-off of debt as part of the Proposed Recapitalisation,

-- the continued performance of the Group and that the outcomes are not materially different to those assumptions envisaged under the base case, and

-- should the Proposed Recapitalisation be unsuccessful, lender support for the Alternative Transaction which would preserve the branch-based lending business and a going concern, but which, if implemented, would result in no recovery for the Company's current shareholders and the Company may enter into an insolvency process.

2. Changes in accounting policies and disclosures

New and amended standards and interpretations for the financial year ending 31 December 2022

There are no other new IFRSs or International Financial Reporting Interpretations that are effective for the first time for the year ended 31 December 2022 which have a material impact on the Group. The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective (effective 1 January 2023): Amendments to IAS 1, Presentation of financial statements on classification of liabilities; IFRS 17, Insurance contracts; Amendments to IAS 8, Definition of accounting estimates; Amendments to IAS 12, Deferred tax relating to assets and liabilities from a single transaction, and IFRS Practice statement 2, disclosure of accounting policy

Management will continue to assess the impact of new and amended standards and interpretations on an ongoing basis.

3. Revenue

Revenue is recognised by applying the EIR to the carrying value of a loan. The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability.

 
                  Year ended  Year ended 
                      31 Dec      31 Dec 
                        2022        2021 
                      GBP000      GBP000 
----------------  ----------  ---------- 
Interest income       98,337     131,387 
Total revenue         98,337     131,387 
----------------  ----------  ---------- 
 

4. Operating profit/(loss) for the year is stated after charging/(crediting):

 
                                                         Year ended  Year ended 
                                                             31 Dec      31 Dec 
                                                               2022        2021 
                                                             GBP000      GBP000 
-------------------------------------------------------  ----------  ---------- 
Depreciation of property, plant and equipment                 1,215       2,175 
Depreciation of right-of-use asset                            1,462       2,878 
Amortisation and impairment of intangible assets                978       7,910 
Staff costs excluding agent commission(1)                    33,093      42,690 
Rentals under operating leases                                  460         728 
Profit/(loss) on sale of property, plant and equipment          (1)         454 
-------------------------------------------------------  ----------  ---------- 
 

1 Agent commission for the period ended 14 March 2022 was GBP1.5m (year ended 31 December 2021: GBP9.5m). Refer to note 1 for accounting policy.

5. Segment information

Management has determined the operating segments by considering the financial and operational information that is reported internally to the chief operating decision-maker, the Board of Directors, by management. For management purposes, the Group is currently organised into four operating segments: branch-based lending (Everyday Loans); guarantor loans (TrustTwo and George Banco); home credit (Loans at Home); and central (head office activities). The Group's divisions are all located in the United Kingdom and all revenue is attributable to customers in the United Kingdom.

 
                                 Branch-based        Home  Guarantor                2022 
                                      lending   Credit(4)   loans(1)   Central     Total 
                                       GBP000      GBP000     GBP000    GBP000    GBP000 
-------------------------------  ------------  ----------  ---------  --------  -------- 
Year ended 31 December 2022 
Interest income                        84,470       7,315      6,552         -    98,337 
Other income                              173           -          -         -       173 
-------------------------------  ------------  ----------  ---------  --------  -------- 
Total revenue                          84,643       7,315      6,552         -    98,510 
-------------------------------  ------------  ----------  ---------  --------  -------- 
Operating profit/(loss) before 
 exceptionals                           7,196       (531)        835   (3,040)     4,460 
Exceptional items(2)                 (12,407)     (5,647)          -  (13,714)  (31,768) 
Finance cost                         (14,925)       (257)    (2,000)  (11,869)  (29,051) 
-------------------------------  ------------  ----------  ---------  --------  -------- 
Loss before taxation                 (20,136)     (6,435)    (1,165)  (28,623)  (56,359) 
Taxation                                (102)         123          -      (21)         - 
-------------------------------  ------------  ----------  ---------  --------  -------- 
Loss for the year                    (20,238)     (6,312)    (1,165)  (28,644)  (56,359) 
-------------------------------  ------------  ----------  ---------  --------  -------- 
 
 
                               Branch-based     Home  Guarantor               Consolidation       2022 
                                    lending   credit   loans(1)    Central   adjustments(3)      Total 
                                     GBP000   GBP000     GBP000     GBP000           GBP000     GBP000 
-----------------------------  ------------  -------  ---------  ---------  ---------------  --------- 
Total assets                        185,129        -     10,147    197,994        (169,301)    223,969 
Total liabilities                 (226,088)        -          -  (274,061)          178,634  (321,515) 
-----------------------------  ------------  -------  ---------  ---------  ---------------  --------- 
Net assets/(liabilities)           (40,959)        -     10,147   (76,067)            9,333   (97,546) 
-----------------------------  ------------  -------  ---------  ---------  ---------------  --------- 
Capital expenditure                   1,876        -          -         73                -      1,949 
Depreciation of plant, 
 property and equipment               1,214        -          -          1                -      1,215 
Depreciation of right-of-use 
 asset                                1,451        -          -         11                -      1,462 
A mortisation and impairment 
 of intangible assets                   957        -          -         22                -        979 
-----------------------------  ------------  -------  ---------  ---------  ---------------  --------- 
 
   1     The Guarantor Loans Division includes George Banco and TrustTwo. TrustTwo is supported by the infrastructure of Everyday Loans but its results are reported to the Board separately and has therefore been disclosed within the Guarantor Loans Division above. 
   2     Refer to note 6 for further details. 
   3     Consolidation adjustments include the elimination of intra-Group balances. 

4 The home credit division was placed into administration on 15 March 2022; therefore its results reflect the period up to 14 March 2022.

 
                                     Branch-based               Guarantor                2021 
                                          lending  Home credit      loans   Central     Total 
                                           GBP000       GBP000     GBP000    GBP000    GBP000 
-----------------------------------  ------------  -----------  ---------  --------  -------- 
Year ended 31 December 2021 
Interest income                            79,940       38,401     13,046         -   131,387 
Fair value unwind on acquired                   -            -          -         -         - 
 loan portfolio 
-----------------------------------  ------------  -----------  ---------  --------  -------- 
Total revenue                              79,940       38,401     13,046         -   131,387 
-----------------------------------  ------------  -----------  ---------  --------  -------- 
Exceptional provision for customer 
 redress                                        -            -    (2,207)         -   (2,207) 
-----------------------------------  ------------  -----------  ---------  --------  -------- 
Operating profit/(loss) before 
 amortisation                              13,653      (2,204)      (272)   (4,085)     7,092 
Amortisation of intangible assets               -            -          -         -         - 
-----------------------------------  ------------  -----------  ---------  --------  -------- 
Operating profit/(loss) before 
 exceptional items                         13,653      (2,204)      (272)   (4,085)     7,092 
Other exceptional items                         -      (8,542)      (601)   (1,580)  (10,723) 
Finance cost                             (14,491)      (1,102)    (4,350)   (6,036)  (25,979) 
-----------------------------------  ------------  -----------  ---------  --------  -------- 
Loss before taxation                        (838)     (11,848)    (5,223)  (11,701)  (29,610) 
Taxation                                       48          158        299     (580)      (75) 
-----------------------------------  ------------  -----------  ---------  --------  -------- 
Loss for the year                           (790)     (11,690)    (4,924)  (12,281)  (29,685) 
-----------------------------------  ------------  -----------  ---------  --------  -------- 
 
 
                                                                               Consolidation 
                               Branch-based       Home  Guarantor                Adjustments        2021 
                                    lending     credit      loans     Central       restated       Total 
                                     GBP000     GBP000     GBP000      GBP000         GBP000      GBP000 
-----------------------------  ------------  ---------  ---------  ----------  -------------  ---------- 
Total assets                        188,068     26,929     26,763     286,258      (186,880)     341,138 
Total liabilities                 (220,927)   (20,777)          -   (325,421)        184,800   (382,325) 
-----------------------------  ------------  ---------  ---------  ----------  -------------  ---------- 
Net assets                         (32,859)      6,152     26,763    (39,163)        (2,080)    (41,187) 
-----------------------------  ------------  ---------  ---------  ----------  -------------  ---------- 
Capital expenditure                   2,191      1,662          -         129              -       3,982 
Depreciation of plant, 
 property and equipment               1,585        578          -          12              -       2,175 
Depreciation of right-of-use 
 asset                                1,338      1,420          -         120              -       2,878 
Amortisation and impairment 
 of 
 intangible assets                      797      7,091          -          23              -       7,910 
-----------------------------  ------------  ---------  ---------  ----------  -------------  ---------- 
 

The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.

6. Exceptional items

During the year ended 31 December 2022, the Group incurred exceptional costs totalling GBP31.8m (2021: GBP12.9m).

Exceptional items during the current year comprised: GBP5.65m in relation to the derecognition of the home credit division (S.D. Taylor Limited) which was placed into administration on 15 March 2022; GBP13.71m impairments recognised on related intercompany receivable balances held with the division; and GBP12.41m of costs and redress in relation to the Scheme.

Exceptional items during the prior year comprised: GBP1.6m advisory fees incurred (equity related fees are treated as non-deductible for tax purposes), GBP2.2m additional interest costs accrued in relation to the guarantor loans redress program; GBP0.6m relating to the guarantor loans redundancies arising as a result of the Group's announcement on 30 June 2021 to place the division into managed run-off; and GBP8.5m in relation to the write-down of assets and the recognition of liabilities in the home credit division as a result of the business being placed into administration on 15 March 2022 and its financial statements no longer being prepared on a going concern basis.

7. Taxation

For the year ended 31 December 2022, the Group has continued not to recognise a deferred tax asset on its current year losses. Deferred tax assets not recognised in current and prior year losses as at 31 December 2022 totalled GBP30.1m (2021: GBP21.8m unrecognised deferred tax asset).

 
                                              Year 
                                             ended  Year ended 
                                            31 Dec      31 Dec 
                                              2022        2021 
                                            GBP000      GBP000 
----------------------------------------  --------  ---------- 
Current tax charge 
Current tax                                      -           - 
Prior period adjustment to current tax           -          75 
----------------------------------------  --------  ---------- 
Total current tax charge                         -          75 
Deferred tax charge(1)                           -           - 
Prior period adjustment to deferred tax          -           - 
----------------------------------------  --------  ---------- 
Total tax (credit)/charge                        -          75 
----------------------------------------  --------  ---------- 
 

1 Unrecognised deferred tax assets arising from tax losses in the current year were GBP6.3m (2021: GBP5.0m).

The difference between the total tax expense shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax is as follows:

 
                                                          Year 
                                                         ended  Year ended 
                                                        31 Dec      31 Dec 
                                                          2022        2021 
                                                        GBP000      GBP000 
----------------------------------------------------  --------  ---------- 
Loss before taxation                                  (56,359)    (29,610) 
Tax on loss on ordinary activities at standard rate 
 of UK corporation tax of 19% (2021: 19%):            (10,708)     (5,626) 
Effects of: 
----------------------------------------------------  --------  ---------- 
Fixed asset differences                                     62         114 
Non-deductible expenses                                  4,329         456 
Share-based payments                                         -           7 
Prior year adjustments                                       -          75 
Deferred tax assets not recognised on current year 
 losses                                                  6,317       5,049 
----------------------------------------------------  --------  ---------- 
Total tax (credit)/charge                                    -          75 
----------------------------------------------------  --------  ---------- 
 

Certain exceptional items and costs related to the derecognition of the home credit division and related impairments as well as Scheme costs have been treated as non-deductible for tax purposes.

The Finance Bill 2021 had its third reading on 24 May 2021 and is now considered substantively enacted. This will have a consequential effect on the Group's future tax charge and means that the 25% main rate of corporation tax and marginal relief will be relevant for any asset sales or timing differences expected to reverse on or after 1 April 2023.

8. Loss per share

 
                                                       Year ended 
                                                           31 Dec    Year ended 
                                                             2022   31 Dec 2021 
----------------------------------------------------  -----------  ------------ 
Retained loss attributable to Ordinary Shareholders 
 (GBP000)                                                (56,359)      (29,685) 
Weighted average number of Ordinary Shares at 
 year ended 31 December                               312,437,422   312,437,422 
Basic and diluted loss per share (pence)                 (18.04)p       (9.50)p 
----------------------------------------------------  -----------  ------------ 
 

The loss per share was calculated on the basis of net loss attributable to Ordinary Shareholders divided by the weighted average number of Ordinary Shares in issue. The basic and diluted loss per share is the same, as the exercise of any share options would reduce the loss per share and is anti-dilutive. At 31 December 2022, nil shares were held as options and nil shares were held in treasury (2021: nil).

 
                                                            Year 
                                                           ended  Year ended 
                                                          31 Dec      31 Dec 
                                                            2022        2021 
                                                            000s        000s 
-----------------------------------------------------  ---------  ---------- 
Weighted average number of potential Ordinary Shares 
 that are not currently dilutive                               -         339 
-----------------------------------------------------  ---------  ---------- 
 

The weighted average number of potential Ordinary Shares that are not currently dilutive includes the Ordinary Shares that the Company may potentially issue relating to its share option schemes and share awards under the Group's long-term incentive plans and SAYE schemes. The amount is based upon the average number of shares over the year that would have been issued if 31 December 2022 was the end of the contingency period. There were no active LTIP or SAYE schemes during the year ended 31 December 2022.

9. Dividends

As a result of the significant reported losses over the past three years, the Company does not have any distributable reserves and is therefore not in a position to declare a final dividend. Assuming that the Proposed Recapitalisation is successfully completed, the Board is committed to completing a process, subject to shareholder and Court approval, to create sufficient distributable reserves so that the Company is able to resume the payment of cash dividends to shareholders as soon as it is appropriate to do so.

As reported in the Interim Results to 30 June 2022, the Group did not declare a half-year dividend during the first half of 2022 (2021: nil).

10. Amounts receivable from customers

 
                                        2022      2021 
                                      GBP000    GBP000 
----------------------------------  --------  -------- 
Gross carrying amount                212,153   265,021 
Loan loss provision                 (35,049)  (57,037) 
----------------------------------  --------  -------- 
Amounts receivable from customers    177,104   207,984 
----------------------------------  --------  -------- 
 

The movement on the loan loss provision for the period relates to the provision at the branch-based lending, guarantor loans and home credit divisions for the year.

Included within the gross carrying amount above are unamortised broker commissions, see table below:

 
                                          2022    2021 
                                        GBP000   GBP00 
-------------------------------------  -------  ------ 
Unamortised broker commissions           7,348   6,653 
-------------------------------------  -------  ------ 
Total unamortised broker commissions     7,348   6,653 
-------------------------------------  -------  ------ 
 

The fair value of amounts receivable from customers are:

 
                                                     2022     2021 
                                                   GBP000    GBP00 
------------------------------------------------  -------  ------- 
Branch-based lending(1)                           222,856  208,440 
Home credit(2)                                          -   36,368 
Guarantor loans(1)                                 12,316   31,366 
------------------------------------------------  -------  ------- 
Fair value of amounts receivable from customers   235,172  276,174 
------------------------------------------------  -------  ------- 
 

1 Includes amounts receivable from customers which have been provided for as part of the scheme of arrangement for further detail.

2 The home credit division was placed into administration on 15 March 2022 and derecognised from the Group.

Fair value has been derived by discounting expected future cash flows (net of collection costs) at the credit risk adjusted discount rate at the balance sheet date. Under IFRS 13 Fair Value Measurement, receivables are classed as Level 3 which defines fair value measurements as those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 
                                                    2022     2021 
Maturity of amounts receivable from customers:    GBP000    GBP00 
-----------------------------------------------  -------  ------- 
Due within one year                               75,135  109,148 
Due in more than one year                        101,969   98,836 
-----------------------------------------------  -------  ------- 
Amounts receivable from customers                177,104  207,984 
-----------------------------------------------  -------  ------- 
 

Analysis of receivables from customers

 
                            Stage      Stage     Stage 
                                1          2         3      Total 
31 December 2022           GBP000     GBP000    GBP000     GBP000 
-----------------------  --------  ---------  --------  --------- 
Branch-based lending      159,594     27,878     8,658    196,130 
Guarantor loans                 -     13,510     2,513     16,023 
-----------------------  --------  ---------  --------  --------- 
Gross carrying amount     159,594     41,388    11,171    212,153 
-----------------------  --------  ---------  --------  --------- 
Branch-based lending      (9,332)   (12,476)   (7,365)   (29,173) 
Guarantor loans                 -    (3,803)   (2,073)    (5,876) 
-----------------------  --------  ---------  --------  --------- 
Loan loss provision       (9,332)   (16,279)   (9,438)   (35,049) 
-----------------------  --------  ---------  --------  --------- 
Branch-based lending      150,262     15,402     1,293    166,957 
Guarantor loans                 -      9,707       440     10,147 
-----------------------  --------  ---------  --------  --------- 
Net amounts receivable    150,262     25,109     1,733    177,104 
-----------------------  --------  ---------  --------  --------- 
 
 
                            Stage      Stage      Stage 
                                1          2          3      Total 
31 December 2021           GBP000     GBP000     GBP000     GBP000 
-----------------------  --------  ---------  ---------  --------- 
Branch-based lending      141,979     33,723      7,138    182,840 
Home credit                     -     32,162     12,975     45,137 
Guarantor loans                 -     30,768      6,276     37,044 
-----------------------  --------  ---------  ---------  --------- 
Gross carrying amount     141,979     96,653     26,389    265,021 
-----------------------  --------  ---------  ---------  --------- 
Branch-based lending      (6,831)   (13,347)    (5,481)   (25,659) 
Home credit                     -    (9,186)   (11,911)   (21,097) 
Guarantor loans                 -    (5,965)    (4,316)   (10,281) 
-----------------------  --------  ---------  ---------  --------- 
Loan loss provision       (6,831)   (28,498)   (21,708)   (57,037) 
-----------------------  --------  ---------  ---------  --------- 
Branch-based lending      135,148     20,376      1,657    157,181 
Home credit                     -     22,976      1,064     24,040 
Guarantor loans                 -     24,803      1,960     26,763 
-----------------------  --------  ---------  ---------  --------- 
Net amounts receivable    135,148     68,155      4,681    207,984 
-----------------------  --------  ---------  ---------  --------- 
 

11. Deferred tax asset/(liability)

 
                                            GBP000 
------------------------------------------  ------ 
At 31 December 2021                              - 
------------------------------------------  ------ 
Prior period adjustment to deferred tax          - 
Reversal of prior year deferred tax assets       - 
------------------------------------------  ------ 
At 31 December 2022                              - 
------------------------------------------  ------ 
 

Consistent with prior years, the Group has not recognised a deferred tax asset during the financial year on its losses due to the uncertainty in the regulatory and macroeconomic environment. The Group reviews the carrying amount of deferred tax assets at each balance sheet date and reduces it to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

The deferred tax asset is attributable to temporary timing differences and carried forward losses arising in respect of:

 
                                            2022      2021 
                                          GBP000    GBP000 
--------------------------------------  --------  -------- 
Accelerated tax depreciation                 334       271 
Carried forward losses                    26,747    18,214 
Restatement of loan loss spreading          (22)      (30) 
Other short-term timing differences            -       317 
Unpaid employer pension contributions         73       100 
FRS 102 adoption                             (2)       (3) 
IFRS 16 transitional adjustment               12        15 
IFRS 9 transitional adjustment             2,457     2,949 
Unutilised provisions                        413         - 
Unpaid employee remuneration                  87         - 
Unpaid donations                               2         4 
Unrecognised tax losses                 (30,101)  (21,837) 
--------------------------------------  --------  -------- 
Net deferred tax asset                         -         - 
--------------------------------------  --------  -------- 
 

The Finance Bill 2021 had its third reading on 24 May 2021 and is now considered substantively enacted. This will have a consequential effect on the Group's future tax charge and means that the 25% main rate of corporation tax and marginal relief will be relevant for any asset sales or timing differences expected to reverse on or after 1 April 2023.

12. Trade and other payables and provisions

 
                                  2022     2021 
                                GBP000   GBP000 
-----------------------------  -------  ------- 
Trade creditors and payables    10,941      955 
Other creditors                  1,992    3,932 
Current tax liability                -        - 
Accruals and deferred income    15,432   13,488 
-----------------------------  -------  ------- 
                                28,365   18,375 
-----------------------------  -------  ------- 
 

Provisions - Group

 
                        Plevin  Onerous contracts  Complaints  Dilapidations  Scheme provision  Restructuring    Total 
                        GBP000             GBP000      GBP000         GBP000            GBP000         GBP000   GBP000 
---------------------  -------  -----------------  ----------  -------------  ----------------  -------------  ------- 
Balance at 31 
 December 2020              49                  -       5,129          1,322            15,313              -   21,813 
Charge during the 
 year                        -                282       4,936             15             2,251            601    8,085 
Utilised                  (49)                  -     (3,432)           (68)             (636)           (70)  (4,255) 
---------------------  -------  -----------------  ----------  -------------  ----------------  -------------  ------- 
Balance at 31 
 December 2021               -                282       6,633          1,269            16,928            531   25,643 
---------------------  -------  -----------------  ----------  -------------  ----------------  -------------  ------- 
Derecognition of home 
 credit division(1)          -              (282)     (3,636)          (230)                 -              -  (4,148) 
Charge during the 
 year                        -                  -           -            390             9,502              -    9,892 
Utilised                     -                  -       (232)              -                 -          (465)    (697) 
Balance at 31 
 December 2022               -                  -       2,765          1,429            26,430             66   30,690 
---------------------  -------  -----------------  ----------  -------------  ----------------  -------------  ------- 
 

(1) The Group's home credit division was placed into administration on 15 March 2022.

Provisions are recognised for present obligations arising as a consequence of past events where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation, which can reliably be estimated.

The Group is pursuing the Scheme in order to resolve the outstanding regulatory issues and compromise its redress liabilities. Although the independent review of the Group's branch-based lending division carried out in 2021 identified no systemic issues requiring redress, as this division and the guarantor loans division (now in collect-out) trade out of the same legal entity (Everyday Lending Limited), the Scheme encompasses potential claims from both divisions in order to ensure equitable treatment of customers. The publication of the Practice Statement Letter on 17 March 2023 provides details regarding the Scheme. The Group has included a provision of GBP26.4m as at 31 December 2022 based on the amount it expects to be available for redress creditors and costs associated with the Scheme. If the Scheme is successful, it would compromise redress liabilities for loan activity prior to 31 March 2021, however it is possible that claims relating to post 31 March 2021 loan activity could increase in the future due to unforeseen circumstances and/or if FOS were to change its policy with respect to how such claims are adjudicated. The Group has recognised a provision for business as usual (BAU) complaints received at year end of GBP2.8m as at 31 December 2022 (2021: GBP6.6m). This is in relation to potential outflows to customers related to past non-compliance with regulations relating to affordability assessments. Judgement is applied to determine the quantum of such provisions, including making assumptions regarding the extent to which the complaints already received may be upheld, average redress payments and related administrative costs.

The home credit division was placed into administration on 15 March 2022 and therefore is no longer part of the Group as at 31 December 2022.

13. Contingent liabilities

A contingent liability is a possible obligation depending on whether some uncertain future event occurs. During the normal course of business, the Group is subject to regulatory reviews and challenges. All material matters arising from such reviews and challenges are assessed, with the assistance of external professional advisors where appropriate, to determine the likelihood of the Group incurring a liability as a result. In those instances, including future thematic reviews performed by the regulator in response to recent challenges noted in the industry, where it is concluded that it is more likely than not that a payment will be made, a provision is established based on management's best estimate of the amount required to meet such liability at the relevant balance sheet date.

The Group is pursuing the Scheme which if successful, would compromise redress liabilities for loan activity prior to 31 March 2021. It is possible that claims relating to post 31 March 2021 loan activity could increase in the future due to unforeseen circumstances and/or if FOS were to change its policy with respect to how such claims are adjudicated. Should the final outcome of these complaints differ materially from management's current estimates, the cost of resolving such complaints could be higher than expected. It is however not possible to estimate any such increase reliably.

14. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. The Company received dividend income of GBPnil from its subsidiary undertakings during the year (2021: GBPnil). The Company receives charges from and makes charges to these related parties in relation to shared costs, staff costs and other costs incurred on their behalf. Intra-Group transactions between the Company and the fully consolidated subsidiaries or between fully consolidated subsidiaries are eliminated on consolidation.

The Loan Smart charity was closed on 11 July 2022. During the year, the Company donated GBPnil to Loan Smart (2021: GBP15,000).

Information about the remuneration of individual Directors is provided in the Annual Report and Accounts.

Toby Westcott who is a Nominee Director of the Company receives no direct remuneration from the Company. However, Alchemy Special Opportunities LLP were remunerated for the services of Toby Westcott through a services agreement. This figure equates to a GBP75k fee plus VAT per annum. Total fees paid in relation to these services totalled GBP75k (plus VAT) for the year ended 31 December 2022 (2021: GBP75k+VAT).

15. Share capital

All shares in issue are Ordinary 'A' Shares consisting of GBP0.05 per share. All 312,437,422 shares are fully paid up.

The Company's share capital is denominated in Sterling. The Ordinary Shares rank in full for all dividends or other distributions, made or paid on the Ordinary Share capital of the Company.

During the year, the Company cancelled nil shares (2021: nil shares) and issued nil shares (2021: nil shares).

Share movements

 
                                   Number 
----------------------------  ----------- 
Balance at 31 December 2021   312,437,422 
Cancellation of shares                  - 
Issue of shares                         - 
----------------------------  ----------- 
Balance at 31 December 2022   312,437,422 
----------------------------  ----------- 
 

Non-Standard Finance plc sponsors the Non-Standard Finance plc 2019 Employee Benefit Trust ('EBT') which is a discretionary trust established on 21 October 2019 for the benefit of the employees of the Group. The Company has appointed Estera Trust (Jersey) Limited to act as trustee of the EBT. The trustee has waived the right to receive dividends on the shares it holds. As at 31 December 2022, the EBT held nil (2021: nil) shares in the Company with a cost of GBPnil (2021: GBPnil) and a market value of GBPnil (2021: GBPnil).

16. Share premium

The share premium account is used to record the aggregate amount or value of premiums paid when the Company's shares are issued at a premium.

 
                                Total 
                               GBP000 
----------------------------  ------- 
Balance at 31 December 2021   180,019 
Capital reduction                   - 
Issue of shares                     - 
----------------------------  ------- 
Balance at 31 December 2022   180,019 
----------------------------  ------- 
 

17. Net cash generated/(used) in operating activities

 
                                                              Year ended  Year ended 
                                                                  31 Dec      31 Dec 
                                                                    2022        2021 
                                                                  GBP000      GBP000 
------------------------------------------------------------  ----------  ---------- 
Operating loss                                                  (27,308)     (3,631) 
Taxation refund/(paid)                                             1,353           - 
Interest portion of the repayment of lease liabilities             (816)       (983) 
Depreciation                                                       2,677       3,833 
Share-based payment charge                                             -          34 
Amortisation of intangible assets                                    979       2,727 
Derecognition and impairments related to administration 
 of home credit division                                          19,361           - 
Exceptional charge for write-down of assets and recognition 
 of liabilities of home credit division                                -       8,542 
Profit/(loss) on disposal of property, plant and equipment           123       1,022 
Decrease/(increase) in amounts receivable from customers          13,374      48,522 
Decrease/(increase) in receivables                                   332       (446) 
(Decrease)/increase in payables and provisions                     7,841     (1,858) 
------------------------------------------------------------  ----------  ---------- 
Cash generated/(used) in operating activities                     17,916      57,762 
------------------------------------------------------------  ----------  ---------- 
 

18. Subsequent Events

The Everyday Lending Limited Directors, supported by the Group Directors, decided to pursue a scheme of arrangement to address the Group's redress liabilities and a practice statement letter for the scheme was published on 17 March 2023 (refer to note 24 for amounts provided for as part of this).

On 7 February 2023, the S.D. Taylor administrators repaid a further GBP3m to the Group's secured lenders, thereby reducing the Group's gross loans and borrowings to GBP252m.

APPIX

Glossary of alternative performance measures and key performance indicators

The Group has developed a series of alternative performance measures that it uses to monitor the financial and operating performance of each of its business divisions and the Group as a whole. These measures seek to adjust reported metrics for the impact of non-cash and other accounting charges (including modification loss) that make it more difficult to see the true underlying performance of the business. These APMs are not defined or specified under the requirements of International Financial Reporting Standards, however we believe these APMs provide readers with important additional information on our business. To support this, we have included a reconciliation of the APMs we use, how they are calculated and why we use them on the following pages.

 
Alternative performance 
 measure                  Definition 
-----------------------  -------------------------------------------------------- 
Net debt                   Gross borrowings less cash at bank 
                           Normalised figures are before fair value adjustments, 
                            amortisation of acquired intangibles and exceptional 
Normalised revenue          items (refer to note 7). 
                         -------------------------------------------------------- 
Normalised operating 
 profit 
                         -------------------------------------------------------- 
Normalised profit 
 before tax 
Normalised earnings 
 per share 
-----------------------  -------------------------------------------------------- 
 
Key performance 
 indicator 
-----------------------  -------------------------------------------------------- 
Impairments/revenue        Impairments as a percentage of normalised revenues 
-----------------------  -------------------------------------------------------- 
Impairments (including     Impairments (including modification and derecognition 
 modifications)/revenue     losses) as a percentage of normalised revenues 
-----------------------  -------------------------------------------------------- 
Impairments/average        Impairments as a percentage of 12-month average 
 loan book                  net loan book, excluding fair value adjustments 
-----------------------  -------------------------------------------------------- 
Net loan book              Net loan book before fair value adjustments but 
                            after deducting any impairment due 
-----------------------  -------------------------------------------------------- 
Net loan book growth       Annual growth in the net loan book 
-----------------------  -------------------------------------------------------- 
Operating profit           Normalised operating profit as a percentage of 
 margin                     normalised revenues 
-----------------------  -------------------------------------------------------- 
Cost:income ratio          Normalised administrative expenses as a percentage 
                            of normalised revenue 
-----------------------  -------------------------------------------------------- 
Return on asset            Normalised operating profit as a percentage of 
                            average loan book excluding fair value adjustments 
-----------------------  -------------------------------------------------------- 
Revenue yield              Normalised revenue as a percentage of average 
                            loan book excluding fair value adjustments 
-----------------------  -------------------------------------------------------- 
Risk adjusted margin       Normalised revenue less impairments as a percentage 
                            of average loan book excluding fair value adjustments 
-----------------------  -------------------------------------------------------- 
 

Alternative performance measures reconciliation

1. Net debt

 
                              31 Dec 2022  31 Dec 2021 
                                   GBP000       GBP000 
----------------------------  -----------  ----------- 
Borrowings                        255,000      330,000 
Cash at bank and in hand(1)      (31,732)    (114,544) 
----------------------------  -----------  ----------- 
                                  223,268      215,456 
----------------------------  -----------  ----------- 
 

1 Cash at bank and in hand excludes cash held by the Parent Company that sits outside of the security group.

This is deemed useful to show total borrowings if cash available at year end was used to repay borrowing facilities.

2. Normalised and reported revenue

 
                            Branch-based 
                               lending       Guarantor loans 
------------------------  ----------------  ----------------- 
                           31 Dec   31 Dec    31 Dec   31 Dec 
                             2022     2021      2022     2021 
                           GBP000   GBP000    GBP000   GBP000 
------------------------  -------  -------  --------  ------- 
Normalised and reported 
 revenue                   84,470   79,940     6,552   13,046 
 

3. Normalised operating profit/(loss)

 
                                     Branch-based 
                                        lending       Guarantor loans 
---------------------------------  ----------------  ----------------- 
                                    31 Dec   31 Dec    31 Dec   31 Dec 
                                      2022     2021      2022     2021 
                                    GBP000   GBP000    GBP000   GBP000 
---------------------------------  -------  -------  --------  ------- 
Reported operating profit/(loss)     7,196   13,653       835   ( 272) 
Add back fair value adjustments 
 and amortization of acquired 
 intangibles                             -        -         -        - 
Add back exceptional items               -        -         -    2,207 
Normalised operating 
 profit/(loss)                       7,196   13,653       835    1,935 
---------------------------------  -------  -------  --------  ------- 
 

Fair value adjustments and amortisations have been excluded due to them being non-business-as-usual transactions. They result from the Group making acquisitions and do not reflect the underlying performance of the business. Removing this item is deemed to give a fairer representation of revenue within the relevant financial year.

4. Normalised profit/(loss) before tax

 
                                                     31 Dec 2022  31 Dec 2021 
                                                          GBP000       GBP000 
---------------------------------------------------  -----------  ----------- 
Reported loss before tax                                (56,359)   (29, 610 ) 
Add back fair value adjustments                                -            - 
Add back amortisation and write-off of intangibles             -            - 
Add back exceptional items                                31,768       12,930 
---------------------------------------------------  -----------  ----------- 
Normalised (loss)/profit before tax                     (24,591)     (16,680) 
---------------------------------------------------  -----------  ----------- 
 

Exceptional items have been excluded due to them being non-business-as-usual transactions. They are one-off and are not as a result of underlying business-as-usual transactions (refer to note 7 for further detail) and therefore do not reflect the underlying performance of the business. Hence, removing these items is deemed to give a fairer representation of the underlying profit performance within the financial year.

5. Normalised profit/(loss) for the year

 
                                                        Group 
---------------------------------------------  ------------------------ 
                                               31 Dec 2022  31 Dec 2021 
                                                    GBP000       GBP000 
---------------------------------------------  -----------  ----------- 
                                                               (29, 685 
Reported loss for the year                        (56,359)            ) 
Add back exceptional items                          31,768       12,930 
Adjustment for tax relating to above items               -            - 
---------------------------------------------  -----------  ----------- 
                                                               ( 16,755 
Normalised profit/(loss) for the year             (24,591)            ) 
---------------------------------------------  -----------  ----------- 
Weighted average shares                        312,437,422  312,437,422 
---------------------------------------------  -----------  ----------- 
Normalised earnings/(loss) per share (pence)       (7.87)p      (5.36)p 
---------------------------------------------  -----------  ----------- 
 

Exceptional items have been excluded due to them being non-business-as-usual transactions. They are one-off and are not as a result of underlying business-as-usual transactions (refer to note 7 for further detail) and therefore do not reflect the underlying performance of the business. Hence, removing these items is deemed to give a fairer representation of the underlying earnings/(loss) per share within the financial year.

6. Impairment as a percentage of revenue

 
                                Branch-based 
                                   lending           Guarantor loans 
---------------------------  ------------------  ------------------------ 
                               31 Dec    31 Dec   31 Dec           31 Dec 
                                 2022      2021     2022             2021 
                               GBP000    GBP000   GBP000           GBP000 
---------------------------  --------  --------  -------  --------------- 
Normalised revenue             84,470    79,940    6,552           13,046 
Impairment                   (26,704)  (18,994)    1,595            1,061 
---------------------------  --------  --------  -------  --------------- 
Impairment as a percentage 
 revenue                        31.6%     23.8%  (24.4)%           (8.1)% 
---------------------------  --------  --------  -------  --------------- 
 
 
                                  Branch-based 
                                     lending           Guarantor loans 
-----------------------------  ------------------  ------------------------ 
                                 31 Dec    31 Dec   31 Dec           31 Dec 
                                   2022      2021     2022             2021 
                                 GBP000    GBP000   GBP000           GBP000 
-----------------------------  --------  --------  -------  --------------- 
Normalised revenue               84,470    79,940    6,552           13,046 
Impairment and modifications   (26,954)  (20,337)    1,583            (417) 
-----------------------------  --------  --------  -------  --------------- 
Impairment and modifications 
 as a percentage revenue          31.9%     25.5%  (24.2)%             3.2% 
-----------------------------  --------  --------  -------  --------------- 
 

Impairment as a percentage revenue is a key measure for the Group in monitoring risk within the business.

7. Impairment as a percentage loan book

 
                                Branch-based 
                                   lending        Guarantor loans 
---------------------------  ------------------  ----------------- 
                               31 Dec    31 Dec    31 Dec   31 Dec 
                                 2022      2021      2022     2021 
                               GBP000    GBP000    GBP000   GBP000 
---------------------------  --------  --------  --------  ------- 
                                                      26, 
Opening net loan book         157,181   171,460       763   59,794 
Closing net loan book         166,957   157,181    10,147  26, 763 
 
Average net loan book         161,460   163,724    17,095   40,609 
Impairment                   (26,704)  (18,994)     1,595    1,061 
---------------------------  --------  --------  --------  ------- 
Impairment as a percentage 
 loan book                      16.5%     11.6%    (9.3)%   (2.6%) 
---------------------------  --------  --------  --------  ------- 
 

Impairment as a percentage loan book allows review of impairment level movements year on year.

8. Net loan book growth

 
                          Branch-based 
                             lending       Guarantor loans 
----------------------  ----------------  ----------------- 
                         31 Dec   31 Dec    31 Dec   31 Dec 
                           2022     2021      2022     2021 
                         GBP000   GBP000    GBP000   GBP000 
----------------------  -------  -------  --------  ------- 
                                               26, 
Opening net loan book   157,181  171,460       763   59,794 
Closing net loan book   166,957  157,181    10,147  26, 763 
----------------------  -------  -------  --------  ------- 
Net loan book growth       6.2%   (8.3%)   (62.1)%  (55.2%) 
----------------------  -------  -------  --------  ------- 
 

9. Return on asset

 
                                Branch-based 
                                   lending       Guarantor loans 
----------------------------  ----------------  ----------------- 
                               31 Dec   31 Dec    31 Dec   31 Dec 
                                 2022     2021      2022     2021 
                               GBP000   GBP000    GBP000   GBP000 
----------------------------  -------  -------  --------  ------- 
Normalised operating profit     7,196   13,653       835    1,935 
Average net loan book         161,460  163,724    17,095   40,609 
----------------------------  -------  -------  --------  ------- 
Return on asset                  4.5%     8.3%      4.9%     4.8% 
----------------------------  -------  -------  --------  ------- 
 

The return on asset measure is used internally to review the return on the Group's primary key assets.

10. Revenue yield

 
                             Branch-based 
                                lending       Guarantor loans 
-------------------------  ----------------  ----------------- 
                            31 Dec   31 Dec    31 Dec   31 Dec 
                              2022     2021      2022     2021 
                            GBP000   GBP000    GBP000   GBP000 
-------------------------  -------  -------  --------  ------- 
Normalised revenue          84,470   79,940     6,522   13,046 
Average net loan book      161,460  163,724    17,095   40,609 
-------------------------  -------  -------  --------  ------- 
Revenue yield percentage     52.3%    48.8%     38.3%    32.1% 
-------------------------  -------  -------  --------  ------- 
 

Revenue yield percentage is deemed useful in assessing the gross return on the Group's loan book.

11. Risk adjusted margin

 
                              Branch-based 
                                 lending        Guarantor loans 
-------------------------  ------------------  ----------------- 
                             31 Dec    31 Dec    31 Dec   31 Dec 
                               2022      2021      2022     2021 
                             GBP000    GBP000    GBP000   GBP000 
-------------------------  --------  --------  --------  ------- 
Normalised revenue           84,470    79,940     6,552   13,046 
Impairments                (26,704)  (18,994)     1,595    1,061 
Normalised risk adjusted 
 revenue                     57,766    60,946     8,147   14,107 
Average net loan book       161,460   163,724    17,095   40,609 
-------------------------  --------  --------  --------  ------- 
Risk adjusted margin 
 percentage                   35.8%     37.2%     47.7%    34.7% 
-------------------------  --------  --------  --------  ------- 
 

The Group defines normalised risk adjusted revenue as normalised revenue less impairments. Risk adjusted revenue is not a measurement of performance under IFRSs, and you should not consider risk adjusted revenue as an alternative to profit before tax as a measure of the Group's operating performance, as a measure of the Group's ability to meet its cash needs or as any other measure of performance under IFRSs. The risk adjusted margin measure is used internally to review an adjusted return on the Group's primary key assets.

12. Operating profit margin

 
                            Branch-based 
                               lending       Guarantor loans 
------------------------  ----------------  ----------------- 
                           31 Dec   31 Dec    31 Dec   31 Dec 
                             2022     2021      2022     2021 
                           GBP000   GBP000    GBP000   GBP000 
------------------------  -------  -------  --------  ------- 
Normalised operating 
 profit                     7,196   13,653       835    1,935 
Normalised revenue         84,470   79,940     6,552   13,046 
------------------------  -------  -------  --------  ------- 
Operating profit margin 
 percentage                  8.5%    17.1%     12.8%    14.8% 
------------------------  -------  -------  --------  ------- 
 

13. Cost to income ratio

 
                             Branch-based 
                                lending        Guarantor loans 
------------------------  ------------------  ----------------- 
                            31 Dec    31 Dec   31 Dec    31 Dec 
                              2022      2021     2022      2021 
                            GBP000    GBP000    GBP00    GBP000 
------------------------  --------  --------  -------  -------- 
Normalised revenue          84,470    79,940    6,552    13,046 
Administration expense    (50,493)  (46,294)  (7,300)  (10,695) 
------------------------  --------  --------  -------  -------- 
Operating profit margin 
 percentage                  59.8%     57.9%   111.4%     82.0% 
------------------------  --------  --------  -------  -------- 
 

This measure allows review of cost management.

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