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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 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.04 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMNSF
RNS Number : 5509J
Non-Standard Finance PLC
20 August 2019
Non-Standard Finance plc
('Non-Standard Finance', 'NSF', the 'Company' or the 'Group')
Unaudited Half Year Results to 30 June 2019
20 August 2019
Financial highlights
-- Continued strong underlying growth in H1 2019, driven by our personalised approach to customer engagement
-- Normalised revenue(1) up 12% to GBP88.3m (2018: GBP78.9m); reported revenue of GBP87.1m (2018: GBP75.1m)
-- Normalised operating profit(1) up 28% to GBP19.5m (2018: GBP15.2m); reported operating profit of GBP15.7m (2018: GBP7.0m)
-- Normalised profit before tax(1) up 12% to GBP6.3m (2018: GBP5.6m) led by a strong performance in home credit
-- Exceptional charge of GBP25.3m (2018: GBPnil) includes fees and costs associated with the offer for Provident Financial plc of GBP12.7m (2018: GBPnil) and Loans at Home goodwill impairment of GBP12.5m (2018: GBPnil) to give a reported loss before tax(2) of GBP22.8m (2018: reported loss of GBP2.6m).
-- Half year dividend per share up 17% to 0.7p (2018: 0.6p per share)
-- The 2019 and 2018 results are not strictly comparable as from 1 January 2019, the Group adopted IFRS 16. The context for results set out below provides further details.
Operational highlights
-- We remain committed to our personalised and responsible approach of lending only once we have met the applicant face-to-face, unless they have a guarantor to support their planned borrowing
-- Total net loan book up 26% to GBP335.6m (30 June 2018: GBP267.4m) before fair value adjustments:
o Branch-based lending: up 22% with seven new branches opened in the first half
o Guarantor Loans: up 53% reflecting further investment and strong market demand
o Home credit: down 6% but with a significant increase in operating profit
-- Further reduction in overall impairment as a percentage of normalised revenue to 24.5% (H1 2018: 25.6%)(3)
-- Overall customer numbers up 7% driven by branch-based lending (+22%) and guarantor loans (+36%) since 30 June 2018
Current trading and outlook
-- Current trading: trading in-line with market expectations and we remain cautiously optimistic about the full-year
-- Whilst macroeconomic uncertainties remain, the Group remains resilient and well-placed to meet its objectives
Financial summary
Hot Features
Premium
6 months to 30 June 2019 2018 % change
GBP'000 GBP'000
---------------------------------- --------- -------- ---------
Normalised revenue(1) 88,287 78,895 +12%
Reported revenue 87,103 75,056 +16%
Normalised operating profit(1) 19,477 15,173 +28%
Reported operating profit 15,686 6,994 +124%
Normalised profit before tax(1) 6,299 5,620 +12%
Reported (loss) before tax(2) (22,766) (2,559) 790%
Normalised earnings per share(4) 1.64p 1.45p +13%
Reported (loss) per share (7.44)p (0.66)p +1027%
Half year dividend per share 0.7p 0.60p +17%
=================================== ========= ======== =========
(1) Normalised figures are before fair value adjustments, amortisation of acquired intangibles and exceptional items. See glossary of alternative performance measures and key performance indicators in the Appendix.
(2) After fair value adjustments, amortisation of acquired intangible assets and exceptional costs
(3) Rolling 12-month to 31 December 2018
(4) Normalised earnings per share in 2019 is calculated as normalised profit after tax of GBP5.103m divided by the weighted average number of shares of 312,049,682. Normalised earnings per share in 2018 is calculated as normalised profit after tax of GBP4.551m, divided by the weighted average number of shares of 313,388,139.
John van Kuffeler, Group Chief Executive, said
"The Group delivered another good performance in the first half of 2019 with strong loan book growth and a further reduction in impairment as a percentage of revenues. We have secured a leading position in three highly attractive segments following a four-year programme of investment. During this period, Everyday Loans has doubled the size of its loan book, our Guarantor Loans Division has more than doubled and Loans at Home has grown substantially. Now this phase of significant investment is complete, we expect a greater proportion of future revenue growth to be translated into profit.
"Whilst we believe strongly that a combination with Provident Financial plc would have accelerated the delivery of benefits for customers, employees and shareholders, each of our businesses continued to perform well during the first half. Our strategy remains unchanged and we remain on course to deliver attractive long-term returns through a combination of income and capital growth.
"As well as fees and other deal-related costs, exceptional items in the first half also include an impairment charge for Loans at Home goodwill. Whilst Loans at Home is highly profitable, is performing strongly and is ahead of plan, the significant decline in the peer group multiples since December 2018 has prompted the impairment of the goodwill asset in the Group's balance sheet. We are continuing to see a strong level of demand in both branch-based lending and guarantor loans while in the more mature home credit market, demand remains steady.
"Reflecting our cautious optimism about the full year outlook, we have declared a 17% increase in the half year dividend to 0.7p per share."
The tables below provide an analysis of the normalised results (excluding fair value adjustments, amortisation of acquired intangibles and exceptional items) for the Group for the six month period to 30 June 2019 and 30 June 2018 respectively.
6 months to 30 Jun Branch-based Guarantor Home credit Central NSF plc
19 lending loans costs
Normalised(5)
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ------------- ---------- ------------ -------- ---------
Revenue 43,756 13,840 30,691 - 88,287
Other operating income 221 - - - 221
Modification loss (246) (41) - - (287)
Impairments (9,335) (3,241) (8,828) - (21,404)
Admin expenses (20,558) (6,212) (17,560) (3,010) (47,340)
Operating profit (loss) 13,838 4,346 4,303 (3,010) 19,477
Net finance cost (8,399) (3,453) (1,108) (218) (13,178)
------------- ---------- ------------ -------- ---------
Profit (loss) before
tax 5,439 893 3,195 (3,228) 6,299
------------- ---------- ------------ -------- ---------
6 months to 30 Jun Branch-based Guarantor Home credit Central NSF plc
18 lending loans costs
Normalised(5)
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ------------- ---------- ------------ -------- ---------
Revenue 35,802 9,897 33,196 - 78,895
Other operating income 890 - - - 890
Modification loss(6) - - - - -
Impairments (6,998) (1,416) (11,653) - (20,067)
Admin expenses (17,669) (4,593) (19,497) (2,786) (44,545)
Operating profit (loss) 12,025 3,888 2,046 (2,786) 15,173
Net finance cost (5,637) (2,583) (1,271) (62) (9,553)
------------- ---------- ------------ -------- ---------
Profit (loss) before
tax 6,388 1,305 775 (2,848) 5,620
------------- ---------- ------------ -------- ---------
(5) Excludes fair value adjustments, amortisation of acquired intangibles and exceptional items
(6) As at 30 June 2018, the Group had not yet finalised the application of IFRS 9. Per the annual audited accounts for the year ended 31 December 2018, it was concluded that as a result of the Group's forbearance activities, a modification gain or loss may be recognised in respect of rescheduled loans. The Group has recognised a modification loss in the six months ended 30 June 2019 in line with the approach taken and reflected in the annual audited accounts for the year ended 31 December 2018. We have not restated for the six months ended 30 June 2018.
Context for the results
-- The 2019 and 2018 results are not strictly comparable as from 1 January 2019 the Group adopted IFRS 16 Leases, a new accounting standard covering Leases which replaces IAS 17 Leases. As permitted by IFRS 16, the Group has applied IFRS 16 using the modified retrospective approach, without restatement of the comparative information. Refer to notes to the financial statements for the transitional impact of IFRS 16.
-- As at 30 June 2018, the Group had not yet finalised the application of IFRS 9. Per the annual audited accounts for the year ended 31 December 2018, it was concluded that as a result of the Group's forbearance activities, a modification gain or loss may be recognised in respect of rescheduled loans. The Group has recognised a modification loss in the six months ended 30 June 2019 in line with the approach taken and reflected in the annual audited accounts for the year ended 31 December 2018. We have not restated for the six months ended 30 June 2018 and therefore comparative KPIs are for the rolling twelve month period to 31 December 2018.
-- The 2019 and 2018 reported results include fair value adjustments, amortisation of acquired intangibles and exceptional items. There were no exceptional items in 2018. Exceptional items in 2019 include fees and expenses associated with the offer to acquire Provident Financial plc on the terms set out in an offer document published on 9 March 2019, as well as an impairment loss on the Loans at Home goodwill asset.
Analyst meeting, webcast and dial-in details
There will be an analyst meeting at 9.30 am on 20 August 2019 for invited UK-based analysts at the offices of Liberum, Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY. The meeting will be simultaneously broadcast via webcast and conference call. To watch the live webcast, please register for access by visiting the Group's website www.nsfgroupplc.com. Details for the dial-in facility are given below. A copy of the webcast and slide presentation given at the meeting will be available on the Group's website later today.
Dial-in details to listen to the analyst presentation at 9.30 am, 20 August 2019
09.20 am Please call +44 (0)330 336 9125 Access code 3540398 9.30 am Meeting starts
All times are British Summer Time (BST).
For more information:
Non-Standard Finance plc
John van Kuffeler, Group Chief Executive
Nick Teunon, Chief Financial Officer +44 (0) 20 3869
Peter Reynolds, Director, IR and Communications 9020
Finsbury
Faeth Birch
Michael Turner +44 (0) 20 7251
Angharad Knill 3801
About Non-Standard Finance
Non-Standard Finance plc is listed on the main market of the London Stock Exchange (ticker: NSF) and was established in 2014 to acquire and grow businesses in the UK's non-standard consumer finance sector. Under the direction of its highly experienced main board, the Company has acquired a sustainable group of businesses offering credit to the c.10-12 million UK adults who are not served by (or choose not to use) mainstream financial institutions. Its three business divisions are: unsecured branch-based lending, guarantor loans and home credit. Each division is fully authorised by the FCA and has benefited from significant investment in branch expansion, recruitment, training and new IT infrastructure and systems. These investments have supported the delivery of improved customer outcomes together with growing financial returns for shareholders.
Group Chief Executive's statement
Introduction
NSF is a leading player in the UK's non-standard finance market with leadership positions in three attractive segments: branch-based lending, guarantor loans and home credit. The Group's evolution from a cash shell back in 2015 has been achieved thanks to a period of significant investment in all three divisions with a clear differentiating feature being the Group's focus on face-to-face lending unless the applicant has the support of a guarantor. Our business is founded on building personal relationships with our customers, many of whom have already been excluded by high-street lenders and other mainstream providers. These relationships, supported by significant physical and technological infrastructure, represent the very heart of our business model that is focused on addressing the credit needs of a growing proportion of the 10 million adults(7) that are either unable or unwilling to borrow from mainstream banks and other lenders.
(7) UK Specialist Lending Market Trends and Outlook 2018. Executive insights Volume XX, Issue 39 - L.E.K Consulting
Results
In the six months to 30 June 2019 the Group grew normalised revenue before fair value adjustments by 12% to GBP88.3m (2018: GBP78.9m) and normalised operating profit by 28% to GBP19.5m (2018: GBP15.2m). Reported revenue, which is after fair value adjustments was GBP87.1m (2018: GBP75.1m); reported operating profit was GBP15.7m (2018: GBP7.0m) and reported loss before tax, which was after an exceptional charge of GBP25.3m (2018: GBPnil), was GBP22.8m (2018: GBP2.6m).
The combined net loan book across all three divisions as at 30 June 2019 grew by 26% from GBP267.4m at 30 June 2018 to GBP335.6m before fair value adjustments and by 23% to GBP338.7m after fair value adjustments.
Branch-based lending
We opened seven new branches as planned during the first half of 2019 with an eighth branch opened in July 2019. As a result, we now have a total of 73 branches open, which is more than double the number when we acquired the business in April 2016. Whilst the new branch openings incurred additional costs in the first half, the business delivered a 15% increase in normalised operating profit to GBP13.8m (2018: GBP12.0m).
Guarantor loans
By providing borrowers with access to credit, usually at a significantly lower cost than they would be able to achieve borrowing on their own, the demand for guarantor loans remains strong. In the six months to 30 June 2019 revenue grew by 40% to GBP13.8m (2018: GBP9.9m) and normalised operating profit was up 12% to GBP4.3m (2018: GBP3.9m). The rate of loan book growth remains above our medium-term target of 30% and we continue to take market share from competitors.
Home credit
Loans at Home delivered a strong performance in the period. This was achieved by shortening the average term of loans issued and improving the quality of our customer base. The small decline in the net loan book in the first half was more than compensated by a marked reduction in impairment as a percentage of revenue. As a result, normalised operating profit increased by 110% to GBP4.3m (2018: GBP2.0m) and bodes well for a strong performance in the seasonally important second half of the year. Despite this strong performance, which was ahead of our budget for the first half of 2019, the significant decline in the valuations of all the listed companies in the non-standard sector since the end of 2018 means that we have reduced the carrying value of goodwill on the balance sheet by GBP12.5m.
Business strategy
Our long-term vision and strategy for the Group is unchanged. We continue to see significant opportunity for the Group with approximately 10 million adults either unwilling or unable to access credit from more mainstream banks and financial institutions.
We remain focused on our three chosen sub-segments of the non-standard market: branch-based lending, guarantor loans and home credit. Having completed what has been a period of significant investment over the past four years, the Group is a top three player in all three segments, has high risk-adjusted margins and is well-positioned to deliver good customer outcomes and drive attractive long-term equity returns. These outcomes and returns will flow from the continued execution of the three elements of our business strategy:
-- be a leader in each of our chosen segments; -- invest in our core assets (networks, people, technology and brands); and -- act responsibly.
Debt funding
The Group's debt facilities currently comprise a GBP285m term loan facility (the 'Term Loan'), provided by a group of institutional investors, led by Alcentra Limited. The Term Loan, which is not repayable until August 2023, bears an interest rate of LIBOR plus 7.25% per year with interest payable every six months. In addition, the Group has a GBP45m revolving credit facility provided by Royal Bank of Scotland at an interest rate of LIBOR plus 3.5% per year.
As at 30 June 2019 the Group had cash at bank of GBP17.4m (31 December 2018: GBP13.9m) and gross borrowings of GBP302.7m (31 December 2018: GBP272.8m) leaving total headroom on the Group's debt facilities of GBP27.3m (31 December 2018: GBP57.2m).
The Group is in advanced discussions regarding an additional, lower cost debt facility that will be used to fund further growth and underpin the Group's long-term plans. Whilst such discussions have not yet concluded, it is hoped that we will be in a position to make a further announcement in due course.
Regulation
The Group is dedicated to the delivery of good customer outcomes and seeks to be at the vanguard of best practice in the non-standard finance sector. Whilst the Group has continued to invest in the careful management of its regulatory and other risks, during the first half of 2019 the following developments are of particular relevance to the Group's business:
-- FCA review of guarantor loans - During a speech given on 21 March 2019, Jonathan Davidson, Executive Director of Supervision at the FCA, announced that the FCA had identified some potential concerns in the guarantor loans market regarding affordability checks and the level of guarantors' understanding of their obligations before entering into a legally binding agreement. Since then, the FCA has requested a variety of data from operators across the sector and is continuing to broaden its understanding of best practice across the industry. We believe that our policies, procedures and day-to-day working practices are delivering good customer outcomes and we are continuing to engage with the FCA on these and other related topics.
-- Breathing space - in June 2019, HM Treasury published its response to the Government's so-called 'breathing space' proposal setting out a summary of the proposed operating framework and how it is expected that this will work in practice. The Government's proposal is centred around providing debtors with a 60 day period during which they will be left alone by creditors in order to fully engage with debt advice and seek a sustainable solution to their debts. Whilst a number of issues remain to be clarified including eligibility for the scheme, which debts can be included and how borrower's data will be recorded, the full and final details of the scheme are expected to be contained in legislation due to be laid before parliament in the autumn of 2019 and becoming law some time in 2021.
-- Vulnerable customers - in July 2019, the FCA launched a consultation (GC19/3) seeking feedback on a series of guidance proposals on how regulated firms are expected to interact with vulnerable customers. With the benefit of this feedback, the FCA will then publish revised draft guidance, including a cost benefit analysis as well as details and a further consultation on any further interventions that it deems necessary.
-- Senior Managers and Certification Regime ('SM&CR') - From December 2019 all consumer credit firms will be affected by the SM&CR which replaces the Approved Persons regime. Each of the Group's businesses is well advanced in its preparations for the change and on course to comply by the due date.
We remain focused on delivering good customer outcomes and continue to monitor all regulatory developments closely so that we can anticipate and, if necessary, engage with the relevant authorities, either directly or through industry associations.
Half year dividend
The Board is declaring a 17% increase in the half year dividend to 0.7p per share (2018: 0.6p) with a total half year dividend pay-out of approximately GBP2.2m (2018: GBP1.9m) or 43% of normalised post-tax profits.
The half year dividend of 0.7p per share (2018: 0.6p) will be payable on 17 October 2019 to those shareholders on the register of shareholders on 20 September 2019 (the 'Record Date').
Current trading and outlook
Since the end of June 2019, the Group has continued to experience strong loan book growth in both branch-based lending and guarantor loans while in the more mature home credit market, demand remains steady. As a result, whilst macroeconomic uncertainties continue, with a leading market position in each of our chosen segments, high risk-adjusted margins and long-term funding in place, we believe we are well-placed for the future and remain cautiously optimistic about the full year outlook.
John de Blocq van Kuffeler
Group Chief Executive
20 August 2019
Financial review
Fair value adjustments and amortisation of acquired intangibles in 2019 include amounts relating to the acquisitions of Everyday Loans (including TrustTwo) and George Banco.
6 months to 30 June 2019 2019 2019
Fair value adjustments, amortisation of acquired
Normalised(8) intangibles and exceptional items Reported
GBP'000 GBP'000 GBP'000
-------------------------------- -------------- --------------------------------------------------------- ---------
Revenue 88,287 (1,184) 87,103
Other operating income 221 - 221
Modification loss (287) - (287)
Impairments (21,404) - (21,404)
Admin expenses (47,340) (2,607) (49,947)
-------------- --------------------------------------------------------- ---------
Operating profit (loss) 19,477 (3,791) 15,686
Exceptional items(9) - (25,274) (25,274)
-------------- --------------------------------------------------------- ---------
Profit before interest and tax 19,477 (29,065) (9,588)
Finance cost (13,178) - (13,178)
-------------- --------------------------------------------------------- ---------
Profit (loss) before tax 6,299 (29,065) (22,766)
Taxation (1,196) 745 (451)
-------------- --------------------------------------------------------- ---------
Profit (loss) after tax 5,103 (28,320) (23,217)
============== ========================================================= =========
Loss per share 1.64p (7.44)p
Dividend per share 0.70p 0.70p
================================ ============== ========================================================= =========
6 months to 30 June 2018 2018 2018
Fair value adjustments and amortisation of acquired
Normalised(8) intangibles Reported
GBP'000 GBP'000 GBP'000
-------------------------- -------------- --------------------------------------------------------------- ---------
Revenue 78,895 (3,839) 75,056
Other operating income 890 - 890
Impairments (20,067) - (20,067)
Admin expenses (44,545) (4,340) (48,885)
-------------- --------------------------------------------------------------- ---------
Operating profit (loss) 15,173 (8,179) 6,994
Finance cost (9,553) - (9,553)
-------------- --------------------------------------------------------------- ---------
Profit (loss) before tax 5,620 (8,179) (2,559)
Taxation (1,069) 1,554 485
-------------- --------------------------------------------------------------- ---------
Profit (loss) after tax 4,551 (6,625) (2,074)
============== =============================================================== =========
Loss per share 1.45p (0.66)p
Dividend per share 0.60p 0.60p
========================== ============== =============================================================== =========
(8) Normalised figures, adjusted to exclude fair value adjustments, amortisation of acquired intangibles and exceptional items
(9) Refer to note 5 in the notes to the financial statements for further detail
Normalised revenue was up 12% to GBP88.3m (2018: GBP78.9m) reflecting strong growth in both branch-based lending and guarantor loans that more than offset a small reduction in home credit which benefited from a significant improvement in the quality of its loan book. Underlying this performance was strong loan book growth in both branch-based lending and guarantor loans.
The increased cost of expansion in both branch-based lending and guarantor loans was mitigated by further cost efficiencies in home credit with the result that overall administration costs on a normalised basis increased by 6% to GBP47.3m (2018: GBP44.5m) and the cost:income ratio over the 12 months to 30 June fell from 56.5% to 53.6%. The net result was that normalised operating profit increased by 28% to GBP19.5m (2018: GBP15.2m).
The net loan book before fair value adjustments grew by 26% as summarised below:
Reconciliation of 2019 2019 2019 2018 2018 2018
net loan book Normalised Fair value Reported Normalised Fair value Reported
adjustments adjustments
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------------ ------------- ---------- ------------ ------------- ----------
Branch-based lending 203.8 - 203.8 166.6 2.0 168.6
Guarantor loans 96.3 3.1 99.4 62.9 6.2 69.1
Home credit 35.5 - 35.5 37.8 - 37.8
------------ ------------- ---------- ------------ ------------- ----------
Total 335.6 3.1 338.7 267.4 8.2 275.6
====================== ============ ============= ========== ============ ============= ==========
Finance costs increased by 38% to GBP13.2m (2018: GBP9.6m), driven by the strong loan book growth in both branch-based lending and guarantor loans mitigated in part by positive seasonal cash flow from home credit. As a result, normalised profit before tax was up 12% to GBP6.3m (2018: GBP5.6m) and the reported loss before tax (after fair value adjustments, amortisation of acquired intangibles and exceptional items of GBP29.1m (2018: GBP8.2m)), was GBP22.8m (2018: loss before tax of GBP2.6m). Normalised earnings per share were 1.64p, a 13% increase over the prior year (2018: 1.45p), while exceptional items, fair value and other accounting adjustments meant that the Group's reported loss per share was 7.44p (2018: loss per share of 0.66p).
A detailed review of each of the operating businesses is outlined below on both a normalised as well as a reported basis.
Divisional review
Branch-based lending
Everyday Loans is the market-leader in its field and has doubled in size since it was acquired in 2016. It is also the largest contributor to the Group's overall financial performance. The business has now passed through the significant milestone of net loan book (before fair value adjustments) of GBP200m reaching GBP203.8m by 30 June 2019, a 22% increase over the prior year (2018: GBP166.6m). The number of active customers has also continued to grow strongly, up by 22% versus the prior year to 67,400 (2018: 55,300), driven by the opening of a further seven new branches in the period and growth across the network. With the opening of an eighth branch in July 2019, there are now 73 branches open, up from 64 at the end of June 2018.
What makes our model different from many of our competitors is that, as well as offering customers all of the digital touchpoints when they apply for a loan and conducting all of the digital checks and procedures carried out by the fintech sectors, we also seek to meet all of our customers face-to-face. Building personal relationships with our customers and conducting our underwriting face-to-face has proven to be a powerful and profitable model. Building personal relationships remains essential, even in the digital age and although it requires a large network of branches and highly trained staff, the cost is more than outweighed by the relatively low levels of impairment and the delivery of good customer outcomes that our model has achieved versus other providers - a position we have maintained since taking control of the business in April 2016. As a result, we believe that in the event of any economic downturn, we are in a relatively strong position.
Financial results
6 months to 30 June 2019 2019 2019
Normalised(10) Fair value adjustments Reported
GBP'000 GBP'000 GBP'000
------------------------ --------------- ----------------------- ---------
Revenue 43,756 - 43,756
Other operating income 221 - 221
Modification loss (246) - (246)
Impairments (9,335) - (9,335)
Admin expenses (20,558) - (20,558)
--------------- ----------------------- ---------
Operating profit 13,838 - 13,838
Finance cost (8,399) - (8,399)
--------------- ----------------------- ---------
Profit before tax 5,439 - 5,439
Taxation (1,033) - (1,033)
--------------- ----------------------- ---------
Profit after tax 4,406 - 4,406
=============== ======================= =========
6 months to 30 June 2018 2018 2018
Normalised(10) Fair value adjustments Reported
GBP'000 GBP'000 GBP'000
------------------------ --------------- ----------------------- ---------
Revenue 35,802 (1,979) 33,823
Other operating income 890 - 890
Modification loss - - -
Impairments (6,998) - (6,998)
Admin expenses (17,669) - (17,669)
--------------- ----------------------- ---------
Operating profit 12,025 (1,979) 10,046
Finance cost (5,637) - (5,637)
--------------- ----------------------- ---------
Profit before tax 6,388 (1,979) 4,409
Taxation (1,214) 376 (838)
--------------- ----------------------- ---------
Profit after tax 5,174 (1,603) 3,571
=============== ======================= =========
(10) Normalised figures, adjusted to exclude fair value adjustments, amortisation of acquired intangibles and exceptional items
IFRS 9 Key Performance Indicators(11) 2019 2018 Number of branches 72 65 Period end customer numbers (000) 67.4 61.2 Period end loan book (GBPm) 203.8 186.2 Average loan book (GBPm) 188.1 170.0 Revenue yield 46.2% 46.8% Risk adjusted margin 36.1% 36.7% Impairments/revenue 21.8% 21.5% Impairment/average loan book 10.1% 10.1% Cost to income ratio 45.3% 45.9% Return on asset 15.3% 15.8% ======================================= ====== ======
(11) Key performance indicators have been provided using normalised data only. All definitions are as per glossary. 2018 KPIs are rolling 12 months to 31 December 2018.
Revenue grew by 22% to GBP43.8m (2018: GBP35.8m) thanks to annual growth in the net loan book (before fair value adjustments) of 22% to GBP203.8m (2018: GBP166.6m). As the fair value adjustment made to the loan portfolio at the time of acquisition has now been fully unwound, reported revenue was also GBP43.8m (2018: GBP33.8m). A sale of non-performing loans in the period resulted in other operating income of GBP0.2m (2018: GBP0.9m).
Impairment as a percentage of revenue on a rolling 12-month basis was 21.8%, broadly in-line with that achieved for the full year in 2018 and within our previous guidance of between 20-22%. Having opened seven new branches in the first half (and an eighth branch in July), additional investment in premises, new staff and training together with the cost of organic business growth meant that administrative expenses grew by 16% to GBP20.6m (2018: GBP17.7m). Total normalised operating profit increased by 15% to GBP13.8m (2018: GBP12.0m).
Finance costs increased to GBP8.4m (2018: GBP5.6m) reflecting the continued loan book growth and network expansion with the result that, despite strong growth in operating profit, pre-tax profits in the first half were lower than the prior year. As was the case in 2018, with the absence of any branch openings in the second half and an improvement in the performance of branches opened in previous periods, it is expected that this position will reverse in the second half of 2019.
As noted above, on a reported basis the absence of any fair value adjustments meant that revenue was up 29% to GBP43.8m (2018: GBP33.8m) and reported operating profit was up 38% to GBP13.8m (2018: GBP10.0m). Reported profit before tax increased by 23% to GBP5.4m (2018: GBP4.4m).
Key drivers for the business include network capacity, lead volume and quality, network productivity and management of impairment. A summary of our progress on each of these drivers is highlighted below.
Network capacity - We opened three new branches in March 2019 (Kingswood Bristol, Wigan and Scunthorpe) a further four in April 2019 (Darlington, Oldham, Erdington and Slough) and Dunfermline in July 2019. Reducing the distance that applicants have to travel to come into a branch is one factor that can help us to further improve our conversion of pre-screened applications into loans (see below), a factor that enhances our appeal to brokers that are harvesting leads from a variety of sources.
Lead volumes and quality - The continued expansion of our branch network has required that we maintain a healthy flow of quality leads from a variety of sources. In the six months to 30 June 2019, we received a total of 1.24m new borrower applications (2018: 761,400) of which 234,700 (2018: 177,700) successfully passed through our screening criteria and were then sent to the branches for a more detailed assessment. Financial brokers remain our most important source of applications and in the six months to 30 June represented 88% of the total (2018: 84%) and 50% of the number of loans booked (2018: 51%). Of the balance, 22% of loans booked came to us direct (2018: 25%) and 28% came from existing or former borrowers (2018: 24%).
Productivity - We wrote a record number of 24,833 loans in the first six months of 2019 (2018: 21,958). Whilst this was achieved with a record number of branches and full time employees, we are clear that increasing productivity can provide an additional source of profitable growth. A newly established 'productivity forum' comprising key managers from across the business is now identifying, developing and then allocating responsibility for new initiatives designed to help drive maximum value from our existing infrastructure. As well as inducting the 72 new staff that joined the business in the period, we have also produced a number of training videos for all staff that include tips and helpful advice from some of their most experienced colleagues on how to improve their own individual performance and that of their branch.
Delinquency management - Careful control of impairment is vital for any lending business and it was therefore pleasing to see the recent trends continue during the first half of 2019, with impairment as a percentage of average net receivables steady at 10.1% (2018: 10.1%) and against revenue it was up slightly at 21.8% (2018: 21.5%).
Plans for the rest of 2019
Having more than doubled the size of the branch network in three years, we now have a presence in most of the UK's larger population centres and in some locations we already have more than one branch. Whilst this has meant we have been able to meet our medium-term target of 20% loan book growth in each of the last two years, the rapid expansion since 2016 has also delayed reaching our target of a 20% return on assets(12) .
We continue to see scope for a network of over 100 branches. However, in order to bring forward the achievement of our medium-term target of 20% return on assets, we now plan to open fewer branches each year than we have in the past, thereby allowing the full benefit of the improving performance of recently opened branches to feed through into operating profit, which we expect will increase earnings and overall returns. A more moderate pace of expansion should also help us to maintain a tight control on impairment which we continue to expect will be between 20-22% of revenue.
(12) Normalised operating profit before central costs as a percentage of average net receivables excluding fair value adjustments
Guarantor loans
The FCA estimates that the guarantor loans market is worth approximately GBP1 billion of receivables(13) which is a significant increase from the GBP440 million of receivables that it estimated was outstanding just three years ago(14) . This market continues to grow rapidly, providing credit at mid-cost interest rates to those who would otherwise be at risk of being excluded or having to borrow at higher rates, thus providing a vital lifeline to those who may have suffered a financial shock or unexpected expense, frequently not of their own making.
Having acquired George Banco in August 2017, guarantor loans is now the Group's second largest division with a net loan book before fair value adjustments of GBP96.3m at 30 June 2019, an increase of 53% versus the prior year (2018: GBP62.9m). This growth reflects continued strong demand for a product that in most cases enables the borrower to obtain credit at a much lower cost than were they to borrow on their own. By performing well and making their repayments as due, borrowers can also benefit by rebuilding or improving their credit score over time so that they can return to mainstream lending at some point in the future.
Unlike our other two divisions, the presence of a guarantor means that our lending criteria are different and we do not need to meet customers face-to-face before making a loan. However, in all cases we spend a considerable amount of time on the phone with both the borrower and the guarantor as part of our underwriting process, building a relationship with them both and ensuring that each understands clearly all of their respective obligations, how the loan product works in practice and ensuring that both the borrower and the guarantor (in the event of default) are capable of repaying the loan. We also explain carefully what happens when and if a payment is missed.
(13) Speech by Jonathan Davidson, Executive Director of Supervision - Retail and Authorisations at the FCA, 21 March 2019
(14) High-Cost Credit Review Technical Annex 1 - FCA, July 2017
Financial results
The strong growth in net loan book fed through into a meaningful uplift in normalised revenue that grew by 40% to GBP13.8m (2018: GBP9.9m). The benefit of this growth was partially offset by an increase in impairment following the strategic relocation of the TrustTwo collections function to the division's Trowbridge premises which caused some disruption, together with an increase in admin expenses due to a further increase in headcount (see details below). The result was that normalised operating profit was up 12% to GBP4.3m (2018: GBP3.9m). The pace of growth in the net loan book drove the increase in finance costs meaning that normalised pre-tax profits were down slightly to GBP0.9m (2018: GBP1.3m), although we expect this position to reverse during the second half.
6 months to 30 June 2019 2019 2019
Fair value
Normalised(15) adjustments Reported
-------------------------- --------------- ------------- ---------
GBP'000 GBP'000 GBP'000
Revenue 13,840 (1,184) 12,656
Modification loss (41) - (41)
Impairments (3,241) - (3,241)
Admin expenses (6,212) - (6,212)
--------------- ------------- ---------
Operating profit 4,346 (1,184) 3,162
Net finance cost (3,453) - (3,453)
--------------- ------------- ---------
Profit/(loss) before tax 893 (1,184) (291)
Taxation (169) 225 56
--------------- ------------- ---------
Profit/(loss) after tax 724 (959) (235)
=============== ============= =========
6 months to 30 June 2018 2018 2018
Fair value
Normalised(15) adjustments Reported
-------------------------- --------------- ------------- ---------
GBP'000 GBP'000 GBP'000
Revenue 9,897 (1,860) 8,037
Modification loss - - -
Impairments (1,416) - (1,416)
Admin expenses (4,593) - (4,593)
--------------- ------------- ---------
Operating profit 3,888 (1,860) 2,028
Net finance cost (2,583) - (2,583)
--------------- ------------- ---------
Profit/(loss) before tax 1,305 (1,860) (555)
Taxation (248) 353 105
--------------- ------------- ---------
Profit/(loss) after tax 1,057 (1,507) (450)
=============== ============= =========
(15) Normalised figures, adjusted to exclude fair value adjustments and amortisation of acquired intangibles
IFRS 9 Key Performance Indicators(16) 2019 2018 Period end customer numbers (000) 28.5 25.1 Period end loan book (GBPm) 96.3 83.1 Average loan book (GBPm) 81.4 67.6 Revenue yield 31.3% 32.2% Risk adjusted margin 24.0% 25.8% Impairment/revenue 23.3% 20.0% Impairment/average loan book 7.2% 6.4% Cost to income ratio 44.3% 45.9% Return on asset 10.1% 11.3% ======================================= ====== ======
(16) Key performance indicators have been provided using normalised data only. 2018 KPIs are rolling 12 month to 31 December 2018.
All definitions are as per glossary.
A summary of our progress on the key business drivers during the first half of 2019 is set out below:
Lead volumes and quality - We continue to attract a large number of leads through a broad range of channels with the broker channel remaining the most significant at 54% of the total (2018: 53%),. The strength of our broker relationships has meant that lead quality has improved with the result that whilst the overall number of leads reduced by 6% to 1.17m (2018: 1.25m), the number of qualified applications passing through our screening criteria increased by 12% to 415,400 (2018: 372,000) implying a pass-through rate of 35% (2018: 30%). Top-ups to existing borrowers remains tightly controlled and whilst it increased slightly to 21% of the total versus 18% for the whole of 2018, the bulk of loans issued were to new customers with the result that the number of active customers increased by 36% to 28,500 versus the prior year and up 14% since the year end.
Productivity - From the qualifying applications received we wrote a total of 9,840 loans which was an increase of 21% versus the prior year (2018: 8,150) with an improved conversion rate of 2.37% (2018: 2.19%). The value of loans booked in the period increased by 25% to GBP37.3m (2018: GBP29.9m) which was an all-time record for the division in a six month period. Having increased the number of operational staff by 43% versus a year ago, we experienced a temporary dip in average volume per employee, but with our continued focus on training and the launch of a 'productivity forum' similar to that in place at Everyday Loans, we believe that we can improve productivity further and look forward to sharing details of our progress in due course.
Delinquency management - As part of our efforts to scale up our operations as well as ensure a consistent approach across both the TrustTwo and George Banco brands, during the first half we moved all of our collections activities to a single site at the Division's new premises in Trowbridge. While this caused some disruption and a consequent increase in impairment to 23.3% of revenue during the first half, this was only slightly above our previous guidance of 20-22%. The operational issues are being addressed and we remain focussed on ensuring that the rate of impairment returns to being within our previous guidance by the year end.
Plans for the rest of 2019
Returning our collections performance to within our previously guided range of 20-22% of revenue is a key priority, as is our focus on raising productivity. The execution of a number of initiatives already identified by the productivity forum, together with a much improved customer journey following completion of the final piece of the technical integration in July 2019 should help to drive performance in the second half. Productivity should also benefit from an improved performance from the 30 operational staff were added during the first half of 2019.
Home credit
After the significant investment in new agents, offices and associated infrastructure that took place in both 2017 and 2018, our focus during the first half of 2019 has been on delivering a significant step-up in profitability. We have also made good progress in shortening our loan book as well as rolling out further improvements to our suite of online apps in conjunction with a number of new operational processes and procedures. Whilst our focus on quality customers meant that there was a small decline in both the number of customers and net loan book compared with the end of December 2018, the business delivered a strong growth in operating profit thanks to a marked reduction in the rate of impairment and careful management of operating costs.
Like branch-based lending, our home credit business is founded upon building face-to-face relationships with our customers. As well as facilitating the weekly collection, regular personal contact also provides us with the very latest information regarding a customer's circumstances, ensuring we are best-placed to make an informed decision on new lending or whether or not to provide due forbearance should the customer face difficulty regarding their repayments. We believe that this delivers consistently better customer outcomes than remote lending where there is no face-to-face contact.
Following completion of the FCA's review into high-cost credit, home credit firms were required to effect a number of operational changes including to provide consumers with a comparison of the relative costs of refinancing an existing loan versus taking out an additional loan. At the same time, new rules on when and how an agent can discuss a new loan with their customers has also been introduced. All of these changes were embedded into our systems and processes on time and after some early uncertainty, both agents and customers are now much better informed and familiar with the new rules and procedures.
As part of our ongoing efforts to improve performance, in addition to the continuous evolution of our management information systems and controls, we are testing a new scorecard for our better-performing agents to see whether performance improves if they are given a greater degree of flexibility regarding their underwriting decisions, based upon their historic performance and ability to underwrite effectively.
Financial results
As at 30 June 2019, Loans at Home had a network of 892 self-employed agencies serving approximately 91,600 customers (2018: 98,500). With a clear focus on improving its quality, the net loan book was down slightly on the previous year at GBP35.5m (2018: GBP37.8m). Whilst making good progress on our stated objective of shortening the loan book, a proportion of customers with longer-term loans are choosing to either delay the replacement of existing loans with shorter-term ones and/or are seeking to reduce their level of borrowing so as to avoid any increase in their weekly repayment amount. Whilst we expect that this effect will unwind over time, the impact in the first half was that new loan issuance was lower than expected.
The average yield on newly issued loans improved but given the reduction in loan issuance and the size of the net loan book, revenue was down to GBP30.7m (2018: GBP33.2m). However, with a significant uplift in the quality of the loan book as well as the benefit of an improved collections performance, the rate of impairment as a percentage of revenue declined to 31.9% for the twelve month period to 30 June 2019 from 32.6% in the twelve months to 31 December 2018 - well below our previously guided range of 33-37%.
A revised organisation structure was put in place in January 2019 and, together with a concerted effort to control other key operating costs, contributed to a 10% reduction in administration costs that fell to GBP17.6m (2018: GBP19.5m). The net result was that the rolling 12-month cost:income ratio fell to 56.3% (December 2018: 57.1%) and normalised operating profit was up substantially to GBP4.2m (2018: GBP2.0m). Exceptional costs of GBP0.1m (2018: GBPnil) were recognised in relation to the management restructuring. The reduction in net loan book coupled with the highly cash generative characteristics of our business, meant that finance costs fell to GBP1.1m (2018: GBP1.3m) and normalised pre-tax profit increased more than three-fold to GBP3.2m (2018: GBP0.8m), with reported profit before tax increasing to GBP3.1m
(2018: GBP0.8m).
6 months to 30 June 2019 2019 2019 2018
Normalised(17) Exceptional items(18) Reported Reported
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------------- ---------------------- --------- ---------
Revenue 30,691 - 30,691 33,196
Impairments (8,828) - (8,828) (11,653)
Admin expenses (17,560) - (17,560) (19,497)
Operating profit 4,303 - 4,303 2,046
Exceptional items - (129) (129) -
--------------- ---------------------- --------- ---------
Profit before interest and tax 4,303 (129) 4,174 2,046
Finance cost (1,108) - (1,108) (1,271)
--------------- ---------------------- --------- ---------
Profit before tax 3,195 (129) 3,066 775
Taxation (607) 25 (583) (147)
--------------- ---------------------- --------- ---------
Profit after tax 2,588 (104) 2,483 628
IFRS 9 Key Performance Indicators(19) 2019 2018
Period end agent numbers 892 897
Period end number of offices 67 66
Period end customer numbers (000) 91.6 93.8
Period end loan book (GBPm) 35.5 41.0
Average loan book (GBPm) 37.9 38.0
Revenue yield 165.5% 171.5%
Risk adjusted margin 112.7% 115.6%
Impairments/revenue(20) 31.9% 32.6%
Impairment/average loan book(20) 52.8% 55.9%
Cost to income ratio 56.3% 57.1%
Return on asset 19.5% 17.7%
========================================= ======= =======
(17) Normalised figures are before fair value adjustments, amortisation of acquired intangibles and exceptional items.
(18) Refer to note 5 in the notes to the financial statements for further detail
(19) Key performance indicators have been provided using normalised data only. 2018 KPIs are rolling 12 month to 31 December 2018. All definitions are as per glossary and above.
(20) For the 12 months to 30 June 2019 the impairment KPIs have been adjusted upwards to smooth the impact of the adoption of revised provisioning levels in October 2018.
Plans for the rest of 2019
We are continuing to attract a small number of high quality third-party agents that are keen to join Loans at Home which is helping us to maintain a low vacancy rate at below 4% and is also presenting opportunities to expand our geographic coverage. Following some positive responses to a number of recent marketing initiatives, we are testing similar initiatives across other locations with a view to attracting new customers and boost lending volumes. As well as continuing to evolve our online applications for agents and managers, we are trialling a new customer portal that allows customers to check their balance, make a payment or enquire about a new loan. As well as reducing the total cost of credit for our customers, by shortening the loan book and reducing the proportion of loans in issue with a term longer than 12 months we should start to see an improvement in revenue yield and return on assets.
Central costs
6 months to 30 June 2019 2019 2019
Normalised(21) Amortisation Reported
of acquired
intangibles
and exceptional
items
GBP000 GBP000 GBP000
--------------------------- ---------------- ----------------- ----------
Revenue - - -
Admin expenses (3,010) (2,607) (5,617)
Exceptional items(22) - (25,145) (25,145)
Operating loss (3,010) (27,752) (30,762)
Net finance (cost)/income (218) - (218)
---------------- ----------------- ----------
Loss before tax (3,228) (27,752) (30,980)
Taxation 613 495 1,108
---------------- ----------------- ----------
Loss after tax (2,615) (27,257) (29,872)
================ ================= ==========
6 months to 30 June 2018 2018 2018
Normalised(21) Amortisation Reported
of acquired
intangibles
GBP000 GBP000 GBP000
--------------------------- ---------------- -------------- ----------
Revenue - - -
Admin expenses (2,786) (4,340) (7,126)
Exceptional items - - -
Operating loss (2,786) (4,340) (7,126)
Net finance (cost)/income (62) - (62)
---------------- -------------- ----------
Loss before tax (2,848) (4,340) (7,188)
Taxation 540 825 1,365
---------------- -------------- ----------
Loss after tax (2,308) (3,515) (5,823)
================ ============== ==========
(21) Adjusted to exclude exceptional items (refer to notes to the financial statements note 5), as well as the amortisation of acquired intangibles related to the acquisition of Loans at Home, Everyday Loans and George Banco.
(22) Refer to note 5 in the notes to the financial statements for further detail
Normalised administrative expenses for the period increased by 8% to GBP3.0m (2018: GBP2.8m) reflecting further investment in our governance and risk management controls. In addition, the Group incurred a reduced charge of GBP2.6m relating to the amortisation of intangible assets (2018: GBP4.3m) recognised on the acquisition of Everyday Loans and George Banco.
In the 6 months ended 30 June 2019 the Group incurred exceptional costs totalling GBP25.1m (including VAT) (2018: GBPnil). These related to GBP12.7m of advisory fees and other costs associated with the offer to acquire Provident Financial plc on the terms set out in an offer document published on 9 March 2019, as well as the related proposal to demerge Loans at Home, a GBP12.5m impairment loss on the Loans at Home goodwill asset (see note 10) and GBP0.1m of restructuring costs at Loans at Home that took place in January 2019.
IFRS 16
From 1 January 2019 the Group adopted a new accounting standard: IFRS 16 Leases, replacing the previous standard, IAS 17 Leases. With a sizeable portfolio of leases in both branch-based lending and home credit, the Group has incurred an additional interest charge of GBP0.5m in the six months ended 30 June 2019, partly offset by a reduction of GBP0.3m in administrative expenses. As at 1 January 2019, the impact of the adoption of IFRS 16 was a decrease in net assets of GBP0.3m. Please refer to note 3 in the notes to the financial statements for further details.
Principal risks
There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause reported and normalised results to differ materially from expected and historical results.
The principal risks facing the Group, together with the Group's risk management process in relation to these risks, are unchanged from those reported in the Group's Annual Report for the period ended 31 December 2018 (which is available for download at www.nsfgroupplc.com) and relate to the following areas:
-- Conduct - risk of poor outcomes for our customers or other key stakeholders as a result of the Group's actions;
-- Regulation - risk through changes to regulations or a failure to comply with existing rules and regulations;
-- 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, taxation, health and safety as well as disaster recovery and business continuity risks;
o reputational - a failure to manage one or more of the risks above 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;
-- Liquidity - whilst the Group is well-capitalised with GBP285m of committed debt facilities until August 2023, as well as a revolving credit facility for a further GBP45m, prevailing uncertainty in global financial markets means that there is a risk that the Group may be unable to secure sufficient finance in the future to execute its long-term business strategy.
On behalf of the Board of Directors
Nick Teunon
Chief Financial Officer
20 August 2019
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge, the unaudited condensed interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
-- An indication of important events that have occurred during the first six months of the financial year and their impact on the unaudited condensed interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
-- Material related party transactions that have occurred in the first six months of the financial year and any material changes in the related party transactions described in the last annual report and financial statements.
The current directors of Non-Standard Finance plc are listed in the 2018 Annual Report & Financial Statements. A list of current directors is also maintained on the Non-Standard Finance website: www.nsfgroupplc.com.
The maintenance and integrity of the Non-Standard Finance website is the responsibility of the Directors. The work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the unaudited condensed interim financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of unaudited condensed interim financial statements may differ from legislation in other jurisdictions.
On behalf of the Board of Directors
Nick Teunon
Chief Financial Officer
20 August 2019
Independent review report to Non-Standard Finance plc
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 which comprises the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows and related notes 1 to 14. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
20 August 2019
Financial statements
Condensed consolidated statement of comprehensive income
for the six months ended 30 June 2019
Before fair value Fair value
adjustments, adjustments,
amortisation of amortisation of
acquired acquired
intangibles and intangibles and Six months ended 30 Six months ended 30
Note exceptional items exceptional items June 2019 June 2018
GBP'000 GBP'000 GBP'000 GBP'000
===================== ===== ==================== ==================== ==================== ====================
Revenue 88,287 (1,184) 87,103 75,056
Other operating
income 221 - 221 890
Modification loss(1) (287) - (287) -
Impairments (21,404) - (21,404) (20,067)
Administrative
expenses (47,340) (2,607) (49,947) (48,885)
-------------------- --------------------
Operating profit 4 19,477 (3,791) 15,686 6,994
Exceptional items 5 - (25,274) (25,274) -
-------------------- -------------------- -------------------- --------------------
Profit/(loss) on
ordinary activities
before interest and
tax 19,477 (29,065) (9,588) 6,994
Finance cost (13,178) - (13,178) (9,553)
-------------------- -------------------- -------------------- --------------------
Profit/(loss) on
ordinary activities
before tax 6,299 (29,065) (22,766) (2,559)
Tax on profit/(loss)
on ordinary
activities 7 (1,196) 745 (451) 485
-------------------- -------------------- -------------------- --------------------
Profit/(loss) for
the period 5,103 (28,320) (23,217) (2,074)
Total comprehensive
loss for the period (23,217) (2,074)
===================== ===== ==================== ==================== ==================== ====================
Loss attributable
to:
- Owners of the
parent (23,217) (2,074)
- Non-controlling
interests -
(1) As at 30 June 2018, the Group had not yet finalised the application of IFRS 9. Per the annual audited accounts for the year ended 31 December 2018, it was concluded that as a result of the Group's forbearance activities, a modification gain or loss may be recognised in respect of rescheduled loans. The Group has recognised a modification loss in the six months ended 30 June 2019 in line with the approach taken and reflected in the annual audited accounts for the year ended 31 December 2018. We have not restated for the six months ended 30 June 2018.
Loss per share
Note Six months ended 30 June 2019 Six months ended 30 June 2018
Pence Pence
------------------- -----
Basic and diluted 6 (7.44) (0.66)
---------------------- ----- ------------------------------ ------------------------------
There are no recognised gains or losses other than disclosed above and there have been no discontinued activities in the period.
Condensed consolidated statement of financial position as at 30 June 2019
Note 30 June 2019 31 December 2018
GBP'000 GBP'000
========================================= ===== ============= =================
ASSETS
Non-current assets
Goodwill 10 128,216 140,668
Intangible assets 11,198 13,431
Other assets 143 241
Deferred tax asset 509 -
Right-of-use asset 11,187 -
Property, plant and equipment 8,441 7,723
----------------------------------------- ----- ------------- -----------------
159,694 162,063
Current assets
Amounts receivable from customers 9 338,740 314,614
Trade and other receivables 2,955 3,967
Cash and cash equivalents 17,361 13,894
----------------------------------------- ----- ------------- -----------------
359,056 332,475
----------------------------------------- ----- ------------- -----------------
Total assets 518,750 494,538
----------------------------------------- ----- ------------- -----------------
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables and provisions 29,718 17,242
Lease liability 1,659 -
----------------------------------------- ----- ------------- -----------------
Total current liabilities 31,377 17,242
----------------------------------------- ----- ------------- -----------------
Non-current liabilities
Deferred tax liability - 252
Lease liability 9,803 -
Bank loans 296,002 266,322
----------------------------------------- ----- ------------- -----------------
Total non-current liabilities 305,805 266,574
----------------------------------------- ----- ------------- -----------------
Equity
Share capital 15,852 15,852
Share premium 254,995 254,995
Other reserves (1,414) (2,011)
Retained loss (88,120) (58,368)
----------------------------------------- ----- ------------- -----------------
181,313 210,468
Non-controlling interests 255 255
----------------------------------------- ----- ------------- -----------------
Total equity 181,568 210,723
----------------------------------------- ----- ------------- -----------------
Total equity and liabilities 518,750 494,538
----------------------------------------- ----- ------------- -----------------
These financial statements were approved by the Board of Directors on 20 August 2019.
Signed on behalf of the Board of Directors
Nick Teunon
Chief Financial Officer
Condensed consolidated statement of changes in equity
for the six months ended 30 June 2019
Other
Share capital Share premium reserves Retained loss Non-controlling interest Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================ ===== ========================= ========================= ========= ======================= ========================= =======================
At 31 December
2017 15,852 254,995 (1,066) (36,793) 255 233,243
Total
comprehensive
loss for the
period - - - (1,679) - (1,679)
IFRS 9
transition
opening
balance
adjustment (12,718) (12,718)
Transactions
with owners,
recorded
directly in
equity:
Dividends paid - - - (7,177) - (7,177)
Credit to
equity for
equity-settled
share based
payments - - 1,157 - - 1,157
Purchase of own
shares - - (2,102) - - (2,102)
---------------- ----- ------------------------- ------------------------- --------- ----------------------- ------------------------- -----------------------
At 31 December
2018 15,852 254,995 (2,011) (58,368) 255 210,723
Total
comprehensive
loss for the
period - - - (23,217) - (23,217)
IFRS 16
transition
opening
balance
adjustment 3 - - - (295) - (295)
Transactions
with owners,
recorded
directly in
equity:
Dividends paid - - - (6,240) - (6,240)
Credit to
equity for
equity-settled
share based
payments - - 597 - - 597
At 30 June
2019 15,852 254,995 (1,414) (88,120) 255 181,568
---------------- ----- ------------------------- ------------------------- --------- ----------------------- ------------------------- -----------------------
Condensed consolidated statement of cash flows
for the six months ended 30 June 2019
Six months Six months
ended 30 June ended 30 June
Note 2019 2018
GBP'000 GBP'000
====================================================== ===== =============== ===============
Net cash used in operating activities 11 (10,633) (20,613)
Cash flows used in investing activities
Purchase of property, plant and equipment (4,061) (3,191)
Proceeds from sale of property, plant and equipment 37 81
Net cash used in investing activities (4,024) (3,110)
------------------------------------------------------ ----- --------------- ---------------
Cash flows from financing activities
Finance cost (5,316) (3,024)
Debt raising 29,680 31,712
Dividends paid (6,240) (5,305)
Purchase of own shares - (2,103)
Net cash from financing activities 18,124 21,280
------------------------------------------------------ ----- --------------- ---------------
Net increase/(decrease) in cash and cash equivalents 3,467 (2,443)
Cash and cash equivalents at beginning of period 13,894 10,954
Cash and cash equivalents at end of period 17,361 8,511
------------------------------------------------------ ----- --------------- ---------------
Notes to the condensed set of financial statements
for the six months ended 30 June 2019
General Information
Non-Standard Finance plc is a public limited company incorporated and domiciled in the United Kingdom. The address of the registered office is 7 Turnberry Park Road, Gildersome, Morley, Leeds, England, LS27 7LE.
The unaudited condensed interim financial statements do not constitute the statutory financial statements of the Group within the meaning of section 434 of the Companies Act 2006. The statutory financial statements for the year ended 31 December 2018 were approved by the Board of Directors on 14 March 2019 and have been delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.
The unaudited condensed interim financial statements for the six months ended 30 June 2019 have been reviewed, not audited, and were approved by the Board of Directors on 20 August 2019.
1. Basis of preparation
The unaudited condensed interim financial statements for the six months ended 30 June 2019 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The unaudited condensed interim financial statements should be read in conjunction with the statutory financial statements for the year ended 31 December 2018 which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
The Directors have reviewed the Group's budgets, plans and cash flow forecasts for 2019 together with outline projections for the subsequent years. Based on this review, they are satisfied that the Group has adequate resources to continue to operate for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the unaudited condensed interim financial statements.
2. Accounting policies
The amendments relating to the IFRS 16 'Leases' standard are mandatory for the first time for the financial year beginning 1 January 2019. Please see note 3 for further information. All other accounting policies adopted in preparing the unaudited condensed interim financial statements are consistent with those adopted in preparing the statutory financial statements for the year ended 31 December 2018.
Exceptional items have been incurred in the six months ended 30 June 2019 (2018: GBPnil). These are items that are unusual because of their size, nature or incidence and which the Directors consider should be disclosed separately to enable a full understanding of the Group's results. Refer note 5 for further detail.
Taxes on profits in interim periods are accrued using the tax rate that will be applicable to expected total annual profits.
The carrying value of financial assets and financial liabilities are not materially different to the fair value (with the exception of amounts receivable from customers, refer note 9 for further detail).
3. Changes in accounting policies
In the current year, the Group, for the first time, has applied IFRS 16 Leases. The date of initial application of IFRS 16 for the Group was 1 January 2019.
IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to the lessee accounting by removing the distinction between operating and finance leases, requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged.
The Group is not party to any material leases where it acts as a lessor, but the Group does have a large number of material property and vehicle/equipment leases.
Details of the Group's accounting policies under IFRS 16 are set out below, followed by a description of the impact of adopting IFRS 16. Significant judgements applied in the adoption of IFRS 16 included determining the lease term for those leases with termination or extension options and determining an incremental borrowing rate where the rate implicit in a lease could not be readily determined.
3.1 Accounting policies under IFRS 16 Leases
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense (included within administrative expenses in the consolidated statement of comprehensive income) on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise:
-- fixed lease payments (including in substance fixed payments), less any lease incentives;
-- variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
-- the amount expected to be payable by the lessee under residual value guarantees;
-- the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
-- payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the consolidated statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
-- the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
-- the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
-- a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
The Group did not make any such adjustments during the periods presented.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. The costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories. The Group does not hold any inventories as at 30 June 2019.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The Group does not have any leases that include purchase options or transfer ownership of the underlying asset.
The right-of-use assets are presented as a separate line in the consolidated statement of financial position.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The Group does not have any lease payments which fall under the definition of variable lease payments.
For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers and office furniture), the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. This expense is presented within administrative expenses in the consolidated statement of comprehensive income.
As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient.
3.2 Approach to transition on 1 January 2019
The Group has applied IFRS 16 using the modified retrospective approach, without restatement of the comparative information. In respect of those leases the Group previously treated as operating leases, the Group has elected to measure its right of use assets arising from property leases using the approach set out in IFRS 16.C8(b)(i). Under IFRS 16.C8(b)(i) right of use assets are calculated as if the Standard applied at lease commencement, but discounted using the borrowing rate at the date of initial application.
The Group's weighted average incremental borrowing rate applied to lease liabilities as at 1 January 2019 was 9.5%.
Practical expedients adopted on transition
The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those leases entered into or modified before 1 January 2019. As part of the Group's adoption of IFRS 16 and application of the modified retrospective approach to transition, the Group also elected to use the following practical expedients:
-- a single discount rate has been applied to portfolios of leases with reasonably similar characteristics;
-- right-of-use assets have been adjusted by the carrying amount of any onerous lease provisions at 31 December 2018 instead of performing impairment reviews under IAS 36; and
-- hindsight has been used in determining the lease term.
Impact on lessee accounting
Former operating leases
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off-balance sheet. Applying IFRS 16, for all leases (except short term and low value leases - see 3.1), the Group now recognises right-of-use assets and lease liabilities in the consolidated balance sheet, initially measured at the present value of the future lease payments as described in 3.1.
Lease incentives (e.g. rent free periods) are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease incentive liability, amortised as a reduction of rental expenses on a straight line basis.
Under IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces the previous requirement to recognise a provision for onerous lease contracts.
Under IFRS 16 the Group recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of comprehensive income, whereas under IAS 17 operating leases previously gave rise to a straight-line expense in the administrative expenses line within the consolidated statement of comprehensive income.
Under IFRS 16 the Group separates the total amount of cash paid for leases that are on balance sheet into a principal portion and interest portion (presented within financing activities) in the consolidated cash flow statement. Under IAS 17 operating lease payments were presented as operating cash outflows.
Former finance leases
The main differences between IFRS 16 and IAS 17 with respect to assets formerly held under a finance lease is the measurement of the residual value guarantees provided by the lessee to the lessor. IFRS 16 requires that the Group recognises as part of its lease liability only the amount expected to be payable under a residual value guarantee, rather than the maximum amount guaranteed as required by IAS 17. This change did not have a material effect on the Group's consolidated financial statements.
3.3 Financial impact
The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right-of-use assets and lease liabilities. Any provisions for onerous lease contracts have been derecognised and operating lease incentives previously recognised as liabilities have been derecognised and factored into the measurement of the right-to-use assets and lease liabilities. The Group has chosen to use the table below to set out the adjustments recognised at the date of initial application of IFRS 16.
Condensed consolidated statement of financial position
31 December 2018 IFRS 16 adjustment 1 January 2019
Note As originally presented Restated
GBP'000 GBP'000 GBP'000
========================================= ====== ========================= =================== ===============
Non-current assets
Right-of-use asset - 11,004 11,004
Deferred tax asset - 60 60
Total increase in assets - 11,064 11,064
Current liabilities
Lease liability - 1,732 1,732
Trade and other payables and provisions 260 260
Non -current liabilities
Lease liability - 9,367 9,367
Total increase in liabilities - 11,359 11,359
Equity
Retained loss (58,368) (295) (58,663)
-------------------------------------------------- ------------------------- ------------------- ---------------
Of the total right-of-use assets of GBP11m recognised at 1 January 2019, GBP10.4m related to leases of property and GBP0.6m to leases of motor vehicles. The table below presents a reconciliation from operating lease commitments disclosed at 31 December 2018 to lease liabilities recognised at 1 January 2019.
GBP'000
--------------------------------------------------------- --------
Operating lease commitments disclosed under IAS 17
at 31 December 2018 10,403
Discounted using the lessee's incremental borrowing
rate of 9.5% as at the date of initial application (1,816)
(Less): short-term leases recognised on a straight-line
basis as expense (83)
(Less): low-value leases recognised on a straight-line
basis as expense (76)
Add: adjustments as a result of a different treatment
of extension and termination options 2,671
--------------------------------------------------------- --------
Lease liabilities recognised at 1 January 2019 11,099
--------------------------------------------------------- --------
In terms of the consolidated statement of comprehensive income impact, the application of IFRS 16 resulted in a decrease in other operating expenses and an increase in depreciation and interest expense compared to IAS 17. During the six months ended 30 June 2019, in relation to leases under IFRS 16 the Group recognised the following amounts in the consolidated statement of comprehensive income:
GBP'000
Depreciation 997
Interest expense 536
Variable lease payments (not depending on index or -
rate)
Short-term lease expense 155
Low-value lease expense 55
--------
1,743
--------
4. 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 operations are all located in the United Kingdom and all revenue is attributable to customers in the United Kingdom.
Six months
ended 30 June
2019 Branch-based lending Guarantor loans(1) Home credit Central 2019
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================ ================================ ============================ ================================== ======================= ========================= ========================
Interest income 43,756 13,840 30,691 - 88,287
Fair value
unwind on
acquired loan
portfolio - (1,184) - - (1,184)
---------------- -------------------------------- ---------------------------- ---------------------------------- ----------------------- ------------------------- ------------------------
Total revenue 43,756 12,656 30,691 - 87,103
Operating
profit/(loss)
before
amortisation 13,838 3,162 4,303 (3,010) 18,293
Amortisation
of intangible
assets - - - (2,607) (2,607)
---------------- -------------------------------- ---------------------------- ---------------------------------- ----------------------- ------------------------- ------------------------
Operating
profit/(loss) 13,838 3,162 4,303 (5,617) 15,686
Exceptional
cost(3) - - (129) (25,145) (25,274)
Finance cost (8,399) (3,453) (1,108) (218) (13,178)
---------------- -------------------------------- ---------------------------- ---------------------------------- ----------------------- ------------------------- ------------------------
Profit/(loss)
before
taxation 5,439 (291) 3,066 (30,980) (22,766)
Taxation (1,033) 56 (583) 1,109 (451)
Profit/(loss)
for the period 4,406 (235) 2,483 (29,871) (23,217)
---------------- -------------------------------- ---------------------------- ---------------------------------- ----------------------- ------------------------- ------------------------
Consolidation
Branch-based lending Guarantor loans(1) Home credit Central adjustments(2) 2019
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================ ================================ ============================ ================================== ======================= ========================= ========================
Total assets 233,211 96,286 48,386 776,120 (635,253) 518,750
Total
liabilities (285,732) - (27,549) (312,424) 288,523 (337,182)
Net assets (52,521) 96,286 20,837 463,696 (346,730) 181,568
---------------- -------------------------------- ---------------------------- ---------------------------------- ----------------------- ------------------------- ------------------------
Capital
expenditure 2,810 - 1,238 12 - 4,061
Depreciation of
plant,
property and
equipment 860 - 179 35 - 1,074
Depreciation of
right-of-use
asset 610 352 65 - 1,027
Amortisation of
intangible
assets - - 665 2,607 - 3,272
---------------- -------------------------------- ---------------------------- ---------------------------------- ----------------------- ------------------------- ------------------------
(1) 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) Consolidation adjustments include the acquisition intangibles of GBP5.9m (2018: GBP12.9m), goodwill of GBP128.2m (2018: GBP140.7m), fair value of loan book of GBP3.1m (2018: GBP8.1m) and the elimination of intra group balances.
(3) Refer note 5 for further detail
Six months
ended 30 June
2018 Branch-based lending Guarantor loans(1) Home credit Central 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================ ================================ ============================= ================================ ======================= ========================= ========================
Interest income 35,802 9,897 33,196 - 78,895
Fair value
unwind on
acquired loan
portfolio (1,979) (1,860) - - (3,839)
---------------- -------------------------------- ----------------------------- -------------------------------- ----------------------- ------------------------- ------------------------
Total revenue 33,823 8,037 33,196 - 75,056
Operating
profit/(loss)
before
amortisation 10,046 2,028 2,046 (2,786) 11,334
Amortisation
of intangible
assets - - - (4,340) (4,340)
---------------- -------------------------------- ----------------------------- -------------------------------- ----------------------- ------------------------- ------------------------
Operating
profit/(loss) 10,046 2,028 2,046 (7,126) 6,994
Finance cost (5,637) (2,583) (1,271) (62) (9,553)
---------------- -------------------------------- ----------------------------- -------------------------------- ----------------------- ------------------------- ------------------------
Profit/(loss)
before
taxation 4,409 (555) 775 (7,188) (2,559)
Taxation (838) 105 (147) 1,365 485
Profit/(loss)
for the period 3,571 (450) 628 (5,823) (2,074)
---------------- -------------------------------- ----------------------------- -------------------------------- ----------------------- ------------------------- ------------------------
Consolidation
Branch-based lending Guarantor loans(1) Home credit Central adjustments(2) 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================ ================================ ============================= ================================ ======================= ========================= ========================
Total assets 207,520 67,123 46,682 271,480 (129,503) 463,302
Total
liabilities (170,065) (48,216) (29,840) (2,068) 136 (250,053)
Net assets 37,455 18,907 16,842 269,412 (129,367) 213,249
---------------- -------------------------------- ----------------------------- -------------------------------- ----------------------- ------------------------- ------------------------
Capital
expenditure 1,848 217 1,047 79 - 3,191
Depreciation of
plant,
property and
equipment 493 39 655 34 - 1,221
Amortisation of
intangible
assets - - - 4,340 - 4,340
---------------- -------------------------------- ----------------------------- -------------------------------- ----------------------- ------------------------- ------------------------
The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.
5. Exceptional items
In the 6 months ended 30 June 2019, the Group incurred exceptional costs totaling GBP25.3m (including VAT) (2018: GBPnil). GBP12.7m of these costs related to fees and other costs associated with the offer to acquire Provident Financial plc on the terms set out in an offer document published on 9 March 2019, as well as the related proposal to demerge Loans at Home. The offer lapsed on 5 June 2019.
GBP12.5m of the exceptional items reflect the write-down of the value of goodwill associated with Loans at Home in the Group's balance sheet. Further details are set out in note 10.
The remaining GBP0.1m of exceptional costs related to the management restructuring that took place in Loans at Home in January 2019. No exceptional costs were incurred in the 6 months ended 30 June 2018.
6. Loss per share
Six months ended 30 June 2019 Six months ended 30 June 2018
====================================================== ============================== ==============================
Retained loss attributable to Ordinary Shareholders
(GBP'000) (23,217) (2,074)
Weighted average number of Ordinary Shares 312,049,682 313,388,139
Basic and diluted loss per share (pence) (7.44) (0.66)
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. The basic and diluted loss per share is the same, as the exercise of share options would reduce the loss per share and is anti-dilutive. At 30 June 2019, 5,000,000 shares were held in treasury (2018: 5,000,000).
Six months ended 30 June 2019 Six months ended 30 June 2018
'000 '000
Weighted average number of potential Ordinary Shares
that are not currently dilutive 9,313 11,706
------------------------------------------------------ ------------------------------ ------------------------------
The weighted average number of potential Ordinary shares that are not currently dilutive includes the ordinary shares that the Company may potentially issue relating to its share option schemes and share awards under the Group's long-term incentive plans and Save As You Earn schemes.
7. Taxation
The tax charge for the period has been calculated by applying the Directors' best estimate of the effective tax rate for the financial year of 19% (2018: 19%), to the profit before tax for the period.
8. Dividends
The Directors have proposed an interim dividend in respect of the six months ended 30 June 2019 of 0.7 pence per share (interim dividend 2018: 0.6 pence per share) which will amount to a dividend payment of GBP2,184,348 (2018: GBP1,872,298). This dividend is not reflected in the balance sheet as it will be paid after the balance sheet date. Refer to note 13 for analysis of distributable reserves.
9. Amounts receivable from customers
30 June 2019 31 December 2018
GBP'000 GBP'000
=================================== ============= =================
Gross carrying amount 379,646 354,794
Loan loss provision (40,906) (40,180)
Amounts receivable from customers 338,740 314,614
----------------------------------- ------------- -----------------
The movement on the loan loss provision for the period relates to the provision at branch-based lending, the guarantor loans division and home credit for the period. The amounts receivable from customers were recognised at fair value (net loan book value) at the date of acquisition, the amounts receivable are subsequently measured at amortised cost net of any impairment.
Included within the gross carrying amount above are unamortised broker commissions, see table below:
31 December
30 June 2019 2018
GBP'000 GBP'000
--------------------------------------- ------------ -----------
Unamortised broker commissions 12,619 11,182
--------------------------------------- ------------ -----------
Total unamortised broker commissions 12,619 11,182
--------------------------------------- ------------ -----------
31 December
30 June 2019 2018
------------------------------------------------- ------------ -----------
Maturity of amounts receivable from customers: GBP'000 GBP'000
------------------------------------------------- ------------ -----------
Due within one year 103,914 113,066
Due in more than one year 234,826 201,547
------------------------------------------------- ------------ -----------
Amounts receivable from customers 338,740 314,614
------------------------------------------------- ------------ -----------
Analysis of receivables from customers:
Stage 1 Stage 2 Stage 3 Total
30 June 2019 GBP000 GBP000 GBP000 GBP000
------------------------ -------- -------- -------- --------
Branch-based lending 189,712 17,971 6,619 214,302
Guarantor Loans 72,653 27,572 2,920 103,145
Home credit 31,803 24,436 5,960 62,199
------------------------ -------- -------- -------- --------
Gross carrying amount 294,168 69,979 15,499 379,646
------------------------ -------- -------- -------- --------
Branch-based lending 5,442 2,469 2,596 10,507
Guarantor Loans 1,241 1,681 812 3,734
Home credit 2,498 18,779 5,388 26,665
------------------------ -------- -------- -------- --------
Loan loss provision 9,181 22,929 8,796 40,906
------------------------ -------- -------- -------- --------
Branch-based lending 184,270 15,502 4,023 203,795
Guarantor Loans 71,412 25,891 2,108 99,411
Home credit 29,305 5,657 572 35,534
Net amounts receivable 284,987 47,050 6,703 338,740
------------------------ -------- -------- -------- --------
Stage 1 Stage 2 Stage 3 Total
31 December 2018 GBP000 GBP000 GBP000 GBP000
------------------------ -------- -------- -------- --------
Branch-based lending 173,359 17,032 6,353 196,744
Guarantor Loans 78,089 9,922 2,192 90,204
Home credit 38,692 16,524 12,631 67,846
------------------------ -------- -------- -------- --------
Gross carrying amount 290,139 43,479 21,176 354,794
------------------------ -------- -------- -------- --------
Branch-based lending 5,393 2,665 2,463 10,521
Guarantor Loans 814 1,412 613 2,839
Home credit 3,523 11,355 11,942 26,820
------------------------ -------- -------- -------- --------
Loan loss provision 9,730 15,432 15,018 40,180
------------------------ -------- -------- -------- --------
Branch-based lending 167,966 14,367 3,890 186,223
Guarantor Loans 77,275 8,510 1,579 87,365
Home credit 35,169 5,169 688 41,026
Net amounts receivable 280,409 28,047 6,158 314,614
------------------------ -------- -------- -------- --------
During the first half of the year, changes in the political climate have resulted in a heightened risk of a no deal Brexit and general sentiment is that this could have an adverse effect on the economy. As a result, the Group assessed the sensitivity and increased the probability weighting of a stressed scenario during the first half of the year. The Group will continue to monitor the potential impact over the coming months and expects any further impact to be recognised in the second half of this year.
Fair value of amounts receivable from customers: GBP'000 GBP'000 -------------------------------------- ------- ------- Branch-based lending 301,852 274,291 Guarantor loans 131,344 112,157 Home credit 53,402 67,717 -------------------------------------- ------- ------- Amounts receivable from customers 486,598 454,165 -------------------------------------- ------- -------
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 as they are not traded on an active market and the fair value is therefore determined through future cash flows.
10. Goodwill
GBP'000
------------------------------------------------ --------
Cost and net book amount as at 31 December 2018 140,668
Accumulated impairment (12,452)
------------------------------------------------ --------
At 30 June 2019 128,216
------------------------------------------------ --------
The goodwill recognised represents the difference between the purchase consideration and the net assets acquired (including intangible assets recognised upon acquisition), less any accumulated impairment. Total goodwill as at 30 June 2019 comprises GBP40.2m related to the acquisition of Loans at Home, less impairment recognised in the year of GBP12.5m, GBP91.9m related to the acquisition of Everyday Loans, and GBP8.6m related to the acquisition of George Banco.
Under IFRS 13, 'Fair value measurement', the fair value used in the Goodwill impairment assessment is classified as Level 3, as the fair value is determined using discounted future cash flows.
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The assessment of impairment of goodwill reflects a number of key estimates, each of which can have a material effect on the carrying value of the asset.
These include:
-- earnings forecasts which have been extracted from the budget, which involves inherent uncertainty, particularly in respect of gross loan values, collections performance and the cost base of the business;
-- the price earnings multiple applied to the forecasts; -- estimates made on the disposal costs of the business; and -- the discount rate applied to determine future earnings.
Determining whether goodwill is impaired requires an estimation of the recoverable amount of each cash generating unit ('CGU'). The recoverable amount is the higher of its value in use ('VIU') or its fair value less cost to sell. Consistent with the methodology used as at 31 December 2018, recoverable amount has been determined based on a 'fair value less cost-to-sell' calculation. That calculation uses earnings projections approved by management covering a one-year period to 31 December 2019 multiplied by the price earnings ('PE') multiple for comparable companies based on their forecast earnings per share for 2019 and their share price at 30 June 2019. Disposal costs have been estimated at 2%. In addition the Directors have calculated the recoverable amount based on 'value in use' which uses the cash flows derived from the same earnings projections for the year ended 31 December 2019 but then additionally incorporates the cash flows for the years ended 31 December 2020 and 2021 together with a terminal value based on the cash flow forecast for 2021 at a perpetuity growth rate. The resulting cash flow forecasts are then discounted at a 12% discount rate to produce a 'value in use' to the Group. This second approach has not been utilised in previous years as IAS 36, the standard which determines how to value the recoverable amount, requires the use of the higher of the two valuation methods when assessing value. This requirement meant that there was no need to calculate 'value in use' as 'fair value less cost-to-sell' was in excess of the carrying value.
Loans at Home goodwill assessment
In the 2018 Annual Report and Accounts the Group had calculated the fair value less costs to sell of Loans at Home to be in the range of GBP64m to GBP67m (headroom of between GBP2m and GBP5m from the carrying value) as at 31 December 2018. A key estimate driving this result was 2019 forecast earnings where it was determined that a reduction of 3% to 8% would have necessitated an impairment charge.
Whilst Loans at Home performed ahead of budget in the six months ended 30 June 2019, the significant decline in peer group PE multiples since 31 December 2018 represented an indicator of impairment as at 30 June 2019, and therefore the Board has taken the decision to undertake an impairment assessment of the CGU. Consistent with prior year, as part of this assessment, the Group has calculated the fair value less cost to sell and compared this to the carrying value of the CGU.
The Group has calculated the fair value less costs to sell to be in the range of GBP48.0m to GBP61.0m compared to the carrying value of GBP60.8m. The lower end of this range would suggest impairment of GBP12.8m compared to headroom of GBP2m to GBP5m at 31 December 2018. This decrease is due to a 33% decline in the PE multiple applied to the 2019 Loans at Home earnings forecast as PE multiples in the non-standard lending sector have declined significantly in the first half of 2019 (as noted above Loans at Home's performance in the first half of 2019 has exceeded budget). The Group notes that had market multiples remained at the level they were as at 31 December 2018, there would have existed headroom of between GBP6.5m and GBP11m based on the latest forecast earnings of Loans at Home for 2019.
Under IAS 36, the recoverable amount represents the higher of the fair value less costs to sell and value in use. The Group notes that as the FV less cost to sell model is reliant on the use of non-standard sector PE multiples at a point in time, these multiples may be influenced by a number of factors unrelated to the value of Loans at Home as a standalone CGU which may not depict the appropriate recoverable amount for this business. As at 30 June 2019, the lower range of outputs calculated under the fair value less cost to sell model is below the carrying value of the CGU. This is reflective of the increased sector wide risks to future cash flows and new originations which have arisen since 31 December 2018 in light of changes in the market and regulatory environment in the recent months. As a result, the Group has also performed a value in use assessment in order to determine the recoverable amount as permitted by the standard.
The value in use to the Group has been calculated to be in the range of GBP48.3m to GBP65.4m. In calculating this range, the Group has applied sensitivities to the percentage of cash flows achieved and terminal growth rate. The lower end of this range suggests impairment of GBP12.5m and assumes that Loans at Home delivers 90% of forecast cash flows over the period and a nil perpetuity growth rate. Assuming cash flow forecasts are achieved, the VIU increases by GBP5.4m to GBP53.7m under the nil perpetuity growth rate scenario. The higher end shows headroom of GBP4.6m and assumes cash flow forecasts are achieved with a 1% perpetuity growth rate. Assuming only 90% of cash flows are achieved under a 1% perpetuity growth rate reduces the VIU by GBP8.9m to GBP56.5m.
Whilst the upper end of the valuations suggest no impairment is required and, although LAH has been performing ahead of budget in the six months ended 30 June 2019, the Group recognises there remains uncertainty around the future forecast numbers, particularly given external factors including macro-economic risk, such as recent changes in the UK political climate resulting in a heightened risk of a 'no deal' Brexit, as well as potential changes in regulation. In addition, the Group recognises the uncertainty around the selection of an appropriate perpetuity growth rate given the recent decline in the size of the home credit market which means that Loans at Home needs to take market share in order to grow. Finally, there is a lack of certainty regarding the possible return to previous market multiples. In light of the uncertainties outlined above the Group has taken its best estimate and decided to recognise a GBP12.5m impairment loss in the Loans at Home goodwill asset. This loss is non-cash and represents the difference between the VIU to the Group, assuming 90% of cash flows are achieved and a nil perpetuity growth rate, and the carrying value of the CGU.
Everyday Loans and Guarantor Loans goodwill assessment
For the Everyday Loans branch based lending division, the Group has concluded that no indication of impairment exists and therefore no further testing has been conducted for the six months ending 30 June 2019.
For the guarantor loans division the Directors considered the recent announcements of focus on this area by regulators and the performance of the business to 30 June 2019. It was determined that there exists sufficient headroom between the recoverable amount and carrying value of the CGU. It was concluded that there was no impairment as at 30 June 2019. The Directors note however that this calculation remains sensitive to the outcomes of regulatory reviews of the guarantor loan sector and the future performance of the business.
11. Net cash used in operating activities
Six months
ended 30 June Six months ended
2019 30 June 2018
GBP'000 GBP'000
======================================= =============== =================
(Loss) profit before interest and
tax (9,588) 6,994
Taxation(paid) / refund (670) 449
Depreciation 2,101 1,221
Amortisation of intangible assets 3,272 4,340
Loans at Home goodwill impairment
loss 12,452 -
Share based payment charge 597 473
Fair value unwind on acquired loan
book 1,184 3,839
Profit on disposal of property, plant
and equipment (16) (21)
Increase in amounts receivable from
customers (25,310) (30,542)
Decrease in other assets 98 -
Decrease/(Increase) in receivables 1,014 (4,550)
Increase/(Decrease)/ in payables 4,233 (2,816)
Cash used in operating activities (10,633) (20,613)
--------------------------------------- --------------- -----------------
12. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Two members of key management personnel (Executive Directors of Non-Standard Finance plc) are Trustees of the charity Loan Smart, during the six months ended 30 June 2019, the Company donated GBPnil to Loan Smart (six months ended 30 June 2018: GBPnil) and has a debtor balance of GBP80,500 as at 30 June 2019 for a loan to the charity (2018: GBP80,500). Amounts owed to Non-Standard Finance plc are non-interest bearing and repayable on demand.
Three Directors are members of the Non-Standard Finance plc Long-Term Incentive Plan.
There have been no changes in the nature of related party transactions as described in note 29 to the 2018 Annual Report & Financial Statements.
13. Distributable reserves of the Parent Company
At 30 June 2019, Non-Standard Finance plc (the 'Company') had no distributable reserves. Since 30 June 2019, the Company has effected a capital reduction which became effective on 30 July 2019. This capital reduction consisted of: (i) a cancellation of 5,070,234 ordinary shares in the Company that were purportedly purchased through the Company's share buy-backs made between 2017 and 2019 but which, as a result of certain infringements of the Companies Act 2006, were not validly purchased; and (ii) the reduction of the amount of GBP75 million standing to the credit of the Company's share premium account. Assuming the capital reduction had taken place prior to 30 June 2019, distributable reserves as at 30 June 2019 would have increased.
As permitted by the Companies Act 2006, the Company intends to file interim accounts prior to the payment of the interim dividend on 17 October 2019. It is expected that these interim accounts will demonstrate sufficient distributable reserves to support the interim dividend payment.
14. Subsequent events
Since 30 June 2019, the company has effected a capital reduction which became effective on 30 July 2019 (refer note 13). This has no financial impact on the 30 June 2019 financial statements.
There have been no other events that require disclosure in or adjustment to the financial statements.
APPENDIX
Glossary of alternative performance measures and key performance indicators
The Group has developed a series of alternative performance measures that it uses to monitor the financial and operating performance of each of its business divisions and the Group as a whole. These measures seek to adjust reported metrics for the impact of non-cash and other accounting charges (including modification loss) that make it more difficult to see the true underlying performance of the business.
Alternative performance measure Definition
Net debt Gross borrowings less cash at bank
---------------------------------- ----------------------------------------------------------------------------------
Normalised revenue Normalised figures are before fair value adjustments, amortisation of acquired
Normalised operating profit intangibles
Normalised profit before tax and exceptional items
Normalised earnings per share
---------------------------------- ----------------------------------------------------------------------------------
Key performance indicators Definition
Impairments/revenue Impairments as a percentage of normalised revenues
---------------------------------- ----------------------------------------------------------------------------------
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
---------------------------------- ----------------------------------------------------------------------------------
Cost to income ratio Normalised admin expenses as a percentage of normalised revenues
---------------------------------- ----------------------------------------------------------------------------------
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
================================== ==================================================================================
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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