Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Non-Standard Finance plc    NSF   GB00BRJ6JV17

NON-STANDARD FINANCE PLC

(NSF)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsPress ReleasesOfficial PublicationsSector news

Non Standard Finance : Full Year Results 2019

share with twitter share with LinkedIn share with facebook
06/25/2020 | 02:14am EDT

Non-Standard Finance plc

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

Audited full year results to 31 December 2019

25 June 2020

Financial summary

Normalised revenue1 up 10% to £183.7m (2018: £166.5m); reported revenue of £180.8m (2018: £158.8m)

Normalised operating profit2 up 20% to £42.2m (2018 restated: £35.1m); reported operating profit up 71% to £32.1m (2018 restated: £18.7m)

Normalised profit before tax1 was £14.7m (2018 restated: £14.0m); reported loss before tax of £76.0m (2018: restated loss before tax of £2.4m) is after fair value adjustments, amortisation of acquired intangibles and exceptional items

The reported statutory loss before tax of £76.0m was after an exceptional charge of £80.6m (2018: £nil) that includes a non-cash charge of £65.8m (2018: £nil) relating to goodwill impairment; fees and costs associated with the offer for Provident Financial plc of £12.8m (2018: £nil); and restructuring costs of £1.9m (2018: £nil)

A non-cash, prior year corrected error in loan provisions of £4.0m reduced the Group's net assets by £3.5m after accounting for deferred tax. The 2018 results have been restated to reflect this change

Normalised EPS1 of 3.7p (2018 restated: 3.5p); reported loss per share of 24.5p (2018 restated: loss per share of 0.7p) is after fair value adjustments, amortisation of acquired intangibles and exceptional items

COVID-19 and trading in April and May 2020:

o lending restarted in May while basic collections3 remained robust averaging 86% of pre-lockdown levels with a slightly stronger performance in branch-based lending than guarantor loans and home credit

o Group generated net cash after all expenses of £7.4m in April and £17.2m in May

o The Board notes that a material uncertainty exists relating to going concern primarily due to COVID-19

No final dividend declared making a total dividend per share for the year of 0.7p (2018: 2.6p); absence of distributable reserves to be addressed, subject to shareholder and Court approval

At 31 May 2020 the Group had cash at bank of £60.3m and gross borrowings of £345.0m

Year to 31 December

2019

2018 restated

% change

£000

£000

Normalisedrevenue1

183,657

166,502

+10%

Reported revenue

180,784

158,824

+14%

Normalisedoperating profit1

42,165

35,101

+20%

Reported operating profit

32,066

18,742

+71%

Normalisedprofitbefore tax1

14,707

13,994

+5%

Reported(loss) before tax

(75,976)

(2,365)

-3,113%

Normalisedprofitafter tax1

11,446

10,944

+5%

Reported(loss) after tax

(76,308)

(2,307)

-3,208%

Normalisedearnings per share4

3.67p

3.50p

+5%

Reported(loss) per share

(24.45)p

(0.74)p

-3,204%

Full-year dividendper share

0.70p

2.60p

-73%

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

2For reconciliation of net loan book growth see table in Financial Review.

3Excluding settlements

4 Basic and diluted earnings (loss) per shareis calculated as normalised profit after tax of£11.4m dividedbythe weighted average number of shares in issue of 312,126,220 (2018: 312,713,410)

John van Kuffeler, Group Chief Executive Officer, said

'The last 18 months have been difficult and disappointing for Non-Standard Finance with the failure of our offer for Provident Financial; the fall in sector values necessitating large write-downs in the values of our three principal subsidiaries and the COVID-19 pandemic which has paralysed the UK economy. These first two events resulted in exceptional and non-cash charges of £80.6m in 2019 while the third has led to a sharp downturn in lending following lock-down in March 2020. Yet despite this challenging back-drop, both branch-based lending and guarantor loans delivered good loan book growth in 2019 and home credit delivered a sharp increase in profit, resulting in a 5% increase in normalised Group pre-tax profit.

'In 2020, the immediate impact of COVID-19 was the near cessation of lending from the middle of March together with an increase in expected credit losses. While it is clear this will severely impact our 2020 results, our post lock-down collections have remained robust at around 86% of our previous levels and we have generated net cash of £24.6m over the last two months. Although we are exercising extreme caution and mindful of the constraints on our debt facilities that are preventing further drawdown on the new securitisation facility, lending volumes are once again increasing, albeit gradually. As the recession begins to bite, it is expected that more of the UK population will be unable to borrow from either their clearing bank or other mainstream lenders. Previous recessions have taught us that prime lenders are likely to become increasingly risk averse and tighten their lending criteria, leaving a large and expanding pool of higher quality applicants who require access to regulated and responsible credit markets. The Board believes this could represent an exceptional market opportunity for the Group. Accordingly, the Board is considering the most appropriate funding structure, which may include the issue of equity, to strengthen the Group's balance sheet and to enable the Company to capitalise on this opportunity and meet a growing need in the economy.'

Context for results

The 2019 and 2018 reported results include fair value adjustments and amortisation of acquired intangibles. A prior year adjustment has been made to the opening 2018 balance sheet to reflect an increase in loan loss provisions following the transition to IFRS 9 and the 2018 results have been restated to reflect this change. The 2019 reported results also include exceptional items relating to the costs arising from the firm offer to acquire Provident Financial, goodwill impairment of £65.8m (2018: £nil) relating to all three business divisions and costs related to restructuring. Normalised results are presented to demonstrate Group performance before these items.

Financial summary

Year ended 31 December 2019

Normalised4

Fair value

adjustments,

amortisation of acquired intangibles and exceptional items

Reported

£000

£000

£000

Revenue

183,657

(2,873)

180,784

Other operating income

954

-

954

Modification loss

(1,181)

-

(1,181)

Derecognition loss

(413)

-

(413)

Impairments

(45,066)

-

(45,066)

Administration expenses

(95,786)

(7,226)

(103,012)

Operating profit

42,165

(10,099)

32,066

Exceptional items

-

(80,584)

(80,584)

Profit / (loss) before interest and tax

42,165

(90,683)

(48,518)

Finance cost

(27,458)

-

(27,458)

Profit / (loss) before tax

14,707

(90,683)

(75,976)

Taxation

(3,261)

2,929

(332)

Profit / (loss) after tax

11,446

(87,754)

(76,308)

Earnings (loss) per share5

3.67p

(24.45)p

Dividend per share

0.70p

0.70p

Year ended 31 December 2018

Restated

Normalised4

Fair value

adjustments,

amortisation of acquired intangibles and exceptional items

Reported

£000

£000

£000

Revenue

166,502

(7,678)

158,824

Other operating income

1,626

-

1,626

Modification loss

(78)

-

(78)

Derecognition loss

(129)

-

(129)

Impairments

(43,738)

-

(43,738)

Administration expenses

(89,082)

(8,681)

(97,763)

Operating profit

35,101

(16,359)

18,742

Exceptional items

-

-

-

Profit before interest and tax

35,101

(16,359)

18,742

Finance cost

(21,107)

0

(21,107)

Profit / (loss) before tax

13,994

(16,359)

(2,365)

Taxation

(3,050)

3,108

58

Profit / (loss) after tax

10,944

(13,251)

(2,307)

Earnings (loss) per share5

3.50p

(0.74)p

Dividend per share

2.60p

2.60p

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

5Basic and diluted earnings (loss) per share based on the weighted average number of shares in issue of 312,126,220 (2018: 312,713,410)

Online presentation on 25 June 2020

There will be webcast presentation of the results at 0930 on 25 June 2020 given by John van Kuffeler, Group Chief Executive and Jono Gillespie, Group CFO. To access the webcast, please register here or via the Group's website.copy of the slides presented will also be available on the Group's website, http://www.nsfgroupplc.comlater today.

Dial-in details to listen to the analyst presentation at 0930, 25 June 2020

0920

Please call +44 (0)330 606 1122

Room number

217833

Participant PIN

5055

0930

Meeting starts

All times are British Summer Time (BST).

For more information:

Non-Standard Finance plc

John van Kuffeler, Group Chief Executive

Jono Gillespie, Chief Financial Officer

Peter Reynolds, Director, IR and Communications

+44 (0) 20 3869 9020

Finsbury

Faeth Birch

Michael Turner

Angharad Knill

+44 (0) 20 7251 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 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-collected 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 loan book growth and the delivery of improved customer outcomes.

Group Chief Executive's Report

In 2019 both branch-based lending and guarantor loans delivered solid loan book growth and this translated into good growth in normalised operating profit. Despite being in a mature market, our home credit business also delivered strong growth in operating profit thanks to the shift to a shorter-term loan book and careful management of impairment and operating costs.

The key operational and strategic highlights during the year included:

· Branch-based lending:

o net loan book6 up 18% to £214.8m

o impairment lower at22.2% of revenue6

o 8 new branches opened taking the total to 73

o 17% increase in the number of staff to 476

o over 2.5 million loan applications processed, up 52%

o 75,400 active customers, up 23%

· Guarantor loans:

o net loan book6 up 28% to £105.5m

o impairment increased to 26.8% of revenue6

o consolidation of the division's operations from two sites into one

o over 520,000 loan applications processed, up 16%

o 32,600 active customers, up 30%

· Home credit:

o net loan book6 down 3% to £39.9m

o impairment down from 32.6% to 27.0% of revenue6

o Significant technology-driven enhancements were delivered during the year:

§ new customer portal

§ automated income verification

§ card readers for agents enabling 'chip and pin' on the doorstep

§ bespoke scorecard for our most experienced and best performing agents

On a like-for-like basis, the combined net loan book at 31 December 2019 increased by 18% to £360.2m before fair value adjustments (2018 restated: £306.4m) and was up by 16% to £361.6m (2018 restated: £310.7m) after fair value adjustments. A summary of the other key performance indicators for each of our businesses for 2019 is shown below:

Key performance indicators6

Year ended 31 Dec 19

Branch-based lending

Guarantor loans

Home credit

Loan book growth

17.6%

27.7%

(2.7)%

Revenue yield

46.4%

31.7%

167.5%

Risk adjusted margin

36.1%

23.2%

122.2%

Impairments/revenue

22.2%

26.8%

27.0%

Impairments/average net loan book

10.3%

8.5%

45.2%

Cost:income ratio

45.4%

43.2%

58.0%

Operating profit margin

31.9%

29.4%

15.0%

Return on assets

14.8%

9.3%

25.1%

Key performance indicators6

Year ended 31 Dec 18 Restated

Branch-based lending

Guarantor loans

Home credit

Loan book growth

24.7%

61.0%

2.1%

Revenue yield

47.8%

32.5%

171.5%

Risk adjusted margin

37.0%

25.8%

115.6%

Impairments/revenue

22.7%

20.5%

32.6%

Impairments/average net loan book

10.8%

6.6%

55.9%

Cost:income ratio

45.9%

45.9%

57.1%

Operating profit margin

33.0%

34.5%

10.3%

Return on assets

15.8%

11.2%

17.7%

6 See glossary of alternative performance measures and key performance indicators in the Appendix. 2018 KPIs have been restated for the prior year adjustment to loan loss provisions.

2019 full year results

In the 12 months to 31 December 2019 the Group grew normalised revenue before fair value adjustments by 10% to £183.7m (2018: £166.5m) and normalised operating profit by 20% to £42.2m (2018 restated: £35.1m). As a result of higher interest charges, normalised earnings per share increased by 5% to 3.67p (2018 restated: 3.50p).

The Group's 2019 and 2018 reported, or statutory results are significantly affected by fair value adjustments, the amortisation of acquired intangibles associated with the acquisitions of Everyday Loans and George Banco, the adoption of IFRS 9 and exceptional items. On a statutory basis, reported revenue, which is after fair value adjustments, was £180.8m (2018: £158.8m) while the impact of £80.6m of exceptional items (2018: £nil) and £7.2m amortisation and write-off of acquired intangibles (2018: £8.7m) meant that the Group reported a loss before interest and tax of £48.5m (2018 restated: profit before interest and tax of £18.7m) and the reported loss before tax was £76.0m (2018 restated: £2.4m).

A summary of the exceptional items is shown below (further details regarding the exceptional items are set out in note 7 to the preliminary announcement).

Year ended 31 December

2019

£000

Impairment of goodwill asset (non-cash) - branch-based lending

(44,788)

Impairment of goodwill asset (non-cash) - guarantor loans

(8,597)

Impairment of goodwill asset (non-cash) - home credit

(12,452)

Offer-related fees

(12,827)

Restructuring costs

(1,920)

Total

(80,584)

Unlike many other consumer credit businesses, when lending direct i.e. without a guarantor, we aim to meet our customers face-to-face. This provides us with an additional level of underwriting that is not available to remote-only lending models and is only made possible through meeting the customer personally. The customer relationship is therefore at the heart of both branch-based lending and home credit, and even in guarantor loans we make a point of speaking at length to both borrower and guarantor in 100% of cases, ensuring that we understand their needs and can identify which of our products and services might suit them best. The strength of this relationship also helps us to better manage the rate of impairment and ensure that customers in financial difficulty are given due forbearance in a way that works for them.

Whilst COVID-19 has required that we accept and adapt to new ways of working to ensure the health and safety of our customers, staff and self-employed agents, we remain committed to our business model. Despite the current challenges that have reduced lending volumes, impacted collections and created material uncertainties for the Group, we remain confident that our model can continue to meet the needs of our customers, whilst also generating profitable growth over the long term.

Branch-based lending

We opened in eight new locations in 2019 and so at the end of 2019 had a total of 73 branches open across the UK, supported by a total of 365 front-line staff. Demand remained strong and lead volumes increased by 52% versus the prior year resulting in a 36% increase in the number of qualifying new borrower applications that were passed through to our branches. The benefit of new branches and staff, together with the improving performance of previously opened branches was partially offset by higher costs and so the division delivered a 13% increase in normalised operating profit to £29.7m (2018 restated: £26.3m). However, higher interest costs and the sharp decline in stock market valuations in the sector during the second half of 2019 required a reduction in the carrying value of goodwill on the balance sheet by £44.8m to £47.1m. This non-cash charge has been treated as an exceptional item in the Consolidated Statement of Comprehensive Income (see note 7).

Guarantor loans

The demand for guarantor loans remained strong in 2019. The presence of a guarantor means that many non-standard borrowers are able to access credit that might not otherwise be available to them and at a much lower rate than if they were to try and borrow on their own. During 2019, we accelerated the plan to consolidate our guarantor loans operations into a single established site in Trowbridge, Wiltshire. Having moved the collections function earlier in the year, we commenced the transfer of the remaining operations during the fourth quarter of 2019, some nine months ahead of our original plan. While this did cause some temporary disruption and held back profit margins, normalised operating profit was up 17% to £8.8m (2018 restated: £7.5m). While the loan book grew by 28%, this did come with an increase in the rate of impairment which remains a key area of focus for management. Despite the increase in normalised operating profit, higher interest costs and the sharp decline in stock market valuations in the sector also impacted guarantor loans during the second half of 2019 requiring a reduction in the carrying value of goodwill on the balance sheet by £8.6m to £nil as well as a write-off of £2.0m of remaining acquired intangibles. These non-cash charges have been treated as exceptional items in the Consolidated Statement of Comprehensive Income (see note 7).

Home credit

Loans at Home delivered another solid performance in 2019. We continued to reduce the proportion of customers on long-term loans and remain focused on improving the quality of our customer base. Whilst this resulted in a small decline in the number of customers and the net loan book versus the prior year, there was also a significant improvement in the rate of impairment as a percentage of revenue. This, together with the benefit of a more streamlined management structure since the beginning of 2019 meant that normalised operating profit increased by 36% to £9.1m (2018: £6.7m). As noted at the time of the half year results, despite this strong performance, the decline in valuations of most listed companies in the non-standard sector since the end of 2018 meant that we reduced the carrying value of the Loans at Home goodwill asset on the balance sheet by £12.5m. This non-cash charge has been treated as an exceptional item in the Consolidated Statement of Comprehensive Income (see note 7).

Offer to acquire Provident Financial plc

On 22 February 2019 the Company announced a firm offer to acquire Provident Financial plc ('Provident') by way of a reverse takeover offer (the 'Offer'). Despite receiving acceptances representing approximately 54% of Provident, certain other conditions were not met and the Offer lapsed on 5 June 2019. The Group incurred advisory fees totalling £12.8m in connection with the Offer and these have been included in the 2019 results within exceptional items (see note 7).

Funding

As at 31 December 2019 the Group had cash at bank of £14.2m (2018: £13.9m) and gross borrowings of £323.2m (2018: £272.8m).

On 11 March 2020 the Group announced that it had entered into a new six-year £200m securitisation facility provided by Ares Management Corporation (NYSE: ARES). The new facility was put in place to repay £120m from the more expensive term loan facility with the remainder available for growth at the Group's branch-based and guarantor loans divisions, subject to compliance with financial covenants.

The Board notes that a material uncertainty exists relating to going concern primarily due to COVID-19. Following a series of measures announced on 26 March 2020 and having subsequently drawn down £15.0m from the new securitisation facility, as at 31 May 2020 the Group had increased cash at bank to £60.3m and had total gross borrowings of £345.0m. Whilst the impact of COVID-19 on the loan book has prompted a breach of certain performance covenants, preventing further drawdown on the new facility, negotiations with the lender have been positive and temporary relief has been provided until 29 June 2020 whilst a more permanent agreement is reached. Until such agreement is concluded there exists material uncertainty over the ability of the Group to draw down further on the facility. In the event that no agreement is reached or the temporary relief is not extended then the Group has sufficient cash resources to repay the amount drawn under the new facility in full. The Board is in discussions with its lenders regarding possible future covenant waivers, whilst at the same time evaluating all funding options, which may include the issue of equity, in order to ensure the Group has a strong and liquid balance sheet. Combined, it is hoped that these actions will unlock access to the facility and help to reduce overall funding costs as well as provide additional finance for future growth.

Regulation

The Group has continued to participate in a number of ongoing thematic reviews being conducted by the FCA including responsible lending, repeat lending and vulnerable customers. The FCA has also continued to progress its multi-firm review of the guarantor loans sector and the Group has received feedback regarding the information provided to guarantors at the point of lending which the industry is now working on embedding into existing lending processes.

Complaint handling is another area of focus and whilst the number of complaints raised with the Financial Ombudsman Service ('FOS') increased in 2019, it remains low in absolute terms and is monitored closely as part of the Group's risk management framework.

On 2 April 2020, the FCA announced a series of measures as part of a coordinated effort to support borrowers affected by the outbreak of COVID-19. Of particular note was the proposal that consumer lending firms offer those borrowers in difficulty, or that might reasonably expect to be in difficulty at some point in the future, a 'payment freeze' of up to three months, during which they would not be required to make any payments on their outstanding loan but during which interest could continue to be charged. On 19 June 2020, the FCA announced that the option of a payment freeze for borrowers experiencing difficulty due to COVID-19 would be extended to 31 October 2020. Forbearance is already a key feature of our business model and, together with the rest of the industry, we have been working with the FCA, HM Treasury and FOS to ensure that such a payment freeze is implemented effectively and reaches those borrowers that need help.

We continue to monitor all regulatory developments closely and aim to anticipate any proposed changes to the regulatory regime that may affect one or more of our businesses so that we can be well-prepared to implement them if required, or if we believe they will improve the experience of our customers.

A summary of the more pertinent regulatory developments during 2019 and into 2020 are available on the Group's website: www.nsfgroupplc.com.

COVID-19, current trading, outlook and final dividend

On 26 March 2020 the Group announced a series of steps to safeguard the health and safety of our customers, our staff and self-employed agents. The steps taken were also designed to mitigate, as far as possible, the impact of COVID-19 on our operational and financial performance and to avoid putting our business at risk. They included a number of measures to reduce costs and save cash such as a reduction in staff numbers, the furloughing of over 120 employees, the deferral of payments to the UK tax authorities and the cancellation of all Executive Director bonuses linked to financial performance in respect of 2020.

Each of the Group's three divisions is continuing to trade in an unprecedented business environment and since late March 2020 lending volumes have reduced significantly with the result that as at the start of June 2020 the combined net loan book had reduced by around 9% since the year end. Having revised our scorecards and adjusted our lending process in all three divisions, we have slowly restarted lending and whilst encouraged by the volume of applications received, we remain cautious. While overall basic collections (before settlements) in April and May 2020 averaged 86% of the level in January and February 2020, this was better than might have been expected and the business as a whole generated positive cash flow after all expenses of approximately £7.4m in April 2020 and £17.2m in May 2020.

The full impact of COVID-19 on the Group's future financial performance is highly uncertain and will be heavily influenced by a number of factors including the severity and duration of the pandemic as well as the way in which both government and consumers respond. The Group is working through the implications of the COVID-19 payment freeze for IFRS 9 provisioning and will continue to monitor the performance of customers as their payment freeze ends. The short-term impact has been a reduction in income from lending activities, together with an increase in expected credit losses, although collections are holding up well and based on conversations held to-date we believe that the majority of home credit customers that have asked for a temporary payment freeze will return to making their regular payments in due course. The Guarantor Loans Division has a higher percentage of COVID-affected customers than the other two businesses which is leading to higher levels of delinquency.

Looking ahead and based on the experience of previous economic downturns, we also expect that any tightening of credit by mainstream lenders will result in increased levels of demand for non-standard finance in the future and from better quality applicants. Subject to funding, this could represent a significant opportunity for the Group with its established infrastructure and strong market position in branch-based lending, guarantor loans and home credit.

Having written down the goodwill assets of all three divisions in 2019, the Group notes that the further decline in market multiples due to COVID-19 is likely to result in further goodwill impairment post 31 December 2019. The Group has identified that on the basis of actual earnings for the year ended 31 December 2019, a further 1% drop in price earnings multiples would result in c.£0.8m of additional impairment of goodwill at the branch-based lending division, and reduce the level of existing headroom in relation to the carrying value of the home credit goodwill asset by £0.6m. As at 31 December 2019, total goodwill in relation to the Guarantor Loans Division had been fully written-off.

Given the difficulty in predicting the balance of these uncertainties, we have withdrawn all previous market guidance and medium-term targets until further notice but plan to provide further updates as and when appropriate.

The Group declared a half-year dividend of 0.7p per share in August 2019 (2018: 0.6p). As announced on 26 March 2020, the Board is not recommending or paying a final cash dividend in respect of the year ended 31 December 2019. Whilst the goodwill impairment outlined above is non-cash in nature, together with the amortisation of acquired intangibles (also non-cash in nature), the prior year adjustment and other exceptional items, the Company no longer has any distributable reserves. To address this, the Board is committed to completing a process, subject to shareholder and Court approval, to create sufficient distributable reserves so that, the Company is able to resume the payment of cash dividends to shareholders as soon as it is appropriate to do so.

Going concern statement

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

As a result of the impact of COVID-19, the Group has at the date of signing the accounts, breached its portfolio performance covenants in relation to the securitisation facility, thereby preventing the Group from drawing down further from this facility. However recognising that such a breach is as a result of COVID-19 which is beyond the Group's control, Ares has granted a temporary waiver for this breach covering the period up to 29 June 2020 so as to allow time for a more permanent solution to be agreed. In the event that no agreement can be reached or extended then the Group has sufficient cash resources to repay the amount drawn under the securitisation facility in full.

As part of its going concern assessment, the Directors reviewed both the Group's access to liquidity and its future balance sheet solvency. For liquidity, the Group produced two scenarios: (i) a most likely (or 'base case') scenario which involves restricted lending across the Group in order to mitigate the risk of covenant breaches; and (ii) a downside scenario which applies stresses in relation to the key risks identified in the base case.

Under the base case, we have assumed the waiver granted by Ares is extended and no repayment of currently drawn amounts is made. Whilst the headroom which exists in the financial covenants remains very tight, the Group does not expect to breach any further covenants in the next 12 months and therefore would not require further covenant waivers from its lenders in order to remain viable. The Group has considered a stress to the base case where it is required to repay the £15m currently drawn under the securitisation facility. Under this stressed scenario the Group still does not expect to breach any further covenants over the next 12 months.

Under the downside scenario, the Group would be expected to breach certain covenants during the next 12 months and would therefore require waivers from its lenders in order to remain viable. The Group additionally ran a liquidity reverse stress test on the base case to identify the level expected collections would have to fall by to cause the Group to deplete all cash reserves. This assumes no further lending and a corresponding fall in collections with no change to operating expenses. The result of this showed that collections would have to fall by a further 65% from expected forecast levels in the base case for the Group to become illiquid, assuming no access to further funding. Such a reduction in collections, based on evidence to date was thought by the Directors to be an unlikely event.

With regards to balance sheet solvency of the Group, the Directors note that under both scenarios, the Group and Company remained in a net asset position and upon adding a further stress to write-off all remaining goodwill on the balance sheet as at 31 December 2019, the Group and Company remained solvent. The Directors noted that a material uncertainty exists regarding the impact of COVID-19 on the assumptions made and subsequent outcomes as well as the ultimate impact on covenants both under both the base case and downside scenarios which may cast significant doubt on the Group and Company's ability to continue as a going concern.

The Directors felt that the range of assumptions made in both the base case and downside scenario were such that given the uncertainties around the full general and idiosyncratic impact of COVID-19, there remained a material level of uncertainty around the impact on the Group's ability to meet its covenants and if they weren't met, the likelihood of a further waiver being granted by the lenders as well as the full impact on the Group's balance sheet.

The Directors acknowledge the considerable challenges presented by the outbreak of COVID-19 and the material uncertainty created for the going concern status of the Group and Company. However, following a number of steps taken by the Group (reduced lending volume across all three divisions, a reduction in staff numbers, the furloughing of a number of staff and the deferral of payments to the UK tax authorities) and despite the material uncertainty associated with forecast assumptions, purely as a consequence of COVID-19 as noted above, it is their reasonable expectation that the Group and Company will continue to operate and meet its liabilities as they fall due for the next 12 months and therefore has adopted the going concern basis of accounting .

Given the widespread government-led support to businesses, the steps taken by UK regulators as well as some market data from analogous situations and discussions held with each of the Group's lenders, should the Group find itself in a position where it is faced with further covenant breaches, the Directors have a reasonable expectation that the Group's lenders will agree to waive potential covenant breaches to an extent, albeit at a higher cost. The Directors note that current negotiations with lenders suggest that whilst it is likely that waivers would be given, at a cost, to cover reasonable deviations from the base case scenario, waivers which would be required to fully cover the downside scenario are beyond what is currently envisaged in the negotiations. There is therefore a material uncertainty regarding whether the Group would be able to operate within the limits set by its lenders in such a scenario. As mentioned above, the Group notes that as at the date of signing the accounts, there has been a breach of portfolio performance covenants in relation to the securitisation facility, thereby preventing the Group from drawing down further from this facility. This has arisen as a result of the impact of COVID-19. Recognising the portfolio performance covenant breach is as a result of factors beyond the Group's control, a temporary waiver has been granted by its lender for this breach covering up to 29 June 2020 to allow time for permanent changes to the treatment of COVID-19 flagged loans be agreed. As set out above, management expect that the waiver will be extended for a defined period should negotiations not reach a conclusion by 29 June 2020. In the event that no agreement can be reached or extended then the Group has sufficient cash resources to repay the amount drawn under the securitisation facility in full. The Group is not currently in breach of any other covenants associated with the securitisation facility and is currently not in breach of covenants associated with the term loan and RCF facilities. The assumption of lender support for covenant breaches forms a significant judgement of the Directors in the context of approving the Group's going concern status.

As highlighted above, whilst the Directors believe the Group and Company will remain a going concern, a material uncertainty exists that may cast significant doubt on the Group and Company's ability to continue as a going concern. Such a material uncertainty includes the impact of potential reduced levels of collections and lending on the Group's financial performance, compliance with existing financial covenants and whether waivers will be granted by lenders (and under what terms) in the event of a further covenant breach. The Directors will continue to monitor the Group and Company's risk management, access to liquidity, balance sheet and internal control systems as well as lending and collections.

Annual General Meeting

The AGM of the Company is scheduled to take place on 30 June 2020. A separate notice of meeting has already been dispatched to shareholders and a copy is available from the Group's website: www.nsfgroupplc.

As the 2019 audit has taken longer to complete than expected and in accordance with DTR 4.1.3R, the Company has used the additional time granted before publishing audited accounts, to consider 'all aspects of their business and operations' and to ensure that the forward looking elements of our Annual Report adequately considered and took into account the impact of the pandemic insofar as possible upon the business.

Given the timescales, it has been necessary to apply to Companies House for an extension to the filing date of the Group's audited accounts. As the anticipated date for completion of the audited accounts did not allow a clear 21 days' notice prior to the required AGM date, the Company is required to hold a separate general meeting to approve our audited accounts. This will now take place on 28 July 2020 and the notice of meeting has been dispatched to shareholders with the Annual Report.

John van Kuffeler

Group Chief Executive

25 June 2020

2019 FINANCIAL REVIEW

Group results

Normalised figures are before fair value adjustments, the amortisation of acquired intangibles and exceptional items.

Year ended 31 December

2019

Normalised7

2019

Fair value

adjustments,

amortisation of acquired

intangibles and exceptional items

2019

Reported

£000

£000

£000

Revenue

183,657

(2,873)

180,784

Other operating income

954

-

954

Modification loss

(1,181)

-

(1,181)

Derecognition loss

(413)

-

(413)

Impairments

(45,066)

-

(45,066)

Administration expenses

(95,786)

(7,226)

(103,012)

Operating profit

42,165

(10,099)

32,066

Exceptional items

-

(80,584)

(80,584)

Profit / (loss) before interest and tax

42,165

(90,683)

(48,518)

Finance cost

(27,458)

-

(27,458)

Profit / (loss) before tax

14,707

(90,683)

(75,976)

Taxation

(3,261)

2,929

(332)

Profit / (loss) after tax

11,446

(87,754)

(76,308)

Earnings (loss) per share

3.67p

(24.45)p

Dividend per share

0.70p

0.70p

Year ended 31 December

Restated

2018

Normalised7

2018

Fair value

adjustments,

amortisation of acquired

intangibles and exceptional items

2018

Reported

£000

£000

£000

Revenue

166,502

(7,678)

158,824

Other operating income

1,626

-

1,626

Modification loss

(78)

-

(78)

Derecognition loss

(129)

-

(129)

Impairments

(43,738)

-

(43,738)

Administration expenses

(89,082)

(8,681)

(97,763)

Operating profit

35,101

(16,359)

18,742

Exceptional items

-

-

-

Profit before interest and tax

35,101

(16,359)

18,742

Finance cost

(21,107)

-

(21,107)

Profit / (loss) before tax

13,994

(16,359)

(2,365)

Taxation

(3,050)

3,108

58

Profit / (loss) after tax

10,944

(13,251)

(2,307)

Earnings (loss) per share

3.50p

(0.74)p

Dividend per share

2.60p

2.60p

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

Normalised revenue was up 10% to £183.7m (2018: £166.5m) reflecting good loan book growth in both branch-based lending and guarantor loans. The increase in reported revenue was slightly higher at 14% to £180.8m (2018: £158.8m) reflecting the reduced unwind of the fair value adjustment made to the George Banco loan book at the time of its acquisition in August 2017. Modification and derecognition losses increased by £1.4m in aggregate versus the prior year reflecting an increase in forbearance given to customers in the form of either rescheduled or deferred loans. An increase in provisions at branch-based lending and guarantor loans meant that overall impairment costs increased by 3% to £45.1m (2018: £43.7m) and administration costs increased by 8% to £95.8m (2018: £89.1m) leaving normalised operating profit up by 20% to £42.2m (2018 restated: £35.1m).

The Group incurred a number of exceptional items during the year including fees associated with the firm offer to acquire Provident Financial plc and restructuring costs that together totalled £14.7m (2018: £nil). There was also a non-cash impairment to the value of goodwill for each of the Group's business divisions totalling £65.8m (2018: £nil) following the significant decline in values of listed companies in the non-standard finance sector (see note 11). A prior year adjustment of £4.0m was made to the loan loss provision on the Group's balance sheet dating back to the transition to IFRS 9 at the beginning of 2018 with a consequent reduction in net assets by £3.5m after accounting for deferred tax effects. Finance costs increased to £27.5m (2018: £21.1m) reflecting the loan book growth in both branch-based lending and guarantor loans.

The net result was that the Group reported a statutory loss before tax of £76.0m (2018 restated: loss of £2.4m). The tax charge of £0.3m (2018: £0.1m) meant that the reported loss after tax was £76.3m (2018 restated: £2.3m) equating to a reported loss per share of 24.45p (2018 restated: loss per share of 0.74p).

A detailed review of each of the operating businesses' normalised results are set out below.

Normalised divisional results

The table below provides an analysis of the 'normalised' results for the Group for the twelve-month period to 31 December 2019. Management believes that by removing the impact of exceptional items, amortisation of acquired intangibles and fair value adjustments, the normalised results provide a clearer view of the underlying performance of the Group.

Year ended 31 Dec 2019

Normalised8

Branch-based lending

Guarantor loans

Home

credit

Central costs

NSF plc

£000

£000

£000

£000

£000

Revenue

93,002

29,820

60,835

-

183,657

Other operating income

954

-

-

-

954

Modification loss

(951)

(230)

-

-

(1,181)

Derecognition (loss)/gain

(482)

69

-

-

(413)

Impairments

(20,635)

(7,996)

(16,435)

-

(45,066)

Revenue less impairments

71,888

21,663

44,400

-

137,951

Administration expenses

(42,235)

(12,895)

(35,298)

(5,358)

(95,786)

Operating profit

29,653

8,768

9,102

(5,358)

42,165

Finance cost

(17,355)

(7,338)

(2,116)

(649)

(27,458)

Profit before tax

12,298

1,430

6,986

(6,007)

14,707

Taxation

(2,815)

(113)

(1,474)

1,141

(3,261)

Profit after tax

9,483

1,317

5,512

(4,866)

11,446

Normalised earnings per share

3.67p

Dividend per share

0.70p

Year ended 31 Dec 2018 restated

Normalised8

Branch-based lending

Guarantor loans

Home

credit

Central costs

NSF plc

£000

£000

£000

£000

£000

Revenue

79,579

21,748

65,175

-

166,502

Other operating income

1,397

229

-

-

1,626

Modification loss

(78)

-

-

-

(78)

Derecognition loss

(97)

(32)

-

-

(129)

Impairments

(18,040)

(4,451)

(21,247)

-

(43,738)

Revenue less impairments

62,761

17,494

43,928

-

124,183

Administration expenses

(36,488)

(9,983)

(37,214)

(5,397)

(89,082)

Operating profit

26,273

7,511

6,714

(5,397)

35,101

Finance cost

(12,778)

(5,833)

(2,461)

(35)

(21,107)

Profit before tax

13,495

1,678

4,253

(5,432)

13,994

Taxation

(2,492)

(618)

(774)

834

(3,050)

Profit after tax

11,003

1,060

3,479

(4,598)

10,944

Normalised earnings per share

3.50p

Dividend per share

2.60p

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

Reconciliation of net loan book

2019

Normalised

2019

Fair value
adjustments

2019

Reported

2018

Normalised

Restated

2018

Fair value
adjustments

2018

Reported

Restated

£m

£m

£m

£m

£m

£m

Branch-based lending

214.8

-

214.8

182.7

-

182.7

Guarantor loans

105.5

1.4

106.9

82.7

4.3

87.0

Home credit

39.9

-

39.9

41.0

-

41.0

Total

360.2

1.4

361.6

306.4

4.3

310.7

Divisional overview

Branch-based lending

Year ended 31 December

2019

Normalised9

2019

Fair value adjustments and exceptional items

2019

Reported

£000

£000

£000

Revenue

93,002

-

93,002

Other operating income

954

-

954

Modification loss

(951)

-

(951)

Derecognition loss

(482)

-

(482)

Impairments

(20,635)

-

(20,635)

Revenue less impairments

71,888

-

71,888

Administration expenses

(42,235)

-

(42,235)

Operating profit

29,653

-

29,653

Exceptional items

-

(332)

(332)

Profit before interest and tax

29,653

(332)

29,321

Finance cost

(17,355)

-

(17,355)

Profit before tax

12,298

(332)

11,966

Taxation

(2,815)

63

(2,752)

Profit after tax

9,483

(269)

9,214

Year ended 31 December

Restated

2018

Normalised9

2018

Fair value adjustments and exceptional items

2018

Reported

£000

£000

£000

Revenue

79,579

(3,958)

75,621

Other operating income

1,397

-

1,397

Modification loss

(78)

-

(78)

Derecognition loss

(97)

-

(97)

Impairments

(18,040)

-

(18,040)

Revenue less impairments

62,761

(3,958)

58,803

Administration expenses

(36,488)

-

(36,488)

Operating profit

26,273

(3,958)

22,315

Exceptional items

-

-

-

Profit before interest and tax

26,273

(3,958)

22,315

Finance cost

(12,778)

-

(12,778)

Profit before tax

13,495

(3,958)

9,537

Taxation

(2,492)

752

(1,740)

Profit after tax

11,003

(3,206)

7,797

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

We added eight new branches to the network in 2019 taking the total number to 73 and so have more than doubled the number of branches since acquiring the business in April 2016. The key drivers for growth remained network capacity, lead volume and quality, network productivity and careful management of impairment. A summary of our progress on each of these drivers is highlighted below.

Network capacity- We added 125 new branch staff in 2019 and had a total of 365 front-line staff at the year-end (2018: 325). With staff productivity broadly in-line with the previous year, this increased capacity meant that we were able to increase the number of customers by 23% to 75,400 (2018: 61,200) increasing the net loan book by 18% to £214.8m (2018 restated: £182.7m).

Lead volumes and quality- With an increase in network capacity it was important to deliver a steady flow of high-quality leads and our lead volumes increased by 52% from over 1.6 million in 2018 to just under 2.5 million in 2019. Financial brokers continued to be the main source of leads (90% of the total) and completed loans (51% of the total) with direct applications and renewals or former customers making up the balance. The scale of this increase meant that the total number of new borrower applications to branch (or 'ATBs') increased by 36% to 497,050 (2018: 366,000).

Productivity- During 2019 we wrote 16% more loans than in 2018 reaching 52,130 in total (2018: 44,841) and the total value of loans issued increased by 14% to £169.9m (2018: £149.5m).

Delinquency management- Throughout 2019 we maintained a clear focus on delinquency management through a combination of careful underwriting and methodical collections practice. However, despite an increase in provisions due to an increase in the number of rescheduled and deferred loans, a change in focus on charge-off and an increased weighting of a downside macroeconomic scenario, impairment as a percentage of average net receivables reduced to 10.3% (2018 restated: 10.8%) and versus normalised revenue it also reduced to 22.2% (2018 restated: 22.7%).

2019 results

Normalised revenue increased by 17% to £93.0m (2018: £79.6m) as a record number of leads was translated into a record number of both loans booked and new cash issued. As there was no fair value adjustment to the loan book in 2019, reported revenue increased by 23% to £93.0m (2018: £75.6m). A higher modification loss of £1.0m (2018 restated: £0.1m) and associated derecognition loss of £0.5m (2018 restated: £0.1m) reflected an increase in the size of the loan book and the number of rescheduled and deferred loans in the period and was offset to a degree by other operating income of £1.0m (2018: £1.4m) due to debt sales. The growth in the loan book was a key driver behind increased in impairments to £20.6m (2018 restated: £18.0m).

Despite the additional costs of the eight new branches that opened during the year, administration costs remained tightly controlled and the division's cost:income ratio fell slightly with the net result that normalised operating profit increased by 13% to £29.7m (2018 restated: £26.3m). Now that the fair value adjustment to revenue referred to above has been unwound, reported operating profit increased by 31% to £29.7m (2018 restated: £22.3m).

One-off restructuring and redundancy costs of £0.3m (2018: £nil) were incurred during the second half of the year and treated as an exceptional item in the period.

Higher finance costs of £17.4m (2018 restated: £12.8m) reflected the loan book growth and held back normalised profit before tax that fell 9% to £12.3m (2018 restated: £13.5m). However, the absence of any fair value adjustment to revenue meant that reported profit before tax increased by 25% to £12.0m (2018: £9.5m).

Key performance indicators

While there was a slight decrease in revenue yield to 46.4% (2018 restated: 47.8%) the growth in the loan book meant that revenue increased. Whilst impairment as a percentage of revenue reduced, the risk adjusted margin also decreased to 36.1% (2018 restated: 37.0%) due to the reduction in yield. Despite the addition of eight new branches, administration expenses increased slightly less than revenue and so the cost:income ratio reduced to 45.4% (2018: 45.9%).

The net result was that normalised operating profit margin reduced to 31.9% (2018 restated: 33.0%) which, in conjunction with the growth in the loan book, meant that the return on asset was also lower at 14.8% (2018 restated: 15.8%).

Year ended 31 December

Key Performance Indicators10

2019

Normalised

2018

Normalised

Restated

Number of branches

73

65

Period-end customer numbers (000)

75.4

61.2

Period-end loan book (£m)

214.8

182.7

Average loan book (£m)

200.4

166.4

Revenue yield (%)

46.4

47.8

Risk adjusted margin (%)

36.1

37.0

Impairments/revenue (%)

22.2

22.7

Impairment/average loan book (%)

10.3

10.8

Cost:income ratio (%)

45.4

45.9

Return on asset (%)

14.8

15.8

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

COVID-19 actions and plans for 2020

The immediate focus has been to mitigate as far as possible the impact of COVID-19 on our staff, customers and the business as a whole. As the scale and depth of any future impact remains uncertain, we have withdrawn all previous guidance and our longer-term plans remain under review.

We shifted to a home-working model in late March 2020 and so were then unable to meet applicants face-to-face in a branch - a situation which, when combined with the challenges in assessing the creditworthiness of applicants in the current environment, reduced lending volumes significantly. Having spent April 2020 developing a revised scorecard and lending process to reflect the latest market intelligence and guidelines for social distancing, our branch network is now open and receiving a healthy volume of leads through our normal channels. Whilst we remain cautious, we have been encouraged by the volume of applications received and are starting to increase lending volume.

Basic collections (before settlements) in April and May 2020 averaged at 94% of pre-lockdown levels which was better than might have been expected and in absolute terms was ahead of that achieved in the same period in 2019. With the lower levels of lending, as at the start of June 2020 the net loan book had reduced by around 7% since the year-end but the business generated net cash in the period and there remains a healthy surplus over administration costs.

We continue to believe that there is significant long-term potential for the branch-based lending business. Having opened 37 new branches since April 2016, we now have a national network and therefore are well-placed to meet any increase in demand from consumers that in the current environment are no long able to borrow from their high street bank or mainstream lender. We also believe that once the macroeconomic backdrop begins to normalise and, subject to funding, there is a significant opportunity to expand the network further over the next three to five years.

Guarantor loans

Year ended 31 December

2019

Normalised11

£000

2019

Fair value

adjustments and

exceptional

items

£000

2019

Reported

£000

Revenue

29,820

(2,873)

26,947

Other income

-

-

-

Modification loss

(230)

-

(230)

Derecognition gain

69

-

69

Impairments

(7,996)

-

(7,996)

Revenue less cost of sales

21,663

(2,873)

18,790

Administration expenses

(12,895)

-

(12,895)

Operating profit

8,768

(2,873)

5,895

Exceptional items

-

(737)

(737)

Profit before interest and tax

8,768

(3,610)

5,158

Finance cost

(7,338)

-

(7,338)

Profit / (loss) before tax

1,430

(3,610)

(2,180)

Taxation

(113)

686

573

Profit / (loss) after tax

1,317

(2,924)

(1,607)

Year ended 31 December

Restated

2018

Normalised11

£000

2018

Fair value

adjustments and

exceptional

items

£000

2018

Reported

£000

Revenue

21,748

(3,720)

18,028

Other income

229

-

229

Modification loss

-

-

-

Derecognition loss

(32)

-

(32)

Impairments

(4,451)

-

(4,451)

Revenue less cost of sales

17,494

(3,720)

13,774

Administration expenses

(9,983)

-

(9,983)

Operating profit

7,511

(3,720)

3,791

Exceptional items

-

-

-

Profit before interest and tax

7,511

(3,720)

3,791

Finance cost

(5,833)

-

(5,833)

Profit / (loss) before tax

1,678

(3,720)

(2,042)

Taxation

(618)

707

89

Profit / (loss) after tax

1,060

(3,013)

(1,953)

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

Our guarantor loans division continued to grow strongly in 2019, albeit with a higher rate of impairment. The growth was thanks to high levels of demand from non-standard borrowers in the UK who are attracted by the opportunity to access credit at a much lower APR than if they were to try and borrow without the presence of a guarantor. By making their repayments as planned, borrowers that have historically had a thin or a poor credit file, are able to rebuild or improve their credit score so that, in time, they can access more mainstream credit.

With over 2.5m leads in 2019 (2018: 2.3m) of which 520,100 passed through our scorecard to become qualifying applications (2018: 448,100), the volume of lending also increased, reaching £72m (2018: £65m). We issued a record number of 19,458 loans (2018: 17,393 loans) implying a further improvement in conversion from leads into loans. This strong performance was achieved against a backdrop of a number of important operational developments:

Consolidation of all operations onto a single location- having already consolidated the division's collections activity into the Trowbridge location during the first half of 2019, we followed this with the accelerated transfer of the remaining lending and administration activities in October 2019. While there was some temporary operational disruption following these changes, we expect to realise productivity improvements over the medium-term from being in a single location;

New leadership- we were delighted to appoint Mark Burgess as CEO in October 2019. Having joined the Group as Managing Director of the division earlier in 2019, Mark has a wealth of experience and was previously Central Operations Director of the Consumer Credit Division at Provident Financial plc and before that Chief Operating Officer of 118118 Money. More recently we have also made some senior appointments to strengthen the management team in both finance and collections;

Channel mix - we remained focused on maintaining a strong position in the important broker market whilst also seeking to attract new customers. A robust performance by our TrustTwo brand ensured that price comparison websites remained an important channel for the division; and

Complaint handling and vulnerable customers- we are proud that the quality of our processes and the training we give our staff means that while the total number of complaints we received from customers increased in 2019, it remains low in absolute terms and relative to our peers as well as compared with a number of other sectors. However, we are not complacent and through industry associations are continuing to work with the regulator to ensure that we can improve our service to customers as evidenced by our investments in complaint handling and a dedicated team for managing vulnerable customers.

The net loan book increased by 28% to reach £105.5m at 31 December 2019 (2018 restated: £82.7m) which is three times the size of the combined loan book at the end of 2016.

2019 results

Loan book growth was the main driver behind a 37% increase in normalised revenue to £29.8m (2018: £21.7m). A smaller fair value adjustment to revenue of £2.9m (2018: £3.7m) meant that reported revenue increased by 50% to £27.0m (2018: £18.0m).

During 2019 we increased the number of staff significantly as we sought to continue to meet the high levels of demand for our products. Whilst the consolidation of all of our operations onto our dedicated site in Trowbridge in October resulted in the departure of a number of staff from our office in Bourne End, we ended 2019 with a total of 141 employees, an increase of 26 over the prior year (2018: 115). As well as causing some operational disruption, the collections performance was also impacted, leading to an increase in the rate of impairment to 26.8% of revenue (2018 restated: 20.5%) and this remains a key area of focus for management. The increased number of staff versus the prior year contributed to higher administration costs that rose to £12.9m (2018: £10.0m). The net result was that while normalised operating profit increased by 17% to £8.8m (2018 restated: £7.5m), the normalised operating profit margin was down on the previous year.

Finance costs increased to £7.3m (2018: £5.8m) as a result of the underlying loan book growth. The net result was that normalised profit before tax was £1.4m (2018 restated: £1.7m). Restructuring and redundancy costs associated with the consolidation of all the division's operations in Trowbridge meant that there was an exceptional item of £0.7m (2018: £nil) which, together with a much reduced fair value adjustment to revenue of £2.9m (2018: £3.7m), meant that the reported loss before tax was £2.2m (2018 restated: loss before tax of £2.0m).

Key performance indicators

The relatively strong growth at the division's TrustTwo brand impacted revenue yield which together with the greater than expected increase in impairment meant that the risk adjusted margin reduced to 23.2% (2018 restated: 25.8%). The high rate of loan book growth, coupled with the disruption alluded to above meant that return on assets was lower than expected at 9.3% (2018: 11.2%).

Year ended 31 December

Key Performance Indicators12

2019

Normalised

2018

Normalised Restated

Period-end customer numbers (000)

32.6

25.1

Period-end loan book (£m)

105.5

82.7

Average loan book (£m)

94.1

67.0

Revenue yield (%)

31.7

32.5

Risk adjusted margin (%)

23.2

25.8

Impairment/revenue (%)

26.8

20.5

Impairment/average loan book (%)

8.5

6.6

Cost:income ratio (%)

43.2

45.9

Return on assets (%)

9.3

11.2

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

COVID-19 actions and plans for 2020

As for branch-based lending, our immediate priority in 2020 has been to mitigate, as far as possible, the impact of COVID-19 on staff and customers whilst also safeguarding the future potential of the business. As the scale and depth of any future impact remains uncertain, we have withdrawn all previous guidance and our longer-term plans remain under review.

We shifted to a home-working model during late March 2020 with staff being able to access all of their office-based systems remotely including telephony, so that all customer-related calls are recorded and management oversight remains robust. Given the challenges in assessing the creditworthiness of applicants and guarantors in the current environment, lending volumes reduced significantly in April although we were able to keep credit flowing for existing customers and key workers, albeit with a limit on new loans of up to £2,000. Having revised our scorecards and put in place appropriate social distancing protocols, we now have a balance of staff working from home as well as a limited number operating out of our offices in Trowbridge. We are receiving a high number of leads from financial brokers and have increased the limit on new loans up to a maximum of £10,000, although in the current environment it is clear that applicants are finding it much more challenging to find a suitable guarantor. As a result, at the start of June 2020 the net loan book had reduced by around 4% since the year end although we are starting to increase lending volume and this is building gradually, albeit from a low base.

Basic collections (before settlements) in April and May 2020 averaged approximately 83% of that achieved in January and February 2020 and the absolute amount was ahead of the collections made during the same period in 2019. The Guarantor Loans Division has a higher percentage of COVID-affected customers than the other two businesses which is leading to higher levels of delinquency. As we are presently unable to initiate recovery action against such customers or their guarantors, we cannot say how long this situation may persist for. We have no reason to believe COVID affected customers will not ultimately pay either directly or via guarantors in a similar manner to our other businesses. The proportion of payments being paid by guarantors in April and May 2020 was broadly unchanged from that prior to the restrictions coming into force. Given the strong loan book growth prior to the restrictions and the uncertainties surrounding the outcome of the pandemic, it is possible that the level of loan loss provisions could increase in 2020. As with branch-based lending, given the significant reduction in lending, the business generated positive cash flow in April and May 2020.

We continue to believe that a guarantor loan is a highly attractive mid-cost product for a borrower with an impaired or thin credit file. By enabling them to borrow at a much lower cost than if they were to borrow on their own, it also allows them to rebuild their credit score over time so that if they remain on-track, they can then access mainstream credit markets.

Home credit

Year ended 31 December

2019

Normalised13

2019

Fair value adjustments and exceptional items

2019

Reported

£000

£000

£000

Revenue

60,835

-

60,835

Impairments

(16,435)

-

(16,435)

Revenue less impairments

44,400

-

44,400

Administration expenses

(35,298)

-

(35,298)

Operating profit

9,102

-

9,102

Exceptional items

-

(221)

(221)

Profit before interest and tax

9,102

(221)

8,881

Finance cost

(2,116)

-

(2,116)

Profit before tax

6,986

(221)

6,765

Taxation

(1,474)

42

(1,432)

Profit after tax

5,512

(179)

5,333

Year ended 31 December

2018

Normalised13

2018

Fair value adjustments and exceptional items

2018

Reported

£000

£000

£000

Revenue

65,175

-

65,175

Impairments

(21,247)

-

(21,247)

Revenue less impairments

43,928

-

43,928

Administration expenses

(37,214)

-

(37,214)

Operating profit

6,714

-

6,714

Exceptional items

-

-

-

Profit before interest and tax

6,714

-

6,714

Finance cost

(2,461)

-

(2,461)

Profit before tax

4,253

-

4,253

Taxation

(774)

-

(774)

Profit after tax

3,479

-

3,479

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

Whilst the market remains mature, our focus in 2019 was to continue to rebalance the overall loan book with a reduction in the proportion of loans issued with a term of more than one year, ensuring a gradual rebalancing towards shorter-term loans. At the same time, we also sought to continue to attract quality customers. Taken together, the net result was that the net loan book declined by 3% to £39.9m (2018: £41.0m) versus our previous medium-term target of between minus 5% and plus 5% growth. However, our focus on quality customers together with further improvements in operational oversight helped to reduce the rate of impairment further in 2019.

Whilst we have continued to attract a modest flow of experienced agents and managers from competitors, the total number of agencies at the year-end was flat at 896 (2018: 897). Having reorganised the management and organisation structure in January 2019, the new structure is much better suited to the scale and growth profile of the business that we now expect and reflects the significant investment made in technology and associated infrastructure.

Whilst the agent to business manager ratio has been maintained at 6:1, other operational efficiencies and lower impairment have helped to increase the overall return on assets to 25.1% (2018: 17.7%) - see glossary on alternative performance measures in the Appendix.

2019 results

The reduction in net loan book coupled with a slightly lower yield meant that normalised and reported revenue reduced by 7% to £60.8m (2018: £65.2m).

The absolute level of impairment reduced to £16.4m (2018: £21.2m) due to the reduction and shortening of the loan book, our focus on quality customers and thanks to our proven lending and collections processes. As a result, the rate of impairment fell from 32.6% to 27.0% of normalised revenue which is well below our previously announced medium-term target of 30-33%. Our previous investments in technology and associated infrastructure have helped to facilitate a meaningful reduction in administration costs and the total number of staff fell from 331 to 313 having rationalised our infrastructure to better match the current scale and projected growth of our business. The result was that normalised and reported operating profit increased by 36% to £9.1m (2018: £6.7m).

Whilst administration costs fell versus the prior year, restructuring and associated redundancy costs of £0.2m (2018: £nil) are included as an exceptional item. The combination of a smaller loan book and a strong increase in operating profit helped increase cashflow generation and as a result finance costs fell to £2.1m (2018: £2.5m). The net result was that normalised profit before tax increased by 64% to £7.0m (2018: £4.3m).

Key performance indicators

Whilst the focus on quality customers and the transition to a shorter loan book impacted revenue yield that fell slightly to 167.5% (2018: 171.5%), the benefit to impairment was even more significant. Careful management of our cost base meant that operating profit margins increased to 15.0% (2018: 10.3%) and the return on asset increased from 17.7% to 25.1%.

Year ended 31 December

Key Performance Indicators14

2019

Normalised

2018

Normalised

Period-end self-employed agencies

896

897

Period-end number of offices

64

66

Period-end customer numbers (000)

92.4

93.8

Period-end loan book (£m)

39.9

41.0

Average loan book (£m)

36.3

38.0

Revenue yield (%)

167.5

171.5

Risk adjusted margin (%)

122.2

115.6

Impairments/revenue (%)

27.0

32.6

Impairment/average loan book (%)

45.2

55.9

Cost to income ratio (%)

58.0

57.1

Return on asset (%)

25.1

17.7

14For definitions see glossary of alternative performance measures in the Appendix.

COVID-19 actions and plans for 2020

As for the other two divisions, the immediate focus following the outbreak of COVID-19 has been to protect the health and safety of our staff, self-employed agents and customers whilst safeguarding the future potential of the business. As the scale and depth of any future impact remains uncertain, we have withdrawn all previous guidance and our longer-term plans remain under review.

Following the change in government advice regarding social distancing, we advised all self-employed agents to stop visiting customers' homes in late March 2020 and as a result, lending volumes reduced significantly. This in turn has meant that the net loan book at the start of June 2020 had reduced by around 32% since the year-end. We launched a remote lending solution for agents in late April 2020 so that they can continue to serve their existing customers with whom they have an established relationship and, subject to our usual affordability checks, can issue credit directly into the customer's bank account. Having piloted the product successfully, this has now been rolled out across the network although as an additional precaution given the current uncertainty, we initially limited new loans issued to a maximum of £500 and with a maximum term of 33 weeks.

Collections were also impacted by the steps taken above but we have seen a significant increase in the use of our remote collections channels with the result that basic collections performance (before settlements) in April and May 2020 held up well averaging approximately 76% of pre-crisis levels. Of those customers that have had difficulty paying because of COVID-19, we estimate that approximately half have been unable to pay because they can only pay in cash and we expect that a significant proportion of such customers will catch up on their payments as soon as the agent returns to make collections physically.

Home credit remains an important source of credit for some of the UK's poorest households and we are determined to continue to support our customers through this very challenging time. Whilst the strong economic backdrop in recent years and the expansion of credit generally has seen many traditional home credit customers either reduce their levels of borrowing or migrate to alternative sources of credit, we believe that as was the case during the recessions of 1990-91 and again during the global financial crisis, the tightening of credit generally may prompt a number of former customers to return to home credit and we are focused on ensuring that as a business we are well-placed to respond appropriately, if and when that occurs.

Central costs and exceptional items

Year ended 31 December

2019

Normalised15

2019

Amortisation of acquired intangibles and exceptional items

2019

Reported

£000

£000

£000

Revenue

-

-

-

Administration expenses

(5,358)

(7,226)

(12,584)

Operating loss

(5,358)

(7,226)

(12,584)

Exceptional items

-

(79,293)

(79,293)

Loss before interest and tax

(5,358)

(86,519)

(91,877)

Finance cost

(649)

-

(649)

Loss before tax

(6,007)

(86,519)

(92,526)

Taxation

1,141

2,138

3,279

Loss after tax

(4,866)

(84,381)

(89,247)

Year ended 31 December

2018

Normalised15

2018

Amortisation of acquired intangibles and exceptional items

2018

Reported

£000

£000

£000

Revenue

-

-

-

Administration expenses

(5,397)

(8,681)

(14,078)

Operating loss

(5,397)

(8,681)

(14,078)

Exceptional items

-

-

-

Loss before interest and tax

(5,397)

(8,681)

(14,078)

Finance cost

(35)

-

(35)

Loss before tax

(5,432)

(8,681)

(14,113)

Taxation

834

1,649

2,483

Loss after tax

(4,598)

(7,032)

(11,630)

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

Normalised administrative expenses were broadly unchanged at £5.4m (2018: £5.4m). The amortisation of acquired intangible assets includes the write-off of the remaining George Banco intangible assets totalling £7.2m (2018: £8.7m).

In the year ended 31 December 2019 the Group incurred exceptional costs totalling £80.6m (including VAT) (2018: £nil). The key items within this total were: £12.8m 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 £44.8m impairment loss on the Everyday Loans goodwill asset; a £8.6m impairment loss on the George Banco goodwill; a £12.5m impairment loss on the Loans at Home goodwill asset; and £1.9m (2018: £nil) of restructuring and redundancy costs that took place during the year. The impairment of goodwill in each business division is a non-cash item and was driven primarily by the reduction in stock market valuations and multiples across the non-standard finance sector (see note 11).

Prior year adjustment

The Group transitioned to IFRS 9 on 1 January 2018. IFRS 9 introduced a revised impairment model which requires entities to recognise expected credit losses based on unbiased forward-looking information and replaced the IAS 39 incurred loss model which only recognises impairment if there is objective evidence that a loss has already been incurred and measures the loss at the most probable outcome. Through the review of the 2019 financial statements by the Audit Committee and the new Group CFO, it was determined that an error in the information used at the time of calculation had resulted in an underestimation of the level of loan loss provision required at 1 January 2018 by £3.2m and by a further £0.8m as at 31 December 2018 . A prior year adjustment to amounts receivable from customers as at 31 December 2018 has therefore been made by increasing the loan loss provision of both branch-based lending and guarantor loans by £3.6m and £0.4m respectively. The effect of this adjustment is set out in note 2 in the notes to the preliminary announcement.

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 £1.1m in the year to 31 December 2019, partly offset by a reduction of £0.6m in administrative expenses. As at 1 January 2019, the impact of the adoption of IFRS 16 was a decrease in net assets of £0.3m. Please refer to note 3 in the notes to the preliminary announcement for further details.

Principal risks

The principal risks facing the Group are:

§ 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, changes to the interpretation of 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, , the risk of human error, taxation, health and safety as well as disaster recovery and business continuity risks;

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

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

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

§ Liquidity - the Group increased its total debt facilities in March 2020 with the addition of a new £200m securitisation facility and while no repayments are due on any of its facilities until August 2022, 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. While the Group has £60.3m in cash and no need to draw down further on the new facility to remain viable under the Group's base case, the impact of COVID-19 on the facility's financial covenants means that any further draw down would not be possible without a suitable covenant waiver. Also, if the FCA requirement to provide borrowers affected by COVID-19 with an emergency payment freeze and/or poor operational or financial performance results in a significant increase in provisions and lower net book values, there is a risk that the loan-to-value covenants for the Group's debt facilities may come under pressure leading to a risk that the Group will be unable to access its facilities.

On behalf of the Board of Directors

Jono Gillespie

Chief Financial Officer

25 June 2020

Consolidated statement of comprehensive income

For the year ended 31 December 2019

Note

Before fair value adjustments, amortisation of acquired intangibles and exceptional items

£000

Fair value adjustments, amortisation of acquired intangibles and exceptional items

£000

Year ended

31 Dec 2019

£000

Revenue

4

183,657

(2,873)

180,784

Other operating income

954

-

954

Modification loss

(1,181)

-

(1,181)

Derecognition loss

(413)

-

(413)

Impairment

(45,066)

-

(45,066)

Administrative expenses

(95,786)

(7,226)

(103,012)

Operating profit

5, 6

42,165

(10,099)

32,066

Exceptional items

7

-

(80,584)

(80,584)

Profit/(loss) on ordinary activities before interest and tax

42,165

(90,683)

(48,518)

Finance cost

(27,458)

-

(27,458)

Profit/(loss) on ordinary activities before tax

14,707

(90,683)

(75,976)

Tax on profit/(loss) on ordinary activities

8

(3,261)

2,929

(332)

Profit/(loss) for the year

11,446

(87,754)

(76,308)

Total comprehensive loss for the year

(76,308)

Loss attributable to:

- Owners of the parent

(76,308)

- Non-controlling interests

-

Loss per share

Note

Year ended

31 Dec 2019


Pence

Basic and diluted

9

(24.45)

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

Consolidated statement of comprehensive income

For the year ended 31 December 2018

Note

Before fair value adjustments, amortisation of acquired intangibles and exceptional items

£000

Fair value adjustments, amortisation of acquired intangibles and exceptional items

£000

Year ended

31 Dec 2018

Restated

£000

Revenue

4

166,502

(7,678)

158,824

Other operating income

1,626

-

1,626

Modification loss

(78)

-

(78)

Derecognition loss

(129)

(129)

Impairment

(43,738)

-

(43,738)

Administrative expenses

(89,082)

(8,681)

(97,763)

Operating profit

5, 6

35,101

(16,359)

18,742

Exceptional items

7

-

-

0

Profit/(loss) on ordinary activities before interest and tax

35,101

(16,359)

18,742

Finance cost

(21,107)

0

(21,107)

Profit/(loss) on ordinary activities before tax

13,994

(16,359)

(2,365)

Tax on profit/(loss) on ordinary activities

8

(3,050)

3,108

58

Profit/(loss) for the year

10,944

(13,251)

(2,307)

Total comprehensive loss for the year

(2,307)

Loss attributable to:

- Owners of the parent

(2,307)

- Non-controlling interests

-

Loss per share

Note

Year ended

31 Dec 2018


Pence

Basic and diluted

9

(0.74)

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

Consolidated statement of financial position

As at 31 December 2019

Note

31 Dec 2019

£000

31 Dec 2018

Restated1

£000

ASSETS

Non-current assets

Goodwill

11

74,832

140,668

Intangible assets1

12

8,572

14,477

Derivative asset

1

241

Deferred tax asset

1,677

230

Right of use asset

10,560

-

Property, plant and equipment1

6,556

6,677

Amounts receivable from customers

13

185,269

198,631

287,467

360,924

Current assets

Amounts receivable from customers

13

176,379

112,027

Trade and other receivables

2,643

3,967

Cash and cash equivalents

14,192

13,894

193,214

129,888

Total assets

480,681

490,812

LIABILITIES AND EQUITY

Current liabilities

Trade and other payables

26,909

16,445

Provisions

1,466

589

Lease liability

1,830

-

Total current liabilities

30,205

17,034

Non-current liabilities

Lease liability

9,275

-

Deferred tax liability

14

-

-

Bank loans

317,590

266,322

Total non-current liabilities

326,865

266,322

Equity

Share capital

15

15,621

15,852

Share premium

15

180,019

254,995

Other reserves

2,152

(2,011)

Retained loss

(74,181)

(61,635)

123,611

207,201

Non-controlling interests

-

255

Total equity

123,611

207,456

Total equity and liabilities

480,681

490,812

1 2018 balance sheet intangibles totalling £1.05m which were previously presented as property, plant and equipment have been re-presented as part of intangible assets, refer to note 16 for detail.

2018 balance sheet amounts receivable from customers have been restated, refer note 2 for further detail. Amounts have also been re-presented in order to demonstrate the split between current and non-current amounts receivable from customers.

Consolidated statement of changes in equity

For the year ended 31 December 2019

Note

Share

capital

£000

Share

premium

£000

Other

reserves

£000

Retained

loss

£000

Non-controlling interest

£000

Total

£000

At 31 December 2017

15,852

254,995

(1,066)

(36,793)

255

233,243

IFRS 9 transition opening balance adjustment

-

-

-

(12,718)

-

(12,718)

As at 1 Jan 2018 Opening balance

15,852

254,995

(1,066)

(49,511)

255

220,525

Prior year adjustment - amounts receivable from customers

2

-

-

-

(2,639)

-

(2,639)

As at 1 Jan 2018 Opening balance - as restated

15,852

254,995

(1,066)

(52,150)

255

217,886

Transactions with owners, recorded directly in equity:

Total comprehensive loss for the year

(2,307)

(2,307)

Dividends paid

10

-

-

-

(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 - as restated

15,852

254,995

(2,011)

(61,635)

255

207,456

Total comprehensive loss for the year

-

-

-

(76,308)

-

(76,308)

IFRS 16 transition opening balance adjustment

3

-

-

-

(295)

-

(295)

Transactions with owners, recorded directly in equity:

Dividends paid

10

-

-

-

(8,425)

-

(8,425)

Capital reduction

15

-

(75,000)

-

75,000

-

-

Credit to equity for equity-settled share-based payments

-

-

1,183

-

-

1,183

Transfer of share-based payments on vesting of share awards

-

-

(734)

734

-

-

Issue of shares

15

23

24

-

(47)

-

-

Equity for Founder shares

-

-

255

-

(255)

-

Cancellation of shares

15

(254)

3,459

(3,205)

-

-

At 31 December 2019

15,621

180,019

2,152

(74,181)

-

123,611

Consolidated statement of cash flows

For the year ended 31 December 2019

Note

Year ended

31 Dec 2019
£000

Year ended

31 Dec 2018
£000

Net cash used in operating activities

16

(15,927)

(34,763)

Cash flows from investing activities

Purchase of property, plant and equipment

(6,535)

(6,083)

Proceeds from sale of property, plant and equipment

62

180

Net cash used in investing activities

(6,473)

(5,903)

Cash flows from financing activities

Finance cost

(19,277)

(14,121)

New bank loan raised

50,400

67,006

Dividends paid

(8,425)

(7,177)

Purchase of own shares

-

(2,102)

Net cash from financing activities

22,698

43,606

Net increase in cash and cash equivalents

298

2,940

Cash and cash equivalents at beginning of year

13,894

10,954

Cash and cash equivalents at end of year

14,192

13,894

As at 31 December 2019 the Group had cash of £14.2m (2018: £13.9m) with gross debt of £323.2m (2018: £272.8m).

Notes to the preliminary announcement

1. Basis of preparation

The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 December 2019 or 2018.

The financial information for the year ended 31 December 2018 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under s498(2) or (3) of the Companies Act 2006.

The statutory financial statements for the year ended 31 December 2019 will be filed with the Registrar of Companies following the 2020 Annual General Meeting. The report of the auditor was unqualified and did not contain a statement under s498(2) or (3) of the Companies Act 2006, but did include a section highlighting a material uncertainty that may cast significant doubt on the Group and Company's ability to continue as a going concern given the possible impact of the COVID-19 pandemic.

The Group notes this material uncertainty is as a result of potential reduced levels of collections and lending on the Group's financial performance, compliance with existing financial covenants and whether waivers will be granted by lenders (and under what terms) in the event of a covenant breach.

Through the review of the 2019 financial statements, it was determined that an error in the data used to calculate the post model adjustments had resulted in an underestimation of the level of loan loss provision required at 1 January 2018 and thereafter. Refer note 2 for further detail.

The consolidated financial information set out in the announcement have been prepared in accordance with IFRS as adopted by the European Union and, as regards the Company financial statements, applied in accordance with the provisions of the Companies Act 2006.

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

2. Changes in accounting policies

New and amended Standards and Interpretations issued but not effective for the financial year ending 31 December 2019

In the current year and in accordance with IFRS requirements, certain new and revised Standards and Interpretations are in issue but not yet effective. The Directors do not expect the adoption of these standards to have a significant effect on the financial statements of the Company in future periods.

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

New and amended Standards and Interpretations effective for the financial year ending 31 December 2019

IFRS 16 Leases

On 1 January 2019, the Group implemented IFRS 16 which replaces IAS 17 Leasesand provides a single lease accounting model for the identification and treatment of lease arrangements in the financial statements of both lessees and lessors. The standard distinguishes between services and leases on the basis of whether there is the right to control the use of an identified asset for a period of time. The standard requires that upon commencement of a lease, a lessee recognises a lease liability, being the present value of the lease payments, and a right-of-use asset which is measured at the amount of the lease liability plus any initial direct costs incurred. As permitted by IFRS 16, comparative information for previous periods has not been restated. The impact on the Group's financial position of applying IFRS 16 requirements is set out in note 3.

The Group's activities as a lessor are not material and hence there has been no significant impact on the financial statements.

Prior year adjustment

The Group transitioned to IFRS 9 on 1 January 2018. IFRS 9 introduced a revised impairment model which requires entities to recognise expected credit losses based on unbiased forward-looking information and replaced the IAS 39 incurred loss model which only recognises impairment if there is objective evidence that a loss has already been incurred and measures the loss at the most probable outcome. Through the review of the 2019 financial statements, it was determined that an error in the data used to calculate the post model adjustments had resulted in an underestimation of the level of loan loss provision required at 1 January 2018 by £3.2m. The input data did not adequately capture all relevant elements of the underlying loan population required by the model to calculate an accurate impairment provision. As a result, the level of loan loss provisions has remained below that required at the time of transition and thereafter with the provision £4.0m lower than that required at 31 December 2018. A prior year adjustment to 31 December 2018 amounts receivable from customers has therefore been made to the loan loss provision of both branch-based lending and guarantor loans of £3.6m and £0.4m respectively. The effect of this adjustment on the Group is summarised below. In the restated statement of comprehensive income, the portion of the derecognition gain/(loss) relating to substantial modifications during 2018 has been re-presented from modification loss to derecognition gain/(loss), and the impact of the prior year adjustment on the derecognition gain/loss has also been reflected in the restated amounts below.

Impact on transition as at 1 January 2018:

Previous opening Group balance sheet
1 Jan 2018

Adjustment to branch-based lending

Adjustment to guarantor loans

Restated opening balance sheet
1 Jan 2018

£000

£000

£000

£000

ASSETS

Amounts receivable from customers

253,116

(2,928)

(252)

249,936

LIABILITIES

Deferred tax liability

(2,734)

498

43

(2,193)

EQUITY

Retained loss

(49,511)

(2,430)

(209)

(52,150)

Impact on the year ended 31 December 2018:

Previous closing Group balance sheet
31 Dec 2018

Branch-based lending

Guarantor loans

Restated closing balance sheet
31 Dec 2018

£000

£000

£000

£000

ASSETS

Amounts receivable from customers

314,613

(3,562)

(393)

310,658

LIABILITIES

Deferred tax (liability)/asset

(252)

407

75

230

Trade and other payables1

(16,653)

182

26

(16,445)

EQUITY

Retained loss

(58,368)

(2,973)

(294)

(61,635)

1Trade and other payables includes current tax liability

Year end 31 Dec18

Reported

Adjustment to
branch-based lending

Adjustment to guarantor loans

Restated

Year end 31 Dec 2018

Reported

£000

£000

£000

£000

Revenue

158,824

-

-

158,824

Other operating income

1,626

-

-

1,626

Modification loss

(482)

404

-

(78)

Derecognition loss

-

(97)

(32)

(129)

Impairments

(42,688)

(941)

(109)

(43,738)

Administration expenses

(97,763)

-

-

(97,763)

Operating profit

19,517

(633)

(142)

18,742

Exceptional items

-

-

-

-

Profit before interest and tax

19,517

(633)

(142)

18,742

Finance cost

(21,107)

(21,107)

Profit / (loss) before tax

(1,590)

(633)

(142)

(2,365)

Taxation

(89)

120

27

58

Profit / (loss) after tax

(1,679)

(513)

(115)

(2,307)

Earnings (loss) per share

(0.54)p

(0.74)p

3. Impact of new accounting policies on the financial statements

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

As restated

IFRS 16 adjustment

1 January 2019
31 Restated

£000

£000

£000

Non-current assets

Right-of-use asset

-

11,004

11,004

Deferred tax asset

230

60

290

Total increase in assets

11,064

Current liabilities

Lease liability

-

1,528

1,528

Trade and other payables

16,445

261

16,706

Non -current liabilities

Lease liability

-

9,571

9,571

Total increase in liabilities

11,360

Equity

Retained loss

(61,635)

(295)

(61,930)

Of the total right-of-use assets of £11m recognised at 1 January 2019, £10.4m related to leases of property and £0.6m 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.

£000

Operating lease commitments disclosed under IAS 17 at31 December 2018

10,403

Discounted using the lessee's incremental borrowing rate of 9.5% as at the date of initial application

(1,591)

(Less): short-term leases recognised on a straight-line basis as expense

(77)

(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

2,439

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 year ended 31 December 2019, in relation to leases under IFRS 16, the Group recognised the following amounts in the consolidated statement of comprehensive income:

£000

Depreciation on right-of-use asset

2,042

Interest expense on lease liabilities

1,059

Variable lease payments (not depending on index or rate)

-

Short-term lease expense

508

Low-value lease expense

120

3,729

4. Revenue

Interest income is recognised in the statement of comprehensive income for all amounts receivable from customers and is measured at amortised cost using the effective interest rate ('EIR') method. The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability.

Year ended

31 Dec 2019

£000

Year ended

31 Dec 2018
£000

Interest income

183,657

166,502

Fair value unwind on acquired loan portfolio

(2,873)

(7,678)

Total revenue

180,784

158,824

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

Year ended

31 Dec 2019

£000

Year ended

31 Dec 2018
£000

Depreciation of property, plant and equipment

1,827

1,519

Depreciation of right to use asset

2,042

-

Amortisation and impairment of intangible assets

9,090

9,913

Staff costs excluding agent commission1

50,975

46,218

Rentals under operating leases

742

3,119

Profit on sale of property, plant and equipment

(43)

(45)

1 Agent commission for the year ended 31 December 2019 was £13.1m (2018: £14.7m).

6. 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.

Branch-based lending

£000

Guarantor loans1

£000

Home

credit

£000

Central

£000

2019
Total

£000

Year ended 31 December 2019

Interest income

93,002

29,820

60,835

-

183,657

Fair value unwind on acquired loan portfolio

-

(2,873)

-

-

(2,873)

Total revenue

93,002

26,947

60,835

-

180,784

Operating profit/(loss) before amortisation

29,653

5,895

9,102

(5,358)

39,292

Amortisation of intangible assets

-

-

-

(7,226)

(7,226)

Operating profit/(loss) before exceptional items

29,653

5,895

9,102

(12,584)

32,066

Exceptional items2

(332)

(737)

(221)

(79,293)

(80,584)

Finance cost

(17,355)

(7,338)

(2,116)

(649)

(27,458)

Profit/(loss) before taxation

11,966

(2,180)

6,765

(92,527)

(75,976)

Taxation

(2,752)

574

(1,432)

3,280

(332)

Profit/(loss) for the year

9,214

(1,607)

5,333

(89,247)

76,308

Branch-based lending

£000

Guarantor loans1

£000

Home

credit

£000

Central

£000

Consolidation adjustments3

£000

2019
Total

£000

Total assets

244,740

106,960

51,931

633,760

(556,709)

480,681

Total liabilities

(302,987)

-

(29,202)

(332,406)

307,525

(357,070)

Net assets

(58,247)

106,960

22,729

301,355

(249,184)

123,611

Capital expenditure

2,754

-

2,164

12

-

4,929

Depreciation of plant, property and equipment

1,428

-

356

43

-

1,827

Depreciation of right of use asset

1,240

673

129

2,042

Amortisation and impairment of intangible assets

400

-

1,442

38

7,211

9,090

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 have therefore been disclosed within the Guarantor Loans Division above.

2 There were £80.6m exceptional items in 2019 (2018: £nil). Refer to note 7 for further details.

3 Consolidation adjustments include the acquisition intangibles of £1.3m (2018: £8.5m), goodwill of £75.8m (2018: £140.7m), fair value of loan book of £1.4mil (2018: £4.3m) and the elimination of intra-Group balances.

Branch-based lending

£000

Guarantor loans1

£000

Home

credit

£000

Central

£000

2018

Total

Restated

£000

Year ended 31 December 2018

Interest income

79,579

21,748

65,175

-

166,502

Fair value unwind on acquired loan portfolio

(3,958)

(3,720)

-

-

(7,678)

Total revenue

75,621

18,028

65,175

-

158,824

Operating profit/(loss) before amortisation

22,315

3,791

6,714

(5,397)

27,423

Amortisation of intangible assets

-

-

-

(8,681)

(8,681)

Operating profit/(loss) before exceptional items

22,315

3,791

6,714

(14,078)

18,742

Exceptional items2

-

-

-

-

-

Finance cost

(12,778)

(5,833)

(2,461)

(35)

(21,107)

Profit/(loss) before taxation

9,537

(2,042)

4,253

(14,113)

(2,365)

Taxation

(1,740)

89

(774)

2,483

58

Profit/(loss) for the year

7,797

(1,953)

3,479

(11,630)

(2,307)

Branch-based lending

£000

Guarantor loans1

£000

Home

credit

£000

Central

£000

Consolidation adjustments3

£000

2018

Total

£000

Total assets

219,723

86,972

52,609

574,467

(442,959)

490,812

Total liabilities

(250,894)

-

(65,527)

(270,071)

303,136

(283,356)

Net assets

(31,171)

86,972

(12,918)

304,396

(139,823)

207,456

Capital expenditure

3,736

-

2,256

91

-

6,083

Depreciation of plant, property and equipment

989

81

382

67

-

1,519

Amortisation of intangible assets

199

36

997

8,681

-

9,913

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

7. Exceptional items

During the year ended 31 December 2019, the Group incurred exceptional costs totalling £80.6m (including VAT) (2018: £nil). £12.8m 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.

The significant decline in market multiples across the sector resulted in an impairment to the value of the goodwill assets of all three divisions in the Group's balance sheet. Whilst non-cash in nature, the impact is summarised as follows: £44.8m of the exceptional items reflect the write-down of the value of goodwill associated with Everyday Loans; £8.6m of the exceptional items reflect the write-down of the value of goodwill associated with Guarantor Loans; and £12.5m of the exceptional items reflect the write-down of the value of goodwill associated with Loans at Home.

The remaining £1.9m of exceptional costs relates to management restructuring which took place across the divisions over the year (Loans at Home in January 2019 totalling £0.2m, Branch-based lending and Guarantor Loans Division in November 2019 totalling £1.1m, and the removal of a Director at central in October 2019 totalling £0.6m).

8. Taxation

Year ended

31 Dec 2019

£000

Year ended

31 Dec 2018
£000

Current tax charge

In respect of the current year

2,321

2,336

Prior period adjustment to current tax

(916)

-

Total current tax charge

1,405

2,336

Deferred tax credit

(1,178)

(2,395)

Prior period adjustment to deferred tax

104

-

Total tax charge/(credit)

332

(58)

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

Year ended

31 Dec 2019 £000

Year ended
31 Dec 2018
£000

Loss before taxation

(75,976)

(2,365)

Tax on loss on ordinary activities at standard rate of UK corporation tax of 19.00% (2018:19%):

(14,435)

(449)

Effects of:

Fixed asset differences

93

97

Expenses not allowable for taxation

15,506

379

Research and development credit

-

(7)

Share based payments

157

58

IFRS 16 adjustments

(51)

-

Chargeable gains/losses

-

(42)

Prior year adjustments

-

(32)

Adjustment to tax charge in respect of previous periods

(916)

-

Adjustment to tax charge in respect of previous periods - deferred tax

104

-

Corporation tax rate change

(43)

(69)

Deferred tax rate change

(82)

-

Changes in unrecognised deferred tax

-

7

Total tax charge/(credit)

332

(58)

Certain exceptional items and costs related to the offer to acquire Provident Financial plc (refer to note 7), impairment of goodwill and costs related to the Group's SAYE and long-term incentive plans are included within 'expenses not allowable for taxation' due the nature of the transactions. There were £80.6m exceptional items in 2019 (2018: £nil). Long-term incentive plan items disallowed relate to set-up costs and the fair value of the schemes at the date of grant totalling £0.8m (2018: £0.9m). Exceptional costs relating to the offer to acquire Provident Financial plc which have been disallowed are £11.0m. A further £65.9m (2018: £nil) of charges relating to the write down of the value of goodwill associated with Loans at Home and Everyday Loans, and the write down of goodwill and intangibles of the Guarantor Loans Division during the year have also been disallowed.

Finance Bill 2016 enacted provisions to reduce the main rate of UK corporation tax to 17% from 1 April 2020. However, in the March 2020 Budget it was announced that the reduction in the UK rate to 17% will now not occur and the Corporation Tax Rate will be held at 19%. As substantive enactment is after the balance sheet date, deferred tax balances as at 31 December 2019 continue to be measured at a rate of 17%.

9. Loss per share

Year ended

31 Dec 2019

Year ended

31 Dec 2018

Retained loss attributable to Ordinary Shareholders (£000)

(76,308)

(2,307)

Weighted average number of Ordinary Shares at year ended 31 December

312,126,220

312,713,410

Basic and diluted loss per share (pence)

(24.45)p

(0.74)p

The loss per share was calculated on the basis of net loss attributable to Ordinary Shareholders divided by the weighted average number of Ordinary Shares in issue. The basic and diluted loss per share is the same, as the exercise of share options would reduce the loss per share and is anti-dilutive. At 31 December 2019, nil shares were held in treasury (2018: 5,000,000 ordinary shares of the Company that were purportedly repurchased by the Company as at 31 December 2018 were cancelled on 30 July 2019).

Year ended

31 Dec 2019

'000

Year ended

31 Dec 2018
'000

Weighted average number of potential Ordinary Shares that are not currently dilutive

8,938

10,967

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. The amount is based upon the number of shares that would be issued if 31 December 2019 was the end of the contingency period.

10. Dividends

The Group declared a half-year dividend of 0.7p per share in August 2019 (2018: 0.6p). As announced on 26 March 2020, the Board will not recommend or pay a final dividend in respect of the year ended 31 December 2019.

The 2019 statutory loss of £76.3m means that the Company no longer has any distributable reserves and so, for the time-being, is unable to pay cash dividends. To address this, the Board is committed to completing a process, subject to shareholder and Court approval, to create sufficient distributable reserves so that, as soon as circumstances allow, the Company can resume the payment of dividends to shareholders.

11. Goodwill

Year ended

31 Dec 2019

'000

Year ended

31 Dec 2018
'000

Opening balance

140,668

140,668

Impairment of goodwill

(65,836)

-

At 31 December 2019

74,832

140,668

The goodwill recognised represents the difference between the purchase consideration paid and the value of net assets acquired (including intangible assets recognised upon acquisition), less any accumulated impairment. Total goodwill as at 31 December 2019 comprised £27.7m (2018: £40.2m) related to the acquisition of Loans at Home, £47.1m (2018: £91.9m) related to the acquisition of Everyday Loans, and £nil (2018: £8.6m) 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.

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 at the year-end has utilised actual price earnings ('PE') multiples of comparable companies as at 31 December 2019 and applied these to actual earnings for the financial year ended 31 December 2019.

Determining whether goodwill is impaired requires an estimation of the recoverable amount of each CGU. The recoverable amount is the higher of its fair value ('FV') less cost to sell or its value in use ('VIU').

Fair value ('FV') less cost to sell

The calculation to determine the fair value less cost to sell for each CGU uses earnings as at 31 December 2019 multiplied by the 31 December 2019 PE multiple for comparable companies. Earnings represent profit after tax before fair value adjustments, amortisation of intangibles and exceptional items. Disposal costs have been estimated at 2%. As part of this assessment, we have applied PE multiples to 2019 profit after tax in order to determine management's best estimate of the fair value to be attributed to each of the CGUs.

Value in use

The calculation to determine recoverable amount based on 'value in use' ('VIU') uses cash flows derived from earnings projections for the years ended 31 December 2020, 2021 and 2022, together with a terminal value based on the cash flow forecast for 2022 at a perpetuity growth rate. The resulting cash flow forecasts are then discounted at a discount rate appropriate to the CGU to produce a VIU to the Group.

Loans at Home goodwill assessment

In the 2018 Annual Report and Accounts, theGroup hadcalculated the fair valueless costs to sell of Loans at Home to be in the range of £64m to £67m(headroom of between £2m and £5m fromthe carrying value) as at 31 December 2018. Akey estimate driving this result was the 2019 forecast earningswhere it was determinedthat a reduction of 3% to8% would have necessitatedan impairment to the value of the goodwill asset.

During the six months ended 30 June 2019, the Group recognised a £12.5m impairment loss in the Loans at Home goodwill asset. The factors leading to this impairment included the significant decline in peer group PE multiples since 31 December 2018, as well as uncertainties in the economic, market and regulatory environment. This reduced the Loans at Home goodwill asset from £40.2m to £27.7m as at 30 June 2019. For further detail refer to the Group's 2019 half year results, a copy of which is available on the Group's website: www.nsfgroupplc.com.

Since the impairment assessment made at 30 June 2019, the Group has calculated the FV less cost to sell to be above the carrying value of the CGU as at 31 December 2019. As noted earlier, this calculation applies PE multiples to actual earnings and therefore is not subject to estimation uncertainty which would arise from the use of forecast earnings and discount rates. The Group notes however that a 14% fall in the PE multiple applied to 2019 earnings would reduce headroom to £nil. As the FV less cost to sell calculation has resulted in a recoverable amount in excess of the carrying value of the CGU, it was not considered necessary to carry out a value in use calculation. We have concluded that based on our calculations, no further impairment to the Loans at Home goodwill asset is necessary beyond the £12.5m that was recognised and disclosed in the Group's results for the six months ended 30 June 2019.

Everyday Loans goodwill assessment

As at 31 December 2019, the Group performed a FV less cost to sell for the Everyday Loans CGU. The Group has calculated the FV less costs to sell to be below the carrying value by £44.8m. Whilst, subject to funding, Everyday Loans is forecasting meaningful growth in future years, this change from the prior year is primarily due to the large decline in the PE multiple applied to the Everyday Loans earnings, with PE multiples across the non-standard finance sector environmentduring the year ended 31 December 2019 as well as uncertainties in the economic, market and regulatory environment as noted above. The Group notes that had the multiples remained at the level they were as at 31 December 2018, there would have existed headroom of £6.7m as at 31 December 2019. In accordance with IAS 36, recoverable amount represents the higher of FV less cost to sell and VIU. Due to the growing nature of the Everyday Loans CGU, whilst profit growth can be seen over the forecast period, this requires significant investment that in turn impacts cash flows. As a result, management have determined FV to be higher than VIU.

Guarantor Loans goodwill assessment

As at 31 December 2019, the Group performed an annual impairment assessment and calculated the fair value less cost to sell and VIU calculation for the Guarantor Loans CGU. The Group has calculated the FV less costs to sell to be below the carrying value by £10.6m. This impairment has been recognised in the form of a £8.6m goodwill write-off and a £2.0m write off to intangible assets.. This significant change from the prior year is due to a 44% decline in the PE multiple applied to the Guarantor Loans Division earnings following the significant decline in the PE multiple of the Group's largest competitor in the guarantor loans space and across the non-standard finance sector generallyduring the year ended 31 December 2019 as well as uncertainties in the economic, market and regulatory environment as noted above.

In accordance with IAS 36, recoverable amount represents the higher of FV less cost to sell and VIU. As with the Everyday Loans CGU, whilst the size of the Guarantor Loans CGU's loan book and associated profitability is expected to grow strongly over the forecast period, this requires investment with the result that cash flows during this period are expected to be depressed and therefore management have determined FV to be higher than VIU.

12. Intangible assets

Customer lists

Agent network

Brands

Broker relationships

Technology

LAH IT software development

Software1

Total

£000

£000

£000

£000

£000

£000

£000

£000

Cost

At 1 January 2019

21,924

540

2,005

9,151

6,227

6,279

3,316

49,442

Additions

-

-

-

-

-

2,129

1,056

3,185

At 31 December 2019

21,924

540

2,005

9,151

6,227

8,408

4,372

52,627

Amortisation

At 1 January 2019

19,559

540

1,235

5,837

4,152

1,372

2,270

34,965

Charge for the year

1,339

-

370

1,949

1,557

1,426

437

7,078

Impairment

647

-

-

1,365

-

-

-

2,012

At 31 December 2019

21,545

540

1,605

9,151

5,709

2,798

2,707

44,055

Net book value

At 31 December 2019

379

-

400

-

518

5,610

1,665

8,572

At 31 December 2018

2,365

-

770

3,314

2,075

4,907

1,046

14,477

1 The cost and accumulated amortisation of software outside of Loans at Home IT software development were previously presented in the Property, Plant and Equipment ('PPE'). The 2018 comparatives have been adjusted so that the cost and accumulated amortisation of software across the Group are included in intangible assets.

IAS 38.122 requires the Group to disclose the carrying value and remaining amortisation period of individual intangible assets, the table below includes all material assets held by the Group as at 31 December 2019:

Carrying value as at 31 December 2019

Amortisation period remaining

Intangible assets

£000

years and months

Everyday Loans' acquired customer list

379

10 months

Everyday Loans Credit-Decisioning technology

518

4 months

Everyday Loans and TrustTwo brands

400

1 year 4 months

Loans at Home IT software development

5,610

3 years

Software

1,665

3 to 5 years

Intangible assets include acquired intangibles in respect of the customer list and credit decisioning technology at Everyday Loans, together with the Everyday Loans and TrustTwo brands. Intangible assets remaining on acquisition of George Banco have been fully written off in the current year as a result of an impairment assessment carried out on the Guarantor Loans Division (refer note 11). In addition, intangible assets include software across all divisions.

The fair value of the customer list of Everyday Loans on acquisition has been estimated by calculating the Net Present Value ('NPV') of the discounted cash flows from each new loan to be provided to this discrete set of known customers. The Board of Directors will test the assumptions for reasonableness at each future accounting date, limited to the original known customer lists.

The fair value of Everyday Loans' credit decisioning technology on acquisition has been estimated by assessing the likely commercial level of royalties that would be payable to a third party were the technology licensed rather than owned, calculated as a percentage of forecast revenues and discounted to the date of the transaction. The Board of Directors will assess the technology for impairment using the same methodology at each future accounting date.

The fair value of the Everyday Loans and TrustTwo brands on acquisition has been estimated by assessing the likely commercial level of royalties that would be payable to a third party were the brand licensed rather than owned, calculated as a percentage of forecast revenues and discounted to the date of the transaction. The Board of Directors will assess each of the Group's remaining brands for impairment using the same methodology at each future accounting date.

Amortisation is charged to the statement of comprehensive income as follows:

Customer lists

Between 3 and 7 years

Broker relationships

2 to 3 years

Credit decisioning technology

4 years

Brand

Between 1 and 5 years

Software development

3 to 5 years

Project costs associated with the development of computer software and website are capitalised where the software is a unique and identifiable asset controlled by the Group and will generate future economic benefits. These assets are amortised on a 20% straight-line basis over its estimated useful life once the development phase has been completed.

The useful economic life and amortisation method of intangible assets are reviewed at least at each balance sheet date. Impairment of intangible assets is only reviewed where circumstances indicate that the carrying value of an asset may not be fully recoverable.

13. Amounts receivable from customers

2019

£000

2018

Restated

£000

Gross carrying amount

410,849

354,794

Loan loss provision

(49,201)

(44,135)

Amounts receivable from customers

361,648

310,659

Customer receivables originated by the Group are initially recognised at the amount loaned to the customer plus directly attributable costs. Subsequently, receivables are increased by revenue and reduced by cash collections and any deduction for loan loss provisions. The Directors assess on an ongoing basis whether there is objective evidence that customer receivables are impaired at each balance sheet date.

Movements in loan loss provisions for the period relates to the provisions of the branch-based lending, guarantor loans and home credit divisions for the year. The amounts receivable from customers were recognised at fair value (net loan book value) at the date of acquisition.

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

2019

£000

2018

£000

Unamortised broker commissions

14,311

11,182

Total unamortised broker commissions

14,311

11,182

Analysis of amounts receivable from customers due within/more than one year:

2019

£000

2018

Restated

£000

Due within one year

176,379

112,027

Due in more than one year

185,269

198,631

Amounts receivable from customers

361,648

310,659

Analysis of amounts receivable from customers by operating segment:

Branch-based lending

£000

Guarantor
loans

£000

Home

credit

£000

2019
Total

£000

Gross carrying amount

231,631

112,930

66,288

410,849

Loan loss provision

(16,848)

(5,969)

(26,384)

(49,201)

Amounts receivable from customers

214,783

106,961

39,904

361,648

Branch-based lending

£000

Guarantor
loans

£000

Home

credit

£000

2018
Total

£000

Gross carrying amount

196,744

90,204

67,846

354,794

Loan loss provision

(14,083)

(3,232)

(26,820)

(44,135)

Amounts receivable from customers

182,661

86,971

41,026

310,659

14. Deferred tax liability

£000

Restated

At 31 December 2017

(4,996)

Adjust for changes in deferred tax rate

70

Charge relating to share based payments

3

IFRS 9 transitional adjustment

2,189

At 1 January 2018

(2,734)

Prior year adjustment - IFRS 9 (refer note 1)

541

At 1 January 2018 - as restated

(2,193)

Current year credit

2,423

At 31 December 2018 - as restated

230

Current year charge

1,124

Reallocation from corporation tax liability

429

Prior period adjustment to deferred tax

(106)

At 31 December 2019

1,677

The deferred tax liability was recognised on the intangible assets upon acquisition of Loans at Home, Everyday Loans and George Banco in relation to intangible assets on which no tax deduction will be claimed in future periods for amortisation.

The deferred tax liability is attributable to temporary timing differences arising in respect of:

2019

£000

2018

Restated

£000

Accelerated tax depreciation

(271)

(140)

Recognition of intangible assets

(919)

(1,619)

Recognition of fair value adjustments on amounts receivable at acquisition

-

(819)

Restatement of loan loss spreading

(30)

(35)

Other short term timing differences

98

95

Recognition of deferred tax relating to share based payments

-

26

Other losses and deductions

62

62

FRS 102 adoption

72

(4)

IFRS 16 transitional adjustment

41

-

IFRS 9 transitional adjustment

2,624

2,664

Net deferred tax asset/(liability)

1,677

230

15. Share capital and share premium

All shares in issue are ordinary 'A' shares consisting of £0.05 per share. All shares are fully paid up. During the year, the Company cancelled 5,070,234 shares and issued 457,974 shares (2018: nil).

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

The number of treasury shares held at 31 December 2019 was nil (2018: 5.0m). This equates to 0% (2018: 2%) of the weighted average number of ordinary shares in issue.

Share movements

Number

Balance at 31 December 2018

317,049,682

Cancellation of shares

(5,070,234)

Issue of shares

457,974

Balance at 31 December 2019

312,437,422

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

On 30 July 2019, the Company effected a share capital reduction totalling £75.0m.

Total

£000

Balance at 31 December 2018

254,995

Capital reduction

(75,000)

Issue of shares

24

Balance at 31 December 2019

180,019

16. Net cash used in operating activities

Year ended
31 Dec 2019

Year ended
31 Dec 2018
Restated

£000

£000

Operating profit/(loss)

(48,518)

18,742

Taxation paid

3,067

(1,164)

Depreciation

3,869

1,772

Share-based payment charge

1,183

1,157

Amortisation of intangible assets

7,078

9,661

Intangible assets impairment loss

2,517

-

Goodwill impairment loss

65,837

-

Fair value unwind on acquired loan book

2,873

7,678

Profit on disposal of property, plant and equipment

(16)

(45)

Increase in amounts receivable from customers

(54,367)

(66,138)

Decrease/(Increase) in other assets

240

(241)

Decrease/(Increase) in receivables

(399)

(2,418)

(Decrease)/increase in payables and provisions

709

(3,767)

Cash used in operating activities

(15,927)

(34,763)

APPENDIX

Glossary of alternative performance measures ('APMs') and key performance indicators

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

Alternative performance measure

Definition

Normalised revenue

Normalised operating profit

Normalised profit before tax

Normalised earnings per share

Normalised figures are before fair value adjustments, amortisation of acquired intangibles and exceptional items (refer note 7).

Key performance indicators

Definition

Impairments/revenue

Impairments as a percentage of normalised revenues

Impairments/average loan book

Impairments as a percentage of 12 month average loan book excluding fair value adjustments

Normalised net loan book

Net loan book before fair value adjustments but after deducting any impairment due

Net loan book growth

Annual growth in the net loan book

Operating profit margin

Normalised operating profit as a percentage of normalised revenues

Cost to income ratio

Normalised administrative expenses as a percentage of normalised revenues

Return on asset

Normalised operating profit as a percentage of average loan book excluding fair value adjustments

Revenue yield

Normalised revenue as a percentage of average loan book excluding fair value adjustments

Risk adjusted margin

Normalised revenue less impairments as a percentage of average loan book excluding fair value adjustments

Alternative Performance Measures reconciliation

1 Net debt

31 Dec
2019

31 Dec
2018

£000

£000

Borrowings

323,200

272,800

Cash at bank and in hand*

(13,997)

(13,350)

309,203

259,450

*Cash at bank and in hand excludes cash held by parent company that sits outside of the security group

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

2 Normalised revenue

Branch-based lending

Guarantor loans

Home credit

Group

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

£000

£000

£000

£000

£000

£000

£000

£000

Reported revenue

93,002

75,621

26,947

18,028

60,835

65,175

180,784

158,824

Add back fair value adjustments

-

3,958

2,873

3,720

-

-

2,873

7,678

Normalised revenue

93,002

79,579

29,820

21,748

60,835

65,175

183,657

166,502

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

3Normalised operating profit

Branch-based lending

Guarantor loans

Home credit

Group

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

£000

£000

£000

£000

£000

£000

£000

£000

Reported operating profit

29,653

22,315

5,895

3,791

9,102

6,714

32,066

18,742

Add back fair value adjustments

-

3,958

2,873

3,720

-

-

2,873

7,678

Add back amortisation of intangibles

-

-

-

-

-

7,226

8,681

Normalised operating profit

29,653

26,273

8,768

7,511

9,102

6,714

42,165

35,101

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

4Normalised profit before tax

Group

31 Dec
2019

31 Dec
2018

£000

£000

Reported profit before tax

(75,976)

(2,365)

Add back fair value adjustments

2,873

7,678

Add back amortisation of intangibles

7,226

8,681

Add back exceptional items

80,584

-

Normalised profit before tax

14,707

13,994

Fair value adjustments, amortisation of intangibles, and exceptional items have been excluded due to them being non-business-as-usual transactions. The fair value adjustments and amortisation of intangibles have resulted from the Group making acquisitions, whilst the exceptional items are one-off and are not as a result of underlying business-as-usual transactions (refer to note 7for further detail on exceptional costs in the year) and therefore do not reflect the underlying performance of the business. Hence, removing these items is deemed to give a fairer representation of the underlying profit performance within the financial year.

5Normalised profit for the year

Group

31 Dec
2019

31 Dec
2018

£000

£000

Reported loss for the year

(76,308)

(2,307)

Add back fair value adjustments

2,873

7,678

Add back amortisation of intangibles

7,226

8,681

Add back exceptional items

80,584

-

Adjustment for tax relating to above items

(2,929)

(3,108)

Normalised profit for the year

11,446

10,944

Weighted average shares

312,126,220

312,713,410

Normalised earnings per share (pence)

3.67p

3.50p

As noted above, fair value adjustments, amortisation of intangibles, and exceptional items have been excluded due to them being non business-as-usual transactions. The fair value adjustments and amortisation of intangibles have resulted from the Group making acquisitions, whilst the exceptional items are one-off and are not as a result of underlying business-as-usual transactions (refer to note 7for further detail on exceptional costs in the year) and therefore does not reflect underlying performance of the business. Hence, removing these items is deemed to give a fairer representation of the underlying earnings per share within the financial year.

6 Impairment as a % of revenue

Branch-based lending

Guarantor loans

Home credit

Group

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

£000

£000

£000

£000

£000

£000

£000

£000

Normalised revenue

93,002

79,579

29,820

21,748

60,835

65,175

183,657

166,502

Impairment

(20,635)

(18,040)

(7,996)

(4,451)

(16,435)

(21,247)

(45,066)

(43,738)

Impairment as a % revenue

22.2%

22.7%

26.8%

20.5%

27.0%

32.6%

24.5%

26.3%

Impairment as a % revenue is a key measure for the Group in monitoring risk within the business.[i]

7 Impairment as a % loan book

Branch-based lending

Guarantor loans

Home credit

Group

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

£000

£000

£000

£000

£000

£000

£000

£000

Reported opening net loan book

182,661

150,390

86,971

59,378

41,026

40,168

310,659

249,936

Less fair value adjustments

(3,958)

(4,309)

(8,030)

(4,309)

(11,988)

Normalised opening net loan book

182,661

146,432

82,662

51,349

41,026

40,168

306,350

237,948

Reported closing net loan book

214,783

182,661

106,961

86,971

39,904

41,026

361,648

310,659

Less fair value adjustments

-

-

(1,437)

(4,309)

-

-

(1,437)

(4,309)

Normalised closing net loan book

214,783

182,661

105,524

82,662

39,904

41,026

360,211

306,350

Normalised opening net loan book

182,661

146,432

82,662

51,349

41,026

40,168

306,350

237,948

Normalised closing net loan book

214,783

182,661

105,524

82,662

39,904

41,026

360,211

306,350

Average net loan book

200,421

166,421

94,093

67,005

36,324

37,997

330,838

271,423

Impairment

(20,635)

(18,040)

(7,996)

(4,451)

(16,435)

(21,247)

(45,066)

(43,738)

Impairment as a % loan book

10.3%

10.8%

8.5%

6.6%

45.2%

55.9%

13.6%

16.1%

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

8 Net loan book growth

Branch-based lending

Guarantor loans

Home credit

Group

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

31 Dec 2019

31 Dec 2018

£000

£000

£000

£000

£000

£000

£000

£000

Normalised opening net loan book

182,661

146,432

82,662

51,349

41,026

40,168

306,350

237,948

Normalised closing net loan book

214,783

182,661

105,524

82,662

39,904

41,026

360,211

306,350

Net loan book growth

17.6%

24.7%

27.7%

61.0%

(2.7%)

2.1%

17.6%

28.7%

9 Return on asset

Branch-based lending

Guarantor loans

Home credit

31 Dec
2019

31 Dec
2018

31 Dec
2019

31 Dec
2018

31 Dec
2019

31 Dec
2018

£000

£000

£000

£000

£000

£000

Normalised operating profit

29,653

26,274

8,768

7,510

9,102

6,714

Average net loan book

200,421

166,421

94,093

67,005

36,324

37,997

Return on asset

14.8%

15.8%

9.3%

11.2%

25.1%

17.7%

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

10 Revenue yield

Branch-based lending

Guarantor loans

Home credit

31 Dec
2019

31 Dec
2018

31 Dec
2019

31 Dec
2019

31 Dec
2018

31 Dec
2019

£000

£000

£000

£000

£000

£000

Normalised revenue

93,002

79,579

29,820

21,748

60,835

65,175

Average net loan book

200,421

166,421

94,093

67,005

36,324

37,997

Revenue yield %

46.4%

47.8%

31.7%

32.5%

167.5%

171.5%

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

11 Risk adjusted margin

Branch-based lending

Guarantor loans

Home credit

31 Dec
2019

31 Dec
2018

31 Dec
2019

31 Dec
2019

31 Dec
2018

31 Dec
2019

£000

£000

£000

£000

£000

£000

Normalised revenue

93,002

79,579

29,820

21,748

60,835

65,175

Impairments

(20,635)

(18,040)

(7,996)

(4,451)

(16,435)

(21,247)

Normalised risk adjusted revenue

72,367

61,539

21,823

17,297

44,400

43,928

Average net loan book

200,421

166,421

94,093

67,005

36,324

37,997

Risk adjusted
margin %

36.1%

37.0%

23.2%

25.8%

122.2%

115.6%

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

12 Operating profit margin

Branch-based lending

Guarantor loans

Home credit

31 Dec
2019

31 Dec
2018

31 Dec
2019

31 Dec
2019

31 Dec
2018

31 Dec
2019

£000

£000

£000

£000

£000

£000

Normalised operating profit

29,653

26,274

8,768

7,510

9,102

6,714

Normalised revenue

93,002

79,579

29,820

21,748

60,835

65,175

Operating profit
margin %

31.9%

33.0%

29.4%

34.5%

15.0%

10.3%

13 Cost to income ratio

Branch-based lending

Guarantor loans

Home credit

31 Dec
2019

31 Dec
2018

31 Dec
2019

31 Dec
2018

31 Dec
2019

31 Dec
2018

£000

£000

£000

£000

£000

£000

Normalised revenue

93,002

79,579

29,820

21,748

60,835

65,175

Administration expense

(42,235)

(36,488)

(12,895)

(9,983)

(35,298)

(37,214)

Operating profit margin %

45.4%

45.9%

43.2%

45.9%

58.0%

57.1%

This measure allows review of cost management.

Disclaimer

Non-Standard Finance plc published this content on 25 June 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 June 2020 06:13:04 UTC

share with twitter share with LinkedIn share with facebook
All news about NON-STANDARD FINANCE PLC
08/03NON STANDARD FINANCE : puts share issue on hold after FCA flags concerns
RE
06/30NON STANDARD FINANCE : Filing of AGM resolutions
PU
06/29NON STANDARD FINANCE : UK subprime lender NSF granted waiver on securitisation f..
RE
06/29NON STANDARD FINANCE : Facilities update
PU
06/25UK blue-chips rise with European peers; Royal Mail drags mid caps lower
RE
06/25UK lender NSF warns of going concern risks as coronavirus hits
RE
06/25NON STANDARD FINANCE : Full Year Results 2019
PU
05/27Provident's loan volumes drop on tighter lending
RE
05/21Britons spurned by banks caught in a coronavirus credit crunch
RE
04/23NON STANDARD FINANCE : Timing of 2019 full year results & trading update
PU
More news
Financials
Sales 2020 166 M 217 M 217 M
Net income 2020 -22,9 M -30,0 M -30,0 M
Net Debt 2020 271 M 355 M 355 M
P/E ratio 2020 -0,53x
Yield 2020 -
Capitalization 12,1 M 15,8 M 15,9 M
EV / Sales 2020 1,71x
EV / Sales 2021 1,77x
Nbr of Employees 887
Free-Float 59,7%
Chart NON-STANDARD FINANCE PLC
Duration : Period :
Non-Standard Finance plc Technical Analysis Chart | MarketScreener
Full-screen chart
Technical analysis trends NON-STANDARD FINANCE PLC
Short TermMid-TermLong Term
TrendsBearishBearishBearish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 5
Average target price 36,83 GBX
Last Close Price 3,88 GBX
Spread / Highest target 1 319%
Spread / Average Target 850%
Spread / Lowest Target 365%
EPS Revisions
Managers
NameTitle
John Philip de Blocq van Kuffeler Group Chief Executive Officer & Director
Charles Henry Gregson Non-Executive Chairman
Jono Gillespie Group Chief Financial Officer & Director
Heather Jane McGregor Independent Non-Executive Director
Niall Scott Kilgour Booker Senior Independent Non-Executive Director
Sector and Competitors
1st jan.Capitalization (M$)
NON-STANDARD FINANCE PLC-81.22%16
BAJAJ FINANCE LIMITED0.00%27 438
DISCOVER FINANCIAL SERVICES-35.76%16 697
ORIX CORPORATION-27.08%15 390
SYNCHRONY FINANCIAL-31.30%14 442
MUTHOOT FINANCE LIMITED50.63%6 155