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Non-Standard Finance PLC  -  NSF   

Unaudited half year results to 30 June 2017

Released 07:00 03-Aug-2017

RNS Number : 9673M
Non-Standard Finance PLC
03 August 2017
 

Non-Standard Finance plc

 

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

 

Unaudited half year results to 30 June 2017

 

3 August 2017

Highlights

 

§

Normalised revenue (before fair value adjustments) of £52.2m (2016: £31.3m); reported revenue of £46.3m (2016: £29.1m)

§

Normalised operating profit (before fair value adjustments, amortisation of acquired intangibles and exceptional items) of £8.5m (2016: £2.9m); reported operating loss of £1.2m (2016: loss of £4.1m)

§

On a pro forma basis1, normalised revenue was up 16% to £52.2m (2016: £44.9m); normalised pre-tax profit was up 26% to £5.4m (2016: £4.3m)

§

Strong loan book growth across all divisions to reach £172.3m before fair value adjustments at 30 June 2017 (£182.2m after fair value adjustments); (31 December 2016: £164.6m before fair value adjustments; £180.4m after fair value adjustments)

§

Half year dividend up 67% to 0.5p per share (2016: 0.3p per share)

§

Current trading: loan book growth continuing and the Group remains confident in the full-year outlook

§

Agreement to acquire George Banco for £53.5m in cash; refinancing of existing bank facilities with a £225m six-year term loan provided by institutional investors; new £35m RCF provided by Royal Bank of Scotland - see note 10 (post-balance sheet event) and separate announcement issued today

 

Financial summary

 

6 months to 30 June

 

2017

2016

% change

 

 

£'000

£'000

 

Normalised pro forma revenue2

 

52,235

44,874

+16%

Reported revenue

 

46,297

29,123

+59%

Normalised pro forma operating profit2

 

8,486

7,722

+10%

Reported operating (loss)

 

 (1,160)

 (4,075)

+72%

Normalised pro forma profit before tax2

 

5,427

4,298

+26%

Reported (loss) before tax

 

 (4,219)

 (6,002)

+30%

 

 

 

 

 

Normalised pro forma earnings per share3

 

 1.35p

1.17p

+15%

Reported (loss) per share

 

 (1.11)p

 (1.67)p

+34%

Half year dividend per share

 

0.50p

0.30p

+67%

1 Assuming Everyday Loans and TrustTwo had been acquired on 1 January 2016

2 Normalised figures for 2016 are on a pro forma basis (as if Everyday Loans and TrustTwo had been acquired on 1 January 2016) and are before fair value adjustments, the amortisation of acquired intangibles and exceptional items.

3 Normalised earnings per share in 2017 is calculated as normalised profit after tax of £4.282m divided by the weighted average number of shares of 317,049,682.  Normalised earnings per share in 2016 is calculated as pro forma Normalised profit before tax of £4.298m, taxed at 20% and divided by the weighted average number of shares of 294,851,859.

 

In order to set out clearly the underlying performance of the Group, the tables below provide an analysis of the normalised results (excluding fair value adjustments and the amortisation of acquired intangibles) for the enlarged Group for the six month period to 30 June 2017 and also the comparable period in 2016. Note that the pro forma normalised results for 2016 assume that both Everyday Loans and TrustTwo had been part of the Group for the full six months ended 30 June 2016.

 

 

6 months to 30 Jun 17

Pro forma normalised4

Everyday

Loans

Loans at Home

 

TrustTwo

Central costs

 

NSF plc

 

 

£000

£000

£000

£000

£000

Revenue

28,204

22,526

1,505

-

52,235

Impairments

(5,179)

(8,615)

(247)

-

(14,041)

Revenue less impairments

23,025

13,911

1,258

-

38,194

Admin expenses

(13,185)

(12,355)

(1,149)

(2,252)

(28,941)

Temporary additional commission

-

(766)

-

-

(766)

Operating profit (loss)

9,840

790

109

(2,252)

8,486

Net finance cost

(2,482)

(357)

(183)

(37)

(3,059)

Profit (loss) before tax

7,358

433

(74)

(2,289)

5,427

 

 

 

 

 

 

 

6 months to 30 Jun 16

Pro forma normalised4

Everyday

Loans

Loans at Home

 

TrustTwo

Central costs

 

NSF plc

Pro forma

 

£000

£000

£000

£000

£000

Revenue

23,038

20,700

1,136

-

44,874

Impairments

(4,410)

(7,849)

(179)

-

(12,438)

Revenue less impairments

18,628

12,851

957

-

33,436

Admin expenses

(10,392)

(11,013)

(492)

(1,815)

(23,712)

Temporary additional commission

-

(1,002)

-

-

(1,002)

Operating profit (loss)

8,236

836

465

(1,815)

7,722

Net finance cost

(2,792)

(176)

(185)

(271)

(3,424)

Profit (loss) before tax

5,444

660

280

(2,086)

4,298

 

 

 

 

 

 

 

4Assuming Everyday Loans was acquired on 1 January 2016 and adjusted to exclude fair value adjustments and amortisation of acquired intangibles.

 

John van Kuffeler, Group Chief Executive, said

 

"We have continued to make good progress in the first half of 2017 with loan book growth continuing across each of our business divisions.  Despite the investment in new branches and the significant expansion of our agent network, we achieved a 26% increase in normalised pre-tax profits during the first half. Since the end of June we have started to see the benefit of that investment with an encouraging current trading performance and this bodes well for the full year result. 

 

"The acquisition of George Banco means we now have a leading position in each of our chosen business segments while the refinancing of the Group's bank facilities and the addition of a further £50m of committed funding plus a new £35m revolving credit facility provides the long-term debt funding to support our significant growth plans.

 

"The Group's performance since 30 June 2017 underpins our confidence in the full year outlook and we are pleased to declare a 67% increase in the half year dividend to £1.5m, or 0.5p per share."

 

Context for the results

 

·     

The 2016 half year results include a full period for Loans at Home and just over two months of Everyday Loans (including TrustTwo) that was acquired on 13 April 2016.

 

- Ends -

 

 

 

Interviews with John van Kuffeler, Chairman and Nick Teunon, Chief Financial Officer

Interviews with John van Kuffeler and Nick Teunon will be available as video and text from 7.00 am on 3 August 2017 on the Group's website: www.nonstandardfinance.com.

 

Analyst meeting, webcast, dial-in and conference call details

There will be an analyst meeting at 9.00 am on 3 August 2017 for invited UK-based analysts at the offices of JP Morgan, 60 Victoria Embankment, London, EC4Y 0JP (the entrance is in John Carpenter Street). The meeting will be simultaneously broadcast via webcast and conference call. To watch the live webcast, please register for access by visiting the Group's website www.nonstandardfinance.com. Details for the dial-in facility are given below. A copy of the webcast and slide presentation given at the meeting will be available on the Group's website later today.

 

Dial-in details to listen to the analyst presentation at 9.00 am, 3 August 2017

08.50 am

Please call +44 (0)330 336 9411

Access code

8462263

9.00 am

Meeting starts

 

All times are British Summer Time (BST).

 

For more information:

 

Non-Standard Finance plc

John van Kuffeler, Group Chief Executive

Nick Teunon, Chief Financial Officer & Company Secretary

Peter Reynolds, Director, IR and Communications

 

+44 (0) 20 3869 9020

Bell Pottinger

Jonathan Hodgkinson

Aarti Iyer

Molly Stewart

+44 (0) 20 3772 2500

 

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 areas are: unsecured branch-based loans, home-collected credit and guaranteed loans.  Each business is fully licensed by the FCA and now has access to increased levels of funding and has benefited from stronger management controls; has refined its product pricing in a number of areas; has introduced new compliance protocols; and is investing in new IT infrastructure and systems. In the year ended 31 December 2016, the Group generated reported revenue of £72.6m; on a pro forma normalised basis revenue was £94.7m; reported operating loss of £5.2m and pro forma normalised operating profit of £18.7m.  As at 31 December 2016, the Group had a combined loan book of £165m (before fair value adjustments).

 

 

Group Chief Executive's statement

 

Results

 

The Group delivered normalised revenue before fair value adjustments of £52.2m (2016: £31.3m) and normalised operating profit of £8.5m (2016: £2.9m).  Reported revenue after fair value adjustments, was £46.3m (2016: £29.1m) and reported operating loss was £1.2m (2016: loss of £4.1m).  On a pro forma basis, assuming Everyday Loans and TrustTwo had been owned for the full period in 2016, the Group generated normalised pro forma revenue of £52.2m (2016: £44.9m), normalised pro forma operating profit of £8.5m (2016: £7.7m) and normalised pro forma profit before tax of £5.4m (2016: £4.3m), a 26% increase over the prior year.

 

The size of our combined net loan book across all businesses as at 30 June 2017 was £172.3m before fair value adjustment (£182.2m after fair value adjustments) (30 June 2016: £146.8m; £168.8m after fair value adjustments) and we remain on course to achieve our objectives of 20% loan book growth per annum and a return on assets ('ROA') of 20% in the medium-term.

 

Everyday Loans

Having opened three new branches during the first six months of the year, Everyday Loans had 44 branches open at 30 June 2017 and is the UK's largest branch-based provider of unsecured loans in the non-standard finance segment.  Since the end of June, a further four branches have opened in July and we remain on course to reach our target of 12 new openings by the end of 2017.  Despite the upfront investment in new branches and associated infrastructure costs, the business has performed as expected and achieved normalised operating profit of £9.8m (2016: £3.6m). The comparative operating profit performance on a normalised pro forma basis in 2016 was £8.2m.

 

Loans at Home

Loans at Home is the UK's third largest provider of home credit with a network at 30 June 2017 of 862 self-employed agents and more than 88,000 active customers.  The restructuring of a major competitor has presented us with a significant opportunity to grow and we have recruited over 200 experienced agents in the first half and opened five new offices. Drawing upon our experience in 2016, we remained focused on recruiting the most experienced agents, establishing an individual profit and loss account for each new recruit so that we can track closely their weekly collections performance against a pre-agreed plan. The sheer numbers of agents seeking to join us in a relatively short period of time meant that, for a period, the business was stretched operationally with the result that impairment and network costs were higher than planned in the first half.  The influx of experienced agents also meant that temporary agent commissions of £0.8m were incurred in the first half (2016: £1.0m).  The result was that Loans at Home delivered normalised operating profit of £0.8m (2016: £0.8m) and is now a much larger business with the potential to grow much further.

 

TrustTwo

Founded in 2014, TrustTwo is well-positioned to become a leading player in the UK's expanding guaranteed loans market.  Having more than doubled the value of monthly credit issued since it was acquired in April 2016, we continue to believe that there is significant scope to expand further and this is supported by the continued strong growth achieved in the first half of 2017. Having invested this year in our people, a new website and a much-improved customer journey, the business is now set to embark on a further period of strong growth. In the six months to 30 June 2016, TrustTwo delivered a 32% increase in revenue and although higher spend on supporting infrastructure meant that normalised operating profit declined to £0.1m (2016: £0.3m) (the comparative operating profit performance on a normalised pro forma basis in 2016 was £0.5m). We remain excited about the potential for TrustTwo, and believe the business is well-positioned for profitable growth following the investments made in H1.

 

Agreement to acquire George Banco, refinancing of existing bank facilities and addition of committed funding

 

In a separate announcement we have today announced the agreement to acquire George Banco for a total consideration of £53.5m. To finance the acquisition and refinance all of the Group's existing debt facilities, as well as to provide additional funding to support future growth, the Group has secured a new £175m term loan facility (the 'Term Loan'), provided by a group of institutional investors, led by Alcentra Limited. The new six-year loan bears an interest rate of LIBOR plus 7.25% per year with interest payable every six months. The same investors have also agreed to provide an additional committed facility of up to £50m under the same terms as the Term Loan taking their total commitment to the Group to £225m.  In addition, the Group has also secured a new £35m revolving credit facility ('RCF') provided by Royal Bank of Scotland.

 

The acquisition of George Banco means that the Group is now the clear number two in the UK's rapidly expanding guaranteed loan market, with a combined loan book of approximately £40m.  At the date of acquisition, George Banco had a net loan book of c.£30m and in the twelve months to 31 May 2017 it generated revenue of £9.3m and normalised EBITDA of £4.1m.  It is expected that the acquisition of George Banco will be earnings enhancing in the first full year following acquisition.

 

Further details can be found in the separate announcement issued today and in note 10 to the financial statements.

 

Business strategy

 

With approximately 10 million adults either unwilling or unable to access credit from more mainstream banks and financial institutions, roughly one third of the UK working population is served by the non-standard consumer finance market.  Non-standard customers tend to have lower credit ratings, be credit impaired in some way or have low or variable income.

 

The UK economic back-drop is one of continuing record high employment and historically low unemployment, despite the economic uncertainties caused by Brexit. It is also interesting to note that ONS statistics show that the bottom quintile of the UK's earners saw gross incomes rise by 9.6% in aggregate over the course of 2015 and 2016. Whilst not well-off in absolute terms, they are however relatively well-placed to cope with the current rate of inflation of approximately 3%. At the same time, much has been said and written about the levels of consumer debt and in particular consumer over-indebtedness.

 

Against this backdrop, we are focused on three segments of the non-standard market which have significant growth opportunities, high margins and strong defensive qualities. Whilst each segment is subject to different dynamics, we continue to believe that each is capable of delivering 20% annual loan book growth and a 20% return on assets.

 

Branch Based Lending - Everyday Loans is our largest business and is the largest, branch-based lender to credit impaired customers in the UK. Such customers tend to earn around £30,000 per annum, which is close to the national average, however something in the past may have impacted their credit rating - perhaps a serious illness, loss of job, a divorce or even a county court judgement being made against them. After passing an initial credit check, we believe it is essential to also meet customers face-to-face in one of our branches so that we can understand what went wrong in the past, assess their current circumstances properly and most importantly determine whether they are able to afford the loan they are asking for. Our approach is not new, it is the way bank managers in the past got to know their customers so they could better serve their needs. It has the additional benefits of significantly reducing the risk of identity fraud and enabling our staff to assess both the customer's ability, as well as their propensity to repay a loan. Having been writing loans since 2006, the business has established an excellent track record in delivering great outcomes for customers. At the same time, the demand for our loan products is strong - clearing banks and other mainstream lenders have tightened their lending criteria significantly and while there is competition from a number of pure online lenders, their model produces impairment levels that are a multiple of that achieved by Everyday Loans with the result that few are profitable. By comparison, Everyday Loans' risk adjusted margin in the first half of 2017 increased to over 35% and it generated normalised operating profit of £9.8m.

 

With 44 branches at the end of June 2017 and a further four branches opened in July 2017, we plan to continue to meet the needs of our customers by understanding their needs, providing them with suitable loan products they can afford and, if circumstances change, working with them to find a positive outcome for both borrower and lender.

 

Home Credit - At the heart of our business model at Loans at Home, our home credit business, is the regular visit by one of our self-employed agents to the customer's home. This face-to-face meeting usually takes place weekly and not only aids the cash collection process but also provides us as lender with up-to-date information about the customer's circumstances.  As home credit customers tend to earn around £14,500 a year, or roughly half the national average, they can be more prone to unexpected, or temporary changes to their income or expenditure.  Being aware of their circumstances each week is key to ensuring that we deliver good customer outcomes. As most customers tend to borrow relatively small amounts (£300-£400) two or three times a year, this knowledge ensures that we make good lending decisions and can tailor a loan to reflect a change in circumstances so that it remains affordable. Being self-employed, the agent has the flexibility to call on the customer at a time that works for both, it also means they can stay and talk more fully to the customer if there is a change in circumstance or something else is going on that they want to talk about. In contrast, we believe that a fully employed model, where customer calls are directed and timed by a central function, has favoured operational efficiency over good customer outcomes. At the heart of the home credit model has always been the strong sense of trust established between customer and agent, one that is founded on the weekly visit and on building a strong relationship. By adopting a less flexible operating model, we believe that the agent/customer relationship is compromised and delivering a good customer outcome becomes more difficult to achieve.   Such flexibility however does not come at the expense of a reduced level of control - something we believe can be applied equally well using both models. Having been operated successfully in the UK since 1880, the self-employed model is proven and we believe it is the preferred route to delivering good outcomes for customers.

 

The restructuring of one of our principal competitors has meant we have been able to recruit large numbers of highly-experienced self-employed agents as well as field staff.  By the end of July 2017 the number of agents had grown to reach 986 in total and we expect to reach 1,000 by the year end.  Also in July we added almost 50 field staff, principally business mangers that are each responsible for up to 10 agents.

 

Guaranteed Loans - Guaranteed loans are different to our other two divisions as the presence of a guarantor changes the risk/reward dynamic and also influences positively the borrower's propensity to repay.  By finding a suitable guarantor, a borrower with a thin or impaired credit rating is normally able to secure a loan in their own name at a significantly lower interest cost than if they sought to borrow on their own.  After applying online or by phone and having passed a preliminary credit check, the lender then goes through income and expenditure of both borrower and guarantor and ensures both are fully aware of their obligations under the terms of the loan. 

 

Having first appeared in the UK just over ten years ago, guaranteed loans are a relatively new and more complex lending product for consumers, but the sector has grown strongly to reach total receivables of £440m in 2016.  Since its launch in 2014, TrustTwo has grown rapidly into a scalable enterprise with a loan book of over £10m.  The agreement to acquire George Banco announced today means that we are now the clear number two in the UK's guaranteed loans market, with a combined loan book of over £40m and a platform from which we intend to grow further. 

 

Technology - While personal contact with our customers lies at the heart of our business, we are continuing to invest heavily in IT so as to provide us with market-leading data analytics and a customer interface that appeals to all customers and across all channels.

 

Long-term funding - as set out in a separate announcement today, having refinanced our existing bank facilities and secured additional debt funding we can both execute the strategic plans of each of our operating businesses, as well as consider complementary or alternative value creation strategies within the non-standard, unsecured loans segment.  Access to funding is the lifeblood of any consumer finance business and with this now in place, we have a significant competitive advantage over smaller or less well-capitalised groups. 

 

The achievement of our long-term goals will require that we execute well and assess rigorously the commercial, regulatory and reputational risks of any chosen strategy or investment. At the heart of such assessment is whether or not we are treating customers fairly, delivering great customer outcomes and lending responsibly. If we get these things right then the benefits of our endeavours will follow. Our businesses have strong positions in growing markets with high margins and strong defensive qualities, underpinned by long-term funding.  

 

Regulation

 

Having submitted its application for full authorisation in 2015, Loans at Home received all of its remaining permissions from the Financial Conduct Authority (FCA) on 16 May 2017 with the result that each of the Group's operations are now fully authorised by the FCA.  Everyday Loans also received its high-cost, short-term credit licence during the second quarter of 2017 and has subsequently launched a 12-month loan product.

 

The FCA recently published the following documents relating to consumer credit:

Staff Incentives and performance management - The FCA is consulting on a package of rules and guidance to help consumer credit firms identify and manage their risks effectively.  Having published findings from a piece of thematic work across a number of consumer credit firms, the FCA is concerned that some firms have inadequate systems and controls to manage the risks of staff incentives.

High Cost Credit Review - The FCA has published the outcome of its review into high-cost credit, which includes its assessment of the effectiveness of the payday loan price cap.  Following the review it has decided to leave the existing payday loan price cap in place, and to review it again in 2020.  It has also raised concerns over the way in which unarranged overdrafts are provided and believes some changes may be necessary.  It also announced that it intends to consult in Spring 2018 regarding some proposed tailored solutions that it believes may help to reduce customer detriment in certain areas including the rent-to-own, home-collected credit and catalogue credit sectors. 

Assessing Creditworthiness - The FCA has announced a consultation on proposed rules and guidance for consumer lending firms on assessing creditworthiness in consumer credit.

Having recently received full authorisation for Loans at Home from the FCA after a lengthy licensing process, we remain confident that the processes and procedures now in place at each of our licensed businesses are meeting the high bar set by the FCA.  From the very outset, we made clear our intent to build a strong culture across each of our businesses, one that is focused on treating customers fairly and on 'doing the right thing' - not just because the FCA's regulatory framework demands it, but also because as a business we believe that such an approach drives superior long-term operational and financial performance.  We believe the FCA's approach is one that is working well and we are a strong advocate for it.  As a result, whilst we continue to monitor all regulatory developments closely and where appropriate, participate fully in any associated debate, we do not anticipate any material adverse changes on the horizon.  That said, we are not complacent and are ready to implement whatever measures are deemed necessary to further improve the delivery of great outcomes for our customers. 

A summary of some of the recent regulatory developments that may have a bearing on the Group's businesses is set out in the appendix.

Half year dividend

 

Having declared an inaugural dividend in August 2016, the Board is pleased to declare a 67% increase in the half year dividend to 0.5p per share (2016: 0.3p) with a total half year dividend pay-out of approximately £1.6m (2016: £1.0m). 

 

The half year dividend of 0.5p per share (2016: 0.3p) will be payable on 18 October 2017 to those shareholders on the register of shareholders on 22 September 2017 (the 'Record Date').

 

Current trading and outlook

 

Since the end of June 2017, each of our three businesses has continued to perform well, driven by further loan book growth.

 

We have continued to make good progress in the first half of 2017 with loan book growth continuing across each of our business divisions.  Despite the investment in new branches and the significant expansion of our agent network, we achieved a 26% increase in normalised pre-tax profits during the first half. Since the end of June we have started to see the benefit of that investment with an encouraging current trading performance and this bodes well for the full year result. 

 

The agreement to acquire George Banco, together with the refinancing of all of the Group's bank facilities and the addition of a further £50m of committed funding plus a new £35m revolving credit facility means we now have a leading position in each of our chosen business segments with the long-term debt funding in place to support our significant growth plans.

 

The Group's performance since 30 June 2017 underpins our confidence in the full year outlook and we are pleased to declare a 67% increase in the half year dividend to £1.5m, or 0.5p per share. 

 

John de Blocq van Kuffeler

Group Chief Executive

 

3 August 2017

 

 

 

Financial review

 

The timing and significance of the acquisition of Everyday Loans (including TrustTwo) means that the reported results for the Group in the first half of 2016 do not reflect the underlying performance of the Group's operations and so we have also provided pro forma figures for 2016 to illustrate what revenues, profits and other key performance metrics would have been, had Everyday Loans (including TrustTwo) been acquired at the beginning of 2016.

 

Both the reported and pro forma results are significantly affected by temporary additional commission paid to newly signed-up agents at Loans at Home, fair value adjustments and the amortisation of acquired intangibles. 

 

Group reported results

 

The reported results for the Group for the six months to 30 June 2017 included a full period of all businesses whilst the reported results for the six months to 30 June 2016 include a full period of Loans at Home and just over two months' performance from Everyday Loans (including TrustTwo) that was acquired on 13 April 2016.

 

6 months to 30 June

2017

2017

2017

2016

Normalised5

Fair value adjustments, amortisation of acquired intangibles and exceptional items

Reported

Reported

 

£'000

£'000

£'000

£'000

Revenue

52,235

 (5,938)

46,297

29,123

Impairments

 (14,041)

-

(14,041)

 (9,891)

Admin expenses

 (28,941)

 (3,709)

(32,650)

 (22,305)

Temporary additional commission

 (766)

-

(766)

 (1,002)

Operating profit (loss)

8,486

 (9,647)

(1,160)

 (4,075)

Exceptional items

-

-

-

 (626)

Profit (loss) before interest and tax

8,486

 (9,647)

(1,160)

 (4,701)

Finance cost

 (3,059)

(3,059)

 (1,301)

Profit (loss) before tax

5,427

 (9,647)

(4,219)

 (6,002)

Taxation

 (1,146)

1,833

687

1,084

Profit (loss) after tax

4,282

 (7,814)

(3,532)

 (4,918)

 

 

 

 

 

Loss per share

 

 

(1.11)p

 (1.67)p

Dividend per share

 

 

0.50p

0.30p

 

5 Reported figures, adjusted to exclude fair value adjustments and amortisation of acquired intangibles

 

Normalised revenue was £52.2m (2016: £31.3m) reflecting a full period of Everyday Loans and TrustTwo while the prior year included just over two months as the acquisition of both businesses completed on 13 April 2016. Despite increased administration costs to support an expanded branch network as well as a larger network of self-employed agents, normalised operating profit was £8.5m (2016: £3.9m). The influx of new, experienced agents at Loans at Home also meant that temporary additional commission of £0.8m (2016: £1.0m) was incurred, as well as a full period of fair value adjustments and amortisation of acquired intangibles totalling £9.6m (2016: £7.0m) that were associated with the acquisition of Everyday Loans.  As a result, the reported operating loss in the first half of 2017 was £1.2m (2016: loss of £4.1m). Net finance costs of £3.1m (2016: £1.3m) resulted in a reported loss before tax of £4.2m (2016: loss before tax of £6.0m). A tax credit of £0.6m (2016: tax credit of £1.1m) meant that the loss after tax was £3.5m (2016: loss after tax of £4.9m) equating to a reported loss per share of 1.11p (2016: loss per share of 1.67p).

 

A more detailed review of each of the operating businesses is outlined below showing results on a pro forma as well as a reported basis.

 

Divisional overview

 

Everyday Loans

 

Everyday Loans is the largest branch-based provider of unsecured loans in the UK's non-standard finance sector and delivered a robust performance in the period with strong growth across a range of key performance indicators.  As at 30 June 2017 there were 44 branches open, servicing 41,300 active customers, an increase of 11% over the prior year and a with a total net loan book of £130.6m, up 16%.

 

The previously announced investment in 12 new branches during 2017 remains on-track and three new branches opened during the period to 30 June 2017.  Since then a further four branches have opened taking the total number now open to 48.  Whilst contrarian to other, remote-only business models, we believe that branch-based lending is able to provide a more tailored and robust lending process by meeting customers face-to-face, benefiting our customers and also our shareholders by helping to ensure we make better lending decisions. This is evidenced by Everyday Loans' proven track record of delivering a robust financial performance during previous economic downturns while many other lenders have struggled.

 

Having completed the acquisition of Everyday Loans on 13 April 2016, the reported figures for the six months to 30 June 2016 include only a part period and so we have also included pro forma figures for Everyday Loans for the period to 30 June 2016 so as to allow a like-for-like performance comparison.

 

Reported results

 

Normalised revenue was £28.2m (2016: £10.0m) driven by strong loan book growth, an almost two percentage points increase in average revenue yield and the fact that the business was owned for the full period. The increase in fair value adjustments to £6.0m (2016: £2.0m) reflected a full period of the unwinding of the adjustment made to the acquired loan portfolio and resulted in reported revenue of £22.3m (2016: £8.1m). A modest increase in impairments as a percentage of revenue on a rolling 12-month basis reflected the decision to broaden the product range so that we could lend to customers with lower credit scores.  While loss rates tend to be higher, this is offset by higher levels of APR.  As a result and with the inclusion of a full six months contribution from Everyday Loans and TrustTwo, this meant that reported impairment increased to £5.2m (2016: £2.0m).  Additional investment associated with the planned new branch openings, including increased staff levels and training meant that administrative expenses increased to £13.2m (2016: £4.4m) resulting in total normalised operating profit of £9.8m (2016: £3.6m) and reported operating profit was £3.9m (2016: £1.7m).

 

To achieve our medium-term targets of 20% annual loan book growth and a 20% return on net assets, we have been focused on expanding the branch network, introducing new products and delivering operational improvements. 

 

New branch openings - with a number of existing branches at or close to capacity, it was clear that conversion rates from applications made to loans being booked was being impacted. Our plan to open 12 new branches this calendar year aims to improve conversion and increase customer reach.  Our plan remains on-track and as at 30 June 2017 we had already opened Chester, East Finchley and Southampton this year.  Since then, we have also now opened Brighton, Northampton, Stoke-on-Trent and Hamilton.  The number of applications to all branches in the six months to 30 June 2017 was up 41% to 138,800 (2016: 98,600) while the total number of loans booked increased by 21% to 9,100 (2016: 7,500).

 

Introduction of new products - our new 'Selfy' loan, that has been specifically designed for the self-employed, has grown strongly with over 300 loans written during the period with total net receivables of £1.9m (2016: nil).  Having been awarded our license for high-cost, short-term credit from the FCA earlier in the year, we recently launched a new 12-month loan that we expect will prove a popular starter product for new customers, typically for smaller amounts up to £1,000. This will provide the customer with an opportunity to prove their creditworthiness on a relatively short-term loan before perhaps moving to a larger loan over a longer-term.

 

Operational improvements - eSignature and faster payments are being introduced and represent two significant steps towards enhancing the overall customer experience and this should also improve conversion.  Separately, we have begun to reorganise our branch management structure with the creation of three new area managers covering Wales, North East England and North East London.  Each area manager is responsible for between three and four branches and will be incentivised to maximise the performance from all branches in their area.  Benefits of this new structure are expected to include: increased sharing of best practice between local branches to maximise performance; the creation of a clear career path for branch managers in a particular area; and an opportunity to better manage customer volumes across branches within a particular area.

 

6 months to 30 June

2017

2017

2017

2016

 

 

Normalised6

Fair value adjustments

Reported

Reported

 

£'000

£'000

£'000

£'000

Revenue

28,204

 (5,938)

22,266

8,068

Impairments

 (5,179)

 (5,179)

 (1,979)

Revenue less impairments

23,025

 (5,938)

17,087

6,089

Admin expenses

 (13,185)

 (13,185)

 (4,434)

Operating profit

9,840

 (5,938)

3,902

1,655

Finance cost

 (2,482)

-

 (2,482)

 (787)

Profit before tax

7,358

 (5,938)

1,420

868

Taxation

 (1,536)

1,128

 (408)

 (164)

Profit after tax

5,822

 (4,810)

1,012

704

 

 

 

 

 

 

6 Reported figures, adjusted to exclude fair value adjustments and amortisation of acquired intangibles

 

Pro forma results

 

6 months to 30 June

 

 

2017

Pro forma

Normalised

2016

Pro forma

Normalised8

 

£000

£000

Revenue

28,204

23,038

Impairments

(5,179)

(4,410)

Revenue less impairments

23,025

18,628

Admin expenses

(13,185)

 (10,392)

Operating profit

9,840

8,236

Net finance cost

(2,482)

(2,792)

Profit before tax

7,358

5,444

Taxation

(1,536)

(1,083)

Profit after tax

5,822

4,361

 

 

 

Key Performance Indicators7

 

 

Number of branches

44

36

Period end customer numbers (000)

41.3

37.2

Period end loan book (£m)8

130.6

112.6

Average loan book (£m)9

121.9

104.1

Revenue yield10

45.3%

43.4%

Risk adjusted margin11

35.7%

34.3%

Impairments/revenue12

19.6%

18.8%

Operating profit margin12

37.9%

37.6%

Return on asset13

17.2%

16.3%

 

7  Key performance indicators have been provided using pro forma normalised data only as reported data for 2016 only includes performance  metrics from the date of acquisition

8   Excluding fair value adjustments

9   Excluding fair value adjustments based on a twelve month average

10 Revenue as a percentage of average loan book excluding fair value adjustments (twelve month average)

11 Revenue less impairments as a percentage of average loan book excluding fair value adjustments (twelve month average)

12 Twelve month average

13 Operating profit as a percentage of average loan book excluding fair value adjustments (twelve month average)

 

Pro forma normalised revenue increased by 22% to £28.2m (2016: £23.0m) driven by strong growth in the loan book which had increased by 16% to £130.6m as at 30 June 2017 (2016: £112.6m), as well as by an increase in yield to 45.3% (2016: 43.4%) reflecting a shift in mix as well as a revision to our risk-based pricing approach.  Impairments as a percentage of revenue also increased to 19.6% on a rolling 12-month basis (2016: 18.8%) reflecting the extension of the Group's customer base to now include those individuals with lower credit ratings. Administrative expenses were up 27% to £13.2m (2016: £10.4m) driven by volume growth and various supporting infrastructure costs including training and recruitment.  There was also approximately £0.6m of costs associated with the new branch openings in 2017.  The result was that, despite these increased costs, normalised operating profit was up 19% to £9.8m (2016: £8.2m).  Lower finance costs reflected the benefit of the new bank facility put in place at the time of acquisition and resulted in a normalised pre-tax profit of £7.4m, up 35% versus the comparative pro forma normalised figure for the prior year of £5.4m.

 

Plans for the rest of 2017

 

We are making good progress with our branch opening programme and remain on-track to reach 12 new branches by the end of the year.  Whilst always vigilant regarding the potential impact of changes to the macroeconomic outlook, we are continuing to experience strong demand for our product and so have begun to turn our attention to 2018 and the potential to add further branches to our network.  The addition of faster payments and eSignature should also help us to deliver an even better service for customers and increase conversion while the addition of new capacity and our focus on greater collaboration between branches should help us to deliver further operational efficiencies. 

 

Whilst still relatively small in terms of overall volume, our new 'Selfy' loan product that has been designed specifically for the self-employed, has started well and we believe it can grow strongly with additional and highly targeted marketing support.  We recently launched a 12-month product and continue to work on developing new products that we believe will complement our existing range, improve conversion and drive further loan book growth.

 

Loans at Home

 

Loans at Home is the UK's third largest home credit business with approximately 88,300 customers and 862 self-employed agents at 30 June 2017. Net loan book growth has remained strong and was up by 16% at 30 June 2017 to £31.2m (2016: £26.9m).  Whilst the UK home credit market is not expected to grow in terms of total numbers of active customers or total receivables, we continue to believe that the shift in approach by the market leader, coupled with changes to the regulatory regime have combined to create a significant opportunity for us to grow the business substantially over the next few years.

 

Since the start of the 2017, we have continued to invest in our network of self-employed agents and have seen the total number of agents increase by 77 since the end of December 2016.  However, this net increase masks a significant improvement in the quality of our network with the addition of 229 new agents, the balancing figure representing the departure of agents that were not meeting the high standards we expect and the consolidation of a number of smaller agencies.  Whilst managing such an increase in the number of new agents in such a short space of time put significant, short-term strain on the existing infrastructure in the form of increased impairments, temporary agent commissions and higher administration costs, the consistent strong performance of each of the newly recruited agents bodes particularly well for the second half of the year.

 

For each new agent we have developed an individual profit and loss account and are monitoring their weekly performance against pre-agreed projections using a variety of metrics including collections and lending performance as well as customer recruitment.  As a result, we have been able to track their performance both individually as well as in aggregate.

 

Impairment as a percentage of revenue on a rolling twelve month basis increased marginally versus that for the full year in 2016 to reach 37.5% of revenue (full year 2016: 36.3%).  This was despite the introduction of a more stringent scorecard for new customers in the second half of 2016, as loans written before the new scorecard was adopted continued to impact impairment in the first half of 2017.  The performance of loans issued since the revised scorecard was introduced has been much better. Separately, having to on-board so many agents in such a short period of time meant that management resources were stretched with the result that collections performance was impacted. 

 

Reported results

 

Normalised revenue was £22.5m (2016: £20.7m). Reported revenue in the prior year was slightly lower at £20.5m due to the unwinding of the remainder of the fair value adjustment made to the loan book at the time of acquisition.

 

Higher administration costs of £12.4m (2016: £11.0m), included staff costs of £5.5m (2016 £4.4m), £4.1m in agent commission (2016: £3.7m) and reflected a significant step-up in investment in training and recruitment as well as new technology as we completed the roll-out of our new collections application to all agents. The net result was that normalised operating profit before temporary additional commission was slightly down on last year to £1.6m (2016: £1.8m).

 

The recruitment of a large number of highly experienced agents in the period meant that we paid £0.8m of temporary additional commission (2016: £1.0m) so as to underpin each new agent's total earnings whilst they establish a sufficient number of customers to support their desired level of income in accordance with our standard contract terms. Reported operating profit was £0.8m (2016: £0.6m) reflecting the reduced cost of temporary additional commission paid to agents and the absence of fair value adjustments to revenue outlined above.

 

While the influx of new agents means that temporary agent commissions will increase in the second half, we remain on course to achieve our full year objective of ensuring that the net impact of any recruitment, including all temporary agent commission paid, is at least neutral versus our previous expectations for the full year result. 

 

6 months to 30 June

 

 

2017

2016

 

 

 

Reported

Reported

 

 

 

£'000

£'000

Revenue

 

 

22,526

20,487

Impairments

 

 

(8,615)

(7,849)

Revenue less impairments

 

 

13,911

12,638

Admin expenses

 

 

 (12,355)

(11,013)

Temporary additional commission

 

 

 (766)

(1,002)

Operating profit

 

 

790

623

Finance cost

 

 

 (357)

 (176)

Profit before tax

 

 

433

447

Taxation

 

 

(82)

 (89)

Profit after tax

 

 

351

358

 

 

 

 

 

Key Performance Indicators14

 

 

 

 

Period end agent numbers

 

 

862

840

Period end number of offices

 

 

52

44

Period end customer numbers (000)

 

 

88.3

98.0

Period end loan book (£m)

 

 

31.2

26.9

Average loan book (£m)

 

 

29.3

25.2

Revenue yield (%)

 

 

152.6%

144.2%

Risk adjusted margin (%)

 

 

95.4%

102.8%

Impairments/revenue (%)

 

 

37.5%

28.7%

Operating profit margin (%)

 

 

4.5%

4.9%

Return on asset (%)

 

 

6.9%

7.1%

 

14 All definitions are as per above. 

 

Plans for the rest of 2017

 

Since the end of June 2017 we have continued to attract experienced agents who are keen to join our network and have been able to reduce the number of vacancies to 6% of total agent rounds. As at the end of July, the number of agents had increased to 986 and based upon our current plans, we expect to end the year with approximately 1,000 agents in total, a 27% increase over the number at the end of December 2016.  While customer numbers fell to 88,300 (2016: 98,000), this reflected a more stringent approach to new lending and this is helping to improve the quality of our customer base. With long-term funding in place, we are able to fund further growth in the current year.

 

Having rolled-out our collections app in February 2017, the second phase of our technology roll-out is well under way and we expect to have all of our agents using the new affordability app later this year.

 

TrustTwo

 

TrustTwo was acquired as part of Everyday Loans in April 2016 and is now a stand-alone division with a scalable platform in the rapidly expanding guaranteed loans segment of the UK's non-standard finance market. In the six months to 30 June 2017, the business continued to grow strongly with the number of loans booked up 101% and customer numbers up 25% to 3,700 (2016: 3,000).

 

Operationally, the focus in 2017 has been on improving both the customer journey and also the product offer with an all-new website and differentiated pricing launched earlier in the year.  Other operational improvements include the addition of a dedicated outbound call centre to reach applicants more quickly and the introduction of eSignature and faster payments.  The result has been a marked increase in conversion and this fed through into increased lending with the result that as at 30 June 2017, the net loan book had increased by 43% to £10.5m (2016: £7.3m).  Whilst the upfront investment in people and technology held back the profit performance in the first half, we are encouraged by the strong performance to-date and remain confident about the business' long-term prospects. June 2017 was TrustTwo's strongest month to-date with over 258 new loans written with a net receivables value of over £1m. 

 

Reported results

 

Strong underlying loan book growth together with the benefit of a full period's contribution delivered a strong uplift in reported revenue to £1.5m (2016: £0.6m).  However, significant investment in people and infrastructure costs held back operating profit that reduced to £0.1m (2016: £0.3m).

 

6 months to 30 June

 

 

2017

Reported

 

2016

Reported

 

 

£000

£000

Revenue

1,505

568

Impairments

(247)

(63)

Revenue less cost of sales

1,258

505

Admin expenses

(1,149)

(236)

Operating profit

109

269

Net finance cost

(183)

(67)

(Loss)/profit before tax

(74)

202

Taxation

14

(40)

(Loss)/profit after tax

(60)

162

 

 

 

 

Pro forma results

 

On a pro forma basis, assuming the business had been owned for the full period in 2016, TrustTwo generated pro forma revenue of £1.5m, an increase of 32% over the prior year (2016: £1.1m).  As noted above, significant investment in people and infrastructure, including the new website launch, meant that admin expenses increased by 134% to £1.1m (2016: £0.5m) and pro forma operating profit was £0.1m (2016: £0.5m). While the resultant return on asset remained well short of our 20% target, TrustTwo is a business with significant potential and we remain confident in our plans to reach the target in the medium-term.

 

  

6 months to 30 June

 

2017

Pro forma

2016

Pro forma15

 

£000

£000

Revenue

1,505

1,136

Impairments

(247)

(179)

Revenue less cost of sales

1,258

957

Admin expenses

(1,149)

(492)

Operating profit

109

465

Net finance cost

(183)

(185)

(Loss)/profit before tax

(74)

280

Taxation

14

(56)

(Loss)/profit after tax

(60)

224

 

 

 

Key Performance Indicators

 

 

Period end customer numbers (000)

3.7

3.0

Period end loan book (£m)

10.5

7.3

Average loan book (£m)

8.8

7.1

Revenue yield

31.7%

31.4%

Risk adjusted margin

27.4%

25.4%

Impairment/revenue

15.3%

19.1%

Operating profit margin

11.7%

12.2%

Return on asset17

3.7%

3.8%

 

15Assuming TrustTwo was acquired on 1 January 2016 and adjusted to exclude fair value adjustments and amortisation

 

Plans for the rest of 2017

The agreement to acquire George Banco represents a major strategic step for the Group and positions the Group as the clear number two in guaranteed loans.  Whilst it is expected that both George Banco and TrustTwo will continue to be run as separate brands, we believe there is scope to extract meaningful operational improvements across both businesses over the coming 18 months.

 

We remain focused on improving conversion and on increasing the volume of referrals from the Everyday Loans branch network.  This represents a unique and valuable source of additional traffic for TrustTwo and helped to drive total new loan volume that in the month of June 2017 reached £1.0m of new loans written.  We believe that there remains significant scope to increase this further over the coming months.

 

Central costs

 

6 months to 30 June

2017

Normalised16

2017

Amortisation of acquired intangibles

2017

Reported

2016

Reported

 

£000

£000

£000

£000

Revenue

-

-

-

-

Admin expenses

(2,252)

(3,709)

(5,961)

(6,622)

Exceptional items

-

-

-

(626)

Operating loss

(2,252)

(3,709)

(5,961)

(7,248)

Net finance (cost)/income

(37)

-

(37)

(271)

Loss before tax

(2,289)

(3,709)

(5,998)

(7,519)

Taxation

458

705

1,163

1,377

Loss after tax

(1,831)

(3,004)

(4,835)

(6,142)

 

 

 

 

 

 

16 Adjusted to exclude amortisation of acquired intangibles related to the acquisition of Loans at Home and Everyday Loans

 

Normalised administrative expenses for the period were £2.2m (2016: £1.8m) and include head office costs associated with the running of the plc as well as advisory and other related expenses associated with the review of potential acquisition targets. In addition, the Group incurred £3.7m of amortisation of intangible assets (2016: £4.8m) recognised on the acquisition of both Loans at Home and Everyday Loans. There were no exceptional charges versus £0.6m in the prior year that related to stamp duty paid at completion on the acquisition of Everyday Loans. Net finance cost fell significantly as the prior year included the non-utilisation fee on the Everyday Loans bank facility prior to the drawdown at completion.

 

IFRS 9

 

The International Accounting Standard Board's introduction of a new accounting standard covering financial instruments becomes effective for accounting periods beginning on or after 1 January 2018.  This standard replaces IAS39: Financial Instruments: Recognition and Measurement

 

The new standard requires that lenders (i) provide for the expected credit loss ('ECL') from performing assets over the following year as a result of defaults forecast in the year and (ii) provide for the ECL over the life of the asset where that asset has seen a significant deterioration in credit risk.  As a result, whilst the underlying cash flows from the asset are unchanged, IFRS9 will have the effect of bringing forward provisions into earlier accounting periods.

 

This will result in a one-off adjustment to receivables and reserves on adoption of the new standard and will result in later recognition of profits, particularly in fast growing businesses such as Everyday Loans, Loans at Home and TrustTwo.  The Group is continuing to work on quantifying the impact of IFRS 9 and expects to be in a position to provide a summary of the impact on the 2016 full year results at an investor day to be held during the fourth quarter of 2017.

 

Principal risks

 

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause reported and pro forma results to differ materially from expected and historical results.

 

The principal risks facing the Group, together with the Group's risk management process in relation to these risks, are unchanged from those reported in the Group's Annual Report for the period ended 31 December 2016 (which is available for download at www.nonstandardfinance.com) and relate to the following areas:

 

§

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

 

§

Regulation - risk through changes to regulations or a failure to comply with existing rules and regulations;

 

§

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

 

§

Business strategy and operations - risk that the Group fails to execute its plan as expected or that the outcome from executing such strategy is not as planned;

 

§

Liquidity - whilst uncertainty in global financial markets remains following the UK's decision to leave the European Union, there is a risk that the Group may be unable to secure sufficient finance in the future; and

 

§

Reputation - a failure to manage one or more of the risks above may damage the reputation of the Group or any of its subsidiaries that in turn may materially impact the future operational and/or financial performance of the Group.

 

On behalf of the Board of Directors

 

Nick Teunon

Chief Financial Officer

3 August 2017

 

 

 

Statement of Directors' responsibilities

 

The Directors confirm that, to the best of their knowledge, the unaudited condensed interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

 

·     

An indication of important events that have occurred during the first six months of the financial year and their impact on the unaudited condensed interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

 

·     

Material related party transactions that have occurred in the first six months of the financial year and any material changes in the related party transactions described in the last annual report and financial statements.

 

The current directors of Non-Standard Finance plc are listed in the 2016 Annual Report & Financial Statements. Niall Booker was appointed to the board on 9 May 2017. There have been no other changes in directors during the six months ended 30 June 2017. A list of current directors is also maintained on the Non-Standard Finance website: www.nonstandardfinance.com.

 

The maintenance and integrity of the Non-Standard Finance website is the responsibility of the Directors. The work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the unaudited condensed interim financial statements since they were initially presented on the website.

 

Legislation in the United Kingdom governing the preparation and dissemination of unaudited condensed interim financial statements may differ from legislation in other jurisdictions.

  

On behalf of the Board of Directors

 

Nick Teunon

Chief Financial Officer

 

 

Independent review report to Non-Standard Finance plc

 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 which comprises the income statement, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 10. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Deloitte LLP

Statutory Auditor

London, United Kingdom

3 August 2017

 

 

 

 

Financial statements

 

Condensed consolidated statement of comprehensive income

for the six months ended 30 June 2017

 

 

Note

 

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

Fair value adjustments, amortisation of acquired intangibles and exceptional items

Six months ended 30 June 2017

Six months ended 30 June 2016

 

 

 

 £'000

 £'000

 £'000

£'000 

Revenue

 

 

52,235

 (5,938)

46,297

29,123

Impairments

 

 

(14,041)

-

 (14,041)

 (9,891)

Administrative expenses

 

 

(29,707)

(3,709)

(33,416)

 (23,307)

Operating profit/(loss)

3

 

8,486

 (9,647)

 (1,160)

 (4,075)

Exceptional items

 

 

-

-

-

 (626)

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

 

 

8,486

 (9,647)

 (1,160)

 (4,701)

Finance cost

 

 

 (3,059)

-

 (3,059)

 (1,301)

Profit/(loss) on ordinary activities before tax

 

 

5,427

 (9,647)

 (4,219)

 (6,002)

Tax on profit/(loss) on ordinary activities

5

 

 (1,146)

1,833

687

1,084

Profit/(loss) for the period

 

 

4,282

 (7,814)

 (3,532)

 (4,918)

Total comprehensive loss for the period

 

 

 

 

 (3,532)

 (4,918)

 

 

 

 

 

 

 

Loss attributable to:

 

 

 

 

 

 

- Owners of the parent

 

 

 

 

 (3,532)

 (4,918)

- Non-controlling interests

 

 

 

 

-

-

 

Loss per share

 

 

 

 

Note

Six months ended 30 June 2017

Six months ended 30 June 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Pence

Pence

Basic and diluted

 

 

 

4

                       (1.11)

                       (1.67)

 

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

 

Condensed consolidated statement of financial position as at 30 June 2017

 

 

Note

 

30 June 2017

31 December 2016

 

 

 

£'000

£'000

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Goodwill

 

 

132,070

132,070

Intangible assets

 

 

13,703

17,412

Property, plant and equipment

 

 

6,938

5,459

 

 

 

152,711

154,941

Current assets

 

 

 

 

Amounts receivable from customers

7

 

182,152

180,413

Trade and other receivables

 

 

11,132

9,709

Cash and cash equivalents

 

 

4,745

5,215

 

 

 

198,029

195,337

Total assets

 

 

350,740

350,278

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

8,929

8,005

Total current liabilities

 

 

8,929

8,005

 

 

 

 

 

Non-current liabilities

 

 

 

 

Deferred tax liability

 

 

4,163

5,890

Bank loans

 

 

94,950

87,300

Total non-current liabilities

 

 

99,113

93,190

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

 

15,852

15,852

Share premium

 

 

254,995

254,995

Retained loss

 

 (28,404)

 (22,019)

 

 

 

242,443

248,828

Non-controlling interests

 

255

255

Total equity

 

 

242,698

249,083

Total equity and liabilities

 

 

350,740

350,278

 

These financial statements were approved by the Board of Directors on 3 August 2017.

Signed on behalf of the Board of Directors

 

Nick Teunon

Chief Financial Officer

 

 

 

Condensed consolidated statement of changes in equity

for the six months ended 30 June 2017

 

 

Share capital

Share premium

Retained loss

Non-controlling interest

Total

 

 

£'000

£'000

£'000

£'000

£'000

At 31 December 2015

 

5,264

92,714

 (13,070)

255

85,163

Total comprehensive loss for the period

 

-

-

 (4,918)

-

 (4,918)

Transactions with owners, recorded directly in equity:

 

 

 

 

 

 

Issue of shares

 

10,588

162,281

-

-

172,869

At 30 June 2016

 

15,852

254,995

 (17,988)

255

253,114

 

 

 

 

 

 

 

Total comprehensive loss for the period

 

-

-

 (3,080)

-

 (3,080)

Transactions with owners, recorded directly in equity:

 

 

 

 

 

 

Dividends paid

 

-

-

 (951)

-

 (951)

Issue of shares

 

-

-

-

-

-

At 31 December 2016

 

15,852

254,995

 (22,019)

255

249,083

 

 

 

 

 

 

 

Total comprehensive loss for the period

 

                        -

                        -

               (3,532)

                        -

               (3,532)

Transactions with owners, recorded directly in equity:

 

 

 

 

 

 

Dividends paid

 

-

-

 (2,853)

-

 (2,853)

Issue of shares

 

-

-

-

-

-

 At 30 June 2017

 

15,852

254,995

 (28,404)

255

242,698

 

 

 

Condensed consolidated statement of cash flows

for the six months ended 30 June 2017

 

 

Note

 

Six months ended

30 June 2017

Six months ended

30 June 2016

 

 

 

£'000

£'000

Net cash used in operating activities

8

 

 (515)

 (14,813)

Cash flows used in investing activities

 

 

 

 

Purchase of property, plant and equipment

 

 

 (2,213)

 (1,989)

Proceeds from sale of property, plant and equipment

 

 

520

-

Acquisition of subsidiary

 

 

-

 (230,784)

Net cash used in investing activities

 

 

 (1,693)

 (232,773)

Cash flows from financing activities

 

 

 

 

Finance cost

 

 

 (3,059)

 (1,301)

Debt raising

 

 

7,650

73,700

Dividends paid

 

 

 (2,853)

-

Proceeds from issue of share capital

 

 

-

172,869

Net cash from financing activities

 

 

1,738

245,268

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

 (470)

 (2,318)

Cash and cash equivalents at beginning of period

 

 

5,215

7,320

Cash and cash equivalents at end of period

 

 

4,745

5,002

 

 

 

Notes to the condensed set of financial statements for the six months ended 30 June 2017

General Information
 

Non-Standard Finance plc is a public limited company incorporated and domiciled in the United Kingdom. The address of the registered office is 5th Floor, 6 St Andrew Street, London, EC4A 3AE.

 

The unaudited condensed interim financial statements do not constitute the statutory financial statements of the Group within the meaning of section 434 of the Companies Act 2006. The statutory financial statements for the year ended 31 December 2016 were approved by the Board of Directors on 31 March 2017 and have been delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

 

The unaudited condensed interim financial statements for the six months ended 30 June 2017 have been reviewed, not audited, and were approved by the Board of Directors on 3 August 2017.

 

1.   Basis of preparation

 

The unaudited condensed interim financial statements for the six months ended 30 June 2017 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The unaudited condensed interim financial statements should be read in conjunction with the statutory financial statements for the year ended 31 December 2016 which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

 

The Directors have reviewed the Group's budgets, plans and cash flow forecasts for 2017 together with outline projections for the subsequent years. Based on this review, they are satisfied that the Group has adequate resources to continue to operate for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the unaudited condensed interim financial statements.

 

2.   Accounting policies

 

The accounting policies applied in preparing the unaudited condensed interim financial statements are consistent with those used in preparing the statutory financial statements for the year ended 31 December 2016.

 

Taxes on profits in interim periods are accrued using the tax rate that will be applicable to expected total annual profits.

 

The carrying value of financial assets and financial liabilities are not materially different to the fair value.

 

New and amended standards and interpretations need to be adopted in the first interim financial statements issued after their effective date (or date of early adoption). There are no new IFRSs or IFRICs that are effective for the first time for the six months ended 30 June 2017 which have a material impact on the Group.

 

3.   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 Everyday Loans (branch-based lending), Loans at Home (home credit), TrustTwo (guarantor lending) and Central (head office activities). The Group's operations are all located in the United Kingdom and all revenue is attributable to customers in the United Kingdom.

 

 

 

 

 

 

 

 

Six months ended 30 June 2017

 

Everyday Loans

Loans at Home

TrustTwo1

Central

2017

 

 

£'000

£'000

£'000

£'000

£'000

Interest income

 

28,204

22,526

1,505

-

52,235

Fair value unwind on acquired loan portfolio

 

 (5,938)

-

-

-

 (5,938)

Total revenue

 

22,266

22,526

1,505

-

46,297

 

 

 

 

 

 

 

Operating profit/(loss) before amortisation

 

                       3,902

                      790

                   109

               (2,252)

                2,549

Amortisation of intangible assets

 

                               -

                           -

                        -

               (3,709)

               (3,709)

Operating profit/(loss) before exceptional items

 

                       3,902

                      790

                   109

               (5,961)

               (1,160)

Exceptional items

 

-

-

-

-

-

Finance cost

 

 (2,482)

 (357)

 (183)

 (37)

 (3,059)

Profit/(loss) before taxation

 

1,420

433

 (74)

 (5,998)

 (4,219)

Taxation

 

 (408)

 (82)

14

1,163

687

Profit/(loss) for the period

 

                       1,012

                      351

                    (60)

               (4,835)

               (3,532)

 

 

 

 

 

 

 

 

 Everyday Loans 

 Loans at Home 

TrustTwo1

 Central 

Consolidation adjustments2

2017

 

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Total assets

145,592

36,783

10,491

273,993

 (116,120)

350,740

Total liabilities

 (94,279)

 (10,331)

-

365

 (3,797)

 (108,042)

Net assets

51,313

26,452

10,491

274,358

 (119,916)

242,698

 

 

 

 

 

 

 

Capital expenditure

898

1,315

-

-

-

2,213

Depreciation of plant, property and equipment

                          256

                          299

                           -

                     26

                        -

                   581

Amortisation of intangible assets

                               -

                               -

                           -

               (3,709)

                        -

               (3,709)

1 TrustTwo is supported by the infrastructure of Everyday Loans and only the net loan book and profit and loss is reported to the board separately and has therefore been disclosed above.

2 Consolidation adjustments include the acquisition intangibles of £13.7m, goodwill of £132.1m, deferred tax liability of £4.2m, fair value of loan book of £9.9m and the elimination of intra group balances.

 

 

 

 

Six months ended 30 June 2016

 

Everyday Loans

Loans at Home

TrustTwo3

Central

2016

 

 

£'000

£'000

£'000

£'000

£'000

Interest income

 

10,047

20,700

568

-

31,315

Fair value unwind on acquired loan portfolio

 

 (1,979)

 (213)

-

-

(2,192)

Total revenue

 

8,068

20,487

568

-

29,123

 

 

 

 

 

 

 

Operating profit/(loss) before amortisation

 

1,655

623

269

 (1,815)

732

Amortisation of intangible assets

 

-

-

-

 (4,807)

 (4,807)

Operating profit/(loss) before exceptional items

 

1,655

623

269

 (6,622)

 (4,075)

Exceptional items

 

-

-

-

 (626)

 (626)

Finance cost

 

 (787)

 (176)

 (67)

 (271)

 (1,301)

Profit/(loss) before taxation

 

868

447

202

 (7,519)

 (6,002)

Taxation

 

 (164)

 (89)

 (40)

1,377

1,084

Profit/(loss) for the period

 

704

358

162

 (6,142)

 (4,918)

 

 

 

 

 

 

 

 

Everyday Loans

Loans at Home

TrustTwo3

Central

Consolidation adjustments4

2016

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Total assets

123,746

33,754

7,598

273,927

 (93,516)

345,509

Total liabilities

 (85,458)

 (8,433)

 (4,247)

 (784)

6,527

 (92,395)

Net assets

38,288

25,321

3,351

273,143

 (86,989)

253,114

 

 

 

 

 

 

 

Capital expenditure

1,083

928

59

159

-

2,229

Depreciation of plant, property and equipment

57

177

3

14

-

251

Amortisation of intangible assets

-

-

-

4,807

-

4,807

3 TrustTwo is supported by the infrastructure of Everyday Loans and only the net loan book and profit and loss is reported to the board separately and has therefore been disclosed above.

4 Consolidation adjustments include the acquisition intangibles of £23m, goodwill of £132.1m, deferred tax liability of £9.2m, fair value of loan book of £120m and the elimination of intra group balances.

 

All inter-segment transactions are transacted on an arm's-length basis. The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.

 

4.   Loss per share

 

 

Six months ended 30 June 2017

Six months ended 30 June 2016

 

 

 

Retained loss attributable to Ordinary Shareholders (£'000)

                     (3,532)

                     (4,918)

Weighted average number of Ordinary Shares

            317,049,682

            294,851,859

Basic and diluted loss per share (pence)

                       (1.11)

 (1.67)

 

The loss per share was calculated on the basis of net loss attributable to Ordinary Shareholders divided by the weighted average number of Ordinary Shares. The basic and diluted loss per share is the same, as the exercise of share options would reduce the loss per share and is anti-dilutive.

 

Six months ended 30 June 2017

Six months ended 30 June 2016

 

'000

'000

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

5,539

5,539

 

  

5.   Taxation

 

The tax charge for the period has been calculated by applying the Directors' best estimate of the effective tax rate for the financial year of 19% (2016: 20%), to the profit before tax for the period.

 

6.   Dividends

 

The Directors have declared an interim dividend in respect of the six months ended 30 June 2017 of 0.5 pence per share (interim dividend 2016: 0.3 pence per share) which will amount to a dividend payment of £1,585,248 (2016: £951,000). This dividend is not reflected in the balance sheet as it will be paid after the balance sheet date.

 

7.   Amounts receivable from customers

 

 

30 June 2017

31 December 2016

 

£'000

£'000

Credit receivables

206,653

204,775

Loan loss provision

 (24,501)

 (24,362)

Amounts receivable from customers

182,152

180,413

 

The movement on the loan loss provision for the period relates to the provision at Loans at Home, Everyday Loans and TrustTwo for the period. The amounts receivable from customers were recognised at fair value (net loan book value) at the date of acquisition, the amounts receivable are subsequently measured at amortised cost net of any impairment.

 

Analysis of overdue receivables from customers

 

 

30 June 2017

31 December 2016

 

£'000

£'000

Not past due or impaired

147,128

145,041

Past due but not impaired

24,744

25,418

Impaired

10,280

9,954

 

182,152

180,413

 

 

 

 

30 June 2017

31 December 2016

 

£'000

£'000

Loans at Home1 past due not impaired:

 

 

One week overdue

3,936

6,278

Two weeks overdue

1,772

2,129

Three or four weeks overdue

2,288

1,879

 

7,995

10,286

1 Loans at Home make weekly collections.

 

 

 

 

 

 

Everyday Loans2 past due not impaired:

 

 

Up to one month overdue

16,749

15,132

 

16,749

15,132

2 Everyday Loans make monthly collections.

 

 

 

  

Analysis on movement of loan loss provision

 

 

 

£'000

At 31 December 2015

 

                       1,923

Provision on acquisition of Everyday Loans in April 2016

 

6,105

Charge for the year

 

                     23,201

Amounts written off during the year

 

                     (4,378)

Unwind of discount

 

                      (2,489)

At 31 December 2016

 

                     24,362

Charge for the period

 

                     14,041

Amounts written off during the year

 

                   (12,967)

Unwind of discount

 

                         (936)

At 30 June 2017

 

                     24,501

 

The average EIR used during the period ended 30 June 2017 for Loans at Home was 305% (2016: 316%) and for Everyday Loans was 46.9% (2016: 45.0%).

 

8.   Net cash used in operating activities

 

Six months ended 30 June 2017

Six months ended 30 June 2016

 

£'000

£'000

Operating loss

 (1,160)

 (4,701)

Taxation paid

 (1,471)

 (1,503)

Depreciation

581

251

Amortisation of intangible assets

3,709

4,807

Fair value unwind on acquired loan book

5,938

2,192

(Profit)/loss on disposal of property, plant and equipment

 (367)

-

(Increase)/decrease in amounts receivable from customers

 (7,677)

 (3,259)

(Increase)/decrease in other receivables

 (1,423)

 (6,050)

Decrease/(increase) in payables

1,355

 (6,550)

Cash used in operating activities

 (515)

 (14,813)

 

9.   Related party transactions

 

Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. There have been no changes in the nature of related party transactions as described in note 27 to the 2016 Annual Report & Financial Statements.

 

10.  Subsequent events

 

On 3 August 2017, the Group agreed to acquire 100% of George Banco Limited, a company based in England which operates in the guaranteed loans market, for cash consideration of £53.5m.  Since 30 June 2017, the Group has also secured £225m of debt funding provided by institutional investors and a £35m RCF from Royal Bank of Scotland. These funds have been used to refinance the Group's existing bank facilities and also to fund the acquisition of George Banco Limited.
 

Appendix - Regulatory overview

There have been a number of developments on the regulatory front since the start of 2017 that may have a bearing on the Group's activities and business operations in the future. Some of the more pertinent developments are summarised below.

 

§

On 31 July 2017 the FCA published its feedback statement following its call for input into High Cost Credit and also issued a consultation into creditworthiness and affordability in consumer credit.  The Group is reviewing these documents and, if appropriate, will provide a response to the FCA.

 

§

The Financial Ombudsman Service published its annual review report for 2016/17 on 13 July 2017.  The report showed there were rises in the number of complaints about consumer credit providers especially instalment, payday and guarantor lending.

 

§

On 11 July 2017, the Taylor Review of Modern Working Practices was published, making a number of recommendations to government regarding the definition of workers and the principles which workers and employers should be expected to adopt.

 

§

On 4 July 2017, the FCA published a consultation on staff incentives, remuneration and performance management in consumer credit.  The review aims to help firms identify practices that may promote inappropriate behaviour by company representatives that in turn could result in poor customer outcomes.

 

§

The Financial Guidance and Claims Bill, that create the framework for a single financial guidance body, was introduced in the Queen's speech and had its second reading in the House of Lords on 5 July.

 

§

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 came into force on 26 June 2017. They implement the EU's 4th Directive on Money Laundering and replace the Money Laundering Regulations 2007.

 

§

On 23 June 2017, the FCA published its impact assessment on the amendments to the guarantor lending rules pursuant to PS15/23.

 

§

On 18 April 2017, the FCA published its Mission, Sector Views and Business Plan for 2017.  Each provides a valuable insight into the views, objectives and operating parameters adopted by the FCA in carrying out its duties.  They also refer to some of the thematic reviews that the FCA expects to undertake in the future.

 

§

On 3 April 2017 the FCA published a consultation on its proposed measures to address persistent credit card debt and to require credit card firms to use their data to identify customers at risk of financial difficulties.

 

§

The FCA closed its call for input into High-Cost Credit on 15 February 2017.  The review covered the payday lending cap, unauthorised overdrafts as well as a broader review of all forms of high-cost credit, including home-collected credit.

 

§

On 19 January 2017, the FCA published its final guidance on how consumer credit firms should address the matter of default notices in respect of guarantor loans.  This was a revision to previous guidance having taken into account a number of responses made.

 

 


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Unaudited half year results to 30 June 2017 - RNS