TIDMNSF
RNS Number : 9162A
Non-Standard Finance PLC
28 September 2022
Non-Standard Finance plc
('Non-Standard Finance', 'NSF', the 'Company' or the
'Group')
Unaudited Half Year Results to 30 June 2022
28 September 2022
Key points
-- The Group continued to face significant regulatory challenges
in the current period and on 15 March 2022, the Group's home credit
division was placed into administration.
-- It has not been possible to reach agreement with the FCA
regarding a voluntary redress scheme in respect of the Group's
guarantor loans division. The Directors have therefore decided to
pursue the use of a court-based process (the 'Process'), such as a
scheme of arrangement or restructuring plan, in relation to its
redress liabilities. A successful Process is intended to provide
certainty as to the total liability arising from redress
liabilities, thereby allowing the Group to proceed with its planned
capital raise (the 'Capital Raise'). If successful, the proceeds of
the Capital Raise will be used to fund a cash pot which will be
available to finance the payment of redress liabilities to affected
customers and to strengthen the Group's balance sheet and underpin
future growth.
-- Although it is not expected that the Process will provide for
the redress claims to be paid in full, the Directors believe that
the Process is in the best interests of customers with redress
claims. Without the Process, the Directors believe insolvency is
the most likely outcome, in which there would likely be no payment
of redress liabilities.
-- A key objective of the Process will be to treat all affected
customers equally. Although the independent review of the Group's
branch-based lending division carried out in 2021 identified no
systemic issues requiring redress, as this division and the
guarantor loans division trade out of the same legal entity, the
Process will encompass potential claims from both divisions in
order to ensure equitable treatment of customers.
-- The Group is engaging with the FCA, the FOS, as well as
Alchemy and the Group's lenders, regarding the Process. It has
appointed an independent chairperson to chair a committee of
customers with redress claims, who will review the terms of the
Process on behalf of affected customers.
-- Further details of the Process will be announced in due
course. The Process will be subject to satisfying the statutory
creditor approval requirements and the sanction of the Court.
-- We are engaging with the FCA with respect to the business'
plan to rely on DISP 1.6.2R(2), pursuant to which, the business is
entitled to place a temporary hold on the processing of customer
complaints.
-- Plans for the Capital Raise remain subject to, inter alia,
successful completion of the Process and the continued support of
Alchemy and other key shareholders as well as the Group's
lenders.
-- Without the successful completion of the Capital Raise, the
Group remains balance sheet insolvent and the Group's ability to
remain a going concern is subject to material uncertainties.
However, the Directors continue to believe there is a reasonable
prospect of resolving this position through the Process and the
Capital Raise.
-- The Directors of NSF plc are working with key stakeholders on
an alternative transaction to be implemented in the event that the
Process is completed but the Capital Raise is unsuccessful which
would preserve the branch-based lending business as a going
concern. In this scenario, it is expected that the same cash pot
would be available to finance the payment of redress liabilities as
if the Capital Raise had completed. However, there would be a
material risk of the Company and certain other members of the Group
entering insolvency and as a result there would be no recovery for
the Company's shareholders.
-- The Group's ongoing operational performance in the first six
months of this year has been better than expected and current
trading including impairment levels also remain positive. Whilst
Group revenue was down 17% following the administration of the home
credit division, revenues at branch-based lending were up 11% to
GBP43.8m (2021: GBP39.4m).
-- Despite the pleasing operational performance, for the March
2022 and June 2022 quarter, the Group's loan to value ratio was
higher than the level permitted under its loan to value covenant.
The Group, through negotiations with its lenders, has obtained a
short-term waiver which means the loan to value covenant will not
be formally tested, and no covenant breach or event of default will
arise, until the Group provides its compliance certificates for the
March 2022 and June 2022 quarter dates. The date on which the Group
is required to supply these compliance certificates has been
extended until 5 October 2022, with a mechanism for this date to be
extended further with lender support. Further waivers are likely to
be dependent on positive progress of the Process.
-- Net loan book at branch-based lending remains slightly below
prior year at GBP160.4m (2021: GBP163.8m) as the business continues
to build the loan book back up following the impact of the
pandemic.
-- The Group's guarantor loans division remains in managed
run-off and has been performing ahead of expectations, with a much
reduced loan book of GBP17.3m at the end of June 2022 (2021
GBP41.4m).
-- Exceptional charges of GBP24.9m (2021: GBP4.0m) includes
GBP5.7m additional costs in respect of the anticipated Process,
GBP5.5m in relation to the losses on derecognition of the home
credit division in administration and GBP13.7m of impairments
recognised in relation to unsecured receivable balances held with
the home credit division.
-- No half year dividend per share is being declared (2021: 0.0p per share).
Financial summary
6 months to 30 June 2022 2021 % change
GBP'000 GBP'000
----------------------------------------- --------- -------- ---------
Normalised and Reported revenue 56,594 67,842 -17%
Normalised operating profit(1) 2,814 9,385 -70%
Reported operating profit/(loss) (2) (2,373) 7,467 -132%
Normalised profit/(loss) before tax(1) (11,327) (3,510) -223%
Reported profit/(loss) before tax(2) (36,209) (7,535) -381%
Normalised earnings/(loss) per share(3) (3.63)p (1.12)p -224%
Reported earnings/(loss) per share(2) (11.59)p (2.41)p -381%
Half year dividend per share Nil Nil n/a
========================================== ========= ======== =========
(1) Normalised figures are before exceptional items. Operating
profit/(loss) is before finance costs. See glossary of alternative
performance measures and key performance indicators in the
Appendix.
(2) After exceptional costs.
(3) Normalised loss per share in 2022 is calculated as
normalised loss after tax of GBP11.3m divided by the weighted
average number of shares of 312,437,422. The normalised earnings
per share in 2021 is calculated as normalised loss after tax of
GBP3.5m, divided by the weighted average number of shares of
312,437,422.
Jono Gillespie, Group Chief Executive Officer, said
"The Group delivered an improved operational performance in the
first half in branch-based lending, despite the difficult
macro-economic environment.
Due to the need to resolve the material uncertainties faced by
the Group, the Board of the Everyday Loans trading entity,
supported by the Non-Standard Finance plc Board, has determined
that a court-based process, such as a scheme of arrangement or a
restructuring plan, is required to reach a resolution regarding the
outstanding regulatory issues faced by the Guarantor Loan Division
(which trades through the same legal entity as Everyday Loans).
This process is now being actively pursued, with the timescale for
its completion being determined by engagement with the FCA and the
Group's key stakeholders, and the requirements of the legal
process. In order to ensure equitable treatment of creditors within
the Everyday Loans trading entity, this process will encompass all
eligible customers of branch based lending as well as the guarantor
loan division. We are engaging with the FCA with respect to the
business' plan to rely on DISP 1.6.2R(2), pursuant to which, the
business is entitled to place a temporary hold on the processing of
customer complaints.
Assuming the successful completion of the legal process, the
Board anticipates being in a position to execute a substantial
capital raise which, whilst ensuring the future for the Group, will
materially dilute the interests of existing equity holders, most
likely to negligible value unless they choose to participate in the
planned Capital Raise. The proceeds of the Capital Raise will be
used to fund a cash pot which will be available to finance an
agreed portion of redress liabilities to affected customers (as
determined by the court) and, crucially, to strengthen the Group's
balance sheet and underpin a return to profitable growth through
significant investment in our branch-based lending business.
Although it is not expected that the cash pot will be sufficient to
allow for redress liabilities to be paid in full, my fellow
Directors and I believe that the legal process is in the best
interests of customers with redress claims, as well as the Group's
other stakeholders.
I would like to thank all our colleagues for their tireless work
and continued dedication through these uncertain times for the
business and look forward to leading the Group through the
development and implementation of the legal process, the planned
Capital Raise and beyond."
The tables below provide an analysis of the normalised results
(excluding exceptional items) for the Group for the six month
period to 30 June 2022 and 30 June 2021 respectively.
6 months to 30 June Branch-based Guarantor Home credit(5) Central Consolidated
2022 lending loans costs Group
Normalised(4)
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- ------------- ---------- --------------- --------- -------------
Revenue 43,829 5,450 7,315 - 56,594
Other operating income 123 - - - 123
Modification gain/(loss) (406) (177) - - (583)
Impairments (14,831) (111) (2,781) - (17,723)
Admin expenses (24,994) (3,554) (5,065) (1,984) (35,597)
Operating profit/(loss) 3,721 1,608 (531) (1,984) 2,814
Finance costs (6,858) (1,149) (257) (5,877) (14,141)
------------- ---------- --------------- --------- -------------
Profit/(loss) before
tax (3,137) 459 (788) (7,861) (11,327)
------------- ---------- --------------- --------- -------------
(4) Excludes exceptional items
(5) The home credit division was placed into administration on
15 March 2022, its results are therefore to the period ended 14
March 2022.
6 months to 30 June Branch-based Guarantor Home credit Central Consolidated
2021 lending loans costs Group
Normalised(4)
GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ------------- ---------- ------------ --------- -------------
Revenue 39,443 10,380 18,019 - 67,842
Other operating income 237 1 607 8 853
Modification gain/(loss) (1,306) (1,904) - - (3,210)
Derecognition gain/(loss) (1,621) 130 - - (1,491)
Impairments (4,041) (984) (1,419) - (6,444)
Admin expenses (23,200) (6,870) (15,752) (2,343) (48,165)
Operating profit/(loss) 9,512 753 1,455 (2,335) 9,385
Finance costs (7,367) (2,611) (486) (2,431) (12,895)
------------- ---------- ------------ --------- -------------
Profit/(loss) before
tax 2,145 (1,858) 969 (4,766) (3,510)
------------- ---------- ------------ --------- -------------
(4) Excludes exceptional items
The administration of the home credit division on 15 March 2022
combined with a robust collections performance at the remaining
divisions has led to a 15% fall in the net loan book compared to 31
December 2021 as summarised in the table below:
Net loan book 30 June 31 December
2022 2021
GBPm GBPm
---------------------- -------- ------------
Branch-based lending 160.4 157.2
Guarantor loans 17.3 26.8
Home credit(1) - 24.0
---------------------- -------- ------------
Total 177.8 208.0
---------------------- -------- ------------
(1) Home credit division placed into administration on 15 March
2022 and therefore derecognised from the Group.
Investor presentation
The investor presentation will be available on the Group's
website www.nsfgroupplc.com .
For more information:
Non-Standard Finance plc
Jono Gillespie, Group Chief Executive Officer +44 (0) 20 3869
Sarah Day, Chief ESG Officer & Company Secretary 9020
H/Advisors Maitland
Neil Bennett +44 (0) 20 7379
Finlay Donaldson 5151
Group Chief Executive's statement
Introduction
Against a changing macroeconomic environment and despite a
number of operational, regulatory and financial challenges, the
Group has performed ahead of management's expectations in the past
six months and delivered a positive normalised operating profit of
GBP2.8m (2021: GBP9.4m), mainly thanks to an encouraging
performance by the Group's remaining operating division:
branch-based lending, which trades as Everyday Loans ("ELL").
Whilst encouraging, this positive operating profit remains some way
short of the level required to cover the finance costs of the
Group, resulting in a normalised loss before tax of GBP11.3m. The
business clearly needs to grow in order to resolve this situation,
and is very well placed operationally to do so, with an established
branch network and experienced central team who have proven
historically that they can achieve sustainable and profitable
growth. Indeed, recent months have seen an encouraging return to
loan book growth.
Loans at Home ("LAH"), the Group's home credit division, was
placed in administration on 15 March 2022. While this was deeply
disappointing for all of us, it was clear that administration was
the only option available in order to preserve value for creditors.
The first half results include a contribution from LAH to that
date.
The guarantor loans division remains in managed run-off however
strong collections performance has resulted in a GBP1.6m (2021:
GBP0.8m) contribution to the Group's normalised operating profit
for the six months ended 30 June 2022.
The Board of the Everyday Loans trading entity has decided to
actively pursue a court-based process (the 'Process') to address
the outstanding regulatory issue in the guarantor loans division
(which trades through the same legal entity as Everyday Loans),
using either a scheme of arrangement or a restructuring plan. The
Non-Standard Finance plc Board is in agreement with the Everyday
Loans Board that this is an appropriate course of action. A key
objective of the Process will be to treat all affected customers
equally. In order to ensure equitable treatment of creditors within
the Everyday Loans trading entity, and notwithstanding the fact
that the independent review of Everyday Loans carried out in 2021
identified no systemic issues requiring redress, the Process will
encompass all eligible Everyday Loans customers of the branch-based
lending division as well as the guarantor loan division.
The Group is engaging with the FCA, the FOS, as well as Alchemy
and the Group's lenders, regarding the Process. It has appointed an
independent chairperson to chair a committee of customers with
redress claims, who will review the terms of the Process on behalf
of affected customers. Further details of the Process will be
announced in due course. The Process will be subject to satisfying
the statutory creditor approval requirements and the sanction of
the Court.
The Board, whilst recognising that court-based processes are
complex, time consuming and not guaranteed to be successful,
believe that there is a reasonable chance of success and that the
Process is necessary to provide certainty as to the total liability
arising from redress liabilities. They further expect that the
successful completion of the Process will, along with the continued
support of Alchemy and other key shareholders and the Group's
lenders (including to agree an extension of the lending
facilities), allow the Group to proceed with its planned Capital
Raise which, if successful, will strengthen the Group's balance
sheet and underpin future growth. The Company is in discussions
with its lenders regarding a potential extension of the lending
facilities and other measures to support the business going
forwards, which are likely to be linked to completion of the
Capital Raise.
The proceeds of the planned Capital Raise will be used, among
other things, to fund a cash pot which will be available to finance
an agreed portion of redress liabilities to affected customers and
reduce debt gearing levels. Although it is not expected that the
cash pot will be sufficient to allow for redress liabilities to be
paid in full, the Board believe that the Process is in the best
interests of customers with redress claims, as well as the Group's
other stakeholders. Without the Process there is a material risk of
the Group entering an insolvency process in which there would be no
payment of redress liabilities.
If the Capital Raise (which is dependent upon successful
completion of the Process) is not achieved within the required
timeframe, it is expected that the Group would not be capable of
meeting its liabilities as they fall due, and under this scenario,
the Group's lenders would be entitled to enforce their security and
there would be a material risk of the Group entering
insolvency.
The Directors of NSF plc are working with key stakeholders on an
alternative transaction to be implemented in the event that the
Process is completed but the Capital Raise is unsuccessful which
would preserve the branch-based lending business as a going
concern. In this scenario, it is expected that the same cash pot
would be available to finance the payment of redress liabilities as
if the Capital Raise had completed. However, there would be a
material risk of the Company and certain other members of the Group
entering insolvency and as a result there would be no recovery for
the Company's shareholders.
We are engaging with the FCA with respect to the business' plan
to rely on DISP 1.6.2R(2), pursuant to which, then business is
entitled to place a temporary hold on the processing of customer
complaints. This pause will ensure that all customers can be
treated equally and fairly.
2022 half year - review of operations
Branch-based lending
The Group's branch-based lending division performed ahead of
expectations during the first half of 2022. The volume of leads
received was higher compared to the same period last year which
meant that the net loan book returned to growth, ending the period
2% higher than 31 December 2021. In addition, collections
performance in the six months ended 30 June 2022 has been positive
with impairment performance returning to more normalised levels.
Despite this increasing costs of living remains a risk to
collections performance for the remainder of the year.
The business continues to invest in the enhancement of
technology and embedding of its strengthened creditworthiness
process which will ensure that the business continues to meet the
highest standards of responsible lending, ensuring we continue to
deliver good outcomes for all customers.
The Board continues to believe that the branch-based lending
division has significant potential for future growth once the Group
has resolved its outstanding regulatory issues and completed the
planned Capital Raise.
Although the independent review of the Group's branch-based
lending business carried out in 2021 identified no systemic issues
requiring redress, since this business and the guarantor loans
division trade out of the same legal entity, the Process will
encompass potential claims from both businesses in order to ensure
equitable treatment of customers.
Home Credit
The Group's home credit division, which traded as Loans at Home
("LAH"), was placed into administration on 15 March 2022. In the
first two and a half months of the year the division performed
ahead of budget although it delivered a negative contribution with
a normalised operating loss of GBP0.5m (2021: normalised operating
profit GBP1.5m).
In the current period, exceptional items of GBP5.5m in relation
to losses on derecognition of the home credit division were
recognised as well as an additional GBP13.7m (2021: GBPnil) of
impairments of related receivable balances held with the division
in order to reflect the fact that these may not be recovered
directly by the Group. Whilst the Group does not expect to recover
the balances held directly with LAH following the conclusion of the
administration, as LAH remains a guarantor of the Group's financing
facilities, it is anticipated that the proceeds from the
administration would be paid directly to its secured lenders,
thereby reducing the external debt balance held by the Group at
that point.
Guarantor loans
The Group's guarantor loans division was placed in a managed
run-off on 30 June 2021. Since then, the Group has continued to
collect out its loan book balance with the result that the division
delivered a positive contribution of GBP1.6 million to normalised
operating profits in the half year.
The loan book, net of provisions, has now fallen to GBP17.3
million (2021: GBP41.4m) and the Group continues to focus on
collecting out the remaining book. It has not been possible to
reach agreement with the FCA regarding a voluntary redress scheme
in respect of guarantor loans and therefore the Group is now
actively pursuing a legal resolution to the regulatory difficulties
faced by the division through the Process which will provide
certainty as to the total liability arising from redress
liabilities. This, in turn, will allow the Group to proceed with
its planned Capital Raise and therefore fund a cash pot which will
be available to finance an agreed portion of redress liabilities to
affected customers. It is not expected that the cash pot will be
sufficient to allow for redress liabilities to be paid in full,
although this is dependent on the final size of the cash pot (which
remains subject to discussion with the Group's key stakeholders)
and the costs of the Process .
Liquidity, funding and going concern
As at 30 June 2022 the Group had cash at bank of GBP111.5m (31
December 2021: GBP114.5m) and gross borrowings of GBP330.0m (31
December 2021: GBP330.0m). Prior to its August 2022 maturity date,
the Group repaid its GBP45m RCF facility in full on 8 July 2022. In
addition, on 26 August 2022 a part repayment of GBP5m was made to
the Group's term loan facilities from the proceeds of the LAH
administration. As at 31 August 2022 cash at bank was GBP56.7m
while the level of gross borrowings reduced to GBP280.0m (comprised
of a term loan facility that matures in August 2023). The Group is
in discussions with its lenders regarding extensions to the term of
the existing facilities and other support that might be provided by
lenders. It is likely that any extension would be conditional upon
successful completion of the Process and the Capital Raise.
F or the March 2022 and June 2022 quarter, the Group's loan to
value ratio was higher than the level permitted under its loan to
value covenant. The Group, through negotiations with its lenders,
has obtained a short-term waiver which means the loan to value
covenant will not be formally tested, and no covenant breach or
event of default will arise, until the Group provides its
compliance certificates for the March 2022 and June 2022 quarter
dates. The date on which the Group is required to supply these
compliance certificates has been extended until 5 October 2022,
with a mechanism for this date to be extended further with lender
support. Further waivers are likely to be dependent on positive
progress of the Process.
At 30 June 2022 the Group also had a multi-year GBP200m
securitisation facility which remained undrawn and due to the
current balance sheet position could not be used. On 14 September
2022, the Group closed the facility .
The Directors acknowledge the considerable challenges which
continue to impact the Group and the material uncertainties which
may cast significant doubt on the ability of both the Group and the
Company to continue to adopt the going concern basis of accounting.
However, despite these challenges, it is the Directors' reasonable
expectation that the Group and Company will resolve its regulatory
issues through the Process which will provide certainty as to the
total liability arising from redress liabilities, raise sufficient
capital in the timeframe required and will continue to operate and
meet its liabilities as they fall due for at least the next 12
months and therefore it has concluded the business is a going
concern.
Should the Process and subsequent Capital Raise be unsuccessful
, it is expected that the Group would not be capable of meeting its
liabilities as they fall due, and under this scenario, the Group's
lenders would be entitled to enforce their security and there would
be a material risk of the Group entering insolvency. The Directors
are working with key stakeholders on an alternative transaction to
be implemented in the event that the Process is completed but the
Capital Raise is unsuccessful which would preserve the branch-based
lending business as a going concern. In this scenario, the same
cash pot would be available to finance the payment of redress
liabilities as if the Capital Raise had completed. However, there
would be a material risk of the Company and certain other members
of the Group entering insolvency and as a result there would be no
recovery for the Company's shareholders.
Refer to note 2 of the financial statements for further
detail.
Outstanding regulatory issues
Court-based process (the 'Process')
The Group announced on 3 August 2020 that, following its
multi-firm review of the guarantor loans sector, the FCA had raised
some concerns regarding certain processes and procedures at the
guarantor loans division ("GLD") and a programme of redress would
be required for those customers deemed to have suffered harm as a
result.
It has not been possible to reach agreement with the FCA
regarding a voluntary redress scheme in respect of guarantor loans
which the Group believes it could fund in its current position, and
therefore the Group is now actively pursuing a legal resolution to
the ongoing regulatory uncertainty within GLD through the Process
which will provide certainty as to the total liability arising from
redress liabilities. Pending the conclusion of the Process, the
Group continues to maintain the exceptional provision for redress
in relation to the estimated costs of redress to GLD customers,
with a total estimated cost of GBP17.5m at the period end (31
December 2021: GBP16.9m). The increase from 2021 reflects
additional interest accrued over the period. The independent review
of the branch-based lending business carried out in 2021 identified
no systemic issue regarding redress. However, since GLD trades
through the same legal entity as branch-based lending, in order to
ensure a fair outcome to all customers, the Process will also
encompass all eligible Everyday Loans customers as well as GLD
customers. Whilst the amount which might be paid as part of the
Process in relation to branch-based lending customers is uncertain
given no systemic issues were identified in the independent review
carried out in 2021, in its ordinary course of business the Group
does uphold a small number of complaints each month for
non-systemic reasons. The Group recognises that the Process may
pull forward such complaints from future years and has therefore
recognised an exceptional charge of GBP4.5m in the branch-based
lending division based on management's best estimate of the future
value of such complaints. Whilst the provisions have been
calculated assuming that eligible customers are paid in full, given
the cost of the Process (which will be deducted from the cash pot
that will be available to finance the payment of redress
liabilities) and the increased number of complaints which may be
made as part of the Process, it is expected that those customers
who suffered
harm would not receive 100p/GBP1. We are engaging with the FCA
with respect to the business' plan to rely on DISP 1.6.2R(2),
pursuant to which, the business is entitled to place a temporary
hold on the processing of customer complaints.
Capital Raise
It is expected that the planned Capital Raise will involve a
firm placing and open offer. The Directors recognise that the
Capital Raise is dependent on a number of material uncertainties
including (i) a successful Process, including positive creditor
votes and the court sanction of the Process within the timeframes
required; (ii) the redress liability under the Process being within
levels acceptable to investors; (iii) the Group's lenders
continuing to grant appropriate extensions to the testing dates or
other forms of waivers for covenant breaches prior to the Capital
Raise completing; (iv) the Group's lenders providing the necessary
waivers to implement the Process; (v) the Group obtaining
extensions to the term of its existing debt facilities on terms
acceptable to investors; and (vi) the underlying assumptions in
relation to the regulatory environment, macro-economic environment
and business performance not varying materially from the base case.
The Directors continue to maintain a regular dialogue with key
stakeholders including the FCA, Alchemy and the Group's lenders
regarding the above matters.
Other regulatory developments
In addition to the matters outlined above, there have been a
number of other regulatory developments in late 2021 and in 2022
that have been particularly relevant to the Group's business. They
are summarised below:
Climate related disclosures - In November 2021, the FCA sought
views on their 'Sustainability Disclosure Requirements' which will
principally affect investment firms, and forms part of a wider body
of ESG-orientated work as promised in the Business Plan. ESG is an
important topic for the regulator, who seeks to build on five key
themes: Transparency; Trust; Tools; Transition; and Team. Whilst
regulated firms like Everyday Loans are yet to be incorporated into
ESG plans, their views have been solicited, despite new rules being
aimed at LLCs and investment firms. The FCA's direction of travel
reflects the fact that four out of five respondents to the
Financial Lives Survey felt that environmental issues are
important, and believe that businesses have a wider responsibility
than simply to make a profit.
Cost-of-living crisis - The cost of living crisis continues to
unfold across the UK, with huge spikes in energy, transport, food
and housing, against a backdrop of wages that are falling in real
terms and benefits that are failing to keep up with rampant
inflation. The FCA has launched a website on the same topic, which
details relevant publications, letters, updates, news and speeches
that pertain to the ongoing crisis. The long running Borrowers in
Financial Difficulty ('BiFD') project is of particular interest as
it contains some insightful and comprehensive feedback from
borrowers across the spectrum. A 'Dear CEO' letter has been issued
to all firms about helping customers through the cost-of-living
scenario in June 2022.
Vulnerable customers - Echoing the sentiments from the BiFD
project, the FCA has been reiterating its stance on vulnerable
customers and their associated treatment in nearly every speech
that has been made by its stakeholders over the last six months.
Final guidance was released last year, and the FCA released an
update on progress in this area in June 2022. Regulated entities
are being urged to adopt 'tell us once' strategies and to utilise
complaints insights as learning opportunities, as well as to ensure
that their senior management staff are setting the tone from the
top. According to the most recent communication on the matter,
around half of retail banks are unable to demonstrate that they
have implemented strategies that ensure consistently fair outcomes
across their consumer portfolios, and so the FCA is keen to see
clear lines of accountability and that the concept has been fully
embedded.
Operational resilience - Following the publication of the
Operational Resilience Policy Statement in March 2021, the firms
within the FCA's perimeter will have until March 2025 to exemplify
its principles, though they should do so as soon as reasonably
practicable. Mapping and testing for impact tolerances and
investments that are necessary to remain within them must be in
place by the new deadline. As part of this work, the regulator is
also reviewing the practice of critical third parties, such as
datacentre providers, having released a Discussion Paper with the
PRA in July 2022.
Consumer Duty - The final rules have been released for the new
Consumer Duty project ('CD'), without much significant deviation
from the proposal of 2021. The implementation time has been
extended by three months to July 2023, and for closed products the
deadline is now July 2024. Whilst they are only recommendations,
the FCA has provided deadlines for a Board report on CD (October
2022) and, for manufacturers, a deadline of April 2023 for product
& services reports has been provided so as to allow other
parties in the chain time to absorb and apply the information
within them, which should pertain to target markets. Views were
solicited from across the financial landscape about the final
wording of the Duty, which has been settled at "act to deliver good
outcomes for retail customers," and the three cross-cutting rules
and four principles remain unchanged with their original
wording.
Future Regulatory Framework - Following the conclusion of the
Brexit transition period, ministers have been promising a review of
the UK's financial regulatory framework via reform of the Financial
Services and Markets Act ('FSMA'), which is being managed by HM
Treasury. However, as much of our regulatory law and principles
intersect, much of the work recommended by the Woolard review which
was aimed at reforming the Consumer Credit Act of 1974 ('CCA') has
come within HMT's remit. The Government has committed to reviewing
the CCA, not least because some of the existing obligations are not
wholly compatible with the incoming CD - the Credit Services
Association posited that a firm can follow the letter of the old
law or the spirit of the new regulations, but not both. This
position is not accepted by the FCA but the disconnect remains
apparent, and the reform of a 50-year-old statute is potential for
further uncertainty and disruption to regulation and legislation
alike.
We continue to monitor all regulatory developments closely so
that we can anticipate and, if necessary, engage with the relevant
authorities, either directly or through industry associations.
Dividend
As a result of the significant reported losses over the last two
years and during the first half of 2022, the Company does not have
any distributable reserves and is therefore not in a position to
declare a half year dividend (2021: GBPnil per share). As part of
any future capital raise, 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 when it is
appropriate to do so.
Current trading and outlook
Since the end of June 2022, we have continued to trade ahead of
budget. Given the current macroeconomic environment as well as some
of the structural changes in the market regarding both potential
customer population and also companies operating in the market, we
expect demand for our products to increase. However, future growth
plans will require the Group to complete the Process and the
Capital Raise, but once achieved, the business will be well placed
to realise that vision.
Jono Gillespie
Group Chief Executive Officer
28 September 2022
Financial review
6 months to 30 June 2022 2022 2022
Normalised(1) Exceptional items Reported
GBP'000 GBP'000 GBP'000
--------------------------------------- ---------------------------- ------------------ ---------
Revenue 56,594 - 56,594
Other operating income 123 - 123
Modification gain/(loss) (583) - (583)
Impairment of financial assets (17,723) - (17,723)
Exceptional provisions - (5,187) (5,187)
Admin expenses (35,597) - (35,597)
---------------------------- ------------------ ---------
Operating profit/(loss) 2,814 (5,187) (2,373)
Other exceptional items(2) - (19,695) (19,695)
---------------------------- ------------------ ---------
Profit/(loss) before interest and tax 2,814 (24,882) (22,068)
Finance costs (14,141) - (14,141)
---------------------------- ------------------ ---------
Profit/(loss) before tax (11,327) (24,882) (36,209)
Taxation - - -
---------------------------- ------------------ ---------
Profit/(loss) after tax (11,327) (24,882) (36,209)
============================ ================== =========
Loss per share (3.63) (11.59)
Dividend per share - -
======================================= ============================ ================== =========
6 months to 30 June 2021 2021 2021
Normalised(1) Exceptional items Reported
GBP'000 GBP'000 GBP'000
--------------------------------------- -------------- ------------------ ---------
Revenue 67,842 - 67,842
Other operating income 853 - 853
Modification gain/(loss) (3,210) - (3,210)
Derecognition gain/(loss) (1,491) - (1,491)
Impairment of financial assets (6,444) - (6,444)
Exceptional provisions - (1,918) (1,918)
Admin expenses (48,165) - (48,165)
-------------- ------------------ ---------
Operating profit/(loss) 9,385 (1,918) 7,467
Other exceptional items(2) - (2,107) (2,107)
-------------- ------------------ ---------
Profit/(loss) before interest and tax 9,385 (4,025) 5,360
Finance costs (12,895) - (12,895)
-------------- ------------------ ---------
Profit/(loss) before tax (3,510) (4,025) (7,535)
Taxation - - -
-------------- ------------------ ---------
Profit/(loss) after tax (3,510) (4,025) (7,535)
============== ================== =========
Loss per share (1.12) (2.41)
Dividend per share - -
======================================= ============== ================== =========
(1) Normalised figures, adjusted to exclude exceptional
items
(2) Refer to note 6 in the notes to the financial statements for
further detail
Following the relaxation of COVID-19 restrictions, the macro
environmental landscape has remained unstable throughout the first
half of 2022. A number of factors have contributed to uncertainty,
including the ongoing economic consequences of COVID, post-Brexit
economic turmoil and the Russian invasion of Ukraine. These events
have, in turn, contributed to a cost-of-living crisis affecting
households across the UK, which is likely to get worse before it
gets better. Against this external 'backdrop' the Group's core
business has performed better than anticipated, however normalised
revenue remained down year on year by 16.5% at GBP56.6m (2021:
GBP67.8m). This performance reflects the decline in loan books of
both the guarantor lending division, which moved into managed
run-off in June 2021 and also the administration of the Group's
home credit division, where any activity post 15 March 2022 is no
longer included within the Group's financial results. The Group's
core branch based lending business has generated an increase in
normalised revenue year on year of 11.1%, with GBP43.8m in
normalised revenue in 2022 (2021: GBP39.4m)
Administration costs were 26.1% lower at GBP35.6m (2021:
GBP48.2m) primarily driven by overall reduced costs in the home
credit division due to the administration and removal from the
Group financial results, offset by higher levels of complaints year
on year, driven by certain claims management companies ('CMCs').
Impairment and modification costs were higher year on year, mainly
due to 2021 seeing lower impairment in line with lower levels of
lending.
The Group's finance costs remained high due to the rising
interest rate environment and with the facilities remaining fully
drawn as at 30 June 2022. This in turn has contributed
significantly to the increase in normalised post tax loss which was
GBP11.3m (2021: GBP3.5m loss)
Exceptional charges totalling GBP24.9m (2021: GBP4.0m) comprised
predominantly of: the impairment of receivables held with Loans at
Home following the administration of the business (whilst the Group
does not expect to recover the balances held directly with LAH
following the conclusion of the administration, as LAH remains a
guarantor of the Group's financing facilities, it is anticipated
that the proceeds from the administration would be paid directly to
its secured lenders, thereby reducing the external debt balance
held by the Group at that point), the derecognition of assets
related to the division, and increased provisions associated with
the Process. The net result was an increased reported loss before
tax of GBP36.2m (2021: loss before tax of GBP7.5m) and normalised
loss per share was 3.63p (2021: loss per share of 1.12p).
Accounting for exceptional items meant that the Group's reported
loss per share was 11.59p (2021: loss per share of 2.41p).
The Group continues to consolidate and regroup post pandemic and
whilst the material uncertainties remain, the business remains
confident that there are reasonable prospects outlined in the
court-based solution above, that will resolve the material
uncertainties, raise the substantial capital required and
facilitate the growth of the core branch-based lending
business.
Impairment provisioning - coverage ratios
30 June 2022 31 Dec 2021 Change
Branch-based lending 18.2% 19.0% -0.8%
Home credit N/A 46.7% N/A
Guarantor loans 33.7% 33.2% 0.5%
------------- ----------- -------
Group 20.0% 25.5% -5.5%
---------------------- ------------- ----------- -------
Coverage ratios across the two remaining divisions remained
generally in line with the ratios as at 31 December 2021 whilst the
group coverage ratio fell 5.5% as a result of the home credit
division no longer being part of the Group.
Divisional review
Branch-based lending
Financial results
6 months to 30 June 2022 2022 2022
Normalised Exceptional items Reported
GBP'000 GBP'000 GBP'000
--------------------------------------- ----------- ------------------ ----------
Revenue 43,829 - 43,829
Other operating income 123 - 123
Modification gain/(loss) (406) - (406)
Impairments (14,831) - (14,831)
Exceptional provisions - (4,500) (4,500)
Admin expenses (24,994) - (24,994)
----------- ------------------ ----------
Operating profit 3,721 (4,500) (779)
Exceptional items - - -
----------- ------------------ ----------
Profit/(loss) before interest and tax 3,721 (4,500) (779)
Finance costs (6,858) - (6,858)
----------- ------------------ ----------
Profit/(loss) before tax (3,137) (4,500) (7,637)
Taxation - - -
----------- ------------------ ----------
Profit/(loss) after tax (3,137) (4,500) (7,637)
=========== ================== ==========
6 months to 30 June 2021 2021 2021
Normalised Exceptional items Reported
GBP'000 GBP'000 GBP'000
--------------------------------------- ----------- ------------------ ----------
Revenue 39,443 - 39,443
Other operating income 237 - 237
Modification gain/(loss) (1,306) - (1,306)
Derecognition gain/(loss) (1,621) - 1,621)
Impairments (4,041) - (4,041)
Admin expenses (23,200) - (23,200)
----------- ------------------ ----------
Operating profit 9,512 - 9,512
Exceptional items - - -
----------- ------------------ ----------
Profit/(loss) before interest and tax 9,512 - 9,512
Finance costs (7,367) - (7,367)
----------- ------------------ ----------
Profit/(loss) before tax 2,145 - 2,145
Taxation - - -
----------- ------------------ ----------
Profit/(loss) after tax 2,145 - 2,145
=========== ================== ==========
The business saw an increase in the volume of leads and
qualifying 'applications to branch' ('ATBs') during the first half
of 2022 versus the prior year. This drove an increase in the total
number of loans booked, with new money lent to customers increasing
22% in comparison to the first half of 2021. While the impact of
the pandemic on lending volumes meant that the net loan book
declined in both 2020 and 2021, the positive recovery in lending
volumes has resulted in the net loan book returning to growth in H1
2022 and it ended the period at GBP160.4m (December 2021:
GBP157.2m). The number of active customers has seen a small
increase to 66,400 at June 2022 (December 2021: 66,000).
We continually look to enhance our lending processes, including
the assessment of creditworthiness. Whilst acutely cognisant of the
cost-of-living crisis, the collections performance of the business
remains ahead of expectation with customer payment levels
particularly strong, whilst early settlements continue below
pre-pandemic levels. Delinquency and impairment performance has
returned to historically normal levels. The nature of IFRS 9
accounting meant that lower lending volume in the prior years also
helped to reduce impairment charges however, as lending volumes
have continued to recover over H1 22, impairment rates are
gradually returning to historic norms.
Key Performance Indicators(7) 2022 2021
Number of branches 76 75
Period end customer numbers (000) 66.4 65.5
Period end loan book (GBPm) 160.4 163.8
Average loan book (GBPm) 160.1 173.2
12 Month Rolling:
Revenue yield 51.5% 51.4%
Risk adjusted margin 35.9% 34.1%
Impairments/revenue 30.3% 33.8%
Impairments (including modifications)/revenue 32.5% 39.2%
Impairment/average loan book 15.6% 17.4%
Cost to income ratio 58.3% 47.4%
Operating profit margin 9.5% 13.9 %
Return on asset 4.9% 7.2%
=============================================== ====== =======
(7) All definitions are as per glossary. 2021 has been
recalculated to ensure like-for-like comparative to 2022.
Revenues increased 11% to GBP43.8m (2021: GBP39.4m) despite
lower average receivables due to a higher revenue yield. Yields
reduced during 2020 and 2021 following an increase in the number of
customers utilising forbearance measures during the pandemic.
Modification losses were lower at GBP0.4m (2021: GBP1.3m) with the
prior year seeing increased level of deferred and rescheduled loans
as the business utilised forbearance measures as a result of the
pandemic. Impairments were higher in the current period at GBP14.8m
(2021: GBP4.0m) due to 2021 benefitting from lower lending volumes
(whereby the nature of IFRS 9 means lower lending helps reduce
impairment charges). Despite the higher impairment costs,
collections performance remained strong in H1 22, helping to drive
a reduction in the level of impairment and modifications as a
percentage of revenue from 39.2% to 32.5% on a rolling 12-month
basis. As a percentage of average net receivables, it was also
improved at 15.6% (2021: 17.4%).
Increased spend on employee costs as vacancies were filled and
the return to bonus payments for staff since June 2021 has resulted
in administrative expenses increasing by 8% to GBP25.0m (2021:
GBP23.2m). The net impact of all of these factors was that
normalised operating profit fell to GBP3.7m (2021: GBP9.5m).
As detailed above, the Group is now actively pursuing a legal
resolution to its regulatory issues through the Process which will
provide certainty as to the total liability arising from redress
liabilities. Although the independent review of the Group's
branch-based lending business carried out in 2021 identified no
systemic issues requiring redress, since this business and the
guarantor loans division trade out of the same legal entity, the
Process will encompass potential claims from both businesses in
order to ensure equitable treatment of customers. Whilst the amount
which might be paid as part of the Process in relation to
branch-based lending customers is uncertain given no systemic
issues were identified in the independent review carried out in
2021, in its ordinary course of business the Group does uphold a
small number of complaints each month for non-systemic reasons. The
Group recognises that the Process may pull forward such complaints
from future years and has therefore recognised an exceptional
charge of GBP4.5m in the branch-based lending division based on
management's best estimate of the future value of such
complaints.
Strong cash generation meant that finance costs fell by 7% to
GBP6.9m (2021: GBP7.4m), however due to the reasons noted above,
the business produced a normalised pre-tax loss of GBP3.1m (2021:
normalised pre-tax profit of GBP2.1m).
In branch-based lending, the key performance drivers that
underpin the operational and financial performance of the business
include network capacity, lead volume and quality, network
productivity and impairment management. A summary of how these
factors were affected during the first half of 2022 is summarised
below:
Network capacity - Given the steady increase in application
levels seen through the second half of 2021 and continuing into
2022, the recruitment of in-branch employees has increased
alongside this to take advantage of the return to growth, with
in-branch FTE increasing to 355 at the end of June 2022 (June 2021:
303 in-branch FTE). Three branches originally planned to be opened
in late 2020 and deferred by the pandemic, are now to be opened in
2022. Eccles branch was opened in May, St. Helens in July and
Chester-Le-Street due to be opened in September. All three branches
will split larger branches in the North West and North East
conurbations and will take the total number of branch locations to
78.
Lead volumes - New borrower qualified applications have
increased by 25%, compared to the first half of 2021. As a result
and coupled with a more cautious approach to lending post-pandemic,
new borrower conversion rates dipped slightly to 6.2% (2021: 6.5%).
We received 1.3 million new borrower applications in the six months
to June 2022 (2021: 0.9 million) of which 235,000 (2021: 188,000)
applications passed our screening criteria to qualify as
applications to branch (ATBs).
Productivity and quality - The total number of loans issued in
H1 2022 reached 18,955 (2021:17,577) an 8% increase over prior
year. The focus on better quality customers led to new cash issued
increasing 22% to GBP58.9m compared to GBP48.3m in 2021. We
continue to invest in the enhancement of our technology. A new
integrated telephony solution was implemented in the current year,
this alongside continued strengthening of our creditworthiness
process and open banking improvements will drive efficiencies in
our lending processes whilst continuing to deliver good customer
outcomes and improved customer journeys.
Delinquency management - Increasing costs of living are the
primary risk to collections performance, and although no
significant impacts have been yet observed, action has been, and
continues to be, taken both on new originations and the existing
loan book, to mitigate the impact which is expected to materialise
in the second half of the year, failing further government
intervention. As such collections performance in the period was
ahead of expectations, remaining at the more normal levels observed
towards the end of 2021, following the historically low delinquency
earlier in 2021. Rescheduled and deferred loans continued a strong
reducing trend, following the increases during COVID-19.
Plans for the rest of 2022
We remain focused on our commitment to servicing the needs of
those consumers that may have been excluded from mainstream
lenders, through the use of our face-to-face lending model. We
continue to evolve our credit risk assessment processes in order to
maintain the highest standards of responsible lending, ensuring
that we continue to deliver good customer outcomes for all our
customers. The ability to grow the business efficiently and also
enhancing the customer journey is a key area of focus in 2022/23,
where work is underway to streamline back office tasks, embrace
technology opportunities such as 'Open Banking' and reduce waiting
time for customers through a smoother application process.
Since the end of June 2022, whilst the summer months are
traditionally a softer trading period for the division, we have
continued to trade ahead of budget. Our collections performance is
also ahead of plan and while we expect to see some impact from the
cost of living crisis on impairment, we also expect that an
improving yield will help to sustain an attractive risk adjusted
margin. We continue to expect that the demand for our products and
services will increase given the current macroeconomic environment
as well as from some of the structural changes in the market
regarding both potential customer population and also companies
operating in the market. As a result, and whilst we remain vigilant
given the rapidly changing environment, based on our performance
to-date and the steps already taken, we plan to focus on
operational efficiency and loan book growth for the remainder of
this year onwards. Future growth plans will require the Group to
complete the Process and the Capital Raise, but once achieved, the
business will be well placed to realise that vision.
Home credit
Following extensive discussions with the FCA regarding the
conclusions of the review into home credit, the Directors of S.D.
Taylor Limited ('Loans at Home') concluded that the Loans at Home
business was no longer viable and so the business was placed into
administration on 15 March 2022. Whilst deeply saddened and
disappointed with this news, the Boards of both Loans at Home and
NSF were clear that administration was the only option available in
order to preserve value for creditors. As the operations and
activities of Loans at Home were separate from the rest of the
Group, having received certain waivers from the Group's lenders,
the administration of Loans at Home has had minimal impact on the
rest of the Group's business.
The results of the home credit division for the period ended 14
March 2022 are shown below:
Financial results
The home credit division contributed a normalised operating loss
of GBP0.5m to the Group (2021: normalised operating profit of
GBP1.5m). An exceptional charge of GBP5.5m was recognised in 2022
in relation the derecognition of the remaining net assets of the
division existing at the date of administration.
Period to 14 March 2022 2022 2022
Normalised Exceptional items Reported
GBP'000 GBP'000 GBP'000
--------------------------------------- ----------- ------------------ ---------
Revenue 7,315 - 7,315
Other income - - -
Impairments (2,781) - (2,781)
Revenue less impairments 4,534 - 4,534
Admin expenses (5,065) - (5,065)
----------- ------------------ ---------
Operating profit/(loss) (531) - (531)
Exceptional items - (5,523) (5,523)
----------- ------------------ ---------
Profit/(loss) before interest and tax (531) (5,523) (6,054)
Finance cost (257) - (257)
----------- ------------------ ---------
Profit/(loss) before tax (788) (5,523) (6,311)
Taxation - - -
----------- ------------------ ---------
Profit/(loss) after tax (788) (5,523) (6,311)
6 months to 30 June 2021 2021 2021
Normalised Exceptional items Reported
GBP'000 GBP'000 GBP'000
--------------------------------------- ----------- ------------------ ---------
Revenue 18,019 - 18,019
Other income 607 - 607
Impairments (1,419) - (1,419)
Revenue less impairments 17,207 - 17,207
Admin expenses 15,752) - (15,752)
----------- ------------------ ---------
Operating profit/(loss) 1,455 - 1,455
Exceptional items - - -
----------- ------------------ ---------
Profit/(loss) before interest and tax 1,455 - 1,455
Finance cost (486) - (486)
----------- ------------------ ---------
Profit/(loss) before tax 969 - 969
Taxation - -
----------- ------------------ ---------
Profit/(loss) after tax 969 - 969
Guarantor loans
The Group's guarantor loans division was placed into a managed
run-off in June 2021 and so it did not issue any new loans in the
six months ended 30 June 2022, therefore the financial performance
of the business has been driven by collections from the outstanding
loan book.
Financial results
The reduction in the net loan book meant that revenue declined
by 47% to GBP5.5m (2021: GBP10.4m). Collections performance in the
first half of 2022 has remained strong leading to a further
reduction in impairments from GBP1.0m in 2021 to GBP0.1m.
Administration costs fell by 48% to GBP3.6m (2021: GBP6.9m) as the
division continues to wind down and savings in staff costs,
professional fees and complaints costs are realised. The division
achieved a normalised operating profit of GBP1.6m (2021: GBP0.8m)
whilst strong cashflow has contributed to lower finance costs that
increased normalised profit before tax to GBP0.5m (2021: loss
before tax of GBP1.9m). The additional charge in exceptional
provision for customer redress of GBP0.7m (2021: GBP1.9m) reflects
the impact of the delayed start to the redress program thereby
increasing the interest accrued and also the amount to be returned
to customers from more recent collections.
6 months to 30 June 2022 2022 2022
Exceptional
Normalised(9) items Reported
GBP'000 GBP'000 GBP'000
------------------------------- -------------- ------------ ---------
Revenue 5,450 - 5,450
Other income - - -
Modification gain/(loss) (177) - (177)
Derecognition gain/(loss) - - -
Impairments (111) - (111)
Exceptional provisions - (687) (687)
Admin expenses (3,554) - (3,554)
-------------- ------------ ---------
Operating profit/(loss) 1,608 (687) 921
Exceptional items - - -
Profit/(loss) before interest
and tax 1,608 (687) 921
Finance costs (1,149) - (1,149)
-------------- ------------ ---------
Profit/(loss) before tax 459 (687) (228)
Taxation - - -
-------------- ------------ ---------
Profit/(loss) after tax 459 (687) (228)
============== ============ =========
6 months to 30 June 2021 2021 2021
Normalised(9) Exceptional items Reported
GBP'000 GBP'000 GBP'000
--------------------------------------- -------------- ------------------ ---------
Revenue 10,380 - 10,380
Other income 1 - 1
Modification gain/(loss) (1,904) - (1,904)
Derecognition gain/(loss) 130 - 130
Impairments (984) - (984)
Exceptional provisions - (1,918) (1,918)
Admin expenses (6,870) - (6,870)
-------------- ------------------ ---------
Operating profit/(loss) 753 (1,918) (1,165)
Exceptional items - (527) (527)
Profit/(loss) before interest and tax 753 (2,445) (1,692)
Finance costs (2,611) - (2,611)
-------------- ------------------ ---------
Profit/(loss) before tax (1,858) (2,445) (4,303)
Taxation - - -
-------------- ------------------ ---------
Profit/(loss) after tax (1,858) (2,445) (4,303)
============== ================== =========
(9) Normalised figures, adjusted to exclude exceptional
items
Key Performance Indicators(10) 2022 2021
Period end customer numbers (000) 10.0 19.9
Period end loan book (GBPm) 17.3 41.4
Average loan book (GBPm) 26.7 60.7
12 Month Rolling:
Revenue yield 32.6 % 40.5%
Risk adjusted margin 44.3 % 20.8%
( 35.8
Impairment/revenue )% 48.6%
(16. 8
Impairment (including modifications)/revenue )% 67.5%
Impairment/average loan book (11.7)% 19.7%
Cost to income ratio 84.8 % 55.4%
Operating profit margin 32.0 % (22.9)%
Return on asset 10.5% (9.2)%
============================================== ======== ========
(10) All definitions are as per glossary. 2021 has been
recalculated to ensure like-for-like comparative to 2022.
Plans for the rest of 2022
The collect-out of the outstanding loan book is progressing well
and as planned.
Central costs
6 months to 30 Jun e 2022 2022 2022
Normalised(11) Exceptional Reported
items
GBP000 GBP000 GBP000
-------------------------- ---------------- ------------- ----------
Revenue - - -
Other income - - -
Admin expenses (1,984) - (1,984)
---------------- ------------- ----------
Operating loss (1,984) - (1,984)
Exceptional items(14) - (14,172) (14,172)
Loss before interest and
tax (1,984) (14,172) (16,156)
Finance costs (5,877) - (5,877)
---------------- ------------- ----------
Loss before tax (7,861) (14,172) (22,033)
Taxation - - -
---------------- ------------- ----------
Loss after tax (7,861) (14,172) (22,033)
================ ============= ==========
6 months to 30 Jun e 2021 2021 2021
Normalised(11) Exceptional Reported
items
GBP000 GBP000 GBP000
------------------------------ -------------------------- -------------------------- --------------------------
Revenue - - -
Other income 8 8
Admin expenses (2,343) - (2,343)
-------------------------- -------------------------- --------------------------
Operating loss (2,335) - (2,335)
Exceptional items(14) - (1,580) (1,580)
Loss before interest and tax (2,335) (1,580) (3,915)
Finance costs (2,431) - (2,431)
-------------------------- -------------------------- --------------------------
Loss before tax (4,766) (1,580) (6,346)
Taxation - - -
-------------------------- -------------------------- --------------------------
Loss after tax (4,766) (1,580) (6,346)
========================== ========================== ==========================
(11) Adjusted to exclude exceptional items
(14) Refer to note 6 in the notes to the financial statements
for further detail
Normalised administrative expenses fell by 13% to GBP2.0m (2021:
GBP2.3m) driven principally by lower staff, rent and professional
fees. Finance fees increased as surplus cash was held at Group
level, rather than paying down any facilities due to the
expectation of the future cash requirements for loan book
growth.
An exceptional charge of GBP14.2m comprised GBP13.7m of
impairments recognised on receivable balances held with the home
credit division which was placed into administration on 15 March
2022. Whilst the Group does not expect to recover the balances held
directly with LAH following the conclusion of the administration,
as LAH remains a guarantor of the Group's financing facilities, it
is anticipated that the proceeds from the administration would be
paid directly to its secured lenders, thereby reducing the external
debt balance held by the Group at that point. The remaining GBP0.5m
relates to professional fees associated with the work undertaken in
regards to the Process. Prior year exceptional costs comprised: GBP
1.6m related to professional fees associated with the planned
Capital Raise.
Principal risks
The principal risks facing the Group are:
Going concern, solvency and liquidity - although as at 31 August
2022 the Group has GBP56.7m in cash, the Directors note that
material uncertainties exist regarding its ability to successfully
execute the planned Capital Raise, such uncertainties include: (i)
success of the court-based process ('Process'), including positive
creditor votes and the court sanction of the Process within the
timeframes required; (ii) the redress liability under the Process
being within levels acceptable to investors (iii) the Group's
lenders continuing to grant appropriate extensions to the testing
dates or other forms of waivers for covenant breaches prior to the
Capital Raise completing; (iv) the Group's lenders providing the
necessary waivers to implement the Process; (v) the Group obtaining
extensions to the term of its existing debt facilities on terms
acceptable to investors and; (vi) the underlying assumptions in
relation to the regulatory environment, macro-economic environment
and business performance not varying materially from its base case.
The range of assumptions and the likelihood of them all proving
correct creates material uncertainty and therefore the impact on
liquidity and solvency under both the base case and downside
scenarios may cast significant doubt on both the Group's and
individual division's ability to continue as a going concern. In
such circumstance, the Group's lenders would be entitled to enforce
their security and there would be a material risk of the Group
entering insolvency. Refer to the going concern statement in note 2
of the financial statements for further detail on the base and
downside case;
Regulation - the Group faces significant operational and
financial risk through changes to regulations, changes to the
interpretation of regulations or a failure to comply with existing
rules and regulations, some of which have crystallised in the year.
Following a multi-firm review, the Group developed a proposed
methodology for redress to certain guarantor loans customers and
has made a provision totalling GBP17.5m (31 December 2021:
GBP16.9m) to cover the expected costs (and accrued interest)
representing a payment of 100p/GBP1 for those customers who the
Directors believe may have suffered harm. The provisions made
represent the Directors' best estimate of the total cost of redress
in relation to guarantor loans, based upon a detailed methodology
and analyses developed in conjunction with its advisers. Due to the
need to bring this uncertainty to a resolution, and since it has
not been possible to reach an agreement with the FCA regarding a
voluntary redress scheme in respect of guarantor loans, the Group
is now actively pursuing a legal resolution to the redress through
the Process which will provide certainty as to the total liability
arising from redress liabilities. Whilst provisions have been
calculated assuming that eligible customers are paid in full, given
the cost of the Process (which will be deducted from the cash pot
that will be available to finance the payment of redress
liabilities) and the increased number of complaints which may be
made as part of the Process, it is expected that those customers
who suffered harm would not receive 100p/GBP1 as originally
planned. The review into branch-based lending concluded that there
was no need for customer redress, however the conclusion of the
home credit review resulted in the administration of the business
as it was concluded that the business model was no longer viable
and that an administration was the only option available to
preserve value for creditors. Since the announcement of the
potential scheme of arrangement made as part of the 2021 Annual
Report, the numbers of complaints received has increased
significantly, predominantly driven by what is believed to be an
acceleration of claims received by claims management company
coordinated activity. The level of complaints at the current
trajectory, could have a materially adverse impact on
the Group and as such, mitigating action in the form of either a
scheme of arrangement or restructuring plan is more likely to
ensure the equitable treatment of all customer complaints, whether
historic or current.
Conduct - risk of poor outcomes for our customers or other key
stakeholders as a result of the Group's actions;
Credit - risk of loss through poor underwriting or a diminution
in the credit quality of the Group's customers;
Business strategy - risk that the Group's strategy fails to
deliver the outcomes expected;
Business risks:
operational - the Group's activities are large and complex and
so there are many areas of operational risk that include technology
failure, fraud, staff management and recruitment risks,
underperformance of key staff, the risk of human error, taxation,
increasing numbers of customer complaints, health and safety as
well as disaster recovery and business continuity risks;
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;
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;
aftermath of pandemic - a large pandemic such as COVID-19,
coupled with the possibility of the return of restrictions on
face-to-face contact by HM Government, may cause significant
disruption to the Group's operations and severely impact the supply
and level of demand for the Group's products. As a result, any
sustained period where such measures are in place could result in
the Group suffering significant financial loss; and
cost of living crisis - the significant pressure of the cost of
living at the current time increases the risk of delinquency for
some customers, whilst also presenting an opportunity for the
business in terms of those potential customers who may previously
have been served by the prime financial services sector.
On behalf of the Board of Directors
Jono Gillespie
Group Chief Executive Officer
28 September 2022
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 United Kingdom, 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 2021 Annual Report & Financial Statements, with the
exception of Sarah Day, who was appointed to her role as Group
Chief ESG Officer on 27 May 2022. A list of current Directors is
also maintained on the Non-Standard Finance website:
www.nsfgroupplc.com .
The maintenance and integrity of the Non-Standard Finance
website is the responsibility of the Directors.
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
Jono Gillespie
Group Chief Executive Officer
28 September 2022
Financial Statements
Condensed consolidated statement of comprehensive income for the
six months ended 30 June 2022
Six months
ended 30 June
Before exceptional Exceptional 2022
items items Unaudited
Note GBP000 GBP000 GBP000
--------------------------------- ---- ------------------ ----------- --------------
Revenue 56,594 - 56,594
Other operating income 123 - 123
Modification gain/(loss) (583) - (583)
Derecognition gain/(loss) - - -
Impairment of financial
assets (17,723) - (17,723)
Exceptional provisions 6 - (5,187) (5,187)
Administrative expenses (35,597) - (35,597)
Operating profit/(loss) 5 2,814 (5,187) (2,373)
Other exceptional
items 6 - (19,695) (19,695)
----------- --------------
Profit/(loss) on
ordinary activities
before interest and
tax 2,814 (24,882) (22,068)
Finance costs (14,141) - (14,141)
--------------
Profit/(loss) on
ordinary activities
before tax (11,327) (24,882) (36,209)
Tax on profit (loss)
on ordinary activities 8 - - -
------------------ ----------- --------------
Profit/(loss) for
the period (11,327) (24,882) (36,209)
--------------------------------- ---- ------------------ ----------- --------------
Total comprehensive
loss for the year (36,209)
--------------------------------- ---- ------------------ ----------- --------------
Loss attributable
to:
* Owners of the parent (36,209)
* Non-controlling interests -
Loss per share
Six months
ended
30 June 2022
Note Pence
------------------ ---- -------------
Basic and diluted 7 (11.59)
------------------ ---- -------------
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 comprehensive income for the
six months ended 30 June 2021
Six months
ended 30 June
Before exceptional Exceptional 2021
items items Unaudited
Note GBP000 GBP000 GBP000
--------------------------------- ---- ------------------ ----------- --------------
Revenue 67,842 - 67,842
Other operating income 853 - 853
Modification gain/(loss) (3,210) - (3,210)
Derecognition gain/(loss) (1,491) - (1,491)
Impairment of financial
assets (6,444) - (6,444)
Exceptional provisions 6 - (1,918) (1,918)
Administrative expenses (48,165) - (48,165)
Operating profit/(loss) 5 9,385 (1,918) 7,467
Other exceptional
items 6 - (2,107) (2,107)
----------- --------------
Profit/(loss) on
ordinary activities
before interest and
tax 9,385 (4,025) 5,360
Finance costs (12,895) - (12,895)
--------------
Profit/(loss) on
ordinary activities
before tax (3,510) (4,025) (7,535)
Tax on profit (loss)
on ordinary activities 8 - - -
------------------ ----------- --------------
Profit/(loss) for
the period (3,510) (4,025) (7,535)
--------------------------------- ---- ------------------ ----------- --------------
Total comprehensive
loss for the year (7,535)
--------------------------------- ---- ------------------ ----------- --------------
Loss attributable
to:
* Owners of the parent (7,535)
* Non-controlling interests -
Loss per share
Six months
ended
30 June 2021
Note Pence
------------------ ---- -------------
Basic and diluted 7 (2.41)
------------------ ---- -------------
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 2022
30 June 31 December
2022 2021
Unaudited Audited
Note GBP000 GBP000
---------------------------------- ---- ---------- -----------
ASSETS
Non-current assets
Intangible assets 2,809 2,772
Right of use asset 7,249 7,877
Property, plant and equipment 3,417 3,925
Amounts receivable from customers 10 97,343 98,836
---------------------------------- ---- ---------- -----------
110,818 113,410
Current assets
Amounts receivable from customers 10 80,441 109,148
Trade and other receivables 1,182 2,526
Corporation tax asset - 1,477
Cash and cash equivalents 111,462 114,577
---------------------------------- ---- ---------- -----------
193,085 227,728
---------------------------------- ---- ---------- -----------
Total assets 303,903 341,138
---------------------------------- ---- ---------- -----------
LIABILITIES AND EQUITY
Current liabilities
Current tax liability 15 -
Trade and other payables 17,637 18,375
Provisions 11 25,759 25,643
Lease liability 1,208 2,129
Total current liabilities 44,619 46,147
---------------------------------- ---- ---------- -----------
Non-current liabilities
Lease liability 6,830 7,416
External Borrowings 13 329,850 328,762
Total non-current liabilities 336,680 336,178
---------------------------------- ---- ---------- -----------
Equity
Share capital 15,621 15,621
Share premium 180,019 180,019
Other reserves 255 551
Retained loss (273,291) (237,082)
================================== ==== ========== ===========
Total equity (77,396) (41,187)
---------------------------------- ---- ---------- -----------
Total equity and liabilities 303,903 341,138
---------------------------------- ---- ---------- -----------
Condensed consolidated statement of changes in equity for the
six months ended 30 June 2022
Share Share Other Retained
capital premium reserves loss Total
Note GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ---- -------- -------- --------- ---------- ----------
At 31 December 2020 15,621 180,019 551 (207,727) (11,536)
Total comprehensive
loss for the year - - - (29,685) (29,685)
Transactions with owners,
recorded directly in
equity:
Dividends paid 9 - - - -
Credit to equity for
equity-settled share-based
payments - - 34 - 34
Transfer of share-based
payment reserve on vesting
of share awards - - (330) 330 -
At 31 December 2021 15,621 180,019 255 (237,082) (41,187)
Total comprehensive
loss for the period - - - (36,209) (36,209)
Transactions with owners,
recorded directly in
equity:
Dividends paid 9 - - - -
At 30 June 2022 (unaudited) 15,621 180,019 255 (273,291) (77,396)
---------------------------- ---- -------- -------- --------- ---------- ----------
Condensed consolidated statement of cash flows for the six
months ended 30 June 2022
Six months Six months
ended ended
30 June 2022 30 June 2021
Unaudited Unaudited
Note GBP000 GBP000
--------------------------------------- ---- ------------- -------------
Net cash (used in)/from operating
activities 14 9,982 32,451
Cash flows (used in)/from investing
activities
Purchase of property, plant and
equipment (118) (139)
Purchase of software intangibles (502) (1,275)
Proceeds from sale of property,
plant and equipment - 15
Reduction in actual cash resulting
from derecognition of home credit
division in administration (7,062) -
Net cash (used in)/from investing
activities (7,682) (1,399)
--------------------------------------- ---- ------------- -------------
Cash flows (used in)/from financing
activities
Finance cost (4,768) (4,446)
Repayment of principal portion
of lease liabilities (645) (880)
Net cash (used in)/from financing
activities (5,413) (5,326)
--------------------------------------- ---- ------------- -------------
Net increase/(decrease) in cash
and cash equivalents (3,113) 25,726
Cash and cash equivalents at beginning
of the period 114,577 77,956
--------------------------------------- ---- ------------- -------------
Cash and cash equivalents at
end of the period 111,462 103,682
--------------------------------------- ---- ------------- -------------
As at 30 June 2022 the Group had cash of GBP111.5m (30 June
2021: GBP103.7m) with gross debt of GBP330.0m (30 June 2021:
GBP330m).
Notes to the preliminary announcement
1. General information
Non-Standard Finance plc is a public limited company, limited by
shares, incorporated and domiciled in the United Kingdom. The
address of the registered office is Unit 26/27 Rear Walled Garden,
The Nostell Business Estate, Wakefield, West Yorkshire, United
Kingdom, WF4 1AB.
The unaudited condensed interim financial statements do not
constitute the statutory financial statements of the Group within
the meaning of section 435 of the Companies Act 2006. The statutory
financial statements for the year ended 31 December 2021 were
approved by the Board of Directors on 29 April 2022 and have been
delivered to the Registrar of Companies. The report of the auditor
was unqualified and did not contain a statement under section
498(2) or (3) of the Companies Act 2006, but did include a section
highlighting a material uncertainty that may cast significant doubt
on the Group and Company's ability to continue as a going concern.
The Group notes this material uncertainty continues to exist as at
30 June 2022 as a result of the reasons outlined in note 2.
The unaudited condensed interim financial statements for the six
months ended 30 June 2022 have been reviewed, not audited, and were
approved by the Board of Directors on 28 September 2022 .
2. Basis of preparation
The condensed consolidated financial statements for the six
months ended 30 June 2022 have been prepared in accordance with
International Accounting Standard 34: Interim Financial Reporting,
as adopted by the UKEB, and the requirements of the Disclosure and
Transparency Rules ('DTR') of the Financial Conduct Authority
('FCA') in the United Kingdom as applicable to interim financial
reporting. The unaudited condensed interim financial statements
should be read in conjunction with the statutory financial
statements for the year ended 31 December 2021 which have been
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and
UK-adopted International Accounting Standards.
On 15 March 2022, the Directors of the Company's indirect
subsidiary S.D Taylor Limited (trading as 'Loans at Home' and
forming the home credit division of the Group) reluctantly
concluded that the Loans at Home business was no longer viable,
leading to the business being placed into administration. As a
result, the financial statements of the home credit division for
the year ended December 2021 were prepared on a basis other than
going concern. This required the carrying value of the assets to be
at the amounts they are expected to realise and the liabilities
include any amounts for onerous contracts as a result of the
administration. The financial statements were prepared in all
respects in accordance with the accounting framework.
The appointment of an administrator on 15 March 2022 represents
a loss of control by Non-Standard Finance plc, and as such, the
home credit division has been derecognised from this date and the
effect of this reflected in the Group's financial statements.
There are no new standards adopted by the Group from 1 January
2022. There are no new standards not yet effective and not adopted
by the Group from 1 January 2022 which are expected to have a
material impact on the Group.
Going concern
As part of its going concern assessment for the six months ended
30 June 2022, the Directors reviewed both the Group's access to
liquidity and its future balance sheet solvency for at least the
next 12 months.
Background
As noted in the 2021 Annual Report and Accounts, the Group
commissioned an independent review of its home credit business to
ensure that there were no implications for the division as a result
of the multi-firm review into guarantor loans, or from recent
decisions at the Financial Ombudsman Service. The conclusion from
this review was that there may have been harm to certain customers.
Following extensive discussions with the FCA about how harm should
be defined and the implications for future lending, the Directors
of S.D Taylor Limited (trading as 'Loans at Home') reluctantly
concluded that the Loans at Home business was no longer viable,
leading to the business being placed into administration on 15
March 2022. It was clear to the boards of Loans at Home and of NSF
that administration was the only viable option to preserve value
for creditors. As the operations and activities of Loans at Home
were separate from the rest of the Group, having received certain
waivers from the Group's lenders, the administration of Loans at
Home has had minimal impact on the existing funding arrangements of
the Group.
For the quarters ended 31 March 2022 and 30 June 2022, the
Group's loan to value (LTV) ratio was higher than the level
permitted under its LTV covenant. The LTV covenant will not be
formally tested, and no covenant breach or event of default will
arise, until the Group provides its compliance certificates for the
March 2022 and June 2022 quarter dates. The date on which the Group
is required to supply these compliance certificates has been
extended until 5 October 2022, with a mechanism for this date to be
extended further with lender support.
The Directors have decided to pursue the use of a court-based
process such as a scheme of arrangement or restructuring plan in
relation to its redress liabilities, so as to allow it to proceed
with its planned capital raise, the proceeds of which will be used,
among other things, to fund a cash pot which will be available to
finance an agreed portion of redress liabilities to affected
customers and to strengthen the Group's balance sheet to underpin
future growth.
Going concern assessment
In light of the above, the Group has produced two reasonably
possible scenarios as part of its going concern assessment:
(i) the base case scenario assumes:
-- the proposed court-based process to compromise liabilities ('Process') is successful;
-- the Process is completed within a time frame acceptable to
the Group's lenders and potential investors
-- the estimated amount of redress payable under the Process is
at a level acceptable to potential investors;
-- a substantial equity injection is received in 2023 ( 'Capital Raise');
-- the Group has obtained extensions to the testing dates and/or
other forms of waivers from its lenders for potential covenant
breaches to enable it to proceed with the Capital Raise;
-- the extension of the Group's debt facilities on terms acceptable to investors; and
-- the guarantor loan division remains in managed run-off.
(ii) the downside scenario assumes:
-- the Process is unsuccessful;
-- the Group is unable to complete the Capital Raise;
-- no acceptable alternative to the base case is agreed between
the Group, its lenders and major shareholder; and
-- the Group is not granted extensions to the testing dates
and/or other forms of waivers from its lenders of covenant breaches
and the Group's lenders become entitled to enforce their security,
resulting in a material risk of the Group entering insolvency.
Under the base case scenario and assuming successful completion
of the Capital Raise, the Group would be in a net asset position
from a balance sheet perspective; achieving this outcome however is
dependent upon a number of factors including:
-- a successful Process which would be subject to a number of
variables, including court sanction, satisfying the statutory
creditor approval requirements and the receipt of necessary
consents and waivers from lenders to allow the Group to proceed
with the Process ;
-- the Group receiving extensions to the LTV covenant testing
dates or other form of waivers from its lenders of covenant
breaches beyond 5 October 2022 until the completion of the Process
and Capital Raise;
-- the Group having raised sufficient additional capital and
secured extensions to the term and/or refinancing of the Group's
debt facilities ;
-- no significant further changes in the regulatory environment
and/or approach to complaints by FOS;
-- the impact of high levels of inflation, increased cost of
living, and other macroeconomic uncertainties which have not been
accounted for in the base case, on customer behaviour and financial
performance; and
-- the underlying assumptions in relation to business
performance not varying materially from the base case.
The Directors recognise that the Capital Raise is dependent on a
number of material uncertainties listed above. The Directors
continue to maintain a regular dialogue with key stakeholders
including the FCA, Alchemy and the Group's lenders regarding the
above matters.
Under the downside scenario, it is expected that the Group will
remain in a net liability position, not be able to meet its
liabilities (including to redress creditors) as they fall due, the
Group's lenders would be entitled to enforce their security and the
most likely outcome would therefore be the Group going into
insolvency in which there would be no payment of redress
liabilities.
The Company is working with key stakeholders on an alternative
transaction to be implemented in the event that the Process is
completed but the Capital Raise is unsuccessful which would
preserve the branch-based lending business as a going concern. It
is expected that the same cash pot would be available to finance an
agreed portion of redress liabilities as if the Capital Raise had
completed. However, in this scenario, there would be a material
risk of the Company and certain other members of the Group entering
insolvency and as a result there would be no recovery for the
Company's shareholders.
Conclusion
The Directors acknowledge the considerable challenges presented
by the uncertainty around the success of the Process, the ability
of the Group to raise sufficient capital in the timeframes
required, the agreement of extensions to the testing dates and
other forms of waivers from lenders in relation to potential future
covenant breaches prior to completion of the Capital Raise , the
agreement of the necessary waivers to implement the Process,
agreement from the lenders to extend the term of existing debt
facilities, and the impact of high levels of inflation in the
economy and other macroeconomic uncertainties on the financial
performance of the Group. They have therefore concluded that there
exists a material uncertainty around the going concern status of
the Group and Company.
In making their overall assessment, the Directors considered
both the balance sheet solvency and the liquidity position of the
Group. In connection with the former, the Capital Raise would
create a positive net asset position. In connection with the latter
the Directors have taken into consideration the impact of the
Capital Raise on the existing cash balances which would then be
available to the business. This combination would provide
sufficient liquidity throughout the going concern period. Whilst
essential for the future of the Group, the capital raise would
materially dilute the interest of current equity holders, most
likely to negligible value unless they chose to participate in the
planned Capital Raise. However the Capital Raise is dependent on
the factors listed earlier and this dependency creates a material
uncertainty. Looking at the generation of future cash, the
Directors note that the Group has sufficient cash to continue
trading over the next 12 months assuming no change to lending and
costs. However, they also recognised that , in the absence of the
lenders granting the necessary extensions to the testing dates or
other forms of waivers in respect of potential future covenant
breaches, cash balances may not be available to the Group or
Company. With regard to the balance sheet solvency of the Group,
the Directors noted that under the base case scenario, the Group
returns to a net asset position and remains there for the going
concern period, however this remains dependent on the injection of
additional capital into the Group.
As noted above, if the Capital Raise is not achieved within the
required timeframe, it is expected that the Group would not be
capable of meeting its liabilities as they fall due. Under this
scenario, the Group's lenders would be entitled to enforce their
security and the most likely outcome would be the Group entering
into an insolvency process in which there would be no payment of
redress liabilities. The Company is working with key stakeholders
on an alternative transaction to be implemented in the event that
the Process is completed but the Capital Raise is unsuccessful
which would preserve the branch-based lending business as a going
concern. It is expected that the same cash pot would be available
to fund an agreed portion of redress liabilities to affected
customers as if the Capital Raise had completed. However, in this
scenario, there would be a material risk of the Company and certain
other members of the Group entering insolvency and as a result
there would be no recovery for the Company's shareholders.
Despite the material uncertainties associated with the forecast
assumptions, the Directors note that Alchemy has indicated its
continued support for a Capital Raise (subject to a number of
conditions as listed below) and the Group continues to engage with
the FCA and the Group lenders in respect of the Process. The
Directors believe that if the actual outcomes do not differ
materially from the assumptions outlined in the base case, the
Group and Company can reasonably expect to continue to operate and
meet their respective liabilities as they fall due for at least the
next 12 months. The Board has therefore adopted the going concern
basis of accounting. The Board's position is, in part, informed by
the favourable performance to date against plan and the fact that
Alchemy remains supportive of a Capital Raise subject to: an
outcome of the Group's engagement with its lenders that is
acceptable to Alchemy; Alchemy's analysis of the regulatory
position of the Group's divisions and the implications of that on
(and Alchemy's assessment of) the Group's business plan and
financial projections; and court sanction of the Process.
The Directors recognise that, whilst court-based processes are
complex, time consuming and not guaranteed to be successful, they
believe that there is a reasonable chance of success. Therefore,
along with the continued support of its lenders and shareholders
and extension of the lending facilities, the Process would allow it
to proceed with its planned Capital Raise. The proceeds of the
planned Capital Raise will be used, among other things, to fund a
cash pot which will be available to finance an agreed portion of
redress liabilities to affected customers and reduce debt gearing
levels, thereby strengthening the Group's balance sheet and laying
the foundations for future growth. The Company is in discussions
with its lenders regarding a potential extension of the lending
facilities and other measures to support the business going
forward, which is likely to be linked to the completion of the
Capital Raise. Although it is not expected that the cash pot will
be sufficient to allow for redress liabilities to be paid in full,
the Board believe that the Process is in the best interests of
customers with redress claims, as well as the Group's other
stakeholders. As mentioned previously, without the Process, there
is a material risk of the Group entering an insolvency process in
which there would be no payment of redress liabilities.
The Directors note that certainty around the level of potential
redress liabilities under the Process is a key factor for Alchemy
and other potential investors in assessing whether they will,
ultimately, support the Capital Raise As outlined previously, a
successful court-based process would also be subject to a number of
variables, including court sanction, a positive creditor vote and
the receipt of necessary waivers from lenders.
The Directors recognise there are a high number of assumptions
and variables in the modelling of the base case which are not
directly within the Group's control and that, should the actual
outcomes vary materially from the modelled assumptions, any
consequent negative impact on the liquidity and solvency under the
base case scenario may cast significant doubt on the ability of
both the Group and Company to continue as a going concern. Under
the downside scenario, there is a material risk of the Group going
into insolvency. As noted above, the Company is working on an
alternative transaction to preserve the branch-based lending
business as a going concern in the event that the Process is
completed but the Capital Raise is unsuccessful. However, in this
scenario, there would be a material risk of the Company and certain
other members of the Group entering insolvency and as a result
there would be no recovery for the Company's shareholders.
As the possible outcomes detailed above remain dependent on a
number of factors not directly within the Group's control, the
Board will continue to monitor the Company and Group's financial
position (including access to liquidity and balance sheet solvency)
carefully over the coming weeks and months as a better
understanding of the impact of these various factors are developed.
The Board recognises the importance of the success of the Process
and the Capital Raise to mitigate the uncertainties noted above and
to support the future growth prospects of the Group.
The Directors will also continue to monitor the Group and
Company's risk management and internal control systems.
Significant judgement
The assumption of a successful Process, shareholder support for
the Capital Raise, lender support for waivers and the extension of
existing financing facilities on terms acceptable to investors, and
the continued performance of the Group and that the ultimate
conclusions on those matters are not materially different to that
envisaged under the base case, forms a significant judgement of the
Directors in the context of approving the Group's going concern
status.
3. Accounting policies
The accounting policies used in these condensed consolidated
interim financial statements are consistent with those used in the
Non-Standard Finance Plc Annual Report 2021 with the addition
of:
Derecognition of a subsidiary:
The Group derecognises a subsidiary when it no longer has
control. Per IFRS 10 control is defined as an investor holding all
of the following:
(a) power over the investee;
(b) exposure, or rights, to variable returns from its
involvement with the investee; and
(c) the ability to use its power over the investee to affect the
amount of the investor's returns.
When a parent loses control of a subsidiary, it shall:
(a) derecognise: (i) the assets (including any goodwill) and
liabilities of the subsidiary at their carrying amounts at the date
when control is lost; and (ii) the carrying amount of any
non-controlling interests in the former subsidiary at the date when
control is lost (including any components of other comprehensive
income attributable to them);
(b) recognise: (i) the fair value of the consideration received,
if any, from the transaction, event or circumstances that resulted
in the loss of control; (ii) if the transaction, event or
circumstances that resulted in the loss of control involves a
distribution of shares of the subsidiary to owners in their
capacity as owners, that distribution; and (iii) any investment
retained in the former subsidiary at its fair value at the date
when control is lost;
(c) reclassify to profit or loss, or transfer directly to
retained earnings if required by other IFRSs, the amounts
recognised in other comprehensive income in relation to the
subsidiary on the basis described in paragraph B99; and
(d) recognise any resulting difference as a gain or loss in
profit or loss attributable to the parent.
Fair values of financial assets and liabilities
Financial assets and liabilities held at fair value are grouped
into Levels 1 to 3 of the fair value hierarchy based on the degree
to which the fair value is observable: Level 1 - quoted prices for
similar instruments; Level 2 - directly observable market inputs
other than Level 1 inputs and; Level 3 - inputs not based on
observable market data. The Group does not hold any financial
assets and liabilities at fair value, however information about the
fair values of each class of financial asset and financial
liability are made in line with IFRS 7 where applicable Disclosure
of fair values is not required when the carrying amount is a
reasonable approximation of fair value, such as short-term trade
receivables and payables, or for instruments whose fair value
cannot be measured reliably. The carrying value of financial assets
and liabilities are not materially different to their fair value,
except for amounts receivable from customers (refer note 10 for
further detail).
4. Critical accounting assumptions and key sources of estimation
uncertainty
The preparation of financial statements in conformity with
generally accepted accounting practice requires management to make
estimates and judgements that affect the reported amounts of assets
and liabilities as well as the disclosure of contingent assets and
liabilities at the year-end date and the reported amounts of
revenues and expenses during the reporting period.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
Critical accounting judgements:
Amounts receivable from customers - significant increase in
credit risk
Expected credit losses (ECL) are measured as an allowance equal
to 12-month ECL for stage 1 assets, or lifetime ECL for stage 2
assets or stage 3 assets. An asset moves to stage 2 when its credit
risk has increased significantly since initial recognition. IFRS 9
does not define what constitutes a significant increase in credit
risk and therefore the Group makes assumptions to determine whether
there are indicators that credit risk has increased significantly
which indicates that there has been an adverse effect on expected
future cash flows. In assessing whether the credit risk of an asset
has significantly increased, the Group takes into account
qualitative and quantitative reasonable and supportable
forward-looking information.
Key sources of estimation uncertainty:
Amounts receivable from customers
The Group assesses its portfolio of amounts receivable from
customers for ECL at each balance sheet date. The following are key
estimations that the Directors have used in the process of applying
the Group's recognition of ECL policy:
-- Probability of default (PD): PD constitutes a key input in
measuring ECL. PD is an estimate of the likelihood of default over
a given time horizon, the calculation of which includes historical
data, assumptions and expectations of future conditions.
-- Loss given default (LGD): LGD is an estimate of the loss
arising on default. It is based on the difference between the
contractual cash flows due and those that the lender would expect
to receive over the life of the loan.
Sensitivity analysis of amounts receivable from customers - key
sources of estimation uncertainty:
Probability of default and loss given default
Branch-based lending
The calculation of ECL in branch-based lending uses historical
data to forecast future cash flows, discounted at the receivable's
EIR. A sensitivity run on collections performance shows that a 5%
increase or decrease in expected cash collections would result in a
GBP8.2m increase/decrease in provisions. The suitability of the 5%
sensitivity run has been reviewed and considered appropriate based
on historical performance.
Guarantor Loans Division
The calculation of ECL in the guarantor loans division uses
historical data to forecast future cash flows, discounted at the
receivable's EIR. A sensitivity run on collections performance
shows that a 10% increase or decrease in expected cash collections
would result in a GBP1.7m increase/decrease in provisions. The
suitability of the 10% sensitivity run has been reviewed and
considered appropriate based on historical performance.
Provisions for customer complaints and redress
Provisions for customer complaints are recognised when the Group
has a present obligation (legal or constructive) as a result of a
past event, it is probable that the Group will be required to
settle that obligation and a reliable estimate can be made of the
amount of the obligation.
Judgement is applied to determine whether the criteria for
establishing and retaining a provision have been met. Provisions
for customer redress are in respect of complaints where the outcome
has not yet been determined. Judgement is applied to determine the
quantum of such provisions, including making assumptions regarding
the extent to which the complaints received may be upheld, average
redress payments and related administrative costs. Past experience
is used as a predictor of future expectations with management
applying overlays where necessary depending on the nature and
circumstances. The cost could differ from the Group's estimates and
the assumptions underpinning them and could result in an increased
provision being required. There is also uncertainty around the
impact of proposed regulatory changes, claims management companies
and customer activity.
The key assumptions in these calculations which involve
management judgement and estimation relate primarily to the
projected costs of existing complaints where it is considered
likely that customer redress will be appropriate.
These key assumptions are:
-- uphold rate percentage - the expected average uphold rate
applied to existing complaint volumes where it is considered more
likely than not that customer redress will be appropriate;
-- average redress cost - the estimated compensation, inclusive
of balance adjustments and cash payments, for upheld complaints
included in the provision; and
-- customer complaint volumes - the level of claims which would
be due remediation in future based on recent experience of valid
claims.
These assumptions remain subjective due to the uncertainty
associated with future complaint volumes and the magnitude of
redress which may be required. Complaint volumes may include
complaints under review by the Financial Ombudsman Service, cases
received from claims management companies or cases lodged directly
by customers.
Branch-based lending
A 50% increase/decrease in customer complaints volumes would
result in a GBP0.5m increase/decrease in the business as usual
("BAU") complaints provision for the Group. A 50% increase/decrease
in average claim redress would result in a GBP0.5m
increase/decrease in the BAU complaints provisions for the Group,
and a 50% increase/decrease in upheld rate would result in a
GBP0.5m increase/decrease in the BAU complaints provisions for the
Group.
Only if any increase/decrease in BAU complaints was considered
to reflect an overall increase in the number of potential
complainants rather than an acceleration of complaints, would we
amend the exceptional future value provision.
Guarantor Loans Division
A 50% increase/decrease in customer complaints volumes would
result in a GBP0.7m increase/decrease in the BAU complaints
provisions for the Group, a 50% increase/decrease in average claim
redress would result in a GBP0.7m increase/decrease in the BAU
complaints provisions for the Group, and a 50% increase/decrease in
upheld rate would result in a GBP0.7m increase/decrease in the BAU
complaints provisions for the Group.
Going concern
Assumptions made in the base case as part of the Group's going
concern assessment form a significant judgement of the Directors in
the context of approving the Company's going concern status. Refer
to note 2 of the financial statements for further detail.
5. Segment information
Management has determined the operating segments by considering
the financial and operational information that is reported
internally to the chief operating decision maker, the Board of
Directors, by management. For management purposes, the Group is
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 home credit division was placed into administration
on 15 March 2022 and therefore its results have only been included
in the Group's financial statements up to this date.
The Group's operations are all located in the United Kingdom and
all revenue is attributable to customers in the United Kingdom.
Branch-based Home Guarantor 2022
lending credit(1) loans(2) Central Total
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ------------ ---------- --------- --------- --------------- ---------
Six months ended 30 June
2022
Interest income 43,829 7,315 5,450 - 56,594
Other income 123 - - - 123
-------------------------------- ------------ ---------- --------- --------- --------------- ---------
Total revenue 43,952 7,315 5,450 - 56,717
Exceptional provisions (4,500) - (687) - (5,187)
-------------------------------- ------------ ---------- --------- --------- --------------- ---------
Operating profit/(loss)
before other exceptional
items (779) (531) 921 (1,984) (2,373)
Other exceptional items(4) - (5,523) - (14,172) (19,695)
Finance cost (6,858) (257) (1,149) (5,877) (14,141)
------------ ---------- --------- --------- ---------------
Profit/(loss) before taxation (7,637) (6,311) (228) (22,033) (36,209)
Taxation - - - - -
-------------------------------- ------------ ---------- --------- --------- --------------- ---------
Profit/(loss) for the period (7,637) (6,311) (228) (22,033) (36,209)
-------------------------------- ------------ ---------- --------- --------- --------------- ---------
Capital expenditure 618 - - 72 690
Depreciation of plant, property
and equipment 601 - - - 601
Depreciation of right of
use asset 654 - - 6 660
Amortisation and impairment
of intangible assets 456 - - 12 468
30 June
Branch-based Home Guarantor Consolidation 2022
lending credit(1) loans(2) Central adjustments(3) Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ------------ ---------- --------- --------- --------------- ---------
Total assets 181,933 - 17,341 280,959 (176,330) 303,903
Total liabilities (211,550) - - (329,443) 159,694 (381,299)
-------------------------------- ------------ ---------- --------- --------- --------------- ---------
Net assets (29,617) - 17,341 (48,484) (16,636) (77,396)
-------------------------------- ============ ========== ========= ========= =============== =========
(1) The home credit division was placed into administration on
15 March 2022, therefore its results reflect the period up to 14
March 2022.
(2) 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
(3) Consolidation adjustments include the elimination of
intra-Group balances
(4) Refer to note 6 for further details
Branch-based Home Guarantor 2021
lending credit loans Central Total
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ------------ -------- --------- --------- ------------- ---------
Six months ended 30 June
2021
Interest income 39,443 18,019 10,380 - 67,842
Other income 237 607 1 8 853
-------------------------------- ------------ -------- --------- --------- ------------- ---------
Total revenue 39,680 18,626 10,381 8 68,695
Exceptional provisions - - (1,918) - (1,918)
Operating profit/(loss)
before other exceptional
items 9,512 1,455 (1,165) (2,335) 7,467
Other exceptional items - - (527) (1,580) (2,107)
Finance cost (7,367) (486) (2,611) (2,431) (12,895)
------------ -------- --------- --------- -------------
Profit/(loss) before taxation 2,145 969 (4,303) (6,346) (7,535)
Taxation - - - - -
-------------------------------- ------------ -------- --------- --------- ------------- ---------
Profit/(loss) for the period 2,145 969 (4,303) (6,346) (7,535)
-------------------------------- ------------ -------- --------- --------- ------------- ---------
Capital expenditure 790 657 - 85 1,532
Depreciation of plant, property
and equipment 835 121 - 12 968
Depreciation of right of
use asset 688 289 - 75 1,052
Amortisation and impairment
of intangible assets 360 852 - 12 1,224
30 June
Branch-based Home Guarantor Consolidation 2021
lending credit loans Central adjustments Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ------------ -------- --------- --------- ------------- ---------
Total assets 191,699 35,044 41,449 359,812 (267,449) 360,555
Total liabilities (226,726) (16,248) - (333,904) 198,025 (378,853)
-------------------------------- ------------ -------- --------- --------- ------------- ---------
Net assets (35,027) 18,796 41,449 25,908 (69,424) (18,298)
-------------------------------- ============ ======== ========= ========= ============= =========
The results of each segment have been prepared using accounting
policies consistent with those of the Group as a whole.
The carrying value of financial assets and liabilities are not
materially different to their fair value, except for amounts
receivable from customers (refer to note 10 for further
detail).
6. Exceptional items
In the six months ended 30 June 2022, the Group incurred
exceptional costs totalling GBP24.9m . This comprised the
following: GBP5.7m additional costs associated with the proposed
court-based process for a scheme of arrangement or restructuring
plan (refer to note 11 for further detail), GBP5.5m in relation to
the losses on derecognition of the home credit division ('LAH') and
GBP13.7m impairments recognised on related receivable balances held
with the division which was placed into administration on 15 March
2022. Whilst the Group does not expect to recover the balances held
directly with LAH following the conclusion of the administration,
as LAH remains a guarantor of the Group's financing facilities, it
is anticipated that the proceeds from the administration would be
paid directly to its secured lenders, thereby reducing the external
debt balance held by the Group at that point.
In the six months ended 30 June 2021, the Group incurred GBP4.0m
of exceptional costs. These comprised: a charge of GBP1.9m in
relation to the guarantor loans redress program, an exceptional
redundancy cost of GBP0.5m in relation to the decision to place the
guarantor loans division into managed run-off, and GBP1.6m of
exceptional costs relate to advisory fees incurred. Equity-related
fees are treated as non-deductible for tax purposes.
7. Loss per share
Six months Six months
ended ended
30 June 30 June
2022 2021
---------------------------------------------------- ------------------- ------------
Retained loss attributable to Ordinary Shareholders
(GBP000) (36,209) (7,535)
Weighted average number of Ordinary Shares 312,437,422 312,437,422
Basic and diluted loss per share (pence) (11.59) (2.41)
---------------------------------------------------- ------------------- ------------
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.
Six months Six months
ended ended
30 June 30 June
2022 2021
---------------------------------------------- ---------- ----------
Weighted average number of potential Ordinary
Shares that are not currently dilutive (000) - 5,539
---------------------------------------------- ---------- ----------
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.
8. Taxation
The tax charge for the period is calculated by applying the
Directors' best estimate of the effective tax rate for the
financial year to the profit or loss before tax for the period. In
the six months to 30 June 2022, the effective tax rate was 19%
(2021: 19%). As at 30 June 2022, the Group has not recognised a
deferred tax asset (2021: GBPnil). In the current and prior year
the Group has not recognised any tax benefits that would typically
accrue based on current year losses due to the uncertainty in the
regulatory and macroeconomic environment. The Group reviews the
carrying amount of deferred tax assets at each balance sheet date
and reduces it to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part
of the asset to be recovered.
9. Dividends
As a result of the current and prior period's reported losses,
the Company does not have any distributable reserves and is
therefore not in a position to declare a half year dividend for the
six months ended 30 June 2022 ( 2021: nil pence per share) .
With no interim dividend being proposed by the Directors in
respect of the six months ended 30 June 2022 (interim dividend
2021: nil pence per share), there will be no dividend payment in
relation to the current period (2021: GBPnil).
10. Amounts receivable from customers
30 June 31 Dec
2022 2021
GBP000 GBP000
---------------------------------- -------- --------
Gross carrying amount 212,969 265,021
Loan loss provision (35,185) (57,037)
---------------------------------- -------- --------
Amounts receivable from customers 177,784 207,984
---------------------------------- -------- --------
30 June 31 Dec
Included within the gross carrying amount above 2022 2021
are unamortised broker commissions, see table below: GBP000 GBP000
Unamortised broker commissions 6,877 6,653
Total unamortised broker commissions 6,877 6,653
------------------------------------------------------ ------- -------
Analysis of amounts receivable from customers due within/more
than one year:
30 June 31 Dec
2022 2021
GBP000 GBP000
---------------------------------- ------- -------
Due within one year 80,441 109,148
Due in more than one year 97,343 98,836
---------------------------------- ------- -------
Amounts receivable from customers 177,784 207,984
---------------------------------- ------- -------
Analysis of amounts receivable from customers
Stage
Stage 1 Stage 2 3 Total
30 June 2022 GBP000 GBP0000 GBP000 GBP000
----------------------- ------- -------- -------- --------
Branch-based lending 152,100 29,301 7,324 188,725
Guarantor loans - 20,568 3,676 24,244
Gross carrying amount 152,100 49,869 11,000 212,969
----------------------- ------- -------- -------- --------
Branch-based lending (9,435) (12,800) (6,047) (28,282)
Guarantor loans - (4,279) (2,624) (6,903)
Loan loss provision (9,435) (17,079) (8,671) (35,185)
----------------------- ------- -------- -------- --------
Branch-based lending 142,665 16,501 1,277 160,443
Guarantor loans - 16,289 1,052 17,341
Net amounts receivable 142,665 32,790 2,329 177,784
----------------------- ------- -------- -------- --------
Stage 1 Stage 2 Stage 3 Total
31 December 2021 GBP000 GBP000 GBP000 GBP000
----------------------- ------- -------- -------- --------
Branch-based lending 141,979 33,723 7,138 182,240
Home credit - 32,162 12,975 45,137
Guarantor loans - 30,768 6,276 37,044
Gross carrying amount 141,979 96,653 26,389 265,021
----------------------- ------- -------- -------- --------
Branch-based lending (6,831) (13,347) (5,481) (25,659)
Home credit - (9,186) (11,911) (21,097)
( 5,965 ( 4,316
Guarantor loans - ) ) (10,281)
Loan loss provision (9,253) (28,498) (21,708) (57,037)
----------------------- ------- -------- -------- --------
Branch-based lending 135,148 20,376 1,657 157,181
Home credit - 22,976 1,064 24,040
Guarantor loans - 24,803 1,960 26,763
Net amounts receivable 135,148 68,155 4,681 207,984
----------------------- ------- -------- -------- --------
The home credit division was placed in to administration on 15
March 2022 and therefore has been derecognised from the Group at
this point.
Fair value of amounts receivable from customers
30 June 2022 31 Dec 2021
GBP000 GBP000
---------------------------------- ------------ ---------------
Branch-based lending 212,062 208,440
Home Credit(1) - 36,368
Guarantor Loans(2) 21,549 31,366
Amounts receivable from customers 233,611 276,174
================================== ============ ===============
(1) The home credit division was placed into administration on
15 March 2022.
(2) Includes amounts receivable from customers which have been
provided for as part of the guarantor loans redress programme,
refer to note 11 for further detail.
Fair value has been derived by discounting expected future cash
flows (net of collection costs) at the credit risk adjusted
discount rate at the balance sheet date. Under IFRS 13, 'Fair value
measurement', receivables are classed as Level 3 which defines fair
value measurements as those derived from valuation techniques that
include inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
11. Provisions
Court-based
Onerous Restructuring process
Plevin contracts Complaints Dilapidations GBP000 provisions Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------- ------- ---------- ---------- ------------- --------------- ------------- -------
Balance at 31 December
2020 49 - 5,129 1,322 - 15,313 21,813
Charge during the
period - 282 4,936 15 601 2,251 8,085
Utilised (49) - (3,432) (68) (70) (636) (4,255)
----------------------- ------- ---------- ---------- ------------- --------------- ------------- -------
Balance at 31 December
2021 - 282 6,633 1,269 531 16,928 25,643
Derecognition of
home credit division (282) (3,636) (230) - - (4,148)
Charge during the
period - - - 6 - 5,725 5,731
Utilised - - (666) - (148) (653) (1,467)
----------------------- ------- ---------- ---------- ------------- --------------- ------------- -------
Balance at 30 June
2022 - - 2,331 1,045 383 22,000 25,759
----------------------- ------- ---------- ---------- ------------- --------------- ------------- -------
Provisions are recognised for present obligations arising as a
consequence of past events where it is more likely than not that a
transfer of economic benefit will be necessary to settle the
obligation, which can reliably be estimated.
Branch-based lending
The Group has recognised a provision for business as usual (BAU)
complaints received of GBP0.92m as at 30 June 2022 (31 December
2021: GBP2.0m) in relation to potential outflows to customers
related to past non-compliance with regulations relating to
affordability assessments. Judgement is applied to determine the
quantum of such provisions, including making assumptions regarding
the extent to which the complaints already received may be upheld,
average redress payments and related administrative costs. Refer to
note 4 for sensitivity on this.
As part of their assessment, the Directors also considered the
independent review commissioned by the Group in April 2021 of the
lending and complaints handling activities of the division. This
review completed in Q1 2022 and the result was no requirement for
customer redress.
Home credit
The home credit division was placed into administration on 15
March 2022 and therefore is no longer part of the Group as at 30
June 2022.
Guarantor lending
The Group has recognised a provision for BAU complaints received
of GBP1.41m as at 30 June 2022 (31 December 2021: GBP0.95m) in
relation to potential outflows to customers related to past
non-compliance with regulations relating to affordability
assessments. Judgement is applied to determine the quantum of such
provisions, including making assumptions regarding the extent to
which the complaints already received may be upheld, average
redress payments and related administrative costs. Refer to note 4
for sensitivity on this.
Court-based process provision
Part of the provision included in the statement of financial
position relates to amounts recognised for the customer redress
programme in the Group's guarantor loans division totalling
GBP17.5m (31 December 2021: GBP16.9m). The increase from 2021
reflects additional interest accrued over the period. The
independent review of the branch-based lending division carried out
in 2021 identified no systemic issue regarding redress. However,
since GLD trades through the same legal entity as this division, in
order to ensure a fair outcome to all customers , the Process will
encompass all eligible Everyday Loans customers of the branch-based
lending division as well as GLD. Whilst the amount which might be
paid as part of the Process in relation to branch-based lending
customers is uncertain given no systemic issues were identified in
the independent review carried out in 2021, in its ordinary course
of business the Group does uphold a small number of complaints each
month for non-systemic reasons. The Group recognises that the
Process may pull forward such complaints from future years and has
therefore recognised an exceptional charge of GBP4.5m in the
branch-based lending division based on management's best
estimate of the future value of such complaints. Whilst the
provisions have been calculated assuming that eligible customers
are paid in full, given the cost of the Process (which will be
deducted from the cash pot that will be available to finance an
agreed portion of the redress liability and the increased number of
complaints which may be made as part of the Process, it is expected
that those customers who suffered harm would not receive 100p/GBP1.
Should the court-based process be unsuccessful, there is a material
risk of the Group entering an insolvency process in which there
would likely be no payment of redress liabilities. Therefore
although the Directors believe their best estimate represents a
reasonably possible outcome, there is a risk of a less favourable
outcome. It is anticipated that the payments will start to be made
upon successful conclusion of the court-based process and
subsequent Capital Raise.
12. Contingent Liabilities
A contingent liability is a possible obligation depending on
whether some uncertain future event occurs. During the normal
course of business, the Group is subject to regulatory reviews and
challenges. All material matters arising from such reviews and
challenges are assessed, with the assistance of external
professional advisors where appropriate, to determine the
likelihood of the Group incurring a liability as a result. In those
instances, including future thematic reviews performed by the
regulator in response to recent challenges noted in the industry,
where it is concluded that it is more likely than not that a
payment will be made, a provision is established based on
management's best estimate of the amount required to meet such
liability at the relevant balance sheet date.
13. External Borrowings
30 June 31 December
2022 2021
GBP000 GBP000
----------------------------- ------- -----------
Due within one year(1) 5,680 4,813
Due in more than one year(1) 329,850 328,762
----------------------------- ------- -----------
1 Amounts disclosed are net of capitalised transaction fees.
The Group's total debt facilities as at 30 June 2022 and 31
December 2021 comprised of a GBP285m term loan provided by
institutional investors, a GBP45m revolving loan facility provided
by The Royal Bank of Scotland plc, and a GBP200m securitisation
facility provided by Ares Management Corporation. As at 30 June
2022, GBP285.0m (2021: GBP285.0m) was drawn under the term loan
facilities, GBP45.0m (2021: GBP45.0m) was drawn under the revolving
loan facility and GBPnil (2021: GBPnil) was drawn under the
securitisation facility. The term loan facility matures in August
2023, the revolving loan facility matures in August 2022 and the
securitisation facility matures in March 2026.
For the quarters ended 31 March 2022 and 30 June 2022, the
Group's loan to value ('LTV') ratio was higher than the level
permitted under its loan to value covenant. The loan to value
covenant will not be formally tested, and no covenant breach or
event of default will arise, until the Group provides its
compliance certificates for the March 2022 and June 2022 quarter
dates. The date on which the Group is required to supply these
compliance certificates has been extended until 5 October 2022,
with a mechanism for this date to be extended further with lender
support.
On 8 July 2022, the Group repaid its GBP45m RCF facility in
full. In addition, on 26 August 2022 a part repayment of GBP5m was
made to the Group's term loan facilities from the proceeds of the
LAH administration. On 14 September 2022, the Group closed the
securitisation facility .
Borrowings are recognised initially at FV and subsequently at
amortised cost. The carrying value of other payables due in more
than one year is not materially different to the FV. The facility
arrangements have the benefit of: (i) guarantees from, and fixed
and floating security granted by, the following entities: NSF Finco
Limited, Non-Standard Finance Subsidiary II Limited, Non-Standard
Finance Subsidiary III Limited, S.D. Taylor Limited, Everyday Loans
Holdings Limited, Everyday Loans Limited, Everyday Lending Limited,
George Banco Limited, George Banco.com Limited; and (ii) a charge
over the shares in, and intercompany loans made to, NSF Finco
Limited granted by Non-Standard Finance Subsidiary Limited. The
charges made against these companies are reflected at Companies
House.
14. Net cash used in operating activities
Six months ended 30 June 2022 Six months ended 30 June 2021
GBP000 GBP000
-------------------------------------------------------- ----------------------------- -----------------------------
Operating profit/(loss) (22,068) 5,360
Taxation refunded/(paid) 1,492 -
Interest portion of the repayment of lease liabilities (430) (512)
Depreciation 1,261 2,020
Share-based payment charge - 41
Amortisation of intangible assets 468 1,224
Derecognition and impairments related to administration
of home credit division 19,695 -
(Loss)/profit on disposal of property, plant and
equipment and intangible assets 39 (3)
Decrease/(increase) in amounts receivable from customers 12,694 28,652
Decrease/(Increase) in receivables 176 (825)
(Decrease)/increase in payables and provisions (3,345) (3,506)
Cash generated/(used) in operating activities 9,982 32,451
-------------------------------------------------------- ----------------------------- -----------------------------
15. 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 was one member of senior management of Non-Standard
Finance plc who was a Trustee of the charity Loan Smart as at 30
June 2022 and 31 December 2021. During the six months ended 30 June
2022, the Company donated GBPnil to Loan Smart (six months ended 30
June 2021: GBP15,000). The charity Loan Smart was closed on 11 July
2022.
The Company receives charges from and makes charges to related
parties in relation to shared costs, staff costs and other costs
incurred on their behalf. As at 30 June 2022, the Company had an
intercompany balance of GBP4.8m payable to Everyday Lending Limited
(31 December 2021: the Company was owed GBP0.03m from its
subsidiary S.D. Taylor Limited and GBP0.07m to its subsidiary
Everyday Loans Limited in relation to Group relief tax charges).
Intra-Group transactions between the Company and the fully
consolidated subsidiaries or between fully consolidated
subsidiaries are eliminated on consolidation.
Toby Westcott who is a Nominee Director of the Company receives
no direct remuneration from the Company. However, Alchemy Special
Opportunities LLP were remunerated for the services of Toby
Westcott through a services agreement. This figure equates to a
GBP75k fee plus VAT per annum. Total fees paid in relation to these
services totalled GBP37k (plus VAT) for the period ended 30 June
2022 (six months ended 30 June 2021: GBP37k).
16. Distributable Reserves of the Parent Company
At 30 June 2022, the Company had no distributable reserves (31
December 2021: GBPnil).
17. Subsequent Events
On 8 July 2022, the Group repaid its GBP45m RCF facility in
full. In addition, on 26 August 2022 a part repayment of GBP5m was
made to the Group's term loan facilities from the proceeds of the
LAH administration. On 14 September 2022, the Group closed its
GBP200m securitisation facility .
As mentioned above, the Directors have decided to pursue the use
of a court-based process (the 'Process'), such as a scheme of
arrangement or restructuring plan, in relation to its redress
liabilities. A successful Process is intended to provide certainty
as to the total liability arising from redress liabilities, thereby
allowing the Group to proceed with its planned capital raise (the
'Capital Raise'). If successful, the proceeds of the Capital Raise
will be used to fund a cash pot which will be available to finance
an agreed portion of the redress liability to affected customers
and to strengthen the Group's balance sheet and underpin future
growth. The Group has included a provision from the amount it
expects to settle as part of the Process (refer to note 11 for
further detail).
APPIX
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
Net debt Gross borrowings less cash at bank
------------------------------------------------ --------------------------------------------------------------------
Normalised revenue Normalised figures are before exceptional items.
Normalised operating profit
Normalised profit before tax
Normalised earnings per share
------------------------------------------------ --------------------------------------------------------------------
Key performance indicators Definition
Impairments/revenue Impairments as a percentage of normalised revenues
Impairments (including modifications)/revenue Impairments and modification gain/losses 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
impairment provisions
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
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
30 Jun 30 Jun
2022 2021
GBP000 GBP000
---------------------------- --------- ---------
Borrowings 330,000 330,000
Cash at bank and in hand(1) (110,918) (102,976)
---------------------------- --------- ---------
219,082 227,024
---------------------------- --------- ---------
1 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 (12 months)
Branch-based
lending Guarantor loans
----------------------- ----------------- -----------------
30 Jun 30 Jun 30 Jun 30 Jun
2022 2021(*) 2022 2021(*)
GBP000 GBP000 GBP000 GBP000
----------------------- ------- -------- ------- --------
Reported revenue 82,504 89,046 8,706 23,440
Fair value adjustments - - - 971
Normalised revenue 82,504 89,046 8,706 24,411
----------------------- ------- -------- ------- --------
* 2021 has been recalculated to ensure like-for-like comparative
to 2022
Fair value adjustments are excluded due to them being
non-business-as-usual transactions as they result from the Group
making acquisitions and do not reflect the underlying performance
of the business. Removing this item is deemed to give a fairer
representation of revenue within the financial year.
3. Normalised operating profit (12 months)
Branch-based
lending Guarantor loans
-------------------------------- ---------------- -----------------
30 Jun 30 Jun 30 Jun 30 Jun
2022 2021 2022 2021
GBP000 GBP000 GBP000 GBP000
-------------------------------- ------- ------- -------- -------
Reported operating profit
(12 months) 3,362 12,406 2,103 (8,332)
Add back fair value adjustments - - - 466
Add back amortisation of
intangibles - - - 699
Add back exceptional provisions 4,500 - 687 1,566
-------------------------------- ------- ------- -------- -------
Normalised operating profit
(12 months) 7,862 12,406 2,790 (5,601)
-------------------------------- ------- ------- -------- -------
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.
4. Normalised profit before tax for the period ended 30 June
2022
30 Jun 2022 30 Jun 2021
GBP000 GBP000
----------------------------- ----------- -----------
Reported loss before tax (36,209) (7,535)
Add back exceptional items 24,882 4,025
----------------------------- ----------- -----------
Normalised profit before tax (11,327) (3,510)
----------------------------- ----------- -----------
Exceptional items have been excluded due to them being
non-business-as-usual transactions. The exceptional items are
one-off and are not as a result of underlying business-as-usual
transactions and therefore do not reflect the underlying
performance of the business. Hence, removing these items is deemed
to give a fairer representation of the underlying profit
performance within the financial year.
5. Normalised profit for the period ended 30 June 2022
Group
------------------------
30 Jun 2022 30 Jun 2021
GBP000 GBP000
------------------------------------------- ----------- -----------
Reported loss for the period (36,209) (7,535)
Add back exceptional items 24,882 4,025
Adjustment for tax relating to above items - -
------------------------------------------- ----------- -----------
Normalised loss for the period (11,327) (3,510)
------------------------------------------- ----------- -----------
Weighted average shares 312,437,422 312,437,422
------------------------------------------- ----------- -----------
Normalised earnings per share (pence) (3.63)p (1.12)p
------------------------------------------- ----------- -----------
As noted above exceptional items have been excluded due to them
being non-business-as-usual transactions. The exceptional items are
one-off and are not as a result of underlying business-as-usual
transactions (refer to note 6 for further detail on exceptional
costs in the year) and therefore does not reflect the 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 percentage of revenue
Branch-based lending Guarantor loans
------------------------------- ---------------------- -----------------
30 Jun 30 Jun 30 Jun 30 Jun
2022 2021(*) 2022 2021(*)
GBP000 GBP000 GBP000 GBP000
------------------------------- ---------- ---------- ------- --------
Normalised revenue (12 months) 82,504 89,046 8,706 24,411
Impairment (12 months) (25,035) (30,069) 3,118 (11,873)
------------------------------- ---------- ---------- ------- --------
Impairment as a percentage
revenue 30.3% 33.8% (35.8)% 48.6%
------------------------------- ---------- ---------- ------- --------
* 2021 has been recalculated to ensure like-for-like comparative
to 2022
Impairment as a percentage revenue is a key measure for the
Group in monitoring risk within the business .
7. Impairment (including modifications) as a percentage of
revenue
Branch-based lending Guarantor loans
------------------------------- ---------------------- -----------------
30 Jun 30 Jun 30 Jun 30 Jun
2022 2021(*) 2022 2021(*)
GBP000 GBP000 GBP000 GBP000
------------------------------- ---------- ---------- ------- --------
Normalised revenue (12 months) 82,504 89,046 8,706 24,411
Impairment (12 months) (26,824) (34,916) 1,463 (16,483)
------------------------------- ---------- ---------- ------- --------
Impairment as a percentage
revenue 32.5% 39.2% (16.8)% 67.5%
------------------------------- ---------- ---------- ------- --------
* 2021 has been recalculated to ensure like-for-like comparative
to 2022impairme
Impairment as a percentage revenue is a key measure for the
Group in monitoring risk within the business .
8. Impairment as a percentage loan book
Branch-based lending Guarantor loans
---------------------------- ---------------------- -----------------
30 Jun 30 Jun 30 Jun 30 Jun
2022 2021(*) 2022 2021(*)
GBP000 GBP000 GBP000 GBP000
---------------------------- ---------- ---------- ------- --------
Reported opening net loan
book 163,779 187,705 41,449 88,045
Less fair value adjustments - - - (466)
Normalised opening net loan
book 163,779 187,705 41,449 87,579
Reported closing net loan
book 160,443 163,779 17,341 41,449
Less fair value adjustments - - - -
Normalised closing net loan
book 160,443 163,779 17,341 41,449
Normalised opening net loan
book 163,779 187,705 41,449 87,579
Normalised closing net loan
book 160,443 163,779 17,341 41,449
Average net loan book 160,149 173,189 26,669 60,271
Impairment (12 months) (25,035) (30,069) 3,118 (11,873)
---------------------------- ---------- ---------- ------- --------
Impairment as a percentage
average loan book 15.6% 17.4% (11.7)% 19.7%
---------------------------- ---------- ---------- ------- --------
* 2021 has been recalculated to ensure like-for-like comparative
to 2022
Impairment as a percentage loan book allows review of impairment
level movements year on year.
9. Net loan book growth
Branch-based lending Guarantor loans
---------------------------- ---------------------- -----------------
30 Jun 30 Jun 30 Jun 30 Jun
2022 2021 2021 2021
GBP000 GBP000 GBP000 GBP000
---------------------------- ---------- ---------- -------- -------
Normalised opening net loan
book 163,779 187,705 41,449 87,577
Normalised closing net loan
book 160,443 163,779 17,341 41,449
---------------------------- ---------- ---------- -------- -------
Net loan book growth (2.0)% (12.7)% (58.2)% (52.7)%
---------------------------- ---------- ---------- -------- -------
10. Return on asset
Branch-based lending Guarantor loans
---------------------------- ---------------------- -----------------
30 Jun 30 Jun 30 Jun 30 Jun
2022 2021 2022 2021
GBP000 GBP000 GBP000 GBP000
---------------------------- ---------- ---------- -------- -------
Normalised operating profit
(12 months) 7,862 12,406 2,790 (5,601)
Average net loan book 160,149 173,189 26,669 60,721
---------------------------- ---------- ---------- -------- -------
Return on asset 4.9% 7.2% 10.5% (9.2)%
---------------------------- ---------- ---------- -------- -------
The return on asset measure is used internally to review the
return on the Group's primary key assets.
11. Revenue yield
Branch-based lending Guarantor loans
------------------------------- ---------------------- -----------------
30 Jun 30 Jun 30 Jun 30 Jun
2022 2021(*) 2022 2021(*)
GBP000 GBP000 GBP000 GBP000
------------------------------- ---------- ---------- ------- --------
Normalised revenue (12 months) 82,504 89,046 8,706 24,411
Average net loan book 160,149 173,189 26,669 60,721
------------------------------- ---------- ---------- ------- --------
Revenue yield percentage 51.5% 51.4% 32.6% 40.5%
------------------------------- ---------- ---------- ------- --------
* 2021 has been recalculated to ensure like-for-like comparative
to 2022
Revenue yield percentage is deemed useful in assessing the gross
return on the Group's loan book.
12. Risk adjusted margin
Branch-based lending Guarantor loans
-------------------------------- ---------------------- -----------------
30 Jun 30 Jun 30 Jun 30 Jun
2022 2021(*) 2022 2021(*)
GBP000 GBP000 GBP000 GBP000
-------------------------------- ---------- ---------- ------- --------
Normalised revenue (12 months) 82,504 89,046 8,706 24,411
Impairments (12 months) (25,035) (30,069) 3,118 (11,873)
Normalised risk adjusted
revenue 57,469 58,977 11,824 12,538
Average net loan book 160,149 173,189 26,669 60,721
-------------------------------- ---------- ---------- ------- --------
Risk adjusted margin percentage 35.9% 34.1% 44.3% 20.8%
-------------------------------- ---------- ---------- ------- --------
* 2021 has been recalculated to ensure like-for-like comparative
to 2022
The Group defines normalised risk adjusted revenue as normalised
revenue less impairments. Risk adjusted revenue is not a
measurement of performance under IFRSs, and you should not consider
risk adjusted revenue as an alternative to profit before tax as a
measure of the Group's operating performance, as a measure of the
Group's ability to meet its cash needs or as any other measure of
performance under IFRSs. The risk adjusted margin measure is used
internally to review an adjusted return on the Group's primary key
assets.
13. Operating profit/(loss) margin
Branch-based lending Guarantor loans
----------------------------------- ---------------------- -------------------
30 Jun 30 Jun 30 Jun 30 Jun
2022 2021(*) 2022 2021(*)
GBP000 GBP000 GBP000 GBP000
----------------------------------- ---------- ---------- ------- --------
Normalised operating profit/(loss)
(12 months) 7,862 12,406 2,790 (5,601)
Normalised revenue (12 months) 82,504 89,046 8,706 24,411
----------------------------------- ---------- ---------- ------- --------
Operating profit/(loss) margin
percentage 9.5% 13.9% 32.0% (22.9)%
----------------------------------- ---------- ---------- ------- --------
* 2021 has been recalculated to ensure like-for-like comparative
to 2022
14. Cost to income ratio
Branch-based lending Guarantor loans
------------------------------- ---------------------- -------------------
30 Jun 30 Jun 30 Jun 30 Jun
2022 2021(*) 2022 2021(*)
GBP000 GBP000 GBP000 GBP000
------------------------------- ---------- ---------- ------- --------
Normalised revenue (12 months) 82,504 89,046 8,706 24,411
Administration expense (12
months) (48,088) (42,197) (7,379) (13,529)
------------------------------- ---------- ---------- ------- --------
Cost to income ratio 58.3% 47.4% 84.8% 55.4%
------------------------------- ---------- ---------- ------- --------
* 2021 has been recalculated to ensure like-for-like comparative
to 2022
This measure allows review of cost management.
INDEPENT REVIEW REPORT TO NON-STANDARD FINANCE PLC
Conclusion
We have been engaged by the Group to review the condensed set of
financial statements in the half-yearly financial report for the
six months ended 30 June 2022 which comprise the Condensed
Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Statement of Financial Position, the Condensed
Consolidated Statement of Changes in Equity, the Consolidated
Statement of Cash Flows and related notes. 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.
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 2022 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity", issued for use in the United Kingdom. A review of interim
financial information consists of making enquiries, 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.
As disclosed in note 2 , the annual financial statements of the
Group are prepared in accordance with UK adopted IASs. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with UK adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Material uncertainty related to going concern
We draw attention to note 2 in the condensed set of financial
statements of the half-yearly report, which; due to the
considerable challenges presented by the uncertainty around the
success of the court-based process to compromise liabilities
("Process"); the ability of the Group to raise sufficient capital
in the timeframes required; the agreement of extensions to the
testing dates and other forms of waivers from lenders in relation
to potential future covenant breaches prior to completion of the
Capital Raise; the agreement of the necessary waivers to implement
the Process; the impact of high levels of inflation in the economy
and other macroeconomic uncertainties on the financial performance
of the Group, along with the other matters as set forth in note 2 ,
indicates that a material uncertainty exists that may cast
significant doubt on the Group's ability to continue as a going
concern. Our conclusion is not modified in respect of this
matter.
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that management have inappropriately adopted
the going concern basis of accounting.
Responsibilities of Directors
The Directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the Directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Group a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including those within the Material uncertainty related
to going concern paragraph, are based on procedures that are less
extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report.
Use of our report
This report is made solely to the company's Directors, as a
body, in accordance with the terms of our engagement letter dated
12 August 2022. Our review has been undertaken so that we might
state to the company's Directors those matters we have agreed to
state to them in a reviewer's 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 and the company's
Directors as a body, for our work, for this report, or for the
conclusions we have formed.
PKF Littlejohn LLP 15 Westferry Circus
Statutory Auditor Canary Wharf
London E14 4HD
28 September 2022
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