Non-Standard Finance plc

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

Audited full year results to 31 December 2021

29 April 2022

 

·    The Group continued to face significant operational, regulatory and financial challenges in 2021, many of which have continued into 2022

·    Whilst the total net loan book¹ fell by 19%, strong collections drove a return to positive operating profit although the Group still delivered a loss at the pre-tax level 

·    Normalised revenue was down 20% to £131.4m (2020: £164.1m); reported revenue of £131.4m (2020: £162.7m)

·    Normalised loss before tax of £16.7m (2020: normalised loss before tax of £35.2m)

·    Total exceptional charges of £12.9m (2020: £97.8m) meant that the reported loss before tax was £29.6m (2020: reported loss of £135.7m)

·    Independent reviews concluded that whilst there was no need for any redress in branch-based lending, in home credit, certain customers may have suffered harm and given ongoing challenges, the home credit business went into administration on 15 March 2022

·    The Group's Guarantor Loans Division was placed into a managed run-off on 30 June 2021

·    The estimated cost of redress in guarantor loans is based upon a detailed methodology and analyses developed in conjunction with the Group's advisers, as we have however not yet agreed the operational mechanics of the scheme with the FCA, so there is a risk of a less favourable outcome

·    As a result of the developments described above, it is expected that a substantial capital raise will be launched during the second half of 2022.

·    Given the loss before tax and the absence of distributable reserves, no final dividend per share is being declared (2020: 0.0p per share)

·    Despite cash balances of £115m at 31 December 2021 (2020: £78m) and £113m at 31 March 2022, the Group's loan to value ratio at 31 March 2022 was higher than the level permitted under its loan to value covenant.  However, the Group has received waivers and extensions until 15 June 2022 thereby avoiding a covenant breach so that it can proceed with a planned capital raise

·    The Group's ability to remain a going concern is subject to a material uncertainty and is dependent upon the completion of a substantial capital raise

·    Current trading: since the start of 2022 we have seen month on month growth in loan issuance in branch-based lending, combined with historically low impairment, and are consequently trading ahead of budget

Financial summary

 

 

Year to 31 December	2021	2020	% change
	£000	£000
Normalised revenue2	131,387	164,102	-20%
Reported revenue	131,387	162,665	-19%
Normalised operating (loss) profit2	9,299	(6,316)	247%
Reported operating (loss) profit	7,092	(24,452)	129%
Normalised loss before tax2	(16,680)	(35,152)	-53%
Reported loss before tax	(29,610)	(135,721)	-78%
Normalised loss after tax2	(16,755)	(35,152)	-52%
Reported loss after tax	(29,685)	(135,557)	-78%
Normalised loss per share3	(5.36)p	(11.25)p	-52%
Reported loss per share	(9.50)p	(43.39)p	-78%
Full-year dividend per share	0.00p	0.00p	0%

¹  For reconciliation of net loan book growth see table in Financial Review

²  See glossary of alternative performance measures and key performance indicators in the Appendix.

³  Basic and diluted (loss) earnings per share is calculated as normalised loss after tax of £(16.8)m (2020: £(35.2)m) divided by the weighted average number of shares in issue of 312,437,422 (2020: 312,437,422).

 

Jono Gillespie, Group Chief Executive Officer, said

"The Group delivered a resilient performance in 2021 despite the enormous challenges it faced, including operating during the pandemic, whilst working with the FCA to resolve a number of outstanding regulatory matters.  Crucially, we have retained the support of our lenders and major shareholders and I would like to thank them for their continued support.

Having to place the guarantor loans division into managed run-off and the home credit division into administration following regulatory reviews were particularly challenging events to manage.  However, we are pleased that there were no implications for our branch-based lending business that is continuing to rebuild its lending volumes and is performing well.

"Whilst the Group continued to trade within its financial covenants during 2021and despite having accumulated a sizeable cash balance, a major interest payment and the home credit division going into administration during the first quarter has resulted in the Group's loan to value ratio being higher than permitted under its loan covenant as at 31 March 2022.  The Group's lenders have agreed to an extension to 15 June 2022 in order to enable the Group to conduct a substantial capital raise with the support of Alchemy and other investors to strengthen the balance sheet, fund redress payments and underpin future growth. Before that can take place however, the Group needs to agree the mechanics of its proposed redress scheme in guarantor loans with the FCA so that investors have sufficient certainty regarding the potential redress liability before subscribing for new capital in the Company.  Until this is complete, there remain material uncertainties regarding the Group's ability to remain a going concern.  The Directors continue to believe that there remains a reasonable prospect of resolving this position and completing the capital raise as planned.

 

"It is clear that consumers face a difficult period as the rise in the cost of living starts to bite⁵.  This is expected to increase the demand for credit and could present a significant opportunity for companies in a non-standard credit sector that fulfils a vital role by supporting millions of consumers who have limited savings. Previous recessions have shown that prime lenders tend to be particularly risk averse, tightening their lending criteria and leaving a large and expanding pool of higher quality applicants seeking access to regulated and responsible credit markets.  Assuming we are able to raise capital as planned, the Group will be well placed to serve any ensuing increase in demand."

 

 

4 Financial Lives Survey 2020: the impact of coronavirus - FCA, 11 February 2021

5 "Over 8 in 10 (83%) adults reported an increase in their cost of living in March 2022 (3 to 13 March 2022) compared with around 6 in 10 (62%) adults in November 2021 (3 to 14 November 2021)." - Impact of increased cost of living on adults across Great Britain: November 2021 to March 2022 - ONS, 30 March 2022

Context for results      

The 2021 results include exceptional items totalling £12.9m relating to an increase in the estimated costs of customer redress in guarantor loans, restructuring costs and the write-down of assets and the recognition of liabilities in the home credit division. Exceptional items in 2020 totalled £97.8m and included a number of different items including provision for customer redress, goodwill impairment, the write-off of certain capitalised fees and costs related to restructuring.  The 2020 reported results also include fair value adjustments, the amortisation of acquired intangibles and the write-off of goodwill assets. Normalised results are presented to demonstrate Group performance before these items.

On 15 March, 2022 it was announced that the Group's home credit division had gone into administration (see note 19 - Subsequent events).

Normalised divisional results

The table below provides an analysis of the 'normalised' results for the Group for the 12-month period to 31 December 2021.  Management believes that by removing the impact of exceptional items, amortisation of acquired intangibles and fair value adjustments, the normalised results provide a clearer view of the underlying performance of the Group.

 

Year ended 31 Dec 2021 Normalised6	Branch-based lending	Home credit	Guarantor loans	Central costs	NSF plc
	£000	£000	£000	£000	£000
Revenue	79,940	38,401	13,046	-	131,387
Other operating income	384	587	1	11	983
Modification loss	(1,383)	-	(1,478)	-	(2,861)
Derecognition loss	-		-	-	-
Impairments	(18,994)	(6,230)	1,061	-	(24,163)
Revenue less impairments	59,947	32,758	12,630	11	105,346
Administration expenses	(46,294)	(34,962)	(10,695)	(4,096)	(96,047)
Operating profit/(loss)	13,653	(2,204)	1,935	(4,085)	9,299
Finance cost	(14,491)	(1,102)	(4,350)	(6,036)	(25,979)
Loss before tax	(838)	(3,306)	(2,415)	(10,121)	(16,680)
Taxation	48	158	299	(580)	(75)
Loss after tax	(790)	(3,148)	(2,116)	(10,701)	(16,755)
Normalised loss per share					(5.36)p
Dividend per share					0.00p

 

 

Year ended 31 Dec 2020 Normalised6	Branch-based lending	Home credit	Guarantor loans	Central costs	NSF plc
	£000	£000	£000	£000	£000
Revenue	89,788	43,834	30,480	-	164,102
Other operating income	1,125	18	-	11	1,154
Modification loss	(2,207)	-	(4,075)	-	(6,282)
Derecognition loss	(2,602)	-	(41)	-	(2,643)
Impairments	(31,449)	(10,495)	(24,318)	-	(66,262)
Revenue less impairments	54,655	33,357	2,046	11	90,069
Administration expenses	(41,236)	(35,866)	(13,773)	(5,510)	(96,385)
Operating profit/(loss)	13,419	(2,509)	(11,727)	(5,499)	(6,316)
Finance cost	(18,594)	(1,228)	(7,467)	(1,547)	(28,836)
Loss before tax	(5,175)	(3,737)	(19,194)	(7,046)	(35,152)
Taxation	-	-	-	-	-
Loss after tax	(5,175)	(3,737)	(19,194)	(7,046)	(35,152)
Normalised loss per share					(11.25)p
Dividend per share					0.00p

 

 

Reconciliation of net loan book	2021 Normalised6	2021 Fair value adjustments	2021 Reported	2020 Normalised6	2020 Fair value adjustments	2020 Reported
	£m	£m	£m	£m	£m	£m
Branch-based lending	157.2	-	157.2	171.5	-	171.5
Home credit	24.0	-	24.0	26.9	-	26.9
Guarantor loans	26.8	-	26.8	59.8	-	59.8
Total	208.0	-	208.0	258.2	-	258.2

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

 

Online presentation on 29 April 2022

There will be webcast presentation of the results at 09:30 on 29 April 2022 given by Jono Gillespie, Group Chief Executive. To access the webcast, please register here or via the Group's website or dial in using the number below. A copy of the slides presented will also be available on the Group's website, http://www.nsfgroupplc.com later today.

 

Dial-in details to listen to the analyst presentation at 09:30, 29 April 2022

09:20	Please call +44 (0)330 165 4012
Participant PIN	3616449
09:30	Meeting starts

All times are British Summer Time (BST).

 

For more information:

Non-Standard Finance plc Jono Gillespie Group Chief Executive Peter Reynolds, Director, IR and Communications	+44 (0) 20 3869 9020
Maitland/amo Neil Bennett Finlay Donaldson	+44 (0) 20 7379 5151

 

Group Chief Executive's Report

 

Summary

The past year presented several challenges for the Group as we sought to resolve a number of outstanding regulatory issues, continued to deal with the ongoing impact of the pandemic on our operations whilst also managing the impact on our balance sheet that remains in a net liabilities position.

There has been a continuous dialogue with the FCA since August 2020 as we sought to address the FCA's concerns regarding a possible read-across for branch-based lending and home credit from the FCA's multi-firm review into guarantor loans and from recent decisions at the Financial Ombudsman Service.  We also continued to work closely with the FCA to finalise our proposed redress methodology in guarantor loans.  Whilst we did make progress in 2021, concluding that there was no requirement for customer redress for branch-based lending and with no significant amendments to our proposed redress methodology in guarantor loans (although we continue to discuss the operational practicalities of the scheme with the regulator), it became clear that Loans at Home, the Group's home credit business, was no longer viable and so it went into administration on 15 March 2022.   Whilst deeply saddened and disappointed with this outcome, it was clear that administration was the only option available in order to preserve value for creditors.  As the operations and activities of Loans at Home are separate from the rest of the Group, the Board of NSF confirms that, having received certain waivers from the Group's lenders (see below), the administration of Loans at Home will have minimal impact on the rest of the Group's business.

Whilst the Board remains hopeful that it can agree the operational mechanics of its proposed redress programme with the FCA, thereby clearing the way to complete a substantial capital raise, should this not be possible such that there remains significant uncertainty regarding the quantum of potential redress liabilities, the Group may be forced to consider other options that can reduce such uncertainty, including a scheme of arrangement.  Whilst such schemes are complex, time consuming and not guaranteed to be successful, the Board believes that, were such a scheme to be pursued it would stand a reasonable chance of success and would, along with needing to extend lending facilities, allow it to proceed with its planned capital raise (as described in further detail below). The Board therefore believes that it remains a going concern.

As a result of the developments described above, it is expected that the Capital Raise will be launched during the second half of 2022.  As the Group's loan to value ratio at 31 March 2022 was higher than the level permitted under its loan to value covenant following large interest payments made during the quarter has also received the requisite waivers and extensions to enable the Capital Raise to take place.  However, if the Group is unable to agree similar extensions or other forms of waivers for any future covenant breaches and obtain extensions to the term of its existing debt facilities on terms acceptable to investors prior to the completion of the Capital Raise then there would be a material risk of the Group entering insolvency.

The return of social distancing rules coupled with certain regional restrictions during 2021 placed additional constraints on our business model in both branch-based lending and home credit that was founded on face-to-face lending. Despite these challenges and thanks to the hard work and dedication of our staff and self-employed agents, we continued to serve the needs of our customers whilst also ensuring that the concerns raised by the FCA were taken into account in all of our lending and collections processes.

The Group's strong market position, in combination with a number of both external and internal profit drivers means that the Board is confident that, subject to the timely completion of the Capital Raise, the prospects for branch-based lending remain positive, driven by a planned recovery of ground lost over the past two years that should result in a marked improvement in the Group's financial performance.  Further details regarding our future plans can be found in the 2021 financial review below.

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

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

However, should the Capital Raise be unsuccessful or take longer than expected to execute, then it is expected that the Group would remain in a net liability position from a balance sheet perspective, would breach certain borrowing covenants and as a result would likely not be able to access further funding over the period of breach and would require additional waivers from its lenders. In such circumstance, there would be a material risk of the Group going into insolvency.  However, the Directors continue to believe there is a reasonable prospect of resolving this position.

 

2021 full year results

The continued challenges presented by the pandemic meant that while the Group delivered a much improved financial performance versus the prior year, the Group was still loss-making at the pre-tax level.  The re-introduction of government restrictions and a more cautious lending approach interrupted the recovery in lending which, in conjunction with a robust collections performance, meant that the combined net loan book fell by 28% to £208.0m (2020: £258.2m). A summary of the other key performance indicators for each of our businesses for 2021 is shown below:

 

Key performance indicators7 Year ended 31 Dec 20	Branch-based lending	Home credit8	Guarantor loans9
Loan book growth	(8.3)%	(10.8)%	(55.2)%
Revenue yield	48.8%	157.2%	32.1%
Risk adjusted margin	37.2%	131.7%	34.7%
Impairments/revenue	23.8%	16.2%	(8.1)%
Impairments/average net loan book	11.6%	25.5%	(2.6)%
Cost:income ratio	57.9%	91.0%	82.0%
Operating profit margin	17.1%	(5.7)%	14.8%
Return on assets	8.3%	(9.0)%	4.8%

 

Key performance indicators7 Year ended 31 Dec 20	Branch-based lending	Home credit	Guarantor loans
Loan book growth	(20.2)%	(32.5)%	(43.3)%
Revenue yield	46.5%	155.2%	35.3%
Risk adjusted margin	30.2%	118.0%	7.1%
Impairments/revenue	35.0%	23.9%	79.8%
Impairments/average net loan book	16.3%	37.2%	28.2%
Cost:income ratio	45.9%	81.8%	45.2%
Operating profit margin	14.9%	(5.7)%	(38.5)%
Return on assets	7.0%	(8.9)%	(13.6)%

 

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

8 The home credit division went into administration on 15 March 2022 (see note 1 and 19 to the financial statements).

⁹   The Guarantor Loans Division was placed into managed run-off on 30 June 2021 and did not issue any new loans in 2021.

The reduction in the net loan book was the main driver behind the 20% reduction in normalised revenue before fair value adjustments to £131.4m (2020: £164.1m).  However, there was also a marked improvement in impairment on the back of lower lending volumes and strong collections that meant the Group returned to positive normalised operating profit of £9.3m versus a normalised operating loss in 2020 of £6.3m. While lower debt levels meant that interest charges also reduced, the reduction in revenue meant that the Group produced a normalised loss per share of 5.36p (2020: normalised loss per share of 11.25p).

The Group's 2021 and 2020 reported, or statutory results were both affected by exceptional items, a summary of which is shown in the table below (also see note 7 to the financial statements).  The 2020 results were also significantly affected by fair value adjustments and the amortisation of acquired intangibles associated with the acquisitions of Everyday Loans and George Banco. There were no such adjustments in 2021.

As a result, while reported revenue in 2021 of £131.4m (2020: £162.7m) was unaffected by fair value adjustments, there was a £1.4m reduction to normalised revenue in 2020.  However, the 2021 results were impacted by a number of non-operating items including an increase in the estimated costs of customer redress in guarantor loans and the write-down of assets and the recognition of liabilities in the home credit division, further details of which are set out below. Total exceptional items in 2021 were £12.9m (see table below and note 6) which was a significant reduction from the prior year (2020: £97.8m).  

 

Year ended 31 December	2021	2020
	£000	£000
Impairment of goodwill asset (non-cash) - branch-based lending	-	(47,107)
Impairment of goodwill asset (non-cash) - guarantor loans	-	-
Impairment of goodwill asset (non-cash) - home credit	-	(27,725)
Advisory fees	(1,580)	(1,444)
Write-off of capitalised fees associated with the Group's securitisation facility	-	(5,795)
Write down of balance sheet relating to home credit division	(8,542)
Charge for customer redress	(2,207)	(15,401)
Restructuring costs	(601)	(362)
Total	(12,930)	(97,834)

With no further write-off of acquired intangibles in 2021 (2020: £1.3m) the Group reported a statutory loss before interest and tax of £3.6m (2020: loss before interest and tax of £106.9m) and a statutory loss before tax of £29.6m (2020: £135.7m).

A summary of the performance of each division in 2021 is given below with further details in the 2021 financial review

Branch-based lending

Having returned to month-on-month loan book growth in June 2021 and with the removal of most government restrictions on social contact in England in July 2021, a trend of month-on-month growth in the loan book continued until the fourth quarter when, despite a good flow of leads, lending volumes were impacted by a more cautious approach to lending as well as the emergence of the Omicron coronavirus variant.  At the same time however, collections remained strong throughout 2021 and so while the number of new borrower loans booked was up 15% and the total volume of loans written was up 13%, this was not sufficient to restore annual loan book growth and the net loan book declined by 8%.  The consequential 11% reduction in revenue was more than offset by a reduction in impairment and despite higher administration costs, normalised operating profit increased by 2% and despite a £4.1m reduction in finance costs, the division reported a statutory loss before tax of £0.8m (2020: loss before tax of £11.2m).

Home credit

There was a similar picture in home credit that returned to loan book growth in June 2021 and this continued through the summer.  However, further government public health measures and a more cautious approach to lending meant that this was not sustained into the fourth quarter and while there was a small year-on-year increase in lending in December, the uplift was much smaller than expected with the result that the net loan book ended the year down 11%. An improvement in yield as a number of slow-paying customers dropped out of the book, whilst helpful, was not enough to offset the impact on revenue that decreased by 12%.  A strong collections performance and lower levels of lending meant that impairment fell, as did administration costs with the net result that the division reported a reduced normalised loss before tax of £3.3m (2020: loss before tax of £3.7m).  As noted elsewhere, after lengthy discussions with the FCA, the directors of the Group's home credit business reluctantly concluded that it was no longer viable and so the business was put into administration on 15 March 2022 resulting in an exceptional charge of £8.5m (2020: nil) and a statutory loss before tax of £11.8m (2020: loss before tax of £3.7m).

Guarantor loans

As previously announced, the Group's guarantor loans business was placed into a managed run-off and did not write any new loans in 2021 but has continued to collect-out existing loan balances.  As a result, the division's loan book continued to decline ending the year at £26.8m (2020: £59.8m).  This had a major impact on normalised revenues that fell by 57% but the strong collections performance meant that impairments declined significantly and the division delivered a normalised operating profit of £1.9m (2020: operating loss of £11.7m).   The Group is continuing to work with the FCA on finalising the operational mechanics of the proposed redress scheme and hopes to complete this work soon so that, subject to, and as soon as possible following a successful completion of the Capital Raise, we can start to pay out redress to those customers affected.  An additional exceptional provision for customer redress of £2.2m has been recorded in the 2021 accounts (2020: £15.4m) and largely represents the cost of additional penalty interest based on the Directors' best estimate based on the redress programme (see note 6 to the financial statements). The net result was that the division reported a loss before tax of £5.2m (2020: loss before tax of £36.0m).

Impairment provisioning

Given the highly dynamic external environment, the Group has continued to monitor carefully its level of loan loss provisions and in particular has considered the outputs from a continuous assessment of expected credit losses in all three divisions.  The net result has been an increase in coverage ratios in branch-based lending and home credit during 2021 with the result that, on a combined basis as at 31 December 2021 and using the same methodology in previous years, the coverage ratio for the Group as a whole increased to 21.5% (2020: 19.5%). Utilising a revised methodology that the Board believes provides investors with a more relevant coverage metric that is more directly comparable with key competitors and other sector companies, the ratio also increased from 24.8% to 25.5%.  Further details are set out in the 2021 financial review below.

 

Liquidity, funding and going concern

As at 31 December 2021 the Group had cash at bank of £114.6m (2020: £78.0m) and gross borrowings of £330.0m (2020: £330.0m). As at 31 March 2022, cash balances were £112.8m while gross borrowings remained unchanged.

The Group's active loan facilities include a £285m term loan facility that matures in August 2023 and a £45m revolving credit facility maturing in August 2022 ('Existing Facilities'), both of which remain fully drawn. Having received appropriate waivers from its lenders ensuring that the administration of Loans at Home would have minimal impact on the rest of the Group, the Board and its advisers are discussing a possible extension to the term of the Existing Facilities and the terms of any additional covenant waivers that may be required ahead of any capital raise. Any amendments to the Existing Facilities would be conditional upon the completion of the Capital Raise.

 

The Group also has a multi-year £200m securitisation facility that remains undrawn. Whilst current cash balances mean that there is no need for additional funding at the present time, the facility remains in place. However, in the absence of a capital raise, it is unlikely to be available for use owing to the associated covenant requirements embedded within the facility agreement and as permission from the lenders to a drawdown on the facility is unlikely to be granted. It is hoped that, following a successful capital raise, the facility will be available for future use, if so required.

Whilst the Group has obtained waivers from its lenders in relation to the administration of the home credit division, its loan to value ratio at 31 March 2022 was higher than the level permitted under its loan to value covenant following large interest payments made during the quarter. As such, the Group has also received waivers and extensions from its lenders in order to avoid a covenant breach so that it can proceed with the planned Capital Raise.  The Directors recognise the considerable challenges presented and the material uncertainties which may cast significant doubt on the ability of both the Group and the Company to continue as a going concern. However, despite these challenges, the Board believes that if a satisfactory outcome regarding the redress mechanics in guarantor loans is reached, and assuming the proposed extension to the term of the Group's existing facilities by its lenders is concluded on terms acceptable to investors (which itself is likely to be dependent on a successful capital raise), the Group and Company can reasonably expect to raise sufficient new capital to enable them to continue to operate and meet their respective liabilities as they fall due for the next 12 months. The Board has therefore adopted the going concern basis of accounting. The Board's position is, in part, informed by the fact that 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 outcome of the Group's discussions with the FCA regarding 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 greater levels of certainty around redress and claims.

In adopting the going concern assumption in preparing the financial statements, the Directors have considered the activities of its principal subsidiaries, as well as the Group's principal risks and uncertainties as set out in the Governance Report and Viability Statement within the Group's 2021 Annual Report.

The assumption of shareholder support for a substantial capital raise, lender support for the extension of existing financing facilities and the satisfactory conclusion of regulatory and redress matters within or close to the assumptions made in the Group's base case, form a significant judgement of the Directors in the context of approving the Group's going concern status (see note 1 to the financial statements).

The Directors will continue to monitor the Group and Company's risk management, access to liquidity, balance sheet solvency and internal control systems.

If the Group cannot obtain waivers and/or extensions from its lenders for potential future covenant breaches beyond 15 June 2022 and/or ahead of the Capital Raise completing and obtain extensions to the term of its existing debt facilities on terms acceptable to investors, if it fails to reach agreement with the FCA with respect to the redress programme in guarantor loans, or if the outcome of any discussions with the FCA are such that the amount of redress is expected to be significantly higher than previously estimated, there is a risk that the Capital Raise may not be concluded or cannot be concluded in a timely manner. If either were to occur, or if the Group was otherwise unable to raise additional capital, in the event of a further covenant breach and without further waivers from the lenders, there would be a material risk of the Group entering insolvency.

Regulation

Concluding all of the Group's outstanding regulatory issues has been a key priority over the past 18 months.  Whilst pleased that, following the independent reviews, there was no requirement for customer redress for branch-based lending, the Board was disappointed that Loans at Home went into administration.  In guarantor loans, whilst the business is not issuing any new loans and is in managed run-off, the Group is continuing to work with the FCA on finalising the operational mechanics of its proposed redress scheme.

Other pertinent regulatory-related matters affecting the Group include complaint handling and the forthcoming introduction of a new Consumer Duty.  A more detailed summary of each of these regulatory matters is set out below.

Independent reviews of branch-based lending and home credit

Throughout 2021 the Group was actively engaged with the FCA in order to finalise its proposed redress methodology for guarantor loans customers that may have suffered harm and work is continuing to finalise the operational mechanics of the scheme.  The Board is hopeful that this will soon be finalised in order to provide certainty for investors so that it can then proceed with the Capital Raise that, if successful, will be used to fund agreed customer redress as well as strengthen the Group's balance sheet and transform its prospects.  Having made a £15.3m provision for redress in the 2020 full year results, this was increased by a further £2.2m in 2021, largely due to increased interest costs as the payment of redress would take place later than previously expected. It is expected that the redress programme for guarantor loans customers will commence as soon as practicable following a successful completion of the Capital Raise which is anticipated to take place in the second half of 2022.

 

Complaint handling

While the overall number of complaints received by the Group increased in 2021, there were very different dynamics at each of the three divisions with the number of complaints increasing in branch-based lending (9%) and home credit (113%) whilst in guarantor loans the number of complaints received fell (18%).  The increase in home credit was seen as exceptional and was driven by a single claims management company that lodged a large number of complaints in a single month.  Subsequent investigation found that a large proportion of the claims lodged by the CMC had in fact been lodged without the customer's consent or knowledge and so have been withdrawn.  Since then, complaint volumes have returned to previous levels and have remained broadly flat.  There has however been a marked uptick in the cost of complaints as FOS accelerated its processing of previously lodged complaints with the result that the The most significant regulatory development over the past year has been the proposed introduction of a new consumer duty.  Having already consulted once on the new duty, the FCA issued a further consultation that closed on 15 February 2022.  The shape of the new duty applies to many areas of financial services, including consumer credit.  While the FCA has helpfully taken on board a number of comments made by sector firms, concerns remain that while the focus is on consumer outcomes, there is no certainty on what "good compliance" looks like.  Many are also nervous about the basis upon which 'fair value' will be assessed and also the short period of time before this new obligation comes into effect (April 2023).  Industry has raised these issues as part of the consultation and hopes that these concerns will be addressed in the FCA's next response.

Further details on the consumer duty and the other pertinent regulatory developments during 2021 and into 2022 are available on the Group's website: www.nsfgroupplc.com.

 

 

Current trading and outlook, no final dividend

Whilst the fallout from the pandemic, Brexit and more recently the Ukrainian crisis means that macroeconomic uncertainty remains high, recent trading in branch-based lending and guarantor loans has been slightly ahead of management's expectations.  Whilst lending volumes in the first quarter of 2022 were a little better than expected, collections and impairment performance has been much better with the result that the Group's overall early performance for the year to date has been promising.

Given the financial position of the Company and the fact that as at 31 December 2021 the Company did not have any distributable reserves, no final dividend has been declared. Assuming the Capital Raise is successful, the Company intends to create additional distributable reserves so that, when and if appropriate, the Board can consider the payment of cash dividends to shareholders at some point in the future.

The outlook for the Group is entirely dependent upon concluding the discussions with the FCA and completing the Capital Raise as planned. If successful, such a capital raise would fund the payment of agreed customer redress, strengthen the Group's balance sheet and significantly reduce the prospect of any future covenant breach. The Board believes that the Capital Raise is the best course of action in order to avoid insolvency, to safeguard the interests of shareholders and other stakeholders and  to underpin future growth.

However, should the Capital Raise be unsuccessful or take longer than expected to execute, then it is expected that the Group would remain in a net liability position from a balance sheet perspective, would remain in breach of its borrowing covenants and as a result would likely not be able to access further funding over the period of breach and would require additional waivers from its lenders. In such circumstance, there would be a material risk of the Group going into insolvency.  However, the Directors continue to believe there is a reasonable prospect of resolving this position.

Assuming the Capital Raise is completed as planned, our focus in 2022 is to recover the ground lost due to the pandemic and following the enormous structural changes to our business over the past two years.  As outlined in the 2021 financial review, this recovery will be dependent on us restoring the momentum in our branch-based lending business through a combination of investment in staffing, technology and process-driven productivity improvements and a steady recovery in demand for non-standard consumer credit.

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

 

Annual General Meeting

The AGM of the Company is scheduled to take place on 26 May, 2022. A separate notice of meeting is being sent to shareholders with the 2021 Annual Report and is available from the Group's website: www.nsfgroupplc.com.

 

Jono Gillespie

Group Chief Executive

 

29 April 2022

 

2021 FINANCIAL REVIEW

Group results

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

 

Year ended 31 December		2021 Normalised10	2021 Fair value adjustments, and exceptional items	2021 Reported
		£000	£000	£000
Revenue		131,387	-	131,387
Other operating income		983	-	983
Modification loss		(2,861)	-	(2,861)
Derecognition loss		-	-	-
Impairments		(24,163)	-	(24,163)
Exceptional provision for customer redress		-	(2,207)	(2,207)
Administration expenses		(96,047)	-	(96,047)
Operating loss		9,299	(2,207)	7,092
Other exceptional items		-	(10,723)	(10,723)
Loss before interest and tax		9,299	(12,930)	(3,631)
Finance cost		(25,979)	-	(25,979)
Loss before tax		(16,680)	(12,930)	(29,610)
Taxation		(75)	-	(75)
Loss after tax		(16,755)	(12,930)	(29,685)
Loss per share		(5.36)p		(9.50)p
Dividend per share		0.00p		0.00p

 

Year ended 31 December		2020 Normalised10	2020 Fair value adjustments, and exceptional items	2020 Reported
		£000	£000	£000
Revenue		164,102	(1,437)	162,665
Other operating income		1,154	-	1,154
Modification loss		(6,282)	-	(6,282)
Derecognition loss		(2,643)	-	(2,643)
Impairments		(66,262)	-	(66,262)
Exceptional provision for customer redress		-	(15,401)	(15,401)
Administration expenses		(96,385)	(1,298)	(97,683)
Operating loss		(6,316)	(18,136)	(24,452)
Other exceptional items		-	(82,433)	(82,433)
Loss before interest and tax		(6,316)	(100,569)	(106,885)
Finance cost		(28,836)	-	(28,836)
Loss before tax		(35,152)	(100,569)	(135,721)
Taxation		-	164	164
Loss after tax		(35,152)	(100,405)	(135,557)
Loss per share		(11.25)p		(43.39)p
Dividend per share		0.00p		0.00p

 

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

Normalised revenue fell by 20% to £131.4m (2020: £164.1m) reflecting lower levels of lending by all three divisions that drove a reduction in the net loan book. The reduction in reported revenue to was slightly greater than for normalised revenue as the final portion of the unwind of the fair value adjustment made to the George Banco loan book at the time of its acquisition in August 2017 was taken through the profit and loss account in 2020 and there was no such adjustment in 2021. A marked reduction in the numbers of rescheduled and deferred loans in both branch-based lending and guarantor loans meant that modification and derecognition losses reduced substantially versus 2020.  Collections remained strong in all three businesses in 2021 with the result that the absolute level of impairment more than halved versus the prior year to £24.2m (2020: £66.3m). A marked reduction in staff costs helped to offset higher complaints costs with the result that administration costs were slightly lower at £96.0m (2020: £96.4m) and the Group delivered a normalised operating profit of £9.3m versus a normalised operating loss in 2020 of £6.3m.

There were £12.9m of exceptional items (2020: £97.8m) split between £2.2m of additional customer redress in guarantor loans, almost all of which was due to additional interest as the proposed redress programme had not commenced by the year end, £1.6m of advisory fees in connection with the independent reviews and ongoing work ahead of the planned Capital Raise, £8.5m relating to the write-down of assets and the recognition of liabilities in the home credit division triggered by the business going into administration on 15 March 2022 and £0.6m of restructuring costs. The £97.8m charge in 2020 included the non-cash impairment to the remaining value of goodwill attributable to the Group's operating subsidiaries totalling £74.8m; and a charge for redress to certain customers of the Group's guarantor loans division totalling £15.4m. The Group's home credit division went into administration on 15 March 2022 - see note 1 and 19.

Whilst the strong cash flow during the period meant that cash balances increased to £114.6m (2020: £78.0m), low deposit rates meant that the impact on net finance costs was lower than might have been expected and the total charge in the period was £26.0m (2020: £28.8m).

The net effect was that the Group reported a much reduced statutory loss before tax of £29.6m (2020: loss of £135.7m and with a small tax charge the reported loss after tax was £29.7m (2020: £135.6m).  The resulting reported loss per share was 9.50p (2020: loss per share of 43.39p).

 

Impairment provisioning

Following a marked increase in impairment provisioning in 2020, the Group is keen to ensure that the Group's coverage ratio, as reported, is not misunderstood because of the accounting treatment of modification and derecognition gains and losses.  As a result, the Group has continued to report coverage ratios in line with previous years but has also included an additional alternative performance measure that the Board believes provides investors with a more relevant coverage metric that is more directly comparable with key competitors and other sector companies.  The key difference between the two methodologies is in the way that modification and derecognition gains and losses are treated, both of which affect branch-based lending in particular and which, without appropriate adjustment, make meaningful comparisons with other sector companies much more difficult. 

The elements of the disclosure which are not representative of the underlying position in branch-based lending and guarantor loans are the stage 2 coverage and the total portfolio coverage (home credit is unaffected).  Branch-based lending stands out against the peer group, firstly because, using the reported presentation, it has very low coverage in stage 2 while the progression from stage 1 to stage 3 is notably different and less logical than for the peer group.  This is because the current presentation nets down both the gross cash receivable ('GCR') and the provision to determine coverage.  The revised methodology simply restates the coverage using both figures on a gross basis, which the Board believes to be a more appropriate and comparable presentation of provision coverage.  

Using the presentation used in previous years, the Group's reported coverage ratio increased from 19.5% at 31 December 2020 to 21.5% at 31 December 2021 and is summarised in the following table:

 

	31 Dec 2021	31 Dec 2020	Increase
Branch-based lending	14.0%	7.6%	6.4%
Home credit	46.7%	49.9%	-3.2%
Guarantor loans	27.8%	26.7%	1.1%
Group	21.5%	19.5%	2.0%

Using the revised presentation methodology (that has no impact on the underlying level of provision included in the Group's balance sheet), the coverage ratios in both 2021 and 2020 are shown below:

 

	31 Dec 2021	31 Dec 2020	Increase
Branch-based lending	19.0%	15.4%	3.6%
Home credit	46.7%	49.9%	-3.2%
Guarantor loans	33.2%	31.4%	1.8%
Group	25.5%	24.8%	0.7%

In branch-based lending, the increase in coverage reflects a rise in the rate of delinquency as a number of customers that had received COVID-related forbearance were charged off and also because of the Directors' judgement that the outlook for the division's customers was more uncertain given the prospect of rising fuel and food costs over the coming months. 

In home credit, after a major increase in 2020 due to the pandemic, the coverage ratio decreased by 3.1 percentage points to 46.7% reflecting a strong collections performance during the year and the fact that the provisioning methodology used is accurately predicting the level of expected credit losses. While the uncertain macroeconomic outlook was considered as part of the overall assessment of provisions, as noted in previous annual reports, there is little or no correlation between macroeconomic indicators and expected credit losses in home credit. 

Having seen the largest increase in provisioning in 2020, in 2021 the Group's guarantor loans division saw its coverage ratio increase slightly as while the collections performance has been in-line with expectations, as with branch-based lending, the outlook for the division's customers was more uncertain given the prospect of rising fuel and food costs over the coming months.

Further details regarding the Group's approach to provisioning are set out in note 1 to the financial statements.

 

Divisional review

Branch-based lending

Year ended 31 December	2021 Normalised1	2021 Fair value adjustments and exceptional items	2021 Reported
	£000	£000	£000
Revenue	79,940	-	79,940
Other operating income	384	-	384
Modification loss	(1,383)	-	(1,383)
Derecognition loss	-	-	-
Impairments	(18,994)	-	(18,994)
Revenue less impairments	59,947	-	59,947
Administration expenses	(46,294)	-	(46,294)
Operating profit	13,653	-	13,653
Exceptional items		-	-
Profit/(loss) before interest and tax	13,653	-	13,653
Finance cost	(14,491)	-	(14,491)
Loss before tax	(838)	-	(838)
Taxation	48	-	48
Loss after tax	(790)	-	(790)

 

Year ended 31 December	2020 Normalised1	2020 Fair value adjustments and exceptional items	2020 Reported
	£000	£000	£000
Revenue	89,788	-	89,788
Other operating income	1,125	-	1,125
Modification loss	(2,207)	-	(2,207)
Derecognition loss	(2,602)	-	(2,602)
Impairments	(31,449)	-	(31,449)
Revenue less impairments	54,655	-	54,655
Administration expenses	(41,236)	-	(41,236)
Operating profit	13,419	-	13,419
Exceptional items	-	(6,017)	(6,017)
Profit/(loss) before interest and tax	13,419	(6,017)	7,402
Finance cost	(18,594)	-	(18,594)
Loss before tax	(5,175)	(6,017)	(11,192)
Taxation	-	-	-
Loss after tax	(5,175)	(6,017)	(11,192)

 

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

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 2021 is summarised below.

Network capacity - Given the continued uncertainty regarding the impact of the pandemic on the UK economy during 2021 and the outlook for consumer credit generally, we remained cautious on expanding our footprint and opened just one of the branches that had been mothballed in 2020, taking the total number to 75. However, given a more cautious lending approach as the economy slowed and certain sectors were particularly hard hit, coupled with a desire to both manage costs and also stay within our targeted ratio of network staff to active customers, staffing levels in the network reduced during the first half of 2021, falling from 326 in December 2020 to 306 at the end of June.  A number of these departures were prompted by network staff reassessing their careers in the light of the pandemic. We began to rebuild during the second half of 2021 and the network staffing levels increased to reach 343 by the year end.  Head office staffing levels also declined during the year from 114 in December 2020 to 104 in December 2021, partly due to similar reasons as in the network but also as we sought to increase efficiency levels within head office.

The introduction of further government restrictions during the year and our determination to remain cautious did impact the level of lending in 2021 which was lower than we had previously hoped for.  As a result, there was a 4% decline in the number of active customers that fell to 66,000 (2020: 68,100) and the net loan book fell by 8% to £157.1m (2020: £171.5m), some 27% below what it had been at the end of 2019 (2019: £214.8m).

Lead volumes and quality - Our ability to continue to attract leads remained strong and the total number of gross new borrower leads processed in 2021 increased from 1.8 million in 2020 to 2.1 million in 2021 - an increase of 20% (albeit that this level of increase was flattered somewhat by the fact that in April 2020 we accepted no leads at all in the immediate aftermath of the first lockdown). The quality of the leads remained good and new borrower applications to branch ('ATBs') also increased by a similar percentage to over 403,800 (2020: 339,100). Our mix of leads and loans written is supported by the strength and longevity of our relationships with a number of financial brokers that in aggregate provided approximately 91% of gross leads (2020: 94%) and accounted for approximately 52% of completed loans (2020: 57%).  Direct applications, renewals and applications from former customers made up the balance and while they represented only 9% of all leads, they accounted for approximately 48% of the total number of loans written, with a much higher conversion rate than for leads introduced by financial brokers.

Productivity - whilst our more cautious approach to lending and the introduction of a more detailed creditworthiness process meant that conversion rates for new borrowers fell to 6.5%  (2020: 6.8%) the increase in applications and ATBs meant that the number of new borrower loans booked increased to 26,448 (2020: 23,019), the total number of loans booked increased to 37,150 (2020: 33,499) and the total value of loans issued increased by 17% to £117.8m (2020: £104.3m). Whilst a return to lending growth is encouraging, the volume of lending remained significantly below the £169.9m achieved in 2019.

Delinquency management - The unprecedented levels of forbearance offered to customers in 2020 and into 2021 began to unwind towards the end of the first half of 2021.  By the end of 2021, customers that had requested COVID-related forbearance either returned to their regular payments, continued with their rescheduled payments or were written-off.  At the same time, the quality of new lending remained high as we maintained a rigorous lending process that also benefited from a new and enhanced creditworthiness assessment that was introduced during the year.  As a result, after the sharp increase in the previous year due to the pandemic, the rate of impairment reduced from 16.3% of average net receivables to 11.6% and from 35.0% to 23.8% of normalised revenue. Whilst pleased that the rates of impairment started to return to more normalised levels, they remained higher than that seen prior to the pandemic.

2021 results

Revenue was 11% lower at £79.9m (2020: £89.8m) primarily due to the 8% reduction in the net loan book. Other income was slightly lower with a reduced volume of debt sales and the absence of any furlough support from HM Government that had been received in 2020.  Modification and derecognition gains / losses reduced significantly in 2021 as the impact of the pandemic in 2020 was not repeated.  Lower rates of delinquency together with lower charge-off led to a 40% decrease in impairments to £19.0m (2020: £31.4m).

Despite a steady reduction in staff numbers during the first half of 2021 (although this was reversed in the second half as we sought to fill vacancies and increase capacity), the return to bonus payments for staff, higher complaint handling costs that were in large part due to a significant reduction in the backlog of historic FOS complaints and increased marketing expenses meant that administration costs increased to £46.3m (2020: £41.2m).  However, given the marked reduction in impairments and despite the reduction in revenue, normalised operating profit increased from £13.4m to £13.7m.

There were no exceptional charges in 2021 while the £6.0m charge in the prior year related to the £5.8m write-off of capitalised fees associated with the Group's securitisation facility and restructuring costs of £0.2m.

Strong cash generation as a result of a healthy collections performance and lower lending volumes meant that finance costs reduced from £18.6m to £14.5m with the result that the division produced a much reduced normalised loss before tax of £0.8m (2020: loss before tax of £5.2m).  Given the absence of any exceptional items in 2021, the reduction in the reported loss before tax was even more significant from £11.2m to £0.8m.

Key performance indicators

While the write-off a number of loans due to the pandemic and lower numbers of rescheduled and deferred loans helped to drive an increase in revenue yield to 48.8% (2020: 46.5%), the 8% decline in the net loan book was the principal reason behind the decline in revenue. The increased quality of our new lending together with strong collections helped to reduce impairment as a percentage of revenue with the result that the risk adjusted margin increased back to levels above that achieved in 2019 at 37.2% (2020: 30.2%; 2019: 36.1%). Including modification and derecognition losses, the impairment as a percentage of revenue fell from 40.4% to 25.5%.

Despite the fact that the increase in costs coupled with lower revenue meant that the cost:income ratio increased to 57.9% (2020: 45.9%),  normalised operating profit margin increased to 17.1% (2020: 14.9%) although this remains well below the 31.9% achieved in 2019.

 

Year ended 31 December   Key Performance Indicators1	2021 Normalised	2020 Normalised
Number of branches	75	74
Period-end customer numbers (000)	66.0	68.1
Period-end loan book (£m)	157.2	171.5
Average loan book (£m)	163.7	193.0
Loan book growth (%)	(8.3)%	(20.2)%
Revenue yield (%)	48.8%	46.5%
Risk adjusted margin (%)	37.2%	30.2%
Impairments/revenue (%)	23.8%	35.0%
Impairments (including modifications)/revenue	25.5%	40.4%
Impairment/average loan book (%)	11.6%	16.3%
Cost:income ratio (%)	57.9%	45.9%
Operating profit margin	17.1%	14.9%

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

Actions and plans for 2022

Assuming that the Capital Raise can be completed as planned, we continue to believe that there are significant opportunities for our branch-based lending business. Whilst the UK's recovery from the pandemic has taken longer than most previously expected and against an uncertain macroeconomic backdrop, our investment over the past few years in new systems and improved operational processes and procedures, together with a planned return to full network capacity in terms of staffing, underpins our confidence in being able to deliver significant loan book growth. This will be a combination of recovering ground lost during the pandemic but also through productivity improvements and operational efficiencies. However, it will not mean that we will compromise on our commitment to continue to meet the highest standards of responsible lending, ensuring that we continue to deliver good outcomes for all our customers, including those that may be vulnerable. 

Whilst the evolution of our credit risk assessment process is continuous, the benefits of a more extensive creditworthiness process together with an enhanced credit scorecard should help to maintain a strong collections performance even against a backdrop of growing lending volumes.

 

Home credit¹

 

Year ended 31 December			2021 Normalised2	2021 Fair value adjustments and exceptional items	2021 Reported
			£000	£000	£000
Revenue			38,401	-	38,401
Other income			587	-	587
Impairments			(6,230)	-	(6,230)
Revenue less impairments			32,758	-	32,758
Administration expenses			(34,962)	-	(34,962)
Operating loss			(2,204)	-	(2,204)
Exceptional items			-	(8,542)	(8,542)
Loss before interest and tax			(2,204)	(8,542)	(10,746)
Finance cost			(1,102)	-	(1,102)
Loss before tax			(3,306)	(8,542)	(11,848)
Taxation			158	-	158
Loss after tax			(3,148)	(8,542)	(11,690)

 

¹  The Home credit division went into administration on 15 March 2022 and is no longer part of the Group (see note 19)

² See glossary of alternative performance measures and key performance indicators in the Appendix.

 

 

Year ended 31 December			2020 Normalised2	2020 Fair value adjustments and exceptional items	2020 Reported
			£000	£000	£000
Revenue			43,834	-	43,834
Other income			18	-	18
Impairments			(10,495)	-	(10,495)
Revenue less impairments			33,357	-	33,357
Administration expenses			(35,866)	-	(35,866)
Operating loss			(2,509)	-	(2,509)
Exceptional items			-	-	-
Loss before interest and tax			(2,509)	-	(2,509)
Finance cost			(1,228)	-	(1,228)
Loss before tax			(3,737)	-	(3,737)
Taxation			-	-	-
Loss after tax			(3,737)	-	(3,737)

 

² See glossary of alternative performance measures and key performance indicators in the Appendix.

Following extensive discussions with the FCA regarding the conclusions of the review into home credit, the Directors of Loans at Home 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 this outcome was the only option available in order to preserve value for creditors.  As the operations and activities of Loans at Home are separate from the rest of the Group, the Board of NSF has confirmed that, having now received certain waivers from the Group's lenders, the administration of Loans at Home will have minimal impact on the rest of the Group's business.

 

2021 results

The impact of a lower average net loan book together with a flat average yield meant that revenue was 12% lower at £38.4m (2020: £43.8m). A continued strong collections performance in conjunction with lower levels of new lending meant that in absolute terms, impairments fell by 41% to £6.2m, which is a record low for the business (2020: £10.5m). Despite the drop in revenue, impairment as a percentage of revenue also reduced to reach a record annualised low of 16.2% (2020: 23.9%).

 Lower staff costs and a reduction in complaint handling costs contributed to an 3% reduction in administration costs to £35.0m
(2020: £35.9m) that in turn helped to reduce the normalised operating loss from £2.5m to £2.2m. While strong cashflow helped to reduce finance costs to £1.1m (2020: £1.2m), an exceptional charge of £8.5m (2020: nil) relating to the write-down of assets and the recognition of liabilities as a result of the business going into administration on 15 March 2022 meant that the reported loss before tax was £11.8m (2020: loss before tax of £3.7m).

 

Key performance indicators

The further reduction in impairment fed through into a much improved risk adjusted margin that increased by over 10 percentage points versus the prior year. Despite concerted efforts to continue to manage our cost base, the fall in revenue meant that the cost:income ratio increased significantly to 91.0% (2020: 81.8%), impacting operating profit margins and the return on asset.

 

 

Year ended 31 December   Key Performance Indicators1			2021 Normalised	2020 Normalised
Period-end customer numbers (000)			70.5	72.1
Period-end loan book (£m)			24.0	26.9
Average loan book (£m)			24.4	28.2
Loan book growth (%)			(10.8)%	(32.5)%
Revenue yield (%)			157.2%	155.2%
Risk adjusted margin (%)			131.7%	118.0%
Impairments/revenue (%)			16.2%	23.9%
Impairments(including modifications)/revenue			16.2%	23.9%
Impairment/average loan book (%)			25.5%	37.2%
Cost to income ratio (%)			91.0%	81.8%
Operating profit margin			(5.7)%	(5.7)%
Return on asset (%)			(9.0)%	(8.9)%

¹ For definitions see glossary of alternative performance measures in the Appendix.

Having gone into administration on 15 March 2022, Loans at Home is no longer part of the Group.

 

Guarantor loans

 

Year ended 31 December	2021 Normalised1       £000	2021 Fair value adjustments and  exceptional items £000		2021 Reported       £000
Revenue	13,046	-		13,046
Other income	1	-		1
Modification loss	(1,478)	-		(1,478)
Derecognition loss	-	-		-
Impairments	1,061	-		1,061
Revenue less cost of sales	12,630	-		12,630
Exceptional provision for customer redress		(2,207)		(2,207)
Administration expenses	(10,695)	-		(10,695)
Operating loss	1,935	(2,207)		(272)
Other exceptional items	-	(601)		(601)
Loss before interest and tax	1,935	(2,808)		(873)
Finance cost	(4,350)	-		(4,350)
Loss before tax	(2,415)	(2,808)		(5,223)
Taxation	299	-		299
Loss after tax	(2,116)	(2,808)		(4,924)

 

Year ended 31 December	2020 Normalised1       £000	2020 Fair value adjustments and  exceptional items £000		2020 Reported       £000
Revenue	30,480	(1,437)		29,043
Other income	-	-		-
Modification loss	(4,075)	-		(4,075)
Derecognition loss	(41)	-		(41)
Impairments	(24,318)	-		(24,318)
Revenue less cost of sales	2,046	(1,437)		609
Exceptional provision for customer redress	-	(15,401)		(15,401)
Administration expenses	(13,773)	-		(13,773)
Operating loss	(11,727)	(16,838)		(28,565)
Other exceptional items	-	-		-
Loss before interest and tax	(11,727)	(16,838)		(28,565)
Finance cost	(7,467)	-		(7,467)
Loss before tax	(19,194)	(16,838)		(36,032)
Taxation	-	-		-
Loss after tax	(19,194)	(16,838)		(36,032)

 

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

Following completion of the FCA's detailed review of the Group's proposed redress methodology for certain customers of its Guarantor Loans Division, whilst there were no material amendments, the Group is continuing to work with the FCA on finalising the operational mechanics of the scheme.  The Group's Guarantor Loans Division was placed into a managed run-off in June 2021 and it did not issue any new loans in 2021 and so the financial performance of the business has been driven by collections from the outstanding loan book.

With no new lending in 2021, the number of active loans declined from 26,227 in December 2020 to 14,470 at the end of December 2021 and the net loan book also fell sharply as collections remained strong throughout the period.  As at 31 December 2021, the net loan book had declined by 55% to reach £26.8m at 31 December 2020 (2020: £59.8m).

 

2021 results

With no new lending and a declining loan book, normalised revenue fell by 57% to £13.0m (2020: £30.5m).   Collections however remained strong helping to drive a significant reduction in impairment resulting in a credit of  £1.1m (2020: charge of £24.3m) - the prior year having been particularly high as a result of the pandemic that had had a disproportionate impact on young adults that made up a significant proportion of the guarantor loans customer base.  Provision coverage is being monitored on an account by account basis during the collect out and using the same methodology as in previous years the provision coverage increased from 26.7% at the end of 2020 to 27.8% at the end of 2021. Using the revised methodology described in the Group Chief Executive's review, the provision coverage increased from 31.4% at the end of 2020 to 33.2% at the end of 2021.

 

Our continued focus on managing our costs meant that administration costs fell by 22% to £10.7m (2020: £13.8m) thanks to lower staff costs, lower complaint handling costs and lower professional fees. The net result was that the business returned to generating a normalised operating profit of £1.9m (2020: operating loss of £11.7m). Strong cash flow meant that finance costs were lower at £4.4m (2020: £7.5m) resulting in a much reduced normalised loss before tax of £2.4m (2020: loss before tax of £19.2m). There was an exceptional charge of £2.8m (2020: £15.4m) that comprised an additional £2.2m charge for penalty interest on the customer redress already provided for due to the delay in execution and £0.6m related to redundancy costs following the decision to put the division into managed run-off (see note 13 to the financial statements for more detail regarding the customer redress provisions). With the absence of any fair value adjustment to revenue (2020: £1.4m), the net result was that the reported loss before tax was £5.2m (2020: loss before tax of £36.0m).

 

Key performance indicators

The absence of any lending in 2021 together with a robust collections performance saw the loan book reduce by over 55% (2020: (43.3)%) and it was this that prompted a marked decline in revenue.  However, lower levels of lending led to a  favourable impact on impairment that was also helped by a robust collections performance that flattered both yield and risk adjusted margin.  While the drop in revenue meant that the cost:income ratio increased to 82% (2020: 45%), the major reduction in impairment meant that the net effect was that the division's operating profit margin returned to positive territory at 14.8% (2020: negative 38.5%) and return on assets was also positive, albeit modest at 4.8% (2020: negative 13.6%).

 

Year ended 31 December   Key Performance Indicators1	2021 Normalised	2020 Normalised
Period-end customer numbers (000)	14.5	26.2
Period-end loan book (£m)	26.8	59.8
Average loan book (£m)	40.6	86.2
Loan book growth (%)	(55.2)%	(43.3)%
Revenue yield (%)	32.1%	35.3%
Risk adjusted margin (%)	34.7%	7.1%
Impairment/revenue (%)	(8.1)%	79.8%
Impairment (including modifications)/revenue	3.2%	93.3%
Impairment/average loan book (%)	(2.6)%	28.2%
Cost:income ratio (%)	82.0%	45.2%
Operating profit margin (%)	14.8%	(38.5)%
Return on assets (%)	4.8%	(13.6)%

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

 

Collect-out of Guarantor Loans Division

Having concluded that shareholder interests will be best served by placing the division into a managed run-off and ultimately closing the business, the collect-out of the outstanding loan book is progressing well and as planned.

 

Central costs and exceptional items

 

Year ended 31 December		2021 Normalised1	2021 Amortisation of acquired intangibles and exceptional items	2021 Reported
		£000	£000	£000
Revenue		-	-	-
Other income		11	-	11
Administration expenses		(4,096)	-	(4,096)
Operating loss		(4,085)	-	(4,085)
Exceptional items		-	(1,580)	(1,580)
Loss before interest and tax		(4,085)	(1,580)	(5,665)
Finance cost		(6,036)	-	(6,036)
Loss before tax		(10,121)	(1,580)	(11,701)
Taxation		(581)	-	(581)
Loss after tax		(10,701)	(1,580)	(12,281)

 

Year ended 31 December		2020 Normalised1	2020 Amortisation of acquired intangibles and exceptional items	2020 Reported
		£000	£000	£000
Revenue		-	-	-
Other income		11	-	11
Administration expenses		(5,510)	(1,298)	(6,808)
Operating loss		(5,499)	(1,298)	(6,797)
Exceptional items		-	(76,416)	(76,416)
Loss before interest and tax		(5,499)	(77,714)	(83,213)
Finance cost		(1,547)	-	(1,547)
Loss before tax		(7,046)	(77,714)	(84,760)
Taxation		-	164	164
Loss after tax		(7,046)	(77,550)	(84,596)

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

 

A number of initiatives were taken during 2021 to reduce central costs including the relocation of the Group's London office to just outside Wakefield, a reduction in staffing levels and general cost efficiencies.  As a result, normalised administrative expenses fell by 26% to £4.1m (2020: £5.5m). There was no amortisation of acquired intangible assets as these had all been written down in prior years (2020: £1.3m). Finance costs increased to £6.0 (2020: £1.5m) due to the higher cash balances held at the Group level and lower inter-company interest charges from subsidiaries.

Exceptional costs of £1.6m (2020: £97.8m) comprised advisory fees and this total was a major reduction from the previous year that had included the following items: the impairment of the remaining goodwill assets relating to the Group's operating subsidiaries totalling £74.8m; £1.6m of advisory fees; the write-off of £5.8m of capitalised fees associated with the Group's securitisation facility; a charge for redress totalling £15.4m; and £0.2m of restructuring and redundancy costs that took place during the year.  The increase in finance costs reflects the repayment of intercompany borrowings by subsidiaries with no corresponding repayment of external debt, the balances being held in cash.

 

Balance sheet

As at 31 December 2021, the Group had increased its cash balances to £114.6m (2020: £78.0m) while gross debt remained unchanged at £330.0m.  However, following the write-off in 2020 of all of the remaining goodwill assets associated with the Group's operating subsidiaries, the exceptional provision for redress and the write-down of assets and the recognition of liabilities in the home credit division associated with that business going into administration as well as the further losses incurred in 2021, the Group's balance sheet remained in a negative net tangible assets position. A summary of the Group's balance sheet as at 31 December 2021 is shown below:

 

Year ended 31 December			2021	2020 Restated
			£000	£000
Loan book			207,984	258,201
Fair value			-	-
Adjusted loan book			207,984	258,201
Cash			114,577	77,956
Trade receivables and other assets			4,003	3,630
Property, plant and equipment, intangibles and right of use assets			14,574	24,593
Payables and provisions			(44,018)	(38,440)
Lease liability			(9,545)	(10,889)
Debt			(328,762)	(326,587)
Tangible net (liabilities)/assets			(41,187)	(11,536)
Goodwill and acquired intangibles			-	-
Net (liabilities)/assets			(41,187)	(11,536)

The clear priority for the Group is to complete the Capital Raise that, if successful, is expected to, amongst other things, fund the payment of customer redress, strengthen the Group's balance sheet and restore it to a positive net assets position. However, the Directors note that a material uncertainty exists regarding the successful execution of a capital raise, current and future impacts of COVID-19 and the impact of potential levels of redress and claims across the Group, each of which may cast significant doubt on both the Group's and the Company's ability to continue as a going concern.

 

Principal risks

The principal risks facing the Group are:

 

Liquidity, going concern and solvency - while as at 31 March 2022 the Group had c.£112.8 in cash, the Directors note that the Group's loan to value ratio at 31 March 2022 was higher than the level permitted under its loan to value covenant following large interest payments made during the quarter. At the same time, material uncertainties exist regarding the successful execution of a capital raise, the ability of the Group to obtain extensions to the term of its existing debt facilities on terms acceptable to investors, current and future financial performance and the impact of potential levels of redress and claims across the Group. Whilst the Group has received waivers and extensions from its lenders in order to avoid a covenant breach so that it can proceed with the planned Capital Raise, without further waivers and/or extensions for any future covenant breaches and extensions to the terms of its existing facilities, the impact on liquidity and solvency under both the base case and downside scenarios may cast significant doubt on both the Group's and the Company's ability to continue as a going concern. In such circumstance, there would be a material risk of the Group going into insolvency.  However, the Directors continue to believe there is a reasonable prospect of resolving this position;

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. Whilst the reviews of each of the Group's divisions concluded that no redress was payable in branch-based lending, the home credit division went into administration on 15 March 2022.  Following the FCA's detailed review of the Group's proposed redress methodology for certain customers of its guarantor loans business, the Group is continuing to work with the FCA on finalising the operational mechanics of the redress programme.  The Board is hopeful that this will soon be finalised in order to provide certainty for investors so that it can then proceed with the Capital Raise.  However, should the Group fail to reach agreement with the FCA regarding the mechanics of the programme such that there remains significant uncertainty regarding the quantum of potential redress liabilities, the Group may be forced to consider other options that can reduce such uncertainty, including a scheme of arrangement.  Whilst such schemes are complex, time consuming and not guaranteed to be successful, the Board believes that, were such a scheme to be pursued it would stand a reasonable chance of success and would, along with needing to extend lending facilities, allow it to proceed with its planned capital raise (as described in further detail below). The Board therefore believes that it remains a going concern.  The proceeds of the planned capital raise will be used, among other things, to fund redress payments to eligible GLD customers.  The current provisions for redress represent the Directors' best estimate of the total cost of redress, based upon detailed methodology and analyses developed in conjunction with its advisers, there is a risk of a less favourable outcome;

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

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

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

Business risks:

 

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

 

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

 

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

 

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

Emerging risks that may impact the future performance of the Group include the anticipated increase in the cost of living, climate change and technology where we plan to become more agile and independent with greater control over our ability to augment and improve our lending proposition.  See the Group's 2021 Annual Report for further details.

 

On behalf of the Board of Directors

 

Jono Gillespie

Group Chief Executive

29 April 2022

 

Consolidated statement of comprehensive income

For the year ended 31 December 2021

 

	Note		Before fair value adjustments, and exceptional items   £000	Fair value adjustments and exceptional items3    £000	Year ended 31 Dec 2021     £000
Revenue1	3		131,387	-	131,387
Other operating income			983	-	983
Modification loss			(2,861)	-	(2,861)
Impairment of financial assets2			(24,163)	-	(24,163)
Exceptional provision for customer redress			-	(2,207)	(2,207)
Administrative expenses			(96,047)	-	(96,047)
Operating profit/(loss)	4, 5		9,299	(2,207)	7,092
Other exceptional items	6		-	(10,723)	(10,723)
Profit/(loss) on ordinary activities before interest and tax			9,299	(12,930)	(3,631)
Finance costs			(25,979)	-	(25,979)
Loss on ordinary activities before tax			(16,680)	(12,930)	(29,610)
Tax on loss on ordinary activities	7		(75)	-	(75)
Loss for the year			(16,755)	(12,930)	(29,685)
Total comprehensive loss for the year					(29,685)
1 Revenue comprises interest income calculated using the EIR method. Refer to note 1 in the notes to the financial statements for further detail. 2              Impairments comprise expected credit losses on amounts receivable from customers. Refer to notes 1 and 11 in the notes to the financial statements for further detail. 3 Refer to the appendix for detail of alternative performance measures used ('APMs'). Refer to note 6 in the notes to the financial statements for further detail.
Loss attributable to:
- Owners of the parent					(29,685)
- Non-controlling interests					-

 

Loss per share

	Note		Year ended 31 Dec 2021   Pence
Basic and diluted	8		(9.50)

 

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

 

Consolidated statement of comprehensive income

For the year ended 31 December 2020

 

	Note		Before fair value adjustments, amortisation of acquired intangibles and exceptional items   £000	Fair value adjustments, amortisation of acquired intangibles and exceptional items3    £000	Year ended 31 Dec 2020         £000
Revenue	3		164,102	(1,437)	162,665
Other operating income			1,154	-	1,154
Modification loss			(6,282)	-	(6,282)
Derecognition loss			(2,643)	-	(2,643)
Impairment			(66,262)	-	(66,262)
Provision for customer redress			-	(15,401)	(15,401)
Administrative expenses			(96,385)	(1,298)	(97,683)
Operating profit	4, 5		(6,316)	(18,136)	(24,452)
Other exceptional items	6		-	(82,433)	(82,433)
Profit/(loss) on ordinary activities before interest and tax			(6,316)	(100,569)	(106,885)
Finance cost			(28,836)	-	(28,836)
Profit/(loss) on ordinary activities before tax			(35,152)	(100,569)	(135,721)
Tax on profit/(loss) on ordinary activities	7		-	164	164
Profit/(loss) for the year			(35,152)	(100,405)	(135,557)
Total comprehensive loss for the year					(135,557)
1    Revenue comprises interest income calculated using the EIR method. Refer to note 1 in the notes to the financial statements for further detail. 2    Impairments comprise expected credit losses on amounts receivable from customers. Refer to notes 1 and 11 in the notes to the financial statements for further detail. 3    Refer to the appendix for detail of alternative performance measures used ('APMs'). Refer to note 6 in the notes to the financial statements for further detail
Loss attributable to:
- Owners of the parent					(135,557)
- Non-controlling interests					-

 

Loss per share

	Note		Year ended 31 Dec 2020   Pence
Basic and diluted	8		(43.39)

 

Consolidated statement of financial position

As at 31 December 2021

	Note	31 Dec 2021   £000	31 Dec 2020 Restated £000	1 Jan 2020 Restated £000
ASSETS
Non-current assets
Goodwill		-	-	74,832
Intangible assets	10	2,772	8,237	8,572
Derivative asset		-	-	1
Deferred tax asset		-	-	1,677
Right of use asset		7,877	10,079	10,560
Property, plant and equipment		3,925	6,277	6,556
Amounts receivable from customers	11	98,836	124,128	185,269
		113,410	148,721	287,467
Current assets
Amounts receivable from customers	11	109,148	134,073	176,379
Trade and other receivables		2,526	2,080	2,183
Corporation tax asset		1,477	1,550	460
Cash and cash equivalents		114,577	77,956	14,192
		227,728	215,659	193,214
Total assets		341,138	364,380	480,681
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables		18,375	16,627*	27,641*
Provisions	13	25,643	21,813	1,466
Lease liability		2,129	1,928	1,830
Total current liabilities		46,147	40,368	30,937
Non-current liabilities
Lease liability		7,416	8,961	9,275
Bank loans		328,762	326,587	317,590
Total non-current liabilities		336,178	335,548	326,865
Equity
Share capital	16	15,621	15,621	15,621
Share premium	17	180,019	180,019	180,019
Other reserves		255	551	2,152
Retained loss		(237,082)	(207,727)*	(74,913)*
Total equity		(41,187)	(11,536)	122,879
Total equity and liabilities		341,138	364,380	480,681

* Trades and other payables and Retained earnings for 31 December 2020 and 1 January 2020 include a prior year adjustment, refer to note 1 for further detail.

 

Consolidated statement of changes in equity

For the year ended 31 December 2020

 

	Note	Share capital £000	Share premium £000	Other reserves £000	Retained loss £000	Non-controlling interest £000	Total £000
At 31 December 2019		15,621	180,019	2,152	(74,181)	-	123,611
Prior year adjustment - trade and other payables	1	-	-	-	(732)	-	(732)
At 1 January 2020 opening balance - as restated		15,621	180,019	2,152	(74,913)	-	122,879
Total comprehensive loss for the year		-	-	-	(135,557)	-	(135,557)
Transactions with owners, recorded directly in equity:						-
Dividends paid	9	-	-	-	-	-	-
Credit to equity for equity-settled share-based payments		-	-	1,142	-	-	1,142
Transfer of share-based payments on vesting of share awards		-	-	(2,743)	2,743	-	-
At 31 December 2020 - as restated		15,621	180,019	551	(207,727)	-	(11,536)
Total comprehensive loss for the year		-	-	-	(29,685)	-	(29,685)
Transactions with owners, recorded directly in equity:						-
Dividends paid	9	-	-	-	-	-	-
Credit to equity for equity-settled share-based payments		-	-	34	-	-	34
Transfer of share-based payments on vesting of share awards		-	-	(330)	330	-	-
At 31 December 2021		15,621	180,019	255	(237,082)	-	(41,187)

 

Consolidated statement of cash flows

For the year ended 31 December 2021

	Note	Year ended 31 Dec 2021 £000	Year ended  31 Dec 2020 £000
Net cash from/(used in) operating activities	18	57,762	82,193
Cash flows from investing activities
Purchase of property, plant and equipment		(261)	(1,726)
Purchase of software intangibles		(2,514)	(3,221)
Proceeds from sale of property, plant and equipment		17	16
Net cash used in investing activities		(2,758)	(4,931)
Cash flows from financing activities
Finance cost		(15,832)	(18,333)
Repayment of principal portion of lease liabilities		(2,551)	(1,806)
Debt raising		-	21,641
Repayment of borrowings		-	(15,000)
Dividends paid	9	-	-
Net cash (used in)/from financing activities		(18,383)	(13,498)
		36,621	63,764
Net increase in cash and cash equivalents		77,956	14,192
Cash and cash equivalents at beginning of year		114,577	77,956
Cash and cash equivalents at end of year		57,762	82,193

 

Notes to the financial statements

 

1. Basis of preparation

The consolidated and Company financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards ('IFRS Standards') as adopted by the United Kingdom.

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

Post balance sheet date, 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 on 15 March 2022.  As a result, the financial statements of the home credit division have been prepared on a basis other than going concern. This requires 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 application of the basis other than going concern on the results for the year ended 31 December 2021 decreases the profit for the year by £8.5m (see note 19). In all other respects the financial statements have been prepared in accordance with the accounting framework.

As Non-Standard Finance plc retained control of the division as at 31 December 2021, the financial statements of S.D. Taylor have been consolidated and are reported in the Group financial statements for the year ended 31 December 2021. As a result, the financial statements of the Group for the current year have been prepared on a going concern basis with the exception of the home credit division which has been prepared on non-going concern basis (as described above).

Basis of consolidation

The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) prepared to 31 December 2021. Control is achieved where the Company is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration the existence and effect of potential voting rights that currently are exercisable or convertible.

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

As noted above, the Group's home credit division (S.D. Taylor Limited) was put into administration post year end on 15 March 2022. As at 31 December 2021, Non-Standard Finance plc retained control of the division and as such, in line with IAS 10, its results have been consolidated for the purposes of these financial statements. The appointment of an administrator on 15 March 2022 however, represents a loss of control by Non-Standard Finance plc, and as such, the home credit division will be derecognised from this date and the effect of this reflected in the Group's year ended 31 December 2022 financial statements. 

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

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

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

S.D. Taylor Limited's financial information up to 29 December 2021 has been included with material adjustments made to incorporate transactions up to 31 December 2021 in line with IFRS 10.

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

Going concern

During the year, the Committee assessed the forecast levels of net debt, headroom on existing borrowing facilities (which comprise a £285m term loan and a £45m RCF facility, both of which are fully drawn) and compliance with debt covenants. As part of its going concern assessment, the Committee reviewed both the Group's access to liquidity and its future balance sheet solvency for at least the next 12 months.

 

Background

The Group's guarantor loans division ('GLD') was placed into a managed run-off in June 2021. Throughout 2021, the Group was actively engaged with the FCA in order to finalise its proposed redress methodology for certain customers of GLD. Whilst there have been no significant amendments to the methodology since 2020, with the movement in provision from the prior year primarily attributable to additional penalty interest accrued as a result of the delays in commencing the programme, the Group is currently working with the FCA in order to finalise the operational mechanics of the redress programme. Therefore, as the redress programme has yet to be agreed in its entirety with the FCA, there remains uncertainty as to the costs of such programme and, although the Directors believe their best estimate represents a reasonably possible outcome, there is a material risk of a less favourable outcome. The Directors note that should the Group not be able to reach agreement with the FCA regarding the mechanics of the programme such that there remains significant uncertainty regarding the quantum of potential redress liabilities, the Group will need to consider other options that can reduce such uncertainty, including a scheme of arrangement.  Whilst such schemes are complex, time consuming and not guaranteed to be successful, the Board believes that, were such a scheme to be pursued it would stand a reasonable chance of success and would, along with needing to extend lending facilities, allow it to proceed with its planned capital raise. The Board therefore believes that it remains a going concern.  The proceeds of the planned capital raise will be used, among other things, to fund redress payments to eligible GLD customers.

As noted in the prior year, the Group commissioned independent reviews of both its branch-based lending and home credit businesses to ensure that there were no implications for either division as a result of the multi-firm review into guarantor loans, or from recent decisions at the Financial Ombudsman Service.  Whilst the review into branch-based lending (Everyday Loans) concluded that there was no requirement for any customer redress, in home credit the conclusion was that there may have been harm. Following extensive yet ultimately inconclusive 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.  The boards of Loans at Home and of NSF were clear that this was the only option available in order to preserve value for creditors.  As the operations and activities of Loans at Home are separate from the rest of the Group, having received certain waivers from the Group's lenders, the administration of Loans at Home will have minimal impact on the existing funding arrangements of the Group.

Going concern assessment

In light of having completed the independent review in relation to the branch-based lending division, the ongoing discussions regarding the redress programme with respect to GLD, and the fact that the home credit division has been put into administration, the Group has produced two reasonably possible scenarios as part of its going concern assessment:

 

(i)         the base case scenario includes a substantial equity injection in 2022 (the 'Capital Raise'); assumes the receipt of waivers from lenders for covenant breaches prior to the Capital Raise completing; assumes that there is no change to the estimate of the amount of redress payable in guarantor loans (other than additional interest); and assumes the extension of the Group's debt facilities on acceptable terms;

(ii)         the downside scenario applies stresses in relation to the key risks identified in the base case and does not include the Capital Raise.

A summary of the key assumptions used in the scenarios are as follows:

(i) Base case

The base case forecast assumes:

 

·      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;

·      additional capital is raised during 2022 and reflects a business plan where the Group achieves further growth in later years driven by its branch-based lending division;

·      that GLD remains in managed run-off, continues to perform in line with recent trends and that the ultimate cost of the redress programme does not differ materially from the Directors' best estimate as at the date of this Annual Report (other than additional interest) and/or is an amount acceptable to potential investors;

·      the home credit division remains in administration.

(ii) Downside scenario

This scenario assumes that no additional equity is raised in 2022 and also reflects stresses to the key risks described above.

Under this scenario we have assumed:

·      the Capital Raise is not successful;

·      the Group is unable to agree the operational mechanics of the GLD redress programme with the FCA and fails to implement a scheme of arrangement (should this be pursued) such that the Group is unable to raise sufficient capital or unable to raise sufficient capital within the required timeframes;

·      higher complaint levels than expected under the base case and;

·      uncertainty in the macroeconomic environment leads to higher delinquency and lower lending than expected under the base case.

Whilst the Group has obtained waivers from its lenders in relation to the administration of the home credit division (Loans at Home), its loan to value ratio was higher as at the quarter date on 31 March 2022 than the level permitted under its loan to value covenant following large interest payments made during the quarter. However, 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 certificate for the March 2022 quarter date. The Group has also received an extension to the date on which it is required to supply this compliance certificate until 15 June 2022, with a mechanism for this date to be extended further with lender support. However, if the Group is unable to agree similar extensions or other forms of waivers for any future covenant breaches prior to the completion of the Capital Raise and obtain extensions to the term of its existing debt facilities on terms acceptable to investors, then the likelihood of the Group ending up in the downside scenario would be increased, and there would be 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:

·      the Group receiving extensions to the testing dates or other form of waivers from its lenders future covenant breaches beyond 15 June 2022 and/or prior to completion of the Capital Raise;

·      the Group having raised sufficient additional capital and secured extensions to the term and/or refinancing of the Group's debt facilities;

·      the Group having reached a conclusion in regards to the GLD redress programme with the estimated costs not varying materially from management's best estimate;

·      the assumptions not varying materially from the base case; and

·      any mitigating actions which could be implemented to offset any adverse movement from the base case (such as reductions to costs which are within management's control, for example employee and marketing expenses).

In the absence of the Capital Raise, the Group is forecast to remain in a net liability position from a balance sheet perspective over the next 12 months and beyond.

Under the downside scenario it is expected that the Group would not comply with its loan to value covenant at subsequent quarter dates during the next 12 months and as a result, additional extensions of those testing dates or other forms of waivers would be required from its lenders (and, depending on the terms of those waivers) the Group may not be able to access further funding. If such waivers or extensions were not forthcoming, or if the Directors were not otherwise able to identify an alternative course of action which, if successfully implemented, would enable them to conclude that there was a reasonable prospect of the Group returning to a net asset position such that the Group will be able to meet its liabilities (including to redress creditors) as they fall due, there would be a material risk of the Group going into insolvency. 

The Directors acknowledge the considerable challenges presented by uncertainty around the GLD redress programme (as the operational mechanics have not yet been finalised with the FCA) and the continued impact of COVID-19 and other macroeconomic uncertainties on the financial performance of the Group and so have concluded that there exists a material uncertainty around the going concern status of the Group. The Directors recognise that the Capital Raise is dependent on a number of factors including (i) the costs associated with the GLD redress programme being within levels that are acceptable to potential investors and; (ii) 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 and; (iii) the Group obtaining extensions to the term of its existing debt facilities on terms acceptable to investors. The Directors continue to maintain a regular dialogue with key stakeholders including the FCA, Alchemy and the Group's lenders regarding the above matters. Despite the material uncertainties associated with the forecast assumptions, the Directors note that Alchemy has confirmed its continued support for a capital raise.  The Directors believe that if a satisfactory outcome regarding the redress mechanics in guarantor loans is reached, the proposed extension to the term of the Group's existing facilities by its lenders is concluded on terms acceptable to investors (which itself is likely to be dependent on a successful capital raise), and the actual outcomes do not differ materially from the assumptions outlined in the base case, the Group and Company can reasonably expect to raise sufficient new capital to enable them to continue to operate and meet their respective liabilities as they fall due for the next 12 months. The Board has therefore adopted the going concern basis of accounting. The Board's position is, in part, informed by the fact that 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 outcome of the Group's discussions with the FCA regarding 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 greater levels of certainty around redress and claims. 

 

Conclusion

On the basis of the above analysis, the Directors note that material uncertainties exist regarding the impact of discussions with the FCA regarding the GLD redress programme, the successful and timely execution of the Capital Raise, the agreement of extensions to the testing dates or other forms of waivers from lenders in relation to potential future covenant breaches prior to completion of the Capital Raise, the Group obtaining extensions to the term of its existing debt facilities on terms acceptable to investors, and the current and future impact of COVID-19 and other factors on the macroeconomic outlook (such as inflation, any other unforeseen economic consequences of the conflict in Ukraine and their potential impact on customer repayment behaviours).  The Directors note that, should the Group not be able to reach agreement with the FCA regarding the mechanics of the GLD redress programme such that there remains significant uncertainty regarding the quantum of potential redress liabilities, the Group will need to consider other options that can reduce such uncertainty, including a scheme of arrangement.  Whilst such schemes are complex, time consuming and not guaranteed to be successful, the Board believes that, were such a scheme to be pursued it would stand a reasonable chance of success and would, along with needing to extend lending facilities, allow it to proceed with its planned capital raise (as described in further detail below). The Board therefore believes that it remains a going concern.  The proceeds of the planned capital raise will be used, among other things, to fund redress payments to eligible GLD customers. The Directors note that certainty around the level of potential redress liabilities will likely be a key factor for Alchemy and other potential investors, in assessing whether they will, ultimately, support the Capital Raise.  A successful scheme of arrangement would be subject to a number of variables, including court sanction, a positive creditor vote and the receipt of necessary waivers from lenders.

The Director's recognise as 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.

In making their assessment, the Directors considered:

·      the loan to value ratio being higher as at the quarter date on 31 March 2022 than the level permitted under its loan to value covenant and the likelihood of the lenders agreeing to extend the testing date or provide other forms of waivers in relation to this covenant and/or potential future covenant breaches beyond 15 June 2022 and/or prior to the Capital Raise completing;

·      the ability of the Group to obtain extensions to the term of its existing debt facilities (which itself is likely to be dependent on a successful capital raise);

·      the Group's current financial and operational positions;

·      the status of conversations with the FCA and advisors as well as the Group's recent trading activity;

·      the uncertainty around the quantum of potential redress liabilities due under the GLD redress programme and, if such uncertainty is not resolved, the potential use of a scheme of arrangement to allow the Capital Raise to proceed and fund redress payments to eligible GLD customers;

·      the conditional nature of support for the Capital Raise received from Alchemy (as outlined above).;

In making their overall assessment, the Directors also 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 ample liquidity throughout the going concern period. However, the Capital Raise is dependent on the factors listed above and this dependency creates a material uncertainty. Looking at the generation of future cash, the Directors also considered the 'reverse stress test' conducted by the Group which showed that, assuming no changes to lending levels and operating expenses, collections would have to fall by over 40% from current expected levels in the base case for the Group to then be unable to fund operating expenses and interest payments beyond the next 12 months. Based on trading performance to date, such a reduction in collections, with no mitigating actions being taken such as a reduction in costs, was thought by the Directors to be unlikely. However, the Directors 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 and the Directors cannot otherwise identify an alternative means of returning to a net asset position such that there is a reasonable prospect of the Group being capable of meeting its liabilities as they fall due, then the Group may enter insolvency. 

The Directors recognise the considerable challenges presented and the material uncertainties which may cast significant doubt on the ability of both the Group and the Company to continue as a going concern. However, despite these challenges, the Directors currently have a reasonable expectation that the Group's outstanding regulatory and redress matters can be resolved close to the assumptions outlined in the base case (albeit recognising that there is a material risk in relation to this), the Group can obtain extensions to the testing dates or other forms of waivers from its lenders for potential future covenant breaches prior to completion of the Capital Raise such that it can raise sufficient equity in the timeframe required, the Group can obtain extensions to the term of its borrowings on a reasonable basis from its lenders and on terms acceptable to investors, and that potential investors remain supportive of the injection of (additional) capital. As a result, it is the Directors' reasonable expectation that the Group and Company can continue to operate and meet its liabilities as they fall due for the next 12 months.  On that basis, the Directors continue to adopt the going concern basis in preparing these accounts. 

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 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, response to claims and the redress programme, and internal control systems. 

Prior year restatement

On 4 August 2015, the Group obtained control of SD Taylor Limited, trading as Loans at Home ('LAH') through the purchase of 100% of the share capital. The fair value of the identifiable assets of LAH as at the acquisition date included £0.73m in relation to accruals for a recognised dilapidations provision on the properties owned by LAH (refer note 23 of the Annual Report and Accounts for the Financial Year ended 2015). Through the review of the 2021 financial statements, it was determined that an error in the acquisition accounting relating to this item at the Group consolidation level resulted in an understatement of the trade and other payables balance since 2015 with retained earnings understated by the same amount. As this adjustment occurs at Consolidation level only, there is no impact on the results of the Group's three divisions in the current or prior years (Branch-based lending, Guarantor Loans, and Home Credit). A prior year adjustment has therefore been made and the effect of this is outlined below:

 

As at 1 Jan 2020	Previous opening Group balance sheet 1 Jan 2020 £000	Adjustment at consolidation level £000	Restated opening balance sheet 1 Jan 2020 £000
Liabilities
Trade and Other payables	26,909	732	27,641
Equity
Retained loss	(74,181)	(732)	(74,913)
As at 31 Dec 2020	Previous Closing Group balance sheet 31 Dec 2020 £000	Adjustment at consolidation level £000	Restated closing balance sheet 31 Dec 2020 £000
Liabilities
Trade and Other payables	15,895	732	16,627
Equity
Retained loss	(206,995)	(732)	(207,727)

 

2. Changes in accounting policies and disclosures

 

New and amended Standards and Interpretations issued but not effective for the financial year ending 31 December 2021

In the current year and in accordance with IFRS requirements, the following accounting standards have been issued and were effective from 1 January 2021: Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (the Phase 2 amendments). The Group does not apply hedge accounting and its accounting policies are consistent with the new requirements. The Directors do not expect the adoption of these standards to have a significant effect on the financial statements of the Company in future periods. There are no other new standards not yet effective and not adopted by the Group from 1 January 2021 which are expected to have a material impact on the Group.

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

 

3. Revenue

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

	Year ended 31 Dec 2021 £000	Year ended 31 Dec 2020  £000
Interest income	131,387	164,102
Fair value unwind on acquired loan portfolio1	-	(1,437)
Total revenue	131,387	162,665

¹ In the prior year ended 31 December 2020, the fair value adjustment made to the acquired loan portfolio of the Guarantor Loans Division was fully unwound.

 

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

	Year ended 31 Dec 2021 £000	Year ended 31 Dec 2020  £000
Depreciation of property, plant and equipment	2,175	1,941
Depreciation of right to use asset	2,878	2,065
Amortisation and impairment of intangible assets	7,910	3,556
Staff costs excluding agent commission1	42,690	43,855
Rentals under operating leases	728	596
Profit on sale of property, plant and equipment	454	54

¹   Agent commission for the year ended 31 December 2021 was £9.5m (2020: £11.3m). Refer to note 1 for accounting policy.

 

5. Segment information

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

	Branch-based lending £000	Home credit £000	Guarantor loans1 £000	Central £000		2021 Total £000
Year ended 31 December 2021
Interest income	79,940	38,401	13,046	-		131,387
Fair value unwind on acquired loan portfolio	-	-	-	-		-
Total revenue	79,940	38,401	13,046	-		131,387
Exceptional provision for customer redress2	-	-	(2,207)	-		(2,207)
Operating profit/(loss) before amortisation	13,653	(2,204)	(272)	(4,085)		7,092
Amortisation of intangible assets	-	-	-	-		-
Operating profit/(loss) before exceptional provision for customer redress	13,653	(2,204)	(272)	(4,085)		7,092
Other exceptional items2	-	(8,542)	(601)	(1,580)		(10,723)
Finance cost	(14,491)	(1,102)	(4,350)	(6,036)		(25,979)
Loss before taxation	(838)	(11,848)	(5,223)	(11,701)		(29,610)
Taxation	48	158	299	(580)		(75)
Loss for the year	(790)	(11,690)	(4,924)	(12,281)		(29,685)
	Branch-based lending £000	Home credit £000	Guarantor loans1 £000	Central £000	Consolidation adjustments3 £000	2021 Total £000
Total assets	188,068	26,929	26,763	286,258	(186,880)	341,138
Total liabilities	(220,927)	(20,777)	-	(325,421)	184,800	(382,325)
Net assets/(liabilities)	(32,859)	6,152	26,763	(39,163)	(2,080)	(41,187)
Capital expenditure	2,191	1,662	-	129	-	3,982
Depreciation of plant, property and equipment	1,585	578	-	12	-	2,175
Depreciation of right of use asset	1,338	1,420	-	120	-	2,878
Amortisation and impairment of intangible assets	797	7,091	-	23	-	7,910

¹     The Guarantor Loans Division includes George Banco and TrustTwo. TrustTwo is supported by the infrastructure of Everyday Loans but its results are reported to the Board separately and has therefore been disclosed within the Guarantor Loans Division above.

²     There were £12.9m total exceptional items in 2021 (2020: £97.8m). Refer to note 6 for further details.

³        Consolidation adjustments include the acquisition intangibles of £nil (2020: £nil), goodwill of £nil (2020: £nil), fair value of loan book of £nil (2020: £nil) and the elimination of intra-Group balances.

 

	Branch-based lending £000	Home credit £000	Guarantor loans1 £000	Central £000		2020 Total £000
Year ended 31 December 2020
Interest income	89,788	43,834	30,480	-		164,102
Fair value unwind on acquired loan portfolio	-	-	(1,437)	-		(1,437)
Total revenue	89,788	43,834	29,043	-		162,665
Exceptional provision for customer redress2	-	-	(15,401)	-		(15,401)
Operating profit/(loss) before amortisation	13,419	(2,509)	(28,565)	(5,499)		(23,154)
Amortisation of intangible assets	-			(1,298)		(1,298)
Operating profit/(loss) before exceptional items	13,419	(2,509)	(28,565)	(6,797)		(24,452)
Exceptional items2	(6,017)	-	-	(76,416)		(82,433)
Finance cost	(18,594)	(1,228)	(7,467)	(1,547)		(28,836)
Loss before taxation	(11,192)	(3,737)	(36,032)	(84,760)		(135,721)
Taxation	-	-	-	164		164
Loss for the year	(11,192)	(3,737)	(36,032)	(84,596)		(135,557)
	Branch-based lending £000	Home credit £000	Guarantor loans1 £000	Central £000	Consolidation adjustments3 £000	2020 Restated Total £000
Total assets	220,702	38,745	59,794	391,597	(346,458)	364,380
Total liabilities	(271,981)	(19,021)	-	(332,946)	248,032	(375,916)
Net assets/(liabilities)	(51,279)	19,724	59,794	58,651	(98,426)	(11,536)
Capital expenditure	4,070	2,467	-	-	-	6,537
Depreciation of plant, property and equipment	1,643	261	-	37	-	1,941
Depreciation of right of use asset	1,321	615	-	129	-	2,065
Amortisation and impairment of intangible assets	571	1,665	-	1,320	-	3,556

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

 

6. Exceptional items

During the year ended 31 December 2021, the Group incurred exceptional costs totalling £12.9m (including VAT) (2020: £97.8m).  Exceptional items during the current year comprised:

·      £1.6m advisory fees incurred (Equity related fees are treated as non-deductible for tax purposes),

·      £2.2m additional interest costs accrued in relation to the guarantor loans redress program;

·      £0.6m relating to the guarantor loans redundancies arising as a result of the Group's announcement on 30 June 2021 to place the division into managed run-off; and

·      £8.5m (2020: £nil) in relation to the write-down of assets and the recognition of liabilities in the home credit division as a result of the business being placed into administration on 15 March 2022 and its financial statements no longer being prepared on a going concern basis.

In the prior year, the Group incurred £97.8m of exceptional costs that comprised: £47.1m write-down of the value of goodwill associated with Everyday Loans, £27.7m write-down of the value of goodwill associated with Loans at Home, £15.4m provision relating to the guarantor loans redress programme ; £5.8m fees written-off in relation to the Group's securitisation facility, equity related advisory fees of £1.4m and restructuring costs at branch-based lending of £0.4m.

 

7. Taxation

As at the 31 December 2021, the Group has continued not to recognise a deferred tax asset on its current year losses. Deferred tax assets not recognised in current and prior year losses as at 31 December 2021 totalled £21.8m (2020: £11.3m unrecognised deferred tax asset).

 

	Year ended 31 Dec 2021 £000	Year ended 31 Dec 2020 £000
Current tax charge
In respect of the current year	-	-
Prior period adjustment to current tax1	75	(1,841)
Total current tax charge	75	(1,841)
Deferred tax charge2	-	1,677
Prior period adjustment to deferred tax	-	-
Total tax charge/(credit)	75	(164)

¹ 2020 prior period adjustments primarily represent the benefit of claiming deductions for the costs related to the guarantor loan redress provision for which no tax deduction was assumed in the 2019 year (refer to note 13 for further detail).

² Unrecognised deferred tax assets arising from tax losses in the current year were £4.9m (2020: £8.4m).

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

	Year ended 31 Dec 2021 £000	Year ended  31 Dec 2020 £000
Loss before taxation	(29,610)	(135,721)
Tax on loss on ordinary activities at standard rate of UK corporation tax of 19% (2020: 19%):	(5,626)	(25,787)
Effects of:
Fixed asset differences	114	100
Expenses not allowable for taxation	456	17,222
Share-based payments	7	44
IFRS 16 adjustments	-	(23)
Prior year adjustments	75	-
Adjustment to tax charge in respect of previous periods	-	(2,168)
Adjustment to tax charge in respect of previous periods - deferred tax	-	-
Corporation tax rate change	-	-
Deferred tax rate change	-	79
Reversal of prior year deferred tax asset	-	2,021
Deferred tax assets not recognised on current year losses	5,049	8,348
Total tax (credit)/charge	75	(164)

Certain exceptional items and costs related to the Group's Save As You Earn ('SAYE') and long-term incentive plans Certain exceptional items and costs related to the Group's Save As You Earn ('SAYE') and long-term incentive plans are included within expenses not allowable for taxation' due the nature of these transactions. These include the £nil (2020: £75.5m) write-down of the value of goodwill associated with Loans at Home and Everyday Loans, as well as the write-down of the value of intangibles at Everyday Loans. Long-term incentive plan items disallowed relates to set-up costs and the fair value of the schemes at the date of grant totalling £nil (2020: £0.7m) and £1.6m of equity related advisory fees (2020: £1.6m).

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

 

8. Loss per share

	Year ended 31 Dec 2021	Year ended 31 Dec 2020
Retained loss attributable to Ordinary Shareholders (£000)	(29,685)	(135,557)
Weighted average number of Ordinary Shares at year ended 31 December	312,437,422	312,437,422
Basic and diluted loss per share (pence)	(9.50)p	(43.39)p

 

The loss per share was calculated on the basis of net loss attributable to Ordinary Shareholders divided by the weighted average number of Ordinary Shares in issue. The basic and diluted loss per share is the same, as the exercise of any share options would reduce the loss per share and is anti-dilutive. At 31 December 2021, nil shares were held as options and nil shares were held in treasury (2020: nil).

	Year ended 31 Dec 2021 '000	Year ended  31 Dec 2020 '000
Weighted average number of potential Ordinary Shares that are not currently dilutive	339	6,272

 

The weighted average number of potential Ordinary Shares that are not currently dilutive includes the Ordinary Shares that the Company may potentially issue relating to its share option schemes and share awards under the Group's long-term incentive plans and SAYE schemes. The amount is based upon the average number of shares over the year that would have been issued if 31 December 2021 was the end of the contingency period.

 

9. Dividends

As a result of the significant reported losses in 2020 and 2021, the Company does not have any distributable reserves and is therefore not in a position to declare a final dividend. 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 as soon as it is appropriate to do so.

As reported in the Interim Results to 30 June 2021, the Group did not declare a half-year dividend during the first half of 2021 (2020: nil).

 

10. Intangible assets

 

	Customer lists	Agent network	Brands	Broker relationships	Technology	LAH IT software development	Software	Total
	£000	£000	£000	£000	£000	£000	£000	£000
Cost
At 1 January 2021	21,924	540	2,005	9,151	6,227	10,401	5,600	55,848
Reclassification in current year	-	-	-	-	-	(65)	(18)	(83)
Additions	-	-	-	-	-	1,169	1,345	2,514
Disposals	-	-	-	-	-	-	1	1
At 31 December 2021	21,924	540	2,005	9,151	6,227	11,505	6,928	58,280
Amortisation
At 1 January 2021	21,924	540	2,005	9,151	6,227	4,445	3,319	47,611
Reclassification in current year	-	-	-	-	-	-	(10)	(10)
Charge for the year1	-	-	-	-	-	7,060	850	7,910
Disposals	-	-	-	-	-	-	(3)	(3)
At 31 December 2021	21,924	540	2,005	9,151	6,227	11,505	4,156	55,508
Net book value
At 31 December 2021	-	-	-	-	-	-	2,772	2,772
At 31 December 2020	-	-	-	-	-	5,956	2,281	8,237

¹ The Group's home credit division was placed into administration on 15 March 2022, As a result, the charge for the year includes £5.2m relating to the write down of assets to the amounts expected to be realised. Refer to note 1 for further detail.

 

	Customer lists	Agent network	Brands	Broker relationships	Technology	LAH IT software development	Software	Total
	£000	£000	£000	£000	£000	£000	£000	£000
Cost
At 1 January 2020	21,924	540	2,005	9,151	6,227	8,408	4,372	52,627
Additions	-	-	-	-	-	1,993	1,228	3,221
At 31 December 2020	21,924	540	2,005	9,151	6,227	10,401	5,600	55,848
Amortisation
At 1 January 2020	21,545	540	1,605	9,151	5,709	2,798	2,707	44,055
Charge for the year	175	-	185	-	239	1,647	612	2,858
Impairment1	204	-	215	-	279	-	-	698
At 31 December 2020	21,924	540	2,005	9,151	6,227	4,445	3,319	47,611
Net book value
At 31 December 2020	-	-	-	-	-	5,956	2,281	8,237
At 31 December 2019	379	-	400	-	518	5,610	1,665	8,572

¹  Impairment of acquisition intangibles were assessed as part of the goodwill assessment in 2020..

 

IAS 38.122 requires the Group to disclose the carrying value and remaining amortisation period of individual acquired intangible assets, the table below includes all material assets held by the Group as at 31 December 2021:

 

 

	Carrying value as at 31 Dec 2021	Carrying value as at 31 Dec 2020	Amortisation period remaining
Intangible assets	£000	£000	years and months
Loans at Home IT software development	-	5,956	3 years
Software	2,772	2,281	3 to 5 years

 

11. Amounts receivable from customers

 

	2021   £000	2020   £000
Gross carrying amount	265,021	320,942
Loan loss provision	(57,037)	(62,741)
Amounts receivable from customers	207,984	258,201

 

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

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

 

Included within the gross carrying amount above are unamortised broker commissions, see table below:	2021   £000	2020   £000
Unamortised broker commissions	6,653	9,231
Total unamortised broker commissions	6,653	9,231

 

The fair value of amounts receivable from customers are:

	2021 £000	2020 £00
Branch-based lending	208,440	284,911
Home credit	36,368	44,006
Guarantor loans1	31,366	105,100
Fair value of amounts receivable from customers	276,174	434,017

1    Includes amounts receivable from customers which have been provided for as part of the guarantor loans redress programme, refer to note 13 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).

 

Maturity of amounts receivable from customers:	2021   £000	2020   £000
Due within one year	109,148	134,073
Due in more than one year	98,836	124,128
Amounts receivable from customers	207,984	258,201

 

Analysis of receivables from customers

31 December 2021	Stage 1 £000	Stage 2 £000	Stage 3 £000	Total £000
Branch-based lending	141,979	33,723	7,138	182,840
Home credit	-	32,162	12,975	45,137
Guarantor loans	-	30,768	6,276	37,044
Gross carrying amount	141,979	96,653	26,389	265,021
Branch-based lending	(6,831)	(13,347)	(5,481)	(25,659)
Home credit	-	(9,186)	(11,911)	(21,097)
Guarantor loans	-	(5,965)	(4,316)	(10,281)
Loan loss provision	(6,831)	(28,498)	(21,708)	(57,037)
Branch-based lending	135,148	20,376	1,657	157,181
Home credit	-	22,976	1,064	24,040
Guarantor loans	-	24,803	1,960	26,763
Net amounts receivable	135,148	68,155	4,681	207,984

 

31 December 2020	Stage 1 £000	Stage 2 £000	Stage 3 £000	Total £000
Branch-based lending	140,418	39,472	5,772	185,662
Home credit	23,537	12,316	17,883	53,736
Guarantor loans	34,566	25,831	21,147	81,544
Gross carrying amount	198,521	77,619	44,802	320,942
Branch-based lending	(6,011)	(3,095)	(5,096)	(14,202)
Home credit	(1,876)	(8,124)	(16,789)	(26,789)
Guarantor loans	(1,366)	(5,864)	(14,520)	(21,750)
Loan loss provision	(9,253)	(17,083)	(36,405)	(62,741)
Branch-based lending	134,407	36,377	676	171,460
Home credit	21,661	4,192	1,094	26,947
Guarantor loans	33,200	19,967	6,627	59,794
Net amounts receivable	189,268	60,536	8,397	258,201

 

12. Deferred tax asset/(liability)

	£000
At 31 December 2019	1,677
Prior period adjustment to deferred tax in 2020	-
Reversal of prior year deferred tax assets in 2020	(1,677)
At 31 December 2020 and 31 December 2021	-

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

 

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

	2021 £000	2020 £000
Accelerated tax depreciation	271	(132)
Carried forward losses	18,214	7,295
Restatement of loan loss spreading	(30)	(28)
Other short-term timing differences	317	251
Unpaid employer pension contributions	100	32
FRS 102 adoption	(3)	39
IFRS 16 transitional adjustment	15	12
IFRS 9 transitional adjustment	2,949	2,615
Unpaid donations	4	-
Unrecognised tax losses	(21,837)	(10,084)
Net deferred tax asset	-	-

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

 

13. Trade and other payables and provisions

	2021 £000	2020 Restated1 £000
Trade creditors	955	614
Other creditors	3,932	5,446
Current tax liability	-	-
Accruals and deferred income	13,488	10,567
	18,375	16,627

¹ Refer note 1 for further detail on prior year restatement.

Provisions

 

	Plevin £000	Onerous contracts £000	Complaints £000	Dilapidations £000	Guarantor loans redress £000	Restructuring £000	Total
Balance at 31 December 2019	93	-	-	1,203	-	170	1,466
Charge during the year	(44)	-	5,129	120	15,313	(170)	20,348
Utilised	-	-	-	(1)	-	-	(1)
Balance at 31 December 2020	49	-	5,129	1,322	15,313	-	21,813
Charge during the year	-	282	4,936	15	2,251	601	8,085
Utilised	(49)	-	(3,432)	(68)	(636)	(70)	(4,255)
Balance at 31 December 2021	-	282	6,633	1,269	16,928	531	25,643

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. In the current year, the Group has recognised additional provisions for complaints and redress costs (further detail below).

Branch-based lending

The Group has recognised a provision for complaints of £2.0m as at 31 December 2021 (2020: £0.88m) 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. 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 Group has recognised a provision for complaints of £3.6m as at 31 December 2021 (2020: £3.4m) 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.

Redress programme for certain customers of the Guarantor Loans Division

The Group has recognised a provision for complaints of £0.95m as at 31 December 2021 (2020: £0.82m) in relation to potential outflows to customers related to past non-compliance with regulations relating to affordability assessments. In addition, part of the provision included in the statement of financial position relates to a provision recognised for the customer redress programme in the Group's Guarantor Loans Division totalling £16.9m (2020: £15.3). The provision is based on the Directors' best estimate of the full and final costs of the programme using the proposed methodology. The estimate includes: the sum of all redress due to affected customers, including penalty interest, of £18.1m, together with the cost of implementation of £0.36m, offset by existing impairment provisions of £1.5m, resulting in a net provision amount of £16.9m. The provision represents an accounting estimate of the expected future outflows arising using information available as at the date of signing these financial statements. Identifying whether a present obligation exists and estimating the probability, timing, nature and quantum of the redress payments that may arise from past events requires judgements to be made on the specific facts and circumstances relating to the individual customers concerned. The operational mechanics of the redress programme have not yet been agreed with the FCA and therefore whilst the quantum of provision for redress represents the Directors' best estimate of the ultimate cost of the redress, including penalty interest, as at the reporting date, it is possible that the eventual outcome may differ, perhaps materially, from the current estimate. Therefore, although the Directors believe their best estimate represents a reasonably possible outcome; there is a risk of a less favourable outcome. 

The Guarantor Loans Division continues to monitor its policies and processes and will continue to assess both the underlying assumptions in the calculation and the adequacy of this provision periodically using actual experience and other relevant evidence to adjust the provision where appropriate.

 

14. Contingent liabilities

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

The Group recognises that there continue to be risks around CMC activity in the non-standard lending sectors and the Group continues to incur the cost of settling complaints as part of its normal business activity. The Group has included a provision within its financial statements for complaints where the outcome has not yet been determined (refer to provisions in note 13) and continues to robustly defend inappropriate or unsubstantiated claims and is working closely with the FOS in this regard. However, it is possible that claims could increase in the future due to unforeseen circumstances such as COVID-19 and/or if FOS were to change its policy with respect to how such claims are adjudicated. Should the final outcome of these complaints differ materially to management's best estimates, the cost of resolving such complaints could be higher than expected. It is however not possible to estimate any such increase reliably.

In April 2021, the Group commissioned an independent review of the lending and complaints handling activities of its home credit division. The review concluded that customers may have suffered harm and, following extensive discussions with the FCA about how this should be defined and the implications for future lending, the directors of SD Taylor Limited (trading as 'Loans at Home') reluctantly concluded that the Loans at Home business was no longer viable and as a result the division was put into administration on the 15 March 2022. The Group recognises that whilst the conclusion noted that customers may have suffered harm, as at 31 December 2021 it is not possible to estimate such cost reliably. As such, there is a risk that the cost of such redress may have a material impact of the net asset/(liability) position of the division and Group as at 31 December 2021. The Group notes that any redress amounts agreed post administration will be dealt with by the administrators and thus fall into the period after which Non-Standard Finance plc no longer had control (see note 19 for further detail).

The Group has recognised a provision for a customer redress programme in the Group's Guarantor Loans Division based on the Directors' best estimate of the costs of the programme using the proposed methodology (refer to Provisions above). As the operational mechanics of the redress programme have not yet been agreed with the FCA, there is a risk of an increase in the redress provision over and above what has been provided for in the financial statements. 

 

15. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. The Company received dividend income of £nil from its subsidiary undertakings during the year (2020: £11.9m). The Company receives charges from and makes charges to these related parties in relation to shared costs, staff costs and other costs incurred on their behalf. As at 31 December 2021, the Company was owed £0.03m from its subsidiary undertaking S.D. Taylor Limited in relation to employee costs for the year ended 31 December 2021 (2020: £nil) and £0.07m to its subsidiary undertaking Everyday Loans Limited in relation to Group relief tax charges (2020: £0.07m). Intra-Group transactions between the Company and the fully consolidated subsidiaries or between fully consolidated subsidiaries are eliminated on consolidation. Please refer to note 21 for the year-end amounts due from subsidiaries to the Company and note 24 for year-end amounts due to subsidiaries from the Company.

There were no Executive Directors of Non-Standard Finance plc who were Trustees of the charity Loan Smart as at 31 December 2021 (2020: one). During the year, the Company donated £15,000 to Loan Smart (2020: £111,000).

One Director was a member of the Non-Standard Finance plc Long-Term Incentive Plan which lapsed in the prior year as at 31 December 2020. Further information about the remuneration of individual Directors is provided in the Directors' remuneration report in the 2021 Annual Report.

In the prior year ended 31 December 2020, the Group put in place a new six-year securitisation facility, of which £15m was drawn in April 2020. The nature of the facility required the setup of a Special Purpose Vehicle ('SPV') NSF Funding 2020 Limited, which is consolidated into the Group in line with the requirements of IFRS 10. Over the course of the current year, the SPV transacted multiple times with Everyday Lending Limited (a subsidiary within the Group) to facilitate the payment of maintenance fees (2020: transactions related to securitisation of loans and associated fees). As these transactions took place between two or more subsidiaries, they are deemed to be related party transactions, and have been eliminated on consolidation. In August 2020, the Group repaid the £15m (£10.5m net) previously drawn on its £200m securitisation facility such that the amount currently drawn under this facility is £nil as at 31 December 2021 (2020: £nil).

In the prior year in October 2020, the Group appointed Toby Westcott to the Board. Toby Westcott as a Nominee Director 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 £75,000 fee plus VAT per annum. Total fees paid in relation to these services totalled £75,000 (plus VAT) for the year ended 31 December 2021 (2020: £18,750 plus VAT).

 

16. Share capital

All shares in issue are Ordinary 'A' Shares consisting of £0.05 per share. All 312,437,422 shares are fully paid up.

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

During the year, the Company cancelled nil shares (2020: nil shares) and issued nil shares (2020: nil shares).

 

Share movements	Number
Balance at 31 December 2019 and 2020	312,437,422
Cancellation of shares	-
Issue of shares	-
Balance at 31 December 2021	312,437,422

Non-Standard Finance plc sponsors the Non-Standard Finance plc 2019 Employee Benefit Trust ('EBT') which is a discretionary trust established on 21 October 2019 for the benefit of the employees of the Group. The Company has appointed Estera Trust (Jersey) Limited to act as trustee of the EBT. The trustee has waived the right to receive dividends on the shares it holds. As at 31 December 2021, the EBT held nil (2020: nil) shares in the Company with a cost of £nil (2020: £nil) and a market value of £nil (2020: £nil).

 

17. Share premium

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

	Total £000
Balance at 31 December 2019 and 2020	180,019
Capital reduction	-
Issue of shares	-
Balance at 31 December 2021	180,019

 

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

	Year ended 31 Dec 2021	Year ended 31 Dec 2020
	£000	£000
Operating loss	(3,631)	(106,885)
Taxation (refund)/paid	-	(1,093)
Interest portion of the repayment of lease liabilities	(983)	(1,038)
Depreciation	3,833	4,006
Share-based payment charge	34	1,142
Amortisation of intangible assets	2,727	3,556
Intangible assets impairment loss	-	1,298
Goodwill impairment loss	-	74,832
Fair value unwind on acquired loan book	-	1,437
Exceptional charge for write-down of assets and recognition of liabilities of home credit division	8,542	-
Profit/(loss) on disposal of property, plant and equipment	1,022	54
Decrease/(increase) in amounts receivable from customers	48,522	100,713
Decrease/(increase) in other assets	-	1
Decrease/(increase) in receivables	(446)	852
(Decrease)/increase in payables and provisions	(1,858)	3,318
Cash generated/(used) in operating activities	57,762	82,193

 

19. Subsequent Events

Subsequent to 31 December 2021, the Directors of the Company's indirect subsidiary 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.  As a result, the financial results of the Group's home credit division have been prepared on a basis other than going concern. See note 1 and 6 for further detail. In line with IAS 37, the Group has not provided for costs for which an obligation did not exist as at 31 December 2021.

 

APPENDIX

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

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

Alternative performance measure	Definition
Net debt	Gross borrowings less cash at bank
Normalised revenue	Normalised figures are before fair value adjustments, amortisation of acquired intangibles and exceptional items (refer to note 6).
Normalised operating profit
Normalised profit before tax
Normalised earnings per share
Key performance indicator
Impairments/revenue	Impairments as a percentage of normalised revenues
Impairments (including modifications)/revenue	Impairments (including modification and derecognition losses) as a percentage of normalised revenues
Impairments/average loan book	Impairments as a percentage of 12-month average net loan book, excluding fair value adjustments
Net loan book	Net loan book before fair value adjustments but after deducting any impairment due
Net loan book growth	Annual growth in the net loan book
Operating profit margin	Normalised operating profit as a percentage of normalised revenues
Cost:income ratio	Normalised administrative expenses as a percentage of normalised revenue
Return on asset	Normalised operating profit as a percentage of average loan book excluding fair value adjustments
Revenue yield	Normalised revenue as a percentage of average loan book excluding fair value adjustments
Risk adjusted margin	Normalised revenue less impairments as a percentage of average loan book excluding fair value adjustments

Alternative performance measures reconciliation

1. Net debt

	31 Dec 2021 £000	31 Dec 2020 £000
Borrowings	330,000	330,000
Cash at bank and in hand1	(114,544)	(77,402)
	215,456	252,598

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

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

 

2. Normalised revenue

	Branch-based lending		Home credit		Guarantor loans		Group
	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000
Reported revenue	79,940	89,788	38,401	43,834	13,046	29,043	131,387	162,665
Add back fair value adjustments	-	-	-	-	-	1,437	-	1,437
Normalised revenue	79,940	89,788	38,401	43,834	13,046	30,480	131,387	164,102

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.

 

3. Normalised operating profit/(loss)

	Branch-based lending		Home credit		Guarantor loans		Group
	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000
Reported operating profit/(loss)	13,654	13,419	(2,204)	(2,509)	(272)	(28,565)	7,092	(24,452)
Add back fair value adjustments	-	-	-	-	-	1,437	-	1,437
Add back amortisation of intangibles	-	-	-	-	-	-	-	1,298
Add back exceptional provision for customer redress	-	-	-	-	2,207	15,401	2,207	15,401
Normalised operating profit/(loss)	13,654	13,419	(2,204)	(2,509)	1,934	(11,727)	9,299	(6,316)

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/(loss) before tax

	31 Dec 2021 £000	31 Dec 2020 £000
Reported loss before tax	(29,610)	(135,721)
Add back fair value adjustments	-	1,437
Add back amortisation and write-off of intangibles	-	1,298
Add back exceptional items	12,930	97,834
Normalised (loss)/profit before tax	(16,680)	(35,152)

Fair value adjustments, amortisation of intangibles, and exceptional items have been excluded due to them being non-business-as-usual transactions. The fair value adjustments and amortisation of intangibles have resulted from the Group making acquisitions, whilst the exceptional items are one-off and are not as a result of underlying business-as-usual transactions (refer to note 6 for further detail on exceptional costs in the year) and therefore do not reflect the underlying performance of the business. Hence, removing these items is deemed to give a fairer representation of the underlying profit performance within the financial year.

 

5. Normalised profit/(loss) for the year

	Group
	31 Dec 2021 £000	31 Dec 2020 £000
Reported loss for the year	(29,685)	(135,557)
Add back fair value adjustments	-	1,437
Add back amortisation of intangibles	-	1,298
Add back exceptional items	12,930	97,834
Adjustment for tax relating to above items	-	(164)
Normalised profit/(loss) for the year	(16,755)	(35,152)
Weighted average shares	312,437,422	312,437,422
Normalised earnings/(loss) per share (pence)	(5.36)p	(11.25)p

As noted above, fair value adjustments, amortisation of intangibles and exceptional items have been excluded due to them being non-business-as-usual transactions. The fair value adjustments and amortisation of intangibles have resulted from the Group making acquisitions, whilst the exceptional items are one-off and are not as a result of underlying business-as-usual transactions (refer to note 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		Home credit		Guarantor loans		Group
	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000
Normalised revenue	79,940	89,788	38,401	43,834	13,046	30,480	131,387	164,102
Impairment	(18,994)	(31,449)	(6,230)	(10,495)	1,061	(24,318)	(24,163)	(66,262)
Impairment as a percentage revenue	23.8%	35.0%	16.2%	23.9%	(8.1)%	79.8%	18.4%	40.4%

 

	Branch-based lending		Home credit		Guarantor loans		Group
	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000
Normalised revenue	79,940	89,788	38,401	43,834	13,046	30,480	131,387	164,102
Impairment and modifications	(20,337)	(36,258)	(6,230)	(10,495)	(417)	(28,434)	(27,024)	(66,262)
Impairment and modifications as a percentage revenue	25.5%	40.4%	16.2%	23.9%	3.2%	93.3%	20.6%	40.4%

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

 

7. Impairment as a percentage loan book

	Branch-based lending		Home credit		Guarantor loans		Group
	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000
Reported opening net loan book	171,460	214,783	26,947	39,904	59,794	106,961	258,201	361,648
Less fair value adjustments	-	-	-	-	-	(1,437)	-	(1,437)
Normalised opening net loan book	171,460	214,783	26,947	39,904	59,794	105,524	258,201	360,211
Reported closing net loan book	157,181	171,460	24,040	26,947	26, 763	59,794	207, 984	258,201
Less fair value adjustments	-	-	-	-	-	-	-	-
Normalised closing net loan book	157,181	171,460	24,040	26,947	26,763	59,794	207,984	258,201
Normalised opening net loan book	171,460	214,783	26,947	39,904	59,794	105,524	258,201	360,211
Normalised closing net loan book	157,181	171,460	24,040	26,947	26,763	59,794	207,984	258,201
Average net loan book	163,724	192,990	24,423	28,243	40,609	86,229	228,756	307,462
Impairment	(18,994)	(31,449)	(6,230)	(10,495)	1,061	(24,318)	(24,163)	(66,262)
Impairment as a percentage loan book	11.6%	16.3%	25.5%	37.2%	(2.6%)	28.2%	10.6%	21.6%

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

 

8. Net loan book growth

	Branch-based lending		Home credit		Guarantor loans		Group
	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000
Normalised opening net loan book	171,460	214,783	26,947	39,904	59,794	105,524	258,201	360,211
Normalised closing net loan book	157,181	171,460	24,040	26,947	26,763	59,794	207,984	258,201
Net loan book growth	(8.3%)	(20.2%)	(10.8%)	(32.5%)	(55.2%)	(43.3%)	(19.4%)	(28.3%)

 

9. Return on asset

	Branch-based lending		Home credit		Guarantor loans
	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000
Normalised operating profit	13,653	13,419	(2,204)	(2,509)	1,935	(11,727)
Average net loan book	163,724	192,990	24,423	28,243	40,609	86,229
Return on asset	8.3%	7.0%	(9.0%)	(8.9%)	4.8%	(13.6%)

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

 

10. Revenue yield

	Branch-based lending		Home credit		Guarantor loans
	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000
Normalised revenue	79,940	89,788	38,401	43,834	13,046	30,480
Average net loan book	163,724	192,990	24,423	28,243	40,609	86,229
Revenue yield percentage	48.8%	46.5%	157.2%	155.2%	32.1%	35.3%

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

 

11. Risk adjusted margin

	Branch-based lending		Home credit		Guarantor loans
	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000
Normalised revenue	79,940	89,788	38,401	43,834	13,046	30,480
Impairments	(18,994)	(31,449)	(6,230)	(10,495)	1,061	(24,318)
Normalised risk adjusted revenue	60,946	58,339	32,171	33,339	14,107	6,162
Average net loan book	163,724	192,990	24,423	28,243	40,609	86,229
Risk adjusted margin percentage	37.2%	30.2%	131.7%	118.0%	34.7%	7.1%

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

 

12. Operating profit margin

	Branch-based lending		Home credit		Guarantor loans
	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000
Normalised operating profit	13,653	13,419	(2,204)	(2,509)	1,935	(11,727)
Normalised revenue	79,940	89,788	38,401	43,834	13,046	30,480
Operating profit margin percentage	17.1%	14.9%	(5.7%)	(5.7%)	14.8%	(38.5%)

 

13. Cost to income ratio

	Branch-based lending		Home credit		Guarantor loans
	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000	31 Dec 2021 £000	31 Dec 2020 £000
Normalised revenue	79,940	89,788	38,401	43,834	13,046	30,480
Administration expense	(46,294)	(41,236)	(34,962)	(35,866)	(10,695)	(13,773)
Operating profit margin percentage	57.9%	45.9%	91.0%	81.8%	82.0%	45.2%

This measure allows review of cost management.