Non-Standard Finance plc. ( Non-Standard Finance, NSF, the Company or the Group ) Unaudited half year results to 30 June 2017

Transcription

1 Non-Standard Finance plc ( Non-Standard Finance, NSF, the Company or the Group ) Unaudited half year results to 30 June 2017 Highlights 3 August 2017 Normalised revenue (before fair value adjustments) of 52.2m (2016: 31.3m); reported revenue of 46.3m (2016: 29.1m) Normalised operating profit (before fair value adjustments, amortisation of acquired intangibles and exceptional items) of 8.5m (2016: 2.9m); reported operating loss of 1.2m (2016: loss of 4.1m) On a pro forma basis 1, normalised revenue was up 16% to 52.2m (2016: 44.9m); normalised pretax profit was up 26% to 5.4m (2016: 4.3m) Strong loan book growth across all divisions to reach 172.3m before fair value adjustments at 30 June 2017 ( 182.2m after fair value adjustments); (31 December 2016: 164.6m before fair value adjustments; 180.4m after fair value adjustments) Half year dividend up 67% to 0.5p per share (2016: 0.3p per share) Current trading: loan book growth continuing and the Group remains confident in the full-year outlook Agreement to acquire George Banco for 53.5m in cash; refinancing of existing bank facilities with a 225m six-year term loan provided by institutional investors; new 35m RCF provided by Royal Bank of Scotland see note 10 (post-balance sheet event) and separate announcement issued today Financial summary 6 months to 30 June % change '000 '000 Normalised pro forma revenue 2 52,235 44, % Reported revenue 46,297 29, % Normalised pro forma operating profit 2 8,486 7, % Reported operating (loss) (1,160) (4,075) +72% Normalised pro forma profit before tax 2 5,427 4, % Reported (loss) before tax (4,219) (6,002) +30% Normalised pro forma earnings per share p 1.17p +15% Reported (loss) per share (1.11)p (1.67)p +34% Half year dividend per share 0.50p 0.30p +67% 1 Assuming Everyday Loans and TrustTwo had been acquired on 1 January Normalised figures for 2016 are on a pro forma basis (as if Everyday Loans and TrustTwo had been acquired on 1 January 2016) and are before fair value adjustments, the amortisation of acquired intangibles and exceptional items. 3 Normalised earnings per share in 2017 is calculated as normalised profit after tax of 4.282m divided by the weighted average number of shares of 317,049,682. Normalised earnings per share in 2016 is calculated as pro forma Normalised profit before tax of 4.298m, taxed at 20% and divided by the weighted average number of shares of 294,851,859. In order to set out clearly the underlying performance of the Group, the tables below provide an analysis of the normalised results (excluding fair value adjustments and the amortisation of acquired intangibles) for the enlarged Group for the six month period to 30 June 2017 and also the comparable period in Note that the pro forma normalised results for 2016 assume that both Everyday Loans and TrustTwo had been part of the Group for the full six months ended 30 June

2 6 months to 30 Jun 17 Pro forma normalised 4 Everyday Loans Loans at Home TrustTwo Central costs NSF plc Revenue 28,204 22,526 1,505-52,235 Impairments (5,179) (8,615) (247) - (14,041) Revenue less impairments 23,025 13,911 1,258-38,194 Admin expenses (13,185) (12,355) (1,149) (2,252) (28,941) Temporary additional commission - (766) - - (766) Operating profit (loss) 9, (2,252) 8,486 Net finance cost (2,482) (357) (183) (37) (3,059) Profit (loss) before tax 7, (74) (2,289) 5,427 6 months to 30 Jun 16 Pro forma normalised 4 Everyday Loans Loans at Home TrustTwo Central costs NSF plc Pro forma Revenue 23,038 20,700 1,136-44,874 Impairments (4,410) (7,849) (179) - (12,438) Revenue less impairments 18,628 12, ,436 Admin expenses (10,392) (11,013) (492) (1,815) (23,712) Temporary additional commission - (1,002) - - (1,002) Operating profit (loss) 8, (1,815) 7,722 Net finance cost (2,792) (176) (185) (271) (3,424) Profit (loss) before tax 5, (2,086) 4,298 4 Assuming Everyday Loans was acquired on 1 January 2016 and adjusted to exclude fair value adjustments and amortisation of acquired intangibles. John van Kuffeler, Group Chief Executive, said We have continued to make good progress in the first half of 2017 with loan book growth continuing across each of our business divisions. Despite the investment in new branches and the significant expansion of our agent network, we achieved a 26% increase in normalised pre-tax profits during the first half. Since the end of June we have started to see the benefit of that investment with an encouraging current trading performance and this bodes well for the full year result. The acquisition of George Banco means we now have a leading position in each of our chosen business segments while the refinancing of the Group s bank facilities and the addition of a further 50m of committed funding plus a new 35m revolving credit facility provides the long-term debt funding to support our significant growth plans. The Group s performance since 30 June 2017 underpins our confidence in the full year outlook and we are pleased to declare a 67% increase in the half year dividend to 1.5m, or 0.5p per share. Context for the results The 2016 half year results include a full period for Loans at Home and just over two months of Everyday Loans (including TrustTwo) that was acquired on 13 April Ends 2

3 Interviews with John van Kuffeler, Chairman and Nick Teunon, Chief Financial Officer Interviews with John van Kuffeler and Nick Teunon will be available as video and text from 7.00 am on 3 August 2017 on the Group s website: Analyst meeting, webcast, dial-in and conference call details There will be an analyst meeting at 9.00 am on 3 August 2017 for invited UK-based analysts at the offices of JP Morgan, 60 Victoria Embankment, London, EC4Y 0JP (the entrance is in John Carpenter Street). The meeting will be simultaneously broadcast via webcast and conference call. To watch the live webcast, please register for access by visiting the Group s website Details for the dial-in facility are given below. A copy of the webcast and slide presentation given at the meeting will be available on the Group s website later today. Dial-in details to listen to the analyst presentation at 9.00 am, 3 August am Please call +44 (0) Access code am Meeting starts All times are British Summer Time (BST). For more information: Non-Standard Finance plc John van Kuffeler, Group Chief Executive Nick Teunon, Chief Financial Officer & Company Secretary Peter Reynolds, Director, IR and Communications Bell Pottinger Jonathan Hodgkinson Aarti Iyer Molly Stewart +44 (0) (0) About Non-Standard Finance Non-Standard Finance plc is listed on the main market of the London Stock Exchange (ticker: NSF) and was established in 2014 to acquire and grow businesses in the UK s non-standard consumer finance sector. Under the direction of its highly experienced main board, the Company has acquired a sustainable group of businesses offering credit to the c.10 million UK adults who are not served by (or choose not to use) mainstream financial institutions. Its three business areas are: unsecured branchbased loans, home-collected credit and guaranteed loans. Each business is fully licensed by the FCA and now has access to increased levels of funding and has benefited from stronger management controls; has refined its product pricing in a number of areas; has introduced new compliance protocols; and is investing in new IT infrastructure and systems. In the year ended 31 December 2016, the Group generated reported revenue of 72.6m; on a pro forma normalised basis revenue was 94.7m; reported operating loss of 5.2m and pro forma normalised operating profit of 18.7m. As at 31 December 2016, the Group had a combined loan book of 165m (before fair value adjustments). 3

4 Group Chief Executive s statement Results The Group delivered normalised revenue before fair value adjustments of 52.2m (2016: 31.3m) and normalised operating profit of 8.5m (2016: 2.9m). Reported revenue after fair value adjustments, was 46.3m (2016: 29.1m) and reported operating loss was 1.2m (2016: loss of 4.1m). On a pro forma basis, assuming Everyday Loans and TrustTwo had been owned for the full period in 2016, the Group generated normalised pro forma revenue of 52.2m (2016: 44.9m), normalised pro forma operating profit of 8.5m (2016: 7.7m) and normalised pro forma profit before tax of 5.4m (2016: 4.3m), a 26% increase over the prior year. The size of our combined net loan book across all businesses as at 30 June 2017 was 172.3m before fair value adjustment ( 182.2m after fair value adjustments) (30 June 2016: 146.8m; 168.8m after fair value adjustments) and we remain on course to achieve our objectives of 20% loan book growth per annum and a return on assets ( ROA ) of 20% in the medium-term. Everyday Loans Having opened three new branches during the first six months of the year, Everyday Loans had 44 branches open at 30 June 2017 and is the UK s largest branch-based provider of unsecured loans in the non-standard finance segment. Since the end of June, a further four branches have opened in July and we remain on course to reach our target of 12 new openings by the end of Despite the upfront investment in new branches and associated infrastructure costs, the business has performed as expected and achieved normalised operating profit of 9.8m (2016: 3.6m). The comparative operating profit performance on a normalised pro forma basis in 2016 was 8.2m. Loans at Home Loans at Home is the UK s third largest provider of home credit with a network at 30 June 2017 of 862 self-employed agents and more than 88,000 active customers. The restructuring of a major competitor has presented us with a significant opportunity to grow and we have recruited over 200 experienced agents in the first half and opened five new offices. Drawing upon our experience in 2016, we remained focused on recruiting the most experienced agents, establishing an individual profit and loss account for each new recruit so that we can track closely their weekly collections performance against a pre-agreed plan. The sheer numbers of agents seeking to join us in a relatively short period of time meant that, for a period, the business was stretched operationally with the result that impairment and network costs were higher than planned in the first half. The influx of experienced agents also meant that temporary agent commissions of 0.8m were incurred in the first half (2016: 1.0m). The result was that Loans at Home delivered normalised operating profit of 0.8m (2016: 0.8m) and is now a much larger business with the potential to grow much further. TrustTwo Founded in 2014, TrustTwo is well-positioned to become a leading player in the UK s expanding guaranteed loans market. Having more than doubled the value of monthly credit issued since it was acquired in April 2016, we continue to believe that there is significant scope to expand further and this is supported by the continued strong growth achieved in the first half of Having invested this year in our people, a new website and a much-improved customer journey, the business is now set to embark on a further period of strong growth. In the six months to 30 June 2016, TrustTwo delivered a 32% increase in revenue and although higher spend on supporting infrastructure meant that normalised operating profit declined to 0.1m (2016: 0.3m) (the comparative operating profit performance on a normalised pro forma basis in 2016 was 0.5m). We remain excited about the potential for TrustTwo, and believe the business is well-positioned for profitable growth following the investments made in H1. Agreement to acquire George Banco, refinancing of existing bank facilities and addition of committed funding In a separate announcement we have today announced the agreement to acquire George Banco for a total consideration of 53.5m. To finance the acquisition and refinance all of the Group s existing debt facilities, as well as to provide additional funding to support future growth, the Group has secured a new 175m term loan facility (the Term Loan ), provided by a group of institutional investors, led by Alcentra Limited. The new six-year loan bears an interest rate of LIBOR plus 7.25% per year with interest payable every six months. The same investors have also agreed to provide an additional committed 4

5 facility of up to 50m under the same terms as the Term Loan taking their total commitment to the Group to 225m. In addition, the Group has also secured a new 35m revolving credit facility ( RCF ) provided by Royal Bank of Scotland. The acquisition of George Banco means that the Group is now the clear number two in the UK s rapidly expanding guaranteed loan market, with a combined loan book of approximately 40m. At the date of acquisition, George Banco had a net loan book of c. 30m and in the twelve months to 31 May 2017 it generated revenue of 9.3m and normalised EBITDA of 4.1m. It is expected that the acquisition of George Banco will be earnings enhancing in the first full year following acquisition. Further details can be found in the separate announcement issued today and in note 10 to the financial statements. Business strategy With approximately 10 million adults either unwilling or unable to access credit from more mainstream banks and financial institutions, roughly one third of the UK working population is served by the nonstandard consumer finance market. Non-standard customers tend to have lower credit ratings, be credit impaired in some way or have low or variable income. The UK economic back-drop is one of continuing record high employment and historically low unemployment, despite the economic uncertainties caused by Brexit. It is also interesting to note that ONS statistics show that the bottom quintile of the UK s earners saw gross incomes rise by 9.6% in aggregate over the course of 2015 and Whilst not well-off in absolute terms, they are however relatively well-placed to cope with the current rate of inflation of approximately 3%. At the same time, much has been said and written about the levels of consumer debt and in particular consumer overindebtedness. Against this backdrop, we are focused on three segments of the non-standard market which have significant growth opportunities, high margins and strong defensive qualities. Whilst each segment is subject to different dynamics, we continue to believe that each is capable of delivering 20% annual loan book growth and a 20% return on assets. Branch Based Lending - Everyday Loans is our largest business and is the largest, branch-based lender to credit impaired customers in the UK. Such customers tend to earn around 30,000 per annum, which is close to the national average, however something in the past may have impacted their credit rating - perhaps a serious illness, loss of job, a divorce or even a county court judgement being made against them. After passing an initial credit check, we believe it is essential to also meet customers face-to-face in one of our branches so that we can understand what went wrong in the past, assess their current circumstances properly and most importantly determine whether they are able to afford the loan they are asking for. Our approach is not new, it is the way bank managers in the past got to know their customers so they could better serve their needs. It has the additional benefits of significantly reducing the risk of identity fraud and enabling our staff to assess both the customer s ability, as well as their propensity to repay a loan. Having been writing loans since 2006, the business has established an excellent track record in delivering great outcomes for customers. At the same time, the demand for our loan products is strong - clearing banks and other mainstream lenders have tightened their lending criteria significantly and while there is competition from a number of pure online lenders, their model produces impairment levels that are a multiple of that achieved by Everyday Loans with the result that few are profitable. By comparison, Everyday Loans' risk adjusted margin in the first half of 2017 increased to over 35% and it generated normalised operating profit of 9.8m. With 44 branches at the end of June 2017 and a further four branches opened in July 2017, we plan to continue to meet the needs of our customers by understanding their needs, providing them with suitable loan products they can afford and, if circumstances change, working with them to find a positive outcome for both borrower and lender. Home Credit At the heart of our business model at Loans at Home, our home credit business, is the regular visit by one of our self-employed agents to the customer s home. This face-to-face meeting usually takes place weekly and not only aids the cash collection process but also provides us as lender with up-to-date information about the customer's circumstances. As home credit customers tend to earn around 14,500 a year, or roughly half the national average, they can be more prone to unexpected, or temporary changes to their income or expenditure. Being aware of their circumstances 5

6 each week is key to ensuring that we deliver good customer outcomes. As most customers tend to borrow relatively small amounts ( ) two or three times a year, this knowledge ensures that we make good lending decisions and can tailor a loan to reflect a change in circumstances so that it remains affordable. Being self-employed, the agent has the flexibility to call on the customer at a time that works for both, it also means they can stay and talk more fully to the customer if there is a change in circumstance or something else is going on that they want to talk about. In contrast, we believe that a fully employed model, where customer calls are directed and timed by a central function, has favoured operational efficiency over good customer outcomes. At the heart of the home credit model has always been the strong sense of trust established between customer and agent, one that is founded on the weekly visit and on building a strong relationship. By adopting a less flexible operating model, we believe that the agent/customer relationship is compromised and delivering a good customer outcome becomes more difficult to achieve. Such flexibility however does not come at the expense of a reduced level of control - something we believe can be applied equally well using both models. Having been operated successfully in the UK since 1880, the self-employed model is proven and we believe it is the preferred route to delivering good outcomes for customers. The restructuring of one of our principal competitors has meant we have been able to recruit large numbers of highly-experienced self-employed agents as well as field staff. By the end of July 2017 the number of agents had grown to reach 986 in total and we expect to reach 1,000 by the year end. Also in July we added almost 50 field staff, principally business mangers that are each responsible for up to 10 agents. Guaranteed Loans - Guaranteed loans are different to our other two divisions as the presence of a guarantor changes the risk/reward dynamic and also influences positively the borrower s propensity to repay. By finding a suitable guarantor, a borrower with a thin or impaired credit rating is normally able to secure a loan in their own name at a significantly lower interest cost than if they sought to borrow on their own. After applying online or by phone and having passed a preliminary credit check, the lender then goes through income and expenditure of both borrower and guarantor and ensures both are fully aware of their obligations under the terms of the loan. Having first appeared in the UK just over ten years ago, guaranteed loans are a relatively new and more complex lending product for consumers, but the sector has grown strongly to reach total receivables of 440m in Since its launch in 2014, TrustTwo has grown rapidly into a scalable enterprise with a loan book of over 10m. The agreement to acquire George Banco announced today means that we are now the clear number two in the UK s guaranteed loans market, with a combined loan book of over 40m and a platform from which we intend to grow further. Technology While personal contact with our customers lies at the heart of our business, we are continuing to invest heavily in IT so as to provide us with market-leading data analytics and a customer interface that appeals to all customers and across all channels. Long-term funding - as set out in a separate announcement today, having refinanced our existing bank facilities and secured additional debt funding we can both execute the strategic plans of each of our operating businesses, as well as consider complementary or alternative value creation strategies within the non-standard, unsecured loans segment. Access to funding is the lifeblood of any consumer finance business and with this now in place, we have a significant competitive advantage over smaller or less well-capitalised groups. The achievement of our long-term goals will require that we execute well and assess rigorously the commercial, regulatory and reputational risks of any chosen strategy or investment. At the heart of such assessment is whether or not we are treating customers fairly, delivering great customer outcomes and lending responsibly. If we get these things right then the benefits of our endeavours will follow. Our businesses have strong positions in growing markets with high margins and strong defensive qualities, underpinned by long-term funding. 6

7 Regulation Having submitted its application for full authorisation in 2015, Loans at Home received all of its remaining permissions from the Financial Conduct Authority (FCA) on 16 May 2017 with the result that each of the Group s operations are now fully authorised by the FCA. Everyday Loans also received its high-cost, short-term credit licence during the second quarter of 2017 and has subsequently launched a 12-month loan product. The FCA recently published the following documents relating to consumer credit: Staff Incentives and performance management - The FCA is consulting on a package of rules and guidance to help consumer credit firms identify and manage their risks effectively. Having published findings from a piece of thematic work across a number of consumer credit firms, the FCA is concerned that some firms have inadequate systems and controls to manage the risks of staff incentives. High Cost Credit Review The FCA has published the outcome of its review into high-cost credit, which includes its assessment of the effectiveness of the payday loan price cap. Following the review it has decided to leave the existing payday loan price cap in place, and to review it again in It has also raised concerns over the way in which unarranged overdrafts are provided and believes some changes may be necessary. It also announced that it intends to consult in Spring 2018 regarding some proposed tailored solutions that it believes may help to reduce customer detriment in certain areas including the rent-to-own, home-collected credit and catalogue credit sectors. Assessing Creditworthiness - The FCA has announced a consultation on proposed rules and guidance for consumer lending firms on assessing creditworthiness in consumer credit. Having recently received full authorisation for Loans at Home from the FCA after a lengthy licensing process, we remain confident that the processes and procedures now in place at each of our licensed businesses are meeting the high bar set by the FCA. From the very outset, we made clear our intent to build a strong culture across each of our businesses, one that is focused on treating customers fairly and on doing the right thing - not just because the FCA s regulatory framework demands it, but also because as a business we believe that such an approach drives superior long-term operational and financial performance. We believe the FCA s approach is one that is working well and we are a strong advocate for it. As a result, whilst we continue to monitor all regulatory developments closely and where appropriate, participate fully in any associated debate, we do not anticipate any material adverse changes on the horizon. That said, we are not complacent and are ready to implement whatever measures are deemed necessary to further improve the delivery of great outcomes for our customers. A summary of some of the recent regulatory developments that may have a bearing on the Group s businesses is set out in the appendix. Half year dividend Having declared an inaugural dividend in August 2016, the Board is pleased to declare a 67% increase in the half year dividend to 0.5p per share (2016: 0.3p) with a total half year dividend pay-out of approximately 1.6m (2016: 1.0m). The half year dividend of 0.5p per share (2016: 0.3p) will be payable on 18 October 2017 to those shareholders on the register of shareholders on 22 September 2017 (the Record Date ). Current trading and outlook Since the end of June 2017, each of our three businesses has continued to perform well, driven by further loan book growth. We have continued to make good progress in the first half of 2017 with loan book growth continuing across each of our business divisions. Despite the investment in new branches and the significant expansion of our agent network, we achieved a 26% increase in normalised pre-tax profits during the first half. Since the end of June we have started to see the benefit of that investment with an encouraging current trading performance and this bodes well for the full year result. 7

8 The agreement to acquire George Banco, together with the refinancing of all of the Group s bank facilities and the addition of a further 50m of committed funding plus a new 35m revolving credit facility means we now have a leading position in each of our chosen business segments with the longterm debt funding in place to support our significant growth plans. The Group s performance since 30 June 2017 underpins our confidence in the full year outlook and we are pleased to declare a 67% increase in the half year dividend to 1.5m, or 0.5p per share. John de Blocq van Kuffeler Group Chief Executive 3 August

9 Financial review The timing and significance of the acquisition of Everyday Loans (including TrustTwo) means that the reported results for the Group in the first half of 2016 do not reflect the underlying performance of the Group s operations and so we have also provided pro forma figures for 2016 to illustrate what revenues, profits and other key performance metrics would have been, had Everyday Loans (including TrustTwo) been acquired at the beginning of Both the reported and pro forma results are significantly affected by temporary additional commission paid to newly signed-up agents at Loans at Home, fair value adjustments and the amortisation of acquired intangibles. Group reported results The reported results for the Group for the six months to 30 June 2017 included a full period of all businesses whilst the reported results for the six months to 30 June 2016 include a full period of Loans at Home and just over two months performance from Everyday Loans (including TrustTwo) that was acquired on 13 April months to 30 June Normalised 5 Fair value adjustments, amortisation of acquired intangibles and exceptional items Reported Reported '000 '000 '000 '000 Revenue 52,235 (5,938) 46,297 29,123 Impairments (14,041) - (14,041) (9,891) Admin expenses (28,941) (3,709) (32,650) (22,305) Temporary additional commission (766) - (766) (1,002) Operating profit (loss) 8,486 (9,647) (1,160) (4,075) Exceptional items (626) Profit (loss) before interest and tax 8,486 (9,647) (1,160) (4,701) Finance cost (3,059) - (3,059) (1,301) Profit (loss) before tax 5,427 (9,647) (4,219) (6,002) Taxation (1,146) 1, ,084 Profit (loss) after tax 4,282 (7,814) (3,532) (4,918) Loss per share (1.11)p (1.67)p Dividend per share 0.50p 0.30p 5 Reported figures, adjusted to exclude fair value adjustments and amortisation of acquired intangibles Normalised revenue was 52.2m (2016: 31.3m) reflecting a full period of Everyday Loans and TrustTwo while the prior year included just over two months as the acquisition of both businesses completed on 13 April Despite increased administration costs to support an expanded branch network as well as a larger network of self-employed agents, normalised operating profit was 8.5m (2016: 3.9m). The influx of new, experienced agents at Loans at Home also meant that temporary additional commission of 0.8m (2016: 1.0m) was incurred, as well as a full period of fair value adjustments and amortisation of acquired intangibles totalling 9.6m (2016: 7.0m) that were associated with the acquisition of Everyday Loans. As a result, the reported operating loss in the first half of 2017 was 1.2m (2016: loss of 4.1m). Net finance costs of 3.1m (2016: 1.3m) resulted in a reported loss before tax of 4.2m (2016: loss before tax of 6.0m). A tax credit of 0.6m (2016: tax credit of 1.1m) meant that the loss after tax was 3.5m (2016: loss after tax of 4.9m) equating to a reported loss per share of 1.11p (2016: loss per share of 1.67p). A more detailed review of each of the operating businesses is outlined below showing results on a pro forma as well as a reported basis. 9

10 Divisional overview Everyday Loans Everyday Loans is the largest branch-based provider of unsecured loans in the UK s non-standard finance sector and delivered a robust performance in the period with strong growth across a range of key performance indicators. As at 30 June 2017 there were 44 branches open, servicing 41,300 active customers, an increase of 11% over the prior year and a with a total net loan book of 130.6m, up 16%. The previously announced investment in 12 new branches during 2017 remains on-track and three new branches opened during the period to 30 June Since then a further four branches have opened taking the total number now open to 48. Whilst contrarian to other, remote-only business models, we believe that branch-based lending is able to provide a more tailored and robust lending process by meeting customers face-to-face, benefiting our customers and also our shareholders by helping to ensure we make better lending decisions. This is evidenced by Everyday Loans proven track record of delivering a robust financial performance during previous economic downturns while many other lenders have struggled. Having completed the acquisition of Everyday Loans on 13 April 2016, the reported figures for the six months to 30 June 2016 include only a part period and so we have also included pro forma figures for Everyday Loans for the period to 30 June 2016 so as to allow a like-for-like performance comparison. Reported results Normalised revenue was 28.2m (2016: 10.0m) driven by strong loan book growth, an almost two percentage points increase in average revenue yield and the fact that the business was owned for the full period. The increase in fair value adjustments to 6.0m (2016: 2.0m) reflected a full period of the unwinding of the adjustment made to the acquired loan portfolio and resulted in reported revenue of 22.3m (2016: 8.1m). A modest increase in impairments as a percentage of revenue on a rolling 12- month basis reflected the decision to broaden the product range so that we could lend to customers with lower credit scores. While loss rates tend to be higher, this is offset by higher levels of APR. As a result and with the inclusion of a full six months contribution from Everyday Loans and TrustTwo, this meant that reported impairment increased to 5.2m (2016: 2.0m). Additional investment associated with the planned new branch openings, including increased staff levels and training meant that administrative expenses increased to 13.2m (2016: 4.4m) resulting in total normalised operating profit of 9.8m (2016: 3.6m) and reported operating profit was 3.9m (2016: 1.7m). To achieve our medium-term targets of 20% annual loan book growth and a 20% return on net assets, we have been focused on expanding the branch network, introducing new products and delivering operational improvements. New branch openings - with a number of existing branches at or close to capacity, it was clear that conversion rates from applications made to loans being booked was being impacted. Our plan to open 12 new branches this calendar year aims to improve conversion and increase customer reach. Our plan remains on-track and as at 30 June 2017 we had already opened Chester, East Finchley and Southampton this year. Since then, we have also now opened Brighton, Northampton, Stoke-on-Trent and Hamilton. The number of applications to all branches in the six months to 30 June 2017 was up 41% to 138,800 (2016: 98,600) while the total number of loans booked increased by 21% to 9,100 (2016: 7,500). Introduction of new products our new Selfy loan, that has been specifically designed for the selfemployed, has grown strongly with over 300 loans written during the period with total net receivables of 1.9m (2016: nil). Having been awarded our license for high-cost, short-term credit from the FCA earlier in the year, we recently launched a new 12-month loan that we expect will prove a popular starter product for new customers, typically for smaller amounts up to 1,000. This will provide the customer with an opportunity to prove their creditworthiness on a relatively short-term loan before perhaps moving to a larger loan over a longer-term. Operational improvements esignature and faster payments are being introduced and represent two significant steps towards enhancing the overall customer experience and this should also improve conversion. Separately, we have begun to reorganise our branch management structure with the creation of three new area managers covering Wales, North East England and North East London. 10

11 Each area manager is responsible for between three and four branches and will be incentivised to maximise the performance from all branches in their area. Benefits of this new structure are expected to include: increased sharing of best practice between local branches to maximise performance; the creation of a clear career path for branch managers in a particular area; and an opportunity to better manage customer volumes across branches within a particular area. 6 months to 30 June Normalised 6 Fair value adjustments Reported Reported '000 '000 '000 '000 Revenue 28,204 (5,938) 22,266 8,068 Impairments (5,179) - (5,179) (1,979) Revenue less impairments 23,025 (5,938) 17,087 6,089 Admin expenses (13,185) - (13,185) (4,434) Operating profit 9,840 (5,938) 3,902 1,655 Finance cost (2,482) - (2,482) (787) Profit before tax 7,358 (5,938) 1, Taxation (1,536) 1,128 (408) (164) Profit after tax 5,822 (4,810) 1, Reported figures, adjusted to exclude fair value adjustments and amortisation of acquired intangibles Pro forma results 6 months to 30 June 2017 Pro forma Normalised 2016 Pro forma Normalised Revenue 28,204 23,038 Impairments (5,179) (4,410) Revenue less impairments 23,025 18,628 Admin expenses (13,185) (10,392) Operating profit 9,840 8,236 Net finance cost (2,482) (2,792) Profit before tax 7,358 5,444 Taxation (1,536) (1,083) Profit after tax 5,822 4,361 Key Performance Indicators 7 Number of branches Period end customer numbers (000) Period end loan book ( m) Average loan book ( m) Revenue yield % 43.4% Risk adjusted margin % 34.3% Impairments/revenue % 18.8% Operating profit margin % 37.6% Return on asset % 16.3% 7 Key performance indicators have been provided using pro forma normalised data only as reported data for 2016 only includes performance metrics from the date of acquisition 8 Excluding fair value adjustments 9 Excluding fair value adjustments based on a twelve month average 10 Revenue as a percentage of average loan book excluding fair value adjustments (twelve month average) 11 Revenue less impairments as a percentage of average loan book excluding fair value adjustments (twelve month average) 12 Twelve month average 13 Operating profit as a percentage of average loan book excluding fair value adjustments (twelve month average) Pro forma normalised revenue increased by 22% to 28.2m (2016: 23.0m) driven by strong growth in the loan book which had increased by 16% to 130.6m as at 30 June 2017 (2016: 112.6m), as well as by an increase in yield to 45.3% (2016: 43.4%) reflecting a shift in mix as well as a revision to our riskbased pricing approach. Impairments as a percentage of revenue also increased to 19.6% on a rolling 11

12 12-month basis (2016: 18.8%) reflecting the extension of the Group s customer base to now include those individuals with lower credit ratings. Administrative expenses were up 27% to 13.2m (2016: 10.4m) driven by volume growth and various supporting infrastructure costs including training and recruitment. There was also approximately 0.6m of costs associated with the new branch openings in The result was that, despite these increased costs, normalised operating profit was up 19% to 9.8m (2016: 8.2m). Lower finance costs reflected the benefit of the new bank facility put in place at the time of acquisition and resulted in a normalised pre-tax profit of 7.4m, up 35% versus the comparative pro forma normalised figure for the prior year of 5.4m. Plans for the rest of 2017 We are making good progress with our branch opening programme and remain on-track to reach 12 new branches by the end of the year. Whilst always vigilant regarding the potential impact of changes to the macroeconomic outlook, we are continuing to experience strong demand for our product and so have begun to turn our attention to 2018 and the potential to add further branches to our network. The addition of faster payments and esignature should also help us to deliver an even better service for customers and increase conversion while the addition of new capacity and our focus on greater collaboration between branches should help us to deliver further operational efficiencies. Whilst still relatively small in terms of overall volume, our new Selfy loan product that has been designed specifically for the self-employed, has started well and we believe it can grow strongly with additional and highly targeted marketing support. We recently launched a 12-month product and continue to work on developing new products that we believe will complement our existing range, improve conversion and drive further loan book growth. Loans at Home Loans at Home is the UK s third largest home credit business with approximately 88,300 customers and 862 self-employed agents at 30 June Net loan book growth has remained strong and was up by 16% at 30 June 2017 to 31.2m (2016: 26.9m). Whilst the UK home credit market is not expected to grow in terms of total numbers of active customers or total receivables, we continue to believe that the shift in approach by the market leader, coupled with changes to the regulatory regime have combined to create a significant opportunity for us to grow the business substantially over the next few years. Since the start of the 2017, we have continued to invest in our network of self-employed agents and have seen the total number of agents increase by 77 since the end of December However, this net increase masks a significant improvement in the quality of our network with the addition of 229 new agents, the balancing figure representing the departure of agents that were not meeting the high standards we expect and the consolidation of a number of smaller agencies. Whilst managing such an increase in the number of new agents in such a short space of time put significant, short-term strain on the existing infrastructure in the form of increased impairments, temporary agent commissions and higher administration costs, the consistent strong performance of each of the newly recruited agents bodes particularly well for the second half of the year. For each new agent we have developed an individual profit and loss account and are monitoring their weekly performance against pre-agreed projections using a variety of metrics including collections and lending performance as well as customer recruitment. As a result, we have been able to track their performance both individually as well as in aggregate. Impairment as a percentage of revenue on a rolling twelve month basis increased marginally versus that for the full year in 2016 to reach 37.5% of revenue (full year 2016: 36.3%). This was despite the introduction of a more stringent scorecard for new customers in the second half of 2016, as loans written before the new scorecard was adopted continued to impact impairment in the first half of The performance of loans issued since the revised scorecard was introduced has been much better. Separately, having to on-board so many agents in such a short period of time meant that management resources were stretched with the result that collections performance was impacted. 12

13 Reported results Normalised revenue was 22.5m (2016: 20.7m). Reported revenue in the prior year was slightly lower at 20.5m due to the unwinding of the remainder of the fair value adjustment made to the loan book at the time of acquisition. Higher administration costs of 12.4m (2016: 11.0m), included staff costs of 5.5m ( m), 4.1m in agent commission (2016: 3.7m) and reflected a significant step-up in investment in training and recruitment as well as new technology as we completed the roll-out of our new collections application to all agents. The net result was that normalised operating profit before temporary additional commission was slightly down on last year to 1.6m (2016: 1.8m). The recruitment of a large number of highly experienced agents in the period meant that we paid 0.8m of temporary additional commission (2016: 1.0m) so as to underpin each new agent s total earnings whilst they establish a sufficient number of customers to support their desired level of income in accordance with our standard contract terms. Reported operating profit was 0.8m (2016: 0.6m) reflecting the reduced cost of temporary additional commission paid to agents and the absence of fair value adjustments to revenue outlined above. While the influx of new agents means that temporary agent commissions will increase in the second half, we remain on course to achieve our full year objective of ensuring that the net impact of any recruitment, including all temporary agent commission paid, is at least neutral versus our previous expectations for the full year result. 6 months to 30 June Reported Reported '000 '000 Revenue 22,526 20,487 Impairments (8,615) (7,849) Revenue less impairments 13,911 12,638 Admin expenses (12,355) (11,013) Temporary additional commission (766) (1,002) Operating profit Finance cost (357) (176) Profit before tax Taxation (82) (89) Profit after tax Key Performance Indicators 14 Period end agent numbers Period end number of offices Period end customer numbers (000) Period end loan book ( m) Average loan book ( m) Revenue yield (%) 152.6% 144.2% Risk adjusted margin (%) 95.4% 102.8% Impairments/revenue (%) 37.5% 28.7% Operating profit margin (%) 4.5% 4.9% Return on asset (%) 6.9% 7.1% 14 All definitions are as per above. Plans for the rest of 2017 Since the end of June 2017 we have continued to attract experienced agents who are keen to join our network and have been able to reduce the number of vacancies to 6% of total agent rounds. As at the end of July, the number of agents had increased to 986 and based upon our current plans, we expect to end the year with approximately 1,000 agents in total, a 27% increase over the number at the end of December While customer numbers fell to 88,300 (2016: 98,000), this reflected a more stringent 13

14 approach to new lending and this is helping to improve the quality of our customer base. With long-term funding in place, we are able to fund further growth in the current year. Having rolled-out our collections app in February 2017, the second phase of our technology roll-out is well under way and we expect to have all of our agents using the new affordability app later this year. TrustTwo TrustTwo was acquired as part of Everyday Loans in April 2016 and is now a stand-alone division with a scalable platform in the rapidly expanding guaranteed loans segment of the UK s non-standard finance market. In the six months to 30 June 2017, the business continued to grow strongly with the number of loans booked up 101% and customer numbers up 25% to 3,700 (2016: 3,000). Operationally, the focus in 2017 has been on improving both the customer journey and also the product offer with an all-new website and differentiated pricing launched earlier in the year. Other operational improvements include the addition of a dedicated outbound call centre to reach applicants more quickly and the introduction of esignature and faster payments. The result has been a marked increase in conversion and this fed through into increased lending with the result that as at 30 June 2017, the net loan book had increased by 43% to 10.5m (2016: 7.3m). Whilst the upfront investment in people and technology held back the profit performance in the first half, we are encouraged by the strong performance to-date and remain confident about the business long-term prospects. June 2017 was TrustTwo s strongest month to-date with over 258 new loans written with a net receivables value of over 1m. Reported results Strong underlying loan book growth together with the benefit of a full period s contribution delivered a strong uplift in reported revenue to 1.5m (2016: 0.6m). However, significant investment in people and infrastructure costs held back operating profit that reduced to 0.1m (2016: 0.3m). 6 months to 30 June 2017 Reported 2016 Reported Revenue 1, Impairments (247) (63) Revenue less cost of sales 1, Admin expenses (1,149) (236) Operating profit Net finance cost (183) (67) (Loss)/profit before tax (74) 202 Taxation 14 (40) (Loss)/profit after tax (60) 162 Pro forma results On a pro forma basis, assuming the business had been owned for the full period in 2016, TrustTwo generated pro forma revenue of 1.5m, an increase of 32% over the prior year (2016: 1.1m). As noted above, significant investment in people and infrastructure, including the new website launch, meant that admin expenses increased by 134% to 1.1m (2016: 0.5m) and pro forma operating profit was 0.1m (2016: 0.5m). While the resultant return on asset remained well short of our 20% target, TrustTwo is a business with significant potential and we remain confident in our plans to reach the target in the medium-term. 14

15 6 months to 30 June 2017 Pro forma 2016 Pro forma Revenue 1,505 1,136 Impairments (247) (179) Revenue less cost of sales 1, Admin expenses (1,149) (492) Operating profit Net finance cost (183) (185) (Loss)/profit before tax (74) 280 Taxation 14 (56) (Loss)/profit after tax (60) 224 Key Performance Indicators Period end customer numbers (000) Period end loan book ( m) Average loan book ( m) Revenue yield 31.7% 31.4% Risk adjusted margin 27.4% 25.4% Impairment/revenue 15.3% 19.1% Operating profit margin 11.7% 12.2% Return on asset % 3.8% 15 Assuming TrustTwo was acquired on 1 January 2016 and adjusted to exclude fair value adjustments and amortisation Plans for the rest of 2017 The agreement to acquire George Banco represents a major strategic step for the Group and positions the Group as the clear number two in guaranteed loans. Whilst it is expected that both George Banco and TrustTwo will continue to be run as separate brands, we believe there is scope to extract meaningful operational improvements across both businesses over the coming 18 months. We remain focused on improving conversion and on increasing the volume of referrals from the Everyday Loans branch network. This represents a unique and valuable source of additional traffic for TrustTwo and helped to drive total new loan volume that in the month of June 2017 reached 1.0m of new loans written. We believe that there remains significant scope to increase this further over the coming months. Central costs 6 months to 30 June 2017 Normalised Amortisation of acquired intangibles 2017 Reported 2016 Reported Revenue Admin expenses (2,252) (3,709) (5,961) (6,622) Exceptional items (626) Operating loss (2,252) (3,709) (5,961) (7,248) Net finance (cost)/income (37) - (37) (271) Loss before tax (2,289) (3,709) (5,998) (7,519) Taxation ,163 1,377 Loss after tax (1,831) (3,004) (4,835) (6,142) 16 Adjusted to exclude amortisation of acquired intangibles related to the acquisition of Loans at Home and Everyday Loans Normalised administrative expenses for the period were 2.2m (2016: 1.8m) and include head office costs associated with the running of the plc as well as advisory and other related expenses associated with the review of potential acquisition targets. In addition, the Group incurred 3.7m of amortisation of intangible assets (2016: 4.8m) recognised on the acquisition of both Loans at Home and Everyday Loans. There were no exceptional charges versus 0.6m in the prior year that related to stamp duty paid at completion on the acquisition of Everyday Loans. Net finance cost fell significantly as the prior 15

16 year included the non-utilisation fee on the Everyday Loans bank facility prior to the drawdown at completion. IFRS 9 The International Accounting Standard Board s introduction of a new accounting standard covering financial instruments becomes effective for accounting periods beginning on or after 1 January This standard replaces IAS39: Financial Instruments: Recognition and Measurement. The new standard requires that lenders (i) provide for the expected credit loss ( ECL ) from performing assets over the following year as a result of defaults forecast in the year and (ii) provide for the ECL over the life of the asset where that asset has seen a significant deterioration in credit risk. As a result, whilst the underlying cash flows from the asset are unchanged, IFRS9 will have the effect of bringing forward provisions into earlier accounting periods. This will result in a one-off adjustment to receivables and reserves on adoption of the new standard and will result in later recognition of profits, particularly in fast growing businesses such as Everyday Loans, Loans at Home and TrustTwo. The Group is continuing to work on quantifying the impact of IFRS 9 and expects to be in a position to provide a summary of the impact on the 2016 full year results at an investor day to be held during the fourth quarter of Principal risks There are a number of potential risks and uncertainties which could have a material impact on the Group s performance over the remaining six months of the financial year and could cause reported and pro forma results to differ materially from expected and historical results. The principal risks facing the Group, together with the Group s risk management process in relation to these risks, are unchanged from those reported in the Group s Annual Report for the period ended 31 December 2016 (which is available for download at and relate to the following areas: Conduct risk of poor outcomes for our customers or other key stakeholders as a result of the Group s actions that may result in censure or penalty; Regulation risk through changes to regulations or a failure to comply with existing rules and regulations; Credit risk of loss through poor underwriting or a diminution in the credit quality of the Group s customers; Business strategy and operations risk that the Group fails to execute its plan as expected or that the outcome from executing such strategy is not as planned; Liquidity whilst uncertainty in global financial markets remains following the UK s decision to leave the European Union, there is a risk that the Group may be unable to secure sufficient finance in the future; and Reputation a failure to manage one or more of the risks above may damage the reputation of the Group or any of its subsidiaries that in turn may materially impact the future operational and/or financial performance of the Group. On behalf of the Board of Directors Nick Teunon Chief Financial Officer 3 August