Morses Club PLC Interim results for the twenty-six weeks ended 26 August 2017

Transcription

1 Morses Club PLC Interim results for the twenty-six weeks ended 26 August October 2017 Morses Club PLC ( the Company or Morses Club ), the UK s second largest home collected credit ( HCC ) lender, is pleased to announce its interim results for the twenty-six-week period ended 26 August Highlights Strong first half performance with revenue up 14.8% to 54.2m (H1 FY17: 47.2m) Net loan book growth of 16.0% to 65.2m (H1 FY17: 56.2m) Impairment as a percentage of revenue for the period was 26.6% (H1 FY17: 22.5%) remaining within our target range and reflecting our growth plans 12.6% increase in customer numbers to 233,000 (H1 FY17: 207,000) Significant increase in territory builds to 434 (H1 FY17: 114), introducing additional high quality customers * Reduced cost / income ratio to 56.4% (H1 FY17: 58.3%) 11,100 live Morses Club Cards issued, with loan balances of 4.6m Secured additional funding to increase overall revolving facility from 25m to 40m Adjusted 1 profit before tax up at 8.7m (H1 FY17: 8.6m); reported profit before tax up to 6.7m (H1 FY17: 4.6m) Adjusted 1 EPS 5.3p (H1 FY17: 5.3p); Basic EPS 3.9p (H1 FY17: 2.7p) Interim dividend 2.2 pence per share (H1 FY17: 2.1 pence per share) Key performance indicators 26-week period ended 26 August week period ended 27 August 2016 Revenue 54.2m 47.2m Net loan book 65.2m 56.2m Adj. profit before tax 1 8.7m 8.6m Reported profit before tax 6.7m 4.6m Adj. earnings per share 1 5.3p 5.3p Reported earnings per share 3.9p 2.7p Cost / income ratio 56.4% 58.3% Return on assets 2,5 (rolling 12 months) 19.4% 19.5% Return on equity 3,5 (rolling 12 months) 26.1% 25.4% Tangible equity / average receivables ratio 4,5 90.0% 91.7% Number of customers ( 000) Number of agents 2,124 c1,800 Credit issued 82.3m 66.0m Impairment (% of revenue) % 22.5% *High Quality customers are those who have made more than 9 of the last 13 payments 1

2 1 Adjusted profit before tax and adjusted EPS are defined in the Financial Review 2 Defined as earnings before exceptional items as a percentage of tangible asset value calculated on a last 12 months basis 3 Defined as earnings before exceptional items as a percentage of tangible equity value on a rolling 12 months basis 4 Calculated on a rolling 12 month basis 5 Tangible equity and asset value excludes 2.7m of capitalised IT costs which are classified as intangibles on the balance sheet 6 This calculation uses the Impairment charge per the income statement which is based on the bad debt write off and movement in the impairment provision. Paul Smith, Chief Executive Officer of Morses Club, commented: Our strong first half performance demonstrates the success of our credit policy and emphasis on high quality lending, as well as our ability to capitalise on market opportunities to increase our customer base. In light of the change in market conditions, we have placed considerable emphasis on ensuring that growth is sustainable and we are focused on developing products in line with customer demand and supported by our excellent customer service offering. We have made significant progress with our technology platform underpinning the business operationally, whilst retaining the people aspects of the business that our customers value so highly. We have delivered increased quality revenue and loan book growth, whilst keeping impairments within our target range, giving us confidence in the outlook for the full year. Forward looking statements This announcement includes statements that are, or may be deemed to be, forward-looking statements. By their nature, forward-looking statements involve known and unknown risks and uncertainties since they relate to future events and circumstances. Actual results may, and often do, differ materially from any forward-looking statements. Any forward-looking statements in this announcement reflect Morses Club s view with respect to future events as at the date of this announcement. Save as required by law or by the AIM Rules for Companies, Morses Club undertakes no obligation to publicly revise any forward-looking statements in this announcement following any change in its expectations or to reflect events or circumstances after the date of this announcement. 2

3 For further information please contact: Morses Club PLC Paul Smith, Chief Executive Officer Andy Thomson, Chief Financial Officer Panmure Gordon (UK) Limited (Nomad and Joint Broker) Richard Gray / Fabien Holler / Atholl Tweedie (Corporate Finance) Charles Leigh-Pemberton (Corporate Broking) finncap Jonny Franklin-Adams / Emily Watts / Anthony Adams (Corporate Finance) Tim Redfern / Richard Chambers (Corporate Broking) Camarco Ed Gascoigne-Pees Jennifer Renwick Kimberley Taylor Tel: +44 (0) Tel: +44 (0) Tel: +44 (0) Tel: +44 (0) Analyst presentation There will be an analyst presentation to discuss the results at 9.30 a.m. today at Panmure Gordon, 1 New Change, London, EC4M 9AF. Those analysts wishing to attend are asked to contact Kimberley Taylor at Camarco on +44 (0) or kimberley.taylor@camarco.co.uk. 3

4 Notes to Editors About Morses Club Morses Club is the second largest UK Home Collected Credit lender with 233,000 customers and 2,124 agents across 98 locations throughout the UK. The Company offers a range of loan products to its customers through its extensive agent network. The majority of the Company's borrowers are repeat customers and the Company enjoys consistently high customer satisfaction with scores of 95% or above. The Company is using technology to broaden its offering and provide new products to ensure customers can access credit with the flexibility they require. In April 2016, its cashless lending product, the Morses Club Card, was introduced, enabling its customers to buy online as well as on the high street. Dot Dot Loans, the Company s first online instalment product, was launched in March Morses Club successfully listed on AIM in May About the UK non-standard credit market The UK non-standard credit market, of which UK HCC is a subset, consists of both secured and unsecured lending and is estimated to comprise around 10 million consumers. Non-standard credit is the provision of secured and unsecured credit to consumers other than through mainstream lenders. Lenders providing non-standard credit principally lend on an unsecured basis and the market is characterised by high frequency borrowing. Since 2009, unsecured personal lending has grown from 161 billion to 244 billion in About UK Home Collected Credit UK HCC is considered to be a specialised segment of the broader UK non-standard credit market. UK HCC loans are typically small, unsecured cash loans delivered via self-employed agents directly to customers homes. Repayments are collected in person during weekly follow-up visits to customers' homes. UK HCC is considered to be stable and well-established, with approximately 3 million people using the services of UK HCC lenders, of which between 1.5 million and 2 million people borrow regularly. 4

5 Chief Executive s Statement The first half of this year has seen continued progress with revenue increasing by 14.8% to 54.2m (H1 FY17: 47.2m) and net loan book growth of 16.0% (H1 FY17: 56.2m). We achieved a 24.7% increase in total credit issued to 82.3m (H1 FY17: 66.0m) through a combination of new territory builds and core business growth, with an increase in customer numbers of 12.6% to 233,000 (H1 FY17: 207,000). Strategic Growth Initiatives Recent changes in market conditions have presented an opportunity for us and have resulted in a significant increase in the number of territory builds we have successfully undertaken during the period, whilst maintaining our selective approach to bringing agents on-board. Territory builds are particularly attractive as they offer a source of high quality loan books and repeat customers and a low cost means of customer acquisition. At 26 August 2017, we had 434 active territory builds (builds commenced in the last 12 months) and these territory builds are performing ahead of expectations. We have seen a significant uplift in total credit issued, whilst our impairment / revenue ratio was 26.6% for the period (H1 FY17: 22.5%), still within our target range demonstrating the quality of this growth. Our focus on higher quality lending has resulted in a continued increase in the proportion of gross loan balances being attributable to our highest quality customers of 7% (H1 FY17: 7%). Initial subsidies to agents to maintain their level of income during the first year mean that it can take up to 12 months for territory builds to generate a profitable outcome; however they represent a source of long-term growth and are not expected to adversely impact earnings in FY18 due to their better-than-expected performance to date. Whilst we have been focused on the growth of the business, good customer outcomes remain at the heart of what we do. Ensuring high customer satisfaction is a critical component of our organic growth strategy as word of mouth and personal recommendations play an instrumental role in attracting new customers. Our customer feedback shows satisfaction levels are consistently at 95% and above, underlining the importance of retaining the highest quality agents. Although we believe that the development of the regulatory landscape provides a compelling opportunity for market consolidation in the longer-term, we are only focused on acquiring loan books that will be accretive to our existing business. New Product Development We recognise that our customers needs are evolving and we remain committed to introducing a range of products to support the changing requirements of our customers, as well as keeping Morses Club at the forefront of the HCC sector and wider non-standard consumer finance sector in general. The significant investment we have made in our technology platform has enabled us to develop our digital offering for customers and align us more closely with the way our customers increasingly utilise digital products. The Morses Club Card, our cashless lending product, gives our customers increased flexibility in the way they borrow from us and enables them to buy on-line, as well as on the high street. The card has become increasingly popular, and we have reached our targeted numbers with c11,100 cards in 5

6 circulation and loan balances of 4.6m (H1 FY17: c5,000, 1.6m), and we expect continued growth in H2. In March 2017, we launched the new brand of Dot Dot Loans, our online instalment product, with a clear strategy to test the market and tailor the offering to the online customer demographic. A full brand and product development strategy is underway, with the objective of ensuring that loans are affordable and flexible, with clear pricing and no hidden fees for the customer. Management expect that H2 will require a slightly larger investment than H1 FY18. Technology Developments Advancements in technology are driving efficiencies in the business and have significantly improved our managers ability to service more customers by removing paperwork and automating processes. We have now embedded a full customer affordability platform, which captures key evidence of income and which helps to ensure that any loan offered to a customer is affordable. Further developments are planned in H2, to link this information with Credit Reference Agencies and streamline the KYC process further. Management data is now fully integrated onto a single platform for our field and central staff, allowing them to focus on customer service, rather than administration. Plans to deliver remote payments through a Chip and Pin solution are fully developed and will launch across the operation in H2. The Company s website has maintained consistent traffic volumes at over 512k visits during H1. Mobile represents c.78% of all traffic on the website, demonstrating the importance of a digital strategy to support customer communication and brand traction in the market. Dividend As a result of the strong first half performance, which saw significant increases in both revenue and net loan book growth, the Board is delighted to declare an interim dividend of 2.2p per share (H1 FY17: 2.1p). The dividend of 2.2p per share will be paid on 19th January 2018 to ordinary shareholders on the register on 29th December Outlook During the first half of the year, Morses Club has capitalised on changing market conditions to significantly grow territory builds, selectively investing in experienced agents and building a strong source of high quality and long-term growth for the business. The quality of our customer base continues to improve and will drive increasing revenues and credit issued going forward. Investment in our technology platform is proving successful, freeing up agents and managers to focus on serving more customers, whilst the Morses Club Card and Dot Dot Loans products are both well placed to move into their next phases of business development. Trading is in line with the Directors expectations and we remain confident in the outlook for the full year. Paul Smith Chief Executive Officer Date: 5 October

7 Financial Review m (unless otherwise stated) 26-week period ended 26 August week period ended 27 August 2016 Customer numbers ( 000 s) Period end receivables Average receivables Revenue Impairment (14.4) (10.6) Agent Commission (13.1) (10.9) Gross Profit Administration expenses (preexceptional) (16.9) (16.0) Depreciation (0.6) (0.6) Operating Profit before exceptional costs and amortisation of acquisition intangibles Amortisation of acquisition intangibles (1.0) (2.0) Exceptional costs (1.0) (2.1) Funding costs (0.5) (0.4) Reported Profit Before Tax Tax (1.6) (1.1) Profit After Tax Basic EPS 3.9p 2.7p Reconciliation of Reported profit before tax to Adjusted profit before tax and explanation of Adjusted EPS Reported Profit Before Tax Exceptional IPO costs Other exceptional costs including restructuring costs Amortisation of intangibles Adjusted Profit Before Tax Tax on Adjusted Profit Before Tax (1.8) (1.8) Adjusted Profit After Tax Adjusted EPS 4 5.3p 5.3p Analysis of Underlying Adjusted profit before tax for Home credit Adjusted Profit Before Tax Start up losses for Dot Dot Loans Adjusted Profit Before Tax - Home Credit Territory Build subsidies Adjusted Profit Before Tax - Home Credit excluding Dot Dot Loans and Territory Build subsidies Amortisation of acquired customer lists and agent networks 2 Adjusted profit before tax and adjusted EPS figures have been presented within the interim report as the directors believe they are more representative of the underlying operations of the business 3 Costs incurred in relation to the company s IPO and AIM listing 4 Adjusted EPS reflects adjusted profit after tax divided by weighted average number of shares (note 6) 7

8 Reported profit before tax increased by 45.6% to 6.7m (FY17: 4.6m). Adjusted profit before tax increased by 1.2% to 8.7m (FY17: 8.6m). This includes start-up losses in relation to Dot Dot Loans of 0.3m. The adjusted profit before tax excluding Dot Dot Loans and the investment cost of territory builds rose to 10.9m (FY17: 9.2m), reflecting an underlying increase of 18.5%. Revenue for the twenty-six-week period ended 26 August 2017 increased by 14.8% to 54.2m (H1 FY17: 47.2m). This was driven by a 24.7% increase in total credit issued to 82.3m (H1 FY17: 66.0m), largely related to territory builds. Customer numbers increased by 12.6% to 233,000 (H1 FY17: 207,000). The total impairment charge increased to 14.4m and as a ratio to revenue to 26.6% for the period (H1 FY17: 22.5%). Management believe that this reflects the rapid increase in newer customers rather than a fundamental reduction in customers ability or willingness to repay. Whilst it remains within our target range of 22.0% to 27.0% of revenue, this range was based on more modest growth levels and with the higher sales typical of the second half of the financial year, indicators suggest that we may marginally exceed this range for the current year. Despite this, the contribution from the loan book (Revenue less Impairment) demonstrated very good progress, increasing by 8.7% to 39.8m (FY17: 36.6m) and on a rolling 12-month period we saw a 7% (H1 FY17: 7%) increase in the proportion of high quality customer balances in our gross loan book. The average customer balance of 549 is substantially unchanged from 553 twelve months ago. Agent commission (excluding territory build subsidies) was up from 10.2m to 11.2m, an increase of 9.8% which was slightly lower than the increase in cash collections of 12.7%. This improvement largely relates to the restructure of the employed agent role out of the business, with most individuals later returning on a self-employed basis. Territory build costs increased significantly to 1.9m (H1 FY17: 0.6m) reflecting the significant increase in activity. This represents an investment cost to establish quality agents and grow the customer numbers but as is typical in the industry we take the charge to the income statement as incurred. This level of cost is expected to continue at around or slightly above this level for the remainder of the current financial year. Gross profit was up 4.0% from 25.7m to 26.7m for the period even after the significant increase in the costs of territory builds. Total costs (excluding exceptional costs and amortisation of acquisition intangibles) as a percentage of revenue decreased to 56.4% from 58.3%. Within this, administration expenses (excluding nonoperating costs) increased to 17.6m from 16.6m, however this is a reduction to 32.5% from 35.2% of revenue, a further efficiency gain of 7.7%. Exceptional costs were 1.0m for the period, due mainly to the restructuring of employed agents originally from acquisitions (H1 FY17: 2.1m due to the cost of IPO). Regulatory Update In May 2017, Morses Club received full Financial Conduct Authority ( FCA ) authorisation, following a period of operating under interim permission. 8

9 Funding On 18 August 2017, the Company announced that it had increased its loan facility from 25.0m to 40.0m with the addition of a major high street bank alongside Shawbrook Bank. In the same announcement, the Company confirmed that the expiry of the facility had been extended from March 2019 to August As at 26 August 2017, the Company had drawn 17.0m of this facility (27 August 16: 8.5m). The Directors expect this to increase during the second half of the year in the run-up to Christmas, which is the peak lending period. Principal Risks and Uncertainties There are a number of potential risks and uncertainties which could have a material impact on the Company s performance over the remaining 26 weeks of the financial year and could cause results to differ materially from expected and historical results. The Directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the 52 weeks ended 25 February These should be read in the context of the cautionary statement regarding forward looking statements at the beginning of these Interim Results. A detailed explanation of the risks summarised below, and how the Company seeks to mitigate the risks, can be found on page 26 of the annual report which can be found at The Company s principal financial assets are loan book receivables, cash and other receivables. Liquidity Risk The Directors monitor liquidity closely. From August 2017 the Company has access to a 40m revolving asset based credit facility (H1 FY17: 25.0m), which the Directors believe provides sufficient headroom to manage the business and meet its strategic objectives. The Company does not use any complex financial instruments. Credit Risk The Company is involved in the provision of consumer credit and a key risk for the Company is the credit risk inherent in amounts receivable from customers which is principally controlled through credit control policies supported by regular impairment reviews. The amounts presented in the balance sheet are net of provisions for impairments. Operational Risk The Directors are confident that they have mitigated operational risk through an embedded control environment with the use of integrated technology and in-depth Management Information reporting data. The Company has a strong compliance culture, with robust systems and controls and provides regular regulatory training to all employees and agents. Regulation The Company is also subject to legislative regulatory changes within the consumer credit sector and stays in touch with changes through its compliance and credit risk functions via the Consumer Credit Association and regular dialogue with the FCA. 9

10 Related Party Transactions Related party transactions are disclosed in note 12 of these financial statements. By order of the board: Andy Thomson Chief Financial Officer Date: 5 October 2017 Registered Office: Kingston House Centre 27 Business Park Woodhead Road Birstall Batley West Yorkshire WF17 9TD 10

11 INDEPENDENT REVIEW REPORT TO MORSES CLUB PLC We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 26 August 2017 which comprises the consolidated income statement, the consolidated statement of changes in equity, the consolidated balance sheet, the consolidated cash flow statement, notes to the consolidated cash flow statement and related notes 1 to 12. We have read the other information contained in the halfyearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the Company in accordance with International Standards on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Directors responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange. As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting, as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the halfyearly financial report based on our review. Scope of the audit of the financial statements We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 26 August 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules of the London Stock Exchange. Deloitte LLP Statutory Auditor Birmingham, United Kingdom Date: 5 October

12 CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE 26 WEEK PERIOD ENDED 26 AUGUST weeks 26 weeks 52 weeks ended ended ended Note (Unaudited) (Unaudited) (Audited) REVENUE Existing operations 54,223 45,854 96,242 Acquisitions - 1,367 3,336 54,223 47,221 99,578 Cost of sales (27,495) (21,523) (46,695) GROSS PROFIT 26,728 25,698 52,883 Administration expenses (19,570) (20,705) (40,737) OPERATING PROFIT BEFORE AMORTISATION OF ACQUISITION INTANGIBLES AND EXCEPTIONAL ITEMS 9,176 8,744 17,988 Amortisation of acquisition intangibles 7 (969) (1,647) (3,663) Exceptional items (1,049) (2,104) (2,179) OPERATING PROFIT Existing operations 7,158 4,829 10,917 Acquisitions ,229 7,158 4,993 12,146 Finance costs (475) (435) (927) PROFIT BEFORE TAXATION 6,683 4,558 11,219 Taxation 4 (1,595) (1,088) (2,620) PROFIT AFTER TAXATION 5,088 3,470 8, EARNINGS PER SHARE Pence Pence Pence Basic Diluted All results derive from continuing operations. A Statement of Comprehensive Income is not included as there is no other income or losses, other than those presented in the Income Statement. 12

13 CONDENSED CONSOLIDATED BALANCE SHEET AS AT 26 AUGUST 2017 Note ASSETS (Unaudited) (Unaudited) (Audited) Non-current assets Goodwill 2,834 1,809 2,834 Other intangible assets 7 6,089 8,096 7,058 Property, plant & equipment Amounts receivable from customers ,229 11,395 11,050 Current Assets Amounts receivable from customers 8 64,644 55,682 60,833 Other receivables 2,305 1,660 2,019 Cash and cash equivalents 7,074 5,737 3,985 74,023 63,079 66,837 Total assets 84,252 74,474 77, 887 LIABILITIES Current Liabilities Trade and other payables (6,224) (5,123) (5,892) (6,224) (5,123) (5,892) Non-current liabilities Bank and other borrowings 9 (16,432) (8,500) (10,000) Deferred tax (617) (1,952) (617) (17,049) (10,452) (10,617) Total liabilities (23,273) (15,575) (16,509) NET ASSETS 60,979 58,899 61,378 EQUITY Called up share capital 1,295 1,295 1,295 Retained Earnings 59,684 57,604 60,083 TOTAL EQUITY 60,979 58,899 61,378 13

14 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE 26 WEEK PERIOD ENDED 26 AUGUST 2017 Called up share Retained Total capital Earnings Equity As at 28 February ,295 54,074 55,369 Profit for period - 3,470 3,470 Total comprehensive income for the period - 3,470 3,470 Share based payment charge As at 27 August 2016 and 28 August 2016 (Unaudited) 1,295 57,604 58,899 Profit for period - 5,129 5,129 Total comprehensive income for the period - 5,129 5,129 Deferred tax adjustment Share based payment charge Dividends paid - (2,720) (2,720) As at 25 February 2017 and 26 February 2017 (Audited) 1,295 60,083 61,378 Profit for period - 5,088 5,088 Total comprehensive income for the period - 5,088 5,088 Share based payment charge Dividends paid - (5,569) (5,569) As at 26 August 2017 (Unaudited) 1,295 59,684 60,979 14

15 CONDENSED CONSOLIDATED CASH FLOW STATEMENT FOR THE 26 WEEK PERIOD ENDED 26 AUGUST (Unaudited) (Unaudited) (Audited) Note Net cash inflow from operating activities 1 2,807 6,133 9,726 Cash flows used in financing activities Dividends paid (5,569) - (2,720) Proceeds from additional long-term debt 10, ,000 Repayment of long-term debt (3,500) (1,000) - Interest paid (475) (382) (927) Net cash inflow/(outflow) from financing activities 956 (882) (2,647) Cash flows used in investing activities Purchase of intangibles (426) (440) (1,029) Purchase of property, plant and equipment (248) (81) (125) Acquisitions - (2,748) (5,695) Net cash outflow from investing activities (674) (3,269) (6,849) Increase in cash and cash equivalents 3,089 1, Movement in cash and cash equivalents in the period 3,089 1, Cash and cash equivalents, beginning of period 3,985 3,755 3,755 Cash and cash equivalents, end of period 7,074 5,737 3,985 15

16 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT FOR THE 26 WEEK PERIOD ENDED 26 AUGUST RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES Profit before taxation 6,683 4,558 11,219 Interest paid included in financing activities Loss on disposal of intangibles Loss on disposal of fixed assets Depreciation charges Share based payments expense Impairment of goodwill Amortisation of intangibles 1,395 2,000 4,412 (Increase)/decrease in debtors (4,416) 2,166 (1,918) Increase/(decrease) in creditors 494 (1,399) (1,640) Taxation paid (2,168) (2,078) (4,078) Net cash inflow from operating activities 2,807 6,133 9,726 16

17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE 26 WEEK PERIOD ENDED 26 AUGUST ACCOUNTING POLICIES General information The Company is a public limited company incorporated and domiciled in the UK. The address of its registered office is Kingston House, Centre 27 Business Park, Woodhead Road, Birstall, Batley, West Yorkshire, WF17 9TD. The information for the year ended 25 February 2017 does not constitute statutory accounts as defined in section 434 of the Companies Act A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The report of the auditor on those financial statements was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act The unaudited condensed interim financial statements for the 26 weeks ended 26 August 2017 have been reviewed, not audited, and were approved by the Board of Directors on 4 October Going concern The Directors have considered the appropriateness of adopting the going concern basis in preparing these Condensed financial statements. The Group has prepared a three-year business plan which is a continuation of its strategy of generating growth through organic and acquisitive means. In addition to standard internal governance, the Group is also monitored against key financial covenants tied in with the current funding facilities. These are produced and submitted on a monthly basis, with key schedules included in the monthly Board Papers. The Group is subject to a number of risks and uncertainties which arise as a result of the current economic environment. In determining that the Group is a going concern these risks, which are described in the principal risks and uncertainties section, have been considered by the Directors. The Directors have considered these risks in the Group s forecasts and projections which highlight continued profitability for the foreseeable future. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements. IFRS 9 IFRS 9 Financial instruments is effective from 1 January 2018 and replaces IAS 39 Financial instruments: Recognition and measurement. IFRS 9 significantly changes the recognition of impairment on customer receivables by introducing an expected loss model. Under this approach, impairment provisions are recognised on inception of a loan based on the probability of default and the typical loss arising on default. This differs from the current incurred loss model under IAS 39 whereby impairment provisions are only reflected when there is objective evidence of impairment, typically a missed payment. The resulting effect is that impairment provisions under IFRS 9 are recognised earlier. This will result in a one-off adjustment to receivables and reserves on adoption and will result in later recognition of profits. 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 in the 2018 year-end financial statements. Accounting convention The statutory annual financial statements of Morses Club PLC are prepared under International Financial Reporting Standards (IFRS) adopted by the European Union. The condensed set of financial statements included in this half yearly financial report has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting, as adopted by the European Union. Accounting policies The accounting policies applied in preparing the unaudited condensed interim financial statements are consistent with those used in preparing the statutory financial statements for the year ended 25 February New and amended standards and interpretations need to be adopted in the first interim financial statements issued after their effective date (or date of early adoption). There are no new IFRSs or International Financial Reporting Interpretations (IFRIC) that are effective for the first time for the 26 weeks ended 26 August 2017 which have a material impact on the Group. 17

18 2. SEASONALITY The Group s peak period of lending to customers is in the run-up to Christmas in the second half of the financial year. Typically approximately 54% of the loans issued are made in the second half of the financial year and the peak lending and collections period leads the Group to operate with a materially higher draw down on debt facilities in December. In addition, the Group s accounting policies relating to revenue and impairment are an important influence on the recognition of the Group s profit between the first and second halves of the financial year. The interest income earned on loans and receivables is spread on an effective yield basis over the contractual term of the Group s loans and receivables resulting in revenue being split broadly evenly between the first and second halves of the financial year, notwithstanding that the larger proportion of credit is issued in the second half of the financial year. The accounting policy relating to the impairment of customer receivables requires impairments to be recognised only when there is objective evidence of impairment of a customer balance, such as missed payments. This results in the Group s largest impairment charges arising early in each financial year following the seasonal peak issue of loans in the lead-up to Christmas. 3. RESTRUCTURING COSTS Following the acquisitions within the prior periods and their subsequent integration within Morses Club PLC, 1,020,000 (H ,000) (YE ,000) of restructuring costs were incurred and these form the majority of the exceptional items. These have been included within administration expenses. 4. TAXATION The tax charge for the period has been calculated by applying the directors best estimate of the effective tax rate for the financial year of 23.87% (H %) (YE %), to the profit before tax for the period. The tax rate reflects the reduction in the mainstream UK corporation tax rate from 20% to 19% which was effective from 1 April DIVIDENDS Amounts recognised as distributions to equity holders in the period: Final dividend for the 52 weeks ended 25 February weeks 26 weeks 52 weeks Ended ended Ended ,569-2,720 5,569-2,720 The directors have declared an interim dividend in respect of the 26 weeks ended 26 August 2017 of 2.2p per share (H p) (YE p) This dividend is not reflected in the balance sheet as it was declared after the balance sheet date. It will result in a total half year dividend pay-out of approximately 2.85m (H m) (YE m). A dividend of 5.6m (H nil) (YE m) was paid during the period. 18

19 6. EARNINGS PER SHARE 26 weeks 26 weeks 52 weeks Ended ended Ended Earnings ( 000) 5,088 3,470 8,599 Number of shares Weighted average number of shares for the purposes of basic earnings per share ( 000s) Effect of dilutive potential ordinary shares through share options ( 000s) 129, , , , Weighted average number of shares for the purposes of diluted earnings per share ( 000s) 130, , ,098 Basic per share amount (pence) Diluted per share amount (pence) Diluted earnings per share calculated the effect on earnings per share assuming conversion of all dilutive potential ordinary shares. Dilutive potential ordinary shares are calculated for awards outstanding under performance related share incentive schemes such as the Deferred Share Plan. The number of dilutive potential ordinary shares is calculated based on the number of shares which would be issuable if the performance targets have been met. 19

20 7. OTHER INTANGIBLE ASSETS COST Software, Servers & Licences Acquired Customer Lists Acquired Agent Networks Totals At 27 February ,156 19, ,249 Additions Acquisitions Disposals (144) - - (144) At 27 August ,452 20, ,283 Additions ,374 At 25 February ,041 20, ,657 Additions At 26 August ,467 20, ,083 ACCUMULATED AMORTISATION At 27 February ,404 13, ,197 Charge for period 353 1, ,000 Eliminated on disposals (10) - - (10) At 27 August ,747 14, ,187 Charge for period 396 1, ,412 At 25 February ,143 16, ,599 Charge for period ,395 At 27 August ,569 17, ,994 NET BOOK VALUE At 26 August ,898 3, ,089 At 25 February ,898 3, ,058 At 27 August ,705 5, ,096 At 27 February ,752 6, ,052 20

21 8. TRADE AND OTHER RECEIVABLES Amounts receivable from customers Amounts falling due within one year: Net receivable from advances to customers 64,644 55,682 60,833 Amounts falling due after one year: Net receivable from advances to customers Net loan book 65,201 56,198 61,228 Other debtors Prepayments 1,659 1,330 1,530 Trade and other receivables 67,506 57,858 63, BANK AND OTHER BORROWINGS In August 2017, the Company signed a 15,000,000 loan facility to bring its total revolving credit facilities to 40,000,000. Total bank and other borrowings, including unamortised arrangement fees, are 16,432,000 as at 26 August 2017 (H1 FY17: 8,500,000). Repayments of loans amounting to 3,500,000 were made during the period, in line with repayment terms. 10. RESERVES Details of the movements in reserves are set out in the statement of changes in equity. Share capital as at 26 August 2017 amounted to 1,295, FINANCIAL INSTRUMENTS The directors consider that the carrying value of financial assets and financial liabilities recorded at amortised cost in the financial statements are approximately equal to their fair values. 21

22 12. RELATED PARTY TRANSACTIONS Perpignon Limited is the immediate parent of Morses Club PLC and Hay Wain Holdings Limited is the ultimate parent company. Shelby Finance Limited and Shopacheck Financial Services Limited are subsidiaries of Morses Club PLC. The Company undertook the following transactions with Perpignon Limited and Shelby Finance Limited during the period: Dividends Recharges Management Received / (Paid) fees* Weeks ended 26 August 2017 Perpignon Limited Shelby Finance Limited Weeks ended 27 August 2016 Perpignon Limited - - (120) - - (120) 52 Weeks ended 25 February 2017 Perpignon Limited (1,387) - (120) (1,387) - (120) *Management fees incurred from Perpignon relate to the period prior to the Initial Public Offering on 5 May At the period-end the following balances were outstanding: Shopacheck Financial Services Limited (1,321) (1,321) (1,321) Shelby Finance Limited 82 - (455) Amounts owed from / (to) Related Parties (1,239) (1,321) (1,776) 22