Audited full year results to 31 December 2020

RNS Number : 6109D

Non-Standard Finance PLC

30 June 2021

Non-Standard Finance plc

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

Audited full year results to 31 December 2020

30 June 2021

Financial summary

· The Group faced a number of operational, regulatory and financial challenges in 2020 and into 2021

· Whilst COVID-19 had a severe impact on the Group's net loan book which fell by 28%¹, all three businesses were able to adapt quickly, enabling the Group to continue to trade within its financial covenants since the half year results

· After a particularly challenging period, the Group's Guarantor Loans Division is to be placed into a managed run-off

· Normalised revenue down 11% to £164.1m (2019: £183.7m); reported revenue of £162.7m (2019: £180.8m)

· Normalised loss before tax of £35.2m (2019: normalised profit before tax of £14.7m)

· Total exceptional charges of £97.8m (2019: £80.6m) includes a charge of £15.4m (2019: nil) based on the estimated costs of a customer redress programme; and the non-cash write-off of all remaining goodwill assets and acquired intangibles totalling £74.8m (2019: £65.8m) to give a reported loss before tax of £135.7m (2019: reported loss of £76.0m).

· Whilst the estimated cost of redress is based upon a detailed methodology and analyses developed in conjunction with the Group's advisers, as the FCA has not yet approved the methodology proposed, there is a risk of a less favourable outcome

· Independent reviews are being conducted to determine any read-across for the Group's other divisions, taking account of recent decisions at the Financial Ombudsman Service. The Directors recognise that, whilst the review work done so far has not identified any systemic issues requiring an increase in provision, there remains a risk that the final outcome of these reviews may result in the identification of customers who may require redress, and the cost of redress for the Group could be materially higher than is currently provided for in the financial statements

· The Board expects the work on redress and the independent reviews to complete in the third quarter of 2021, enabling the Board to progress a substantial capital raise in the region of £80m that would, inter alia, strengthen the Group's balance sheet

· Given the loss before tax and the absence of distributable reserves, no final dividend per share is being declared (2019: 0.0p per share)

· At 31 December 2020, the Group had cash balances of £78m and gross borrowings of £330m. At 31 May 2021, the Group had cash balances of £101m and gross borrowings of £330m

· 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: month on month growth in loan issuance in both branch-based lending and home credit, combined with historically low impairment, has meant that the Group is trading ahead of budget

Year to 31 December	2020	2019	% change
	£000	£000
Normalised revenue²	164,102	183,657	-11%
Reported revenue	162,665	180,784	-10%

Normalised operating (loss) profit²	(6,316)	42,165	-115%
Reported operating (loss) profit	(24,452)	32,066	-176%

Normalised (loss) profit before tax²	(35,152)	14,707	-339%
Reported (loss) before tax	(135,721)	(75,976)	-79%

Normalised (loss) profit after tax²	(35,152)	11,446	-407%
Reported (loss) after tax	(135,557)	(76,308)	-78%

Normalised earnings per share³	(11.25)p	3.67p	-407%
Reported (loss) per share	(43.39)p	(24.45)p	-77%

Full-year dividend per share	0.0p	0.7p	-100%

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) profit after tax of £(35.2)m (2019: £11.4m) divided by the weighted average number of shares in issue of 312,437,422 (2019: 312,126,220)

John van Kuffeler, Group Chief Executive Officer, said

"The impact of the pandemic on our business was as significant as it was swift and was a major factor behind the large reported loss in 2020. Despite best endeavours we have also fallen short in a number of regulatory areas which have led to increased complaint costs and a future redress programme, both of which have had a material financial impact. However, I am immensely proud of the way in which our staff and self-employed agents responded to these issues so that we were able to navigate what was a highly challenging business environment. However, we remained focused on good customer outcomes and embarked upon a cautious return to lending during the second half of 2020. Unfortunately, the impact of the pandemic and the regulatory-led changes in guarantor loans has meant that the division is being placed into a managed run-off.

"Once our regulatory issues are resolved, we intend to execute a substantial capital raise in the region of £80m (the 'Capital Raise') in the third quarter of 2021. If successful, it is expected that the Capital Raise will strengthen the Group's balance sheet and provide a platform for controlled growth. It is encouraging to see that we are trading ahead of budget in the first half of 2021, with a steady growth in monthly sales and historically low levels of impairment in both branch-based lending and home credit whilst the number of complaints has reduced substantially.

"As evidenced by the FCA's latest review of the consumer credit market⁴, the recession is already impacting people's ability to access credit. This has created a significant opportunity for companies in the non-standard credit sector that fulfils a vital role in supporting millions of consumers who have limited savings⁵. 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 the Capital Raise is completed as planned, the Group will be well placed to seize any such opportunities and capture any ensuing increase in demand."

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

⁵ "Nearly one in five adults have less than £100 savings, 13% have no savings at all and 26% have less than £500 put away." - The Times, 15 June 2021

Context for results

The 2020 and 2019 reported results include fair value adjustments, the amortisation of acquired intangibles and the write-off of goodwill assets. The 2020 results were severely impacted by the pandemic and also include exceptional items (see below) totalling £97.8m that relate to a number of different items including goodwill impairment, provision for customer redress, the write-off of certain capitalised fees and costs related to restructuring. Exceptional items in 2019 totalled £80.6m and included the costs arising from the lapsed offer to acquire Provident Financial, goodwill impairment and restructuring in all three business divisions. Normalised results are presented to demonstrate Group performance before these items.

Normalised divisional results

The table below provides an analysis of the 'normalised' results for the Group for the 12-month period to 31 December 2020. 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 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

Year ended 31 Dec 2019 Normalised⁶	Branch-based lending	Home credit	Guarantor loans	Central costs	NSF plc
	£000	£000	£000	£000	£000
Revenue	93,002	60,835	29,820	-	183,657
Other operating income	954	-	-	-	954
Modification loss	(951)	-	(230)	-	(1,181)
Derecognition (loss)/gain	(482)	-	69	-	(413)
Impairments	(20,635)	(16,435)	(7,996)	-	(45,066)
Revenue less impairments	71,888	44,400	21,663	-	137,951
Administration expenses	(42,235)	(35,298)	(12,895)	(5,358)	(95,786)
Operating profit/(loss)	29,653	9,102	8,768	(5,358)	42,165
Finance cost	(17,355)	(2,116)	(7,338)	(649)	(27,458)
Profit/(loss) before tax	12,298	6,986	1,430	(6,007)	14,707
Taxation	(2,815)	(1,474)	(113)	1,141	(3,261)
Profit/(loss) after tax	9,483	5,512	1,317	(4,866)	11,446

Normalised earnings per share					3.67p
Dividend per share					0.70p

Reconciliation of net loan book	2020 Normalised⁶	2020 Fair value adjustments	2020 Reported	2019 Normalised⁶	2019 Fair value adjustments	2019 Reported
	£m	£m	£m	£m	£m	£m
Branch-based lending	171.5	-	171.5	214.8	-	214.8
Home credit	26.9	-	26.9	39.9	-	39.9
Guarantor loans	59.8	-	59.8	105.5	1.4	106.9
Total	258.2	-	258.2	360.2	1.4	361.6

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

Online presentation on 30 June 2021

There will be webcast presentation of the results at 0930 on 30 June 2021 given by John van Kuffeler, Group Chief Executive and Jono Gillespie, Group CFO. 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 0930, 30 June 2021

0920	Please call +44 (0) 330 336 9434
Participant PIN	3169715
0930	Meeting starts

All times are British Summer Time (BST).

For more information:

Non-Standard Finance plc

John van Kuffeler, Group Chief Executive

Jono Gillespie, Chief Financial Officer

Peter Reynolds, Director, IR and Communications

+44 (0) 20 3869 9020

Maitland/AMO

Neil Bennett

Finlay Donaldson

+44 (0) 20 7379 5151

About Non-Standard Finance

Non-Standard Finance plc is listed on the main market of the London Stock Exchange (ticker: NSF) and is a leading player in the UK's non-standard finance market with a presence in three segments: branch-based lending, home credit and guarantor loans. The Group's evolution from a cash shell back in 2015 has been achieved thanks to a period of significant investment with a clear differentiating feature being the Group's focus on face-to-face lending. Our business is founded on building personal relationships with our customers, many of whom have already been excluded by high-street lenders and other mainstream providers. These relationships, supported by significant physical and technological infrastructure, represent the very heart of our business model that is focused on addressing the credit needs of a growing proportion of the 10 million adults that are either unable or unwilling to borrow from mainstream banks and other lenders.

Group Chief Executive's Report

Summary

The impact of the pandemic has been severe and has affected all areas of our business, requiring each of our divisions to adapt to a highly dynamic and uncertain business and macroeconomic environment. Social distancing rules as well as a series of national and regional lockdowns, in conjunction with the offer of unprecedented levels of forbearance for customers, placed significant strain on our business model. In addition, the Group has been the subject of a number of regulatory issues that have, among other things, impacted performance and required the payment of redress to certain of the Group's customers, placing further strain on our business, operations and people. However, despite such challenges, our staff and self-employed agents have been outstanding in their dedication to serving their customers and ensuring that we were able to continue to operate through what has been a most difficult trading period.

Whilst the pandemic forced us to adapt our approach temporarily in both branch-based lending and home credit, we remain committed to our traditional face-to-face lending models in both businesses and continue to believe that our approach can deliver superior outcomes for customers and significant and sustainable benefits for our other key stakeholders over the medium-term.

However, having completed a detailed review of the Group's Guarantor Loans Division and its prospects, the Board has concluded that shareholder interests will be best served by placing the division into a managed run-off and ultimately closing the business. Whilst hugely disappointing, collecting out the loan book is the only rational conclusion given the combined impact of the pandemic, the FCA review into guarantor loans and the expected increase in costs in order to meet revised FCA requirements that would necessarily impede any potential recovery in profitability in the future.

Whilst disappointed to be announcing our exit from this segment, the Board remains focused on concluding its discussions with the FCA regarding redress and completing the independent reviews of its other businesses so that it can then expedite the completion of a substantial capital raise of around £80 million (the 'Capital Raise') during the third quarter of 2021. The Capital Raise, if successful, would fund the payment of redress and mean that the current constraints on our ability to execute our business strategy would be removed. At the same time, the outlook for the Group would be significantly improved on the back of a strengthened balance sheet and with the prospect of a substantial growth opportunity in both branch-based lending and home credit.

It remains the Directors' reasonable expectation that the Group and Company will raise sufficient equity in the timeframe required and will continue to operate and meet its 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.

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 during the next 12 months and as a result would not be able to access further funding over the period of breach and would require waivers from its lenders. In such circumstance, the Group may fall under the control of its lenders and there would be a possibility of the Group going into insolvency.

2020 full year results

After an encouraging first two months' trading in January and February 2020, the world was turned upside down as the pandemic gripped the UK during March 2020. A summary of some of the key operational developments that took place during the year are highlighted below:

· Branch-based lending:

o net loan book⁷ down 20% to £171.5m

o pivot to home working in March 2020 with 360 Chromebooks formatted and despatched to staff at their homes

o 185 staff were furloughed as branches were temporarily closed during April 2020 (the number on furlough was quickly reduced to nil) and 48 staff were made redundant

o no lending in April 2020, restarted in May 2020 but further impacted by regional and national lockdowns

· Home credit:

o net loan book⁷ down 32% to £26.9m

o commission rate on remote collections increased and all agents switched to remote collections within seven days of first lockdown;

o four staff were furloughed, no COVID-related redundancies

o rapid development and roll-out of remote lending process

o 'Amazon-style' collection protocol developed for customers unable to access remote channels

· Guarantor loans:

o net loan book⁷ down 43% to £59.8m

o minimal lending since August 2020 while collections remained robust

o eight staff were furloughed, 15 lending staff made redundant and a further 10 were redeployed into collections

o whilst redress methodology not yet finalised, a total charge of £15.5m has been made based on the Directors' best estimate of the expected costs

On a like-for-like basis, the combined net loan book at 31 December 2020 fell by 28% to £258.2m before fair value adjustments (2019: £360.2m) and was down by 29% to £258.2m (2019: £361.6m) after fair value adjustments. A summary of the other key performance indicators for each of our businesses for 2020 is shown below:

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)%

Key performance indicators⁷ Year ended 31 Dec 19	Branch-based lending	Home credit	Guarantor loans
Loan book growth	17.6 %	(2.7) %	27.7 %
Revenue yield	46.4 %	167.5 %	31.7 %
Risk adjusted margin	36.1 %	122.2 %	23.2 %
Impairments/revenue	22.2 %	27.0 %	26.8 %
Impairments/average net loan book	10.3 %	45.2 %	8.5 %
Cost:income ratio	45.4%	58.0%	43.2%
Operating profit margin	31.9 %	15.0 %	29.4 %
Return on assets	14.8 %	25.1 %	9.3 %

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

The events of the past 18 months had a severe impact on each of our three business divisions and in the 12 months to 31 December 2020 the Group's normalised revenue before fair value adjustments fell by 11% to £164.1m (2019: £183.7m) and a normalised operating profit of £42.2m in 2019 was reduced to an operating loss in 2020 of £6.3m. A small increase in interest charges meant that the Group generated a normalised loss per share of 11.25p (2019: normalised earnings per share of 3.67p).

The Group's 2020 and 2019 reported, or statutory results are significantly affected by fair value adjustments, the amortisation of acquired intangibles associated with the acquisitions of Everyday Loans and George Banco and exceptional items. On a statutory basis, reported revenue, which is after fair value adjustments, was £162.7m (2019: £180.8m) while total exceptional items of £97.8m (2019: £80.6m) and £1.3m amortisation and write-off of acquired intangibles (2019: £7.2m) meant that the Group reported a loss before interest and tax of £106.9m (2019: loss before interest and tax of £48.5m) and the reported loss before tax was £135.7m (2019: £76.0m).

A summary of the exceptional items, a number of which were included in the Group's 2020 half year results, is shown below (see note 6 to the financial statements).

Year ended 31 December	2020	2019
	£000	£000
Impairment of goodwill asset (non-cash) - branch-based lending	(47,107)	(44,788)
Impairment of goodwill asset (non-cash) - guarantor loans	-	(8,597)
Impairment of goodwill asset (non-cash) - home credit	(27,725)	(12,452)
Advisory fees	(1,444)	(12,807)
Write-off of capitalised fees associated with the Group's securitisation facility	(5,795)	-
Charge for customer redress	(15,401)	-
Restructuring costs	(362)	(1,939)
Total	(97,834)	(80,583)

Our focus on meeting the majority of our customers face-to-face means that we are heavily invested in large distribution networks for both our branch-based lending and home credit divisions. Whilst such infrastructure is expensive to operate, personal contact with our customers provides additional and invaluable insight for our underwriting process, insight that is not available to remote-only lending models and is only made possible through meeting the customer personally. Building a strong relationship with our customers helps us to better manage the rate of impairment and ensure that customers in financial difficulty are given due forbearance in a way that works for them.

The imposition of national as well as local government restrictions on social distancing forced us to adapt to new ways of working in 2020, particularly for our two face-to-face lending models: branch-based lending and home credit. Whilst the pandemic threw up many challenges, each of which contributed to us reporting a significant pre-tax loss in 2020, we remain confident that the face-to-face lending model can continue to meet the needs of our customers, whilst also generating profitable growth over the long term.

A summary of the performance of each division in 2020 is given below with further details in the Financial Review.

Branch-based lending

After a strong performance in the first two months of 2020, the decision to close all 74 branches, albeit temporarily, had a significant impact on our branch-based lending business. New borrower lead volumes began to decline during March 2020 and whilst they started to recover in May 2020, for the year as a whole, leads were down 28% versus 2019. With fewer leads and more stringent screening criteria for new customers given the pandemic, total applications to branch ('ATBs') fell by 32% and the total number of loans booked fell by 36%. The net result was a 55% reduction in normalised operating profit to £13.4m (2019: £29.7m). Higher interest costs, restructuring costs and the write-off of set-up fees incurred in respect of the Group's securitisation facility, resulted in a reported loss before tax of £11.2m (2019: profit before tax of £12.0m).

Home credit

Being unable to visit customers at their homes, either to make collections or to issue loans, placed a significant threat to the livelihoods of our self-employed agents and severely tested our core business model. However, we pivoted rapidly to remote-only collections and accelerated the delivery of a remote lending process that was developed in-house and was operational within just a few weeks. Minimal lending in April 2020 was followed by a steady recovery during the summer months but the usual seasonal peak in November and December was curtailed by regional and then national lockdowns, as well as a lower than usual level of demand due to Christmas being a more low-key affair for many due to the pandemic. As a result, there was a marked reduction in loan issuance for the year as a whole and while collections held up reasonably well, they were still down 26% versus the prior year. The net result was that the division delivered a normalised operating loss of £2.5m versus an operating profit of £9.1m in the prior year. Strong cashflow in the year led to lower interest costs resulting in a reported pre-tax loss of £3.7m (2019: profit before tax of £6.8m).

Guarantor loans

Young adults were amongst the hardest hit in financial terms and were the most likely age group to have either lost their job or been furloughed as a result of the pandemic⁸. As the vast majority of our borrowers are under the age of 40, the division's performance was severely impacted with a high proportion of customers seeking COVID-related forbearance, coupled with a marked increase in impairment. In addition, concerns raised by the regulator regarding certain lending processes meant that lending effectively stopped in August 2020, pending a review by the regulator and approval of a redress methodology for customers that may have suffered harm. Minimal lending and an increase in impairments whilst collections continued meant that the loan book shrank rapidly and by the end of 2020 it was approximately 40% smaller than a year earlier. This contributed to a normalised operating loss of £11.7m in the period (2019: operating profit of £8.8m). Whilst discussions with the FCA have not yet concluded, a provision for customer redress is included as an exceptional charge totalling £15.4m (see note 6 to the financial statements) which is based on the Directors' best estimate of the costs involved and is broadly in-line with that included in the 2020 half year results. The net result was that the division reported a loss before tax of £36.0m (2019: £2.2m).

⁸ Resolution Foundation analysis of YouGov, Adults between the age of 18-65 and the Coronavirus (Covid-19), January wave.

Impairment provisioning

Whilst the Group already carried a higher level of provision against outstanding loans than more mainstream lenders, the onset of the pandemic, together with the outputs from an ongoing assessment of expected credit losses resulted in the Group increasing its coverage ratios in all three divisions during 2020. As a result, as at 31 December 2020 on a combined basis, the coverage ratio increased to 19.5% (2019: 12.0%). Further details are set out in the Financial Review below.

Liquidity, funding and going concern

As at 31 December 2020 the Group had cash at bank of £78.0m (2019: £14.2m) and gross borrowings of £330.0m (2019: £323.2m). As at 31 May 2021, cash balances had increased to £101.4m while gross borrowings remained unchanged.

On 11 March 2020 the Group announced that it had entered into a new six-year £200m securitisation facility. Having drawn down £15.0m from the new facility in April 2020, the onset of the pandemic subsequently prompted a breach of certain performance triggers in the facility agreement which were then cured by the repayment of the drawn amount in full in August 2020. 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.

The Group's other facilities, namely a £285m term loan facility that matures in August 2023 and a £45m revolving credit facility maturing in August 2022, remain fully drawn. The Group is in discussions with its lenders regarding a possible extension to the term of its existing facilities. Any such amendments to the existing facilities would be conditional on the completion of the Capital Raise.

The Directors acknowledge the considerable challenges presented over the last year and the material uncertainty which may cast significant doubt on the ability of both the Group and the Company to continue to adopt the going concern basis of accounting. However, despite these challenges, it is the Directors' reasonable expectation that the Group and Company will raise sufficient equity in the timeframe required and will continue to operate and meet its liabilities as they fall due for the next 12 months and beyond and therefore it has concluded the business is viable.

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 during the next 12 months and as a result would not be able to access further funding over the period of breach and would require waivers from its lenders. In such circumstance, the Group may fall under the control of its lenders and there is a possibility of the Group going into insolvency.

Regulation

During 2020, the FCA announced a series of measures as part of a coordinated effort to support borrowers affected by the outbreak of COVID-19. These included an 'Emergency Payment Freeze' or 'EPF' of up to three months, during which affected borrowers would not be required to make any payments on their outstanding loan but during which interest could continue to be charged. During 2020, the EPF deadline was extended from 30 June 2020 to 31 October 2020 and then again to 31 March 2021 with the additional proviso that affected borrowers could take advantage of an EPF for up to six months in aggregate.

Following completion of the FCA's multi-firm review of the guarantor loans sector, on 3 August 2020 the Group announced that the FCA had raised a number of concerns regarding certain procedures within the Group's Guarantor Loans Division and that the Group had begun to develop a redress methodology for affected customers. Whilst this work is not yet complete, the Group has made an exceptional charge based on the Directors' best estimate of the expected cost of redress totalling £15.4m (refer to note 14 of the financial statements). Whilst clear that our interpretation of what processes were required in guarantor loans fell short of the regulator's expectations, a positive working relationship with the regulator has helped us to improve our processes and overall business approach. Whilst the current estimate represents the Directors' best estimate of the total cost of redress, based upon a detailed methodology and analyses developed in conjunction with its advisers, the FCA has not yet approved the methodology proposed. Therefore, although the Directors believe their best estimate represents a reasonably possible outcome, there is a risk of a less favourable outcome

Complaint handling remains a key area of focus following a marked increase in the number of complaints received from claims management companies ('CMCs') as well as from consumers direct. While the Group is focused on addressing all complaints in compliance with FCA rules and has increased its resources in this area, it has also raised concerns with regulators regarding certain CMCs that appear to be lodging large numbers of claims without proper authority from customers or by using customer data that has been obtained without proper authorisation.

In the light of its proposed redress methodology in guarantor loans, the Group is also conducting an independent review of its lending processes and procedures in both of its other divisions, taking account of recent decisions at the Financial Ombudsman Service. The Directors recognise that, , whilst the review work done so far has not identified any systemic issues requiring an increase in provision, there remains a risk that the final outcome of these reviews may result in the identification of customers who may require redress, and the cost of redress for the Group could be materially higher than is currently provided for in the financial statements.

The Group has continued to contribute, both directly and through trade associations, to a number of consultations including HM Treasury's Future Regulatory Framework Review and the Treasury Select Committee's review of the Future of Financial Services.

A summary of the more pertinent regulatory developments during 2021 and into 2020 are available on the Group's website: www.nsfgroupplc.com.

Brexit

As an exclusively UK-focused lender, our exposure to changes in EU-orientated legislation is limited, but we nonetheless have been monitoring the impact of Brexit and its potential effect on both our own business model and those of our commercial partners, such as Credit Reference Agencies ('CRAs'). The Credit Rating Agencies Regulations 2019 came into effect on 31st December 2020 and effectively 'onshored' previous EU legislation and enshrined it into UK law without any material changes. Our CRA partners are shown on the FCA register with full permissions as required to carry on regulated activities.

Whilst we do not trade with, or send data to businesses in the EU, some of our legal documents referenced the EU or at least EU regulation, some of which has also been onshored in recent months. This has meant changes to some domestic legislation affecting us directly such as The Financial Services and Economic and Monetary Policy (Consequential Amendments) (EU Exit) Regulations 2020, changing pre-contract consumer credit information documentation as well as changes to The Data Protection Act 2018 and the associated changes to what is now the UK GDPR which sits alongside it as per the Keeling Schedule. We have therefore taken the requisite steps to ensure that all of our legal and contractual agreements reflect such changes ahead of the required deadlines.

EU/EEA citizens seeking to continue working in the UK after 30 June 2021 need to have applied for settled status under the EU Settlement Scheme. Whilst the number of EU/EEA nationals directly employed by the Group is small, each of the Group's regulated entities have reminded staff of these requirements for them to apply for pre-settled or settled status. If the Group or one of its subsidiaries wishes to employ anyone from the EU/EEA who is not eligible for EU settled status then the company concerned will have to apply to the Home Office to become eligible to sponsor applications.

Current trading and outlook, no final dividend

Since the start of 2021, the Group overall has traded better than expected, with both branch-based lending and home credit having performed ahead of expectations on the back of increasing lending volumes and solid collections, whilst guarantor loans has now been placed into run-off. The Group is trading ahead of budget, with a steady growth in monthly sales and historically low levels of impairment in both branch-based lending and home credit whilst the number of complaints has reduced substantially.

Given the scale of losses in 2020 and prior years, as at 31 December 2020 the Company no longer had any distributable reserves and so is unable to pay cash dividends. 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, completing the reviews of its other two divisions and on the completion of the Capital Raise in the third quarter of 2021. If successful, such a capital raise would 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 safeguard the interests of shareholders and other stakeholders and to avoid insolvency.

Going concern statement

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 2020 Annual Report.

The Directors acknowledge the considerable challenges presented over the last year and now facing the Group and the Company and therefore the material uncertainty which may cast significant doubt on the ability of both the Group and the Company to continue to adopt the going concern basis of accounting. However, despite these challenges, it is the Directors' reasonable expectation that the Group and Company can and will raise sufficient equity and continue to operate and meet its liabilities as they fall due for the next 12 months and therefore it has adopted the going concern basis of accounting.

The assumption of shareholder support for additional equity, 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.

Annual General Meeting

The AGM of the Company is scheduled to take place on 30 June 2021. A separate notice of meeting has already been dispatched to shareholders and a copy is available from the Group's website: www.nsfgroupplc.

As the 2020 audit has taken longer to complete than expected and in accordance with DTR 4.1.3R, the Company has used the additional time granted before publishing audited accounts, to consider "all aspects of their business and operations" and to ensure that the forward looking elements of our Annual Report adequately considered and took into account the impact of the pandemic insofar as possible upon the business.

Given the timescales, it has been necessary to apply to Companies House for an extension to the filing date of the Group's audited accounts. As the anticipated date for completion of the audited accounts did not allow a clear 21 days' notice prior to the required AGM date, the Company is required to hold a separate general meeting to approve our audited accounts. This will now take place at 2.00pm on 16 August 2021 and the notice of meeting will be dispatched to shareholders with the Annual Report.

John van Kuffeler

Group Chief Executive

30 June 2021

2020 FINANCIAL REVIEW

Group results

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

Year ended 31 December	2020 Normalised⁹	2020 Fair value adjustments, amortisation of acquired intangibles 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

Year ended 31 December	2019 Normalised⁹	2019 Fair value adjustments, amortisation of acquired intangibles and exceptional items	2019 Reported
	£000	£000	£000
Revenue	183,657	(2,873)	180,784
Other operating income	954	-	954
Modification loss	(1,181)	-	(1,181)
Derecognition loss	(413)	-	(413)
Impairments	(45,066)	-	(45,066)
Exceptional provision for customer redress	-	-	-
Administration expenses	(95,786)	(7,226)	(103,012)
Operating profit/(loss)	42,165	(10,099)	32,066
Other exceptional items	-	(80,584)	(80,584)
Profit before interest and tax	42,165	(90,683)	(48,518)
Finance cost	(27,458)	-	(27,458)
Profit/(loss) before tax	14,707	(90,683)	(75,976)
Taxation	(3,261)	2,929	(332)
Profit/(loss) after tax	11,446	(87,754)	(76,308)

Earnings/(loss) per share	3.67p		(24.45)p
Dividend per share	0.70p		0.70p

⁹ See glossary of alternative performance measures and key performance indicators in the Appendix.

Normalised revenue was down 11% to £164.1m (2019: £183.7m) reflecting the significant reduction in lending by all three divisions. The reduction in reported revenue to £162.7m (2019: £180.8m) reflected the continued reduction to the unwind of the fair value adjustment made to the George Banco loan book at the time of its acquisition in August 2017. Increased forbearance in the form of greater numbers of rescheduled and deferred loans in both branch-based lending and guarantor loans meant that modification and derecognition losses increased substantially versus 2019. The impact of the pandemic on the Group's customers was significant and whilst there were differences between the divisions, the overall level of collections reduced, prompting a marked increase in delinquency and loan loss provisions so that overall impairment costs increased by 47% to £66.3m (2019: £45.1m). Despite a number of cost reduction measures implemented by all three divisions, higher complaints costs and advisory fees meant that administration costs were slightly higher at £96.4m (2019: £95.8m), resulting in a normalised operating loss of £6.3m (2019: normalised operating profit of £42.2m).

The Group incurred £97.8m of exceptional items during the year (2019: £80.6m) of which the most significant items were the non-cash impairment to the remaining value of goodwill attributable to the Group's operating subsidiaries totalling £74.8m (2019: £65.8m); and a charge for redress to certain customers of the Group's Guarantor Loans Division totalling £15.4m (2019: nil). Despite a large increase in cash balances during the year, low deposit rates and an increase in average gross debt balances meant that net finance costs increased slightly to £28.8m (2019: £27.5m).

The net result was that the Group reported an increased statutory loss before tax of £135.7m (2019: loss of £76.0m). A small tax credit of £0.2m (2019: tax charge of £0.3m) meant that the reported loss after tax was £135.6m (2019: £76.3m) and the reported loss per share was 43.39p (2019: loss per share of 24.45p).

Impairment provisioning

The Group's coverage ratio increased from 12.0% at 31 December 2019 to 19.5% at 31 December 2020. This was due to a number of factors including: the significant increase in credit risk across all divisions as a result of extensive forbearance offered to customers experiencing financial difficulty due to COVID-19; an increase in subsequent missed repayments as customers came to the end of their Emergency Payment Freeze ('EPF'); and an increase in provisions following a detailed review and assessment of the Expected Credit Losses ('ECL') from active loan balances not affected by COVID-19.

	31 Dec 2020	31 Dec 2019	Increase

Branch-based lending	7.6%	7.3%	0.3%
Home credit	49.9%	39.8%	10.1%
Guarantor loans	26.7%	5.3%	21.4%
Group	19.5%	12.0%	7.5%

The coverage ratio in branch-based lending increased by 0.4% to 7.6%, reflecting a modest increase in underlying delinquency due to: the impact of the pandemic; the output of a detailed review of the ECL from outstanding loan balances not affected by COVID-19; the impact of a more severe macro-economic outlook; and a reduction in new lending that contributed to a 20% reduction in receivables.

While the absolute level of provision was broadly unchanged year on year, the coverage ratio in home credit increased by 10.1% to 49.9% reflecting a significant increase in the proportion of customers moving into Stage 3. During 2020, home credit customers who would normally have been written-off due to greater than 26 weeks' consecutive missed payments remained on the book so as to allow the customer time to pay following the introduction of the EPF. While such balances were fully provided for, they were still present in the year end gross carrying value and therefore affected the overall coverage ratio. If such balances and the associated provision had been written-off at the year end, then the overall coverage ratio in home credit would have been 45.2% which is still a significant increase from 2019.

Guarantor loans saw the largest increase in provisioning, moving from 5.3% in 2019 to 26.7% in 2020. This reflected the relatively high proportion of customers that were impacted financially by COVID-19 and the fact that, under FCA rules and guidance, the Group was unable to approach guarantors whilst a borrower had opted for an EPF. It was also driven by a significant reduction in new lending and the consequent decline in the size of the outstanding loan book.

Coronavirus (COVID-19) pandemic impact on expected credit losses

The requirement to provide support in the form of an EPF for customers affected by the pandemic impacted the ECL recognised in the branch-based lending and guarantor loans divisions for the year ended 31 December 2020. In order to quantify this, the Group has reviewed the behaviour of customers who opted for an EPF and/or notified us as being affected by COVID-19 and have used this data to inform updates to the Probability of Default ('PD'), Loss Given Default ('LGD') and staging profile of those receivables that were affected. The Group recognises that, in line with IASB guidance, the activation of an EPF by a customer is not automatically deemed a significant increase in credit risk ('SICR').

Throughout 2020, the Group therefore made adjustments in order to reflect the higher PD, LGD and expected loss at default ('EAD') for that proportion of branch-based lending and guarantor loans customers who were financially impacted by the pandemic. This process was also informed by the Group's detailed analysis of past repayment behaviours and expected repayments behaviour across the entire customer base. In the branch-based lending division, a COVID-19 overlay was derived based on the recent collection performance on COVID-affected accounts and whether any impact on collection performance was deemed to be temporary or permanent. An overlay adjustment increased the provisions for accounts that were deemed to be permanently impacted and/or who were not making full payments. In guarantor loans, the recent payment performance of customers affected by COVID-19 but who were no longer on an EPF was used to inform expected delinquency trends of customers who had not yet resumed payment following an EPF. A provision overlay was then applied to those accounts to reflect expected performance consistent with the recent performance behaviours observed.

Macro-economic considerations

The provisioning model for both branch-based lending and guarantor loans also includes consideration of future economic conditions and scenarios. The macroeconomic variables which are modelled include Bank of England ('BoE') base rate, Gross Domestic Product ('GDP'), Consumer Price Inflation ('CPI'), House Price Inflation ('HPI') and unemployment rate. As the weightings used for the year ended 31 December 2019 Annual Report and Accounts did not consider the impact of recent economic changes arising from the effects of COVID-19, for the year ended 31 December 2020, the Group reflected the worsening macro-economic variables and also increased the downside weighting as reflected in the table below.

Macroeconomic variables and scenarios

	31 Dec 2020	31 Dec 2019
Base	50%	50%
Downside stress	40%	30%
Severe downside stress	0%	15%
Positive	10%	5%

As noted above, in addition to the change in weightings of the relevant scenarios, the macroeconomic forecasts for each of the variables have also changed since 31 December 2019. In 2019, the Group used economic forecast data from the BoE Annual Cyclical Scenario. As the BoE did not produce any new forecasts for 2020, the Group has instead used the Fiscal Sustainability Report published by the Office for Budget Responsibility ('OBR') from November 2020 as the basis for its macroeconomic scenarios. For variables where the OBR report did not provide sufficient information, the BoE 2019 scenarios, updated for actuals, have remained in use.

A summary of the peak and average for unemployment under each of the scenarios is detailed below.

For the year ended 31 Dec 2020	Positive	Base	Downside stress
2021
Maximum (Peak) unemployment rate	5.1%	7.5%	9.3%
Average unemployment rate	4.9%	6.0%	6.8%

2022
Maximum (Peak) unemployment rate	4.6%	7.3%	11.0%
Average unemployment rate	4.0%	6.9%	10.4%

As noted by other companies in the sector, due to the nature of the home credit industry and based on historical evidence, management has determined that the impact of traditional macroeconomic downside indicators is minimal for the industry and therefore a macroeconomic adjustment is currently not necessary for the home credit division. This was noted in the 2019 Annual Report and Accounts and still holds true for the 2020 consolidated financial statements. There are therefore no adjustments required with respect to the macroeconomic data for this division.

Further details regarding the Group's approach to provisioning is set out in the Group's 2020 Annual Report.

Divisional review

Branch-based lending

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)

Year ended 31 December	2019 Normalised¹	2019 Fair value adjustments and exceptional items	2019 Reported
	£000	£000	£000
Revenue	93,002	-	93,002
Other operating income	954	-	954
Modification loss	(951)	-	(951)
Derecognition loss	(482)	-	(482)
Impairments	(20,635)	-	(20,635)
Revenue less impairments	71,888	-	71,888
Administration expenses	(42,235)	-	(42,235)
Operating profit	29,653	-	29,653
Exceptional items	-	(332)	(332)
Profit/(loss) before interest and tax	29,653	(332)	29,321
Finance cost	(17,355)	-	(17,355)
Profit/(loss) before tax	12,298	(332)	11,966
Taxation	(2,815)	63	(2,752)
Profit/(loss) after tax	9,483	(269)	9,214

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

The key performance drivers in branch-based lending, namely network capacity, lead volume and quality, network productivity and impairment management were all impacted by the pandemic. A summary of how these factors were affected during 2020 is summarised below.

Network capacity - Having planned to open a number of new branches in 2020, the majority of these planned openings were put on hold once the potential impact of the pandemic became apparent and with it the significant uncertainty regarding the outlook for the UK economy. As a result, only one new branch was opened in 2020 taking the total number to 74. However, in anticipation of more branch openings and further growth in 2020, a planned increase in staffing was already underway when the pandemic struck with the result that the number of network staff peaked at 416 in May 2020, an increase of 50 since the start of 2020. However, given the impact of the national lockdown and a marked reduction in demand, coupled with tightening of our own lending criteria, it was clear that there was excess capacity in the network and so the number of staff declined from May 2020 through natural attrition as well as through a redundancy programme that reduced the number of network staff to 353 and the total number of staff to 467 (2019: 474) by the year end.

Following the temporary closure of all branches, lending stopped in April 2020 before gradually rebuilding during the summer months only to then slow down again in the winter of 2020 as further lockdowns were introduced. This prompted a reduction in the number of active customers that fell by 10% to 68,100 (2019: 75,400) and the net loan book declined by 20% to £171.5m (2019: £214.8m).

Lead volumes and quality - As noted above, lead volumes fell sharply as the pandemic started to grip the UK, reducing from almost 2.5 million in 2019 to less than 1.8 million in 2020 - a reduction of 28% with no leads processed in April 2020. This reduced the number of new borrower applications to branch ('ATBs') that fell by 32% to 337,700 (2019: 497,050). Financial brokers, whilst severely impacted by the sharp reduction in demand, still provided 94% of gross leads (2019: 90%) and 57% of completed loans (2019: 51%) with direct applications and renewals or former customers making up the balance. The Group continues to draw upon the support from a broad number of financial brokers, thereby mitigating any risk of being overly exposed to a single firm or small group of firms.

Productivity - with a significant reduction in leads and ATBs, coupled with a greater degree of caution regarding new lending, it was expected that conversion rates would fall and the number of loans booked in 2020 fell to 33,499 in total (2019: 52,130) and the total value of loans issued fell by 39% to £104.3m (2019: £169.9m).

Delinquency management - The pandemic prompted a number of specific, as well as more general challenges in managing levels of delinquency. Whilst impairments did increase sharply, this was against a backdrop of unprecedented levels of forbearance being offered to customers through an EPF, a mechanism that was originally available for periods of up to three months before being extended to periods of up to six months. Since the start of the pandemic, out of a total of almost 15,000 customers that requested COVID-related forbearance, less than 1,200 remain COVID-flagged (or below 2% of outstanding accounts), 7,600 are resolved but still active, and approximately 6,200 have been closed. The consequent increase in credit risk due to: the impact of the pandemic; increased forbearance offered to affected customers; and the outcome of a detailed review into the expected cashflows from outstanding loans not affected by COVID, each contributed to an increase in the rate of impairments from 10.3% to 16.3% of average net receivables and from 22.2% to 35.0% of normalised revenue. Whilst such rates of impairment are high, they are below that experienced during the global financial crisis in 2008.

2020 results

Revenue fell by 3% to £89.8m (2019: £93.0m) driven by the reduction in net loan book and a small reduction in average yield due to increased levels of rescheduling and loan deferrals. Whilst other income benefited from a debt sale in the period and temporary furlough support from HM Government, the increased number of rescheduled and deferred loans prompted a £1.3m increase in modification losses and a £2.1m increase in derecognition losses respectively. Higher rates of delinquency together with higher charge-off and an increase in loan loss provisions increased impairments to £31.4m (2019: £20.6m).

In response to the reduction in revenue, a number of initiatives were deployed throughout the year to reduce costs such as the loss of 48 staff and access, albeit for a limited period, to the Government furlough scheme, as well as cuts to marketing and travel expenses. Offsetting some of these savings was an increase in complaint-related costs contributing to a slight increase in the division's cost:income ratio from 45.4% to 45.9%. Taken together with the reduction in revenue, the increased cost of impairments and higher levels of forbearance meant that normalised operating profit fell from £29.7m to £13.4m.

An exceptional charge of £6.0m related to the £5.8m write-off of capitalised fees associated with the Group's securitisation facility (2019: nil) and restructuring costs of £0.2m (2019: £0.3m).

Despite having generated cash during 2020, finance costs increased slightly from £17.4m to £18.6m with the result that the division produced a normalised loss before tax of £5.2m (2019: profit before tax of £12.3m) and after the exceptional items, a reported loss before tax of £11.2m (2019: profit before tax of £12.0m).

Key performance indicators

While there were increased numbers of rescheduled and deferred loans, revenue yield remained broadly unchanged at 46.5% (2019: 46.4%), it was the 20% decline in the net loan book that drove the decline in revenue. As noted above, higher rates of delinquency, increased charge off and a step-up in provisioning meant that impairment as a percentage of revenue increased sharply, impacting the risk adjusted margin that fell from 36.1% to 30.2%.

The combination of each of these factors meant that normalised operating profit margin halved to 14.9% (2019: 31.9%) which also fed through into a much reduced return on asset that fell to 7.0% (2019: 14.8%).

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

Emerging from the pandemic - actions and plans for 2021

Whilst uncertainty about the pace and trajectory of any recovery remains, subject to being able to complete the Capital Raise as planned, we are optimistic about the opportunities for our branch-based lending business. Despite having been affected by regional and national lockdowns that impacted lead volumes and our ability to write quality business, as the economy has started to reopen, we have begun to see some encouraging signs with increasing numbers of quality applications that are feeding through into rising numbers of applications to branch. Our highly experienced staff have embraced a number of enhancements to our lending procedures so that conversion has also been improving and this bodes well as we seek to rebuild our loan book to previous levels. This process of improvement will continue in the second half of 2021 and will include any learnings from the proposed redress methodology in guarantor loans and the independent review of our processes and procedures, taking into account recent FOS decisions that commenced during the first half of 2021.

Our collections performance has also been positive and although a small number of our customers remain 'COVID-flagged', the vast majority of those affected have either returned to full or part-payment, where the performance has been above our previous expectations. In addition, the changes we have made to our lending processes are delivering good results which are helping to drive an encouraging delinquency performance.

Having effectively suspended the opening of new branches over the past 12 months, we remain cautious about further openings but also believe that once the recovery starts to gather momentum, subject to funding, there is a major opportunity to take advantage of what we believe could be a significant uptick in demand through further network expansion over the next few years.

Home credit

Year ended 31 December	2020 Normalised¹	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)

Year ended 31 December	2019 Normalised¹²	2019 Fair value adjustments and exceptional items	2019 Reported
	£000	£000	£000
Revenue	60,835	-	60,835
Other income	-	-	-
Impairments	(16,435)	-	(16,435)
Revenue less impairments	44,400	-	44,400
Administration expenses	(35,298)	-	(35,298)
Operating profit	9,102	-	9,102
Exceptional items	-	(221)	(221)
Profit before interest and tax	9,102	(221)	8,881
Finance cost	(2,116)	-	(2,116)
Profit before tax	6,986	(221)	6,765
Taxation	(1,474)	42	(1,432)
Profit after tax	5,512	(179)	5,333

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

Face-to-face lending lies at the heart of the home credit business model and so the onset of the pandemic and the associated rules and guidance around social distancing required a radical shift in our business approach so that we could continue to service our customers whilst ensuring their safety and wellbeing, as well as that of our self-employed agents and staff. As a result, agents stopped visiting customers in their homes in March 2020 and we pivoted to a remote-only model whilst restrictions remained in place.

Although we were able to encourage the vast majority of our customers to switch to one of our remote collections channels within just a few weeks, the development of a robust remote lending capability took longer, with the result that lending reduced to almost nil in April 2020. For customers unable or unwilling to switch to remote channels, we developed an 'Amazon-style' physical collections protocol so that such customers were still able to stay on track with their repayments and were not forced into arrears simply because they were unable to make a remote payment.

In order to maintain our competitive position in the market we launched a new 52-week product to supplement our existing and most popular 46-week product. By spreading the cost over a further six weeks, we were able to reduce the APR and weekly rate, increasing its appeal relative to other offerings in the market. We also launched a new 26-week and 34-week product during the year.

Remaining competitive is vital for sustaining our network of self-employed agencies that, despite the challenges faced during the pandemic, remained broadly flat at 897 agencies at the end of December 2020 (2019: 896). Our decision to boost commission rates on remote collections (in order to help support agents that saw their incomes reduce as collections and new lending also reduced) was particularly well-received and certainly helped us to keep vacancies low and agent satisfaction levels high, even during some of the most challenging market conditions seen in recent years.

However, with a slowdown in lending in March 2020, followed by minimal lending during April and May, despite a good recovery over the summer months as the economy began to open up and face-to-face contact resumed, further lockdowns in the autumn and before Christmas 2020 meant that the usual seasonal uptick failed to materialise to the degree expected and the net loan book declined by 32% to £26.9m (2019: £39.9m).

2020 results

The impact of a smaller net loan book was compounded by a reduction in yield that meant revenue fell by 28% to £43.8m (2019: £60.8m). The reduction in new lending, coupled with a strong collections performance meant that impairment fell by 36% in absolute terms to £10.5m (2019: £16.4m). Even with the drop in revenue, impairment as a percentage of revenue also fell to 23.9% (2019: 27.0%) which is the lowest it has been since we acquired the business in 2015. This performance is a testament to the efforts made in recent years to improve both the quality of our loan book and the capabilities of our agent network that have been enhanced through improved training, market-leading technology and strong management.

An increase in bank charges with greater use of remote payment methods, higher complaint costs and professional fees, meant that administration costs increased by 2% to £35.9m (2019: £35.3m) resulting in a £2.5m operating loss (2019: operating profit of £9.1m). Lower finance costs of £1.2m (2019: £2.1m) reflected the strong cashflow during the year and with no exceptional costs the net result was a reported loss before tax of £3.7m (2019: profit before tax of £6.8m).

Key performance indicators

Whilst revenue yield fell to 155.2% (2019: 167.5%), the impact on risk adjusted margin was mitigated by the significant improvement in impairment. The drop in revenue meant that the cost:income ratio increased significantly to 81.8% (2019: 58.0%), impacting operating profit margins and the return on asset.

Year ended 31 December Key Performance Indicators¹	2020 Normalised	2019 Normalised
Period -end self-employed agencies	897	896
Period-end number of offices	64	64
Period-end customer numbers (000)	72.1	92.4
Period-end loan book (£m)	26.9	39.9
Average loan book (£m)	28.2	36.3
Loan book growth (%)	(32.5)%	(2.7)%
Revenue yield (%)	155.2%	167.5%
Risk adjusted margin (%)	118.0%	122.2%
Impairments/revenue (%)	23.9%	27.0%
Impairment/average loan book (%)	37.2%	45.2%
Cost to income ratio (%)	81.8%	58.0%
Operating profit margin	(5.7)%	15.0%
Return on asset (%)	(8.9)%	25.1%

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

Emerging from the pandemic - actions and plans for 2021

Meeting the customer and building a longstanding personal relationship with them through the regular weekly or bi-weekly visit to their home, lies at the core of a successful home credit business and so, despite the many benefits of being able to operate remotely, we remain committed to conducting our business face-to-face, whenever possible. Paying funds direct into the customer's bank account will remain an option for borrowers, as well as being able to make payments via our customer portal or other remote channels. We will continue to develop our systems and tools and embed any learnings from the proposed redress methodology in guarantor loans and the independent review of our processes and procedures taking into account recent FOS decisions so as to improve the quality of our service and to support our self-employed agents.

As the economy has started to open up, we have seen an increase in monthly lending volumes and have also started to see a return to growth in customer numbers. Whilst we remain cautious about the pace of recovery, our focus on quality customers and the benefits of the changes made to our lending process during the pandemic have contributed to a better than expected collections performance since the start of the year that in turn has helped to sustain low rates of impairment relative to previous years.

Home credit remains a vital source of credit for many of the UK's lowest income households and we are determined to continue to support our customers through this very challenging time. The news that Provident Personal Credit is to close its doors after 140 years of trading marks the end of an era but also presents a significant opportunity for our home credit business. Whilst the completion of a substantial capital raise remains the primary focus for the Group, drawing upon the experience gained in 2017, when we grew the home credit business significantly, we believe that a similar opportunity now exists to expand organically and are examining a number of options to achieve this. In the meantime, subject to funding, we are determined to rebuild the net loan book through the addition of quality customers and by remaining focused on being the preferred choice for self-employed agents seeking to grow their business.

Guarantor loans

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)

Year ended 31 December	2019 Normalised¹ £000	2019 Fair value adjustments and exceptional items £000	2019 Reported £000
Revenue	29,820	(2,873)	26,947
Other income	-	-	-
Modification loss	(230)	-	(230)
Derecognition gain	69	-	69
Impairments	(7,996)	-	( 7,996 )
Revenue less cost of sales	21,663	(2,873)	18,790
Exceptional provision for customer redress	-	-	-
Administration expenses	(12,895)	-	(12,895)
Operating profit/(loss)	8,768	(2,873)	5,895
Other exceptional items	-	(737)	(737)
Profit/(loss) before interest and tax	8,768	(3,610)	5,158
Finance cost	(7,338)	-	(7,338)
Profit/(loss) before tax	1,430	(3,610)	(2,180)
Taxation	(113)	686	573
Profit/(loss) after tax	1,317	(2,924)	(1,607)

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

The Group's Guarantor Loans Division faced a number of operational, financial and regulatory challenges in 2020. First, it is now clear that young adults were among those worst hit financially by the pandemic. As the vast majority of our guarantor loans customers fall into this demographic, the division was more severely impacted than the other two divisions. Second, following its multi-firm review into the guarantor loans sector, the FCA raised a number of concerns and required that the Group develop a proposed redress methodology for affected customers. This prompted a number of operational changes but also meant that our appetite for new lending was significantly curtailed until the work on the redress methodology was completed.

Having seen healthy growth in the number of leads during the first two months of the year, things went into reverse during March 2020 as the realities of the pandemic began to filter through into the wider economy. Our decision to introduce stricter lending criteria and a lack of leads through broker channels meant that no loans were written in April and whilst there was a modest recovery in May, June and July, the announcement in early August that the FCA had raised a number concerns about our approach meant that loan volumes fell back to close to zero and stayed there for the rest of the year. As a result, the total number of loans written fell to 4,601 (2019: 19,458) and the value of loans issued fell from £71.7m in 2019 to £16.4m. At the same time, the economic impact of the pandemic on young adults saw large numbers of borrowers opt for COVID-related forbearance that at its peak reached over 7,000, or 25% of the then active customer base. As at 31 December 2020, this figure was 3,500, or 14% of the active total. With few loans being written, a small number of staff were furloughed and 15 staff were made redundant. We also redeployed a number of former lending staff into collections where, given the volume of customers experiencing difficulty, there was a need for greater resources. Being unable to collect from or contact either the borrower or the guarantor whilst a borrower was 'COVID-flagged' meant that collections were much reduced and impairments increased sharply as the coverage ratio also increased. As a result, the net loan book fell by 43% to reach £59.8m at 31 December 2020 (2019: £105.5m).

2020 results

Despite the lack of lending and a rapidly shrinking loan book from March 2020, previous strong loan book growth and an increase in average yield meant that normalised revenue increased slightly to £30.5m (2019: £29.8m). A smaller fair value adjustment to revenue of £1.4m (2019: £2.9m) meant that reported revenue increased by 8% to £29.0m (2019: £27.0m).

The high numbers of COVID-flagged customers together with a weaker collections performance, contributed to sharp increase in impairments that rose to £24.3m (2019: £8.0m), or 79.8% of revenue (2019: 26.8%) and 28.2% of average loan book (2019: 8.5%). As noted above there was a marked increase in provision coverage from 5.3% in 2019 to 26.7% at the end of 2020 as a large number of loans moved from stage 1 into stage 2 and stage 3.

Whilst staff costs fell year-on-year, an increase in complaint handling costs and professional fees contributed to an overall increase in administration costs to £13.8m (2019: £12.9m). The net result was that the business delivered a normalised operating loss of £11.7m (2019: operating profit of £8.8m). Finance costs were slightly higher at £7.5m (2019: £7.3m) resulting in a normalised loss before tax of £19.2m (2019: profit before tax of £1.4m). Exceptional items comprise a charge for customer redress of £15.4m that is broadly in line with that included in the 2020 half year results. Whilst the current estimate represents the Directors' best estimate of the total cost of redress, based upon a detailed methodology and analyses developed in conjunction with the Group's advisers, the final cost of redress remains uncertain and is heightened by the fact that the FCA has not yet approved the methodology proposed. Therefore, although the Directors believe their best estimate represents a reasonably possible outcome, there is a risk of a less favourable outcome (see note 6 to the financial statements for more detail regarding the customer redress provisions). With a reduced fair value adjustment to revenue of £1.4m (2019: £2.9m), the net result was that the reported loss before tax was £36.0m (2019: loss before tax of £2.2m).

Key performance indicators

The significant reduction in lending volume and the fact that a high proportion of the active customer base was affected by COVID-19 impacted most of the division's KPIs in 2020. An increase in revenue yield was more than offset by the sharp increase in impairment to 79.8% of revenue (2019: 26.8%) as large numbers of customers and/or guarantors struggled to keep up with their payments with the result that the risk adjusted margin reduced from 23.2% to 7.1%. This fed through into a negative operating profit margin and a negative return on assets of (13.6)% (2019: 9.3%).

Year ended 31 December Key Performance Indicators¹	2020 Normalised	2019 Normalised
Period-end customer numbers (000)	26.2	32.6
Period-end loan book (£m)	59.8	105.5
Average loan book (£m)	86.2	94.1
Loan book growth (%)	(43.3)%	27.7%
Revenue yield (%)	35.3%	31.7%
Risk adjusted margin (%)	7.1%	23.2%
Impairment/revenue (%)	79.8%	26.8%
Impairment/average loan book (%)	28.2%	8.5%
Cost:income ratio (%)	45.2%	43.2%
Operating profit margin (%)	(38.5)%	29.4%
Return on assets (%)	(13.6)%	9.3%

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

Planned wind-down of Guarantor Loans Division

As outlined in the Group Chief Executive's review, the Board has concluded that shareholder interests will be best served by placing the division into a managed run-off and ultimately closing the business. Whilst hugely disappointing, collecting out the loan book is the only rational conclusion given the combined impact of the pandemic, the FCA review into guarantor loans and the expected increase in costs in order to meet revised FCA requirements that would necessarily impede any potential recovery in profitability in the future (see note 21 to the financial statements).

Central costs and exceptional items

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)

Year ended 31 December	2019 Normalised¹⁷	2019 Amortisation of acquired intangibles and exceptional items	2019 Reported
	£000	£000	£000
Revenue	-	-	-
Other income	-	-	-
Administration expenses	(5,358)	(7,226)	(12,584)
Operating loss	(5,358)	(7,226)	(12,584)
Exceptional items	-	(79,293)	(79,293)
Loss before interest and tax	(5,358)	(86,519)	(91,877)
Finance cost	(649)	-	(649)
Loss before tax	(6,007)	(86,519)	(92,526)
Taxation	1,141	2,138	3,279
Loss after tax	(4,866)	(84,381)	(89,247)

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

Normalised administrative expenses were broadly unchanged at £5.5m (2019: £5.4m). The amortisation of acquired intangible assets includes the write-off of the remaining acquired intangible assets at the Group's operating subsidiaries totalling £1.3m (2019: £7.2m).

As noted in the Group Chief Executive's review, the Group incurred a number of exceptional costs totalling £97.8m (2019: £80.6m). The key items within this total were: the impairment of the remaining goodwill assets relating to the Group's operating subsidiaries totalling £74.8m (2019: £65.8m); £1.6m of advisory fees (2019: £12.8m); the write-off of £5.8m of capitalised fees associated with the Group's securitisation facility (2019: nil); a charge for redress totalling £15.4m (2019: nil); and £0.2m (2019: £1.9m) of restructuring and redundancy costs that took place during the year. The impairment of goodwill in each business division is a non-cash item and was driven primarily by the losses incurred during the year, uncertainties in the regulatory environment and the reduction in stock market valuations and multiples across the non-standard finance sector (see note 10 to the financial statements).

Balance sheet

Despite having significant cash balances of £78.0m at 31 December 2020, as a result of the write-off of all of the remaining goodwill assets associated with the Group's operating subsidiaries, the exceptional provision for redress and the impact of the pandemic on the Group's operating performance in 2020, the Group's balance sheet has moved into a negative net tangible assets position. A summary of the Group's balance sheet as at 31 December 2020 is shown below:

Year ended 31 December	2020	2019
	£000	£000
Loan book	258,201	359,647
Fair value	-	2,000
Adjusted loan book	258,201	361,647
Cash	77,956	14,192
Trade receivables and other assets	3,630	4,321
Property, plant and equipment, intangibles and right of use assets	24,593	25,688
Payables and provisions	(37,708)	(28,374)
Lease liability	(10,889)	(11,105)
Debt	(326,587)	(317,590)
Tangible net (liabilities)/assets	(10,804)	48,779
Goodwill and acquired intangibles	-	74,832
Net (liabilities)/assets	(10,804)	123,611

The Group is focused on completing the Capital Raise that, if successful, is expected to, amongst other things, strengthen the Group's balance sheet and restore it to a positive net assets position. However, the Directors note that material uncertainties exist 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 May 2021 the Group has c.£101m in cash, 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. The range of assumptions and the likelihood of them all proving correct creates material uncertainty and therefore the impact on liquidity and solvency under both the base case and downside scenarios may cast significant doubt on both the Group's and the Company's ability to continue as a going concern. In such circumstance, the Group may fall under the control of its lenders and there would be a possibility of the Group going into insolvency;

§ 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. This risk may be impacted by the outcome of the ongoing reviews of each of the Group's divisions. Following a multi-firm review, the Group has developed a proposed methodology for redress to certain guarantor loans customers and has made an exceptional charge £15.4m to cover the expected costs. Whilst the current estimate represents the Directors' best estimate of the total cost of redress, based upon a detailed methodology and analyses developed in conjunction with its advisers, the FCA has not yet approved the methodology proposed. Therefore, although the Directors believe their best estimate represents a reasonably possible outcome; 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 large and complex and so there are many areas of operational risk that include technology failure, fraud, staff management and recruitment risks, underperformance of key staff, , the risk of human error, taxation, increasing numbers of customer complaints, health and safety as well as disaster recovery and business continuity risks;

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.

On behalf of the Board of Directors

Jono Gillespie

Chief Financial Officer

30 June 2021

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 items 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)
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

(43.39)

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 2019

	Note	Before fair value adjustments, amortisation of acquired intangibles and exceptional items £000	Fair value adjustments, amortisation of acquired intangibles and exceptional items 000	Year ended 31 Dec 2019 £000
Revenue	3	183,657	(2, 873 )	180,784
Other operating income		954	-	954
Modification loss		(1,181)	-	(1,181)
Derecognition loss		(413)	-	(413)
Impairment		(45,066)	-	(45,066)
Provision for customer redress		-	-	-
Administrative expenses		(95,786)	(7,226)	(103,012)
Operating profit	4, 5	42,165	(10,099)	32,066
Other exceptional items	6	-	(80,584)	(80,584)
Profit/(loss) on ordinary activities before interest and tax		42,165	(90,683)	(48,518)
Finance cost		(27,458)	-	(27,458)
Profit/(loss) on ordinary activities before tax		14,707	(90,683)	(75,976)
Tax on profit/(loss) on ordinary activities	7	(3,261)	2,929	(332)
Profit/(loss) for the year		11,446	(87,754)	(76,308)
Total comprehensive loss for the year				( 76,308 )
Loss attributable to:
- Owners of the parent				( 76,308 )
- Non-controlling interests				-

Loss per share

Note

Year ended

31 Dec 2019

Pence

Basic and diluted

(24.45)

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

Consolidated statement of financial position

As at 31 December 2020

	Note	31 Dec 2020 £000	31 Dec 2019 £000
ASSETS
Non-current assets
Goodwill	10	-	74,832
Intangible assets	11	8,237	8,572
Derivative asset		-	1
Deferred tax asset		-	1,677
Right of use asset		10,079	10,560
Property, plant and equipment		6,277	6,556
Amounts receivable from customers	12	124,128	185,269
		148,721	287,467
Current assets
Amounts receivable from customers	12	134,073	176,379
Trade and other receivables		2,080	2,183
Corporation tax asset		1,550	460
Cash and cash equivalents		77,956	14,192
		215,659	193,214
Total assets		364,380	480,681
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables		15,895	26,909
Provisions	14	21,813	1,466
Lease liability		1,928	1,830
Total current liabilities		39,636	30,205
Non-current liabilities
Lease liability		8,961	9,275
Bank loans		326,587	317,590
Total non-current liabilities		335,548	326,865
Equity
Share capital	18	15,621	15,621
Share premium	18	180,019	180,019
Other reserves		551	2,152
Retained loss		(206,995)	(74,181)
Total equity		(10,804)	123,611
Total equity and liabilities		364,380	480,681

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 2018		15,852	254,995	(2,011)	(61,635)	255	207,456
Total comprehensive loss for the year		-	-	-	(76,308)	-	(76,308)
IFRS 16 transition opening balance adjustment		-	-	-	(295)	-	(295)
Transactions with owners, recorded directly in equity:		-	-	-		-	-
Dividends paid	9	-	-	-	(8,425)	-	(8,425)
Capital reduction	18	-	(75,000)	-	75,000	-	-
Credit to equity for equity-settled share-based payments		-	-	1,183	-	-	1,183
Transfer of share-based payments on vesting of share awards		-	-	(734)	734	-	-
Issue of shares	18	23	24	-	(47)	-	-
Equity for Founder shares		-	-	255	-	(255)	-
Cancellation of shares	18	(254)	-	3,459	(3,205)	-	-
At 31 December 2019		15,621	180,019	2,152	(74,181)	-	123,611
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		15,621	180,019	551	(206,995)	-	(10,804)

Consolidated statement of cash flows

For the year ended 31 December 2020

	Note	Year ended 31 Dec 2020 £000	Year ended 31 Dec 2019 £000
Net cash from/(used in) operating activities	20	83,193	(16,986)*
Cash flows from investing activities
Purchase of property, plant and equipment		(1,726)	(1,744)**
Purchase of software intangibles		(3,221)	(3,185)**
Proceeds from sale of property, plant and equipment		16	62
Net cash used in investing activities		(4,931)	(4,867)
Cash flows from financing activities
Finance cost		(18,333)	(18,218)
Repayment of principal portion of lease liabilities		(1,806)	(1,606)*
Debt raising		21,641	50,400
Repayment of borrowings		(15,000)	-
Dividends paid	9	-	(8,425)
Net cash (used in)/from financing activities		(13,498)	22,151

Net increase in cash and cash equivalents		63,764	298
Cash and cash equivalents at beginning of year		14,192	13,894
Cash and cash equivalents at end of year		77,956	14,192

*The repayment of the principal portion of lease liabilities has been re-presented to recognise this as a cash outflow from financing activities. This was previously shown as a cash outflow from investing activities in the prior year. The interest portion of the repayment of the lease liability has been re-presented to recognise this as a cash outflow from operating activities. This was previously shown as a cash outflow from financing activities in the prior year.

**There has also been enhanced disclosure in the purchase of property, plant and equipment and software intangibles. This has been separated into separate line items.

As at 31 December 2020 the Group had cash of £78.0m (2019: £14.2m) with gross debt of £330.0m (2019: £323.2m).

Notes to the financial statements

1. Basis of preparation

The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 December 2020 or 2019.

The financial information for the year ended 31 December 2019 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified and did not contain a statement under s498(2) or (3) of the Companies Act 2006, but did include a section highlighting a material uncertainty that may cast significant doubt on the Group and Company's ability to continue as a going concern.

The statutory financial statements for the year ended 31 December 2020 will be filed with the Registrar of Companies following the General Meeting to be held on 16 August 2021. The report of the auditor was unqualified and did not contain a statement under s498(2) or (3) of the Companies Act 2006, but did include a section highlighting a material uncertainty that may cast significant doubt on the Group and Company's ability to continue as a going concern.

The Group notes this material uncertainty is as a result of potential reduced levels of collections and lending on the Group's financial performance as a result of COVID-19 and the potential impact of the guarantor loan redress programme and future cost of complaints on the liquidity and solvency position of the group. In addition, there exists uncertainty around the ability of the Group to raise sufficient equity, remain in compliance with existing financial covenants and whether waivers will be granted by lenders (and under what terms) in the event of a covenant breach.

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) adopted pursuant to Regulation (EC) No 1606/2002 as it applies to the European Union.

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

Going concern

During the year, the Directors assessed the forecast levels of net debt, headroom on existing borrowing facilities and compliance with debt covenants. As part of its going concern assessment, the Directors reviewed both the Group's access to liquidity and its future balance sheet solvency for the next 12 months from the date of approval of the financial statements. For liquidity, the Group produced two scenarios: (i) the more likely (or 'base case') scenario which includes a substantial equity injection in the second half of 2021 in order to mitigate the risk of and/or cure covenant breaches; and (ii) a downside scenario which applies stresses in relation to the key risks identified in the base case and does not include an equity raise. The Group concluded that a material uncertainty continues to exist around the performance of the Group and its ability to stay within its financial covenants, with both very much influenced by a number of factors not entirely within the Group's control, including the successful execution of a capital raise, current and future impacts of COVID-19 and the impact of potential levels of redress across the Group as well as the outcome of the independent reviews being performed at the branch-based lending and home credit divisions.

Under the base case, additional equity funds in the second half of 2021 mean that the Group does not breach its covenants in the next 12 months and therefore would not require covenant waivers from its lenders in order to remain viable. The base case assumes no breach in covenant as at 30 June 2021 as on the basis of current forecasts the Group does not expect to do so. However, the covenant headroom remains tight and there remains a risk due to unforeseen and as yet unaccounted for matters that the Group will breach its financial covenants as at 30 June 2021. If this were to happen, then the Group would maintain its strategy as described under the base case as management would have time to cure this breach. However, this would result in a requirement to either accelerate the Capital Raise or request a temporary waiver from lenders, neither of which have been considered in the base case. Therefore, if the Group finds itself in such a scenario, whilst the Directors remain confident of the ability to raise capital, they note the risks associated with executing on the base case would be increased and consequently the likelihood of the Group ending up in the downside scenario would also be increased.

Under the downside scenario, which assumes no additional equity in 2021, the Group would be expected to breach certain covenants during the next 12 months and would therefore not be able to access further funding over the period of breach. It is also therefore assumed that the Group would require waivers from its lenders in order to remain viable. The waivers required under this scenario are beyond the range discussed in previous negotiations with lenders and therefore if the expected breach under this scenario occurs and if waivers are not forthcoming, the Group may fall under the control of its lenders and there is a possibility of the Group going into insolvency.

The Directors additionally ran a liquidity reverse stress test on the base case to identify the level that expected collections would have to fall by so as to cause the Group to deplete all cash reserves. This showed that, assuming no changes to lending levels and operating expenses, collections would be required to fall by over 23% 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 evidence to date, such a reduction in collections, with no mitigating actions, was thought by the Directors to be an unlikely event, though the Directors also recognised that access to such cash generated by the collections is ring fenced by the lenders and therefore in the event of a breach of covenants, the ring fence is triggered and the cash would not to be available to the Group or Company.

With regards to the balance sheet solvency of the Group, the Directors noted that under the base case, whilst in a net liability position as at 31 December 2020, the Group will move forwards in a net asset position, however this is dependent on additional equity proceeds being received. Under the downside scenario, the Group would remain in a net liability position.

On the basis of the above analysis, 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. The range of assumptions and the likelihood of them all proving correct creates material uncertainty on liquidity and solvency under both the base case and downside scenarios.

In making their assessment, the Directors took account of the Group's current financial and operational positions, the status of conversations with the regulator and advisors, as well as recent trading activity and in particular, recent collections activity. They noted the proposed equity raise to support the Group and in particular the continued interest of the Group's major shareholder Alchemy in supporting a capital raise subject to the outcome of the Group's engagement with its lenders, Alchemy's analysis of the FCA and Group's regulatory reviews, and greater levels of certainty around redress and claims. In addition, they noted, contingent on a successful capital raise having been completed, the informal support of a proposed extension to the term of the Group's existing facilities by its lenders. The Directors also note the existence of the securitisation facility, however they noted that this is currently suspended and the ability to use this facility remains outside of the Group's control as it is subject to the consent of the lender and the satisfaction of standard covenants for a facility of this type. The Directors recognise there exists a risk around covenant compliance as at 30 June 2021 due to matters unforeseen in its current forecasts and that should a breach occur, it would result in a requirement to either accelerate the capital raise or request a temporary waiver from the lenders.

The Directors acknowledge the considerable challenges presented over the last year and now facing the Group and the Company and therefore the material uncertainty which may cast significant doubt on the ability of both the Group and the Company to continue to adopt the going concern basis of accounting. However, despite these challenges, it is the Directors' reasonable expectation that the Group and Company can and will raise sufficient equity and have sufficient liquidity to continue to operate and meet its liabilities as they fall due for the next 12 months and therefore it has adopted the going concern basis of accounting.

The assumption of shareholder support for additional equity, 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 base case, forms a significant judgement of the Directors in the context of approving the Group's going concern status.

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

2. Changes in accounting policies

New and amended Standards and Interpretations issued but not effective for the financial year ending 31 December 2020

In the current year and in accordance with IFRS requirements, the following accounting standards have been issued by the IASB and/or are not yet effective: IFRS 17 Insurance Contracts, amendments to IAS 1 Classification of Liabilities as Current or Non-current, amendments to IFRS 3 Reference to the Conceptual Framework, annual Improvements to IFRS Standards 2018-2020 Cycle - Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases, and IAS 41 Agriculture. There are no new standards not yet effective and not adopted by the Group from 1 January 2020 which are expected to have a material impact on the Group. 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.

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

3. Revenue

Interest income is recognised in the statement of comprehensive income for all amounts receivable from customers and is measured at amortised cost using the effective interest rate ('EIR') method. 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 2020 £000	Year ended 31 Dec 2019 000
Interest income	164,102	183,657
Fair value unwind on acquired loan portfolio	(1,437)	(2,873)
Total revenue	162,665	180,784

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

	Year ended 31 Dec 2020 £000	Year ended 31 Dec 2019 000
Depreciation of property, plant and equipment	1,941	1,827
Depreciation of right to use asset	2,065	2,042
Amortisation and impairment of intangible assets	3,556	9,090
Staff costs excluding agent commission¹	43,855	50,975
Rentals under operating leases	596	742
Profit on sale of property, plant and equipment	54	(43)

¹ Agent commission for the year ended 31 December 2020 was £11.3m (2019: £13.1m).

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		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 Total £000
Total assets	220,702	38,745	59,794	391,597	(346,458)	364,380
Total liabilities	(271,981)	(19,021)	-	(332,946)	248,764	(375,184)
Net assets/(liabilities)	(51,279)	19,724	59,794	58,651	(97,694)	(10,804)
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

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 £97.9m exceptional items in 2020 (2019: £80.6m). Refer to note 6 for further details.

³ Consolidation adjustments include the acquisition intangibles of £nil (2019: £1.3m), goodwill of £nil (2019: £75.8m), fair value of loan book of £nil (2019: £1.4m) and the elimination of intra-Group balances.

	Branch-based lending £000	Home credit £000	Guarantor loans £000	Central £000		2019 Total £000
Year ended 31 December 2019
Interest income	93,002	60,835	29,820	-		183,657
Fair value unwind on acquired loan portfolio	-	-	(2,873)	-		(2,873)
Total revenue	93,002	60,835	26,947	-		180,784
Operating profit/(loss) before amortisation	29,653	9,102	5,895	(5,358)		39,292
Amortisation of intangible assets	-	-	-	(7,226)		(7,226)
Operating profit/(loss) before exceptional items	29,653	9,102	5,895	(12,584)		32,066
Exceptional items²	(332)	(221)	(737)	(79,293)		(80,584)
Finance cost	(17,355)	(2,116)	(7,338)	(649)		(27,458)
Profit/(loss) before taxation	11,966	6,765	(2,180)	(92,527)		(75,976)
Taxation	(2,752)	(1,432)	574	3,280		(332)
Profit/(loss) for the year	9,214	5,333	(1,607)	(89,247)		76,308

	Branch-based lending £000	Home credit £000	Guarantor loans £000	Central £000	Consolidation adjustments³ £000	2019 Total £000
Total assets	244,740	51,931	106,960	633,760	(556,709)	480,681
Total liabilities	(302,987)	(29,202)	-	(332,406)	307,525	(357,070)
Net assets	(58,247)	22,729	106,960	301,355	(249,184)	123,611
Capital expenditure	2,754	2,164	-	12	-	4,929
Depreciation of plant, property and equipment	1,428	356	-	43	-	1,827
Depreciation of right of use asset	1,240	673	-	129	-	2,042
Amortisation and impairment of intangible assets	400	1,442	-	38	7,211	9,090

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 2020, the Group incurred exceptional costs totalling £97.8m (including VAT) (2019: £80.6m).

The emergence of the pandemic alongside the significant decline in market multiples across the sector resulted in a further impairment to the value of the goodwill assets of two of the three divisions in the Group's balance sheet in the current year. Whilst non-cash in nature, the impact is summarised as follows: £47.1m reflects the write-down of the value of goodwill associated with Everyday Loans and £27.7m reflects the write-down of the value of goodwill associated with Loans at Home. Further details pertaining to the write-down of the value of goodwill are set out in note 10 to the financial statements.

The Group announced on 3 August 2020 that following its multi-firm review of the guarantor loans sector, the FCA had raised some concerns regarding certain processes and procedures at the Group's Guarantor Loans Division and a programme of redress would be required. Whilst discussions with the FCA have not yet concluded in regard to the Group's proposed redress methodology, a charge of £15.4m has been recognised as the Directors' best estimate of the full and final costs of the redress programme.

During the first half of 2020, the Group put in place a new six-year securitisation facility, and drew down £15m in April 2020. The onset of the COVID-19 pandemic resulted in the Group breaching certain performance triggers on the facility during the first half of 2020. As a result, the amount previously drawn down was repaid on 26 August 2020, removing the outstanding breach. Whilst the facility remains available for potential future use, given the uncertainty as at 31 December 2020 in regard to the Group's ability to access the securitisation facility in the future, the capitalised fees associated with the securitisation facility of £5.8m were fully written off. The remaining £1.8m of exceptional costs relate to advisory fees of £1.4m and restructuring costs at branch-based lending of £0.4m.

The impairment of goodwill and equity-related fees have been treated as non-deductible for tax purposes.

In the prior year, the Group incurred £80.6m of exceptional costs that comprised: £12.8m of costs related to fees and other costs associated with the lapsed offer to acquire Provident Financial plc as well as the related proposal to demerge Loans at Home; the write-down of the value of goodwill associated with Everyday Loans of £44.8m; the write-down of the value of goodwill associated with the Group's Guarantor Loans Division of £8.6m; and the write-down of the value of goodwill associated with Loans at Home of £12.5m. A remaining £1.9m of exceptional costs relates to management restructuring which took place across the divisions in 2019 (Loans at Home totalling £0.2m; branch-based lending and guarantor loans totalling £1.1m; and the removal of a Director within central totalling £0.6m)

7. Taxation

As at the year end the Group has not recognised an increase in the deferred tax asset on its current year losses and has also reversed the deferred tax asset recognised in the prior year, which combined results in a total £11.3m unrecognised deferred tax asset (2019: £1.7m deferred tax asset recognised).

	Year ended 31 Dec 2020 £000	Year ended 31 Dec 2019 £000
Current tax charge
In respect of the current year	-	2,321
Prior period adjustment to current tax¹	(1,841)	(916)
Total current tax charge	(1,841)	1,405
Deferred tax charge²	1,677	(1,178)
Prior period adjustment to deferred tax	-	104
Total tax charge/(credit)	(164)	332

¹ 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 prior year.

² Unrecognised deferred tax assets arising from tax losses in the year were £8.4m (2019: £nil).

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 2020 £000	Year ended 31 Dec 2019 £000
Loss before taxation	(135,721)	(75,976)

Tax on loss on ordinary activities at standard rate of UK corporation tax of 19% (2018:19%):	(25,787)	(14,435)
Effects of:
Fixed asset differences	100	93
Expenses not allowable for taxation	17,222	15,506
Share-based payments	44	157
IFRS 16 adjustments	(23)	(51)
Prior year adjustments	-	-
Adjustment to tax charge in respect of previous periods	(2,168)	(916)
Adjustment to tax charge in respect of previous periods - deferred tax	-	104
Corporation tax rate change	-	(43)
Deferred tax rate change	79	(82)
Reversal of prior year deferred tax asset	2,021	-
Deferred tax assets not recognised on current year losses	8,348	-
Total tax (credit)/charge	(164)	332

The total unrecognised deferred tax asset as at 31 December 2020 is £10.4m (2019: £1.7m deferred tax assets recognised).

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 £75.5m (2019: £65.9m) 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 relate to set-up costs and the fair value of the schemes at the date of grant totalling £0.7m (2019: £0.8m).

The Finance Bill 2016 enacted provisions to reduce the main rate of UK corporation tax to 17% from 1 April 2020. However, in the March 2020 Budget it was announced that the reduction in the UK rate to 17% will now not occur and the Corporation Tax Rate will be held at 19%. On the 3 March 2021 Budget, it was announced that the UK tax rate will increase to 25% from 1 April 2023. This will have a consequential effect on the Group's future tax charge.

8. Loss per share

	Year ended 31 Dec 2020	Year ended 31 Dec 2019
Retained loss attributable to Ordinary Shareholders (£000)	(135,557)	(76,308)
Weighted average number of Ordinary Shares at year ended 31 December	312,437,422	312,126,220
Basic and diluted loss per share (pence)	(43.39)p	(24.45)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 share options would reduce the loss per share and is anti-dilutive. At 31 December 2020, nil shares were held in treasury (2019: nil).

Year ended

31 Dec 2020

'000

Year ended

31 Dec 2019
'000

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

6,272

9,007

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 number of shares that would be issued if 31 December 2020 was the end of the contingency period.

9. Dividends

As a result of the significant reported losses in 2019 and 2020, 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 2020 Half Year Results to 30 June 2020, the Group did not declare a half-year dividend during the first half of 2020 (2019: 0.7p per share).

10. Goodwill

	Year ended 31 Dec 2020 000	Year ended 31 Dec 2019 000
Gross carrying amount	140,668	140,668
Accumulated impairment	(65,836)	-
Impairment charge	(74,832)	(65,836)
Net carrying amount	-	74,832

The goodwill recognised represents the difference between the purchase consideration paid and the value of net assets acquired (including intangible assets recognised upon acquisition), less any accumulated impairment. Total goodwill as at 31 December 2020 was £nil (2019: £74.8m, comprising £27.7m related to the acquisition of Loans at Home, £47.1m, related to the acquisition of Everyday Loans, and £nil related to the acquisition of George Banco).

Under IFRS 13, 'Fair Value Measurement', the fair value inputs used in the goodwill impairment assessment are classified as Level 3.

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.

Determining whether goodwill is impaired requires an estimation of the recoverable amount of each Cash Generating Unit ('CGU'). The recoverable amount is the higher of its fair value less cost to sell or its Value In Use ('VIU'). During the year an assessment of the of impairment of goodwill was performed and recognised in the half-year ended 30 June 2020 financial statements of the Group. This utilised actual price earnings ('PE') multiples of comparable companies as at 30 June 2020 and applied these to forecast earnings for the 12-month period ended 31 December 2020. The approach which was taken for each is detailed below.

Fair value ('FV') less cost to sell

The calculation to determine the fair value less cost to sell for each CGU used forecast earnings for the year ended 31 December 2020, multiplied by the 30 June 2020 PE multiple for comparable companies. Earnings represent profit after tax before fair value adjustments, amortisation of intangibles and exceptional items. Disposal costs were estimated at 2%. As part of this assessment, we applied PE multiples to forecast 2020 profit after tax in order to determine management's best estimate of the fair value to be attributed to each of the CGUs.

Value in use

The calculation to determine recoverable amount based on VIU used the cash flows derived from earnings projections for the years ended 31 December 2020, 2021 and 2022, together with a terminal value based on the cash flow forecast for 2022 at a perpetuity growth rate. The resulting cash flow forecasts were then discounted at a discount rate appropriate to the CGU to produce a VIU to the Group.

Loans at Home goodwill assessment

In the 2019 Annual Report and Accounts, the Group concluded that no further impairments to the Loans at Home goodwill asset were necessary beyond the £12.5m that was recognised and disclosed in the Group's results for the six months ended 30 June 2019. In the six months ended 30 June 2020, the Group utilised the actual 30 June 2020 PE multiple of comparable companies, along with 2020 forecast profit after tax to determine recoverable amount. The result was a FV less cost to sell below the carrying value of the CGU as at 30 June 2020. Management also ran a VIU calculation to determine recoverable value. Assuming a nil growth into perpetuity results in a VIU which, whilst higher than the FV less cost to sell calculated for Loans at Home, remained below the carrying value of the LAH CGU. The impact of COVID-19 on the profitability of the CGU in the current year along with the significant decline in peer group PE multiples since 31 December 2019 (driven by uncertainties in the economic, market and regulatory environment) has meant that on the basis of the analysis above, the Group concluded to impair the entire goodwill asset attributable to the LAH CGU as at 30 June 2020 totalling £27.7m. This reduced the Loans at Home goodwill asset to £nil as at 31 December 2020.

Everyday Loans goodwill assessment

As at 30 June 2020, the Group performed a FV less cost to sell for the Everyday Loans CGU using actual PE multiples as at 30 June 2020 and 2020 forecast profits. Given the unique circumstances of COVID-19 on 2020 performance, along with the significant decline in peer group PE multiples since 31 December 2019 driven by uncertainties in the economic, market and regulatory environment, the Group calculated the FV less costs to sell to be below the carrying value, therefore indicating an impairment to the remaining goodwill value held on the balance sheet. A VIU base case forecast was used to ascertain whether or not the VIU of the CGU was greater or less than the FV less cost to sell. Assuming a nil growth into perpetuity, the VIU of the CGU was below the FV less costs to sell, and therefore it was appropriate to impair the entire goodwill asset attributable to the Everyday Loans CGU as at 30 June 2020 totalling £47.1m. This reduced the Everyday Loans goodwill asset to £nil as at 31 December 2020.

Guarantor Loans goodwill assessment

During the second half of 2019, the value of goodwill for the Guarantor Loans CGU was written down to £nil. This was due to a 44% decline in the PE multiple applied to the Guarantor Loans Division earnings following the significant decline in the PE multiples of the Group's largest competitor in the guarantor loans space and across the non-standard finance sector generally during the year ended 31 December 2019, as well as uncertainties in the economic, market and regulatory environment.

11. 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 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 have been assessed as part of the goodwill assessment carried out during the year, refer note 10 for further detail.

IAS 38.122 requires the Group to disclose the carrying value and remaining amortisation period of individual intangible assets, the table below includes all material assets held by the Group as at 31 December 2020:

	Carrying value as at 31 Dec 2020	Amortisation period remaining
Intangible assets	£000	years and months

Everyday Loans' acquired customer list	-	-
Everyday Loans' Credit-Decisioning technology	-	-
Everyday Loans and TrustTwo brands	-	-
Loans at Home IT software development	5,956	3 years
Software	2,281	3 to 5 years

Intangible assets include software across all divisions. Intangible assets remaining on acquisition of Everyday Loans have been fully written-off in the current year as a result of the impairment assessment carried out at note 10.

Amortisation is charged to the statement of comprehensive income as follows:

Customer lists	Between 3 and 7 years
Broker relationships	2 to 3 years
Credit decisioning technology	4 years
Brand	Between 1 and 5 years
Software development	3 to 5 years

Project costs associated with the development of computer software and websites are capitalised where the software is a unique and identifiable asset controlled by the Group and will generate future economic benefits. These assets are amortised on a 20% straight-line basis over their estimated useful life once the development phase has been completed.

The useful economic life and amortisation method of intangible assets are reviewed at least at each balance sheet date. Impairment of intangible assets is only reviewed where circumstances indicate that the carrying value of an asset may not be fully recoverable.

12. Amounts receivable from customers

	2020 £000	2019 £000
Gross carrying amount	320,942	410,849
Loan loss provision	(62,741)	(49,201)
Amounts receivable from customers	258,201	361,648

Customer receivables originated by the Group are initially recognised at the amount loaned to the customer plus directly attributable costs. Subsequently, receivables are increased by revenue and reduced by cash collections and any deduction for loan loss provisions. The Directors assess on an ongoing basis whether there is objective evidence that customer receivables are impaired at each balance sheet date.

Movements in loan loss provisions for the period relate to the provisions of the branch-based lending, guarantor loans and home credit divisions for the year. The amounts receivable from customers were recognised at fair value (net loan book value) at the date of acquisition.

Included within the gross carrying amount above are unamortised broker commissions, see table below:	2020 £000	2019 £000
Unamortised broker commissions	9,231	14,311

Total unamortised broker commissions	9,231	14,311

Analysis of amounts receivable from customers due within/more than one year:

	2020 £000	2019 £000
Due within one year	134,073	176,379
Due in more than one year	124,128	185,269
Amounts receivable from customers	258,201	361,648

Analysis of amounts receivable from customers by operating segment:

	Branch-based lending £000	Home credit £000	Guarantor loans £000	2020 Total £000
Gross carrying amount	185,662	53,736	81,544	320,942
Loan loss provision	(14,202)	(26,789)	(21,750)	(62,741)
Amounts receivable from customers	171,460	26,947	59,794	258,201

	Branch-based lending £000	Home credit £000	Guarantor loans £000	2019 Total £000
Gross carrying amount	231,631	66,288	112,930	410,849
Loan loss provision	(16,848)	(26,384)	(5,969)	(49,201)
Amounts receivable from customers	214,783	39,904	106,961	361,648

13. Deferred tax asset/(liability)

	£000
At 31 December 2018	230
Current year charge	1,124
Reallocation from corporation tax liability	429
Prior period adjustment to deferred tax	(106)
At 31 December 2019	1,677
Reversal of prior year deferred tax assets	(1,677)
At 31 December 2020	-

A deferred tax liability was recognised on the intangible assets upon acquisition of Loans at Home, Everyday Loans and George Banco in relation to intangible assets on which no tax deduction will be claimed in future periods for amortisation.

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

	2020 £000	2019 £000
Accelerated tax depreciation	(132)	(271)
Recognition of intangible assets	-	(919)
Recognition of fair value adjustments on amounts receivable at acquisition	-	-
Carried forward losses	7,295	-
Restatement of loan loss spreading	(28)	(30)
Other short term timing differences	251	98
Recognition of deferred tax relating to share based payments	-	-
Unpaid employer pension contributions	32	-
Other losses and deductions	-	62
FRS 102 adoption	39	72
IFRS 16 transitional adjustment	12	41
IFRS 9 transitional adjustment	2,615	2,624
Unrecognised tax losses	(10,084)	-
Net deferred tax asset/(liability)	-	1,677

The Group has not recognised a deferred tax asset during the financial year on its losses due to the uncertainty in the regulatory environment and around the potential future impact of COVID-19 on the macroeconomic environment. The Directors have taken a decision to reverse the deferred tax asset recognised in previous years, which amounted to £1.7m after accounting for prior period adjustments. 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.

In the 3 March 2021 Budget it was announced that the UK corporation tax rate will increase to 25% from 1 April 2023. This will have a consequential effect on the Group's future tax charge. If this rate change had been substantively enacted at the current balance sheet date the unrecognised deferred tax asset would have increased by £3.5m.

14. Provisions

	Plevin £000	Complaints £000	Dilapidations £000	Redress £000	Restructuring £000	Total
Opening at 31 December 2018	231	-	357	-	-	589
Charge during the year	285	-	845	-	170	1,299
Utilised	(423)	-	-	-	-	(423)
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

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 of £0.88m as at 31 December 2020 (2019: £nil) 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 an independent review commissioned by the Group in April 2021 of the lending and complaints handling activities of the division. This review remains ongoing and includes an assessment of whether the issues identified in guarantor loans have any implications for the branch-based lending division. The review also includes an assessment of recent FOS decisions in order to determine whether there exists a subset of customers that may be eligible for redress on the basis of factors which may indicate instances of unaffordable lending. The Directors recognise that, whilst the review work done so far has not identified any systemic issues requiring an increase in provision, there remains a risk that the final outcome of this review may result in the identification of customers who may require redress, and the cost of redress for the Group could be materially higher than is currently provided for in the financial statements.

Home Credit

The Group has recognised a provision of £3.4m as at 31 December 2020 (2019: £nil) 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 with branch-based lending, as part of their assessment, the Directors also considered an independent review commissioned by the Group in April 2021 of the lending and complaints handling activities of the home credit division. The scope of this review is in line with that detailed above for branch-based lending. The Directors recognise that, whilst the review work done so far has not identified any systemic issues requiring an increase in provision, there remains a risk that the final outcome of this review may result in the identification of customers who may require redress, and the cost of redress for the Group could be materially higher than is currently provided for in the financial statements.

Guarantor Loans Division

The Group has recognised a provision of £0.82m as at 31 December 2020 (2019: £nil) 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. 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. It is possible that the eventual outcome may differ materially from the current estimate and this could impact the financial statements. This is due to the risks and inherent uncertainties surrounding the assumptions used in the provision calculation.

The Group has included an exceptional provision of £15.3m as at 31 December 2020 based on the Directors' best estimate of the full and final costs of the programme using the proposed redress methodology. The estimate includes: the sum of all redress due to affected customers, including penalty interest, of £16.7m, together with the cost of implementation of £1.0m, offset by existing impairment provisions of £2.4m, resulting in a net provision amount of £15.3m. Whilst the current estimate represents the Directors' best estimate of the total cost of redress, based upon a detailed methodology and analyses developed in conjunction with its advisers, the FCA has not yet approved the methodology proposed. Therefore, although the Directors believe their best estimate represents a reasonably possible outcome; there is a risk of a less favourable outcome. It is anticipated that the redress will be paid throughout 2021.

As at the date of signing these financial statements, the Group is working closely with the FCA to reach a conclusion regarding the redress methodology. The FCA has raised questions around the Group's assessment of whether or not the customer has suffered harm (in instances where we have concluded that the affordability assessment at the time of underwriting was not appropriate). Under the Group's proposed methodology there are a range of factors which need to be met in order to conclude that a customer has suffered harm including external indicators that harm may have been incurred. The current methodology requires multiple indicators to be present to trigger redress, however, should only one of these factors in isolation be taken as a definition of harm, then the redress provision could be c.£10m higher than that currently provided for in the financial statements. Furthermore, until such time the redress approach has been agreed with the FCA, there remains uncertainty around this estimate and therefore the ultimate cost could be higher than this £10m sensitivity indicates. The ultimate redress amount will also be subject to a manual case-by-case review of customers who have incomplete electronic records that may be affected. This could result in the ultimate pay-out being higher than estimated under the proposed methodology.

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.

15. 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 14) 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.

16. Government grants and support

During the year ended 31 December 2020, the Company received grants totalling £0.7m under the Coronavirus Job Retention Scheme ('CJRS') which has been presented within 'other operating income' in the statement of comprehensive income.

Coronavirus Job Retention Scheme

During March 2020, the Group implemented a series of steps designed to mitigate, as far as possible, the impact of COVID-19 on its business operations. These measures included the furloughing of just under 200 employees, and utilisation of government grants offered through the Coronavirus Job Retention Scheme ('CJRS'). The original direction was signed by the Chancellor on 15 April 2020 and further directions were signed on 22 May 2020 and 25 June 2020. A breakdown of these grants is provided below:

	2020 £000	2019 £000
Salaries	632	-
National insurance contributions	11	-
Pension contributions	26	-
Total CJRS grants received	669	-

Deferred payroll taxes

In addition to the steps taken above to mitigate the impact of COVID-19 on business operations, the Group deferred its payroll taxes due in the months May to August during the current financial year. The balance of amounts deferred equate to £2.2m including interest as at 31 December 2020. The current interest rate as published on HMRC's website is 2.6% per annum as at the 31 December 2020. The Group agreed a Time to Pay Arrangement with HMRC during the year which completed in April 2021 and deferred amounts were fully settled.

17. 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 £11.9m from its subsidiary undertakings during the year (2019: £13.5m). 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 2020, the Company owed £nil to its subsidiary undertaking S.D. Taylor Limited in relation to employee costs for the year ended 31 December 2020 (2019: £0.16m) and £0.07m to its subsidiary undertaking Everyday Loans Limited in relation to Group relief tax charges (2019: £0.07m). The Company also received £nil paid in advance from its subsidiary undertaking Everyday Loans Limited in relation to the recharges described above (2019: £0.7m). Intra-Group transactions between the Company and the fully consolidated subsidiaries or between fully consolidated subsidiaries are eliminated on consolidation.

One member of key management personnel (Executive Director of Non-Standard Finance plc) is a Trustee of the charity Loan Smart as at 31 December 2020 (2019: two members). During the year, the Company donated £111,000 to Loan Smart (2019: £5,000). The Company has a debtor balance of £nil as at 31 December 2020 (2019: £85,500). Any amounts owed to Non-Standard Finance plc are non-interest bearing and repayable on demand.

One Director was a member of the Non-Standard Finance plc Long-Term Incentive Plan which has lapsed as at 31 December 2020.

In March 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 year, the SPV transacted multiple times with Everyday Lending Limited (a subsidiary within the Group) to facilitate the securitisation of loans. 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 2020 (2019: £nil).

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 the services provided totalled £18,750 (plus VAT) for the year ended 31 December 2020 (2019: £nil).

18. Share capital and share premium

All shares in issue are ordinary 'A' shares consisting of £0.05 per share. All shares are fully paid up. During the year, the Company cancelled nil shares (2019: 5,070,234 shares) and issued nil shares (2019:457,974). The Company's share capital is denominated in Sterling. The Ordinary Shares, save those held in treasury, rank in full for all dividends or other distributions, made or paid on the ordinary share capital of the Company.

The number of treasury shares held at 31 December 2020 was nil (2019: nil). This equates to 0% (2019: 0%) of the weighted average number of ordinary shares in issue.

Share movements

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

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.

On 30 July 2019, the Company effected a share capital reduction totalling £75.0m.

	Total £000
Balance at 31 December 2018	254,995
Capital reduction	(75,000)
Issue of shares	24
Balance at 31 December 2019	180,019
Capital reduction	-
Issue of shares	-
Balance at 31 December 2020	180,019

19. Distributable Reserves of the Parent Company

In the prior year it was identified that on account of certain technical infringements regarding historic distributions, in particular a transaction between the Group and certain subsidiary entities which had resulted in a circularity issue between the entities and following an intercompany dividend of £11 million in June 2016, none of the entity's distributions to shareholders since incorporation to 2018 were made out of distributable profits. In order to rectify this issue, on 30 July 2019 the Company effected a capital reduction which consisted of: (i) a cancellation of 5,070,234 ordinary shares in the Company that were purportedly purchased through the Company's share buy-backs made between 2017 and 2019 but which, as a result of certain infringements of the Companies Act 2006, were not validly purchased; and (ii) the reduction of the amount of £75 million standing to the credit of the Company's share premium account.

At 31 December 2020, the Company had no distributable reserves (2019: nil distributable reserves).

20. Net cash used in operating activities

	Year ended 31 Dec 2020	Year ended 31 Dec 2019
	£000	£000
Operating profit/(loss)	(106,885)	(48,518)
Taxation (refund)/paid	(1,093)	3,067
Finance costs on lease liabilities¹	(1,038)	(1,059)*
Depreciation	4,006	3,869
Share-based payment charge	1,142	1,183
Amortisation of intangible assets	3,556	7,078
Intangible assets impairment loss	1,298	2,517
Goodwill impairment loss	74,832	65,837
Fair value unwind on acquired loan book	1,437	2,873
Profit/(loss) on disposal of property, plant and equipment	54	(16)
Decrease/(Increase) in amounts receivable from customers	100,713	(54,367)
Decrease/(Increase) in other assets	1	240
Decrease/(Increase) in receivables	852	(399)
(Decrease)/increase in payables and provisions	3,318	709
Cash from/(used in) operating activities	82,193	(16,986)

^* The interest portion of the repayment of the lease liability has been re-presented to recognise this as a cash outflow from operating activities. This was previously shown as a cash outflow from financing activities in the prior year.

21. Subsequent Events

Branch-based lending and home credit division reviews

In April 2021, the Group commissioned a detailed and independent review of its lending, collecting and complaints handling activities within the branch-based lending and home credit divisions. This review remains ongoing and includes an assessment of whether the issues identified in guarantor loans have any implications for these divisions. The review also includes an assessment of recent FOS decisions in order to determine whether there exists a subset of customers that may be eligible for redress on the basis of factors which may indicate instances of unaffordable lending. These reviews have been considered as part of the Group's year end provisioning (see note 14 of the financial statements).

Complaints received since year end

During the first quarter of 2021 the Group received a high level of complaints within its home credit division, primarily from CMC's. The Group has therefore estimated the cost of those complaints which relate to loans issued up to 31 December 2020 and included this within its provision (refer note 14) as an adjusting subsequent event.

Taxation In the March 2021 Budget

In the 3 March 2021 Budget, it was announced that the UK tax rate will increase to 25% from 1 April 2023. This is a non-adjusting event and will have a consequential effect on the Group's future tax charge. If this rate change had been substantively enacted at the current balance sheet date the unrecognised deferred tax asset would have increased by £3.5m.

Guarantor Loans division operational review

Having completed a detailed review of the Group's Guarantor Loans Division and its prospects, the Board has decided to place the division into a managed run-off which is expected to conclude by the end of 2025. Whilst a full detailed assessment of the cost implications is yet to be carried out and this is a non-adjusting subsequent event, it is estimated that the recognition of a provision for redundancies would be c. £0.52m. No material asset write-downs are expected to be required as a result of the decision taken. The Group recognises there is a risk around changes to customer behaviour following this decision, refer to note 2 to the financial statements of the 2020 Annual Report and Accounts for sensitivities on loan loss provisions based on past-experience of how the parameters can potentially move.

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
Normalised revenue Normalised operating profit (loss) Normalised profit (loss) before tax Normalised earnings (loss) per share	Normalised figures are before fair value adjustments, amortisation of acquired intangibles and exceptional items (see note 6 to the financial statements).
Key performance indicators	Definition
Impairments/revenue	Impairments as a percentage of normalised revenues
Impairments/average loan book	Impairments as a percentage of 12 month average loan book excluding fair value adjustments
Normalised net loan book	Net loan book before fair value adjustments but after deducting 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 to income ratio	Normalised administrative expenses as a percentage of normalised revenues
Return on asset	Normalised operating profit as a percentage of average loan book 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 2020	31 Dec 2019
	£000	£000
Borrowings	330,000	323,200
Cash at bank and in hand*	(77,402)	(13,997)
	252,552	309,203
*Cash at bank and in hand excludes cash held by parent company that sits outside of the security group

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

2 Normalised revenue

	Branch-based lending		Home credit		Guarantor loans		Group
	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
	£000	£000	£000	£000	£000	£000	£000	£000
Reported revenue	89,788	93,002	43,834	60,835	29,043	26,947	162,665	180,784
Add back fair value adjustments	-	-	-	-	1,437	2,873	1,437	2,873
Normalised revenue	89,788	93, 002	43,834	60,835	30,480	29,820	164,102	183,657

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

	Branch-based lending		Home credit		Guarantor loans		Group
	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
	£000	£000	£000	£000	£000	£000	£000	£000
Reported operating profit	13,419	29,653	(2,509)	9,102	(28,565)	5,895	(24,452)	32,066
Add back fair value adjustments	-	-	-	-	1,437	2,873	1,437	2,873
Add back amortisation of intangibles	-	-	-	-	-	-	1,298	7,226
Add back exceptional provision for customer redress	-	-	-	-	15,401	-	15,401
Normalised operating profit/(loss)	13,419	29,653	(2,509)	9,102	(11,727)	8,768	(6,316)	42,165

4 Normalised (loss) profit before tax

	31 Dec 2020	31 Dec 2019
	£000	£000
Reported loss before tax	(135,721)	(75,976)
Add back fair value adjustments	1,437	2,873
Add back amortisation of intangibles	1,298	7,226
Add back exceptional items	97,834	80,584
Normalised (loss) profit before tax	(35,152)	14,707

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 (loss) profit for the year

	31 Dec 2020	31 Dec 2019
	£000	£000
Reported loss for the year	(135,557)	(76,308)
Add back fair value adjustments	1,437	2,873
Add back amortisation of intangibles	1,298	7,226
Add back exceptional items	97,834	80,584
Adjustment for tax relating to above items	(164)	(2,929)
Normalised (loss) profit for the year	(35,152)	11,446

Weighted average shares	312,437,422	312,126,220

Normalised earnings per share (pence)	(11.25)p	3.67p

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 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 % of revenue

	Branch-based lending		Home credit		Guarantor loans		Group
	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
	£000	£000	£000	£000	£000	£000	£000	£000
Normalised revenue	89,788	93,002	43,834	60,835	30,480	29,820	164,102	183,657
Impairment	(31,449)	(20,635)	(10,495)	(16,435)	(24,318)	(7,996)	(66,262)	(45,066)
Impairment as a % revenue	35.0%	22.2%	23.9%	27.0%	79.8%	26.8%	40.4%	24.5%

Impairment as a % revenue is a key measure for the Group in monitoring risk within the business.[i]

7 Impairment as a % loan book

	Branch-based lending		Home credit		Guarantor loans		Group
	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
	£000	£000	£000	£000	£000	£000	£000	£000

Reported opening net loan book	214,783	182,661	39,904	41,026	106,961	86,971	361,648	310,659
Less fair value adjustments	-	-	-	-	(1,437)	(4,309)	(1,437)	(4,309)
Normalised opening net loan book	214,783	182,661	39,904	41,026	105,524	82,662	360,211	306,350

Reported closing 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 closing net loan book	171,460	214,783	26,947	39,904	59,794	105,524	258,201	360,211

Normalised opening net loan book	214,783	182,661	39,904	41,026	105,524	82,662	360,211	306,350
Normalised closing net loan book	171,460	214,783	26,947	39,904	59,794	105,524	258,201	360,211
Average net loan book	192,990	200,421	28,243	36,324	86,229	94,093	307,462	330,838
Impairment	(31,449)	(20,635)	(10,495)	(16,435)	(24,318)	(7,996)	(66,262)	(45,066)
Impairment as a % loan book	16.3%	10.3%	37.2%	45.2%	28.2%	8.5%	21.6%	13.6%

Impairment as a % 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 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
	£000	£000	£000	£000	£000	£000	£000	£000
Normalised opening net loan book	214,783	182,661	39,904	41,026	105,524	82,662	360,211	306,350
Normalised closing net loan book	171,460	214,783	26,947	39,904	59,794	105,524	258,201	360,211
Net loan book growth	(20.2%)	17.6%	(32.5%)	(2.7%)	(43.3%)	27.7%	(28.3%)	17.6%

9 Return on asset

	Branch-based lending		Home credit		Guarantor loans
	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
	£000	£000	£000	£000	£000	£000
Normalised operating profit (loss)	13,419	29,653	(2,509)	9,102	(11,727)	8,768
Average net loan book	192,990	200,421	28,243	36,324	86,229	94,093
Return on asset	7.0%	14.8%	(8.9%)	25.1%	(13.6%)	9.3%

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 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
	£000	£000	£000	£000	£000	£000
Normalised revenue	89,788	93,002	43,834	60,835	30,480	29,820
Average net loan book	192,990	200,421	28,243	36,324	86,229	94,093
Revenue yield %	46.5%	46.4%	155.2%	167.5%	35.3%	31.7%

Revenue yield % 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 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
	£000	£000	£000	£000	£000	£000
Normalised revenue	89,788	93,002	43,834	60,835	30,480	29,820
Impairments	(31,449)	(20,635)	(10,495)	(16,435)	(24,318)	(7,996)
Normalised risk adjusted revenue	58,339	72,367	33,339	44,400	6,162	21,823
Average net loan book	192,990	200,421	28,243	36,324	86,229	94,093
Risk adjusted margin %	30.2%	36.1%	118.0%	122.2%	7.1%	23.2%

The Group defines normalised risk adjusted revenue as normalised revenue less impairments. Risk adjusted revenue is not a measurement of performance under IFRS, 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 IFRS. 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 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
	£000	£000	£000	£000	£000	£000
Normalised operating profit	13,419	29,653	(2,509)	9,102	(11,727)	8,768
Normalised revenue	89,788	93,002	43,834	60,835	30,480	29,820
Operating profit margin %	14.9%	31.9%	(5.7%)	15.0%	(38.5%)	29.4%

13 Cost to income ratio

	Branch-based lending		Home credit		Guarantor loans
	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
	£000	£000	£000	£000	£000	£000
Normalised revenue	89,788	93,002	43,834	60,835	30,480	29,820
Administration expense	(41,236)	(42,235)	(35,866)	(35,298)	(13,773)	(12,895)
Operating profit margin %	45.9%	45.4%	81.8%	58.0%	45.2%	43.2%

This measure allows review of cost management.

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