Final Results

RNS Number : 4116Y

Non-Standard Finance PLC

03 March 2017

 



Non-Standard Finance plc

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

Unaudited Full Year Results to 31 December 2016

3 March 2017

Highlights

·	Normalised revenue1 of £81.1m (2015: £14.7m); reported revenue of £72.8m (2015: £9.2m)
·	Normalised operating profit2 of £13.8m (2015: loss of £0.5m); reported operating loss of £5.2m (2015: loss of £10.0m)
·	On a pro forma basis3, normalised revenue was £94.7m (2015: n/a); normalised operating profit was £18.7m (2015: n/a); normalised operating profit before temporary agent commission was £20.5m (2015: n/a)
·	Reported loss before tax of £9.3m (2015: £16.1m); reported loss after tax £8.0m (2015: £13.1m)
·	Strong loan book growth across all divisions since acquisition to reach £164.6m before fair value adjustments (£180.4m after fair value adjustments) at 31 December 2016 (2015: £28.0m before fair value adjustments; £28.4m after fair value adjustments)
·	Recommended final dividend of 0.9p per share (2015: nil) making a total dividend for the year of 1.2p per share (2015: nil)
·	Current trading: we have made a good start to the year with all three business divisions performing well

Context for results

·	The Group listed on 19 February 2015 and acquired Loans at Home on 4 August 2015 and Everyday Loans, including Trusttwo, on 13 April 2016.
·	The 2016 reported results include a full year contribution from Loans at Home, a full year of central costs and just over eight months of trading from Everyday Loans, including Trusttwo.
·	The 2015 reported results include the trading of Loans at Home for approximately five months and the central costs of the business since incorporation on 8 July 2014.
·	Reported results include fair value adjustments, amortisation of acquired intangibles and exceptional items relating to the acquisitions. Normalised results are presented to demonstrate Group performance before these items.
·	The Group also presents 2016 pro forma normalised results in order to show the results of the Group as if it had acquired Everyday Loans, including Trusttwo, on 1 January 2016.
·	There are no comparative pro forma figures for 2015 as on completion of the acquisition of Loans at Home on 4 August 2015, the Group adopted a more timely approach to recognising impairment. The Group has concluded that any benefit derived from re-stating the results of Loans at Home from 1 January to 3 August 2015 to reflect this more prudent approach would be more than outweighed by the cost of producing such results.

¹ Adjusted to exclude fair value adjustments

² Adjusted to exclude fair value adjustments, amortisation of acquired intangibles and exceptional items

³Assuming Everyday Loans (including Trusttwo) was acquired on 1 January 2016

Financial summary

Year ended 31 December		2016 Normalised1	2016 Fair value adjustments, amortisation of acquired intangibles and exceptional items	2016 Reported
		£'000	£'000	£'000
Revenue		81,099	(8,342)	72,757
Impairments		(23,201)	-	(23,201)
Admin expenses		(42,303)	(10,714)	(53,017)
Temporary additional commission2		(1,771)	-	(1,771)
Operating profit (loss)		13,824	(19,056)	(5,232)
Exceptional items		-	(626)	(626)
Profit (loss) before interest and tax		13,824	(19,682)	(5,838)
Finance (cost) income		(3,484)	-	(3,484)
Profit (loss) before tax		10,340	(19,682)	(9,342)
Taxation		(2,278)	3,622	1,344
Profit (loss) after tax		8,062	(16,060)	(7,998)
Earnings (loss) per share3		2.62p		(2.60)p
Dividend per share		1.20p		1.20p

Period ended 31 December		2015 Normalised1	2015 Fair value adjustments, amortisation of acquired intangibles and exceptional items		2015 Reported
		£'000	£'000		£'000
Revenue		14,657	(5,456)	9,201
Impairments		(3,858)	-	(3,858)
Admin expenses		(11,340)	(4,030)	(15,370)
Temporary additional commission2		-	-	-
Operating profit (loss)		(541)	(9,486)	(10,027)
Exceptional items		-	(6,135)	(6,135)
Profit (loss) before interest and tax		(541)	(15,621)	(16,162)
Finance (cost) income		70	-	70
Profit (loss) before tax		(471)	(15,621)	(16,092)
Taxation		1,271	1,751	3,022
Profit (loss) after tax		800	(13,870)	(13,070)
Earnings (loss) per share3		1.30p		(21.25)p
Dividend per share		nil		nil

¹ Adjusted to exclude fair value adjustments, amortisation of acquired intangibles and exceptional items

2 When a new home credit agent agrees to provide lending and collection services to the Group, we may decide to offer a limited period of additional commission whilst the agent builds up a critical mass of active loan customers

3 Basic and diluted earnings (loss) per share based on the weighted average number of shares in issue of 307,315,588 (2015: 61,502,789)

Group pro forma results

In order to set out clearly the underlying performance of the Group, the table below provides an analysis of the pro forma normalised results for the enlarged Group for the twelve month period to 31 December 2016. The pro forma results include Everyday Loans and Trusttwo for the twelve months ended 31 December 2016.

Year ended 31 Dec 16 Pro forma normalised4	Everyday Loans	Loans at Home	Trusttwo	Central costs	NSF plc Pro forma normalised
	£'000	£'000	£'000	£'000	£'000
Revenue	50,088	42,170	2,416	-	94,674
Impairments	(10,034)	(15,313)	(358)	-	(25,705)
Revenue less impairments	40,054	26,857	2,058	-	68,969
Admin expenses	(20,631)	(23,229)	(1,402)	(3,257)	(48,519)
Temporary additional commission	-	(1,771)	-	-	(1,771)
Operating profit	19,423	1,857	656	(3,257)	18,679
Finance cost	(4,720)	(323)	(316)	(264)	(5,623)
Profit before tax	14,703	1,534	340	(3,521)	13,056
Taxation	(2,941)	(54)	(68)	374	(2,688)
Profit after tax	11,762	1,480	272	(3,147)	10,368
Pro forma normalised earnings per share					3.37p
Dividend per share					1.20p

⁴Assuming Everyday Loans (including Trusttwo) was acquired on 1 January 2016 and adjusted to exclude fair value adjustments, amortisation of acquired intangibles and exceptional items. Note there are no comparative figures for 2015 (see Context for Results on page 1).

John van Kuffeler, Group Chief Executive Officer, said

"The past year has been transformational for the Group: we completed the acquisition of businesses representing 80% of the current Group and have become a significant player in the market with a combined loan book of £165m (before fair value adjustments), serving 137,000 customers through a network of almost 90 branches across the UK.

"For 2017, our strategy remains focused on delivering revenue and profit growth.  We have made a good start to the year with all three business divisions performing well.  Our confidence underpins a recommended final dividend of 0.9p per share making 1.2p for the year as a whole (2015: £nil)."

- Ends -

Interviews with John van Kuffeler, Group Chief Executive Officer and Nick Teunon, Chief Financial Officer

Interviews with John van Kuffeler and Nick Teunon will be available as video and text from 7.00 am on 3 March 2017 on the Group's website: www.nonstandardfinance.com.

Analyst meeting, webcast, dial-in and conference call details for 3 March 2017

There will be an analyst meeting at 9.00 am for invited UK-based analysts at the offices of Bell Pottinger, 6th Floor Holborn Gate, 330 High Holborn, London, WC1V 7QD. The meeting will be simultaneously broadcast via webcast and conference call. To watch the live webcast, please register for access by visiting the Group's website www.nonstandardfinance.com. Details for the dial-in facility are given below. A copy of the webcast and slide presentation given at the meeting will be available on the Group's website later today.

Dial-in details to listen to the analyst presentation at 9.00 am, 3 March 2017

08.50 am	Please call + 4420 3059 8125
Title	NSF Full Year Results
9.00 am	Meeting starts

All times are Greenwich Mean Time (GMT).

For more information:

Non-Standard Finance plc John van Kuffeler, Group Chief Executive Nick Teunon, Chief Financial Officer & Company Secretary Peter Reynolds, Director, IR and Communications c/o Bell Pottinger	[phone]
Bell Pottinger Dan de Belder Aarti Iyer Molly Stewart	[phone]

About Non-Standard Finance

Non-Standard Finance plc is listed on the main market of the London Stock Exchange (ticker: NSF) and was established in 2014 to acquire and grow businesses in the UK's non-standard consumer finance sector. Under the direction of its highly experienced main board, the Company has acquired a sustainable group of businesses offering credit to the c.10-12 million UK adults who are not served by (or choose not to use) mainstream financial institutions. Its three business areas are: unsecured branch-based loans, home-collected credit and guaranteed loans.  Each business now has access to increased levels of funding and has benefited from stronger management controls; has refined its product pricing in a number of areas; has introduced new compliance protocols; and is investing in new IT infrastructure and systems. These changes have been implemented to balance the delivery of improved customer outcomes with the generation of substantial returns for shareholders.  In the year ended 31 December 2016, the Group generated reported revenue of £72.6m; pro forma normalised revenue of £94.7m; reported operating loss of £5.2m and pro forma normalised operating profit, before temporary agent commission, of £20.5m.  As at 31 December 2016, the Group had a combined loan book of £165m (before fair value adjustments).

Group Chief Executive's Report

Results

The past year has been transformational for the Group with the completion of the acquisition of Everyday Loans and Trusttwo, new bank facilities in place and a carefully planned programme of investment in all three businesses. 

Against this background, I am pleased to report normalised revenue of £81.1m (2015: £14.7m) and normalised operating profit of £13.8m (2015: loss of £0.5m).  Reported revenue after fair value adjustments, was £72.6m (2015: £9.2m) and reported loss before interest and tax was £5.8m (2015: loss of £16.2m).  The Group's reported results include just over eight months' performance from Everyday Loans and Trusttwo which were acquired in April 2016 and that together represent approximately 80% of the Group's net loan book (before fair value adjustments).  The reported results are also significantly affected by temporary additional commission paid to newly signed-up agents at Loans at Home, fair value adjustments and the amortisation of acquired intangibles. 

To provide investors with a more representative picture of the Group's underlying performance, we have also produced pro forma normalised numbers, as if Everyday Loans and Trusttwo had been acquired at the start of the year and before the impact of fair-value adjustments, the amortisation of acquired intangibles and exceptional items. There are no comparable pro forma numbers for 2015 as the Group believes that any benefit derived from re-stating the results of Loans at Home from 1 January to 3 August 2015 would be more than outweighed by the cost of producing such results.

Pro forma normalised revenues and operating profit were £94.7m and £18.7m respectively, and pro forma normalised earnings per share was 3.37p (reported loss per share was 2.60p). I am pleased that the Board is recommending an inaugural final dividend of 0.9p making a total of 1.2p for the year. 

The size of our combined net loan book across all businesses as at 31 December 2016 was £164.6m before any fair value adjustment (2015: £28.0m) and £180.4m after fair value adjustments (2015: £28.4m) representing a 489% increase from 31 December 2015, of which a 368% increase relates to the acquisition of Everyday Loans.

Everyday Loans

The acquisition of Everyday Loans completed on 13 April 2016.  Since then, the business has performed strongly with reported operating profit of £6.8m (2015: n/a), reported normalised operating profit of £14.8m (2015: n/a) and pro forma normalised operating profit of £19.4m (2015: n/a). We have expanded the branch network, with five new branches opened since completion, as well as broadened the product offering to include loans at higher APRs.  We also adjusted the pricing of certain products in accordance with a new and refined credit scorecard resulting in an increased yield on new business volumes from an average of 52% at the time of acquisition to 57% in December 2016.

Loans at Home

I am pleased to report loan book growth of 19% at Loans at Home in 2016, a year of transformation for the business, including a new management team and investment in a programme of significant growth.  This included the recruitment of 25% more agents; a significant upgrade to the regulatory and compliance functions; the roll-out of new technology; and the testing of a number of alternate growth strategies.  Reported operating profit was £1.4m, reported normalised operating profit was £1.9m, both of which are after deducting temporary additional agent commissions of £1.8m that were paid to newly recruited agents while they establish a critical mass of customers (for the period 4 August 2015 to 31 December 2015: operating profit of £2.1m).  While our programme of investment held back Loans at Home's profit performance in 2016, we have taken a number of steps to ensure that we are well-placed to deliver a significant increase in profitability in 2017. 

Trusttwo

Following its acquisition and recognising its strong growth potential, we established Trusttwo as a separate entity with its own management team and profit and loss responsibility.  This had an immediate and positive impact on performance and Trusttwo delivered reported and reported normalised operating profit of £0.5m (2015: n/a) and, on a pro forma basis, an operating profit of £0.7m (2015: n/a).

Strategy

We remain focused on serving the needs of consumers who are unable or unwilling to borrow from mainstream institutions. Everything we have seen to-date has confirmed that the size of this opportunity remains large and we remain on-course to achieve our target of 20% loan book growth across the Group as a whole and a 20% return on assets in each of our operating businesses in the medium-term.

In executing our plans, we seek to strike an appropriate balance between short-term growth and profitability versus that over a longer period.  Having completed our initial development phase, we have refined our business strategy that now comprises the following three strategic pillars:

·	Being a leader in our chosen markets
·	Investing in our core assets:

·	distribution networks
·	people
·	technology
·	brands

·	Acting responsibly

1.  Being a leader in each of our chosen segments of the non-standard finance market

Whilst we continue to monitor developments across a number of sub-segments of the UK's non-standard finance market, our current focus is on branch-based, unsecured lending, home-collected credit and guaranteed loans.

In each segment we have a leading market position with significant potential for future growth:

Branch-based lending - Everyday Loans is already the market leader in medium-term, unsecured branch-based lending to the credit impaired and we believe that the quality and breadth of its products are unrivalled. 

Home credit - Loans at Home is ranked third in the market by numbers of customers and self-employed agents.  Whilst we have achieved a great deal since acquiring Loans at Home in August 2015, we still have much work to do.  Upgrading our systems and moving to hand-held technology is just part of our plan to become best-in class.

Guaranteed loans - Trusttwo is one of a number of 'tier two' players in terms of scale.  Having launched in 2014 it has already grown fast with a loan book of £8.8m at 31 December 2016.  However, we are now in a position to grow much bigger and we plan to do it quickly.  Our goal is to become the clear number two behind the market leader, an objective we think is eminently achievable. 

2.  Investing in our core assets

The nature of our business means that, other than the loans we make to customers, our core assets tend to be intangible and include things such as distribution networks, people and brands.

Distribution networks - As face-to-face contact is at the heart of our lending process (and also collections in the case of home credit), ensuring that we maximise our customer reach is critical for long-term success.  We need to be close to our customers and to our potential customers.  We also need to be close to our agents, reducing the travel time required to meet with a manager each week can make a meaningful difference to operating performance.  We already have almost 90 locations across the UK but believe there is scope to increase this significantly over the next few years, particularly at Everyday Loans that plans to open 12 new branches in 2017 at an incremental cost of approximately £1m in the current year.

People - The interaction between our representatives and our customers is at the heart of our business model.  Investing in processes and procedures, training and a highly targeted incentive plan that rewards both financial results and our target behaviours that are focused on delivering positive customer outcomes, is central to our long-term success.  We are determined to ensure that 'doing the right thing' is an ethos that runs deep through all areas of our business, not just because regulations demand it, but because it makes good business sense.

Technology - Whilst the business model in both branch-based lending and home credit is founded upon face-to-face contact, technology plays a significant role in enabling these businesses to operate effectively.  Effective data management is key, both for managing and monitoring customer performance, but also in helping us optimise business performance through highly granular management information.  During 2016 Everyday Loans moved to a new data centre and we are making good progress on transforming our set-up at Loans at Home, including the introduction of handheld technology for our agent network.

Brands - the significant developments in technology have shifted the way that consumers research and buy a variety of different products, including financial services.  While our two largest businesses are heavily reliant on face-to-face contact, ensuring we can attract sufficient numbers of applicants, an increasing number of which are coming through digital channels, means that a multi-channel approach to marketing and brand support is a key area of focus.

We firmly believe that diligent execution of each of these elements will fuel significant growth.  Whilst we remain focused on the considerable opportunities for organic growth, we are also committed to seeking value accretive acquisitions in our chosen business segments, or complementary business segments, should suitable opportunities arise.

3.  Acting responsibly

The history and culture of each of our operating companies, together with the experience of our Board and senior management team, have resulted in a clear recognition that how we behave as a business is instrumental in both safeguarding the value already created, and also propagating the creation of value in the future.  As a result, we consider how our behaviour and conduct might impact all of our key stakeholders whether they be customers, staff, self-employed agents, suppliers, our environment or the communities where we have a physical presence.  In addition to key customer metrics that are captured as part of our performance measurement, we have identified a series of behaviours that we see as being key to us achieving our objectives:

·	Doing the right thing: we recognise our collective responsibility for delivering great outcomes for our customers. We don't cut corners and always seek the path that is right before the path that is easy.
·	Shared purpose: we have clear strategic and operational goals and expect all of our representatives to understand and share in that vision.

·	Integrity: we expect our people to respect colleagues and other key stakeholders and to do what we say we will do.

·	Teamwork: our businesses are complex and involve many different elements that each represent an important part of our overall business process.  By working together we are likely to solve problems more effectively than trying to do things on our own.

·	Communication:  we are well-informed and believe it's our duty to speak up when we disagree, or believe something is not right; we celebrate success and don't blame others when something goes wrong, always learning from our mistakes.

·	Entrepreneurial: we use our initiative and are prepared to try new things so we can perform better and be the best we can be.

Financing

During the year the Group drew down on its new debt facilities and has total committed facilities of £95m with an option to increase this, with the agreement of our lending banks, to £120m.  The facilities, which are both for a three-year term, expire in December 2018 and June 2019 respectively and the Group is actively reviewing a variety of financing options that could underpin the Group's long-term growth plans.   As at 31 December 2016 the Group had gross borrowings of £87.3m and cash at bank of £5.2m.

Regulation

Everyday Loans, including Trusttwo, received full authorisation from the Financial Conduct Authority (FCA) on 20 June 2016.

Along with its major competitors, Loans at Home is currently operating under an interim consumer credit permission from the FCA, having submitted its application for full authorisation in June 2015. Whilst we remain in close contact with the FCA, we have received no indication on when we might receive full authorisation but believe that approval is likely to be given at the same time as the other major listed home credit providers.

As part of its scheduled review of changes made to the regulation of high cost short-term credit, the FCA has extended its review to include other forms of high cost credit, including home-collected credit and guaranteed loans.  We welcome this review and have submitted our own views to the FCA that we hope will provide stakeholders with a better understanding of both the benefits as well as the risks involved in serving this large and important segment of the UK's non-standard finance market. We believe that the FCA's approach and framework for the regulation of consumer credit is working well and while there is always room for improvement, we believe the current regime has the controls needed to maintain high standards and minimise the risk of customer detriment as a result of poor conduct. 

A summary of some of the recent regulatory developments that may have a bearing on the Group's businesses is set out in the appendix.

Final dividend

Having declared a half year dividend of 0.3p per share (2015: nil), the Board is delighted to recommend a maiden final dividend of 0.9p per share (2015: nil) making a total dividend for the year of 1.2p per share (2015: nil).  This represents a pay-out ratio of 36% based on pro forma normalised earnings.

The dividend policy objective is to pay-out a dividend equal to 50% of normalised annual post-tax earnings.

If approved by shareholders at the forthcoming Annual General Meeting on 9 May 2017, the final dividend of 0.9p per share (2015: nil) will be payable on 20 June 2017 to those shareholders on the register of shareholders on 16 May 2017 (the 'Record Date').

Current trading and outlook

We have made a good start to the year with each of our business divisions performing well. 

We are continuing our programme of investment in 2017 across each of our three businesses.  At Everyday Loans we plan to open up to 12 new branches in the current year as well as continue to invest in new product development. As our largest business, we continue to believe that its market position, proven infrastructure and business model will deliver substantial revenue and profit growth. 

We continue to see significant potential at Loans at Home and having made a considerable investment in 2016, we plan to maximise profit performance in 2017. 

At Trusttwo, with the management and requisite infrastructure now in place we plan to drive increased volumes through a series of fully-integrated marketing campaigns using third-party brokers and direct marketing initiatives.  We are also starting to see the benefit of leveraging our branch network as a unique and additional source of customer traffic.

Despite macroeconomic uncertainties and the effects of inflation starting to come through, we believe that our customers are well-placed to manage as they have benefited from an improvement in their incomes in the last few years and, compared to the more financially-stretched prime and near-prime borrowers, have had relatively limited access to credit.

We have a strong balance sheet with excellent positions in our chosen segments and are therefore well-placed to take advantage of the considerable opportunities that exist in all three business areas.  We remain optimistic about the Group's prospects.

John van Kuffeler

Group Chief Executive

3 March 2017

Financial review

In addition to reported figures, we have provided pro forma figures to illustrate what revenues, profits and other key performance metrics would have been had Everyday Loans, including Trusttwo, been acquired at the beginning of 2016. We have therefore analysed performance both before and after temporary additional commission paid to newly signed-up agents at Loans at Home, fair value adjustments, the amortisation of acquired intangibles and exceptional items. There are no directly comparable pro forma figures for 2015 as the Company listed in February 2015 as a cash shell and had no revenue in the first seven months of 2015.

Group reported results

The reported Group results for the year ended 31 December 2016 include a full period of Loans at Home which was acquired on 4 August 2015 and approximately eight months' performance from Everyday Loans (including Trusttwo) which was acquired on 13 April 2016. The prior year reported figure included approximately five months' performance from Loans at Home.

Year ended 31 December		2016 Normalised	2016 Fair value adjustments, amortisation of acquired intangibles and exceptional items	2016 Reported
		£'000	£'000	£'000
Revenue		81,099	(8,342)	72,587
Impairments		(23,201)	-	(23,201)
Admin expenses		(42,303)	(10,714)	(53,017)
Temporary additional commission		(1,771)	-	(1,771)
Operating profit (loss)		13,824	(19,056)	(5,232)
Exceptional items		-	(626)	(626)
Profit (loss) before interest and tax		13,824	(19,682)	(5,838)
Finance (cost) income		(3,484)	-	(3,484)
Profit (loss) before tax		10,340	(19,682)	(9,342)
Taxation		(2,278)	3,622	1,344
Profit (loss) after tax		8,062	(16,060)	(7,998)
Earnings (loss) per share		2.62p		(2.60)p
Dividend per share		1.20p		1.20p

Period ended 31 December		2015 Normalised	2015 Fair value adjustments, amortisation of acquired intangibles and exceptional items		2015 Reported
		£'000	£'000		£'000
Revenue		14,657	(5,456)	9,201
Impairments		(3,858)	-	(3,858)
Admin expenses		(11,340)	(4,030)	(15,370)
Temporary additional commission		-	-	-
Operating profit (loss)		(541)	(9,486)	(10,027)
Exceptional items		-	(6,135)	(6,135)
Profit (loss) before interest and tax		(541)	(15,621)	(16,162)
Finance (cost) income		70	-	70
Profit (loss) before tax		(471)	(15,621)	(16,092)
Taxation		1,271	1,751	3,022
Profit (loss) after tax		800	(13,870)	(13,070)
Earnings (loss) per share		1.30p		(21.25)p
Dividend per share		nil		nil

Normalised revenue was £81.1m (2015: £14.7m) reflecting a full period of Loans at Home and approximately eight months' of Everyday Loans whilst the prior year included just five months' of Loans at Home. This fed through into a normalised operating profit of £13.8m (2015: loss of £0.5m), which has been reduced by temporary additional commission paid to newly signed-up agents of £1.8m (2015: £nil). Normalised operating profit is then adjusted by fair value adjustments and amortisation of acquired intangibles totalling £19.1m (2015: £9.5m). As a result, the reported operating loss was £5.2m (2015: loss of £10.0m). Exceptional costs of £0.6m (2015: £6.1m) and finance costs of £3.5m (2015: finance income of £0.1m) resulted in a reported loss before tax of £9.3m (2015: loss of £16.1m). A tax credit of £1.3m (2015: £3.0m) meant that the loss after tax was £8.0m (2015: £13.1m) equating to a reported loss per share of 2.60p (2015: loss per share of 21.25p).

A more detailed review of each of the operating businesses is outlined below showing results on a pro forma as well as a reported basis.

Divisional overview

Everyday Loans

Everyday Loans remains the largest branch-based lender in the UK's non-standard finance sector with 41 branches. By tailoring customers' requirements through a broad range of loan products, Everyday Loans is able to meet the needs of a large number of customers.

Having announced the proposed acquisition of Everyday Loans on 4 December 2015, the transaction completed on 13 April 2016, following receipt of the requisite approval from the FCA.

At 31 December 2016, Everyday Loans had over 39,600 active customers across the UK and has delivered strong growth in all key financial metrics since acquisition in April 2016. With loans carrying APRs ranging from 24% to 299%, loan amounts ranging from £1,000 to £15,000 and length of loan ranging from one year to five years, we believe that Everyday Loans is able to serve an unrivalled breadth of UK customers.  Another key differentiator from many competitors is that while the vast majority of customers make their initial contact remotely, either direct or through brokers, we always seek to meet the customer face-to-face in one of our branches so that we can complete our underwriting process. We believe that whilst expensive to deliver, our branch-based approach creates a more bespoke and thorough lending experience which benefits our customers as well as the business by enabling us to make better lending decisions.

Having received the full FCA permissions in June 2016, we embarked on a planned programme of investment across the business with a clear focus on:

·	extending our customer reac
·	broadening our product range; and
·	ensuring we remain fully compliant with our regulatory obligations.

Specific achievements included: expanding the branch network with five new openings during the year; extending the customer offering with the launch of a new self-employed product; we successfully migrated our back-office technology to a new platform without incident; we began working with a number of new brokers and lead generators that are already proving to be very successful and have continued to invest in staff training and compliance to ensure that we remain at the vanguard of our industry.

We continue to believe that the branch-based approach provides Everyday Loans with a significant advantage over other more remote lenders in being able to properly assess both affordability and propensity to pay and so whilst customers with lower credit scores do carry more risk, at higher APRs the risk-adjusted return remains commercially attractive.

Reported results

Normalised revenue was £37.1m (2015: n/a) and reflected the inclusion of Everyday Loans from 13 April 2016. Fair value adjustments of £7.9m (2015: n/a) were due to the fair value unwind of the acquired loan portfolio and resulted in reported revenue of £29.2m (2015: n/a). Impairments were £7.6m (2015: n/a) while administrative expenses were £14.7m (2015: n/a) resulting in total normalised operating profit of £14.8m (2015: n/a) and reported operating profit of £6.8m (2015: n/a).

Being close to our customers is one factor that influences our ability to convert leads into underwritten loans and since completing the acquisition in April 2016 we have continued to invest in expanding our branch network. Whilst many applications represent duplicates or are rejected because data has been entered incorrectly, from over 860,000 applications processed in 2016, we completed 26,535 loans with an average loan size of £3,842.

Year ended 31 December	2016 Normalised5	2016 Fair value Adjustments	2016 Reported	2015 Reported
	£000	£000	£000	£000
Revenue	37,080	(7,916)	29,164	-
Impairments	(7,645)	-	(7,645)	-
Revenue less impairments	29,435	(7,916)	21,519
Admin expenses	(14,671)	-	(14,671)	-
Operating profit	14,764	(7,916)	6,848	-
Finance cost	(2,699)	-	(2,699)	-
Profit before tax	12,065	(7,916)	4,149	-
Taxation	(2,540)	1,504	(1,036)	-
Profit after tax	9,525	(6,412)	3,113	-

⁵ Reported figures, adjusted to exclude fair value adjustments

Pro forma results

Pro forma normalised revenue (twelve months of Everyday Loans) was £50.1m driven by further growth in the loan book that as at 31 December 2016 had reached £122.4m, thanks to continued strong demand for the Group's products as well as the benefit of an increase in yield from a combination of new pricing as well as a shift in the product mix. Impairments increased slightly from the half year to 20.0% of revenue reflecting the strong loan book growth and increased volumes from customers with lower credit scores (although this was more than offset by an increase in yield on new business volumes that increased from 51.9% in March 2016 to 56.9% in December 2016). Administrative expenses were £20.6m resulting in pro forma normalised operating profit of £19.4m.

Year ended 31 December	2016 Pro forma Normalised6 £'000
Revenue	50,088
Impairments	(10,034)
Revenue less impairments	40,054
Admin expenses	(20,631)
Operating profit	19,423
Finance cost	(4,720)
Profit before tax	14,703
Taxation	(2,941)
Profit after tax	11,762
Key Performance Indicators7
Number of branches	41
Period end customer numbers (000)	39.6
Period end loan book (£m)8	122.4
Average loan book (£m)9	113.4
Revenue yield (%)10	44.2
Risk adjusted margin (%)11	35.3
Impairments/revenue (%)	20.0
Operating profit margin (%)	38.8
Return on asset (%)12	17.1

⁶   Assuming Everyday Loans was acquired on 1 January 2016 and adjusted to exclude fair value adjustments

⁷ Key performance indicators have been provided using pro forma normalised data only as reported data only includes performance metrics from the date of acquisition.

⁸   Excluding fair value adjustments

⁹   Excluding fair value adjustments based on a twelve month average

¹⁰ Revenue as a percentage of average loan book excluding fair value adjustments (twelve month average)

¹¹ Revenue less impairments as a percentage of average loan book excluding fair value adjustments (twelve month average)

¹² Operating profit as a percentage of average loan book excluding fair value adjustments (twelve month average)

Plans for 2017

We remain focused on expanding our branch network and continuing to broaden our product range.

Having opened five new branches since April 2016, we are keeping up the momentum in 2017 with ten new branches already underway and plans for a further two new branches that are also expected to open by the year end. Whilst this increased investment is expected to reduce operating profit by approximately £1m in the current year, it will underpin strong earnings growth in future years as the new branches reach maturity in terms of customers and loan book.

In terms of product development, our new 'selfy' loan has been designed to reach the large and growing proportion of the workforce that are now self-employed and which, due to the variability of their income, are often excluded by other lenders. Whilst encouraged by some early success, we are continuing to test the appeal and viability of the product before deciding to commit further resources to it.  Separately, we submitted an application to the FCA for a high-cost, short-term credit licence in December 2016 and if successful, plan to offer shorter-term loans to our customers through the branch network.  Currently, our shortest term loan is for 24-months and we believe that a number of potential customers would prefer to borrow over a shorter period.  This extension to our product range will complement our existing offering and improve our service to customers.

Loans at Home

Loans at Home is the third largest home credit business in the UK with almost 94,000 customers and a net loan book (before fair value adjustments) at 31 December 2016 of £33.4m, an increase of 19% over the prior year (2015: £28.0m). 

Strong growth in the number of self-employed agents drove faster than expected growth in customer numbers that in turn prompted a spike in impairments in the first half of 2016.  Having tested a number of alternate growth strategies, we implemented the following measures to reduce impairments and improve operating performance: we simplified the management structure; increased our focus on the performance of recently joined agents; deployed a more sophisticated scorecard; and consolidated a number of sub-scale agencies. These measures improved the quality of the loan book and the rate of impairment began to decline.  Total customer numbers consequently came down in the second half and new loans written improved in terms of quality, albeit on lower volumes.

Having assembled the new management team and instituted the transformation of Loans at Home, Mark Bardsley stepped down as CEO of Loans at Home in January 2017 and David Thompson, a seasoned home credit executive who had already been running the Loans at Home network, has stepped in to the role.  

Reported results

Normalised revenue was £42.2m (2015: £14.7m), reflecting the inclusion of Loans at Home for a full period. Reported revenue was £0.4m lower due to the unwinding of the fair value adjustment made to the loan book at completion in 2015 (2015: a charge of £5.5m).

Normalised operating profit of £1.8m (for the period 4 August 2015 to 31 December 2015: £2.1m) was after deducting administration costs of £23.2m which included £7.9m of agent collection commissions and temporary additional agent commission of £1.8m (2015: £nil). Temporary additional agent commission was higher than expected following our decision to focus on adding higher quality customers that meant it took longer for a number of newly appointed agents to reach critical mass with their rounds and so temporary commissions were extended for a further period. Reported operating profit was £1.4m (2015: operating loss of £3.9m) reflecting the cost of temporary additional commission paid to agents and the fair value adjustment to revenue outlined above.

The first part of our technology investment is now complete: our new handheld collections application (app) has been rolled-out across the entire network and has been warmly welcomed by all agents. This automation has significantly reduced the complexity of administering the collections process and is also providing accurate management information in a fraction of the time and at lower cost.

Year ended 31 December		2016 Normalised13	2016 Fair value Adjustments	2016 Reported
		£000	£000	£000
Revenue		42,170	(426)	41,744
Impairments		(15,313)	-	(15,313)
Revenue less impairments		26,857	(426)	26,431
Admin expenses		(23,229)	-	(23,229)
Temporary additional commission		(1,771)	-	(1,771)
Exceptional items		-	-	-
Operating profit		1,857	(426)	1,431
Finance cost		(323)	-	(323)
Profit before tax		1,534	(426)	1,108
Taxation		(54)	81	27
Profit after tax		1,480	(345)	1,135
Key Performance Indicators14
Period end agent numbers		785
Period end number of offices		47
Period end customer numbers (000)		93.6
Period end loan book (£m)		33.4
Average loan book (£m)		27.6
Revenue yield (%)		152.8
Risk adjusted margin (%)		97.3
Impairments/revenue (%)		36.3
Operating profit margin (%)		4.4
Return on asset (%)13		6.7

¹³ Normalised to exclude fair value adjustments related to the acquisition and subsequent restructuring of Loans at Home.

¹⁴ All definitions are as per above. 

Period ended 31 December		2015 Normalised	2015 Fair value Adjustments	2015 Reported
		£000	£000	£000
Revenue		14,657	(5,456)	9,201
Impairments		(3,858)	-	(3,858)
Revenue less impairments		10,799	(5,456)	5,343
Admin expenses		(8,656)	-	(8,656)
Temporary additional commission		-	-	-
Exceptional items		-	(593)	(593)
Operating profit/(loss)		2,143	(6,049)	(3,906)
Finance cost		-	-	-
Profit/(loss) before tax		2,143	(6,049)	(3,906)
Taxation		1,271	-	1,271
Profit/(loss) after tax		3,414	(6,049)	(2,635)
Key Performance Indicators15
Period end agent numbers		630
Period end number of offices		41
Period end customer numbers (000)		92.0
Period end loan book (£m)		28.0
Average loan book (£m)		n/a
Revenue yield (%)		n/a
Risk adjusted margin (%)		n/a
Impairments/revenue (%)		26.3
Operating profit margin (%)		14.6
Return on asset (%)13		n/a

¹⁵ All definitions are as per above.  Certain Key Performance Indicators for 2015 are shown as not applicable as Loans at Home was acquired on 4 August 2015 and reported data therefore includes less than a full year's performance. 

Note there are no comparative figures for 2015 (see Context for Results on page 1).

Plans for 2017

Our focus for 2017 is to consolidate the changes already made, complete the roll-out and then embed our new technology as planned so that we can focus the business on what it does best: lending and collecting responsibly to deliver excellent customer outcomes.  We are continuing to invest in our people with improved training programmes for both staff and self-employed agents and we hope to become the home credit firm that is recognised as being the preferred place to work.  Whilst we continue to be opportunistic and selective regarding the hiring of experienced agents, particularly now that our largest competitor is substantially reducing the scale of its agent network, we expect temporary agent commission costs to fall in the current year. 

We will continue to improve the quality of our customer base and aim to reduce further the level of impairments as a percentage of revenue and whilst this may result in more moderate loan book growth in the current year versus 2016, our objective will be to deliver healthy revenue and profit growth.

Trusttwo

Whilst a relatively new segment of the unsecured credit market, the value of outstanding unsecured guaranteed loans in the UK has grown rapidly and is estimated to have reached approximately £350m in 2015.  We believe that there is a significant opportunity for Trusttwo to become the clear number two player behind the market leader and during 2016 we laid the foundations to realise the full potential of this exciting business model.

Following its acquisition in April 2016, we established Trusttwo as a stand-alone business and hired a Managing Director who has full profit and loss responsibility.  Having obtained its full FCA permissions in June 2016, we established a robust infrastructure through the recruitment of more staff and the redesign of a number of core processes.  This doubled conversion rates so that the business now represents a viable and attractive alternative for financial brokers that are keen to offer customers an alternative solution to the market leader.  Whilst this required meaningful investment, we began to see solid month-on-month revenue growth and expect this to increase further once our infrastructure is fully in place.

Reported results

As at 31 December 2016 the business had a net loan book of £8.8m delivering reported revenue of £1.8m (2015: n/a) and operating profit of £0.5m (2015: n/a) reflecting the performance in the eight month period since acquisition.

Year ended 31 December	2016 Reported £000	2015 Reported £000
Revenue	1,849	-
Impairments	(243)
Revenue less cost of sales	1,606
Admin expenses	(1,146)	-
Operating profit	460	-
Finance cost	(198)	-
Profit before tax	262	-
Taxation	(58)	-
Profit after tax	204	-

Pro forma results

On a pro forma basis, Trusttwo generated pro forma revenue of £2.4m (2015: n/a) and pro forma operating profit of £0.7m (2015: n/a).  Administration costs almost doubled in the second half versus the first half as we invested in building the infrastructure (people, systems and processes) to be able to grow revenues substantially in 2017 once all elements of our customer experience are working as planned.  

Year ended 31 December	2016 Pro forma16
	£000
Revenue	2,416
Impairments	(358)
Revenue less impairments	2,058
Admin expenses	(1,402)
Operating profit	656
Finance cost	(316)
Profit before tax	340
Taxation	(68)
Profit after tax	272
Key Performance Indicators17
Period end customer numbers (000)	3.3
Period end loan book (£m)	8.8
Average loan book (£m)	7.7
Revenue yield (%)	31.9
Risk adjusted margin (%)	26.7
Impairment/revenue (%)	14.8
Operating profit margin (%)	27.2
Return on asset17 (%)	8.5

¹⁶ Assuming Trusttwo was acquired on 1 January 2016

¹⁷ Key performance indicators have been provided using pro forma normalised data only as reported data only includes performance metrics from the date of acquisition. All definitions are as per above. 

Plans for 2017

We will soon be launching a much improved website that we expect will attract more customers as well as improve conversion rates further.  The new site will also expand our existing product parameters thereby increasing our appeal to potential customers that are looking to tailor any offer to best suit their needs.  The launch will be accompanied by a fully-integrated marketing campaign across all key channels including online, social as well as through referrals from the Everyday Loans branch network.  So far we have been pleased with the positive response from staff in the branches and hope to make further progress on increasing the number of referrals and conversion rates during 2017.  Financial brokers represent a significant opportunity for Trusttwo and we have been leveraging Everyday Loans' excellent relationships as well as building new ones with additional brokers and lead generators for whom the Trusttwo proposition is more attractive.

With our infrastructure and funding in place, we believe that there is a substantial opportunity for Trusttwo to become the clear number two in the UK's guaranteed loans market.

Central costs

Year ended 31 December		2016 Normalised18	2016 Amortisation of acquired intangibles and exceptional items	2016 Reported
		£000	£000	£000
Revenue		-	-	-
Admin expenses		(3,257)	(10,714)	(13,971)
Exceptional items		-	(626)	(626)
Operating loss		(3,257)	(11,340)	(14,597)
Finance cost		(264)	-	(264)
Loss before tax		(3,521)	(11,340)	(14,861)
Taxation		374	2,037	2,411
Loss after tax		(3,147)	(9,303)	(12,450)

¹⁸ Adjusted to exclude the amortisation of acquired intangibles related to the acquisition of Loans at Home and Everyday Loans and exceptional items

Period ended 31 December		2015 Normalised19	2015 Amortisation of acquired intangibles and exceptional items	2015 Reported
		£000	£000	£000
Revenue		-	-	-
Admin expenses		(2,684)	(4,030)	(6,714)
Exceptional items		-	(5,542)	(5,542)
Operating loss		(2,684)	(9,572)	(12,256)
Finance income		70	-	70
Loss before tax		(2,614)	(9,572)	(12,186)
Taxation		-	1,751	1,751
Loss after tax		(2,614)	(7,821)	(10,435)

¹⁹ Adjusted to exclude the amortisation of acquired intangibles related to the acquisition of Loans at Home and Everyday Loans and exceptional items

Normalised administrative expenses, including head office costs and other expenses associated with the running of the plc (before the amortisation of acquired intangibles and exceptional items) were £3.3m (2015: £2.7m). The amortisation of intangible assets acquired as part of the acquisition of Loans at Home and Everyday Loans was £10.7m (2015: £4.0m) reflecting a full period of amortisation for Loans at Home and eight months for Everyday Loans. An exceptional item charge of £0.6m was incurred in the year and related to stamp duty paid at completion on the acquisition of Everyday Loans (2015: £5.5m).  The charge in the prior year related to acquisition-related expenses. Finance costs of £0.3m (2015: finance income of £0.1m) were also incurred in the first half and related to the non-utilisation fee on the Everyday Loans bank facility prior to the drawdown at completion.

Principal risks

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance and that could cause reported and pro forma results to differ materially from expected and historical results

The principal risks facing the Group, together with the Group's risk management process in relation to these risks, are unchanged from those reported in the Group's Annual Report for the period ended 31 December 2015 (which is available for download at www.nonstandardfinance.com), save that we have also now included an additional risk relating to reputation.  The principal risks relate to the following areas:

·	Conduct - risk of poor outcomes for our customers or other key stakeholders as a result of the Group's actions;
·	Regulation - risk through changes to regulations or a failure to comply with existing rules and regulations;
·	Credit - risk of loss through poor underwriting or a diminution in the credit quality of the Group's customers;
·	Business strategy and operations - risk that the Group fails to execute its plan as expected or that the outcome from executing such strategy is not as planned;
·	Liquidity - while the Group is well-capitalised and has secured committed debt facilities of £95m with an opportunity to increase, with the consent of the banks, to £120m, prevailing uncertainty in global financial markets following the UK's decision to leave the European Union means that there is a risk that the Group may be unable to secure sufficient finance in the future to execute its long-term business strategy; and
·	Reputation - a failure to manage one or more of the risks above may damage the reputation of the Group or any of its subsidiaries that in turn may materially impact the future operational and/or financial performance of the Group.

On behalf of the Board of Directors

Nick Teunon

Chief Financial Officer

3 March 2017

Consolidated statement of comprehensive income

For the year ended 31 December 2016

	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 2016 £'000
Revenue	2		81,099	(8,342)	72,757
Impairment/cost of sales			(23,201)	-	(23,201)
Administrative expenses			(44,074)	(10,714)	(54,788)
Operating profit/(loss)	3		13,824	(19,056)	(5,232)
Exceptional items			-	(626)	(626)
Profit/(loss) on ordinary activities before interest and tax			13,824	(19,682)	(5,858)
Finance (cost)/income			(3,484)	-	(3,484)
Profit/(loss) on ordinary activities before tax			10,340	(19,682)	(9,342)
Tax on profit/(loss) on ordinary activities	5		(2,278)	3,622	1,344
Profit/(loss) for the year			8,062	(16,060)	(7,998)
Total comprehensive loss for the Period					(7,998)
Loss attributable to:
- Owners of the parent					(7,998)
- Non-controlling interests					-

Loss per share

	Note		Year ended 31 Dec 2016   Pence
Basic and diluted	6		(2.60)

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

 For the period ended 31 December 2015

	Note		Before fair value adjustments, amortisation of acquired intangibles and exceptional items  £'000	Fair value adjustments, amortisation of acquired intangibles and exceptional items  £'000	Period from incorporation to 31 Dec 2015  £'000
Revenue	2		14,657	(5,456)	9,201
Impairment/cost of sales			(3,858)	-	(3,858)
Administrative expenses			(11,340)	(4,030)	(15,370)
Operating loss	3		(541)	(9,486)	(10,027)
Exceptional items			-	(6,135)	(6,135)
Loss on ordinary activities before interest and tax			(541)	(15,621)	(16,162)
Finance income			70	-	70
Loss on ordinary activities before tax			(471)	(15,621)	(16,092)
Tax on loss on ordinary activities	5		1,271	1,751	3,022
Profit/(loss) for the year			800	(13,870)	(13,070)
Total comprehensive loss for the year					(13,070)
Loss attributable to:
- Owners of the parent					(13,070)
- Non-controlling interests					-

Loss per share

	Note		Period from incorporation to 31 Dec 2015 Pence
Basic and diluted	6		(21.25)

Consolidated statement of financial position

As at 31 December 2016

	Note	31 Dec 2016 £'000	31 Dec 2015 £'000
ASSETS
Non-current assets
Goodwill	8	132,070	40,176
Intangible assets	9	17,412	14,119
Property, plant and equipment		5,459	1,718
		154,941	56,013
Current assets
Inventories		-	3
Amounts receivable from customers	10	180,413	28,412
Trade and other receivables		10,753	10,275
Cash and cash equivalents		5,215	7,320
		196,381	46,010
Total assets		351,322	102,023
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables		8,146	13,803
Total current liabilities		8,146	13,803
Non-current liabilities
Deferred tax liability	11	6,793	3,057
Bank loans		87,300	-
Total non-current liabilities		94,093	3,057
Equity
Share capital	13	15,852	5,264
Share premium	13	254,995	92,714
Retained loss		(22,019)	(13,070)
		248,828	84,908
Non-controlling interests		255	255
Total equity		249,083	85,163
Total equity and liabilities		351,322	102,023

Consolidated statement of changes in equity

For the year ended 31 December 2016

	Share capital £'000	Share premium £'000	Retained loss £'000	Non-controlling interest £'000	Total £'000
At incorporation	-	-	-	-	-
Total comprehensive loss for the period	-	-	(13,070)	-	(13,070)
Transactions with owners, recorded directly in equity:
Issue of shares	5,264	92,714	-	255	98,233
At 31 December 2015	5,264	92,714	(13,070)	255	85,163
Total comprehensive loss for the year	-	-	(7,998)	-	(7,998)
Transactions with owners, recorded directly in equity: Dividends paid	-	-	(951)	-	(951)
Issue of shares	10,588	162,281	-	-	172,869
At 31 December 2016	15,852	254,995	(22,019)	255	249,083

Consolidated statement of cash flows

For the year ended 31 December 2016

	Note	Year ended 31 Dec 2016 £'000	Period from incorporation to 31 Dec 2015 £'000
Net cash used in operating activities	14	(23,541)	(9,532)
Cash flows from investing activities
Purchase of property, plant and equipment		(4,327)	(341)
Acquisition of subsidiary		(230,784)	(81,111)
Net cash used in investing activities		(235,111)	(81,452)
Cash flows from financing activities
Finance (cost)/income		(3,484)	70
Debt raising		87,300	-
Dividends paid		(951)	-
Proceeds from sale of property, plant and equipment		813	-
Proceeds from issue of share capital		172,869	98,234
Net cash from financing activities		256,547	98,304
Net (decrease)/increase in cash and cash equivalents		(2,105)	7,320
Cash and cash equivalents at beginning of year		7,320	-
Cash and cash equivalents at end of year		5,215	7,320

As at 31 December 2016 the Group had cash of £5.2m (2015: £7.3m) with debt of £87.3m (2015: £nil). This cash balance reflects the acquisition of Everyday Loans (including Trusttwo) and associated fundraising for the acquisition together with the trading activities of the Group during the year . The year-end cash balance also reflects the seasonal peak in lending that takes place in December at Loans at Home which reduces cash at 31 December, but subsequently gets collected in the weeks following the year end.

Notes to the preliminary announcement

1. Basis of preparation

The preliminary announcement has been prepared in accordance with the Listing Rules of the FCA and is based on the 2016 consolidated financial statements which have been prepared under IFRS as adopted by the European and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The accounting policies applied in preparing the preliminary announcement are consistent with those used in preparing the statutory financial statements for the period ended 31 December 2016. The preliminary announcement has been prepared on a going concern basis consistent with the basis of preparation of the statutory financial statements for the period ended 31 December 2016.

The preliminary announcement does not constitute the statutory financial statements of the Group within the meaning of Section 434 of the Companies Act 2006.

The audit of the statutory financial statements for the period ended 31 December 2016 is not yet complete. These accounts will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting.

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

2. Revenue

Revenue is recognised by applying the EIR to the carrying value of a loan. The EIR is calculated at inception and represents the rate which exactly discounts the future contractual cash receipts from a loan to the amount of cash advanced under the loan, plus directly attributable issue costs. In addition, the EIR takes account of customers repaying early.

	Year ended 31 Dec 2016 £'000	Period from incorporation to 31 Dec 2015  £'000
Interest income	81,099	14,657
Fair value unwind on acquired loan portfolio	(8,342)	(5,456)
Total revenue	72,757	9,201

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

	Year ended 31 Dec 2016 £'000	Period from incorporation to 31 Dec 2015  £'000
Depreciation of property, plant and equipment	690	198
Amortisation of intangible assets	10,714	4,030
Staff costs	20,345	5,076
Rentals under operating leases	1,110	136
(Profit)/loss on sale of property, plant and equipment	(363)	51
Rentals received under operating leases	(28)	(53)

4. 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 Central (head office activities), Loans at Home (home credit), Everyday Loans (branch based lending) and Trusttwo (guaranteed lending). The Group's operations are all located in the United Kingdom and all revenue is attributable to customers in the United Kingdom.

Year ended 31 December 2016		Everyday Loans £'000	Loans at Home £'000	Trusttwo1 £'000	Central £'000	2016 Total £'000
Interest income		37,080	42,170	1,849	-	81,099
Fair value unwind on acquired loan portfolio		(7,916)	(426)	-	-	(8,342)
Total revenue		29,164	41,744	1,849	-	72,757
Operating profit/(loss) before amortisation		6,848	1,431	460	(3,257)	5,482
Amortisation of intangible assets		-	-	-	(10,714)	(10,714)
Operating profit/(loss) before exceptional items		6,848	1,431	460	(13,971)	(5,232)
Exceptional items		-	-	-	(626)	(626)
Finance cost		(2,699)	(323)	(198)	(264)	(3,484)
Profit/(loss) before taxation		4,149	1,108	262	(14,861)	(9,342)
Taxation		(1,036)	27	(58)	2,411	1,344
Profit/(loss) for the year		3,113	1,135	204	(12,450)	(7,998)
	Everyday Loans £'000	Loans at Home £'000	Trusttwo1 £'000	Central £'000	Consolidation adjustments2 £'000	2016 Total £'000
Total assets	136,362	40,258	8,783	274,883	(108,964)	351,322
Total liabilities	(98,589)	(14,239)	-	(1,595)	12,184	(102,239)
Net assets	37,773	26,019	8,783	273,288	(96,780)	249,083
Capital expenditure	1,764	2,386	-	177	-	4,327
Depreciation of plant, property and equipment	226	425	-	39	-	690
Amortisation of intangible assets	-	-	-	10,714	-	10,714

¹ Trusttwo is supported by the infrastructure of Everyday Loans and only the net loan book and profit and loss is reported to the board separately and has therefore been disclosed above.

² Consolidation adjustments include the acquisition intangibles of £17.4m (2015: £14.1m), good will of £132.1m (2015: £40.2m), deferred tax liability of £6.8m (2015: £3.1m), fair value of loan book of £15.8m (2015: £0.4m) and the elimination of intra group balances.

All inter-segment transactions are transacted on an arm's length basis. The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.

Period ended 31 December 2015		Everyday Loans £'000	Loans at Home £'000	Trusttwo £'000	Central £'000	2015 Total £'000
Interest income		-	14,657	-	-	14,657
Fair value unwind on acquired loan portfolio		-	(5,456)	-	-	(5,456)
Total revenue		-	9,201	-	-	9,201
Operating loss before amortisation		-	(3,313)	-	(2,684)	(5,997)
Amortisation of intangible assets		-	-	-	(4,030)	(4,030)
Operating loss before exceptional items		-	(3,313)	-	(6,714)	(10,027)
Transaction costs		-	-	-	(5,542)	(5,542)
Redundancy costs		-	(593)	-	-	(593)
Finance cost		-	-	-	(3)	(3)
Finance income		-	-	-	73	73
Loss before taxation		-	(3,906)	-	(12,186)	(16,092)
Taxation		-	1,271	-	1,751	3,022
Loss for the period		-	(2,635)	-	(10,435)	(13,070)
	Everyday Loans £'000	Loans at Home £'000	Trusttwo £'000	Central £'000	Consolidation adjustments £'000	2015 Total £'000
Total assets	-	34,492	-	101,730	(34,199)	102,023
Total liabilities	-	(3,735)	-	(11,121)	(2,004)	(16,860)
Net assets	-	30,757	-	90,609	(36,203)	85,163
Capital expenditure	-	295	-	64	-	359
Depreciation of plant, property and equipment	-	189	-	9	-	198
Amortisation of intangible assets	-	-	-	4,030	-	4,030

5. Taxation

	Year ended 31 Dec 2016 £'000	Period from incorporation to 31 Dec 2015 £'000
Current tax charge/(credit)
In respect of the current year	2,103	(1,251)
Total current tax charge/(credit)	2,103	(1,251)
Deferred tax credit	(3,447)	(1,771)
Total tax credit	(1,344)	(3,022)

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 2016 £'000	Period from incorporation to 31 Dec 2015 £'000
Loss before taxation	(9,342)	(16,092)
Tax on loss on ordinary activities at standard rate of UK corporation tax of 19% (2015: 20%):	(1,868)	(3,218)
Effects of:
Fixed asset differences	(103)	-
Expenses not allowable for taxation	132	1,214
Chargeable gains/(losses)	99	-
Adjustment to tax charge in respect of previous periods	72	-
Adjustment to tax charge in respect of previous periods - deferred tax	(52)	-
Adjust closing deferred tax to average rate of 20%	226	-
Changes in unrecognised deferred tax	151	441
Capital allowances in excess of depreciation	-	1
Changes in tax rate	-	(53)
Timing difference	-	(21)
Tax adjustments arising on date of acquisition	-	(1,386)
Total tax credit	(1,344)	(3,022)

Exceptional items are included within 'expenses not allowable for taxation' due the nature of the transactions, being in relation to the acquisitions of Loans at Home and Everyday Loans. At 31 December 2016 exceptional items totalled £626,000 (2015: £5,542,000)

Reductions in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) were substantively enacted on 26 October 2015. A further reduction in the rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016.  This will reduce the company's future current tax charge accordingly. The deferred tax liability at 31 December 2016 has been calculated based on the rate of 19% substantively enacted at the balance sheet date.

6. Loss per share

	Year ended 31 Dec 2016	Period from incorporation to 31 Dec 2015
Retained loss attributable to Ordinary Shareholders (£'000)	(7,998)	(13,070)
Weighted average number of Ordinary Shares at year/period ended 31 December	307,315,588	61,502,789
Basic and diluted loss per share (pence)	(2.60p)	(21.25p)

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. 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.

	Year ended 31 Dec 2016 '000	Period from incorporation to 31 Dec 2015 '000
Weighted average number of potential Ordinary Shares that are not currently dilutive	5,539	5,539

7. Dividends

The Directors have recommended a final dividend in respect of the year ended 31 December 2016 of 0.9 pence per share (2015: nil) which will amount to an estimated final dividend payment of £2,853,000. This final dividend is not reflected in the balance sheet as it is recommended to be paid after the balance sheet date.

8. Goodwill

	£'000
Cost and net book amount
At incorporation	-
Acquisition of subsidiary (Loans at Home)	40,176
At 31 December 2015	40,176
Acquisition of subsidiary (Everyday Loans)	91,894
At 31 December 2016	132,070

The goodwill recognised represents the difference between the purchase consideration and the net assets acquired (including intangible assets recognised upon acquisition).

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The assessment of impairment of goodwill reflects a number of key estimates, each of which can have a material effect on the carrying value of the asset. These include:

·	cash flow forecasts which have been extracted from the budget, which involves inherent uncertainty, particularly in respect of gross loan values, collections performance and the cost base of the business;
·	the price earnings multiple applied to the cash flow forecasts;
·	estimates made on the disposal costs of the business; and
·	the weighted average cost of capital ('WACC')  applied to determine the net present value ('NPV') of future cash flows.

The recoverable amount has been determined based on a fair value less cost to sell calculation.  That calculation uses cash flow projections based on financial budgets approved by management covering a three year period to 31 December 2019, disposal costs have been estimated at 2% and a discount rate (WACC) of 12% used for the Group. The Directors have estimated the discount rate using post-tax rates that reflect current market assessments of the time value of money and the risks specific to the market. None of the goodwill is tax deductible.

Loans at Home goodwill impairment assessment: Considering the key estimates above, the Group has identified that the following movements, which may necessitate an impairment charge to the carrying value of goodwill:

·	a 3% reduction in forecast 2019 earnings;
·	a 3% reduction in the price earnings multiple;
·	an increase in the disposal costs to 5.5%; and/or
·	an increase in the WACC to 14%.

Everyday Loans goodwill impairment assessment: It would require a movement of greater than 20% in all of the judgements and estimates to give rise to a potential impairment charge to the carrying value of goodwill recognised on the Everyday Loans acquisition.

At 31 December 2016 the fair value less cost to sell of the goodwill was in excess of its carrying amount by £36.1m at Everyday Loans (2015: n/a) and £2.3m at Loans at Home (2015: £51.2m) when applying the lowest valuation as specified in the accounting policies. 

9. Intangible assets

	Customer lists £'000	Agent network £'000	Brand £'000	Broker relationships £'000	Technology £'000	Total £'000
Cost
At 1 January 2016	17,312	540	297	-	-	18,149
Additions through acquisition	2,050	-	1,497	4,233	6,227	14,007
At 31 December 2016	19,362	540	1,794	4,233	6,227	32,156
Amortisation
At 1 January 2016	3,869	99	62	-	-	4,030
Charge for the year	7,856	257	435	1,129	1,038	10,714
At 31 December 2016	11,725	356	497	1,129	1,038	14,744
Net book value
At 31 December 2016	7,637	184	1,297	3,104	5,189	17,412
At 31 December 2015	13,443	441	235	-	-	14,119

Intangible assets include intangibles in respect of the customer list and agent relationships at Loans at Home (formerly Loansathome4u) and acquisition intangibles in respect of the customer list, broker relationships and credit decisioning technology at Everyday Loans and the Everyday Loans and Trusttwo brand.

The fair value of the customer list of Loans at Home and Everyday Loans on acquisition has been estimated by calculating the Net Present Value (NPV) of the discounted cash flows from each new re-loan provided to this, discrete set of known customers. The Board of Directors will re-calculate the NPV at each future accounting date using the same assumptions, limited to the original known customer lists.

The fair value of Loans at Home's agent relationships on acquisition has been estimated by valuing the cost to set up a similar network of trained agents.

The fair value of Everyday Loans' broker relationships on acquisition has been estimated by calculating the NPV of the discounted cash flows from the cost avoided each year due to having the broker relationships in place on new loan volumes written by existing brokers. The Board of Directors will re-calculate the NPV at each future accounting date using the same assumptions, limited to the then existing brokers.

The fair value of Everyday Loans' credit decisioning technology on acquisition has been estimated by assessing the likely commercial level of royalties that would be payable to a third party were the technology licenced rather than owned, calculated as a percentage of forecast revenues and discounted to the date of the transaction. The Board of Directors will assess the technology for impairment using the same methodology at each future accounting date.

The fair value of the Loans at Home's brand (which at acquisition was loansathome4u) and Everyday Loans' brand on acquisition has been estimated by assessing the likely commercial level of royalties that would be payable to a third party were the brand licenced rather than owned, calculated as a percentage of forecast revenues and discounted to the date of the transaction. Due to rebranding, the loansathome4u brand to Loans at Home, the intangible asset was written off during the period. The Board of Directors will assess the Everyday Loans brand for impairment using the same methodology at each future accounting date.

10. Amounts receivable from customers

	2016 £'000	2015 £'000
Credit receivables	204,775	30,335
Loan loss provision	(24,362)	(1,923)
Amounts receivable from customers	180,413	28,412

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 impairment. The Directors assess on an ongoing basis whether there is objective evidence that customer receivables are impaired at each balance sheet date.

The movement on the loan loss provision for the period relates to the provision at Loans at Home for the year and Everyday Loans since the date of acquisition. The amounts receivable from customers were recognised at fair value (net loan book value) at the date of acquisition, the amounts receivable are subsequently measured at amortised cost net of any impairment.

Analysis of overdue receivables from customers

	2016 £'000	2015 £'000
Not past due or impaired	152,464	13,538
Past due but not impaired	21,599	7,819
Impaired	6,350	7,055
	180,413	28,412

	2016 £'000	2015 £'000
Loans at Home1 past due not impaired:
One week overdue	6,278	4,571
Two weeks overdue	2,129	1,696
Three or four weeks overdue	1,879	1,552
	10,286	7,819

¹ Loans at Home make weekly collections.

Everyday Loans2 past due not impaired:
Up to one month overdue	11,313	-
	11,313	-

² Everyday Loans make monthly collections. There is no comparable information for Everyday Loans as they were acquired on 13 April 2016.

Analysis on movement on loan loss provision

	£'000
At incorporation	-
Charge for the year	3,896
Unwind of discount	(1,973)
At 31 December 2015	1,923
Charge for the year	24,928
Unwind of discount	(2,489)
At 31 December 2016	24,362

The average EIR used during the year ended 31 December 2016 for Loans at Home was 316% (2015: 328%) and for Everyday Loans was 45.0% (2015: n/a).

11. Deferred tax liability

	£'000
At incorporation	-
Recognition of intangible assets at acquisition1	(4,828)
Current year credit	1,771
At 31 December 2015	(3,057)
Recognition of intangible assets at acquisition1	(7,551)
Current year credit	3,815
At 31 December 2016	(6,793)

¹ Refer to note 12

The deferred tax liability was recognised on the intangible assets upon acquisition of Loans at Home and of Everyday Loans. The intangible assets will be amortised in future periods for which tax deductions will not be available.

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

	2016 £'000	2015 £'000
Accelerated tax depreciation	(163)	(115)
Recognition of intangible assets	(6,366)	(2,909)
Other short term timing differences	(258)	(10)
Other losses and deductions	(25)	-
Property revaluation	-	(23)
Net deferred tax liability	(6,793)	(3,057)

For the year ended 31 December 2016 the Company has unused tax losses of £154,000 (2015: £1,822,000) available for offset against future profits. However, due to the uncertainty over the likelihood of future profits at the Company level, the deferred asset has not been recognised on the Company or Consolidated statement of financial position.

12. Acquisition of Everyday Loans

On 13 April 2016, the Group obtained control of the Everyday Loans Holdings Limited group, which consists of Everyday Loans Holdings Limited, Everyday Loans Limited and Everyday Lending Limited. The Group obtained control through the purchase of 100% of the share capital. The Everyday Loans group acquisition satisfies two of Non-Standard Finance plc's target sectors, branch-based unsecured lending and guaranteed loans (Trusttwo).

The fair values of the identifiable assets and liabilities of Everyday Loans as at the acquisition date were as follows:

	Amounts recognised at acquisition date £'000	Fair value adjustments £'000	Total £'000
Intangible assets1	-	14,006	14,006
Property, plant and equipment	563	-	563
Amounts receivable from customers2	115,563	23,749	139,312
Trade receivables	4,259	-	4,259
Cash and cash equivalents	1,807	-	1,807
Trade and other payables	(7,342)	-	(7,342)
Corporation tax liability	(1,949)	-	(1,949)
Deferred tax liabilities3	-	(7,551)	(7,551)
	112,901	30,204	143,105
Goodwill			91,895
Total consideration			235,000
Satisfied by:
Cash and shares			235,000
Net cash outflow arising on acquisition:
Cash consideration			215,000
Share consideration			20,000
Cash and cash equivalents acquired			(1,807)
Corporation tax credit			(1,864)
Other acquired asset			(545)
			230,784

1   £2,050,000 has been attributed to the fair value of Everyday Loans' customer list £4,233,000 to the broker relationship, £1,447,000 to the Everyday Loans brand and £49,000 to the Trusttwo brand and £6,227,000 to technology.

2   An adjustment to receivables of £23,749,000 has been made to reflect the fair value of the receivables book at the acquisition date. Refer to note 10.

3   Deferred tax liability £7,551,000 recognised on the intangibles and the fair value adjustment of the receivable book at acquisition. Refer to note 11.

Everyday Loans (including Trusttwo) contributed £38,929,000 to the Group's revenue and £12,327,000 profit before tax (before fair value adjustments) to the Group's operating profit for the period from the date of acquisition to the year ended 31 December 2016.

The goodwill of £91.9m represents the benefit of the Group's synergies available from the acquisition in respect of collections and distribution channels.

The fair value measurement of acquired assets is based upon financial forecasts, which are categorised as level 3 within the IFRS 13 fair value hierarchy.

Acquisition of Loans at Home

On 4 August 2015, the Group obtained control of SD Taylor Limited, trading as Loans at Home (formerly Loansathome4u) through the purchase of 100% of the share capital.

A detailed conversion of Loans at Home's financial statements, to align accounting policies, has been completed post-acquisition which reduced Loans at Home's net assets on acquisition by £5,956,000, principally in respect of higher impairment provisions due to the impact of a more conservative approach to recognising impairment.

The fair values of the identifiable assets and liabilities of Loans at Home as at the acquisition date were as follows:

	Amounts recognised at acquisition date £'000	Fair value adjustments £'000	Total £'000
Intangible assets1	-	18,149	18,149
Property, plant and equipment	1,627	-	1,627
Inventories	9	-	9
Amounts receivable from customers2	22,591	5,882	28,473
Trade receivables	277	-	277
Cash and cash equivalents	1,296	-	1,296
Trade and other payables3	(2,040)	(732)	(2,772)
Deferred tax liabilities4	(22)	(4,806)	(4,828)
	23,738	18,493	42,231
Goodwill			40,176
Total consideration			82,407
Satisfied by:
Cash			82,407
Net cash outflow arising on acquisition:
Cash consideration			82,407
Cash and cash equivalents acquired			(1,296)
			81,111

1.  £17,312,000 has been attributed to the fair value of Loans at Home's customer list, £540,000 to the agent network and £297,000 to the brand.

2.  An adjustment to receivables of £5,882,000 has been made to reflect the fair value of the receivables book at the acquisition date. Refer to note 10.

3.  An adjustment of £732,000 to accruals for a recognised dilapidations provision on the properties owned by Loans at Home.

4.  Deferred tax liability £4,806,000 recognised on the intangibles and the fair value adjustment of the receivable book at acquisition. Refer to note 11.

The goodwill of £40.2m represents the benefit of the Group's synergies available from the acquisition in respect of collections and distribution channels.

The fair value measurement of acquired assets is based upon financial forecasts, which are categorised as level 3 within the IFRS 13 fair value hierarchy.

13. Share capital and share premium

On incorporation, 8 July 2014, the issued share capital of the Company was £1 consisting of one Ordinary Share, fully paid up.

On 5 November 2014, the ordinary share of £1 was subdivided into 20 ordinary shares of £0.05 each.

On 2 December 2014, the share capital was increased by the issuance of 999,980 Ordinary Shares of £0.05 each at par to John van Kuffeler in settlement of a liability of £49,999.

On 4 February 2015 the share capital was further increased by the issuance of 1,960,527 Ordinary Shares of £0.05 each at a premium of £0.33 each to John van Kuffeler, Nick Teunon, Miles Cresswell-Turner, Robin Ashton and Charles Gregson.

On 19 February 2015, the share capital was further increased by the floatation of the Company and issuance of 102,323,918 Ordinary Shares of £0.05 each at a premium of £0.95 each.

On 7 January 2016, the share capital was increased by the issuance of 188,235,825 Ordinary Shares of £0.05 each at a premium of £0.80 each.

Upon completion of the acquisition of the Everyday Loans Group from Secure Trust Bank plc on 13 April 2016, the share capital was further increased by the issuance of 23,529,412 Ordinary Shares of £0.05 each at a premium of £0.80 each to Secure Trust Bank plc.

All shares in issue are ordinary 'A' shares consisting of £0.05 per share. All shares are fully paid up.

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

Share movements

	Number
Balance at date of incorporation	-
Shares issued during the period	105,284,445
Balance at 31 December 2015	105,284,445

Shares issued during the year	211,765,237
Balance at 31 December 2016	317,049,682

14. Net cash used in operating activities

	Year ended 31 Dec 2016 £'000	Period from incorporation to 31 Dec 2015 £'000
Operating loss	(5,838)	(16,162)
Taxation paid	(1,341)	(350)
Depreciation	690	198
Amortisation of intangible assets	10,714	4,030
Fair value unwind on acquired loan book	8,342	5,456
(Profit)/loss on disposal of property, plant and equipment	(363)	51
Decrease in inventories	3	6
Increase in amounts receivable from customers	(21,039)	(5,394)
Increase in receivables	(7,757)	(15,217)
(Decrease)/increase in payables	(6,952)	17,850
Cash used in operating activities	(23,541)	(9,532)

Appendix - Regulatory overview

During 2016 there were a number of regulatory developments that may have a bearing on the Group's activities and business operations in the future. Some of the more pertinent developments are summarised below.

·	On 26 May 2016 the FCA responded to the Competition and Markets Authority (CMA) recommendations on high-cost, short-term credit (HCSTC) and stated that it would make only minor changes to its suggested rules in this area. The new rules came into force on 1 December 2016.
·	On 30 June 2016 new rules on dispute resolution came into force extending the length of time that firms have to handle complaints from "next business day" to the close of business three days after the date of receipt. All complaints must be reported within three business days.
·	On 25 October 2016 the FCA announced a consultation on proposed guidance setting out its proposed interpretation of the law in relation to guarantor loans.  This guidance was finalised on 19 January 2017 and the FCA has confirmed that there is no requirement for a statutory default notice to be issued where payment is requested of (not demanded), or volunteered by a guarantor and continuous payment authority can be used against the guarantor provided notice is given sufficiently in advance (five working days is suggested) to afford them the opportunity to object/cancel the CPA.
·	On 29 November 2016, the FCA issued a call for input to inform further work on high-cost credit, including a review of the HCSTC price cap.  Non-Standard Finance plc has submitted its views to the FCA.
·	The FCA published its thematic review on early arrears management in unsecured lending in December 2016.  Its findings were that many firms are improving the way they deal with customers in early arrears. However, in some areas consumer credit firms still need to improve their practices.
·	Also in December 2016 the FCA launched a consultation on the future funding of the Financial Services Compensation Scheme (FSCS) and has also launched a consultation on a number of specific changes to its scheme rules.  One proposal is that the FSCS should be extended to cover UK-based debt management firms and that this should be funded by a levy on consumer credit firms. According to the FCA and assuming an annual requirement of £45m, this would equate to a levy of 0.22% of annual income on all consumer credit firms.
·	As at 31 March 2016 the FCA had authorised 30,309 consumer credit firms and a further 3,544 Interim Permissions were still awaiting to complete the process. In home collected credit, over 386 firms had been authorised as at 31 March 20161.

¹ Information from FCA Data Bulletin (Issue 6) June 2016

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