MCL.L Regulatory News (MCL)

 16 July 2020

Morses Club Trading Update

HCC showing signs of recovery, Digital performance encouraging

Morses Club PLC ("the Company" or "the Group"), an established provider of non-standard financial services, provides the following trading update for the period since 29 February 2020 (the "period").

Trading environment

The Company quickly adapted to the changing operating environment in March 2020 by leveraging its existing technology efficiently, focusing on collections and maintaining engagement with customers, working hard to ensure that our high levels of customer service have been maintained throughout. Reduced lending volumes in the period primarily as a result of a temporary pause in lending to new Home Collected Credit ("HCC") customers were partially offset by higher quality lending to existing customers.

In the Group's HCC division, both agents and customers reacted positively to the remote customer communication strategy, with over 109,000 customers now registered for the online customer portal compared with c.78,000 at the end of FY20. As announced on 13 July 2020, the Company has recently recommenced lending to new HCC customers via the remote lending process which has experienced encouraging uptake in its first few days. The Company's consistently high customer satisfaction levels have been maintained at 97%. Customer satisfaction with the agent service stands at 99%, a considerable achievement given the move from the doorstep to a digital contact strategy due to Covid-19 restrictions.

The Group has also taken the opportunity to implement structural changes to the business, bringing its property portfolio in line with employees' support for working more flexibly. Morses Club has carefully reviewed its property portfolio and the ability to remodel the Company's branches to make them compliant with the new regulations issued in relation to Covid-19. Employees who had previously been based at these premises continue to successfully work from home. Morses Club has not furloughed any staff and has not accepted any other government assistance.

Restructuring at Morses Club's digital division, Shelby Finance, continues apace, and lending has been robust. Customers have increasingly demanded Shelby Finance's widening product and digital offering in the period, which has helped the Group to cater for its customers' changing needs. The digital diversification strategy remains unchanged and the Company is confident that the division will drive growth in the medium term and enable Morses Club to consolidate its position as a leading provider of products and services to the non-standard finance market.

Credit issued and collections

In HCC, credit issued during the first four months of the financial year is 34.0% ahead of the Company's Covid-19 plan, corresponding to a year-on-year decline of 46.6%. Morses Club is encouraged by the improving sales performance over recent months, with the decline in credit issued reducing from a 72% fall year-on-year in April 2020, to a 50% decline in May 2020 and a 30% decline in June 2020. It is anticipated that, given the recent re-commencement of lending to new customers, this decline will further reduce in July 2020. Furthermore, new lending since mid-April has been of exceptionally high quality as Morses Club extended credit solely to existing high performing customers until July 2020.

Cash collections within HCC in the first four months of the financial year to the end of June 2020 reduced by 19.8% year-on-year, with improving collection rates in recent weeks being offset by a smaller loan book. Cash collections for the first four months of the year are 21.2% ahead of the Company's Covid-19 expectations, and in June were running at 91% of normal historic expectations when measured against expected terms. These collection rates within HCC are expected to approach pre-Covid levels by the end of August 2020. The percentage of collections completed remotely has risen from 41% as at the end of February 2020 to 80% year-to-date.

As is widely recognised, and the impact of Covid-19 aside, the HCC sector faces a number of headwinds and that trend is expected to continue. Morses Club had 184,000 HCC customers at the end of June 2020, a reduction of 16.4% compared to the end of FY20 and around 18.1% lower than the corresponding period last year. Gross receivables at the end of June 2020 were 22.7% lower than the end of FY20 and 19.3% lower than June 2019.

The Group's diversification and strategy of growth within its Digital division, Shelby Finance, continues to progress, and we are pleased to report that the performance of the Digital division has been strong, with an increase in customer demand for 6-month and 9-month products. Balances not in arrears within the digital portfolio have increased by 6.9% since February 2020. Collections are currently 20% higher than in the Company's Covid-19 plan.

Balance sheet strength and liquidity position

Having secured an extension of its revolving credit facility until the end of November 2021, Morses Club remains in a strong financial position. The Company has remained focussed on collections and has limited discretionary expenditure, while reduced lending levels have supported the Group's cash flow. The Company's borrowing has reduced to £12.0 million compared to Morses Club's Covid-19 budget of £18.5 million and £23.0 million as at the same date last year. This puts the Company in a strong position to take advantage of any increase in market demand as a result of the current economic outlook and the likelihood that it will result in an increase in the size of the non-standard finance market.

The audit process for the Company's FY20 results is not yet completed as the results will include the impact of Covid-19 on the impairment of the closing loan book as at 29 February 2020. The Company can confirm that it has traded profitably in the first four months of the current financial year.

Paul Smith, CEO of Morses Club commented,

"We have worked hard to protect our businesses and our customers, leveraging the strong digital infrastructure we have at our disposal to continue to support our customers. As a result of this, the Group has traded profitably during the first four months of the financial year and we remain in a robust financial position. I thank all of our agents and managers for their hard work in maintaining their customer relationships during this exceptionally difficult period.

"During this period, we have made structural changes to the business and accelerated the Group's digitalisation strategy, the importance of which has become even more pronounced since the lockdown in March. In this regard, it has been pleasing to see an increase in demand for our digital products as the division comprises an ever more important part of the Group.

"We are encouraged by the improvement in credit issued and collections in HCC following the relaxation of the Government's Covid-19 restrictions over recent weeks and, in a sign of the improving trading environment, we are also pleased to see some customers who requested payment holidays now starting to make repayments once again."

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Notes to Editors

About Morses Club

Morses Club is an established provider of non-standard financial services in the UK. The Group consists of Morses Club, the UK's second largest home collected credit ("HCC") provider, and Shelby Finance Limited, Morses Club's digital division, which operates under two online brands, Dot Dot Loans, an online lending provider, and U Account, which offers online e-money current accounts. The Group's growing digital capabilities and scalable, highly invested IT platform has enabled Morses Club to deliver an increasingly broad range of financial products and services to the non-standard credit market.

UK HCC is considered to be a specialised segment of the broader UK non-standard credit market. UK HCC loans are typically small, unsecured cash loans delivered directly to customers' homes. Repayments are collected in person during weekly follow-up visits to customers' homes. UK HCC is considered to be stable and well-established, with approximately 1.6 million1 people using the services of UK HCC lenders.

Morses Club's HCC division is the second largest UK Home Collected Credit (HCC) lender with 224,000 customers throughout the UK. The majority of the Company's customers are repeat borrowers and the HCC division enjoys consistently high customer satisfaction scores of 97%2. In 2016, the Morses Club Card, a cashless lending product, was introduced and in 2019 the Company introduced an online customer portal for its HCC customers, which now has over 109,000 registered customers.

The Group's growing digital division, Shelby Finance, operates under two online brands. Dot Dot Loans provides online instalment loans of up to 48 months to 37,000 active customers. U Account is a leading digital current account provider offering an alternative to traditional banking by providing a fully functional agency banking service. U Account currently has c. 18,000 customers.

Morses Club listed on AIM in May 2016.

About the UK non-standard credit market

The UK non-standard credit market, of which UK HCC is a subset, consists of both secured and unsecured lending and is estimated to comprise around 10 million consumers3 and total loan receivables of £10.7bn4.

Non-standard credit is the provision of secured and unsecured credit to consumers other than through mainstream lenders. Lenders providing non-standard credit principally lend on an unsecured basis and the market is characterised by high frequency borrowing. Approximately 2 million people move annually between standard and non-standard markets4.

Since February 2014, unsecured personal lending has grown from £161 billion to £216 billion in February 20195.

1 High Cost Credit Review ANNEX 1 - July 20172 Independent Customer Satisfaction Survey conducted by Mustard3 FCA High Cost Credit Review Technical Annex 1: CRA data analysis of UK personal debt - July 20174 Apex Insight - Non-Prime Consumer Credit: UK Market Insight Report - September 20195 Table A5.2, Bank of England Money and Credit Bank stats February 2019