NSF.L Regulatory News (NSF)

PRESS RELEASE

Non-Standard Finance plc

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

Audited full year results to 31 December 2022

28 April 2023

· The Group continued to face significant regulatory and financial challenges in 2022, many of which have continued into 2023.

· The Net loan book of the Group reduced from £208m to £177m as a result of the administration of the home credit division and continued collect out of guarantor loans. Despite the ongoing uncertain macroeconomic and regulatory environment, the net loan book of the branch-based lending division increased by 6% from £157.2m to £167.0m.

· Normalised and reported revenue was down 25% to £98.3m (2021: £131.4m)

· Normalised loss before tax of £24.6m (2021: normalised loss before tax of £16.7m)

· Total exceptional charges of £31.8m (2021: £12.9m) meant that the reported loss before tax was £56.4m (2021: reported loss of £29.6m).

· Following the impact of the Covid-19 pandemic and regulatory issues, the home credit division went into administration on 15 March 2022.

· Regulatory reviews resulted in the guarantor loans division being placed into managed run-off in 2021.

· The launch of a scheme of arrangement (the "Scheme") in March 2023 is designed to reach a resolution with regard to the payment of redress to customers with valid claims both in respect of the guarantor loans division and the branch-based lending division (although there were no systemic issues with branch-based lending, claims in relation to the division have been included in the Scheme to ensure an equitable treatment of customers).

· Should the Scheme be sanctioned, the Group's intention is to proceed with its planned restructuring and recapitalisation (the "Proposed Recapitalisation") to fund the partial payment of redress claims, restore the Group's balance sheet and return the branch-based business to profitable trading.

· The Proposed Recapitalisation has the support in principle of NSF's largest shareholder and the Group's secured lenders, subject to agreement on the terms and other conditions described below and, in the case of NSF's largest shareholder, further diligence on and its assessment of the Group's revised business plan and financial projections. Completion of the Proposed Recapitalisation is subject to the agreement of terms between lenders and the Group's largest shareholder, and a number of conditions, including Court sanction of the Scheme, shareholder approval, the take-up of shares under the equity raise and execution of definitive documents. Assuming all the above outlined conditions are satisfied ("the Conditions") NSF expects the Proposed Recapitalisation to complete at the end of Q2 2023 or the start of Q3 2023.

· The Group has also agreed with its secured lenders to implement an alternative transaction (the "Alternative Transaction") if the Scheme is sanctioned but the Conditions to the Proposed Recapitalisation are not satisfied and / or the Proposed Recapitalisation fails, which would preserve the Group's branch-based lending business as a going concern but which, if implemented, would result in no recovery for the Group's current shareholders,

· Should the Scheme fail, there would be a material risk of the entire Group becoming insolvent.

· Cash balances decreased to £32.8 million (2021: £114.6 million) predominantly because of the repayment of the Group's revolving credit facility and a repayment towards the debt facility.

· Whilst the Group's loan to value ratio was higher than the level permitted under its loan to value covenant at each quarter end in 2022, it remains a going concern and has received temporary waivers to enable it to pursue a Scheme and raise additional capital which would reduce loan to value levels, fund customer redress, and strengthen the Group's balance sheet.

· Current trading - Since the start of 2023 we have seen growth in loan issuance in branch-based lending and better than expected collection performance, and are consequently trading ahead of budget.

Financial summary

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

2 Basic and diluted (loss) earnings per share is calculated as normalised loss after tax of £(24.6)m (2021: £(18.6)m) divided by the weighted average number of shares in issue of 312,437,422 (2021: 312,437,422).

3 Adverse movement.

Jono Gillespie, Group Chief Executive Officer, said

"Despite facing ongoing regulatory and liquidity challenges throughout the year, the underlying performance of Everyday Lending Ltd (trading as Everyday Loans) was pleasing as it sought to rebuild the loan book.

The Group is working hard to resolve the regulatory challenges faced with the convening hearing for the Group's Scheme of Arrangement taking place later today.

Having worked extensively with the Scheme Customer Committee, our lenders and key shareholder to reach a sustainable solution for the business and partial payment of customer redress, we are hopeful that the Scheme will progress and be sanctioned.

We are hopeful that the Scheme process will conclude towards the end of June 2023 and that this will then enable us to proceed with the recapitalisation of the business, through either the Proposed Recapitalisation or Alternative Transaction as previously announced.

If successful, the Proposed Recapitalisation or Alternative Transaction fund the partial payment of redress claims and underpin the future growth of the Group's branch-based lending business - Everyday Loans.

The Group's loan to value ratio was higher than the levels permitted at each quarter end in 2022, but we have continued to trade throughout with the support of our secured lenders, who have granted fortnightly waivers (currently until 17 May 2023) pending a conclusion to the Scheme process and the recapitalisation (or alternative lender-led transaction).

If the Scheme is not sanctioned by the Court, or the Scheme is sanctioned but the Proposed Recapitalisation and the Alternative Transaction fail, then the Group would remain insolvent and the most likely outcome would be a Group-wide insolvency (most likely administration), resulting in no return for the current shareholders, a significantly reduced return for secured lenders and minimal or no cash recovery for customers with valid redress claims. In the event that the Scheme is sanctioned, and the Alternative Transaction takes place (due to the failure of the Proposed Recapitalisation), there would be no recovery for the Company's shareholders.

It is clear that consumers face a difficult period as the cost of living crisis continues. However, experience suggests this could increase the demand for credit and present a significant opportunity for companies in a non-standard credit sector that fulfils a vital role by supporting millions of consumers who have limited savings. Previous recessions have shown that prime lenders tend to be particularly risk averse, tightening their lending criteria and leaving a large and expanding pool of higher quality applicants seeking access to regulated and responsible credit markets. Assuming we are able to raise capital as planned, the Group will be well placed to serve any such increase in demand."

Context for results

On 15 March, 2022 it was announced that the Group's home credit division had gone into administration and so the 2022 results include the home credit division up to 14 March 2022, after which the division was derecognised from the Group in line with IFRS accounting standards. The results therefore include exceptional items totalling £19.4m in relation to the derecognition and impairments associated with the home credit division. Exceptional items also include £12.4m in relation to the Scheme being pursued by the Group with further detail provided below (refer note 6 to the financial statements for further information). 

Normalised divisional results

The table below provides an analysis of the 'normalised' results for the Group for the 12-month period to 31 December 2022. Management believes that by removing the impact of exceptional items, the normalised results provide a clearer view of the underlying performance of the Group

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

2 Home credit division placed into administration on 15 March 2022 and therefore derecognised from the Group.

Online presentation on 28 April 2023

There will be webcast presentation of the results at 09:30 on 28 April 2023 given by Jono Gillespie, Group Chief Executive. To access the webcast, please register here or via the Group's website or dial in using the number below. A copy of the slides presented will also be available on the Group's website, http://www.nsfgroupplc.com later today.

For more information:

Group Chief Executive's Report

Summary

The past year presented several challenges for the Group as we sought to resolve a number of outstanding regulatory issues, dealt with the impact of rising inflation and an uncertain UK economic environment on our operations whilst also managing the impact on our balance sheet which remains in a net liabilities position.

Following the reviews which started with the FCA's multi-firm review into the guarantor loan business in March 2020, it also became clear that Loans at Home, the Group's home credit business (trading out of the legal entity S.D.Taylor Limited), was no longer viable and so it went into administration on 15 March 2022. Whilst deeply saddened and disappointed with this outcome, it was clear that administration was the only option available to preserve value for creditors. As the operations and activities of Loans at Home were separate from the rest of the Group, the Board of NSF confirms that, having received certain waivers from the Group's secured lenders, the administration of Loans at Home has had minimal impact on the rest of the Group's business.

In addition, the Group has been in the process of developing an appropriate redress scheme for Guarantor Lending customers since August 2020 and more latterly development of the Scheme since June 2022 to address redress claims in relation to its historical unaffordable lending.  As noted in the 2022 half year announcement, although the independent review of the branch-based lending division carried out in 2021 identified no systemic issues requiring redress, as this division and the guarantor loans division (now in collect-out) trade out of the same legal entity (Everyday Lending Limited), the Scheme encompasses potential claims from both divisions in order to ensure equitable treatment of customers. The practice statement letter for the scheme was published on 17 March 2023 and the Board considers that there is a reasonable prospect of the Scheme being successfully sanctioned by the Court.

Due to the developments described above, the Group is seeking to progress the Proposed Recapitalisation or Alternative Transaction in readiness, should the Court sanction the Scheme. As the Group's loan to value ratio during the year was higher than the level allowed under its loan to value covenant, the Group has received the requisite waivers and extensions to avoid a covenant breach so that it can progress with the Scheme and, if successfully sanctioned by the Court, the Proposed Recapitalisation. The Group's secured lenders continue to provide temporary waivers and have expressed their support for the business. As such, they have agreed to enter into the Alternative Transaction in the event that the Scheme is successfully sanctioned, but that the Conditions, to the Proposed Recapitalisation are not satisfied, such that the branch-based lending business would be preserved as a going concern, but which, if implemented, would result in no recovery for the Group's current shareholders and the Company (ultimate parent company) may enter into an insolvency process. Both the Proposed Recapitalisation and the Alternative Transaction include both significant debt write offs and extensions to the term of the Group's existing debt facilities to support the business going forward.

The Group's strong market position, in combination with a number of both external and internal profit drivers, means that the Board is confident that, subject to the timely completion of the Proposed Recapitalisation or Alternative Transaction (which themselves are subject to the sanctioning of the Scheme and the Conditions), the prospects for branch-based lending remain positive, driven by a planned recovery of ground lost over the past two years that should result in a marked improvement in the Group's financial performance. Further details regarding our future plans can be found in the 2022 financial review below.

Whilst there remain a number of material uncertainties which may cast significant doubt on the ability of both the Group and Company to continue as a going concern and remain viable, it remains the Directors' reasonable expectation that, if the Scheme and the subsequent Proposed Recapitalisation go ahead, the Group and Company will have raised sufficient capital in the timeframe required and will continue to operate and meet their respective liabilities as they fall due for the next 12 months and beyond. The Board has therefore concluded that, whilst a material uncertainty remains, the business is viable and remains a going concern.

If successful, the Proposed Recapitalisation or Alternative Transaction will reduce high levels of gearing, fund the partial payment of redress claims and underpin the future growth of the Group's branch-based lending business. In addition, whilst there would be no need for access to further debt funding beyond the extension of the term of the Group's existing debt facilities in the short term, given the significant cash balance that would then be at the Group's disposal, it is hoped that in due course, the Group would be better placed to broaden its sources of debt funding.

Without the successful completion of the Scheme and the Proposed Recapitalisation (or the Alternative Transaction in the event the Conditions, to the Proposed Recapitalisation are not satisfied, which, if implemented, would result in no recovery for the Group's current shareholders and the Company (ultimate parent company) may enter into an insolvency process), the balance sheet remains deeply insolvent. In the event that the Scheme is not sanctioned by the court, or in the event that both the Proposed Recapitalisation and the Alternative Transaction fail, there would be a very significant likelihood of a Group-wide insolvency (most likely administration), resulting in no return for current shareholders and a significantly reduced return for secured lenders. However, the Directors continue to believe there is a reasonable prospect of resolving this position through the Scheme, which was recently launched on 17 March 2023, and the Proposed Recapitalisation with the Group's largest shareholder and secured lender support, which remains subject to the Conditions, or, in case of the Alternative Transaction, the support of the secured lenders (noting, as above, that the Alternative Transaction may result the Company (ultimate parent company) entering into an insolvency process).

2022 full year results

Since emerging from the effects of the pandemic, a new set of economic challenges has presented itself, particularly the inflationary environment causing a cost-of-living crisis. However, these circumstances have proven to be supportive for the need for non-standard finance and created a liquidity gap for those not served by traditional lenders. 

The Group reported an increased normalised loss before tax of £24.6m (2021: normalised loss before tax of £16.7m). Once again, the full year results were impacted by a number of non-operating items as well as the home credit division being placed into administration and derecognised from the Group on 15 March 2022. The guarantor loans division collect out continues to progress well whilst the branch-based lending business continues to deliver good financial performance driven by higher revenues and loan book growth. Group revenues decreased 25% from £131.4m to £98.3m due to the aforementioned derecognition of the home credit division in Q1 and collect out of guarantor loans, however this was partly offset by the higher revenue at branch-based lending which increased 6% to £84.5m (2021: £79.9m) as a result of higher revenue yields, with yields having reduced during 2020 and 2021 following an increase in the number of customers utilising forbearance measures during the pandemic. Impairments at branch-based lending were higher in the current period at £26.7m (2021: £19.0m) due to 2021 benefitting from lower lending volumes, however despite this, collections performance remained strong throughout 2022. Administrative expenses for the Group were lower by 31% at £65.9m (2021: £96.0m) as 2021 included a full year of the home credit division. Excluding this, the Group saw savings in expenses at its guarantor loans division with a decrease of 32% to £7.3m (2021: £10.7m) as the division continues to wind down and savings in staff costs, professional fees and complaints costs are realised. The branch-based lending division however saw increased spend on employee costs following investment in expanding the operational headcount to drive the growth in new lending resulting in administrative expenses increasing by 9%. The Group also remains in a net liability position, due to the net losses over the past few years, the derecognition of the home credit division and the continued non-recognition of deferred tax assets. The Group is progressing with plans to resolve its regulatory issues via the Scheme and support from the Group's secured lenders and largest shareholder (subject to the Conditions), means the Board continue to believe that there is a reasonable prospect of resolving the current position subject to the implementation of the Scheme and the Proposed Recapitalisation (or the Alternative Transaction).

A summary of the other key performance indicators for each of our businesses for 2022 is shown below:

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

2 The home credit division went into administration on 15 March 2022.

3 The Guarantor Loans Division was placed into managed run-off on 30 June 2021 and did not issue any new loans in 2021 and 2022.

The reduction in the net loan book from the collect out of the guarantor loans division and administration and subsequent derecognition of the home credit division was the main driver behind the 25% reduction in normalised and reported revenue to £98.3m (2021: £131.4m). Higher interest rates in 2022 also contributed to 12% higher finance costs in the year. This meant that the Group produced a normalised loss per share of 7.87p (2021: normalised loss per share of 5.36p).

The Group's 2022 and 2021 reported, or statutory results were both affected by exceptional items, a summary of which is shown in the table below. The 2022 results saw greater impact from the derecognition and impairments related to the home credit division and the provision for customer redress and scheme costs. 

The Group reported a statutory loss before interest and tax of £27.3m (2021: loss before interest and tax of £3.6m) and a statutory loss before tax of £56.4m (2021: £29.6m).

A summary of the performance of each division in 2022 is given below with further details in the 2022 financial review.

Branch-based lending

While the impact of the pandemic on lending volumes meant that the net loan book declined in both 2020 and 2021, the positive recovery in lending volumes has resulted in the net loan book returning to growth in 2022 and it ended the year up 6% at £167.0m (2021: £157.2m). We continually look to enhance our lending processes, including the assessment of creditworthiness and the refinement of credit scorecards and strategies. Whilst acutely aware of the cost-of-living crisis, the collections performance of the business remains ahead of expectation with customer payment levels particularly strong, whilst early settlements continue below pre-pandemic levels. Delinquency performance has returned to historically normal levels. The nature of IFRS 9 accounting meant that lower lending volume in the prior years also helped to reduce impairment charges however, as lending volumes have continued to recover throughout 2022, impairment rates are gradually seeing a corresponding reversal of the recent low levels, though remain below expectations. The result of this was the division reported a normalised operating profit of £7.2m (2021: £13.7m). The impact of higher finance costs and exceptional costs relating to the Scheme meant the division reported a statutory loss before tax of £20.1m (2021: loss before tax of £0.8m).

The Board continues to believe that the branch-based lending division has potential for future growth once the Group has resolved its outstanding regulatory issues and completed the planned Proposed Recapitalisation or Alternative Transaction (noting, as above, that the Alternative Transaction may result in the Company (ultimate parent company) entering into an insolvency process).

Although the independent review of the Group's branch-based lending business carried out in 2021 identified no systemic issues requiring redress, since this business and the guarantor loans division trade out of the same legal entity (ELL), the Scheme will encompass potential claims from both businesses to ensure equitable treatment of customers. As a result, provisioning for the scheme redress and operational costs have now been included within the branch-based lending reporting.

As outlined below, due to the need to launch the Scheme which encompasses both branch-based lending and guarantor loan customers, to ensure equitable treatment of customers within the same legal entity, an added exceptional charge for Scheme costs and customer redress of £12.4m has been recorded in the 2022 accounts.

Home credit

The Group's home credit division, which traded as Loans at Home ('LAH') out of S.D.Taylor Limited, was placed into administration on 15 March 2022. In the first two and a half months of the year the division performed ahead of budget although it delivered a negative contribution with a normalised operating loss of £0.5m (2021: normalised operating loss £2.2m).

In the current period, exceptional items of £5.6m in relation to losses on derecognition of the home credit division were recognised as well as an additional £13.7m (2021: £nil) of impairments of related receivable balances held with the division in order to reflect the fact that these may not be recovered directly by the Group. Whilst the Group will not recover the balances held directly with LAH following the conclusion of the administration, as LAH remains a guarantor of the Group's financing facilities, proceeds from the administration will be paid directly to its secured lenders, thereby reducing the external debt balance held by the Group at that point. During H2 2022 £10m of such proceeds were paid from the LAH administration and a further £3m in February 2023.

Guarantor loans

The Group's guarantor loans division was placed into a managed run-off on 30 June 2021. Since then, the Group has continued to collect out its loan book balance with the result that the division delivered a positive contribution to normalised operating profits in the year.

The loan book, net of provisions, has now fallen to £10.1 million (2021: £26.8m) and the Group continues to focus on collecting out the remaining book. The ELL Directors, supported by the Group Directors, decided to pursue the Scheme to address the Group's redress liabilities. As noted in the 2022 Half Year announcement, although the independent review of the branch based lending division carried out in 2021 identified no systemic issues requiring redress, as this division and the guarantor loans division (now in collect-out) trade out of the same legal entity (ELL), the Scheme encompasses potential claims from both divisions in order to ensure equitable treatment of customers.

The FCA's current views in relation to the Scheme are set out in its letter of 25 April 2023. The FCA has stated that it does not, at this stage, anticipate that it will oppose the Scheme from being sanctioned should the requisite majorities of Scheme Creditors vote in favour of the Scheme. The FCA has confirmed that it does, however, fully reserve its position in respect of the Scheme and its right to object to the Scheme in due course, if the FCA considers it appropriate to do so

Liquidity, funding and going concern

As at 31 December 2022 the Group had cash at the bank of £32.8m (2021: £114.6m) and gross borrowings of £255.0m (2021: £330.0m). As at 31 March 2023, cash balances were £15.8m and gross borrowings reduced to £252m.

The Group's active loan facility comprises a £285m term loan facility that matures in August 2023 ('Existing Facilities'), which at the year end had been partially repaid, with £255m remaining drawn down at 31 December 2022. Having received appropriate waivers from its secured lenders ensuring that the administration of Loans at Home would have minimal impact on the rest of the Group, the Board and its advisers have discussed and reached agreement on the extension of the existing facilities and the terms under which interest is paid, dependent upon the successful sanctioning of the Scheme.

The Group's multi-year £200m securitisation facility, which was undrawn at the start of the year, was closed during the course of the year as it was unlikely to have been available for use, owing to the associated covenant requirements embedded in the facility agreement.

As noted in the 2022 Half Year Results, the Group's subsidiary S.D. Taylor Limited (Loans at Home) was placed into administration on 15 March 2022. As the operations and activities of Loans at Home were separate from the rest of the Group, having received certain waivers from the Group's secured lenders, the administration of Loans at Home has had minimal impact on the existing funding arrangements of the Group.

For the quarters ended 31 March 2022, 30 June 2022, 30 September 2022 and 31 December 2022, the Group's loan to value (LTV) ratio was higher than the level permitted under its LTV covenant. The Group has agreed extensions with its secured lenders such that the LTV covenant will not be formally tested, and no covenant breach or event of default will arise, until the Group provides its compliance certificates for the aforementioned quarter dates. The date on which the Group is required to supply these compliance certificates has been extended until 17 May 2023, with a mechanism for this date to be extended further with lender support.

The Group is now pursuing the Scheme in order to provide certainty as to the amount that will be paid to customers with valid redress claims, which, as explained above, is one of the Conditions to the Group's largest shareholder and secured lenders being willing to participate in the Proposed Recapitalisation (or the Alternative Transaction). Although the independent review of the Group's branch-based lending division carried out in 2021 identified no systemic issues requiring redress, as this division and the guarantor loans division (now in collect-out) trade out of the same legal entity (Everyday Lending Limited), the Scheme encompasses potential claims from both divisions in order to ensure equitable treatment of customers. On 17 March 2023, the Group sent out a practice statement letter to its creditors and a first court hearing is scheduled for 28 April 2023. 

The Group and Company can reasonably expect to raise sufficient new capital to enable them to continue to operate and meet their respective liabilities as they fall due for the next 12 months. The Board has therefore adopted the going concern basis of accounting. The Board's position is, in part, informed by the fact that the Group's largest shareholder and secured lenders remain supportive of the Proposed Recapitalisation subject to the Conditions, while the Group also has contractual commitments from its secured lenders to support the Alternative Transaction (noting, as above, that the Alternative Transaction may result in the Company (ultimate parent company)  entering into an insolvency process and, that although the Group has contractual commitments from its secured lenders to support the Alternative Transaction, there is a risk that it will not be possible to implement either the Proposed Recapitalisation nor the Alternative Transaction. In these circumstances, if neither the Proposed Recapitalisation or the Alternative Transaction has been implemented by 31 December 2023, it will not be possible to pay the Scheme fund into a nominated trust account and the Scheme will fail).

In adopting the going concern assumption in preparing the financial statements, the Directors have considered the activities of its principal subsidiaries, as well as the Group's principal risks and uncertainties as set out in the Governance Report and Viability Statement within the Group's 2022 Annual Report.

The assumption of support from the Group's largest shareholder and secured lenders for the Proposed Recapitalisation and the extension of existing financing facilities and the satisfactory conclusion of regulatory and redress matters within or close to the assumptions made in the Group's base case, each as outlined above and in the Conditions, form a significant judgement of the Directors in the context of approving the Group's going concern status (see note 1 to the financial statements).

The Board will continue to monitor the Company and the Group's financial position (including access to liquidity and balance sheet solvency) carefully as a better understanding of the impact of these various factors are developed. The Board recognises the importance of the success of the Scheme and the Proposed Recapitalisation to mitigate the uncertainties noted above and to support the future growth prospects of the Group. If the Scheme was not to be sanctioned or if the Group was otherwise unable to implement the Proposed Recapitalisation (or the Alternative Transaction in the event the Conditions, to the Proposed Recapitalisation are not satisfied) following the successful sanctioning of the Scheme, there would be a material risk of the Group entering insolvency.

Regulation

Concluding all the Group's outstanding regulatory issues has been a key priority over the past 24 months. As previously outlined, whilst the conclusion from the two independent reviews carried out at the request of the FCA was that there was no requirement for systemic customer redress in branch-based lending, the Directors of the Group's home credit business, Loans at Home (trading out of the legal entity S.D. Taylor Limited), reluctantly concluded that it was no longer viable and so the business was put into administration on 15 March 2022. As the operations and activities of Loans at Home are separate from the rest of the Group and following the receipt of certain waivers from the Group's secured lenders. The administration of Loans at Home has had minimal impact on the rest of the Group's business. As a result, the Group is fully committed to the growth of its branch-based lending business.

Scheme

The Group has decided to pursue the Scheme and, as noted in the half year 2022 announcement, although the independent review of the Group-based lending division carried out in 2021 identified no systemic issues requiring redress, as this division and the guarantor loans division (now in collect-out) trade out of the same legal entity (ELL), the Scheme encompasses potential claims from both divisions in order to ensure equitable treatment of customers.

As set out in the Practice Statement Letter as published on 17 March 2023, the Scheme will compromise:

· subject to certain limited exceptions, the redress claims (i.e. claims in relation to any activity which occurred on or before 31 March 2021 in connection with a loan provided by Everyday Loans, George Banco or Trust Two; and

· case fees owed to the Financial Ombudsman Service arising from complaints referred to the FOS on or after 17 March 2023 in relation to any activity which occurred on or before 31 March 2021 in connection with a loan provided by Everyday Loans, George Banco or Trust Two (the "FOS Fees").

Under the current expected timetable, the Court convening hearing will be held on 28 April 2023 and the Court sanction hearing on 22 June 2023, with the creditors' meeting where the scheme creditors will vote on the Scheme being held virtually between these dates.

The FCA's current views in relation to the Scheme are set out in its letter of 25 April 2023. The FCA has stated that it does not, at this stage, anticipate that it will oppose the Scheme from being sanctioned should the requisite majorities of Scheme Creditors vote in favour of the Scheme. The FCA has confirmed that it does, however, fully reserve its position in respect of the Scheme and its right to object to the Scheme in due course, if the FCA considers it appropriate to do so.

The Proposed Recapitalisation and Alternative Transaction

The Scheme is a key component of the Proposed Recapitalisation, which will ensure the future of the Group and the Everyday Loans business. The Group's intention is for the Proposed Recapitalisation to be implemented shortly following Court sanction of the Scheme.

The Proposed Recapitalisation will involve:

· NSF raising gross proceeds of approximately £95 million through a public equity raise, part of which will be applied towards the cost of the equity raise and part of which will be used to fund the Scheme Fund and cover the costs of the Scheme, with the remainder being invested in the Everyday Loans business;

· the Group's secured lenders releasing a portion of their secured debt in exchange for shares in NSF;

· the extension of the maturity date under the Group's secured debt facilities from August 2023 to June 2027; and

· the Company and its advisers exploring the cancellation of NSF's listing on the Main Market of the London Stock Exchange plc and its admission of its enlarged share capital to trading on AIM.

The Proposed Recapitalisation has the support in principle of NSF's largest shareholder and the Group's secured lenders, subject to the Conditions.

NSF expects the equity raise to include both a placing with new and existing institutional investors as well as an open offer component, whereby existing shareholders will be provided with an opportunity to participate in the capital raise. The structure, detailed terms and viability of the equity raise are expected to be confirmed in Q2 2023 following consultation with major shareholders and potential investors.

Although the Proposed Recapitalisation will ensure the future of the Group and the Everyday Loans business, it will materially dilute the interests of the Company's existing equity holders, most likely to negligible value, unless they choose to participate in the equity raise.

Completion of the Proposed Recapitalisation is subject to the Conditions. Assuming all the Conditions are satisfied, NSF expects the Proposed Recapitalisation to complete at the end of Q2 2023 or the start of Q3 2023.

The Group has also agreed with its secured lenders to implement the Alternative Transaction if the Scheme is sanctioned but the Conditions to the Proposed Recapitalisation are not satisfied. The Alternative Transaction would involve a transfer of the ownership of the Group's business to the secured lenders (pursuant to a share pledge enforcement) in exchange for the release of a portion of their secured debt and the provision of a new lending facility. Part of the proceeds from this new lending facility would be used to fund the Scheme Fund and cover the costs of this Scheme. Under the Alternative Transaction, there would be no recovery for the Company's shareholders and the Company (ultimate parent company) may enter into an insolvency process.

However, if the Scheme is not sanctioned by the Court, or the Scheme is sanctioned but the Proposed Recapitalisation and the Alternative Transaction both fail, then the Group would remain insolvent and the most likely outcome would be a Group-wide insolvency (most likely administration), resulting in no return for the Company's shareholders, a significantly reduced return for secured lenders and minimal or no cash recovery for customers with valid redress claims. In the event that the Scheme is sanctioned and the Alternative Transaction takes place (due to the failure of the Proposed Recapitalisation), there would be no recovery for the Company's shareholders.

Complaint handling

Whilst the overall number of complaints received by the Group reduced in 2022, this was largely due to the closure of Loans at Home which had, until that point, been on an upwards trend of complaint volumes. The remaining two divisions saw contrasting trends where branch-based lending increased by 14% and guarantor loans fell by 23%. The majority of complaints came from three CMCs in branch-based lending, all of which sent more complaints than the previous year, and one CMC in guarantor loans. FOS decisions fell significantly across these two divisions after FOS aimed to clear their outstanding backlog in the early part of the year. 

Consumer Duty

One of the most significant regulatory initiatives in recent years was the introduction of the new consumer duty which aims to raise the standard for how firms should be treating consumers. The new principle, rules and guidance were issued in July 2022 with an expectation to implement within 12 months. Following on from the issued guidance, the business has created a gap analysis, a detailed action plan and an implementation plan to fulfil the requirements ahead of the July 2023 deadline. ELL Directors sit on a steering group to oversee the project, whilst an experienced project manager has been employed to drive the project forward and report back to the steering group. Six separate work streams consisting of senior management have been, and are currently working on, ensuring all actions are satisfactorily completed within the expected timeframes. Much of the work done over the past few years has put the branch-based lending in an excellent position ahead of the new regulations. However, the project remains a priority and the business is confident that all elements of the consumer duty will be met.

Further details on the consumer duty and the other pertinent regulatory developments during 2022 and into 2023 are available on the Group's website: www.nsfgroupplc.com.

Current trading and outlook, no final dividend

Whilst the fallout from the pandemic, Brexit and more recently the Ukrainian crisis means that macroeconomic uncertainty remains high, recent trading in branch-based lending and the collect out of guarantor loans has been slightly ahead of management's expectations. Lending volumes in the first quarter of 2023 were a little better than expected and collections and impairment performance have been much better with the result that the Group's overall early performance for the year to date has been promising.

Given the financial position of the Company and the fact that as at 31 December 2022 the Company did not have any distributable reserves, no final dividend has been declared. Assuming the Court sanctioning of the Scheme and the subsequent Proposed Recapitalisation is successful, the Company intends to create additional distributable reserves so that, when and if appropriate, the Board can consider the payment of cash dividends to shareholders at some point in the future.

The outlook for the Group is such that, without the successful completion of the Scheme and the Proposed Recapitalisation (or the Alternative Transaction in the event the Conditions to the Proposed Recapitalisation) are not satisfied), the balance sheet remains deeply insolvent. If the Scheme is not sanctioned by the Court, or the Scheme is sanctioned but the Proposed Recapitalisation and the Alternative Transaction both fail, then the Group would remain insolvent and the most likely outcome would be a Group-wide insolvency (most likely administration), resulting in no return for the current shareholders, a significantly reduced return for secured lenders and minimal or no cash recovery for customers with valid redress claims. In the event that the Scheme is sanctioned and the Alternative Transaction takes place (due to the failure of the Proposed Recapitalisation), there would be no recovery for the Company's shareholders and the Company (ultimate parent company) may enter into an insolvency process.

The Directors continue to believe there is a reasonable prospect of resolving this position through the Scheme and the Proposed Recapitalisation with the support in principle of the Group's largest shareholder and secured lenders, which support remains subject to the Conditions, or, in case of the Alternative Transaction, the support of the secured lenders.

Assuming the  Proposed Recapitalisation or Alternative Transaction is completed as planned, our focus in 2023 is to re-energise the business following the enormous structural changes over the past few years and the regulatory changes to the industry more generally. As outlined in the 2022 financial review, this recovery will be dependent on us restoring the momentum in our branch-based lending business through a combination of investment in staffing, technology and process-driven productivity improvements and a steady recovery in demand for non-standard consumer credit.

Given the Group's pre-eminent position in branch-based lending, the Board continues to believe that, subject to funding, the current business environment represents a significant opportunity for NSF. In the past, when UK consumers have faced periods of macroeconomic difficulty and stress, the non-standard consumer lending sector saw a marked increase in demand as the number of consumers that were unable to access mainstream credit increased. At the same time, we have seen a significant reduction in the supply of regulated non-standard consumer credit that may provide an additional opportunity for the Group to gain market share as we continue to serve the very large numbers of UK consumers that are unable or unwilling to access regulated mainstream credit.

Annual General Meeting

The AGM of the Company is scheduled to take place on 23 June 2023. A separate notice of meeting will be being sent to shareholders nearer the time of the meeting and will be available from the Group's website: www.nsfgroupplc.com.

Jono Gillespie

Group Chief Executive

28 April 2023

2022 Financial Review

Group results

Since emerging from the effects of the pandemic, a new set of economic challenges has presented itself, particularly the inflationary environment causing a cost-of-living crisis. However, these circumstances have proven to be supportive for the need for non-standard finance and created a liquidity gap for those not served by traditional lenders. 

The Group reported an increased normalised loss before tax of £24.6m (2021: normalised loss before tax of £16.7m). Once again the full year results were impacted by a number of non-operating items as well as the home credit division being placed into administration and derecognised from the Group on 15 March 2022. The guarantor loans division collect out continues to progress well whilst the branch-based lending business continues to deliver good financial performance driven by higher revenues and loan book growth. Group revenues decreased 25% from £131.4m to £98.3m due to the aforementioned derecognition of the home credit division in Q1 and collect out of guarantor loans, however this was partly offset by the higher revenue at branch-based lending which increased 6% to £84.5m (2021: £79.9m) as a result of higher revenue yields, with yields having reduced during 2020 and 2021 following an increase in the number of customers utilising forbearance measures during the pandemic. Impairments at branch-based lending were higher in the current period at £26.7m (2021: £19.0m) due to 2021 benefitting from lower lending volumes, however despite this, collections performance remained strong throughout 2022. Administrative expenses for the Group were lower by 31% at £65.9m (2021: £96.0m) as 2021 included a full year of the home credit division. Excluding this, the Group saw savings in expenses at its guarantor loans division with a decrease of 32% to £7.3m (2021: £10.7m) as the division continues to wind down and savings in staff costs, professional fees and complaints costs are realised. The branch-based lending division however saw increased spend on employee costs following investment in expanding the operational headcount to drive the growth in new lending resulting in administrative expenses increasing by 9%.

There were £31.8m of exceptional items (2021: £12.9m) comprised of £5.7m in relation to the derecognition of the home credit division following the business being placed into administration on 15 March 2022, a £13.7m charge in relation to impairment of intercompany receivable balances following the administration of the home credit division, and an additional £12.4m of costs and redress provisions in relation to the Scheme. 2021 exceptional costs comprised £2.2m of additional customer redress, £1.6m of advisory fees, £8.5m relating to the write-down of assets and the recognition of liabilities in the home credit division triggered by the business going into administration on 15 March 2022 and £0.6m of restructuring costs.

Cash balances decreased to £32.8m (2021: £114.6m) following the full repayment of the RCF and part repayments of the term loan made during the year. The high interest environment however adversely impacted net finance costs and the total charge in the period was £29.1m (2021: £26.0m).

The net effect was that the Group reported a statutory loss before tax of £56.4m (2021: loss of £29.6m) and with no tax charge/credits recognised in the year, the reported loss after tax was £56.4m (2021: loss of £29.7m). The resulting reported loss per share was 18.0p (2021: loss per share of 9.5p).

The Group also remains in a net liability position, due to the net losses over the past few years, the derecognition of the home credit division and the continued non-recognition of deferred tax assets. The Group is continuing is progressing with plans to resolve its regulatory issues via the Scheme and support in principle from the Group's secured lenders and largest shareholder means the Board continue to believe that the balance sheet situation will be remedied subject to a successful completion of the Scheme and Proposed Recapitalisation (or the Alternative Transaction in the event the Conditions, to the Proposed Recapitalisation are not satisfied) noting, as above, that the Alternative Transaction may result in the Company (ultimate parent company) entering into an insolvency process.

Normalised figures are before exceptional items.

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

Normalised divisional results

The table below provides an analysis of the 'normalised' results for the Group for the 12-month period to 31 December 2022. Management believes that by removing the impact of exceptional items, the normalised results provide a clearer view of the underlying performance of the Group

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

2 Home credit division placed into administration on 15 March 2022 and therefore derecognised from the Group.

Impairment provisioning - coverage ratios

Consistent with prior year, the below shows coverage ratios excluding adjustments for modification and derecognition gains and losses in order to allow more direct comparability with sector companies:

Coverage ratios at branch based lending improved whilst worsening at guarantor loans due to the reducing size of the loan book as the division remains in collect-out. The Group coverage ratio fell 6.4% as a result of the home credit division no longer being part of the Group.

Divisional review

Branch-based lending

Financial results

The business saw a 20% increase in the volume of qualifying 'applications to branch' ('ATBs') during 2022 versus the full year 2021. This drove an increase in the total number of loans booked, with new money lent to customers increasing 19% in comparison to 2021. While the impact of the pandemic on lending volumes meant that the net loan book declined in both 2020 and 2021, the positive recovery in lending volumes has resulted in the net loan book returning to growth in 2022 and it ended the year up 6% at £167.0m (2021: £157.2m). The number of active customers has seen a small increase to 66,500 at December 2022 (December 2021: 66,000).

We continually look to enhance our lending processes, including the assessment of creditworthiness and the refinement of credit scorecards and strategies. Whilst acutely aware of the cost-of-living crisis, the collections performance of the business remains ahead of expectation with customer payment levels particularly strong, whilst early settlements continue below pre-pandemic levels. Delinquency performance has returned to historically normal levels. The nature of IFRS 9 accounting meant that lower lending volume in the prior years also helped to reduce impairment charges however, as lending volumes have continued to recover throughout 2022, impairment rates are gradually seeing a corresponding reversal of the recent low levels, though remain below expectations. 

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

Revenues increased 6% to £84.5m (2021: £79.9m) despite lower average receivables due to a higher revenue yield. Yields reduced during 2020 and 2021 following an increase in the number of customers utilising forbearance measures during the pandemic. Modification losses were lower at £0.3m (2021: £1.4m) with the prior year seeing an increased level of deferred and rescheduled loans as the business utilised forbearance measures as a result of the pandemic. Impairments were higher in the current period at £26.7m (2021: £19.0m) with corresponding increases in the impairment ratios, due to 2021 benefitting from lower lending volumes (whereby the nature of IFRS 9 means lower lending helps reduce impairment charges). Despite the higher impairment costs, collections performance remained strong throughout 2022, supported by continued tight underwriting with a rigorous creditworthiness assessment and strengthening of the credit scorecards and strategies.

Increased spend on employee costs following investment in expanding the operational headcount to drive the growth in new lending and the filling of support staff vacancies has resulted in administrative expenses increasing by 9% to £50.5m (2021: £46.3m). The net impact of all of these factors was that normalised operating profit fell to £7.2m (2021: £13.7m).

As detailed above, the Group has now launched the Scheme to address its redress liabilities, which will provide certainty as to the amount that will be paid to customers with valid redress claims. Although the independent review of the Group's branch-based lending business carried out in 2021 identified no systemic issues requiring redress, since this business and the guarantor loans division trade out of the same legal entity, the Scheme encompasses potential claims from both businesses in order to ensure equitable treatment of customers. The exceptional charge in the year of £12.4m relates to costs and redress associated with the Scheme.

Finance costs increased by 3% to £14.9m (2021: £14.5m) funding growth in the loan book. As a result of the reasons noted above, the business produced a normalised pre-tax loss of £7.7m (2021: loss before tax of £0.8m).

In branch-based lending, the key performance drivers that underpin the operational and financial performance of the business include network capacity, lead volume and quality, network productivity and impairment management. A summary of how these factors were affected during 2022 is summarised below:

Network capacity - Qualifying application levels have grown steadily through 2021 and 2022 and the recruitment of in-branch employees has increased alongside this to take advantage of the return to growth. In-branch full time employee numbers have increased from 341 at December 2021 to 377 at the end of December 2022 with plans to increase further throughout 2023. The branches that were originally planned to be opened in late 2020 but were deferred by the pandemic were successfully opened in 2022, splitting larger branches in the North West and North East conurbations to take advantage of the growth opportunities in these areas. This increases the total number of branch locations to 77. Two further branches are planned to open in the second half of 2023.

Lead volumes - The number of qualified new borrower applications increased by 19% in 2022 compared to 2021 levels. Due to a more cautious approach to lending post-pandemic, new borrower conversion rates dipped slightly to 6.1% (2021: 6.5%) whilst new borrower loans written increased by 13%. We credit scored 2.5 million new borrower applications in 2022 (2021: 1.7 million) of which 485,055 (2021: 403,800) applications passed our screening criteria to qualify as applications to branch (ATBs).

Productivity and quality - The total number of loans issued in 2022 reached 38,781 (2021:37,150) a 4% increase over the prior year. The focus on better quality customers led to new cash lent increasing 19% to £121m compared to £102m in 2021. We continue to invest in the enhancement of our technology. A new integrated telephony solution was implemented in the current year, this alongside continued strengthening of our creditworthiness process and open banking improvements will drive efficiencies in our lending processes whilst continuing to deliver good customer outcomes and improved customer journeys.

Delinquency management -Increasing costs of living were a key concern for our customers across the year. A continual review process ensured that our underwriting remained appropriate from both credit risk and affordability perspectives and we maintained a high quality of new lending. Pro-active communication and monitoring of forbearance tools ensured that existing customers continued to have the support they need. This was further enhanced by the introduction of a central collections team, utilising available capacity from within the Guarantor Loans business as that loan book runs down. As a result, collections performance was consistently ahead of expectations throughout the year, and by year end the proportion of the loan book that was up-to-date and not rescheduled or deferred had recovered to the pre-Covid levels of early 2020.

Plans for 2023

We remain focused on our commitment to servicing the needs of those consumers that may have been excluded from mainstream lenders, using our face-to-face lending model. We continue to evolve our credit risk assessment processes in order to maintain the highest standards of responsible lending, ensuring that we continue to deliver good customer outcomes for all our customers. The ability to grow the business efficiently and enhancing the customer journey are key areas of focus in 2023. Investment in in-branch recruitment, a focus on streamlining back-office tasks and embracing technology opportunities such as 'Open Banking' will reduce waiting times for customers through a smoother application process.

We continue to expect that the demand for our products and services will increase given the current macroeconomic environment as well as from some of the structural changes in the market regarding both potential customer population and companies operating in the market. As a result, and whilst we remain vigilant given the rapidly changing environment, based on our performance to-date and the steps already taken, we continue to focus on operational efficiency and loan book growth through 2023 and beyond. Future growth plans will require the Group to complete the Scheme and the  Proposed Recapitalisation or Alternative Transaction, but once achieved, the business will be well placed to realise that vision.

Home credit

Following the conclusions of the review into home credit, the Directors of S.D. Taylor Limited ('Loans at Home') concluded that the Loans at Home business was no longer viable and so the business was placed into administration on 15 March 2022. Whilst deeply saddened and disappointed with this news, the Boards of both Loans at Home and NSF were clear that administration was the only option available in order to preserve value for creditors. As the operations and activities of Loans at Home were separate from the rest of the Group, having received certain waivers from the Group's secured lenders, the administration of Loans at Home has had minimal impact on the rest of the Group's business.

The results of the home credit division for the period ended 14 March 2022 are shown below:

Financial results

The home credit division contributed a normalised operating loss of £0.5m to the Group (2021: normalised operating loss of £2.2m). An exceptional charge of £5.6m was recognised in 2022 in relation the derecognition of the remaining net assets of the division existing at the date of administration.

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

Guarantor loans

The Group's guarantor loans division was placed into a managed run-off in June 2021 and so continues not to issue any new loans. Therefore the financial performance of the business has been driven by collections from the outstanding loan book.

Financial results

The reduction in the net loan book meant that revenue declined by 49% to £6.6m (2021: £13.0m). Collections performance during 2022 has remained strong, leading to impairments of £(1.6)m (2021: £(1.1m). Administration costs fell by 32% to £7.3m (2021: £10.7m) as the division continues to wind down and savings in staff costs, professional fees and complaints costs are realised. The division achieved a normalised operating profit of £0.8m (2021: £1.9m) whilst strong cashflow has contributed to lower finance costs that reduced the normalised loss before tax to £1.2m (2021: loss before tax of £2.4m).

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

Plans for 2023

The collect-out of the outstanding loan book is progressing well and as planned.

Central costs

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

Normalised administrative expenses fell by 26% to £3.0m (2021: £4.1m) driven principally by lower staff, rent and professional fees. Finance fees increased due to surplus cash held at Group level alongside higher interest rates.

An exceptional charge of £13.7m relates to impairments recognised on intercompany receivable balances held with the home credit division. Prior year exceptional costs comprised £1.6m of advisory fees.

Balance sheet

As at 31 December 2022, the Group had increased its cash balances to £32.8m (2021: £114.6m) and gross debt reduced to £255m (2021: £330m). The Group's balance sheet remained in a negative net tangible assets position. A summary of the Group's balance sheet at December 2022 is shown below:

The clear priority for the Group is to complete the Proposed Recapitalisation that, if successful, is expected to, amongst other things, fund the Scheme, strengthen the Group's balance sheet and restore it to a positive net assets position. However, the Directors note that a material uncertainty exists regarding the success of the Scheme and execution of the Proposed Recapitalisation (or the Alternative Transaction, noting, as above, that the Alternative Transaction may result in the Company (ultimate parent company) entering into an insolvency process) which casts significant doubt on both the Group's and the Company's ability to continue as a going concern.

Principal risks

The principal risks facing the Group are:

· Going concern, solvency and liquidity - the Directors note that material uncertainties exist regarding the: (i) success of the Scheme, including positive creditor votes and the court sanction of the Scheme within the timeframes required; (ii) the ability of the Group to raise sufficient capital in the timeframes required (iii) the agreement of extensions to the testing dates and other forms of waivers from secured lenders in relation to potential future covenant breaches and implementation of the Scheme prior to completion of the Proposed Recapitalisation (or the Alternative Transaction); (iv) the contractual commitments from secured lenders to extend the term of existing debt facilities and to write off a portion of their debt as well as agree other changes to the facilities (including the covenant levels); and (v) the impact of macroeconomic uncertainties and other unforeseen factors on the financial performance of the Group. The range of assumptions and the likelihood of them all proving correct creates material uncertainty and therefore the impact on liquidity and solvency under both the base case and downside scenarios may cast significant doubt on both the Group's and individual division's ability to continue as a going concern. The Director's note that although the Group has contractual commitments from its secured lenders to support the Alternative Transaction, there is a risk that it will not be possible to implement either the Proposed Recapitalisation or the Alternative Transaction. In these circumstances, if neither the Proposed Recapitalisation nor the Alternative Transaction has been implemented by 31 December 2023, it will not be possible to pay the Scheme fund into a nominated trust account and the Scheme will fail. Refer to the going concern statement in note 1 of the financial statements for further detail on the base and downside case;

· Regulation - the Group faces significant operational and financial risk through changes to regulations, changes to the interpretation of regulations or a failure to comply with existing rules and regulations, some of which have crystallised in the year.  Due to the need to bring this uncertainty to a resolution, the Group has launched the Scheme to address the redress claims which will provide certainty as to the amount that will be paid to customers with valid redress claims. As outlined above, the review into branch-based lending concluded that there was no need for systemic customer redress, although claims in relation to the branch-based lending business have been included in the Scheme. The conclusion of the home credit review resulted in the administration of the business as it was concluded that the business model was no longer viable and that an administration was the only option available to preserve value for creditors. 

§ Conduct - risk of poor outcomes for our customers or other key stakeholders as a result of the Group's actions;

§  Credit - risk of loss through poor underwriting or a diminution in the credit quality of the Group's customers;

§  Business strategy - risk that the Group's strategy fails to deliver the outcomes expected;

§  Business risks:

o  operational - the Group's activities are large and complex and so there are many areas of operational risk that include technology failure, fraud, staff management and recruitment risks, underperformance of key staff, the risk of human error, taxation, increasing numbers of customer complaints, health and safety as well as disaster recovery and business continuity risks;

o  reputational - a failure to manage one or more of the Group's principal risks may damage the reputation of the Group or any of its subsidiaries which in turn may materially impact the future operational and/or financial performance of the Group;

o  cyber - increased connectivity in the workplace coupled with the increasing importance of data and data analytics in operating and managing consumer finance businesses means that this risk has been identified separately from operational risk;

o  aftermath of pandemic - a large pandemic such as COVID-19, coupled with the possibility of the return of restrictions on face-to-face contact by HM Government, may cause significant disruption to the Group's operations and severely impact the supply and level of demand for the Group's products. As a result, any sustained period where such measures are in place could result in the Group suffering significant financial loss; and

o  cost of living crisis - the significant pressure of the cost of living at the current time increases the risk of delinquency for some customers, whilst also presenting an opportunity for the business in terms of those potential customers who may previously have been served by the prime financial services sector.

Emerging risks that may impact the future performance of the Group include the anticipated increase in the cost of living, climate change and technology where we plan to become more agile and independent with greater control over our ability to augment and improve our lending proposition. Further details are included on page 27 of the 2022 Annual Report.

On behalf of the Board of Directors

Jono Gillespie

Group Chief Executive

28 April 2023

Consolidated statement of comprehensive income

for the year ended 31 December 2022

1 Revenue comprises interest income calculated using the EIR method.

2 Impairments comprise expected credit losses on amounts receivable from customers. Refer to note 10 in the notes to the financial statements for further detail.

3 Refer to the appendix for detail of alternative performance measures used ('APMs'). Refer to note 6 in the notes to the financial statements for further detail.

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

Consolidated statement of comprehensive income

For the year ended 31 December 2021

Consolidated statement of financial position

as at 31 December 2022

These financial statements were approved by the Board of Directors on 28 April 2023

Signed on behalf of the Board of Directors.

Jono Gillespie

Group Chief Executive

Consolidated statement of changes in equity

for the year ended 31 December 2022

Consolidated statement of cash flows

for the year ended 31 December 2022

Notes to the financial statements

1. Basis of preparation

Basis of preparation

The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 December 2022 or 2021.

The financial information for the year ended 31 December 2021 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified and did not contain a statement under s498(2) or (3) of the Companies Act 2006, but did include a section highlighting a material uncertainty that may cast significant doubt on the Group and Company's ability to continue as a going concern.

The statutory financial statements for the year ended 31 December 2022 will be filed with the Registrar of Companies following the General Meeting to be held on 23 June 2023. The report of the auditor was unqualified and did not contain a statement under s498(2) or (3) of the Companies Act 2006, but did include a section highlighting a material uncertainty that may cast significant doubt on the Group and Company's ability to continue as a going concern.

The financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share‑based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IFRS 16 Leases, and measurements that have some similarities to fair value but are not fair value, such as value in use ('VIU') in IAS 36 Impairment of Assets.

On 15 March 2022, the Company's indirect subsidiary S.D Taylor Limited (trading as 'Loans at Home' and forming the home credit division of the Group) was placed into administration. As a result, the financial statements of the home credit division for the prior year ended 31 December 2021 were prepared on a basis other than going concern. This required carrying value of the assets to be at the amounts they were expected to realise and the liabilities included any amounts for onerous contracts as a result of the administration. In all other respects the financial statements have been prepared in accordance with the accounting framework.

As Non-Standard Finance plc retained control of the division up to the date of administration, the financial statements of S.D. Taylor have been consolidated and are reported in the Group financial statements for the current year up to 14 March 2022 and the prior year for the full year. The financial statements of the Group have been prepared on a going concern basis with the exception of the home credit division which was prepared on non-going concern basis (as described above).

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

Basis of consolidation

The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) prepared to 31 December 2022. Control is achieved where the Company is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration the existence and effect of potential voting rights that currently are exercisable or convertible.

The results of any subsidiaries acquired during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition.

As noted above, the Group's home credit division (S.D. Taylor Limited) was placed into administration on 15 March 2022. Up to the date of administration, Non-Standard Finance plc retained control of the division and as such, in line with IAS 10, its results have been consolidated to 14 March 2022 for the purposes of these financial statements. The appointment of an administrator on 15 March 2022 represents a loss of control by Non-Standard Finance plc, and as such, the home credit division has been derecognised from this date and the effect of this reflected in the current year ended 31 December 2022 financial statements. 

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-Group transactions and balances and any unrealised gains and losses arising from intra-Group transactions are eliminated in preparing the consolidated financial statements.

The Company has taken advantage of the exemption under section 408 of the Companies Act 2006 from publishing its individual statement of comprehensive income and related notes.

Going concern

As noted in the 2022 Half Year Results, the Group's subsidiary S.D. Taylor Limited (which traded as Loans at Home) was placed into administration on 15 March 2022. As the operations and activities of Loans at Home were separate from the rest of the Group, having received certain waivers from the Group's secured lenders, the administration of Loans at Home has had minimal impact on the existing funding arrangements of the Group.

For the quarters ended 31 March 2022, 30 June 2022, 30 September and 31 December 2022, the Group's loan to value (LTV) ratio was higher than the level permitted under its LTV covenant. The Group has agreed extensions with its lenders such that the LTV covenant will not be formally tested, and no covenant breach or event of default will arise, until the Group provides its compliance certificates for the aforementioned quarter dates. The date on which the Group is required to supply these compliance certificates has been extended until 17 May 2023, with a mechanism for this date to be extended further with lender support.

The Group is pursuing a scheme of arrangement (the "Scheme") in order to resolve its outstanding regulatory issues, so as to allow it to proceed with its planned restructuring and recapitalisation (the "Proposed Recapitalisation"). The Proposed Recapitalisation has the support in principle of the Company's largest shareholder and the Group's secured lenders, subject to agreement on the terms and other conditions described below and, in the case of the Company's largest shareholder, further diligence on and its assessment of the Group's revised business plan and financial projections.

Completion of the Proposed Recapitalisation is subject to the agreement of terms between lenders and the Company's largest shareholder, and a number of conditions, including Court sanction of the Scheme, shareholder approval, the take-up of shares under the equity raise and execution of definitive documents. Assuming all the above outlined conditions are satisfied (the "Conditions"), the Group expects the Proposed Recapitalisation to complete at the end of Q2 2023 or the start of Q3 2023. The Group has also agreed with its secured lenders to implement an alternative transaction if the Scheme is sanctioned but the Conditions, to the Proposed Recapitalisation are not satisfied (the "Alternative Transaction").

Although the independent review of the Group's branch-based lending division carried out in 2021 identified no systemic issues requiring redress, as this division and the guarantor loans division (now in collect-out) trade out of the same legal entity (Everyday Lending Limited), the Scheme encompasses potential claims from both divisions in order to ensure equitable treatment of customers. On 17 March 2023, the Group sent out a practice statement letter to its creditors and a first court hearing is scheduled for 28 April 2023. 

In light of the above, the Group has produced two possible scenarios as part of its going concern assessment:

(i) the base case scenario assumes:

a. the Scheme is successful;

b. the Scheme is sanctioned by the court by the end of June 2023;

c. a substantial equity injection is received in late Q2 or early Q3 2023 (the Proposed Recapitalisation);

d. the Group has obtained extensions to the testing dates and/or other forms of waivers from its secured lenders for potential covenant breaches to enable it to proceed with the Proposed Recapitalisation;

e. the extension of the term of the Group's debt facilities and write-off of a portion of the debt on terms acceptable to investors;

f. the Group is able to raise a revolving credit facility at a level acceptable to its lenders and potential investors; and

g. should the Proposed Recapitalisation be unsuccessful, the Alternative Transaction is implemented which would preserve the branch-based lending business and a going concern, but which, if implemented, would result in no recovery for the Company's current shareholders and the Company may enter into an insolvency process.

(ii) the downside scenario assumes:

a. the Scheme is unsuccessful;

b. the Group is unable to complete the Proposed Recapitalisation (or the Alternative Transaction), whilst no acceptable alternative to the base case that is capable of implementation is agreed between the Group and its secured lenders, resulting in the secured lenders enforcing their security and the Group going into an insolvency process;

c. the Group is not granted extensions to the testing dates and/or other forms of waivers from its secured lenders of covenant breaches and the Group's secured lenders become entitled to enforce their security, resulting in the Group entering an insolvency process; and

d. as a result of the Group entering into an insolvency process, no return for current shareholders and a significantly reduced return for secured lenders.

The above downside assumptions are not mutually exclusive. The Group's ability to complete the Proposed Recapitalisation or the Alternative Transaction is entirely dependent on the success of the Scheme.

The base case scenario is entirely dependent upon the base case assumptions listed above proving true. In addition, it is dependent on factors such as the impact of the cost-of-living crisis and other macroeconomic uncertainties on performance as well as any further changes in the environment not varying materially from that assumed in the base case.

The Directors continue to maintain a regular dialogue with key stakeholders including the Company's largest shareholder and Group's secured lenders regarding the above matters. 

The Directors acknowledge the considerable challenges presented by the uncertainty around the:

· success of the Scheme;

· the ability of the Group to raise sufficient capital in the timeframes required;

· the agreement of extensions to the testing dates and other forms of waivers from secured lenders in relation to potential future covenant breaches and the implementation of the Scheme and the Proposed Recapitalisation (or the Alternative Transaction);

· the agreement from secured lenders to extend the term of existing debt facilities and to write off a portion of their debt as well as agree other changes to the facilities (including the covenant levels); and

· the impact of macroeconomic uncertainties and other unforeseen factors on the financial performance of the Group.

In making their overall assessment on going concern, the Directors considered both the balance sheet solvency and the liquidity position of the Group and Company. In connection with the former, the Proposed Recapitalisation would create a positive net asset position. In connection with the latter the Directors have taken into consideration the impact of the Proposed Recapitalisation on the existing cash balances which would then be available to the business. This combination would provide sufficient liquidity throughout the going concern period. Whilst essential for the future of the Group and Company, the Proposed Recapitalisation would materially dilute the interest of current shareholders, most likely to negligible value unless they chose to participate in the Proposed Recapitalisation. However, the Proposed Recapitalisation is dependent on the Conditions, including the sanctioning of the Scheme by the Court, and this dependency creates a material uncertainty.

The secured lenders continue to provide short-term waivers of the Group's loan to value covenant, ensuring the Group has the liquidity to pursue the Scheme and the Proposed Recapitalisation (or the Alternative Transaction in the event the Conditions, to the Proposed Recapitalisation are not satisfied, which, if implemented, would result in no recovery for the Group's current shareholders), however the Directors recognise that, in the absence of the secured lenders granting the necessary extensions to the testing dates or other forms of waivers in respect of potential future covenant breaches, cash balances may not be available to the Group or Company. With regard to the balance sheet solvency of the Group, the Directors noted that under the base case scenario, assuming the Group is able to raise sufficient equity within the timeframes required, the Group returns to a net asset position post Proposed Recapitalisation and remains there for the going concern period.

As noted above, the Group has agreed the Alternative Transaction in the event that the Scheme is sanctioned but the Proposed Recapitalisation is unsuccessful, which would preserve the branch-based lending business as a going concern. However, there is no certainty that the Alternative Transaction would necessarily be successful and, in this scenario, there would be no recovery for the Company's current shareholders and the Company may enter into an insolvency process. Should the going concern assumption not be appropriate, the assets of the Company would have to be reduced to their market value which is expected to be £nil and require the recognition of contractual commitments which would become onerous in relation to the lease liability held at the Company totalling £62k as at 31 December 2022.

Despite the material uncertainties associated with the forecast assumptions, the Directors note that the Group's largest shareholder and secured lenders are supportive in principle, of the Proposed Recapitalisation, subject to agreement on the terms and the satisfaction of certain conditions, including further diligence on and its assessment of the Group's revised business plan and financial projections as outlined in the Conditions noted earlier.

The Directors believe that if the actual outcomes do not differ materially from the assumptions outlined in the base case, the Group can reasonably expect to continue to operate and meet its respective liabilities as they fall due for at least the next 12 months. In regards to the Company, the Directors believe that under the base case which assumes a successful Proposed Recapitalisation, the Company can reasonably expect to continue to operate and meet its respective liabilities as they fall due for at least the next 12 months. However, should the Alternative Transaction be implemented, there would be no recovery for the Company's current shareholders and the Company may enter into an insolvency process. Accounting standards require that financial statements are prepared on a going concern basis unless the Directors either intend to liquidate the entity or to cease trading or have no realistic alternative but to do so. The Directors therefore believes it remains appropriate to prepare the financial statements on a going concern basis whilst recognising the material uncertainties that remain. The Directors acknowledge that, whilst a scheme of arrangement is complex, time consuming and not guaranteed to be successful, they believe that there is a reasonable chance of success. The Directors' position is, in part, informed by the favourable performance to date against plan, support the Group has received from its secured lenders to date, including a contractual commitment to the Alternative Transaction, in the event the Proposed Recapitalisation fails, and the fact that the Company's largest shareholder remains supportive in principle of the Proposed Recapitalisation subject to the Conditions. The Director's notes that although the Group has contractual commitments from its secured lenders to support the Alternative Transaction, there is a risk that it will not be possible to implement either the Proposed Recapitalisation or the Alternative Transaction. In these circumstances, if neither the Proposed Recapitalisation nor the Alternative Transaction has been implemented by 31 December 2023, it will not be possible to pay the Scheme fund into a nominated trust account and the Scheme will fail.

As previously mentioned, the Directors recognise there are a high number of assumptions and variables in the modelling of the base case which are not directly within the Group's control and have therefore concluded that a material uncertainty exists which may cast significant doubt over the Group and Company's ability to continue as a going concern and therefore, that the Group and Company may be unable to realise their assets and discharge their liabilities in the normal course of business.

Should the going concern assumption not be appropriate, the assets of the Group would have to be reduced to their market values and the liabilities would have to include any amounts for onerous contracts and in addition, is likely to result in an increase in the amount of the redress provision.

The Directors will continue to monitor the Group and Company's financial position (including access to liquidity and balance sheet solvency) carefully as a better understanding of the impact of these various factors is developed. The Directors recognise the importance of the success of the Scheme and the Proposed Recapitalisation to mitigate the uncertainties noted above and to support the future growth prospects of the Group. The Directors will also continue to monitor the Group and Company's risk management and internal control systems. 

Significant judgement

The below factors form a significant judgement of the Directors in the context of approving the Group and Company's going concern status:

· the assumption of a successful completion of the Scheme,

· support in principle from the Group's largest shareholder for the Proposed Recapitalisation,

· lender support for waivers and the Proposed Recapitalisation,

· the extension of existing financing facilities and partial write-off of debt as part of the Proposed Recapitalisation,

· the continued performance of the Group and that the outcomes are not materially different to those assumptions envisaged under the base case, and

· should the Proposed Recapitalisation be unsuccessful, lender support for the Alternative Transaction which would preserve the branch-based lending business and a going concern, but which, if implemented, would result in no recovery for the Company's current shareholders and the Company may enter into an insolvency process.

2. Changes in accounting policies and disclosures

New and amended standards and interpretations for the financial year ending 31 December 2022

There are no other new IFRSs or International Financial Reporting Interpretations that are effective for the first time for the year ended 31 December 2022 which have a material impact on the Group. The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective (effective 1 January 2023): Amendments to IAS 1, Presentation of financial statements on classification of liabilities; IFRS 17, Insurance contracts; Amendments to IAS 8, Definition of accounting estimates; Amendments to IAS 12, Deferred tax relating to assets and liabilities from a single transaction, and IFRS Practice statement 2, disclosure of accounting policy

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

3. Revenue

Revenue is recognised by applying the EIR to the carrying value of a loan. The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability.

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