NSF.L Regulatory News (NSF)

 Non-Standard Finance plc

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

Unaudited maiden results for the period from 8 July 2014 to 31 December 2015

Strategic objectives achieved. Platform for sustainable growth established.

Non-Standard Finance plc (LSE: NSF), the company established to build a portfolio of consumer credit businesses operating in the non-standard consumer finance sector, is pleased to announce its maiden results for the period from incorporation (8 July 2014) to 31 December 2015.

Operational highlights

§ Acquisitions agreed in all three target sectors: home credit; branch-based lending; and guaranteed loans

§ Raised £262m equity in two transactions, (second equity raise completed in January 2016), with further £20m of shares to be issued to vendor of Everyday Loans at completion of acquisition

§ Raised £85m of debt facilities with the potential to increase to £105m with loan book growth

§ Targeting 20% loan book growth across all divisions in 2016

§ Loansathome4u acquisition completed for a final purchase price of £82.4m - currently number three in the home credit market

§ Everyday Loans acquisition agreed for an enterprise value of £235m - number one in branch-based lending. Completion expected by the end of April 2016, following regulatory approval

§ Loansathome4u management team strengthened; best in class controls and procedures introduced to support growth

§ Significant growth at Loansathome4u in the final quarter of 2015 with customers up 6%; agents up 13%; and loan book up 26% to £28.4m (following the downward revaluation of receivables on acquisition)

Financial highlights

§ The Group's results for its first accounting period to 31 December 2015 reflect its development from a newly quoted cash shell into a group comprising a holding company and one operating business

§ Revenues of £14.7m and adjusted operating profit* of £2.1m for Loansathome4u, for the period from its acquisition on 4 August 2015 to 31 December 2015. Loansathome4u recorded a statutory loss before tax of £3.9m after fair value adjustments and exceptional costs

§ Group loss on ordinary activities before tax of £16.1m, after central costs of £2.7m; exceptional costs** of £6.1m; and fair value adjustments and amortisation of acquisition intangibles of £9.5m

§ Loss after tax of £13.1m equating to a loss per share of 21.25p based on weighted average shares in issue of 61.5m

* Adjusted operating profit is defined as operating profit before fair value adjustments, amortisation of acquisition intangibles and exceptional costs.

** Exceptional costs related to the acquisition and subsequent restructuring of Loansathome4u and the acquisition of Everyday Loans.

Context for results

§ The Company was incorporated on 8 July 2014 and admitted to trading on the main market in February 2015 raising £102m equity

§ The results include the trading of its first acquisition (Loansathome4u) for approximately five months

§ The results include the central overhead of the business since incorporation

§ The results for the year ended 31 December 2016 will include a full year contribution from Loansathome4u and eight months of trading from Everyday Loans (assuming completion occurs at the end of April)

John van Kuffeler, NSF's Chairman, said:

"I am delighted that we have achieved our stated strategic objectives in our first year of operations.

"We look forward to applying our management expertise, regulatory compliance experience and additional investment to our businesses. With the business performing in line with management's expectations, we are confident of achieving our stated goal of growing the loan books in our operating businesses by 20% in 2016 while maintaining our conservative approach to underwriting risk.

"As we continue to invest in the growth of our businesses in 2016 we will focus on maintaining our current revenue yield and operating margins. During the year, we also aim to secure additional debt funding for Loansathome4u to support loan book growth.

"By treating customers fairly, delivering excellent service and lending responsibly, we remain committed to establishing a sustainable group of businesses that serve a significant proportion of the UK's population who have limited access to high-quality financial services."

Consolidated statement of comprehensive income for the period from incorporation (8 July 2014) to 31 December 2015

The results for the Group reflect significant corporate activity, specifically our IPO, acquisitions and transition from a cash shell to an operating group with a statutory loss before tax of £16.1 million based on an adjusted operating profit of £2.1 million at Loansathome4u (statutory loss of £3.9 million) reduced by central costs of £2.7 million; exceptional costs of £6.1 million; and fair value adjustments and amortisation of acquisition intangibles of £9.5 million. The statutory loss before tax is partly offset by a tax credit of £2.6 million leading to a statutory loss after tax of £13.1 million equating to a loss per share of 21.25p.

All the above activities relate to continuing operations

Illustrative enlarged Group results

The results for the period from 8 July 2014 to 31 December 2015 include the results of Loansathome4u only from 4 August 2015 and are significantly affected by exceptional items, fair value adjustments and the amortisation of acquisition intangibles. The table below sets out illustrative results for the enlarged Group to provide a picture of the Group's underlying performance assuming completion of the acquisition of Everyday Loans.

The illustrative enlarged Group results include:

§ the adjusted operating profit of Loansathome4u for the year ended 31 January 2015 reduced by £2 million to reflect investment in its cost base post-acquisition

§ the adjusted operating profit of Everyday Loans for the year ended 30 June 2015

§ central costs for the period from 8 July 2014 to 31 December 2015

§ estimated interest expense assuming debt of £65 million was drawn down for a 12 month period

The figures in the above table have been prepared for illustrative purposes only and do not represent the Group's actual financial position. The reporting periods selected for both Loansathome4u and Everyday Loans are the last reporting periods for each business prior to the announcement of the two proposed acquisitions. The results of Loansathome4u are based on the approach to loan book impairment recognition adopted by S&U plc, which owned Loansathome4u during the year ended 31 January 2015 (see note 9 for further details on the impact of the change in accounting estimate).

- Ends -

There will be a presentation for analysts to be held at 9.00 am on Wednesday 2 March 2016 at the offices of Bell Pottinger, 6th Floor Holborn Gate, 330 High Holborn, London, WC1V 7QD

The presentation will be available from the Company's website (www.nonstandardfinance.com) and webcast live at: https://secure.emincote.com/client/nsf/nsf003. The presentation will also be accessible via a live conference call: dial-in no: + 44 20 3059 8125; conference password: 'NSF preliminary.'

For more information:

About Non-Standard Finance

Non-Standard Finance plc was established to acquire companies or businesses in the UK's non-standard consumer finance sector. On completion of the acquisition of Everyday Loans, the Company will have created a sustainable group of businesses offering credit to the approximately 12 million UK adults who do not meet lending criteria for mainstream financial services businesses or who choose not to borrow from them. It will apply its resources to ensure that the businesses acquired by the Company have access to more or better funding; implement stronger management controls; utilise more rigorous credit standards; improve product pricing; roll out new compliance protocols; and improve IT systems. These changes are designed to deliver improved customer outcomes and support NSF's ambition of creating value for the Company's shareholders.

The Company announced on 7 July 2015 that it had entered into an agreement to acquire the Home Credit Division of S&U plc ("S&U") which trades as Loansathome4u for an enterprise value of £82.5 million, payable in cash, subject to approval by S&U's shareholders and customary closing conditions. The acquisition completed on 4 August 2015 following approval by S&U's shareholders with the final consideration equalling £82.4 million after an adjustment for net assets at completion.

On 4 December 2015 the Company announced that it had entered into an agreement to acquire Everyday Loans, the branch-based unsecured lending and guaranteed loans business of Secure Trust Bank PLC, for an enterprise value of £235 million. Completion is expected to take place by the end of April 2016, following FCA change of control approval.

Chairman's statement

I am delighted to present Non-Standard Finance plc's first set of preliminary results for the period ended 31 December 2015 - a transformational year in which we achieved all our stated strategic objectives at the time of our IPO.

We established NSF as a cash shell with a Standard Listing on the London Stock Exchange in February 2015 raising £102 million from a blue chip list of institutional investors and wealth managers who recognised the opportunity of building a sizeable company in this sector with progressive growth in profits and dividends. In less than 11 months since our listing we have completed one acquisition and announced a second, raising a further £180 million from existing and new shareholders including shares to the value of £20 million to be issued to the vendor of Everyday Loans at completion. On completion of our second acquisition we will have businesses in all three of our target sectors of home credit, branch-based unsecured lending and guaranteed loans. We are now focused on growing these businesses organically or with bolt-on acquisitions as appropriate.

Strategy

Since the Company's successful IPO your Board has wasted no time in implementing its strategy of building a group of businesses operating in our target sectors in the non-standard unsecured consumer lending market.

Our businesses serve an important role in their local communities, helping the significant proportion of the UK's population that does not meet the credit requirements set by mainstream financial institutions, or chooses not to borrow from them, and therefore turns to the non-standard finance segment for alternative sources of credit.

NSF addresses this market of approximately 12 million people by creating access to fairly priced and appropriate financial services in non-standard lending - most customers in the non-standard finance sector are able to service their debt if products are tailored to fit their circumstances. We have extensive experience and are confident that we are delivering "best in sector" regulatory compliance; lending responsibly; and treating customers fairly - together resulting in good customer outcomes.

In everything we do, our focus is on creating growth underpinned by treating customers fairly, delivering excellent service and lending responsibly. As a result of this approach we are establishing a sustainable and profitable group of businesses, aiming to achieve a 20% return on assets in the medium-term.

Acquisitions 

Loansathome4u

Our first acquisition, Loansathome4u, was announced on 7 July 2015, just four and a half months after our Stock Exchange Listing. In this transaction, we paid £82.4 million for the home credit division of S&U plc, called Loansathome4u, which had 100,000 customers and 39 branches throughout the UK with revenues of £38.3 million and historical pre-tax profits of £8.4 million for the year ended 31 January 2015 on a net loan book of £34.6 million as at 31 January 2015.

In order to take advantage of the considerable market opportunity to double the size of the business over three to five years, we immediately recruited a team of experienced home credit professionals - many of whom we had worked with before. We also decided to substantially enhance Loansathome4u's IT capabilities, risk and data analysis, compliance function, marketing and field operations thereby increasing the cost base by approximately £2 million on an annual basis but creating a platform for substantial future growth. We also established a more timely approach to recognising impairment reducing the net carrying value of the loan book at completion of the acquisition on 4 August from £29.9 million to £22.6 million; and writing-off the fully provided balances of 13,000 customers reduced the active customer count to 87,000. It is important to note that the above additional costs reduce the historical annual run rate of pre-tax profits to £6.4 million and future growth should be measured from the above figures.

In October 2015 we had completed the operational upgrade of the business and began implementing our growth plans. By the end of 2015 we had grown the number of agents by 13% from 557 to 630; and the number of customers by 6% from 87,000 to 92,000. During the first quarter of 2016, growth has continued and we now have more than 700 agents, (a 26% increase from acquisition). We are also opening new branches in Kirkcaldy, Ashington, Newton Aycliffe and north Manchester adding to our platform for sustained future growth.

The financial results of Loansathome4u during the few months under our ownership in 2015 reflect the costs of the significant changes we made to the business and the adjusted operating profit of £2.1 million (operating loss of £3.9 million on a statutory basis) is not representative of its future growth and profit potential. The current year has started well and our growth is on target.

Everyday Loans

Four months after completing our first acquisition, we announced our second acquisition, Everyday Loans, for an enterprise value of £235 million. As part of the transaction, we raised £160 million of new equity, with funds received in January 2016, and £85 million of debt to finance the acquisition and future loan book growth. We will also issue shares to the value of £20 million to Secure Trust Bank PLC, the current owner of Everyday Loans, at completion which is expected to take place by the end of April 2016, following FCA change of control approval.

Everyday Loans is the largest branch-based unsecured consumer lender in the UK and operates from a network of 36 branches serving approximately 37,000 customers. The business has an emphasis on in-depth interviews with prospective borrowers and is enjoying significant growth in a market which was left abandoned by its participants following the financial crisis of 2008.

Its historical adjusted operating profit was £16.2 million in the 12 months to 30 June 2015 on a net loan book of £102 million as at 30 June 2015. Loan book growth has averaged around 20% per annum over the past two years. Its management team has been in place for 10 years and is recognised as one of the most experienced in the sector.

Our plans include growing the branch network, expanding the customer base and implementing operational efficiencies to improve customer conversion rates. However, these will not cause any disruption to the business and we expect to continue growing the loan book and customer base so as to double the size of the business in four to five years.

Trusttwo

Trusttwo is a small guaranteed loan operation within the Everyday Loans business. Trusttwo accounted for £6 million of the Everyday Loans loan book as at 30 June 2015 and 2,000 of its customers as at the same date.

The guaranteed loan market is a fast growing sector allowing mainly younger customers to establish a better credit rating during the period of the loan.

We will be substantially enhancing this business after completion with a view to building it into a significant market participant in this sector.

Results

The results for the Group reflect significant corporate activity, specifically our IPO, acquisitions and transition from a cash shell to an operating group with a statutory loss before tax of £16.1 million based on an adjusted operating profit of £2.1 million at Loansathome4u (statutory loss of £3.9 million) reduced by central costs of £2.7 million; exceptional costs of £6.1 million; and fair value adjustments and amortisation of acquisition intangibles of £9.5 million. The statutory loss before tax is partly offset by a tax credit of £3.0 million leading to a statutory loss after tax of £13.1 million equating to a loss per share of 21.25p.

The statutory loss is not indicative of the underlying performance of the Group and the Financial Review provides further detail on the Group's illustrative enlarged Group financial results based on £6.4 million of operating profits from Loansathome4u for the year ended 31 January 2015 and £16.2 million from Everyday Loans and Trusttwo for the year ended 30 June 2015. Adding these two sets of results together with the 2015 central costs of £2.7 million produces an underlying illustrative enlarged Group operating profit of approximately £20 million on an annualised basis. This number will be reduced by: the interest payable on the debt funding taken on to acquire Everyday Loans; interest payable on any further debt raised to support loan book growth at Loansathome4u; and also by taxation - but it should be seen as the benchmark against which our growth plans should be measured.

Regulation

Loansathome4u operates under an interim consumer credit permission from the Financial Conduct Authority and submitted its application for full authorisation in June 2015. Supplementary information has been supplied to the FCA following our completion of the acquisition of the company and we expect to receive full authorisation during 2016.

The Everyday Loans group operates as two regulated entities with a mixture of interim permissions and full authorisations for various activities and submitted the appropriate applications for full permissions in January and October 2015. Full authorisation is also expected during 2016.

Board

The NSF Board includes some of the most knowledgeable and experienced professionals in our sector. We have a long history of collaboration between team members and extensive experience of non-standard consumer finance, making acquisitions and operational improvements. I firmly believe that our track record of successful management and investment in non-standard consumer lending demonstrate NSF's ability to generate value for investors and complete operational improvements at our target acquisitions.

Outlook

Having established the foundation upon which we will grow the Group, the business is performing in line with management's expectations. During the year, we will aim to secure additional debt funding for Loansathome4u to support loan book growth. We look to the future with optimism and are confident of achieving our stated goal of growing the loan books in our operating businesses by 20% in 2016 while maintaining our current revenue yield, operating margins and conservative approach to underwriting risk. We intend to review our dividend policy during the first half of 2016 and, subject to our financial performance and the Group's funding requirements, intend to commence payment of dividends during the second half of 2016.

Finally, I thank all of our staff, agents, management, advisers and my fellow Board members for their tireless efforts in 2015. Their diligence and dedication are at the heart of our success in 2015 and I am proud of our achievements together.

Divisional overview

Loansathome4u

On 7 July 2015 the Company announced that it had agreed to acquire the entire issued share capital of SD Taylor, the Home Credit business of S&U plc, trading as "Loansathome4u." The Loansathome4u acquisition completed on 4 August 2015.

Loansathome4u fully meets Non-Standard Finance's acquisition criteria by virtue of its top three market position in the home credit market, with 77 years of history; strong brand recognition through its home service model supporting customer and agent relationships; and a high quality loan book compared to the wider home credit market, with good underwriting and sensitive customer management. The acquisition of the business represented a significant transaction for the Company, creating a platform for further growth and business development. The £82.4 million final purchase price represented 12.5x statutory profit after tax for the year ended 31 January 2015.

Loansathome4u operates from one head office and 40 branches (39 at acquisition) throughout England, Wales and Scotland. It employs over 300 people and operates through a network of approximately 700 agents. These employees and self-employed agents provide a home credit service to 92,000 customers.

Following acquisition Loansathome4u is run as a division of NSF, led by Mark Bardsley. Mark is a former Managing Director of Shopacheck Financial Services and previously a senior executive at Provident Financial and International Personal Finance. Having taken control of the business in August 2015, NSF began implementing its strategy for Loansathome4u, focusing on:

§ Expanding the branch network and agent workforce to grow the customer base

§ Upgrading and reforming the business's compliance function to support best-in-class customer outcomes

§ Recruiting additional management to support the creation of a larger business, including a Chief Financial Officer, Compliance Director, Risk Director and Commercial Director

The focus for 2016 will be:

§ Growing the business through expanding the number of agents and increasing customer recruitment

§ Supporting agent recruitment through clearly differentiating the business as the best company to work for

§ Developing online customer recruitment to support customer growth

§ Creating a culture of openness, compliance, achievement, fairness and reward

§ Introducing technology - in particular mobile technology - to support process and service improvement, and to assist compliance monitoring and efficiency

§ Introducing improved credit systems and processes to support lending decisions and compliance

§ Improving people development and performance management

Loansathome4u's management team has already been strengthened with the addition of lead compliance, risk and finance appointments; and its operational processes - including compliance function - have been comprehensively upgraded to reflect best practice. At the customer-facing level, the agent workforce has expanded, with the addition of agents from other home credit providers as they withdraw from the market. These agents are typically experienced in customer recruitment, helping the wider business to achieve its customer growth targets. They also have the advantage of being experienced in lending and developing customer relationships.

Since acquisition, the business has experienced a strong increase in agent and customer numbers. This is expected to continue during the remainder of 2016.

Looking to the future, NSF will seek further bolt-on acquisition opportunities in the home credit sub-sector as it consolidates, in light of regulatory impact and evolving market dynamics.

Everyday Loans

On 4 December 2015 the Company announced that it had entered into an agreement to acquire the branch-based unsecured lending and guaranteed loans business of Secure Trust Bank PLC for an enterprise value of £235 million. This represented 17x illustrative profit after tax for the year to 30 June 2015 based on the adjusted operating profit of Everyday Loans for the year ended 30 June 2015, estimated annualised interest on £65 million of debt and a 20% tax charge.

Everyday Loans meets NSF's acquisition criteria as it enables entry into two of the Company's target sub-sectors, creating a platform for entry into the guaranteed loans market alongside unsecured branch-based lending. It is the UK's leading provider of branch-based loans for customers with limited or impaired credit histories and features a high-quality loan book with relatively low impairment and excellent customer satisfaction levels.

The business operates from a network of 36 branches, serving approximately 35,000 customers throughout the UK. Everyday Loans' network of branches enables its staff to meet potential customers face-to-face and ensure that their applications are appropriately vetted. Its branch-based model facilitates responsible lending decisions by assessing customers' propensity and ability to repay based on interviews with applicants and verification of supporting documentation. Everyday Loans holds a significant advantage over its online competitors when judging the credit quality of loan applicants, demonstrated through the historic track record of its loan book. Face-to-face customer interaction also supports high customer satisfaction levels, so existing customers are more likely to do business with Everyday Loans in the future and refer new customers to its business.

Following the acquisition, Everyday Loans will be run as a division of NSF. The Company believes that with focused investment there is a significant opportunity to accelerate growth through:

§ Widening the customer constituency - by applying the Company's knowledge and experience in the sector and its extensive performance data, Everyday Loans will be able to serve a broader range of potential customers

§ Accelerating the branch expansion programme - so that existing and future customers are more able to find a branch in proximity to their community, thereby driving improved application conversion rates. Everyday Loans has opened just seven branches since 2012 but by using available capital and expertise, a renewed programme of branch expansion can support its sustainable growth

Trusttwo

The Group's third operating division, Trusttwo, will be acquired as part of the Everyday Loans transaction.

Trusttwo is a young business with 2,000 customers which, following a pilot phase in 2013, was launched in 2014. It provides loans to UK residents who are typically in a younger age bracket and exhibit either a limited or impaired credit history. Applicants complete an online application form in which they nominate a guarantor who meets mainstream prime risk lending requirements. No upfront fees are charged for the application process. After the applicant's guarantor consents to the arrangement via an online link, successful applications result in the loan being paid into the guarantor's account, for transfer to the applicant, in order to counter fraudulent applications since guarantors bear ultimate responsibility for repayment of the loan.

Loans can be used for almost any purpose and range in size from £1,000 up to £15,000, repayable in fixed monthly instalments over 13 to 60 months requiring no direct security, (with overpayments allowed at any time without penalty). Interest rates range from 39.9% to 49.9%, with a representative APR of 39.9%.

Guarantors are normally family members, (not partners or spouses) but can also be friends or colleagues. By taking a guaranteed loan, customers benefit from a better rate of interest than they would otherwise have been able to secure on their own, thus potentially removing the need for them to have to resort to higher cost credit solutions. When these borrowers make their loan repayments on time, it can help improve their credit rating and make access to cheaper high-street lending possible in the future.

Trusttwo's platform has significant capacity for growth in what is a large and concentrated marketplace where the predominantly online nature of the application and client servicing process translates into low operating costs. The 12 leading market participants lend money to customers utilising wider size and interest rate parameters than Trusttwo, meaning that there is an opportunity to expand its product range organically and through targeted bolt-on acquisitions.

In order to optimise its cost base, Trusttwo's guaranteed loans operations will continue to be run within Everyday Loans' corporate structure. However, they will benefit from an accelerated growth strategy whereby:

§ The management team will be enhanced with additional selected hires to increase its capabilities

§ The business will focus on increased lead generation from the broker network

Financial review

The Group's results for its first accounting period to 31 December 2015 reflect the development of the Group from a newly quoted cash shell into a group comprising a holding company and one operating business following the acquisition of Loansathome4u on 4 August 2015. To provide a clear view of the key elements of the Group's performance, its financial results break-out the performance of Loansathome4u from central costs. It is expected that in addition to this segmental analysis, future accounting periods will also show Everyday Loans and Trusttwo as separate divisions following completion of their acquisition.

Group results

The Group delivered a statutory loss before tax of £16.1 million with a tax credit of £3.0 million resulting in a statutory loss after tax of £13.1 million. This equates to a loss per share of 21.25p based on a weighted average number of shares in issue of 61,502,789. The statutory loss before tax includes a contribution from Loansathome4u from 4 August 2015 only with the result that the Group produced an adjusted operating loss before fair value adjustments, amortisation of acquired intangibles and exceptional items of £0.5 million from revenues of £14.7 million.

On the acquisition of Loansathome4u, intangible assets were recognised for the acquired customer list, agent relationships and the 'Loansathome4u' brand. In addition, the difference between the net book value of the loan book and its fair value based on discounting expected future cash flows was recognised as a fair value adjustment to the carrying value of the loan book at acquisition. Amortisation of £4.0 million for these intangible assets has been recognised in administrative expenses together with a £5.5 million reduction in reported revenues to reflect the unwind of the loan book fair value adjustment. These amounts combined with the adjusted operating loss of £0.5 million and exceptional costs of £6.1 million produced the statutory loss before tax of £16.1 million. The exceptional costs relate to the acquisition and subsequent restructuring of Loansathome4u and the 2016 acquisition of Everyday Loans

As the Company was incorporated on 8 July 2014, there are no comparative figures for the prior period.

Consolidated statement of comprehensive income for the period from incorporation (8 July 2014) to 31 December 2015

All the above activities relate to continuing operations

Balance sheet 

The balance sheet of the Group reflects the net proceeds from the Company's IPO in February 2015 and the acquisition of Loansathome4u in August 2015 and the recognition of a number of intangible assets together with a substantial goodwill balance.

Consolidated statement of changes in equity for the period ended 31 December 2015

Funding and liquidity

As at 31 December 2015 the Group had net cash of £7.3 million with no debt. This cash balance reflects the net proceeds of the Company's IPO less cash expenses incurred during the year including the purchase of Loansathome4u and the central costs of the Group. The year-end cash balance also reflects the seasonal peak in lending that takes place in December at Loansathome4u. In January 2016 the Group received the proceeds of the £160 million equity raise and this amount less the costs of raising the funding is due to be used to fund the acquisition of Everyday Loans together with the issue of shares to the value of £20 million to the owner of Everyday Loans and the draw down of approximately £65 million of the debt facility of £85 million entered into in December 2015.

Loansathome4u

The results of Loansathome4u cover the period from its acquisition on 4 August 2015 to 31 December 2015. A number of operational and structural changes were implemented immediately following completion including the replacement of the incumbent senior management team with a stronger and larger team that the Directors believe are better placed to execute the Group's business strategy and achieve its ambitious growth plans. The associated cost of implementing these changes is shown as exceptional costs as they are non-recurring items. Loansathome4u generated revenues of £14.7 million and before exceptional costs, produced an adjusted operating profit of £2.1 million (statutory loss of £3.9 million). Given the short period of trading covered by these results it is not meaningful to calculate relevant Key Performance Indicators for Loansathome4u as these are based on annual performance.

Loan book

During the period to 31 December 2015, the Directors reviewed the process and methodology by which loans issued by Loansathome4u are assessed for impairment and whether a provision needs to be made based on historical performance of loans to existing and new customers.

Following this review, the Group has adopted a new approach that includes the earlier recognition of impairment. As a result, Loansathome4u's impairment provision was increased at acquisition to reflect this new approach. The Directors also reviewed the process used to determine the point at which a customer's balance should be written-off and the relevant customer removed from the active customer metrics. The conclusion of this review was that customer balances should be written-off more quickly than previously with a consequent impact on active customer numbers which reduced from 100,000 to 87,000. The table below shows customer numbers and year end receivables at 31 December 2015 based on the new approach and establishes a base level for KPI reporting in future periods.

Central costs

Administrative expenses for the period totalled £2.7 million and include advisory and other related expenses associated with the review of potential acquisition targets as well as the on-going head office costs for the Group. In addition, the Group incurred £5.5 million of transaction-related costs associated with the acquisitions of Loansathome4u and Everyday Loans and £4.0 million of amortisation of intangible assets recognised on the acquisition of Loansathome4u.

Illustrative enlarged Group results

The results for the period from 8 July 2014 to 31 December 2015 include the results of Loansathome4u only from 4 August 2015 and are significantly affected by exceptional items, fair value adjustments and the amortisation of acquisition intangibles. The table below sets out illustrative results for the enlarged Group to provide a picture of the Group's underlying performance assuming completion of the acquisition of Everyday Loans.

The illustrative enlarged Group results combine:

§ the adjusted operating profit of Loansathome4u for the year ended 31 January 2015 reduced by £2 million to reflect investment in its cost base post-acquisition

§ the adjusted operating profit of Everyday Loans for the 12 months ended 30 June 2015

§ central costs for the period from 8 July 2014 to 31 December 2015

§ estimated interest expense assuming debt of £65 million was drawn down for a 12 month period

The figures in the above table have been prepared for illustrative purposes only and do not represent the Group's actual financial position. The reporting periods selected for both Loansathome4u and Everyday Loans are the last reporting periods for each business prior to the announcement of the two proposed acquisitions. The results of Loansathome4u are based on the approach to loan book impairment recognition adopted by S&U plc, which owned Loansathome4u during the year ended 31 January 2015 (see note 9 for further details on the impact of the change in accounting estimate).

Notes to the preliminary announcement

Basis of preparation

The preliminary announcement has been prepared in accordance with the Listing Rules of the FCA and is based on the 2015 consolidated financial statements which have been prepared under IFRS as adopted by the European and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The accounting policies applied in preparing the preliminary announcement are consistent with those used in preparing the statutory financial statements for the period ended 31 December 2015. The preliminary announcement has been prepared on a going concern basis consistent with the basis of preparation of the statutory financial statements for the period ended 31 December 2015.

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

The audit of the statutory financial statements for the period ended 31 December 2015 is not yet complete. These accounts will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting.

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

1. Revenue

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

2. Segment information

Management has determined the operating segments by considering the segment information that is reported internally to the chief operating decision-maker, the Board of Directors. For management purposes, the Group is currently organised into two operating divisions Central and Loansathome4u. These divisions are the operating segments for which the Group reports its segment information internally to the Board of Directors. The Group's operations are all located in the United Kingdom and all revenue is attributable to customers in the United Kingdom.

Transaction costs relate to the acquisition of Loansathome4u and the 2016 acquisition of Everyday Loans.

All inter-segment transactions are transacted on an arm's length basis.

Included within the operating loss for Loansathome4u is the fair value adjustment to revenue of £5,456,000, refer to note 1, resulting in an adjusted operating profit of £2,143,000.

3. Earnings (loss) per share

The loss per share was calculated on the basis of net loss attributable to ordinary shareholders divided by the weighted average number of ordinary shares. The basic and diluted loss per share is the same, as the exercise of share options would reduce the loss per share and therefore, is anti-dilutive.

4. Taxation

Tax has been calculated using an annual effective tax rate of 20% on profit before tax.

The difference between the total tax expense shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax is as follows:

5. Goodwill

The subsidiary acquired is the cash generating unit SD Taylor Limited; trading as Loansathome4u, refer to note 9 for detail on the acquisition.

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

The recoverable amount has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a three-year period to 31 December 2018, disposal costs have been estimated at 2% and a discount rate (WACC) of 15% used. The Directors have estimated the discount rate using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the market.

At 31 December 2015 the recoverable amount of the goodwill was in excess of its carrying amount by £51.2 million when applying the lowest valuation as specified in the accounting policies.

None of the goodwill is expected to be tax deductible.

6. Intangible assets

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

The fair value of Loansathome4u's agent relationship on acquisition has been estimated by valuing the cost to set up a similar network of trained agents. The asset will be amortised on a reducing balance basis at 20%.

The fair value of the brand on acquisition has been estimated by assessing the likely commercial level of royalties that would be payable to a third party were the brand licenced rather than owned, calculated as a percentage of forecast revenues and discounted to the date of the transaction. The Board of Directors will re-value the brand using the same methodology at each future accounting date. They anticipate the brand to be fully amortised over an 18 month period.

7. Amounts receivable from customers

The movement on the loan loss provision for the period relates to the provision at Loansathome4u since the date of acquisition. The amounts receivable from customers was recognised at fair value (net loan book value) at the date of acquisition refer to note 9 for detail.

Analysis of overdue receivables from customers

Analysis on movement on loan loss provision

The EIR used during the period to 31 December 2015 was 328%.

Interest income on impaired loans was £1,901,000 for the period since acquisition of Loansathome4u to 31 December 2015.

8. Deferred tax

The deferred tax liability recognised on intangible assets at acquisition relates to the acquisition of Loansathome4u. The intangible assets will be amortised in future periods for which tax deductions will not be available.

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

For the period ended 31 December 2015 the Company has unused tax losses of £1,822,000 available for offset against future profits. However, due to the uncertainty over the likelihood of future profits at the Company level, the deferred asset has not been recognised on the Company or Consolidated Balance Sheet.

9. Acquisition of subsidiary

On 4 August 2015, the Group obtained control of SD Taylor Limited, trading as Loansathome4u through the purchase of 100% of the share capital.

A detailed conversion of Loansathome4u's financial statements, to align accounting policies, has been completed post acquisition which reduced Loansathome4u's net assets on acquisition by £5,956,000, principally in respect of higher impairment provisions due to the impact of a more timely approach to recognising impairment.

The provisional fair values of the identifiable assets and liabilities of Loansathome4u as at the acquisition date were as follows:

(a) £17,312,000 has been attributed to the fair value of Loansathome4u's customer list £540,000 to the agent network and £297,000 to the brand. Refer to intangible assets note 6 for detail

(b) An adjustment to receivables of £5,882,000 has been made to reflect the fair value of the receivables book at the acquisition date

(c) An adjustment of £732,000 to accruals for a recognised dilapidations provision on the properties owned by Loansathome4u

(d) Deferred tax liability £4,806,000 recognised on the intangibles and the fair value adjustment of the receivable book at acquisition

Transaction costs of £3,417,000 relating to the acquisition of Loansathome4u have been recognised as an expense and included within exceptional costs (attributable to the Central division) in the statement of comprehensive income. The remainder of the acquisition costs within exceptional costs relate to the 2016 acquisition of Everyday Loans.

Loansathome4u contributed £14,657,000 to the Group's revenue and £2,143,000 profit to the Group's adjusted operating loss for the period from the date of acquisition to the period end date.

10. Net cash used in operating activities