NSF.L Regulatory News (NSF)

Non-Standard Finance plc

('NSF', or the 'Company' or the 'Group')

Trading update

29 November 2017

Ahead of a capital markets day to be held in London later today, the Company is providing the following trading update.

The Group is making good progress with loan book growth, impairment levels and risk adjusted margin all ahead of our expectations. The opportunity that we identified back in 2015, namely to deliver highly profitable growth in each of our three operating divisions, remains substantial. Having increased investment in our infrastructure and networks, we are now seeing an acceleration in the rate of loan book growth whilst maintaining tight control over impairment. As we enter the seasonally important Christmas period for our home credit division, we remain confident about the Group's prospects.

Since the end of June, Everyday Loans has continued to perform strongly with record numbers of loans written and total value of loans issued each month. At 31 October 2017 the net loan book had reached £143.7 million, up 20% year-on-year. To ensure we continue to manage this growth effectively, we are investing an additional £1 million in the current year rising to £3 million in 2018. This will bolster our existing infrastructure in areas such as compliance, management support, training, and also additional premises so as to underpin our growth plans for 2018 and beyond. The benefit of this investment is already being felt with a further reduction in the rate of impairment to 17.9% of revenue for the 12 months to 31 October 2017 (H1 2017: 19.6%) with the result that the risk adjusted margin has increased to 37.3% (H1 2017: 35.7%). Having opened our twelfth new branch in Newport earlier this month we now have 53 branches and are planning to open a further 12 branches next year with a view to having all of them open before the end of the first half of 2018. The branches we opened in both 2015 and 2016 are to date performing in line with our expectations.

Structural change in the home credit market has meant that Loans at Home has also enjoyed rapid growth since the end of June. At 31 October 2017 we had 1,002 agents and the net loan book had increased by 40% to £38.1 million. Again, to support this higher than expected loan book growth and maintain an appropriate span of control, we have opened 20 new offices across the country and recruited 90 additional field support staff that incurred additional expansion-related costs of c.£2 million this year. The recruitment of 437 experienced home credit agents to our network has incurred temporary agent commissions of £3.0 million for the full year (H1 2017: £0.8 million) that will not be repeated in 2018. These investments have already had a significant impact on the quality of our loan book and the rolling twelve month rate of impairment has reduced from 37.5% of revenue at 30 June 2017 to 32.9% at 31 October 2017, providing a solid base as we move into 2018.

We have completed all elements of our 100-day plan for George Banco and the business has responded well to becoming part of NSF. Market demand for guaranteed loans remains strong and in the twelve months to 31 October 2017 the combined George Banco/TrustTwo loan book was up 33% versus the prior year to £43.8 million. We are particularly pleased that monthly lending volumes at George Banco now exceed the levels achieved before funding constraints under its previous ownership forced a slowdown in lending. Despite this strong growth, impairment as a percentage of revenue for the twelve months to 31 October 2017 remains below 15% and our plans to integrate both businesses onto a single technology platform remain on course to complete in 2018.

As at 31 October 2017, the Group had gross borrowings of £186.5 million, cash at bank of £10.0 million and committed but undrawn facilities of £73.5 million.

IFRS 9

The International Accounting Standard Board's introduction of a new accounting standard covering financial instruments becomes effective for accounting periods beginning on or after 1 January 2018. This standard replaces IAS39: Financial Instruments: Recognition and Measurement.

The new standard requires that lenders (i) provide for the expected credit loss ('ECL') from performing assets over the following year and (ii) provide for the ECL over the life of the asset where that asset has seen a significant deterioration in credit risk. This differs from the current incurred loss model under IAS 39 whereby impairment provisions are only reflected when there is objective evidence of impairment, typically a missed payment. As a result, whilst the underlying cash flows from the asset are unchanged, IFRS9 will have the effect of bringing forward provisions into earlier accounting periods.

This will result in a one-off adjustment to receivables and reserves on adoption of the new standard and will result in later recognition of profits, particularly in fast growing businesses such as Everyday Loans, Loans at Home, George Banco and TrustTwo.

Having finalised the methodology and accounting policies to be used to implement the new standard, we are now able to illustrate the impact of IFRS 9 on the 2016 balance sheet: reported receivables at the end of 2016 would have been approximately 3%-7% lower under IFRS 9 and the Group's reported net assets at the same date, after taking account of the deferred tax impact of the receivables adjustment, would be approximately 3% lower if the reported receivables were 5% lower. 

Investor day

The Company will host a series of investor presentations today at the Victoria Embankment office of JP Morgan, beginning at 9.15 am. The presentations will provide an overview of NSF's strategy and outlook from the executive management team and the senior management of NSF's operating divisions. The Company confirms that no new material information will be provided during the presentations that will be available later today on the Group's corporate website: www.nonstandardfinance.com.

This announcement contains inside information.

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