Mighty Craft Limited Annual Report 2020

FY2020 Annual Report · Mighty Craft Limited

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Building for
the future

Morses Club PLC
Annual Report & Accounts 2020

Morses Club PLC is an
established, relationship-driven
consumer finance provider.

Our purpose

Our vision

We aim to meet the real need
for responsible lending in the
community across the UK,
particularly for customers
with a complex credit history.

To build the market-leading
non-standard credit company in
the UK – with the customer at the
heart of our business.

Contents

Strategic Report
Highlights
1
Company Overview
2
Investment Case
4
Chairman’s Statement
6
Chief Executive Officer’s Review
8
Our Business Model
12
Market Context
14
Our Strategy
16
Chief Financial Officer’s Operational and Financial Review
18
Risk Management
24
Principal Risks and Uncertainties
25
Engaging with our Stakeholders
32

Governance Report
38
40
42
49
53
60
64
69
70
74

Board of Directors
Chairman’s Introduction to Governance
Corporate Governance Report
Nominations & Succession Committee
Audit Committee
Risk & Compliance Committee
Directors’ Remuneration Report
Disclosure Committee
Directors’ Report
Directors’ Responsibilities

Financial Statements
76
87
88
89
90
91
93
140

Independent Auditor’s Report
Consolidated Income Statement
Balance Sheet
Consolidated Statements of Changes in Equity
Cash Flow Statements
Notes to the Consolidated Cash Flow Statement
Notes to the Consolidated Financial Statements
Information for Shareholders

Strategic Report

Corporate Governance

Financial Statements

Highlights

Adjusted Profit1
(Before Tax)

22.0

19.2

Adjusted Earnings1
Per Share (p)

Adjusted Return1
On Equity (%)

Adjusted Return1
on Assets (%)

13.6

11.7

29.6

26.5

25.4

22.9

15.5

13.8

9.5

8.4

22.3

19.9

16.6

14.8

2018

2019 2020 N 2020 A

2018

2019 2020 N 2020 A

2018

2019 2020 N 2020 A

2018

2019 2020 N 2020 A

£13.8m
-37.3%

Reported Profit
(Before Tax)

20.2

8.4p
-38.2%

Basic Earnings
Per Share (p)

12.5

16.1

10.1

19.9%
-32.8%

Return
On Equity (%)

14.8%
-41.7%

Return
On Assets (%)

27.2

23.4

22.9

19.7

11.5

7.3

17.2

12.8

2018

2019

2020

2018

2019

2020

2018

2019

2020

2018

2019

2020

£11.5m
-43.1%

7.3p
-41.6%

17.2%
-36.8%

12.8%
-45.3%

1 Definitions and reconciliations to the nearest statutory measure are set out in the Glossary of Alternative Performance Measures on Pages 136 to 139

Operational highlights

• Development and launch of fully online Customer Portal,

with over 78,000 customers (FY19: nil)

• 45,000 Morses Club Card customers, with £22.9m in loan
balances (FY19: 30,000 customers, £15.5m loan balances)

• Acquisition of the business and certain assets of CURO
Transatlantic Limited, an online lender, with c.37,000
customers, operating under the Dot Dot Loans brand

• Acquisition of U Holdings Limited, an e-money current

account provider, with 18,000 customers, operating under
the U Account brand

• Commenced re-engineering of our online businesses to
build our product offering and take advantage of the
opportunity in the wider non-standard credit market

• Delivering further technology enhancements in

our HCC business to provide a digital service to customers
enabling a virtually paperless documentation process

• Due to Covid-19, reconfigured our lending, collecting and

operating processes to ensure the safety of our customers,
employees and agents

N = Normalised PBT A = Adjusted PBT

Alternative performance measures
In reporting financial information, the Group presents alternative
performance measures, ‘APMs’ which are not defined or specified under
the requirements of IFRS. The Group believes that these APMs, which
are not considered to be a substitute for or superior to IFRS measures,
provide stakeholders with additional helpful information on the
performance of the business. The APMs are consistent with how the
business performance is planned and reported within the internal
management reporting to the Board. Some of these measures are also
used for the purpose of setting remuneration targets. The definition of
Adjusted PBT is outlined in the glossary of APMs on Page 136.

An additional measure of Normalised Adjusted PBT has been adopted
to strip out the impact of Covid-19 from the adjusted PBT figure. This is
to illustrate the underlying performance prior judgements regarding
Covid-19, since the pandemic itself did not have a material impact on the
FY20 trading.

Each of the APMs used is set out in the glossary at the back of the
statement on Pages 136 to 139. Reconciliations are also provided on
Page 139 to the nearest statutory measure.

The Group makes certain adjustments to the statutory measures in
order to derive APMs where relevant. The Group’s policy is to exclude
items that are considered to be significant in both nature and/or
quantum and where treatment as an adjusted item provides
stakeholders with additional useful information to assess the
year-on-year trading performance of the Group.

Morses Club PLC Annual Report & Accounts 2020

Company Overview

Expanding our offering to meet our customers’ needs.

With a history dating back 130 years, Morses Club PLC
is the result of the combination in 2015 of 2 established
brands, Morses Club and Shopacheck Financial
Services. We have been listed on AIM since May 2016.

Following the acquisitions of the business and certain
assets of CURO Transatlantic Limited and U Holdings
Limited, we now structure our reporting under 2 divisions,
Morses Club, which is our home collected credit (HCC)
division and Shelby Finance Limited (SFL), a subsidiary of
Morses Club and our Digital division, which operates the
online lending and e-money current account services.

97%*

CUSTOMER
SATISFACTION

HCC

Operating under the Morses Club
brand, we provide small, short-term
loans to customers who need
affordable credit and are often
unable to access traditional
High-Street lending.

Our model is based on a loan issue
and collection process via agents that
typically live in the same communities
as our customers. Due to Covid-19, we
have adapted our operating model to
work remotely using our existing
technology platform to maintain
customer contact and collection
activity and a new remote temporary
lending process to deliver cashless
lending to existing customers.

Customers value the simple, fixed
payment weekly collections model
and the fact that no charges are
levied for arrangement or if payments
are missed.

We ensure that customers are
supported through any short-term
difficulties as part of our approach
to forbearance.

The majority of our borrowers are
repeat customers, and customer
satisfaction rates are consistently
at 97% or above.

We are the second largest UK Home
Collected Credit lender, and serve
customers throughout the UK from
our network of 89 branches and
1,695 self-employed agents.

221,000

CUSTOMERS

Morses Club PLC Annual Report & Accounts 2020

* relates only to the HCC division; no
formal measurement of customer
satisfaction for SFL conducted to date.

Strategic Report

Corporate Governance

Financial Statements

Digital

Our Shelby Finance Limited
subsidiary operates under
2 online brands.

Dot Dot offers online instalment loans
of up to 48 months

U Account is an e-money current
account provider

Dot Dot is a fully online lending
provider, which was launched in March
2017. The product offering aims to
serve the needs of 2 segments of the
lending market: short-term 3-6 and
9-month duration loans serving
customers who want to borrow
£200-£1,000, and loans of £1,500-
£4,000 for those customers who want
to borrow more over a longer term of
up to 48 months.

U Account offers customers online
current account services, based on 2
pricing models: pay as you go or a
monthly fee, which includes a set level
of inclusive transactions. U Account is
designed for customers who may not
have access to mainstream banking
or want a secondary account.

20,158

13,365

ONLINE LENDING CUSTOMERS

E-MONEY CURRENT ACCOUNT CUSTOMERS

Morses Club PLC Annual Report & Accounts 2020

Investment Case

Our growing digital capabilities open
up opportunities in the fragmented non-
standard finance market to deliver a broad
range of financial products and services.

ESTABLISHED
MARKET POSITION

SCALABLE
INFRASTRUCTURE

WELL-POSITIONED
FOR GROWTH

#2 Home Collected Credit company
in the UK, and gaining share

Scalable, highly invested IT
platform

Roadmap of organic growth
initiatives

221,000 customers across the UK

High levels of customer satisfaction
and repeat business

Widening product and digital
offering, notably into online loans
and online e-money current
account services

Well placed for consolidation
in a fragmented market

Untapped market potential
of c. 10m people

Read more on Page 40 to 48

96%

OF AGENTS
Thought Treating the Customer
Fairly was part of the daily
mindset

Engaging careers for employees

72%

EMPLOYEE ENGAGEMENT*

Attractive returns for investors

8.4p/7.3p

ADJUSTED EPS/BASIC EPS

90%

of employees believe MCL offers
good customer service

95%

of agents understand importance
of TCF good customer service

Read about how we engage with our
stakeholders on Page 32

* Based on annual independent satisfaction

survey for HCC only (Mustard).

Morses Club PLC Annual Report & Accounts 2020

Market Context

Home collected credit is
an important and resilient
segment of the non-standard
finance market.

Fig 1 – Key

Fig 3 – Key

Unemployed
Underemployed*

Logbook
Rent-to-own
Pawnbroking
Guarantor
Motor finance
Instalment
HCSTC
Home credit

The non-standard finance
market is sizeable and growing

HCC plays an important role for
customers, and demand is resilient

Fig 1 – Unemployment
and underemployment* (m)

An estimated 10-12m consumers –
20-25% of UK adults – have
difficulty accessing credit from
mainstream financial institutions1
on account of an impaired or
non-existent credit history.

The non-prime sector has seen
high growth:

“Gross loan receivables for the
largest active firms went up
by 41% in 2 years to 2017/18, and
net receivables (after
impairments) up 32%.”2

Although the rate of employment
is at an all-time high, large
numbers of adults are working
part-time while looking for full-time
employment, or are on zero-hour
contracts, the types of low-paid,
insecure work that drive demand for
non-prime lending. The number of
these ‘underemployed’ people
is greater than actual unemployed,
as shown in Fig 1.

A proportion of the working age
population – whether or not in work
– relies on benefits, which have been
reduced as a result of government
austerity policies since 2010.

Fig 1 Source: ONS, OBR (Note: underemployed
defined as workers who are employed but
wish to work more hours)

Fig 2 Source: Company accounts, Apex insights

analysis, FCA market statistics

Fig 3 Source: Apex insight analysis

Morses Club PLC Annual Report & Accounts 2020

HCC customers typically have low or
fluctuating incomes. They take out
small, unsecured, short-term loans to
finance events such as birthdays or
Christmas, or unexpected
expenditure. The average loan value
in the home collected credit market in
2016 was £7703.

In its 2019 report into UK Non-Prime
Consumer Credit, Apex Insight
estimated loans outstanding in April
2019 of £1.0bn gross, £0.7bn net of
impairments. In its review of the
high-cost credit market, the FCA
estimated 1.6m customers and total
value of outstanding debt £1.1bn,
based on 2016 data.

As Figures 2 and 3 show, the HCC
sector is mature and also relatively
resilient, notwithstanding well
documented issues with the largest
provider in recent years.

We are closely monitoring the
macroeconomic environment and the
impact of Covid-19 on the UK
economy and the non-standard
finance market. While it is difficult to
assess the long-term impact on the
market at this time, we have
successfully adapted our operating
model to maintain continuity of
customer contact and collection
activity.

“The availability of unsecured
consumer credit fell for a 12th
successive quarter in the fourth
quarter of 2019 … Lenders also
further tightened their lending
standards for unsecured
consumer credit for a 13th
successive quarter.”4

4
6
5

5
0
3

8
4
5

9
9
2

9
6
5

2
1
.
3

1
6
5

3
1
.
3

8
1
.
5

8
7
2

0
4
2

0
5
2

9
5
2

7
5
2

7
4
2

0
9
4

7
8
2

3
0
2

9
5
4

0
8
2

1
2
4

8
5
2

8
7
.
1

3
6
.
1

9
0
0
2

0
1
0
2

1
1
0
2

2
1
0
2

3
1
0
2

4
1
0
2

5
1
0
2

6
1
0
2

5
1
.
4

7
3
2

9
7
.
1

8
0
0
2

5
7
3

9
0
2

6
6
.
1

7
0
0
2

1
0
4

3
5
2

8
4
.
1

7
1
0
2

1
8
3

3
4
2

8
3
.
1

8
1
0
2

Fig 2 – Home Credit
lenders revenue

4
7
1
,
1

5
6
1
,
1

2
5
1
,
1

1
6
1
,
1

4
2
1
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5
7
0
,
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2
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0
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4
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5
1
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6
1
0
2

7
1
0
2

8
1
0
2

Fig 3 – Historical and
forecast new lending by segment
excluding credit cards (m)

7,835

347
300
666

1,141

1,217

1,615

6,450

300
300
500

750

1,300

2,500

4,979

370
300
320
680

620

903

1,736

2016

2018

2021

Strategic Report

Corporate Governance

Financial Statements

Morses Club is a major provider
in the fragmented HCC market

Market trends support
Morses Club’s strategy

NON-STANDARD
FINANCE CUSTOMERS

L.E.K Consulting’s view is that there is
potential for a more integrated ‘whole
of customer’ offering1 aligns with
Morses Club’s strategy to diversify
into areas adjacent to its core HCC
proposition. The consulting firm
believes that open banking, may offer
opportunities for non-standard
lenders to compete at the margins
with prime lenders and banks in some
product categories.

10m*

HOME COLLECTED
CREDIT CUSTOMERS

1.6m**

PROVIDERS OF
HOME COLLECTED CREDIT

400***

UNSECURED CONSUMER CREDIT
(EXCLUDING CREDIT CARDS)

£10.7 bn****

4 1

7,835

347

300

666

1,141

1,217

1,615

6,450

300

500

750

1,300

4,979

370

300

320

680

620

903

1,736

2,500

2016

2018

2021

Morses Club is 1 of 3 national
providers of home collected credit.
The remainder of the market remains
fragmented, with more than 400
home credit members registered with
the Consumer Credit Association5.

The need to comply with increasingly
stringent regulatory requirements
and to invest in technology to facilitate
the assessment of affordability and
other administrative processes,
present significant barriers to
prospective market entrants.
These factors have also led to some
existing participants choosing to leave
the sector.

Recent regulatory changes following
the FCA’s review of the high-cost
credit market include the need to
provide customers with details of the
comparative costs of refinancing an
existing loan versus taking out a new
loan, and new rules were also
introduced in relation to when and
how an agent is able to discuss a new
loan with customers.

LEK UK Specialist lending market trends and
outlook 2018

2 Apex Insight - Non-prime Consumer Credit
UK Market Insight Report September 2019

3 High Cost Credit Review Annex 1 - July 2017
4 Apex Insight - Non-prime Consumer Credit
UK Market Insight Report September 2019

5 Source CCA - Trade Association *

* *

High Cost Credit Review ANNEX 1 – July 2017
High Cost Credit Review ANNEX 1 – July
2017/September 2019

* * * Source – CCA – Trade Association
* * ** Apex Insight – Non-Prime Consumer Credit:
UK Market Insight Report – September 2019
reduced-lending-in-fourth-quarter-of-2019

Morses Club PLC Annual Report & Accounts 2020

Our Strategy

Our recent Digital acquisitions
have accelerated our strategy
to broaden our offer to
non-standard credit customers.

OUR VISION

To build a market-leading
non-standard credit
company in the UK – with
our customers and our
people at the heart
of our business.

Morses Club PLC Annual Report & Accounts 2020

STRATEGIC PILLARS

PROGRESS AND KPIS

FUTURE PRIORITIES

Grow core
HCC offering

Launched online portal in Feb 2019, allowing customers

Add functionality to the customer portal, including

to access account balance and payment history

link to the Morses Club Card

information, their credit eligibility, and content and

rewards from third parties

– 78,000 customers

Continue to encourage adoption of Morses Club Card

– Consistent demand for the Morses Club card:

Continued development of remote lending and

– 45,000 customers (2019: 30,000)

– £22.9m loan balances (2019: £15.5m)

collection methods

Continued research into understanding customer

financial needs through market research

Continued customer analysis will take place to

mitigate any risk of a reduction in customer

satisfaction levels in delivering a more remote service

Acquired the business and certain assets of online loan

Broaden our range of online loans sold under the

provider CURO Transatlantic Limited in February 2019,

Dot Dot Loans brand, including longer-term lending.

providing short-term loans

(3 to 48 months) under the Dot Dot Loans brand

Offer credit to U Account current account holders,

– 37,000 customers

including fixed-term loans and revolving credit.

Diversify into
complementary
products

Acquired online current account

provider U Holdings Limited in June 2019

– 18,000 customers

Develop brand of U Account to create platform for

linked credit and current account services – U Money

Careful assessment will take place to ensure our risk

appetite and affordability criteria are met in offering

credit products to current account customers

Continue to work
responsibly and
ethically

Implemented the recommendations of the FCA’s

Development of affordability approaches

High-cost Credit Review, that meets FCA’s Covid-19

forbearance requirements including new affordability

Continue to gather customer feedback on

check processes and adhering to the requirements of

aspects of service and product provision

the marketing permissions regime.

Ensuring that any further credit offered is

Continued to apply strict eligibility and affordability

to help the customer access suitable

criteria, treating customers fairly

– 75% of new loan applications were rejected

– 97% customer satisfaction for HCC

products as part of a normal share

of wallet rather than creating

indebtedness

Continued to achieve overall score of 97% for the

quarterly Good Customer Outcomes Survey which

measures customer feedback on all parts of our process

Strategic Report

Corporate Governance

Financial Statements

STRATEGIC PILLARS

PROGRESS AND KPIS

FUTURE PRIORITIES

Grow core

HCC offering

Launched online portal in Feb 2019, allowing customers
to access account balance and payment history
information, their credit eligibility, and content and
rewards from third parties
– 78,000 customers
– Consistent demand for the Morses Club card:
– 45,000 customers (2019: 30,000)
– £22.9m loan balances (2019: £15.5m)

Add functionality to the customer portal, including
link to the Morses Club Card

Continue to encourage adoption of Morses Club Card

Continued development of remote lending and
collection methods

Continued research into understanding customer
financial needs through market research

Continued customer analysis will take place to
mitigate any risk of a reduction in customer
satisfaction levels in delivering a more remote service

Acquired the business and certain assets of online loan
provider CURO Transatlantic Limited in February 2019,
providing short-term loans
(3 to 48 months) under the Dot Dot Loans brand
– 37,000 customers

Broaden our range of online loans sold under the
Dot Dot Loans brand, including longer-term lending.

Offer credit to U Account current account holders,
including fixed-term loans and revolving credit.

Diversify into

complementary

products

Acquired online current account
provider U Holdings Limited in June 2019
– 18,000 customers

Develop brand of U Account to create platform for
linked credit and current account services – U Money

Careful assessment will take place to ensure our risk
appetite and affordability criteria are met in offering
credit products to current account customers

Continue to work

responsibly and

ethically

Implemented the recommendations of the FCA’s
High-cost Credit Review, that meets FCA’s Covid-19
forbearance requirements including new affordability
check processes and adhering to the requirements of
the marketing permissions regime.

Continued to apply strict eligibility and affordability
criteria, treating customers fairly
– 75% of new loan applications were rejected
– 97% customer satisfaction for HCC

Development of affordability approaches

Continue to gather customer feedback on
aspects of service and product provision

Ensuring that any further credit offered is
to help the customer access suitable
products as part of a normal share
of wallet rather than creating
indebtedness

Continued to achieve overall score of 97% for the
quarterly Good Customer Outcomes Survey which
measures customer feedback on all parts of our process

To accelerate our strategy, we continue
to seek to make selected acquisitions in
HCC and the wider non-standard
finance markets.

Morses Club PLC Annual Report & Accounts 2020

Chief Financial Officer’s
Operational and Financial Review

Whilst the Group has made excellent
progress in growing HCC profits in a
mature marketplace, the new Digital
acquisitions have contributed losses to
the business that have reduced overall
profitability. This year, we are also
required to identify the possible adverse
impact of Covid-19 on the impairment
of our closing loan book that would
have been foreseen at the year end.
This has further suppressed our
overall performance.

However, we are confident that our Digital
strategy combined with what we believe
to be a best-in-class HCC business will
see us emerge from this difficult period
as a strong and profitable business.

Andy Thomson
Chief Financial Officer

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Overview

The results for the Group for the 53 weeks ended 29 February 2020 have been affected by the requirements of IFRS 9
to report the possible impact that would have been foreseen at the year end of the Covid-19 pandemic on the closing
balance sheet for FY20. This required us to assess the likely decrease in cash flows from our closing loan books as a result
of both our customers inability to pay and, in the case of home collected credit, our inability to collect from customers
during a lockdown. These adjustments have required additional provisions of £1.7m (FY19 £nil) which directly reduced
earnings by the same sum. The approach and assumptions of the additional Covid-19 provision are detailed in Note 16 on
Page 115.

In addition, we also considered the subsequent impacts of Covid-19 that became known after the year end which we
have noted as Post Balance Sheet Events (PBSE). The various aspects of these impacts are summarised in the table
below and detailed in Note 30 of the financial statements.

Post Balance Sheet Events re Covid-19 (unaudited)

Additional write off
Loss of income from bad debt recoveries
Delayed revenue recognition from slower repayments

Total impacts
Less: recognised in FY20

Net Post Balance Sheet Events

£m

£5.8m
£0.3m
£0.8m

£6.9m
(£1.7m)

£5.2m

On a ‘normalised’ basis, our results excluding the Covid-19 adjustment, we achieved a normalised adjusted profit
before tax of £15.5m (FY19: £22.0m) which after the Covid-19 adjustment reduced to £13.8m. Statutory profit before
tax of £11.5m would have been £13.2m on a normalised basis were the £1.7m Covid-19 adjustment to be added back
(FY19: £20.2m).

Reconciliation of Statutory profit before tax to Normalised Adjusted and Adjusted profit before tax and explanation of
Normalised and Adjusted EPS

FY20

FY19

£m (unless otherwise stated)

Statutory Profit Before Tax
Covid-19 adjustment to impairment

Statutory Profit Before Tax before

Covid-19 adjustment

Amortisation, restructuring and

non-recurring costs

Exceptional gain2
Amortisation of acquisition intangibles3

Normalised Adjusted Profit Before Tax1
Covid-19 adjustment to impairment

Adjusted Profit Before Tax1
Tax on Adjusted Profit Before Tax

Adjusted Profit After Tax
Statutory EPS1
Normalised EPS1
Adjusted EPS1

Statutory Return on Assets1
Normalised Return on Assets1
Adjusted Return on Assets1
Statutory Return on Equity1
Normalised Return on Equity1
Adjusted Return on Equity1

HCC

21.2
1.7

Digital

(9.7)
0.0

Total

11.5
1.7

HCC

20.7
0.0

Digital

(0.5)
0.0

Total

20.2
0.0

22.9

(9.7)

13.2

20.7

(0.5)

20.2

0.9
0.0
0.8

24.5
(1.7)

22.8
(2.4)

20.4

27.5%
31.1%
29.3%
30.1%
34.1%
32.1%

2.6
(2.3)
0.4

(9.0)
0.0

(9.0)
(0.4)

(9.4)

3.5
(2.3)
1.2

15.5
(1.7)

13.8
(2.8)

11.0
7.3p
9.5p
8.4p

12.8%
16.6%
14.8%
17.2%
22.3%
19.9%

0.8
0.0
0.0

22.5
0.0

22.5
(4.5)

18.0

0.0
0.0
1.0

(0.5)
0.0

(0.5)
0.1

(0.4)

0.8
0.0
1.0

22.0
0.0

22.0
(4.4)

17.6
12.5p
13.6p
13.6p

23.4%
25.4%
25.4%
27.2%
29.6%
29.6%

Increase/
(Decrease)

(8.7)
1.7

(7.0)

0.8
0.0
1.0

(6.5)
(1.7)

(8.2)
1.6

(6.6)
(5.2p)
(4.2p)
(5.2p)

1 Definitions are set out in the Glossary of APMs
2 Adjustments in connection with CURO Transatlantic Limited and U Holding Limited acquisitions
3 Amortisation of acquired customer lists and agent networks

The HCC business continued to perform strongly in what we believe is a mature and probably declining marketplace.
Whilst closing customer numbers fell by 5.6% and gross receivables by 1.6%, income increased by 2.3% to £119.3m
(FY19: £116.6m). This resulted in a Normalised Adjusted Profit before tax of £24.5m which was 8.9% up compared to
FY19 of £22.5m. The Covid-19 impairment adjustment reduced this to £22.8m, still a year-on-year increase of 1.3%.

Morses Club PLC Annual Report & Accounts 2020

Chief Financial Officer’s
Operational and Financial Review continued

We made great strides in enhancing the scale and capability of our Digital business during the year, albeit with a
significant impact on profitability. We acquired the business and certain assets of CURO Transatlantic Limited at the end
of February 2019 from the Administrator. Whilst the business had suffered from a legacy of payday loans dating back to
2004, we only acquired the current instalment loans part of the loan book. Whilst we were able to acquire the business
at a very small uplift to the net assets (£0.1m), we knew that the turnaround and growth of the business was likely to incur
trading losses in FY20.

In addition, we acquired the digital banking business U Holdings Limited, trading as U Account in June 2019. Like most
digital online current account providers, this is currently loss-making though we have a clearly defined strategy to grow
this through FY21/FY22 with a view to integrating lending products into a one view of the customer model that should
result in improved customer outcomes and financial performance.

As a result of these acquisitions, the digital adjusted loss before tax increased significantly to (£9.0m) against an adjusted
loss for FY19 of (£0.5m).

Total equity was virtually unchanged, decreasing by 0.4% to £70.7m (FY19: £71.0m), as a result of the impact of the
Covid-19 adjustments which after tax adversely impacted total equity by (£1.4m). The move to IFRS 16 had a negligible
impact on net assets.

Trading summary

£m (unless otherwise stated)

Customer numbers (‘000s)
Credit issued
Period end receivables
Average receivables

Revenue
Impairment
Agent commission

Gross Profit before Covid-19 adjustment
Administration expenses (pre-exceptional)
Depreciation

Operating Profit before exceptional costs and

amortisation of acquisition intangibles

Amortisation of acquisition intangibles
Acquisition, restructuring and non-recurring costs
Covid-19 adjustment to impairment
Exceptional items

Operating Profit
Funding costs

Statutory Profit Before Tax
Tax

Statutory Profit After Tax

Basic EPS

Group results

53-week period ended
29 February 2020

52-week period ended
23 February 2019

HCC

Digital

221
174.2
67.9
69.3

119.3
(27.6)
(27.0)

64.7
(34.4)
(3.6)

26.7
(0.8)
(0.9)
(1.7)
0.0

23.2
(2.1)

21.2
(2.0)

19.2

34
16.1
4.9
5.0

14.4
(7.1)
(0.6)

6.6
(13.8)
(0.7)

(7.9)
(0.4)
(2.6)
0.0
2.3

(8.5)
(1.1)

(9.7)
0.1

(9.7)

Total

255
190.3
72.8
74.3

133.7
(34.7)
(27.6)

71.3
(48.2)
(4.3)

18.8
(1.2)
(3.5)
(1.7)
2.3

14.7
(3.3)

11.5
(2.0)

9.5

7.3p

HCC

Digital

234
178.1
73.0
69.1

116.6
(25.9)
(28.3)

62.4
(36.5)
(1.7)

24.3
(1.0)
(0.8)
0.0
0.0

22.5
(1.7)

20.7
(4.1)

16.6

0
0.4
0.0
0.2

0.4
(0.3)
0.0

0.1
(0.6)
(0.0)

(0.5)
0.0
0.0
0.0
0.0

(0.5)
0.0

(0.5)
0.1

(0.4)

Total

234
178.5
73.0
69.3

117.0
(26.2)
(28.3)

62.5
(37.1)
(1.7)

23.8
(1.0)
(0.8)
0.0
0.0

22.0
(1.7)

20.2
(4.0)

16.2

12.5p

Credit issued to customers increased by 6.6% to £190.3m (FY19: £178.5m) mainly due to the increase in Digital which
increased by £15.7m to £16.1m (FY19: £0.4m) reflecting the acquisition of certain assets from the business and CURO
Transatlantic Limited in February 2019. HCC credit issued declined by 2.2% to £174.2m (FY19: £178.1m) which we believe
reflects the maturity of this market.

Revenue increased by 14.3% to £133.7m (FY19: £117.0m) with the majority of the increase due to the acquired digital
businesses, £14.4m compared to FY19: £0.4m. HCC also saw a small 2.3% increase in revenue due to slightly higher yields.

HCC gross profits before the Covid-19 adjustment increased to £64.7m (FY19: £62.4m), an increase of 3.7%. The gross
profit percent increased to 54.2% from FY19 53.5%. Within the cost of sales, impairment before the Covid-19 adjustment
increased from 22.2% to 23.1%, with poorer loan performances identified across newer and more remote customers in

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

the last few months of the year. However, the overall performance still sits
comfortably within our guidance range of 21.0% to 26.0%. The increased
impairment costs were more than offset by agent commission costs reducing
from 24.3% to 22.6%. This was as a result of there being no material territory
build subsidies in the year and the full year effect of the phasing out during
FY19 of the remaining commission protection arrangements to newer agents.

HCC adjusted return on assets

31.1%

29.3%

25.4%

22.9%

Administration expenses (including depreciation) increased significantly from
£38.8m in FY19 to £52.5m in the current year. This was entirely due to the
digital businesses acquired in the year.

HCC administration expenses (including depreciation) were flat at £38.0m
(FY19: £38.2m), against a 2.3% increase in revenue, although this was in part
due to IFRS16 reclassifying £0.5m of lease costs within finance costs.

The comparison of the profit and loss account charges resulting from the
implementation of IFRS16 is detailed in the table below:

8
1
0
2

d
e
t
s
u
d
A

9
1
0
2

d
e
t
s
u
d
A

0
2
0
2

d
e
s
i
l

a
m
r
o
N

0
2
0
2

d
e
t
s
u
d
A

Leases assets: charges to the profit and
loss account (£’m)

FY20
(IFRS16)

FY20

(IAS17) Movement

FY19
(IAS17)

Adjusted earnings per share

Administration costs
Depreciation

Total
Finance costs

Total cost of leased assets

0.5
1.7

2.2
0.5

2.7

3.0
–

3.0

2.5
(1.7)

0.8
(0.5)

0.3

2.5
–

2.5

13.6p

11.7p

9.5p

8.4p

Aside from the impact of IFRS16, depreciation costs in HCC increased by
£0.2m to £1.9m (FY19: £1.7m) due to our ongoing investment in our HCC
technology platforms.

Normalised adjusted profit before tax fell 29.5% to £15.5m (FY19: £22.0m).
Within this the HCC business increased normalised adjusted profit before
tax by 8.9% to £24.5m (FY19: £22.5m), with the gross profit increase of
£2.3m being only slightly offset by a £0.3m increase across administration
costs, depreciation and funding costs. The digital businesses had an adverse
impact on performance with a normalised adjusted loss before tax of
£9.0m, an increase from FY19’s loss of £0.5m.

The HCC normalised return on assets remained a healthy 31.1% compared to
FY19 25.4%. After the Covid-19 adjustment the adjusted return on assets
was 29.3%, still an improvement compared to FY19.

With the additional charge for impairment as a result of Covid-19 of £1.7m, this
reduced the adjusted profit before tax to £13.8m (FY19: £22.0m). The details of
the Covid-19 scenario we considered and the probability attached to it that
resulted in the Covid-19 adjustment of £1.7m can be found in Note 16 on Page
117 of the accounts. A table of adjustments between reported profit before tax
and normalised adjusted and adjusted profit before tax was shown above.

Acquisition, restructuring and non-recurring costs increased to (£3.5m) from
(£0.8m), the increase being in connection with the digital acquisitions with
the restructuring costs in HCC being similar to last year (FY20: £0.9m,
FYH19: £0.8m). The digital costs were largely in relation to headcount
reductions, IT transition costs, acquisition costs and office relocation.

The exceptional gain of £2.3m is in connection with the release of excess
deferred consideration associated with the acquisition of U Holdings Limited;
this was connected to performance criteria that were largely not achieved.

Amortisation of acquisition intangibles increased slightly from (£1.0m) to
(£1.2m) as a result of the additional charge of (£0.4m) from the acquisition of
the digital businesses.

The statutory profit before tax fell by 43.1% to £11.5m (FY19: £20.2m).

8
1
0
2

d
e
t
s
u
d
A

9
1
0
2

d
e
t
s
u
d
A

0
2
0
2

d
e
s
i
l

a
m
r
o
N

0
2
0
2

d
e
t
s
u
d
A

Group adjusted profit before tax

£22.0m

£19.2m

£15.5m

£13.8m

8
1
0
2

d
e
t
s
u
d
A

9
1
0
2

d
e
t
s
u
d
A

0
2
0
2

d
e
s
i
l

a
m
r
o
N

0
2
0
2

d
e
t
s
u
d
A

HCC adjusted profit before tax

£22.5m

£24.5m

£22.8m

£19.2m

8
1
0
2

d
e
t
s
u
d
A

9
1
0
2

d
e
t
s
u
d
A

0
2
0
2

d
e
s
i
l

a
m
r
o
N

0
2
0
2

d
e
t
s
u
d
A

Morses Club PLC Annual Report & Accounts 2020

Chief Financial Officer’s
Operational and Financial Review continued

Earnings per share

The normalised adjusted earnings per share for FY20 was 9.5p, a decrease of 30.1% relative to 13.6p for FY19. The
adjusted earnings per share was 8.4p, a 38.2% reduction compared to 13.6p for FY19. The reported earnings per
share for FY20 was 7.3p compared to 12.5p for FY19, a decrease of 41.6%.

Dividend

After the impact of Covid-19 and the lockdown became a reality, the Group announced that it would be postponing
its decision to make a final dividend payment whilst it assessed the impacts of the pandemic. During this time, we
have extended our loan facilities and cash flows have exceeded expectations as we adapted, and continue to adapt,
to the ever-changing demands on the business. We are pleased to say that we did not furlough any staff or take on
any debt or other support packages offered by HM Government during the crisis.

As a result of this and subject to shareholder approval at the General Meeting on 7 January 2021, the Board
proposes to pay a final dividend of 1.0p per Ordinary Share (FY19: 5.2p) payable on 12 February 2021 to
shareholders on the register at the close of business on 15 January 2021.

This payment is in addition to the interim dividend already paid of 2.6p per Ordinary Share, making a total dividend
for the year of 3.6p (FY19: 7.8p). This represents a total payment for the year of 38% of normalised adjusted profits
after tax which is below our normal dividend policy of paying between 50% and 60% of normalised adjusted profits
after tax. However, the Board has noted that the profit is largely before Covid-19 and believes that we should
remain particularly prudent in the current uncertain times.

Acquisitions and goodwill

At the beginning of the financial year, the Group acquired the business and certain assets of online lender CURO
Transatlantic Limited for £8.0m. This acquisition was in line with our stated strategy to diversify the products and
markets that we serve in the non-prime lending space. This acquisition gives us scale and expertise to take our own Dot
Dot Loans online product to a level where management are confident that it will be financially successful. We have
been going through a complex integration process of re-platforming the incumbent technology, a process that has taken
longer than we anticipated and will not be completed until early 2021. Due to Covid-19, it has been difficult to build up
loan volumes to the required levels so far during FY20 and so we do not now expect to be profitable until later in FY22.

In June 2019 we acquired U Holdings Limited, a company providing e-money current account services, another
major component of the Group’s digital strategy. Whilst we acknowledge that this business may be loss making for a
period of time, we have a strategy to expand it as a leading banking product to the non-prime space by developing
integrated credit products to this customer niche.

Below is an extract of the consideration, goodwill and assets acquired, more details can be found of the acquisitions
in Note 26 to the accounts.

£m

Consideration transferred settled in cash
Fair value of contingent consideration

Total consideration
Less fair value of net assets acquired

Goodwill

CURO

U Account

4.3
3.7

8.0
(7.9)

0.1

6.7
2.8

9.5
(0.1)

9.4

Total

11.0
6.5

17.5
(8.0)

9.5

The contingent consideration was originally payable 5 years after the acquisition based on various performance targets
and although management still expects to achieve these targets, the contingent consideration has been released. This is
because the individuals qualifying for this left the business during the year and have forgone this additional
remuneration which is shown as an exceptional gain in the trading Summary on Page 20. See also Note 3.

Funding

We were pleased to announce at the end of April 2020 the extension of our loan facility with the incumbent lender
consortium from August 2020 out to the end of November 2021. This was particularly pleasing as the facility extension
was agreed and signed off during the most adverse period of the lockdown and we believe illustrates the confidence that
our lenders have in the Group.

The facility limit was reduced from £55m committed to £40m as it became clear, as a result of Covid-19, that lending
volumes during 2020 will be far lower than we anticipated coming into the year. By reducing this unused headroom, and
repaying the £5m mezzanine layer, we will reduce our non-utilisation charges for any given level of borrowing and therefore
overall cost of funding. We also took the opportunity to review operating covenants in light of the Covid-19 pandemic and
given the reduced collections during the first stage of lockdown we agreed an amendment to one operating covenant,
being the collection performance, to reflect this, though in the end we never breached the original unadjusted covenant.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Borrowing peaked at £40.0m in December 2019 (December 2018: £21.5m) the increase reflecting the consideration paid
for the acquisitions, restructuring costs and the subsequent digital loan book growth. We anticipated that the impact of
Covid-19 would be a shrinking of the HCC loan book which would generate more cash and lead to lower levels of
borrowing in the second half of FY21 compared to FY20. In September we reported that our borrowing at the end of
August 2020 was £14m which compared to £23m in August 2019.

Balance sheet

The total equity for the Group decreased by 0.4% from £71.0m reported in FY19 to £70.7m, reflecting the dividends paid,
which included last year’s final dividend, marginally exceeding the retained profit for the year.

The main asset of the Group is our loan book, which on a net basis decreased by (0.3%) from £73.0m in FY19 to £72.8m in
FY20. Excluding the Covid-19 adjustment the net loan book would have been £74.5m, an increase of 2.1%. The net loan
book represents 103% of the total equity (FY19: 103%).

Summarised balance sheet

Loan book
Goodwill
Bank borrowings
Cash at bank
Other net assets

Total equity

FY20

72.8
13.0
(33.8)
11.9
6.8

70.7

FY19

73.0
3.5
(14.1)
7.9
0.7

71.0

The biggest movement in other net assets is due to a tax credit last year of (£1.8m) becoming a tax receivable of £0.5m.
In addition, prepayments increased by £1.3m and intangible assets by £1.2m.

Cash flow

The summarised cash flow statement below demonstrates the healthy levels of cash generated by the business prior to
acquisitions in the table below. The cash inflow from operations of £21.4m was up by 4.4% compared to £20.5m in FY19.
The increase in bank borrowings of £19.5m reflected the cost of investing in acquisitions and assets of £22.4m.

Summarised cash flow

£m

Cash inflow from operating activities
Net borrowing increase/(decrease)
Net cash outflow from investing activities
Dividends paid
Other net cash flow movements
Increase in cash and cash equivalents

Covid-19 and subsequent outlook

Feb 20

Feb 19

21.4
19.5
(22.4)
(10.2)
(4.3)
4.0

20.5
(1.5)
(4.6)
(9.6)
(1.8)
3.0

The additional charge for Covid-19 of £1.7m taken to earnings in FY20 is summarised in the overview above and detailed
in Note 16 to the accounts on Page 115. This additional provision for expected credit losses is required by IFRS9 where not
only do we have to consider the historical loan book performance in order to measure the likely future credit
performance, but also consider economic and other factors that might affect the appropriateness of using this historical
information unaltered. Since the adoption of IFRS9 the Group has, prior to FY20, concluded that there was no need to
make any such adjustment. However, the Covid-19 pandemic required us to consider both the probability of higher
expected credit losses under IFRS9 for the purpose of the FY20 accounts but also the non-adjusting post balance sheet
impact under IAS10.

The full impact of Covid-19 and the lockdown on the business will be higher than this, with lending volumes in FY21 being
reduced as a result of a combination of customer financial difficulties, reductions in customer spending resulting in
reduced borrowing, customer deleveraging and de-risking of their personal finances, higher unemployment and the
application of higher credit scoring criteria which you would expect a responsible lender to apply during this economic
uncertainty.

These factors are inevitably going to lead to a shrinking of customer numbers and the loan book in the established HCC
business during FY21, and therefore revenues and gross margin. The digital business is unlikely to be able to grow as
quickly as we anticipated on acquisition whilst maintaining debt quality at the levels we would responsibly target. As a
result it will take longer than we originally planned to generate profits from these. However, the Group continues to track
all aspects of these challenges and is confident that it will emerge as a profitable and stronger business.

Morses Club PLC Annual Report & Accounts 2020

Risk Management

Principal risks are a risk or a combination
of risks that, given the Group’s current position,
could seriously affect the performance, prospects
or reputation of the Group in the future.

They include those risks that could
materially threaten our business
model, performance, solvency or
liquidity, or prevent us from delivering
our strategic objectives.

The Board has overall responsibility
for ensuring that risk is managed
appropriately across the Group.

The Board, primarily through its Risk &
Compliance Committee, has
established the Group’s risk appetite
and strategy, and approved its
frameworks, methodologies, policies,
and roles and responsibilities.

The Group has a Head of Internal
Audit who reports to the Chair of the
Audit Committee. The priorities of the
Head of Internal Audit have been
agreed by the Board’s Audit
Committee and Risk & Compliance
Committee, and focus on (i) high
residual risks and (ii) those risks that
have been significantly reduced by
Group actions and procedures.

The Group’s approach to risk
management is underpinned by the
‘Three Lines of Defence’ model which
is summarised in the diagram below.

Responsibility for the First Line of
Defence resides with the front-line
business divisions and functions
(eg Operations and Finance). Line
managers are directly accountable
for identifying and managing the
risks arising in their functional or
business areas.

The Second Line of Defence comprises
the Group’s central and independent
risk management and compliance
functions with responsibility for
oversight, compliance monitoring
and financial crime, reporting, to the
Board’s Risk & Compliance Committee
and the Executive Risk Committee.

This is led by the Risk and Compliance
Director, who reports to the Chair of
the Risk & Compliance Committee and
to the CEO.

The Third Line of Defence includes the
Head of Internal Audit, who reports to
the Chair of the Audit Committee and
is independent of the First and
Second Lines of Defence. In addition,
external accountants undertake a
quarterly audit on behalf of the
Group’s external lenders.

During 2019, the Internal Audit
function invested in additional
specialist resource following the
acquisitions during the year.

During the year, the Group has
reviewed its risk management
framework in order to ensure that
priorities are given to the most
important risks.

The Group maintains a risk register
covering the entire business. Risks are
rated according to the probability of
occurrence and potential impact.

Each risk is assigned to an
appropriate individual and all
mitigation and action plans are
recorded. Risks and their status are
reviewed regularly and the Risk &
Compliance Committee has
performed a robust risk assessment
during the year.

The report of the Risk & Compliance
Committee on Pages 60 to 63 sets
out the procedures used by the Board
to manage the Group’s risks.

FIRST LINE OF DEFENCE

SECOND LINE OF DEFENCE

THIRD LINE OF DEFENCE

Hold direct responsibility for the
performance and monitoring of
front-line control activities across
the business

Support and challenge the business
via control activities

Independently review the effectiveness
of front-line control activity

Independently assess and assure

Internal control framework

Risk management effectiveness

Field operations – divisional managers,
regional managers, area managers
and customer relationship managers

Central operations

Banking and finance

Compliance monitoring & oversight

Internal audit

Horizon scanning by senior personnel

Audit Committee

Risk and financial crime prevention

Use of third-party specialists to
assist the internal audit department

Use of third-party internal auditors
and legal specialists

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Principal Risks and Uncertainties

h
g
H

t
c
a
p
m

w
o
L

R2 R4 R8 R10

R11

R1 R3 R5

Key

R1 Conduct Risk

R7 Operational Risk

R2 Regulatory Risk
R3 Credit Risk

R8 Liquidity Risk

IT and Cyber Risk

R4 Reputational Risk

R10 Agents’

Strategic and

self-employed

Business Risk

status

Wider Industry

R11 Covid-19

Contagion Risk

pandemic

The principal risks faced by
the business by risk category
are as shown below and on
Pages 26 to 29.

Low

Likelihood

High

Key

R Risk number

Increase No change Decrease

RESIDUAL
MOVEMENT
DIRECTION

RISK
NUMBER

TYPE OF RISK

DEFINITION

RISK MITIGATION

Conduct Risk

The risk of poor outcomes for
customers, by:
• Offering inappropriate

products.

• Failing to assess affordability.
• Failing to identify vulnerable

customers.

• Failing to show forbearance if
customers struggle with their
repayments.

Treating Customers Fairly is a fundamental part of the
Company’s culture.

Comprehensive and verifiable training and oversight of
agents and staff is undertaken.

First and second-line quality assurance operates
alongside an automated, mobile technology-based sales
& collections’ process.

During the year, the HCC division has implemented
enhanced affordability procedures incorporating additional
external data. This, together with the new loan optimisation
system has enhanced our affordability process and the
customer journey for agents and customers at the point of
sale.

The HCC division enhanced the digital loan process to
facilitate remote lending.

Morses Club PLC Annual Report & Accounts 2020

Principal Risks and Uncertainties continued

RISK
NUMBER

TYPE OF RISK

DEFINITION

RISK MITIGATION

RESIDUAL
MOVEMENT
DIRECTION

A gap analysis is undertaken when any rules or
regulatory guidance changes.

Governance, risk and compliance are independently and
externally reviewed by our lawyers.

We maintain continuous communication with key
external stakeholders and professional contacts to keep
our information updated.

Group policy prescribes business oversight and control.

Weekly management information allows the Group to
monitor the effects of lending decisions.

Regular reviews of policies and outcomes are undertaken
by the Credit Risk Committee.

Effective corporate governance provides business
oversight and control.

We undertake independent monitoring, for example
market surveys and mystery shopping. In 2019, we
continued surveys of all types of customer, including
those who benefited from our policy of forbearance.

The number and nature of complaints are closely
monitored.

We have widened customer access to online
documentation through a customer portal and provided
customers with a more robust and customer-centric
experience.

Regulatory
Risk

Credit Risk

Reputational
Risk

The risk of legal or regulatory
action resulting in fines, penalties,
censure or other sanction or legal
action arising from failure to
identify or meet regulatory and
legislative requirements. This also
includes the risk that new
regulation(s) or changes to the
interpretation or implementation
of existing regulation(s) may affect
the Group’s operations and cost
base.

The risk of default on a debt may
arise from a borrower failing to
make the necessary payments.
The primary risk lies with the lender
and includes lost principal and
interest, disruption to cash flow,
and increased collection costs.

Whilst the impact of Covid-19
remains uncertain, it is expected
that credit risk will increase in
2020 as a result of a major
slowdown in the UK economy.
However, the Group is accustomed
to providing forbearance to its
customers and at the time of
writing collection rates have
improved and are now once again
close to normal levels.

The risk of loss due to damage to,
or a decline in, the Group’s
reputation, for example through
poor customer outcomes resulting
in a high level of complaints.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Key

Increase
No change
Decrease

RISK
NUMBER

TYPE OF RISK

DEFINITION

RISK MITIGATION

Strategic and
Business Risk

Wider
Industry Risk

A full Committee-based corporate governance structure
operates with Board oversight.

The Board and Executive Team hold an annual 2 day
strategy planning meeting.

Detailed strategic planning and oversight are implemented
alongside horizon scanning.

The recruitment application process for additional staff,
prior to interview, is highly automated and efficient.

We are involved in lobbying through our trade associations.

Following the Covid-19 outbreak, the Company put into
place contingency plans to minimise the risks to the health
and safety of its employees and agents. All staff were able
to operate from home effectively and the HCC business is
able to lend and collect both remotely and through
doorstep activities.

During the year, the Group has seen a noticeable
increase in the level of complaints received from CMCs. In
many cases, these have been spurious or allegedly sent
by individuals who have never been customers or have
been sent without the customer’s knowledge or consent.

CMCs are now regulated by the FCA and it is hoped that
they will act more responsibly in the future.

The Group is actively engaging with FOS and the FCA
through the sector trade associations.

The risk arising from poor business
decisions, substandard execution
of decisions, inadequate resource
allocation, and/or from failure to
adapt sufficiently to changes in
the business environment.

Examples could include:
• Acquisitions stretching

resources beyond capability.

• Failure to maintain the

Company’s competitiveness in
its markets.
Inadequate corporate
governance.

•

Concerted action by Claims
Management Companies (CMCs)
can lead to a significant increase
in the level of complaints being
raised against the Group, whether
they are ultimately settled or
rejected.

A change of approach by the
Financial Ombudsman (FOS)
resulting in more complaints being
upheld without good reason.

The increased cost of each FOS
claim, whether the complaint is
upheld or not.

RESIDUAL
MOVEMENT
DIRECTION

Following
the ending
of PPI
claims, it is
clear that
CMCs are
looking for
opportunities
to challenge
companies

Morses Club PLC Annual Report & Accounts 2020

RESIDUAL
MOVEMENT
DIRECTION

Principal Risks and Uncertainties continued

RISK
NUMBER

TYPE OF RISK

DEFINITION

RISK MITIGATION

Operational
Risk

The risk of loss arising from
inadequate or failed procedures,
systems or policies, employee
errors, system failure, fraud, other
criminal activity – indeed any
event that disrupts business
processes.

Business continuity plan fails to
maintain customer service.

The Group has a comprehensive suite of policies and
procedures covering its operational activities that is
subject to regular review and revision.

All agents and staff participate annually in a personal
safety review and follow our home/remote working
policy.

A comprehensive business continuity policy and
procedure is in place and a third-party disaster recovery
site is now available should it be required. Disaster
recovery tests are performed periodically on critical
systems.

The Group’s business interruption insurance cover has
been increased substantially, following the increase in
revenue resulting from the acquisitions made in 2019.

We responded rapidly to the outbreak of Covid-19,
successfully adapting our operating model to enable all
our agents to work from home and replacing face-to-
face customer visits with a remote customer
communication strategy. We made use of our existing
technology platform and payment methods to maintain
customer contact and collection activity.

We launched a new cashless remote lending product,
which is available to all existing Morses Club HCC
customers and is compliant with all regulatory
requirements. All necessary checks and agreements are
transacted via our online Customer Portal, leveraging
our existing technology platform. Customers using the
new remote lending product can choose to have funds
deposited directly into their bank account or loaded onto
a Morses Club Card, ensuring that existing customers
can continue to access our products and services during
this time. The Digital division reviewed operating
practices so all employees working from home.
Assessment of credit risk was also reviewed to ensure
that risk appetite for credit risk and TCF were
maintained.

Morses Club PLC Annual Report & Accounts 2020

Key

Increase
No change
Decrease

Strategic Report

Corporate Governance

Financial Statements

RISK
NUMBER

TYPE OF RISK

DEFINITION

RISK MITIGATION

Liquidity Risk

The risk of the Company being
unable to meet its current and
future financial obligations on
time.

The Group currently has a revolving debt facility of £40m,
secured by a debenture on the assets of the business.
The revolving credit facility expires at the end of
November 2021. It is the Group’s policy to renew its
facilities well in advance of the dates of these facilities
expiring. This is sufficient to fund planned business
growth.

The Group actively monitors its compliance with the
covenants set out in the facilities, in order to avoid the
debt being recalled.

Positive discussions have started with the existing
lenders, and the renewal will be a major focus for the
incoming CFO.

The Group has an ongoing programme to conduct
regular vulnerability assessments against our core
infrastructure services. The Group recognises the
increased relevance of this risk as the move to digitise the
business continues and has plans to increase the
frequency and scope of its testing.

We have a dedicated information security resource and
undertake penetration testing of our external and
internal networks which helps to identify new or
emerging security concerns. Failover tests of our IT
facilities have also been carried out successfully.

Since the outbreak of Covid-19 we have engaged with
suppliers to ensure increased resilience for all key IT
services.

During the year, we have undertaken phishing exercises
in order to educate our staff.

Most of our data is now encrypted at rest.

The Group’s cyber insurance cover has been increased
once more in consultation with the Group’s insurers.

The business change team closely monitors demand and
resource plans.

The Company carefully monitors the position with its
advisers and conducts an ongoing review of business
processes, systems and contracts in order to maintain
self-employed status for its agents.

RESIDUAL
MOVEMENT
DIRECTION

The risk is
seen as
increased
owing to
the
increase in
the number
of cyber
attacks
globally.

IT and Cyber
Risk

R10

Agents’
self-
employed
status

R11

Covid-19
pandemic

The risk of business interruption
from cyber crime or system
failures.
IT/Cyber risks include:
•

IT systems and networks can
be damaged and/or
information can be lost owing
to third-party actions.

• Data protection/information

security issues occur or there is
a failure to meet the
requirements of data
protection regulation/
legislation (eg GDPR).

• Strategy and architecture risk

arising from inadequate
requirements and business
analysis.

• Outsourced supplier risk arising

from the use of external IT
platforms.

• Major change impacts on daily
business and/or results in poor
quality delivery.

The risk that employment and/or
tax legislation changes to such an
extent the Company cannot
maintain self-employed status for
its agents.

The risk that normal business is
significantly affected by Covid-19:
by restricting face-to-face contact
with customers; reducing the
number of staff working from
offices; and reducing the demand
for loans.

The Group has rapidly developed systems whereby
customers can apply for loans and repay them remotely
– by telephone or through the customer portal; at the
time of writing, all staff are working from home
effectively, including the customer call centres; the
reduction in demand for loans is addressed by constantly
monitoring the cost base of the business.

For further information see the viability statement on
Page 31.

Morses Club PLC Annual Report & Accounts 2020

Principal Risks and Uncertainties continued

Emerging risks

The Company uses proactive risk management in order to view current and future events and predict where emerging
risks might appear. This horizon scanning is fundamental to being able to predict business needs and potential issues and
there are numerous techniques for this process.

Risk identification exercises are performed as part of general risk management practice within the Group.

Current events are highlighted and analysed, for example regulatory fines to other organisations. This is then reported
on at executive level as a horizon scanning item for Risk Executive reports.

Other future business, economic, political, or newsworthy events are also highlighted and added to the horizon scanning
process.

Risks identified using these processes are prioritised and managed following the Group’s established risk processes.

In the vast majority of cases, the Group see risks change and develop rather than emerge.

However, the Senior Managers and Certification Regime, which was made effective in December 2019, and leaving the
EU without a trade deal can be seen as emerging risks.

Emerging risk

Commentary

Leaving the EU without
a trade deal

As a Company operating solely in the UK, with no foreign currency exposure, EU supply
chain, or key dependency on overseas staff, the Company has not identified any adverse
direct consequences of Brexit, in whatever form it may take.
We therefore do not foresee any issues or changes being made to the business
model or any impact on our accounting policies of critical judgements.

Senior Managers and
Certification Regime

Morses Club is an enhanced firm for the purposes of this legislation which became
effective on 9 December 2019. The Group appointed a project team, advised by our
external lawyers, with the result that the required processes were introduced in
readiness for this new regime.

Climate change

Climate change is not currently seen as a principal risk to the business, but this is kept
under review.

Customers can request loans and make payments under the new customer portal.
Technology is being introduced to allow for more meetings to be conducted remotely.
Both of these initiatives will reduce the need to travel unnecessarily.

The Group’s environmental policy is reviewed annually.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Viability statement

The Directors consider the Group’s
viability as part of their continuing
programme of monitoring risk.

For the purpose of assessing the
future prospects of the Group, the
Directors have selected a 3-year
timeframe. This timeframe has been
selected as it corresponds with the
Board’s strategic planning horizon.

The assessment has been made, at
the date of signing these accounts,
with reference to the Group’s current
position and prospects, the Group’s
strategy, the Board’s risk appetite and
the Group’s principal risks and
uncertainties (including all variations
of Brexit) and how these are
identified, managed and mitigated (as
shown on Pages 25 to 30.

The strategy for the Group is included
on Pages 16 to 17 and its business
model is on Pages 12 to 13. HCC is a
long-established offering, and parts
of the Group have been undertaking
this business for more than 130 years.

The Directors review and renew the
3-year strategic plan at least
annually. Progress against the
strategic plan is reviewed at every
meeting by the Board through
presentations from the Executive
Management Team on the
performance of their respective
business units, the assessment of
market opportunities, and the
consideration by the Board of its
ability to fund its strategic ambitions.

In addition to standard internal
governance, the Group is also
monitored against key financial
covenants tied in with current funding
facilities. These are produced and
submitted on a monthly basis with key
schedules included in the monthly
Board papers.

The Group is profitable and cash
generative. It currently has a revolving
debt facility of £40m, secured by a
debenture on the assets of the
business which expires at the end of
November 2021. It is the Group’s policy
to renew its credit facilities well in
advance of this date. Positive
discussions have started with the
existing lenders, and the renewal will
be a major focus for the incoming CFO.

Due to the short-term nature of its
products, the Group is well placed to
react promptly to any changes in its
liquidity requirements.

Covid-19
As a result of the impact of the
Covid-19 pandemic, the Group has
undertaken a revised budgeting
exercise. This has already been stress-
tested in practice in the first 8 months
of trading in FY21, This clearly
demonstrates that the Group will
have sufficient funds to operate and
meet its liabilities.

Covid-19 had begun to establish itself
at the reporting date of 29 February
2020. The initial stages of Covid-19
impacted the Group’s operations,
particularly the Home Credit division,
due to the face-to-face nature of
.the business model from March
onwards. However, management, in
line with peers, anticipate that as a
result of the flexibility shown during
Covid-19 and high customer loyalty
the non-standard sector of the
market as a whole is likely to be more
resilient than other financial sectors.

With regard to a going concern
review or a 3-year viability period,
management recognise the need for
continued adaptation of the operating
model whilst maintaining good
customer outcomes, appropriate
oversight and financial prudence.

Rather than taking the approach of
adopting a base case and then
running upside and downside cases,
management have adopted an
approach based on conservatism and
the implications of Covid-19. The
financial model which contains these
assumptions was developed
and shared with funders to support
the new funding facility entered into
on 28 April 2020.

Under the worst case, in the initial
period of Covid-19, the plan reflects
operational disruption with reduced
sales, lower collections and increased
impairment rates. The result of
stressing these key variables is to
create liquidity pressure against the
Group’s lending facility. A series of
mitigating actions such as cost
reductions, suspension of bonuses and
limited loan book growth were then
applied. A summary table of all these
scenarios is included on Page 134.

Management’s objective in this period
is to de-leverage the Group, whilst
maintaining an appropriate level of
operational cash. Using these
guidelines, our Covid-19 plan reduces
borrowings compared to last year
and maintains sufficient headroom to
operate the business and deal with a
reasonable range of business shocks.

Under the Covid-19 plan the Group
remains profitable in all years
during the viability period and
there is no issue of solvency
from a cash or asset
perspective. For planning
purposes management has
assumed an extension of the
current facility to the end of
November 2021, to cover
the remainder of the viability
period. Based on current
performance and initial
discussions with existing
lenders, management believe this
to be a reasonable working
assumption.

Management’s Covid-19 plan meets
the covenants set by the funders of
the new facility for the going concern
and viability period. Management
consider this to be a prudent
foreseeable worst case plan against
which to assess the going concern
and viability of the Group. This plan
reflects both the impact on
operational challenges and future
prospects mentioned above.

Within the Covid-19 plan, the Group
has assessed a number of possible
events and scenarios which resulted in:
• Revision of future cash flows

impacting the IFRS 9 Loan Loss
Impairment Provision at the
reporting date as well as cash
flows in future periods.

• Reduced customer numbers,
loan book size and collections
as a result of continued
operational limitations.
• Revised operational model

resulting from a different sized
business.

Management remain focused on
ensuring the maintenance of sufficient
headroom in cash reserves in light of
the scenario planning outlined due to
Covid-19.

Brexit
As a Company operating solely in the
UK, with no foreign currency exposure,
EU supply chain, or key dependency
on overseas staff, the Company has
not identified any significant adverse
direct consequences of the current
planned terms of EU separation.

Conclusion
Based on the above, in particular the
assumptions made for Covid-19 the
Board confirms that it expects the
Group will continue to operate and
meet its liabilities, as they fall due,
for the next year.

Morses Club PLC Annual Report & Accounts 2020

Engaging with our Stakeholders

To secure our long-term success,
it is important to engage with our
stakeholders and take account of
their perspectives.

Listening and engaging with
stakeholders helps us to create a
better business and improve
outcomes for customers, society and
the environment. The Board also
proactively engages with stakeholders
including customers, employees, debt
providers and investors to understand
their views across a range of issues;
see Page 34 to 36 for more
information.

In the table overleaf we set out our
key stakeholder groups, the material
issues that matter to them and how
we engage with them. By
understanding our stakeholders, we
can factor into Boardroom discussions
the potential impact of our decisions
on each stakeholder group and
consider their needs
and concerns.

The Board’s Statement on s172

The Board of Directors, in line with
their duties under s172 of the
Companies Act 2006, act in a way
they consider, in good faith, would be
most likely to promote the success of
the Company for the benefit of its
members as a whole, and in doing so
have regard to a range of matters
when making decisions for the long
term. Key decisions and matters that
are of strategic importance to the
Company are informed by s172
considerations. The subjects of s172
and Directors’ duties are included
together as a standing item on the
agenda of every Board meeting.
Through an open and transparent
dialogue with our key stakeholders, we
are able to develop a clear
understanding of their needs, assess
their perspectives and monitor their
impact on our strategic ambition and
culture. As part of the Board’s
decision-making process, the Board

and its Committees consider the
potential impact of decisions on
relevant stakeholders whilst also
having regard to a number of broader
factors, including the impact of the
Company’s operations on the
community and environment,
responsible business practices and
the likely consequences of decisions in
the long term.

In preparation for the Company’s
implementation of the UK Corporate
Governance Code July 2018, and
anticipating the new reporting
requirements, during the year the
Board undertook a review of the
actions it currently undertakes to
comply with s172. The review included
an analysis of how the Board currently
engages with its stakeholders and
recommendations on how such
engagement could be enhanced.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Morses Club PLC Annual Report & Accounts 2020

Engaging with our Stakeholders continued

WHAT MATTERS TO THEM

HOW WE ENGAGE

• Affordable and accessible

• Monthly customer satisfaction survey, the

OUR STAKEHOLDERS
AND WHY THEY MATTER

CUSTOMERS

The continued performance of our
business would not be possible
without understanding our
customers’ needs.

credit.

• Simple, transparent

charging structure, with no
penalties or late payment
fees.

• Support and forbearance

during short-term difficulty.

results of which are reviewed by the
Board.

• Quarterly good customer outcomes

survey across a randomised selection of
customers to gather views on how well
the service operates at each stage of the
loan issue and collection service, as well
as the service delivered by agents. The
Company achieved an overall score of
97% across all 9 regions.

• Ad hoc surveys, such as customer views
on our online portal. Future surveys will
include customer views on what they want
from an online e-money current account.

• Mystery shopping.
• We are developing further approaches to
reviewing customer satisfaction within
Shelby Finance for FY21.

• Regular meetings with field managers.
• Annual satisfaction survey, the results of
which are reviewed by the Board. The
overall score for FY20 was 63%.

• Open, collaborative culture with regular
Company updates and opportunities for
questions and feedback.
• Annual appraisal process.
• Annual employee satisfaction survey

conducted independently and
anonymously, whose results are reviewed
by the Board. Our overall score for FY20
was 65%, reflective of the year of
significant change undergone by the
business.

• Exit surveys for departing employees.
31 former employees gave feedback in
FY20.

• Non-Executive Director and former

Operations Director, Les Easson, has
been designated to represent the
employee voice to the Board. Read more
on Page 47.

• Development of a detailed cultural review

for FY21.

• Whistle-blowing hotline, available to all

employees.

• Due diligence conducted for all suppliers.
• Check quality of products and services.
• Ensure policies and procedures in place.
• Maintain regular contact through

procurement and account management
approaches.

• Annual reviews of the service and regular

feedback.

SELF-EMPLOYED AGENTS

• Ability to work flexibly in the

local community.

• Support and tools to work
efficiently, effectively and
flexibly.

• Competitive remuneration.

• Opportunities for personal
development and career
progression.

• A culture of inclusion and

diversity.

• Remuneration and benefits.

Our network of self-employed
agents are our interface with
customers in communities around
the UK, and develop valued
relationships with customers.

EMPLOYEES

Our experienced, diverse and
dedicated workforce is a key asset of
our business.

We continue to seek to create the
right environment to encourage and
create opportunities for individuals
and teams to realise their potential
and career aspirations.

SUPPLIERS

• Professional and consistent

Our suppliers are essential to
provide our divisions with the goods
and services required to enable us to
continue to meet our customers’
needs. They play a vital role in our
operations so it is important that we
develop strong supplier relationships
with them.

relationship.

• Alignment of business
culture and customer
service model.

• Reliable and adhere to
contractual terms.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

WHAT MATTERS TO THEM

HOW WE ENGAGE

OUR STAKEHOLDERS
AND WHY THEY MATTER

DEBT PROVIDERS

Our providers of debt facilities, along
with our retained earnings, allow us
to lend money to customers at
competitive rates.

• Financial performance.
• Transparency.
• Proactive communication.
• Credit rating.

REGULATOR AND GOVERNMENT

• Clear and transparent

The nature of our customer base and
the market in which we specialise
makes the building and maintaining
of open and trusting dialogue with
policy makers and our regulators,
the PRA, FCA and CBI, critical to a
sustainable business model.

communication with the
regulator.

• Proactive approaches on
any regulatory matters.
• Clear TCF approaches in

line with the market sector
and customer needs.

SHAREHOLDERS

Our investors provide capital without
which we could not grow and invest
for future success.

• Strong cash generation and
attractive dividend policy.
• Responsible, sustainable
and low-risk business
model and strategy.

• Monthly covenant reporting including

loan book quality analysis.

• Monthly submission of finance Board
papers and additional schedules.
• Monthly conference calls to discuss
current performance and future
expectations.

• Quarterly independent review of lending

process and loan book quality.

• Regular dialogue with the regulator.
• Proactive communication with the regulator
regarding our approaches on lending and
remote working due to Covid-19.

• Respond proactively to feedback requests.
• Member of the Smaller Business

Practitioner Panel through the CEO.

• Programme of contact with MPs through
the CEO to share insights and ensure the
business model is fully understood.

• Twice-yearly road shows by the CEO and
CFO at the time of the interim and annual
results.

• Ad hoc queries and feedback from

shareholders, dealt with by the CFO. The
Chairman and the Senior Independent
Director also make themselves available,
and discuss feedback at Board meetings.

COMMUNITIES AND
ENVIRONMENT

We are committed to making a
positive contribution to the
communities within which we
operate, including through
payment of taxes, reducing our
environmental impact and creating
employment opportunities.

How stakeholders influenced Board
decision-making

We define principal decisions as those
that are material to the Group, but
also to any of our key stakeholder
groups. In making the principal
decisions outlined below, the Board
considered the outcome from its
stakeholder engagement as well as
the need to maintain high standards
of business conduct and to act fairly
between the members of the
Company. The Board’s procedures
have been updated to require a
stakeholder impact analysis to be
completed for all material decisions
requiring its approval that could
impact on 1 or more of our stakeholder
groups. The stakeholder impact
analysis assists the Directors in
performing their duties under s172 of

• Responsible lending and
collecting of repayments.
• Helping local economies by

• Acting in a fair and responsible manner is
a core element of our business. Read
more on Page 36.

promoting financial
inclusion.

• Fundraising for local

charities.

• Minimising environmental

impact.

the Companies Act 2006 and
provides the Board with assurance
that the potential impacts on our
stakeholders are being carefully
considered by management when
developing plans for Board approval.

The principal decisions made during
the year relate to the acquisitions of
online loan provider CURO
Transatlantic Limited (now trading as
Dot Dot Loans) and online current
account provider U Holdings Limited,
in February and June 2019
respectively. These transactions
aligned with our strategy to enhance
our digital capabilities and to broaden
the services offered to our core
customer demographic into online
banking. Both of these elements had
been highlighted in our regular

customer research as areas of
demand for non-standard finance
customers. Our employees and
shareholders were fully supportive of
the acquisitions following
announcements in light of the
complementary fit with our existing
operations and the growth
opportunity.

During the year, the Company also
considered acquiring another provider
of non-standard financial services.
During the due diligence exercise, it
became clear that the target was
profitable only due to charging
customers at a level greater than
Morses Club Directors would be
comfortable with. The Directors
therefore agreed not to pursue the
acquisition.

Morses Club PLC Annual Report & Accounts 2020
Morses Club PLC Annual Report & Accounts 2020

Engaging with our Stakeholders continued

Learning and development
All employees, from the CEO to the
most recent recruit, undertake
regulatory training each month. In
addition, 81 of our managers are
involved in an Institute of Leadership
and Management self-learning
programme, which can lead to a
degree level qualification. During FY21
we are planning to deliver further
tailored training to our senior
management. This will subsequently
be cascaded through the
organisation.

Employee engagement
One of the ways in which we engage
with employees is through an annual
survey that allows colleagues the
opportunity to provide feedback and
suggestions on an anonymous basis.
In the survey undertaken, 65% of
respondents consider Morses Club a
good company to work for. Although
lower than the 79% score achieved in
the previous survey, the result reflects
a year of significant change. As we do
every year, we undertook a detailed
review of feedback gathered in the
survey and have sought to act upon
this, where appropriate. Linked to our
work on SM&CR, we have moved from
annual to 6-monthly salary reviews.

Employee wellbeing
Employee wellbeing is important
to us. All our employees have access
to Perkbox, a platform offering
employees rewards and offers,
as well as confidential advice and
assistance. To provide greater
flexibility to employees we now offer
them the opportunity to buy (and
sell) annual leave. These, as well
as the all-employee share scheme
outlined below and plans to increase
staff training still further, are
examples of initiatives introduced
as a result of suggestions in the
annual employee survey.

Lending responsibly to customers

Treating customers fairly is the
foundation of our approach. As
outlined on Page 12, our business
model centres on responsible lending
and collection of repayments. We
assess every application for credit
against stringent criteria, taking into
account affordability and credit
checks. A complete income and
expenditure check is undertaken for
every loan, and we only lend to
customers who can afford the
repayments. Last year, 75% of loan
applications were not progressed.
We have a clear, uncomplicated
charging structure, with no penalties
or fees for delays in repayments, and
self-employed agents are paid in
commission based on collections,
not sales.

Supporting our people

Culture
The Group is built on trusted
relationships and shared values that
underpin our commitment to
customers:
• Our customers will always be at the

heart of everything we do.

• We will be honest and transparent

in how we deal with everyone.

• Our systems and processes will be

simple and clear.

• We will show forbearance

and flexibility.

The culture that underlies these
commitments is founded on
behaviours that are honest, fair,
responsible, supportive and
understanding.

Given recent changes to the Group
and as part of our ongoing work to
ensure that we nurture an
appropriate culture for all our
employees, customers and key
stakeholders, we are planning to
undertake a cultural review. This will
assess all aspects of the business,
where possible providing benchmarks
and measures, which together will
form a cultural ‘barometer’ for the
whole organisation.

Employee shares
Employee share ownership is a key
means of sharing the success of the
business with colleagues. The
Company issued shares under its
award-winning approved employee
share scheme, representing 3.25% of
base annual salary in shares. 403
employees were awarded shares
under the scheme. Eligibility is based
on 12-months’ service as at October
2019. The scheme was recognised at
the 2019 Proshare awards, winning
the ‘Best overall performance in
fostering Employee Share Ownership’
category.

Supporting our communities

In addition to the indirect contribution
we make to communities across the
country by providing financial
inclusion to people who are precluded
from borrowing from mainstream
lenders, and work opportunities for
self-employed agents, we also raise
money for charities. During the year
we raised £15,000 for local
community initiatives.

Minimising our impact
on the environment

Each of our field managers is
provided with a Company leased
vehicle. We are undertaking a major
review of the environmental impact of
both the choice of car we provide and
the fuel type. As part of this, we are
balancing the practical needs of our
employees and business with the
need to ensure that environmentally
we make changes to support the UK
government target of being carbon-
neutral by 2050.

Further information:
• 623 kg of shredded waste was

recycled in the period.

• General waste – Nothing is sent to
landfill – Biffa have confirmed that
all waste is sent to a Refuse
Derived Fuel (RDF) facility where it
is sorted and recycled/used for
electricity generation.

• We use c. 90t of carbon for utilities
(estimate for gas and electricity).
• We consume c. 3,292t of carbon
from our fleet (estimate based on
last mileage submitted).

This Strategic Report was approved by the Board on 27 November 2020
and signed on its behalf by:

Paul Smith
Chief Executive Officer

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Governance Report

38
40
42
49
53
60
64
69
70
74

Morses Club PLC Annual Report & Accounts 2020
Morses Club PLC Annual Report & Accounts 2020

Board of Directors

Expertise
The Board and its Committees are considered
to have an appropriate balance of skills,
experience, independence and knowledge
to enable them to discharge their respective
duties and responsibilities effectively.

Paul Smith
CEO

Stephen Karle
Chairman

Andy Thomson
Interim CFO

Date of appointment
20 January 2015

Background and career
Paul has experience in mobile
payment technology as Managing
Director of EZ-Pay Limited, a pre-paid
MasterCard organisation. Beginning
his career in the global software
market, he later joined Phones4U in
1998, where he became MD and was
an integral member of the
management team until the firm’s sale
for £1.4bn in 2006. Paul is a member
of the FCA’s Smaller Business
Practitioner Panel to represent the
consumer credit sector.

Areas of expertise
Paul has been responsible for growing
the Company organically and by
acquisition. His expertise in software
and technology has been invaluable in
driving efficiencies while maintaining
excellent customer service levels.

Background and career
Stephen is a Director of Karle &
McCleery Limited, a strategic advisory
and executive coaching business
operating across and beyond the
financial services sector. For 4 years to
2015 he served as Chairman of BCRS
Business Loans Limited, an SME
lending Company supporting regional
business growth. He is a former CEO of
West Bromwich Building Society and a
(non-practising) solicitor.

Areas of expertise
Stephen’s financial services sector
experience includes executive, general
management and Board roles. He
represents Morses Club PLC on the
Executive Committee of the Consumer
Credit Association.

Date of appointment
1 March 2009 (Non-Executive
Finance Director), 1 March 2016
(CFO), 1 July 2019 (Non-Executive
Director), Interim CFO from
17 March 2020

Background and career
After graduating from Warwick
University (accounting and financial
analysis) and qualifying as a chartered
management accountant at
Cadbury-Schweppes and Tesco, Andy
held a variety of senior finance roles in
SMEs where he has been the most
senior finance professional
continuously since 1996. Involved in the
RCapital acquisition of Morses Club in
March 2009, he remained on the
Board as a Non-Executive Director
with responsibility for financial
management. Andy led the finance
function during the acquisition and
integration of Shopacheck Financial
Services in 2014/15, before his
appointment as full-time CFO in 2016.
On 1 July 2019, Andy retired from his
role as CFO and remained on the
Board as a Non-Executive Director. On
17 March 2020, Andy took on the
position as Interim CFO.

Areas of expertise
Andy’s analytical skills, expert
knowledge of the sector and
independent-mindedness are key to
providing continuity and protecting
shareholder interests.

Joanne Lake
Independent Non-Executive
Director

Date of appointment
14 April 2016

Background and career
A chartered accountant with over 30
years’ experience in accountancy and
investment banking, Joanne has
worked at Panmure Gordon, Evolution
Securities, Williams de Broe and Price
Waterhouse. She is Chairman of
wealth management and employee
benefits specialists, Mattioli Woods
PLC, Deputy Chairman of main market
listed Henry Boot PLC, and a
Non-Executive Director of Gateley
(Holdings) PLC.

Areas of expertise
Joanne’s financial services experience
includes Board level roles focusing on
strategy and governance, as well as
lead advisory corporate finance roles
on listings, other public market
transactions and continuing
obligations.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Sir Nigel Knowles
Senior Independent Director

Baroness Simone Finn
Independent
Non-Executive Director

Peter Ward
Non-Executive Director

Les Easson
Non-Executive Director

Date of appointment
14 April 2016

Date of appointment
5 May 2019

Date of appointment
1 March 2015

Date of appointment
1 September 2019

Background and career
Baroness Finn is a chartered
accountant by profession and is
experienced in audit practice through
her previous roles and her
membership of the Audit Committee
of Arbuthnot Latham. She has
previously worked at the Financial
Services Authority, the predecessor of
the FCA. Baroness Finn is a member of
the UK House of Lords.

Areas of expertise
Baroness Finn is a former government
adviser on industrial relations,
efficiency and Civil Service reform. She
advises international governments in
these fields, amongst others, through
the consultancy business of which she
is Managing Director. She also has a
deep grounding in regulatory
compliance and corporate governance
excellence.

Background and career
Peter is the Co-Founder of RCapital
Partners LLP and retired as an active
Partner in 2016. In 2001 he
co-founded his own corporate
advisory business, Three V Corporate
Venturing LLP, to provide fundraising
and interim management services. He
had previously held senior
management positions within the UK
commercial and banking division of
Royal Bank of Scotland Group for 23
years.

Areas of expertise
Peter has extensive experience of
working with management teams
across a broad range of business
sectors.

Background and career
Sir Nigel is a solicitor and CEO of global
legal business DWF Group PLC. Sir
Nigel is the former Global Co-
Chairman and Senior Partner of DLA
Piper, having served as Global Co-CEO
and Managing Partner for nearly 20
years. He is credited with DLA Piper’s
remarkable growth, leading the firm
through a series of mergers and taking
the firm from its regional origins to the
global firm that it is today. Sir Nigel
received a knighthood in 2009 in
recognition of his services to the legal
industry and in July 2011, received an
Honorary Doctorate of Civil Law from
the University of Sheffield.

Legal Business awarded Sir Nigel a
‘Lifetime Achievement award’ in 2015
and he was given the Financial News
‘Editor’s Choice’ award for lifetime
achievement in 2016. Sir Nigel is the
Special Adviser to Dan Jarvis MP, the
Mayor of Sheffield City Region, and he
is on the Council of The Prince’s Trust.

Areas of expertise
Sir Nigel has immense experience of
building and leading a worldwide
regulated services business.

Background and career
Les Easson has worked for Morses
Club for more than 36 years, starting
his career as an agent and working
through all the management levels
culminating in his appointment to
Operations Director in 2012. In 2014 he
successfully managed field operations
through the merger of Morses Club
and Shopacheck which led to the
flotation of the enlarged business in
2016. He has led the successful
acquisition of 19 Home Collected Credit
businesses and overseen significant
operational and IT changes to ensure
that field managers and agents deliver
the best customer service with the
‘Treating Customers Fairly’ principle
central to the whole operating model.
He has been instrumental in
transforming Morses Club’s approach
to customer-focused operations,
ensuring that the close customer-
agent relationship that defines Morses
Club has remained at the heart of the
business as it has expanded and
evolved to meet changing customer
needs. Les has been appointed as the
Designated Director responsible for
employee engagement.

Areas of expertise
By appointing Les as a Non-Executive
Director, the Company is determined
to retain his extensive operations
expertise and industry knowledge
within the business.

Morses Club PLC Annual Report & Accounts 2020

Chairman’s Introduction to Governance

Dear Shareholder,

I am pleased to present our 2020
Corporate Governance Report for
the Group which includes reports
from the Audit, Risk & Compliance,
Remuneration & Corporate Social
Responsibility, Nominations &
Succession and Disclosure
Committees on Pages 42 to 69.

Stephen Karle
Chairman

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

The Board has always been committed to applying the
highest standards of corporate governance and has
adopted the main principles of the 2018 UK Corporate
Governance Code (the Code), although as an AIM-listed
Company, we are not required to comply.

By 29 February 2020, the only exceptions are (i) the
Directors’ Remuneration Report which has been prepared
in accordance with AIM Rule 19 and (ii) Provision 11 of the
2018 Code which relates to the proportion of Non-
Executive Directors whom the Board considers to be
independent. However, the Board is satisfied that the
arrangement regarding the proportion of non-
independent Non-Executive Directors is correct for the
business at this time and will keep the matter under review.

The Directors believe that this general approach is a firm
foundation for good governance and clarifies not only the
appropriate allocation of duties, authority and
responsibilities but also the way the Group meets its legal
and regulatory obligations.

I have also included a statement on Pages 6 to 8 of the
Strategic Report.

As Chairman, I carried out a formal Board evaluation
process between January and March 2020. The
performance of the other Non-Executive Directors was
assessed against the quality of the discharge of their
supervisory and stewardship roles. Their personal
contributions at Board, in Committee and more widely
were considered, and the collective performance of the
entire Board was reviewed and any personal development
areas identified. In addition, the progress of each individual
against their 2019/20 objectives was reviewed, and
objectives for 2020/21 were set and agreed.

My conclusion was that the Group has a Board that is
engaged, has a wide variety of relevant experience, and is
focused on outcomes – for customers, investors,
employees, self-employed agents and other stakeholders.
The Board operates on a unitary basis, and we value the
views of the Executive Management team whose members
attend some Board meetings to provide specialist
knowledge and experience.

I look forward to another year where the Group continues
to grow and develop, with a strong and experienced Board
at its heart.

Stephen Karle
Chairman
27 November 2020

Board of Directors

Much work was done 4 years ago to establish a Board
equipped with the experience and expertise to drive
forward the Group’s future direction, strategy and culture
prior to the Company’s admission to AIM. During this
financial year, Board membership has started to evolve.

I welcome the appointments of Baroness Simone Finn as
an Independent Non-Executive Director, replacing the
retiring Patrick Storey and Les Easson, who was for many
years the highly successful Operations Director and who
has also joined the Board as a Non-Executive Director.

The Board currently comprises 6 Non-Executive Directors
and 2 Executive Directors, whose biographies are
presented on Pages 38 and 39. All Directors submit
themselves for re-election at each Annual General
Meeting in accordance with the provisions of the Code.

Morses Club PLC Annual Report & Accounts 2020

Corporate Governance Report

At the heart of the Code are 5 main principles that
emphasise the value of good corporate governance to
long-term sustainable success. By applying the Principles,
following the more detailed Provisions and using the
associated guidance, a company can demonstrate through
its reporting how the governance of the company
contributes to its long-term sustainable success and
achieves wider objectives.

The 5 main principles of the Code are as follows:
A. A successful company is led by an effective and

entrepreneurial board, whose role is to promote the long-
term sustainable success of the company, generating
value for shareholders and contributing to wider society.

B. The board should establish the company’s purpose,

values and strategy, and satisfy itself that these and its
culture are aligned. All directors must act with integrity,
lead by example and promote the desired culture.

C. The board should ensure that the necessary resources
are in place for the company to meet its objectives and
measure performance against them. The board should
also establish a framework of prudent and effective
controls, which enable risk to be assessed and managed.

D. In order for the company to meet its responsibilities to

shareholders and stakeholders, the board should ensure
effective engagement with, and encourage participation
from, these parties.

E. The board should ensure that workforce policies and

practices are consistent with the company’s values and
support its long-term sustainable success. The workforce
should be able to raise any matters of concern.

Application of the UK Corporate Governance Code

The 2018 Corporate Governance Code can be found in the
Corporate Governance Code section of the FRC website,
www.frc.org.uk.

From the date of the Initial Public Offering in May 2016, the
Directors have generally adopted the principles and
provisions of the Code, although, being AIM listed, the Group
is not obliged to comply with this.

Except as stated in this and the following paragraph,
throughout the year ended 29 February 2020, the
Company has been in compliance with the provisions set out
in the Code, except (i) the Directors’ Remuneration Report,
which has been prepared in accordance with AIM Rule 19,
and (ii) the Provision 11 of the 2018 Code which relates to the
proportion of Non-Executive Directors whom the Board
considers to be independent. However, the Board is satisfied
that the arrangement regarding the proportion of non-
independent Non-Executive Directors is correct for the
business at this time and will keep the matter under review.

In May 2019, Peter Ward, an Affiliated Director, and the
then Executive Directors Paul Smith and Andy Thomson
ceased to be members of the Risk & Compliance
Committee in order that all of its members would be
deemed as independent under the Code. In addition, the
requirement to implement a procedure for employee
engagement was satisfied in January 2020 by the
appointment of Non-Executive Director Les Easson as the
designated Director for workforce engagement.

As required by AIM Rule 26, details of the Company’s
adherence to the Code is shown on its website.

The Directors have been fully briefed about the changes
that were introduced by the Code.

Principle A – Effective Board

Role of the Board
The Company is headed by an effective Board that is
collectively responsible for the long-term success of the
Company.

The Board’s role is to provide entrepreneurial leadership of
the Group within a framework of prudent and effective
controls that enables risk to be assessed and managed.
The Board sets the Group’s strategic aims, ensuring that the
necessary financial and human resources are in place for
the Group to meet its objectives, and reviews management
performance.

The Board has established a sub-committee structure
comprising Audit, Risk & Compliance, Remuneration &
Corporate Social Responsibility, Nominations & Succession,
and Disclosure Committees, and has appointed a Senior
Independent Director, Sir Nigel Knowles.

Opportunities and risks to the future success of the business
are considered and addressed at each Board meeting, with
the CEO highlighting the challenges and successes in each
report to the Board. When specific risks are highlighted, for
example relating to a potential acquisition, the Risk &
Compliance Committee has held special meeting(s) to
consider the matter before the Board has made a final
decision.

In Q1 2020, the Board’s Risk & Compliance Committee
reviewed and reassessed the Group’s risk appetite
statements and target residual ratings for each of the
principal risks, all of which are included within the risk
management system.

The Executive Management Committee comprising all of the
Executive Managers and the Executive Directors, reports to
the Board.

Division of responsibilities

There is a clear division of responsibilities at the head of the
Company between the running of the Board and the
responsibility of the Executives for the running of the
Company’s business. In this way, no individual has
unfettered powers of decision.

The Board has a formal schedule of matters reserved to it
and is scheduled to hold 8 formal meetings each year,
including one that concentrates solely on strategy. In
addition, 2 teleconferences are convened each year in order
to agree the final and interim results and dividend. Further
teleconferences are arranged, when required. Members of
the Executive Team have been invited to the formal
meetings as attendees. The Board is responsible for overall
Group strategy, acquisition and divestment policy, approval

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

He chairs the Executive Committee and is Chairman of the
management team of Shelby Finance Limited subsidiary.
The CEO makes decisions on matters affecting the
operation, performance and strategy of the Group’s
business. He develops and recommends strategy and
long-term objectives of the Group for approval by the
Board, and is responsible for the day-to-day management
of the Group. As Chairman of the Risk Executive Committee,
the CEO is also responsible for ensuring that there are
appropriate risk management and internal controls in place.

Non-Executive Directors
As part of their role as members of a unitary board,
Non-Executive Directors are active at providing constructive
challenge and helping develop proposals on strategy. They
have also used their experience from other organisations,
including public companies, to provide advice to many areas
of the business.

Sir Nigel Knowles has been appointed the senior
independent Director to provide a sounding board for the
Chair and serve as an intermediary for the other Directors
and shareholders.

of major capital expenditure projects and consideration of
significant financing matters.

It monitors the exposure to key business risks and reviews
the strategic direction of the business. This includes its code
of conduct, annual budgets, progress towards achievement
of those budgets and capital expenditure programmes.

The Board meeting agenda normally comprises a review of
management financial statements and operational
performance, a CEO review of activity, reports from the
Executive Team, a review of potential acquisitions and other
growth opportunities, a review of relevant Board sub-
Committee minutes and reports, together with an update
on the progress of the Company’s other strategic objectives.

The Chairman
The Chairman is mainly responsible for the leadership of the
Board and ensuring its effectiveness concerning all aspects
of its role. His duties include ensuring that all Directors
receive sufficient relevant information on financial, business
and corporate issues prior to meetings. The Chairman
regularly reviews the contents of the information pack sent
out prior to Board meetings in order to ensure that
important issues are prioritised and each pack is kept to a
manageable size. The Chairman encourages and promotes
critical discussion and appropriate challenge. He ensures
that Board decisions are taken on a sound and well-
informed basis.

Chief Executive Officer
The CEO provides leadership and direction for the Group.

Board structure

The Board has established a sub-
committee structure comprising Risk &
Compliance, Audit, Nominations &
Succession, Remuneration &
Corporate Social Responsibility and
Disclosure Committees.

The Executive Management
Committee, comprising all of the
Executive Managers and the Executive
Directors, reports to the full Board.

Board
Board

Risk &
Compliance
Committee

Audit
Committee

Nominations
& Succession
Committee

Disclosure
Committee

Remuneration
& Corporate
Social
Responsibility
Committee

Credit
Committee

Executive
Management
Committee

Risk
Executive
Committee

Health
& Safety
Committee

Board and Board Committees

Management Committees

Morses Club PLC Annual Report & Accounts 2020

Corporate Governance Report continued

Principle B – Values and culture

Principle C – Effectiveness

Pages 16 and 17 of the Strategic Report deal with the
subject of purpose, strategy and culture.

The Board has been active in promoting the development of
purpose, strategy and culture within the business.
Throughout the year, the Board has driven these matters
forward, following the acquisition of the new businesses.

The Company has an excellent, customer-centric culture
• Customer surveys undertaken by an independent market

research showed:
• Overall customer satisfaction with Morses Club – 97%.
• Overall customer satisfaction with the Morses Club

Agent – 98%.

• Likelihood of the customer recommending Morses

Club – 95%.

• A separate Good Customer Outcomes survey also

showed an overall satisfaction score of 97%.

• The Company’s complaints handling process has been

independently certified to the ISO 10002:2014 standard.

Composition of the Board
The Board currently comprises 6 Non-Executive Directors
and 2 Executive Directors, whose biographies are presented
on Pages 38 and 39.

The Board considers 3 of the Non-Executive Directors
(Joanne Lake, Sir Nigel Knowles and Baroness Simone Finn)
to be independent in character and judgement because
while some may own shares in the Company, they all have
significant other business interests and activities.

The Chairman was originally considered to be independent
upon his appointment as Chairman in 2015. The Board as a
whole considers the Non-Executive Directors’ minor
shareholdings in the Company to be advantageous to
shareholders, since in addition to meeting their fiduciary
duties, their interests are aligned with shareholders in
general. Non-Executive Directors are not entitled to share
options and there are no cross-directorships between
Executive and Non-Executive Directors.

Further details about customer satisfaction are shown on
Page 2 of the Strategic Report.

The Company undertakes a satisfaction survey of its
employees each year. In 2019, overall engagement with the
Company was 72% which is good, but we will be looking for
improvements in future years.

Across the organisation, the 4 words which were strongly
used to encapsulate the Company culture were:
• Customer (and customer focus) – as shown by the

customer satisfaction rates.

• Friendly – all staff strive to be friendly in their approach,

both to customers and colleagues.

• Fair – Treating Customers Fairly forms the basis of how

the Company operates.

• Driven – colleagues are determined to achieve success

for both themselves and the Company.

In addition, 90% of all respondents considered that the
Company offered good customer service and 99% of all
respondents agreed that Treating Customers Fairly was a
central part of the mindset of the organisation.

The Board is already engaging in a programme of activities
that will address many of the central themes emerging from
the survey – these are broadly summarised below:
1. Development programmes to broaden the leadership

and communication skills at Regional and Area Manager
level – key parts of ensuring that cultural norms are
cascaded and embedded at a grass roots level. Heads of
Function will also be included in these programmes to
ensure that we begin more proactive development for
these key groups.

2. Targeted surveys to get better granular insights for key
groups of employees. This is to ensure we get deeper
insights into people’s attitudes and motivations, rather
than simply a snapshot of ‘satisfaction’, which can be
impacted by events taking place at the time.

Peter Ward has been appointed by the Group’s major
shareholder, Hay Wain Group Limited, and so is not
considered to be independent. Les Easson was previously
part of the Company’s Executive team and is also not
considered to be independent.

Appointments to the Board
In May 2019, following the retirement of Patrick Storey,
Baroness Simone Finn was appointed as a Non-Executive
Director and Chair of both of the Audit and Risk &
Compliance Committee.

Andy Thomson retired from his role as CFO on 1 July 2019
and remained on the Board as a Non-Executive Director.

Andrew Hayward joined the Group as CFO on 1 July 2019
and was also appointed as an Executive Director to the
Morses Club Board. Andrew left the Company on 16 March
2020, and on 17 March Andy Thomson took on the position
of Interim CFO.

Les Easson was appointed as a Non-Executive Director
from 1 September 2019 upon his retirement as
Operations Director.

Following these appointments, there are 4 Non-Executive
Directors who have served for 4–6 years, one who has
served for 1–2 years, and one who has served for less than
12 months.

Further information about the appointment process and
succession planning is contained in the report of the
Nominations & Succession Committee on Pages 49 to 52.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Commitment
The Group appreciates the benefits that are brought by a
Board with a range of business backgrounds. The Board is
satisfied that each Non-Executive Director has sufficient
capacity to discharge their responsibilities effectively. This is
demonstrated by the 100% attendance at Board meetings
during the year, and also 100% attendance during the
previous year. Their record of attendance at meetings is
shown on Page 47, and they have also demonstrated their
commitment by the work and advice provided throughout
the year.

Following guidance contained in the 2018 Code, members
of the Board are now required to give prior approval to the
Directors for any new appointments.

Diversity
The Board and its Committees are considered to have an
appropriate balance of skills, experience, independence and
knowledge to enable them to discharge their respective
duties and responsibilities effectively. The Directors have a
wide range of backgrounds and extensive knowledge of a
variety of areas of expertise.

The Company does not have a diversity policy at present,
but is committed to promoting equal opportunities in
employment. Since the appointment of Baroness Simone
Finn on 5 May 2019, there have been 2 women on the
Board.

Development
The Board also ensures that Directors receive relevant
training upon appointment and then subsequently as
appropriate.

During the last 15 months, Directors have received regular
updates on corporate governance matters, with 2
separate briefings about the FCA’s Senior Management
& Certification Regime that became effective in
December 2019.

Information and support
The Board considers that it is supplied in a timely manner
with information in a form and of a quality appropriate to
enable it to discharge its duties.

Our Non-Executive Directors receive full updates on
Company progress and relevant issues and bring their
experience and sound judgement to bear on matters arising.

Board packs are provided to Directors in a timely fashion.
Where a decision is required, this is clearly flagged. All
Directors are encouraged to make a contribution. On the
rare occasion that a Director has a potential conflict of
interest, they remind the meeting that this is the case and
absent themselves in the event of a vote being taken.

The Company Secretary is available to provide advice and
services to all Board members and is responsible for
ensuring Board procedures are followed. All Directors are
also able to take independent advice to enable them to fulfil
their duties if necessary.

Board evaluation
Our CEO is appraised every 6 months by the Chairman.
During the year, the Chairman has undertaken a formal
internal Board evaluation, and Nigel Knowles, the Senior
Independent Director has appraised the Chairman after
consultation with the other Directors.

This evaluation concluded that the whole Board is
consistently engaged, bringing a wide range of perspectives
and experiences to discussions. The Non-Executive
Directors are able to reflect on insights gained from their
other activities and bring valuable input to meetings.

Following the evaluation, it was agreed to provide additional
training for the Directors about matters specific to
the business.

Re-election of Directors
Following the recommendation of the July 2018 edition of
the Code, at the Company’s AGM in June 2019, all of the
continuing Directors submitted themselves for re-election,
and will continue to do so at each subsequent AGM.

Accountability

Financial and business reporting
The Board believes that it is presenting a fair, balanced and
understandable assessment of the Company’s position and
prospects.

Reviews of the performance and financial position of the
Group are included in the Strategic Report within Pages 1 to
36, and present a balanced and understandable
assessment of the Group’s position and prospects. The
Directors’ responsibilities in respect of the financial
statements are described on Page 74 and those of the
auditor on Page 86.

Risk management and internal control
The Board acknowledges that it is responsible for
determining the nature and extent of the significant risks it is
willing to take in achieving its strategic objectives. The Group
maintains sound risk management and internal control
systems, and these are described in the Risk Management
section on Pages 24 to 30. Such systems are designed to
manage rather than eliminate the risk of failure to achieve
the Group’s overall business objectives and can only provide
reasonable, not absolute, assurance against material
misstatement or loss.

The Group’s internal control systems, including financial,
operational and compliance controls, are reviewed regularly
with the aim of continuous improvement. Whilst the Board
acknowledges its overall responsibility for internal control, it
believes strongly that senior management within the
Group’s operating businesses should also contribute in a
substantial way and this has been built into the process.

Morses Club PLC Annual Report & Accounts 2020

Corporate Governance Report continued

Principle D – Stakeholder engagement

The s172 statement in the Strategic Report on Page 32
provides a summary of the Group’s engagement with its
various stakeholders.

In this part of the Annual Report, we believe it is important
to demonstrate still further the excellent engagement the
Company has with its shareholders.

Dialogue with shareholders

The Board is responsible for ensuring that there is a
dialogue with shareholders based on the mutual
understanding of objectives. The Board as a whole has
responsibility for ensuring that a satisfactory dialogue with
shareholders takes place.

The Group communicates with institutional and private
investors and responds promptly to all queries received
verbally or in writing. All shareholders have at least
20 working days’ notice of the AGM at which all Directors,
including Committee Chairs, are usually present and
available to answer questions. In 2020, the AGM was held
virtually, with shareholders encouraged to ask questions
prior to the meeting. The Board is aware of the importance
of maintaining close relations with investors and analysts.
Twice-yearly roadshows are conducted by the CEO and
CFO when the performance and future strategy of the
Group are discussed with larger shareholders. Within 7 days
of the preliminary announcement of the interim results in
October 2019, the CEO and CFO met 75% of the Company’s
shareholders (by shareholding).

These meetings usually cover any matters arising from the
analyst presentations, the market in which the Group is
operating, its dealings with the regulator, together with the
Group’s financial performance and future strategy. Queries
from shareholders are dealt with by the CFO. In addition,
members of the Board receive regular feedback from major
shareholders and discuss this at Board meetings. The
Chairman and the Senior Independent Director are also
named and make themselves available, should an investor
wish to express any views to them.

Constructive use of the AGM
The Group’s successful engagement with its shareholders
during the year and at the time of the AGM can be
demonstrated by the results of the 2019 AGM, at which
92.4% of its shareholders voted, with a minimum of 97.4% of
votes being cast in favour of all of the resolutions proposed
by the Board.

The Board discharges its duties in this area through:
• the review of financial performance including budgets,

Key Performance Indicators and forecasts on a monthly
basis;

• the receipt of regular reports that provide an

assessment of key risks and controls and how effectively
they are working;

• scheduling annual Board reviews of strategy including

reviews of the material risks and uncertainties facing the
business;

• the receipt of reports from senior management on the

risk and control culture within the Group;

• the presence of a clear organisational structure with

defined hierarchy and clear delegation of authority; and

• ensuring that there are documented policies and

procedures in place.

Through the Risk & Compliance Committee, the Board
reviews the risk management framework and the key risks
facing the business. The Finance Department is responsible
for preparing the Group financial statements and ensuring
that accounting policies are in accordance with International
Financial Reporting Standards.

All financial information published by the Group is subject to
the approval of the Audit Committee.

The Board, with advice from both of the Audit and the Risk &
Compliance Committees, is satisfied that a system of
internal controls and risk management is in place that
enables the Company to identify, manage and evaluate
risks, including emerging risks. The report of the Audit
Committee on Pages 53 to 59 demonstrates how the
Board has established formal and transparent
arrangements for considering how it should apply the
corporate reporting and risk management and internal
control principles, and for maintaining an appropriate
relationship with the Company’s auditor. The Audit
Committee is also responsible for the Company’s Internal
Audit function.

These processes have been in place for the year under
review and up to the date of approval of the report and
financial statements. They are regularly reviewed by the
Board and accord with the guidance in the 2018 Code.

The Board intends to keep its risk control procedures under
constant review particularly as regards the need to embed
internal control and risk management procedures further
into the operations of the business and to deal with areas of
improvement that come to the attention of management
and the Board.

Audit Committee and its auditors

The Board is required to establish formal and transparent
arrangements for considering how they should apply the
corporate reporting, risk management and internal control
principles, and for maintaining an appropriate relationship
with the Company’s auditor. The Audit Committee is also
responsible for looking after the Group’s Internal Audit
function.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Principle E – Workforce engagement

The Strategic Report on Page 7 provides a summary of the Company’s work on developing its purpose and values, and
ensuring that workforce policies and procedures are consistent with these.

In January 2020, the Board appointed Les Easson, formerly the Company’s Operations Director, as the Designated
Director for employee engagement. This role has been developed during 2020, in association with the Company’s
continuing work on culture and values.

Information about the Company is provided through a number of methods, including regular business updates on the
Company’s intranet, videos made available to all employees, and presentations by the CEO.

As also noted in the Directors’ Report, the Company has a very robust whistle-blowing policy and procedures. The
Company has consistently highlighted to its staff the FCA’s whistle-blowing hotline as well as providing both an internal
contact telephone number and email address, together with the contact details of one of our independent Non-Executive
Directors.

Board Committees and Directors attendance at meetings

Board Committees
The terms of reference of all of the Board Committees are available from the Group’s registered office and on its website at
www.morsesclubplc.com.

Copies of the service contracts and letters of agreement of each of the Directors are available at the Group’s registered
office during business hours and are available for inspection at each AGM at which shareholders can be present for at least
15 minutes prior to and until the conclusion of the AGM.

During the year, the Board has continued its policy that all Non-Executive Directors should attend meetings of the Audit,
Risk & Compliance, Nominations and Disclosure Committees in order to maintain a full appreciation and understanding of
the Company.

Details of attendance at Board and Committee meetings during the year are shown below:

Committees

Risk &
Compliance
Committee

Audit
Committee

Board

Remuneration
& Corporate
Social
Responsibility
Committee

Nominations
& Succession
Committee

Disclosure
Committee

Meetings

Stephen Karle
Paul Smith
Andrew Hayward
Sir Nigel Knowles

Non-Executive Chairman
Chief Executive Officer
Chief Financial Officer
Senior Independent
Director
Joanne Lake
Non-Executive Director
Patrick Storey
Non-Executive Director
Peter Ward
Non-Executive Director
Non-Executive Director
Andy Thomson
Baroness Simone Finn Non-Executive Director
Non-Executive Director
Les Easson

8
8
4/4
8

8
2/2
8
8
6/6
4/4

–
–
–
2

3
1/1
–
–
2/2
–

–
–
–
3

4
1/1
2/2
–
3/3
–

7
–
–
5

–
–
–
–

1
–
–
0

1
0
1
0/0
0/0
–

1
1
0/0
1

1
1
1
1
1
0/0

On 5 May 2019, Baroness Simone Finn became Non-Executive Director and Chair of both of the Audit and Risk &
Compliance Committee, replacing Patrick Storey.

On 1 July 2019, Andy Thomson retired from his role as CFO and remained on the Board as a Non-Executive Director.

Also on 1 July 2019, Andrew Hayward joined the Group as CFO and was also appointed as an Executive Director to the
Morses Club Board.

On 1 September 2019, Les Easson was appointed as a Non-Executive Director upon his retirement as Operations Director.

On 16 March 2020, Andrew Hayward left the Company, and Andy Thomson took on the position of Interim CFO from
17th March.

Morses Club PLC Annual Report & Accounts 2020

Corporate Governance Report continued

Membership of Committees during the year were as follows:
On 5 May 2019, Peter Ward, an Affiliated Director, and Executive Directors Paul Smith and Andy Thomson ceased to be
members of the Risk & Compliance Committee in order that all of its members would be deemed as independent under
the July 2018 edition of the Corporate Governance Code.

Following these changes, the Company now complies with the 2018 Code regarding Committee membership.

Membership of the Committees during the year is shown below:
C = Chair
M = Member
UA = Upon appointment

Position

Non-Executive Chairman
Stephen Karle
Paul Smith
Chief Executive Officer
Andrew Hayward Chief Financial Officer
(1/7/2019–17/3/2020)

Sir Nigel Knowles Senior Independent

Joanne Lake
Patrick Storey

Peter Ward
Baroness Simone

Finn

Andy Thomson

Les Easson

Director
Non-Executive Director
Non-Executive Director
(until 4/5/2019)
Non-Executive Director
Non-Executive Director
(from 5/5/2019)
Non-Executive Director
from 1/7/2019 (formerly
CFO) Interim CFO
from 17/3/2020
Non-Executive Director
(from 1/9/2019)

Risk &
Compliance
Committee

Audit
Committee

Remuneration
& Corporate
Social
Responsibility
Committee

Nominations
& Succession
Committee

Disclosure
Committee

Considered
Independent

–
–
–

M
C

–
C

–

–
–
–

M
C

–
C

–

M
–
–

C
–

–
–

–

C
–
–

M
M

–

C
M
M

M
M

UA
X
X

Y
Y

X
Y

On 16 March 2020, Andrew Hayward left the Company,
and on that date, Andy Thomson took on the
position of Interim CFO from 17th March.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Nominations & Succession Committee

Dear Shareholder,

I am pleased to present the report of the
Nominations & Succession Committee which
covers the year ended 29 February 2020.

The report provides insight into the composition of
the Committee and the work that it undertakes.

We continue to assist the Board in the assessment
of the appropriate skills and in developing
succession plans to ensure we continue to deliver
against our strategy.

Committee members

What does the Committee do?

• Stephen Karle
(Chairman)

• Patrick Storey
(to 4 May 2019)

• Baroness Simone Finn
(from 5 May 2019)

1. Ensures that the Board has a formal and transparent appointments
procedure and that the balance of Directors on the Board remains
appropriate as the Group develops in order to ensure that the business
can compete effectively in the marketplace.

2. Identifies and nominates candidates to fill Board vacancies as and

when they arise.

3. Evaluates the balance of skills, knowledge, experience and diversity of

the Board in order to ensure an optimum mix.

4. Considers the succession planning for Directors, Executives and senior

• Sir Nigel Knowles

managers to ensure that any succession is managed smoothly.

• Joanne Lake

• Peter Ward

The Committee comprises all of the Group’s Non-Executive Directors and
held 1 meeting during the year.

The Committee’s terms of reference are available on the Group’s website.

Morses Club PLC Annual Report & Accounts 2020

Nominations & Succession Committee continued

Diversity

The Group recognises the importance of diversity both at
Board level and throughout the whole organisation.

The Board remains committed to increasing diversity.
Consequently, diversity is taken into account during each
recruitment and appointment process, working to attract
outstanding candidates with diverse backgrounds, skills,
ideas and culture.

The Company is committed to promoting equal
opportunities in employment, ensuring that discrimination
does not take place, and everyone receives equal treatment
regardless of age, disability, gender reassignment, marital
or civil partner status, pregnancy or maternity, race, colour,
nationality, ethnic or national origin, religion or belief, sex or
sexual orientation. It does not currently have a formal
diversity policy but is putting in place a number of steps that
will seek to address the possibility of unconscious bias
during the recruitment process. In 2020, the Company will
be introducing a system of ‘blind applications’ whereby the
personal details of the candidates (name, gender) will be
initially hidden, thereby ensuring that shortlists are selected
based solely on skills and experience.

The appointment with effect from 5 May 2019 of Baroness
Simone Finn has resulted in a position whereby for the first
time, 2 members of the Board, and two-thirds of the
independent Directors, are women.

As at 29 February 2020, the Executive Management
Team and Company Secretary comprised 7 men and 1
woman. Their direct reports consisted of 23 men and
10 women.

Activities during the year

During the year, the Committee has:
• undertaken an exercise to look at Executive

succession planning;

• reviewed the composition of the Board and its sub-

Committees;

• undertaken an annual internal evaluation process for

both the Chairman and the Board as a whole;

• concluded that the Board works effectively, both as a

group and in its individual Committees, bringing a wealth
of relevant experience to the Company; and

• made a number of recommendations in relation to

appointments to the Board.

Internal Board evaluation

In terms of the evaluation of Board members, the Board
succession planning process is set out in a clear, written
policy which ensures consistency and rigour. It is
underpinned by a Board profile matrix, in which the skills,
competences and diversity needs of the Board are mapped
against current composition. The matrix helps the Board
focus its search and write relevant role descriptions that are
Senior Manager & Certification Regime (SM&CR) compliant
for the selection of any new Non-Executive Directors.

A further measure involves annual effectiveness reviews of
individual Non-Executive Directors, led by the Chairman, but
with the Chair being assessed by the Senior Independent
Director with input from all Directors. The Committee has
given consideration to a future evaluation by external
consultants, to assist the Board in understanding its
collective effectiveness and to help inform Non-Executive
Directors of their strategic relevance to the Company. It is
envisaged that this form of external evaluation would then
be undertaken every 3 years.

Where changes to Board composition are considered
necessary (as was the case during 2019), the Committee
defines the Board’s needs, identifies the talent required, and
engages independent, reputable search consultants and/or
key advisers to assist in the search for high-calibre
candidates submitting its recommendations to the full
Board for consideration.

Following the internal evaluation, the Committee
concluded that:
• the Board remains focused on outcomes – for

customers, investors, employees, self-employed agents
and stakeholders. This can be demonstrated by the
management information requested by and produced
to the Board at each Board meeting, including
additional customer research commissioned during
the year;

• the Board consistently considers the relevance of its
capabilities to meet the challenges ahead. This is
debated in relation to every acquisition and at
Nominations & Succession Committee;

• the culture at the Board table encourages wide, deep

and relevant participation;

• the Board is consistently engaged. All Non-Executive
Directors add value in maximising the leverage and
quality of their third-party relationships;

• Board colleagues bring a wide range of perspectives to
the Board table. Non-Executive Directors reflect on
insights gained from their other activities and bring
valuable input to meetings;

• additional training should be provided to the Directors
on topics specifically related to the Group’s activities.
The Directors have been briefed on the Company’s
current pricing policies, together with a comparison
against its competitors. They have also received training
on the SM&CR regime that was introduced in December
2019; and

• the Board agenda and management information are

continually reviewed to ensure that concise and relevant
information is made available at an appropriate time.

As a result of the Board evaluation, the Committee has
concluded that the Board works effectively as a group in its
current form, although this will remain under annual review.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Changes to the Board

There have been a number of changes to the Board during
the year.

Appointment of Baroness Simone Finn as Independent
Non-Executive Director
The Committee agreed to recommend the appointment of
Baroness Simone Finn as a Non-Executive Director with
effect from 5 May 2019, following the retirement as a NED
of Patrick Storey, whose 3-year term of office expired on
4 May 2019.

As part of the selection process, the Chairman reviewed the
Boards of other public companies in the financial services
sector. However, many of these Board members would (i)
potentially be ‘over-boarded’, ie, already serving on a
number of Boards, and/or (ii) probably experience a conflict
of interests with Morses Club’s future planned activities.

The Chairman therefore looked more closely at Directors in
the wealth management sector. These would have
experience within the financial services sector, but they
would be unlikely to have any conflicts of interest with also
being a Director of Morses Club. As a consequence, a
short-list of 3 candidates was created.

The Committee was unanimous in recommending Baroness
Finn as the new Non-Executive Director.
• she is a chartered accountant, having run audit teams for

PWC prior to moving into their compliance team;
• she is already a member of the Audit Committee of a

Company in the financial services sector;

• she has worked for the Financial Services Authority, the

forerunner to the FCA; and

• she has worked as a consultant at a very high-level

advising governments.

Retirement of Andy Thomson as CFO and his appointment
as Non-Executive Director
Andy Thomson retired from his role as CFO on 1 July 2019
and it was agreed that he would remain on the Board as a
Non-Executive Director.

Appointment of Andrew Hayward as CFO
Andrew Hayward joined the Group as CFO on 1 July 2019
and was also appointed as an Executive Director to
the Morses Club Board. Andrew joined the Group from
eServGlobal, the ASX and AIM listed digital financial
transactions technology Company, where he had been CFO
for more than two and a half years.

Appointment of Les Easson as Non-Executive Director
The Committee was also determined to retain the
operations expertise and industry knowledge of Les
Easson, built up over 36 years at Morses Club. It therefore
recommended his appointment as Non-Executive
Director upon his retirement as Operations Director on
1 September 2019. Amongst his other tasks as a Director,
Les has been appointed the designated Director for
employee engagement and he will also mentor his
replacement as Operations Director.

Directorate changes after the end of the financial year
On 16 March 2020, Andrew Hayward left the Company.
The Committee unanimously agreed to recommend to the
Board that it appointed Andy Thomson to the position of
Interim CFO.

Corporate Governance Code
The Committee is aware that the Group does not comply
with the Provision 11 of the 2018 Corporate Governance
Code which relates to the proportion of Non-Executive
Directors whom the Board considers to be independent.
However, the Committee and the Board as a whole are
satisfied that this arrangement is correct for the business
at this time and will keep the matter under close review.

Succession planning
The Company has developed a policy for both Board and
Executive succession planning that sets out a process by
which the Nominations & Succession Committee plans
ahead for the replacement of Executive and Non-
Executive Board members and the Chair, either because of
a vacancy or a possible future vacancy. This process looks
at the medium term and longer term, together with
potential contingencies.

The Committee was aware that recent experience
elsewhere in the Home Collected Credit sector has
demonstrated that a loss of expertise at main Board level in
relation to this specific form of consumer lending can
potentially lead to financial problems that are adverse to
the interests of all stakeholders.

The plan has been developed to ensure:
• continuity in key roles;
• sustainability of the Company’s performance;
• high standards of corporate governance; and
• appropriate investor dialogue.

The Committee was determined to retain the expert
knowledge and deep sector experience of Andy Thomson.
He served as a Non-Executive Director of the Company
prior to becoming the Executive CFO at the time of its IPO
and has been a shareholder throughout the period since
the IPO; hence the Committee believed that he was well
placed to protect shareholder interests in his role as a
Non-Executive Director.

Morses Club PLC Annual Report & Accounts 2020

Nominations & Succession Committee continued

It addresses the issues of competence, integrity,
transparency, diversity and independence by seeking to
define the shape of the Board and Executive teams by
assessing on an ongoing basis:
• the required levels of knowledge, skills, experience and

specific expertise;

• the proportion of the Board that should be composed of

independent Non-Executive Directors;

• the issue of diversity in the widest sense of the word,

especially gender diversity;

• the effectiveness of Board refreshment through the
periodic appointment of new members and the
scheduled retirement of incumbent Directors; the
primary aim being to align skill sets with the Company’s
evolving strategic direction; and

• whether effective risk management is in place to

minimise the vulnerability to narrow ‘group thinking’.

Board service is strictly contingent on individual Director
performance and annual re-election, founded upon on
satisfactory evaluations of his or her contribution to the
Board. The position will be kept under close review by the
Nominations & Succession Committee alongside the
delivery of the Company’s strategy.

It is the intention of the Committee to widen the
inclusiveness of the nominations process, allowing for
consultations with key shareholders and stakeholders (for
example, management, funders and employees).

The Committee will consider conducting any future search
for an independent Non-Executive Director by an
independent search firm, supplemented by open
advertising as appropriate.

Approval

On behalf of the Nominations & Succession Committee

Stephen Karle
Chairman
27 November 2020

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Audit Committee

Dear Shareholder,

As Chair of the Audit Committee, I am pleased
to present my first report for the year ended
29 February 2020.

The report provides insight into the composition of
the Committee and the work that it undertakes.

In essence, we ensure the integrity of the financial
reporting, the robustness of internal operational
and financial controls and the independence of
the external auditor.

Committee members

• Baroness Simone Finn

(Chair from 5 May 2019)

• Patrick Storey

(Chairman to 4 May 2019)

• Sir Nigel Knowles

• Joanne Lake

Both Baroness Simone Finn and
Joanne Lake are Chartered
Accountants with extensive experience
within the financial services sector,
whilst Sir Nigel Knowles is the CEO of
global legal business DWF plc, having
been a managing partner at the global
law firm DLA Piper for nearly 20 years.

What does the Committee do?

The key objective of the Committee is to provide assurance to the Board as
to the effectiveness of the Company’s internal controls and the integrity of
its financial records and externally published results.

The Committee monitors and reviews the Group’s financial reporting from
information provided by management and the auditor. The Committee
reports to the Board on the Group’s full and half-year results, having
examined the accounting policies on which they are based and ensured
compliance with relevant accounting standards.

The Committee’s terms of reference are available on the Group’s website.

The Committee held 4 meetings during the year, in alignment with its terms
of reference and the Group’s financial reporting timetable. In addition to its
regular meetings, following the year end the Committee held 2 additional
meetings to review the impact of Covid-19 on the financial results of the
business.

The Committee acknowledges and embraces its role in protecting the
interests of shareholders and is committed to monitoring the integrity of
the Group’s reporting.

The Committee performed reviews of the full year, interim and trading
update announcements, and the Annual Report and Accounts and
half-yearly financial statements.

Morses Club PLC Annual Report & Accounts 2020

Audit Committee continued

Composition and governance

Significant areas of judgement

In addition to my role as Chair of the Audit Committee,
I am also Chair of the Risk & Compliance Committee. As
Chartered Accountants, the Board considers that both
Joanne Lake and I have recent and relevant financial
experience. All of the independent Non-Executive Directors
are members of this Committee and have been since the
Group’s IPO in May 2016. The Board believes that the
current members have sufficient skills, qualifications and
experience to discharge their duties in accordance with the
Committee’s terms of reference.

The other Directors are also invited to attend meetings, as
are senior representatives of the external auditor, together
with appropriate members of the Executive team in order
to ensure that all relevant information is available to the
Committee.

The Committee meets with the external auditor without
the presence of Executive Management twice each year to
discuss matters relating to its remit and any issues relating
to the audit. The Committee also meets each of the Risk &
Compliance Director and the Head of Internal Audit
individually on an annual basis without the presence of
other Executive Management.

The Committee has direct and unrestricted access to both
internal and external audit functions. As the Chair, I also
have regular contact with the external auditor, the Chief
Financial Officer, the Risk & Compliance Director, and the
Head of Internal Audit outside the formal meetings to
ensure that any areas for discussion are dealt with in a
timely manner.

How the Committee discharged its responsibilities

The Audit Committee met 4 times during the year in
alignment with its terms of reference and with the Group’s
financial reporting timetable.

A self-assessment internal review of the performance of
the Committee concluded that it had discharged its
responsibilities during the year. This was achieved by
comparing the Committee’s Terms of Reference with the
Committee’s actions and considerations during the year.

Following this review, the meeting that reviewed the
preliminary judgement paper was re-scheduled to the end
of February. At the same time, a separate meeting was
scheduled in late January with the sole purpose of
reviewing the proposed audit plan. The result is that the
audit plan and the preliminary judgement paper are both
reviewed and agreed at the most appropriate times in the
audit process.

The external auditor has scoped the audit appropriately
and subjected significant areas of judgement to robust
challenge.

The Committee considers there to be 5 significant areas of
judgement and these are detailed below.

1. Loan loss provisioning
IFRS 9 requires management to record impairment
provisions based on the stage of credit impairment. The
recording of a provision requires management to make
complex judgements. Management has adopted an
approach to IFRS 9 impairment modelling, based on
discounting expected future cash flows whereby the
probability of default and loss given default are assessed
as a single combined measure.

The key judgement is around the estimation of expected
future cash flows used to determine the provision.

The Committee regularly challenges the appropriateness
of management’s judgements and assumptions underlying
the impairment provision calculations and concluded that
the provisions held against the loan book are reasonable.

The management approach to loan loss provisioning was
reviewed with the Committee and the external auditors at
one of the Committee’s scheduled meetings. This
underlying approach has remained consistent with the
previous year.

After discussion with management and the external
auditor, the Committee considered the 2014/18 cash
curves to be appropriate for the purposes of determining
the base level of impairment provision required at year
end in order to establish the normalised adjusted profit
before tax.
• The adoption of cohorts to construct the cash curves

remained consistent with the Company’s IFRS 9 policy.
The impact of transitioning from 2013/17 cash curves
used in FY19 to the 2014/18 curves used in FY20 was
only £0.1m.

• 2020 actual cash collections were within 2% of those

forecast in FY19 using this method.

• Cash collection levels and default levels have been

relatively consistent with prior periods.

Based on the review described above, the Committee
concluded that the underlying provisions held against the
loan book prior to the Covid-19 adjustment are reasonable.

The impacts of Covid-19 on impairments are detailed in
section 2 below.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

The impact of these decisions is that we have recognised a
relatively small increase in ECLs for FY20 of £1.7m and
identified with the benefit of hindsight a larger impact of
Covid-19 and the subsequent lockdown of £5.2m which is
reported as a Post Balance Sheet Event and could be
adjusted in our first half-year results for FY21.

3. Revenue recognition
IFRS 9 requires management to recognise interest using
the effective interest rate (EIR) method based on the stage
of credit impairment.

In order to arrive at the average expected life for each
product type, management has taken an average of the
expected lives of loans within the December 2014, 2015,
2016, 2017 and 2018 cohorts. This approach is deemed
reasonable given the data sets align with those used
to construct the cash collection curves for loan loss
provisioning purposes (as described above), thereby
resulting in consistency across management’s IFRS 9
modelling methodology.

The Committee has reviewed the expected life
assumptions and management’s judgement paper.

The Committee also challenged whether there was
evidence of a change in the expected life assumptions as a
result of Covid-19 and concluded that as at 29 February
2020 there was no new empirical evidence that any
change had occurred.

The management treatment of revenue recognition was
reviewed with management and the external auditors at
one of the Committee’s scheduled meetings. This
treatment has remained consistent with the previous year.
The Committee has also challenged the expected life of
products by reference to both historical and forecast data
and comparability with the contractual life under IFRS 9.
As a result of this review, the Committee has concluded
that the Group’s treatment of this is reasonable.

2. Covid-19 impact on impairment
IFRS9 requires the Group to consider likely future cash
flows and therefore to assess the estimated impact of
Covid-19 on the recoverability of the closing loan book as
at February 2020 and if necessary, increase the value of
the impairment provision accordingly. This was a complex
issue to assess since whilst Covid-19 was virtually unheard
of as a European business threat at the end of January
2020 and the UK national lockdown in March meant that
the threat was widely known at the end of March 2020, as
at our year end of 29 February 2020 the threat was still
emerging. Indeed, as the threat was rapidly increasing
daily it was understandably difficult to assess what the
threat was at that time of our year end without the benefit
of hindsight.

The Audit Committee had to consider, in line with IFRS9,
what the potential impacts of Covid-19 might be in
different scenarios and the probability weighting of each
different scenario. In addition, the Committee had to
consider IAS10 – Events After the Reporting Period – and
decide whether Covid-19 was an Adjusting Event or a
Non-Adjusting Event for the purpose of the FY20 accounts
and any Post Balance Sheet Event reporting. These
deliberations were in the context of the recovery of the
closing loan book at 29 February 2020, and to what
degree we expected the projected cash flows used to
calculate the Expected Credit Losses (ECLs) might differ
from the underlying ECL calculations.

The Group had prepared a downside case business plan
(Covid-19 Plan) for the debt funders during March 2020
and used as a baseline for them to assist their decision to
extend the loan facility agreement for 15 months from
August 2020 to the end of November 2021. We decided
that this would be an appropriate scenario for the Group
to use as a worst case as it had been independently vetted
and agreed by 3 external commercial organisations. This
plan assumed reductions in cash collections in both the
opening loan book and ongoing collections as detailed in
the table on Page 116.

Having established a downside scenario we then had to
consider the probability of this scenario becoming a reality
based on what we knew about Covid-19 as at 29 February
2020. This proved to be a difficult debate with much
conflicting information available to us at the time.
Ultimately, the directors determined that there was only a
small probability of a major impact of Covid-19 and applied
a probability weighting of 10%. We also considered
whether the UK lockdown announced on 23 March was an
Adjusting Post Balance Sheet Event under IAS10 and
concluded that it was not.

Morses Club PLC Annual Report & Accounts 2020

Audit Committee continued

4. Goodwill impairment
A fourth significant area of judgement has been
introduced following the acquisition of U Holdings Limited
in June 2019, that of goodwill impairment.

Management is required by accounting standards to
perform an annual impairment review for goodwill
balances. Assessment of impairment involves estimating
the fair value less costs to sell and value in use of certain
intangible assets at each reporting period. This requires an
assessment of whether there are any impairment triggers
which, given the nature of the assets, focuses on
performance and cash flows.

The Committee has reviewed the forecast cash flows in the
goodwill impairment model for U Holdings Limited, in
particular the long-term growth rate and discount rate
used, given these are the key assumptions underpinning
the forecast. The Company used a pre-tax weighted
average cost of capital (WACC) of 13.22% in order to
discount future cash flows.

The Committee was mindful that the price of the
acquisition of U Holdings Limited was set in a competitive
bid and that the price paid, whether measured in price per
customer or multiple of revenue, represented a significant
discount to the valuations placed on some of U Holdings
Limited’s larger mainstream competitors.

In considering the future projected cash flows, the
Committee reviewed the performance of the business
since acquisition against the objectives that were set for it.
In addition, the Committee also had to consider whether
Covid-19 or the temporary suspension of services in June
2020 as a result of the FCA freezing Wirecard’s activities
for approximately 4 days would also have a material
impact on these projections.

As a result of considering all of these factors it was
concluded that as at the balance sheet date, and events
post balance sheet date, that there was no requirement to
impair the goodwill that arose from the acquisition of U
Holdings Limited.

5. Covid-19 impact on going concern
As the Covid-19 pandemic developed, the business had to
quickly react to the new challenges facing it. This was
particularly the case in the HCC side of the business where
pre Covid-19 lockdown, 100% of loan sales and c 60% of
collections were dependent on human interaction. As it
became clearer that offices might be closed, the Company
had to redesign parts of its operations.

The Committee was reassured by the operational
resilience demonstrated by the Company as customer loan
repayments moved to being made remotely, and today
over 75% of payments are still made remotely mainly
through remote debit card payments and the portal. The
Company also rapidly developed a remote sales
application with the ability to deliver funds to customers
through direct bank transfers. Our customer support staff
were equipped with laptop computers and set up to work
from home through remote telephony. As a result, short
term cash flows were very positive.

The timing of the impact of Covid-19 on the Group, being
just 3 weeks into the new financial year, meant that the
budgets and management goals put in place for the year
were no longer relevant. At the same time, we were in
discussions with our funders to extend the existing debt
facility from August 2020 to the end of November 2021.
We therefore had to prepare a revised business plan
taking into consideration the adverse impacts of the
national lockdown and subsequent impacts of post
Covid-19 world such as the likely move to a more digital
relationship with our customers. The assumptions for this
were agreed with the funding syndicate and then modelled
during late March/early April.

This Covid-19 scenario was then used to assess our going
concern status and long-term viability of the business.

During the negotiations to extend the facility, the Covid-19
scenario was used in order to give the funding syndicate
sufficient assurance about the security of the asset as this
stressed the cash flows and covenant performance
metrics to the full. As a result of this stress test, the funders
agreed to make changes to 2 covenants in the agreement:

The cash collections covenant was reduced for the
remainder of the 2020 calendar year to reflect the
reduced performance during the early weeks of lockdown.
Since early May 2020 our collections performance was
already back to a level that exceeded the original covenant
and at no point in time was the original covenant
breached.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

The interest cover ratio covenant (EBITDA/interest cost),
previously reported x 5.0, automatically reduced on expiry
of the mezzanine facility to x3.25. We agreed with the
funders to carry out this calculation on a rolling 12-months
basis rather than a 6-months rolling basis because the
impact of Covid-19 on month to month impairments
performance can be more volatile than is normal. We also
agreed, once the magnitude of the Covid-19 adjustment to
impairment was understood, to define this as an
exceptional item in accordance with the facility agreement
and therefore exclude it from the interest cover calculation.

On 30 April 2020, the Group was pleased to announce
that it had successfully extended its current facilities that
were due to expire in August 2020 out to the end of
November 2021. This was at a reduced committed level of
£40m, all in the Revolving Credit Facility (RCF), compared
to £50m RCF and £5m mezzanine finance previously in
place. The Committee believes that to achieve this in such
an economic and societal upheaval for which there is no
historic comparison showed great confidence by our
lending syndicate in the robustness of our business model.

The Committee is happy that there are no going concern
issues for the Group. We have adequate headroom in our
facilities to meet our projected cash flows, have never
breached a loan covenant and our forecasts based on
current performance metrics do not lead to any forecasted
breach. Additional comfort is taken from the debt balance
at the end of October 2020 being £13.0m which compares
to £17.5m forecast in the Covid-19 business plan provided
to the funders and £22.5m of drawn down debt at the
same point last year.

Critical accounting judgements and key sources of
estimation uncertainty

There are both critical accounting judgements and key
sources of estimation uncertainty contained within this
Annual Report. Further details can be found on Page 106.

Meetings of the Committee

The Committee met on 4 occasions during the year ending
29 February 2020 all of which were scheduled. Attendance
records can be found on Page 47.

The work undertaken by the Committee included the
following activities:
• A review of the full-year results including the Annual
Report and Accounts, preliminary results and the
external auditor’s report. Providing advice (where
requested by the Board) on whether the Annual Report
and Accounts, taken as a whole, is fair, balanced and
understandable, and provides the information necessary
for shareholders to assess the Company’s position and
performance, business model and strategy.
In reviewing these documents and determining whether
they were fair, balanced and understandable, the
Committee also considered the work and
recommendations of management.

•

• An interim results’ review.
• A consideration of the appropriateness of accounting

policies and critical accounting estimates and
judgements, including a review of information from the
Chief Financial Officer and reports from the external
auditor setting out its views on the accounting
treatments and judgements in the financial statements.

• A review of the external auditor’s management letter

arising from their external audit of the Company’s 2019
accounts, and the managements’ response to the
recommendations included within it.

• A consideration of the level of non-audit work carried out

for the Group by the external auditor seeking
confirmation from the auditor that it maintains suitable
policies and processes to ensure independence. The
Committee has a non-audit work policy which is reviewed
annually.

• Overseeing the activities of the Group’s internal audit
function, including its resourcing, its planning and the
output of its audit work.

• Approving the budgets for internal and external audit

activities.

• Reviewing the adequacy and effectiveness of the

Group’s internal audit function and the robustness of the
Group’s internal operational and financial controls.
• Reviewing the implementation of an upgraded finance

system.

• Reviewing access controls, and especially the procedure
to cover employee joiners, leavers and reassignments.

• A review of the going concern assumptions when

considering interim and final results statements and
long-term viability in the case of the final results
statement, taking into account internal financial
projections.

Morses Club PLC Annual Report & Accounts 2020

Audit Committee continued

Review of the 2020 Annual Report
and Financial Statements

At the request of the Board, the Committee considered
whether, in its opinion, the 2020 Annual Report and
Financial Statements, taken as a whole, are fair, balanced,
and understandable and provide the necessary information
for the reader to assess the Group’s position and
performance, business model and key audit matters.

Process
In justifying this statement, the Committee considered the
process in place to create the Annual Report and Financial
Statements including:
• the timely involvement of the Committee in the
preparation of the Annual Report and Financial
Statements which enabled it to provide input into the
overall messages and tone;

• the input provided by Group senior management and the
process of review, evaluation and verification to ensure
balance, accuracy and consistency;

• the reviews conducted by external advisers appointed to

advise on best practice;

• the regular review of the Group’s internal audit reports
which are presented at Committee meetings and the
opportunity for the Non-Executive Directors to meet
both the external auditors and the Head of Internal Audit
without any executive of the Group being present via the
private sessions of the Committee;

• the Committee meetings reviewed and considered the

draft Annual Report and Financial Statements in
advance of the final sign-off; and

• the final sign-off process by the Board.

When forming its opinion, the Committee reflected on the
information it had received and its discussions through the
year. In particular, the Committee considered whether:

The report is fair
• Are the key messages in the narrative reporting

reflective of the financial reporting; and

• are the KPIs disclosed appropriate to understanding the

underlying performance of the Group?

The report is balanced
•

Is there a good level of consistency between the
narrative reporting and the financial reporting and is the
messaging in each consistent when read independently
of each other?

• Are both the statutory and adjusted financial measures

explained clearly and given equal priority and
prominence?

• Are the key judgements referred to in the narrative

reporting and the significant issues reported in this Audit
Committee Report consistent with the disclosures and
critical judgements set out in the financial statements?
• How do these judgements and issues compare with the
risks that the external auditor will include in its report?

The report is understandable
•

Is there a clear and understandable structure to the
report?

• Are the important messages highlighted appropriately
and consistently throughout the document with clear
signposting to where additional information can be
found?
Is the narrative within the Annual Report and Financial
Statements straightforward and transparent?

•

This assessment was also underpinned by the following:
• The papers on critical accounting judgements and key

sources of estimation uncertainty presented by
management to the Audit Committee which documents
the approach taken to the critical accounting judgements
and key sources of estimation uncertainty documented in
the financial statements on Page 106. The assumptions
and the going concern statement were challenged by the
Committee as part of the year-end process.

• The consistency between the risks identified and the

issues that are of concern to the Committee.

• The comprehensive reviews of the Annual Report and
Financial Statements 2020 undertaken at different
levels in the Group which aims to ensure consistency and
overall balance.

• The external auditor’s report on the Annual Report and

Financial Statements 2020.

Conclusion
Following its review, and having taken into account all the
matters considered by the Audit Committee and brought to
their attention during the year, the Committee reported to
the Board that it was satisfied that the Annual Report and
Accounts, taken as a whole, are fair, balanced and
understandable.

External audit

The Group’s external auditor is Deloitte LLP.

The Committee is responsible for reviewing the objectivity,
independence and cost-effectiveness of the external auditor.

The Committee also reviews the performance of the auditor
taking into account the services and advice provided to the
Group and the fees charged for these services. The CFO,
Finance Director and other senior executives provide
feedback to the Board and Audit Committees, on a regular
basis regarding the services received from the external
auditor.

During the year, the Committee reviewed its non-audit work
policy which is designed to mitigate any risks threatening, or
appearing to threaten, the external auditor’s independence
and objectivity.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

During the year, the Internal Audit plan contained a diverse
selection of reviews. This year saw the delivery of multiple
audits which gave assurance over the business’s software
development processes at the request of the responsible
Director. A review into Internal Information Security controls
was also conducted in order to provide assurance over the
specific non-technical information security controls utilised
by the business.

During the year, the Head of Internal Audit recruited an
additional internal auditor in order to assist with the delivery
of the plan.

The Committee closely reviews the reports of the internal
audit function. Its work is primarily risk-based, using the
Group’s risk register and consultation with the Executive
team to identify key risks which are then prioritised. The
Committee has found the reports to be both incisive and
timely, and presented in a way that is well articulated.
The Head of Internal Audit is invited to attend all of the
Committee’s meetings and meets the Committee members
on an annual basis without management present. As Chair
of the Committee, I hold one-to-one meetings every month
with the Head of Internal Audit.

During 2019, the Internal Audit function increased its internal
staffing significantly, with additional recruitment being
undertaken in 2020 in order to ensure that there are
sufficient resources available to monitor the Group’s new
acquisitions. The Committee annually assesses the
effectiveness of the Internal Audit function and has satisfied
itself that the quality, independence, experience and
expertise of the function is appropriate for the business.

FRC Corporate Reporting Review team

There was no interaction with the FRC’s Corporate
Reporting Review team during the year.

Approval

On behalf of the Audit Committee

Baroness Simone Finn
Chair
27 November 2020

As part of the Committee’s remit, we monitor the level of
non-audit work carried out by the external auditor. During
the previous year, the Committee had carefully considered a
proposal from the previous CFO that management should
be permitted to select Deloitte to undertake due diligence
work in respect of future acquisitions. After careful
consideration about Deloitte’s independence, the Committee
had agreed that the Company should select whoever it
believes to be the most appropriate provider under the
circumstances.

During the year to 29 February 2020, the level of audit fees
amounted to £410k (FY19: £254k), and non-audit fees
amounted to £85k (FY19: £119k). The ratio of non-audit fees
to audit fees was 20.7% (FY19: 46.8%). The non-audit work
carried out during FY20 related to (i) the review of the
interim results and (ii) due diligence work in respect of
potential acquisitions.

Deloitte LLP was first appointed as auditor of Morses Club
Limited with effect from 1 March 2009 as a result of a
competitive audit tender. Being on AIM, the Company is not
a Public Interest Entity and therefore is not required to
review its external auditor after 10 years.

Following consultation with the management team, and
especially the Finance Department, the Committee is
satisfied with Deloitte’s performance. Deloitte have
significant experience and expertise within the Home
Collected Credit market and the management team has
confirmed that they are content with the competence and
performance of the team at Deloitte.

During the year, the Committee reviewed whether it wishes
to put the external audit service out to tender and has
concluded that it is not in the Company’s interests to do so
during the next 12 months. On this basis, the Committee
has recommended to the Board that Deloitte be proposed
for reappointment at the forthcoming General Meeting.
Deloitte has indicated its willingness to continue in office.
The Committee confirms that there are no contractual
obligations that restrict the Committee’s choice of external
auditor in the future.

Internal audit function

The Group has an internal audit function headed by an
experienced and highly qualified Head of Internal Audit
who reports directly to me, as Audit Committee Chair. The
Internal Audit function objectively reviews the Group’s
internal control processes using a risk-based internal audit
plan and audit charter approved annually by the Committee.
The plan is based primarily on output from the risk
management process, but it is flexible and may include ad
hoc investigations and other assurance work agreed by the
Committee. Specialist technical knowledge and resources
are sourced externally when required.

Morses Club PLC Annual Report & Accounts 2020

Risk & Compliance Committee

Dear Shareholder,

As Chair of the Risk &
Compliance Committee,
I am pleased to present my
first report which covers the
year ended 29 February
2020.

The report provides insight
into the composition of the
Committee and the work that
it undertakes to ensure that:

• the Group remains

compliant with the FCA’s
prevailing rules, regulations
and guidance;

• the Group’s risk management
policies and procedures are
fit for purpose; and

• the Group’s risk management

framework is operating
effectively.

What does the Committee do?

The principal purpose of the Risk & Compliance
Committee is to assist the Board in its oversight of risk
and regulatory compliance within the Group with
particular focus on the FCA’s developing
requirements, risk appetite, risk profile and the
effectiveness of the Group’s internal controls and risk
management systems. The Committee ensures that
there is an on-going process for identifying, evaluating
and managing the principal risks faced by the
Company.

The Board and its Committees discharges its duties in
this area through:
• the review of financial performance including
budgets, KPIs, forecasts and debt covenants on a
monthly basis;
• the receipt of regular reports which provide an
assessment of key risks and controls and how
effectively they are working;
• scheduling annual Board reviews of business
strategy, including reviews of the material risks and
uncertainties facing the business;
• the receipt of reports from senior management on
the risk and control framework as well as culture
within the Group; and
• the presence of a clear organisational structure with
defined hierarchy and clear delegation of authority.

These arrangements are regularly reviewed by the
Committee and have been in place for the year under
review and up to the date of approval of the Annual
Report and Accounts. Reports are also received from
management in respect of key controls as set out in
the Compliance Monitoring Plan and reviewed on a
regular basis. The Committee closely monitors any
areas where a requirement for improvement has
been highlighted. These are addressed by an
improvement to policies and procedures supported by
the introduction of enhanced technology for the
Agents and operational management. The
Committee’s terms of reference are available on the
Group’s website.

The Committee held 3 meetings during the year.

Committee members

• Baroness Simone Finn

(Chair from 5 May 2019)

• Sir Nigel Knowles

• Joanne Lake

• Patrick Storey

(Chair resigned 4 May 2019)

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Composition and governance

In addition to my role as Chair of the Risk & Compliance
Committee, I am also Chair of the Audit Committee. The
Committee consists of all of the independent Non-
Executive Directors.

The other Directors are also invited to attend meetings,
together with appropriate members of the Executive team
in order to ensure that all relevant information is available
to the Committee.

How the Committee discharged its responsibilities

The Committee held 3 meetings during the year in
accordance with its terms of reference.

Both the Risk Executive Committee and the Credit Risk
Committee of the Morses Club division have reported
directly to this Risk & Compliance Committee and their
minutes are sent to all members of this Committee.

Following the acquisition of certain assets of CURO
Transatlantic Limited and U Holdings Limited by the
Company’s subsidiary Shelby Finance Limited during 2019,
the Committee is now receiving reports and updates from
that subsidiary in addition to the Morses Club division.

A self-assessment internal review of the performance of
the Committee concluded that it had discharged its
responsibilities during the year. It also confirmed that it
was satisfied with the effectiveness of the Company’s risk
management function. As Chair, I am satisfied with the
functioning of the Committee, and the management
information provided by the Company.

The Morses Club strapline is ‘Putting You First’: customers
are at the heart of the Group’s culture, vision and values. In
recent years, the level of public and regulatory scrutiny of
the Group’s marketplace has grown. The Board recognises
the importance to the business of risk and compliance, and
the need to devote time and energy to these vital areas.

The Committee is responsible for reviewing and reporting
to the Board on a number of topics, including:
• the Group’s risk appetite (the extent and categories of

risk regarded by the Board as acceptable for the Group
to bear);

• the Group’s risk management and internal controls
framework (its principles, policies, methodologies,
systems, processes, procedures and people);

• processes and procedures to ensure that the Group
operates in compliance with external regulators, for
example the FCA and the ICO;

• the arrangement for the identification, assessment,
monitoring, management and oversight of risk with
regard to processes and procedures;

• the effectiveness of the Group’s internal controls,

compliance monitoring and risk management systems;
and

• the Group’s procedures for preventing and detecting

money laundering and fraud.

The Committee has a formal schedule for matters to be
discussed at the various meetings. These include a regular
review of:
• The work done by the Executive Team’s Risk Committee.
• The work done by the Executive Team’s Credit Risk

Committee.

• The Money Laundering Reporting Officer (MLRO) Report.
• The Group’s assessment and management of conduct

risk.

• The Group’s policies and practices for Treating

Customers Fairly and ensuring consistently good
customer outcomes.

• The Group’s compliance monitoring activities.
•

Information and cyber security, including adherence to
GDPR.

• Business continuity and disaster recovery plan and

testing thereof.

• The Group’s overall levels and types of insurance.
• Customer complaints.
• Financial crime.
• Whistle-blowing.
• Regulatory matters, including those relating to the FCA.

Morses Club PLC Annual Report & Accounts 2020

Risk & Compliance Committee continued

Activities during the year

Treating Customers Fairly

During the year, some of the key topics addressed by the
Committee included cyber security and data protection,
Treating Customers Fairly, regulatory matters, customer
complaints, the introduction of the SM&CR regime as an
Enhanced Firm and further enhancements to our system
for checking each customer’s affordability.

Identifying risks

The Committee regularly reviews the procedures adopted
by the Company to manage its risk. The Committee and the
Board take a generally low-risk approach to risk. Risks with
a relatively high likelihood and/or impact are kept under
regular review.

At each meeting, the Committee reviews the Company’s
dashboard for Conduct Risk and Treating Customers
Fairly. In addition, the Committee reviewed the first change
in pricing by its HCC Division for 3 years, driven mainly by
the increase in compliance costs during this time, and also
the reduction of the cooling off period from 3 hours to 1
hour, so making this consistent with others in the sector.

During the year, the HCC division has implemented
enhanced affordability procedures incorporating additional
external data. This, together with a new loan optimisation
initiative has enhanced our affordability process and the
customer journey for Agents and customers at the point
of sale.

Defined risk analysis criteria enable the Internal Audit
function to identify areas of focus on the Board Risk
Register. In consultation with the Audit Committee, the risk
analysis criteria have been set as the following:
• A significant variance between inherent and residual
risk. A large variance indicates where the business is
placing significant reliance on controls to be designed
and operating effectively to bring the risk to an
acceptable level.

• A high inherent rating. Within the business’s risk

registers, all risks with a high inherent rating have the
possibility of causing significant harm to the business if
mitigations are ineffective.

Using the above criteria, Internal Audit has been able to
identify focus areas on the Board Risk Register.

Cyber security and data protection

Cyber security has been a major topic for the Committee.
During the year, the Group continued to perform both
penetration testing and failover testing using external
specialists. Regular phishing exercises are conducted in
order to maintain employee vigilance against genuine
attacks. Most data is now encrypted at rest.

Regulatory matters

The Committee has been actively involved in the Group’s
continuing constructive dialogue with the FCA. The
Committee has overseen the successful implementation of
the Senior Managers and Certification Regime in time for its
effective date in December 2019.

Whistle-blowing

During the year, the Committee reviewed the Company’s
whistle-blowing procedures. The subject has been included
in 2 online training courses which are mandatory for staff
to complete. They have also featured on the staff intranet
and there are posters in all Company offices. The
Company has consistently highlighted to its staff the FCA’s
whistle-blowing hotline as well as providing both an
internal contact telephone number and email address,
together with the contact details of one of our independent
Non-Executive Directors.

Customer complaints

The Group generates excellent customer satisfaction rates
(as shown on Page 2) and has had a very good track record
with the Financial Ombudsman Service over a significant
period of time. The Committee continues to play a part in
ensuring that management maintains its clear focus on
Treating Customers Fairly and good customer outcomes.
During the year, the Committee has invited the Group’s
Customer Experience Director to its meetings.

At its meetings, the Committee takes a keen interest in
trends of customer complaints and particularly in any ‘root
cause analysis’ performed routinely by management. The
Committee was delighted when the Company’s complaints
handling process renewed its ISO 10002:2014 certification
for complaints handling in July 2019. The Committee was
also pleased to see that the Company won 2 awards in the
2019 UK Complaint Handling Awards.

The Committee has also closely monitored the level of
complaints brought both by claims management companies
and the developing approach of the Financial Ombudsman
Service that the Committee does not consider is
appropriate to the highly regulated Home Collected Credit
sector, and appears to be based more on the experiences of
PayDay loan providers. More details on this are contained in
the Principal Risks section on Page 27.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Business continuity

The Committee was pleased to see that the Group has
contracted with a third-party disaster recovery site that
will be available to all parts of the business, should the
need arise.

The future

The Committee intends to initiate an external review of
the Group’s Financial Crime and Risk & Compliance
functions during the next 2 years. This will bring an
outside perspective which can be valuable every few
years. A section on the Group risks can be found on
Pages 25 to 30.

Covid-19
The Committee has been kept fully informed of the actions
taken by the Company in response to the unprecedented
effects of the Covid-19 virus. It reviewed these actions and
was very encouraged by the speed of response and the
diligence of the Company and its employees to the
challenges posed by this pandemic. Further details are
included in Page 11.

Covid-19 features in the Group’s risk register and the
Committee will continue to monitor the wellbeing of the
business, its customers, agents, staff and other
stakeholders, particularly in light of changes that are or
might be required as a result of any longer term new ways
of working.

Approval

On behalf of the Risk & Compliance Committee

Baroness Simone Finn
Chair
27 November 2020

Morses Club PLC Annual Report & Accounts 2020

Directors’ Remuneration Report

The approach to Directors’
remuneration has been completed
taking account of the market, regulatory
environment, the need to deliver
shareholder return and individual role
responsibilities.

The Directors’ Remuneration Statement deals with the remuneration for those Directors in
place during 2019/20. As part of the development of the Executive team, there have been
a number of changes to the Executive team during the year. The CFO, Andy Thomson,
retired, taking up a NED role on 1 July 2019. He subsequently returned on 17 March 2020
as the Interim CFO. Andrew Hayward was the CFO for the period of 1 July 2019 to 16
March 2020. Les Easson, retired as the Operations Director, taking up a NED role in
September 2019. Mark Jakeman was appointed as the Operations Director in September
2019. Gary Marshall was appointed as the COO in July 2019, with responsibility for Shelby
Finance Limited.

Remuneration & Corporate Social
Responsibility Committee

The Board had appointed a Remuneration Committee (the
Committee) which is chaired by Joanne Lake (Independent
NED), and comprises Sir Nigel Knowles (Senior
Independent NED) and Stephen Karle (Chairman). Dave
Belmont (Company Secretary) also attends all meetings.

The Committee was established as a direct consequence
of the Company’s successful listing on the AIM Market in
May 2016.

The terms of reference for the Committee are available
from the Company’s Support Centre in Birstall or online at
www.morsesclubplc.com. The Committee has studied
Section B of the Best Practice provisions annexed to the
Listing Rules of the UK Listing Authority and has voluntarily
disclosed the information given below.

This Committee’s principal function is to determine the
Company’s policy on executive remuneration. No Director
plays any part in formal decisions about their own
remuneration. The HR and Communications Director and
Chief Financial Officer provide relevant updates on
financial and general Company remuneration matters as
invited individuals only. The Committee meets periodically
when it has proposals to consider – generally 3 times a
year. In any event, the Committee would meet no less than
twice a year.

The Committee’s policy aims primarily to attract, retain
and motivate high-calibre individuals via a competitive
remuneration package designed to suit the market,
taking account of regulatory requirements and the need
to create an appropriate mix between fixed and variable
rewards (both short and long term) for Directors.
Executives’ remuneration comprises basic salary,
performance-related bonus, pension benefits, other
benefits in kind and a deferred share bonus scheme
granted pursuant to the Morses Club PLC Group.

The Remuneration Report is due for approval at the
General Meeting in December 2020, and the Committee
will conduct a full annual review of the policy. Remuneration
proposals are supported by external benchmarking to
determine external market trends and to ensure that
Director remuneration is proportionate and in line with
individual and business performance.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Executive remuneration policy

As the organisation continues to grow and develop, we expect that the remuneration policy will be reviewed. However,
the Executive team and the Committee continue to be committed to continued diligence in setting Executive
remuneration to ensure market relevance, and the delivery of shareholder value as well as continuing to embed the
Company’s strategy.

Executive remuneration continues to be balanced against the remuneration of the rest of the organisation.

Our remuneration policy is underpinned by core principles as outlined below.
• Remuneration is determined within the Company’s risk appetite, and is subject to oversight and approval by the

Remuneration Committee.

• Key FCA principles, including the principles of Treating Customers Fairly apply throughout. Although all employees

should contribute towards a commercial result, remuneration is designed to drive a ‘balanced scorecard’ approach,
based on responsible lending principles and outstanding individual performance. Delivery of good customer outcomes
is central to the Company’s remuneration approach.

• Remuneration structures will be developed in line with the appropriate regulatory environment, including the Senior

Manager Certification Regime and the Company’s values.

• A blend of short-term and long-term incentives will support the long-term security of the Company and its employees.
• For key roles, remuneration will take account of pay structures in the external market. Remuneration structures will

reflect the size and the scope of any given role.

• Remuneration will be driven by Company as well as individual performance, with a foundation of fairness and ability

to pay.

• We will communicate policies clearly and in a timely manner.

Business context and Committee decisions on remuneration

The Company successfully listed on AIM in May 2016. As detailed in the report, key elements of the Company’s business
strategy with regard to technology and acquisitions have been delivered. We have also made significant progress in
continuing to develop new products and services for our customers.

Base
Salary

Allowance and
Benefits

Pension
Contribution

301,950
82,468
121,551

505,969

34,513
5,724
28,206

68,443

14,603
5,313
5,542

Deferred
Share Bonus
Scheme

77,306
56,776
–

Bonus

155,925
119,543
–

Expenses

21,702
2,227
4,143

Total

605,999
272,051
159,442

25,458

275,468

134,082

28,072

1,037,492

Directors’ remuneration

Name

Role

Paul Smith1
CEO
Andy Thomson2
CFO
Andrew Hayward3 CFO

Total

Non-Executive Directors

Name

Role

Stephen Karle
Sir Nigel Knowles
Joanne Lake
Patrick Storey4

Chairman
Senior Independent NED
NED and Chair of Remuneration Committee
NED and Chair of Audit and Risk

& Compliance Committees

Peter Ward
Baroness Simone

NED
NED and Chair of Audit and Risk

Finn4

& Compliance Committees

Andy Thomson2
Les Easson5

NED
NED

Total

1 P Smith is the highest paid Director
2 Stepped down as CFO on 1 July 2019 and became a NED on the same date
3 Appointed as CFO 1 July 2019
4 P Storey stepped down as a NED on 4 May 2019 and S Finn was appointed as a NED on 5 May 2019
5 L Easson appointed as a NED on 1 September 2019

Base
Salary

Allowance and
Benefits

Expense and
Emoluments

120,000
50,000
50,000
8,910

50,000
41,090

33,333
25,000

–
7,500
7,500
2,673

–
8,218

–
–

4,754
1,318
–
591

1,557
2,514

31
761

378,333

25,891

11,526

Morses Club PLC Annual Report & Accounts 2020

Directors’ Remuneration Report continued

Directors’ remuneration policy

Service contracts
All Executive Directors were reissued with a revised service contract as part of the arrangements for the IPO. Service
contracts cover a continuous period (ie not a fixed-term) and a notice period of 6 months applies to both the Company
and to individuals. There are no compensation payments for loss of office.

Letters of appointment
Non-Executive Directors do not have service contracts but are appointed under letters of appointment which have been
updated in line with the requirements of the Senior Manager Certification Regime.

The appointments are for 3 years but they are subject to annual re-election. All new appointments would be made
following recommendations by the Nominations Committee. No compensation is payable in the event of early
termination except during the notice period.

Allowances and benefits
Taxable benefits received in the period include Company cars or car allowances, fuel allowances and private medical
insurance. These apply to Directors only. The Chairman and Non-Executive Directors do not receive any allowances or
benefits.

Life assurance
In line with all employees, Executive Directors are entitled to life assurance equivalent to 4 years’ salary.

Holidays
Executive Directors are entitled to 30 days’ paid holiday in addition to UK public bank holidays. The holiday year runs from
January to December. In addition, Directors can purchase an additional 10 days’ holiday in each calendar year.

Pension
Executive Directors are enrolled into the Company pension scheme. Personal contributions are matched by the Company
up to a maximum of 7%.

Annual bonus
The annual bonus is the value of the bonus earned within the year and can be up to 100% of salary, based on the
performance conditions outlined below. Any earned bonus is payable in August following the year end in February,
conditional on independent audit and confirmation by the Committee.

The actual bonus paid in the year to 29 February 2020 is outlined in the table on Page 65.

Performance bonus conditions 1
The performance bonus is payable if the Executive Director has delivered key objectives, including targeted adjusted
profit before tax, promoting good-quality customer outcomes (ie Treating Customers Fairly), maintenance of headline
customer satisfaction score and completing key strategic projects and acquisitions, all underpinned by regulatory
compliance.

1 Definitions are set out in the Glossary of Alternative Performance Measures on Pages 136 to 139

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Deferred share plan (this section is subject to audit)

Executive Directors may participate in a deferred share plan, a 3-year plan (commencing 2016/17) awarded through an
annual deed of grant, subject to the discretion of the Remuneration Committee. There have been no variations to the
terms and conditions or performance criteria for share options during the financial year. Awards under the Deferred
Share Plan (DSP) may be in the form of:
• A conditional right to acquire Ordinary Shares at no cost to the participant, or an option to acquire Ordinary Shares at

no cost to the participant or a right to receive a cash amount relating to the value of a certain number of notional
Ordinary Shares.

• Share awards will be subject to performance conditions which are: delivery of targeted adjusted profit before tax1,

total shareholder return (measured over a period of 1 year’s satisfactory audits), compliance training,
and individual executive performance.
• Awards will be granted on an annual basis.
• The issue price on 3 May 2019 was £1.65. The maximum earnings from the 2019/20 deferred share bonus scheme are

outlined in the table below.

Name

Paul Smith
Andrew Hayward

Role

CEO
CFO

Percentage
of Salary

100
100

Share
Award

175,140
73,230

No shares were awarded for 2019/20 since the TSR performance condition measure was not met.

The table below details the maximum earnings from the deferred share bonus scheme in 2018/19. The issue price of the
shares was £1.54.

Name

Paul Smith
Andy Thomson

Role

CEO
CFO

Percentage
of Salary

100
100

Share
Award

213,400
163,600

Awards will vest on the third anniversary following the grant date (unless determined otherwise by the Remuneration
Committee). Awards will lapse should an individual leave employment, and are not transferable.

2016 vesting
The Committee confirmed that the performance conditions for the 2016 scheme were satisfied and the awards due
vested in July 2019. The CEO and CFO exercised only that element of the option to satisfy HMRC obligations (sell to
cover). No further shares have been exercised.

Name

Paul Smith
Andy Thomson

Role

CEO
CFO

Directors’ shareholdings

Shares
Vested

240,686
181,853

Sell to
Cover

(113,693)
(85,903)

Shares
Retained

126,993
95,950

The table below details the shareholdings and other share interests of the Directors as at 29 February 2020.

Name

Paul Smith
Andy Thomson
Stephen Karle
Peter Ward
Les Easson1
Sir Nigel Knowles
Joanne Lake

Role

CEO
CFO
Chairman
NED
NED
Ind NED
Ind NED

1 Les Easson holds an interest through Hay Wain Ltd

Ordinary
Shares

Percentage
Shareholding

454,413
3,134,121
227,991
400,000
84,661
35,148
23,148

0.25
2.34
0.18
0.31
0.06
0.03
0.02

Morses Club PLC Annual Report & Accounts 2020

Directors’ Remuneration Report continued

All employee remuneration

In setting the Remuneration Policy for Directors, the pay and conditions of other employees are considered along with
any increases in salary. The Committee is provided with data on the remuneration structure for those management level
tiers below the Executive Directors; it uses this information to ensure a consistent approach to remuneration throughout
the Company.

There is no formal consultation with employees regarding the remuneration of Executive Directors.

All Morses Club employees have the opportunity to participate in our key benefits such as life assurance, private health
and the Company pension scheme.

The Company issued shares to Morses Club employees under the framework of the approved employee share option
scheme.

CEO pay ratio
We have detailed the CEO pay ratio below.

FY20

Percentile

25th
Median
75th

FY19

Percentile

25th
Median
75th

Value CEO Pay Ratio

£26,715.78
£32,734.00
£41,702.56

19:1
15:1
12:1

Value CEO Pay Ratio

£23,366.00
£31,061.00
£41,251.56

24:1
18:1
14:1

The variation from the ratio in FY19 is due to changes in pay and staffing structures due to acquisition activity in the year.

Relative importance of spend on pay

The total pay (including performance bonuses) for all Morses Club PLC employees for FY20 is £20,853,848 compared to
£20,702,173 for FY19. The total pay for Shelby Finance Limited for FY20 is £6,753,487.

Corporate Social Responsibility (CSR)

The Company has undertaken small localised CSR programmes during FY20. We are developing similar CSR
programmes, based on local communities for FY21. The Company’s central Support Centre team has supported a
teenage cancer charity trust, Lorna Crane, throughout the course of the year, raising over £10,000 for the charity, and
continues to support a local Yorkshire hospice.

Joanne Lake
Chair – Remuneration and Corporate Social Responsibility Committee
27 November 2020

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Disclosure Committee

Committee members

• Stephen Karle
(Chairman)

• Sir Nigel Knowles

• Joanne Lake

• Baroness Simone Finn
(from 5 May 2019)

• Peter Ward

• Andy Thomson

• Les Easson

(from 1 September 2019)

• Paul Smith

(CEO)

• Andrew Hayward

(CFO) (1 July 2019–16 March 2020)

• Patrick Storey
(to 4 May 2019)

The Company is required to make timely and accurate
disclosure of all information required to meet the legal and
regulatory obligations and requirements arising from its
listing on the London Stock Exchange under the Market
Abuse Regulations.

The Disclosure Committee exists to help the Company meet
these requirements. The Committee’s responsibilities
include determining the timely disclosure of material
information, and assisting in the design, implementation and
periodic evaluation of disclosure controls and procedures.

Although AIM-listed companies are no longer required to
maintain insider lists, there is still an obligation to take all
reasonable steps to ensure that people with access to inside
information acknowledge their legal and regulatory duties,
and a company must be able to provide the FCA with an
insider list, upon request. In practice, this means Morses
Club has chosen to retain an up to date insiders’ list.

Acquisitions were subject to class tests based on the
Nomad’s template and reviewed by them. The only
acquisition to fail the class tests was U Holdings Limited,
based on the materiality of their historic losses. This resulted
in an increased level of disclosure in the RNS announcement
to comply with the required reporting guidelines. Any
individuals that were not Persons Discharging Managerial
Responsibilities (PDMR) involved in the project were signed
up to confidentiality agreements and the importance of
market sensitive information emphasised to them.

The Risk & Compliance Committee, the Audit Committee,
and ultimately the Board itself were all heavily involved in
the discussions and resulting disclosures regarding
Covid-19. The Disclosure Committee did not therefore
believe it was necessary to duplicate this effort.

The Committee held 1 meeting during the year.

Approval

On behalf of the Disclosure Committee

Stephen Karle
Chairman
27 November 2020

Executive Committee
The Company has established an Executive Committee which is chaired by the Chief Executive Officer and meets each
week when there is not a Board meeting. The Executive Committee is accountable to the Board and its responsibilities
include the day-to-day management of the Group’s affairs. The Risk & Compliance Director and Finance Director are
invited to attend the majority of the Board meetings. Other members of the Executive Committee attend by invitation.

The Executive Committee has 2 long-standing sub-committees, a Health & Safety Committee and a Risk & Compliance
Executive Committee in order to assist its supervision of these important areas. The Credit Risk Committee reports
directly to the Board’s Risk & Compliance Committee.

Morses Club PLC Annual Report & Accounts 2020

Directors’ Report

The Directors present
their report and
audited consolidated
financial statements
for the year ended
29 February 2020 and
up to the date of signing
the financial statements.

The Corporate Governance Statement set out on
Pages 42 to 72 forms part of this report.

Information about the use of financial instruments by
the Company and its subsidiaries is given in Note 27 to
the financial statements.

Dividend

The Directors have a general policy of assessing dividend
payments in the context of consolidation opportunities, new
product investment requirements and the broader growth
strategy of the Company. Under normal circumstances, the
Board intends to distribute between 50% and 60% of
adjusted earnings after tax to shareholders as dividends.
In due course, the Board may also consider increasing the
dividend payout ratio should the funding structure of the
Company enable an increase in gearing and/or the
Company finds itself with surplus cash over and above its
investment opportunities. On 30 March 2020, the Board
announced that it would postpone the decision as to
whether to make a final dividend payment until later in the
year when the impact of Covid-19 was better understood.
Following detailed reviews of the performance of the
business and its working capital requirements, and taking
into consideration that the Group did not furlough any staff,
defer any liabilities to HMRC or take advantage of any
government-backed loan scheme during the Covid-19
pandemic, the Board has concluded that it is able to make a
final dividend payment. Therefore, subject to shareholder
approval at the General Meeting on 7 January 2021, the
Board proposes to pay a final dividend of 1.0p per Ordinary
Share payable on 12 February 2021 to Shareholders on the
register at close of business on 15 January 2021. This would
represent a total dividend of 3.6 pence per Ordinary Share
for 2020.

Directors
The Directors of the Company who served during the year
ended 29 February 2020, are:

Stephen Karle
Non-Executive Chairman

Sir Nigel Knowles
Senior Independent Director

Joanne Lake
Independent Non-Executive Director

Peter Ward
Non-Executive Director

Paul Smith
Chief Executive Officer

Andrew Hayward**
Chief Financial Officer from 1 July 2019

Andy Thomson**
Chief Financial Officer to 1 July 2019, then Non-Executive
Director

Baroness Simone Finn
Independent Non-Executive Director from 5 May 2019

Les Easson
Non-Executive Director from 1 September 2019

Patrick Storey
Independent Non-Executive Director to 4 May 2019

** On 17 March 2020, Andrew Hayward left the Company and Andy

Thomson stepped down from his role as Non-Executive Director and
resumed the position of Chief Financial Officer on an interim basis.

Details of the remuneration, service agreements and
interests in the share capital of the Company of the
Directors are given in the Remuneration Report on Pages
64 to 68.

Biographical details of the current Directors are given on
Pages 38 and 39. As recommended by the July 2018
edition of the UK Corporate Governance Code, all continuing
Directors stand for re-election at the Company’s Annual
General Meetings.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Capital structure

Directors’ and officers’ insurance

Details of the authorised and issued share capital, together
with details of any movements in the Company’s issued
share capital during the year, are shown in Note 22.

As at 29 February 2020, the Company had 131,244,444
Ordinary Shares of 1 pence each in issue (2019:
129,729,122)

The Company has maintained throughout the year
Directors’ and Officers’ liability insurance for the benefit of
the Company, the Directors and its officers. The Company
also provides qualifying third-party indemnity
arrangements for the benefit of all its Directors in a form
and scope which comply with the requirements of the
Companies Act 2006.

The Company’s issued Ordinary Share capital comprises a
single class of Ordinary Shares which carry no right to fixed
income. The rights attached to the Ordinary Shares are set
out in the Articles of Association. Each share carries the
right to one vote at general meetings of the Company.

With regard to the appointment and replacement of
Directors, the Company is governed by its Articles of
Association, the Companies Act and related legislation. The
Articles themselves may be amended by special resolution
of the shareholders. The powers of Directors are described
in the Main Board Terms of Reference, copies of which are
available on request, and the Corporate Governance
Statement on Pages 42 and 43.

Information contained in other sections

The Company’s principal risks and uncertainties, together
with any emerging risks, that are required to be included
within the Report of the Directors, can be found within the
Strategic Report on Pages 25 to 30.

The Company’s environmental policies and actions are
contained in the Strategic Report on Page 36.

Anti-bribery and corruption

The corporate policies reflect the requirements of the
Bribery Act and a corporate hospitality register is
maintained using a risk-based approach. Although the
risks for the Group arising from the Bribery Act 2010
continue to be assessed as low, all parts of the business
are required to undergo appropriate training and
instruction to ensure that they have effective anti-bribery
and corruption policies and procedures in place. Every
staff member receives regular and relevant training on
bribery and corruption using the Company’s internal
training system. Compliance is regularly monitored by the
Executive Risk Committee and is subject to periodic review
by the Group’s internal audit function.

Whistle-blowing

The Company has a very robust whistle-blowing policy and
procedures. The Company has consistently highlighted to
its staff the FCA’s whistle-blowing hotline as well as
providing both an internal contact telephone number and
email address, together with the contact details of one of
our independent Non-Executive Directors. The subject has
been included in 2 online training courses which are
mandatory for staff to complete. They have also featured
on the staff intranet and there are posters in all
Company offices.

Employees
It is our policy to make adequate provision for the
wellbeing, health and safety of our employees and
self-employed agents. We are committed to offering equal
opportunities for all employees, irrespective of age, gender,
ethnicity, race, religion, belief, sexual orientation, disability,
marital status and civil partnership. All employees are
treated fairly and equally.

Morses Club treats applications for employment from
disabled persons in the same way as those from non-
disabled applicants and selects on the basis of individual
ability, experience and role requirements. Where existing
employees become disabled, we endeavour to offer them
continuing suitable work within the Company, offering
retraining where necessary.

We encourage our employees to engage with the
development of our organisation. To promote this, the
Chief Executive Officer and the executive team publish
regular updates on important or topical issues and
highlight these via roadshow presentations, management
meetings, informal briefings, videos and our intranet.

The Company uses an online Learning Management
System to train and assess all employees who undertake
monthly regulatory training modules. These monthly
modules are compulsory for all employees and completion
is monitored and reported at Board level. This ongoing
training and assessment cycle ensure that our employees
have the necessary skills to work in this highly regulated
industry providing great customer service and treating
customers fairly.

The Company also provides development programmes for
each level of management that are endorsed by the
Institute of Leadership & Management (ILM), the UK’s
leading provider of leadership, coaching and management
qualifications and training. These programmes are
designed around each role and relate to work-based
activities designed to improve a manager’s skills and assist
with career progression. The online programme consists of
6 courses with a work-based project and assessment.
There are 22 employees currently on the programme and
a further 6 employees who have already successfully
completed it.

The Group first introduced an unapproved share option
scheme on 19 October 2017 and awarded share options to
all of its employees who had been employed for a
minimum of 12 months at 1 October 2017.

Morses Club PLC Annual Report & Accounts 2020

Directors’ Report continued

In February 2018, Hay Wain Group Limited ceased to be a
majority shareholder of the Company, and as a result, the
Company was permitted to implement an HMRC tax
advantaged plan for the first time. In November 2018, the
Company created a new Share Incentive Plan (the SIP). In
the first award under the SIP, all eligible employees applied
to participate in the SIP and have each been given shares
in the Company representing approximately 3.25% of their
salary (based on the average share price during the few
days prior to the award).

The free shares are held in trust for a minimum holding
period of 3 years, and employees who participate in the
SIP will lose their award if they resign or are dismissed
from their employment during this 3-year period.

During the time that the shares are held in the Trust,
employees are able to vote at the AGM and receive
dividends, so giving them a real stake in the business in
which they work.

In December 2019, all eligible employees received a
further award of 3.25% of salary. Subject to the Group
achieving its profitability targets, the Group intends to
continue to award shares under the SIP to its employees
on an annual basis.

The Directors were delighted that the Company was
presented with the award of Best Overall Performance in
Fostering Employee Share Ownership (<500 employees) by
ProShare, the voice of the employee share ownership
industry in the UK. At the time, ProShare declared that
“The Morses Club Board have clearly demonstrated their
desire to foster employee share ownership by their deeds
as well as their words.”

The majority of employees wanted a holiday purchase
scheme whereby they can buy or sell their holidays.
As a result, a holiday purchase scheme was launched to
functional heads for calendar year 2019. This scheme
has now been extended to all employees for the 2020
holiday year.

The Company offers a defined contribution pension
scheme, matching employee contributions up to a
maximum of 7% of salary.

The Company has had a Health & Safety Committee for
many years. Its monthly reports are reviewed at each
Board meeting.

Employee engagement
The Directors regard employee involvement as essential to
the healthy development of the business.

Since the Company’s IPO in May 2016, the Company’s
objective has been clear and resolute – to ensure that as
many employees hold Morses Club shares as possible.
Following the share awards described above, 100% of the
Company’s employees who were employed prior to
October 2018 hold shares under the Share Incentive Plan.

The Company has also introduced Perkbox to all of its
employees which provides access to hundreds of perks
and discounts.

Under the 2018 Corporate Governance Code, the Board is
expected to engage with the workforce using 1 or a
combination of the following 3 methods:
• A Director appointed from the workforce.
• A formal workforce advisory panel.
• A designated Non-Executive Director.

After considering the options, the Board unanimously
appointed Les Easson as the Company’s designated
Director responsible for employee engagement, with effect
from January 2020. As Operations Director for many
years, Les had been responsible for engaging with, and
motivating, the large Operations team, and is therefore the
ideal person to fulfil this role.

Substantial interests in shares
As at 30 October 2020, the Company has been notified of the following substantial interests of 3% or more in its
Ordinary Shares:

Hay Wain Group

Premier Miton Investors

Artemis Investment Management

J O Hambro Capital Management

Amati Global Investors

Legal & General Investment Management

Canaccord Genuity Wealth Management

Morses Club PLC Annual Report & Accounts 2020

Number of
Shares

47,691,363

17,681,850

11,213,960

8,919,426

4,800,770

4,687,425

4,639,658

% Issued
Capital

36.34

13.48

8.55

6.80

3.66

3.57

3.54

Strategic Report

Corporate Governance

Financial Statements

Relationship with our controlling shareholder

Ffrees

As a result of the IPO on 5 May 2016, the shareholding of
the controlling shareholder in the Company, Hay Wain
Group Limited, reduced from 100% to 51%.

On 21 February 2018, Hay Wain Group Limited sold 14.2%
of the shares in the Company and at 29 March 2019
continues to hold 36.7% of the shares in the Company.
Hay Wain Group Limited has entered into a relationship
agreement which contains provisions to ensure that,
inter alia, there is no interference with the independent
operation of the Board and that the Company’s
transactions with Hay Wain Group Limited are effected
at arm’s length and on a normal commercial basis.
Hay Wain Group Limited can, subject to applicable laws
and regulation, appoint one Director to the Board for as
long as it holds more than 20% of the rights to vote at a
General Meeting of the Company. The Director appointed
under this right is Mr Peter Ward. The Board confirms that,
since the admission of the Company’s shares on to AIM, the
Company has complied with the independence provisions
included in the relationship agreement and that, so far as
the Company is aware, Hay Wain Group Limited and its
associates have also complied with such provisions.

The directors are aware of a contingent liability in
connection with a claim against Shelby Finance Limited
(“Shelby”). This relates to the acquisition of U Holdings
Limited which in turn had acquired certain assets of Ffrees
Family Finance Limited (in Administration) (“FFFL”). The
Administrator of FFFL has asserted that the acquisition of
U Holdings by Shelby Finance Limited has triggered an
anti-embarrassment clause in their sale document of FFFL
to Shelby, and that a further sum of £850k is due to them.

The directors do not believe that the administrators of
FFFL have a valid claim since they are basing it on wording
that does not appear in the sale document. However, in a
preliminary hearing held in July 2020, the Master
determined that the contract could be re-written, and that
Shelby Finance should place the disputed sum of £850k
into an escrow account. Shelby Finance has appealed this
decision, their legal advisors believe there to have been a
material error on the part of the Master and remain
confident that the claim is baseless. However, given the
Master’s initial verdict, there is a chance of the liability
arising and therefore a contingent liability has been
disclosed.

Political donations

The Company made no political donations in 2020
(2019: £nil).

Post Balance Sheet Events

Covid 19
In addition to the Directors having determined that
Covid-19 is a non-adjusting event at the reporting date,
the impact of Covid-19 has continued to develop. The
impacts on the business as a whole are discussed in detail
in the CEO and CFO sections and financial impacts in the
going concern and notes to the accounts on Page 135.

Funding
In April 2020 an extension of the funding arrangement
from August 2020 to the end of November 2021 was
signed with the incumbent lender consortium. The facility
limit was reduced from £55m committed to £40m to
better match the needs of the business post Covid-19. By
reducing this unused headroom and repaying the £5m
mezzanine layer, non-utilisation charges for any given level
of borrowing will be reduced and therefore the overall cost
of funding.

Wirecard
Following issues with its Parent Company (Wirecard AG),
the services provided to the Group by Wirecard UK were
suspended by the FCA on 26 June 2020 and re-instated
on 29 June 2020. As a result of this action, customers of
the Group’s U Account e-money current account service
were unable to access their funds during this period. The
Group is replacing Wirecard as a supplier by Modulr
Finance Limited during November 2020.

Disclosure of information to the auditor
The Directors confirm that:
• so far as each Director is aware, the auditor is aware of

all relevant audit information; and

• the Directors have taken all necessary steps that they
ought to have taken as Directors in order to make
themselves aware of any relevant audit information,
and to establish that the auditor is aware of that
information.

This confirmation is given and should be interpreted in
accordance with the provisions of S418 of the Companies
Act 2006.

Our auditor
Deloitte LLP have expressed their willingness to continue
in office as auditor and a resolution will be proposed at
the General Meeting to reappoint Deloitte LLP as the
Company’s auditor and to give the Directors the authority
to determine the auditor’s remuneration.

Notice of General Meeting

The notice convening the General Meeting to be held
virtually on 7 January 2021, together with an explanation
of the resolutions to be proposed at the meeting, is
contained on the Company’s website at
www.morsesclubplc.com/investors.

By order of the Board

Dave Belmont
Company Secretary
27 November 2020

Morses Club PLC Annual Report & Accounts 2020

Directors’ Responsibility Statement

We confirm that to the best of our knowledge:
a) the financial statements, prepared in accordance with

International Financial Reporting Standards as adopted
by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit or loss of
the Company and the undertakings included in the
consolidation taken as a whole;

b) the Strategic Report includes a fair review of the

development and performance of the business and the
position of the Company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face; and

c) the Annual Report and financial statements, taken as a

whole, are fair, balanced and understandable and
provide the information necessary for shareholders to
assess the Company’s position and performance,
business model and strategy.

This responsibility statement was approved by the
Board of Directors on 27 November 2020 and is
signed on its behalf by:

Paul Smith
Director
27 November 2020

Andy Thomson
Director
27 November 2020

Directors’ Responsibilities

The Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulations.

Company law requires the Directors to prepare financial
statements for each financial year. Under the law, the
Directors are required to prepare the Group financial
statements in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European
Union and have also chosen to prepare the Parent
Company financial statements under IFRS as adopted by
the EU. Under company law, the Directors must not
approve the accounts unless they are satisfied that they
give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that
period. In preparing these financial statements,
International Accounting Standard 1 requires that
Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable
and understandable information;

• provide additional disclosures when compliance with
the specific requirements in IFRS are insufficient to
enable users to understand the impact of particular
transactions, other events and conditions on the entity’s
financial position and financial performance; and
• make an assessment of the Company’s ability to

continue as a going concern.

The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and
integrity of the corporate and financial information
included on the Company’s website. Legislation in the
United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Financial Statements
For the 53-week period ended 29 February 2020

76
87
88
89
90
91
93
140

Morses Club PLC Annual Report & Accounts 2020

Independent Auditor’s Report
To the Members of Morses Club PLC

Report on the audit of the financial statements

1. Opinion
In our opinion:
• the financial statements of Morses Club PLC (the ‘Parent Company’) and its subsidiaries (the ‘Group’) give a true and
fair view of the state of the Group’s and of the Parent Company’s affairs as at 29 February 2020 and of the Group’s
profit for the year then ended;

• the Group financial statements have been properly prepared in accordance with International Financial Reporting

Standards (IFRSs) as adopted by the European Union;

• the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the

European Union and as applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated and Parent Company balance sheets;
• the consolidated and Parent Company statements of changes in equity;
• the consolidated and Parent Company cash flow statements; and
• the related notes 1 to 30.

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by
the European Union and, as regards the Parent Company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.

2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.

We are independent of the Group and the Parent Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical
Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3. Summary of our audit approach

Key audit
matters

The key audit matters that we identified in the current year were:
• Going concern assessment and related disclosures
• Loan loss provisioning
• Revenue recognition
•

Impairment of goodwill

Within this report, key audit matters are identified as follows:

Newly identified

Increased level of risk

Similar level of risk

Decreased level of risk

Materiality

The materiality that we used for the Group financial statements was £706,000 which was determined
on the basis of 1% of net assets.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Scoping

The Group is made up of Morses Club PLC which is the main trading entity and its four subsidiaries
being Shopacheck Financial Services Limited, Shelby Finance Limited, U Holdings Limited and U
Accounts Limited.

Significant
changes in
our approach

Our full audit scope covered 100% of revenue, 100% of profit before tax and 100% of net assets across
the Group.

There have been four key changes to our audit approach this year:
• Given the rapid spread of Covid-19 and the ongoing uncertainty surrounding its impact, we have

focused a greater degree of audit effort on the Directors’ judgements. This was both in determining
the company’s and Group’s ability to continue as a going concern over a period of at least 12 months
from the date of approval of the annual report and accounts, and over the disclosure of post
balance sheet events.

• We have expanded our key audit matter around loan loss provisioning to also include the expert

credit judgement applied by management to capture the implications of Covid-19. This was based
on reasonable and supportable information available at the balance sheet date and resulted in the
loan loss provision increasing by £1.7m from initial estimates;

• We have identified a new key audit matter in relation to impairment of goodwill based on the size of

the goodwill balance recognised on the acquisition of U Holdings Limited on 21 June 2019, the
inherent judgement involved in determining goodwill impairment and the fact that the performance
of U Holdings Limited to date has been below original expectations; and

• We have amended our materiality benchmark during the FY20 audit process. In previous years we
have adopted 5% of pre-tax profit as the basis for determining materiality, however following the
significant reduction to the statutory pre-tax profit figure, we have moved to use 1% of net assets as
our materiality benchmark. Net assets has been used due it being a more stable basis on which to
determine materiality going forwards and furthermore it is a relevant benchmark to users of the
financial statements and the company’s regulators.

4. Conclusions relating to going concern, principal risks and viability statement

4.1 Going concern
We have reviewed the directors’ statement in Note 1 to the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in preparing them and their
identification of any material uncertainties to the Group’s and company’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements.

We considered as part of our risk assessment the nature of the Group, its business model and
related risks including where relevant the impact of the Covid-19 pandemic and Brexit, the
requirements of the applicable financial reporting framework and the system of internal control. We
evaluated the directors’ assessment of the Group’s ability to continue as a going concern, including
challenging the underlying data and key assumptions used to make the assessment, and evaluated
the directors’ plans for future actions in relation to their going concern assessment.

We state whether we have anything material to add or draw attention to in relation to that
statement that would be required by Listing Rule 9.8.6R(3) if the Group had a premium listing and
report if the statement is materially inconsistent with our knowledge obtained in the audit.

Going concern is
the basis of
preparation of
the financial
statements that
assumes an
entity will remain
in operation for a
period of at least
12 months from
the date of
approval of the
financial
statements.

We confirm that
we have nothing
material to
report, add or
draw attention to
in respect of
these matters.

Morses Club PLC Annual Report & Accounts 2020

Independent Auditor’s Report continued
To the Members of Morses Club PLC

4.2 Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent with
the knowledge we obtained in the course of the audit, including the knowledge obtained in the
evaluation of the directors’ assessment of the Group’s and the company’s ability to continue as a
going concern, we are required to state whether we have anything material to add or draw attention
to in relation to:

• the disclosures on Pages 24 to 30 that describe the principal risks, procedures to identify

emerging risks, and an explanation of how these are being managed or mitigated;

• the directors’ confirmation on Page 93 that they have carried out a robust assessment of the
principal and emerging risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity; or

• the directors’ explanation on Page 31 as to how they have assessed the prospects of the Group, over

what period they have done so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications or assumptions.

Viability means
the ability of the
Group to continue
over the time
horizon
considered
appropriate by
the directors.

We confirm that
we have nothing
material to
report, add or
draw attention
to in respect of
these matters.

We also report whether the directors’ statement relating to the prospects of the Group that would be
required by Listing Rule 9.8.6R(3) if the Group had a premium listing is materially inconsistent with
our knowledge obtained in the audit.

5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the
overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.

5.1 Going concern assessment and related disclosures

Key audit
matter
description

The rapid spread and ongoing uncertainty surrounding the impact of Covid-19 has increased
complexity associated with the directors’ assessment of the group’s and company’s ability to continue
as a going concern over a period of at least twelve months from the date of approval of the financial
statements.

In addition, there is an increased risk associated with the adequacy of disclosures over the going
concern assessment and events after the reporting date.

In making their assessment, the Directors consider that the going concern basis of accounting is
appropriate and that there is no material uncertainty related to going concern. Management’s
assessment includes the following: (i) the group’s and company’s profitability, liquidity and funding
positions, particularly in light of remodelling the potential impact on financial position and prospects as
a result of Covid-19, and the signing of a new borrowing facility in April 2020; and (ii) the capability of
the operational resilience framework in place and supplier viability over the assessment period.

Due to the increased audit effort and level of judgements involved in the going concern assessment we
have considered the going concern assessment and related disclosures as a key audit matter.

Management’s associated consideration of the impact of Covid-19 on the company’s and group’s
ability to continue as a going concern are detailed on pages 115 and 93 within the director’s statement
and note 1 to the financial statements. Details of the impact of events after the reporting date are
presented in note 30 to the financial statements.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

How the scope
of our audit
responded to
the key audit
matter

We obtained an understanding of the relevant controls over the review and challenge of
management’s going concern assessment.

We challenged and assessed management’s evaluation of forecast profitability, liquidity and funding
position, as well as operational resilience:

Profitability, liquidity and funding
We challenged the internal governance process followed by management in order to prepare the
worst-case scenario.

We challenged the forecast changes to the Group’s and company’s profitability and liquidity plan, with
reference to the Group’s and company’s internal risk appetite, given current market conditions. We
tested the mechanical accuracy of the forecasts and challenged their reasonableness by assessing the
key assumptions underpinning them and reviewing management’s historic forecasting accuracy.

We inspected the terms and conditions of the renewed borrowing facility and assessed compliance with the
covenant conditions attached to the borrowing facility. We also tested the forecast covenant compliance.

Operational resilience and supplier viability
We assessed management’s internal monitoring processes which have been recently introduced in
order to monitor the operational impact of Covid-19 on a regular basis.

We assessed oversight of service providers’ operational and financial resilience, or where necessary,
the contingency plans in place where a supplier has been deemed at risk.

Events after the reporting date
We read the most recent Board minutes and regulatory correspondence to identify items of interest.

We evaluated management’s assessment of the impact of the significant business developments that
occurred after the year end, including the spread of Covid-19 and the resulting actions taken by the UK
Government.

We assessed the impact of recent developments on loan impairment provisions (see section 5.2 for
specific details) and challenged management’s assessment of the impact of recent events on the
carrying value of the Group’s assets and liabilities.

Disclosures
We evaluated the disclosures made by management in relation to events after the reporting date and
going concern, to assess whether they adequately reflect the impact on the Group, and checked the
consistency of the disclosures with our knowledge of the Group based on our audit.

Key
observations

Based on the work performed, having taken account of the assumptions and other matters disclosed in
the Going Concern Statement made by the directors and elsewhere in the annual report and accounts,
we concurred with the directors’ conclusion that the significant economic disruption associated with the
Covid-19 pandemic does not give rise to a material uncertainty over the company’s and Group’s ability
to continue as a going concern over a period of at least twelve months from the date of approval of the
financial statements.

We also concluded that the disclosures in relation to going concern and events after the reporting date
are appropriate.

Morses Club PLC Annual Report & Accounts 2020

Independent Auditor’s Report continued
To the Members of Morses Club PLC

5.2 Loan loss provisioning

Key audit matter
description

The Group held loan loss provisions of £46.4m (2019: £42.5m), prior to the impact of Covid-19, against
gross loan carrying amounts of £120.9 million (2019: £115.5 million). After management had applied
expert credit judgement on the implications of Covid-19, which was based on reasonable and
supportable information available at the balance sheet date, the loan loss provision increased to
£48.1m, representing an increase of £1.7m.

Amounts receivable from customers are valued using collections curves to estimate the twelve month
and lifetime expected future losses on cohorts of loans exhibiting similar risk characteristics, including
the number of missed payments in the previous 13 weeks. These collection curves are based on
collections levels from outstanding amounts receivable from customers over 2014-2018.

We have determined our key audit matters to be:
• the estimation of future cash flows used to determine the provision, given the impairment provision

is highly sensitive to this assumption and it requires the highest degree of judgement; and

• the expert credit judgement applied to account for the implications of Covid-19.

Covid-19 is a non-adjusting post balance sheet event, it does not impact any other areas of the
financial statements except for loan loss provisioning as IFRS 9 requires forward looking scenarios to
be taken into account.

Given the degree of judgement involved in determining key assumptions, we also identified that there is
a potential for fraud through possible manipulation of this balance.

The modelling approach taken by management is partly automated, in relation to the extraction of loan
data from the lending system and the application of provisioning rates to loan balances.

Management’s associated accounting policies are detailed on Pages 93 to 105 with detail about
judgements in applying accounting policies and critical accounting estimates on Page 104 and within
the Audit Committee report on Pages 54 to 57. The revenue note is on Page 98.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

How the scope of
our audit
responded to the
key audit matter

Estimation of future cash flows
We obtained an understanding of the relevant controls over the estimation of future cash flows,
including the review of management’s judgement paper.

We involved internal IT specialists to review the methods used by management to extract loan data
from the lending system. Additionally we assessed the application of the provisioning rates to the loan
balances within the loan loss provisioning model.

We specifically challenged the appropriateness of the cash collection curves used to determine the
impairment provision, which included a review of the methodology used to construct the curves,
involving our IT specialists to independently reconstruct the curves and performing an assessment of
whether the historic collections data being used by management is an appropriate basis upon which to
predict future recoveries, in the current economic environment.

We involved our IT specialists to test the mechanical accuracy and completeness of the models on
which impairment provisions are calculated by recalculating the provision in accordance with the
approved provisioning policy.

We challenged the appropriateness of the other key assumption used in the impairment calculations
being the definitions of staging triggers. This involved analysis of the Group’s historical cash collection
experience and benchmarking the key assumptions to external economic and industry data.

We reconciled the loan loss provision to the general ledger, assessed compliance of the modelling
approach and provisioning policy with the requirements of IFRS 9 and substantively tested a sample of
loans back to signed source documentation to assess whether the data used in the provision
calculation were complete and accurate.

Expert credit judgement
We obtained an understanding of the relevant controls over the derivation of the Covid-19 overlay,
including the review of management’s judgement paper.

We challenged the key assumptions being the impact of a Covid-19 downturn scenario and the
probability weighting associated to this, in order to obtain an independent range for the Covid-19
overlay.

We challenged the scenarios used by management through assessing the forecast changes to future
cash collections and staging movements in light of Covid-19. We also tested the mechanical accuracy of
management’s scenario calculations.

We challenged the probability weightings used by management through involving internal economics
specialists in order to derive a reasonable range.

We also performed an assessment over the potential requirement for macroeconomic overlays.

Key observations

Estimation of future cash flows
We concluded that the Covid-19 overlay recorded by management sits at the conservative end of an
acceptable range.

We concluded that the estimation of future cash flows within the models was reasonable and thus the
impairment provision recorded was appropriate.

Expert credit judgement
We concluded that the Covid-19 overlay recorded by management sits at the conservative end of an
acceptable range.

We identified a control deficiency regarding the timely review of management’s judgement papers in
relation to the Covid-19 overlay, with insufficient focus being placed on the key assumptions and
providing clear rationale for their adoption.

Morses Club PLC Annual Report & Accounts 2020

Independent Auditor’s Report continued
To the Members of Morses Club PLC

5.3 Revenue recognition

Key audit
matter
description

The Group recognised revenue of £133.7m (2019: £117.0m) against amounts receivable from customers
during the 53 weeks (2019: 52 weeks) ended 29 February 2020.

The recognition of revenue on amounts receivable from customers under IFRS 9 requires the use of an
effective interest rate method. Judgement is applied by management to determine key assumptions
related to the expected lives.

We have determined our key audit matter to be the formulation of the expected lives assumptions,
given these are the key judgements underpinning the calculation of the revenue balance.

Given the degree of judgement involved in determining key assumptions, we also identified that there is
a potential for fraud through possible manipulation of this balance.

The modelling approach taken by management is partly automated, in relation to the extraction of loan
data from the lending system and the application of expected lives to the revenue balance.

How the scope
of our audit
responded to
the key audit
matter

We obtained an understanding of the relevant controls over the determination of the expected lives,
including the review of management’s judgement paper.

We involved internal IT specialists to review the methods used by management to extract loan data
from the lending system.

We involved our IT specialists to independently reconstruct the expected lives using historical data and
then challenged the lives by reference to both historical and forecast data and comparability with the
contractual life under IFRS 9.

We tested the mechanical accuracy and completeness of the revenue recognition models by agreeing
a sample of model inputs back to underlying source data.

We recalculated the effective interest rates for each type of product and independently determined for a
sample of customers the accuracy of the revenue earned during the 53 weeks ended 29 February 2020.

Key
observations

We concluded that the partly automated revenue recognition models were working as intended.

The underlying assumptions applied within the models, specifically in respect of the expected lives used
in the calculation of the revenue balance, were found to be appropriate.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

5.4 Impairment of goodwill

Key audit
matter
description

Upon acquiring U Holdings Limited on 21 June 2019, Shelby Finance Limited recognised a goodwill
balance of £9.4m. We have identified a key audit matter in relation to impairment of goodwill based on
the size of the goodwill balance, the inherent judgement involved in determining goodwill impairment
and the fact that the performance of U Holdings Limited to date has been lower than original
expectations.

Management is required by IAS 36 to perform an annual impairment review for goodwill balances.
Estimation is involved in assessing the fair value less costs to sell and value in use of certain intangible
assets at each reporting period for assessment of impairment. This requires an assessment of whether
there are any impairment triggers which, given the nature of the assets, focuses on performance and
cash flows. Management concluded that no impairment of goodwill was required.

We have identified a key audit matter around the forecast cash flows in the goodwill impairment model
for U Holdings Limited, in particular the growth rates and discount rate used given these are the key
assumptions underpinning the forecast.

Given the degree of judgement involved in determining key assumptions, we also identified that there is
a potential for fraud through possible manipulation of this balance.

How the scope
of our audit
responded to
the key audit
matter

We obtained an understanding of the relevant controls over the determination of the growth rates and
discount rate, including the review of management’s judgement paper.

We reviewed the EBITDA forecast used in the model against the historical trading of the related
division and challenged the assumptions underpinning the forecast, including review of the long term
and short term growth rates and discount rate used.

We involved our valuation specialists to independently determine an estimate of the discount rate in
order to challenge the rate selected by management.

We assessed the appropriateness of the short term growth rates through challenging the key
assumptions underpinning the forecast growth, with peer benchmarking used to assess the
appropriateness of the long term growth rate.

We tested the mechanical accuracy and completeness of the impairment model by comparing to the
forecasts used in the going concern assessment, prior to the impact of Covid-19.

We also considered management’s allocation and classification of the cash generating units
(‘CGU’s’) of the business into Home Collected Credit and Digital divisions, upon the acquisition of
U Holdings Limited.

Key
observations

We concur with management’s conclusion that no impairment of goodwill was required.

We identified a control deficiency regarding the timely review of management’s judgement papers in
relation to impairment of goodwill, with insufficient focus being placed on the key discount rate and
growth rate assumptions and providing clear rationale for their adoption.

Morses Club PLC Annual Report & Accounts 2020

Independent Auditor’s Report continued
To the Members of Morses Club PLC

6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Materiality

£706,000 (2019: £1.03m)

£670,000 (2019: £1.02m)

Group financial statements

Parent Company financial statements

Basis for determining
materiality

1% of net assets (2019: 5% of pre-tax profit). This equates to 6.2% of pre-tax profit and 0.5%
of revenue.

Rationale for the
benchmark applied

Net assets has been used due to the volatility in the pre-tax profit after the Covid-19 expert
credit judgement was applied to the loan loss provision, is considered to be a more stable
basis on which to determine materiality going forward and is a relevant benchmark to users
of the annual report and accounts and the company’s regulators.

Net assets
£70.7m

Net assets

Group materiality

Group materiality
£706k

Component
materiality range
£670k to £353k

Audit Committee
reporting threshold
£35k

6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected
and undetected misstatements exceed the materiality for the financial statements as a whole. Group performance
materiality was set at 70% of Group materiality for the 2020 audit (2019: 70%).

We determined performance materiality with reference to factors such as our understanding of the Group and its
complexity, the quality of the control environment and ability to rely on controls and the low level of uncorrected
misstatements in the prior year audit.

6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £35,300
(2019: £51,100), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation
of the financial statements.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

7. An overview of the scope of our audit
7.1 Identification and scoping of components
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide
controls, and assessing the risks of material misstatement at the Group level.

The Group is made up of the main trading and parent entity of Morses Club PLC and four subsidiaries being Shopacheck
Financial Services Limited, Shelby Finance Limited, U Holdings Limited and U Accounts Limited. These companies account
for 100% of the Group’s net assets, 100% of the Group’s revenue and 100% of the Group’s pre-tax profit. We performed
testing over the consolidation which is prepared at the Group level only.

All entities in the Group are within our full audit scope and the audit procedures for these entities are performed directly
by the Group audit team.

7.2. Our consideration of the control environment
We identified key IT systems for the group in respect of the financial reporting system and lending system. We performed
testing of the general IT controls (‘GITCs’) associated with these systems and relied upon IT controls across the systems
identified.

We adopted a controls reliance approach in relation to the lending business cycle. We tested the relevant automated and
manual controls for the business cycle where a control reliance approach was planned. We adopted a controls reliance
approach across the lending cycle when performing our substantive audit procedures.

8. Other information
The directors are responsible for the other information. The other information comprises the information included in the
annual report, other than the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
there is a material misstatement in the financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information, we
are required to report that fact.

In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the
other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the directors that they consider the annual report and
financial statements taken as a whole is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Group’s position and performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or

• Audit committee reporting – the section describing the work of the audit committee does not appropriately address

matters communicated by us to the audit committee; or

• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the directors’ statement

that would be required if the company had a premium listing relating to the company’s compliance with the UK
Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule
9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.

We have nothing to report in respect of these matters.

9. Responsibilities of directors
As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s
ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.

Morses Club PLC Annual Report & Accounts 2020

Independent Auditor’s Report continued
To the Members of Morses Club PLC

10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Report on other legal and regulatory requirements

11. Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial

statements are prepared is consistent with the financial statements; and

• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in
the course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.

12. Opinion on other matter prescribed by our engagement letter
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance
with the provisions of the Companies Act 2006 that would have applied were the company a quoted company.

13. Matters on which we are required to report by exception
13.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not

been received from branches not visited by us; or

• the Parent Company financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

13.2 Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’
remuneration have not been made.

We have nothing to report in respect of this matter.

14. Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those
matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a
body, for our audit work, for this report, or for the opinions we have formed.

Kieren Cooper (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
27 November 2020

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Consolidated Income Statement
For the 53-week period ended 29 February 2020

Revenue
Existing Operations
Acquisitions during the period

Impairment
Cost of sales

Gross profit

Notes

1
26

53 weeks
ended
29.2.20
£000

128,528
5,123

133,651
(36,358)
(27,669)

69,624

52 weeks
ended
23.2.19
£000

116,803
203

117,006
(26,169)
(28,296)

62,541

Administration expenses

2 & 4

(54,918)

(40,579)

Operating profit before amortisation of intangibles

and exceptional items

Amortisation of acquisition intangibles
Exceptional items

Operating profit
Operating Profit Existing Operations
Operating Profit Acquisitions during the period

Finance costs

Profit before taxation
Tax on profit on ordinary activities

Profit after taxation

Earnings per share

Basic
Diluted

12
3

4
7

9
9

13,593
(1,222)
2,335

11,667
3,039

14,706

22,987
(1,025)
–

21,875
87

21,962

(3,255)

(1,745)

11,451
(1,974)

9,477

29.2.20
Pence

7.26
7.21

20,217
(4,042)

16,175

23.2.19
Pence

12.48
12.30

All results derive from continuing operations. A Statement of Comprehensive Income is not included as there are no other
gains or losses, other than those presented in the Income Statement.

Morses Club PLC Annual Report & Accounts 2020

Balance Sheet
As at 29 February 2020

Registered Number: 06793980

Assets
Non-current assets
Goodwill
Other intangible assets
Investment in subsidiaries
Property, plant & equipment
Right-of-Use asset
Deferred tax
Amounts receivable from customers

Current Assets
Amounts receivable from customers
Taxation receivable
Other receivables
Cash at bank

Total assets

Liabilities
Current Liabilities
Taxation payable
Trade and other payables
Lease liabilities

Non-current liabilities
Bank and other borrowings
Lease liabilities
Deferred tax

Total liabilities

Net assets

Equity
Called up share capital
Group reconstruction reserve
Retained earnings

Total equity

Group

Company

Notes

29.2.20
£000

23.2.19
£000

29.2.20
£000

23.2.19
£000

11
12
14
13
15
21
16

17
19

22
23
23

12,981
7,362
–
818
2,783
659
657

25,260

72,171
501
4,256
11,868

88,796

114,056

–
(6,723)
(1,286)

(8,009)

(33,838)
(1,553)
–

(35,391)

(43,400)

70,656

1,312
–
69,344

70,656

3,501
6,221
–
378
–
958
206

3,293
5,606
11,011
196
2,113
797
586

3,309
5,283
2,861
378
–
1,097
206

11,264

23,602

13,134

72,840
–
2,369
7,893

83,102

94,366

(1,830)
(7,482)
–

(9,312)

(14,075)
–
–

(14,075)

(23,387)

70,979

1,298
–
69,681

70,979

67,294
501
22,159
9,585

99,539

123,141

–
(6,629)
(1,228)

(7,857)

(33,838)
(848)
–

(34,686)

(42,543)

80,598

1,312
(9,276)
88,562

80,598

72,819
–
2,211
7,758

82,788

95,922

(1,830)
(8,285)
–

(10,115)

(14,075)
–
–

(14,075)

(24,190)

71,732

1,298
(9,276)
79,710

71,732

The Parent Company's profit for the financial period was £18,705,113 (2019: £17,253,045). The consolidated and
Company financial statements of Morses Club PLC were approved by the Board of Directors on 27 November 2020.

As permitted by Section 408 of the Companies Act 2006, the income statement of the Parent Company is not presented
as part of these financial statements.

Signed on behalf of the Board of Directors

Paul Smith
Director

Andrew Thomson
Director

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Consolidated Statements of Changes in Equity
For the 53-week period ended 29 February 2020

Group

As at 25 February 2018

Profit for year

Total comprehensive income for the period
Share issue
Share-based payments charge
Dividends paid

As at 23 February 2019

Impact of adoption of IFRS 16

As at 24 February 2019

Profit for year

Total comprehensive income for the period
Deferred tax on acquisitions
Share issue
Share-based payments charge
Dividends paid

As at 29 February 2020

Company

As at 24 February 2018

Profit for year

Total comprehensive income for the period
Share-based payments charge
Share issue
Dividends paid

As at 23 February 2019

Impact of adoption of IFRS 16

As at 24 February 2019

Profit for year

Total comprehensive income for the period
Share issue
Share-based payments charge

Dividends paid

As at 29 February 2020

Notes

Called Up
Share Capital
£000

1,295

–

–
3
–
–

1,298

–

1,298

–

–
–
14
–
–

1,312

28
8

Notes

Called Up
Share Capital
£000

Group
Reconstruction
Reserve
£000

1,295

(9,276)

–

–
–
3
–

1,298

–

1,298

–

–
14
–

–

–
–
–
–

–

–
–
–

–

1,312

(9,276)

Retained
Earnings
£000

61,993

16,175

16,175
–
1,104
(9,591)

69,681

154

69,835

9,477

9,477
39
–
155
(10,162)

69,344

Retained
Earnings
£000

70,944

17,253

17,253
1,104
–
(9,591)

18,705

18,705
–
155

(10,162)

88,562

(9,276)

79,710

–

154

(9,276)

79,864

Total
Equity
£000

63,288

16,175

16,175
3
1,104
(9,591)

70,979

154

71,133

9,477

9,477
39
14
155
(10,162)

70,656

Total
Equity
£000

62,963

17,253

17,253
1,104
3
(9,591)

71,732

154

71,886

18,705

18,705
14
155

(10,162)

80,598

Morses Club PLC Annual Report & Accounts 2020

Cash Flow Statements
For the 53-week period ended 29 February 2020

Net cash inflow from operating activities

Cash flows used in financing activities
Dividends paid
Proceeds from additional long-term debt
Arrangement costs associated with additional funding
Repayment of long-term debt
Principal paid under lease liabilities
Interest received
Interest paid
Interest paid (leases liabilities)

Notes

Group

Company

29.2.20
£000

21,418

23.2.19
£000

20,467

29.2.20
£000

7,234

23.2.19
£000

20,612

(10,162)
36,000
–
(16,500)
(1,385)
13
(2,533)
(472)

(9,591)
(1,052)
(425)
–
–
–
(1,745)
–

(10,162)
36,000
–
(16,500)
(1,433)
1,067
(2,533)
(399)

(9,591)
(1,052)
(425)
–
–
–
(1,745)
–

Net cash inflow/(outflow) from financing activities

4,961

(12,813)

6,040

(12,813)

Cash flows used in investing activities
Purchase of intangibles
Purchase of property, plant and equipment including RoU

assets

Additional investment in subsidiary
Acquisitions

Net cash (outflow) from investing activities

Increase in cash and cash equivalents

Reconciliation of increase in cash and cash equivalents

Movement in cash and cash equivalents in the period
Movement in cash and cash equivalents in the period
Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

(4,277)

(2,411)

(2,511)

(2,368)

(2,180)
–
(15,947)

(31)
–
(2,187)

(347)
(8,150)
(439)

(31)
(250)
(2,187)

(22,404)

(4,629)

(11,447)

(4,836)

3,975

3,025

1,827

2,963

3,975

3,025

1,827

2,963

7,893

11,868

4,868

7,893

7,758

9,585

4,795

7,758

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Notes to the Consolidated Cash Flow Statement
For the 53-week period ended 29 February 2020

1 Reconciliation of profit before taxation to net cash inflow from operating activities

Profit before taxation and exceptional items
Exceptional items
Profit before taxation

Interest received included in financing activities
Interest paid included in financing activities
Interest paid (leases liabilities)
Share issue
Depreciation charges
Share-based payments charge
Impairment of goodwill
Amortisation of intangibles
Write off of Right-of-use assets
Decrease/(increase) in Debtors
(Decrease)/increase in Creditors

Taxation paid

Net cash inflow from operating activities

Group

Company

29.2.20
£000

9,116
2,335
11,451

(13)
2,533
472
14
2,436
155
16
3,136
142
6,702
(1,466)

14,127

(4,160)

21,418

23.2.19
£000

20,217
–
20,217

–
1,745
–
3
475
1,104
–
2,209
–
(3,901)
2,170

3,805

(3,555)

20,467

29.2.20
£000

20,755
–
20,755

(1,067)
2,533
399
14
1,896
155
16
2,188
142
(14,631)
(1,006)

(9,361)

(4,160)

7,234

23.2.19
£000

21,449
–
21,449

–
1,745
–
3
475
1,104
–
1,455
–
(4,091)
2,027

2,718

(3,555)

20,612

Morses Club PLC Annual Report & Accounts 2020

Notes to the Consolidated Cash Flow Statement continued
For the 53-week period ended 29 February 2020

2 Reconciliation of liabilities arising from financial activities

Group

At 24 February 2018
Cash flows:

– Repayments
– Proceeds
– Arrangement costs associated with additional funding

At 23 February 2019
Impact of IFRS 16

At 24 February 2019

Non-cash changes
- Amortised fees
- Interest
Cash flows:

– Repayments
– Proceeds
– Lease additions & disposals
– Interest
– Arrangement costs associated with additional funding

At 29 February 2020

Company

At 24 February 2018
Cash flows:

– Repayments
– Drawdown
– Arrangement costs associated with additional funding

At 23 February 2019
Impact of IFRS 16

At 24 February 2019

Non-cash changes
- Amortised fees
- Interest
Cash flows:

– Repayments
– Proceeds
– Lease additions & disposals
– Interest
– Arrangement costs associated with additional funding

At 29 February 2020

Long-term
Borrowings
£000

15,552

(1,500)
–
23

14,075
–

14,075

263
(2,533)

(16,500)
36,000
–
2,533
–

33,838

Long-term
Borrowings
£000

15,552

(1,500)
–
23

14,075
–

14,075

263
(2,533)

(16,500)
36,000
–
2,533
–

33,838

Lease
Liabilities
£000

–

–
–
–

–
3,391

3,391

–
(472)

(1,385)
–
833
472
–

2,839

Lease
Liabilities
£000

–

–
–
–

–
3,391

3,391

–
(399)

(1,433)
–
118
399
–

2,076

Total
£000

15,552

(1,500)
–
23

14,075
3,391

17,466

263
(3,005)

(17,885)
36,000
833
3,005
–

36,377

Total
£000

15,552

(1,500)
–
23

14,075
3,391

17,466

263
(2,932)

(17,933)
36,000
118
2,932
–

35,914

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Notes to the Consolidated Financial Statements
For the 53-week period ended 29 February 2020

1. Accounting policies

General information
The Company is a public limited company incorporated and domiciled in the UK. The address of its registered office is
Kingston House, Centre 27 Business Park, Woodhead Road, Birstall, Batley, West Yorkshire, WF17 9TD.

Basis of preparation
The financial statements of the Group and Company are prepared in accordance with IFRS adopted for use in the
European Union (EU), International Financial Reporting Interpretations Committee (IFRIC) interpretations and the
Companies Act 2006. The financial statements have been prepared on a going concern basis under the historical cost
convention, as modified by the revaluation of derivative financial instruments and investments held at fair value through
other comprehensive income. In preparing the financial statements, the Directors are required to use certain critical
accounting estimates and are required to exercise judgement in the application of the Group and Company’s accounting
policies.

For further information on the approach adopted for post balance sheet events see Note 30 on Page 135.

The Group and Company’s principal accounting policies under IFRS have been consistently applied to all the years
presented with the exception of the adoption of IFRS 16 ‘Leases’ and IFRIC 23 ‘Uncertainty over Income Tax Treatments’.

Going concern
The Directors have considered the appropriateness of adopting the going concern basis in preparation of these
financial statements.

The Group has prepared a 3-year business plan which is a continuation of its strategy of generating growth through
organic and acquisitive means.

In addition to standard internal governance the Group is also monitored against key financial covenants tied in with the
current funding facilities. These are produced and submitted on a monthly basis, with key schedules included in the
monthly Board papers.

The Group is subject to a number of risks and uncertainties which arise as a result of the current economic environment.
In determining that the Group is a going concern, these risks, which are described in the principal risks and uncertainties
section, have been considered by the Directors. The Directors have considered these risks in the Group’s forecasts and
projections which highlight continued profitability for the foreseeable future.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in
preparing the financial statements.

With regards to a going concern review or a 3-year viability period, the major challenge for the business will be one of
operational resilience and adapting to the demand of a Covid-19 world, whilst maintaining good customer outcomes,
appropriate oversight and financial prudence.

Rather than taking the approach of adopting a base case and then running upside and downside cases, management
have opted to conduct the going concern against what it considers to be the worst case under Covid-19. The financial
model which contains these assumptions was initially drawn up and shared with funders to support the new funding
facility entered into on 28 April 2020.

Management consider this to be a prudent foreseeable worst case plan against which to assess the going concern and
viability of the Group. This plan reflects both the impact on operational challenges and future prospects mentioned above.

Within the worst case the Group has assessed a number of possible events and scenarios which resulted in:
• Revision of future cash flows impacting the IFRS 9 Loan Loss Impairment Provision at the reporting date as well as

cash flows in future periods.

• Reduced customer numbers, loan book size and collections as a result of continued operational limitations.
• Revised operational model resulting from a different sized business.
• Maintenance of adequate facility headroom whilst maintaining sufficient operational cash resources.
• Appropriate cash conservation measures such as non-payment of external dividend.

These comments do not represent management’s confirmed actions, they represent a number of possible mitigants
which may need to be implemented if the worst case transpires.

Morses Club PLC Annual Report & Accounts 2020

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

1. Accounting policies continued

New and amended standards adopted by the Group and Company
Leases
IFRS 16
Amendments to Prepayment Features with Negative Compensation
IFRS 9
Amendments to Long-term Interests in Associates and Joint Ventures
IAS 28
Annual Improvements to IFRS Standards
IFRS 2015–2017 Cycle
Amendments to Plan Amendment, Curtailment or Settlement
IAS 19
Uncertainty over Income Tax Treatments
IFRIC 23

IFRS 16 Leases
In the current period, the Group, for the first time, has applied IFRS 16 Leases. The date of initial application of IFRS 16 for
the Group is 24 February 2019.

IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to
equipment leases as lessee by removing the distinction between operating and finance lease, requiring the recognition of
a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low
value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged.

The Group is not party to any material leases where it acts as a lessor, but the Group does have a large number of
material property, vehicle and equipment lessee.

Details of the Group’s accounting policies under IFRS 16 are set out below, followed by a description of the impact of
adopting IFRS 16. Significant judgements applied in the adoption of IFRS 16 included determining the lease term for
those leases with termination or extension options and determining an incremental borrowing rate where the rate
implicit in a lease could not be readily determined. Optional lease payments relate to the property portfolio and are
made up of payments in relation to lease extensions, these account for 27.9% in volume of all lease payments. Optional
leases not included in the lease liability measurement make up 13.2% of all lease payments. Extension and termination
options provide the Group with a level of flexibility to match the relevant resource to business requirements.

Accounting policies under IFRS 16 Leases
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a
right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee,
except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For
these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of
the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the
leased assets are consumed.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its
incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise:
• fixed lease payments (including in substance fixed payments), less any lease incentives;
• variable lease payments that depend on an index or rate, initially measured using the index or rate at the
commencement date;
• the amount expected to be payable by the lessee under residual value guarantees;
• the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the
lease.

The lease liability is presented as a separate line in the consolidated statement of financial position.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability
(using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
• The lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the

lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

• The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed
residual value, in which case the lease liability is remeasured by discounting the revised lease payments using the
initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a
revised discount rate is used).

• A lease contract is modified, and the lease modification is not accounted for as a separate lease, in which case the

lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

The Group did not make any such adjustments during the periods presented.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or
before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated
depreciation and impairment losses.

Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is
located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is
recognised and measured under IAS 37. The costs are included in the related right-of-use asset, unless those costs are
incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a
lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to
exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The
depreciation starts at the commencement date of the lease. The Group does not have any leases that include purchase
options or transfer ownership of the underlying asset.

The right-of-use assets are presented within the same line item as that within which the corresponding underlying assets
would be presented if they were owned – for the Group this is property, plant and equipment.

Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the
right-of-use asset. The Group does not have any lease payments which fall under the definition of variable lease
payments.

For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers and
office furniture), the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. This
expense is presented within Administrative expenses in the consolidated income statement.

As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any
lease and associated non-lease components as a single arrangement. The Group has used this practical expedient for
property leases for which the business rate is included in the lease contract.

Approach to transition
The Group has applied IFRS 16 using the modified retrospective approach, without restatement of the comparative
information. The leases the Group previously treated as operating leases have been measured following the approach in
IFRS 16.C8(b)(ii), whereby right-of-use assets are set equal to the lease liability, adjusted for prepaid or accrued lease
payments, including un-amortised lease incentives.

The Group’s weighted average incremental borrowing rate applied to lease liabilities as at 24 February 2019 is 13.82%.

Practical expedients adopted on transition
The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract
is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be
applied to those leases entered into or modified before 24 February 2019.

As part of the Group’s adoption of IFRS 16 and application of the modified retrospective approach to transition, the
Group also elected to use the following practical expedients:
• a single discount rate has been applied to portfolios of leases with reasonably similar characteristics; and
• hindsight has been used in determining the lease term.

Morses Club PLC Annual Report & Accounts 2020

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

1. Accounting policies continued

Impact on lessee accounting
Former operating leases
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were
off-balance sheet.

Applying IFRS 16, for all leases (except as noted above), the Group now recognises right-of-use assets and lease liabilities in
the consolidated balance sheet, initially measured at the present value of the future lease payments as described above.

Lease incentives (eg rent-free periods) are recognised as part of the measurement of the right-of-use assets and lease
liabilities whereas under IAS 17 they resulted in the recognition of a lease incentive liability, amortised as a reduction of
rental expenses on a straight-line basis.

Under IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This
replaces the previous requirement to recognise a provision for onerous lease contracts.

Under IFRS 16 the Group recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated
income statement, whereas under IAS 17 financing leases previously gave rise to a straight-line expense in other operating
expenses.

Under IFRS 16 the Group separates the total amount of cash paid for leases that are on balance sheet into a principal
portion (presented within financing activities) and interest (presented within financing activities) in the consolidated cash
flow statement. Under IAS 17 operating lease payments were presented as operating cash outflows.

Former finance leases
The main differences between IFRS 16 and IAS 17 with respect to assets formerly held under a finance lease is the
measurement of the residual value guarantees provided by the lessee to the lessor. IFRS 16 requires that the Group
recognises as part of its lease liability only the amount expected to be payable under a residual value guarantee, rather
than the maximum amount guaranteed as required by IAS 17. This is not applicable to the leases operated by the Group
and as such has no impact on the Group’s consolidated financial statements.

Financial impact
The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of
right-of-use assets and lease liabilities. Provisions for onerous lease contracts have been derecognised and operating
lease incentives previously recognised as liabilities have been derecognised and factored into the measurement of the
right-to-use assets and lease liabilities.

The Group has chosen to use the table below to set out the adjustments recognised at the date of initial application
of IFRS 16.

Non-Current Assets
Right-of-use asset
Current Assets
Other receivables

Total impact on assets

Current Liabilities
Lease liability
Trade and other payables
Deferred tax
Non-current Liabilities
Lease liability

Total impact on liabilities

Retained Earnings

23 February
2019
As Originally
Presented
£000

IFRS 16
Adjustment
£000

24 February
2019
Restated
£000

–

3,621

2,369

–
7,482
–

–

7,482

(5,113)

(51)

3,570

1,446
(7)
32

1,945

3,416

154

3,621

2,318

5,939

1,446
7,475
32

1,945

10,898

(4,959)

Of the total right-of-use assets of £3.6m recognised at 24 February 2019, £1.5m related to leases of motor vehicles,
£0.9m to leases of servers and £1.2m to leases of properties. The table on Page 97 presents a reconciliation from
operating lease commitments disclosed at 23 February 2019 to lease liabilities recognised at 24 February 2019.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

Operating lease commitments disclosed under IAS 17 at 23 February 2019
Discounted using the lessee’s incremental borrowing rate of 13.82% as at the date of initial application
(Less): short-term leases recognised on a straight-line base as expense
(Less): low-value leases recognised on a straight-line base as expense
Add: adjustments as a result of a different treatment of extension and termination options

Lease liabilities recognised at 24 February 2019

£000

2,613
(860)
(40)
–
1,678

3,391

In terms of the income statement impact, the application of IFRS 16 resulted in a decrease in other operating expenses
and an increase in depreciation and interest expense compared to IAS 17. During the period ended 29 February 2020, in
relation to leases under IFRS 16 the Group recognised the following amounts in the consolidated income statement:

Depreciation
Interest expense
Variable lease payments (not depending on an index or rate)
Short-term lease expense
Low-value lease expense

Motor
Vehicles
£000

808
165
–
–
–

Servers
£000

Properties
£000

335
119
–
–
–

553
188
–
68
–

Total cash outflows from leases during the period ended 29 February 2020 was £1,857,000.

IFRIC 23
The Group and Company has adopted IFRIC 23 ‘Uncertainty over Income Tax Treatments’ from the mandatory adoption
date of 1 January 2019. The interpretation sets out how to determine the accounting tax position when there is
uncertainty over income tax treatments and requires the Group and Company to: (1) determine whether uncertain tax
positions are assessed separately or as a Group; and (2) assess whether it is probable that a tax authority will accept an
uncertain tax treatment used, or proposed to be used, in its income tax filings. If it is considered probable the accounting
tax position should be consistent with the tax treatment used or planned to be used in the income tax filing. If it is not
considered probable the effect of the uncertainty in determining the accounting tax position should reflect the most likely
amount or the expected value method. The interpretation has not had a material impact on either the Group or Company.

At the date of authorisation of these financial statements the following Standards, amendments and interpretations
which have not been applied in these financial statements were in issue but not yet effective:

IFRS 17
IFRS 3
IAS 1 and IAS 8
Conceptual Framework

Insurance contracts
Definition of a business
Definition of material
Amendments to References to the Conceptual Framework in IFRS Standards

The implementation of all other standards is not expected to have a material impact on the Group’s financial statements
other than:

Alternative performance measures
In reporting financial information, the Group presents alternative performance measures, ‘APMs’ which are not defined
or specified under the requirements of IFRS.

The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures,
provide stakeholders with additional helpful information on the performance of the business. The APMs are consistent
with how the business performance is planned and reported within the internal management reporting to the Board.
Some of these measures are also used for the purpose of setting remuneration targets.

Each of the APMs used is set out on Pages 136 to 138 including explanations of how they are calculated and how they
can be reconciled to a statutory measure where relevant.

The Group makes certain adjustments to the statutory measures in order to derive APMs where relevant. The Group’s
policy is to exclude items that are significant in both nature and/or quantum and where treatment as an adjusted item
provides stakeholders with additional useful information to assess the year-on-year trading performance of the Group.

Morses Club PLC Annual Report & Accounts 2020

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

1. Accounting policies continued

Basis of consolidation
The Group financial statements drawn up to 29 February 2020 consolidate the financial statements of the Company
and its subsidiary undertakings from the date control passes to the Group until the date control ceases. Control is
achieved when the Group:
• has the power over the investee;
• is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect returns.

All intra-Group transactions, balances and unrealised gains on transactions between Group companies are eliminated
on consolidation. The accounting policies of subsidiaries are consistent with the accounting policies of the Group.

Revenue recognition
Under IFRS 9, all receivables are recognised within Stage 1 on inception of the loan. A customer will then move to Stage 2
when there has been a significant increase in credit risk through a deterioration in their Payment Performance. Stage 3
represents a customer in default. Revenue recognition is recognised on the Gross Receivable in Stages 1 and 2 and on
the Net Receivable in Stage 3. A customer can only move to or back out of Stage 3 for revenue recognition purposes at
the Group’s interim or year end.

Stage 1 – Accounts at initial recognition. Revenue is recognised on the Gross Receivable before Impairment Provision.
Stage 2 – Accounts which have suffered a significant deterioration in credit risk but have not defaulted. Revenue is
recognised on the Gross Receivable before Impairment Provision.
Stage 3 – Accounts which have defaulted. Revenue is recognised on the Net Receivable after Impairment Provision.

Under IFRS the amount of revenue recognised is capped at the contractual amount due.

Digital revenue for recurring monthly management fees in relation to current accounts is recognised in accordance with
IFRS1 5.

See Critical accounting judgements and key sources of estimation uncertainty on Page 104 for more information.

Net loan book
All customer receivables are initially recognised at the amount loaned to the customer ie fair value. After initial
recognition the amounts receivable from customers are subsequently measured at amortised cost.

The Directors assess on an ongoing basis whether there is evidence that a loan asset or Group of loan assets is impaired
and requires an additional deduction for impairment. Impairment is calculated using models which use historical
payment performance to calculate the estimated amount and timing of future cash flows from each arrears stage.
Impairment is then calculated by estimating the future cash flows for such impaired loans, discounting the cash flows to a
present value using the original Effective Interest Rate (EIR) and comparing this figure with the balance sheet carrying
value. All such impairments are charged to the income statement.

Under IFRS 9, all receivables are recognised within Stage 1 on inception of the loan. A customer will then move to Stage 2
when there has been a significant increase in credit risk through a deterioration in their Payment Performance,
represented by 2 missed payments in a 13-week period. Stage 3 represents a customer in default, equivalent to 10
missed payments in a 13-week period. The 2 missed payments in a 13-week period are considered to be a point of
significant increase in credit risk based on historical loan book performance.

Stage 1 – Accounts at initial recognition. The Impairment Provision is based on 12-month’s expected losses, based on
historic performance.
Stage 2 – Accounts which have suffered a significant deterioration in credit risk but have not defaulted. The Impairment
Provision is based on lifetime losses, based on historic performance.
Stage 3 – Accounts which have defaulted. The Impairment Provision is based on lifetime losses, based on
historic performance.

A loan can move from having an impairment provision calculated on a lifetime expected loss basis back to a 12 month
expected losses basis if the payment performance for the loan has improved at the review date.

Stage 2 and Stage 3 are defined with reference to the number of contractual payments that have been missed in the
previous 13 week period. As a result, there exists a cohort of loans for which the 30/90 day backstops have been
rebutted. Recent arrears performance is considered to be a more robust indicator of credit risk than days-past-due for
the customer base.

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Corporate Governance

Financial Statements

Impairment provisions under IFRS 9 are calculated based on historic loan experience as a basis for estimating the
Expected Credit Loss and considers the outlook for macroeconomic conditions.

Key assumptions in ascertaining whether a loan asset or Group of loan assets is impaired include information regarding the
probability of any account going into default and information regarding the likely eventual loss including recoveries. These
assumptions and assumptions for estimating future cash flows are based upon observed historical data and updated as
management considers appropriate to reflect current and future conditions. All assumptions are reviewed regularly to take
account of differences between previously estimated cash flows on impaired debt and the eventual losses.

Payment performance and missed payments are used as indicators to identify loans with no reasonable expectation of
recovery and these loans are subsequently written off.

See Critical accounting judgements and key sources of estimation uncertainty on Page 104 for more information.

Macroeconomic overlay
Through involvement in the Regional CBI, Morses Club PLC receives good insight into the current macroeconomic
landscape. Most economic analysis from the Bank of England and HM Treasury recognises the likelihood of a downturn in
the economy as a result of COVID-19, with a recession and increased levels of unemployment.

In terms of the impact of increased unemployment, the home credit sector has historically been quite resilient in periods
where unemployment has been increasing, due in part to the HCC customer base typically having a mixture of wages
and benefits within household incomes.

Covid-19 overlay
With specific reference to the current situation regarding COVID-19 the directors have given consideration to the
potential for increased levels of default, and considered a range of possible outcomes at the end of February 2020.
These outcomes reflect a range of outcomes which were thought possible at the reporting date, ranging from a very
short period of disruption and impact to one which impacted most of the following financial year. A probability was
attached to each outcome, details of this are shown in Note 30.

The main impact of COVID-19 will be operational, economic and credit risk factors. Operational challenges relate to the
movement restricting the ability of agents to carry out home visits, and support staff working from home from March
onwards. These have been mitigated in part through technology. There will be customer repayment difficulties and some
increase in credit risk arising from lower customer income and/or health situations, but these will be mitigated by
government support, as well as the forbearance and experience of our skilled customer support staff. Based on these
mainly operational considerations, an overlay for Covid-19 has been applied to the Group accounts resulting in an impact
in FY20 of £1.7m (FY19: nil). The pandemic will continue to have a negative impact on recoverability and collections
through 2020/21 as set out in the PBSE note.

Write off
Write off is when a customer has made no payments on their account for 17 weeks and the account is transferred out of
field operations to customer support.

Business combinations
Acquisitions are accounted for using the acquisition method. Acquisition costs are expensed to the income statement.
The consideration transferred in a business combination is measured at fair value with the fair value of deferred
contingent consideration determined by considering the expected payment, discounted to present value using a risk
adjusted discount rate. The expected payment is determined separately in respect of each individual earn-out
agreement taking into consideration the expected level of profitability of each acquisition. Post acquisition the discounted
consideration is unwound on an EIR basis as a finance cost before being physically paid in line with the share purchase
agreement.

At the acquisition date the identifiable assets acquired, and the liabilities assumed are recognised at their fair value
except that:
• deferred tax assets or liabilities are recognised and measured in accordance with IAS 12 Income Taxes.

The provision for deferred contingent consideration arising in the year was in respect of the acquisition of U Holdings
Limited, see Note 26.

On 21 February 2020, the trade and assets of U Holdings Limited, a subsidiary undertaking, were transferred to Shelby
Finance Limited at book value, see Note 26 for further details.

Morses Club PLC Annual Report & Accounts 2020

100

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

1. Accounting policies continued

Classification and measurement of financial liabilities
The Group’s financial liabilities include borrowings and trade and other payables.

Trade payables are obligations to pay for goods or services that have been acquired from suppliers in the ordinary
course of business and are classified as current liabilities if payment is due within 1 year or less, otherwise they are
presented as non-current liabilities.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.

Borrowings are recognised initially at fair value, being issue proceeds less any transaction costs incurred. Borrowings are
subsequently stated at amortised cost; any difference between proceeds less transaction costs and the redemption
value is recognised in the income statement over the expected life of the borrowings using the effective interest rate.
Borrowings are classified as current liabilities unless the Group or Company has an unconditional right to defer
settlement of the liability for at least 12 months after the balance sheet date.

Goodwill
Goodwill arising on the acquisition of business combinations, representing any excess of fair value of the consideration
given over the fair value of the identifiable assets and liabilities acquired, is capitalised and reviewed for impairment at
least annually.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or Groups
of cash-generating units) expected to benefit from the synergies of the combination. Cash-generating units to which
goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that
the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of
the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit
and then to the other assets of the unit pro-rata based on the carrying amount of each asset in the unit. An
impairment loss recognised for goodwill is not reversed in a subsequent period.

Gains on acquisition arising on the purchase of a business are recognised directly in the income statement.

See Critical accounting judgements and key sources of estimation uncertainty on Page 104 for more information.

Other intangibles assets
Other intangible assets include acquisition intangibles in respect of customer relationships and agent networks as well as
software, servers and licences.

The fair value of customer relationships on acquisition has been estimated by discounting the expected future cash flows
from the relationships over their estimated useful economic lives of 10 years, such estimate being based on previous
experience of similar acquisitions. The assets will be amortised over their estimated useful lives in line with the realisation
of their expected benefits. Due to the behavioural profile of our customers, this will naturally result in a greater
amortisation charge in the early years with a corresponding reduction in later years.

The fair value of agent networks on acquisition is calculated based on the estimated cost of developing a similar network
organically. The assets are amortised over their estimated useful economic lives of 10 years, such estimate being based
on previous experience of similar acquisitions, in line with the realisation of their expected benefits arising from the
customer relationships associated with the agent network.

Software and licences are stated at cost, net of amortisation and any provision for impairment. Amortisation is provided
at the following annual rates in order to write off the cost less estimated residual value of each asset over its estimated
useful life.

Software and licences

– 20%–33% on cost

Amortisation is included within administration expenses. Other intangible assets are valued at cost less subsequent
amortisation and impairment, and are tested at least annually. An impairment loss is recognised for the amount by
which the asset’s carrying value exceeds the higher of the asset’s value in use and its fair value less costs to sell.

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101

Property, plant and equipment
Tangible fixed assets are stated at cost or valuation, net of depreciation and any provision for impairment. Depreciation
is provided at the following annual rates in order to write off the cost less estimated residual value of each asset over its
estimated useful life.

Computers and tablets
Fixtures and fittings

– 20%–33% on cost
– 20% on cost

Impairment
At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets
to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the
asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount
of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be
identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the
smallest Group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with an indefinite useful life are tested for impairment at least annually and whenever there is an
indication at the end of a reporting period that the asset may be impaired.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash
flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than the carrying amount, the
carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is
recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the
impairment loss is treated as a revaluation decrease and to the extent that the impairment loss is greater than the
related revaluation surplus, the excess impairment loss is recognised in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is
increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been recognised for the asset (or
cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss to the
extent that it eliminates the impairment loss which has been recognised for the asset in prior years.

Right-of-Use assets are tested for impairment annually whenever there is an indication at the end of the reporting
period that the asset may be impaired.

Investments in subsidiaries
Subsidiaries are entities over which the Company has power to govern the financial and operating policies so as to obtain
benefits from its activities. Subsidiaries are consolidated from the date on which control is transferred to the Company.
They are de-consolidated from the date on which control ceases.

Investments in subsidiaries are stated at cost less any provision for impairment. The investments in subsidiaries are
considered for impairment on a bi-annual basis.

Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand with maturities of 3 months or less. Bank overdrafts are
presented in current liabilities to the extent that there is no right of offset with cash balances.

Pension costs and other post-retirement benefits
The Group operates a defined contribution pension scheme. Contributions payable to the Group’s pension scheme are
charged to the income statement in the period to which they relate.

Intercompany
Intercompany transactions are recorded at fair value on initial recognition and then amortised cost to enable recognition
of any expected credit losses. Expected credit losses on intercompany balances are assessed at each balance sheet
date. The Probability of Default (PD) and Loss Given Default (LGD) are determined for each loan based on the
subsidiary’s available funding and cash flow forecasts.

Morses Club PLC Annual Report & Accounts 2020

102

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

1. Accounting policies continued

Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered)
using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the
consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred
tax is valued at the prevailing rates at which it is expected to unwind.

Deferred tax liabilities are generally recognised for all taxable temporary differences.

Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable
that taxable profits will be available against which those deductible temporary differences can be utilised.

Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition
(other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor
the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the
initial recognition of goodwill.

As detailed on Pages 94 to 97, the Group has applied IFRS 16 using the modified retrospective approach and therefore
comparative information has not been restated. This means comparative information is still reported under IAS 17 and
IFRIC 4.

Accounting policy applicable from 23 February 2019
The Group and Company as a lessee
For any new contracts entered into on or after 23 February 2019, the Group and Company considers whether a contract
is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the
underlying asset) for a period of time in exchange for consideration’. To apply this definition the Group and Company
assesses whether the contract meets 3 key evaluations which are whether:
• The contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by

being identified at the time the asset is made available to the Group and Company.

• The Group and Company has the right to obtain substantially all of the economic benefits from use of the identified

asset throughout the period of use, considering its rights within the defined scope of the contract.

• The Group and Company has the right to direct the use of the identified asset throughout the period of use.
• The Group and Company assess whether it has the right to direct ‘how and for what purpose’ the asset is used

throughout the period of use.

Measurement and recognition of leases as a lessee
At lease commencement date, the Group and Company recognises a right-of-use asset and a lease liability on the balance
sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial
direct costs incurred by the Group and Company, an estimate of any costs to dismantle and remove the asset at the end of
the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier
of the end of the useful life of the right-of-use asset or the end of the lease term. The Group and Company also assesses
the right-of-use asset for impairment when such indicators exist.

At the commencement date, the Group and Company measures the lease liability at the present value of the lease
payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the
Group’s incremental borrowing rate.

Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance
fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee
and payments arising from options reasonably certain to be exercised.

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is
remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and
loss if the right-of-use asset is already reduced to zero.

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103

The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients.
Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an
expense in profit or loss on a straight-line basis over the lease term.

On the statement of financial position, right-of-use assets have been included in property, plant and equipment and
lease liabilities have been included in trade and other payables.

The Group as a lessor
The Group’s accounting policy under IFRS 16 has not changed from the comparative period and the Group and Company
held no arrangements as a lessor.

Accounting policy applicable before 23 February 2019
The Group and Company as a lessee
Finance leases
The Group and Company did not hold any arrangements classified as finance leases during the comparative period.

Operating leases
Rentals under operating leases are charged on a straight-line basis over the lease term, even if the payments are not
made on such a basis.

Finance costs
Finance costs comprise the interest expense on external borrowings which are recognised in the income statement in the
period in which they are incurred and the funding arrangement fees which were prepaid and are being amortised to the
income statement over the length of the funding arrangement.

Leasehold
Costs incurred in refurbishing or fitting out leasehold properties are capitalised and depreciated over the length of the
relevant lease. At period end these assets had a £nil carrying value having been fully depreciated in prior periods.

Group restructuring reserve
The Group reconstruction reserve was created within the Company balance sheet during the financial year ending
28 February 2015. This was required following the Company’s acquisition of 100% of the Ordinary Share capital of
Shopacheck Financial Services Limited (SFS) from its then Parent Company, and the subsequent hive up of the trade and
assets of SFS into the Company at carrying value.

The Group reconstruction reserve was initially accounted for using merger accounting, with the assets and liabilities of
SFS therefore being transferred into the Company at carrying value rather than fair value. The difference between the
carrying value of the assets and liabilities transferred and the consideration paid was taken directly to the Group
reconstruction reserve.

There has been no change to the balance held within this reserve since it was initially recognised and this is due to the
Company continuing to own 100% of the Ordinary Share capital of SFS.

Share-based payments
The Company operates 3 equity-settled share-based compensation schemes for Directors and 3 for employees.

The fair value of the share options granted is recognised over the vesting period to reflect the achievement of
performance conditions over time. The charge relating to grants to employees of the Company is recognised as an
expense in the income statement.

The fair value of the share options granted, excluding the impact of any non-market vesting conditions, is calculated
using established option pricing models, being Monte Carlo simulation or Black-Scholes. The probability of meeting
non-market vesting conditions, which include profitability targets, is used to estimate the number of share options which
are likely to vest.

Exceptional items
Exceptional items are items that are unusual because of their size, nature or incidence and which the Directors consider
should be disclosed separately to enable a full understanding of the Group’s results. Exceptional income and costs are
recognised in the income statement in the period they are incurred. Exceptional items for the year ended 29 February
2020 comprises the release of the deferred consideration for U Holdings £2,335,000 (2019: £nil).

Morses Club PLC Annual Report & Accounts 2020

104

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

1. Accounting policies continued

Segment reporting
IFRS 8 Operating Segments requires segments to be identified on the basis of internal reports that are regularly reviewed
by the Chief Operating Decision Maker (CODM). The Chief Operating Decision Maker is the Executive Committee (ExCo).

The accounting policies of the reportable segments are consistent with the accounting policies of the Group as a whole.
Segment profit represents the profit earned by each segment. This is the measure of profit that is reported to the Board
of Directors for the purpose of resource allocation and the assessment of segment performance.

When assessing segment performance and considering the allocation of resources, the Board of Directors review
information about segment assets and liabilities. For this purpose, all assets and liabilities are allocated to reportable
segments with the exception of intangible assets and current and deferred tax assets and liabilities.

Critical accounting judgements and key sources of estimation uncertainty
The following areas are the critical judgements and key sources of estimation uncertainty that the Directors have made
in applying the Group’s accounting policies:

Critical accounting judgements
In the process of applying the Group’s accounting policies the directors have made a crucial judgement around the
possible adverse impact of Covid-19 on the impairment of our closing loan book, that would have been foreseen at the
year end. Having established a downside scenario the Directors had to consider the probability of this scenario becoming
a reality based on what was known about Covid-19 as at 29 February 2020. This proved to be a difficult debate with
much conflicting information available to the Directors at the time. After applying expert credit judgement on the
implications of Covid-19, the directors determined that there was only a small probability of a major impact of Covid-19
and applied a probability weighing of 10%. This has the effect of recognising a small proportion of the total anticipated
impact in relation to Covid-19 in the FY20 results, with the remainder of the impact being recorded in FY21, as highlighted
in the PBSE note on Page 135.

Key sources of estimation uncertainty
Impairment
Under IFRS 9 an impairment provision is recognised for expected credit losses on financial assets measured at
amortised cost based on expected future credit losses. At the reporting date £48.1m (2019: £42.5m) was recognised as
an impairment provision against amounts receivable from customers.

The Group is required to estimate the quantum and timing of cash flows that will be recovered, which are discounted to
present value based on the EIR of the loan. Receivables are impaired when the cumulative amount of 2 or more
contractual weekly payments have been missed in the previous 13 weeks, since only at this point do the expected future
cash flows from loans deteriorate significantly. Impairment is calculated using models which use historical payment
performance to generate the estimated amount and timing of future cash flows from each arrears stage. Management
use a combination of historical cash performance curves to estimate future cash flows. These estimations are revised
annually and approved by management.

The key estimate within the impairment provision is the collection curves, which are derived from a 5-year average of
actual performance.

A key estimate within the impairment provision is the estimate of future cash collections. This is estimated based on a
five-year average of actual performance. Based on past experience, actual cash collections could vary by up to 5% from
this estimate. If estimated cash collections were 5% higher/lower than this estimate the impact on the impairment
provision would be £11.0m (2019: £11.2m) higher/lower.

Another key estimate is the determination of whether there has been a significant increase in credit risk on financial
assets since initial recognition which determines whether 12 month or lifetime expected credit losses are recognised. If
lifetime expected credit losses were recognised on all assets this would result in an increase in expected credit losses of
£0.5m (2019: £0.5m). The sensitivity is of a small magnitude due to the short-term nature of the products.

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Covid-19
The group has run a number of scenarios to establish the impact of Covid-19. A probability weighting was given to each
one, using economic research and actual events at the reporting date. These scenarios are detailed on Page 115. If the
probability weighted outcomes for the Covid-19 scenarios were to vary by +/- 10 percentage points then the cash value
would change by c.£10.4m and impairment provision by £6.2m. Changing the weighting on the upside or downside from
0 to 100% creates an impact of between £0 and £16.7m with the applied weighting generating an impact of £1.7m in the
year to 29 Feb 2020.

Revenue recognition
Under IFRS 9 interest income is recognised by applying the EIR to the carrying value of a loan. The EIR is calculated at
inception and represents the rate which exactly discounts the future contractual cash receipts from a loan to the amount
of cash advanced under that loan.

If the expected life of the loan lengthens by 2 weeks, as has been seen under Covid-19 as detailed in Note 30, it is
estimated that revenue would be approximately £0.8m (2019: £1.0m) lower. The maximum movement in the average life
year on year for the last 5 years has been 2 weeks, therefore this is considered to be a reasonable basis for the
sensitivity analysis performed.

Average lives are calculated over 5 years and are capped at term plus 9 weeks. In the prior year, the movement in
average lives affected c.6.5% of live accounts, with a negligible financial impact. This sensitivity is based on a 1 week
increase of the average life across all accounts. Given the current economic conditions, the level of payments is expected
to fall, but this will be mitigated across the coming year by the anticipated economic recovery and the need for existing
customers to obtain credit. Given that customer renewals are largely dependent on payment performance and that the
loan book comprises c.86% of existing accounts, a 1 week sensitivity is deemed to be a reasonable measure.

Impairment of non-financial assets and goodwill
In assessing impairment, management estimates the recoverable amount of each asset or cash generating unit based on
expected future cash flows and uses a Weighted Average Cost of Capital (WACC) of 13% to discount them. The Compound
Average Growth Rate (CAGR) for the first 3 years at Group level is 22% and every +/- 1% change in the CAGR results in a
+/- £1.1m change to the Group cumulative discounted cash flow over the same period. Every +/- 1% change in the discount
rate results in a +/- £2.1m change in the estimated recoverable amount. The terminal growth rate used in the calculation
is 2% and every +/- 0.5% change in the terminal growth rate results in a +/- £1.1m. Estimation uncertainty relates to
assumptions about future operating results and the determination of a suitable discount rate and future growth rates.

2. Staff costs

Wages and salaries
Social security costs
Other pension costs

Total staff costs

Redundancy costs

Total staff costs

Group

Company

53 weeks
ended
29.2.20
£000

22,519
2,589
1,038

26,146

933

27,079

52 weeks
ended
23.2.19
£000

18,064
2,059
579

20,702

–

20,702

53 weeks
ended
29.2.20
£000

16,772
2,026
792

19,590

734

20,324

52 weeks
ended
23.2.19
£000

17,898
2,052
577

20,527

–

20,527

Redundancy costs are a combination of post-acquisition integration costs and business as usual restructuring costs. The
table above excludes the network of self-employed agents.

The average monthly number of employees during the period was as follows:

Management
Clerical & field staff

Group

Company

53 weeks
ended
29.2.20

52 weeks
ended
23.2.19

53 weeks
ended
29.2.20

52 weeks
ended
23.2.19

201
439

640

145
364

509

164
335

499

145
364

509

Morses Club PLC Annual Report & Accounts 2020

106

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

3. Exceptional (income)/costs

Deferred consideration on acquisition
Total Exceptional (Income)

53 weeks
ended
29.2.20
£000

(2,335)
(2,335)

52 weeks
ended
23.2.19
£000

–
–

Exceptional income is made up of the release of Deferred Consideration in relation to the acquisition of U Holdings Limited,
see Note 26.

4. Profit before taxation

The operating profit is stated after charging/(crediting):

Depreciation – owned assets
Amortisation of intangibles
Depreciation of right-of-use assets
Impairment
Lease liability finance costs
Operating lease rentals – Motor vehicles
Operating lease rentals – Property

Directors’ and key management personnel remuneration includes the following expenses:

Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments

53 weeks
ended
29.2.20
£000

740
3,135
1,696
36,358
472
339
710

52 weeks
ended
23.2.19
£000

475
2,209
–
26,169
–
1,368
1,127

53 weeks
ended
29.2.20
£000

52 weeks
ended
23.2.19
£000

979
25
275
134

1,413

920
24
371
242

1,557

The number of Directors to whom retirement benefits were accruing was as follows:
Money purchase schemes

Information regarding the highest paid Director is as follows:

Emoluments

Pension contributions to money purchase schemes

The analysis of auditor’s remuneration is as follows:

Fees payable to the Company’s auditors for the audit of the Group’s annual accounts

Total audit fees

Audit related assurance services
Corporate Finance services

Total non-audit fees

Morses Club PLC Annual Report & Accounts 2020

53 weeks
ended
29.2.20
£000

570

52 weeks
ended
23.2.19
£000

552

53 weeks
ended
29.2.20
£000

52 weeks
ended
23.2.19
£000

410

30
55

254

27
92

119

Strategic Report

Corporate Governance

Financial Statements

107

5. Segment reporting

IFRS 8 requires segment reporting to be determined by the internal financial and operational information reported to
the chief operating decision maker. The Group’s chief operating decision maker is deemed to be the ExCo whose primary
responsibility is to support the CEO in managing the Group’s day-to-day operations and trading performance. The
Group’s segments comprise Home Collected Credit (Morses Club) and Digital (Shelby Finance Limited and U Holdings
Limited). The Group’s operations are all located in the United Kingdom and all revenue is attributable to customers in the
United Kingdom.

Group

Home Collected Credit
Digital

Total Group before amortisation of acquisition intangibles

and exceptional items

Intra-Group elimination
Group acquisition costs
Amortisation of acquisition intangibles
Exceptional items

Revenue

Profit/(loss) before taxation

53 weeks
ended
29.2.20
£000

119,269
14,382

52 weeks
ended
23.2.19
£000

116,645
361

133,651

117,006

–
–
–
–

133,651

117,006

53 weeks
ended
29.2.20
£000

22,940
(11,225)

11,715

750
(213)
(3,136)
2,335

11,451

52 weeks
ended
23.2.19
£000

22,904
(478)

22,426

–
–
(2,209)
–

20,217

Total Group

Group

Home Collected Credit
Digital
Total before intra-Group elimination

Eliminations*
Intra-Group elimination

Total Group

Segment assets

Segment liabilities

Net assets/(liabilities)

29.2.20
£000

124,462
21,145
145,607

(11,103)
(20,448)

23.2.19
£000

97,243
535
97,778

(2,927)
(485)

29.2.20
£000

(42,543)
(22,691)
(65,234)

1,386
20,448

23.2.19
£000

(24,190)
(510)
(24,700)

828
485

29.2.20
£000

81,919
(1,546)
80,373

(9,717)
–

114,056

94,366

(43,400)

(23,387)

70,656

23.2.19
£000

73,053
25
73,078

(2,099)
–

70,979

* Group assets includes fixed asset investment of £11,011,000 (2019: £2,861,000), a tax asset of £72,000 (2019: £247,000) which are offset by intangible
assets on acquisition £380,000 (2019: £817,000), goodwill on acquisition £192,000 (2019: £192,000) and inter-company provision £750,000 (2019: nil)
which are not attributable to a specific segment.

Group

Home Collected Credit
Digital

Total Group

6. Finance costs

Lease liabilities
Other interest payable

Total interest payable

Capital expenditure

Depreciation

Amortisation

29.2.20
£000

2,586
2,872

5,458

23.2.19
£000

2,898
43

2,941

29.2.20
£000

23.2.19
£000

29.2.20
£000

23.2.19
£000

257
483

740

475
–

475

2,186
950

3,136

699
755

1,454

53 weeks
ended
29.2.20
£000

472
2,783

3,255

52 weeks
ended
23.2.19
£000

–
1,745

1,745

Morses Club PLC Annual Report & Accounts 2020

108

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

7. Taxation

Analysis of the tax charge
The tax charge on profit before tax for the period was as follows:

Current tax:
UK corporation tax
Adjustment in respect of prior years
Deferred tax on Acquisitions
Origination and temporary timing differences
Adjustment in respect of prior years
Effect of change of tax rates

Total deferred tax

Tax on profit on ordinary activities

53 weeks
ended
29.2.20
£000

52 weeks
ended
23.2.19
£000

1,866
(3)
–
124
1
(14)

111

1,974

4,166
114
(95)
(39)
(104)
–

(143)

4,042

Factors affecting the tax charge
The tax assessed for the period is lower than the standard rate of corporation tax in the UK. The difference is
explained below:

Profit before exceptional items

Exceptional items

Profit on ordinary activities before tax

Profit on ordinary activities before exceptional items multiplied by the standard rate of

corporation tax

Effects of:
Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK

of 19% (2019: 19%)

Effects of:
Expenses not deductible for tax purposes
Release of deferred consideration
Deferred Tax on Acquisitions taken to CT P&L
Effect of changes in tax rate
Movement in amounts not provided in deferred tax
Adjustment in respect of prior periods

Tax on profit on ordinary activities

53 weeks
ended
29.2.20
£000

9,116

2,335

11,451

52 weeks
ended
23.2.19
£000

20,217

–

20,217

2,176

3,841

2,176

3,841

85
(290)
–
(13)
3
13

123
–
(95)
111
53
9

1,974

4,042

The standard rate of corporation tax applicable for the period ended 29 February 2020 is 19% (2019: 19%).

8. Dividend per share

Dividend (£000)
Weighted average number of shares (000s)

Per share amount (pence)

53 weeks
ended
29.2.20

10,162
130,531

7.78

52 weeks
ended
23.2.19

9,591
129,570

7.40

Subject to shareholder approval at the General Meeting on 7 January 2021, the Board proposes to pay a final dividend of
1.0 pence per Ordinary Share payable on 12 February 2021 to all shareholders on the register at the close of business on
15 January 2021.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

109

9. Earnings per share

Earnings (£000)

Number of shares
Weighted average number of shares (000s)

53 weeks
ended
29.2.20

9,477

52 weeks
ended
23.2.19

16,175

130,531

129,570

Effect of dilutive potential Ordinary Shares through share options (000s)

843

1,977

Weighted average number of shares for the purposes of diluted earnings per share (000s)

131,374

131,547

Basic earnings per share amount (pence)

Diluted earnings per share amount (pence)

7.26

7.21

12.48

12.30

Diluted earnings per share calculates the effect on earnings per share assuming conversion of all dilutive potential
Ordinary Shares. Dilutive potential Ordinary Shares are calculated for awards outstanding under performance related
share incentive schemes such as the Deferred Share Plans. The number of dilutive potential Ordinary Shares is
calculated based on the number of shares which would be issuable if the performance targets have been met.

10. Profit of Parent Company

As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the Parent Company is not
presented as part of these financial statements.

The Parent Company’s profit for the financial period was £18,705,113 (2019: £17,253,045).

11. Goodwill

Cost
At 24 February 2018
Additions 2018/19

At 23 February 2019
Additions 2019/20

At 29 February 2020

Impairment
At 24 February 2018 and 23 February 2019
Impairment loss for the period

At 29 February 2020

Net Book Value
At 29 February 2020

At 28 February 2019

At 25 February 2018

Group
Goodwill
£000

Company
Goodwill
£000

Note

3,167
667

3,834
9,496

13,330

(333)
(16)

(349)

12,981

3,501

2,834

2,975
667

3,642
–

3,642

(333)
(16)

(349)

3,293

3,309

2,642

Morses Club PLC Annual Report & Accounts 2020

110

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

11. Goodwill continued

Key assumptions used in goodwill impairment review
Determining whether goodwill is impaired requires an estimation of the discounted future cash flows of the Company
using a discount rate of 13% and an initial growth rate over the first 3 years of 22% followed by a terminal value based on
a minimum future growth rate of 2%. The Group has conducted a sensitivity analysis on the goodwill impairment
assessment and believes that there are no reasonably possible changes to the key assumptions in the next year which
would result in the carrying value of goodwill exceeding the recoverable amount. The recoverable amount has been
calculated using the value in use method. Goodwill is tested for impairment annually or more frequently if there are
indications that goodwill might be impaired. The key assumptions used in the value in use calculation are the growth rates
and the discount rates adopted. The growth rates are based on the most recent financial budgets approved by the
Group Board for the next 3 years. The discount rates which reflect the time value of money and the risks specific to the
financial services sector are sourced from an independent third party. No reasonably foreseeable reduction in the
assumptions would give rise to an impairment and therefore no further sensitivity analysis has been presented. The
impairment loss for the period of £16,632 arose due to the final settlements of the consideration for the Eccles and Hayes
loan book acquisitions undertaken in the prior financial year.

The value of the goodwill arising on the acquisition of U Holdings Limited has been revised downwards by £180,574 due
to a correction to the valuation of the acquired intangible, which was present at the point of acquisition and has been
identified by management within a 12-month period from its acquisition.

The carrying amount of goodwill has been allocated to cash-generating units (see Note 5) as follows:

53 weeks
ended
29.2.20
£000

3,293
9,688

12,981

52 weeks
ended
29.2.19
£000

3,309
192

3,501

Software
& Licences
£000

Customer
Lists
£000

Agent
Networks
£000

6,453
2,411

8,864
3,897

12,761

3,041
1,185

4,226
1,914

6,140

6,621

4,638

3,412

20,766
475

21,241
380

21,621

18,740
984

19,724
1,191

20,915

706

1,517

2,026

850
24

874
–

874

768
40

808
31

839

Totals
£000

28,069
2,910

30,979
4,277

35,256

22,549
2,209

24,758
3,136

27,894

7,362

6,221

5,520

HCC
Digital

12. Other intangible assets

Group

Cost
At 24 February 2018
Additions

At 23 February 2019
Additions

At 29 February 2020

Accumulated Amortisation
At 24 February 2018
Charge for the period

At 23 February 2019
Charge for the period

At 29 February 2020

Net Book Value
At 29 February 2020

At 23 February 2019

At 24 February 2018

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

111

Company

Cost
At 24 February 2018
Additions

At 23 February 2019
Additions

At 29 February 2020

Accumulated Amortisation
At 24 February 2018
Charge for the period

At 23 February 2019
Charge for the period

At 29 February 2020

Net Book Value
At 29 February 2020

At 23 February 2019

At 24 February 2018

Software
& Licences
£000

Customer
Lists
£000

Agent
Networks
£000

6,319
2,368

8,687
2,511

11,198

3,017
1,154

4,171
1,734

5,935

5,293

4,516

3,302

3,214
475

3,689
–

3,689

2,668
289

2,957
438

3,395

294

732

544

130
24

154
–

154

108
11

119
16

135

Totals
£000

9,663
2,867

12,530
2,511

15,041

5,793
1,454

7,247
2,188

9,435

5,606

5,283

3,869

Research and development expenditure expensed during the year was £nil (2019: nil).

IAS 38.122 requires the Group to disclose the carrying value and remaining amortisation period of individually material
intangible assets, the table below includes all intangible assets that are considered to be individually material as at
29 February 2020, at both Group and Company level. Intangibles from acquisition activities represent the estimated fair
value arising on the point of acquisition. The amounts in respect of customer lists and broker relationships are calculated
on the discounted cash flows associated with the specific business area and based on the realisation of the expected
benefits from these relationships. These amounts are amortised over the maximum useful life of 10 years from the date
of acquisition.

Significant Group intangible assets

Group

Intangible Assets

Morses Club acquired customer lists
Morses Club IT software development (CAP/MAP)
Shelby IT software development (Anchor/Sentinel)

Company

Intangible Assets

Morses Club acquired customer lists
Morses Club IT software development (CAP/MAP)

Carrying Value as at
29 February 2020
£000

Amortisation
period
Years

706
5,293
1,056

10 years
Various at 20%–33% PA
Various at 20%–33% PA

Carrying Value as at
29 February 2020
£000

Amortisation
period
Years

294
5,293

10 years
Various at 20% –33% PA

Morses Club PLC Annual Report & Accounts 2020

112

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

13. Property, plant & equipment

Computers
& Tablets
£000

Fixtures
& Fittings
£000

Leasehold
£000

2,422
31

2,453
688

3,141

1,650
456

2,106
673

2,779

362

347

772

168
–

168
492

660

118
19

137
67

204

456

3
–

–

Computers
& Tablets
£000

Fixtures
& Fittings
£000

Leasehold
£000

2,014
31

2,045
64

2,109

1,242
456

1,698
240

1,938

171

347

772

157
–

157
11

168

107
19

126
17

143

–
–

–

–
–

–

Totals
£000

2,593
31

2,624
1,180

3,804

1,771
475

2,246
740

2,986

818

378

822

Totals
£000

2,171
31

2,202
75

2,277

1,349
475

1,824
257

2,081

196

378

822

Group

Cost
At 24 February 2018
Additions

At 23 February 2019
Additions

At 29 February 2020

Depreciation
At 24 February 2018
Charge for period

At 23 February 2019
Charge for period

At 29 February 2020

Net Book Value
At 29 February 2020

At 23 February 2019

At 24 February 2018

Company

Cost
At 24 February 2018
Additions

At 23 February 2019
Additions

At 29 February 2020

Depreciation
At 24 February 2018
Charge for period

At 23 February 2019
Charge for period

At 29 February 2020

Net Book Value
At 29 February 2020

At 23 February 2019

At 24 February 2018

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

113

14. Investment in subsidiaries

Cost
At 24 February 2018
Additions – Shelby share issue

At 23 February 2019
Additions – Shelby share issue

At 29 February 2020

Company
£000

2,611
250

2,861
8,150

11,011

The Company owns 100% of the Ordinary Share capital of the following subsidiary undertakings, which are included in
the Group’s consolidation:
• Shopacheck Financial Services Limited (SFS), a Company registered in England and Wales (Company number:

07067456) with Registered Office, Kingston House, Centre 27, Woodhead Road, Birstall, Batley, West Yorkshire, WF17
9TD, whose principal activity was the provision of consumer credit and is currently non-trading.

• Shelby Finance Limited (SFL), a Company registered in England and Wales (Company number: 08117620) with

Registered Office, Kingston House, Centre 27, Woodhead Road, Birstall, Batley, West Yorkshire, WF17 9TD, whose
principal activity is the provision of consumer credit.

As the net assets of SFL are insufficient to cover the investment value, a review of the investment carrying value in Shelby
and the exposure of intercompany loans has been performed using forecast future cash flows of the Digital business. As
the discounted future cash flows equate to a multiple of the investment value with headroom of £3.7m no provision for
impairment has been made.

Shopacheck Financial Services Limited qualifies for an exemption to audit under the requirements of Section 480 of the
Companies Act 2006. Shelby Finance Limited and U Holdings Limited both qualify for an exemption to audit under the
requirements of Section 479A of the Companies Act 2006. As such, no audit has been conducted for these companies in
the current financial year.

15. Right-of-use assets

Group

Right-of-use assets
At 24 February 2019
Additions
Disposals

At 29 February 2020

Accumulated depreciation
Costs at 24 February 2020
Charged to the income statement
Disposals

At 29 February 2020

Net Book Value
At 29 February 2020

Building
£000

Equipment
£000

Vehicles
£000

Totals
£000

1,193
779
(84)

1,888

–
553
(38)

515

920
97
(47)

970

–
335
(7)

328

1,507
124
(94)

1,537

–
808
(39)

769

3,620
1,000
(225)

4,395

–
1,696
(84)

1,612

1,373

642

768

2,783

Morses Club PLC Annual Report & Accounts 2020

114

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

15. Right-of-use assets continued

Company

Right-of-use assets
Cost
At 24 February 2019
Additions
Disposals

At 29 February 2020

Depreciation
At 24 February 2019
Charged to the income statement
Disposals

At 29 February 2020

Net Book Value
At 29 February 2020

16. Trade and other receivables

Amounts receivable from customers

Amounts falling due within one year:
Net receivable from advances to customers
Amounts falling due after one year:
Net receivable from advances to customers

Net loan book

Other debtors
Intercompany funding
Prepayments

Building
£000

Equipment
£000

Vehicles
£000

Totals
£000

1,193
52
(84)

1,161

–
496
(38)

458

920
97
(47)

970

–
335
(7)

328

1,507
124
(94)

1,537

–
807
(38)

769

3,620
273
(225)

3,668

–
1,638
(83)

1,555

703

642

768

2,113

Group

Company

29.2.20
£000

23.2.19
£000

29.2.20
£000

23.2.19
£000

72,171

72,840

67,294

72,819

657

206

586

206

72,828

73,046

67,880

73,025

1,718
–
3,039

625
–
1,744

1,167
19,698
1,795

617
–
1,594

77,585

75,415

90,540

75,236

Within the Company, an impairment provision of £0.8m (2019: nil) is held against amounts owed by Group undertakings
due in less than 1 year. The Company has assessed the estimated credit losses representing the probability of default
and loss given default for these intercompany loans by considering the forecast future cash flows of the Digital business,
as a result of which, there has been a £0.8m charge to the Company income statement in 2020 (2019: nil).

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

115

Amounts receivable from customers

Analysis by future date due
– due within one year
– due in more than one year

Amounts receivable from customers

Analysis by security
Other loans not secured

Amounts receivable from customers

Group

Company

29.2.20
£000

72,828

23.2.19
£000

73,046

29.2.20
£000

67,880

23.2.19
£000

73,025

72,171
657

72,828

72,840
206

73,046

67,294
586

67,880

72,819
206

73,025

72,828

73,046

67,880

73,025

Impairment provisions are recognised on inception of a loan based on the expected 12-month losses or the lifetime losses
of the loan. Further details can be found on Pages 98 to 99.

Covid-19
The Group ran a number of scenarios to establish the impact of Covid-19. The scenarios were based on the impact on
trading activity and in particular, future cash flows as a result of, and a consequence of, the Covid-19 outbreak.

All of these scenarios would impact the level of additional loan loss provision required both in terms of expected credit
losses and the discounting impact of delayed or late payments.

The table below shows the impact on cash collections under each scenario:

Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20

£m
Probability weighting

Probability Weighted Impact £m

Monthly Cash Reductions
from ‘normal’ levels

Covid-19
Downside
Case

Zero impact
Base case

12.5%
50.0%
30.0%
30.0%
20.0%
20.0%
20.0%
15.0%
15.0%
10.0%
10.0%
10.0%

16.7
10.0%

0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%

–
90.0%

1.7

The key area of uncertainty for Covid-19 is the extent to which collections in each month are impacted. The range of
outcomes from the above table gives an impact of between £0 and £16.7m with the weightings in the table above
generating an impact of £1.7m in the year to 29 Feb 2020; the impact on 2020/21 is likely to be greater, as
demonstrated in the PBSE note.

Morses Club PLC Annual Report & Accounts 2020

116

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

16. Trade and other receivables continued

Covid-19 continued
At 29 February 2020 the amounts receivable from customers are as follows:

Group

Company

29.2.20
£000

120,946
(48,118)

23.2.19
£000

115,538
(42,492)

29.2.20
£000

112,773
(44,893)

23.2.19
£000

115,443
(42,418)

72,828

73,046

67,880

73,025

Ref*

Stage 1
£’000

Stage 2
£’000

Stage 3
£’000

58,305
190,293

35,190
5

22,041
14

(51,735)
(18,309)
2,031
–
51
–
(6,111)
(242,302)
121,149
6,974

51,735
–
(2,031)
(11,679)
–
1,849
(7,763)
(44,722)
11,930
88

–
18,309
–
11,679
(51)
(1,849)
(18,787)
(7,086)
572
1,156

2019/20
IFRS 9
Total
£’000

115,536
190,312
–
–
–
–
–
–
–
(32,661)
(294,110)
133,651
8,218

60,345

34,602

25,999

120,946

8,179

15,949

18,362

42,490

31,747

(19,497)
(11,160)
401
–
10
–
2,310
1,134

22,263
–
(447)
(9,826)
–
1,142
(5,025)
461

–
14,148
–
9,826
(11)
(1,142)
(51)
75

31,747

2,766
2,988
(46)
–
(1)
–
(2,766)
1,670

4,945

8,568

22,845

36,358

(6,111)
2,097

(7,763)
133

(18,787)
(299)

(32,661)
1,931

9,110

16,887

22,121

48,118

51,235

17,715

50,126

19,241

3,878

3,679

72,828

73,046

2
2
2
2
2
2
3
4
5
6

2
2
2
2
2
2
3
8

3
6

Gross carrying amount
Impairment provision

Net Amounts Receivable

Amounts receivable from customers can be reconciled as follows:

Group

Gross carrying amount
At 23 February 2019
New financial assets originated
Net transfers and changes in credit risk:
From Stage 1 to Stage 2
From Stage 1 to Stage 3
From Stage 2 to Stage 1
From Stage 2 to Stage 3
From Stage 3 to Stage 1
From Stage 3 to Stage 2
Write-offs
Collections
Revenue
Other movements

At 29 February 2020

Loan loss provision account
At 23 February 2019

Movements through income statement:
New financial assets originated
Net transfers and changes in credit risk:
From Stage 1 to Stage 2
From Stage 1 to Stage 3
From Stage 2 to Stage 1
From Stage 2 to Stage 3
From Stage 3 to Stage 1
From Stage 3 to Stage 2
Remeasurements within existing stage
Covid-19 overlay

Total movements through income statement
Other movements:
Write-offs
Other movements:

Loan loss provision account at 29 February 2020

Reported amounts receivable from customers at 29 February 2020

Reported amounts receivable from customers at 23 February 2019

* References above indicate what each line of the table demonstrates:

(1) New loans issued in the year
(2) Staging movements of new loans issued and existing debt brought forward
(3) Net write-offs per Stage
(4) Collections per Stage
(5) Revenue per Stage
(6) Other movements, including acquisitions
(7) Impairment provision associated with new loans issued in the year
(8) Covid-19 overlay

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

117

Group
Credit Risk Grade

Very Good
Good
Satisfactory
Lower Quality

Total

2019/20

Stage 1
£’000

39,037
18,918
1,924
467

Stage 2
£’000

13,770
17,492
2,586
754

Stage 3
£’000

10,861
10,230
1,426
3,481

Total
£’000

63,668
46,640
5,936
4,702

60,346

34,602

25,998

120,946

Internal credit risk rating reflects the internal credit risk grade of customers at the year end. The table above illustrates
the split of the gross carrying value at the year end by the latest customer credit scores at the time of issue. Customers
are re-scored if they decide to renew.

17. Amounts falling due within 1 year

Trade creditors
Amounts owed to Group undertakings
Social security and other taxes
Other creditors
Accrued expenses
Deferred consideration

18. Bank and other borrowings: amounts falling due after 1 year

Bank loans
Unamortised arrangement fees

Group

Company

29.2.20
£000

23.2.19
£000

29.2.20
£000

23.2.19
£000

6,331
–
571
537
2,284
–

6,723

2,019
–
501
1,445
3,061
456

7,482

2,887
1,321
571
522
1,328
–

6,629

2,003
836
501
1,445
3,044
456

8,285

Group and Company

29.2.20
£000

34,000
(162)

33,838

23.2.19
£000

14,500
(425)

14,075

In November 2018 the Company signed a £10,000,000 loan facility to bring its total revolving credit facilities to
£50,000,000. In addition, the Company also signed a £15,000,000 mezzanine facility of which £5,000,000 is committed
and £10,000,000 is uncommitted. No fees were incurred in relation to these transactions and prior arrangement fees
continue to be amortised over the life of the arrangements.

In April 2020 an extension of the funding arrangement from August 2020 to the end of November 2021 was signed with
the incumbent lender consortium. The facility limit was reduced from £55m committed to £40m to better match the
needs of the business post Covid-19. By reducing this unused headroom and repaying the £5m mezzanine layer, non-
utilisation charges for any given level of borrowing will be reduced and therefore the overall cost of funding.

The bank loan is made up of a revolving credit facility held with Shawbrook Bank Limited, a major high-street bank and
a private equity firm along with a mezzanine credit facility with the private equity firm. Under the terms of the loan
covenants, the loan book is held as collateral against the funds borrowed. The net carrying value of the loan book at
the reporting date was £72,827,727 (2019: £73,046,148).

Morses Club PLC Annual Report & Accounts 2020

118

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

19. Leases

Current
Non-current

Existing:
Within one year
Between one and five years
In more than five years

Group
29.2.20
£000

1,286
1,553

2,839

Company
29.2.20
£000

1,228
848

2,076

Group

Company

Group

Company

Group

Company

Other operating leases

Land & buildings

Total

29.2.20
£000

909
575
–

377
533
445

1,484

1,355

319
267
6

592

1,286
1,108
445

2,839

1,228
842
6

2,076

The total cash outflow from leases in the 53 weeks ended to 29 February 2020 amounted to £1,968,679 for the Group
including short-term lease cash outflows of £68,440. At the end of the period, the Group is also committed to £11,001 for
short-term leases. Total cash outflows for the Company amounted to £1,930,268.

20. Operating lease commitments

The following lease obligations fall outside of the scope of IFRS 16. The amounts committed to be paid under the terms of
these lease agreements are as follows:

Group and Company

Existing:
Within one year
Between one and five years

Other operating leases

Land & buildings

29.2.20
£000

23.2.19
£000

29.2.20
£000

23.2.19
£000

–
–

–

1,127
970

2,097

158
45

203

424
92

516

Other operating lease commitments included in the comparative period amounts relate to the fleet of Company cars. As
disclosed earlier in these financial statements, these amounts have subsequently been reclassified as finance leases
under IFRS 16.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

119

21. Deferred tax

Fixed asset temporary differences
Other temporary differences

Deferred tax asset

Balance as at 23 February 2019
IFRS 16 adjustment
Accelerated Capital Allowances
Deferred Tax charge in profit and loss account for period – CY
Deferred Tax charge in profit and loss account for period – PY
Deferred Tax rate change
Short-Term Timing Differences
Deferred Tax charge in profit and loss account for period – CY
Deferred Tax charge in profit and loss account for period – PY
Deferred Tax rate change
Intangibles
Arising on acquisition
Deferred Tax charge in profit and loss account for period – CY
Deferred Tax charge in profit and loss account for period – PY
Deferred Tax rate change
Share-based payments
Deferred Tax charge in profit and loss account for period – CY
Deferred Tax charge in profit and loss account for period - PY
Deferred Tax rate change

Deferred Tax charge on Share-based payments
Recognised after intercompany transfer

Balance as at 29 February 2020

Group

Company

29.2.20
£000

23.2.19
£000

29.2.20
£000

(165)
824

659

126
832

958

(165)
962

797

23.2.19
£000

126
971

1,097

Group
£000

Company
£000

958
(32)

(95)
(30)
10

(59)
30
(7)

(64)
214
–
(9)

(184)
–
19

(96)
4

659

1,097
(32)

(46)
(5)
5

(59)
30
(7)

–
84
–
(9)

(184)
–
19

(96)
–

797

Group
£000

Company
£000

508

554

128

636

Asset values for which deferred tax has not been recognised in relation to the Tax Written Down
Value (TWDV) of intangible fixed assets which is not available to deduct against profits until the
intangibles are realised

Asset values for which deferred tax has not been recognised in relation to tax losses carried
forward which are available to offset against future taxable profits from the same trade

Total value of assets on which deferred tax has not been recognised

22. Called up share capital

Authorised, allotted, issued and fully paid:

Number:

129,500,000
292,100
1,452,400

Class:

Ordinary
Ordinary
Ordinary

Nominal
Value:

29.2.20
£000

23.2.19
£000

£0.01
£0.01
£0.01

1,295
3
14

1,312

1,295
3
–

1,298

Morses Club PLC Annual Report & Accounts 2020

120

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

23. Reserves

Group

At 25 February 2018

Profit for the period
Share-based payment charge
Dividends paid

At 23 February 2019
Impact of adoption of IFRS 16

At 24 February 2019
Profit for the period
Deferred Tax on Acquisitions
Share-based payment charge
Dividends paid

At 29 February 2020

Company

At 25 February 2018

Profit for the period
Share-based payment charge
Dividends paid

At 23 February 2019
Impact of adoption of IFRS 16

At 24 February 2019
Profit for the period
Share-based payment charge
Dividends paid

At 29 February 2020

24. Retirement benefit schemes

Retained
earnings
£000

61,993

16,175
1,104
(9,591)

69,681
154

69,835
9,477
39
155
(10,162)

Total
£000

61,993

16,175
1,104
(9,591)

69,681
154

69,835
9,477
39
155
(10,162)

69,344

Group
reconstruction
reserve
£000

(9,276)

–
–
–

(9,276)
–

(9,276)
–
–
–

(9,276)

Retained
earnings
£000

70,944

17,253
1,104
(9,591)

79,710
154

79,864
18,705
155
(10,162)

88,562

Total
£000

61,668

17,253
1,104
(9,591)

70,434
154

70,588
18,705
155
(10,162)

79,286

Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for all qualifying employees. The assets of the
schemes are held separately from those of the Group in funds under the control of the pension provider. Where there are
employees who leave the schemes prior to vesting fully in the contributions, the contributions payable by the Group are
reduced by the amount of forfeited contributions.

The total costs charged of £1,012,918 (2019: £578,906) represents contributions payable to these schemes by the Group
at rates specified in the rules of the plans. Contributions payable to the schemes at the year end were £181,195
(2019: £102,920).

25. Ultimate Parent Company

The Directors consider there to be no ultimate Parent Company.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

121

26. Acquisitions

During the period the Company made a number of acquisitions. For each of the acquisitions detailed below the Company
has undertaken an analysis of the fair value of the receivables acquired compared with the gross contractual amounts of
the receivables book and the contractual cash flows not expected to be collected.

U Holdings Limited
As part of the Group’s documented strategy of having a wide range of financial products available to its customers, on
the 21 June 2019 Shelby Finance Limited (100% subsidiary of Morses Club PLC) acquired U Holdings Limited. The
acquisition was carried out through the cash purchase of 100% of the shares of U Holdings Limited. The costs incurred in
relation to this acquisition of £213,544 were expensed to the Income Statement through Administration expenses.

As per IFRS 3, a review was carried out to ensure the identification of assets and liabilities of U Holdings Limited is
complete, and that measurements appropriately reflect consideration of all available information. A fair value exercise
was performed and reflected in the financial statements. The valuation of assets and liabilities was performed under
IFRS rules and the Company accounts consolidated into Group financial statements accordingly.

The value of the contingent consideration as stated per the agreement is subject to the future profit performance of
U Holdings Limited and is capped at £5.0m. The value of the contingent consideration recognised at the date of
acquisition is £2.78m. Management’s current expectation is that the agreed financial targets will be met. However, in
future if the entity is not performing as expected the value of contingent consideration will be reviewed if required.

Shelby Finance Limited is expected to provide a good level of synergy as the nature of both businesses is similar. In this
respect goodwill is recognised and tested for impairment under IFRS. All financial information in regard to the major
financial components is presented in the table below.

U Holdings Limited incurred a loss of £2,326,000 for the 8 months from 21 June 2019 to the hive-up date. U Holdings
limited has been the subject of significant organisational review since acquisition and these losses were expected. The
focus has been on the integration of the new business alongside existing operations and process alignment. Revenue for
the 8 months up to the hive-up was £739,731. Loss for the entire financial reporting period (ie pre and post-acquisition)
up to the hive-up date was £3,635,400 and the revenue was £1,161,366.

U Holdings Limited

Non-current assets
Intangible assets
Tangible fixed assets
Current assets
Debtors

Total assets

Non-current liabilities
Other creditors
Deferred tax

Total liabilities

Net assets

Goodwill arising on acquisition

Consideration transferred settled in cash
Fair Value of contingent consideration
Less net assets acquired

Goodwill

Book value
£000

Adjustments
£000

Fair value
£000

2
126

475

603

(1,957)
–

(1,957)

(1,354)

377
–

–

377

1,195
(64)

1,131

1,508

379
126

475

980

(762)
(64)

(826)

154

£000

6,742
2,781
(154)

9,369

The value of the goodwill arising on the acquisition of U Holdings Limited has been revised downwards by £180,574 since
the interim reporting period. This revision was due to the identification of a larger intangible asset balance and has been
done within the prescribed 12-month retrospective timeframe.

The contingent consideration was payable 5 years after acquisition based on various performance targets and although
management still expects to achieve these targets the contingent consideration has been released as the individuals
qualifying for this have left the business during the year, and forgone this additional remuneration. See Note 3.

Morses Club PLC Annual Report & Accounts 2020

122

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

26. Acquisitions continued

CURO Transatlantic Limited
On 26 February 2019 Shelby Finance Limited (a 100% subsidiary of Morses Club PLC) acquired the trade and assets of
CURO Transatlantic Limited via a cash purchase. This acquisition is part of the Group’s stated strategic priority to
increase its online offering in response to a growing demand. The costs incurred in relation to this acquisition of £368,327
were expensed to the Income Statement in the period ending 23 February 2019 through Administration expenses. The
valuation of goodwill was performed under IFRS 3. This resulted in a positive value (goodwill) which was calculated as the
difference between consideration against the net assets acquired. This was due to the business being placed in
administration immediately prior to acquisition resulting in a purchase at a lower market value than perhaps would
ordinarily have been the case. The measurement of goodwill is complete and reflects consideration of all
available information.

As per IFRS 3, a review was carried out to ensure the identification of assets and liabilities of CURO Transatlantic Limited
was complete, and that measurements appropriately reflect consideration of all available information. A fair value
exercise was performed and reflected in the financial statements. The valuation of assets and liabilities was performed
under IFRS rules and the Company accounts consolidated into Group financial statements accordingly.

The acquired assets of CURO Transatlantic Limited generated revenue of £4,333,482 and incurred a loan book
impairment charge of £180,338 for the 12 months from 26 February 2019 to the reporting date, primarily due to
collections on the acquired loan book.

CURO Transatlantic Limited

Non-current assets
Tangible fixed assets
Current assets
Debtors

Total assets

Non-current liabilities
Onerous lease

Total liabilities

Net assets

Goodwill arising on acquisition

Consideration transferred settled in cash
Fair Value of contingent consideration
Less net assets acquired

Goodwill

Book value
£000

Adjustments
£000

Fair value
£000

409

7,615

8,024

(183)

7,841

–

409

7,615

8,024

(183)

7,841

£000

4,267
3,701
(7,841)

127

Upon acquisition, the gross contractual amounts receivable in respect of debtors were £21.5m, and a carrying value of
£17.0m. The best estimate, based on a discounted cash recovery projection and using existing management data,
resulted in an expectation that £9.6m of the contractual amounts would not be collected.

The contingent consideration in relation to CURO Transatlantic Limited was settled in full after acquisition and prior to
the year end.

The bargain purchase recognised on the acquisition of CURO in the interim reporting period has been reversed and a
goodwill balance of £127,000 has been recognised. This revision was due to an issue identified on transition to our
operating systems and reduced the fair value of the loan book on acquisition. This has been done within the prescribed
12-month retrospective timeframe.

Subsequent to the acquisition of U Holdings Limited by Shelby Finance Limited, the trade and assets of U Holdings
Limited were hived up into Shelby Finance Limited at the values detailed in the table shown overleaf. The difference
between the consideration paid and the book value at hive-up has been taken to the reconstruction reserve within
Shelby Finance Limited as it is convention for no gain or loss to arise on a hive-up of 2 subsidiaries under common control.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

123

U Holdings Limited

Non-current assets
Intangible assets
Tangible fixed assets

Current assets
Debtors
Stock
Cash at bank

Total assets

Current liabilities
Other creditors

Total liabilities

Net assets

Acquisition Cash Flows

U Holdings Limited
Consideration transferred settled in cash
Overpayment held by solicitors

Consideration

Fair value of contingent consideration
Unwind of deferred consideration
Release of deferred consideration

Deferred consideration paid

CURO Transatlantic Limited
Consideration transferred settled in cash

Consideration

Fair value of contingent consideration
Unwind of deferred consideration

Deferred consideration paid

Eccles
Hays

Cash outflow

£000

537
10

547

625
3
105

733

1,280

(2,142)

(862)

£000

6,742
8

6,750

2,781
344
(2,500)

625

4,267

3,701
165

3,866

183
256

439

15,947

The operating profit from acquisitions disclosed in the Income Statement does not include an allocation of operating
overheads.

27. Financial instruments

The Group and the Company’s principal financial instruments are amounts receivable from customers, cash, bank
overdrafts and bank loan.

The Group and the Company’s business objectives rely on maintaining a well spread customer base of carefully
controlled quality by applying strong emphasis on good credit management, both through strict lending criteria at the
time of underwriting a new credit facility and continuous monitoring of the collection process.

As at 29 February 2020 the Company and Group’s indebtedness amounted to £34m (2019: £14.5m).

Currency risk
The Group has no exposure to foreign currency risk.

Morses Club PLC Annual Report & Accounts 2020

124

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

27. Financial instruments continued

Credit risk
Credit risk is the risk that the Group will suffer loss in the event of a default by a customer or a bank counterparty. A
default occurs when the customer or bank fails to honour repayments as they fall due.

The Group has not disclosed impairment allowance split by risk rating as this split is not used internally by the Group to
monitor loan book performance.

(i) Amounts receivable from customers
The Group’s maximum exposure to credit risk on amounts receivable from customers as at 29 February 2020 is the
carrying value of amounts receivable from customers of £72,827,727 (2019: £73,046,149).

The Company’s maximum exposure to credit risk on amounts receivable from customers as at 29 February 2020 is the
carrying value of amounts receivable from customers of £67,880,532 (2019: £73,024,841).

Home Collected Credit
Credit risk is managed using a combination of lending policy criteria, credit scoring (including behavioural scoring),
policy rules, individual lending approval limits, central underwriting and a home visit to make a decision on applications
for credit.

The loans offered to customers are short term, typically a contractual period of between 22 and 53 weeks (2019:
between 20 and 52 weeks), with an average value of approximately £355 (2019: £350). The loans are underwritten in
the customers’ home by an agent following a full affordability assessment and eligibility against credit policy. Once a loan
has been made, the agent visits the customer weekly to collect repayments. The agent is well placed to identify signs of
strain on a customer’s income and can moderate lending accordingly. Equally, the regular contact and professional
relationship that the agent has with the customer allows them to manage customers’ repayments effectively even when
the household budget is tight. This can be in the form of taking part-payments, allowing missed payments or occasionally
restructuring the debt in order to maximise cash collections.

Agents are paid commission for what they collect and not for what they lend, so their main focus is on ensuring loans are
affordable at the point of issue and then on collecting cash. Affordability is reassessed by the agent each time an existing
customer is re-served. This normally takes place within 12 months of the previous loan because of the short-term nature
of the products.

Write off is when a customer has made no payments on their account for 17 weeks and the account is transferred out of
field operations to customer support.

Arrears management is a combination of central letters, central telephony, and field activity undertaken by field
management. This will often involve a home visit to discuss the customer’s reasons for non-payment and to agree a
suitable resolution.

During the period, loans to the contractual value of £298,061,173 (2019: £300,865,544) were provided to customers.

Digital
The loans provided by Dot Dot Loans are only available online with applications coming directly through the website or
via brokers; c.90% of new customer loans coming via broker applications.

Credit risk is managed using a combination of lending policy criteria, credit scoring (including behavioural scoring for
returning customers), policy rules, full income and expenditure validation leading to individual lending approval limits.
Only 7% of applications received are accepted through the lending rules. There is a central underwriting team who review
applications with discrepancies, prior to funding, on approximately 25% of the loans.

The loans offered to customers are short term, typically a contractual period of between 3 months and 9 months (2019:
between 3 and 6 months), with an average value of approximately £333 (2019: £285). Once a loan has been made, the
customer makes monthly repayments.

The primary repayment method is via direct debit, however, repayments can also be made by a card payment or online
transfer to the Company.

Write off is when a customer has made no payments on their account for 13 weeks and the account is transferred out of
field operations to customer support.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

125

Arrears management is a combination of central letters, central telephony, emails and SMS text messages. This will often
involve a phone call to discuss the customer’s reasons for non-payment and to agree a suitable resolution. Where
customers cannot make the monthly repayments our Collections team may discuss an appropriate payment plan to help
ensure the loan repayments are manageable for the customer. We do not charge missed payment or late fees. The
Collections team are not paid commission on what they collect.

During the period, loans to the contractual value of £27,552,501 (2019: £790,415) were provided to customers.

(ii) Bank counterparties
The Group’s maximum exposure to credit risk on bank counterparties as at 29 February 2020 was £11,868,037
(2019: £7,893,230).

Counterparty credit risk arises as a result of cash deposits placed with banks.

Counterparty credit risk is managed by the Board of Directors which ensures that the Group’s cash deposits are only
made with high-quality counterparties with the level of permitted exposure to a counterparty firmly linked to the
strength of its credit rating.

Liquidity risk
Liquidity risk is the risk that the Group will have insufficient liquid resources available to fulfil its operational plans and/or
to meet its financial obligations as they fall due.

Liquidity risk is managed by daily monitoring of expected cash flows and ensuring that the Group maintains headroom on
its committed borrowing facilities to fund growth and contractual maturities for at least the following 12 months. Funding is
available through a £5m revolving asset-based credit facility and a separate £5m asset-based mezzanine credit facility.
The Group’s liquidity risk is shown in the following tables which measure the cumulative liquidity gap. Most of the Group’s
financial assets are repayable within 1 year which results in a positive liquidity position.

Following the year end an extension to the funding arrangement from August 2020 to the end of November 2021 was
signed with the incumbent lender consortium with the facility limit reduced from £55m committed to £40m to better
match the needs of the business post Covid-19. By reducing this unused headroom and repaying the £5m mezzanine
layer, non-utilisation charges for any given level of borrowing will be reduced and therefore the overall cost of funding.

Group
At 29 February 2020

Financial Assets
Other Assets
Cash at bank and in hand

Total assets

Shareholders' funds
Other liabilities

Total liabilities and shareholders’ funds

More than
1 year
but not
more than
2 years
£000

More than
2 years
but not
more than
5 years
£000

More than
5 years
£000

Less than
1 year
£000

72,672
4,256
11,868

88,796

657
–
–

657

–
(8,009)

–
(35,391)

(8,009)

(35,391)

No fixed
maturity
date
£000

–
24,603
–

Total
£000

73,329
28,859
11,868

24,603

114,056

(70,656)
–

(70,656)
(43,400)

(70,656)

(114,056)

–
–
–

–

–
–

–

–
–
–

–

–
–

–

Cumulative Position

80,787

46,053

–

Morses Club PLC Annual Report & Accounts 2020

126

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

27. Financial instruments continued

Liquidity risk continued

Group
At 23 February 2019

Financial Assets
Other Assets
Cash at bank and in hand

Total assets

Shareholders' funds
Other liabilities

Total liabilities and shareholders’ funds

More than
1 year
but not
more than
2 years
£000

More than
2 years
but not
more than
5 years
£000

More than
5 years
£000

206
–
–

206

–
(14,075)

(14,075)

–
–
–

–

–
–

–

–
–
–

–

–
–

–

Less than
1 year
£000

72,840
2,369
7,893

83,102

–
(9,312)

(9,312)

No fixed
maturity
date
£000

–
11,058
–

11,058

Total
£000

73,046
13,427
7,893

94,366

(70,979)
–

(70,979)
(23,387)

(70,979)

(94,366)

Cumulative Position

73,790

59,921

–

Cumulative Position

91,681

57,581

–

More than
1 year
but not
more than
2 years
£000

More than
2 years
but not
more than
5 years
£000

More than
5 years
£000

Company
At 29 February 2020

Financial Assets
Other Assets
Cash at bank and in hand

Total assets

Shareholders' funds
Other liabilities

Total liabilities and shareholders’ funds

Less than
1 year
£000

67,794
22,159
9,585

99,538

586
–
–

586

–
(7,857)

–
(34,686)

(7,857)

(34,686)

More than
1 year
but not
more than
2 years
£000

More than
2 years
but not
more than
5 years
£000

More than
5 years
£000

Company
At 23 February 2019

Financial Assets
Other Assets
Cash at bank and in hand

Total assets

Shareholders' funds
Other liabilities

Less than
1 year
£000

72,819
2,211
7,758

82,788

–
(10,115)

206
–
–

206

–
(14,075)

Total liabilities and shareholders’ funds

(10,115)

(14,075)

No fixed
maturity
date
£000

–
23,017
–

23,017

(80,598)
–

Total
£000

68,380
45,176
9,585

123,141

(80,598)
(42,543)

(80,598)

(123,141)

No fixed
maturity
date
£000

–
12,928
–

12,928

Total
£000

73,025
15,139
7,758

95,922

(71,732)
–

(71,732)
(24,190)

(71,732)

(95,922)

–
–
–

–

–
–

–

–
–
–

–

–
–

–

–
–
–

–

–
–

–

–
–
–

–

–
–

–

Cumulative Position

72,673

58,804

–

Interest rate risk
The Group’s activities do not expose it to significant financial risks of changes in interest rates. There is considered to be
no material interest rate risk in cash, trade and other receivables or trade and other payables.

Capital risk management
The Board of Directors assess the capital needs of the Group on an ongoing basis and approve all capital transactions
ensuring these adhere to the criteria set out in the external loan facility.

The Group’s policy is to maintain a strong equity and reserves base so as to maintain investor and market confidence and
to sustain future development of the business. Management monitors the return on equity and return on assets and
strives to deliver a progressive dividend policy for shareholders.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

127

While the Group was not previously subject to any externally imposed capital requirements, it entered into a new funding
arrangement during the period which limited capital expenditure in any given period. The limit of this expenditure is £5m.

The Board of Directors recognises the balance required between maximising shareholder return and maintaining a
prudent balance sheet. To this end the Group has a formal gearing policy. The Group defines gearing as Total Debt/Total
Equity and has a preferred average level of gearing of less than 1.0.

The Group’s Gearing at 29 February 2020 was:

Gross Debt
Equity
Gearing

29.2.20
£000

34,000
70,656
0.48

23.2.19
£000

14,500
70,979
0.20

Existing Loan facilities are subject to a number of bespoke financial covenants such as Interest cover which are monitored
internally and submitted on a monthly basis to funders. There were no breaches of any of these covenants in the period
to 29 February 2020.

Any changes to existing or adding of new loan facilities requires the approval of the PLC Board.

Fair values of financial assets and liabilities
The Group has adopted the following fair value hierarchy in relation to its financial instruments that are carried in the
balance sheet at the fair values at the year end:
• Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 – inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either

directly (as prices) or indirectly (derived from prices); and

• Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair values of amounts receivable from customers, bank loans and overdrafts and other assets and liabilities are
considered to be materially different from their book values. Fair values which are recognised or disclosed in these
financial statements are determined in whole or in part using a valuation technique based on assumptions that are
supported by prices from observable current market transactions in the same instrument (ie without modification or
repackaging) and based on available observable market data. The fair value hierarchy is derived in accordance with
IFRS 13 as follows: Level 1 for cash, Level 2 for borrowings and Level 3 for loan book, normal trade receivables, other
payables and lease liabilities.

The following table sets out the carrying value of the Group’s financial assets and liabilities in accordance with the
categories of financial instruments:

Group
At 29 February 2020

Assets:
Cash and cash equivalents
Amounts receivable from customers
Trade and other receivables
Property, plant and equipment
Right-of-use asset
Goodwill
Deferred tax assets
Other Intangible assets

Total assets

Liabilities:
Bank and other borrowings
Trade and other payables
Lease liabilities

Total Liabilities

Financial
assets
measured at
amortised cost
£000

Financial
liabilities
measured at
amortised
cost
£000

11,868
72,828
4,757
–
–
–
–
–

89,453

–
–
–
–
–
–
–
–

–

Non-
financial
assets/
liabilities
£000

–
–
–
818
2,783
12,981
659
7,362

Total
£000

11,868
72,828
4,757
818
2,783
12,981
659
7,362

24,603

114,056

–
–
–

–

(33,838)
(6,723)
(2,839)

(43,400)

–
–
–

–

(33,838)
(6,723)
(2,839)

(43,400)

Morses Club PLC Annual Report & Accounts 2020

128

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

27. Financial instruments continued

Fair values of financial assets and liabilities continued

Financial
assets
measured at
amortised cost
£000

Financial
liabilities
measured at
amortised
cost
£000

9,585
67,880
22,660
–
–
–
–
–
–

100,125

–
–
–
–
–
–
–
–
–

–

Non-
financial
assets/
liabilities
£000

–
–
–
196
2,113
3,293
11,011
797
5,606

Total
£000

9,585
67,880
22,660
196
2,113
3,293
11,011
797
5,606

23,016

123,141

–
–
–

–

(33,838)
(6,629)
(2,076)

(42,543)

–
–
–

–

(33,838)
(6,629)
(2,076)

(42,543)

Financial
assets
measured at
amortised cost
£000

Financial
liabilities
measured at
amortised
cost
£000

7,893
73,046
625
–
–
–
–

81,564

–
–
–
–
–
–
–

–

–
–
–

–

(14,075)
(7,482)
–

(21,557)

Non–
financial
assets/
liabilities
£000

–
–
1,744
958
378
3,501
6,221

12,802

–
–
(1,830)

(1,830)

Total
£000

7,893
73,046
2,369
958
378
3,501
6,221

94,366

(14,075)
(7,482)
(1,830)

(23,387)

Company
At 29 February 2020

Assets:
Cash and cash equivalents
Amounts receivable from customers
Trade and other receivables
Property, plant and equipment
Right-of-use asset
Goodwill
Investment in subsidiary
Deferred tax assets
Other Intangible assets

Total assets

Liabilities:
Bank and other borrowings
Trade and other payables
Lease liabilities

Total Liabilities

Group
At 23 February 2019

Assets:
Cash and cash equivalents
Amounts receivable from customers
Trade and other receivables
Deferred tax assets
Property, plant and equipment
Goodwill
Other Intangible assets

Total assets

Liabilities:
Bank and other borrowings
Trade and other payables
Current tax liabilities

Total Liabilities

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

129

Company
At 23 February 2019

Assets:
Cash and cash equivalents
Amounts receivable from customers
Trade and other receivables
Property, plant and equipment
Goodwill
Investment in subsidiary
Deferred tax assets
Other Intangible assets

Total assets

Liabilities:
Bank and other borrowings
Trade and other payables
Current tax liabilities

Total Liabilities

Financial
assets
measured at
amortised cost
£000

Financial
liabilities
measured at
amortised
cost
£000

7,758
73,025
617
–
–
–
–
–

81,400

–
–
–
–
–
–
–
–

–

–
–
–

–

(14,075)
(8,285)
–

22,360

Non-
financial
assets/
liabilities
£000

–
–
1,594
378
3,309
2,861
1,097
5,283

14,522

–
–
(1,830)

(1,830)

Total
£000

7,758
73,025
2,211
378
3,309
2,861
1,097
5,283

95,922

(14,075)
(8,285)
(1,830)

(24,190)

The tables below show the fair value of financial assets and liabilities not presented at fair value in the balance sheet:

Group

Assets:
Cash and cash equivalents
Amounts receivable from customers
Trade and other receivables

Total assets

Liabilities:
Bank and other borrowings
Trade and other payables
Lease liabilities

Total liabilities

29.2.20

23.2.19

Fair Value
£000

Book Value
£000

Fair Value
£000

Book Value
£000

11,868
98,857
4,757

115,482

(34,000)
(6,723)
(2,839)

(43,562)

11,868
72,828
4,757

89,453

(33,838)
(6,723)
(2,839)

(43,400)

7,893
110,818
2,369

121,080

(14,500)
(7,482)
–

(21,982)

7,893
73,046
2,369

83,308

(14,075)
(7,482)
–

(21,557)

Morses Club PLC Annual Report & Accounts 2020

130

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

27. Financial instruments continued

Fair values of financial assets and liabilities continued

Company

Assets:
Cash and cash equivalents
Amounts receivable from customers
Trade and other receivables

Total assets

Liabilities:
Bank and other borrowings
Trade and other payables
Lease liabilities

Total liabilities

29.2.20

23.2.19

Fair Value
£000

Book Value
£000

Fair Value
£000

Book Value
£000

9,585
91,338
22,660

9,585
67,880
22,660

123,583

100,125

(34,000)
(6,629)
(2,076)

(42,705)

(33,838)
(6,629)
(2,076)

(42,543)

7,758
110,792
2,211

120,761

(14,500)
(8,285)
–

(22,786)

7,758
73,025
2,211

82,994

(14,075)
(8,285)
–

(22,360)

Key considerations in the calculation of fair values of those financial assets and liabilities not presented at fair value in the
balance sheet are set out below. Where there is no significant difference between carrying value and fair value no
additional information has been presented. Fair value of amounts receivable from customers has been derived by
discounting expected future cash flows (net of collection costs) at the credit risk-adjusted discount rate at the balance
sheet date. They are categorised within Level 3 as the expected future cash flows and discount rate are deemed to be
significant unobservable inputs.

Group
At 29 February 2020

Trade and other payables
Tax liabilities
Accruals and deferred income
Bank loans
Lease liabilities

At 29 February 2020

Company
At 29 February 2020

Trade and other payables
Tax liabilities
Accruals and deferred income
Bank loans
Lease liabilities

At 23 February 2020

Repayable
demand
£000

Less than
1 year
£000

–
–
–
–
–

–

3,331
–
3,392
–
1,286

8,009

Repayable
demand
£000

Less than
1 year
£000

–
–
–
–
–

–

2,887
–
3,742
–
1,228

7,857

More than
1 year
but not
more than
2 years
£000

–
–
–
–
721

721

More than
2 years
but not
more than
5 years
£000

–
–
–
33,838
387

34,225

More than
1 year
but not
more than
2 years
£000

More than
1 years but
not more
than 2 years
£000

–
–
–
–
671

671

–
–
–
33,838
170

34,008

More than
5 years
£000

–
–
–
–
445

445

More than
5 years
£000

–
–
–
–
7

Total
£000

3,331
–
3,392
33,838
2,839

43,400

Total
£000

2,887
–
3,742
33,838
2,076

42,543

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

131

Group
At 23 February 2019

Trade and other payables
Tax liabilities
Accruals and deferred income
Bank loans

At 23 February 2019

Company
At 23 February 2019

Trade and other payables
Tax liabilities
Accruals and deferred income
Bank loans

At 23 February 2019

Repayable
demand
£000

Less than
1 year
£000

–
–
–
–

–

4,421
1,830
3,061
–

9,312

Repayable
demand
£000

Less than
1 year
£000

–
–
–
–

–

5,241
1,830
3,044
–

10,115

More than
1 year
but not
more than
2 years
£000

–
–
–
–

–

More than
1 year
but not
more than
2 years
£000

–
–
–
–

–

More than
2 years
but not
more than
5 years
£000

–
–
–
14,075

14,075

More than
2 years
but not
more than
5 years
£000

–
–
–
14,075

14,075

More than
5 years
£000

–
–
–
–

–

More than
5 years
£000

–
–
–
–

–

Total
£000

4,421
1,830
3,061
14,075

23,387

Total
£000

5,241
1,830
3,044
14,075

24,190

The table below summarises the movement in contingent consideration.

Group

Company

Contingent consideration

As at 23 February 2019
Contingent consideration arising on acquisitions

Unwind of discount on contingent consideration

Paid

Write-off

As at 29 February 2020

28. Share-based payments

29.2.20
£000

–
6,482

509

(4,491)

(2,500)

–

23.2.19
£000

29.2.20
£000

23.2.19
£000

–
–

–

–
–

–

–
–

–

The Deferred Share Plan (DSP) - Senior Management Team
The Company introduced this share option plan on 26 April 2016 with 1,002,310 share options being issued under the
plan on admission to AIM (Admission). A second share option plan was granted on 5 May 2017 when 989,700 share
options were issued and a third share option plan granted on 5 May 2018 when 964,100 share options were issued.
Subsequent share options are granted to Executive Directors and senior managers on a rolling annual basis at the
discretion of the Remuneration Committee. During the period covered by this report, share options were issued
as follows:

Grant date

5 May 2019
1 July 2019
22 July 2019
1 September 2019

Share options
issued

624,800
73,200
60,752
34,700

The initial Awards granted to the Company’s senior management team on Admission are subject to 3 performance
conditions. The first of these conditions was measured over a period of 1 year from Admission assessing the Company’s
absolute total shareholder return (TSR). 25% of the initial Awards will vest for 7.5% annual TSR growth, rising on a
straight-line basis to 100% vesting for 12.6% annual TSR growth, subject to the other performance conditions referred
to below.

Morses Club PLC Annual Report & Accounts 2020

132

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

28. Share-based payments continued

The Deferred Share Plan (DSP) - Senior Management Team continued
Notwithstanding the satisfaction of the TSR performance condition referred to above, any vesting of these initial Awards
will also be subject to the satisfaction of 2 further performance conditions measured up to the end of the financial year
ending February 2019 (ie the full 3-year performance period). In order for these Awards to vest, the Company will have
to achieve the budgeted level of profit before tax for each of the financial years ending in February 2017, 2018 and 2019.
The vesting of the initial Awards is also conditional on the Remuneration Committee determining that, over the period
finishing at the end of the financial year ending in February 2019:
• the Company’s internal and external audits and compliance training delivery have been satisfactory;
• the Company has retained all relevant FCA authorisation for the carrying on of its business; and
• the participant has not been subject to any disciplinary action and their personal performance has been satisfactory.

For any subsequent annual grants, the Remuneration Committee will set any performance conditions by reference to the
Company’s long-term strategy, which may include total shareholder return and/or financial metrics and/or key strategic
goals to support long-term value creation. It is the Remuneration Committee’s current intention that the vesting of any
Awards granted to the Company’s senior management team in respect of the financial years ending February 2018 and
2019 will at least in part be subject to the Company’s TSR performance.

Any performance condition may be amended or substituted if one or more events occur which cause the Remuneration
Committee to consider that an amended or substituted performance condition would be more appropriate and not
materially less difficult to satisfy.

Awards will not be granted to a participant under the DSP over Ordinary Shares with a market value (as determined by
the Remuneration Committee) in excess of 100% of salary in respect of any financial year.

As of the balance sheet date, the estimated market value of each share option granted is £1.08 (2019: £1.56). This has
resulted in a charge to the profit or loss account of £156,594 (2019: £632,544) during the year.

The market value of the shares at the grant date is calculated using a Monte Carlo Simulation. The assumptions used in
the calculation are set out below:

Grant date

Expected volatility
Expected term
Risk-free rate
Dividend yield

8 May
2016

26%
1
0.34%
0%

5 May
2017

45%
1
0.34%
0%

5 May
2018

30%
1
0.34%
0%

DSP

5 May
2019

30%
1
1.05%
0%

1 July
2019

31%
0.83
0.88%
0%

22 July
2019

33%
0.75
0.88%
0%

1 Sept
2019

35%
0.67
0.88%
0%

Expected volatility is calculated based on movements in the Company’s share price in the 12 months preceding the grant
date. In prior years this was based on the volatility in the share prices for the Company’s peer group due to the lack of
historical data in relation to the Company’s own share price.

Outstanding at 23 February 2019
Awarded/granted
Lapsed

Exercised

Outstanding at 29 February 2020

Exercisable as at 29 February 2020

Weighted
Average
Exercise
Price
(£)

–
–
–

–

Number

2,956,110
793,452
(1,444,719)

(1,002,310)

1,302,533

–

For the share options outstanding at 29 February 2020, the weighted average remaining contractual life is 8.1 years
(2019: 8.2 years).

All options are expected to be equity settled.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

133

The Share Option Plan (SOP) – Employees
On 19 October 2017 the Company introduced its first share option plan that entitles employees to purchase shares in the
Company at an exercise price of £0.01 per share. 238,097 share options were issued under the plan.

The fair value of the employee share options has been measured using the Black-Scholes valuation method. Service and
non-market performance conditions were not taken into account in measuring fair value.

As of the balance sheet date, the estimated market value of each share option granted is £1.08 (2019: £1.56). This has
resulted in a charge to the profit or loss account of £77,549 (2019: £83,468) during the year.

The market value of the shares at the grant date is calculated using the Black-Scholes valuation method. The
assumptions used in the calculation are set out below:

SOP

Grant date

Expected volatility
Expected term
Risk-free rate
Dividend yield

19 October
2017

5 December
2018

5 December
2019

40%
1
0.75%
4.75%

40%
1
0.68%
5.21%

36%
1
0.98%
6.14%

Expected volatility is calculated based on movements in the Company’s share price in the 12 months preceding the
grant date.

Outstanding at 23 February 2019
Awarded/granted
Lapsed

Outstanding at 29 February 2020

Exercisable as at 29 February 2020

Weighted
Average
Exercise
Price
(£)

0.01
0.01
0.01

0.01

–

Number

242,393
19,285
(15,881)

245,797

–

For the share options outstanding at 29 February 2020, the weighted average remaining contractual life is 7.9 years.
(2019: 8.7 years).

All options are expected to be equity settled. The estimated amount to be transferred to the tax authority to settle the
employee’s tax obligations is £502,042.

The Share Incentive Plan (SIP) – Employees
On 5 December 2018 the Company introduced an approved share incentive scheme (SIP) for all employees and issued
292,122 Ordinary Shares with a nominal value of £0.01. The shares are held by an independent trust for the duration of
the holding period and subsequent share options are granted to employees on a rolling annual basis at the discretion of
the Remuneration Committee and subject to the Company’s profit performance in the previous financial year.

The fair value of the employee share options has been measured using a Black-Scholes option pricing model. Service and
non-market performance conditions were not taken into account in measuring fair value.

As at the balance sheet date, the estimated market value of each share option granted is £1.08 (2019: £1.56). This has
resulted in a charge to the profit or loss account of £100,375 (2019: £32,422) during the period.

Grant date

Expected volatility
Expected term
Risk-free rate
Dividend yield

SIP

5 December
2018

5 December
2019

41%
1
0.68%
0%

36%
1
0.98%
6.14%

As there are no market-based performance conditions attached to this scheme the expected volatility is deemed to
be neutral.

Morses Club PLC Annual Report & Accounts 2020

134

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

28. Share-based payments continued

The Share Incentive Plan (SIP) – Employees continued

Outstanding at 23 February 2019
Awarded/granted
Lapsed

Outstanding at 29 February 2020

Exercisable as at 29 February 2020

Weighted
Average
Exercise
Price
(£)

–
–
–

–

Number

281,999
311,011
(38,037)

554,973

–

For the share options outstanding at 29 February 2020, the weighted average remaining contractual life is 9.3 years
(2019: 9.7 years).

All options are expected to be equity settled.

29. Related party transactions

Until 21 February 2018 Hay Wain Group Limited (formerly Perpignon Limited) was the immediate Parent Company of
Morses Club PLC. Hay Wain Holdings Limited (formerly FCAP Four Limited) is the immediate Parent undertaking of Hay
Wain Group Limited.

The Company undertook the following transactions with its former Parent and subsidiaries during the period:

53 Weeks ended 29 February 2020
Hay Wain Holdings Limited
Hay Wain Group Limited
Shopacheck Financial Services Limited
Shelby Finance Limited

52 Weeks ended 23 February 2019
Hay Wain Holdings Limited
Hay Wain Group Limited
Shopacheck Financial Services Limited
Shelby Finance Limited

At the period end the following balances were outstanding:

Hay Wain Holdings Limited
Hay Wain Group Limited
Shopacheck Financial Services Limited
Shelby Finance Limited

Amounts owed from/(to) Related Parties

Dividends
Received/
(Paid)
£000

Management
Fees
£000

Professional
Fees
Recharged
£000

–
(4,293)
–
–

(4,293)

–
(3,412)
–
–

(3,412)

–
–
–
–

–

–
–
–
–

–

–
–
–
–

–

–
–
–
–

–

29.2.20
£000

–
–
(1,321)
20,448

19,127

23.2.19
£000

–
–
(1,321)
486

(835)

The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No
provisions have been made for doubtful debts in respect of the amounts owed by related parties.

30. Post balance sheet events

Since 29 February 2020 the impact of the Covid-19 pandemic has crystallised more fully than was known at the balance
sheet date and has had adverse impacts across many business sectors including our own.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

135

The first UK lockdown had a dramatic impact on the HCC business since 60% of repayments and 100% of new loans were
made through face to face interactions with the customer. Both the HCC and Digital businesses were affected further by
the rapid deterioration of a proportion of our customer base being able to make re-payments on their loans. Whilst
many of our customer forbearance procedures already fell in line with new forbearance rules and guidelines issued by
the FCA in early April 2020, these were now being required for a higher proportion of our customer base.

It was expected that the business would suffer in 3 ways as a result of Covid-19:
1. An increase in expected credit losses.
2. Reduced income from being able to forward flow non-paying debt to debt collection agencies.
3. Because revenue is fixed and is recognised over the expected contract life, deferred loan repayments lead to the

same revenue having to be recognised over a longer period thus resulting in a reduction in revenue in the accounting
period.

As at the signing date of these accounts we have a great deal of empirical evidence with which to assess the impact that
Covid-19 has had on the business during the subsequent period.
1. For expected credit losses in HCC we have been able to compare actual debt write offs compared to the historical

norms. This was calculated by looking at the actual write off in the first 26 weeks of FY21 of £16.0m and comparing it
to last year’s write off over the same period of £13.8m. Last year’s number was adjusted down by reference to the
relative loan book size in FY21 which is smaller than in FY20 to calculate the normal expected write off. With the Digital
business we have less historical data but were able to look at the write off patterns of loan cohorts affected by the
national lockdown in March and identify the abnormal level of write off. This was correlated with the write off in
connection with customers that were reporting Covid-19 as the reason for their difficulty in making repayments.

2. At the year end we carried an asset of £752k for the likely future realisations from the onward sale of non-paying debt

to debt collection agencies. Whilst we largely recovered the sum relating to Digital of £337k due to the sale of pre-
Covid-19 debt, for HCC we have not been able to make any realisations and have no indication when we will be able to
recommence the process. Since the onward value of a debt asset diminishes over time and we are still unable to sell it,
we concluded that its value is impaired and should be valued at 35% of its year end value of £415k, resulting in a write
down of £270k.

3. As expected, we have analysed customer behaviour post year end and seen the average loan repayment duration
extend by up to 2 weeks leading to a loss of revenue. The full impact of this, were we to recognise it as a permanent
behavioural shift, would be £822k.

The estimated impacts as at November 2020 are summarised in the table below (unaudited) (FY19: nil).

£000

Increased expected credit losses
Loss of forward flow income
Extended loan lives

Total
Less: IFRS9 provision recognised in FY20

Net post balance sheet event

FY20

5,810
270
822

6,902
(1,670)

5,232

On 28 April the Group renewed its funding facility with its existing lenders until the end of November 2021. The facility
size was reduced from £50m to £40m as a result of the lower cash requirement in a post Covid-19 economy.

Following issues with its parent company (Wirecard AG), the services provided to the Group by Wirecard UK were
suspended by the FCA on 26 June 2020 and reinstated on 29 June 2020. As a result of this action, customers of the
Group’s U Account banking service were unable to access their funds during this period. The Group is replacing Wirecard
as a supplier by Modulr Finance Limited during November 2020.

The directors are aware of a contingent liability in connection with a claim against Shelby Finance Limited (“Shelby”). This
relates to the acquisition of U Holdings Limited which in turn had acquired certain assets of Ffrees Family Finance Limited
(in Administration) (“FFFL”). The Administrator of FFFL has asserted that the acquisition of U Holdings by Shelby Finance
Limited has triggered an anti-embarrassment clause in their sale document of FFFL to Shelby, and that a further sum of
£850k is due to them.

The directors do not believe that the administrators of FFFL have a valid claim since they are basing it on wording that
does not appear in the sale document. However, in a preliminary hearing held in July 2020, the Master determined that
the contract could be re-written, and that Shelby Finance should place the disputed sum of £850k into an escrow
account. Shelby Finance has appealed this decision, their legal advisors believe there to have been a material error on
the part of the Master and remain confident that the claim is baseless. However, given the Master’s initial verdict, there is
a chance of the liability arising and therefore a contingent liability has been disclosed.

Morses Club PLC Annual Report & Accounts 2020

136

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

ALTERNATIVE PERFORMANCE MEASURES

This Annual Report and Financial Statements provides alternative performance measures (APMs) which are not defined
or specified under the requirements of International Financial Reporting Standards. We believe these APMs provide
readers with important additional information on our business. To support this, we have included a reconciliation of the
APMs we use where relevant and a glossary indicating the APMs that we use, an explanation of how they are calculated
and why we use them.

APM

Income Statement Measures

Impairment as % of
Revenue (%)

Closest
Statutory
Measure

None

Agent Commission as % of
Revenue (%)

None

Cost/Income Ratio or
Operating Cost ratio (%)

None

Credit Issued (£m)

None

Definition and Purpose

Impairment as a percentage of revenue is reported impairment divided
by reported revenue and represents a measure of credit quality that is
used across the business and within the sector.

Agent commission, which is included in cost of sales, divided by
reported revenue. This calculation is used to measure operational
efficiency and the proportion of income generated which is paid to
agents.

The cost/income ratio is cost of sales and administration expenses,
excluding exceptional items, finance costs and amortisation divided by
reported revenue. This is used as another efficiency measure of the
Company’s cost base.

Credit issued is the principal value of loans advanced to customers and
is an important measure of the level of lending in the business.

Sales Growth (%)

None

Sales growth is the period-on-period change in Credit Issued.

Gross Profit before Covid-19
adjustment

Gross Profit

Statutory Profit Before Tax
before Covid-19 adjustment

Profit Before
Tax

Normalised Adjusted Profit
Before Tax (£m)

Profit Before
Tax

Adjusted Profit Before Tax
(£m)

Profit Before
Tax

Adjusted Profit Before Tax
(underlying HCC)

Profit Before
Tax

Normalised Earnings Per
Share

Earnings Per
Share

Adjusted Earnings Per
Share

Earnings Per
Share

Gross Profit per the Income statement adjusted for the Covid-19 overlay.
This is used to provide a measure of gross profit before the impact of
Covid-19.

Profit Before Tax per the Income statement adjusted for the Covid-19
overlay. This is used to provide a measure of business performance
before the impact of Covid-19.

Profit Before Tax per the Income statement adjusted for the Covid-19
impairment, exceptional items, non-recurring costs and amortisation of
goodwill and acquisition intangibles. This is used to measure ongoing
business performance.

Profit Before Tax per the Income statement adjusted for exceptional
items, non-recurring costs and amortisation of goodwill and acquisition
intangibles. This is used to measure ongoing business performance.

Profit Before Tax per the Income statement adjusted for exceptional
items, non-recurring costs and amortisation of goodwill and acquisition
intangibles, Territory Build subsidies and losses of Digital CGU.

Normalised Adjusted Profit After Tax divided by the weighted average
number of shares. This gives a better reflection of underlying earnings
generated for shareholders.

Adjusted Profit After Tax divided by the weighted average number of
shares. This gives a better reflection of underlying earnings generated
for shareholders.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

137

Reconciliation of Statutory profit before tax to Normalised Adjusted and Adjusted profit before tax and explanation of
Normalised and Adjusted EPS

£’m (unless otherwise stated)

Statutory Profit Before Tax
Covid-19 adjustments to impairment

Statutory Profit Before Tax before

Covid-19 adjustment

Acquisition, restructuring and non-recurring

costs

Exceptional gain2
Amortisation of acquisition intangibles3

Normalised Adjusted Profit Before Tax1
Covid-19 adjustment to impairment

Adjusted Profit Before Tax1
Tax on Adjusted Profit Before Tax

Adjusted Profit After Tax
Statutory EPS1
Normalised EPS1
Adjusted EPS1

Statutory Return on Assets1
Normalised Return on Assets1
Adjusted Return on Assets1
Statutory Return on Equity1
Normalised Return on Equity1
Adjusted Return on Equity1

HCC

21.2
1.7

FY20

Digital

(9.7)
0.0

Total

11.5
1.7

HCC

20.7
0.0

FY19

Digital

(0.5)
0.0

Total

20.2
0.0

22.9

(9.7)

13.2

20.7

(0.5)

20.2

0.9
0.0
0.8

24.5
(1.7)

22.8
(2.4)

20.4

27.5%
31.1%
29.3%
30.1%
34.1%
32.1%

2.6
(2.3)
0.4

(9.0)
0.0

(9.0)
(0.4)

(9.4)

3.5
(2.3)
1.2

15.5
(1.7)

13.8
(2.8)

11.0
7.3p
9.5p
8.4p

12.8%
16.6%
14.8%
17.2%
22.3%
19.9%

0.8
0.0
1.0

22.5
–

22.5
(4.5)

18.0

0.0
0.0
0.0

(0.5)
–

(0.5)
0.1

(0.4)

0.8
0.0
1.0

22.0
–

22.0
(4.4)

17.6
12.5p
13.6p
13.6p

23.4%
25.4%
25.4%
27.2%
29.6%
29.6%

Increase/
(Decrease)

(8.7)
1.7

(7.0)

0.8
0.0
1.0

(6.5)
(1.7)

(8.2)
1.6

(6.6)
(5.2p)
(4.2p)
(5.2p)

Adjusted basic earnings per share
Basic earnings
Amortisation of acquisition intangibles
Non-recurring (income)/costs
Tax effect of the above

Normalised adjusted earnings after tax

Covid-19 adjustment to impairment
Tax effect on the above
Adjusted earnings

53 weeks
ended
29.2.20
£000

52 weeks
ended
23.2.19
£000

9,477
1,222
2,822
(1,180)

12,341

(1,669)
317
10,989

16,175
1,025
790
(345)

17,645

–
–
17,645

Weighted average number of shares for the purposes of basic earnings per share (’000s)

130,531

129,570

Normalised Adjusted earnings per share amount (pence)

Adjusted basic per share amount (pence)

9.5p

8.4p

13.6p

1 Definitions are set out in the Glossary of Alternative Performance Measures on Pages 136 to 139
2 Release of contingent consideration in relation to the U Holdings Limited acquisition

Morses Club PLC Annual Report & Accounts 2020

138

Notes to the Consolidated Financial Statements continued
For the 53-week period ended 29 February 2020

APM

Balance sheet and
returns measures

Tangible Equity (£m)

Normalised Return on
Equity (%)

Closest
Statutory
Measure

Equity

None

Adjusted Return on
Equity (%)

None

Normalised Return on
Assets (%)

None

Adjusted Return on
Assets (%)

None

Tangible Equity/Average
Receivables Ratio (%)

None

Definition and Purpose

Net Assets less intangible assets less acquisition intangibles.

Calculated as normalised adjusted profit after tax divided by rolling
12-month average of tangible equity. This calculation has been adjusted
to an IFRS 9 basis. It is used as a measure of overall shareholder returns
adjusted for exceptional items. This is presented within the interim report
as the Directors believe they are more representative of the underlying
operations of the business.

Calculated as adjusted profit after tax divided by rolling 12-month
average of tangible equity. This calculation has been adjusted to an
IFRS 9 basis. It is used as a measure of overall shareholder returns
adjusted for exceptional items. This is presented within the interim report
as the Directors believe they are more representative of the underlying
operations of the business.

Calculated as normalised adjusted profit after tax divided by 12-month
average Net Loan Book. This calculation has been adjusted to an IFRS 9
basis. It is used as a measure of profitability generated from the loan
book. Net Loan Book is Amounts owing from customers less provisions
for deferred income and impairments. This is presented within the
interim report as the Directors believe they are more representative of
the underlying operations of the business.

Calculated as adjusted profit after tax divided by 12-month average Net
Loan Book. This calculation has been adjusted to an IFRS 9 basis. It is
used as a measure of profitability generated from the loan book. Net
Loan Book is Amounts owing from customers less provisions for deferred
income and impairments. This is presented within the interim report as
the Directors believe they are more representative of the underlying
operations of the business.

Net Assets less intangible assets less acquisition intangibles divided by
12-month average receivables. This calculation has been adjusted to an
IFRS 9 basis.

Morses Club PLC Annual Report & Accounts 2020

Strategic Report

Corporate Governance

Financial Statements

139

Adjusted Return on Assets and Adjusted Return on Equity

£m

Normalised Adjusted Profit After Tax (Rolling 12 months)
Adjusted Profit After Tax (Rolling 12 months)
12-month average Net Loan Book
Normalised Adjusted Return on Assets
Adjusted Return on Assets
12-month average Equity
Normalised Adjusted Return on Equity

Adjusted Return on Equity

IFRS 9
FY20

12.3
11.0
74.3
16.62%
14.80%
55.3
22.33%

19.88%

IFRS 9
FY19

17.6
17.6
69.3
25.40%
25.40%
59.5
29.60%

29.60%

Other measures

Customers

Agents

None

Customers who have an active loan and from whom we have received a
payment of at least £3 in the last 17 weeks.

Agents are self-employed individuals who represent the Group’s
subsidiaries and are engaged under an agency agreement.

Cash from Operations

(excluding investment in
loan book) (£m)

Cash from
Operations

Cash from Operations (excluding investment in the loan book) is Cash
from Operations excluding the growth in the loan book due to either
acquisition or movement in the net receivable otherwise.

Adjusted Net Margin

None

Adjusted Profit before tax (which excludes amortisation of intangibles on
acquisitions, the one-off costs of the IPO and other non-operating costs)
divided by reported revenue. This is used to measure overall efficiency
and profitability.

Cash from Funding (£m)

None

Cash from Funding is the increase/(decrease) in the Bank Loan balance.

Morses Club PLC Annual Report & Accounts 2020

140

Morses Club PLC
Information for Shareholders

Financial Calendar 2021

7 January 2021
14 January 2021
12 February 2021
April/May 2021
22 June 2021
July 2021
October 2021

General Meeting
Ex-dividend date
FY 2020 final dividend paid
2020/21 Year-end results announced
Annual General Meeting
Final dividend payable
Half-year results announced