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A non-standard day
Non-Standard Finance plc
Annual report and accounts 2016
Our approach at Non-Standard Finance is
anything but standard – in branch-based lending
and home credit, a key part of our underwriting
process is that we meet our customers face-to-
face. Whilst we don’t get it right all of the time
and there is always room for improvement,
our model has proven its ability to deliver
positive customer outcomes and attractive
risk- adjusted returns.
Strategic report
Highlights
At a glance
Chairman’s statement
Market opportunity
Business model
Group Chief Executive’s Report
Strategy & key performance indicators
Principal risks
2016 Financial review
Culture and stakeholder management
1
2
4
6
8
12
15
24
26
36
Business model in action
Everyday Loans
10
Governance
Board of Directors
Governance report
Audit Committee report
Nomination Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Financial statements
Independent auditor’s report
Financial statements
Notes to the financial statements
Additional information
Company information
40
42
47
49
50
51
66
70
77
82
103
Chairman’s statement
04
Business model in action
Trusttwo
34
Business model in action
Loans at Home
22
Non-Standard Finance plc Annual report and accounts 2016 Overview
Highlights 2016
“We have become a significant player in
the non-standard finance market in the
UK, serving 137,000 customers through
a network of almost 90 locations.”
John van Kuffeler
Founder and Group Chief Executive
Operational highlights
Financial highlights
• Acquisition of Everyday Loans,
including Trusttwo, completed
on 13 April 2016
• Full FCA permissions for Everyday
Loans, including Trusttwo, received
on 20 June 2016
• Strong growth across all three
business divisions
• Combined loan book (before fair
value adjustments) of c.£165m
at 31 December 2016
Visit our website for further information
www.nonstandardfinance.com
Reported results
Revenue
Pro forma results1
Revenue
£72.8m
2015: £9.2m
£94.7m
2015: n/a
Operating loss
Operating profit
£(5.2)m
£18.7m
2015: loss of £(10.0)m
2015: n/a
Basic and fully diluted
loss per share
Basic and diluted
earnings per share
(2.60)p
3.37p
2015: loss per share of (21.25)p
2015: n/a
Dividend per share
Dividend per share
1.20p
1.20p
2015: nil
2015: nil
1. Assuming Everyday Loans (including Trusttwo) was acquired on 1 January 2016 and adjusted to
exclude fair value adjustments, amortisation of acquired intangibles and exceptional items. There are
no comparative pro forma figures for 2015 as on completion of the acquisition of Loans at Home on
4 August 2015, the Group adopted a more timely approach to recognising impairment. The Group
has concluded that any benefit derived from restating the results of Loans at Home from 1 January
to 3 August 2015 to reflect this more prudent approach would be more than outweighed by the cost
of producing such results.
1
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Overview
At a glance
“ Every adult should have access to credit they
can afford to repay – we seek to help consumers
that are either unable or unwilling to borrow
from mainstream financial institutions.”
John van Kuffeler
Founder and Group Chief Executive
Who we are
Formed in 2014, Non-Standard Finance
has become a leading provider of
unsecured credit to UK adults. Listed
on the Main Market of the London
Stock Exchange, we have almost 90
locations servicing 137,000 customers
to whom we have outstanding
loans of approximately £165m in
aggregate1. Our sizeable infrastructure
is supported by 537 full-time staff
and 785 self-employed agents.
Listed
Locations
88
Customers
Loan book1
137,000
165m
Staff
Agents
537
785
Everyday Loans
branch (41)
Loans at Home
office (47)
Our business divisions
Branch-based lending
Home credit
Guaranteed loans
The UK’s largest branch-
based provider of unsecured
loans to sub-prime borrowers.
The UK’s third largest provider
of unsecured, home-
collected credit.
A fast-growing player in an
expanding market.
Loan book1
£122.4m
Loan book1
£33.4m
Loan book1
£8.8m
See p.10
See p.22
See p.34
1. Before fair value adjustments.
2
Non-Standard Finance plc Annual report and accounts 2016 Why we are different
Customer touchpoints
In branch-based lending and home credit we aim to meet all
of our customers face-to-face before we lend to them. Whilst
expensive to execute versus some other business models, we
believe that this tried-and-tested approach is what separates us
from many of our peers and enables us to lend to consumers
that many other institutions will not. In guaranteed loans, we
are able to operate a purely remote model as the presence of
a prime, or near-prime guarantor means that a face-to-face
meeting is not required to complete our underwriting process.
The interface between our people and our customers is critical
to us making good lending decisions, delivering positive
customer outcomes and collecting the monies we are owed.
Put another way, the quality of our customer relationships and
how we manage them are key drivers of our long-term success.
As a Group, we are focused on ensuring that each customer
touchpoint is optimised through our processes and procedures,
the systems and infrastructure we deploy to support them,
the training and reward structures of our representatives
and our overall cultural approach. Each of these elements
combine to determine how we behave as a business.
For more details about our culture see p.36
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In branch
• Pre-screened customers are
met for up to 45 minutes
• Two-person approach to review of
applications
• Branch manager makes final
lending decision
In home
• Over 80,000 customer visits each week
• Agent is invited into the home, having
received a ‘request to call’
• Pre-screening tells agent parameters
for possible loan
• Agent explains the process before making
a separate visit to make the loan
• Income and expenditure review completed
in the home, final decision made by agent
41 branches
+14%
785 agents
+25%
Customers
By web
By phone
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• Convenient for the customer;
cost-effective for the operator
• Customers respond to direct
advertising or apply via
web search
• Customer details captured online
to allow initial screening process
• Application will usually be
processed face-to-face (in branch
or in the customer’s home)
• Convenient for the customer;
cost-effective for the operator
• Customers may respond to
direct advertising or via web
• Branch-based lending – operator
directs them to nearest branch,
driving branch traffic; or may, in a
limited number of cases, process
application by phone
• Home credit – operator arranges
agent visit by phone but transaction
is completed face-to-face
• Guarantor loans – application
process is completed over the phone
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3
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016
Overview
Chairman’s statement
Charles Gregson
Non-Executive Chairman
The past year has seen us transform
Non-Standard Finance from what was
just an idea in 2014, to a substantial
listed enterprise with a combined loan
book of c.£165m (before fair value
adjustments), almost 90 locations across
the UK, 137,000 customers, over 500
full-time staff and 785 self-employed
agents. Phase one of our plan is now
complete and we have the building
blocks in place to support further growth
in each of our three business divisions.
2016 results
The Group’s performance in 2016 was
broadly in line with our expectations
driven by a strong performance from
Everyday Loans which represents 75%
of the Group’s combined loan book.
As noted in the Chief Executive’s review
on pages 12 to 14, whilst the reported
results include just eight months from
Everyday Loans and Trusttwo, the
underlying performance of the Group as
a whole, as illustrated by the normalised
pro forma results1, is significantly better.
Reported revenues1 were £72.8m
(2015: £9.2m) and the Group produced
an operating loss of £5.2m (2015:
operating loss of £10.0m). This resulted
in a reported loss per share of 2.60p
(2015: loss per share of 21.25p).
Strategy
As set out in our Strategic Report,
we remain focused on serving the
needs of consumers who are unable or
unwilling to borrow from mainstream
institutions. Everything we have seen to
date has confirmed that the size of this
opportunity remains large – we remain on
course to achieve our target of 20% loan
book growth across the Group as a whole
and a 20% return on assets in each of
our operating businesses in the medium-
term. Having executed the strategy we
set out in our initial prospectus back in
2015, our strategy has evolved and is now
focused on the following three elements:
• Being a leader in our chosen markets;
• Investing in our core assets; and
• Acting responsibly.
Each of these is explained in more detail
in the Strategic report on pages 15 to 21.
Culture
The Group has only been in its current
form since April 2016 and so our culture,
or ‘the way we do things around here’,
is continuing to evolve and is heavily
influenced by regulation, the Board
and also the embedded values and
behaviours within each of our operating
companies. Whilst a thorough due-
diligence process meant that the Board
was confident that the culture within
each business was broadly consistent,
in December 2016 it instituted a formal
process to confirm what the Group’s
culture is, what it should be and to ensure
there are effective means to influence
it in each of our business areas, not just
because a regulator says we should, but
because it makes good business sense.
1. Assuming Everyday Loans (including Trusttwo) was acquired on 1 January 2016.
4
Non-Standard Finance plc Annual report and accounts 2016 earnings. If approved at the AGM, the
final dividend would be paid to those
shareholders on the Company’s share
register on 19 May 2017, with payment
being made on 20 June 2017.
Outlook
During the past year we acquired
approximately 80% of the current Group
while the balance of our business was
undergoing a period of significant change
and adjustment. Having successfully
embedded Everyday Loans and Trusttwo
and with a clear focus on existing
customers at Loans at Home, we are
now well placed for the year ahead.
We have a highly experienced
management team, a strong balance
sheet and a clear plan to deliver
significant revenue and profit growth
in each of our three operating divisions
over the medium-term. We are optimistic
about the Group’s prospects in 2017 and
believe that the outlook remains bright.
Charles Gregson
Non-Executive Chairman
31 March 2017
Whilst this exercise is not yet complete,
based upon some early results, the
following values and behaviours
are emerging as being common
across all three businesses:
• Doing the right thing: we recognise
our collective responsibility for
delivering great outcomes for our
customers. We don’t cut corners and
always seek the path that is right
before the path that is easy.
• Shared purpose: we have clear
strategic and operational goals and
expect all of our representatives to
understand and share in that vision.
• Integrity: we respect colleagues and
other key stakeholders and do what
we say we will do.
• Teamwork: our businesses are complex
and involve many different elements
that each represent an important part
of our overall business process. By
working together we are likely to solve
problems more effectively than trying
to do things on our own.
• Communication: we listen, are
well-informed and believe it’s our duty
to speak up when we disagree, or
believe something is not right; we
celebrate success and don’t blame
others when something goes wrong,
always learning from our mistakes.
• Entrepreneurial: we use our initiative
and are prepared to try new things so
we can perform better and be the best
we can be.
Certain areas of our business represent
potential ‘hot spots’ through the existence
of possible conflicts such as incentives
that may encourage poor behaviour
in order to meet certain performance
targets. Managing such conflict is part of
the day-to-day management of each of
our businesses. Whilst we don’t profess
to get everything right all of the time,
our systems and controls are designed
to promote a culture that supports
each of our desired behaviours, helping
to ensure that we minimise the risk
of any material impact on our overall
operating and financial performance.
However, as a Board we don't take
this for granted. During 2016, each of
the Directors spent time at a number
of our locations across the country,
meeting and spending time with staff
and self-employed agents, providing
valuable insights into the day-to-
day operations of our business.
In future reports, we will provide
updates on our cultural approach,
how we measure and influence it and
highlight any areas of potential risk.
Board
I would like to thank Robin Ashton, who
stepped down from the Board in October
2016, for his valuable contribution.
As one of the co-founders of the Group,
Robin played a vitally important role
in helping us through the Group’s initial
development phase and in building the
substantial enterprise that we are today.
In December 2016 we announced some
changes to the Board in order to achieve
a more conventional management
structure. Having previously been
Executive Chairman, on 19 December
2016 the Group’s founder, John van
Kuffeler became Chief Executive Officer
and I became Non-Executive Chairman.
Long-Term Incentive (‘LTI’)
Having consulted extensively with
some of our largest shareholders, we
plan to seek shareholder approval for
a carefully structured LTI for members
of the Group’s senior management team
to be approved at the Annual General
Meeting (‘AGM’) to be held on 9 May
2017. Developed in conjunction with our
advisers, the new plan means that the
interests of senior management are fully
aligned with those of our shareholders.
Full details of the new LTI and a new
Sharesave scheme for all employees
that we also plan to introduce are
set out in the AGM notice.
Final dividend
Having declared a maiden half-year
dividend of 0.30p per share in August
2016, the Board is pleased to recommend
a final dividend of 0.90p per share
(2015: nil), making a total of 1.20p for
the year as a whole. If approved by
shareholders, this final dividend would
represent a meaningful step towards
our goal of reaching a payout ratio
equal to 50% of normalised post-tax
5
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Overview
Market opportunity
There is significant
demand for non-standard
finance in the UK.
Changes to the UK’s non-standard consumer finance
sector have created a significant opportunity to
build a substantial, well-capitalised enterprise,
focused on addressing the needs of millions of adults
in this large and poorly-served market.
There is a mis-match in the supply of and demand for
credit by borrowers who are either on low incomes,
are credit impaired or have a low credit score.
On the demand side, over 10 million consumers are
either unwilling or unable to borrow from mainstream
financial institutions.1
Several factors have contributed to a shortfall in the
supply of non-standard consumer finance in the UK:
there was a marked reduction in the total amount of
credit available to sub-prime borrowers following the
financial crisis; there are high barriers to entry in the
form of strict regulatory requirements and the need
for a robust compliance infrastructure; the specialist
nature of the non-standard market means that there
is a limited pool of managerial talent; and operators
need clear access to long-term and low-cost funding
to support future growth.
This mis-match has created a significant opportunity
for Non-Standard Finance plc.
The supply of non-standard finance in the UK 1
£bn
15
12
9
6
3
0
2008 2009 2010
2011
2012
2013
2014
■ Inactive secured
■ Logbook loans
■ Branch-based lenders
■ Pawnbroking
■ Guaranteed loans
■ Payday loans
■ Home collected credit
■ Car finance
■ Rent to buy
■ Credit unions
■ Store cards
■ Mail order credit
■ Point of sale loans
■ Sub-prime credit cards
6
Proportion of the UK’s working population that is under-served
1
3 =
c.10m1
People
Customer characteristics
Low paid
Low credit status
Credit impaired
1%
16%
of total workforce paid
minimum wage and below2
of total workforce
self-employed3
912,000
Consumer County
Court Judgments4
2.3m
Recently arrived
migrants5
1. L.E.K. Consulting – Executive Insights Volume XVIII, Issue 10, 15 April 2016; ONS: UK Labour
Market, February 2017.
2. ONS: Low pay in the UK: April 2016.
3. ONS: Self-employed.
4. Registry Trust Limited press release, 1 February 2017.
5. Number of immigrants to the UK, June 2012–June 2016 – ONS: overview of the UK Population,
December 2016.
Non-Standard Finance plc Annual report and accounts 2016 The UK consumer
credit market can be
split into three different
segments:
1. Large amounts, over a longer-term
which tend to be at lower annual
percentage rates ('APRs')
2. Small amounts, over the short-term
at lower APRs
3. Small amounts over the short-term
at higher APRs
Our three divisions
are seeking to address
different areas of
the market:
1. Branch-based lending
2. Home credit
3. Guaranteed loans
Loan
Amount
£10,000
£1,000
£500
Loan
Amount
£10,000
£1,000
£500
1.
Large amount,
longer-term
2.
Low cost,
short-term
3.
High cost,
short-term
30%
50%
75%
100%
200%
1000%
APR%
1.
Branch-based
lending
3.
Guaranteed
loans
Payday
lending cap
2.
Home
credit
30%
50%
75%
100%
200%
1,000%
APR%
Whilst we operate
in competitive
markets, we believe
our businesses are
well-positioned.
We are well-placed with leading
positions in branch-based lending
and home credit and have a scalable
presence in guaranteed loans.
#1 in branch-based lending
#3 in home credit
Positioned to become #2
in guaranteed loans
7
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Strategic report
Business model
Our purpose:
What sets us apart:
To help those who need credit
but are either unwilling or
unable to borrow from
mainstream institutions.
Building a personal relationship
with our customers is key
and enables us to deliver
positive customer outcomes
and attractive returns
for shareholders.
High-quality and
experienced
management
NSF is led by a highly experienced Board and
operational management teams with many years
of experience and a proven track record of creating
value for shareholders.
See governance section on p.39
Infrastructure
and scale
We invest in extensive agent and branch networks
to enable regular face-to-face contact with our
customers. We also develop user-friendly technology
platforms which improve our customer service
and collection capabilities. Our infrastructure is
highly scalable.
Rigorous
compliance and
risk management
We have developed a robust risk management
framework and established a Risk Committee which
oversees risk assessment and advises the Board
on the Company’s overall risk appetite, tolerance
and strategy.
See principal risks section on p.24
A culture focused
on delivering
positive customer
outcomes
Having assembled three different businesses in
a short period of time, our culture as a group is
continuing to evolve. However, ‘providing a helping,
but firm hand to our customers’ is an ethos that runs
deep through each of our operating companies.
We are entrepreneurial and are not afraid to try new
things. We don't blame others and learning from
our mistakes is how we improve, driving better
outcomes for customers and greater long-term
returns for our shareholders.
See culture and stakeholder management section on p.36
Access to
long-term,
low-cost
funding
NSF has a clear financing strategy in place, utilising
a combination of debt and equity funding to help
grow our businesses and enabling them to generate
strong cash flow over the medium-term.
See governance section on p.39
8
Non-Standard Finance plc Annual report and accounts 2016 What we do:
Source
long-term
capital
Develop focused,
tailored and
affordable loan
products
Attract
customers
Lend responsibly
• Identify suitable customers
• Assess credit via external
and internal scorecard
• Understand customer needs
• Assess affordability (income and
expenditure)
• Tailor product to suit their needs
• Ensure customer understands
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In branch
In home
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By web
By phone
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Collect responsibly
• Encourage timely payment
• Show forbearance if and when required
• Identify vulnerability
• Suggest sources of support if in difficulty
Risks
• Conduct
• Regulation
• Credit
• Liquidity
• Competition
• Business
strategy
and operations
• Reputation
Reinvest in
the business
Reward providers
of capital
• Debt
• Equity
Costs
• Network costs
• Interest
• Taxes
• Losses/impairments
How we create value:
Customers
Feefo rating1
4.8/5
Net promoter scores2
98%
FOS complaints3
0.02%
Shareholders
Loan book growth
Everyday Loans
Return on assets
Everyday Loans
17.1%
Loans at Home
6.7%
Trusttwo
8.5%
Number of branches/
offices
88
18.0%
Loans at Home
19.3%
Trusttwo
18.9%
Payout ratio4
36%
People
Total training days5
2,107
Communities
Number of staff
537
Number of
self-employed agents
785
1. www.Feefo.com is a third-party customer review site.
It invites customers at Everyday Loans and Trusttwo
to review our performance. The rating shown is the
aggregation of all scores received
for Everyday Loans with a maximum score of 5.
The same score for Trusttwo was 4.7 out of 5.
2. Percentage of customers that were ‘very satisfied’ or
‘quite satisfied’ with overall services at Loans at Home
– last survey based on 896 responses (April to
December 2016).
3. Number of upheld cases at the Financial Ombudsman
Service as a percentage of number of loans written
in 2016.
4. Based upon 2016 pro forma normalised earnings per
share of 3.37p and a total dividend per share of 1.20p.
5. Total for Everyday Loans, Loans at Home (staff and
agents) and Trusttwo in 2016.
9
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016
Strategic report
Business model in action
Customer touchpoint: branch-based
A non-standard
day for Govind
“ Everyday Loans genuinely wants
to help people who aren’t in the
best position financially. It treats
customers as individuals and not
as statistics.”
Govind
Everyday Loans, Bourne End, Buckinghamshire
10
Non-Standard Finance plc Annual report and accounts 2016 Building relationships
I have just started my career at
Everyday Loans as a customer
account manager. I previously
worked in personal banking and
insurance. I moved to Everyday
Loans because I wanted to work
with a smaller and more personable
team where I can make a difference.
The best part about my job is
building relationships with the clients
and helping them through the
lending process. Everyday Loans is
an expanding company with a clear
career path so in time I’m hoping
to become a branch manager.
Bourne End,
Buckinghamshire
11
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Strategic report
Group Chief Executive’s Report
John van Kuffeler
Group Chief Executive
Results
The past year has been transformational
for the Group with the completion of
the acquisition of Everyday Loans and
Trusttwo, new bank facilities in place
and a carefully planned programme of
investment in all three businesses.
Against this background, I am pleased
to report normalised revenue of £81.1m
(2015: £14.7m) and normalised operating
profit of £13.8m (2015: loss of £0.5m)1.
Reported revenue after fair value
adjustments was £72.6m (2015: £9.2m)
and reported loss before interest and
tax was £5.8m (2015: loss of £16.2m).
The Group’s reported results include just
over eight months’ performance from
Everyday Loans and Trusttwo which
were acquired in April 2016 and that
together represent approximately 80%
of the Group’s net loan book (before
fair value adjustments). The reported
results are also significantly affected by
temporary additional commission paid
to newly signed-up agents at Loans at
Home, fair value adjustments and the
amortisation of acquired intangibles.
To provide investors with a more
representative picture of the Group’s
underlying performance, we have
also produced pro forma normalised
numbers, as if Everyday Loans and
Trusttwo had been acquired at the start
of the year and before the impact of fair
value adjustments, the amortisation of
acquired intangibles and exceptional
items. There are no comparable pro
forma numbers for 2015 as the Group
believes that any benefit derived
from restating the results of Loans at
Home from 1 January to 3 August 2015
would be more than outweighed by
the cost of producing such results.
Pro forma normalised revenues and
operating profit were £94.7m and £18.7m
respectively, and pro forma normalised
earnings per share was 3.37p (reported
loss per share was 2.60p). I am pleased
that the Board is recommending
an inaugural final dividend of 0.9p,
making a total of 1.2p for the year.
The size of our combined net loan book
across all businesses as at 31 December
2016 was £164.6m before any fair
value adjustment (2015: £28.0m) and
£180.4m after fair value adjustments
(2015: £28.4m) representing a 489%
increase from 31 December 2015, of
which a 368% increase relates to the
acquisition of Everyday Loans.
Everyday Loans
The acquisition of Everyday Loans
completed on 13 April 2016. Since then,
the business has performed strongly with
reported operating profit of £6.8m (2015:
n/a), reported normalised operating profit
of £14.8m (2015: n/a) and pro forma
normalised operating profit of £19.4m
(2015: n/a). We have expanded the
branch network, with five new branches
opened since completion, as well as
broadened the product offering to
include loans at higher APRs. We also
adjusted the pricing of certain products
in accordance with a new and refined
credit scorecard resulting in an increased
yield on new business volumes from an
average of 52% at the time of acquisition
to 57% in December 2016.
Loans at Home
I am pleased to report loan book growth
of 19% at Loans at Home in 2016, a year of
transformation for the business, including
a new management team and investment
in a programme of significant growth.
1. Adjusted to exclude fair value adjustments,
amortisation of acquired intangibles and
exceptional items.
12
Non-Standard Finance plc Annual report and accounts 2016
This included the recruitment of 25%
more agents; a significant upgrade to
the regulatory and compliance functions;
the roll-out of new technology; and the
testing of a number of alternate growth
strategies. Reported operating profit was
£1.4m and reported normalised operating
profit was £1.9m, both of which are after
deducting temporary additional agent
commissions of £1.8m that were paid to
newly recruited agents while they
establish a critical mass of customers (for
the period 4 August 2015 to 31 December
2015: operating profit of £2.1m). While our
programme of investment held back
Loans at Home’s profit performance in
2016, we have taken a number of steps to
ensure that we are well-placed to deliver
a significant increase in profitability
in 2017.
Trusttwo
Following its acquisition and recognising
its strong growth potential, we established
Trusttwo as a separate entity with its own
management team and profit and loss
responsibility. This had an immediate
and positive impact on performance and
Trusttwo delivered reported and reported
normalised operating profit of £0.5m
(2015: n/a) and, on a pro forma basis,
an operating profit of £0.7m (2015: n/a).
Strategy
Having executed the strategy as set out
at the time of the Group’s Initial Public
Offering in 2015, we have revised the
Group strategy and this is set out in
more detail on pages 15 to 21 of the
Strategic report.
Financing
During the year the Group drew down on
its new debt facilities and has recently
extended these so that they total £115m
of committed facilities, with an option to
increase this to £140m, with the banks’
consent. The facilities, which are both for
a three-year term, expire in June 2019
and March 2020 respectively and the
Group is actively reviewing a variety of
financing options that could underpin the
Group’s long-term growth plans. As at
31 December 2016 the Group had gross
borrowings of £87.3m and cash at bank
of £5.2m.
Regulation
Everyday Loans, including Trusttwo,
received full authorisation from the
Financial Conduct Authority ('FCA')
on 20 June 2016.
Why are APRs so high?
This is the question we get asked most often.
To answer it, we need to explain what
happens to the revenue we generate.
100
The figures shown here are illustrative and
are for NSF Group as a whole, based upon
the 2016 pro forma normalised results. Whilst
each of our three businesses has different
dynamics, we have sought to provide an NSF
overview as follows.
Revenue
Having sourced sufficient low-cost funding
to provide loans to our customers, the
interest income we receive represents the
Group’s revenue. This is then used to meet
all of the Group’s obligations as well as to
reward the providers of capital and invest in
future growth.
Impairments
Lending to customers with low or impaired
credit ratings is a risky business and a
significant proportion of revenue is lost
through the impairment of loans that don’t
get repaid. Higher risk customers require
higher impairments that in turn tend to result
in higher APRs.
People costs
Staff and self-employed agent costs are
significant as we have established large
networks through which we engage with
our customers in branch, or in their home.
In home credit, temporary support payments
to newly arrived agents are key to allowing
them the time to build up a sufficient number
of customers in order to earn the level of
income they require through our commission
structure.
Other admin costs
Property, IT and other infrastructure and
support-related costs are significant for
branch-based lending and home credit,
requiring higher APRs. Business models with
lower infrastructure costs, tend to attract
lower APRs.
The size of loans being offered is also a
factor in driving APRs – smaller loans tend to
attract higher APRs as many of the costs of
delivery are the same, irrespective of the size
of loan issued.
Cost of funds and taxes
Whilst we have sourced significant equity
capital, a large part of our loan book is
funded by debt facilities from third-party
banks. As a relatively small UK business, we
pay tax at the marginal rate, leaving a
balance to reward shareholders through
dividend payments and/or by reinvesting
funds to deliver future growth.
80
60
40
20
0
100%
27%
Impairments
36%
People costs
)
s
t
n
e
m
y
a
p
e
r
l
a
t
i
p
a
c
s
u
p
e
m
o
c
n
l
i
t
s
e
r
e
t
n
i
(
e
u
n
e
v
e
R
17%
Other admin costs
6%
Cost of funds
3%
11%
Taxes
Profit for shareholders
and/or reinvestment
13
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016
Strategic report
Group Chief Executive’s Report continued
Along with its major competitors, Loans
at Home is currently operating under an
interim consumer credit permission from
the FCA, having submitted its application
for full authorisation in June 2015. Whilst
we remain in close contact with the FCA,
we have received no indication on when
we might receive full authorisation but
believe that approval is likely to be given
at the same time as the other major listed
home credit providers.
As part of its scheduled review of
changes made to the regulation of
high-cost, short-term credit, the FCA has
extended its review to include other
forms of high-cost credit, including home
credit and guaranteed loans. We
welcome this review and have submitted
our own views to the FCA that we hope
will provide stakeholders with a better
understanding of both the benefits as
well as the risks involved in serving this
large and important segment of the UK’s
non-standard finance market. We believe
that the FCA’s approach and framework
for the regulation of consumer credit are
working well and while there is always
room for improvement, we believe the
current regime has the controls needed
to maintain high standards and minimise
the risk of customer detriment as a result
of poor conduct.
A summary of some of the recent
regulatory developments that may have
a bearing on the Group’s businesses is set
out below.
Final dividend
Having declared a half year dividend of
0.3p per share (2015: nil), the Board is
delighted to recommend a maiden final
dividend of 0.9p per share (2015: nil)
making a total dividend for the year of
1.2p per share (2015: nil). This represents
a pay-out ratio of 36% based on pro
forma normalised earnings.
The dividend policy objective is to
pay-out a dividend equal to 50% of
normalised annual post-tax earnings.
If approved by shareholders at the
forthcoming Annual General Meeting on
9 May 2017, the final dividend of 0.9p per
share (2015: nil) will be payable on
20 June 2017 to those shareholders on
the register of shareholders on 19 May
2017 (the ‘Record Date’).
Current trading and outlook
We have made a good start to the year
with each of our business divisions
performing well.
We are continuing our programme of
investment in 2017 across each of our
three businesses. At Everyday Loans we
plan to open up to 12 new branches in the
current year as well as continue to invest in
new product development. As our largest
business, we continue to believe that its
market position, proven infrastructure and
business model will deliver substantial
revenue and profit growth.
We continue to see significant potential
at Loans at Home and having made a
considerable investment in 2016, we plan
to maximise profit performance in 2017.
At Trusttwo, with the management and
requisite infrastructure now in place we
plan to drive increased volumes through
a series of fully-integrated marketing
campaigns using third-party brokers and
direct marketing initiatives. We are also
starting to see the benefit of leveraging
our branch network as a unique and
additional source of customer traffic.
Despite macroeconomic uncertainties
and the effects of inflation starting
to come through, we believe that
our customers are well-placed to
manage as they have benefited from
an improvement in their incomes in
the last few years and, compared to
the more financially-stretched prime
and near-prime borrowers, have had
relatively limited access to credit.
We have a strong balance sheet with
excellent positions in our chosen
segments and are therefore well-placed
to take advantage of the considerable
opportunities that exist in all three
business areas. We remain optimistic
about the Group’s prospects.
John van Kuffeler
Group Chief Executive
31 March 2017
Regulatory overview
Each of the Group’s main operating subsidiaries is regulated by
the FCA. During 2016 there were a number of regulatory
developments that may have a bearing on the Group’s activities
and business operations in the future. Some of the more pertinent
developments are summarised below.
• On 26 May 2016 the FCA responded to the Competition and
Markets Authority (‘CMA’) recommendations on high-cost,
short-term credit (‘HCSTC’) and stated that it would make
only minor changes to its suggested rules in this area. The
new rules came into force on 1 December 2016.
• On 30 June 2016 new rules on dispute resolution came into
force extending the length of time that firms have to handle
complaints from “next business day” to the close of business
three days after the date of receipt. All complaints must be
reported within three business days.
• On 25 October 2016 the FCA announced a consultation on
proposed guidance setting out its proposed interpretation
of the law in relation to guarantor loans. This guidance was
finalised on 19 January 2017 and the FCA has confirmed that
there is no requirement for a statutory default notice to be
issued where payment is requested of (not demanded),
or volunteered by a guarantor and continuous payment
authority (‘CPA’) can be used against the guarantor provided
notice is given sufficiently in advance (five working days is
suggested) to afford them the opportunity to object/cancel
the CPA.
• On 29 November 2016, the FCA issued a call for input to
inform further work on high-cost credit, including a review
of the HCSTC price cap. Non-Standard Finance plc has
submitted its views to the FCA.
• The FCA published its thematic review on early arrears
management in unsecured lending in December 2016. Its
findings were that many firms are improving the way they
deal with customers in early arrears. However, in some areas
consumer credit firms still need to improve their practices.
• Also in December 2016 the FCA launched a consultation on
the future funding of the Financial Services Compensation
Scheme (‘FSCS’) and has also launched a consultation on a
number of specific changes to its scheme rules. One proposal
is that the FSCS should be extended to cover UK-based debt
management firms and that this should be funded by a levy on
consumer credit firms. According to the FCA and assuming an
annual requirement of £45m, this would equate to a levy of
0.22% of annual income on all consumer credit firms.
As at 31 March 2016 the FCA had authorised 30,309 consumer
credit firms and a further 3,544 Interim Permissions were still
awaiting to complete the process. In home credit, over 386
firms had been authorised as at 31 March 2016.
14
Non-Standard Finance plc Annual report and accounts 2016 Strategic report
Strategy
The Group has become the UK’s largest
branch-based provider of unsecured credit,
the third largest provider of home-collected
credit and has an established platform in
guaranteed loans.
Our strategy is focused on three elements:
Being a leader in each of our chosen
segments of the UK’s non-standard
finance market.
Investing in our core assets:
our distribution networks, people,
technology and brands.
Acting responsibly.
1
2
3
The following pages summarise each of these three
elements and provide KPIs that we use to monitor
our performance. Where KPIs are not yet in place,
the 2016 measure and medium-term target are
shown as "n/a".
15
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Strategic report
Strategy
“ We want to be the best at
what we do in delivering
great customer outcomes
and long-term returns
for shareholders.”
John van Kuffeler
Founder and Group Chief Executive
1 www.Feefo.com – an online customer feedback engine.
16
1
Being a leader in each of our
chosen segments of the
non-standard finance market.
Whilst we continue to monitor
developments across a number of
sub-segments of the UK’s non-standard
finance market, our current focus is on
the following segments:
• Branch-based, unsecured lending;
• Home credit; and
• Guaranteed loans.
Being a leader means different things to
different people. For us this is not just
about scale, although scale is important
and we believe it is a key driver of long-
term success. At Non-Standard Finance,
leadership means being the best at what
we do – not just from a customer’s
perspective, but also from that of our
employees, our regulator and each of
our key stakeholders.
The nature of each of our businesses,
where many new customers are referred
by existing customers or are themselves
repeat customers, means that great
service is a not an option – it is a
prerequisite for long-term success. Get
that right and scale, revenues and profits
will naturally follow.
Our view of what good lending looks like
is not new, it is the same as it was
hundreds of years ago. For our chosen
customer segments, we believe it
requires that we:
• know our customer really well;
• tailor our products to suit their needs;
• don’t provide them with things they
don’t want; and
• if they get into difficulty, work with
them so that together a satisfactory
solution can be achieved for both
borrower and lender.
To do this successfully, we need the
requisite infrastructure and culture at all
levels of our business. For more details on
our culture and the steps we are taking to
nurture and protect it, see Culture and
Stakeholder Management on pages
36 to 38. Our approach to being a leader
in each of our three business segments is
summarised below:
• Branch-based lending – Everyday
Loans is already a market leader in
terms of its scale and we believe that
the quality and breadth of product
offered are unrivalled. Whilst our
customer satisfaction, as measured
by Feefo1 is at 4.8 (out of 5), we are not
complacent – our reputation has been
hard won over the past decade, but
could easily be lost and so we remain
dedicated to protecting as well as
promoting our franchise through a
continued programme of investment.
• Home credit – Loans at Home is ranked
third in the market by numbers of
customers and self-employed agents.
Upgrading our compliance procedures
and systems, including our move to
using hand-held technology, are all part
of our plan to become best-in class.
Other areas of investment include
continuing to improve the quality of
our self-employed agent network
through regular training, appropriate
incentives and high quality
management information to help
improve performance.
• Guaranteed loans – Trusttwo is one of
a number of ‘tier two’ players in terms
of scale. Having launched in 2014 it has
already grown fast to accumulate a
loan book of £8.8m. However, we want
to grow much bigger and we plan to
do it quickly. Our goal is to become the
clear number two behind the market
leader, an objective we think is
eminently achievable over the next few
years. Our platform is highly scaleable
and we have access to the Everyday
Loans branch network that acts as an
additional source of new customers.
Non-Standard Finance plc Annual report and accounts 2016 Strategic report
Key performance indicators
KPI measure
Rationale
Medium-term target
2016 KPI1
No. of active
customers
Evidence that our reach and quality of
service is driving customer volumes.
Customer satisfaction
A lead indicator of future business
volumes given our numbers of repeat
customers and customer referrals.
Everyday Loans
50,000
Loans at Home
95,000
Trusttwo
10,000
Everyday Loans2
>4.5/5
Loans at Home3
>95%
Trusttwo2
>4.5/5
Everyday Loans
39,600
Loans at Home
93,600
Trusttwo
3,300
Everyday Loans2
4.8/5
Loans at Home3
98%
Trusttwo2
4.7/5
Annual loan
book growth
By growing our loan book
we can invest in reaching more
customers and deliver attractive
returns to shareholders.
Everyday Loans
Everyday Loans
20%
18%
Loans at Home
Loans at Home
Risk adjusted margin4
Each of our three businesses has
very different dynamics. This measure
takes into account the different
revenue models as well as the
different rates of impairment.
20%
Trusttwo
20%
19%
Trusttwo
19%
Everyday Loans
Everyday Loans
35%
Loans at Home
95%
Trusttwo
30%
35.3%
Loans at Home
97.3%
Trusttwo
31.9%
Return on assets5
Measured as pro forma normalised
operating profit before exceptional
items as a percentage of average loan
book, this shows we are allocating
capital properly and delivering the
returns required by our shareholders.
Whilst not yet at our target, we
remain focused on achieving this in
the medium-term.
Everyday Loans
Everyday Loans
20%
17.1%
Loans at Home
Loans at Home
20%
Trusttwo
20%
6.7%
Trusttwo
8.5%
1. There are no comparative pro forma figures for 2016. (See ‘Context for results in the 2016 Financial review on page 27).
2. www.Feefo.com is a third-party customer review site that invites our customers to review our performance. The rating shown is the aggregation of all scores received and
is out of a maximum score of 5.
3. % of respondents to a customer survey that said they were very satisfied or quite satisfied. 2016 KPI relates to period April–December 2016 based on 896 responses.
4. Revenue less impairment as a percentage of average loan book, excluding fair value adjustments (12-month average).
5. Pro forma normalised operating profit as a percentage of average loan book excluding fair value adjustments (12-month average).
17
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Strategic report
Strategy
“ Future profits will, in part,
be driven by our ability to
both sustain and grow our
already sizeable pool of
tangible and intangible
assets through a carefully
managed programme
of investment.”
Nick Teunon
Co-founder and Chief Financial Officer
18
2
Investing in our core assets: our distribution
networks, people, technology and brands.
The nature of our business means
that, other than the loans we make to
customers, our core assets tend to be
intangible in nature and include things
such as distribution networks, our
people, our technology and our brands.
• Distribution networks – As face-to-
face contact is at the heart of our
lending process (and also collections,
in the case of home credit), ensuring
that we maximise our customer reach
is a key success factor. Being close
to our customers and potential
customers can make a difference
to our operating performance. We
already have almost 90 locations
across the UK but believe there is
scope to increase this significantly
over the next few years, particularly
at Everyday Loans.
• People – As set out on page 3,
the interaction between our own
representatives and our customers
is at the heart of our business model.
We seek to attract and retain a
high-quality workforce by investing in
training and having a highly-targeted
incentive plan that rewards both
financial results and behaviours that
drive long-term value and positive
customer outcomes. We seek to know
more than our peers and are prepared
to use that intelligence to our
advantage: either by being first, or
perhaps by being last and learning
from the mistakes of others. We aim
to encourage and reward the right
behaviour by all our representatives.
• Technology – Whilst the business
model in both branch-based lending
and home credit is founded upon
face-to-face contact, technology plays
a significant role in enabling these
businesses to operate effectively. Data
management is key, both for managing
and monitoring customer performance
but also by helping us optimise our
business through highly granular
management information. In Everyday
Loans we made a substantial
investment in 2016 when we migrated
our entire systems infrastructure to
a new supplier. At Loans at Home we
began to roll-out the first of our mobile
applications for agents to use in the
field and also began moving to a
cloud-based systems architecture, that
will drive operational efficiencies and
reduce costs. As a remote lending
platform, Trusttwo is wholly reliant on
our systems infrastructure and having
established a stand-alone
management team, we have begun
the transformation of our online
presence with a new website and
customer journey that will be launched
during the first half of 2017.
• Brands and marketing – The significant
developments in technology have
shifted the way that consumers
research and buy a variety of different
products, including financial services.
We plan to attract an increasing
number of applicants through digital
channels, requiring a multi-channel
approach to marketing and brand
support. Currently, we are working with
third parties to help us develop these
channels. Depending upon their
progress, we may decide to bring such
expertise in-house at some point in
the future.
Non-Standard Finance plc Annual report and accounts 2016 Strategic report
Key performance indicators
KPI measure
Rationale
Medium-term target
2016 KPI1
Number of Everyday
Loans branches
By increasing our geographic
coverage we can be closer to
customers, making it easier for
them to come and meet with us.
Everyday Loans
55-60
Everyday Loans
41
% of agents that are
within 30 minutes travel
time of their customers
We want agents to be close to their
customers, making it easier to see
them regularly.
Loans at Home
>90%
Loans at Home
93%
People turnover
We aim to keep this within industry
norms by offering competitive
financial rewards and creating
environments where people enjoy
their work.
% of loans booked
in the year to new
customers4
We need to continue to attract new
customers as well as look after
existing ones if we are to succeed.
Everyday Loans
Everyday Loans
15%
15%
Loans at Home2
Loans at Home2
<5%
Trusttwo3
15%
Everyday Loans
65-70%
Loans at Home
15-20%
Trusttwo
65-70%
4%
Trusttwo3
6%
Everyday Loans
67%
Loans at Home
24%
Trusttwo
80%
1. There are no comparable pro forma figures for 2015 (see 'Context for results' in the 2016 Financial review on page 27).
2. Average monthly turnover of self-employed agents.
3. Average from July 2016.
4. Proportion of loans booked in a year to new or previous borrowers (i.e. excluding existing borrowers).
19
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Strategic report
Strategy
3
Acting responsibly.
“ By placing responsibility at
the heart of our business
strategy, we are determined
to manage and carefully
contain both existing and
future risks that may arise
from our own actions, or
the actions of others.”
Heather McGregor
Non-Executive Director
and Chair of the Risk Committee
The digital age provides instant access
to sometimes distant, disparate and
multiple interest groups so that in a
corporate sense, there is 'no hiding place'
should a company fail in its duties to
key stakeholders.
You will read many times in this annual
report that delivering positive outcomes
for our customers lies at the heart of our
business. However, it is clear that if we fall
short in other areas then our ability
to achieve this primary goal may well
be impeded.
We seek to consider how our
behaviour and conduct might impact
each stakeholder group whether they
be customers, staff, self-employed
agents, suppliers, our environment or
the communities where we have a
physical presence.
In addition to key customer metrics that
are captured as part of our performance
measurement, we have identified the
following KPIs to help us monitor our
behaviour as a business.
For more information about our cultural
approach, please see pages 36 to 38.
Generations of value creation can be
lost in a single incident if a company
fails to do the right thing, irreparably
damaging the company’s reputation
with a significant impact on customers,
suppliers and other stakeholders.
But the power of modern communications
can also be used to promote good news
– stories of success and achievement
that can reinforce the reputations of
organisations that are making a genuine
contribution to society and not just
producing a return for their owners.
The history and values of our operating
companies, together with the experience
of our Board and senior management
team, have resulted in a clear recognition
that how we behave as a business is
instrumental in both safeguarding the
value already created, and also in
propagating the creation of value in
the future.
As a result, we are focused on fostering
a culture that strikes an appropriate
balance of interests for each of our
key stakeholders.
20
Non-Standard Finance plc Annual report and accounts 2016 Strategic report
Key performance indicators
KPI measure
Rationale
Medium-term target
2016 KPI1
Impairment as a %
of revenue2
Lending is easy, lending profitably is
more difficult – this measure helps to
tell us that we have the balance right
between growth and short-term
profitability. Grow too quickly or lend
when you shouldn’t and impairment
will increase to unacceptable levels.
Number of FOS
complaints upheld as
a % of total number
of loans made
Whilst focused on delivering great
customer outcomes, we don’t get
everything right all of the time.
This measure shines a light on areas
of our service to customers that need
to improve.
% workforce engaged
in pro bono activity
across the Group
In 2017 we plan to introduce a
Group-wide charity policy including
a provision for staff to give up to
eight hours each year to one of the
Group’s chosen charities or an
approved activity that the
employee is keen to support.
Everyday Loans
20-25%
Loans at Home
30-35%
Trusttwo
13-17%
Everyday Loans
20.0%
Loans at Home
36.3%
Trusttwo
14.8%
Everyday Loans
Everyday Loans
<1%
0.1%
Loans at Home
Loans at Home
<1%
Trusttwo
<1%
10-15%
in the previous
12 months
0.0%
Trusttwo
0.0%
n/a
Staff engagement
surveys
With over 500 staff and their importance in delivering a great service, engagement is
critical and without it we will not succeed. During 2017 we will be conducting surveys
across each of our businesses in order to establish a baseline from which we can set a
realistic medium-term target.
Charitable giving
In 2017 the Group plans to adopt a formal charity policy that will provide financial support
for debt-related as well as other charities.
1. There are no comparable pro forma figures for 2015 (see 'Context for results' in the 2016 Financial review on page 27).
2. Pro forma normalised impairments as a percentage of pro forma normalised revenue.
21
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Strategic report
Business model in action
Customer touchpoint: in home
A non-standard
day for Sam
“We’ve got the right
governance in place
to support our
customers.”
Sam
Loans at Home, Leeds, Yorkshire
22
Non-Standard Finance plc Annual report and accounts 2016 Providing an invaluable service
I’ve got over 15 years’ management
experience of working within all three
lines of defence in the financial services
sector (front-line operations, quality
assurance and internal audit). I really
enjoy identifying risks and ensuring the
right controls are in place to manage
and monitor them. It’s good to know
my work is helping the Company and
everyone who works here. I feel like
I’m always improving something and
learning something new.
Leeds, Yorkshire
23
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Strategic report
Principal risks
The scale and complexity of the Group’s business
mean that there are potential risks and uncertainties
that could have a material impact on the Group’s
performance and that could cause actual results to
differ materially from both expected and historic results.
The table below and overleaf highlights each of
the principal risks identified by the Board, what we
are doing to manage them, whether the risk has
increased, decreased or stayed the same over the
past year and where there has been a change, a brief
explanation as to why the change has occurred.
For further information on our approach to risk,
please see the Risk Committee report on page 50.
Risk/definition
Mitigation
Change
in 2016
Explanation
Conduct
Inappropriate or sub-standard
behaviour by the Group’s
representatives.
• Extensive training
• Monitoring of customer complaints
• Balanced incentive programme
• Clear policies and procedures, including
whistleblowing
• Diligent application of ‘Three Lines of Defence’:
– policies, procedures and quality assurance
in customer-facing roles;
– compliance and conduct assurance; and
– internal audit.
There continues to be a high level of media
and political interest in the behaviour of
consumer credit firms, coupled with a
series of thematic reviews by the FCA that
may have a direct or indirect impact on
the Group’s businesses. However, the
Group has already improved its policies
and procedures and invested heavily in
ensuring it maintains the highest standards
of compliance.
Regulation
All licensed firms are subject to a
rigorous licensing process as well
as strict ongoing supervision by
the FCA. Non-compliance can
result in fines or loss of approvals
to operate. Key regulatory
developments in 2016 are
summarised on page 14.
• Active engagement with the FCA as well
as industry peers
• Diligent monitoring/assessment of all
regulations both in-house as well as through
external advisers
• An active regulatory affairs programme
identifying and addressing the concerns
of key stakeholders
Credit
Any marked increase in the rates
of impairments or defaults by the
Group’s customers could impact
the performance of the Group.
• Detailed weekly and monthly management
information on historic and expected future
credit performance
• Continuous process of review and refinement
of the each business’s credit scorecard and
lending criteria
• Regular credit committee reviews of policies
and outcomes
The regulatory framework is always
subject to change. While Everyday Loans
(including Trusttwo) has received its full
licence from the FCA, together with other
leading home credit firms, Loans at Home
is operating under an interim consumer
credit permission from the FCA. A
continuous process of investment ensures
we meet all of our regulatory obligations.
Higher levels of impairment may indicate
a need for some fine-tuning of certain
policies and procedures during periods
of strong growth.
Decreased
Increased
Unchanged
24
Non-Standard Finance plc Annual report and accounts 2016 Risk/definition
Mitigation
Change
in 2016
Explanation
Business strategy
A failure to execute and integrate
acquisitions (including
technology), or to execute the
Group’s strategy as planned, may
increase the risk of financial loss.
• Detailed due diligence is completed on all
acquisitions with advice from specialists on
legal, financial and regulatory aspects
• Detailed weekly and monthly management
information on operating performance
• Careful monitoring of market dynamics,
competitor behaviour and performance
• Annual review of all aspects of the
Group’s strategy
Operational
Key areas of risk for the Group
include:
• IT failure
• fraud
• changes in the self-employed
status of home credit agents
• threats to agent safety
• failure to recruit and retain
key staff
• IT policies are in place to mitigate risk
including disaster recovery plans
• Policies and procedures are in place to
identify, investigate and report fraud
• Careful monitoring with our advisers of
the tax status of home credit agents
• Agents receive regular training about
personal safety and any incident is carefully
monitored to inform policy and procedures
• underperformance by key staff
• A series of recruitment, retention and
incentive programmes are already in place
• Members of the NSF Board sit on and
attend all board meetings of the operating
subsidiaries
Liquidity
The Group may not be able to
meet its financial obligations
because it:
• is unable to borrow to fund
lending by its operating
businesses
• has failed to renew / replace
existing debt facilities as they
become payable
• cannot fund growth and
further acquisitions
Reputational
Lending money at high
rates of interest means that
consumer finance can attract
a higher level of media and
political scrutiny than certain
other business sectors.
Whilst the Group is committed
to meeting all of its regulatory
obligations, including the delivery
of positive customer outcomes, its
reputation may become tarnished
by the activities of other
businesses or the practices of
others. This in turn could have an
impact on the Group’s operational
or financial performance.
• The Group’s short-term loans to customers
provide a natural hedge against medium-term
borrowings
• The Group’s debt facilities are sourced from
a number of different providers
• The facilities are at different maturities
• Cash and covenant forecasting is conducted
on a monthly basis as part of the regular
management reporting exercise
• As a PLC listed on the main market of the
London Stock Exchange, the Group is highly
transparent with full disclosure regarding its
business and financial performance
• The Group conducts an active regulatory
affairs programme to ensure that all
stakeholders, not just the providers of capital,
have an accurate picture of what the Group is
trying to achieve, our ethos, culture and
business strategy
• Whilst a relatively new company we have
embarked upon a Group-wide exercise to
ensure that ‘what we say is what we do’ and
that our processes and procedures are
consistent with our desired culture, values
and behaviours (see Culture and stakeholder
management on pages 36 to 38)
Everyday Loans (including Trusttwo) was
acquired on 13 April 2016 and represented
80% of the Group's total loan book in 2016
(before fair value adjustments). It has
performed as expected since being acquired.
We plan to open more branches in 2017
and have already secured a number
of sites. No other acquisitions were
made in 2016.
Loans at Home represented 20% of the
Group's total loan book in 2016 and while it
delivered strong growth, it did so at higher
than expected cost. The Group's 2017 plan
for Loans at Home is focused on reducing
volatility and increasing profit.
Everyday Loans successfully migrated
all of its technology onto a new platform
during 2016, reducing substantially the
risk of IT failure.
The media has speculated that the
employment status of self-employed
workers for a number of UK business
models may change.
While agent-related incidents are rare,
we are never complacent and continue
to ensure that agents follow procedures
to ensure they remain safe.
The Group is recruiting the people that it
needs to execute its plans and while there
is a degree of turnover, it is within the
expected levels of tolerance.
The majority of the Group’s bank facilities
are in place until March 2020. With a loan
book of c.£165m (before fair value
adjustments), at 31 December 2016, the
Group is exploring an array of other
financing options.
As we have introduced more stakeholders
to our business (Members of Parliament,
debt-related charities, regulators,
journalists, think-tanks, investors,
debt-providers and others), we have made
clear that not all consumer finance
companies are the same – we explain why
we are different and why we believe that
makes us stand out from the crowd.
However, we remain vigilant, always
ensuring that our reputation is both
nurtured and protected.
Decreased
Increased
Unchanged
25
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016
Strategic report
2016 Financial review
Nick Teunon
Chief Financial Officer
Group reported results
The reported Group results for the year ended 31 December 2016 include a full period of Loans at Home which was acquired on
4 August 2015 and approximately eight months’ performance from Everyday Loans (including Trusttwo) which was acquired on
13 April 2016. The prior year reported figure included approximately five months’ performance from Loans at Home.
Year ended 31 December 2016 £'000
Revenue
Impairments
Admin expenses
Temporary additional commission2
Operating profit (loss)
Exceptional items
Profit (loss) before interest and tax
Finance cost
Profit (loss) before tax
Taxation
Profit (loss) after tax
Earnings (loss) per share3
Dividend per share
Period ended 31 December 2015 £’000
Revenue
Impairments
Admin expenses
Temporary additional commission2
Operating loss
Exceptional items
Loss before interest and tax
Finance income
Loss before tax
Taxation
Profit (loss) after tax
Earnings (loss) per share3
Dividend per share
Fair value adjustments,
amortisation of
acquired intangibles
(8,342)
–
(10,714)
–
(19,056)
(626)
(19,682)
–
(19,682)
3,622
(16,060)
Fair value adjustments,
amortisation of
acquired intangibles and
exceptional items
(5,456)
–
(4,030)
–
(9,486)
(6,135)
(15,621)
–
(15,621)
1,751
(13,870)
Normalised1
81,099
(23,201)
(42,303)
(1,771)
13,824
–
13,824
(3,484)
10,340
(2,278)
8,062
2.62p
1.20p
Normalised1
14,657
(3,858)
(11,340)
–
(541)
–
(541)
70
(471)
1,271
800
1.30p
nil
Reported
72,757
(23,201)
(53,017)
(1,771)
(5,232)
(626)
(5,858)
(3,484)
(9,342)
1,344
(7,998)
(2.60)p
1.20p
Reported
9,201
(3,858)
(15,370)
–
(10,027)
(6,135)
(16,162)
70
(16,092)
3,022
(13,070)
(21.25)p
nil
1. Adjusted to exclude fair value adjustments, amortisation of acquired intangibles and
2. When a new home credit agent agrees to provide lending and collection services to
exceptional items.
26
the Group, we may decide to offer a limited period of additional commission whilst the
agent builds up a critical mass of active loan customers.
3. Basic and diluted earnings (loss) per share based on the weighted average number
of shares in issue of 307,315,588 (2015: 61,502,789).
Non-Standard Finance plc Annual report and accounts 2016 Context for results
• The Group listed on 19 February 2015 and acquired Loans
at Home on 4 August 2015 and Everyday Loans, including
Trusttwo, on 13 April 2016.
• The 2016 reported results include a full-year contribution
from Loans at Home, a full year of central costs and just
over eight months of trading from Everyday Loans,
including Trusttwo.
• The 2015 reported results include the trading of Loans at
Home for approximately five months and the central costs
of the business since incorporation on 8 July 2014.
• Reported results include fair value adjustments,
amortisation of acquired intangibles and exceptional
items relating to the acquisitions. Normalised results are
presented to demonstrate Group performance before
these items.
• The Group also presents 2016 pro forma normalised
results in order to show the results of the Group as if it
had acquired Everyday Loans, including Trusttwo, on
1 January 2016.
• There are no comparative pro forma figures for 2015 as
on completion of the acquisition of Loans at Home on
4 August 2015, the Group adopted a more timely
approach to recognising impairment. The Group has
concluded that any benefit derived from restating the
results of Loans at Home from 1 January to 3 August 2015
to reflect this more prudent approach would be more
than outweighed by the cost of producing such results.
Normalised revenue was £81.1m (2015: £14.7m) reflecting a full
period of Loans at Home and approximately eight months’ of
Everyday Loans whilst the prior year included just five months’
of Loans at Home. This fed through into a normalised operating
profit of £13.8m (2015: loss of £0.5m), which has been reduced
by temporary additional commission paid to newly signed-up
agents of £1.8m (2015: £nil). Normalised operating profit is then
adjusted by fair value adjustments and amortisation of acquired
intangibles totalling £19.1m (2015: £9.5m). As a result, the
reported operating loss was £5.2m (2015: loss of £10.0m).
Exceptional costs of £0.6m (2015: £6.1m) and finance costs of
£3.5m (2015: finance income of £0.1m) resulted in a reported
loss before tax of £9.3m (2015: loss of £16.1m). A tax credit of
£1.3m (2015: £3.0m) meant that the loss after tax was £8.0m
(2015: £13.1m) equating to a reported loss per share of 2.60p
(2015: loss per share of 21.25p).
In addition to reported figures, we have provided pro forma
figures to illustrate what revenues, profits and other key
performance metrics would have been had Everyday Loans,
including Trusttwo, been acquired at the beginning of 2016.
We have therefore analysed performance both before and
after temporary additional commission paid to newly
signed-up agents at Loans at Home, fair value adjustments,
the amortisation of acquired intangibles and exceptional items.
There are no directly comparable pro forma figures for 2015 as
the Company listed in February 2015 as a cash shell and had
no revenue in the first seven months of 2015.
Summary – Group pro forma results
Year ended 31 Dec 16
Pro forma normalised4
Revenue
Impairments
Revenue less impairments
Admin expenses
Temporary additional commission
Operating profit
Finance cost
Profit before tax
Taxation
Profit after tax
Pro forma normalised earnings per share
Dividend per share
Everyday
Loans
£'000
50,088
(10,034)
40,054
(20,631)
Loans
at Home
£'000
42,170
(15,313)
26,857
(23,229)
–
(1,771)
19,423
(4,720)
14,703
(2,941)
11,762
1,857
(323)
1,534
(54)
1,480
Trusttwo
£000
2,416
(358)
2,058
(1,402)
–
656
(316)
340
(68)
272
Central
costs
£000
–
–
–
(3,257)
NSF plc
Pro forma
normalised
£000
94,674
(25,705)
68,969
(48,519)
–
(1,771)
(3,257)
(264)
(3,521)
374
18,679
(5,623)
13,056
(2,688)
(3,147)
10,368
3.37p
1.20p
4. Assuming Everyday Loans (including Trusttwo) was acquired on 1 January 2016 and adjusted to exclude fair value adjustments, amortisation of acquired intangibles and
exceptional items. Note there are no comparative figures for 2015 (see Context for Results above).
A more detailed review of each of the operating businesses is outlined below showing results on a pro forma as well as a
reported basis.
27
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Strategic report
2016 Financial review continued
Divisional overview
loan amounts ranging from £1,000 to £15,000 and length
of loan ranging from one year to five years, we believe that
Everyday Loans is able to serve an unrivalled breadth of UK
customers. Another key differentiator from many competitors
is that while the vast majority of customers make their
initial contact remotely, either direct or through brokers, we
always seek to meet the customer face-to-face in one of our
branches so that we can complete our underwriting process.
We believe that whilst expensive to deliver, our branch-based
approach creates a more bespoke and thorough lending
experience which benefits our customers as well as the
business by enabling us to make better lending decisions.
Having received the full FCA permissions in June 2016, we
embarked on a planned programme of investment across the
business with a clear focus on:
• extending our customer reach;
• broadening our product range; and
• ensuring we remain fully compliant with our
regulatory obligations.
Specific achievements included: expanding the branch network
with five new openings during the year; extending the customer
offering with the launch of a new self-employed product; we
successfully migrated our back-office technology to a new
platform without incident; we began working with a number of
new brokers and lead generators that are already proving to be
very successful and have continued to invest in staff training
and compliance to ensure that we remain at the vanguard of
our industry.
We continue to believe that the branch-based approach
provides Everyday Loans with a significant advantage over
other more remote lenders in being able to properly assess
both affordability and propensity to pay and so whilst
customers with lower credit scores do carry more risk, at higher
APRs the risk-adjusted return remains commercially attractive.
Reported results
Normalised revenue was £37.1m (2015: n/a) and reflected the
inclusion of Everyday Loans from 13 April 2016. Fair value
adjustments of £7.9m (2015: n/a) were due to the fair value
unwind of the acquired loan portfolio and resulted in reported
revenue of £29.2m (2015: n/a). Impairments were £7.6m (2015:
n/a) while administrative expenses were £14.7m (2015: n/a)
resulting in total normalised operating profit of £14.8m (2015:
n/a) and reported operating profit of £6.8m (2015: n/a).
Being close to our customers is one factor that influences our
ability to convert leads into underwritten loans and since
completing the acquisition in April 2016 we have continued
to invest in expanding our branch network. Whilst many
applications represent duplicates or are rejected because data
has been entered incorrectly, from over 860,000 applications
processed in 2016, we completed 26,535 loans with an average
loan size of £3,842.
Branch-based lending
Size of loans
£1,000–£15,000
Duration
1-5 years
Range of APR
24.2%–299%
(representative APR – 79.4%)
Average gross annual income
of customers
c.£30,000
Lending process
1. Customer applies online or via a broker
2. Initial credit score removes duplicate applications and applicants
that fail to meet lending criteria
3. Customer then contacted by the branch to confirm details and
if satisfactory is invited into the branch for an in-depth interview
4. Interview includes detailed income and expenditure assessment
Collections process
1. Customer pays electronically, preferably by direct debit
2. If payment missed then branch is responsible for follow-up
3. If customer circumstances change, central function can defer
or reschedule payments
4. Once arrears reach 180 days, the debt is fully written-off
Everyday Loans
Everyday Loans remains the largest branch-based lender in the
UK’s non-standard finance sector with 41 branches. By tailoring
customers’ requirements through a broad range of loan
products, Everyday Loans is able to meet the needs of a large
number of customers.
Having announced the proposed acquisition of Everyday Loans
on 4 December 2015, the transaction completed on 13 April
2016, following receipt of the requisite approval from the FCA.
At 31 December 2016, Everyday Loans had over 39,600
active customers across the UK and has delivered strong
growth in all key financial metrics since acquisition in April
2016. With loans carrying APRs ranging from 24% to 299%,
28
Non-Standard Finance plc Annual report and accounts 2016 Year ended 31 December
Revenue
Impairments
Revenue less impairments
Admin expenses
Operating profit
Finance cost
Profit before tax
Taxation
Profit after tax
5. Reported figures, adjusted to exclude fair value adjustments.
Pro forma results
Pro forma normalised revenue (12 months of Everyday Loans)
was £50.1m driven by further growth in the loan book that
as at 31 December 2016 had reached £122.4m, thanks to
continued strong demand for the Group’s products as well
as the benefit of an increase in yield from a combination of
new pricing as well as a shift in the product mix. Impairments
increased slightly from the half year to 20.0% of revenue
reflecting the strong loan book growth and increased volumes
from customers with lower credit scores (although this was
more than offset by an increase in yield on new business
volumes that increased from 51.9% in March 2016 to 56.9%
in December 2016). Administrative expenses were £20.6m
resulting in pro forma normalised operating profit of £19.4m.
Year ended 31 December
Revenue
Impairments
Revenue less impairments
Admin expenses
Operating profit
Finance cost
Profit before tax
Taxation
Profit after tax
Key Performance Indicators7
Number of branches
Period end customer numbers (000)
Period end loan book (£m)8
Average loan book (£m)9
Revenue yield (%)10
Risk adjusted margin (%)11
Impairments/revenue (%)
Operating profit margin (%)
Return on asset (%)12
2016
Pro forma
Normalised6
£000
50,088
(10,034)
40,054
(20,631)
19,423
(4,720)
14,703
(2,941)
11,762
41
39.6
122.4
113.4
44.2
35.3
20.0
38.8
17.1
2016
Normalised5
£000
2016
Fair value
adjustments
£000
37,080
(7,645)
29,435
(14,671)
14,764
(2,699)
12,065
(2,540)
(7,916)
–
(7,916)
–
(7,916)
–
(7,916)
1,504
2016
Reported
£000
29,164
(7,645)
21,519
(14,671)
6,848
(2,699)
4,149
(1,036)
9,525
(6,412)
3,113
2015
Reported
£000
–
–
–
–
–
–
–
–
Plans for 2017
We remain focused on expanding our branch network and
continuing to broaden our product range.
Having opened five new branches since April 2016, we are
keeping up the momentum in 2017 with ten new branches
already underway and plans for a further two new branches
that are also expected to open by the year end. Whilst this
increased investment is expected to reduce operating profit by
approximately £1m in the current year, it will underpin strong
earnings growth in future years as the new branches reach
maturity in terms of customers and loan book.
In terms of product development, our new ‘selfy’ loan has been
designed to reach the large and growing proportion of the
workforce that are now self-employed and which, due to the
variability of their income, are often excluded by other lenders.
Whilst encouraged by some early success, we are continuing to
test the appeal and viability of the product before deciding to
commit further resources to it. Separately, we submitted an
application to the FCA for a high-cost, short-term credit licence
in December 2016 and if successful, plan to offer shorter-term
loans to our customers through the branch network. Currently,
our shortest term loan is for 24 months and we believe that
a number of potential customers would prefer to borrow over
a shorter period. This extension to our product range will
complement our existing offering and improve our service
to customers.
6. Assuming Everyday Loans was acquired on 1 January 2016 and adjusted to exclude
fair value adjustments.
7. Key performance indicators have been provided using pro forma normalised data
only as reported data only includes performance metrics from the date of acquisition.
8. Excluding fair value adjustments.
9. Excluding fair value adjustments based on a 12-month average.
10. Revenue as a percentage of average loan book excluding fair value adjustments
(12-month average).
11. Revenue less impairments as a percentage of average loan book excluding fair value
adjustments (12-month average).
12. Operating profit as a percentage of average loan book excluding fair value
adjustments (12-month average).
29
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Strategic report
2016 Financial review continued
Divisional overview
we simplified the management structure; increased our
focus on the performance of recently joined agents;
deployed a more sophisticated scorecard; and consolidated
a number of sub-scale agencies. These measures improved
the quality of the loan book and the rate of impairment
began to decline. Total customer numbers consequently
came down in the second half and new loans written
improved in terms of quality, albeit on lower volumes.
Having assembled the new management team and instituted the
transformation of Loans at Home, Mark Bardsley stepped down
as CEO of Loans at Home in January 2017 and David Thompson,
a seasoned home credit executive who had already been
running the Loans at Home network, has stepped into the role.
.
Reported results
Normalised revenue was £42.2m (2015: £14.7m), reflecting the
inclusion of Loans at Home for a full period. Reported revenue
was £0.4m lower due to the unwinding of the fair value
adjustment made to the loan book at completion in 2015
(2015: a charge of £5.5m).
Normalised operating profit of £1.8m (for the period 4 August
2015 to 31 December 2015: £2.1m) was after deducting
administration costs of £23.2m which included £7.9m of agent
collection commissions and temporary additional agent
commission of £1.8m (2015: £nil). Temporary additional agent
commission was higher than expected following our decision
to focus on adding higher quality customers that meant it took
longer for a number of newly appointed agents to reach critical
mass with their rounds and so temporary commissions were
extended for a further period. Reported operating profit was
£1.4m (2015: operating loss of £3.9m) reflecting the cost of
temporary additional commission paid to agents and the fair
value adjustment to revenue outlined above.
The first part of our technology investment is now complete:
our new handheld collections application (app) has been
rolled-out across the entire network and has been warmly
welcomed by all agents. This automation has significantly
reduced the complexity of administering the collections process
and is also providing accurate management information in
a fraction of the time and at lower cost.
Home Credit
Size of loans
£100–£1,000
Duration
24–75 weeks
Range of APR
164%–733%
(representative APR – 433.4%)
Average gross annual income
of customers
c.£14,500
Lending process
1. Customer submits initial details to allow initial credit scoring and
decision in principle
2. Agent receives a ‘request to call’
3. Agent visits the customer at home to conduct full income and
expenditure
4. Agent returns at a later date to finalize and make the loan
Collections process
1. Agent calls each week or every two weeks to collect due
payments
2. c.20% of payments are made on card (Continuous Payment
Authority)
3. Loans start to be impaired if 2 out of 13 payments are missed
4. Once arrears reaches 180-days, the debt is fully written-off
Loans at Home
Loans at Home is the third largest home credit business in
the UK with almost 94,000 customers and a net loan book
(before fair value adjustments) at 31 December 2016 of £33.4m,
an increase of 19% over the prior year (2015: £28.0m).
Strong growth in the number of self-employed agents
drove faster than expected growth in customer numbers
that in turn prompted a spike in impairments in the first
half of 2016. Having tested a number of alternate growth
strategies, we implemented the following measures to
reduce impairments and improve operating performance:
30
Non-Standard Finance plc Annual report and accounts 2016 Year ended 31 December
Revenue
Impairments
Revenue less impairments
Admin expenses
Temporary additional commission
Exceptional items
Operating profit/(loss)
Finance cost
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
Key Performance Indicators14
Period end agent numbers
Period end number of offices
Period end customer numbers (000)
Period end loan book (£m)
Average loan book (£m)
Revenue yield (%)
Risk-adjusted margin (%)
Impairments/revenue (%)
Operating profit margin (%)
Return on asset13
2016
Fair value
adjustments
£000
(426)
–
(426)
–
–
–
(426)
–
(426)
81
(345)
2016
Reported
£000
41,744
(15,313)
26,431
(23,229)
(1,771)
–
1,431
(323)
1,108
27
1,135
2016
Normalised13
£000
42,170
(15,313)
26,857
(23,229)
(1,771)
–
1,857
(323)
1,534
(54)
1,480
785
47
93.6
33.4
27.6
152.8
97.3
36.3
4.4
6.7
2015
Reported
£000
9,201
(3,858)
5,343
(8,656)
–
(593)
(3,906)
–
(3,906)
1,271
(2,635)
2015
Normalised
£000
2015
Fair value
adjustments
£000
(5,456)
–
(5,456)
–
–
(593)
(6,049)
–
(6,049)
–
(6,049)
14,657
(3,858)
10,799
(8,656)
–
–
2,143
–
2,143
1,271
3,414
630
41
92.0
28.0
n/a
n/a
n/a
26.3
14.6
n/a
13. Normalised to exclude fair value adjustments and exceptional items.
14. All definitions are as per above. Certain Key Performance Indicators for 2015 are shown as not applicable as Loans at Home was acquired on 4 August 2015 and reported data
therefore includes less than a full year’s performance. Note there are no comparative figures for 2015 (see 'Context for Results' on page 27)
Plans for 2017
Our focus for 2017 is to consolidate the changes already made,
complete the roll-out and then embed our new technology as
planned so that we can focus the business on what it does best:
lending and collecting responsibly to deliver excellent customer
outcomes. We are continuing to invest in our people with
improved training programmes for both staff and self-employed
agents and we hope to become the home credit firm that is
recognised as being the preferred place to work. Whilst we
continue to be opportunistic and selective regarding the hiring
of experienced agents, particularly now that our largest
competitor is substantially reducing the scale of its agent
network, we expect temporary agent commission costs to
fall in the current year.
We will continue to improve the quality of our customer base
and aim to reduce further the level of impairments as a
percentage of revenue and whilst this may result in more
moderate loan book growth in the current year versus 2016, our
objective will be to deliver healthy revenue and profit growth.
31
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Strategic report
2016 Financial review continued
Divisional overview
Reported results
As at 31 December 2016 the business had a net loan book
of £8.8m delivering reported revenue of £1.8m (2015: n/a)
and operating profit of £0.5m (2015: n/a) reflecting the
performance in the eight-month period since acquisition.
Year ended 31 December
Revenue
Impairments
Revenue less impairments
Admin expenses
Operating profit
Finance cost
Profit before tax
Taxation
Profit after tax
2016
Reported
£000
1,849
(243)
1,606
(1,146)
460
(198)
262
(58)
204
2015
Reported
£000
–
–
–
–
–
–
–
Pro forma results
On a pro forma basis, Trusttwo generated pro forma revenue of
£2.4m (2015: n/a) and pro forma operating profit of £0.7m (2015:
n/a). Administration costs almost doubled in the second half
versus the first half as we invested in building the infrastructure
(people, systems and processes) to be able to grow revenues
substantially in 2017 once all elements of our customer
experience are working as planned.
Year ended 31 December
Revenue
Impairments
Revenue less impairments
Admin expenses
Operating profit
Finance cost
Profit before tax
Taxation
Profit after tax
Key Performance Indicators16
Period end customer numbers (000)
Period end loan book (£m)
Average loan book (£m)
Revenue yield (%)
Risk adjusted margin (%)
Impairments/revenue (%)
Adjusted operating profit margin (%)
Return on asset (%)
2016
Pro forma15
£000
2,416
(358)
2,058
(1,402)
656
(316)
340
(68)
272
3.3
8.8
7.7
31.9
26.7
14.8
27.2
8.5
15. Assuming Trusttwo was acquired on 1 January 2016.
16. Key performance indicators have been provided using pro forma normalised data
only as reported data only includes performance metrics from the date of acquisition.
All definitions are as per above.
Guaranteed Loans
Size of loans
£1,000–£7,500
Duration
12–60 months
Range of APR
43.8%–48.9%
(representative APR – 43.8%)
Average annual income
of customers
c.£24,800
Lending process
1. Customer submits application online
2. Customer sends link to preferred guarantor
3. Guarantor completes their details online
4. Credit check on applicant and guarantor
5. If successful, both guarantor and applicant are contacted to
undertake affordability and ID review
6. If successful, guarantor asked to sign agreement electronically
7. Applicant signs their agreement electronically
8. Funds transferred to guarantor
Trusttwo
Whilst a relatively new segment of the unsecured credit market,
the value of outstanding unsecured guaranteed loans in the
UK has grown rapidly and is estimated to have reached
approximately £350m in 2015. We believe that there is a
significant opportunity for Trusttwo to become the clear
number two player behind the market leader and during 2016
we laid the foundations to realise the full potential of this exciting
business model.
Following its acquisition in April 2016, we established Trusttwo
as a stand-alone business and hired a Managing Director who
has full profit and loss responsibility. Having obtained its full FCA
permissions in June 2016, we established a robust infrastructure
through the recruitment of more staff and the redesign of a
number of core processes. This doubled conversion rates so that
the business now represents a viable and attractive alternative
for financial brokers that are keen to offer customers an
alternative solution to the market leader. Whilst this required
meaningful investment, we began to see solid month-on-month
revenue and expect this to increase further once our
infrastructure is fully in place.
32
Non-Standard Finance plc Annual report and accounts 2016 Everyday Loans was £10.7m (2015: £4.0m) reflecting a full
period of amortisation for Loans at Home and eight months
for Everyday Loans. An exceptional item charge of £0.6m
was incurred in the year and related to stamp duty paid at
completion on the acquisition of Everyday Loans (2015: £5.5m).
The charge in the prior year related to acquisition-related
expenses. Finance costs of £0.3m (2015: finance income of
£0.1m) were also incurred in the first half and related to the
non-utilisation fee on the Everyday Loans bank facility prior
to the drawdown at completion.
Approved by and signed on behalf of the Board of Directors
Nick Teunon
Chief Financial Officer
31 March 2017
Plans for 2017
Trusttwo will soon be launching a much improved website
that we expect will attract more customers as well as improve
conversion rates further. The new site will also expand our
existing product parameters thereby increasing our appeal to
potential customers that are looking to tailor any offer to best
suit their needs. The launch will be accompanied by a fully-
integrated marketing campaign across all key channels including
online, social as well as through referrals from the Everyday
Loans branch network. So far we have been pleased with the
positive response from staff in the branches and hope to make
further progress on increasing the number of referrals and
conversion rates during 2017. Financial brokers represent a
significant opportunity for Trusttwo and we have been
leveraging Everyday Loans’ excellent relationships as well as
building new ones with additional brokers and lead generators
for whom the Trusttwo proposition is more attractive.
With our infrastructure and funding in place, we believe that
there is a substantial opportunity for Trusttwo to become the
clear number two in the UK’s guaranteed loans market.
Central costs
Year ended 31 December
Revenue
Admin expenses
Exceptional items
Operating loss
Finance cost
Loss before tax
Taxation
Loss after tax
2016
Amortisation
of acquired
intangibles
£000
2016
Normalised17
£000
–
(3,257)
–
(3,257)
(264)
(3,521)
374
–
(10,714)
(626)
(11,340)
–
(11,340)
2,037
2016
Reported
£000
–
(13,971)
(626)
(14,597)
(264)
(14,861)
2,411
(3,147)
(9,303)
(12,450)
17. Adjusted to exclude the amortisation of acquired intangibles related to the acquisition of
Loans at Home and Everyday Loans and exceptional items.
Year ended 31 December
Revenue
Admin expenses
Exceptional items
Operating loss
Net finance income
Loss before tax
Taxation
Loss after tax
2015
Amortisation
of acquired
intangibles
£000
2015
Normalised19
£000
–
(2,684)
-
(2,684)
70
(2,614)
-
(2,614)
–
(4,030)
(5,542)
(9,572)
–
(9,572)
1,751
2015
Reported
£000
–
(6,714)
(5,542)
(12,256)
70
(12,186)
1,751
(7,821)
(10,435)
19. Adjusted to exclude the amortisation of acquired intangibles related to the acquisition of
Loans at Home and Everyday Loans and exceptional items.
Normalised administrative expenses, including head office costs
and other expenses associated with the running of the plc
(before the amortisation of acquired intangibles and exceptional
items) were £3.3m (2015: £2.7m). The amortisation of intangible
assets acquired as part of the acquisition of Loans at Home and
33
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Non-Standard Finance plc Annual report and accounts 2016
Strategic report
Business model in action
Customer touchpoint: by phone
A non-standard
day for Tom
“Love the job, great
job satisfaction when
I’m able to help a
customer in need.”
Tom
Trusttwo, Bourne End, Buckinghamshire
34
Friendly, open and
transparent culture
I joined Trusttwo in 2015 as a
customer service agent, after
working in a high street bank. I’ve
found the environment and team
culture to be very supportive, and
I’m confident that I’ll develop my
career here. I love the Trusttwo
brand. It feels good to provide a
service to young people trying to
build a robust credit record.
Bourne End,
Buckinghamshire
35
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Strategic report
Culture and stakeholder management
NSF is a relatively young company but
has chosen to adopt a business approach
that is more akin to that of a much larger,
long-established business.
Our approach
Our approach to culture and stakeholder
management has been forged by the
considerable experience of the Group’s
founders and senior management team.
Together, they view such an approach
as being a prerequisite for long-term
success and one that is consistent with
our strategy to be a leader in each of our
chosen markets (see Strategy on page 16).
It is clear from our business model (see
page 3) that the interface with our
customers is a key part of our overall
process. As a result, “providing a helping,
but firm hand” is an ethos that we hold
dear. We believe that by sustaining the
values and behaviours that support it,
we will remain on-track to deliver our
medium-term goal for the Group of 20%
annual loan book growth and a return
of 20% on assets in each of our
operating businesses.
The acquisitions of both Everyday Loans
(including Trusttwo) and Loans at Home
were made after extensive legal, financial
and operational due diligence, a process
that also provided valuable guidance on
the cultural values and behaviours that
were embedded within each organisation.
As a result, the Board was comfortable
that each of the acquired businesses
was guided by similar principles of
business ethics.
Rather than seek to impose a ‘target
culture’ or set of values, the Group has
first sought to confirm the existing culture
within each of its operating subsidiaries
before then assessing where, if at all, there
are any inconsistencies or gaps with its
overall objectives and business approach.
For regulated financial services firms, the
FCA has provided some broad guidance
on the cultural approach that it expects
licenced firms to adopt.
36
FCA guidance on cultural approach:
• develop strong, clear leadership
and controls;
• identify key risks in their strategies,
business models and cultures that
may prevent the delivery of positive
market and consumer outcomes;
• identify appropriate steps to
mitigate such risks through
appropriate systems and controls,
including appropriate ways of using
whistleblowing intelligence;
• align strategies, business models,
systems and controls with core
values that ensure positive
outcomes (market and customer);
• ensure employee behaviours fall
within a prescribed risk appetite
using appropriate incentives;
• develop a culture that supports the
long-term interests of the firm, its
customers and the long-term
integrity of the markets in which
the firm operates; and
• demonstrate that the principles of
good conduct towards customers
and markets are embedded
throughout their business and that
these are working to deliver such
outcomes and market behaviour.
As a result, FCA-regulated firms have to
be focused not just on the delivery of
attractive risk-adjusted returns, but they
also need to be mindful of the way in
which they do so. However, such an
approach is not limited to FCA-regulated
firms. The media is littered with corporate
scandals that only serve to highlight how,
in the digital age, the speed with which
malpractice and/or ‘poor’ corporate
behaviour is broadcast around the world,
with a significant impact upon customers,
staff, shareholders and a broad range of
other stakeholders. All business leaders
are being forced to recognise that it is not
good enough just to be seen as a ‘good
corporate actor’. Executives are required
to ensure that principles of corporate
responsibility and business ethics are
ingrained within their firm’s DNA – from
the most junior representative to senior
executives in the Boardroom.
As well as the FCA, the issue of culture
has also been championed by the
Financial Reporting Council (‘FRC’) that
during 2016 published a 62-page report
on its findings entitled “Corporate Culture
and the Role of Boards”.
Against this background, the Board was
clear that it needed clarity on what our
culture is, what it should be and has
developed the means to influence it
in each of our business areas, not just
because the FCA or the FRC says we
should, but because it makes good
business sense.
We define culture as the “way we do
things around here” and are determined
that the actions of our leaders, staff, self-
employed agents or anyone authorised to
represent one or more of our businesses,
reflect our desired values and behaviours.
Progress so far
In December 2016 we launched a process
to verify the cultural practices in each
area of our business, ensuring that how
we behave is consistent with our strategy
and business model but also to confirm
that such behaviour is in-line with our
appetite for risk. This process was also
tasked with identifying ways in which we
can both foster and measure desired
Non-Standard Finance plc Annual report and accounts 2016 values and behaviours, accepting that
these measures may differ slightly
depending upon which part of the
business you are looking at.
Whilst not yet complete, we have
conducted a series of workshops across
each of our operating businesses involving
staff and contractors with different levels
of experience, tenure and in different
locations so as to ensure we capture as
representative a sample as possible.
Each workshop was tasked with
identifying the values and behaviours that
would be required for a regulated firm to
succeed as well as assessing where each
business was relative to that target and,
if gaps exist, determining how best we
could move towards the desired target.
They were also asked to identify any
aspect of our business operations that
was particularly helpful in promoting such
desired values and behaviours, as well
as any that acted as a barrier or might
encourage bad behaviour. The final leg
of the process is to identify means by
which we can then influence values and
behaviour in each part of our business.
Culture – preliminary findings
Whilst this exercise is not yet complete,
based upon the early results received
to-date, we are starting to identify the
following key values and behaviours that
are common across all three businesses:
• Doing the right thing: we recognise
our collective responsibility for
delivering great outcomes for our
customers. We don’t cut corners and
always seek the path that is right
before the path that is easy.
• Communication: we listen, are
well-informed and believe it’s our
duty to speak up when we disagree,
or believe something is not right; we
celebrate success and don’t blame
others when something goes wrong,
always learning from our mistakes.
• Entrepreneurial: we use our initiative
and are prepared to try new things so
we can perform better and be the best
we can be.
• Shared purpose: we have clear
strategic and operational goals and
expect all of our representatives to
understand and share in that vision.
• Integrity: we expect our people to
respect colleagues and other key
stakeholders and to do what we say
we will do.
• Teamwork: our businesses are complex
and involve many different elements
that each represent an important part
of our overall business process. By
working together we are likely to solve
problems more effectively than trying
to do things on our own.
Our cultural approach
1. Asse
values/
across ea
b
s
s c
e
h
u
r
r
a
e
v
i
o
n
t
b
c
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r g
r g
a
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v
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e t
e t
i o u r s
i o u r s
e t e r m i n
d t a
d t a
5. D
desire
desire
e
e
values/ b
values/ b
h
h
4
.
t
h
a
t
g
o
o
d
/
b
a
d
I
d
e
n
h
i
n
d
t
i
e
f
r
y
/
b
p
t
e
r
h
i
h
o
n
a
v
m
g
s
i
o
o
u
t
e
r
s
c
3. Establish m e t
i
to monitor c u l t u r a l
performa n c e
r
u
u
s
i
r
s
n
e
s
s
s
y
a
w
y
f
ti
n
e
/
s
e
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a
v
e
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n
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r
u
o
i
v
a
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e
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2. Id
to in
37
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016
Strategic report
Culture and stakeholder management continued
“ We define culture as 'the way we do
things around here' and are determined
that our actions reflect our desired
behaviours and values.”
Charles Gregson
Non-Executive Chairman
Certain areas of our business represent
potential ‘hot spots’ through the
existence of possible conflicts such as
incentives, that may encourage poor
behaviour in order to meet certain
performance targets. Managing such
conflicts are part of the day-to-day
management of each of our businesses.
Whilst we don’t profess to get everything
right all of the time, the systems and
controls we have in place and our
determination to promote a culture that
supports each of our desired behaviours
helps to ensure that we meet all of our
regulatory obligations and minimise the
risk of any material impact on our overall
operating and financial performance.
This approach also helps us to address
the needs of our key stakeholders
including customers, employees and
contractors, regulators, the communities
where we work and the providers
of capital.
Customers
As well as adhering to the extensive
requirements of the FCA, putting our
customers at the centre of everything
we do lies within all of our policies and
procedures, our training programmes,
our incentive arrangements and the
way we run our business. However, we
recognise that it is ‘deeds not words’
that count and so we regularly survey
our customers to tell us how we are
performing. We also monitor and take
very seriously all complaints we receive
in order that we can improve our service.
Employees and self-employed agents
Investing in our people lies at the heart of
our business strategy. As a relatively new
Group we have sought to ensure that
there is a proper induction process as
well as the required level of training for
all new joiners so that they can begin to
make a contribution as soon as possible.
We have also invested in training for
existing staff and self-employed agents.
Online training programmes such as our
remote Learning Management System
38
(‘LMS’) at Loans at Home provide us with
a perfect audit trail for each participant
of which modules have been completed
and the achievement level attained.
As well as providing competitive
compensation arrangements for both staff
and self-employed agents, we have also
announced our intention to put in place
a save-as-you-earn scheme for all Group
employees during 2017. This scheme will
enable staff to buy shares in Non-Standard
Finance plc in a tax-efficient way.
The following table sets out the
breakdown by gender of the Directors
and senior managers of the Company as
well as the total number of employees:
Number of Company
Directors
Number of senior
managers
(excluding Executive
Directors), Directors
of subsidiary
businesses and
heads of function
Total number of
employees
Male Female
Total
4
1
5
14
3
11
267
270
537
Regulators
Whilst relatively small when compared
with many other regulated firms, each
of our regulated businesses maintains a
regular dialogue with the FCA as part of
both its licensing and also its on-going
supervision processes. In addition,
Non-Standard Finance plc has kept the
FCA fully-informed regarding the Group’s
broader strategic plans and has also
submitted its views when invited to do
so as part of the FCA’s ongoing series
of Thematic Reviews.
Communities and charity
As the vast majority of our business is
conducted face-to-face, we recognise
the importance of becoming a valued
member of the towns and cities where
we have a presence. With over 500 staff,
785 self-employed agents and 137,000
customers that we serve through a
network of almost 90 offices across the
UK, we are deeply ingrained within the
fabric of a number of local communities.
One initiative that we hope to launch
during 2017 is a pro bono scheme to
enable our staff to give up to eight hours
of their time during office hours for good
causes, in and around the towns where
they live and work. Whilst a relatively
small gesture, we hope that our staff
will embrace the chance to provide a
helping hand if and when they can.
The Group also plans to implement a
charity policy in 2017 so that in addition
to the pro bono initiative above, we
can also provide financial support
not just in local communities but also
nationwide. Whilst this is likely to be
a modest sum in 2017, we hope to be
able to increase this in future years.
Providers of capital
The Company keeps shareholders
and lending banks informed of
business developments via its annual
report, full-year and half-year results
as well as periodic trading update
announcements. All other price sensitive
information is publicly disclosed via
a regulatory news service. All these
items of information are also available
on the Company’s corporate website,
www.nonstandardfinance.com. The
website also contains other information
about the Group and its business.
Throughout the year the Group Chief
Executive, Chief Financial Officer, and
Director of IR and Communications
meet with shareholders on request or via
organised investor roadshows supported
by the Company’s brokers as well as by
attending and presenting at industry
and investor conferences. The Chairman
and other Non-Executive Directors may
also meet with investors, as required.
Non-Standard Finance plc Annual report and accounts 2016 Governance
Board of Directors
Governance report
Audit Committee report
Nomination Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
40
42
47
49
50
51
66
39
Financial statementsStrategic reportGovernance Governance
Board of Directors
John van Kuffeler 68
Group Chief Executive
Nick Teunon 51
Chief Financial Officer
Miles Cresswell-Turner 54
Executive Director
Appointed
8 July 2014
Committees
None
Appointed
8 August 2014
Committees
None
Appointed
10 December 2014
Committees
None
Profile
John was Chief Executive and then
Chairman of Provident Financial plc
for a combined total of 22 years until
December 2013. He was Chairman of
Marlin Financial Group Limited, the
consumer debt purchasing company, for
four years until its sale in February 2014
and was also Chairman of Hyperion
Insurance Group Limited for five years
until December 2013. John was previously
Chief Executive of Brown Shipley
Holdings PLC which included Medens
Trust Limited, a consumer car finance
company, and was Chairman of the credit
committee of Brown Shipley Holdings
PLC’s main banking subsidiary, Brown,
Shipley & Co. Limited.
Profile
Nick was Chief Financial Officer of Marlin
Financial Group Limited, the consumer
debt purchasing company, from August
2013 until June 2014. Prior to that, Nick
spent five years as Chief Financial Officer
of FTSE International, joining from the
Press Association, where he was Group
Finance & Strategy Director for seven
years. At both FTSE International and the
Press Association, Nick was responsible
for all mergers and acquisitions activity
and related debt funding, in addition to
leading the finance function.
Profile
Prior to becoming Executive Director,
full-time, at NSF on 1 January 2016, Miles
was a partner in Duke Street LLP who
specialised in the finance sector and who
led on the acquisitions by Duke Street
LLP of Marlin Financial Group Limited
and UKWM Limited. Before becoming
a partner at Duke Street LLP, Miles was
a partner at Palamon Capital Partners
LLP from 1998 to 2008, where he led the
investment in Towry Law plc. Prior to
Palamon Capital Partners LLP, Miles
spent seven years as a director in the
Leveraged Finance Department of HSBC
Investment Bank.
External appointments
Non-Executive Chairman of Paratus AMC
Limited
External appointments
None
External appointments
None
40
Non-Standard Finance plc Annual report and accounts 2016
Charles Gregson 69
Non-Executive Chairman
Heather McGregor 55
Independent Non-Executive Director
Appointed
10 December 2014
Appointed
10 December 2014
Committees
Audit Committee
(Chair from 31 October 2016)
Nomination Committee (Chair)
Remuneration Committee (Chair)
Risk Committee
Committees
Audit Committee
Nomination Committee
Remuneration Committee
Risk Committee (Chair)
Profile
Charles is a highly experienced executive
having previously held a number of senior
positions in finance: previously he was
Non-Executive Chairman of ICAP plc
from 1988 to 2016, when it became Nex
Group plc and he became Chairman;
Non-Executive Chairman of Wagon
Finance Group Limited, from 1996 to
2006; Non-Executive Director and
Deputy Chairman of Provident Financial
plc from 1998 to 2007; and Non-
Executive Director of International
Personal Finance Plc from 2007 to 2010.
Charles is a former Chairman of CPP
Group Plc and of St James's Place Plc.
Charles was Executive Director of United
Business Media Plc (formerly MAI Plc)
from 1985 to 2003 and Global CEO and
Chairman of PR Newswire from 2003 to
2009. As part of his responsibilities at
United Business Media Plc, Charles built
Harlow Meyer Savage from a small
money broking business into the
international business of Garban PLC,
a listed company with offices in 25
countries, which later merged with
ICAP plc.
Profile
Professor Heather McGregor CBE
began her early career in financial
communications and investor relations
before joining ABN Amro as a sell-side
analyst. She then spent eight years with
the bank, working in London, Hong Kong,
Singapore and Tokyo, before joining
Taylor Bennett in 2000. She has an MBA
from the London Business School and a
PhD from the University of Hong Kong.
Heather was the founder of the Taylor
Bennett Foundation, which works to
promote diversity in the communications
industry, and is a founding member of
the steering committee of the 30%
Club, which is working to raise the
representation of women at senior
levels within the UK’s publicly quoted
companies. She is also an experienced
writer and broadcaster in the national
media. In 2017 she was appointed to the
Honours Committee for the Economy.
External appointments
Non-Executive Chairman of Nex Group
plc
Non-Executive Director, Senior
Independent Director and Chair of the
Remuneration Committee of Caledonia
Investments Plc
External appointments
Executive Dean of Edinburgh Business
School, the graduate school of business
of Heriot-Watt University
Chairwoman of the executive search firm
Taylor Bennett
Non-Executive Director of International
Game Technology PLC
41
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance There were some changes to the composition of the Board
during 2016. Robin Ashton stepped down from the Board in
October 2016 and to ensure that our Board operates in-line with
the Code the Board agreed that the roles of Chairman and Chief
Executive should be separated. In December 2016 I was
appointed as Chairman and John van Kuffeler was appointed to
the role of Group Chief Executive.
Since the Company was listed in February 2015, there has been
a strong commitment from the Board to develop the corporate
governance within the Company despite there being no
requirement to ultimately comply with the Code. Towards the
end of 2016, a first Board evaluation was undertaken focusing
on a self-evaluation of the Board performance and objectives.
The results were reviewed and interpreted by an independent
party to draw out themes and recommendations for the Board
to consider. As a result a roadmap of actions has been
developed to assist the Board in its journey towards a mature
governance structure.
The Remuneration Committee recognises that the Company’s
acquisitive nature means that it must ensure it retains existing
management and be able to attract key future hires that are
capable of managing a business of the scale that we believe
the Group is capable of reaching within the next few years.
It is therefore important to be able to attract and retain the
right talent whilst recognising that our existing incentive
arrangements are limited. Having undertaken a review of our
remuneration policy with our advisers, we are preparing to
adopt a new policy, details of which are set out in the Directors’
remuneration report on pages 51 to 65.
The future
We aim to embed the corporate governance principles within
our corporate policies, which in turn will strengthen the
corporate governance framework and ensure consistency
throughout the Group. The Board will continue to ensure that
governance processes are documented and implemented and,
where appropriate, continually improved.
In line with the Corporate Governance Code, one of the aims
for the Board is to finalise the appointment of an additional
independent Non-Executive Director to the Board. We
anticipate that this will be achieved during the first half of 2017.
Charles Gregson
Non-Executive Chairman
31 March 2017
Governance
Governance report
for the year ended 31 December 2016
Dear Shareholder,
Introduction
I am pleased to present our 2016 Corporate Governance report
for the Company which incorporates reports from the Audit,
Nominations, Remuneration and Risk Committees on pages
47 to 65. The Board is committed to applying the highest
standards of corporate governance and although the Company
does not have a premium listing on the Main Market of the
London Stock Exchange, the Board has chosen to seek to
comply with the UK Corporate Governance Code (‘the Code’)
where practically possible throughout the year to 31 December
2016. A copy of the Code is available from the Financial
Reporting Council’s website: www.frc.org.uk. As the Company
has not admitted any shares to the premium listing on the
London Stock Exchange it is not required to comply with the
Code and/or any other legislation that applies to premium-
listed, quoted companies. Where there is non-compliance it
is included in the Audit Committee report on page 47, the
Nominations Committee report on page 49, the Risk
Committee report on page 50, and the Directors’ remuneration
report on page 51. For the Company’s shareholders, our main
aim is to deliver significant growth and the development of a
strong governance framework is key to that achievement.
The Board is responsible for and committed to maintaining
and developing such procedures as are required to ensure that
good standards of corporate governance operate across all
levels of the Group, including each of its operating subsidiaries.
2016 saw the completion of the Group’s second major
acquisition, one that involved a substantial financing exercise
including both debt and equity. Having broadened the
operational base substantially, the Board has extended its
governance framework so as to ensure that the Group’s values
and behaviours are reflected in each of its businesses and that
these tie back to the Group's business strategy.
Highlights of the financial year
During 2016, we successfully completed the acquisition of
Everyday Loans (including Trust two) and continued to actively
engage with our investors by holding a well-attended investor
day in November 2016. The investor day received positive and
encouraging feedback and we intend to conduct more investor
days in the future.
42
Non-Standard Finance plc Annual report and accounts 2016 The Board
Statement of compliance with the Code
During the financial year ended 31 December 2016, the Company
has not complied with all of the provisions of the Code.
Given that only one Director is considered to be independent,
the Company did not meet requirements B.1.2, B.2.1, C.3.1 and
D.2.1 of the Code. The Board considered these provisions to not
be appropriate due to the size and nature of the Company and
the fact that the Board is actively engaged to appoint a second
Independent Director.
The Board has not appointed a Senior Independent Director,
and therefore does not comply with provision A.4.1 of the Code.
This provision is not considered to be appropriate due to the
relatively small size of the Board and the fact that currently the
Board only includes one independent Non-Executive Director.
Contrary to provision B.6.1, A.4.2 and B.6.3 of the Code,
although a performance evaluation of the Board and its
Committees was undertaken, an appraisal of the Chairman’s
performance was not undertaken as there is only one other
Non-Executive Director. In addition, during 2016 the Chairman
and Non-Executive Directors did not meet without the
Executive Directors present.
Board operation
The Chairman and the Chief Executive roles are fulfilled by
separate individuals and their roles are set out in writing and
agreed by the Board. The Chairman, Charles Gregson, is
responsible for the leadership of the Board and the day-to-day
executive responsibility is undertaken by John van Kuffeler,
assisted by the Group’s Board of Directors.
The Board is responsible for the long-term success of the
Company in relation to its strategy, operations and values and
for establishing financial soundness for the Group alongside
a strong corporate governance structure and practices that
support an effective decision-making process.
The Board sets annual objectives as well as the overall strategic
direction of the Company. These objectives are reviewed
regularly at Board meetings and are implemented through
approval and regular assessment of the Company’s strategy
and business plan. At each Board meeting the Board discusses
the financial, operational, strategic and governance issues that
affect the Group.
Board composition and structure
The Board comprised six Directors through the year until
31 October 2016 when Robin Ashton stepped-down as a
Director. For the rest of the financial year, the Board comprised
five Directors, all of whom have served throughout the financial
year, including:
• Non-Executive Chairman
• Group Chief Executive
• 2 Executive Directors
• 1 Independent Non-Executive Director
Independence
In accordance with section B.1.1 of the Code the Board
determines Heather McGregor to be an Independent Non-
Executive Director. The Board’s assessment is based on the fact
that Heather McGregor receives no additional benefits from
the Group, has not previously held an executive role within the
Group and has served less than nine years on the Board. The
Board believes that there are no current or past matters which
are likely to affect Heather McGregor’s independent judgement
and character.
The Board does not consider Charles Gregson to be independent
as he is a holder of Founder Shares. More details on the Founder
Shares are set out in the Directors’ remuneration report on
pages 51 to 65. The Board determines that Charles Gregson
would be an Independent Director in the event that he did not
hold Founder Shares.
Following the resignation of Robin Ashton, the Board has
considered the balance between the Independent and
Non-Independent Directors. As the Company is currently
non-compliant with section B.1.2 of the Code, the Nomination
Committee continues to consider the composition of the Board
on an ongoing basis and is actively engaged in seeking the
appointment of an additional Non-Executive Director and the
Board continues to consider appointments to this position.
The Board anticipates an appointment of an additional
Non-Executive Director to be made during 2017.
The Board and its Committees are considered to have an
appropriate balance of skills, experience, independence and
knowledge of the Company 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 sectors:
Accountancy
Banking/lending
Home credit
Insurance
Law
Media
Private equity
Equity research
Executive search
Education
Specific key decisions have been reserved for the Board which
are outlined in its terms of reference. However, to assist the
Board in carrying out its function, the Board delegates certain
functions to the four committees on its behalf, so it can operate
efficiently and give the right level of attention and consideration
to relevant matters.
The Company has four different committees as outlined below:
Board of Directors
Audit
Committee
Nomination
Committee
Remuneration
Committee
Risk
Committee
43
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Governance
Governance report continued
The composition and role of each committee is detailed in their
respective reports that follow. The Audit Committee report is on
page 47, Nomination Committee report on page 49, the Risk
Committee report on page 50, and the Directors’ remuneration
report on page 51. The terms of reference for each committee
can be observed at the Company’s registered office address and
also on the Company’s website: www.nonstandardfinance.com.
Role of Executive Directors
The Executive Directors are responsible for all matters affecting
the performance of the Group and for the implementation of
strategy, policies, budgets and the financial performance of the
Group. The Executive Directors provide specialist knowledge
and experience to the Board and successfully lead and manage
the risk and finance functions across the Group.
The Company does not comply with provisions of the Code in
relation to the composition of the Audit, Remuneration or
Nomination Committee. The Board considered these provisions
to not be appropriate due to the size and nature of the Company.
Internal control and risk management systems
The Board is responsible for the overall system of internal
controls and risk management for the Group and for reviewing
their effectiveness on an annual basis. The Company’s internal
controls are designed to manage rather than eliminate the risk
of failure in pursuit of the Group’s overall business objectives.
The risk management framework is embedded within our
management and governance processes and can be adjusted,
if and when required, in response to a material change
in circumstances.
The Board discharges or intends to discharge its duties
in this area through:
• the review of financial performance including budgets, KPIs,
forecasts and 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 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 there are documented policies and procedures
in place.
Through the Risk Committee, the Board reviews the risk
management framework, the key risks facing the business and
how they have changed since the previous review (see pages
24 to 25). 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 the Risk and Audit Committees, is
satisfied that a system of internal controls and risk management
is in place which enables the Company to identify, evaluate and
manage key risks.
Directors
Each of the Directors is committed to their respective roles and has
sufficient time to fulfil their duties and obligations to the Company.
The Non-Executive Directors’ other significant commitments were
disclosed to the Board before their appointment.
Chairman
The Chairman is responsible for the proper function of the
Company’s Board of Directors who oversee the strategic
direction of the Group. He sets the Board meeting agendas with
the Company Secretary, to ensure that the Board devotes its
attention to the right matters, and facilitates and encourages
active engagement and appropriate challenge by all Directors.
44
Role of Non-Executive Directors
The Non-Executive Directors are responsible for providing
constructive challenge and help develop proposals put forward
by the Executive Directors on strategy and other matters
affecting the Group’s operational and financial performance.
They provide an external focus to the Board’s discussions and
continually review the performance of the Executive Directors
and the wider senior management team.
The Board has adopted a procedure for the appointment of
new Directors by appointing a Nomination Committee to lead
the process of appointment and to make recommendations to
the Board. Non-Executive Directors have been appointed for
fixed periods of three years, subject to confirmation by
shareholders. Their letters of appointment may be inspected at
the Company’s registered office or can be obtained on request
from the Company Secretary.
The Board has not appointed a Senior Independent Director,
as this provision is not considered to be appropriate due to the
relatively small size of the Board and the fact that the Board
only includes one independent Non-Executive Director. The
Non-Executive Directors are available to shareholders if they
have any concerns, which contact through the normal channels
of Chairman or other Executive Directors has failed to resolve or
for which such contact is inappropriate. The appointment of a
Senior Independent Director will be reviewed annually and should
the Board find it necessary an appointment will be made.
Company Secretary
The role of Company Secretary is fulfilled by the Chief Financial
Officer who acts as secretary to the Board and to its
Committees. The Company Secretary is supported by the
Assistant Company Secretary. The Board is aware that if a
conflict were to arise, the Assistant Company Secretary is
available to the Board and its Committees for advice on matters
relating to corporate governance. The Company Secretary
ensures that all Directors have full and timely access to all
relevant information to ensure that the Board is able to make
informed decisions. He is responsible for ensuring that correct
Board procedures are followed and for advising on governance
matters and ensuring that there is a good flow of information
within the Board and its Committees and between senior
management and the Non-Executive Directors. The Company
Secretary supports the Chairman in setting the agenda for each
Board meeting. The appointment and removal of the Company
Secretary is a matter for the Board as a whole.
Board diversity
The Company 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 and the Company is determined to attract
outstanding candidates with diverse backgrounds, skills, ideas
and culture.
Non-Standard Finance plc Annual report and accounts 2016 As a result, the Board plans to participate in The Future Boards
Scheme, an initiative launched by The 30% Club UK, the UK
Government and Board Apprentice giving senior women a
unique opportunity to get board experience to progress their
careers to the next level. The Group believes the scheme has
the potential to significantly grow the talent pipeline of women
executives by giving women 12 months’ experience on one of
the Group’s subsidiary boards.
Election and re-election of Directors
In accordance with the Company’s Articles of Association
and the Code, the Directors are required to submit themselves
for re-election annually at the Annual General Meeting. Each
Director will offer themselves for re-election at the next Annual
General Meeting taking place at 11.00am on 9 May 2017.
• approval of the Group’s risk management and control
framework and the appointment/re-appointment of the
Group’s external auditor (following recommendations from
the Audit Committee);
• approval of internal regulations and policies;
• the Group’s finance, banking and capital
structure arrangements;
• the Company’s dividend policy; and
• shareholder circulars, convening of meetings and stock
exchange announcements.
In addition, the Board has adopted formal authorisation limits
which set out the levels of authority for the Executive Directors
and employees below Board level to follow when managing the
Group’s business on a daily basis.
Induction and professional development
The Company has a policy in place to ensure that all new Board
appointments receive a full, formal induction tailored to the
needs and experience of the new Director. They are also
provided with opportunities to meet major shareholders.
Activities covered during 2016
During 2016 the Board had 11 scheduled meetings in London
to review current trading and operational performance of the
business as well as to consider the following items of business:
Month
Business matters discussed
As there were no new appointments to the Board during
2016, there were no new inductions made. Adhering to the
requirements of the Code, the Chairman during 2016 regularly
reviewed and agreed with each Director their training and
development needs, taking into account their individual
qualifications and experience. The Directors have full access to
a regular supply of financial, operational, strategic and regulatory
information to help them discharge their responsibilities and
keep themselves fully informed of developments at the
Company and each of its operating subsidiaries.
Independent advice
All Directors have access to independent professional advice at
the Company’s expense and the Board and its Committees are
provided with sufficient resources to undertake their duties.
Matters reserved for the Board
The Board’s full responsibilities are set out in the matters
reserved for the Board and its powers and duties are set out
in the Company’s Articles of Association and the relevant
regulations applicable to the Company as a public listed
company registered in England and Wales.
The Board is primarily responsible for:
• the overall leadership of the Group and setting core values
and standards;
• determining the strategic direction of the Group, including
the approval of the Group’s strategic aims and objectives;
• approval of the annual operating and capital expenditure
budgets and any material changes to them;
• oversight of the Group’s operations;
• reviewing the Group’s performance in light of the Group’s
strategic aims, objectives, business plans and budgets and
ensuring that any necessary corrective action is taken;
• approval of the Group’s annual and half-year results;
• ensuring adequate succession planning for the Board
and senior management;
• determining the Company’s remuneration policy;
• approving major capital projects, acquisitions and divestment;
• promoting good governance and seeking to ensure that the
Company meets its responsibilities towards all stakeholders;
January
February
March
April
May
June
July
• Review and approval of the 2016 Group budget
• Review and approval of the 2015 Annual Accounts
• Review and approval of the 2015 Group results
announcement
• Approval of the divisional LTI schemes
• Approval of the executive director’s 2016 bonus plan
• Completion of the acquisition of Everyday
Loans Group
• Directors’ strategy day(s)
• Review of the Loans at Home and Everyday Loans
Group debt funding facilities
• Review and approval of the 2016 half-year accounts
September
• Review of the Group’s funding strategy
• Review of analyst consensus and 2016 Company
forecast
October
• Resignation of Robin Ashton as a Non-Executive
Director
November
December
• Consideration of the appointment of a
Non-Executive Director to the Board
• Consideration of a potential acquisition target
• Review and approval of the 2017 Group budget
Matters to be covered in 2017
• Review of the long-term vision and strategic direction of the
Group
• Review of the financial performance of the Group
• Analysing the Group structure and management performance
• Group projections
• Review of Group funding
• Potential acquisitions
• Undertaking an annual review of the Group strategy
• Approval of the Groups’ interim and annual results.
• Approve the appointment of an additional
Non-Executive Director
Board and committee meetings
All Directors are required to attend Board meetings as well as
committee meetings for which they hold membership alongside
an additional two-day, off-site strategy meeting to review and
agree the Group’s three-year business and financial strategy.
45
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Governance
Governance report continued
The strategy meeting in 2016 was attended by the Directors,
Company Secretary, senior management (where appropriate)
and the divisional Chief Executives. The agenda for the strategy
day included:
• a facilitated discussion of the Group’s future financial
and funding strategy;
• a presentation and consideration of the business strategy
of each of the Group’s three divisions;
• review and discussion of the non-standard finance consumer
market in which the Group operates; and
• a presentation on the investor relations, public affairs and
communications plans for the Group.
All Directors receive Board papers and minutes for all the
meetings, which are circulated approximately one week in
advance of scheduled meetings. All Directors have access to
the Company Secretary and independent professional advice
at the Company’s expense, as and when required. A table
reflecting the Directors’ attendance at Board meetings is
shown below.
Conflicts of interests
Directors have a statutory duty to avoid situations in which
they have, or may have interests that conflict with those of
the Company, unless that conflict is first authorised by the
Directors. The Companies Act 2006 and the Company’s
Articles of Association require the Board to consider any
potential conflicts of interest. The Board considers and,
if appropriate, authorises each Director’s reported actual
and potential conflict of interest, taking into consideration
what is in the best interests of the Company and whether
the Director’s ability to act in accordance with his or her
wider duties is, or may be affected. All potential conflicts
approved by the Board are recorded in a Conflicts of Interest
Register, which is reviewed by the Board at least quarterly
to ensure that the procedure is working effectively.
Relations with shareholders
The Company keeps shareholders informed of all material
business developments via its public disclosures including its
annual report, its half-yearly financial statements and periodic
trading update announcements. In addition, other price-
sensitive information is disclosed via a regulatory news service.
All these items are available from the Company’s corporate
website: www.nonstandardfinance.com. The website also
contains other information about the Group and its business.
The Group Chief Executive and Chief Financial Officer
ensure that the views of shareholders are communicated
to the Board and that the Company’s governance and
strategy are discussed with major shareholders. The
Board aims to foster close relations with its investors and
sell-side analysts through a regular and comprehensive
programme of investor relations activity.
Throughout the year, the Chairman, Group Chief Executive,
Chief Financial Officer and Director of Investor Relations
and Communications meet with shareholders on
request or via organised investor roadshows supported
by the Group’s brokers, as well as by attending and
presenting at industry and investor conferences.
During 2016 there were over 90 such meetings.
Annual General Meeting
Shareholders are invited to attend the Company’s Annual General
Meeting (‘AGM’), where Board members and the Board’s
advisers are available to answer any shareholder questions.
The 2017 Annual General Meeting of the Company is to be held
at Bell Pottinger, 330 High Holborn, London, WC1V 7LU at
11.00am on 9 May 2017. The Notice of Meeting, contained
in a separate letter from the Chairman, includes a commentary
on the business to be transacted at the General Meeting.
Nick Teunon
Chief Financial Officer and Company Secretary
31 March 2017
Attendance and total number of meetings to
which the Director was entitled to attend
Explanation
11/11
11/11
10/11 Diary conflict required a change to the original date scheduled
11/11
10/11 Diary conflict required a change to the original date scheduled
9/9 Robin Ashton was only eligible to attend nine board meetings
Attendance at meetings
Director
John van Kuffeler
Nick Teunon
Miles Cresswell-Turner
Charles Gregson
Heather McGregor
Robin Ashton
(resigned 31 October 2016)
46
Non-Standard Finance plc Annual report and accounts 2016 Governance
Audit Committee report
for the period ended 31 December 2016
Membership
The Audit Committee (the ‘Committee’) currently consists
solely of Non-Executive Directors, one of whom is independent.
The provisions of the Code require that the Audit Committee
comprises Independent Non-Executive Directors. Given
that only one Director is considered to be independent,
the Company did not meet the requirements of the Code
in this regard. The Nomination Committee continues to
consider the appointment of an additional Non-Executive
Director and the Board continues to consider appointments
to this position. Following the resignation of Robin Ashton
from the Board on 31 October 2016, Charles Gregson has
been appointed as the Chairman of the Committee.
The names of the Directors and their biographical details
are set out on pages 40 to 41.
Role and responsibilities
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. In doing so, the Committee operates within its terms of
reference. The primary functions of the Committee include:
• monitoring the integrity of the financial statements including
the annual and half-yearly reports of the Group and any
other formal announcements relating to the Company’s
financial performance and reviewing significant financial
reporting judgements contained in them before these are
submitted to the Board for final approval;
• making recommendations to the Board concerning any
proposed, new or amendment to an existing accounting policy;
• advising the Board on whether the Annual Report and
Accounts, taken as a whole, is fair, balanced and understandable;
• meeting with the external auditor post-audit at the reporting
stage to discuss the audit, including any problems and/or
reservations arising from the audit and any matters that the
auditor may wish to discuss (in the absence of NSF
management, where appropriate);
• reviewing the adequacy and effectiveness of the Company’s
internal audit review function and internal financial controls;
• ensuring appropriate co-ordination between the internal
audit function and the external auditor;
• reviewing: (i) the adequacy and security of the Company’s
arrangements for its employees and contractors to raise
concerns about possible wrongdoing in financial reporting
or other matters; (ii) the Company’s procedures for detecting
fraud; and (iii) the Company’s systems and controls for the
prevention of bribery;
• making recommendations to the Board in relation to the
appointment, re-appointment and removal of the Company’s
external auditor, providing recommendations on their
remuneration and approving the terms of engagement
of the external auditor;
• overseeing the relationship with the external auditor and
assessing the external auditor’s independence and
objectivity and the effectiveness of the audit process;
and
• developing and implementing policy on the engagement
of the external auditor to supply non-audit services.
Meetings and attendance
The Committee met on nine occasions during the year.
Attendance and total number of meetings
that the Director was entitled to attend
Charles Gregson (Chairman)
Heather McGregor
Robin Ashton (resigned
31 October 2016)
7/9
8/9
8/8
The Directors above without Robin Ashton met on two
occasions for a discussion with the external auditor without
executive management present.
Committee meetings are attended by the joint Chief Financial
Officer/Company Secretary. The external auditor is invited to
attend meetings of the Committee and other non-members are
sometimes invited to attend all or part of any meeting as and
when appropriate and necessary.
Significant issues and areas of judgement considered by
the Committee
Throughout 2016 the Committee determined that the following
areas of the financial statements were of significant interest.
1. Impairment of goodwill:
Management performed a goodwill impairment assessment
as at 30 June 2016 and 31 December 2016 by determining the
recoverable amount, based on a fair value less costs to sell of
each of the cash generating units, and comparing these to the
respective net asset values and carrying values of goodwill. The
Committee challenged the appropriateness of management’s
key assumptions and was satisfied with the conclusion that no
impairment of goodwill was required. Further detail in respect
of management judgements and estimates, along with the
respective sensitivity of the headroom to those judgements and
estimates is set out in notes 2 and 13 to the financial statements.
2. Impairment of customer receivables:
The assessment of provisions for impairment losses against
customer receivables requires management to make significant
judgements. 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. Further detail in respect of the assumptions is
set out in note 2 to the financial statements.
3. Acquisition accounting and intangibles:
On 13 April 2016, the Group completed the acquisition of the
Everyday Loans Group. IFRS 3 Business Combinations requires
assets and liabilities acquired to be recognised initially at their
fair values. Intangible assets must also be recognised at fair
value if they are separable or arise from other contractual rights.
The Committee challenged management’s identification and
valuation of assets on acquisition and found the methodology
used to be appropriate. Further detail in respect of
management judgements and assumptions is set out in notes
2, 13, 14 and 24 to the financial statements.
47
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Governance
Audit Committee report continued
for the period ended 31 December 2016
4. Review of the half-year results:
• Review of impairment of goodwill, intangibles and customer
receivables valuation.
• Review of acquisition accounting.
• Review of interim results.
• Review and approval of the going concern paper
which confirmed it was appropriate to prepare the interim
results for the six months ended 30 June 2016 on a going
concern basis.
• Review of the report on the interim review from the external
auditor.
• Review of the interim results announcement.
• Discussion with the external auditor without any Executive
Director or employee being present.
5. Review of the Annual Report and Financial Statements:
• Review of impairment of goodwill, intangibles and customer
receivables valuation carried out by management.
• Review of the calculation of goodwill and intangibles assets
on the acquisition of the Everyday Loans Group.
• Review and approval of the going concern paper which
confirmed it was appropriate to prepare the Annual Report
and Financial Statements for the year ended 31 December
2015 on a going concern basis.
• Review of full-year results and the form and content of the
draft Annual Report and Financial Statements.
• Discussion with the external auditor without any Executive
Director or employee being present.
• Review of the preliminary results for the year ended
31 December 2015.
• Review of the statement on internal controls.
6. Internal audit function:
The internal audit function which is provided by a third-party
regularly reports on internal audit activities to the Committee.
A review of the internal audit activity is approved by the
Committee. The internal audit activities encompass all divisions
within the Group and therefore provide a consistent and
balanced overview of the Group to the Committee. The
Committee met with management separately, to give
management the opportunity to raise issues with the internal
audit function directly to the Committee.
7. Non-financial audit fees paid to the external auditor for
the year:
A review of the non-financial audit fees is undertaken by the
Committee and an analysis of the non-audit fees paid to the
external auditor for the provision of non-audit services is
provided on page 88 of the Annual Report.
The Committee also reviews the performance of the auditor
taking into consideration the services and advice provided to
the Company and the fees charged for these services. Details
of the auditor’s total fees for the year can be found on page 88.
On the basis of the auditor’s performance, the Committee
considers Deloitte’s selection to be in the best interests of the
Company and has recommended to the Board that Deloitte
should be proposed for reappointment at the forthcoming
Annual General Meeting.
The Committee has considered the independence of
Deloitte and the level of non-audit fees and believes that the
independence and objectivity of the external auditor are
safeguarded and remain strong. The Committee will continue
to review the qualification, expertise, resources and
independence of the external auditor and the effectiveness
of the audit process during the current financial year.
Non-audit work
The Committee monitors the level of non-audit work carried out
by the external auditor and seeks assurances from the auditor
that it maintains suitable policies and processes ensuring
independence, and monitors compliance with the relevant
regulatory requirements on an annual basis.
During 2016 the level of non-audit fees amounted to £44,000
(2015: £1.76m). The non-audit work carried out during the year
related to tax and VAT (2015: tax, due diligence and corporate
finance). The fees paid to the external auditor are set out in
note 5 on page 88. The fees for non-audit work carried out by
the auditor in 2016 represents 13% (2015: 748%) of audit fees.
The Company during 2016 had a formal non-audit work policy
in place. In line with the non-audit policy, the Committee has
challenged the appointment of the external auditor for non-
audit work during the period and expects it to clearly
demonstrate its independence on an ongoing basis through
its work and at Committee meetings.
Internal audit
The Committee appointed KPMG, one of the UK’s leading
accounting firms as Internal Auditor to the Group during 2016.
The Internal Audit function is managed by KPMG. The Internal
Auditor reports directly to the Committee which ensures the
independence and effectiveness of the Internal Auditor.
The Internal Auditor provides regular reports to the Audit
Committee as well as the Risk Committee and to the Board
as a whole.
These issues were discussed with management and the external
auditor to ensure that the required level of disclosure is
provided and that the appropriate level of rigour has been
applied where any judgement may be exercised.
Charles Gregson
Chairman of the Audit Committee
31 March 2017
External audit
The Company’s auditor is Deloitte LLP, which has been in office
since 22 October 2014.
As noted above, the Committee is responsible for assessing
the efficacy of the external auditor, for monitoring the
independence and objectivity of the external auditor, for
considering the reappointment of the external auditor and
for making recommendations to the Board.
48
Non-Standard Finance plc Annual report and accounts 2016
Governance
Nomination Committee report
for the period ended 31 December 2016
The principal purpose of the Nomination Committee (the
‘Committee’) is to monitor the balance of skills, knowledge,
experience and diversity on the Board and recommend any
changes to the composition of the Board. This report gives more
detailed information on how the Committee performed its duties.
Membership
The provisions of the Code require that the Nomination
Committee comprises of Independent Non-Executive Directors
only. As only one Director is considered to be independent, the
Company did not meet the requirements of the Code in this
regard. However, given the make-up of the Group and its
current stage of development, the Board considers that despite
not meeting this requirement, the Nomination Committee can
fulfil its role effectively in its current form. Following the
resignation of Robin Ashton, the Committee continues to
consider the appointment of an additional Independent
Non-Executive Director.
Following the appointment of John van Kuffeler as Group Chief
Executive on 19 December 2016, Mr van Kuffeler stepped down
as Chairman and as a member of the Committee. Charles
Gregson has been appointed as Chairman of the Committee.
Meetings and attendance
Charles Gregson (Chairman)
Heather McGregor
John van Kuffeler
(stepped down from
the Committee on
19 December 2016)
Robin Ashton
(resigned 31 October 2016)
Attendance and total number of meetings that
the Director was entitled to attend
2/2
2/2
2/2
1/1
The joint Chief Financial Officer/Company Secretary attends all
Nomination Committee meetings.
The biographies of the members are set out on pages 40 to 41.
Role and responsibilities
The Nomination Committee assists the Board in discharging its
responsibilities relating to the composition and make-up of the
Board and any other committees of the Board. To fulfil that role,
the Committee’s primary functions include:
• following an evaluation of the balance of skills, experience,
independence and knowledge of the Board, identifying and
nominating candidates who are assessed as having sufficient
time to devote to their responsibilities to fill Board vacancies
and making appropriate recommendations to the Board for
the appointment of Directors;
• reviewing the structure, size and composition of the Board
and making recommendations to the Board with regard to
any proposed changes;
• reviewing and considering the performance and
effectiveness of the Committee through the results of the
Board evaluation process; and
• considering and formulating succession planning for
Directors and senior executives.
Principal activities of the Committee during 2016:
• Reviewing the composition of the Board and the balance of
Executive and Non-Executive Directors;
• Reviewing the succession plans for the Board and the senior
management within the Group;
• Commencing the new selection process for a new
Independent Non-Executive Director; and
• Reviewing the Board’s training programme to ensure that the
Directors have all the requisite skills to discharge their duties
on the Board.
Diversity
The Company and each of its operating companies seek to
engage, train and promote employees on the basis of their
capabilities, qualifications and experience. Discrimination or
pressure to discriminate by any of the Group’s employees,
contractors or customers in respect of age, sex, sexual
orientation, race, ethnic origin, marital status or civil
partnership, nationality, disabilities, political or religious beliefs
is strictly forbidden. The Group seeks to pursue diversity,
including gender diversity, throughout the business, and
while the Board endorses the aspirations of the Davies
Review on Women on Boards, the Board is not committing
to any specific targets. Our Board currently has one female
Director and the Committee will give due consideration
to Board balance and diversity when recommending new
appointments to the Board. The Board will also ensure
that its own development in this area is consistent with its
strategic objectives and enhances its overall effectiveness.
Board induction
All Directors are required to undertake a formal and rigorous
induction to the Group upon joining the Board. As no
appointments were made to the Board during 2016 no
inductions were carried out during the year.
Training
Throughout the year, Directors participate in an on-going
programme of training and professional development. The
internal training includes topical issues that are relevant to the
regulatory environment surrounding the Group.
Board evaluation
During the year the Board completed its first internal evaluation
process. The results of the evaluation will be reviewed by the
Committee and any actions then implemented during 2017.
Areas of focus in 2017
The main area of focus for the Committee in 2017 is to
recommend the appointment of a suitable candidate to fill the
vacancy of a Non-Executive Director following the resignation
of Robin Ashton in October 2016.
The Committee will also oversee the recruitment of a
permanent Chief Executive Officer for Loans at Home, following
the announcement of the departure of the previous CEO in
January 2017.
The Committee will also continue to fulfil its general
responsibilities, with particular emphasis on compliance with the
UK Corporate Governance Code and succession planning.
Charles Gregson
Chairman of the Nomination Committee
31 March 2017
49
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Governance
Risk Committee report
for the year ended 31 December 2016
The principal purpose of the Risk Committee (the ‘Committee’)
is to assist the Board in its oversight of risk within the Company
with particular focus on risk appetite, risk profile and the
effectiveness of the Company’s internal controls and risk
management systems.
Membership and attendance
The Committee consists of the Non-Executive Directors of the
Company. The joint Chief Financial Officer/Company Secretary
regularly attends Committee meetings. Other relevant parties
are also invited to attend Committee meetings, as appropriate.
The Directors’ attendance at the meetings during 2016 is
recorded in the table below:
Attendance and total number of meetings that
the Director was entitled to attend
Heather McGregor
(Chairman)
Charles Gregson
Robin Ashton (resigned
31 October 2016)
4/4
4/4
3/3
Cross-membership between each of the Board’s committees
ensures that all material risks and related issues are appropriately
identified, communicated and taken into account in the decisions
of each committee and that of the Board. The Committee met
four times during the year. In addition, the Committee Chair
attended meetings with both the Executive Directors and
management at Everyday Loans and Loans at Home and also
participated in customer visits with Loans at Home agents to
further assess the Company’s risks.
Role and responsibilities
The Board has delegated the oversight of risk management
to the Committee, although it retains overall accountability
for the Company’s risk profile.
The Committee’s primary functions include:
• the assessment of material risks and the Company’s overall
risk management framework. The Committee takes account
of the current and prospective macroeconomic, financial and
regulatory environment in order to advise the Board in
respect of the most appropriate configuration of the
Company’s overall risk appetite, tolerance and strategy.
In doing so, the Committee considers the Company’s ability
to identify and manage new risk types, reviews any material
breaches of risk limits and reviews the effectiveness of the
Company’s internal controls and risk management systems;
• responsibility for overseeing and challenging stress and
scenario testing, the provision of advice in relation to risk and
for the formulation of the Company’s risk policies; and
• working closely with the Audit Committee in order to fully
review the effectiveness of the Company’s risk management
and internal control systems.
Activities during the period
The Committee performed a comprehensive review of
the Company’s risk management and internal control
systems, including all material, financial, operational and
compliance controls, identifying the key risks affecting
the Company. These are set out on pages 24 to 25.
A key theme for the Committee has been to ensure that
appropriate risk management strategies are continuously
monitored and are implemented effectively. The Committee
worked on the development of the Company’s risk
management capabilities by creating an effective enterprise risk
management framework and by undertaking regular and
detailed analysis of the key risks faced by the business.
During the year to 31 December 2016 the Committee focused
on the following:
• detailed review of the lending and collections carried out by
the internal auditors with the findings reported to the
committee;
• review of liquidity and credit risk;
• identification of Group risks with action plans put in place to
mitigate the risks;
• review of the risk appetite status across the Group; and
• review of cyber security across the Group.
Viability statement
In accordance with the 2014 FRC Corporate Governance Code,
the Directors confirm that they have a reasonable expectation
that the Group will continue to operate and meet its liabilities as
they fall due for the next three years. The Directors’ assessment
has been made with reference to the Group’s current position,
strategy, as laid out in the Strategic report (see pages 15 to 21)
and the Group’s principal risks and uncertainties and how these
are managed (see pages 24 to 25). In particular, noting the
ability of the Group to reduce lending at the point of peak
seasonal demand and the Company’s intention to raise
additional debt funding to support lending ambitions.
The strategy and associated principal risks underpin the Group’s
three-year plan and scenario testing, which the Directors review
at least biannually. The review of the three-year plan is
strengthened by regular updates from the divisional
management teams.
The three-year plan is built on a divisional basis using a bottom
up approach. The plan makes certain assumptions about future
economic conditions, the regulatory environment, divisional
performance and growth and the ability to refinance existing
debt facilities as they fall due. This plan is then stress tested
considering downside scenarios. These scenarios consider
financial and regulatory downsides. The financial downside
scenario uses the 2008/9 financial crisis as its basis and
therefore reflects a number of principal risks of the business.
The regulatory downside scenario is based on fundamental
changes in the business model as a result of regulatory change.
Following the assessment, the Directors also considered it
appropriate to prepare the financial statements on the going
concern basis, as set out on page 68.
Areas of focus in 2017
The Committee intends to continue to improve and embed the
Company’s risk management framework during 2017. Key tasks
include:
• further review and enhancement of the Group Risk
management framework;
• review of liquidity and credit risks; and
• development of a risk register across the Group.
50
Heather McGregor
Chairman of the Risk Committee
31 March 2017
Non-Standard Finance plc Annual report and accounts 2016 Governance
Directors’ remuneration report
for the year ended 31 December 2016
This report has been prepared in compliance with The Large
and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 (the ‘Regulations’)
as well as the Companies Act 2006. This report is set out in
the following key sections:
Part A: Annual Statement
Part B: Our remuneration at a glance
Part C: Directors’ Remuneration Policy
1. Executive Director remuneration policy
2. Illustrations of application of remuneration policy
3. Approach to recruitment and promotions
4. Executive Director service contracts and payment for loss
of office
5. Consideration of employee remuneration and shareholders
6. Non-Executive Director remuneration policy and letters of
appointment
Part D: Annual Report on Remuneration
1. Single figure remuneration table: Executive Directors
2. Implementation of remuneration policy for the Executive
Directors for 2017
3. Consideration by the Committee of matters relating
to Directors’ remuneration for 2016 and 2017
4. Group Chief Executive and employee pay
5. Single figure remuneration table: Non-Executive Directors
6. Directors’ shareholding and share interests
7. Shareholder voting
Part A: Annual Statement
Dear Shareholder
I am pleased to present to you our Directors’ remuneration
Report for Non-Standard Finance plc (‘NSF’). In my letter last
year I set out the background to the establishment of the
Remuneration Committee (the ‘Committee’) and its work since
the IPO. Our 2015-16 review of market remuneration showed
that salaries and bonuses for Executive Directors were
positioned in the lower quartile when compared to financial
companies of a similar size. As we grow further, we expect that
the position of the Group’s Executive Directors will fall further
behind those of the peer group. Nevertheless, the executive
team and the Committee together were keen to take a prudent
approach that focused first and foremost on delivering value
to shareholders and this continues to be the case.
With this in mind, we adopted a policy that minimises our fixed
costs as far as possible whilst providing sufficient incentive
opportunity to drive and deliver our strategy. We have been
considering the incentive opportunity and whether it aligns
management remuneration and incentives sufficiently with
shareholder returns over the long-term.
Our new Directors’ Remuneration Policy
As noted above, the incentive arrangements for the founding
Executive Directors include a salary and bonus to reflect the
size and stage in the Company’s development plus the Founder
Share scheme for founding Executive Directors. The Founder
Share scheme is subject to share price performance, although
the conditions can be measured at any time after the first
anniversary of the acquisition of Loans at Home and it does not
provide a lock-in for participants as share price performance is
the only condition of vesting. New joiners are not able to be
issued with new shares under the Founder Share scheme.
The Committee has kept the Founder Share scheme and its
part in rewarding and retaining key executives under review.
As a result of this review, the Committee and I concluded that a
new long term incentive (‘LTI’) policy was required as there was
no mechanism to retain current executives and no way to allow
new senior joiners to directly participate in the scheme. Having
consulted with some of our larger shareholders beforehand, we
therefore propose to introduce a value creation plan for the
existing Executive Directors and new senior joiners which would
align key executives’ interests with those of shareholders and
which would not deliver any return to these executives before
investors achieve a reasonable return.
Under the proposed plan, participants would share in a pool
of 15% of the growth in value (market capitalisation) of the
Company above a share price hurdle of £1.10, being 29% above
the price at which the majority of the Group’s shares were
issued and 10% above the highest price at which investors
subscribed for shares. It also represents a premium of
approximately 100% to the current share price.
Performance would be tested against this hurdle after four
years starting from 1 January 2017 (i.e. 31 December 2020),
though payment would be deferred until the end of the fifth
year (i.e. 31 December 2021).
Awards held by participants that cease employment during the
four year performance period will either lapse or be restricted in
value depending on the reason for employment ceasing. The
Committee will have an overriding discretion to limit the amount
payable under the awards or claw back awards that have been
made if it considers that the Group’s results have been achieved
in an inappropriate manner.
The pool in which participants will share will be diluted and
adjusted for any new issue of shares. Depending on the amount
of equity that needs to be raised this could fall significantly.
There will be a cap on the maximum number of shares issued by
the Company under the LTI such that, together with any shares
issued under the Founder Share scheme, no more than 5% can
be issued in any 10 year period and that, together with all other
share incentive plans offered by the Company, no more than
10% can be issued in any 10 year period. Any awards earned in
excess of this will be satisfied through market purchase of
shares by the Company.
We consider that this new plan provides a testing, but real
and valued opportunity for current and new management,
and will act as a strong retention mechanism for key talent over
the long-term.
51
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Governance
Directors’ remuneration report continued
Shareholder approval for this new part of the policy will be
sought at the AGM to be held at 11.00am BST on 9 May 2017.
Approval will also be sought for an all employee sharesave plan
the ‘Sharesave Plan’, in which the Executive Directors are also
eligible to participate.
As the LTI was not included in the Directors’ Remuneration
Policy approved at the 2016 AGM, we are proposing a new
Directors’ Remuneration Policy at the 2017 AGM. The terms of
the new Policy will be the same as the current Policy approved
at the 2016 AGM apart from the inclusion of the LTI, further
details of which are set out below.
Part D:
Format of this report and matters to be approved at our AGM
in May 2017
The remainder of this report is split out into the following
three sections:
Part B:
Part C:
Our remuneration at a glance (page 53).
Our new Directors’ Remuneration Policy (pages
54 to 61).
Annual Report on Remuneration providing details of
the payments made to Directors in 2016, as well as
other statutory disclosures (pages 61 to 65) and which
complies with the requirements of the Listing Rules of
the UK Listing Authority and the UK 2014 Corporate
Governance Code.
Business context and Committee decisions on remuneration
As you will have read earlier in this Annual Report, the Company
has made significant progress in 2016. Having completed two
acquisitions, the Group is now a significant player in the UK’s
non-standard finance market with a combined loan book of
approximately £165m (before fair value adjustments), a network
of almost 90 offices, over 500 staff and a network of 785
self-employed agents. The Group also began paying dividends
with a half-year dividend of approximately £1.0m paid in October
2016 and a final recommended dividend of approximately £2.9m
that if approved, will be paid in June 2017.
At our 2017 AGM, resolutions to approve the new Directors’
Remuneration and the Annual Report on Remuneration and this
letter will be put to shareholders. I ask for your support on both
resolutions.
The Committee and I are keen to hear and actively take note
of your views as shareholders on our remuneration strategy.
On behalf of the Remuneration Committee and Board
Whilst much was achieved during the year, no bonuses were
paid to the Executive Directors as the financial performance
targets that were set at the start of the year were not met.
Charles Gregson
Chairman of the Remuneration Committee
31 March 2017
In line with the bonus targets agreed with the Executive
Directors under their contracts of employment, we intend to set
the on-target bonus opportunity for the 2017 financial year at
75% of base salary and to set the maximum bonus opportunity
at 100% for 110% achievement of target. Threshold vesting at
25% of base salary will be set at 90% of target. Straight-line
vesting will apply between these points.
The bonus will be subject to performance against a
combination of financial and non-financial targets, split as to
70% financial and 30% non-financial. For the 2017 financial year,
the financial target will be budgeted profit before tax and the
non-financial targets will include conduct-based measures
which seek to reward the delivery of good customer outcomes
through appropriate affordability assessments and appropriate
treatment of vulnerable customers together with appropriate
collections, arrears and forbearance practices.
A value creation plan has been introduced at Everyday Loans
(including Trusttwo) so that their key employees can participate
in the growth in value of the Company. Participants in the plan
will share in the growth in value of Everyday Loans (including
Trusttwo) above a compound annual growth rate of 12% over
three years and the plan thereby encourages participants
to deliver growth as early as possible. Vested awards will
be satisfied in shares in the Company, or cash at the
Company’s choice.
52
Non-Standard Finance plc Annual report and accounts 2016 Part B: Our remuneration at a glance
Ahead of the detailed Directors’ Remuneration Policy and the Annual Report on Remuneration, we have below summarised how
key elements of the remuneration policy will be implemented for 2017 and the key decisions taken by the Committee in relation to
base pay and incentives for the Executives in respect of 2016.
2017 Executive Director remuneration policy
Base Salary
Annual Bonus
Maximum:
On-target:
Threshold:
John van Kuffeler
£ 287,500
100% of salary
75% of salary
25% of salary
Nick Teunon
£ 230,000
100% of salary
75% of salary
25% of salary
Miles Cresswell-Turner
£ 230,000
100% of salary
75% of salary
25% of salary
Operation for 2017
• Performance measures are weighted as to 70% financial (profit before tax) and 30% non-financial
(including conduct-based measures which seek to reward the delivery of good customer outcomes
through appropriate affordability assessments and appropriate treatment of vulnerable customers
together with appropriate collections, arrears and forbearance practices).
• Threshold vesting will be set at 90% of target with on-target vesting at 100% and maximum vesting
at 110%, with vesting on a sliding scale between these points.
• Bonus is payable in cash following the end of the financial year.
Malus and clawback provisions will apply under the Annual Bonus at the discretion of the Committee
in appropriate circumstances, such as a participant’s material underperformance, material
misstatement of the accounts, gross misconduct and fraud, regulatory and similar failures or other
reason as determined by the Committee.
John van Kuffeler
Nick Teunon
Miles Cresswell-Turner
37.5%
5.625%
25.0%
3.75%
25.0%
3.75%
Malus and clawback
LTI
% of growth pool
allocated to participants:
% of growth in value
above £1.10:
Operation for 2017
• Participants will receive awards, which they will hold during the performance period ending on
31 December 2020. Restrictions on the awards will apply during the performance period.
• The value total attributable to the awards will be 15% of the growth in value (market capitalisation) of
the Company above a share price hurdle of £1.10 measured at the end of the performance period.
• At the end of the performance period, depending on structure, participants’ awards will vest
and, in the case of options, become exercisable. If the award, or any part of it, was over shares in
a subsidiary of the Company, participants can, shortly after the end of the performance period,
exchange their awards for shares in the Company. Regardless of form of award, participants must
hold shares received in the Company for a further year before being able to sell them.
Malus and clawback provisions will apply under the LTI at the discretion of the Committee in
appropriate circumstances, such as a participant’s material underperformance, material misstatement
of the accounts, gross misconduct and fraud, regulatory and similar failures or other reason as
determined by the Committee.
Malus and clawback
Pension
John van Kuffeler
10% of salary
Nick Teunon
10% of salary
Miles Cresswell-Turner
10% of salary
Shareholding requirement
100% of salary over 5 years
100% of salary over 5 years
100% of salary over 5 years
2016 year-end decisions made
John van Kuffeler
Nick Teunon
Miles Cresswell-Turner
2017 salary review
No increase from 1 January 2017
11% increase to £230,000 from
1 January 2017
No increase from 1 January 2017
2016 bonus outcome
No bonuses were paid as performance targets were not met
Value
% of salary/maximum
£ NIL
NIL
£ NIL
NIL
£ NIL
NIL
53
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016
Governance
Directors’ remuneration report continued
Part C: Directors’ Remuneration Policy
This section of the report contains details of the Directors’ Remuneration Policy that will govern the Company’s future
remuneration payments. The policy is intended to apply for three years from the approval of the policy. The policy described
in this part is subject to approval by shareholders at the Company’s AGM on 9 May 2017. The policy will be displayed on the
Company’s website, in the Investors section, immediately after the 2017 AGM.
The Directors’ Remuneration Policy contains one change from the policy that was approved at the 2016 AGM. This change
is the introduction of an LTI for the Executive Directors and senior management.
The Committee has established the policy on the remuneration of the Executive Directors and the Chairman. The Board has
established the policy on the remuneration of the other Non-Executive Directors.
1. Executive Director remuneration policy
Remuneration strategy
The Company’s remuneration strategy is to provide a remuneration framework based on the following principles:
1
Attract, motivate
and retain Executive
and senior management
in order to deliver the
Company’s strategic
goals and business
outputs
2
Encourage and support
a culture that delivers
good customer
outcomes and which
adheres to FCA
best practice
3
Reward delivery
of the Company’s
business plan and key
strategic goals
4
Adhere to the principles
of good corporate
governance and
appropriate risk
management
5
Align employees’ interests
with the interests of
shareholders and other
external stakeholders and
encourage widespread
equity ownership
across the Group
We believe that the current and proposed remuneration structure will continue to support and motivate our Executive Directors
in furthering the Company’s long-term strategic objectives including the creation of sustainable shareholder returns.
Furthermore, the Committee is satisfied that the composition and structure of the remuneration package is appropriate
and does not incentivise undue risk-taking or reward underperformance. The table below sets out the key elements of the policy
for Executive Directors:
Remuneration policy table
Element, purpose and
link to strategy
Operation
Base salary
To provide competitive
fixed remuneration
that will attract and
retain key employees
and reflect their
experience and
position in the Group.
Salaries are reviewed annually,
and any changes normally take
effect from 1 January. When
determining the salary of the
Executives the Committee takes
into consideration:
• the levels of base salary for
similar positions with comparable
status, responsibility and skills, in
organisations of broadly similar
size and complexity;
• the performance of the
individual Executive Director;
• the individual Executive
Director’s experience and
responsibilities;
• pay and conditions throughout
the Group, including the level
of salary increases awarded to
other employees;
• the level of incentive compensation
provided to the Executives
under the Annual Bonus.
54
Maximum opportunity
Performance measures and assessment
Annual percentage increases
are generally consistent with the
range awarded across the Group.
A broad assessment of individual
and business performance is
used as part of the salary review.
No recovery provisions apply.
Percentage increases in salary
above this level may be made in
certain circumstances, such as
a change in responsibility or a
significant increase in the role’s
scale or the Group’s size and
complexity.
The salaries payable to the
Executive Directors from
1 January 2017 are disclosed on
page 62.
Non-Standard Finance plc Annual report and accounts 2016 Element, purpose and
link to strategy
Operation
Maximum opportunity
Performance measures and assessment
Benefits
To provide competitive
benefits and to attract
and retain high calibre
employees.
Reviewed periodically
to ensure benefits remain
market competitive.
Benefits currently include:
• Company car for John
van Kuffeler.
• Life, private medical and
income protection insurance.
• Other minor benefits as
provided from time to time.
Benefit values vary year-on-year
depending on premiums and
the maximum potential value
is the cost of the provision of
these benefits.
No recovery provisions apply.
Pension
To provide a
competitive Company
contribution that
enables effective
retirement planning.
Pension is provided by way
of a contribution to a personal
pension scheme or cash
allowance in lieu of pension
benefits.
The maximum contribution to
a personal pension scheme or
cash in lieu is equal to 10% of
base salary.
No performance or recovery
provisions apply.
Maximum awards under the
Annual Bonus are equal to
100% of salary.
On-target bonus: 75% of salary.
Threshold bonus: 25% of salary.
Annual Bonus
Incentivises
achievement of annual
objectives which
support the Group’s
short-term
performance goals
and protects longer-
term interests
of the Group.
Bonus awards are granted annually
following the signing of the Annual
Report and Accounts, usually in
March of the year following the
reporting period in question.
Performance period is one
financial year, with pay-out
determined by the Committee
following the year end, based on
achievement against a range of
financial and non-financial targets.
Malus and clawback provisions
apply at the discretion of
the Committee where the
Committee considers such action
is reasonable and appropriate,
such as a participant’s material
underperformance, material
brand or reputational damage,
material misstatement of the
accounts, gross misconduct and
fraud, regulatory and similar
failures or other reason as
determined by the Committee.
Performance targets will
be set annually by the
Committee based on a range
of interdependent financial and
non-financial measures.
Financial targets govern the
majority of bonus payments,
which may include those related
to profit before tax. Non-financial
measures will include conduct-
based measures which ensure
delivery of good customer
outcomes through appropriate
affordability assessments
and appropriate treatment of
vulnerable customers together
with appropriate collections,
arrears and forbearance practices.
The Committee has the discretion
to adjust targets or performance
measures for any exceptional
events that may occur during
the year.
As well as determining the
measures and targets, the
Committee will also determine the
weighting of the various measures
to ensure that they support the
business strategy and objectives
for the relevant year.
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Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Governance
Directors’ remuneration report continued
Operation
Maximum opportunity
Performance measures and assessment
Participants will receive awards
which may be structured as
awards or options over Ordinary
Shares in the Company which
may then be exchanged
for Ordinary Shares in the
Company shortly after the end
of the performance period on
31 December 2020. In each case,
participants will then be required
to hold such shares in the
Company for a period of
one year.
Prior to the IPO the Executive
Directors, Charles Gregson and
Robin Ashton, were awarded
Founder Shares in Non-Standard
Finance Subsidiary Limited.
Under the terms of these shares
the holders of the Founder
Shares have the option to require
the Company to purchase some
or all of their Founder Shares. The
purchase price for the exercise
of this option may be paid by
the Company in Ordinary Shares
or as a cash equivalent at the
Company’s option.
The number of Ordinary Shares
required to settle all such awards,
together with any Ordinary
Shares issued in connection with
the Founder Shares (see below)
will be subject to a cap on the
maximum dilution possible of
5% in 10 years. There will also be
a further cap so that, together
with all other share incentive
plans offered by the Company,
the maximum dilution possible
will not be greater than 10% in
10 years. Any awards earned
in excess of either cap will
be satisfied through market
purchase of shares by the
Company.
The number of Ordinary Shares
required to settle all such options
is the number of shares that
would have represented 5%
of the Ordinary Shares of the
Company on (or immediately
after) Admission if such Ordinary
Shares had been issued at the
time of Admission.
The total value of awards at
31 December 2020 will be
determined by the growth in
the value of the Company to
31 December 2020 above £1.10.
If the average share price of the
Company is greater than £1.10,
the value of the awards in total
will equate to 15% of the excess
growth in value, based on market
capitalisation, of the Company
above £1.10.
A. the Group must make
acquisitions with a combined
value of at least £50 million;
and
B. within five years of the Group’s
first acquisition, shareholders
must receive a 25% increase
in total shareholder value or
8.5% CAGR (measured on the
basis of exceeding such price
for 20 trading days out of 30
successive trading days).
Eligible employees may
participate in the Sharesave Plan
and/or Share Incentive Plan and/
or Company Share Option Plan or
country equivalent.
Maximum participation levels
for all staff, including Executive
Directors, are set by relevant
UK legislation or other relevant
legislation.
Not applicable.
Executive Directors will be
entitled to participate on those
same terms.
The Executive Directors are
required to build or maintain
(as relevant) a minimum
shareholding in the Company
over a five-year period.
Shares included in this calculation
are those held beneficially by
the Executive Director and their
spouse/life partner.
The shareholding requirement
is 100% of salary for Executive
Directors.
Not applicable.
Element, purpose and
link to strategy
LTI
LTI for Executive
Directors and senior
management.
Founder Shares
awarded to Executive
Directors on IPO.
All-employee
incentives
Encourage all
employees to
become shareholders
and thereby align
their interests with
shareholders.
Shareholding
guidelines
To ensure that
Executive Directors’
interests are aligned
with those of
shareholders over a
longer-time horizon.
56
Non-Standard Finance plc Annual report and accounts 2016 Performance measures and targets
The table below sets out the rationale for performance measures chosen in respect of the Annual Bonus:
Element
Performance measures
Rationale
How targets are set
Annual Bonus
A range of financial and non-
financial performance measures.
Aligns opportunity with both
financial and personal targets.
LTI
Share price of the Company
Aligns interests with those of
shareholders and will not deliver
a return to participants before
investors achieve a return above
the prices at which the Company
raised equity.
The performance targets are
determined annually by the
Committee taking into account
market conditions and forecasts.
The performance target has
been set at share price of £1.10 at
31 December 2020.
Discretion with the Directors’ Remuneration Policy
The Committee has discretion in several areas of policy as set out in this report. The Committee may also exercise operational and
administrative discretions under relevant plan rules approved by shareholders as set out in those rules. In addition, the Committee
has the discretion to amend policy with regard to minor or administrative matters where it would be, in the opinion of the
Committee, disproportionate to seek or await shareholder approval.
Changes from the last approved Remuneration Policy
The LTI has been added to since the last approved Remuneration Policy to provide a lock-in for the Executive Directors, which is not
provided by the Founder Shares. In addition, the LTI is open to new joiners whereas additional Founder Shares are not available to
be issued to such individuals.
57
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Governance
Directors’ remuneration report continued
2. Illustrations of application of remuneration policy
The charts below seek to demonstrate how pay varies with performance for the Executive Directors based on the stated
remuneration policy. The charts show an estimate of the remuneration that could be received by Executives Directors under
the policy set out in this report. Each of the bars is broken down to show how the total under each scenario is made up of fixed
elements of remuneration, the annual bonus and the long-term incentive.
The charts indicate that a significant proportion of both target and maximum pay is performance related.
John van Kuffeler (£000)
Nick Teunon (£000)
Miles Cresswell-Turner (£000)
900
800
700
600
500
400
300
200
100
0
241
30%
19%
288
288
121
216
216
35%
35%
288
288
20%
72
72
288
288
288
288
288
288
100%
80%
46%
35%
Minimum
Threshold
On-Target Maximum
Base Salary Annual Bonus LTP
900
800
700
600
500
400
300
200
100
0
900
800
700
161
288
288
26%
600
216
216
80
173
288
288
230
16%
230
36%
37%
288
288
230
288
288
230
20%
58
288
288
230
100%
80%
48%
37%
Minimum
Threshold
On-Target Maximum
Base Salary Annual Bonus LTI
500
400
300
200
100
0
161
288
288
26%
216
216
80
173
288
288
230
16%
230
36%
37%
288
288
230
288
288
230
20%
58
288
288
230
100%
80%
48%
37%
Minimum
Threshold
On-Target Maximum
Base Salary Annual Bonus LTI
Assumptions used in determining the level of pay-out under given scenarios are as follows:
Element
Minimum
Threshold
On-Target
Maximum
Fixed elements
Base salary at 1 January 2017
Estimated value of benefits
provided under the policy
Pension – 10% of salary
Annual Bonus
LTI
Nil
Nil
25% of maximum
75% of maximum
100% of salary
Nil
100% of the IFRS2 value
of the award
200% of the IFRS2 value
of the award
Awards made under the LTI will be on a one-off basis. The on-target value displayed in the charts represents the expected IFRS2
value of the award. The maximum value displayed represents twice the expected IFRS2 value. The IFRS2 value is considered to be
a suitable basis for estimating the potential pay-outs of the LTI awards at the date of the award.
58
Non-Standard Finance plc Annual report and accounts 2016 3. Approach to recruitment and promotions
The Company will pay total remuneration for new Executive Directors that enables the Company to attract appropriately skilled and
experienced individuals, but is not, in the opinion of the Committee, excessive. The remuneration package for any new recruit
would be assessed following the same principles as for the Executive Directors, as set out in the remuneration policy table.
For a new Executive Director who is an internal appointment, the Company may also continue to honour contractual commitments
made prior to the internal appointment even if those commitments are otherwise inconsistent with the policy in force when the
commitments are satisfied. Any relevant incentive plan participation may either continue on its original terms or the performance
targets and/or measures may be amended to reflect the individual’s new role, as the Committee considers appropriate. The table
below summarises our key policies with respect to recruitment remuneration:
Element
Policy description
Base salary and benefits
Pension
• The salary level will be set taking into account a number of factors, including market factors, the
individual’s experience and responsibilities and other pay structures within the Company and will
be consistent with the salary policy for existing Executive Directors.
• Benefits may be provided in line with the Company's benefits policy as set out in the
remuneration policy table.
• An Executive Director will be able to receive either a contribution to a personal pension scheme
or cash allowance in lieu of pension benefits in line with the Company's policy as set out in the
remuneration policy table.
Annual Bonus
• An Executive Director will be eligible to participate in the Annual Bonus as set out in the
remuneration policy table.
• Awards may be granted up to the maximum opportunity allowable in the remuneration policy
table at the Committee’s discretion.
Long-term incentives
• An Executive Director may participate in the LTI, to the extent that awards are available, as set
out in the remuneration policy table.
Maximum variable
remuneration
Share buy-outs/replacement
awards
• The maximum annual variable remuneration that an Executive Director can receive may be up to
100% of salary (i.e. Annual Bonus).
• The Company may, where appropriate, compensate a new Executive Director for variable
remuneration that has been forfeited as a result of accepting the appointment with the
Company. Where the Company compensates a new Executive Director in this way, it will seek to
do so under the terms of the Company’s existing variable remuneration arrangements, but may
compensate on terms that are more bespoke than the existing arrangements where the
Committee considers that to be appropriate.
• In such instances, the Company will disclose a full explanation of the detail and rationale for such
recruitment-related compensation. In making such awards the Committee will seek to take into
account the nature (including whether awards are cash or share-based), vesting period and
performance measures and/or conditions for any remuneration forfeited by the individual when
leaving a previous employer. Where such awards had outstanding performance or service
conditions (which are not significantly completed) the Company will generally impose equivalent
conditions.
• The value of the buy-out awards will broadly be the equivalent of, or less than, the expected
value of the award being bought out.
Relocation policies
• In instances where the new Executive is relocated from one work location to another, the
Company will provide compensation to reflect the cost of relocation for the Executive in cases
where they are expected to spend significant time away from their home location in accordance
with its normal relocation package for employees.
• The level of the relocation package will be assessed on a case-by-case basis but will take into
consideration any cost of living differences; housing allowance; and schooling in accordance with
the Company’s normal relocation package for employees.
• The Company may, where appropriate, compensate a new Executive Director for legal costs
incurred as a result of termination of previous employment in order to accept the appointment
with the Company.
Legal fees
59
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Governance
Directors’ remuneration report continued
4. Executive Director service contracts and payment for loss of office
Service contracts
When setting notice periods, the Committee has regard to market practice and corporate governance best practice. Executive
Directors’ service agreements can be terminated by not less than 12 months’ prior written notice given by the Executive or by
the employer. The table below summarises the service contracts and letters of appointment for our Executive Directors.
John van Kuffeler
Nick Teunon
Miles Cresswell-Turner
Date of contract
19 February 2015
19 February 2015
1 January 2016
Notice period
12 months (Executive and Company)
All service contracts are available for viewing at the Company’s registered office and at the AGM.
The Executive Directors are permitted to sit as a Non-Executive Director on the Board of another company with the Company’s
written consent.
Payments for loss of office
When determining any loss of office payment for a departing Director the Committee will always seek to minimise cost to the
Company while complying with the contractual terms and seeking to reflect the circumstances in place at the time. The
Committee reserves the right to make additional payments where such payments are made in good faith in discharge of an
existing legal obligation (or by way of damages for breach of such an obligation); or by way of settlement or compromise of
any claim arising in connection with the termination of an Executive Director’s office or employment.
The table below sets out, for each element of total remuneration, the Company’s policy on payment for loss of office in respect of
Executive Directors and any discretion available:
Element
Approach
Base salary
12 months under contract
Annual Bonus
None payable
Founder Shares
No forfeiture
Discretion
None
Pro-rata bonus may be awarded
dependent on reasons for leaving
None
LTI
None payable if loss of office is because of resignation or gross
misconduct or if the departing employee is not considered to
be a good leaver.
Pro-rata award of shares may be awarded
dependent on the reasons for leaving
Otherwise, pro-rata award of shares payable at the end of the
performance period and subject to the deferral period.
5. Consideration of employee remuneration and shareholders
Consideration of shareholder views
The Remuneration Committee takes the views of shareholders seriously and these views are taken into account in setting
remuneration policy and practice. Shareholder views are considered when evaluating and setting remuneration strategy and the
Committee commits to consulting with key shareholders prior to any significant changes to its remuneration policy.
All-employee remuneration
In setting the remuneration policy for Directors, the pay and conditions of other employees of NSF are taken into account,
including any base salary increases awarded. The Committee is provided with data on the remuneration structure for management
level tiers below the Executive Directors, and uses this information to ensure consistency of approach throughout the Company.
Formal consultation on the remuneration of Executive Directors is not undertaken with employees.
The remuneration policy described above applies specifically to Executive Directors of the Company. The Committee believes that
the structure of management and employee reward should be linked to the Company’s strategy and performance. The table
below illustrates how the remuneration framework operates below the Executive Directors:
Level as at 31 December 2016
Senior management
Heads of divisions and/or functions
Other employees
60
Employee
numbers
Fixed
remuneration
Annual
bonus
Long-Term
Incentives
All employee
share plans
Shareholding
guidelines
14
18
505
√
√
√
√
√
√
√
√
√
√
Non-Standard Finance plc Annual report and accounts 2016 6. Non-Executive Director remuneration policy and letters of appointment
Remuneration policy table
The Board as a whole is responsible for setting the remuneration of the Non-Executive Directors.
The table below sets out the key elements of the policy for Non-Executive Directors:
Purpose
Operation
Maximum opportunity
Performance measures
and assessment
Fees
Core element of
remuneration,
set at a level
sufficient to
attract and retain
individuals with
appropriate
knowledge and
experience in
organisations
of broadly
similar size and
complexity.
n/a
Current fees are
set out in the
Annual Report on
Remuneration on
pages 64 to 65.
Fee levels are sufficient to attract individuals with appropriate knowledge
and experience.
Non-Executive Directors are paid a base fee. In exceptional
circumstances, fees may also be paid for additional time spent on the
Company’s business outside of the normal duties.
Reviewed annually with any changes generally effective from 1 January.
Any increases in fees will be determined based on time commitment
and take into consideration level of responsibility and fees paid in other
companies of comparable size and complexity.
Increases in
fees will be in
line with the
median fee levels
of comparable
companies.
Non-Executive Directors do not receive any variable remuneration
element or receive any other benefits.
Letters of appointment
The Non-Executive Directors do not have service contracts but are appointed under letters of appointment. Appointments are
reviewed three yearly and new appointments are made following recommendation by the Nomination Committee.
Charles Gregson
Robin Ashton
Heather McGregor
Date of appointment
19 February 2015
19 February 2015
19 February 2015
No compensation is payable in the event of early termination apart from the notice period. All letters of appointment are available
for viewing at the Company’s registered office and at the AGM.
Robin Ashton resigned on 31 October 2016. No compensation was paid in respect of the early termination of his appointment.
Part D: Annual Report on Remuneration
This Annual Report on Remuneration contains details of how the Company’s Remuneration Policy for Directors was implemented
during the financial year ended 31 December 2016. This report has been prepared in accordance with the provisions of the
Companies Act 2006 and the Regulations. An advisory resolution to approve this report and the annual statement will be put to
shareholders at the AGM on 9 May 2017.
1. Single figure remuneration table: Executive Directors – audited
The remuneration of Executive Directors, showing the breakdown between components with comparative figures for the prior
financial year is shown below. Figures provided have been calculated in accordance with the Regulations.
Base Salary
£000
Taxable
Benefits
£000
Bonus
£000
Long-Term
Incentives
£000
Pension
£000
Other
£000
Total
£000
John van Kuffeler
John van Kuffeler
Nick Teunon
Nick Teunon
2016
2015
2016
2015
Miles Cresswell-Turner
2016
Miles Cresswell-Turner
2015
288
215
207
155
230
101
34
21
11
9
12
–
–
215
–
155
–
101
–
–
–
–
–
–
29
22
21
15
20
9
–
–
–
–
–
–
Notes
1. Taxable Benefits comprise a car in the case of John van Kuffeler and life, medical and income protection insurance in the case of John van Kuffeler, Nick Teunon and Miles
Cresswell-Turner – the values of which have been included in the Taxable Benefits column.
2. The Executive Directors are entitled to receive a contribution to a personal pension scheme or cash in lieu – the value of which has been included in the Pension column.
351
473
239
334
262
211
61
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Governance
Directors’ remuneration report continued
Annual Bonus outcomes for the period ended 31 December 2016 – audited
The Remuneration Committee considered that the performance targets for the Annual Bonus were not met and therefore
no bonuses were paid to the Executive Directors.
Payments to past Directors or for loss of office – audited
During the year there were no payments to past Directors and no payments for loss of office.
2. Implementation of remuneration policy for the Executive Directors for 2017
Base salary
In setting salary levels for the 2017 financial year for the Executive Directors, the Committee considered a number of factors,
including individual performance and experience, pay and conditions for employees across the Company, the general performance
of the Company, pay levels in other comparable companies, other elements of remuneration and the economic environment. The
salaries for 2017 and the relative increases are set out below.
Base salary £000
John van Kuffeler
Nick Teunon
Miles Cresswell-Turner
2017
£288
£230
£230
2016
% change
£288
£207
£230
0%
11%
0%
Notes
1. The increase in Nick Teunon’s base salary in 2017 was made to align his remuneration with the levels of pay of the other Executive Directors. Following this alignment of
Mr Teunon’s salary, any future increases in his salary will be in line with those applying to the other Executive Directors and will generally be consistent with any increases across
the Group. There were no other increases made for Executive Directors.
Pension and benefits
The maximum contribution to a personal pension scheme or cash in lieu is equal to 10% of base salary for all Executive Directors.
None of the Executive Directors had prospective rights under a defined benefit pension scheme.
Benefits will be provided to the Executive Directors in line with the Directors’ Remuneration Policy.
Annual bonus
Consistent with the Directors’ Remuneration Policy the maximum and target bonus potentials for 2017 are:
John van Kuffeler
Nick Teunon
Miles Cresswell-Turner
Maximum
bonus % of
salary
On-target
bonus % of
maximum
Threshold
bonus % of
maximum
100%
100%
100%
75%
75%
75%
25%
25%
25%
For the 2017 financial year, performance measures include financial measures based on budgeted profit before tax and non-
financial measures including conduct-based measures which ensure delivery of good customer outcomes through appropriate
affordability assessments and appropriate treatment of vulnerable customers together with appropriate collections, arrears and
forbearance practices. Financial and non-financial measures are split 70% financial and 30% non-financial.
Threshold vesting will be set at 90% of target with on-target vesting at 100% and maximum vesting at 110%, with vesting on a
sliding scale between these points.
The Board is of the opinion that the precise performance targets for the Annual Bonus are commercially sensitive and that it would
be detrimental to the interests of the Company to disclose them before the start of the financial year. Actual targets, performance
achieved and awards made will be published at the end of the performance period so shareholders can fully assess the basis for
any pay-outs.
LTI awards
The following awards are to be made under the LTI.
John van Kuffeler
Nick Teunon
Miles Cresswell-Turner
Total
62
% of growth
pool allocated
to participants
% of the
growth
in value
37.5%
5.625%
25%
25%
3.75%
3.75%
87.5%
13.125%
Non-Standard Finance plc Annual report and accounts 2016 3. Consideration by the Committee of matters relating to the Directors’ remuneration for 2016 and 2017
The Committee complies with the UK Corporate Governance Code. The Committee makes recommendations to the Board, within
agreed terms of reference, on remuneration for the Executive Directors and has oversight of remuneration arrangements for senior
management. The Committee’s full terms of reference are available on the Company’s website at www.nonstandardfinance.com.
Members of the Committee during 2016
Independent
January
2016
February
February
2016
2016
June
2016
Attendance
Charles Gregson
Robin Ashton
Heather McGregor
Note
1. Robin Ashton resigned from the Board on 31 October 2016.
No
No
Yes
√
√
√
√
√
x
√
√
√
√
√
√
100%
100%
75%
All Committee members attended all Remuneration Committee meetings that took place while they were members of the
Committee, save that Heather McGregor missed one meeting in February 2016 due to a diary conflict. None of the Committee
members has any personal financial interest (other than as shareholders), conflicts of interests arising from cross-directorships or
day-to-day involvement in running the business. The Group Chief Executive and the Chief Financial Officer attend meetings at the
invitation of the Committee, but are not present when their own remuneration is being discussed.
The Committee received external advice in 2016 from PwC during the year. PwC were appointed in May 2015 as advisers after a
tender process. PwC are considered by the Committee to be objective and independent. PwC are members of the Remuneration
Consultants Group and, as such, voluntarily operate under the code of conduct in relation to executive remuneration consulting in
the UK. The Committee reviewed the nature of all the services provided during the year by PwC and was satisfied that no conflict
of interest exists or existed in the provision of these services. The total fees paid to PwC in respect of services to the Committee
during the year were £38,900. Fees were determined based on the scope and nature of the projects undertaken for the Committee.
PwC also provides valuation advice and assistance with implementation of the Group’s long-term incentive arrangements.
During the financial year, there were four Committee meetings. The matters covered at each meeting are covered in the table below:
January 2016
February 2016
• Review of governance and benchmarking in respect of
Executive Director remuneration
• Review of LTI for Loans at Home and Everyday Loans
• Executive Directors’ bonuses for 2016
• Review of LTI for Loans at Home and Everyday Loans
February 2016
June 2016
• Further discussion re. Executive Directors’ bonuses for 2016
• Further review of LTI for Loans at Home and Everyday Loans
• Review of decisions on Executive Director remuneration
4. Group Chief Executive and employee pay
The Committee believes that the current Executive Directors’ Remuneration Policy and the supporting reward structure provide
clear alignment with the Company’s performance. The Committee believes it is appropriate to monitor the Company’s
performance against the FTSE All Share Index – Financial Services as this Index provides a measure of a sufficiently broad equity
market against which the company considers that it is suitable to compare itself.
63
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Governance
Directors’ remuneration report continued
The chart below illustrates our Total Shareholder Return performance against the FTSE All Share Index – Financial Services since
the date of the IPO in February 2015 to 31 December 2016.
Total Shareholder Return
120
100
80
60
40
20
0
0 2/2 015
0 3/2 015
0 4 /2 015
0 5/2 015
0 6/2 015
0 7/2 015
0 8/2 015
0 9/2 015
10 /2 015
11/2 015
12/2 015
01/2 016
0 2/2 016
0 3/2 016
0 4 /2 016
0 5/2 016
0 6/2 016
0 7/2 016
0 8/2 016
0 9/2 016
10 /2 016
11/2 016
12/2 016
NSF FTSE All Share Index – Financial Services
Despite having fulfilled most of the strategic objectives set out at the time of the Group’s Initial Public Offering, the Group’s shares
have underperformed the FTSE All Share Financial Services Index during the period. Possible reasons for this underperformance
include: limited research coverage by sell-side analysts; softer than expected financial performance by Loans at Home; and
concerns over future market and regulatory conditions in the UK consumer finance segment.
Group Chief Executive
Single figure of total remuneration (£000)
Bonus pay-out (% maximum)
Long-term incentive vesting rates (% maximum)
2016
351
0%
n/a
2015
473
100%
n/a
Percentage change in the Chief Executive Officer’s remuneration
The table below compares the percentage increase in the Group Chief Executive’s pay on an annual basis with the wider employee
population. The Company considers the Group’s employees excluding the Executive Directors, to be an appropriate comparator
group.
% change from 2015 to 2016
Group Chief Executive
Employee pay
Base salary
Benefits Annual bonus
15%
2.25%
19%
0%
-100%
See note
Note
1. While there was no change to bonus payments at Everyday Loans (including Trusttwo), no annual bonus payments were made at Loans at Home in 2016.
Relative importance of spend on pay
The table below shows the overall spend on pay for all the Group’s employees compared with returns distributed to shareholders.
Significant distributions
Employee spend
Distributions to shareholders Employee pay
2016
£17.8m
£0.9m
2015
% change
£4.5m
–
296
–
Note
1. Employee spend for 2016 includes pay for the employees of Everyday Loans following the acquisition in April 2016.
5. Single figure remuneration table: Non-Executive Directors – audited
The remuneration of Non-Executive Directors showing the breakdown between components, with comparative figures for the
prior year, is shown below. Figures provided have been calculated in accordance with the Regulations.
64
Non-Standard Finance plc Annual report and accounts 2016 Charles Gregson
Charles Gregson
Robin Ashton
Robin Ashton
Heather McGregor
Heather McGregor
Note
1. Robin Ashton resigned from the Board on 31 October 2016.
Fees to be provided in 2017 to the Non-Executive Directors
The following table sets out the annual fee rates for the Non-Executive Directors:
Chairman’s fee
Charles Gregson
Independent Non-Executive Director fee
Heather McGregor
2016
2015
2016
2015
2016
2015
Fees
£000
Benefits/other
£000
Total
£000
50
50
42
43
75
68
2017
50
75
–
–
–
–
–
–
50
50
42
43
75
68
2016
% change
50
75
0
0
6. Directors’ shareholding and share interests
Shareholding and other interests at 31 December 2016 – audited
Directors’ share interests and, where applicable, achievement of shareholding requirements are set out below. In order that their
interests are aligned with those of shareholders, Executive Directors are expected to build up and maintain (as relevant) a personal
shareholding equal to 100% of their base salary in the Company.
Shareholding at 31 December 2016
Interests in Founder Shares
John van Kuffeler
Nick Teunon
Miles Cresswell-Turner
Charles Gregson
Heather McGregor
Total
Number of
beneficially
owned shares
2,114,474
55,921
490,132
256,083
61,465
2,978,075
% of
salary held
Shareholding
requirement
met
Subject to
conditions
Vested but
unexercised
Total at
28 February
2017
423%
14%
123%
Yes
No
Yes
30
25
25
10
–
90
–
–
–
–
–
–
30
25
25
10
–
90
Notes
1. Beneficial interests include shares held directly or indirectly by connected persons.
2. Shareholding requirement calculation is based on the share price at the end of the year (£0.575 at 31 December 2016) and base salaries at 1 January 2017.
3. Robin Ashton has retained 4 of his Founder Shares. 10 of his Founder shares were transferred to Nick Teunon and 6 of the Founder Shares were transferred to a senior employee.
Dilution
The Company funds its share incentives through a combination of new issue and market purchased shares. The Company
monitors the levels of share grants and the impact of these on the ongoing requirement for shares. In accordance with guidelines
set out by the Investment Association (‘IA’) the Company can issue a maximum of 10% of its issued share capital in a rolling
ten-year period to employees under all its share plans.
Non-Executive positions held by Executive Directors
John van Kuffeler retained fees of £40,000 during the year from his Non-Executive position at Paratus AMC Limited.
7. Shareholding voting
The table below shows the binding vote approving the previous Directors’ Remuneration Policy and the advisory vote to approve
the 2015 Annual Report on Remuneration at the AGM on 30 March 2016.
Directors’ Remuneration Policy
2015 Annual Report on Remuneration
By order of the Board
Charles Gregson
Chairman of the Remuneration Committee
31 March 2017
Votes for
%
Votes against
% Votes withheld
206,163,020
96.09 8,393,636
214,300,608
99.88
256,048
3.91
0.12
500
500
65
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Governance
Directors’ report
Introduction
In accordance with section 415 of the Companies Act 2006,
the Directors present their report together with the financial
statements for the year ended 31 December 2016. Both the
Strategic report on pages 1 to 38 and the Directors’ report
have been prepared and presented in accordance with, the
Companies Act 2006 together with the UK Listing Authority’s
Disclosure and Transparency Rules (‘DTRs’) and the Listing
Rules (‘LRs’). The liabilities of the Directors in connection with
both the Strategic Report and the Directors’ report shall be
subject to the limitations and provided by such law. Other
information as to be disclosed in the Directors’ report is
expressly outlined in this section.
There are no restrictions on the transfer of Ordinary Shares or
on the exercise of voting rights attached to them, which are
governed by the Company’s Articles of Association and relevant
English law. The Directors are not aware of any agreements
between holders of the Company’s shares that may result in
restrictions on the transfer of securities or in voting rights.
The Company has not acquired its own shares during the
financial year.
Further details on the Company’s share capital can be found in
note 22 to the financial statements.
Principal activities and review of the business
The Company is the UK holding company of a Group providing
unsecured credit to UK adults. The Company is incorporated
and domiciled in England and Wales and is quoted on the Main
Market of the London Stock Exchange.
Substantial shareholdings
The Company has been notified in accordance with the
Disclosure and Transparency Rules DTR-5 that as at
28 February 2017 (the latest practicable date before the
publication of the report) the following investors have a
substantial interest in the issued Ordinary Share capital:
The Strategic report which can be found on pages 1 to 38 of the
Annual Report which, amongst other things, provides a more
detailed review of business strategy and business model
together with commentary on the business performance during
the year and outlook for the future. Information relating to the
principal financial and operating risks facing the business are set
out on pages 24 to 25 of the Strategic report.
Invesco Asset Management
Woodford Investment Management
Marathon Asset Management LLP
Secure Trust Bank
Quilter Cheviot Asset Management
26.69%
23.70%
10.93%
7.42%
4.02%
Trading results and dividends
The Group’s consolidated loss after taxation for the financial
year was £7,998,000 (2015: loss of £13,070,000).
The Directors’ beneficial interest in the allotted shares of the
Company as at 31 December 2016 are outlined below:
An interim dividend of 0.3p per share was paid to shareholders
in August 2016 and a further final dividend of 0.9p has been
recommended by the Board, payable to shareholders on the
share register on 19 May 2017. If approved, the final dividend
would be paid on 20 June 2017.
Future business developments
Information on the Company and its subsidiaries’ future
developments can be found in both the Chairman’s Statement
on pages 4 to 5 and the Chief Executive’s review on pages
12 to 14.
Share Capital
As at 31 December 2016 the share capital of the Company
consisted of 317,049,682 Ordinary Shares of £0.05 each and
100 Founder Shares. The Company’s issued Ordinary Share
capital ranks pari passu in all respects and carries the right to
receive all dividends and distributions declared, made or paid
on or in respect of the Ordinary Shares. Founder Shares grant
each holder the option, subject to the satisfaction of both the
significant acquisition condition and the performance condition
(which can be satisfied, under certain circumstances, if a
Founder is removed from the Board), to require the Company
to purchase some or all of their Founder Shares. Further details
on the Founder Shares can be found in note 28 to the financial
statements. There are currently no redeemable non-voting
preference shares of the Company in issue.
Director
John van Kuffeler
Nick Teunon
Miles Cresswell-Turner
Charles Gregson
Heather McGregor
Number of
Ordinary
Shares held
2,114,474
55,921
490,132
256,083
61,465
As granted by shareholders at the 2016 AGM, the Directors
currently have the power to issue and buy-back the Company
shares. The Board is seeking to renew these powers at the
forthcoming 2017 AGM.
Articles of Association
The Articles of Association set out the basic management and
administrative structure of the Company. The Articles regulate
the internal affairs of the Company and cover matters including
those relating to Board and shareholder meetings, powers and
duties of Directors and the transfer of shares.
The Articles may only be amended by a special resolution at a
general meeting of the shareholders. A copy of the Articles of
Association can be requested from the Company Secretary and
are also available for inspection at Companies House.
66
Non-Standard Finance plc Annual report and accounts 2016 Directors:
Charles Gregson
Non-Executive Chairman
John van Kuffeler
Group Chief Executive
Nick Teunon
Chief Financial Officer
Miles Cresswell-Turner
Executive Director
Heather McGregor
Non-Executive Director
Robin Ashton
Non-Executive Director
(resigned 31 October 2016)
The Directors and their profiles are detailed on pages 40 to 41.
All of these Directors above served in office throughout the
year under review and up to the signing of the Annual Report
with the exception of Robin Ashton who stood down from the
Board on 31 October 2016.
In accordance with the Articles of Association and the UK
Corporate Governance Code, each Director will offer themselves
for re-election at the forthcoming Annual General Meeting.
During the year, no Director had a material interest in any
contract of significance to which the Company or any
subsidiary undertaking was a party.
Powers of the Directors
Subject to the Articles of Association, English law and any
direction granted by special resolutions, the business of the
Company is managed by the Board.
Directors’ indemnities
The Company’s Articles of Association permit it to indemnify
the Directors of the Company (or of any associated company)
in accordance with section 234 of the Companies Act 2006.
In accordance to the Company’s Articles of Association,
qualifying third-party indemnities, under which the Company
has agreed to indemnify Directors, were in place during the
financial year and at the date of approval of the Financial
Statements in accordance to the maximum limit as imposed
by the law.
The Company may indemnify Directors of all costs, losses, and
liabilities which they may incur in or about the execution or as a
result of the execution of their duties to the Company or any
company associated (as defined in section 256 of the
Companies Act 2006) with the Company.
The Company has in place Directors’ and Officers’ Liability
insurance which provides appropriate cover for any legal action
brought against its Directors.
Employees
The skills, motivation and energy of our workforce are key
drivers for our success. The organisation structures of each of
our operating businesses ensure that all staff are aware of our
corporate goals and are clear on how their roles help NSF
to succeed.
We seek to ensure that all employees and potential
employees receive equal treatment (including access
to employment and training) regardless of their age,
disability, gender reassignment, marital or civil partner
status, pregnancy and maternity, race, nationality, ethnic or
national origin, religion or belief, sex or sexual orientation.
This policy includes those who might become disabled
during their period of employment by the Group.
As part of our commitment to treating customers fairly,
delivering excellent service and lending responsibly, it is the
Group’s policy to have in place appropriate processes to offer
career and job development opportunities to all employees.
Separately, each of our self-employed agents are required to
receive regular, ongoing training to ensure that we are
responsive to each customer’s individual needs. The training
programme includes: new starter training, agent monitoring, call
monitoring, written training, online training, informal feedback
from branch managers and colleague assessment programmes.
The Company is committed to adopting employment practices
which follow best practice and intends to set-up an employee
share scheme which will provide an opportunity for employees
to share in the Company’s future success. It is anticipated that
the share scheme will be introduced during 2017. It is expected
that additional programmes aimed at enhancing employee
engagement further will be developed as the Group expands.
Related party transactions
In accordance with IAS 24, no related party transactions took
place during 2016.
Post balance sheet events
The Everyday Loans debt facility has been extended so that the
Group now has £115m of total committed facilities compared
with £95m at 31 December 2016.
Environmental factors
The Board continually considers the Company’s impact on the
environment and has concluded that at present due to the small
size of the Company and the nature of its business, it has a
minimal impact. The Board anticipates that as the Company
grows in size, the Board will measure and report annually on any
material environmental impact in its Annual Report.
Charitable and political donations
The Group made no political or charitable donations in the year
ended 31 December 2016.
Health and safety
Health and safety standards and benchmarks have been
established in the Company and its divisions and its compliance
is monitored regularly by the Board.
Anti-bribery and corruption
In accordance with the Bribery Act 2010, the Group has policies
in place to comply with the requirements of the Bribery Act 2010.
Annual General Meeting
The Annual General Meeting of the Company is to be held at
Bell Pottinger, 330 High Holborn, London, WC1V 7LU at 11.00am
on 9 May 2017. The Notice of Meeting, contained in a separate
letter from the Chairman includes a commentary on the
business to be conducted at the General Meeting.
67
Financial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016
Governance
Directors’ report continued
Disclosure of information under Listing Rule 9.8.4R
For the purposes of LR 9.8.4R, the information required to be disclosed can be found in the following sections of the Annual
Report and financial statements.
Listing Rule requirement
A statement of the amount of interest capitalised during the period under reviews
and details of any related tax relief.
Information required in relation to the publication of unaudited financial information.
Details of any long-term incentive schemes.
Details of any arrangements under which a Director has waived emoluments, or agreed
to waive any future emoluments, from the Company.
Details of any non-pre-emptive issues of equity for cash.
Details of any non-pre-emptive issues of equity for cash by any unlisted
major subsidiary undertaking.
Details of parent participation in a placing by a listed subsidiary.
Details of any contract of significance in which a Director is or was materially interested.
Details of any contract of significance between the Company (or one of its subsidiaries)
and a controlling shareholder.
Details of any provision of services by a controlling shareholder.
Details of waiver of dividends or future dividends by a shareholder.
Board statements in respect of relationship agreement with the controlling shareholder.
Location in Annual Report
Not applicable
Not applicable
Directors’ remuneration report,
pages 51 to 68
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Auditors
Deloitte LLP, the external auditor for the Company was appointed in 2014 and a resolution proposing their re-appointment will be
proposed at the forthcoming AGM.
Directors’ statement as to disclosure of information to auditors
Each Director at the date of approval of the Annual Report confirms that so far as each Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware. Each Director has taken all the steps that she/he ought to have taken as a
Director in order to make her/himself aware of any relevant audit information and to establish that the Company’s auditor is aware
of that information. This confirmation is given and should be interpreted in accordance with section 418 of the Companies Act 2006.
Going concern statement
The Directors have carried out a robust assessment of the principal risks facing the Company, including those that could threaten its
business model, future performance, solvency or liquidity. Further information about those risks, how they have changed during 2016
and how they are being managed or mitigated can be found in the Strategic report on pages 24 to 25 and also in the Risk Committee
Report on page 50. On this basis, the Directors consider it appropriate to adopt the going concern basis in preparing the Company’s
financial statements. The Directors will continue to monitor the Company’s risk management and internal control systems.
Financial Instruments
Details of the financial risk management objectives and policies of the Group and the exposure of the Group to market, interest
rate, credit, capital management and liquidity risk are included on page 101 of the financial statements.
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and
regulations.
Each of the Directors confirms that, to the best of their knowledge:
• the financial statements, prepared in accordance with applicable accounting standards, 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; and
• the Strategic report includes a fair review of the development or 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.
Each of the Directors also confirms that they consider the Annual Report and Financial Statements 2016, 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.
The Annual Report and Financial Statements 2016 will be published on the Group’s website in addition to the normal paper version.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation governing the preparation
and dissemination of financial statements may differ from legislation in other jurisdictions.
Approved by the Board on 31 March 2017 and signed by the order of the Board.
Nick Teunon
Chief Financial Officer and Company Secretary
31 March 2017
68
Non-Standard Finance plc Annual report and accounts 2016 Financial
statements
77
70
Independent auditor’s report
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of changes
in equity and cash flows
79
Company statement of financial position 80
Company statement of changes
in equity and cash flows
Notes to the financial statements
81
82
78
69
Financial statementsStrategic reportGovernance Financial statements
Independent auditor's report
Opinion on financial statements of Non-Standard Finance plc
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December
2016 and of the Group’s loss 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 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 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
The financial statements that we have audited comprise:
• the Consolidated statement of comprehensive income;
• the Consolidated and Company statements of financial position;
• the Consolidated and Company cash flow statements;
• the Consolidated and Company statements of changes in equity; 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.
Summary of our audit approach
Key risks
Materiality
Scoping
The key risks that we identified in the current year were:
• carrying value of goodwill;
• provision for impairment losses against loans and receivables to customers;
• acquisition accounting; and
• revenue recognition.
The materiality that we used in the current year was £480,000 which was determined on the basis of 5%
of profit before tax before fair value adjustments of £8.3m and amortisation of acquired intangible assets
of £10.7m.
Our group audit scope focused on the parent company and each of the trading subsidiaries forming the
group’s four reportable segments which account for 100% of the group’s losses before tax. Whilst
consistent with prior year, the current year scope includes the Everyday Loans and Trusttwo segments
acquired during the year. All entities within the group are audited by the same engagement team.
Significant changes
in our approach
Our audit approach for the current year focuses an additional risk of material misstatement, being the
carrying value of goodwill arising on business combinations.
70
Non-Standard Finance plc Annual report and accounts 2016 Going concern and the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the Group
We are required to state whether we have anything material to add or draw attention
to in relation to:
• the Directors’ confirmation on page 68 that they have carried out a robust
We confirm that we have nothing
material to add or draw attention to in
respect of these matters.
assessment of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity;
• the disclosures on pages 24 to 25 that describe those risks and explain how they
are being managed or mitigated;
• 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 ability to continue to do so over a period of at least 12 months from the
date of approval of the financial statements; and
• the Directors’ explanation on page 50 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.
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards
for Auditors and confirm that we are independent of the Group and we have fulfilled
our other ethical responsibilities in accordance with those standards.
We agreed with the Directors’ adoption
of the going concern basis of accounting
and we did not identify any such
material uncertainties. However,
because not all future events or
conditions can be predicted, this
statement is not a guarantee as to the
Group’s ability to continue as a going
concern.
We confirm that we are independent
of the Group and we have fulfilled our
other ethical responsibilities in
accordance with those standards.
We also confirm we have not provided
any of the prohibited non-audit services
referred to in those standards.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the
allocation of resources in the audit and directing the efforts of the engagement team.
The risks we report on are consistent with the prior period, with the additional new risks relating to the carrying value of goodwill
and the acquisition accounting in relation to Everyday Loans Group (2015: Loans at Home).
Carrying value of goodwill
Risk description
The acquisitions of Everyday Loans Group and Loans at Home have led to the recognition of £132.1m of
goodwill in the Consolidated statement of financial position.
IAS 36 Impairment of Assets requires that goodwill acquired in a business combination should be tested
for impairment annually and whenever there is an indication that the cash generating unit ('CGU') to
which the goodwill is allocated may be impaired.
Management performed a goodwill impairment assessment as at 31 December 2016 by determining the
recoverable amount, based on a fair value less costs to sell of each of the cash generating units, and
comparing these to the respective net asset values and carrying values of goodwill. Management
determined that no impairment of goodwill was required.
The critical judgements and estimates involved in management’s impairment assessment are:
• the allocation of all of the goodwill arising on the acquisition of Everyday Loans Group to Everyday
Loans (no goodwill allocated to Trusttwo);
• the use of a Group-wide weighted average cost of capital to discount forecast future cash flows;
• the forecast profit after tax for the 2019 year end; and
• the calculation and application of an appropriate price/earnings ('P/E') multiple to the forecast 2019
profit after tax.
Further detail in respect of management judgements and estimates, along with the respective sensitivity
of the headroom to those judgements and estimates is set out within the Audit Committee report on
pages 47 to 48 and notes 2 and 13 to the financial statements.
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Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Independent auditor's report continued
How the scope of
our audit
responded to
the risk
We challenged the appropriateness of management’s key assumptions used in the impairment
assessment. Our challenge considered the appropriateness of the methodology for compliance with
IAS 36. Additionally, we performed a sensitivity analysis for each of the key judgements and estimates
to assess the impact on the recoverable amount of each CGU, with our audit work focussing on the
most sensitive.
In relation to the allocation of all of the goodwill arising on the acquisition of Everyday Loans Group to
Everyday Loans (no goodwill allocated to Trusttwo) we challenged management’s judgement, including
considering alternative allocation methods and compliance with IAS 36.
In relation to the discount rate used, we:
• used our valuation specialists to assess the methodology used by management to determine their
discount rate;
• used our valuation specialists to calculate a range of possible discount rates for the Group; and
• considered the appropriateness of using a different discount rate for this assessment of impairment of
goodwill to that used at acquisition.
In relation to forecast earnings we:
• challenged the likely achievability of management’s assumptions;
• reviewed the consistency of those assumptions with management’s assessment of viability and going
concern; and
• considered the historical quality of forecasting.
In relation to the P/E multiple we challenged the P/E multiple using our valuation specialists to calculate a
range of other multiples that could have been applied.
Key observations
We found management’s methodology for the goodwill impairment assessment to be compliant with
IAS 36.
All assumptions, including the discount rate, the P/E multiple and the forecast earnings, adopted by
management are within an acceptable range.
The carrying value of goodwill allocated to the Loans at Home CGU is highly sensitive to the discount rate,
future forecast earnings and the P/E multiple applied to those earnings as disclosed in note 13 to the
financial statements.
Provision for impairment losses against loans and receivables to customers
Risk description
The gross carrying value of the Group’s loans to customers is £204.8m. Against this, management have
booked an impairment provision of £24.4m. The assessment of provisions for impairment losses against
customer receivables requires management to make significant judgements. Different assumptions can
have a material impact on the impairment provision.
The key assumptions in calculating the impairment provision are:
• the determination of loss events and the quantum and timing of future cash flows.
• the use of historical cash collection performance to determine expected future cash flows; reassessed
annually by reference to recent experience, seasonality and future expectations to determine their
ongoing accuracy.
Further detail in respect of the assumptions is set out in note 2 to the financial statements.
How the scope of
our audit
responded to
the risk
We challenged the appropriateness of management’s assumptions underlying the impairment provision
calculations. This involved assessing the assumptions related to the timing and quantum of cash flows for
appropriateness in comparison to current and forecast external market and economic data as well as
historical experience.
We considered the appropriateness of impairment triggers by comparing the Group’s loss event definition
to entity specific experience of asset performance, as well as benchmarking to other businesses with
similar asset classes.
Where applicable, our IT specialists tested the SAS scripts and data flows from source systems to
spreadsheet-based models to test the models’ completeness and accuracy.
Sensitivity analyses were also performed in relation to the key assumptions in order to assess the potential
for management bias.
72
Non-Standard Finance plc Annual report and accounts 2016 Key observations
The provision models across the Group were found to be working as intended and the underlying
assumptions to be reasonable.
We found that the collections expectations used are materially consistent with recent performance and
budgeted collections.
The impairment provisions held against the loan book are reasonable in line with current
collections performance.
Acquisition accounting
Risk description
How the scope of
our audit
responded to
the risk
In April 2016, the group acquired the Everyday Loans Group for £235 million. IFRS 3 Business
Combinations requires assets and liabilities acquired to be recognised initially at their fair values.
Intangible assets must also be recognised at fair value if they are separable or arise from other
contractual rights.
The identification of intangible assets and determination of fair values requires the exercise of significant
judgement. Our work in this respect was focused on the following key areas:
• the approach adopted to identify intangible assets;
• the recognition of £14.0m of intangible assets in relation to customer lists, broker relationships,
technology and brands;
• the £23.7m adjustment to recognise the acquired loan book at fair value;
• the discount rate used to calculate the net present value of the loan book and intangibles acquired; and
• the recognition of £91.9m of goodwill, being the excess of the fair value of the consideration over the
fair value of the acquired assets and liabilities.
Further detail in respect of management judgements and assumptions is set out within the Audit
Committee report on pages 47 to 48 and notes 1, 2, 13, 14 and 24 to the financial statements.
We challenged management’s identification and valuation of intangible assets on acquisition against the
requirements of IFRS 3.
In relation to the completeness of the intangible assets identified and consequent goodwill, we:
• challenged the intangible assets identified by management in comparison to those we would normally
expect;
• used our valuation specialists to challenge the methodology and assumptions used by management to
value the intangible assets;
• used our valuation specialists to assess the methodology used by management to determine their
discount rate;
• used our valuation specialists to independently calculate a range of discount rates for the Group; and
• recalculated the remaining goodwill (refer to Carrying value of goodwill risk above).
Key observations
We found management’s methodology for the recognition and valuation of intangibles arising from the
acquisition to be appropriate.
Revenue recognition
Risk description
Revenue recognised in the period amounted to £72.8m.
Management calculates revenue on an Effective Interest Rate ('EIR') basis for the purpose of determining
revenue recognition in accordance with the requirements of IAS 39 Financial Instruments. The EIR
method spreads directly attributable revenues and costs over the behavioural life of the loan. These
models are heavily reliant on the quality of the underlying data flowing into the models.
The key judgement in Loans at Home revenue recognition is the period over which forecast cash flows are
modelled to determine the EIR. Changes to this assumption could significantly affect the revenue
recognised in any given period.
As part of the acquisition of Everyday Loans, a fair value uplift of the net loan book totalling £23.7 million
has been recognised, which will be unwound over the behavioural life of the acquired net loan book.
The key judgement in the unwind is the behavioural life of the acquired net loan book. Changes to this
assumption could significantly affect the revenue recognised in the period.
Further detail in respect of the assumptions is set out within the notes 1, 2 and 3 to the financial
statements.
73
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Independent auditor's report continued
How the scope of
our audit
responded to
the risk
We considered the appropriateness of the methodology for compliance with IAS 39 and challenged
management’s assumptions in respect of cash flow estimates, focusing on the timing and level of early
settlements which directly impact estimated behavioural lives, as well as the completeness of other
directly attributable costs.
We independently recalculated the effective interest rates for Loans at Home’s main products and
compared these to the EIRs applied in the revenue models noting they were reasonable in line with most
recent experience.
We assessed the behaviour life and post-acquisition performance of the Everyday Loans loan book to
consider whether there is any indication of impairment for which an incremental fair value unwind would
be required.
Key observations
We found the models to be working as intended and the underlying assumptions to be reasonable.
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.
Our application of 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:
Group materiality
£480,000 (2015: £800,000)
Basis for
determining
materiality
Rationale for the
benchmark applied
We used 5% of profit before tax before fair value adjustments and amortisation of acquired intangible
assets as described in the financial statements.
For the period ended 31 December 2015, we determined materiality as 1% of total equity.
Profit based measures are the financial measures most relevant to users of the financial statements. We
considered that the most relevant basis for materiality to be the profits earned from continuing business
operations and have therefore excluded the fair value adjustments and amortisation of acquired
intangible assets arising on acquisitions as described in the financial statements. The use of 5% is to align
materiality used to that of comparable listed companies.
The change to a profit based measure reflects the inclusion of operating subsidiaries for the whole of the
current year. This is in comparison with the equity based measure used in the prior period which reflected
the Group’s first period of operation including the acquisition of its first operating subsidiary in August 2015.
Adjusted PBT £9.7m
£480,000
Group materiality
£240,000 to
£380,000
Component materiality
range
Adjusted PBT
Group materiality
£4,000
Reporting threshold
74
Non-Standard Finance plc Annual report and accounts 2016
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £4,000 (2015:
£9,000), 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.
An overview of the scope of our audit
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. Based on that assessment, our Group audit scope focused on the
parent company and each of the principal trading subsidiaries within the Group’s four reportable segments which account for
100% of the Group’s losses before tax. We have audited all subsidiaries using a materiality range of £240,000 to £380,000. Whilst
consistent with prior year, the current year scope includes the Everyday Loans and Trusttwo segments acquired during the year.
All entities within the Group have the same engagement partner.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act
2006;
• 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 company and its environment obtained in the course of the audit, we have
not identified any material misstatements in the Strategic report and the Directors’ report.
Matters on which we are required to report by exception
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.
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 or the part of the
Directors’ remuneration report to be audited is not in agreement with the accounting
records and returns.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to
report to you if, in our opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the Group acquired in the course of performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have identified any
inconsistencies between our knowledge acquired during the audit and the
Directors’ statement that they consider the Annual Report is fair, balanced and
understandable and whether the Annual Report appropriately discloses those
matters that we communicated to the Audit Committee which we consider should
have been disclosed.
Other matters
Corporate governance statement
Although not required to do so, the Directors have voluntarily chosen to make a
corporate governance statement detailing the extent of their compliance with the
UK Corporate Governance Code. We reviewed the part of the corporate governance
statement relating to the Company’s compliance with certain provisions of the UK
Corporate Governance Code.
We have nothing to report in respect
of these matters.
We have nothing to report arising
from these matters.
We confirm that we have not
identified any such inconsistencies
or misleading statements.
We have nothing to report arising
from our review.
75
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Independent auditor's report continued
Respective responsibilities of Directors and auditor
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. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). We also comply
with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality
control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional
standards review team and independent partner reviews.
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.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have
been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors;
and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the
Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the
implications for our report.
Mark Rhys, FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
31 March 2017
76
Non-Standard Finance plc Annual report and accounts 2016 Financial statements
Consolidated statement of comprehensive income
For the year ended 31 December 2016
Revenue
Impairment/cost of sales
Administrative expenses
Operating profit/(loss)
Exceptional items
Profit/(loss) on ordinary activities before interest and tax
Finance cost
Profit/(loss) on ordinary activities before tax
Tax on profit/(loss) on ordinary activities
Profit/(loss) for the year
Total comprehensive loss for the year
Loss attributable to:
– Owners of the parent
– Non-controlling interests
Loss per share
Basic and diluted
Note
3
4
1
9
11
Before fair value
adjustments,
amortisation
of acquired
intangibles and
exceptional items
£’000
Fair value
adjustments,
amortisation
of acquired
intangibles and
exceptional items
£’000
Year ended
31 December 2016
£’000
81,099
(23,201)
(44,074)
13,824
–
13,824
(3,484)
10,340
(2,278)
(8,342)
–
(10,714)
(19,056)
(626)
(19,682)
–
(19,682)
3,622
8,062
(16,060)
72,757
(23,201)
(54,788)
(5,232)
(626)
(5,858)
(3,484)
(9,342)
1,344
(7,998)
(7,998)
(7,998)
–
Year ended
31 December 2016
Pence
(2.60)
Note
10
There are no recognised gains or losses other than disclosed above and there have been no discontinued activities in the year.
For the period ended 31 December 2015
Revenue
Impairment/cost of sales
Administrative expenses
Operating loss
Exceptional items
Loss on ordinary activities before interest and tax
Finance income
Loss on ordinary activities before tax
Tax on loss on ordinary activities
Profit/(loss) for the period
Total comprehensive loss for the period
Loss attributable to:
– Owners of the parent
– Non-controlling interests
Loss per share
Basic and diluted
Note
3
4
1
9
11
Before fair value
adjustments,
amortisation
of acquired
intangibles and
exceptional items
£’000
Fair value
adjustments,
amortisation
of acquired
intangibles and
exceptional items
£’000
Period from
incorporation to
31 December 2015
£’000
14,657
(3,858)
(11,340)
(541)
–
(541)
70
(471)
1,271
800
(5,456)
–
(4,030)
(9,486)
(6,135)
(15,621)
–
(15,621)
1,751
(13,870)
9,201
(3,858)
(15,370)
(10,027)
(6,135)
(16,162)
70
(16,092)
3,022
(13,070)
(13,070)
(13,070)
–
Period from
incorporation to
31 December 2015
Pence
(21.25)
Note
10
There are no recognised gains or losses other than disclosed above and there have been no discontinued activities in the period.
77
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Consolidated statement of financial position
as at 31 December 2016
ASSETS
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Current assets
Inventories
Amounts receivable from customers
Trade and other receivables
Cash and cash equivalents
Total assets
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables
Total current liabilities
Non-current liabilities
Deferred tax liability
Bank loans
Total non-current liabilities
Equity
Share capital
Share premium
Retained loss
Non-controlling interests
Total equity
Total equity and liabilities
These financial statements were approved by the Board of Directors on 31 March 2017.
Signed on behalf of the Board of Directors.
John van Kuffeler
Group Chief Executive
Nick Teunon
Chief Financial Officer
31 December 2016
£’000
31 December 2015
£’000
Note
13
14
15
18
18
19
20
21
20
22
23
132,070
17,412
5,459
154,941
–
180,413
9,709
5,215
195,337
350,278
8,005
8,005
5,890
87,300
93,190
15,852
254,995
(22,019)
248,828
255
249,083
350,278
40,176
14,119
1,718
56,013
3
28,412
10,275
7,320
46,010
102,023
13,803
13,803
3,057
–
3,057
5,264
92,714
(13,070)
84,908
255
85,163
102,023
78
Non-Standard Finance plc Annual report and accounts 2016 Financial statements
Consolidated statement of changes in equity
for the year ended 31 December 2016
At incorporation
Total comprehensive loss for the period
Transactions with owners, recorded directly
in equity:
Issue of shares
At 31 December 2015
Total comprehensive loss for the year
Transactions with owners, recorded directly
in equity:
Dividends paid
Issue of shares
At 31 December 2016
Note
22
12
22
Share
premium
£’000
Retained
loss
£’000
Non-controlling
interest
£’000
–
–
–
(13,070)
Share
capital
£’000
–
–
5,264
5,264
–
92,714
92,714
–
–
(13,070)
(7,998)
(951)
–
–
10,588
15,852
–
162,281
254,995
Total
£’000
–
(13,070)
98,233
85,163
(7,998)
(951)
172,869
–
–
255
255
–
–
–
Consolidated statement of cash flows
for the year ended 31 December 2016
Net cash used in operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisition of subsidiary
Net cash used in investing activities
Cash flows from financing activities
Finance (cost)/income
Debt raising
Dividends paid
Proceeds from issue of share capital
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(22,019)
255
249,083
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
(23,541)
(9,532)
(4,327)
813
(230,784)
(234,298)
(3,484)
87,300
(951)
172,869
255,734
(2,105)
7,320
5,215
(341)
–
(81,111)
(81,452)
70
–
–
98,234
98,304
7,320
–
7,320
Note
25
24
19
79
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Company statement of financial position
for the year ended 31 December 2016
ASSETS
Non-current assets
Property, plant and equipment
Investments
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables
Total liabilities
Equity attributable to the owners
Share capital
Share premium
Retained profit/(loss)
Total equity
Total equity and liabilities
31 December 2016
£’000
31 December 2015
£’000
Note
15
16
18
19
20
22
23
193
212,223
212,416
62,089
378
62,467
274,883
55
–
55
96,710
4,965
101,675
101,730
1,595
1,595
11,121
11,121
15,852
254,995
2,441
273,288
274,883
5,264
92,714
(7,369)
90,609
101,730
The retained profit for the financial year reported in the financial statements for the Company was £10,761,000
(2015: loss of £7,369,000).
These financial statements were approved by the Board of Directors on 31 March 2017.
Signed on behalf of the Board of Directors.
John van Kuffeler
Group Chief Executive Chief Financial Officer
Nick Teunon
Company number – 09122252
80
Non-Standard Finance plc Annual report and accounts 2016 Financial statements
Company statement of changes in equity
for the year ended 31 December 2016
At incorporation
Total comprehensive loss for the period
Transactions with owners, recorded directly in equity:
Issue of shares
At 31 December 2015
Total comprehensive income for the year
Transactions with owners, recorded directly in equity:
Dividends paid
Issue of shares
At 31 December 2016
Note
22
12
22
Share
capital
£’000
–
–
5,264
5,264
–
–
Share
premium
£’000
–
–
92,714
92,714
–
–
Retained
profit/(loss)
£’000
–
(7,369)
–
(7,369)
10,761
Total
£’000
–
(7,369)
97,978
90,609
10,761
10,588
15,852
162,281
254,995
(951)
–
(951)
172,869
2,441
273,288
In accordance with the exemption allowed by section 408 of the Companies Act 2006, the Company has not presented its own
statement of comprehensive income.
Company statement of cash flows
for the year ended 31 December 2016
Net cash used in operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Acquisition of subsidiary
Net cash used in investing activities
Cash flows from financing activities
Finance income
Dividend income
Proceeds from issue of share capital
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
(16,492)
(93,805)
Note
25
(177)
(173,951)
(174,128)
615
12,549
172,869
186,033
(4,587)
4,965
378
(64)
–
(64)
856
–
97,978
98,834
4,965
–
4,965
19
81
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Notes to the financial statements
for the year ended 31 December 2016
General information
Non-Standard Finance plc is a public limited company incorporated and domiciled in the United Kingdom. The address of the
registered office is 5th Floor, 6 St Andrew Street, London EC4A 3AE.
1. Accounting policies
Basis of preparation
The consolidated and Company financial statements have been prepared in accordance with IFRS as adopted by the European Union
and, as regards the parent company financial statements, applied in accordance with the provisions of the Companies Act 2006.
The financial statements have been prepared under the historical cost convention.
Basis of consolidation
The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries) prepared to 31 December. Control is achieved where the Company is exposed to, or has the rights to, variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control,
the Group takes into consideration the existence and effect of potential voting rights that currently are exercisable or convertible.
The results of subsidiaries acquired during the year are included in the consolidated statement of comprehensive income from the
effective date of acquisition.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with
those used by the Group.
All intra-Group transactions and balances and any unrealised gains and losses arising from intra-Group transactions are eliminated
in preparing the consolidated financial statements.
The Company has taken advantage of the exemption under section 408 of the Companies Act 2006 from publishing its individual
statement of comprehensive income and related notes.
Going concern
In adopting the going concern assumption in preparing the financial statements, the Directors have considered the activities of its
principal subsidiaries, as set out in the Strategic report, as well as the Group’s principal risks and uncertainties as set out in the
Corporate governance report. The Board of Directors has considered the Group’s latest financial projection from the most recent
budget, including:
• funding levels and headroom against committed borrowing facilities;
• cash flow and liquidity requirements; and
• forecast compliance against banking covenants.
Based on these forecasts and projections, the Board is satisfied that the Group has adequate resources to continue to operate for
the foreseeable future. For this reason, the Group has adopted the going concern basis in preparing the financial statements.
Changes in accounting policies and disclosures
New and amended Standards and Interpretations issued but not effective for the financial year ending 31 December 2016
At the date of authorisation of these financial statements, the following new and amended Standards and Interpretations are in
issue but not yet mandatorily effective and are expected to have a material effect on the financial statements of the Group when
they are adopted:
IFRS 9 Financial Instruments
IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities and replaces IAS 39
‘Financial Instruments: Recognition and measurement’. The standard primarily impacts the classification and measurement of
financial assets and liabilities and introduces the ‘expected loss’ model for the measurement of the impairment of financial assets
so it is no longer necessary for a credit event to have occurred before a credit loss is recognised. The Group is currently assessing
the impact of IFRS 9 on the loan book and associated level of provisioning. It is expected that the adoption of IFRS 9 will increase
the level of provisioning. The Group will adopt the standard in line with the mandatory effective date of 1 January 2018, subject to
endorsement by the EU.
IFRS 16 Leases
IFRS 16 replaces IAS 17 Leases and provides a single lease accounting model for the identification and treatment of lease
arrangements in the financial statements of both lessees and lessors. The standard distinguishes between services and leases on
the basis of whether there is the right to control the use of an identified asset for a period of time. The standard requires that upon
commencement of a lease a lessee recognises a lease liability, being present value of the lease payments, and a right-of-use asset
which is measured at the amount of the lease liability plus any initial direct costs incurred. The Group is in the process of assessing
the impact of the standard and will adopt it from the expected effective date of 1 January 2019, subject to endorsement by the EU.
82
Non-Standard Finance plc Annual report and accounts 2016 The effect of all other new and amended Standards and Interpretations which are in issue but not yet mandatorily effective is not
expected to be material. Management will continue to assess the impact of new and amended Standards and Interpretations on an
ongoing basis.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which
control is transferred to the Group.
Goodwill is an intangible asset and is measured as the excess of the fair value of the consideration over the fair value of the
acquired identifiable assets, liabilities and contingent liabilities at the date of acquisition.
Goodwill is allocated to cash-generating units (‘CGUs’) for the purposes of impairment testing. The allocation is made to those
CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose.
Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses. Impairment is tested by
comparing the carrying value of the asset to the discounted expected future cash flows from the relevant CGU. Expected future
cash flows are derived from the Group’s latest budget projections and the discount rate based on the Group’s Weighted Average
Cost of Capital (‘WACC’) at the balance sheet date.
Revenue recognition
Interest income is recognised in the statement of comprehensive income for all loans and receivables measured at amortised cost
using the effective interest rate method (‘EIR’). The EIR is calculated using estimated cash flows, being contractual payments
adjusted for the impact of customers repaying early but excluding the anticipated impact of customers paying late or not at all.
Under IAS 39 interest income on loan products continues to accrue at the EIR on all impaired capital balances throughout the life
of the agreement irrespective of the terms of the loan and whether the customer is actually being charged arrears interest. This is
referred to as the gross up adjustment to revenue and is offset by a corresponding gross up adjustment to the loan loss
provisioning charge to reflect the fact that this additional revenue is not collectable.
Fair value of acquired loan book
The fair value of the acquired loan portfolio of Loans at Home and Everyday Loans on acquisition has been estimated by
discounting expected future cash flows at a rate of 20%. The WACC used by the Group for Loans at Home was 15% at acquisition
and for Everyday Loans (including Trusttwo) was 10% at acquisition which included an additional market risk premium for the
specific loan assets. The difference between fair value and carrying value of the loan portfolio on acquisition will be unwound to
revenue in the statement of comprehensive income on an effective interest rate basis over the expected life of the acquired loans.
The Board of Directors will assess the fair value adjustment, using the same assumptions, the remaining cash flows from the loans
that were in place at the time of acquisition, at each future accounting date.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-
maker as required by IFRS 8 ‘Operating Segments’. The chief operating decision-maker responsible for allocating resources and
assessing performance of the operating segments has been identified as the Board of Directors.
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 reviews 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.
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. The Group’s exceptional items are costs associated with
the acquisitions.
Taxation
The tax expense represents the sum of the tax currently payable and any deferred tax.
The current tax charge is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the statement
of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that
have been enacted or substantively enacted by the year end date.
83
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Notes to the financial statements continued
for the year ended 31 December 2016
1. Accounting policies continued
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using
the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets
are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the
Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in
the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised.
Deferred tax is charged or credited to comprehensive income, except when it relates to items charged or credited directly to other
comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle on a net basis.
Intangible assets
Intangible assets include intangibles in respect of the customer list and agent relationships at Loans at Home (formerly
Loansathome4u) and acquisition intangibles in respect of the customer list, broker relationships and credit decisioning technology
at Everyday Loans together with the Everyday Loans and Trusttwo brands.
The fair value of the customer list of Loans at Home and Everyday Loans on acquisition has been estimated by calculating the Net
Present Value ('NPV') of the discounted cash flows from each new re-loan provided to this, discrete set of known customers. The
Board of Directors will re-calculate the NPV at each future accounting date using the same assumptions, limited to the original
known customer lists.
The fair value of Loans at Home’s agent relationships on acquisition has been estimated by valuing the cost to set up a similar
network of trained agents.
The fair value of Everyday Loans’ broker relationships on acquisition has been estimated by calculating the NPV of the discounted
cash flows from the cost avoided each year due to having the broker relationships in place on new loan volumes written by existing
brokers. The Board of Directors will re-calculate the NPV at each future accounting date using the same assumptions, limited to the
then existing brokers.
The fair value of Everyday Loans’ credit decisioning technology on acquisition has been estimated by assessing the likely
commercial level of royalties that would be payable to a third party were the technology licensed rather than owned, calculated as a
percentage of forecast revenues and discounted to the date of the transaction. The Board of Directors will assess the technology for
impairment using the same methodology at each future accounting date.
The fair value of Loans at Home’s brand (which at acquisition was Loansathome4u), Everyday Loans and Trusttwo’s brands on
acquisition has been estimated by assessing the likely commercial level of royalties that would be payable to a third party were the
brand licensed rather than owned, calculated as a percentage of forecast revenues and discounted to the date of the transaction.
Due to rebranding, the Loansathome4u brand to Loans at Home, the intangible asset was written off during the year. The Board of
Directors will assess the brands for impairment using the same methodology at each future accounting date.
Amortisation is charged to the statement of comprehensive income, unless otherwise agreed, over their estimated useful lives as follows:
Customer lists
Agent network
Broker relationships
Credit decisioning technology
Brand
Between 5 and 7 years
20% reducing balance
2 to 3 years
4 years
Between 1 and 5 years
The useful economic life and amortisation method of intangible assets are reviewed at least at each balance sheet date.
Impairment of intangible assets is only reviewed where circumstances indicate that the carrying value of an asset may not be fully
recoverable.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any recognised impairment loss.
84
Non-Standard Finance plc Annual report and accounts 2016 Depreciation is provided on the cost of valuation of property, plant and equipment in order to write such cost or valuation over
the expected useful lives as follows;
Freehold buildings
Leasehold improvements
Computer and other equipment
Fixtures and fittings
Motor vehicles
Software
2% straight line
shorter of life of lease or 7 years
20% to 33% straight line
10% straight line or 20% reducing balance
25% reducing balance
3 to 5 years
Project costs relate to capitalised IT expenditure in relation to developing software. They are not depreciated. Freehold land is
not depreciated.
Leases
Rental costs under operating leases are charged to the statement of comprehensive income on a straight-line basis over the
term of the lease.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Share based payments
The cost of share based employee compensation arrangements, whereby employees receive remuneration in the form of shares
or share options, is recognised as an employee benefit expense in the statement of comprehensive income. The expense to be
apportioned over the vesting period of the benefit is determined by reference to the fair value at the date of grant. The total expense
of the grant is adjusted subsequently to reflect the expected quantity of shares or share options achieving the vesting period.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial instruments
Financial assets and financial liabilities are recognised in the statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets
Trade and other receivables are measured on initial recognition at fair value, and are subsequently measured at amortised cost
using the EIR method.
Amounts receivable from customers
Customer receivables originated by the Group are initially recognised at the amount loaned to the customer plus directly
attributable costs. Subsequently, receivables are increased by revenue and reduced by cash collections and any deduction for
impairment. The Directors assess on an ongoing basis whether there is objective evidence that customer receivables are impaired
at each balance sheet date.
Recognition of incurred losses
An impairment loss is calculated by reference to arrears stages and is measured as the difference between the carrying value of
the loans and the present value of estimated future cash flows discounted at the original effective interest rate. The 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.
For Loans at Home, objective evidence of impairment is based on the payment performance of loans in the previous 13 weeks as
this is considered to be the most appropriate indicator of credit quality. Loans are deemed to be impaired when between two to
four contractual weekly payments (depending on length of relationship with the customer) have been missed in the previous
13-week period.
For Everyday Loans, the criteria that the Company uses to determine that there is objective evidence of impairment loss include,
but are not limited to, the following:
• delinquency in contractual payments of principal or interest;
• cash flow difficulties experienced by the borrower; and
• initiation of bankruptcy proceedings.
85
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Notes to the financial statements continued
for the year ended 31 December 2016
1. Accounting policies continued
Cash and cash equivalents comprise cash at bank
Financial liabilities and equity
Financial liabilities and equity instruments issued by the Group are classified in accordance with the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument.
Other financial liabilities are initially measured at fair value, net of transaction costs and are subsequently measured at amortised
cost using the EIR method.
EIR method
The EIR method is a method of calculating the amortised cost of a financial asset or liability and allocating interest income or
expense over the relevant period. The EIR is the rate that exactly discounts estimated future cash flows through the expected life
of the financial asset or liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
2. Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with generally accepted accounting practice requires management to make
estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets
and liabilities at the year-end date and the reported amounts of revenues and expenses during the reporting period.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimated are revised and in any future periods affected.
Critical accounting judgements:
Determination of Cash Generating Units ('CGUs')
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (CGUs). The Board of Directors considers Everyday Loans and Loans at Home as two CGUs. No goodwill was attributable to
Trusttwo upon acquisition of Everyday Loans and therefore Trusttwo is not considered a CGU.
Key sources of estimation uncertainty
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the fair value less cost to sell of the CGUs to which goodwill
has been allocated. The fair value calculation requires the Group to estimate the future cash flows expected to arise from the CGU
and apply a suitable discount rate in order to calculate the present value.
The assessment of impairment of goodwill reflects a number of key estimates, each of which can have a material effect on the
carrying value of the asset. These include:
• cash flow forecasts which have been extracted from the budget, which involves inherent uncertainty, particularly in respect of
gross loan values, collections performance and the cost base of the business.
• estimates made on the disposal costs of the business.
• the Weighted Average Cost of Capital ('WACC') applied to determine the net present value (‘NPV’) of future cash flows.
The nature and inherent uncertainty relating to the above judgements and estimates means that the forecast cash flows may be
materially different from actual cash flows. A material future reduction in forecast surplus cash flows would necessitate a full
impairment review and the possibility of a material impairment charge in future years.
The Group has produced a three-year forecast to 31 December 2019 and applied three valuation approaches to establish the
recoverable amount of the CGU. These were:
1. A price/total net asset value (‘TNAV’) multiple based on the return on TNAV of the business, with the multiple calculated by
using a regression analysis for comparable speciality finance company valuations over the last two years.
2. A price/earnings multiple based on the forecast earnings growth of the business in the following two years, with the multiple
calculated by using a regression analysis for comparable speciality finance company valuations over the last two years.
3. A ten-year average price/earnings multiple for comparable speciality finance companies.
Under IAS 36 we have compared the carrying value of goodwill to the recoverable amount which is the higher of value of use or
fair value less costs to sell. The lowest of the valuations was used by the Group to compare with the CGU’s carrying value. This has
not resulted in any impairment of the carrying value at 31 December 2016 as the CGUs’ recoverable amounts exceed their carrying
values. Refer to note 13 for the sensitivities around the carrying value of the goodwill.
86
Non-Standard Finance plc Annual report and accounts 2016 Amounts receivable from customers
The Group reviews its portfolio of loans and receivables for impairment at each balance sheet date. For the purposes of assessing
the impairment of customer loans and receivables, customers are categorised into arrears stages as this is considered to be the
most reliable indication of payment performance. The Group makes assumptions to determine whether objective evidence
indicates that there has been an adverse effect on expected future cash flows.
Once a loan is deemed to be impaired, judgement is required to determine the quantum and timing of cash flows that will be
recovered, which are discounted to present value based on the EIR of the loan.
Customer accounts in Loans at Home are deemed to be impaired when two to four contractual weekly payments (depending
on length of relationship with the customer) have been missed in the previous 13 weeks. In the weekly home credit business,
receivables are deemed to be impaired when the cumulative amount of two 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.
Customer accounts in Everyday Loans are impaired with reference to arrears stages and are measured as the difference between
the carrying value of the loans and the present value of estimated future cash flows discounted at the original effective interest
rate. The 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.
Intangible assets – customer list
Loans at Home’s and Everyday Loans' customer lists have been allocated a fair value on acquisition as the existing customer bases
are an important influence on the future prospects of the business.
The customer lists have been valued by calculating the NPV of the discounted cash flows from each new loan sold to this discrete
set of known customers. The methodology is in line with the Group’s existing valuation model used for budgeting purposes.
The calculation of the customer lists reflects a number of key estimates, which have a material effect on the carrying value of the
assets. These include:
• cash flow forecasts which have been extracted from the budget produced by Everyday Loans and Loans at Home, which involve
inherent uncertainty, particularly in respect of gross loan values, collections performance and the cost base of the business;
• estimates made on the propensity to re-loan to the customer base; and
• the WACC applied to determine the NPV of each new re-loan.
The nature and inherent uncertainty relating to the above judgements and estimates mean that the forecast cash flows may be
materially different from actual cash flows. A material future reduction in forecast surplus cash flows would necessitate a full
impairment review and the possibility of a material impairment charge in future years.
3. Revenue
Revenue 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 the loan, plus
directly attributable issue costs. In addition, the EIR takes account of customers repaying early.
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
Interest income
Fair value unwind on acquired loan portfolio
Total revenue
4. Operating profit/(loss) for the period is stated after charging/(crediting)
Depreciation of property, plant and equipment
Amortisation of intangible assets (note 14)
Staff costs (note 8)
Rentals under operating leases
(Profit)/loss on sale of property, plant and equipment
Rentals received under operating leases
81,099
(8,342)
72,757
14,657
(5,456)
9,201
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
690
10,714
20,345
1,110
(363)
(28)
198
4,030
5,076
136
51
(53)
87
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Notes to the financial statements continued
for the year ended 31 December 2016
5. Auditors’ remuneration
Audit services
Fees payable to the Company’s auditor for the audit of the Group annual financial statements
Fees payable to the Company’s auditor and their associates for other services to the Group
Other services pursuant to legislation
Other services
Other services relating to taxation
Services relating to corporate finance transactions
Other services
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
70
215
50
335
44
–
–
44
100
110
25
235
27
1,705
26
1,758
Details of the Group’s policy on the use of the auditor for non-audit services are set out in the Audit committee report on page 48.
6. Segment information
Management has determined the operating segments by considering the financial and operational information that is reported
internally to the chief operating decision-maker, the Board of Directors, by management. For management purposes, the Group is
currently organised into four operating segments: Everyday Loans (branch-based lending), Loans at Home (home credit), Trusttwo
(guarantor lending) and Central (head office activities). The Group’s operations are all located in the United Kingdom and all
revenue is attributable to customers in the United Kingdom.
Everyday Loans
£’000
Loans at Home
£’000
Trusttwo1
£’000
Central
£’000
Year ended 31 December 2016
Interest income
Fair value unwind on acquired loan portfolio
Total revenue
Operating profit/(loss) before amortisation
Amortisation of intangible assets
Operating profit/(loss) before exceptional items
Exceptional items
Finance cost
Profit/(loss) before taxation
Taxation
Profit/(loss) for the year
37,080
(7,916)
29,164
6,848
–
6,848
–
(2,699)
4,149
(1,036)
3,113
Total assets
Total liabilities
Net assets
Capital expenditure
Depreciation of plant, property
and equipment
Amortisation of intangible assets
Everyday Loans
£’000
Loans at Home
£’000
136,362
(98,589)
37,773
1,764
226
–
40,258
(14,239)
26,019
2,386
425
–
42,170
(426)
41,744
1,431
–
1,431
–
(323)
1,108
27
1,135
Trusttwo1
£’000
8,783
–
8,783
–
–
–
2016
Total
£’000
81,099
(8,342)
72,757
5,482
(10,714)
(5,232)
(626)
(3,484)
(9,342)
1,344
(7,998)
1,849
–
1,849
460
–
460
–
(198)
262
(58)
204
–
–
–
(3,257)
(10,714)
(13,971)
(626)
(264)
(14,861)
2,411
(12,450)
Central
£’000
274,883
(1,595)
Consolidation
adjustments2
£’000
(108,964)
12,184
2016
Total
£’000
351,322
(102,239)
273,288
(96,780)
249,083
177
39
10,714
–
–
–
4,327
690
10,714
1. Trusttwo is supported by the infrastructure of Everyday Loans and only the net loan book and profit and loss is reported to the Board separately and has therefore been
disclosed above.
2. Consolidation adjustments include the acquisition intangibles of £17.4m (2015: £14.1m), goodwill of £132.1m (2015: £40.2m), deferred tax liability of £6.8m (2015: £3.1m), fair value
of loan book of £15.8m (2015: £0.4m) and the elimination of intra-Group balances.
All inter-segment transactions are transacted on an arm’s length basis. The results of each segment have been prepared using
accounting policies consistent with those of the Group as a whole.
88
Non-Standard Finance plc Annual report and accounts 2016 Period ended 31 December 2015
Interest income
Fair value unwind on acquired loan portfolio
Total revenue
Operating loss before amortisation
Amortisation of intangible assets
Operating loss before exceptional items
Transaction costs
Redundancy costs
Finance cost
Finance income
Loss before taxation
Taxation
Loss for the period
Total assets
Total liabilities
Net assets
Capital expenditure
Depreciation of plant, property
and equipment
Amortisation of intangible assets
7. Directors’ remuneration
Short-term employee benefits
Post-employment benefits
Everyday Loans
£’000
Loans at Home
£’000
Trusttwo
£’000
Central
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
14,657
(5,456)
9,201
(3,313)
–
(3,313)
–
(593)
–
–
(3,906)
1,271
(2,635)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,684)
(4,030)
(6,714)
(5,542)
–
(3)
73
(12,186)
1,751
2015
Total
£’000
14,657
(5,456)
9,201
(5,997)
(4,030)
(10,027)
(5,542)
(593)
(3)
73
(16,092)
3,022
(10,435)
(13,070)
Everyday Loans
£’000
Loans at Home
£’000
Trusttwo
£’000
–
–
–
–
–
–
34,492
(3,735)
30,757
295
189
–
–
–
–
–
–
–
Central
£’000
101,730
(11,121)
90,609
64
9
4,030
Consolidation
adjustments
£’000
(34,199)
(2,004)
(36,203)
–
–
–
2015
Total
£’000
102,023
(16,860)
85,163
359
198
4,030
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
949
70
1,152
46
Short-term employee benefits comprise salary/fees, bonus and benefits earned in the year. Post-employment benefits represent
contributions by the Group in respect of money purchase pension schemes.
8. Employee information
a) The average monthly number of employees (including Executive Directors and excluding Loans at Home’s self-employed
agents) employed by the Group was as follows:
Year ended
31 December 2016
Number
Period from
incorporation to
31 December 2015
Number
Everyday Loans staff
Loans at Home staff
Central staff
b) Employment costs
Wages and salaries
Social security costs
Pension costs
217
271
9
497
–
296
7
303
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
17,824
1,866
597
20,287
4,530
456
90
5,076
89
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Notes to the financial statements continued
for the year ended 31 December 2016
9. Finance costs and finance income
Bank charges and interest payable
Bank interest receivable
Finance (cost)/income
10. Loss per share
Retained loss attributable to Ordinary Shareholders (£’000)
Weighted average number of Ordinary Shares at year/period ended 31 December
Basic and diluted loss per share (pence)
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
(3,541)
57
(3,484)
(3)
73
70
Year ended
31 December 2016
Period from
incorporation to
31 December 2015
(7,998)
307,315,588
(2.60p)
(13,070)
61,502,789
(21.25p)
The loss per share was calculated on the basis of net loss attributable to Ordinary Shareholders divided by the weighted average
number of Ordinary Shares. The basic and diluted loss per share is the same, as the exercise of share options would reduce the loss
per share and is anti-dilutive.
Weighted average number of potential Ordinary Shares that are not currently dilutive (note 22)
5,539
5,539
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
11. Taxation
Current tax charge/(credit)
In respect of the current year
Total current tax charge/(credit)
Deferred tax credit
Total tax credit
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
2,103
2,103
(3,447)
(1,344)
(1,251)
(1,251)
(1,771)
(3,022)
The difference between the total tax expense shown above and the amount calculated by applying the standard rate of UK
corporation tax to the profit before tax is as follows:
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
Loss before taxation
Tax on loss on ordinary activities at standard rate of UK corporation tax of 20%:
Effects of:
Fixed asset differences
Expenses not allowable for taxation
Chargeable gains/losses
Adjustment to tax charge in respect of previous periods
Adjustment to tax charge in respect of previous periods – deferred tax
Deferred tax rate change
Changes in unrecognised deferred tax
Capital allowances in excess of depreciation
Current tax rate change
Timing difference
Tax adjustments arising on date of acquisition
Total tax credit
(9,342)
(16,092)
(1,868)
(3,218)
(103)
132
99
72
(80)
254
151
–
–
–
–
(1,344)
–
1,214
–
–
–
–
441
1
(53)
(21)
(1,386)
(3,022)
90
Non-Standard Finance plc Annual report and accounts 2016 Exceptional items are included within ‘expenses not allowable for taxation’ due the nature of the transactions, being in relation to the
acquisitions of Loans at Home and Everyday Loans (including Trusttwo). At 31 December 2016 exceptional items totalled £626,000
(2015: £5,542,000).
Reductions in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) were substantively enacted on 26 October
2015. A further reduction in the rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016.
This will reduce the Company's future current tax charge accordingly. The deferred tax liability at 31 December 2016 has been
calculated based on the rate of 19% substantively enacted at the balance sheet date.
12. Dividends
The Directors have recommended a final dividend in respect of the year ended 31 December 2016 of 0.9 pence per share (30 June
2016: 0.3 pence and 2015: nil) which will amount to an estimated dividend payment of £2,853,000. This dividend is not reflected in
the balance sheet as it is recommended to be paid after the balance sheet date.
13. Goodwill
Cost and net book amount
At incorporation
Acquisition of subsidiary (Loans at Home)
At 31 December 2015
Acquisition of subsidiary (Everyday Loans)
At 31 December 2016
£’000
–
40,176
40,176
91,894
132,070
The goodwill recognised represents the difference between the purchase consideration and the net assets acquired (including
intangible assets recognised upon acquisition).
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The
assessment of impairment of goodwill reflects a number of key estimates, each of which can have a material effect on the carrying
value of the asset. These include:
• cash flow forecasts which have been extracted from the budget, which involves inherent uncertainty, particularly in respect of
gross loan values, collections performance and the cost base of the business;
• the price earnings multiple applied to the cash flow forecasts;
• estimates made on the disposal costs of the business; and
• the WACC applied to determine the NPV of future cash flows.
The recoverable amount has been determined based on a fair value less cost to sell calculation. That calculation uses cash flow
projections based on financial budgets approved by management covering a three year period to 31 December 2019, disposal
costs have been estimated at 2% and a discount rate (WACC) of 12% used for the Group. The Directors have estimated the
discount rate using post-tax rates that reflect current market assessments of the time value of money and the risks specific to the
market. None of the goodwill is tax deductible.
Loans at Home goodwill impairment assessment: Considering the key estimates above, the Group has identified that the following
movements may necessitate an impairment charge to the carrying value of goodwill:
• a 3% reduction in forecast 2019 earnings;
• a 3% reduction in the price earnings multiple;
• an increase in the disposal costs to 5.5%; and/or
• an increase in the WACC to 14%.
Everyday Loans goodwill impairment assessment: It would require a movement of greater than 20% in all of the judgements
and estimates to give rise to a potential impairment charge to the carrying value of goodwill recognised on the Everyday
Loans acquisition.
At 31 December 2016 the fair value less cost to sell of the goodwill was in excess of its carrying amount by £36.1m at Everyday
Loans (2015: n/a) and £2.3m at Loans at Home (2015: £51.2m) when applying the lowest valuation as specified in the
accounting policies.
91
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Notes to the financial statements continued
for the year ended 31 December 2016
14. Intangible assets – Group
Cost
At 1 January 2016
Additions through acquisition
At 31 December 2016
Amortisation
At 1 January 2016
Charge for the year
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
Customer list
£’000
Agent network
£’000
Brand
£’000
Broker relationship
£’000
Technology
£’000
Total
£’000
17,312
2,050
19,362
3,869
7,856
11,725
7,637
13,443
540
–
540
99
257
356
184
441
297
1,497
1,794
62
435
497
1,297
235
–
4,233
4,233
–
1,129
1,129
3,104
–
–
6,227
6,227
–
1,038
1,038
5,189
–
18,149
14,007
32,156
4,030
10,714
14,744
17,412
14,119
15. Property, plant and equipment – Group
Freehold land
and buildings
£’000
Leasehold
improvements
£’000
Fixtures and
fittings
£’000
Motor
vehicles
£’000
Computer
equipment
£’000
Project
costs
£’000
Software
£’000
Total
£’000
Cost
At 1 January 2016
Additions through acquisition
Additions
Disposals
At 31 December 2016
Depreciation
At 1 January 2016
Charge for the year
Disposals
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
194
–
–
(94)
100
2
5
–
7
–
1,468
383
(3)
1,848
–
1,273
(2)
1,270
93
192
578
–
Property, plant and equipment – Company
Cost
At 1 January 2016
Additions
At 31 December 2016
Depreciation
At 1 January 2016
Charge for the year
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
92
–
715
1,346
(150)
1,911
–
800
(50)
751
–
–
1,797
–
1,797
–
2,116
303
(259)
1,916
4,557
4,326
(743)
2,160
10,056
–
–
–
–
–
2,085
(243)
1,842
198
4,694
(295)
4,597
409
258
387
–
1,313
–
110
(237)
1,054
1,186
145
280
–
425
51
251
–
302
752
358
761
1,168
1,161
1,797
–
–
318
–
5,459
1,718
Leasehold
improvements
£’000
Fixtures and
fittings
£’000
Motor
vehicles
£’000
–
110
110
–
15
15
95
–
9
67
76
–
11
11
65
9
55
–
55
9
13
22
33
46
Total
£’000
64
177
241
9
39
48
193
55
Non-Standard Finance plc Annual report and accounts 2016 16. Investment in subsidiaries
Details of the Group’s subsidiaries, which are all included in the consolidated financial statements of the Group, are as follows:
Name of company
SD Taylor Limited
(trading as Loans at Home)
Principal place of business and
country of incorporation
Nature of business
% voting rights and shares held
Royal House, Princes Gate,
Provision of consumer credit
100% of Ordinary Shares
Homer Road, Solihull, West
Midlands, England, B91 3QQ,
United Kingdom
Everyday Loans Holdings Limited
Secure Trust House, Boston
Holding company
100% of Ordinary Shares
Drive, Bourne End,
Buckinghamshire, SL8 5YS,
United Kingdom
Everyday Loans Limited
As above
Provision and servicing of
secured and unsecured
personal instalment loans
100% of Ordinary Shares
Everyday Lending Limited
As above
Provision of unsecured
100% of Ordinary Shares
personal instalment loans
Non-Standard Finance Subsidiary
5th Floor, 6 St Andrew Street,
Dormant
100% of Ordinary Shares
Limited
London, EC4A 3AE,
United Kingdom
Non-Standard Finance Subsidiary II
Limited
Non-Standard Finance Subsidiary III
Limited
As above
As above
Holding company
100% of Ordinary Shares
Holding company
100% of Ordinary Shares
17. Inventories – Group
Finished goods
18. Amounts receivable from customers – Group
Credit receivables
Loan loss provision
Amounts receivable from customers
As at
31 December 2016
£’000
As at
31 December 2015
£’000
–
3
2016
£’000
204,775
(24,362)
180,413
2015
£’000
30,335
(1,923)
28,412
The movement on the loan loss provision for the period relates to the provision at Loans at Home for the year and Everyday Loans
since the date of acquisition. The amounts receivable from customers were recognised at fair value (net loan book value) at the
date of acquisition (see note 24 for detail).
93
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Notes to the financial statements continued
for the year ended 31 December 2016
18. Amounts receivable from customers – Group continued
Analysis of overdue receivables from customers
Not past due or impaired
Past due but not impaired
Impaired
Loans at Home1 past due not impaired:
One week overdue
Two weeks overdue
Three or four weeks overdue
1. Loans at Home makes weekly collections.
Everyday Loans2 past due not impaired:
Up to one month overdue
2. Everyday Loans makes monthly collections. There is no comparable information for Everyday Loans as it was acquired on 13 April 2016.
Analysis on movement on loan loss provision
At incorporation
Charge for the period
Unwind of discount
At 31 December 2015
Charge for the year
Unwind of discount
At 31 December 2016
2016
£’000
152,464
21,599
6,350
180,413
6,278
2,129
1,879
10,286
2015
£’000
13,538
7,819
7,055
28,412
4,571
1,696
1,552
7,819
11,313
11,313
–
–
£’000
–
3,896
(1,973)
1,923
24,928
(2,489)
24,362
The average EIR used during the year ended 31 December 2016 for Loans at Home was 316% (2015: 328%) and for Everyday Loans
was 45.0% (2015: n/a).
Financial instruments
The table below sets out the carrying value of the Company’s financial assets and liabilities in accordance with the categories of
financial instruments set out in IAS 39 as at 31 December 2016. Assets and liabilities outside the scope of IAS 39 are shown within
non-financial assets/liabilities:
Group
At 31 December
Assets
Cash and cash equivalents
Loans and advances to customers
Other assets
Total assets
Liabilities
Bank borrowing
Current tax liability
Deferred tax liability
Other liabilities
Total liabilities
94
Loans and
receivables
£000
Amortised cost
£000
Non-financial
assets/ liabilities
£000
5,215
180,413
–
185,625
–
–
–
–
–
–
9,709
10,753
2016 Total
£000
5,215
180,413
9,709
195,337
2015 Total
£000
7,320
28,412
10,278
46,010
–
–
–
–
–
(87,300)
–
–
–
–
(1,292)
(5,890)
(6,713)
(87,300)
(1,292)
(5,890)
(6,713)
(87,300)
(13,895)
(101,195)
–
–
(3,057)
(13,803)
(16,860)
Non-Standard Finance plc Annual report and accounts 2016
Financial instruments continued
Company
At 31 December
Assets
Cash and cash equivalents
Other assets
Total assets
Liabilities
Other liabilities
Total liabilities
Trade and other receivables – Group
Other debtors
Corporation tax
Prepayments
Trade and other receivables – Company
Other debtors
Amounts due from subsidiaries
Prepayments
Loans and
receivables
£000
Amortised cost
£000
Non-financial
assets/liabilities
£000
2016 Total
£000
2015 Total
£000
378
–
378
–
–
–
–
–
–
–
–
62,089
62,089
378
62,089
62,467
4,965
96,710
101,675
(1,595)
(1,595)
(1,595)
(1,595)
(11,121)
(11,121)
2016
£’000
211
–
9,498
9,709
2016
£’000
686
61,135
268
62,089
2015
£’000
8,176
1,600
499
10,275
2015
£’000
8,176
88,493
41
96,710
Included within other debtors at 31 December 2015 was £8,162,000 of listing and debt expenses relating to the acquisition of
Everyday Loans. Following the equity raise in January 2016, the listing expenses have been expensed to the share premium
account and the debt raising expenses were recognised against the debt raised.
There are no amounts included in trade and other receivables which are past due but not impaired.
19. Cash and cash equivalents – Group
Cash at bank and in hand
Cash and cash equivalents – Company
Cash at bank and in hand
2016
£’000
5,215
2016
£’000
378
2015
£’000
7,320
2015
£’000
4,965
The Directors consider that the carrying amount of these assets is a reasonable approximation of their fair value. The credit risk on
liquid funds is limited because the counterparties are banks with high credit ratings.
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Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance
Financial statements
Notes to the financial statements continued
for the year ended 31 December 2016
20. Trade and other payables – Group
Trade creditors
Other creditors
Accruals and deferred income
Trade and other payables – Company
Trade creditors
Other creditors
Amounts due to subsidiaries
Accruals and deferred income
2016
£’000
917
1,436
5,652
8,005
2016
£’000
18
75
1,255
247
1,595
2015
£’000
4,180
7,407
2,216
13,803
2015
£’000
3,875
6,238
255
753
11,121
Included within other creditors at 31 December 2015 was £6,194,000 of listing and debt raising expenses relating to the acquisition of
Everyday Loans. Listing expenses were paid in January 2016 when the equity was raised and debt raising expenses were paid upon
completion of the acquisition of Everyday Loans.
The carrying value of trade and other payables is not materially different to the fair value.
Other payables due in more than one year – Group
Bank loans due in more than one year
2016
£’000
87,300
87,300
2015
£’000
–
–
The Group entered into two banking facility arrangements during the year, one for Loans at Home and one for the Everyday Loans
group. As at 31 December 2016 the Everyday Loans' banking facility was £77.3m (2015: n/a) and Loans at Home's was £10.0m
(2015: £nil). Both banking facilities have a three year term, the Everyday Loans' facility was extended post balance sheet and is
due to expire in March 2020 and the Loans at Home facility in June 2019.
The carrying values other payables due in more than one year is not materially different to the fair value.
21. Deferred tax liability
At incorporation
Recognition of intangible assets at acquisition
Current period credit
At 31 December 2015
Recognition of intangible assets at acquisition
Recognition of fair value adjustments on amounts receivable at acquisition
Adjustment for changes in deferred tax rate
Recognition of deferred tax asset at acquisition
Current year credit
At 31 December 2016
£’000
–
(4,828)
1,771
(3,057)
(2,801)
(4,750)
685
586
3,447
(5,890)
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Non-Standard Finance plc Annual report and accounts 2016 21. Deferred tax liability continued
The deferred tax liability was recognised on the intangible assets upon acquisition of Loans at Home and of Everyday Loans
(refer to note 24). The intangible assets will be amortised in future periods for which tax deductions will not be available.
The deferred tax liability is attributable to temporary timing differences arising in respect of:
Accelerated tax depreciation
Recognition of intangible assets
Recognition of fair value adjustments on amounts receivable at acquisition
Capital gains
Other short term timing differences
Other losses and deductions
Property revaluation
Net Deferred tax liability
2016
£’000
163
(3,308)
(3,008)
(20)
258
24
–
(5,890)
2015
£’000
(115)
(2,909)
–
–
(10)
–
(23)
(3,057)
For the year ended 31 December 2016 the Company has unused tax losses of £154,000 (2015: £1,822,000) available for offset
against future profits. However, due to the uncertainty over the likelihood of future profits at the Company level, the deferred asset
has not been recognised on the Company or consolidated statement of financial position.
22. Share capital and share premium
On incorporation, 8 July 2014, the issued share capital of the Company was £1 consisting of one Ordinary Share, fully paid up.
On 5 November 2014, the ordinary share of £1 was subdivided into 20 Ordinary Shares of £0.05 each.
On 2 December 2014, the share capital was increased by the issuance of 999,980 Ordinary Shares of £0.05 each at par to John
van Kuffeler in settlement of a liability of £49,999.
On 4 February 2015 the share capital was further increased by the issuance of 1,960,527 Ordinary Shares of £0.05 each at a
premium of £0.33 each to John van Kuffeler, Nick Teunon, Miles Cresswell-Turner, Robin Ashton and Charles Gregson.
On 19 February 2015, the share capital was further increased by the flotation of the Company and issuance of 102,323,918 Ordinary
Shares of £0.05 each at a premium of £0.95 each.
On 7 January 2016, the share capital was increased by the issuance of 188,235,825 Ordinary Shares of £0.05 each at a premium
of £0.80 each.
Upon completion of the acquisition of the Everyday Loans Group from Secure Trust Bank plc on 13 April 2016, the share capital
was further increased by the issuance of 23,529,412 Ordinary Shares of £0.05 each at a premium of £0.80 each to Secure
Trust Bank plc.
All shares in issue are ordinary ‘A’ shares consisting of £0.05 per share. All shares are fully paid up.
The Company’s share capital is denominated in Sterling. The Ordinary Shares rank in full for all dividends or other distributions,
made or paid on the ordinary share capital of the Company.
Share movements
Balance at date of incorporation
Shares issued during the period
Balance at 31 December 2015
Shares issued during the period
Balance at 31 December 2016
Number
–
105,284,445
105,284,445
211,765,237
317,049,682
23. Reserves
Details of the movements in reserves are set out in the statement of changes in equity. A description of each reserve is set out below.
Share premium
The share premium account is used to record the aggregate amount or value of premiums paid when the Company’s shares are
issued at a premium. Transaction costs of £7,131,000 (2015: £5,140,000) directly relating to raising finance have been deducted
from share premium in the year.
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Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Notes to the financial statements continued
for the year ended 31 December 2016
Balance at date of incorporation
Premium arising on issue of Ordinary Shares
Issue costs
Balance at 31 December 2015
Premium arising on issue of Ordinary Shares
Issue costs
Balance at 31 December 2016
Total
£’000
–
97,854
(5,140)
92,714
169,412
(7,131)
254,995
24. Acquisition of subsidiary
Everyday Loans
On 13 April 2016, the Group obtained control of the Everyday Loans Holdings Limited group, which consists of Everyday Loans
Holdings Limited, Everyday Loans Limited and Everyday Lending Limited. The Group obtained control through the purchase of
100% of the share capital. The Everyday Loans group acquisition satisfies two of Non-Standard Finance plc’s target sectors,
branch-based unsecured lending and guaranteed loans (Trusttwo).
The fair values of the identifiable assets and liabilities of Everyday Loans as at the acquisition date were as follows:
Intangible assets1
Property plant and equipment
Amounts receivable from customers2
Trade receivables
Cash and cash equivalents
Trade and other payables
Corporation tax liability
Deferred tax liabilities3
Goodwill
Total consideration
Satisfied by:
Cash and shares
Net cash outflow arising on acquisition:
Cash consideration
Share consideration
Cash and cash equivalents acquired
Corporation tax credit
Other acquired asset
Amounts
recognised at
acquisition date
£’000
–
563
115,563
4,259
1,807
(7,342)
(1,949)
–
Fair value
adjustments
£’000
14,006
–
23,749
–
–
–
–
(7,551)
Total
£’000
14,006
563
139,312
4,259
1,807
(7,342)
(1,949)
(7,551)
112,901
30,204
143,105
91,895
235,000
235,000
215,000
20,000
(1,807)
(1,864)
(545)
230,784
1. £2,050,000 has been attributed to the fair value of Everyday Loans’ customer list; £4,233,000 to the broker relationships; £1,447,000 to the Everyday Loans brand and £49,000
to the Trusttwo brand; and £6,227,000 to technology (refer to note 14).
2. An adjustment to receivables of £23,749,000 has been made to reflect the fair value of the receivables book at the acquisition date (refer to note 18).
3. Deferred tax liability £7,551,000 recognised on the intangibles and the fair value adjustment of the receivable book at acquisition (refer to note 21).
Everyday Loans (including Trusttwo) contributed £38,929,000 to the Group’s revenue and £12,327,000 profit before tax (before fair
value adjustments) to the Group’s operating profit for the period from the date of acquisition to the year ended 31 December 2016.
The goodwill of £91.9m represents the benefit of the Group’s synergies available from the acquisition in respect of collections and
distribution channels.
98
Non-Standard Finance plc Annual report and accounts 2016 24. Acquisition of subsidiary continued
Loans at Home
On 4 August 2015, the Group obtained control of SD Taylor Limited, trading as Loans at Home (formerly Loansathome4u) through
the purchase of 100% of the share capital.
A detailed conversion of Loans at Home’s financial statements, to align accounting policies, has been completed post-acquisition
which reduced Loans at Home’s net assets on acquisition by £5,956,000, principally in respect of higher impairment provisions
due to the impact of a more conservative approach to recognising impairment.
The fair values of the identifiable assets and liabilities of Loans at Home as at the acquisition date were as follows:
Intangible assets1
Property, plant and equipment
Inventories
Amounts receivable from customers2
Trade receivables
Cash and cash equivalents
Trade and other payables3
Deferred tax liabilities4
Goodwill
Total consideration
Satisfied by:
Cash
Net cash outflow arising on acquisition:
Cash consideration
Cash and cash equivalents acquired
Amounts
recognised at
acquisition date
£’000
–
1,627
9
22,591
277
1,296
(2,040)
(22)
Fair value
adjustments
£’000
18,149
–
–
5,882
–
–
(732)
(4,806)
Total
£’000
18,149
1,627
9
28,473
277
1,296
(2,772)
(4,828)
23,738
18,493
42,231
40,176
82,407
82,407
82,407
(1,296)
81,111
1. £17,312,000 has been attributed to the fair value of Loans at Home’s customer list, £540,000 to the agent network and £297,000 to the brand (refer to note 14).
2. An adjustment to receivables of £5,882,000 has been made to reflect the fair value of the receivables book at the acquisition date (refer to note 18).
3. An adjustment of £732,000 to accruals for a recognised dilapidations provision on the properties owned by Loans at Home.
4. Deferred tax liability £4,806,000 recognised on the intangibles and the fair value adjustment of the receivable book at acquisition (refer to note 21).
The goodwill of £40.2m represents the benefit of the Group’s synergies available from the acquisition in respect of collections and
distribution channels.
The fair value measurement of acquired assets is based upon financial forecasts, which are categorised as level 3 within the IFRS 13
fair value hierarchy.
25. Net cash used in operating activities – Group
Operating loss
Taxation paid
Depreciation
Amortisation of intangible assets
Fair value unwind on acquired loan book
(Profit)/loss on disposal of property, plant and equipment
Decrease in inventories
Increase in amounts receivable from customers
Increase in receivables
(Decrease)/increase in payables
Cash used in operating activities
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
(5,858)
(1,341)
690
10,714
8,342
(363)
3
(21,039)
(7,737)
(6,952)
(23,541)
(16,162)
(350)
198
4,030
5,456
51
6
(5,394)
(15,217)
17,850
(9,532)
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Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Financial statements
Notes to the financial statements continued
for the year ended 31 December 2016
Net cash used in operating activities – Company
Operating loss
Depreciation
Increase in receivables
(Decrease)/increase in payables
Cash used in operating activities
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
(3,883)
39
(3,123)
(9,526)
(16,492)
(8,225)
9
(96,710)
11,121
(93,805)
26. Operating lease commitments – Group
At 31 December 2016, the outstanding commitments under non-cancellable operating leases which fall due are as follows:
Within one year
In the second to fifth years inclusive
After five years
Year ended
31 December 2016
£’000
Period from
incorporation to
31 December 2015
£’000
1,158
2,419
263
3,839
25
517
–
542
27. Related party transactions
There have been no related party transactions in the year ended 31 December 2016 (2015: nil).
28. Share based payments
Equity settled share option scheme
The Founders have committed £255,000 of capital in NSF Subsidiary Limited in the form of 100 Founder Shares. The Founder
Shares grant each holder the option, subject to the satisfaction of both the significant acquisition condition and the performance
condition (which can be satisfied, under certain circumstances, if a Founder is removed from the Board), to require the Company
to purchase some or all of their Founder Shares.
The conditions which must be met in order for the participants to receive any future pay-out can be summarised as follows:
• the Company must achieve an admission to the London Stock Exchange;
• the Company must make an acquisition of at least £50 million within two years of the admission date;
• the Ordinary Shares must achieve an internal rate of return of 8.5% per annum from the market capitalisation at the admission
date; and
• the Company’s market capitalisation must increase by 25% from the market capitalisation at the admission date.
The last two conditions must both be met for a period of 20 out of 30 consecutive days, during the same 30-day period within five
years of an acquisition.
The purchase price for the exercise of this option may be paid by the Company in Ordinary Shares or as a cash equivalent at the
Company’s option. The number of Ordinary Shares required to settle all such options is the number of shares that would have
represented 5% of the Ordinary Shares of the Company on (or immediately after) listing if such Ordinary Shares had been issued at
the time of listing. The equivalent cash value is calculated on exercise of the option as the estimated total price of the Ordinary
Shares that would have been issued if the option had been settled in Ordinary Shares rather than cash, based on the mean of the
closing middle market quotations for an Ordinary Share on the London Stock Exchange over the 30 business days prior to the
exercise of the option.
The fair value of the share options was assessed to be £255,000 and therefore the Company recognised total expenses of £nil
relating to this share option scheme in the year ended 31 December 2016 (2015: £nil).
No shares were issue to the Directors during the year ended 31 December 2016. 40,750 shares were issued to two Directors during
the period to 31 December 2015; these were issued on 19 February 2015 in lieu of cash for their first year’s Director Fees. An
expense of £40,750 was recognised in the period, reflecting the fair value of the services provided.
100
Non-Standard Finance plc Annual report and accounts 2016 29. Financial instruments – Group
The Group’s operations expose it to a variety of financial risks including credit risk, liquidity risk and interest rate risk. The Directors
have delegated the responsibility of monitoring financial risk management to the Risk Committee.
The Group’s objectives are to maintain 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 continuously
monitoring the collection process.
The average effective interest rate on financial assets of the Group at 31 December 2016 was estimated to be 99% (2015: 328%).
The average effective interest rate on financial liabilities of the Group at 31 December 2016 was estimated to be 4% (2015: 4%).
Market risk
Market risk is the risk of loss due to adverse market movements caused by active trading positions taken in interest rates, foreign
exchange markets, bonds and equities.
The Group does not undertake position taking or trading books of this type and therefore market risk is not a concern.
Interest rate risk
The Group has an exposure to interest rate risk arising on changes in interest rates and therefore seeks to limit this exposure.
This is, in the main, achieved by fixed interest rates on committed debt facilities.
A 2% movement in the interest rate applied to cash balances during 2016 would not have had a material impact on the Group’s
result for the year.
Credit risk
The Group’s credit risk inherent in amounts receivable from customers is reviewed under impairment as per note 18. This risk is
minimised by the use of credit scoring techniques which are designed to ensure the Group lends only to those customers who we
believe can afford the repayments. It should be noted that the credit risk at the individual customer level is managed by strict
adherence to credit control rules which are regularly reviewed. No individual customer contributed more than 10% of the revenue
for the Group. Trade and other receivables and cash at bank are not considered to have a material credit risk as all material
balances are due from highly rated banking counterparties.
Capital risk management
The Board of Directors assess the capital needs of the Group on an ongoing basis and approve all capital transactions. The Group’s
objective in respect of capital risk management is to maintain a conservative ‘gearing ratio’ level with respect to market conditions,
whilst taking account of business growth opportunities in a capital efficient manner.
Liquidity risk
This is the risk that the Group has insufficient resources to fund its existing business and its future plans for growth. The short-term
nature of the Group’s business means that the majority of amounts receivable from customers is receivable within 24 months. The
risk of not having sufficient liquidity resources is therefore low. The Group has in place sufficient committed debt facilities to cover
this 24-month period. Further, the aim is to ensure that there is no over-reliance on a single or small group of lenders.
The Group monitors its levels of working capital to ensure that it can meet its debt repayments as they fall due.
30. Subsequent events
The committed debt facilities at 31 December 2016 totalled £95m. This has been extended to £115m of committed facilities since
the year ended 31 December 2016.
101
Non-Standard Finance plc Annual report and accounts 2016Financial statementsStrategic reportGovernance Additional
information
Company information
103
102
Additional information
Company information
Company details
Registered office and contact details
5th Floor
6 St Andrew Street
London
EC4A 3AE
Website: www.nonstandardfinance.com
Company number
09122252
Independent auditor
Deloitte LLP
Hill House
1 Little New Street
London
EC4A 3TR
Advisers
Brokers
J.P. Morgan Cazenove
Floor 29
25 Bank Street
Canary Wharf
London
E14 5JP
Peel Hunt
Moor House
120 London Wall
London
EC2Y 5ET
Solicitors
Slaughter and May
One Bunhill Row
London
EC1Y 8YY
Walker Morris LLP
Kings Court
12 King St
Leeds
LS1 2HL
Macfarlanes LLP
20 Cursitor Street
London
EC4A 1LT
Financial communications
Bell Pottinger
Holborn Gate
330 High Holborn
London
WC1V 7QD
103
Financial statementsStrategic reportGovernanceFinancial statementsStrategic reportGovernance Non-Standard Finance plc Annual report and accounts 2016 Notes
104
Non-Standard Finance plc Annual report and accounts 2016 www.nonstandardfinance.com