2019 Full Year Results - nsfgroupplc.com/media/Files/N/Non... · Acquisition date April 2016 April...

2019 Full Year Results

25 June 2020

John van KuffelerFounder and Group Chief Executive

2

3

Key points

▪ 2019 results

▪ Normalised operating profit of £42.2m +20%

▪ Normalised PBT £14.7m +5%

▪ Statutory loss of £76.0m

▪ Goodwill write-down (non-cash) of £65.9m

▪ Fair value adjustments and amortisation (non-cash) of £10.1m

▪ Transaction costs and restructuring of £14.7m

▪ COVID-19

▪ Lending significantly reduced, reducing loan book by c9% since year end, but restarted in May 2020

▪ Collections holding up well at 86% of pre-lockdown and signs that it is starting to stabilise

▪ Balance sheet, liquidity and going concern

▪ Strong cashflow in April and May - cash of £60.3m, gross borrowings of £345.0m

▪ Group remains viable and a going concern

▪ Long-term debt funding in place but unable to access new facility due to covenant constraints

caused by COVID-19

▪ Strategic opportunity

▪ Mainstream lenders are tightening credit and demand for non-standard credit expected to increase

▪ Significant opportunity for growth in 2021 but need the right capital structure to achieve it

4

• Loan book growth driven by branch expansion and a strong guarantor loans market

• Home credit profit growth due to lower impairment and careful cost management

• COVID-19 impact since March 2020 creating material uncertainties for the Group

• Group remains cash flow positive and has £60.3m in cash as at 31 May 2020

• All medium-term guidance is currently withdrawn

• No final dividend is being paid; plans in place to restore distributable reserves

1 on a like-for-like basis, assuming George Banco had been owned since 1 January 20162 excluding fair value adjustments3 normalised operating profit4 normalised EPS

▪ CAGR in all key performance metrics since 2016:

2019 financial highlights1

Net loan book1 Revenue2 Operating profit3 Earnings per share4

£81m

£120m

£167m

£184m

£0m

£25m

£50m

£75m

£100m

£125m

£150m

£175m

£200m

2016 2017 2018 2019

+31%£16m

£24m

£35m

£42m

£0m

£10m

£20m

£30m

£40m

£50m

2016 2017 2018 2019

+39%

3.09p

3.44p3.50p

3.67p

2.0p

2.5p

3.0p

3.5p

4.0p

2016 2017 2018 2019

+6%

£191m

£238m

£306m

£360m

£0m

£50m

£100m

£150m

£200m

£250m

£300m

£350m

£400m

2016 2017 2018 2019

+23%

Statutory pre-tax loss of £76.0m primarily due to exceptionals

5

▪ Goodwill impairment – major decline in market multiples since 1 January 2019

Item £m

Goodwill impairment - ELL (44.8)

Goodwill impairment - GLD (8.6)

Goodwill impairment - LAH (12.5)

Offer-related fees (12.8)

Restructuring (1.9)

Total (80.6)

0x

2x

4x

6x

8x

10x

12x

Forward PER (Next year)1

NSF Provident Financial

Morses Amigo

1 Source: Bloomberg

Branch expansion

• 8 branches opened as planned and on budget

• 125 new customer-facing staff added

Lead volumes and quality

• 2.5m leads in 2019 +52%

• 35% increase in total applications to branch that reached 540,479

Productivity

• Lower conversion rate for new borrowers of 7.6% (2018: 9.0%) but on a much increased number of ATBs

• Over 52,130 loans written, up 16%

Delinquency management

• Impairment was 22.2% of revenue (2018: 22.7%)

2019 operational highlights - branch-based lending

6

New branches in 2019

7

2019 operational highlights - guarantor loans

Channel mix

• Accepted leads up 6% to over 2.5m

• 520,144 passed through our scorecard (2018: 448,128) – improved quality of applications

• Top-ups were 17% of the total loans booked

Conversion steady

• Conversion broadly flat versus last year but on higher volume

• 12% increase in number of loans written to 19,458 (2018: 17,393)

• 10% increase in value of loans written to £71.7m (2018: £65.2m)

Consolidation into a single location

• Higher impairment at 26.8% (2018: 20.5%) prompted consolidation in Trowbridge

• Operational improvements and reduced costs

Value of new cash by channel

58%

17%

5%

13%

3% 1%

4%

Broker

Top Ups

Organic

PCW

ELL Online Decline

ELL Branch Decline

Lead Generator

200

220

240

260

280

300

Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 Apr-19 Aug-19 Dec-19

APE (Active Accounts Per Ops Employee)

8

2019 operational highlights - home credit

Evolution of our digital platform

• 99% of loans in 2019 were via the app (2018 93%)

• Launch of our new customer portal

• Addition of automated income verification

• Card readers rolled-out to agents

• Bespoke scorecard for best agents

Focus on quality

• Further reduction in impairment as a % of revenue

Careful cost management

• Cost : income ratio of 58% (2018: 57%)

Significant shortening of the loan book

• 63-week loan has replaced 78 and 76-week loan

• Significant increase in issue of core 46-week product0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Net loan book by product

24 33 45/46 63 76/78

Jono GillespieGroup Chief Financial Officer

9

2019 reported results

Year ended 31 December 2019)

£000)

2018

restated

£000

% Change

Versus

2018

Revenue 180,784 158,824 +16%

Other revenue 954 1,626 -41%

Modification loss (1,181) (78) +1,414%

Derecognition (loss)/gain (413) (129) +220%

Impairments (45,066) (43,738) +3%

Revenue less impairments 135,078 116,505 +16%

Admin expenses (103,012) (97,763) +5%

Operating profit 32,066 18,742 +71%

Exceptional items (80,584) - n/a

(Loss) profit before interest and tax (48,518) 18,742( n/a

Finance cost (27,458)) (21,107) +30%

Loss before tax (75,976) (2,365) +3,113%

Taxation (332)) 58() +7%

Loss after tax (76,308) (2,307) +3,208%

10

1 2018 has been restated for a prior year adjustment

2019 normalised1 divisional breakdown

Year ended 31 December 2019 Branch-

based

lending

£000

Guarantor

loans

£000

Home

credit

£000

Central

costs

£000

Total

£000

% Change

Versus

20182

Revenue 93,002 29,820 60,835 - 183,657 +10%

Other revenue 954 - - - 954 -41%

Modification loss (951) (230) - - (1,181) +1,414%

Derecognition (loss)/gain (482) 69( - - (413) +220%

Impairments (20,635) (7,996) (16,435) - (45,066) +3%

Revenue less impairments 71,888 22,663 44,400 - 137,951 +11%

Admin expenses (42,235) (12,895) (35,298) (5,358) (95,786) +8%

Normalised operating profit 29,653 8,768 9,102 (5,358) 42,165 +20%

Finance cost (17,355) (7,338) (2, 116) (649) (27,458) +30%

Profit (loss) before tax 12,298 1,430 6,986 (6,007) 14,707 +5%

Taxation (2,711) (113) (1,474) 1,141) (3,261) +7%

Profit after tax 9,483 1,317 5,512 (4,866) 11,446 +5%

11

1 Adjusted to exclude fair value adjustments, amortisation of acquired Intangibles and exceptional items.2 2018 has been restated for a prior year adjustment

Key movements impacting operating profit

12

1 Adjusted to exclude fair value adjustments, amortisation of acquired Intangibles and exceptional items. 2018 has been restated.

0

10

20

30

40

50

60

£m Normalised operating profit bridge 2018-2019

Prior year adjustment to loan loss provisions

13

▪ On 1 January 2018 the Group adopted IFRS 9 which required the Group to increase

its loan loss provisions to take into account expected credit losses

▪ Total transition impact to IFRS 9 on 1 January 2018 was an increase in loan loss

provisions of £15.0m

▪ A detailed provisions ‘back-test’ analysis initiated by the Board identified a shortfall

and the need for an additional provision of £4.0m (or 1% of receivables)

▪ £3.2m relates to branch-based lending

▪ £0.8m relates to guarantor loans

▪ No impact on any of the covenants in the Group’s term loan facility which uses IAS39

Branch-based lending

14

Year ended 31 December2019

normalised

£000

2018

normalised

restated

£000 % Change

Revenue 93,002 79,579 +17%

Other income 954 1,397 -32%

Modification loss (951) (78) +1,119%

Derecognition loss (482) (97) +397%

Impairments (20,635) (18,040) +14%


Admin expenses (42,235) (36,488) +16%

Normalised operating profit 29,653 26,273 +13%

Finance cost (17,355) (12,778) +36%

Profit before tax 12,298 13,495 -9%

Taxation (2,815) (2,492) +13%

Profit after tax 9,483 11,003 -14%

Key Performance Indicators:

Loan book growth1 17.6% 24.7%

Revenue yield2 46.4% 47.8%

Risk adjusted margin3 36.1% 37.0%

Impairments/revenue 22.2% 22.7%

Impairment/average net loan book 10.3% 10.8%

Cost:income ratio 45.4% 45.9%

Operating profit margin 31.4% 33.0%

Return on asset4 14.8% 15.8% 1 Before fair value adjustments2 Normalised revenue as a percentage of average loan book excluding fair value adjustments 3 Normalised revenue less impairments as a percentage of average loan book excluding fair value adjustments4 Normalised operating profit as a percentage of average loan book excluding fair value adjustments

Branch-based lending KPIs – impairment/ ANR1

151 2019, 2018 and 2017 are under IFRS 9 while prior years are under IAS 39. 2018 has been restated for a prior year adjustment.

16.4% 16.2%

18.3%

9.7% 9.9%

7.9%8.2%

7.8%7.3%

8.9%

9.5%

10.8%10.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Branch-based lending KPIs - period end loan book

161 2016 is under IAS 39 while all other periods have been prepared under IFRS 9. 2018 and 2017 have been restated for a prior year adjustment.

122.4

146.4

182.7

214.8

0

50

100

150

200

250

Dec-16 Dec-17 Dec-18 Dec-19

£m

Guarantor loans

17

Year ended 31 December2019

normalised

£000

2018

normalised

restated

£000 % Change

Revenue 29,820 21,748 +37%

Other income - 229 n/a

Modification loss (161) (32) +403%

Impairments (7,996) (4,451) +80%


Admin expenses (12,895) (9,983) +29%


Finance cost (7,338) (5,833) +26%

Profit before tax 1,430) 1,678) -15%

Taxation (113) (618) -82%

Profit after tax 1,317 1,060 +24%


Loan book growth1 27.7% 61.0%




Impairments/average net loan book 8.5% 6.6%


Operating profit margin 30.8% 34.5%

Return on asset4 9.3% 11.2%1 Before fair value adjustments. 2 Normalised revenue as a percentage of average loan book excluding fair value adjustments3 Normalised revenue less impairments as a percentage of average loan book excluding fair value adjustments 4 Operating profit as a percentage of average loan book excluding fair value adjustments (twelve month average).

Guarantor loans KPIs – period end loan book1

1 2016 is under IAS 39 while all other periods have been prepared under IFRS 9. 2017 and 2018 have been restated. Assumes George Banco was owned for the full period.

35.6

51.3

82.7

105.5

0

20

40

60

80

100

120

Dec-16 Dec-17 Dec-18 Dec-19

£m

18

Home credit

19

Year ended 31 December 2019

normalised

£000

2018

normalised

£000 % Change

Revenue 60,835 65,175 -7%

Impairments (16,435) (21,247) -23%


Admin expenses (35,298) (37,214) -5%


Finance cost (2,116) (2,461) -14%

Profit before tax 6,986 4,253 +64%

Taxation (1,474) (774) +90%

Profit after tax 5,512 3,479 +58%


Loan book growth1 (2.7)% 2.1%




Impairments/average net loan book 45.2% 55.9%


Operating profit margin4 15.0% 10.3%

Return on asset5 25.1% 17.7%

1 Before fair value adjustments2 Normalised Revenue as a percentage of average loan book excluding fair value adjustments3 Revenue less impairments as a percentage of average loan book excluding fair value adjustments4 Normalised operating profit as a percentage of normalised revenue5 Normalised operating profit as a percentage of average loan book excluding fair value adjustments

Home credit KPIs - period end loan book

20

28.0

33.4

40.2 41.0 39.9

0

5

10

15

20

25

30

35

40

45

Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

£m

Balance sheet, funding and liquidity

▪ £285m term loan in place until 2023

▪ £45m RCF until 2022

▪ £200m securitisation facility until 2023 (followed

by 3-year amortisation period); £65m of which

would be available but only with suitable waivers

▪ COVID-19 is constraining our ability to draw

down on the new facility

▪ At 31 May 2020 Group had cash of £60m and

gross borrowings of £345m

▪ Group remains viable as a going concern

▪ Additional equity would reduce gearing and may

allow access to lower cost debt funding

31 Dec

2019

£m

31 Dec

2018

restated

£m

Loan book 360 306

Fair value 2 4

Adjusted loan book 362 311

Cash and other assets 25 25

Right of use assets 11( -(

Payables and provisions (28) (17)

Lease liability (11) -(

Debt (318) (266)

Tangible net assets 40 52

Goodwill and intangibles 83 155

Net assets 124 207

Net debt 309 259

Loan: value1 84% 83%

LTV covenant 90% 90%

1 Definitions from facilities agreement 21

John van KuffelerFounder and Group Chief Executive

22

How is NSF positioned?

23

▪ Strong market positions in all three segments

▪ High risk-adjusted margins

▪ Net loan book reduced by c.9% since year end but good

collections and minimal lending have resulted in cash

balances of £60m at 31 May 2020

▪ £65m of additional long-term funding available,

provided we meet covenant requirements

▪ Lending restarted in all three divisions in mid-May

24

COVID-19 response – branch-based lending

▪ Branches were closed on 23 March and staff sent home

▪ By 26 March 295 laptops (now 327) had been configured and distributed to selected staff for home

working

– Full telephony and call recording– Full access to Pan-credit and CRA data– Full management oversight (call review and operational KPIs)– Extensive use of online video platforms

▪ 155 (40%) branch staff were furloughed initially (now 120) and 15 head office (13%). All furloughed

staff are being topped-up to 100% of salary. Consultation with 48 members of staff commenced.

▪ Reopened the branches on 11 May with three staff per branch, on average

Collections

▪ Approximately 12% of customers are COVID-flagged

▪ Basic collections in April and May were at 94% of the monthly average in January and February

Lending

▪ Minimal in April, restarted on 11 May with all branches now open

▪ revised scorecard and lending procedures

▪ as planned it is a slow-build but now moving towards stabilisation of the loan book

25

COVID-19 response – branch-based lending

£183m £186m

£189m £191m

£194m £197m

£215m £216m

£218m £216m

£208m

£199m

20

30

40

50

60

70

80

90

100

£160m

£170m

£180m

£190m

£200m

£210m

£220m

£230m

£240m

Jan Feb Mar Apr May Jun

2019 opening loan book 2020 opening loan book 2020 basic collections index (RH scale)

26

COVID-19 response – guarantor loans

▪ Trowbridge call centre was closed at the end of March and all 115 staff sent home

▪ 85 laptops were configured and distributed to all customer-facing staff

– Full telephony and call recording– Full access to office-based work environment– Full management oversight (call review and operational KPIs)

▪ Doubled collections resource by retraining 36 lending and underwriting staff to support collections

and customer service effort

▪ 7 staff have been furloughed

Collections

▪ Approximately 23% of customers are COVID-flagged

▪ Basic collections in April and May were at 83% of the monthly average in January and February

Lending

▪ Minimal in April but volume restarted on 11 May with reduced staffing levels

▪ Encouraging lead volumes from brokers and PCWs although applicants finding it more difficult

to find a suitable guarantor

▪ revised scorecard and lending procedures

▪ as planned it is a slow-build and volumes increasing albeit gradually

27

COVID-19 response – guarantor loans

£83m £85m

£87m £89m

£91m £94m

£106m £107m £108m £108m

£105m £102m

20

30

40

50

60

70

80

90

100

£50m

£60m

£70m

£80m

£90m

£100m

£110m

£120m

£130m



28

COVID-19 response – home credit

▪ Self-employed agents were instructed to stop attending customers’ homes on 24 March

▪ 2 staff have been furloughed

Collections

– Significant increase in collections via remote channels– Pre-COVID: 28% of collections were made remotely; now close to100%– Remote card payments were piloted on 27 March and rolled out on 30 March– Approximately 12% of customers are COVID-flagged (although around half of these can only

use cash)

Lending

▪ Revised lending criteria (initial focus on existing customers/key workers, max of £500 over 33-weeks)

▪ 1st remote loan issued on 20 April now fully rolled out

▪ Encouraging increase in lending volume during May

29

COVID-19 response – home credit

£41m £39m

£37m £37m £36m £36m

£40m £38m

£37m £34m

£31m

£27m

0

10

20

30

40

50

60

70

80

90

100

110

120

£m

£10m

£20m

£30m

£40m

£50m

£60m



30

COVID-19 response – collections summary

0%

1%

2%

3%

4%

5%

6%

7%

Jan Feb Mar Apr May

Basic collections as a % of opening net loan book

Branch based lending 2019 Branch-based lending 2020

Guarantor loans 2019 Guarantor loans 2020

31

COVID-19 response – collections summary

0%

5%

10%

15%

20%

25%

30%

35%

Jan Feb Mar Apr May

Basic collections as a % of opening net loan book

Home credit 2019 (RH scale) Home credit 2020 (RH scale)

32

Viability and going concern

▪ The 2019 annual results contain a statement of material uncertainty principally due to COVID-19

▪ Board has conducted extensive scenario modelling

▪ We are focused on a base case that shows we remain covenant compliant on our term loan facility

with modest growth levels in 2021 and 2022

▪ We are in discussions with our lenders to secure suitable covenant waivers should they be needed

in the event of a variance from the base case scenario

▪ Our plans will remain flexible so we can adapt to changes in prevailing circumstances

▪ We believe that there could be a significant opportunity for growth in 2021 but need the right

capital structure in order to achieve it

1991-95 2008-12

The market opportunity

▪ Managed carefully, recessions can play to the strengths of our business:

▪ Leading positions in three key segments

▪ High risk-adjusted margins

▪ Diversified customer base

▪ Proven business models

▪ Long-term funding in place (but may need additional equity to access it)

▪ Experience at Provident from 1991-1995, and 2008-2012 is instructive:

33*Before central costs

0%

2%

4%

6%

8%

10%

12%

-50

0

50

100

150

200

250

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Pre

-tax

pro

fit

(£m

)

Home credit* Vanquis* Average unemployment (RH scale)

Questions

Appendix

36

Strong market positions in three segments

Sub-sector Branch-based lending Guarantor loans Home credit

Acquisition date April 2016 April 2016 / August 2017 August 2015

Market position #1 #2 #3

Employees1 476 employees 141 employees313 employees

896 self-employed agencies

Net loan book1 £214.8m £105.5m £39.9m

Loan book growth1 18% 28% (3)%

Impairment/norm. revenue1 22.2% 26.8% 27.0%

Year to 31 Dec 2019

Source: company information

All three businesses have received significant investment

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