Credit Re-imagined - NewDay...credit and unsecured personal loans to customers who may not have...

Credit Re-imagined

2018 Annual Report and Financial Statements

We are a leading consumer credit company serving around five million customers across the UK through our diverse and growing business.

We are driven by our purpose to help people be better with credit and we put our customers at the heart of what we do, guided by the four principles of our Manifesto – Welcoming, Understanding, Knowing and Rewarding.

Our specialist capabilities are underpinned by a leading digital platform with an agile, innovative culture delivering value for our customers, colleagues and stakeholders.

Originally a credit card provider, our vision is now to become the UK’s leading digitally enabled consumer finance provider, responsibly saying “yes” to more customers and developing innovative tools to help people stay in control of their finances and access credit seamlessly.

We continue to be one of the most inclusive lenders in the UK and we strive to help customers responsibly make the most of their credit products.

Credit Re-imagined

Our purpose is to help people be better

with credit.

Inside this reportStrategic report

At a glance 01Highlights 02Who we work with 04How we deliver our vision 06Our Manifesto 08Chairman’s statement 10CEO’s strategy and operational review 12Our digital journey 17

Amazon 22Driving high service standards 24Market opportunity 26Business model 28Our strategy for growth 30 Key Performance Indicators 32 Financial review 34Operating responsibly 42 Risk management 46

Governance

Chairman’s introduction to corporate governance 56Board of Directors 58Management Committee 61The Board 62Board Committee reports 64Directors’ report 74

Financial Statements

Independent auditor’s report 76Income statements and statements of comprehensive income 78Balance sheets 79Statements of changes in equity 80Statements of cash flows 81Notes to the Financial Statements 82Our owners 123

Cautionary statementPlease see page 123 of this report for a description of (i) the basis of preparation of the financial information contained in this report, (ii) the governance and risk frameworks described in this report, (iii) the use of certain non-IFRS financial measures and forward-looking statements, and (iv) certain other important information. You should review this in full prior to reading this report.

01 NewDay 2018 Annual Report and Financial Statements

At a glance

Who we areNewDay is one of the most inclusive lenders

in the UK. With around five million customers, we cover a broad cross section

of the UK credit market.

We are an innovative digital business with a clear Manifesto. We believe it is important to help people be better with credit by responsibly saying “yes” to customers who apply for credit, understanding the varying needs of our customers, building long-term relationships and rewarding customers for managing their credit well.

We have specialist capabilities in near-prime lending and co-brand credit solutions and offer a range of credit products. Through our Own-brand business, we offer near-prime revolving credit and unsecured personal loans to customers who may not have access to credit from mainstream lenders. Our Co-brand business offers credit to customers together with loyalty and other rewards. Our access to data and in-depth customer insights enable us to provide valued support to our retail partners and evolve our products around customers’ changing needs.

An established UK-focused business with a heritage in credit and partnerships

A digital business that believes in innovation with best-in-class customer journeys

Trusted partner with some of the largest brands in the UK

Our clear customer Manifesto is designed to deliver our purpose to help people be better with credit

Own-brand receivables

Co-brand receivables

Unsecured PersonalLoans receivables

2016 2017 2018

£1,093m

£722m

£1,326m

£821m

£17m

£1,566m

£992m

£66m

£1,815m

£2,164m

£2,623m


Delivering continued growth enabled by our Manifesto and leading digital platform Following our successful transition to new owners and development of our Value Creation Plan in 2017, 2018 has been a year of re-imagination, building and future-proofing as we respond to changing customer needs and progress our goal of becoming the leading digitally enabled consumer finance provider in the UK. As part of our journey this year, we now service Own-brand acquisition and all digital channels in-house having launched 17 apps in the year. By making things easier for our customers and remaining focused on our purpose to help customers be better with credit, we have continued to build long-term relationships and to grow our business, increasing our receivables by 21% to £2.6bn.

New account originations

1.2m2017: 1.1m

New accounts digitally originated

63%2017: 51%

Consumer spend

£5.0bn2017: £3.9bn

Consumer spend through digital channels

£1.7bn2017: £1.2bn

Group closing receivables*

£2,623m2017: £2,164m

Highlights

* Refer to page 32 for the definition of closing receivables.


1.4m(2017: 0.7m)app downloads to date

107m(2017: 85m)transactions processed

+64(2017: +65)transactional Net Promoter Score (average customer feedback score when rating their experience on an interaction with us)

17new mobile apps launched

NewDay in numbers

Our award-winning business is growing

1,208(2017: 1,001)colleagues


Who we work with

Broad spectrum of customers

Supported by our technology, our Manifesto and credit capabilities allow us to responsibly say “yes” to more customers.

Our Own-brand business serves near-prime customers who typically are employed but exhibit one or more additional characteristics such as a limited credit history or a history of adverse credit events that prevents them from accessing credit from mainstream credit providers.

Our Co-brand retail partners value our ability to serve a broad range of prime and near-prime customers.

Leading technology partners

Our in-house digital capability is backed by infrastructure provided by leading technology organisations, including Microsoft and Amazon Web Services, that offers us cloud-based scalability, performance, cost and security advantages. Our transaction processing platform remains outsourced to First Data, who remain a key partner.

We attend hackathons with our technology partners as well as industry gatherings and meet-ups. We are proud to sponsor the Imperial College Data Science Society to give back to our community and continue to attract top data and technology talent.

Innovative retail partners

We partner with some of the UK’s most loved brands, both traditional and online-only retailers, who share our passion for delivering a best-in-class customer experience. We work together to build brand loyalty and deliver value for both our partners and customers.

Our partners value the seamless integration and insight that our data and technology offers, as well as our collaborative and open approach which streamlines our goals and leads to better customer outcomes.

Read more about our Amazon partnership on page 22.

Diversified funding partners

Our broad base of international funding partners includes a number of the world’s leading financial institutions.

We regularly access securitisation markets to support our receivables growth with a low, stable cost of funding.

We are committed to building long-term relationships with our customers, suppliers and

partners. We partner with organisations that share our vision and help us to deliver seamless

customer journeys.

05

Trusted brandsWe help customers be better with credit with our Own-brand products and, together with

our retail partners, our Co-brand credit solutions.

Our brands

Our retail partners


How we deliver our vision

EnablersIn order to deliver on the market opportunity ahead of us, our Manifesto offers us a framework to understand how we can improve our customers’ journeys, and our leading digital platform allows us to execute at speed and scale.

Driving high standards for our customers, colleagues and community through our Manifesto

As our business grows and adapts, our purpose to help customers be better with credit and the principles of our Manifesto remain at the heart of what we do. We design better products and better journeys to meet our customers’ needs, whilst empowering our colleagues to drive forward this vision and attracting top new talent.

Read more about our Manifesto on page 8.

Leveraging a leading digital platform

Re-imagining our digital strategy and building a true digital platform allows us to unlock significant value for our customers, colleagues and business. Having our digital capability in-house enables us to innovate and respond rapidly to changing needs.

Read more about our digital journey on page 17.

OutcomesWe are a leading customer acquirer and build long-term relationships which aim to deliver predictable, embedded profits and cash generation.

Acquiring new customers and creating long-term relationships

As a result of ongoing innovation, we continue to both acquire new customers and value the long-standing relationships built in previous years.

Our performance shows each customer vintage contributing to future years’ receivables growth and profitability, and with our deep understanding of customer behaviour this gives us a high level of predictability.

See further detail on page 13.

Delivering strong controlled growth

This record year for customer acquisition and our relentless focus on helping customers be better with credit have contributed to the continued financial growth of our business, with receivables and total income delivering double digit growth.

Read more about our financial results on page 34.

The way our customers apply, spend and pay is changing, and technology is opening up previously inaccessible e-commerce opportunities as well as facilitating new data insights.

With a strong purpose and a leading digital platform, our ability to innovate and our specialist expertise mean we are well placed to meet tomorrow’s needs and capitalise on significant market growth potential.

Read more about our market opportunity on page 26.

Evolving with our customers to address changing needs

Opportunity


EnablersIn order to deliver on the market opportunity ahead of us, our Manifesto offers us a framework to understand how we can improve our customers’ journeys, and our leading digital platform allows us to execute at speed and scale.

Driving high standards for our customers, colleagues and community through our Manifesto

As our business grows and adapts, our purpose to help customers be better with credit and the principles of our Manifesto remain at the heart of what we do. We design better products and better journeys to meet our customers’ needs, whilst empowering our colleagues to drive forward this vision and attracting top new talent.

Read more about our Manifesto on page 8.


Re-imagining our digital strategy and building a true digital platform allows us to unlock significant value for our customers, colleagues and business. Having our digital capability in-house enables us to innovate and respond rapidly to changing needs.

Read more about our digital journey on page 17.

OutcomesWe are a leading customer acquirer and build long-term relationships which aim to deliver predictable, embedded profits and cash generation.


As a result of ongoing innovation, we continue to both acquire new customers and value the long-standing relationships built in previous years.

Our performance shows each customer vintage contributing to future years’ receivables growth and profitability, and with our deep understanding of customer behaviour this gives us a high level of predictability.

See further detail on page 13.


This record year for customer acquisition and our relentless focus on helping customers be better with credit have contributed to the continued financial growth of our business, with receivables and total income delivering double digit growth.

Read more about our financial results on page 34.


Our purpose is to help people be better with credit. The four guiding principles of our Manifesto help us

to bring our purpose to life and realise positive outcomes for our customers, retail partners,

colleagues, community and business.

Our Manifesto

Welcoming

We aim to responsibly say “yes” to as many people as possible who apply for credit. Customers are assessed to ensure affordability criteria are met and that they are provided with the right product at an appropriate rate. We strive to provide customers with a great experience by offering products and services that are simple, intuitive and useful.

Understanding

We aim to build lifelong relationships with customers and recognise that customers may want to change products as their circumstances change and therefore offer a range of solutions. If things are not going quite to plan, we offer customer support, agreeing appropriate actions for moving forward.

Knowing

We know our customers have varying needs and we provide a range of products and services to suit these different needs. These aim to help all customers be better with credit. We utilise our analytical expertise, combined with partner insight, to the benefit of customers and provide tools that help people manage credit more easily and allow them to access the benefits it provides.

Rewarding

We reward customers for managing their credit well. This can mean providing benefits, such as lowering APRs, as a result of paying on time and sticking to commitments made or providing rewards for customers’ loyalty. Ultimately, our success is based on helping customers be better with credit.


2new products launched to meet customer needs: Fluid and NewPay.

67,000 customers helped with our collections toolkit.

£29mWe have rewarded our customers with £29m of loyalty rewards.

75%colleague engagement in our Manifesto and values index.

Proud to partner with Family Action helping over 340 families with an Open Doors grant and hundreds more through our other activities.

Having our Manifesto embedded in our company culture guides us to deliver the right customer outcomes, aligned with the FCA’s regulations and principle of Treating Customers Fairly.

“ We have started the journey of helping our

customers understand persistent debt and how they avoid it, and have seen encouraging early results from the initiatives we launched in September”

Ian CorfieldChief Commercial Officer

What our Manifesto means to our customers

What our Manifesto means to our colleagues

Alignment with our regulatory environment

“ Since migrating e-servicing to our in-house platform and launching 17 new mobile apps, our Net Easy Score for online servicing (which measures how easy it is to navigate through our apps or websites) has increased from +54 to +68”

Sanjay SharmaChief Operating Officer

Our Manifesto hackathon

“ It was fantastic to see the development of our colleagues’ ideas. They’re digitising everything that we’re doing because it’s the way our customers want to interact with us. They’re innovating, meeting our customers’ needs – both delivering superior customer value and at the same time enabling us to deliver better service at a lower cost”

James CorcoranExecutive Director and Chief Executive Officer


What made NewDay stand out to me was the Group’s purpose to help its customers be better with credit and the strength of its digital ambition, combined with strong operating performance.

Our Manifesto is at the heart of building long-term relationshipsThe four guiding principles of our Manifesto – Welcoming, Understanding, Knowing and Rewarding – bring meaning for our customers and colleagues and are present in every decision we make.

Helping customers be better with credit in a digital world

“ I was delighted to join NewDay as Chairman in May 2018, at such an exciting time in the Group’s evolution”

Chairman’sstatement

In 2018, we have welcomed 1.2m new customers, launched 17 apps and migrated e-servicing to our in-house platform, helped 67,000 customers with our collections toolkit and rewarded our customers with £29m of loyalty rewards. We continue to bring our purpose to life and support our colleagues to deliver our vision with a network of Manifesto champions in place across all departments. We are proud to partner with Family Action and have helped hundreds of families through our support grants this year. NewDay has a deep sense of responsibility and is actively engaged in discussion around the role credit plays in financial inclusion. We are highly supportive of recent regulatory changes which closely align with our existing approach. Helping customers to use their NewDay products responsibly is at the heart of building long-term relationships.

Sir Michael Rake Chairman and Non-Executive Director


An award-winning franchiseAt NewDay I have come across a workplace which offers a strength of purpose with rapid growth and innovation. Ranking 25th in the UK in the Sunday Times Grant Thornton Top Track 250 is testament to the ambition that has been set and delivered by our colleagues across the business.

In addition, we won six awards in 2018 and were nominated for several others across Customer Services, Facilities Management, Software Testing, Payments Processing and Cards Programs.

Digital agenda2018 saw significant progress against our vision to become the leading digitally enabled consumer finance provider in the UK. We now have a team of over 100 digital and data engineers and have brought Own-brand digital acquisition, servicing and application development in-house. This allows us to be more innovative, flexible and resilient, delivering better solutions for our customers more cost-efficiently and quickly.

Strong financial performance in 2018In 2018, we have continued our strong but controlled growth trajectory, growing closing receivables by 21% to £2.6bn and reporting total income of £591m (2017: £499m). Adjusted EBITDA for the year of £82m (2017: £114m) was significantly impacted by the adoption of IFRS 9 ‘Financial Instruments’ in 2018. However, on a like-for-like IAS 39 basis (being the accounting standard in force for 2017), adjusted EBITDA would have been £112m despite absorbing £18m of additional investment in our Value Creation Plan and interventions aimed at customers considered in persistent debt. The statutory loss before tax of £7m (2017: £27m) includes a number of items, detailed on page 35, which do not represent the Group’s underlying performance.

We have grown and further diversified our funding facilities, raising £640m through the debt capital markets, including raising US$243m of funding in the US for the first time, helping drive further receivables growth. In addition, as at 31 December 2018 we had £0.9bn of headroom on funding facilities to support future growth.

Regulation There have been a number of regulatory developments across the industry in 2018. NewDay has dedicated significant resource to implement the requirements relating to the Credit Card Market Study (CCMS), the Second Payments Services Directive (PSD2) (the extent to which those rules are already effective), the General Data Protection Regulation (GDPR) and the Financial Conduct Authority’s (FCA) policy statement ‘PS18/19: Assessing creditworthiness in consumer credit’. Given our strong focus on our Manifesto and our purpose to

“ Our strategy is driven by our purpose to help customers be better with credit”

help customers be better with credit, the changes are consistent with our direction and we very much support the implementation of these regulations.

In addition, we continue to prepare for the further requirements of PSD2 and the Senior Managers and Certification Regime.

SustainabilityWe are committed to being a responsible business, being guided by our Manifesto in terms of lending responsibly to our customers and delivering for our colleagues and wider community and protecting the environment. Long-term sustainability is a Board-level priority and we have an Environment, Social and Governance (ESG) framework to consider the significant ESG issues across the business, identify risks and assess opportunities for improvement.

LeadershipOn 4 March 2019, we announced the appointment of John Hourican as Chief Executive Officer, subject to FCA approval, as successor to James Corcoran who will remain on the Board as a Non-Executive Director.

I would like to thank James for his tremendous contribution over the past ten years in leading the Group through a period of significant growth and evolution. He has transformed NewDay, building the business into one of the UK’s leading specialist consumer credit providers. Under his leadership, NewDay has been strengthened, our product portfolio has been broadened and our digital capabilities have been enhanced. We are in a fantastic position to build on this strong position in the years ahead and look forward to welcoming John to the Board in Autumn 2019.

OutlookWhilst the UK’s economic outlook as a result of Brexit remains uncertain, all of our operations take place within the UK and therefore we do not currently expect there to be a material impact on the operational side of the business. Our high standards of governance and proactive risk management approach ensures we are well-positioned to react to any economic changes.

Our performance in 2018 has been driven by strong controlled receivables growth and this continues into 2019. Our strategy is driven by our purpose to help customers be better with credit, and is enabled by our Manifesto, which brings that purpose to life, and the leading digital platform that we have built in 2018. We look forward to delivering further enhancements, particularly in relation to the digital platform, in 2019.

None of this would be possible without the ongoing dedication of NewDay’s colleagues and management team, who I wish to thank on behalf of the Board. I would also like to thank my predecessor, Sir Malcolm Williamson, for his valued leadership and guidance as Chairman since 2010, and we are delighted that we continue to benefit from his expertise. I look forward to continuing to work with the Board and the management team to deliver the strategy in 2019 and beyond.


We welcomed Sir Michael Rake as Chairman this year, and combined with the Board, management team and colleagues, we have continued to deliver strong controlled organic growth guided by our Manifesto and leveraging our leading digital platform.

A breakthrough year in our ambitious digital journey

“ As I look back on a decade of progress since I joined NewDay in January 2009, in 2018 we have continued to deliver growth and through our digital agenda have transformed our business”

CEO’s strategy and operational review

2018 has been a breakthrough year in our ambitious digital journey, with the end goal of becoming the leading digitally enabled consumer finance provider in the UK. In order to be more self-sufficient in our digital engineering capability we have invested £8m in our digital initiatives. We have moved a significant amount of our digital development in-house, and now have a team of over 100 engineers helping us achieve this. Significant progress has been made on our technology infrastructure, reducing our costs as well as improving our resilience and agility.

We continue to deliver the Value Creation Plan that we set out in 2017 following the acquisition by funds advised by Cinven and CVC, focusing on enhancing digital capabilities and developing credit and collections strategies.

James Corcoran Executive Director and

Chief Executive Officer


Continuing to acquire new customersIt has been a record year for new account acquisitions with 1.2m new accounts, compared with 1.1m in 2017. Our Own-brand business welcomed 456,000 new accounts and our Co-brand business opened 733,000 new accounts. Almost all of our Own-brand new accounts were acquired online and an increasing proportion of our Co-brand acquisitions were digitally originated. In 2018, 63% of all acquisitions across the business were online, compared with 51% in 2017 as we have deployed digital application solutions in a number of our retail partners’ stores. Our Unsecured Personal Loans business welcomed 15,000 customers compared to 4,000 in 2017, all of whom were acquired online. As a result of the customer behavioural insight we have developed over many years, today’s new customers offer us future receivables predictability – 84% of our 2018 year end receivables relate to pre-2018 originations (see closing receivables by year of origination on page 15).

Our Co-brand business has also made a strong start to 2019 signing agreements with two major new national retailers that are due to launch by the middle of 2019; one of which will utilise our new digital revolving credit product, NewPay.

Another year of financial growthStrong receivables growth continued with closing receivables of £2.6bn up 21% from £2.2bn at the end of 2017. Own-brand receivables grew by 18% and Co-brand receivables grew by 21%, with our Unsecured Personal Loans portfolio surpassing the £65m mark. This growth across all portfolios resulted in a 19% increase in total income.

IFRS 9 came into effect on 1 January 2018, replacing IAS 39 ‘Financial Instruments: Recognition and Measurement.’ IFRS 9 is a forward looking expected credit loss model rather than an incurred loss model, which had the effect of accelerating impairment provision build. The impact of IFRS 9 was to add £30m to impairment in 2018 over and above what would have been recorded under IAS 39. Given the strong growth across our portfolios, there is likely to be an ongoing delay in the recognition of profits as a result of impairment provisions being recognised upon origination. It is important to note that IFRS 9 only changes the timing of profit recognition; our business model, charge-offs and cash flows are unaffected by the change in accounting standard.

As a result of our continued investment in underlying efficiencies, including digital, we have reduced our cost-income ratio, excluding £18m of incremental investment costs to deliver our Value Creation Plan and interventions aimed at customers considered in persistent debt, by 1.6 percentage points to 31.8%.

“ 2018 was another year of strong controlled growth and a breakthrough year in our ambitious digital journey with the end goal of becoming the leading digitally enabled consumer finance provider in the UK”

We reported adjusted EBITDA of £82m (2017: £114m). On a like-for-like IAS 39 basis, adjusted EBITDA would have been £112m despite absorbing the £18m of incremental investment costs noted above. The statutory loss before tax of £7m (2017: loss of £27m) includes a number of items, detailed on page 35, which do not represent the Group’s underlying performance.

Free cash flow available for Senior Secured Debt interest increased by £47m to £41m in 2018, highlighting the strong cash generation of the business despite the £18m incremental investment noted above and the higher utilisation of our Payment Protection Insurance (PPI) provision following the FCA’s publicity campaigns in 2018. Overall cash increased by £10m to £134m (2017: £124m).

As widely reported, 2018 was a challenging year on the high street and one of our retailers (House of Fraser) entered administration. The House of Fraser business was subsequently acquired by Sports Direct and our previous contract has been novated to the new House of Fraser business. Our agreements with House of Fraser customers are unaffected by the administration and we continue to manage the portfolio accordingly however, new account origination has ceased. We are working closely with the new House of Fraser business to relaunch the programme once they have obtained the necessary regulatory approvals and we look forward to building a long-term relationship with them. In addition, our Co-brand portfolio is well-positioned to help drive revenue for all our retail partners, whether that be through sales on the high street or online, and we continue to diversify our retail partner base and product offering.

21%closing receivables growth.

Growth across all of our businesses, including both traditional and online.

£82m adjusted EBITDA.

On a like-for-like IAS 39 basis, adjusted EBITDA would have been £112m.

£41m free cash flow for Senior Secured Debt interest.


Strong financial foundationsAt the end of 2018 we had £0.9bn of headroom on funding facilities for future growth and an average funding maturity of three years; offering us protection in case of deteriorating capital markets. During 2018, we continued to access the capital markets to fund the receivables growth in the business, raising £640m through two deals, of which US$243m was raised in the US. These were our first US deals and represent another significant milestone as we diversify our funding strategy.

Building an agile, digital-first operating model embedded in our communityIn addition to the technology infrastructure changes we have made, across our development and data teams we now have a number of agile scrum teams in place and we are looking to extend agile practices to other parts of the organisation.

Our digital investment allows us not only to operate more efficiently with better data insight to drive our decisions, but offer greater end-to-end value for our customers, retail partners and other stakeholders. By continuing to leverage data and technology, we continue to find better ways to broaden our range of consumer credit offerings and better service our customers and retail partners.

Putting our customers at the heart of what we doLooking beyond the progress we have made in changing the way we do things, the heart of what we do and why we do it has not changed and our purpose to help people be better with credit and the four core principles of our Manifesto – Welcoming, Understanding, Knowing and Rewarding – continue to guide us in all that we do.

63%of acquisitions digitally originated compared with 51% in 2017.

As well as our online process, we operate digital application solutions in 57% of our retail partners’ stores.

CEO’s strategy and operational reviewContinued

Having in-house digital capability allows us to respond rapidly to meet our customers’ changing needs and help them to better manage their finances through 17 new mobile apps launched this year and our in-house e-servicing platform. We have continued to develop our range of product offerings and features with the launch of two new products in 2018: Fluid within our Own-brand portfolio designed for near-prime customers looking for a balance transfer proposition, and NewPay, our digital retail financing solution offering payment optionality and a frictionless customer experience. The products and partnerships launched previously, such as our Unsecured Personal Loan product and Amazon Co-brand cards, continue to go from strength to strength and you can read more about the award-winning Amazon product and its end-to-end digital design on page 22.

Understanding our customers’ situations and experiences is the key to building long-term relationships and being able to improve their journeys with us. Our successful Customer Issue Resolution Programme recently won a Gold award at the European Contact Centre and Customer Service Awards, with the team being recognised for a total of three awards.

This year, as well as featuring at number 25 in the Sunday Times Grant Thornton Top Track 250 ranking of private mid-market growth companies, we have been awarded a 1-star accreditation by Best Companies, which compiles the Sunday Times Best Places to Work For lists. Together we have created a truly inspiring work environment.

We are excited to have launched NewPay, our new digital product, with our first partner, Unshackled.com. NewPay makes retail revolving credit digitally accessible, with frictionless journeys for our customers and simple integration for our retail partners.

NewPay offers convenience and optionality for our customers through instant access to revolving credit and more ways to pay, including instalment, buy now pay later, and other promotional options.

“ The heart of what we do and why we do it has not changed and our purpose to help people be better with credit and the four core principles of our Manifesto – Welcoming, Understanding, Knowing and Rewarding – continue to guide us in all that we do”

£241m

£1,574m

£303m£1,815m

£2,164m

£2,623m

£386m

£418m

£494m

£1,476m£1,322m

£389m

2016 2017 2018

<2015 2016 2017 2018


84%of 2018 year end receivables relate to pre-2018 originations.

Credit Card Market Study and High Cost Credit reviewThe FCA announced its final rules and guidance on the CCMS in February 2018, with a range of requirements intended to improve customers’ awareness of the status of their accounts, provide customers with greater control over how they receive unsolicited credit limit increases and, effective since September 2018, measures to protect customers from being considered in persistent debt. Whilst there are implications of CCMS for our business, given our strong focus on our Manifesto and our purpose to help customers be better with credit, the changes are very much aligned with our existing approach.

This year we invested over £6m in the research, development, trial and deployment of interventions to help customers whose accounts are defined as being in or near to persistent debt. In addition to all of the requirements of the FCA’s new rules, between September 2018 and March 2019, we progressively rolled out a programme of support for a significant proportion of customers considered in persistent debt. As at 31 December 2018, credit card customers considered in early stage persistent debt represent 8% of our customer base. We are encouraged by the early results of our programme and have seen no material impact on impairment as a result of the changes we have made.

In December 2018, the FCA announced the extension of its persistent debt requirements to store cards as part of the findings of its High Cost Credit Review, along with certain other remedies introduced following the CCMS. These changes take effect during 2019 with persistent debt

requirements taking effect for store cards in June 2019. Following encouraging early results from the credit card customer interventions deployed in 2018, we will commence store card customer communications as required by the regulations and determine appropriate intervention strategies. We expect this to affect less than 2% of our overall customer base.

Other regulatory developmentsThere have been a number of other regulatory developments this year. The PSD2 rules took effect on 13 January 2018, bringing in new regulations aimed at improving consumer rights. Further requirements relating to Strong Customer Authentication and third-party access to account information are not yet in force, and NewDay continues to prepare for these measures, which are effective from 30 September 2019.

On 25 May 2018 the GDPR went live, bringing new requirements for data processing, the capture of and reliance on marketing consents and changes to the ways consumers can access and port data held about them.

On 30 July 2018, the FCA published its policy statement ‘PS18/19: Assessing creditworthiness in consumer credit’, which came into effect on 1 November 2018. The requirements contained in the policy statement were clarifying in nature and commensurate with the business’ existing creditworthiness and affordability policies and processes. NewDay continues to enhance its creditworthiness and affordability processes to further ensure that lending remains appropriate and affordable for its customers.

NewDay continues to prepare for the Senior Managers and Certification Regime. Effective from 9 December 2019, the new regime brings a renewed regulatory focus on individual conduct and accountability.

Our peopleWe know that engaged colleagues drive better outcomes for our customers and our business. Our overall engagement score is 75% and a key driver of that is our purpose, being our Manifesto, which scores 81%. During 2018, we led a series of campaigns all focused on raising awareness of our purpose from introducing customer stories to our first ever Manifesto hackathon. We are entering another truly exciting year for NewDay as we create new colleague-focused campaigns that support both our business goals and our company diversity and inclusion agenda. We are committed to creating a work environment where colleagues feel both valued and respected.

Our focus on attracting, retaining, engaging and motivating talent is embedded into how we communicate with colleagues and future colleagues. This past year, we’ve made strides in communicating how NewDay is recruiting talented individuals and offering a workplace where they can thrive. Recent recruitment campaigns have focused on data science and building an in-house digital development team. We are also expanding key skills and capabilities to create a pipeline of tech-talent we can grow through our recruitment of a group of new IT apprentices, a first for NewDay.

Closing receivables by year of origination


CEO’s strategy and operational reviewContinued

We provide a healthy and safe environment for our colleagues to work in and aim to create a culture that sees and values all of our differences. We recognise our duty to minimise our impact on the environment and have been awarded three Green Apple awards this year for our environmental best practices. We are proud to support our charity partner, Family Action, and have helped over 340 families with an Open Doors grant. We donated £51k to Family Action and local community charities in 2018 with a further £125k donated to Family Action in January 2019.

Outlook2018 has been a year of delivering growth and initiatives relating to the Value Creation Plan with significant progress made towards our digital ambition, whilst continuing to deliver solid financial growth. I remain cognisant of the fact that what has got us to where we are today needs to continually evolve in an increasingly digital and competitive landscape, with the goal of becoming the leading digitally enabled consumer finance provider in the UK.

We are well-positioned to react to any economic changes, including Brexit, and I am confident in both the strength of the management team who have weathered many different economic conditions and in our risk management approach which offers us many levers to adapt accordingly.

I feel extremely fortunate to have been part of this remarkable journey and it has been a real privilege to lead NewDay over the last ten years. Our purpose has always been to help people be better with credit and this remains central to our approach. I am delighted with the progress we have made having grown the business from having one Own-brand credit card product with receivables of £400m to leading a digitally enabled business with a portfolio comprising Own-brand, Co-brand and Unsecured Personal Loans with receivables of £2.6bn. I am confident that my successor, John Hourican, will build on the Group’s strong foundations and I will manage an orderly handover to John when he joins in Autumn 2019 before taking up my role as a Non-Executive Director on the Board.

On a personal note I wish to thank our investors, retail and business partners and all of my colleagues for making these past ten years the most stimulating and rewarding in my whole career.

13%increase in the use of credit cards across the industry driven by increased e-commerce activity and technological change1.

+68Net Easy Score (NES).

Our NES for online servicing increased by 14 points to +68 following the introduction of our new e-servicing and apps.

1.4mapp downloads to date and 2.4m (50%) of customers registered for e-servicing.

1.2mnew account originations compared with 1.1m in 2017 – a record year for new account acquisitions.

31.8% adjusted cost-income ratio.

A reduction of 1.6% compared with 2017 excluding £18m of additional investment costs.

1. Source: UK Finance – UK Payment Markets 2018 (growth based on 2016 to 2017 payment volumes).


Sanjay Sharma is no stranger to transformation. Our Chief Operating Officer of over five years is the driving force behind our technology transformation. This started with building our organisational infrastructure and technical capabilities from the ground up in order to accommodate the Co-brand business that we acquired in 2013.

“ Our digital vision is to be the leading digitally enabled UK consumer finance provider and build an unparalleled, self-sufficient digital engineering capability in-house”

Our digital journey with Sanjay Sharma

Sanjay SharmaChief Operating Officer


In 2017, we embarked on an ambitious journey to bring our digital capability in-house and create value

for our customers, colleagues and business.

Our digital journey

Over

100 engineers across

digital and data

80%

of digital testing automated

17new mobile apps

launched

November 2017

In-house cloud-based digital platformLaunched digital platform in the public cloud on Microsoft Azure. Agile and cost-efficient infrastructure with limitless scalability. Launched opus on the new cloud platform.

October 2017

Digital technology delivery fully agileThree agile scrum teams delivering digital acquisition, servicing and mobile solutions.

December 2017

Robotic Process Automation Centre of Excellence establishedSignificant operational efficiency benefits for back office processes.

April 2018

Mobile apps built and managed in-houseAndroid and iOS apps for all of our Own-brand and Co-brand products.

Migrated e-servicing in-house

Our digital journey with Sanjay SharmaContinued


Over

1.4m mobile app downloads

to date

2.4m (50%)of customers registered for

e-servicing

Product launch time reduced by over

50%

May 2018

Own-brand acquisition migrated to new digital platformaqua and marbles migrated to new digital platform.

Fluid launched on new platform

August 2018

Open APIs for retailer integrationCompletely digitally enabled new product offering rapid launch and retailer brand-led customer experience.

First end-to-end agile teamOwn-brand acquisition pilot fully autonomous agile squad launched.

Data science-led affordability assessment

September 2018

In-house cloud hosted data lakeLaunched data lake in public cloud in Amazon Web Services that will give us significant advantages in data analytics.

October 2018

NewPay launched with first retail partnerProduct was launched with our first partner, Unshackled.com.

Imperial College Data Science Society sponsorshipAttracting top data and technology talent.

December 2018

Data science-led retail analyticsProprietary targeting model offering sophisticated retail offer marketing.

First internal hackathon

February 2019

Chatbot launchedFirst step in next generation process automation, allowing seamless customer experience through their channel of choice.


Our digital journey with Sanjay SharmaContinued

Following the success of migrating, integrating and retooling the Co-brand business, Sanjay has led our transformation and digital initiatives supported by colleagues who are empowered to make decisions and thus deliver results.

Q: What is your digital vision for NewDay?

A: It’s not just about successfully launching new products. It’s bigger. It’s about building an unparalleled, self-sufficient digital engineering capability in-house, so that we are completely future-proofed to deliver platforms that enable new products, capabilities, innovations and apps – anticipating tomorrow’s needs at a pace that is more associated with the world’s leading tech companies.

Investing in this vision allows us to continue to deliver superior customer propositions, drive value creating services to our retail partners and serve our customers through omni-channel service capability, whilst achieving a lower, more competitive cost base.

Q: How can you realise that ambition to become the leading digitally enabled consumer finance provider in the UK?

A: We need to make sure we are one step ahead of everyone else. We want to enable frictionless integration with any device, any channel, any product or third party. This will allow us to move at a pace, which will give us the ability to react to customer insight and demand as well as potentially disrupting traditional business models and institutions.

Realisation of our vision will be delivered by our internal team of engineers, data scientists, designers and product managers. To achieve our vision, we have established six imperatives for the next phase of our digital journey: scaled agile platforms and engineering; advanced data and analytics; automation and operational excellence; digital customer journey; agile organisation and culture; and innovation at scale. This provides a structure around our digital transformation and a framework to monitor our progress.

Q: What progress have you made since embarking on this journey?

A: We’ve made rapid progress since embarking on this journey in 2017 and it’s a key part of delivering our Value Creation Plan.

We now have a permanent team of over 100 engineers and two groups of data scientists. We now service our Own-brand acquisition and all digital channels in-house. In early 2018, we launched new mobile apps across all our brands and continue to launch new features on our apps with 0.7m downloads during 2018. These channels and apps are running on our modern digital platform. Similarly, we have already built technology for a data lake and now are in the process of migrating customer data to the data lake. This will host all of our customer data giving us the opportunity to serve our customers better. Both the digital platform and data lake are fully automated, use some of the best technologies now available and give us all the advantages of the public cloud in terms of scalability, performance and security.

Our data scientists have built new models using machine learning to improve retailer campaigns, providing much deeper insights, and are now working on a number of strategy tests to improve our underwriting decisions.

We are using robotics to digitalise our back office processes and are continuing to scale the digitalisation in this and other areas. We have extended it to Intelligent Automation using artificial intelligence for Chatbots and are now experimenting with Voicebots.

In our development and data teams we are already operating in an agile manner and we are now looking to extend agile practices across other parts of the organisation.

We have been running hackathons, both internally and with our partners, and are seeing some amazing ideas to transform our customer and employee experience. Our engineers and scientists are regularly speaking at industry gatherings and meet-ups.


Agile platforms and engineering Digital and data platform micro-services architected and API-enabled (Application Programme Interface) and fully cloud-native.

Advanced data and analytics Improved underwriting decisions, and predictive models for retailers through data science leveraging data lake capability.

Automation and operational excellenceAutomate the back office with robotics, customer interactions with Chatbots and Voicebots using artificial intelligence and natural language processing.

Digital customer journeyUnderstand where customer processes now need human intervention and re-engineering them to fully digitalise.

Scaled agile organisation and cultureA bedrock of the digital approach, moving from traditional methods to an agile model across the whole organisation.

Innovation at scaleOur ultimate goal: transformed culture towards more experimentation and learning from failures as well as successes.

As a result of our successes, our customers are happier than ever with our apps and website. Since re-launching e-servicing and apps our Net Easy Score for online servicing, which measures how easy it is to navigate through our apps or websites, has gone up 14 points from +54 to +68.

Our internal digital platform now allows us to launch products much quicker. We recently launched a new digital product, NewPay, with our retail partner Unshackled.com, which offers customers different ways to pay (instalment, revolving or credit offers) all on a single account.

I’m also proud that we were recently listed as finalists in three categories at the European Software Testing Awards, recognising the progress we have made in embracing automated testing across our customer onboarding and self-service application development processes.

Our digital imperatives

Advanced data and analytics

Digital customer

journey

Automation and operational

excellence

Agile platforms and

engineering

Scaled agile organisation and culture

Innovation at scale

NewDay digital

imperatives

A true digital platform businessIn 2018, we have built a true digital platform that has the potential to unlock significant value for our customers, colleagues, community and business.


“ Launching our partnership with Amazon in 2017 was a great milestone. Together we have delivered a seamless end-to-end solution from the point of application and instant spend approval through to rewards, loyalty points and e-statements. During 2018, we have seen significant growth in this business as a result of the value it offers to customers”

Ian Corfield Chief Commercial Officer

Amazon chose NewDay to act as their UK credit card partner to meet Amazon’s customer-centric vision: making the checkout experience even more frictionless and rewarding by developing an Amazon-branded credit

card and associated loyalty scheme to retain, surprise and delight customers.

Delivering an end-to-enddigital solution

Our joint vision


Our bespoke solution for Amazon offers three credit products:

Winner at the 2019 Card and Payment Awards

What we delivered

A seamless customer journeyTogether we created a frictionless customer experience that guides the customer through the credit application and directly back into the purchase journey. NewDay’s technology enabled Amazon to enhance their customer engagement with an attractive and rewarding credit card programme whilst maintaining the simple flow of their purchase process.

Innovative product suite

End-to-end digital

Amazon ClassicA card designed for customers new to credit, the Classic allows customers who use their card responsibly over 12 months an upgrade to the next card up – a Platinum.

Amazon PlatinumThis card offers rewards for spending on Amazon and in other shops; it generates points and offers that can be redeemed on Amazon.

Amazon Platinum with Prime rewardsThe Platinum card with Prime rewards offers much higher reward rates and exclusive offers and is designed around Amazon’s most loyal customers.

A seamless and highly responsive journey for customers. Upon credit approval, a welcome Amazon.co.uk gift card is automatically loaded into a customer’s amazon.co.uk account and is available to use immediately.

A digital loyalty programme allowing customers to collect points wherever they shop. Customers can track their points and manage their account in our mobile app or online account management portal.

An end-to-end digital solution from application through to delivery of rewards, loyalty points and e-statements.• 2018 finalist

Best Achievement in Payments Processing (NewDay with Amazon and First Data – Amazon Platinum Mastercard integrated wallet and instant spend)

• 2019 winner Best Consumer Credit Card or Credit Facility (NewDay for Amazon Platinum Mastercard)


“ Understanding our customers and colleagues is key to great customer service at NewDay.

We do that by listening intently to our customers through multiple sources of feedback, then acting to fix the things that matter most”

Driving high service standards for our

customers

Since she joined NewDay four years ago, not only has our Director of Customer Service and Service Delivery delivered an associate satisfaction rating of 9.1 out of 10 as voted by our customers, a consistent transactional Net Promoter Score (NPS) of 64, but this year also led the team to winning a trio of awards at the European Contact Centre and Customer Service Awards (ECCCSA).

Fran ReaDirector of Customer Service and Service Delivery

Q&A with Fran Rea


Q: What does the Manifesto mean for Customer Services?

A: Our Manifesto underpins the way we do business. For our customers, this means providing them with the best products and features to meet their needs, and for our colleagues our Manifesto turns their voices into actionable outcomes so they are empowered to own and drive our vision.

We listen to our customers through both voice and digital channels: capturing feedback through the Voice of our People, NPS survey programme, complaints insight, Trustpilot reviews of our apps and our Brand Ambassador programme – a crowd servicing platform where customers can trial new digital features.

Q: The team recently won the Gold award for Best Cross-Functional Customer Experience Initiative at the ECCCSA. Can you tell us about the award-winning Customer Issue Resolution Programme (CIRP)?

A: The CIRP gives us a single view of our customer journey where issues are grouped for customer frustration. We prioritise the issues for resolution and bring in subject matter experts and architects to design and implement solutions.

Our objective is to address issues that matter most to our customers. We want to make our products easy to use and effortless. This might mean improving our customer experience journeys and functionalities for product design, or avoiding confusion in our communications.

In the first year, 96 issues (being just over 60%) have been resolved and a further 28 are currently being progressed. The approach is simple but effective and that is really showing in our results.

We recently changed our Direct Debit setup, reducing it to just six days following customer feedback and another initiative that we are currently working on is a way that customers can block certain types of spending categories on their card.

Q: We have heard about NewDay Way, which is your Operational Excellence programme. Can you tell us more about it?

A: NewDay Way is our version of lean process management and underpins the delivery of our Manifesto commitments. The system is comprised of five core tools, which are geared towards improving standard work and continually delivering better results and our colleagues play a key part in that.

Q: What are the drivers behind your success?

A: I think it’s a combination of delivering operational excellence and digital innovation.

By putting in place a mindset for my team we prevent unnecessary contacts through fixing the cause of the problem and we ensure customers get the support they need. No-one is judged on how long they talk on the phone with customers – it is about doing things right first time.

We are also very streamlined, with leading technology solutions, including efficient desktop interfaces for staff to deal with the majority of calls on one screen and a new communications platform. We have 2.4m customers registered for e-servicing and have already had over 1.4m downloads of our mobile apps.

Our apps enable customers to self-serve and manage around their busy lifestyles. Over 95% of our transactions are conducted either digitally or via Interactive Voice Response. We used customer feedback to develop and design our e-servicing and app features and saw our Net Easy Score for online servicing increase by 14 points to +68. We focus on NES because it’s a measure that considers the effort for a customer to have their query resolved and is key to driving a seamless, frictionless service.

Q: What is your vision for the future?

A: We have already made good progress but there is more we can do to ensure our customers’ needs are served through their channel of choice. Going further with our digital adoption is about giving both our customers and colleagues the tools to facilitate a seamless and frictionless experience. We are building a common digital servicing platform which will support all channels and will provide a true omni-channel capability. We are introducing new channels with our Chatbots and chat team and are currently working on a proof of concept with a Voicebot.

71% of our collections are paid digitally

Net Easy Score

Our NES for online servicing increased by 14 points with the introduction of our new e-servicing and apps

17 customer processes fully automated

We are also introducing a Digital Heroes programme to help customers understand all the functionality available to them through our digital servicing, whilst also being there for them on the phone when needed. We will continue to focus on NES across all our channels in 2019 and beyond.


Revolving credit

NewDay

£2.6bn

Total credit cards

£73bn1

receivables

Instalment lendingUnsecured

personal loans

£26bn7

new lending

PoS financing

£6bn2NewDay

£67m

Retail spend

Total retail spend (£bn)3

10% increase in online spending4

2016 2017 2018

52bn60bn

68bn

299bn306bn

312bn

Online Offline

NewDay spend (£bn)

36% increase in online spending4

2016 2017 2018

0.9bn

1.2bn

1.7bn

2.4bn 2.7bn

3.3bn

Online Offline

Market opportunityWe operate within the unsecured consumer credit market,

specialising in serving near-prime customers and partnering with retailers to serve their customers (both prime and near-prime).

The unsecured consumer credit landscape

£216bn1

unsecured consumer credit market

We offer a range of revolving credit and instalment-based products to serve the specific needs of prime and near-prime customers across our Own and Co-brand businesses. We distribute through direct channels, third party aggregators and in our Co-brand business though retail partners, both online and offline.

Prime

Near-prime

Sub-prime

Direct (online and offline)

Aggregators (online)

Partnerships (online and offline)

Credit cards / store cards

Unsecured personal loans

Cardless credit accounts

Point of sale (PoS) financing

Overdrafts

Catalogue credit

Guarantor loans

Payday loans

Other high cost credit products

Products (selected) Customer type Distribution channels

NewDay Products not offered by NewDay (other) Products not offered by NewDay (suitable for customers with higher risk profiles)

With 4% of the total UK credit card receivables, there is a sizeable market opportunity for NewDay.

In addition to £73bn credit card receivables balances, there is an emerging cardless revolving credit segment not captured in this number.

There are 59m credit cards in issue in the UK6, of which around five million are NewDay cards.

NewDay balances currently represent less than 1% of total UK instalment based lending.


NewDay

107m

Total

39bn5transactions

Total payment volumes

Payment trends The use of cash and cheques is declining, whilst contactless technology has accelerated the shift to cards, particularly for low-value purchases. Online shopping penetration has been steadily growing and online retailers continue to take a greater share of wallet.

Payment volumes by type5

Credit

3bn 13%Debit

13bn 14%Cash

13bn 15%Other

10bn

35% of card payment volumes were contactless in 20176.

78% of adults reported holding at least one contactless card in 20176.

NewDay has two distinct areas of expertise

Near-prime lending (cards and loans) NewDay serves 1.4m near-prime customers in the UK and processed £2.1bn spend (47m transactions) in 2018

• Near-prime customers are typically employed but may have a limited credit history or past adverse credit events which prevent them from accessing credit from mainstream lenders

• There is a natural churn of customers in and out of near-prime, which has grown over recent years driven primarily by improving credit profiles of sub-prime customers

Retail transaction finance (cards, Point of Sale financing and cardless credit accounts with retail partners) NewDay serves over 3m UK retail customers and processed £2.9bn spend (60m transactions) in 2018

• Offering a credit product combined with rewards helps retailers build brand loyalty. Department stores, supermarkets and fashion outlets are the most popular providers of co-brand credit propositions

• Retail transaction finance has benefitted from increased e-commerce activity and technological change. Card payment volumes surpassed cash for the first time in 2017, and are expected to account for 50% of all payment volumes by 2020 (versus 42% in 2017)6

• Technology has not only driven shifts towards cards and online spending, but has opened up an opportunity to serve smaller retailers more cost-efficiently through products such as NewPay

1. Bank of England as at December 2018.2. Apex Insight – UK Point of Sale Finance Market Insight Report 2019. Market size

based on estimate for 2018.3. Office for National Statistics.4. Based on CAGR 2016 to 2018.5. UK Finance (www.ukfinance.org.uk) – UK Payment Markets 2018. Volumes based

on 2017 data. Growth rates based on 2016 to 2017.6. UK Finance (www.ukfinance.org.uk) – UK Card Payments 2018.7. Management estimate based on various sources.


Business model

Trustedbrands built onour Manifesto

Long-term strategic relationships with retail partners

World-class digital platform and technology partners

Understanding and engagement with our customers

Credit and collection capabilities

The strength of our Own and Co-brands gives customers confidence in what we stand for.

We are a trusted partner with some of the largest retail brands in the UK and build long-term relationships to support their customers’ credit journeys and help retailers profitably grow their business.

To continue to deliver a superior and competitive service to our customers, we need to draw on our excellent digital engineering capability built on an infrastructure supported by leading technology partners.

Strong and long-term relationships together with a deep understanding of customer behaviour have resulted in embedded value and predictable financial growth.

Our credit risk and collections expertise has been developed and matured over nearly 20 years with the management team’s experience proven through various credit cycles.

How we deliver our purposeOur purpose is to help people be better with credit.

By offering consumer credit products through direct channels, aggregators and partnerships, and by lending and collecting responsibly, guided by our Manifesto, we help people in the following ways:

• offering access to credit by responsibly saying “yes” to more prime and near-prime customers;

• extending affordable credit lines to customers and pricing appropriately for risk;

• meeting customer needs with a broad range of products and tools to manage their credit;

• supporting customers on their credit journeys; and

• rewarding positive credit behaviours and brand loyalty.

Appealing to attractive market segmentsWe focus on providing propositions that require specialist skills aligned with our core competencies and competitive strengths. We offer a suite of compelling products that allow us to serve our customers throughout their credit journey.

Credit and collections expertiseOur proprietary models have been developed specifically for our target customers enabling us to make better credit decisions. Lending responsibly is our overarching commitment.

DistributionThrough both direct marketing and partnerships, we reach an extensive customer base including our retailers’ most loyal customers and those who are not able to access credit from mainstream providers.

Leading customer serviceWe offer omni-channel 24-hour support. In line with our Manifesto, we are committed to continuous improvement and engaging in ongoing dialogue with customers, with real-time feedback recorded through NES and transactional NPS scores.

Leveraging technology and dataTogether with our customer insight, our in-house technology capabilities and agile operating model enable our data scientists and engineers to build better solutions faster and drive digitisation in our business.

How we create value

Our competitive strengths


Access to diversified funding

Skilled, experienced colleagues

A robust and diversified funding base with trusted funding partners offers us flexibility and a solid basis for continued growth and the ability to weather market conditions.

Our dedicated colleagues are the key to the delivery of our customer and retail propositions as well as our continued product and digital innovation.

Stakeholder benefits

Our business model has delivered sustainable, long-term value for all of our stakeholders.

Operating efficientlyOur continued focus on being digital by default allows us to operate at a lower cost-income ratio and our leading digital platform offers us scalability.

Funding Through our established base of funding partners combined with sophisticated securitisation vehicles, we access a broad range of funding opportunities domestically and internationally and deliver both funding capacity and a low cost of funds.

CustomersResponsibly saying “yes” to more customers, delivering easy-to-use products and supporting our customers’ credit journeys.

Retail partnersSeamless integration into our partners’ customer experiences and supporting brand loyalty to drive higher sales, increased basket size and repeat business.

£5bnspend financed

+64 transactional NPS

1.1m customers’ credit behaviour scores improved

£751mconsumer spend with Co-brand partners

8xaverage repeat purchases

ColleaguesEngaging and highly motivated environment, attractive career paths and benefits and empowerment to own and drive our vision.

CommunityRegular engagement with the technology community, partnering with Family Action, promoting financial inclusion, and actioning environmentally friendly practices.

75%employee engagement

116internal job moves

£51,000donated to charity in 2018 with a further

£125,000 donated in January 2019

InvestorsLeveraging our technology platform and credit expertise allows us to deliver predictable, sustainable and attractive returns.

RegulatorsActive engagement and alignment of our approach to meet regulatory requirements and staying true to our Manifesto.

£82madjusted EBITDA

£640m asset-backed term debt issued, including US$243m issued in the US market

31.8% adjusted cost-income ratio

£41mfree cash flow for Senior Secured Debt interest

£6mOver £6m invested in our programme of support for customers to avoid or address being considered in persistent debt


Our strategy for growthHow we have delivered our vision this year and our future priorities

“ What has got us to where we are today needs to continually evolve in an increasingly digital and competitive landscape, with the goal of becoming the leading digitally enabled consumer finance provider in the UK”

James CorcoranExecutive Director and Chief Executive Officer

Evolving with our customers to address changing needs

2018 progress• Delivered receivables growth in each of

our three businesses• Increased the proportion of customers

digitally sourced• Increased the proportion of spend

through digital channels• Launched Fluid and NewPay

2018 performance• 18% Own-brand closing receivables

growth• 21% Co-brand closing receivables

growth• Unsecured Personal Loans business

scaled to £66m closing receivables• 63% of originations digitally sourced

compared with 51% in 2017• 34% of spend through digital channels

compared with 31% in 2017

Future priorities• Continue to serve our customers’

needs and increase our market share• Scale Fluid and NewPay• Launch Young Fashion proposition

with Miss Selfridge, Topshop and Topman

• Continue to innovate products and features which meet our customers’ changing needs

Driving high standards for our customers, colleagues and the community through our Manifesto

2018 progress• Brought our Own-brand acquisition

and digital servicing in-house which has allowed us to better respond to our customers’ needs

• Launched a range of apps to help our different sets of customers better manage their finances

• Continued focus on improving customer journeys and outcomes

• Rolled out a programme to protect customers from being considered in persistent debt

• Continued making NewDay a great place to work, attracting top talent and empowering our colleagues to deliver our vision

• Continued support to our chosen charity partner, Family Action

2018 performance• 0.7m app downloads compared to

0.3m in 2017• Transactional Net Promoter Score

consistent with 2017 at +64 (2017: +65)• 1.1m customers’ credit behaviour

scores improved• 1-star accreditation from Best

Companies, which compiles the Sunday Times Best Place to Work For lists

Future priorities• Focus on continuing to improve our

customer experience and enhancing value for our retail partners

• Keeping our Manifesto real, visible and tangible for our colleagues so they are empowered to own and drive our vision

• Active involvement in community conversation around the role of credit in financial inclusion

OPPORTUNITY ENABLERS



2018 progress• Built our permanent team of engineers

and data scientists, and brought Own-brand acquisition and servicing of all digital channels in-house

• Built technology for a modern data lake to host all customer data

• Digitalised back office processes using Robotic Process Automation

• Regular hosting, attending and speaking at industry gatherings and meet-ups as well as hackathons

• Launched our digital product, NewPay

2018 performance• Increasing acceptance rates with no

change in risk appetite – 48% of applications accepted in 2018 compared with 44% in 2017

• Net Easy Score for online servicing improved to +68 from +54 following the launch of our new e-servicing and apps

• 17 customer processes fully automated

• 80% of digital testing automated• Product launch time reduced by

over 50%

Future priorities• Become the leading digitally enabled

consumer finance provider in the UK • Continue to launch new app features

and innovate through digital transformation

• Leverage data to bring deeper insight to our retail partners and credit decisions

• Leverage Intelligent Automation for Chatbots and Voicebots

• Migrate all customer data to the data lake


2018 progress• Opened new customer acquisition

channels to attract customers• Offered our customers more ways

to pay • Launched a new partnership with

Unshackled.com – our launch partner for NewPay

• Continued to scale Amazon, TUI, Fluid and Unsecured Personal Loans

2018 performance• 456,000 new Own-brand accounts

in 2018• 733,000 new Co-brand accounts

in 2018• 15,000 new Unsecured Personal Loans

accounts in 2018• 84% of 2018 year end receivables

relate to pre-2018 originations

Future priorities• Continue to improve benefits for

customers and retail partners• Strengthen our long-term customer

relationships• Maintain our position as a leading

issuer of credit in the near-prime and co-brand markets

• Further growth into the digital revolving credit and point of sale financing markets with NewPay

• Partner with new retailers


2018 progress• Continued controlled growth

delivering double digit growth in receivables and total income

• Delivered a strong increase in cash flow• Secured new funding facilities and

diversified our funding strategy to include US investors

2018 performance• Total income growth of £92m (19%)

in 2018• Cost-income ratio reduced by 1.6

percentage points to 31.8% excluding an additional £18m of investment costs to deliver our Value Creation Plan and interventions aimed at customers considered in persistent debt

• Adjusted EBITDA of £82m in 2018. On a like-for-like IAS 39 basis, adjusted EBITDA would have been £112m (2017: £114m) despite incurring the additional £18m of investment costs noted above. The statutory loss before tax of £7m (2017: loss of £27m) includes a number of items, detailed on page 35, which do not represent the Group’s underlying performance

• Free cash flow available for Senior Secured Debt interest increased by £47m to £41m

• £640m new funding facilities, including US$243m raised in the US

Future priorities• Maintain our strong, diversified capital

base and liquidity profile• Continue to deliver strong shareholder

returns through controlled growth• Drive cost-efficiencies through digital

transformation

ENABLERS OUTCOMES


We use a number of financial and non-financial key performance indicators (KPIs)

to review our performance and assess progress towards achieving our vision

and strategic objectives.

Key Performance Indicators

New account originations 1.2m(2017: 1.1m)

Definition: The number of new customer accounts originated in the period.

Performance: We continued to grow new account originations with Own-brand welcoming 456,000 new customers and delivering year-on-year growth across all brands and Co-brand opening 733,000 new accounts with 42% originated online. Unsecured Personal Loans also welcomed 15,000 customers. 1,

021,

00

0 1,09

2,0

00

1,20

4,0

00

2016 2017 2018

Transactional Net Promoter Score

+64(2017: +65)

Definition: Average customer feedback score when rating their experience on an interaction with us.

Performance: : We continue to be ranked in the top quartile of NICE Ltd transaction NPS rankings, which benchmark results across several industry sectors. Since launching our new e-servicing and apps we have also seen our Net Easy Score for online servicing increase from +54 to +68, reflecting how easy customers find it to navigate our apps or websites.

+65

+65

+64

2016 2017 2018

Consumer spend through digital channels

£1.7bn(2017: £1.2bn)

Definition: The amount of spend on customers’ cards transacted through a digital channel.

Performance: In line with changing consumer spending behaviour and pursuant to our digital strategy, we continue to see significant increases in the amount of customer spend that is generated through digital channels.

£0.9

bn £1.2

bn

£1.7

bn

2016 2017 2018

Closing receivables

£2,623m(2017: £2,164m)

Definition: Gross customer balances outstanding at year end.

Performance: Growth in new account originations, our ‘low and grow’ credit limit strategy and the introduction of new brands and products supported our growth in receivables. Group receivables grew by 21% to £2,623m (2017: £2,164m) with strong growth delivered across each portfolio (Own-brand 18%, Co-brand 21% and Unsecured Personal Loans 298%).

£1,8

15m

£2,1

64m

£2,6

23m

2016 2017 2018


Risk-adjusted margin* 12.4%(2017: 14.7%)

Definition: Risk-adjusted income (total income less impairment) (£289m)/average gross receivables (£2,325m).

Performance: Our risk-adjusted margin decreased to 12.4% (2017: 14.7%), predominantly driven by the increase in the impairment rate as a result of the move to IFRS 9 and higher Own-brand charge-offs , along with a marginal increase in cost of funds following the expansion of our variable funding note capacity in December 2017 pursuant to our Value Creation Plan.

16.3

%

14.7

%

12.4

%

2016 2017 2018

Underlying cost-income ratio

35.8%(2017: 34.6%)

Definition: Underlying costs (servicing, change, marketing and partner payment costs, collection fees, salaries, benefits and overheads) (£211m)/total income (£591m).

Performance: The underlying cost-income ratio increased to 35.8% (2017: 34.6%) as a result of £18m of additional investment costs to deliver our Value Creation Plan and interventions aimed at customers considered in persistent debt. Excluding these additional costs the underlying cost-income ratio improved by 1.6 percentage points to 31.8%, evidencing the scalability of our business model.

39.0

%

34.6

% 35.8

%

2016 2017 2018

Adjusted EBITDA*

£82m(2017: £114m)

Definition: Risk-adjusted income (£289m) less underlying costs (£211m) adjusted for depreciation and amortisation (£4m).

Performance: Adjusted EBITDA reduced to £82m (2017: £114m) with strong receivables growth generating a 19% increase in total income offset by an increase in the impairment charge (as noted above) and higher investment costs to deliver our Value Creation Plan and interventions aimed at customers considered in persistent debt. Excluding additional impairment recognised under IFRS 9, adjusted EBITDA would have been £112m despite absorbing £18m of additional investment costs. The statutory loss before tax of £7m (2017: loss of £27m) includes a number of items, detailed on page 35, which do not represent the Group’s underlying performance.

£96m £1

14m

£82m

2016 2017 2018

Employee engagement 75%(2017: 77%)

Definition: Results of our most recent Pulse engagement survey.

Performance: Colleagues continue to be highly engaged. Our engagement index at 75% is in line with prior years and 73% of employees feel that they are provided with the training and development required to perform their role.

76% 77

%

75%

2016 2017 2018

Impairment rate*

13.0%(2017: 11.3%)

Definition: Impairment (£302m)/average gross receivables (£2,325m).

Performance: Our impairment rate increased to 13.0% (2017: 11.3%) driven by the accelerated impairment recognition requirements of IFRS 9 and higher Own-brand charge-offs. Own-brand charge-offs increased to 15.7% (2017: 13.9%) driven by a one-off statementing issue, a shift in mix towards open portfolios, growth in insolvency charge-offs and underlying performance. See page 39 for further details.

10.0

% 11.3

% 13.0

%

2016 2017 2018

Free cash flow for Senior Secured Debt interest

£41m(2017: (£7m))

Definition: Adjusted EBITDA (£82m) adding back the movement in the impairment provision during the year (£60m) less changes in working capital, PPI provision utilisation, capital expenditure, tax expense and exceptional costs (£34m), less investment in receivables (£471m), plus net financing cash flows (£403m).

Performance: Our business model continues to be cash generative with free cash flow available for Senior Secured Debt interest increasing by £47m to £41m (2017: (£7m)) despite investing an incremental £18m of costs to deliver our Value Creation Plan and interventions aimed at customers considered in persistent debt as well as £20m of PPI provision utilisation. Overall cash increased by £10m to £134m (2017: £124m).

£X

m

(£7m

)

£41m

2016 2017 2018

Adjusted EBITDA on a like-for-like IAS 39 basis

£112m(2017: £114m)

Definition: Adjusted EBITDA (£82m) adding back the additional impairment recognised under IFRS 9 compared to IAS 39 (£30m).

Performance: On a like-for-like IAS 39 basis, adjusted EBITDA would have been £112m (2017: £114m) despite incurring an additional £18m of investment costs to deliver our Value Creation Plan and interventions aimed at customers considered in persistent debt, reflecting the scalability of our business model.

£96m £1

14m

£112

m

2016 2017 2018

Carbon footprint

928 tonnes of CO2e(2017: 1,087 tonnes of CO2e)

Definition: The amount of scope 2 (purchased electricity) and scope 3 (employee rail travel between our two sites) CO2 Greenhouse Gas emissions consumed by the business during the year.

Performance: We have been successful in continuing to reduce our carbon footprint, and reducing our environmental impact remains a key focus. This year we were awarded two Green Apple awards for ‘Best Green practices for waste, recycling and general environmental practices’ and as ‘Future resources innovation champions’ as well as receiving a silver award for ‘Environmental best practice’.

1,0

87t

1,0

87t

928t

2016 2017 2018

* The impairment charge for 2016 and 2017 is calculated in accordance with IAS 39. The impairment charge for 2018 is calculated in accordance with IFRS 9.


Financial review

• Adjusted EBITDA of £82m (2017: £114m). On a like-for-like IAS 39 basis, adjusted EBITDA would have been £112m despite incurring an additional £18m of investment costs to deliver our Value Creation Plan and interventions aimed at customers considered in persistent debt

• Statutory loss before tax of £7m (2017: loss of £27m)• Free cash flow available for Senior Secured Debt interest

increased to £41m (2017: (£7m))• Group receivables surpassed the £2.6bn milestone and

grew by 21% to £2,623m (2017: £2,164m) with strong growth across all portfolios

• Total income grew by 19% reflecting the strong receivables growth

• The impairment rate increased to 13.0% (2017: 11.3%) predominantly due to the accelerated impairment recognition under IFRS 9 and higher charge-offs on the Own-brand portfolio

• Excluding the additional £18m of investment costs, our underlying cost-income ratio improved by 1.6 percentage points to 31.8%

• We refinanced all debt maturing in 2018 raising £640m, extended maturities on £1.2bn of our variable funding notes and completed our first two US capital market issuances

• We had £0.9bn of headroom on funding facilities for future growth and an average funding maturity of three years

2018 highlights

“ In line with our strategic objectives, we continued to deliver strong controlled growth reporting receivables growth of 21%. Adjusted EBITDA of £82m was delivered alongside generating £41m of free cash flow available for Senior Secured Debt interest and raising £640m of asset-backed term debt”

Paul Sheriff Chief Financial Officer


Own-brand receivablesCo-brand receivables Unsecured PersonalLoans receivables

2016 2017 2018

£1,093m

£722m

£1,326m

£821m

£17m

£1,566m

£992m£66m

£1,815m

£2,164m

£2,623m

£992m

Own-brand receivablesCo-brand receivables Unsecured PersonalLoans receivables

2016 2017 2018

£274m

£412m

£499m

£591m

£139m

£351m

£148m

(£1m)

£415m

£171m

£6m

£nil

In 2018, we continued to deliver strong receivables growth across all our portfolios which drove a 19% increase in total income. However, this was offset by an uplift in the impairment charge primarily driven by the accelerated impairment recognition requirements of IFRS 9 as well as underlying performance. We also invested £18m of additional change costs largely driven by the delivery of our Value Creation Plan (which aims to drive sustainable long-term growth) and costs associated with the delivery of interventions aimed at customers considered in persistent debt. This resulted in adjusted EBITDA for the year of £82m (2017: £114m). On a like-for-like IAS 39 basis, adjusted EBITDA was £112m after absorbing the £18m incremental investment costs noted above.

We reported a statutory loss before tax of £7m for the year ended 31 December 2018 (2017: loss of £27m). The statutory loss before tax includes a number of items, explained below, which do not represent the Group’s underlying performance:

2018 £m

2017 £m

Statutory loss before tax (6.9) (27.0)Pro forma adjustments1 – 10.3

Pro forma loss before tax (6.9) (16.7)Senior Secured Debt interest and related costs 33.4 32.1Fair value unwind 1.6 1.9Interest on shareholder loans – 30.5All colleague acquisition bonus – 3.2Acquisition related expenses – 10.7Other costs 0.2 2.9Depreciation and amortisation including amortisation of intangibles arising on the Acquisition 53.9 49.8

Adjusted EBITDA 82.2 114.4Additional impairment recognised under IFRS 92 29.7 –

Adjusted EBITDA on a like-for-like IAS 39 basis 111.9 114.4

1. Pro forma adjustments reflect the consolidated performance of NewDay Group Holdings S.à r.l. for the period from 1 January 2017 to 25 January 2017, being the period before NewDay Group (Jersey) Limited acquired NewDay Group Holdings S.à r.l. (the Acquisition), which is not consolidated into the statutory results.

2. On 1 January 2018, we adopted IFRS 9 for the purposes of impairment provisioning and recorded a transition adjustment in retained earnings on adoption of £213.1m. The comparative information for 2017 has not been restated, therefore adjusted EBITDA has been presented on an IAS 39 basis for comparability.

Group receivables up 21%

Total income up 19%

Portfolios


Financial reviewContinued

Senior Secured Debt interest and related costs includes the interest charge and other costs associated with the issuance and servicing of £425m Senior Secured Notes by NewDay BondCo plc on 25 January 2017 (the Senior Secured Debt) and the Super Senior Revolving Credit Facility entered into by the Company on 25 January 2017 (the Revolving Credit Facility).

Fair value unwind reflects the amortisation of fair value adjustments on our acquired portfolios and debt issued.

Interest on shareholder loans represents interest accrued up to 30 June 2017 at 12% per annum on: (i) a £529m intercompany loan from Nemean MidCo Limited (the Company’s immediate parent); and (ii) £65m loan notes issued by the Company and held by Nemean MidCo Limited. With effect from 1 July 2017, the terms of these shareholder loan agreements were amended resulting in a change in classification from liabilities to equity instruments on the balance sheet. The interest accrued up to 30 June 2017 was recorded as a capital contribution following the amendment in terms and no further interest expense will be charged to the income statement.

The all colleague acquisition bonus relates to a bonus paid to employees and certain Directors in connection with the completion of the Acquisition.

Acquisition related expenses in 2017 represented transaction costs, comprising due diligence, legal, advisory and tax fees, associated with the Acquisition.

Other costs in 2017 largely consisted of expenses related to the development of the Value Creation Plan which we have created to deliver the long-term strategy agreed with our shareholders. The ongoing Value Creation Plan implementation costs, totalling £17m in 2018 (2017: £6m), are included within adjusted EBITDA. Additional implementation costs are expected to be incurred in 2019 and beyond.

Depreciation and amortisation includes £50m (2017: £46m) related to the amortisation of the purchase price that was attributed to intangible assets arising on completion of the Acquisition.

IFRS 9 ‘Financial Instruments’We transitioned to IFRS 9 on 1 January 2018 when it replaced IAS 39. Our IFRS 9 implementation project was managed by an executive steering group and macroeconomic panel that approved design and build decisions, with oversight from the Board Audit Committee.

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit loss’ model. Instead of recognising an impairment provision when there is objective evidence of impairment, for example a missed payment, the new standard requires an impairment provision to be recognised on origination of a credit card agreement or loan, based on its anticipated credit loss, thus significantly changing the timing of recognition of impairment on customer receivables.

Upon adoption on 1 January 2018 there was a one-off adjustment to loans and advances to customers and retained earnings of £213m, increasing the coverage ratio from 6.1% under IAS 39 to 16.0% under IFRS 9 at the date of transition. Split by credit card portfolio, the one-off adjustment for Own-brand, Co-brand and Unsecured Personal Loans was £190m, £22m and £1m respectively. This represents an increase in the Own-brand coverage ratio from 9.0% to 23.3% on transition, an increase for Co-brand from 1.5% to 4.3% on transition and an increase for Unsecured Personal Loans from 3.6% to 10.9% on transition.

Given the strong growth across our portfolios, there is likely to be an ongoing delay in the recognition of profits as a result of impairment provisions being recognised upon origination. It is important to note that IFRS 9 only changes the timing of profit recognition; our business model, charge-offs and cash flows are unaffected by the change in accounting standard and the ultimate profitability of each agreement will be the same under both IAS 39 and IFRS 9. For further details of our accounting under IFRS 9 see note 2 of the Financial Statements.


Management basis income statement

2018 2017

£m Own-brand Co-brand

Unsecured Personal

Loans Group Own-brand Co-brand

Unsecured Personal

Loans Group

Interest income 406.5 165.2 7.7 579.4 338.3 142.7 0.9 481.9Cost of funds (34.3) (15.8) (1.8) (51.9) (26.7) (13.2) (0.7) (40.6)

Net interest income 372.2 149.4 5.9 527.5 311.6 129.5 0.2 441.3Fee and commission income 42.3 21.3 – 63.6 39.1 18.3 – 57.4

Total income 414.5 170.7 5.9 591.1 350.7 147.8 0.2 498.7Impairment losses on loans and advances to customers1 (260.8) (33.3) (7.7) (301.8) (194.7) (20.7) (0.8) (216.2)

Risk-adjusted income/(expense) 153.7 137.4 (1.8) 289.3 156.0 127.1 (0.6) 282.5Servicing costs (36.9) (48.9) (0.8) (86.6) (32.9) (46.8) (0.7) (80.4)Change costs (12.7) (9.5) (1.8) (24.0) (10.4) (4.9) (0.7) (16.0)Value Creation Plan implementation costs (10.2) (6.4) (0.2) (16.8) (4.0) (1.7) – (5.7)Marketing and partner payments (18.2) (43.0) (0.3) (61.5) (14.4) (37.0) (0.7) (52.1)Collection fees 17.8 11.8 – 29.6 15.8 12.1 – 27.9

Contribution 93.5 41.4 (4.9) 130.0 110.1 48.8 (2.7) 156.2Salaries, benefits and overheads (52.1) (46.1)

Underlying profit before tax 77.9 110.1Add back: depreciation and amortisation 4.3 4.3

Adjusted EBITDA 82.2 114.4Senior Secured Debt interest and related costs (33.4) (32.1)Fair value unwind (1.6) (1.9)Interest on shareholder loans – (30.5)All colleague acquisition bonus – (3.2)Acquisition related expenses – (10.7)Other costs (0.2) (2.9)Depreciation and amortisation including amortisation of intangibles arising on the Acquisition (53.9) (49.8)

Pro forma loss before tax (6.9) (16.7)

1. On 1 January 2018, we adopted IFRS 9 for the purposes of impairment provisioning. The comparative information for 2017 has not been restated.

In preparing the management basis income statement, cost recoveries have been presented as a component of servicing costs rather than as income (a reconciliation to the statutory income statement is detailed in note 3). Additionally, receivables disclosed in this section are gross receivables (customer balances excluding any impairment provision and effective interest rate adjustments).



Group performanceWe continued to deliver strong growth in new account volumes with 456,000 Own-brand accounts originated in 2018 (2017: 388,000) despite tightening our underwriting criteria to exclude the top five percent of highest risk accounts. Co-brand new account volumes grew by 5% to 733,000 new accounts (2017: 700,000) with 42% of accounts originated online (2017: 26%) reflecting the focus on our digital strategy. The continued controlled roll-out of Unsecured Personal Loans saw 15,000 loans originated in 2018 (2017: 4,000).

Our ‘low and grow’ strategy for customer credit limits along with new account originations continues to drive strong growth in receivables and we surpassed the £2.6bn milestone during the year. Group receivables grew by 21% to £2,623m, with open book receivables now accounting for 95% (2017: 93%) of the total. The increase in Group receivables drove a 20% increase in interest income to £579m (2017: £482m).

In line with the growth in receivables, average borrowings increased by 18% year-on-year which drove an £11m increase in cost of funds to £52m (2017: £41m). Funding margins increased slightly to 2.6% (2017: 2.4%) following the expansion of our variable funding note capacity in December 2017 pursuant to the strategy in our Value Creation Plan.

Fee and commission income increased by 11% to £64m (2017: £57m) resulting primarily from new account and receivables growth year-on-year.

The impairment rate increased to 13.0% (2017: 11.3%) driven by the accelerated impairment recognition requirements of IFRS 9 and higher charge-offs. Charge-off rates increased by 1.2 percentage points to 11.0% (2017: 9.8%). The increase is primarily attributable to the Own-brand portfolio which reported a 1.8 percentage point increase to 15.7% (2017: 13.9%). The coverage ratio under IFRS 9 as at 31 December 2018 was 15.5% (on transition to IFRS 9 on 1 January 2018: 16.0%, 2017 under IAS 39: 6.1%).

As a result of additional project costs our underlying cost-income ratio for the year was 35.8% (2017: 34.6%). We continue to leverage the scalability of our business model and deliver efficiencies from the Value Creation Plan initiatives implemented within our operations. Excluding the additional £18m of additional investment costs to deliver our Value Creation Plan and interventions aimed at customers considered in persistent debt the underlying cost-income ratio would have improved by 1.6 percentage points to 31.8%.

Servicing costs increased by 8% to £87m (2017: £80m) driven by the increase in new accounts offset by continued efficiency gains. This evidences the scalable nature of our business alongside the continued delivery of operational efficiencies as part of our Value Creation Plan. Following the successful roll-out of our robotics programmes, several processes have been automated in 2018 to deliver these efficiency gains.

We incurred £17m of costs on projects pursuant to the delivery of our Value Creation Plan which aims to deliver long-term sustainable growth. In 2018, we delivered on several key milestones of the plan including the implementation of a new, customer-focused e-servicing and mobile application platform fundamentally transforming the digital capabilities of the customer’s journey with us and we launched our digital revolving credit proposition, NewPay. Additionally we invested over £6m in the research, development, trial and deployment of interventions to help customers whose accounts are defined as being in or near to persistent debt. Combined this led to the £19m increase in total change costs to £41m (2017: £22m).

Marketing and partner payment costs increased to £62m (2017: £52m) as a result of the ongoing drive for new accounts and strong performance of our Co-brand portfolio in particular, the significant growth of the Amazon portfolio.

Collection fee income increased by 6% to £30m (2017: £28m) primarily as a result of growth in Own-brand account volumes.

Salaries, benefits and overheads increased by 13% to £52m (2017: £46m) driven by the higher headcount required to support delivery of our growth strategy.

Own-brand performanceClosing receivables

2016 2017 2018

Open books

Closed books

£157

m £13

8m £1

23

m

£93

6m

£1,1

88

m

£1,4

43m

Own-brand delivered record new account volumes with 456,000 accounts originated in 2018 (2017: 388,000) despite tightening of underwriting criteria to exclude the top five percent of highest risk accounts. In April, we successfully launched the Fluid credit card broadening our offering in the near-prime sector through targeting balance transfers.

New account volumes along with our ‘low and grow’ strategy for customer credit limits generated Own-brand receivables growth of 18% to £1,566m (2017: £1,326m) with solid growth across all portfolios. Open book receivables now account for 92% of the portfolio (2017: 90%) and the closed book continues to run off in line with expectations.

The growth in receivables was the main driver of the portfolio’s 19% growth in net interest income to £372m (2017: £312m). Funding margins at 2.9% (2017: 2.7%) were slightly higher than prior year following the expansion of our variable funding note capacity in December 2017.


Fee and commission income increased by 8% to £42m (2017: £39m) resulting primarily from the growth in receivables.

The impairment rate increased to 18.3% (2017: 16.3%), driven primarily by the accelerated impairment recognition requirements of IFRS 9 and higher charge-offs. Charge-off rates for the year were 15.7%, which represents a 1.8 percentage point increase year-on-year (2017: 13.9%). The increase is attributable to: (i) a one-off statementing issue in Q4 2017 that led to higher charge-offs in Q1 2018 (0.5 percentage points of the increase); (ii) a shift towards open portfolios, which now account for 92% of the Own-brand book (2017: 90%) and attract a higher charge-off rate (0.3 percentage points of the increase); (iii) growth in insolvency charge-offs (0.5 percentage points of the increase); and (iv) other performance primarily reflecting the tightening of forbearance plan policies in Q3 2017 and the impact of periodic debt sales (0.5 percentage points of the increase). The coverage ratio under IFRS 9 as at 31 December 2018 was 22.8% (on transition to IFRS 9 on 1 January 2018: 23.3%, 2017 under IAS 39: 9.0%).

The growth in new account volumes resulted in servicing costs increasing by £4m to £37m (2017: £33m). Through efficiency savings, the growth in costs was limited to 12% whilst delivering an 18% increase in receivables.

Collectively change costs increased by £9m to £23m (2017: £14m) with £10m of the growth attributable to additional investment costs to deliver our Value Creation Plan and interventions aimed at customers considered in persistent debt.

Marketing costs increased by £4m to £18m (2017: £14m) as a result of the ongoing drive for new accounts, which grew by 18% year-on-year.

Collection fees increased by 13% to £18m (2017: £16m) primarily as a result of growth in active account volumes.

As a result of the factors above, and primarily due to the accelerated impairment recognition requirements of IFRS 9, the Value Creation Plan investment and costs to deliver interventions aimed at customers considered in persistent debt, Own-brand underlying contribution reduced by £17m to £94m (2017: £110m). On a like-for-like IAS 39 basis, contribution increased by £7m to £117m despite absorbing £10m of additional investment costs.

Co-brand performanceClosing receivables

£693

m

£8

01m £

978

m£29

m £2

0m £1

4m

2016 2017 2018

Open books

Closed books

New account volumes grew by 5% to 733,000 in 2018 (2017: 700,000). 42% of new Co-brand accounts were originated online (2017: 26%) and 39% of retail spend was online (2017: 35%). In October 2018, the Co-brand business successfully launched NewPay, our digital revolving credit proposition, with our first partner Unshackled.com. Our Co-brand business has also made a strong start to 2019 signing agreements with two major new national retailers that are due to launch by the middle of 2019; one of which will utilise our new digital revolving credit product, NewPay.

Growth in Co-brand receivables accelerated to 21% with closing receivables of £992m (2017: £821m). Net interest income increased by 15% to £149m (2017: £130m) driven by the growth in receivables partly offset by higher funding margins at 2.0% (2017: 1.9%) following the expansion of our variable funding notes in December 2017. Fee and commission income increased by 16% to £21m (2017: £18m) driven primarily by the growth in receivables.

The impairment rate increased to 3.9% (2017: 2.9%), driven primarily by the accelerated impairment recognition requirements of IFRS 9. Charge-off rates at 3.6% were 0.5 percentage points higher than prior year (2017: 3.1%) driven primarily by the growth in insolvencies. The coverage ratio under IFRS 9 as at 31 December 2018 was 4.4% (on transition to IFRS 9 on 1 January 2018: 4.3%, 2017 under IAS 39: 1.5%).

Servicing costs increased by 5% to £49m (2017: £47m) whilst delivering a 21% increase in receivables evidencing the scalability of our business model. The Co-brand business continues to increase new account volumes whilst closing certain inactive accounts.

Collectively change costs increased by £9m to £16m (2017: £7m) with £8m of the growth attributable to additional investment costs to deliver our Value Creation Plan and interventions aimed at customers considered in persistent debt.

Marketing and partner payment costs increased by 16% to £43m (2017: £37m), driven by strong performance of our Co-brand portfolio in particular, the significant growth of the Amazon portfolio.


Collection fees of £12m were in line with prior year (2017: £12m).

As a result of the factors above, and primarily due to the accelerated impairment recognition requirements of IFRS 9 and the Value Creation Plan investment and costs to deliver interventions aimed at customers considered in persistent debt, Co-brand underlying contribution reduced by £7m to £41m (2017: £49m). On a like-for-like IAS 39 basis, contribution reduced by £3m to £46m after absorbing £8m of additional investment costs.

In August 2018, one of our retail partners (House of Fraser) entered administration and the House of Fraser business was subsequently acquired by Sports Direct. Our agreements with House of Fraser customers are unaffected by the administration and we continue to manage the portfolio accordingly. However, new account origination has ceased. Our previous contract has been novated to the new House of Fraser business and we are working with them closely to relaunch the programme once they have obtained the necessary regulatory approvals.

Unsecured Personal Loans (UPL) performanceClosing receivables

£17m

£66m

2017 2018

The UPL business, launched in December 2016, continues to target existing Own-brand customers. Receivables grew significantly in 2018 and surpassed the £65m milestone having issued over 15,000 loans (2017: 4,000). Closing receivables increased to £66m (2017: £17m) and the segment generated a negative contribution of £5m for 2018 (2017: £3m negative contribution). On a like-for-like IAS 39 basis, the negative contribution of £3m was in line with 2017.

Capital and liquidityOur business model continues to be cash generative with free cash flow available for Senior Secured Debt interest increasing by £47m to £41m (2017: (£7m)). Overall cash increased by £10m to £134m (2017: £124m).

As at 31 December 2018, we maintained £0.9bn headroom on our variable funding notes and the average maturity of our debt issued was three years (2017: three years). In addition, we have continued to strengthen our funding position having refinanced all debt maturing in 2018 raising £640m including completing our first two capital market issuances in the US and extending maturities on £1.2bn of our variable funding notes.

The following table reconciles adjusted EBITDA to the net increase/(decrease) in cash:

2018 £m

2017 £m

Adjusted EBITDA 82.2 114.4Change in impairment provision1 60.4 28.2

Adjusted EBITDA excluding change in impairment provision 142.6 142.6Change in working capital 2.8 (10.4)PPI provision utilisation (20.1) (11.3)Capital expenditure (9.4) (11.1)Tax paid (6.8) (5.6)Exceptional costs2 – (17.9)

FCF available for growth and debt service 109.1 86.3Increase in gross receivables (470.9) (369.8)Net financing cash flow 402.5 277.0

FCF available for Senior Secured Debt interest 40.7 (6.5)Senior Secured Debt interest paid (31.1) (18.4)Net proceeds from issuance of Senior Secured Debt – 412.1Net cash movement in relation to the Acquisition3 – (391.6)

Net increase/(decrease) in cash 9.6 (4.4)

Ratio of pro forma net corporate Senior Secured Debt to adjusted EBITDA4 3.5x 2.6xRatio of adjusted EBITDA to pro forma cash interest expense4 2.6x 3.7x

1. On 1 January 2018, we adopted IFRS 9 for the purposes of impairment provisioning and recorded a transition adjustment in retained earnings on adoption of £213m. Accordingly, the transition adjustment has been excluded from this measure. The comparative information for 2017 has not been restated.

2. Exceptional costs in 2017 represent the cash outflow for transaction costs associated with the Acquisition, the issuance of the Senior Secured Debt and entering into the Revolving Credit Facility.

3. Net cash movement in relation to the Acquisition predominantly relates to the proceeds from the related party loan issued at the time of the Acquisition less the cost to acquire NewDay Group Holdings S.à r.l..

4. Pro forma adjusted EBITDA and cash interest expense has been presented as though the corporate Senior Secured Debt had been in place for the entire comparative period.

In 2018, PPI provision utilisation increased to £20m (2017: £11m) following: (i) the FCA publicity campaign encouraging people to consider whether to bring a claim; and (ii) responses from customers previously rejected for mis-selling who received mailings at the end of November 2017 explaining that they may be entitled to bring a claim as a result of the decision in the Plevin case. The uplift in utilisation is in line with expectations and as at 31 December 2018 the PPI provision was £25m (2017: £45m). The deadline for claims is August 2019.



FundingIn 2018, we successfully issued £640m of asset-backed term debt through two debt financing transactions. This included raising US$243m in the US capital markets, a first for NewDay.

The first transaction in July 2018 successfully refinanced £283m of the Group’s asset-backed term debt issued in connection with the Group’s Own-brand securitisation programme. This £340m transaction comprised: (i) the issuance of £262m of publicly listed asset-backed term debt (of which £49m was retained internally within the Group); (ii) the issuance of US$93m publicly listed asset-backed term debt raised from US capital markets (which was equivalent to £71m on the date of issuance); and (iii) a further £7m of intra-Group funding.

The second transaction in November 2018 raised a further £300m of asset-backed debt in connection with the Group’s Own-brand securitisation programme. This transaction comprised (i) the issuance of £176m publicly listed asset-backed term debt (of which £44m was acquired by a Group entity), (ii) the issuance of US$150m publicly listed asset-backed term debt raised from US capital markets (which was equivalent to £117m on the date of issuance), and (iii) a further £7m of intra-Group funding.

The US$ exposure is hedged through a balance guaranteed cross-currency swap.

Additionally, we extended the maturities on £1.2bn of variable funding notes from December 2020 to between September 2021 and March 2022.

Following the expansion of our variable funding note capacity in December 2017 pursuant to our Value Creation Plan, we continue to maintain significant variable funding note headroom of £0.9bn to fund receivables growth under our asset-backed securitisation arrangements.

As at 31 December 2018, the average maturity of our debt issued was three years (2017: three years). The staggered nature of our debt maturity profiles mean that 15% of committed debt facilities are due for refinancing in less than one year and 85% are due in one to five years. We currently intend to raise further funds through the issue of asset-backed securities during the course of 2019 to refinance the debt facilities due in less than one year.

Debt maturity profile

£48

0m

£660

m

£34

6m

2019 2020 2021

£294

m

£44m

£49m

£31

8m

£56m

£150

m

£275

m

2022 2023 2024

Asset-backed securities

Drawn variable funding notes (VFNs)

Senior Secured Debt

£0.9bn of additional VFN headroom available to fund future receivables growth.

The Group’s blended advance rate for 2018 was 85.9% (2017: 85.3%). The advance rate for Own-brand was 83.3% (2017: 82.5%) and Co-brand was 91.2% (2017: 90.9%).

During the year we completed our project to re-issue our terms and conditions to allow us to choose to pass any increases in the Bank of England base rate to customers, insulating ourselves against future bank base rate rises by hedging against our cost of funding.

Cash flowsThe following table summarises the Group’s cash flows during the year:

Pro forma cash flows

2018£m

2017 £m

Net cash used in operating activities (383.5) (312.0)Net cash used in investing activities (9.4) (988.3)Net cash generated from financing activities 402.5 1,295.9

Net increase/(decrease) in cash and cash equivalents 9.6 (4.4)Cash and cash equivalents at the start of the period 124.4 128.8

Cash and cash equivalents at the end of the period 134.0 124.4

Net cash used in operating activities of £384m (2017: £312m) was primarily driven by the increase in receivables growth.

Net cash used in investing activities of £9m (2017: £988m) represents investment in intangible and fixed assets. The prior period comparative includes the completion of the Acquisition.

Net cash generated from financing activities of £403m (2017: £1.3bn) consists of issuances and repayments of asset-backed securities and drawdowns of variable funding notes to fund the receivables growth. The prior period comparative is largely driven by the issuance of the Senior Secured Debt and the shareholder loan arrangements.

Capital requirementsThere is no regulatory capital requirement for any subsidiary other than NewDay Ltd owing to its status as an Authorised Payment Institution. As at 31 December 2018, the levels of capital for NewDay Ltd exceeded the minimum capital requirement with headroom of £7m.

The Group is subject to various requirements and covenants related to levels of capital and liquidity. We regularly monitor compliance with these requirements and covenants to ensure they are met at all times.

The number and nominal value of all the parent company’s shares are detailed in note 21.


Operating responsibly

“ We believe that the long-term interests of all our stakeholders are best served by maintaining a high standard of corporate responsibility in all areas of our operations and the Board is committed to achieving this. Responsible lending is at the heart of our business and we are committed to being a Welcoming, Knowing, Understanding and Rewarding company for our customers, partners and colleagues, as well as the communities we operate in”


Being a responsible lenderOur Manifesto is at the heart of everything we do and it remains a strategic priority. We are committed to helping customers be better with credit through our foundations of being a Welcoming, Understanding, Knowing and Rewarding business. This focus ensures we continue to strive to provide excellent customer service and develop products and services that evolve in line with our customers’ changing needs in order to build long-term relationships.

We continue to lend responsibly through the deployment of our ‘low and grow’ strategy, offering customers a low initial credit limit until they demonstrate that they can actively manage and afford further credit in a responsible and sustainable manner. This is supported by our robust scorecards built on 17 years of experience and data analytics. In addition, we helped 154,000 customers with our online financial health check tools in 2018 to support them in developing a greater understanding of their financial situation. This enables them to become better with credit

and benefit from the rewards we offer with 1.1m customers improving their credit scores in 2018 (2017: 1.0m).

Our collections toolkit has a wide range of practices that allow us to work with customers where their situations have changed and support them if they fall into arrears. In 2018, we supported 67,000 customers (2017: 21,000) with our collections toolkit strategies. Our contact centre colleagues are also trained to identify potentially vulnerable customers and a specialist team is in place to provide those customers with the support they need. In 2018, we invested over £6m in the research, development, trial and deployment of interventions to help customers whose accounts are defined as being in or near to persistent debt. We have also progressively rolled out a programme of support which encourages customers to make (in sustainable, affordable increments) higher repayments which, when made, can lift an account out of persistent debt or avoid an account meeting the definition for the first time. Our objective to be a responsible lender is monitored through a number of KPIs that are reported to the Board monthly. Our transactional NPS score of +64 (2017: +65) and continued ranking in the top quartile of NICE Ltd transactional NPS rankings, which benchmark results across several industry sectors, evidences that customers value the service they receive from us and customer complaints of 1.25 per 1,000 active accounts (2017: 1.31 per 1,000 active accounts) have decreased whilst delivering 10% growth in new customer accounts.

Supported over

67,000customers with our collections toolkit (2017: 21,000).

1.1mcustomers improved their credit scores (2017: 1.0m).

1.25complaints per 1,000 active accounts (2017: 1.31).


Being a responsible employerWe recognise that engaged employees drive better outcomes for our customers and our business. We are focused on improving our engagement through developing our colleagues and making sure we have a diverse and inclusive culture with a focus on creating a healthy and safe environment for our people to work in.

Our biannual, externally managed employee surveys demonstrate high levels of employee engagement, with our current engagement index sitting at 75% (2017: 77%). The results and comments from these surveys are used to build action plans both at an organisational and business team level, including how we communicate with colleagues, engage them in our strategy and ensure appropriate training and development is provided, with 73% of colleagues believing they receive the training and development they need to perform their roles. In 2018, we also introduced our first graduate and apprentice programmes in Credit and Collections and Information Technology respectively.

In striving to develop a highly engaged team we were proud to be recognised with a 1-star accreditation from Best Companies, which compiles the Sunday Times Best Place to Work For lists.

The recruitment, training, promotion and personal and professional development of people with disabilities is encouraged and we help to retain and retrain colleagues who may become disabled whilst in employment with us.

We are creating a working environment where colleagues feel valued and respected. We operate an equal opportunities policy and oppose all forms of discrimination; we believe colleagues, prospective colleagues, partners, suppliers and customers should be treated fairly, regardless of race, colour, nationality, gender, age, religion, marital status, sexual orientation, disability or any other personal characteristics. We aim to create a culture that sees and values all our differences equally.

As at 31 December 2018, the number of employees totalled 1,208 and the proportion of females was as follows:

2018 females

2017 females

Employees 51% 52%Management Committee 13% 13%Board 8% 9%

We remain committed to diversity and continue to encourage individuals within the business to maximise opportunities to enhance their experience and take on senior roles. In 2018, as part of our diversity and inclusion programme we held our first Women’s Forum which brought together females from across the business to share their experiences on navigating gender at work and discuss ideas on ways to improve things for the business. We are also looking at our wider diversity and inclusion agenda. In 2018, we introduced a new goal by including a diversity and inclusion index in our engagement survey with a baseline result of 79%. Building our diversity and inclusion programme will be a key area of focus in 2019.

We are committed to gender equality and promote equal opportunities for progression and pay. We welcomed the Government’s initiative requiring organisations to be transparent and to disclose average earnings for men and women, and any bonuses paid and our reporting is available on our website at www.newday.co.uk/sustainability/gender-pay-gap-reporting/.

75%employee engagement (2017: 77%).

79%baseline diversity and inclusion index


Family Actionand NewDay

Operating responsiblyContinued

As well as continuing to motivate an engaged team, we want to ensure we create a healthy and safe environment for colleagues to work in. We have comprehensive Health and Safety policies and practices in place and reported no accidents as required by the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013 during the year (2017: none). We also aim to support the well-being of our colleagues and during the year we provided access to BUPA health stations for colleagues to measure a range of key health statistics and provided free flu vaccinations. Additionally, during 2018 we trained ten mental health first aiders who now have a better understanding of mental health and the factors that can affect well-being, are able to spot signs of mental health issues and can reassure and support colleagues in distress.

Supporting our communitiesWe know that we have a responsibility to local communities and society in general as well as our stakeholders including customers, colleagues and shareholders and we take this responsibility very seriously.

Our Charity Committee promotes and organises fundraising initiatives throughout the year and oversees the matched-funding scheme to which all colleagues are eligible to apply. The matched-funding scheme provides funding for individual, employee-led charity activities and during the year colleagues took part in a number of varied activities to support their nominated charities. In 2018, £32k was donated to local community charities, including charities supported by our colleagues.

We also continued our work with Family Action, our charity partner, and made donations totalling £19k during 2018 with a further £125k donated in January 2019. Family Action provides practical, emotional and financial support to those who are experiencing poverty, disadvantage and social isolation. We donate funding to support Family Action’s national grant scheme that helps families regain independence following a crisis and have supported over 340 families with an Open Doors grant this year.

Throughout the year our colleagues engaged in numerous fundraising activities to support Family Action, including running the London Marathon, cross-site bike challenges, pedometer challenges competing against our Management Committee and we were proud that collectively our colleagues donated over 1,000 presents to Family Action’s Christmas Toy Appeal.

Hi NewDay team. Thank you so much for all the fundraising from last year, this has

made such a difference and we have been able to purchase:

• more therapeutic books and activity guides including ones which specifically look at supporting children and young people affected by homicide and suicide;

• we have updated our puppet collection, with brightly coloured animal puppets and job role specific puppets to help the children and young people communicate their stories;

• we have purchased feelings flashcards and body signals emotions cards to help children and young people better understand the impact on their emotions after a bereavement;

• we have purchased a range of sensory items to help children and young people connect with their senses and surrounding environment which helps with the processing of a trauma;

• we have bought colourful Lego blocks to help the children create a scene that explains their story or how they are feeling; and

• we have purchased more figures for children to engage with sand tray therapy when processing their thoughts, feelings and emotions surrounding a bereavement.

These resources have made a huge difference to our work with children and young people. Creative work is so important in helping children and young people recover from trauma and loss, so you have helped us make this possible – thank you so much!

Thank you for all your hard work to fundraise once again this year. We look forward to hearing more of your stories and we will continue to share the difference these resources are making to the lives of vulnerable children and families.

All the best, Family Action Therapeutic Services Team


Protecting the environmentMinimising our impact on the environment is important and we consider our carbon footprint to be low. We actively monitor and manage carbon emissions associated with the business based on the energy consumption of our operations.

Our reporting is broken down into direct and indirect emissions in accordance with the Greenhouse Gas Protocol. As we have fewer than five Company owned vehicles and as we do not generate any of our own power, our scope 1 emissions are low. Owing to the nature of our business we focus on managing general energy consumption across our Leeds and London sites (scope 2 emissions) and also business travel between sites, mainly via train (scope 3 emissions). In 2018, we consumed 928 tonnes of CO2 emissions (2017: 1,087 tonnes of CO2e) across electricity usage and business-related rail travel and we remained below our triggers and external benchmarks set on these measures.

Recognised for three Green Apple awards in 2018.

Doing what we can to help minimise climate change was a factor in deciding to move to a new energy efficient office in London during 2017. As members of the Green Organisation, we were awarded a Green Apple Award for ‘Future resources innovation champions’ recognising the approach we took towards identifying the location, design and refit of our London office taking into account energy efficiency and the environment layout for colleagues. We also won the Green Apple Award for Environmental Best Practice for ‘Best Green practices for waste, recycling and general environmental practices’ reflecting our continued focus on recycling and waste management and how we work with all our stakeholders to reduce our impact on the environment across both sites, along with a silver award for ‘Environmental best practice’.

We remain focused on delivering our low carbon strategy and we will continue to benchmark our performance across the industry in order to deliver continuous improvement.

Governance in our supply chainWe are fully committed to supporting human rights through compliance with all relevant laws and regulations. The Modern Slavery Act 2015 requires certain companies to detail the steps taken to ensure that slavery and human trafficking are not taking place within the organisation, or within the supply chain. We fully support the eradication of both slavery and human trafficking, and aim to act fairly, ethically and openly in everything we do to achieve this. Our Modern Slavery and Human Trafficking Statement is available on our website at www.newday.co.uk/sustainability/modern-slavery-and-human-trafficking-statement/.

Governance over Environmental, Social and Governance (ESG) mattersDelivering long-term sustainability is a fundamental objective at Board level. We recognise the importance of minimising our impact on the environment and of being a responsible lender and employer and our ESG framework ensures appropriate focus and accountability across the

business. Our ESG policy provides an assessment framework that considers the significant ESG issues across the business, the outcomes of which are used to identify risks and opportunities for improvement. The governance in place assigns roles and responsibilities for developing and overseeing ESG reporting processes and ensuring compliance with our ESG policy. Management processes have been developed to identify ESG risk areas and opportunities, with the Board taking responsibility for ESG and reviewing ESG performance at regular intervals.

By following a formalised and structured approach, we have developed, and continued to refine, our ESG policy and reporting processes. Formal reporting is completed through quarterly KPIs that are reviewed by the Operational Risk Committee and the Board for insights and best practice sharing. External benchmark data has been used to define triggers and benchmarks across all our reported ESG measures and our quarterly Board reporting assesses current performance against these triggers.


Risk management

The Board uses both quantitative and qualitative measures to monitor performance under each of our risk appetite statements, which are the link between our overall business strategy and the management of risk through our Risk Management Framework.

Risk appetite measures are monitored monthly by the relevant business committees and holistically by the Enterprise Risk Management Committee (ERMC) and the Board Risk Committee, with appropriate actions being taken where triggers have been breached. Risk appetite is approved by the Board which sets risk appetite thresholds at least annually to ensure the business strategy is delivered in a sustainable and responsible way. Risk appetite is also considered as part of the business planning process and reflects our latest commercial, economic and regulatory thinking.

“ Our Risk Management Framework delivers a strong emphasis on the effective management of risk on a day-to-day basis, coupled with strong oversight, challenge and assurance”

Mark Eyre Chief Risk Officer


Our overarching Risk Management Framework is embedded within our corporate governance structure and is coupled with strong oversight, challenge and assurance.

Our approach to risk management

Managing risk effectively is important to the Group and fundamental to the wayNewDay oversees its business and applies the Risk Management Framework.

The overarching Risk Management Framework comprises six core components:

4.

1. Risk appetite statements

Risk governance

Risk processes and methodologies

Risk data and IT systems

3.2.

Qualitative

Quantitative

Stress Testing

Change

Reporting

Aggregate

5. Risk management skills, resources and culture

Underpinning the overarching Risk Management Framework, the Group also has five sub-frameworks:

Credit risk framework

Financial control framework

Liquidity, funding and cash management risk

framework

Operational risk framework

Conduct risk framework

6.

Ris

k M

anag

emen

t Fra

mew

ork

val

idat

ion

Identify

Assess

Monitor

Control


Ourthree lines of defence model

Name Activity

1st line of defence

Business

The leaders of each business area have primary accountability for the performance, operation, compliance and effective control of risks affecting their business area.

Risk/reward management

Executes the business strategy as set by the Board. Conducts day-to-day business within the parameters of defined risk appetite and Risk Management Framework.

2nd line of defence

Enterprise Risk Function

The Enterprise Risk Function is an independent risk management capability, reporting to the Chief Risk Officer. The Chief Risk Officer reports to the Chief Executive Officer and independently to the Chairman of the Board Risk Committee. The Chief Risk Officer also has independent access to the business and Board members, as appropriate.

Oversight and advice

Provides independent oversight and advice over the risk profile of the business and operation of the Risk Management Framework.

3rd line of defence

Assurance (internal audit)

Assurance is provided by the internal audit function which is independent of both the business and the Enterprise Risk Function, and reports to the Chairman of the Board Audit Committee.

Independent assurance

Provides independent assurance on the design, operation and effectiveness of the control framework, including activities performed by the first and second lines of defence.

Robust risk management is essential to both NewDay’s ongoing success and to ensure we remain within our risk appetite. Fundamental to our approach to risk management is a three lines of defence model.


Credit riskOur objective is to ensure we originate and manage customer receivables balancing risk and reward in line with our financial and strategic objectives.

Financial strengthOur objective is to maintain a strong financial position by managing profitability and cash generation and ensuring that our financial strength and liquidity are maintained at levels that reflect our desired financial profile, comply with funding covenants and regulatory requirements, and enable planned growth in normal conditions and to navigate a stressed environment.

Operational performance (includes operational risk)Our objective is to fulfil business commitments through systems and processes that are appropriately controlled, scalable, cost-effective and comply with applicable external and internal rules, laws and regulations. This includes having efficient and effective processes; technology and systems that are reliable, scalable and provide the right level of automation; having the right number of skilled and motivated people in place; and developing and retaining talent. We seek to have appropriate oversight, challenge and governance in place over planned change.

Business conduct (includes legal, regulatory and conduct risk)Our objective is to treat customers fairly and to ensure that they remain at the heart of everything we do. We work to ensure that customers do not suffer detrimental outcomes as a result of product design, sales or post-sales processes and will appropriately correct identified errors. The customer-focused ethos is embedded within the governance and culture of the business.

Strategy

• Evolving with our markets to address changing needs

• Driving high standards for our customers, colleagues and community through our Manifesto

• Leveraging a leading digital platform • Acquiring new customers and creating

long-term relationships • Delivering strong controlled growth

Informedrisk-based decision-making

Risk management framework

Risk appetite statements

Holistic risk assessment

Translated into measures

Ongoing assessment

Four risk appetite pillars underpin the delivery of our strategic objectives

• Risk governance

• Tools, processes and methodologies

• Assess and control risks

• Informed risk-based decision-making

Our risk appetite statements are approved by the Board and are the link between the overall business strategy and the management of risk through the Risk Management Framework. The statements are cascaded down into their component parts, including risk appetite objectives and triggers. This enables the risk appetite to inform day-to-day decision-making.


The Board is ultimately accountable for risk and the oversight of risk management. It considers the appropriateness of the Risk Management Framework in line with risk appetite and Group strategy. The Board considers the most significant risks facing the business and uses quantitative and qualitative exposure measures to monitor and challenge performance. The Board delegates responsibility for risk management oversight to the Board Risk Committee. The Board articulates its approach to risk management via the Board Risk Management Policy, which is reviewed annually.

The Chief Executive Officer chairs the Management Committee, which is responsible for the day-to-day management of the business and has delegated authority from the Board to make decisions on risk matters within the agreed risk framework. The Chief Executive Officer also implements the decisions made and policies approved by the Board and deals with matters arising within the ordinary course of business.

Reporting to the Chief Executive Officer and Board Risk Committee, the Chief Risk Officer leads the Enterprise Risk Function and chairs the Enterprise Risk Management Committee (ERMC).

Business level committees provide management with a structure to ensure appropriate focus is applied to the oversight and management of specific risk types: credit risk; financial risk; conduct risk; and operational risk.

Risk ManagementContinued

Board governance

Managementgovernance

Corepolicy

Risk Management Framework

Sub-frameworks

51 NewDay 2018 Annual Report and Financial Statements 1. Including regulatory and compliance risk.2. The Board Audit Committee and Board Remuneration and Nomination Committee also form

part of the risk governance structure in relation to specific risks within their remit as defined in their terms of reference.

Our risk governance structure

Our governance committees oversee the application of the three lines of defence model and the continued suitability of the overarching Risk Management Framework and the sub-frameworks.

The table below details the risk governance structure in place across the Group:

Financial risk

Conduct risk1

Operational risk

Strategic risk

Market risk

Credit risk

Management Committee

Board Risk Management Policy

Enterprise Risk Management Committee

Credit Risk Committee

Operational Risk Committee

Asset and Liability Risk Committee

Customer and Conduct Risk

Committee

Board

Board Risk Committee2

Overarching Risk Management

Credit Risk Framework

Operational Risk

Framework Conduct Risk Framework

Liquidity, Funding and Cash Management

Risk Framework

Financial Control Framework


RiskManagement Mappingour risk

“ The most significant risks which could impact the delivery of our long-term strategic objectives are considered regularly by our Board and Board Risk Committee”

“ Risk factors have been many and varied during the year: the ever-changing and ever-present threat from cyber attacks, the potential implications of the UK leaving the European Union, the macroeconomic environment, the challenging conditions on the high street and the heightened politicisation of the credit card industry have all featured prominently in our Principal Risk Assessment.”

Mark Eyre Chief Risk Officer

Principal risksStrategic risk Adverse impacts because of a sub-optimal business strategy or business model.

Macroeconomic riskAdverse movements in economic trends in the UK cause detrimental effects on the anticipated returns and business strategy of the Group.

Regulatory risk Change in laws or regulations governing the Group and/or failure to comply with legal or regulatory requirements.

Credit risk Unexpected losses as a result of customers failing to meet their obligations to repay.

ExampleA sub-optimal strategy or model could give rise to financial loss, reputational damage or failure to meet internal and/or public policy objectives.

ExampleFactors such as a credit downturn or the UK’s exit of the EU significantly impacts the anticipated returns for the business and/or interrupts growth strategies.

A downturn may lead to a retail partner insolvency which may impact future financial returns.

ExampleSignificant alterations to the business model because of changes in the law or regulations may have a material impact on the performance and profitability of the business.

Non-compliance with laws or regulation could lead to reputational damage, enforcement action and/or financial loss.

ExampleCredit risk losses deviating from expectations because of: • issues or flaws in the design of scorecards; • policy changes giving unexpected results; • collections strategies not working as

intended; or • failure to resource collections effectively

and/or weak collections processes.

Risk factors in-year and key mitigantsChallenging high street conditions for our foundation partners have been prominent during the year.

We have managed the risk through the use of the following controls/mitigants: • business strategy and annual/dynamic

review process; • Group budgets defined, allocated and

monitored to align with strategic objectives with formal reviews;

• risk appetite aligned with strategic objectives and business planning;

• launch of NewPay digital credit product; • pursuit of business development

strategy and diversification in terms of potential new partners;

• diversification through online partners, particularly Amazon; and

• working with partners to expand our presence online.

Risk factors in-year and key mitigantsThe continued uncertainty around Brexit and challenges surrounding economic growth.

We have managed the risk through the use of the following controls/mitigants: • in response to the outcome of the Brexit

referendum we monitored and refined our macroeconomic dashboard;

• business strategy and annual review process;

• budgets defined, allocated and monitored to align with strategic objectives;


• stress testing with pre-determined mitigating actions agreed by the Board;

• diversification of Co-brand partners and product offerings;

• robust outsourcing and supplier oversight processes;

• ability to deploy multiple levers from new business growth, credit allocations and cost controls;

• monitoring of funding-related indicators; and

• funding flexibility maintained.

Risk factors in-year and key mitigantsEnsuring regulatory change is understood and implemented compliantly.

We have managed the risk through the use of the following controls/mitigants: • overseeing the Conduct Risk

Management Framework; • monitoring of regulatory radar for

upcoming changes; • regulatory change gap analyses; • responding to consultation papers

through trade bodies; • appointment of a Head of Regulatory

Affairs and Industry Relations; and • senior management of regulatory change

steering committees.

Risk factors in-year and key mitigantsUncertainty in the UK economy and the potential for continued economic drag. Customer indebtedness and pressure on low income households from credit tightening. Customer behaviour patterns particularly IVAs and bankruptcies.

We have managed the risk through the use of the following controls/mitigants: • daily performance monitoring with the

ability to modify credit and collections strategies and actions at short notice;

• Credit Risk Committee overseeing the execution of the Credit Risk Management Framework;

• credit risk strategies, policies and procedures;

• macroeconomic environment monitored by the Credit Risk Committee with a dashboard prepared with external leading economists; and

• scorecard monitoring and assurance process in place for new scorecards.

Improvements in 2018 and future focus We delivered initiatives that underpinned our Value Creation Plan, including launching e-servicing apps, and in doing so strengthened our business.

In 2019, we will look to add new Co-brand partnerships with a range of retail partners to complement existing partners.

Improvements in 2018 and future focusWe have matured our macro response strategies; mapping them to our macro triggers. We have a clear corporate view of what levers to use in different situations and have also enhanced our stress testing approach using macro scenarios.

In 2019, we will continue to refine our approaches where needed and continue to monitor the external environment closely.

Improvements in 2018 and future focusWe delivered CCMS remedies in line with regulatory commitments and implemented GDPR and PSD2 requirements.

In 2019, we will continue to monitor our CCMS remedies and prepare for the implementation of the Senior Managers and Certification Regime and the next phase of PSD2.

Improvements in 2018 and future focusIn 2018, we implemented our first line of defence assurance programme and a new customer management affordability solution. We also enhanced our macroeconomic dashboard and improved our scorecard assurance programme.

In 2019, we will continue to mature the Credit Risk Management framework and deliver enhanced model governance as well as continuing to invest in data science capabilities.


Principal risksStrategic risk Adverse impacts because of a sub-optimal business strategy or business model.

Macroeconomic riskAdverse movements in economic trends in the UK cause detrimental effects on the anticipated returns and business strategy of the Group.

Regulatory risk Change in laws or regulations governing the Group and/or failure to comply with legal or regulatory requirements.

Credit risk Unexpected losses as a result of customers failing to meet their obligations to repay.

ExampleA sub-optimal strategy or model could give rise to financial loss, reputational damage or failure to meet internal and/or public policy objectives.

ExampleFactors such as a credit downturn or the UK’s exit of the EU significantly impacts the anticipated returns for the business and/or interrupts growth strategies.

A downturn may lead to a retail partner insolvency which may impact future financial returns.

ExampleSignificant alterations to the business model because of changes in the law or regulations may have a material impact on the performance and profitability of the business.

Non-compliance with laws or regulation could lead to reputational damage, enforcement action and/or financial loss.

ExampleCredit risk losses deviating from expectations because of: • issues or flaws in the design of scorecards; • policy changes giving unexpected results; • collections strategies not working as

intended; or • failure to resource collections effectively

and/or weak collections processes.

Risk factors in-year and key mitigantsChallenging high street conditions for our foundation partners have been prominent during the year.

We have managed the risk through the use of the following controls/mitigants: • business strategy and annual/dynamic

review process; • Group budgets defined, allocated and

monitored to align with strategic objectives with formal reviews;


• launch of NewPay digital credit product; • pursuit of business development

strategy and diversification in terms of potential new partners;

• diversification through online partners, particularly Amazon; and

• working with partners to expand our presence online.

Risk factors in-year and key mitigantsThe continued uncertainty around Brexit and challenges surrounding economic growth.

We have managed the risk through the use of the following controls/mitigants: • in response to the outcome of the Brexit

referendum we monitored and refined our macroeconomic dashboard;

• business strategy and annual review process;

• budgets defined, allocated and monitored to align with strategic objectives;


• stress testing with pre-determined mitigating actions agreed by the Board;

• diversification of Co-brand partners and product offerings;

• robust outsourcing and supplier oversight processes;

• ability to deploy multiple levers from new business growth, credit allocations and cost controls;

• monitoring of funding-related indicators; and

• funding flexibility maintained.

Risk factors in-year and key mitigantsEnsuring regulatory change is understood and implemented compliantly.

We have managed the risk through the use of the following controls/mitigants: • overseeing the Conduct Risk

Management Framework; • monitoring of regulatory radar for

upcoming changes; • regulatory change gap analyses; • responding to consultation papers

through trade bodies; • appointment of a Head of Regulatory

Affairs and Industry Relations; and • senior management of regulatory change

steering committees.

Risk factors in-year and key mitigantsUncertainty in the UK economy and the potential for continued economic drag. Customer indebtedness and pressure on low income households from credit tightening. Customer behaviour patterns particularly IVAs and bankruptcies.

We have managed the risk through the use of the following controls/mitigants: • daily performance monitoring with the

ability to modify credit and collections strategies and actions at short notice;

• Credit Risk Committee overseeing the execution of the Credit Risk Management Framework;

• credit risk strategies, policies and procedures;

• macroeconomic environment monitored by the Credit Risk Committee with a dashboard prepared with external leading economists; and

• scorecard monitoring and assurance process in place for new scorecards.

Improvements in 2018 and future focus We delivered initiatives that underpinned our Value Creation Plan, including launching e-servicing apps, and in doing so strengthened our business.

In 2019, we will look to add new Co-brand partnerships with a range of retail partners to complement existing partners.

Improvements in 2018 and future focusWe have matured our macro response strategies; mapping them to our macro triggers. We have a clear corporate view of what levers to use in different situations and have also enhanced our stress testing approach using macro scenarios.

In 2019, we will continue to refine our approaches where needed and continue to monitor the external environment closely.

Improvements in 2018 and future focusWe delivered CCMS remedies in line with regulatory commitments and implemented GDPR and PSD2 requirements.

In 2019, we will continue to monitor our CCMS remedies and prepare for the implementation of the Senior Managers and Certification Regime and the next phase of PSD2.

Improvements in 2018 and future focusIn 2018, we implemented our first line of defence assurance programme and a new customer management affordability solution. We also enhanced our macroeconomic dashboard and improved our scorecard assurance programme.

In 2019, we will continue to mature the Credit Risk Management framework and deliver enhanced model governance as well as continuing to invest in data science capabilities.


Risk ManagementContinued

Principal risks continuedOperational risk Inadequate or failed internal processes, people and systems, or from external events including internal and external fraud.1

Conduct riskCustomer detriment arising from inappropriate culture, products, governance and processes.

Market riskDirect or indirect losses that arise from fluctuations in values of, or income from, assets or in movements in interest or exchange rates or credit spreads.

Financial riskInaccuracies in financial and management reporting and/or inadequate management of liquidity, funding and cash.

Example Reputational damage, financial loss and/or withdrawal of funding could arise from: • misstatement of external reporting (annual and quarterly reports and financial statements,

bank submissions, regulatory reports or securitisation reports); • misstatement of information for internal decision-making; • non-compliance with tax regulations; or • incorrect payments to third parties.

Unrestricted cash ensures that the Group can implement its business plan under normal conditions and within the Board’s agreed cash risk profile. If there is insufficient unrestricted cash this could impact the Group’s ability to meet ongoing financial commitments, invest in new business or pay Senior Secured Debt interest. Unavailability of funding for receivables would impact the Group’s ability to support customer spending and receivables growth.

ExampleReputational damage, regulatory censure and/or financial loss could arise from: • cyber attacks; • loss of customer data; • internal and external fraud; • lack of suitably skilled resources to run the

business effectively; or • human errors in manual processes.

Example NewDay or its strategic partners experiencing issues with poorly defined and managed controls, culture and/or governance could cause customer detriment and in turn this could lead to financial loss, affect reputation and give rise to regulatory censure.

ExampleInterest rate movement exposes NewDay to increased cost of funding.

Increased funding costs and/or not meeting funding requirements could result in higher than anticipated costs, deleveraging and/or scaling back of business growth.

Risk factors in-year and key mitigantsScale/pace of transformation (including digital and data-led projects and use of cloud-based services). Reliance on third party controls in the provision of systems, data services and contact centre capabilities. An ever-changing cyber-threat, as well as the threat of data leakage.

We have managed the risk through the use of the following controls/mitigants: • overseeing the Operational Risk Management

Framework; • Information Security Framework; • Business Continuity Management; • supplier governance framework; • new product approval committee; • change governance and dedicated project

management resources; • process quality assurance procedures; • logical access management; • IT incident management; • independent third party review of our cyber

security; • penetration testing; • physical security; • Payment Card Industry Data Security controls

testing; • financial reconciliation controls; and • recruitment, remuneration and performance

management.

Risk factors in-year and key mitigantsEnsuring we lend responsibly and in an affordable way to customers.

We have managed the risk through the use of the following controls/mitigants: • Customer and Conduct Risk Committee

overseeing the Conduct Risk Management Framework;

• Manifesto, Values and risk and control training;

• new product approval committee; • retail partner monitoring and relationship

management; • executive-led steering committee to

manage CCMS implementation; • supplier governance programme; • policies and processes for vulnerable

customers; • policies and processes for complaint

handling; • PPI redress calculated in line with FCA

guidance and provision adequacy actively monitored;

• quality monitoring; • performance measurement and reward in

risk and control; and • risk and control measured in Company

colleague survey.

Risk factors in-year and key mitigantsThe economic environment leads the Bank of England to increase base rates that would increase funding costs.

The wider macroeconomic situation influences funding markets and we remained reliant on these markets being open and available during the year.

We have managed the risk through the use of the following controls/mitigants: • reduced the direct financial risk by

introducing the ability to pass on base rate changes to customers;

• funding strategy executed achieving diversification through raising funds in the US for the first time and extending maturities on our variable funding notes; and

• having headroom on our funding facilities to fund future receivables growth.

Risk factors in-year and key mitigantsEnsuring funding is in place for business growth, new products and retailers, and maintenance of cash levels.

Other financial risks include the transition to IFRS 9, the significant number of change projects underway, reliance on manual controls and End User Developed applications.

We have managed the risk through the use of the following controls/mitigants: • monitoring of the daily cash model which reports and forecasts the Group’s daily cash

balance at account level; • maintenance of unrestricted cash levels; • execution of funding strategy and maintenance of headroom on funding facilities following

expansion of our variable funding note capacity in December 2017; • Financial Control Framework (FCF) governing processes and procedures across finance; • first, second and third line of defence supplemented by external audit of the Annual Report

and Financial Statements; and • annual completion of stress scenario analysis outlined in the Liquidity and Cash

Management framework which is reported to the Asset and Liability Risk Committee.

Improvements in 2018 and future focusIn 2018, we implemented a SureCloud risk system and introduced business-wide monthly control attestations. We introduced consolidated risk reporting and enhanced linkage of business incidents to risks. We developed a risk coordinator forum and rolled out first line of defence testing.

In 2019, we will continue to mature the framework and place focus on policy attestation.

Improvements in 2018 and future focusThe ‘tone from the top’ continued in 2018, enabled by our Manifesto. Senior roles with a specific focus on customer outcomes were created in Collections.

In 2019, the focus on affordable lending and customer outcomes remains. Additionally ensuring that our marketing and complaints processes deliver effectively for the customer remains high on our agenda.

Improvements in 2018 and future focusWe executed our 2018 funding strategy, achieving further diversification with our first US capital market issuance, whose currency risk is hedged through a balance guaranteed cross-currency swap and extending maturities on our variable funding notes.

In 2019, we will continue to monitor and optimise our funding strategy in light of prevailing and emerging risk factors.

Improvements in 2018 and future focusIn 2018, we increased the granularity of reporting and produced longer-term forecasts. We enhanced our cash model and integrated it into daily activities. We also implemented a system for monitoring and automating certain balance sheet reconciliations. Our stress testing capability was assessed and an improved stress testing process was implemented.

In 2019, an automated system for securitisation reporting is scheduled for implementation which will improve control and reduce manual input.

1 Based on the Group’s operating model, this extends to all of the services and processes provided by third parties.


Principal risks continuedOperational risk Inadequate or failed internal processes, people and systems, or from external events including internal and external fraud.1

Conduct riskCustomer detriment arising from inappropriate culture, products, governance and processes.

Market riskDirect or indirect losses that arise from fluctuations in values of, or income from, assets or in movements in interest or exchange rates or credit spreads.

Financial riskInaccuracies in financial and management reporting and/or inadequate management of liquidity, funding and cash.

Example Reputational damage, financial loss and/or withdrawal of funding could arise from: • misstatement of external reporting (annual and quarterly reports and financial statements,

bank submissions, regulatory reports or securitisation reports); • misstatement of information for internal decision-making; • non-compliance with tax regulations; or • incorrect payments to third parties.

Unrestricted cash ensures that the Group can implement its business plan under normal conditions and within the Board’s agreed cash risk profile. If there is insufficient unrestricted cash this could impact the Group’s ability to meet ongoing financial commitments, invest in new business or pay Senior Secured Debt interest. Unavailability of funding for receivables would impact the Group’s ability to support customer spending and receivables growth.

ExampleReputational damage, regulatory censure and/or financial loss could arise from: • cyber attacks; • loss of customer data; • internal and external fraud; • lack of suitably skilled resources to run the

business effectively; or • human errors in manual processes.

Example NewDay or its strategic partners experiencing issues with poorly defined and managed controls, culture and/or governance could cause customer detriment and in turn this could lead to financial loss, affect reputation and give rise to regulatory censure.

ExampleInterest rate movement exposes NewDay to increased cost of funding.

Increased funding costs and/or not meeting funding requirements could result in higher than anticipated costs, deleveraging and/or scaling back of business growth.

Risk factors in-year and key mitigantsScale/pace of transformation (including digital and data-led projects and use of cloud-based services). Reliance on third party controls in the provision of systems, data services and contact centre capabilities. An ever-changing cyber-threat, as well as the threat of data leakage.

We have managed the risk through the use of the following controls/mitigants: • overseeing the Operational Risk Management

Framework; • Information Security Framework; • Business Continuity Management; • supplier governance framework; • new product approval committee; • change governance and dedicated project

management resources; • process quality assurance procedures; • logical access management; • IT incident management; • independent third party review of our cyber

security; • penetration testing; • physical security; • Payment Card Industry Data Security controls

testing; • financial reconciliation controls; and • recruitment, remuneration and performance

management.

Risk factors in-year and key mitigantsEnsuring we lend responsibly and in an affordable way to customers.

We have managed the risk through the use of the following controls/mitigants: • Customer and Conduct Risk Committee

overseeing the Conduct Risk Management Framework;

• Manifesto, Values and risk and control training;

• new product approval committee; • retail partner monitoring and relationship

management; • executive-led steering committee to

manage CCMS implementation; • supplier governance programme; • policies and processes for vulnerable

customers; • policies and processes for complaint

handling; • PPI redress calculated in line with FCA

guidance and provision adequacy actively monitored;

• quality monitoring; • performance measurement and reward in

risk and control; and • risk and control measured in Company

colleague survey.

Risk factors in-year and key mitigantsThe economic environment leads the Bank of England to increase base rates that would increase funding costs.

The wider macroeconomic situation influences funding markets and we remained reliant on these markets being open and available during the year.

We have managed the risk through the use of the following controls/mitigants: • reduced the direct financial risk by

introducing the ability to pass on base rate changes to customers;

• funding strategy executed achieving diversification through raising funds in the US for the first time and extending maturities on our variable funding notes; and

• having headroom on our funding facilities to fund future receivables growth.

Risk factors in-year and key mitigantsEnsuring funding is in place for business growth, new products and retailers, and maintenance of cash levels.

Other financial risks include the transition to IFRS 9, the significant number of change projects underway, reliance on manual controls and End User Developed applications.

We have managed the risk through the use of the following controls/mitigants: • monitoring of the daily cash model which reports and forecasts the Group’s daily cash

balance at account level; • maintenance of unrestricted cash levels; • execution of funding strategy and maintenance of headroom on funding facilities following

expansion of our variable funding note capacity in December 2017; • Financial Control Framework (FCF) governing processes and procedures across finance; • first, second and third line of defence supplemented by external audit of the Annual Report

and Financial Statements; and • annual completion of stress scenario analysis outlined in the Liquidity and Cash

Management framework which is reported to the Asset and Liability Risk Committee.

Improvements in 2018 and future focusIn 2018, we implemented a SureCloud risk system and introduced business-wide monthly control attestations. We introduced consolidated risk reporting and enhanced linkage of business incidents to risks. We developed a risk coordinator forum and rolled out first line of defence testing.

In 2019, we will continue to mature the framework and place focus on policy attestation.

Improvements in 2018 and future focusThe ‘tone from the top’ continued in 2018, enabled by our Manifesto. Senior roles with a specific focus on customer outcomes were created in Collections.

In 2019, the focus on affordable lending and customer outcomes remains. Additionally ensuring that our marketing and complaints processes deliver effectively for the customer remains high on our agenda.

Improvements in 2018 and future focusWe executed our 2018 funding strategy, achieving further diversification with our first US capital market issuance, whose currency risk is hedged through a balance guaranteed cross-currency swap and extending maturities on our variable funding notes.

In 2019, we will continue to monitor and optimise our funding strategy in light of prevailing and emerging risk factors.

Improvements in 2018 and future focusIn 2018, we increased the granularity of reporting and produced longer-term forecasts. We enhanced our cash model and integrated it into daily activities. We also implemented a system for monitoring and automating certain balance sheet reconciliations. Our stress testing capability was assessed and an improved stress testing process was implemented.

In 2019, an automated system for securitisation reporting is scheduled for implementation which will improve control and reduce manual input.

“ With another year of substantial change ahead in 2019, challenges in striking an effective balance will inevitably remain. That said, I believe that the risk-focused mindset and culture adopted at NewDay provide a robust risk management platform and effective guard rails”

James Corcoran Chief Executive Officer


Chairman’s introduction to corporate governance

During the year, the Board took a number of key decisions. The principal governance matters addressed in 2018 were:• delivering on the Group’s strategy for continued growth

and leveraging investments made to deliver shareholder returns;

• oversight of the implementation of the Group’s Value Creation Plan which identified an exciting range of initiatives aimed at generating incremental value for shareholders whilst ensuring the business is adequately protected;

• regularly reviewing customer outcomes and progress against the Manifesto;

• approval and oversight of the Group’s response to the FCA’s Credit Card Market Study, in particular with a view to ensuring appropriate outcomes are achieved for those individuals considered to be in persistent debt;

• closely monitoring other regulatory developments to ensure the Group is aware of matters on the regulatory horizon and is adequately prepared for them;

• monitoring macroeconomic conditions (including in relation to risks associated with Brexit) to ensure the Group’s strategy is appropriate; and

• oversight of the risks and effectiveness of controls in place around cyber security and security of customer data.

Following my appointment as Chairman of the Board on 9 May 2018, I have been pleased to witness first-hand the commitment across the Group to adhering to high standards of corporate governance. This is actively endorsed by Cinven, CVC and all members of management to ensure the business is operated in the interests of all stakeholders.

At the time of my appointment, the Group announced that Sir Malcolm Williamson will remain in his role as Independent Non-Executive Director and we also welcomed Johan Pettersson to the Board. This evidences the Group’s continued commitment to ensuring our Board has the correct balance of skills, knowledge and experience for our next stage of growth. Whilst no significant changes have been made to the Group’s strong governance framework, the Directors continue to monitor governance arrangements to ensure they remain fit for purpose and reflect the size and ambition of the Group.

“�Since�joining�the�Group�I have�been�impressed�with the�commitment�to�strong�levels�of corporate�governance�across�the�business�and�believe�the�Group is well-positioned for its next�stage�of�growth”



Business managementExecutes the business strategy as set

by the Board. Conducts day-to-day business within the parameters of the

Group’s risk appetite and Risk Management Framework.

Oversight and adviceProvides independent oversight of the

risk profile of the business and operation of the Risk Management Framework.

Independent assuranceProvides independent assurance on the design, operation and effectiveness of

the control framework, including activities performed by the first and

second lines of defence.

First line of defenceBusiness

Second line of defenceEnterprise Risk Function

Third line of defenceAssurance (internal audit)

Customer�and�Conduct�Risk�Committee

Operational�Risk�Committee

Credit�Risk�Committee

Asset�and�Liability�Risk�Committee

Commercial

Credit�and�Collections

Operations

People

Legal�and�Conduct�Advisory

Finance�and�Treasury

Board�AuditCommittee

Board� Remuneration�and�Nomination

Committee

Internal�Audit

Board�RiskCommittee

ManagementCommittee

Enterprise Risk�

ManagementCommittee

Enterprise�Risk�Function

NewDay Group UK Limited Board

Governance frameworkDuring 2018, the commercial aspects of the Group’s UK subsidiaries were managed by the Board of NewDay Group UK Limited (the Board), a wholly owned subsidiary of NewDay Group (Jersey) Limited, the Jersey-based parent company.

The Directors of NewDay Group (Jersey) Limited were responsible for the matters relating to NewDay Group (Jersey) Limited and their report for the period is set out on page 74. In addition, the Managers of NewDay Group Holdings S.à r.l. (the parent company of the Predecessor Group) remain responsible for matters relating to NewDay Group Holdings S.à r.l..

Other than as set out on page 74 and 75, the governance and risk framework described in this report relates to the governance and risk framework established for the Group’s UK subsidiaries and references to the ‘Board’, ‘Group’, ‘NewDay’ and ‘Company’ should be construed accordingly (where appropriate).

The Board’s role and composition are regularly reviewed to ensure that they are well defined and appropriate, and support the long-term development of the Group.

The day-to-day responsibility for managing the Group’s business is delegated to the Chief Executive Officer

who, supported by the Management Committee, implements the decisions and policies approved by the Board and deals with matters within the ordinary course of business.

The Board, where deemed appropriate, adheres to the Financial Reporting Council’s UK Corporate Governance Code, which can be found online at www.frc.org.uk/directors/corporate-governance-and-stewardship/uk-corporate-governance-code.

In addition, the Group complies with the Guidelines for Disclosure and Transparency in Private Equity, which can be found online at: http://privateequityreportinggroup.co.uk/.


Sir Michael Rake Chairman, Independent Non-Executive Director and member of the Board Remuneration and Nomination CommitteeSir Michael Rake, knighted in 2007, is Chairman of Great Ormond Street Hospital (2017) and Phoenix Global Resources (2017). He is also chairman of Majid AL Futtaim Holdings LLC (2010) and is a director of Worldpay Inc (Chairman Worldpay Group plc 2015-2018) and of S&P Global (2008). Sir Michael’s business advisory roles include chairman of the International Chamber of Commerce UK, Chairman of the Advisory Board for Engie UK, Advisor to Teneo Holdings, a Senior Adviser for Chatham House and a member of the Oxford University Centre for Corporate Reputation Global Advisory Board.

Sir Michael’s former principal roles include Chairman of BT Group Plc, Chairman (both UK and International) of KPMG, Chairman of easyJet, President of the Confederation of British Industry, Deputy Chairman of Barclays and director of the Financial Reporting Council.

Alison Reed Senior Independent Non-Executive Director, Chairman of the Board Audit Committee and Board Risk CommitteeAlison Reed has extensive business knowledge and experience from her previous senior business roles as Chief Financial Officer at Marks and Spencer Group plc and Group Finance Director at Standard Life plc (including Standard Life Assurance Company). Alison is a Non-Executive Director and Deputy Chairman of British Airways plc, a Member of Council and the Audit Committee of Exeter University and in November 2018 was appointed as a Non-Executive Director at CGI Inc. Alison was previously a Non-Executive Director at Darty plc and HSBC Bank plc. She is a member of the Institute of Chartered Accountants in England and Wales.

Rupert Keeley Independent Non-Executive Director, Chairman of the Board Remuneration and Nomination CommitteeRupert Keeley was the General Manager for PayPal’s businesses in Europe, Middle East & Africa (EMEA), an Executive Vice President of PayPal (Holdings) Inc. and Chief Executive Officer of the PayPal Europe bank until June 2018. Rupert has more than 30 years of banking and payments experience and was formerly Visa Inc.’s Group Executive and President of the Asia Pacific and CEMEA regions, and a Section 16 Officer of the company. He held a number of management roles including Global Head of Strategy and Corporate Development. Prior to joining Visa in 1999, Rupert held a number of senior management positions with Standard Chartered plc based in London, Singapore and the Middle East. He started his career at Girobank plc in London. Rupert holds an MBA in Marketing from the City University Business School, London and a B.Sc. (Hons) in Management Sciences from the University of Manchester.

Sir Malcolm WilliamsonIndependent Non-Executive Director and member of the Board Remuneration and Nomination CommitteeSir Malcolm Williamson is the former Group Chief Executive of Standard Chartered Bank and former President and CEO of Visa International. Knighted in 2007, Sir Malcolm was Chairman of Signet Jewelers, Clydesdale Bank/National Australia Group Europe and a Non-Executive Director of National Australia Bank until 2012. He also previously served as Chairman of CDC Group, Friends Life Group and Britannic Group and was Deputy Chairman of Resolution. He has been a Non-Executive Director of JP Morgan Cazenove Holdings, G4S and the National Grid Group. He was also a member of the Board of Trustees for the International Business Leaders Forum.

Current external appointments include: Chairman of Charter Court Financial Services, Senior Independent Director at Aviva; Chairman of Cass Business School’s Strategy and Development Board; the Governing Council of the Centre for the Study of Financial Innovation; and the Board of Trustees for Youth Business International.

James Corcoran Executive Director, Chief Executive Officer and member of the Board Remuneration and Nomination CommitteeJames Corcoran has over 30 years of global financial services experience with large multi-national companies, such as American Express, Citibank, HBOS and IBM. James began his career in sales and marketing, moving into general management where he has held various senior executive positions over the past 20 years. He has run credit card businesses for First USA/Bank One and Amex and at HBOS his final role was CEO of the Distribution, Retail and Insurance Division. Prior to that, he was Head of HBOS’ Retail Product business units. James joined NewDay as CEO in January 2009 from Washington Mutual in Seattle, where he was President of the Retail Banking Division.

Paul Sheriff Executive Director and Chief Financial OfficerPaul Sheriff has over 25 years of experience in financial services organisations spanning banking, asset management and insurance. Paul joined from Legatum, a private investment firm based in Dubai where he was CFO/COO for three years, having previously been CFO/COO of Record plc, a main market listed asset management business. Prior to this he was Group Finance Director at Arbuthnot Banking Group plc, a listed banking group, and Commercial Finance Director of the Prudential’s UK and European business. Earlier in his career he spent five years in private equity and qualified as a Chartered Accountant with Arthur Andersen. He is a member of the Institute of Chartered Accountants in England and Wales.

Caspar Berendsen Investor Director (Cinven), member of the Board Risk Committee and Board Remuneration and Nomination CommitteeCaspar Berendsen is a Partner at Cinven and leads the Financial Services sector team and the Industrials sector team. Prior to this, Caspar worked at J.P. Morgan in London advising Dutch and Belgian clients across a variety of sectors. Caspar holds an Ir degree in Mining and Petroleum Engineering from the Technical University Delft, the Netherlands and graduated from the Erasmus University, Rotterdam with a Drs in Business Administration.

Caspar has extensive experience of investing across various financial services industries. He has led and been responsible for investments in Guardian Financial Services (PRA/FCA regulated), Viridium Group (BaFin regulated), Eurovita (IVASS regulated), Avolon, Premium Credit Limited (FCA regulated) and Partnership Assurance plc (PRA/FCA regulated). Caspar has also been a member of the board and risk and audit committees for Partnership Assurance plc, Avolon, Guardian Financial Services, Viridium Group and Eurovita.

Peter Rutland Investor Director (CVC Capital Partners), member of the Board Risk Committee and Board Remuneration and Nomination CommitteePeter Rutland is a Partner at CVC, is Co-Head of CVC’s Financial Services Group and leads CVC’s financial services investing in Europe. Prior to joining CVC, he worked for Advent International. Prior to working at Advent International, Peter worked for Goldman Sachs in the Investment Banking Division. Peter holds an MA degree from the University of Cambridge and an MBA from INSEAD.

Peter has led or been responsible for investments in Brit Insurance (a leading Lloyd’s insurance and reinsurance company), Avolon (global aircraft leasing company), Skrill (the second largest provider of online payment solutions in Europe), Domestic & General (a leading provider of product protection and warranty insurance in Europe), Pension Insurance Corporation (a leading pension annuity provider in the UK) and Paysafe (a global leading provider of online payment solutions). A number of these portfolio companies are also PRA/FCA regulated.

Board of Directors


Sir Michael Rake Chairman, Independent Non-Executive Director and member of the Board Remuneration and Nomination CommitteeSir Michael Rake, knighted in 2007, is Chairman of Great Ormond Street Hospital (2017) and Phoenix Global Resources (2017). He is also chairman of Majid AL Futtaim Holdings LLC (2010) and is a director of Worldpay Inc (Chairman Worldpay Group plc 2015-2018) and of S&P Global (2008). Sir Michael’s business advisory roles include chairman of the International Chamber of Commerce UK, Chairman of the Advisory Board for Engie UK, Advisor to Teneo Holdings, a Senior Adviser for Chatham House and a member of the Oxford University Centre for Corporate Reputation Global Advisory Board.

Sir Michael’s former principal roles include Chairman of BT Group Plc, Chairman (both UK and International) of KPMG, Chairman of easyJet, President of the Confederation of British Industry, Deputy Chairman of Barclays and director of the Financial Reporting Council.

Alison Reed Senior Independent Non-Executive Director, Chairman of the Board Audit Committee and Board Risk CommitteeAlison Reed has extensive business knowledge and experience from her previous senior business roles as Chief Financial Officer at Marks and Spencer Group plc and Group Finance Director at Standard Life plc (including Standard Life Assurance Company). Alison is a Non-Executive Director and Deputy Chairman of British Airways plc, a Member of Council and the Audit Committee of Exeter University and in November 2018 was appointed as a Non-Executive Director at CGI Inc. Alison was previously a Non-Executive Director at Darty plc and HSBC Bank plc. She is a member of the Institute of Chartered Accountants in England and Wales.

Rupert Keeley Independent Non-Executive Director, Chairman of the Board Remuneration and Nomination CommitteeRupert Keeley was the General Manager for PayPal’s businesses in Europe, Middle East & Africa (EMEA), an Executive Vice President of PayPal (Holdings) Inc. and Chief Executive Officer of the PayPal Europe bank until June 2018. Rupert has more than 30 years of banking and payments experience and was formerly Visa Inc.’s Group Executive and President of the Asia Pacific and CEMEA regions, and a Section 16 Officer of the company. He held a number of management roles including Global Head of Strategy and Corporate Development. Prior to joining Visa in 1999, Rupert held a number of senior management positions with Standard Chartered plc based in London, Singapore and the Middle East. He started his career at Girobank plc in London. Rupert holds an MBA in Marketing from the City University Business School, London and a B.Sc. (Hons) in Management Sciences from the University of Manchester.

Sir Malcolm WilliamsonIndependent Non-Executive Director and member of the Board Remuneration and Nomination CommitteeSir Malcolm Williamson is the former Group Chief Executive of Standard Chartered Bank and former President and CEO of Visa International. Knighted in 2007, Sir Malcolm was Chairman of Signet Jewelers, Clydesdale Bank/National Australia Group Europe and a Non-Executive Director of National Australia Bank until 2012. He also previously served as Chairman of CDC Group, Friends Life Group and Britannic Group and was Deputy Chairman of Resolution. He has been a Non-Executive Director of JP Morgan Cazenove Holdings, G4S and the National Grid Group. He was also a member of the Board of Trustees for the International Business Leaders Forum.

Current external appointments include: Chairman of Charter Court Financial Services, Senior Independent Director at Aviva; Chairman of Cass Business School’s Strategy and Development Board; the Governing Council of the Centre for the Study of Financial Innovation; and the Board of Trustees for Youth Business International.

James Corcoran Executive Director, Chief Executive Officer and member of the Board Remuneration and Nomination CommitteeJames Corcoran has over 30 years of global financial services experience with large multi-national companies, such as American Express, Citibank, HBOS and IBM. James began his career in sales and marketing, moving into general management where he has held various senior executive positions over the past 20 years. He has run credit card businesses for First USA/Bank One and Amex and at HBOS his final role was CEO of the Distribution, Retail and Insurance Division. Prior to that, he was Head of HBOS’ Retail Product business units. James joined NewDay as CEO in January 2009 from Washington Mutual in Seattle, where he was President of the Retail Banking Division.

Paul Sheriff Executive Director and Chief Financial OfficerPaul Sheriff has over 25 years of experience in financial services organisations spanning banking, asset management and insurance. Paul joined from Legatum, a private investment firm based in Dubai where he was CFO/COO for three years, having previously been CFO/COO of Record plc, a main market listed asset management business. Prior to this he was Group Finance Director at Arbuthnot Banking Group plc, a listed banking group, and Commercial Finance Director of the Prudential’s UK and European business. Earlier in his career he spent five years in private equity and qualified as a Chartered Accountant with Arthur Andersen. He is a member of the Institute of Chartered Accountants in England and Wales.

Caspar Berendsen Investor Director (Cinven), member of the Board Risk Committee and Board Remuneration and Nomination CommitteeCaspar Berendsen is a Partner at Cinven and leads the Financial Services sector team and the Industrials sector team. Prior to this, Caspar worked at J.P. Morgan in London advising Dutch and Belgian clients across a variety of sectors. Caspar holds an Ir degree in Mining and Petroleum Engineering from the Technical University Delft, the Netherlands and graduated from the Erasmus University, Rotterdam with a Drs in Business Administration.

Caspar has extensive experience of investing across various financial services industries. He has led and been responsible for investments in Guardian Financial Services (PRA/FCA regulated), Viridium Group (BaFin regulated), Eurovita (IVASS regulated), Avolon, Premium Credit Limited (FCA regulated) and Partnership Assurance plc (PRA/FCA regulated). Caspar has also been a member of the board and risk and audit committees for Partnership Assurance plc, Avolon, Guardian Financial Services, Viridium Group and Eurovita.

Peter Rutland Investor Director (CVC Capital Partners), member of the Board Risk Committee and Board Remuneration and Nomination CommitteePeter Rutland is a Partner at CVC, is Co-Head of CVC’s Financial Services Group and leads CVC’s financial services investing in Europe. Prior to joining CVC, he worked for Advent International. Prior to working at Advent International, Peter worked for Goldman Sachs in the Investment Banking Division. Peter holds an MA degree from the University of Cambridge and an MBA from INSEAD.

Peter has led or been responsible for investments in Brit Insurance (a leading Lloyd’s insurance and reinsurance company), Avolon (global aircraft leasing company), Skrill (the second largest provider of online payment solutions in Europe), Domestic & General (a leading provider of product protection and warranty insurance in Europe), Pension Insurance Corporation (a leading pension annuity provider in the UK) and Paysafe (a global leading provider of online payment solutions). A number of these portfolio companies are also PRA/FCA regulated.


David GiroflierInvestor Director (Cinven), member of the Board Audit CommitteeDavid Giroflier is a Principal at Cinven. Prior to joining Cinven, David worked in the Investment Banking Division of HSBC in Paris, advising on M&A transactions across a range of sectors including industrials, aerospace and consumer. David also advised the French government on various transactions. David graduated from the HEC School of Management in Paris with an MSc in Business Administration. David is an experienced private equity investor, having been involved in a number of Cinven’s transactions including Camaïeu, Tractel and Visma.

David previously sat on the board of Camaïeu. David also has significant knowledge and understanding of the financial services industry having diligenced a number of businesses in the past three years.

Arron Wu Investor Director (CVC Capital Partners), member of the Board Audit CommitteeArron Wu is a Director at CVC. Arron is a member of the CVC Financial Services Group. Prior to joining CVC, Arron worked at Oliver Wyman where he focused on financial services opportunities in Asia, Europe and the US for over three years. Arron holds a BSc degree in Economics from University College London.

Arron is an experienced investor in the financial services sector, having led and been responsible for investments in Brit Insurance (a leading Lloyd’s insurance and reinsurance company), Skrill (the second largest provider of online payment solutions in Europe), Domestic & General (a leading provider of product protection and warranty insurance in Europe), Pension Insurance Corporation (a leading pension annuity provider in the UK) and Paysafe (a global leading provider of online payment solutions). A number of these portfolio companies are also PRA/FCA regulated.

Johan Pettersson Investor Director (Cinven)Johan Pettersson is a Principal at Cinven. Prior to joining Cinven, Johan was at J.P. Morgan in the Investment Banking Division, advising on M&A transactions across a range of sectors. Johan holds an MSc in Industrial Engineering from the Lund Institute of Technology. Johan is an experienced investor in the financial services sector, having been involved in the acquisition and management of Premium Credit (FCA regulated), Eurovita (IVASS regulated) and Viridium Group (BaFin regulated). Johan also has significant knowledge and understanding of the financial services industry, having diligenced a number of businesses in the last five years.

Robin Peveril HooperInvestor Director (CVC Capital Partners)Pev Hooper is a Partner at CVC and sits on the boards of Domestic & General and the RAC. He was also responsible for CVC’s prior investments in the AA, SkyBet, Saga, Merlin Entertainments, and Virgin Active, and has sat on the boards of these and other CVC portfolio companies. He joined CVC in 2003 after working in mergers and acquisitions at Citigroup and Schroders. He holds an MA degree from Oxford University.

Pev brings a range of UK consumer financial services experience from his time on the boards of FCA/PRA regulated businesses such as Domestic & General (a leading provider of product protection and warranty insurance in Europe), Saga (a leading motor and home insurance provider for the over 50s), the RAC and the AA (both leading roadside recovery providers and insurance brokers).

Board of DirectorsContinued


Management Committee

Whilst the Board, among other things, directs the Group’s strategy, the Management Committee supports the Chief Executive Officer in the management of the Group’s day-to-day operations. The Management Committee comprises the Chief Executive Officer (who acts as Chair) and Chief Financial Officer together with the following individuals:

Ian Corfield Chief Commercial OfficerIan joined NewDay in 2014 after six years at the Commonwealth Bank of Australia, where he was CEO and a Board Director of its majority owned Aussie Home Loans subsidiary, having previously been CEO of the Retail and then Business Bank at Bankwest.

Sanjay Sharma Chief Operating OfficerSanjay joined NewDay in 2013. Sanjay has more than 24 years’ experience in senior operational roles in international businesses working in India, the Philippines, London and Austria. He joined from Bawag PSK in Vienna where he was Chief Operating Officer and a member of the Management Board.

James CorcoranChief Executive Officer

Paul SheriffChief Financial Officer

Rob Holt Chief Credit and Collections OfficerRob joined NewDay in 2012 from Santander UK where he held various leadership roles spanning Credit Risk, Collections, Commercial and Marketing Analytics. Prior to this, Rob worked for HBOS, Capital One and PwC in a career spanning over 20 years in financial services.

Damaris Anderson-Supple Chief People OfficerDamaris joined NewDay in 2013. Damaris joined to lead the People team at NewDay from Hill and Knowlton Strategies UK, where she was Chief Operating Officer and where talent strategy was a key priority.

Stephen Rowland General CounselStephen joined NewDay in 2011 from Santander UK, where he was Legal and Compliance Director for the UK Cards business for two years. Prior to this, Stephen worked in the legal team at GE Capital for four years and in practice at Baker & McKenzie for five years.

Mark Eyre Chief Risk OfficerMark joined NewDay in 2014 from Deloitte, where he was a Director in the Risk and Regulation practice, providing advisory support to financial services firms regarding risk management and regulation. Prior to this, Mark worked at Barclays for 17 years reporting to the Group Chief Risk Officer.


The Board

The�Board�is�responsible�for�overseeing�the�Group’s�activities.�The�Directors�are�apprised�of,�debate�and�challenge�strategy,�mergers�and�acquisitions,�operational�performance�metrics,�risk�matters,�customer�and�conduct-related�matters,�and�receive�reports�on�current�strategic�initiatives.

The Directors bring many skills and a breadth of experience to the Board, including strategic experience, commercial knowledge, retail banking experience, UK regulatory knowledge, customer management and conduct expertise, treasury and funding experience, risk management expertise, operational IT and accounting experience. This enables Board members to make informed decisions on key issues facing the business.

Throughout the year, the Group maintained appropriate insurance cover to protect the Directors from liabilities that may arise against them personally in connection with the performance of their role. In addition: (i) the articles of association of NewDay Group (Jersey) Limited contain an indemnity in favour of its Directors so far as is permitted under Jersey law; and (ii) certain of the Group’s UK subsidiaries have similar provisions in their articles of association providing qualifying third party indemnities for the benefit of the Directors of such entities.

Role�of�the�BoardThe Board is responsible for creating a foundation for growth and attractive shareholder returns. It determines the vision, strategy and high-level policies of the Group, striking an appropriate balance between risk and reward, whilst ensuring positive customer outcomes. It sets out the guidelines within which the business, including those parts of the business that are outsourced, is managed and controlled. It monitors business performance against agreed targets, within an agreed budget, to support the strategic objectives of the business.

It also provides oversight and independent challenge, particularly with regard to the business’ culture and values.

The Board executes these responsibilities through its own decision-making and by delegating responsibility to Board Committees and to the Chief Executive Officer, with support

from the Management Committee. The Board has three sub-committees: the Board Audit Committee; the Board Risk Committee; and the Board Remuneration and Nomination Committee. The roles and responsibilities of each committee are documented in Board-approved terms of reference. However, some matters are reserved for consideration by the Board. These include matters relating to: (i) strategy and management; (ii) structure, capital and funding; (iii) financial reporting and controls; (iv) internal controls and risk management; (v) material contracts; (vi) external communications requiring Board approval; (vii) changes to the Board’s structure and remuneration and senior management arrangements; (viii) delegation of authority; and (ix) corporate governance matters.

Attendance at Board and Committee meetings

Member

Board meetings attended

Board Audit Committee

meetings attended

Board Risk Committee

meetings attended

Board Remuneration

and Nomination Committee

meetings attended

Sir Michael Rake1 5/6 N/A N/A 1/2

Alison Reed 8/8 7/7 6/6 N/A

Rupert Keeley 8/8 N/A N/A 2/2

Sir Malcolm Williamson1

8/8 N/A N/A 2/2

James Corcoran 8/8 N/A N/A 2/2

Paul Sheriff 8/8 N/A N/A N/A

Caspar Berendsen

7/8 N/A 6/6 2/2

Peter Rutland 6/8 N/A 4/6 2/2

David Giroflier2 8/8 7/7 N/A N/A

Arron Wu 8/8 7/7 N/A N/A

Johan Pettersson2

6/8 N/A N/A N/A

Pev Hooper 8/8 N/A N/A N/A

Rory Neeson2 0/3 N/A N/A N/A

Note:1. On 9 May 2018, Sir Michael Rake was appointed as Chairman and as a member of the

Board Remuneration and Nomination Committee. Sir Malcolm Williamson continued in his role as Independent Non-Executive Director and member of the Board Remuneration and Nomination Committee. Sir Michael Rake was eligible to attend six Board meetings and two Board Remuneration and Nomination Committee meetings during the year.

2. Rory Neeson resigned as a Director on 9 May 2018 and Johan Pettersson was appointed in his place. Rory resigned as a member of the Board Audit Committee on 8 February 2018 and David Giroflier was appointed in his place.


Chairman�and�Chief�Executive�OfficerThe roles of the Chairman and Chief Executive Officer are separate and clearly defined.

The Chairman is responsible for overseeing the Board and its meetings to ensure that: (i) the Board meets its responsibilities; (ii) effective communications are maintained with stakeholders; and (iii) Directors receive accurate, timely and clear information regarding the Group.

The Chief Executive Officer is responsible for overseeing the Group and the management of its senior executives within parameters set by the Board.

The Chief Executive Officer is also responsible for the development, recommendation and implementation of the Group’s strategic plans, which are approved by the Board. The Management Committee supports the Chief Executive Officer in the performance of his duties.

Board�balance�and�independenceSix of our 12 Board members are Investor Directors (three of which have been appointed by Cinven with the remaining three Investor Directors appointed by CVC). These Investor Directors have significant experience serving on the boards of regulated companies as well as in the specialty finance sector.

In addition, four experienced Independent Non-Executive Directors sit on the Board whose views carry substantial weight in the Board’s decision-making processes. These members were appointed on merit after a process involving external search consultants. They were considered to be free from any relationship with the Group’s executive management that could compromise their independent judgement.

Independent professional advice is available to the Directors at the Group’s expense.

The long-standing inclusion of Independent Non-Executive Directors offers an external perspective, independent challenge and broad expertise in key areas of financial services and other related disciplines.

TrainingDirectors have access to relevant training courses during the year. To continue to ensure that Board members are up to date on the latest developments and maximise their effectiveness, during 2018 training focused on the implications of the Payment Service Directive II (in particular, the requirements for stronger customer authentication).

Supply�of�informationAn online repository for Board materials is used to supply appropriate and good-quality information to the Board. All Directors have access to the services of the Company Secretary and other staff, as required.

Political�donationsThe Group did not incur any political expenditure or make any political donations to political parties, other political organisations, or any independent election candidates during the year.

Relations�with�Cinven�and�CVCAs noted above, Cinven and CVC have each appointed three Investor Directors to the Board. In addition, four experienced Independent Non-Executive Directors and two Executive Directors sit on the Board. Cinven and CVC are able to appoint and/or remove sufficient directors to ensure they control the Board for voting purposes.

The Boards of NewDay Ltd and NewDay Cards Ltd, the regulated entities within the Group, do not have Investor Directors and are comprised only of Executive Directors (together with, in the case of NewDay Ltd only, the Independent Non-Executive Directors).

Engagement with Cinven and CVC is encouraged through attendance at Board meetings and, in months in which there is no Board meeting, specific investor meetings are arranged. As part of this process, representatives of Cinven and CVC receive updates on key Group initiatives.

Directors’�conflicts�of�interestThe Group has procedures in place for the effective management of conflicts of interest. The Articles of Association of relevant UK Group companies contain provisions to allow the Board to authorise potential conflicts of interest so that a Director is not in breach of his or her duty under company law.

Internal�control�and�risk�management�systems�The Board is responsible for monitoring and reviewing the Group’s internal control system to maximise its effectiveness. The internal control environment is described on page 69.

Share�capitalDuring the year ended 31 December 2018, the Company did not acquire any of its own shares.


Board Audit Committee

We continued to review areas of significant judgement and complexity on a quarterly basis, including provisions for PPI and non-customer related regulatory provisions, and assessed the impact of these on the Financial Statements. We reviewed and approved quarterly, half-yearly and annual reports, Financial Statements and investor presentations and recommended them for approval to the Board, considering whether they were fair, balanced and understandable.

We also continued to oversee the in-house internal audit function, ensuring its audit plan was tailored to address higher risk areas; either as a result of regulator and industry focus or as a result of the continued pace of growth within the business. We evaluated the reports and findings of internal audit along with receiving status updates on the resolution of agreed actions. We also ensured appropriate training was in place for the continued development of the internal audit function such that it can continue to fulfil its responsibilities and adapt its audit plans in line with the pace of change in the business.

Chairman’s overviewThe Committee typically spends over half of its time reviewing financial reporting and assessing the integrity of information provided to external parties and 2018 was a year of significant change in this area driven by both external factors and business strategy.

Following the introduction of IFRS 9 ‘Financial Instruments’ in January 2018 we spent a significant amount of time reviewing the Group’s IFRS 9 methodology, considering the key judgements which underpin it, discussing updates from the external auditor’s work and assessing the appropriate disclosures in external reporting. The challenges faced by the high street required continued assessment of the potential implications for our retail partners and the goodwill and acquired intangible asset valuations on our balance sheet. In addition, we evaluated and approved the adoption of hedge accounting following our first US capital market issuances.

“ The Committee continued to closely monitor accounting, regulatory and tax matters and assessed the integrity of the quarterly and annual Financial Statements alongside developing and delivering internal audit plans that support the growth of the business”

Alison Reed Senior Independent Non-Executive Director, Chairman of the Board Audit Committee


Committee�composition,�skills�and�experienceThe following Directors are members of the Board Audit Committee:• Alison Reed, Senior Independent Non-Executive Director;• David Giroflier, Investor Director (Cinven); and• Arron Wu, Investor Director (CVC).

Alison Reed is the Chairman and has significant accounting and financial reporting experience. On 8 February 2018, David Giroflier replaced Rory Neeson as a member of the Board Audit Committee.

The diverse backgrounds of the Committee members and our combined skills and range of accounting and financial reporting, risk and business experience (as detailed on pages 58 and 60) enable us to fulfil the Committee’s remit, as set out in the terms of reference, which are reviewed annually.

The Committee acts independently from the Executive team to ensure shareholders’ interests are protected in relation to financial reporting and internal control. The internal and external auditors attend all meetings and we regularly meet with them in private.

Although not members of the Committee, the Chairman, Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, Director of Internal Audit and Company Secretary attend each meeting. Other Directors are invited as and when required, to ensure that we have all the information required to operate effectively.

Roles�and�responsibilitiesThe main roles and responsibilities of the Committee, as set out in the terms of reference, are:• to monitor the integrity of the Financial Statements, review

and challenge significant financial reporting issues and assess the judgements made;

• to review the financial reports for publication and to ensure compliance with accounting policies and standards and ensure that, taken as a whole, they are fair, balanced and understandable;

• to review and approve financial control and liquidity frameworks;

• to review the internal financial control and risk management systems and to review risk exposures and steps taken to monitor and mitigate them;

• to monitor and review the effectiveness of the internal audit function;

• to make recommendations to the Board in relation to the appointment, remuneration and terms of engagement of the external auditor;

• to review and monitor the external auditor’s independence, objectivity and effectiveness, taking into consideration relevant UK professional and regulatory requirements;

• to develop and implement an approach on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm;

• to review the findings of the external auditor;• to monitor management’s response to the findings and

recommendations of internal and external audit;

• to review compliance with legal and regulatory requirements;

• to report the outcome of meetings to the Board, identifying any matters in respect of which it considers that action or improvement is needed, and making recommendations as to the steps to be taken;

• to monitor, and challenge where appropriate, the whistleblowing arrangements as set out in the whistleblowing policy; and

• to review procedures for detecting fraud, including the systems and controls for the prevention of bribery.

Key�activities�of�the�Board Audit Committee in 2018The Committee convened seven times during the year and delivered the following key outcomes:• reviewed the 2017 Annual Report and Financial Statements

and each of the quarterly investor reports and presentations to ensure that, taken as a whole, they were fair, balanced and understandable and advised the Board to that effect;

• reviewed and challenged the appropriateness of the Group’s accounting policies, critical accounting estimates and key judgements which were presented to us quarterly. This included discussions with management on provisioning methodology, most notably in relation to the impairment of loans and advances to customers and PPI;

• monitored the implementation of IFRS 9, including:– review, challenge and approval of the methodology

adopted ensuring it addressed the requirements of the standard;

– consideration of the key judgements inherent in the calculation of expected credit losses for loans and advances to customers and understanding the key sensitivities thereto;

– assessment of the changes to key controls and governance surrounding the impairment provision;

– receiving updates on the external auditor’s audit of the new methodology and accounting policies and evaluating findings;

– discussing industry guidance and best practice and reviewing available benchmarking; and

– reviewing the disclosures in the Financial Statements to ensure they were fair, balanced, understandable and addressed the requirements of IFRS 9;

• monitored developments with respect to ongoing challenges on the high street and potential implications for our retail partners, including the administration of House of Fraser. Assessed the impact of these updates on the Group’s goodwill and certain acquired intangible asset balances to assess whether an impairment assessment was required;

• evaluated and approved the application of hedge accounting following the issuance of the Group’s first US capital market bond issuances;

• oversaw the relationship with the internal and external auditor including consideration of the terms of engagement and assessing the effectiveness of both internal and external audit functions;

• monitored the development and training of the in-house internal audit function and approved the audit plan for the year to ensure it reflected planned areas of growth in the business;


Board Audit CommitteeContinued

• evaluated the reports and findings of the internal and external auditors, including management’s response to any recommendations along with status updates on the resolution of agreed actions;

• reviewed and approved the Group’s tax strategy and received regular updates on tax-related matters;

• oversaw the continued development and growth of the Financial Control Framework to ensure it adapted in line with the pace of change in the business;

• monitored regular updates on key business risks, including conduct, regulatory, legal, data, fraud and whistleblowing;

• reviewed the Group’s liquidity framework, cash management procedures and contingent funding plan, including assessing the impact of stress scenario analyses;

• assessed compliance with the relevant sections of the UK Corporate Governance Code that we have elected to adopt as best practice; and

• considered and challenged management forecasts of Group cash flows and net debt, as well as financing facilities available to the Group. Following this review, we confirmed the appropriateness of the going concern basis of accounting in the Financial Statements to the Board.

Financial�reportingThe main areas of judgement we considered in relation to the Financial Statements for the year ended 31 December 2018 are set out below. These issues were closely examined with the external auditor during the year.

Key issues and judgements in financial reporting Board Audit Committee’s review and conclusions

Adoption of IFRS 9 and ongoing impairment provision on loans and advances to customersThe Group adopted IFRS 9 on 1 January 2018 and recognised an increase in the impairment provision on transition of £213m through retained earnings.

Impairment provisions are recognised on origination of a financial asset, based on its anticipated credit loss. Expected credit loss (ECL) is the product of the probability of default, exposure at default and loss given default, discounted at the original effective interest rate. The assessment of credit risk and the estimation of ECL are required to be unbiased and probability-weighted, and should incorporate all available information relevant to the assessment, including information about past events, current conditions and reasonable and supportable forecasts of economic conditions at the reporting date.

Impairment and credit risk remains a significant area of risk and audit focus in the Financial Statements as a result of the various assumptions and judgements that are necessary.

The provision for expected credit losses recorded by the Group under IFRS 9 as at 31 December 2018 were £356m for Own-brand receivables, £43m for Co-brand receivables and £7m for Unsecured Personal Loan receivables (IFRS 9 provision on transition: £190m, £22m and £1m respectively, 2017 provision under IAS 39: £120m, £13m and £1m respectively).

Refer to note 2.3 for further detail on the judgements inherent within the impairment provision.

The Committee has closely monitored the Group’s IFRS 9 implementation project and was apprised of updates throughout 2017 and into 2018 on the project’s status.

We received regular updates facilitating detailed discussion and challenge, including a review of the key methodology decisions and interpretations applied, as well as an assessment as to how the methodology adopted meets the requirements of the standard.

We challenged the key judgements applied, including the expected life, determination of significant increase in credit risk, the definition of default and incorporation of forward-looking information. In considering the appropriateness we reviewed the rationale and impact of variations to each of the key assumptions.

We also assessed the key controls and governance in place around the operation of the IFRS 9 model.

We reviewed the disclosures in the Financial Statements to ensure they were appropriate and addressed the requirements of IFRS 9.

The Committee was satisfied that the impairment provision was appropriate.


Key issues and judgements in financial reporting Board Audit Committee’s review and conclusions

PPI provisionThe PPI provision relates to redress to cardholders in respect of matters relating to the sale of PPI.

As at 31 December 2018, the Group recorded a PPI provision of £25m (2017: £45m). The FCA has set a deadline for complaints about mis-selling and other matters related to the sale of PPI of 29 August 2019. In addition, the redress amounts payable to consumers must include an element of profit share as well as commission following the Supreme Court’s decision in Plevin v Paragon Personal Finance Ltd.

Refer to note 2.3 for further detail on the judgements inherent within the PPI provision.

Various inputs and assumptions are used in the calculation of the provision for PPI. The assumptions are based on the historical profile of the Group’s cardholders, the future expectations of the Group based on past customer behaviour and latest regulatory developments, all of which the Committee monitors closely.

The Committee was presented with evidence to support the assumptions and considered and challenged the various factors that affect the provision for PPI, including claims experience, the projections underlying the estimates and the potential expected range of future claims.

The Committee was satisfied that the provision was appropriate given the information available.

Impairment of goodwill and acquired intangible assetsThe carrying value of goodwill and certain acquired intangible assets have been subject to an impairment review. The impairment review is conducted by comparing the discounted estimated future cash flows of the cash-generating units with the carrying value in the Financial Statements.

Acquired intangible assets of £301m and goodwill of £280m have been recorded in the balance sheet as at 31 December 2018 (2017: £351m and £280m respectively).

Refer to note 2.3 for further detail on the judgements inherent within the impairment assessment on goodwill and acquired intangible assets.

The Committee challenged the assumptions within the impairment review of goodwill and acquired intangible assets. This included consideration of the rationale and impact of variations to each of the key assumptions, including scenario analysis with regard to retailer performance given challenges seen on the high street.

The Committee was satisfied that the carrying value of goodwill and acquired intangible assets were appropriate.

Other provisions The Group is engaged in various legal and regulatory matters, the impact of which cannot always be predicted, but matters can give rise to provisioning for contingent and other liabilities depending on the relevant facts and circumstances.

The level of provisioning is subject to management judgement on the basis of legal advice and is therefore an area of focus for the Committee.

The Group has recognised non-customer related regulatory provisions totalling £7m as at 31 December 2018 (2017: £5m).

Refer to note 20 for further detail on other provisions.

The Committee has understood the basis for determining the other provisions and, where relevant, has reviewed legal and accounting advice in determining the appropriate amount of provision.

Having reviewed the information available to determine what was both probable and could be reliably estimated, the Committee agreed that the level of provision at the year end was appropriate.

Going concernThe Directors are required to confirm whether they have a reasonable expectation that the Company and the Group has the resources necessary to continue in business for a period of at least 12 months after the approval of the Financial Statements.

The Committee considered and challenged management forecasts of Group operating cash flows and net debt, as well as financing facilities available to the Group in performing its assessment of going concern of the Company and the Group. This included evaluating scenario analysis of the potential implications of Brexit on profitability and the ability to access capital market funding.

The Committee was satisfied that the going concern basis of accounting should be adopted in the Financial Statements and we advised the Board of our conclusion.


Internal�auditSince 2016 we have operated an in-house internal audit function with support provided by third party consultants where specialist knowledge is required. The internal audit function reports to me, as Chair of the Committee, to ensure independence from the management team and I regularly meet with the Director of Internal Audit and his team. The Committee assesses the performance of the internal audit function on an ongoing basis to ensure it is satisfied with the function’s effectiveness.

Having reflected on the achievements of the 2017 internal audit plan the Committee endorsed the internal audit plan for 2018, ensuring it was tailored to address areas on a risk-based approach, either as a result of regulator or industry focus or as a result of the continued pace of growth within the business.

We monitored progress and delivery against the plan throughout the year, including assessing the scope of work performed, reviewing the audit methodology and evaluating coverage of the internal audit plan and the level of resources and training of the internal audit function.

Internal audit reports issued in the year covered the following areas:• customer fulfilment transaction processing and account

management;• Enterprise Risk Management;• transaction fraud, disputes, chargebacks and Section 75

claims;• pre-delinquent customer management;• collections management;• change management;• monetary controls over customer account adjustments;• regulatory compliance for customer and conduct, and

compliance with Mastercard scheme rules;• Unsecured Personal Loans;• data governance and GDPR compliance;• customer credit management;• customer credit underwriting and decision sciences;• accounting for impairment;• financial accounting and reporting including model

identification, governance and oversight;• Co-brand acquisition and engagement, including partner

management; and• Own-brand acquisition and engagement, including partner

management.

We reviewed all internal audit reports issued and ensured management took appropriate action to address issues arising from these reports. We subsequently assessed progress against agreed management actions to ensure that they were promptly resolved.

In order to ensure the continued development of the internal audit function such that it can continue to fulfil its responsibilities and adapt its audit plans in line with the pace of change in the business, we oversaw a series of development programme initiatives introduced to the internal audit team. These included sessions facilitated by Ernst and Young, Deloitte, Promontory and Grant Thornton.

External�auditThe Board and the external auditor have safeguards in place to protect the independence and objectivity of the external auditor. KPMG LLP is the auditor of the Group and had been the auditor of the Predecessor Group since 2012.

The external auditor is not permitted to perform any work that might affect its objectivity and independence or create a conflict of interest with respect to the Group. We have internal procedures in place to determine the use of the external auditor for non-audit services. The amount paid to the external auditor is disclosed in note 8.

The Committee reviewed and approved the annual external audit plan, including the methodology and risk identification processes used, and we reviewed the findings of the external audit including key judgements and the level of challenge provided. We assess the performance of the external auditor on an ongoing basis to ensure we are satisfied with the quality of the services provided, which includes consideration of the experience and capabilities of the auditor, the delivery of its audit work in accordance with the agreed plan and the quality of its reports and communications to us.

The Committee has kept under review regulatory and legislative developments around the tenure of the auditor. Having reviewed this, along with the assessment of the effectiveness of the external auditor, the Committee has recommended to the Board that KPMG LLP be reappointed as external auditor for the financial year ending 31 December 2019.

Board Audit CommitteeContinued


Internal�control�environmentThe Board is responsible for the Group’s internal control environment. The system of internal controls is designed to mitigate the risk of material misstatements in the financial records of the Group and to facilitate the business in achieving its objectives. The internal control environment only provides reasonable, rather than absolute, assurance against material misstatement, loss or fraud to the Group.

The Board confirms that a system of internal controls for identifying, evaluating and managing the significant risks faced by the Group has been in place throughout the year ended 31 December 2018, and up to the date of the approval of these consolidated Financial Statements.

The Board, through the Board Audit and Risk Committees, has reviewed the effectiveness of the system of internal controls and is satisfied with the controls operated over financial reporting and associated business activities such that to the best of the Committee’s knowledge there was no material loss, contingency or uncertainty to the Group requiring disclosure in the Financial Statements.


Board Risk Committee

Chairman’s�overviewThe ongoing appropriateness of the Risk Management Framework, in respect of the business’ strategy and the evolving regulatory and economic landscape, was monitored throughout the year as the Committee assessed the Group’s risk profile on behalf of the Board within the parameters of the Board’s agreed risk appetite.

The Committee oversaw the ongoing management and mitigation of risks arising in the business, including major projects and business initiatives, and also emerging risks. It monitored risk management practices to ensure that they continued to be fit for purpose in the face of a significant business and technology change agenda.

Throughout the year we continued to take part in, and respond to, the CCMS conducted by the FCA and in the latter stages of the year we implemented remedies for customers considered in persistent debt. In line with our Manifesto-led outlook we will continue to monitor the impacts on our customers during 2019. We will also continue to manage all other regulatory requirements whilst monitoring the horizon for emerging regulatory risks.

In recent years the organisation has benefitted from an uplift in risk resources across the three lines of defence model and in 2018 we oversaw the continued increase in first line of defence resourcing. As the business continues to evolve and grow in 2019, the Committee will continue to monitor the three lines of defence to ensure they are adequately resourced and have the right experience in place to adapt to the changes in the business.

“�The�Committee�was�committed�to�overseeing�the�maturation�of�the�Group’s�Risk�Management�Framework�and�associated�key�policies�and�continued�to ensure�that�the�agenda�of�the�Committee�was�appropriately�targeted�on�the�relevant�risk�factors�during�the�year.

� �Prominent�amongst�the�topics�discussed�during�2018�were�the�ever-present�threat�from�cyber-crime,�changes�arising�from�persistent�debt�regulations,�GDPR�and�the�credit�risk�profile�in�light�of�prevailing�economic�factors”

Alison Reed Senior Independent Non-Executive Director, Chairman of the Board Risk Committee


Committee�composition,�skills�and�experienceThe following Directors are members of the Board Risk Committee:• Alison Reed (Committee Chairman), Senior Independent

Non-Executive Director;• Caspar Berendsen, Investor Director (Cinven); and• Peter Rutland, Investor Director (CVC).

The diverse backgrounds of the Committee members and their combined skills and range of risk and business experience (as detailed on pages 58 and 59) enable us to fulfil the Committee’s remit, as set out in the terms of reference, which are reviewed annually. Although not members of the Committee, the Chief Executive Officer, Chief Risk Officer, Chief Financial Officer and Head of Internal Audit attend each meeting. Other Directors, colleagues and the external auditors are invited as and when required to ensure that the Committee has all the information it requires to operate effectively.

Roles�and�responsibilitiesThe main roles and responsibilities of the Committee, as set out in the terms of reference, are:• to oversee the Risk Management Framework and challenge

the processes and methodologies used for identifying, measuring, managing, monitoring and reporting all key risks facing the business;

• to recommend to the Board how to improve the Risk Management Framework including the monitoring of risk exposures, risk appetite, capital and liquidity and any significant risk issues;

• to review the output, effectiveness and resources of the Enterprise Risk Function;

• to review, monitor and report to the Board on our interactions with regulators, the effectiveness of regulatory reporting and action on any significant regulatory issues;

• to review and monitor the implementation of risk or compliance-related policies, their suitability in terms of compliance, and the necessary actions taken as a result of policy breaches; and

• to oversee, review, report and make associated recommendations to the Board on risk appetite, risk management culture, training and competence throughout the business.

Key�activities�of�the�Board�Risk�Committee�in�2018The Committee provided oversight for the:• annual review of the Risk Management Framework and

associated policy;• annual review of Risk Appetite framework and proposals for

2019; and• second line of defence oversight plan for 2019.

Members also reviewed and challenged: • risk appetite reporting;• the management and mitigation of risks and issues in the

business;• the effectiveness of risk management throughout the

business during another year of continued growth and change;

• key risks via the refreshed principal risk radars, including continuing to monitor credit risk radar metrics detailing the drivers of the credit principal risk;

• macroeconomic trends (including Brexit) and business consequences;

• ongoing retailer compliant sales performance; • complaints management; • enhancements to our information security programme;

and• regulatory developments and regulatory notifications.

Members also requested and considered insights relating to: • the launch of the Young Fashion proposition;• the possible transfer of cyber-related risk through the use

of insurance;• GDPR compliance status;• stress testing capability and proposed enhancements;• marketing controls; and • supplier governance.


Board Remuneration and Nomination Committee

Chairman’s overviewThe Board Remuneration and Nomination Committee’s main roles and responsibilities are set out in its terms of reference which are reviewed regularly. Responsibilities include supporting the Chairman in reviewing and recommending changes to the composition of the Board and its various committees. The Committee oversees the procedure for the appointment of Directors and recommends to the Board appropriate candidates. Of particular note in 2018 was the confirmation of the Committee’s support for the appointment, and the terms of the appointment, of Sir Michael Rake as the new Chairman of the Board, following a thorough external search. As part of the succession plans we commenced an external search for the appointment of a new Chief Executive Officer and have recently recommended the appointment of John Hourican to the Board as successor to James Corcoran. Associated remuneration packages for appointments were also reviewed and approved.

The Committee also plays a role in reviewing and confirming changes to the composition of the Group’s Executive and

senior management teams, helping ensure that they have the appropriate mix of experience, expertise and diversity needed to lead the Group in seizing opportunities and addressing any challenges faced.

Finally, the Committee oversees the Group’s remuneration policy (the ‘Reward Policy’) and other key people-related policies and matters. In line with this, the Committee helps set the overall direction of employee remuneration and people practices. The Committee reviews a range of business performance targets which, once approved by the Board, are used to finalise annual bonuses and remuneration awards. In 2018, the Committee approved changes to the bonus arrangements for senior management to ensure they were assessed collectively against a team rating, with the aim of encouraging collaboration and focused execution of the Group’s annual plan. A balanced scorecard of metrics is annually discussed and recommended to the Board for approval, ensuring that rewards reflect achievement against a broad range of performance and risk-related goals, helping to ensure the long-term health and success of the Group.

“ The Committee oversees the Group’s Remuneration Policy, new appointments and other key people-related policies and matters... helping to ensure the long-term health and success of the Group”

Rupert Keeley Independent Non-Executive Director, Chairman of the Board Remuneration and Nomination Committee


Committee�composition,�skills�and�experience�The following Directors are members of the Board Remuneration and Nomination Committee:• Rupert Keeley (Committee Chairman), Independent

Non-Executive Director;• Sir Michael Rake, Chairman and Independent Non-

Executive Director;• Sir Malcolm Williamson, Independent Non-Executive

Director;• James Corcoran, Executive Director and Chief Executive

Officer;• Caspar Berendsen, Investor Director (Cinven); and• Peter Rutland, Investor Director (CVC).

The diverse backgrounds of the Committee members and their combined skills and range of risk and business experience (as detailed on pages 58 and 59) enable us to fulfil the Committee’s remit, as set out in the terms of reference, which are reviewed annually.

Although not a member of the Committee, the Chief People Officer attends each meeting as Secretary.

Roles�and�responsibilitiesThe main roles and responsibilities of the Committee, as set out in the terms of reference, are:• recommending to the Board a suitable Reward Policy, and

reviewing its ongoing appropriateness and relevance;• setting the remuneration of all Executive Directors,

Non-Executive Directors (including the Chairman), and members of the Executive team (including pension rights and any compensation payments);

• recommending for the approval of the Board, candidates for appointment to the Board and reviewing the process undertaken in relation to such appointments; and

• recommending for the approval of the Board, suitable candidates for the role of Senior Independent Director, membership of each Committee of the Board and matters relating to the continuation in office of any Director.

Key�activities�of�the�Board�Remuneration�and�Nomination�Committee�in�2018During the year the Committee delivered the following key outcomes: • recommended the appointment of Sir Michael Rake as

Chairman of the Board;• commenced the recruitment process for the appointment

of a new Chief Executive Officer;• reviewed and evaluated management performance in 2017;• recommended performance objectives for 2019 to the

Board for approval;• reviewed and updated the Reward Policy; and• reviewed and approved a number of senior appointments

and associated compensation.


Directors’ report

The�Directors�of�the�Company�present�their�Annual�Report�and�Financial�Statements�for�the�year�ended�31�December�2018.

Group�business�review�and�resultsThe Group’s business model is outlined on page 28 and the KPIs and financial review on pages 32 to 41 contain highlights of the financial performance and capital structure for the year. The Group generated a loss before tax for the year ended 31 December 2018 of £7m. A reconciliation of the statutory loss to adjusted EBITDA, referred to throughout the strategic report, is provided on page 35.

The Chief Executive Officer’s review on page 12 and the strategic priorities on page 30 provide details of future business developments.

We do not propose the payment of a dividend for the year ended 31 December 2018.

See note 28 for details of post balance sheet events.

Principal�risks�and�managementThe principal risks and management thereof are described on pages 52 to 55.

Going concernThe Group’s business activities, together with the factors likely to affect its future development, performance and position, as well as the overall financial position of the Group, its cash flows, liquidity position and borrowing facilities, are described in the KPIs and financial review on pages 32 to 41 and within the Financial Statements. The notes to the Financial Statements include our objectives, policies and processes for managing capital, financial risk management objectives, details of financial instruments and our exposures to credit risk and liquidity risk.

We continue to note the levels of credit card debt in the UK, as well as the FCA’s concerns around persistent debt in the market. We have a robust credit risk management framework in place to limit unexpected losses arising as a result of customers failing to meet their repayment obligations. We also depend on the availability of external borrowing to finance our existing customer balances as well as future growth. During the year we successfully refinanced all asset-backed term debt maturing in 2018 issuing £640m, including completing our first US capital market issuances, to facilitate continued support of the business. Additionally we extended the maturity date on £1.2bn of our variable funding note facilities.

We believe that our existing plans and projections of business performance will be sufficient to allow us to continue to meet all of our current obligations, including financial covenants and cash requirements, for a period of at least 12 months following the approval of the Financial Statements. Whilst the UK’s economic outlook as a result of Brexit remains uncertain, we have considered the impact to the Group including conducting scenario analysis of the potential impact of a no-deal Brexit on profitability and the capital markets and assessing our ability to refinance in this scenario. Considering the scenario analysis and our current funding position, we feel that we are well placed to meet our strategic objectives. For this reason the Board has adopted the going concern basis in preparing these Financial Statements.

Transparency�in�reportingIn preparing the Annual Report and Financial Statements, we have fully complied with the best practice principles set out in ‘The Walker Guidelines for Disclosure and Transparency in Private Equity’, which were established to provide oversight on disclosure issues and, specifically, to demonstrate private equity companies’ commitment to transparency.

Environmental,�social�and�governance�matters�We are committed to conducting our business in a manner that protects the environment. This means ensuring that all relevant environmental legislation and regulations are met and reducing consumption of these resources. For further details see page 42.


Modern�slavery�and�human�traffickingWe aim to act fairly, ethically and openly in everything that we do and are committed to carrying out our business responsibly. This includes ensuring that modern slavery and human trafficking are not taking place in any part of our business or supply chain. The Group’s statement on modern slavery is available on its website at www.newday.co.uk.

Directors’�insuranceThroughout the year, we maintained appropriate insurance cover to protect the Directors from liabilities that may arise against them personally in connection with the performance of their role. In addition: (i) the articles of association of NewDay Group (Jersey) Limited contain an indemnity in favour of its Directors so far as is permitted under Jersey law; and (ii) certain of the Group’s UK subsidiaries have similar provisions in their articles of association providing qualifying third party indemnities for the benefit of the Directors of such entities.

Research�and�development�activitiesDuring the ordinary course of business we develop new products and services within our business units.

Issuance�of�sharesUpon incorporation on 26 September 2016, the Company issued share capital of 101 fully paid ordinary shares of one pence each. No shares were issued during the year.

DirectorsThe Directors who held office during the period were as follows:• James Culshaw;• Grant Collins; and• Geraldine O’Rourke.

Geraldine O’Rourke is appointed as an alternate Director to Grant Collins.

Auditor�and�disclosure�of�information�to�auditor�The Directors who held office at the date of approval of this Directors’ report confirm that, as far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware, and each Director has taken all of the steps that they ought to have taken as Directors to make themselves aware of any relevant information and to establish that the Company’s auditor is aware of that information.

Statement�of�Directors’�responsibilities�in�relation�to�the�consolidated�Financial�StatementsThe Directors are responsible for preparing the FinancialStatements in accordance with applicable law and IFRS as adopted by the European Union (EU).

Company law requires the Directors to prepare consolidated Financial Statements for each financial year which give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing those Financial Statements, the Directors are required to:• select suitable accounting policies and then apply them

consistently;• make judgements and estimates that are reasonable,

relevant and reliable;• state whether applicable accounting standards have been

followed, subject to any material departures disclosed and explained in the Financial Statements;

• assess the Group’s ability to continue as a going concern; and

• use the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the Financial Statements comply with the Companies (Jersey) Law 1991. They are responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and the Company and to prevent and detect fraud and other irregularities.

James Culshaw Geraldine O’RourkeDirector Director13 March 2019


Independent auditor’s report to the members of NewDay Group (Jersey) Limited

OpinionWe have audited the Financial Statements of NewDay Group (Jersey) Limited (“the Company”) for the year ended 31 December 2018 which comprise the income statements and statements of comprehensive income, balance sheets, statements of changes in equity, statements of cash flows and related notes, including the accounting policies in note 2.

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 2018 and of the Group’s loss and the Company’s profit for the year then ended;

• the Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);

• the Company Financial Statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies (Jersey) Law 1991; and

• the Financial Statements have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.

Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

The impact of uncertainties due to the UK exiting the European Union on our auditUncertainties related to the effects of Brexit are relevant to understanding our audit of the Financial Statements. All audits assess and challenge the reasonableness of estimates made by the Directors, such as the impairment losses on loans and advances to customers, effective interest rate adjustments, conduct risk provisions, and the impairment of goodwill and intangible assets and related disclosures and the appropriateness of the going concern basis of preparation of the Financial Statements. All of these depend on assessments of the future economic environment and the Group’s future prospects and performance.

Brexit is one of the most significant economic events for the UK, and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. We applied a standardised firm-wide approach in response to that uncertainty when assessing the Group’s future prospects and performance. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.

Going concernThe Directors have prepared the Financial Statements on the going concern basis as they do not intend to liquidate the Group or the Company or to cease their operations and as they have concluded that, the Group and the Company’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the Financial Statements (“the going concern period”).

We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least a year from the date of approval of the Financial Statements. In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Group’s business model, including the impact of Brexit, and analysed how those risks might affect the Group and Company’s financial resources or ability to continue operations over the going concern period. We have nothing to report in these respects.

However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor’s report is not a guarantee that the Group or the Company will continue in operation.

Strategic report and Directors’ report The Directors are responsible for the strategic report and the Directors’ report. Our opinion on the Financial Statements does not cover those reports and we do not express an audit opinion thereon.

Our responsibility is to read the strategic report and the Directors’ report and, in doing so, consider whether, based on our Financial Statements audit work, the information therein is materially misstated or inconsistent with the Financial Statements or our audit knowledge. Based solely on that work: • we have not identified material misstatements in the

strategic report and the Directors’ report; in our opinion the information given in those reports for the financial year is consistent with the Financial Statements; and

• in our opinion those reports have been prepared in accordance with the Companies (Jersey) Law 1991.


Matters on which we are required to report by exceptionUnder the Companies (Jersey) Law 1991, we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the

Company, or returns adequate for our audit have not been received from branches not visited by us; or

• the Company Financial Statements are not in agreement with the accounting records and returns; or

• certain disclosures of Directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

We have nothing to report in these respects.

Directors’ responsibilitiesAs explained more fully in their statement set out on page 75, the Directors are responsible for: the preparation of the Financial Statements and for being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilitiesOur objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Statements.

A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.

The purpose of our audit work and to whom we owe our responsibilitiesThis report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. 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.

Andrew Walker (Senior Statutory Auditor) for and on behalf of KPMG LLPChartered Accountants1 Sovereign Square Sovereign Street LeedsLS1 4DA13 March 2019


Income statements and statements of comprehensive income

Group Company

Note

Year ended 31 December

2018 £m

26 September 2016 to

31 December 20171

£m


2018 £m


31 December 2017

£m

Interest and similar income 4 581.3 445.1 71.7 49.2Interest and similar expense 5 (88.9) (105.1) (33.4) (62.6)

Net interest income/(expense) 492.4 340.0 38.3 (13.4)

Fee and commission income 6 92.7 77.9 – –Impairment losses on loans and advances to customers2 11 (302.2) (199.3) – –

Risk-adjusted income 282.9 218.6 38.3 (13.4)

Personnel expense 7 (80.9) (61.2) – –Other operating expenses 8 (208.9) (184.4) (0.1) (12.5)

Total operating expenses (289.8) (245.6) (0.1) (12.5)

(Loss)/profit before tax (6.9) (27.0) 38.2 (25.9)

Tax expense 9 (6.7) (9.5) – –

(Loss)/profit after tax (13.6) (36.5) 38.2 (25.9)

Other comprehensive expenseItems that may subsequently be reclassified to the income statementEffective portion of changes in fair value of cash flow hedges 5.0 – – –Net income statement transfer from hedging reserve (6.4) – – –

Other comprehensive expense (1.4) – – –

Total comprehensive (expense)/income (15.0) (36.5) 38.2 (25.9)

1. Represents the period from incorporation on 26 September 2016 to 31 December 2017. The consolidated results of NewDay Group Holdings S.à r.l., together with its subsidiaries and structured entities (the Predecessor Group), have been consolidated from the date of acquisition by the Company on 26 January 2017 (the Acquisition).

2. IFRS 9 ‘Financial Instruments’ became effective on 1 January 2018 and therefore is mandatory for the first time for the year ended 31 December 2018. The Group has elected not to retranslate prior year comparatives which are accounted for under IAS 39 ‘Financial Instruments: Recognition and Measurement’. See note 2 (2.1)(i) for transition details.

The (loss)/profit for each period is from continuing operations.

The notes on pages 82 to 122 form an integral part of these statutory Financial Statements.


Balance sheets

Group Company

Note

31 December 2018

£m

31 December 2017

£m

31 December 2018

£m

31 December 2017

£m

AssetsLoans and advances to banks 10 184.0 167.9 0.9 1.2Loans and advances to customers 11 2,303.3 2,104.4 – –Other assets 12 58.4 67.6 547.9 515.2Derivative financial assets 13 2.5 – – –Current tax assets 0.8 0.8 – –Deferred tax assets 0.4 0.7 – –Property and equipment 14 9.0 10.0 – –Intangible assets 15 313.9 357.4 – –Investment in subsidiaries 16 – – 511.4 504.9Goodwill 17 279.9 279.9 – –

Total assets 3,152.2 2,988.7 1,060.2 1,021.3

LiabilitiesDebt issued and other borrowed funds 18 2,664.3 2,252.7 423.4 421.3Other liabilities 19 90.1 85.5 0.1 1.5Current tax liabilities 2.3 5.7 – –Provisions 20 35.7 56.9 – –

Total liabilities 2,792.4 2,400.8 423.5 422.8

Net assets 359.8 587.9 636.7 598.5

Equity attributable to owners of the CompanyShare capital and share premium 21 – – – –Equity instruments 21 593.9 593.9 593.9 593.9Capital contribution 21 30.5 30.5 30.5 30.5Hedging reserve 21 (1.4) – – –Retained (losses)/profits1 21 (263.2) (36.5) 12.3 (25.9)

Total equity 359.8 587.9 636.7 598.5

1. IFRS 9 ‘Financial Instruments’ became effective on 1 January 2018 and therefore is mandatory for the first time for the year ended 31 December 2018. The Group has elected not to retranslate prior year comparatives which are accounted for under IAS 39 ‘Financial Instruments: Recognition and Measurement’. The £213.1m uplift in the loss allowances resulting from the adoption of IFRS 9 has been recognised in retained losses. See note 2(2.1)(i) for further details.


The Financial Statements on pages 78 to 122 were approved and authorised for issue by the Board of Directors on 13 March 2019 and signed on its behalf by:

James Culshaw Geraldine O’RourkeDirector Director

Registration number 122135


Statements of changes in equity

Group

Share capital and share premium

£m

Equity instruments

£m

Capital contribution

£m

Hedging reserve

£m

Retained losses

£m

Total equity

£m

As at 26 September 2016 – – – – – –Total comprehensive expense for the period:

Loss after tax – – – – (36.5) (36.5)Equity instruments1 – 593.9 – – – 593.9Capital contribution1 – – 30.5 – – 30.5

As at 31 December 2017 – 593.9 30.5 – (36.5) 587.9

Adjustment on initial application of IFRS 9 – – – – (213.1) (213.1)

Adjusted balance as at 1 January 2018 – 593.9 30.5 – (249.6) 374.8Total comprehensive expense for the year:

Loss after tax – – – – (13.6) (13.6)Other comprehensive expense – – – (1.4) – (1.4)

As at 31 December 2018 – 593.9 30.5 (1.4) (263.2) 359.8

Company

Share capital and share premium

£m

Equity instruments

£m

Capital contribution

£m

Retained (losses)/

profits £m

Total equity

£m

As at 26 September 2016 – – – – –Total comprehensive expense for the period:

Loss after tax – – – (25.9) (25.9)Equity instruments1 – 593.9 – – 593.9Capital contribution1 – – 30.5 – 30.5

As at 31 December 2017 – 593.9 30.5 (25.9) 598.5

Total comprehensive income for the year:Profit after tax – – – 38.2 38.2

As at 31 December 2018 – 593.9 30.5 12.3 636.7

1. With effect from 1 July 2017, the terms of a £529.2m intercompany loan from Nemean MidCo Limited (the Company’s immediate parent company) and £64.7m loan notes issued by the Company and held by Nemean MidCo Limited were amended, resulting in a change in their classification from liabilities to equity instruments. The interest accrued on these loans up to 30 June 2017 was recorded as a capital contribution.



Statements of cash flows

Group Company

Note


2018 £m


31 December 2017

£m


2018 £m


31 December 2017

£m

Operating activities(Loss)/profit after tax (13.6) (36.5) 38.2 (25.9)Reconciliation of (loss)/profit after tax to net cash (used in)/generated from operating activities:

Tax expense 9 6.7 9.5 – –Interest and similar expense 5 88.9 105.1 33.4 62.6Depreciation of property and equipment 14 2.0 2.7 – –Amortisation of intangible assets 15 51.9 46.6 – –Impairment losses on loans and advances to customers 11 302.2 199.3 – –

Changes in operating assets and liabilities: –Increase in restricted cash (6.5) (3.1) – –Increase in loans and advances to customers (714.2) (561.4) – –Decrease/(increase) in other assets 9.2 (16.3) (32.7) (515.2)Increase/(decrease) in other liabilities 4.6 5.9 (1.4) 1.5Decrease in provisions (24.1) (16.0) – –

Interest and similar expense paid (83.8) (75.2) (31.3) (35.8)Tax paid (6.8) (5.3) – –

Net cash (used in)/generated from operating activities (383.5) (344.7) 6.2 (512.8)

Cash flows from investing activitiesPurchases of property and equipment 14 (1.0) (5.8) – –Investment in intangible assets 15 (8.4) (3.9) – –Acquisition of subsidiaries – (990.5) – (990.5)Cash and cash equivalents acquired on the Acquisition – 176.0 – –(Increase)/realisation of investment in subsidiary 16 – – (6.5) 485.6

Net cash used in investing activities (9.4) (824.2) (6.5) (504.9)

Cash flows from financing activitiesProceeds from debt issued and other borrowed funds 18 1,086.6 1,276.8 – 425.0Repayment of debt issued and other borrowed funds 18 (684.1) (577.4) – –Proceeds of loans from related parties – 593.9 – 593.9

Net cash generated from financing activities 402.5 1,293.3 – 1,018.9

Net increase/(decrease) in cash and cash equivalents 9.6 124.4 (0.3) 1.2Cash and cash equivalents at the start of the period 124.4 – 1.2 –

Cash and cash equivalents at the end of the period 10 134.0 124.4 0.9 1.2



Notes to the Financial Statements

1. Corporate informationNewDay Group (Jersey) Limited (the Company) was incorporated in Jersey as a private limited company on 26 September 2016. The address of its registered office is 27 Esplanade, St Helier, Jersey, JE1 1SG. Nemean MidCo Limited has been the sole shareholder of the Company since incorporation. The ultimate parent undertaking is Nemean TopCo Limited, a private limited company incorporated in Jersey.

On 26 January 2017 the Company acquired 100% of the issued share capital and preferred equity certificates in NewDay Group Holdings S.à r.l.. NewDay Group Holdings S.à r.l. was the parent company of the Predecessor Group. The Group (comprising the Company together with its subsidiaries and subsidiary undertakings) provides near-prime lending products and retail transaction finance. In line with the basis of consolidation in note 2.1, the results of the Predecessor Group have been consolidated into the Group’s consolidated Financial Statements from 26 January 2017.

2. Accounting policies2.1 Basis of preparationThe consolidated Group and Company Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and International Financial Reporting Interpretations Committee (IFRIC) interpretations.

The comparative statutory consolidated Financial Statements for the period from incorporation on 26 September 2016 to 31 December 2017 incorporates the results of the Predecessor Group from 26 January 2017 onwards. There was no trading activity within the Company and its existing subsidiaries (other than members of the Predecessor Group) prior to completion of the Acquisition.

The Financial Statements of the Group and Company have been prepared on a historical cost basis except for derivative financial instruments which have been measured at fair value.

The consolidated Group and Company Financial Statements for the year ended 31 December 2018 were approved by the Board of Directors on 13 March 2019.

Going concernAs at 13 March 2019, the Directors are satisfied that the Group and Company has the resources necessary to continue in business for a period of at least 12 months after the approval of the Financial Statements. Management forecasts the performance of the Group and undertakes various stress scenarios to assess the impact on profitability, cash flows, the balance sheet and compliance with covenants. This information is formally presented to the Board for review, and has been approved by the Board, along with consideration of the potential impact of contingent liabilities on the Group. The Directors also considered the impact of Brexit on the Group including conducting scenario analysis of the potential impact of a no-deal Brexit on profitability and the capital markets and assessing the Group’s ability to refinance in this scenario. In the event of a prolonged closure of the capital markets of up to 12 months the Directors note that existing committed financing can be used to assist in the refinancing of maturing asset-backed securities and NewDay can exercise a contractual extension option where each asset-backed security can be extended by up to one year from their scheduled maturity date. Considering the scenario analysis and the Group’s current funding position, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Group and Company’s ability to continue as a going concern. Therefore, the Financial Statements continue to be prepared on the going concern basis as outlined in the statement of Directors’ responsibilities.

Presentation of the Financial StatementsThe Financial Statements are presented in Sterling and all values are rounded to the nearest £0.1m, except where otherwise indicated. The Group presents its balance sheets in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in note 24.

Financial assets and financial liabilities are offset with the net amount reported in the balance sheet only when there is a legally enforceable right to offset and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Income and expenses are not offset in the income statement unless required or permitted by an accounting standard or interpretation, and specifically disclosed in the accounting policies of the Group.


Basis of consolidationThe consolidated Financial Statements comprise the Financial Statements of the Group and its subsidiaries (together with certain structured entities (SEs) that the Group consolidates) as at 31 December 2018. The subsidiaries and SEs are disclosed in note 26. The Financial Statements of the Group’s subsidiaries (including SEs that the Group consolidates) are prepared for the same reporting period as the Company using consistent accounting policies with the exception of NewDay Group Holdings S.à r.l. and NewDay Partnership Tertiary Funding Ltd which have accounting reference dates of 14 April and 30 September respectively.

Subsidiaries are fully consolidated from the date that control is transferred to the Group. Control is achieved where the Group has the power to govern the financial and operating policies of an entity, has the exposure or rights to the variable returns from the involvement with the entity, and is able to use its power to affect the amount of returns for the Group. On this basis the Predecessor Group has been consolidated into the consolidated Financial Statements with effect from 26 January 2017.

SEs are fully consolidated based on the power of the Group to direct relevant activities, and its exposure to the variable returns of the SE. In assessing whether the Group controls a SE, judgement is exercised to determine the following: whether the activities of the SE are being conducted on behalf of the Group to obtain benefits from the SE’s operation; whether the Group has the decision-making powers to control or to obtain control of the SE or its assets; whether the Group is exposed to the variable returns from the SE’s activities; and whether the Group is able to use its power to affect the amount of returns. The Group’s involvement with SEs is detailed in note 27.

All intra-Group balances, transactions, income and expenses are eliminated in full.

Changes in significant accounting policies IFRS 9 ‘Financial Instruments’ became effective on 1 January 2018 and therefore is mandatory for the first time for the year ended 31 December 2018. A number of other new standards are also effective from 1 January 2018 but they do not have a material effect on the Group’s Financial Statements; see note 2.4 for details.

The requirements of IFRS 9 represent a significant change from IAS 39 ‘Financial Instruments: Recognition and Measurement’ and have a significant impact on the Group’s Financial Statements. The Group has elected not to restate any of its prior period comparative information throughout these Financial Statements to reflect the requirements of IFRS 9.

(i) Transition to IFRS 9The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of financial instrument as at 1 January 2018.

As at 1 January 2018

Group

IAS 39 measurement

basis

IAS 39 carrying value

£mRemeasurement

£m

IFRS 9 carrying value

£m

IFRS 9 measurement

basis

Financial assetsLoans and advances to banks Loans and receivables 167.9 – 167.9 Amortised costLoans and advances to customers Loans and receivables 2,104.4 (213.1) 1,891.3 Amortised costOther assets Loans and receivables 39.3 – 39.3 Amortised cost

Total financial assets 2,311.6 (213.1) 2,098.5

Financial liabilitiesDebt issued and other borrowed funds Amortised cost (2,252.7) – (2,252.7) Amortised costOther liabilities Amortised cost (85.1) – (85.1) Amortised cost

Total financial liabilities (2,337.8) – (2,337.8)

Notes to the Financial Statements Continued


2. Accounting policies continued2.1 Basis of preparation continuedThe remeasurement reflects the transition to an expected credit loss (ECL) allowance per the requirements of IFRS 9. The following table reconciles the loss allowance under IAS 39 as at 31 December 2017 to the loss allowance under IFRS 9 as at 1 January 2018.

Group £m

Loss allowance as at 31 December 2017 under IAS 39 132.9Additional ECL on loans and advances to customers 213.1

Loss allowance as at 1 January 2018 under IFRS 9 346.0

The £213.1m uplift in the loss allowances resulting from the adoption of IFRS 9 has been recognised in retained losses as at 1 January 2018.

The Group and Company did not reclassify the measurement basis of any of its financial instruments from amortised cost on transition nor has it elected to restate any of its prior period comparatives.

The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of financial instrument as at 1 January 2018 for the Company.

As at 1 January 2018

Company

IAS 39 measurement

basis

IAS 39 carrying value

£mRemeasurement

£m

IFRS 9 carrying value

£m

IFRS 9 measurement

basis

Financial assetsLoans and advances to banks Loans and receivables 1.2 – 1.2 Amortised costOther assets Loans and receivables 515.1 – 515.1 Amortised cost

Total financial assets 516.3 – 516.3

Financial liabilitiesDebt issued and other borrowed funds Amortised cost (421.3) – (421.3) Amortised costOther liabilities Amortised cost (1.5) – (1.5) Amortised cost

Total financial liabilities (422.8) – (422.8)

2.2 Summary of significant accounting policies applied in the year ended 31 December 2018(1) Foreign currency translationThe Financial Statements are presented in Sterling which is the presentational and functional currency of the Group and Company. The Group transacts mainly in Sterling. Transactions that are not Sterling denominated are recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the relevant functional currency at the exchange rates ruling at the balance sheet date. Differences arising on translation are charged or credited to the income statement, except when deferred in equity as effective cash flow hedges.

(2) Financial instruments – initial recognition and subsequent measurement(i) Date of recognitionLoans and advances to customers are initially recognised on the date on which they are originated or purchased. All other financial instruments are recognised on the trade date, which is the date on which the Group becomes a party to the contractual provisions of the instrument.

(ii) Classification of financial assets and financial liabilitiesIFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). Classification is generally based on the business model in which a financial asset is managed and the contractual cash flow characteristics of the financial instruments (whether these are solely payments of principal and interest or not). The Group’s business model objective is to hold assets to collect the contractual cash flows. Any financial asset sales are incidental to the objective of the business model. The Group has assessed the contractual cash flow characteristics of its non-derivative financial assets to be consistent with a basic lending arrangement, being cash flows that are predominantly payments of principal and interest on the principal amount outstanding. Accordingly, the Group’s non-derivative financial assets are classified as measured at amortised cost. The Group’s derivative financial assets meet the hedge accounting requirements of IFRS 9, which the Group has elected to apply, and are classified as FVOCI.


Financial liabilities are held either as fair value or amortised cost depending on the nature of the underlying instrument.

(iii) Loans and advances to banksLoans and advances to banks, as referred to in the balance sheet, comprise cash and cash equivalents, non-restricted current accounts, restricted cash as detailed in note 10 and amounts due on demand or with an original maturity of three months or less.

(iv) Loans and advances to customersFinancial instruments which are disclosed as loans and advances to customers include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement at fair value, they are subsequently measured at amortised cost using the effective interest rate (EIR) method, less allowance for ECL. The interest income calculated using this method is included in interest and similar income in the income statement (see note 2.2(6)(i)). The ECL is recognised in the income statement in impairment losses on loans and advances to customers.

(v) Debt issued and other borrowed fundsFinancial liabilities that are not designated at fair value through profit and loss are classified as liabilities under debt issued and other borrowed funds where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset.

After initial measurement, debt issued and other borrowed funds are measured at amortised cost using the EIR. Amortised cost is calculated by taking into account any discount or premium on issue and directly attributable, incremental issue costs that are an integral part of the EIR.

(3) Derecognition of financial assets and financial liabilities(i) Financial assetsA financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:• the rights to receive cash flows from the asset have expired; or• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash

flows in full without material delay to a third party under a ‘pass-through’ arrangement and either:– the Group has transferred substantially all the risks and rewards of the asset; or– the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred

control of the asset.

The Group enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not derecognised. For example, the Group has issued asset-backed securities to fund certain loans and advances to customers. In cases where the securitisation vehicles are funded by the issue of debt, on terms whereby the majority of the risks and rewards of the portfolio of the securitised lending are retained by the Group, these loans and advances to customers continue to be recognised in the Group’s balance sheet, together with a corresponding liability for the debt issued.

In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership of a financial asset but it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement determined by the extent to which it is exposed to changes in the value of the transferred asset.

(ii) Financial liabilitiesA financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in the income statement.

(4) Determination of fair valueFor all other financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison with similar instruments for which market observable prices exist and other relevant valuation models.



2. Accounting policies continued2.2 Summary of significant accounting policies applied in the year ended 31 December 2018 continued(5) Impairment of financial assets(i) Financial assets carried at amortised cost For financial assets carried at amortised cost, the Group assesses impairment on a collective basis for all financial assets that are not individually significant.

IFRS 9 prescribes a forward-looking ECL model for financial assets measured at amortised cost. An impairment provision is recognised on origination of a financial asset, based on its anticipated credit loss. Under IFRS 9, expected loss allowances are measured on either of the following bases:• 12-month ECLs. These are ECLs that result from possible default events within the 12 months after the reporting date; and• lifetime ECLs. These are ECLs that result from all possible default events over the expected life of a financial instrument.

Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since initial recognition (including those which are credit-impaired) or if it was purchased or originated credit-impaired (POCI), otherwise the 12-month ECL measurement applies.

Financial assets where 12-month ECL is recognised are classified as ‘stage 1’; financial assets that are considered to have experienced a significant increase in credit risk since initial recognition but are not credit-impaired, are classified as ‘stage 2’; and financial assets for which there is objective evidence of impairment, so are considered to be in default or otherwise credit-impaired, are classified as ‘stage 3’. Financial assets that were credit-impaired when purchased by the Group through the Acquisition are classified as ‘POCI’ for the remainder of their life and cannot transition out of this classification. The assessment of whether a significant increase in credit risk has occurred is a key aspect of the IFRS 9 methodology which involves quantitative and qualitative measures and therefore requires management judgement as disclosed in note 2.3.

ECL is the product of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), discounted at the original effective interest rate. The assessment of credit risk and the estimation of ECL are required to be unbiased, probability-weighted, and should incorporate all available information relevant to the assessment, including information about past events, current conditions and reasonable and supportable forecasts of economic conditions at the reporting date. The forward-looking aspect of IFRS 9 requires judgement as to how changes in economic factors affect ECL. For further details of the significant accounting judgements and estimates used in the ECL allowance see note 2.3.

(ii) Renegotiated loans and advances to customersWhere possible, the Group seeks to restructure loans before they reach write-off based on customers’ ability to make minimum monthly payments on their outstanding balances. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, any impairment is measured using a provision rate consistent with other restructured loans (separately from the portfolio of non-renegotiated loans) discounted at the original EIR as calculated before the renegotiation of terms and the loan is no longer considered past due. Management continually reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to collective impairment assessments.

(6) Recognition of income and expensesIncome and expenses are recognised to the extent that it is probable that economic benefits will flow to or from the Group and the amount can be reliably measured. The following specific recognition criteria must also be met before income or expenses are recognised:

(i) Interest and similar income and expenseInterest income and expense are recognised in the income statement using the EIR method. The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:• the gross carrying value of the financial asset; or• the amortised cost of the financial liability.

When calculating the EIR for financial instruments, other than for POCI financial assets, the Group estimates future cash flows considering all contractual terms of the financial instrument but not ECL. The calculation of the EIR includes transaction costs and fees and points paid or received that are an integral part of the EIR. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability. For POCI financial assets a credit-adjusted EIR is calculated using estimated future cash flows including ECL.


In calculating interest income and expense, the EIR is applied to the gross carrying value of the asset (when the asset is not credit-impaired) or to the amortised cost of the liability. However, for financial assets that have become credit-impaired subsequent to initial recognition and are therefore classified as stage 3, interest income is calculated by applying the EIR to the carrying value of the financial asset net of the ECL allowance. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis. For POCI financial assets, interest income is calculated by applying the EIR to the carrying value of the financial asset net of the ECL allowance and does not revert to a gross basis, even if the credit risk of the asset improves.

As prescribed by IFRS 9, the Group recognises interest and similar income using the EIR on loans and advances to customers that have been offered interest-free promotional periods. The EIR is determined on inception as management’s best estimate of expected future cash flows based on historical information, where available. As at 31 December 2018, this gave rise to an adjustment to loans and advances to customers in the balance sheet of £14.1m (1% of loans and advances to customers) (2017: £10.7m). Net interest and similar income recognised in relation to interest-free promotional periods totalled £3.4m (1% of interest and similar income) in the year ended 31 December 2018 (period ended 31 December 2017: £6.3m).

(ii) Fee and commission incomeIn accordance with IFRS 15 ‘Revenue from Contracts with Customers’ fee and commission income is recognised when the Group satisfies its underlying performance obligations. Fees arising from store and credit card agreements are predominantly based on customer transaction events (for example, foreign exchange fees) and are recognised at the point of the customer transaction. Fees linked to certain card servicing activities are recognised after fulfilling the corresponding criteria. Any subsequent refunds of fees to customers are netted against fee and commission income in the year in which the Group commits to make the refund. Fee and commission income excludes fees that have been recognised using the EIR method and reported within interest and similar income in the income statement. Also included within fee and commission income are: interchange fees which are the fees received, as card issuer, each time a cardholder purchases goods and services; and other fees received which includes insurance commission and profit shares along with merchant transaction fee commission.

(iii) Customer cashback programmesOn some of the Group’s products credit card customers earn cashback on qualifying card spend through cashback programmes. Expenses incurred in relation to these programmes are accrued within fee and commission income in the income statement when the relevant card spend is incurred on the customers’ accounts.

(iv) Loyalty programmesLoyalty points and vouchers costs are recognised in the period in which they are incurred. Earned but not yet redeemed points and vouchers at the period end are accrued in the balance sheet within other liabilities.

Where loyalty points and vouchers expire before they are utilised by customers, the accrual is reversed in the period in which they expire. The costs are calculated individually for each scheme in place and are accrued within commissions to retailers, advertising and marketing costs in other operating expenses.

(v) Personnel expenseThe Group applies IAS 19 ‘Employee Benefits’ in its accounting for the relevant components of staff costs. Short-term employee benefits including salaries, accrued bonus, other incentive costs and social security are recognised over the period in which the employees provide the services to which the payments relate. Bonus and other incentive costs are recognised to the extent that the Group has a present obligation to its employees that can be measured reliably and are recognised over the period of service that employees are required to work to qualify for the benefits.

(vi) Defined contribution pension planThe contributions payable to the defined contribution pension plan are in proportion to the services rendered to the Group by its employees and are recorded in the income statement as a personnel expense on an accruals basis. Unpaid contributions are accrued in the balance sheet within other liabilities.

(vii) Share-based payment transactionsThe fair value of the amount payable to employees in respect of share-based payment transactions is recognised as an expense, with a corresponding increase in liabilities, over the period in which the employees become unconditionally entitled to the shares.



2. Accounting policies continued2.2 Summary of significant accounting policies applied in the year ended 31 December 2018 continued(viii) Servicing costsServicing costs include costs associated with servicing customer accounts. Certain servicing costs are subject to a netting arrangement whereby the expenses and income (rebates) relating to a specific servicer are netted against each other. This is in line with the servicer agreement and reflects the intention of both parties to settle on a net basis. Some of the Group’s servicing costs are prepaid and released to the income statement over the period in which the service is provided. These amounts are included in prepayments and accrued income in the balance sheet.

(ix) Capitalisation of expenditureExpenditure relating to specific projects are reviewed to determine whether the capitalisation criteria of IAS 38 ‘Intangible Assets’ and IAS 16 ‘Property, Plant and Equipment’ are met (see note 2.2 (11) and (12)). The Group capitalises expenditure where the criteria are met and amortises or depreciates over the useful economic life of the asset.

(7) LeasingThe determination of whether an arrangement is a lease, or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Leases that do not transfer to the Group substantially all the risks and rewards incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Contingent rent payable is recognised as an expense in the period in which it is incurred. A lease is classified at the inception date as a finance lease or an operating lease.

Dilapidations are provided for on leasehold properties where the terms of the lease require the tenant to make good any changes made to the property at the end of the lease period. The provision is discounted over the remaining period of the lease at the risk-free rate. The discount unwind is recognised in other operating expenses in the income statement.

(8) Tax(i) Current taxCurrent tax assets and liabilities arising in current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the tax balances are those that are enacted or substantively enacted by the reporting date.

Current tax relating to items recognised directly in equity is also recognised in equity and not in the income statement.

(ii) Deferred taxDeferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except:• where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not

a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and• in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the

temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:• where the deferred tax assets relating to the deductible temporary difference arises from the initial recognition of an asset or

liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in subsidiaries, where deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying value of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.


Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised directly in equity are also recognised in equity and not in the income statement.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same tax authority.

(9) Derivative financial instrumentsThe Group uses derivative financial instruments, namely cross-currency interest rate swaps, to manage the interest rate and foreign exchange rate risks arising from the Group’s foreign currency denominated debt. No transactions of a speculative nature are undertaken.

All derivative financial instruments are assessed against the hedge accounting criteria set out in IFRS 9. The Group’s derivatives are cash flow hedges and meet the hedge accounting requirements of IFRS 9.

Derivatives are recognised initially at the fair value on the date a derivative contract is entered into and are remeasured subsequently at each reporting date at their fair value. Where derivatives do not qualify for hedge accounting, movements in their fair value are recognised immediately in the income statement.

For derivatives that are designated as cash flow hedges and where the hedge accounting criteria are met, the effective portion of changes in the fair value is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recognised in the income statement when the income or expense on the hedged item is recognised in the income statement.

The Group discontinues hedge accounting when:• it is evident from testing that a derivative no longer meets the hedge effectiveness requirements of IFRS 9;• the derivative expires, or is sold, terminated or exercised; or• the underlying hedged item matures or is sold or repaid.

(10) Business combinations and goodwillBusiness combinations are accounted for using the acquisition method of accounting as required by IFRS 3 ‘Business Combinations’. This involves recognising identifiable assets (including previously unrecognised intangible assets) and liabilities (including contingent liabilities but excluding future restructuring) of the acquired business at fair value. Any excess of the consideration transferred over the fair values of the identifiable net assets acquired is recognised as goodwill.

Goodwill is allocated to cash-generating units for the purposes of impairment assessments. The allocation is made to those cash-generating units 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 cash-generating unit to the discounted expected future cash flows from the relevant cash-generating unit. Any impairment is recognised immediately in the income statement.

See note 2.3 for further details on the significant accounting judgements, estimates and assumptions that affect the carrying value of goodwill.

(11) Intangible assetsThe Group’s intangible assets include intangible assets acquired as part of the Acquisition and internally generated intangible assets.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired as part of a business combination is their fair value at the date of acquisition.

Internally generated intangible assets include computer software and core operating platforms. These assets are capitalised as an intangible asset based on the costs incurred to acquire, develop and bring it into use. An intangible asset is recognised only when an asset is created that can be identified, its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Group. Expenditure incurred in relation to scoping, planning and researching the build of an asset as part of a project is expensed as incurred.



2. Accounting policies continued2.2 Summary of significant accounting policies applied in the year ended 31 December 2018 continued(11) Intangible assets continuedFollowing initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful economic lives of intangible assets are assessed to be either finite or infinite. Intangible assets with finite lives are amortised over their useful economic life. Amortisation is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful economic lives, which are generally estimated to be:• computer software and core operating platforms 3–5 years• acquired customer and retail partner relationships 7–13 years• acquired brand and trade names 20 years • acquired intellectual property (credit scoring models) 7 years

The Group has no intangible assets with an infinite useful economic life. The amortisation expense on intangible assets with finite lives is recognised within other operating expenses in the income statement.

Changes in the expected useful economic life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and they are treated as changes in accounting estimates.

Intangible assets are assessed for indications of impairment at each balance sheet date, or more frequently where changes in circumstances exist. The carrying value of assets is compared to their recoverable amount, being the higher of their fair value less costs to sell and their value in use. Any impairment is recognised immediately in the income statement.

See note 2.3 for further details on the significant accounting judgements, estimates and assumptions that affect the carrying value of intangibles.

(12) Property and equipmentProperty and equipment is stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment losses. Changes in the expected useful economic life are accounted for by changing the depreciation period or method, as appropriate, and are treated as changes in accounting estimates.

Depreciation is calculated using the straight-line method to write down the cost of property and equipment to their residual values over their estimated useful economic lives. The estimated useful economic lives are as follows:• computer equipment 3–5 years• fixtures and fittings 3–5 years• leasehold improvements over the lease term

Property and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is recognised in other operating expenses in the income statement in the period in which the asset is derecognised.

(13) Impairment of non-financial assetsThe Group assesses, at each reporting date, whether there is an indication that a non-financial asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use. Where the carrying value of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised.

The reversal is limited so that the carrying value of the asset does not exceed its recoverable amount, nor exceeds the carrying value that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised for the asset in prior periods. Such reversal is recognised in the income statement.


(14) ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources representing economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in other operating expenses in the income statement net of any reimbursement.

See note 2.3 for further details of the significant accounting judgements, estimates and assumptions that affect provisions.

(15) Share capital and equity instrumentsThe Group applies IAS 32 ‘Financial Instruments: Presentation’ to determine whether funding is either a financial liability or equity.

Ordinary shares are classified as equity. Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Group’s shareholders. Interim dividends are deducted from equity when they are declared and are therefore no longer at the discretion of the Group. Dividends for the year that are approved after the reporting date are disclosed as a post balance sheet event.

Issued financial instruments or their components are classified as liabilities if the contractual arrangement results in the Group having a present obligation to either deliver cash or another financial asset, or a variable number of equity shares, to the holder of the instrument. If this is not the case, the instrument is generally an equity instrument and the proceeds are included in equity, net of transaction costs.

(16) Investment in subsidiary undertakingsThe Company’s equity investments in its subsidiary undertakings are recorded at cost less impairment. At each reporting date an assessment is undertaken to determine whether there is any indication of impairment.

2.2.1 Significant accounting policies applied in the period ended 31 December 2017 which are not applicable for the year ended 31 December 2018(1) Financial instrumentsThe Group and Company transitioned to IFRS 9 on 1 January 2018. For the period ended 31 December 2017 the Group and Company applied IAS 39 and the significant accounting policies for this period, which changed on adoption of IFRS 9, are listed below. Prior year comparatives have not been restated.

(i) Initial measurement of financial instrumentsThe classification of financial instruments at initial recognition depended on their purpose and characteristics and management’s intention on acquiring them. Depending on this assessment, the Group’s financial assets were classified as either: (i) loans and receivables; (ii) held-to-maturity; (iii) available-for-sale; or (iv) FVTPL. The Group’s financial liabilities were classified as either: (i) amortised cost; or (ii) FVTPL.

All financial instruments were measured initially at their fair value adjusted for transaction costs.

(ii) Interest and similar incomeFor all financial assets measured at amortised cost, interest income was recorded using the EIR. The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying value of the financial asset. The calculation takes into account all contractual terms of the financial asset (for example, prepayment options) and includes certain fees or directly attributable issue costs, but not future credit losses.

For all financial assets, interest income was generated off the carrying value of the financial asset net of cumulative impairment losses.

(iii) Impairment of financial assetsThe Group assessed at each reporting date whether there was any objective evidence that a financial asset or a group of financial assets was impaired. A financial asset or a group of financial assets was deemed to be impaired if, and only if, there was objective evidence of impairment as a result of one or more events that had occurred after the initial recognition of the asset (an incurred loss event) and that loss event had an impact on the estimated future cash flows of the financial asset or the group of financial assets that could be reliably estimated. Evidence of impairment included: (i) indications that the borrower or a group of borrowers was experiencing financial difficulty; (ii) the probability that they would enter bankruptcy or other financial reorganisation; (iii) default or delinquency in interest or principal payments; and (iv) where observable data indicated that there was a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlated with defaults.



2. Accounting policies continued2.2 Summary of significant accounting policies applied in the year ended 31 December 2018 continued2.2.1 Significant accounting policies applied in the period ended 31 December 2017 which are not applicable for the year ended 31 December 2018 continued(2) Fee and commission incomeThe Group and Company transitioned to IFRS 15 on 1 January 2018 with no significant impact on the Financial Statements. For the period ended 31 December 2017 the Group and Company applied IAS 18. Under the requirements of IAS 18, fee and commission income was recognised when it was both probable that the future economic benefit associated with the underlying transaction would flow to the entity and the amount could be reliably measured.

2.3 Significant accounting judgements, estimates and assumptionsThe preparation of the consolidated Group and Company Financial Statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of income and expenses during the reporting period. The most significant uses of judgements and estimates are as follows:

ECL on loans and advances to customersThe following judgements and estimates are made in determining the Group’s ECL under the requirements of IFRS 9:

(i) Modelling estimatesThe measurement of ECL is calculated using three main components: (i) PD; (ii) EAD; and (iii) LGD. The ECL is calculated by multiplying the PD, EAD and the LGD. The 12-month PD, being the likelihood of default occurring in the next 12 months, is used for assets in stage 1 and the lifetime PD, being the likelihood of default occurring over the remaining expected life of the asset, is used for all other assets. The EAD represents the expected balance at default, taking into account the repayment of principal and interest from the balance sheet date to the default event together with any expected drawdowns of unutilised credit limits. The LGD represents expected losses on the EAD upon default, taking into account the time value of money. In most instances the Group sells debt once it is written off, which is usually after it reaches 180 days past due, and the Group’s LGD is primarily determined by the recoveries received following such debt sales.

The following table details the movement in the ECL provision for changes in the significant modelling estimates, being the PD and expected recoveries incorporated in the LGD.

Group

31 December 2018

£m

+/-5% relative change in the PD +/-13.8+/-1 pence movement per pound of receivable on recoveries assumed in the LGD -/+4.3

(ii) Significant increase in credit riskIn determining whether an account has demonstrated a significant increase in credit risk since origination the Group applies the following criteria, based on its historical experience, to assess whether an asset should move from stage 1 to stage 2:• quantitative measures consider the increase in an account’s remaining lifetime PD compared to the expected lifetime PD

when the account was originated. For the purposes of provisioning, the Group segments its portfolios into PD risk grades and has determined a relevant threshold for each risk grade where a movement in excess of the threshold since origination is considered to be significant and the account would therefore be moved to stage 2; and

• IFRS 9 includes a rebuttable presumption that once contractual payments are more than 30 days past due this is an indicator of a significant increase in credit risk. The Group considers 30 days past due to be an appropriate backstop and has not rebutted this presumption.

An account is moved back to stage 1 when it no longer meets these criteria and has sufficiently demonstrated it has no longer experienced a significant increase in credit risk since origination.

As at 31 December 2018, a 10% increase/decrease in the significant increase in credit risk PD thresholds results in a £3.6m reduction and £8.6m increase in the Group’s ECL provision respectively.


(iii) Definition of defaultThe Group classifies an account as in default, which is fully aligned to the definition of credit-impaired, and therefore moves to stage 3 when it meets one or more of the following criteria:• quantitative measures reflecting the IFRS 9 rebuttable presumption that once contractual payments are more than 90 days

past due they are in default; and• qualitative measures including the observation of specific events such as insolvency or forbearance measures.

Where the performance of the asset improves to the extent that it no longer meets any of the default criteria, and has sufficiently demonstrated it is cured from a defaulted status, it transitions out of stage 3.

(iv) Forward-looking informationThe assessment of significant increase in credit risk and the calculation of ECL both incorporate forward-looking information. The Group has identified the most significant macroeconomic factors that are likely to impact credit loss, being changes in the UK unemployment rate and gross domestic product (GDP). These variables and their associated impact on ECL have been factored into the credit loss models utilising four scenarios based on reasonable forecasts of future economic conditions and applying a probability-weighted approach. These scenarios include a base, an upside and two downside scenarios, with both downside scenarios factoring in the potential impact of a no-deal Brexit. The following table details the average forecasts for each scenario used in the Group’s ECL provision as at 31 December 2018.

GroupAs at 31 December 2018

Average unemployment

rate

Average GDP growth

rate

Upside 3.8% 2.1%Base 4.3% 1.6%Downside 1 5.3% 1.2%Downside 2 6.3% 0.8%

As at 31 December 2018, the impact of weighting these scenarios increased the ECL provision on up-to-date loans and advances to customers by £13.1m.

For further details of the Group’s ECL allowance see note 23.2.

Payment Protection Insurance (PPI)PPI provisions relate to the Group’s obligations in respect of matters relating to the sale of PPI policies to cardholders. Whilst the Group has not sold any PPI policies directly, in certain circumstances it may be liable for PPI policies that were sold to cardholders whose accounts were subsequently acquired by, or assigned to, the Group, by previous owners.

The provision reflects the Group’s current view of the expected future liability based on historical information and using management’s best judgement regarding future developments. The Group has calculated the provisions by making a number of assumptions based upon current and historical experience and future expectations.

The total cost associated with PPI for the Group is estimated at £55.8m, out of which £20.1m was remediated in the year ended 31 December 2018 (period ended 31 December 2017: £10.7m), leaving a provision of £25.0m in respect of anticipated future costs (2017: £45.1m).

The principal sensitivities in the PPI provision calculation are: (i) total claims excluding proactive mailing responses; (ii) the uphold rate; and (iii) the average redress amount. A movement in each principal sensitivity would result in the following movement in the PPI provision:

Group

31 December 2018

£m

31 December 2017

£m

+/- 5% in total claims excluding proactive mailing responses +/-0.8 +/-0.8+/- 5 percentage points in uphold rate +/-0.5 +1.2/-1.3+/- 10% in average redress amount +/-2.3 +/-4.2

For further details of the PPI provision see note 20.



2. Accounting policies continued2.3 Significant accounting judgements, estimates and assumptions continuedImpairment of intangible assets and goodwillIn accordance with IAS 36 ‘Impairment of assets’ the goodwill arising on the Acquisition is subject to an annual impairment review and intangible assets are assessed for indications of impairment at each balance sheet date, or more frequently where changes in circumstances exist.

The impairment review on goodwill is conducted by comparing the discounted estimated future cash flows of the cash-generating units with their carrying value including goodwill. The impairment review requires a number of key assumptions which have a significant impact on the outcome including: • the cash flow forecasts utilised. These were extracted from the Group’s Board-approved five year budget and inherently

include a number of judgements and estimates, particularly in relation to new customer account originations, impairment rates and the ongoing cost base of the cash-generating units. Cash flows were extrapolated for a further five years, reflecting the fact they are held for long-term investment, with no further growth assumed during the extrapolated period; and

• the discount rate which has been estimated based on the Group’s weighted average cost of capital.

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 reduction in future cash flows from these assets would necessitate a full impairment review and the possibility of a material impairment charge in future years.

As at 31 December 2018, to the extent that discount rates were to increase by 25%, from 4% to 5%, there would be no increase to the goodwill impairment charge.

In accordance with IAS 36 intangible assets arising on the Acquisition are measured at fair value on the date they were acquired less accumulated amortisation and impairment losses. Accordingly at each reporting date the Group is required to assess whether there is any indication that the assets may be impaired. If there is an indication that an asset may be impaired, the asset’s recoverable amount must be calculated and the carrying value should be reduced to the recoverable amount should it be lower. The Group has reviewed all available information that may indicate impairment of its acquired intangible assets and has assessed the recoverable amount of certain acquired intangible assets in relation to our retail partnership relationships by reference to expected cash flows from the underlying assets, including completing stress scenario analysis, and has deemed no impairment is required (period ended 31 December 2017: £nil).

2.4 Adoption of new and revised standardsThe following new standards, interpretations and amendments to existing standards are mandatory for the first time for the year ended 31 December 2018 but do not have a significant impact on the Group:• IFRS 15 ‘Revenue from Contracts with Customers’ became effective on 1 January 2018 and therefore is mandatory for the

first time for the year ended 31 December 2018. IFRS 15 replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction Contracts’, and establishes a comprehensive framework for determining whether, how much and when revenue is recognised on contracts from customers. The scope of IFRS 15 excludes all financial instruments and other contractual rights or obligations within the scope of IFRS 9. As a substantial proportion of the Group’s income is generated from financial instruments the adoption of IFRS 15 has not had a significant impact on the Group;

• Amendments to IFRS 2 ‘Share-based Payment’; • Amendments to IFRS 4 ‘Insurance Contracts’;• Amendments to IAS 40 ‘Transfers of Investment Property’; • IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’; and• Annual improvements to IFRSs 2014–2016 cycle.

IFRS 9 also became effective on 1 January 2018 and represents a significant change from IAS 39. The key changes to the Group’s accounting policies and significant judgements and estimates resulting from the adoption of IFRS 9 are detailed in note 2.2 and 2.3.


2.5 Standards issued but not yet effectiveThe following accounting standards and interpretations have been issued by the International Accounting Standards Board but have not been early adopted by the Group or Company:• IFRS 16 ‘Leases’. IFRS 16 eliminates the classification of leases as either operating or finance leases and introduces a single

lessee accounting model. Lessees will recognise a right-of-use asset and a corresponding lease liability. The asset will be amortised over the length of the lease and the financial liability will be measured at amortised cost. The standard became effective on 1 January 2019 and on transition the Group recognised one-off adjustments: (i) a right-of-use asset in the order of £20m, which is net of accrued and prepaid lease expenses as at the transition date; (ii) a lease liability in the order of £23m; and (iii) an adjustment to retained earnings in the order of £1m. This standard does not have an impact on the Company’s Financial Statements;

• Amendments to IFRS 9 for prepayment features with negative compensation and modifications of financial liabilities. This amendment is not expected to have a significant impact on the Group’s Financial Statements;

• Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’. The amendment addresses equity-accounting loss absorption by long-term interests and is not expected to have a significant impact on the Group’s Financial Statements;

• IFRS 17 ‘Insurance Contracts’. IFRS 17 replaces IFRS 4 ‘Insurance Contracts’ and establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts. This standard is not expected to have a significant impact on the Group’s Financial Statements;

• Amendments to IFRS 10 ‘Consolidated Financial Statements’ and IAS 28 ‘Investments in Associates and Joint Ventures’. The amendments resolve the conflict between the existing guidance on consolidation and equity accounting. This amendment is not expected to have a significant impact on the Group’s Financial Statements;

• Amendments to IAS 19 ‘Employee Benefits’. The amendment to IAS 19 clarifies current service and net interest accounting. This amendment is not expected to have a significant impact on the Group’s Financial Statements;

• IFRIC 23 Uncertainty over Income Tax Treatments. This IFRIC clarifies the accounting for income tax treatments that have yet to be accepted by tax authorities. The Group is assessing the impact of this IFRIC on the Financial Statements; and

• Annual improvements to IFRSs 2015–2017 cycle. This standard is not expected to have a significant impact on the Group’s Financial Statements.

3. Segment informationThe Group’s operating performance on a segmental basis is regularly reviewed by management. These segmental results contain various reclassifications from the statutory results. The Group’s reportable segments comprise Own-brand, Co-brand and Unsecured Personal Loans, which are the segments reported to the chief operating decision maker, which is deemed to be the Chief Executive Officer and the Management Committee. Each segment offers different products and services and is managed in line with the Group’s management and internal reporting structure. The segments are as follows:• Own-brand: this segment serves near-prime customers who are typically new to credit or have a poor or limited credit history.

The segment issues credit cards under the aqua, marbles, opus, and from April 2018, Fluid brands and also includes several closed portfolios;

• Co-brand: this segment provides co-branded credit products in partnership with established retail and consumer brands. These products include store cards, co-branded credit cards and following its launch in October 2018, also now includes NewPay which is the Group’s digital revolving credit product. In addition, the Group also has a small portfolio of other closed credit cards and point-of-sale finance products; and

• Unsecured Personal Loans (UPL): this segment, launched in December 2016 with a controlled build-up to date, provides unsecured personal loan products to existing Own-brand customers.

These segments reflect how internal reporting is provided to management and how management allocates resources and assesses performance. Segment performance is assessed on the basis of underlying contribution. The accounting policies of the reportable segments are consistent with the Group’s accounting policies. The Group’s activities are managed across Jersey, Luxembourg and the UK. However, the Group only offers products to customers in the UK. Capital expenditure is not allocated to individual segments as property and equipment is managed at a Group level.



3. Segment information continuedThe table below presents the Group’s performance on a segmental basis in line with reporting to the chief operating decision maker:

Year ended 31 December 2018Own-brand

£mCo-brand

£m

Unsecured Personal

Loans £m

Total £m

Interest income 406.5 165.2 7.7 579.4Cost of funds (34.3) (15.8) (1.8) (51.9)

Net interest income 372.2 149.4 5.9 527.5Fee and commission income 42.3 21.3 – 63.6Impairment losses on loans and advances to customers (260.8) (33.3) (7.7) (301.8)

Risk-adjusted income/(expense) 153.7 137.4 (1.8) 289.3Servicing costs (36.9) (48.9) (0.8) (86.6)Change costs (12.7) (9.5) (1.8) (24.0)Value Creation Plan implementation costs (10.2) (6.4) (0.2) (16.8)Marketing and partner payments (18.2) (43.0) (0.3) (61.5)Collection fees 17.8 11.8 – 29.6

Contribution 93.5 41.4 (4.9) 130.0Salaries, benefits and overheads (52.1)Add back: depreciation and amortisation 4.3

Adjusted EBITDA 82.2Senior Secured Debt interest and related costs (33.4)Fair value unwind (1.6)Other costs (0.2)Depreciation and amortisation including amortisation of intangibles arising on the Acquisition (53.9)

Loss before tax (6.9)

Gross receivables 1,565.6 991.5 65.6 2,622.7

The table below presents a reconciliation of the reclassifications from the statutory performance to the results shown in the segmental analysis:

Year ended 31 December 2018 reconciling itemsStatutory

£m

Fair value unwind

£m

Cost recovery

fees £m

Other £m

Segmental basis

£m

Interest income 581.3 (1.5) – (0.4) 579.4Cost of funds (88.9) 3.1 – 33.9 (51.9)Fee and commission income 92.7 – (29.1) – 63.6Impairment losses on loans and advances to customers (302.2) – – 0.4 (301.8)

Risk-adjusted income 282.9 1.6 (29.1) 33.9 289.3Total operating expenses (289.8) (1.6) 29.1 (33.9) (296.2)

Loss before tax (6.9) – – – (6.9)

Fair value unwind reflects the amortisation of fair value adjustments on the Group’s acquired receivables and debt issued which are excluded from underlying profit on a segmental basis.

Cost recovery fees are presented as a component of collection fees on a segmental basis rather than income.

Other largely represents the £33.4m interest and related costs on the £425.0m Senior Secured Debt and £30.0m revolving credit facility, which are excluded from underlying profit on a segmental basis.


The table below presents the Group’s performance on a segmental basis for the year ended 31 December 2017, assuming the Predecessor Group had been acquired on 1 January 2017, in line with reporting to the chief operating decision maker:

Year ended to 31 December 2017Own-brand

£mCo-brand

£m

Unsecured Personal

Loans £m

Total £m

Interest income 338.3 142.7 0.9 481.9Cost of funds (26.7) (13.2) (0.7) (40.6)

Net interest income 311.6 129.5 0.2 441.3Fee and commission income 39.1 18.3 – 57.4Impairment losses on loans and advances to customers (194.7) (20.7) (0.8) (216.2)

Risk-adjusted income/(expense) 156.0 127.1 (0.6) 282.5Servicing costs (32.9) (46.8) (0.7) (80.4)Change costs (10.4) (4.9) (0.7) (16.0)Value Creation Plan implementation costs (4.0) (1.7) – (5.7)Marketing and partner payments (14.4) (37.0) (0.7) (52.1)Collection fees 15.8 12.1 – 27.9

Contribution 110.1 48.8 (2.7) 156.2Salaries, benefits and overheads (46.1)Add back: depreciation and amortisation 4.3

Adjusted EBITDA 114.4Senior Secured Debt interest and related costs (32.1)Fair value unwind (1.9)Interest on related party loans (30.5)All colleague acquisition bonus (3.2)Acquisition related expenses (10.7)Other costs (2.9)Depreciation and amortisation including amortisation of intangibles arising on the Acquisition (49.8)

Pro forma loss before tax (16.7)

Gross receivables 1,326.3 820.8 16.5 2,163.6



3. Segment information continuedThe table below presents a reconciliation of the reclassifications from the statutory performance to the results shown in the segmental analysis:

Period ended 31 December 2017 reconciling itemsStatutory

£m

Fair value unwind

£m

Cost recovery fees

£mOther

£m

Pro forma adjustments

£m

Segmental basis

£m

Interest income 445.1 (2.5) – – 39.3 481.9Cost of funds (105.1) 4.7 – 63.0 (3.2) (40.6)Fee and commission income 77.9 – (25.1) – 4.6 57.4Impairment losses on loans and advances to customers (199.3) – – 0.3 (17.2) (216.2)

Risk-adjusted income 218.6 2.2 (25.1) 63.3 23.5 282.5Total operating expenses (245.6) (2.2) 25.1 (63.3) (13.2) (299.2)

Loss before tax (27.0) – – – 10.3 (16.7)

Other largely represents the £32.1m interest and related costs on the £425.0m Senior Secured Debt and £30.0m Revolving Credit Facility up to 31 December 2017 and £30.5m interest on related party loans up to 30 June 2017, which are excluded from underlying profit on a segmental basis.

Pro forma adjustments represent the performance of the Predecessor Group from 1 January 2017 to the date of acquisition on 26 January 2017, which are not consolidated into the statutory results.

4. Interest and similar income

Group Company


2018 £m


31 December 2017

£m


2018 £m


31 December 2017

£m

Interest income from loans and advances to customers 580.9 444.9 – –Interest income from banks 0.4 0.2 – –Interest income from loans with Group undertakings – – 45.4 29.4Interest income from Tracking Preferred Equity Certificates – – 26.3 19.8

Interest and similar income 581.3 445.1 71.7 49.2

The Company’s interest and similar income consists of interest on a loan note issued by NewDay UK Limited and interest on Tracking Preferred Equity Certificates (TPECs) issued by NewDay Group Holdings S.à r.l..

5. Interest and similar expense

Group Company


2018 £m


31 December 2017

£m


2018 £m


31 December 2017

£m

Interest expense on debt issued and other borrowed funds 85.7 69.7 2.4 3.3Interest expense on related party loans – 30.5 – 30.5Interest expense on amounts owed to Group undertakings – – 31.0 28.8Fair value unwind 3.1 4.7 – –Other 0.1 0.2 – –

Interest and similar expense 88.9 105.1 33.4 62.6


Interest expense on related party loans in the period ended 31 December 2017 consisted of £30.5m interest accrued up to 30 June 2017 at 12% per annum on: (i) a £529.2m intercompany loan from Nemean MidCo Limited (the Company’s immediate parent company); and (ii) £64.7m loan notes issued by the Company and held by Nemean MidCo Limited.

With effect from 1 July 2017, the terms of these loan agreements were amended resulting in a change in classification from liabilities to equity instruments in the balance sheet. The interest accrued up to 30 June 2017 was recorded as a capital contribution and no further interest expense will be charged to the income statement. The interest continues to legally accrue on these instruments, and remains legally payable if approved. This is at the discretion of the Board of the Company.

6. Fee and commission income

Group Company


2018 £m


31 December 2017

£m


2018 £m


31 December 2017

£m

Card fees 78.0 65.1 – –Interchange fees 12.0 8.5 – –Other fees received 2.7 4.3 – –

Fee and commission income 92.7 77.9 – –

7. Personnel expense

Group Company


2018 £m


31 December 2017

£m


2018 £m


31 December 2017

£m

Wages and salaries 66.0 50.4 – –Social security costs 6.1 4.5 – –Pension contributions 3.9 3.0 – –Other staff costs 4.9 3.3 – –

Personnel expense 80.9 61.2 – –

Average number of full time equivalent employees 1,023 828 – –Number of full time equivalent employees as at 31 December 1,097 916 – –

In 2018, the Group incurred £19.0m of project-related personnel expenses (period ended 31 December 2017: £12.4m).

The Company has no employees (2017: none). No Directors’ remuneration was paid by the Company during the year (period ended 31 December 2017: £nil). Remuneration for the Directors listed in the Board of Directors section on page 58 is borne by NewDay Cards Ltd (for the Executive Directors) and NewDay Group UK Limited (for the Independent Non-Executive Directors).

See note 26 for details of transactions with key management personnel.



8. Other operating expenses

Group Company


2018 £m


31 December 2017

£m


2018 £m


31 December 2017

£m

Servicing costs 59.1 55.8 – –Commission to retailers, advertising and marketing costs 50.7 39.2 – –Administrative costs 14.4 10.8 0.1 0.1IT and communications 8.9 5.0 – –Professional fees 3.4 2.3 – 0.1Project expenses 18.5 21.9 – 12.3Depreciation of property and equipment (see note 14) 2.0 2.7 – –Amortisation of intangible assets (see note 15) 51.9 46.6 – –Other – 0.1 – –

Other operating expenses 208.9 184.4 0.1 12.5

Other operating expenses include £2.9m of operating lease expenses on Leeds and London properties (period ended 31 December 2017: £1.8m).

In the period ended 31 December 2017, the Company incurred £10.7m of project expenses in relation to the completion of the Acquisition.

Professional fees include fees payable to the auditor, KPMG LLP, in relation to:

Group Company


2018 £m


31 December 2017

£m


2018 £m


31 December 2017

£m

Audit of consolidated Group and Company Financial Statements 0.2 0.1 0.2 0.1Audit of the Financial Statements of the Company’s subsidiaries 0.5 0.4 – –Other assurance services 0.1 0.1 – –

0.8 0.6 0.2 0.1

The auditor is permitted to undertake work in other areas where it is the most suitable supplier and the terms and conditions of the engagement, including the fee, do not impair its objectivity or independence.

9. Tax expense

Group Company


2018 £m


31 December 2017

£m


2018 £m


31 December 2017

£m

Current tax expense 6.4 10.2 – –Deferred tax expense/(credit) 0.3 (0.7) – –

Tax expense 6.7 9.5 – –


Reconciliation of the total tax expenseThe applicable tax regime for all the Group’s entities apart from the Company, NewDay Group Holdings S.à r.l., NewDay Partnership Receivables Trustee Ltd and NewDay Funding Receivables Trustee Ltd is the UK. The Jersey tax regime is applicable for the Company, NewDay Partnership Receivables Trustee Ltd and NewDay Funding Receivables Trustee Ltd and the Luxembourg tax regime is applicable for NewDay Group Holdings S.à r.l. and is reflected in the tax computations accordingly. A reconciliation between the loss/profit before tax and the tax expense is as follows:

Group Company


2018 £m


31 December 2017

£m


2018 £m


31 December 2017

£m

(Loss)/profit before tax (6.9) (27.0) 38.2 (25.9)Tax (credit)/charge at average UK corporation tax rate of 19% (period ended 31 December 2017: 19.2%) (1.3) (5.2) 7.3 (5.0)

Effects of:Disallowable items and allowable deductions1 11.4 10.9 (5.0) 5.0Profits subject to corporation tax under securitisation vehicle rules (4.2) (5.8) – –Adjustment in respect of foreign tax rates (2.3) 8.7 (2.3) –Prior year adjustment 3.1 0.9 – –

Tax expense 6.7 9.5 – –

1. Disallowable items and allowable deductions largely relates to disallowable amortisation and depreciation.

For the year ended 31 December 2018 the enacted UK corporation tax rate was 19% (26 September 2016 to 31 March 2017: 20% and from 1 April 2017 to 31 December 2017: 19%). The average tax rate for the year ended 31 December 2018 was 19% (period ended 31 December 2017: 19.2%). From 1 April 2020 the tax rate is expected to be 17%.

The Group holds a deferred tax asset of £0.4m (2017: £0.7m) resulting from temporary differences. There was no tax recognised through the Group’s or Company’s statement of other comprehensive income in the year (period ended 31 December 2017: £nil).

10. Loans and advances to banks

Group Company

31 December 2018

£m

31 December 2017

£m

31 December 2018

£m

31 December 2017

£m

Loans and advances to banks 134.0 124.4 0.9 1.2Restricted cash 50.0 43.5 – –

184.0 167.9 0.9 1.2

Cash and cash equivalents 134.0 124.4 0.9 1.2

Loans and advances to banks are held with large commercial banks. Restricted cash of £50.0m (2017: £43.5m) is restricted for more than three months and consists of ring-fenced cash for credit balances on loans and advances to customers, as well as cash restricted due to covenants in place in accordance with the Group’s funding structure.

11. Loans and advances to customers

Group Company

31 December 2018

£m

31 December 20171

£m

31 December 2018

£m

31 December 2017

£m

Loans and advances to customers 2,709.7 2,237.3 – –Impairment provision on loans and advances to customers (406.4) (132.9) – –

2,303.3 2,104.4 – –

1. The impairment provision as at 31 December 2017 was calculated in accordance with IAS 39.



11. Loans and advances to customers continuedThere is no fixed term for repayment of credit card loans other than a contractual requirement for customers to make a minimum monthly repayment towards their outstanding balance. Unsecured personal loans have a fixed repayment term ranging between 12 months and 60 months.

For details of the impairment assessment performed on loans and advances to customers see note 23.2.

Transfers of financial assetsThe Group transfers certain loan balances to recovery agencies, in the ordinary course of business, for a proportion of their carrying value. It also undertakes that certain recourse may be claimed by the recovery agencies if specific criteria are not met for a period of time following the date of transfer. Up to this date the Group is responsible for returning collection proceeds to the agencies, depending on the provisions of each individual sales agreement. During the year the Group sold and derecognised certain loans and advances to customers for the purpose of expediting recovery of these balances for total net proceeds of £80.9m (period ended 31 December 2017: £57.0m). The Group has no other transferred financial assets which are derecognised partly or in their entirety and in which it retains some form of continuing involvement.

12. Other assets

Group Company

31 December 2018

£m

31 December 2017

£m

31 December 2018

£m

31 December 2017

£m

Other receivables 27.2 39.3 – –Prepayments and accrued income 30.8 28.3 0.1 0.1Amounts due from related parties 0.4 – 0.4 –Amounts due from Group undertakings – – 547.4 515.1

Other assets 58.4 67.6 547.9 515.2

On 28 April 2017, the Company acquired from NewDay Group Holdings S.à r.l. a loan note issued by NewDay UK Limited of £483.7m at an interest rate of 9% per annum due 2027. The loan note was listed on the International Stock Exchange on 12 October 2017.

Amounts due from related parties consist of a term loan facility to Nemean TopCo Limited issued on 11 January 2018; see note 26 for details.

13. Derivative financial assetsThe Group uses derivative financial instruments, namely cross-currency interest rate swaps, to manage the interest rate and foreign exchange rate risks arising from the Group’s foreign currency denominated asset-backed term debt which was issued in the year.

The Group has designated its derivative financial instruments as cash flow hedges. Their fair value has been calculated by discounting contractual future cash flows using relevant market interest rate yield curves and forward foreign exchange rates prevailing at the balance sheet date. The notional amounts and fair values of derivative financial instruments at the year end are as follows:

As at 31 December 2018 As at 31 December 2017

Group

Notional amount

£mAssets

£m

Notional amount

£mAssets

£m

Cash flow hedges 191.4 2.5 – –

Derivative financial assets 191.4 2.5 – –

All cash flow hedges are deemed to be effective and the fair value thereof has been deferred in equity within the hedging reserve. There was no impact on the income statement in the year in respect of the movement in the fair value of ineffective cash flow hedges.

The Company held no derivative financial instruments during the year (period ended 31 December 2017: £nil)


14. Property and equipment

Group

Computer equipment

£m

Fixtures and fittings

£m

Leasehold improvements

£m

Total property and

equipment £m

Cost as at 1 January 2018 2.6 2.4 9.8 14.8Additions 0.5 0.4 0.1 1.0Disposals (1.1) (0.2) (0.2) (1.5)

Cost as at 31 December 2018 2.0 2.6 9.7 14.3

Depreciation as at 1 January 2018 (1.6) (1.5) (1.7) (4.8)Charge to the income statement for the year (0.5) (0.4) (1.1) (2.0)Disposals 1.1 0.2 0.2 1.5

Depreciation as at 31 December 2018 (1.0) (1.7) (2.6) (5.3)

Net book value as at 31 December 2018 1.0 0.9 7.1 9.0

Net book value as at 31 December 2017 1.0 0.9 8.1 10.0

The Company held no property and equipment during the year (period ended 31 December 2017: £nil).

15. Intangible assets

Group

Acquired intangibles

£m

Internally generated

intangibles £m

Total intangible

assets £m

Cost as at 1 January 2018 396.1 8.1 404.2Additions – 8.4 8.4

Cost as at 31 December 2018 396.1 16.5 412.6

Amortisation as at 1 January 2018 (45.5) (1.3) (46.8)Charge to the income statement for the year (49.6) (2.3) (51.9)

Amortisation as at 31 December 2018 (95.1) (3.6) (98.7)

Net book value as at 31 December 2018 301.0 12.9 313.9

Net book value as at 31 December 2017 350.6 6.8 357.4

Internally generated intangibles include computer software and core operating platforms. For details of the significant accounting judgements, estimates and assumptions in the acquired intangibles see note 2.3.

The Company held no intangible assets during the year (period ended 31 December 2017: £nil).

16. Investment in subsidiaries

Company £m

As at 26 September 2016 –Investments during the period 990.5Realisation of investment (485.6)

As at 31 December 2017 504.9Investments during the period 6.5

As at 31 December 2018 511.4

The Company holds 100% of the ordinary shares of NewDay Group UK Limited and NewDay Group Holdings S.à r.l..



16. Investment in subsidiaries continuedOn 28 April 2017, NewDay Group Holdings S.à r.l. assigned to the Company a loan note issued by NewDay UK Limited for £483.7m, at an interest rate of 9% per annum due 2027 in consideration for: (i) the repurchase of 312,500 A9 NewDay Group Holdings S.à r.l. shares for £324.6m; (ii) redemption of £68.5m Interest Free Preferred Equity Certificates; and (iii) repayment of £92.5m Tracking Preferred Equity Certificate interest.

On 1 January 2018, the Company made a capital contribution to NewDay Group Holdings S.à r.l. of £6.5m.

As at 31 December an impairment assessment was performed on the carrying value of the investments in subsidiaries which concluded that no impairment was required (period ended 31 December 2017: £nil).

17. Goodwill

Group £m

As at 26 September 2016 –Recognised on acquisition of subsidiaries 279.9



On 26 January 2017 the Company acquired 100% of the issued share capital and preferred equity certificates in NewDay Group Holdings S.à r.l. for cash consideration of £990.5m (the Acquisition). NewDay Group Holdings S.à r.l. was the parent company of the Predecessor Group.

The allocation of the consideration was subject to a purchase price allocation exercise. The excess of consideration over the net assets acquired was allocated to goodwill. Goodwill is allocated to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose. On completion of the Acquisition, and through the purchase price allocation exercise, the Group recognised: (i) acquired net assets with a carrying value of £304.4m; (ii) fair value adjustments of £406.2m relating to intangible assets and debt issued; and (iii) goodwill of £279.9m. £240.5m of goodwill was allocated to Own-brand and £39.4m was allocated to Co-brand. For further details of the net assets acquired, intangible assets and goodwill recognised following the Acquisition see note 10 of the 2017 Annual Report and Financial Statements.

In line with the requirements of IAS 38, an annual impairment assessment has been completed and no impairment was identified; see note 2.3 for further details (period ended 31 December 2017: £nil).

18. Debt issued and other borrowed funds

Group Company

31 December 2018

£m

31 December 2017

£m

31 December 2018

£m

31 December 2017

£m

Senior Secured Debt and associated facilities 435.4 435.4 0.1 –Asset-backed term debt 1,781.7 1,506.8 – –Variable funding notes 468.7 331.2 – –Intercompany loan agreement – – 435.3 435.4

2,685.8 2,273.4 435.4 435.4Capitalised debt funding fees (21.5) (20.7) (12.0) (14.1)

Debt issued and other borrowed funds 2,664.3 2,252.7 423.4 421.3

In connection with the Acquisition, on 25 January 2017 NewDay BondCo plc (formerly Nemean BondCo plc) issued £425.0m Senior Secured Notes comprising £275.0m Fixed Rate Senior Secured Notes due 2024 and £150.0m Floating Rate Senior Secured Notes due 2023. In addition, certain subsidiaries of the Group entered into a £30.0m Super Senior Revolving Credit Facility.

In addition, debt issued and other borrowed funds includes publicly listed asset-backed securities and variable funding notes provided by a number of different investors. This debt issued, provided at LIBOR plus margin, is backed by securitised outstanding loans and advances to customers. £1,303.1m is used to fund the Own-brand portfolio (2017: £1,090.0m), £902.7m is used to fund the Co-brand portfolio (2017: £743.6m) and £44.6m is used to fund the Unsecured Personal Loans business (2017: £4.4m).


Of the debt issued and other borrowed funds £191.7m is denominated in US Dollars (2017: £nil) with the remaining denominated in Sterling.

A reconciliation of debt issued and other borrowed funds during the year is as follows:

Cash flowsNon-cash

movements

Group

As at 1 January

2018 £m

Proceeds from debt

issued £m

Repayment of debt issued

£mOther

£m

As at 31 December

2018 £m

Senior Secured Debt and associated facilities 435.4 – – – 435.4Asset-backed term debt 1,506.8 533.5 (267.6) 9.0 1,781.7Variable funding notes 331.2 553.1 (416.5) 0.9 468.7

Debt issued and other borrowed funds 2,273.4 1,086.6 (684.1) 9.9 2,685.8

Other non-cash movements includes amortisation of fair value adjustments recognised on acquired debt issued, movements in accrued interest and foreign exchange gains and losses on the US Dollar denominated debt.

Cash flows Non-cash movements

Group

As at 26 September

2016 £m

Proceeds from debt issued

£m

Repayment of debt issued

£m

Recognised on the

Acquisition £m

Intercompany debt

converted to equity

£mOther

£m

As at 31 December

2017 £m

Senior Secured Debt and associated facilities – 425.0 – – – 10.4 435.4Asset-backed term debt – 521.5 (286.5) 1,263.9 – 7.9 1,506.8Variable funding notes – 330.3 (290.9) 289.9 – 1.9 331.2Intercompany loan agreement – 593.9 – – (593.9) – –

Debt issued and other borrowed funds – 1,870.7 (577.4) 1,553.8 (593.9) 20.2 2,273.4

Other non-cash movements includes amortisation of fair value adjustments recognised on the acquired debt issued and movements in accrued interest.

On 26 January 2017, the Company entered into an intercompany loan agreement with NewDay UK Limited pursuant to which the Company borrowed £425.0m comprising: (i) a fixed rate loan of £275.0m at an interest rate of 7.375% per annum due 2024; and (ii) a floating rate loan of £150.0m at an interest rate of three-month LIBOR plus a margin of 6.5% per annum due 2023.

The scheduled maturities of debt issued and other borrowed funds are as follows:

Group Company

31 December 2018

£m

31 December 2017

£m

31 December 2018

£m

31 December 2017

£m

Debt issued and other borrowed funds repayable in:Less than one year 523.8 266.3 – –Between one and two years 711.7 481.7 – –Between two and five years 1,166.9 1,090.0 152.0 –More than five years 283.4 435.4 283.4 435.4

2,685.8 2,273.4 435.4 435.4

Refer to note 27 for further details on the Group’s funding structure.



19. Other liabilities

Group Company

31 December 2018

£m

31 December 2017

£m

31 December 2018

£m

31 December 2017

£m

Trade payables and accruals 66.1 65.9 – 0.3Other payables 23.5 19.2 – –Pension contributions 0.5 0.4 – –Amounts owed to Group undertakings – – 0.1 1.2

Other liabilities 90.1 85.5 0.1 1.5

20. Provisions

Group

PPI provision

£m

CCA provision

£m

Customer refund

provision £m

Dilapidation provision

£m

Other provisions

£m

Total provisions

£m

As at 26 September 2016 – – – – – –Recognised on the Acquisition 55.8 1.4 0.4 1.5 13.8 72.9Arising during the period – – – 0.3 3.3 3.6Utilised during the period (10.7) (0.2) (0.4) – (8.3) (19.6)

As at 31 December 2017 45.1 1.2 – 1.8 8.8 56.9

Arising during the year – – – 0.1 2.8 2.9Utilised during the year (20.1) – – – (4.0) (24.1)

As at 31 December 2018 25.0 1.2 – 1.9 7.6 35.7

The Company held no provisions during the year ended 31 December 2018 (period ended 31 December 2017: £nil).

Payment Protection Insurance provisionThe PPI provision relates to the Group’s liabilities in respect of matters relating to the sale of PPI policies to cardholders. Whilst the Group has not sold any PPI policies directly, in certain circumstances it may be liable for PPI policies that were sold to cardholders whose accounts were subsequently acquired by, or assigned to, the Group, by previous owners.

As at 31 December 2018, the Group held a provision of £25.0m in respect of the anticipated costs of PPI redress (2017: £45.1m), which includes a provision of £1.0m in relation to administrative expenses (2017: £2.4m). There are still a number of uncertainties as to the eventual PPI redress costs, in particular the total number of claims and the cost per claim; however, the Directors believe that the amounts provided at the year end, based on historical and forecasted claim rates and amounts, along with ongoing legal and regulatory developments, appropriately reflect the expected cost to the Group.

See note 2.3 for details of the significant accounting judgements and estimates in the PPI provision.

Consumer Credit Act (CCA) provisionThe CCA provision relates to the Group’s obligations in respect of compensation to customers for non-compliance with the CCA. In certain instances, this relates to purchased accounts whereby the seller had not complied with the requirements of the CCA. As such the Group is fully compensated for costs by the seller of the accounts, and a corresponding asset of £1.0m has been recorded in other receivables in the balance sheet (2017: £1.0m).

Customer refund provisionThe Predecessor Group commissioned an in-depth review of default fees to ensure that customers continued to be treated fairly. The outcome of this was that from January 2016 it stopped charging customers some of those default fees in certain circumstances. In addition, the Predecessor Group reimbursed customers where they had been charged those fees under those circumstances from 1 April 2014 onwards. All remaining customers were reimbursed as at 31 December 2017.

Dilapidations provision A provision of £1.9m is held as at 31 December 2018 (2017: £1.8m) for dilapidation of the leased Leeds and London offices. This has been discounted at the risk-free rate over the remaining period of the leases, which as at 31 December 2018 is a weighted average of 7 years (2017: 8 years).


Other provisionsOther provisions largely consists of £7.4m associated with non-customer related regulatory enquiries (2017: £4.6m). The Group is, from time to time and in the normal course of business, subject to a variety of legal or regulatory claims, actions or proceedings. When such circumstances arise management provides for its best estimate of cost where an outflow of economic resources is considered probable. In 2017, this also included £3.4m for an all colleague acquisition bonus payable to employees in connection with the completion of the Acquisition which was utilised in the year.

21. Share capital and reserves

Group Company

31 December 2018

£m

31 December 2017

£m

31 December 2018

£m

31 December 2017

£m

Share capital and share premium – – – –Equity instruments 593.9 593.9 593.9 593.9Capital contribution 30.5 30.5 30.5 30.5Hedging reserve (1.4) – – –Retained (losses)/profits1 (263.2) (36.5) 12.3 (25.9)

Total equity 359.8 587.9 636.7 598.5

1. IFRS 9 ‘Financial Instruments’ became effective on 1 January 2018 and therefore is mandatory for the first time for the year ended 31 December 2018. The £213.1m impact on retained losses on transition to IFRS 9 is detailed in note 2 (2.1)(i).

Company

Called up share capital ordinary shares (1 pence)Number of

shares

Nominal value

£

Issued upon incorporation 101 1.01

As at 31 December 2017 and 31 December 2018 101 1.01

Share capital consists of 101 fully paid up ordinary shares at a nominal value of 1 pence each.

Equity instruments and capital contributionWith effect from 1 July 2017, the terms of a £529.2m intercompany loan from Nemean MidCo Limited and £64.7m loan notes issued by the Company and held by Nemean MidCo Limited were amended, resulting in a change in classification from liabilities to equity instruments. The interest accrued on these loans up to 30 June 2017 was recorded as a capital contribution.

Hedging reserveThe hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges net of income statement transfers.

Capital managementThe Group manages its capital structure and makes adjustments to it according to changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may return capital to shareholders or issue capital securities. The objectives, policies and processes are under constant review by the Directors.

The Group maintains an actively managed capital base to cover risks inherent in the business and specifically for NewDay Ltd, to meet the capital adequacy requirements of the FCA under the Payment Services Regulations (2017) for Authorised Payment Institutions.

During the year, the Group complied with its externally imposed capital requirements (period ended 31 December 2017: complied).



22. Fair value of financial instrumentsFair value hierarchyThe Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:• level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;• level 2: other techniques for which all inputs, other than observable unadjusted quoted prices included within level 1, having a

significant effect on the recorded fair value are observable, either directly or indirectly; and• level 3: techniques which use inputs having a significant effect on the recorded fair value not based on observable market data.

Derivative financial instruments are recognised at fair value and are classified as level 2 as they are not traded in an active market and the fair value is therefore determined by discounting expected future cash flows using interest rate yield curves and forward foreign exchange rates prevailing at the year end. See note 13 for further details.

Fair value of financial instruments carried at amortised cost Set out below is a comparison, by class, of the carrying value and fair values of the Group’s and Company’s financial instruments:


Level 1 £m

Level 2 £m

Level 3 £m

Total carrying

value £m

Fair value £m

Financial assetsLoans and advances to banks – 184.0 – 184.0 184.0Loans and advances to customers – – 2,303.3 2,303.3 2,447.7Other assets – 27.6 – 27.6 27.6

Total financial assets – 211.6 2,303.3 2,514.9 2,659.3

Financial liabilitiesDebt issued and other borrowed funds – (2,664.3) – (2,664.3) (2,608.6)Other liabilities – (89.6) – (89.6) (89.6)

Total financial liabilities – (2,753.9) – (2,753.9) (2,698.2)


Level 1 £m

Level 2 £m

Level 3 £m

Total carrying

value £m

Fair value £m

Financial assetsLoans and advances to banks – 167.9 – 167.9 167.9Loans and advances to customers – – 2,104.4 2,104.4 2,104.4Other assets – 39.3 – 39.3 39.3

Total financial assets – 207.2 2,104.4 2,311.6 2,311.6

Financial liabilitiesDebt issued and other borrowed funds – (2,252.7) – (2,252.7) (2,218.1)Other liabilities – (85.1) – (85.1) (85.1)

Total financial liabilities – (2,337.8) – (2,337.8) (2,303.2)


CompanyAs at 31 December 2018

Level 1 £m

Level 2 £m

Level 3 £m

Total carrying

value £m

Fair value £m

Financial assetsLoans and advances to banks – 0.9 – 0.9 0.9Other assets – – 547.9 547.9 547.9

Total financial assets – 0.9 547.9 548.8 548.8

Financial liabilitiesDebt issued and other borrowed funds – (423.4) – (423.4) (370.3)Other liabilities – (0.1) – (0.1) (0.1)

Total financial liabilities – (423.5) – (423.5) (370.4)

CompanyAs at 31 December 2017

Level 1 £m

Level 2 £m

Level 3 £m

Total carrying

value £m

Fair value £m

Financial assetsLoans and advances to banks – 1.2 – 1.2 1.2Other assets – – 515.1 515.1 515.1

Total financial assets – 1.2 515.1 516.3 516.3

Financial liabilitiesDebt issued and other borrowed funds – (421.3) – (421.3) (384.9)Other liabilities – (1.5) – (1.5) (1.5)

Total financial liabilities – (422.8) – (422.8) (386.4)

Loans and advances to banksThese items have a short-term maturity (usually less than three months) and it is assumed that their carrying value approximates to their fair value as a result of their short time horizon to maturity. These have been classified as level 2 because these items can be repriced using market observable inputs.

Loans and advances to customersThis contains the receivables related to credit card and loan balances that have been issued by the Group. The fair value of these instruments is based on valuation inputs that have been derived from historical performance of the Group’s portfolios which would not be observable to a market participant and as such these financial instruments have been classified as level 3.

Other assetsOther assets of the Group consist of other receivables. The fair value of these receivable balances approximates to their carrying value as there have been no significant changes to market conditions that would have caused a difference between the two values. As the assets can be repriced using market observable inputs these have been classified as level 2.

Other assets of the Company primarily consist of the loan note issued by NewDay UK Limited. The loan note cannot be repriced using market observable data and therefore has been classified as level 3.

Debt issued and other borrowed fundsThe Group’s debt issued contains Senior Secured Debt and associated facilities, asset-backed term securities and variable funding notes. For the Senior Secured Debt and asset-backed term debt an observable market price is available; however, such debt is not actively traded, therefore the fair value has been estimated using prices quoted by banks and they have been classified as level 2. The senior variable funding notes’ fair value approximates to its carrying value. These variable funding notes are private bilateral agreements that can be drawn upon and repaid by the borrower. These issuances have been classified as level 2.



22. Fair value of financial instruments continuedDebt issued and other borrowed funds of the Company consists of the intercompany loan with NewDay UK Limited. The fair value is determined by using the market price quoted by banks on the publicly listed bonds issued by NewDay BondCo plc, another Group entity, whose terms are identical. Therefore these have been classified as level 2.

Other liabilitiesOther liabilities of the Group largely consist of accounts payable. The fair value of other liabilities approximates to their carrying value because there have been no significant changes to market conditions that would have caused a difference between these two values. These have been classified as level 2 because these items can be repriced using market observable inputs.

23. Risk management23.1 IntroductionRisk is inherent in the Group’s activities, but is managed through a process of ongoing identification, measurement and monitoring, with respect to pre-determined risk appetite settings and other controls performed by the Board. The Group controls risk via the operation of a Risk Management Framework.

Sound risk management is critical to ensure the Group meets its regulatory requirements, and delivers on the strategic and financial goals agreed with shareholders, whilst also preserving the Group’s brand and reputation. The financial risks faced by the Group include:• credit risk;• liquidity, funding and cash management risk;• market risk; and• regulatory and conduct risk.

Whilst the UK’s economic outlook as a result of Brexit remains uncertain, the Group’s proactive risk management approach ensures it is well-positioned to react. All of the Group’s operations take place within the UK and therefore it does not currently expect there to be a material impact on the operational side of the business. As at 31 December 2018, the Group had £0.9bn of headroom on funding facilities and an average funding maturity of three years. Furthermore, the Group continues to demonstrate its ability to raise additional funding in the current environment. The Group will continue to monitor developments, including the impact on financial markets and macroeconomic conditions, and will react as appropriate.

Risk measurement and reporting systemsAs part of the overall risk management strategy, risks are measured, monitored and reported to ensure the Group understands the risks it faces. The Group has a definition and categorisation model that forms a key part of the Risk Management Framework.

The Group uses qualitative and quantitative methods (including the use of statistical models) to compute both expected and unexpected losses.

Monitoring and control processes are set by the Board, delegated to the Board Risk Committee and subsequently delegated down to the individual business committees and ultimately to all employees of the Group.

Information is compiled from all parts of the business in order to identify, analyse and control risks on a timely basis. Appropriate key risk indicators and other information are presented and discussed at the Board Risk Committee (on a quarterly basis), Enterprise Risk Management Committee and specific sub-committees on a monthly basis, or more frequently as required.

23.2 Credit risk The Group is exposed to credit risk on loans and advances to customers and other financial assets. Credit risk is the risk that the Group will incur a loss because its customers or counterparties fail to discharge their contractual obligations. The Group manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and monitoring exposures in relation to such limits.

Credit risk exposure from customers is managed throughout the lifecycle, underpinned by proprietary credit models which have been developed from customers’ historical credit performance and are used to forecast a probability of charge-off for a given level of credit. At the point of originating a new account, the risk profile is assessed against the credit policy and scorecard cut-off, aligned to the product applied for, to determine the terms and credit limit offered. Credit assessment utilises a combination of customer-provided data as well as data sourced from multiple credit reference agencies. A monthly assessment of existing customers’ risk profiles determines if their credit limit is still appropriate for their borrowing needs. The proprietary credit models utilise spend and payment behaviour from products held by the Group as well as products with other providers to determine if a credit limit increase or decrease, or loan, should be extended to the customer.


Risk-based arrears management combined with specific contact strategies ensure that letters, inbound and outbound telephony, use of SMS and email are deployed in a way which manages credit risks and aims to ensure appropriate customer outcomes. Contact is established with customers to understand the reason behind missed payments and to understand if potential future concerns exist over payments due. Strategies are then deployed to ensure that customers in arrears are supported in returning to an up-to-date position or appropriate forbearance arrangements are put into place.

The Group has a range of treatments for customers who are experiencing financial stress through concessions which can be applied on a short-term or permanent basis where there is no detriment to the customer. Forbearance or other temporary arrangements are designed to ensure that the customer’s product remains sustainable and aligned to their personal circumstances. A customer identified as being in financial difficulty will be managed on an individual basis, with the appropriate understanding of their personal circumstances and priority debt being key factors in judging if a suitable arrangement can be made so the debt repayment becomes affordable and sustainable.

The provision of such arrangements is managed through the operational centres and governed using several methods, including, but not limited to: operational policy framework; controls against the execution of the policy; regular quality assurance reviews; and customer outcomes through regular reporting.

Forbearance arrangements span a vast spectrum of relief and time, ranging from a temporary suspension of fees and interest, which allows a customer the time to assess their options and complete an income and expenditure assessment, through matched contributions to bring customers back into a more sustainable position and extending to an indefinite suspension of fees and interest with a contribution from the customer being made on a monthly basis.

The Group has established a credit quality review process to provide early identification of possible changes in the creditworthiness of customers. Credit limits are established using a credit risk classification system, which assigns each customer a risk rating. Risk ratings are subject to regular revision. The credit quality review process aims to allow the Group to assess the potential loss as a result of the risks to which it is exposed and to take corrective action where appropriate.

Credit quality analysis The Group assesses the credit quality of its loans and advances to customers by reference to the delinquency status of the underlying asset: • up-to-date accounts are those that are performing and have not missed any contractual payment obligations;• delinquent accounts are those accounts that are in low level arrears but are not considered in default; and• defaulted accounts are those that have displayed a continued deterioration in performance or are considered forborne. For

further details of the definition of default see note 2.3.

The following table contains an analysis of the credit risk exposure of the Group’s loans and advances to customers. The gross carrying value of financial assets below also represents the Group’s maximum exposure to credit risk on these assets.

As at 31 December 2018

As at 31 December

2017

GroupStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£mTotal

£m

Up-to-date 2,169.3 277.7 – 2.9 2,449.9 2,027.8Delinquent:– 1–30 days past due – 60.6 – 0.2 60.8 54.4– 31–60 days past due – 36.4 – 0.2 36.6 30.9Defaulted:– >61 days past due – – 101.0 2.2 103.2 86.6– Forborne – – 57.0 2.2 59.2 37.6

Gross loans and advances to customers 2,169.3 374.7 158.0 7.7 2,709.7 2,237.3ECL allowance (144.4) (131.5) (125.8) (4.7) (406.4) (132.9)1

Loans and advances to customers 2,024.9 243.2 32.2 3.0 2,303.3 2,104.4

1. The ECL allowance as at 31 December 2017 represents the impairment provision as calculated in accordance with IAS 39.



23. Risk management continued23.2 Credit risk continuedLoans and advances to banks, other financial assets and derivative financial assets are all classified as stage 1 as at 31 December 2018. See note 2.2(5) for details on classification by stage.

The following tables present the credit risk exposure of the Group’s loan and advances to customers on a segmental basis:


As at 31 December

2017

Own-brandStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£mTotal

£m

Up-to-date 1,190.2 220.9 – 2.3 1,413.4 1,198.7Delinquent:– 1–30 days past due – 46.3 – 0.1 46.4 41.4– 31–60 days past due – 30.6 – 0.1 30.7 27.3Defaulted:– >61 days past due – – 87.4 1.0 88.4 79.2– Forborne – – 48.7 1.0 49.7 28.4

Gross loans and advances to customers 1,190.2 297.8 136.1 4.5 1,628.6 1,375.0ECL allowance (123.2) (117.6) (112.0) (3.5) (356.3) (119.6)1

Loans and advances to customers 1,067.0 180.2 24.1 1.0 1,272.3 1,255.4



As at 31 December

2017

Co-brandStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£mTotal

£m

Up-to-date 927.2 47.1 – 0.6 974.9 813.1Delinquent:– 1–30 days past due – 13.0 – 0.1 13.1 12.8– 31–60 days past due – 5.0 – 0.1 5.1 3.5Defaulted:– >61 days past due – – 11.2 1.2 12.4 7.2– Forborne – – 8.1 1.2 9.3 9.2

Gross loans and advances to customers 927.2 65.1 19.3 3.2 1,014.8 845.8ECL allowance (17.9) (12.4) (11.8) (1.2) (43.3) (12.7)1

Loans and advances to customers 909.3 52.7 7.5 2.0 971.5 833.1




As at 31 December

2017

UPL Stage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£mTotal

£m

Up-to-date 51.9 9.7 – – 61.6 16.0Delinquent:– 1–30 days past due – 1.3 – – 1.3 0.2– 31–60 days past due – 0.8 – – 0.8 0.1Defaulted:– >61 days past due – – 2.4 – 2.4 0.2– Forborne – – 0.2 – 0.2 –

Gross loans and advances to customers 51.9 11.8 2.6 – 66.3 16.5ECL allowance (3.3) (1.5) (2.0) – (6.8) (0.6)1

Loans and advances to customers 48.6 10.3 0.6 – 59.5 15.9


Impairment assessmentIn accordance with IFRS 9, the Group uses a forward-looking ECL model. An expected credit loss allowance is to be recognised on origination of a credit agreement, based on its anticipated credit loss. Allowances are assessed collectively for ECL on loans and advances to customers due to the fact that balances are not individually significant.

The measurement of ECL is calculated using three main components: (i) PD; (ii) EAD; and (iii) LGD. The ECL is calculated by multiplying the PD, EAD and the LGD. ECL for exposures in stage 1 is calculated by multiplying the 12-month PD by the LGD and EAD. Lifetime ECL is reported for all assets other than those in stage 1 and is calculated by multiplying the lifetime PD by the LGD and EAD. On origination, and other than for POCI assets, an asset is reported in stage 1 and subsequently transferred to stage 2 if it has experienced a significant increase in credit risk since origination. Once defaulted, and therefore credit-impaired, an asset is transferred to stage 3. An asset can transition backwards out of stage 2 or 3 if it has evidenced that it has no longer experienced a significant increase in credit risk since origination or it is no longer credit-impaired respectively. An originated credit-impaired asset is classified as POCI and remains in this classification even if it is no longer credit-impaired. The Group monitors performance and default information about its credit risk exposures and employs statistical models to analyse the data collected and generate estimates of the PD.

EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current exposure on the underlying asset as well as expected drawdowns of unutilised, but committed, credit limits. LGD is the magnitude of the likely loss if there is a default. The Group estimates LGD parameters based on the history of recovery rates on defaulted assets.

Subject to using a maximum of a 12-month PD for stage 1 financial assets, the Group measures ECL considering the risk of default over the maximum contractual period over which it is exposed to credit risk. For credit card facilities this period is extended to the behavioural life of the facility if the Group’s contractual ability to demand repayment and cancel the undrawn commitment does not limit the Group’s exposure to credit losses to the contractual period. This longer period is estimated taking into account the credit risk management actions that the Group expects to take, and that serve to mitigate ECL, including reducing credit limits and cancellation of the facility.

For further details of the significant accounting judgements, estimates and assumptions in the ECL on loans and advances to customers see note 2.3.



23. Risk management continued23.2 Credit risk continuedThe following table reconciles the movement in the ECL allowance during the year:

Group Stage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£m

IAS 39 provision as at 31 December 2017 (132.9)Adjustment on initial application of IFRS 9 (213.1)

Opening IFRS 9 ECL allowance at the start of the year (123.4) (117.9) (95.7) (9.0) (346.0)Transfers between stages:– to stage 1 (39.7) 37.7 2.0 – –– to stage 2 13.5 (14.6) 1.1 – –– to stage 3 6.9 13.1 (20.0) – –Remeasurement of ECL1 18.1 (29.4) – 3.8 (7.5)Release of ECL on loans and advances to customers settled in the year 7.3 3.9 1.2 0.5 12.9ECL on new loans and advances to customers originated in the year (27.1) (24.3) (14.4) – (65.8)

ECL allowance as at 31 December 2018 (144.4) (131.5) (125.8) (4.7) (406.4)

1. Includes changes in the ECL driven by changes in credit risk (both within and between stages) and write-offs.

In 2017, the movement in the impairment provision, in accordance with IAS 39, was as follows:

Group

Impairment provision

£m

As at 26 September 2016 –Write-offs during the period 118.5Recoveries during the period (52.1)Charge to the income statement during the period (199.3)

As at 31 December 2017 (132.9)

Collateral heldThe Group’s primary business is to provide short-term credit to customers using the Group’s various branded store and credit products and unsecured personal loans. In the course of providing credit to customers, the Group has credit risk assessment practices which provide approval for individuals to be extended credit. In providing these products it is not the policy of the Group to obtain collateral or other credit enhancements which reduce exposure to credit risk, other than the individual’s commitment to repay outstanding balances.

Other commitments providedAs at 31 December 2018, the Group has undrawn facilities on its loans and advances to customers; however, facilities are not irrevocably committed. The Company, on behalf of the Group, provides a £7.5m committed facility to Nemean TopCo Limited, the Company’s ultimate parent undertaking. The Group has not entered into any other financial guarantee contracts, letters of credit or other undrawn commitments to lend.

23.3 Liquidity, funding and cash management riskContractual cash flow maturityLoans and advances to customers constitute primarily store and credit cards. All cardholder receivables are contractually repayable on demand and have been disclosed as such. Individual customer behaviour varies and the cards are used as revolving facilities where drawdowns and repayments towards outstanding balances are made over time. The Group’s experience is that the average life of a cardholder account is five years. Unsecured personal loans and point-of-sale finance receivables follow a pre-agreed repayment schedule and have been disclosed accordingly.

Of the £2,685.8m debt issued, which includes the accrued interest, £523.8m has a scheduled maturity of less than one year, £1,878.6m has a scheduled maturity of one to five years and £283.4m has a scheduled maturity of over five years.

Total committed funding facilitiesThe Group’s total committed funding facilities as at 31 December 2018 were £3,594.5m (2017: £3,328.6m) of which £921.8m (2017: £1,058.2m) was undrawn.


Analysis of financial liabilities by remaining contractual maturitiesThe table below summarises the contractual maturity profile of the undiscounted cash flows of the Group’s financial liabilities as at 31 December 2018. This reflects both the interest payable and the repayment of the principal on maturity, based upon current borrowings at the balance sheet date.

Group As at 31 December 2018

On demand

£m

Less than 3 months

£m

3 to 12 months

£m1 to 5 years

£m

Over 5 years

£mTotal

£m

Financial liabilitiesDebt issued and other borrowed funds – 64.5 536.1 2,043.5 276.7 2,920.8Other liabilities – 89.6 – – – 89.6

– 154.1 536.1 2,043.5 276.7 3,010.4


On demand

£m

Less than 3 months

£m

3 to 12 months

£m1 to 5 years

£m

Over 5 years

£mTotal

£m

Financial liabilitiesDebt issued and other borrowed funds – 16.9 316.6 1,694.4 448.2 2,476.1Other liabilities – 85.1 – – – 85.1

– 102.0 316.6 1,694.4 448.2 2,561.2

Securitisation vehiclesIn the ordinary course of business, the Group enters into transactions that result in the transfer of the right to receive repayments in respect of loans and advances to customers to securitisation vehicles. In accordance with the accounting policy set out in note 2.2(3), the transferred loans and advances to customers continue to be recognised in their entirety or to the extent of the Group’s continuing involvement, or are derecognised in their entirety.

The Group transfers financial assets that are not derecognised in their entirety or for which the Group has continuing involvement through securitisation activities. The Group transfers loans and advances to customers to securitisation vehicles but retains substantially all of the risks and rewards of ownership. The Group benefits to the extent that the surplus income generated by the transferred assets exceeds the administration costs of the securitisations, the cost of funding the assets and the cost of any losses associated with the assets and the administration costs of servicing the assets. Refer to note 27 for further details on the structure.

The results of the securitisation vehicles are consolidated into the Group. The following table shows the carrying value and fair value of the assets transferred to securitisation vehicles and the related carrying value and fair value of the associated liability.


Carrying value of

transferred assets not

derecognised £m

Carrying value of

associated liabilities

£m

Fair value of transferred

assets not derecognised

£m

Fair value of associated

liabilities £m

Net fair value

£m

NewDay Funding Transferor Ltd 1,232.5 (1,296.8) 1,355.7 (1,298.6) 57.1NewDay Partnership Transferor plc 970.3 (899.6) 988.2 (895.2) 93.0NewDay UPL Transferor Ltd 59.5 (44.6) 62.8 (44.6) 18.2

2,262.3 (2,241.0) 2,406.7 (2,238.4) 168.3

Included within the carrying value of associated liabilities are £9.4m of capitalised debt funding fees (2017: £6.6m).



23. Risk management continued23.3 Liquidity, funding and cash management risk continued


Carrying value of

transferred assets not

derecognised £m

Carrying value of associated

liabilities £m

Fair value of transferred

assets not derecognised

£m

Fair value of associated

liabilities £m

Net fair value

£m

NewDay Funding Transferor Ltd 1,225.2 (1,086.8) 1,225.2 (1,088.0) 137.2NewDay Partnership Transferor plc 831.0 (740.2) 831.0 (740.8) 90.2NewDay UPL Transferor Ltd 15.9 (4.4) 15.9 (4.4) 11.5

2,072.1 (1,831.4) 2,072.1 (1,833.2) 238.9

23.4 Market riskMarket risk is defined as the risk that market movements will negatively affect the value of the Group’s assets and liabilities. The only material market risk that the Group is exposed to is interest rate risk.

The main source of interest rate risk for the Group arises where there is a significant difference between the interest rate bases on assets compared to liabilities. The Group’s assets are predominantly variable rate and are sensitive to interest rate movements to the extent that the Group is prohibited from repricing the portfolio of assets. During the year the Group completed a project to reissue terms and conditions to allow it to choose to pass on any increases in the Bank of England base rate to customers, insulating ourselves against future bank base rate rises by hedging against interest expenses. The Group’s funding is predominantly LIBOR-based floating rate and therefore is also sensitive to interest rate movements. The Group also issues US Dollar denominated funding which accrues interest linked to USD LIBOR. This funding has been hedged to LIBOR through cross-currency interest rate swaps. The following tables analyse the Group’s assets and liabilities by reference to the period of time before that asset or liability can be repriced to realign interest rates.

Contractual repricing profile


Less than 3 months

£m

3 to 12 months

£m

Over 1 year

£m

Non- repricing or

non-interest bearing

£mTotal

£m

Financial assetsLoans and advances to banks 167.6 – – 16.4 184.0Loans and advances to customers 1,859.3 64.5 1.6 377.9 2,303.3Other assets – – – 27.6 27.6Derivative financial assets 2.5 – – – 2.5

Financial liabilitiesDebt issued and other borrowed funds (2,241.1) (151.9) – (271.3) (2,664.3)Other liabilities – – – (89.6) (89.6)

Net repricing difference (211.7) (87.4) 1.6 61.0 (236.5)


Less than 3 months

£m

3 to 12 months

£m

Over 1 year

£m

Non- repricing or

non-interest bearing

£mTotal

£m

Financial assetsLoans and advances to banks 124.4 – 43.5 – 167.9Loans and advances to customers 312.0 1,145.2 252.2 395.0 2,104.4Other assets – – – 39.3 39.3

Financial liabilitiesDebt issued and other borrowed funds (1,831.4) (151.8) – (269.5) (2,252.7)Other liabilities – – – (85.1) (85.1)

Net repricing difference (1,395.0) 993.4 295.7 79.7 (26.2)


The following table demonstrates the sensitivity to changes in interest rates (all other variables being held constant) of the Group’s income statement. The sensitivity of the income statement is the effect of the assumed changes in interest rates on the profit or loss for the year, based on the floating rate non-trading financial assets and financial liabilities held as at 31 December 2018. Total sensitivity of the income statement is based on the assumption that there are parallel shifts in the yield curve.

Interest rate risk sensitivity

Sensitivity of profit or loss

Group

Increase/ (decrease) in

basis points


2018 £m


31 December 2017

£m

Loans and advances to customers 25/(25) +5.8/(5.8) +4.6/(4.6)Debt issued and other borrowed funds 25/(25) (6.0)/+6.0 (5.0)/+5.0

23.5 Regulatory and conduct riskRegulatory risk is the risk of regulatory sanction, material financial loss or reputational damage if the organisation fails to design and implement operational processes, systems and controls such that it can maintain compliance with all applicable regulatory requirements. The Board Risk Committee reviews and discusses proposed regulatory changes that the Group is subject to. Regulatory developments form part of the Board Risk Committee’s updates to the Board which assesses the impact of regulatory change on the Group’s balance sheet and risk profile.

Conduct risk is the risk of customer detriment arising from inappropriate culture, products and processes. Conduct risk can arise through the design of products that do not meet customers’ needs, mishandling complaints where the Group has behaved inappropriately towards its customers, inappropriate sale processes and exhibiting behaviour that does not meet market or regulatory standards. Avoiding poor customer outcomes requires focus on treating customers fairly including ensuring affordability and sustainability of lending and handling vulnerable customers sensitively. The Group mitigates conduct risk by monitoring various operational metrics through the customer outcomes radar and by tracking activities which affect customers, monitoring customer complaints, implementing process improvements and adhering to service standards. The outcomes of this reporting are monitored by the Board and the Board Risk Committee.

24. Maturity analysis of assets and liabilitiesThe table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled:


Group< 12 months

£m> 12 months

£mTotal

£m< 12 months

£m> 12 months

£mTotal

£m

AssetsLoans and advances to banks 134.0 50.0 184.0 124.4 43.5 167.9Loans and advances to customers 1,885.6 417.7 2,303.3 1,758.6 345.8 2,104.4Other assets 50.5 7.9 58.4 62.4 5.2 67.6Derivative financial assets – 2.5 2.5 – – –Current tax assets 0.8 – 0.8 0.1 0.7 0.8Deferred tax assets – 0.4 0.4 – 0.7 0.7Property and equipment – 9.0 9.0 – 10.0 10.0Intangible assets – 313.9 313.9 – 357.4 357.4Goodwill – 279.9 279.9 – 279.9 279.9

Total assets 2,070.9 1,081.3 3,152.2 1,945.5 1,043.2 2,988.7

LiabilitiesDebt issued and other borrowed funds (523.8) (2,140.5) (2,664.3) (266.3) (1,986.4) (2,252.7)Other liabilities (90.1) – (90.1) (85.5) – (85.5)Current tax liabilities (2.3) – (2.3) (5.7) – (5.7)Provisions (33.8) (1.9) (35.7) (35.3) (21.6) (56.9)

Total liabilities (650.0) (2,142.4) (2,792.4) (392.8) (2,008.0) (2,400.8)



24. Maturity analysis of assets and liabilities continued


Company< 12 months

£m> 12 months

£mTotal

£m< 12 months

£m> 12 months

£mTotal

£m

AssetsLoans and advances to banks 0.9 – 0.9 1.2 – 1.2Other assets 60.7 487.2 547.9 31.5 483.7 515.2Investment in subsidiaries – 511.4 511.4 – 504.9 504.9

Total assets 61.6 998.6 1,060.2 32.7 988.6 1,021.3

LiabilitiesDebt issued and other borrowed funds – (423.4) (423.4) (10.4) (410.9) (421.3)Other liabilities (0.1) – (0.1) (1.5) – (1.5)

Total liabilities (0.1) (423.4) (423.5) (11.9) (410.9) (422.8)

25. Contingent liabilities, commitments and leasing arrangementsContingent liabilitiesLegislationAs a financial services company, the Group is subject to extensive and comprehensive regulation. The Group must comply with numerous laws and regulations, including the Consumer Credit Act, which significantly affects the way it conducts business. Whilst the Group believes there are no unidentified areas of failure to comply with these laws and regulations which would have a material impact on these Financial Statements, there can be no guarantee that all issues have been identified.

Lease arrangementsOperating lease commitmentsThe Group has entered into commercial leases for premises. Future minimum lease payments under non-cancellable operating leases are as follows:

Group Operating lease commitments

Less than 1 year

£m

1 to 5 years

£m

Over 5 years

£mTotal

£m

As at 31 December 2018 3.5 14.9 8.7 27.1

As at 31 December 2017 3.3 14.5 12.5 30.3

The Group had capital expenditure commitments contracted with third parties but not provided for of £0.3m as at 31 December 2018 (2017: £0.4m).


26. Related party disclosures

Group

Maximum balance

during the year

£m


2018 £m

At 31 December

2018 £m

Maximum balance

during the period

£m


31 December 2017

£m

At 31 December

2017 £m

Transactions with key management personnelTotal emoluments n/a 5.7 n/a n/a 6.2 n/aTotal pension contributions n/a - n/a n/a 0.2 n/aHighest paid key management personnel n/a 1.2 n/a n/a 1.2 n/aHighest pension contribution to key management personnel n/a - n/a n/a 0.1 n/a

Transactions with other related partiesLoans to related parties 0.4 n/a 0.4 – n/a –Loans from related parties – n/a – 624.41 n/a –Interest expense to related parties n/a – n/a n/a 30.5 n/a

1. With effect from 1 July 2017 the terms of a £529.2m intercompany loan from Nemean MidCo Limited and £64.7m loan notes issued by the Company and held by Nemean MidCo Limited were amended, resulting in a change in their classification from liabilities to equity instruments. The interest accrued on these loans up to 30 June 2017 of £30.5m was recorded as a capital contribution.

Key management personnel refers to the Management Committee of NewDay Group UK Limited and Non-Executive Directors.

In addition to emoluments in the normal course of business certain key management personnel acquired £12.1m of the 7.375% Senior Secured Notes issued by NewDay BondCo plc in the year ended 31 December 2018. These were purchased on standard commercial terms using their own funds.

Credit card balances outstanding to key management personnel of the Group and their connected parties as at 31 December 2018 were £26k (2017: £27k). All transactions are subject to standard commercial interest rates on an arm’s length basis.

During the year interests in Nemean TopCo Limited, the Company’s ultimate parent undertaking, were issued to certain key management personnel and senior employees. These participating interests are treated as equity-settled shares under IFRS 2 ‘Share-based Payment’. Investments in participating interests by key management personnel and other senior employees were made at fair value. As a result no share-based payment expense has been recognised in the income statement in the year (period ended 31 December 2017: £nil).

Company

Maximum balance

during the year

£m


2018 £m

At 31 December

2018 £m

Maximum balance

during the period

£m


31 December 2017

£m

At 31 December

2017 £m

Transactions with other related partiesLoans to related parties 547.9 n/a 547.9 515.1 n/a 515.1Interest income from related parties n/a 71.7 n/a n/a 49.2 n/aLoans from related parties 438.0 n/a 435.4 624.4 n/a 435.4Interest expense to related parties n/a 31.0 n/a n/a 59.3 n/aOther liabilities owed to related parties 0.1 n/a 0.1 – n/a –

On 11 January 2018, the Company issued a term loan facility agreement to Nemean TopCo Limited for £7.5m. The facility can be drawn upon at any time and accrues interest at 9% per annum. As at 31 December 2018, £0.4m has been drawn on the facility.

In the year ended 31 December 2018, the Company paid £63k to a related party in relation to services provided by the Directors (period ended 31 December 2017: £39k).



26. Related party disclosures continuedConsolidated subsidiaries and structured entitiesThe consolidated Financial Statements include the Financial Statements of NewDay Group (Jersey) Limited and the subsidiaries and structured entities in the following table:

Name Country of

incorporation

Share class held as at 31 December

2018

% equity interest as at 31 December

2018

Share class held as at 31 December

2017

% equity interest as at 31 December

2017

NewDay Group UK Limited UK Ordinary 100% Ordinary 100%NewDay BondCo plc UK Ordinary 100% Ordinary 100%NewDay UK Limited UK Ordinary 100% Ordinary 100%NewDay Group Holdings S.à r.l. Luxembourg Ordinary 100% Ordinary 100%NewDay Holdings Ltd UK Ordinary 100% Ordinary 100%NewDay Group Ltd UK Ordinary 100% Ordinary 100%NewDay Cards Ltd UK Ordinary 100% Ordinary 100%NewDay Ltd UK Ordinary 100% Ordinary 100%NewDay Loyalty Limited UK Ordinary 100% Ordinary 100%NewDay Reserve Funding Ltd UK Ordinary 100% Ordinary 100%NewDay Partnership Transferor plc UK Ordinary 100% Ordinary 100%NewDay Funding Transferor Ltd UK Ordinary 100% Ordinary 100%NewDay UPL Transferor Ltd UK Ordinary 100% Ordinary 100%NewDay Partnership Tertiary Funding Ltd UK Ordinary 100% – –NewDay Partnership Receivables Trustee Ltd Jersey n/a SE n/a SENewDay Partnership Loan Note Issuer Ltd UK n/a SE n/a SENewDay Partnership Funding 2014-1 plc UK n/a SE n/a SENewDay Partnership Funding 2015-1 plc UK n/a SE n/a SENewDay Partnership Funding 2017-1 plc UK n/a SE n/a SENewDay Funding 2015-1 plc UK n/a SE n/a SENewDay Funding 2015-2 plc UK n/a SE n/a SENewDay Funding 2016-1 plc UK n/a SE n/a SENewDay Funding 2017-1 plc UK n/a SE n/a SENewDay Funding 2018-1 plc UK n/a SE – –NewDay Funding 2018-2 plc UK n/a SE – –NewDay Funding Loan Note Issuer Ltd UK n/a SE n/a SENewDay Funding Receivables Trustee Ltd Jersey n/a SE n/a SENewDay Secondary Funding Limited UK n/a SE n/a SENewDay Partnership Secondary Funding Ltd UK n/a SE n/a SEInvicta Card Services Limited1 UK Ordinary 100% Ordinary 100%Progressive Credit Limited1 UK Ordinary 100% Ordinary 100%SAV Credit Limited1 UK Ordinary 100% Ordinary 100%

1. These subsidiaries are dormant entities as at 31 December 2018 and 31 December 2017.

The Company’s immediate parent company is Nemean MidCo Limited. The ultimate parent undertaking is Nemean TopCo Limited, a private limited company incorporated in Jersey.


With the exception of the following entities the principal place of business for the subsidiaries and structured entities listed above is the UK and their registered address is 7 Handyside Street, London, N1C 4DA.

Name Principal place of

business Registered address

NewDay Group Holdings S.à r.l. Luxembourg 4, rue Albert Borschette, L-1246 LuxembourgNewDay Partnership Receivables Trustee Ltd Jersey 44 Esplanade, St Helier, Jersey, JE4 9WGNewDay Partnership Loan Note Issuer Ltd UK 35 Great St. Helen’s, London, EC3A 6APNewDay Partnership Funding 2014-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Partnership Funding 2015-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Partnership Funding 2017-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2015-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2015-2 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2016-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2017-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2018-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2018-2 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding Loan Note Issuer Ltd UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding Receivables Trustee Ltd Jersey 44 Esplanade, St Helier, Jersey, JE4 9WGNewDay Secondary Funding Limited UK 5th Floor, 6 St. Andrew Street, London, EC4A 3AENewDay Partnership Secondary Funding Ltd UK 5th Floor, 6 St. Andrew Street, London, EC4A 3AE

27. Structured entitiesThe Group has five financing arrangements which involve structured entities.

The Co-brand business is funded by a master trust securitisation and a private securitisation. The structures have issued multiple series of debt instruments external to the Group, backed by the cash flow of the Co-brand receivables portfolio. As at 31 December 2018, the master trust has in issue two series of publicly listed term debt sold to capital market investors and a series of senior variable funding notes sold to a syndicate of four major banks which acts as a revolving facility. As at 31 December 2018, the private securitisation has issued a series of senior variable funding notes sold to a syndicate of two major banks which acts as a revolving facility.

The Own-brand business is also funded by a master trust securitisation and a private securitisation. The structures have issued multiple series of debt instruments external to the Group, backed by the cash flow of the Own-brand receivables portfolio. As at 31 December 2018, the master trust has in issue five series of publicly listed term debt sold to a mixture of capital market investors and a series of senior variable funding notes sold to a syndicate of four major banks, which acts as a revolving facility. As at 31 December 2018, the private securitisation has issued a series of senior variable funding notes to a major bank which acts as a revolving facility.

The Unsecured Personal Loans business is funded by a private securitisation. The private securitisation has issued a senior variable funding note to a major bank which acts as a revolving facility.

Within the funding structure of the Own-brand and Co-brand portfolios are structured entities where all of the ordinary shares are held by a third party trustee for charitable purposes. The consolidated subsidiary and structured entities table in note 26 has further details of the structured entities consolidated into the Group’s Financial Statements for the year ended 31 December 2018, on the basis that the Group has the power to direct relevant activities, is exposed to variable returns of the entities and is able to use its power to affect those returns. Within the master trust securitisations, there are also entities which are not consolidated into the Financial Statements of the Group on the basis that the Group does not have control over these entities because it is not exposed, or has rights, to variable returns of the entities. These entities are NewDay Partnership Securitisation Holdings Ltd in the Co-brand master trust securitisation and NewDay Funding Securitisation Holdings Ltd in the Own-brand master trust securitisation.



28. Post balance sheet eventsOn 19 February 2019 the Group replaced the £60.0m senior variable funding note in connection with the UPL private securitisation with the issuance of a senior variable funding note with a committed facility of £125.0m. Interest accrues at LIBOR plus 2.5% on this facility and the scheduled redemption date is 20 February 2021.

On 30 January 2019, the Company received an interest payment on the loan note issued by NewDay UK Limited, described in note 12, of £14.0m.

On 5 March 2019, the Group novated its retailer contract with House of Fraser to the new House of Fraser business (under the ownership of Sports Direct).

In early 2019, the Group signed retail partner contracts with two major new national retailers that are due to launch by the middle of 2019.


Our ownersWe are indirectly owned by funds advised by Cinven and CVC Capital Partners (CVC).

Cinven is a leading international private equity firm, founded in 1977, with offices in London, Frankfurt, Guernsey, Hong Kong, Luxembourg, Madrid, Milan, New York and Paris. Today Cinven manages capital on behalf of more than 175 investors globally. Funds managed by Cinven acquire companies with a European focus that will benefit from Cinven’s expertise of growing and building companies globally and require an equity investment of typically €200m or more. Cinven can also invest selectively in businesses in North America. Cinven’s Portfolio team helps its portfolio companies take advantage of international best practices and growth in global markets, including those in Asia and the Americas. Cinven uses a matrix of sector and country experience to invest in companies where it can strategically drive revenue growth. Cinven focuses on six sectors: Business Services, Consumer, Financial Services, Healthcare, Industrials, and Technology, Media and Telecommunications. Cinven has a long and differentiated track record of investment in the financial services sector including in highly regulated assets where its track record includes the acquisitions of Premium Credit, Partnership Assurance (now part of Just group) and Guardian Financial Services in the UK. It acquired Ark Life, as an add-on acquisition for Guardian, Avolon, the aircraft leasing business, and AXA Life Europe, the life insurance company in Ireland; in Germany, Viridium (formerly Heidelberger Leben) with Skandia Germany and Protektor as add-on acquisitions, with the business soon to be combined with Generali Leben; in Italy, Cinven formed the Eurovita group through the merger of ERGO Previdenza, Old Mutual Wealth Italy and Eurovita Assicurazioni.

CVC Capital Partners is a leading private equity and investment advisory firm. Founded in 1981, CVC today has a network of 24 offices and approximately 450 employees throughout Europe, Asia, South America and the US.

To date, CVC has secured commitments of over US$116bn from some of the world’s leading institutional investors across its private equity and credit strategies. In total, CVC currently manages over US$75bn of assets. Today, funds managed or advised by CVC are invested in 74 companies worldwide, employing c.350,000 people in numerous countries. Together, these companies have combined annual sales of over US$100bn.

CVC’s financial services team has invested over €3bn of equity capital in the financial services sector since the team’s inception in 2008, including its historic and current portfolio companies, Paysafe, Pension Insurance Corporation, Skrill, Domestic & General and Brit Insurance in the United Kingdom, Avolon in Ireland, Cunningham Lindsey in the United States, Cerved in Italy, Sun Hung Kai in China and Rizal Commercial Banking Corporation and SPi Global in the Philippines.

Cautionary statementThis report comprises the Annual Report and Financial Statements of NewDay Group (Jersey) Limited (the “Company”) for the period ended 31 December 2018. However, please note that the financial information contained: (i) on pages 1 to 75 for the period ended 31 December 2017 reflects the consolidated financial results of the Company calculated on a pro forma basis as if the acquisition of NewDay Group Holdings S.à r.l. completed on 1 January 2017; (ii) pages 76 to 122 for the period ended 31 December 2017 reflects the consolidated financial results of the Company; and (iii) for any period ended prior to 31 December 2017 reflects the consolidated financial results of NewDay Group Holdings S.à r.l.. The information referred to at items (i)–(iii) above has been presented for comparative purposes only. Underlying and adjusted metrics referred to on pages 1 to 75 exclude a number of non-recurring items as detailed on page 35. Definitions of key performance indicators are included on pages 32 to 33.

Notwithstanding the above, as set out on page 57, with the exception of the Directors’ report set out on page 74 to 75, the governance and risk framework described in this report relate to the governance and risk framework established for the Group’s UK subsidiaries. References to the ‘Board’, ‘Group’, ‘NewDay’ and ‘Company’ should be construed accordingly (where appropriate).

Certain financial data included in this report consists of “non-IFRS financial measures”. These non-IFRS (International Financial Reporting Standards) financial measures, as defined by the Company, may not be comparable to similarly titled measures as presented by other companies, nor should they be considered as an alternative to the historical financial results or other indicators of the Company’s cash flow based on IFRS. Even though the non-IFRS financial measures are used by management to assess the Company’s financial position, financial results and liquidity and these types of measures are commonly used by investors, they have important limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of the Company’s financial position or results of operations as reported under IFRS. The inclusion of such non-IFRS financial measures in this report or any related presentation should not be regarded as a representation or warranty by the Company, any member of the Group, any of their respective affiliates, advisers or representatives or any other person as to the accuracy or completeness of such information’s portrayal of the financial condition or results of operations of the Company and should not be relied upon.

References to Adjusted EBITDA throughout this report are references to ‘Consolidated EBITDA’ as defined in the legal documentation relating to the £425m Senior Secured Notes issued by NewDay BondCo plc on 25 January 2017 (the Senior Secured Debt) and the Super Senior Revolving Credit Facility entered into by the Company on 25 January 2017 (the Revolving Credit Facility) based on IFRS as in force as at 31 December 2018 (or, in respect of periods ending prior to 31 December 2018, IFRS at the relevant time). However, all ratios, baskets and calculations required under the terms of the Senior Secured Debt and Revolving Credit Facility are based on IFRS as in force as at 25 January 2017. As a result, such ratios, baskets and calculations may differ significantly from any ratios or figures which are contained in this Report. In particular, except where otherwise expressly stated to be the case, references to Senior Secured Debt to adjusted EBITDA and adjusted EBITDA to pro forma cash interest expense contained in this report have been calculated (subject to certain adjustments) in accordance with IFRS as in force as at 31 December 2018 (or, in respect of periods ending prior to 31 December 2018, IFRS at the relevant time). As a result, such figures will differ significantly from the calculation of Consolidated Senior Secured Net Leverage Ratio and Fixed Charge Corporate Debt Coverage Ratio (as defined under the terms of the Senior Secured Debt and Revolving Credit Facility).

Certain statements included or incorporated by reference within this report may constitute ‘forward- looking statements’ in respect of the Group’s operations, performance, prospects and/or financial condition. All statements other than statements of historical fact included in this report are forward-looking statements. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance should not be placed on any forward-looking statement. No responsibility is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this report should be construed as a profit forecast.

The information contained in this report should be considered in the context of the circumstances prevailing at the time and will not be updated to reflect material developments that may occur after the date of this report. The information and opinions in this report are provided as at the date of this report and are subject to change without notice. None of the Company, any member of the Group, any of their respective affiliates, advisors or representatives or any other person shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection with this report, or any action taken by you or any of your officers, employees, agents or associates on the basis of the information in this report.

This report does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares or other securities in any member of the Group, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto. Statements in this report reflect the knowledge and information available at the time of its preparation. Liability arising from anything in this report shall be governed by Jersey law.

NewDay7 Handyside StreetLondonN1C 4DA

Email: [email protected]: www.newday.co.uk

Registered in JerseyRegistration number 122135

NewDay Ltd7 Handyside StreetLondonN1C 4DA

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