TIDMMCL
RNS Number : 4260H
Morses Club PLC
24 November 2022
24 November 2022
Morses Club PLC
Interim results for the 26 weeks ended 27 August 2022
Morses Club PLC ("the Company" or "the Group"), an established
provider of non-standard credit services, announces its interim
results for the 26 weeks ended 27 August 2022.
-- The Company is working with key stakeholders to pursue a
potential Scheme of Arrangement to deal with the ongoing liability
of customer redress claims
-- The Company has continued to pause the processing of all new
unaffordable lending claims effective from 11 August 2022. Without
this pause, it is the Directors' belief that the Group could suffer
serious liquidity issues and cease to be a going concern
-- A Customer Committee has been set-up and Jamie Drummond-Smith appointed as Chair
-- Morses Club is working with funders, who remain supportive,
to secure further funding in line with the business plan. The
Group's current facility of GBP25m is in place until 31 March 2023.
Discussions continue regarding two covenants within the facility,
which remain deferred, along with the extension of the term-out
clause beyond the current date of January 2023. This term-out
clause is pre-existing and essentially provides assurance to the
funders of the repayment of the facility within the last 6 months
of the agreed term
-- The quantum of the redress claims liability and timing of
settlement, as well as the extension or deferral of the term out
clause and availability of funding beyond 31 March 2023, create a
material uncertainty that may cast significant doubt about the
Group's and Company's ability to continue as a going concern
-- The Directors believe that should, for any reason, the
approval for the Scheme of Arrangement not be concluded, the
Company could no longer continue as a going concern and would have
to seek the necessary protection from insolvency, which would lead
to a materially worse outcome for customers
Operational Highlights:
-- Continued deep commitment to providing credit to under-served customers
-- Ernst & Young have been engaged to secure funders for the
medium-term to support growth targets
-- Home Collected Credit ("HCC") division strategy review
resulted in removal of the self-employed agent role and
introduction of a new employed role of Customer Support
Associate
-- Total Group customer numbers: 141,000 (H1 FY22: 196,000)
-- 69% (H1 FY22: 65%) of all HCC lending is cashless with 89%
(H1 FY22: 86%) of collections now being made remotely
-- Customer satisfaction maintained at 95% for HCC division and 94% for Dot Dot Loans ("DDL")
H1 FY23 Financial Highlights:
-- Group
o Revenue decreased by 17.6% to GBP43.2m (H1 FY22: GBP52.4m)
o Total credit issued to all customers decreased by 42.0% to
GBP45.1m (H1 FY22: GBP77.8m)
o Net loan book is GBP37.7m, a decrease of 37.5% (H1 FY22:
GBP60.3m)
o Statutory loss before tax of GBP20.8m (H1 FY22: Statutory
profit before tax of GBP1.8m)
o Statutory loss before tax includes goodwill impairment of
GBP9.4m relating to U Holdings Ltd
o Adjusted loss before tax(1) of GBP9.1m (H1 FY22: Adjusted
profit before tax(1) of GBP2.6m)
o Balance Sheet includes a GBP40.0m complaints liability
provision
-- HCC
o Revenue decreased by 10.4% to GBP34.6m (H1 FY22: GBP38.6m)
o Total credit issued of GBP34.9m (H1 FY22: GBP53.1m)
o Adjusted HCC loss before tax(1) of GBP7.0m, a decrease of
195.9%, (Adjusted profit before tax H1 FY22: GBP7.3m), due to the
increase in complaints in the period
o Statutory HCC loss before tax of GBP9.3m, (H1 FY22: Statutory
profit before tax GBP6.5m)
o Impairment (as a percentage of revenue) is at 15.3% which is
below the Company guidance range of 21% to 26%
-- Digital
o Revenue decreased by 37.7% to GBP8.6m (H1 FY22: GBP13.8m)
o Credit issued of GBP10.2m (H1 FY22: GBP24.8m)
o Gross loan book decreased by 59.6% to GBP13.8m (H1 FY22:
GBP34.2m)
o 55.3% improvement in Adjusted loss before tax(1) of GBP2.1m
from (H1 FY22: GBP4.7m)
o Statutory Digital loss before tax of GBP11.5m (H1 FY22:
GBP4.7m)
1. Definitions are set out in the Glossary of Alternative
Performance Measures on page 39
Alternative Performance Measures & Key Performance
Indicators
26-week 26-week % +/(-)
period ended period ended
27 August 28 August
Key performance indicators 2022 2021
Revenue GBP43.2m GBP52.4m (17.6%)
Net Loan Book GBP37.7m GBP60.3m (37.5%)
Adjusted (Loss)/Profit
Before Tax (1) (GBP9.1m) GBP2.6m (450.0%)
Statutory (Loss)/Profit
Before Tax (GBP20.8m) GBP1.8m (1255.6%)
Adjusted (loss)/earnings
per share (1) (5.4p) 1.6p (437.5%)
Statutory (loss)/earnings
per share (12.4p) 1.1p (1227.3%)
Cost / Income ratio 97.2% 61.6% 57.8%
Return on Assets (97.2%) 2.0% (4960.0%)
Adjusted Return on Assets
(1) (15.8%) 9.3% (269.9%)
Return on Equity (225.9%) 2.2% (10368.2%)
Adjusted Return on Equity
(1) (36.8%) 10.6% (447.2%)
Tangible Equity / average
receivables (1) 43.0% 87.8% (51.0%)
No of customers (000's) 141 196 (28.1%)
Number of agents 996 1,163 (14.4%)
Credit Issued GBP45.1m GBP77.8m (42.0%)
Impairment as % of Revenue
(1) 21.1% 31.5% (33.0%)
-------------- -------------- -----------
1. Definitions are set out in the Glossary of Alternative
Performance Measures on page 39
Gary Marshall, Chief Executive Officer of Morses Club,
commented:
"We continue to face the ongoing challenge of customer redress
claims, the processing of which has been paused since 11 August
2022. We are working tirelessly to deliver the detail behind a
potential Scheme of Arrangement and remain deeply committed to the
sector."
"We are focused on securing the future of the Group and are
reshaping the business to help the Company move forward from the
challenges it currently faces. We continue our discussions with the
Financial Conduct Authority ("FCA") to progress on a potential
Scheme of Arrangement. Any potential Scheme of Arrangement would
remove the uncertainty of continued redress claims and remove the
risk of ongoing liabilities with regard to volatility in the level
of complaints. I remain confident that we can work through this in
a constructive way, as it is vital that our customer demographic
continues to be served by a provider which understands the market
and operates in a socially conscious way."
"We are the only HCC lender of scale in the UK. With our
commitment to the sector and our core expertise in serving
customers in this market, we are determined to deliver to our
customers despite the ongoing challenges we face without the Scheme
of Arrangement."
"Constrained lending has impacted profitability for the period
and will continue to do so into H2 FY23. The underlying operational
performance of our credit business remained stable and consistent
throughout the period. Due to cash constraints, lending has been
restricted in the digital lending division, Shelby Finance, where
the ongoing quality of the lending has remained a key focus.
Overall, the adjusted loss before tax for the division has reduced
by 55%."
Presentation of Interim Financial Statements
The presentation of the Interim Financial Statements will be
available on Morses Club's investor website at 9am today.
https://www.morsesclubplc.com/investors/
Forward looking statements
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". By their nature,
forward-looking statements involve known and unknown risks and
uncertainties since they relate to future events and circumstances.
Actual results may, and often do, differ materially from any
forward-looking statements.
Any forward-looking statements in this announcement reflect
Morses Club's view with respect to future events as at the date of
this announcement. Save as required by law or by the AIM Rules for
Companies, Morses Club undertakes no obligation to publicly revise
any forward-looking statements in this announcement following any
change in its expectations or to reflect events or circumstances
after the date of this announcement.
For further information please contact:
Morses Club PLC Tel: +44 (0) 330
Gary Marshall, Chief Executive Officer 045 0719
Graeme Campbell, Chief Financial Officer
Peel Hunt (Nomad) Tel: +44 (0) 20
Paul Shackleton / Andrew Buchanan / Sam 7418 8900
Milford (Investment Banking Division)
Camarco Tel: +44 (0) 20
Jennifer Renwick / Charlotte Hollinshead 3757 4994
Notes to Editors
About Morses Club
Morses Club is an established provider of non-standard financial
services in the UK. The Group consists of Morses Club, the UK's
largest home collected credit ("HCC") provider(1) , and Shelby
Finance Limited, Morses Club's Digital division, which operates
under the online brand Dot Dot Loans, an online lending provider.
The Group's growing Digital capabilities and scalable, highly
invested IT platform has enabled Morses Club to deliver a broad
range of lending products and services to the non-standard credit
market.
UK HCC is considered to be a specialised segment of the broader
UK non-standard credit market. UK HCC loans are typically small,
unsecured cash loans delivered directly to customers' homes.
Morses Club's HCC division is the largest UK Home Collected
Credit (HCC) lender(1) with 116,000 customers throughout the UK.
The HCC division enjoys consistently high customer satisfaction
scores of 95%(2) . In 2019 the Company introduced an online
customer portal for its HCC customers, which now has over 95,000
registered customers which is 82% of HCC customers.
The Group's Digital division, Shelby Finance, operates under the
online brand Dot Dot Loans providing online instalment loans of up
to 48 months to c. 25,000 active customers.
Morses Club listed on AIM in May 2016.
About the UK non-standard credit market
The UK non-standard credit market, of which UK HCC is a subset,
consists of both secured and unsecured lending and is estimated to
comprise around 10 million consumers(3) and total loan receivables
of GBP9.6bn(4) .
Non-standard credit is the provision of secured and unsecured
credit to consumers other than through mainstream lenders. Lenders
providing non-standard credit principally lend on an unsecured
basis and the market is characterised by high frequency borrowing.
Approximately 2 million people move annually between standard and
non-standard markets(4) .
Since February 2014, unsecured personal lending has grown from
GBP161 billion to GBP225 billion in February 2020. It has since
contracted to GBP197 billion in August 2021(5) .
1 Based on Net Loan Book of GBP30.2m as at 27 August 2022
2 Independent Customer Satisfaction Survey conducted by
Mustard
3 FCA High Cost Credit Review Technical Annex 1: CRA data
analysis of UK personal debt - July 2017
4 Apex Insight - Non-Prime Consumer Credit: UK Market Insight
Report - December 2020
5 Table A5.2, Bank of England Money and Credit Bank stats August
2021
Company Update
Complaints liability
In February 2022, the Group announced that its profitability in
FY22 would be impacted by the level of unaffordable lending claims
received. This followed significant claims management company
activity, from which a discernible trend has emerged on the cases
being upheld by the Financial Ombudsman Service which could be
applied retrospectively.
On 21 June 2022, the Group announced a further increase in
complaints submitted by claims management companies with the
associated costs of complaint volumes likely to adversely impact on
the trading performance of the first half of FY23. On 20 July 2022,
the Directors confirmed that, due to the emerging position relating
to complaints, a significant complaints liability was expected to
be recognised in the FY22 accounts, with GBP42.6m being recognised
as an exceptional item. Subsequently, the Company has been working
with a skilled person to update its methodology concerning the
complaints liability and, as this work has not concluded to date,
this represents management's considered view. Following the Company
announcement on 20 July regarding the potential Scheme of
Arrangement, the Group experienced a higher level of unaffordable
lending claims in the HCC division, which led the Group to seek a
pause on the processing of claims, which was announced as effective
from 11 August 2022. Without this pause, it is the Directors'
belief that the Group could suffer serious liquidity issues and
cease to be a going concern.
The Directors accept there is a liability in relation to
customer redress claims for unaffordable lending against the
Company (Redress Claims) at the balance sheet date, however there
is significant uncertainty of the total liability which will be
paid. This is due to the fact that the methodology for assessing
the population of claims is yet to be agreed, and the level of
subsequent customers who may claim against that methodology not yet
being known.
The rise in complaints volumes prompted a review of the root
cause of complaints received which led to a review of historic
lending using the date of transfer of consumer credit regulation to
the Financial Conduct Authority ("FCA") as a guide timeline. This
review, which has incorporated third party advice, identified a
potential gross redress owed to customers of GBP112m, though this
is yet to be agreed with the FCA and further review of this amount
will be required. There is therefore significant uncertainty
regarding the exact quantum of the gross redress.
Of this gross redress it is not known what percentage of
customers will claim. The Directors have taken third party advice
and reviewed payments made by other lenders against complaints
claim liabilities and have estimated a 40% take-up rate. However,
there is significant uncertainty in respect of this estimate.
The Directors have applied the take-up rate to the gross redress
amount, the impacts of which are recognised in the FY22 Income
Statement of an exceptional item totalling GBP42.6m. Of this,
GBP3.5m related to amounts which are expected to be set off against
existing customer balances, and, is therefore included as write-off
against the loan book. The remaining GBP39.1m related to the net
present value (NPV) of the Redress Claims liability estimated to be
paid to customers. A further GBP0.9m has been recognised in the
Interim accounts in relation to the revised NPV of the estimated
future cash outflows as at H1 FY23 in respect of the redress
liability, bringing the current NPV value up to GBP40.0m (FY22:
GBP39.1m). The cost of administering payments to customers has been
excluded from this liability and will be incurred in FY23 and
beyond.
Funding
The Group's current facility is in place until 31 March 2023,
supported by a funding consortium of two existing providers.
Discussions are on-going with the current lenders and other
potential lenders regarding future facility options. We draw
attention to note 1 in the financial statements, which indicates
that the Group's current facility of GBP25m expires on 31 March
2023. Discussions also continue with the current lenders regarding
the covenants within the facility, which has resulted in a
reduction of the facility from GBP35m to GBP25m in September 2022
and the deferral of the term-out clause to the end of January 2023.
This clause would place restrictions on the ability of the Group to
issue new loans and the facility's possible extension. This
term-out clause is pre-existing and essentially provides assurance
to the funders of the repayment of the facility within the last 6
months of the agreed term. In practice, this has the effect of
converting the rolling credit facility to a term loan. This would
mean that any subsequent collections made on the loan book, would
be ringfenced to pay down the facility, less any operational costs
the business has. Therefore, it would place restrictions on the
business with regard to the issue of new loans.
The funders have agreed to the temporary deferral of the testing
of two covenants which are linked to profitability and, if tested,
are likely to fall outside of covenant range. There has been no
breach, nor waiver of covenants to date.
The Board recognises that as the current funding facility is in
place for less than 6 months following the date of signing the
Financial Statements, there is material uncertainty in relation to
going concern regarding secured funding. The Company has engaged
Ernst & Young to help secure alternative medium-term
funding.
Potential implementation of a Scheme
As previously announced, the increase in the level of claims has
resulted in the Board deciding to pursue the potential use of a
Scheme of Arrangement under Part 26 of the Companies Act 2006 (the
Scheme) for dealing with Redress Claims. A key objective of a
potential Scheme would be to treat all customers equitably and
settle eligible Redress Claims over a period to be defined. The
Directors believe that a successful Scheme would provide more
certainty in respect of the total liability for Redress Claims and
help to secure the long-term viability of the Group. The Directors
believe that should, for any reason, the approval for the Scheme of
Arrangement not be concluded, the Company could no longer continue
as a going concern and would have to seek the necessary protection
from insolvency, which would lead to a materially worse outcome for
customers.
The Company has provided the FCA with its proposals and is
continuing to engage with them regarding a potential Scheme and its
future business model. The Company has appointed an independent
Chairperson, Jamie Drummond-Smith, who has set up a Customer
Committee to represent eligible customers and assist the Company in
developing any potential Scheme. Details of any potential Scheme
would be announced in due course. The Scheme would be subject to
the approval of the requisite majority of affected customers (i.e.
those customers who received loans during the period to be covered
by any Scheme) and, thereafter, the Court.
Following the Company announcements on 20 July 2022 and 11
August 2022 regarding the Board's decision to pursue the potential
use of a Scheme of Arrangement to deal with customer redress claims
for unaffordable lending against the Company and the steps taken to
pause the processing of all new redress claims for unaffordable
lending from 11 August, the Company has entered into a Voluntary
Application for the Imposition of Requirements ("VREQ"), with the
Financial Conduct Authority which is available to view on the FCA
Register.
The potential Scheme of Arrangement would detail further how we
would make payment against the estimated GBP43.5m (FY22: GBP42.6m)
complaints liability and would include guidance regarding future
profits treatment and dividend policy (as appropriate).
Chief Executive Officer's Statement
Introduction
Over the period we have focused on our core strengths as a
provider of credit products for the under-served segment of the
market, whilst developing new sources of business for both
divisions and shaping the business to meet the future demands of
our customers and the regulator.
We are deeply committed to providing credit to the segment of
the market that needs it most. We are the last remaining 'big
player' in the sector with a social responsibility to our customers
to continue to provide credit in a regulated manner.
We thank our customers for their continued loyalty and are proud
of the service we continue to provide, which is reflected in our
consistently high levels of customer satisfaction.
We are in ongoing discussions with key stakeholders to pursue a
potential Scheme of Arrangement to deal with the ongoing liability
of customer redress claims. The processing of all new unaffordable
lending claims was paused, effective from 11 August 2022.
Performance
The underlying quality of our credit businesses across both
divisions has been consistent during the period, with continued
customer demand. New customer acquisition in the HCC division came
from both brokers and direct marketing, further reflecting the
increased digital routes to market for the sector. More than 82%
(FY22: 75%) of HCC customers use our portal, through which they are
able to complete applications and interact with our field teams
online.
Digital
Quality of lending in the division remained high, however
lending has been reduced due to cash constraints. Overall, the
trading performance for Shelby Finance has improved, due primarily
to the reducing loan book, and the adjusted loss before tax has
reduced by 55.3% to GBP2.1m (H1 FY22: GBP4.7m).
Customer numbers stood at just over 24,500 at the end of the
period, a decrease of 43% since the end of the prior year (FY22:
43,000). Total credit issued for the period was GBP10.2m (H1 FY22:
GBP24.8m), a decrease of 58.9%. The gross loan book was GBP13.8m, a
decrease of 59.6% (H1 FY22: GBP34.2m).
Customer demand was strong, with a focus on short-term lending
during the period. Customer satisfaction for the division was 94%
(FY22: 92%). The overall impact of this resulted in impairment as a
percentage of revenue decreased to 44.2% (H1 FY22: 72.5%), below
the guidance range of 45% - 55%. This is as a result of a shrinking
loan book under IFRS9.
HCC
The Home Collected Credit division traded robustly, despite the
previously reported impact of complaints submitted by claims
management companies. We continue to monitor our credit policy to
keep it aligned to market conditions, and some tightening of
criteria ensured the quality of our lending was maintained.
Customer numbers of 116,000 (FY22: 143,000) at the end of the
period continue to evidence consistent demand. Total credit issued
during H1 FY23 was GBP34.9m, and 34.3% lower than the previous year
(H1 FY22: GBP53.1m). The gross loan book was GBP68.7m (H1 FY22:
GBP95.8m). Cash collection performance for the HCC division
remained strong and was less than 1% below the Company's internal
forecast.
The Group continues to adapt to an evolving HCC sector
influenced by changing customer and regulatory needs; 69% of all
lending is now cashless (H1 FY22: 65%), while 89% of collections
are cashless (H1 FY22: 86%.) This is consistent with FY22, despite
the easing of Covid-19 measures. 82% of customers were signed up to
the customer portal, an increase of 7% compared to H1 FY22 (75%).
Impairment for the financial year is 15.3% (H1 FY22: 16.8%), which
below the Company's guidance range, as a result of a reducing loan
book.
Customer satisfaction for the HCC division remained consistently
high at 95% (FY22: 97%), reflecting continued customer support for
the evolving digital HCC model.
Strategy
Our focus has been on reshaping the HCC business to draw a line
under redress complaints, creating a product blueprint to serve our
customers and address a market which will continue to grow in the
current economic climate. As a result, we have redesigned our
business model and tightened our credit policy and lending
criteria.
We are developing products in line with our service model
tailored to our customer's needs and behaviours, taking account of
our customer's credit demand and risk profile with a strategic aim
to improve their overall financial wellbeing.
We have put a strong focus on enabling technology to streamline
processes and put the customer in charge of their journey - how
they get access to credit, how they pay it back and how they engage
with us.
External market
As has been widely reported, the sector has been significantly
impacted by claims management companies. We remain in close contact
with the FCA and are in discussions with them regarding the
development of the business with a strong willingness to adapt so
that we continue to serve our customers and comply with our
regulatory obligations which are central to our business model.
In the current climate, with ever-increasing challenges on
domestic expenditure and the cost of living, we expect
significantly more people to come into the market. This significant
consumer demand will need to be met, and this is against a backdrop
of reduced supply. Our reshaped business is well positioned to
support customers through these challenging economic times.
There has been a sharp regulatory focus on the sector, with a
key outcome being the imminent consumer duty requirements, due to
begin implementation in July 2023, and there are ongoing
discussions about relending approaches.
People and culture
Although the impact of the pandemic has led to changes in our
working model, we have worked hard to ensure that the
customer-centric culture and focus on delivery has been maintained
during the period. We have continued to stay in touch with our
teams across the UK through regular communication and updates, to
help people stay connected with the business, despite the changes
that have been undertaken.
Auditors
The company is pleased to announce that MHA MacIntyre Hudson
have been appointed as external auditors with effect from the FY23
year end.
Outlook
It is the view of the Directors that the Group's trading
performance demonstrates a basis for the future viability of the
Group and the business continues to be a going concern. However
there remains a material uncertainty that may cast significant
doubt about the future going concern and viability of the
Group.
We fully recognise the current challenges that the business
faces, particularly with regard to the increase in complaints
liabilities due to the focus on the sector from claims management
companies.
We are deeply committed to the sector and the customers who need
our services. We are also committed to ensuring our products are
sustainable and clear to our addressable market, and as a result
have concluded that a reduced product range is right for the
sustainability of the business.
We have made significant strides to reshape the business and
there will be more to do as we continue our discussions with the
FCA. I am confident that we can work through this in a constructive
way, as it is important that our customer demographic continues to
be served by people who understand the market and can operate in a
socially conscious way.
Gary Marshall
Chief Executive Officer
24 November 2022
Financial Review
26-week 26-week
period period
ended 27 ended 28
August August
2022 2021
--------------------------------------------- ----------- -----------
Customer numbers ('000's) 141 196
============================================= =========== ===========
Period end receivables GBP37.7m GBP60.3m
--------------------------------------------- ----------- -----------
Average receivables GBP41.0m GBP64.4m
--------------------------------------------- ----------- -----------
Revenue GBP43.2m GBP52.4m
============================================= ----------- -----------
Impairment (GBP9.1m) (GBP16.5m)
----------- -----------
Agent Commission (GBP6.9m) (GBP7.7m)
============================================= ----------- -----------
Gross Profit GBP27.2m GBP28.2m
----------- -----------
Administration expenses (GBP47.3m) (GBP23.6m)
============================================= ----------- -----------
Depreciation (GBP1.7m) (GBP1.9m)
----------- -----------
Operating (loss)/profit before amortisation (GBP21.8m) GBP2.7m
of acquisition intangibles
============================================= ----------- -----------
Amortisation of acquisition intangibles - (GBP0.1m)
--------------------------------------------- ----------- -----------
Exceptional costs GBP2.0m -
--------------------------------------------- ----------- -----------
Operating (loss)/profit (GBP19.8m) GBP2.6m
--------------------------------------------- ----------- -----------
Funding costs (GBP1.0m) (GBP0.8m)
-----------
Statutory (loss)/profit Before Tax (GBP20.8m) GBP1.8m
--------------------------------------------- ----------- -----------
Tax GBP4.2m (GBP0.3m)
--------------------------------------------- ----------- -----------
(Loss)/profit after tax (GBP16.6m) GBP1.5m
--------------------------------------------- ----------- -----------
Basic EPS (12.4p) 1.1p
--------------------------------------------- ----------- -----------
Reconciliation of Statutory (Loss)/Profit Before Tax to Adjusted
(loss)/profit before tax and explanation of Adjusted EPS
---------------------------------------------------------------------------------------------------------
GBP'm (unless otherwise stated) 26-week 26-week % +/(-)
period ended period ended
27 August 28 August
2022 2021
----------------------------------------- ------------------------ ------------------------ ----------
Statutory (loss)/profit before
tax (20.8) 1.8 (1255.6%)
----------------------------------------- ------------------------ ------------------------ ----------
Amortisation of acquired intangibles(2) - 0.1 100.0%
----------------------------------------- ------------------------ ------------------------ ----------
Impairment of goodwill 9.4 - 100.0%
----------------------------------------- ------------------------ ------------------------ ----------
Restructuring and other non-recurring
costs(3) 0.3 0.7 57.1%
----------------------------------------- ------------------------ ------------------------ ----------
Exceptional costs(4) 2.0 - 100.0%
----------------------------------------- ------------------------ ------------------------ ----------
Adjusted (loss)/profit before
tax(1) (9.1) 2.6 (450.0%)
----------------------------------------- ------------------------ ------------------------ ----------
Tax on adjusted (loss)/profit
before tax 1.9 (0.5) (480.0%)
----------------------------------------- ------------------------ ------------------------ ----------
Adjusted (loss)/profit after
tax(1) (7.2) 2.1 (442.9%)
----------------------------------------- ------------------------ ------------------------ ----------
Adjusted EPS(1) (5.4) 1.6 (437.5%)
----------------------------------------- ------------------------ ------------------------ ----------
Adjusted Return on Assets(1) (15.8%) 9.3% (269.9%)
----------------------------------------- ------------------------ ------------------------ ----------
Adjusted Return on Equity(1) (36.8%) 10.6% (447.2%)
1 Definitions are set out in the Glossary of Alternative
Performance Measures on page 39
2 Amortisation of acquired customer lists and agent networks
3 Includes restructuring and redundancy expenses
4 Costs relating to the complaints liability, corporate
restructure and closure of U Account
Group Highlights
Credit issued to customers decreased by 42.0% to GBP45.1m (H1
FY22: GBP77.8m) as a result of tighter lending criteria. HCC credit
issued of GBP34.9m was a 34.3% reduction on the prior year (H1
FY22: GBP53.1m), reflecting the continued stricter lending criteria
to protect the quality of the loan book. Credit issued in the
Digital business was also subject to tighter lending criteria and
decreased by 58.9% to GBP10.2m (H1 FY22: GBP24.8m).
Revenue decreased by 17.6% to GBP43.2m (H1 FY22: GBP52.4m) due
to the decreased credit issued across both businesses. HCC revenue
decreased by 10.4% to GBP34.6m (H1 FY22: GBP38.6m). Digital revenue
decreased by 37.7% to GBP8.6m (H1 FY22: GBP13.8m).
Gross profit decreased by 3.5% to GBP27.2m (H1 FY22: GBP28.2m).
The gross profit percentage increased to 63.0% from 53.8% in H1
FY22. The HCC impairment charge as a percentage of revenue
decreased to 15.3% (H1 FY22: 16.8%) and remains below our guidance
range of 21% to 26%. This is due to a favourable impact from a
shrinking loan book under IFRS 9 and tighter lending criteria. The
Digital impairment charge as a percentage of revenue of 44.2% (H1
FY22: 72.5%) has dropped below our guidance range of 45% to 55% of
revenue. Again, this is due to a favourable impact from a shrinking
loan book under IFRS 9.
HCC self-employed agent commission costs decreased by 10.7% to
GBP6.7m (H1 FY22: GBP7.5m), and as a percentage of revenue they
remain unchanged at 19.4% (H1 FY22 19.4%) as a result of the loan
book being reduced during Covid-19 and a reduction in commission
rates. Administration expenses and depreciation increased by
GBP12.0m to GBP28.8m (H1 FY22: GBP16.8m), while as a percentage of
revenue they increased to 83.2% (H1 FY22: 43.5%). This is due to
customer redress costs of GBP13.1m being reported in administration
costs (H1 FY22: GBP0.5m reported in administration costs and
GBP3.2m in cost of sales) and broker costs of GBP0.6m being
reported in revenue (H1 FY22: GBPnil). A provision of GBP2.3m
(FY22: GBP2.8m) for customer redress and Financial Ombudsman
("FOS") fees has been recognised in recognition of outstanding
complaints at the end of the period. In estimating the H1 FY23
provision, management have incorporated historical Company
information for the average percentage of complaints which are
upheld, the average value of compensation claims paid out and the
number of outstanding complaints that remained unresolved at the
balance sheet date. The Company also holds a GBP40.0m provision on
the balance sheet in relation to the redress liability.
Group Adjusted loss before tax for the period was GBP9.1m
compared to an adjusted profit before tax for H1 FY22 GBP2.6m.
Adjusted return on assets decreased from 9.3% in H1 FY22 to
Adjusted loss on assets of 15.8% in H1 FY23. Exceptional and other
non-recurring costs of GBP2.3m (H1 FY22; GBP0.7m) relate to the
potential scheme and redundancy.
Funding costs of GBP1.0m were GBP0.2m higher than H1 FY22:
GBP0.8m reflecting the higher level of borrowings throughout H1
FY23.
The statutory loss before tax for H1 FY23 was GBP20.8m compared
to a statutory profit before tax of GBP1.8m in H1 FY22.
Earnings per share
The adjusted loss per share for H1 FY23 was 5.4p, a decrease of
437.5% relative to the adjusted earnings per share of 1.6p for H1
FY22. The reported loss per share for H1 FY23 was 12.4p, relative
to the reported earnings per share of 1.1p for H1 FY22.
Dividend
The Company will not be paying an interim dividend for FY23.
Funding
In May 2021 we reached agreement with a new two-lender
consortium, providing a more cost-efficient funding facility of
GBP35m facility (FY21: GBP40m), which was subsequently extended to
31 March 2023. In September 2022 the facility was reduced to GBP25m
in line with the revised funding requirements of the Company and
the funding consortium agreed to extend the term-out clause from
September 2022 to January 2023, with the facility remaining in
place until 31st March 2023.
The funding consortium continue to grant a deferral of the
testing of two covenants linked to profitability, and there has
been no breach of the covenants to date.
At the end of H1 FY23 borrowing was GBP13.8m, this peaked at
GBP19.4m in H2 FY22 (H1 FY22: GBP18.0m of the GBP35m limit).
Management are in discussions with the existing funders with
regard to an extension to the existing funding arrangement and have
engaged with Ernst & Young to help secure medium term funders
to provide sufficient cash flow to meet the future growth targets
of the business.
However, the Directors note that these funding arrangements have
yet to be agreed and this, together with the extension or deferral
of the term-out and with the impact of levels of redress relating
to unaffordable lending claims to the HCC business, creates a
material uncertainty that may cast significant doubt about the
Group's and Company's ability to continue as a going concern such
that it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
We draw attention to the funding facility, which indicates that
the Group's current facility of GBP25m expires on 31 March 2023.
Discussions continue with lenders regarding the covenants within
the facility, the extension or temporary deferral of the term-out
clause which would be enacted by the end of January 2023 and would
place restrictions on the ability of the Group to issue new loans
and the facility's possible extension. This term-out clause is
pre-existing and essentially provides assurance to the funders of
the repayment of the facility within the last 6 months of the
agreed term. In practice, this has the effect of converting the
rolling credit facility to a term loan. This would mean that any
subsequent collections made on the loan book, would be ringfenced
to pay down the facility, less any operational costs the business
has. Therefore, it would place restrictions on the business with
regard to the issue of new loans. Discussions with the lenders have
already led to a continuing deferral of the testing of two
covenants.
These two covenants are linked to profitability and, if tested,
are likely to fall outside of covenant range. There has been no
breach, nor waiver of covenants to date. The Board recognises that
as the current funding facility is in place for less than 6 months
following the date of signing the Financial Statements there is
also material uncertainty regarding secured funding.
Home Collect Credit
Key performance indicators(1) Aug-22 Aug-21 % +/(-)
GBP'm unless otherwise stated
Customer numbers ('000's) 116 144 (19.4%)
Period end receivables 30.2 45.3 (33.3%)
Average receivables 42.5 48.0 (11.5%)
Revenue 34.6 38.6 (10.4%)
Impairment (5.3) (6.5) (18.5%)
Agent commission & other cost
of sales (6.7) (7.5) 10.7%
------------- --------------
Gross profit 22.6 24.6 (8.1%)
Admin expenses (27.6) (15.4) (79.2%)
Depreciation (1.2) (1.4) 14.3%
------------- --------------
Operating (loss)/profit (6.2) 7.8 (179.5%)
Financing costs (0.8) (0.5) (60.0%)
------------- --------------
Adjusted PBT(1) (7.0) 7.3 (195.9%)
Restructuring and non-recurring
costs (0.3) (0.7) 57.1%
Exceptional costs (2.0) - (100.0%)
Amortisation of acquisition
intangibles - (0.1) 100.0%
Statutory PBT (9.3) 6.5 (243.1%)
============= ==============
Impairment/revenue % 15.3% 16.8% (8.9%)
Agent commission/revenue % 19.4% 19.4% 0.0%
Admin exp (inc depreciation)/revenue
% 83.2% 43.5% 91.3%
1. Definitions are set out in the Glossary of Alternative
Performance Measures on page 39
Credit issued for the 26 weeks to 27 August 2022 was GBP34.9m
compared to GBP53.1m in the 26-week equivalent period in H1 FY22, a
decrease of 34.3%. This is the due to increased tightening of the
lending policy.
Customer loan repayments for the 26 weeks to 27 August 2022 were
GBP75.7m, compared to GBP89.9m in the 26-week equivalent period the
previous year, a reduction of 15.8% as a result of the gross loan
book decreasing 28.3% year on year.
Customer numbers therefore reduced to 116,000 at the end of
August 2022 compared to 144,000 at August 2021 and 143,000 at
February 2022. Though the decline in customer number has slowed
towards the end of the interim period, the reduction to customer
numbers does have an impact on income.
The reduction in average receivables of 11.5% is reflected in
income which fell by 10.4% to GBP34.6m (H1 FY22: GBP38.6m). Agent
commission represented 8.9% of customer loan repayments, up from
8.4% for the same period last year owing to there being less
settlement cash this year, on which no commission is paid.
Administration expenses and depreciation increased by GBP12.0m in
total to GBP28.8m (H1 FY22: GBP16.8m) due to the increased
complaint costs compared to the same period last year.
Impairment of GBP5.3m was 15.3% of revenue, a reduction of 8.9%
from H1 FY22, and below our guidance range of 21% to 26%. This is
the result of accounting for impairment with a shrinking loan book.
Due to the IFRS 9 requirement to take forward-looking provisions at
the outset of the loan period as the loan book builds back up
moving into FY24, we expect this temporary performance uplift to
reverse. Our long-term guidance therefore remains unchanged.
The statutory loss before tax of GBP9.3m was 243.1% lower (H1
FY22: statutory profit before tax GBP6.5m) whilst the adjusted loss
before tax of GBP7.0m was 195.9% lower (H1 FY22: adjusted profit
before tax GBP7.3m). The comparative period does not include the
upswing in complaints redress experienced in H2 FY22 that has
continued in H1 FY23.
As at August 2022, the net loan balances of customers had
reduced by 33.3% compared to August 2021.
Digital Lending
Key performance indicators(1) Aug-22 Aug-21 % +/(-)
GBP'm unless otherwise stated
Customer numbers ('000's) 25 52 (51.9%)
Period end receivables 7.5 15.0 (50.0%)
Average receivables 10.9 8.2 32.9%
Revenue 8.6 13.8 (37.7%)
Impairment (3.8) (10.0) 62.0%
Agent commission & other cost
of sales (0.2) (0.2) 0.0%
-------------- --------------
Gross profit 4.6 3.6 37.8%
Admin expenses (6.0) (7.5) 20.0%
Depreciation (0.5) (0.5) 0.0%
-------------- --------------
Operating loss (1.9) (4.4) 56.8%
Financing costs (0.2) (0.3) 33.3%
-------------- --------------
Adjusted PBT(1) (2.1) (4.7) 55.3%
Restructuring and non-recurring -
costs - -
Exceptional costs - - -
Amortisation of acquisition
intangibles (9.4) - (100.0%)
Statutory PBT (11.5) (4.7) (144.7%)
============== ==============
Impairment/revenue 44.2% 72.5% (39.0%)
Admin exp (inc depreciation)/revenue
% 75.6% 58.0% 30.3%
1 Definitions are set out in the Glossary of Alternative
Performance Measures on page 39
Credit issued for the 26 weeks to 27 August 2022 was GBP10.2m
compared to GBP24.8m in the 26-week period in H1 FY22, a decrease
of 58.9%.
Revenue decreased by 37.7% to GBP8.6m (H1 FY22: GBP13.8m) as a
result of a reduction in credit issued in the last 12 months.
Impairment is 44.2% of revenue (H1 FY22: 72.5%). This is due to
a reduction in the size of the loan book along with a change in the
mix of loans issued to the shorter-term products. As impairment is
provided when credit is issued, whilst revenue is spread over the
term of the product, this change in product mix away from longer
term products has reduced the impairment provision proportionate to
credit issued and to revenue.
Administration expenses and depreciation decreased by 18.8% to
GBP6.5m (H1 FY22: GBP8.0m) but, as a percentage of revenue, rose to
75.6% from 58.0% in H1 FY22, this percentage increase is a result
of the lower revenue in the period.
As at August 2022, the net loan balances of customers had
decreased by 50.0% to GBP7.5m (August 2021: GBP15.0m).
As part of the Group's bi-annual assessment of intangible assets
the GBP9.4m goodwill in Digital relating to U Holdings Ltd was
impaired in full.
The adjusted loss before tax of GBP2.1m is a 55.3% improvement
on the comparative GBP4.7m from H1 FY22. This is partially due to a
decrease in impairment on a reducing loan book.
Principal Risks and Uncertainties
Material uncertainties/Going concern
The level of previous claims for unaffordable lending in our HCC
division has continued to impact the overall trading performance of
the business, which means we are materially loss-making as a
result, and this has the additional impact of constraining the cash
available to generate future revenue. Although the business
continues to be a going concern, the material uncertainty of the
trading position of the Group means that it is increasingly
imperative that we make substantive progress regarding a potential
Scheme of Arrangement. We continue to pause the processing of
customer claims received from 11 August 2022 pursuant to DISP
1.6.2R (2). The Company continues to work with all its key
stakeholders to make formal progress on a potential Scheme of
Arrangement, to avoid the Company having to seek protection from
insolvency, which would lead to a materially worse outcome for its
customers.
It is the view of the Directors that the Group's trading
performance demonstrates a basis for the future viability of the
Group and the business continues to be a going concern. However,
there remains a material uncertainty regarding both the viability
of the Group and its basis as a going concern, relating to the
redress claims for unaffordable lending and the remaining length of
its current funding facility.
Conduct Risk
Treating Customers Fairly is a fundamental part of the Group's
culture. Comprehensive and verifiable training and oversight of
staff is undertaken in both the HCC and Digital divisions. First
and second-line quality assurance operates alongside an automated,
mobile technology-based sales & collections process.
The Group has put in place a risk mitigation framework to ensure
that the Group's conduct throughout the year minimises the risk of
poor outcomes for customers.
Regulatory Risk
A gap analysis is undertaken when any rules or regulatory
guidance changes. Governance, risk, and compliance are
independently and externally reviewed by our lawyers. We maintain
continuous communication with key external stakeholders and
professional contacts to keep our information updated. The business
continues to review its lending approach in light of the FCA
relending study and the Woolard Review that looked at change and
innovation in the unsecured market.
Credit Risk
Group policy prescribes business oversight and control. Weekly
management information allows the Group to monitor the effects of
lending decisions. Regular reviews of policies and outcomes are
undertaken by the Credit Risk Committee of the HCC and Digital
Divisions. Higher inflation is taken into account when reviewing a
customer's affordability due to the change in Inflation and price
indices in the current economic situation.
Assessment of credit risk was also reviewed to ensure that risk
appetite for credit risk and TCF were maintained. The Company is in
discussions with the FCA regarding the development of its future
business model.
Reputational Risk
Effective corporate governance provides business oversight and
control. We undertake independent monitoring, for example
independent market surveys. In 2022, we continued surveys of all
types of customers, including those who benefited from our policy
of forbearance.
Strategic and Business Risk
A full Committee-based corporate governance structure operates
with Board oversight. The Board and Executive Team holds an annual
strategy planning meeting. Detailed strategic planning and
oversight are implemented alongside horizon scanning. We are
involved in lobbying through our trade associations. The Group
continues to minimise the risks to the health and safety of our
customers and employees. All staff continue to operate from home
effectively and the HCC business is able to lend and collect both
remotely and through doorstep activities.
Wider Industry Risk
During the last 18 months, the Group has seen further increases
in the level of complaints received from CMCs, principally
impacting on the HCC division. Levels of claims are closely
monitored, and the Company has made changes to its credit policy
and lending approaches in line with customer and market demand.
This includes the introduction of breaks in lending, further
assessments of affordability before loan issuance, monitoring
payment performance requirements as well as continuing to assess
the terms and value of each loan for each individual customer's
circumstances.
The Company has continued to experience increases in claims
submitted from claims management companies. As a result, the
Company announced on 20 July 2022 that it was engaging with the FCA
regarding a potential Scheme of Arrangement to ensure the best
outcome for customers. A potential Scheme would be prepared in
consultation with a customer committee and would require (a) the
approval of the requisite majority of the affected customers, and
(b) the approval of the Court. The FCA will be consulted
extensively throughout the process.
It is anticipated that if a Scheme is proposed and approved, a
separate Group company would be responsible for managing the Scheme
and paying the claims. If the Company does decide to pursue a
Scheme, the affected customers would be notified by way of a letter
called a 'Practice Statement Letter'. Subsequently, if it proceeds,
full details of the Scheme, including the claims methodology and a
timetable for claims, adjudications and settlements would be made
available to affected customers.
Operational Risk
The Group has a comprehensive suite of policies and procedures
covering its operational activities that is subject to regular
review and revision. All staff participate annually in a personal
safety review and follow our home/remote working policy. A
comprehensive business continuity policy and procedure is in place.
Disaster recovery tests are performed periodically on critical
systems.
In the event of future Covid-related, or other pandemic,
restrictions, the Group can continue to operate with a model that
enables remote lending and collections activity.
The Group continues to offer remote lending products, which are
available to all Morses Club HCC customers and are compliant with
all regulatory requirements. All necessary checks and agreements
are transacted via our online Customer Portal. Customers are able
to have funds deposited directly into their bank account or in cash
at their home if required. Employees in both divisions continue to
be principally based at home.
Liquidity Risk
The Company's current borrowing facility remains in place until
31 March 2023. The current funding consortium has agreed an
extension of the term-out clause to January 2023. The term-out
clause would place restrictions on the ability of the Group to
issue new loans. This term-out clause is pre- existing and
essentially provides assurance to the funders of the repayment of
the facility within the final months of the agreed term. The
funding consortium has also agreed to a continuing deferral of the
testing of two covenants linked to profitability. In September
2022, the facility was reduced to GBP25m from GBP35m in line with
the revised funding requirements of the Company.
IT and Cyber Risk
The Group has an ongoing programme to conduct regular
vulnerability assessments against our core infrastructure services
and recognises the increased relevance of this risk as the move to
digitise the business continues. There are plans to increase the
frequency and scope of its testing in this risk area.
The Group has dedicated information security resources and
undertakes penetration testing of our external and internal
networks which helps to identify new or emerging security concerns.
During the year, the Group has successfully completed its annual
disaster recovery test. This included simulating a total loss of
its data centre and successfully achieving failover for all
production systems to the disaster recovery site for both HCC and
Digital divisions.
All of the Group's data is now encrypted at rest for protection
against data breach. In order to educate staff to fight against
phishing and to raise awareness, phishing training exercises were
undertaken and rolled out through the organisation.
Agents' self-employed status
The HCC division has recently completed a programme to end the
self-employed status of agents and to replace the work with the new
role of employed Customer Support Associates. Once the transition
period is fully complete, this will no longer be seen as a risk to
the business.
Covid-19 pandemic
The Group has adopted a hybrid position of remote working
supported by office facilities in Nottingham. The robust IT
platforms, flexible operating processes and strong BCP (Business
Continuity Plan) procedures have successfully enabled smooth
operations throughout the Covid-19 period. The developments have
enhanced the Group's ability to combat and anticipate any future
unforeseen restrictions that may be created by new variants of
Covid-19 or any other similar pandemic.
Increased cost of living
The Group has tightened its affordability policies to take into
account the increased cost of living for new loans.
The current indications are that existing loans are not being
materially affected by the increased cost of living.
People risk
The Group continues to monitor its onboarding process and the
results of its salary benchmarking. Outsourcing is undertaken where
appropriate. The Group's remote working strategy also allows for
flexibility in recruitment and staff retention.
Emerging risks:
Climate change and Fair trade
Climate change is not currently seen as a principal risk to the
business, but the subject is kept under review and aligned with the
main strategic initiatives to reduce the Group's impact on the
environment. The Group's environmental policy is reviewed
annually.
New technologies have been introduced to the organisation which
allows for more meetings to be conducted remotely and the new
customer portal enables customers to request loans and make
payments remotely. Both initiatives have significantly reduced the
need to travel unnecessarily and help to reduce our carbon
footprint.
As part of our procurement procedures, we undertake a due
diligence review of major suppliers, which
includes standard aspects around modern slavery, any
environmental policies, as part of ensuring that
any outsourcing arrangements are based on working with suppliers
which adhere to our operating
standards.
Graeme Campbell
Chief Financial Officer
24 November 2022
MORSES CLUB PLC Registered Number: 06793980
CONSOLIDATED INCOME STATEMENT
FOR THE 26 WEEK PERIODED 28 AUGUST 2021
26 weeks 26 weeks 52 weeks
ended ended ended
27.8.22 28.8.21 26.2.22
Notes GBP,000 GBP,000 GBP,000
(Unaudited) (Unaudited) (Audited)
Revenue 43,169 52,384 111,396
Impairment of financial assets (9,144) (16,455) (35,960)
Cost of sales (6,799) (7,709) (15,406)
--------------- -------------- ----------
Gross Profit 27,226 28,220 60,030
Administration expenses (47,065) (25,577) (100,901)
Operating (loss)/profit before
amortisation of intangibles and
exceptional costs (8,432) 2,738 (6,095)
Amortisation of acquisition intangibles 9 (49) (95) (187)
Impairment of goodwill 8 (9,369) - -
Exceptional costs
Complaints liability (864) - (42,640)
Corporate restructuring costs - - (1,759)
U Accounts closure costs (15) - (2,380)
Scheme of arrangement (1,110) - -
--------------- -------------- ----------
Exceptional costs total 4 (1,989) - (46,779)
------------------------------------------ ------ --------------- -------------- ----------
Operating (loss)/profit (19,839) 2,643 (40,871)
Finance costs (977) (836) (1,985)
--------------- -------------- ----------
(Loss)/profit before taxation (20,816) 1,807 (42,856)
Tax on loss on ordinary activities 5 4,163 (296) 9,489
--------------- -------------- ----------
(Loss)/profit after taxation (16,653) 1,511 (33,367)
--------------- -------------- ----------
All results derive from continuing operations. A Statement of
Comprehensive Income is not included as there is no other income or
losses, other than those presented in the Income Statement.
26 weeks 26 weeks 52 weeks
ended ended ended
27.8.22 28.8.21 26.2.22
(Loss)/earnings per share Pence Pence Pence
Basic 7 (12.39) 1.14 (25.03)
--------- --------- ---------------
Diluted 7 (12.39) 1.13 (25.03)
--------- --------- ---------------
MORSES CLUB PLC Registered Number: 06793980
CONSOLIDATED BALANCE SHEET
FOR THE 26 WEEK PERIODED 26 AUGUST 2022
26 weeks 26 weeks 52 weeks
ended ended ended
27.8.22 28.8.21 26.2.22
(Unaudited) (Unaudited) (Audited)
Assets Notes GBP'000 GBP'000 GBP'000
Non-current assets
Goodwill 8 3,485 12,854 12,854
Other intangible assets 9 8,538 9,571 8,514
Property, plant and equipment 555 717 689
Right-of-use assets 10 1,292 1,095 1,739
Deferred Tax 9,118 592 9,112
Amounts receivable from customers 11 1,553 3,321 2,633
24,541 28,150 35,541
------------ ------------ ----------
Current Assets
Amounts receivable from customers 11 36,185 57,002 53,214
Taxation receivable 6,947 1,080 2,790
Other receivables 11 3,229 4,085 3,903
Cash and cash equivalents 12 7,943 6,903 6,179
54,304 69,070 66,086
------------ ------------ ----------
Total assets 78,845 97,220 101,627
------------ ------------ ----------
Liabilities
Current Liabilities
Trade and other payables (5,660) (7,397) (6,401)
Complaints provision and liability 15 (21,099) (2,415) (20,237)
Lease liabilities (551) (421) (778)
(27,310) (10,233) (27,416)
------------ ------------ ----------
Non-current liabilities
Bank and other borrowings 12 (13,710) (17,698) (19,226)
Complaints provision and liability 15 (21,224) - (21,692)
Lease liabilities (858) (822) (1,063)
(35,792) (18,520) (41,981)
------------ ------------ ----------
Total liabilities (63,102) (28,753) (69,397)
------------ ------------ ----------
Net assets 15,743 68,467 32,230
------------ ------------ ----------
Equity
Called up share capital 13 1,344 1,336 1,344
Retained earnings 14,399 67,131 30,886
------------ ------------ ----------
Total equity 15,743 68,467 32,230
============ ============ ==========
MORSES CLUB PLC Registered Number: 06793980
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE 26 WEEK PERIODED 26
AUGUST 2022
Called
up
share Retained Total
capital Earnings Equity
GBP'000 GBP'000 GBP'000
----------------- ------------- ---------
As at 27 February 2021 (Audited) 1,325 69,328 70,653
----------------- ------------- ---------
Total comprehensive income for the
period - 1,511 1,511
Share issue 11 - 11
Share based payment charge - 265 265
Dividends paid - (3,973) (3,973)
------------- ---------
As at 28 August 2021 (Unaudited) 1,336 67,131 68,467
----------------- ------------- ---------
Total comprehensive loss for the
period - (34,878) (34,878)
Share issue 8 - 8
Share based payment charge adjustment - (23) (23)
Dividends paid - (1,344) (1,344)
As at 26 February 2022 (Audited) 1,344 30,886 32,230
----------------- ------------- ---------
Total comprehensive loss for the
period - (16,653) (16,653)
Share issue - - -
Share based payment charge - 166 166
Dividends paid - - -
As at 27 August 2022 (Unaudited) 1,344 14,399 15,743
----------------- ------------- ---------
MORSES CLUB PLC Registered Number: 06793980
CONSOLIDATED STATEMENT OF CASH
FLOWS
FOR THE 26 WEEK PERIODED 26 AUGUST 2022
26 weeks 26 weeks 52 weeks
ended ended ended
27.8.22 28.8.21 26.2.22
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
Net cash (outflow)/inflow from
operating activities 1 9,719 (3,357) (819)
Dividends paid 6 - (3,973) (5,317)
Proceeds from additional long-term
debt - 13,000 25,100
Arrangement costs associated with
additional funding (20) (290) -
Repayment of long-term debt (5,600) (3,500) (14,200)
Principal paid under lease liabilities (432) (448) (943)
Interest paid (639) (503) (1,398)
Interest paid (lease liabilities) (109) (123) (222)
------------ ------------ -----------------
Net cash inflow/(outflow) from
financing activities (6,800) 4,163 3,020
Purchase of intangibles (1,154) (2,042) (4,074)
Purchase of property, plant and
equipment (1) (119) (206)
Net cash outflow from investing
activities (1,155) (2,161) (4,280)
Increase/(decrease) in cash and
cash equivalents 1,764 (1,355) (2,079)
============ ============ =================
Reconciliation of increase in
cash and cash
equivalents to movement in cash
equivalents
Movement in cash and cash equivalents
in the period 1,764 (1,355) (2,079)
------------ ------------ -----------------
Cash and cash equivalents, beginning
of year 6,179 8,258 8,258
Cash and cash equivalents, end
of year 7,943 6,903 6,179
============ ============ =================
1 RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
Group
------------------- --------------- ---------------
27.8.22 28.8.21 26.2.22
GBP'000 GBP'000 GBP'000
(Loss)/profit before tax and exceptional
costs (18,828) 1,807 3,923
Exceptional costs (1,988) - (46,779)
------------------- --------------- ---------------
(Loss)/profit before taxation (20,816) 1,807 (42,856)
Interest paid included in financing
activities 748 626 1,577
Share issue - 11 19
Depreciation charges 582 643 1,211
Share based payments charge 166 265 242
Impairment of goodwill 9,369 - -
Impairment of intangibles - 2 -
Amortisation of intangibles 1,130 1.333 2,565
Write off of right-of-use asset - 94 108
Loss on disposal of intangible assets - - 1,857
Decrease/(increase) in debtors 18,886 (5,992) (1,333)
(Decrease)/increase in creditors (346) (2,146) 35,791
---------------
30,535 (5,164) 42,037
Taxation paid - - -
------------------- --------------- ---------------
Net cash inflow/(outflow) from operating
activities 9,719 (3,357) (819)
=================== =============== ===============
2 RECONCILIATION OF LIABILITIES ARISING FROM FINANCIAL
ACTIVITIES
Long term Lease
borrowings liabilities Total
Group GBP'000 GBP'000 GBP'000
At 27 February 2021 8,302 1,784 10,087
----------- ------------ ---------
Non-cash changes
- Amortised fees 24 - 24
- Lease additions & disposals - 1,000 1,000
- Interest 1,398 222 1,620
Cash flows:
- Repayments (14,200) (943) (15,143)
- Drawdown 25,100 - 25,100
- Interest (1,398) (222) (1,620)
---------
At 26 February 2022 19,226 1,841 21,068
=========== ============ =========
Non-cash changes
- Amortised fees 104 - 104
- Interest 639 109 748
Cash flows:
- Repayments (5,600) (432) (6,032)
- Drawdown - - -
- Lease additions & disposals - - -
- Interest (639) (109) (748)
- Arrangement costs associated with
additional funding (20) - (20)
------------ ---------
At 27 August 2022 13,710 1,409 15,120
=========== ============ =========
MORSES CLUB PLC Registered Number: 06793980
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 26 WEEK PERIODED 27 August 2022
1. ACCOUNTING POLICIES
General information
The Company is a public limited company incorporated and
domiciled in the UK. The address of its registered office is
Building 1, The Phoenix Centre, 1 Colliers Way, Nottingham NG8
6AT.
The information for the year ended 26 February 2022 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year
has been delivered to the Registrar of Companies. The report of the
auditor on those financial statements at year end indicated
material uncertainty due to quantum and timing of unaffordable
lending redress potentially payable to customers, and in respect of
the extension or deferral of the term-out clause and availability
of funding past the current formal facility end date of 31 March
2023.
The unaudited condensed interim financial statements for the 26
weeks ended 27 August 2022 have not been reviewed, or audited, and
were approved by the Board of Directors on 24 November 2022.
Going concern
The Directors have prepared these financial statements in
consideration of the appropriateness of the going concern basis,
taking account of the material uncertainty due to the quantum and
timing of unaffordable lending redress potentially payable to
customers, and in respect of the extension or deferral of the
term-out clause and availability of funding past the current formal
facility end date of 31 March 2023.
The Group's current funding facility of GBP25m is in place until
31 March 2023, supported by a funding consortium of two existing
providers. Discussions continue with lenders regarding the
covenants within the facility, the extension or deferral of the
term-out clause which is currently deferred until January 2023 and
would place restrictions on the ability of the Group to issue new
loans and the facility's possible extension. This term out clause
is pre-existing and essentially provides assurance to the funders
of the repayment of the facility within the last 6 months of the
agreed term. In practice, this has the effect of converting the
rolling credit facility to a term loan. This would mean that any
subsequent collections made on the loan book, would be ringfenced
to pay down the facility, less any operational costs the business
has. Therefore, it would place restrictions on the business with
regard to the issuance of new loans. Discussions with the lenders
have already led to a continuing deferral of the testing of two
covenants. These two covenants are linked to profitability and, if
tested, are likely to fall outside of covenant range. There has
been no breach, nor waiver of covenants to date. Whilst discussions
are at an advanced
stage, if a formal agreement is not reached by the end of
January 2023, then a term-out clause would be enacted, which would
place restrictions on the ability of the Group to issue new loans.
However, management is in discussion with the lenders regarding a
potential extension to the term-out. The Board recognises that the
current funding facility is in place for less than 6 months
following the date of signing the financial statements.
Going concern - continued
The Group observed a noticeable increase in the level of
complaints received in particular from CMCs during the previous
financial year and this has continued into the first half of
current financial year. The Directors accept there is a liability
in relation to customer redress claims for unaffordable lending
against the Company at the balance sheet date, however there is
significant uncertainty of the total liability which will be paid.
This is due to the methodology for assessing the population of
claims being yet to be agreed, and the level of subsequent
customers who may claim against that methodology not yet being
known.
As part of its annual planning process, the Group assessed its
business plans and subsequently ran a number of scenarios around
the key areas of sensitivities, namely:
-- Loan volumes and credit risk
-- Collections and loan book quality
-- Complaints volumes
-- Cash availability
-- Collect-out scenario (in accordance with regulatory guidance)
In assessing the Group's going concern status the Directors
produced a number of forecast scenarios, with the potential Scheme
of Arrangement being the basis for the forecast. The forecast
scenarios all include a requirement for funding in line with the
current agreement with lenders, such that the term-out clause is
not triggered, and any future covenant testing can be met.
Having considered these scenarios and assumptions, the Directors
consider that the underlying profitability of the Group means that
the business is viable.
Based on this the financial statements for the Group and the
Company have been prepared on a going concern basis.
However, the quantum of the redress claims liability and timing
and settlement, as well as the extension or deferral of the
term-out clause and the availability of funding beyond 31 March
2023 create a material uncertainty that may cast significant doubt
about the Group's and Company's ability to continue as a going
concern such that it may be unable to realise its assets and
discharge its liabilities in the normal course of business.
Accounting convention
The statutory annual financial statements of Morses Club PLC are
prepared under International Financial Reporting Standards (IFRS)
in conformity with the requirements of the Companies Act 2006. The
condensed set of financial statements included in this half yearly
financial report has been prepared in accordance with International
Accounting Standard 34 'Interim Financial Reporting', in conformity
with the requirements of the Companies Act 2006.
Accounting policies
There are no other new IFRSs or International Financial
Reporting Interpretations (IFRIC) that are effective for the first
time for the 26 weeks ended 27 August 2022 which have a material
impact on the Group. As such the accounting policies applied in
preparing the unaudited condensed interim financial statements are
consistent with those used in preparing the statutory financial
statements for the year ended 26 February 2022.
Key sources of estimation uncertainty
Impairment Home Collected Credit
Impairment and EIR have previously been calculated using a flat
five-year average of historical payment performance. The cash
curves and expected lives are based on a view of the loan book at
the end of December each year, with an average of the previous five
years used in the calculation. Management have considered the best
way to deal with the Covid-19 impact on the impairment provision
and income recognition. In lieu of a management overlay we decided
to use a weighting to give more prominence to the most recent data
cohort, an approach taken since August 2020. Continuing to use a
flat five-year average calculation would materially understate the
provision.
The Impairment and EIR weighting options considered were:
Dec 16 Dec 17 Dec 18 Dec 19 Dec 20
Option 1 20% 20% 20% 20% 20%
------- ------- ------- ------- -------
Option 2 15% 15% 15% 15% 40%
------- ------- ------- ------- -------
Option 3 10% 10% 10% 10% 60%
------- ------- ------- ------- -------
Option 4 0% 0% 0% 0% 100%
------- ------- ------- ------- -------
Management believe continuing to adopt the weighting in option 3
is the most appropriate approach to revenue recognition and
impairment.
Please note that the remote lending and collection model of our
Digital lending business has resulted in a smaller Covid-19 impact,
and therefore management has not applied this weighting to the
Digital division. The impairment numbers below are for Home
Collected Credit only.
As a growing number of customers now pay fortnightly or monthly
instead of weekly, an adjustment was made to the impairment
provision, as using legacy methods, customers were showing as
having missed a weekly payment(s), when in reality they were not
due to make a payment as the customer had opted to pay fortnightly
or monthly. In order to ensure the impairment provision was not
overstated, customers who had opted to pay fortnightly or monthly
had their payment performance restated where they were previously
inaccurately attracting a higher rate of impairment. This
adjustment resulted in a reduction to the impairment provision of
GBP514k (FY22: GBP973k).
Impairment of non-financial assets and goodwill
In assessing impairment, management estimates the recoverable
amount of each asset or cash generating unit based on expected
future cash flows and uses a Weighted Average Cost of Capital
(WACC) of 13% to discount them.
The CGU Discounted Cash Flow model for Shelby Finance Limited
provided a negative headroom of GBP8.2m. The future sales in the
cash flow model were supressed due to the current funding structure
of the group which resulted in the Discounted Cash Flow (DCF) value
of the five years and a terminal value (perpetuity) of GBP10.7m.
GBP10.7m was below the carrying value of the CGU of GBP19.0m and
indicated that an impairment of goodwill was required.
Furthermore, the sensitivity analysis of the Shelby Finance
Discounted Cash Flow, demonstrated that a reduction of the growth
rate in perpetuity (2%) of 1 percentage point or an increase in the
discount rate (13.36%) of 1.5 percentage points would result in
impairment equal to the full carrying value of goodwill in Shelby
Finance. As a result of this the goodwill of GBP9.4m in Shelby
Finance Limited was impaired in full. Estimation uncertainty
relates to assumptions about future operating results and the
determination of a suitable discount rate and future growth
rates.
2. SEGMENTAL REPORTING
Profit/(loss) before
Revenue taxation
-------- -------- -------- ------------------------------
26 26 52 26 weeks 26 52
weeks weeks weeks weeks weeks
ended ended ended ended ended Ended
27.8.22 28.8.21 26.2.22 27.8.22 28.8.21 26.2.22
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Group
Home Collect
Credit 34,645 38,551 81,789 (7,332) 7,118 9,561
Digital 8,524 13,833 29,607 (11,468) (4,307) (5,606)
Total Group
before amortisation
of acquisition
intangibles
and exceptional
items 43,169 52,384 111,396 (18,800) 2,811 3,955
-------- -------- -------- --------- -------- ---------
Intra-group
elimination - - - 21 329 155
Amortisation
of intangibles - - - (49) (1,333) (187)
Exceptional
items - - - (1,988) - (46,779)
Total
Group 43,169 52,384 111,396 (20,816) 1,807 (42,856)
-------- -------- -------- --------- -------- ---------
Segment assets Segment liabilities
--------------------------------- -------------------------------
27.8.22 28.8.21 26.2.22 27.8.22 28.8.21 26.2.22
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Home Collect
Credit 112,378 119,836 130,460 (57,681) (26,650) (68,467)
Digital 19,877 32,954 28,453 (29,022) (31,916) (28,393)
Total before
intra-group
elimination 132,255 152,790 158,913 (86,703) (58,566) (96,860)
--------- ----------- --------- --------- --------- ---------
Eliminations* (26,315) (28,061) (33,405) (3,494) 2,304 3,582
Intra-group
elimination (27,095) (27,509) (23,881) 27,095 27,509 23,881
Total
Group 78,845 97,220 101,627 (63,102) (28,753) (69,397)
========= =========== ========= ========= ========= =========
Net assets/(liabilities)
-------------------------------
27.8.22 28.8.21 26.2.22
Group GBP'000 GBP'000 GBP'000
Home Collect Credit 54,697 93,186 61,993
Digital (9,145) 1,038 60
Total before intra-group
elimination 45,552 94,224 62,053
--------- --------- ---------
Eliminations* (29,809) (25,757) (29,823)
Total
Group 15,743 68,467 32,230
========= ========= =========
*Group assets includes investment of GBP31,011,416 (FY22: GBP28,511,416),
a tax asset of GBP30,000 (FY22: GBPNil) which are offset by an
inter-company provision GBP962,508 (FY22: GBP1,115,000) which
are not attributable to a specific segment.
3. SEASONALITY
The Group's peak period of lending to customers is in the run-up
to Christmas in the second half of the financial year. Typically,
approximately 52% of the loans issued are made in the second half
of the financial year and the peak lending and collections period
leads the Group to operate with a materially higher draw down on
debt facilities in December. In addition, the Group's accounting
policies relating to revenue and impairment are an important
influence on the recognition of the Group's profit between the
first and second halves of the financial year.
4. EXCEPTIONAL COSTS
26 weeks 26 weeks 52 weeks
Ended Ended ended
27.8.22 28.8.21 26.2.22
GBP'000 GBP'000 GBP'000
Complaints liability 864 - 42,640
Corporate restructuring costs - - 1,759
U Account closure costs 15 - 2,380
Scheme of arrangement 1,110 - -
Total exceptional costs 1,988 - 46,779
========= ========= =========
5. TAXATION
The tax credit for the period has been calculated by applying
the Directors' best estimate of the effective tax rate for the
financial year of 20% (H1 FY22 - 20%) (H1 FY21 - 20%), to the loss
before tax for the period.
6. DIVIDS
26 weeks 26 weeks 52 weeks
Ended Ended ended
27.8.22 28.8.21 26.2.22
GBP'000 GBP'000 GBP'000
Amounts recognised as distributions
to equity holders in the period:
Final dividend for the 52 weeks
ended 26 February 2022 - 3,973 5,317
- 3,973 5,317
================================================ ========= =========
The Directors have not declared an interim dividend in respect
of the 26 weeks ended 27 August 2022 (H1 FY22: 1.0p) to ordinary
shareholders.
7. EARNINGS PER SHARE
26 weeks 26 weeks 52 weeks
Ended Ended ended
27.8.22 28.8.21 26.2.22
(Loss)/earnings (GBP'000) (16,653) 1,511 (33,367)
========= ========= =========
Number of shares
Weighted average number of shares
for the purposes of basic earnings
per share ('000s) 134,432 133,111 133,300
Effect of dilutive potential ordinary - 126 -
shares through share options ('000s)
--------- --------- ---------
Weighted average number of shares
for the purposes of diluted earnings
per share ('000s) 134,432 133,236 133,300
========= ========= =========
Basic per share amount (pence) (12.39) 1.14 (25.03)
========= ========= =========
Diluted per share amount (pence) (12.39) 1.13 (25.03)
========= ========= =========
Diluted earnings per share calculated the effect on earnings per
share assuming conversion of all dilutive potential ordinary
shares. Dilutive potential ordinary shares are calculated for
awards outstanding under performance related share incentive
schemes such as the Deferred Share Plan. The number of dilutive
potential ordinary shares is calculated based on the number of
shares which would be issuable if the performance targets have been
met.
8. GOODWILL
Cost GBP'000
At 27 February 2021 13,330
At 28 August 2021 13,330
At 26 February 2022 13,330
At 27 August 2022 13,330
--------
Impairment
At 27 February 2021 (476)
--------
At 28 August 2021 (476)
At 26 February 2022 (476)
Impairment loss for the period (9,369)
--------
At 27 August 2022 (9,845)
--------
Net book value
At 27 August 2022 3,485
========
At 26 February 2022 12,854
========
At 28 August 2021 12,854
========
At 27 February 2021 12,854
========
9. OTHER INTANGIBLE ASSETS
Software, Acquired Acquired Totals
Servers Customer Agent
& Licences Lists Networks
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 27 February 2021 14,958 21,620 874 37,452
Additions 2,043 - - 2,043
----------- ----------------- --------- --------
At 28 August 2021 17,001 21,620 874 39,495
Additions 2,031 - - 2,031
Disposals (2,614) - - (2,614)
----------- ----------------- --------- --------
At 26 February 2022 16,418 21,620 874 38,912
Additions 1,154 - - 1,154
At 27 August 2022 17,572 21,620 874 40,066
----------- ----------------- --------- --------
Accumulated amortisation
At 27 February 2021 6,453 21,282 855 28,590
Charge for period 1,240 89 4 1,333
Impairment losses - - 2 2
----------- ----------------- --------- --------
At 28 August 2021 7,693 21,371 861 29,925
Charge for the period 1,138 89 3 1,230
Eliminated on disposals (757) - - (757)
----------- ----------------- --------- --------
At 26 February 2022 8,074 21,460 864 30,398
Charge for period 1,080 48 1 1,130
Impairment losses - - - -
At 27 August 2022 9,154 21,508 865 31,528
----------- ----------------- --------- --------
Net book value
At 27 August 2022 8,418 112 9 8,539
At 26 February 2022 8,344 160 10 8,514
=========== ================= ========= ========
At 28 August 2021 9,308 249 13 9,570
=========== ================= ========= ========
10. RIGHT-OF-USE ASSETS
Building Equipment Vehicles Tablets Totals
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 27 February 2021 1,374 1372 1,458 - 4,204
Additions 15 - - - 15
Disposals (582) - (364) - (946)
--------- ------------- --------- -------- --------
At 28 August 2021 807 1372 1,094 - 3,273
Additions 2 376 - 717 1,095
Disposals (23) - (252) - (275)
--------- ------------- --------- -------- --------
At 26 February 2022 786 1,748 842 717 4,093
Additions 1 - - - 1
Disposals - - (180) - (180)
At 27 August 2022 787 1,748 662 717 3,914
========= ============= ========= ======== ========
Depreciation
At 27 February 2021 596 763 1,149 - 2,508
Charged to the income statement 138 236 148 - 522
Disposals (507) - (344) - (851)
--------- ------------- --------- -------- --------
At 28 August 2021 227 999 953 - 2,179
Charged to the income
statement 42 249 67 80 438
Disposals (22) - (241) - (263)
--------- ------------- --------- -------- --------
At 26 February 2022 247 1,248 779 80 2,354
Charged to the income statement 40 263 25 119 448
Disposals - - (180) - (180)
At 27 August 2022 287 1,511 624 199 2,621
========= ============= ========= ======== ========
Net Book Value
At 27 August 2022 500 237 38 518 1,292
========= ============= ========= ======== ========
11. TRADE AND OTHER RECEIVABLES
Amounts receivable from customers
27.8.22 28.8.21 26.2.22
GBP'000 GBP'000 GBP'000
Amounts falling due within one year:
Net receivable from advances
to customers 36,185 57,002 53,214
Amounts falling due after one year:
Net receivable from advances
to customers 1,553 3,321 2,633
-------- --------------- --------
Net loan book 37,738 60,323 55,847
Other debtors 728 912 3,594
Prepayments 2,502 3,161 3,099
-------- --------------- --------
Trade and other receivables 40,968 64,396 62,540
-------- --------------- --------
The fair value of the loan book not presented at fair value in
the balance sheet is GBP56,436k (H1 FY22 - GBP81,049k) (YE FY22 -
GBP69,019k).
An analysis of receivables by IFRS 9 stages
is set out below:
27 August 2022
Stage Stage
1 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Gross carrying value 34,331 14,243 16,948 65,523
Loan Loss Provision (4,216) (7,173) (16,397) (27,785)
Net receivables 30,116 7,071 551 37,738
--------- ---------- -------------- ---------
26 February 2022
Stage Stage
1 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Gross carrying value 49,034 20,861 23,181 93,076
Loan Loss Provision (6,356) (9,587) (21,286) (37,229)
Net receivables 42,678 11,274 1,895 55,847
--------- ---------- -------------- ---------
28 August 2021
Stage Stage
1 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Gross carrying value 56,711 21,115 19,429 97,255
Loan Loss Provision (9,524) (11,521) (15,887) (36,932)
Net receivables 47,187 9,594 3,542 60,323
--------- ---------- -------------- ---------
12. BANK AND OTHER BORROWINGS
Group
-------------------------------------
27.8.22 28.8.21 26.2.22
GBP'000 GBP'000 GBP'000
Bank loans 13,800 18,000 19,400
Unamortised arrangement fees (90) (302) (174)
-------- ----------------- --------
13,710 17,698 19,226
======== ================= ========
The Group's current loan facility is in place until 31 March
2023. Discussions are on-going with the current lenders and other
potential lenders regarding future facility options. Please refer
to Funding note section on page 13 for detailed information on the
Group's current loan facility and loan covenants.
13. RESERVES
Details of the movements in reserves are set out in the
statement of changes in equity. Share capital as at 27 August 2022
amounted to GBP1,344,000 (28 August 2021: GBP1,336,000).
14. RELATED PARTY TRANSACTIONS
Hay Wain Group Limited holds a 35.3% interest in the Company.
The Directors consider there to be no ultimate Parent Company.
Shelby Finance Limited and Shopacheck Financial Services Limited
are subsidiaries of Morses Club PLC. U Holdings Limited is a
subsidiary of Shelby Finance Limited.
The Company undertook the following transactions with Hay Wain
Group Limited and Shelby Finance Limited during the period:
Dividends Interest Professional
Received/(Paid) Recharged Fees
Recharged
GBP'000 GBP'000 GBP'000
----------------- ----------- -------------
26 Weeks ended 27 August 2022
Hay Wain Holdings Limited - - -
Hay Wain Group Limited - - -
Shopacheck Financial Services - - -
Limited
Shelby Finance Limited - 193 -
----------------- ----------- -------------
- 193 -
================= =========== =============
52 Weeks ended 26 February 2022
Hay Wain Holdings Limited - - -
Hay Wain Group Limited (1,880) - -
Shopacheck Financial Services - - -
Limited
Shelby Finance Limited - 1,544 -
----------------- ----------- -------------
(1,880) 1,544 -
================= =========== =============
At the period-end the following balances were
outstanding
27.8.22 28.8.21 26.2.22
GBP'000 GBP'000 GBP'000
-------- -------- --------
Hay Wain Holdings Limited - - -
Hay Wain Group Limited - - -
Shopacheck Financial Services Limited (1,321) (1,321) (1,321)
Shelby Finance Limited 26,736 29,945 26,144
-------- -------- --------
Amounts owed from/(to) related parties 25,415 28,623 24,823
======== ======== ========
15. PROVISIONS
At the period-end the following balances
were outstanding
Customer Complaints Other Total
GBP'000 GBP'000 GBP'000
--------------------------------- -------------------- -------- ---------
At 27 February 2021 2,012 - 2,012
Provisions utilised in the
year (2,012) - (2,012)
Additional provisions in the
year 1,786 - 1,786
True-up 1,008 - 1,008
Additional complaints liability
provision 39,135 - 39,135
---------------------------------- -------------------- -------- ---------
At 26 February 2022 41,929 - 41,929
Provisions utilised in the
year (2,794) - (2,794)
Additional provisions in the
year 2,324 - 2,324
Additional complaints liability
provision 864 - 864
---------------------------------- -------------------- -------- ---------
At 27 August 2022 42,323 - 42,323
Complaints provision
The complaints provision represents management's best estimate
of the group's liability with regard to outstanding customer
complaints that remained unresolved as at the balance sheet date.
The Company are working with a skilled person to review the
methodology, and this has not concluded to date. In estimating the
provision, management have incorporated historical company
information for the average percentage of complaints which are
upheld, and the average value of compensation claims paid out. The
provision represents the present value of management's best
estimate of the future outflow of cash required to settle the
complaints and FOS fees in full. The full provision is recorded in
the accounts of Morses Club PLC.
Alternative performance measures
This Interim Report and Financial Statements provides
alternative performance measures (APMs) which are not defined or
specified under the requirements of International Financial
Reporting Standards. We believe these APMs provide readers with
important additional information on our business. To support this,
we have included a reconciliation of the APMs we use where relevant
and a glossary indicating the APMs that we use, an explanation of
how they are calculated and why we use them.
Closest
Statutory
APM Measure Definition and Purpose
------------------------ ----------- -------------------------------------------------
Income Statement
Measures
------------------------ ----------- -------------------------------------------------
Impairment as None Impairment as a percentage of revenue
% of Revenue (%) is reported impairment divided by reported
revenue and represents a measure of credit
quality that is used across the business
and within the sector.
------------------------ ----------- -------------------------------------------------
Agent Commission None Agent commission, which is included in
as % of Revenue cost of sales, divided by reported revenue.
(%) This calculation is used to measure operational
efficiency and the proportion of income
generated which is paid to agents.
------------------------ ----------- -------------------------------------------------
Cost / Income None The cost-income ratio is cost of sales
Ratio or Operating and administration expenses, excluding
Cost ratio (%) exceptional items, finance costs and
amortisation divided by reported revenue.
This is used as another efficiency measure
of the company's cost base.
------------------------ ----------- -------------------------------------------------
Credit Issued None Credit issued is the principal value
(GBPm) of loans advanced to customers and is
an important measure of the level of
lending in the business.
------------------------ ----------- -------------------------------------------------
Sales Growth (%) None Sales growth is the period-on-period
change in Credit Issued and is used by
management as a measure of comparative
sales performance.
------------------------ ----------- -------------------------------------------------
Adjusted Profit Profit Profit Before Tax per the income statement
Before Tax (GBPm) Before adjusted for exceptional items, nonrecurring
Tax costs and amortisation of goodwill and
acquisition intangibles. This is used
to measure ongoing business performance.
------------------------ ----------- -------------------------------------------------
Adjusted Profit Profit Profit Before Tax per the income statement
Before Tax (underlying Before adjusted for exceptional items, nonrecurring
HCC) Tax costs and amortisation of goodwill and
acquisition intangibles, Territory Build
subsidies and losses of Digital CGU.
------------------------ ----------- -------------------------------------------------
Adjusted Earnings Earnings Adjusted Profit After Tax divided by
Per Share Per Share the weighted average number of shares.
This gives a better reflection of underlying
earnings generated for shareholders
------------------------ ----------- -------------------------------------------------
Reconciliation of Statutory Profit Before Tax to Adjusted
profit before tax and explanation of Adjusted EPS
-------------------------------------------------------------------------------------
GBP'm (unless otherwise stated) 26-week 26-week % +/(-)
period ended period ended
27 August 28 August
2022 2021
Statutory (loss)/profit before
tax (20.8) 1.8 (1255.6%)
============== ============== ==========
Amortisation of acquired intangibles(2) - 0.1 100.0%
========================================= ============== ============== ==========
Impairment of goodwill 9.4 - 100.0%
========================================= ============== ============== ==========
Restructuring and other non-recurring
costs(3) 0.3 0.7 57.1%
========================================= ============== ============== ==========
Exceptional costs(4) 2.0 - 100.0%
========================================= ============== ============== ==========
Adjusted (loss)/profit before
tax(1) (9.1) 2.6 (450.0%)
============== ============== ==========
Tax on Adjusted Profit Before Tax 1.9 (0.5) (480.0%)
========================================= ============== ============== ==========
Adjusted (loss)/profit after tax(1) (7.2) 2.1 (442.9%)
==========
Adjusted EPS(1) (5.4) 1.6 (437.5%)
========================================= ============== ============== ==========
Adjusted Return on Assets(1) (15.8%) 9.3% (269.9%)
==========
Adjusted Return on Equity(1) (36.8%) 10.6% (447.2%)
========================================= ============== ============== ==========
1 Definitions are set out in the Glossary of Alternative
Performance Measures on page 39
2 Amortisation of acquired customer lists and agent networks
3 Includes restructuring and redundancy expenses
4 Costs relating to the complaints liability, corporate
restructure and closure of U Account
26 weeks 26 weeks 52 weeks
ended 27.8.22 ended ended
28.8.21 26.2.22
GBP'000 GBP'000 GBP'000
Adjusted basic earnings per
share
Basic (loss)/earnings (16,653) 1,511 (33,367)
Amortisation of acquisition intangibles 49 95 187
Impairment of goodwill 9,369 - -
Restructuring and other non-recurring
costs 349 673 506
Exceptional costs 1,989 - 46,779
Tax effect of the above (2,351) (160) (8,186)
Adjusted earnings after tax (7,248) 2,119 5,919
=============== =========== =========
Weighted average number of shares
for the purposes 134,432 133,111 133,300
of basic earnings per share ('000s)
Adjusted earnings per share
amount (pence) (5.4p) 1.6p 4.4p
=============== =========== =========
Closest
Statutory
APM Measure Definition and Purpose
----------------------- ----------- ----------------------------------------------------
Balance sheet
and returns measures
----------------------- ----------- ----------------------------------------------------
Tangible Equity Equity Net Assets less intangible assets less
(GBPm) acquisition intangibles.
----------------------- ----------- ----------------------------------------------------
Adjusted Return None Calculated as adjusted profit after tax
on Equity (%) divided by rolling 12-month average of
tangible equity. This calculation has been
adjusted to an IFRS 9 basis. It is used
as a measure of overall shareholder returns
adjusted for exceptional items. This is
presented within the interim report as
the directors believe they are more representative
of the underlying operations of the business
----------------------- ----------- ----------------------------------------------------
Adjusted Return None Calculated as adjusted profit after tax
on Assets (%) divided by 12-month average Net Loan Book.
This calculation has been adjusted to an
IFRS 9 basis. It is used as a measure of
profitability generated from the loan book.
Net Loan Book is Amounts owing from customers
less provisions for deferred income and
impairments. This is presented within the
interim report as the directors believe
they are more representative of the underlying
operations of the business
----------------------- ----------- ----------------------------------------------------
Tangible Equity None Net Assets less intangible assets less
/ Average Receivables acquisition intangibles divided by 12 months
Ratio (%) average receivables. This calculation has
been adjusted to an IFRS 9 basis.
----------------------- ----------- ----------------------------------------------------
Adjusted Return on Assets and
Adjusted Return on Equity
GBPm to Aug to Aug
22 21
-------------------
Adjusted (Loss)/Profit After Tax
(Rolling 12 months) (8.4) 5.2
------------------- -------------------
12-month average Net Loan Book 53.0 56.3
-------------------
Adjusted Return on Assets (15.8%) 9.3%
-------------------
12-month average Equity 22.82 49.40
-------------------
Adjusted Return on Equity (36.8%) 10.6%
-------------------
Other measures Closest
Statutory
Measure Definition and Purpose
----------------------- ------------ -----------------------------------------------
Customers None Customers who have an active loan and from
whom we have received a payment of at least
GBP3 in the last 17 weeks.
----------------------- ------------ -----------------------------------------------
Agents None Agents are self-employed individuals who
represent the Group's subsidiaries and
are engaged under an agency agreement.
----------------------- ------------ -----------------------------------------------
Cash from Operations Cash from Cash from Operations (excluding investment
(excluding investment Operations in the loan book) is Cash from Operations
in loan book) excluding the growth in the loan book due
(GBPm) to either acquisition or movement in the
net receivable otherwise (see reconciliation
below).
----------------------- ------------ -----------------------------------------------
Adjusted Net Margin None Adjusted Profit before tax (which excludes
amortisation of intangibles on acquisitions,
the one-off costs of the IPO and other
non-operating costs) divided by reported
revenue. This is used to measure overall
efficiency and profitability.
----------------------- ------------ -----------------------------------------------
Cash from funding None Cash from Funding is the increase / (decrease)
(GBPm) in the Bank Loan balance.
----------------------- ------------ -----------------------------------------------
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END
IR BJBBTMTATTRT
(END) Dow Jones Newswires
November 24, 2022 02:00 ET (07:00 GMT)
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