Non-Standard Finance plc Acquires S&U plc's Home Credit Division for £82.5 million
Non-Standard Finance, which has been established to acquire and operate one or more non-standard consumer finance businesses, has entered into an agreement to acquire the Home Credit Division of S&U plc ("S&U") which trades as Loansathome4u for £82.5 million, payable in cash from NSF's existing resources, subject to approval by S&U's shareholders and customary closing conditions (the "Acquisition").
Highlights of the acquisition
Loansathome4u fully meets Non-Standard Finance's acquisition criteria
- A top three participant in the home credit market with 77 years of history
- Strong brand recognition through doorstep model supporting customer relationships and franchise strength
- High quality loan book compared to the wider home credit market with good underwriting and sensitive customer management
- £82.5 million valuation represents 12.5x pro forma profit after tax and 2.5x tangible book value
- Platform for further growth and business development
John van Kuffeler, NSF's Chairman, said:
"I am delighted to announce a significant first step in the implementation of our strategy. Loansathome4u is a leading player in the home collected-credit market. It provides us with a well-established platform; a growing business; attractive operating margins and return on assets; and will form a strong base for NSF as we grow organically and acquire new businesses.
"We believe that the application of our management expertise will re-energise and add significant value to Loansathome4u's business over time. We have already hired additional management; and we will expand the branch network and agent workforce; and invest in systems and technology. We remain committed to offering financial services to a disenfranchised part of the UK's population by treating customers fairly, delivering excellent service and lending responsibly."
Non-Standard Finance's strategy for Loansathome4u
- Loansathome4u will be run as a division of NSF, to be led by Mark Bardsley as Chief Executive, former Managing Director of SFS and previously a senior executive at Provident Financial and International Personal Finance
- The business's branch network and agent workforce will be expanded to grow the customer base
- Non-Standard Finance will invest in systems and technology to further enhance Loansathome4u's underwriting processes to support increased customer acquisition. This will include the deployment of mobile technology across the agent workforce to increase efficiency
- Loansathome4u's compliance function will be expanded to support best-in-class customer outcomes
- Additional management will be appointed to support the creation of a larger business, including a Compliance Director, Finance Director, Risk Director and Commercial Director
- Further acquisition opportunities to be sought as the home credit industry consolidates in light of increasing regulation
- Revenue of £38.3 million up 10.7% in FY15, (FY14: £34.6 million)
- Profit before tax of £8.4 million up 7.7% in FY15, (FY14: £7.8 million)
- Attractive return on assets* of 24.5% in FY15, (FY14: 23.2%) with scope to grow in the medium term
- Cost to income ratio of 56.1% in FY15, (FY14: 55.2%) with operational gearing expected to reduce the cost to income ratio as Non-Standard Finance executes on its strategy
- Robust business, with last reported collections up 12% year-on-year on a 7% rise in customer loans at year end
* Return on assets defined as FY15 profit before tax divided by the average of FY14 and FY15 amounts receivable from customers
The disposal of Loansathome4u by S&U constitutes a Class 1 disposal transaction for S&U and requires approval by S&U's shareholders. S&U intends to issue a circular to its shareholders convening a General Meeting, expected to take place shortly. Non-Standard Finance has received irrevocable commitments from shareholders representing approximately 52% of S&U's shares to vote in favour of the disposal at a General Meeting of S&U shareholders. Non-Standard Finance is not required to seek shareholder approval for the Acquisition.
Impact on Non-Standard Finance shareholders
The Acquisition, if completed, will be classified as a reverse takeover of Non-Standard Finance under the Listing Rules of the UK Listing Authority. Non-Standard Finance intends to seek re-admission of its Ordinary Shares to a standard listing on the Official List and trading on the London Stock Exchange as soon as practicable following the Acquisition's approval by S&U's shareholders and closing of the transaction.
The eligibility of the enlarged Group to be admitted to the Official List has not yet been agreed with the UK Listing Authority, although an application regarding its eligibility will be made shortly.
A prospectus will be required to be published in relation to the application for admission to the Official List. Such a prospectus would include audited financial statements of Loansathome4u prepared in accordance with the Listing Rules and the Prospectus Rules of the UK Listing Authority.
Although S&U is subject to a public disclosure regime under the Listing Rules and the Disclosure and Transparency Rules of the Financial Conduct Authority, under Listing Rule 5 Non-Standard Finance is required to provide certain additional information regarding Loansathome4u to ensure that there is sufficient information available to the public with regard to the proposed Acquisition in order to avoid a suspension of the Company's shares. The information required under Listing Rule 5.6.15G is set out below.
Information on Loansathome4u
Loansathome4u operates from 39 branches throughout England, Wales and Scotland. It operates and is licensed through two companies: S&U is part of the holding company, S&U plc, and has 19 branches throughout the Midlands, South of England, South Wales and South Yorkshire; SD Taylor is a wholly owned subsidiary of S&U plc which covers the North of England, North Wales and Central and Southern Scotland. Loansathome4u is the trading name for both home credit companies which employ over 300 people and operate through approximately 530 self-employed agents. These employees and agents provide a home credit service to 100,000 customers.
Historically Loansathome4u provided the core of S&U plc's earnings and has generated, on average, cash before taxation and dividend payments of £6.6 million per annum over the course of the last three financial years. It has produced consistent revenues and profit before tax reaching £38.3 million and £8.4 million respectively in the year ended 31 January 2015. The loan book at that date was £34.6 million and net assets of £33.1 million, excluding a £16.3 million inter-company receivable balance.
Accounting policies and historical Financial Information relating to Loansathome4u
S&U prepares its consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). As Loansathome4u is a subset of S&U, financial statements for S&U also include entities which would not form part of the enlarged Non-Standard Finance. Therefore, unaudited "carve-out" Financial Information has been prepared for Loansathome4u for the financial years ended 31 January 2013, 31 January 2014 and 31 January 2015 (collectively the "Unaudited Carve Out Financial Information"). The Unaudited Carve Out Financial Information has been prepared using the IFRS accounting policies which will be used by Non-Standard Finance except as described below in the section titled "Basis of preparation" which describes the departures from IFRS. In accordance with Listing Rule 5.6.15G(1), the Unaudited Carve Out Financial Information is set out in the annex to this document.
No material differences between the accounting policies adopted by the Group and those adopted by Loansathome4u in the Unaudited Carve Out Financial Information for the years presented in this announcement have been identified, although the Group may review the application of accounting policy with regard to provisioning following the completion of the Acquisition. Audited historical Financial Information covering the years ended 31 January 2013, 31 January 2014 and 31 January 2015 and in accordance with the Prospectus Directive regulation, the Listing Rules and the basis of preparation (included in the annex to this document) will be included within the Non-Standard Finance Prospectus ("HFI").
Key non-financial operating and performance information on Loansathome4u
In accordance with Listing Rule 5.6.15G(2), set out below is the key non-financial operating and performance information relating to Loansathome4u, as well as trend information for the period from 1 February 2015 to the date of this announcement.
The UK home credit market consists of approximately 3 million individual customers of which 1.5-2.0 million are active at any one time. The largest 3 incumbents - Provident Financial, SFS/Morses and Loansathome4u - make up roughly 75% of the overall market with the remainder being served by smaller, local credit providers. Customers of Loansathome4u typically borrow two or three unsecured weekly loans per year, with each loan averaging £300 advance and £480 repayable over average term of 35 weeks.
The home credit market has been regulated by the FCA since April 2014. The introduction of the FCA regulatory regime is expected to put increasing pressure on the smaller competitors and drive market share gains for the larger incumbents.
A recent trend in the sector has also been an increasing focus by Loansathome4u's peers on rationalising their customer bases and a resultant scaling back of their operations - when considered alongside the new regulatory environment this presents a significant opportunity for both organic and inorganic growth for Loansathome4u.
Loansathome4u trading since 31 January 2015
S&U issued an Interim Management Statement on 21 May 2015 in which it noted that, "whilst sales in our home credit business have reflected a more cautious climate prior to the General Election and full FCA authorisation, weekly collections remain strong on conservative underwriting standards."