Preliminary results for the year ended 25 Feb 2017

27 April 2017

Morses Club PLC

Preliminary results for the year ended 25 February 2017

Delivering results through technology

Morses Club PLC ("the Company", "Morses Club" or "the Group"), the UK's second largest home collected credit ("HCC") lender, is pleased to announce its preliminary results for the year ended 25 February 2017.

Financial Highlights

· Continued strong performance with revenue up 10% to £99.6m (FY16: £90.6m)

· Net loan book growth of 8% to £61.2m (FY16: £56.8m)

· Impairments as a percentage of revenue for the period was 24.4% (FY16: 20.8%), comfortably within our target range

· 9% increase in customer numbers to c216,000 (FY16: c198,000)

· Cost efficiency improvements, with costs as a percentage of income declining to 56.9% (FY16: 58.9%)

· Adjusted1 profit before tax increased to £17.7m (FY16: £16.8m); reported profit before tax £11.2m (FY16: £10.4m)

· Adjusted1 EPS - 10.8p (FY16: 10.2p); Basic EPS 6.6p (FY16: 6.1p)

· Proposed final dividend of 4.3p (FY16: N/A)

Operational Highlights

· Continued evolution of new technology and capabilities to enhance customer and agent experience, increasing efficiency, improving service and embedding regulatory compliance

· Technological efficiencies capable of delivering 28% capacity increase in customer/manager ratio

· New products developed and introduced including Morses Club Card (cashless lending) in April 2016 and Dot Dot Loans (online lending) in March 2017

· Strategic acquisition of Shelby Finance Limited in January 2017 providing FCA approved platform for launch of Dot Dot Loans at significantly lower cost than bespoke IT build

· Completed 7 acquisitions with total gross receivables of £6.8m

· Capitalised on market opportunity to supplement core HCC business with 105 new agent territory builds in the year (FY16: 91)

Key performance indicators

1 Adjusted profit before tax and Adjusted EPS are explained on P9 

2 Due to prior year data availability pre-IFRS conversion and Group re-structure, the Feb 16 ratios defined as earnings before exceptional items as a percentage of closing tangible asset value and Feb 17 defined as earnings before exceptional items as a percentage of rolling 12 months closing tangible asset value

Footnote

3 Due to prior year data availability pre-IFRS conversion and Group re-structure, the Feb 16 ratios defined as earnings before exceptional items as a percentage of closing tangible equity and Feb 17 defined as earnings before exceptional items as a percentage of rolling 12 months closing tangible equity

4 Calculated on a last 12 month basis

5 Tangible equity and asset value excludes £2.9m of capitalised IT costs which are classified as intangibles on the balance sheet

Paul Smith, Chief Executive Officer of Morses Club, commented:

"I am pleased to report a strong set of full year results in our first year as a publicly listed company, reflecting continued successful delivery of our strategy. We have increased our customer numbers and built on our established market position, whilst remaining focused on high quality lending. We continue to invest in technology to support our strategic plan to offer customers a broader range of products and the ability to access credit more flexibly, as demonstrated by the launch of the Morses Club Card and Dot Dot Loans.

"The enhancements made to our technology platform have significantly improved the effectiveness and efficiency of our model, increasing managers' capacity to service more customers by 28%, unencumbered by time consuming paperwork and processes, whilst at the same time maintaining our high standards of customer satisfaction and embedding regulatory compliance.

"We remain confident in our outlook. We have made a strong start to the current year in terms of both credit issued and customer numbers. A significant pipeline of territory builds is bringing with it high quality growth, and we continue to see attractive acquisition opportunities in the wider non-standard finance market."

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:

Analyst presentation

There will be an analyst presentation to discuss the results at 9.30 a.m. today at Numis Securities Ltd, 10 Paternoster Square, London, EC4M 7LT.

Those analysts wishing to attend are asked to contact Kimberley Taylor at Camarco on +44 (0) 20 3757 4999 or [email protected].

Notes to Editors

About Morses Club

Morses Club is the second largest UK Home Collected Credit lender with 216,000 customers and 1,826 agents (as at 25 February 2017) across 98 locations throughout the UK.

The Company offers a range of loan products to its customers through its extensive agent network. The majority of the Company's borrowers are repeat customers and the Company enjoys consistently high customer satisfaction scores of 95 per cent or above.

The Company is using technology to broaden its offering and provide new products to ensure customers can access credit with the flexibility they require. In April 2016, its cashless lending product, the Morses Club Card, was introduced, enabling its customers to buy online as well as on the high street.

Morses Club successfully 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.

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.

Since 2009, unsecured personal lending has grown from £161 billion to £244 billion in 2015.

UK Home Collected Credit

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 via self-employed agents directly to customers' homes. Repayments are collected in person during weekly follow-up visits to customers' homes.

UK HCC is considered to be stable and well-established, with approximately 3 million people using the services of UK HCC lenders, of which 1.8 million people borrow regularly.

Chief Executive's Statement

Overview

I am pleased to report our first set of full year results as a listed company. Revenue increased by 10% to £99.6m (FY16: £90.6m), while credit issued was up by 18%, reported profit was up 8% and adjusted profit before tax up by 6%. Impairment as a percentage of revenue of 24.4% (FY16: 20.8%) remains comfortably within our guidance range of 22.0% to 27.0%. I am also pleased to announce a proposed final dividend of 4.3p per share, reflecting our confidence in the business prospects and our commitment to generating high income yields for our shareholders.

Our strong financial performance reflects our underlying aims of controlled growth through responsible lending, with a continued focus on prudent credit control and improving the quality of our customer base.

HCC remains at the core of our business and the agent / customer relationship is one of the biggest drivers of recurring revenue. Continued investment in our technology platform has improved our HCC offering, increasing efficiencies and customer satisfaction, as well as supporting regulatory requirements. Technology is also driving diversification within the business, with the introduction of a broader product range including the Morses Club Card and the recently launched Dot Dot Loans online lending product, enabling us to target an additional 8.2m customers in the broader non-standard credit market.

HCC Market Conditions

The number of competitors in the HCC market continues to reduce, although at a slower rate than in previous years. Consumer demand continues its modest growth. The key drivers to out-performing the sector are technologies that will lower costs, increase capacity, improve productivity, enforce good compliance adherence and improve our relevance and appeal to younger, digitally confident consumers. Morses Club has already invested in all of these technologies and is reaping the rewards described, with 8% overall growth in loans, 10% growth in balances with high performing customers and 5% growth in the 18 - 35 age group.

The business is now in a position to lower the cost to serve in both HCC and online lending markets and to improve its productivity. Overheads have already begun the journey to rebase the cost to income ratio, reducing to 56.9% from 58.9% in FY16. There is capacity for the business to grow using the existing field resource, with our technology capable of delivering an increase of up to 28% in the number of customers per Business Manager.

Strategic Growth Initiatives

Territory Builds

Our core growth reflects a successful territory build strategy in which we carried out 105 builds in the year and their quality remains strong. These are opportunities where experienced agents join us to build customer growth in specific areas. These agents already have an excellent grasp of what it takes to build good relationships with customers, thus representing a key source of premium quality growth.

Technology

Our investment in a strong technology platform brings a number of advantages. Our core underwriting system for HCC has a fully developed automated credit control engine at its centre. This not only enhances good decision-making on the doorstep but allows the business to maintain compliant and highly personalised customer service.

Our strategy to build a digital platform that spans all our products and services is underway. This strategy will exploit the existing platforms and bring new benefits to our customers.

Our mobility platform integrates fully with our core underwriting system, and provides highly developed functionality to our field teams and agents. This has led to efficiency gains and has virtually eradicated paper from the operation, as well as giving us highly controlled impairment due to a better decision-making process.

Crucially our technology platform increases our potential to develop products and services and to embed regulatory compliance, to make it simpler as well as enforceable and auditable. It means that training in processes, procedures and behaviours can be delivered online, with minimal disruption to daily operations and management in the field.

Acquisitions

There are still a number of opportunities to acquire smaller businesses within the HCC sector, but careful assessment of the quality of the business, timing and pricing are important factors in securing successful acquisitions that will be additive to the Group. Following the acquisition of Shelby Finance Limited in January 2017, we are now able to purchase online instalment loan competitors, giving us more options to consider when selecting potential targets. This important activity will remain one of our focal areas for 2017/18.

New Product Development

We introduced the Morses Club Card, our pre-paid VISA debit card which allows customers to receive loans via card rather than cash, in April 2016. The card allows customers to pay for goods and services electronically as well as access cash via ATM, free of charge. Further benefits of the card include greater security both for agents, who are not required to carry cash to provide loans, and for customers, as the cards are PIN protected. In addition, customers have access to an online portal, a mobile app as well as the opportunity to earn cashback from selected retailers. We have had very positive feedback to the Morses Club Card, with c10,200 cards issued to date and £3.9m of current loan balances.

As well as accelerating our IT platform capabilities, the purchase of Shelby Finance Limited has also provided us with the valuable benefit of full approval by the regulator for the provision of online instalment loans through Dot Dot Loans in this very large market sector. Retraction by competitors, negative brand associations and the need for our competitors and new entrants to take volume risks form a part of the competitive landscape. The fact that we suffer none of these disadvantages means that we are well positioned to enter this market.

Technology and Customer Service

We have continued to concentrate on using technology to help drive further improvements to the customer experience. The efficiency of our agents and managers has been a key focus. As a result of our investment in better technologies we can now devote more management time to delivering the right outcomes for customers, helping those in difficulty and supporting agent development. The agents themselves now face far less manual administration with the eradication of paperwork and the ability to sign loan agreements on the tablet. This in turn eases the business operation, improves work-life balance and enhances loyalty to Morses Club PLC, thus reducing agent churn.

The platform has also allowed us to automate credit decisions with minimal levels of intervention or management over-rides. This ensures responsible lending and sound compliance, as evidenced by our controlled impairment and the increase in the proportion of debt in our best performing arrears bands.

Our ability to gather detailed data on the spending behaviour of our customer base will help us significantly in designing even better value-added services for our customers, which in turn will both improve customer acquisition (particularly amongst younger age groups) and retain more high quality customers.

Market Opportunities

We have made a strong start in our diversification strategy and are delighted to have launched our new online instalment product, Dot Dot Loans in March 2017.

We have a number of other developments planned for the coming year as part of our expansion into customer rewards, customer communications channels, social media and financial and card-related services.

Regulatory Context

Morses Club is currently operating under interim permissions from the FCA, having submitted its application for full authorisation in June 2015.

We believe that the best way to create a positive relationship with the regulator is to focus on the customer. Our improvements and investments have all been made with our customers' satisfaction in mind. It is however no accident that the developments in which we have invested also enable us to be more productive, reduce our operating costs, re-use technology many times over for the same investment case and, of course, to attract and retain customers. The primary vision of better customer outcomes via technology investment will be the key to maintaining a harmonious relationship with regulators.

Dividend

The Board is delighted to declare a full year dividend of 4.3p per share (FY16: nil), subject to shareholder approval.

The dividend of 4.3p per share will be paid on 21 July 2017 to ordinary shareholders on the register at the close of business on 23 June 2017.

Outlook

Innovation is a foundation of our growth and we continue to drive the business forward through the introduction of new technology, products and improved customer service.

We remain confident in our outlook. We have made a strong start to the current year in terms of both credit issued and customer numbers. A significant pipeline of territory builds is bringing with it high quality growth, and we continue to see attractive acquisition opportunities in the wider non-standard finance market.

The Board remains vigilant to market developments that could help accelerate our strategy and augment our vision. We are currently reviewing several growth and diversification opportunities and will continue to identify and evaluate opportunities as they emerge.

Paul SmithChief Executive Officer

Date: 27 April 2017

Chief Financial Officer's Operational and Financial Review

1 Amortisation of customer lists and agent networks

2 Financing costs in the comparative periods were paid by the former parent company, Perpignon Limited, and this charge represents the amounts that would have been payable by the company had the parent company not paid them

3 Adjusted profit before tax and adjusted EPS figures have been presented within the full year report as the directors believe they are more representative of the underlying operations of the business

4 Costs incurred in relation to the company's IPO and AIM listing

5 Adjusted EPS reflects adjusted profit after tax divided by weighted average number of shares (note 6)

The Group's financial performance continues to reflect our underlying aims of controlled growth through responsible lending, with a continued focus on impairment, improving the quality of our customer base. We believe this leads to higher returns on assets and improved shareholder returns.

The Group achieved an impressive return on equity of 27.2% (FY16: 27.9%), an outstanding achievement given our comparatively low gearing.

The results for the Group for the 52 weeks to 25 February 2017 illustrate our aim of controlled growth, with credit issued up by 18%, revenue up by 10% and adjusted profit before tax up by 5%. Statutory profit before tax is also up 8%. Impairment as a percentage of revenue of 24.4% (FY16: 20.8%) remains in the lower half of our guidance range of 22.0% to 27.0%. Despite the increased costs of compliance and PLC status, the ratio of total operating costs to revenue decreased by 7% because the benefits of our scale and improved technology drove greater efficiencies.

Net tangible assets, being net assets less intangible assets arising from acquisitions increased by 14% to £54.4m, with the net receivables growing by 8% to £61.2m. The value of gross customer receivables with our top performing customers increased by 11%.

Group Results

Credit issued to customers for the year increased by 18% to £144.1m (FY16: £122.2m) of which 5% can be attributed to acquisitions made during this period. Core growth reflected a successful territory build strategy in which we carried out 105 builds in the year and their quality remains strong.

Revenue increased by 10% to £99.6m (FY16: £90.6m) while the cost of collections rose by 16.7% to £22.4m (FY16: 19.2m), representing 22.5% of revenue. There are several reasons for the disproportionate increase in collection costs. Firstly, the cost of increased territory build subsidies to agents joining from competitors accounted for £1.2m compared to £0.7m last year. Management's view is that this is a business development cost as new territory builds are usually loss making in the first year, but result in high quality profitable customers thereafter. Secondly, agents inherited from acquisitions are generally more expensive, creating an estimated cost increase of £0.5m this year (FY16: £0.1m). Finally, shortening the average loan duration and therefore the finance charges decreases the income to cash yield, making the commission paid (this is cash-based) relatively more expensive.

Commission Breakdown

Impairment of £24.3m (FY16: £18.8m) was 29% higher than last year, increasing as a percentage of revenue from 20.8% to 24.4%.

The increase in impairment as a percentage of revenue in FY17 (to 24.4%) reflected artificially low impairments in FY16 (20.8%) which resulted from the focus on integrating and rationalising the Shopacheck business during 2014 and 2015. Impairment remained below FY15 (25.5%) and just below the middle of our guidance range of 22% to 27%.

This current impairment level is still well within our concept of an appropriate range of 22% to 27% for an established home-collected credit business.

Impairment is arguably more closely related to credit issued, and on this metric the level of impairment of 16.8% of credit issued is only slightly higher than 15.4% of credit issued last year.

Overheads of £34.6m were broadly in line with last year's £34.1m, despite increased costs associated with being a listed company and the increased investment in compliance activities. The continued focus on improving operational efficiency resulted in the reduction of overheads as a percentage of revenue from 37.6% last year to 35.1% this year an efficiency improvement of 6.8%.

The adjusted profit before tax increased to £17.7m from £16.8m last year, an improvement of 5%. Adjusted earnings per share increased to 10.8p from 10.2p last year.

Reported profit before tax increased to £11.2m from £10.4m last year, an improvement of 7.7%. Reported earnings per share increased to 6.6p from 6.1p last year.

The amortisation of intangibles, as shown in the table above which reconciles the Adjusted profit before tax to Reported profit before tax reflects the unwind of intangible assets in connection with acquisitions. This reduction reflects both the lower level of acquisitions in the current year and reduced levels of amortisation in connection with prior year acquisitions. Intangible assets are amortised over the assets useful economic life, which is based on the expected life of the acquired customer relationships.

Due to the behavioural profile of our customers, this will naturally result in a greater amortisation charge in the early years with a corresponding reduction in later years. No intangible asset is recognised for agents acquired or new customers that these agents may identify subsequently, which management considers to be a conservative approach.

In FY17 the business incurred costs of £2.2m in connection with its IPO on 5 May 2016.

Other non-operating costs are primarily in connection with non-recurring re-structuring costs of the business and were higher in FY16 due to the costs associated with integrating the Shopacheck business into Morses Club.

Online Lending

The additional costs associated with establishing our online lending facility were less than £0.1m and have therefore not been analysed out from the core business performance.

Return on Equity

The Group calculates its return on equity (ROE) as profit before tax, amortisation of intangible assets arising on acquisitions, the one-off costs of the IPO and other non-operating costs as a percentage of the average book value of the shareholder funds during the period.

The Group achieved an impressive 27.2% for the current year, a particularly pleasing result given the low gearing level by comparison with our peers.

Because of the different equity structure in the previous year we are unable to provide a reliable comparison.

Net Margin

The adjusted net margin which excludes amortisation of intangibles on acquisitions, the one-off costs of the IPO and other non-operating costs decreased to 17.7% compared to 18.6% last year, primarily due to sales growth and investment in our business.

As credit issued growth exceeded revenue growth and given that impairment is closely related to sales the like-for-like impact of impairment cost to revenue on margin reduced it by 1.7%. Furthermore, the additional cost of the agent commission subsidies mentioned above impacted net margins by 1.2% against only 0.8% in the previous year.

The net margin for the period only decreased slightly to 11.3% from 11.5% last year as the amortisation of intangibles on acquisitions charge reduced to £3.7m from £5.5m. 

Acquisitions and Goodwill

This period the Group made six acquisitions of loan book assets along with the staff who TUPE across under such transactions. The total sum paid for these books was £5.7m, generating intangible assets and goodwill of £2.6m. This was a lower level of activity compared to last year when we paid £7.9m and generated intangible assets and goodwill of £2.8m.

In addition, we acquired the shares of Shelby Finance Limited in which an established online lending platform and associated credit decision infrastructure formed the primary asset.

The lower intangible amortisation for the year of £3.7m compared with £5.4m in the previous year arises from both the reduced level of acquisitions and lower amortisation of intangible assets from prior year acquisitions.

Balance Sheet

The total equity for the Group has increased from £55.4m at the end of last year to £61.4m. It should be noted that there is no final dividend accounted for in our first period as a listed company.

Net tangible assets, which exclude intangible assets arising on acquisitions, have increased by 15% to £51.7m from £45.0m at the end of last year.

Our main book asset is the net customer loan book which increased in value to £61.2m from £56.8m at the end of last year, an increase of 8%. Gross receivables from customers (before impairment provisioning, which includes discounting of cash flows) increased by 5% in the year. The higher growth in the net balance sheet value reflects the Group's continued drive to improve loan book quality and thus reduce impairment provisions.

This growth follows a period of contraction in the loan book since March 2014 while we upgraded the debt quality of our Shopacheck business acquisition.

Funding

At the end of the financial year our debt stood at £10.0m, a marginal rise from the previous year's £9.0m.

Christmas represents the Group's peak borrowing period: in this financial year, borrowing reached £21.5m, compared with £20.0m in the previous year.

The Group currently has a £25.0m revolving debt facility with Shawbrook Bank PLC. It is secured by debenture on our business assets and runs until March 2019, with a further term-out period until September 2019. The facility is subject to both financial and debt quality covenants which are typical of this form of lending. The Group have met these covenants historically and expect to do so for the duration of the facility.

Whilst this facility is sufficient to fund modest business growth and maintain a progressive dividend policy, the Directors are working to secure additional facilities in order to exploit any new business opportunities that might arise. We would also like to build relationships with more than one lending institution.

The Board is keen to emphasise that driving up gearing will always be firmly founded on our culture of Treating Customers Fairly.

Cash Flow

Operations in the year generated £9.3m in cash (FY16: £14.8m), of which £5.7m (FY16: £7.9m) was invested in business acquisitions and capital expenditure.

The dividend payment in FY16 of £17.5m reflects many years of undistributed earnings as a private company. 

Principal Risks and Uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Company's performance. The Company's principal risks are:

CONSOLIDATED INCOME STATEMENT

FOR THE 52 WEEK PERIOD ENDED 25 FEBRUARY 2017

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.

CONSOLIDATED BALANCE SHEET

AS AT 25 February 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE 52 WEEK PERIOD ENDED 25 FEBRUARY 2017

CONSOLIDATED CASH FLOW STATEMENTS

FOR THE 52 WEEK PERIOD ENDED 25 FEBRUARY 2017

NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

FOR THE 52 WEEK PERIOD ENDED 25 FEBRUARY 2017

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE 52 WEEK PERIOD ENDED 25 FEBRUARY 2017

1. BASIS OF PREPARATION

The preliminary announcement has been prepared in accordance with the Listing Rules of the FCA and is based on the consolidated financial statements for the period ended 25 February 2017 which have been prepared under IFRS as adopted by the European and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The accounting policies applied in preparing the preliminary announcement are consistent with those used in preparing the statutory financial statements for the year ended 27 February 2016.

Shopacheck Financial Services Limited and Shelby Finance Limited both qualify for an exemption to audit under the requirements of Section 479A of the Companies Act 2006. As such, no audit has been conducted for these companies in the period ending 25 February 2017.

The preliminary announcement has been prepared on a going concern basis consistent with the basis of preparation of the statutory financial statements for the period ended 25 February 2017.

The preliminary announcement does not constitute the statutory financial statements of the Group within the meaning of Section 434 of the Companies Act 2006.

The preliminary announcement has been agreed with the Company's auditor for release.

2. PROFIT BEFORE TAXATION

Profit before tax is stated after charging:

3. EXCEPTIONAL & NON OPERATING COSTS

Exceptional & Non Operating costs were as follows

4. TAXATION

The standard rate of corporation tax applicable for the period ended 25 February 2017 is 20% (2016 -20.25%). Finance (No.2) Bill 2015 provides that the tax rate will reduce to 19% with effect from 1 April 2017 and Finance Bill 2016 provides that the tax rate will further reduce to 17% with effect from 1 April 2020. The effect of these proposed tax rate reductions will be reflected in future periods.

5. DIVIDEND PER SHARE

Subject to shareholder approval at the Annual General Meeting on 20th June 2017, the Board proposes to pay a final dividend of 4.3p per ordinary share payable on 21st July 2017 to all shareholders on the register at the close of business on 23 June 2017.

6. EARNINGS PER SHARE

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.

On 25 February 2016 the Company cancelled 72,705,000 shares and divided the remaining into 129,500,000 1p shares. This transaction changed the number of ordinary shares outstanding without a corresponding change in total equity. For the 2016 financial period the Earnings per Share calculation has been adjusted retrospectively in accordance with IAS 33 (26), increasing the weighted average number of shares by 55,500,000.

7. GOODWILL

Allocation of goodwill to cash generating units

Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). Upon acquisition the activities of the acquired entities are closely aligned to those of the Company and are deemed to have been integrated rather than remain as separate CGUs. Determining whether goodwill is impaired requires an estimation of the discounted future cash flows of the Company using a discount rate of 10% and a terminal value based on a minimum future growth rate of 2%.

Key assumptions used in goodwill impairment review.

Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses. For the purposes of this impairment review, the Company is deemed to be a single CGU and there was no impairment in the reporting period.

The Group has conducted a sensitivity analysis on the goodwill impairment assessment. The Group believes there are no reasonably possible changes to the key assumptions in the next year which would result in the carrying value of goodwill exceeding the recoverable amount.

8. OTHER INTANGIBLE ASSETS

9. TRADE AND OTHER RECEIVABLES

Amounts receivable from customers

The credit risk inherent in amounts receivable from customers is reviewed under impairment as per note 1 and under this review the credit quality of assets which are neither past due nor impaired was considered to be good. The above analysis of when loans are due is based upon original contractual terms which are not rescheduled. The carrying amount of amounts receivable from customers whose terms have been renegotiated that would otherwise be past due or impaired is therefore £nil (2016- £nil). 

An analysis of movements on loan loss provisions is provided below:

There has been no material change in the average effective interest rate used for consumer credit during the period to 25 February 2017.

The bank loan is a revolving credit facility held with Shawbrook Bank Limited. Under the terms of the loan covenant, the loan book is held as collateral against the funds borrowed.

10. DEFERRED TAX

11. ULTIMATE PARENT COMPANY

The Company is a 51% subsidiary of Perpignon Limited. Perpignon Limited's shareholding reduced during the year due to the occurrence of the IPO. Perpignon Limited continues to hold a controlling majority in the Company. At 25 February 2017, the smallest Group of undertakings into which these financial statements are consolidated is Perpignon Limited, registered in England and Wales and largest Group of undertakings into which these financial statements are consolidated is FCAP Four Limited, registered in England and Wales. Copies of these financial statements are available from the Registrar of Companies, Companies House, Crown Way, Maindy, Cardiff, CF14 3UZ. The ultimate controlling party of the Company is FCAP Four Limited. 

12. ACQUISITIONS

During the period the Company made a number of acquisitions. For each of the acquisitions detailed below the Company has undertaken an analysis of the fair value of the receivables acquired compared with the gross contractual amounts of the receivables book and the contractual cash flows not expected to be collected.

None of the goodwill in relation to acquisitions in this reporting period are expected to be deductible for tax purposes

As the financials for each of the acquisitions detailed below were not available for the period prior to acquisition it is not possible to disclose the impact on profit before tax and amortisation of acquisition intangibles had the acquisitions been completed on the first day of the financial period.

Deebank Financial Services Limited

On 18 April 2016 the Company acquired the loan book and certain assets of Deebank Financial Services Limited via a cash purchase. The Company acquired the assets of Deebank Financial Services Limited for the purpose of increasing its customer base. The costs incurred in relation to this acquisition of £13,000 were expensed to the Income Statement.

Universal Trading Company Limited

On 20 July 2016 the Company acquired the loan book and certain assets of Universal Trading Company Limited via a cash purchase. The Company acquired the assets of Universal Trading Company Limited for the purpose of increasing its customer base. The costs incurred in relation to this acquisition of £12,000 were expensed to the Income Statement.

H. Stanley (Hull) Limited

On 10 August 2016 the Company acquired the loan book and certain assets of H. Stanley (Hull) Limited via a cash purchase. The Company acquired the assets of H. Stanley (Hull) Limited for the purpose of increasing its customer base. The costs incurred in relation to this acquisition of £11,200 were expensed to the Income Statement.

Pearlmans Finance Limited

On 15 September 2016 the Company acquired the loan book and certain assets of Pearlmans Finance Limited via a cash purchase. The Company acquired the assets of Pearlmans Finance Limited for the purpose of increasing its customer base. The costs incurred in relation to this acquisition of £13,270 were expensed to the Income Statement.

Portwood Finance Company Limited

On 28 September 2016 the Company acquired the loan book and certain assets of Portwood Finance Company Limited via a cash purchase. The Company acquired the assets of Portwood Finance Company Limited for the purpose of increasing its customer base. The costs incurred in relation to this acquisition of £11,290 were expensed to the Income Statement.

Carson Finance Limited

On 10 October 2016 the Company acquired the loan book and certain assets of Carson Finance Limited via a cash purchase. The Company acquired the assets of Carson Finance Limited for the purpose of increasing its customer base. The costs incurred in relation to this acquisition of £12,735 were expensed to the Income Statement.

Shelby Finance Limited

On 10 January 2017 the Group acquired 100% of the issued share capital of Shelby Finance Limited via a cash purchase. The Company acquired Shelby Finance Limited for the purpose of enabling a diversification of its product range and reduce the time to market. The costs incurred in relation to this acquisition of £nil were expensed to the Income Statement.