Helping people - NewDay · serving five million customers in the UK through our diverse and growing...

2019 Annual Reportand Financial Statements

Helping people be better with credit

New

Day 2019 A

nnual Report and Financial Statem

ents

ContentsStrategic Report

At a glance 01Our Customer Manifesto 02NewDay in numbers 04Who we work with 06Our business model 10Chairman’s statement 12Chief Executive Officer’s review 14Market overview 18 Leveraging a leading digital platform 20

Our end-to-end digital product solutions 22Acquiring new customers that create long-term relationships 24Delivering strong growth 26Key Performance Indicators 28Financial review 30Operating responsibly 38Promoting success and stakeholder engagement 46Risk management 48Mapping our risks 52

Governance

Chairman’s introduction to corporate governance 57Board of Directors 60Management Committee 63The Board 64Board Committee reports 66Directors’ report 76

Financial Statements

Independent auditor’s report 78Income statements and statements of comprehensive income 80Balance sheets 81Statements of changes in equity 82Statements of cash flows 83Notes to the Financial Statements 84Our owners 123

Our purpose is to help people be better with credit

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

01NewDay Annual Report and Financial Statements 2019

Strategic Report

At a glance

Who we are

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

We want to be the UK’s leading digitally enabled consumer finance provider, responsibly saying “yes” to more people and developing innovative tools to help people stay in control of their finances and access credit seamlessly.

What we do

We have proven specialist capabilities in underwriting credit cards and providing unsecured credit across a range of products including our digital revolving credit product NewPay. Through our Own-brand business, we offer near-prime revolving credit and unsecured loans to customers who may not have easy access to mainstream lenders. In our Co-brand business we partner with retailers and online e-tailers to offer credit to their customers together with loyalty and other reward programmes.

By understanding the varying needs of our customers, building long-term relationships and rewarding customers for appropriately managing their credit we continue to be one of the most inclusive lenders in the UK and are able to fulfil our purpose to help people be better with credit.

Our access to and understanding of data allows us to generate in-depth customer insights. This enables us to provide valued support to our retail partners and evolve our products to meet our customers’ rapidly changing needs. Our business is underpinned by an advanced digital platform that allows us to innovate and respond rapidly to changing needs, whilst creating value for our customers, colleagues and shareholders.

A digital business that invests in innovation to create best-in-class customer journeys

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

Our Customer Manifesto underpins our purpose to help people be better with credit

Trusted partner with some of the largest brands in the UK

02 NewDay Annual Report and Financial Statements 2019

Strategic Report

Knowing Rewarding

Welcoming Understanding

Our Customer Manifesto

Our purpose is to help people be better with credit, guided by four clear principles. These principles

bring the Customer Manifesto to life for our customers, colleagues and retail partners

We aim to responsibly say “yes” to as many people who apply for credit as possible. Customers are assessed to ensure affordability criteria are met and that they are provided with the right product at an appropriate rate.

We strive to provide customers with a great experience by offering products and services that are simple, intuitive and useful.

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

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

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

03

Strategic Report

NewDay Annual Report and Financial Statements 2019

Our Customer Manifesto in action in 2019

£27mgiven back to customers

through rewards

1.2mnew customers we responsibly

said “yes” to

2.0mcustomers helped to improve

their credit score

111mself-service transactions

2.8mconversations

We’ve helped customers with their credit questions in ways that work for them:

Continued support of our community partnersto promote financial inclusion and provide financial support to those who need it:

• entered a new partnership with Demos, a leading UK think tank, to fund the launch of the Good Credit Index with the aim to improve access to affordable, sustainable and transparent ‘good credit’

• continued support of our charity partner Family Action to fund the launch of FamilyLine, a seven-day-a-week helpline providing practical, emotional and financial support

5 new productsmeeting different credit needs:

• AO Finance – spread the cost of online purchases

• Argos Classic credit card – access to credit for purchases

• Miss Selfridge, Topman and Topshop credit cards – learning to manage credit through rewards


Strategic Report

2017 2018 2019

£113m

£1,326m

£821m

£2,164m

£3,026m

£1,160m

£1,753m

£66m

£17m

£2,623m

£992m

£1,566m

NewDay in numbersOur business is more digital and growing

Own-brand receivables

Co-brand receivables

Unsecured Personal Loans receivables

£3,026mGroup closing receivables

(2018: £2,623m)

1.2mnew customer accounts

(2018: 1.2m)

£5.8bncustomer spend through

our products(2018: £5.0bn)

77%new accounts

digitally originated(2018: 63%)

£2.0bncustomer spend through

digital channels(2018: £1.7bn)

In 2019, our receivables grew by 15% to £3.0bn and we were delighted to welcome 1.2m new customer accounts to the NewDay family, our fifth successive year with over one million new customer account originations. We continue to ask our customers for feedback to understand how we can improve the way they want to interact with us. In 2019, we radically redesigned many of the features in our apps and we saw this investment yield great results in stable app store ratings of 4.7 stars.

By improving the customer experience and remaining focused on helping customers be better with credit, we have continued to grow our business.

Read more on page 40.


Strategic Report


5.2m 2.0mcustomer accounts

(2018: 4.7m)customers with improved credit score

(2018: 1.7m1)

4.7 +66average app store rating transactional Net Promoter Score (NPS)

(average customer feedback score when rating their experience on an interaction with us)

(2018: +64)

2.3m 125mapp downloads to date

(2018: 1.4m)transactions processed

(2018: 107m)

1. In 2019, we refined our definition of customers with an improved credit score so that it is assessed only on customers who have had an account with NewDay for at least twelve months. In 2018, the definition only included accounts that were active as at both the beginning and end of the year. Accordingly, the 2018 comparative has been restated throughout this report.


Strategic Report

Who we work with

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

with companies that share our vision and help us to deliver seamless customer journeys

Broad spectrum of customersPowered by our in-house and state-of-the-art technology, our Customer Manifesto and credit capabilities allow us to responsibly say “yes” to more customers.

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

Our Co-brand retail partners value our ability to serve a broad range of prime and near-prime customers. We do this by offering a spectrum of credit products including NewPay, our digital revolving credit product. They also value our modern customer offering and the power that our offering brings to their online platforms in building customer loyalty and profitability.

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

Our partners value the seamless integration and insight that our data and technology offers. They also value our collaborative and open approach in delivering for them and their customers.

Leading technology partnersOur in-house digital capability is built on infrastructure provided by leading technology organisations, including Microsoft and Amazon Web Services. Our in-house built platform allows us cloud-based scalability, performance, cost and security advantages. Our transaction processing platform remains outsourced to Fiserv, who remain an important partner for us.

Diversified funding partnersOur broad base of international funding partners includes many of the world’s leading financial institutions and we adopt a very conservative approach to funding.

We regularly access securitisation markets to support our receivables growth with a low, stable cost of funding from both the UK and US.


Strategic Report

Our portfolio

We have a portfolio of 19 brands designed to meet a range of different consumer credit needs.

This includes 4 of our own brands alongside a stable of retail and e-tail partnerships with leading brands

Read more about our portfolio of brands overleaf

“ We have continued to diversify and grow our brands to ensure we are offering products that meet a range of credit needs. Our partnership with leading online electrical goods e-tailer AO.com is the latest brand we’ve welcomed to NewDay“

Ian Corfield Chief Commercial Officer


Strategic Report

Our portfolio – some examples

To find out more visit: amazon.co.uk

To find out more visit: ao.com

Seamless shopping with rewardsWe are in our fourth year of partnership with Amazon UK. The Amazon Mastercard products continue to offer customers a credit card automatically loaded into the Amazon wallet, further enhancing the seamless Amazon shopping experience. Both the Classic and Platinum card offer a range of reward benefits, with Classic customers automatically upgraded to Platinum after 12 months of positive credit behaviour.

Spreading the cost of purchasesIn 2019, we launched our partnership with leading UK online electrical goods e-tailer AO.com. Leveraging our NewPay platform, AO Finance offers customers the ability to spread the cost of purchases through easy and affordable payment options using a flexible finance account. Customers have access to a range of convenient finance options so they can repay their balance in ways that suit them.

“ Having a payment method that’s integrated into Amazon works really well for me”

Haider Amazon Mastercard customer, Cambridge

“ Customers want options whilst shopping and AO Finance gives them lots of choices, way beyond what they have had before”

David LawsonManaging Director, AO.com


Strategic Report

To find out more visit: aquacard.co.uk

To find out more visit: fluid.co.uk

Building better credit with AquaWe know that our customers are more than their credit scores. For over 18 years, our Aqua brand has been responsibly providing credit to consumers who are not easily served by mainstream lenders. We meet a very clear near-prime customer need – credit building. Aqua offers sensible credit limits and all the tools and support needed for customers to begin a journey to be better with credit and appropriate financial inclusion.

Saving interest with a balance transferWe launched the Fluid brand in 2018, offering near-prime consumers access to competitive balance transfers – a need identified in the market. Fluid helps customers save on interest with a 0% interest balance transfer offer with initial credit limits of between £300 and £2,500.

“ Feeling trusted again means so much to me because I can look forward to building my future”

Claire Aqua customer, Middlesbrough

“ I already had a credit card that was at a higher interest rate. I did a balance transfer from my other credit card to Fluid which had 0% interest for nine months. It came at the right time”

Sarah Fluid customer, Warminster


Strategic Report

Our business modelPowered by leading edge technology

and an embedded Customer Manifesto

OpportunityEvolving with our customers to address changing needs

In an increasingly digital world, consumer credit behaviours continue to evolve and technological advancements lead to new opportunities for e-commerce and data insight. We deploy our specialist knowledge in underwriting credit and truly agile customer-centric technology platform to carefully pursue brand and product expansion in a digitising and growing UK marketplace.


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

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


Leveraging a leading digital platform

Re-imagining our digital strategy to build a cloud-based scalable front-end digital acquisition and servicing platform for all credit products unlocks significant value for our customers, colleagues and partners though engaging experiences and highly-relevant products. Building our digital capability in-house enables us to innovate and respond rapidly to the changing needs of our customers, partners and the wider marketplace.


OutcomesAcquiring new customers and creating long-term relationships

Our modern and innovative products allow us to continue to acquire new customers and develop our long-standing customer relationships. Our deep understanding of customer behaviour gives us a high level of performance predictability.


Delivering strong controlled growth and high performance predictability

Another strong year for customer acquisition and our relentless focus on helping customers be better with credit have delivered another record financial year. Receivables and total income recorded double-digit growth and impairment was controlled within acceptable levels.


11

Strategic Report


Our competitive strengths

How we create value

Trusted brands built on our Customer ManifestoThe strength of our portfolio of brands gives customers and partners confidence in what we stand for.

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

Market-leading digital platform and technology partnersTo continue to deliver a superior and competitive service to our customers, we have built an in-house digital engineering capability that ensures excellence and optionality. This is built on an infrastructure supported by leading technology partners.

End-to-end digital product solutionsNewPay, our digital revolving credit product, offers frictionless customer journeys and simple integration for our retail partners. It offers instant access to credit and optionality through more ways to pay, including instalment plans, buy now pay later and other promotional options.

Understanding and engagement with our customersStrong and long-term relationships powered by a deep understanding of customer behaviour results in embedded p or t fo l i o va l u e a n d p re d i c t a b l e financial growth.

Credit and collection capabilitiesOur credit risk and collections expertise has been developed and honed over 18 years with the management team’s experience proven through economic cycles.

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

Skilled, experienced colleaguesThe relentless dedication of our workforce powers the delivery of our customer and retail propositions as well as our continued product and digital innovation.

Attractive market propositionWe focus on providing credit propositions that require specialist skills aligned with our core competencies and competitive strengths. We offer a suite of compelling products that allow us to serve our customers throughout their credit journey. We offer seamless integration with traditional retailers and e-tailers in serving the needs of our increasingly digital customers. We add power to merchant offerings.

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

Digital originationThrough both direct marketing and partnerships, we reach an extensive customer base. This reach is increasingly digital and encompasses our partners’ most loyal customers as well as those who find access to credit from mainstream providers less easy.

Leading customer serviceWe offer omni-channel 24-hour support. We are committed to continuous improvement and are engaged in ongoing dialogue with customers, with real-time feedback recorded through Net Easy Scores (NES) and transactional NPS scores. We continue to make great progress in digitally engaging our customers.

Market-leading technologyTogether with our customer insight, our in-house technology capabilities and agile operating model enable our data scientists and engineers to build better solutions faster and drive rapid digitisation in our customer journey and the business more widely.

Operating efficientlyOur continued focus on being digital by default allows us to operate at a lower underlying cost-income ratio and our in-house digital platform offers us true scalability and great flexibility.

Funding Through our established funding base and securitisation technology, we have a stable funding capacity and a low cost of funds.


Strategic Report

Chairman’s statement

Sir Michael RakeChairman and Non-Executive Director

We have continued to deliver on our strategic priorities and make progress towards our vision of being the UK’s leading digitally

enabled consumer finance provider

Our vision is to become the UK’s leading digitally enabled consumer f inance provider. In 2019, we continued to build on the strong foundations and scalability of our business model to deliver record results and better outcomes for customers.

Our purposeNewDay exists to help people be better with credit. This purpose sits at the heart of everything we do and it is enshrined in our Customer Manifesto. We set out to be Welcoming, Understanding, Knowing and Rewarding for our customers, irrespective of where they sit on the credit spectrum.

Across our own brands and in partnership with some of the UK’s most exciting and leading brands, we offer credit to a wide spectrum of customers, many of whom do not have access to credit from mainstream lenders. Responsible lending, financial education and appropriate inclusion remain important priorities for the Board

of Directors at NewDay. Our customer-centric culture ensures that the focus of the Group is to build long-term positive relationships with customers and to work with them to meet their changing needs over time. I am delighted to say that in 2019, we helped 2.0m customers improve their credit score (2018: 1.7m). We also rewarded our customers with £27m in loyalty rewards (2018: £29m) and we launched new benef its to reward customers for good credit behaviour.

I was pleased to see the market recognise some of the things we do at NewDay in supporting our customers. NewDay won the Gold Award at the European Contact Centre and Customer Service Awards for the ‘Best Use of Customer Insight’. We also won a Silver Award at the UK Customer Experience Awards for ‘Use of Insights and Feedback’. My colleagues at NewDay continue to ensure that our Customer Manifesto and our Values are front and centre in decision-making across the

Group. This helps us deliver positive outcomes for our customers in the natural rhythm of our business and brings the Customer Manifesto to life.

Digital developmentsThe Board continues to review the Group’s strategic technology journey to ensure we are appropriately positioned to deliver against our vision of being the UK’s leading digitally enabled consumer f inance provider. I am pleased to report that we are making very good progress against this objective. Building on the work we did last year across the Own-brand estate, in 2019 we brought the Co-brand digital acquisition platform in-house from Fiserv. This allows us to be more innovative, f lexible, resilient, and to be more responsive to the needs of our digital partners. We also introduced exciting ChatBot functionality, enhancing the way we interact with our customers and firing the ‘starting gun’ for a range of AI-powered innovation in the future.


Strategic Report

We continue to develop our apps, the embedded functionality and the way our customers can digitally engage. I am pleased to report that our customers have reacted well by awarding us an average app store score of 4.7 stars. The strength of our in-house digital team allows us to react quicker and deliver better, more cost-effective solutions to our customers and partners. It was great to see our digital team recognised at the European Software Testing Awards and winning ‘Best Mobile Testing Project’.

Our colleaguesMaintaining the focus and tempo at NewDay requires us to provide an engaging and inclusive working environment. I am pleased to report that we have continued to make good progress in building a diverse and inclusive environment at NewDay and the results of our regular employee survey show that we are continuing to build a p o s i t i v e a n d d y n a m i c w o r k i n g environment. This is underpinned by a calendar of events and workshops throughout the year that invests in ensuring we encourage education and debate on a variety of topics. The launch of an Inspirational Speaker Series and a programme raising colleague awareness on mental health were particularly positive developments during 2019. The Board continues to promote a culture that celebrates diversity in ethnicity, sexual orientation, gender and opinion. NewDay continues to offer support to any colleagues who require assistance.

Our communitiesWe recognise that we have a responsibility to positively serve the community we are part of and that we have a wider responsibility to minimise the impact on our environment. We are extremely proud to continue our work with our chosen charity partner, Family Action, who provide practical, emotional and financial support to those who are experiencing poverty, disadvantage and social isolation. It was very pleasing that our engagement and support of Family Action was recognised at the International CSR Excellence Awards, with a Gold Award for ‘Charitable Giving’. It is also pleasing to see that this charity partner is embraced across the Company with a large majority of our colleagues engaging to make a positive personal contribution.

Financial education and responsible lending are priorities for the Board. We are actively involved in discussions around the role credit plays in financial inclusion. In 2019, we provided financial support to Demos, a leading UK think tank, who launched their Good Credit Index that built a comprehensive credit map of the UK to

assess access to ‘good credit’ and provide location-based strategies for building better credit across the country. We will continue to work with them as they explore how local government, employers and other stakeholders can improve access to affordable, sustainable and transparent good credit.

We also recognise that minimising our impact on the environment is important and we remain committed to ensuring our carbon footprint remains low. We are proud our efforts were recognised by external stakeholders at the Green World Awards where we were awarded a Green World Ambassador in the financial services sector. Our colleagues also launched their own Green Forum, which promotes recycling and green-related matters.

RegulationWe continue to work closely with regulators and industry bodies to ensure we deliver positive outcomes for our customers and sustainable returns for our s h a re h o l d e r s . O u r s t ro n g R i s k Management Framework and credit scorecards built from 18 years of experience give us a deep understanding of our markets. This allows us to adapt quickly to changing or uncertain economic and political environments and our ‘low and grow’ credit strategy ensures we remain focused on lending responsibly.

In 2019, the Board has been particularly focused on suppor ting individuals considered to be in persistent debt following the introduction of the FCA’s final rules and guidance on the Credit Card Market Study from September 2018. During the year we supported over 123,000 customers to come out of persistent debt with the interventions we deployed, and we have continued to develop our strategies to support customers who will have been in persistent debt for 36 months by March 2020 and will therefore require mandatory intervention.

The Board is committed to balancing the needs of our different stakeholders in order to maximise the long-term success of the business and considers each key stakeholder group in its decision-making. For further details of the Board’s considerations and engagement of stakeholders, see page 46. We have also closely monitored other regulatory developments, including in relation to the Second Payment Services Directive (PSD2), the Senior Managers and Certification Regime and the Gambling Commission’s ban on using credit cards to place bets, to ensure the Group is adequately prepared.

Leadership In October 2019, we welcomed John Hourican to the Board as Chief Executive Officer as successor to James Corcoran. Between 2013 and 2019 John served as Chief Executive Officer of Bank of Cyprus, the largest banking and financial services group in Cyprus. During his tenure, John reshaped the business, re-established its deposit base, improved the quality of its loan book and strengthened its financial position and prior to joining Bank of Cyprus, John served as Chief Executive Officer of the RBS Group’s Investment Bank (Markets and International Banking) from 2008 until 2013. I look forward to building on NewDay’s strong foundations and financial position with John in the years ahead.

I would like to extend my personal thanks to James Corcoran on the important role he played in the Group’s evolution over the last ten years. James led NewDay from being a one-product credit card business into one of the UK’s leading specialist credit providers with a leading digital platform and we are fortunate to continue to benefit from his expertise as a Non-Executive Director on the Board.

In addition, Johan Pettersson, a Cinven Investor Director, resigned from the Board with effect from August 2019 and Arron Wu, a CVC Investor Director, resigned from the Board with effect from November 2019.

Outlook There is now more political certainty in the UK following the December 2019 General Election, however there are still a number of uncertainties with regards to Brexit. We have continued to consider and plan for potential implications carefully. The Board has reviewed the possible impact on both our operations and strategic plans and has considered stress scenarios to ensure we are well-positioned to promptly respond to different outcomes. Our proactive risk management approach and strong balance sheet, including headroom on funding facilities, allow us to appropriately manage these risks. We are well placed to respond to the external environment and make continued progress in our strategic development to deliver attractive returns for our shareholders. We continue to monitor the recent coronavirus outbreak and the potential impact on performance during 2020.

I would like to personally thank the Board and all colleagues across the business for their hard work and commitment to delivering on our purpose and Customer Manifesto, which is key to the continued delivery of our strong growth and financial performance.


Strategic Report

Chief Executive Officer’s review

2019 was a record year in terms of financial delivery. Our controlled growth and scalable platform positions

NewDay well into 2020

John HouricanChief Executive Officer

In 2019, we made very good progress against our stated strategic objectives. We further invested in our digital capability. We launched five new products with exciting UK brands. We added 1.2m new customer accounts to our Group (2018: 1.2m) and we helped 2.0m customers improve their credit score (2018: 1.7m). These achievements combined to deliver a record financial performance in 2019 that my colleagues can be genuinely proud of. It sets the tone and ambition for the year ahead and provides strong evidence that our controlled approach to growth is the right one.

We continue to put our customers at the centre of our business. We recognise the purpose of NewDay is to help people be better with credit. We remain focused on ensuring that we provide appropriate products and tools in support of this objective,

particularly as the world around us continues to digitise and our customers quickly evolve to interact with us in an increasingly digital way.

The investment we have made in modernising and bringing in-house our technological capability provide the foundations for our Group’s success. Better, more nimble, faster, scalable and cost-effective technology allows us to support our retail and e-tail partners in securing customer engagement and creating frictionless customer experiences. We will continue to invest in intelligent digitisation to secure the Group’s emerging reputation for innovation and capability.


Strategic Report

Long-term customer relationships delivered record resultsIn 2019, we responsibly said “yes” to 1.2m new customers (2018: 1.2m), 77% of which were originated online (2018: 63%).

Our product portfolio allows us to adapt to customers’ changing needs throughout their credit journey, generating long-term customer relationships as we reward customers for good credit behaviour. Within our Own-brand portfolio we re-branded our Aqua product, refreshing the entire customer journey. We positioned Aqua as the credit provider of choice for near-prime customers by partnering with them through their credit-building journey.

In 2019, we continued to diversify our retail partner network and product proposition in our Co-brand business. We launched five new products, each aimed at different credit needs. We introduced a young fashion proposition in Topshop, Topman and Miss Selfridge, expanding on our product portfolio with Arcadia Group. We expanded our digital revolving credit product (NewPay), in partnership with AO.com, allowing their customers to spread the cost of their online purchases. We launched the Argos Classic credit card and we signed an agreement with M&Co who will also utilise NewPay when launched in 2020.

During the year we provided customers with over £27m loyalty rewards in our Co-brand business to help build brand loyalty for our retail partners and encourage ongoing spend and long-term utilisation of our products by customers (2018: £29m). We supported our partners with state-of-the-art analytics to help them engage and understand customer behaviour.

In our Unsecured Personal Loan business we provided 21,000 personal loans to existing Own-brand customers who had managed their credit accounts well (2018: 15,000).

Building long-term relationships with our customers is a key strength of NewDay and this underpinned the delivery of £144m adjusted EBITDA in the year (2018: £82m). This result arises from the growing prof itability of existing customers offsetting the year-one cost of acquiring new customers. Our existing customers generated adjusted EBITDA of £240m (2018: £201m), an increase of 19%, offset by a £96m adjusted EBITDA loss (2018: £119m) generated from establishing 1.2m new customers we originated. Our investment in new customers each year generates further growth and value in future years, evidencing the sustainable strength of the Group’s proposition (see page 24 for further details).

Delivering strong controlled growthNew account acquisitions along with the Group’s ‘low and grow’ credit strategy led to record Group receivables of £3.0bn (2018: £2.6bn), with the Co-brand business surpassing the £1bn receivables milestone.

The increase in receivables represents 15% growth year-on-year. Strong growth across all business units led to growth in total income of 14%.

As a result of improved credit quality, partly driven by the tightening of credit lending criteria in 2018, and refinements to the Group’s impairment provision model, the Group impairment rate reduced by 1.4 percentage points to 11.6%.

The scalability of our business model, along with ef f iciencies from our streamlined end-to-end digital platform, led to a reduction in the underlying cost-income ratio of 2.8 percentage points to 33.0%. During 2019 we invested a further £38m in change initiatives to continue to develop our digital capabilities and drive sustainable long-term growth (2018: £41m).

Our strong but controlled growth along with a well-managed cost base resulted in record adjusted EBITDA of £144m, a 75% increase year-on-year (2018: £82m). The statutory profit before tax of £50m (2018: loss before tax of £7m) includes a number of items, detailed on page 31, which in our view do not represent the Group’s underlying performance.

Free cash flow available for growth and debt service of £106m highlights the strong cash generation of the business (2018: £109m), providing us with the capacity to reinvest for future growth.

Our balance sheet remains strong. We continued to execute our funding strategy and successfully refinanced all of our maturing asset-backed securities during the year and raised £577m in total. This included $205m raised in the US as we continued to diversify our funding strategy. At the end of 2019, we had £0.7bn of headroom on our funding facilities (2018: £0.9bn) for future growth with an average maturity profile of two years (2018: three years), providing protection in case of a deterioration in capital markets.

5 new products launched, each meeting different credit needs, including expanding our NewPay

offering with our new retail partner AO.com

>100,000 chats Integrated intelligent automation into

several customer-facing and back office processes, including introducing

ChatBot functionality with over 100,000 chats to date

£240madjusted EBITDA generated from

existing customer relationships offset by a £96m adjusted EBITDA loss

generated from establishing new customer relationships

£144madjusted EBITDA, a record result and

75% increase year-on-year

2.0m customershave been helped to improve

their credit score


Strategic Report

Chief Executive Officer’s reviewContinued

Digital investmentOur digital transformation remains a priority. In 2019, we invested £38m in continuing to develop a best-in-class (2018: £41m), frictionless digital customer experience in support of our vision to be the UK’s leading digitally enabled consumer finance provider. We aim to provide a simple, convenient, easy to use digital customer experience and continue to develop our range of apps and increase functionality to achieve this. In 2019, we delivered a straight-through end-to-end digital journey for balance transfers and money transfers and integrated marketing offers into customers’ digital servicing journeys. Customers gave our apps a combined rating of 4.7 stars and our NES for online servicing (which measures how easy it is to navigate through our apps and websites) increased by two points to +70.

Following the success in our Own-brand business in 2018, we have transitioned our Co-brand digital acquisition platform in-house from Fiserv this year. This improves our agility and resilience as well as allowing us to generate cost ef f iciencies. Additionally we have integrated artificial intelligence into a number of customer-facing and back office processes, including the launch of ChatBots and the development of VoiceBots as we continue to develop different ways for customers to interact with us. We are enhancing communication channels to ensure we can help customers address their credit questions in ways that suit them, when it suits them – in 2019 customers had 2.8m conversations with our colleagues and completed 111m self-service interactions.

On 3 January 2020, our immediate parent company, Nemean MidCo Limited, agreed terms to acquire Pay4Later Limited subject to FCA approval. Pay4Later Limited trades under the name ‘Deko’ and is a point-of-sale (PoS) finance technology firm, providing platform and brokerage services in the PoS finance market working with over 1,500 merchants in the UK. The acquisition will provide opportunities for Deko and NewDay to leverage their respective experience in order to provide Deko customers with access to new products whilst allowing NewDay to pursue its goal of becoming the UK’s leading digitally enabled consumer f inance provider (and, in particular, proliferate our NewPay offering). Nemean MidCo Limited will initially acquire a 50.1% interest in Deko with the remaining 49.9% acquired over a three-year period. The results of Deko will not be consolidated in the NewDay Group Financial Statements.

Credit Card Market Study (CCMS)As we covered in our 2018 Annual Report, the final FCA rules and guidance on the CCMS were published in February 2018 and took effect in September of that year. The guidance required that, from 1 September 2018, firms should identify the subset of their customers in persistent debt when assessed over the previous 18 months and recommend a change to payment behaviour. The guidance then prescribed a second intervention point at 36 months, at which point firms must contact those customers remaining in persistent debt and propose alternative repayment plans to settle the balance over a reasonable period. The first cohort will reach the 36-month intervention point in March 2020.

We have previously communicated that we considered circa 8% of our customer base to be in early stage persistent debt as at 31 December 2018. Having now completed the implementation of the required CCMS interventions and a number of additional preventative measures, we expect that the first cohort reaching the 36 month intervention point in March 2020 will represent circa 2% of our customer base (and account for approximately £210m of receivables). Due to the measures taken, customers reaching this intervention point should not experience a sudden change to their minimum payment on their existing debt, a n d d e p e n d i n g o n i n d i v i d u a l circumstances, will typically be able to continue to use their credit facility with higher minimum payment terms. The impact of the CCMS on the 2019 financial statements has been mitigated by our underlying business performance as we have continued to grow receivables and delivered strong results.

Payment Protection Insurance (PPI)The FCA deadline by which customers can raise a claim with their PPI provider passed on 29 August 2019 and, as at 31 December 2019, the Group reported a provision of £10m (2018: £25m) to cover the remaining expected costs. Although the deadline for customers to make complaints which can be considered by the Financial Ombudsman Service has passed, NewDay continues to receive court claims. In addition, discussions are being held across the industry in relation to Deloitte being appointed by the Official Receiver to assist with the submission of queries to PPI providers to establish whether any redress in respect of the sale of PPI is due to creditors of bankrupts’ estates. The provision includes our best estimate of expected costs associated with these claims.

Delivering for our colleaguesOur colleagues are key to delivering a positive experience for our customers. Attracting, retaining, engaging and motivating colleagues remains a priority as we strive to be an employer of choice. Our bi-annual, externally managed employee surveys demonstrate high levels of engagement at 77% (2018: 75%) and 74% of colleagues engaged with our Customer Manifesto and Values (2018: 75%), evidencing that they are embedded throughout the organisation.

We are creating a work environment where colleagues feel valued and respected and where they can develop and thrive. Our colleagues interact daily with our customers and therefore are best placed to drive continuous improvement in our products and services. In support of colleague development, in 2019 we launched a learning management system providing all colleagues direct access to a catalogue of soft and function-specific learning that can be tailored to their individual development needs and accessed at any time.

Outlook In 2019, we have continued to make signif icant progress in our digital transformation and have fur ther diversified our retail partner network away from the challenging conditions on the UK high street with product offerings that continue to meet the changing needs of our customers. Our strong controlled growth and the scalability of our operating platform have generated record profits and we have maintained signif icant headroom on funding facilities to protect the business in case of a deterioration in capital markets. We are well placed to continue to build on this success and deliver positive outcomes for our customers and shareholders.

I would like to thank all of our colleagues for their ongoing commitment and dedication to supporting our customers and delivering our vision to be the UK’s leading digitally enabled consumer finance provider.

17

Strategic Report


NewDay is a fast-moving business that continually challenges the status quo. Our teams across the business work well together to identify, deliver and capitalise on opportunities for future growth whilst ensuring the customer remains at the forefront of every decision.

I would like to extend my personal thanks to my predecessor, James Corcoran, for the support he has given to me during our handover to develop my understanding of the foundations of the business’ success to date. He is a hard act to follow but thankfully he left behind a strong team that is delivering the business plans.

Q What are your key priorities for NewDay?I am fortunate to have joined a business with solid foundations and a strong track record of delivering for its stakeholders. My aim is to continue to build on this success and capitalise on further opportunities to deliver grow th and value for our stakeholders. This includes continuing to leverage our leading digital platform to best serve the needs of current and future customers, ensuring we respond rapidly to changing consumer trends and deliver a frictionless digital customer journey. In addition, I am focused on continuing to diversify our portfolio and retail partner network to expand our reach and provide credit solutions to more customers and to continue to deliver consistent growth and attractive returns.

Our colleagues are at the heart of delivering a positive experience for our customers, so it is also important to me that NewDay is an engaging place to work where colleagues are listened to and are empowered to drive continuous i m p rovem ent s i n o u r p ro d u c t s , services and processes.

Q What are the key challenges NewDay faces?Consumer behaviour and trends continue to change rapidly, particularly in relation to digital, and we need to ensure we are leading the response to these changes within the industry and promptly adapt our product and service offerings. We have continued to transform our in-house digital capabilities allowing us to deliver better solutions for our customers quicker and more cost-effectively. I feel we are well placed to continue to meet changing customer needs.

Intensifying competition across consumer finance continues to be a challenge we face. We continually develop our product offering and reward structures to ensure we meet customer needs, including continuing to build on and leverage NewPay, our digital revolving credit product. Additionally, our credit scorecards built from 18 years of experience provide us with a deep understanding of the markets we operate in and allow us to adapt and respond rapidly to any changes in the market, whilst ensuring we remain within our credit risk appetite.

There are a number of regulatory developments across the industry to support positive outcomes for customers. We continue to work closely with regulators and industry bodies to ensure we are fully prepared for these and given our purpose to help customers be better with credit we feel the changes are consistent with our direction.

For further information on John’s experience see page 60.

“ What is clear is the commitment of our colleagues to delivering our Customer Manifesto and driving positive outcomes for our customers”

Q What attracted you to NewDay?NewDay is at an exciting time in its evolution and plays an important role in supporting people who may not have easy access to credit from mainstream lenders. The Group’s strong sense of purpose to help people be better with credit and focus on responsible lending and f inancial education enables us to make a real difference to customers’ lives.

The strength of the Group’s digital ambition and pace of delivering change also stand out to me. Consumer trends and behaviours are changing rapidly and the business has transformed its digital capabilities over recent years. With a strong in-house digital team we are well placed to be more innovative, agile and flexible, allowing us to capitalise on future opportunities and deliver on our vision to be the UK’s leading digitally enabled consumer finance provider.

Q What are your initial impressions of NewDay?I spent my first few months at NewDay getting to know our colleagues, customers and stakeholders and understanding what is important to them. What is clear is the commitment of our colleagues to delivering our Customer Manifesto and driving positive outcomes for our customers. Our colleagues are best placed to understand our customers’ needs and the culture at NewDay encourages them to provide feedback and empowers them to drive initiatives forward that improve our customer experience.

Q&A with John Hourican


Strategic Report

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

Unsecured consumer credit marketWith 4.0% of the total UK credit card receivables, up from 3.5% in 2018, our market share is growing and there remains a sizeable market opportunity for NewDay and our technology. In addition to £73bn credit card balances, there is an emerging cardless revolving credit segment not captured in this number. There are 61m4 credit cards in issue in the UK compared to our 5.2m customer accounts.

Our UPL lending currently represents less than 1% of total UK instalment-based lending.

Market overview

We operate within the increasingly digital unsecured consumer credit market, specialising in serving near-prime

customers and partnering with retailers and e-tailers to serve their customers (both prime and near-prime)

Products (selected) Customer type Distribution channels

Credit cards or store cards

Unsecured personal loans

Cardless credit accounts

Point-of-Sale financing

Overdrafts

Catalogue credit

Guarantor loans

Payday loans

Other high cost credit products

Prime

Near-prime

Sub-prime

Direct (online and offline)

Aggregators (online)

Partnerships (online and offline)

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

1. Bank of England data as at 31 December 2019.2. UK Finance (www.ukfinance.org.uk): UK Payment Markets 2019. Volumes based on 2018 data.3. Management estimate based on various sources.

4. UK Finance (www.ukfinance.org.uk): Total Market Data - Credit Card Statistics.5. Office for National Statistics.

£225bn1

total UK outstanding consumer credit receivables

65%2

of adults in the UK have a credit card

Revolving credit Instalment lending

NewDay

£2.9bn

Total credit card receivables

£73bn1

Unsecured personal loans new

lending

£26bn3

NewDay

£97m


Strategic Report

20172016

52bn 60bn

20192018

68bn 75bn

299bn 306bn 312bn 318bn

20172016

0.9bn1.2bn

20192018

1.7bn2.0bn

2.4bn2.7bn

3.3bn

3.8bn

Payment volumesCash usage continues to decline, accounting for 28% of payments during 2018 compared with 34% in 2017. This decrease is largely offset by growth in cards, bolstered by increasing popularity and availability of contactless technology.

With 107m transactions processed during 2018 (increasing by 17% to 125m in 2019), we handled 3% of all credit card payments, unveiling a substantial, growing, market opportunity.

Retail spend

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

There is a natural movement of customers in and out of near-prime. This has grown over recent years driven primarily by improving credit profiles of sub-prime customers.

Offering a credit product combined with rewards helps retailers and e-tailers build brand loyalty.

Department stores, supermarkets and fashion outlets have historically been the most popular providers of co-branded credit propositions.

Retail transaction finance has benefitted, and will continue to benefit, from increased e-commerce activity and technological change. NewDay is increasing its presence in this digital e-commerce ecosystem.

4%compound annual

growth rate

21%compound annual

growth rate

1.5mcustomer accounts served

£2.4bnprocessed spend

3.7mcustomer accounts served

£3.3bnprocessed spend

Credit 3bn 3%

Cash 11bn 16%

Debit 15bn 14%

Other 10bn

Online OnlineOffline Offline

Total retail spend5 (£) NewDay spend (£)

Cash11bn

Credit card3bnOther

10bn

318bn

39bn2

totaltransactions

Debit card15bn

NewDay Own-brand lending NewDay Co-brand lending


Strategic Report


Our digital journey in 2019

In 2019, we continued our journey towards becoming the leading digitally enabled consumer credit provider delivering

several key milestones

2.3mmobile app downloads

78%digital payments

for collections

+70Net Easy Score

January Young Fashion mobile-first proposition initial launchTargeted card proposition with mobile-based loyalty

February ChatBot launchMobile AI-mediated chat for marbles customers linked to agent chat support

AprilCredit limit managementDigital management for customers who exceed their credit limit

JulyOpen Banking layerAccount access APIs to meet PSD2 regulation

AugustDigital functionality for balance transfers and money transfersStraight-through end-to-end digital journey for balance t r a n s f e r s a n d m o n ey transfers

eCRMDigital delivery of marketing offers in servicing journeys


Strategic Report

2020 key deliverables

• Biometric payment authentication to support PSD2 regulation

• Regulatory management of customers in persistent debt online

• Introduce digital wallets with Apple Pay and Google Pay

• Push notifications to keep the customer informed of transactions and account events in realtime

• Vulnerable customer support online

• Faster payments direct from customer bank accounts

• Digital access to set up payment promises for customers in collections

Our digital journey in 2019

4.7average app store rating

77%of accounts

originated online

98%digital transactions

for servicing

SeptemberCollections supportCustomer messaging and a helpful straight through frictionless digital payment journey

OctoberCo-brand acquisitions moved in-houseRetail partner customer acquisition moved onto in-house digital acquisition platform from Fiserv

NovemberPIN onlineImmediate digital advice of PIN to reduce operational costs and ensure customers can use their cards


Strategic Report

Our end-to-enddigital product solutionsIn 2019, we launched an exciting partnership with AO.com, one of the UK’s largest electrical goods

e-tailers. The AO Finance partnership leverages our NewPay platform which enables AO.com customers a

simpler, hassle-free way to buy the products that matter most to them

Promotion • Competitive credit offers and

‘always-on’ promotion of AO Finance throughout the AO.com digital channels

• AO Finance provides credit offers to suit the needs of each individual customer including interest-free credit, instalment plans and buy now pay later offers. All are accessed through the AO Finance account

Application • AO Finance is integrated into the

payment options as part of the checkout page

• Both the eligibility check and full application are integrated into the AO.com checkout to ensure a seamless customer journey from basket to payment

• The customer can complete an eligibility check to understand if they will be accepted for an AO Finance account without impacting their credit score

• Following the eligibility check, the customer completes the application and electronically signs the credit agreement before finalising their order

1 2


Strategic Report

Instant spend • Once approved, the credit line

is available instantly and the customer can purchase the products in their basket

• The customer will be able to split the purchase over equal monthly payments or take advantage of any promotional rate they have been offered

Repeat spend • No need to fill out a new

application form or complete another credit check

• The customer can log in to their AO.com account at any time to view their available credit

• Existing customers will be offered targeted promotional offers when they log in

Servicing • The customer can see their

outstanding balance, promotional plans and payment date within their AO.com account

• The customer can track their plans and see how many months they have left to pay

• Within the e-servicing portal, the customer can view statements, set up direct debits, make payments and manage their account preferences

3 4 5


Strategic Report

Acquiring new customers that create long-term relationships

Acquiring new customersWe ensure there is always a consistent and stable level of investment in acquiring new customers and opening new

accounts across our Own-brand and Co-brand businesses. By investing in new customers we aim to

consistently grow our receivables.

Creating long-term relationshipsWe are committed to developing long-term, trusted relationships

with our customers. As new customers mature we gain a better understanding of their behaviours and a lower level of servicing and

marketing contact is required. These customer relationships help generate predictable revenue streams.

PROFITABLE AND CASH GENERATIVE LONG-TERM RELATIONSHIPS

INVESTMENT IN ACQUIRING NEW CUSTOMERS


Strategic Report

We are investing today to grow our receivables and deliver long-term profitability. This consistent investment in acquiring

new customers aims to deliver sustainable year-on-year increases in profits and cash generation from our established

long-term customers

Acquiring new customersInvesting in our new customers, we incurred an adjusted EBITDA loss of £96m in 2019.

2018 2019

New customer accounts1 1.2m 1.2m

Receivables £425m £482m

.

Long-term relationshipsOur existing customers generated £240m of adjusted EBITDA in 2019, an increase of 19% year-on-year.

2018 2019

Existing customer accounts3 3.5m 4.0m

Receivables £2,198m £2,544m

This loss is incurred to help create long-term growth.

Adjusted EBITDA

£39m

2018 2019

£201m

Adjusted EBITDA (loss)

2018 2019

(£119m) (£96m)2

£240m4

1. New customer accounts are those that have been with NewDay for less than 12 months.2. This comprises total income of £95m (2018: £72m), impairment of £111m (2018: £111m)

and total costs net of depreciation and amortisation of £80m (2018: £80m).3. Existing customer accounts are those that have been with NewDay for over 12 months.4. This comprises total income of £581m (2018: £519m), impairment of £207m (2018: £191m)

and total costs net of depreciation and amortisation of £134m (2018: £127m).


Strategic Report

Delivering strong growth

2019 delivery and future priorities

Opportunity Enablers Outcomes

Evolving with our customers to address changing needs

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


Acquiring new customers and creating long-term relationships


2019 highlights:• Receivables growth of 15% to £3.0bn

• NewPay expansion via exciting partnership with AO.com

• Re-branded Aqua to deliver a fresh customer experience

• Increased online spend levels above market growth rate

Future priorities:• Continuing to expand the business and

growing market share sustainably and responsibly

• Evolving with our customers’ changing needs and the convergence of the consumer credit market, continuing to offer innovative and varied products

• Launching a new mobile credit product, removing friction to help customers apply and pay with credit more easily

• Developing our relationship with Deko to expand NewPay distribution and exploring wider, innovative, opportunities

2019 highlights:• 2.3m app downloads as at

31 December 2019

• An average app store rating of 4.7 stars

• Transactional NPS score of +66

• Helped 2.0m customers improve their credit score

• Continued to support Family Action, our charity partner, providing £190k of donations and financial support to launch FamilyLine, their helpline for families and carers

• Maintaining NewDay as an employer of choice

Future priorities:• Keeping our Customer Manifesto at

the heart of everything we do and the decisions we make

• Seeking new ways to further improve our customer experience

• Being actively involved in community conversations around the role of credit in financial inclusion and working with other stakeholders and parties, including Demos, to understand what ‘good credit’ looks like

2019 highlights:• Launched ChatBot functionality, with

over 100,000 interactions to date

• Moved Co-brand digital acquisition platform in-house from Fiserv

• 2.8 percentage points improvement in the underlying cost-income ratio to 33.0%

• Improved NES for online servicing to +70, compared to +68 in 2018

Future priorities:• Introducing digital wallets with Apple

Pay and Google Pay

• Introducing faster payments direct from customer bank accounts

• Driving cost-efficiencies through digital transformation

• Developing new mobile credit products

2019 highlights:• Sustained new account acquisition

levels at 1.2m

• Launched five new products through our retail partnerships

• Continued to scale Amazon, Fluid and Unsecured Personal Loans

• Existing customers generated £240m of adjusted EBITDA and we incurred an adjusted EBITDA loss of £96m from acquiring new customers

Future priorities:• Maintaining our position as a leading

issuer of credit within the near-prime and co-brand segments of the UK consumer credit market

• Further expanding NewPay

• Developing and broadening retail partnerships

2019 highlights:• 15% growth in receivables to £3.0bn,

with Co-brand surpassing the £1bn milestone in the year

• 75% growth in adjusted EBITDA to £144m

• Statutory profit before tax of £50m, compared to a £7m loss in 2018

• Free cash flow available for Senior Secured Debt interest of £50m

• £0.7bn of variable funding notes (VFN) headroom to fund future growth

Future priorities:• Maintaining our strong, diversified

capital base and liquidity profile

• Continuing to deliver strong shareholder returns through controlled growth


Strategic Report

Opportunity Enablers Outcomes

Evolving with our customers to address changing needs

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


Acquiring new customers and creating long-term relationships


2019 highlights:• Receivables growth of 15% to £3.0bn

• NewPay expansion via exciting partnership with AO.com

• Re-branded Aqua to deliver a fresh customer experience

• Increased online spend levels above market growth rate

Future priorities:• Continuing to expand the business and

growing market share sustainably and responsibly

• Evolving with our customers’ changing needs and the convergence of the consumer credit market, continuing to offer innovative and varied products

• Launching a new mobile credit product, removing friction to help customers apply and pay with credit more easily

• Developing our relationship with Deko to expand NewPay distribution and exploring wider, innovative, opportunities

2019 highlights:• 2.3m app downloads as at

31 December 2019

• An average app store rating of 4.7 stars

• Transactional NPS score of +66

• Helped 2.0m customers improve their credit score

• Continued to support Family Action, our charity partner, providing £190k of donations and financial support to launch FamilyLine, their helpline for families and carers

• Maintaining NewDay as an employer of choice

Future priorities:• Keeping our Customer Manifesto at

the heart of everything we do and the decisions we make

• Seeking new ways to further improve our customer experience

• Being actively involved in community conversations around the role of credit in financial inclusion and working with other stakeholders and parties, including Demos, to understand what ‘good credit’ looks like

2019 highlights:• Launched ChatBot functionality, with

over 100,000 interactions to date

• Moved Co-brand digital acquisition platform in-house from Fiserv

• 2.8 percentage points improvement in the underlying cost-income ratio to 33.0%

• Improved NES for online servicing to +70, compared to +68 in 2018

Future priorities:• Introducing digital wallets with Apple

Pay and Google Pay

• Introducing faster payments direct from customer bank accounts

• Driving cost-efficiencies through digital transformation

• Developing new mobile credit products

2019 highlights:• Sustained new account acquisition

levels at 1.2m

• Launched five new products through our retail partnerships

• Continued to scale Amazon, Fluid and Unsecured Personal Loans

• Existing customers generated £240m of adjusted EBITDA and we incurred an adjusted EBITDA loss of £96m from acquiring new customers

Future priorities:• Maintaining our position as a leading

issuer of credit within the near-prime and co-brand segments of the UK consumer credit market

• Further expanding NewPay

• Developing and broadening retail partnerships

2019 highlights:• 15% growth in receivables to £3.0bn,

with Co-brand surpassing the £1bn milestone in the year

• 75% growth in adjusted EBITDA to £144m

• Statutory profit before tax of £50m, compared to a £7m loss in 2018

• Free cash flow available for Senior Secured Debt interest of £50m

• £0.7bn of variable funding notes (VFN) headroom to fund future growth

Future priorities:• Maintaining our strong, diversified

capital base and liquidity profile

• Continuing to deliver strong shareholder returns through controlled growth

“ 2019 was a record year. We made very good progress against our strategic objectives and further invested in our digital capability“

John Hourican Chief Executive Officer


Strategic Report

Key Performance Indicators

Our performance and progress are tracked using a number of financial and non-financial

Key Performance Indicators (KPIs)

New customer accounts 1.2m(2018: 1.2m)

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

Performance: We welcomed 426,0 0 0 new Own-brand account s (2018: 456,0 0 0). The Co-brand business opened 752,000 new accounts (2018: 733,000) and Unsecured Personal Loans welcomed 21,000 customers (2018: 15,000). 77% of accounts were originated digitally (2018: 63%).

1,09

2,00

0

1,20

4,00

0

1,19

9,00

0

2017 2018 2019

Transactional Net Promoter Score

+66(2018: +64)

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

Performance: We continue to rank favourably across several industry sectors with a score of +66. Our NES for online servicing was +70 (2018: +68), evidencing the benefits from our leading digital platform.

+65

+64 +6

6

2017 2018 2019

Consumer spend through digital channels

£2.0bn(2018: £1.7bn)

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

Performance: We continue to see signif icant increases in the amount of customer spend that is generated through digital channels. This is driven both by changing consumer spending behaviour and our ambition to becoming the leading digitally enabled consumer finance provider in the UK.

£1.2

bn

£1.7

bn £2.0

bn

2017 2018 2019

Closing receivables £3,026m(2018: £2,623m)

Definition: Gross customer balances outstanding at the year end.

Performance: We delivered strong growth across each portfolio: Own-brand 12%; Co-brand 17%; and Unsecured Personal Loans 73%, with new account originations, our ‘low and grow’ credit limit strategy and the introduction of new retail partners driving our growth.

£2,1

64m

£2,6

23m

£3,0

26m

2017 2018 2019


Strategic Report

Risk-adjusted margin1 13.0%(2018: 12.4%)

Definition: Risk-adjusted income (total income less impairment) (£358m)/average gross receivables (£2,752m).

Performance: Our risk-adjusted margin increased to 13.0%, predominantly driven by a reduction in the impairment rate, resulting from a combination of improved credit quality and refinements to the Group’s impairment provisioning model, partially offset by more interest-free promotional period product offers and higher cost of funds.

14.7

%

12.4

%

13.0

%

2017 2018 2019

Underlying cost-income ratio

33.0%(2018: 35.8%)

Definition: Underlying costs (servicing, change, marketing and partner payment costs, collection fees, salaries, benefits and overheads) (£223m)/total income (£676m).

Performance: Our continued focus on efficiency savings and leveraging the scalability of our leading digital platform resulted in the underlying cost-income ratio improving to 33.0%. This reduces to 30.5% when excluding expenses associated with the Group’s Value Creation Plan, other strategic project costs and costs to deliver interventions aimed at customers considered in persistent debt (2018: 31.8%).

34.6

% 35.8

%

33.0

%

2017 2018 2019

Adjusted EBITDA1 £144m(2018: £82m)

Definition: Risk-adjusted income (£358m) less underlying costs (£223m) adjusted for depreciation and amortisation (£9m).

Performance: Adjusted EBITDA increased by £62m, or 75%, year-on-year. This was driven primarily by strong receivables growth, generating a 14% increase in total income, and a well-maintained credit performance which reduced the impairment rate to 11.6%. Our existing customers generated adjusted EBITDA of £240m (2018: £201m), which was partially offset by a £96m adjusted EBITDA loss incurred from establishing new customers (2018: £119m), for further details see page 24.

£114

m

£82m

£144

m

2017 2018 2019

Employee engagement 77%(2018: 75%)

Definition: Results of our most recent Pulse engagement survey.

Performance: We promote an engaging and inclusive environment that enables colleagues to deliver our strategy. In 2019, our engagement index improved to 77%.

77%

75% 77

%

2017 2018 2019

Impairment rate1 11.6%(2018: 13.0%)

Definition: Impairment (£318m)/average gross receivables (£2,752m).

Performance: A combination of improved credit quality and ref inements to our impairment provisioning model (for further details see page 93) resulted in our impairment rate reducing by 1.4 percentage points to 11.6%.

11.3

% 13.0

%

11.6

%

2017 2018 2019

Free cash flow for Senior Secured Debt interest

£50m(2018: £41m)

Definition: Adjusted EBITDA (£144m) adding back the movement in the impairment provision during the year (£18m) less changes in working capital, PPI provision utilisation, capital expenditure, tax expense and exceptional costs (£57m), less investment in receivables (£423m), plus net financing cash flows (£367m).

Performance: Our business model is cash generative. Free cash f low available for Senior Secured Debt interest increased by £9m to £50m despite investing £17m in our Value Creation Plan, strategic projects and costs to deliver interventions aimed at customers considered in persistent debt (2018: £24m), as well as £15m of PPI provision utilisation (2018: £20m). Overall cash increased by £18m to £152m (2018: £134m).

(£7m

)

£41m

£50m

2017 2018 2019

Profit before tax1 £50m(2018: £7m loss)

Definition: Statutory profit (or loss) before tax per the consolidated Group income statement.

Performance: Net interest income increased by 17% to £575m (2018: £492m), primarily driven by receivables growth, and both impairment and operating expenses were well-controlled resulting in a £57m increase in profit before tax.

(£27

m)

(£7m

)

£50m

2017 2018 2019

Carbon footprint 988 tonnes of CO2e

(2018: 928 tonnes of CO2e)

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

Performance: Reducing our impact on the environment is one of our key goals. In 2019, through the Green World Awards, we were proud to be awarded Green World Ambassador in the Financial Services sector category and received a Gold award for our implementation of our London office renovation.

1,08

7t

928t 98

8t

2017 2018 2019

1 The impairment charge for 2017 is calculated in accordance with IAS 39 ‘Financial In stru ments: Recog ni tion and Mea sure ment’. The impairment charge for 2018 and 2019 are calculated in accordance with IFRS 9 ‘Financial Instruments’.


Strategic Report

Financial review

Paul SheriffChief Financial Officer

2019 was another strong year in which we achieved 75% growth in adjusted EBITDA to £144m.

Existing customers generated £240m of adjusted EBITDA and £96m of adjusted EBITDA loss

was generated from acquiring new customers

Receivables increased by 15%, surpassing the £3bn milestone. In addition, we successfully refinanced

all maturing debt and finished the year with £0.7bn of headroom to fund future growth


Strategic Report

2019 was another impressive year for the Group. Strong receivables growth generated a 14% increase in total income and a combination of improved credit quality and refinements to our impairment provisioning model resulted in the impairment rate reducing by 1.4 percentage points to 11.6% (2018: 13.0%). We continued our focus on cost control and accordingly our underlying cost-income ratio improved by 2.8 percentage points to 33.0% (2018: 35.8%) whilst absorbing £38m of investment in change projects to drive sustainable long-term growth (2018: £41m). This resulted in adjusted EBITDA increasing by £62m, or 75%, to £144m for the year (2018: £82m).

We reported a statutory profit before tax of £50m for the year ended 31 December 2019 (2018: loss before tax of £7m). The statutory profit before tax includes a number of items, explained below, which do not represent the Group’s underlying performance:

2019 £m

2018 £m

Statutory profit/(loss) before tax 49.9 (6.9)Senior Secured Debt interest and related costs 33.9 33.4Customer refund provision 0.4 –Fair value unwind (0.3) 1.6Other costs – 0.2Depreciation and amortisation including amortisation of intangibles arising on the Acquisition1 60.3 53.9

Adjusted EBITDA 144.2 82.2

1. On 26 January 2017, NewDay Group (Jersey) Limited acquired NewDay Group Holdings S.à r.l. and its subsidiaries (the Acquisition).

2019 highlights

• 15% growth in receivables to £3,026m (2018: £2,623m) and Co-brand surpassed the £1bn milestone in the year

• 1.2m new accounts opened (2018: 1.2m), of which 77% were originated online (2018: 63%)

• 75% growth in adjusted EBITDA to £144m (2018: £82m)

• Existing customers generated adjusted EBITDA of £240m (2018: £201m) and we incurred a £96m adjusted EBITDA loss from acquiring new customers (2018: £119m)

• Statutory profit before tax of £50m (2018: loss of £7m)

• Free cash flow available for Senior Secured Debt interest of £50m (2018: £41m)

• Total income grew by 14% driven by the strong receivables growth

• Impairment rate improved to 11.6% (2018: 13.0%)

• Risk-adjusted income increased by 24% to £358m (2018: £289m)

• Underlying cost-income ratio improved to 33.0% (2018: 35.8%)

£992m

Own-brand receivablesCo-brand receivables Unsecured PersonalLoans receivables

2017 2018 2019

£113m

£1,326m

£821m

£17m£2,164m

£3,026m

£1,160m

£1,753m

£66m£2,623m

£992m

£1,566m

Own-brand total income Co-brand total income Unsecured PersonalLoans total income

2017 2018 2019

£351m

£148m

£nil£499m

£676m

£202m

£461m

£6m£591m

£171m

£415m

£14m

Group receivables up 15% Total income up 14%


Strategic Report

The growth in receivables was achieved with improving credit quality which was in part driven by tightening of credit lending rules from 2018. These changes, coupled with refinements to our impairment provisioning methodology, limited the growth in impairment to £16m, or 5%, compared to 15% receivables growth, with a total impairment charge of £318m (2018: £302m). The upfront impairment recognition requirements of IFRS 9 ‘Financial Instruments’ required us to incur a £111m impairment charge from new customer accounts with the aim to generate long-term relationships. Tightening of credit lending rules from 2018 resulted in the proportion of Own-brand customers with two missed payments (or more) after six months reducing year-on-year to 10.6% (2018: 11.7%). Within Co-brand, the same metric increased to 3.8% (2018: 3.1%) primarily as a result of the planned strategic shift towards higher levels of online originated accounts. Our impairment rate improved by 1.4 percentage points to 11.6% (2018: 13.0%) which was primarily driven by credit tightening and refinements to our impairment provisioning methodology.

Our focus on being an efficient and streamlined end-to-end business limited the growth in costs to 6% at £223m (2018: £211m). This is in comparison to receivables growth of 15% which demonstrates the scalability of our business model. Our underlying cost-income ratio improved by 2.8 percentage points to 33.0% (2018: 35.8%) whilst absorbing £38m of investment in change projects to drive sustainable long-term growth (2018: £41m).

The scalability of our operating model and operational benefits from the delivery of our Value Creation Plan are evident in servicing costs which only increased by 10% to £95m (2018: £87m).

We are delivering on our Value Creation Plan initiatives and as a result total change costs reduced by £3m to £38m year-on-year (2018: £41m). Our investment is enhancing our leading digital platform with 98% of servicing transactions and 78% of collections now made digitally. During the year we have integrated intelligent automation in several of our customer-facing and back office processes, including the roll-out of ChatBots and the development of VoiceBots. We have successfully transitioned our Co-brand digital acquisition platform in-house from Fiserv so that we can adapt quickly to the changing needs of our retail partners.

Marketing and partner payment costs reduced by 2% to £60m (2018: £62m) primarily due to our continued focus on sourcing more cost efficient ways of attracting new customers.

Collection fee income of £29m (2018: £30m) was broadly flat year-on-year as a result of refinements to our policy, driven by our Customer Manifesto, for charging late fees to customers partially offset by growth in account volumes.

Salaries, benefits and overheads increased by 13% to £59m (2018: £52m) driven by higher headcount required to support our growth strategy.

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

The customer refund provision results from an operational incident which arose due to receiving incomplete information from a third party. The £0.4m expense represents the expected costs to be refunded to customers, net of contributions received from the third party.

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

Depreciation and amortisation primarily includes costs related to the amortisation of the purchase price that was attributed to intangible assets arising on completion of the Acquisition.

Group performanceWe welcomed 1.2m new customers (2018: 1.2m), of which 77% were generated through online channels leveraging our leading digital platform (2018: 63%). Our receivables continue to grow at an impressive rate despite tightening of credit lending rules from 2018. We reported receivables of £3,026m (2018: £2,623m), with our Co-brand portfolio surpassing the £1bn milestone in the year. The receivables book is now almost exclusively from our open portfolios with the open book accounting for 96% of the total portfolio (2018: 95%).

Our ‘low and grow’ strategy for credit limits continues to deliver controlled growth within our Own-brand business. Our Co-brand business successfully launched with two new retail partners, Argos and AO.com, in the year and continues to benefit from growth driven by the Amazon portfolio. Our Unsecured Personal Loans receivables, at £113m (2018: £66m), surpassed £100m in the year as we continue to control its roll-out.

Interest income increased by 16% to £674m (2018: £579m) driven by the receivables growth but partially offset by more interest-free promotional period product offers.

The growth in receivables was funded primarily by borrowings. Consequently, average borrowings increased in the year by 21% which resulted in a 22% increase in cost of funds. We successfully refinanced two Own-brand asset-backed securities that matured in the year and completed a third financing transaction to raise £577m in total.

Our Customer Manifesto is at the heart of everything we do and drives positive customer outcomes. Accordingly, revisions to our policy for charging fees to customers limited fee and commission income growth to 4% at £66m (2018: £64m).

Financial reviewContinued


Strategic Report

Management basis income statement

20191 2018

£m Own-brand Co-brand

Unsecured Personal

Loans Group Own-brand Co-brand

Unsecured Personal

Loans Group

Interest income 456.5 200.5 16.6 673.6 406.5 165.2 7.7 579.4Cost of funds (41.1) (19.4) (3.0) (63.5) (34.3) (15.8) (1.8) (51.9)

Net interest income 415.4 181.1 13.6 610.1 372.2 149.4 5.9 527.5Fee and commission income 45.1 20.8 – 65.9 42.3 21.3 – 63.6

Total income 460.5 201.9 13.6 676.0 414.5 170.7 5.9 591.1Impairment losses on loans and advances to customers (257.1) (46.2) (14.6) (317.9) (260.8) (33.3) (7.7) (301.8)

Risk-adjusted income/(expense) 203.4 155.7 (1.0) 358.1 153.7 137.4 (1.8) 289.3Servicing costs (43.1) (50.6) (1.2) (94.9) (36.9) (48.9) (0.8) (86.6)Change costs (14.2) (9.6) (1.4) (25.2) (12.7) (9.5) (1.8) (24.0)Value Creation Plan implementation costs (7.5) (5.5) (0.1) (13.1) (10.2) (6.4) (0.2) (16.8)Marketing and partner payments (13.8) (45.7) (0.8) (60.3) (18.2) (43.0) (0.3) (61.5)Collection fees 18.6 10.6 – 29.2 17.8 11.8 – 29.6

Contribution 143.4 54.9 (4.5) 193.8 93.5 41.4 (4.9) 130.0Salaries, benefits and overheads (58.9) (52.1)

Underlying profit before tax 134.9 77.9Add back: depreciation and amortisation 9.3 4.3

Adjusted EBITDA 144.2 82.2Senior Secured Debt interest and related costs (33.9) (33.4)Customer refund provision (0.4) –Fair value unwind 0.3 (1.6)Other costs – (0.2)Depreciation and amortisation including amortisation of intangibles arising on the Acquisition (60.3) (53.9)

Profit/(loss) before tax 49.9 (6.9)

1. In 2019, we revised our methodology for allocating costs between each operating segment. This did not have a material impact on the segmental income statement, accordingly the 2018 comparatives have not been restated.

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


Strategic Report

Net interest income increased by £43m, or 12%, to £415m as a result of the receivables growth (2018: £372m). Funding margins, at 2.9%, were consistent year-on-year (2018: 2.9%).

Fee and commission income of £45m increased by 7% year-on-year (2018: £42m). The growth was lower than the receivables growth due to fee policy changes, introduced in September 2018, which aim to realise positive customer outcomes that are consistent with our Customer Manifesto.

The impairment charge reduced by £4m to £257m (2018: £261m) with the impairment rate improving by 2.7 percentage points to 15.6% (2018: 18.3%). This was primarily driven by: (i) the tightening of credit underwriting rules and repayment plan eligibility criteria from 2018; and (ii) refinements to our impairment provisioning methodology (for further details see page 93).

To support the growth in the receivables book, servicing costs increased by 17% to £43m (2018: £37m).

Total change costs were £1m lower at £22m (2018: £23m). Change costs include continued investment in the delivery of regulatory changes, as well as ongoing enhancements to our leading digital platform. We are delivering on our Value Creation Plan and consequently we required 27% less investment in these projects during the year, with a total cost of £8m (2018: £10m).

Marketing costs decreased by £4m to £14m (2018: £18m) primarily as a result of targeting more cost efficient channels to on-board new customers.

Collection fees increased by 4% to £19m (2018: £18m) with growth in account volumes partly offset by refinements, driven by our Customer Manifesto, to our policy for charging late fees to customers.

As a result of the factors above, and primarily due to strong income growth coupled with a well-maintained credit performance, our Own-brand contribution increased by 53% to £143m (2018: £94m).

Co-brand performanceClosing receivables

2017 2018

Open books

Closed books

£10

m

£20

m£

801

m

£1,1

50

m

£14

m£

978

m

2019

Our Co-brand business welcomed 752,000 new customers (2018: 733,000) and reported receivables growth of £168m, or 17%, to £1,160m (2018: £992m), surpassing the £1bn milestone in the year.

Acquiring new customers that create long-term relationships

Acquiring new customers EBITDA cost

2018 2019

(£96

m)

(£11

9m

)

We generated a £96m adjusted EBITDA loss in acquiring 1.2m new customer accounts in 2019 (2018: £119m).

Existing customer adjusted EBITDA growth

2018

£24

0m

£20

1m

2019

Our long-term relationships with existing customers generated £240m of adjusted EBITDA (2018: £201m), representing 19% growth year-on-year.

For further details see page 24.

Own-brand performanceClosing receivables

2017 2018

Open books

Closed books

£117

m

£138

m£1

,18

8m £1

,636

m

£123

m£1

,443

m

2019

Our Own-brand business welcomed 426,000 new customers (2018: 456,000) and reported receivables growth of £187m, or 12%, to £1,753m (2018: £1,566m).

The receivables growth was driven primarily by our ‘low and grow’ strategy for customer credit limits as well as growth from the portfolio’s newest offering, Fluid, which targets balance transfers in the near-prime sector. Our open book now accounts for 93% of the total portfolio (2018: 92%).



Strategic Report

Unsecured Personal Loans (UPL) performanceClosing receivables

2017 2018

£17m

£113

m

£66

m

2019

We opened 21,000 new loans in the UPL business (2018: 15,000) as it continues to target existing Own-brand customers whilst building credit experience. Receivables grew by 73% year-on-year and surpassed £100m in the year to finish at £113m (2018: £66m). This resulted in total income growing by £8m, or 131%, to £14m (2018: £6m). Due primarily to the upfront impairment recognition requirements of IFRS 9, impairment increased by £7m to £15m (2018: £8m) following the strong receivables growth. Operating costs increased to £4m to stimulate the growth in receivables (2018: £3m). As a result of these factors, and primarily due to the upfront impairment charge under IFRS 9, the UPL business reported a negative contribution of £5m (2018: negative contribution of £5m).

Capital and liquidityOur free cash flow available for Senior Secured Debt interest increased by £9m to £50m (2018: £41m) demonstrating that our business model continues to be cash generative. Overall cash increased by £18m to £152m (2018: £134m).

The following table reconciles adjusted EBITDA to the net increase in cash:

2019 £m

2018 £m

Adjusted EBITDA 144.2 82.2Change in impairment provision 18.3 60.4

Adjusted EBITDA excluding change in impairment provision 162.5 142.6Change in working capital (22.3) 2.8PPI provision utilisation (15.1) (20.1)Capital expenditure (9.6) (9.4)Tax paid (10.0) (6.8)

FCF available for growth and debt service 105.5 109.1Increase in gross receivables (422.7) (470.9)Net financing cash flow 367.0 402.5

FCF available for Senior Secured Debt interest 49.8 40.7Senior Secured Debt interest paid (31.7) (31.1)Net increase in cash 18.1 9.6

Ratio of net corporate Senior Secured Debt to adjusted EBITDA 1.9x 3.5x

Ratio of adjusted EBITDA to cash interest expense 4.5x 2.6x

We successfully on-boarded two new partners in the year. In April, we launched the Argos Classic credit card to Argos customers who do not qualify for Argos’ own store card offering. Following this, in August, we launched with AO.com who became our second partner to use NewPay, our digital revolving credit product. In 2019, we also introduced Miss Selfridge, Topman and Topshop credit cards which aim to help customers build credit through rewards.

Net interest income increased by 21% to £181m (2018: £149m) driven mainly by the growth in receivables. Funding margins, at 2.1%, were marginally higher than last year (2018: 2.0%). Fee and commission income reduced by 2% to £21m (2018: £21m) partly due to refinements to our policy for charging fees to customers driven by our Customer Manifesto.

The impairment rate increased to 4.6% (2018: 3.9%), which is in line with the targeted widening of the risk profile of our Co-brand portfolio, primarily through a change in mix towards online from in-store customers.

Servicing costs increased by 3% to £51m (2018: £49m) whilst delivering a 17% increase in receivables, evidencing scalability of our business model.

Total change costs reduced by £1m to £15m (2018: £16m) primarily due to lower Value Creation Plan spend since we are now delivering on many of the initiatives.

Marketing and partner payment costs increased by £3m to £46m (2018: £43m) as we continued to focus on growth and attracting new retail partners.

Collection fees reduced by £1m to £11m (2018: £12m) as a result of refinements to our policy for charging late fees to customers, which are driven by our Customer Manifesto, offsetting the growth in our receivables book.

As a result of the factors above, and primarily due to the growth in net interest income partially offset by a higher impairment charge, Co-brand contribution increased by £14m, or 33%, to £55m (2018: £41m).

We continue to monitor trading conditions on the high street. In March 2019, we novated our retail contract with House of Fraser to the new House of Fraser business owned by Sports Direct. Additionally, in April 2019, Debenhams plc entered administration and the underlying operating companies (including the entities party to our contract with Debenhams) were sold to a separate legal entity owned and controlled by certain creditors of Debenhams plc.

Our strategy continues to be the diversification of our Co-brand portfolio to become less reliant on the high street and to create a broader retail partner base which has a greater online presence. This is achieved primarily through both new partnerships, such as with Amazon and AO.com, and our ongoing investment in NewPay.


Strategic Report

As at 31 December 2019, we maintained significant headroom on our variable funding notes of £0.7bn to fund further receivables growth (2018: £0.9bn) and the average maturity of our debt issued was two years (2018: three years). The staggered nature of our debt maturity profiles means that 24% of committed debt facilities are due for refinancing in less than one year and 76% are due in one to five years. We currently intend to raise further funds through the issue of asset-backed securities during the course of 2020 to refinance the debt facilities due in less than one year.

Debt maturity profile

2020 2021 2022

£658

m £384

m £294

m£7

03m

£502

m

£275

m

£61m

£150

m

2023 2024

Asset-backed securities

Drawn variable funding notes (VFNs)Senior Secured Debt

£0.7bn of additional VFNheadroom available to fundfuture receivables growth.

Our receivables are funded primarily through debt issued and our blended advance rate (being the total asset-backed securities and drawn VFNs as a proportion of closing receivables) as at 31 December 2019 was 86.0% (2018: 85.9%). The advance rate for Own-brand was 83.0% (2018: 83.3%) and Co-brand was 92.3% (2018: 91.2%).

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

2019 £m

2018 £m

Net cash used in operating activities (335.8) (383.5)Net cash used in investing activities (9.6) (9.4)Net cash generated from financing activities 363.5 402.5

Net increase in cash and cash equivalents 18.1 9.6Cash and cash equivalents at the start of the year 134.0 124.4

Cash and cash equivalents at the end of the year 152.1 134.0

The change in working capital of £22m (2018: positive £3m) was impacted by a one-off payment to House of Fraser to settle daily customer transactions which accrued during the period prior to formal novation of the contract to Sports Direct, of which £15m was accrued in the Financial Statements as at 31 December 2018. PPI utilisation reduced by 25% to £15m (2018: £20m). The FCA deadline by which customers can raise a claim with their PPI provider passed on 29 August 2019 and, as at 31 December 2019, we reported a provision of £10m (2018: £25m) to cover the remaining expected costs.

Excluding the impact of the one-off payment to House of Fraser and PPI utilisation, underlying free cash flow for Senior Secured Debt interest increased by 72% to £80m (2018: £46m).

FundingIn 2019, we raised £577m from three financing transactions in our Own-brand asset-backed securitisation programme. This included refinancing two series within our Own-brand asset-backed securitisation programme that matured in the year which raised £526m, including $205m from US capital markets, and a third financing transaction which raised £51m.

The first transaction, completed in June, refinanced part of the asset-backed term debt issued in connection with our Own-brand securitisation programme with the issuance of £285m of debt (of which £36m was retained internally within the Group). This debt has a scheduled maturity in 2022 and is the first debt issued by the Group that accrues interest linked to the Sterling Overnight Index Average (SONIA).

The second transaction, completed in September, totalled £317m and was used to settle maturing asset-backed securities within the Own-brand securitisation programme in November 2019. This transaction comprised of: (i) the issuance of £151m of publicly listed asset-backed term debt (of which £40m was retained internally within the Group); and (ii) the issuance of $205m of publicly listed asset-backed term debt raised in the US capital markets (which was equivalent to £166m on the date of issuance). The US$ exposure raised through this transaction, together with the financing transactions completed in 2018, are hedged through a balance guaranteed cross-currency interest rate swap.

The final transaction, completed in December, raised £51m from the sale of certain asset-backed term debt within the Own-brand securitisation programme that was previously retained within the Group.

Based on current levels of liquidity, the Group will continue to monitor funds to ensure they are appropriately deployed. This may include, amongst other things, on-market purchases of the Senior Secured Debt. However, and for the avoidance of doubt, no final decision has been taken in this regard and therefore there is no certainty that the Group will carry out any such transactions.



Strategic Report

Net cash used in operating activities was £336m (2018: £384m) which was primarily driven by the growth in receivables.

Net cash used in investing activities of £10m (2018: £9m) represents investment in intangible assets and property and equipment.

Net cash generated from financing activities of £364m (2018: £403m) consists of issuances and repayments of asset-backed securities and drawdowns of variable funding notes to fund receivables growth.

Capital requirementsThere is no regulatory capital requirement for any subsidiary other than NewDay Ltd owing to its status as an Authorised Payment Institution. As at 31 December 2019, the levels of capital for NewDay Ltd exceeded the minimum capital requirement with headroom of £12m.

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

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


Strategic Report

Operating responsibly

“We believe that our vision can only be delivered when all stakeholders benefit. The Board is committed to maintaining a high

standard of corporate responsibility in all areas of our operations which allows us to build long-term, mutually beneficial relationships.

All our customers, colleagues, partners and the communities we operate in underpin our success”

Sir Michael RakeChairman and Non-Executive Director

Being a responsible lender

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

We continue to lend responsibly through the deployment of our ‘low and grow’ strategy, of fering our Own-brand customers a low initial credit limit until they demonstrate that they can actively manage and afford further credit in a responsible and sustainable manner. This is supported by our robust scorecards built on 18 years of experience and data analytics. In addition, we helped 127,000 customers with our online financial health check tools in 2019 (2018: 154,000) to support them in developing a greater understanding of their financial situation. This enables them to become better with credit and benefit from the rewards we offer.

Our collections toolkit has a wide range of practices that allow us to work with customers where their situations have changed and support them if they fall into arrears. In 2019, we supported 112,000 customers (2018: 67,000) with our collections toolkit strategies. Our contact

centre colleagues are also trained to identify potentially vulnerable customers and a specialist team is in place to provide those customers with the support they need. We embraced industry guidance aimed at helping customers whose accounts are defined as being in or near to persistent debt. We have rolled out a programme of support which encourages customers to make (in sustainable, af fordable increments) higher repayments which, when made, can lift an account out of persistent debt or avoid a customer entering into a state of persistent debt. Additionally, to support customers who are considered to have been in persistent debt for a prolonged period of three years, we have tailored a solution designed to help them come out of persistent debt, without adversely impacting affordability, within a reasonable period. Our objective as a responsible lender is always to do the right thing by our customers, which is monitored through a number of KPIs that are reported to the Board monthly. Our transactional NPS score of +66 (2018: +64) evidences that customers value the service they receive from us and customer complaints of 1.05 per 1,000 active accounts (2018: 1.25 per 1,000 active accounts) have decreased whilst delivering 1.2m new customer accounts. Additionally, in our Co-brand business we rewarded our customers with £27m in loyalty rewards (2018: £29m).

112,000customers supported with our

collections toolkit(2018: 67,000)

£27mgiven back to customers through

rewards(2018: £29m)

1.05complaints per 1,000 active accounts

(2018: 1.25)


Strategic Report

Supporting our communities

Our purpose goes beyond our products and services, demonstrating our responsibility to the communities we serve through key partnerships.

We know that we have a responsibility to local communities and society in general, as well as our stakeholders including customers, colleagues and shareholders and we take this responsibility very seriously. We also recognise that our purpose runs beyond our products and services and has a role to play in how we support the communities we serve.

The Good Credit IndexWe expanded our Customer Manifesto programmes with the launch of the Good Credit Index through Demos, a leading UK think tank. The Good Credit Index maps access to ‘good credit’ measured at a local level and provides location-based strategies for building better credit around the country.

In July 2019, Demos launched their Good Credit Index, a project made possible by NewDay’s financial support. The Demos team started by consulting consumers across the country to find out what ‘good credit’ looks like. By bringing together 21 data variables, they built a granular and comprehensive credit map of the UK to identify credit havens and deserts. Demos has since launched a localised project in the Sheffield City region to explore how local government, employers and other stakeholders can improve access to affordable, sustainable and transparent ‘good credit’ to positively impact the local area.

The Index will refresh each year, providing insight into the effects and importance of access to ‘good credit’ in the UK.

Charity CommitteeOur Charity Committee promotes and organises fundraising initiatives throughout the year and oversees the matched-funding scheme to which all colleagues are eligible to apply. The matched-funding scheme provides funding for individual, employee-led charity activities and during the year colleagues took part in a number of varied activities to support their nominated charities. In 2019, £208k was donated to local community charities, including charities supported by our colleagues.

Family ActionIn our fourth year of partnership, we continued our work with Family Action, our charity partner, who have now been operating continuously for families in need for over 150 years. During 2019, we made donations totalling £190k. Family Action provides practical, emotional and f inancial support to those who are experiencing poverty, disadvantage and social isolation. We donate funding to support Family Action’s national grant scheme that helps families regain independence following a crisis and have supported over 70 families with an Open Doors grant this year.

We also expanded our partnership with Family Action offering financial support so they could launch FamilyLine - a seven-day-a-week helpline for families and carers launched by new patron HRH Duchess of Cambridge. The service tackles issues in a new and innovative way by using a network of volunteers from

across the country to support family members over the age of 18 through telephone calls, email, web chat and text message. In 2019, this service enabled over 3,000 people access to the full range of support that Family Action offers which they would not have been able to do without the launch of FamilyLine.

Our colleagues believe in our partnership with Family Action. Throughout the year our colleagues engaged in numerous fundraising activities to support our charity partner and donated 960 gifts through Family Action’s UK-wide Toy Appeal collection programme.

We’re really proud of our partnership with Family Action and believe in the difference we can make together.

For more information about the support that Family Action provides visit their website at www.family-action.org.uk.

40 NewDay Annual Report and Financial Statements 2019NewDay Annual Report and Financial Statements 2019

Strategic Report

Helping customers build better credit with Aqua

Our Customer Manifesto in action

“Feeling trusted again means so much to me because I can look forward to building my future”Claire, Aqua customer from Middlesbrough


Strategic Report

Aqua, a leading brand within our Own-brand portfolio, is designed to responsibly say “yes” and help customers build

their credit score. We believe everyone can begin a journey to be better with credit with the right tools and support,

provided through Aqua

Aqua looks for ways to responsibly say

“yes”to consumers who may not be

able to easily access credit through mainstream lenders

Aqua says “yes”

5,000times every week

Claire, an Aqua customer from Middlesbrough, was accepted for an Aqua card and has been able to rebuild her score after financial difficulties ten years ago. She needed a credit provider who would trust her. Claire hopes one day a stronger credit profile will allow her to get a mortgage and purchase a home of her own.

Hear Claire’s story at newday.co.uk


Strategic Report

Being a responsible employer Making NewDay a great place to workWe want our colleagues to thrive at NewDay. Our people strategy drives our colleague experience and we are proud that we have increased our engagement index to 77% (2018: 75%) measured through our end-of-year Pulse survey. This shows that our colleagues feel that they are part of something exciting.

Changing ways of workingWe have grown quickly. With that has come an unprecedented and exciting change to the way we deliver work and innovate for our customers. We have brought all our development and design work in-house, creating fully formed squads to build and deliver innovative changes to our products, which benefit our customers.

We have been enhancing our digital footprint for both customers and colleagues. With that comes the need to upskill and provide continuous learning opportunities. We have delivered this through the provision of technical training to our Technology and Credit Risk teams, and we launched Learning Pool, an e-learning portal, allowing all colleagues direct access to a catalogue of soft and functional skills which they can access any time as ‘always-on’ training.

Talent and mobilityHigh-performing teams require great talent and throughout 2019 we created opportunities via different meet-up events covering subjects from data science, UX/UI and coding in order to attract new talent into NewDay.

We also know that we have high-potential talent across NewDay and we are tapping into that. We actively encourage our colleagues to think about lateral moves

that will help them develop in their career. As a result, 36% of colleagues moved into new opportunities internally in the year.

Diversity and inclusion (D&I)‘We value our differences, together.’ We know that employing people with multiple perspec tives and from dif ferent backgrounds makes a better business; it also means that we better represent and serve our diverse customer groups.

2019 was a year of firsts for NewDay. Since starting our D&I journey in 2018 we have made great progress. We measure our achievements through our Pulse survey and our latest D&I index is 82% (2018: 79%). This increase is representative of our people strategy in practice, but also recognising all our colleagues who have helped promote inclusion in gender, race and sexual orientation, to name a few.

A programme that was particularly well received by our colleagues, was our Inclusive Leadership training. All of our managers have participated in this to encourage us to be thoughtful about how we work together. We also audited our recruitment processes for bias, paving the way for truly inclusive recruitment and hiring.

Our first employee network was created, the Women’s Network. We supported and celebrated International Women’s Day in March with an internal campaign. From this network our Inspirational Speaker Series was created, which aims to bring people with different points of view into our offices to speak to our colleagues on a diverse range of topics.

We also took part in Pride in London and Leeds supporting our LGBTQ+ colleagues, have celebrated many faith events and had a great discussion, as part of Black History

Month in October, about what it means to be black in the UK. We are excited to be continuing these important conversations with our colleagues in 2020.

As at 31 December 2019, the number of colleagues totalled 1,221 (2018: 1,208) and the proportion of females was as follows:

2019females

2018 females

Colleagues 51% 51%Management Committee 13% 13%Board 9% 8%

For further information, view our Gender Pay Reports published on our website at www.newday.co.uk.

Health and wellbeingWe have comprehensive Health and Safety policies and practices in place and no accidents occurred during the year which required reporting in accordance with the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013 (2018: none).

A strong part of our D&I programme involves educating and raising awareness about mental health and wellbeing. We ran a Mental Health Awareness Week in May and we followed this with Wellbeing Week in September covering physical, mental, emotional and financial wellbeing. We provide a number of wellbeing resources through our programmes and benefits platform, all designed to ensure our colleagues have support when they need it, wherever they need it.

We are proud of what we have achieved this year and promote a culture where everyone is valued and respected.

Operating responsiblyContinued

43

Strategic Report


Launching enhanced shared parental leave (ESPL)

Earlier this year we launched our new benefit of ESPL. Eligible colleagues are now able to take advantage of up to 16 weeks enhanced shared parental pay. Scott Yule, our Head of Commercial Strategy and Analytics, talks about his experience with ESPL.

What was the moment like when you found out you were expecting? How did you feel? My wife, Alison, and I have been married for about three years and have always wanted to be parents so excitement quickly took over.

What were your thoughts about having two weeks of paternity leave? Not much in this day and age, I knew this going in and have had lots of friends that have just had to get on with it so although I would’ve obviously loved more, I knew the boundaries we were going to be working within.

When we launched our ESPL what were your initial thoughts?It was game-changing and I couldn’t quite believe it at first to be honest. I actually went over to Damaris (our Chief People Officer) that morning to check I wasn’t misconstruing it, to say thanks and make sure she knew how big a deal it was. Before ESPL was launched we were just going to be focused on extracting as much value out of my annual leave as possible.

How did ESPL work for you and your family? How long did you have off? Do you think it helped you settle as a family unit?Including some accrued leave, it meant between April and August I was out of the office for 18 weeks.

We decided to take leave together right at the start as with our families either in Scotland or Ireland we wanted to make sure I was around as much as possible at the start to support Alison.

Reflecting back on it now, I think the biggest impact is that having had the opportunity to spend this much time with Saoirse, I’m so much more relaxed and at ease than I imagined I would be.

I think it’s also important to note the impact it had within NewDay and my team as well. They’ve had to become a lot more independent, which has meant we’ve been able to slip into a slightly different operating rhythm seamlessly which is leading us all to develop and have a larger impact.

So Saoirse came along and how was it? Game-changing? It’s been pretty amazing so far. Once we got home from hospital, she’s been pretty easy going in the grand scheme of babies. There’s been the initial realisation of what’s actually happened, the continual panic and worry over the first three months (is she breathing? Is she eating? Is she growing?), and then once she started smiling and laughing you can begin to see the hint of a personality come out and it becomes so much fun (although I’m still scared of dropping her and wish she would sleep that little bit longer).

What would you say to anyone thinking of applying for ESPL? Do it. You’ll only get the chance to do this once or twice generally in your life and it’s time you’ll never get back. You may worry about taking extra time off work but it’s not as bad as you think – all those fears soon disappear.

“ Do it. You’ll only get the chance to do this once or twice generally in your life and it’s time you’ll never get back”

Scott YuleHead of Commercial Strategy and Analytics


Strategic Report

Protecting the environment

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

Our reporting is broken down into direct and indirect emissions in accordance with the Greenhouse Gas Protocol. As we have fewer than three Company-owned vehicles and as we do not generate any of our own power, our scope 1 emissions are low. Owing to the nature of our business, we focus on managing general energy consumption across our Leeds and London sites (scope 2 emissions) and also business travel between sites, mainly via train (scope 3 emissions). In 2019, we consumed 988 tonnes of CO2 emissions (2018: 928 tonnes of CO2e) across electricity usage and business-related rail travel, with the growth in the year being driven primarily by higher headcount, and we remained below our triggers and external benchmarks set on these measures.

We embraced changes to regulations 2019 saw the introduction of Energy Savings Opportunity Scheme phase 2. The regulations required large UK organisations to take three important steps before the compliance date of 5 December 2019:

1 measure total energy consumption for buildings, industrial processes and transport;

2 conduct audits to identify cost-effective energy efficiency recommendations for areas of significant energy consumption;

3 report compliance to their national sch e m e a d m i n is t r ato r – t h e Environment Agency in England.

We complied with each requirement in advance of the implementation date.

The UK Government’s Streamlined Energy and Carbon Reporting (SECR) policy was also implemented on 1 April 2019 and we welcomed the additional disclosures required.

Building on the three Green Apple Environment Awards in 2018 We are a member of the Green O rg a n i s a t i o n , a n i n d e p e n d e nt international, non-profit, non-political environmental group dedicated to recognising, rewarding and promoting environmental best practice around the world. Following the three Green awards we won in 2018, all overall category winners were submitted into the Green World awards for 2019. We

were proud to be awarded a Green World Ambassador in the Financial Services sector category and received a Gold award for our implementation of our London office renovation. Further to this, we were also recognised at the International CSR Excellence awards winning a Gold award for ‘Charitable Giving’, recognising our charitable contributions to Family Action, our charity partner.

Operating responsiblyContinued


Strategic Report

Working with our colleagues and third parties across our offices on environmental opportunities Across our offices, we have worked closely with our colleagues, landlords, facilities and catering partners to deliver activities to reduce our environmental impact. We introduced various waste and recycling projects focused on reducing plastic usage as well as reviewing our approach to the energy usage within our buildings. Our colleagues have created their own Green Forum in Leeds, which promotes recycling, waste and any green-related matters, championing new ideas across the site.

Governance in our supply chain In line with internal supplier qualification and ongoing monitoring processes, we ask new and existing suppliers to self-attest their compliance against key principles relating to corporate social responsibility. Our Supplier Code of Conduct, found on our w e b s i t e a t w w w. n e w d a y. c o . u k /sustainability/supplier-code-of-conduct/, positions our due diligence and contractual requirements in this regard.

Our Modern Slavery and Human Trafficking Statement is available on our website at www.newday.co.uk/sustainability/modern-slavery-and-human-trafficking-statement/.

Governance over Environmental, Social and Governance (ESG) mattersDelivering long-term sustainability is a fundamental objective at Board level. We recognise the importance of minimising our impact on the environment and of being a responsible lender and employer and our ESG framework ensures appropriate focus and accountability across the business. Our ESG strategy provides an assessment framework that considers the significant ESG issues across the business, the outcomes of which are used to identify risks and opportunities for improvement. The governance in place assigns roles and responsibilities for developing and overseeing ESG reporting processes. Management processes have been developed to identify ESG issues and opportunities, with the Board taking responsibility for ESG and reviewing ESG performance at regular intervals.

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


Strategic Report

Stakeholders and their material interests How we engage 2019 key deliverables

CustomersResponsibly saying “yes” to more customers, delivering easy-to-use products and supporting our customers to be better with credit whilst adapting our product offering throughout their credit journeys.

• Fe e d b a c k t h ro u g h N E S a n d transactional NPS metrics to track customer satisfaction

• Customer Issue Resolution Programme using customer and colleague feedback to improve processes

• Credit checker tools to support improving credit scores

• Servicing messages and alerts• Col lections toolkit to suppor t

customers who encounter difficulties• Customer KPIs in monthly Board

reporting

• Supported 123,000 customers to come out of persistent debt with the interventions we deployed. For further details see page 16

• Helped 127,000 customers with our online financial health check tools

• Provided over £27m in loyalty rewards• NES increased to +70 and transactional

NPS increased to +66 • Introduced ChatBot functionality

providing customers flexibility in their interactions with us

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

• Bi-annual Pulse surveys with follow-up actions

• Programme of activities throughout the year covering diversity and inclusion, mental health and wellbeing

• Quarterly all-colleague town hall updates

• Online learning and development tool • Independent whistleblowing helpline

• Engagement scores increased from 75% to 77%

• Approval of the 2018 annual bonus by t he Board Remunerat ion and Nomination Committee

• 36% of colleagues moved into new roles internally with NewDay in 2019

• Launched e-learning portal with all-colleague direct access

• Introduced Inspirational Speaker events• Introduced shared parental leave

Retail partnersSeamless integration into our partners’ customer experiences. Using our data analytics to generate in-depth customer insights, supporting brand loyalty to drive higher sales, increased basket size and repeat business.

• Monthly performance meetings• Provision of data and performance

analytics• Working together to develop marketing

strategies and offers

• Launched products in partnership with two new retail partners, AO.com and Argos

• Enhanced product offering with Arcadia Group, introducing three new products (Miss Selfridge, Topman and Topshop)

• Introduced digital delivery of marketing offers within customer servicing journeys to drive repeat spend

• 6% increase in marketing and partner payment costs within the Co-brand business

By understanding the differing needs and concerns of our stakeholders through proactive engagement, the Board can then ensure careful consideration of the potential impact of their decision-making on each stakeholder group.

Promoting success and stakeholder engagement

The Board is committed to balancing the interests of our different stakeholders in order to maximise

the long-term success of the Group

Detailed below are the Group’s key stakeholders, their material interests, how we engage with them and key outcomes delivered for each group in 2019.


Strategic Report

Stakeholders and their material interests How we engage 2019 key deliverables

ShareholdersLending responsibly alongside leveraging our technology platform and credit expertise to deliver predictable, sustainable and attractive returns.

• Attendance at Board meetings and strategy days

• One-to-one investor meetings• Monthly performance reporting – both

financial and non-financial

• Further enhanced our digital platform to progress towards delivering our vision. For further details see page 20

• Delivered record adjusted EBITDA of £144m

• Generated free cash flow available for Senior Secured Debt interest of £50m

• Raised £577m from our asset-backed term debt securitisation programme and refinanced all maturing debt

Investors (asset-backed securities and high-yield bond)Delivering sustainable returns on their investments.

• Monthly securit isation investor reporting

• Quarterly HYB investor reporting and presentations

• Investor roadshows

• Generated free cash flow available for Senior Secured Debt interest of £50m

• Ratio of adjusted EBITDA to cash interest expense improved to 4.5x

• Raised £577m from our asset-backed term debt securitisation programme and refinanced all maturing debt

• Continued to diversify asset-backed securities investor base including $205m raised in US capital markets

RegulatorsActive engagement and alignment of our approach to meet regulatory requirements and delivering upon our Customer Manifesto.

• Member of industry bodies to ensure active engagement in industry-wide discussions

• Open and transparent reporting • P r o a c t i v e e n g a g e m e n t a n d

collaborative approach

• Continued to develop our strategies to support customers who will have been in persistent debt for 36 months by March 2020 and will therefore require mandatory intervention. For further details see page 16

• Continued to monitor and address the requirements of the Second Payment Services Directive (PSD2)

• Compliance with the Senior Managers and Certification Regime

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

• Attendance at industry-wide meetings• Partner directly with Family Action and

Demos• ESG KPIs in Board reporting• Member of environmental organisations

to share best practice

• Donated £190k in our ongoing partnership with Family Action, our charity partner

• New partnership with Demos, investing £115k to support the launch of their Good Credit Index. For further details see page 39

• Awarded a Green World Ambassador at the Green World Awards. For further details see page 44

The Board and its Committees considered the needs and concerns of all stakeholders to deliver the outcomes listed above. A key focus area of the Board during the year, which required careful consideration across multiple stakeholders, was in relation to CCMS.

Interventions developed to support customers in persistent debt following the FCA’s CCMS We actively engaged with the FCA throughout their CCMS, the direction of which is consistent with our Customer Manifesto. In approving the Group’s strategic response to the CCMS, the Board developed solutions to support customers in persistent debt,

implementing various options to take account of customers’ differing needs whilst also ensuring that the Group’s policies are in line with the FCA’s final rules and guidance. Alongside this, the Board balanced the interests of its shareholders and investors whilst ensuring appropriate dialogue to promote shareholder and investor awareness of the changes and the anticipated impact on the Group. For further details see page 16.


Strategic Report

6.

The overarching Risk Management Framework comprises six core components:

Risk management

NewDay is focused on supplying credit solutions which meet the needs and expectations of our customers and providing positive

outcomes in all that we do. Our Risk Management Framework helps us to achieve these objectives providing strong oversight, challenge

and assurance over our internal environment

1.2.3.

Risk appetite statements

Risk governance

Risk processes and methodologies

Ris

k M

anag

emen

t Fra

mew

ork

val

idat

ion

Qualitative

Quantitative

Stress testing

Change

Identify

Assess

Monitor

Control

Reporting

Aggregate

4.5.

Risk data and IT systems

Risk management skills, resources and culture

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

Credit risk framework

Financial control framework

Liquidity, funding and cash management risk

framework

Operational risk framework

Conduct risk framework


Strategic Report

Our three lines of defence model

Robust risk management is essential to both NewDay’s ongoing success and to ensure we remain within our risk appetite.

Fundamental to our approach to risk management is a three lines of defence model

Name Activity

1st line of defence

Business

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

Risk/reward management

Executes the business strategy as set by the Board. Undertakes day-to-day business within the parameters of the defined risk appetite and Risk Management Framework. Applies controls in day-to-day business activities, managing and testing controls on an appropriate periodic basis.

2nd line of defence

Enterprise Risk Function

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

Oversight and advice

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

3rd line of defence

Assurance (internal audit)

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

Independent assurance

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


Strategic Report

Informed risk-based decision-making

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

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

Strategy

• Evolving with our customers to address changing needs

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

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

long-term relationships • Delivering strong controlled growth and

high performance predictability

Risk Management Framework

Credit risk

Our credit appetite is to ensure we originate and manage customer receivables with a risk and reward balance in line with the Group’s financial and strategic objectives.

Financial strength

Our objective is to maintain a strong f inancial position by managing profitability and cash generation. This will be achieved by ensuring that our f inancial s t re n g t h a n d l i q u i d i t y a re maintained at levels that reflect NewDay’s desired financial profile, whilst complying with funding cove n a n t s a n d re g u l a to r y requirements. This will apply for p la n n e d g row t h i n n or ma l co n d i t i o ns a n d n av i g a t i n g stressed environments.

Operational performance (includes operational risk)

Our objective is to fulf i l our business commitments through systems and processes that are appropriately controlled, scalable, cost-effective and comply with applicable external and internal rules, laws and regulations. This includes having the right number of skilled, motivated people in place and developing and retaining t a l e n t . We s e e k t o h a v e appropriate oversight, challenge and governance in place over planned changes.

Business conduct (includes legal, regulatory and conduct risk)

Our objective is to treat our customers fairly and to ensure that they remain at the hear t of everything we do. We will work to ensure that our customers do not suffer detrimental outcomes as a result of our product design or sales or post-sales processes, correcting identif ied errors. Our customer-focused ethos is embedded within the governance and culture of the organisation.

Four risk appetite pillars underpin the delivery of our strategic objectives

Risk appetite statements

Holistic risk assessment

Translated into measures

Ongoing assessment

• Risk governance

• Tools, processes and methodologies

• Assess and control risks

• Informed risk-based decision-making


Strategic Report

Our risk governance structure

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

The Chief Executive Officer chairs the Management Committee, which is responsible for the day-to-day management of the business and has delegated authority from the Board to make

decisions on risk matters within the agreed Risk Management Framework. The Chief Executive Officer also implements the decisions made and policies approved by the Board and deals with matters arising within the ordinary course of business.

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

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

1. Including regulatory and compliance risk.2. The Board Audit Committee and Board Remuneration and Nomination Committee also form part of the risk governance structure in relation to specific risks within their remit as defined in their

terms of reference.

Financial risk

Conduct risk1

Operational risk

Strategic risk

Market risk

Credit risk

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

Board governance

Managementgovernance

Corepolicy

Risk Management Framework

Sub-frameworks

Board

Board Risk Management Policy

Overarching Risk Management

Board Risk Committee2

Management Committee

Enterprise Risk Management Committee

Credit Risk Committee

Operational Risk Committee

Customer and Conduct Risk Committee

Asset and Liability Risk Committee

Credit risk framework

Operational risk

framework Conduct risk framework

Liquidity, funding and cash management

risk framework

Financial control framework

52

Strategic Report

Mapping our risks

Our Principal Risks have been under regular review by the Board and the Board Risk Committee throughout 2019. These risks can

influence how we achieve our strategic objectives. We focus on those risks that pose the greatest threats to our

business and the achievement of our objectives

“ During 2019 different factors have prompted various risk responses as part of mitigating our principal risks. These responses include vigilance with the ever-present threat from cyber attacks, the outstanding question of the UK leaving the European Union and preparations for potential implications on the credit card industry of the UK December 2019 General Election. At a macroeconomic level the UK environment remains uncertain and challenging as are conditions on the UK high street. We are pursuing diversification strategies whilst seeking to maintain momentum to safely and successfully achieve our growth objectives. In addition, competitive forces are being driven by sector initiatives and regulatory change making financial services more competitive and facilitating the entry of new technology businesses”

Mark EyreChief Risk Officer


53

Strategic Report


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

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

Example• A sub-optimal strategy or model could give rise to financial loss,

reputational damage or failure to meet internal and/or public policy objectives

Example• Factors such as a credit downturn or the UK’s exit of the EU without

a deal could significantly impact the anticipated returns for the business and/or interrupt growth strategies

• A downturn may lead to higher unemployment or a retail partner insolvency which may impact future financial returns

• A significant increase in the impairment charge may also result from a macroeconomic downturn

Risk factors in-year and key mitigantsChallenging high street conditions for our foundation partners have remained prominent during the year. We have managed the risk through the use of the following controls/mitigants: • pursuit of business development strategy and diversification in

terms of potential new partners; • launch of NewPay digital credit product with AO.com; • diversification through online partners; • working with partners to expand our presence online;• business strategy and annual/dynamic review process;• Group budgets defined, allocated and monitored to align with

strategic objectives;• risk appetite aligned with strategic objectives and business

planning; and• monitoring publicly available information and other gathered

information with regards to trading performance of retailers.

Risk factors in-year and key mitigantsThe continued uncertainty around Brexit, the recent outbreak of coronavirus and challenges surrounding economic growth.

We have managed the risk through the use of the following controls/mitigants: • in response to Brexit we monitored and refined our macroeconomic

dashboard; • our macroeconomic panel meets on a quarterly basis to review and

agree stress scenarios;• stress testing, including a Brexit-specific stress test scenario, with pre-

determined mitigating actions agreed by the Board;• business strategy and annual review process;• budgets defined, allocated and monitored to align with strategic

objectives;• risk appetite aligned with strategic objectives and business planning;• diversification of Co-brand partners and product offerings;• robust outsourcing and supplier oversight processes;• ability to deploy multiple levers from new business growth, customer

credit limit management and cost controls; • monitoring of funding-related indicators; and• funding flexibility and diversification.

Improvements in 2019 and future focus • We continued to develop and improve the functionality of

our e-servicing apps, provided a better customer offering and strengthened our business

• In 2020, we will look to expand our footprint and add new Co-brand partnerships with new retail partners, both large and small, complementing our existing partners

Improvements in 2019 and future focus• Our macroeconomic response strategies continue to develop,

including mapping them to our macroeconomic triggers. We have a clear corporate view of what levers to use in different situations under different stressed scenarios

• In 2020, we will continue to refine our approaches where needed and continue to monitor the external environment closely, with particular attention to the coronavirus outbreak

54

Strategic Report


Principal risks continuedCredit risk Unexpected losses as a result of customers failing to meet their obligations to repay.

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

Operational risk Inadequate or failed internal processes, people and systems, or from external events including internal and external fraud.

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

ExampleCredit risk losses deviating from expectations because of: • ineffective models or scorecards;• forecasting models not in line with business processes;• poorly designed decisioning strategies;• collections strategies not working as intended; • failure to resource collections effectively and/or weak collections

processes; or• increase in fraud losses due to increases in both first party and third

party fraud losses.

Example• Significant alterations to the business model because of changes in

the law or regulations may have a material impact on the performance and profitability of the business

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

ExampleReputational damage, regulatory censure and/or financial loss could arise from:• cyber attacks;• pandemic;• loss of customer data;• internal and external fraud; • lack of suitably skilled resources or system failures at third parties; or• human errors in manual processes.

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

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

We have managed the risk through the use of the following controls/mitigants: • daily performance monitoring with the ability to modify credit and

collections strategies and actions at short notice;• Credit Risk Committee overseeing the execution of the Credit Risk

Management Framework;• credit risk strategies, policies and procedures;• improvements to both creditworthiness and affordability

assessments both at origination and in customer management;• significant investment in data science capabilities;• regular monitoring of impairment performance;• macroeconomic environment monitored by the Credit Risk

Committee with a dashboard prepared with external leading economists; and

• improved model governance process in place for new models and scorecards.

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

We have managed the risk through the use of the following controls/mitigants: • completed preparations for the FCA’s Senior Managers and

Certification Regime (SMCR) that took effect in December 2019; • delivering our PSD2 programme for the development of compliant

solutions for e-servicing and contactless cards;• f inalising remedies for persistent debt to meet regulatory

requirements;• delivering a programme of GDPR updates to internal processes and

controls including continued updates to our Records of Processing;• overseeing the Conduct Risk Management Framework;• monitoring of regulatory radar for upcoming regulatory developments

and external horizon scanning cascaded internally;• regulatory change gap analyses;• responding to consultation papers through trade bodies; and• policies and procedures reviewed to remain up to date, compliant and

adhered to and to ensure that appropriate processes and controls are in place.

Risk factors in-year and key mitigantsThe scale and pace of transformation (including digital and data-led projects, use of cloud-based services and automation of manual processes). Reliance on third party controls in the provision of systems, data services and contact centre capabilities. An ever-changing cyber threat, as well as the threat of data leakage. Whilst we have business continuity plans to mitigate against operational risks certain external events, such as a pandemic, remains outside of the Group’s control.

We have managed the risk through the use of the following controls/mitigants: • overseeing the Operational Risk Management Framework;• information security framework; • business continuity management; • supplier governance framework;• new product approval committee;• change governance and dedicated project management resources; • process quality assurance procedures;• logical access management; • IT incident management; • review of our cyber security; • penetration testing; • physical security; • Payment Card Industry Data Security controls testing; • financial reconciliation controls; and• recruitment, remuneration and performance management.

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

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

Management Framework;• our Customer Manifesto, values, and our investment in colleague

training, together with key management communications support our company standards and customer outcomes we aim to achieve;

• new product approval committee;• retail partner monitoring and relationship management;• Executive-led steering committee to manage CCMS implementation;• supplier governance programme;• policies and processes for vulnerable customers;• policies and processes for complaint handling;• PPI redress calculated in line with the FCA’s guidance and provision

adequacy actively monitored; • quality monitoring;• performance measurement and reward in risk and control; • risk and control measured in our colleague survey;• review of responsible lending and affordability across the Group and a

review of past and current affordability processes undertaken in order to determine any systemic issues and/or adversely impacted customers; and

• following the August 2019 PPI deadline for customer complaints, we monitored emerging new sources of complaints from individuals and claims management companies, and have continued to enhance our processes and management of complaints.

Improvements in 2019 and future focus • In 2019, further improvements were made to both our

creditworthiness and affordability assessments• IFRS 9 provisioning methodology was closely monitored and

improvements were made• Model governance process was strengthened throughout

the year• In 2020, we will continue to mature the Credit Risk Management

Framework, enhancing our capability to assess affordability and deliver improvements to our models and credit decisioning strategies

Improvements in 2019 and future focus • Continue to update existing debt strategies and develop persistent

debt remedies in accordance with the FCA’s requirements• In 2020, we will continue to focus on the regulatory environment,

managing change for regulatory driven initiatives• Deliver the next phases of PSD2 developing solutions for e-commerce,

e-servicing and contactless cards• Update existing processes once the final version of the ePrivacy

Directive is released and continue to monitor the changing Data Protection landscape

• Prepare for further SMCR requirements to meet the December 2020 deadline

Improvements in 2019 and future focus • In 2019, we have continued to mature our approach to penetration

testing, supplier assurance, business continuity provision and testing• We have remained alert to the ever-changing threat from cyber activity

and continued to invest in security design as we have developed our architecture and infrastructure

• We continued to invest in rolling out robotic process automation and intelligent automation where viable opportunities existed

• We enhanced our customer digital journeys• In 2020, we will further mature our risk reporting system to further aid

analysis, stay alert in the cyber field and ensure we consider the FCA’s consultation paper on Operational Resilience in light of our continued business strategy and change agenda

• We will implement a new collections system which will reduce our reliance on manual processes

Improvements in 2019 and future focus • We reviewed and enhanced our complaints management model• We progressed our remedies for customers considered in persistent

debt • We looked at affordability throughout the year and engaged with

relevant regulatory industry reviews • Our Customer Manifesto also continued to be a key area of focus

during the year• In 2020, we will continue to stay abreast of the regulatory environment.

Our focus on responsible lending and customer outcomes will remain high and we will continue to ensure that our marketing and complaints processes deliver effectively for the customer

55

Strategic Report


Principal risks continuedCredit risk Unexpected losses as a result of customers failing to meet their obligations to repay.

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

Operational risk Inadequate or failed internal processes, people and systems, or from external events including internal and external fraud.

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

ExampleCredit risk losses deviating from expectations because of: • ineffective models or scorecards;• forecasting models not in line with business processes;• poorly designed decisioning strategies;• collections strategies not working as intended; • failure to resource collections effectively and/or weak collections

processes; or• increase in fraud losses due to increases in both first party and third

party fraud losses.

Example• Significant alterations to the business model because of changes in

the law or regulations may have a material impact on the performance and profitability of the business

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

ExampleReputational damage, regulatory censure and/or financial loss could arise from:• cyber attacks;• pandemic;• loss of customer data;• internal and external fraud; • lack of suitably skilled resources or system failures at third parties; or• human errors in manual processes.

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

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

We have managed the risk through the use of the following controls/mitigants: • daily performance monitoring with the ability to modify credit and

collections strategies and actions at short notice;• Credit Risk Committee overseeing the execution of the Credit Risk

Management Framework;• credit risk strategies, policies and procedures;• improvements to both creditworthiness and affordability

assessments both at origination and in customer management;• significant investment in data science capabilities;• regular monitoring of impairment performance;• macroeconomic environment monitored by the Credit Risk

Committee with a dashboard prepared with external leading economists; and

• improved model governance process in place for new models and scorecards.

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

We have managed the risk through the use of the following controls/mitigants: • completed preparations for the FCA’s Senior Managers and

Certification Regime (SMCR) that took effect in December 2019; • delivering our PSD2 programme for the development of compliant

solutions for e-servicing and contactless cards;• f inalising remedies for persistent debt to meet regulatory

requirements;• delivering a programme of GDPR updates to internal processes and

controls including continued updates to our Records of Processing;• overseeing the Conduct Risk Management Framework;• monitoring of regulatory radar for upcoming regulatory developments

and external horizon scanning cascaded internally;• regulatory change gap analyses;• responding to consultation papers through trade bodies; and• policies and procedures reviewed to remain up to date, compliant and

adhered to and to ensure that appropriate processes and controls are in place.

Risk factors in-year and key mitigantsThe scale and pace of transformation (including digital and data-led projects, use of cloud-based services and automation of manual processes). Reliance on third party controls in the provision of systems, data services and contact centre capabilities. An ever-changing cyber threat, as well as the threat of data leakage. Whilst we have business continuity plans to mitigate against operational risks certain external events, such as a pandemic, remains outside of the Group’s control.

We have managed the risk through the use of the following controls/mitigants: • overseeing the Operational Risk Management Framework;• information security framework; • business continuity management; • supplier governance framework;• new product approval committee;• change governance and dedicated project management resources; • process quality assurance procedures;• logical access management; • IT incident management; • review of our cyber security; • penetration testing; • physical security; • Payment Card Industry Data Security controls testing; • financial reconciliation controls; and• recruitment, remuneration and performance management.

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

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

Management Framework;• our Customer Manifesto, values, and our investment in colleague

training, together with key management communications support our company standards and customer outcomes we aim to achieve;

• new product approval committee;• retail partner monitoring and relationship management;• Executive-led steering committee to manage CCMS implementation;• supplier governance programme;• policies and processes for vulnerable customers;• policies and processes for complaint handling;• PPI redress calculated in line with the FCA’s guidance and provision

adequacy actively monitored; • quality monitoring;• performance measurement and reward in risk and control; • risk and control measured in our colleague survey;• review of responsible lending and affordability across the Group and a

review of past and current affordability processes undertaken in order to determine any systemic issues and/or adversely impacted customers; and

• following the August 2019 PPI deadline for customer complaints, we monitored emerging new sources of complaints from individuals and claims management companies, and have continued to enhance our processes and management of complaints.

Improvements in 2019 and future focus • In 2019, further improvements were made to both our

creditworthiness and affordability assessments• IFRS 9 provisioning methodology was closely monitored and

improvements were made• Model governance process was strengthened throughout

the year• In 2020, we will continue to mature the Credit Risk Management

Framework, enhancing our capability to assess affordability and deliver improvements to our models and credit decisioning strategies

Improvements in 2019 and future focus • Continue to update existing debt strategies and develop persistent

debt remedies in accordance with the FCA’s requirements• In 2020, we will continue to focus on the regulatory environment,

managing change for regulatory driven initiatives• Deliver the next phases of PSD2 developing solutions for e-commerce,

e-servicing and contactless cards• Update existing processes once the final version of the ePrivacy

Directive is released and continue to monitor the changing Data Protection landscape

• Prepare for further SMCR requirements to meet the December 2020 deadline

Improvements in 2019 and future focus • In 2019, we have continued to mature our approach to penetration

testing, supplier assurance, business continuity provision and testing• We have remained alert to the ever-changing threat from cyber activity

and continued to invest in security design as we have developed our architecture and infrastructure

• We continued to invest in rolling out robotic process automation and intelligent automation where viable opportunities existed

• We enhanced our customer digital journeys• In 2020, we will further mature our risk reporting system to further aid

analysis, stay alert in the cyber field and ensure we consider the FCA’s consultation paper on Operational Resilience in light of our continued business strategy and change agenda

• We will implement a new collections system which will reduce our reliance on manual processes

Improvements in 2019 and future focus • We reviewed and enhanced our complaints management model• We progressed our remedies for customers considered in persistent

debt • We looked at affordability throughout the year and engaged with

relevant regulatory industry reviews • Our Customer Manifesto also continued to be a key area of focus

during the year• In 2020, we will continue to stay abreast of the regulatory environment.

Our focus on responsible lending and customer outcomes will remain high and we will continue to ensure that our marketing and complaints processes deliver effectively for the customer

56

Strategic Report


Principal risks continuedFinancial risk Inaccuracies in financial and management reporting and/or inadequate management of liquidity, funding and cash.

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

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

and financial statements, bank submissions, regulatory reports or securitisation reports);

• misstatement of information for internal decision-making;• non-compliance with tax regulations; or• incorrect payments to third parties.

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

ExampleInterest rate movements expose NewDay to the risk of increased cost of funding.

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

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

Other financial risks include the significant number of change projects under way, retail partner resilience, reliance on manual controls and End User Developed applications.

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

Group’s daily cash balance at account level;• maintenance of operational cash levels;• execution of funding strategy and maintenance of headroom on

funding facilities and extending the timescales on our variable funding notes;

• an automated system for securitisation reporting is in the test phase and implementation will improve control and reduce manual input;

• monitoring of retail partner performance by the Assets and Liabilities Risk Committee;

• financial control framework governing processes and procedures across finance;

• first, second and third line of defence supplemented by external audit of the Annual Report and Financial Statements; and

• annual completion of stress scenario analysis outlined in the liquidity and cash management framework which is reported to the Asset and Liability Risk Committee.

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

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

We have managed the risk through the use of the following controls/mitigants: • reduced the direct financial risk by introducing the ability to pass on

base rate changes to customers; • funding strategy executed and improved VFN flexibility and

capacity; and • having headroom on our funding facilities to fund future

receivables growth.

Improvements in 2019 and future focus • In 2019, our stress testing capability continued to develop and

effective and proportionate stress tests were completed for both the half-year forecast and annual budget exercises

• Preparations have been completed for the move from the interim regulatory reporting regime to the new reporting requirements under the EU Securitisation Regulations which come into force in Q1 2020 and apply to our asset-backed securitisation structures

• In 2020, we will continue our work to develop and implement an automated system for securitisation reporting which will improve control and reduce manual input

See note 23 of the Financial Statements for further details of the financial risks in our Group.

Improvements in 2019 and future focus • We executed our 2019 funding strategy, achieving further

diversification and increasing our securitisation funding• In 2020, we will continue to monitor and optimise our funding

strategy in light of prevailing and emerging risk factors

57

Governance


“ NewDay is committed to strong levels of corporate governance allowing the Group to deliver growth whilst ensuring appropriate oversight at all levels within the organisation“

Sir Michael Rake Chairman and Non-Executive Director

Chairman’s introduction to corporate governance

We are committed to maintaining high standards of corporate governance with the aim of ensuring growth is delivered in a controlled and compliant manner. This is actively endorsed by Cinven, CVC and all

members of management to ensure the business is operated in the interests of all stakeholders

During the year, John Hourican was appointed as Chief Executive of the Group following an extensive search process. James Corcoran (our previous Chief Executive with over ten years’ service) remains on the Board as a Non-Executive Director. John has brought a wealth of experience to the Board, having previously served as Chief Executive of Bank of Cyprus (the largest banking and finance services group in Cyprus) between 2013 and 2019. Prior to joining Bank of Cyprus, John served as Chief Executive Officer of the RBS group’s Investment Bank (Markets & International Banking).

John’s appointment further evidences our continued commitment to ensuring our Board has the correct balance of skills, knowledge and experience for our next stage of growth. Whilst no significant changes have been made to the Group’s strong governance framework during 2019, the Directors continue to monitor governance arrangements to ensure they remain fit for purpose and reflect the size and ambition of the Group.

During the year, the Board took a number of key decisions. The principal governance matters addressed in 2019 were:• delivering on our strategy for continued growth and leveraging

investments made to deliver shareholder returns;

• reviewing our strategic technology journey to ensure we are well positioned to deliver our vision to be the leading digitally enabled UK consumer finance provider;

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

• reviewing our strategy in relation to Unsecured Personal Loans and NewPay;

• regularly reviewing customer outcomes and progress against our Customer Manifesto;

• oversight of our response to the FCA’s CCMS, in particular with a view to ensuring appropriate outcomes are achieved for those individuals considered to be in persistent debt;

• closely monitoring other regulatory developments to ensure we are aware of matters on the regulatory horizon and are adequately prepared for them (including in relation to the Second Payment Services Directive (PSD2));

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

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


Governance

Governance frameworkDuring 2019, the commercial aspects of the Group’s UK subsidiaries were managed by the Board of NewDay Group UK Limited (the Board), a wholly owned subsidiary of NewDay Group (Jersey) Limited, the Jersey-based parent company.

The Directors of NewDay Group (Jersey) Limited were responsible for the matters relating to NewDay Group (Jersey) Limited and their report for the year is set out on page 76. In addition, the Managers of NewDay Group Holdings S.à r.l. (the parent company of the Predecessor Group) remain responsible for matters relating to NewDay Group Holdings S.à r.l..

Other than as set out on pages 76 and 77, the governance and risk framework described in this report relates to the governance and risk framework established for the Group’s UK subsidiaries and references to the ‘Board’, ‘Group’, ‘NewDay’ and ‘Company’ should be construed accordingly (where appropriate).

The Board’s role and composition are regularly reviewed to ensure that they are well defined and appropriate, and support the long-term development of the Group. The day-to-day responsibility for managing the Group’s business is delegated to the Chief Executive Officer who, supported by the Management Committee, implements the decisions and policies approved by the Board and deals with matters within the ordinary course of business.

Business managementExecutes the business strategy as set

by the Board. Conducts day-to-day business within the parameters of the Group’s risk appetite and Risk

Management Framework.

First line of defenceBusiness

Customer, Conduct & Complaints Committee

Operational Risk Committee

Credit Risk Committee

Asset and Liability Risk Committee

Commercial

Credit and Collections

Operations

People

Board Audit

Committee

Internal audit

Enterprise Risk Function

NewDay Group UK Limited Board

Oversight and adviceProvides independent oversight of the

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

Independent assuranceProvides independent assurance on

the design, operation and effectiveness of the control framework, including activities performed by the first and

second lines of defence.

Second line of defenceEnterprise Risk Function

Third line of defenceAssurance (internal audit)

Legal and Conduct Advisory

Finance and Treasury

ManagementCommittee

Board Remuneration

and NominationCommittee

Board RiskCommittee

Enterprise Risk Management

Committee


Governance

For the year ended 31 December 2019, the Board has applied the Wates Corporate Governance Principles for Large Private Companies (published by the Financial Reporting Council (FRC) and available on the FRC’s website) (the ‘Wates Principles’). In addition, the Group complies with: (i) the FRC’s UK Corporate Governance Code (which can also be found on the FRC’s website) where deemed appropriate taking account of the size, nature and

Principle 1 An effective Board develops and promotes the purpose of a company, and ensures that its values, strategy and culture align with that purpose.

Our purpose is to help people be better with credit. This is at the heart of everything we do and is supported by our Customer Manifesto. Detailed disclosures regarding our Customer Manifesto and strategy can be found on pages 2 and 10.

Principle 2 Effective Board composition requires an effective chair and a balance of skills, backgrounds, experience and knowledge, with individual directors having sufficient capacity to make a valuable contribution. The size of a Board should be guided by the scale and complexity of the company.

We have a highly experienced Board with a diverse range of skills and experience reflecting the needs of the business. Board biographies can be found on pages 60 to 62. Details on how the Board operates, together with further details on its composition and committee structure, can be found on pages 58 and 64.

Principle 3 The Board and individual directors should have a clear understanding of their accountability and responsibilities. The Board’s policies and procedures should support effective decision-making and independent challenge.

The Board executes its responsibilities through its own decision-making and by delegating responsibility to Board committees and to the Chief Executive Officer, with support from the Management Committee. Responsibilities are appropriately defined in terms of reference to ensure there are clear lines of accountability between the Board and the other committees. Further details on: (i) the Group’s committee structure and their responsibilities can be found on page 58; and (ii) how our Board operates can be found on page 64.

Principle 4 A Board should promote the long-term sustainable success of the company by identifying opportunities to create and preserve value, and establishing oversight for the identification and mitigation of risks.

Following the acquisition of the Group by funds advised by Cinven and CVC, we developed a Value Creation Plan to support the achievement of our strategic priorities. Progress against the Value Creation Plan is monitored at every Board meeting. In addition, strategic opportunities are considered through the annual strategy process culminating in the Board’s Annual Strategy Day.

The Board Risk Committee ensures risks are identified and managed appropriately. Further details can be found on page 72.

Principle 5A Board should promote executive remuneration structures aligned to the long-term sustainable success of a company, taking into account pay and conditions elsewhere in the company.

The Board Remuneration and Nomination Committee oversees our remuneration policy with the aim of ensuring the long-term health and success of the Group. Further details can be on page 74.

Principle 6 Directors should foster effective stakeholder relationships aligned to the company’s purpose. The Board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decisions.

We are committed to ensuring we maintain strong relationships with all stakeholders (including employees) and actively engage with them on an ongoing basis. Further details are provided on page 46.

share ownership structure of the Group; and (ii) the Guidelines for Disclosure and Transparency in Private Equity, which can be found online at www.privateequityreportinggroup.co.uk.

A summary of how the Group has complied with the Wates Principles is set out below:


Governance

John HouricanExecutive Director, Chief Executive Officer and member of the Board Remuneration and Nomination Committee

John Hourican has more than 28 years of global f inancial services experience. John began his career at Price Waterhouse working in Dublin, H o n g Ko n g a n d Lo n d o n before moving to Royal Bank of Scotland in 1997. During his time at Royal Bank of Scotland John held a number of senior posts including serving as Chief Executive of the Group’s Investment Bank (Markets & International Banking) for five years. Between 2013 and 2019 John served as CEO of Bank of Cyprus, the largest banking and financial services group in Cyprus. During his tenure, John reshaped the business, re-established its deposit base, improved the quality of its loan book and strengthened its f inancial position. John was named Euromoney’s Banker of the Year in 2015. John is a fellow of the Institute of Chartered Accountants in Ireland.

Paul Sheriff Executive Director and Chief Financial Officer

Paul Sheriff has over 25 years of experience in f inancial s e r v i c e s o r g a n i s a t i o n s spa n n i n g ba n k i n g , asset management and insurance. Paul joined from Legatum, a private investment firm based in Dubai where he was CFO/COO for three years, having previously been CFO/COO of Record plc, a main market l isted asset management business. Prior to this he was Group Finance Director at Arbuthnot Banking Group plc, a listed banking group, and Commercial Finance Director of the Prudential’s UK and European business. Earlier in his career he spent five years in private equity and qualified as a Chartered Accountant with Arthur Andersen. He is a member of the Institute of Chartered Accountants in England and Wales.

Board of Directors

Sir Michael Rake Chairman, Independent Non-Executive Director and member of the Board Remuneration and Nomination Committee

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

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

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

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


Governance

James Corcoran Non-Executive Director

James Corcoran has over 30 years of global f inancial services experience with large mult inational companies, such as American Express, Citibank, HBOS and IBM. James began his career in sales and marketing, moving into general management where he has held various senior executive positions over the past 20 years. He has run credit card businesses for First USA/Bank One and Amex and at HBOS his f inal role was CEO of the Distribution, Retail and Insurance Division. Prior to that, he was Head of HBOS’ Retail Product business units. James joined NewDay as CEO in January 2009 from Washington Mutual in Seattle, where he was President of the Retail Banking Division. In September 2019, James stepped down as NewDay CEO after ten years’ service, and remains on the Board as a Non-Executive Director.

Caspar Berendsen Investor Director (Cinven), member of the Board Risk Committee and Board Remuneration and Nomination Committee

C a s p a r B e r e n d s e n i s a Partner at Cinven and leads the Financial Services sector team and the Industrials sector team. Prior to this, Caspar worked at J.P. Morgan in London advising Dutch and Belgian clients across a variety of sectors. Caspar holds an Ir degree in Mining and Petroleum Engineering from the Technical University Delft, the Netherlands and graduated from the Erasmus University, Rotterdam with a Drs in Business Administration.

C a s p a r h a s e x t e n s i v e experience of investing across various f inancial ser vices industries. He has led and been responsible for investments in Guardian Financial Services (PRA/FCA regulated), Viridium Group (BaFin regulated), Eurovita (IVASS regulated), Avo l o n , Pre m i u m Cre d i t Limited (FCA regulated) and Partnership Assurance plc (PRA/FCA regulated). Caspar has also been a member of the Board and Risk and Audit Committees for Partnership A s s u r a n c e p l c , Av o l o n , Guardian Financial Services, Viridium Group and Eurovita.

Rupert Keeley Independent Non-Executive Director, Chairman of the Board Remuneration and Nomination Committee

R u p e r t Ke e l e y w a s t h e General Manager for PayPal’s businesses in Europe, Middle East & Africa (EME A), an Executive Vice President of PayPal (Holdings) Inc. and Chief Executive Officer of the PayPal Europe bank until June 2018. Rupert has more than 30 years of banking and payments experience and was formerly Visa Inc.’s Group Executive and President of the Asia Pacific and CEMEA regions, and a Section 16 Officer of the company. He held a number of management roles including Global Head of Strategy and Corporate Development. Prior to joining Visa in 1999, Rupert held a number of senior management positions with Standard Chartered plc based in London, Singapore and the Middle East. He started his career at Girobank plc in London. Rupert holds an MBA in Marketing from the City University Business School, London and a B.Sc. (Hons) in Management Sciences from the University of Manchester.

Sir Malcolm WilliamsonIndependent Non-Executive Director and member of the Board Remuneration and Nomination Committee

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

Sir Malcolm’s current external a p p o i n t m e n t s i n c l u d e : Chairman of Charter Court Financial Ser vices, Senior Independent Direc tor at Aviva; Chairman of Cass Business School’s Strategy and Development Board; the Governing Council of the Centre for the Study of Financial Innovation; and the Board of Trustees for Youth Business International.


Governance

David GiroflierInvestor Director (Cinven), member of the Board Audit Committee

David Giroflier is a Principal at Cinven. Prior to joining Cinven, David worked in the Investment Banking Division of HSBC in Paris, advising on M&A transactions across a range of sectors including industrials, aerospace and consumer. David also advised the French government on various transactions. David graduated from the HEC School of Management in Paris with an MSc in Business Administration. David is an experienced private equity investor, having been involved in a number of Cinven’s t r a n s a c t i o n s i n c l u d i n g Camaïeu, Tractel and Visma.

David previously sat on the board of Camaïeu. David also has signif icant knowledge and understanding of the f inancial services industry, having diligenced a number of businesses in the past three years.

Peter Rutland Investor Director (CVC Capital Partners), member of the Board Risk Committee, Board Remuneration and Nomination Committee and Board Audit Committee

Peter Rutland is a Managing Partner at CVC and is Head of CVC’s Financial Services Group. Prior to joining CVC in 2007, he worked for Advent International. Prior to working at Advent International, Peter worked for Goldman Sachs in the Investment Banking Division. Peter holds an MA degree from the University of Cambridge and an MBA from INSEAD.

Pe t e r h a s l e d o r b e e n responsible for investments in Brit Insurance (a leading Lloyd’s insurance and reinsurance company), Avolon (a global aircraft leasing company), Skrill (the second largest provider of online payment solutions in Europe), Domestic & General (a leading provider of product protec t ion and war rant y insurance in Europe), Pension Insurance Corporation (a l ea d i n g p e nsi o n a n n u i t y provider in the UK), Paysafe (a global leading provider of online payment solutions) and April Group (a leading insurance broker based in France). A number of these portfolio companies are also PRA/FCA regulated.

Robin Peveril HooperInvestor Director (CVC Capital Partners)

Pev Hooper is a Managing Partner at CVC and currently s i t s o n t h e b o a r d s o f Domestic & General, the RAC and SkyBet. He was also responsible for CVC’s prior investments in the AA, Saga, Merlin Entertainments and Virgin Active, and has sat on the boards of these and other CVC portfolio companies. He joined CVC in 2003 after wo r k i n g i n m e rg e rs a n d acquisitions at Citigroup and Schroders. He holds an MA degree from Oxford University. Pev brings a range of UK consumer financial services experience from his time on the boards of FCA/PRA regulated businesses such as Domestic & General (a leading provider of product protection and warranty insurance in Europe), Saga (a leading motor and home insurance provider for the over 50s), the RAC and the AA (both leading roadside re c o v e r y p ro v i d e r s a n d insurance brokers).

Board of DirectorsContinued


Governance

Ian Corfield Chief Commercial Officer

Ian joined NewDay in 2014 after 6 years at the Commonwealth Bank of Australia, where he was CEO and a Board Director of its majority-owned Aussie H o m e Loa ns su bsi d i a r y, having previously been CEO of the Retail and then Business Bank at Bankwest.

Damaris Anderson-Supple Chief People Officer

Damaris joined NewDay in 2013. Damaris joined to lead the People team at NewDay f ro m H i l l a n d K n ow l to n Strategies UK, where she was Chief Operating Officer and where talent strategy was a key priority.

Rob Holt Chief Credit and Collections Officer

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

John HouricanChief Executive Officer

Paul SheriffChief Financial Officer

Sanjay Sharma Chief Operating Officer

S a n j a y j o i n e d N e w D a y in 2013. Sanjay has over 2 5 y e a r s e x p e r i e n c e i n senior operational roles in i nter nat i ona l b usi n esses working in India, the Philippines, London and Austria. He joined from Bawag PSK in Vienna where he was Chief Operating Officer and a member of the Management Board.

Mark Eyre Chief Risk Officer

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

Stephen Rowland General Counsel

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

Management Committee

Whilst the Board, among other things, directs the Group’s strategy, the Management Committee supports the Chief Executive Officer in the

management of the Group’s day-to-day operations. The Management Committee comprises the Chief Executive Officer (who acts as Chair)

and Chief Financial Officer together with the following individuals:


Governance

The BoardThe Board is responsible for overseeing the Group’s activities.

The Directors are apprised of, debate and challenge strategy, mergers and acquisitions, operational performance metrics, risk matters,

customer and conduct-related matters and receive reports on current strategic initiatives

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

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

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

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

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

Attendance at Board and Committee meetings

Member

Board meetings attended

Board Audit Committee

meetings attended

Board Risk Committee

meetings attended

Board Remuneration

and Nomination Committee

meetings attended

Sir Michael Rake 8/8 N/A N/A 3/3

John Hourican1 3/8 N/A N/A 1/3

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

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

Rupert Keeley 7/8 N/A N/A 3/3

Sir Malcolm Williamson 7/8 N/A N/A 3/3

James Corcoran1 8/8 N/A N/A 2/3

Caspar Berendsen 7/8 N/A 5/6 3/3

Peter Rutland 8/8 1/7 6/6 3/3

David Giroflier 8/8 7/7 N/A N/A

Arron Wu2 6/8 6/7 N/A N/A

Johan Pettersson3 4/8 N/A N/A N/A

Pev Hooper 5/8 N/A N/A N/A

Note:1. On 16 October 2019, John Hourican was appointed: (i) to the Board in his capacity as

Chief Executive Officer of the Group; and (ii) as a member of the Board Remuneration and Nomination Committee. James Corcoran remained on the Board as a Non-Executive Director and resigned as a member of the Board Remuneration and Nomination Committee. John Hourican was eligible to attend three Board meetings and one Board Remuneration and Nomination Committee meeting during the year.

2. Arron Wu resigned as a Director on 14 November 2019. Arron Wu resigned as a member of the Board Audit Committee on the same date and Peter Rutland was appointed in his place. Peter Rutland was eligible to attend one Board Audit Committee meeting during the year.

3. Johan Pettersson resigned as a Director on 8 August 2019.


Governance

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

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

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

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

Board balance and independenceFour of our 11 Board members are Investor Directors (two of which have been appointed by Cinven with the remaining two Investor Directors appointed by CVC). These Investor Directors have significant experience serving on the boards of regulated companies as well as in the specialty finance sector. James Corcoran (the Group’s former Chief Executive) serves as a Non-Executive Director providing the benefit of his ten years’ experience at NewDay.

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

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

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

TrainingDirectors have access to relevant training courses during the year. To continue to ensure that Board members are up to date on the latest developments and maximise their effectiveness, during 2019 training focused on Agile Working and the FCA’s Senior Managers and Certification Regime.

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

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

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

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

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

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

Internal control and risk management systems The Board is responsible for monitoring and reviewing the Group’s internal control system to maximise its effectiveness. The internal control environment is described on page 71.

Share capitalDuring the year ended 31 December 2019, the Company did not acquire any of its own shares.


Governance

Board Audit Committee

Chairman’s overviewThe Committee provides independent challenge to ensure the financial information reported by the Group is an accurate reflection of its performance. In doing so, the Committee places reliance on the Group’s governance structure and control framework which it monitors regularly to ensure they remain appropriate as the business continues to grow and the market and regulatory environment changes.

Whilst the significant judgement areas of the Group’s financial reporting remain largely unchanged from 2018 the Committee is constantly reassessing what it deems necessary for further independent challenge in light of updates to both regulatory guidance and industry best practice. Accordingly, from 2019, the Committee receives regular updates on the significant judgements within the effective interest rate (EIR) method of accounting for loans and advances to customers.

The Group transitioned to IFRS 9 ‘Financial Instruments’ in 2018 and throughout 2019 the Committee closely monitored the provisioning methodology to ensure it remains fit for purpose, including challenging refinements made to the model as best practice continues to evolve. Challenges on the high street affecting the Group’s retail partners, and the subsequent impact on the Group’s goodwill and acquired intangible assets, continue to be a key focus for the Committee. We received and challenged regular updates supporting the Group’s carrying value of these assets. The FCA’s deadline for a customer to raise a complaint, which can be considered by the Financial Ombudsman Service, directly with a PPI provider passed in August and the Committee assessed the adequacy of the PPI provision in light of both the spike in complaints received immediately prior to the deadline, as well as the ongoing discussions with the Official Receiver, and litigation received from external parties.

“ The business’ fast-paced growth, coupled with the continually evolving regulatory and market environment, mean the Group’s governance and control framework is pivotal to its long-term success. The Committee works to ensure our processes and frameworks remain fit for purpose and reflect best practice“

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


Governance

In addition to the review of areas of significant judgements and complexity, the Committee provides robust challenge to the integrity and accuracy of externally reported financial information to ensure it is fair, balanced and understandable, before recommending for approval to the Board. This incorporates all quarterly, half-yearly and Annual Reports, Financial Statements and investor presentations.

The Committee also oversaw the in-house internal audit function, including monitoring its ongoing effectiveness and audit plan in light of the pace of change in the business and evolving risks arising from both the regulatory and market environment.

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

Alison Reed is the Chairman of the Committee and has significant accounting and financial reporting experience. On 14 November 2019, Peter Rutland replaced Arron Wu as a member of the Board Audit Committee.

The diverse backgrounds of the Committee members and our combined skills and range of accounting and financial reporting, risk and business experience (as detailed on pages 60 and 62) enable us to fulfil the Committee’s remit, as set out in the terms of reference, which are reviewed annually.

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

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

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

challenge significant financial reporting issues and assess the judgements made;

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

• to review and approve financial control and liquidity frameworks;• to review the internal financial control and risk management

systems and to review risk exposures and steps taken to monitor and mitigate them;

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

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

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

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

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

recommendations of internal and external audit;• to review compliance with legal and regulatory requirements;• to report the outcome of meetings to the Board, identifying

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

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

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

Key activities of the Board Audit Committee in 2019The Committee convened seven times during the year and delivered the following key outcomes:• reviewed the 2018 Annual Report and Financial Statements

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

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

• widened the scope of the Group’s significant judgements to include the EIR method of accounting for loans and advances to customers;

• reviewed and approved the refinements made to the impairment provisioning methodology in the year;

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

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

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

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

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

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

• reviewed regular updates on whistleblowing; and• considered and challenged management forecasts of Group

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

Financial reportingThe main areas of judgement we considered in relation to the Financial Statements for the year ended 31 December 2019 are detailed in the following table. These issues were closely examined with the external auditor during the year.


Governance

Board Audit CommitteeContinued

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

Expected credit loss (ECL) allowance on loans and advances to customersFollowing the transition to IFRS 9 in 2018, we have closely monitored the appropriateness of our impairment provisioning methodology and made refinements to it where necessary to ensure it remains fit for purpose.

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

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

The provision for ECL recorded by the Group under IFRS 9 as at 31 December 2019 were £363m for Own-brand receivables, £51m for Co-brand receivables and £11m for Unsecured Personal Loan receivables (2018: £356m, £43m and £7m respectively).

Refer to note 2.3 for further details on the judgements inherent within the ECL allowance.

The Committee regularly reviews and challenges the key judgements applied, including the determination of a significant increase in credit risk, the definition of default and incorporation of forward-looking information. In considering the appropriateness we reviewed the rationale and impact of variations to each of the key assumptions.

The Committee received regular updates facilitating detailed discussion and challenge on the refinements to the provisioning methodology to ensure it continues to meet the requirements of the standard and remains fit for purpose.

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

The Committee was satisfied that the ECL allowance was appropriate.

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

As at 31 December 2019, the Group recorded a PPI provision of £10m (2018: £25m). The FCA’s deadline for a customer to raise a complaint, which can be considered by the Financial Ombudsman Service, directly with a PPI provider passed in August and the provision reflects the costs expected to be incurred to settle unprocessed complaints, the Official Receiver complaints and PPI-related litigation.

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

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

The Committee was presented with evidence to support the assumptions and considered and challenged the various factors that affect the PPI provision, including regulatory developments, communication received from the Official Receiver and litigation claims raised against the Group.

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

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

Acquired intangible assets of £250m and goodwill of £280m have been recorded in the balance sheet as at 31 December 2019 (2018: £301m and £280m respectively).

Refer to note 2.3 for further details on the judgements inherent within the impairment assessment on goodwill and acquired intangible assets.

The Committee challenged the assumptions within the impairment review of goodwill and acquired intangible assets. This included consideration of the rationale and impact of variations to each of the key assumptions, including scenario analysis with regard to retailer performance given challenges seen on the high street.

The Committee was satisfied that the carrying value of goodwill and acquired intangible assets were appropriate.


Governance

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

EIR method of accounting for loans and advances to customersThe Group applies the requirements of IFRS 9 through the EIR method for the recognition and measurement of interest income for loans and advances to customers, including customers who have been offered interest-free promotional periods.

The EIR is determined on inception as management’s best estimate of future cash flows based on historical information, where available, and considers the repayment activity and the retention of the customer balance after the end of the promotional period.

As such, in the case of interest-free promotional period offers, the EIR method introduces estimation uncertainty which, if the actual cash flows differ from the estimate, could result in an adjustment to the carrying value of the asset recognised from interest accrued in the interest-free promotional period.

The Group has recognised an EIR adjustment to loans and advances to customers in respect of interest-free periods of £23m as at 31 December 2019 (2018: £14m).

Refer to note 2.3 for further details on the judgements inherent within the EIR accounting for loans and advances to customers.

The Committee received regular updates on several aspects of the EIR accounting adjustments and focused specifically on the significant judgements used in the adjustment to loans and advances to customers in respect of interest-free promotional periods. These judgements, which include the expected repayment activity and customer retention after the end of the promotional period, were reviewed and approved by the Committee throughout the year. Whilst other aspects of the EIR accounting adjustments include judgements, these judgements are not considered by the Committee to be significant as they incorporate low levels of estimation uncertainty.

The Committee was satisfied that the carrying value of the EIR adjustment to loans and advances to customers in respect of interest-free periods was appropriate.

Other provisions The Group is engaged in various legal and regulatory matters, the impact of which cannot always be predicted, but matters can give rise to provisioning for contingent and other liabilities depending on the relevant facts and circumstances.

The level of provisioning is subject to management judgement on the basis of legal advice and is therefore an area of focus for the Committee.

The Group has recognised non-customer related regulatory provisions totalling £5m as at 31 December 2019 (2018: £7m).

Refer to note 20 for further details on other provisions.

The Committee has understood the basis for determining the other provisions and, where relevant, has reviewed legal and accounting advice in determining the appropriate amount of provision.

Having reviewed the information available to determine what was both probable and could be reliably estimated, the Committee agreed that the level of provision at the year end was appropriate.

Going concernThe Directors are required to confirm whether they have a reasonable expectation that the Company and the Group has the resources necessary to continue in business for a period of at least 12 months after the approval of the Financial Statements.

The Committee considered and challenged management forecasts of Group operating cash flows and net debt, as well as financing facilities available to the Group in performing its assessment of going concern of the Company and the Group. This included evaluating scenario analysis of the potential implications of Brexit on profitability and the ability to access capital market funding.

The Committee was satisfied that the going concern basis of accounting should be adopted in the Financial Statements and we advised the Board of our conclusion.


Governance

Board Audit CommitteeContinued

Internal auditSince 2016 we have operated an in-house internal audit function with support provided by third party consultants where specialist knowledge is required. The internal audit function reports to me, as Chairman of the Committee, to ensure independence from the management team and I regularly meet with the Director of Internal Audit and his team. The Committee assesses the performance of the internal audit function on an ongoing basis to ensure it is satisfied with the function’s effectiveness.

Having reflected on the achievements of the 2018 internal audit plan, the Committee endorsed the internal audit plan for 2019, ensuring it was tailored to address areas on a risk-based approach, either as a result of regulator or industry focus or as a result of the continued pace of growth within the business.

We monitored progress and delivery against the plan throughout the year, including assessing the scope of work performed, reviewing the audit charter and evaluating coverage of the internal audit plan and the level of resources and training of the internal audit function.

Internal audit reports issued in the year covered the following areas:• customer credit management;• implementation of balance transfers and money transfers;• credit bureau data usage and reporting;• debt sales processes, accounting for debt sales and oversight

of debt purchasers;• digital development operations change management;• data security and data protection;• securitisation deal implementation, asset data accuracy

and reporting;• taxation control framework;• customer complaints identification and outcomes;• Credit Card Market Study;• UPL follow-up;• NewPay new product approval process; and• technology risk and data governance framework –

cyber security.

We reviewed all internal audit reports issued and ensured that management took appropriate action to address issues arising from these reports. We subsequently assessed progress against agreed management actions to ensure that they were promptly resolved.

In order to ensure the continued development of the internal audit function such that it can continue to fulfil its responsibilities and adapt its audit plans in line with the pace of change in the business, we oversaw a series of development sessions for the internal audit team facilitated by Ernst and Young and Deloitte.

External auditThe Board and the external auditor have safeguards in place to protect the independence and objectivity of the external auditor. KPMG LLP is the auditor of the Group and had been the auditor of the Predecessor Group since 2012. For the year ended 31 December 2019, to ensure independence and objectivity is maintained, Simon Ryder replaced Andrew Walker as the audit engagement lead partner.

The external auditor is not permitted to perform any work that might affect its objectivity and independence or create a conflict of interest with respect to the Group. We have internal procedures in place to determine the use of the external auditor for non-audit services. The amount paid to the external auditor is disclosed in note 8.

The Committee reviewed and approved the annual external audit plan, including the methodology and risk identification processes used, and we reviewed the findings of the external audit including key judgements and the level of challenge provided. We assess the performance of the external auditor on an ongoing basis to ensure we are satisfied with the quality of the services provided, which includes consideration of the experience and capabilities of the auditor, the delivery of its audit work in accordance with the agreed plan and the quality of its reports and communications to us.

The Committee has kept under review regulatory and legislative developments around the tenure of the auditor. Having reviewed this, along with the assessment of the effectiveness of the external auditor, the Committee has recommended to the Board that KPMG LLP be reappointed as external auditor for the financial year ending 31 December 2020.


Governance

Internal control environmentThe Board is responsible for the Group’s internal control environment. The system of internal controls is designed to mitigate the risk of material misstatements in the financial records of the Group and to facilitate the business in achieving its objectives. The internal control environment only provides reasonable, rather than absolute, assurance against material misstatement, loss or fraud to the Group.

The Board confirms that a system of internal controls for identifying, evaluating and managing the significant risks faced by the Group has been in place throughout the year ended 31 December 2019, and up to the date of the approval of these consolidated Financial Statements.

The Board, through the Board Audit and Risk Committees, has reviewed the effectiveness of the system of internal controls and is satisfied with the controls operated over financial reporting and associated business activities such that to the best of the Committee’s knowledge there was no material loss, contingency or uncertainty to the Group requiring disclosure in the Financial Statements.


Governance

Board Risk Committee

Chairman’s overviewThe ongoing appropriateness of the Risk Management Framework, in respect of the business’ strategy and the evolving regulatory and economic landscape, was monitored throughout the year as the Committee assessed the Group’s risk profile on behalf of the Board within the parameters of the Board’s agreed risk appetite.

The Committee oversaw the ongoing management and mitigation of risks arising in the business, including major projects and business initiatives, and also emerging risks. It monitored risk management practices to ensure that they continued to be fit for purpose in the face of a significant business and technology change agenda. It continued to monitor the macroeconomic environment and the impact on credit risk.

We continue to manage our regulatory requirements whilst monitoring the horizon for emerging regulatory risks. During 2019, the business contributed to two industry-wide FCA information requests – ‘Review of Affordability’ and ‘Lending Decisions and Credit Information Market Study’, and provided information on operational resilience, complaints performance and consecutive fees. The business continues to monitor the impact of the persistent debt initiatives implemented in 2018, following the FCA’s Credit Card Market Study, and is in the process of rolling out further communications to impacted customers during Q1 2020. In line with our Customer Manifesto-led outlook we will continue to monitor the impacts on our customers during 2020.

In 2019, the Committee has overseen the maturation of the three lines of defence and will continue to ensure they are adequately resourced and have the right experience in place to adapt to the changes in the business.

During 2019, the Committee provided oversight of the Group’s Risk Management Framework and ensured that the Group’s risk profile is

aligned to the risk appetite set by the Board. The Committee managed the agenda to cover the risks we are facing, including the credit risk

profile of the portfolio, economic uncertainties, rising Individual Voluntary Arrangements, retail partner performance, data

governance, PSD2 and persistent debt

Alison ReedSenior Independent Non-Executive Director,

Chairman of the Board Risk Committee

Committee composition, skills and experienceThe following Directors are members of the Board Risk Committee:• Alison Reed (Committee Chairman), Senior Independent Non-

Executive Director;• Caspar Berendsen, Investor Director (Cinven); and• Peter Rutland, Investor Director (CVC).

The diverse backgrounds of the Committee members and their combined skills and range of risk and business experience (as detailed on pages 60 to 62) enable us to fulfil the Committee’s remit, as set out in the terms of reference, which are reviewed annually. Although not members of the Committee, the Chief Executive Officer, Chief Risk Officer, Chief Financial Officer and Director of Internal Audit attend each meeting. Other Directors, colleagues and the external auditors are invited as and when required to ensure that the Committee has all the information it requires to operate effectively.


Governance

Roles and responsibilitiesThe main roles and responsibilities of the Committee, as set out in the terms of reference, are:• to oversee the Risk Management Framework and challenge the

processes and methodologies used for identifying, measuring, managing, monitoring and reporting all key risks facing the business;

• to recommend to the Board how to improve the Risk Management Framework including the monitoring of risk exposures, risk appetite, capital and liquidity and any significant risk issues;

• to review the output, effectiveness and resources of the Enterprise Risk Function;

• to review, monitor and report to the Board on our interactions with regulators, the effectiveness of regulatory reporting and action on any significant regulatory issues;

• to review and monitor the implementation of risk or compliance-related policies, their suitability in terms of compliance, and the necessary actions taken as a result of policy breaches; and

• to oversee, review, repor t and make associated recommendations to the Board on risk appetite, risk management culture, training and competence throughout the business.

Key activities of the Board Risk Committee in 2019 As part of discharging its duties the Committee provided annual oversight for the:• review of the Risk Management Framework and associated policy;• review of the risk appetite framework and proposals for 2020; and• three lines of defence oversight plan for 2020.

Members also reviewed and challenged: • risk appetite reporting;• the management and mitigation of risks and issues in the

business, with a strong focus on credit risk;• the effectiveness of risk management throughout the business

during another year of continued growth and change;• key risks via the quarterly principal risk radars;• macroeconomic trends (including Brexit) and business

consequences; • ongoing retailer compliant sales performance; • enhanced complaints management; • new product approvals;• annual funding plans;• enhancements to our information security programme; and• regulatory developments and regulatory notifications.

Members also requested and considered insights relating to:• quarterly updates on the credit risk profile;• the impact of increasing IVAs;• ongoing cyber threats and an update on cyber testing;• the PSD2 regulations and the impact on customers and

the Group;• an update on recent guidance on service messages;• operational risk and customer impacts of the new collections

platform;• the revised records retention policy to ensure it meets both

GDPR and the FCA’s guidance;• an assessment of data governance for future business

requirements; and• implementation of final remedies for customers considered in

persistent debt.


Governance

Board Remuneration and Nomination Committee

Chairman’s overviewThe Board Remuneration and Nomination Committee’s main roles and responsibilities are set out in its terms of reference which are reviewed regularly. Responsibilities include supporting the Chairman in reviewing and recommending changes to the composition of the Board and its various committees. The Committee oversees the procedure for the appointment of Directors and recommends to the Board appropriate candidates. In 2019, the Committee confirmed the appointment of John Hourican as NewDay’s new Chief Executive Officer and a member of the Board, following a thorough external search.

The Committee also plays a role in reviewing and confirming changes to the composition of the Group’s Executive and senior management teams, helping ensure that they have the appropriate mix of experience, expertise and diversity needed to lead the Group.

Finally, the Committee oversees the Group’s remuneration policy (the ‘Reward Policy’) and other key people-related policies and matters. In line with this, the Committee helps set the overall direction of employee remuneration and people practices. The Committee reviews a range of business performance targets which, once approved by the Board, are used to finalise annual bonuses and remuneration awards. A balanced scorecard of metrics is discussed annually and recommended to the Board for approval, ensuring that rewards reflect achievement against a broad range of performance and risk-related goals, helping to ensure the long-term health and success of the Group.

“ In 2019, the Committee continued its focus on ensuring the Group’s people-related policies remained relevant, enabling the Group to deliver its strategy and sustainable long-term success“

Rupert KeeleyIndependent Non-Executive Director, Chairman of the Board Remuneration and Nomination Committee


Governance

Committee composition, skills and experience The following Directors are members of the Board Remuneration and Nomination Committee:• Rupert Keeley (Committee Chairman), Independent Non-

Executive Director;• Sir Michael Rake, Chairman and Independent Non-Executive

Director;• Sir Malcolm Williamson, Independent Non-Executive Director;• John Hourican, Executive Director and Chief Executive Officer;• Caspar Berendsen, Investor Director (Cinven); and• Peter Rutland, Investor Director (CVC).

On 16 October 2019, John Hourican replaced James Corcoran as a member of the Board Remuneration and Nomination Committee.

The diverse backgrounds of the Committee members and their combined skills and range of risk and business experience (as detailed on pages 60 to 62) enable us to fulfil the Committee’s remit, as set out in the terms of reference, which are reviewed annually.

Although not a member of the Committee, the Chief People Officer attends each meeting as Secretary.

Roles and responsibilitiesThe main roles and responsibilities of the Committee, as set out in the terms of reference, are:• recommending to the Board a suitable Reward Policy, and

reviewing its ongoing appropriateness and relevance;• setting the remuneration of all Executive Directors, Non-

Executive Directors (including the Chairman), and members of the Executive team (including pension rights and any compensation payments);

• recommending for the approval of the Board, candidates for appointment to the Board and reviewing the process undertaken in relation to such appointments; and

• recommending for the approval of the Board, suitable candidates for the role of Senior Independent Director, membership of each Committee of the Board and matters relating to the continuation in office of any Director.

Key activities of the Board Remuneration and Nomination Committee in 2019During the year the Committee delivered the following key outcomes: • appointed a new Chief Executive Officer;• reviewed and evaluated management performance in 2018;• recommended performance objectives for 2020 to the Board

for approval;• reviewed and updated the Reward Policy; and• reviewed and approved a number of senior appointments and

associated compensation.


Governance

Directors’ report

Group business review and resultsThe Group’s business model is outlined on page 10 and the KPIs and financial review on pages 28 to 37 contain highlights of the financial performance and capital structure for the year. The Group generated a profit before tax for the year ended 31 December 2019 of £50m. A reconciliation of the statutory profit to adjusted EBITDA, referred to throughout the strategic report, is provided on page 31.

The Chief Executive Officer’s review on page 14 and the strategic priorities on page 26 provide details of future business developments.

We do not propose the payment of a dividend for the year ended 31 December 2019.

Principal risks and managementThe principal risks and management thereof are described on pages 53 to 56.

Going concernThe Group’s business activities, together with the factors likely to affect its future development, performance and position, as well as the overall financial position of the Group, its cash flows, liquidity position and borrowing facilities, are described in the KPIs and financial review on pages 28 to 37 and within the Financial Statements. The notes to the Financial Statements include our objectives, policies and processes for managing capital, financial risk management objectives, details of financial instruments and our exposures to credit risk and liquidity risk.

We continue to note the levels of credit card debt in the UK, as well as the FCA’s concerns around persistent debt in the market. We have a robust credit Risk Management Framework in place to limit unexpected losses arising as a result of customers failing to meet their repayment obligations. We also depend on the availability of external borrowing to finance our existing customer receivables as well as fund future growth. During the year we raised £577m from our asset-backed term debt securitisation programme, including $205m raised in US capital markets, and successfully refinanced all debt maturing in 2019 to facilitate continued support of the business.

We believe that our existing plans and projections of business performance will be sufficient to allow us to continue to meet all of our current obligations, including financial covenants and cash requirements, for a period of at least 12 months following the approval of the Financial Statements. Whilst the UK’s economic outlook as a result of Brexit remains uncertain, we have considered the impact to the Group including conducting scenario analysis of the potential impact of Brexit on profitability and the capital markets and assessing our ability to refinance in such a scenario. Considering the scenario analysis and our current funding position, we feel that we are well placed to meet our strategic objectives. For this reason the Board has adopted the going concern basis in preparing these Financial Statements.

Transparency in reportingIn preparing the Annual Report and Financial Statements, we have fully complied with the best practice principles set out in ‘The Walker Guidelines for Disclosure and Transparency in Private Equity’, which were established to provide oversight on disclosure issues and, specifically, to demonstrate private equity companies’ commitment to transparency.

Environmental, social and governance matters We are committed to conducting our business in a manner that protects the environment. This means ensuring that all relevant environmental legislation and regulations are met and reducing consumption of these resources. For further details see page 45.

Modern slavery and human traffickingWe aim to act fairly, ethically and openly in everything that we do and are committed to carrying out our business responsibly. This includes ensuring that modern slavery and human trafficking are not taking place in any part of our business or supply chain. The Group’s statement on modern slavery is available on its website at www.newday.co.uk.

Business relationships and employee engagementThe Group is committed to ensuring it maintains strong relationships with all stakeholders (including employees) and actively engages with them on an ongoing basis. Further details are provided on page 46.

The Directors of the Company present their Annual Report and Financial Statements for the year ended 31 December 2019


Governance

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

Research and development activitiesDuring the ordinary course of business we develop new products and services within our business units.

Issuance of sharesUpon incorporation on 26 September 2016, the Company issued share capital of 101 fully paid ordinary shares of one pence each. No shares were issued during the year.

DirectorsThe Directors who held office during the year and up to approval of the Annual Report and Financial Statements were as follows:• James Culshaw;• Grant Collins; • Geraldine O’Rourke (resigned 11 June 2019);• Keith Mallet (appointed 11 June 2019);• Carl Hansen; and• Daryl Pilcher (appointed 4 December 2019).

Geraldine O’Rourke, Keith Mallet and Daryl Pilcher were appointed as alternate Directors to Grant Collins. Carl Hansen was appointed as an alternate Director to James Culshaw.

Auditor and disclosure of information to auditor The Directors who held office at the date of approval of this Directors’ report confirm that, as far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware, and each Director has taken all of the steps that they ought to have taken as Directors to make themselves aware of any relevant information and to establish that the Company’s auditor is aware of that information.

Statement of Directors’ responsibilities in relation to the consolidated Financial StatementsThe Directors are responsible for preparing the Financial Statements in accordance with applicable law and IFRS as adopted by the European Union (EU).

Company law requires the Directors to prepare consolidated Financial Statements for each financial year which give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing those Financial Statements, the Directors are required to:• select suitable accounting policies and then apply them

consistently;• make judgements and estimates that are reasonable, relevant

and reliable;• state whether applicable accounting standards have been

followed, subject to any material departures disclosed and explained in the Financial Statements;

• assess the Group’s ability to continue as a going concern; and• use the going concern basis of accounting unless they either

intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the Financial Statements comply with the Companies (Jersey) Law 1991. They are responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and the Company and to prevent and detect fraud and other irregularities.

James CulshawDirector5 March 2020

Daryl PilcherDirector



Independent auditor’s reportto the members of NewDay Group (Jersey) Limited

OpinionWe have audited the Financial Statements of NewDay Group (Jersey) Limited (“the Company”) for the year ended 31 December 2019 which comprise the income statements and statements of comprehensive income, balance sheets, statements of changes in equity, statements of cash flows and related notes, including the accounting policies in note 2.

In our opinion: • the Financial Statements give a true and fair view of the state

of the Group’s and of the Company’s affairs as at 31 December 2019 and of the Group’s and Company’s profit for the year then ended;

• the Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);

• the Company Financial Statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies (Jersey) Law 1991; and

• the Financial Statements have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.

Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

The impact of uncertainties due to the UK exiting the European Union on our auditUncertainties related to the effects of Brexit are relevant to understanding our audit of the Financial Statements. All audits assess and challenge the reasonableness of estimates made by the Directors, such as the impairment losses on loans and advances to customers, the impairment of goodwill and intangible assets and related disclosures and the appropriateness of the going concern basis of preparation of the Financial Statements. All of these depend on assessments of the future economic environment and the Group and Company’s future prospects and performance.

Brexit is one of the most significant economic events for the UK, and its effects are subject to unprecedented levels of uncertainty of consequences, with the full range of possible effects unknown. We applied a standardised firm-wide approach in response to that uncertainty when assessing the Group and Company’s future prospects and performance. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.

Going concernThe Directors have prepared the Financial Statements on the going concern basis as they do not intend to liquidate the Group or the Company or to cease their operations, and as they have concluded that the Group and the Company’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the Financial Statements (“the going concern period”).

We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least a year from the date of approval of the Financial Statements. In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Group’s business model, including the impact of Brexit, and analysed how those risks might affect the Group and Company’s financial resources or ability to continue operations over the going concern period. We have nothing to report in these respects.

However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor’s report is not a guarantee that the Group or the Company will continue in operation.

Strategic report and Directors’ report The Directors are responsible for the strategic report and the Directors’ report. Our opinion on the Financial Statements does not cover those reports and we do not express an audit opinion thereon.

Our responsibility is to read the strategic report and the Directors’ report and, in doing so, consider whether, based on our Financial Statements audit work, the information therein is materially misstated or inconsistent with the Financial Statements or our audit knowledge. Based solely on that work: • we have not identified material misstatements in the

strategic report and the Directors’ report; • in our opinion the information given in those reports for the

financial year is consistent with the Financial Statements; and • in our opinion those reports have been prepared in

accordance with the Companies (Jersey) Law 1991.



Matters on which we are required to report by exceptionUnder the Companies (Jersey) Law 1991, we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the

Company, or returns adequate for our audit have not been received from branches not visited by us; or

• the Company Financial Statements are not in agreement with the accounting records and returns; or

• certain disclosures of Directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

We have nothing to report in these respects.

Directors’ responsibilitiesAs explained more fully in their statement set out on page 77, the Directors are responsible for: the preparation of the Financial Statements and for being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilitiesOur objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Statements.

A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.

The purpose of our audit work and to whom we owe our responsibilitiesThis report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

Simon Ryder (Senior Statutory Auditor) for and on behalf of KPMG LLPChartered Accountants1 Sovereign Square Sovereign Street LeedsLS1 4DA5 March 2020



Group Company

Note

Year ended 31 December

2019 £m


2018 £m


2019 £m


2018 £m

Interest and similar income 4 676.2 581.3 47.4 71.7Interest and similar expense 5 (101.0) (88.9) (33.9) (33.4)

Net interest income 575.2 492.4 13.5 38.3

Fee and commission income 6 94.4 92.7 – –Impairment losses on loans and advances to customers 11 (318.5) (302.2) – –

Risk-adjusted income 351.1 282.9 13.5 38.3

Personnel expense 7 (89.9) (80.9) – –Other operating expenses 8 (211.3) (208.9) (0.2) (0.1)

Total operating expenses (301.2) (289.8) (0.2) (0.1)

Profit/(loss) before tax 49.9 (6.9) 13.3 38.2

Tax expense 9 (9.9) (6.7) – –

Profit/(loss) after tax 40.0 (13.6) 13.3 38.2

Other comprehensive expenseItems that may subsequently be reclassified to the income statementEffective portion of changes in fair value of cash flow hedges (17.4) 5.0 – –Net income statement transfer from hedging reserve 13.8 (6.4) – –

Other comprehensive expense (3.6) (1.4) – –

Total comprehensive income/(expense) 36.4 (15.0) 13.3 38.2

The profit/(loss) for each year is from continuing operations.

The notes on pages 84 to 122 form an integral part of these statutory Financial Statements.

Income statements and statements of comprehensive income



Group Company

Note

31 December 2019

£m

31 December 2018

£m

31 December 2019

£m

31 December 2018

£m

AssetsLoans and advances to banks 10 205.7 184.0 25.6 0.9Loans and advances to customers 11 2,709.8 2,303.3 – –Other assets 12 56.6 58.4 538.6 547.9Derivative financial assets 13 – 2.5 – –Current tax assets 0.7 0.8 – –Deferred tax assets 0.4 0.4 – –Property and equipment 14 22.3 9.0 – –Intangible assets 15 266.2 313.9 – –Investment in subsidiaries 16 – – 511.4 511.4Goodwill 17 279.9 279.9 – –

Total assets 3,541.6 3,152.2 1,075.6 1,060.2

LiabilitiesDebt issued and other borrowed funds 18 3,020.5 2,664.3 425.6 423.4Other liabilities 19 82.8 90.1 – 0.1Derivative financial liabilities 13 17.0 – – –Current tax liabilities 4.9 2.3 – –Provisions 20 20.9 35.7 – –

Total liabilities 3,146.1 2,792.4 425.6 423.5

Net assets 395.5 359.8 650.0 636.7

Equity attributable to owners of the CompanyShare capital and share premium 21 – – – –Equity instruments 21 593.9 593.9 593.9 593.9Capital contribution 21 30.5 30.5 30.5 30.5Hedging reserve 21 (5.0) (1.4) – –Retained (losses)/profits 21 (223.9) (263.2) 25.6 12.3

Total equity 395.5 359.8 650.0 636.7


The Financial Statements on pages 80 to 122 were approved and authorised for issue by the Board of Directors on 5 March 2020 and signed on its behalf by:

James CulshawDirector

Daryl Pilcher Director

Registration number 122135

Balance sheets



Group

Share capital and share premium

£m

Equity instruments

£m

Capital contribution

£m

Hedging reserve

£m

Retained losses

£m

Total equity

£m

As at 1 January 2018 – 593.9 30.5 – (36.5) 587.9Adjustment on initial application of IFRS 9 – – – – (213.1) (213.1)

Adjusted balance as at 1 January 2018 – 593.9 30.5 – (249.6) 374.8Total comprehensive expense for the year:

Loss after tax – – – – (13.6) (13.6)Other comprehensive expense – – – (1.4) – (1.4)

As at 31 December 2018 – 593.9 30.5 (1.4) (263.2) 359.8

Adjustment on initial application of IFRS 16 – – – – (0.7) (0.7)

Adjusted balance as at 1 January 2019 – 593.9 30.5 (1.4) (263.9) 359.1Total comprehensive income for the year:

Profit after tax – – – – 40.0 40.0Other comprehensive expense – – – (3.6) – (3.6)

As at 31 December 2019 – 593.9 30.5 (5.0) (223.9) 395.5

Company

Share capital and share premium

£m

Equity instruments

£m

Capital contribution

£m

Retained (losses)/

profits £m

Total equity

£m

As at 1 January 2018 – 593.9 30.5 (25.9) 598.5Total comprehensive income for the year:

Profit after tax – – – 38.2 38.2

As at 31 December 2018 – 593.9 30.5 12.3 636.7

Total comprehensive income for the year:Profit after tax – – – 13.3 13.3

As at 31 December 2019 – 593.9 30.5 25.6 650.0


Statements of changes in equity



Group Company

Note


2019 £m


2018 £m


2019 £m


2018 £m

Operating activitiesProfit/(loss) after tax 40.0 (13.6) 13.3 38.2Reconciliation of profit/(loss) after tax to net cash (used in)/generated from operating activities:

Tax expense 9 9.9 6.7 – –Interest and similar expense 5 101.0 88.9 33.9 33.4Depreciation of property and equipment 14 5.0 2.0 – –Amortisation and impairment of intangible assets 15 55.3 51.9 – –Impairment losses on loans and advances to customers 11 318.5 302.2 – –

Changes in operating assets and liabilities:Increase in restricted cash (3.6) (6.5) – –Increase in loans and advances to customers (725.0) (714.2) – –Decrease/(increase) in other assets 1.4 9.2 9.3 (32.7)(Decrease)/increase in other liabilities (20.5) 4.6 (0.1) (1.4)Decrease in provisions (12.0) (24.1) – –

Interest and similar expense paid (95.8) (83.8) (31.7) (31.3)Tax paid (10.0) (6.8) – –

Net cash (used in)/generated from operating activities (335.8) (383.5) 24.7 6.2

Cash flows from investing activitiesPurchases of property and equipment 14 (2.0) (1.0) – –Investment in intangible assets 15 (7.6) (8.4) – –Increase in investment in subsidiary 16 – – – (6.5)

Net cash used in investing activities (9.6) (9.4) – (6.5)

Cash flows from financing activitiesProceeds from debt issued and other borrowed funds 18 1,035.0 1,086.6 – –Repayment of debt issued and other borrowed funds 18 (668.0) (684.1) – –Payment of principal element of lease liabilities (3.5) – – –

Net cash generated from financing activities 363.5 402.5 – –

Net increase/(decrease) in cash and cash equivalents 18.1 9.6 24.7 (0.3)Cash and cash equivalents at the start of the year 134.0 124.4 0.9 1.2

Cash and cash equivalents at the end of the year 10 152.1 134.0 25.6 0.9


Statements of cash flows



Notes to the Financial Statements

1. Corporate informationNewDay Group (Jersey) Limited (the Company) was incorporated in Jersey as a private limited company on 26 September 2016. The address of its registered office is 27 Esplanade, St Helier, Jersey, JE1 1SG. Nemean MidCo Limited has been the sole shareholder of the Company since incorporation. The ultimate parent undertaking is Nemean TopCo Limited, a private limited company incorporated in Jersey.

2. Accounting policies2.1 Basis of preparationThe consolidated Group and Company Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and International Financial Reporting Interpretations Committee (IFRIC) interpretations.

The Financial Statements of the Group and Company have been prepared on a historical cost basis except for derivative financial instruments which have been measured at fair value.

The consolidated Group and Company Financial Statements for the year ended 31 December 2019 were approved by the Board of Directors on 5 March 2020.

Going concernAs at 5 March 2020, the Group has £657.8m of asset-backed securities (ABSs) that reach their maturity date within the next 12 months and the Directors’ intentions are to refinance this funding with new ABSs. The Directors note that the Group can, if required, exercise a contractual extension option where each ABS can be extended by up to one year from its scheduled maturity date. As at 5 March 2020, the Group has undrawn funding facilities (mainly in the form of variable funding notes) of £716.1m which can be used to fund future growth.

As a result, the Directors are satisfied that the Group and Company has the resources necessary to continue in business for a period of at least 12 months after the approval of the Financial Statements. Management forecasts the performance of the Group and undertakes various stress scenarios to assess the impact on profitability, cash flows, the balance sheet and compliance with covenants. This information is formally presented to the Board for review, and has been approved by the Board, along with consideration of the potential impact of contingent liabilities on the Group. The Directors also considered the impact of Brexit on the Group including conducting scenario analysis of the potential impact on profitability and the capital markets and assessing the Group’s ability to refinance in this scenario. Considering the scenario analysis and the Group’s current funding position, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Group and Company’s ability to continue as a going concern. Therefore, the Financial Statements continue to be prepared on the going concern basis as outlined in the statement of Directors’ responsibilities.

Presentation of the Financial StatementsThe Financial Statements are presented in Sterling and all values are rounded to the nearest £0.1m, except where otherwise indicated. The Group presents its balance sheets in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in note 24.

Financial assets and financial liabilities are offset with the net amount reported in the balance sheet only when there is a legally enforceable right to offset and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Income and expenses are not offset in the income statement unless required or permitted by an accounting standard or interpretation, and specifically disclosed in the accounting policies of the Group.

Basis of consolidationThe consolidated Financial Statements comprise the Financial Statements of the Group and its subsidiaries (together with certain structured entities (SEs) that the Group consolidates) as at 31 December 2019. The subsidiaries and SEs are disclosed in note 26. The Financial Statements of the Group’s subsidiaries (including SEs that the Group consolidates) are prepared for the same reporting period as the Company using consistent accounting policies with the exception of NewDay Funding 2019-2 plc which has elected to apply a long period of account for its first Financial Statements and subsequently has a reporting period ending 31 December 2020.

Subsidiaries are fully consolidated from the date that control is transferred to the Group. Control is achieved where the Group has the power to govern the financial and operating policies of an entity, has the exposure or rights to the variable returns from the involvement with the entity, and is able to use its power to affect the amount of returns for the Group.

SEs are fully consolidated based on the power of the Group to direct relevant activities, and its exposure to the variable returns of the SE. In assessing whether the Group controls a SE, judgement is exercised to determine the following: whether the activities of the SE are being conducted on behalf of the Group to obtain benefits from the SE’s operation; whether the Group has the decision-making powers to control or to obtain control of the SE or its assets; whether the Group is exposed to the variable returns from the SE’s activities; and whether the Group is able to use its power to affect the amount of returns. The Group’s involvement with SEs is detailed in note 27.

All intra-Group balances, transactions, income and expenses are eliminated in full.



Changes in significant accounting policies IFRS 16 ‘Leases’ became effective on 1 January 2019 and therefore is mandatory for the first time for the year ended 31 December 2019. The requirements of IFRS 16 represent a change from IAS 17 ‘Leases’ and introduce a single lessee accounting model. The key changes to the Group’s accounting policies resulting from the adoption of IFRS 16 are summarised below.

(i) Lease liabilityAll leases for a lessee, other than those that are less than 12 months in duration or are low value which the Group has elected to treat as exempt, require a lease liability to be recognised on the balance sheet on origination of the lease. The lease liability is initially measured as the present value of the contractual lease payments payable over the lease term discounted at the rate implicit in the lease if that can be readily determined or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Subsequently settled lease payments reduce the lease liability and an interest expense is recognised in the income statement as the discount is unwound. Each lease payment is allocated between payments of the principal element of the lease liability and interest payments within the consolidated statement of cash flows.

(ii) Right-of-use assetFor each lease liability a corresponding right-of-use asset is recorded in the balance sheet. The right-of-use asset is measured at cost comprising the following:• the amount of the initial measurement of the lease liability;• any lease payments made at or before the commencement date less any lease incentives received;• any initial direct costs; and• restoration costs.

The right-of-use asset is subsequently depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis and recorded as an expense in other operating expenses. All of the Group’s right-of-use assets relate to property leases and the useful lives on transition to IFRS 16 were between six and eight years.

Transition to IFRS 16On transition to IFRS 16 the Group elected to apply the modified retrospective approach and has adopted the following permitted practical expedients:• to apply IFRS 16 to contracts that were previously identified as leases under IAS 17; • to apply a single discount rate to a portfolio of leases with reasonably similar characteristics; and• to not apply IFRS 16 to leases where the lease term ends within 12 months of the date of initial application.

On adoption of IFRS 16, the Group recognised lease liabilities in relation to its property leases which had previously been classified as operating leases under IAS 17. These lease liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 January 2019. The weighted average incremental borrowing rate applied to the Group’s leases on transition was 4.4%.

In line with the transition options of IFRS 16, the associated right-of-use assets were measured as if IFRS 16 had always been applied to the lease but adjusted for accrued or prepaid lease-related expenses recognised on the balance sheet as at 31 December 2018. The Group’s transition to IFRS 16 resulted in an opening reserves adjustment of £0.7m which has been recognised in retained losses as at 1 January 2019. The following table shows the impact of transition to IFRS 16 on the balance sheet position as at 1 January 2019.

IAS 17 carrying value as at

31 December 2018

£m

Adjustment on initial

application of IFRS 16

£m

IFRS 16 carrying value

as at 1 January 2019

£m

Property and equipmentRight-of-use assets – 20.3 20.3Leasehold improvements1 1.1 (1.1) –Other assetsPrepayments and accrued income 30.8 (0.4) 30.4Other liabilitiesTrade payables and accruals (66.1) 3.8 (62.3)Lease liabilities – (23.3) (23.3)

Net assets (34.2) (0.7) (34.9)

1 On transition to IFRS 16, the net book value of dilapidation costs for the Group’s property leases were incorporated into the right-of-use asset and therefore were reclassified from leasehold improvements.



Notes to the Financial StatementsContinued

2. Accounting policies continued2.1 Basis of preparation continuedThe reconciliation of operating lease commitments as disclosed in the year ended 31 December 2018 Financial Statements under IAS 17 to the lease liabilities on transition under IFRS 16 is shown in the following table.

£m

Future operating lease commitments disclosed as at 31 December 2018 27.1Impact of discounting the lease payments to 1 January 2019 (3.8)

Lease liabilities as at 1 January 2019 23.3

The Group has elected not to restate any of its prior year comparative information throughout these Financial Statements. 2.2 Summary of significant accounting policies applied in the year ended 31 December 2019(1) Foreign currency translationThe Financial Statements are presented in Sterling which is the presentational and functional currency of the Group and Company. The Group transacts mainly in Sterling. Transactions that are not Sterling denominated are recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the relevant functional currency at the exchange rates ruling at the balance sheet date. Differences arising on translation are charged or credited to the income statement, except when deferred in equity as effective cash flow hedges.

(2) Financial instruments – initial recognition and subsequent measurement(i) Date of recognitionLoans and advances to customers are initially recognised on the date on which they are originated or purchased. All other financial instruments are recognised on the trade date, which is the date on which the Group becomes a party to the contractual provisions of the instrument and are initially measured at fair value.

(ii) Classification of financial assets and financial liabilitiesIFRS 9 Financial Instruments contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). Classification is generally based on the business model in which a financial asset is managed and the contractual cash flow characteristics of the financial instruments (whether these are solely payments of principal and interest or not). The Group’s business model objective is to hold assets to collect the contractual cash flows. Any financial asset sales are incidental to the objective of the business model. The Group has assessed the contractual cash flow characteristics of its non-derivative financial assets to be consistent with a basic lending arrangement, being cash flows that are predominantly payments of principal and interest on the principal amount outstanding. Accordingly, the Group’s non-derivative financial assets are classified as measured at amortised cost. The Group’s derivative financial assets meet the hedge accounting requirements of IFRS 9, which the Group has elected to apply, and are classified as FVOCI.

Financial liabilities are held either as fair value or amortised cost depending on the nature of the underlying instrument.

(iii) Loans and advances to banksLoans and advances to banks, as referred to in the balance sheet, comprise cash and cash equivalents (which are amounts due on demand or with an original maturity of three months or less) and restricted cash as detailed in note 10.

(iv) Loans and advances to customersFinancial instruments which are disclosed as loans and advances to customers include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement at fair value, they are subsequently measured at amortised cost using the effective interest rate (EIR) method, less allowance for any expected credit loss (ECL). The interest income calculated using this method is included in interest and similar income in the income statement (see note 2.2(6)(i)). The ECL is recognised in the income statement in impairment losses on loans and advances to customers.

(v) Debt issued and other borrowed fundsFinancial liabilities that are not designated at fair value through profit and loss are classified as liabilities under debt issued and other borrowed funds where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset.

After initial measurement, debt issued and other borrowed funds are measured at amortised cost using the EIR. Amortised cost is calculated by taking into account any discount or premium on issue and directly attributable, incremental issue costs (such as debt funding issuance fees) that are an integral part of the EIR.



(3) Derecognition of financial assets and financial liabilities(i) Financial assetsA financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:• the rights to receive cash flows from the asset have expired; or• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash

flows in full without material delay to a third party under a ‘pass-through’ arrangement and either:– the Group has transferred substantially all the risks and rewards of the asset; or– the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of

the asset.

The Group enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not derecognised. For example, the Group has issued asset-backed securities to fund certain loans and advances to customers. In cases where the securitisation vehicles are funded by the issue of debt, on terms whereby the majority of the risks and rewards of the portfolio of the securitised lending are retained by the Group, these loans and advances to customers continue to be recognised in the Group’s balance sheet, together with a corresponding liability for the debt issued.

In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership of a financial asset but it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement determined by the extent to which it is exposed to changes in the value of the transferred asset.

(ii) Financial liabilitiesA financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in the income statement.

(4) Determination of fair valueFor all other financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison with similar instruments for which market observable prices exist and other relevant valuation models.

(5) Impairment of financial assets(i) Financial assets carried at amortised costFor financial assets carried at amortised cost, the Group assesses impairment on a collective basis for all financial assets that are not individually significant. Loans and advances to customers are collectively grouped together by brand and retail partner which reflects the shared risk characteristics at this level.

IFRS 9 prescribes a forward-looking ECL model for financial assets measured at amortised cost. An impairment provision is recognised on origination of a financial asset, based on its anticipated credit loss. Under IFRS 9, expected loss allowances are measured on either of the following bases:• 12-month ECLs. These are ECLs that result from possible default events within the 12 months after the reporting date; and• lifetime ECLs. These are ECLs that result from all possible default events over the expected life of a financial instrument.

Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since initial recognition (including those which are credit-impaired) or if it was purchased or originated credit-impaired (POCI), otherwise the 12-month ECL measurement applies.

Financial assets where 12-month ECL is recognised are classified as ‘stage 1’; financial assets that are considered to have experienced a significant increase in credit risk since initial recognition but are not credit-impaired, are classified as ‘stage 2’; and financial assets for which there is objective evidence of impairment, so are considered to be in default or otherwise credit-impaired, are classified as ‘stage 3’. Financial assets that were credit-impaired when purchased by the Group through the Acquisition (being the purchase by NewDay Group (Jersey) Limited of NewDay Group Holdings S.àr.l. and its subsidiaries on 26 January 2017) are classified as ‘POCI’ for the remainder of their life and cannot transition out of this classification. The assessment of whether a significant increase in credit risk has occurred is a key aspect of the IFRS 9 methodology which includes quantitative and qualitative measures and therefore requires management judgement as disclosed in note 2.3.

ECL is the product of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), discounted at the original effective interest rate. The assessment of credit risk and the estimation of ECL are required to be unbiased, probability-weighted, and should incorporate all available information relevant to the assessment, including information about past events, current conditions and reasonable and supportable forecasts of economic conditions at the reporting date. The forward-looking aspect of IFRS 9 requires judgement as to how changes in economic factors affect ECL. See note 2.3 for further details of the significant accounting judgements and estimates used in the ECL allowance.




2. Accounting policies continued2.2 Summary of significant accounting policies applied in the year ended 31 December 2019 continued(5) Impairment of financial assets continued (ii) Renegotiated loans and advances to customersWhere possible, the Group seeks to restructure loans before they reach write-off based on customers’ ability to make minimum monthly payments on their outstanding balances. This may involve setting up payment arrangements. The terms and conditions of the credit agreements are not varied as the payment arrangements operate by way of waiver. Once these arrangements are in place, any impairment is measured using a provision rate consistent with other restructured loans (separately from the portfolio of non-renegotiated loans) discounted at the original EIR as calculated before the introduction of the payment arrangements and the loan is no longer considered past due. Management continually reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to collective impairment assessments.

(6) Recognition of income and expensesIncome and expenses are recognised to the extent that it is probable that economic benefits will flow to or from the Group and the amount can be reliably measured. The following specific recognition criteria must also be met before income or expenses are recognised:

(i) Interest and similar income and expenseInterest income and expense are recognised in the income statement using the EIR method. The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:• the gross carrying value of the financial asset; or• the amortised cost of the financial liability.

When calculating the EIR for financial instruments, other than for POCI financial assets, the Group estimates future cash flows considering all contractual terms of the financial instrument but not ECL. The calculation of the EIR includes transaction costs and fees and points paid or received that are an integral part of the EIR. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability. As at 31 December 2019, the Group reported a £51.8m asset (2% of loans and advances to customers), in line with the requirements of IFRS 9, for the incremental and directly attributable transaction costs deferred through the EIR method (31 December 2018: £42.9m). For POCI financial assets, a credit-adjusted EIR is calculated using estimated future cash flows including ECL.

In calculating interest income and expense, the EIR is applied to the gross carrying value of the asset (when the asset is not credit-impaired) or to the amortised cost of the liability. However, for financial assets that have become credit-impaired subsequent to initial recognition and are therefore classified as stage 3, interest income is calculated by applying the EIR to the carrying value of the financial asset net of the ECL allowance. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis. For POCI financial assets, interest income is calculated by applying the EIR to the carrying value of the financial asset net of the ECL allowance and does not revert to a gross basis, even if the credit risk of the asset improves.

As prescribed by IFRS 9, the Group recognises interest and similar income using the EIR on loans and advances to customers that have been offered interest-free promotional periods. The EIR is determined on inception as management’s best estimate of expected future cash flows based on historical information, where available. See note 2.3 for further details of the significant accounting judgements and estimates used in the EIR method.

(ii) Fee and commission incomeIn accordance with IFRS 15 ‘Revenue from Contracts with Customers’ fee and commission income is recognised when the Group satisfies its underlying performance obligations. Fees arising from store and credit card agreements are predominantly based on customer transaction events (for example, foreign exchange fees) and are recognised at the point of the customer transaction. Fees linked to certain card servicing activities are recognised after fulfilling the corresponding criteria. Any subsequent refunds of fees to customers are netted against fee and commission income in the year in which the Group commits to make the refund. Fee and commission income excludes fees that have been recognised using the EIR method and reported within interest and similar income in the income statement. Also included within fee and commission income are: interchange fees which are the fees received, as card issuer, each time a cardholder purchases goods and services; and other fees received which includes insurance commission and profit shares along with merchant transaction fee commission.

(iii) Customer cashback programmesOn some of the Group’s credit card products customers earn cashback on qualifying card spend through cashback programmes. Expenses incurred in relation to these programmes are accrued within fee and commission income in the income statement when the relevant card spend is incurred on the customers’ accounts.



(iv) Loyalty programmesLoyalty points and vouchers costs are recognised in the period in which they are incurred. Earned but not yet redeemed points and vouchers at the year end are accrued in the balance sheet within other liabilities.

Where loyalty points and vouchers expire before they are utilised by customers, the accrual is reversed in the period in which they expire. The costs are calculated individually for each scheme in place and are accrued within commissions to retailers, advertising and marketing costs in other operating expenses.

(v) Personnel expenseThe Group applies IAS 19 ‘Employee Benefits’ in its accounting for the relevant components of staff costs. Short-term employee benefits including salaries, accrued bonus, other incentive costs and social security are recognised over the period in which the employees provide the services to which the payments relate. Bonus and other incentive costs are recognised to the extent that the Group has a present obligation to its employees that can be measured reliably and are recognised over the period of service that employees are required to work to qualify for the benefits.

(vi) Defined contribution pension planThe contributions payable to the defined contribution pension plan are in proportion to the services rendered to the Group by its employees and are recorded in the income statement as a personnel expense on an accruals basis. Unpaid contributions are accrued in the balance sheet within other liabilities.

(vii) Share-based payment transactionsThe fair value of the amount payable to employees in respect of share-based payment transactions is recognised as an expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the shares.

(viii) Servicing costsServicing costs include costs associated with servicing customer accounts. Certain servicing costs are subject to a netting arrangement whereby the expenses and income (rebates) relating to the same servicer are netted against each other. This is in line with the servicer agreement and reflects the intention of both parties to settle on a net basis. Some of the Group’s servicing costs are prepaid and released to the income statement over the period in which the service is provided. These amounts are included in prepayments and accrued income in the balance sheet.

(ix) Capitalisation of expenditureExpenditure relating to specific projects are reviewed to determine whether the capitalisation criteria of IAS 38 ‘Intangible Assets’ and IAS 16 ‘Property, Plant and Equipment’ are met (see note 2.2 (10) and (11)). The Group capitalises expenditure where the criteria are met and amortises or depreciates over the useful economic life of the asset.

(7) Tax(i) Current taxCurrent tax assets and liabilities arising in current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the tax balances are those that are enacted or substantively enacted by the reporting date.

Current tax relating to items recognised directly in equity is also recognised in equity and not in the income statement.

(ii) Deferred taxDeferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except:• where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a

business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and• in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the

temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:• where the deferred tax assets relating to the deductible temporary difference arises from the initial recognition of an asset or

liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in subsidiaries, where deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.




2. Accounting policies continued2.2 Summary of significant accounting policies applied in the year ended 31 December 2019 continued(7) Tax continuedThe carrying value of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised directly in equity are also recognised in equity and not in the income statement.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same tax authority.

(8) Derivative financial instrumentsThe Group uses derivative financial instruments, namely cross-currency interest rate swaps, to manage the interest rate and foreign exchange rate risks arising from the Group’s foreign currency denominated debt. No transactions of a speculative nature are undertaken.

All derivative financial instruments are assessed against the hedge accounting criteria set out in IFRS 9. The Group’s derivatives are cash flow hedges and meet the hedge accounting requirements of IFRS 9.

Derivatives are recognised initially at the fair value on the date a derivative contract is entered into and are remeasured subsequently at each reporting date at their fair value. Where derivatives do not qualify for hedge accounting, movements in their fair value are recognised immediately in the income statement.

For derivatives that are designated as cash flow hedges and where the hedge accounting criteria are met, the effective portion of changes in the fair value is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recognised in the income statement when the income or expense on the hedged item is recognised in the income statement.

The Group discontinues hedge accounting when:• it is evident from testing that a derivative no longer meets the hedge effectiveness requirements of IFRS 9;• the derivative expires, or is sold, terminated or exercised; or• the underlying hedged item matures or is sold or repaid.

(9) Business combinations and goodwillBusiness combinations are accounted for using the acquisition method of accounting as required by IFRS 3 ‘Business Combinations’. This involves recognising identifiable assets (including previously unrecognised intangible assets) and liabilities (including contingent liabilities but excluding future restructuring) of the acquired business at fair value. Any excess of the consideration transferred over the fair values of the identifiable net assets acquired is recognised as goodwill.

Goodwill is allocated to cash-generating units for the purposes of impairment assessments. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses. Impairment is tested by comparing the carrying value of the cash-generating unit to the discounted expected future cash flows from the relevant cash-generating unit. Any impairment is recognised immediately in the income statement.

See note 2.3 for further details on the significant accounting judgements, estimates and assumptions that affect the carrying value of goodwill.

(10) Intangible assetsThe Group’s intangible assets include intangible assets acquired as part of the Acquisition and internally generated intangible assets.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired as part of a business combination is their fair value at the date of acquisition.

Internally generated intangible assets include computer software and core operating platforms. These assets are capitalised as an intangible asset based on the costs incurred to acquire, develop and bring it into use. An intangible asset is recognised only when an asset is created that can be identified, its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Group. Expenditure incurred in relation to scoping, planning and researching the build of an asset as part of a project is expensed as incurred.



Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful economic lives of intangible assets are assessed to be either finite or infinite. Intangible assets with finite lives are amortised over their useful economic life. Amortisation is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful economic lives, which are generally estimated to be:• computer software and core operating platforms 3–5 years• acquired customer and retail partner relationships 7–13 years• acquired brand and trade names 20 years• acquired intellectual property (credit scoring models) 7 years

The Group has no intangible assets with an infinite useful economic life. The amortisation expense on intangible assets with finite lives is recognised within other operating expenses in the income statement.

Changes in the expected useful economic life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and they are treated as changes in accounting estimates.

Intangible assets are assessed for indications of impairment at each balance sheet date, or more frequently where changes in circumstances exist. The carrying value of assets is compared to their recoverable amount, being the higher of their fair value less costs to sell and their value in use. Any impairment is recognised immediately in the income statement.

See note 2.3 for further details on the significant accounting judgements, estimates and assumptions that affect the carrying value of intangibles.

(11) Property and equipmentProperty and equipment is stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment losses. Changes in the expected useful economic life are accounted for by changing the depreciation period or method, as appropriate, and are treated as changes in accounting estimates.

Depreciation is calculated using the straight-line method to write down the cost of property and equipment to their residual values over their estimated useful economic lives. The estimated useful economic lives are as follows:• computer equipment 3–5 years• fixtures and fittings 3–5 years• leasehold improvements over the lease term

Property and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is recognised in other operating expenses in the income statement in the period in which the asset is derecognised.

(12) Impairment of non-financial assetsThe Group assesses, at each reporting date, whether there is an indication that a non-financial asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use. Where the carrying value of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised.

The reversal is limited so that the carrying value of the asset does not exceed its recoverable amount, nor exceeds the carrying value that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised for the asset in prior periods. Such reversal is recognised in the income statement.

(13) ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources representing economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in other operating expenses in the income statement net of any reimbursement.

See note 2.3 for further details of the significant accounting judgements, estimates and assumptions that affect certain provisions.




2. Accounting policies continued2.2 Summary of significant accounting policies applied in the year ended 31 December 2019 continued(14) Share capital and equity instrumentsThe Group applies IAS 32 ‘Financial Instruments: Presentation’ to determine whether funding is either a financial liability or equity.

Ordinary shares are classified as equity. Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Group’s shareholders. Interim dividends are deducted from equity when they are declared and are therefore no longer at the discretion of the Group. Dividends for the year that are approved after the reporting date are disclosed as a post balance sheet event.

Issued financial instruments or their components are classified as liabilities if the contractual arrangement results in the Group having a present obligation to either deliver cash or another financial asset, or a variable number of equity shares, to the holder of the instrument. If this is not the case, the instrument is generally an equity instrument and the proceeds are included in equity, net of transaction costs.

(15) Investment in subsidiary undertakingsThe Company’s equity investments in its subsidiary undertakings are recorded at cost less impairment. At each reporting date an assessment is undertaken to determine whether there is any indication of impairment.

2.2.1 Significant accounting policies applied in the year ended 31 December 2018 which are not applicable for the year ended 31 December 2019(1) LeasingThe determination of whether an arrangement is a lease, or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Leases that do not transfer to the Group substantially all the risks and rewards incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Contingent rent payable is recognised as an expense in the period in which it is incurred. A lease is classified at the inception date as a finance lease or an operating lease.

Dilapidations are provided for on leasehold properties where the terms of the lease require the tenant to make good any changes made to the property at the end of the lease period. The provision is discounted over the remaining period of the lease at the risk-free rate. The discount unwind is recognised in other operating expenses in the income statement.

2.3 Significant accounting judgements, estimates and assumptionsThe preparation of the consolidated Group and Company Financial Statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of income and expenses during the reporting period. The Group’s Board Audit Committee regularly reviews and approves the significant accounting judgements, estimates and assumptions, see page 68 for further details. The most significant uses of judgements and estimates are as follows:

ECL on loans and advances to customersThe following judgements and estimates are made in determining the Group’s ECL under the requirements of IFRS 9:

(i) Modelling estimatesThe measurement of ECL is calculated using three main components: (i) PD; (ii) EAD; and (iii) LGD. The ECL is calculated by multiplying the PD, EAD and the LGD. The 12-month PD, being the likelihood of default occurring in the next 12 months, is used for assets in stage 1 and the lifetime PD, being the likelihood of default occurring over the remaining expected life of the asset, is used for all other assets. The EAD represents the expected balance at default, taking into account the repayment of principal and interest from the balance sheet date to the default event together with any expected drawdowns of unutilised credit limits. The LGD represents expected losses on the EAD upon default, taking into account the time value of money. In most instances the Group sells debt once it is written off, which is predominantly after it reaches 180 days past due, and the Group’s LGD is primarily determined by the recoveries received following such debt sales.



The following table details the movements in the ECL allowance for changes in the significant modelling estimates, being the PD and expected recoveries incorporated in the LGD.

Group

31 December 2019

£m

31 December 2018

£m

+/-5% relative change in the PD +/-13.4 +/-13.8+/-1 pence movement per pound of receivable on recoveries assumed in the LGD -/+3.0 -/+4.3

In 2019, the Group refined its methodology for measuring the lifetime PD to enhance the accuracy of this estimate, specifically the Group refined the scalars it uses to extrapolate the lifetime PD from the 12-month PD. See note 23.2 for the movement in the ECL allowance during the year including the impact of methodology refinements.

(ii) Significant increase in credit riskIn determining whether an account has demonstrated a significant increase in credit risk since origination the Group applies the following criteria, based on its historical experience, to assess whether an asset should move from stage 1 to stage 2:• quantitative measures consider the increase in an account’s remaining lifetime PD compared to the expected lifetime PD when

the account was originated. For the purposes of provisioning, the Group segments its portfolios into PD risk grades and has determined a relevant threshold for each risk grade where a movement in excess of the threshold since origination is considered to be significant and the account would therefore be moved to stage 2;

• qualitative measures which consider whether an account has displayed specific adverse behaviour which is indicative, based on historical experience, that the account may go on to default; and

• IFRS 9 includes a rebuttable presumption that once contractual payments are more than 30 days past due this is an indicator of a significant increase in credit risk. The Group considers 30 days past due to be an appropriate backstop and has not rebutted this presumption.

The qualitative criteria were added to the Group’s provisioning methodology in 2019 to improve the definition, based on historical experience, of what constitutes a significant increase in credit risk since origination. In most instances an account has to meet both the quantitative and at least one qualitative criteria before it is deemed to have experienced a significant increase in credit risk since origination. See note 23.2 for the movement in the ECL allowance during the year including the impact of methodology refinements.

An account is moved back to stage 1 when it no longer meets these criteria for a period of three consecutive months.

As at 31 December 2019, a 10% increase/decrease in the significant increase in credit risk PD thresholds (for example, from a 1.0 to 1.1 times uplift) results in a £2.5m reduction or £3.7m increase in the Group’s ECL allowance respectively (31 December 2018: £3.6m reduction or £8.6m increase).

(iii) Definition of defaultThe Group classifies an account as in default, which is fully aligned to the definition of credit-impaired, and therefore moves to stage 3 when it meets one or more of the following criteria:• quantitative measures reflecting the IFRS 9 rebuttable presumption that once contractual payments are more than 90 days past

due they are in default; and• qualitative measures including the observation of specific events such as insolvency or forbearance measures.

Where the performance of the asset improves to the extent that it no longer meets any of the default criteria for three consecutive months, or twelve consecutive months for accounts that were in default through forbearance measures, it transitions out of stage 3.




2. Accounting policies continued2.3 Significant accounting judgements, estimates and assumptions continued(iv) Forward-looking informationThe assessment of significant increase in credit risk and the calculation of ECL both incorporate forward-looking information. The Group has identified the most significant macroeconomic factors that are likely to impact credit loss, being changes in the UK unemployment rate and gross domestic product (GDP). These variables and their associated impact on ECL have been factored into the credit loss models using a five-year outlook period utilising four scenarios based on reasonable forecasts of future economic conditions and applying a probability-weighted approach. These scenarios include a base, an upside and two downside scenarios, which are all based on a panel of external forecasts. The probability weighting applied to each scenario is based on management’s best estimate of the likely occurrence of that scenario. The following table details the key forward-looking information incorporated into the Group’s ECL provision.

Group

Maximum/minimum

unemployment rate forecast

Maximum/minimum GDP

growth rate forecast

Average unemployment

rate forecast

Average GDP growth rate

forecast

ECL assuming 100% probability

weighting£m

Probability weighting used in

reported ECL provision

31 December 2019Upside 3.8%/3.6% 2.4%/1.7% 3.7% 2.1% 384.7 9%Base 4.2%/3.8% 1.6%/1.2% 4.1% 1.5% 399.8 59%Downside 1 5.4%/3.8% 1.4%/(0.1)% 5.0% 1.0% 428.1 24%Downside 2 6.7%/3.8% 1.2%/(1.4)% 6.0% 0.5% 473.0 8%

31 December 2018Upside 4.1%/3.6% 2.4%/1.5% 3.8% 2.1% 361.1 2%Base 4.5%/4.1% 1.8%/1.3% 4.3% 1.6% 375.1 45%Downside 1 5.6%/4.1% 1.7%/0.2% 5.3% 1.2% 412.6 40%Downside 2 6.9%/4.1% 1.6%/(1.1)% 6.3% 0.8% 464.2 13%

As at 31 December 2019, the impact of weighting these scenarios and overlaying other forward-looking information increased the ECL allowance on loans and advances to customers by £24.9m compared to the base forecast (31 December 2018: £31.3m). For further details of the Group’s ECL allowance see note 23.2.

Payment Protection Insurance (PPI)PPI provisions relate to the Group’s obligations in respect of matters relating to the sale of PPI policies to cardholders. Whilst the Group has not sold any PPI policies directly, in certain circumstances it may be liable for PPI policies that were sold to cardholders whose accounts were subsequently acquired by, or assigned to, the Group, by previous owners.

The FCA’s deadline by which customers can raise a claim, which can be considered by the Financial Ombudsman Service, with their PPI provider passed on 29 August 2019. The provision reflects the Group’s current view of the expected cost to settle the claims still to be processed, including those raised by the Official Receiver, and to close any outstanding litigation. The Group has calculated the provision by making a number of assumptions based upon current and historical experience and management judgement regarding future expectations.

The total cost associated with PPI for the Group since its inception is estimated at £55.8m, out of which £15.1m was remediated in the year ended 31 December 2019 (2018: £20.1m), leaving a provision of £9.9m in respect of anticipated future costs (2018: £25.0m).

The principal sensitivity of the PPI provision calculation is the average redress amount, if this were to move by +/-10% the PPI provision would increase/decrease by +/-£0.7m (2018: +/-£2.3m).

For further details of the PPI provision see note 20.



Effective interest rate (EIR) on loans and advances to customersIn accordance with IFRS 9, interest income is recognised in the income statement using the EIR method for loans and advances to customers, including customers that have been offered interest-free promotional periods.

The EIR is determined on inception as management’s best estimate of future cash flows based on historical information, where available, and considers the repayment activity and the retention of the customer balance after the end of the promotional period.

As such the EIR method introduces estimation uncertainty which, if the actual cash flows differ from that estimate, could result in an adjustment to the carrying value of the asset which reflects the value of interest recorded during the interest-free promotional period.

As at 31 December 2019, the Group reported an EIR adjustment to loans and advances to customers in respect of interest-free periods of £23.4m (31 December 2018: £14.1m). Net interest and similar income recognised in relation to the interest-free promotional periods totalled £9.3m, or 1% of interest and similar income for the year ended 31 December 2019 (2018: £3.4m or 1%).

If the estimated cash flows used in the EIR model for interest-free promotional periods changed by +/-5% the EIR adjustment to loans and advances to customers would increase/decrease by £0.9m/£0.9m.

Impairment of intangible assets and goodwillIn accordance with IAS 36 ‘Impairment of Assets’ the goodwill arising on the Acquisition is subject to an annual impairment review and intangible assets are assessed for indications of impairment at each balance sheet date, or more frequently where changes in circumstances exist.

The impairment review on goodwill is conducted by comparing the discounted estimated future cash flows of the cash-generating units with their carrying value including goodwill. The impairment review requires a number of key assumptions which have a significant impact on the outcome including:• the cash flow forecasts utilised. These were extracted from the Group’s Board-approved five-year budget and inherently include a

number of judgements and estimates, particularly in relation to new customer account originations, impairment rates and the ongoing cost base of the cash-generating units. Cash flows were extrapolated into perpetuity, reflecting the fact they are held for long-term investment, with no further growth assumed during the extrapolated period; and

• the discount rate which has been estimated based on the cost of equity relevant to each cash-generating unit.

The nature and inherent uncertainty relating to the above judgements and estimates means that the forecast cash flows may be materially different from actual cash flows. A material reduction in future cash flows from these assets would necessitate a full impairment review and the possibility of a material impairment charge in future years.

As at 31 December 2019, to the extent that discount rates were to increase by 25%, from 11% to 14%, there would be no increase to the goodwill impairment charge.

In accordance with IAS 36, intangible assets arising on the Acquisition are measured at fair value on the date they were acquired less accumulated amortisation and impairment losses. Accordingly at each reporting date the Group is required to assess whether there is any indication that the assets may be impaired. If there is an indication that an asset may be impaired, the asset’s recoverable amount must be calculated and the carrying value should be reduced to the recoverable amount should it be lower. The Group has reviewed all available information that may indicate impairment of its acquired intangible assets and has assessed the recoverable amount of certain acquired intangible assets (in relation to the Group’s customer and retail partnership relationships and brand names) by reference to the expected cash flows from the underlying assets, including completing stress scenario analysis. This resulted in an impairment charge of £1.3m in 2019 (2018: £nil). The £1.3m charge represents the write-off of a brand name that, following a strategic review, the Group is no longer expected to use for new customers from 2020 onwards.

2.4 Adoption of new and revised standardsThe following new standards, interpretations and amendments to existing standards are mandatory for the first time for the year ended 31 December 2019 but do not have a significant impact on the Group or Company:• Amendments to IFRS 9 for prepayment features with negative compensation and modifications of financial liabilities;• IFRIC 23 ‘Uncertainty over Income Tax Treatments’;• Amendments to IAS 19 ‘Employee Benefits’;• Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’; and• Annual improvements to IFRSs 2015-2017 cycle.

IFRS 16 also became effective on 1 January 2019. The key changes to the Group’s accounting policies from implementing this standard are detailed in note 2.1.




2. Accounting policies continued2.5 Standards issued but not yet effectiveThe following accounting standards and interpretations have been issued by the International Accounting Standards Board but have not been early adopted by the Group or Company:• Amendments to IFRS 10 ‘Consolidated Financial Statements’ and IAS 28 ‘Investments in Associates and Joint Ventures’. The

amendments resolve the conflict between the existing guidance on consolidation and equity accounting. The amendments are not expected to have a significant impact on the Group’s Financial Statements;

• Amendments to IFRS 3 ‘Business Combinations’. The amendments provide more guidance on the definition of a business and are not expected to have a significant impact on the Group’s Financial Statements;

• Amendments to IFRS 14 ‘Regulatory Deferral Accounts’. The amendments provide interim guidance on accounting for regulatory deferral account balances by first-time adopters of IFRS and are not expected to have a significant impact on the Group’s Financial Statements;

• IFRS 17 ‘Insurance Contracts’. IFRS 17 replaces IFRS 4 ‘Insurance Contracts’ and establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts. This standard is not expected to have a significant impact on the Group’s Financial Statements;

• Amendments to IAS 1 and IAS 8 for the definition of material. The amendments are not expected to have a significant impact on the Group’s Financial Statements; and

• Amendments to References to Conceptual Framework in IFRS Standards. The amendments are not expected to have a significant impact on the Group’s Financial Statements.

3. Segment informationThe Group’s operating performance on a segmental basis is regularly reviewed by management. These segmental results contain various reclassifications from the statutory results. The Group’s reportable segments comprise Own-brand, Co-brand and Unsecured Personal Loans, which are the segments reported to the chief operating decision maker, which is deemed to be the Chief Executive Officer and the Management Committee. Each segment offers different products and services and is managed in line with the Group’s management and internal reporting structure. The segments are as follows:• Own-brand: this segment serves near-prime customers who are typically new to credit or have a poor or limited credit history.

The segment issues credit cards under the Aqua, marbles and Fluid brands and also includes two closed portfolios;• Co-brand: this segment provides credit products in partnership with established retail and consumer brands. These products

include store cards, co-branded credit cards, and the Group’s digital revolving credit product, NewPay. In addition, the Group also has a small portfolio of other closed credit cards and point-of-sale finance products; and

• Unsecured Personal Loans (UPL): this segment, launched in December 2016 with a controlled build up to date, provides unsecured personal loan products to existing Own-brand customers.

These segments reflect how internal reporting is provided to management and how management allocates resources and assesses performance. Segment performance is assessed on the basis of contribution. The accounting policies of the reportable segments are consistent with the Group’s accounting policies. The Group’s activities are managed across Jersey, Luxembourg and the UK. However, the Group only offers products to customers in the UK and Channel Islands. Capital expenditure is not allocated to individual segments as property and equipment is managed at a Group level.



The table below presents the Group’s performance on a segmental basis in line with reporting to the chief operating decision maker:

Year ended 31 December 2019Own-brand

£mCo-brand

£m

Unsecured Personal

Loans £m

Total £m

Interest income 456.5 200.5 16.6 673.6Cost of funds (41.1) (19.4) (3.0) (63.5)

Net interest income 415.4 181.1 13.6 610.1Fee and commission income 45.1 20.8 – 65.9Impairment losses on loans and advances to customers (257.1) (46.2) (14.6) (317.9)

Risk-adjusted income/(expense) 203.4 155.7 (1.0) 358.1Servicing costs (43.1) (50.6) (1.2) (94.9)Change costs (14.2) (9.6) (1.4) (25.2)Value Creation Plan implementation costs (7.5) (5.5) (0.1) (13.1)Marketing and partner payments (13.8) (45.7) (0.8) (60.3)Collection fees 18.6 10.6 – 29.2

Contribution 143.4 54.9 (4.5) 193.8Salaries, benefits and overheads (58.9)

Underlying profit before tax 134.9Add back: depreciation and amortisation 9.3

Adjusted EBITDA 144.2Senior Secured Debt interest and related costs (33.9)Customer refund provision (0.4)Fair value unwind 0.3Other costs –Depreciation and amortisation including amortisation of intangibles arising on the Acquisition (60.3)

Profit before tax 49.9

Gross receivables 1,752.7 1,159.7 113.4 3,025.8

The table below presents a reconciliation of the reclassifications from the statutory performance to the results shown in the segmental analysis:

Year ended 31 December 2019 reconciling itemsStatutory

£m

Fair value unwind

£m

Cost recovery

fees £m

Senior Secured Debt

interest and related costs

£m Other

£m

Segmental basis

£m

Interest income 676.2 (2.1) – – (0.5) 673.6Cost of funds (101.0) 1.8 – 33.9 1.8 (63.5)Fee and commission income 94.4 – (28.5) – – 65.9Impairment losses on loans and advances to customers (318.5) – – – 0.6 (317.9)

Risk-adjusted income 351.1 (0.3) (28.5) 33.9 1.9 358.1Total operating expenses (301.2) 0.3 28.5 (33.9) (1.9) (308.2)

Profit before tax 49.9 – – – – 49.9

Fair value unwind reflects the amortisation of fair value adjustments on the Group’s acquired receivables and debt issued which are excluded from underlying profit on a segmental basis.




3. Segment information continuedCost recovery fees are presented as a component of collection fees on a segmental basis rather than income.

Senior Secured Debt interest and related costs represents the £33.9m interest and related costs on the £425.0m Senior Secured Debt and £30.0m revolving credit facility, which are excluded from underlying profit on a segmental basis.

Other largely represent:• costs, net of contributions from the third party, expected to be refunded to customers following an operational incident which

arose due to the Group receiving incomplete information from a third party. These costs are excluded from underlying profit on a segmental basis; and

• IFRS 16 interest arising from the unwind of lease liabilities which is presented in servicing costs and overheads on a segmental basis rather than cost of funds.

The table below presents the Group’s performance on a segmental basis for the year ended 31 December 2018 in line with reporting to the chief operating decision maker:

Year ended 31 December 2018 Own-brand

£mCo-brand

£m

Unsecured Personal Loans

£mTotal

£m

Interest income 406.5 165.2 7.7 579.4Cost of funds (34.3) (15.8) (1.8) (51.9)

Net interest income 372.2 149.4 5.9 527.5Fee and commission income 42.3 21.3 – 63.6Impairment losses on loans and advances to customers (260.8) (33.3) (7.7) (301.8)

Risk-adjusted income/(expense) 153.7 137.4 (1.8) 289.3Servicing costs (36.9) (48.9) (0.8) (86.6)Change costs (12.7) (9.5) (1.8) (24.0)Value Creation Plan implementation costs (10.2) (6.4) (0.2) (16.8)Marketing and partner payments (18.2) (43.0) (0.3) (61.5)Collection fees 17.8 11.8 – 29.6

Contribution 93.5 41.4 (4.9) 130.0Salaries, benefits and overheads (52.1)

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

Adjusted EBITDA 82.2Senior Secured Debt interest and related costs (33.4)Fair value unwind (1.6)Other costs (0.2)Depreciation and amortisation including amortisation of intangibles arising on the Acquisition (53.9)

Loss before tax (6.9)

Gross receivables 1,565.6 991.5 65.6 2,622.7

In 2019, the Group revised its methodology for allocating costs between each operating segment. This did not have a material impact on the segmental income statement, accordingly the 2018 comparatives have not been restated.



The table below presents a reconciliation of the reclassifications from the statutory performance to the results shown in the segmental analysis:

Year ended 31 December 2018 reconciling items Statutory

£m

Fair value unwind

£m

Cost recovery fees

£m

Senior Secured Debt interest

and related costs

£m Other

£m

Segmental basis

£m

Interest income 581.3 (1.5) – – (0.4) 579.4Cost of funds (88.9) 3.1 – 33.4 0.5 (51.9)Fee and commission income 92.7 – (29.1) – – 63.6Impairment losses on loans and advances to customers (302.2) – – – 0.4 (301.8)

Risk-adjusted income 282.9 1.6 (29.1) 33.4 0.5 289.3Total operating expenses (289.8) (1.6) 29.1 (33.4) (0.5) (296.2)

Loss before tax (6.9) – – – – (6.9)

4. Interest and similar income

Group Company


2019 £m


2018 £m


2019 £m


2018 £m

Interest income from loans and advances to customers 675.2 580.9 – –Interest income from banks 1.0 0.4 – –Interest income from loans with Group undertakings – – 47.4 45.4Interest income from Tracking Preferred Equity Certificates – – – 26.3

Interest and similar income 676.2 581.3 47.4 71.7

The Company’s interest and similar income consists of interest on a loan note issued by NewDay UK Limited and, in 2018, interest on Tracking Preferred Equity Certificates (TPECs) issued by NewDay Group Holdings S.à r.l..

5. Interest and similar expense

Group Company


2019 £m


2018 £m


2019 £m


2018 £m

Interest expense on debt issued and other borrowed funds 97.9 85.7 2.5 2.4Interest expense on amounts owed to Group undertakings – – 31.4 31.0Fair value unwind 1.9 3.1 – –Other 1.2 0.1 – –

Interest and similar expense 101.0 88.9 33.9 33.4

Other includes £0.9m of cost which represents the interest expense arising from the unwind of lease liabilities required under IFRS 16.

6. Fee and commission income

Group Company


2019 £m


2018 £m


2019 £m


2018 £m

Card fees 77.5 78.0 – –Interchange fees 14.6 12.0 – –Other fees received 2.3 2.7 – –

Fee and commission income 94.4 92.7 – –




7. Personnel expense

Group Company


2019 £m


2018 £m


2019 £m


2018 £m

Wages and salaries 73.1 66.0 – –Social security costs 7.0 6.1 – –Pension contributions 4.5 3.9 – –Other staff costs 5.3 4.9 – –

Personnel expense 89.9 80.9 – –

Average number of full time equivalent employees 1,126 1,023 – –Number of full time equivalent employees as at 31 December 1,119 1,097 – –

In 2019, the Group incurred £18.4m of project-related personnel expenses (2018: £19.0m).

The Company has no employees (2018: none). No Directors’ remuneration was paid by the Company during the year (2018: £nil). Remuneration for the Directors listed in the Board of Directors section on page 60 is borne by NewDay Cards Ltd (for the Executive Directors) and NewDay Group UK Limited (for the Non-Executive Directors).

See note 26 for details of transactions with key management personnel.

8. Other operating expenses

Group Company


2019 £m


2018 £m


2019 £m


2018 £m

Servicing costs 59.6 59.1 – –Commission to retailers, advertising and marketing costs 50.4 50.7 – –Administrative costs 11.4 14.4 0.2 0.1IT and communications 10.8 8.9 – –Professional fees 3.7 3.4 – –Project expenses 14.6 18.5 – –Depreciation of property and equipment (see note 14) 5.0 2.0 – –Amortisation and impairment of intangible assets (see note 15) 55.3 51.9 – –Other 0.5 – – –

Other operating expenses 211.3 208.9 0.2 0.1

Professional fees include fees payable to the auditor, KPMG LLP, in relation to:

Group Company


2019 £m


2018 £m


2019 £m


2018 £m

Audit of consolidated Group and Company Financial Statements 0.2 0.2 0.2 0.2Audit of the Financial Statements of the Company’s subsidiaries 0.4 0.5 – –Other assurance services 0.1 0.1 – –

0.7 0.8 0.2 0.2

The auditor may undertake work in other areas where it is permissible under the Ethical Standard, it is the most suitable supplier and the terms and conditions of the engagement, including the fee, do not impair its objectivity or independence.



9. Tax expense

Group Company


2019 £m


2018 £m


2019 £m


2018 £m

Current tax expense 9.9 6.4 – –Deferred tax expense – 0.3 – –

Tax expense 9.9 6.7 – –

Reconciliation of the total tax expenseThe applicable tax regime for all the Group’s entities apart from the Company, NewDay Group Holdings S.à r.l., NewDay Partnership Receivables Trustee Ltd and NewDay Funding Receivables Trustee Ltd is the UK. The Jersey tax regime is applicable for the Company, NewDay Partnership Receivables Trustee Ltd and NewDay Funding Receivables Trustee Ltd and the Luxembourg tax regime is applicable for NewDay Group Holdings S.à r.l. and is reflected in the tax computations accordingly. A reconciliation between the profit/loss before tax and the tax expense at the UK corporation tax rate is as follows:

Group Company


2019 £m


2018 £m


2019 £m


2018 £m

Profit/(loss) before tax 49.9 (6.9) 13.3 38.2Tax charge/(credit) at average UK corporation tax rate of 19% (2018: 19%) 9.5 (1.3) 2.5 7.3

Disallowable items and allowable deductions1 10.1 11.4 – (5.0)Profits subject to corporation tax under securitisation vehicle rules (7.2) (4.2) – –Adjustment in respect of foreign tax rates (2.5) (2.3) (2.5) (2.3)Prior year adjustment – 3.1 – –

Tax expense 9.9 6.7 – –

1. Disallowable items and allowable deductions largely relates to disallowable amortisation and depreciation.

For the year ended 31 December 2019, the enacted UK corporation tax rate applicable to the Group was 19% (2018: 19%). The average tax rate for the year ended 31 December 2019 was 19% (2018: 19%).

For the year ended 31 December 2019, the Jersey tax regime rate applicable to the Company was 0% (2018: 0%).

The Group holds a deferred tax asset of £0.4m (2018: £0.4m) resulting from temporary differences. There was no tax recognised through the Group’s or Company’s statement of other comprehensive income in the year (2018: £nil).

10. Loans and advances to banks

Group Company

31 December 2019

£m

31 December 2018

£m

31 December 2019

£m

31 December 2018

£m

Loans and advances to banks 152.1 134.0 25.6 0.9Restricted cash 53.6 50.0 – –

205.7 184.0 25.6 0.9

Cash and cash equivalents 152.1 134.0 25.6 0.9

Loans and advances to banks are held with large commercial banks. Restricted cash of £53.6m (2018: £50.0m) is restricted for more than three months and consists of ring-fenced cash for credit balances on loans and advances to customers, as well as cash restricted due to covenants in place in accordance with the Group’s funding structure.




11. Loans and advances to customers

Group Company

31 December 2019

£m

31 December 2018

£m

31 December 2019

£m

31 December 2018

£m

Loans and advances to customers 3,134.5 2,709.7 – –ECL allowance on loans and advances to customers (424.7) (406.4) – –

2,709.8 2,303.3 – –

There is no fixed term for repayment of credit card loans other than a contractual requirement for customers to make a minimum monthly repayment towards their outstanding balance. Unsecured personal loans have a fixed repayment term ranging between 12 months and 60 months.

For details of the ECL assessment performed on loans and advances to customers see note 23.2.

Transfers of financial assetsThe Group transfers certain loan balances to recovery agencies, in the ordinary course of business, for a proportion of their carrying value. It also undertakes that certain recourse may be claimed by the recovery agencies if specific criteria are not met for a period of time following the date of transfer. Up to this date the Group is responsible for returning collection proceeds to the agencies, depending on the provisions of each individual sales agreement. During the year the Group sold and derecognised certain loans and advances to customers for the purpose of expediting recovery of these balances for total net proceeds of £64.5m (2018: £80.9m). The Group has no other transferred financial assets which are derecognised partly or in their entirety and in which it retains some form of continuing involvement.

12. Other assets

Group Company

31 December 2019

£m

31 December 2018

£m

31 December 2019

£m

31 December 2018

£m

Other receivables 28.6 27.2 – –Prepayments and accrued income 27.6 30.8 0.1 0.1Amounts due from related parties 0.4 0.4 0.4 0.4Amounts due from Group undertakings – – 538.1 547.4

Other assets 56.6 58.4 538.6 547.9

On 28 April 2017, the Company acquired from NewDay Group Holdings S.à r.l. a loan note issued by NewDay UK Limited of £483.7m at an interest rate of 9% per annum due 2027. The loan note was listed on the International Stock Exchange on 12 October 2017. The outstanding balance is included within amounts due from Group undertakings.

Amounts due from related parties consist of a term loan facility to Nemean TopCo Limited issued on 11 January 2018, see note 26 for details.



13. Derivative financial instrumentsThe Group uses derivative financial instruments, namely cross-currency interest rate swaps, to manage the interest rate and foreign exchange rate risks arising from the Group’s foreign currency denominated asset-backed term debt.

The Group has designated its derivative financial instruments as hedging instruments in qualifying cash flow hedges. Their fair value has been calculated by discounting contractual future cash flows using relevant market interest rate yield curves and forward foreign exchange rates prevailing at the balance sheet date. The notional amounts and fair values of derivative financial instruments at the year end were as follows:

As at 31 December 2019 As at 31 December 2018

Group

Notional amount

£mLiabilities

£m

Notional amount

£mAssets

£m

Cash flow hedges 342.0 (17.0) 191.4 2.5

Derivative financial instruments 342.0 (17.0) 191.4 2.5

All cash flow hedges are deemed to be effective and the fair value thereof has been deferred in equity within the hedging reserve. There was no impact on the income statement in the year in respect of the movement in the fair value of ineffective cash flow hedges (2018: £nil).

The Company held no derivative financial instruments during the year (2018: £nil).

14. Property and equipment

Group

Computer equipment

£m

Fixtures and fittings

£m

Leasehold improvements

£m

Right-of-use assets

£m

Total property and

equipment £m

Cost as at 1 January 2019 2.0 2.6 9.7 – 14.3Adjustment on initial application of IFRS 16 – – (1.7) 20.3 18.6

Revised cost as at 1 January 2019 2.0 2.6 8.0 20.3 32.9Additions 1.4 0.4 – 0.2 2.0Remeasurement1 – – – (2.9) (2.9)

Cost as at 31 December 2019 3.4 3.0 8.0 17.6 32.0

Depreciation as at 1 January 2019 (1.0) (1.7) (2.6) – (5.3)Adjustment on initial application of IFRS 16 – – 0.6 – 0.6

Revised depreciation as at 1 January 2019 (1.0) (1.7) (2.0) – (4.7)Charge to the income statement for the year (0.8) (0.5) (0.8) (2.9) (5.0)

Depreciation as at 31 December 2019 (1.8) (2.2) (2.8) (2.9) (9.7)

Net book value as at 31 December 2019 1.6 0.8 5.2 14.7 22.3

Net book value as at 31 December 2018 1.0 0.9 7.1 – 9.0

1 The present value of the lease payments on the underlying asset were revised; accordingly the cost of the right-of-use asset has been updated.

The right-of-use assets consist solely of land and buildings leased by the Group. The total cash outflow in the year arising from right-of-use leases was £4.5m.

The adjustment on initial application of IFRS 16 is detailed further in note 2.1.

The Company held no property and equipment during the year (2018: £nil).




15. Intangible assets

Group

Acquired intangibles

£m

Internally generated

intangibles £m

Total intangible

assets £m

Cost as at 1 January 2019 396.1 16.5 412.6Additions – 7.6 7.6Disposals (1.5) – (1.5)

Cost as at 31 December 2019 394.6 24.1 418.7

Amortisation as at 1 January 2019 (95.1) (3.6) (98.7)Charge to the income statement for the year (49.7) (4.3) (54.0)Disposals 0.2 – 0.2

Amortisation as at 31 December 2019 (144.6) (7.9) (152.5)

Net book value as at 31 December 2019 250.0 16.2 266.2

Net book value as at 31 December 2018 301.0 12.9 313.9

Internally generated intangibles include computer software and core operating platforms. For details of the significant accounting judgements, estimates and assumptions in the acquired intangibles see note 2.3.

The Company held no intangible assets during the year (2018: £nil).

16. Investment in subsidiaries

Company £m

As at 31 December 2018 511.4


The Company holds 100% of the ordinary shares of NewDay Group UK Limited and NewDay Group Holdings S.à r.l..

On 28 April 2017, NewDay Group Holdings S.à r.l. assigned to the Company a loan note issued by NewDay UK Limited for £483.7m, at an interest rate of 9% per annum due 2027 in consideration for: (i) the repurchase of 312,500 A9 NewDay Group Holdings S.à r.l. shares for £324.6m; (ii) redemption of £68.5m Interest Free Preferred Equity Certificates; and (iii) repayment of £92.5m Tracking Preferred Equity Certificate interest.

On 1 January 2018, the Company made a capital contribution to NewDay Group Holdings S.à r.l. of £6.5m.

As at 31 December 2019, an impairment assessment was performed on the carrying value of the investments in subsidiaries which concluded that no impairment was required (31 December 2018: £nil).

17. Goodwill

Group £m



On 26 January 2017, the Company acquired 100% of the issued share capital and preferred equity certificates in NewDay Group Holdings S.à r.l. for cash consideration of £990.5m (the Acquisition). NewDay Group Holdings S.à r.l. was the parent company of the Predecessor Group.



The allocation of the consideration was subject to a purchase price allocation exercise. The excess of consideration over the net assets acquired was allocated to goodwill. Goodwill is allocated to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose. £240.5m of goodwill was allocated to Own-brand and £39.4m was allocated to Co-brand.

In line with the requirements of IAS 38, an annual impairment assessment has been completed and no impairment was identified; see note 2.3 for further details (2018: £nil).

18. Debt issued and other borrowed funds

Group Company

31 December 2019

£m

31 December 2018

£m

31 December 2019

£m

31 December 2018

£m

Senior Secured Debt and associated facilities 435.4 435.4 0.1 0.1Asset-backed term debt 1,865.3 1,781.7 – –Variable funding notes 739.8 468.7 – –Intercompany loan agreement – – 435.3 435.3

3,040.5 2,685.8 435.4 435.4Capitalised debt funding fees (20.0) (21.5) (9.8) (12.0)

Debt issued and other borrowed funds 3,020.5 2,664.3 425.6 423.4

In connection with the Acquisition, on 25 January 2017 NewDay BondCo plc (formerly Nemean BondCo plc) issued £425.0m Senior Secured Notes comprising £275.0m Fixed Rate Senior Secured Notes due 2024 and £150.0m Floating Rate Senior Secured Notes due 2023. In addition, the Company and certain subsidiaries of the Group entered into a £30.0m Super Senior Revolving Credit Facility.

Debt issued and other borrowed funds includes publicly listed asset-backed securities and variable funding notes provided by a number of different investors. This debt issued, provided at LIBOR or SONIA (in some instances through interest rate swaps) plus margin, is backed by securitised outstanding loans and advances to customers. As at 31 December 2019, £1,457.7m is used to fund the Own-brand portfolio (31 December 2018: £1,303.1m), £1,070.7m is used to fund the Co-brand portfolio (31 December 2018: £902.7m) and £76.7m is used to fund the Unsecured Personal Loans business (31 December 2018: £44.6m).

Of the debt issued and other borrowed funds, £342.5m is denominated in US Dollars (31 December 2018: £191.7m) with the remaining denominated in Sterling.

A reconciliation of debt issued and other borrowed funds during the year is as follows:

Cash flowsNon-cash

movements

Group

As at 1 January

2019 £m

Proceeds from debt

issued £m

Repayment of debt issued

£mOther

£m

As at 31 December

2019 £m

Senior Secured Debt and associated facilities 435.4 – – – 435.4Asset-backed term debt 1,781.7 576.5 (480.3) (12.6) 1,865.3Variable funding notes 468.7 458.5 (187.7) 0.3 739.8

Debt issued and other borrowed funds 2,685.8 1,035.0 (668.0) (12.3) 3,040.5

Cash flowsNon-cash

movements

Group

As at 1 January

2018 £m

Proceeds from debt

issued £m

Repayment of debt issued

£mOther

£m

As at 31 December

2018 £m

Senior Secured Debt and associated facilities 435.4 – – – 435.4Asset-backed term debt 1,506.8 533.5 (267.6) 9.0 1,781.7Variable funding notes 331.2 553.1 (416.5) 0.9 468.7

Debt issued and other borrowed funds 2,273.4 1,086.6 (684.1) 9.9 2,685.8




18. Debt issued and other borrowed funds continuedOther non-cash movements includes amortisation of fair value adjustments recognised on acquired debt issued, movements in accrued interest and foreign exchange gains and losses on the US Dollar denominated debt.

On 26 January 2017, the Company entered into an intercompany loan agreement with NewDay UK Limited pursuant to which the Company borrowed £425.0m comprising: (i) a fixed rate loan of £275.0m at an interest rate of 7.375% per annum due 2024; and (ii) a floating rate loan of £150.0m at an interest rate of three-month LIBOR plus a margin of 6.5% per annum due 2023.

The scheduled maturities of debt issued and other borrowed funds are as follows:

Group Company

31 December 2019

£m

31 December 2018

£m

31 December 2019

£m

31 December 2018

£m

Debt issued and other borrowed funds repayable in:Less than one year 718.7 523.8 – –Between one and two years 887.9 711.7 – –Between two and five years 1,433.9 1,166.9 435.4 152.0More than five years – 283.4 – 283.4

3,040.5 2,685.8 435.4 435.4

Refer to note 27 for further details on the Group’s funding structure.

19. Other liabilities

Group Company

31 December 2019

£m

31 December 2018

£m

31 December 2019

£m

31 December 2018

£m

Trade payables and accruals 55.9 66.1 – –Other payables 9.3 23.5 – –Lease liabilities 17.1 – – –Pension contributions 0.5 0.5 – –Amounts owed to Group undertakings – – – 0.1

Other liabilities 82.8 90.1 – 0.1

Lease liabilities consist of leases held by the Group for land and buildings. The scheduled maturities of the leases are as follows:

Group

31 December 2019

£m

Lease liabilities:Less than one year 1.7Between one and two years 2.6Between two and five years 8.5More than five years 4.3

17.1



20. Provisions

Group

PPI provision

£m

CCA provision

£m

Dilapidation provision

£m

Other provisions

£m

Total provisions

£m

As at 1 January 2018 45.1 1.2 1.8 8.8 56.9Arising during the year – – 0.1 2.8 2.9Utilised during the year (20.1) – – (4.0) (24.1)

As at 31 December 2018 25.0 1.2 1.9 7.6 35.7

Arising during the year – – 0.2 2.9 3.1Utilised during the year (15.1) – – (2.8) (17.9)

As at 31 December 2019 9.9 1.2 2.1 7.7 20.9

The Company held no provisions during the year ended 31 December 2019 (2018: £nil).

Payment Protection Insurance provisionThe PPI provision relates to the Group’s liabilities in respect of matters relating to the sale of PPI policies to cardholders. Whilst the Group has not sold any PPI policies directly, in certain circumstances it may be liable for PPI policies that were sold to cardholders whose accounts were subsequently acquired by, or assigned to, the Group, by previous owners.

As at 31 December 2019, the Group held a provision of £9.9m in respect of the anticipated costs of PPI redress (31 December 2018: £25.0m), which includes a provision of £0.1m in relation to administrative expenses (31 December 2018: £1.0m). There are still a number of uncertainties as to the eventual PPI redress costs, however, management consider the amounts provided at the year end appropriately reflect the expected cost to the Group.

See note 2.3 for details of the significant accounting judgements and estimates in the PPI provision.

Consumer Credit Act (CCA) provisionThe CCA provision relates to the Group’s obligations in respect of compensation to customers for non-compliance with the CCA. In certain instances, this relates to purchased accounts whereby the seller had not complied with the requirements of the CCA. As such the Group is fully compensated for costs by the seller of the accounts, and a corresponding asset of £1.0m has been recorded in other receivables in the balance sheet (31 December 2018: £1.0m).

Dilapidations provisionA provision of £2.1m is held as at 31 December 2019 (31 December 2018: £1.9m) for dilapidation of the leased Leeds and London offices.

Other provisionsOther provisions largely consists of £4.6m associated with non-customer related regulatory enquiries (31 December 2018: £7.4m). The Group is, from time to time and in the normal course of business, subject to a variety of legal or regulatory claims, actions or proceedings. When such circumstances arise management provides for its best estimate of cost where an outflow of economic resources is considered probable. The Group also reported a £2.2m provision (31 December 2018: £nil) for the expected costs to be refunded to customers following an operational incident which arose due to the Group receiving incomplete information from a third party. A corresponding asset of £1.8m is recorded in other receivables for costs anticipated to be recovered from the third party.

21. Share capital and reserves

Group Company

31 December 2019

£m

31 December 2018

£m

31 December 2019

£m

31 December 2018

£m

Share capital and share premium – – – –Equity instruments 593.9 593.9 593.9 593.9Capital contribution 30.5 30.5 30.5 30.5Hedging reserve (5.0) (1.4) – –Retained (losses)/profits (223.9) (263.2) 25.6 12.3

Total equity 395.5 359.8 650.0 636.7




21. Share capital and reserves continued

Company

Called up share capital ordinary shares (1 pence)Number of

shares

Nominal value

£

Issued upon incorporation 101 1.01

As at 31 December 2018 and 31 December 2019 101 1.01

Share capital consists of 101 fully paid up ordinary shares at a nominal value of 1 pence each.

Equity instruments and capital contributionWith effect from 1 July 2017, the terms of a £529.2m intercompany loan from Nemean MidCo Limited and £64.7m loan notes issued by the Company and held by Nemean MidCo Limited were amended, resulting in a change in classification from liabilities to equity instruments. The interest accrued on these loans up to 30 June 2017 was recorded as a capital contribution.

Hedging reserveThe hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges net of income statement transfers.

Capital managementThe Group manages its capital structure and makes adjustments to it according to changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may return capital to shareholders or issue capital securities. The objectives, policies and processes are under constant review by the Directors.

The Group maintains an actively managed capital base to cover risks inherent in the business and specifically for NewDay Ltd, to meet the capital adequacy requirements of the FCA under the Payment Services Regulations (2017) for Authorised Payment Institutions.

During the year, the Group complied with its externally imposed capital requirements (31 December 2018: complied).

22. Fair value of financial instrumentsFair value hierarchyThe Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:• level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;• level 2: other techniques for which all inputs, other than observable unadjusted quoted prices included within level 1, having

a significant effect on the recorded fair value are observable, either directly or indirectly; and• level 3: techniques which use inputs having a significant effect on the recorded fair value not based on observable market data.

Derivative financial instruments are recognised at fair value and are classified as level 2 (31 December 2018: level 2) as they are not traded in an active market and the fair value is therefore determined by discounting expected future cash flows using interest rate yield curves and forward foreign exchange rates prevailing at the year end. See note 13 for further details.

Fair value of financial instruments carried at amortised costSet out below is a comparison, by class, of the carrying value and fair values of the Group’s and Company’s financial instruments. During the year there have been no transfers between levels (2018: none).

Group As at 31 December 2019

Level 1 £m

Level 2 £m

Level 3 £m

Total carrying

value £m

Fair value £m

Financial assetsLoans and advances to banks – 205.7 – 205.7 205.7Loans and advances to customers – – 2,709.8 2,709.8 2,867.8Other assets – 29.0 – 29.0 29.0

Total financial assets – 234.7 2,709.8 2,944.5 3,102.5

Financial liabilitiesDebt issued and other borrowed funds – (3,020.5) – (3,020.5) (3,006.6)Other liabilities – (82.3) – (82.3) (82.3)

Total financial liabilities – (3,102.8) – (3,102.8) (3,088.9)




Level 1 £m

Level 2 £m

Level 3 £m

Total carrying

value £m

Fair value £m

Financial assetsLoans and advances to banks – 184.0 – 184.0 184.0Loans and advances to customers – – 2,303.3 2,303.3 2,447.7Other assets – 27.6 – 27.6 27.6

Total financial assets – 211.6 2,303.3 2,514.9 2,659.3

Financial liabilitiesDebt issued and other borrowed funds – (2,664.3) – (2,664.3) (2,608.6)Other liabilities – (89.6) – (89.6) (89.6)

Total financial liabilities – (2,753.9) – (2,753.9) (2,698.2)

Company As at 31 December 2019

Level 1 £m

Level 2 £m

Level 3 £m

Total carrying

value £m

Fair value £m

Financial assetsLoans and advances to banks – 25.6 – 25.6 25.6Other assets – – 538.6 538.6 538.6

Total financial assets – 25.6 538.6 564.2 564.2

Financial liabilitiesDebt issued and other borrowed funds – (425.6) – (425.6) (414.9)Other liabilities – – – – –

Total financial liabilities – (425.6) – (425.6) (414.9)

Company As at 31 December 2018

Level 1 £m

Level 2 £m

Level 3 £m

Total carrying

value £m

Fair value £m

Financial assetsLoans and advances to banks – 0.9 – 0.9 0.9Other assets – – 547.9 547.9 547.9

Total financial assets – 0.9 547.9 548.8 548.8

Financial liabilitiesDebt issued and other borrowed funds – (423.4) – (423.4) (370.3)Other liabilities – (0.1) – (0.1) (0.1)

Total financial liabilities – (423.5) – (423.5) (370.4)

Loans and advances to banksThese items have a short-term maturity (usually less than three months) and it is assumed that their carrying value approximates to their fair value as a result of their short time horizon to maturity. These have been classified as level 2 because these items can be repriced using market observable inputs.

Loans and advances to customersThis contains the receivables related to credit card and loan balances that have been issued by the Group. The fair value of these instruments is based on valuation inputs that have been derived from historical performance of the Group’s portfolios which would not be observable to a market participant and as such these financial instruments have been classified as level 3.




22. Fair value of financial instruments continuedOther assetsOther assets of the Group consist of other receivables. The fair value of these receivable balances approximates to their carrying value as there have been no significant changes to market conditions that would have caused a difference between the two values. As the assets can be repriced using market observable inputs these have been classified as level 2.

Other assets of the Company primarily consist of the loan note issued by NewDay UK Limited. The loan note cannot be repriced using market observable data and therefore has been classified as level 3.

Debt issued and other borrowed fundsThe Group’s debt issued contains Senior Secured Debt and associated facilities, asset-backed term securities and variable funding notes. For the Senior Secured Debt and asset-backed term debt an observable market price is available; however, such debt is not actively traded, therefore the fair value has been estimated using prices quoted by banks and they have been classified as level 2. The senior variable funding notes’ fair value approximates to its carrying value. These variable funding notes are private bilateral agreements that can be drawn upon and repaid by the borrower. These issuances have been classified as level 2.

Debt issued and other borrowed funds of the Company consists of the intercompany loan with NewDay UK Limited. The fair value is determined by using the market price quoted by banks on the publicly listed bonds issued by NewDay BondCo plc, another Group entity, whose terms are identical. Therefore these have been classified as level 2.

Other liabilitiesOther liabilities of the Group largely consist of accounts payable. The fair value of other liabilities approximates to their carrying value because there have been no significant changes to market conditions that would have caused a difference between these two values. These have been classified as level 2 because these items can be repriced using market observable inputs.

23. Risk management23.1 IntroductionRisk is inherent in the Group’s activities, but is managed through a process of ongoing identification, measurement and monitoring, with respect to pre-determined risk appetite settings and other controls performed by the Board. The Group controls risk via the operation of a Risk Management Framework.

Sound risk management is critical to ensure the Group meets its regulatory requirements, and delivers on the strategic and financial goals agreed with shareholders, whilst also preserving the Group’s brand and reputation. The financial risks faced by the Group include:• credit risk;• liquidity, funding and cash management risk;• market risk; and• regulatory and conduct risk.

Whilst the UK’s economic outlook as a result of Brexit remains uncertain, the Group’s proactive risk management approach means it is well-positioned to react. All of the Group’s operations take place within the UK and therefore it does not currently expect there to be a material impact on the operational side of the business. As at 31 December 2019, the Group had £0.7bn of headroom on facilities to fund future growth and an average funding maturity of two years. Furthermore, the Group continues to demonstrate its ability to raise additional funding in the current environment. The Group will continue to monitor developments, including the impact on financial markets and macroeconomic conditions, and will react as appropriate.

Risk measurement and reporting systemsAs part of the overall risk management strategy, risks are measured, monitored and reported to ensure the Group understands the risks it faces. The Group has a definition and categorisation model that forms a key part of the Risk Management Framework.

The Group uses qualitative and quantitative methods (including the use of statistical models) to compute both expected and unexpected losses.

Monitoring and control processes are set by the Board, delegated to the Board Risk Committee and subsequently delegated down to the individual business committees and ultimately to all employees of the Group.

Information is compiled from all parts of the business in order to identify, analyse and control risks on a timely basis. Appropriate key risk indicators and other information are presented and discussed at the Board Risk Committee (on a quarterly basis), Enterprise Risk Management Committee and specific sub-committees on a monthly basis, or more frequently as required.



23.2 Credit riskThe Group is exposed to credit risk on loans and advances to customers and other financial assets. Credit risk is the risk that the Group will incur a loss because its customers or counterparties fail to discharge their contractual obligations. The Group manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and monitoring exposures in relation to such limits.

Credit risk exposure from customers is managed throughout the lifecycle, underpinned by proprietary credit models which have been developed from customers’ historical credit performance and are used to forecast a probability of default for a given level of credit. At the point of originating a new account, the risk profile is assessed against the credit policy and scorecard cut-off, aligned to the product applied for, to determine the terms and credit limit offered. Credit assessment utilises a combination of customer-provided data as well as data sourced from multiple credit reference agencies. A monthly assessment of existing customers’ risk profiles determines if their credit limit is still appropriate for their borrowing needs. The proprietary credit models utilise spend and payment behaviour from products held by the Group as well as products with other providers to determine if a credit limit increase or decrease, or loan, should be extended to the customer.

Risk-based arrears management combined with specific contact strategies ensure that letters, inbound and outbound telephony, use of SMS and email are deployed in a way which manages credit risk and aims to ensure appropriate customer outcomes. Contact is established with customers to understand the reason behind missed payments and to understand if potential future concerns exist over payments due. Strategies are then deployed to ensure that customers in arrears are supported in returning to an up-to-date position or appropriate forbearance arrangements are put in place.

The Group has a range of treatments for customers who are experiencing financial stress through concessions which can be applied on a short-term or permanent basis where there is no detriment to the customer. Forbearance or other temporary arrangements are designed with the aim of ensuring that the customer’s product remains sustainable and aligned to their personal circumstances. A customer identified as being in financial difficulty will be managed on an individual basis, with the appropriate understanding of their personal circumstances and priority debt being key factors in judging if a suitable arrangement can be made so the debt repayment becomes affordable and sustainable.

The provision of such arrangements is managed through the operational centres and governed using several methods, including, but not limited to: operational policy framework; controls against the execution of the policy; regular quality assurance reviews; and monitoring of customer outcomes through regular reporting.

Forbearance arrangements span a vast spectrum of relief and time, ranging from a temporary suspension of fees and interest, which allows a customer the time to assess their options and complete an income and expenditure assessment, through matched contributions to bring customers back into a more sustainable position and extending to an indefinite suspension of fees and interest with a contribution from the customer being made on a monthly basis.

The Group has established a credit quality review process to provide early identification of possible changes in the creditworthiness of customers. Credit limits are established using a credit risk classification system, which assigns each customer a risk rating. Customer risk ratings are subject to regular revision. The credit quality review process aims to allow the Group to assess the potential loss as a result of the risks to which it is exposed and to take corrective action where appropriate.

Credit quality analysisThe following table details the internal measures used to determine the credit quality of loans and advances to customers.

Credit quality 12-month probability of default Credit quality description

Risk grade 1 0%-5.89% Up-to-date accounts which have a very high likelihood of being fully recovered

Risk grade 2 5.90%-19.99% Up-to-date accounts which have a high likelihood of being fully recovered

Risk grade 3 20.00%-99.99% Up-to-date accounts which may be fully recovered but where the likelihood of default is higher

Delinquent Accounts that are up to two monthly payments in arrears and have not defaulted

Defaulted Accounts that are at least three monthly payments in arrears, forborne, insolvent or bankrupt

Loans and advances to customers in risk grades 1, 2 and 3 are currently continuing to make payments when due.




23. Risk management continued23.2 Credit risk continuedThe following table contains an analysis of the credit risk exposure of the Group’s loans and advances to customers for which an ECL allowance is recognised. The gross carrying value of financial assets below also represents the Group’s maximum exposure to credit risk on these assets.

As at 31 December 2019

GroupStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£m

Risk grade 1 1,337.1 20.1 – 0.6 1,357.8Risk grade 2 1,096.1 49.0 – 1.4 1,146.5Risk grade 3 156.5 118.2 – 0.5 275.2Delinquent – 101.4 – 0.2 101.6Defaulted – – 250.9 2.5 253.4

Gross loans and advances to customers 2,589.7 288.7 250.9 5.2 3,134.5ECL allowance (158.0) (109.6) (154.0) (3.1) (424.7)

Loans and advances to customers 2,431.7 179.1 96.9 2.1 2,709.8


GroupStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£m

Risk grade 1 1,153.5 24.4 – 0.9 1,178.8Risk grade 2 865.3 139.3 – 1.5 1,006.1Risk grade 3 150.5 114.0 – 0.5 265.0Delinquent – 97.0 – 0.4 97.4Defaulted – – 158.0 4.4 162.4



The proportion of gross loans and advances to customers in stage 2 has decreased in 2019 due to, in part, refinements to the Group’s methodology for: (i) estimating the lifetime PD; and (ii) the definition of a significant increase in credit risk since origination, see note 2.3 for further details. The proportion of gross loans and advances to customers in stage 3 has increased in 2019 due to an operational decision to retain certain forborne debt and collect internally rather than sell to third party entities.

Loans and advances to banks and other financial assets are all classified as stage 1 as at 31 December 2019 (31 December 2018: stage 1).

The following tables present the credit risk exposure of the Group’s loan and advances to customers on a segmental basis:


Own-brandStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£m

Risk grade 1 319.5 1.6 – 0.3 321.4Risk grade 2 929.5 28.9 – 1.3 959.7Risk grade 3 149.7 107.0 – 0.5 257.2Delinquent – 77.9 – 0.1 78.0Defaulted – – 209.4 1.1 210.5






Own-brandStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£m

Risk grade 1 294.9 8.6 – 0.4 303.9Risk grade 2 747.4 109.1 – 1.4 857.9Risk grade 3 147.9 103.2 – 0.5 251.6Delinquent – 76.9 – 0.2 77.1Defaulted – – 136.1 2.0 138.1




Co-brandStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£m

Risk grade 1 928.5 9.7 – 0.3 938.5Risk grade 2 158.5 19.4 – 0.1 178.0Risk grade 3 6.5 11.1 – – 17.6Delinquent – 19.0 – 0.1 19.1Defaulted – – 38.5 1.4 39.9




Co-brandStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£m

Risk grade 1 815.3 7.7 – 0.5 823.5Risk grade 2 109.5 28.6 – 0.1 138.2Risk grade 3 2.4 10.8 – – 13.2Delinquent – 18.0 – 0.2 18.2Defaulted – – 19.3 2.4 21.7

Gross loans and advances to customers 927.2 65.1 19.3 3.2 1,014.8ECL allowance (17.9) (12.4) (11.8) (1.2) (43.3)

Loans and advances to customers 909.3 52.7 7.5 2.0 971.5


UPLStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£m

Risk grade 1 89.1 8.8 – – 97.9Risk grade 2 8.1 0.7 – – 8.8Risk grade 3 0.3 0.1 – – 0.4Delinquent – 4.5 – – 4.5Defaulted – – 3.0 – 3.0

Gross loans and advances to customers 97.5 14.1 3.0 – 114.6ECL allowance (5.7) (2.4) (2.4) – (10.5)

Loans and advances to customers 91.8 11.7 0.6 – 104.1




23. Risk management continued23.2 Credit risk continued


UPLStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£m

Risk grade 1 43.3 8.1 – – 51.4Risk grade 2 8.4 1.6 – – 10.0Risk grade 3 0.2 – – – 0.2Delinquent – 2.1 – – 2.1Defaulted – – 2.6 – 2.6

Gross loans and advances to customers 51.9 11.8 2.6 – 66.3ECL allowance (3.3) (1.5) (2.0) – (6.8)

Loans and advances to customers 48.6 10.3 0.6 – 59.5

Impairment assessmentIn accordance with IFRS 9, the Group uses a forward-looking ECL model. An ECL allowance is to be recognised on origination of a credit agreement, based on its anticipated credit loss. Allowances are assessed collectively for ECL on loans and advances to customers due to the fact that balances are not individually significant.

The measurement of ECL is calculated using three main components: (i) PD; (ii) EAD; and (iii) LGD. The ECL is calculated by multiplying the PD, EAD and the LGD. ECL for exposures in stage 1 is calculated by multiplying the 12-month PD by the LGD and EAD. Lifetime ECL is reported for all assets other than those in stage 1 and is calculated by multiplying the lifetime PD by the LGD and EAD. On origination, and other than for POCI assets, an asset is reported in stage 1 and subsequently transferred to stage 2 if it has experienced a significant increase in credit risk since origination. Once defaulted, and therefore credit-impaired, an asset is transferred to stage 3. An asset can transition backwards out of stage 2 or 3 if it has evidenced that it has no longer experienced a significant increase in credit risk since origination or it is no longer credit-impaired respectively. An originated credit-impaired asset is classified as POCI and remains in this classification even if it is no longer credit-impaired. The Group monitors performance and default information about its credit risk exposures and employs statistical models to analyse the data collected and generate estimates of the PD.

EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current exposure on the underlying asset as well as expected drawdowns of unutilised, but committed, credit limits. LGD is the magnitude of the likely loss if there is a default. The Group estimates LGD parameters based on the history of recovery rates on defaulted assets.

Subject to using a maximum of a 12-month PD for stage 1 financial assets, the Group measures ECL considering the risk of default over the maximum contractual period over which it is exposed to credit risk. For credit card facilities this period is extended to the behavioural life of the facility if the Group’s contractual ability to demand repayment and cancel the undrawn commitment does not limit the Group’s exposure to credit losses to the contractual period. This longer period is estimated taking into account the credit risk management actions that the Group expects to take, and that serve to mitigate ECL, including reducing credit limits and cancellation of the facility.

The provisioning methodology together with significant modelling techniques and assumptions are assessed for appropriateness annually through a model validation exercise. The significant judgements in the provisioning methodology are also regularly reviewed by the Board Audit Committee, see page 68 for further details.

See note 2.3 for further details of the significant accounting judgements, estimates and assumptions in the ECL on loans and advances to customers.



The following table reconciles the movement in the ECL allowance during the year:

GroupStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£m

ECL allowance as at 31 December 2018 (144.4) (131.5) (125.8) (4.7) (406.4)Transfers between stages:– to stage 1 (50.2) 48.4 1.8 – –– to stage 2 11.2 (12.6) 1.4 – –– to stage 3 10.2 19.1 (29.3) – –Remeasurement of ECL1 42.4 (42.6) 19.2 1.3 20.3Refinements to model methodology2 (8.3) 26.2 (10.6) – 7.3Release of ECL on loans and advances to customers settled in the year 6.8 4.9 2.3 0.3 14.3ECL on new loans and advances to customers originated in the year (25.7) (21.5) (13.0) – (60.2)

ECL allowance as at 31 December 2019 (158.0) (109.6) (154.0) (3.1) (424.7)

GroupStage 1

£mStage 2

£mStage 3

£mPOCI

£mTotal

£m

IAS 39 provision as at 31 December 2017 (132.9)Adjustment on initial application of IFRS 9 (213.1)

Opening IFRS 9 ECL allowance at the start of the year (123.4) (117.9) (95.7) (9.0) (346.0)Transfers between stages:– to stage 1 (39.7) 37.7 2.0 – –– to stage 2 13.5 (14.6) 1.1 – –– to stage 3 6.9 13.1 (20.0) – –Remeasurement of ECL1 18.1 (29.4) – 3.8 (7.5)Release of ECL on loans and advances to customers settled in the year 7.3 3.9 1.2 0.5 12.9ECL on new loans and advances to customers originated in the year (27.1) (24.3) (14.4) – (65.8)

ECL allowance as at 31 December 2018 (144.4) (131.5) (125.8) (4.7) (406.4)

1. Includes changes in the ECL driven by changes in credit risk (both within and between stages) and write-offs.2. See note 2.3 for further details.

Collateral heldThe Group’s primary business is to provide short-term credit to customers using the Group’s various branded store and credit products and unsecured personal loans. In the course of providing credit to customers, the Group has credit risk assessment practices which provide approval for individuals to be extended credit. In providing these products it is not the policy of the Group to obtain collateral or other credit enhancements which reduce exposure to credit risk, other than the individual’s commitment to repay outstanding balances.

Other commitments providedAs at 31 December 2019, the Group has undrawn facilities on its loans and advances to customers however these facilities are not irrevocably committed. The Company, on behalf of the Group, provides a £7.5m committed facility to Nemean TopCo Limited, the Company’s ultimate parent undertaking. The Group has not entered into any other financial guarantee contracts, letters of credit or other undrawn commitments to lend.

23.3 Liquidity, funding and cash management riskContractual cash flow maturityLoans and advances to customers constitute primarily store and credit cards. All cardholder receivables are contractually repayable on demand and have been disclosed as such. Individual customer behaviour varies and the cards are used as revolving facilities where drawdowns and repayments towards outstanding balances are made over time. The Group’s experience is that the average life of a cardholder account is five years. Unsecured personal loans and point-of-sale finance receivables follow a pre-agreed repayment schedule and have been disclosed accordingly.

Of the £3,040.5m debt issued, which includes the accrued interest, £718.7m has a scheduled maturity of less than one year, £2,321.8m has a scheduled maturity of one to five years and £nil has a scheduled maturity of over five years.




23. Risk management continued23.3 Liquidity, funding and cash management risk continuedTotal committed funding facilitiesThe Group’s total committed funding facilities as at 31 December 2019 were £3,743.2m (31 December 2018: £3,594.5m) of which £716.1m (31 December 2018: £921.8m) was undrawn.

Analysis of financial liabilities by remaining contractual maturitiesThe table below summarises the contractual maturity profile of the undiscounted cash flows of the Group’s financial liabilities as at 31 December 2019. This reflects both the interest payable and the repayment of the principal on maturity, based upon current borrowings as at the balance sheet date.


On demand

£m

Less than 3 months

£m3 to 12 months

£m1 to 5 years

£m

Over 5 years

£mTotal

£m

Financial liabilitiesDebt issued and other borrowed funds – 22.7 780.3 2,448.1 – 3,251.1Other liabilities – 82.3 – – – 82.3

– 105.0 780.3 2,448.1 – 3,333.4


On demand

£m

Less than 3 months

£m3 to 12 months

£m1 to 5 years

£m

Over 5 years

£mTotal

£m

Financial liabilitiesDebt issued and other borrowed funds – 64.5 536.1 2,043.5 276.7 2,920.8Other liabilities – 89.6 – – – 89.6

– 154.1 536.1 2,043.5 276.7 3,010.4

Securitisation vehiclesIn the ordinary course of business, the Group enters into transactions that result in the transfer of the right to receive repayments in respect of loans and advances to customers to securitisation vehicles. In accordance with the accounting policy set out in note 2.2(3), the transferred loans and advances to customers continue to be recognised in their entirety or to the extent of the Group’s continuing involvement, or are derecognised in their entirety.

The Group transfers financial assets that are not derecognised in their entirety or for which the Group has continuing involvement through securitisation activities. The Group transfers loans and advances to customers to securitisation vehicles but retains substantially all of the risks and rewards of ownership. The Group benefits to the extent that the surplus income generated by the transferred assets exceeds the administration costs of the securitisations, the cost of funding the assets and the cost of any losses associated with the assets and the administration costs of servicing the assets. Refer to note 27 for further details on the structure.

The results of the securitisation vehicles are consolidated into the Group. The following table shows the carrying value and fair value of the assets transferred to securitisation vehicles and the related carrying value and fair value of the associated liability.


Carrying value of transferred

assets not derecognised

£m

Carrying value of associated

liabilities £m

Fair value of transferred


£m

Fair value of associated

liabilities £m

Net fair value

£m

NewDay Funding Transferor Ltd 1,421.8 (1,450.3) 1,555.1 (1,449.4) 105.7NewDay Partnership Transferor plc 1,140.7 (1,067.9) 1,159.7 (1,065.5) 94.2NewDay UPL Transferor Ltd 104.1 (76.7) 109.8 (76.7) 33.1

2,666.6 (2,594.9) 2,824.6 (2,591.6) 233.0

Included within the carrying value of associated liabilities are £10.2m of capitalised debt funding fees (31 December 2018: £9.4m).




Carrying value of transferred


£m

Carrying value of associated

liabilities £m

Fair value of transferred


£m

Fair value of associated

liabilities £m

Net fair value

£m

NewDay Funding Transferor Ltd 1,232.5 (1,296.8) 1,355.7 (1,298.6) 57.1NewDay Partnership Transferor plc 970.3 (899.6) 988.2 (895.2) 93.0NewDay UPL Transferor Ltd 59.5 (44.6) 62.8 (44.6) 18.2

2,262.3 (2,241.0) 2,406.7 (2,238.4) 168.3

23.4 Market riskMarket risk is defined as the risk that market movements will negatively affect the value of the Group’s assets and liabilities. The only material market risk that the Group is exposed to is interest rate risk.

The main source of interest rate risk for the Group arises where there is a significant difference between the interest rate bases on assets compared to liabilities. The Group’s assets are predominantly variable rate and are sensitive to interest rate movements to the extent that the Group is prohibited from repricing the portfolio of assets. In 2018, the Group completed a project to reissue terms and conditions to allow it to choose to pass on any increases in the Bank of England base rate to customers holding certain products of the Group, insulating the Group against future bank base rate rises by hedging against interest expenses. The Group’s funding is predominantly LIBOR and SONIA based floating rate and therefore is also sensitive to interest rate movements. The Group also issues US Dollar denominated funding which accrues interest linked to USD LIBOR and USD SOFR. This funding has been hedged either to LIBOR or SONIA through cross-currency interest rate swaps. The following tables analyse the Group’s assets and liabilities by reference to the period of time before that asset or liability can be repriced to realign interest rates.

Contractual repricing profile


Less than 3 months

£m3 to 12 months

£m

Over 1 year

£m

Non- repricing or non-interest

bearing £m

Total £m

Financial assetsLoans and advances to banks 188.9 – – 16.8 205.7Loans and advances to customers 2,201.7 105.6 – 402.5 2,709.8Other assets – – – 29.0 29.0

Financial liabilitiesDebt issued and other borrowed funds (2,595.0) (151.9) – (273.6) (3,020.5)Other liabilities – – – (82.3) (82.3)Derivative financial liabilities (17.0) – – – (17.0)

Net repricing difference (221.4) (46.3) – 92.4 (175.3)


Less than 3 months

£m3 to 12 months

£m

Over 1 year

£m

Non- repricing or non-interest

bearing £m

Total £m

Financial assetsLoans and advances to banks 167.6 – – 16.4 184.0Loans and advances to customers 1,859.3 64.5 1.6 377.9 2,303.3Other assets – – – 27.6 27.6Derivative financial assets 2.5 – – – 2.5

Financial liabilitiesDebt issued and other borrowed funds (2,241.1) (151.9) – (271.3) (2,664.3)Other liabilities – – – (89.6) (89.6)

Net repricing difference (211.7) (87.4) 1.6 61.0 (236.5)




23. Risk management continued23.4 Market risk continuedThe following table demonstrates the sensitivity to changes in interest rates (all other variables being held constant) of the Group’s income statement. The sensitivity of the income statement is the effect of the assumed changes in interest rates on the profit or loss for the year, based on the floating rate non-trading financial assets and financial liabilities held as at 31 December 2019. Total sensitivity of the income statement is based on the assumption that there are parallel shifts in the yield curve.

Interest rate risk sensitivity

Sensitivity of profit or loss

Group

Increase/ (decrease) in basis points


2019 £m


2018 £m

Loans and advances to customers 25/(25) +6.8/(6.8) +5.8/(5.8)Debt issued and other borrowed funds 25/(25) (6.9)/+6.9 (6.0)/+6.0

23.5 Regulatory and conduct riskRegulatory risk is the risk of regulatory sanction, material financial loss or reputational damage if the organisation fails to design and implement operational processes, systems and controls such that it can maintain compliance with all applicable regulatory requirements. The Board Risk Committee reviews and discusses proposed regulatory changes that the Group is subject to. Regulatory developments form part of the Board Risk Committee’s updates to the Board which assesses the impact of regulatory change on the Group’s balance sheet and risk profile.

Conduct risk is the risk of customer detriment arising from inappropriate culture, products and processes. Conduct risk can arise through the design of products that do not meet customers’ needs, mishandling complaints where the Group has behaved inappropriately towards its customers, inappropriate sale processes and exhibiting behaviour that does not meet market or regulatory standards. Avoiding poor customer outcomes requires focus on treating customers fairly including assessing affordability and sustainability of lending and handling vulnerable customers sensitively. The Group prevents conduct risk by ensuring colleagues have appropriate training and mitigates it by monitoring various operational metrics through the customer outcomes radar and by tracking activities which affect customers, monitoring customer complaints, implementing process improvements and adhering to service standards. The outcomes of this reporting are monitored by the Board and the Board Risk Committee.

24. Maturity analysis of assets and liabilitiesThe table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled.


Group< 12 months

£m> 12 months

£mTotal

£m< 12 months

£m> 12 months

£mTotal

£m

AssetsLoans and advances to banks 152.1 53.6 205.7 134.0 50.0 184.0Loans and advances to customers 2,239.5 470.3 2,709.8 1,885.6 417.7 2,303.3Other assets 49.2 7.4 56.6 50.5 7.9 58.4Derivative financial assets – – – – 2.5 2.5Current tax assets 0.7 – 0.7 0.8 – 0.8Deferred tax assets – 0.4 0.4 – 0.4 0.4Property and equipment – 22.3 22.3 – 9.0 9.0Intangible assets – 266.2 266.2 – 313.9 313.9Goodwill – 279.9 279.9 – 279.9 279.9

Total assets 2,441.5 1,100.1 3,541.6 2,070.9 1,081.3 3,152.2

LiabilitiesDebt issued and other borrowed funds (717.4) (2,303.1) (3,020.5) (523.8) (2,140.5) (2,664.3)Other liabilities (67.4) (15.4) (82.8) (90.1) – (90.1)Derivative financial liabilities (4.5) (12.5) (17.0) – – –Current tax liabilities (4.9) – (4.9) (2.3) – (2.3)Provisions (18.8) (2.1) (20.9) (33.8) (1.9) (35.7)

Total liabilities (813.0) (2,333.1) (3,146.1) (650.0) (2,142.4) (2,792.4)




Company< 12 months

£m> 12 months

£mTotal

£m< 12 months

£m> 12 months

£mTotal

£m

AssetsLoans and advances to banks 25.6 – 25.6 0.9 – 0.9Other assets 51.4 487.2 538.6 60.7 487.2 547.9Investment in subsidiaries – 511.4 511.4 – 511.4 511.4

Total assets 77.0 998.6 1,075.6 61.6 998.6 1,060.2

LiabilitiesDebt issued and other borrowed funds – (425.6) (425.6) – (423.4) (423.4)Other liabilities – – – (0.1) – (0.1)

Total liabilities – (425.6) (425.6) (0.1) (423.4) (423.5)

25. Contingent liabilities and commitmentsContingent liabilitiesLegislationAs a financial services company, the Group is subject to extensive and comprehensive regulation. The Group must comply with numerous laws and regulations, including the Consumer Credit Act, which significantly affects the way it conducts business. Whilst the Group believes there are no unidentified areas of failure to comply with these laws and regulations which would have a material impact on these Financial Statements, there can be no guarantee that all issues have been identified.

CommitmentsThe Group had capital expenditure commitments contracted with third parties but not provided for of £0.4m as at 31 December 2019 (31 December 2018: £0.3m).

26. Related party disclosures

Group

Maximum balance during

the year £m


2019 £m

As at 31 December

2019 £m


the year £m


2018 £m

As at 31 December

2018 £m

Transactions with key management personnelTotal emoluments n/a 6.6 n/a n/a 5.7 n/aTotal pension contributions n/a – n/a n/a – n/aHighest paid key management personnel n/a 1.0 n/a n/a 1.2 n/aHighest pension contribution to key management personnel n/a – n/a n/a – n/a

Transactions with other related partiesLoans to related parties 0.4 n/a 0.4 0.4 n/a 0.4

Key management personnel refers to the Management Committee of NewDay Group UK Limited and Non-Executive Directors.

Credit card balances outstanding to key management personnel of the Group and their connected parties as at 31 December 2019 were £51k (31 December 2018: £26k). All transactions are subject to standard commercial interest rates on an arm’s length basis.




26. Related party disclosures continuedDuring the year interests in Nemean TopCo Limited, the Company’s ultimate parent undertaking, were issued to certain key management personnel and senior employees. These participating interests are treated as equity-settled shares under IFRS 2 ‘Share-based Payment’. Investments in participating interests by key management personnel and other senior employees were made at fair value. As a result no share-based payment expense has been recognised in the income statement in the year (2018: £nil).

Company


the year £m


2019 £m

As at 31 December

2019 £m


the year £m


2018 £m

As at 31 December

2018 £m

Transactions with other related partiesLoans to related parties 559.8 n/a 538.5 547.9 n/a 547.9Interest income from related parties n/a 47.4 n/a n/a 71.7 n/aLoans from related parties 435.4 n/a 435.3 438.0 n/a 435.4Interest expense to related parties n/a 31.4 n/a n/a 31.0 n/aOther liabilities owed to related parties 0.1 n/a – 0.1 n/a 0.1

On 11 January 2018, the Company issued a term loan facility agreement to Nemean TopCo Limited for £7.5m. The facility can be drawn upon at any time and accrues interest at 9% per annum. As at 31 December 2019, £0.4m has been drawn on the facility (31 December 2018: £0.4m).

In 2019, the Company paid £12k to a related party in relation to services provided by the Directors (2018: £63k).

Consolidated subsidiaries and structured entitiesThe consolidated Financial Statements include the Financial Statements of NewDay Group (Jersey) Limited and the subsidiaries and structured entities in the following table:

Name Country of

incorporation

Share class held as at 31 December

2019

% equity interest as at 31 December

2019


2018


2018

NewDay Group UK Limited UK Ordinary 100% Ordinary 100%NewDay BondCo plc UK Ordinary 100% Ordinary 100%NewDay UK Limited UK Ordinary 100% Ordinary 100%NewDay Group Holdings S.à r.l. Luxembourg Ordinary 100% Ordinary 100%NewDay Holdings Ltd UK Ordinary 100% Ordinary 100%NewDay Group Ltd UK Ordinary 100% Ordinary 100%NewDay Cards Ltd UK Ordinary 100% Ordinary 100%NewDay Ltd UK Ordinary 100% Ordinary 100%NewDay Loyalty Limited UK Ordinary 100% Ordinary 100%NewDay Reserve Funding Ltd UK Ordinary 100% Ordinary 100%NewDay Partnership Transferor plc UK Ordinary 100% Ordinary 100%NewDay Funding Transferor Ltd UK Ordinary 100% Ordinary 100%NewDay UPL Transferor Ltd UK Ordinary 100% Ordinary 100%NewDay Partnership Tertiary Funding Ltd UK Ordinary 100% Ordinary 100%NewDay Partnership Receivables Trustee Ltd Jersey n/a SE n/a SENewDay Partnership Loan Note Issuer Ltd UK n/a SE n/a SENewDay Partnership Funding 2014-1 plc UK n/a SE n/a SENewDay Partnership Funding 2015-1 plc UK n/a SE n/a SENewDay Partnership Funding 2017-1 plc UK n/a SE n/a SENewDay Funding 2015-1 plc UK n/a SE n/a SENewDay Funding 2015-2 plc UK n/a SE n/a SENewDay Funding 2016-1 plc UK n/a SE n/a SENewDay Funding 2017-1 plc UK n/a SE n/a SENewDay Funding 2018-1 plc UK n/a SE n/a SENewDay Funding 2018-2 plc UK n/a SE n/a SENewDay Funding 2019-1 plc UK n/a SE n/a SENewDay Funding 2019-2 plc UK n/a SE n/a SE



Name Country of

incorporation


2019


2019


2018


2018

NewDay Funding Loan Note Issuer Ltd UK n/a SE n/a SENewDay Funding Receivables Trustee Ltd Jersey n/a SE n/a SENewDay Secondary Funding Limited UK n/a SE n/a SENewDay Partnership Secondary Funding Ltd UK n/a SE n/a SEInvicta Card Services Limited1 UK Ordinary 100% Ordinary 100%Progressive Credit Limited1 UK Ordinary 100% Ordinary 100%SAV Credit Limited1 UK Ordinary 100% Ordinary 100%

1. These subsidiaries are dormant entities as at 31 December 2019 and 31 December 2018.

The Company’s immediate parent company is Nemean MidCo Limited. The ultimate parent undertaking is Nemean TopCo Limited, a private limited company incorporated in Jersey.

With the exception of the following entities the principal place of business for the subsidiaries and structured entities listed above is the UK and their registered address is 7 Handyside Street, London, N1C 4DA.

Name Principal place of

business Registered address

NewDay Group Holdings S.à r.l. Luxembourg 4, rue Albert Borschette, L-1246 LuxembourgNewDay Partnership Receivables Trustee Ltd Jersey 44 Esplanade, St Helier, Jersey, JE4 9WGNewDay Partnership Loan Note Issuer Ltd UK 35 Great St. Helen’s, London, EC3A 6APNewDay Partnership Funding 2014-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Partnership Funding 2015-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Partnership Funding 2017-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2015-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2015-2 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2016-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2017-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2018-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2018-2 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2019-1 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding 2019-2 plc UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding Loan Note Issuer Ltd UK 35 Great St. Helen’s, London, EC3A 6APNewDay Funding Receivables Trustee Ltd Jersey 44 Esplanade, St Helier, Jersey, JE4 9WGNewDay Secondary Funding Limited UK 20 Farringdon Street, 8th floor, London, EC4A 3ABNewDay Partnership Secondary Funding Ltd UK 20 Farringdon Street, 8th floor, London, EC4A 3AB




27. Structured entitiesThe Group has five financing arrangements which involve structured entities.

The Co-brand business is funded by a master trust securitisation and a private securitisation. The structures have issued multiple series of debt instruments external to the Group, backed by the cash flow of the Co-brand receivables portfolio. As at 31 December 2019, the master trust has in issue two series of publicly listed term debt sold to capital market investors and a series of senior variable funding notes sold to a syndicate of four major banks which acts as a revolving facility. As at 31 December 2019, the private securitisation has issued a series of senior mezzanine variable funding notes sold to a major bank which acts as a revolving facility.

The Own-brand business is also funded by a master trust securitisation and a private securitisation. The structures have issued multiple series of debt instruments external to the Group, backed by the cash flow of the Own-brand receivables portfolio. As at 31 December 2019, the master trust has in issue five series of publicly listed term debt sold to a mixture of capital market investors and a series of senior variable funding notes sold to a syndicate of four major banks, which acts as a revolving facility. As at 31 December 2019, the private securitisation has issued a series of senior variable funding notes to a major bank which acts as a revolving facility.

The Unsecured Personal Loans business is funded by a private securitisation. The private securitisation has issued a senior variable funding note to a major bank which acts as a revolving facility.

Within the funding structure of the Own-brand and Co-brand portfolios are various structured entities where all of the ordinary shares are held by a third party trustee for charitable purposes. The consolidated subsidiary and structured entities table in note 26 has further details of the structured entities consolidated into the Group’s Financial Statements for the year ended 31 December 2019, on the basis that the Group has the power to direct relevant activities, is exposed to variable returns of the entities and is able to use its power to affect those returns. Within the master trust securitisations, there are also entities which are not consolidated into the Financial Statements of the Group on the basis that the Group does not have control over these entities because it is not exposed, or does not have rights, to variable returns of the entities. These entities are NewDay Partnership Securitisation Holdings Ltd in the Co-brand master trust securitisation and NewDay Funding Securitisation Holdings Ltd in the Own-brand master trust securitisation.


Our ownersWe are indirectly owned by funds advised by Cinven and CVC Capital Partners (CVC).

Cinven is a leading international private equity firm with more than 80 investment professionals and more than 160 staff across offices in London, Paris, Madrid, Frankfurt, Luxembourg, Milan, Guernsey, Hong Kong and New York. With a track record spanning more than 30 years, Cinven’s focus is on delivering attractive returns to their investors by driving value creation in the companies in which they invest. Cinven achieves this by identifying compelling opportunities and partnering with management to grow and transform good quality companies into domestic, regional or international leaders that are highly attractive to potential buyers. Cinven’s fully integrated model, which draws on sector, regional, portfolio and capital markets expertise, ensures that their approach is consistent, creative and collaborative throughout the investment lifecycle.

Cinven has a long and differentiated track record of investment in the financial services sector including in highly regulated assets where its track record includes the acquisitions of Premium Credit, Partnership Assurance (now part of Just group) and Guardian Financial Services in the UK. In Ireland, it acquired Guardian the life insurance business and Avolon, the aircraft leasing business. In Germany it acquired Viridium (formerly Heidelberger Leben), with the business subsequently combined with Generali Leben; in Italy, Cinven formed the Eurovita group through the merger of ERGO Previdenza, Old Mutual Wealth Italy and Eurovita Assicurazioni.

CVC Capital Partners is a leading private equity and investment advisory firm. Founded in 1981, CVC today has a network of 24 offices and more than 300 investors throughout Europe, Asia, South America and the US.

To date, CVC has secured commitments of over US$135bn from some of the world’s leading institutional investors across its private equity and credit strategies. In total, CVC currently manages over US$81bn of assets. Today, funds managed or advised by CVC are invested in 72 companies worldwide, employing circa 200,000 people in numerous countries.

CVC’s financial services team has invested over €3bn of equity capital in the financial services sector since the team’s inception in 2008, including its historic and current portfolio companies, Paysafe, Pension Insurance Corporation, Skrill, Domestic & General and Brit Insurance in the United Kingdom, Avolon in Ireland, April in France, Cunningham Lindsey in the United States, Cerved in Italy, Sun Hung Kai in China and Rizal Commercial Banking Corporation and SPi Global in the Philippines.

Cautionary statementThis report comprises the Annual Report and Financial Statements of NewDay Group (Jersey) Limited (the “Company”) for the period ended 31 December 2019. Underlying and adjusted metrics referred to on pages 01 to 77 exclude a number of non-recurring items as detailed on page 31. Definitions of key performance indicators are included on pages 28 to 29.

Notwithstanding the above, as set out on page 58, with the exception of the Directors’ report set out on page 76 to 77, the governance and risk framework described in this report relate to the governance and risk framework established for the Group’s UK subsidiaries. References to the ‘Board’, ‘Group’, ‘NewDay’ and ‘Company’ should be construed accordingly (where appropriate).

Certain financial data included in this report consists of “non-IFRS financial measures”. These non-IFRS (International Financial Reporting Standards) financial measures, as defined by the Company, may not be comparable to similarly titled measures as presented by other companies, nor should they be considered as an alternative to the historical financial results or other indicators of the Company’s cash flow based on IFRS. Even though the non-IFRS financial measures are used by management to assess the Company’s financial position, financial results and liquidity and these types of measures are commonly used by investors, they have important limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of the Company’s financial position or results of operations as reported under IFRS. The inclusion of such non-IFRS financial measures in this report or any related presentation should not be regarded as a representation or warranty by the Company, any member of the Group, any of their respective affiliates, advisers or representatives or any other person as to the accuracy or completeness of such information’s portrayal of the financial condition or results of operations of the Company and should not be relied upon.

References to Adjusted EBITDA throughout this report are references to ‘Consolidated EBITDA’ as defined in the legal documentation relating to the £425m Senior Secured Notes issued by NewDay BondCo plc on 25 January 2017 (the Senior Secured Debt) and the Super Senior Revolving Credit Facility entered into by the Company on 25 January 2017 (the Revolving Credit Facility) based on IFRS as in force as at 31 December 2019 (or, in respect of periods ending prior to 31 December 2019, IFRS at the relevant time). However, all ratios, baskets and calculations required under the terms of the Senior Secured Debt and Revolving Credit Facility are based on IFRS as in force as at 25 January 2017. As a result, such ratios, baskets and calculations may differ significantly from any ratios or figures which are contained in this Report. In particular, except where otherwise expressly stated to be the case, references to Senior Secured Debt to adjusted EBITDA and adjusted EBITDA to cash interest expense contained in this report have been calculated (subject to certain adjustments) in accordance with IFRS as in force as at 31 December 2019 (or, in respect of periods ending prior to 31 December 2019, IFRS at the relevant time). As a result, such figures will differ significantly from the calculation of Consolidated Senior Secured Net Leverage Ratio and Fixed Charge Corporate Debt Coverage Ratio (as defined under the terms of the Senior Secured Debt and Revolving Credit Facility).

Certain statements included or incorporated by reference within this report may constitute ‘forward-looking statements’ in respect of the Group’s operations, performance, prospects and/or financial condition. All statements other than statements of historical fact included in this report are forward-looking statements. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance should not be placed on any forward-looking statement. No responsibility is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this report should be construed as a profit forecast.

The information contained in this report should be considered in the context of the circumstances prevailing at the time and will not be updated to reflect material developments that may occur after the date of this report. The information and opinions in this report are provided as at the date of this report and are subject to change without notice. None of the Company, any member of the Group, any of their respective affiliates, advisors or representatives or any other person shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection with this report, or any action taken by you or any of your officers, employees, agents or associates on the basis of the information in this report.

This report does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares or other securities in any member of the Group, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto. Statements in this report reflect the knowledge and information available at the time of its preparation. Liability arising from anything in this report shall be governed by Jersey law.

NewDay7 Handyside StreetLondonN1C 4DA

Email: [email protected]: www.newday.co.uk

Registered in JerseyRegistration number 122135

NewDay7 Handyside StreetLondonN1C 4DA

newday.co.uk

New

Day 2019 A

nnual Report and Financial Statem

ents

Date post:	21-Jul-2020
Category:	Documents
Upload:	others
View:	3 times
Download:	0 times

Helping people - NewDay · serving five million customers in the UK through our diverse and growing...

Documents