Our Purpose Is to Help People Be Better with Credit

Helping people 2019 Annual Report be better with credit and Financial Statements Our purpose is to help people be better with credit

Contents

Strategic Report Governance Financial Statements At a glance 01 Our end-to-end digital Chairman’s introduction Independent Our Customer Manifesto 02 product solutions 22 to corporate governance 57 auditor’s report 78 NewDay in numbers 04 Acquiring new customers that Board of Directors 60 Income statements Who we work with 06 create long-term relationships 24 Management Committee 63 and statements of comprehensive income 80 Our business model 10 Delivering strong growth 26 The Board 64 Balance sheets 81 Chairman’s statement 12 Key Performance Indicators 28 Board Committee reports 66 Statements of Chief Executive Officer’s Financial review 30 Directors’ report 76 changes in equity 82 review 14 Operating responsibly 38 Statements of cash flows 83 Market overview 18 Promoting success and Notes to the Leveraging a leading digital stakeholder engagement 46 Financial Statements 84 platform 20 Risk management 48 Mapping our risks 52 Our owners 123

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. Strategic Report At a glance

Who we are

We are a leading consumer credit company By understanding the varying needs of our serving five million customers in the UK through customers, building long-term relationships and our diverse and growing business. rewarding customers for appropriately managing their credit we continue to be one of the most We want to be the UK’s leading digitally enabled inclusive lenders in the UK and are able to fulfil our consumer finance provider, responsibly saying purpose to help people be better with credit. “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 Our access to and understanding of data allows underwriting credit cards and providing us to generate in-depth customer insights. This unsecured credit across a range of products enables us to provide valued support to our retail including our digital revolving credit product partners and evolve our products to meet our NewPay. Through our Own-brand business, we customers’ rapidly changing needs. offer near-prime revolving credit and unsecured loans to customers who may not have easy access Our business is underpinned by an advanced to mainstream lenders. In our Co-brand business digital platform that allows us to innovate and we partner with retailers and online e-tailers to respond rapidly to changing needs, whilst offer credit to their customers together with creating value for our customers, colleagues and loyalty and other reward programmes. shareholders.

An established UK-focused A digital business that invests in business with a heritage in innovation to create best-in- credit and partnerships class customer journeys

Trusted partner with some of the Our Customer Manifesto largest brands in the UK underpins our purpose to help people be better with credit

NewDay Annual Report and Financial Statements 2019 01 Strategic Report 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

Welcoming We aim to responsibly say “yes” to as Understanding We aim to build lifelong relationships many people who apply for credit as with customers and recognise that possible. Customers are assessed to customers may want to change ensure affordability criteria are met products as their circumstances and that they are provided with the change. We offer a range of right product at an appropriate rate. understandable solutions. If things are not going quite to plan, we We strive to provide customers with a offer customer support, agreeing great experience by offering products appropriate actions for moving and services that are simple, intuitive forward. and useful.

Knowing We know our customers have varying Rewarding We reward customers for managing needs and we provide a range of their credit well. This can mean products and services to suit these providing benefits, such as lowering different needs. These aim to help all APRs, as a result of paying on time and customers be better with credit. We sticking to commitments made or utilise our analytical expertise, providing rewards for customers’ combined with partner insight, to the loyalty. Ultimately, our success is benefit of customers and provide based on helping customers be better tools that help people manage credit with credit and charging appropriately more easily and allow them to access for the risks we take. the benefits it provides.

02 NewDay Annual Report and Financial Statements 2019 Strategic Report

Our Customer Manifesto in action in 2019

2.0m 1.2m £27m customers helped to improve new customers we responsibly given back to customers their credit score said “yes” to through rewards

We’ve helped customers with their credit questions in ways that work for them: 111m 2.8m self-service transactions conversations

Continued support of our community partners to promote financial inclusion and provide 5 financial support to those who need it: new products • entered a new partnership with Demos, meeting different credit needs: a leading UK think tank, to fund the launch • AO Finance – spread the cost of the Good Credit Index with the aim to of online purchases improve access to affordable, sustainable • Argos Classic credit card – access and transparent ‘good credit’ to credit for purchases • continued support of our charity partner • Miss Selfridge, Topman and Family Action to fund the launch of FamilyLine, Topshop credit cards – learning a seven-day-a-week helpline providing to manage credit through rewards practical, emotional and financial support

NewDay Annual Report and Financial Statements 2019 03 Strategic Report NewDay in numbers

Our business is more digital and growing

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 1.2m 77% fifth successive year with over one million new new customer accounts new accounts customer account originations. We continue to (2018: 1.2m) digitally originated ask our customers for feedback to understand (2018: 63%) 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 £5.8bn £2.0bn ratings of 4.7 stars. customer spend through customer spend through our products digital channels By improving the customer experience and (2018: £5.0bn) (2018: £1.7bn) remaining focused on helping customers be better with credit, we have continued to grow our business.

Read more on page 40. Own-brand receivables Co-brand £3,026m receivables £113m Unsecured Personal Loans receivables £2,623m £1,160m £66m

£2,164m £992m £17m £3,026m £821m Group closing receivables (2018: £2,623m) £1,753m £1,566m £1,326m

2017 2018 2019

04 NewDay Annual Report and Financial Statements 2019 Strategic Report

5.2m 2.0m customer accounts customers with improved credit score (2018: 4.7m) (2018: 1.7m1) 4.7 +66 average 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 125m app downloads to date transactions processed (2018: 1.4m) (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.

NewDay Annual Report and Financial Statements 2019 05 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 customers Innovative retail partners Powered by our in-house and state-of-the-art technology, our We partner with some of the UK’s most loved brands, both Customer Manifesto and credit capabilities allow us to responsibly traditional and online-only retailers. Our partners share our say “yes” to more customers. passion for delivering a best-in-class customer experience. We work together to build brand loyalty and deliver value for both our Our Own-brand business serves customers who typically are partners and customers. employed but exhibit one or more additional characteristics such as a limited credit history or a history of adverse credit events that Our partners value the seamless integration and insight that prevents them from easily accessing credit from mainstream our data and technology offers. They also value our collaborative credit providers. and open approach in delivering for them and their customers.

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.

Leading technology partners Diversified funding partners Our in-house digital capability is built on infrastructure provided Our broad base of international funding partners includes many of by leading technology organisations, including Microsoft and the world’s leading financial institutions and we adopt a very Amazon Web Services. Our in-house built platform allows us conservative approach to funding. cloud‑based scalability, performance, cost and security advantages. Our transaction processing platform remains We regularly access securitisation markets to support outsourced to Fiserv, who remain an important partner for us. our receivables growth with a low, stable cost of funding from both the UK and US.

06 NewDay Annual Report and Financial Statements 2019 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

“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

Read more about our portfolio of brands overleaf

NewDay Annual Report and Financial Statements 2019 07 Strategic Report

Our portfolio – some examples

Seamless shopping with rewards Spreading the cost of purchases We are in our fourth year of partnership with Amazon UK. In 2019, we launched our partnership with leading UK The Amazon Mastercard products continue to offer online electrical goods e-tailer AO.com. Leveraging our customers a credit card automatically loaded into the Amazon NewPay platform, AO Finance offers customers the ability to wallet, further enhancing the seamless Amazon shopping spread the cost of purchases through easy and affordable experience. Both the Classic and Platinum card offer a range of payment options using a flexible finance account. Customers reward benefits, with Classic customers automatically have access to a range of convenient finance options so they upgraded to Platinum after 12 months of positive credit can repay their balance in ways that suit them. behaviour.

“Having a payment method that’s “Customers want options whilst shopping integrated into Amazon works really and AO Finance gives them lots of choices, well for me” way beyond what they have had before”

Haider David Lawson Amazon Mastercard customer, Managing Director, AO.com Cambridge

To find out more visit: To find out more visit: amazon.co.uk ao.com

08 NewDay Annual Report and Financial Statements 2019 Strategic Report

Building better credit with Aqua Saving interest with a balance transfer We know that our customers are more than their credit We launched the Fluid brand in 2018, offering near-prime scores. For over 18 years, our Aqua brand has been consumers access to competitive balance transfers – a need responsibly providing credit to consumers who are not easily identified in the market. Fluid helps customers save on served by mainstream lenders. We meet a very clear near- interest with a 0% interest balance transfer offer with initial prime customer need – credit building. Aqua offers sensible credit limits of between £300 and £2,500. credit limits and all the tools and support needed for customers to begin a journey to be better with credit and appropriate financial inclusion.

“Feeling trusted again means so much to “I already had a credit card that was at a me because I can look forward to building higher interest rate. I did a balance transfer my future” from my other credit card to Fluid which had 0% interest for nine months. It came Claire Aqua customer, at the right time” Middlesbrough Sarah Fluid customer, Warminster

To find out more visit: To find out more visit: aquacard.co.uk fluid.co.uk

NewDay Annual Report and Financial Statements 2019 09 Strategic Report Our business model

Opportunity Evolving with our In an increasingly digital world, consumer credit behaviours continue to evolve and technological advancements lead customers to address to new opportunities for e-commerce and data insight. changing needs 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.

Read more on page 18. Enablers Driving high standards for Helping customers be better with credit and the principles of our Customer Manifesto remain at the heart of what we do. our customers, colleagues We design better products and better journeys to meet our and community through customers’ needs, whilst empowering our colleagues to drive forward this vision through attracting top new talent to our our Manifesto growing business.

Read more on page 02. Leveraging a leading Re-imagining our digital strategy to build a cloud-based scalable front-end digital acquisition and servicing platform digital 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.

Read more on page 20. Outcomes Acquiring new customers Our modern and innovative products allow us to continue to acquire new customers and develop our long-standing and creating long-term customer relationships. Our deep understanding of customer relationships behaviour gives us a high level of performance predictability. Read more on page 24. Delivering strong controlled Another strong year for customer acquisition and our relentless focus on helping customers be better with credit growth and high performance have delivered another record financial year. Receivables and predictability total income recorded double-digit growth and impairment was controlled within acceptable levels.

Read more on page 30.

10 NewDay Annual Report and Financial Statements 2019 Strategic Report

How we create value

Attractive market proposition Digital origination Market-leading technology We focus on providing credit propositions Through both direct marketing and Together with our customer insight, our in- that require specialist skills aligned with our partnerships, we reach an extensive house technology capabilities and agile core competencies and competitive customer base. This reach is increasingly operating model enable our data scientists strengths. We offer a suite of compelling digital and encompasses our partners’ and engineers to build better solutions products that allow us to serve our most loyal customers as well as those who faster and drive rapid digitisation in our customers throughout their credit journey. find access to credit from mainstream customer journey and the business more We offer seamless integration with providers less easy. widely. traditional retailers and e-tailers in serving the needs of our increasingly digital Leading customer service Operating efficiently customers. We add power to merchant We offer omni-channel 24-hour support. Our continued focus on being digital by offerings. We are committed to continuous default allows us to operate at a lower improvement and are engaged in ongoing underlying cost-income ratio and our in- Credit and collections expertise dialogue with customers, with real-time house digital platform offers us true Our proprietary models have been feedback recorded through Net Easy scalability and great flexibility. developed specifically for our target Scores (NES) and transactional NPS scores. customers, enabling us to make better We continue to make great progress in Funding credit decisions. Lending responsibly is our digitally engaging our customers. Through our established funding base and overarching Customer Manifesto securitisation technology, we have a stable commitment. funding capacity and a low cost of funds.

Our competitive strengths

Trusted brands built on our Customer End-to-end digital product solutions Access to diversified funding Manifesto NewPay, our digital revolving credit A stable and diversified funding base The strength of our portfolio of brands product, offers frictionless customer with trusted funding partners offers us gives customers and partners confidence journeys and simple integration for our flexibility and a solid basis for continued in what we stand for. retail partners. It offers instant access to growth and the ability to weather market credit and optionality through more ways conditions. Long-term strategic relationships to pay, including instalment plans, buy now with retail and e-tail partners pay later and other promotional options. Skilled, experienced colleagues We are a trusted partner with some of the The relentless dedication of our workforce largest retail brands in the UK. We build Understanding and engagement powers the delivery of our customer and long-term relationships to support their with our customers retail propositions as well as our continued customers’ credit journeys and help Strong and long-term relationships product and digital innovation. retailers profitably grow their business. powered by a deep understanding of customer behaviour results in embedded Market-leading digital platform portfolio value and predictable and technology partners financial growth. To continue to deliver a superior and competitive service to our customers, Credit and collection capabilities we have built an in-house digital Our credit risk and collections expertise has engineering capability that ensures been developed and honed over 18 years excellence and optionality. This is built on with the management team’s experience an infrastructure supported by leading proven through economic cycles. technology partners.

NewDay Annual Report and Financial Statements 2019 11 Strategic Report Chairman’s statement

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

Sir Michael Rake Chairman and Non-Executive Director

Our vision is to become the UK’s leading of Directors at NewDay. Our customer- Group. This helps us deliver positive digitally enabled consumer finance centric culture ensures that the focus of outcomes for our customers in the natural provider. In 2019, we continued to build on the Group is to build long-term positive rhythm of our business and brings the the strong foundations and scalability of relationships with customers and to work Customer Manifesto to life. our business model to deliver record with them to meet their changing needs results and better outcomes for over time. I am delighted to say that in Digital developments customers. 2019, we helped 2.0m customers improve The Board continues to review the Group’s their credit score (2018: 1.7m). We also strategic technology journey to ensure we Our purpose rewarded our customers with £27m in are appropriately positioned to deliver NewDay exists to help people be better loyalty rewards (2018: £29m) and we against our vision of being the UK’s leading with credit. This purpose sits at the heart launched new benefits to reward digitally enabled consumer finance of everything we do and it is enshrined in customers for good credit behaviour. provider. I am pleased to report that we are our Customer Manifesto. We set out to be making very good progress against this Welcoming, Understanding, Knowing and I was pleased to see the market recognise objective. Building on the work we did last Rewarding for our customers, irrespective some of the things we do at NewDay in year across the Own-brand estate, in 2019 of where they sit on the credit spectrum. supporting our customers. NewDay won we brought the Co-brand digital the Gold Award at the European Contact acquisition platform in-house from Fiserv. Across our own brands and in partnership Centre and Customer Service Awards for This allows us to be more innovative, with some of the UK’s most exciting and the ‘Best Use of Customer Insight’. We also flexible, resilient, and to be more leading brands, we offer credit to a wide won a Silver Award at the UK Customer responsive to the needs of our digital spectrum of customers, many of whom do Experience Awards for ‘Use of Insights and partners. We also introduced exciting not have access to credit from mainstream Feedback’. My colleagues at NewDay ChatBot functionality, enhancing the way lenders. Responsible lending, financial continue to ensure that our Customer we interact with our customers and firing education and appropriate inclusion Manifesto and our Values are front and the ‘starting gun’ for a range of AI-powered remain important priorities for the Board centre in decision-making across the innovation in the future.

12 NewDay Annual Report and Financial Statements 2019 Strategic Report

We continue to develop our apps, the assess access to ‘good credit’ and provide Leadership embedded functionality and the way our location-based strategies for building In October 2019, we welcomed John customers can digitally engage. I am better credit across the country. We will Hourican to the Board as Chief Executive pleased to report that our customers have continue to work with them as they explore Officer as successor to James Corcoran. reacted well by awarding us an average app how local government, employers and Between 2013 and 2019 John served as store score of 4.7 stars. The strength of other stakeholders can improve access to Chief Executive Officer of Bank of Cyprus, our in-house digital team allows us to react affordable, sustainable and transparent the largest banking and financial services quicker and deliver better, more cost- good credit. group in Cyprus. During his tenure, John effective solutions to our customers and reshaped the business, re-established its partners. It was great to see our digital We also recognise that minimising our deposit base, improved the quality of its team recognised at the European impact on the environment is important loan book and strengthened its financial Software Testing Awards and winning and we remain committed to ensuring our position and prior to joining Bank of Cyprus, ‘Best Mobile Testing Project’. carbon footprint remains low. We are John served as Chief Executive Officer of proud our efforts were recognised by the RBS Group’s Investment Bank (Markets Our colleagues external stakeholders at the Green World and International Banking) from 2008 until Maintaining the focus and tempo at Awards where we were awarded a Green 2013. I look forward to building on NewDay’s NewDay requires us to provide an engaging World Ambassador in the financial services strong foundations and financial position and inclusive working environment. I am sector. Our colleagues also launched their with John in the years ahead. pleased to report that we have continued own Green Forum, which promotes to make good progress in building a diverse recycling and green-related matters. I would like to extend my personal thanks and inclusive environment at NewDay and to James Corcoran on the important role the results of our regular employee survey Regulation he played in the Group’s evolution over the show that we are continuing to build a We continue to work closely with last ten years. James led NewDay from positive and dynamic working regulators and industry bodies to ensure being a one-product credit card business environment. This is underpinned by a we deliver positive outcomes for our into one of the UK’s leading specialist calendar of events and workshops customers and sustainable returns for our credit providers with a leading digital throughout the year that invests in shareholders. Our strong Risk platform and we are fortunate to continue ensuring we encourage education and Management Framework and credit to benefit from his expertise as a Non- debate on a variety of topics. The launch of scorecards built from 18 years of Executive Director on the Board. an Inspirational Speaker Series and a experience give us a deep understanding programme raising colleague awareness of our markets. This allows us to adapt In addition, Johan Pettersson, a Cinven on mental health were particularly positive quickly to changing or uncertain economic Investor Director, resigned from the Board developments during 2019. The Board and political environments and our ‘low and with effect from August 2019 and Arron Wu, continues to promote a culture that grow’ credit strategy ensures we remain a CVC Investor Director, resigned from the celebrates diversity in ethnicity, sexual focused on lending responsibly. Board with effect from November 2019. orientation, gender and opinion. NewDay continues to offer support to any In 2019, the Board has been particularly Outlook colleagues who require assistance. focused on supporting individuals There is now more political certainty in the considered to be in persistent debt UK following the December 2019 General Our communities following the introduction of the FCA’s final Election, however there are still a number We recognise that we have a responsibility rules and guidance on the Credit Card of uncertainties with regards to Brexit. We to positively serve the community we are Market Study from September 2018. have continued to consider and plan for part of and that we have a wider During the year we supported over potential implications carefully. The Board responsibility to minimise the impact on 123,000 customers to come out of has reviewed the possible impact on both our environment. We are extremely proud persistent debt with the interventions we our operations and strategic plans and has to continue our work with our chosen deployed, and we have continued to considered stress scenarios to ensure we charity partner, Family Action, who provide develop our strategies to support are well-positioned to promptly respond to practical, emotional and financial support customers who will have been in persistent different outcomes. Our proactive risk to those who are experiencing poverty, debt for 36 months by March 2020 and will management approach and strong disadvantage and social isolation. It was therefore require mandatory intervention. balance sheet, including headroom on very pleasing that our engagement and funding facilities, allow us to appropriately support of Family Action was recognised at The Board is committed to balancing manage these risks. We are well placed to the International CSR Excellence Awards, the needs of our different stakeholders in respond to the external environment and with a Gold Award for ‘Charitable Giving’. It order to maximise the long-term success make continued progress in our strategic is also pleasing to see that this charity of the business and considers each key development to deliver attractive returns partner is embraced across the Company stakeholder group in its decision-making. for our shareholders. We continue to with a large majority of our colleagues For further details of the Board’s monitor the recent coronavirus outbreak engaging to make a positive personal considerations and engagement of and the potential impact on performance contribution. stakeholders, see page 46. We have also during 2020. closely monitored other regulatory Financial education and responsible developments, including in relation to the I would like to personally thank the Board lending are priorities for the Board. We are Second Payment Services Directive and all colleagues across the business for actively involved in discussions around the (PSD2), the Senior Managers and their hard work and commitment to role credit plays in financial inclusion. In Certification Regime and the Gambling delivering on our purpose and Customer 2019, we provided financial support to Commission’s ban on using credit cards to Manifesto, which is key to the continued Demos, a leading UK think tank, who place bets, to ensure the Group is delivery of our strong growth and financial launched their Good Credit Index that built adequately prepared. performance. a comprehensive credit map of the UK to

NewDay Annual Report and Financial Statements 2019 13 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

In 2019, we made very good progress against our stated strategic particularly as the world around us continues to digitise and our objectives. We further invested in our digital capability. We launched customers quickly evolve to interact with us in an increasingly five new products with exciting UK brands. We added 1.2m new digital way. customer accounts to our Group (2018: 1.2m) and we helped 2.0m customers improve their credit score (2018: 1.7m). These The investment we have made in modernising and bringing in- achievements combined to deliver a record financial performance house our technological capability provide the foundations for our in 2019 that my colleagues can be genuinely proud of. It sets the Group’s success. Better, more nimble, faster, scalable and cost- tone and ambition for the year ahead and provides strong evidence effective technology allows us to support our retail and e-tail that our controlled approach to growth is the right one. partners in securing customer engagement and creating frictionless customer experiences. We will continue to invest in We continue to put our customers at the centre of our business. intelligent digitisation to secure the Group’s emerging reputation We recognise the purpose of NewDay is to help people be better for innovation and capability. with credit. We remain focused on ensuring that we provide appropriate products and tools in support of this objective,

John Hourican Chief Executive Officer

14 NewDay Annual Report and Financial Statements 2019 Strategic Report

Long-term customer relationships Delivering strong controlled growth delivered record results New account acquisitions along with the In 2019, we responsibly said “yes” to 1.2m Group’s ‘low and grow’ credit strategy led new customers (2018: 1.2m), 77% of which to record Group receivables of £3.0bn were originated online (2018: 63%). (2018: £2.6bn), with the Co-brand business surpassing the £1bn receivables milestone. Our product portfolio allows us to adapt to 5 new products customers’ changing needs throughout The increase in receivables represents their credit journey, generating long-term 15% growth year-on-year. Strong growth launched, each meeting different credit customer relationships as we reward across all business units led to growth in needs, including expanding our NewPay customers for good credit behaviour. total income of 14%. offering with our new retail partner Within our Own-brand portfolio we re- AO.com branded our Aqua product, refreshing the As a result of improved credit quality, partly entire customer journey. We positioned driven by the tightening of credit lending Aqua as the credit provider of choice for criteria in 2018, and refinements to the near-prime customers by partnering with Group’s impairment provision model, the them through their credit-building journey. Group impairment rate reduced by 1.4 percentage points to 11.6%. In 2019, we continued to diversify our retail 2.0m customers partner network and product proposition The scalability of our business model, in our Co-brand business. We launched along with efficiencies from our have been helped to improve five new products, each aimed at different streamlined end-to-end digital platform, their credit score credit needs. We introduced a young led to a reduction in the underlying cost- fashion proposition in Topshop, Topman income ratio of 2.8 percentage points to and Miss Selfridge, expanding on our 33.0%. During 2019 we invested a further product portfolio with Arcadia Group. We £38m in change initiatives to continue to expanded our digital revolving credit develop our digital capabilities and drive product (NewPay), in partnership with sustainable long-term growth (2018: AO.com, allowing their customers to £41m). spread the cost of their online purchases. We launched the Argos Classic credit card Our strong but controlled growth along >100,000 chats and we signed an agreement with M&Co with a well-managed cost base resulted in who will also utilise NewPay when launched record adjusted EBITDA of £144m, a 75% Integrated intelligent automation into in 2020. increase year-on-year (2018: £82m). The several customer-facing and back office statutory profit before tax of £50m processes, including introducing During the year we provided customers (2018: loss before tax of £7m) includes a ChatBot functionality with over 100,000 with over £27m loyalty rewards in our Co- number of items, detailed on page 31, chats to date brand business to help build brand loyalty which in our view do not represent the for our retail partners and encourage Group’s underlying performance. ongoing spend and long-term utilisation of our products by customers (2018: £29m). Free cash flow available for growth and We supported our partners with state-of- debt service of £106m highlights the the-art analytics to help them engage and strong cash generation of the business understand customer behaviour. (2018: £109m), providing us with the capacity to reinvest for future growth. In our Unsecured Personal Loan business £144m we provided 21,000 personal loans to Our balance sheet remains strong. existing Own-brand customers who had We continued to execute our funding adjusted EBITDA, a record result and managed their credit accounts well (2018: strategy and successfully refinanced all 75% increase year-on-year 15,000). of our maturing asset-backed securities during the year and raised £577m in total. Building long-term relationships with This included $205m raised in the US as we our customers is a key strength of NewDay continued to diversify our funding strategy. and this underpinned the delivery of At the end of 2019, we had £0.7bn of £144m adjusted EBITDA in the year (2018: headroom on our funding facilities (2018: £82m). This result arises from the growing £0.9bn) for future growth with an average profitability of existing customers maturity profile of two years (2018: three offsetting the year-one cost of acquiring years), providing protection in case of a £240m new customers. Our existing customers deterioration in capital markets. generated adjusted EBITDA of £240m adjusted EBITDA generated from (2018: £201m), an increase of 19%, offset existing customer relationships offset by a £96m adjusted EBITDA loss (2018: by a £96m adjusted EBITDA loss £119m) generated from establishing 1.2m generated from establishing new new customers we originated. Our customer relationships 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).

NewDay Annual Report and Financial Statements 2019 15 Strategic Report

Chief Executive Officer’s review Credit Card Market Study (CCMS) Delivering for our colleagues Continued As we covered in our 2018 Annual Report, Our colleagues are key to delivering a the final FCA rules and guidance on the positive experience for our customers. Digital investment CCMS were published in February 2018 Attracting, retaining, engaging and Our digital transformation remains a and took effect in September of that year. motivating colleagues remains a priority as priority. In 2019, we invested £38m in The guidance required that, from we strive to be an employer of choice. Our continuing to develop a best-in-class 1 September 2018, firms should identify bi-annual, externally managed employee (2018: £41m), frictionless digital customer the subset of their customers in persistent surveys demonstrate high levels of experience in support of our vision to be debt when assessed over the previous 18 engagement at 77% (2018: 75%) and 74% the UK’s leading digitally enabled months and recommend a change to of colleagues engaged with our Customer consumer finance provider. We aim to payment behaviour. The guidance then Manifesto and Values (2018: 75%), provide a simple, convenient, easy to use prescribed a second intervention point at evidencing that they are embedded digital customer experience and continue 36 months, at which point firms must throughout the organisation. to develop our range of apps and increase contact those customers remaining in functionality to achieve this. In 2019, we persistent debt and propose alternative We are creating a work environment where delivered a straight-through end-to-end repayment plans to settle the balance over colleagues feel valued and respected and digital journey for balance transfers and a reasonable period. The first cohort will where they can develop and thrive. Our money transfers and integrated marketing reach the 36-month intervention point in colleagues interact daily with our offers into customers’ digital servicing March 2020. customers and therefore are best placed journeys. Customers gave our apps a to drive continuous improvement in our combined rating of 4.7 stars and our NES We have previously communicated that we products and services. In support of for online servicing (which measures how considered circa 8% of our customer base colleague development, in 2019 we easy it is to navigate through our apps and to be in early stage persistent debt as at launched a learning management system websites) increased by two points to +70. 31 December 2018. Having now providing all colleagues direct access to a completed the implementation of the catalogue of soft and function-specific Following the success in our Own-brand required CCMS interventions and a learning that can be tailored to their business in 2018, we have transitioned our number of additional preventative individual development needs and Co-brand digital acquisition platform in- measures, we expect that the first cohort accessed at any time. house from Fiserv this year. This improves reaching the 36 month intervention point our agility and resilience as well as allowing in March 2020 will represent circa 2% of our Outlook us to generate cost efficiencies. customer base (and account for In 2019, we have continued to make Additionally we have integrated artificial approximately £210m of receivables). Due significant progress in our digital intelligence into a number of customer- to the measures taken, customers transformation and have further facing and back office processes, including reaching this intervention point should not diversified our retail partner network away the launch of ChatBots and the experience a sudden change to their from the challenging conditions on the UK development of VoiceBots as we continue minimum payment on their existing debt, high street with product offerings that to develop different ways for customers to and depending on individual continue to meet the changing needs of interact with us. We are enhancing circumstances, will typically be able to our customers. Our strong controlled communication channels to ensure we can continue to use their credit facility with growth and the scalability of our operating help customers address their credit higher minimum payment terms. The platform have generated record profits questions in ways that suit them, when it impact of the CCMS on the 2019 financial and we have maintained significant suits them – in 2019 customers had 2.8m statements has been mitigated by our headroom on funding facilities to protect conversations with our colleagues and underlying business performance as we the business in case of a deterioration in completed 111m self-service interactions. have continued to grow receivables and capital markets. We are well placed to delivered strong results. continue to build on this success and On 3 January 2020, our immediate parent deliver positive outcomes for our company, Nemean MidCo Limited, agreed Payment Protection Insurance (PPI) customers and shareholders. terms to acquire Pay4Later Limited The FCA deadline by which customers can subject to FCA approval. Pay4Later raise a claim with their PPI provider passed I would like to thank all of our colleagues for Limited trades under the name ‘Deko’ and on 29 August 2019 and, as at 31 December their ongoing commitment and dedication is a point-of-sale (PoS) finance technology 2019, the Group reported a provision of to supporting our customers and delivering firm, providing platform and brokerage £10m (2018: £25m) to cover the remaining our vision to be the UK’s leading digitally services in the PoS finance market working expected costs. Although the deadline for enabled consumer finance provider. with over 1,500 merchants in the UK. The customers to make complaints which can acquisition will provide opportunities for be considered by the Financial Ombudsman Deko and NewDay to leverage their Service has passed, NewDay continues to respective experience in order to provide receive court claims. In addition, discussions Deko customers with access to new are being held across the industry in relation products whilst allowing NewDay to pursue to Deloitte being appointed by the Official its goal of becoming the UK’s leading Receiver to assist with the submission of digitally enabled consumer finance queries to PPI providers to establish provider (and, in particular, proliferate our whether any redress in respect of the sale of NewPay offering). Nemean MidCo Limited PPI is due to creditors of bankrupts’ estates. will initially acquire a 50.1% interest in Deko The provision includes our best estimate of with the remaining 49.9% acquired over a expected costs associated with these three-year period. The results of Deko will claims. not be consolidated in the NewDay Group Financial Statements.

16 NewDay Annual Report and Financial Statements 2019 Strategic Report

Q&A with John Hourican

“What is clear is the NewDay is a fast-moving business that Q What are the key challenges continually challenges the status quo. Our NewDay faces? commitment of our teams across the business work well Consumer behaviour and trends continue colleagues to delivering together to identify, deliver and capitalise to change rapidly, particularly in relation to our Customer Manifesto on opportunities for future growth whilst digital, and we need to ensure we are ensuring the customer remains at the leading the response to these changes and driving positive forefront of every decision. within the industry and promptly adapt our outcomes for our customers” product and service offerings. We have I would like to extend my personal thanks continued to transform our in-house to my predecessor, James Corcoran, for digital capabilities allowing us to deliver Q What attracted you to NewDay? the support he has given to me during our better solutions for our customers quicker NewDay is at an exciting time in its handover to develop my understanding of and more cost-effectively. I feel we are well evolution and plays an important role in the foundations of the business’ success placed to continue to meet changing supporting people who may not have easy to date. He is a hard act to follow but customer needs. access to credit from mainstream lenders. thankfully he left behind a strong team that The Group’s strong sense of purpose to is delivering the business plans. Intensifying competition across consumer help people be better with credit and focus finance continues to be a challenge we on responsible lending and financial Q What are your key priorities face. We continually develop our product education enables us to make a real for NewDay? offering and reward structures to ensure difference to customers’ lives. I am fortunate to have joined a business we meet customer needs, including with solid foundations and a strong track continuing to build on and leverage The strength of the Group’s digital record of delivering for its stakeholders. My NewPay, our digital revolving credit ambition and pace of delivering change aim is to continue to build on this success product. Additionally, our credit scorecards also stand out to me. Consumer trends and capitalise on further opportunities to built from 18 years of experience provide and behaviours are changing rapidly and deliver growth and value for our us with a deep understanding of the the business has transformed its digital stakeholders. This includes continuing to markets we operate in and allow us to capabilities over recent years. With a leverage our leading digital platform to adapt and respond rapidly to any changes strong in-house digital team we are well best serve the needs of current and future in the market, whilst ensuring we remain placed to be more innovative, agile and customers, ensuring we respond rapidly to within our credit risk appetite. flexible, allowing us to capitalise on future changing consumer trends and deliver a opportunities and deliver on our vision to frictionless digital customer journey. In There are a number of regulatory be the UK’s leading digitally enabled addition, I am focused on continuing to developments across the industry to consumer finance provider. diversify our portfolio and retail partner support positive outcomes for customers. network to expand our reach and provide We continue to work closely with Q What are your initial impressions credit solutions to more customers and to regulators and industry bodies to ensure of NewDay? continue to deliver consistent growth we are fully prepared for these and given I spent my first few months at NewDay and attractive returns. our purpose to help customers be better getting to know our colleagues, customers with credit we feel the changes are and stakeholders and understanding what Our colleagues are at the heart of consistent with our direction. is important to them. What is clear is the delivering a positive experience for our commitment of our colleagues to customers, so it is also important to me delivering our Customer Manifesto and that NewDay is an engaging place to For further information on John’s driving positive outcomes for our work where colleagues are listened to experience see page 60. customers. Our colleagues are best placed and are empowered to drive continuous to understand our customers’ needs and improvements in our products, the culture at NewDay encourages them services and processes. to provide feedback and empowers them to drive initiatives forward that improve our customer experience.

NewDay Annual Report and Financial Statements 2019 17 Strategic Report 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 Prime Direct (online and offline) Unsecured personal loans

Cardless credit accounts

Point-of-Sale financing Near-prime Aggregators (online)

Overdrafts

Catalogue credit Sub-prime Partnerships (online and offline) Guarantor loans

Payday loans NewDay Other high cost credit products Products not offered by NewDay (other) Products not offered by NewDay (suitable for customers with higher risk profiles)

Our business

We offer a range of revolving credit and instalment-based 1 2 products to serve the specific needs of our customers across our Own-brand and Co-brand businesses. We distribute through £225bn 65% direct channels, third party aggregators and, in our Co-brand business, through retail partners (both online and offline). total UK outstanding consumer of adults in the UK have credit receivables a credit card

Unsecured consumer credit market With 4.0% of the total UK credit card receivables, up from 3.5% in Revolving credit Instalment lending 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 Total credit card Unsecured receivables personal loans new credit segment not captured in this number. There are 61m4 credit lending 1 cards in issue in the UK compared to our 5.2m customer accounts. £73bn £26bn3 NewDay Our UPL lending currently represents less than 1% of total £2.9bn NewDay UK instalment-based lending. £97m

1. Bank of England data as at 31 December 2019. 4. UK Finance (www.ukfinance.org.uk): Total Market Data - Credit Card Statistics. 2. UK Finance (www.ukfinance.org.uk): UK Payment Markets 2019. Volumes based on 2018 data. 5. Office for National Statistics. 3. Management estimate based on various sources.

18 NewDay Annual Report and Financial Statements 2019 Strategic Report

Retail spend

Total retail spend5 (£) NewDay spend (£)

Offline Online Offline Online

1bn 12bn .bn 2bn bn .bn

2.bn 4% 2.bn 21% 2.bn compound annual 1.bn compound annual bn bn bn 1.2bn 2bn growth rate .bn growth rate 2016 2017 2018 2019 2016 2017 2018 2019

Payment volumes

318bn Cash usage continues to decline, accounting for 28% of payments Debit card during 2018 compared with 34% in 2017. This decrease is largely 15bn Credit 3bn 3% offset by growth in cards, bolstered by increasing popularity and 2 Cash 11bn 16% availability of contactless technology. 39bn total Credit card 3bn Other transactions With 107m transactions processed during 2018 (increasing by 17% 10bn Debit 15bn 14% to 125m in 2019), we handled 3% of all credit card payments, Cash unveiling a substantial, growing, market opportunity. 11bn Other 10bn

NewDay Own-brand lending NewDay Co-brand lending 1.5m £2.4bn 3.7m £3.3bn customer accounts served processed spend customer accounts served processed spend

Near-prime customers are typically employed but may have Offering a credit product combined with rewards helps retailers a limited credit history or past adverse credit events which prevent and e-tailers build brand loyalty. them from easily accessing credit from mainstream lenders. Department stores, supermarkets and fashion outlets have There is a natural movement of customers in and out of near- historically been the most popular providers of co-branded credit prime. This has grown over recent years driven primarily by propositions. improving credit profiles of sub-prime customers. 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.

NewDay Annual Report and Financial Statements 2019 19 Strategic Report Leveraging a leading digital platform

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

Our digital journey in 2019

August July Digital functionality for balance transfers and Open Banking layer money transfers April Account access APIs to meet Straight-through end-to-end PSD2 regulation January Credit limit management digital journey for balance Digital management for transfers and money Young Fashion mobile-first customers who exceed transfers proposition initial launch their credit limit Targeted card proposition eCRM with mobile-based loyalty Digital delivery of marketing offers in servicing journeys February ChatBot launch Mobile AI-mediated chat for marbles customers linked to agent chat support

2.3m 78% +70 mobile app digital payments Net Easy Score downloads for collections

20 NewDay Annual Report and Financial Statements 2019 Strategic Report

Our digital journey in 2019 2020 key deliverables

November • Biometric payment authentication to support PSD2 regulation PIN online Immediate digital advice of • Regulatory management of customers in PIN to reduce operational persistent debt online costs and ensure customers can use their cards • Introduce digital wallets with Apple Pay and September Google Pay Collections support Customer messaging and a • Push notifications to keep the customer informed helpful straight through of transactions and account events in realtime frictionless digital payment journey • Vulnerable customer support online • Faster payments direct from customer October bank accounts Co-brand acquisitions • Digital access to set up payment promises for moved in-house customers in collections Retail partner customer

acquisition moved onto in-house digital acquisition platform from Fiserv

4.7 77% 98% average app of accounts digital transactions store rating originated online for servicing

NewDay Annual Report and Financial Statements 2019 21 Strategic Report

Our end-to-end digital product solutions

In 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

1 2 Promotion Application •• Competitive credit offers and •• AO Finance is integrated into the •• The customer can complete an ‘always-on’ promotion of AO payment options as part of the eligibility check to understand Finance throughout the AO.com checkout page if they will be accepted for an digital channels •• Both the eligibility check and full AO Finance account without •• AO Finance provides credit application are integrated into impacting their credit score offers to suit the needs of each the AO.com checkout to ensure a •• Following the eligibility check, individual customer including seamless customer journey from the customer completes the interest-free credit, instalment basket to payment application and electronically plans and buy now pay later signs the credit agreement before offers. All are accessed through finalising their order the AO Finance account

22 NewDay Annual Report and Financial Statements 2019 Strategic Report

3 4 5 Instant spend Repeat spend Servicing •• Once approved, the credit line •• No need to fill out a new •• The customer can see their is available instantly and the application form or complete outstanding balance, promotional customer can purchase the another credit check plans and payment date within products in their basket •• The customer can log in to their their AO.com account •• The customer will be able to split AO.com account at any time to •• The customer can track their plans the purchase over equal monthly view their available credit and see how many months they payments or take advantage of •• Existing customers will be offered have left to pay any promotional rate they have targeted promotional offers •• Within the e-servicing portal, the been offered when they log in customer can view statements, set up direct debits, make payments and manage their account preferences

NewDay Annual Report and Financial Statements 2019 23 Strategic Report Acquiring new customers that create long-term relationships

N ACQUIRING NEW ENT I CUS TM TOM VES E IN RS

Acquiring new customers We 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 relationships We 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.

P RO S F IP IT SH AB N LE TIO AN LA D C RE ASH TERM GENERATIVE LONG-

24 NewDay Annual Report and Financial Statements 2019 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 customers

Investing in our new customers, we incurred an adjusted EBITDA Adjusted EBITDA (loss) loss of £96m in 2019. 2018 2019 2018 2019 New customer accounts1 1.2m 1.2m

Receivables £425m £482m (£119m) (£96m)2

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

Long-term relationships

Our existing customers generated £240m of adjusted EBITDA in Adjusted EBITDA 2019, an increase of 19% year-on-year. 2018 2019 2018 2019 Existing customer accounts3 3.5m 4.0m Receivables £2,198m £2,544m

£201m £240m4

£39m

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).

NewDay Annual Report and Financial Statements 2019 25 Strategic Report Delivering strong growth

2019 delivery and future priorities

Opportunity Enablers Outcomes

Evolving with our customers Driving high standards for Leveraging a leading Acquiring new customers Delivering strong to address changing needs our customers, colleagues digital platform and creating long-term controlled growth and and the community relationships high performance through our Manifesto predictability

2019 highlights: 2019 highlights: 2019 highlights: 2019 highlights: 2019 highlights: • Receivables growth of 15% to £3.0bn • 2.3m app downloads as at • Launched ChatBot functionality, with • Sustained new account acquisition • 15% growth in receivables to £3.0bn, • NewPay expansion via exciting 31 December 2019 over 100,000 interactions to date levels at 1.2m with Co-brand surpassing the £1bn partnership with AO.com • An average app store rating of 4.7 stars • Moved Co-brand digital acquisition • Launched five new products through milestone in the year • Re-branded Aqua to deliver a fresh • Transactional NPS score of +66 platform in-house from Fiserv our retail partnerships • 75% growth in adjusted EBITDA to £144m customer experience • Helped 2.0m customers improve their • 2.8 percentage points improvement in • Continued to scale Amazon, Fluid and • Increased online spend levels above credit score the underlying cost-income ratio to Unsecured Personal Loans • Statutory profit before tax of £50m, 33.0% compared to a £7m loss in 2018 market growth rate • Continued to support Family Action, • Existing customers generated £240m our charity partner, providing £190k of • Improved NES for online servicing to of adjusted EBITDA and we incurred an • Free cash flow available for Senior Future priorities: donations and financial support to +70, compared to +68 in 2018 adjusted EBITDA loss of £96m from Secured Debt interest of £50m • Continuing to expand the business and launch FamilyLine, their helpline for acquiring new customers • £0.7bn of variable funding notes (VFN) growing market share sustainably and families and carers Future priorities: headroom to fund future growth Future priorities: responsibly • Maintaining NewDay as an employer of • Introducing digital wallets with Apple • Evolving with our customers’ changing choice Pay and Google Pay • Maintaining our position as a leading Future priorities: needs and the convergence of the • Introducing faster payments direct issuer of credit within the near-prime • Maintaining our strong, diversified consumer credit market, continuing to Future priorities: from customer bank accounts and co-brand segments of the UK capital base and liquidity profile consumer credit market offer innovative and varied products • Keeping our Customer Manifesto at • Driving cost-efficiencies through • Continuing to deliver strong • Launching a new mobile credit the heart of everything we do and the digital transformation • Further expanding NewPay shareholder returns through controlled product, removing friction to help decisions we make • Developing new mobile credit • Developing and broadening retail growth customers apply and pay with credit • Seeking new ways to further improve products partnerships more easily our customer experience • Developing our relationship with Deko • Being actively involved in community to expand NewPay distribution and conversations around the role of credit exploring wider, innovative, in financial inclusion and working with opportunities other stakeholders and parties, including Demos, to understand what ‘good credit’ looks like

26 NewDay Annual Report and Financial Statements 2019 Strategic Report

Opportunity Enablers Outcomes

“2019 was a record year. We made very good progress against our strategic objectives and further invested in our Evolving with our customers Driving high standards for Leveraging a leading Acquiring new customers Delivering strong digital capability“ to address changing needs our customers, colleagues digital platform and creating long-term controlled growth and and the community relationships high performance John Hourican through our Manifesto predictability Chief Executive Officer

NewDay Annual Report and Financial Statements 2019 27 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 Consumer spend through £2.0bn (2018: 1.2m) digital channels (2018: £1.7bn)

Definition: The number of new customer accounts Definition: The amount of spend on customers’ originated in the period. cards transacted through a digital channel.

Performance: We welcomed 426,000 new Performance: We continue to see significant £2.0bn 1,199,000 1,204,000 Own‑brand accounts (2018: 456,000). The increases in the amount of customer spend that is £1.7bn Co‑brand business opened 752,000 new accounts 1,092,000 generated through digital channels. This is driven (2018: 733,000) and Unsecured Personal Loans both by changing consumer spending behaviour welcomed 21,000 customers (2018: 15,000). 77% and our ambition to becoming the leading digitally £1.2bn of accounts were originated digitally (2018: 63%). enabled consumer finance provider in the UK.

2017 2018 2019 2017 2018 2019

Transactional Net Promoter +66 Closing receivables £3,026m Score (2018: +64) (2018: £2,623m)

Definition: Average customer feedback score when Definition: Gross customer balances outstanding rating their experience on an interaction with us. at the year end. +66 +6 +6

Performance: We continue to rank favourably Performance: We delivered strong growth across £3,026m across several industry sectors with a score of +66. each portfolio: Own-brand 12%; Co-brand 17%; and Our NES for online servicing was +70 (2018: +68), Unsecured Personal Loans 73%, with new account £2,623m

evidencing the benefits from our leading digital originations, our ‘low and grow’ credit limit strategy £2,164m platform. and the introduction of new retail partners driving our growth.

2017 2018 2019 2017 2018 2019

28 NewDay Annual Report and Financial Statements 2019 Strategic Report

Risk-adjusted margin1 13.0% Impairment rate1 11.6% (2018: 12.4%) (2018: 13.0%)

Definition: Risk-adjusted income (total income less Definition: Impairment (£318m)/average gross impairment) (£358m)/average gross receivables receivables (£2,752m). (£2,752m). 14.7% Performance: A combination of improved credit 13.0% 11.6% 13.0% 11.3% Performance: Our risk-adjusted margin increased 12.4% quality and refinements to our impairment to 13.0%, predominantly driven by a reduction in provisioning model (for further details see page the impairment rate, resulting from a combination 93) resulted in our impairment rate reducing by 1.4 of improved credit quality and refinements to the percentage points to 11.6%. Group’s impairment provisioning model, partially offset by more interest-free promotional period product offers and higher cost of funds. 2017 2018 2019 2017 2018 2019

Underlying 33.0% Free cash flow for Senior £50m cost‑income ratio (2018: 35.8%) Secured Debt interest (2018: £41m)

Definition: Underlying costs (servicing, change, Definition: Adjusted EBITDA (£144m) adding back marketing and partner payment costs, collection the movement in the impairment provision during fees, salaries, benefits and overheads) (£223m)/ the year (£18m) less changes in working capital, £50m total income (£676m). . PPI provision utilisation, capital expenditure, .6 £41m

. tax expense and exceptional costs (£57m), less Performance: Our continued focus on efficiency investment in receivables (£423m), plus net savings and leveraging the scalability of our leading financing cash flows (£367m).

digital platform resulted in the underlying cost- (£7m) income ratio improving to 33.0%. This reduces to Performance: Our business model is cash 30.5% when excluding expenses associated with generative. Free cash flow available for Senior the Group’s Value Creation Plan, other strategic 2017 2018 2019 Secured Debt interest increased by £9m to £50m project costs and costs to deliver interventions despite investing £17m in our Value Creation Plan, 2017 2018 2019 aimed at customers considered in persistent debt strategic projects and costs to deliver interventions (2018: 31.8%). 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).

Adjusted EBITDA1 £144m Profit before tax1 £50m (2018: £82m) (2018: £7m loss)

Definition: Risk-adjusted income (£358m) less Definition: Statutory profit (or loss) before tax per underlying costs (£223m) adjusted for depreciation the consolidated Group income statement. and amortisation (£9m). £50m £144m Performance: Net interest income increased by Performance: Adjusted EBITDA increased by £62m, 17% to £575m (2018: £492m), primarily driven or 75%, year-on-year. This was driven primarily £114m by receivables growth, and both impairment and by strong receivables growth, generating a 14% operating expenses were well-controlled resulting increase in total income, and a well-maintained £82m in a £57m increase in profit before tax. credit performance which reduced the impairment

rate to 11.6%. Our existing customers generated (£27m) adjusted EBITDA of £240m (2018: £201m), which (£7m) 2017 2018 2019 was partially offset by a £96m adjusted EBITDA loss 2017 2018 2019 incurred from establishing new customers (2018: £119m), for further details see page 24.

Employee engagement Carbon footprint tonnes 77% 988 of CO2e (2018: 75%) (2018: 928 tonnes of CO2e) Definition: Results of our most recent Pulse Definition: The amount of scope 2 (purchased engagement survey. electricity) and scope 3 (employee rail travel between our two sites) CO2 Greenhouse Gas emissions 1,087t consumed by the business during the year. 988t

Performance: We promote an engaging and 928t inclusive environment that enables colleagues to deliver our strategy. In 2019, our engagement index Performance: Reducing our impact on the improved to 77%. 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 2017 2018 2019 Gold award for our implementation of our London office renovation. 2017 2018 2019

1 The impairment charge for 2017 is calculated in accordance with IAS 39 ‘Financial Instruments: NewDay Annual Report and Financial Statements 2019 29 Recognition and Measurement’. The impairment charge for 2018 and 2019 are calculated in accordance with IFRS 9 ‘Financial Instruments’. Strategic Report Financial review

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

Paul Sheriff Chief Financial Officer

30 NewDay Annual Report and Financial Statements 2019 Strategic Report

2019 highlights

• 15% growth in receivables to £3,026m (2018: £2,623m) 2019 was another impressive year for the Group. Strong and Co-brand surpassed the £1bn milestone in the year receivables growth generated a 14% increase in total income and a combination of improved credit quality and refinements to our • 1.2m new accounts opened (2018: 1.2m), of which 77% impairment provisioning model resulted in the impairment rate were originated online (2018: 63%) reducing by 1.4 percentage points to 11.6% (2018: 13.0%). We • 75% growth in adjusted EBITDA to £144m (2018: £82m) continued our focus on cost control and accordingly our underlying • Existing customers generated adjusted EBITDA of £240m cost-income ratio improved by 2.8 percentage points to 33.0% (2018: 35.8%) whilst absorbing £38m of investment in change (2018: £201m) and we incurred a £96m adjusted EBITDA projects to drive sustainable long-term growth (2018: £41m). This loss from acquiring new customers (2018: £119m) resulted in adjusted EBITDA increasing by £62m, or 75%, to £144m • Statutory profit before tax of £50m (2018: loss of £7m) for the year (2018: £82m). • Free cash flow available for Senior Secured Debt interest of £50m (2018: £41m) We reported a statutory profit before tax of £50m for the year ended 31 December 2019 (2018: loss before tax of £7m). • Total income grew by 14% driven by the strong The statutory profit before tax includes a number of items, receivables growth explained below, which do not represent the Group’s underlying • Impairment rate improved to 11.6% (2018: 13.0%) performance: • Risk-adjusted income increased by 24% to £358m

(2018: £289m) 2019 2018 • Underlying cost-income ratio improved to 33.0% £m £m (2018: 35.8%) Statutory profit/(loss) before tax 49.9 (6.9) Senior 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 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).

Group receivables up 15% Total income up 14%

Own-brand receivables Own‑brand total income Co-brand receivables Co‑brand total income Unsecured Personal Unsecured Personal Loans receivables Loans total income

£3,026m 1m £992m£113m £2,623m 6m 22m £66m £1,160m 11m £2,164m £992m ni £17m 1m £821m 61m 1m £1,753m £1,566m 1m £1,326m

2017 2018 2019 2017 2018 2019

NewDay Annual Report and Financial Statements 2019 31 Strategic Report

Financial review Continued

Senior Secured Debt interest and related costs include the interest The growth in receivables was achieved with improving credit charge and other costs associated with the issuance and servicing quality which was in part driven by tightening of credit lending rules of £425m Senior Secured Notes by NewDay BondCo plc on from 2018. These changes, coupled with refinements to our 25 January 2017 (the Senior Secured Debt) and the Super Senior impairment provisioning methodology, limited the growth in Revolving Credit Facility entered into by the Company on impairment to £16m, or 5%, compared to 15% receivables growth, 25 January 2017 (the Revolving Credit Facility). with a total impairment charge of £318m (2018: £302m). The upfront impairment recognition requirements of IFRS 9 ‘Financial The customer refund provision results from an operational Instruments’ required us to incur a £111m impairment charge from incident which arose due to receiving incomplete information from new customer accounts with the aim to generate long-term a third party. The £0.4m expense represents the expected costs relationships. Tightening of credit lending rules from 2018 resulted to be refunded to customers, net of contributions received from in the proportion of Own-brand customers with two missed the third party. payments (or more) after six months reducing year-on-year to 10.6% (2018: 11.7%). Within Co-brand, the same metric increased Fair value unwind reflects the amortisation of fair value to 3.8% (2018: 3.1%) primarily as a result of the planned strategic adjustments on our acquired portfolios and debt issued. shift towards higher levels of online originated accounts. Our impairment rate improved by 1.4 percentage points to 11.6% Depreciation and amortisation primarily includes costs related to (2018: 13.0%) which was primarily driven by credit tightening and the amortisation of the purchase price that was attributed to refinements to our impairment provisioning methodology. intangible assets arising on completion of the Acquisition. Our focus on being an efficient and streamlined end-to-end Group performance business limited the growth in costs to 6% at £223m (2018: £211m). This is in comparison to receivables growth of 15% which We welcomed 1.2m new customers (2018: 1.2m), of which 77% demonstrates the scalability of our business model. Our were generated through online channels leveraging our leading underlying cost-income ratio improved by 2.8 percentage points digital platform (2018: 63%). Our receivables continue to grow at to 33.0% (2018: 35.8%) whilst absorbing £38m of investment in an impressive rate despite tightening of credit lending rules from change projects to drive sustainable long-term growth (2018: 2018. We reported receivables of £3,026m (2018: £2,623m), with £41m). our Co-brand portfolio surpassing the £1bn milestone in the year. The receivables book is now almost exclusively from our open The scalability of our operating model and operational benefits portfolios with the open book accounting for 96% of the total from the delivery of our Value Creation Plan are evident in servicing portfolio (2018: 95%). costs which only increased by 10% to £95m (2018: £87m). Our ‘low and grow’ strategy for credit limits continues to deliver We are delivering on our Value Creation Plan initiatives and as a controlled growth within our Own-brand business. Our Co‑brand result total change costs reduced by £3m to £38m year-on-year business successfully launched with two new retail partners, Argos (2018: £41m). Our investment is enhancing our leading digital and AO.com, in the year and continues to benefit from growth platform with 98% of servicing transactions and 78% of collections driven by the Amazon portfolio. Our Unsecured Personal Loans now made digitally. During the year we have integrated intelligent receivables, at £113m (2018: £66m), surpassed £100m in the year automation in several of our customer-facing and back office as we continue to control its roll-out. processes, including the roll-out of ChatBots and the development of VoiceBots. We have successfully transitioned our Co-brand Interest income increased by 16% to £674m (2018: £579m) driven digital acquisition platform in-house from Fiserv so that we can by the receivables growth but partially offset by more interest-free adapt quickly to the changing needs of our retail partners. promotional period product offers. Marketing and partner payment costs reduced by 2% to £60m The growth in receivables was funded primarily by borrowings. (2018: £62m) primarily due to our continued focus on sourcing Consequently, average borrowings increased in the year by 21% more cost efficient ways of attracting new customers. which resulted in a 22% increase in cost of funds. We successfully refinanced two Own-brand asset-backed securities that matured Collection fee income of £29m (2018: £30m) was broadly flat year- in the year and completed a third financing transaction to raise on-year as a result of refinements to our policy, driven by our £577m in total. Customer Manifesto, for charging late fees to customers partially offset by growth in account volumes. Our Customer Manifesto is at the heart of everything we do and drives positive customer outcomes. Accordingly, revisions to our Salaries, benefits and overheads increased by 13% to £59m (2018: policy for charging fees to customers limited fee and commission £52m) driven by higher headcount required to support our growth income growth to 4% at £66m (2018: £64m). strategy.

32 NewDay Annual Report and Financial Statements 2019 Strategic Report

Management basis income statement

20191 2018

Unsecured Unsecured Personal Personal £m Own-brand Co-brand Loans Group Own-brand Co-brand Loans Group Interest income 456.5 200.5 16.6 673.6 406.5 165.2 7.7 579.4 Cost 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 5.9 527.5 Fee 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 5.9 591.1 Impairment 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) 289.3 Servicing 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) 130.0 Salaries, benefits and overheads (58.9) (52.1) Underlying profit before tax 134.9 77.9 Add back: depreciation and amortisation 9.3 4.3 Adjusted EBITDA 144.2 82.2 Senior 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).

NewDay Annual Report and Financial Statements 2019 33 Strategic Report

Financial review Continued

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

Acquiring new customers EBITDA cost 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

11m consistent with our Customer Manifesto. 6m 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 2018 2019 from 2018; and (ii) refinements to our impairment provisioning methodology (for further details see page 93). We generated a £96m adjusted EBITDA loss in acquiring 1.2m new customer accounts in 2019 (2018: £119m). To support the growth in the receivables book, servicing costs increased by 17% to £43m (2018: £37m). Existing customer adjusted EBITDA growth 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 2m platform. We are delivering on our Value Creation Plan and 21m 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 2018 2019 as a result of targeting more cost efficient channels to on-board new customers. Our long-term relationships with existing customers generated £240m of adjusted EBITDA (2018: £201m), Collection fees increased by 4% to £19m (2018: £18m) with growth representing 19% growth year-on-year. in account volumes partly offset by refinements, driven by our Customer Manifesto, to our policy for charging late fees to For further details see page 24. customers.

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

Co-brand performance 11m

12m Closing receivables 1m 1m 166m 1m 1m 2m 11m

Open books 11m m Closed books

2017 2018 2019 1m

Open books Our Own-brand business welcomed 426,000 new customers Closed books (2018: 456,000) and reported receivables growth of £187m, or 2017 2018 2019 12%, to £1,753m (2018: £1,566m). Our Co-brand business welcomed 752,000 new customers (2018: The receivables growth was driven primarily by our ‘low and grow’ 733,000) and reported receivables growth of £168m, or 17%, to strategy for customer credit limits as well as growth from the £1,160m (2018: £992m), surpassing the £1bn milestone in the year. 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%).

34 NewDay Annual Report and Financial Statements 2019 Strategic Report

We successfully on-boarded two new partners in the year. In April, Unsecured Personal Loans (UPL) performance we launched the Argos Classic credit card to Argos customers who Closing receivables 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 £113m cards which aim to help customers build credit through rewards. £66m

Net interest income increased by 21% to £181m (2018: £149m) £17m driven mainly by the growth in receivables. Funding margins, at 2.1%, were marginally higher than last year (2018: 2.0%). 2017 2018 2019 Fee and commission income reduced by 2% to £21m (2018: £21m) We opened 21,000 new loans in the UPL business (2018: 15,000) partly due to refinements to our policy for charging fees to as it continues to target existing Own-brand customers whilst customers driven by our Customer Manifesto. building credit experience. Receivables grew by 73% year-on-year and surpassed £100m in the year to finish at £113m (2018: £66m). The impairment rate increased to 4.6% (2018: 3.9%), which is in This resulted in total income growing by £8m, or 131%, to £14m line with the targeted widening of the risk profile of our Co-brand (2018: £6m). Due primarily to the upfront impairment recognition portfolio, primarily through a change in mix towards online from requirements of IFRS 9, impairment increased by £7m to £15m in-store customers. (2018: £8m) following the strong receivables growth. Operating costs increased to £4m to stimulate the growth in receivables Servicing costs increased by 3% to £51m (2018: £49m) whilst (2018: £3m). As a result of these factors, and primarily due to the delivering a 17% increase in receivables, evidencing scalability of upfront impairment charge under IFRS 9, the UPL business our business model. reported a negative contribution of £5m (2018: negative contribution of £5m). 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. Capital and liquidity Our free cash flow available for Senior Secured Debt interest Marketing and partner payment costs increased by £3m to £46m increased by £9m to £50m (2018: £41m) demonstrating that our (2018: £43m) as we continued to focus on growth and attracting business model continues to be cash generative. Overall cash new retail partners. increased by £18m to £152m (2018: £134m).

Collection fees reduced by £1m to £11m (2018: £12m) as a result The following table reconciles adjusted EBITDA to the net increase of refinements to our policy for charging late fees to customers, in cash: which are driven by our Customer Manifesto, offsetting the growth in our receivables book. 2019 2018 As a result of the factors above, and primarily due to the growth in £m £m net interest income partially offset by a higher impairment charge, Adjusted EBITDA 144.2 82.2 Co-brand contribution increased by £14m, or 33%, to £55m (2018: Change in impairment provision 18.3 60.4 £41m). Adjusted EBITDA excluding change We continue to monitor trading conditions on the high street. In in impairment provision 162.5 142.6 March 2019, we novated our retail contract with House of Fraser Change in working capital (22.3) 2.8 to the new House of Fraser business owned by Sports Direct. PPI provision utilisation (15.1) (20.1) Additionally, in April 2019, Debenhams plc entered administration Capital expenditure (9.6) (9.4) and the underlying operating companies (including the entities Tax paid (10.0) (6.8) party to our contract with Debenhams) were sold to a separate FCF available for growth and legal entity owned and controlled by certain creditors of debt service 105.5 109.1 Debenhams plc. Increase in gross receivables (422.7) (470.9) Our strategy continues to be the diversification of our Co-brand Net financing cash flow 367.0 402.5 portfolio to become less reliant on the high street and to create a FCF available for Senior Secured broader retail partner base which has a greater online presence. Debt interest 49.8 40.7 This is achieved primarily through both new partnerships, such as Senior Secured Debt interest paid (31.7) (31.1) with Amazon and AO.com, and our ongoing investment in NewPay. 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

NewDay Annual Report and Financial Statements 2019 35 Strategic Report

Financial review Continued

The change in working capital of £22m (2018: positive £3m) was As at 31 December 2019, we maintained significant headroom on impacted by a one-off payment to House of Fraser to settle daily our variable funding notes of £0.7bn to fund further receivables customer transactions which accrued during the period prior to growth (2018: £0.9bn) and the average maturity of our debt issued formal novation of the contract to Sports Direct, of which £15m was two years (2018: three years). The staggered nature of our was accrued in the Financial Statements as at 31 December 2018. 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 PPI utilisation reduced by 25% to £15m (2018: £20m). The FCA to five years. We currently intend to raise further funds through deadline by which customers can raise a claim with their the issue of asset-backed securities during the course of 2020 to PPI provider passed on 29 August 2019 and, as at 31 December refinance the debt facilities due in less than one year. 2019, we reported a provision of £10m (2018: £25m) to cover the remaining expected costs. Debt maturity profile £0.7bn of additional VFN Excluding the impact of the one-off payment to House of Fraser headroom available to fund

61m future receivables growth. and PPI utilisation, underlying free cash flow for Senior Secured 2m Debt interest increased by 72% to £80m (2018: £46m). m m

Funding 6m Asset‑backed securities

In 2019, we raised £577m from three financing transactions in our 2m 1m Drawn variable funding notes Own-brand asset-backed securitisation programme. This (VFNs) included refinancing two series within our Own-brand asset- 2m Senior Secured Debt backed securitisation programme that matured in the year which 2020 2021 2022 2023 2024 raised £526m, including $205m from US capital markets, and a third financing transaction which raised £51m. Our receivables are funded primarily through debt issued and our blended advance rate (being the total asset-backed securities and The first transaction, completed in June, refinanced part of the drawn VFNs as a proportion of closing receivables) as at asset-backed term debt issued in connection with our Own-brand 31 December 2019 was 86.0% (2018: 85.9%). The advance rate securitisation programme with the issuance of £285m of debt (of for Own-brand was 83.0% (2018: 83.3%) and Co-brand was 92.3% which £36m was retained internally within the Group). This debt (2018: 91.2%). has a scheduled maturity in 2022 and is the first debt issued by the Group that accrues interest linked to the Sterling Overnight Index Cash flows Average (SONIA). The following table summarises the Group’s cash flows during the year: 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 2019 2018 transaction comprised of: (i) the issuance of £151m of publicly £m £m listed asset-backed term debt (of which £40m was retained Net cash used in operating activities (335.8) (383.5) internally within the Group); and (ii) the issuance of $205m of Net cash used in investing activities (9.6) (9.4) publicly listed asset-backed term debt raised in the US capital Net cash generated from financing markets (which was equivalent to £166m on the date of issuance). activities 363.5 402.5 The US$ exposure raised through this transaction, together with the financing transactions completed in 2018, are hedged through Net increase in cash and a balance guaranteed cross-currency interest rate swap. cash equivalents 18.1 9.6 Cash and cash equivalents The final transaction, completed in December, raised £51m from at the start of the year 134.0 124.4 the sale of certain asset-backed term debt within the Own-brand securitisation programme that was previously retained within the Cash and cash equivalents Group. at the end of the year 152.1 134.0

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.

36 NewDay Annual Report and Financial Statements 2019 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 requirements There 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.

NewDay Annual Report and Financial Statements 2019 37 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 Rake Chairman and Non-Executive Director

Being a responsible lender centre colleagues are also trained to identify potentially vulnerable customers and a specialist team is in place to provide Our Customer Manifesto is at the heart those customers with the support of everything we do and it remains they need. a strategic priority. We are committed to

helping customers be better with credit We embraced industry guidance aimed at through our foundations of being helping customers whose accounts are a Welcoming, Understanding, Knowing defined as being in or near to persistent and Rewarding business. This focus 112,000 debt. We have rolled out a programme ensures we continue to strive to provide of support which encourages customers to customers supported with our excellent customer service and develop make (in sustainable, affordable collections toolkit products and services that evolve in line increments) higher repayments which, (2018: 67,000) with our customers’ changing needs in when made, can lift an account out of order to build long-term relationships. persistent debt or avoid a customer entering into a state of persistent debt. We continue to lend responsibly through Additionally, to support customers who are the deployment of our ‘low and grow’ considered to have been in persistent debt strategy, offering our Own-brand £27m for a prolonged period of three years, we customers a low initial credit limit until they have tailored a solution designed to help given back to customers through demonstrate that they can actively them come out of persistent debt, without rewards manage and afford further credit in a adversely impacting affordability, within (2018: £29m) responsible and sustainable manner. This a reasonable period. is supported by our robust scorecards built

on 18 years of experience and data Our objective as a responsible lender is analytics. In addition, we helped 127,000 always to do the right thing by our customers with our online financial health customers, which is monitored through a check tools in 2019 (2018: 154,000) to 1.05 number of KPIs that are reported to the support them in developing a greater Board monthly. Our transactional NPS complaints per 1,000 active accounts understanding of their financial situation. score of +66 (2018: +64) evidences that (2018: 1.25) This enables them to become better with customers value the service they receive credit and benefit from the rewards from us and customer complaints of 1.05 we offer. per 1,000 active accounts (2018: 1.25 per 1,000 active accounts) have decreased Our collections toolkit has a wide range of whilst delivering 1.2m new customer practices that allow us to work with accounts. Additionally, in our Co-brand customers where their situations have business we rewarded our customers with changed and support them if they fall into £27m in loyalty rewards (2018: £29m) arrears. In 2019, we supported 112,000 customers (2018: 67,000) with our collections toolkit strategies. Our contact

38 NewDay Annual Report and Financial Statements 2019 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 Family Action across the country to support family customers, colleagues and shareholders In our fourth year of partnership, we members over the age of 18 through and we take this responsibility very continued our work with Family Action, telephone calls, email, web chat and text seriously. We also recognise that our our charity partner, who have now been message. In 2019, this service enabled purpose runs beyond our products and operating continuously for families in over 3,000 people access to the full range services and has a role to play in how we need for over 150 years. During 2019, we of support that Family Action offers support the communities we serve. made donations totalling £190k. Family which they would not have been able to Action provides practical, emotional and do without the launch of FamilyLine. The Good Credit Index financial support to those who are We expanded our Customer Manifesto experiencing poverty, disadvantage and Our colleagues believe in our partnership programmes with the launch of the Good social isolation. We donate funding to with Family Action. Throughout the year Credit Index through Demos, a leading UK support Family Action’s national grant our colleagues engaged in numerous think tank. The Good Credit Index maps scheme that helps families regain fundraising activities to support our access to ‘good credit’ measured at a local independence following a crisis and have charity partner and donated 960 gifts level and provides location-based supported over 70 families with an Open through Family Action’s UK-wide Toy strategies for building better credit around Doors grant this year. Appeal collection programme. the country. We also expanded our partnership with We’re really proud of our partnership with In July 2019, Demos launched their Good Family Action offering financial support Family Action and believe in the Credit Index, a project made possible by so they could launch FamilyLine - a difference we can make together. NewDay’s financial support. The Demos seven-day-a-week helpline for families team started by consulting consumers and carers launched by new patron HRH For more information about the support across the country to find out what ‘good Duchess of Cambridge. The service that Family Action provides visit their credit’ looks like. By bringing together 21 tackles issues in a new and innovative way website at www.family-action.org.uk. data variables, they built a granular and by using a network of volunteers from 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 Committee Our Charity Committee promotes and organises fundraising initiatives throughout the year and oversees the matched-funding scheme to which all colleagues are eligible to apply. The matched-funding scheme provides funding for individual, employee-led charity activities and during the year colleagues took part in a number of varied activities to support their nominated charities. In 2019, £208k was donated to local community charities, including charities supported by our colleagues.

NewDay Annual Report and Financial Statements 2019 39 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

40 NewDay Annual Report and Financial Statements 2019 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

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

Aqua says “yes” Aqua looks for ways to responsibly say 5,000 “yes” times every week to consumers who may not be able to easily access credit through mainstream lenders

NewDay Annual Report and Financial Statements 2019 41 Strategic Report

Operating responsibly Continued

Being a responsible employer that will help them develop in their career. Month in October, about what it means to As a result, 36% of colleagues moved into be black in the UK. We are excited to be Making NewDay a great place to work new opportunities internally in the year. continuing these important conversations We want our colleagues to thrive at with our colleagues in 2020. NewDay. Our people strategy drives our Diversity and inclusion (D&I) colleague experience and we are proud that ‘We value our differences, together.’ We As at 31 December 2019, the number of we have increased our engagement index know that employing people with multiple colleagues totalled 1,221 (2018: 1,208) and to 77% (2018: 75%) measured through perspectives and from different the proportion of females was as follows: our end-of-year Pulse survey. This shows backgrounds makes a better business; it that our colleagues feel that they are part also means that we better represent and of something exciting. serve our diverse customer groups. 2019 2018 females females Changing ways of working 2019 was a year of firsts for NewDay. Since We have grown quickly. With that has come Colleagues 51% 51% starting our D&I journey in 2018 we have an unprecedented and exciting change to Management made great progress. We measure our the way we deliver work and innovate for Committee 13% 13% achievements through our Pulse survey our customers. We have brought all our Board 9% 8% and our latest D&I index is 82% (2018: 79%). development and design work in-house, This increase is representative of our creating fully formed squads to build and people strategy in practice, but also For further information, view our Gender deliver innovative changes to our products, recognising all our colleagues who have Pay Reports published on our website at which benefit our customers. helped promote inclusion in gender, race www.newday.co.uk. and sexual orientation, to name a few. We have been enhancing our digital Health and wellbeing footprint for both customers and A programme that was particularly well We have comprehensive Health and Safety colleagues. With that comes the need to received by our colleagues, was our policies and practices in place and no upskill and provide continuous learning Inclusive Leadership training. All of our accidents occurred during the year which opportunities. We have delivered this managers have participated in this to required reporting in accordance with the through the provision of technical training encourage us to be thoughtful about how Reporting of Injuries, Diseases and to our Technology and Credit Risk teams, we work together. We also audited our Dangerous Occurrences Regulations 2013 and we launched Learning Pool, an recruitment processes for bias, paving the (2018: none). e-learning portal, allowing all colleagues way for truly inclusive recruitment direct access to a catalogue of soft and and hiring. A strong part of our D&I programme functional skills which they can access any involves educating and raising awareness time as ‘always-on’ training. Our first employee network was created, about mental health and wellbeing. We ran the Women’s Network. We supported and a Mental Health Awareness Week in May Talent and mobility celebrated International Women’s Day in and we followed this with Wellbeing Week High-performing teams require great March with an internal campaign. From this in September covering physical, mental, talent and throughout 2019 we created network our Inspirational Speaker Series emotional and financial wellbeing. We opportunities via different meet-up events was created, which aims to bring people provide a number of wellbeing resources covering subjects from data science, UX/ with different points of view into our offices through our programmes and benefits UI and coding in order to attract new talent to speak to our colleagues on a diverse platform, all designed to ensure our into NewDay. range of topics. colleagues have support when they need it, wherever they need it. We also know that we have high-potential We also took part in Pride in London and talent across NewDay and we are tapping Leeds supporting our LGBTQ+ colleagues, We are proud of what we have achieved this into that. We actively encourage our have celebrated many faith events and had year and promote a culture where everyone colleagues to think about lateral moves a great discussion, as part of Black History is valued and respected.

42 NewDay Annual Report and Financial Statements 2019 Strategic Report

“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 Yule Head of Commercial Strategy and Analytics

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? We decided to take leave together right at So Saoirse came along and how was it? Not much in this day and age, I knew this going the start as with our families either in Game-changing? in and have had lots of friends that have just Scotland or Ireland we wanted to make sure It’s been pretty amazing so far. Once we got had to get on with it so although I would’ve I was around as much as possible at the home from hospital, she’s been pretty easy obviously loved more, I knew the boundaries start to support Alison. going in the grand scheme of babies. we were going to be working within. There’s been the initial realisation of what’s Reflecting back on it now, I think the biggest actually happened, the continual panic and When we launched our ESPL what were impact is that having had the opportunity worry over the first three months (is she your initial thoughts? to spend this much time with Saoirse, I’m breathing? Is she eating? Is she growing?), It was game-changing and I couldn’t quite so much more relaxed and at ease than I and then once she started smiling and believe it at first to be honest. I actually went imagined I would be. laughing you can begin to see the hint of a over to Damaris (our Chief People Officer) personality come out and it becomes so that morning to check I wasn’t misconstruing I think it’s also important to note the impact much fun (although I’m still scared of it, to say thanks and make sure she knew how it had within NewDay and my team as well. dropping her and wish she would sleep that big a deal it was. Before ESPL was launched They’ve had to become a lot more little bit longer). we were just going to be focused on independent, which has meant we’ve been extracting as much value out of my annual able to slip into a slightly different operating What would you say to anyone thinking leave as possible. rhythm seamlessly which is leading us all to of applying for ESPL? develop and have a larger impact. Do it. You’ll only get the chance to do this How did ESPL work for you and your once or twice generally in your life and it’s family? How long did you have off? Do time you’ll never get back. You may worry you think it helped you settle as a about taking extra time off work but it’s not family unit? as bad as you think – all those fears soon Including some accrued leave, it meant disappear. between April and August I was out of the office for 18 weeks.

NewDay Annual Report and Financial Statements 2019 43 Strategic Report

Operating responsibly Continued

Protecting the environment

Minimising our impact 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 Building on the three Green Apple have fewer than three Company-owned Environment Awards in 2018 were proud to be awarded a Green World vehicles and as we do not generate any of We are a member of the Green Ambassador in the Financial Services our own power, our scope 1 emissions are Organisation, an independent sector category and received a Gold award low. Owing to the nature of our business, international, non-profit, non-political for our implementation of our London we focus on managing general energy environmental group dedicated to office renovation. Further to this, we were consumption across our Leeds and London recognising, rewarding and promoting also recognised at the International CSR sites (scope 2 emissions) and also business environmental best practice around Excellence awards winning a Gold award travel between sites, mainly via train (scope the world. Following the three Green for ‘Charitable Giving’, recognising our 3 emissions). In 2019, we consumed 988 awards we won in 2018, all overall charitable contributions to Family Action, tonnes of CO2 emissions (2018: 928 tonnes category winners were submitted into our charity partner. of CO2e) across electricity usage and the Green World awards for 2019. We 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 scheme administrator – the 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.

44 NewDay Annual Report and Financial Statements 2019 Strategic Report

Working with our colleagues and Our Modern Slavery and Human Trafficking By following a formalised and structured third parties across our offices on Statement is available on our website at approach, we have developed, and environmental opportunities www.newday.co.uk/sustainability/modern- continued to refine, our ESG strategy and Across our offices, we have worked closely slavery-and-human-trafficking-statement/. reporting processes. Formal reporting is with our colleagues, landlords, facilities and completed through quarterly KPIs that catering partners to deliver activities to Governance over Environmental, are reviewed by the Operational Risk reduce our environmental impact. We Social and Governance (ESG) matters Committee and the Board for insights and introduced various waste and recycling Delivering long-term sustainability is a best practice sharing. External benchmark projects focused on reducing plastic usage fundamental objective at Board level. We data has been used to define triggers as well as reviewing our approach to the recognise the importance of minimising and benchmarks across all our reported energy usage within our buildings. Our our impact on the environment and of ESG measures and our quarterly Board colleagues have created their own Green being a responsible lender and employer reporting assesses current performance Forum in Leeds, which promotes recycling, and our ESG framework ensures against these triggers. waste and any green-related matters, appropriate focus and accountability championing new ideas across the site. across the business. Our ESG strategy provides an assessment framework that Governance in our supply chain considers the significant ESG issues across In line with internal supplier qualification and the business, the outcomes of which are ongoing monitoring processes, we ask new used to identify risks and opportunities and existing suppliers to self-attest their for improvement. The governance in compliance against key principles relating place assigns roles and responsibilities for to corporate social responsibility. Our developing and overseeing ESG reporting Supplier Code of Conduct, found on our processes. Management processes have website at www.newday.co.uk/ been developed to identify ESG issues sustainability/supplier-code-of-conduct/, and opportunities, with the Board taking positions our due diligence and contractual responsibility for ESG and reviewing ESG requirements in this regard. performance at regular intervals.

NewDay Annual Report and Financial Statements 2019 45 Strategic Report 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

By understanding the differing needs and concerns of our Detailed below are the Group’s key stakeholders, their material stakeholders through proactive engagement, the Board can then interests, how we engage with them and key outcomes delivered ensure careful consideration of the potential impact of their for each group in 2019, decision-making on each stakeholder group.

Stakeholders and their material interests How we engage 2019 key deliverables Customers • Feedback through NES and • Supported 123,000 customers to come Responsibly saying “yes” to more customers, transactional NPS metrics to track out of persistent debt with the delivering easy-to-use products and customer satisfaction interventions we deployed. For further supporting our customers to be better with • Customer Issue Resolution Programme details see page 16 credit whilst adapting our product offering using customer and colleague feedback • Helped 127,000 customers with our throughout their credit journeys. to improve processes online financial health check tools • Credit checker tools to support • Provided over £27m in loyalty rewards improving credit scores • NES increased to +70 and transactional • Servicing messages and alerts NPS increased to +66 • Collections toolkit to support • Introduced ChatBot functionality customers who encounter difficulties providing customers flexibility in their • Customer KPIs in monthly Board interactions with us reporting Colleagues • Bi-annual Pulse surveys with follow-up • Engagement scores increased from Providing an engaging and highly motivated actions 75% to 77% environment, attractive career paths and • Programme of activities throughout the • Approval of the 2018 annual bonus by benefits and empowerment to own and year covering diversity and inclusion, the Board Remuneration and drive our vision. mental health and wellbeing Nomination Committee • Quarterly all-colleague town hall • 36% of colleagues moved into new roles updates internally with NewDay in 2019 • Online learning and development tool • Launched e-learning portal with all- • Independent whistleblowing helpline colleague direct access • Introduced Inspirational Speaker events • Introduced shared parental leave Retail partners • Monthly performance meetings • Launched products in partnership with Seamless integration into our partners’ • Provision of data and performance two new retail partners, AO.com and customer experiences. Using our data analytics Argos analytics to generate in-depth customer • Working together to develop marketing • Enhanced product offering with Arcadia insights, supporting brand loyalty to drive strategies and offers Group, introducing three new products higher sales, increased basket size and (Miss Selfridge, Topman and Topshop) repeat business. • 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

46 NewDay Annual Report and Financial Statements 2019 Strategic Report

Stakeholders and their material interests How we engage 2019 key deliverables Shareholders • Attendance at Board meetings and • Further enhanced our digital platform to Lending responsibly alongside leveraging strategy days progress towards delivering our vision. our technology platform and credit • One-to-one investor meetings For further details see page 20 expertise to deliver predictable, sustainable • Monthly performance reporting – both • Delivered record adjusted EBITDA of and attractive returns. financial and non-financial £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 • Monthly securitisation investor • Generated free cash flow available for high-yield bond) reporting Senior Secured Debt interest of £50m Delivering sustainable returns on their • Quarterly HYB investor reporting and • Ratio of adjusted EBITDA to cash investments. presentations interest expense improved to 4.5x • Investor roadshows • 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 Regulators • Member of industry bodies to ensure • Continued to develop our strategies to Active engagement and alignment of our active engagement in industry-wide support customers who will have been approach to meet regulatory requirements discussions in persistent debt for 36 months by and delivering upon our Customer • Open and transparent reporting March 2020 and will therefore require Manifesto. • Proactive engagement and mandatory intervention. For further collaborative approach 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 Community • Attendance at industry-wide meetings • Donated £190k in our ongoing Regular engagement with the technology • Partner directly with Family Action and partnership with Family Action, our community, partnering with Family Action Demos charity partner and Demos, promoting financial inclusion, • ESG KPIs in Board reporting • New partnership with Demos, investing and actioning environmentally friendly • Member of environmental organisations £115k to support the launch of their practices. to share best practice 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 implementing various options to take account of customers’ concerns of all stakeholders to deliver the outcomes listed above. differing needs whilst also ensuring that the Group’s policies are A key focus area of the Board during the year, which required in line with the FCA’s final rules and guidance. Alongside this, the careful consideration across multiple stakeholders, was in relation Board balanced the interests of its shareholders and investors to CCMS. whilst ensuring appropriate dialogue to promote shareholder and investor awareness of the changes and the anticipated impact on Interventions developed to support customers in persistent the Group. For further details see page 16. 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,

NewDay Annual Report and Financial Statements 2019 47 Strategic Report 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

The overarching Risk Management Framework comprises six core components: 1. Risk appetite statements 6. 2. Risk governance 3. Risk processes and methodologies

Identify Qualitative

Quantitative Control Assess Stress testing

Monitor Change

Aggregate validation Framework Management Risk

Reporting 4. Risk data and IT systems 5. Risk management skills, resources and culture

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

Liquidity, funding and Credit risk Financial control Operational risk Conduct risk cash management risk framework framework framework framework framework

48 NewDay Annual Report and Financial Statements 2019 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

Business Risk/reward management

The leaders of each business area have Executes the business strategy as set by primary accountability for the performance, the Board. Undertakes day-to-day business 1st operation, compliance and effective control within the parameters of the defined risk line of defence of risks affecting their respective business appetite and Risk Management Framework. areas. Applies controls in day-to-day business activities, managing and testing controls on an appropriate periodic basis.

Enterprise Risk Function Oversight and advice

The Enterprise Risk Function is an Provides independent oversight, challenge independent risk management capability, and advice over the risk profile of the business 2nd reporting to the Chief Risk Officer. The Chief and operation of the Risk Management line of defence Risk Officer reports to the Chief Executive Framework. 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.

Assurance (internal audit) Independent assurance

Assurance is provided by the internal audit Provides independent assurance on the function which is independent of both the design, operation and effectiveness of 3rd business and the Enterprise Risk Function, the control framework, including activities line of defence and reports to the Chairman of the Board performed by the first and second lines Audit Committee. of defence.

NewDay Annual Report and Financial Statements 2019 49 Strategic Report

Informed risk-based decision-making

Our risk appetite statements are reviewed annually and approved Risk appetite measures are monitored monthly by the relevant by the Board and they are the link between the overall business business committees and holistically by the Enterprise Risk strategy and the management of risk through the Risk Management Committee (ERMC) and the Board Risk Committee, Management Framework. The statements are cascaded down with appropriate actions being taken where triggers have been into and applied to their component parts, including risk appetite breached. Risk appetite is approved by the Board which sets risk objectives and metrics triggers. This enables the risk appetite to appetite thresholds at least annually to ensure the business inform day‑to‑day decision-making. 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.

Risk Management Strategy Framework

•• Evolving with our customers to address changing needs •• Driving high standards for our customers, colleagues and community through our Manifesto Risk appetite •• Risk governance •• Leveraging a leading digital platform •• Acquiring new customers and creating statements •• Tools, processes long-term relationships and methodologies •• Delivering strong controlled growth and Holistic risk assessment high performance predictability •• Assess and Translated into measures control risks Ongoing assessment •• Informed risk-based decision-making

Four risk appetite pillars underpin the delivery of our strategic objectives

Credit risk Financial strength Operational performance Business conduct (includes operational risk) (includes legal, regulatory and conduct risk)

Our credit appetite is to ensure we Our objective is to maintain a Our objective is to fulfil our Our objective is to treat our originate and manage customer strong financial position by business commitments through customers fairly and to ensure that receivables with a risk and reward managing profitability and cash systems and processes that are they remain at the heart of balance in line with the Group’s generation. This will be achieved appropriately controlled, scalable, everything we do. We will work to financial and strategic objectives. by ensuring that our financial cost-effective and comply with ensure that our customers do not strength and liquidity are applicable external and internal suffer detrimental outcomes as a maintained at levels that reflect rules, laws and regulations. This result of our product design or sales NewDay’s desired financial profile, includes having the right number or post-sales processes, correcting whilst complying with funding of skilled, motivated people in identified errors. Our customer- covenants and regulatory place and developing and retaining focused ethos is embedded within requirements. This will apply for talent. We seek to have the governance and culture of the planned growth in normal appropriate oversight, challenge organisation. conditions and navigating and governance in place over stressed environments. planned changes.

50 NewDay Annual Report and Financial Statements 2019 Strategic Report

Our risk governance structure

The Board is ultimately accountable for risk and the oversight of decisions on risk matters within the agreed Risk Management risk management. It considers the appropriateness of the Risk Framework. The Chief Executive Officer also implements the Management Framework in line with risk appetite and Group decisions made and policies approved by the Board and deals with strategy. The Board considers the most significant risks facing the matters arising within the ordinary course of business. business, informed by risk and controls reporting, and uses quantitative and qualitative measures to monitor and challenge Reporting to the Chief Executive Officer and Board Risk performance. The Board delegates responsibility for risk Committee, the Chief Risk Officer leads the Enterprise Risk management oversight to the Board Risk Committee. The Board Function and chairs the ERMC. articulates its approach to risk management via the Board Risk Management Policy, which is reviewed annually. Business level committees provide management with a structure to ensure appropriate focus is applied to the oversight and The Chief Executive Officer chairs the Management Committee, management of specific risk types: credit risk; market risk; financial which is responsible for the day-to-day management of the risk; operational risk; and conduct risk. Strategic risk is managed business and has delegated authority from the Board to make by the Management Committee.

The table below details the risk governance structure Credit Market Financial Operational Conduct Strategic in place across the Group: risk risk risk risk risk1 risk

Board Board governance

Board Risk Committee2

Management Committee

Management Enterprise Risk Management Committee governance Customer and Credit Risk Asset and Liability Operational Conduct Risk Committee Risk Committee Risk Committee Committee

Core policy Board Risk Management Policy

Risk Management Overarching Risk Management Framework

Liquidity, funding Operational and cash management risk Sub- Credit risk risk framework framework Conduct risk frameworks framework framework Financial control framework

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.

NewDay Annual Report and Financial Statements 2019 51 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 Eyre Chief Risk Officer

52 NewDay Annual Report and Financial Statements 2019 Strategic Report

Principal risks

Strategic risk Macroeconomic risk Adverse impacts because of a sub-optimal business Adverse movements in economic trends in the UK strategy or business model. cause detrimental effects on the anticipated returns and business strategy of the Group.

Example Example • A sub-optimal strategy or model could give rise to financial loss, • Factors such as a credit downturn or the UK’s exit of the EU without reputational damage or failure to meet internal and/or public policy a deal could significantly impact the anticipated returns for the objectives 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 mitigants Risk factors in-year and key mitigants Challenging high street conditions for our foundation partners have The continued uncertainty around Brexit, the recent outbreak of remained prominent during the year. coronavirus and challenges surrounding economic growth.

We have managed the risk through the use of the following We have managed the risk through the use of the following controls/mitigants: controls/mitigants: • pursuit of business development strategy and diversification in • in response to Brexit we monitored and refined our macroeconomic terms of potential new partners; dashboard; • launch of NewPay digital credit product with AO.com; • our macroeconomic panel meets on a quarterly basis to review and • diversification through online partners; agree stress scenarios; • working with partners to expand our presence online; • stress testing, including a Brexit-specific stress test scenario, with pre- • business strategy and annual/dynamic review process; determined mitigating actions agreed by the Board; • Group budgets defined, allocated and monitored to align with • business strategy and annual review process; strategic objectives; • budgets defined, allocated and monitored to align with strategic • risk appetite aligned with strategic objectives and business objectives; planning; and • risk appetite aligned with strategic objectives and business planning; • monitoring publicly available information and other gathered • diversification of Co-brand partners and product offerings; information with regards to trading performance of retailers. • 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 Improvements in 2019 and future focus • We continued to develop and improve the functionality of • Our macroeconomic response strategies continue to develop, our e-servicing apps, provided a better customer offering including mapping them to our macroeconomic triggers. We have a and strengthened our business clear corporate view of what levers to use in different situations under • In 2020, we will look to expand our footprint and add new different stressed scenarios Co‑brand partnerships with new retail partners, both large and • In 2020, we will continue to refine our approaches where needed and small, complementing our existing partners continue to monitor the external environment closely, with particular attention to the coronavirus outbreak

NewDay Annual Report and Financial Statements 2019 53 Strategic Report

Principal risks continued

Credit risk Regulatory risk Operational risk Conduct risk Unexpected losses as a result of customers failing Change in laws or regulations governing the Group and/ Inadequate or failed internal processes, people and Customer detriment arising from inappropriate culture, to meet their obligations to repay. or failure to comply with legal or regulatory requirements. systems, or from external events including internal and products, governance and processes. external fraud.

Example Example Example Example Credit risk losses deviating from expectations because of: • Significant alterations to the business model because of changes in Reputational damage, regulatory censure and/or financial loss could NewDay or its strategic partners experiencing issues with poorly defined • ineffective models or scorecards; the law or regulations may have a material impact on the performance arise from: and managed controls, culture and/or governance could cause customer • forecasting models not in line with business processes; and profitability of the business • cyber attacks; detriment and in turn this could lead to financial loss, affect reputation and • poorly designed decisioning strategies; • Non-compliance with laws or regulation could lead to reputational • pandemic; give rise to regulatory censure. • collections strategies not working as intended; damage, enforcement action and/or financial loss • loss of customer data; • failure to resource collections effectively and/or weak collections • internal and external fraud; processes; or • lack of suitably skilled resources or system failures at third parties; or • increase in fraud losses due to increases in both first party and third • human errors in manual processes. party fraud losses.

Risk factors in-year and key mitigants Risk factors in-year and key mitigants Risk factors in-year and key mitigants Risk factors in-year and key mitigants Uncertainty in the UK economy and the potential for continued Ensuring regulatory change is understood and implemented compliantly. The scale and pace of transformation (including digital and data-led Ensuring we lend responsibly and in an affordable way to customers. economic drag. Customer indebtedness and pressure on low income projects, use of cloud-based services and automation of manual households from credit tightening. Customer behaviour patterns We have managed the risk through the use of the following processes). Reliance on third party controls in the provision of systems, We have managed the risk through the use of the following particularly Individual Voluntary Arrangements (IVAs) and bankruptcies. controls/mitigants: data services and contact centre capabilities. An ever-changing cyber controls/mitigants: • completed preparations for the FCA’s Senior Managers and threat, as well as the threat of data leakage. Whilst we have business • Customer and Conduct Risk Committee overseeing the Conduct Risk We have managed the risk through the use of the following Certification Regime (SMCR) that took effect in December 2019; continuity plans to mitigate against operational risks certain external Management Framework; controls/mitigants: • delivering our PSD2 programme for the development of compliant events, such as a pandemic, remains outside of the Group’s control. • our Customer Manifesto, values, and our investment in colleague • daily performance monitoring with the ability to modify credit and solutions for e-servicing and contactless cards; training, together with key management communications support our collections strategies and actions at short notice; • finalising remedies for persistent debt to meet regulatory We have managed the risk through the use of the following company standards and customer outcomes we aim to achieve; • Credit Risk Committee overseeing the execution of the Credit Risk requirements; controls/mitigants: • new product approval committee; Management Framework; • delivering a programme of GDPR updates to internal processes and • overseeing the Operational Risk Management Framework; • retail partner monitoring and relationship management; • credit risk strategies, policies and procedures; controls including continued updates to our Records of Processing; • information security framework; • Executive-led steering committee to manage CCMS implementation; • improvements to both creditworthiness and affordability • overseeing the Conduct Risk Management Framework; • business continuity management; • supplier governance programme; assessments both at origination and in customer management; • monitoring of regulatory radar for upcoming regulatory developments • supplier governance framework; • policies and processes for vulnerable customers; • significant investment in data science capabilities; and external horizon scanning cascaded internally; • new product approval committee; • policies and processes for complaint handling; • regular monitoring of impairment performance; • regulatory change gap analyses; • change governance and dedicated project management resources; • PPI redress calculated in line with the FCA’s guidance and provision • macroeconomic environment monitored by the Credit Risk • responding to consultation papers through trade bodies; and • process quality assurance procedures; adequacy actively monitored; Committee with a dashboard prepared with external • policies and procedures reviewed to remain up to date, compliant and • logical access management; • quality monitoring; leading economists; and adhered to and to ensure that appropriate processes and controls are • IT incident management; • performance measurement and reward in risk and control; • improved model governance process in place for new models and in place. • review of our cyber security; • risk and control measured in our colleague survey; scorecards. • penetration testing; • review of responsible lending and affordability across the Group and a • physical security; review of past and current affordability processes undertaken in order • Payment Card Industry Data Security controls testing; to determine any systemic issues and/or adversely impacted • financial reconciliation controls; and customers; and • recruitment, remuneration and performance management. • 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 Improvements in 2019 and future focus Improvements in 2019 and future focus Improvements in 2019 and future focus • In 2019, further improvements were made to both our • Continue to update existing debt strategies and develop persistent • In 2019, we have continued to mature our approach to penetration • We reviewed and enhanced our complaints management model creditworthiness and affordability assessments debt remedies in accordance with the FCA’s requirements testing, supplier assurance, business continuity provision and testing • We progressed our remedies for customers considered in persistent • IFRS 9 provisioning methodology was closely monitored and • In 2020, we will continue to focus on the regulatory environment, • We have remained alert to the ever-changing threat from cyber activity debt improvements were made managing change for regulatory driven initiatives and continued to invest in security design as we have developed our • We looked at affordability throughout the year and engaged with • Model governance process was strengthened throughout • Deliver the next phases of PSD2 developing solutions for e-commerce, architecture and infrastructure relevant regulatory industry reviews the year e-servicing and contactless cards • We continued to invest in rolling out robotic process automation and • Our Customer Manifesto also continued to be a key area of focus • In 2020, we will continue to mature the Credit Risk Management • Update existing processes once the final version of the ePrivacy intelligent automation where viable opportunities existed during the year Framework, enhancing our capability to assess affordability and Directive is released and continue to monitor the changing Data • We enhanced our customer digital journeys • In 2020, we will continue to stay abreast of the regulatory environment. deliver improvements to our models and credit decisioning Protection landscape • In 2020, we will further mature our risk reporting system to further aid Our focus on responsible lending and customer outcomes will remain strategies • Prepare for further SMCR requirements to meet the December 2020 analysis, stay alert in the cyber field and ensure we consider the FCA’s high and we will continue to ensure that our marketing and complaints deadline consultation paper on Operational Resilience in light of our continued processes deliver effectively for the customer business strategy and change agenda • We will implement a new collections system which will reduce our reliance on manual processes

54 NewDay Annual Report and Financial Statements 2019 Strategic Report

Principal risks continued

NewDay Annual Report and Financial Statements 2019 55 Strategic Report

Principal risks continued

Financial risk Market risk Inaccuracies in financial and management reporting Direct or indirect losses that arise from fluctuations and/or inadequate management of liquidity, funding in values of, or income from, assets or in movements and cash. in interest or exchange rates or credit spreads.

Example Example Reputational damage, financial loss and/or withdrawal of funding Interest rate movements expose NewDay to the risk of increased cost could arise from: of funding. • misstatement of external reporting (annual and quarterly reports and financial statements, bank submissions, regulatory reports Increased funding costs and/or not meeting funding requirements or securitisation reports); could result in higher than anticipated costs, deleveraging and/or • misstatement of information for internal decision-making; scaling back of business growth. • 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.

Risk factors in-year and key mitigants Risk factors in-year and key mitigants Ensuring funding is in place for business growth, new products and The economic environment leads the Bank of England to increase retailers, and maintenance of cash levels. base rates that would increase funding costs.

Other financial risks include the significant number of change projects The wider macroeconomic situation influences funding markets and under way, retail partner resilience, reliance on manual controls and we remained reliant on these markets being open and available during End User Developed applications. the year.

We have managed the risk through the use of the following We have managed the risk through the use of the following controls/mitigants: controls/mitigants: • managing the daily cash model which reports and forecasts the • reduced the direct financial risk by introducing the ability to pass on Group’s daily cash balance at account level; base rate changes to customers; • maintenance of operational cash levels; • funding strategy executed and improved VFN flexibility and • execution of funding strategy and maintenance of headroom on capacity; and funding facilities and extending the timescales on our variable • having headroom on our funding facilities to fund future funding notes; receivables growth. • 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.

Improvements in 2019 and future focus Improvements in 2019 and future focus • In 2019, our stress testing capability continued to develop and • We executed our 2019 funding strategy, achieving further effective and proportionate stress tests were completed for both diversification and increasing our securitisation funding the half-year forecast and annual budget exercises • In 2020, we will continue to monitor and optimise our funding • Preparations have been completed for the move from the interim strategy in light of prevailing and emerging risk factors 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.

56 NewDay Annual Report and Financial Statements 2019 Governance 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 • reviewing our strategic technology journey to ensure we are of the Group following an extensive search process. James well positioned to deliver our vision to be the leading digitally Corcoran (our previous Chief Executive with over ten years’ enabled UK consumer finance provider; service) remains on the Board as a Non-Executive Director. John • oversight of the implementation of our Value Creation Plan has brought a wealth of experience to the Board, having previously which identified an exciting range of initiatives aimed at served as Chief Executive of Bank of Cyprus (the largest banking generating incremental value for shareholders whilst ensuring and finance services group in Cyprus) between 2013 and 2019. the business is adequately protected; Prior to joining Bank of Cyprus, John served as Chief Executive • reviewing our strategy in relation to Unsecured Personal Loans Officer of the RBS group’s Investment Bank (Markets & and NewPay; International Banking). • regularly reviewing customer outcomes and progress against our Customer Manifesto; John’s appointment further evidences our continued • oversight of our response to the FCA’s CCMS, in particular with commitment to ensuring our Board has the correct balance of a view to ensuring appropriate outcomes are achieved for those skills, knowledge and experience for our next stage of growth. individuals considered to be in persistent debt; Whilst no significant changes have been made to the Group’s • closely monitoring other regulatory developments to ensure strong governance framework during 2019, the Directors continue we are aware of matters on the regulatory horizon and are to monitor governance arrangements to ensure they remain fit adequately prepared for them (including in relation to the for purpose and reflect the size and ambition of the Group. Second Payment Services Directive (PSD2)); • monitoring macroeconomic conditions (including in relation to During the year, the Board took a number of key decisions. risks associated with Brexit) to ensure our strategy is The principal governance matters addressed in 2019 were: appropriate; and • delivering on our strategy for continued growth and leveraging • oversight of the risks and effectiveness of controls in place investments made to deliver shareholder returns; around cyber security and security of customer data.

“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

NewDay Annual Report and Financial Statements 2019 57 Governance

Governance framework Other than as set out on pages 76 and 77, the governance and risk During 2019, the commercial aspects of the Group’s UK framework described in this report relates to the governance and subsidiaries were managed by the Board of NewDay Group UK risk framework established for the Group’s UK subsidiaries and Limited (the Board), a wholly owned subsidiary of NewDay Group references to the ‘Board’, ‘Group’, ‘NewDay’ and ‘Company’ should (Jersey) Limited, the Jersey-based parent company. be construed accordingly (where appropriate).

The Directors of NewDay Group (Jersey) Limited were responsible The Board’s role and composition are regularly reviewed to ensure for the matters relating to NewDay Group (Jersey) Limited and that they are well defined and appropriate, and support the long- their report for the year is set out on page 76. In addition, the term development of the Group. Managers of NewDay Group Holdings S.à r.l. (the parent company of the Predecessor Group) remain responsible for matters relating The day-to-day responsibility for managing the Group’s business to NewDay Group Holdings S.à r.l.. 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.

NewDay Group UK Limited Board

Management Board Risk Board Audit Committee Committee Committee

Board Enterprise Risk Remuneration Management Internal audit and Nomination Committee Customer, Conduct Committee & Complaints Committee Operational Risk Committee

Credit Risk Committee Enterprise Risk Asset and Liability Risk Committee Function

Commercial

Credit and Collections

Operations

People

Legal and Conduct Advisory

Finance and Treasury

First line of defence Second line of defence Third line of defence Business Enterprise Risk Function Assurance (internal audit)

Business management Oversight and advice Independent assurance Executes the business strategy as set Provides independent oversight of the Provides independent assurance on by the Board. Conducts day-to‑day risk profile of the business and operation the design, operation and effectiveness business within the parameters of of the Risk Management Framework. of the control framework, including the Group’s risk appetite and Risk activities performed by the first and Management Framework. second lines of defence.

58 NewDay Annual Report and Financial Statements 2019 Governance

For the year ended 31 December 2019, the Board has applied the share ownership structure of the Group; and (ii) the Guidelines for Wates Corporate Governance Principles for Large Private Disclosure and Transparency in Private Equity, which can be found Companies (published by the Financial Reporting Council (FRC) online at . and available on the FRC’s website) (the ‘Wates Principles’). In addition, the Group complies with: (i) the FRC’s UK Corporate A summary of how the Group has complied with the Wates Governance Code (which can also be found on the FRC’s website) Principles is set out below: where deemed appropriate taking account of the size, nature and

Principle 1 An effective Board develops and promotes the purpose of a Our purpose is to help people be better with credit. This is at the company, and ensures that its values, strategy and culture align heart of everything we do and is supported by our Customer with that purpose. 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 We have a highly experienced Board with a diverse range of skills balance of skills, backgrounds, experience and knowledge, with and experience reflecting the needs of the business. Board individual directors having sufficient capacity to make a valuable biographies can be found on pages 60 to 62. Details on how the contribution. The size of a Board should be guided by the scale and Board operates, together with further details on its composition complexity of the company. and committee structure, can be found on pages 58 and 64.

Principle 3 The Board and individual directors should have a clear The Board executes its responsibilities through its own decision- understanding of their accountability and responsibilities. The making and by delegating responsibility to Board committees and Board’s policies and procedures should support effective decision- to the Chief Executive Officer, with support from the Management making and independent challenge. 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 Following the acquisition of the Group by funds advised by Cinven company by identifying opportunities to create and preserve and CVC, we developed a Value Creation Plan to support the value, and establishing oversight for the identification and achievement of our strategic priorities. Progress against the Value mitigation of risks. 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 5 A Board should promote executive remuneration structures The Board Remuneration and Nomination Committee oversees aligned to the long-term sustainable success of a company, taking our remuneration policy with the aim of ensuring the long-term into account pay and conditions elsewhere in the company. health and success of the Group. Further details can be on page 74.

Principle 6 Directors should foster effective stakeholder relationships aligned We are committed to ensuring we maintain strong relationships to the company’s purpose. The Board is responsible for overseeing with all stakeholders (including employees) and actively engage meaningful engagement with stakeholders, including the with them on an ongoing basis. Further details are provided on workforce, and having regard to their views when taking decisions. page 46.

NewDay Annual Report and Financial Statements 2019 59 Governance Board of Directors

Sir Michael Rake John Hourican Paul Sheriff Alison Reed Chairman, Independent Executive Director, Executive Director and Senior Independent Non-Executive Director Chief Executive Officer Chief Financial Officer Non-Executive Director, and member of the and member of the Chairman of the Board Board Remuneration and Board Remuneration and Audit Committee and Nomination Committee Nomination Committee Board Risk Committee

Sir Michael Rake, knighted in John Hourican has more than Paul Sheriff has over 25 years Alison Reed has extensive 2007, is Chairman of Great 28 years of global financial of experience in financial business knowledge and Ormond Street Hospital (2017) services experience. John services organisations experience from her previous and Phoenix Global Resources began his career at Price spanning banking, asset senior business roles as Chief (2017). He is also Chairman Waterhouse working in Dublin, management and insurance. Financial Officer at Marks and of Majid Al Futtaim Holdings Hong Kong and London Paul joined from Legatum, a Spencer Group plc and Group LLC (2010) and is a Director before moving to Royal Bank private investment firm based Finance Director at Standard of Worldpay Inc (Chairman of Scotland in 1997. During his in Dubai where he was CFO/ Life plc (including Standard Life Worldpay Group plc 2015- time at Royal Bank of Scotland COO for three years, having Assurance Company). Alison is 2018) and of S&P Global (2008). John held a number of senior previously been CFO/COO a Non-Executive Director and Sir Michael’s business advisory posts including serving as of Record plc, a main market Deputy Chairman of British roles include Chairman of Chief Executive of the Group’s listed asset management Airways plc, a Non-Executive the International Chamber of Investment Bank (Markets business. Prior to this he was Director of CGI Group Inc. Commerce UK, Chairman of & International Banking) for Group Finance Director at and a Member of Council the Advisory Board for Engie five years. Between 2013 and Arbuthnot Banking Group plc, and the Audit Committee of UK, Advisor to Teneo Holdings, 2019 John served as CEO of a listed banking group, and Exeter University. Alison was a Senior Adviser for Chatham Bank of Cyprus, the largest Commercial Finance Director previously a Non-Executive House and a member of the banking and financial services of the Prudential’s UK and Director at Darty plc and HSBC Oxford University Centre for group in Cyprus. During his European business. Earlier in Bank plc. Alison is a member Corporate Reputation Global tenure, John reshaped the his career he spent five years of the Institute of Chartered Advisory Board. business, re-established its in private equity and qualified Accountants in England and deposit base, improved the as a Chartered Accountant Wales. Sir Michael’s former principal quality of its loan book and with Arthur Andersen. He is roles include Chairman of BT strengthened its financial a member of the Institute of Group Plc, Chairman (both UK position. John was named Chartered Accountants in and International) of KPMG, Euromoney’s Banker of the England and Wales. Chairman of easyJet, President Year in 2015. John is a fellow of the Confederation of British of the Institute of Chartered Industry, Deputy Chairman Accountants in Ireland. of Barclays and Director of the Financial Reporting Council.

60 NewDay Annual Report and Financial Statements 2019 Governance

Rupert Keeley Sir Malcolm Williamson James Corcoran Caspar Berendsen Independent Non-Executive Independent Non-Executive Non-Executive Director Investor Director (Cinven), Director, Chairman of the Director and member of the member of the Board Board Remuneration and Board Remuneration and Risk Committee and Nomination Committee Nomination Committee Board Remuneration and Nomination Committee

Rupert Keeley was the Sir Malcolm Williamson is the James Corcoran has over Caspar Berendsen is a General Manager for PayPal’s former Group Chief Executive 30 years of global financial Partner at Cinven and leads businesses in Europe, Middle of Standard Chartered Bank services experience with large the Financial Services sector East & Africa (EMEA), an and former President and multinational companies, team and the Industrials Executive Vice President of CEO of Visa International. such as American Express, sector team. Prior to this, PayPal (Holdings) Inc. and Knighted in 2007, Sir Malcolm Citibank, HBOS and IBM. Caspar worked at J.P. Morgan Chief Executive Officer of the was Chairman of Signet James began his career in in London advising Dutch PayPal Europe bank until June Jewelers, Clydesdale Bank/ sales and marketing, moving and Belgian clients across 2018. Rupert has more than 30 National Australia Group into general management a variety of sectors. Caspar years of banking and payments Europe and a Non-Executive where he has held various holds an Ir degree in Mining experience and was formerly Director of National Australia senior executive positions and Petroleum Engineering Visa Inc.’s Group Executive Bank until 2012. He also over the past 20 years. He has from the Technical University and President of the Asia previously served as Chairman run credit card businesses for Delft, the Netherlands and Pacific and CEMEA regions, of CDC Group, Friends Life First USA/Bank One and Amex graduated from the Erasmus and a Section 16 Officer of the Group and Britannic Group and at HBOS his final role University, Rotterdam with a company. He held a number of and was Deputy Chairman was CEO of the Distribution, Drs in Business Administration. management roles including of Resolution. He has been a Retail and Insurance Division. Global Head of Strategy and Non-Executive Director of JP Prior to that, he was Head of Caspar has extensive Corporate Development. Morgan Cazenove Holdings, HBOS’ Retail Product business experience of investing across Prior to joining Visa in 1999, G4S and the National Grid units. James joined NewDay various financial services Rupert held a number of senior Group. He was also a member as CEO in January 2009 from industries. He has led and been management positions with of the Board of Trustees for Washington Mutual in Seattle, responsible for investments Standard Chartered plc based the International Business where he was President of in Guardian Financial Services in London, Singapore and Leaders Forum. the Retail Banking Division. (PRA/FCA regulated), Viridium the Middle East. He started In September 2019, James Group (BaFin regulated), his career at Girobank plc in Sir Malcolm’s current external stepped down as NewDay Eurovita (IVASS regulated), London. Rupert holds an MBA appointments include: CEO after ten years’ service, Avolon, Premium Credit in Marketing from the City Chairman of Charter Court and remains on the Board as a Limited (FCA regulated) and University Business School, Financial Services, Senior Non-Executive Director. Partnership Assurance plc London and a B.Sc. (Hons) in Independent Director at (PRA/FCA regulated). Caspar Management Sciences from Aviva; Chairman of Cass has also been a member of the University of Manchester. Business School’s Strategy the Board and Risk and Audit and Development Board; Committees for Partnership the Governing Council of Assurance plc, Avolon, the Centre for the Study of Guardian Financial Services, Financial Innovation; and the Viridium Group and Eurovita. Board of Trustees for Youth Business International.

NewDay Annual Report and Financial Statements 2019 61 Governance

Board of Directors Continued

Peter Rutland David Giroflier Robin Peveril Hooper Investor Director (CVC Investor Director (Cinven), Investor Director Capital Partners), member of member of the Board Audit (CVC Capital Partners) the Board Risk Committee, Committee Board Remuneration and Nomination Committee and Board Audit Committee

Peter Rutland is a Managing David Giroflier is a Principal Pev Hooper is a Managing Partner at CVC and is Head at Cinven. Prior to joining Partner at CVC and currently of CVC’s Financial Services Cinven, David worked in the sits on the boards of Group. Prior to joining CVC in Investment Banking Division Domestic & General, the 2007, he worked for Advent of HSBC in Paris, advising on RAC and SkyBet. He was also International. Prior to working M&A transactions across a responsible for CVC’s prior at Advent International, Peter range of sectors including investments in the AA, Saga, worked for Goldman Sachs industrials, aerospace and Merlin Entertainments and in the Investment Banking consumer. David also advised Virgin Active, and has sat on Division. Peter holds an MA the French government on the boards of these and other degree from the University of various transactions. David CVC portfolio companies. Cambridge and an MBA from graduated from the HEC He joined CVC in 2003 after INSEAD. School of Management in working in mergers and Paris with an MSc in Business acquisitions at Citigroup and Peter has led or been Administration. David is an Schroders. He holds an MA responsible for investments in experienced private equity degree from Oxford University. Brit Insurance (a leading Lloyd’s investor, having been involved Pev brings a range of UK insurance and reinsurance in a number of Cinven’s consumer financial services company), Avolon (a global transactions including experience from his time aircraft leasing company), Skrill Camaïeu, Tractel and Visma. on the boards of FCA/PRA (the second largest provider regulated businesses such as of online payment solutions in David previously sat on the Domestic & General (a leading Europe), Domestic & General board of Camaïeu. David also provider of product protection (a leading provider of product has significant knowledge and warranty insurance in protection and warranty and understanding of the Europe), Saga (a leading motor insurance in Europe), Pension financial services industry, and home insurance provider Insurance Corporation (a having diligenced a number of for the over 50s), the RAC and leading pension annuity businesses in the past three the AA (both leading roadside provider in the UK), Paysafe years. recovery providers and (a global leading provider of insurance brokers). online payment solutions) and April Group (a leading insurance broker based in France). A number of these portfolio companies are also PRA/FCA regulated.

62 NewDay Annual Report and Financial Statements 2019 Governance 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:

John Hourican Paul Sheriff Ian Corfield Sanjay Sharma Chief Executive Officer Chief Financial Officer Chief Commercial Officer Chief Operating Officer

Ian joined NewDay in 2014 after Sanjay joined NewDay 6 years at the Commonwealth in 2013. Sanjay has over Bank of Australia, where he 25 years experience in was CEO and a Board Director senior operational roles in of its majority-owned Aussie international businesses Home Loans subsidiary, working in India, the Philippines, having previously been CEO London and Austria. He joined of the Retail and then Business from Bawag PSK in Vienna Bank at Bankwest. where he was Chief Operating Officer and a member of the Management Board.

Damaris Anderson-Supple Mark Eyre Rob Holt Stephen Rowland Chief People Officer Chief Risk Officer Chief Credit and Collections General Counsel Officer

Damaris joined NewDay in Mark joined NewDay in 2014 Rob joined NewDay in 2012 Stephen joined NewDay in 2013. Damaris joined to lead from Deloitte, where he was from Santander UK where 2011 from Santander UK, the People team at NewDay a Director in the Risk and he held various leadership where he was Legal and from Hill and Knowlton Regulation practice, providing roles spanning Credit Risk, Compliance Director for the Strategies UK, where she was advisory support to financial Collections, Commercial and UK Cards business for two Chief Operating Officer and services firms regarding risk Marketing Analytics. Prior to years. Prior to this, Stephen where talent strategy was a management and regulation. this, Rob worked for HBOS, worked in the legal team at GE key priority. Prior to this, Mark worked at Capital One and PwC in a Capital for four years and in Barclays for 17 years reporting career spanning over 20 years practice at Baker & McKenzie to the Group Chief Risk Officer. in financial services. for five years.

NewDay Annual Report and Financial Statements 2019 63 Governance The Board The Board is responsible for overseeing the Group’s activities. The Directors are apprised of, debate and challenge strategy, mergers and acquisitions, operational performance metrics, risk matters, customer and conduct-related matters and receive reports on current strategic initiatives

The Directors bring many skills and a breadth of experience to the Attendance at Board and Committee meetings Board, including strategic experience, commercial knowledge, retail and investment banking experience, UK regulatory Board knowledge, customer management and conduct expertise, Remuneration and treasury and funding experience, risk management expertise and Board Audit Board Risk Nomination operational, IT and accounting experience. This enables Board Board Committee Committee Committee meetings meetings meetings meetings members to make informed decisions on key issues facing Member attended attended attended attended the business. Sir Michael Rake 8/8 N/A N/A 3/3 Throughout the year, the Group maintained appropriate insurance John Hourican1 3/8 N/A N/A 1/3 cover to protect the Directors from liabilities that may arise against them personally in connection with the performance of their role. Paul Sheriff 8/8 N/A N/A N/A In addition: (i) the Articles of Association of NewDay Group (Jersey) Alison Reed 8/8 7/7 6/6 N/A 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 Rupert Keeley 7/8 N/A N/A 3/3 subsidiaries have similar provisions in their Articles of Association Sir Malcolm Williamson 7/8 N/A N/A 3/3 providing qualifying third party indemnities for the benefit of the Directors of such entities. James Corcoran1 8/8 N/A N/A 2/3 Caspar Berendsen 7/8 N/A 5/6 3/3 Role of the Board Peter Rutland 8/8 1/7 6/6 3/3 The Board is responsible for creating a foundation for growth and attractive shareholder returns. It determines the vision, strategy David Giroflier 8/8 7/7 N/A N/A and high-level policies of the Group, striking an appropriate 2 balance between risk and reward, whilst ensuring positive Arron Wu 6/8 6/7 N/A N/A customer outcomes. It sets out the guidelines within which the Johan Pettersson3 4/8 N/A N/A N/A business, including those parts of the business that are outsourced, is managed and controlled. It monitors business Pev Hooper 5/8 N/A N/A N/A performance against agreed targets, within an agreed budget, to support the strategic objectives of the business. 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 It also provides oversight and independent challenge, particularly 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 with regard to the business’ culture and values. Hourican was eligible to attend three Board meetings and one Board Remuneration and Nomination Committee meeting during the year. The Board executes these responsibilities through its own 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 decision-making and by delegating responsibility to Board Rutland was eligible to attend one Board Audit Committee meeting during the year. Committees and to the Chief Executive Officer, with support from 3. Johan Pettersson resigned as a Director on 8 August 2019. 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.

64 NewDay Annual Report and Financial Statements 2019 Governance

Chairman and Chief Executive Officer Relations with Cinven and CVC The roles of the Chairman and Chief Executive Officer are separate As noted above, Cinven and CVC have each appointed two and clearly defined. Investor Directors to the Board. In addition, four experienced Independent Non-Executive Directors, one Non-Executive The Chairman is responsible for overseeing the Board and its Director and two Executive Directors sit on the Board. Cinven and meetings to ensure that: (i) the Board meets its responsibilities; (ii) CVC are able to appoint and/or remove sufficient Directors to effective communications are maintained with stakeholders; and ensure they control the Board for voting purposes. (iii) Directors receive accurate, timely and clear information regarding the Group. The Boards of NewDay Ltd and NewDay Cards Ltd, the regulated entities within the Group, do not have Investor Directors and are The Chief Executive Officer is responsible for overseeing the comprised only of Executive Directors (together with, in the case Group and the management of its senior executives within of NewDay Ltd only, the Independent Non-Executive Directors parameters set by the Board. and Non-Executive Director).

The Chief Executive Officer is also responsible for the Engagement with Cinven and CVC is encouraged through development, recommendation and implementation of the attendance at Board meetings and, in months in which there is no Group’s strategic plans, which are approved by the Board. Board meeting, specific investor meetings are arranged. As part The Management Committee supports the Chief Executive of this process, representatives of Cinven and CVC receive Officer in the performance of his duties. updates on key Group initiatives.

Board balance and independence Directors’ conflicts of interest Four of our 11 Board members are Investor Directors (two of which The Group has procedures in place for the effective management have been appointed by Cinven with the remaining two Investor of conflicts of interest. The Articles of Association of relevant UK Directors appointed by CVC). These Investor Directors have Group companies contain provisions to allow the Board to significant experience serving on the boards of regulated authorise potential conflicts of interest so that a Director is not in companies as well as in the specialty finance sector. James breach of his or her duty under company law. Corcoran (the Group’s former Chief Executive) serves as a Non- Executive Director providing the benefit of his ten years’ Internal control and risk management systems experience at NewDay. The Board is responsible for monitoring and reviewing the Group’s internal control system to maximise its effectiveness. The internal In addition, four experienced Independent Non-Executive control environment is described on page 71. 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 Share capital consultants. They were considered to be free from any relationship During the year ended 31 December 2019, the Company did not with the Group’s executive management that could compromise acquire any of its own shares. 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.

Training Directors 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 information An 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 donations The 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.

NewDay Annual Report and Financial Statements 2019 65 Governance Board Audit Committee

Chairman’s overview The Group transitioned to IFRS 9 ‘Financial Instruments’ in 2018 The Committee provides independent challenge to ensure the and throughout 2019 the Committee closely monitored the financial information reported by the Group is an accurate provisioning methodology to ensure it remains fit for purpose, reflection of its performance. In doing so, the Committee places including challenging refinements made to the model as best reliance on the Group’s governance structure and control practice continues to evolve. Challenges on the high street framework which it monitors regularly to ensure they remain affecting the Group’s retail partners, and the subsequent impact appropriate as the business continues to grow and the market and on the Group’s goodwill and acquired intangible assets, continue regulatory environment changes. to be a key focus for the Committee. We received and challenged regular updates supporting the Group’s carrying value of these Whilst the significant judgement areas of the Group’s financial assets. The FCA’s deadline for a customer to raise a complaint, reporting remain largely unchanged from 2018 the Committee is which can be considered by the Financial Ombudsman Service, constantly reassessing what it deems necessary for further directly with a PPI provider passed in August and the Committee independent challenge in light of updates to both regulatory assessed the adequacy of the PPI provision in light of both the guidance and industry best practice. Accordingly, from 2019, spike in complaints received immediately prior to the deadline, as the Committee receives regular updates on the significant well as the ongoing discussions with the Official Receiver, and judgements within the effective interest rate (EIR) method of litigation received from external parties. accounting for loans and advances to customers.

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

66 NewDay Annual Report and Financial Statements 2019 Governance

In addition to the review of areas of significant judgements and • to review the findings of the external auditor; complexity, the Committee provides robust challenge to the • to monitor management’s response to the findings and integrity and accuracy of externally reported financial information recommendations of internal and external audit; to ensure it is fair, balanced and understandable, before • to review compliance with legal and regulatory requirements; recommending for approval to the Board. This incorporates all • to report the outcome of meetings to the Board, identifying quarterly, half-yearly and Annual Reports, Financial Statements any matters in respect of which it considers that action or and investor presentations. improvement is needed, and making recommendations as to the steps to be taken; The Committee also oversaw the in-house internal audit function, • to monitor, and challenge where appropriate, the including monitoring its ongoing effectiveness and audit plan in whistleblowing arrangements as set out in the whistleblowing light of the pace of change in the business and evolving risks arising policy; and from both the regulatory and market environment. • to review procedures for detecting fraud, including the systems and controls for the prevention of bribery. Committee composition, skills and experience The following Directors are members of the Board Audit Key activities of the Board Audit Committee in 2019 Committee: The Committee convened seven times during the year and • Alison Reed, Senior Independent Non-Executive Director; delivered the following key outcomes: • David Giroflier, Investor Director (Cinven); and • reviewed the 2018 Annual Report and Financial Statements • Peter Rutland, Investor Director (CVC). and each of the quarterly investor reports and presentations to ensure that, taken as a whole, they were fair, balanced and Alison Reed is the Chairman of the Committee and has significant understandable and advised the Board to that effect; accounting and financial reporting experience. On 14 November • reviewed and challenged the appropriateness of the Group’s 2019, Peter Rutland replaced Arron Wu as a member of the Board accounting policies, critical accounting estimates and key Audit Committee. judgements which were presented to the Committee quarterly. This included discussions with management on provisioning The diverse backgrounds of the Committee members and our methodology, most notably in relation to the impairment of combined skills and range of accounting and financial reporting, loans and advances to customers and PPI; risk and business experience (as detailed on pages 60 and 62) • widened the scope of the Group’s significant judgements enable us to fulfil the Committee’s remit, as set out in the terms to include the EIR method of accounting for loans and advances of reference, which are reviewed annually. to customers; • reviewed and approved the refinements made to the The Committee acts independently from the Executive team impairment provisioning methodology in the year; to ensure shareholders’ interests are protected in relation to • monitored developments with respect to ongoing challenges financial reporting and internal control. The internal and external on the high street and potential implications for our retail auditors attend all meetings and we regularly meet with them partners, including the administration of Debenhams. We in private. assessed the impact of these updates on the Group’s goodwill and certain acquired intangible asset balances to assess Although not members of the Committee, the Chairman, whether an impairment assessment was required; Chief Executive Officer, Chief Financial Officer and Company • oversaw the relationship with the internal and external auditor Secretary attend each meeting. Other Directors are invited as and including consideration of the terms of engagement and when required, to ensure that we have all the information required assessing the effectiveness of both the internal and external to operate effectively. audit functions; • monitored the development and training of the in-house Roles and responsibilities internal audit function and approved the audit plan for the year to ensure it reflected planned areas of growth in the business; The main roles and responsibilities of the Committee, as set out • evaluated the reports and findings of the internal and external in the terms of reference, are: auditors, including management’s response to any • to monitor the integrity of the Financial Statements, review and recommendations along with status updates on the resolution challenge significant financial reporting issues and assess the of agreed actions; judgements made; • reviewed and approved the Group’s tax strategy and received • to review the financial reports for publication and to ensure regular updates on tax-related matters; compliance with accounting policies and standards and ensure • oversaw the continued development and growth of the that, taken as a whole, they are fair, balanced and Financial Control Framework to ensure it adapted in line with understandable; the pace of change in the business; • to review and approve financial control and liquidity frameworks; • reviewed regular updates on whistleblowing; and • to review the internal financial control and risk management • considered and challenged management forecasts of Group systems and to review risk exposures and steps taken to cash flows and net debt, as well as financing facilities available monitor and mitigate them; to the Group. Following this review, we confirmed the • to monitor and review the effectiveness of the internal audit appropriateness of the going concern basis of accounting in function; the Financial Statements to the Board. • to make recommendations to the Board in relation to the appointment, remuneration and terms of engagement of the external auditor; Financial reporting • to review and monitor the external auditor’s independence, The main areas of judgement we considered in relation to the objectivity and effectiveness, taking into consideration relevant Financial Statements for the year ended 31 December 2019 are UK professional and regulatory requirements; detailed in the following table. These issues were closely examined • to develop and implement an approach on the engagement of with the external auditor during the year. 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;

NewDay Annual Report and Financial Statements 2019 67 Governance

Board Audit Committee Continued

Key issues and judgements in financial reporting Board Audit Committee’s review and conclusions Expected credit loss (ECL) allowance on loans and advances to customers Following the transition to IFRS 9 in 2018, we have closely The Committee regularly reviews and challenges the key monitored the appropriateness of our impairment provisioning judgements applied, including the determination of a significant methodology and made refinements to it where necessary to increase in credit risk, the definition of default and incorporation ensure it remains fit for purpose. of forward-looking information. In considering the appropriateness we reviewed the rationale and impact of variations to each of the ECL allowances are recognised on origination of a financial asset, key assumptions. based on its anticipated credit loss. Our ECL allowance is the product of the probability of default, exposure at default and loss The Committee received regular updates facilitating detailed given default, discounted at the original effective interest rate. The discussion and challenge on the refinements to the provisioning assessment of credit risk and the estimation of ECL are required methodology to ensure it continues to meet the requirements of to be unbiased and probability-weighted, and should incorporate the standard and remains fit for purpose. all available information relevant to the assessment, including information about past events, current conditions and reasonable The Committee reviewed the disclosures in the Financial and supportable forecasts of economic conditions at the Statements to ensure they were appropriate and addressed reporting date. the requirements of IFRS 9.

ECL allowances and credit risk remains a significant area of risk and The Committee was satisfied that the ECL allowance was audit focus in the Financial Statements as a result of the various appropriate. 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. PPI provision The PPI provision relates to redress to cardholders in respect of Various inputs and assumptions are used in the calculation of the matters relating to the sale of PPI. PPI provision. The assumptions are based on the historical profile of the Group’s cardholders and latest regulatory and legal As at 31 December 2019, the Group recorded a PPI provision of developments, all of which the Committee monitors closely. £10m (2018: £25m). The FCA’s deadline for a customer to raise a complaint, which can be considered by the Financial Ombudsman The Committee was presented with evidence to support the Service, directly with a PPI provider passed in August and the assumptions and considered and challenged the various factors provision reflects the costs expected to be incurred to settle that affect the PPI provision, including regulatory developments, unprocessed complaints, the Official Receiver complaints and communication received from the Official Receiver and litigation PPI-related litigation. claims raised against the Group.

Refer to note 2.3 for further details on the judgements inherent The Committee was satisfied that the provision was appropriate within the PPI provision. given the information available. Impairment of goodwill and acquired intangible assets The carrying value of goodwill and certain acquired intangible The Committee challenged the assumptions within assets have been subject to an impairment review. The impairment the impairment review of goodwill and acquired intangible assets. review is conducted by comparing the discounted estimated This included consideration of the rationale and impact of future cash flows of the cash-generating units with the carrying variations to each of the key assumptions, including scenario value in the Financial Statements. analysis with regard to retailer performance given challenges seen on the high street. Acquired intangible assets of £250m and goodwill of £280m have been recorded in the balance sheet as at 31 December 2019 (2018: The Committee was satisfied that the carrying value of goodwill £301m and £280m respectively). and acquired intangible assets were appropriate.

Refer to note 2.3 for further details on the judgements inherent within the impairment assessment on goodwill and acquired intangible assets.

68 NewDay Annual Report and Financial Statements 2019 Governance

Key issues and judgements in financial reporting Board Audit Committee’s review and conclusions EIR method of accounting for loans and advances to customers The Group applies the requirements of IFRS 9 through the The Committee received regular updates on several aspects EIR method for the recognition and measurement of interest of the EIR accounting adjustments and focused specifically on the income for loans and advances to customers, including customers significant judgements used in the adjustment to loans and who have been offered interest-free promotional periods. advances to customers in respect of interest-free promotional periods. These judgements, which include the expected The EIR is determined on inception as management’s best repayment activity and customer retention after the end of estimate of future cash flows based on historical information, the promotional period, were reviewed and approved by the where available, and considers the repayment activity and Committee throughout the year. Whilst other aspects of the retention of the customer balance after the end of the the EIR accounting adjustments include judgements, these promotional period. judgements are not considered by the Committee to be significant as they incorporate low levels of estimation uncertainty. As such, in the case of interest-free promotional period offers, the EIR method introduces estimation uncertainty which, if the actual The Committee was satisfied that the carrying value of the EIR cash flows differ from the estimate, could result in an adjustment adjustment to loans and advances to customers in respect of to the carrying value of the asset recognised from interest accrued interest-free periods was appropriate. 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. Other provisions The Group is engaged in various legal and regulatory matters, the The Committee has understood the basis for determining impact of which cannot always be predicted, but matters can give the other provisions and, where relevant, has reviewed legal rise to provisioning for contingent and other liabilities depending and accounting advice in determining the appropriate amount on the relevant facts and circumstances. of provision.

The level of provisioning is subject to management judgement on Having reviewed the information available to determine what was the basis of legal advice and is therefore an area of focus for both probable and could be reliably estimated, the Committee the Committee. agreed that the level of provision at the year end was appropriate.

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. Going concern The Directors are required to confirm whether they have a The Committee considered and challenged management reasonable expectation that the Company and the Group has the forecasts of Group operating cash flows and net debt, as well resources necessary to continue in business for a period of at least as financing facilities available to the Group in performing 12 months after the approval of the Financial Statements. 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.

NewDay Annual Report and Financial Statements 2019 69 Governance

Board Audit Committee Continued

Internal audit In order to ensure the continued development of the internal audit Since 2016 we have operated an in-house internal audit function function such that it can continue to fulfil its responsibilities and with support provided by third party consultants where specialist adapt its audit plans in line with the pace of change in the business, knowledge is required. The internal audit function reports to me, we oversaw a series of development sessions for the internal audit as Chairman of the Committee, to ensure independence from the team facilitated by Ernst and Young and Deloitte. management team and I regularly meet with the Director of Internal Audit and his team. The Committee assesses the External audit performance of the internal audit function on an ongoing basis The Board and the external auditor have safeguards in place to ensure it is satisfied with the function’s effectiveness. to protect the independence and objectivity of the external auditor. KPMG LLP is the auditor of the Group and had been Having reflected on the achievements of the 2018 internal audit the auditor of the Predecessor Group since 2012. For the year plan, the Committee endorsed the internal audit plan for 2019, ended 31 December 2019, to ensure independence and objectivity ensuring it was tailored to address areas on a risk-based approach, is maintained, Simon Ryder replaced Andrew Walker as the audit either as a result of regulator or industry focus or as a result of the engagement lead partner. continued pace of growth within the business. The external auditor is not permitted to perform any work that We monitored progress and delivery against the plan throughout might affect its objectivity and independence or create a conflict the year, including assessing the scope of work performed, of interest with respect to the Group. We have internal procedures reviewing the audit charter and evaluating coverage of the internal in place to determine the use of the external auditor for non-audit audit plan and the level of resources and training of the internal services. The amount paid to the external auditor is disclosed in audit function. note 8.

Internal audit reports issued in the year covered the following The Committee reviewed and approved the annual external audit areas: plan, including the methodology and risk identification processes • customer credit management; used, and we reviewed the findings of the external audit including • implementation of balance transfers and money transfers; key judgements and the level of challenge provided. We assess • credit bureau data usage and reporting; the performance of the external auditor on an ongoing basis to • debt sales processes, accounting for debt sales and oversight ensure we are satisfied with the quality of the services provided, of debt purchasers; which includes consideration of the experience and capabilities of • digital development operations change management; the auditor, the delivery of its audit work in accordance with the • data security and data protection; agreed plan and the quality of its reports and communications to • securitisation deal implementation, asset data accuracy us. and reporting; • taxation control framework; The Committee has kept under review regulatory and legislative • customer complaints identification and outcomes; developments around the tenure of the auditor. Having reviewed • Credit Card Market Study; this, along with the assessment of the effectiveness of the • UPL follow-up; external auditor, the Committee has recommended to the Board • NewPay new product approval process; and that KPMG LLP be reappointed as external auditor for the financial • technology risk and data governance framework – year ending 31 December 2020. 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.

70 NewDay Annual Report and Financial Statements 2019 Governance

Internal control environment The 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.

NewDay Annual Report and Financial Statements 2019 71 Governance Board Risk Committee

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

Chairman’s overview Committee composition, skills and experience The ongoing appropriateness of the Risk Management The following Directors are members of the Board Risk Framework, in respect of the business’ strategy and the evolving Committee: regulatory and economic landscape, was monitored throughout • Alison Reed (Committee Chairman), Senior Independent Non- the year as the Committee assessed the Group’s risk profile on Executive Director; behalf of the Board within the parameters of the Board’s agreed • Caspar Berendsen, Investor Director (Cinven); and risk appetite. • Peter Rutland, Investor Director (CVC).

The Committee oversaw the ongoing management and The diverse backgrounds of the Committee members and their mitigation of risks arising in the business, including major projects combined skills and range of risk and business experience and business initiatives, and also emerging risks. It monitored risk (as detailed on pages 60 to 62) enable us to fulfil the Committee’s management practices to ensure that they continued to be fit for remit, as set out in the terms of reference, which are reviewed purpose in the face of a significant business and technology annually. Although not members of the Committee, the Chief change agenda. It continued to monitor the macroeconomic Executive Officer, Chief Risk Officer, Chief Financial Officer and environment and the impact on credit risk. Director of Internal Audit attend each meeting. Other Directors, colleagues and the external auditors are invited as and when We continue to manage our regulatory requirements whilst required to ensure that the Committee has all the information it monitoring the horizon for emerging regulatory risks. During 2019, requires to operate effectively. 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.

72 NewDay Annual Report and Financial Statements 2019 Governance

Roles and responsibilities The main roles and responsibilities of the Committee, as set out in the terms of reference, are: • to oversee the Risk Management Framework and challenge the processes and methodologies used for identifying, measuring, managing, monitoring and reporting all key risks facing the business; • to recommend to the Board how to improve the Risk Management Framework including the monitoring of risk exposures, risk appetite, capital and liquidity and any significant risk issues; • to review the output, effectiveness and resources of the Enterprise Risk Function; • to review, monitor and report to the Board on our interactions with regulators, the effectiveness of regulatory reporting and action on any significant regulatory issues; • to review and monitor the implementation of risk or compliance-related policies, their suitability in terms of compliance, and the necessary actions taken as a result of policy breaches; and • to oversee, review, report and make associated recommendations to the Board on risk appetite, risk management culture, training and competence throughout the business.

Key activities of the Board Risk Committee in 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.

NewDay Annual Report and Financial Statements 2019 73 Governance Board Remuneration and Nomination Committee

Chairman’s overview Finally, the Committee oversees the Group’s remuneration policy The Board Remuneration and Nomination Committee’s main (the ‘Reward Policy’) and other key people-related policies and roles and responsibilities are set out in its terms of reference which matters. In line with this, the Committee helps set the overall are reviewed regularly. Responsibilities include supporting the direction of employee remuneration and people practices. The Chairman in reviewing and recommending changes to the Committee reviews a range of business performance targets composition of the Board and its various committees. The which, once approved by the Board, are used to finalise annual Committee oversees the procedure for the appointment of bonuses and remuneration awards. A balanced scorecard of Directors and recommends to the Board appropriate candidates. metrics is discussed annually and recommended to the Board for In 2019, the Committee confirmed the appointment of John approval, ensuring that rewards reflect achievement against Hourican as NewDay’s new Chief Executive Officer and a member a broad range of performance and risk-related goals, helping to of the Board, following a thorough external search. ensure the long-term health and success of the Group.

The Committee also plays a role in reviewing and confirming changes to the composition of the Group’s Executive and senior management teams, helping ensure that they have the appropriate mix of experience, expertise and diversity needed to lead the Group.

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

74 NewDay Annual Report and Financial Statements 2019 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 responsibilities The 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 2019 During 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.

NewDay Annual Report and Financial Statements 2019 75 Governance Directors’ report

The Directors of the Company present their Annual Report and Financial Statements for the year ended 31 December 2019

Group business review and results We believe that our existing plans and projections of business The Group’s business model is outlined on page 10 and the KPIs performance will be sufficient to allow us to continue to meet all and financial review on pages 28 to 37 contain highlights of the of our current obligations, including financial covenants and cash financial performance and capital structure for the year. The requirements, for a period of at least 12 months following the Group generated a profit before tax for the year ended approval of the Financial Statements. Whilst the UK’s economic 31 December 2019 of £50m. A reconciliation of the statutory profit outlook as a result of Brexit remains uncertain, we have considered to adjusted EBITDA, referred to throughout the strategic report, the impact to the Group including conducting scenario analysis of is provided on page 31. the potential impact of Brexit on profitability and the capital markets and assessing our ability to refinance in such a scenario. The Chief Executive Officer’s review on page 14 and the strategic Considering the scenario analysis and our current funding position, priorities on page 26 provide details of future business we feel that we are well placed to meet our strategic objectives. developments. For this reason the Board has adopted the going concern basis in preparing these Financial Statements. We do not propose the payment of a dividend for the year ended 31 December 2019. Transparency in reporting In preparing the Annual Report and Financial Statements, we have Principal risks and management fully complied with the best practice principles set out in ‘The The principal risks and management thereof are described on Walker Guidelines for Disclosure and Transparency in Private pages 53 to 56. Equity’, which were established to provide oversight on disclosure issues and, specifically, to demonstrate private equity companies’ commitment to transparency. Going concern The Group’s business activities, together with the factors likely to Environmental, social and governance matters affect its future development, performance and position, as well as the overall financial position of the Group, its cash flows, liquidity We are committed to conducting our business in a manner that position and borrowing facilities, are described in the KPIs and protects the environment. This means ensuring that all relevant financial review on pages 28 to 37 and within the Financial environmental legislation and regulations are met and reducing Statements. The notes to the Financial Statements include our consumption of these resources. For further details see page 45. objectives, policies and processes for managing capital, financial risk management objectives, details of financial instruments and Modern slavery and human trafficking our exposures to credit risk and liquidity risk. We aim to act fairly, ethically and openly in everything that we do and are committed to carrying out our business responsibly. This We continue to note the levels of credit card debt in the UK, as well includes ensuring that modern slavery and human trafficking are as the FCA’s concerns around persistent debt in the market. We not taking place in any part of our business or supply chain. The have a robust credit Risk Management Framework in place to limit Group’s statement on modern slavery is available on its website unexpected losses arising as a result of customers failing to meet at www.newday.co.uk. their repayment obligations. We also depend on the availability of external borrowing to finance our existing customer receivables Business relationships and employee engagement as well as fund future growth. During the year we raised £577m from our asset-backed term debt securitisation programme, The Group is committed to ensuring it maintains strong including $205m raised in US capital markets, and successfully relationships with all stakeholders (including employees) and refinanced all debt maturing in 2019 to facilitate continued support actively engages with them on an ongoing basis. Further details of the business. are provided on page 46.

76 NewDay Annual Report and Financial Statements 2019 Governance

Directors’ insurance Statement of Directors’ responsibilities in relation Throughout the year, we maintained appropriate insurance cover to the consolidated Financial Statements to protect the Directors from liabilities that may arise against them The Directors are responsible for preparing the Financial personally in connection with the performance of their role. In Statements in accordance with applicable law and IFRS as adopted addition: (i) the Articles of Association of NewDay Group (Jersey) by the European Union (EU). 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 Company law requires the Directors to prepare consolidated subsidiaries have similar provisions in their Articles of Association Financial Statements for each financial year which give a true and providing qualifying third party indemnities for the benefit of the fair view of the state of affairs of the Group and of the profit or loss Directors of such entities. of the Group for that period. In preparing those Financial Statements, the Directors are required to: Research and development activities • select suitable accounting policies and then apply them During the ordinary course of business we develop new products consistently; and services within our business units. • make judgements and estimates that are reasonable, relevant and reliable; Issuance of shares • state whether applicable accounting standards have been followed, subject to any material departures disclosed and Upon incorporation on 26 September 2016, the Company issued explained in the Financial Statements; share capital of 101 fully paid ordinary shares of one pence each. • assess the Group’s ability to continue as a going concern; and No shares were issued during the year. • use the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have Directors no realistic alternative but to do so. The Directors who held office during the year and up to approval of the Annual Report and Financial Statements were as follows: The Directors are responsible for keeping proper accounting • James Culshaw; records that disclose with reasonable accuracy at any time the • Grant Collins; financial position of the Company and to enable them to ensure • Geraldine O’Rourke (resigned 11 June 2019); that the Financial Statements comply with the Companies (Jersey) • Keith Mallet (appointed 11 June 2019); Law 1991. They are responsible for such internal control as they • Carl Hansen; and determine is necessary to enable the preparation of Financial • Daryl Pilcher (appointed 4 December 2019). Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking Geraldine O’Rourke, Keith Mallet and Daryl Pilcher were appointed such steps as are reasonably open to them to safeguard the assets as alternate Directors to Grant Collins. Carl Hansen was appointed of the Group and the Company and to prevent and detect fraud as an alternate Director to James Culshaw. and other irregularities.

Auditor and disclosure of information to auditor The Directors who held office at the date of approval of this James Culshaw Daryl Pilcher Directors’ report confirm that, as far as they are each aware, there Director Director is no relevant audit information of which the Company’s auditor is 5 March 2020 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.

NewDay Annual Report and Financial Statements 2019 77 Financial Statements

Independent auditor’s report to the members of NewDay Group (Jersey) Limited

Opinion Going concern We have audited the Financial Statements of NewDay Group The Directors have prepared the Financial Statements on the (Jersey) Limited (“the Company”) for the year ended 31 December going concern basis as they do not intend to liquidate the Group 2019 which comprise the income statements and statements of or the Company or to cease their operations, and as they have comprehensive income, balance sheets, statements of changes concluded that the Group and the Company’s financial position in equity, statements of cash flows and related notes, including means that this is realistic. They have also concluded that there the accounting policies in note 2. are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year In our opinion: from the date of approval of the Financial Statements (“the going • the Financial Statements give a true and fair view of the state concern period”). of the Group’s and of the Company’s affairs as at 31 December 2019 and of the Group’s and Company’s profit We are required to report to you if we have concluded that the use for the year then ended; of the going concern basis of accounting is inappropriate or there • the Group Financial Statements have been properly prepared is an undisclosed material uncertainty that may cast significant in accordance with International Financial Reporting doubt over the use of that basis for a period of at least a year from Standards as adopted by the European Union (IFRSs as the date of approval of the Financial Statements. In our evaluation adopted by the EU); of the Directors’ conclusions, we considered the inherent risks to • the Company Financial Statements have been properly the Group’s business model, including the impact of Brexit, and prepared in accordance with IFRSs as adopted by the EU analysed how those risks might affect the Group and Company’s and as applied in accordance with the provisions of the financial resources or ability to continue operations over the going Companies (Jersey) Law 1991; and concern period. We have nothing to report in these respects. • the Financial Statements have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent Basis for opinion with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this We conducted our audit in accordance with International auditor’s report is not a guarantee that the Group or the Company Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our will continue in operation. 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 Strategic report and Directors’ report Ethical Standard. We believe that the audit evidence we have The Directors are responsible for the strategic report and the obtained is a sufficient and appropriate basis for our opinion. Directors’ report. Our opinion on the Financial Statements does not cover those reports and we do not express an audit opinion The impact of uncertainties due to the UK exiting thereon. the European Union on our audit Our responsibility is to read the strategic report and the Directors’ Uncertainties related to the effects of Brexit are relevant to report and, in doing so, consider whether, based on our Financial understanding our audit of the Financial Statements. All audits Statements audit work, the information therein is materially assess and challenge the reasonableness of estimates made by misstated or inconsistent with the Financial Statements or our the Directors, such as the impairment losses on loans and audit knowledge. Based solely on that work: advances to customers, the impairment of goodwill and intangible • we have not identified material misstatements in the assets and related disclosures and the appropriateness of the strategic report and the Directors’ report; going concern basis of preparation of the Financial Statements. • in our opinion the information given in those reports for the All of these depend on assessments of the future economic financial year is consistent with the Financial Statements; and environment and the Group and Company’s future prospects and • in our opinion those reports have been prepared in performance. accordance with the Companies (Jersey) Law 1991.

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.

78 NewDay Annual Report and Financial Statements 2019 Financial Statements

Matters on which we are required to report The purpose of our audit work and to whom by exception we owe our responsibilities Under the Companies (Jersey) Law 1991, we are required to report This report is made solely to the Company’s members, as a body, to you if, in our opinion: in accordance with Article 113A of the Companies (Jersey) Law • adequate accounting records have not been kept by the 1991. Our audit work has been undertaken so that we might state Company, or returns adequate for our audit have not been to the Company’s members those matters we are required to received from branches not visited by us; or state to them in an auditor’s report and for no other purpose. To • the Company Financial Statements are not in agreement the fullest extent permitted by law, we do not accept or assume with the accounting records and returns; or responsibility to anyone other than the Company and the • certain disclosures of Directors’ remuneration specified by Company’s members, as a body, for our audit work, for this report, law are not made; or or for the opinions we have formed. • we have not received all the information and explanations we require for our audit.

We have nothing to report in these respects. Simon Ryder (Senior Statutory Auditor) for and on behalf of KPMG LLP Directors’ responsibilities Chartered Accountants 1 Sovereign Square As explained more fully in their statement set out on page 77, the Sovereign Street Directors are responsible for: the preparation of the Financial Leeds Statements and for being satisfied that they give a true and fair LS1 4DA view; such internal control as they determine is necessary to 5 March 2020 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 responsibilities Our 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.

NewDay Annual Report and Financial Statements 2019 79 Financial Statements

Income statements and statements of comprehensive income

Group Company

Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2019 2018 2019 2018 Note £m £m £m £m Interest and similar income 4 676.2 581.3 47.4 71.7 Interest 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 expense Items that may subsequently be reclassified to the income statement Effective 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.

80 NewDay Annual Report and Financial Statements 2019 Financial Statements

Balance sheets

Group Company

31 December 31 December 31 December 31 December 2019 2018 2019 2018 Note £m £m £m £m Assets Loans and advances to banks 10 205.7 184.0 25.6 0.9 Loans and advances to customers 11 2,709.8 2,303.3 – – Other assets 12 56.6 58.4 538.6 547.9 Derivative 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 – – 511.4 511.4 Goodwill 17 279.9 279.9 – – Total assets 3,541.6 3,152.2 1,075.6 1,060.2

Liabilities Debt issued and other borrowed funds 18 3,020.5 2,664.3 425.6 423.4 Other liabilities 19 82.8 90.1 – 0.1 Derivative 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 Company Share capital and share premium 21 – – – – Equity instruments 21 593.9 593.9 593.9 593.9 Capital contribution 21 30.5 30.5 30.5 30.5 Hedging 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 notes on pages 84 to 122 form an integral part of these statutory Financial Statements.

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 Culshaw Daryl Pilcher Director Director

Registration number 122135

NewDay Annual Report and Financial Statements 2019 81 Financial Statements

Statements of changes in equity

Share capital and share Equity Capital Hedging Retained Total premium instruments contribution reserve losses equity Group £m £m £m £m £m £m As at 1 January 2018 – 593.9 30.5 – (36.5) 587.9 Adjustment on initial application of IFRS 9 – – – – (213.1) (213.1) Adjusted balance as at 1 January 2018 – 593.9 30.5 – (249.6) 374.8 Total 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 Adjusted 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) 359.1 Total comprehensive income for the year: Profit after tax – – – – 40.0 40.0 Other comprehensive expense – – – (3.6) – (3.6) As at 31 December 2019 – 593.9 30.5 (5.0) (223.9) 395.5

Share capital Retained and share Equity Capital (losses)/ Total premium instruments contribution profits equity Company £m £m £m £m £m As at 1 January 2018 – 593.9 30.5 (25.9) 598.5 Total comprehensive income for the year: Profit after tax – – – 38.2 38.2 As at 31 December 2018 – 593.9 30.5 12.3 636.7 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

The notes on pages 84 to 122 form an integral part of these statutory Financial Statements.

82 NewDay Annual Report and Financial Statements 2019 Financial Statements

Statements of cash flows

Group Company

Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2019 2018 2019 2018 Note £m £m £m £m Operating activities Profit/(loss) after tax 40.0 (13.6) 13.3 38.2 Reconciliation 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 33.4 Depreciation 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 activities Purchases 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 activities Proceeds 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

The notes on pages 84 to 122 form an integral part of these statutory Financial Statements.

NewDay Annual Report and Financial Statements 2019 83 Financial Statements

Notes to the Financial Statements 1. Corporate information NewDay 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 policies 2.1 Basis of preparation The 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 concern As 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 Statements The 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 consolidation The 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. 84 NewDay Annual Report and Financial Statements 2019 Financial Statements

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 liability All 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 asset For 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 16 On 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 Adjustment IFRS 16 value as at on initial carrying value 31 December application of as at 1 January 2018 IFRS 16 2019 £m £m £m Property and equipment Right-of-use assets – 20.3 20.3 Leasehold improvements1 1.1 (1.1) – Other assets Prepayments and accrued income 30.8 (0.4) 30.4 Other liabilities Trade 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.

NewDay Annual Report and Financial Statements 2019 85 Financial Statements

Notes to the Financial Statements Continued

2. Accounting policies continued 2.1 Basis of preparation continued The 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 27.1 Impact 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 translation The 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 recognition Loans 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 liabilities IFRS 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 banks Loans 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 customers Financial 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 funds Financial 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.

86 NewDay Annual Report and Financial Statements 2019 Financial Statements

(3) Derecognition of financial assets and financial liabilities (i) Financial assets A 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 liabilities A 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 value For 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 cost For financial assets carried at amortised cost, the Group assesses impairment on a collective basis for all financial assets that are not individually significant. 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.

NewDay Annual Report and Financial Statements 2019 87 Financial Statements

Notes to the Financial Statements Continued

2. Accounting policies continued 2.2 Summary of significant accounting policies applied in the year ended 31 December 2019continued (5) Impairment of financial assetscontinued (ii) Renegotiated loans and advances to customers Where 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 expenses Income 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 expense Interest 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 income In 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 programmes On 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.

88 NewDay Annual Report and Financial Statements 2019 Financial Statements

(iv) Loyalty programmes Loyalty 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 expense The 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 plan The 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 transactions The 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 costs Servicing 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 expenditure Expenditure 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 tax Current 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 tax Deferred 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.

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Notes to the Financial Statements Continued

2. Accounting policies continued 2.2 Summary of significant accounting policies applied in the year ended 31 December 2019continued (7) Tax continued The carrying value of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised directly in equity are also recognised in equity and not in the income statement.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same tax authority.

(8) Derivative financial instruments The 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 goodwill Business 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 assets The 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.

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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 equipment Property 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 assets The 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) Provisions Provisions 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.

NewDay Annual Report and Financial Statements 2019 91 Financial Statements

Notes to the Financial Statements Continued

2. Accounting policies continued 2.2 Summary of significant accounting policies applied in the year ended 31 December 2019continued (14) Share capital and equity instruments The 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 undertakings The 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) Leasing The 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 assumptions The 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 customers The following judgements and estimates are made in determining the Group’s ECL under the requirements of IFRS 9:

(i) Modelling estimates 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. 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.

92 NewDay Annual Report and Financial Statements 2019 Financial Statements

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.

31 December 31 December 2019 2018 Group £m £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 risk In 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 default The 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.

NewDay Annual Report and Financial Statements 2019 93 Financial Statements

Notes to the Financial Statements Continued

2. Accounting policies continued 2.3 Significant accounting judgements, estimates and assumptionscontinued (iv) Forward-looking information The 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.

Maximum/ Maximum/ ECL assuming Probability minimum minimum GDP Average Average GDP 100% probability weighting used in unemployment growth rate unemployment growth rate weighting reported ECL Group rate forecast forecast rate forecast forecast £m provision 31 December 2019 Upside 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 2018 Upside 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.

94 NewDay Annual Report and Financial Statements 2019 Financial Statements

Effective interest rate (EIR) on loans and advances to customers In 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 goodwill In 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 standards The 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.

NewDay Annual Report and Financial Statements 2019 95 Financial Statements

Notes to the Financial Statements Continued

2. Accounting policies continued 2.5 Standards issued but not yet effective The 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 information The 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.

96 NewDay Annual Report and Financial Statements 2019 Financial Statements

The table below presents the Group’s performance on a segmental basis in line with reporting to the chief operating decision maker:

Unsecured Personal Own-brand Co-brand Loans Total Year ended 31 December 2019 £m £m £m £m Interest income 456.5 200.5 16.6 673.6 Cost of funds (41.1) (19.4) (3.0) (63.5) Net interest income 415.4 181.1 13.6 610.1 Fee and commission income 45.1 20.8 – 65.9 Impairment 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) 358.1 Servicing 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) 193.8 Salaries, benefits and overheads (58.9) Underlying profit before tax 134.9 Add back: depreciation and amortisation 9.3 Adjusted EBITDA 144.2 Senior Secured Debt interest and related costs (33.9) Customer refund provision (0.4) Fair value unwind 0.3 Other 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:

Senior Cost Secured Debt Fair value recovery interest and Segmental Statutory unwind fees related costs Other basis Year ended 31 December 2019 reconciling items £m £m £m £m £m £m Interest income 676.2 (2.1) – – (0.5) 673.6 Cost of funds (101.0) 1.8 – 33.9 1.8 (63.5) Fee and commission income 94.4 – (28.5) – – 65.9 Impairment losses on loans and advances to customers (318.5) – – – 0.6 (317.9) Risk-adjusted income 351.1 (0.3) (28.5) 33.9 1.9 358.1 Total 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.

NewDay Annual Report and Financial Statements 2019 97 Financial Statements

Notes to the Financial Statements Continued

3. Segment information continued Cost 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:

Unsecured Own-brand Co-brand Personal Loans Total Year ended 31 December 2018 £m £m £m £m Interest income 406.5 165.2 7.7 579.4 Cost of funds (34.3) (15.8) (1.8) (51.9) Net interest income 372.2 149.4 5.9 527.5 Fee and commission income 42.3 21.3 – 63.6 Impairment 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) 289.3 Servicing 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) 130.0 Salaries, benefits and overheads (52.1) Underlying profit before tax 77.9 Add back: depreciation and amortisation 4.3 Adjusted EBITDA 82.2 Senior 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.

98 NewDay Annual Report and Financial Statements 2019 Financial Statements

The table below presents a reconciliation of the reclassifications from the statutory performance to the results shown in the segmental analysis:

Senior Secured Debt interest Fair value Cost recovery and related Segmental Statutory unwind fees costs Other basis Year ended 31 December 2018 reconciling items £m £m £m £m £m £m Interest income 581.3 (1.5) – – (0.4) 579.4 Cost of funds (88.9) 3.1 – 33.4 0.5 (51.9) Fee and commission income 92.7 – (29.1) – – 63.6 Impairment losses on loans and advances to customers (302.2) – – – 0.4 (301.8) Risk-adjusted income 282.9 1.6 (29.1) 33.4 0.5 289.3 Total 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

Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £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 45.4 Interest 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

Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £m Interest expense on debt issued and other borrowed funds 97.9 85.7 2.5 2.4 Interest expense on amounts owed to Group undertakings – – 31.4 31.0 Fair 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

Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £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 – –

NewDay Annual Report and Financial Statements 2019 99 Financial Statements

Notes to the Financial Statements Continued

7. Personnel expense

Group Company

Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £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

Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £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 0.1 IT 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

Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £m Audit of consolidated Group and Company Financial Statements 0.2 0.2 0.2 0.2 Audit 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.

100 NewDay Annual Report and Financial Statements 2019 Financial Statements

9. Tax expense

Group Company

Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £m Current tax expense 9.9 6.4 – – Deferred tax expense – 0.3 – – Tax expense 9.9 6.7 – –

Reconciliation of the total tax expense The 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

Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £m Profit/(loss) before tax 49.9 (6.9) 13.3 38.2 Tax 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 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £m Loans and advances to banks 152.1 134.0 25.6 0.9 Restricted 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.

NewDay Annual Report and Financial Statements 2019 101 Financial Statements

Notes to the Financial Statements Continued

11. Loans and advances to customers

Group Company

31 December 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £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 assets The 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 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £m Other receivables 28.6 27.2 – – Prepayments and accrued income 27.6 30.8 0.1 0.1 Amounts due from related parties 0.4 0.4 0.4 0.4 Amounts 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.

102 NewDay Annual Report and Financial Statements 2019 Financial Statements

13. Derivative financial instruments The 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

Notional Notional amount Liabilities amount Assets Group £m £m £m £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

Total property Computer Fixtures and Leasehold Right-of-use and equipment fittings improvements assets equipment Group £m £m £m £m £m Cost as at 1 January 2019 2.0 2.6 9.7 – 14.3 Adjustment 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 32.9 Additions 1.4 0.4 – 0.2 2.0 Remeasurement1 – – – (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).

NewDay Annual Report and Financial Statements 2019 103 Financial Statements

Notes to the Financial Statements Continued

15. Intangible assets

Internally Total Acquired generated intangible intangibles intangibles assets Group £m £m £m Cost as at 1 January 2019 396.1 16.5 412.6 Additions – 7.6 7.6 Disposals (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 As at 31 December 2019 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 As at 31 December 2018 279.9 As at 31 December 2019 279.9

On 26 January 2017, the Company acquired 100% of the issued share capital and preferred equity certificates in NewDay Group Holdings S.à r.l. for cash consideration of £990.5m (the Acquisition). NewDay Group Holdings S.à r.l. was the parent company of the Predecessor Group.

104 NewDay Annual Report and Financial Statements 2019 Financial Statements

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 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £m Senior Secured Debt and associated facilities 435.4 435.4 0.1 0.1 Asset-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 2,685.8 435.4 435.4 Capitalised 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:

Non-cash Cash flows movements

As at Proceeds As at 1 January from debt Repayment of 31 December 2019 issued debt issued Other 2019 Group £m £m £m £m £m Senior Secured Debt and associated facilities 435.4 – – – 435.4 Asset-backed term debt 1,781.7 576.5 (480.3) (12.6) 1,865.3 Variable 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

Non-cash Cash flows movements

As at Proceeds As at 1 January from debt Repayment of 31 December 2018 issued debt issued Other 2018 Group £m £m £m £m £m Senior Secured Debt and associated facilities 435.4 – – – 435.4 Asset-backed term debt 1,506.8 533.5 (267.6) 9.0 1,781.7 Variable 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

NewDay Annual Report and Financial Statements 2019 105 Financial Statements

Notes to the Financial Statements Continued

18. Debt issued and other borrowed funds continued Other non-cash movements includes amortisation of fair value adjustments recognised on acquired debt issued, movements in accrued interest and foreign exchange gains and losses on the US Dollar denominated debt.

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 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £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 1,166.9 435.4 152.0 More 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 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £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 1.7 Between one and two years 2.6 Between two and five years 8.5 More than five years 4.3 17.1

106 NewDay Annual Report and Financial Statements 2019 Financial Statements

20. Provisions

PPI CCA Dilapidation Other Total provision provision provision provisions provisions Group £m £m £m £m £m As at 1 January 2018 45.1 1.2 1.8 8.8 56.9 Arising during the year – – 0.1 2.8 2.9 Utilised 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 3.1 Utilised 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 provision The 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) provision The 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 provision A 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 provisions Other 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 31 December 31 December 31 December 2019 2018 2019 2018 £m £m £m £m Share capital and share premium – – – – Equity instruments 593.9 593.9 593.9 593.9 Capital contribution 30.5 30.5 30.5 30.5 Hedging 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

NewDay Annual Report and Financial Statements 2019 107 Financial Statements

Notes to the Financial Statements Continued

21. Share capital and reserves continued

Company

Nominal Number of value Called up share capital ordinary shares (1 pence) shares £ 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 contribution With effect from 1 July 2017, the terms of a £529.2m intercompany loan from Nemean MidCo Limited and £64.7m loan notes issued by the Company and held by Nemean MidCo Limited were amended, resulting in a change in classification from liabilities to equity instruments. The interest accrued on these loans up to 30 June 2017 was recorded as a capital contribution.

Hedging reserve The 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 management The 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 instruments Fair value hierarchy The 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 cost Set out below is a comparison, by class, of the carrying value and fair values of the Group’s and Company’s financial instruments. During the year there have been no transfers between levels (2018: none).

Total carrying Group Level 1 Level 2 Level 3 value Fair value As at 31 December 2019 £m £m £m £m £m Financial assets Loans and advances to banks – 205.7 – 205.7 205.7 Loans and advances to customers – – 2,709.8 2,709.8 2,867.8 Other assets – 29.0 – 29.0 29.0 Total financial assets – 234.7 2,709.8 2,944.5 3,102.5

Financial liabilities Debt 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)

108 NewDay Annual Report and Financial Statements 2019 Financial Statements

Total carrying Group Level 1 Level 2 Level 3 value Fair value As at 31 December 2018 £m £m £m £m £m Financial assets Loans and advances to banks – 184.0 – 184.0 184.0 Loans and advances to customers – – 2,303.3 2,303.3 2,447.7 Other assets – 27.6 – 27.6 27.6 Total financial assets – 211.6 2,303.3 2,514.9 2,659.3

Financial liabilities Debt 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)

Total carrying Company Level 1 Level 2 Level 3 value Fair value As at 31 December 2019 £m £m £m £m £m Financial assets Loans and advances to banks – 25.6 – 25.6 25.6 Other assets – – 538.6 538.6 538.6 Total financial assets – 25.6 538.6 564.2 564.2

Financial liabilities Debt issued and other borrowed funds – (425.6) – (425.6) (414.9) Other liabilities – – – – – Total financial liabilities – (425.6) – (425.6) (414.9)

Total carrying Company Level 1 Level 2 Level 3 value Fair value As at 31 December 2018 £m £m £m £m £m Financial assets Loans and advances to banks – 0.9 – 0.9 0.9 Other assets – – 547.9 547.9 547.9 Total financial assets – 0.9 547.9 548.8 548.8

Financial liabilities Debt 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 banks These 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 customers This 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.

NewDay Annual Report and Financial Statements 2019 109 Financial Statements

Notes to the Financial Statements Continued

22. Fair value of financial instrumentscontinued Other assets Other 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 funds The 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 liabilities Other 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 management 23.1 Introduction Risk 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 systems As 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.

110 NewDay Annual Report and Financial Statements 2019 Financial Statements

23.2 Credit risk The Group is exposed to credit risk on loans and advances to customers and other financial assets. Credit risk is the risk that the Group will incur a loss because its customers or counterparties fail to discharge their contractual obligations. The Group manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and monitoring exposures in relation to such limits.

Credit risk exposure from customers is managed throughout the lifecycle, underpinned by proprietary credit models which have been developed from customers’ historical credit performance and are used to forecast a probability of 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 analysis The 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.

NewDay Annual Report and Financial Statements 2019 111 Financial Statements

Notes to the Financial Statements Continued

23. Risk management continued 23.2 Credit risk continued The 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

Stage 1 Stage 2 Stage 3 POCI Total Group £m £m £m £m £m Risk grade 1 1,337.1 20.1 – 0.6 1,357.8 Risk grade 2 1,096.1 49.0 – 1.4 1,146.5 Risk grade 3 156.5 118.2 – 0.5 275.2 Delinquent – 101.4 – 0.2 101.6 Defaulted – – 250.9 2.5 253.4 Gross loans and advances to customers 2,589.7 288.7 250.9 5.2 3,134.5 ECL 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

As at 31 December 2018

Stage 1 Stage 2 Stage 3 POCI Total Group £m £m £m £m £m Risk grade 1 1,153.5 24.4 – 0.9 1,178.8 Risk grade 2 865.3 139.3 – 1.5 1,006.1 Risk grade 3 150.5 114.0 – 0.5 265.0 Delinquent – 97.0 – 0.4 97.4 Defaulted – – 158.0 4.4 162.4 Gross loans and advances to customers 2,169.3 374.7 158.0 7.7 2,709.7 ECL allowance (144.4) (131.5) (125.8) (4.7) (406.4) Loans and advances to customers 2,024.9 243.2 32.2 3.0 2,303.3

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:

As at 31 December 2019

Stage 1 Stage 2 Stage 3 POCI Total Own-brand £m £m £m £m £m Risk grade 1 319.5 1.6 – 0.3 321.4 Risk grade 2 929.5 28.9 – 1.3 959.7 Risk grade 3 149.7 107.0 – 0.5 257.2 Delinquent – 77.9 – 0.1 78.0 Defaulted – – 209.4 1.1 210.5 Gross loans and advances to customers 1,398.7 215.4 209.4 3.3 1,826.8 ECL allowance (133.3) (96.9) (130.5) (2.2) (362.9) Loans and advances to customers 1,265.4 118.5 78.9 1.1 1,463.9

112 NewDay Annual Report and Financial Statements 2019 Financial Statements

As at 31 December 2018

Stage 1 Stage 2 Stage 3 POCI Total Own-brand £m £m £m £m £m Risk grade 1 294.9 8.6 – 0.4 303.9 Risk grade 2 747.4 109.1 – 1.4 857.9 Risk grade 3 147.9 103.2 – 0.5 251.6 Delinquent – 76.9 – 0.2 77.1 Defaulted – – 136.1 2.0 138.1 Gross loans and advances to customers 1,190.2 297.8 136.1 4.5 1,628.6 ECL allowance (123.2) (117.6) (112.0) (3.5) (356.3) Loans and advances to customers 1,067.0 180.2 24.1 1.0 1,272.3

As at 31 December 2019

Stage 1 Stage 2 Stage 3 POCI Total Co-brand £m £m £m £m £m Risk grade 1 928.5 9.7 – 0.3 938.5 Risk grade 2 158.5 19.4 – 0.1 178.0 Risk grade 3 6.5 11.1 – – 17.6 Delinquent – 19.0 – 0.1 19.1 Defaulted – – 38.5 1.4 39.9 Gross loans and advances to customers 1,093.5 59.2 38.5 1.9 1,193.1 ECL allowance (19.0) (10.3) (21.1) (0.9) (51.3) Loans and advances to customers 1,074.5 48.9 17.4 1.0 1,141.8

As at 31 December 2018

Stage 1 Stage 2 Stage 3 POCI Total Co-brand £m £m £m £m £m Risk grade 1 815.3 7.7 – 0.5 823.5 Risk grade 2 109.5 28.6 – 0.1 138.2 Risk grade 3 2.4 10.8 – – 13.2 Delinquent – 18.0 – 0.2 18.2 Defaulted – – 19.3 2.4 21.7 Gross loans and advances to customers 927.2 65.1 19.3 3.2 1,014.8 ECL 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

As at 31 December 2019

Stage 1 Stage 2 Stage 3 POCI Total UPL £m £m £m £m £m Risk grade 1 89.1 8.8 – – 97.9 Risk grade 2 8.1 0.7 – – 8.8 Risk grade 3 0.3 0.1 – – 0.4 Delinquent – 4.5 – – 4.5 Defaulted – – 3.0 – 3.0 Gross loans and advances to customers 97.5 14.1 3.0 – 114.6 ECL allowance (5.7) (2.4) (2.4) – (10.5) Loans and advances to customers 91.8 11.7 0.6 – 104.1

NewDay Annual Report and Financial Statements 2019 113 Financial Statements

Notes to the Financial Statements Continued

23. Risk management continued 23.2 Credit risk continued

As at 31 December 2018

Stage 1 Stage 2 Stage 3 POCI Total UPL £m £m £m £m £m Risk grade 1 43.3 8.1 – – 51.4 Risk grade 2 8.4 1.6 – – 10.0 Risk grade 3 0.2 – – – 0.2 Delinquent – 2.1 – – 2.1 Defaulted – – 2.6 – 2.6 Gross loans and advances to customers 51.9 11.8 2.6 – 66.3 ECL allowance (3.3) (1.5) (2.0) – (6.8) Loans and advances to customers 48.6 10.3 0.6 – 59.5

Impairment assessment In 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.

114 NewDay Annual Report and Financial Statements 2019 Financial Statements

The following table reconciles the movement in the ECL allowance during the year:

Stage 1 Stage 2 Stage 3 POCI Total Group £m £m £m £m £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 20.3 Refinements to model methodology2 (8.3) 26.2 (10.6) – 7.3 Release of ECL on loans and advances to customers settled in the year 6.8 4.9 2.3 0.3 14.3 ECL 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)

Stage 1 Stage 2 Stage 3 POCI Total Group £m £m £m £m £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 12.9 ECL 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 held The 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 provided As 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 risk Contractual cash flow maturity Loans 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.

NewDay Annual Report and Financial Statements 2019 115 Financial Statements

Notes to the Financial Statements Continued

23. Risk management continued 23.3 Liquidity, funding and cash management risk continued Total committed funding facilities The 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 maturities The 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 Less than Over Group demand 3 months 3 to 12 months 1 to 5 years 5 years Total As at 31 December 2019 £m £m £m £m £m £m Financial liabilities Debt issued and other borrowed funds – 22.7 780.3 2,448.1 – 3,251.1 Other liabilities – 82.3 – – – 82.3 – 105.0 780.3 2,448.1 – 3,333.4

On Less than Over Group demand 3 months 3 to 12 months 1 to 5 years 5 years Total As at 31 December 2018 £m £m £m £m £m £m Financial liabilities Debt issued and other borrowed funds – 64.5 536.1 2,043.5 276.7 2,920.8 Other liabilities – 89.6 – – – 89.6 – 154.1 536.1 2,043.5 276.7 3,010.4

Securitisation vehicles In 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 Fair value of of transferred Carrying value transferred Fair value of assets not of associated assets not associated Net Group derecognised liabilities derecognised liabilities fair value As at 31 December 2019 £m £m £m £m £m NewDay Funding Transferor Ltd 1,421.8 (1,450.3) 1,555.1 (1,449.4) 105.7 NewDay Partnership Transferor plc 1,140.7 (1,067.9) 1,159.7 (1,065.5) 94.2 NewDay 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).

116 NewDay Annual Report and Financial Statements 2019 Financial Statements

Carrying value Fair value of of transferred Carrying value transferred Fair value of assets not of associated assets not associated Net Group derecognised liabilities derecognised liabilities fair value As at 31 December 2018 £m £m £m £m £m NewDay Funding Transferor Ltd 1,232.5 (1,296.8) 1,355.7 (1,298.6) 57.1 NewDay Partnership Transferor plc 970.3 (899.6) 988.2 (895.2) 93.0 NewDay 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 risk Market 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

Non- repricing Less than Over or non-interest Group 3 months 3 to 12 months 1 year bearing Total As at 31 December 2019 £m £m £m £m £m Financial assets Loans and advances to banks 188.9 – – 16.8 205.7 Loans and advances to customers 2,201.7 105.6 – 402.5 2,709.8 Other assets – – – 29.0 29.0

Financial liabilities Debt 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)

Non- repricing Less than Over or non-interest Group 3 months 3 to 12 months 1 year bearing Total As at 31 December 2018 £m £m £m £m £m Financial assets Loans and advances to banks 167.6 – – 16.4 184.0 Loans and advances to customers 1,859.3 64.5 1.6 377.9 2,303.3 Other assets – – – 27.6 27.6 Derivative financial assets 2.5 – – – 2.5

Financial liabilities Debt 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)

NewDay Annual Report and Financial Statements 2019 117 Financial Statements

Notes to the Financial Statements Continued

23. Risk management continued 23.4 Market risk continued The following table demonstrates the sensitivity to changes in interest rates (all other variables being held constant) of the Group’s income statement. The sensitivity of the income statement is the effect of the assumed changes in interest rates on the profit or loss for the year, based on the floating rate non-trading financial assets and financial liabilities held as at 31 December 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

Year ended Year ended Increase/ 31 December 31 December (decrease) in 2019 2018 Group basis points £m £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 risk Regulatory 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 liabilities The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled.

As at 31 December 2019 As at 31 December 2018

< 12 months > 12 months Total < 12 months > 12 months Total Group £m £m £m £m £m £m Assets Loans and advances to banks 152.1 53.6 205.7 134.0 50.0 184.0 Loans and advances to customers 2,239.5 470.3 2,709.8 1,885.6 417.7 2,303.3 Other assets 49.2 7.4 56.6 50.5 7.9 58.4 Derivative financial assets – – – – 2.5 2.5 Current tax assets 0.7 – 0.7 0.8 – 0.8 Deferred tax assets – 0.4 0.4 – 0.4 0.4 Property and equipment – 22.3 22.3 – 9.0 9.0 Intangible assets – 266.2 266.2 – 313.9 313.9 Goodwill – 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

Liabilities Debt 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)

118 NewDay Annual Report and Financial Statements 2019 Financial Statements

As at 31 December 2019 As at 31 December 2018

< 12 months > 12 months Total < 12 months > 12 months Total Company £m £m £m £m £m £m Assets Loans and advances to banks 25.6 – 25.6 0.9 – 0.9 Other assets 51.4 487.2 538.6 60.7 487.2 547.9 Investment 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

Liabilities Debt 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 commitments Contingent liabilities Legislation As 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.

Commitments The 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

Maximum Year ended As at Maximum Year ended As at balance during 31 December 31 December balance during 31 December 31 December the year 2019 2019 the year 2018 2018 Group £m £m £m £m £m £m Transactions with key management personnel Total emoluments n/a 6.6 n/a n/a 5.7 n/a Total pension contributions n/a – n/a n/a – n/a Highest paid key management personnel n/a 1.0 n/a n/a 1.2 n/a Highest pension contribution to key management personnel n/a – n/a n/a – n/a Transactions with other related parties Loans 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.

NewDay Annual Report and Financial Statements 2019 119 Financial Statements

Notes to the Financial Statements Continued

26. Related party disclosures continued During the year interests in Nemean TopCo Limited, the Company’s ultimate parent undertaking, were issued to certain key management personnel and senior employees. These participating interests are treated as equity-settled shares under IFRS 2 ‘Share-based Payment’. Investments in participating interests by key management personnel and other senior employees were made at fair value. As a result no share-based payment expense has been recognised in the income statement in the year (2018: £nil).

Maximum Year ended As at Maximum Year ended As at balance during 31 December 31 December balance during 31 December 31 December the year 2019 2019 the year 2018 2018 Company £m £m £m £m £m £m Transactions with other related parties Loans to related parties 559.8 n/a 538.5 547.9 n/a 547.9 Interest income from related parties n/a 47.4 n/a n/a 71.7 n/a Loans from related parties 435.4 n/a 435.3 438.0 n/a 435.4 Interest expense to related parties n/a 31.4 n/a n/a 31.0 n/a Other 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 entities The consolidated Financial Statements include the Financial Statements of NewDay Group (Jersey) Limited and the subsidiaries and structured entities in the following table:

Share class held as % equity interest Share class held as % equity interest as Country of at 31 December as at 31 December at 31 December at 31 December Name incorporation 2019 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 SE NewDay Partnership Loan Note Issuer Ltd UK n/a SE n/a SE NewDay Partnership Funding 2014-1 plc UK n/a SE n/a SE NewDay Partnership Funding 2015-1 plc UK n/a SE n/a SE NewDay Partnership Funding 2017-1 plc UK n/a SE n/a SE NewDay Funding 2015-1 plc UK n/a SE n/a SE NewDay Funding 2015-2 plc UK n/a SE n/a SE NewDay Funding 2016-1 plc UK n/a SE n/a SE NewDay Funding 2017-1 plc UK n/a SE n/a SE NewDay Funding 2018-1 plc UK n/a SE n/a SE NewDay Funding 2018-2 plc UK n/a SE n/a SE NewDay Funding 2019-1 plc UK n/a SE n/a SE NewDay Funding 2019-2 plc UK n/a SE n/a SE

120 NewDay Annual Report and Financial Statements 2019 Financial Statements

Share class held as % equity interest Share class held as % equity interest as Country of at 31 December as at 31 December at 31 December at 31 December Name incorporation 2019 2019 2018 2018 NewDay Funding Loan Note Issuer Ltd UK n/a SE n/a SE NewDay Funding Receivables Trustee Ltd Jersey n/a SE n/a SE NewDay Secondary Funding Limited UK n/a SE n/a SE NewDay Partnership Secondary Funding Ltd UK n/a SE n/a SE Invicta 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.

Principal place of Name business Registered address NewDay Group Holdings S.à r.l. Luxembourg 4, rue Albert Borschette, L-1246 Luxembourg NewDay Partnership Receivables Trustee Ltd Jersey 44 Esplanade, St Helier, Jersey, JE4 9WG NewDay Partnership Loan Note Issuer Ltd UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Partnership Funding 2014-1 plc UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Partnership Funding 2015-1 plc UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Partnership Funding 2017-1 plc UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Funding 2015-1 plc UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Funding 2015-2 plc UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Funding 2016-1 plc UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Funding 2017-1 plc UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Funding 2018-1 plc UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Funding 2018-2 plc UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Funding 2019-1 plc UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Funding 2019-2 plc UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Funding Loan Note Issuer Ltd UK 35 Great St. Helen’s, London, EC3A 6AP NewDay Funding Receivables Trustee Ltd Jersey 44 Esplanade, St Helier, Jersey, JE4 9WG NewDay Secondary Funding Limited UK 20 Farringdon Street, 8th floor, London, EC4A 3AB NewDay Partnership Secondary Funding Ltd UK 20 Farringdon Street, 8th floor, London, EC4A 3AB

NewDay Annual Report and Financial Statements 2019 121 Financial Statements

Notes to the Financial Statements Continued

27. Structured entities The 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.

122 NewDay Annual Report and Financial Statements 2019 Our owners Certain financial data included in this report consists of “non-IFRS financial measures”. These We are indirectly owned by funds advised by Cinven and CVC Capital Partners (CVC). 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 Cinven is a leading international private equity firm with more than 80 investment professionals and companies, nor should they be considered as an alternative to the historical financial results more than 160 staff across offices in London, Paris, Madrid, Frankfurt, Luxembourg, Milan, or other indicators of the Company’s cash flow based on IFRS. Even though the non-IFRS financial Guernsey, Hong Kong and New York. With a track record spanning more than 30 years, Cinven’s measures are used by management to assess the Company’s financial position, financial results focus is on delivering attractive returns to their investors by driving value creation in the companies and liquidity and these types of measures are commonly used by investors, they have important in which they invest. Cinven achieves this by identifying compelling opportunities and partnering limitations as analytical tools, and you should not consider them in isolation or as substitutes for with management to grow and transform good quality companies into domestic, regional or analysis of the Company’s financial position or results of operations as reported under IFRS. The international leaders that are highly attractive to potential buyers. Cinven’s fully integrated model, inclusion of such non-IFRS financial measures in this report or any related presentation should which draws on sector, regional, portfolio and capital markets expertise, ensures that their approach not be regarded as a representation or warranty by the Company, any member of the Group, any is consistent, creative and collaborative throughout the investment lifecycle. 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 Cinven has a long and differentiated track record of investment in the financial services sector of the Company and should not be relied upon. 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 References to Adjusted EBITDA throughout this report are references to ‘Consolidated EBITDA’ UK. In Ireland, it acquired Guardian the life insurance business and Avolon, the aircraft leasing as defined in the legal documentation relating to the £425m Senior Secured Notes issued by business. In Germany it acquired Viridium (formerly Heidelberger Leben), with the business NewDay BondCo plc on 25 January 2017 (the Senior Secured Debt) and the Super Senior subsequently combined with Generali Leben; in Italy, Cinven formed the Eurovita group through Revolving Credit Facility entered into by the Company on 25 January 2017 (the Revolving Credit the merger of ERGO Previdenza, Old Mutual Wealth Italy and Eurovita Assicurazioni. 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 CVC Capital Partners is a leading private equity and investment advisory firm. Founded in 1981, required under the terms of the Senior Secured Debt and Revolving Credit Facility are based on CVC today has a network of 24 offices and more than 300 investors throughout Europe, Asia, IFRS as in force as at 25 January 2017. As a result, such ratios, baskets and calculations may differ South America and the US. 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 To date, CVC has secured commitments of over US$135bn from some of the world’s leading EBITDA and adjusted EBITDA to cash interest expense contained in this report have been institutional investors across its private equity and credit strategies. In total, CVC currently calculated (subject to certain adjustments) in accordance with IFRS as in force as at 31 December manages over US$81bn of assets. Today, funds managed or advised by CVC are invested in 72 2019 (or, in respect of periods ending prior to 31 December 2019, IFRS at the relevant time). As a companies worldwide, employing circa 200,000 people in numerous countries. 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 CVC’s financial services team has invested over €3bn of equity capital in the financial services of the Senior Secured Debt and Revolving Credit Facility). 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 Certain statements included or incorporated by reference within this report may constitute United Kingdom, Avolon in Ireland, April in France, Cunningham Lindsey in the United States, ‘forward-looking statements’ in respect of the Group’s operations, performance, prospects Cerved in Italy, Sun Hung Kai in China and Rizal Commercial Banking Corporation and SPi Global and/or financial condition. All statements other than statements of historical fact included in this in the Philippines. 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 Cautionary statement from those expressed or implied by those statements. Accordingly, no assurance can be given This report comprises the Annual Report and Financial Statements of NewDay Group (Jersey) that any particular expectation will be met and reliance should not be placed on any forward- Limited (the “Company”) for the period ended 31 December 2019. Underlying and adjusted looking statement. No responsibility is accepted to update or revise any forward-looking metrics referred to on pages 01 to 77 exclude a number of non-recurring items as detailed on statement resulting from new information, future events or otherwise. Nothing in this report page 31. Definitions of key performance indicators are included on pages 28 to 29. should be construed as a profit forecast.

Notwithstanding the above, as set out on page 58, with the exception of the Directors’ report set The information contained in this report should be considered in the context of the circumstances out on page 76 to 77, the governance and risk framework described in this report relate to the prevailing at the time and will not be updated to reflect material developments that may occur governance and risk framework established for the Group’s UK subsidiaries. References to the after the date of this report. The information and opinions in this report are provided as at the ‘Board’, ‘Group’, ‘NewDay’ and ‘Company’ should be construed accordingly (where appropriate). 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.

NewDay 7 Handyside Street London N1C 4DA

Email: [email protected] Website: www.newday.co.uk

Registered in Jersey Registration number 122135

NewDay Annual Report and Financial Statements 2019 123