|Period||Net Return (after tax, un-invested weighting, forecast losses)||Default Rate||Delinquency Rate||Pre-tax Return (after un-invested weighting and forecast losses)||Initial Return (after forecast losses)|
|Forecast 2020-21||5.6 - 6.9%||4.6%||13.6%||7.1 - 8.7%||9.5%|
Publication Date: 8th December 2019 For our financial year 2020-21 (1st February 2020 – 31st January 2021) we expect a Target Return of c. 5.6 - 6.9%. The Target Return is based on an expected default rate of 4.6% in addition to a delinquency rate of 13.6%. We also account for a tax rate of 20% and cash drag of 10-30%. See below for further information on assumptions. Background The macroeconomic situation faced by our borrowers is expected to be little changed in 2020-21 versus current conditions. The Bank of England’s Monetary Policy Committee report (November 2019) forecasts economic growth of 1.25% in 2020 (unchanged from 2019 full year forecast), CPI inflation of 1.5% (unchanged from 2019 full year forecast), the unemployment rate to be 4.0% (unchanged from 2019 full year forecast) and wage growth to fall marginally to 3.25% (from 3.50% for the 2019 full year forecast). This forecast assumes that the UK leaves the European Union and transitions towards ‘a deep free trade agreement (FTA) with the EU’. Any deviation from these assumptions, including for example a disorderly withdrawal from the European Union or a change of government, could undermine the macroeconomic situation and result in higher levels of default and delinquency Methodology The Target Return is the total return calculated on an Internal Rate of Return (IRR) basis that an investor can expect to receive by 31 May 2021 on loans issued in the year from February 2020 to January 2021 (our company’s financial year). The conservative assumption is then made that all outstanding capital post May 2021 is written off for the purposes of this Target Return calculation. However, we will continue to publish an updated Actual Return figure which includes the returns from payments received after the period end (post May 2021). These updated IRRs which will be higher than the initial (May 2021) reported IRR as customers on repayment plans and new arrangements continue to make payments, monies that were previously defined as delinquent. The Target Return is an IRR calculated on the basis of historic performance of our loan book weighted for forecast future loan volumes. We are constantly improving our credit decisioning as we accumulate data but given the macroeconomic uncertainties we have included a 5% buffer on our historic loss rate. Should the actual bad rate meet our historic loss performance or sit within this 5% buffer, the IRR will be higher than our expected Target Return. This produces an expected return after 15 months on the annual cohort of 9.5% p.a. This is reduced to 7.1 - 8.7% after accounting for cash drag of 10-30% and after tax of 20% (the marginal rate of income tax for a basis rate taxpayer) we reach our target return of c. 5.6 - 6.9%. The Target Return assumes an investor invests in loans each month throughout the Target Return period, and in proportion to the volume of loans issued each month by the Company. For the purposes of this Outcomes Statement the Target Return is based on forecast cashflows from three different loan outcome-cohorts: Performing Loans, being those that are fully repaid within the reporting period. Defaulted loans, being those with no received payments. Delinquent loans, being those that at the end of the reporting period have only made partial payments or have entered into an alternative payment plan. Reasons why the actual return may differ from the Target Return: The default and/or delinquency rate being different to expected. The UK macroeconomic situation in 2020 being different to expected. The Company’s loan volumes each month being different from forecast. Changes to the regulatory environment in which the Company operates. An investor’s portfolio mix being different to the Company’s volume mix. The number of lenders on the platform impacting the forecast cash drag due to delays in lending Changes to The Money Platform’s economic model, for example a change to the income splits between lenders and the platform (which would be communicated in advance to loan participation). Reduction in interest payable due to changes in customer behaviour resulting in more early settlements What is an “Internal Rate of Return”? The internal rate of return on an investment is the “annualised effective compounded return rate” or rate of return that sets the net present value of all cash flows (both positive and negative) from the investment equal to zero. IRR is designed to account for the time value of money. A given return on investment received at a given time is worth more than the same return received at a later time, so the latter would yield a lower IRR than the former, if all other factors are equal.