Vanquis Banking Group Plc · LSE:VANQ
Vanquis Banking — H1 2022 Earnings Presentation
47 slides from Vanquis Banking's earnings presentation, Jul 27, 2022
Slide 1: H1'22 Results
H1’22 Results Provident Financial Group 27 July, 2022
Slide 2: Today's presentation
Today’s presentation Highlights and Overview Malcolm Le May Financial Review Neeraj Kapur Malcolm Le May, CEO Strategy and Outlook Malcolm Le May Questions Appendix Neeraj Kapur, CFO Contacts 2
Slide 3: Highlights and Overview
Highlights and Overview Malcolm Le May Group Chief Executive Officer
Slide 4: PFG Investment Case
PFG Investment Case • Fully repositioned mid-cost strategy: targeting the lower risk, mid-cost and near- prime segments of the market of over £17bn • Strong execution against strategy in H1’22: despite uncertain macroeconomic backdrop • Focused on sustainable growth and returns: disciplined growth i
Slide 5: H1'22 Highlights
H1’22 Highlights • Focused on sustainable growth and returns H1’22 H1’21 o Receivables growth of 5.0% in H1’22 equated to broadly flat revenue year-on-year Customer numbers (m) 1,659 1,647 • Lower risk customer profile Net receivables (£m) 1,675 1,595 o Impairment trends improved year-on-year equati
Slide 6: Repositioned customer strategy
Repositioned customer strategy PFG Average Customer Credit Score • As our customer strategy has evolved to lower risk mid-cost 925 credit, our customers: o have a significantly higher credit score o significant proportion are homeowners with income close to the national average o access credit in 15
Slide 7: Resilient customer base through the cycle
Resilient customer base through the cycle Credit card write offs as a percentage of gross receivables* 200 • The move from high-cost to mid-cost has resulted in a more resilient customer base… • …leading to a more resilient performance during a downturn enhanced by a strong risk management framework
Slide 8: ESG: supporting our customers
ESG: supporting our customers • Our Purpose is to help put people on a path to a better everyday life and our corporate blueprint is fully embedded across the Group • PFG is uniquely placed to support and offer credit to people not well served by the High Street banks • PFG will continue to support
Slide 9: Financial Review
Financial Review Neeraj Kapur Group Chief Financial Officer
Slide 10: Summary financials
Summary financials Continuing Group H1’22 H1’21 • Group adjusted PBT of £54m (H1'21: £64m) • Group statutory PBT of £37m (H1’21 LBT: £44m) Net interest margin (£m) 242.3 239.3 • Interim dividend of 5.0p proposed reflecting strong balance sheet Impairment charge (£m) (38.5) (50.8) position and the Bo
Slide 11: Group results
Group results H1'22 H1'21 £m £m Credit cards 75.8 57.0 • H1’22 central costs increased to reflect: Vehicle finance 20.2 15.5 o the centralisation of costs Personal loans (10.7) 0.1 Central costs (31.0) (9.1) o the investment to enhance the Group’s transformation to its target operating Adjusted cont
Slide 12: Key performance indicators ('KPIs')
Key performance indicators1 (‘KPIs’) Shareholder KPIs H1'22 H1'21 H1’20 Cost KPIs2 H1'22 H1'21 H1’20 EPS (basic) 12.7 24.8 3.2 Cost of risk 4.7% 6.4% 20.1% EPS (adjusted)2 15.4 26.7 2.2 Cost of funding 2.9% 3.2% 3.4% RORE2 18.0% 30.9% 2.3% Cost to income ratio 61.7% 52.2% 35.2% ROTE2 15.8% 26.7% 1.8
Slide 13: Investing for future growth
Investing for future growth • Significant investment in personal loans: to support growth of the business • One-off IT investment: ‘Gateway’ platform and enhancing business capabilities • Investing in our human resources: Inflationary pay rises awarded • Increased investment in change and transforma
Slide 14: Product Snapshot
Product Snapshot Average Net interest Customer Impairment Risk-adjusted net PBT/(LBT) Primary Products Brands receivables margin numbers (‘k) (£m) interest margin (£m) (£m) (£m) (£m) H1'22 1,028 1,541 181 (18) 163 76 Credit Cards H1'21 987 1,537 178 (29) 149 57 H1'22 593 95 59 (18) 41 20 Vehicle Fin
Slide 15: Credit card spend trends
Credit card spend trends Spend per customer able to spend Active customer spend by category indexed to 2019 £150 1.5 2019 H1 2020 H1 2021 H1 2022 H1 1.0 0.5 £100 - H1'19 H2'19 H1'20 H2'20 H1'21 H2'21 H1'22 Services Grocery / Food Retail Recreational & Travel Other Entertainment • Spend per active cu
Slide 16: Credit card asset quality
100% 0% 10% 30% 40% 50% 60% 70% 80% 90% 20% 840 940 Jan-19 Mar-19 May-19 Booking Mix Scoreband 01 (SB01) Jul-19 Sep-19 SB02 Nov-19 Jan-20 SB03 Mar-20 Average portfolio credit score May-20 SB04 Jul-20 Sep-20 SB05 Nov-20 Jan-21 SB06 Mar-21 SB07 May-21 Jul-21 SB08 Sep-21 Nov-21 SB09 Jan-22 Mar-22 SB10
Slide 17: Vehicle finance asset quality
0% 50% 100% £0 £1,200 T3A Jan-19 Mar-19 T2C Booking mix May-19 T2B Jul-19 Average deposits Sep-19 T2A Nov-19 Jan-20 T1C Mar-20 T1B May-20 Jul-20 T1A Sep-20 Nov-20 Jan-21 NP4 NP3 Mar-21 May-21 NP2 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 Near Prime 1 (NP1) May-22 Risk Risk Lower Higher 8% 10% 25% 28% Jan-1
Slide 18: Personal loans asset quality & strategy
Personal loans asset quality & strategy Booking Mix Strategy 100% Higher • Focus on developing the core offering around Vanquis Bank Risk Loans 50% • APRs of less than 50% • Broaden the Open Market proposition and remain focused on growing lending to existing customers… 0% Lower • …supported by ‘Gat
Slide 19: Customer bookings reflect focus on quality
Customer bookings reflect focus on quality Credit card new bookings by quarter Vehicle finance new bookings by quarter 100k 14k 50k 7k 0k 0k Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'22 Q2'22 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'
Slide 20: Lower impairment trends
Lower impairment trends Credit card impairment rates Vehicle finance impairment rates 25% 16% 14% 20% 12% 15% 10% 8% 10% 6% 4% 5% 2% 0% 0% H1'18 H2'18 H1'19 H2'19 H1'20 H2'20 H1'21 H2'21 H1'22 H1'18 H2'18 H1'19 H2'19 H1'20 H2'20 H1'21 H2'21 H1'22 • The credit card and vehicle finance impairment rate
Slide 21: Prudent coverage ratios
Prudent coverage ratios Credit card coverage ratios Vehicle finance coverage ratios 40% 40% 20% 20% 0% 0% H1'18 H2'18 H1'19 H2'19 H1'20 H2'20 H1'21 H2'21 H1'22 H1'18 H2'18 H1'19 H2'19 H1'20 H2'20 H1'21 H2'21 H1'22 1,432 1,495 1,465 1,433 1,174 1,075 978 1,063 1,035 360 413 462 489 516 566 602 586 59
Slide 22: Continued prudent approach to provisions
Continued prudent approach to provisions Expected credit loss (ECL) • During H1’22, ECLs increased marginally reflecting volume growth across the Group partly offset by the ongoing release of provisions 27.3% 26.8% Coverage • Proactive approach to short-term uncertainty around: Coverage Ratio Ratio
Slide 23: Robust capital position
Robust capital position • Total capital resources reduced to £659m in H1’22 (FY’21: £707m), £659m total capital supports growth and investment reflecting the unwind of the IFRS 9 transitional relief (£54m). • Significant capital surpluses of £309m over the Group’s requirement. Capital Capital Capita
Slide 24: Regulatory capital management
Regulatory capital management (£17m) Total: £659m, (£54m) (£15m) 39.2% £39m Tier 2: £200m, Surplus: 11.9% £309m Total: £350m, 20.8% £707m CRD buffers: £659m £42m, 2.5% CET1: £459m, £350m 27.3% TCR: £308m, 18.3% 31 Dec 2021 IFRS 9 transition Continuing Exceptional/ Foreseeable 30 Jun 2022 Requirement
Slide 25: Diversified funding mix across the Group
Diversified funding mix across the Group Consolidated Group Committed Facilities including retail • The Group elected to early repay its £90m Revolving Credit Facility deposits (excl. fees and accrued interest) from excess liquidity in March 2022 Including Tier 2 capital £1,963m • Vanquis Bank is no
Slide 26: Stable funding duration
Stable funding duration Consolidated Group Funding Duration Wholesale Funding Maturity Profile Retail Bonds 35 2022 Senior Bonds Remaining Months to Maturity 30 25 Moneybarn securitisation 2023 £60m £104m £86m 20 15 TFSME 10 2024 £189m Tier 2 5 0 2025 £174m £200m Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 J
Slide 27: Highly liquid position
Highly liquid position Excess HQLA over • £517m liquidity resources as at 30 June (FY'21: £705m), of which £430m Liquidity Coverage Ratio LCR % LCR requirement qualifies as High Quality Liquid Assets (HQLA) held in the Bank of England Reserve Account (FY'21: £415m) 1,287% 2,830% • Surplus non-bank g
Slide 28: Cost of funds reducing
Cost of funds reducing • Continued reductions in funding cost at both non-bank group level and Group Cost of Funds1 Vanquis Bank Bank Non-bank group Consolidated Group • Following repayment of the RCF, exposure to variable rate funding limited 6% to securitisation and TFSME and fully offset by liqui
Slide 29: Financial outlook
Financial outlook Focused and Stable impairment trends sustainable growth • In H2’22, focused and sustainable receivables growth • Focus on lower risk mid-cost and near-prime expected across credit cards, vehicle finance and customers… personal loans… • …combined with the anticipated ongoing reducti
Slide 30: Strategy and Outlook
Strategy and Outlook Malcolm Le May Group Chief Executive Officer
Slide 31: A platform for sustainable growth and returns
A platform for sustainable growth and returns… Detailed customer New products & Balance sheet and IT insight services platform • Focusing on better quality customers • We can react to our customer insights • Brand-new, state-of-the-art IT across the Group through products designed to meet platform •
Slide 32: Improving customer insights
Improving customer insights… Credit Cards Motor Personal Loans Full or part time salaried (66%) or self- Full time salaried (77%) or self- Full or part time salaried (77%), or Income Source employed (16%) employed (15%) self-employed (6%) Income Healthcare, manufacturing, retail & Customer service,
Slide 33: Driving our customer strategy
…driving our customer strategy • PFG undertook a comprehensive survey of 3,500 non-prime consumers and 3,000 PFG customers to identify 5 key attitudinally differentiated segments which exist within the non-prime market, which was supplemented by a later study of 2,000 non-prime consumers. • These su
Slide 34: Growth in our Target Addressable Market
Growth in our Target Addressable Market Debt outstanding across our markets equated to c.£17bn as at December Customers (m) 2021 with scope for further growth as the markets recover to pre-Covid Current Addressable Market (CAM) 10.4 ‘Just prime’ consumers 1.0 £3.1bn Reduced risk appetite at higher r
Slide 35: Combined with product specific initiatives
…Combined with product specific initiatives Credit Cards Vehicle Finance • Three new price points and initial limits launched at 26.5%, • Pursue new partnerships agreements 28.5% and 34.6% • Product and market development including asset class • Launched an improved Balance Transfer offering expansi
Slide 36: Group capital management framework
Group capital management framework • Strong capital position; application accepted by the Prudential Risk Authority (PRA) for review of the 2022 ICAAP in H2’22 Strong Regulatory Capital and Funding • Approval of large limit waiver by PRA will support retail deposit funding of vehicle finance Positio
Slide 37: Outlook
Outlook • The macroeconomic outlook for the UK remains challenging but PFG remains well placed: o Strong focus on credit and risk management o Underpinned by a strong, well capitalised balance sheet… o …with a customer-centric model and new technology PFG is a leading specialist banking group focuse
Slide 38: Questions
Questions • Appendix • Contacts
Slide 39: Appendix
Appendix
Slide 40: Group results – continuing operations
Group results – continuing operations H1'22 H1'21 Change £m £m % Customer numbers (‘000) 1,659 1,647 1 Period end receivables 1,675 1,595 5 Average receivables 1,655 1,592 4 Revenue 266 264 1 Interest expense (24) (25) 4 Net interest margin 242 239 1 Revenue yield 32.2% 33.2% (1) Cost of funding 2.9
Slide 41: Group results – statutory balance sheet
Group results – statutory balance sheet1 H1'22 H1'21 Change Assets £m £m % Cash and balances at central banks 560 486 15 Amounts receivables from customers 1,667 1,637 2 Pension asset 82 93 (12) Goodwill and other intangibles 124 112 11 Other assets 101 142 (29) Total assets 2,534 2,470 3 Liabilitie
Slide 42: Credit cards results
Credit cards results H1'22 H1'21 Change £m £m % Customer numbers (‘000) 1,541 1,537 - Period end receivables 1,035 978 6 Average receivables 1,028 987 4 Revenue 190 192 (1) Interest Expense (9) (14) 35 Net interest margin 181 178 2 Revenue yield 37.1% 39.0% (2) Cost of funding 1.8% 2.8% 1 Net-intere
Slide 43: Vehicle finance results
Vehicle finance results H1'22 H1'21 Change £m £m % Customer numbers (‘000) 95 94 1 Period end receivables 598 602 (1) Average receivables 593 588 1 Revenue 70 69 1 Interest (11) (14) 21 Net interest margin 59 55 7 Revenue yield 23.8% 23.4% - Cost of funding 3.9% 4.8% 1 Net-interest margin 19.8% 18.6
Slide 44: Personal loans results
Personal loans results H1'22 H1'21 Change £m £m % Customer numbers (‘000) 24 16 50 Period end receivables 42 16 163 Average receivables 34 17 100 Revenue 5 3 67 Interest1 - - - Net interest margin 5 3 67 Revenue yield 31.5% 38.0% 7 Cost of funding 2.9% 2.4% - Net-interest margin 28.6% 35.6% (7) Impa
Slide 45: Alternative performance measure calculations
Alternative performance measure calculations Alternative Performance Measures Method of Calculation Adjusted basic earnings per share (EPS) Profit after tax, excluding the amortisation of acquisition intangibles and exceptional items, divided by the weighted average number of shares in issue Adjuste
Slide 46: Alternative performance measure calculations
Alternative performance measure calculations Alternative Performance Measures Method of Calculation Liquidity Coverage Ratio (%) The ratio of High Quality Liquid Assets to the net liquidity outflows for the next 30 days, as calculated in accordance with regulation Net-Interest Margin (£) Revenue les
Slide 47: Contact details
Contact details Contact: Owen Jones, Group Head of Investor Relations Email: owen.jones@providentfinancial.com Website: www.providentfinancial.com
Vanquis Banking Group — H1 2022 Earnings Presentation on 6ix