Vanquis Banking Group Plc · LSE:VANQ
Vanquis Banking — H1 2024 Earnings Presentation
45 slides from Vanquis Banking's earnings presentation, Aug 1, 2024
Slide 1: Half Year Results 2024
HALF YEAR RESULTS 2024 01 AUGUST 2024
Slide 2: Overview
OVERVIEW IAN MCLAUGHLIN Chief Executive Officer
Slide 3: Focus for today
Focus for today 1. Progress on delivering the strategy we set out on 27 March 2. Impact of one-off items announced on 16 July 3. Updating our plans 3
Slide 4: Transforming our business
Transforming our business Key initiatives What we have delivered Outlined at Strategy Seminar 1. Increasingly diversified customer proposition Customer • Comprehensive action plan to drive volume growth at the right margin proposition • Cards balance transfers; Vehicle Finance asset expansion; new S
Slide 5: Update on complaints
Update on complaints • Complaints volumes and costs remain in line with budgeted expectations • FOS consultation on charging CMCs for filing complaints could deliver fairer distribution of financial responsibility and improve outcomes for customers • SRA action to reduce CMC commission from 26 July
Slide 6: Evidence of improved trading performance
Evidence of improved trading performance Monthly gross customer interest earning balances (£m)1, 2 & new business volumes (#’k) 59.3 60.9 61.0 57.4 58.0 53.6 2,403 2,360 2,308 +0.9% 2,275 2,249 2,254 2,235 DEC23 APR24 MAY24 FEB24 JAN24 JUN24 MAR24 Gross customer interest earning balances (£m) New bu
Slide 7: Updating our strategic plan
Updating our strategic plan What stays the same... What new initiatives... • Purpose and strategy • Further streamlining to deliver an additional £15m of cost savings • Development of customer by end 2025 proposition • Revenue optimisation in Cards • Gateway transformation programme Return to modest
Slide 8: Our customers – why Vanquis matters
Our customers – why Vanquis matters “ Yours is the best credit card so far without a doubt! I've been trying to build my credit, but other providers are so unfair to people like me. They won't even give us a chance. I've had another card for many years, but it never helped my credit. I've been a Van
Slide 9: 1H 2024 Results
1H 2024 RESULTS DAVE WATTS Chief Financial Officer
Slide 10: 1H24 Results Summary
1H24 Results Summary 1H24 loss mainly driven by Vehicle Finance Stage 3 Review and legacy one-off items JUN24 DEC231 Change £m • Adjusted loss before tax of £(26.8)m impacted by the Vehicle £m % 2,254.2 2,402.8 (6%) Finance receivables review and legacy one-off items. Gross customer interest earning
Slide 11: 1H24 Metrics & Key Ratios
1H24 Metrics & Key Ratios Receivables decrease and legacy one-off items impact other metrics JUN24 DEC231 Change £m • Reduction in gross customer interest earning balances by £m % Receivables 6.2% vs DEC23, due to volume management in 4Q23, as well as higher repayments and lower spend by existing cu
Slide 12: Vehicle Finance Stage 3 Receivables Review
Vehicle Finance Stage 3 Receivables Review £(28.9)m loss following a detailed review of VF balances DEC23 Represent Re- DEC23 (reported) ation statement (restated) BAU Review JUN24 • New charge-off policy Introduced in JUN24 with a £m £m £m newly established PCOA valued at £17.8m, based on £m £m £m
Slide 13: Net Interest Income
Net Interest Income 1H24 stable vs 1H23 Net interest income (£m) • Re-pricing initiatives implemented in Cards and Vehicle 0% Finance during 4Q23 and 1H24, resulting in interest income 6.3% (6.0%) growth (vs 1H23) more than offsetting reduction in receivables. • 1H24 interest income includes a £(3.1
Slide 14: Net Interest Margin
Net Interest Margin NIM remains stable Asset yield by key product (%)28 NIM trend (%)19, 30 30 29.3% 28 26.8% 26 23.9% 23.5% +20bps 24 22.9% (10)bps 22 0.5% 22.4% 0.2% (0.9%) 20 0.6% (0.1%) (0.8%) 0.7% (0.1%) 18.8% 18 18.7% 18.6% 18.7% 16 17.2% 17.6% 14 12 13.7% 2 0 1H23 Asset Product Liquidity31 Fu
Slide 15: Receivables (statutory)
Receivables (statutory) Reduction driven by Vehicle Finance Stage 3 Review and underlying trading Gross receivables (statutory) trend (£m)7 • Reductions in underlying trading receivables in Cards 2,741 c.£(129)m, Loans c.£(39)m, and Vehicle Finance c.£(8)m, offset (230) by growth in second charge mo
Slide 16: Interest Earning Balances
Interest Earning Balances Rate of decline slowed in 2Q24 & successful launch of second mortgage product Gross customer interest earning balances2 trend (£m) • Reduction of receivables (6.2%) due to volume management £(149)m / (6.2%) in 4Q23, lower customer spend, and higher repayments in 2,402.7 2.7
Slide 17: Impairment Charges
Impairment Charges Impacted by Vehicle Finance review, underlying impairment in line with expectation Impairment charge trend (£m) • Lower origination charges in line with reduced new business 8.9% Reduced growth (£(15)m) volumes. 101.3 0.5 93.0 10.4 • Credit risk remains broadly stable in the under
Slide 18: Expected Credit Losses
Expected Credit Losses Significant reduced ECL driven by Vehicle Finance Stage 3 review ECL balance movement (£m) • ECL reduced by £(229.2)m due to a £(232.7)m write-off as a £(229.2)m / (39.4%) result of the Vehicle Finance Stage 3 receivables review. 581.9 16.1 18.9% 109.7 (125.9) • £(203.6)m redu
Slide 19: Adjusted Operating Costs
Adjusted Operating Costs 2024 cost saves on track; further cost saves planned by the end of 2025 Cost Drivers (£m)38 • Adjusted operating costs increased marginally (+1.6%) vs 1H23 +1.6% due to higher complaints costs and legacy one-off items. 10.2 (15.0) • £10.2m legacy one-off cost impact in 1H24,
Slide 20: Complaints Activity
Complaints Activity Elevated CMC activity continues with outstanding complaints reduced in 1H24 Complaint type 1H24 (%) Lending origination complaint source • Elevated complaints level continued with increasing majority (%) being Cards Lending origination complaints received from Customer CMCs (4x i
Slide 21: Cards
Cards Receivables decline slowed in 2Q24, with marginal growth in JUN24 Gross customer interest earning balances (£m)2, 17 29.3% Average limit originated (£)44 vs New business (#) 27.9% Mgmt. action 27.0% 27.3% 27.2% 27.2% 26.8% (7.1%) 34,481 1,425 1,390 934 (2.1%) 838 1,039 1,345 +0.1% 1,324 1,307
Slide 22: Vehicle Finance
Vehicle Finance Interest earning receivables stable in 2Q24 Gross customer interest earning balances (£m)2, 45 Average balance (£)47 vs New business 18.0% Mgmt. action 16.6% 16.2% 9,249 9,022 8,871 5,579 (1.2%) 0.2% 3,278 859 848 850 1,424 DEC23 MAR24 JUN24 JAN23 MAY23 JUN23 JUL23 AUG23 OCT23 SEP23
Slide 23: Liquidity & Funding
Liquidity & Funding Retail deposits >86% of Group funding Liquidity (£m) • High levels of liquidity and surplus maintained (liquidity £802m JUN24 DEC23 at 25JUL24). £m £m HQLA14 716.6 682.0 • Early partial repayment of £75m TFSME funding in 1H24, LCR48 557% 1,263% reducing reliance on wholesale fund
Slide 24: Capital
Capital Lower capital but within existing Tier 1 Target Operating Range (19.5%-20.5%) Tier 1 ratio (%)1, 13 20.5 1.6 (2.3) (0.6) 19.9 (0.2) 19.8 (0.1) 0.9 DEC23 PY restatement DEC23 RWE Reduction Statutory Loss Intangibles Intangibles spend Other JUN24 (published) (restated) amortisation & write-off
Slide 25: Key messages
Key messages 1. Clearer and more stable financial position following Vehicle Finance Stage 3 receivables review and addressing legacy one-off items that impacted 1H24 results. 2. Re-pricing initiatives completed in Cards and Vehicle Finance, with further re-pricing targeted at specific segments and
Slide 26: Guidance Summary
Guidance Summary* 2024 guidance updated to reflect VF receivables review and legacy one-off losses FY24 Target (MAR24) Revised FY24 Guidance NIM (inc. second charge mortgages) >18% No change Cost: Income ratio 60-63% 62-65% Retail funding (% of all funding) >85% No change Tier 1 ratio 19.5% – 20.5%
Slide 27: Q&A
VONQUIS Q&A Banking with heart
Slide 28: Appendix
VONQUIS APPENDIX Banking with heart
Slide 29: Financial Performance Reporting
Financial Performance Reporting Exceptional items excluded from adjusted PBT • Our financial performance is measured and managed on an 1H24 2H23 1H23 adjusted PBT basis, and ultimately on a ROTE basis (see page £m £m £m 37). Strategy consultancy costs 7.8 3.5 - Redundancy - outsourcing and other sta
Slide 30: Profit & Loss
Profit & Loss 1H24 2H231 1H231 Change • Statutory loss before tax of £(46.5)m impacted by Vehicle £m £m £m 1H vs 1H% Interest income 8% Finance receivables review, legacy one-off items and 285.2 291.2 264.8 exceptional items. Interest expense (70.7) (63.1) (50.3) 41% Net interest income 214.5 228.1
Slide 31: Non-Interest Income
Non-Interest Income Non-interest income (£m) • Fees and commission income includes late, overlimit, cash advance and merchant acquiring fees. 1H24 2H23 1H23 Change £m £m £m 1H vs 1H% • The decrease in Fee and commission income is due to lower Fee and commission income 20.1 22.7 21.5 (7%) cash advanc
Slide 32: Product Contribution
Product Contribution Snoop & Cards Vehicle Finance Loans Corporate Centre Total Mortgages Asset driven products 1H24 1H23 1H24 1H231 1H24 1H23 1H24 1H23 1H24 1H23 1H24 1H231 £m £m £m £m £m £m £m £m £m £m £m £m Interest income 202.6 175.1 69.8 72.8 9.2 12.3 1.0 - 2.6 4.6 285.2 264.8 Interest expense
Slide 33: Receivables Reconciliation
Receivables Reconciliation (see slides 15 & 16) Cards Vehicle Finance Loans Mortgages Total Asset driven products JUN24 DEC23 JUN24 DEC231 JUN24 DEC23 JUN24 DEC23 JUN24 DEC231 £m £m £m £m £m £m £m £m £m £m Gross customer interest earning balances 1,296.5 1,425.1 850.3 858.7 77.0 116.3 30.4 2.7 2,254
Slide 34: Corporate Centre
Corporate Centre58 1H24 2H23 1H23 Change • Group funding activities are reported under the Corporate £m £m £m 1H vs 1H% Centre, with the resulting NII not allocated to the products. Interest income 2.6 3.8 4.6 (43%) Interest expense (10.0) (13.5) (15.4) (35%) • Interest income primarily represents i
Slide 35: Summary Balance Sheet
Summary Balance Sheet JUN24 DEC231 Change • Cash includes liquid asset buffers that are held at the BoE. £m £m % Assets • Amounts receivables from customers comprise gross Cash and balances at central banks 772.8 743.3 4% receivables (statutory) offset by the ECL (See page 15). Amounts receivables f
Slide 36: Capital Composition
Capital Composition JUN24 DEC23 DEC23 £m Restated Published • Tier 1 required is 13.4% of risk-weighted exposures (RWE), being £m £m 75% of the Group's Total Capital Requirement (TCR) plus Total equity 529.7 569.1 583.1 combined buffers of 4.5%, but excluding any confidential or Retirement benefit a
Slide 37: ROTE Calculation
ROTE Calculation 1H24 1H23 £m £m • Returns are based on adjusted results for the 6 months ended (53.9) (26.0) 30 June, multiplied by an annualisation factor. Annualised Adjusted LBT Annualised Adjusted Tax credit 11.5 7.6 • Balance sheet item averages are based on average month Annualised Net fair v
Slide 38: Second Charge Mortgages
Second Charge Mortgages Successful launch with notable volumes coming through from 2Q24 Gross customer interest earning balances (£m)2 • Successfully launched second charge mortgage proposition, growing receivables to c£30m (DEC23: £3m), with JUN24 balances up £17m compared to MAY24. • Notable volum
Slide 39: Personal Loans
Personal Loans Re-launch to existing customers during 2Q24 Gross customer interest earning balances (£m)2 Average balance (£)66 vs New business Mgmt. action 3,726 3,426 2,899 (19.5%) 2,716 116 (17.8%) 94 77 388 0 JUL23 AUG23 FEB23 SEP23 NOV23 MAY23 JUN23 FEB24 MAY24 JUN24 JAN23 MAR23 JAN24 MAR24 OCT
Slide 40: Glossary
Glossary APR Annual Percentage Rate LCR Liquidity Coverage Ratio AT1 Additional Tier 1 LPS Loss per share AVE / Ave. Average Mgmt. Management BAU Business As Usual NII Net interest income BoE Bank of England NIM Net interest margin BS Balance Sheet P&L Profit & Loss Account CCD Consumer Credit Divis
Slide 41: Footnotes
Footnotes Evidence of improved trading 1H24 Metrics & Key Ratios As part of the review of the Vehicle Finance Stage 3 portfolio, it was identified that: Gross receivables on a statutory basis includes all balances outstanding from customers, including 7 • Cash flows expected to be received from cont
Slide 42: Footnotes
Footnotes Cost of risk is defined as impairment charges for the period multiplied by 365/181 as a percentage Debt sales comprise income from both forward flow sales and one-of debt sales, including PCOA 20 34 of average gross receivables for the 7 months ended 30 June. sales. Risk-adjusted margin is
Slide 43: Footnotes
Footnotes Average balance calculated as average loan amount of all the deals originated within a particular Product Contribution 47 month. Total customer numbers of 1.74m at Jun24 (Dec23: 1.75m) are presented net of cross product 57 Liquidity & Funding holding. Customer numbers by product are presen
Slide 44: Disclaimers
Disclaimers Important notice The information in this presentation may include forward-looking statements. Forward looking statements, by their nature involve risk and uncertainty as they relate to future events and circumstances. Forward looking statements can be identified from the fact that they d
Slide 45: Investor Relations contact
Investor Relations contact Miriam McKay Phone: +44 7577 390666 Email: miriam.mckay@vanquis.com Website: www.vanquisbankinggroup.com
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