Vanquis Banking Group Plc · LSE:VANQ
Vanquis Banking — FY2023 Earnings Presentation
39 slides from Vanquis Banking's earnings presentation, Mar 27, 2024
Slide 1: Vanquis Banking Group 2023 full year results
Vanquis Banking Group 2023 full year results 27 March 2024
Slide 2: Performance overview
Performance overview Ian McLaughlin Chief Executive Officer
Slide 3: Challenges in 2H23
Challenges in 2H23 1. Under investment in key capabilities for a number of years. 2. IFRS 9 impairment model enhancements contributing disproportionately to profitability. 3. Need to refocus on sustainable and profitable growth in both customer numbers and receivables. 4. Updated pricing strategy ne
Slide 4: 2023 highlights
2023 highlights • Significant changes in senior management in 2H23 (CEO, CFO)1; a New Chair1 ; and Executive Committee Management refresh Business profile / • Swift action in 2H23 to manage volume growth, pricing and costs strategy • Future strategic direction being announced later today • Adjusted
Slide 5: 2023 Full year results
2023 Full year results Dave Watts Chief Financial Officer
Slide 6: 2023 Results Summary
2023 Results Summary Positive management actions in 2H23 FY23 FY22 Change £m • Growth in gross receivables, mostly in 1H23, not matched by £m3 % 2,740.9 2,509.8 9% growth in net interest income due to increased interest expense. Gross Receivables7 • Increase in FY23 impairments reflects lower model
Slide 7: 2023 Metrics & Key Ratios
2023 Metrics & Key Ratios Metrics & ratios lag management action DEC23 DEC22 Change £m £m % • Gross receivables up 9% YoY driven by 12.8% growth in 1Q23 to Receivables 3Q23, followed by a 3.2% reduction in 4Q23 due to volume management. Gross receivables7 2,740.9 2,509.8 9% Net Receivables9 2,175.1
Slide 8: Net Interest Income
Net Interest Income Change in management prioritisation in 4Q23 Interest income (£m)3 Interest expense (£m) • Over 90% of Group’s Total income driven by Net interest income (NII). • Interest expense increased due to higher market interest rates and higher funding balances. Cost of funds remains belo
Slide 9: Net Interest Margin
Net Interest Margin Stabilisation due to management action Asset yield by key product (%)23 NIM development current basis (%)3,15 28 26.8% (180)bps 25.6% 25.7% 21.2% 26 20.9% (10)bps 24.3% 23.5% (0.3%) 24 23.1% (1.3%) 0.2% 0.8% (1.2%) 22 21.2% 19.1% 0.6% (0.1%) (0.8%) 19.0% 19.0% (0.1%) 20 17.9% 18
Slide 10: Receivables
Receivables Improvement in book quality Gross receivables by Stage (£m)7 • Quarterly receivables increased throughout 2023, noting active +9.2% volume management resulted in a drop in 4Q23 gross +5.0% (3.2)% +3.8% +3.5% receivables. 2,831 2,741 2,606 2,697 2,510 606 628 650 23.7% • Gross receivables
Slide 11: Impairment charges
Impairment charges Driven by new business origination & reduced level of ECL release £100m YoY impairment charge increase (£m) • New origination charges correlates with receivables volume growth. +151.3% • Excluding a FY23 movement in Loans (£7.7m), the risk on the back Increased growth (£39m) 166.1
Slide 12: Expected Credit Losses
Expected Credit Losses Potential debt sales in Vehicle Finance to be evaluated in 2024 Expected Credit Losses (£m) ECL balance movement (£m)32 FY23 FY22 FY21 (10.0)% (1.5)% £m £m £m 672.9 (5.1)% 605.6 596.5 ECL brought forward 596.5 605.6 672.9 28.5% 565.8 191.8 19.4% 19.1% 117.5 114.1 Derecognition
Slide 13: Adjusted Operating Costs
Adjusted Operating Costs Management action delivers early benefit in 2023 Cost Drivers YoY (£m)34 • Upward projected increase in 2023 costs, mitigated by one-off +3.4% cost saves (e.g. no bonus) and initiation of new transformation cost savings programme. 16.6 (10.3) (15.4) 12.0 19.2 (16.3) 297.8 •
Slide 14: Complaints Activity
Complaints Activity Significant ramp up of CMC activity in Cards in 4Q23 Complaint type 2023 (%) Lending origination complaint source • A c.2.5x increase in complaints volume in 2023, which is (%) continuing in 2024. Direct 9% • This is driven by significant CMC activity targeting lending originatio
Slide 15: Cards
Cards Management action drove change in APR % booking mix Pricing booking mix (APR %)37 Arrears rate39 & expected 12m bad rate (%) 16.1% 10.2% 9.4% 8.2% 7.4% 6.6% MAR22 AUG22 MAR22 AUG22 MAY23 MAY23 MAY22 MAY22 JUL22 SEP22 OCT22 JUL22 SEP22 OCT22 FEB23 JUL23 FEB23 JUL23 NOV22 NOV22 OCT23 APR22 MAR23
Slide 16: Vehicle Finance
Vehicle Finance Benefit of 3Q23 price review in 2024 Pricing booking mix (APR %)37 Arrears rate 41 & expected 12m bad rate (%) 30.1% 28.4% 27.1% 13.4% 13.4% 11.9% JUL22 JUL22 JAN22 MAR22 MAY22 JUN22 AUG22 FEB23 JAN22 MAR22 MAY22 JUN22 AUG22 FEB23 SEP22 OCT22 NOV22 MAR23 MAY23 AUG23 SEP22 OCT22 NOV22
Slide 17: Liquidity & Funding
Liquidity & Funding Competitive advantage from retail funding Liquidity (£m) • High levels of liquidity and surplus maintained (liquidity £784m DEC23 DEC22 £m £m at 21 MAR 24). HQLA20 682 421 LCR42 1,263% 1,139% • Significantly increased retail funding replacing senior wholesale 627 384 and retail b
Slide 18: Capital
Capital Strong capital position with a CET1 ratio of 20.5% Tier 1 ratio (%) 26.4 Growth Shareholder return (2.7) 24.1 0.4 (2.3) (0.3) (0.9) 20.5 (0.3) (0.1) 0.3 DEC22 IFRS 9 Transition PY Restatement DEC2247 RWE Growth Snoop Dividends Statutory Loss Intangibles Other DEC23 (published) Acquisition Ti
Slide 19: Key messages
Key messages 1. Transformative action by the new team delivered significant benefit in 2023. 2. Our product pricing will reflect our cost of funds, our cost of risk, our cost of administration, and in time be sufficient to generate an appropriate return for our shareholders. 3. Our cost of funds nee
Slide 20: Guidance Summary
Guidance Summary* Transition to mid-teens ROTE in 2026 FY23 FY24 Guidance NIM (inc. 2nd 19.0% >18% charge mortgages) Cost: income Ratio 60.9% 60-63%** Retail funding 83.7% >85% (% of all funding) CET1 ratio 20.5% 19.5% – 20.5%*** ROTE 3.2% Low single digits * All measures are on an adjusted basis **
Slide 21: Appendix
\YP VANQUIS 222 Appendix
Slide 22: Financial Performance Reporting
Financial Performance Reporting • Our financial performance is measured and managed on Items excluded from adjusted PBT an adjusted PBT basis, and ultimately on a ROTE basis (see 1H23 2H23 FY23 FY22 £m £m £m £m page 32). Strategy Consultancy costs - 3.5 3.5 3.8 • Exceptional items, Amortisation of a
Slide 23: Income & NIM Reconciliation
Income & NIM Reconciliation Re-presented income (£m) • FY22 was re-presented in the 1H23 interim results to reflect a FY22 VF Other small movement of certain elements of Vehicle Finance other Liquidity FY223 (published) income income from interest income. Interest income 486.9 (2.9) 7.5 491.5 Intere
Slide 24: Profit & Loss
Profit & Loss 1H23 2H23 FY23 FY22 Change £m £m £m £m3 % Interest income 264.8 291.2 556.0 491.5 13% Interest expense (50.3) (63.1) (113.4) (58.8) 93% Net interest income 214.5 228.1 442.6 432.7 2% Fee and commission income 21.5 22.7 44.2 47.0 (6%) Fee and commission expenses (0.7) (1.0) (1.7) (2.8)
Slide 25: Non-interest Income
Non-interest Income Non-interest income (£m) • Fees and commission income includes late, overlimit, cash FY23 FY22 Change advance and merchant acquiring fees. £m £m3 % Repayment Option Plan (ROP) - 5.5 (100%) • Excluding discontinued income from the ROP product, fees Other Fees and Commissions 44.2
Slide 26: Product contribution
Product contribution Snoop & Cards Vehicle Finance Loans Corporate Centre Total mortgages Asset driven products FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 £m £m3 £m £m3 £m £m £m £m £m £m3 £m £m3 Interest income 371.0 337.4 150.3 137.7 25.9 13.1 0.4 - 8.4 3.3 556.0 491.5 Interest exp
Slide 27: Receivables reconciliation
Receivables reconciliation (see slide 10) Cards Vehicle Finance Loans Mortgages Total Asset driven products DEC23 DEC22 DEC23 DEC22 DEC23 DEC22 DEC23 DEC22 DEC23 DEC22 £m £m £m £m £m £m £m £m £m £m Gross customer interest earning balances 1,425.1 1,392.4 807.1 700.8 116.3 84.2 2.7 - 2,351.2 2,177.4
Slide 28: Corporate centre
Corporate centre58 FY23 FY22 Change • Group funding activities are reported under the Corporate £m £m3 % Centre, with the resulting NII not allocated to the products. Interest income 8.4 3.3 155% Interest expense (28.9) (13.1) 121% • Interest income primarily represents income on BoE balances Net in
Slide 29: FTE & Cost type analysis
FTE & Cost type analysis Full-Time Equivalent (FTE)59 • FTE reduction due to transformation and outsourcing initiatives, offset by increased headcount from Snoop (23.1)% acquisition. 1,929 (149) • Majority of Group’s operating cost base relate to staff; (236) opportunities exist to improve administr
Slide 30: Summary balance sheet
Summary balance sheet DEC23 DEC22 Change £m £m % • Cash includes liquid asset buffers that are held at the BoE. Assets 60% • Retail deposits increased as the Group is moving to an Cash and balances at central banks 743.3 464.9 increased level of retail funding. Amounts receivables from customers9, 6
Slide 31: Capital composition
Capital composition DEC23 DEC22 £m £m • Tier 1 required is 13.4% of risk-weighted exposures (RWE), Total equity63 583.1 607.2 being 75% of the Group's Total Capital Requirement (TCR) plus combined buffers of 4.5%, but excluding any IFRS 9 transitional arrangements - 54.2 confidential or management b
Slide 32: ROTE Calculation
ROTE Calculation5 FY23 FY22 £m £m • Returns are based on results for the 12 months ended 31 24.9 126.6 December, where Adjusted PAT is adjusted PBT less tax (i.e. Adjusted PBT before exceptionals & amortisation of intangibles). Tax charge (7.7) (29.4) Net fair value gains (4.7) (3.7) • Balance sheet
Slide 33: Personal Loans
Personal Loans Price booking mix (APR %)37 Arrears rate & expected 12m bad rate (%) 10.8% 10.8% 8.8% 9.5% 7.6% MAY22 MAR22 JUL22 AUG22 SEP22 OCT22 NOV22 FEB23 MAR23 MAY23 JUL23 AUG23 SEP23 APR22 JAN22 JUN22 JAN23 APR23 JUN23 DEC21 FEB22 DEC22 MAR22 MAY22 AUG22 JUL22 SEP22 OCT22 MAY23 FEB23 JUL23 NOV
Slide 34: Glossary
Glossary APR Annual Percentage Rate IFRS International Financial Reporting Standards AT1 Additional Tier 1 KPI Key Performance Indicator AVE / Ave. Average LCR Liquidity Coverage Ratio BAU Business As Usual NED Non-Executive Director BoE Bank of England NII Net interest income BS Balance Sheet NIM N
Slide 35: Footnotes
Footnotes 2023 Highlights 12 ROTE is presented on an adjusted basis (see note 5). Sir Peter Estlin appointed to the Board as a NED (19 April) and then as Chair (effective 15 September), Asset yield is calculated as interest income received from customers for the 12 months ended 31 13 1 Ian McLaughli
Slide 36: Footnotes
Footnotes Impairment charges Cards Under IFRS 9, Interest income is recognised on the gross receivable when accounts are in IFRS 9 37 Volume booking mix by acquisition APR band. 26 stages 1 and 2 and on the net receivable for accounts in stage 3. 38 Average of limits originated for all customers tha
Slide 37: Footnotes
Footnotes Tier 1 required is 13.4% of risk-weighted exposures (RWE), being 75% of the Group's Total Capital • Staff costs include all costs in relation to employees, including wages, pensions, benefits, Requirement (TCR) plus combined buffers of 4.5%, but excluding any confidential or management tra
Slide 38: 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 39: Investor Relations contact
Investor Relations contact Miriam McKay Interim Head of Investor Relations Phone: +44 7577 390666 Email: miriam.mckay@vanquisbankinggroup.com Website: www.vanquisbankinggroup.com