Vanquis Banking Group PLC · LSE:VANQ
Vanquis Banking — Provident Financial — Investor Day (April 2015)
156 slides from Vanquis Banking's investor day presentation, Apr 16, 2015
Slide 1: Provident Financial plc Investor & Analyst Event
Provident Financial plc Investor & Analyst Event – April 2015 1 Provident Financial plc Investor & Analyst Event 16 April 2015
Slide 2: Introduction
Provident Financial plc Investor & Analyst Event – April 2015 2 Introduction Peter Crook – Chief Executive
Slide 3: Today's schedule
Provident Financial plc Investor & Analyst Event – April 2015 3 Today’s schedule Timing Area Presenter 10.45 – 11.15 Group update Peter Crook 11-15 – 11.45 CCD – Strategy and update on home credit Mark Stevens 11.45 – 12.00 Coffee 12.00 – 13.00 CCD – Satsuma and glo (including Q&A) Hemant Patel 13.0
Slide 4: Leading specialist non-standard lender in the UK
Provident Financial plc Investor & Analyst Event – April 2015 4 Leading specialist non-standard lender in the UK High returns are available to companies with sustainable business models 1. We focus solely on serving the non-standard credit market: – We provide access to credit for those who might ot
Slide 5: Business attributes
Provident Financial plc Investor & Analyst Event – April 2015 5 Business attributes We apply exacting standards in allocating capital to organic and acquisition opportunities 1. High returns 2. Sustainable business 3. Growth potential 4. Strong market position 5. Good management and cultural fit
Slide 6: Robust financial model
Provident Financial plc Investor & Analyst Event – April 2015 6 Robust financial model Alignment of dividend policy, gearing and growth High returns businesses Dividend Gearing Growth policy ≤ 3.5x versus covenant Supports receivables growth Cover ≥ 1.25x of 5.0x of £230m+
Slide 7: Our businesses
Provident Financial plc Investor & Analyst Event – April 2015 7 Our businesses High return businesses with attractive growth potential Product Established Profit ROA1 Growth potential Credit cards 2002 £151m2 c.15%2 Continued strong medium-term growth potential High returns business with large Home
Slide 8: Delivering consistent shareholder value
Provident Financial plc Investor & Analyst Event – April 2015 8 Delivering consistent shareholder value Strong financial performance and shareholder returns Earnings per share › We have generated strong, profitable growth 140 120 since demerger and through the crisis 100 › Adopted a progressive divi
Slide 9: The UK non-standard credit market
Provident Financial plc Investor & Analyst Event – April 2015 9 The UK non-standard credit market Uncertainty remains as to the future size and shape of the UK non-standard credit market but this provides the group with significant opportunity Pre-2000 2000-2007 2007-2012 2012 onwards Expansion of U
Slide 10: The UK non-standard credit market
Provident Financial plc Investor & Analyst Event – April 2015 10 The UK non-standard credit market The group’s businesses serve a large part of the non-standard market £150,000 Mortgage £75,000 £25,000 Secured Car finance 2nd charge £5,000 Unsecured loan/guarantor Rent to own £2,500 Typical loan siz
Slide 11: Regulation – Recent evolution
Provident Financial plc Investor & Analyst Event – April 2015 11 Regulation – Recent evolution The regulatory environment has seen significant change and investigation over recent years OFT FSA FCA/PRA OFT established created created closes OFT regime FCA regime HCSTC price cap 1973 1994 1997 2004 2
Slide 12: Regulation – Process for applying for full FCA authorisation
Provident Financial plc Investor & Analyst Event – April 2015 12 Regulation – Process for applying for full FCA authorisation Interim permissions expire after the application period if a full application is not received, or within 6 to 12 months of applications being submitted 1 April 2014 1 October
Slide 13: Regulation – FCA application periods
Provident Financial plc Investor & Analyst Event – April 2015 13 Regulation – FCA application periods Vanquis Bank submitted its application for variation of FCA permissions in December 2014 and CCD and Moneybarn will submit their application for full authorisation shortly 1 Oct 2014 1 Apr 2015 1 Ju
Slide 14: Regulation – What does the new regulatory regime require?
Provident Financial plc Investor & Analyst Event – April 2015 14 Regulation – What does the new regulatory regime require? A significant and sustained commitment of time, effort and resources to embed new ways of working across the whole organisation › Full formal governance structures for each auth
Slide 15: Regulation – How the group will look
Provident Financial plc Investor & Analyst Event – April 2015 15 Regulation – How the group will look Each business will have non-executive directors and approved persons Group Functions (Legal, PFG PRA consolidated supervision Finance, Treasury, Capital adequacy (ICG) and large exposures Audit,
Slide 16: Regulation – Implications of changes in regulation
Provident Financial plc Investor & Analyst Event – April 2015 16 Regulation – Implications of changes in regulation The new regime has already had a dramatic impact and is likely to continue to do so › Different order of magnitude of financial and operational costs of regulatory compliance, raising
Slide 17: Regulation – PFG positioning
Provident Financial plc Investor & Analyst Event – April 2015 17 Regulation – PFG positioning The group is on track to transition to the FCA › New, tougher FCA regime is a big change for all credit providers › PFG is a large, public company with strong controls and governance processes › Experience
Slide 18: Investment case
Provident Financial plc Investor & Analyst Event – April 2015 18 Investment case The group is well placed to continue to deliver excellent returns to shareholders › Leaders in non-standard credit will be larger, well-managed lenders with sustainable business models › We have a good mix of businesses
Slide 19: Consumer Credit Division
Provident Financial plc Investor & Analyst Event – April 2015 19 Consumer Credit Division Mark Stevens – Managing Director Hemant Patel – Director of New Markets
Slide 20: CCD – Today's agenda
Provident Financial plc Investor & Analyst Event – April 2015 20 CCD Today’s agenda 1. CCD strategy ‒ recap Mark Stevens 2. Home credit Mark Stevens 3. Satsuma Hemant Patel 4. glo Hemant Patel 5. Summary and outlook Mark Stevens
Slide 21: CCD – Background
Provident Financial plc Investor & Analyst Event – April 2015 21 CCD – Background CCD was performing below expectations in 2013 › Profits were declining: – Focus on customer numbers at the expense of returns – Impairment rising sharply – Cost pressure from inefficient operating processes – Limited i
Slide 22: CCD strategy
Reminder from 2013 Investor & Analyst Event Provident Financial plc Investor & Analyst Event – April 2015 22 CCD strategy Our new strategy has 2 elements – We will become a lending business not just a home credit business 1. Update home credit and drive for returns 2. Win in online loans › Investing
Slide 23: CCD – Today's agenda
Provident Financial plc Investor & Analyst Event – April 2015 23 CCD Today’s agenda 1. CCD strategy ‒ recap Mark Stevens 2. Home credit Mark Stevens 3. Satsuma Hemant Patel 4. glo Hemant Patel 5. Summary and outlook Mark Stevens
Slide 24: Home credit – A robust business model
Provident Financial plc Investor & Analyst Event – April 2015 24 Home credit – A robust business model Since 1880, Provident has been a unique customer proposition › The home credit service fits the needs of home credit customers ‘like a glove’: – Affordable weekly repayments – Fixed and guaranteed
Slide 25: Update home credit and drive for returns
Reminder from 2013 Investor & Analyst Event Provident Financial plc Investor & Analyst Event – April 2015 25 Update home credit and drive for returns In Q4 2013, we embarked on creating a leaner, better-quality, modern, more profitable home credit business Update home credit and drive for returns Mu
Slide 26: Home credit – Technology & apps
Provident Financial plc Investor & Analyst Event – April 2015 26 Home credit – Technology & apps The business is now digital › 100% of agents on collections app › 100% of agents on lending app by mid-year 2015 › Customer MI on iPad minis for field management enabling more time with agents and custom
Slide 27: Home credit – 'One Best Way'
Provident Financial plc Investor & Analyst Event – April 2015 27 Home credit – ‘One Best Way’ We have fundamentally changed and improved our ways of working › Over 50 new standardised operating procedures across 240 branches › Compressing the deciles of performance › Material improvement in collecti
Slide 28: Home credit – Collections focus
Provident Financial plc Investor & Analyst Event – April 2015 28 Home credit – Collections focus A multi-faceted approach has led to a rapid reduction in impairment 40% 38% › Scorecard tightening 36% › Standardised arrears management process 34% embedded on iPad minis 32% 30% › New agent commission
Slide 29: Home credit – Much lower costs
Provident Financial plc Investor & Analyst Event – April 2015 29 Home credit – Much lower costs We have delivered substantial cost reduction › 3 phases of cost reduction generating £30m annual gross run-rate savings: – Partly reinvested in business development to support CCD medium-term profit growt
Slide 30: Home credit – Performance through people
Provident Financial plc Investor & Analyst Event – April 2015 30 Home credit – Performance through people The key people metrics that drive profit have been significantly improved › New and improved agent recruitment, induction and training processes: – Agent turnover down 20% – Agent vacancies halv
Slide 31: Home credit – Drive for returns
Provident Financial plc Investor & Analyst Event – April 2015 31 Home credit – Drive for returns All leading to a step-change in returns 70% › Marked improvement in risk-adjusted 65% margin from 58.9% in 2013 to 69.1% in 2014 60% › Reversal of long-run downward trend 55% › Return on assets of 18.1%
Slide 32: Home credit – Outlook
Provident Financial plc Investor & Analyst Event – April 2015 32 Home credit – Outlook › We run home credit to deliver good customer outcomes which support sustainable returns › The bulk of the customer reduction has been achieved: – Removal of marginal and unprofitable customers – Substantial impro
Slide 33: CCD – Today's agenda
Provident Financial plc Investor & Analyst Event – April 2015 33 CCD Today’s agenda 1. CCD strategy ‒ recap Mark Stevens 2. Home credit Mark Stevens 3. Satsuma Hemant Patel 4. glo Hemant Patel 5. Summary and outlook Mark Stevens
Slide 34: CCD – Strategy
Reminder from 2013 Investor & Analyst Event Provident Financial plc Investor & Analyst Event – April 2015 34 CCD – Strategy Our new strategy has 2 elements – We become a lending business not just a home credit business 2. Win in online loans › Applying the proven home credit DNA › Targeting customer
Slide 35: CCD – Opportunity in the online instalment market
Provident Financial plc Investor & Analyst Event – April 2015 35 CCD – Opportunity in the online instalment market Customer demand for instalment loans is not being met by the market, we believe there is a significant supply side opportunity £16 £14 Estimated unsecured gross advances (£bn) £12 £10 W
Slide 36: Satsuma – Our original hypothesis
Provident Financial plc Investor & Analyst Event – April 2015 36 Satsuma – Our original hypothesis Now is the right time to enter the online loans market with a unique customer proposition › The market opportunity is large: – Payday economics under threat from regulation – Opportunity for responsibl
Slide 37: Satsuma – Regulation
Provident Financial plc Investor & Analyst Event – April 2015 37 Satsuma – Regulation The FCA is cleaning up the market, putting significant pressure on the payday model › CPA must be suspended after 2 unsuccessful attempts: – Prevents payday providers gaming the payments system to collect repayment
Slide 38: Satsuma – Regulation and competition
Provident Financial plc Investor & Analyst Event – April 2015 38 Satsuma – Regulation and competition Which will shake out smaller and non-compliant players, leaving fewer larger providers Estimates suggest 25% - 30% of lenders could exit following the introduction of Estimates suggest a third the F
Slide 39: Satsuma – Regulation and competition
Provident Financial plc Investor & Analyst Event – April 2015 39 Satsuma – Regulation and competition Satsuma’s closest competitors have also had to make significant changes Pre FCA Post FCA Pricing reduced by 43bps per day Forced to write off £220m of debt and interest Cutting half of its work forc
Slide 40: Satsuma – We are ideally placed to capitalise
Provident Financial plc Investor & Analyst Event – April 2015 40 Satsuma – We are ideally placed to capitalise Our objective is the same, but we now expect to be top 3 in our market within 2 – 3 years Win in online lending Best Broad Best in class Best in class customer marketing underwriting collec
Slide 41: Satsuma – An introduction to our customers
Provident Financial plc Investor & Analyst Event – April 2015 41 Satsuma – An introduction to our customers Satsuma lends to customers from all walks of life › Satsuma customers... – Typically C1C2D with a moderate but reasonably steady income – Younger AB borrowers who may have little or no previou
Slide 42: Satsuma – Our customers
Provident Financial plc Investor & Analyst Event – April 2015 42 Satsuma – Our customers Our customers tend to be younger and from lower/middle income groups and in full-time employment Gender Age 45% 41% 40% 35% 30% Female 25% 21% 22% 52% 48% 20% Male 15% 12% 10% 5% 3% 1% -% 18-24 25-34 35-44 45-54
Slide 43: Satsuma – Our customers
Provident Financial plc Investor & Analyst Event – April 2015 43 Satsuma – Our customers Satsuma loans help customers to manage their lives and to afford discretionary purchases What do customers use the loan for? 16% Gifts 15% Unexpected bills 14% Car repair, tax, insurance 10% Debt consolidation 1
Slide 44: Satsuma – The best customer proposition
Provident Financial plc Investor & Analyst Event – April 2015 44 Satsuma – The best customer proposition Our proposition is built on experience of serving customers in our market for over 130 years Affordability Certainty Flexibility Forbearance Robust The total cost of We offer We work with aff
Slide 45: Satsuma – The best customer proposition
Provident Financial plc Investor & Analyst Event – April 2015 45 Satsuma – The best customer proposition Which means we stand alone in the market Yes Certain total cost from the outset No No Yes Flexible and affordable repayments
Slide 46: Satsuma – The best customer proposition
Provident Financial plc Investor & Analyst Event – April 2015 46 Satsuma – The best customer proposition Versus our shorter term and instalment peers Competitor Product Flexibility Certain total cost from the outset Brand Parent No additional interest Loan amount Loan term Interest Monthly repayment
Slide 47: Satsuma – The best customer proposition
Provident Financial plc Investor & Analyst Event – April 2015 47 Satsuma – The best customer proposition We will continue to develop our product Larger, longer loans More to come in Monthly product (Up to £1k for new, this space...... (3 to 12 months) £2k for existing) Satsuma launched Concurrent lo
Slide 48: Satsuma – The best customer proposition
Provident Financial plc Investor & Analyst Event – April 2015 48 Satsuma – The best customer proposition Modern, interactive proposition Dedicated customer contact centre (‘the agent on the phone’) Customer log in area Web chat
Slide 49: Satsuma – The best customer proposition
Provident Financial plc Investor & Analyst Event – April 2015 49 Satsuma – The best customer proposition Delivering a service and a relationship that our customers value Receivables - January 2015 35% of the book is loans issued to existing customers – this will grow as the book seasons First issue
Slide 50: Satsuma – The best customer proposition
Provident Financial plc Investor & Analyst Event – April 2015 50 Satsuma – The best customer proposition And driving extremely high levels of customer satisfaction Satsuma customer satisfaction Feb ' 15 76% 19% 5% Very satisfied Quite satisfied No dissatisfied Neither satisfied nor dissatisfied Diss
Slide 51: Satsuma – Broad marketing reach
Provident Financial plc Investor & Analyst Event – April 2015 51 Satsuma – Broad marketing reach Satsuma is a new brand and we have made significant progress building awareness Brand awareness ‒ Indexed 140 130 120 110 100 90 80 Wave 1 (Jun 14) Wave 2 (Aug - Oct 14) Wave 3 (Nov - Jan 15) Wonga QQ P2
Slide 52: Satsuma – Broad marketing reach
Provident Financial plc Investor & Analyst Event – April 2015 52 Satsuma – Broad marketing reach We are developing our messaging as the maturity of the brand grows Our earlier campaigns were focused on being loud and establishing a brand personality to drive awareness...
Slide 53: Satsuma – Broad marketing reach
Provident Financial plc Investor & Analyst Event – April 2015 53 Satsuma – Broad marketing reach We are developing our messaging as the maturity of the brand grows ... we are developing our message to highlight the key benefits of our product versus the competition
Slide 54: Satsuma – Broad marketing reach
Provident Financial plc Investor & Analyst Event – April 2015 54 Satsuma – Broad marketing reach We are developing our messaging as the maturity of the brand grows ... highlighting our key points of difference versus the competition
Slide 55: Satsuma – Broad marketing reach
Provident Financial plc Investor & Analyst Event – April 2015 55 Satsuma – Broad marketing reach We are optimising our channel mix to broaden our reach and manage acquisition cost Direct B2B TV Direct mail Brokers Banner ads Affiliates Radio Aggregator websites Paid search SEO
Slide 56: Satsuma – Broad marketing reach
Provident Financial plc Investor & Analyst Event – April 2015 56 Satsuma – Broad marketing reach We are optimising our channel mix to broaden our reach and manage acquisition cost Speed/ private Customer expectations/needs Handholding/ personal Lower Higher Creditworthiness
Slide 57: Satsuma – Broad marketing reach
Provident Financial plc Investor & Analyst Event – April 2015 57 Satsuma – Broad marketing reach All of which is driving traffic to the website... ...and customer applications Unique website visitors in month Volume of applications (indexed) (indexed) 300 300 Almost 3x the 250 250 Almost 2.5x the nu
Slide 58: Satsuma – Best-in-class underwriting
Provident Financial plc Investor & Analyst Event – April 2015 58 Satsuma – Best-in-class underwriting Underwriting is a key profit lever for the business B2B and B2C marketing Funnel Website visitor App started Test and learn Customer web journey targeting App completed Policy rules Are forecast los
Slide 59: Satsuma – Best-in-class underwriting
Provident Financial plc Investor & Analyst Event – April 2015 59 Satsuma – Best-in-class underwriting We are using advanced analytics to make good decisions for our customers, driving improvements in funded rates without impacting collections performance Over a 50% Funded rate (Indexed) improvement
Slide 60: Satsuma – Best-in-class collections
Provident Financial plc Investor & Analyst Event – April 2015 60 Satsuma – Best-in-class collections Vanquis Bank has developed a best-in-class collections team › Data intensive: – Immediate/overnight contact – Segmentation key to maximise efficiency – High quality of contact data is maintained › Mu
Slide 61: Satsuma – Best-in-class collections
Provident Financial plc Investor & Analyst Event – April 2015 61 Satsuma – Best-in-class collections We have seen tangible improvements in collections performance from leveraging Vanquis Bank capabilities Collections performance Darker lines indicate a more recent vintage Collections % We are on a j
Slide 62: Satsuma – Best-in-class collections
Provident Financial plc Investor & Analyst Event – April 2015 62 Satsuma – Best-in-class collections And our high promise kept rate demonstrates the sustainability of our lending and the efficiency of the manual collections process Promise kept rate 76% 75% 74% 73% 72% 71% 70% Target 69% 68% 67% Apr
Slide 63: Satsuma – Data-led continuous improvement
Provident Financial plc Investor & Analyst Event – April 2015 63 Satsuma – Data-led continuous improvement We are utilising analytics across the journey to drive continuous improvement › We use the best tools available in the market to build, validate and improve decision and targeting models, inclu
Slide 64: Satsuma – Data-led continuous improvement
Provident Financial plc Investor & Analyst Event – April 2015 64 Satsuma – Data-led continuous improvement We are utilising analytics across the journey to drive continuous improvement Product development Drives applications from suitable customers, reducing acquisition costs Improved new and existi
Slide 65: Satsuma – Summary
Provident Financial plc Investor & Analyst Event – April 2015 65 Satsuma – Summary We are investing in the business to deliver sustainable and significant growth › Our original hypothesis is correct: – Regulation is cleaning up the market creating a large opportunity › We have unique capabilities wi
Slide 66: CCD – Today's agenda
Provident Financial plc Investor & Analyst Event – April 2015 66 CCD Today’s agenda 1. CCD strategy ‒ recap Mark Stevens 2. Home credit Mark Stevens 3. Satsuma Hemant Patel 4. glo Hemant Patel 5. Summary and outlook Mark Stevens
Slide 67: glo – Market context
Provident Financial plc Investor & Analyst Event – April 2015 67 glo – Market context Guarantor loans emerged to fill the larger sum unsecured credit gap created by the financial crisis › Pre-credit crunch branch based specialists (HFC, Welcome and Black Horse etc) dominated the larger sum unsecured
Slide 68: glo – Excellent strategic fit
Provident Financial plc Investor & Analyst Event – April 2015 68 glo – Excellent strategic fit Guarantor loans fulfils a customer need not currently satisfied by CCD Remote Channel Face to face Smaller sum Loan value Larger sum › A proposition built on Provident DNA is a perfect fit for customers in
Slide 69: glo – Currently in pilot
Provident Financial plc Investor & Analyst Event – April 2015 69 glo – Currently in pilot We launched glo (the guarantor loan option) as a direct to consumer pilot in November 2014 › We have started to build a brand, using high quality creatives designed to speak to the borrower and the guarantor
Slide 70: glo – Currently in pilot
Provident Financial plc Investor & Analyst Event – April 2015 70 glo – Currently in pilot We are building transferable capabilities and will evaluate success in the near future › We have developed document verification processes and the capability to manually underwrite loans (centrally) through our
Slide 71: CCD – Today's agenda
Provident Financial plc Investor & Analyst Event – April 2015 71 CCD Today’s agenda 1. CCD strategy ‒ recap Mark Stevens 2. Home credit Mark Stevens 3. Satsuma Hemant Patel 4. glo Hemant Patel 5. Summary and outlook Mark Stevens
Slide 72: CCD – Fit with group business attributes
Provident Financial plc Investor & Analyst Event – April 2015 72 CCD – Fit with group business attributes › ROA of 18.1% in 2014: High returns – Highest in the group › Strong capital generation › Provident is the market leader in home credit Market › Satsuma aims to be in the top 3 in the medium
Slide 73: CCD – Delivering commitments
Provident Financial plc Investor & Analyst Event – April 2015 73 CCD – Delivering commitments Excellent progress against commitments set at November 2013 Investor & Analyst Event Commitment Outcome › Substantial home credit transformation to be On track completed by mid-2015 › Financial contribution
Slide 74: CCD – Outlook
Provident Financial plc Investor & Analyst Event – April 2015 74 CCD – Outlook › Business will be managed to achieve stable profits over the medium-term › Transformation complete by mid 2015 Home credit › Improve customer triage between Satsuma and home credit › Satsuma: – Expect 4 - 5x volume of ne
Slide 75: Moneybarn
Provident Financial plc Investor & Analyst Event – April 2015 75 Moneybarn Peter Minter – Managing Director Shamus Hodgson – Commercial Director Simon Law – Finance Director
Slide 76: Moneybarn – Today's agenda
Provident Financial plc Investor & Analyst Event – April 2015 76 Moneybarn Today’s agenda 1. Introduction and strategy Peter Minter 2. Market and commercial overview Shamus Hodgson 3. Reliable financial performance Simon Law
Slide 77: Moneybarn – Background
Provident Financial plc Investor & Analyst Event – April 2015 77 Moneybarn – Background ‘Credit you can trust’ › Founded in 1992 under the name of Duncton to serve the non-standard car finance market › We provide finance to customers rejected by high street banks and manufacturer captives › Our etho
Slide 78: Moneybarn – Positioning
Provident Financial plc Investor & Analyst Event – April 2015 78 Moneybarn – Positioning ‘Never waste a good recession’ › Market failure in 2008/2009 resulted in nearly all competitors exiting › Investment in systems, distribution and skills: – Developed a deal acquisition and management system that
Slide 79: Moneybarn – Strategy
Provident Financial plc Investor & Analyst Event – April 2015 79 Moneybarn – Strategy Develop our position as one of the leading non-standard vehicle finance providers in the UK, delivering positive customer outcomes, sustainable growth and high returns › Using the group’s funding lines to access th
Slide 80: Moneybarn – Business model
Provident Financial plc Investor & Analyst Event – April 2015 80 Moneybarn – Business model Our business model is robust and proven over time › Underwriting decisioning, and pricing for risk, developed over many years › We have strong broker relationships: – Achieved primacy with the majority of bro
Slide 81: Moneybarn – Customer lifecycle
Provident Financial plc Investor & Analyst Event – April 2015 81 Moneybarn – Customer lifecycle Built for sustainable growth › Compliant customer focused approach › 4 to 5 year contracts maintain momentum in the business › Business model can be flexed to suit the environment › Risk managed at all st
Slide 82: Moneybarn – Investment case
Provident Financial plc Investor & Analyst Event – April 2015 82 Moneybarn – Investment case A third leg of earnings that complements the group’s organic growth opportunities › Market leading position › Highly scalable, systems driven business with strong distribution › Predictable, strong and susta
Slide 83: Moneybarn – Today's agenda
Provident Financial plc Investor & Analyst Event – April 2015 83 Moneybarn Today’s agenda 1. Introduction and strategy Peter Minter 2. Market and commercial overview Shamus Hodgson 3. Reliable financial performance Simon Law
Slide 84: Moneybarn – The market
Provident Financial plc Investor & Analyst Event – April 2015 84 Moneybarn – The market Motor finance is a large, well developed market › Non-standard market is Market value Market sales volumes underserved and most c.£40bn c.7m customers use non-direct competition c.£27bn c.4m › The market opportun
Slide 85: Moneybarn – The market
Provident Financial plc Investor & Analyst Event – April 2015 85 Moneybarn – The market The overall car sales market is segmented through a number of dimensions in which we have a clear position in each Dimensions of segmentation Participation by Moneybarn Car type New Used Moneybarn: › Finances pre
Slide 86: Moneybarn – The market
Provident Financial plc Investor & Analyst Event – April 2015 86 Moneybarn – The market Competitive landscape › The motor finance market is defined by segments of consumer credit risk › A range of lenders operate across the risk segments but no one lender operates across all risk segments as custome
Slide 87: Moneybarn – Routes to market
Provident Financial plc Investor & Analyst Event – April 2015 87 Moneybarn – Routes to market Internet brokers › Acquire customers directly through the web, using pay per click, search engine optimisation and other sources of leads › Will maintain large panels of lenders to ensure they can monetise
Slide 88: Moneybarn – Routes to market
Provident Financial plc Investor & Analyst Event – April 2015 88 Moneybarn – Routes to market Dealer brokers › Acquire customers from dealers who pass customers requiring finance to the broker › Maintain field sales teams who focus on building and maintaining relationships with dealers › Will often
Slide 89: Moneybarn – Routes to market
Provident Financial plc Investor & Analyst Event – April 2015 89 Moneybarn – Routes to market Dealers › Dealers who do not use brokers but send applications to us directly › Predominately large car supermarket operations › Will often have central finance units on site › Often market to non-standard
Slide 90: Moneybarn – Routes to market
Provident Financial plc Investor & Analyst Event – April 2015 90 Moneybarn – Routes to market Direct › Customers who are acquired directly through the Moneybarn website › Existing customers who are re-solicited towards the end of their agreement › Direct applications driven by third party leads
Slide 91: Moneybarn – Routes to market
Provident Financial plc Investor & Analyst Event – April 2015 91 Moneybarn – Routes to market Introducer relationships › We have contractual relationships with 47 introducers, including all the UK’s motor finance brokers 100% Direct 2% Internet 90% brokers 11 80% Internet 70% brokers 61% 60% Dealer
Slide 92: Moneybarn – Routes to market
Provident Financial plc Investor & Analyst Event – April 2015 92 Moneybarn – Routes to market Why do intermediaries like Moneybarn? › Rapid decisioning meets intermediary needs: – Underwriting quote is automated, delivered in less than 4 seconds and checks: • Credit file of applicant and associates
Slide 93: Moneybarn – Customer journey (Acquisition)
Provident Financial plc Investor & Analyst Event – April 2015 93 Moneybarn – Customer journey (Acquisition) Highly efficient, automated application process that minimises the time taken to process applications, and removes friction from the customer, dealer and broker experience Internet broker or d
Slide 94: Moneybarn – Customer journey (Decision process)
Provident Financial plc Investor & Analyst Event – April 2015 94 Moneybarn – Customer journey (Decision process) The approval decision is made using a combination of an Experian-derived scorecard, built using our historical data, and Moneybarn’s own internal policy rules Applicant information Experi
Slide 95: Moneybarn – Customer journey (In life)
Provident Financial plc Investor & Analyst Event – April 2015 95 Moneybarn – Customer journey (In life) High levels of customer contact and pro-active, supportive arrears management creates a strong relationship between Moneybarn and the customer, leading to better outcomes › High level of › Focused
Slide 96: Moneybarn – Customers
Provident Financial plc Investor & Analyst Event – April 2015 96 Moneybarn – Customers Typical customer credit characteristics › We provide finance for a range of customers, with a range of credit positions › The credit characteristics of customers range from those currently in an IVA at the higher
Slide 97: Moneybarn – Customers
Provident Financial plc Investor & Analyst Event – April 2015 97 Moneybarn – Customers Typical customer profiles Tier 1 John is a teacher who has generally managed his finances well in the past but 8 months ago he had a number of unexpected expenses that stretched his finances and, as a result, he w
Slide 98: Moneybarn – Customers
Provident Financial plc Investor & Analyst Event – April 2015 98 Moneybarn – Customers Our customer characteristics are very similar to those of Vanquis Bank › Similar to mainstream › Employed (70%) and self-employed (30%) › Incomes similar to national average › Representative of most socio-demograp
Slide 99: Moneybarn – Customers
Provident Financial plc Investor & Analyst Event – April 2015 99 Moneybarn – Customers Why do customers like Moneybarn? › We give customers excluded by the mainstream the ability to buy a quality car of their choice › Our product is simple, easy for customers to understand, and has a fixed rate › Th
Slide 100: Moneybarn – Customers
Provident Financial plc Investor & Analyst Event – April 2015 100 Moneybarn – Customers We achieve high levels of customer satisfaction at all stages of the customer journey 100% 80% 7 Strongly agree 60% 6 5 40% 4 3 20% 2 1 Strongly disagree -% Details of the loan were The loan term is The monthly p
Slide 101: Moneybarn – Product
Provident Financial plc Investor & Analyst Event – April 2015 101 Moneybarn – Product We are a single product company, providing conditional sale agreements to non-standard consumers › Profit is made from the difference between borrowing and lending rates › Approach has always been straightforward w
Slide 102: Moneybarn – Product
Provident Financial plc Investor & Analyst Event – April 2015 102 Moneybarn – Product Our proposition – A typical contract Typical car – Vauxhall Astra Average contract* Detail Term 53 months Maximum term is 60 months APR 33.06% APRs will range between 20% and 59% depending on tier and loan size LTV
Slide 103: Moneybarn – Technology
Provident Financial plc Investor & Analyst Event – April 2015 103 Moneybarn – Technology Our technology is a key differentiator › Personal contact is important to customer acquisition and in-life management but technology is the key differentiator › We redefined the market with the introduction of t
Slide 104: Moneybarn – The growth opportunity
Provident Financial plc Investor & Analyst Event – April 2015 104 Moneybarn – The growth opportunity Well positioned to deliver strong medium-term growth › Significant growth opportunity by: – Fulfilling growing customer demand in a market where there is a general under supply of non- standard car f
Slide 105: Moneybarn – Today's agenda
Provident Financial plc Investor & Analyst Event – April 2015 105 Moneybarn Today’s agenda 1. Introduction and strategy Peter Minter 2. Market and commercial overview Shamus Hodgson 3. Reliable financial performance Simon Law
Slide 106: Moneybarn – Financial model
Provident Financial plc Investor & Analyst Event – April 2015 106 Moneybarn – Financial model Financial model aligns with the rest of the group › Very simple earnings structure with 75% of next 12 months’ revenue contracted at any one time: – Average customer agreement: • Loan of £9,100 • APR of 33%
Slide 107: Moneybarn – Income statement
Provident Financial plc Investor & Analyst Event – April 2015 107 Moneybarn – Income statement High return business 20141 £m Customer numbers (‘000) 22 Strong new business volumes post acquisition Year-end receivables 151.7 Average customer balance of c.£7,000 Average receivables 135.1 Revenue 38.0
Slide 108: Moneybarn – New business volumes and customer growth
Provident Financial plc Investor & Analyst Event – April 2015 108 Moneybarn – New business volumes and customer growth Strong growth in new business volumes New business volumes › Funding provided by Octopus from 1,200 November 2010: 1,000 – No spare capacity on Octopus facility 800 from 2013 600 –
Slide 109: Moneybarn – Managing financial risk
Provident Financial plc Investor & Analyst Event – April 2015 109 Moneybarn – Managing financial risk Extension of the product offering to lend up to the retail value of vehicles › Maximum loan amount increased from Glass’s Guide trade value to Glass’s Average contract (£) Guide retail value in Octo
Slide 110: Moneybarn – Managing financial risk
Provident Financial plc Investor & Analyst Event – April 2015 110 Moneybarn – Managing financial risk Close management of the loss given default (LGD) › LGD is the difference between the outstanding loan and the sales Amortisation of loan versus vehicle valuation proceeds of the vehicle, less costs
Slide 111: Moneybarn – Default rates
Provident Financial plc Investor & Analyst Event – April 2015 111 Moneybarn – Default rates Improving monthly default rates › Automated underwriting introduced in April 2010 › Credit scoring changed from being informative to the basis of underwriting › Bespoke scorecard introduced in April 2014 › In
Slide 112: Moneybarn – Default rates
Provident Financial plc Investor & Analyst Event – April 2015 112 Moneybarn – Default rates Improving cumulative default rates Cumulative default rates by cohort 2010-H1 2010-H1 2010-H2 2011-H1 2011-H2 2010-H2 2011-H1 2012-H1 2011-H2 2012-H2 2012-H2 2012-H1 2013-H1 2013-H1 2013-H2 2013-H2 2014-H1 20
Slide 113: Moneybarn – Cash collections
Provident Financial plc Investor & Analyst Event – April 2015 113 Moneybarn – Cash collections Strong cash collection › Average APRs across our three risk tiers of 27%, 32%, 45% › Highly consistent cash recovery rates across all tiers after costs of recovery › Strength and consistency of underwritin
Slide 114: Moneybarn – Headcount
Provident Financial plc Investor & Analyst Event – April 2015 114 Moneybarn – Headcount Investing to support future growth › Investing in additional headcount to: – Support future growth – Meet higher regulatory standards under the FCA – Bring governance processes in line with those of the rest of t
Slide 115: Moneybarn – Medium-term potential
Provident Financial plc Investor & Analyst Event – April 2015 115 Moneybarn – Medium-term potential Well positioned to deliver strong medium-term growth › Customer numbers to grow from 22,000 to c.30,000 in 2015: – No operational leverage due to investment in the cost base › Medium-term potential of
Slide 116: Moneybarn – Summary and conclusion
Provident Financial plc Investor & Analyst Event – April 2015 116 Moneybarn Summary and conclusion High returns Market leadership Sustainable Growth potential Strong management and cultural fit
Slide 117: Vanquis Bank
Provident Financial plc Investor & Analyst Event – April 2015 117 Vanquis Bank Michael Lenora – Managing Director Bob van Breda – Finance Director
Slide 118: Vanquis Bank – Today's agenda
Provident Financial plc Investor & Analyst Event – April 2015 118 Vanquis Bank Today’s agenda 1. High returns – Vanquis Bank has consistently delivered against strategic targets 2. Market leadership – The business has developed its market and is the leading provider of cards to the underserved non-s
Slide 119: Vanquis Bank – High returns
Provident Financial plc Investor & Analyst Event – April 2015 119 Vanquis Bank – High returns Lets look back when we met in 2011…......the business was gaining momentum Customers (‘000) Profit before tax (£m) 1,400 160 140 1,200 120 1,000 100 800 80 60 600 40 400 20 - 200 (20) - (40) 2003 2004 2005
Slide 120: Vanquis Bank – High returns
Provident Financial plc Investor & Analyst Event – April 2015 120 Vanquis Bank – High returns And the progress when we met towards the end of 2013........ Customers (‘000) Profit before tax (£m) 1,400 160 140 1,200 120 1,000 100 800 80 60 600 40 400 20 - 200 (20) - (40) 2003 2004 2005 2006 2007 2008
Slide 121: Vanquis Bank – High returns
Provident Financial plc Investor & Analyst Event – April 2015 121 Vanquis Bank – High returns Now up to date…........having passed through 1.3 million accounts and £1bn receivables Customers (‘000) Profit before tax (£m) 1,400 160 140 1,200 120 1,000 100 800 80 60 600 40 400 20 - 200 (20) - (40) 200
Slide 122: Vanquis Bank – Market leadership
Provident Financial plc Investor & Analyst Event – April 2015 122 Vanquis Bank – Market leadership We have led the development of the underserved non-standard credit card market, providing a key service to the financially excluded › 62% of customers have no other Demographics Prime issuer Vanquis Ba
Slide 123: Vanquis Bank – Market leadership
Provident Financial plc Investor & Analyst Event – April 2015 123 Vanquis Bank – Market leadership We operate in a market with few mainstream competitors… but there is competition from specialists › Main competitors are CapitalOne, Newday (SAV/Aqua) and Barclaycard › Minimal overlap with payday lend
Slide 124: Vanquis Bank – Market leadership
Provident Financial plc Investor & Analyst Event – April 2015 124 Vanquis Bank – Market leadership Internet and direct mail provided the foundations and are still major channels to market for new account acquisition
Slide 125: Vanquis Bank – Market leadership
Provident Financial plc Investor & Analyst Event – April 2015 125 Vanquis Bank – Market leadership We have successfully grown by diversifying acquisition channels beyond the traditional direct mail and introducing propositions New bookings (‘000) 500 450 400 350 300 250 200 150 100 50 - 2003 2004 20
Slide 126: Vanquis Bank – Market leadership
Provident Financial plc Investor & Analyst Event – April 2015 126 Vanquis Bank – Market leadership We continue to develop new channels to market › Face to face › Point of sale finance › Door drops
Slide 127: Vanquis Bank – Market leadership
Provident Financial plc Investor & Analyst Event – April 2015 127 Vanquis Bank – Market leadership Our strategy has been to supplement core proposition with new brands........and price points
Slide 128: Vanquis Bank – Market leadership
Provident Financial plc Investor & Analyst Event – April 2015 128 Vanquis Bank – Market leadership And is also based on focus and expertise › Focus on our target non standard market › Bespoke underwriting with 12 years of data and experience › World class collections capability (now servicing the gr
Slide 129: Vanquis Bank – Sustainability
Provident Financial plc Investor & Analyst Event – April 2015 129 Vanquis Bank – Sustainability Our focus on the customers is evidenced by senior management attending customer focus groups to meet customers face to face and understand their needs › Output from customer focus groups informs: – Market
Slide 130: Vanquis Bank – Sustainability
Provident Financial plc Investor & Analyst Event – April 2015 130 Vanquis Bank – Sustainability Our low internal complaint metrics reflect this focus..... Complaints per 10,000 accounts 10 9 8 7 6 5 4 3 2 1 - Apr-14 Nov-14 Feb-14 Mar-14 Sep-14 Feb-15 Jan-14 Jul-14 Jan-15 Aug-14 May-14 Dec-14 Jun-14
Slide 131: Vanquis Bank – Sustainability
Provident Financial plc Investor & Analyst Event – April 2015 131 Vanquis Bank – Sustainability ...but is best demonstrated by the independent FOS analysis of resolution found in favour of the customer ‒ Vanquis Bank is consistently the lowest in the industry % of complaints resolved by FOS in favou
Slide 132: Vanquis Bank – Sustainability
Provident Financial plc Investor & Analyst Event – April 2015 132 Vanquis Bank – Sustainability We focus on our customers needs by providing affordable credit whilst also minimising business risk › ‘Low and grow’ (typical initial lines £250-£500) › Line growth requires renewed underwriting at each s
Slide 133: Vanquis Bank – Sustainability
Provident Financial plc Investor & Analyst Event – April 2015 133 Vanquis Bank – Sustainability Emphasis is placed on ensuring collections engagement is tailored to customers circumstances › Focus on realistic and appropriate forbearance › Excellent enterprise-wide data management maintains high qua
Slide 134: Vanquis Bank – Sustainability
Provident Financial plc Investor & Analyst Event – April 2015 134 Vanquis Bank – Sustainability The ‘low and grow’ model, credit and collections expertise has continued to produce improved impairment performance Cohort vintage charge-off rates 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Slide 135: Vanquis Bank – Sustainability
Provident Financial plc Investor & Analyst Event – April 2015 135 Vanquis Bank – Sustainability The business model has been shown to be inherently robust in a downturn and less volatile than mainstream credit providers Credit card write offs % gross receivables* 250 200 150 100 50 - Mar-08 Sep-08 Ma
Slide 136: Vanquis Bank – Sustainability
Provident Financial plc Investor & Analyst Event – April 2015 136 Vanquis Bank – Sustainability Stable risk-adjusted margin (RAM) › Business model supports stability of RAM: 70% – ‘Low and grow’ strategy 60% – High credit line utilisation minimises volatility 50% of credit losses 40% › RAM above 30%
Slide 137: Vanquis Bank – Sustainability
Provident Financial plc Investor & Analyst Event – April 2015 137 Vanquis Bank – Sustainability In combination, the robust ‘low and grow’ model, customer focus and expertise has produced improved cohort profitability… Profit per original booked account (£) Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr
Slide 138: Vanquis Bank – Sustainability
Provident Financial plc Investor & Analyst Event – April 2015 138 Vanquis Bank – Sustainability .......and cohorts with long tails creating a sustainable profit stream Profit by cohort (£m) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Slide 139: Vanquis Bank – Growth potential
Provident Financial plc Investor & Analyst Event – April 2015 139 Vanquis Bank – Growth potential Customer account targets have recently been revised to between 1.5m to 1.8m customers › Based on a new account profile broadly at current levels › Assumes unchanged underwriting, economic conditions and
Slide 140: Vanquis Bank – Growth potential
Provident Financial plc Investor & Analyst Event – April 2015 140 Vanquis Bank – Growth potential The November 2011 target of between 1.0m to 1.2m customers was based on booking 300,000 new accounts per annum New accounts (‘000) 500 450 400 Target customers 350 1.0m – 1.2m Nov 2011 300 250 200 150 1
Slide 141: Vanquis Bank – Growth potential
Provident Financial plc Investor & Analyst Event – April 2015 141 Vanquis Bank – Growth potential Targets were increased to between 1.3m to 1.5m customers in February 2013 as we became more confident and proved the delivery of new account bookings New accounts (‘000) 500 Target customers 450 1.3m –
Slide 142: Vanquis Bank – Growth potential
Provident Financial plc Investor & Analyst Event – April 2015 142 Vanquis Bank – Growth potential Targets were recently increased to between 1.5m to 1.8m customers based on sustainably booking 400,000 new accounts per annum Target customers New accounts (‘000) 1.5m – 1.8m Feb 2015 500 Target custome
Slide 143: Vanquis Bank – Growth potential
Provident Financial plc Investor & Analyst Event – April 2015 143 Vanquis Bank – Growth potential Average balance guidance now at £1,000 which is at the top of the previously quoted £800 to £1,000 range Average balance (£) 1,000 900 800 700 600 500 400 300 200 100 - 2003 2004 2005 2006 2007 2008 200
Slide 144: Vanquis Bank – Strong management
Provident Financial plc Investor & Analyst Event – April 2015 144 Vanquis Bank – Strong management Management has a depth of expertise in this market and a proven track record Michael Lenora Managing Director Executive Committee Carole Jones David Underwood Michael Hutko Robert van Breda Legal Direc
Slide 145: Vanquis Bank – Strong management
Provident Financial plc Investor & Analyst Event – April 2015 145 Vanquis Bank – Strong management ...........depth has been developed below executive level Strategic Michael Lenora Managing Director Management Executive Committee Kyle Augustin James Appleby Tom Owens Chris Daniels Sion O’Connor Pau
Slide 146: Vanquis Bank – Conclusion
Provident Financial plc Investor & Analyst Event – April 2015 146 Vanquis Bank – Conclusion Continued strong growth High returns – Vanquis Bank has consistently delivered against strategic targets Market leadership – The business has developed its market and is the leading provider of cards to t
Slide 147: Conclusion
Provident Financial plc Investor & Analyst Event – April 2015 147 Conclusion Peter Crook – Chief Executive
Slide 148: PFG – Strong growth potential
Provident Financial plc Investor & Analyst Event – April 2015 148 PFG – Strong growth potential High return businesses with attractive growth potential Product Growth potential Credit cards 1.5m to 1.8m customers with an average balance of £1,000 Home credit High returns business with large market s
Slide 149: Investment case
Provident Financial plc Investor & Analyst Event – April 2015 149 Investment case The group is well placed to continue to deliver excellent returns to shareholders › Leaders in non-standard credit will be larger, well managed lenders with sustainable business models › We have a good mix of businesse
Slide 150: APPENDIX – Biographies
Provident Financial plc Investor & Analyst Event – April 2015 150 APPENDIX ‒ Biographies Investor & Analyst Event 16 April 2015
Slide 151: Appendix – Biographies
Provident Financial plc Investor & Analyst Event – April 2015 151 Appendix ‒ Biographies Consumer Credit Division Mark Stevens, Managing Director Mark holds an MBA from Stanford University Business School, CA and a MA in Economics from Cambridge University. Mark’s early career was as Analyst, Associ
Slide 152: Appendix – Biographies
Provident Financial plc Investor & Analyst Event – April 2015 152 Appendix ‒ Biographies Moneybarn Peter Minter, Managing Director Peter qualified as a Civil Engineer and completed an MBA at INSEAD in 1985. He has over twenty years’ experience in vehicle finance and leasing and was the Chairman of t
Slide 153: Appendix – Biographies
Provident Financial plc Investor & Analyst Event – April 2015 153 Appendix ‒ Biographies Vanquis Bank Michael Lenora, Managing Director Michael holds an MBA from the University of Chicago and a Masters in Applied Economics from Leuven University in Belgium. From 1980 to 2004, he held a number of sen
Slide 154: Appendix – Biographies
Provident Financial plc Investor & Analyst Event – April 2015 154 Appendix ‒ Biographies Vanquis Bank – Strategic management Kyle Augustin, IT & Change Director › Joined Vanquis Bank in 2014 › Specialises in cyber security, project delivery and innovation and has 18 years of technology experience wi
Slide 155: Appendix – Biographies
Provident Financial plc Investor & Analyst Event – April 2015 155 Appendix ‒ Biographies Vanquis Bank – Strategic management Chris Daniels, Business Development Director › Joined Vanquis Bank in 2008 › Previously worked for Barclaycard and has 12 years financial services experience, predominantly wi
Slide 156: Contact details
Provident Financial plc Investor & Analyst Event – April 2015 156 Contact details Provident Financial plc No. 1 Godwin Street Bradford BD1 2SU United Kingdom Contact: Gary Thompson – Group Financial Controller and Head of Investor Relations Telephone: +44 (0)1274 351351 E-mail: investors@providentfi