Osb Group Plc · LSE:OSB
Osb — Merger or Acquisition (March 2019)
43 slides from Osb's merger presentation, Mar 14, 2019
Slide 1: Creating a leading specialist lender in the UK
Creating a leading specialist lender in the UK Recommended all-share combination of OSB and Charter Court 14 March 2019
Slide 2: Agenda
Agenda OSB’s 2018 results Charter Court’s 2018 results ____________________________________ Overview of the combination Strategic rationale Financial benefits Expected transaction timetable Summary ____________________________________ Appendices
Slide 3: OSB's 2018 results
OSB’s 2018 results
Slide 4: Another strong set of results for 2018
Another strong set of results for 2018 £3.0bn £9.0bn £2.6bn £7.3bn Gross organic lending Net loan book + 15% + 23% 2017 2018 2017 2018 3.16% 3.04% 27% 28% Net interest margin Cost to income ratio Remains strong Increased by 1pp 2017 2018 2017 2018 0.10% £193.6m £167.7m Loan loss ratio 0.07% Underlyi
Slide 5: A year of excellent performance
A year of excellent performance 1 Continued growth in underlying earnings… 2 …with strong NIM & robust loan book growth… Underlying profit before tax (£m) 200 3.09 3.16 3.16 3.04 3.5 2.94 Net interest income (£m) 300 3 Net interest margin (%) 150 2.5 200 2 100 194 168 287 1.5 138 245 50 107 100 207
Slide 6: Segmental results – BTL/SME
Segmental results – BTL/SME1 • LTVs remain low at 70% (2017: 69%) with only 0.6% of loans by value with LTVs exceeding 90% (2017: 0.7%) 1. Gross loan book1 2. Net interest income1 8,000 240 Net interest income Gross loan book (£m) 200 6,000 160 (£m) 4,000 120 220 7,389 177 5,654 80 2,000 4,104 135 4
Slide 7: Segmental results – Residential
Segmental results – Residential • Average LTV remains low at 56% (2017: 56%) with only 3% of loans by value with LTVs exceeding 90% (2017: 3%) 1. Gross loan book 2. Net interest income 2,000 80 Gross loan book (£m) Net interest income (£m) 1,500 60 1,000 2 1,860 40 1,674 1,616 71 68 67 500 20 0 0 20
Slide 8: Strong growth and capital base
Strong growth and capital base Strong growth whilst improving credit quality Strong capital base 2018 2017 Change 18% 15.8% £m £m £m % Lending 15% 1.1% 1.4% Net customer loans 8,983 7,306 1,677 23 12% o/w provisions (22) (22) - - 9% Funding and liquidity 13.3% 6% Customer deposits 8,072 6,650 1,422
Slide 9: Summary
Summary 2018 was yet another year of strong growth: 15% increase in organic origination to £3.0bn Strong credit profile: low arrears and strong LTV coverage, and high interest coverage on Buy-to-Let Excellent customer results: customer NPS at +63 with retail savings bond retention at 95% Successful
Slide 10: Charter Court's 2018 results
Charter Court’s 2018 results
Slide 11: Performance highlights – FY 2018
Performance highlights – FY 2018 2,737 2,846 Adjusted 46% Gross Originations 2,497 31% 29% Cost : Income (£m) Ratio1,2 (%) 2016 2017 2018 2016 2017 2018 6,683 5,385 Gross Customer 3,823 Cost of Risk3 (%) 0.04% Loans (£m) 0.01% 2016 2017 2018 2016 2017 2018 158 3.08% 3.19% 3.08% 117 Net Interest Adju
Slide 12: Segmental results – BTL
Segmental results – BTL Originations Gross BTL Loan Book Evolution 2018 Originations £m £m 3,541 2891 £2,846m 1,642 4,527 1,592 3,252 1,453 2,176 BTL 58% 2016 2017 2018 2016 2017 2018 Average Average 4.2% 4.0% 4.2% LTV: Loan Size: 73.9% £169k Book Yield2 Cost of Risk Segmental Contribution 2018 Loan
Slide 13: Segmental results – Specialist Residential
Segmental results – Specialist Residential Originations Gross Residential Loan Book Evolution 2018 Originations £m £m 2,292 (1%) 5631 £2,846m 771 825 1,745 1,729 663 1,293 Residential 29% 2016 2017 2018 2016 2017 2018 Average Average 5.0% 4.8% 4.9% LTV: Loan Size: 72.0% £152k Book Yield2 Cost of Ris
Slide 14: Diversified funding structure
Diversified funding structure Well positioned for an environment post FLS and TFS Ability to dynamically adjust funding mix to optimise funding costs Not overly reliant on a particular funding channel Funding Source 2016 2017 2018 › Direct-to-consumer, digital retail savings bank Retail4 Retail › Ta
Slide 15: Capital and liquidity
Capital and liquidity Robust capital and liquidity positions Capital Position Key Liquidity Measures (Dec-18) › CET 1 ratio of 15.7% as at 31 December 2018, comfortably above our minimum target £502m £883m 173% LCR Requirement HQLA LCR › RWAs calculated using standardised risk weightings › Well capi
Slide 16: Summary
Summary Our Strategy has Resulted in Continuous Growth Over the Last 3 Years Continued to deliver in line or in excess of our IPO targets Charter Court goes from strength to strength as it takes advantages of underserved market sub-sectors FY18 proved the resilience of our diversified funding model
Slide 17: Overview of the combination
Overview of the combination
Slide 18: Strategic rationale
Strategic rationale Create a leading specialist lender in the UK with greater scale and resources to deploy on growth 1 opportunities Leverage complementary strengths to create a comprehensive and diversified platform across 2 product capabilities, brands and team cultures 3 Leverage complementary u
Slide 19: Creating a leading specialist lender in the UK
Creating a leading specialist lender in the UK Greater scale and £9.0bn net customer loans1 £6.7bn net customer loans1 resources Multi-brand strategy Buy-to-let Enhanced presence in SME / commercial Specialist residential key segments Development finance Second charge Bridging Leading broker £3.0bn
Slide 20: Governance
Governance Combined Group Board Board Board Chair David Weymouth Sir Malcolm Williamson Sir Malcolm Williamson Deputy Chair Philip Jenks David Weymouth CEO Andy Golding Ian Lonergan Andy Golding CFO April Talintyre Sebastien Maloney April Talintyre CRO Peter Elcock SID Rod Duke Noël Harwerth Noël Ha
Slide 21: Transaction terms
Transaction terms Pro forma Key terms Financial effects Dividends ownership • Recommended all-share • Immediately following completion: • Expected that the combination • Combined Group expected to combination to be effected by will result in £22m3 of pre-tax cost adopt a policy of paying out at − OS
Slide 22: Strategic rationale
Strategic rationale
Slide 23: Leverage complementary strengths
Leverage complementary strengths Complementary product Enhance capabilities and capabilities and expertise Buy-to-let presence in key segments • Bring together complementary • Accelerate OSB’s growth in product capabilities and expertise specialist residential mortgages with a best-of-both approach
Slide 24: Maintain two leading, independent broker distribution platforms
Maintain two leading, independent broker distribution platforms Two leading, independent broker distribution platforms Increase breadth of channels to market Direct to broker Packager channel Specialist Buy-to-let SME / commercial Broad range of complementary residential products Residential Sec
Slide 25: Establish a well-balanced, resilient and diversified retail-wholesale funding platform
Establish a well-balanced, resilient and diversified retail- wholesale funding platform Optionality to benefit from the Charter Court’s online savings potential to execute structured deposit platform, sophisticated OSB’s established Kent Reliance balance sheet management securitisation funding and r
Slide 26: Financial benefits
Financial benefits
Slide 27: Expected financial benefits of the combination
Expected financial benefits of the combination Meaningful High quality loan book, and resilient Robust pro forma cost synergies and diversified funding platform capital position • Expected that the combination • High quality specialist mortgage • Strong capital position post will result in £22m1 of
Slide 28: Meaningful cost synergies
Meaningful cost synergies Efficient target operating model Meaningful cost synergies1 • Appropriate removal of duplicate senior management 1 c.50% roles and central and support functions 2 • Efficiencies from combined lending operations c.20% • Bringing Charter Court’s savings account operations in-
Slide 29: Robust pro forma capital position
Robust pro forma capital position Strong capital position • Strong capital position post completion • Increased scale to facilitate capital optimisation and diversification potential • IRB accreditation projects initiated • Appropriate CET1 capital buffer over regulatory minimum capital requirements
Slide 30: Achievable integration plan based on low-risk approach
Achievable integration plan based on low-risk approach Achievable integration plan Integration oversight and governance • Low-risk approach to integration • Integration plan and its delivery to be overseen by a Board Integration Committee • No current plans for large-scale IT integration • Clear foc
Slide 31: Expected transaction timetable
Expected transaction timetable
Slide 32: Expected transaction timetable
Expected transaction timetable Shareholder • Charter Court offer / scheme document Q2 2019 documentation published • OSB prospectus and circular • OSB shareholders vote to: − Approve the transaction (as a Class 1 transaction for OSB for the purposes of the OSB and Listing Rules) Charter Court Q2 201
Slide 33: Summary
Summary
Slide 34: Creating a leading specialist lender in the UK
Creating a leading specialist lender in the UK Strategic rationale Expected financial benefits • Create a leading specialist lender in the UK with • Realise meaningful cost synergies with further greater scale and resources to deploy on growth potential benefits opportunities • Leverage complementar
Slide 35: Appendices
Appendices
Slide 36: Resilient and diversified funding model
Resilient and diversified funding model Diversified funding model Advantageous funding capabilities Funding balances as at 31 December 2018 • Establish a well-balanced, resilient and diversified retail-wholesale funding platform Wholesale • Stable, deposit-led funding platform 7%2 − Ability to utili
Slide 37: Larger and diversified specialist portfolio
Larger and diversified specialist portfolio Net loans High quality and secured portfolios Net loans as at 31 December 2018 Second charge Funding lines 0.10% 4% 2% Cost of 0.04% Residential Commercial development 2% risk1 6% Residential £9.0bn1 lending 14% Buy-to-let 72% • Larger and diversified spec
Slide 38: Overview of OSB
Overview of OSB Financial performance and key metrics Net loans2 (£m) 20171 20181 Second charge Funding lines 4% 2% Net interest income 245.4 287.3 Residential development Non-interest income 0.5 0.6 Commercial 2% 6% Other income3 (7.8) (5.8) Residential lending £9.0bn2 Operating expenses4 (66.0) (8
Slide 39: Overview of Charter Court
Overview of Charter Court Financial performance and key metrics Net loans2 (£m) 20171 20181 Second charge Bridging 3% Net interest income 144.1 180.5 4% Non-interest income 8.5 8.0 Residential lending 26% Other income3 17.6 36.4 £6.7bn2 Operating expenses (58.0) (64.6) Impairments (0.5) (2.1) Buy-to
Slide 40: Quantified Financial Benefits Statement
Quantified Financial Benefits Statement The statements labelled by way of a footnote as including a quantified financial benefits statement in slides 16, 20 and 21 of these presentation slides, arising in connection with OSB’s strategy for integrating Charter Court’s business, includes a “quantified
Slide 41: Quantified Financial Benefits Statement (continued)
Quantified Financial Benefits Statement (continued) Bases of belief for the Quantified Financial Benefits Statement In preparing the Quantified Financial Benefits Statement, Charter Court has provided OSB with certain operating and financial information to facilitate a detailed analysis in support o
Slide 42: Legal Disclaimer
Legal Disclaimer NOT FOR RELEASE, PRESENTATION, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISIDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION. This presentation has been prepared by OneSavings Bank plc (“OSB”)
Slide 43: Legal Disclaimer (continued)
Legal Disclaimer (continued) The companies in which OSB directly and indirectly owns investments are separate entities. In this presentation “OSB” is sometimes used for convenience where references are made to OSB and its subsidiaries in general. Likewise, the words “we”, “us” and “our” are also use