Vanquis Banking : Report (Moneybarn No1 Ltd Statutory Accounts 2024 FINAL V2)

About this update from Vanquis Banking Group Plc

MONEYBARN NO.1 LIMITED (Company Number 04496573) ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2024 CONTENTS Page Directors' report 1 Strategic report 3 Statement of directors' responsibilities 16 Independent auditor's report to the members of Moneybarn No.1 Limited 17 Statement of comprehensive income 21 Balance sheet 22 Statement of changes in shareholders' equity 23 Statement of cash flows 24 Statement of accounting policies 25 Financial and capital risk management 34 Notes to the financial statements 36 DIRECTORS REPORT Moneybarn No.1 Limited (the 'Company') is part of Vanquis Banking Group plc. Vanquis Banking Group plc is a public limited company, listed on the London Stock Exchange, which, together with its subsidiaries, forms the Vanquis Banking Group (the 'Group'). The immediate parent undertaking of the Company is Moneybarn Group Limited. The following provisions, which the directors are required to report in the Directors' report, have been included in the Strategic report: - how the directors have engaged with colleagues, how they have had regard to colleague interests and the effect of that regard, including on the principal decision taken by the Company in the financial year (page 10); and, - how the directors have had regard to the need to foster the Company's business relationship with suppliers, customers and others, and the effect of that regard, including on the principal decision taken by the Company in the financial year (pages 7 to 13). Principal activities The principal activity of the Company is the provision of finance for the purchase of motor vehicles by individuals via conditional sale agreements. Results The Statement of comprehensive income for the year is set out on page 21. The loss for the year of £25.7m (2023 (restated): profit of £12.7m) has been deducted from (2023: added to) retained earnings. The key drivers for the loss in the current year have been considered in the Business review within the Strategic report. Dividends The directors do not recommend the payment of a dividend in respect of the year ended 31 December 2024 (2023: £nil). Directors The directors of the Company during the year ended 31 December 2024, all of whom were directors for the whole year then ended and to the date of this report, except where stated, were: I McLaughlin D Watts G Cronin P Estlin (resigned 27 November 2024) (appointed 23 January 2024) The Company has made qualifying third-party indemnity provisions for the benefit of its Directors which were in place during the year and remain in force at the date of this report. The Company maintains directors' and officers' liability insurance for its Directors and officers. Climate change A climate-related financial report is included in the Group's Annual Report and Financial Statements 2024 which includes: - scope 1 and 2 greenhouse gas (GHG) emissions in tonnes of carbon dioxide equivalent; - GHG emissions which related to material scope 3 categories in tonnes of carbon dioxide equivalent; - compliance with four recommendations and eleven recommended disclosures of the Taskforce on Climate related financial disclosures ("TCFD"); - a relevant intensity ratio (i.e. kilograms of carbon dioxide equivalent per customer); and - information on underlying energy use for 2024. The disclosures are produced in accordance with the UK Government's Streamlined Energy and Carbon Reporting (SECR) policy that has been implemented through the Companies (Directors' Report) and Limited Liability Partnership (Energy and Carbon Report) Regulations 2018. This disclosure covers the greenhouse gas emissions and energy use for the Group and its operating divisions incorporating the Company. DIRECTORS REPORT (CONTINUED) Climate change (continued) In addition, by including a climate-related financial report in the Group's Annual Report and Financial Statements 2024 that is fully consistent with the four pillars and eleven recommended disclosures of the TCFD, the Group complies with the FCA's Listing Rule 9.8.6R(8) and meets the requirements of the Climate-related Financial Disclosure (CFD) Regulations 2022 and the UK Companies Act (that is, sections 414CB(2A)(a to h). Financial risk management The financial and capital risk management reports of the Company are set out on pages 34 to 35. Auditor information In accordance with section 418 of the Companies Act 2006, each person who is a director at the date of this report confirmed that: i) so far as the director is aware, there is no relevant audit information of which the Company's auditor is unaware; and ii) the directors have taken all reasonable steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information. Auditor Deloitte LLP will continue as auditor to the Company for the next financial year. Approved by the Board and signed on behalf of the Board by: I McLaughlin Director 13 March 2025 MONEYBARN NO.1 LIMITED (Company Number 04496573) INDEPENDENT AUDITOR REPORT TO THE MEMBERS OF MONEYBARN NO.1 LIMITED (CONTINUED) Report on other legal and regulatory requirements Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: financial statements are prepared is consistent with the financial statements; and requirements. In the light of the knowledge and understanding of the company and its environment obtained in the course of the Matters on which we are required to report by exception Under the Companies Act 2006 we are required to report in respect of the following matters if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or we have not received all the information and explanations we require for our audit. We have nothing to report in respect of these matters. Use of our report This those matters we are required to state to them members as a body, for our audit work, for this report, or for the opinions we have formed. Kieren Cooper (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor Birmingham, United Kingdom 13 March 2025 20 STRATEGIC REPORT Business review Moneybarn No.1 Limited (the 'Company') is one of the leading suppliers of vehicle finance to non-prime customers in the United Kingdom. For the year ended 31 December 2024, the Company generated a loss before tax of £34.3m (2023 (restated): profit before tax of £16.6m). The following are considered the Company's key performance indicators: Key Performance Indicators (KPIs)* 2024 2023 (restated) Asset yield 16.1% 18.0% Cost of risk (7.3)% (2.4)% *Certain alternative performance measures (APMs) have been used in this report. Please refer to page 5 for further detail. The Company is an expert in helping customers to access finance when they might have struggled to get approval from mainstream lenders. The Company's customers represent one in five of UK adults who have a poor credit history but need a reliable car, motorbike, or van to suit their lifestyle and financial situation. The Company's core product is a Conditional Sale Agreement, which is a type of vehicle finance that helps spread the cost of a used vehicle over time, instead of paying for it all upfront. This is different to the other types of vehicle finance, like Hire Purchase (HP) or Personal Contract Purchase (PCP), as a Conditional Sale Agreement has no additional fee to own the vehicle; once the customer has made the final repayment, they legally own the vehicle. A Conditional Sale Agreement uses a fixed APR, so monthly payments are predictable and remain the same for the duration of the agreement, which is typically between 36-60 months. Good customer outcomes are important to the Company, and once a customer is with us, the Company is focused on helping them to achieve the best outcomes possible, whether that's simply paying their finance each month until they own their used vehicle, or by supporting them if they're able to settle their agreement early. The Company understands that customers may experience difficulties during their agreement and are focused on supporting them should that happen. The Company has a range of options that allow us to help customers get back on track, or to otherwise exit the agreement in the 'best way possible'. Total active customer numbers decreased by 2.0% to 109,500 as of December 2024 (2023: 111,700). This has been driven by repricing and credit tightening initiatives. A new Vehicle Finance lending decision engine was introduced in 2024 enabling a more granular level of portfolio segmentation and delivering a stronger platform to optimise higher margin customer segments in 2025. Financial performance Following a Stage 3 receivables review, period-end gross amounts receivable from customers decreased by 27.3% to £831.9m (2023: £1,144.2m), driven by an updated charge-off policy reclassifying Stage 3 impaired loans to post charge-off assets. This refined the approach to write offs, and a debt sale programme was launched, with two debt sales completed in 2H24. This has resulted in a clearer cost of risk outlook for the portfolio. Period-end net receivables decreased 5.2% to £735.4m (2023 (restated): £776.1m), as a 73.8% reduction in expected credit losses (ECL) to £96.5m, partially offset the reduction in gross receivables. Stage 3 ECL reduced from £322.9m to £56.8m driven by the reduction in Stage 3 balances and a revised definition of default reclassifying c.£127m of balances from Stage 3 to Stage 1, and a further c.£73m from Stage 2 into Stage 1. Interest income from customer receivables decreased 12.6% to £133.1m (2023: 152.3m), driven by the reduction in gross amounts receivable from customers. The asset yield decreased 1.9% to 16.1%, reflecting a reduced higher-margin Stage 3 and credit tightening, partially offset by repricing initiatives. Interest expense decreased by 15.2% to £42.4m (2023: 50.0m), driven by a change in the mix of funding provided from the Group. The Company continues to receive loan tranches from Vanquis Bank Limited at interest rates based on Vanquis Bank Limited's average cost of retail funds (for the weighted average life) plus a margin at the time of issuance. Financial performance (continued) Risk adjusted income fell 61.8% to £35.4m (2023: £92.7m), as a result of impairment charges rising to £60.2m (2023 (restated): £20.4m), including the impact of the Stage 3 receivables review. Impairments in the prior year benefited from a £47.0m release of provisions no longer required following IFRS 9 model refinements and recalibration. Operating costs reduced by £6.4m (8.4%) to £69.7m (2023 (restated): £76.1m) driven by transformation savings partially offset by investment in the business. The Group's technology transformation programme, Gateway, is progressing as planned and remains on track for completion by mid-2026. This unified, customer-centric platform will enhance operational scalability, efficiency, and customer experience. Gateway is expected to generate cost savings, strengthening financial performance. Additionally, the Company is deploying Artificial Intelligence (AI) across key areas, including fraud prevention, collections, and customer interactions, to drive automation and efficiency. During 2023 and into 2024, the Company experienced elevated levels of customer compensation claims from claims management companies (CMC). The majority of these claims are unmerited and primarily driven by CMC activity. They relate to a wide range of different matters, primarily in respect of the lending process but with no common theme or systematic issue. During the second half of 2023 this activity began to stabilise within the Company. The Company has never entered into discretionary broker commission arrangements. A provision of £0.7m (2023: £0.8m) is held at the balance sheet date for: (i) customer compensation claims received where compensation may be paid but which have not yet been assessed, upheld or compensation amounts agreed; and (ii) expected FOS fees for future claims which may be referred. The provision is determined based on the complaints volume pipeline at the period end, estimated uphold complaint rates, and average compensation amounts for each complaint type based on historic data. Financial Ombudsman Service (FOS) case fees of £750 per case were reduced to £650 during 1H24 and are payable on all cases referred to the FOS regardless of outcome. On 20 June 2024, an additional 44 Ordinary shares of £1 each were issued and fully paid by the Company's immediate parent undertaking at a price of £0.5m per share. The Ordinary shares, which are held exclusively by the immediate parent undertaking carry full voting, dividend and capital distribution rights. On 25 September 2024, an additional 50 Ordinary shares of £1 each were issued and fully paid by the Company's immediate parent undertaking at a price of £0.5m per share. The Ordinary shares, which are held exclusively by the immediate parent undertaking carry full voting, dividend and capital distribution rights. In the prior year, an additional 40 Ordinary shares of £1 each were issued and fully paid by the Company's immediate parent undertaking at a price of £0.5m per share. The Ordinary shares, which are held exclusively by the immediate parent undertaking carry full voting, dividend and capital distribution rights. During the current year, it was agreed that the outstanding intercompany balance owed to the Company by the intermediate holding company ('MB1 Upstream Loan Balance') and the amount owed by the Company to the intermediate holding company ('PFH Downstream Loan Balance') were to be offset against one another so that the amount owed by the Company to the intermediate holding company is reduced by the amount of the 'MB1 Upstream Loan Balance'. Vehicle finance commission disclosures matter In October 2024, the Court of Appeal ruled that motor dealers acting as credit brokers owe a fiduciary duty of loyalty and impartiality to their customers. The judgement, which stemmed from the cases of Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd, and Hopcraft v Close Brothers Ltd, raised the standard for disclosing and obtaining consent for commissions beyond existing FCA regulations. This introduced significant regulatory uncertainty, pending a Supreme Court appeal. In January 2025, ahead of the Supreme Court hearing scheduled for April 2025, the Government intervened, highlighting concerns over the potential economic impact. With 80% of new vehicles in the UK purchased on finance, the Treasury warned that the Court of Appeal's decision could restrict credit availability and harm the UK's reputation as a stable regulatory environment. The Government emphasised the need for proportional remedies to mitigate economic harm while balancing consumer protection with the vital role of the vehicle finance sector. Alternative performance measures (APMs) In addition to statutory results and key performance indicators (KPIs) reported under international accounting standards as adopted by the UK, the Company provides certain alternative performance measures (APMs). These APMs are used internally by management and are also deemed helpful in understanding the Company's performance. These non-statutory measures should not be considered as replacements for IFRS measures. The definition of these non-statutory measures may not be comparable to similarly titled measures reported by other companies. The APMs used within this report are calculated as follows: Asset Yield Interest income from customer receivables for the 12 months ended 31 December as a percentage of average gross receivables Cost of risk Impairment charges for the 12 months ended 31 December as a percentage of average gross receivables Average gross receivables Average of gross customer interest earning balances for the 13 months ended 31 December Principal risks and uncertainties and financial risk management The Company operates a 'three lines of defence' model to articulate key accountabilities and responsibilities for managing risk and to support effective embedding of risk management across the business. The 'first line' consists of line management across the Company, who are responsible for identifying, assessing, monitoring and reporting risk within their respective areas whilst ensuring that appropriate internal controls, processes and systems are in place to deliver against business strategy and objectives. The Risk function of the Company act as the 'second line', in which the Risk Management Framework is established. This function provides independent oversight of governance, risk management and controls to ensure risks are identified, measured, managed and reported appropriately. The 'third line' consists of the Internal Audit function, which provides independent and objective assurance on the design adequacy and operational effectiveness of internal controls and overall effectiveness of the Company and Group's risk governance and risk management practices. Credit risk Credit risk is the principal risk faced by the Company. The possibility that customers will fail to honour their contracts and the market value of the underlying vehicle will be insufficient security to cover the customer's outstanding liabilities. To mitigate this risk, the Company has developed strong underwriting, loan to value and credit control policies, as well as an efficient disposal process. The Group Risk Committee is responsible for setting credit policy. The Chief Risk Officer (CRO) is responsible for ensuring that the approach to lending is within sound risk and financial parameters and that key metrics are reviewed to ensure compliance with policy. The CRO discharges and informs this decision making through the Credit Committee. The Credit Committee meets at least 10 times a year. The Group and Company credit quality has remained stable over the year, partly due to the strategy enhancements, improvements in credit decisioning and processes, and targeted credit tightening in response to market and regulatory changes. Liquidity risk Liquidity risk is the risk that the Company will have insufficient liquid resources available to fulfil its operational plans and/or to meet its financial obligations as they fall due. The Company's Liquidity Policy is approved by the Board with day-to-day management delegated to the Treasury function which discharges and informs the decision-making through the Group and Company Asset- Liability Committee (ALCO). The ALCO meets at least 10 times per year and reports to the Board (via the Executive Committee).The ALCO is chaired by the Chief Financial Officer, the Chief Executive officer is a member and the Treasurer is deputy chair. Conduct risk In January 2024, the FCA announced that it intends to review how motor finance firms have implemented a ban, originally introduced back in 2021, on discretionary (variable) commission levels. This announcement does not impact the Company directly. The Company do not pay, and have not paid historically, discretionary commission on our products. On 25 October 2024, the Court of Appeal ruled against two other lenders in three cases involving commission disclosures related to payments to motor finance dealers. The judgment redefined the legal duties of dealers acting as credit brokers, requiring clear disclosure of, and consent to, the existence, nature and amount of any commission paid. The lenders successfully applied for permission to appeal to the Supreme Court, which is due to be heard in early April 2025. Timing of the outcome is uncertain. See note 15 for further information. Information on the management of specific financial risks including credit, market, liquidity, interest rate, and capital risks is provided on pages 34 to 35. Statement regarding section 172 of the Companies Act 2006 The directors have acted in a way that they considered, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, having regard to the matters set out in section 172(a) - (f) of the Companies Act 2006. The Board met during the reporting period and received regular updates from management on engagement activities with the Company's key stakeholders including regulators, customers and colleagues. The Board is composed of three directors, all of whom are directors of the ultimate parent company which provides direct investor engagement and ensures that investors' views are considered during the Board's discussion and decisions. Our purpose, as part of the Vanquis Banking Group, is predicated on our customers and is underpinned by a number of strategic themes and values. These aim to deliver an appropriate balance between the needs of our customers, our regulators, investors and our employees, in order to ensure that we are successful and sustainable for all of our stakeholders. Our stakeholders are individuals or groups who have an interest in, or are affected by, the activities of our business; our key stakeholders are set out in the table below. We seek to engage with them regularly to ensure that we are aware of their views and concerns with regard to a wide range of issues and we do this in a number of ways, as detailed in the below table. By balancing the interests of our stakeholders, lending responsibly, contributing to wider society and ensuring the appropriate corporate governance arrangements are in place, we can maintain a reputation for high standards of business conduct. You can read about how we have generated and preserved value over the long term in the Strategic report.

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