Investor day. 1 November 2016

Transcription

1 Investor day 1 November 2016

2 1 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 John van Kuffeler Founder and Executive Chairman

3 2 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Agenda Introduction John van Kuffeler, Executive Chairman and Founder, NSF plc Everyday Loans Danny Malone, CEO Everyday Loans Loans at Home Mark Bardsley, CEO Loans at Home Break 12:00 Trusttwo Richard Sharp, Managing Director, Trusttwo Market review Miles Cresswell-Turner, Executive Director, NSF plc Funding and accounting Nick Teunon, CFO NSF plc Summary John van Kuffeler Lunch

4 3 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Overview In February 2015 we set out our investment case to build a sizeable player in the non-standard finance sector 20 months later we have three significant businesses with 80 offices and over 140,000 customers Our thesis also remains on-course: - Sector is growing with no sizeable new entrants - Structural and regulatory change means that each of our chosen segments has strong growth potential - There is regulator support for a well-managed, well-capitalised group like NSF - Further opportunities may be presented through a second wave of M&A/consolidation due to: - Further regulatory constraint - Lack of available funding - Change in risk appetite from current owners We continue to make good progress towards our goal: overall loan book growth of 20% per annum and 20% return on assets in each of our operating businesses

5 4 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Overview - our three divisions Branch-based lending Home credit Guaranteed loans

6 5 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Overview each division has strong growth potential Branch-based lending Market: 5bn of receiveables withdrawn post 2007/8 Closure of over 400 branches post-crisis - Welcome (183) - HFC (135) - Citifinancial (90) - London Scottish Bank (52) Barriers to entry: Branch network Skilled management team Proven underwriting capability and scorecard Everyday Loans National coverage via 39 branches Experienced management team Proven and scaleable infrastructure Market: Home collected credit Structural shift at market leader: - Shed nearly 1m customers - Consequent reduction in agents - Focused on opportunities outside home credit #2 focused on other opportunities Low income earners are better off and underborrowed Barriers to entry: Agent network Skilled management team Funds to invest in growth and technology Loans at Home: National coverage, clear #3 Experienced management team Yet to reap benefits from technology investment Market: Guaranteed loans First launched in 2006 Market leader dominates with 80% share No clear #2 has yet emerged Complex product, poorly understood by consumers Attractive features for customers and regulator Barriers to entry: Back-office and associated infrastructure Significant investment in marketing required Trusttwo: Proven and scaleable infrastructure New MD hired Financial backing of well-capitalised parent

7 6 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Overview our key risks and how we manage them Conduct Training Quality assurance and internal audit Regulation Building strong relationship with FCA Active regulatory affairs programme Credit Proven scorecard, continuous improvement Strong MI and KPI monitoring Meeting the customers face-to-face Business strategy and operations Experienced management Strong Board oversight Liquidity Committed debt facilities in place until 2018 and 2019 Exploring other options to diversify our source of funding Brexit threat or opportunity? GDP growth much better than expected in 3 months post-june Nissan to invest in Sunderland, securing jobs and the local economy Income for bottom fifth of earners up 6.2% in April 2016 But Inflation expected to rise following fall in Sterling Our current view Customers on low incomes are better-off than they have been for many years Food/petrol price rises will have an impact for customers, but this will be relatively small If impairments do start to rise, loans are short-term and we can adjust our scorecard to compensate If economy worsens, pool of potential customers should expand We do not expect a material impact from Brexit

8 7 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Overview progress to-date Phase one of our plan is now complete: NSF is a significant player in the non-standard segment: - #1 in branch-based unsecured lending - #3 in home credit - Over 140,000 customers - Over 80 branches - Over 500 employees - Combined loan book of 147m at 30 June 16 ( 169m after fair value adjustments) H1 16 saw strong loan book growth in all three businesses: - Everyday Loans +17% - Loans at Home +19% - Trusttwo +28% Loans at Home branch Everyday Loans branch

9 8 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Overview future plans Phase two will see us: Grow Everyday Loans: - More branches planned for 2017 and Develop new and complementary products - Manage loan book growth with appropriate control of impairment Grow Loans at Home: - More measured pace of growth will reduce rate of impairment and temporary agent commissions - Full roll-out of hand-held technology: o Collections app being implemented before December 2016 o Lending app during H Grow Trusttwo: - Position Trusttwo as an attractive alternative to the market leader - Expand in-house team - Invest in marketing Put in place longer-term funding as part of a broader financial strategy

10 Everyday Loans Group Danny Malone CEO everydayloans for everydayliving

11 1. Introduction everydayloans for everydayliving Page 10

12 Agenda 1. Introduction 2. History 3. Management team 4. Regulation 5. Everyday Loans business model 6. The lending process 7. Collections 8. Impairments 9. Market overview/competitive landscape 10. Strategy for growth Page Summary everydayloans for everydayliving

13 1. Introduction - overview Everyday Loans is the UK s largest branch-based lender of unsecured loans to sub-prime borrowers It has a network of 39 national branches (36 full branches, including Central, and three satellite branches) - Preston, Reading and Derby have opened since H1 - Manchester and Walsall scheduled to open in Q4 By using a face-to-face model, our USP is being able to lend profitably to those customers that others can t or won t Our loans are unsecured and distributed through three main channels: - Brokers 35% - Direct to brand 27% - Own book renewals and former borrowers 38% Page 12 everydayloans for everydayliving

14 1. Introduction vision, mission and values Vision To be the most effective and easy to deal with consumer finance business in the UK Mission To double the size of the business - Everyday Loans and Trusttwo within three - four years Values Respect for each other as employees Outstanding customer service and outcomes Total commitment and effort Attractive returns for our shareholders Page 13 everydayloans for everydayliving

15 2. History - timeline Founded in 2006; initial 30m from Alchemy/ management Financial crisis Large numbers of consumer finance businesses exited the market including: o Black Horse o Citifinancial o HFC/Beneficial o Welcome o London & Scottish Everyday Loans was the only remaining branch based consumer lender (not high cost, short-term) in the UK 8 June 2012 Purchased by Secure Trust Bank in June 2012 for 72m ( 34m equity / sub debt and 38m of bank debt) 4 Dec 2015 Sold to NSF for 235m ( 170m equity and 65m debt) 13 April 2016 Acquisition completed 21 June 2016 Full FCA Licence granted No. of branches ^ Receivables ( m) ^ ^ As at 30 June 2016, incl 3 Satellites everydayloans for everydayliving Page 14

16 2. History - timeline Full branches and employees H Branches (Full) Branch Employees Unsecured loan volumes ( m) Existing and former unsecured volume ( m) New borrower unsecured volume ( m) H m 100m 80m 60m 40m 20m 0m Unsecured receivables and customer numbers Unsecured Receivables ( m) Customer numbers (RH scale) (000) H % 40% 30% 20% 10% 0% Interest revenue as % of average net receivables 42% 43% 45% 35% 36% 35% 36% 37% 33% 33% H everydayloans for everydayliving Page 15

17 3. Management a highly experienced team Danny Malone CEO Mark Ridlington COO Jason Bovington Credit Risk Andrew Wayland Marketing Steven White CFO Angela Bascombe- McCarthy Compliance Richard Sharp Trusttwo Danny Malone: 25 years experience in Financial Services industry Co-founder of Everyday Loans in 2006 Previously CEO of Citifinancial UK and Future Mortgages and CFO of Citifinancial Europe Chartered Accountant ICAEW Mark Ridlington: 35 years experience in Financial Services Industry 14 years experience as Senior Manager in Financial Services Co-founder of Everyday Loans in 2006 Previously COO of Citifinancial UK and Future Mortgages Ltd Jason Bovington: Helped set up Everyday Loans as Head of Risk in years Financial Services experience Previously Head of Risk HFC Bank PLC Andrew Wayland: Helped set up Everyday Loans as Head of Marketing in 2006 Business owner Columbell Communications for 5 years Previously Head of Commercial Development Tech start-up Steven White: 25 years experience in Financial Services industry Arthur Andersen, UBS & Deutsche Bank Previously at Link Financial UK Chartered Accountant ICAEW Angela Bascombe-McCarthy: 37 years experience in Financial Services industry Joined Everyday Loans in March 2016 Previously Head of Compliance Future Mortgages and NS&I Also worked for FCA Richard Sharp: 15 years sector experience Joined Everyday Loans in July 2016 Previously GE, DFC Global & Cattles everydayloans for everydayliving Page 16

18 4. Regulation FCA replaced the OFT in April 2014 and is now responsible for over 50,000 consumer credit companies Thematic reviews: Incentives and remuneration Guarantor loans Early stage collections New guarantor loan default process introduced in April 2016 following an apparent shift in opinion by the FCA Everyday Loans (including Trusttwo) received its full FCA licence in June 2016 and is also a member of The Finance and Leasing Association FOS complaints very few complaints are upheld Page 17 everydayloans for everydayliving

19 5. Everyday Loans business model Branches offer full service and do their own lending and collecting Off-high street retail premises and first floor offices in town centres. Majority of customers live within five miles or 30 minutes of branch (location, location, location) Customers are able to establish/repair credit history and branches provide money management service for financially unsophisticated customers All loans are unsecured with homeowners making up approximately 20%-25% of customers. Risk based pricing allows true full-spectrum lending for the right loan amount at the correct price. Customers are focused on payment, not rate: Page 18 1,000 to 15,000 24% APR to 299% APR 24 months to 60 months (no high cost, short term credit) everydayloans for everydayliving

20 5. Everyday Loans business model - the added value of our branch network Over 75% of unique applications are screened out Duplicates They fail initial criteria or minimum credit score Detailed evaluation of customer circumstances includes existing debt coverage, income, expenditure and affordability with the customer. Managers will frequently decline a loan which has passed credit score. Face to face contact significantly enhances credit segmentation, facilitates collections and allows relationship building. Over 85% of qualifying applications to branches get declined following branch review Full, verified affordability checks undertaken in branches Loan is provided over the shortest term that suits the customer. This means we can adapt the loan to changing customer needs. Our average balance on new customer loans is low by industry standards For customers wishing to renew, previous loan repayment history will be considered, however they will still be required to go through a full underwrite for the new loan including the same affordability calculation as new customers Page 19 everydayloans for everydayliving

21 6. The lending process everydayloans for everydayliving Page 20

22 6. The lending process - typical loan and customer profile Customers must be in employment or have verified self employment, have a bank account and three years address history in the UK Average loan size is 3,000-4,000; 63% of loans being 4,000 or less Over 57% are under the age of 40 45% are single 68% earn more than 1,500 per month, 40% earn more than 2,000 per month (i.e. close to national average) Typically a C/D-type customer 48% of loans are at an interest rate of less than 50% 63% have no dependents 43% rent; 25% are homeowners; 23% live with parents 69% have been at the same address for more than three years 75% have been at their job for more than three years Page 21 everydayloans for everydayliving

23 7. Collections Branches have full service responsibility for lending and collecting. Incentives are based on a balanced scorecard between lending and collections, with strong controls over both supported by proven management information systems providing timely alerts on a range of different performance metrics All loans are set-up with electronic payment method, preferably direct debit Customers in default or arrears difficulties are treated sympathetically; with forbearance and due consideration Forbearance is shown to those who need it. Central approval of all account modifications prevents misuse Our control environment is best in class: Deferments - for those with past short-term payment issue, but have demonstrated ability and intent to repay contractual payment ongoing. A number of full contractual payments are required before deferment in order to defer arrears Re-schedules - for those with demonstrated intent to repay, but lack of ability to make full payments, due to change in circumstances. All re-schedules require a full income & expenditure review as well as monthly payment of revised amounts before reschedule and without follow-up, in order to qualify All accounts are collected locally until the account charges off. All accounts 180 days + contractual delinquency at month-end are charged-off Page 22 everydayloans for everydayliving

24 7. Collections customer feedback This is an independently hosted review site. In addition to the very high ratings, The comments are very supportive of the customer journey Anonymous Customer comment The most friendly helpful staff I have ever dealt with, it was so personal, I felt I actually knew the persons I was talking to. Everything was done securely and professionally, I would recommend everyday loans to anyone. Page 23 everydayloans for everydayliving

25 8. Impairments 20% 16% 16% 15% Impairments as % of average net receivables 18% 10% 10% 10% 8% 8% 8% 7% 8% 5% 0% H An internal review of FCA guidelines led a change in collections procedures in December 2015 Removal of STB s restrictions under NSF ownership, has led to a small increase in impairment but is more than compensated for by increased yield and has a net positive impact on EBIT. Delinquency continues to receive management focus as we strive to optimise growth. Collection policies and procedures are being continually revised and updated to take into account experiences learned. Page 24 everydayloans for everydayliving

26 9. Market overview Transfer from the OFT to the FCA has significantly shaken-up the consumer credit market New sub-segment - High Cost Short Term Credit (HCSTC) - has replaced payday sector and has fundamentally changed this part of the market We have increased minimum loan term from 13 months to 24 months We may consider applying for a HCSTC licence in order to offer 12 month loans to existing profile of customers FCA is focused on a number of areas including: the guarantor lending market affordability financial incentives advertising collection processes data protection Technology is a key enabler to gaining competitive advantage in the lending space Current conditions remain favourable but if capital markets become more buoyant, increased competition is anticipated in all market segments We are exploring new product segments that would sit comfortably on our platform and provide further operating leverage Page 25 everydayloans for everydayliving

27 9. Market overview everydayloans for everydayliving Page 26

28 10. Strategy for growth Invest in our branch network Three new branches opened in 2016: Preston, Reading and Derby Two further branches in Q4 16: Walsall and Manchester Additional branches planned for 2017 and also in 2018 Rolling programme of renewal or relocation of branches Invest in our supporting infrastructure New IT Infrastructure & Data Centre just installed Introduction of paperless Direct Debits and Faster Payments Operational focus on expansion Product development New scorecard introduced February 2016 Return to higher APR segments (A9) New pricing introduced April 2016 to compensate for higher cost of funds New complementary products under development everydayloans for everydayliving Page 27

29 11. Summary Clear market leader in unsecured branch-based lending Highly experienced management team Scaleable lending platform Well-funded with debt facilities from RBS, Shawbrook and Secure Trust Bank Full FCA licences received in June 2016 Strong H New scorecard introduced February 2016 New pricing introduced April 2016 Return to higher APR segments (A9) 17% loan book growth in H1 16 Increased yield on new business from 51% to 56% Clear strategy for growth Expand our branch network Invest in our supporting infrastructure Expand our product offering everydayloans for everydayliving Page 28

30 Mark Bardsley CEO

31 Agenda Introduction History and highlights The opportunity Agent value proposition Customer value proposition and lending and collecting Post-acquisition actions Summary 30

32 Introduction

33 History and highlights Home credit lender established in 1938, with over 77 years of experience in the Home Credit market Business acquired by NSF from S&U in August 2015 for 82.4m in cash Operates from 44 branches throughout England, Wales and Scotland; has over 300 employees and c.800 self-employed agents National infrastructure and platform for future growth and business development Loans at Home operating under interim permissions (as are Provident and Morses) Products are fixed-term loans from 24 to 75 weeks mostly repaid weekly in home No default fees or default interest applied to the any loans customers appreciate certainty of cost Agents visit customer in home to issue loan and usually collect weekly repayments in home. Personal contact and understanding of circumstances appreciated by customer Provident and Morses are largest competitors with Loans at Home with third largest market share 32

34 A highly experienced management team Mark Bardsley CEO Lindsay Banbridge Risk Director Paul Gill Chief Risk Officer Jono Gillespie CFO Sarah Day Company Secretary Chris Graham Commercial Director Christine Rangeley Head of HR David Thompson National Operations Manager Jonathan Hague Head of Credit Risk Sam Beardsley Head of Operational Risk Manjeet Bhogal Management Accountant Chris Pearson Head of FPA Jamie Place Head of IT Kat Hackett Head of Marketing Compliance Manager Customer care & compliance managers Marketing Products Acquisitions Corp Comms Strategy Central Operations Business Change 6 Regional Managers 24 Area Managers 120 Business Managers c.800 Agents 33

35 UK home credit market Around 3 million regular users of which 1.5m to 2.0m borrow at any one time. Customer incomes approximately 10,000 to 15,000 in C2, D and E socio-economic groups. Customers by market participant: c.0.8m c.0.2m c.0.1m Others c.0.5m Typical loan size 200 to 1,000. Weekly collections from the customer's home. 34 Regulated by the FCA from 1st April 2014 (formerly OFT).

36 Products Term in Weeks Charges per 100 Total Payable Weekly Rate APR % % % % All loans issued in cash in customer s home No default fees or default interest charged on any loans 35

37 Customer profile c.80% aged c.70% female c.95% C2DE c.50% have employed person in household 89% rent 61% receive benefits excl. child benefit Average annual household income 14,500 pa 95% have a mobile phone 88% have online access 86% have a bank account 22% overdraft facility 15% have direct debit loan 19% have goods on credit 20% use other home credit 36

38 Customer profile Use of loan 27% home improvement 26% presents 9% holidays 5% car expenses 5% baby/child expenses 37

39 % Customer satisfaction 100 Customer Satisfaction 90 Net Promoter Score Very/Quite Satisfied Use next Time Need to Borrow 0 Loans at Home First Direct Santander (credit card) Prudential (health ins.) 38 Source: Customer research undertaken by PCP Market Research among 400 customers Other NPS scores taken from Satmetrix.com UK consumer net promoter benchmark

40 Regulation Of the 576 home credit companies applied for full permission from the FCA: authorised - 22 withdrawn - 31 withdrawn from home credit - 2 refused None of the top three lenders yet fully authorised though on-going dialogue with FCA Key areas for regulator: - Agent oversight - put in place business assurance calls and document checking processes - Affordability - reviewed procedures and documentation - Arrears and Collections Activity - review of field and central collections activity underway - Financially vulnerable customers - process in place to support, product is naturally helpful for those financially vulnerable - Staff remuneration - on-going review Mobile technology facilitates improvements in compliance 39

41 The opportunity

42 The opportunity Alternative lending is the domain of specialists with mainstream providers lacking expertise, experience and appetite Home credit typically serves lower socio-economic group customers smaller value loans to 1,000. These customers and their needs are often neglected by mainstream lenders While the overall market for home credit is not growing, there is an opportunity to take share Each of the major competitors are pursuing different strategies creating an opportunity to grow Loans at Home through recruiting new agents and increasing customer density To succeed, we need to: 1. Expand the agent network; and 2. Attract profitable customers 41

43 Agent Value Proposition

44 Why agents choose us At Loans at Home we really value agents. We know that they are key to our long term success. We believe that we re the best home credit company that an agent can work with. Here are some reasons why: Highly experienced management team - over 175 years experience in Home Credit. Exciting and ambitious growth plans - we re looking to build and grow our business; not just rationalise and cut costs. We re investing - attracting new agents as well as installing new technology to support our agents and allow them to maximise their earning potential Competitive and easy to understand reward structure - we pay flat commission based on what is collected providing agents with certainty regarding their income, avoiding any nasty surprises All size of journeys and agencies are welcome - an agent doesn t have to have hundreds of customers to be a good agent. We want our agents to have successful businesses but we also know that one size doesn t fit all We re committed to great customer service - being fair and clear to our customers, our agents and our people lies at the centre of what we do 43

45 Agent profiles All agents self-employed Majority are female reflecting customer base Many have come to us from competitors All agents DBS checked and credit searched Rigorous 12-week induction programme with support from existing agents and managers Additional ongoing training via Learning Management System Agents earn 10% of collections (8% on card payments) no commission is paid on sales Earn reward for new customers reflecting time and cost involved Weekly meetings with managers to discuss and support Managers undertake dual visits 44

46 Customer Value Proposition

47 Why customers use us Customers like accessible and inclusive nature of product Like to deal with people who take time to understand their circumstances and treat them as an individual Product gives customers total control unlike problems people sometimes encounter with revolving credit No default fees or default interest give customers certainty and means they have no fear of spiralling debt Ability to budget weekly means repayments affordable Home service is convenient Customers grew from 87k in August 2015 to 92k in February 2016 and are expected to be around 95k at the end of

48 Customer recruitment Online Recommendation Agent activity 47

49 Digital plans and new website Complete redesign of website New site is fully responsive Paid search and search engine optimisation in development Developing relationships with third parties to further drive customer reach We will start slowly and build over time tracking and refining marketing and credit decisions 48

50 49 New website

51 Customer recruitment RECOMMEND AGENT TELEPHONE ONLINE Customer generates lead Agent generates lead Customer calls contact centre Customer applies online Agent calls contact centre with customer details Agent calls contact centre with customer details Decision in principle Decision in principle Decision in principle Decision in principle Lead allocated to agent Lead allocated to agent Agent visits customer, assesses affordability, final decision Agent visits customer, assesses affordability, final decision Agent visits customer, assesses affordability, final decision Agent visits customer, assesses affordability, final decision 50

52 Decision in principle process 1) Collect customer name, address, date of birth 2) Check against internal data: Current/previous customer Previous write off Out of area 3) Callcredit data pull 6) Affordability assessment by agent in home 5) Decision in principle 4) Scorecard + check for bankruptcy, sequestration, DMA, IVA 51 Decision engine produces result in seconds Continual process of scorecard improvement Affordability and sustainability assessment involves individual income and expenditure check which is validated and documented

53 Customer Application Waterfall H2 to date Agent Generated Application Waterfall Web Application Waterfall 100% 100% 90% 80% 80% 70% 60% 60% 50% 40% 40% 30% 20% 20% 10% 0% Agent Applications AIP Customers AIP = Approval in Principle 0% Web Appplications AIP Customers In H2 c.25% of new customers sourced online 52

54 Further lending to current customers Most customers visited weekly by agents 75% of lending to existing customers Opportunity to discuss any needs Customer must meet strict payment performance criteria to receive a further loan Behavioural scoring will be introduced to further support agent decisions Affordability assessment is documented and validated for every loan Agent always makes final decision company may say no, but never yes 53

55 Collections Loans collected weekly in cash by agents at customers homes. In some circumstances card payments may be accepted Agents receive 10% of cash collected as commission (8% on cards) Agents attend weekly meetings with managers to discuss customer performance and compliance If customer misses a payment there are no additional charges and there is no default interest builtin forbearance If a customer is identified as suffering financial difficulty e.g. missing multiple payments or telling an agent their circumstances have changed, a new affordability assessment will be undertaken and a formal payment arrangement made Home credit is uniquely positioned to identify and understand vulnerable customers. Loans at Home has clear vulnerable customer policies and procedures and all staff and agents are trained in identifying and managing vulnerable customers 54

56 Post-acquisition actions and performance

57 Post-acquisition actions New management team recruited (see appendix) Revised accounting policy implemented Reviewed all regulatory and compliance matters with extensive revisions/structural changes: Newly appointed Chief Risk Officer Committed to ensuring Risk & Compliance resources and processes keep pace with regulatory needs and growth of the business Business Improvement project underway Risk & Compliance committee working well Branch assurance and thematic reviews commenced Three lines of defence model embedded in business, key focus on first line controls Compliance reporting developed including business assurance calls and document checking Transfer of complaint handling and reporting to Customer services Document checking and Business Assurance calls underway Policy review Developed a long-term strategic plan and clear vision for the business Began a recruitment drive to increase number of agents and customers fill the void left by PFG 56 Established a programme of investment in hand-held technology, systems and training

58 Mobile technology developments Stage 1 Collections All collections will be keyed directly into central systems by agents via mobile device Increased efficiency Instant access to customer status quicker decisions Reduce manual errors Remove paper collecting lists Stage 2 - Balancing Centralisation of remaining administrative tasks in Customer Service Centre Reduction/removal of unnecessary balancing and reconciliation tasks currently undertaken in Head Office Stage 3 - Lending Ability to lend via mobile device Electronic agreements, request to call forms and affordability assessment forms Greatly enhanced agent and customer experience Processes built to ensure regulatory compliance Integration All fully integrated with new application process via website, brokers and Customer Service Centre Decision engine rules built into new application process 57

59 Mobile technology examples Mick Mouse Sharon Stone 41 Tommy Ave, Widnester, WA9 OTB 58

60 H1 16 performance Substantial growth in: new agencies; loan book; and customers Growth metrics much higher than major competitors But, greater than expected rate of growth resulted in additional costs: Temporary period of fixed commissions for new, experienced agents Increased impairments as we added a large number of new customers While operational KPIs were strong, costs and impairments impacted financial performance in H

61 Post-H1 16 actions Adjusted management reporting structure Enhanced management information has enabled increased focus on: Rigorous early care of new customers Detailed monitoring of new agent performance not all agents succeed, even with experience Recruiting agents with home credit experience Those customers eligible for additional credit where customer demand exists Embedded refined compliance procedures into day-to-day operations Consolidated a number of newly opened, sub-scale agencies Reduce admin costs Improve operational efficiency Reduce vacancies Continued development of scorecard based on customer data since change of control Commenced hand-held technology trial in a number of branches 60

62 Experienced agents deliver better performance New customer collection performance after 20 Weeks (indexed) Agents with HC Experience Agents Without HC Experience HC experience refers to agents who have previously worked in the home credit industry 61

63 Experienced customers deliver better performance H New Customers Expected Collections After 4 Weeks Impairment % of revenue New versus existing customers (indexed) HC Experience No HC Experience New Existing HC experience refers to customers who have previously used home credit 62

64 Index Collections Improved recent collections performance 100 New customer early collection performance* (indexed) Week * Collections to maturities at 5 weeks for new customers on 5 week rolling Actions taken to improve collections has started to reduce impairment ahead of the important seasonal lending period 63

65 Summary Growth thesis unchanged significant opportunity for Loans at Home Rapid growth in H1 pace of agent recruitment and customers incurred temporary additional costs Remedial actions taken are having a positive effect Focus for the rest of 2016 and into 2017: Continue to recruit new agents Less aggressive pace of growth in order to better select agents and target support payments Agent recruitment will focus on those with previous experience Customer recruitment will continue to be driven by agents with increasing numbers coming from online channels Further embedding of regulatory good practice will be supported by the introduction of new technology New technology will drive operational efficiencies, improved customer service, better lending decisions and improved collections capability 64

66 65 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Coffee break

67 Richard Sharp Managing Director everydayloans for everydayliving

68 Guarantor loans UK market dynamics Overview Total outstanding receivables of around 350m Annual new loans of m Growing market, in part driven by product expansion Attractive risk-adjusted returns No sign of margin compression FCA supportive of the product (greater customer choice at a lower cost), whilst also requiring a small change in collections methodology Significant long-term potential Amigo dominates (85-90% share) and is continuing to innovate under new management Number of other players but few have the capacity to grow Key success factors: Scaleable infrastructure (Amigo, Trusttwo and Glo although Glo not currently writing new loans) Ability to lend across most of the credit spectrum Multiple fulfilment options and products Access to low cost funding Easy customer journey and sales process Strong marketing campaigns everydayloans for everydayliving Page 67

69 Guarantor loans - market dynamics Trusttwo makes loans that are secured by guarantee, to those who either cannot obtain an unsecured loan by themselves or cannot get the amount they require by themselves A guarantor can be a family member, friend or work colleague, but not spouse / partner 90% of guarantors are family e.g. parent, sister, uncle The customer base is sub-prime, often at the bottom end or below of Everyday Loans customer range Guarantors tend to be prime or near prime As the APR is lower, due to credit enhancement from Guarantor, affordability can be better than unsecured loan. Loans are fulfilled online with any customer interaction from a centralised lending operation in Bourne End The main channels for applications are: Internet (direct to brand) Brokers and lead generators Declines and referrals from the Everyday Loans branch network Collections are by direct debit from the borrower s account, or in the event of default, that of the guarantor Page 68 everydayloans for everydayliving

70 Guarantor loans the lending process 1. Customer applies on Trusttwo website 6. If successful, Operations team contact both Guarantor and Applicant to undertake Affordability and ID Review 7. If successful, Guarantor is then asked electronically sign their loan agreement 2. Customer is asked for password and given access to a My account area 5. Credit search is undertaken on the Guarantor & Applicant 8. Applicant then electronically signs their agreement 3. Customer then sends unique link/url to preferred Guarantor which is highlighted in the My account area 4. Guarantor clicks link and is taken into My account area to complete their details 9. Funds are then disbursed through to the Guarantor s bank account who transfers it to the borrower everydayloans for everydayliving Page 69

71 Trusttwo update Operational changes already made Organisational restructure to aid focus, efficiency and customer experience Richard Sharp has joined as Managing Director Branch referral scheme rolling out to Everyday Loans branch network Significant increase in overall conversion in Q2/3 Implementation of additional automated fraud checks Improvements to web, allowing an easier application journey for customers Enhanced default procedures introduced following new FCA rules on enforcing guarantees on guarantor loans that resulted in a temporary increase in impairments that are now starting to reduce Strong H1 16 performance 28% loan book growth in H1 16 vs H1 15 Fully automated credit and affordability engine being designed utilising Call Credit as a CRA Pricing, product features and full customer journey overhaul Significant opportunity to grow loan book Page 70 Well-capitalised parent to fund loan book growth and integrated marketing plans Well-positioned to become the clear number two in the market Excellent relationships with financial brokers Referrals from branch network everydayloans for everydayliving

72 71 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Miles Cresswell-Turner Executive Director

73 72 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Sub-prime consumer finance market overview - - -? Note: *Outstanding balances contain a proportion of lending at rates below 20% APR Source: L.E.K. analysis of company accounts; Bank of England Credit Union accounts; Competition commission Home credit, 2013; OFT payday lending compliance review 2013; FLA News

74 73 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Sub-prime unsecured consumer finance market overview Loan Size 5000 Larger amount, longer-term Lower cost, short-term High cost, short-term 30% 50% 75% 100% 200% 1000% APR

75 74 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Sub-prime unsecured consumer finance market overview Loan Size 5000 HCSTC price cap (Lift) % 50% 75% 100% 200% APR 1000%

76 75 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Nick Teunon Chief Financial Officer

77 76 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Future funding strategy We have committed funds of 95m with an opportunity to extend to up to 120m with banks consent At 30 September 2016: - Gross debt was 77.6m - Cash at bank of 2.8m - Committed undrawn facilities of 15.4m In 2017 we are considering a number of options to broaden our capital structure: - Additional bank finance - Bond issue - Retail bond - Mezzanine - Zero dividend preference shares - Private placement

78 77 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 M&A acquisition criteria M&A not required to achieve growth targets We continue to monitor developments across a number of sub-sectors Areas of interest include Unsecured, non-standard consumer lending High barriers to entry Face-to-face preferred Ability to grow loan book by 20% per annum Target 20% ROA over the medium-term

79 per week 78 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Accounting - revenue Calculate EIR, or Effective Interest Rate (IRR on anticipated loan repayments) Apply to loan balance weekly/monthly which reduces as cash collected Revenues are front-end loaded impact more pronounced in Loans at Home given high levels of lending in November and December Can also generate revenue in excess of amount due if loan runs over term as keep accruing at EIR offset by matching impairment the gross up 6 33-week loan of 100; repayment of 5 per week 120 Value of loan pre-impairment Cash Revenue

80 Value of loan on balance sheet 79 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 Accounting - impairment When evidence of impairment, we calculate NBV of expected cash flows using EIR and impair loan balance to that NBV Loans at Home: payments missed over past 13 weeks (start at two missed for new customers and four for existing) Everyday Loans and Trusttwo: number of days overdue Then apply EIR to reduced loan balance Reassess at end of next week/month Same Loans At Home loan: pay 4 weeks at 5 miss 2 payments expect to pay 3.50 for next 35 weeks so of cash and profit of not

81 80 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 John van Kuffeler Founder and Executive Chairman

82 81 NON-STANDARD FINANCE INVESTOR DAY, 1 NOVEMBER 2016 The next phase in our development: Phase I complete; future growth will be driven by Everyday Loans additional yield; expanding the branch network; and launch of new products Loans at Home measured growth in agents and customers in a wide-open market Trusttwo commencement of growth after completing investment in infrastructure Key focus on profit and dividends M&A not required to achieve growth targets Market background remains positive; any change will be carefully managed through scorecard Our businesses have a history of robust performance in economic downturns We continue to make good progress towards our goal: overall loan book growth of 20% per annum and 20% return on assets in each of our operating businesses

83 Investor day 1 November 2016