2016 Full Year Results. 3 March 2017

Transcription

1 2016 Full Year Results 3 March 2017

2 1 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS John van Kuffeler Founder and Group Chief Executive

3 2 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Overview In 2016 we achieved our overall strategic objective as set out at the time of our IPO: To acquire at least one, preferably two target companies in the UK non-standard consumer finance sector. We now have #1 in branch-based unsecured lending #3 in home credit Positioned to become #2 in guaranteed loans Nearly 90 offices across the UK Over 500 employees 785 self-employed agents Combined loan book of 165m ( 180m after fair value adjustments) Strong loan book growth: Everyday Loans +18%; Loans at Home +19%; Trusttwo +19% Total debt facilities of 95m with opportunity to increase to 120m, with banks consent Recommended final dividend of 0.9p (2015: nil) making 1.2p for the year as a whole (2015: nil) Current trading: good start to the year by all three business divisions

4 3 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Financial highlights 1 Revenue 94.7m Operating profit m Strong growth in all three businesses Pro forma normalised results remove accounting anomalies and exceptional costs No comparable data for 2015 Customers c.137,000 Net loan book 164.6m Strong loan book growth to 31 Dec 2016 Everyday Loans +18% Loans at Home* +19% Trusttwo +19% EPS p DPS 1.2p (2015: nil) Maiden final dividend is 2.8x covered on a pro forma basis 3 Good progress towards reaching our target of 50% payout 1 Pro forma normalised results note there are no comparable figures for the prior year 2 Pro forma normalised operating profit before temporary agent support costs and exceptional items 3 Pro forma normalised EPS assuming a 20% tax rate and weighted average number of shares in issue of 307.3m *Growth since acquisition on 4 August 2015

5 4 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Operating highlights What has gone well? Everyday Loans 18% loan book growth 5 new branches opened Increased yield on new loans issued New data centre operational Loans at Home 19% loan book growth 25% more agents Collections app now used by all agents Trusttwo 19% loan book growth New management structure in place Improved customer journey and conversion What are we achieving now? Everyday Loans Opening more branches Rolling-out new products Increasing conversion Loans at Home Reducing impairment and agent support costs Affordability and lending apps during 2017 Continuing to recruit experienced agents Trusttwo Launching new website in Q1 17 Launching strong marketing drive Increasing referrals from branch network Increasing conversion further

6 5 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Nick Teunon Chief Financial Officer

7 6 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS 2016 pro forma normalised divisional breakdown Year ended 31 December 2016 Everyday Loans Loans at Home Trusttwo Central costs Total Revenue 50,088 42,170 2,416-94,674 Impairments (10,034) (15,313) (358) - (25,705) Revenue less impairments 40,054 26,857 2,058-68,969 Admin expenses (20,631) (23,229) (1,402) (3,257) (48,519) Normalised operating profit 19,423 3, (3,257) 20,450 Temporary additional commission - (1,771) - - (1,771) Operating profit 19,423 1, (3,257) 18,679 Finance cost (4,720) (323) (316) (264) (5,623) Profit before tax 14,703 1, (3,521) 13,056 1 Assuming Everyday Loans was owned since 1 January 2016

8 7 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS 2016 pro forma normalised 1 divisional breakdown 100% 2.6% 2.8% 5.3% 90% 80% 70% 44.5% 15.3% 20.3% 60% 50% 40% 81.9% 74.4% Trusttwo Loans at Home Everyday Loans 30% 20% 52.9% 10% 0% 2 Revenue Operating profit Loan book 1 Assuming Everyday Loans was owned since 1 January before central costs

9 8 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS 2016 pro forma KPIs 1 Year ended 31 Dec 2016 Everyday Loans Loans at Home Trusttwo Loan book growth 18.0% 19.3% 18.9% Revenue yield % 152.8% 31.9% Risk adjusted margin % 97.3% 26.7% Impairments/revenue 20.0% 36.3% 14.8% Operating profit margin 38.8% 4.4% 27.2% Return on asset % 6.7% 8.5% 1 Assuming Everyday Loans was owned since 1 January Revenue as a percentage of average loan book excluding fair value adjustments (twelve month average) 3 Revenue less impairments as a percentage of average loan book excluding fair value adjustments (twelve month average) 4 Operating profit as a percentage of average loan book excluding fair value adjustments (twelve month average)

10 9 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Everyday Loans Year ended 31 December 2016 Pro forma normalised Revenue 50,088 Impairments (10,034) Revenue less impairments 40,054 Admin expenses (20,631) Normalised operating profit 19,423 Finance cost (4,720) Profit before tax 14,703 Key Performance Indicators: Revenue yield % Risk adjusted margin % Impairments/revenue 20.0% Operating profit margin 38.8% Return on asset % 1 Assuming Everyday Loans was owned since 1 January Revenue as a percentage of average loan book excluding fair value adjustments (twelve month average) 3 Revenue less impairments as a percentage of average loan book excluding fair value adjustments (twelve month average) 4 Operating profit as a percentage of average loan book excluding fair value adjustments (twelve month average)

11 10 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Period end loan book m Jun Dec Jun Dec-16

12 000s 11 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Volume and new business yield 2016 value of loans 2015 value of loans 2016 avg yield 2015 avg yield 11,000 10,000 9,000 58% 56% 54% 52% 8,000 7,000 50% 48% 46% 6,000 5,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 44% 42% 40%

13 12 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Impairments as a % average net receivables 20% 18% 16% 16% 15% 10% 10% 10% 8% 8% 8% 7% 9% 5% 0% Impairments (% anr)

14 13 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Loans at Home Six months ended 30 June 2016 Normalised Revenue 42,170 Impairments (15,313) Revenue less impairments 26,857 Admin expenses (23,229) Normalised operating profit (loss) 3,628 Temporary additional commission (1,771) Exceptional items - Operating profit 1,857 Net finance cost (323) Profit (loss) before tax 1,534 Key Performance Indicators: Revenue yield % Risk adjusted margin % Impairments/revenue 36.3% Operating profit margin 4.4% Return on asset 4 6.7% 1 Assuming Everyday Loans was owned since 1 January Revenue as a percentage of average loan book excluding fair value adjustments (twelve month average) 3 Revenue less impairments as a percentage of average loan book excluding fair value adjustments (twelve month average) 4 Operating profit as a percentage of average loan book excluding fair value adjustments (twelve month average)

15 14 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS KPIs Agents and customers 100,000 Number of customers Agents (RH scale) , , ,000 98, ,000 87,000 92,000 93, , , Aug Dec Jun Dec-16 0

16 15 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Period end loan book m Aug Dec Jun Dec-16

17 Peak lending / slower collections Peak lending / slower collections 17 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Collections performance for weekly cohorts (indexed to 100) Actions taken

18 18 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Trusttwo Six months ended 30 June 2016 Pro forma normalised 000 Revenue 2,416 Impairment (358) Revenue less impairment 2,058 Admin expenses (1,402) Normalised operating profit 656 Finance cost (316) Profit before tax 340 Key Performance Indicators: Revenue yield % Risk adjusted margin % Impairments/revenue 14.8% Operating profit margin 27.2% Return on asset 4 8.5%

19 19 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Period end loan book m Jun Dec Jun Dec-16

20 20 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Improving conversion 180 Conversion rates from guarantor passes (indexed to 100) May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16

21 21 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Balance sheet We remain under-leveraged Bank borrowings: loan book was 53% Target capital structure is 3:1 debt : equity Existing debt in place until 2018 and 2019 Future loan book growth will be funded by: Cash flow Existing debt facilities Alternative debt finance 31 Dec 2016 m Loan book 165 Fair value 15 Adjusted loan book 180 Cash and other assets 21 Payables and deferred tax (15) Debt (87) Tangible net assets 99 Goodwill and intangibles 149 Net assets 249 No need for further equity

22 22 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Recommended final dividend Board keen that shareholders benefit from the Group s strong cash flow Recommended final dividend of 0.9p per share, making total of 1.2p per share for the year We remain on-course to achieve our target of 50% payout If approved, final dividend payable to shareholders on the register on 19 May 2017 (ex div on 18 May 2017) Dividend paid on 20 June 2017

23 23 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS John van Kuffeler Founder and Group Chief Executive

24 24 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Phase I is now complete A solid platform is now in place: #1 position in Branch Based Lending #3 position in Home Credit Positioned to become #2 in Guaranteed Loans 95 million of debt facilities secured with the potential to increase to 120m with loan book growth Three profitable businesses with significant opportunity to deliver substantial growth in future years

25 25 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Investment thesis remains sound Demand factors A large and growing potential customer base Supply factors Demise of payday following HCSTC cap Further retrenching by competitors Regulations represent a high barrier to entry 1 3 of working population is under-served Low paid Low credit status Credit impaired Challenges: Home Credit yet to receive full FCA permission High Cost Credit review Inflation Opportunities: c.1% of total work force paid minimum wage and below 1 Over 912,000 consumer County Court Judgements 3 c.16% of total work force self-employed 2 2.9m Recently arrived migrants 4 Strong balance sheet Each of our businesses is well-positioned We have a clear plan for growth Source: Competitor analysis, Bank of England, ONS, Euromonitor, CML, Registry Trust Limited, Management estimates Notes: 1 ONS: Low Pay in the UK: April ONS: Self-employment jobs, March Registry Trust Limited Press release, 1 February Migrants to the UK from Sept 2012 to Sept ONS: Overview of the UK population, February 2017

26 26 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS We are now underway with Phase II of our plan Everyday Loans: More branches planned for 2017 and 2018 Launch new and complementary products Seek to improve conversion through channel management Loans at Home: Focus on improving quality of the loan book, reduce rate of impairment and improve KPIs Remain opportunistic regarding experienced agent recruitment Reap benefits of our investment in technology Continue to build the skill-base of our people Trusttwo: Launch new website Expand in-house team Drive traffic through marketing and branch-referrals Group Secure longer-term funding as part of a broader financial strategy

27 Managing growth branch-based lending

28 28 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Managing growth branch-based lending Network expansion: 5 new branches in 2016, all performing well 12 new branches in plan for 2017, 10 already identified 1m impact to EBIT in 2017 but accretive thereafter Potential for at least 8 additional locations 800k Illustrative operating profit from a single new branch 200k 600k Cumulative (LH scale) Operating profit 150k 400k 100k 200k 50k 0k Mth 1 Mth 13 Mth 25 Mth 37 Mth 49 0k (200k) (50k)

29 000s 29 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Managing growth branch-based lending Product development: Extension into A9 and A10 scorebands higher risk but also higher yield Selfy loan now being offered across the network Application for HCSTC licence submitted 11,000 10,000 9,000 8,000 7,000 6, value of loans 2015 value of loans 2016 avg yield 2015 avg yield 58% 56% 54% 52% 50% 48% 46% 44% 42% 5,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 40%

30 30 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Managing growth branch-based lending Improved channel management: 100% UK RESIDENTS, EARNING AVERAGE INCOMES, CREDIT IMPAIRED, THIN CREDIT FINANCIAL BROKERS 76% of applications (35% of loans booked) DIRECT 21% of applications (29% of loans booked) OWN BOOK RENEWALS/FORMER BORROWERS 3% of applications (36% of loans booked) Central 71% declined Duplicates /incorrect info Credit history Customer waterfall Credit score 29% accepted 17% receive telephone interview In-branch 5% attend branch and 3% get a loan 12% no response/decline 14% declined/fail I&E

31 Managing growth home credit

32 Thousands 32 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Managing growth home credit Customer quality: Evolving scorecard much improved model Improved credit assessment Revised incentives % % 50% 48% 46% 44% 42% % Total Customers % Quality Quality customers are those whose collections performance in the previous 13 weeks (measured as a % of due payments) is 70% or greater

33 33 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Managing growth home credit Agent network: Following rapid growth in H1 2016, several unviable agent journeys were closed in H at year end Significant reduction in vacancies but still more to do We remain opportunistic regarding hiring experienced self-employed agents

34 34 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Managing growth home credit Technology investment: Phase I complete: transformation to cloud-based infrastructure and launch of mobile apps New data centre in Leeds New website Collections App roll-out complete MI portal live through tablets In 2017: Lending App part I Affordability Lending App part II Loan agreements Improved management information Arrears/Forbearance App

35 35 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Managing growth home credit Training and development: Progress to-date: Re-write of all operating procedures and manuals Introduction of Learning Management System to provide and record a range of training modules for all front-line representatives In 2017: Expand dedicated training function Design tailored management training programme for all field-based staff Train the trainer Culture initiative across each business

36

37 37 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Managing growth guaranteed loans Progress to-date: Set-up as stand-alone business Dedicated management hired Product evolved with greater customer offer +19% loan book growth in 2016 Profitable and well-placed for future growth Plans for 2017: Launch new site later this month Launch coordinated marketing campaign Leverage Everyday Loans broker relationships Grow volumes and loan book substantially Number and value of loans booked From branch Direct/broker Value of loans booked (RH scale) 1,000k 900k 800k 700k 600k 500k 400k 300k k 100k 0 0k

38 38 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Regulation update Everyday Loans (including Trusttwo) received full permissions in June 2016 FCA licensing process still ongoing for the larger home credit firms Series of publications/consultations from FCA Early arrears management in unsecured credit Default notices in guaranteed loans High-Cost Credit Call for Input Financial Services Compensation Scheme A number of Section 166 reviews are ongoing at other firms We remain fully supportive of the approach taken by the FCA

39 39 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Summary Our original investment thesis remains unchanged We are on-track to deliver: loan book growth of around 20% per annum for the Group as a whole ROA target of 20% for each of our operating divisions in the medium-term We are continuing to review potential targets in a number of segments but M&A not required to achieve growth targets and any transaction would likely be funded with debt 95m of committed funding in place with opportunity to increase to 120m, with banks consent; we are actively reviewing a number of longer-term debt financing options Outlook: we have made a good start to the year with each of our business divisions performing well Recommended final dividend of 0.9p making 1.2p for the year; target is to reach 50% payout in the medium-term

40 40 NON-STANDARD FINANCE 2016 FULL YEAR RESULTS Questions?

41 2016 Full Year Results 3 March 2017