Vanquis Banking Group PLC · LSE:VANQ
Vanquis Banking — Vanquis Bank — Investor Day (November 2011)
145 slides from Vanquis Banking's investor day presentation, Nov 14, 2011
Slide 1: Vanquis Bank: Sustainable growth and high returns
Investor Day – 14 November 2011 Vanquis q Bank Sustainable growth and high returns 1
Slide 2: Welcome to Vanquis and to Chatham Maritime
Investor Day – 14 November 2011 Welcome l to Vanquis i and d tto Ch Chatham th M Maritime iti P t C Peter Crook k – Chairman, Ch i V Vanquis i BBank k 2
Slide 3: Strong corporate governance
Investor Day – 14 November 2011 Strong corporate governance Board *With effect from 01/01/12 – subject to FSA approval 3
Slide 4: How Vanquis is regulated
Investor Day – 14 November 2011 How Vanquis is regulated Vanquis is the subject of close regulation, and maintains high regulatory standards • FSA regulated bank - Submission of regular g returns - Capital and liquidity requirements - Requirements to adhere with BIPRU and GENPRU - ARROW visits - Tre
Slide 5: Excellent progress
Investor Day – 14 November 2011 Excellent progress • Significant progress made over the last 5 years - New management g team - Re-pricing of the receivables book - Underwriting tightened in advance of the downturn - Collections processes improved - Systems and operational capability enhanced - Depos
Slide 6: Welcome and Introduction
Investor Day – 14 November 2011 Welcome l and d Introduction d Michael Lenora – Managing Director 6
Slide 7: Structure of the day
Investor Day – 14 November 2011 Structure of the day 11 15 – 11.25 11.15 11 25 W l Welcome & Introduction I t d ti Mi h l L Michael Lenora 11.25 – 11.45 How the Contact Centre Works David Underwood 11 45 – 13.00 11.45 13 00 Contact C t t Centre C t Tour T Hosts H t • New Accounts Vanessa Farmer • Cu
Slide 8: Sustainable growth and high returns
Investor Day – 14 November 2011 Sustainable growth and high returns T deliver To d li minimum i i 30% risk-adjusted i k dj t d margin i and d 30% post-tax t t ROE g • Significant g pp y growth opportunity - Focused on our target customers and segment • Business model that delivers high, sustainable
Slide 9: Background
Investor Day – 14 November 2011 Background • First issued cards in 2003 aimed at under-served market • Broke even in 2007 Profit before tax (£m) 20.0 15.0 10.0 5.0 - (5.0) (10.0) (15 0) (15.0) H1 2003 H2 2003 H1 2004 H2 2004 H1 2005 H2 2005 H1 2006 H2 2006 H1 2007 H2 2007 H1 2008 H2 2008 H1 2009 H2
Slide 10: Background
- 50 100 150 200 250 300 350 400 450 H1 2003 H2 2003 H1 2004 H2 2004 H1 2005 H2 2005 H1 2006 H2 2006 H1 2007 Investor Day – 14 November 2011 H2 2007 H1 2008 Receivables (£m) Background H2 2008 H1 2009 H2 2009 H1 2010 H2 2010 H1 2011 • Achieved 30% post-tax ROE in H2 2010 10 100 200 300 400 500 600 7
Slide 11: What is Vanquis Bank?
Investor Day – 14 November 2011 What is Vanquis Bank? In many ways it looks and acts like any other credit card provider • Contact Centre operations • Operates like any other card • Internet sales and servicing • Accepted at 15m locations • Visa branded • Standard payments and statements 11
Slide 12: What is Vanquis Bank?
Investor Day – 14 November 2011 What is Vanquis Bank? But today we are going to focus on why our business model makes us different and successful • Right people, right culture • Solely focused on customer segment • Logical L i l approach, h analytical l ti l and d • High level of customer contact de
Slide 13: The right team
Investor Day – 14 November 2011 The right team Team of specialists with over 80 years of credit card and 160 years of financial services experience Michael Lenora, Managing Director • More importantly, expertise has depth Michael Hutko, throughout the organisation Bob van Breda, Commercial Fi Financ
Slide 14: Your journey today
Investor Day – 14 November 2011 Your journey today….. St t thi Starts this morning i in i the th front f t line li off th the contact t t centre t New Accounts Customer Lifecycle Customer Fraud High Sustainable Service Returns Collections 14
Slide 15: Your journey today
Investor Day – 14 November 2011 Your journey today….. Then looks behind the scenes Marketing Strategy this afternoon Credit Underwriting New Accounts Fraud Customer Lifecycle Customer Existing Management Fraud High Sustainable Service Customer Management Returns Collections Collections Strategy 15
Slide 16: Your journey today
Investor Day – 14 November 2011 Your journey today….. Illustrating Ill t ti how h it all ll ties ti Marketing together Strategy Credit Underwriting New Accounts Fraud Customer Lifecycle Customer Existing Management Fraud High Sustainable Service Customer Management Returns Collections Collections St
Slide 17: Structure of the day
Investor Day – 14 November 2011 Structure of the day 11 15 – 11.25 11.15 11 25 W l Welcome & Introduction I t d ti Mi h l L Michael Lenora 11.25 – 11.45 How the Contact Centre Works David Underwood 11 45 – 13.00 11.45 13 00 Contact C t t Centre C t Tour T Hosts H t • New Accounts Vanessa Farmer • Cu
Slide 18: How the Contact Centre Works
Investor Day – 14 November 2011 How the Contact Centre Works David d Underwood, d d IT & Operations Director 18
Slide 19: Our locations
Investor Day – 14 November 2011 Our locations Chatham 420 seats London HO 80 staff Bradford 230 seats (new) 19 London Data Centre
Slide 20: Our contact centre
Investor Day – 14 November 2011 Our contact centre Th contact The t t centre t has h four f key k customer t facing f i departments d t t Bespoke underwriting and unique “Welcome to Vanquis” process New Accounts The c Easy access, regular Industry leading fraud Customer Lifecycle Customer Fraud High
Slide 21: New Accounts
Investor Day – 14 November 2011 New Accounts New Accounts Bespoke underwriting and unique “Welcome Welcome to Vanquis Vanquis” process • Main channels are Internet, Direct Mail and Partner referrals • 100 staff: - Processing g 90,000 to 100,000 applications pp p per month - Booking 20,000 to 25,000
Slide 22: Customer Services
Investor Day – 14 November 2011 Customer Services Customer Service Regular contact and Gold Service propositions, propositions our customers call us more frequently than other card providers • High customer satisfaction – 9 out of 10 customers would recommend us • Customer contact mainly via telepho
Slide 23: Collections and Recoveries
Investor Day – 14 November 2011 Collections and Recoveries Collections Segmented and intensive intensi e collections strategies • 180 staff in Collections & Recoveries • Combination of letter, telephone, SMS and email • Pre delinquent activity – past due date or overlimit • “Vanquis” collections for
Slide 24: Fraud
Investor Day – 14 November 2011 Fraud Fraud I d t leading Industry l di fraud f d prevention ti systems t • 30 staff dealing with 1st and 3rd party fraud, financial crime and disputed t transactions ti • Fraud losses among lowest in industry – <£0.50/card/year and <0.1% of turnover – <£300 000 this
Slide 25: Structure of the day
Investor Day – 14 November 2011 Structure of the day 11 15 – 11.25 11.15 11 25 W l Welcome & Introduction I t d ti Mi h l L Michael Lenora 11.25 – 11.45 How the Contact Centre Works David Underwood 11 45 – 13.00 11.45 13 00 Contact C t t Centre C t Tour T Hosts H t • New Accounts Vanessa Farmer • Cu
Slide 26: Contact centre
Investor Day – 14 November 2011 Contact centre Several key factors are common to all areas New Accounts • Right people, right culture • High g level of customer contact Customer Lifecycle Customer • Technical support Fraud High Sustainable Service Returns • Granular and timely data Collections Pleas
Slide 27: Questions?
Investor Day – 14 November 2011 Q Questions? i ? 27
Slide 28: Structure of the day
Investor Day – 14 November 2011 Structure of the day 11 15 – 11.25 11.15 11 25 W l Welcome & Introduction I t d ti Mi h l L Michael Lenora 11.25 – 11.45 How the Contact Centre Works David Underwood 11 45 – 13.00 11.45 13 00 Contact C t t Centre C t Tour T Hosts H t • New Accounts Vanessa Farmer • Cu
Slide 29: Acquiring and Managing Returns from Customers
Investor Day – 14 November 2011 Acquiring and Managing Returns from f Customers Michael Hutko – Commercial Director 29
Slide 30: Agenda
Investor Day – 14 November 2011 Agenda • Marketing strategies • Credit and customer management decisions - Initial underwriting - Line increase (low and grow) - Other customer management techniques • Inherently robust business model 30
Slide 31: Acquiring Customers
Investor Day – 14 November 2011 Acquiring q g Customers 31
Slide 32: Marketing strategies
Investor Day – 14 November 2011 Marketing strategies Marketing St t i Strategies • How we segment and target Vanquis Card prospects Fraud • Wh consumers apply Why l for f a Vanquis V i Customer Management Visa Card Management • Why y ca cardholders d o de s use ttheir e Vanquis a qu s Ca Card d Coll
Slide 33: Target market
Investor Day – 14 November 2011 Target market Partner Electoral New declines roll refresh channels Vanquis’ V i ’ target t t market k t is i over 7 million illi - (1m+ p.a.) mostly C1/2/D More impaired credit records • Diverse routes to market Third party lists • Current penetration less than 10% Po
Slide 34: Target customer
Investor Day – 14 November 2011 Target customer Our target O t t customers t have h a materially t i ll different diff t profile fil to t that th t off prime i credit cardholders • Customer status Prime issuer Vanquis Bank Employment status Employed Employed Annual income £25k+ p.a. £15 – 30k p.a. R
Slide 35: Customer profile
Investor Day – 14 November 2011 C Customer profile fil Total Portfolio Gender 48% female, 52% male Average Age 36 Typical Income £15,000 to £30,000 Residency 75% tenants, 25% owners Employment 72% employed, 11% self-employed, 5% home-maker Top 5 Merchants 1 Tesco 1. 2. Asda 3. Sainsbury’s y 4. Argos
Slide 36: Core customer proposition
Investor Day – 14 November 2011 Core customer proposition A normall credit dit card d for f normall spending. di • No annual fee • 56 days interest free period • Minimum payment = fees + 1.5% • Cash advances = 3%/£3 • Late/overlimit fee = £12 36
Slide 37: Why do customers choose Vanquis?
Investor Day – 14 November 2011 Why do customers choose Vanquis? Our customers understand that Vanquis is taking a risk by issuing a card to them • Access to the utility of a credit card when other issuers may have declined them • Build their credit history (if no credit history in the UK) • Rebuild
Slide 38: Customer Satisfaction
Investor Day – 14 November 2011 Customer Satisfaction 9 outt off 10 cardholders dh ld would ld recommend d Vanquis V i to t others th • Cardholders declined by Prime issuers appreciate a “second chance” from Vanquis • Our UK Customer Service call centres provide a higher level of help and support th
Slide 39: Credit Today Awards
Investor Day – 14 November 2011 Credit Today Awards C dit Card Credit C d Provider P id off the th Year Y 2009 Shortlist • Vanquis Bank • M&S Money 2010 Shortlist Sh tli t • Vanquis Bank • Clydesdale 2011 Shortlist • Vanquis Bank • Barclaycard 39
Slide 40: Acquisition channels
Investor Day – 14 November 2011 Acquisition channels Multi channel acquisition strategy is increasingly internet based Multi-channel • Initially focused on direct mail • Internet now no the largest channel Booked accounts by channel 300k 250k 200k 150k 100k 50k - 2003 2004 2005 2006 2007 2008 2009 2
Slide 41: Direct mail expertise
Investor Day – 14 November 2011 Direct mail expertise Ri Rigorous test t t and d learn l approach h • Over a dozen different consumer data list sources used • Statistical modelling and targeting used extensively • Creative rotation mitigates response degradation • Optimum mailing intensity identifie
Slide 42: Vanquis Direct Mail
Investor Day – 14 November 2011 Vanquis Direct Mail 42
Slide 43: Internet expertise
Investor Day – 14 November 2011 Internet expertise H Heavy and d active ti participants ti i t in i : - Natural search - Paid search - Affiliates - Aggregators - Alternative Alt ti brand b d marketing k ti (G(Granite) it ) - Display advertising • All channels (and sub-channels) are closely monitored
Slide 44: Vanquis in the market – vanquis.co.uk
Investor Day – 14 November 2011 Vanquis in the market – vanquis.co.uk 44
Slide 45: Other channels
Investor Day – 14 November 2011 Other channels Small but expanding component of our marketing effort - Decline referral programmes - Partnership/white labelling/multi-brand - Partner cross-selling - Test channels e.g. Face to Face and Door Drops • Represents about 20% of our new account volumes, wit
Slide 46: Vanquis in the market - Partners
Investor Day – 14 November 2011 Vanquis in the market - Partners 10 46
Slide 47: Managing Returns from Customers
Investor Day – 14 November 2011 Managing g g Returns from Customers Marketing Strategy New Accounts Fraud Customer Lifecycle Customer Existing Management Fraud High Sustainable Service Customer Management Returns Collections Collections Strategy 47
Slide 48: Credit Management Objective
Investor Day – 14 November 2011 Credit Management Objective M i i profitability Maximise fit bilit subject bj t to t risk-adjusted i k dj t d rate t off return t hurdles h dl • Focused on the marginal decision – NOT the average performance • Priority is credit limit management – NOT new account unde
Slide 49: Underwriting
Investor Day – 14 November 2011 Underwriting Marketing Strategy New Accounts Fraud Customer Lifecycle Customer Existing Management Fraud High Sustainable Service Customer Management Returns Collections Collections Strategy 49
Slide 50: How do we decide which applications to approve?
Investor Day – 14 November 2011 How do we decide which applications to approve? Getting the marginal account booking right is our focus • The “last” booked account must achieve: - A projected steady state net loss rate of less than an approved threshold - A post-tax ROE consistent with our corporate
Slide 51: How do we apply our risk and value principles?
Investor Day – 14 November 2011 How do we apply our risk and value principles? Accounts must deliver sustained returns over the medium and long term • We consider projected returns over an account’s account s lifetime and for each specific year year. Accounts must: - Pass the risk and value hurdles
Slide 52: How do we process the applications?
Investor Day – 14 November 2011 How do we process the applications? Our system provides control while allowing enough flexibility to test and learn • We use a state-of-the-art automated system which takes the application from data entry through to the ultimate accept/decline decision - Fully customi
Slide 53: What makes our acquisitions process different?
Investor Day – 14 November 2011 What makes our acquisitions process different? The welcome call is a critical component of our underwriting strategy • The use of a pre-acquisition welcome call is unique in the market • This helps validate customer contact details (important for future marketing and
Slide 54: How do we optimise the accept/decline decision?
Investor Day – 14 November 2011 How do we optimise the accept/decline decision? Keeping expertise in in-house house allows us to build on our experience and evolve over time • All analytical tools are built and maintained in-house • Our Decision Science team owns a full complement of acquisition sco
Slide 55: How do we optimise the accept/decline decision?
Investor Day – 14 November 2011 How do we optimise the accept/decline decision? We have a clear view of how we expect our “last” last accepted account to perform • Lifetime value models are used to project ROE and long long-term term loss rates - Forecast income and cost lines based on past experien
Slide 56: What APRs do successful applicants receive?
Investor Day – 14 November 2011 What APRs do successful applicants receive? Risk based pricing allows us to offer more products to more Risk-based customers • Unlike some issuers, we price for risk at all stages of the customer lifecycle (subject to meeting required hurdles at given price point) • L
Slide 57: How do we assign credit limits?
Investor Day – 14 November 2011 How do we assign credit limits? Low initial L i iti l line li isi the th other th factor f t that th t differentiates diff ti t us from f the th prime i market • The majority of accounts are booked on an initial credit line of £250 or less, underpinning the bank’s “Lo
Slide 58: Existing Customer Management
Investor Day – 14 November 2011 Existing Customer Management 58
Slide 59: How do we manage customer accounts?
Investor Day – 14 November 2011 How do we manage customer accounts? t ? The risk and value hurdles that underpin acquisitions strategy carry forward into our three key existing customer management strategies • Credit Limit Increases – responsible credit line growth is essential in delivering the “Lo
Slide 60: Which customers receive a credit limit increase?
Investor Day – 14 November 2011 Which customers receive a credit limit i increase? ? Granting line increases to low risk, active customers allows us to grow balances quickly and responsibly • Additional Addi i l credit di lilines are only l extended d d to llower risk i k segments • Particular atten
Slide 61: How do we identify low risk accounts?
Investor Day – 14 November 2011 How do we identify low risk accounts? Our scoring tools give us the ability to accurately identify lower risk segments Our in-house Decision Science function builds scoring models that reassess risk monthly at an account level • The models use both internal behavioura
Slide 62: What does Low and Grow look like in practice?
Investor Day – 14 November 2011 What does “Low and Grow” look like in practice? The success of our credit limit increase programme is fundamental to our business strategy • More credit is granted g each month via the credit limit increase programme p g than at new account underwriting, underlining t
Slide 63: How does Low and Grow impact individual accounts?
Investor Day – 14 November 2011 How does “Low and Grow” impact individual accounts? Our account management strategy allows us to grant conservative initial lines and grow them cautiously as our understanding of the individual customer improves • The chart below shows the impact p of the “Low and Gro
Slide 64: How do we manage interest yield?
Investor Day – 14 November 2011 How do we manage interest yield? Carefully controlling our interest yield drives stable returns as accounts age • As with the credit line strategy, account pricing is reassessed monthly - Driven by account-level risk assessment - Pricing decision based on performance
Slide 65: How do we decide the appropriate price point for each customer?
Investor Day – 14 November 2011 How do we decide the appropriate price point for each customer? Our re re-pricing pricing strategy ensures we price for risk throughout the account’s lifecycle • Accounts A t are re-priced i d upwards d when h ththe ROE h hurdle dl iis nott mett • Downward re-pricing
Slide 66: How do we manage our exposure?
Investor Day – 14 November 2011 How do we manage our exposure? Carefully managing inactive accounts reduces costs and minimises unused credit line • Inactive accounts are reviewed monthly and closed where necessary - Outbound marketing programmes attempt to stimulate card usage - Accounts are closed
Slide 67: How do we control future losses?
Investor Day – 14 November 2011 How do we control future losses? Reducing exposure on high risk accounts helps drive down ultimate write-offs • The credit line decrease strategy reduces exposure on poor performing segments - Highest risk accounts have their outstanding headroom removed - Minimises p
Slide 68: How do we prevent over-exposure?
Investor Day – 14 November 2011 How do we prevent over-exposure? Preventing transactions when a customer is in financial difficulty is in the customer’s best interest and makes it easier to collect overdue and over-limit balances • Over-limit transactions are rarely authorised • No transactions are
Slide 69: Why utilisation matters
Investor Day – 14 November 2011 Why utilisation matters A prime portfolio requires a much larger number of good customers to cover the losses incurred from a single bad customer Typical yp Prime Card Typical yp Vanquis q Customer Customer Average Credit Limit £10,000 £1,000 A Average Utili Utilisati
Slide 70: And the result
Investor Day – 14 November 2011 And the result… M h greater Much t impairment i i t volatility l tilit in i a prime i portfolio tf li Industry Trends (Fitch) vs Vanquis Bank Charge-off (Indexed as at Jan 2008) 200 180 160 140 an 08=100) 120 100 Index (Ja 80 60 40 20 - Nov-08 Nov-09 Nov-10 Jan-08 Mar
Slide 71: We are left with a sustainable, long-term asset
Investor Day – 14 November 2011 We are left with a sustainable, long term asset long-term Loss rates stabilise ~18 months after booking, with more recent vintages i t showing h i the th effects ff t off ongoing i improvements i t in i the th customer t management strategy throughout 2010 and 2011 Ne
Slide 72: Returns are robust throughout the accounts lifecycle
Investor Day – 14 November 2011 Returns are robust throughout the accounts lifecycle New accounts quickly start to return value to the business, with returns stabilising bili i 18 months h after f the h account isi booked b k d Post-Tax ROE over time (Source: 2008 Q1, 2009Q1, 2010Q1 recruitment) Ret
Slide 73: Summary
Investor Day – 14 November 2011 Summary • A diverse set of marketing g channels driving g strong g organic g g growth within the business • State-of-the-art systems and non-standard credit card expertise provide robust control of all key credit decisions across the business • Accounts are actively m
Slide 74: Structure of the day
Investor Day – 14 November 2011 Structure of the day 11 15 – 11.25 11.15 11 25 W l Welcome & Introduction I t d ti Mi h l L Michael Lenora 11.25 – 11.45 How the Contact Centre Works David Underwood 11 45 – 13.00 11.45 13 00 Contact C t t Centre C t Tour T Hosts H t • New Accounts Vanessa Farmer • Cu
Slide 75: Collections
Investor Day – 14 November 2011 Collections David Underwood – IT & Operations Director i 75
Slide 76: Collections Overview
Investor Day – 14 November 2011 Collections Overview Managementt has M h a blend bl d off Credit C dit Card C d and d Collections C ll ti specialists, i li t which drives new thinking in this area • 180 staff working across the collections and recovery cycle • Roll rates severity drives urgency and
Slide 77: Collections Process
Investor Day – 14 November 2011 Collections Process Our kept O k t promise i rate t is i 70 tto 75% which hi h we believe b li is i industry i d t leading • 1st priority is to make contact with a customer • Get an immediate payment – preferably via debit card • If that is not possible: - Negotiate a
Slide 78: Collections Work Flow
Investor Day – 14 November 2011 Collections Work Flow Day <0 30 Days 60 Days + 130 Days+ 210 Days + 300 Days + Pre delinquency Pre-delinquency Early Cycle Vanquis Internal Recovery IMPACT Prime Placement DCA 2nd Placement DCA Debt Sale Trace Financial Difficulty 78
Slide 79: Pre-delinquency
Investor Day – 14 November 2011 Pre-delinquency Behavioural triggers are used to segment and identify pre-delinquent population • Triggers: - Cancelled Direct Debit - Missed payment due but yet to cycle - Overlimit accounts • Activity is ‘light’ touch but immediate - PaySMS (now 6% of all promises)
Slide 80: Early Cycle Arrears
Investor Day – 14 November 2011 Early Cycle Arrears Comprehensive approach to collections activity across all channels. Use of letter, SMS, email and telephony – account treatments segmented by risk • Good to 30 rate of c.10% creates a sharp focus on early arrears • Collections effort starts on day
Slide 81: Early Cycle Arrears - Innovation
Investor Day – 14 November 2011 Early Cycle Arrears - Innovation W see our dialler We di ll managementt as a competitive titi advantage d t • Some recent development examples: - Use of Geographic Call IDs - contact rate increased >10% - Using random Call IDs >10% increase in contact rates - Best tim
Slide 82: Early Cycle Arrears - Analytics
Investor Day – 14 November 2011 Early Cycle Arrears - Analytics Agentt performance A f iis tracked t k d through th h live li MI released l d to t the th Agent A t desk top real time – best in class Provision Release Vs. Kept rate per • Examples: E l Agent the critical measure - Agent incentive driv
Slide 83: Typical Down Account Level Example
Investor Day – 14 November 2011 Typical 1 Down Account Level Example Promise to pay via Daily contact Account Holder Mrs T attempted on two outbound call made Payment Due Date October 2nd on Home # at 12:30 valid #’s across 11 on the 8th Promise breaks different contact Entered Collections October 8
Slide 84: Internal Recoveries Unit (IRU) - Overview
Investor Day – 14 November 2011 Internal Recoveries Unit (IRU) - Overview Focus designed to support the customer in bringing the account back in order • Internal Recovery Unit (IRU) branded IMPACT Collections, Collections staffed by the 45 best performing Agents • Designed to reproduce, reproduce in
Slide 85: Internal Recoveries Unit (IRU) – e-channel
Investor Day – 14 November 2011 Internal Recoveries Unit (IRU) – e channel e-channel Vanquis has developed an internal e-collections solution • e-engagement e engagement is effective and less stressful for some customers •e e-tools tools are accessed through the website or email links • Customers ca
Slide 86: Recoveries - Overview
Investor Day – 14 November 2011 Recoveries - Overview Longstanding L t di partnerships t hi with ith Champion Ch i Agencies which focus on partnership rather than typical yp DCA panel p management g Missing Numbers On the DCA File over the last 18 months • Relationship examples: 5.00% - High quality
Slide 87: Trace
Investor Day – 14 November 2011 Trace IIndustry d t leading l di capability bilit using i all ll available il bl data d t to locate cardholders • Focus on accounts where contact cannot be established (returned mail, dead numbers, 3rd party information) • Test results have led focus on internal data
Slide 88: Financial Difficulties
Investor Day – 14 November 2011 Financial Difficulties Policies P li i ini line li with ith industry i d t expectations t ti and d best practice • Range of products available for customers in financial difficulties • Internal payment arrangement options for short-term difficulties • Longer-term arra
Slide 89: Debt Sale
Investor Day – 14 November 2011 Debt Sale Assett sale A l forms f a structured t t d and d controlled t ll d part of the Collections cycle • Vanquis has developed and maintained long term relationships and effective strategies with debt purchasers (“DPs”). Examples: - Complete transparency of asset
Slide 90: Summary
Investor Day – 14 November 2011 Summary • Blend of credit card and collections specialists p are driving g new bespoke p thinking g in this area • Comprehensive and intensive collections strategies - which start even before an account is in arrears - our customers know we won’t g go away y • Real-ti
Slide 91: Structure of the day
Investor Day – 14 November 2011 Structure of the day 11 15 – 11.25 11.15 11 25 W l Welcome & Introduction I t d ti Mi h l L Michael Lenora 11.25 – 11.45 How the Contact Centre Works David Underwood 11 45 – 13.00 11.45 13 00 Contact C t t Centre C t Tour T Hosts H t • New Accounts Vanessa Farmer • Cu
Slide 92: Financial Results & Funding
Investor Day – 14 November 2011 Financial Results & Funding Bob van Breda – Finance Director 92
Slide 93: Agenda
Investor Day – 14 November 2011 Agenda S t i bilit off growth Sustainability th and d returns t • Financial model • Profitability - Overall O ll b business i performance f - Impairment stability - Impact of low and grow strategy on cohorts • Balance sheet strength - Provisioning - Funding - Deposits
Slide 94: Financial model
Investor Day – 14 November 2011 Financial model Our financial model and targets are clear • Manage g to a minimum risk-adjusted j margin g of 30% • Generate operating leverage between revenue and cost growth • Manage to an equity base of 22% to align with regulatory capital requirements and group ge
Slide 95: Income statement
Investor Day – 14 November 2011 Income statement Breakeven in 2007 and continued profit growth against difficult economic environment 2007 2008 2009 2010 £ £m £ £m £ £m £ £m Customer numbers (‘000) 316 404 426 544 Period-end receivables 143.1 205.4 255.5 345.0 Average receivables 120.3 177.5 231.1 2
Slide 96: Income statement returns
Investor Day – 14 November 2011 Income statement returns Revenue margins R i hhave been b managed d within ithi a tight ti ht band b d to t deliver d li a risk-adjusted margin of 30% 2007 2008 2009 2010 % average receivables % % % % Revenue 52.8 53.3 56.8 56.0 Impairment (20.9) (21.5) (26.7) (22.1)
Slide 97: Revenue composition
Investor Day – 14 November 2011 Revenue composition Revenue is predominately interest revenue 2010 Revenue 14% Interest 19% Default Fees Overlimit 67% Cash advance Interchange ID Theft Other Value Saver One Call Repayment Option Plan 97
Slide 98: Income statement returns
Investor Day – 14 November 2011 Income statement returns IImpairment i t measured d within ithi a relatively l ti l narrow band b d through th h the th cycle l as economic conditions deteriorated and unemployment rose but has reduced as levels of unemployment stabilised 2007 2008 2009 2010 % average
Slide 99: Impairment stability
City Day presentation – 24 November 2010 Investor Day – 14 November 2011 Impairment stability R i d ! i Reminder!....impairment i t volatility l tilit is i lower l than th seen in i the th prime i market k t Industry Trends (Fitch) vs Vanquis Charge-off 200 3 000 3,000 180 2,500 160 Index (Jan 08=10
Slide 100: Income statement returns
Investor Day – 14 November 2011 Income statement returns As a consequence th A the risk-adjusted i k dj t d margin i has h remained i d within ithi a tight ti ht band % off average receivables i bl 2007 2008 2009 2010 % % % % Revenue 52.8 53.3 56.8 56.0 Impairment (20.9) (21.5) (26.7) (22.1) Revenue
Slide 101: Risk-adjusted margin
Investor Day – 14 November 2011 Ri k dj Risk-adjusted d margin i 70% 60% 50% 40% 34.7% 30% 20% 10% 0% Jun-11 Jun-08 Jun-09 Jun-10 Dec-07 Dec-08 Dec-09 Dec-10 Annualised revenue % average receivables Annualised impairment % average receivables • Minimum risk-adjusted margin target of 30% delivered du
Slide 102: Income statement returns
Investor Day – 14 November 2011 Income statement returns Fi d costs Fixed t are being b i leveraged l d as the th business b i grows 2007 2008 2009 2010 % of average receivables % % % % Revenue 52.8 53.3 56.8 56.0 Impairment p ((20.9)) ((21.5)) ((26.7)) ((22.1)) Revenue less impairment 31.8 31.8 30.
Slide 103: Cost breakdown
Investor Day – 14 November 2011 Cost breakdown Ad i i t ti Administration andd acquisition i iti t are around costs dh lf off costt b half d base and falling as growth is leveraged 2010 Costs 25% 24% Acquisition 51% Servicing Administration Ad i i t ti 103
Slide 104: Income statement returns
Investor Day – 14 November 2011 Income statement returns F di Funding costs t will ill be b reduced d d by b deposit d it taking…more t ki later l t 2007 2008 2009 2010 % average receivables % % % % Revenue 52.8 53.3 56.8 56.0 Impairment (20.9) (21.5) (26.7) (22.1) Revenue less impairment 31.8 31.8
Slide 105: Income statement returns
Investor Day – 14 November 2011 Income statement returns Assett returns A t show h goodd growth th but b t more importantly i t tl are manageable bl given the ability to control the risk adjusted return 2007 2008 2009 2010 % average receivables % % % % Revenue 52.8 53.3 56.8 56.0 Impairment (20.9) (
Slide 106: Cohort analysis
Investor Day – 14 November 2011 Cohort analysis Balances B l off a group off accounts t remaini high hi h as rising i i average balance b l offsets loss of accounts due to voluntary attrition or bad debt, creating a long g tail of revenue followingg early y credit losses and acquisition q costs Typi
Slide 107: Cohort profitability per account
Investor Day – 14 November 2011 Cohort profitability per account Continuous improvement in returns due to development of credit techniques, pricing decisions and leveraging the fixed cost base Profit per original booked account £ Yr 1 Yr 2 Yr 3 Yr4 Yr5 Yr6 Yr7 Yr8 2003 2004 2005 2006 2007 2008 2009
Slide 108: Cohort profitability (overall)
Investor Day – 14 November 2011 Cohort profitability (overall) Stability St bilit off the th cohort h t profile fil driven di by b the th business b i model d l underlines d li the potential for sustainable future growth P fit off accounts Profit t booked b k d during d i year £m £ 2003 2004 2005 20
Slide 109: Provisioning
Investor Day – 14 November 2011 Provisioning Realistic accounting policy applied consistently which is prudent when benchmarked against other card issuers • Loans deemed to be impaired as soon as 1 contractual monthly payment pay e t iss missed ssed • Provision of over 80% made against accounts that
Slide 110: Funding - Deposits
Investor Day – 14 November 2011 Funding - Deposits Deposit taking acti ities la activities nched in J launched l July • Funding of £100m - £125m by year Repayment of end intercompany loans as deposit book builds over 18 months • Expect p to fund 80% of receivables by end of next year • Targeting ave
Slide 111: Deposits
Investor Day – 14 November 2011 Deposits Prod ct is designed to be straightforward Product straightfor ard • 1, 2, 3 and 5 year fixed-rate bonds • First £85,000 covered by FSCS • No right g to withdraw,, excluding g death or bankruptcy • Internet based • Outsourced back office to provide scale effic
Slide 112: Deposits
Investor Day – 14 November 2011 Deposits O l a small Only ll market k t share h is i required i d • Market size of between £60bn - £140bn including renewals • Marketing through well known internet best buy tables • Market is very rate sensitive - £30m raised in a single week in September 112
Slide 113: Depositor profile
Investor Day – 14 November 2011 Depositor profile High quality, sustainable depositor base • Typical T i l ffor thi this market k t Age % < 50 17% • Not brand sensitive >= 50 83% • Home counties bias • Most aged over 50 Product % • Average balance £30,000 Interest Monthly 24% Interest Annually 76% •
Slide 114: Deposits
Investor Day – 14 November 2011 Deposits B Benefits fit accrue tto b both th Vanquis V i and d the th group • Liquidity - Stable source of funding - Consistent with FSA guidance and Vickers report • Diversified funding base for Vanquis and Group • Lower all-in funding costs - Headline rate c.4% depe
Slide 115: Capital generation – H1 2011
Investor Day – 14 November 2011 Capital generation – H1 2011 V Vanquis i paid id its it first fi t dividend di id d to t the th group in i H1 2011 Capital Equity to generation Equity Receivables receivables £m £m £m % At 31 December 2010 76.5 345.0 22.2 Profit after tax 12.9 12.9 Other capital movem
Slide 116: Return on Equity
Investor Day – 14 November 2011 Return on Equity Returns have grown strongly and target 30% ROE was achieved in H2 2010 Post tax Return on Equity 40.0% 30 0% 30.0% 20.0% 10.0% - (10.0%) (20.0%) (30 0%) (30.0%) (40.0%) (50.0%) Jun‐04 Deec‐04 Jun‐05 Deec‐05 Jun‐06 Deec‐06 Jun‐07 Deec‐07 Jun‐08 Deec‐08
Slide 117: Monitoring and MI
Investor Day – 14 November 2011 Monitoring and MI M it i Monitoring and d control t l is i a key k business b i competency t • Necessary to monitor: - Credit and overall business performance for chosen segments • Acquisition channel (internet, direct mail and other) • Customer segment (Gold vs other
Slide 118: Monthly MI
Investor Day – 14 November 2011 Monthly MI Available day 2 for management review on “day 3” • Comprehensive pack (over 200 pages) covering all key business KPIs • Clear executive level responsibility 118
Slide 119: Monthly MI
Investor Day – 14 November 2011 Monthly MI Based around a structured scorecard approach FINANCIALS RISK/COMPLIANCE - P&L and investor returns - Liquidity, capital and ML Returns and governance - Income, costs, impairment - Audit and review actions - Key drivers - Oversight MARKETING CREDIT CUSTOMER
Slide 120: Other MI
Investor Day – 14 November 2011 Other MI Comprehensive supplementary analysis • Full financial forecast of month end on day y “T-5” • Daily MI - 30 pages, pages multiple KPIs covering portfolio and operation performance - Published 9.30am - Based on previous day close • Ad hoc analysis - Data wareho
Slide 121: Summary
Investor Day – 14 November 2011 Summary Our returns are high and sustainable • Business model and low and g grow strategy gy creates: - Cohort profitability with long tails - Low impairment volatility and a manageable risk-adjusted risk adjusted margin - High returns - Future growth potential • Bala
Slide 122: Structure of the day
Investor Day – 14 November 2011 Structure of the day 11 15 – 11.25 11.15 11 25 W l Welcome & Introduction I t d ti Mi h l L Michael Lenora 11.25 – 11.45 How the Contact Centre Works David Underwood 11 45 – 13.00 11.45 13 00 Contact C t t Centre C t Tour T Hosts H t • New Accounts Vanessa Farmer • Cu
Slide 123: Summary
Investor Day – 14 November 2011 Summary Michael i h l Lenora 123
Slide 124: Sustainable growth and high returns
Investor Day – 14 November 2011 Sustainable growth and high returns T deliver To d li minimum i i 30% risk-adjusted i k dj t d margin i and d 30% post-tax t t ROE g • Significant g pp y growth opportunity - Focused on our target customers and segment • Business model that delivers high, sustainable
Slide 125: Target customer
Investor Day – 14 November 2011 Target customer Our target customers have a materially different profile to standard issuers • Customer status Prime issuer Vanquis Bank Employment status Employed Employed Annual income £25k+ p.a. £15-30k p.a. Residential status House-owner/mortgaged Tenant (75%) Use
Slide 126: Credit Management Objective
Investor Day – 14 November 2011 Credit Management Objective M i i profitability Maximise fit bilit subject bj t to t risk-adjusted i k dj t d rate t off return t hurdles h dl • Focused on the marginal decision – NOT the average performance • Priority is credit limit management – NOT new account unde
Slide 127: What makes our acquisitions process different?
Investor Day – 14 November 2011 What makes our acquisitions process different? The welcome call is a critical component of our underwriting strategy • The use of a p pre-acquisition q welcome call is unique q in the market - This helps validate customer contact details (important for future Marketin
Slide 128: How do we assign credit limits?
Investor Day – 14 November 2011 How do we assign credit limits? Low initial L i iti l line li isi the th other th factor f t that th t differentiates diff ti t us from f the th prime i market • The majority of accounts are booked on an initial credit line of £250 or less, underpinning the bank’s “Lo
Slide 129: Why utilisation matters
Investor Day – 14 November 2011 Why utilisation matters A prime portfolio requires a much larger number of good customers to cover the losses incurred from a single bad customer Typical yp Prime Card Typical yp Vanquis q Customer Customer Average Credit Limit £10,000 £1,000 A Average Utili Utilisati
Slide 130: We are left with a sustainable, long-term asset
Investor Day – 14 November 2011 We are left with a sustainable, long term asset long-term Loss rates stabilise ~18 months after booking, g, with more recent vintages showing the effects of ongoing improvements in the customer management strategy throughout 2010 and 2011 New Account Vintage Performan
Slide 131: Returns are robust throughout the accounts lifecycle
Investor Day – 14 November 2011 Returns are robust throughout the accounts lifecycle New accounts q quickly y start to return value to the business,, with returns stabilising 18 months after the account is booked Post-Tax ROE over time (Source: 2008 Q1, 2009Q1, 2010Q1 recruitment) Return on Equity 0
Slide 132: Impairment stability
City Day presentation – 24 November 2010 Investor Day – 14 November 2011 Impairment stability R i d ! i Reminder!....impairment i t volatility l tilit is i lower l than th seen in i the th prime i market k t Industry Trends (Fitch) vs Vanquis Charge-off 200 3 000 3,000 180 2,500 160 Index (Jan 08=10
Slide 133: Return on Equity
Investor Day – 14 November 2011 Return on Equity Returns have grown strongly and target 30% ROE was achieved in H2 2010 Post tax Return on Equity 40.0% 30 0% 30.0% 20.0% 10.0% - (10.0%) (20.0%) (30 0%) (30.0%) (40.0%) (50.0%) Jun‐04 Deec‐04 Jun‐05 Deec‐05 Jun‐06 Deec‐06 Jun‐07 Deec‐07 Jun‐08 Deec‐08
Slide 134: Structure of the day
Investor Day – 14 November 2011 Structure of the day 11 15 – 11.25 11.15 11 25 W l Welcome & Introduction I t d ti Mi h l L Michael Lenora 11.25 – 11.45 How the Contact Centre Works David Underwood 11 45 – 13.00 11.45 13 00 Contact C t t Centre C t Tour T Hosts H t • New Accounts Vanessa Farmer • Cu
Slide 135: Concluding remarks
Investor Day – 14 November 2011 Concluding g remarks Peter Crook – Chairman, Vanquis Bank 135
Slide 136: Where can Vanquis get to?
Investor Day – 14 November 2011 Where h can Vanquis i get to? V Vanquis i has h the th potential t ti l to t accrue significant i ifi t value l for f shareholders h h ld • Strong investment in developing the customer base: - Should support continuing receivables growth at a similar level to recent y
Slide 137: Questions?
Investor Day – 14 November 2011 Questions? 137
Slide 138: Structure of the day
Investor Day – 14 November 2011 Structure of the day 11 15 – 11.25 11.15 11 25 W l Welcome & Introduction I t d ti Mi h l L Michael Lenora 11.25 – 11.45 How the Contact Centre Works David Underwood 11 45 – 13.00 11.45 13 00 Contact C t t Centre C t Tour T Hosts H t • New Accounts Vanessa Farmer • Cu
Slide 139: Appendix
Investor Day – 14 November 2011 Appendix pp • Vanquis q Bank Executive Team Biographies g p 139
Slide 140: Michael Lenora – Managing Director
Investor Day – 14 November 2011 Michael Lenora – Managing Director • Graduated with a B.S. in Finance, M.A. in Applied Economics and an M.B.A. in Economics. Michael held a number of senior positions from 1980 to 2004 including Vice President, Credit Card Operations and later Senior Executive VP – In
Slide 141: David Underwood – Operations and IT Director
Investor Day – 14 November 2011 David Underwood – Operations and IT Director • David originally qualified and worked for a number of years as a mechanical engineer before moving into Financial Services Services. He now has more than 30 years of experience in the Financial industry, most of it gained
Slide 142: Michael Hutko – Commercial Director
Investor Day – 14 November 2011 Michael Hutko – Commercial Director • Graduated with a science degree. Between 1993 and 2001 held a number of positions in the financial services industry in America including with the First USA Bank and Associates Financial Services. In 2001 Michael joined Barclays B
Slide 143: Bob van Breda – Finance Director
Investor Day – 14 November 2011 Bob van Breda – Finance Director • Graduated in Economics and is a Chartered Banker and Management Accountant. Between 1990 and 1998, Bob held a number of positions in NatWest including Corporate Banking and Group Finance roles. He joined Providian in 2001 becoming He
Slide 144: Carole Jones – Legal Director
Investor Day – 14 November 2011 Carole Jones – Legal Director • Graduated with an Honours Degree in Legal Studies and qualified as a solicitor in 1984. Carole has over 20 years experience within the retail banking sector and has held a number of senior legal management positions in companies includi
Slide 145: Karen Spencer – HR Director
Investor Day – 14 November 2011 Karen Spencer p – HR Director • As a Fellow of the Chartered Institute of Personnel & Development, Karen has held a number of senior Human Resources positions across the financial sector since 1982. In 1999 she joined Providian National Bank as the Human Resources Dir