Vanquis Banking Group PLC · LSE:VANQ
Vanquis Banking — Provident Financial — Non-Deal Roadshow (April 2012)
37 slides from Vanquis Banking's roadshow presentation, April 2012
Slide 1: US Roadshow Presentation
US ROADSHOW – APRIL 2012 US ROADSHOW PRESENTATION
Slide 2: Highlights
US ROADSHOW – APRIL 2012 Highlights CONTINUED GOOD PROGRESS • Profit before tax up 12.2% to £162.1m and EPS up 14.0% to 89.6p • Total dividend per share up 8.7% to 69.0p, 1.30 times covered and supported by strong capital generation • Cautious approach to extending credit has continued to yield favo
Slide 3: Market conditions and business positioning – Home-collected Credit
US ROADSHOW – APRIL 2012 Market conditions and business positioning – Home-collected Credit MARKET CONDITIONS BUSINESS POSITIONING • Competitive landscape unchanged • Tighter credit standards applied to underwriting new customers and re-serving existing • Household disposable incomes under pressure
Slide 4: Market conditions and business positioning – Vanquis Bank
US ROADSHOW – APRIL 2012 Market conditions and business positioning – Vanquis Bank MARKET CONDITIONS BUSINESS POSITIONING • Vanquis Bank remains the most active • No change to tight underwriting and credit line participant in the underserved non-standard increase criteria which is supporting record
Slide 5: Group – Profit before tax
US ROADSHOW – APRIL 2012 Group – Profit before tax Year ended 31 December 2011 *2010 Change £m £m £m CCD: Home-collected Credit 127.5 **129.1 (1.6) Real Personal Finance - (1.8) 1.8 Total CCD 127.5 127.3 0.2 Vanquis Bank 44.2 26.7 17.5 Central: - costs (10.2) (8.1) (2.1) - interest receivable/(payab
Slide 6: Home-collected Credit – Income statement
US ROADSHOW – APRIL 2012 Home-collected Credit – Income statement 2011 2010 Year ended 31 December (52 weeks) (53 weeks) Change £m £m % Customer numbers (‘000) 1,825 1,861 (1.9%) Year-end receivables 876.7 867.2 1.1% Average receivables 783.4 753.6 4.0% Revenue 697.1 701.1 (0.6%) Impairment (223.8)
Slide 7: Home-collected Credit – Revenue yield
US ROADSHOW – APRIL 2012 Home-collected Credit – Revenue yield 100% • Revenue yield moderated during first half of 98% 2011 reflecting business plan to focus on 96% serving good-quality existing customers who 94% tend to be served with slightly longer term 92% products 90% • Yield not expected to ch
Slide 8: Home-collected Credit – Impairment % revenue
US ROADSHOW – APRIL 2012 Home-collected Credit – Impairment % revenue 40% • Improvement in impairment rates due to: 38% 36% – Tighter credit standards applied to new 34% customers and re-serving existing 32% customers 30% – Enhanced arrears management from 28% changes to agents’ commission scheme 26
Slide 9: Home-collected Credit – Impairment policy
US ROADSHOW – APRIL 2012 Home-collected Credit – Impairment policy • Based on last 12 weeks payment performance • Loans deemed impaired if more than 1 contractual weekly payment missed in previous 12 weeks • 95%+ provision against loans for which no payment received in last 12 weeks • Timely, realis
Slide 10: Home-collected Credit – IFRS disclosures
US ROADSHOW – APRIL 2012 Home-collected Credit – IFRS 7 disclosures As at 31 December 2011 2010 % % In order 35.2 36.1 In arrears: - past due but not impaired 15.8 16.1 - impaired 49.0 47.8 Total 100.0 100.0 • Based on contractual arrears • Past due but not impaired includes customers who have misse
Slide 11: Vanquis Bank – Income statement
US ROADSHOW – APRIL 2012 Vanquis Bank – Income statement Year ended 31 December 2011 2010 Change £m £m % Customer numbers (‘000) 691 544 27.0% Year-end receivables 453.4 345.0 31.4% Average receivables 391.2 289.2 35.3% Revenue 213.7 162.0 31.9% Impairment (76.9) (63.9) (20.3%) Revenue less impairme
Slide 12: Vanquis Bank – Above target risk-adjusted margin
US ROADSHOW – APRIL 2012 Vanquis Bank – Above target risk-adjusted margin • Risk-adjusted margin inherently stable due to 70% active management of: 60% – Credit line utilisation to minimise 50% contingent undrawn exposure (‘low and 40% grow’) 35.0% 30% – Managing revenue yield through appropriate pr
Slide 13: Vanquis Bank – Impairment policy
US ROADSHOW – APRIL 2012 Vanquis Bank – Impairment policy • Loans deemed to be impaired as soon as 1 contractual monthly payment is missed • Provision of over 80% made against accounts that are 90 days in arrears* • Realistic accounting policy applied consistently which is prudent when benchmarked a
Slide 14: Vanquis Bank – IFRS disclosures
US ROADSHOW – APRIL 2012 Vanquis Bank – IFRS 7 disclosures As at 31 December 2011 2010 % % In order 89.0 86.5 In arrears: - past due but not impaired - - - impaired 11.0 13.5 Total 100.0 100.0 • Favourable change in profile reflects record low delinquency 13
Slide 15: Strong balance sheet
US ROADSHOW – APRIL 2012 Strong balance sheet As at 31 December 2011 2010 £m £m Receivables: - Home-collected Credit 876.7 867.2 - Real Personal Finance 2.6 7.1 - Vanquis Bank 453.4 345.0 Total receivables 1,332.7 1,219.3 Pension asset 13.5 41.0 Liquid assets buffer 17.5 10.0 Debt funding (909.9) (9
Slide 16: Modest gearing levels
US ROADSHOW – APRIL 2012 Modest gearing levels 4.0 • Gearing at December 2011 of 3.2 times versus a banking covenant of 5.0 times 3.0 • Strong capital generation has funded dividends and growth leaving gearing unchanged 2.0 1.0 0.0 Dec-08 Dec-09 Dec-10 Dec-11 Gearing (measured on a banking basis) 15
Slide 17: Funding programme
US ROADSHOW – APRIL 2012 Funding programme • Executed 3-year strategic plan to establish a diversified, sustainable funding base → New medium-term bond and private placement funding totalling £465m with an average remaining period to maturity of 7 years → Retail deposits programme established to fun
Slide 18: Diversified funding base
US ROADSHOW – APRIL 2012 Diversified funding base As at 31 December 2011 Post-renewal Originated £m £m Banks Core bank group 2010/2012 420 383 Non-extending overseas banks 2007 197 - 617 383 Bonds and private placements Senior public bond 2009 250 250 M&G term loan 2011 100 100 Other sterling/euro m
Slide 19: Renewal of core bank facility
US ROADSHOW – APRIL 2012 Renewal of core bank facility • Syndicate comprises group’s core relationship banks • All-in cost of funds very similar and terms, conditions and covenant package are consistent with previous facility Covenant Limit Performance in 2011 Gearing < 5.0 times 3.2 times Interest
Slide 20: Maturity profile of debt
US ROADSHOW – APRIL 2012 Maturity profile of debt 1,000 900 800 700 600 £m 500 400 300 200 100 0 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Sep-11 Dec-11 Sep-12 Dec-12 Sep-13 Dec-13 Sep-14 Dec-14 Sep-15 Dec-15 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Syndicated bank facilities Bonds Private placements • No furthe
Slide 21: Retail deposits programme
US ROADSHOW – APRIL 2012 Retail deposits programme • Programme commenced in July • Fixed term deposits of 1, 2, 3 and 5 years • Redeemable only in the event of death or mandated legal reasons Fixed maturity profile • Target to build funding up to 80% of Vanquis Bank’s receivables • Offered through i
Slide 22: Profile and maturity of retail deposits
US ROADSHOW – APRIL 2012 Profile and maturity of retail deposits Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12* Total Rates £m £m £m £m £m £m £m £m £m % Product 1 year 0.1 7.8 18.5 1.7 0.5 4.0 5.3 2.4 40.3 3.15-3.45 2 year - 0.3 19.4 2.9 6.3 45.6 11.6 4.8 90.9 3.49-3.98 3 year - - - 2.1 7.
Slide 23: Alignment of dividend policy, gearing and growth
US ROADSHOW – APRIL 2012 Alignment of dividend policy, gearing and growth High ROE businesses Dividend Gearing Growth Policy 3.5x versus covenant Supports £110m+ Cover ≥ 1.25x of 5.0x receivables growth p.a • Minimum retention of 20% of profits supports receivables growth of £110m at 3.5x gearing •
Slide 24: Strong capital generation
US ROADSHOW – APRIL 2012 Strong capital generation 2011 2010 2009 2008 £m £m £m £m Consumer Credit Division 107.3 93.3 67.6 66.9 Vanquis Bank 14.8 6.3 5.1 (5.0) Central (12.0) (19.2) (17.0) 1.6 Capital generated 110.1 80.4 55.7 63.5 Dividends payable (93.2) (84.9) (84.5) (84.0) Capital retained/(abs
Slide 25: Vanquis Bank – Capital generation
US ROADSHOW – APRIL 2012 Vanquis Bank – Capital generation Capital Equity to generation Equity Receivables receivables £m £m £m % At 31 December 2010 70.5 345.0 20.4% Profit before tax 44.2 44.2 Tax (11.7) (11.7) Profit after tax 32.5 32.5 To fund growth in receivables (20% x £108.4m) (21.7) Other m
Slide 26: Dividends
US ROADSHOW – APRIL 2012 Dividends • 2011 full-year dividend of 69.0p per share (£93.2m) • Increase of 8.7% on historical rate of 63.5p per share → 14% increase in 2011 EPS → Exceptionally strong capital generation of £110m → Strength of group’s funding and liquidity positions → Cover of 1.30 times
Slide 27: Regulatory update
US ROADSHOW – APRIL 2012 Regulatory update • Implemented relevant parts of Irresponsible Lending Guidance for Creditors and the EU Directive on Consumer Credit by February 2011 • On 1 November 2011, FSA and OFT issued a joint consultation on proposed guidance in relation to payment protection produc
Slide 28: Outlook
US ROADSHOW – APRIL 2012 Outlook • Both businesses enter 2012 with benefit of very sound credit quality • Credit standards will remain unchanged whilst pressure on customers’ disposable incomes continues in an employment market that is displaying some weakness • Group’s funding position is extremely
Slide 29: Investment case – Vanquis Bank potential
US ROADSHOW – APRIL 2012 Investment case – Vanquis Bank potential • Vanquis Bank has the potential to accrue significant value for shareholders • Strong investment in developing the customer base: – Should support continuing receivables growth at a similar level to recent years (c.£75m-£100m p.a.) –
Slide 30: Investment case – Group
US ROADSHOW – APRIL 2012 Investment case – Group • Non-standard credit market will remain the domain of specialists • An attractive business model: – Home-collected Credit business with opportunities for growth Growing agent capacity Expanding the footprint – Strong, profitable and capital gener
Slide 31: Appendix
US ROADSHOW – APRIL 2012 APPENDIX 30
Slide 32: Home-collected Credit – Providing a valued community service
US ROADSHOW – APRIL 2012 Home-collected Credit – Providing a valued community service • Community based model – business conducted face-to-face by agents who typically live in the communities they serve • Provides access to credit for those who might otherwise be financially excluded • Endorsement f
Slide 33: Home-collected Credit – Providing a valued community service
US ROADSHOW – APRIL 2012 Home-collected Credit – Providing a valued community service Easter Holidays / back- Christmas to-school Typical uses of Home-collected Credit: • Seasonal expenditure • One-off purchases (e.g. major appliances or unexpected car repairs) • Day-to-day living expenses 32
Slide 34: Home-collected Credit – Business dynamics
US ROADSHOW – APRIL 2012 Home-collected Credit – Business dynamics Simple, transparent • Small (typically £500), short-term (typically 1 year) and affordable (typically financial products £17 per week) unsecured loans • Fixed weekly repayments that do not change, even if payments are missed. No hidd
Slide 35: Vanquis Bank – Revolving, VISA-branded credit card
US ROADSHOW – APRIL 2012 Vanquis Bank – Revolving, VISA-branded credit card • Developed organically, rolled-out in 2005 • Holds a banking licence and regulated by the FSA • Broke even in 2007 • Strong profits growth through the economic downturn • Over 700,000 UK customers • Small credit lines focus
Slide 36: Vanquis Bank – Business dynamics
US ROADSHOW – APRIL 2012 Vanquis Bank – Business dynamics Low and Grow • Customers are introduced with a small credit limit (typically £250) strategy • Growth in balance, dependent upon performance, to average credit line of circa £950 Targeted customer • Typical customers are non homeowners with an
Slide 37: Contact details
US ROADSHOW – APRIL 2012 Contact details Provident Financial plc No. 1 Godwin Street Bradford BD1 2SU United Kingdom Contact: Gary Thompson – Group Financial Controller and Head of Investor Relations Telephone: 011-44-1274-351019 E-mail: [email protected] Website: www.providentfin