Distribution Finance Capital Holdings (LSE:DFCH) — Interim Results

0:01 Good afternoon, and welcome to the DISTRIBUTION FINANCE CAPITAL HOLDINGS PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit

0:31 the following poll. And I would now like to hand you over to CEO, Carl DeMassa. Good afternoon to Thanks very much, Alex. Welcome, everyone, to our interim results. Just introducing myself again for anybody that, hasn't, you know, been here before. I'm I'm Carl DeMassa. I'm the, the CEO of of DFCH Capital. And Gary Morris, our CFO, will be presenting with me today. Before we we launch into the to the the full year sorry, the half year results, I thought it might be just worth for anybody that needs a reminder of of of what we do and and what we're about just a, you know, couple of minutes overview on the on on on the firm.

1:16 I mean, we were founded in 2016 as a nonbank lender providing working capital solutions to to dealers and and manufacturers predominantly based in the in in The UK. And we pursued a, you know, banking license, and we're authorized four years ago, actually, into just out of coming out of COVID in September 2020. And we've stayed true to the the principles and the and the and the segments that we were founded to support, I. E, those manufacturers and those and those dealers. That being said, we have we have scaled the bank, you know, since since authorization over the last over the last four years.

2:02 We support an array of of of of dealers and manufacturers across, you know, significant number of of of sectors now, motorhomes, caravans, lodges, holiday homes,

2:29 lender. We do lend against individual assets that allow manufacturers to ship products to a dealer's forecourt so that they have product to display that are available to purchase by their their end users. We take individual title of those of those assets, and we are repaid in full once the once the dealer sells the asset. And what we hope happens there is that the that that vacant plot on the on the forecourt is filled with another motorhome or caravan or or or boat or or commercial commercial vehicle. Our lending is is is short in is short in 10 o. It's typically about a hundred and fifty a hundred and fifty a hundred and fifty days.

3:17 And you'll hear a little bit later on that, you know, whilst whilst we are a floor plan or inventory finance or stock finance, you know, provider, we do have ambitions to support our dealers and our manufacturer partners in a significant way, unlocking other routes to to to sell to sell their their products, but I'll talk about that a little bit later on. So this is my I I'm I'm fondly calling this my happy slide because, we've, we've had a, you know, amazing, you know, start to the year. Once, we received authorization in September 2020, we we became almost myopic in in in looking to get to breakeven and through profitability.

4:04 And we were, you know, breakeven, you know, very shortly after after authorization. So it's great for us to be reporting now, you know, that almost at that four year milestone that, you know, we now are at, a significant and sustainable profitable run rate, for the first half of this year. We, achieved a a profit before tax of 9,200,000, which is, you know, a 180%, up on the same period, last year and, double the, the full year out of 4,600,000 in in in 2023. You know, that 9.2 did include a 1,700,000 recovery in relation to an impaired loan that we took last year.

4:53 But even if you remove that 1,700,000, you know, to to have an underlying 7.5 millions worth of worth of profit before taxes is, you know, is really, really pleasing to to to see. In relation to that impaired loan, we are looking to also see a potential upside next year in relation to additional £3,000,000 worth of worth recovery, but that hasn't been captured in, you know, in in in this year's accounts anywhere. That's we'd expect that to roll through through next year. What's been really pleasing, and I guess is the is the root of, you know, the the root of profitability has been the scaling of the of of the bank and the growth in our our new lending.

5:48 We're now a record £710,000,000 worth of worth of lending in the in the first half of the of the year, which is up 17% on the same period in 2023. And the loan book reached over 600,000,000 as well, which is, you know, up 16 up 16%. You know, additionally, our net interest margin, which is, you know, our gross revenue, you know, in simple terms minus our our our cost of funding, which we, you know, we we raise via deposits, has been strong at at 7.8 to 8%. And that's really been, you know, off the back of, you know, Bank of England base rate changes, you know, efficiency in how we we we raise our retail deposits and continued, I guess, pricing discipline and and how we we allocate our capital across the across the firm.

6:53 You know, it's always easy as a lender to to to push money out to to borrowers, and we've been very focused on, you know, credit quality and ensuring that we bring on high quality to to to dealers. And that, you know, across our, you know, 1,200 or so, you know, dealers, we we do see a continued improvement in the in the overall quality. And that will be no surprise that, you know, our level of arrears is, you know, is very is very low. We've got about point 5%, so half a percent of of of the loan book, which is one day past due. I think those of you that are used to financial financial stocks will know that most lenders report arrears one month down. We we report it one day past due, and our arrears numbers also include those accounts that are in are in legal work out as well.

7:52 If we adjust for the for the the recovery in relation to into Royal Life, which we which wrote off last year, You know, our cost of risk, which is, you know, provisions and impairments remains, you know, very low, well below our 1% through the cycle at point 6.61. As we've scaled the firm as well, you know, we've we've continued to see, you know, cost efficiency. So our cost to income ratio has improved by almost almost three points, and that's despite, you know, ongoing inflationary pressures, you know, whether that's wage inflation or, you know, suppliers, you know, pushing through through rate increases.

8:40 And that's largely because our our platform is highly digital. We have, you know, latent capacity in our in our operating model, and we've continued to invest in technology solutions that will will make us more efficient. It's also worth pointing out as well that, you know, that cost efficiency also includes investments in in some of the new products and services that we'll talk about a little bit later on. Really pleased to also report the the return on equity tipping over tipping over 10%, and that's adjusted for the that that one off one off recovery. And that's the first time that we've we've tipped over 10% r o ROE.

9:29 But you can see that we're now, you know, really building momentum towards the mid to high teens returns target that we've we've talked to to to you and the the wider investor community about. And I guess what's also, you know, really pleasing is that, you know, the the retained earnings is is enable us to self generate self generate capital that supports and supports growth. So our tangible net assets have increased by 9,000,000 year on year, which pushes our tangible net assets to 107,000,000 and the tangible net asset per share to almost $60.60 pence.

10:13 Just comparing, you know, the half years with the with the half years. I won't I won't go through all of these numbers, but you can see, you know, the the growth in loan book, the growth in in in gross yield, you know, the the the stable, you know, position in relation to the net interest margin and the the the growth in shareholder value as far as, you know, tangible net asset value is is is concerned. It's also worth noting just on the in relation to the cost of risk that whilst that is slowly tipping up over the years, it is very much below that 1% through the cycle and is also much lower than where we were in 2020 when it we were 86, you know, bps, you know, as a percentage of the the overall portfolio.

11:05 So you can see why I've sort of described the, you know, first slide, and I guess this one as the as the as the happy slide, you know, given the extent of of of performance across the across the group.

11:19 Yeah. Just looking at in a little bit more detail about, you know, originations, you know, there's no doubt, you know, to us, you know, that our products and services continue to resonate with with dealers. We have we're supporting more dealers than than ever before. We have more credit lines pledged to to dealers than ever before whilst also being very choosy who we, we choose to operate with. And that has, you know, seen, you know, quarter on quarter over an extended period of time, you know, that, you know, our new loan origination has grown significantly. And that, you know, we have a, you know, a CAGR of almost, you know, 40% in relation to, you know, to that to that loan loan book growth. I think it's fair to say, you know, for those of you that have, you know, been tuned into to the story for quite a while that, you know, since the pandemic, you know, there has been, you know, a fair amount of volatility, you know, in the in supply chains that, you know, has meant, you know, for some points for for dealers.

12:20 You know, it's been bonanza, you know, seasons with with strong sales because they've, you know, struggled to get stock. There's been scarcity in stock. And, you know, elements of the supply chain have really, really struggled. We're now starting to come into a a period that we believe is actually more, you know, a normalization, I you know, more more like the pre pandemic period. So as I mentioned when I introduced the business, you know, we are seeing our stock days, you know, extend, which is is is good news for our lending balance, but it actually is not an extreme that we need to be worried. It is more normalized levels, which is about a 100 and a hundred and fifty days. And we do, you know, by sector, you know, keep keep an eye on, you know, on on on on on this and actually buy buy dealers as as well and take any, you know, action that we we need to.

13:14 I just wanted to talk about, you know, some of the extremities that we're we're seeing across the the sectors that we that we we operate. And, you know, we have seen in the motor home and caravan markets, you know, that, you know, that that that there has been very, very strong loan origination, which means lots of stock, you know, hitting the the dealers forecourt. But we've also seen, you know, quite significant sales, you know, despite, you know, the cost of of of living crisis, despite, you know, the higher interest rates, you know, more motorhomes and cabins have been in, you know, very, very strong demand and continue to be. You know, conversely, at the the other extreme, you know, the lodges, you know, the HOLDINGS space, these are these are all prefabricated, I should I should say, you know, HOLDINGS and and residential units. You know, that has perhaps, you know, struggled, you know, more significantly on a on a relative basis.

14:14 You know, dealers have have adequate stock. There's been, you know, minimal new products being taken onto the onto the full course. And and some actually of the the holiday parks have been, you know, converting stock for sale to to rental units, which we've been we've been happy to support. It seems a sensible sensible thing to, you know, to do. So, you know, stock days has extended in the in that lodge lodge space, you know, out to two hundred and eighty eight days. Seems to have either stabilized there. But that's well within, you know, our appetite of of of of three hundred three hundred days. And as I say, you know, if we are worried about, you know, particular dealers, we do take take early early action as as as as well.

14:59 So I just wanted to talk through those extremities as far as the the markets are concerned. What I'll do now is I'll hand over to Gavin just to talk through, you know, the financial statements and performance of the group in a in a bit more detail. So over to you, Gavin. Great. Thank thank you, Carl. So I'll I'll drill down more into the income statement and the balance sheet. So if we start off with the income statement, this clearly shows the strong underlying sustainable profit we're generating. Starting off at net income, we've seen a 24% growth in net income. That's a function of both loan book growth and the very strong net interest margin of 7.8%. The the driver of that that high net interest margin, one, we've got strong pricing discipline, and we've been able to pass on base rate movements to our dealer customers as base rates have gone up.

15:55 The loan book matures more quickly. It's about a hundred and fifty days than our deposit book. And therefore, although deposit rates have also gone up as base rates have gone up, they've gone up more slowly, and therefore, benefited from that. Additionally, deposit rates haven't gone up to the same extent as base rates that's given us further upside. We're we're now in a sort of rates downward cycle, and, therefore, you would expect some of that to reverse as we go through that, but we would expect NIM to reduce over the medium term. We don't expect it to reduce very quickly at this stage. If I move on to staff costs, I think it's key to highlight that at the moment in the business, we've got the people resource we require over the near term to scale our existing lending and our existing products and our retail deposit propositions.

16:54 We've got what we need in the business now to do that, so we don't really need to be adding on many more heads to do that. Therefore, that allows us to unlock further operational leverage as we grow the loan book. This is reflected in the we've had a a nine percent increase in staff costs, which obviously include general rate wage inflation, and that compares against the 24% increase we've seen in our net income. In respect of other operating expenses, this increase reflects us continuing to invest in IT, and this this is both in ongoing automation, which will give us efficiencies going forwards, but also in our IT infrastructure as we grow and mature as a bank. It also reflects the investment we've made in our HP product that we will continue to invest in back end of this year through into the start of next year.

17:46 Therefore, despite the inflationary pressures, we further reduced our costincome ratio, as Carl highlighted at the start, from 61.5% to 58.8%. In respect of impairment charges, Carl's really covered this. The underlying cost of risk is 1,800,000, which is running at 61 bps. And although it has gone up on the prior half year, it's still a very low number that we're very happy with. So what that gives you is an adjusted profit before tax of $7,500,000 and that's a 25 percent increase compared to prior year. And as again, as Carl said, we just just, I guess, highlight the fact that it's now a double digit post tax return on equity, and that that's at 10.3%. If you then add in the write back we've got on the Royal Life case, that's a GBP 9,200,000 profit before tax for the first half, which, again, we're delighted with.

18:45 If I move to the balance sheet, we've touched on the growth in the loan book, up 16% to just over 600,000,000. Our deposits have grown accordingly, and and they're now at 579,000,000. That's across about 15,000 different depositor accounts. And I just thought I'd spend a bit of time highlighting our deposit proposition because we are we are delighted with the performance of it to date. We have a strong retention rate, so when our products mature, we have about a 60% retention rate.

19:21 Earlier this year, we received FIFO's Platinum Trusted Service Award. Our FIFO scores have increased during the period from 4.7 out of five to 4.8 out of five, which shows the great customer satisfaction we're getting. And we've recently launched our first business savings account. So our expectation is on business savings, we can get raised deposits at a slightly lower rate than the retail deposit accounts, probably up in the region of 30 to 60 basis points, but it is a smaller market. So so the the growth in the business deposits is is is gonna build over time. It's not gonna be sudden. But that just, again, gives us further product diversification as we grow the loan book and, therefore, raise deposits accordingly.

20:10 In respect of our risk weighted assets, you can see that these have increased significantly less than the loan book increase, and this is a reflection of the capital efficiency we're getting from our BBB enabled guarantee scheme. As a reminder, we further upsized that scheme from $250,000,000 to $350,000,000 in July. So that's now we're we're using that to its full capacity. Our capital position, therefore, means we're well positioned for future growth ambitions. At this stage, we've given given our current capital, the BBB enabled guarantee scheme and our tier two funding, which we currently draw on 10,000,000, and there's a further 10,000,000 to go, we can grow the loan book to around $850,000,000, slightly higher.

20:57 But the expectation is, at that point, we're generating sufficient profitability to reinvest that in the business to grow the loan book at another 100,000,000 or so a year. And then just just to bring out again, what we've seen is our tangible net asset value has increased by, over 4 p over the last six months, so that makes now almost 60 p. Moving on to our credit performance. At this stage, we're not seeing any signs of a weakening customer position, but as Carl said, we are myopic not just on profitability, but on keeping our areas down. So we're myopic in looking at this in the portfolio.

21:44 And our strong portfolio management and focus has meant at June, there were just 19 dealers out of our total dealer base of 1,250. There were 19 dealers one day in arrears. And that translates to just, about half a percent of the loan book, and that has translated to cost of risk in the first half of 0.6%. Again, it's well below our through the cycle appetite of 1%.

22:16 Moving on to the next slide. This shows the diversification and the strong asset security across our portfolio, and we split that into sort of the three main segments in the way we look at the portfolio. As a reminder, we advance our funds against wholesale value, not retail value. And on average, there's around a 20% retail markup. So where we talk here about, we've got an LTV against wholesale of about 83%. Against retail, that would be more like 70%. The reduction in LTV we've seen over the period, that's a function of because we're seeing our stock days extend back to what we see as the the more historical normal of a hundred and fifty days from circa a hundred and twenty days, That's an extra month that's on our books.

23:04 And as a reminder, our dealers are paying principal repayments every month. So that means additional principal repayments, which brings down the loan to value. If we look at the trends we're seeing in these sectors, I think Carl's touched on the leisure sector with some issues we've seen with lodges, high interest rate environment has driven reduced demand. Counter to that, we've seen some very strong both originations and sales in respect of Motomacaravan. And Motomacaravan is now our largest sector at a 163,000,000.

23:42 Moving on to powersports. In marine, we've seen strong demand at the luxury end of the market and, therefore, a slight shortening of stock days. And we've onboarded new customers in this area and increasing utilization, which is helping us grow the loan book. The launch of our specialist automotive is progressing well, and you can see it's grown substantially in h one from a relatively low base. It's almost tripled in size to 22,000,000 at the half year. In respect of the commercial segment, the general economic uncertainty is muted demand in industrial and agriculture, so we've seen those stay fairly flat. And in transport, and when we talk about transport, we're talking sort of like commercial vehicles. We're not talking cars here. Demand has been muted.

24:30 We've seen product discounting across manufacturers. Dealers are carefully managing the inventory and how how much they want on their forecourt, but we expect this to improve as we head into 2025. So, Carl, can I hand back to you on the outlook? Thanks, Kevin. So, well, I think one of the, one of the things that, I think, you you know, you can see is that we're, know, you we've been building a very strong capability, have been talking for, you know, an extended period of time about, you know, how do we you know, how are we gonna get to the, mid to high teens return on equity, and that comes through, you know, further scaling the the bank and becoming a a multiproduct lender supporting those, you know, the dealers and the and the manufacturer manufacturer partners.

25:22 And we have on our our journey as you know, for those of you that have been following us for an extended period of time, you know, looked at how we could, you know, enhance our product suite, develop our product suite further by looking at m and a opportunities, you know, acquiring capabilities. And and if I'm honest, we haven't found the right the right fit. You know, we are, you know, quite a a a cautious, you know, firm in in, you know, how we want to, you know, bring things onto it for our customers, and we wanna make sure that, you know, any acquisition, you know, was gonna be was gonna be successful and had the right characteristics, financial characteristics, and performance characteristics.

26:08 So we we decided at the back end of of of last year that actually, you know, developing products and services organically was the was the right route forward. And as I mentioned earlier, you know, we have been, you know, investing, you know, through through this year. And we've been investing on on on two fronts, you know, to to look at, you know, new sectors that we can transact in from an inventory finance perspective. So we've we've we've built a a technology based product capability. It's very early stage in its in its rollout, you know, at the moment that will allow us to support serialized assets in in in warehouse and the like with sophisticated integration with stock management systems of of of distributors whilst we still maintain the the level of returns and and and security in the in the underlying underlying assets. So we think that will work really well in technology based and and things like renewables, the renewables markets.

27:16 And we've already got a, you know, relationship in in in in in that regard. So, you know, that that that universe, that market, you know, is is quite is quite is quite sizable, so we can we can be quite, you know, choosy about where we where we look to play. I think the biggest play and and probably the most in demand, you know, for us is, you know, sales aid financing. So I think you'll recognize that, you know, when a motor home, a caravan, or a, you know, a light commercial vehicle or piece and plant machinery leaves a forecourt, you know, generally, it's financed by, you know, a bank in in, you know, in some in some guys. So we built, you know, you know, HP asset finance capability. We're expecting that to be, you know, system ready by the end of this year.

28:05 And then we'd look to,

28:08 you know, start lending, you know, to the end users of the product in the early part of twenty twenty five, certainly in the in the in the first half. And that, you know, is, you know, significant markets for us to to operate in. As I say, you know, it can't come quick enough for a number of our our larger larger dealer dealer partners.

28:31 So I think, you know, one of the we'll come to the question shortly, but, you know, we we've we've really worked hard to, you know, continue to scale the bank and use, you know, capital efficient tools to to support that growth. So we've worked with the British Business Bank on the Enable Guarantee. You know, Enable Guarantee has extended to 350,000,000.

28:55 We've we've also raised, you know, tier two capital to sit alongside the tier one one capital. So 10,000,000 utilized, a further 10,000,000 available, you know, for us to to draw on from British business investments. And that aggregate position allows us to get from, you know, that 600,000,000 that we reported to about 850,000,000, which we think will probably be by the the end of the end of next year. You know, getting to 850,000,000,

29:26 it will we won't we don't need tier one capital to, you know, to do that, but it does give us optionality then because we are, you know, throwing off adequate retained earnings to to consider what we do with those retained earnings, and we could, you know, plow all of that into support or further organic growth without tier one capital growing at roughly a 100,000,000 a year

29:51 across, you know, the the array of of lending products that we're looking to looking to to develop. You know, we're really pleased where we're at the half year. Performance is is is is strong as we look forward now, know, towards the the the end of the year. We're expecting our loan book to to land at the end of the year in a $6.50 to 700,000,000 range, you know, which is in line with, you know, the the current expectations of the of the board for the full year performance, which, you know, clearly will be, you know, significantly up on on on on on prior years, and we'll continue to deliver that, you know, double digit ROE that you've you've seen in the in in the first half.

30:39 So I think what we could do now is thanks very much because we've got we've had, you know, quite a few questions. So what I'll try to do is perhaps, you know, bring some of these some of these together. That's that's great, Carl. Gavin, thank you very much indeed. If I may just jump back in there. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this

31:10 presentation along with a copy of the slides and the published Q and A can be accessed via our investor dashboard. And, Carl, Gavin, as you mentioned, we have received a number of questions throughout today's presentation. And if I may now hand back to you and kindly ask you to read out the questions, give responses where appropriate to do so, and I'll pick up from you both at the end. Thank you. Okay. Thanks very much, Alex. So we'll we'll we won't address it. I'll try as I say, I'll try and cluster these together by by by common theme. So,

31:37 you know, let me let me deal with them. You know, we've got a couple of questions in relation to to Royal Life and and, you know, general general recoveries. So, yeah, I think we I think we perhaps covered this last time, you know, what what have been the lessons learned. I mean, royal royal life was in itself unique in our portfolio from a an ownership structure, from a size, and and and from a shape perspective. And, you know, we've we've learned an awful lot, you know, from that, you know, in in how we manage those. That being said, what we've also, you know, determined, you know, having learned the the lessons without going through all the detail, we have made some, you know, sizable adjustments to our our our credit credit risk appetite in relation to groups of, you know, similar complexity and similar ownership ownership structures that makes, you know, the the movement of cash across the group entities, you know, very difficult to to track and and and and monitor.

32:45 So, you know, I'm confident on a on a existing portfolio basis and a go forward basis that we we won't have anything that has the, you know, the characteristics of of of of royal royal life. I think one of the other questions then really is, you know, what's your record in in in, you know, making making recovery? And, you know, I think one of the the things that because we we we've got such a a a good story on on losses, it doesn't actually present what actually goes on in the business intra period. You know, we you've you know, the individual asked the question, Syed. Yes, we are, you know, asset backed. We have full security.

33:34 And we we we do, you know, quickly run-in, repossess, you know, repossess assets, use our relationships across the sectors to redistribute those assets. You know, often we call on the manufacturer because we have repurchase arrangements in in, you know, in place. And, you know, in some cases, you know, our our loan to value is quite low. So on a net basis, we actually you know, we'll we'll find that we can actually, you know, maybe make some money, you know, and and and and considerably clear our our our position. So, you know, the the cleanness of our portfolio real and the output metrics that you see really doesn't, you know, demonstrate the the amount of work and the the strength of security that we, you know, that we that we have in in place across across our across our lending across across our our lending products.

34:28 There've been a few questions around deposit raise, I think. So you recently launched a business savings account. Can you explain the strategic value of diversifying your deposit base and how you plan to scale this new product? And then next question is, can you explain your customer deposit strategy? I noticed at the moment your deposit offering is shorter dated term deposits. How do customers tend to learn about the bank? And then the final question on deposits is what percentage of your total deposit funding falls under the FSCS guarantee?

35:04 So I'll I think, Gavin, you could probably answer all that in in in in one go, wouldn't know. Yeah. Absolutely. Absolutely. So if I if I start off with our our strategy in general, so, effectively, the way the way we raise deposits is is we have something we call we call a a great rate strategy. So at the point so, obviously, we're forecasting. We're understanding the growth in our our loan book, the maturity of existing deposits so we can clearly see what deposits we need to raise. And the way we raise deposits, it it it's it's very simple. We will go at the top or in the top three of the the best buy tables, and the the money comes in very quickly. The the the level depends on which market you go into. So, for example, about a year ago, we went into easy access, and we went top of the table.

35:58 And I think within about a day or we pulled the product after thirty six hours, and we've had 50,000,000 of applications, and we normally get about 80% of that ended up turning into cash coming in the door over the next ten days. So it it's really being top of the best buy table, and I think we've now got brand recognition, and you've got the very strong fee post scores that have come through, which helps sort of strengthen that. In terms of deciding, there's a question about, at the moment, our deposits are short term dated deposits. When we're looking to raise deposits, we're looking at the maturity profile of asset repayments, the maturity profile of our deposits, and also the pricing in the market. And we're we're weighing that all up to decide what what's the most appropriate, but we have to carefully manage our deposit maturity profile to make sure we've got no repayment clicks.

36:54 If we then move on to sort of further diversification on business savings, as we just said, business savings has gone live in the last couple of months. The strategy there is is very similar that that we would look to be top of the best buy tables, but it's fair to say that if you're top of the best buy tables, the money comes in far more slowly than retail. So we see this as an opportunity to get some cheaper funding in. There is a little bit more work to do upfront to bring that depositor on your books because of the onboarding we have to do. And, therefore, we see that as being slow, steady, great growth to to help diversify our our deposit product portfolio going forward, but it's it's not gonna happen overnight. That will take some time. And then finally, on FSCS, the vast majority of our customers hold less than the 85,000.

37:47 I think the number's around 98% is FSCS, but it's certainly north of 95%. Great. I suppose the, you know, the the root of the question may also be, you know, you don't seem to be in the market graph, and we've worked really hard to retain our retail deposit customers. So we do have, you know, a number of of loyalty products that we would call them that, you know, are happening behind the scenes. And, you know, and anybody that, you know, happens to be, you know, on this call when it's a deposit as well, you've probably seen us offering, you know, loyalty products that aren't there in the in in the open market. It's far better for us to, you know, to to retain, you know, an existing existing customer. Gavin, I think on the on the business savings side of things, so was it you you had an example of the rate differential, which we're in Absolutely. So retail and business.

38:38 So today, we've got two products out there. We've got a ninety day two ninety day notice products. One is retail, and that's top of the market paying 5.3%. And one is business, and that's top of the market paying 4.76. That's a 54 basis point differential for effectively the the same product if you compare business to retail. I think we'd love the market to be huge for business, but in reality, it's not. So we've got to we've got a whole, you know, nice mix of all this to bring the, you know Absolutely. Absolutely. Cost to prevent from the cost down. You know, one of the questions then is around, you know, higher purchase and and what's your what's your what's your targets. I mean, look, we're we're we're the opportunity is huge. But as I said, we are very conservative in in, you know, launching new things. We're we're we're probably in the in the early stages of of anything, you know, very, very cautious about about our our our growth our growth ambitions.

39:42 Where I would see this unfolding is, you know, it it could be quite a significant play for us. But what we what we do need to to to just keep an eye on is, you know, is is is is returns. And, you know, particularly if we are we do find that we're, you know, not wanting to to raise further capital, you know, next to next year, what I want to be doing is is putting the capital to work at the highest returning lending lending channels. So I don't wanna be vague in saying what the what the what the targets are, but they're sensible. The opportunity is huge. But regardless, any product that we're in, you know, will be, you know, the strongest risk adjusted return that we'll be looking to, you know, to, you know, to deliver on on on that.

40:33 Another Sorry. Sorry. Just on HP, I think it's just worth stressing. So I guess one of the beauties of the HP product is at the moment, our inventory finance product, as we said, it turns in about a hundred and fifty days. So last year, about 1,300,000 origination, and the loan book was about 600,000,000. If we convert a small portion of those assets when they're sold off the forecourt into HP, the HP product's gonna sit on our balance sheet for sort of four, five, six, seven years. So that's the great thing about HP. It just gives us far longer maturity of of of assets once they're on our book. Yeah. And, you know, the capital characteristics of lending are different. You know, clearly, a HP proposition would be more diversified for us as well. So there's a whole array of things that you clearly would be expecting us to take a look as we as we look to push on with with with growth.

41:26 As far as loan to values are concerned, you know, we'd be expecting against new units, which should obviously be the the dominance of of of our lending to be taking what is customary at, you know, a a 10% deposit up, you know, up up up up front. And then, you know, that clearly, you know, the the the product is is fully amortized from there. On on used assets, clearly, there's a, you know, there's a a much bigger a much bigger deposit required in relation to to that lending. Although our starting point would always be against the against against new. Just looking at some of the questions around capital. So, you know, one of the questions is around an equity raise. When might you expect a fully utilized loan facility, and will an equity raise be necessary soon to fund further growth? Well, you know, we've got enough runway to get to 850,000,000.

42:23 You know, the firm does not need to raise capital. However, yeah, the opportunities that are ahead of us are quite significant, and we could decide if we wanted to accelerate our growth journey to to do a, you know, a tier one placing. If we did not do a tier one placing, then, you know, as I said earlier, we can grow, you know, a nice healthy rate of retained earnings of about 100,000,000 a year, which is great. I think we've got a similar question. Tier two, we're we are maxed out in relation to our tier two borrowing at the moment, but as we look to grow tier one capital, we'll be able to take incremental amounts of tier two capital that could unlock, you know, some some further growth. But that is encapsulated in, you know, that 100,000,000 a year that, you know, I I I talked about.

43:20 In relation to other non dilutive capital to accelerate growth, you know, tier two is a is an option, as I said, but that's, you know, very small numbers. Enable guarantee, I think we're probably maxed out in relation to to that. Yeah. There are other conversations with the British business bank in relation to other other ideas that they may have, but I would say that we're probably maxed out on on all those other things. It will be retained earnings that support an organic, you know, growth growth plan without tier one without tier one capital. You know, question around dividends and maybe sorry. Dividends generally.

44:07 Look. I mean, I think it's a, you know, it's a it's a it's a wrestle. You know? And I think, you know, now we're at this point of, you know, generating, you know, sizable, you know, profits. We do have optionality as to what we do with those retained earnings, and, you know, it may well be that, you know, dividend is something, you know, that the board determines is, you know, is is the right course of course of action, you know, while supporting perhaps a slower rate of growth. So rest assured, you know, it is something, you know, that the board, you know, keeps on the on the on the constant constant review, and we'll determine, you know, when it's the right time to to do that. Thus far, it has not made sense, but it's right. You know, think Mark w, you asked the question. It's right for you to to be to be raising that right now given the the extent of of of profitability, you know, that the that the firm is is is is generating.

45:03 Impact of base rate movements on profitability, and I think also the NIM direction of travel. Gavin, do you wanna pick that one up? Yep. Yep. So I guess with with with respect to NIM, we saw in the first half, it was 7.8%. As base rates have started to come down, we we expect that to start to drop in the second half of the year. We're still gonna be well above seven by the year end given the 7.8 we've got locked in already. I would expect next year, it it will reduce, but I think still high sixties. So I think it's gonna be till '26, maybe '27 before it gets back close to that that 6%. It's some way I think it's some way down the track. The only caveat I would say is that the the one uncertainty is with respect to deposits and the cost of deposits.

45:55 When we get certainly to the second half of next year, there's quite a lot of banks who took out TF SME funding that becomes due for repayment. And we're not quite sure what that will do to the competitiveness of the deposit market and, therefore, whether that might push up the cost deposits, and we're keeping a close eye on that. In terms of profitability, I mean, we we're clearly very profitable. That that may bring down our NIM slightly, but it's it's it's it's doesn't alter aiming for our mid to high teens ROE in the in the medium term. It's fair to say on that TFSME point that, you know, it have to be extremely competitive for for it to for us to get anywhere near 6%. I mean, we're Oh, I think oh, yes. I think so. I think so. But it just might accelerate that that reduction to an extent. Yeah. Yeah. But I'd I'd you know, we talk about the 6%.

46:46 You know, that that that 6% was when base, like, base rates were really, really low. So it's got a long way to, you know, to come to come back Makes sense. Come back down before that fully fully unwinds to 6%, you know, again. A new dealer acquisition, how are you sourcing new dealers? Are you winning market share? And if so, who from? Look. I think, yes, we we are winning market share. You know, we've seen in the, you know, the motor home and caravan space. We do tend to, you know, transact with, you know, most of the the high quality names. We win market share not on price, not on credit appetite, but on the quality of service that we offer relative to our competitors.

47:32 You know, some of those competitors are, you know, the bigger the bigger banks. You know, Black Horse, is is is owned by Lloyd's Bank, a big competitor in the motor home care space as an example. We have some of the, you know, French banks that, you know, are in, you know, some of the commercial assets as as as well. But it is it is service that we that we will win market share with existing existing dealers. We source new dealers largely from the manufacturer introductions. So when we bring on a new a new manufacturer, they they give us access to their entire dealer network. It's on us to go and convert them. And a lot of those dealers will provide multi asset classes or multi manufacturer brands.

48:23 And we look to, you know, to build up, you know, relationship of offering great service, you know, through those through those, you know, dealer introductions. There's no obligation on us as a firm to because of the manufacturer relationship to work with with with every dealer, but we we do look to try and, you know, work with as many that we that we can that fall within our our credit our credit appetite. So why have average stock days not yet fully normalized? I think as you look across sectors, you can probably see some which are normalized, some which aren't. I talked about motor home and caravan earlier. You know, very strong, you know, market demand at the moment for the the end product and a lot of new loans being being originated. So it's a, you know, it's a story by by by by sector.

49:19 And then I think the the the last question here that we've that we've got, which will be no surprise, is one that's, you know, front of front of our mind. And thank you very much to whoever whoever wrote this. Your share price is not reflecting share price not reflecting the current business. So you're doing an amazing job running the business, but stock market is not reflecting this performance. Yep. We see that. You know, for our tangible net assets, you know, per per per share to be almost almost, you know, 60 p. And for the current share price to to value the firm at 30, I mean, it it, you know, it isn't it isn't it isn't great. And we've you know, we do spend an awful lot of time talking to our our corporate broker.

50:10 You know, for those of you that have followed us for an extended period of time, you'll know we're with Liberum and Investec originally as as a joint broker. You know, I don't I don't think having two, you know, materially materially helped us. And, you know, we have, you know, been plagued by a number of our institutional shareholders having, you know, quite significant outflows in their funds. Some have had to sell their entire position. Others have had to sell, you know, quite sizable blocks, that, you know, has created created an overhang. That being said, you know, we, you know, a list of examples here that, you know, the the question is asked, you know, around, you know, we consider share buybacks, dividends, you know, potentially new research coverage, you know, maybe a change in broker, you know, or or their m and a.

51:08 Well, we we've looked at the m and a route. You know, we're not we're not gonna bring something into into our into the bank that, you know, could cause organ rejection stroke, some form of, you know, allergic reaction that would materially impact the firm's financial performance. Nobody would want us to do that. So we've we've moved on from that having, you know, dated a few frogs, I would say, over over the last over the last few years. Research, we're looking at we're looking at financial PR. You know, the board, you know, as I as I said earlier around dividends, you know, are looking at dividends, share buybacks, whether those things would make sense in the context of, you know, us building that, yeah, the journey to to the mid to to high teens ROE.

51:57 But we get it, you know, that, you know, shareholders do want to do want to see a movement in the share price. We do. We're doing everything we can control as far as execution delivery of the plan. And I hope, you know, for those of you that have been on this journey with us for an extended period of time, you know, we'll we'll we'll see that, you know, what we say, we do, we we we we do, and that comes through in the in in in in the results that we present to you right now. So I think that's that's that's the end of of of the questions. And, Alex, can I hand back to to to you to That's great, Carl? Gavin, thank you very much indeed for addressing all those questions from investors today. And of course, the company can review all questions submitted today, and we'll publish those responses on the investment company platform.

52:55 But before redirecting investors to provide you with their feedback, which is particularly important to the company, Carl, can I please ask you for a few closing comments? Yes. Thanks, Alex. Look. I I I think we're you know, I hope it comes across where we're passionate about the business. We've done what we say we're gonna do. You know, we're four years into this journey as, you know, as a as a bank. And, you know, on unlike an awful lot of of of early stage banks, you know, where we we've got to profitability, you know, early. We're using, you know, the retained earnings to support support growth. It's it's it's not going after, you know, you know, all sorts of, you know, development opportunities. We're not continuing to make to make losses. And, you know, you you've seen, you know, in the in the results that we've we've posted for the for the first half, the the strength of of of the the business here. I'm absolutely delighted with the performance.

53:50 Very proud of the the DFCHAPITAL team. I'm really, you know, pleased with the the culture that we're we're building here at at DF CAPITAL and the support that we're we're seeing from from our shareholders, notwithstanding the the current the current share price. So looking forward to the run up now to the end of the year and and catching up with you early in the in the new year with a further update on our on our performance. Fantastic, Carl, Gavin. Thank you once again for updating investors today. Could I please ask investors not to close the session as you will now be automatically redirected to provide a feedback in order that the board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company.

54:36 On behalf of the management team of DISTRIBUTION FINANCE CAPITAL HOLDINGS PLC, we would like to thank you for attending today's presentation, and good afternoon to you all.