Culture driven performance/media/Files/N/Non-Standard-Financ… · 16/01/2020 · Acquisition...

Culture driven performance

NSF Group Investor Day

16 January 2020

Agenda

1. Introduction to NSF John van Kuffeler, Group CEO

2. Business environment Jono Gillespie, Deputy Group CFO

3. Branch-based lending Steven White, CEO Everyday Loans

Coffee break

5. Guarantor loans Mark Burgess, CEO Guarantor Loans Division

6. Home credit Davie Thompson, CEO Loans at Home

7. Capital structure and dividends Jono Gillespie, Deputy Group CFO

8. Strategic outlook and summary John van Kuffeler, Group CEO

Investor Day Presentation, 16 January 2020 2

Introduction to NSF

John van Kuffeler

Group Chief Executive

Our vision for the Group, as set out in 2015

To be a leading participant in the

UK’s non-standard finance sector

A sector with strong growth prospects,

serving 10 million adults

NSF is now a leading player in the non-standard finance sector

• National coverage1

‒ c.140 offices

‒ c.940 staff

‒ c.900 self-employed agents

‒ Over 200,000 customers

• £366m loan book1

• Market-leading positions:‒ #1 Branch-based lending

‒ #2 Guarantor loans

‒ #3 Home credit

• All three divisions are fully authorised by the FCA

• Main market listing (NSF.L)

1 In the year to 31 December 2019, not audited5Investor Day Presentation, 16 January 2020


At 31 Dec 2019

Market position #1 #2 #3

Acquisition Date: April 2016 April 2016/August 2017 August 2015

Net Loan Book (£m)1: £218.3m £107.4m £39.9m

Annual loan book

growth1+17% +29% -3%

Number of staff1 476 135 313

Number of customers 75,400 32,600 92,400

Annual customer

growth123% 30% -1%

Loan Size (£m): £1k - £15k £1k - £15k £100 - £1k

Duration: 1 – 5 years 1 – 5 years 24 – 63 weeks

APR Range: 28% – 250% 36% - 80% 245% - 733%

Average Customer

Income1:c. £30,000 c. £27,000 c. £16,000

Bu

sin

ess

perf

orm

an

ce

Pro

du

ct

overv

iew

Home creditGuarantor loansBranch-based lending

1 In the year to 31 December 2019, not audited

▪ All three divisions have been

transformed under NSF

ownership

▪ Each has a different business

model and serves a slightly

different segment of the non-

standard market

▪ But each has a common

purpose and a set of values

that reflect the same Group

culture

NSF is now a leading player in the non-standard finance sector

To help UK consumers to meet their everyday financial needs

Our purpose


We provide credit to those unable

or unwilling to borrow from mainstream lenders

What we do


10-12 million UK adults

By lending responsibly we aim to deliver positive outcomes

for each of our key stakeholders

How we do it


CUSTOMERS

EMPLOYEES AND SELF-EMPLOYED AGENTS

REGULATORS

SUPPLIERS

PROVIDERS OF CAPITAL

COMMUNITIES WHERE WE WORK

Over 200,000 UK adults

935 staff, 896 agencies

FCA, ICO, FOS

CRAs, Equiniti, Azure

Shareholders, credit funds, banks

140 offices across the UK

1. Business model

2. Strategy

3. Knowledge and expertise

4. Culture

5. Financial performance

Why are we different from most other lenders


Business strategy

1. Business model


Long-term

funding

The right

culture

Network

infrastructure

Compliance

and risk

controls

Experienced

managementKey inputs

What we do

with them

Develop

affordable

products that

meet the

needs of our

customers

Lend responsibly

Collect responsibly

Manage risks

• Conduct

• Regulation

• Credit

• Liquidity

• Competition

• Strategy

• Operations

• Reputation

• Cyber

Deploy capital

• Invest in assets

• Returns to

capital providers

• Debt

• Equity

• Manage costs

When lending direct…

…we aim to meet all of our customers face-to-face

1. Business model


Even with a guarantor…

…we are focused on developing lasting relationships with our customers

e

1. Business model



Branch-based lending – customer story clip

Guarantor Loans Division – customer story clip



Home credit – customer story clip

2. Strategy

Our business strategy comprises three elements:

I. Being a leader in our chosen market segments

II. Investing in our core assets

III. Acting responsibly


Strategy (i) Being a leader in each of our chosen segments


• Strong market positions

‒ #1 in branch-based lending

‒ #2 in guarantor loans

‒ #3 in home credit

• National coverage

• Strong loan book growth

• Large and growing customer base

• High risk-adjusted margins

• Highly experienced senior management

• Multi-level relationships with the regulator39,600 47,000

61,20075,400

3,300 17,400

25,100

32,60093,600

104,100

93,800

92,400

0

50,000

100,000

150,000

200,000

2016 2017 2018 2019

Customer numbers

Branch-Based Lending Guarantor Loans Home Credit

103.7 112.6 122.4 130.6 149.4 166.6 186.2 203.8 218.322.228.6

35.2 40.447.3

62.9

83.196.3

107.4

28.026.9

33.4 24.7

40.2

37.8

41.0

35.5

39.9

0

50

100

150

200

250

300

350

400

Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19

£m Net loan book

Branch-based lending Guarantor loans Home credit

Strategy (ii) Investing in our core assets


• Networks‒ 82% increase in branch/office locations since December 2015

• People‒ Major expansion across all three divisions

‒ Significant investment in training

‒ Substantial compliance and assurance infrastructure

• Technology‒ Roll-out of digitally-based lending and collections in home credit

‒ Shift towards cloud-based infrastructure

‒ Move to a single platform in guarantor loans

• Brands‒ solid growth in both branch-based and guarantor loans leads

230 307406 476

1984

115135

278

350

331313

0

200

400

600

800

1,000

2016 2017 2018 2019

Staff numbers

Branch-Based Lending Guarantor Loans Home Credit

-

100,000

200,000

300,000

400,000

500,000

600,000

Application volumes

ELL GLD

Strategy (iii) acting responsibly


• Proven and effective management of impairment

• Low levels of complaints – less than 0.1% of customers in all three businesses

• Supporting charities and local initiatives in the communities where we work

A Loan Smart community event in

Dunfermline, Scotland where the local

teams from Everyday Loans and

Loans at Home were joined by

Douglas Chapman MP to raise

awareness about the dangers of illegal

lending.

1 Figures for the year to 31 December 2019 remain subject to audit

0.03%0.02%

0.06%

0.03%0.02%

0.07%

0.01% 0.01%0.03%

0.00%

0.05%

0.10%

0.15%

0.20%

2017 2018 2019

Upheld FOS complaints as % total customers

Branch-based lending Guarantor loans Home credit

21.0% 21.5% 21.5%

22.4%

36.3% 37.6%

32.6%

27.0%

14.8% 15.5%

20.0%

22.6%

0%

10%

20%

30%

40%

2016 2017 2018 2019

Impairment as a % of revenue

Branch-Based Lending Home Credit Guarantor Loans

3. Knowledge and expertise


Charles Gregson

Non-Executive ChairmanNiall Booker

Non-Executive Director

Heather McGregor

Non-Executive Director

22 22

Steven White CEO Mark Burgess, CEO

Divisional expertise

Years of experience in financial servicesYears of experience in non-standard market

Board oversight

18 8 542 38 13

Executive management

John van Kuffeler

Group CEONick Teunon*

Group CFO

Jono GIllespie*

Deputy CFO

32 6.542 12

Davie Thompson,

CEO

5 31 20 29

38 38

*Jono Gilespie will replace Nick Teunon as Group CFO and join the Board in H1 2020

• Highly experienced senior management team with over 150 years in non-standard finance

• Broad range of skills across a number of different segments

• Strength and depth across all three business divisions ensures effective succession planning

Assess current values and behaviours across each

business

Identify ways to influence

values/behaviour

Establish metrics to monitor cultural

performance

Identify things that hinder/

promote good/poor behaviour

Determine desired target

values/behaviours

4. Culture


• While each business is different, there is a common set of values across the whole Group:

➢Doing the right thing

➢ Integrity

➢ Shared purpose delivered through teamwork

➢Clear communications

➢ Entrepreneurial leadership

• Our cultural approach continues to evolve but is focused on delivering benefits for each of our key stakeholders

Key stakeholders

5. Financial performance 2016-2018


Net loan book1 Revenue2 Operating profit3 Earnings per share4 Dividend per share

£16m

£24m

£37m

£0m

£10m

£20m

£30m

£40m

2016 2017 2018

£81m

£120m

£167m

£0m

£25m

£50m

£75m

£100m

£125m

£150m

£175m

£200m

2016 2017 2018

+52%+43%

£191m

£241m

£310m

£0m

£50m

£100m

£150m

£200m

£250m

£300m

£350m

£400m

2016 2017 2018

+27%

1 on a like-for-like basis, assuming George Banco had been owned since 1 January 20162 excluding fair value adjustments3 Normalised operating profit before fair value adjustments, exceptional items and amortisation of acquired intangibles4 Normalised EPS

3.09p

3.44p3.70p

0.0p

1.0p

2.0p

3.0p

4.0p

5.0p

2016 2017 2018

+9%

1.20p

2.20p

2.60p

0.0p

0.5p

1.0p

1.5p

2.0p

2.5p

3.0p

2016 2017 2018

+47%

• Having the right culture is a key driver of financial performance that has seen a strong CAGR across a range of metrics

• However, we are not yet at our target ROA of 20% following a period of significant investment

• 2019 expected to be in-line with analyst expectations with good momentum into 2020

Business environment

Jono Gillespie

Deputy Group CFO

The UK non-standard finance market is large


• Credit impaired – c.4m people

• Highly indebted – c.2.5m people

• Low credit status – c.8m people

➢c.10-12m people in total

• Our focus is on serving‒ The credit impaired

‒ Those on low or variable pay

‒ Those with low credit status or no credit history

▪ CCJs1 issued over last 6 years

▪ IVAs2 issued over last 6 years

▪ Debt relief orders

▪ Debt Management Plans

~4m people

Credit impaired

▪ High debt to assets/

income multiple

~2.5m people

Highly indebted

▪ New migrants over last 5 years

▪ Unbanked

▪ On incapacity benefit

▪ On unemployment or other

benefits

▪ Irregular or variable income

~8m people

Low credit status,

or

no credit History

Source: Company estimates

1 County Court Judgment: order from County Court instructing borrower to repay debt following legal action undertaken by lender to recover sums owed

2 Individual Voluntary Arrangement: a formal and legally binding agreement between an individual and creditors to pay back debts over a period of time

• The size and dynamics of these two segments are driven by a number of factors that are themselves

influenced by the state of the UK economy


1. U.K. Specialist Lending Market Trends and

Outlook 2018, Executive Insights Volume

XX, Issue 39 – L.E.K. Consulting.

2. Low pay is defined as the value that is two-

thirds of median hourly earnings. In 2019,

median hourly earnings for all employees

was £13.27 and as a result 16.12% (2018:

17.8%) of all employee jobs are low-paid,

when considered in terms of hourly

earnings. This is the lowest proportion of

low-paid employee jobs by hourly pay since

the series began in 1997 – ONS: Annual

Survey of Hours and Earnings, 29 October

2019.

3. The number of self-employed people in the

UK in September 2019 was 4.96 million

(15.1% of all people in work) – ONS UK

Labour market, November 2019.

4. Registry Trust Limited – 12-month volume

to September 2019 for England and Wales.

5. FCA – CP18/42 High-Cost Credit Review:

Overdrafts consultation paper and policy

statement, December 2018.

The UK non-standard finance market is large

20,000

25,000

30,000

35,000

May

-92

Apr-

93

Mar

-94

Feb-9

5

Jan-9

6

Dec-

96

Nov-

97

Oct

-98

Sep-9

9

Aug-

00

Jul-01

Jun-0

2

May

-03

Apr-

04

Mar

-05

Feb-0

6

Jan-0

7

Dec-

07

Nov-

08

Oct

-09

Sep-1

0

Aug-

11

Jul-12

Jun-1

3

May

-14

Apr-

15

Mar

-16

Feb-1

7

Jan-1

8

Dec-

18

Nov-

19

Th

ou

san

ds

Total number employed

Unemployment/employment


• Unemployment rates have been falling for the past six years

• The latest ONS data shows that the UK unemployment rate was estimated at 3.8% in October 2019, 0.3 percentage points lower than a year earlier

• The UK employment rate was estimated at 76.2%, 0.4 percentage points higher than a year earlier

• Despite just reaching a new record high, the employment rate has been broadly flat over the last few quarters

• Approximately 5m people are self-employed, 15.1% of the workforce

1 UK unemployment rates (aged 16 years and over), seasonally adjusted, January to March 05 to August to Oct 19.

2 Labour Force Survey, 17 December 2019

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

Mar

-05

Sep-0

5

Mar

-06

Sep-0

6

Mar

-07

Sep-0

7

Mar

-08

Sep-0

8

Mar

-09

Sep-0

9

Mar

-10

Sep-1

0

Mar

-11

Sep-1

1

Mar

-12

Sep-1

2

Mar

-13

Sep-1

3

Mar

-14

Sep-1

4

Mar

-15

Sep-1

5

Mar

-16

Sep-1

6

Mar

-17

Sep-1

7

Mar

-18

Sep-1

8

Mar

-19

Sep-1

9

Unemployment rates (%)

People Men Women

Earnings growth


• Real earnings growth has recovered from its lows

• Pay for employees (including bonuses) has grown by 1.5% on the previous year when adjusted for inflation

• In real terms, annual pay growth has been positive since February 2018

• Over the past five years, weekly earnings have grown most in the lowest-paid sectors

• Growth in hourly earnings for the lowest paid 30% of full-time employees was over 4% on average in 2019

• The proportion of low-paid employee jobs by hourly earnings fell to 16.2% in 2019, the lowest since the series began

1 Great Britain average weekly earnings annual growth rates, seasonally adjusted, up to and including Aug to Oct 19.

2 Percentage change to the distribution of full-time and part-time hourly earnings excluding overtime for every fifth

percentile, UK, April 2019

Source: Labour market overview, December 2019 - ONS

0

2

4

6

8

10

12

5th 10th 15th 20th 25th 30th 35th 40th 45th 50th 55th 60th 65th 70th 75th 80th 85th 90th 95th

% growth in hourly earnings in 2019 by 5th percentile2

Full-time Part-time

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Jan-0

5

Jul-05

Jan-0

6

Jul-06

Jan-0

7

Jul-07

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Jan-1

2

Jul-12

Jan-1

3

Jul-13

Jan-1

4

Jul-14

Jan-1

5

Jul-15

Jan-1

6

Jul-16

Jan-1

7

Jul-17

Jan-1

8

Jul-18

Jan-1

9

Jul-19

Real annual growth in total pay1 (%)

Brexit


• No direct impact on our customers

• Effects on the economy, especially unemployment will be important for both branch-based lending and guarantor loans

• Home credit has a proven resilience in economic downturns

• We have already announced an increase in provisioning to allow for an increased probability of a ‘stressed scenario’

• Whilst a downturn will likely increase rates of impairment…

• NSF is in a strong position:‒ We have high risk-adjusted margins to absorb any temporary increase in credit losses

‒ Volumes can be expected to increase as:o mainstream lenders tighten their credit criteria even furthero smaller, less well-capitalised competitors struggle for funding

‒ We have long-term funding in place to take advantage of any increase in demand

The macroeconomic backdrop has been broadly positive


• All time record levels of employment

• Low levels of unemployment

• A return to real earnings growth

• Those on low pay have seen the largest increase in earnings

• Concerns over Brexit have, so far, been misplaced but uncertainty remains

▪ New migrants over last 5 years

▪ Unbanked

▪ On incapacity benefit

▪ On unemployment or other

benefits

~8m people

Regulatory themes


• FCA oversees all consumer credit in the UK

• A number of changes have altered the dynamics of certain segments of the non-standard market to varying

degrees:

• As an evidence-based regulator, the FCA has developed a deep understanding of all areas of the non-

standard finance market

• While we can expect an ongoing, rolling programme of reviews in the future, we look forward to a more

stable regulatory framework across all three of our divisions

Sub-sector Impact of regulatory intervention

High-cost short-term credit (payday) Price cap, fines, customer restitution

Rent-to-own Price cap, fines, customer restitution

Overdrafts Changes to rates charged and identification of

vulnerable customers

Credit cards Customers encouraged to repay debts more quickly

Home credit Operational changes at the point of lending

Guarantor loans Operational changes at the point of lending

Regulatory themes


• Areas of continued focus in 2020 are likely to include:

1. Culture

2. Affordability

3. Vulnerability

4. Relending

5. Financial Ombudsman Service

6. Breathing space

7. Full implementation of the Senior Managers and Certification Regime

• As acknowledged by the FCA, the industry has already made great strides and continues to improve

Supply and the competitive landscape


• NSF is in three attractive segments of the unsecured non-standard market:

• Branch-based lending‒ high demand

‒ limited supply

‒ high ROA potential

• Guarantor loans‒ high demand

‒ limited supply


• Home credit‒ mature market

‒ strong potential to grow market share


Source: LEK and company estimates

£0

£500

£1,000

£1,500

£2,000

£2,500

£3,000

£3,500

£4,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Millions

Logbook loans (+17%)

Pawnbroking (-5.6%)

Online unsecured lenders (+111%)

HCSTC Online lenders (-22.2%)

Rent to buy (-18.6%)

Car finance (+25.3%)

Home Collected Credit (-11.5%)

Guarantor loans (+37.5%)

Branch-based lenders (+17.6%)

Compound annual growth 2014-17

Supply and the competitive landscape


Source: Company websites1 Introduced by the FCA in January 2015: all firms must ensure that i) interest and fees charged must not exceed 0.8% per day of the amount borrowed, ii) if borrowers default, fees must not exceed £15 and iii) borrowers

must never pay more in fees and interest than 100% of what they borrowed. Note that this excludes home credit lenders

Loan Size

APR

£500

£1,000

£5,000

30% 50% 75% 100% 200% 1,000%

HCSTC price cap1

NSF brands

#1 Market leader

#2 Market leader

#3 Market leader

Home credit

Unsecured loans

Guarantor loans

Key competitors – latest full year accounts


Source: Company Filings

100 200 300 400 500 600 700 800

Everyday Loans

118 118 Money

1st Stop Finance

Bamboo

New Day Unsecured Loans

Likely Loans

Guarantor Loans Division

Amigo

TFS Loans

UKCredit

Loans at Home

Provident CCD

Morses Club

Oakam Loans

Loan Book (£m)

Hom

e

Cre

dit

Guar

anto

rU

nse

cure

d loan

s

Q&A

Steven White, CEO

Introduction – who we are


Key monthly stats:

200k+ total leads

41k+ applications to

branch (ATB)

9.7% conversion*

£218m loan book**

* Conversion defined as loans booked per ATB

** Unaudited net loan book as at 31st December 2019

UK’s #1 branch-based unsecured subprime lender

Leading

Face-to-face model allows us to lend profitably where others can’t

Different

Development of all areas of our business - all the time

Restless

Predictable, proven growth model

Expansive

Stable and diverse source of leads that can grow with us

Well-balanced

1

2

3

4

5

#1

Timeline


2008 Financial Crisis

Large number of competitors

exit the market

2006 Foundation

Company was

formed as a buy-out

from Citifinancial

June 2012

Purchased by

Secure Trust

Bank

April 2016

Acquisition completed following

FCA change of control

2007 2008 2009 2010 2011 2012 2013 2014 2015 20162006

December 2015

Purchase by NSF

Announced

June 2016

Full FCA

Licence granted

2019 20202017 2018

20% increase 103% increase

+12 +12 +8

Branch expansion:

The Group has invested in a major branch expansion programme:

+5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Branch Number 30 26 26 26 26 27 31 34 36 41 53 65 73

Receivables (£m) 27 41 47 53 60 67 78 89 105 125 149 186 218

0

50

100

150

200

250

0

10

20

30

40

50

60

70

80

Rece

ivab

les

(£m

)

Bra

nch

Num

ber

Management team

Steven White*

CEO

Francesca Herratt*

CFO

Mareena Flint*

HR Director

Andrew Wayland

Head of Marketing

Chris Cutter**

Head of Risk and Compliance

Rob Houghton

Head of Business Planning

Tom Martin

CTO

Jon Wiggins*

MD -Network

Jacob Rukin

Head of Credit Risk and Analytics

• We have 143 years sector experience, with 64 years at Everyday Loans

• The company is directly regulated by the FCA

• Directors* and Money Laundering Officer** hold the SMF responsibilities under SMCR



1. Leading – our market by size*

* Based on latest filed full year accounts

1

Everyday Loans

Loan Book:£186m

2

118 118

Money

Loan Book:£96m

3

1st Stop

Finance

Loan Book:£167m

4

Likely

Loans

Loan Book:£109m

5

Bamboo

Loan Book:£77m

Revenue£79.6m

Revenue£68.3m

Revenue£31.7m

Revenue£52.6m

Revenue£25.7m


1. Leading – by being different

1

Everyday Loans

Loan Book:£186m

2

118 118

Money

Loan Book:£96m

3

1st Stop

Finance

Loan Book:£167m

4

Likely

Loans

Loan Book:£109m

5

Bamboo

Loan Book:£77m

Revenue£79.6m

Revenue£68.3m

Revenue£31.7m

Revenue£52.6m

Revenue£25.7m

Branch-based Online Only* Based on latest filed full year accounts


1. Leading – with structurally different financial results

1

Everyday Loans

Loan Book:£186m

2

118 118

Money

Loan Book:£96m

3

1st Stop

Finance

Loan Book:£167m

4

Likely

Loans

Loan Book:£109m

5

Bamboo

Loan Book:£77m

Revenue£79.6m

Revenue£68.3m

Revenue£31.7m

Revenue£52.6m

Revenue£25.7m

Branch-based Online Only

Imp. % of Rev.22%

PBT£14.1m

PBT(£8.1m)

PBT£1.6m

PBT(£4.3m)

PBT(£1.7m)

Imp. % of Rev.43%

Imp. % of Rev.27%

Imp. % of Rev.37%

Imp. % of Rev.67%


(40%)

(20%)

20%

40%

60%

80%

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

Everyday Loans 118 118 Money 1st Stop Finance Bamboo Likely Loans

% o

f R

even

ue

PB

T (

£m

)

Key unsecured loan competitors

EBIT Imp. % of Rev. Exp. % of Rev.

1. Leading – bricks and mortar for the cost of an online operation


£186m £96m £167m £77m £109m

Loan Book


2. Different – we have a strong culture and values


“Culture is of the utmost importance”

- Andrew Bailey, CEO of the FCA

• Traditional / Innovative

• Supported / Independent

• Customer focused / Business minded

• Boring / Energised

2. Different – how we work


1. Experienced, highly-

trained staff utilising a

proven face-to-face

business model

3. Creative approach

offering a tailored solution

for customers and

increased lending precision

2. Data driven, using

modern technology to

supercharge our workforce

4. Customer and corporate

outcomes are fully aligned

2. Different – our offer


Loans offered from £1,000 to £15,000 for 18

to 60-month terms

APR’s vary from 27.9% to 249.9% driven by

proven risk-based pricing

82% of customers are within 30 minutes of a

branch

We engage and educate our customers to

enable them to improve their credit score

Customers are salaried, UK residents earning

c. £30k per annum

Our recently opened branch in Erdington


High barriers to entry

- National network

- Experienced staff

- Bespoke scorecard

Detailed, in person, evaluation of

customer circumstances

enhances the decision-making

process

Extremely difficult to

commit identity fraud

We develop long-term

customer relationships that

manifests in low

delinquency

High customer satisfaction

(FEEFO/Trust Pilot) and low

number of complaints

Predictable & profitable, on

track to deliver 20% ROA

2. Different – a structurally stable contrarian business

3. Well-balanced – lead diversity

51%

21%

28%

Financial brokers

Direct-to-brand

Renewals and former customers

% of loans booked

• Leads are sourced from three main channels

• We use a range of financial brokers, each

with a different customer profile

• Direct marketing both online and offline is a

major source of traffic

• Delivering a quality service generates future

source of custom and repeat borrowers


3. Well-balanced – lending waterfall


11% declined / fail affordability

Renewals / Formers

2% of applications

28% of loans booked

100% UK residents, earning average incomes requiring credit

Direct & Other

8% of applications

21% of loans booked

16% are

contacted by

branchCreditScore

33% declined

Credit History

3% declined

Duplicates / incorrect info /

incomplete28% declined

75% declined

Financial Brokers

90% of applications

51% of loans booked

25%

accepted

9% no response / decline

Customer

Waterfall

Unable to work11% declined

5% attend

branch and

2% get a

loan

In-branch

3. Well-balanced – a sensitive, controlled and compliant process


5-29 30-59 60-89 90-119 120-149 150-179 Charge-offCurrent

Delinquency Buckets

Allows effective monitoring

of delinquency accounts

Debt Collector

A 3rd party debt collection

agency may be used

Contact

We engage with the

customer if they

encounter payment

problems

Visit

If unresponsive a house

visit may be conducted

to re-establish contact

with the customer

Final Warning

After 150 days a letter

warning loan charge-off

is sent

Legal

A final letter is sent to the

customer and the debt

could be sold

Ongoing programme of attempted contact

During 2019 we comprehensively reviewed our collections policies and procedures to ensure best practice

3. Well-balanced – flexible collections supporting our customers


Arrears

Reschedules

Deferments

Customer back

in controlCuring

Legal noticeDebt sale and

recoveriesCharge off

We work with our

customers to find

the right solution

for themSupport

(Cannot pay)

Action

(Won’t pay)

3. Well-balanced – staying in the corridor


• We source over 2 million leads per

annum through a variety of channels

• Our scorecards accept approximately

25% of these into applications to branches

‘ATB’

• Careful control of lead acquisition

• We balance leads and staff to maintain

ATB per employee and branch within the

optimal efficiency corridor

• This delivers a stable conversion rate

• Long term corridor of 7-10%

• Current ATB at 2.74 times value of Q1 16

*All data represents quarterly average monthly values



• Stable lead volumes facilitates

predictable employee and branch

performance

• Adding staff drives increased loan

volumes

• Decrease in average tenure

counteracted by efficiency increases

• Current new cash at 1.98 times value

of Q1 16

*All data represents quarterly average monthly values


• Similar principle of ‘corridors’ of accounts

per employee

• This ensure appropriate time to

understand and engage with each

customer

• Helps delinquency stay controlled, stable

and predictable

• Delinquency consistent, kept within 5% to

7% range

• Despite Q4 19 having 2.07 times the

number of accounts of Q1 16

• It’s not easy but we are a boringly

predictable business


4. Restless – constantly improving our culture

2. Since 2016, 35 of 39 (90%)

branch managers were

promoted internally

4. Restructured network

to give our best more

responsibility and

opportunity

1. Hired and trained 125

new employees in 2019.

Employees have more

than doubled within

three years (173 to 359)

3. Equality is promoted

throughout. 60% of

divisional managers and

50% of directors are

female


6. Invested in Managers

Bespoke training on

yields, productivity,

margins and accounting

4. Restless – constantly improving our culture

5. Invested in People

13,270 supervised

training hours. 28

hours per employee.

Online training

resources for self-

study

7. Mental Health

focus throughout

the business


8. Rollout company

culture. Multiple

company-wide face-

to-face meetings

conducted with staff

4. Restless –The Everyday Way


Honesty

• We act without fear, listen without prejudice

• We embrace open and honest feedback

• We create an environment where we can be honest with

ourselves and each other

• We act with consistency and transparency

Discipline

• We take accountability for our own actions

• We do the right thing when no one is looking

• We are focused on achieving our personal and team

objectives/targets

• We act and live our values at all times

Work Rate

• We place the customer at the centre of everything we do

• We go the ‘extra mile’ to achieve high levels of

performance and good customer outcomes

• We recognise and reward good behaviour and

performance

• We are role models who lead, inspire and be the best we

can be

Humility

• We act with integrity at all times

• We show sympathy and understanding to both customers

and colleagues

• We always show respect for each other

• We are not afraid to acknowledge that we can always do

better

Promote and defend our culture - always

4. Restless – constant vigilance

1st Line of Defence 2nd Line of Defence 3rd Line of Defence

Entity Level Controls – Process Level Controls – IT Controls

Business Units

• Risk ownership and control

• Continuous and integrated risk

management embedded in operational

activities

Risk & Compliance

• Establish framework

• Monitor and report

• Provide guidance to the business units

Internal Audit

• Independent assurance on the

effectiveness of risk governance

framework

Risk Identification

Feedback

Exte

rnal A

udit

Regula

tor

Board of DirectorsGroup Audit Committee

Executive CommitteeOperational Risk and Compliance Committee

Resp

onsib

ilityfo

r imple

mentatio

n

Risk assessment Risk valuation Risk mitigation Risk reporting



4.1

2.41

0

1

2

3

4

5

Industry ELL

Complaints per 1000*

48%37%

0%

100%

Industry ELL

Uphold rates (excluding PPI)*

46%

17%

0%

100%

Industry ELL

FOS overturn rates

(excluding PPI)+

*H1 2019 Data

• We receive a lower rate of complaints than our

competitors

• We defend a higher proportion of complaints

• The FOS Ombudsman agrees with our treatment

materially more than market

• Whilst sensitive to changing political sentiment, we currently have no open issues or regulatory concerns

4. Restless – constant vigilance

5. Expansive – delivering technology driven efficiency

• Major investment took place in 2019 in both personnel and infrastructure:

• High quality resource - highly experienced CTO and 8 platform specialists bringing direct control of our technology in-house

• Increased automation – creating significant opportunities for operating efficiencies including

– lead responses, boosting lead conversion rates and increased branch efficiency

– system generated SMS/emails reminding customers of due dates and linking to bespoke individual self pay micro-site. Customers can pay 24/7 without speaking to us; c.£1m collected during 3 months roll-out period

• Adoption of cloud technologies – key (non lending) platforms now in the Microsoft Azure cloud

– boosting our cyber security protection

– single sign-on into the business

– enhanced the ability to access bespoke data across branches

– (almost) paperless at ExCo

• Better integration with financial brokers

– Shift from a “Proceed Yes/No” decision in 27 seconds to a “Price and Conditional approval” with referral to nearest branch in less than 5 seconds


5. Expansive – more to come

• Further developments expected in 2020:

• Fully integrated telephony system

– integrating all new leads

– delivering integrated call recording/blocking/notation functionality

– propagating outbound dialler lists and messages

– will enhance our ability to pass calls between branches, further improving staff efficiency and holiday cover capability

• Move core loan management system to the Cloud

– improve availability even further

– enhance cyber security and future technology development

• IVR payment functionality (payment by keypad) - will complement existing micro-portal ability

• Digitisation of face-to-face customer lending - will continue the automation of manual processes, reduce friction and extend our compliance capabilities

• Explore latest developments in Open Banking and VR to be ready to enhance our face-to-face lending proposition


5. Expansive – strategy for growth

• There is a significant opportunity for Everyday Loans with significant demand for our products

• Focus is on driving returns from the investment already made in people, processes and technology:

– aim to grow revenue faster than receivables with a clear focus on yield

– significant education for management and staff on the drivers of profit and work rate

– operating efficiencies will help to reduce our cost:income ratio

– back office has already been scaled to support further expansion

• Recruit additional staff to our current branches where there is excess demand

• Deploy our ‘tried and tested’ model of creating additional capacity by splitting some of our larger branches


5. Expansive – harvest the investment

• We have spent four years building an entrepreneurial yet highly disciplined and compliant operation with real scale

• We have a meritocratic (award winning) culture with high levels of personal accountability

• We have invested in our back office infrastructure to support significant further growth

• A single analytics team to generate branch level insight

• Redesigned staff retention and training programmes

• Greater control of our IT development means we can move faster and at a lower cost

• Significant uplift in our ability to change our platform

• A fantastic cohort of well-trained and highly motivated Branch Managers

• This translates, not directly but collectively into a source of significant future growth and competitive advantage

• We are therefore targeting a 5% increase in staff productivity


5. Expansive – moving to maturity

We believe the model mature Everyday Loans branch currently sits has the following characteristics:

• Average 4-5 FTE per branch

• 13-14 UPE

• 1,000-1,250 accounts

• £3.5m-£4.0m receivables base

• Position within this range is driven by customer demographics

• It can take up to 5 years for a branch to reach this mature state

We believe the market can support 100 - 120 branches, our mid-term strategy is to grow to 100 over the next few years

• Make the most of what we have

• Having tried so-called ‘super branches’, our core model for expansion by splitting our larger branches works best

• We will carefully add new capacity where there is population, demand and management ability


5. Expansive – moving to maturity

• Average branch has 4.4 staff

• We are adding 41 additional staff, a 10% increase

• Average branch will increase to 4.9 staff

• This helps branches along the maturity curve


Chatham branch opened in Apr-15 and now has a loan book of £3.1m

* Excludes allocations

5. Expansive – update on Reading


• Reading was a successful area with a large catchment reaching capacity with a loan book of over £4m

• Receivables saturation point reached around £4.5m, stalling growth as branch focus shifts to controlling delinquency

• Expansion to Slough improved efficiency, reduced average travel time to branch and freed up branch time

• Slough was seeded with £1.4m from Reading

• Average new cash uplift of 26% (£270k to £340k)

• Receivables have continued to expand

• Possible further expansion / split in the next 18-24 months

5. Expansive – update on Coventry


• Coventry was a successful area with a large catchment at capacity, growth had stalled

• Split allowed it to grow again – and fast!

• However, unlike Reading there are no obvious expansion locations

• Location was instead split into two separate branches (north/south) to retain efficiency of small branch units

• Coventry South was seeded with £2.2m from Coventry North

• New cash uplift average of 12% (£214k to £240k)

• Receivables can now continue to expand within capacity

5. Expansive – plenty of headroom


• Newcastle historically a highly successful area

• Similar expansion pattern to Reading with fantastic results

• North Tyneside seeded with £1.9m from Newcastle

• New cash uplift average of 24% (£372k to £460k)

5. Expansive – new branches


• More footprint where opportunity exists

• Sufficient nationwide demand to support 100-120 branches

• Currently at 73 branches

• Working on a number of new sites, with the expectation for a limited

number of new branches in 2020

• Average new branch costs ~£100k

• “Split branches” are profitable within a quarter of opening

• All new branch, area and divisional managers will be hired internally

• Energised by new branches driving fresh thinking and opportunity

Summary

We are a

Traditional, Business-minded, Proven, Committed, Boring and Predictable

Business that is

Energised, Customer-focused, Independent, Innovative & Compliant

Delivering three-year CAGR’s of 21% in the loan book and 20% in EBIT


Q&A

Coffee break

Mark Burgess, CEO

74

Guarantor Loan Division

1. Introduction

2. Customer journey

3. Competitor landscape

4. Key Performance Indicators

5. Future strategy


0

40

80

120

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

Rece

ivab

les

£m

TrustTwo

George Banco

Guarantor Loan Division

Introduction - timeline

Investor Day Presentation, 16 January 2020 76Source: Management Information, as at December 2019

2013August – George

Banco (GB)

incorporated

2014April – George

Banco (GB)

Launched

2015December – GB full

FCA licence

application

2017August – GB acquired by

Everyday Loans (NSF)

September – GB full FCA

licence granted

2018October –

Move from

“The Farm”

2019October – Additional office

space acquired in Trowbridge

November – Combined

receivables exceeds £100m

2016June – ELL full FCA

licence granted

2013 2014 2015 2016 2017 2018 2019

2013September – TrustTwo

(TT) starts lending as part

of Everyday Loans (ELL)

2015December – NSF

announce purchase

of ELL (inc TT)

CEO

Mark Burgess

Risk & Compliance

Director

Richard Webb

Finance Director

Jeremy Walton

Head of Lending Operations

Dave Beer

69 Staff

- Including Bourne End

Team

Head of Collections

Alex Przytocki

Other Support Functions

Introduction – management team


Our experience derives from a

variety of companies

• 118118 Money

• Provident

• Wonga

• Shopacheck Financial Services

• Morses Club

• Welcome Car Finance

• FSA

• Nat West

• Royal Bank of Scotland

• Tesco Bank

• Santander UK

• Principality Building Society

• The Funding Corporation

• DAS Legal Expenses Insurance

Introduction - what are guarantor loans?

Investor Day Presentation, 16 January 2020 78Source: Management Information

1Guarantors under 25 are underwritten with additional care and within stricter mandates

Loans guaranteed by a second individual, typically a family member or a friend with a stronger credit profile

• Guarantors must be between the ages of 21 and 80 with the affordability to make loan payments in the event that the borrower is unable to do so1

• In 2019, only 7.2% of payments were made by guarantors

Guarantor element leads to lower levels of arrears

Presence of guarantor encourages borrower to make timely payments

Allows borrower to rebuild their credit score to access mainstream finance in future

More affordable type of finance than would otherwise be available to borrower

Simple, transparent credit with a single APR and no fees or charges

From inception, our business has always completed robust affordability checks

Every borrower and guarantor is called to ensure full understanding of transactions and commitment

1

2

3

4

5

Borrower/

Guarantor6

7

Introduction - overview

UK’s #2 provider in the fast growing UK guarantor loans segment

Two brands with clearly identified and different market positions

Loans generated through brokers, price comparison websites, organic

website traffic, renewals and ELL declines

Development of all areas of our business – people, product, and

systems

Centralised Single Loan Management System and Underwriting Team

#2

£107.4m net loan book

(+29% vs 2018)

76% originations via

brokers

23k customers

47% originations via price

comparison websites

9.5k customers


Introduction - strong market coverage via two guarantor loans brands


Maintaining two brands enables us to tailor our approaches to different market segments whilst benefitting from the efficiencies of a single operating system

How do we source customers?Focuses on broker channels

(76%)

Focuses on price comparison websites

(47%)

What products do we offer?Guarantor loans and personal loans

(Personal loans 4.8% of 2019 lending)

Guarantor loans only

(100%)

What rates do we offer?Between 36.9% and 79.9% APR

(Representative 49.7% APR)

Between 35.9% and 49.9% APR

(Representative 49.5% APR)

How much do we lend?£1,000 - £15,000

(Avg £3,045)

£1,000 - £15,000

(Avg £3,371)

What terms do we lend over?12 – 60 months

(Avg 36 months)

12 – 60 months

(Avg 39 months)

Customer journey - how do we source customers?


Financial brokers / lead generators

Price comparison websites

Relending to existing and former customers

Organic / ELL declines

– TrustTwo is a significant and competitive guarantor

loan product on comparison websites

– George Banco is a core provider of guarantor

loans through brokers

Both brands already have clearly identified and different market

positions, continuing to operate both brands maximises market

coverage and provides multiple capture points

Customer journey – customer demographics


56% of Borrowers are Male

64% of Borrowers earn more than £1,500 per month (net)

68% of Borrowers are Under 40

14% of Borrowers are Homeowners

63% of Borrowers are Single

55% of Guarantors are Over 40

37% of Guarantors are Homeowners

41% of Guarantors are Married

62% of Guarantors earn more than £1,500 per month (net)

56% of Guarantors are Female

55% of Borrowers are Male

57% of Borrowers earn more than £1,500 per month (net)

81% of Borrowers are Under 40

5% of Borrowers are Homeowners

77% of Borrowers are Single

62% of Guarantors are Over 40

49% of Guarantors are Homeowners

45% of Guarantors are Married

64% of Guarantors earn more than £1,500 per month (net)

55% of Guarantors are Female

Customer journey – our lending method


Guarantors responds to invitation and apply

online

100% UK residents

Organic Website Applications

Applicants are always contacted by phone

Financial Brokers / Lead

Generators Price Comparison Websites

Applicants’ creditworthiness and affordability

is assessed

Applicant undergoes initial credit check and

declined if below certain score

Applicant is offered loan based on applicant-

guarantor cross-matrix

AP

PL

ICA

NT

GU

AR

AN

TO

R

Customers apply online or by phone and

select guarantor

Guarantor undergoes initial credit check and

declined if below certain score

Guarantors’ creditworthiness and affordability is

assessed independently

Guarantors are always contacted by phone

Guarantors’ role, responsibility and transaction

are clearly explained and recorded

Renewals / ELL Declines

Customer journey - selective approach to underwriting

Across our two brands, we typically reject between 92% and 99% of applicants, depending on origination channel, where either the applicant or guarantor fail to meet our lending criteria, or they choose not to borrow from us

% Applications 95% 4% 1% 0.5% 76% 7% 9% 7%

%

Loans Booked 76% 3% 4% 17% 47% 5% 8% 40%

Average

Advance (£)3,299 3,513 4,143 2,144 3,862 4,209 3,035 2,918

Financial

BrokersELL Referrals Direct Renewals

Price

Comparison

Websites

ELL Referrals DirectFinancial

Brokers &

Others

99%

declined

99%

declined

38%

declined

97%

declined

93%

declined

92%

declined

94%

declined

92%

declined

Source: Management Information Investor Day Presentation, 16 January 2020 84

Customer journey – collections process


Delinquency Buckets

Current

5-29

30-59

60-89

90-119

120-149

150-179

Charge-

Off

Debt

Collector

A 3rd party debt

collection

agency may be

used

Contact

We engage with

the customer if

they encounter

payment

problems and

only contact the

guarantor if

problems persist Centra

lised c

olle

ctionsFinal Warning

After 150 days a

letter of warning

loan charge off is

sent

Key Observations

Delinquency is tightly

controlled and stable

Uptick in 30+

delinquency seen in

Q4-2018 has levelled

out

Initial disruption from

centralising collections

has not significantly

increased delinquency

beyond historic levels

30+ delinquency more

stable in 2019 than

previous 2 years

despite spikes in

accounts per

employee3.5%

4.5%

5.5%

6.5%

7.5%

Q1-2017 Q2-2017 Q3-2017 Q4-2017 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019 Q3-2019 Q4-2019

Average 30+% delinquency by quarter

Upper and Lower Limits Avg Quarterly 30+%

0.5%

1.5%

2.5%

3.5%

Q1-2017 Q2-2017 Q3-2017 Q4-2017 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019 Q3-2019 Q4-2019

Average 5-29+% delinquency by quarter

Upper and Lower Limits Avg Quarterly (5-29%)

Customer journey – flexible collections supporting our customers


Arrears

Legal noticeDebt sale and

RecoveriesCharge off

We work with our customers to find the right solution for them.

This can include:

Support

(Cannot pay)

Action

(Won’t pay)

Curing

Deferments

Reschedules

Customer back

in control

Competitor landscape - market position


Source: Management Information, as at December 2019 – GLD Restated historic figures for comparison

1 Based on latest public filings – Full year Jan to Dec

2 BOE LPMBI2P

• Although Amigo is the clear market leader, we continue to gradually increase our share of the growing market

• Comparisons to other direct competitors are difficult with limited information available

– For example, Bamboo were a significant competitor who are now engaged in more significant personal unsecured lending (15%)

(9%)

(3%)

3%

9%

15%

50

100

150

200

250

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Oct-19

UK Total (£b) of Unsecured Lending to Individuals 2

Unsecured Lending Change Y-on-Y

c.6% CAGR

Competitor landscape - strong comparison versus Amigo

Investor Day Presentation, 16 January 2020 88Source: Amigo Loans Dec-18 9 Months, IPO Prospectus

PRODUCT

RANGE

Loan Size: Amigo offers a similar product to GLD in terms of

loan size, term and pricing. Our underwriting

process has consistently, however, delivered better

performing assets than Amigo

£1,000 – 15,000 £1,000 – 10,000

Term: Average: 36 – 39 months Average: 39 months

APR Range: 35.9% - 79.9% 49.9% (49.5%)

% PAYMENTS BY

GUARANTORS:

GLD only lends to applicants that meet our strict

affordability criteria. This minimises the instances

in which guarantors need to meet loan payments

where the borrowers are no longer able to do so

7.2% 10%

% HOMEOWNER

GUARANTORS

Higher charge-off rates and lower recoveries

typical for lending to guarantors that are not

homeowners42% 40%

% IMPAIRMENT / REVENUE:

GLD’s stable impairment ratio is meaningfully

lower than Amigo which reflects our consistent

underwriting and collections stability23% 31%

✓

1

2

3

4

✓

WHY DOES IT MATTER?

✓

Amigo Loans (‘Amigo’), our largest competitor, announced a debut warehouse facility in November 2018. Both GLD and Amigo provide a comparable guarantor loans product.

We believe that our GLD portfolio compares favourably with Amigo’s given higher quality guarantors and lower impairment ratios

Key performance indicators - vs Amigo

Investor Day Presentation, 16 January 2020 89Source: Management Information, as at December 2019 and latest public filings for Amigo Loans PLC FY – April - March

• GLD and Amigo offer a similar representative

rate

– GLD (49.7% GB / 49.5% TT) vs Amigo

(49.5%)

• GLD is more heavily impacted by costs of

acquisition whereas Amigo benefit more from

direct channels and name recognition

• GLD impairments are better controlled

than Amigo

– Amigo’s pilot lending appears to have

driven up impairments

– GLD impairments are highest in

personal loans, however new lending on

personal loans has now been reduced

to c.3% of new cash

• GLD does not yet enjoy the efficiencies of

scale enjoyed by Amigo

• Focus on quality, speaking to every

applicant and guarantor.

• Efficiencies to be gained once the TrustTwo

customer journey is on the same front-end

system being used by George Banco

9.2%9.7% 10.0%

8.3%7.4% 7.6%

2017/18 FY 2018/19 FY 2019/20 H1

Quarterly average revenue as % ANR

Amigo GLD

2.0%2.3%

3.1%

1.4%1.6% 1.6%

2017/18 FY 2018/19 FY 2019/20 H1

Quarterly average impairment

as % ANR

Amigo GLD

2.0%1.7%

2.1%

3.8%3.5%

2.9%

2017/18 FY 2018/19 FY 2019/20 H1

Quarterly average operating expenses

as % ANR

Amigo GLD

Key performance indicators - financial


• Impact of IFRS9 resulted in increased impairment as a

percentage of revenue (2018)

• As loan book matures and growth levels out, we expect to see

cost income percentage continue to improve

• We see 2020 as a year to focus on efficiencies and units per

employee (‘UPE’) improvements

• Loan book growth has been impressive to date, we expect this

to slow to around 15-20% in 2020 with a focus on quality over

quantity and the increased size of the loan book

• This should feed through into ongoing improvements in

delinquency

12

17

25

33

2016 2017 2018 2019

Active account base (k)

2016 - 2019

CAGR 38%

2016 - 2019

CAGR 48%

15%16%

20%

23%

4%5%

6% 7%

2016 2017 2018 2019

Impairment as a % of revenue and

average net receivables (ANR)

Impairment % Revenue Impairment % ANR

36

50

83

107

2016 2017 2018 2019

Growth in net loan book (£m)

Key performance indicators - lending


• Lending growth to date has been driven through increased staffing levels

– UPE for 2019 is just ahead of 2017 (15 vs 14)

– Future strategy will focus on driving efficiencies with the consolidation of all new business onto the same front-end system

• Growth in the TrustTwo brand slowed significantly in the final quarter of 2018 which impacted on overall performance in 2019

– TrustTwo customer journey is not as efficient as George Banco

– Underwriting approval for higher value TrustTwo loans moved to George Banco team

33

10

50

16

Average New Cash £k UPE

TrustTwo George Banco

Per month / operational staff member

(January to September 2019)

+ c.71%

+ c.53%

7

66

11

1213

15

14 14

1616

14

39

3234

59

6770

7976

74

8784

79

10

20

30

40

50

60

70

80

90

5

7

9

11

13

15

17

19

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2017 2018 2019

Quarterly new cash £m New cash per working day £k

6.1% Growth in average new cash

per working day Q3 2018

vs Q3 2019

Future strategy - 2020 overview


Concentration on profitability alongside our revised medium-term growth target

➢ Still retaining a healthy 15-20% portfolio growth; impairment at 22-24% of normalised revenue

➢ Complete integration onto one front end system to realise productivity and conversion improvements

(back end system integration now complete)

➢ Consolidate additional support functions into Trowbridge site to make it a self-sufficient business unit

➢ Implement a new bespoke scorecard that considers a combination of Borrower and Guarantor profiles

(built in conjunction with TransUnion)

➢ Customer Journey focus to improve conversion %

➢ Build out collection's capability with improved 3rd party tools and recovery options

➢ Increase digital marketing capability to broaden acquisition channels

Q&A

Loans at Home

Agenda

• Home credit at a glance

• Loans at Home overview

• Market position and dynamics

• Regulatory environment

• Outlook for 2020 and beyond


Home credit at a glance


Market Overview Key Features

• Started in 1880

• Serves c1.6m borrowers at any one time*

• £1.1bn outstanding debt*

• £770 average loan size*

• Customers typically have low or variable income of

c£16k pa

• c470 FCA authorised firms but only 3 national players

• Personal unsecured loans made face to face in the

customer’s home, typically in cash

• Lending terms typically less than 1 year

• Weekly repayments collected face to face

• Charges fixed – no penalties

• Rebates made for early repayment

• Largely female orientated market. Majority of both

customers and collectors are female

*Source: FCA High Cost Credit Review (July 2017)

Loans at Home - at a glance


People

• 92,400 customers

• 896 self-employed agencies

• 313 employees

Locations

A business built on relationships

• 64 locations across England,

Scotland & Wales

A nationwide service

Technology

• Developed since 2016

• Lending and collecting apps

• Customer portal

• MI for operational efficiency

Modern technology

Positioning

• Increasing market share

• Strong platform for growth

• Profitable and cash generative

3rd largest home credit company

Solid progress since acquisition in 2015

• Lending and collecting Apps

• Real time Management Information

• Automated processes‒ Request to Call‒ Income verification

• Enhanced Journey Management System

• Improved Customer Contact System

• Customer Portal


Technological advancements Regulation and compliance

Profit growth on the back of significant investment People and culture

Highlights

• Robust forbearance approach and process

• Enhanced affordability process

• General improved compliance focus

• Best in class

• Good relationship with FCA

• 2017 – 67%

• 2018 – 116%

• H119 – 110%

• Significant enhancements to training and development programme

• Regular engagement surveys

• Employee forum

• Company intranet

• Regular conferences/roadshows

Key Performance Indicators


Loan book

£27.0m

£40.2m £41.0m £39.9m

£0m

£5m

£10m

£15m

£20m

£25m

£30m

£35m

£40m

£45m

2016 2017 2018 2019

Net

Loan

Book

43.7%

37.6%

32.6%

27.0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2016 2017 2018 2019

Impai

rment

as %

of re

venue

Risk adjusted margin Revenue yield

171.5%178.4%

171.5%167.5%

100%

110%

120%

130%

140%

150%

160%

170%

180%

190%

2016 2017 2018 2019

Reve

nue y

ield

96.6%

111.4% 115.6%122.2%

0%

20%

40%

60%

80%

100%

120%

140%

2016 2017 2018 2019

Ris

k a

dju

sted m

argi

n

Normalised revenue less impairments as a percentage of average loan book excluding fair value adjustments

– restated under IFRS9Normalised revenue as a percentage of average loan book excluding fair value adjustments – restated under IFRS9

Impairments as a percentage of normalised revenues – restated under IFRS9Net loan book before fair value adjustments but after deducting any impairment due – restated under IFRS9

Impairment as percentage of revenue

Key Performance Indicators


Impairment levels

• A clear focus on quality has led to sustained

improvements in impairment levels throughout 2019

*H1 2019 reported figures were adjusted upwards (to 31.9%) to smooth the impact of the adoption of

new revised provisioning levels in October 2018. The figures above represent actual figures with no

adjustments made.

Impairment % of revenue by quarterImpairment % of revenue by product

(existing customers only)

• Shorter term products result in a lower impairment

• Longer term products make loans more affordable for

customers, expanding our opportunities for growth but

are higher risk due to the time it takes to get our

money back

Business model

Loans at Home application process


Initial automated decision (scorecard)

Accepted in principle 30%

Declined 70%

After agent visit & assessment

Loans issued % of accepted in principle 76%

Loans not issued % of accepted in principle 24%

1 2

6 7

Application

Prospective

customers

respond to leaflet

drop/are referred

to agents/apply

online/callVisit

If prospective

customer

passes credit

check, they are

visited by an

agent at home

Checks

Prospective customer

initiates loan discussion

and agent assesses

affordability via the app

Processing

Loan processed by agent

using LAH lending app,

contract created and

digitally signed

Decision

Agent always

makes final lending

decision – company

may say ‘no’, but

never ‘yes’

Completion

Agent provides

customer with cash

and weekly repayment

collection timings are

arranged

3

4

5

Decision in principle

Post-application, customer gets

immediate ‘Acceptance in

Principle’ or ‘Decline’

Quality affordable lending

Business model

Loans at Home collection process

Cash

Reconciliation

Central function

1 2

Agent Weekly Visit

to customer home

Payment Options

- Cash on the doorstep

- Card on the doorstep

- Card payment via customer portal

- Call into our Contact Centre 24/7

- Remote payment (CPA)

3Processing

Collection processed in

app on the doorstep4

Assessment

Is the customer showing any

signs of financial difficulty or

vulnerabilities?

- Breathing space

- Payment Arrangement

- Signposting

5

6

Weekly Agent / Manager 121

In branch

7

Agent Commission

Paid based on a % of

value collected

Payment Method

Face to Face 77%

Remote 23%

We value face to face contact whilst

offering flexible routes to pay


Market position and dynamics


Market share (no. of customers)*

32%

19%

8%

41%

Provident

Morses

LAH

Other

Market dynamics – is it shrinking?

Loans at Home has a modest market share of c8%

giving ample opportunity for growth through

additional market share gains.

The ‘other’ category above is made up of over

c470 small home credit firms who may be finding

it hard to meet current regulatory standards.

Overall the market has shrunk over the last year but this

appears to be largely driven from a reduction in customer

numbers at Provident.

**Source: TransUnion*Company estimates based on data from FCA and TransUnion.

Regulatory environment


Apr

20142016

Dec

2018

The UK non-standard consumer finance sector is subject to a high level of regulatory focus and public scrutiny

Rules imposed on

high-cost short-

term credit

Mar

2019

Refinancing cost

comparison

Existing customers,

when requesting to

refinance an existing

loan with a new loan,

must be provided with a

comparison of costs

Apr

2015

May

2017

Review carried out of rules

imposed on high-cost short-term

credit – published in Feedback

Statement FS17/2

LAH fully authorised by the

FCA

Acquisition of LAH from

S&U

Request to call

Customers must give

permission for any

subsequent loan discussions

in the home

Significant investment in training, people and technology to improve compliance

monitoring, lending processes and ensuring good customer outcomes

LAH actions since

acquisition by NSF

Jan

2015

Home Collected

Credit falls under

FCA regulation

Jun/

Jul

2019

Breathing

Space

Review to be

implemented

2021

Vulnerable

Customer

Consultation

started

Evidencing compliance imposes a significant burden for all regulated firms making market entry

expensive and exit of some smaller firms likely

Outlook for 2020 and beyond

Mature market

Strategy to increase market share whilst maintaining quality

Robust regulatory environment

Targeting relatively modest growth


How do we do this? What makes us different?

The Importance of a good culture


• We aim to be the Home Credit company of choice for Agents

• We must ensure our Agents are happy and motivated at LAH

• We want competitor Agents looking at LAH and saying“I want to work there”

• We can only do this by having the best culture in the industry

• The right culture is paramount in a market that is as mature and competitive as ours

• The right culture will allow us to attract good people whilst minimising “regretted losses”

• All of our strategic strands are aimed at achieving this

• We aim to make things better for our managers and Agents in everything we do

The Importance of our agents


The Home Credit market is mature

To grow we need to increase our share

To increase our share we need 2 things to happen

• We need to retain the customers we have

• We need to attract new customers

We have a number of initiatives in place to help do this

However, these initiatives are designed to support our main objectives of …………..

Retaining our current agents and attracting experienced agents from competitors

Home Credit is our focus


• Committed to traditional Home Credit model

• Face to face relationships

• Agent/Customer

• Manager/Agent

• Agents remain integral part of our strategy

• Enables us to modernise our offering whilst minimising risk

• Card readers, remote disbursement of loans

• Main competitors less focused on Home Credit

• Low morale, engagement levels

• Still regular enquiries from their staff and agents

• Evidence of some cultural issues

Signs of a good culture


HonestyOpenness Respect Trust

ListeningPride Teamwork Belief

PassionIntegrity Empathy Diligence

Flipping the triangle


Agents

Business Managers

Area Managers

Regional Managers

Divisional Managers

COO

CEO

Traditional

Structure

Flipped

Structure

CEO

COO

Divisional Managers

Regional Managers

Area Managers

Business Managers

Agents

Company values


Integrity

• Created and embedded Compliance team, Operational

Risk team and Branch Assurance team

• Embedded good customer outcomes into all

processes, significantly increasing compliance awareness

across business

Keep it simple

Enhanced compliance infrastructure

• Enabling effective communication including a two way

communication mechanism

• Repository for all policies, procedures and training

tools

Team minded

• Implemented a new Learning Management System, an

online training system with a total of 25 different

modules for all employees and 18 for agents with

monthly compulsory training and refreshers

• 1,992 training days delivered during 2019 (2,441 in 2018

& 1,462 in 2017)

Ongoing training

Customer focused

• Field colleagues are remunerated for good customer

outcomes as well as good operational performance

Good customer outcome bonus

Significant investment in compliance, infrastructure and training

Company-wide intranet

Why are we different?


A strong emphasis on culture

89%Of employees are proud to be

part of Loans at Home

97%Of employees believe Loans at

Home is committed to

treating its customers fairly

86%Of employees feel confident

they can speak to directors if

they had a concern

Marketing initiatives

• Constant networking

• Staff dialled into competitor activity

• CAMEO

• Targeted marketing through data insights

• Facebook

• Effective use aligned with other marketing initiatives

• Mailers, leafleting etc.

• Selected Acquisitions

• Potential new opportunities arising from robust regulatory environment


Product comparison


A well-balanced and competitive offering

Product terms and APRs

Firm Shortest Term Medium Term Longer Term > 1 Year

24 Weeks – 732.7% 33 Weeks – 433.4% 46 Weeks – 353.4% 63 Weeks – 244.5%

13 Weeks – 1557.7%

26 Weeks – 535.3%- 52 Weeks – 299.3%

78 Weeks – 211.4%

104 Weeks – 181.4%

22 Weeks – 716.5% 34 Weeks – 466.4% 53 Weeks – 260.7% -

15 Weeks – 1564.3%

16 Weeks – 2131.8%

23 Weeks – 1243.7%

35 Weeks – 498.3% - -

20 Weeks – 481.4% 30 Weeks – 330.0% - -

27 Weeks – 602.0% - -

- 26 Weeks – 188.0% 51 Weeks – 104.0% 102 Weeks – 61.5%

Typical payday loan product 3 Months - >1,000% 6 Months – c1,000% 9 Months - c550% 12 Months – >300%

Nat

ional

Regi

onal

Hom

e C

redit c

om

pan

ies

HCSTC

http://www.providentfinancial.com/

Technological enhancements


The best tools for the job, developed in house

Lending and Collections apps Real time Dashboard Journey Management (JMPR)

Helping agents work accurately & efficiently

Automated Income Verification

Helping management improve quality and support the frontline

Helping field managers work smarter

Support Dashboard Contact Manager

Loans at Home team


Highly experienced management team – very close to the Front Line

Davie Thompson

CEO

Chris Pearson

CFO

Asif Nadeem

Central Operations Director

Amy Pilling

Risk & Compliance Director

Andy Lockard

General Manager (North)

2016

Christine Rangeley

HR Director

Jamie Place

CTO

Gordon Withers

General Manager (South)

2015

2015

2016

2016

2015

2010

2006

CEO

CFO

HRD

CTO

COD

RCD

GM(S)

GM(N)

38 years

4 years

19 years

12 years

17 years

8 years

32 years

20 years

Joined LaH Home Credit Experience

Field structure


150

Business Managers

41

Area Managers

8

Regional Managers

2

General Managers

CEO

Minimal layers

allows efficient

communication

and strong

connections

between the

senior team and

the front line

colleagues

Outlook


Strategy – Increase our share of the market by continually enhancing our customer offering whilst ensuring the customer / agent relationship remains key.

Build market share

Agent retention

Operational stability

Potential ‘bolt-on’

acquisitions

• Continue to recruit experienced agents where opportunities arise

• Leverage existing infrastructure to maximise economies of scale whilst maintaining tight spans of control

• Operational capacity to add up to 40 customers per agent without significant additional infrastructure costs

• MI tells us that long standing stable agencies contribute the greatest value

• We have a clear focus on culture and ensuring we are the best Home Credit company to work for

• Ensure we keep our frontline at the heart of everything we do so they can continue to give our customers

exceptional service

• Sustained period of change and IT enhancement since acquisition is now stable

• Development continues to enhance our customer offering but with no material impact on day to day activities

for agents and managers

• Increased regulatory burden on smaller players may lead to some owners deciding to leave the sector via a sale

• Potential opportunity to pursue highly selective ‘bolt-on’ acquisitions in the home collected credit industry as

smaller businesses and loan books become available, subject to strict criteria

Q&A

Capital structure and dividends

Jono Gillespie

Deputy Group CFO

Long-term debt facilities


• £285m term loan in place until 2023 at 725 basis points over LIBOR‒ Alcentra

‒ Beachpoint

‒ Cairn

• £45m RCF until 2022 at 350 basis points over LIBOR‒ NatWest

• Term sheet agreed on new debt facility:‒ £150-200m securitisation programme

‒ Six-year term

‒ Meaningful reduction in funding cost versus current long-termarrangements

• Opportunity to repay some of the existing, more expensivefacility on completion which is expected shortly

30 Jun

2019

£m

31 Dec

2018

£m

Loan book 336 311

Fair value 3 4

Adjusted loan book 339 315

Cash and other assets 34 25

Right of use assets 11 -(

Payables and deferred tax (29) (17)

Lease liability (11) -(

Debt (296) (266)

Tangible net assets 47 57

Goodwill and intangibles 134 154

Net assets 182 211

Net debt1 286 259

Loan: value2 85% 83%

1 Excludes cash held at the parent company and unamortised fees associated with the debt financing2 In accordance with the Group’s debt covenants, net loan book is calculated under IAS 39

Dividends


• The Group has a progressive dividend policy

• Medium-term target is for a 50% payout ratio*

• DPS has grown by 29% CAGR 2016-2018

• Board expects the full year dividend for 2019 will be approximately 3p per share

0.0p

0.3p0.5p

0.6p0.7p

0.0p

0.9p

1.7p

2.0p

2.3p

0.0p

0.5p

1.0p

1.5p

2.0p

2.5p

3.0p

3.5p

2015 2016 2017 2018 2019

Interim Final Consensus forecast

* Of normalised earnings, before accounting adjustments and exceptional items

Strategic outlook 2020-22

John van Kuffeler

Group Chief Executive

Strategic outlook 2020-2022


• A significant opportunity exists to deliver attractive and sustainable long-term returns

• The non-standard customer in the UK remains underserved

• Potential external sources of future growth include:‒ Decline of payday lending and rent-to-own

‒ Recession-induced tightening of credit by mainstream lenders, increasing customer volumes

‒ Consolidation of /exit by smaller operators

‒ Increased awareness of certain product segments (including guarantor loans)

• Potential external sources of future constraints include:‒ Tightening of the regulatory regime

‒ Lack of funding

‒ Competition

• The focus for the next few years is on relatively modest investment and on driving return on assets towards our medium-term target of 20% for each division

Strategic outlook 2020-2022 – key initiatives


• Branch-based lending

o Split branches to generate additional capacity with rapid payback

o Expand towards 100 branches over the medium-term, potential for up to 120 branches over the long-term

o Operational efficiencies from process improvements

• Guarantor Loans

o Significant efficiencies from move to one location

o Expand operations and staff into new additional space in Trowbridge

o Further market expansion and share gains as competitors slow growth

• Home credit

o Continue to shorten the loan book

o Customer portal

o Card payments on the doorstep

o Market share gains from competitors

• Central/head office

o Reduced operational and funding costs

Q&A

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