2018 Full Year Results 8 March 2019 1 John van Kuffeler Founder - - PowerPoint PPT Presentation

2018 Full Year Results

8 March 2019

1

John van Kuffeler

Founder and Group Chief Executive

2

3

Summary

▪ NSF is a market leader in three segments of the UK’s non-standard finance market ▪ Since IPO in 2015, NSF has delivered strong growth in loan book, operating profit and dividends ▪ This continued in 2018: ▪ Loan book up by 29% ▪ Impairment down to 25.6% of normalised revenue (2017: 27.1%) ▪ Underlying EPS1 growth of 20% ▪ 18% increase in the recommended full year dividend of 2.60p per share ▪ Each of our three business segments has the potential to deliver a 20% return on assets ▪ The Board believes the acquisition of Provident Financial can unlock substantial value for shareholders

1 Normalised EPS (before £1.4m of deferred consideration for George Banco)

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NSF’s successful record of growth since IPO

Sub-sector Branch-based lending Guarantor loans Home credit Acquisition date April 2016 April 2016 / August 2017 August 2015 Market position

#1 #2 #3

Employees1 406 employees 115 employees 331 employees 897 self-employed agencies Net loan book1 £186m £83m £41m Loan book growth1 24.7% 61.0% 2.0% Impairment/norm. revenue1 21.5% 20.0% 32.6%

Year to 31 Dec 2018 Source: company information

Three market leading businesses with an established record of growth

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Net loan book1 Revenue2 Operating profit3 Earnings per share4

£16m £24m £37m £0m £10m £20m £30m £40m 2016 2017 2018

• Major investment in infrastructure is delivering strong growth
• Transition to IFRS 9 means that our payout ratio is above 50%
• Recommended full year dividend is c.63% of normalised EPS4

1 on a like-for-like basis, assuming George Banco had been owned since 1 January 2016 2 excluding fair value adjustments 3 Normalised operating profit before £1.4m of deferred consideration for George Banco 4 Normalised EPS before £1.4m of deferred consideration for George Banco

Dividend per share

2.60p +18%

2017: 2.20p

▪ We have delivered strong growth in all key performance metrics versus 2017:

2018 – financial highlights1

£81m £120m £167m £0m £25m £50m £75m £100m £125m £150m £175m £200m 2016 2017 2018

+57%

3.09p 3.44p 4.14p 0.00p 1.00p 2.00p 3.00p 4.00p 5.00p 2016 2017 2018

+20% +39%

£191m £241m £310m £0m £50m £100m £150m £200m £250m £300m £350m £400m 2016 2017 2018

+29%

2018 - a further period of investment-led growth

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▪ Everyday Loans ▪ 12 new branches opened ▪ Three more opened this week (Wigan, Scunthorpe and Bristol Kingswood) ▪ Guarantor loans ▪ All new loans now being booked on single loan management platform ▪ Move to new premises in Trowbridge ▪ Home credit: ▪ Back-office infrastructure now all cloud-based ▪ 93% of all home credit loans in 2018 were booked through the lending app ▪ Streamlined management structure in Loans at Home ▪ £70m of additional funding secured

Increased network capacity ✓12 new branches opened as planned ✓99 new staff added Lead volumes and quality ✓1.6m leads in 2018 +59% ✓18% increase in applications to branch Productivity ✓Improved conversion rate to 9.0% (2017: 7.3%) ✓Over 44,800 loans written Delinquency management ✓ Impairment steady at 21.5% of revenue (2017: 21.5%)

Branch-based lending - 2018 operational highlights

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New branches in 2019

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Guarantor loans - 2018 operational highlights

Well-balanced channel mix ✓Leads up 39% to over 2.3m ✓Better quality leads - 32% passed through our scorecard (2017: 27%) ✓Top-ups now count for less than 20% Conversion steady ✓ Conversion at 2.3% (2017: 2.4%) ✓ 62% increase in number of loans written Single loan management platform ✓All new loans now being booked on one system ✓Staff can book loans for either brand in different locations Move to new premises ✓ Capacity for 40 more staff

53% 18% 8% 11% 2% 4% 4% Broker Top Ups Organic PCW ELL Online Decline ELL Branch Decline Lead Generator

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Loan volumes Conversion

£000

Value of new cash by channel

9

Home credit - 2018 operational highlights

Move to cloud-based infrastructure ✓Increased stability and reliability ✓Improved, real time management information Digitisation of lending and collecting ✓ 93% of loans in 2018 were on the app (2017: 25%) ✓ 98% so far in 2019 Process to shorten loan book has begun ✓63-week loan to replace 78 and 75-week loan ✓Increasing issue of core 45-week product Focus on quality customers remains

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18

Gross Lending Product Mix %

24 33 45 63 75

We remain on course to achieve our medium-term targets

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Year ended 31 Dec 2018 Branch- based lending versus medium term target Guarantor loans versus medium term target Home credit versus medium term target Loan book growth 24.7%

✓

61.0%

✓

2.0%

✓

Revenue yield1 46.8%

✓

32.2%

✓

171.5%

✓

Risk adjusted margin2 36.7%

✓

25.8%

✓

115.6%

✓

Impairments/revenue 21.5%

✓

20.0%

✓

32.6%

✓

Impairments/average net loan book 10.1%

✓

6.4%

✓

55.9%

✓

Return on assets3 15.8%



13.3%



17.7%



1 Revenue as a percentage of average loan book excluding fair value adjustments 2 Revenue less impairments as a percentage of average loan book excluding fair value adjustments 3 Normalised operating profit (before £1.4m of deferred consideration in guarantor loans) as a percentage of average loan book excluding fair value adjustments

Whilst not yet at 20% ROA, we are already meeting most of our medium-term targets

Nick T eunon

Co-Founder and Group Chief Financial Officer

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2018 normalised1 divisional breakdown

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1 Adjusted to exclude fair value adjustments, amortisation of acquired Intangibles, deferred consideration and exceptional items.

26.9 186.2 79.6 9.0 83.1 21.7 6.7 41.0 65.2 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Operating profit Loan book Revenue Branch-based lending Guarantor loans Home credit

2018 normalised1 divisional breakdown

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1 Adjusted to exclude fair value adjustments and restating 2017 loan book under IFRS 9.

▪ Loan book up by 29% to £310.3m ▪ Driven by strong growth at our two largest

divisions

▪ Branch-based lending +25% ▪ Guarantor loans +61% ▪ Home credit returning to more normalised

rates of growth

149.4 186.2 51.6 83.1 40.2 41.0 £m £50m £100m £150m £200m £250m £300m £350m 2017 2018

Loan book1

Branch-based lending Guarantor loans Home credit

2018 normalised1 divisional breakdown

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1 Adjusted to exclude fair value adjustments. Note 2017 is as reported under IAS 39

▪ Revenue up by 39% to £166.5m ▪ Good growth across all three divisions: ▪ Branch-based lending +31% ▪ Guarantor loans +169% ▪ Home credit + 28%

60.9 79.6 8.1 21.7 50.7 65.2 £m £25m £50m £75m £100m £125m £150m £175m 2017 2018

Revenue1

Branch-based lending Guarantor loans Home credit

2018 normalised1 divisional breakdown

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1 Before central costs, fair value adjustments, amortisation of acquired intangibles, deferred

consideration and exceptional items. Note 2017 is under IAS 39 while 2018 is under IFRS 9.

▪ Normalised operating profit1 +57% to £37.2m ▪ Returns from previous investments starting to

feed through into performance:

▪ Branch-based lending +19% ▪ Guarantor loans +228% ▪ Home credit + 116%

22.7 26.9 2.7 9.0 3.1 6.7 £m £10m £20m £30m £40m £50m 2017 2018

Normalised operating profit1

Branch-based lending Guarantor loans Home credit

2018 normalised1 divisional breakdown

Year ended 31 December 2018 Branch- based lending £000 Guarantor loans £000 Home credit £000 Central costs £000 T

• tal

£000 % Change Versus 2017 Revenue 79,579 21,748 65,175

• 166,502

+39% Other revenue 1,397 229

• 1,626
• 16%

Modification loss (482)

• (482)

n/a Impairments (17,099) (4,342) (21,247)

• (42,688)

+48% Revenue less impairments 63,395 17,635 43,928

• 124,958

+35% Admin expenses (36,488) (8,616) (37,214) (5,397) (87,715) +27% Normalised operating profit before deferred consideration 26,907 9,019 6,714 (5,397) 37,243 +57% Deferred consideration

• ((

(1,367)

• ((
• ((

(1,367) n/a Normalised operating profit 26,907 7,652 6,714 (5,397) 35,876 +51% Finance cost (12,778) (5,833) (2, 461) (35) (21,107) +101% Profit (loss) before tax 14,129 1,819 4,253 (5,432) 14,769 +12% Taxation (2,612) (645) (774) 834) (3,197) +38% Profit after tax 11,517 1,174 3,429 (4,598) 11,572 +6%

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1 Adjusted to exclude fair value adjustments, amortisation of acquired Intangibles and exceptional items.

Branch-based lending

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Year ended 31 December 2018 normalised £000 2017 normalised £000 % Change Revenue 79,579 60,937 +31% Other income 1,397 1,926

• 27%

Modification loss (482)

• ))

n/a Impairments (17,099) (11,654) +47% Revenue less impairments 63,395 51,209 +24% Admin expenses (36,488) (28,555) +28% Normalised operating profit 26,907 22,654 +19% Finance cost (12,778) (7,051) +81% Profit before tax 14,129 15,603

• 9%

Taxation (2,612) (3,146) +17% Profit after tax 11,517 12,457

• 8%

IFRS 9 Key Performance Indicators: Loan book growth1 24.7% 21.3% Revenue yield2 46.8% 44.0% Risk adjusted margin3 36.7% 34.6% Impairments/revenue 21.5% 21.5% Impairment/average net loan book 10.1% 9.5% Operating profit margin 33.8% 34.8% Return on asset4 15.8% 15.3%

1 Before fair value adjustments 2 Normalised revenue as a percentage of average loan book excluding fair value adjustments 3 Normalised revenue less impairments as a percentage of average loan book excluding fair value adjustments 4 Normalised operating profit as a percentage of average loan book excluding fair value adjustments

      

Branch-based lending KPIs - period end loan book

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1 Both 2018 and 2017 are under IFRS 9 while 2016 and 2015 are under IAS 39

103.7 122.4 149.4 186.2 £0m £20m £40m £60m £80m £100m £120m £140m £160m £180m £200m Dec-15 Dec-16 Dec-17 Dec-18

Branch-based lending KPIs – impairment/ ANR1

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1 Both 2018 and 2017 are under IFRS 9 while 2016 and 2015 are under IAS 39

16% 16% 18% 10% 10% 8% 8% 8% 7% 9% 10% 10% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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Branch-based lending KPIs – yield1 and volume

1 Before amortisation of broker fees

0% 10% 20% 30% 40% 50% 60% 70% 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec £000s 2015 Volume £000s 2016 Volume £000s 2017 Volume £000s 2018 Volume £000s 2015 avg yield 2016 avg yield 2017 avg yield 2018 avg yield

Guarantor loans

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Year ended 31 December 2018 normalised £000 2017 normalised £000 % Change

Revenue 21,748 8,078 +169% Other income 229

• n/a

Impairments (4,342) (1,365) +218% Revenue less impairments 17,635 6,713 +163% Admin expenses (8,616) (3,965) +117% Operating profit before deferred consideration 9,018 2,748 +228% Deferred consideration (1,367)

• ))

n/a Operating profit 7,652 2,748 +178% Finance cost (5,833) (2,029) +187% Profit before tax 1,819) 719) +153% Taxation (645) (130) +396% Profit after tax 1,174 589 +99% IFRS 9 Key Performance Indicators: Loan book growth1 61.0% 34.3% Revenue yield2 32.2% 34.7% Risk adjusted margin3 25.8% 29.3% Impairments/revenue 20.0% 15.5% Impairments/average net loan book 6.4% 5.4% Operating profit margin4 41.5% 37.8% Return on asset5 13.3% 13.1%

1 Before fair value adjustments. 2 Normalised revenue as a percentage of average loan book excluding fair value adjustments 3 Normalised revenue less impairments as a percentage of average loan book excluding fair value adjustments 4 Before £1.4m of deferred consideration in 2018 5 Operating profit as a percentage of average loan book excluding fair value adjustments (twelve month average). Before £1.4m of deferred consideration in 2018

      

Guarantor loans KPIs – period end loan book

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1 Both 2018 and 2017 are under IFRS 9 while 2016 and 2015 are under IAS 39. Assumes George Banco was owned for the full period.

22.2 35.2 51.6 83.1 £0m £10m £20m £30m £40m £50m £60m £70m £80m £90m Dec-15 Dec-16 Dec-17 Dec-18

Guarantor loans KPIs – loan volume1

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1 Assumes George Banco was owned for the full period.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 GLD Volume Top-ups as a % of total

Home credit

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Year ended 31 December 2018 normalised £000 2017 normalised £000 % Change Revenue 65,175 50,741 +28% Impairments (21,247) (15,776) +35% Revenue less impairments 43,928 34,965 +26% Admin expenses (37,214) (31,863) +17% Operating profit 6,714 3,102 +116% Finance cost (2,461) (1,299) +89% Profit before tax 4,253 1,803 +136% Taxation (774) 88) n/a Profit after tax 3,479 1,891 +84% Key Performance Indicators: Loan book growth1 2.0% 48.6% Revenue yield2 171.5% 178.4% Risk adjusted margin3 115.6% 111.4% Impairments/revenue 32.6% 37.6% Impairments/average net loan book 55.9% 67.0% Operating profit margin4 10.3%

• 2.7%

Return on asset5 17.7%

• 4.8%

1 Before fair value adjustments 2 Normalised Revenue as a percentage of average loan book excluding fair value adjustments 3 Revenue less impairments as a percentage of average loan book excluding fair value adjustments 4 Normalised operating profit as a percentage of normalised revenue 5 Normalised operating profit as a percentage of average loan book excluding fair value adjustments

      

Home credit KPIs - period end loan book

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28.0 33.4 40.2 41.0 £0m £5m £10m £15m £20m £25m £30m £35m £40m £45m

Dec-15 Dec-16 Dec-17 Dec-18

Balance sheet

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▪ £285m term loan in place until 2023 at 725 basis

basis points over LIBOR

▪ £45m RCF until 2022 at 350 basis points over LIBOR ▪ No need for further equity ▪ Exploring other low cost funding options

31 Dec 2018 £m 31 Dec 2017 £m Loan book 311 256 Fair value 4 12 Adjusted loan book 315 268 Cash and other assets 25 18 Payables and deferred tax (17) (16) Debt (266) (199) Tangible net assets 57 71 Goodwill and intangibles 154 162 Net assets 211 233 Net debt 259 197 Loan: value1 83% 80%

1 Definitions from facilities agreement

Dividend per share

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▪ Recommended final dividend of 2.0p, making 2.60p

for the full year (2017: 2.20p)

▪ Equates to a normalised payout ratio of 63%1 ▪ Record date of 3 May 2019 ▪ Final dividend to be paid on 7 June 2019

0.00p 1.20p 2.20p 2.60p 0.00p 1.00p 2.00p 3.00p 2015 2016 2017 2018

1 Based on normalised EPS before deferred consideration of 4.14p per share

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Summary

▪ NSF is a market leader in three segments of the UK’s non-standard finance market ▪ Since IPO in 2015, NSF has delivered strong growth in loan book, operating profit and dividends ▪ This continued in 2018: ▪ Loan book up by 29% ▪ Impairment down to 25.6% of normalised revenue (2017: 27.1%) ▪ Underlying EPS1 growth of 20% ▪ 18% increase in the recommended full year dividend of 2.60p per share ▪ Each of our three business segments has the potential to deliver a 20% return on assets ▪ The Board believes the acquisition of Provident Financial can unlock substantial value for shareholders

1 Normalised EPS (before £1.4m of deferred consideration for George Banco)

2018 Full Year Results

Questions

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Appendix - KPIs (after deducting deferred consideration)

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Year ended 31 Dec 2018 Branch- based lending versus medium term target Guarantor loans versus medium term target Home credit versus medium term target Loan book growth 24.7%

✓

61.0%

✓

2.0%

✓

Revenue yield1 46.8%

✓

32.2%

✓

171.5%

✓

Risk adjusted margin2 36.7%

✓

25.8%

✓

115.6%

✓

Impairments/revenue 21.5%

✓

20.0%

✓

32.6%

✓

Impairments/average net loan book 10.1%

✓

6.4%

✓

55.9%

✓

Return on assets3 15.8%



11.3%



17.7%



Whilst not yet at 20% ROA, we are already meeting most of our medium-term targets

1 Revenue as a percentage of average loan book excluding fair value adjustments 2 Revenue less impairments as a percentage of average loan book excluding fair value adjustments 3 Normalised operating profit as a percentage of average loan book excluding fair value adjustments