2019 Full Year Results 25 June 2020 John van Kuffeler Founder and - PowerPoint PPT Presentation

2019 Full Year Results 25 June 2020

John van Kuffeler Founder and Group Chief Executive 2

Key points ▪ 2019 results ▪ Normalised operating profit of £42.2m +20% ▪ Normalised PBT £14.7m +5% ▪ Statutory loss of £76.0m ▪ Goodwill write-down (non-cash) of £65.9m ▪ Fair value adjustments and amortisation (non-cash) of £10.1m ▪ Transaction costs and restructuring of £14.7m ▪ COVID-19 ▪ Lending significantly reduced, reducing loan book by c9% since year end, but restarted in May 2020 ▪ Collections holding up well at 86% of pre-lockdown and signs that it is starting to stabilise ▪ Balance sheet, liquidity and going concern ▪ Strong cashflow in April and May - cash of £60.3m, gross borrowings of £345.0m ▪ Group remains viable and a going concern ▪ Long-term debt funding in place but unable to access new facility due to covenant constraints caused by COVID-19 ▪ Strategic opportunity ▪ Mainstream lenders are tightening credit and demand for non-standard credit expected to increase ▪ Significant opportunity for growth in 2021 but need the right capital structure to achieve it 3

2019 financial highlights 1 ▪ CAGR in all key performance metrics since 2016: Net loan book 1 Revenue 2 Operating profit 3 Earnings per share 4 £200m £400m £50m 4.0p £184m £360m £42m £167m 3.67p £350m £175m £306m 3.50p £40m 3.44p £35m £150m £300m 3.5p £120m £238m £250m £125m 3.09p £30m £191m £24m £200m £100m 3.0p £81m £20m £150m £75m £16m +39% +6% +23% +31% 2.5p £100m £50m £10m £50m £25m 2.0p £0m £0m £0m 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 • Loan book growth driven by branch expansion and a strong guarantor loans market • Home credit profit growth due to lower impairment and careful cost management COVID-19 impact since March 2020 creating material uncertainties for the Group • Group remains cash flow positive and has £60.3m in cash as at 31 May 2020 • • All medium-term guidance is currently withdrawn • No final dividend is being paid; plans in place to restore distributable reserves 1 on a like-for-like basis, assuming George Banco had been owned since 1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 4 4 normalised EPS

Statutory pre-tax loss of £76.0m primarily due to exceptionals ▪ Goodwill impairment – major decline in market multiples since 1 January 2019 Forward PER (Next year) 1 12x NSF Provident Financial Item £m Morses Amigo 10x Goodwill impairment - ELL (44.8) Goodwill impairment - GLD (8.6) 8x Goodwill impairment - LAH (12.5) 6x Offer-related fees (12.8) 4x Restructuring (1.9) T otal (80.6) 2x 0x 1 Source: Bloomberg 5

2019 operational highlights - branch-based lending Branch expansion • 8 branches opened as planned and on budget • 125 new customer-facing staff added New branches in 2019 Lead volumes and quality • 2.5m leads in 2019 +52% • 35% increase in total applications to branch that reached 540,479 Productivity • Lower conversion rate for new borrowers of 7.6% (2018: 9.0%) but on a much increased number of ATBs • Over 52,130 loans written, up 16% Delinquency management • Impairment was 22.2% of revenue (2018: 22.7%) 6

2019 operational highlights - guarantor loans Value of new cash by channel 1% Channel mix 3% 4% • Accepted leads up 6% to over 2.5m • 520,144 passed through our scorecard (2018: Broker 13% 448,128) – improved quality of applications Top Ups Organic • T op-ups were 17% of the total loans booked 5% PCW ELL Online Decline Conversion steady 58% ELL Branch Decline 17% • Conversion broadly flat versus last year but on Lead Generator higher volume • 12% increase in number of loans written to 19,458 (2018: 17,393) 300 • 10% increase in value of loans written to £71.7m (2018: £65.2m) 280 260 Consolidation into a single location 240 • Higher impairment at 26.8% (2018: 20.5%) 220 prompted consolidation in Trowbridge 200 • Operational improvements and reduced costs Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 Apr-19 Aug-19 Dec-19 APE (Active Accounts Per Ops Employee) 7

2019 operational highlights - home credit Net loan book by product 100% Evolution of our digital platform • 99% of loans in 2019 were via the app (2018 93%) 90% • Launch of our new customer portal 80% • Addition of automated income verification • Card readers rolled-out to agents 70% • Bespoke scorecard for best agents 60% Focus on quality 50% • Further reduction in impairment as a % of revenue 40% Careful cost management 30% • Cost : income ratio of 58% (2018: 57%) 20% Significant shortening of the loan book 10% • 63-week loan has replaced 78 and 76-week loan 0% • Significant increase in issue of core 46-week product 24 33 45/46 63 76/78 8

Jono Gillespie Group Chief Financial Officer 9

2019 reported results 2019) 2018 % Change Year ended 31 December restated Versus £000) £000 2018 Revenue 180,784 158,824 +16% Other revenue 954 1,626 -41% Modification loss (1,181) (78) +1,414% Derecognition (loss)/gain (413) (129) +220% Impairments (45,066) (43,738) +3% Revenue less impairments 135,078 116,505 +16% Admin expenses (103,012) (97,763) +5% Operating profit 32,066 18,742 +71% Exceptional items (80,584) - n/a (Loss) profit before interest and tax (48,518) 18,742( n/a Finance cost (27,458)) (21,107) +30% Loss before tax (75,976) (2,365) +3,113% Taxation (332)) 58() +7% Loss after tax (76,308) (2,307) +3,208% 1 2018 has been restated for a prior year adjustment 10

2019 normalised 1 divisional breakdown Branch- Guarantor Home Central T otal % Change Year ended 31 December 2019 based loans credit costs Versus lending £000 £000 £000 £000 2018 2 £000 Revenue 93,002 29,820 60,835 - 183,657 +10% Other revenue 954 - - - 954 -41% Modification loss (951) (230) - - (1,181) +1,414% Derecognition (loss)/gain (482) 69( - - (413) +220% Impairments (20,635) (7,996) (16,435) - (45,066) +3% Revenue less impairments 71,888 22,663 44,400 - 137,951 +11% Admin expenses (42,235) (12,895) (35,298) (5,358) (95,786) +8% Normalised operating profit 29,653 8,768 9,102 (5,358) 42,165 +20% Finance cost (17,355) (7,338) (2, 116) (649) (27,458) +30% Profit (loss) before tax 12,298 1,430 6,986 (6,007) 14,707 +5% Taxation (2,711) (113) (1,474) 1,141) (3,261) +7% Profit after tax 9,483 1,317 5,512 (4,866) 11,446 +5% 1 Adjusted to exclude fair value adjustments, amortisation of acquired Intangibles and exceptional items. 2 2018 has been restated for a prior year adjustment 11

Key movements impacting operating profit Normalised operating profit bridge 2018-2019 £m 60 50 40 30 20 10 0 1 Adjusted to exclude fair value adjustments, amortisation of acquired Intangibles and exceptional items. 2018 has been restated. 12

Prior year adjustment to loan loss provisions ▪ On 1 January 2018 the Group adopted IFRS 9 which required the Group to increase its loan loss provisions to take into account expected credit losses ▪ T otal transition impact to IFRS 9 on 1 January 2018 was an increase in loan loss provisions of £15.0m ▪ A detailed provisions ‘back - test’ analysis initiated by the Board identified a shortfall and the need for an additional provision of £4.0m (or 1% of receivables) ▪ £3.2m relates to branch-based lending ▪ £0.8m relates to guarantor loans ▪ No impact on any of the covenants in the Group’s term loan facility which uses IAS39 13

Branch-based lending 2019 2018 Year ended 31 December normalised normalised restated £000 £000 % Change Revenue 93,002 79,579 +17% Other income 954 1,397 -32% Modification loss (951) (78) +1,119% Derecognition loss (482) (97) +397% Impairments (20,635) (18,040) +14% Revenue less impairments 71,888 62,761 +15% Admin expenses (42,235) (36,488) +16% Normalised operating profit 29,653 26,273 +13% Finance cost (17,355) (12,778) +36% Profit before tax 12,298 13,495 -9% Taxation (2,815) (2,492) +13% Profit after tax 9,483 11,003 -14% Key Performance Indicators:  Loan book growth 1 17.6% 24.7% Revenue yield 2  46.4% 47.8% Risk adjusted margin 3 36.1% 37.0%  Impairments/revenue  22.2% 22.7% Impairment/average net loan book 10.3% 10.8%  Cost:income ratio 45.4% 45.9%  Operating profit margin 31.4% 33.0%  Return on asset 4 14.8% 15.8%  1 Before fair value adjustments 2 Normalised revenue as a percentage of average loan book excluding fair value adjustments 14 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 – impairment/ ANR 1 20% 18.3% 18% 16.4% 16.2% 16% 14% 12% 10.8% 10.3% 9.9% 9.7% 10% 9.5% 8.9% 8.2% 7.9% 7.8% 8% 7.3% 6% 4% 2% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1 2019, 2018 and 2017 are under IFRS 9 while prior years are under IAS 39. 2018 has been restated for a prior year adjustment. 15

Branch-based lending KPIs - period end loan book £m 250 200 150 214.8 100 182.7 146.4 122.4 50 0 Dec-16 Dec-17 Dec-18 Dec-19 16 1 2016 is under IAS 39 while all other periods have been prepared under IFRS 9. 2018 and 2017 have been restated for a prior year adjustment.