2019 Half Year Results 20 August 2019
John van Kuffeler Founder and Group Chief Executive 2
H1 2019 – continued strong growth ▪ Investment in all three divisions is starting to drive increased returns – Branch-based lending : new branches plus improved performance from existing branches – Guarantor loans: increased capacity and combined collections operation – Home credit : improved collections and more streamlined infrastructure driving increased ROA ▪ Exceptional items in H1 19 total £25.3m due to deal costs, goodwill impairment and restructuring ▪ Current trading: in line with market expectations ▪ No change to strategy – clear focus is on increasing ROA whilst delivering good customer outcomes ▪ Whilst the UK business environment is uncertain, we remain cautiously optimistic: – record levels of employment; real growth in wages – demand remains strong for the Group’s products – well-invested infrastructure – high risk-adjusted margins – experienced management teams – access to long-term debt funding ▪ Half year dividend up 17% to 0.7p per share Substantial upside for all three divisions following significant investment 3
H1 2019 – financial highlights ▪ Solid growth across all key performance metrics: Net loan book 1 Revenue 2 Operating profit 3 Earnings per share 4 £20m £400m £100m 2.00p £20m £88m £336m 1.64p £350m 1.75p £79m £15m £80m 1.45p £300m £267m £15m 1.50p 1.35p £250m 1.25p £60m £52m £195m £200m £10m £8m 1.00p £40m £150m 0.75p £100m +26% +12% +28% +13% £5m 0.50p £20m £50m 0.25p £0m £0m £0m 0.00p H117 H118 H119 H117 H118 H119 H117 H118 H119 H117 H118 H119 Dividend per share • Loan book growth driven by branch-based and guarantor lending 0.7 p + 17 % that saw further investment in new branches and staff in H1 19 • Despite higher interest costs, normalised EPS still grew by 13% 2018 0.6p • Payout ratio of 43% (2018: 41%) 1 Assuming George Banco had been owned since 1 January 2017 2 Excluding fair value adjustments 3 Normalised operating profit before exceptional items 4 Normalised EPS before exceptional items 4
Exceptional items ▪ Offer for Provident Financial plc – Fees and associated costs slightly above previous Exceptional items H1 19 guidance of c£12m Offer-related fees and other transaction costs 12.7 Management restructuring costs at Loans at Home 0.1 ▪ Management restructuring at Loans at Home Impairment to goodwill (non-cash) 12.5 – Highlighted in FY18 results in March 2019 25.3 ▪ Impairment of goodwill at Loans at Home – See slide overleaf 5`
Goodwill impairment at Loans at Home £m Net loan book ▪ Strong growth since acquisition in 2015 Under IAS 39 Under IFRS 9 45 – Net loan book – £35.5m vs £22.6m 40 – Agents – 892 vs 557 35 30 – Customers – 91,600 vs 87,000 25 40.6 41.0 20 37.8 ▪ Business performing ahead of budget in H1 19 35.5 33.4 15 28.0 26.9 24.7 22.6 10 5 ▪ But…. 0 Jul-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 ▪ Sector multiples have fallen significantly since Forward PER (Current year)1 14x NSF Provident Financial Morses Amigo December 2018 1 13x 12x ▪ Whilst position may reverse in due course, 11x accounting standard requires that we impair 10x the goodwill asset now -11% 9x 8x -16% 7x -47% 6x -41% 5x 6` 1 Since 1 January 2019, based on data from Bloomberg
Latest Key Performance Indicators Branch- based Guarantor Home Six months to 30 Jun 2019 lending Loans credit ✓ ✓ Loan book growth 22.3% 53.1% -6.1% ✓ ✓ ✓ Revenue yield 1 46.2% 31.3% 165.5% ✓ ✓ ✓ Risk adjusted margin 2 36.1% 24.0% 112.7% ✓ ✓ Impairments/revenue 21.8% 23.3% 31.9% ✓ ✓ ✓ Impairments/average net loan book 10.1% 7.2% 52.8% ✓ ✓ ✓ Cost:income ratio 3 45.3% 44.3% 56.3% ✓ Return on assets 4 15.3% 10.1% 19.5% Our clear focus is on driving ROA towards our medium-term target of 20% 1 Revenue as a percentage of average loan book excluding fair value adjustments (twelve month average) 2 Revenue less impairments as a percentage of average loan book excluding fair value adjustments (twelve month average) 3 Administration expenses as a percentage of normalised revenue (twelve month average) 4 Normalised operating profit as a percentage of average loan book excluding fair value adjustments (twelve month average) 7`
Branch-based lending – progress since acquisition ▪ Full FCA permissions in 2016 Number of employees and branch locations 500 80 73* 450 65 70 ▪ Significant branch expansion: 400 60 53 328 350 309 • 50 Doubled the size of the branch network 300 41 36 233 34 250 40 • 126% increase in the number of branch staff 31 30 27 200 26 26 26 26 168 30 145 141 136 129 ▪ Investment in technology: 150 118 108 106 104 104 20 100 10 • 50 2019 Fintech Awards – 0 0 ‘Most Innovative Direct Loan Lender – UK’ 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 H1 2019 Branch Employees Locations (RH scale) ▪ Customer and loan book growth: Receivables and customer numbers • 90%+ more customers £250 Receivables (£m) 70 • 67 67%+ loan book growth Customer numbers (RH scale) 61 £200 60 ▪ Continued improvement in profitability, 47 50 whilst managing operational risk £150 40 ('000) 40 36 34 ▪ Culture remains a key driver of our 186.2 203.8 £100 30 29 25 25 23 149.4 long-term success: 20 20 103.7 122.4 17 £50 88.4 12 75.8 10 66.0 • 59.1 54.9 Roll- out of ‘The Everyday Way’ 48.3 42.6 31.8 • £0 0 Revised incentive structure 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 H1 2019 8 * As at July 2019
Guarantor loans – progress since acquisition ▪ Acquisition was transformational ▪ Full FCA permissions in 2017 ▪ Significant investment - people and infrastructure: • 129 staff at 30 June 19 (+98% since Aug 17) • Move to new office facility in Trowbridge • Continued investment in IT The new premises in Trowbridge opened in Q4 2018 ▪ Increased number and quality of leads: • £m Net loan book 2.3m leads processed in LTM vs 1.7m in 2017 120 • c.35% of leads pass to become applications vs 27% in 2017 100 ▪ Conversion has been maintained driving 80 strong growth in lending KPIs: 60 96.3 • 83.1 Number of loans written +77% 40 62.9 • Value of loans issued +93% 47.3 20 40.4 • Number of customers +89% 0 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 9
Home credit – progress since acquisition Agent numbers ▪ Transformation is now complete: 1,050 1,000 • From paper-based to digitally managed 950 operation 900 • Culture focused on delivery of good customer 850 outcomes 800 • 750 Full FCA permissions in 2017 700 ▪ Significant investment in infrastructure: 650 600 • Self-employed agents 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 Jan-19 Mar-19 May-19 • Front and back-office technology • New offices Gross Lending Product Mix % • Senior management and field staff 100% • 90% Regulation and compliance 80% ▪ Increased number and quality of customers 70% 60% 50% ▪ Normalised business mix and impairment 40% 30% 20% 10% 0% 24 33 45 63 75 10
Nick T eunon Co-Founder and Group Chief Financial Officer 11
Summary - H1 2019 normalised 1 results Branch-based Guarantor Home Central Total % change lending loans Credit costs Six months ended 30 June 2019 £000 £000 £000 £000 £000 Revenue 43,756( 13,840( 30,691( - 88,287( 12% Other revenue 221( - -( - 221( -75% Modification adjustment (246) (41) -( - (287) n/a Impairments (9,335) (3,241) (8,828) - (21,404) 7% Revenue less impairments 34,396( 10,558( 21,863( 66,817( 12% Admin expenses (20,558) (6,212) (17,560) (3,010) (47,340) 6% Normalised operating profit 13,838( 4,346( 4,303( (3,010) 19,477( 28% Finance cost (8,399) (3,453) (1,108) (218) (13,174) 38% Profit before tax 5,439( 893( 3,195( (3,228) 6,299( 12% Tax (1,033) (169) (607) 613( (1,196) 12% Profit after tax 4,406( 724 2,588( (2,615) 5,103 12% 1.64p 13% EPS 1 Adjusted to exclude fair value adjustments, amortisation of acquired Intangibles and exceptional items. 12
H1 2019 normalised 1 divisional breakdown 100% 35.5 4.3 90% 30.7 80% 96.3 4.3 70% 60% 13.8 50% 40% 13.8 203.8 30% 43.8 20% 10% 0% Operating profit Loan book Revenue Branch-based lending Guarantor loans Home credit 1 Adjusted to exclude fair value adjustments, amortisation of acquired Intangibles and exceptional items. 13
H1 2019 normalised 1 divisional breakdown Loan book ▪ Loan book up by 26% to £335.6m £400m ▪ Driven by strong growth at our two largest £350m divisions 35.5 £300m ▪ Branch-based lending +22% 96.3 £250m 37.8 ▪ Guarantor loans +53% £200m 62.9 ▪ Home credit returning to more normalised 24.7 rates of growth £150m 40.3 203.8 £100m 166.6 129.9 £50m £m H117 H118 H119 Branch-based lending Guarantor loans Home credit 1 Adjusted to exclude fair value adjustments and restating 2017 loan book under IFRS 9. 14
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