Interim results presentation Six months ended 30 November 2019 - - PowerPoint PPT Presentation

Interim results presentation

Six months ended 30 November 2019

January 2020

Who we are and what we do

A non-bank specialist finance provider

2

• We are customer outcome-led
• We operate a hybrid model; flexibility

to either fund on balance sheet, or broke-on to other lenders

• All own balance sheet lending is to UK

SMEs who meet our credit criteria

• We broke-on proposals outside our

credit criteria and all consumer finance deals

• We are multi-product providing a

range of finance products that smaller UK SMEs require; Asset Finance, Loans, Vehicles and Invoice Finance

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

• 5,000

10,000 15,000 20,000 25,000 30,000 35,000 2013 2014 2015 2016 2017 2018 2019

Track Record

One pm Academy Bradgate iloans Gener8 Positive CF2U PBT £k

Income £000 PBT £000

The UK market

Stable, sizeable total addressable market

3

• UK economy employs 27m people in 5.7m businesses of which 4.5m are SMEs. 43% of UK companies

use external funding; currently circa £25bn of gross lending

• Of this lending, circa 40% is asset or invoice finance; approximately 1m companies using the products

we provide. Our share is <1%, so a huge market opportunity

• UK business investment (source: FLA and UK Finance statistics):
• Asset Finance increased 7% in 2019 to 30 November
• Invoice Finance stable at 40,000 companies in the UK using such facilities, but advances have

increased 20% over the past 3 years, mostly in smaller SMEs.

Analysis by asset class Nov 2019 y-o-y % change Plant & machinery +11 New cars Used cars +14 Light commercial vehicles +11 Business equipment +1 IT equipment

• 2

Asset Finance Vehicle Finance Asset-secured and PG-backed Loans Commercial (i.e. invoice) Finance

Four operating divisions

4

Dealing with over 21,000 SMEs and consumers

Origination £23.1m Book £85.4m Interest rate 10-18% Typical term 3 years Origination £30.3m All new and used vehicle finance deals brokered to other lenders – no balance sheet risk Origination £22.5m Book £10.0m Interest rate 14-22% Typical term 3 years Origination £11.9m Book £48.1m Interest rate 4%+fees Typical term 2 years

Core competencies

Robust lending criteria, processes and risk/reward pricing

5

• Spread is fundamental in SME lending and creates a natural hedge:
• Largest sector by value and number of deals < 5% of portfolio
• Multiple SIC codes – top 10 sectors account for only 1/3rd of the portfolio
• Largest lease c. £0.5m. Average deal size £15k. Largest IF facility c. £2.0m. Average £150k.
• LTV advance on hard assets, typically 70%; on IF facilities, typically 55% of sales ledger
• Security is paramount and timely follow-up essential:
• Personal guarantees from the directors/proprietors of each SME for all soft asset leases and loans
• Assiduous follow-up on arrears and impairments, turning impaired deals into Charging Orders
• Strong track-record in collections; circa 70% of impaired value recovered over the past 10 years
• Margin is risk-priced to facilitate robust growth:
• Policy decision not to relax price or credit criteria to chase aggressive top-line growth
• Net interest margin of c.12%

Robust business model

Reasons we stay strong through the credit cycle

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• Spread and diversity – of introducer channel, asset category, lending product, sector, geography,

deal size and deal quality

• Operating model flexibility – lending and broking
• Borrower resilience – lending to independent businesses for ‘staple-diet’ consumer products, not

multiple-outlet, retail chain businesses reliant on discretionary spend

• Small individual exposures – meaning that impaired receivables can typically be recovered through

charging orders and payment plans

• Human underwriting – eyes on every deal
• Adequate provisions in line with IFRS9 – carrying bad debt provisions roughly twice the amount of

annual net write-offs

• Fixed interest rate deals – no exposure to interest rate rises for business already written

7

H1 19/20 Financial Highlights

Sound like-for-like, year-on-year performance

• Total deal origination
• Revenue
• Blended cost of borrowing
• Profit before tax and exceptional items
• Fully diluted earnings per share
• Own book lending portfolio
• Net assets
• Funding facilities
• Bad debt provision

£87.8m from £82.3m* £15.6m down from £16.0m* 3.9% down from 4.0%* £3.2m down from £4.1m* 2.70 pence per share from 3.14* £143.5 up from £141.7m** £56.1m up from £53.8m** £170.7m up from £167.1m** 2.2% of net portfolio up from 1.9%** +7%

• 3%
• 3%
• 8%
• 14%

+1% +4% +2% +16%

Notes * comparative is H1 2018/19 ** comparative is 31 May 2019 Due to revenue mix Due to revenue mix, investment and provisions As above

✓ ✓ ✓ ✓ ✓ ✓

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Deal origination and revenue

Hybrid model in action = risk management

Change in mix % Change in mix % NEW DEAL ORIGINATION £m mix % £m mix % £m mix % Assets, Loans and IF: Value of deals written on own-book 27.5 48% 56.1 52% 62.9 60% Value of deals broked-on 30.0 52% 50.8 48% 42.7 40% 57.5 106.9 105.6 Vehicle: Value of deals written on own-book Value of deals broked-on 30.3 54.1 37.3 30.3 54.1 37.3 Value of deals written on own-book 27.5 31% 56.1 35% 62.9 44% Value of deals broked-on 60.3 69% 104.9 65% 80.0 56% Total origination 87.8 161.0 142.9 REVENUE Interest & other lending related income 12.1 78% 25.3 80% 24.8 83% Commission from broking 3.5 22% 6.5 20% 5.2 17% 15.6 31.8 30.0 FY 2019 FY 2018 H1 2020

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Own-Book Portfolio

Reflects operating model flexibility

• Gross* lending portfolio at 30 November 2019 was £143.5m, including £20.8m unearned interest

(i.e. future revenue)

• Analysis of the net portfolio by lending division was as follows:

Analysis by division Portfolio £m Provision £m % Asset 70.4 2.4 3.4% Loan 8.3 0.1 1.2% Invoice Finance 44.1 0.2 0.4% Group 122.8 2.7 (Blended) 2.2%

*Gross portfolio means total receivable including unearned interest. **Net portfolio, means total receivables less unearned interest income.

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Diversified lending

Credit risk management – no major concentrations

4.9% 4.0% 2.6% 2.5% 2.2% 1.5% 1.5% 1.5% 1.2% 0.9%

1 2 3 4 5 6 7 8 9 10 Freight transport by road Business support services Specialised construction activities Unlicensed restaurants Licensed restaurants Maintenance & repair of vehicles Hairdressing & beauty Other personal service activities Other manufacturing Construction

• f civil

engineering projects

£ M's Top 10 by Principal o/s (leases, loans, HP) & credit facility (invoice financing) 10.7% 10.5% 9.4% 7.8% 7.0% 5.8% 5.1% 5.0% 4.9% 4.8% Top 10 by deal number

Unlicensed restaurants Maintenance & repair of vehicles Licensed restaurants Hairdressing & beauty Public houses & bars Take away food Business support services Retail sale in food, beverages

• r tobacco

Freight transport by road Specialised construction activities

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Funding

Ample headroom for organic growth

• Gearing remains contained at circa 3.1x Net Tangible Assets
• 3.9% blended average borrowing rate; reduced through reduction in ‘Block’ rates due to treasury

‘bulk buying’ and economies of scale

• Potential opportunities for longer term and/or cheaper funding being explored.

Block funding providers: British Business Bank, Aldermore, Siemens, Hitachi, Hampshire Trust, BLME, Conister, Investec, Shawbrook Key Funding Lines - £m Facility Usage at 30 Nov. 19 Headroom Bank Overdraft (Nat West) 1.0 1.0 Block Funding lines (no non-utilisation fees) 116.8 51.5 65.3 Secured Loan Note & other HNW loans 15.9 8.2 7.7 Back-to-back facility (RBS IF) 37.0 31.9 5.1 Total Funding Facilities 170.7 91.6 79.1

30/11/19 31/5/19 Assets Non-Current Assets 74 82 Current Assets 90 76 Total Assets 164 158 Equity Retained Earnings 22 20 Share capital & premium 34 34 Total Equity 56 54 Liabilities Non-Current Liabilities 31 31 Current Liabilities 77 73 Total Liabilities 108 104 Total Equity and Liabilities 164 158

Balance Sheet £m

And key KPIs

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H1 20 FY 19

• Net Interest Margin

12% 12%

• Gross margin

64% 68%

• Cost to income ratio

0.81 0.75

• Earnings per share
• Basic

2.76p 7.30p

• Fully diluted

2.70p 6.61p

• Interim Dividend (per share)

0.36p 0.28p

Notes * H1 prorated to compare on a like for like basis

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Competition

Fragmented sector - few at scale in small-ticket lending

Banks

HSBs lend to SMEs, but no longer structured to support smaller SME businesses

Banks Challenger Banks Alternative finance platforms Quoted companies Private companies Flexibility

X X

Speed of service

X

Personal approach

X X X

Range of products

X X X

Challenger Banks

Also lessors, but do not

• perate in the smaller

end of the market. Lend to us wholesale.

Alternative finance platforms

Growing sector, but comparatively small (rate of growth slowing)

Quoted companies

Tend to be single product focused, banks, or lending to consumers e.g. PCF, Orchard, Provident

Private companies

Quantum Finance (Investec) and multiple regional players such as Armada, Kingsway, Tower, Propel

✓ ✓ ✓ ✓

✓

✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

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Phase 2 strategic plan

2024

UK-wide coverage

• c. 300 staff

£350m book £90+m revenue

2019

7 sites 185 staff £140m book £30m+ revenue £8m+ EBITDA

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Strategies

How we will achieve our objectives

1. Build scale through both organic growth and carefully selected acquisitions when conditions allow 2. Reduce cost of borrowing through optimising size, term, cost and mix of funding lines 3. Increase own-book lending while maintaining broker panel relationships 4. Re-brand and invest in brand promotion, marketing and Business Intelligence 5. Introduce selected new products and territories 6. Innovate, using financial technology and investment in systems to create a digital offering 7. Invest in key hires, training and succession 8. Deliver operational leverage from cross-selling and group synergies

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Management team

To deliver group synergies and growth

John Newma n

Non-exec.

Julian Telli ng Ron Russell

Executive

James Roberts, CFO Jen Bodey , Co Sec. COMPLI A NCE Ed Rimmer , COO Ian Smith, CEO Phil Chesham & Tans y Battson , INVOICE FINA NCE A lun Winter, LOA NS Mark Burgess, VEHICLES Carol Roberts, A SSET Holly Maps to ne , HR Lorraine Ney land, RISK David Jones , IT Diane Blinkhor n, MA RKETING

OPERATING BOARD

1pm plc current ownership

10 largest shareholders

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Fund Manager % Holding s 30 Nov 2019 88,985,316 £30,477,471 Lombard Odier Asset 23.01% 20,478,352 GPIM Limited 17.59% 15,650,187 Russell R Esq 12.34% 10,977,967 Hargreaves Lansdown 8.46% 7,529,682 Interactive Investor Trading 5.62% 5,000,586 Individuals & Private Clients 3.81% 3,389,922 Halifax Share Dealing 2.70% 2,402,687 Barclays Stockbrokers Limited 2.18% 1,939,863 Equiniti Shareview 1.73% 1,536,054 Societe Generale 1.57% 1,395,000 Total 79.00% 70,300,300

Summary

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• Ideal market positioning to further exploit the financing needs of the resilient UK SME sector
• Sticking to core competencies and strengths that make the business stable and resilient with

good visibility of earnings

• Steady, sustainable organic growth
• Profitable and well-funded with a progressive dividend policy
• Ambitious plans to grow further…
• rganically, by focusing on the non-bank, speciality finance sector
• strategically, by taking advantage of supply-side fragmentation
• Our purpose is “to grow together” to become “the non-bank speciality finance provider of

choice”

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