NewDay Earnings call details: Date: Wednesday 9 August Time: - - PowerPoint PPT Presentation
NewDay Earnings call details: Date: Wednesday 9 August Time: 14:00 BST Half-year ended 30 June 2017 Participant dial in: 0800 6781161 (UK freefone) 01296 311600 (UK direct) +44 1296 311600 (International direct) Results presentation ID:
Earnings call details: Date: Wednesday 9 August Time: 14:00 BST Participant dial in: 0800 6781161 (UK freefone) 01296 311600 (UK direct) +44 1296 311600 (International direct) ID: 798 221
James Corcoran
CEO
Paul Sheriff
CFO
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This presentation has been prepared by NewDay Cards Limited on behalf of NewDay Group (Jersey) Limited (the “Company”) on a confidential basis solely for information purposes. For purposes of this notice, the presentation that follows shall mean and include the slides that follow, the oral presentation of the slides by the Company or any person on behalf of the Company, any question-and-answer sessions that follows the oral presentation, printed copies of this document and any materials distributed at, or in connection with the presentation (collectively, this “Presentation”). By attending the meeting at which this Presentation is made, or by reading this Presentation, you will be deemed to have (i) agreed to the following restrictions and made the following undertakings and (ii) acknowledged that you understand the legal and regulatory sanctions attached to the misuse, disclosure or improper circulation of this Presentation. All financial information contained in this Presentation relates to the unaudited consolidated financial results of the Company (and not, except where expressly stated to the case, NewDay BondCo plc). The financial information contained in this Document has not been audited, reviewed or verified by any independent accounting firm. All non-financial information contained in this Presentation relates to the business, assets and operations of the Company together with its subsidiaries and subsidiary undertakings (the “Group”). Certain financial data included in this presentation consists of “non-IFRS financial measures”. These non-IFRS financial measures, as defined by the Company, may not be comparable to similarly- titled measures as presented by other companies, nor should they be considered as an alternative to the historical financial results or other indicators of the Company’s cash flow based on
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1 Key highlights 2 Business performance 3 Financial results 4 Q&A 5 Appendix
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1 2 4
Financial:
Own-brand:
Credit:
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Co-brand:
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Regulatory:
New accounts origination Growing average balances Receivables growth(a) Risk-adjusted margin Risk-adjusted income
341 389 390 682 632 637 1,023 1,021 1,027 2015 2016 H1 2017 LTM (‘000) Own-brand Co-brand 1,200 1,287 1,335 369 397 425 Jun-16 Dec-16 Jun-17 (£) Own-brand Co-brand
912 1,093 1,185
625 722 699 1,537 1,815 1,884 Jun-16 Dec-16 Jun-17 (£m) Own-brand Co-brand 94 137 142 113 119 124 207 256 266 2015 2016 H1 2017 LTM (£m) Own-brand Co-brand 14.6% 14.9% 13.3% 16.7% 18.4% 18.6% 2015 2016 H1 2017 LTM Own-brand Co-brand
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Stable new accounts origination and maturing average balances providing RAI growth
(a) Total receivables as at 30 Jun was £1,889m, which includes receivables relating to the Unsecured Personal Loans business Income growth underpinned by strong margins
Own-brand: Continued controlled growth
603 936 742 1,039 184 157 169 146 787 1,093 911 1,185 Dec-15 Dec-16 Jun-16 Jun-17 Open book Closed book
Gross receivables (£m)
277 273 272 64 116 118 341 389 390 2015 2016 H1 2017 LTM aqua marbles
Strong organic growth
Risk-adjusted income (£m) Risk-adjusted margin
11.7% 12.6% 11.3% 20.9% 25.2% 24.7% 2015 2016 H1 2017 LTM Open book Closed book 53 95 103 41 42 39 94 137 142 2015 2016 H1 2017 LTM Open book Closed book
New accounts (‘000)
Own-brand key highlights
Continuation of run rate c.400k new accounts per annum Receivables growth of £274m in the 12 months to June 2017, driven by new accounts and open book growth Risk adjusted income of £142m for the 12 months to June 2017, 4% higher than FY 2016 8% growth in open book risk adjusted income for 12 months to June 2017 compared to FY 2016 with closed book declining income in line with expectations Risk-adjusted margin on the open book of 11.3% for the 12 months to June 2017, due to higher impairment rates Initiated independent feedback from customers on Trustpilot with very positive scores of 8.7% from aqua and 9.1% from marbles 7
Co-brand: Momentum building with growth of both existing and new retailers
Open book growth (gross receivables in £m)
630 693 587 676 54 29 38 23 684 722 625 699 Dec-15 Dec-16 Jun-16 Jun-17 Open book Closed book 96.7% 93.9%
Successful integration delivering improved profitability
Risk-adjusted income (£m) Risk-adjusted margin
105 113 119 8 6 5 113 119 124 2015 2016 H1 2017 LTM Open book Closed book 17.7% 18.6% 18.6% 2015 2016 H1 2017 LTM Open book % Open book 96.0% 92.1%
Co-brand key highlights
Open book receivables continue on their growth trajectory, with £89m growth in the 12 months to June 2017, £76m from existing retailers (13% growth) and £13m from new retailers Stable RAM reflecting continued strong underwriting and growth
Risk-adjusted income of £124m for the 12 months to June 2017, 4% higher than FY 2016 New accounts of 309,000 (H1 2016: 305,000), including 39,000 Amazon accounts Following the launch of TUI in Q4 2016 and Amazon in Q1 2017 Q2 has seen strong growth and additional Amazon products are due to be launched in H2 Continued growth in online bookings in 2017 with 64,000 online accounts booked in the first half of the year (up from 32,000 in the whole of 2016) 8
231 412 459 136 161 165 2015 2016 H1 2017 LTM Income Costs
Servicing cost / average receivables
Consistent improvement in servicing efficiency Income growth exceeds costs growth Operating highlights
Continued investment in improved functionality and customer service Income is growing over four times faster than costs, leveraging the scalable nature of the business NewDay Way (lean programme) further embedded across
Customer satisfaction remains very strong with transactional NPS scores at +65 for Own-brand and Co-brand Strong complaints performance maintained at 1.3 complaints per ‘000 customers 9
Income growing 4.5 times faster than costs
4.9% 4.7% 4.5% 2015 2016 2017 H1 LTM
2.5%
Improving cost income ratio
42.4% 39.0% 35.9% 2015 2016 H1 2017 LTM
£m 2016 H1 2017 H1 2016 LTM Jun-17 Interest income 181.6 229.8 393.0 441.2 Cost of funds (13.6) (18.4) (30.3) (35.1) Fee income 24.7 27.6 49.7 52.6 Total income 192.7 239.0 412.4 458.7 Total impairment (68.8) (105.6) (156.6) (193.4) Risk-adjusted income 123.9 133.4 255.8 265.3 Servicing costs (44.8) (50.1) (92.3) (97.6) Collections fees 12.9 13.8 25.7 26.6 Investment costs (23.1) (22.5) (52.3) (51.7) Underlying contribution 68.9 74.6 136.9 142.6 Salaries, benefits & overheads (23.0) (23.0) (42.0) (42.0) Depreciation & amortisation 0.6 2.7 1.4 3.5 Adjusted EBITDA 46.5 54.3 96.3 104.1 Average gross receivables 1,477.7 1,834.0 1,566.9 1,737.2 Gross interest and fee yield (%) 27.9 28.1 28.3 28.4 Cost of funds (%) 2.3 2.4 2.4 2.4 Impairment (%) 9.3 11.5 10.0 11.1 Pro-forma net corporate senior secured debt to adjusted EBITDA(a) 4.1x 2.9x 3.1x 2.9x Adjusted EBITDA to pro-forma corporate cash interest expense(a) 2.7x 3.6x 3.1x 3.6x
Underlying cost to income ratio improving EBITDA interest cover Growing adjusted EBITDA Historical performance illustrates growth potential
(a) Metrics for H1 2016 are pro-forma to show the ratios had the senior secured bond been in place during the period
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Group income statement
96.3 104.1 46.5 54.3 2016 LTM Jun-17 2016 H1 2017 H1 39.0% 35.9% 40.5% 34.2% 2016 LTM Jun-17 2016 H1 2017 H1 3.1x 3.6x 2.7x 3.6x 2016 LTM Jun-17 2016 H1 2017 H1
(a) Working capital includes other assets, restricted cash, other provisions and other liabilities (b) Exceptional costs in 2017 relate to the transaction fees associated with the acquisition. These costs have been excluded from the adjusted LTM numbers above. Residual exceptional costs relate to non-recurring project costs
Working capital movements are predominantly driven by:
structure has developed
transitioning Own-brand settlement process in house Growth in receivables funded by drawdowns under financing facilities as well as internal cash flow generation Q1 2017 saw a number of expected costs associated with the acquisition by funds advised by Cinven and CVC together with costs related to raising the senior secured bond. The cash flow is shown net of these costs on the rightmost column In addition to free cash flow available for debt service, there was undrawn capacity under the VFN of £396m at Jun-17 to provide further liquidity, of which £24m was available but had not been drawn down as at 30 June 2017 The reduction in net financing cash flow is mainly driven by the growth in the portfolio during the period Comments Summary cash flow statement 11
Group cash flow
£m 2016 2017 Jun - LTM 2017 Jun - LTM Adjusted(b) Adjusted EBITDA 96.3 104.1 104.1 Impairment provision build 19.6 25.5 25.5 Adjusted EBITDA excluding change in impairment provision 115.9 129.6 129.6 Change in working capital(a) (5.9) (12.2) (12.2) PPI provision utilisation (12.4) (10.7) (10.7) Capex (5.4) (10.7) (10.7) Tax paid (1.4) (2.3) (2.3) Exceptional costs(b) (3.7) (19.8) (5.2) FCF available for growth and debt service 87.1 73.9 88.5 (Increase) in gross receivables (364.4) (377.1) (377.1) Net financing cash flow (ABS) 392.4 372.8 372.8 Undrawn liquidity available from VFN 4.7 24.0 24.0 Fully leveraged FCF available for debt service 119.8 93.6 108.2
Highlights
Pro-forma LTM net corporate senior secured debt to adjusted EBITDA 2.9x (Dec-16 3.1x). Adjusting for undrawn available liquidity from the VFN, this ratio would be 2.7x (Dec-16 3.0x) Continued strong cash generation as a result of operating performance and stable funding A number of exceptional cash flow items associated with the acquisition and bond issuance
Deleveraging through cash and profit growth
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Strong cash flow generation leading to continued de-leveraging
£m 2016 2017 Jun- LTM Fully leveraged FCF available for debt service 119.8 93.6 Debt service - cash payments
Equity raised for acquisition bonus net of payments
Net cash proceeds from senior secured debt
Funding received via shareholder loans
Purchase of LuxCo
Distributions (60.0) (60.0) Net increase in unrestricted cash (fully leveraged) 59.8 51.3 £m 31-Dec 30-Jun 2016 2017 Pro-forma senior secured debt 425.0 425.0 Unrestricted cash (128.8) (122.0) Pro-forma net corporate senior secured debt 296.2 303.0 Pro-forma net corporate senior secured debt to adjusted EBITDA ratio 3.1x 2.9x Undrawn liquidity available from VFN 4.7 24.0 Adjusted pro-forma net corporate senior secured debt to adjusted EBITDA ratio 3.0x 2.7x
91.3% 89.8% Dec-16 Jun-17 Co-brand Advance rate 82.7% 82.8% Dec-16 Jun-17 Own-brand Advance rate
Cost of funds
300 300 565 250 175 550 60 475 850 625 250 2017 2018 2019 2020 Issued bonds VFN (£m)
Key funding highlights
Group cost of funds remains stable at 2.4% for H1 2017 (LTM 2.4%). Increase in Own-brand cost of funds relates to the impact
Debt profile, excluding senior secured notes, remained unchanged at 30 June 2017 Completion of a £227.8m Own-brand ABS issuance in July in line with our funding plans Post Own-brand ABS issuance in early July, approximately 18 months of Own-brand growth funding available(b) Executing funding plan for remainder of 2017
Debt maturity profile (a) (excl. senior secured notes)
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Consistent debt maturity and stable cost of funding
(a) Debt maturity profile above relates to total capacity under VFNs and total face value of issued bonds including amounts retained by NewDay as at 30 June 2017 and excludes ABS issuance in July 2017 (b) Assumes ABS and VFN refinancing of existing debt
Cost of funds 2.0% Cost of funds 1.7% 2.4% 1.8%
Breakdown in group impairment movement Key credit drivers
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Group impairment rate has increased by 2.2% in H1 2017 driven by portfolio mix, one-off items in the prior period and performance
The Group impairment rate increased from 9.3% to 11.5% from H1 2016 to H1 2017. This increase was driven by: 0.6% due to the proportion of the Group comprising Own- brand receivables, which attracts a higher impairment rate than Co-brand, increasing year on year to 63% (Jun-16: 59%) 0.6% due to the proportion of the Own-brand receivables that related to open book compared to the closed book increasing year on year by 6% 0.5% due to the inclusion of two one-off adjustments in the H1 2016 results 0.5% due to the underlying performance, mainly as a result
with an increase in customers on repayment plans, in line with the update provided in Q1 On a quarterly basis, Group impairment increased to 11.7% in Q2 2017 from 11.4% in Q1 2017 predominantly driven by mix of the portfolio discussed above
9.3% 11.5% 0.6% 0.6% 0.5% 0.5%
H1'16 Own-brand / Co-brand mix Own-brand Open / Closed mix H1'16 one offs Underlying performance H1'17
15 Excess spread (rolling 3-month average)(a) Commentary Significant excess spread provides cushion against an increase in charge off rates, a decrease in yield and / or an increase in LIBOR We monitor the excess spread and all other triggers and can deploy multiple operational levers (for example, adjusting portfolio growth or repricing) Own-brand charge off performance has improved to 14.4% in June 2017 following a slight tick up seen in March and April 2017 (Apr: 15.6%, May: 15.8%) Slight reduction in Co-brand charge off rate during the quarter from 3.3% to 2.9% Gross annualised charge-off rate
(a) Excludes the VFNs from the Master Trusts and the secondary funding facilities as they are not directly comparable. The VFNs are revolving in nature and the inter-month drawings on those notes would impact calculations of excess spread, which are based on month-end balances. The excess spread for the following series, as calculated in June 2017 for the rolling 3-month period, are: NewDay Funding Secondary Funding Facility Senior VFN – 18.84%; NewDay Funding Partnership Master Trust, Series 2014-VFN – 10.05%; and NewDay Funding Master Trust, Series 2015-VFN –12.48%. Source: ABS Investor Reports available on NewDay website as of July-2017
Report Date Report Date
Significant and consistent excess spread and stable loss performance
0% 5% 10% 15% 20% 25% Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17
ND Funding | Series 2015 - 1 ND Partnership | Series 2014 - 1 ND Funding | Series 2015 - 2 ND Partnership | Series 2015 - 1 ND Funding | Series 2016 - 1
0% 5% 10% 15% 20% 25% Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 ND Funding ND Partnership
Underlying earnings adjustments
All adjustments from adjusted EBITDA to Statutory PBT are consistent with Q1, with no additional exceptional costs related to the transaction fees associated with the acquisition Other costs: primarily consist of a £19m increase in PPI provision taken in 2016, reflecting expected increased claim rates across the industry following the proposals for the new rules and guidelines relating to PPI complaints handling set out in the FCA’s consultation paper “CP16/20: Rules and guidance on payment protection insurance complaints: feedback on CP15/39 and further consultation” issued in August 2016 All colleague acquisition bonus: reflecting a bonus paid to colleagues relating to the recent acquisition Exceptional costs: relating to the transaction fees associated with the acquisition by Cinven and CVC in January 2017. Amortisation: reflects the amortisation of the intangible assets recognised on the acquisition by Cinven and CVC in January 2017 Interest on shareholder loans: reflects the interest cost of 12% on the shareholder loan of £594m, issued as part of the acquisition by Cinven and CVC on 26 January 2017 Fair value unwind: reflects the amortisation of a fair value adjustment
Key descriptions
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Underlying earnings
(a) Note that the statutory loss before tax of £(31.3m) in 2017 H1 is on a segmental basis as disclosed in the quarterly consolidated financial information. Statutory loss before tax on the face of the income statement is £(41.6m) (£(45.9)m after tax) reflecting the period from 27th January to 30th June 2017 only. All numbers in this presentation reflect results from 1st January to 30th June on a proforma basis
£m 2016 Jun 2017- LTM 2017 H1 (a) Adjusted EBITDA
96.3 104.1 54.3
Other costs
(18.4) (19.9) (2.9)
All colleague acquisition bonus
(8.9) (11.0) (2.1)
Exceptional costs
(10.7)
Total non-recurring costs
(27.3) (41.6) (15.7)
Depreciation and amortisation including amortisation of acquisition intangibles
(1.4) (24.2) (23.4)
Senior secured debt interest and related costs
(15.5)
Interest on shareholder loans
(30.5)
Fair value unwind
5.8 1.5 (0.5)
Statutory PBT / LBT
73.4 (6.2) (31.3)
Taxation
(1.7) (4.9) (4.3)
Statutory PAT / LAT
71.7 (11.1) (35.6)
£m 2016 H1 2017 H1 2016 LTM Jun-17 Interest income(a) 117.5 158.9 260.8 302.2 Cost of funds (8.1) (12.7) (18.5) (23.1) Fee income 15.5 19.2 31.4 35.1 Total income 124.9 165.4 273.7 314.2 Total impairment (59.6) (95.7) (136.3) (172.4) Risk-adjusted income 65.3 69.7 137.4 141.8 Servicing costs (16.3) (22.4) (35.1) (41.2) Collections fees 6.2 7.8 12.9 14.5 Investment costs (7.1) (6.4) (16.2) (15.5) Underlying contribution 48.1 48.7 99.0 99.6 Average gross receivables 841.7 1,141.2 920.0 1,067.3 Gross interest and fee yield (%) 31.6 31.2 31.8 31.6 Impairment rate (%) 14.2 16.8 14.8 16.2 RAM (%) 15.5 12.2 14.9 13.3 £m 2016 H1 2017 H1 2016 LTM Jun-17 Interest income(a) 64.1 70.8 132.2 138.9 Cost of funds (5.5) (5.5) (11.3) (11.3) Fee income 9.2 8.4 18.3 17.5 Total income 67.8 73.7 139.2 145.1 Total impairment (9.2) (9.8) (20.3) (20.9) Risk-adjusted income 58.6 63.9 118.9 124.2 Servicing costs (27.0) (27.0) (54.3) (54.3) Collections fees 6.7 6.0 12.8 12.1 Investment costs (16.0) (15.9) (36.1) (36.0) Underlying contribution 22.3 27.0 41.3 46.0 Average gross receivables 636.0 691.1 646.9 669.1 Gross interest and fee yield (%) 23.1 22.9 23.3 23.4 Impairment rate (%) 2.9 2.8 3.1 3.1 RAM (%) 18.4 18.5 18.4 18.6
Co-brand income statement Own-brand income statement
(a) Excludes fair value unwind
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Underlying earnings by segment
Increase in receivables driven primarily by growth of the Own- brand open book Conservative provisioning with impairment coverage increasing from 5.6% of gross receivables in June 2016 to 5.9% in June 2017 Fair value of total assets following the acquisition introduced £396m of intangibles, primarily relating to the customer and retailer relationships, the brand, trade names and intellectual property Evolution of gross receivables (£m) Summary balance sheet Key highlights 20
Group balance sheet
£m Jun-16 Dec-16 Jun-17 Gross receivables 1,536.5 1,815.2 1,888.7 Bad debt provisions (85.5) (104.7) (111.0) Other 32.7 49.5 61.2 Net receivables 1,483.7 1,760.0 1,838.9 Restricted cash 34.0 39.8 40.9 Unrestricted cash 94.7 128.8 122.0 Intangibles
380.1 Goodwill
Other assets 49.1 74.1 57.7 Total assets 1,661.5 2,006.7 2,714.9 Asset-backed bonds 975.8 1,279.1 1,267.4 Wholesale funding 260.3 290.3 327.4 Senior bonds
PPI provision 43.9 56.4 51.4 Other provisions 5.0 12.2 6.3 Other liabilities(a) 55.5 69.9 48.2 Shareholder loans
Total liabilities 1,340.5 1,707.9 2,760.8 Shareholders' equity / (deficit) 321.0 298.8 (45.9) Total liabilities and equity 1,661.5 2,006.7 2,714.9
(a) Other liabilities includes capitalised debt funding fees
59% 60% 63% 41% 40% 37% Jun-16 Dec-16 Jun-17 Own-brand Co-Brand 1,888.7 1,536.5 1,815.2
Regulation – Credit Card Market Study (CCMS)
Persistent Debt Unsolicited Credit Line Increases (UCLIs)
definition and a new outlined “escalating intervention” strategy targeted at these customers. The consultation period ended on 3rd July.
– Payments of interest, fees & charges exceed repayment of principal over 18 months, & the outstanding balance is continually > £200
– Month 18: Stand-alone prompt communication required – Month 27: Follow-up stand-alone communication required (including harder prompts and CRA flag note) – Month 36: Paydown plan engagement needed with customers with 3 possible outcomes dependent upon customer affordability and engagement, ranging from Collections activity to full card suspension Next steps/Impacts The industry has accepted the definition proposed by the FCA. Discussions are ongoing around how the proposed interventions would be implemented from an operational perspective.
call within the CLI notice period in order for it to be actioned, an “Opt
customer calls in (as today).
communications Next steps/Impacts The industry has responded to the FCA’s proposals. Once requirements are confirmed we can integrate delivery into our digital & front-end transformation roadmaps.
CCMS ‘Information’ Remedies (agreed pre-Consultation Paper)
Implementation progress being tracked by Lending Standards Board. – Promo expiry alert (final deadline – Mar-18) – “Later than” payment day choice (final deadline – Mar-18) – Credit limit proximity alert (final deadline Jun-18)
brand
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