Non-Standard Finance plc Post-results roadshow May 2016 1 - - PowerPoint PPT Presentation

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Non-Standard Finance plc Post-results roadshow May 2016 1 - - PowerPoint PPT Presentation

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Non-Standard Finance plc Post-results roadshow May 2016 1 NON-STANDARD FINANCE INVESTOR ROADSHOW 4 MAY 2016 A compelling investment case 1. Non-standard finance is a large segment of the UK economy with significant growth potential 2. High

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SLIDE 1

Non-Standard Finance plc

Post-results roadshow

May 2016

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SLIDE 2

A compelling investment case

4 MAY 2016 NON-STANDARD FINANCE – INVESTOR ROADSHOW 1

  • 1. Non-standard finance is a large segment of the UK economy with significant growth potential
  • 2. High barriers to entry exist (regulation and compliance, significant funding requirements,

established infrastructure and management expertise)

  • 3. Current business environment provides a positive backdrop
  • 4. NSF is well-capitalised and has secured leading positions in home credit and branch-based

lending and has a major opportunity in guaranteed loans

  • 5. Current trading performance confirms strong growth while operational leverage offers further

potential to outperform

  • 6. Recent share price weakness creates an attractive investment opportunity
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SLIDE 3

2

N O N - S T A N D A R D F I N A N C E P L C

c.3%

  • f labour force recently arrived migrants3

Over 500,000

consumer County Court Judgements2

Large market with significant growth potential

Market composition

20 40 60 80 100 Prime

  • c. 33 million

Near prime

  • c. 7 million

Addressable population

  • c. 12 million

c.8%

  • f total work force paid minimum

wage and below1

c.15%

  • f total work force self-employed

Estimated market size

£78 £117 Non-standard Standard £70 £130 Non-standard Standard

Source: Competitor analysis, Bank of England, ONS, Euromonitor, CML, Registry Trust Limited, Management estimates Notes: 1 LFS methodology, 2013 2 Year to Q3 2014 3 Latest estimate as at 2013

Secured lending 12m to March 2014 (£bn) Unsecured lending 12m to March 2014 (£bn)

Estimated 12 million UK adults do not meet the lending criteria of mainstream lenders

  • r choose not to borrow from them

2

4 MAY 2016 NON-STANDARD FINANCE – INVESTOR ROADSHOW 2

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SLIDE 4

Significant barriers to entry

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 3

  • Consumer credit is strictly regulated by the FCA
  • Loansathome4U, Everyday Loans and Trusttwo are operating under FCA Interim Licences
  • NSF’s acquisition of Everyday Loans already approved by FCA
  • Full licensing expected in 2016
  • Access to capital is key to long-term success
  • Raised £282 million equity in two transactions with a blue-chip investor base
  • Secured an £85 million debt facility with the potential to increase to £105m with loan book

growth

  • The financial crisis prompted a reduction in supply with the withdrawal by many providers, reducing

the pool of expertise to operate in the non-standard finance market

  • NSF has secured a highly experienced management team
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SLIDE 5

Favourable business environment

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 4

Income distribution Workforce in self-employed occupation Economic migrant flows

12,993 75,236 106,003 248,480 50,000 100,000 150,000 200,000 250,000 300,000 350,000 1990 1993 1996 1999 2002 2005 2008 2011 Bottom 90% Top 10% Top 5% Top 1%

Average income (£)

15.2 9.3 3.2 0.0 4.0 8.0 12.0 16.0 50,000 100,000 150,000 200,000 250,000 300,000 2001 2003 2005 2007 2009 2011 2013 Net migration Foreign-born Foreign-national Recent arrival 14.1 10,764 8,000 10,000 12,000 14,000 16,000 11.0 11.5 12.0 12.5 13.0 13.5 14.0 14.5 2003 2005 2007 2009 2011 2013 Self employed (%) Median self-employed income

Net migration to the UK and migrant labour force statistics (%)

Source: World Top Incomes database Source: Labour Force Survey ONS

77.7 110.8 60 80 100 120 140 2006 2007 2008 2009 2010 2011 2012 2013 2014 Bank credit (100 = Jan-06) Other credit (100 = Jan-06)

Source: Bank of England

(%)

  • No. of people

(£) (%)

Notes: 1 Calculated based on a weekly inflation-adjusted median income of £207 per week (in 2013), assuming 52 weeks in the year 2 2001 – 2011 based on revised net migration estimate, 2012 – 2013 based on original net migration estimate 3 MFIs lending includes sterling credit card lending, sterling overdrafts and other unsecured sterling loans and advances to individuals; ‘Other consumer credit lenders' comprise non-bank credit grantors and specialist mortgage lenders extending consumer credit, which includes second charge mortgages

(%)

2

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SLIDE 6

NSF is well-placed to exploit this opportunity

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 5

  • Two acquisitions have secured leading market positions in home credit and unsecured branch-

based lending with a major opportunity in guaranteed loans

  • Highly experienced management team led by John van Kuffeler
  • NSF now has a robust platform with national coverage:
  • Total loan book of c.£140m
  • Pro forma 2015 revenue of over £80m
  • Pro forma 2015 PBT of c£16m
  • Modest level of gearing with headroom to fund substantial loan book growth
  • Strong current trading underpins targeted growth rates
  • 20% loan book growth
  • 20% ROA
  • Aspiration to initiate dividend payments in H2 2016
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SLIDE 7

2015

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 6

“A transformational year in which we achieved all the strategic objectives set out at IPO”

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SLIDE 8

2016

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 7

“Operational improvements through diligent execution of

  • ur growth plans with the aim of initiating dividend

payments in H2 2016”

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SLIDE 9

Our three divisions

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 8

Home credit Branch based lending Guaranteed loans

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SLIDE 10

Loansathome4u

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 9

  • Acquired for £82.4m, a historic pro-forma P/E multiple of 12.5x
  • Established in 1938 with a top 3 position in terms of customers:
  • Nationwide coverage with 40 branches
  • 300 employees and 750 agents
  • Average loan size £300, net receiveables of £28.4m
  • Customer is C2DE with income of £200 to £300 per week

c.1.0m c.0.2m c.0.1m c.0.5m Others

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SLIDE 11

Loansathome4u’s products

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 10

The examples below are per £100 borrowed

Product Charges Total Payable Weekly rate APR Product name % Loan Book 2015 24 week loan 33 week loan 42 week loan 50 week loan 75 week loan Hire Purchase & Vouchers £60.00 £65.00 £68.00 £75.00 £87.50

  • £160.00

£165.00 £168.00 £175.00 £187.50

  • £6.67

£5.00 £4.00 £3.50 £2.50

  • 732.7%

433.4% 296.8% 254.5% 163.8%

  • Ideal

Popular Select Jubilee Gold

  • 5%

35% 43% 11% 3% 3%

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SLIDE 12

Loansathome4u

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 11

Strengthened management

  • Appointed Mark Bardsley as CEO
  • Appointed:

‒ Risk Director – Lindsay Bainbridge ‒ Head of Credit Risk – Jonathan Hague ‒ Interim Compliance Director – Paul Gill ‒ Commercial Director – Chris Graham ‒ Finance Director – Jono Gillespie ‒ National Operations Manager – Neil

Lewis

‒ Head of Central Operations – David

Thompson

Immediate actions

1

Installed “best in class” controls and procedures

  • Re-written the Compliance, Regulatory,

Operations and HR procedures

  • Adopted more prudent approach to recognising

impairment

2

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SLIDE 13

Loansathome4u

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 12

  • Strategic initiatives driving growth
  • New office opened in Kirkcaldy with further

new openings in Ashington, Newton Aycliffe and Manchester in H1 2016

Growth since acquisition

557 703 Aug-15 Feb-16 87,000 92,000 Aug-15 Feb-16

Agents Customers

22.6 28.4 Aug-15 Dec-15

Loan book

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SLIDE 14

Loansathome4u

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 13

  • Our customers are enjoying slightly higher incomes and lower expenditure
  • Consumer debt levels in home credit are moderate and impairments steady
  • Major market opportunity with the largest competitor having shed 879,000 customers over the last

three years, or 48% of its original total

  • Achieving receiveables growth of 20% with ROA of 20% plus
  • Will benefit from operational gearing as growth accelerates
  • Opportunity to raise additional debt against Loansathome4u loan book
  • Medium term target is to double the number of customers and receivables

Outlook

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SLIDE 15

Everyday Loans

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 14

  • Acquisition signed and agreed on 4th December 2015
  • Enterprise value of £235m funded by:

– Placing and open offer: £160m – £20m of additional equity to be issued to STB as part of the consideration at completion – Debt: £85m facility with c. £65m expected to be drawn on day 1, and potential to increase to

£105m as loan book grows

  • Completion on 13th April 2016

Transaction summary

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SLIDE 16

Everyday Loans

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 15

  • Established 2006 with top quality management team
  • Leading branch-based unsecured lender with £114m receiveables
  • Nationwide coverage with 36 offices
  • Key differential is face-to-face meetings in branch
  • 35,000 customers
  • 300 employees
  • Loans of £1,000 to £15,000 at 19.9% to 199% APR
  • Average loan size is £3,300 over 31 months with monthly

repayments of £189

  • Average customer annual income is approx. £24,000

Business overview

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SLIDE 17

Everyday Loans

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 16

£m Net receivables 114.6 Revenue 44.3 Adjusted operating profit 17.0 Return on average assets 16.2% Operating margin 38.3%

Results for twelve months to 31 December 2015

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SLIDE 18

Everyday Loans

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 17

  • In 2006, the six largest branch-based lenders had £5.3bn receiveables
  • Following the financial crisis, all closed their branch-based networks and these receiveables have

reduced to £0.3bn

  • Everyday Loans is serving a credit-starved market and is growing at 26%
  • Only competitor of any size is Oakham with £20m of receiveables

Market background

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SLIDE 19

Everyday Loans

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 18

  • Leading market position in a large underserved market
  • Continue with c. 20%+ growth rate on existing business
  • Return to higher APR products with higher margins
  • Programme of new branch openings
  • Medium term target is to double the number of customers and receivables

Outlook

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SLIDE 20

Trusttwo

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 19

  • Established in 2014
  • An up-and-coming new entrant in the guaranteed loan market
  • 2,000 customers
  • Net receivables approximately £8m today
  • Customers generally young – limited or impaired credit
  • Loan is guaranteed by family member or friend

Business overview

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SLIDE 21

Trusttwo

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 20

  • Hire senior management
  • Increase APR from 39.9% to 49.9%
  • Start major growth phase to benefit from estimated 20% growth per annum
  • Medium term target of £50m receivables at 20% ROA

Future plans

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SLIDE 22

Non-Standard Finance – overall outlook

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 21

  • Benign market conditions for our customer base with marginally higher income and lower outgoings
  • Targeting loan book growth of around 20% for all three divisions
  • Enhanced risk-based pricing as customer base grows
  • Additional debt funding for Loansathome4u to support loan book growth
  • Intend to commence payment of dividends at Interim 2016, subject to financial performance and

funding requirements

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SLIDE 23

NSF has substantial institutional support

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 22

  • Cornerstone long-only investors:
  • Invesco
  • Woodford
  • Marathon
  • Other long-only investors
  • Jupiter
  • Legal & General
  • Standard Life
  • Aviva
  • British Steel Pension Fund
  • City of Bradford Metropolitan DC
  • Growth funds:
  • Tosca
  • GLG
  • JO Hambro
  • Wealth managers
  • Quilter Cheviot
  • Hargreave Hale
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SLIDE 24

Appendices

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 23

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SLIDE 25
  • 1. Non-Standard Finance financial results for period to 31 Dec 2015

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 24

Statutory financials for the period to 31 Dec 2015 include:

  • 13 months non-trading
  • IPO costs
  • Costs of two large transactions
  • Non-cash accounting adjustments
  • Only five months trading from one acquisition
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SLIDE 26
  • 1. Non-Standard Finance results for the period to 31 Dec 2015

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 25

£’000 Adjusted operating profits for Loansathome4u (5 months) 2,143 Central costs (since IPO) (2,684) Exceptional restructuring costs (593) Fees and costs of acquisitions (5,542) Non-cash accounting adjustments (9,486) Pre-tax and interest loss (16,162) Interest 70 Tax credit 2,561 Post-tax loss (13,531)

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SLIDE 27
  • 1. Non-Standard Finance results for the period to 31 Dec 2015

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 26

£’000 Before fair value adjustments, amortisation of acquired intangible and exceptional items Fair value adjustments, amortisation

  • f acquired intangible and exceptional

items Period from incorporation to 31 December 2015

Revenue 14,657 (5,456) 9,201 Cost of sales (3,858)

  • (3,858)

Administrative expenses (11,340) (4,030) (13,370) Adjusted operating loss (541) (9,486) (10,027) Exceptional costs

  • (6,135)

(6,135) Net interest income and charges 70

  • 70

Loss before tax (471) (15,621) (16,092) Tax 737 1,824 2,561 Loss after tax 266 (13,797) (13,531) Loss per share (22.0p)

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SLIDE 28
  • 2. Illustrative enlarged group results

4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 27

Illustrative enlarged group results include:

  • Loansathome4u to 31 January 2015
  • Everyday Loans twelve months to 30 June 2015
  • NSF central costs to 31 December 2015
  • Estimated interest costs on £65m debt

£’000 Loansathome4u 12 months to 31 Jan 15 Everyday Loans 12 months to 30 Jun 15 Central costs 8 Jul 14 to 31 Dec 15 Illustrative enlarged group Revenue 38,298 42,446

  • 80,744

Adjusted operating profit 6,410 16,206 (2,684) 19,932 Interest payable

  • (3,653)
  • (3,653)

Profit before tax 6,410 12,553 (2,684) 16,279 Period end loan book 34,622 102,522

  • 137,144

Note: all figures above presented before adjustment for NSF accounting policies