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Analyst

Presentation Interim results

6th October 2016

Private & Confidential

2

Management team

2

Andy Thomson – Chief Financial Officer

• Joined the Company in 2009

• Chartered Management Accountant

• Led Finance teams since 1996

• Public company experience includes

roles at Morgan Sindall, Tesco and

Cadbury Schweppes

• Broad business knowledge and extensive

experience in Commercial, Legal, Internal

Audit, Insolvency, IT and Human

Resources

• Pivotal role in the acquisition and

integration of Morses Club and SFS

Paul Smith – Chief Executive Officer

• Joined the Company in October 2014

and has been responsible for growing

Morses Club by acquisition and

organically

• Experience in mobile payment

technology as Managing Director of EZ

Pay Ltd, a prepaid MasterCard

organisation, from 2009 to 2012 prior to its

sale to BC Partners

• Started his career in the global software

market before joining Phones 4U Group in

1998, where he became an MD and was

an integral part of the management

team until its sale for £1.4bn in 2006

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Introduction to

Morses Club

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Trading in line with the Boards expectations – strong first half performance with revenue up 8% to

£47.2m and net loan book growth of 5%

No.2 market share – c. 207,000 customers across UK

Experienced executive team – c100 years of Home Credit experience

Improved fundamentals – tighter credit and focus on higher quality lending

Highly invested IT platform

Progressive dividend policy, with payment of maiden plc dividend announced

Overview – Morses Club R26

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130 year history – established, cash generative, UK consumer finance business, growing quickly and capturing

market share

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Market overview

• UK HCC market is well-established comprising c. 3m

people(1)

• c. 6 million HCC transactions in the UK per year(2)

• 1.5m – 2m borrow regularly

• Market value of c. £1bn

• Highly fragmented beneath the top three players

• No. 1 player is reducing its focus on HCC

• Tail of smaller players

Morses Club’s market share to grow via:

• Acquisitions

• Territory builds

• Enhancement of HCC delivery methods

Expansion of product range

(1) Source: Provident Financial Group plc Annual Report, 2014

(2) Source: Personal Finance Research Centre, University of Bristol

(3) Source: NSF Investor Presentation (July 2015)

Significant opportunity for market share gains in a large, fragmented market

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Provident c. 875k customers

Morses Club c. 207k customers

Loansathome4u c. 98k customers

Others c. 600k customers

HCC market

Rest of UK non-standard credit market

12

m p

eo

ple

3m

people

Market position(3)

1

2

3

No. 2 player in the Home Collected Credit

market

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Financial

Review

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Financial highlights R26

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(1) Adjustments to Aug-15 and Aug-16 PBT are set out in the footnotes on page 8

(2) Return on equity calculated as rolling 12 months adjusted PAT divided by closing tangible net assets. Adjustments to PAT are

also set out in the footnotes on page 8. Aug -16 tangible equity includes £2.7m of capitalised IT costs (Aug 15: £0.5m )

(3) Based on Aug-15 pro-forma balance sheet as set out on page 11

Source: Company information, Company accounts

Credit issued

£56.4m £66.0m

Aug-15 Aug-16

Impairment as a % of revenue Return on equity(2)

Adj. PBT(1)

18.3%

22.5%

Aug-15 Aug-16(3)

£8.8m £8.6m

Aug-15 Aug-16

27.4% 25.4%

Aug-15 Aug-16

8

• Revenue has increased by 8% against the comparable

period last year reflecting a 5% increase in the closing loan

book and increased cash and revenue yields

• Impairment in the 26 weeks to August 2015 was artificially

low, reflecting a focus on integrating the Shopacheck and

Morses Club businesses rather than customer growth

• Agent commission has increased from 21.1% of revenue to

23.1% of income, partly due to territory build subsidies

increasing from £0.3m to £0.7m. The remainder of the

increase was a result of enhancing the Morses Club

schemes and was anticipated in our budgets

• Administration costs (including depreciation) increased from

£16.5m to £16.6m though as a percentage of revenue they

have fallen from 37.8% to 35.2%, a productivity improvement

of 7%

• Total cost to income ratio reduced from 58.9% to 58.3%

despite increasing agent commissions

• We are pleased to announce a maiden interim dividend of

2.1p payable on 18th November 2016 (1) Aug-15 adj. operating profit excludes exceptional costs of £0.9m and amortisation of acquired intangibles

of £2.6m

(2) Aug-16 adj operating profit excludes IPO & re-structuring costs of £2.4m and amortisation of acquired

intangibles of £1.6m

(3) £1.1m of finance charges incurred at parent company level in relation to debt financing to fund the group’s

operations in H1 2015

(4) Normalised tax rate of 21% applied to adjusted PBT to reach adjusted PAT

(5) Total costs includes agent commission, administration expenses (pre exceptional) and depreciation.

Source: Company information, Company accounts

(£m) Aug-15 Aug-16

Customer numbers (‘000) 203 207

Period end receivables 53.6 56.2

Revenue 43.6 47.2

Impairment (8.0) (10.6)

Agent commission (9.2) (10.9)

Gross profit 26.4 25.7

Administration expenses (pre-exceptional) (16.1) (16.0)

Depreciation (0.4) (0.6)

Adj. operating profit(1)(2) 9.9 9.1

Adj. finance costs(3) (1.1) (0.5)

Adj. PBT 8.8 8.6

Taxation(4) (1.8) (1.8)

Adj. PAT 7.0 6.8

Cost (inc Dep’n)/ income (5) 58.9% 58.3%

Administrative cost inc. depreciation / income 37.8% 35.2%

Commentary Income statement

Income statement

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Attractive lending margins and improving cash

and yield income Scope for further improvement to Return on Assets Driven by shortening of loan book

Return on Assets(1)

• Return on Net Loan Book is 23.3% (Aug 15: 21.9%)

(1) Return on assets calculated as rolling 12 months adjusted PAT divided by closing tangible assets. Adjustments to

PAT are set out in the footnotes on page 8

(2) Based on gross receivables

Source: Company information

Average cash and income yield(2)

… average loan duration is falling …

Loan duration breakdown(2)

Aug-15 Aug-16

• Average customer balances are falling:

Aug 16 – £552

Aug 15 – £566

• Average loan duration is falling

Aug 16 – 42.00 weeks

Aug 15 – 45.41 weeks

• Weighted cash yields have increased by 5.1% since Feb 16

• Weighted revenue yields have increased by 2.8% since Feb 16

3.75 3.89 4.18 4.40

1.63 1.67 1.75 1.80

Feb-14 Feb 15 Feb-16 Aug-16Weighted Cash Yield (£/£100/wk) Weighted Revenue Yield (£/£100wk)

0.3%

37.3%

47.8%

8.4%

4.2% 1.9%

6.7%

42.6% 42.3%

4.6%

2.6%

1.1%

20 week loans

33 week loans

52 week loans

78 week loans

Acquisitions

Other

18.5% 19.5%

Aug 15 Aug-16

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Strong impairment track record

Growth achieved whilst maintaining impairment at the lower end of guidance

Impairment as a % of Revenue

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Policy

• Impairment policy is prudent and in line with best practice

• Receivables are impaired when the cumulative amount of

two or more contractual weekly payments have been

missed in the previous 13 weeks

• Impairment is calculated using models which use historical

payment performance to generate the estimated amount

and timing of future cash flows from each arrears stage

• A further provision is made for receivables that have not yet

missed two or more payments in the previous 13 but may

have the propensity to become impaired in the near future

(IBNR provision)

• Debts sold after 17 weeks non-paid

Achievement

• Impairment results to August 2015 were not sustainable as

they reflected a period of integration rather than growth

• Impairment target of 22% - 27% of revenue

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Arrears analysis

Aug 15 Aug 16

Net receivables £53.6m £56.2m

Neither past due nor impaired 68.2% 70.6%

Past due not impaired 0.7% 0.4%

Impaired 31.1% 29.0%

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30

Imp

airm

ent

/ R

even

ue

%

Ran

ge

Aug 16 revenue / impairment ratio 22.5%

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• Increase in property, plant and equipment reflects £2.1m

investment in tablet technology and supporting IT

infrastructure

• 5% growth in net receivables driven by increased quality

of customer base

• Loan facility last year reflects £15m cash dividend made to

the previous parent company. Christmas borrowing is

anticipated to exceed the £20m last year due to timing of

acquisitions, capital expenditure and dividend payment

• Shawbrook facility of £25m expiring in March 2019 is

unchanged, opportunities to increase facilities remain

(1) Pro forma balance sheet Aug 15 adjusted to reflect elimination of an intercompany balance of £33.6m owed to

the parent company and £15m Shawbrook facility reassigned to Morses Club in September 2015 from

parent company post half year end

(2) Property plant and equipment balance includes Aug 16 £2.7m (Aug 15: £0.5m) of capitalised IT costs

Consolidated

(£m) Aug-15 Feb-16 Aug-16

Non-current assets

Goodwill & Intangibles 9.5 7.6 7.2

Property, plant and equipment(2) 2.3 3.9 3.7

11.8 11.5 10.8

Current assets

Trade receivables 53.6 56.9 56.2

Cash and cash equivalents 6.0 3.8 5.7

Other current assets (1) 1.5 1.5 1.8

61.1 62.2 63.7

Total assets 72.9 73.7 74.5

Current liabilities

Trade and other payables (5.5) (9.4) (7.1)

Loan facility (1) (15.0) (9.0) (8.5)

(20.5) (18.3) (15.6)

Total liabilities (20.5) (18.3) (15.6)

Net assets 52.4 55.3 58.9

Net tangible assets 42.9 47.7 51.7

Commentary Balance sheet

Conservative balance sheet and funding model

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Strategy and

Growth

Initiatives

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Our achievements

Success of core business development

Initiatives Achievements

Cleansing of existing and purchased loan

books

H1 has resulted in a 6% increase in our highest performing tier of debt

Shortening loan duration H1 has resulted in average loan duration reducing from 44 to 42 weeks

Efficiency across core business 7% improvement in productivity

IT developments now fully released to yield further cost reductions in H2 and

beyond

Attracting and retaining the best agents 63% of agents have worked with Morses Club for more than 2 years (37% for

more than 5 years, 22% for more than 10 years)

The Company is an attractive employer and service provider for agents

Many agents are former customers

Organic growth through territory builds In H1 we have opened 114 Territory builds against 68 by August 2015

Payments to Terms of 92%

C.7,500 new customers acquired through territory builds in H1

Acquisitions Completed £3.2m of book purchase in H1, resulting in the acquisition of 79

Agents and c10,500 customers

Enhanced marketing Web & affiliate referrals have produced c. 20,000 customers in H1

Web traffic to the MCL web site has increased to an average monthly hit rate

of 110,000 representing a 30% uplift YOY

Mobile takes account of 82% traffic to our website - illustrating the wisdom in

our Mobility based platform development

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Progress Update

Growth strategy

Initiatives Developments

Investment in IT H1 has seen the roll out of Mobility 2. This will give rise to savings in print,

postage, storage, Agent / Manager productivity and enhances regulatory

controls

Introduction of new products In H2 we will be unveiling our new on-line loan brand. Product and system are

on track for a “soft” launch in H2 subject to FCA approval

Delivery of digital discounts/rewards direct to customers via mobile and web

with a potential reach of 70,000 retail and web offers due for launch in H2 via

the MCL platform. This is the first phase in development of the ‘Club’

concept

Delivery of digitised direct customer communications due for delivery in 2017

Engaging new types of customers The new on-line brand will appeal to the incremental 9 million customers in

the non-standard finance sector who do not use HCC

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(1) Company analysis of search terms

(2) Timings are approximate, subject to FCA variation approval process

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Opening up new markets to Morses Club

Introducing new products to accelerate growth

• Positive customer response to introduction of our pre-paid

Morses Club Card - attracted 5,000 customers within 6 months,

with £1.55m cashless loan balances – 100% of FY2017 annual

target achieved within 6 months

• 31.3% of our customer base is 35 or younger, a growth from

24.4% YOY

• C. 7,500 AIP’s (Loan Approvals in Principle) are generated

every month which is a 30% y-o-y increase in AIP’s from the

web

• Launch of MCL Facebook strategy has generated 3,000 ‘likes’

within 3 months helping to build the MLC on-line brand

• 96% of our customers (who use social media) use Facebook

• Further technology and mobility developments are planned in

line with customer feedback and in light of high penetration of

mobile usage on the Morses Club website

Morses Club Card –

Cashless Lending

Online Products –

Remote Collect

21st Century Products - E-Loans &

Mobile Wallet

Broadening the product range

Roadmapped Infrastructure

in place Internally trialled

Expected

Launch

Morses Club Card

Remote Collect

Online Lending

Q4 FY17 Q4 FY17

E-money Q1 FY18 Q2 FY18 Q3 FY18

Revolving Credit TBC TBC TBC TBC

Mobile Wallet TBC TBC TBC TBC

New initiatives timeline(2)

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• The product targets a more affluent and younger demographic

• Brand already developed and tested with target customers – very positive response

• Brand targets the same values of forbearance, flexibility and simplicity found in our HCC product

• Directed at 25 – 35 year old customer demographic, C1, C2, D, gender neutral, with household earnings of up to

£30,000

• Targets a totally different, incremental demographic to HCC, but builds on high knowledge of delivering customer

satisfaction in short-term loans

• Exploits cultural / social shift away from payday brands

• Leverages high quality, experienced supply chain and existing management experience

• Ideally suited to our strategy linking mobile commerce, digitisation (of products/services/loyalty) and social media

outreach

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(1) Company analysis of search terms

(2) Timings are approximate, subject to FCA variation approval process

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Our new online lending brand will emulate the Morses Club existing brand values of forbearance, flexibility and

simplicity

Online lending

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Strong satisfaction scores from our customers, employees and agents

Satisfaction – Customers, Employees and Agents

Customer Employees Self-employed Agents

• 97% overall customer

satisfaction

• 71% overall satisfaction – 16%

increase from 2015

• 70% of agents are satisfied

• 100% satisfied with ease of

application

• 79% employee engagement –

10% increase from 2015

• 70% happy to be affiliated with

MCL

• 98% satisfied with payment

term

• 80% understand the aims and

direction of MCL

• 68% feel part of MCL

• 97% satisfied with product

explanation

• 71% feel optimistic about the

future of the business

• 95% understand the

importance of TCF

• 97% satisfied with size of loan

available

• 70% proud to work for MCL • 94% see TCF as part of their

day to day mind set

• 95% satisfied with size of

weekly payment

• 91% believe that TCF part of

the daily mind-set of the

business

• 84% believe that affordability

check is comprehensive in

determining what a customer

can afford

• 84% believe MCL offers great

customer service

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Morses Club is operating under interim permission whilst its application for full authorisation is being reviewed

Regulatory Overview

• The Directors believe that the Company complies with all relevant legislation, secondary legislation, regulation and practice applicable to UK HCC lenders

• We expect to receive full authorisation in due course, alongside other major UK HCC lenders

• Increasingly robust regulatory landscape will provide a continuing opportunity for market consolidation

• Currently over 400 owner operators in the sector, a number of whom may look to exit the market

• Variation to permission to enter the on-line loan market already submitted to the FCA for review

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Morses Club made three acquisitions in H1, has completed 2 since the half year with one more pending

completion

H1 2016/17 acquisitions and pipeline


Acquisition 1 Acquisition 2 Acquisition 3 Acquisition 4 Acquisition 5 Acquisition 6

Completion date 18-Apr 20-Jul 10-Aug 15-Sep 28-Sep Tbc

Staff 18 3 3 28 2 3

Agents 44 13 22 65 9 6

Customers 7,516 869 2,147 6,600 1,396 1,610

Book debt purchased £1,807k £562k £802k £2,240k £1,000k £600k

• Total Loan book purchases of £6.4m to early October

• Key staff and employed agents acquired alongside loan books

• Acquired books typically made up of lower duration products, as is usual for smaller operators

• High percentage of cash collections on books purchased

• Standard pricing methodology in place

• Allows the Company to make an offer quickly following target identification

• No issues have been expressed by the FCA regarding the 6 acquisitions

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Conclusion

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Well-positioned for growth

Conclusion

• Trading in-line with the Boards expectations and confident in performance for H2

• We expect the benefits of the acquisitions made during H1 to be realised in H2

• Many of our recent territory builds will reach maturity in the forthcoming period

• Highly invested IT platform will start to yield cost savings in H2 and beyond

• The same IT platform will support our endeavours in customer longevity, loyalty and referral growth in HCC as well as in our new online instalment business

• Success in on-line lending for MCL will be based on

• Having existing customer interest

• Experienced management with highly transferrable skill set

• Expert supply chain support

• Existing, scalable back office systems and staff – no need for large investment in these areas

• Technology components are now “off the shelf” versus competition who had to invest in bespoke systems and meet more challenging sales targets in order to absorb costs

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Appendices

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15%

14%

13%

12%

12%

11%

11%

10% 3%

Location of agents

North WestScotlandNorth EastWest MidlandsSouth EastHumberside / East MidlandsSouth West & WalesYorkshireNorthern Ireland

A truly national footprint

No. 2 market player with UK-wide presence - c. 1,800 agents across the country

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Note: Points on map indicate office locations


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(1) As at February 2016



(4) Independent customer satisfaction surveys carried out by Mustard (May-August 2016)


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Customer KPIs

Historic loans per customer: % of total loan value(2) Historic loans per customer: % of total number of loans(1)

Customer satisfaction(4) Proportion of loans held by age group(3)

Volume as %

Band Feb-15 Aug-15 Feb-16 Aug-16

1 15.1% 16.6% 17.4% 19.2%

2 to 5 35.0% 32.1% 32.3% 34.1%

6 to 10 17.4% 17.5% 17.4% 16.4%

11 to 15 9.0% 9.2% 9.3% 8.7%

16 to 20 4.6% 4.7% 4.7% 4.4%

20+ 18.9% 20.0% 18.8% 17.3%

Value as %


1 4.6% 6.3% 5.9% 7.0%

2 to 5 23.4% 20.8% 22.1% 24.1%

6 to 10 18.4% 18.5% 18.5% 17.9%

11 to 15 12.1% 12.0% 12.3% 11.7%

16 to 20 6.8% 6.8% 6.9% 6.6%

20+ 34.8% 35.6% 34.4% 32.6%

Customers as %


18 to 25 3.9% 5.1% 6.2% 7.2%

26 to 35 20.5% 21.8% 22.9% 24.1%

36 to 50 35.8% 35.2% 34.8% 34.3%

51 to 65 27.1% 25.9% 24.8% 23.8%

66+ 12.7% 12.0% 11.3% 10.7%

87.10%

9.75%

2.25% 0.25%

0.65% Very Satisfied

Fairly Satisfied

Neither Satisfied or

Dissatisfied

Fairly Dissatisfied

Very Dissatisfied

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Products

Illustrative pricing and repayments by product

Term Issue

Value

Credit

charge

Total

payable

Weekly

payment

Of which

Charge

as % APR

Principal Interest

20 weeks £400 £200 £600 £30 £20 £10 50% 765.5%

33 weeks £400 £260 £660 £20 £12 £8 65% 433.5%

52 weeks £400 £328 £728 £14 £8 £6 82% 272.5%

78 weeks £400 £380 £780 £10 £5 £5 95% 172.0%

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