non-standard finance plc/media/files/n/non... · non-standard finance is a large segment of the uk...

Non-Standard Finance plc Post-results roadshow May 2016

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

2

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

c.3% of labour force recently arrived migrants3

Over 500,000 consumer County Court

Judgements2

Large market with significant growth potential

Market composition

0

20

40

60

80

100

Prime c. 33 million

Near prime c. 7 million

Addressable population c. 12 million

c.8% of total work force paid minimum

wage and below1

c.15% of 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 or choose not to borrow from them

2

4 MAY 2016 NON-STANDARD FINANCE – INVESTOR ROADSHOW 2

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

Favourable business environment


Income distribution Workforce in self-employed occupation

Economic migrant flows

12,993

75,236

106,003

248,480

0

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

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

peo

ple

(£)

(%)

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

NSF is well-placed to exploit this opportunity


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

2015


“A transformational year in which we achieved all the

strategic objectives set out at IPO”

2016


“Operational improvements through diligent execution of

our growth plans with the aim of initiating dividend

payments in H2 2016”

Our three divisions


Home credit Branch based lending

Guaranteed loans

Loansathome4u


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

http://www.providentfinancial.com/

Loansathome4u’s products


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%

Loansathome4u


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

Loansathome4u


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

Loansathome4u


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

Everyday Loans


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

Everyday Loans


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

Everyday Loans


£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

Everyday Loans


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

Everyday Loans


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

Trusttwo


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

Trusttwo


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

Non-Standard Finance – overall outlook


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

NSF has substantial institutional support


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

Appendices


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


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

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


£’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)

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


£’000

Before fair value adjustments,

amortisation of acquired

intangible and exceptional

items

Fair value adjustments, amortisation

of 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)

2. Illustrative enlarged group results


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

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