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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
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
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
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
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”
2016
4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 7
“Operational improvements through diligent execution of
our growth plans with the aim of initiating dividend
payments in H2 2016”
Our three divisions
4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 8
Home credit Branch based lending
Guaranteed loans
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
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%
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
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
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
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
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
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
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
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
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
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
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
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
Appendices
4 MAY 2016 NON-STANDARD FINANCE – RESULTS ANNOUNCEMENT 23
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
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)
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
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
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