Vanquis Banking Group plc

Good morning, everyone. I'm Ian McLaughlin, Chief Executive of Angus Banking Group. Welcome to our 2024 Full Year Results webcast. As usual, I'm joined by our Chief Financial Officer, Dave Watts. Dave, welcome.

Thank you, Ian, and good morning, everyone.

So, as you can see on slide two, I'm going to kick off with a summary of 2024. Dave will then build on my comments and take you through our performance in more detail and update on the financial guidance that we're sharing this morning. I will then come back to outline why the management team, the board and I are confident that we have the right foundations and strategy in place that will ensure we successfully deliver on our plans for 2025 and beyond. And we'll then be happy to take your questions. So if I can take you to slide four, 2024 was a pivotal year in the turnaround of Vanquis and the strategic transformation of the bank is well progressed. We did face significant challenges both from industry wide headwinds and from some company specific issues that were identified and then resolved. But we have made meaningful changes that are already showing through in our results and that leave us well positioned for long term sustainable profitability. Resolving the issues that needed to be addressed did come at a financial cost. However, after completing the comprehensive balance sheet review that we undertook and discussed at our half-year results, we are now confident that we have a much cleaner and much less risky business from which we will grow profitably. While we moderated new business growth by more than we'd originally planned to do in 2024, we are now back to growth and we expect that to continue through 2025 and beyond. At this stage of a turnaround, demonstrating cost discipline is critical and we delivered ahead of what we had committed to on cost savings, achieving just over 64 million in savings by the end of 2024 against our original commitment of 60 million. We have already completed the actions to deliver the further 15 million of cost savings that we committed to for this year. So we're at a very strong position there. On top of that, we will deliver an additional 23 to 28 million of savings through the Gateway Technology Transformation Program. And I'll talk about Gateway in more detail later. Add all that up and you get to around 100 million of transformation cost savings by the time we have executed this phase of our strategic plan. Turning now to slide five and a summary of our financial performance for the year. Having reset guidance at our half-year results, our adjusted performance in the second half of the year was in line with the commitments that we made. Our net interest margin at 18.4% benefited from the repricing activities that we took in both credit cards and vehicle finance. Higher growth in second charge mortgages is a good thing, but as we've previously noted, given its lower risk profile, is written at a lower NIM than the rest of our book. Excluding second charge mortgages, our NIM increased 30 basis points year on year to 18.9%. After allowing for a reallocation of fraud costs, our adjusted cost income ratio at 64.2% was within the guided range of 62 to 65%. The adjusted return on tangible equity for the year was negative 7%, equating to a loss before tax of $34.8 million. The vehicle finance receivables review, other one-off items and increased complaint costs were meaningful drivers of this loss, all of which we covered with you at our half-year results. These impacts meant that we were prudent with our management of growth and our interest earning balances ended down the year at 4%. However, this trend reversed in the fourth quarter, where we saw our balances grow again, up 2% compared to the end of September. Our Tier 1 capital ratio ended the year at 18.8%, so within our guided range, and our capital levels support our growth plans. And finally, our retail funding increased significantly to more than 92% of our total group funding. This is a core strength of Vanquis now. Turning now to some of the operational highlights across our five key initiatives that we've discussed with you previously. And I'll start with customer proposition and insightful risk management. You can see these on slide six. Within credit cards, we adopted a measured approach to growth during the year. We've conducted detailed vintage analysis of our cards book and are now focusing on acquiring, retaining and developing our most engaged customers. We've exited unprofitable origination channels and implemented a much more robust approach to pricing based on this improved analysis of the risk profile of our customer cohorts. In vehicle finance, the review we conducted has given us a much clearer understanding of the credit profile of this portfolio. And we've meaningfully diversified our overall product propositions through growth in second charge mortgages and expansion in our savings range. And on savings, we're now offering customers more flexibility with retail notice accounts and easy access products, including an innovative new savings product through Snoop. And speaking of Snoop, it continues to be a strategic enabler for us. As well as really good growth in customer numbers, we're deploying the Snoop team and technology across the wider Vanquish business. Active Snoop users are up 25%, with 13% of Vanquis customers now also active users. That's doubled year on year, and they're benefiting from savings and budgeting tools and the new Snoop credit score feature. Snoop is also a core component of our not yet customer proposition. And just to remind you, our not yet proposition refers to our strategy of identifying potential customers who may not be immediately eligible for our products, but who could be in the future. So instead of declining them outright, we're now focusing on finding ways to support them with money management tools through Snoop or through referrals to previously announced partnerships with trusted partners like H&T Pawnbrokers and more recently, Fair Finance. By providing options to help them improve their financial well-being and resilience, we build loyalty with them and we create long-term customer relationships. Digitization of our customer proposition is essential and we have a lot more to do in this area. The launch of the new mobile app in mid 2025 will really enhance digital customer engagement. But two examples of what we've started in 2024 are the enhanced digital statement functionality for our customers and the integration of Snoop's bill switching capability into the Vanquish cards app. As well as making us more efficient, these sort of initiatives underpin customer satisfaction and this is reflected in our 4.2 out of 5 Trustpilot score for Vanquis and 4.4 out of 5 for Money Barn. Both of these represent a great rating for the brands, clearly showing that our customers genuinely value what we do for them. Turning now to our remaining three key initiatives. So technology transformation, operational efficiency, and the people agenda, as you can see on slide seven. Importantly, as I said earlier, Gateway, our technology transformation program, is on track. We're rolling out this program in carefully planned phases and delivery to date includes putting in place a single customer contact center platform and the migration of all colleagues across the group onto one IT platform, which enables easier collaboration and better customer outcomes. Artificial intelligence is a key part of our technology agenda too, and Gateway enables this. I'll give you two examples of what we already have live. We've automated our complaints logging using AI, and that means we've meaningfully reduced handling costs and the backlog of complaints, which were down over 60% year on year. And we've developed AI-driven customer solutions through our Snoop open banking proposition, providing personalized insights to help our customers save money and improve their overall financial well-being. Turning to our people agenda, as we exited 2024, we completed an extensive outsourcing program, which now gives us access to a skilled team of 900 people in South Africa. And we can flex this capacity as required. This allowed us to reduce our UK headcount by 18%, lowering staff costs by £25 million year over year. And that cost saving is included in the total cost save numbers that I referenced earlier. We have streamlined our EXCO from 13 to 9, but we also made 22 senior level hires and internal promotions into leadership roles across key business areas for us like credit, products and risk. Despite the scale of the transformation delivered in 2024 and the tough decisions we've had to make that have impacted our people, our colleague engagement has improved. Our Great Place to Work Trust Index, which we conducted near the end of the year and which measures colleague engagement, increased from 53% to 60%. We have a way to go still, but that's a significant step forward in what was a very intense and challenging year for our people. We were also pleased to be ranked in the top decile of the Financial Times UK Best Employer Survey for 2024. We know we've more to do, but these are encouraging indicators. Now, before I hand to Dave to run you through the financial performance in more detail for 2024, I did want to comment directly on two external factors that you know have been an overhang for us. And let me start with the latest on complaints, and you can see this in slide eight. We have previously updated that complaint costs have been a material drag on the financial performance of Vanquish through 2024. At an eye-watering £47.4 million, the cost of complaints increased 66% year-on-year and represented 16% of the overall group adjusted cost base. Within this, FOS fees tripled year over year to £25 million, representing over half of our total complaint costs. And the key driver of this, as we've described before, was the flood of unmerited claims from CMCs, claims management companies, which is clear from the numbers. Only 11% of complaints submitted to the FOS by CMCs were actually upheld against vanquished last year. So while roughly 9 in 10 CMC-submitted FOS complaints were deemed unmerited and not upheld, we still had to pay the £650 fee for all 10 out of 10, plus having to absorb our own administration costs. That is not how this system is meant to work. As well as dramatically increasing our costs, this slows us up in dealing with genuine complaints and that's bad for customers. This is wrong and it needs to be fixed. And as part of that fix, we welcome the new FOS fee charging proposals for CMCs, which come into effect on the 1st of April this year. We expect this change to meaningfully reduce the volume of unmerited complaints that CMCs submit, given the £250 charge per claim that they will then carry. While we do applaud the FOS introducing the £250 CMC charge, it is not enough, as we, the lender, will still continue to pay a fee of £475 for each claim, even when it's not upheld against us. We ultimately believe the FOS plays an important role in resolving customer disputes, but we need to ensure that the mechanics of how this works are fair for all involved, and we will continue to engage with regulators to address complaint issues on an industry-wide basis, including the fair and proper assessment of CMC activities and their regulatory compliance. Also, just to note, we are progressing our court case against TMS Legal, the CMC responsible for the highest number of unmerited claims against us, and we will provide a progress update on this later in the year. Turning to the second overhang, which since the end of October has been the Court of Appeal judgment with respect to Mutor Finance Commission disclosures. The latest position for Vanquish is summarized for you on slide nine, but there are three very important points that I want to draw out on this. Firstly, I want to stress again that Vanquish never operated discretionary commission arrangements. And as a result, we're not in scope of the current FCA Motor Commissions Review. Secondly, in relation to the Court of Appeal ruling and the pending Supreme Court appeal process, we believe that our position is substantially differentiated on a number of grounds compared to the three cases that were the subject of the Court of Appeal judgment. This includes the fact that all our customers signed a pre-contractual document that confirmed that a commission will be paid. Not might be paid, not may be paid, but will be paid. Thirdly, 90% of our vehicle finance volumes were through independent finance brokers who were not directly linked to the car dealership and therefore fall outside the scope of the Court of Appeal judgment on unfair relationships. That obviously leaves 10% of our business that was through dealer brokers are in scope of the Court of Appeal judgment. The total commission payments potentially in scope paid out by Vanquist to dealer brokers from the start of 2013 to October 2024 totaled £23 million. Given this and the levels of uncertainty, the group has not provided for this matter, but has recognised a contingent liability in line with the accounting standard and agreed with our auditors and board. In conclusion, we hope for more certainty on the future application of the judgment from the Supreme Court in the summer. But in the meantime, I hope that is helpful clarification on the actual vanquished position. Right, I will come back to close, but for now, I will hand over to Dave, who will run through the 2024 financials and update you on our financial guidance. Dave, over to you.