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Edited Transcript of NSF.L earnings conference call or presentation 20-Aug-19 8:30am GMT

Half Year 2019 Non-Standard Finance PLC Earnings Call

London Sep 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Non-Standard Finance PLC earnings conference call or presentation Tuesday, August 20, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* John Philip de Blocq van Kuffeler

Non-Standard Finance plc - CEO & Director

* Nicholas John Teunon

Non-Standard Finance plc - CFO & Executive Director

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Conference Call Participants

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* Benedict Guy Williams

Liberum Capital Limited, Research Division - Research Analyst

* John Cronin

Goodbody Stockbrokers, Research Division - Financials Analyst

* Mark Thomas

Hardman & Co. - Analyst

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Presentation

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John Philip de Blocq van Kuffeler, Non-Standard Finance plc - CEO & Director [1]

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All right. Morning, everyone. Welcome to our 2019 First Half Year Results. And Nick Teunon here, our CFO, will be presenting with me. So we'll start off by really just going through the sort of major highlights, and it's been a half of continued strong growth. We've seen all 3 of our businesses continue to grow, particularly the branch-based lending with the new branches, and indeed, the existing branches coming to maturity. The guarantor loans, we've increased the capacity with our new office in Trowbridge and home credit has been more a story of where we've seen very significant increase in profit as a result of all good works and investment we've made over the last few years.

Then the next point is an exceptional item totaling a fairly large GBP 25 million, which is due to 3 things. The deal costs, which are being well flagged and are well known in relation to the offer for Provident. Secondly, goodwill impairment, and I'll come on to that in just a second. And thirdly, a little bit of restructuring, just over GBP 100,000. Importantly, because in today's uncertain world, everybody is looking at the future. That -- we are happy that we are trading in line with market expectations. There is no change to our strategy. We continue with our 3 businesses, all of which are trading well as you will see, as we go through it. We have a clear focus on delivering the return on asset. When we originally did our IPO, we set out our store. We said all our businesses, which we were hoping to acquire, we believe, can achieve 20% ROA and having made considerable investment in those businesses over the past few years. We are clearly focused on delivering that 20% ROA.

So while the business and our environment is somewhat uncertain, we feel that on the ground, our customers are actually in quite good shape, which is in contrast to the financial markets, which last week had a sort of minor financial meltdown. And what we're actually seeing is that our customers are, A, its record employment. The levels of employment are at a record high. And unemployment is actually at a record low. And very importantly, real wages and salaries are actually exceeding inflation. So everyone's feeling rather better off. And that's rather in contrast to the sort of uncertainties of Brexit and indeed, China, Middle East problems and so on. So the demand remains strong for our products. We have really good infrastructure, and we have high risk-adjusted margins.

And we have experienced management teams who have been through the cycles, economic cycles and so on. And we have, importantly, long-term debt funding, which runs to 2023 for our main facility. So we're in good space there if the financial markets tighten up. The half year dividend accordingly is up by 17%, which reflects our confidence in where we are at the moment.

So the financial highlights. And looking at these, the net loan book, you can see the really terrific growth, 26% in -- over the last year.

But if you look, it's gone from the first half '17, GBP 195 million to GBP 336 million. Revenue, you can see, have grown from GBP 52 million to GBP 88 million, again, 12% in the last year. Operating profit over the same year period, up 28% and earnings per share up 13%. So you can see some really good results coming through from that and being driven by good loan book growth, careful control of customers and impairment. And despite the higher interest costs, which because of the longer-term facilities, we pay a little bit more. Earnings per share are up 13%, and this means the payout ratio is 43% in relation to the dividend.

So then I'll deal upfront with the exceptional items because that's something that is certainly the impairment of goodwill, you may not have been expecting. And so the offer for Provident Financial, that's old news, it didn't go ahead. And we had right from the beginning said, we expected the costs to be around GBP 10 million without that, GBP 12 million with that and they actually came out at GBP 12.7 million. So that's sort of broadly in line with what we'd previously said. And secondly, there was a bit of management restructuring in January, again, which we highlighted in our annual results, which we announced in March, where we took some -- we took some management layer out of Loans at Home and is relatively minor, the cost, as you can see, was GBP 100,000, but it's actually had a really good payback and reflected the fact that this is now a business where the huge bulge of customers coming across from other companies, largely Provident Financial is now over, and we no longer needed quite that large infrastructure.

Now the other item, which we should just talk about is the impairment of goodwill Loans at Home. Now interestingly, the business is actually trading extremely well and very strongly. You can see if you look at what's the business like as compared to when we acquired it. And you can see the net loan book top line there was GBP 22.6 million when we acquired it in 2015. That's now GBP 35.5 million. So it's 57% larger over the 4 years. That for a home credit business, which is basically a mature sector is a very good outcome. The number of agents we have has increased from 557 to 892. The customers are up from 87,000 to 91,600. And the profits in the first half of this year, operating profit is GBP 4.3 million versus GBP 2 million last year, so a stellar performance. And the ROA is actually 19.5%, which is very close to our 20%. So -- and it is performing ahead of budget. But what we've seen in the stock market, as you all know, only too well is the sector multiples have fallen very sharply. And you can see from the graph there of the various companies being Provident, Morses, Amigo and ourselves and so on. And that means that when you're looking at goodwill, you're carrying in the balance sheet with multiples having fallen quite significantly. And that -- this has nothing to do with us or the way we run the company, which is clearly done very well, but it has been necessary to take that impairment.

So it's external factors rather than internal factors, which, of course, the GBP 12.5 million write-down. Of course, it's noncash and its book entries, but nevertheless, because it goes through the profit and loss account.

So let's get back and look at the 3 businesses and how they're doing. So loan book growth, what we've seen is across the top are our 3 businesses, so loan book growth, branch-based lending up 22%, guarantor loans 53% growth, really terrific. Home credit is minus 6%, but that largely reflects our shortening of the loan book. And what I mean by that is we took a large number of customers, as I mentioned earlier, from Provident Financial when they had that misstep in their own home credit business. And they had much larger longer loans. We don't believe that is a good long-term sustainable product set for our business. And so, therefore, those customers who come across, might have had a 78-week loan start off with than a 63-week loan and they're now on a, say, 45-week loan. And so, therefore, you see a bit of shrinkage in the loan book, which is us just shortening it. Why do we do that? Because home credit is basically to meet short-term needs for our customers in lower income groups. And it's, therefore, Christmas, children going back-to-school in September and they need funding for new clothing and shoes for the new school year. It might be the car fails, it's MOT in March, you don't need GBP 250 for that. Those are things, which basically should have a 1-year loan or less, 45 weeks or 33 weeks is good.

So therefore, we believe that in home credit -- our home credit business, it's really important to concentrate on the products of less than a year. So hence, although there's a cross there because, obviously, we like to see it growing, in this particular occasion, I almost regard it as a tick. Revenue yield, you can see there, good revenue yields all the way across for each of the businesses. Risk-adjusted margin as well. This is vital as we reach the stage in the economic cycle, where it is possible we might be going into recession. We've had indications the second quarter might be sort of negative growth. And so, therefore, if that continues for 2 quarters, we actually go into a recession and should that then start to affect levels of employment and so on. If you have high risk-adjusted margin that means you will carry through the recession. And what's more, we will see significantly greater number of customers coming to us as the recession bites. And that's when you really build further growth.

Impairment as a percentage of revenue is fine for branch-based lending and home credit, a bit of cross there, 23.3% is a bit high for guarantor. So -- and that's as -- well, we'll come on to it in a moment, but we combined both TrustTwo and George Banco collections into Trowbridge and so there was, for a few months, a little bit of a disruption there, which we are right on top of. And -- but before anyone reaches for the panic button, you can see impairment as an average of the loan book at guarantor loans at 7.2%, which is fine. So it's all under control. The cost-to-income ratio is really good for all 3 businesses, 45% for branch-based lending and guarantor and 56% for home credit, which is good.

And then the return on assets. We are building as we go along for branch-based lending and guarantor loans, in particular, we will now see, as a result of the investment we've made that our concentration will be on driving that return on asset towards our medium-term target of 20%.

Then I'll just deal with each of the 3 business and tell you a little bit more about it. Now this is really progress since acquisition. So we acquired this business in July, August 2000 -- sorry, we acquired branch-based lending in April 2016. We received our full FCA permission very shortly after that. We doubled the size of the branch network from 36 to 73. We more than doubled the branch staff actually by 126%. And we've made very significant investments in the technology. We do everything fintech companies do. And then on top of that, meet the customer, hence, us receiving a fintech award this year. And you can see that customer and loan book growth, up 90% and up 67%. And we see continued improvement in profitability. So one further thing, which is really important is culture. And we are very strong on that. And we have something called The Everyday Way and that's supported by an incentive structure, which concentrates on good customer outcomes. Basically, it is all about delivering good customer outcomes, which means happy customers, which means also the staff are all happier and take pride in their jobs. And that has to be right from the top downwards, which we are absolutely focused on.

Then on to guarantor loans and here, the first item is acquisition was transformational. I mentioned earlier that we, first of all, acquired TrustTwo, and we have receivables of GBP 8.3 million, quite a small business. Then added George Banco with GBP 33 million of receivables, which was transformational and made it to GBP 41 million loan book business. But in fact, if you look at the graph, you can see we now got to GBP 96 million, and that was at the end of June. So I suspect that as we are sitting here, we're probably approaching the GBP 100 million mark as a further month and a bit has actually passed. So -- and really strong growth. This is a business, which -- it's really about how do we process the incoming business rather than do we have to spend more on marketing. So you can see here in the middle, we had 2.3 million leads and that compares to 1.7 million in 2017. And the year before that, it was 1 million leads. And -- so this is the business coming in. So there's huge volumes. It's a big market and 35% then become applications, which is versus 27% in 2017. So what we're seeing is our significant investment in the infrastructure, which is the new office in Trowbridge, which you can see there. We have 149 staff, which is 80% up and the investment in IT and so on has actually delivered extremely good results and met all our expectations and more.

Home credit, I've already talked about this because of the impairment, and you will have heard that the profits are in a very good place, is exceeding our expectations. We've transformed the business from largely a paper-based one to an IT and digitally-based managed operation and very strong culture of delivery for good customer outcomes. Of course, we received the full FCA permissions in 2017. And you can see the agent numbers, which I mentioned in graph on the top right, where we started off with a smaller number, build it up, but then saw the opportunity from Provident, took a very large number of agents from them. And then as we've had the luxury of being able to weed out the less good ones and end up with an extremely strong professional agency base who know and understand the business really well. And the front- and back-office technology, which is backing that up, is extremely strong.

And so in terms of regulation and compliance, we're also in a very good place. The FCA made some minor changes last year, which we were able to adapt to without any effect on the profitability or size of the business. So looking forward from there, we're now in a normalized place, I would say, rather than the faster growth, which we saw and hence, flowing through very strongly to the profit and loss account.

So now I'll hand over to Nick, who will take us through some of the detail of the figures.

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Nicholas John Teunon, Non-Standard Finance plc - CFO & Executive Director [2]

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Good morning. If I go to the normalized results, so this sets up a little more detail what John's already shown you. So revenue up 12% and encouraging revenue less impairments also up 12%, despite the fact we had a much smaller debt sale in the first half of this year. So debt sale income that's down 75%. So the revenue, we've maintained the kind of the risk-adjusted margin, already managing impairment, well, as you see impairments only up 7% compared to 12% revenue growth. And then admin expenses also up far less than revenue growth, so at 6%. So you're starting to see the operational gearing coming through. So normalized operating profits up 28%. And then finance costs up quite a little bit more, driving profit before tax at 12% and EPS of 13%. So generally sets out in more detail what John has already shown you.

If you then look at the normalized divisional breakdown, we've been showing you charts like this for a couple of years now. You can see that this shows you that the bulk of the business is Everyday Loans. But actually, instantly, if you look at home credit at GBP 4.3 million operating profit that doubled year-on-year. So actually had a really strong half year and is actually now at the same size of profits as to guarantor loan division, so GLD are going -- run a lot faster. Home credit had a really, really strong year.

Then going through -- building it up from the top, so to speak, loan book, so 26% up as John said, and not surprisingly driven by our largest divisions, branch-based lending grown 22% and guarantor loans growing at 53%. Home credit returning towards a more normalized rates of growth, and we've been clear that this is a business that is mature, and therefore, little if any growth in the medium term. In terms of revenue, 12% up, and again, driven by branch-based lending and guarantor loans. So good revenue growth in both of those businesses, slightly small revenues year-on-year in home credit business where we get to profit, you'll see that we covered that off.

So when you look at operating profit, up 28% year-on-year. So we're really pleased with the operational gearing that's coming through, as John said, return on asset, 20% is our target, and this is how we're going to deliver it. Branch-based lending profits up 15%, guarantor loans 12% and home credit 110% and the cost-to-income ratio coming down in all 3 divisions as we grow the revenues faster than the costs.

If we look at the divisions in detail, so branch-based lending. What I'd pull out is still good revenue -- loan book growth, now the business is a lot bigger than when we bought it. So the 28% in the year to December, down to 22%. This is a business that still can deliver 20% on a short-term basis. Risk-adjusted margin, as John said, we're determined to keep it at 35% or thereabout, still above that 35%. So if there is a downturn, we're well protected with decent margins. Impairment as a percentage of average loan book, which will -- stayed stable at 10%. So we're not taking a lot more risk. We're collecting effectively, really pleased with that. And return on asset of 15%, it's getting towards our 20% target, and we will get there.

Highlights. So more investment in the branch network, so 8, 7 in the first half and then 1 in early July, taking us to 73 in total. We have absolutely no problem in attracting leads. So we have more leads essentially that we can manage. So the scorecard is very sophisticated. It fills out a lot of those leads, but we could still send 32% more than this time last year due to the branches. So the branches have got lots of stuff to deal with and then can make very sensible lending decision. As a result, we're very focused on productivity. And a key focus for us is applications turning into loans, so units per employee conversion. And you can see in the chart at the bottom that we keep in a fairly narrow range. So we're looking for the branches to convert between 6% and 10% of what comes in, some branches regularly near the top, some less so. But we don't expect to go way above that because that probably means we're taking more risk. We don't expect to go way below that because that means there's productivity challenges. And the business, you can see has been very stable level of conversion. We're very focused on the units per employee, so how many units employee is doing. There's clearly a drag, you have new branches or one of the features of opening a branch is it brings average UPE down. But as the staff get more experienced as they get into their second 6 months, they come back to the average. So this is the business that generates productivity improvements as staff mature and then with some of the more mature branches, we can put additional staff in. So we don't need to open lots of new branches to keep the growth growing at that 20% level.

And impairment remains tightly controlled. So we guided to 20% to 22% when IFRS 9 was first introduced, we are at 21.8%, so well within our range. And just visually, where are we against impairments as a percentage of receivables. So another way of looking at it. This is a chart that we've shown you again before so IFRS 9 comes in, in 2017, so it takes it up slightly higher from the old standard to 9.5% and will be in flat at 10%. So this is a business that is making sensible lending decisions and collecting well. And as John said, in our customer base, we're not seeing any stress, unemployment is low, employment is high, real wage earnings, so business that's in a really good shape.

Then guarantor loans, very strong growth here. So over 50%, slightly slower than December 2018, but still very fast. And again, it's a smaller business. It's a fast-growing market, we would expect to see this business to continue to grow at quite reasonable rates going forward. The one thing to stand out is the RAM come down -- has come down a little bit. And as John mentioned, we centralized and combined the TrustTwo and George Banco collections teams down in Trowbridge. We have some teething challenges around that. So impairment has picked up and you can see modestly, we're on top of that, and we expect to come down to within our range of 20% to 22% pretty quickly. This is a business that, again, making sensible lending decisions, the customers are in good shape. So there's nothing that would suggest that we won't be able to do that. Return on asset is the smallest business, it's slightly subscale. We'll drive that to 20%, but it probably takes a little longer than [ALL].

Again, looking at kind of what we're seeing, no problem with getting our leads and applications through. And in fact, more are going through our scorecard. So it's just, actually, the margins. We're getting slightly better leads in from the brokers, which is the biggest source of the leads. Able to send 35% through to the kind of sales teams as opposed to 32% in the prior period and conversion, again, as a result has picked up. So it's a business that actually is taking market share from Amigo. Talk about the temporary uptick in impairment, and we continue to have a good balance of loans written by channel. So 50% or thereabout is broker dependent and top-ups remain pretty low, so 18% to 20%. So this is a business that is not making all this money by really lending to existing customers. It's growing its loan book with new customers.

Home credit and also standout here is revenue growth actually slightly down, so 8% down. Operating profit up at 110%, and you can see there's 2 things have driven that. One is impairment, is down quite a lot as a percentage of revenues, so guys have done a good job taking it down from 32.6% to 31.9%, but also really good cost control. So as John said, we did a small restructuring at the beginning of the year, and we're really seeing the benefits of that. So costs down 10% year-on-year, more than covering off of revenue shortfall. And the other thing I'll point out is this is a business now cash generating. So a well-performing home credit business with short loan book generates cash across the year. So this business is actually contributing funds to support the dividend and support the growth in the other businesses.

Talking about kind of the numbers. If you look at the chart, you can see the impact of what we've done on cost-to-income ratio. So we've really taken that down, probably stabilizes going forward and a lot of movement going there. This is a business that is well managed in a mature market with what we think is the most experienced team at home credit in the U.K. As John said, loan book mix improving and really focused on quality of customers, reducing kind of the length of the loans that we're issuing, so that's coming down quite substantially. And over time that will drive the yield up. And in terms of kind of the network, the agency's vacancy remains -- rates remain very low. So we're not losing agents to the competition, and we'll continue to see a small circle of agents coming across from the competition, but I think increasingly for a self-employed agent, you see Loans at Home is the place you want to work in the industry.

Turn to balance sheet and funding. And so just to remind you that we have kind of 2 core facilities, GBP 285 million term loan in place for 2023. And we've always said that we would pay a slightly higher margin to borrow for longer term to 2023, if -- as John said, there is potential for downturn, one we hope that is been cleared out by 2023 before we need to refinance our facility. And RCF from that west, slightly cheaper and only 1-year shorter in length. We're in advanced discussions about additional, hopefully, lower cost funding options, which can sit alongside the existing facilities and it potentially allows to repay some of these existing facilities. Note at the bottom that we acted a court-approved reduction in share premium account, which created GBP 75 million of distributable reserves. So the goodwill write-down, exceptional costs, will have no impact on our ability to pay dividends, and that was all approved by the court at the end of July. So those distributable reserves will appear in the full year accounts.

And just running through the balance sheet. The key thing is our loan-to-value, which is a covenant under our existing facility. We have a 90% covenant or 85%. So we are within that and GBP 27 million of kind of headroom in terms of cash and undrawn facility at the end of June compared to GBP 57 million at the end of the previous year. So -- well, on the balance sheet. And in dividend, as John has already mentioned, we've increased that by 17% to 0.7p. So you've got the kind of progressive growth 0.5p, 0.6p, 0.7p the interim stayed each year. Normalized payout ratio a little above 40% now. And we've guided to a 50% payout ratio in long term. 20th September is the record date and the final dividend is paid on the 17th of October.

I'll hand back to John.

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John Philip de Blocq van Kuffeler, Non-Standard Finance plc - CEO & Director [3]

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Thanks very much, Nick. So just a little bit about the outlook from here in the future. So looking at each of the businesses, starting off with branch-based lending, Everyday Loans. Now we've got 73 branches. Over the past few years, we've done what might be characterized as a land grab just to ensure we had full national coverage, which we have now achieved in all the sort of major population centers where our customers live. And so we're in a good position. And having said that, we do see the scope to get to 100 branches plus in larger places, there is definitely scope for several branches. And so for instance, cities like London, Manchester, Leeds, Glasgow, Edinburgh and so on. And so -- and also some smaller places. But in the meantime, having got to 73, we feel we've got to a very good place. And now, the concentration is not on opening a lot more branches over the next sort of year or 2, it's really about making sure the profit fall through to the bottom line and achieving our 20% return on asset. And let's just look how the profitability is going to evolve. And you can see here, this is branch profitability versus average net receivables. Now these are obviously, at this end, the newer branches. And you can see there is a very clear trend. And of course, they will move up to the top there where you've got 600,000, to 800,000, possibly more coming through from each of the branches.

Then the graph further over, you can see branch profitability versus branch age. So here, you've got the mature branches, which are all around here. Now you may well say, why are all these below the curve. And just to remind you, what we do when we open new branches here is we split the loan book. So for instance, when Bradford office was opened, we took a chunk of the loans from Leeds that related to the Bradford area and transferred them to the new Bradford branch. And so, therefore, you see strong growth coming through, both in Bradford and Leeds as it grows itself back up to maturity. And so you've not only got the growth coming from these down here moving across but also these will move back up because these are the branches that have been split. And so we have the growth potential. And indeed, it is coming through. It's not just potential, which gives us the confidence in the future.

Then guarantor loans, well, both Nick and I have spoken about this quite a lot. Trowbridge, our new facility is an extremely good professional office that now can handle much larger size business. So we have centralized or combined the collections of the original TrustTwo and the whole guarantor loan including George Banco, we have the payment portal for both brands. And we carefully manage our key distribution channels, particularly the brokers, but also price comparison websites and directly to us, through our own website. And we are continuing to increase productivity as the new staff we've taken on become more efficient and -- as they are fully trained and become more experienced. And of course, we maintain the highest standards of customer service. And that is really important throughout all our businesses. And the FCA, as you know, announced a review of the guarantor loan sector. That is because they looked at it 3 years ago, they made a few changes at that time, but that didn't change our or Amigo's profitability. They're now having a further look, which they do once every 3-or-so years. They look at each of the sectors and see if there's anything else that needs adjusting. Two of the things that were mentioned. One was percentage payments made by the guarantors. They had seen that and clearly, some of the competitors in the sector, where it was higher. With us, you can see it's between 5% and sort of roughly 8%, very steady. We feel very comfortable with that. And that's what you would expect of the business of this type. And certainly, shouldn't be ringing any alarm bells anywhere. So that's a good place to be. And then top-ups is another thing. FCA looking at our customers being offered more than is really good for them while again, you can see we offer it within a tight range, which is what you would expect the business of this type.

And what you got to remember is, some customers come to us and we say, well, okay, we'll do a bit of a smaller loan, see how you pay on that and maybe after a year, we'll top it up and make it larger once you've proved that you can actually make the repayments. And so you always expect top-ups and those ranges of top-up is good for a business of our size, so no worries there.

Home credit. Here, we've really covered most of the points that you see here, and that is that the product term is coming down because we fundamentally believe that is right that loan should be for a year or less for home credit products, and we are focusing on maintaining the quality customer base and hence, impairment really sharply down and the profit sharply up. And we're seeing continued focus on collections, impairment and so on. And we're also selectively recruiting additional agents, who are still coming across to us because we are seen as a good place to work as a self-employed agent, and we're very well regarded in the market.

Maybe I should also just say something here about the general sort of economic outlook, which I talked about at the beginning, which is that real wages are up, customers are feeling in a good position. Unemployment is very low. And what we're seeing is that with existing customers, they are renewing loans a bit more slowly, and that may be because they've got more money and there's less need to borrow. It may also be that they're feeling financially sort of more comfortable than they have been for the last few years. But what we're also seeing, which is interesting, is that new customers coming to us. We've seen a very good flow of that. And so -- and we feel that we're in a very good position here with the -- there is scope to grow the customer base, but it will be extremely modest. And in the meantime, our customers are in a good place financially, and hence, also the low impairment.

So the outlook, overall, you can see the first half delivered good results in all 3 divisions. And we -- that remains, and we are well positioned to serve our customer base because we have 3 good businesses, which address some of the issues of the 10 million to 12 million U.K. adults who cannot access credit from the mainstream banks and financial institutions. This is a large sector, and if anything is growing, the mainstream banks and so on are becoming more risk-averse. They're certainly not any plans or have announced any plans to come down into any areas of our market. And there's no change to our strategy. Some commentators may have felt well post the bid, is there a major change of strategy, absolutely no, got 3 great businesses, going really well. And there's a great future for all of those and for the group combined, and particularly because we made the large-scale investment in offices, people, IT, regulatory structures and so on. Now is the time when the profits fall through to the bottom line over the remainder of this year, next year and so on.

Funding costs are a major expense, and we're in discussions about additional lower cost funding. So that's clearly something we're looking at and very aware of, and there's a 17% dividend increase and the trading year-to-date means we're cautiously optimistic. Why cautiously? Well, just look at what's happening in the rest of the world, but optimistic because the fundamentals for our customer base as we speak today are extremely good.

So that brings me to the end of the presentation and would anybody like to ask any questions, and there's a microphone, which -- the microphone is useful because this actually will be webcast. Anybody like to ask questions? Yes, we got one at the back. Yes.

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Questions and Answers

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John Cronin, Goodbody Stockbrokers, Research Division - Financials Analyst [1]

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It's John Cronin from Goodbody. And just a couple of questions on -- firstly, on home credit, look, I've seen the -- I've seen your point to an expectation around modest customer number growth going forward. How should we think about that playing out following the 6% year-on-year decline in the first half? Looking at one of the charts here, it seems that there has been some stabilization in the average products term, well, or maybe emerging signs of stabilization. So should we expect to see some half-on-half growth in the second half? And what about into 2020...

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John Philip de Blocq van Kuffeler, Non-Standard Finance plc - CEO & Director [2]

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Well, I can't make any predictions about the second half because I'm not allowed to. But what we see is -- what I've said is that when you shorten the loan book, you do get some shrinkage because you don't have the longer, larger loans. And so what we see is moving towards a more normal, which is that it doesn't continue to shrink, but it either stabilizes or there's modest growth as the new customers come on.

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John Cronin, Goodbody Stockbrokers, Research Division - Financials Analyst [3]

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And when you mentioned that those customers are either deferring the renewal of their loan and -- or looking for longer-term products elsewhere perhaps. What are you seeing? Is that actually deleveraging...

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John Philip de Blocq van Kuffeler, Non-Standard Finance plc - CEO & Director [4]

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Yes, I think there are a couple of things about home credit. One is that home credit is a market, which some people move in and out of, depending on their economic circumstances and you always have some throughout all the cycles who go and see if they can get loans elsewhere. And sometimes, they can in which case, that's fine. But then there are others who are coming down into the sector. And so you take them on. And so we haven't seen any major change in those patents at all. And the only thing I would say is that it is slightly -- what we've seen is a little more caution amongst the customers. And I don't think there's anything that we would draw out of it other than the fact that, yes, economically, they're in a reasonably good position. So maybe they can let their loan run another 4 or 6 weeks before they borrow again.

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John Cronin, Goodbody Stockbrokers, Research Division - Financials Analyst [5]

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And then I'm going toward just on revenue yield, would you expect that your continued ability to take share from Amigo is going to be -- is going to see continued revenue yield compression as you price beneath that player, or do we -- could we expect to see some stabilization in that in the near term?

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John Philip de Blocq van Kuffeler, Non-Standard Finance plc - CEO & Director [6]

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Nick, do you want to?

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Nicholas John Teunon, Non-Standard Finance plc - CFO & Executive Director [7]

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Yes. I would expect more stabilization. So we have a number of price points. So Amigo still racing monoline at pricing. We have a lot of business around the 50% level. We do price comparison websites. So one of the things has taken yield down a little bit is that we'd be very successful with the price comparison websites, and that's low yield, but then we do have a higher cost product. So wouldn't expect to see a lot of change going forward.

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John Philip de Blocq van Kuffeler, Non-Standard Finance plc - CEO & Director [8]

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Okay. And then here was -- a question upfront.

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Benedict Guy Williams, Liberum Capital Limited, Research Division - Research Analyst [9]

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Ben from Liberum. Just a quick question on your biggest business, on Everyday Loans. I mean, clearly, now you are at 72, 73 branches. You've seen that curve. You've seen the branches mature over time. Do you, therefore, know what your revenue should be if you didn't open any more branches in a year or 2's time? Question number one. And second, are you prepared to give us some sort of a stay of what that might be?

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John Philip de Blocq van Kuffeler, Non-Standard Finance plc - CEO & Director [10]

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Right. Well, yes, mathematically, we can look at what the branches have achieved. And clearly, we can do the math and work that out, but what we also know is that it's very easy to draw lines and graphs and arrive at something is where we should be in 2 or 3 years' time, but that also depends on a whole number of other factors and what happens on the 31st of October and you know where the manufacturing collapses and so on. So mathematically, it's possible. Can we give you some guidance? Well, within the rules and Peter Reynolds and Nick...

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Nicholas John Teunon, Non-Standard Finance plc - CFO & Executive Director [11]

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Account because we've given you the chart, it shows that longer term, they get to kind of GBP 4 million receivables, the yield is 45%, 46%. So that's our ambition is to take the branches that are young and immature and get them to that kind of GBP 4 million of receivables, which is kind of where that the more mature branches go to.

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John Philip de Blocq van Kuffeler, Non-Standard Finance plc - CEO & Director [12]

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Any other questions? Anybody would like to ask, yes.

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Mark Thomas, Hardman & Co. - Analyst [13]

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It's Mark Thomas at Hardman. And I suspect you'll say not yet, but can you explore a bit more about the finance cost savings. So can you say what the expected rate might be or give a range? And how much of existing facilities might be repaid...

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Nicholas John Teunon, Non-Standard Finance plc - CFO & Executive Director [14]

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It's not yet as you expect, Mark. So obviously, we're in a position to say that we will let the market know.

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Mark Thomas, Hardman & Co. - Analyst [15]

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But I mean, would it be fair to say you would expect that to be a repayment of some existing facilities?

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Nicholas John Teunon, Non-Standard Finance plc - CFO & Executive Director [16]

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I think that is a reasonable assumption, but that's partly discussion with our existing lenders, partly discussion with potential new lenders, but that would be an ideal outcome, I think.

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Mark Thomas, Hardman & Co. - Analyst [17]

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Okay. And second question then on the guarantor loans and the credit collection. I would've thought the nature of the loan was that if you delay just the collection, you would still be able to make a collection at a later point. So should we expect some recovery of the collections, which weren't made due to the operational difficulties as we move into sort of full swing?

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Nicholas John Teunon, Non-Standard Finance plc - CFO & Executive Director [18]

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Some, but I mean, there is, I think, an element that we know if you don't collect and you don't give the guidance well, quickly enough, you may actually not get that money back. So I think there'll be -- some of that will come back, but I wouldn't sort of assume all of it. But we remain comfortable with our target of 20% to 22% as the impairment of percentage of revenues.

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John Philip de Blocq van Kuffeler, Non-Standard Finance plc - CEO & Director [19]

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Yes. You should use that. Anything else? Yes. John?

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John Cronin, Goodbody Stockbrokers, Research Division - Financials Analyst [20]

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John Cronin from Goodbody again. And one final one for me on home credits. I appreciate that's a question that's been asked before, and there's strong evidence of good cost control in the home credit business, but any anticipation of any regulatory changes that could be imposed upon you following Provident's moves a number of years ago to change the structure of that business. Anything to call out there that's...

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John Philip de Blocq van Kuffeler, Non-Standard Finance plc - CEO & Director [21]

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I mean, we obviously had -- I mean, first of all, we see the FCA at various different levels, including top level, medium level and normal regulatory level on a regular basis. We had particular reason to see them on a very, very regular basis throughout the first few months of this year. And so what I can absolutely categorically say is that -- and the things that Provident have done have absolutely categorically never been raised with us by the FCA as no need for the future.

In fact, what they see is they're focused as I say, on good customer outcomes. And so, therefore, it is all about what delivers good customer outcomes. And if you can have a self-employed agency for us which delivers good customer outcomes and you have an employed agency, employed force, which gets good customer outcomes, they would be perfectly happy to have both. It's just -- they're focused on is the customer well treated. That's what they mind about the model, completely agnostic to.

Okay. Thank you very much. And of course, Nick and myself are around and Peter as well to be able to talk to any of you individually and give you any further guidance that's brokered. So thank you all very much.