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Edited Transcript of PCF.L earnings conference call or presentation 4-Dec-19 10:30am GMT

Full Year 2019 PCF Group PLC Earnings Call

Dec 6, 2019 (Thomson StreetEvents) -- Edited Transcript of PCF Group PLC earnings conference call or presentation Wednesday, December 4, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* David Richard Bull

PCF Group plc - Finance Director & Executive Director

* Robert John Murray

PCF Group plc - MD, Company Secretary & Director

* Scott David Maybury

PCF Group plc - CEO & Director

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Presentation

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Operator [1]

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Hello, and welcome to the PCF Group plc Full Year Results Briefing for Analysts. (Operator Instructions)

Today, I'm pleased to present Scott Maybury, the Chief Executive Officer; Robert Murray, the Managing Director; and David Bull, the Finance Director.

Please go ahead with your meeting.

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Scott David Maybury, PCF Group plc - CEO & Director [2]

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Good morning, everyone, and thank you for coming along to the PCF Bank results meeting, and welcome to our new offices, which we've only been into for a couple of months. I'm joined today by Robert and David, as has already been announced. And the executive team would just like to take you through this year's results, which we're very proud to announce. We have shown further advancement as a bank.

And I would like to think of 5 years ago when we first nurtured the thought of becoming a bank, how far we've come in those 5 years. And the objectives and plans that we have delivered, it's very pleasing to be sitting here in front of you today with a PBT of GBP 8 million and a portfolio of GBP 339 million.

What I'd like to go through today is to talk through the performance in the actual numbers. David will take you through those down to the income statement and the balance sheet if you prefer, which is in the appendices of the presentation as well. And we'll spend some time on the business lines, which have done so well today, the portfolio growth and the acquisitions, which I'm sure you've all -- the acquisition, which you're interested in and diversification into property bridging finance as well. And Robert will handle that.

And then I'll come back at the end and just take you through our plans for 2020. I can assure you we won't be resting on our laurels.

And also just to give you a little bit of a feel for why PCF Bank is doing well in this market. Basically our financials are having a great time with it, not everyone is reporting fantastic results like this. So I think it's important for people to just understand why we can -- why we've had this success, and why we believe we can continue to deliver this success in this marketplace.

So with that, perhaps, if we turn to the first page of the presentation, Page 4, the overview. I think most of the people around this table understand what PCF Bank is about. But on -- in box 1 there, you've got the areas we lend into. Consumer and Business Finance being our core businesses of many years, and Azule being Broadcast and Media, and then the bridging Property Finance being the most recent diversification.

The -- Dave will take you through the numbers, but our portfolio of GBP 339 million this year is [in fact] sort of the path that we'd set ourselves for 2020 of GBP 350 million. So when you look at that and then you look at the return on equity, it's targets we set back in 2017. And we're a year ahead of plan.

Everyone will be familiar with our drive into prime grades, Robert will talk about what prime credit means for PCF Bank but 74% of our originations this year have been in the prime arena. That's increased from 71% the previous year, and where -- been pushing since we've known that cheaper funds [were coming about] to churn more and more of the portfolio in prime as opposed to near prime.

The equity in Tier 2 was announced earlier in the year. We'll remain capital-intensive and growing the bank is always going to be capital-intensive. But I think you can see from this year's results that the capital we've grown from the '17 and in '19 has put -- been put to very good use with strongly improving EPS and a targeted [ROE] (inaudible).

But we've moved this year, more premises first throughout the ever-growing bank. So -- and we've also got offices out in Berkshire as well, which are the offices of Azule, the company we acquired.

And you've got there also on Page 4, our KPIs that we measure ourselves against and where we came in this year. But I won't steal David's thunder and go through those line by line.

So perhaps if I hand over to David, he can take you through the operational and financial highlights, and then he'll be able to -- and pass onto Robert.

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David Richard Bull, PCF Group plc - Finance Director & Executive Director [3]

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Good morning. So operational highlights on Page 5. Just to reiterate, really, our new business origination was up 86% to GBP 276 million, that includes [Azule]. And portfolio growth up to GBP 339 million, 55% increase. And our deposits, I suppose, were supporting that growth, are now at GBP 267 million.

[Equity raised] both Tier 1 and Tier 2 debt this year, GBP 15 million was there plus drawdown as we go through the course of time. Must understand, there's a relationship between Tier 1 and Tier 2, obviously 13% of your total capital can be in Tier 2.

We've also diversified, to some extent, our funding. So we have a revolving credit facility for GBP 30 million. And we've also got a Bank of England under DWF scheme, a GBP 15 million facility. So we've got other avenues other than retail deposits.

Originations, 74% of those are in prime, you see where we are in this spectrum -- this economic spectrum we think prime is clearly the way to go and we should see our default or impairments being reduced in actual -- not necessarily in actual terms but in relative terms across our group. And that's seen an impairment charge that -- it's 0.8%. We saw a couple of things in the first half of the year, some big impairments over the course of the year. It's dropped down to 0.8%, half year it was 0.9%. And we did mention that, that 0.1% of that 0.8% is to do with the IFRS 9 implementation, which equates to about [GBP 300,000] in that number due to that new standard.

I guess I would say that we get good customer feedback and we are getting excellent rates in some of our customer teams so again, supporting our growth.

So moving on to the financial highlights. Sort of reiterate, really, from my perspective. I think it's a pleasing set of results in light of continued investment in infrastructure and governance. And so our profits were up 54% to GBP 8 million. As seen here, our actual P&L is sitting as [GBP 100,000] underlying, and that's nonrecurring profit but I'm stating just statutory profits here and results.

Operating income up to GBP 22.2 million.

The interest margin -- net interest margin is down to 7.8%, I think we've always seen that actually with growing the prime, but we'll see that dropping further as we go through the course of time. There will be a point where outlook just is reflected in that [75] and 5% base, but we've still got a little bit more time to go for that.

Earnings per share up 35%, 2.7p. Cost-to-income is stable, it's slightly come down, 57% to 56%. And I measure that as NIM, our cost as a percentage of NIM as opposed to operating income. I think we'll see that stable next year as well, as we continue to invest in people. And obviously, that investment this year will see the full year costing and this year as well, bit of premises, people, et cetera. And I think the years after that really we start to see some operational-driven as we got out of our (inaudible).

The return on assets, 2.9%. Pleased to see that stable again. And return on equity at 12.6%, matching that sort of medium-term [target]. CET1 capital ratio, 18%.

I'm happy to go through the balance sheet and P&L in detail but if we're happy to deal with any questions that people might have around the table.

Over to you, (inaudible), over to Robert then.

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Robert John Murray, PCF Group plc - MD, Company Secretary & Director [4]

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Thanks, David. Okay, if you want to move to [Page 3] to the operating divisions and how they they've performed in the last 12 months. And also, what the plans are for them going forward.

On the first slide, I guess the thing I'd really like to point out, the growth in new business originations is quite significant, obviously, GBP 276 million. A couple of additional points to that is that 30% of that comes from the new initiatives, the new diversifications, particularly into Azule, which was a non-family business that we acquired last October. And that achieved a record volume through that -- through it's own business of GBP 69 million last year. And that business is split between the transactions that we [write on] the PCF, Azule balance sheet, and this is just brokered or placed on third-party funders.

So -- and not all of that's [Azule], so

(inaudible) is done on PCF banking. And then the core businesses of Business Finance and Azule Finance now represents 70% prime originations. Bridging we started last -- this January, and (inaudible) 5% of the originations.

So if you look at the first 2 slides, concentrate on the core businesses that we've been operating in a little over 25 years, Business Finance has been the area of the organization where there's been actually the most significant growth in the prime sector. And that's because it's a very easy product to roll out our growth because in terms of it's a [rental deal]. I'll explain the difference between that and Consumer Finance in a moment.

So we've seen really good growth into the banking lines, 76% growth last year, 36% this year. 71% of that business has been in that prime credit rates, and it now contributes to the portfolio of GBP 178 million out of GBP 338 million.

What we have particularly done in the last 12 months is increase the network of broker intermediaries. So the business line market's slightly different to the consumer in suppliers. It doesn't have as many what we call super brokers, so there are large brokers transacting hundreds of millions of accounts do business. Tends to be one of the two-man bands and so to get the bandwidth we've had to recruit additional business development managers.

So we now have a team of 3 that are managing out on the road, and they're backed up by internal sales through head office.

And then what we're doing going forward is we're modernizing our proposal portal. So you would've heard us talk about eQuote, which is a web-based proposal system that we designed and created almost 20 years ago. And that was 2001 and '02. It needs a refresh so we're working at the moment on redesigning it, and then rolling it out next year, which we are hoping will be well received by the business finance brokers. Will give us a bit more impetus in the coming year.

Consumer Finance, we saw an 18% growth in business. And the reason it's set in this division has been a product which we (inaudible) long-term finance aimed at the leisure vehicle market of (inaudible) market of horseboxes, motorhomes and classic car. We've always funded these assets, and there has been an opportunity over 2 or 3 years to become -- effectively steal business from the market leader in [Black Horse] and (inaudible) service levels. And we've seen a remarkable success over the last 12 months with this product. And what's been particularly pleasing about it is that the majority of customers are buying motorhomes and horseboxes and classic cars [falling out of] credit grades. So it's really boosted the quality of business that, that [at Azule] has been writing.

It's also, as you'll see later on in some of the slides, resulting in a wider spread at our asset base within the portfolio. So we're not so exposed to motor vehicles or [partly-used] cars as we used to be. But we're looking to penetrate that market, particularly the prime market in the next 12 months, and working very hard on a prime proposition to roll out to our brokers.

During 2019, we engaged with Experian and ran a (inaudible) project to look at all the proposals we'd received since we became a bank, looking at how customers have performed and how customers have been (inaudible) or lost on grades, would have performed had they been with PCF. And as relative to that, we've redesigned our score card, and we've also introduced alternative exceptions so that -- for the top credit grades the customers get an automated acceptance from us rather than having the human touch. That's really an important thing with the car finance market because the expectation when people go to a car leadership [it sort of makes sense]. So we're looking to be rolling that out in the first quarter of 2020.

So yes, yes. So we're running a couple of very small pilot teams at the moment. It'll be [run by] March.

And Azule, is a business that we acquired last October, it -- transactions record volume of GBP 69 million last year, of which GBP 54 million was placed with third-party funders. This is a business that doesn't suit our book, concerns of either risk appetite or break, so there is something -- so you just hang up completely with the -- on the (inaudible) balance sheet or it doesn't meet the returns that we want. Or we might [recall] with that customer and we don't want to increase our exposure. So we pass that business on to third-party banks and other finance companies for a fee and the balance of GBP 15 million will be wrote on our balance sheet.

Again, strong credit quality, the 76% of their business being top credit grades.

And bridging property finance, we got the all clear from [MPI] in January this year. So I think writing business with a team that we (inaudible) with another bank.

We wrote GBP 14 million-worth of business during the first -- and 9 months to September 2019. And that's part of a pilot scheme that the Board have approved and allocated GBP 20 million to spend. We've been successful in convincing the Board that on the quality of business that we've written during the year, you see average LTV was 59%, the average term of the deal was 12 months and they presume transactions have a better risk weighting our capital ratios.

So they've brought an agreement, (inaudible) GBP 16 million-worth] of business (inaudible) year. Like our Consumer and Business Finance businesses, we have a very small market share, so [GBP 16 million] is eminently achievable.

And I think that covers the headline.

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Scott David Maybury, PCF Group plc - CEO & Director [5]

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I think that's -- would anyone like to talk about either the core products of SME or Consumer Motor or either of the 2 diversifications at this point?

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Questions and Answers

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Unidentified Analyst, [1]

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What do you think the opportunity is in Azule as a kind of -- now that you've got capital, you've got the funding. How big is that opportunity?

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Scott David Maybury, PCF Group plc - CEO & Director [2]

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Yes. It's a limited market. There are 4 finance companies in the U.K., that are doing brokerages that operates exclusively. And our opportunity at the moment would appear to be more in the European sector, so Azule in particular is finding opportunity to distribute supply relationships it has, how we can and certainly to take opportunities in the Spanish market, in particular. We also have the German office. None of that business is written on our balance sheet. So at the current time, we [throw] that out to third-party funders in those jurisdictions. And there's probably a bigger opportunity in Europe than there is in the U.K.

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Unidentified Analyst, [3]

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Would you write any...

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Scott David Maybury, PCF Group plc - CEO & Director [4]

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No, it's something that's under consideration at the moment because we have challenges in finding sufficient fundings in those countries. They have an appetite for asset finance at product. And that [type of investor].

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David Richard Bull, PCF Group plc - Finance Director & Executive Director [5]

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(inaudible) models fairly underdeveloped in all of those countries. So it's a new prospect. So it is a great opportunity. But it doesn't feel quite like the right time to be going across the border or writing our own balance sheet. So broking is probably in the short term, the (inaudible) won't deal with that market potential, but we won't say no (inaudible). Let's just see what happens.

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Robert John Murray, PCF Group plc - MD, Company Secretary & Director [6]

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[And chiefly] we're exploring other ways of funding on the deals with third-party funders [because this is not practical].

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Unidentified Analyst, [7]

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I'll just ask a couple. On the directional NIM guidance, is that entirely a function of the ongoing move to prime? Or is that anticipating any particular bits change in terms of the segments?

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Scott David Maybury, PCF Group plc - CEO & Director [8]

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No. No, the -- it is due to that business mix, that prime. But could -- so if you look back, as a percentage of prime book 4 years ago, it would would've been very small. As we head towards 75% of it being prime and we also have prime rates as a market at, say 5%, 6%, you can understand that's going to have pressure on NIM, but strategically, we feel that's the best ratio [in time].

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Unidentified Analyst, [9]

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And in terms of getting to the medium-term target of GBP 750 million, you've always talked about increased diversification by a product area. Are there any particular segments you'd call out in terms of the evolution?

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Scott David Maybury, PCF Group plc - CEO & Director [10]

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No. And if you had asked me 18 months ago, was Broadcast and Media one of them, I probably wouldn't have said -- I probably wouldn't have named it.

Where -- what we're more attracted to is the people and the business and the understanding they have of the market that they operate in. So what attracted us to Azule is a group of professionals who have been operating in that market for 15 years, understand an asset class that we didn't previously understand, have always worked in that asset class, and through their understanding, we now realize it is -- it's collateral-backed as the lending we do within this organization.

So I think those opportunities will arise in niche markets who are out there. We're attracted to those sort of niche markets, but of course, they can make the sort of return criteria that we want. So -- and that's, sort of, as opposed to some of the more traditional banking products, such as residential and commercial mortgages. We just couldn't make the sort of net interest margin that we require, or we target and their [scale of gain] which we're well short of at the moment. So you're going to see us look to those opportunities, but it's easy to say the areas that we're not going to be into. But I think certainly, the next 12 months, we'll keep our eyes out. We're not actively looking for further acquisitions, but I think the opportunity is going to arise.

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Unidentified Analyst, [11]

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Just coming back to again (inaudible) can you give a split at the moment on what the loan book is in terms of prime and near prime? Just to get a sense of how far sort of that move is to go. And also, I mean, you're suggesting that near prime will remain around 25%. Is that correct going forward? Just want to confirm that.

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Scott David Maybury, PCF Group plc - CEO & Director [12]

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Yes. The steps -- so, as you know, we have 8 credit grade and historically, we've only ever had 4. So we now have to try and find [this in] the top 4 credit ratings to be tacked on to new ones. And in terms of the top 4, we're around about 69% of our portfolio. And we're writing at 70% to 75% on an origination basis. But in terms of portfolio, it's around about 69%. And what we're seeing at the moment is pretty static. It's not increasing very much. Actually it's, obviously, (inaudible) which portfolio are we having 75% and (inaudible) 70%, it's not gong to make a huge impact. But where the real growth has been is in the top 2 grades that we've never been able to write forward because we didn't have the chief function in the banking. And that's up at about 28% and is on a constant upward curve. And obviously, because it's -- we don't have a mature portfolio with runoff every month that we write transactions in that top 2 grade (inaudible).

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David Richard Bull, PCF Group plc - Finance Director & Executive Director [13]

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I think the interesting thing there, it shows that if you go down to the numbers, we're not sort of turning our back on near prime at all. And the sort of near prime number that we're writing, very similar to the near prime numbers that we were writing 6 years ago -- 5 years ago. We're good at that, and why would we turn our back on it? It's really the near prime that's driven us to these high levels and originations in portfolio growth.

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Robert John Murray, PCF Group plc - MD, Company Secretary & Director [14]

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I think when you get to GBP 750 million, then that implies quite a lot of grades in (inaudible).

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Scott David Maybury, PCF Group plc - CEO & Director [15]

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And bridging also coming into new areas well. And of course, we didn't change the Azule model particularly in that first year. As we said in our statement today, our focus -- acquisitions don't come without risk. So our focus was very much about learning about the business, understanding the market and really nurturing what is the new channel for us, because they're direct. They have relationships with the manufacturers and distributors, who've always been intermediary-driven. So that diversifies our model as well. But it was about understanding their business and not necessarily getting hugely involved in integration at this point in time. We will move on to that this year. But we didn't change the split of the business, we've always brokered or placed more and then written on their own book. We can change that percentage going forward as well.

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Presentation

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Scott David Maybury, PCF Group plc - CEO & Director [1]

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Okay. As if there's no more questions on the new business line, let's just move on. We're on Page 12. I'll just run through -- I think we've been through most of the achievements, but just to make sure we've covered them all.

Broken the core business, as you've heard from Robert, [that occurred] to have had in SME asset finance and consumer motor. Diversification of the balance sheet, likewise, Azule through acquisition, Bridging through organic.

Our proposition to the consumer motor markets had to be changed significantly to attract the prime customer and provide the levels of service that prime motoring requires, instant decision-making, walking into a dealership and being able to drive out with a car, up a long way from where it was 10 years ago when I last bought a car. But that's where it is in the prime space these days.

We're [fully covered for] Tier 2 facility, and we've spoken about that as well. And I think that's an excellent additional strain of capital that's at our disposal. It can be drawn down in tranches, it has a small nonneutralization fee. The cost of capital is attractive to us as well. And it supplements nicely the Tier 1 we raised earlier in the year.

And we're continuing to invest, as you've heard from David, a year ahead of plan. You -- the time to put the investment in the government -- the governance, the IT systems, the platforms now. It's not waiting until the future until you see it in the pinchpoints. So we have -- are bringing forward some of our cost plans from future years into the next year to make sure that the systems and the platforms and the governance, are absolutely keeping abreast of the strong growth in the portfolio going forward.

So what are our plans for 2020? The consumer proposition is almost ready to launch, it's with a couple of trial brokers at the moment. The concept's approved, certainly on the volumes we've seen in the first couple of months of trials, very pleased with that. And that will be available, as Robert said, in calendar Q1 to roll out to the right market.

We will also trial some other consumer products on that platform as well. In some instances, a personal loan is more attractive to a customer than a high-purchase contract. And with some dealer groups, they won't allow you to sell the high-purchase contracts. So we will look at introducing that product to hold on to more of our repeat and returning customers.

We'll move then on to really circle around -- SME has been great success for us because we could roll out the cheaper funds and the prime offering very quickly, but we'll circle around to really look at the SME platform that we've got at the moment and automate a greater [margin], the decision-making on that platform and have something that are market-leading and a lot more equivalent to the larger operators in the SME space.

We'll build out the Property Finance area that Robert's mentioned that we've got sign-off for in October. We'll look at Azule's European capabilities, and we've already spoken about that. At the moment, we're focusing on placing that business in Europe. But (inaudible) with the other opportunity to come from that.

And we'll also look at monetizing some of the synergies. Azule is an asset finance business after all, so there are a lot of synergies with our own back office when it comes to IT, when it comes to risk, when it comes to treasury and finance. And without wanting to change too much too early, we'll look at that in the second year of ownership.

We'll make changes to -- well, across our platform and I'll -- we have some new savings initiatives as well in the SME space, and we'll continue to develop our portals in that area. And as we've always done, we understand what importance technology has in our financial services business, so we'll continue to drive and digitalize the business in the future.

Moving on to Page 14. I just want to explain why the 3 of us can sit here and be pleased with not just the results, but also looking forward, when, you know, the financial services hasn't been a place of great results of late and certainly, a number of people are feeling very cautious. Certainly, our statement today has plenty of caution in it. I don't think anyone around the table would be prepared to put money on how the next 12 months pan out. But certainly, as a small operator and as a new bank, it's put us in a fairly unique position to grow from a low base and implement our strategy. And that's really where the success comes.

So how can we look forward with confidence? Well, certainly, we're not a selling-off organization, we're not someone who manufactures goods. So a lot of the business and a lot of the hard work we've done over the last couple of years is sitting on our balance sheet and will earn an income over the next couple of years. Again, if we -- if our origination was to fall off, that might be bad news to years 3 and 4 going out. But certainly, the immediate future, a lot of the income is already there on our balance sheet.

You've got a management team who have operated through the cycle, through several cycles, actually. So we understand what's required, we're pricing correctly for risk, either our prudent approach to underwriting and our terms are sensible for our marketplace, so that's absolutely the right place to be.

The -- our investment in systems means that we can continue to keep pace with changes in the marketplace. And at the bottom there, I've listed out some of the reasons why we're continuing to grow and have success.

We've got a very small market share, less than 1% of the markets that we operate in. The Azule side, actually, because that's a small market, and indeed a dominant player in that market. But in our predominant business lines, we had a very small market share. So we're largely going about our business without really coming to the notice of the large competitors, I'm sure we will at some stage, but we still have plenty of room to grow.

We have diversified income stream, so we have our income coming from several areas now. But put in place the capital to execute our plan, we have access to the retail deposit market, which is delivering cheap funding. And as you've seen by the growth in the deposit book, we've had no issues in actually growing that book very strongly and we don't see any issues. But we have a diverse [growth] model of wholesale, that should be required as well. And the heavy lifting on the banking platform, and the heavy lifting on the infrastructure around the business, whether that be the governance, whether that be IT, whether it be the people, is largely being done. Most of the cost, whether it be IT systems, are -- have already been sent, so we expect to see operational gearing coming into play over the next couple of years as well.

So for all those reasons, we can feel as though -- we can make -- continue to make the sort of inroads into the markets that we're in. Yes, we will mature in, probably, the consumer motor and the SME asset finance marketplaces in a couple of years' time, but that's where our new diversifications come into play and each of diversifications will have a role to play in that as well.

So just moving on to outlook, just to finish off, so the momentum's continued. We had a record month in September across the group, GBP 27 million of origination across the group that's continued into the new year. We're targeting ourselves against net interest margin and the return on equity, which I think is going to continue to deliver an excellent shareholder return.

We're leaving our GBP 750 million target in place, in the marketplace, and we're -- I know we're ahead of where we said we'd be but for the reasons of, no one really knowing how the next 12 or 24 months are panning out, it seems sensible to leave that target in place.

So as I say in the statement with our achievement to date, it wouldn't be wrong to have an aspiration to drive forward for a [GBP 1 million -- GBP 1 billion] balance sheet in the medium term. But let's just see how the next little while pans out.

If we were to drive towards that target, I've given you a -- my sort of vision of how that would look. Asset finance would form a significant part of that book and Azule falls into that asset finance division.

Motor finance and the great news for people investing in PCF is a lot of the growth in the prime motor is yet to come. We're only rolling that out, as you heard, in the beginning of next year.

Property Finance will have a greater part to play. And after the introduce -- the introduction of 2 new asset classes over the course of the next 2 to 3 to 4 years.

We've mentioned about visualizing the business and continuing to invest in our business lines and our infrastructure. We retain our cautious outlook. Yes, the growth numbers are strong. The portfolio growth is strong, but as we say in the statement, we've really moved along a strategic growth path where we've first grown in markets that we've operated in for a long, long time. So with a fairly low risk weight to actually start to launch the bank. And we've introduced diversifications as we've seen the success in our existing marketplaces.

I think should times -- well, let's hope they're not more difficult but if times remain the same for a period, I think opportunities will arise. We've been in this market for a long time, I think, quite often, opportunities for acquisition or consolidation in the marketplace happens when you have slightly more -- slightly difficult times economically. And we'll take advantage of those.

And there's our targets going forward. ROA of 2.75%, ROE 15% and the net interest margin in the near term, greater than 7%.

So I think in summary, [at times] more difficult? Yes, it could slow our progress a little but left our existing targets in place, because I think, all things being equal, there is a substantial opportunity for us to continue to grow over the next couple of years and continue the progress that we've seen over the last 2 years since the [comeback].

Thank you. Take some questions.

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Questions and Answers

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Unidentified Analyst, [1]

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Can you talk about your cost of funding, term deposits and fee -- the facilities again.

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David Richard Bull, PCF Group plc - Finance Director & Executive Director [2]

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In terms of a bottom line cost, so interest...

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Unidentified Analyst, [3]

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So what was the yields you're paying on deposits directly and...

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David Richard Bull, PCF Group plc - Finance Director & Executive Director [4]

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Yes. So in terms of [HS], that we pay into our savers -- [the cost]. But -- so we start 100 days, go out to 7 years. The [lending] rate is about 2.2%. What is also attached to that cost of funding is some fees and costs around it. So I would say the overall cost might be 2.5%, 2.6%. If we were to draw down on the dollar rate (inaudible) that would be higher. So we don't (inaudible) back up to Tier 2 into that 8%. So we'll draw down that as required but 2.5% (inaudible) equity.

If we were to make in the SME deposit space, the cost relatively the same if not slightly less for small business deposits. Not quite sure why but tends to be 20, 30 basis points difference.

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Scott David Maybury, PCF Group plc - CEO & Director [5]

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Just probably just to add. We've got, obviously legacy block funding that's in our book, particularly with the Azure because we bought -- we had sort of GBP 10 million or so in our book. And if you looked at -- in the balance sheet, at the high tier, there's about GBP 44 million of bank debt, GBP 25 million of it is TFS. So we're still winding down the old debt structure that leaves the fund off -- and that currently would have been at [5%, 7%] when it was taken. But that's becoming -- it's a very small part of our book, obviously, TFS is the [bench] rate, so that's [0.75]. So blended-wise, it doesn't actually have a lot of effect on our -- at 2.2.

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Unidentified Analyst, [6]

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Can you roll off net block funding, as it's Azule, into deposits?

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Scott David Maybury, PCF Group plc - CEO & Director [7]

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We will do. What -- unfortunately, these are other banks who don't necessarily want to give away their facility and no discount -- so at a discount. So there will be charges if we wanted to pay those early. So we have to sort of weigh up as to what that cost is. We -- you would see, as we get towards the end of that, this year [our team] will pay them off as a cost, doing that would be minimal.

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Unidentified Analyst, [8]

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So in relative terms they're quite small now that, deposits are (inaudible)?

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Robert John Murray, PCF Group plc - MD, Company Secretary & Director [9]

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Just don't see them really willing to pay our bank's beneficiaries. In our amortizing facility. So they're naturally amortized over -- and I doubt they've got much more than 18 months, 2 years left, even if we left them that long.

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Unidentified Analyst, [10]

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Yes. You're not rolling them, you're rolling them out.

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David Richard Bull, PCF Group plc - Finance Director & Executive Director [11]

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Yes. Absolutely, as we pay them off, we raise retail deposits from our new business.

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Scott David Maybury, PCF Group plc - CEO & Director [12]

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Any other questions?

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Unidentified Analyst, [13]

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You're seeing any competition becoming more aggressive, less aggressive?

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David Richard Bull, PCF Group plc - Finance Director & Executive Director [14]

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On the 2 finance houses, we feel they've [pulled back]. So Santander, pulled back from brokerage-induced markets, and also business SME insight. Except in the existent Santander (inaudible) Barclays has pulled out of car consumer as well. It's just finance, this is probably people coming in rather than going out. There's nothing noticeable -- no noticeable exits. And the InterBay, which is part of OneSavings has been sort of on review [trades] in the SME market.

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Scott David Maybury, PCF Group plc - CEO & Director [15]

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No doubt, competition is tough. Of course, people have volume targets to reach and we see their portfolio is growing. Like I said, it's a little easier for us, off a very low market share to go unnoticed and continue to deliver, and have small amounts of volume off other people. But certainly, we see some aggressive pricing techniques, sometimes towards the end-of-period ends, et cetera, to ensure volumes are kept up. So it's -- yes, it is tough. And let's just hope that U.K. private sector and SMEs in general have the best time of it over the next 12 months and actually have a little bit more certainty around their investment plans. I think if they do that, there is no doubt, and you can't blame SMEs at all, putting off investment decisions, I certainly would be. I wouldn't be buying a large bid, [particularly] this side of the election this side of 31st of January I don't think. So hopefully, we'll get some certainty from that point of view, and that will just feel there's a [lot of share] in the marketplace.

And on the consumer motor side, of course, we're mainly used car. So I think, the trial and tribulations of the new car market have been well documented through the press. The used car lending markets actually continue to increase, and I guess that probably feels about right. People still need to change their cars, but if they're not looking at new, perhaps they're looking at used or nearly new, which is the market we operate in. So we're not -- the overall market is smaller but the used car market isn't struggling too much.

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Unidentified Analyst, [16]

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Can I ask you about -- in your outlook comment, the expectation of some deterioration in credit qualities. Just a little bit more color around that? If anything specific, any segments, which worry you? And if I can invite you to think about, what sort of cost of risk that could entail under what sort of scenarios?

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Robert John Murray, PCF Group plc - MD, Company Secretary & Director [17]

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Maybe you'd like to...

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Unidentified Analyst, [18]

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Certainly (inaudible).

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Scott David Maybury, PCF Group plc - CEO & Director [19]

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(inaudible) actually part of the reason. I think [actually] last night, a company administration officer, a 5-year high at the moment. I think compulsory arrangements, liquidations really at [70 and high]. But I think the business community is struggling more than an individual consumer sector. And that's certainly plays out when you look at our accounts that the impairment charge in consumer finance is slightly better. I think this is starting to slightly on the other side of our [whole] group impairment charge.

How that pans out going forward is anybody's guess, I think. I think we've -- I've always taken that paycheck is always down to cost of risk. And if we see the cost of risk going up, then we'll put our pricing up as well. And one of the keys for us is always in the near-prime, not in the full-prime sector. to make sure that they do translate through. There's clearly -- clear -- from the analysis we've done there's a clear difference in arrears rates, repossession rates, impairment rates between our top 4 grades and the bottom 4.

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Unidentified Analyst, [20]

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So the (inaudible) prices increase, presumably there's more...

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David Richard Bull, PCF Group plc - Finance Director & Executive Director [21]

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Low sale on business finance to consumer. So if you look to consume maybe 5 years ago, we've seen that actually (inaudible) 12, now it's 18, predominant business finance, I think will probably change to 25, now it's 45 maximum risk (inaudible).

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Scott David Maybury, PCF Group plc - CEO & Director [22]

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And the second part of your next question was around specific sectors in SME.

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Unidentified Analyst, [23]

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Construction spending.

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Scott David Maybury, PCF Group plc - CEO & Director [24]

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My notes -- they'll be leading the way and it always does at one [point], we're hugely exposed to the construction market. We have very few clients there.

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David Richard Bull, PCF Group plc - Finance Director & Executive Director [25]

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Just to put some numbers to that, because I know you like numbers, [Vivek].

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Unidentified Analyst, [26]

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Don't we all?

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Scott David Maybury, PCF Group plc - CEO & Director [27]

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Of course I'm the number's person so -- and when you look at CFD and BFD and just look at NIM, NIM having impairment charge. You'll see that (inaudible) sort of reflects the competition as well. So if the NIM is around 8.7% and BFD is 6.7%, you can understand that. And the pressures in the marketplace on the impairment charge side BFD is 0.9% and CFD is 0.7%. Slightly different but overall we've kind of changed [in term of asset] it's better in CFD than it is on BFD.

Other managed -- that's just impairment arrangements, I think is what we're saying in terms of...

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David Richard Bull, PCF Group plc - Finance Director & Executive Director [28]

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(inaudible) to Rob's point, about deal starters.

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Scott David Maybury, PCF Group plc - CEO & Director [29]

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Yes, typically you don't lose a huge amount on a consumer deal. It's kind of (inaudible) to be low balance on business funds. If you're -- an average is [44], but if you do it on [150] and it goes wrong, you're looking at GBP 20,000 impairment charge.

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David Richard Bull, PCF Group plc - Finance Director & Executive Director [30]

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Also (inaudible) say the number (inaudible).

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Scott David Maybury, PCF Group plc - CEO & Director [31]

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(inaudible) your (inaudible) or a (inaudible).

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Unidentified Analyst, [32]

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Do your comments on the matching of duration of deposits imply some turning out the book versus to where you are now? Or is it sort of steady state, because on the other hand, you're anticipating really quite rapid growth in bridging. So some of the shorter-term facilities.

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Scott David Maybury, PCF Group plc - CEO & Director [33]

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Well at any point in time, we're always looking at the mismatches. But generally speaking, we will be raising deposits in line with what our intended profile certainly is. And where that is not possible is there (inaudible) on our office. (inaudible) particular turnings, (inaudible) in place.

But you are, I will notice the count that we've got [100 down, 180 day] sits quite nicely with the provision business. Our 2- to 5-year tailing funding sits very nicely with our asset finance (inaudible). And in the 7 year term deposit sits nicely with our long-term, sort of, niche business that -- typically between 5 and 10. But actually I'd say it's 7.

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David Richard Bull, PCF Group plc - Finance Director & Executive Director [34]

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I think the diversification side, that's quite important. And we've always strive to have a wide spread of risk and low concentrations. And we've now moved to an area where we've got 4 -- of 3 divisions, I (inaudible) SME, business finance. With differing terms perhaps first (inaudible). Some (inaudible) standing out as technologies and some there's only 6 months and (inaudible), should never have bought. And then obviously if you look at the asset class, and now we're refunding assets that we've not funded before. As I said, 30% of our origination is in the new businesses that we've diversified. So again, it's spread the risk across those 4 divisions.

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Scott David Maybury, PCF Group plc - CEO & Director [35]

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Any other questions? Can we break away? Thank you for your time. Thank you for coming along. And we look forward to seeing you all again soon. Thank you.