TIDMVANQ
RNS Number : 8528U
Vanquis Banking Group PLC
31 March 2023
Vanquis Banking Group
Preliminary results for the year ended 31 December 2022
Vanquis Banking Group plc ('the Group'), a leading specialist
banking group with a focus on customers in the mid-cost and
near-prime credit markets, today publishes its results for the
twelve months to the end of December 2022, unless otherwise
stated.
Malcolm Le May, Chief Executive Officer, commented:
"I am pleased to report that the Group's adjusted profit before
tax for FY'22 is marginally ahead of market expectations. This
excellent result reflects another year of important strategic
change and progress for the Group and is the culmination of the
hard work and dedication of colleagues across Vanquis Banking Group
to whom the Board and I are extremely grateful.
We have delivered a substantial amount of progress since I took
over as CEO in February 2018 and 2022 was another important year of
strategic development for the Group. We reinforced our
repositioning as a leading specialist banking group in the mid-cost
and near-prime parts of the credit market with a focus on lower
risk customers, which has resulted in credit risk across the Group
reducing materially since 2019. The process of rebuilding the
Group's loan books back to pre-pandemic levels is underway, as
demonstrated by the excellent growth and momentum we delivered in
the fourth quarter of 2022. Reflecting this strong performance, and
the Group's strong financial foundations, the Board is proposing a
final dividend of 10.3p per share. This equates to a total dividend
of 15.3p and a pay-out ratio of 40 % consistent with our dividend
policy. The Group remains well positioned in growing addressable
markets to deliver attractive and sustainable returns to
shareholders over the medium-term whilst supporting our customers
in this challenging macroeconomic environment."
Key financial results
Twelve months ended 31
December
2022 2021
Continuing Operations: GBPm GBPm
----------- ------------
Adjusted profit before tax:
- Credit cards 178.5 173.9
- Vehicle finance 38.0 28.9
* Personal loans (15.7) (8.7)
- Central division:
* Central costs (29.9) (18.2)
* Transformation and Change (34.5) (8.1)
* Bond interest including Tier 2 (9.8) -
----------- ------------
Adjusted profit before tax from
continuing operations (1) 126.6 167.8
----------- ------------
Amortisation of acquisition intangibles (7.5) (7.5)
Exceptional items - continuing
operations (9.0) (18.1)
----------- ------------
Statutory profit before tax from
continuing operations 110.1 142.2
----------- ------------
Loss for discontinued operations (10.7) (138.1)
----------- ------------
Statutory profit before tax 99.4 4.1
----------- ------------
Credit card receivables 1,182 1,063
Vehicle finance receivables 646 586
Personal loan receivables 76 28
Total Group receivables 1,904 1,678
----------- ------------
Adjusted RORE(2) 22.2% 32.3%
Adjusted basic EPS from continuing
operations (3) (p) 38.7 57.5
Basic EPS from continuing operations(3)
(p) 32.8 53.7
Total dividend per share (p) 15.3 12.0
----------- ------------
2022 Highlights
The Group's strong performance in 2022 built on the strategic
foundations put in place in 2021
-- The Group delivered strong loan book growth in each of its
businesses, notwithstanding the challenging macroeconomic backdrop,
underpinned by its rigorous risk management framework and strong
capital position.
-- The Group's Net Interest Margin increased by 0.5% from 20.5%
in FY'21 to 21.0% in FY'22, reflecting a higher asset yield.
-- Reflecting the Group's focus on lower risk customers, asset
quality across the Group's loan books remained high and delinquency
trends were stable.
-- Group central costs increased during the period reflecting
the roll out of the shared services model and investment in the
growth and scalability of the businesses. Total Group operating
costs increased reflecting underlying cost increases and ongoing
business investment to improve scalability and operation
leverage.
-- Group statutory profit before tax from continuing operations
of GBP110.1m (FY'21: GBP142.2m ) reflecting the increase in central
costs referred to above.
-- Group adjusted profit before tax from continuing operations
of GBP126.6m (FY'21: GBP167.8m ) is a combination of better
divisional profits year-on-year offset by increased losses from the
nascent personal loans business and higher central costs as a
result of the centralisation of Group functions.
-- At the end of December 2022, the Group's capital and
liquidity positions remained robust with regulatory capital of GBP
679m (FY'21: GBP707m), equating to a CET1 ratio of 26. 4 % (FY'21:
29.1%) and a total capital ratio of 37.5% (FY'21: 40.6%). This
equates to a surplus of GBP 284m (FY'21: GBP344m) pre-C-SREP
release of capital above the Group's Total Capital Requirement
(TCR) and regulatory combined buffer (capital conservation buffer
and countercyclical capital buffer). The Group held High-Quality
Liquid Assets in the Bank of England reserve account of GBP421m at
the end of December 2022 (FY'21: GBP415m) equating to significant
levels of excess above its Liquidity Coverage Ratio (LCR)
requirement.
-- The Board is proposing a final dividend with respect of FY'22
of 10.3p per share, reflecting the Group's strong capital position
and the Board's confidence in the Group's outlook, equating to a
total dividend payable of 15.3p per share and a pay-out ratio of
adjusted continuing earnings(4) of 40%.
2022 Achievements
-- The Group successfully repositioned in the mid-cost and
near-prime segments of the market, with a focus on lower risk
customers, resulting in a materially lower credit risk profile.
-- Announced the rebranding of the Group as Vanquis Banking
Group plc shortly after the period end to better reflect the mix of
lending and its strategic ambitions.
-- Growth initiatives launched for each product including
several new credit card price points, a broader product offering
for the vehicle finance business and the open market launch and
development in the personal loans business.
-- Large exposure waiver obtained following Prudential Risk
Authority (PRA) approval enabling Moneybarn to benefit from access
to retail deposit funding via Vanquis Bank.
-- In March 2023, the Group's TCR reduced by 6.4% to 11.9%
(previously 18.3%) following the conclusion of the Group's C-SREP.
The overall capital requirement reduced from 21.8% to 15.4%, which
includes the current regulatory combined buffer of 3.5% but
excludes confidential buffers set by the PRA and internal
management buffers.
Credit card receivables grew by 11% year-on-year driven by new
customer acquisition and spend
-- The Group's credit card business reported adjusted PBT for
the year of GBP178.5m (FY'21: GBP173.9m ) which was a result of
good loan book growth, benign impairment trends and cost reductions
year-on-year.
-- New customer bookings for the period were 225k (FY'21: 199k)
reflecting an increased emphasis on customer acquisition
initiatives and above the line marketing efforts. The total number
of customers at the end of December stood at 1.54m (FY'21:
1.54m).
-- At the end of December, spend on a per average active
customer basis was approximately 6% higher year-on-year. When
combined with higher customer bookings, and payments per active
customer remaining stable, this resulted in receivables growth of
approximately 11% to GBP1,182m (FY'21: GBP1,063m).
-- The annualised cost of risk at the end of December was 1.3%
(FY'21: 0.3%) reflecting lower average gross receivables
year-on-year driven by growth in receivables being weighted towards
Q4'22. As a result, the risk adjusted margin was broadly flat at
25.8% (FY'21: 26.0%).
-- During 2023, the credit card business will continue to focus
on its strategic ambitions which include growing its customer
numbers and balances in a sustainable way and providing an enhanced
digital experience.
-- Shortly after the period end, Vanquis Bank won 'Best Benefits
or Loyalty Scheme' and 'Best Customer Service' at the Card and
Payment Awards and it also won the 'Changing Lives in the Community
Award'.
Vehicle finance adjusted PBT grew significantly in FY'22 driven
by strong loan book growth and cost controls
-- The Group's vehicle finance business delivered adjusted PBT
for the period of GBP38.0m (FY'21: GBP28.9m) which represents
strong loan book growth year-on-year and lower interest
expense.
-- At the end of December, there were 100k vehicle finance
customers (FY'21: 94k) and receivables of GBP646m (FY'21: GBP586m),
representing receivables growth of 10%. Growth in customers and
receivables year-on-year reflects the strong positioning of the
business and its ability to draw upon the Group's access to capital
and funding.
-- Credit issued during FY'22 was GBP342m (FY'21: GBP287m), a
significant increase year-on-year, reflecting new business volumes
increasing to 42k (FY'21: 37k) with vehicle pricing remaining
consistent year-on-year.
-- The annualised cost of risk at the end of December decreased
to 6.2% (FY'21: 6.6%) driven by lower arrears rates during the
period reflecting the focus on attracting lower credit risk
customers since 2019. As a result, the risk adjusted margin
improved to 11.8% (FY'21: 9.9%).
-- During 2023, the vehicle finance business will focus on
growing its addressable market by introducing new products and
services for customers including new asset classes and contract
types.
Personal loans grew strongly in FY'22 with receivables and
customer growth of 170% and 70% respectively
-- 2022 was the first full year of operations for the personal
loans business, following the successful launch of an initial pilot
phase in H2'21.
-- The Group's personal loans business delivered a loss before
tax of GBP15.7m for the period (FY'21 loss before tax: GBP8.7m)
reflecting growth in the business year-on-year and continued
investment in the IT platform supporting it, known as Gateway.
-- As of 31 December 2022, the business had 34k (FY'21: 20k)
customers and total receivables of approximately GBP76m (FY'21:
GBP28m).
-- The new IT infrastructure platform will continue to support
the personal loan product and is capable of housing multiple
products over time. It will provide customers with a single,
holistic view on its platform of all the Group's product offerings
in the future.
-- During 2023, the personal loans business will focus on
continuing the migration of its loans offering onto the new Gateway
platform, exploring new partnership agreements and assessing
opportunities to evolve its pricing and product proposition.
Second charge mortgage pilot phase launched to diversify the
product and credit risk profile of the Group
-- After the period end, the Group announced that it has
launched a pilot-phase for a new secured product offering of second
charge mortgages, to be led by Neeraj Kapur (CFO), which is
consistent with the Group's strategy of diversifying its range of
products, reducing its credit risk profile over time and promoting
financial inclusion.
-- During the pilot phase, the Group will acquire existing
second charge mortgage loans on a forward flow basis and will
recognise the loans on its balance sheet as customer receivables.
If the pilot phase is successful, the Group intends to start to
originate its own flow of new loans directly to new and existing
customers.
Outlook
-- The positive momentum seen in Q4'22 has continued in early
2023, especially in the vehicle finance and personal loans
businesses.
-- The Group continues to see no discernible deterioration in
asset quality in any of its loan books but will continue to monitor
portfolios closely for any signs of customer distress.
-- The Group plans to accelerate its receivables growth during
FY'23, versus FY'22, whilst maintaining its focus on credit quality
and risk management.
-- The Group anticipates investing a similar level of business
investment in FY'23 as it did in FY'22. As a result, Group costs
are planned to be broadly flat in FY'23 year-on-year.
-- As the Group replaces expensive legacy funding with deposit
funding, it plans for a stable NIM in FY'23
-- Over time, the Group intends to target a CET1 ratio of c.20%
over time, prior to any optimisation of the capital stack with AT1,
and will seek to achieve this target with organic receivables
growth.
Enquiries:
Analysts and shareholders:
Owen Jones, Group Head of
Investor Relations 07341 007842
Owen.jones@vanquisbankinggroup.com
Media:
Richard King, Vanquis Banking
Group 07919 866876
Nick Cosgrove/Simone Selzer,
Brunswick 0207 4045959
vanquisbankinggroup@brunswickgroup.com
(1) Adjusted profit before taxation from continuing operations
is stated before amortisation in respect of acquisition intangibles
established as part of the acquisition of Moneybarn in August 2014;
exceptional items and any losses incurred relating to CCD .
(2) Adjusted return on required equity (RORE) is defined as
adjusted profit after tax for the 12 months ended 31 December as a
percentage of average adjusted tangible equity for the 13 months
ended 31 December. Adjusted tangible equity is stated as equity
after deducting the Group's pension asset, net of deferred tax, the
fair value of derivative financial instruments, net of deferred tax
less intangible assets and goodwill.
(3) Adjusted basic EPS from continuing operations is defined as
profit after tax stated before amortisation of acquisition
intangibles, exceptional items and any losses incurred relating to
CCD. Basic EPS from continuing operations is defined as profit
after tax before any losses incurred relating to CCD.
(4) Adjusted continuing earnings is defined as profit after tax
from continuing operations before amortisation of acquisition
intangibles and any exceptional items including one-off provision
releases.
Note :
This report may contain certain "forward looking statements"
regarding the financial position, business strategy or plans for
future operations of Vanquis Banking Group. All statements other
than statements of historical fact included in this document may be
forward looking statements. Forward looking statements also often
use words such as "believe", "expect", "estimate", "intend",
"anticipate" and words of a similar meaning. By their nature,
forward looking statements involve risk and uncertainty that could
cause actual results to differ from those suggested by them. Much
of the risk and uncertainty relates to factors that are beyond
Vanquis Banking Group's ability to control or estimate precisely,
such as future market conditions and the behaviours of other market
participants, and therefore undue reliance should not be placed on
such statements which speak only as at the date of this report.
Vanquis Banking Group does not assume any obligation to, and does
not intend to, revise or update these forward-looking statements,
except as required pursuant to applicable law or regulation. No
statement in this announcement is intended as a profit forecast or
estimate for any period. No statement in this announcement should
be interpreted to indicate a particular level of profit and, as a
consequence, it should not be possible to derive a profit figure
for any future period from this report.
Chief Executive Officer's review
Introduction
2022 was another important year for the Group and one that
reinforced its strategic advantages of a well-capitalised balance
sheet, access to retail deposit funding and a stable net interest
margin. The collective efforts of all people and teams across the
organisation has enabled the Group to build on the strong
foundations put in place previously and I would like to thank them
all for their efforts during the year.
The continued focus of the Board and executive management team
on repositioning the Group in the mid-cost and near-prime segments
of the credit market has enabled the Group to commence growing its
loan books meaningfully during the year, notwithstanding the more
challenging macroeconomic backdrop. During 2022, credit card
receivables grew by approximately 11%, vehicle finance by
approximately 10% and t he Group's personal loans business grew its
receivables by 170% illustrating its strong competitive position
and underlying demand for credit from its target customers.
The FY'22 results represent my last set of full year accounts as
CEO before I hand over to my successor, Ian McLaughlin, during the
summer, subject to regulatory approval. I am immensely proud to
have been involved with the Group for the past nine years, firstly
as Independent Non-Executive Director and Executive Chair, before
becoming CEO five years ago. I believe it to be a fantastic
organisation with a real sense of purpose and of how we can best
serve our customers on their path to a better financial future. I
would like to wish everyone across the Group, and Ian when he
joins, all the best for the future.
Group financials
Turning to the financial results for 2022, the Group's statutory
profit before tax from continuing operations was GBP110.1m (FY'21:
GBP142.2m) reflecting higher central cost items year-on-year. The
Group reported an adjusted profit before tax from continuing
operations of GBP126.6m (FY'21: GBP167.8m), with strong receivables
growth across credit cards, vehicle finance and personal loans.
Whilst total income remained stable relative to 2021, volume growth
led to higher impairment charges year-on-year, and the continued
investment in the Group's IT, Operations and Change &
Transformation agenda inflated costs relative to 2021.
Group central costs increased to GBP30m (FY'21: GBP18m) during
the period reflecting the roll out of the shared services model,
transformation & change spend increased to GBP35m (FY'21:
GBP8m) and bond interest payments increased to GBP10m (FY'21:
GBPnil), which includes the first full 12 months of Tier 2
interest. This strategic investment and centralisation of functions
is designed to make the Group's future cost base more scalable and
better able to capture the benefits of operational leverage. The
investments are also designed to enhance the Group's strategic
competitive positioning through new IT platforms and improved
customer journeys. Total Group costs of GBP288m (FY'21: GBP264m)
were within the indicated range set out in the Group's H1'22
results.
New customer bookings across credit cards, vehicle finance and
personal loans for FY'22 amounted to 294k (FY'21: 249k) and, as a
result, the Group had 1,675k customers (FY'21: 1,655k) at the end
of 31 December. The Group saw positive momentum in its loan books
during the second half of the year, particularly in vehicle finance
and personal loans and, as a result, total receivables stood at
GBP1,904m (FY'21: GBP1,678m) at the end of December.
At the end of December 2022, the Group's capital position
remained robust with regulatory capital of GBP679m (FY'21:
GBP707m), equating to a total capital ratio of 37.5% (FY'21:
40.6%). This equates to a surplus of GBP284m (FY'21: GBP344m) pre
C-SREP release of capital above the Group's TCR and regulatory
combined buffer.
CEO Succession
The Group announced that Ian McLaughlin, currently CEO of Bank
of Ireland UK, would succeed me as CEO after a handover period
during the summer, subject to regulatory approval. Ian is a highly
experienced banking CEO who has a strong track record of delivering
growth through improving customer service and enhancing
distribution. He has in-depth experience across consumer finance,
motor finance, savings, SME finance and mortgages. Prior to his
current role at Bank of Ireland UK, Ian spent nearly 15 years
working in senior positions at NatWest and Lloyds Banking
Group.
Group name change
In recent years, the Group has evolved how, and to which
customers, it provides credit. This has resulted in credit quality
across the Group improving significantly, as illustrated by the
Group's current average credit risk profile more than halving since
2019. During 2021, the Group's evolution continued and involved the
closure of its home collected credit business, which carried the
'Provident' brand. The Group chose to focus on its credit cards,
vehicle finance and personal loans operations in the mid-cost and
near-prime parts of the market. Accordingly, the Group decided to
change its name to Vanquis Banking Group plc in recognition of its
new and future mix of lending products and its repositioning as a
specialist banking group. The change of name from Provident
Financial plc to Vanquis Banking Group plc became effective on 2
March 2023 and the Group's stock ticker on the LSE is now VANQ.
Product update
In January 2022, the Group announced that it had launched a
pilot phase for a personal loans business. Then, with the H1'22
results, it announced that the personal loans business would be
taken forward as a separately reported product. Since launch, the
business has performed extremely well and has grown its receivables
to approximately GBP76m as of 31 December 2022 and grown its
customer numbers to approximately 34k. This progress illustrates
the success of the product itself and the hard work of all the
people behind the scenes who have helped to deliver the product for
our customers.
As recently announced, the Group has launched another pilot
phase for a new secured product offering of second charge
mortgages. During the pilot phase, the Group will acquire existing
second charge mortgage loans on a forward flow basis and will
recognise the loans on its balance sheet as customer receivables.
If the pilot phase is successful, the Group intends to start to
originate its own flow of new loans directly to new and existing
customers. The second charge mortgage market in the UK is a large
and growing market, estimated at approximately GBP1.3bn and growing
by between 15% and 17% per annum (Source: LEK). Second charge
mortgages have the potential to improve customer outcomes and to
promote financial inclusion, consistent with the Group's purpose
and mission, whilst enabling the Group to provide attractive and
sustainable returns to its shareholders.
Updated capital requirements
Shortly after the period end, the Group was notified that the
Prudential Regulation Authority (PRA) had concluded its Capital
Supervisory Review and Evaluation Process (C-SREP) of the Group's
capital requirements, based on the Internal Capital Adequacy
Assessment Process (ICAAP) undertaken during 2022. The outcome is
that the TCR has reduced by more than a third, from 18.3% to 11.9%.
Including the current regulatory combined buffer of 3.5% (capital
conservation buffer of 2.5% and countercyclical capital buffer of
1.0%), the Group's overall capital requirement has reduced by 6.4%
from 21.8% to 15.4%, which excludes confidential buffers set by the
PRA and internal management buffers.
The reduction in capital requirements will support the Group's
focus on organic loan book growth, which is further supported by
the receipt of a large exposure waiver from the PRA in November
2022, enabling Moneybarn to access retail deposit funding via
Vanquis Bank.
Environmental, Social and Corporate Governance (ESG)
During the course of 2022, the Group redefined its Mission and
refreshed its Strategic Priorities. Vanquis Banking Group will work
towards its Mission by focusing on the three strategic priorities
of People and Culture, Customers and Community, and Growth and
Sustainability. These priorities underline the commitment to
continue responding to the needs of our key stakeholders and
managing our ESG performance. For further details of our approach
to managing and reporting our ESG performance, please refer to our
2022 Corporate Responsibility report.
During 2022, the Group continued to deliver on its commitment to
tackle climate change and its net zero by 2040 ambition. This
includes the Group accounting for all its material Scope 3
greenhouse gas (GHG) emissions and business activities and making
good progress in agreeing carbon reduction targets which will be
verified by the Science Based Target initiative by September
2023.
The Group remains committed to investing in the communities in
which it operates and to do this is launching the Vanquis Banking
Group Foundation in May 2023 with approximately GBP2.5m of funding.
This will aim to improve the lives of children and young people by
providing them with access to education, social and financial
inclusion, and economic development opportunities. In 2022, Vanquis
Banking Group started work on a new project to help families with
the cost-of-living crisis in Bradford, Liverpool, Manchester and
Blackpool. Working with longstanding community partners School-Home
Support and the Dixons Academies Trust, the Group has allocated
GBP100,000 of funding which has to date supported 1,000 school
pupils with items of uniform including blazers, shoes, coats and PE
kits.
Finally, I'm proud that we were able to support Bradford in its
quest to be named the UK City of Culture in 2025. Vanquis Banking
Group was named as the first official delivery partner for Bradford
2025 and this will see the Group support the development of the
cultural programme and ensure that it leaves a legacy for years to
come.
Outlook
Vanquis Banking Group demonstrated strong momentum across its
loan books during the fourth quarter of 2022. This positive
momentum has continued for the first two months of 2023, especially
within vehicle finance and personal loans. In the credit card
business, customer bookings tracked in-line with management
expectations and delinquency trends remained consistent with the
trend reported throughout 2022. The vehicle finance business
delivered strong new business volumes in January and February, with
no change to underwriting standards, and with stable arrears
levels. Similarly, the personal loans business has had a strong
start to the year with new business volumes up significantly
year-on-year.
The Group plans to accelerate its receivables growth during
FY'23 versus FY'22, notwithstanding the challenging macroeconomic
backdrop, supported by its strong competitive position, well
capitalised balance sheet and access to retail deposit funding. The
Group also plans to deliver a stable NIM profile in FY'23, versus
FY'22, as more expensive legacy funding is replaced by lower cost
retail deposit funding.
In order to achieve sustainable growth in the future, the Group
will continue to invest in its technological capabilities and plans
to invest a similar amount in FY'23 as it did in FY'22 in areas
such as its new IT platforms and enhancements to customer
experiences and journeys. As a result, the Group plans to incur
total costs in FY'23 that are broadly flat year-on-year. However,
in part reflecting the benefits of loan book growth, the Group
expects its underlying cost income ratio to improve during FY'23
towards its target of 40% in FY'24, notwithstanding the
persistently high inflation at present.
The Board remains committed to delivering attractive and
sustainable returns to its shareholders over the medium-term. This
is predicated upon the Group's solid foundations which includes a
customer-led digital strategy to offer a diverse and inclusive
range of products and a strong well-capitalised balance sheet. The
Group's capital management framework includes a CET1 ratio target
of c.20% over time (prior to any optimisation of the capital stack
with AT1), strong organic receivables growth, a progressive
dividend policy with a pay-out ratio of c.40% of adjusted earnings,
and the potential for selective bolt-on opportunities or one-off
returns of any ongoing surplus capital to shareholders.
Malcolm Le May
Chief Executive Officer
30 March 2023
Financial review
Group performance
The Group's 2022 results are as follows:
2022 2021
GBPm GBPm
Period-end receivables 1,904 1,678
Average gross receivables(1) 2,039 2,076
-------- --------
Interest income 486.9 473.9
Interest expense (58.8) (49.1)
-------- --------
Net interest income 428.1 424.8
Net fees and commission income 44.2 57.4
Other income 8.4 0.4
-------- --------
Total income 480.7 482.6
Impairment charges (66.1) (50.4)
-------- --------
Risk-adjusted income 414.6 432.2
Operating costs (288.0) (264.4)
-------- --------
Adjusted profit before tax -
Continuing operations(2) 126.6 167.8
-------- --------
Amortisation of acquisition intangibles (7.5) (7.5)
Exceptional items - Continuing
operations (9.0) (18.1)
-------- --------
Statutory profit before tax -
Continuing operations(3) 110.1 142.2
Loss for discontinued operations (10.7) (138.1)
-------- --------
Group profit before tax 99.4 4.1
-------- --------
Tax - Continuing operations (27.8) (7.6)
Tax - discontinuing operations 5.8 (28.6)
-------- --------
Profit/(loss) after tax 77.4 (32.1)
-------- --------
(1) Calculated as the average of month end gross receivables for
the 13 months ended 31 December.
(2) Adjusted profit before tax from continuing operations is
stated before amortisation in respect of acquisition intangibles
established as part of the acquisition of Moneybarn in August 2014,
exceptional items and any losses incurred relating to CCD.
(3) Statutory profit before tax from continuing operations is
stated before any losses incurred relating to CCD.
(4) In line with our continued repositioning as a specialist
banking group, the Group has taken the decision in the current year
to change the presentation of our Income Statement to align with
the wider banking industry. See page 22 in the statement of
accounting policies for further details on the change in
presentation. In line with these changes and to more closely align
to our peers in the industry, the Group have implemented updated
APM's to provide more relevant and reliable information for
stakeholders. The changes to APM's are summarised at the end of
this report and all presented APM's have been retrospectively
re-presented in line with these changes. Unless stated below all
other APM's are presented consistently with prior years.
The Group reported an adjusted profit before tax from continuing
operations of GBP126.6m (FY'21: GBP167.8m), which reflects an
improvement year-on-year in divisional profits being offset by
higher central costs as a result of increased Transformation &
Change spend and the roll out of the shared services model.
Including amortisation of intangibles, CCD discontinued operations
and exceptional items, all of which reduced significantly versus
FY'21, the Group PBT was GBP99.4m (FY'21: GBP4.1m).
The credit card business reported adjusted profit before tax for
the period of GBP178.5m (FY'21: GBP173.9m) and receivables ended
the period at GBP1,182m (FY'21: GBP1,063m). The vehicle finance
business generated adjusted profit before tax of GBP38.0m (FY'21:
GBP28.9m) and receivables ended the period at GBP646m (FY'21:
GBP586m). CCD reported a loss before tax of GBP10.7m (FY'21:
GBP138.1m).
On an adjusted continuing basis, the Group reported an adjusted
basic EPS of 38.7p (FY'21: 57.5p) and a basic EPS of 32.8p for
FY'22 (FY'21: 53.7p). On a statutory basis, the Group reported a
basic earnings per share of 30.8p (FY'21: Loss per share 12.8p) for
FY'22 reflecting the statutory profit after tax of GBP77.4m (FY'21
loss after tax: GBP32.1m).
Macroeconomic provision and cost of living
Macroeconomic provisions are recognised in credit cards, vehicle
finance and personal loans to reflect an increased probability of
default (PD) in addition to the core impairment provisions already
recognised, based on future macroeconomic scenarios.
The macroeconomic provision for continuing operations considers
the relationship between the hazard rate, the number of people who
were employed last month but who are unemployed the following month
(derived from unemployment), debt to income ratio and default
rates.
The provision reflects the potential for future changes under a
range of forecasts, as analysis has clearly evidenced correlation
between hazard rates, debt to income ratios and credit losses
incurred.
The unemployment data has been compiled from a consensus of
sources including the Bank of England, HM Treasury, the Office for
Budget Responsibility (OBR), Bloomberg and a number of prime
banks.
The table below shows the annual peak and average unemployment
assumptions adopted and the weightings applied to each. The
weightings have remained consistent with prior year.
The Group will continue to analyse and assess if there are any
additional macroeconomic indicators which also correlate with
credit losses.
Base Downside Upside Severe
Weighting 50% 35% 10% 5%
----- --------- ------- -------
2023
Peak 4.5 4.9 3.6 5.8
Average 4.1 4.2 3.4 4.6
----- --------- ------- -------
2024
Peak 4.8 6.4 3.9 8.5
Average 4.7 5.8 3.6 7.4
----- --------- ------- -------
Management has placed a significant focus on the cost of living
crisis and post-model overlays are recognised across all products.
However, credit performance across the Group remains stable and
internal analysis shows no obvious signs
of stress from the cost of living crisis at this stage. The
Group's customers are more agile in managing their finances during
times of affordability constraints. A significant proportion of the
Groups customers are also expected to benefit from wage increases
during 2023 which will help alleviate financial stress .
Management judgement has been used to determine appropriate
amounts to be held as cost of living post-model overlays taking
into account the total level of provisioning held across the
portfolio including the macroeconomic provision. Scenario modelling
techniques have been used to support the amount of post-model
overlays recognised for a potential cost of living impact .
A breakdown of the in-model and post-model overlays is included
within note 8.
Credit Cards
Twelve months ended 31
December
2022 2021 Change
--------
GBPm GBPm
--------- -------- --------
Total customer numbers ('000) 1,541 1,541 -%
Active customer numbers ('000) 1,221 1,266 (3.6%)
Period-end receivables 1,182 1,063 11.2%
Average gross receivables(1) 1,332 1,379 (3.4%)
-------------------------------- --------- -------- --------
Interest income 333.2 328.8 1.3%
Interest expense (22.4) (24.9) (10.0%)
-------------------------------- --------- -------- --------
Net interest income 310.8 303.9 2.3%
Net fee and commission income 44.2 57.4 (23.0%)
Other income 5.1 0.4 1175.0%
Total income 360.1 361.7 (0.4%)
Impairment charges (16.8) (3.7) 354.1%
-------------------------------- --------- -------- --------
Risk-adjusted income 343.3 358.0 (4.1%)
Operating costs (164.8) (184.1) (10.5%)
-------------------------------- --------- -------- --------
Adjusted profit before tax (2) 178.5 173.9 2.6%
-------------------------------- --------- -------- --------
Annualised asset yield(3) 25.0% 23.8% 1.2%
Annualised cost of risk(4) (1.3%) (0.3%) (1.0%)
Annualised return on equity(5) 32.1% 42.7% (10.6%)
(1) Calculated as the average of month end gross receivables for
the 13 months ended 31 December.
(2) Adjusted profit before tax is stated before GBP0.2m of
exceptional redundancy costs in 2022 and exceptional redundancy
costs of GBP1.0m in 2021.
(3) Interest income as a percentage of average gross receivables
for the 13 months ended 31 December.
(4) Impairment charges as a percentage of average gross
receivables for the 13 months ended 31 December.
(5) Adjusted profit after tax as a percentage of average equity
for the 13 months ended 31 December.
The Group's credit card business is a leading specialist lender
in the large and established credit card market with strong capital
and liquidity positions. For FY'22, the business reported adjusted
profit before tax of GBP178.5m (FY'21: GBP173.9m) and receivables
at the end of the period of approximately GBP1,182m (FY'21:
GBP1,063m). Shortly after the period end, Vanquis Bank won 'Best
Benefits or Loyalty Scheme' and 'Best Customer Service' at the Card
and Payment Awards and it also won the 'Changing Lives in the
Community Award'.
New customer bookings for the year were 225k, up from 199k in
FY'21, as a result of new customer acquisition initiatives
including a broader range of price points and improved Balance
Transfer offerings. Credit card customer numbers were broadly flat
at 1,541k as of December (FY'21: 1,541k) versus a decline the year
before. Active customer numbers, defined as customers with activity
on their card in the last month, were 1,221k (FY'21: 1,266k).
During 2022, credit line increases amounting to approximately
GBP318m (FY'21: GBP170m) were issued to customers as part of
Management's strategy to rebuild the loan book on a prudent basis
whilst supporting our customers' additional credit requirements. At
the end of December, the average utilisation rate was approximately
48%, which remains below levels seen pre-Covid. The business has
launched several initiatives designed to improve the utilisation
rate including the launch of Android Wallet during H2'22.
Receivables ended the period at GBP1,182m (FY'21: GBP1,063m),
representing growth of 11% year-on-year.
The credit card business generated interest income of GBP333.2m
during the year, versus GBP328.8m in 2021. There was an improvement
in the asset yield to 25.0% (FY'21: 23.8%), which reflects the
combination of higher interest income and lower average balances
year-on-year.
Funding costs decreased to GBP22.4m during the year, versus
GBP24.9m in FY'21, reflecting lower retail deposit balances held
year-on-year, as the amount of deposits held was normalised
post-Covid. Net fee and commission income reduced in FY'22 to
GBP44.2m (FY'21: GBP57.4m) reflecting the cessation of the ROP
product.
The impairment charge for FY'22 was GBP16.8m (FY'21: GBP3.7m),
an increase year-on-year reflecting lower average gross receivables
driven by growth in receivables being weighted towards Q4'22 ,
which equated to an annualised cost of risk of 1.3% (FY'21: 0.3%).
The higher impairment charge offset the higher asset yield to
produce a risk-adjusted margin which was flat year-on-year at 25.8%
(FY'21: 26.0%).
Costs decreased to GBP164.8m during the year versus GBP184.1m in
FY'21 reflecting lower salary costs, an improved profile with some
supplier arrangements and some centralisation of functional
costs.
The credit card business grew its loan book by 11% during 2022,
the highest level of growth since 2017, and it has maintained its
strong capital and liquidity positions. It remains focused on
enhancing its customer and digital propositions, including a new
Vanquis mobile app, and improving its range of services for
customers. During 2023, the credit card business will continue to
focus on its strategic ambitions which include growing its customer
numbers and balances in a sustainable way and providing an enhanced
digital experience.
Vehicle Finance
Twelve months ended 31
December
2022 2021 Change
--------
GBPm GBPm
-------- ------- --------
Total customer numbers ('000) 100.0 93.9 6.5%
Period-end receivables 646.1 586.2 10.2%
Average gross receivables(1) 656.6 671.1 (2.2%)
-------------------------------- -------- ------- --------
Interest income 140.6 137.9 2.0%
Interest expense (22.1) (27.1) (18.5%)
-------------------------------- -------- ------- --------
Net interest income 118.5 110.8 6.9%
Total income 118.5 110.8 6.9%
Impairment charges (40.8) (44.6) (8.5%)
-------------------------------- -------- ------- --------
Risk-adjusted income 77.7 66.2 17.4%
Operating costs (39.7) (37.3) 6.4%
-------------------------------- -------- ------- --------
Adjusted profit before tax(2) 38.0 28.9 31.5%
Annualised asset yield(3) 21.4% 20.5% 0.9%
Annualised cost of risk(4) (6.2%) (6.6%) 0.4%
Annualised return on assets(5) 3.6% 3.0% 0.6%
(1) Calculated as the average of month end gross receivables for
the 13 months ended 31 December.
(2) Adjusted profit before tax is stated before GBP0.2m of
exceptional redundancy costs in 2022 and exceptional Senior bond
buy-back costs of GBP1.4m in 2021.
(3) Interest income as a percentage of average gross receivables
for the 13 months ended 31 December.
(4) Impairment charges as a percentage of average gross
receivables for the 13 months ended 31 December.
(5) Adjusted profit after tax as a percentage of average total
assets for the 13 months ended 31 December.
The Group's vehicle finance business is one of the leading
suppliers of vehicle finance to non-prime customers in the UK. For
the twelve months to the end of 31 December 2022, Moneybarn
generated adjusted profit before tax of GBP38.0m (FY'21: GBP28.9m)
and receivables at the period end were GBP646m (FY'21: GBP586m),
representing growth of 10% year-on-year.
New business volumes in FY'22 grew by 14% versus FY'21 at 42k
(FY'21: 37k) notwithstanding the challenging macroeconomic
backdrop. As a result, the vehicle finance business ended the year
with 100k customers for the first time in its history (FY'21:
93.9k). As a result of its focus on higher quality customers on
average, and the robust pricing environment seen in the used-car
market throughout 2022, the average loan size increased to
approximately GBP9k whilst maintaining average loan to values
consistent with 2021, which drove total credit issued to over
GBP342m after unwinds (FY'21: GBP287m).
At the end of December, receivables stood at GBP646.1m (FY'21:
GBP586.2m), driven by the improvement in business volumes
year-on-year, particularly during the second half of the year.
Interest income during FY'22 increased to GBP140.6m (FY'21:
GBP137.9m) reflecting the growth in the loan book year-on-year. The
annualised asset yield increased year-on-year to 21.4% versus 20.5%
in FY'21 reflecting the fall in average gross receivables
year-on-year as a result of the timing of new business volumes
being weighted to the second half of the year.
Interest costs decreased during the year to GBP22.1m from
GBP27.1m in FY'21 reflecting a lower cost of funding received from
the Group during the period, including the intercompany loan from
Vanquis Bank. As a result, the net interest margin improved at the
end of December stood at 18.0% versus 16.5% a year earlier.
Impairment fell year-on-year to GBP40.8m (FY'21: GBP44.6m) as a
result of the business' focus on lower risk customers in recent
years coupled with a small amount of provision release. As a
consequence, the annualised cost of risk decreased to 6.2% from
6.6% in FY'21. This resulted in the risk-adjusted margin improving
to 11.8% (FY'21: 9.9%).
Costs increased during the course of the year to GBP39.7m
(FY'21: GBP37.3m), albeit by a much-reduced rate versus the
previous year, reflecting the increase in lending volumes
year-on-year and the additional service costs associated with the
higher volumes.
During 2023, the vehicle finance business will focus on growing
its addressable market by introducing new products and services for
customers including new asset classes and contract types.
Personal Loans
Twelve months ended 31
December
2022 2021 Change
--------
GBPm GBPm
-------- ------- --------
Total customer numbers ('000) 34.4 19.9 72.9%
Period-end receivables 76.3 28.1 171.5%
Average gross receivables(1) 50.9 25.6 98.8%
------------------------------- -------- ------- --------
Interest income 13.1 7.2 81.9%
Interest expense (1.2) (0.8) 50.0%
------------------------------- -------- ------- --------
Net interest income 11.9 6.4 85.9%
Total income 11.9 6.4 85.9%
Impairment charges (8.5) (2.1) 304.8%
------------------------------- -------- ------- --------
Risk-adjusted income 3.4 4.3 (20.9%)
Operating costs (19.1) (13.0) 46.9%
------------------------------- -------- ------- --------
Loss before tax (15.7) (8.7) 80.5%
Annualised asset yield(2) 25.7% 28.1% (2.4%)
Annualised cost of risk(3) (16.7%) (8.2%) (8.5%)
(1) Calculated as the average of month end gross receivables for
the 13 months ended 31 December.
(2) Interest income as a percentage of average gross receivables
for the 13 months ended 31 December.
(3) Impairment charges as a percentage of average gross
receivables for the 13 months ended 31 December.
Vanquis Banking Group established a personal loans business
during 2021 to diversify its product offering to new and existing
customers. Its products are positioned within the mid-cost credit
segment of the market, and loans range from between GBP1k - GBP5k
over one to four years. The typical personal loan customer will be
similar in nature to existing credit card and vehicle finance
customers with similar average credit scores. The business grew
both customer numbers and receivables strongly during FY'22
reflecting the successful launch of the business and its market
position.
New business volumes during FY'22 were 27k, versus 12.8k in
FY'21, reflecting the business' first 12 months as an open market
operator. As a result of these new customer bookings, the
businesses ended the year with 34.4k customers versus 19.9k at the
end of FY'21. At the end of December, receivables stood at GBP76.3m
versus GBP28.1m at the end of FY'21, driven by new business volumes
increasing significantly year-on-year.
The personal loans business generated interest income of
GBP13.1m during the year (FY'21: GBP7.2m) driven by higher average
receivables year-on-year as the business grew strongly throughout
the period. The asset yield for the year was 25.7% versus 28.1% in
FY'21 reflecting the growth in the loan book during the period.
The impairment charge for FY'22 increased to GBP8.5m, from
GBP2.1m in FY'21, as the business began to gain scale and book new
customer loans. This equated to an annualised cost of risk for the
year of 16.7% (FY'21: 8.2%), which resulted in the risk-adjusted
margin falling to 6.7% versus 16.8% for the prior year.
Interest costs for the year increased to GBP1.2m, versus GBP0.8m
in 2021, reflecting higher average balances being carried, equating
to an interest margin of 2.4% versus 3.1% in FY'21. Costs increased
during the course of the year to GBP19.1m (FY'21: GBP13.0m)
reflecting higher new business volumes and the ongoing investment
in the new IT infrastructure platform known as Gateway.
During 2023, the personal loans business will focus on
continuing the migration of its loans offering onto the new Gateway
platform, exploring new partnership agreements and assessing
opportunities to evolve its pricing and product proposition.
Discontinued Operations
Consumer Credit Division
Year ended 31 December
2022 2021 Change
---------
GBPm GBPm
------- ------- ---------
Interest income - 68.0 (100.0%)
Interest expense (6.2) (12.1) (48.8%)
----------------------------- ------- ------- ---------
Net interest income (6.2) 55.9 (112.0%)
Total income (6.2) 55.9 (112.0%)
Impairment charges - (59.6) (100.0%)
----------------------------- ------- ------- ---------
Risk-adjusted income (6.2) (3.7) 67.6%
Operating costs (9.1) (91.8) (90.1%)
----------------------------- ------- ------- ---------
Adjusted loss before tax(1) (15.3) (95.5) (83.9%)
(1) Adjusted loss before tax is stated before an exceptional
credit of GBP4.6m (FY'21: Exceptional costs: GBP42.6m)
The Consumer Credit Division ('CCD') comprised Provident home
credit and Satsuma loans. The Group announced in 2021 that it had
decided to place the division into a managed run-off, as the
business faced a mounting number of operational and regulatory
headwinds. The business was closed as at the end of December
2021.
For FY'22, CCD reported an adjusted loss before tax of GBP15.3m,
versus an adjusted loss before tax of GBP95.5m in 2021. The
decreased loss for the period reflects the business being placed
into a managed run-off in 2021.
Central costs
Group central costs increased to GBP30m (FY'21: GBP18m) during
the period reflecting the roll out of the shared services model,
transformation & change spend increased to GBP35m (FY'21:
GBP8m) and additional bond interest payments of GBP10m (FY'21:
GBPnil), which includes the first full 12 months of Tier 2
interest. This strategic investment and centralisation of functions
is designed to make the Group's future cost base more scalable and
better able to capture the benefits of operational leverage. The
investments are also designed to enhance the Group's strategic
competitive positioning through new IT platforms and improved
customer journeys. Total Group costs of GBP288m (FY'21: GBP264m)
were within the indicated range given with the H1'22 results.
Exceptional items
An exceptional cost of GBP9.0m was recognised for continuing
operations in FY'22. This includes: (i) corporate costs incurred
centrally (GBP3.8m); (ii) additional Scheme costs (GBP3.7m); and
(iii) redundancy costs (GBP1.5m). This compares to an exceptional
cost of GBP18.1m in 2021 as a result of: (i) corporate costs
including CCD closure (GBP11.5m); (ii) additional Scheme costs
(GBP5m); (iii) Senior bond buy-back costs (GBP3.9m); offset by (iv)
a pension credit (GBP2.3m).
Tax
The tax charge for 2022 represents an effective tax rate of
25.2% (FY'21: 5.3%) on profit before tax which results in a tax
charge of GBP27.8m being recognised in the year for continuing
operations (FY'21: GBP7.6m) which principally reflects:
i. the mainstream corporation tax rate of 19.0% on the Group's
profit before tax from continuing operations generating a tax
charge of GBP29.4m (FY'21: tax charge of GBP23.7m);
ii. the mainstream corporation tax rate of 19.0% on Group
exceptional items from continuing operations generating a tax
credit of GBP0.2m (FY'21: tax credit of GBP15.3m); and
iii. the mainstream corporation tax rate of 19.0% on the
amortisation of acquisition intangibles generating a tax credit of
GBP1.4m (FY'21: tax credit of GBP0.8m).
The effective tax rate is principally the result of:
i. the adverse impact of the bank corporation tax surcharge of GBP8.4m (FY'21: GBP12.2m);
ii. an adverse impact of GBP3.2m (FY'21: GBPnil) of revaluing
deferred tax assets and liabilities in credit cards and personal
loans for the changes enacted in 2022 which with effect from 1
April 2023 reduce the bank corporation tax surcharge rate from 8%
to 3% and increase the bank corporation tax allowance, being the
threshold below which banking profits are not subject to the
surcharge, from GBP25m to GBP100m. In 2021, the revaluation of
deferred tax assets and liabilities for the increase in the
mainstream corporation tax rate from 19.0% to 25.0% with effect
from 1 April 2023 gave rise to a beneficial impact on the tax
charge of GBP5.0m;
iii. the beneficial impact of tax losses of discontinued
operations being surrendered as group relief to continuing
operations at a discounted price which gives rise to a tax credit
of GBP3.3m (FY'21: tax credit of GBP6.5m);
iv. an adverse impact of GBP0.9m in respect of non-deductible
expenses, principally exceptional project related costs (FY'21:
adverse impact of GBP0.5m);
v. the beneficial impact of adjustments in respect of prior
years of GBP3.6m (FY'21: adverse impact of GBP0.5m) which comprise
a release of GBP4.4m following the agreement of historic tax
liabilities net of a tax charge of GBP0.8m in respect of prior year
project costs for which tax deductions may not be available. In
2021, the adverse impact of GBP0.5m related to adjustments to prior
year deferred tax on share scheme awards;
vi. an adverse impact of GBP1.0m (FY'21: beneficial impact of
GBP7.8m) related to prior year transfer pricing adjustments between
continuing and discontinued operations, as well as adjustments
related to prior year tax losses of the discontinued operation
which were surrendered as group relief to the continuing operation
at a discounted price; and
vii. in 2021, the beneficial impact of the release of the
exceptional complaints provision in CCD following the
implementation of the Scheme of Arrangement which was taxable in
discontinued operations but which on consolidation was recognised
in continuing operations.
Dividends
The Board is proposing a final dividend with respect of FY'22 of
10.3p per share, reflecting the Group's strong capital position and
the Board's confidence in the Group's outlook, equating to a total
dividend payable of 15.3p per share and a pay-out ratio of adjusted
continuing earnings of 40%. The dividend will be payable to those
shareholders on the register as at close of business on 21 April
2023, with an ex-dividend date of 20 April 2023, and will be paid
on 7 June 2023.
Funding and capital
The Group has strong capital and liquidity positions:
-- The Group is holding GBP421m of high-quality liquid resources
with the Bank of England and has a Liquidity Coverage Ratio of
1,139%, amounting to GBP384m above the Group's regulatory Liquidity
Coverage Ratio requirement. Additionally, the Group has GBP50m of
undrawn commitments on its secured funding lines, excluding any
confidential and management buffers.
-- The Group's balance sheet position at the end of December
remained robust, with regulatory capital
of GBP679m, a CET1 ratio of 26.4% and a total capital ratio of
37.5%, versus requirements of 13.8% and 21.8% respectively [1] .
Total capital includes the Group's GBP200m Tier 2 capital
instrument.
In 2022, the Group continued to deliver on a number of its
funding objectives: (i) in line with the Group's strategy to reduce
its reliance on Revolving Credit Facilities (RCF) as a source of
funds the Group took the decision to repay the RCF early on 30
March 2022 (the Group did not require the funding and did not plan
to renew the facility on maturity); (ii) the Group has placed all
surplus funds on deposit with the Bank of England via Vanquis Bank;
(iii) the GBP70m loan from Vanquis Bank to Vanquis Banking Group
plc was repaid early on 30 June; (iv) Vanquis Bank extended a
GBP70m loan to Moneybarn under the existing Large Exposure Limit on
30 June 2022 (that was not waiver dependent); (v) completed the
annual update of the Euro Medium Term Note (EMTN) programme in
October 2022; and (vi) the Group received approval from the
Prudential Regulation Authority (PRA) for a Core UK Group large
exposure waiver to allow the use of retail deposits held at Vanquis
Bank to fund Moneybarn No.1 Limited (see below).
On 1 November 2022, the Group received notice from the PRA that
it had approved the Group's application for a Core UK Group large
exposure waiver which will enable Moneybarn No.1 Limited, the
Group's vehicle finance subsidiary, to access retail deposit
funding via Vanquis Bank with immediate effect. This enables the
Group's transition to a traditional bank funding model in which the
Group's funding will consist of; (i) retail deposits; (ii)
securitisation of the credit cards and vehicle finance books; and
(iii) liquidity and funding facilities at the Bank of England. The
Group retains access to wholesale market funding and debt capital
via its EMTN programme. Vanquis Bank expects to further diversify
its retail deposit funding mix through more cost-effective
behaviouralised deposits and ISAs.
Moneybarn No.1 Limited has been partially funded by the bond
market historically and the large exposure waiver will allow the
Group's maturities in 2023, which amount to approximately GBP160m,
to be refinanced using retail deposits as planned. This enables the
transition towards having a funding model which is predominantly
retail deposit funded whilst maintaining the appropriate diversity
of liquidity sources.
The Group continues to adopt a prudent approach to managing its
funding and liquidity resources within risk appetite, and will
continue to optimise these resources when new opportunities become
available to the Group.
At 31 December 2022, the Group's CET1 ratio was 26.4% (FY'21:
29.1%) and the Total Capital Ratio was 37.5% (FY'21: 40.6%). CET1
decreased from GBP507m to GBP479m during 2022 and total own funds
decreased from GBP707m to GBP679m. The continuing operations of the
Group were CET1 generative in 2022. The regulatory capital headroom
above the minimum regulatory requirement of 21.8% was GBP284m at
the period end pre the C-SREP release of capital. The decrease in
headroom from GBP344m at 31 December 2021 (versus the TCR and
combined buffer) predominantly reflects; (i) the scheduled further
unwind of the IFRS 9 transitional relief in regulatory capital; and
(ii) higher risk-weighted exposures in respect of customer
receivables. These items are partly offset by the underlying profit
excluding discontinued operations.
As previously reported, the Group has elected to phase in the
impact of adopting IFRS 9 over the five-year period ending 31
December 2022 by applying add back factors of 95%, 85%, 70%, 50%
and 25% for years one to five, respectively, to the initial IFRS 9
transition adjustment. This is in addition to any subsequent
increase in expected credit losses (ECL) in the non-credit-impaired
book from transition to the end of the reporting period. The PRA
ratified additional capital mitigation proposed by the Basel
Committee, in response to Covid-19, with these measures coming into
force from 27 June 2020. The new measures allow for the impact on
regulatory capital of any increase in ECL in the non-credit
impaired book arising from 1 January 2020 to be phased in over the
five year period to 31 December 2024 (FY'20: 100%, 2021: 100%,
2022: 75%, 2023: 50%, 2024: 25%). The impact of the IFRS 9
transitional arrangements on CET1 as at 31 December 2022 was
GBP54m.
The Group has in place a Capital Principal Risk Policy, which
sets out the framework in which the Group aims to maintain a secure
funding and capital structure and establishes defined capital risk
appetite. Adherence to the policy ensures that the Group maintains
minimum capital levels and that the capital held at business
division levels is adequate to support the businesses' underlying
requirements and is sufficient to support growth in that business.
Internal capital is allocated to business lines and risk
categories, calibrated to maximise return on equity while remaining
within the risk appetite.
The distribution of dividends is aligned with the Group's growth
targets, whilst continuing to meet the required capital levels in
line with regulatory requirements and internal risk appetite. The
policy requires subsidiaries, including Vanquis Bank, to maintain
sufficient capital to meet regulatory requirements, manage for 12
months growth and investment whilst maintaining a management
buffer. Thereafter and where applicable Vanquis Bank is required to
distribute a dividend to the Group.
Principal Risks and Uncertainties
Group Principal Risks are those risks most critical to the
alignment of the Group Strategy. Principal risk categories and
associated risk appetite statements are reviewed and approved by
the Board on an annual basis, effectively defining Vanquis Banking
Group's overall risk appetite.
Capital Risk
This is defined as the risk that the Group fails to maintain the
minimum regulatory capital requirements and a management buffer on
a consolidated basis to cover risk exposures and withstand a severe
stress as identified as part of the Internal Capital Adequacy
Assessment Process (ICAAP). The Group and Bank operate within a
defined capital risk appetite, with thresholds reported to and
monitored by Group Boards. Additional metrics and thresholds have
been developed for the Group and Vanquis Bank. All thresholds have
been calibrated above the Recovery & Resolution Plan (RRP)
triggers in order to provide advance warning of threshold
breaches.
Funding and Liquidity Risk
This is defined as the risk that the Group has insufficient
financial resources to meet its obligations (cash or collateral
requirements) as they fall due, resulting in the failure to meet
regulatory liquidity requirements, or is only able to secure such
resources at excessive cost. The Group's current funding strategy
seeks to maintain a secure funding structure by maintaining access
to the liquid retail deposits market and committed facilities to
meet the Group's liquidity and funding requirements. The Group
maintains access to diversified sources of funding comprising: (i)
retail deposits; (ii) securitisation of the cards and vehicle
finance books; (iii) liquidity and funding facilities at the Bank
of England; and (iv) access to wholesale market funding and debt
capital via its EMTN programme.
Market Interest Rate Risk in the Banking Book (IRRBB) Risk
This is defined as the risk that the net value of, or net income
arising from, assets and liabilities is impacted as a result of
changes in market prices or rates, specifically interest rates,
currency rates or equity prices. The Group's corporate policies do
not permit it to undertake position taking or trading books of this
type and therefore it does not do so.
Credit Risk
This is defined as the risk of unexpected credit losses arising
through either adverse macroeconomic factors or parties with whom
the Group has contracted failing to meet their financial
obligations. Credit Risk appetite has been refreshed with metrics
and thresholds grouped by product lines to enable more focused
monitoring and management action to remain within appetite on a
timely basis. Regular reporting is in place which allows daily
monitoring of new business quality, collections performance and
concentration analysis. Extensive work has been undertaken to
enhance credit worthiness and affordability procedures.
Strategic Execution Risk
This is defined as the risk of making and/or executing poor
strategic decisions related to acquisitions, products,
distribution, etc. as a result of ineffective governance
arrangements, processes and controls. In January 2022 we created an
aligned board structure across Vanquis Banking Group and Vanquis
Bank designed to make us more efficient and provide better, more
coordinated customer service. Board Governance Manual and Delegated
Authorities Matrix (DAM) are in place to provide a framework for
key decision making at all levels across the Group. Executive
Director scorecards are in place with reward incentives based on a
combination of financial and non-financial measures.
Climate Risk
This is defined as the physical risk of the impacts of climate
change and the business risk posed to the Group and its
counterparties related to non-compliance costs and financial loss
associated with the process of adjusting to a low carbon economy.
The Group continues to develop an approach to Climate risk
management through the Climate Risk Committee and risk management
activities to identify the physical and transition climate related
risks that have implications for the Group's business model and
stakeholders.
Legal and Governance Risk
This is defined as the risk that the Group is exposed to
financial loss, fines, censure or enforcement action due to failing
to comply with legal and governance requirements as a result of
ineffective arrangements, processes and controls. The Group
operates in a highly regulated environment and in a sector where
its customers are more vulnerable and need careful management. At
all levels, the Group has worked hard to build and maintain
positive relationships with our key regulators. Any regulatory
actions are managed and monitored closely to ensure these are
delivered fully and within the spirit of any feedback received.
Financial Crime Risk
This is defined as the risk that the Group's products and
services are used to facilitate financial crime against the Group,
customers or third parties. The Group operates a strong and
risk-proportionate set of systems and controls to detect and
prevent financial crime. The Group is committed to complying with
applicable legislation for the management of Financial Crime Risk,
ensuring that it meets the minimum requirements and expectations of
the regulatory bodies and those set by legislation for managing
Financial Crime Risk effectively.
Conduct and Regulatory Risk
Conduct Risk is defined as the risk of customer detriment due to
poor design, distribution and execution of products and services or
other activities which could lead to unfair customer outcomes or
regulatory censure. Regulatory Risk is defined as the risk that the
Group is exposed to financial loss, fines, censure or enforcement
action due to failing to comply with laws or regulations (including
handbooks, codes of conduct, statutory and regulatory guidance).
Conduct and Regulatory risk remains a key focus for the Group with
detailed risk appetite statements, metrics and thresholds in place
in relation to the fair treatment and management of our customers.
Conduct Risk frameworks and governance have been enhanced which
clearly identify intended customer outcomes and the associated
monitoring, testing, data sources and management information
required.
People Risk
This is defined as the risk that we have insufficient
operational capacity and colleagues with the right skills in
meeting our financial, customer and regulatory responsibilities. In
managing our people risk, we ensure we have adequate controls
across the whole colleague life cycle covering the onboarding,
development and management of our colleagues. This extends to
ensuring we have sufficient operational capacity and colleagues
with the right skills in meeting our financial, customer and
regulatory responsibilities.
Technology and Information Security Risk
This is defined as the risk arising from compromised or
inadequate technology, security and data that could affect the
confidentiality, integrity or availability of the Group's data or
systems. This risk is managed in conjunction with Operational Risk
with additional and particular focus on cyber and technology
infrastructure. Extensive work within the First Line Controls
Review programme is on track and there is sufficient oversight in
place to ensure early detection of further potential delay.
Operational Risk
This is defined as the risk of loss resulting from inadequate or
failed internal processes, people and systems or from external
events. The three lines of defence model throughout the Group
ensures there are clear lines of accountability between management
who own the risks, oversight by the risk function and independent
assurance provided by Internal Audit.
Model Risk
This is defined as the risk of financial losses where models
fail to perform as expected due to poor governance (including
design and operation). A Group model risk management framework and
model risk policy is embedded with a model inventory in place to
ensure periodic review and strict change control. Critical IFRS9
models within credit cards and vehicle finance have been externally
validated.
Consolidated financial statements
Consolidated income statement for the year ended 31 December
Note 2022 2021
Continuing operations GBPm GBPm
Interest income 3 486.9 473.9
Interest expense (58.8) (53.0)
-------- --------
Net interest income 428.1 420.9
-------- --------
Fee and commission income 3 47.0 60.3
Fee and commission expense (2.8) (2.9)
-------- --------
Net fee and commission income 44.2 57.4
-------- --------
Other income and net fair value gains 8.4 0.4
Total income 480.7 478.7
Impairment charges 8 (66.1) (50.4)
-------- --------
Risk-adjusted income 414.6 428.3
Operating costs (304.5) (286.1)
-------- --------
Profit before taxation from continuing operations 3 110.1 142.2
--------------------------------------------------- ----- -------- --------
Profit before tax, amortisation of acquisition
intangibles and exceptional items 3 126.6 167.8
Amortisation of acquisition intangibles 3 (7.5) (7.5)
Exceptional items 3 (9.0) (18.1)
--------------------------------------------------- ----- -------- --------
Tax charge 5 (27.8) (7.6)
-------- --------
Profit for the year from continuing operations 82.3 134.6
-------- --------
Loss after tax from discontinued operations 4 (4.9) (166.7)
-------- --------
Profit/(loss) for the year attributable to
equity shareholders 77.4 (32.1)
-------- --------
Consolidated statement of comprehensive income for the year
ended 31 December
Note 2022 2021
GBPm GBPm
------- -------
Profit/(loss) for the year attributable to
equity shareholders 77.4 (32.1)
------- -------
Items that will not be reclassified subsequently
to the income statement:
- actuarial movements on retirement benefit
asset 11 (84.2) 27.1
- fair value movements transferred to income
statement 9 - (5.2)
- tax on items taken directly to other comprehensive
income 5 16.0 (3.8)
* impact of change in UK tax rate on items in other
comprehensive income 5 5.0 (6.4)
Other comprehensive (expense)/income for the
year (63.2) 11.7
Total comprehensive income/(expense) for the
year 14.2 (20.4)
------- -------
Earnings/(loss) per share
Note 2022 2021
pence pence
------ -------
Basic 6 30.8 (12.8)
------ -------
Diluted 6 30.5 (12.8)
------ -------
The above earnings/(loss) per share is on a Group basis
including discontinued operations.
Dividends per share
Note 2022 2021
pence pence
------ ------
Interim dividend 7 5.0 12.0
Final dividend 7 10.3 -
------ ------
The total cost of dividends paid in the year was GBP42.8m (2021:
GBPnil).
Consolidated balance sheets
Note 31 December 31 December
2022 2021
GBPm GBPm
------------ ------------------------------
ASSETS
Cash and cash equivalents 464.9 717.7
Amounts receivable from customers 8 1,896.1 1,677.7
Trade and other receivables 50.6 18.8
Investments held at fair value
through profit and loss 9 10.7 9.1
Current tax asset 1.8 -
Property, plant and equipment 8.3 8.4
Right of use assets 32.4 47.9
Goodwill 71.2 71.2
Other intangible assets 10 63.3 52.3
Retirement benefit asset 11 30.7 112.2
Derivative financial instruments 11.3 3.1
Deferred tax assets 5 14.5 6.9
TOTAL ASSETS 3 2,655.8 2,725.3
------------ ------------------------------
LIABILITIES AND EQUITY
Liabilities
Trade and other payables 62.8 95.6
Current tax liabilities - 3.8
Provisions 12 5.2 72.1
Lease liabilities 49.3 58.9
Retail deposits 1,100.6 1,018.5
Bank and other borrowings 815.4 845.2
Derivative financial instruments 15.3 -
Total liabilities 2,048.6 2,094.1
------------ ------------------------------
Equity attributable to owners
of the parent
Share capital 52.6 52.6
Share premium 273.5 273.3
Merger reserves 278.2 278.2
Other reserves 12.4 9.8
Retained earnings (9.5) 17.3
------------ ------------------------------
Total equity 3 607.2 631.2
------------ ------------------------------
TOTAL LIABILITIES AND EQUITY 2,655.8 2,725.3
------------ ------------------------------
Consolidated statement of changes in shareholders' equity
Share Share Merger Other Retained
capital premium reserve reserves earnings Total
GBPm
GBPm GBPm GBPm GBPm GBPm
--------- --------- --------- ---------- ---------- --------
At 1 January 2021 52.6 273.2 278.2 14.6 29.1 647.7
--------- --------- --------- ---------- ---------- --------
Loss for the year - - - - (32.1) (32.1)
--------- --------- --------- ---------- ---------- --------
Other comprehensive income/(expense):
- actuarial movements on retirement
benefit asset (note 11) - - - - 27.1 27.1
- fair value movement transferred
to income statement (note 9) - - - (5.2) - (5.2)
- tax on items taken directly to
other
comprehensive income (note 5) - - - 1.4 (5.2) (3.8)
- impact of change in UK tax rate
(note 5) - - - - (6.4) (6.4)
Other comprehensive (expense)/income
for the year - - - (3.8) 15.5 11.7
--------- --------- --------- ---------- ---------- --------
Total comprehensive expense for
the year - - - (3.8) (16.6) (20.4)
--------- --------- --------- ---------- ---------- --------
Issue of share capital - 0.1 - - - 0.1
Share-based payment charge - - - 3.8 - 3.8
Transfer of share-based payment
reserve on vesting of share awards - - - (4.8) 4.8 -
At 31 December 2021 52.6 273.3 278.2 9.8 17.3 631.2
--------- --------- --------- ---------- ---------- --------
At 1 January 2022 52.6 273.3 278.2 9.8 17.3 631.2
--------- --------- --------- ---------- ---------- --------
Profit for the year - - - - 77.4 77.4
--------- --------- --------- ---------- ---------- --------
Other comprehensive expense:
- actuarial movements on retirement
benefit asset (note 11) - - - - (84.2) (84.2)
- tax on items taken directly to
other
comprehensive income (note 5) - - - - 16.0 16.0
- impact of change in UK tax rate
(note 5) - - - - 5.0 5.0
--------- --------- --------- ---------- ---------- --------
Other comprehensive expense for
the year - - - - (63.2) (63.2)
--------- --------- --------- ---------- ---------- --------
Total comprehensive income for
the year - - - - 14.2 14.2
--------- --------- --------- ---------- ---------- --------
Dividends - - - - (42.8) (42.8)
Purchase of own shares - - - - (0.7) (0.7)
Issue of share capital - 0.2 - - - 0.2
Share-based payment charge - - - 5.1 - 5.1
Transfer of share-based payment
reserve on vesting of share awards - - - (2.5) 2.5 -
--------- --------- --------- ---------- ---------- --------
At 31 December 2022 52.6 273.5 278.2 12.4 (9.5) 607.2
--------- --------- --------- ---------- ---------- --------
Goodwill arising on acquisitions prior to 1 January 1998 was
eliminated against shareholders' funds under UK GAAP and was not
reinstated on transition to IFRS. Accordingly, retained earnings
are shown after directly writing off cumulative goodwill of
GBP1.6m. In addition, cumulative goodwill of GBP2.3m has been
written off against the merger reserve in previous years.
The rights issue in April 2018 was undertaken through a cash box
structure which allowed merger relief to be applied to the issue of
shares rather than recording share premium. The full merger reserve
is now considered distributable.
Consolidated statement of cash flows for the year ended 31
December
Note 2022 2021
GBPm GBPm
-------- ----------
Cash flows from operating activities
Cash (used in)/generated from operations 13 (144.3) 240.5
Finance costs paid (47.2) (71.3)
Tax paid (13.4) (6.1)
-------- ----------
Net cash (used in)/generated from operating
activities (204.9) 163.1
Cash flows from investing activities
Purchase of intangible assets 10 (29.2) (24.8)
Purchase of property, plant and equipment (3.6) (1.3)
Proceeds from disposal of property, plant
and equipment - 3.8
Net cash used in investing activities (32.8) (22.3)
Cash flows from financing activities
Proceeds from bank and other borrowings 485.5 746.0
Repayment of bank and other borrowings (443.9) (1,081.5)
Payment of lease liabilities (10.8) (9.6)
Dividends paid to Company shareholders (42.8) -
Purchase of shares for share awards (0.7) -
Proceeds from issue of share capital 0.2 0.1
Net cash used in financing activities (12.5) (345.0)
Net decrease in cash, cash equivalents and
overdrafts (250.2) (204.2)
Cash, cash equivalents and overdrafts at
beginning of year 714.1 918.3
Cash, cash equivalents and overdrafts at
end of year 463.9 714.1
-------- ----------
Cash, cash equivalents and overdrafts at
end of year comprise:
Cash at bank and in hand 464.9 717.7
Overdrafts (held in bank and other borrowings) (1.0) (3.6)
-------- ----------
Total cash, cash equivalents and overdrafts 463.9 714.1
-------- ----------
Cash at bank and in hand includes GBP420.5m (2021: GBP414.8m) in
respect of the liquid assets buffer, including other liquidity
resources, held by Vanquis Bank Limited in accordance with the
PRA's liquidity regime.
Notes to the financial information
1. Basis of preparation
The preliminary announcement has been prepared in accordance
with the Listing Rules of the FCA and is based on the 2022
financial statements which have been prepared under International
Financial Reporting Standards (IFRS) as adopted by the UK,
International Financial Reporting Interpretations Committee (IFRIC)
interpretations and the Companies Act 2006.
The financial information set out in this announcement does not
constitute the Group's statutory accounts for the year ended 31
December 2022 or the year ended 31 December 2021 but is derived
from those accounts. Statutory accounts for the year ended 31
December 2021 have been delivered to the Registrar of Companies,
and those for the year ended 31 December 2022 will be delivered to
the Registrar of Companies before the Company's annual general
meeting. The auditors have reported on those accounts: their
reports were unqualified, did not draw attention to any matters by
way of emphasis and did not contain statements under s498(2) or (3)
of the Companies Act 2006.
The statutory financial statements have been prepared on a going
concern basis under the historical cost convention, as modified by
the revaluation of derivative financial instruments and investments
held at fair value through profit and loss.
In assessing whether the Group is a going concern, the directors
have reviewed the Group's corporate plan as approved in December
2022, In doing so, the Board reviewed detailed forecasts for the
three year period to December 2025 and also considered less
detailed forecasts for 2026 and 2027. These higher level outer year
forecasts do not contain any information which would cause
different conclusions to be reached over the longer-term viability
of the Group. The assessment included consideration of the Group's
principal risks and uncertainties, with a focus on capital and
liquidity.
The directors have also reviewed the Group's stress testing
projections which are based on a severe but plausible scenario. The
stress test scenario envisages that the UK economy enters a period
of stagflation in 2023 with inflation rising to approximately 17%
and the UK Bank Rate rising to 6%. As a result, the UK unemployment
rate rises to approximately 8.5%, this shows that the Group is able
to maintain sufficient capital headroom above minimum requirements.
The directors have reviewed the Group's reverse stress testing
projections to the point of non-viability, which concluded that the
Group's viability only comes into question under an unprecedented
macroeconomic scenario.
2. Accounting policies
Group principal accounting policies under IFRS have been
consistently applied to all the years presented.
In line with its continued repositioning as a specialist banking
group, the Group has taken the decision in the current year to
change the presentation of its statutory income statement to align
with the wider banking industry. All periods presented have been
retrospectively re-presented. This change does not constitute a
change in accounting policy and there is no impact on recognition,
measurement or profit and loss in any period presented in the
financial statements.
3. Segment reporting
Interest income Fee and Commission Profit/(loss)
income before tax
2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm
-------- -------- ---------- --------- ------- ----------------
Credit cards 333.2 328.8 47.0 60.3 178.5 173.9
Vehicle finance 140.6 137.9 - - 38.0 28.9
Personal loans 13.1 7.2 - - (15.7) (8.7)
Central costs - - - - (74.2) (26.3)
-------- -------- ---------- --------- ------- ----------------
Total group before
amortisation of acquisition
intangibles and exceptional
items 486.9 473.9 47.0 60.3 126.6 167.8
Amortisation of acquisition
intangibles (note
10) - - - - (7.5) (7.5)
Exceptional items - - - - (9.0) (18.1)
-------- -------- ---------- --------- ------- ----------------
Total Group - continuing
operations 486.9 473.9 47.0 60.3 110.1 142.2
-------- -------- ---------- --------- ------- ----------------
CCD - discontinued
operations (note 4) - 68.0 - - (15.3) (95.5)
CCD - discontinued
operations exceptional
items (note 4) - - - - 4.6 (42.6)
-------- -------- ---------- --------- ------- ----------------
Total Group 486.9 541.9 47.0 60.3 99.4 4.1
-------- -------- ---------- --------- ------- ----------------
Acquisition intangibles represent the fair value of the broker
relationships of GBP75.0m which arose on the acquisition of
Moneybarn in August 2014. The amortisation charge in 2022 amounted
to GBP7.5m (2021: GBP7.5m).
Revenue between business segments in not material.
Exceptional items for continuing operations represent a net
exceptional charge of GBP9.0m in 2022 (2021: GBP18.1m) and
comprise:
2022 2021
GBPm GBPm
------ -------
Corporate costs including CCD closure (3.8) (10.5)
CCD Scheme of Arrangement costs (note 12) (3.7) (5.0)
Redundancy costs (1.5) (1.0)
Costs in respect of the redemption of bonds - (3.9)
Pension credit (note 11) - 2.3
Total exceptional items (9.0) (18.1)
------ -------
Segment net
Segment assets assets/(liabilities)
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
------------ ----------- ----------------- ----------------
Credit cards and personal loans 1,795.6 1,639.1 384.9 374.5
Vehicle finance 762.6 698.3 172.9 105.8
Central 504.8 546.5 432.1 446.0
Continuing operations before
intra-group elimination 3,063.0 2,883.9 989.9 926.3
Discontinued operations - 0.3 (382.7) (295.1)
Intra-Group elimination (407.2) (158.9) - -
------------ ----------- ----------------- ----------------
Total Group 2,655.8 2,725.3 607.2 631.2
------------ ----------- ----------------- ----------------
The presentation of segment net assets reflects the statutory
assets, liabilities and net assets of each of the Group's
divisions. This results in an intra-group elimination reflecting
the difference between the central intercompany funding provided to
the divisions and the external funding raised centrally. Credit
cards and personal loans are both recognised within Vanquis Bank
Limited and are therefore combined for balance sheet reporting
purposes.
4. Discontinued operations
The Group closed its CCD business comprising Home Credit and
Satsuma loans during 2021 and in accordance with IFRS 5
'Non-current Assets Held for Sale and Discontinued Operations'
these businesses are presented as discontinued operations.
The results from discontinued operations, which are included in
the Group income statement, are set out below.
2022 2021
GBPm GBPm
------- --------
Interest income - 68.0
Interest expense (6.2) (12.1)
------- --------
Net interest income (6.2) 55.9
Total income (6.2) 55.9
Impairment charges - (59.6)
Risk-adjusted income (6.2) (3.7)
Operating costs:
- other (9.1) (91.8)
- exceptional items 4.6 (42.6)
------- --------
Loss before taxation (10.7) (138.1)
Tax credit/(charge) 5.8 (28.6)
------- --------
Loss from discontinued operations (4.9) (166.7)
------- --------
Basic loss per share (p) (2.0) (66.5)
------- --------
Diluted loss per share (p) (2.0) (66.5)
------- --------
5. Tax charge
The tax charge/(credit) in the income statement is as
follows:
2022 2021
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------ ----------------------- ------ ------------ ------------- ------
Current tax:
- UK 14.4 (5.8) 8.6 12.6 (3.3) 9.3
Deferred tax:
- UK 10.2 - 10.2 - 31.9 31.9
Impact of change
in UK tax rate 3.2 - 3.2 (5.0) - (5.0)
Total tax charge/(credit) 27.8 (5.8) 22.0 7.6 28.6 36.2
------------ ----------------------- ------ ------------ ------------- ------
2022
------------------------------------------------------------------------------------
Continuing operations Discontinued operations
------------------------------------------------ ----------------------------------
Adjusted Exceptional Adjusted Exceptional
PBT items Amortisation Total PBT items Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- ------------ --------------- ------ --------- ------------ ---------
Profit/(loss)
before taxation 126.6 (9.0) (7.5) 110.1 (15.3) 4.6 (10.7)
--------- ------------ --------------- ------ --------- ------------ ---------
Profit/(loss)
before tax multiplied
by standard rate
of corporation
tax in the UK
of 19% 24.1 (1.7) (1.4) 21.0 (2.9) 0.9 (2.0)
Effects of:
- impact of change
in UK tax rate
(note (a)) 3.2 - - 3.2 - - -
- impact of bank
corporation tax
surcharge (note
(b)) 8.4 - - 8.4 - - -
- impact of lower
tax rates and
losses overseas
(note (c)) - - - - (0.1) (0.1) (0.2)
- write off of
deferred tax assets
(note (d)) 0.2 - - 0.2 - - -
- adjustments
in respect of
prior years (note
(e)) (4.4) 0.8 - (3.6) (6.5) 0.4 (6.1)
- prior year adjustments
related to transfer
pricing and losses
(note (f)) 1.0 - - 1.0 (1.0) - (1.0)
- transfer pricing
adjustments (note - - - - -
(g)) - -
- discount on
payment for losses
of discontinued
operations (note
(h)) (3.3) - - (3.3) 3.3 - 3.3
- non-deductible
general expenses
(i) 0.2 0.7 - 0.9 0.6 (0.4) 0.2
29.4 (0.2) (1.4) 27.8 (6.6) 0.8 (5.8)
--------- ------------ --------------- ------ --------- ------------ ---------
5. Tax charge (continued)
2021
--------------------------------------------------------------------------------------
Continuing operations Discontinued operations
------------------------------------------------- -----------------------------------
Adjusted Exceptional Adjusted Exceptional
PBT items Amortisation Total PBT items Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- ------------ --------------- ------- --------- ------------ ----------
Profit/(loss)
before taxation 167.8 (18.1) (7.5) 142.2 (95.5) (42.6) (138.1)
--------- ------------ --------------- ------- --------- ------------ ----------
Profit/(loss)
before tax multiplied
by standard rate
of corporation
tax in the UK
of 19% 31.8 (3.4) (1.4) 27.0 (18.1) (8.1) (26.2)
Effects of:
- impact of change
in UK tax rate
(note (a)) (5.8) 0.2 0.6 (5.0) - - -
- impact of bank
corporation tax
surcharge (note
(b)) 12.3 (0.1) - 12.2 - - -
- impact of lower
tax rates and
losses overseas
(note (c)) - - - - 2.7 0.8 3.5
- write off of
deferred tax assets
(note (d)) (0.3) - - (0.3) 23.4 - 23.4
- adjustments
in respect of
prior years (note
(e)) 0.5 - - 0.5 0.5 - 0.5
- prior year adjustments
related to transfer
pricing and losses
(note (f)) (7.8) - - (7.8) 7.8 - 7.8
- non-deductible
general expenses 0.1 0.4 - 0.5 0.1 - 0.1
- transfer pricing
adjustments (note
(g)) (0.6) - - (0.6) 0.6 - 0.6
- discount on
payment for losses
of discontinued
operations (note
(h)) (6.5) - - (6.5) 6.5 - 6.5
- benefit of capital
losses offset
against capital - - - - -
gain (note (i)) - -
- reversal of
exceptional complaints
provision (note
(j)) - (12.4) - (12.4) - 12.4 12.4
23.7 (15.3) (0.8) 7.6 23.5 5.1 28.6
--------- ------------ --------------- ------- --------- ------------ ----------
(a) Impact of change of UK tax rate
In 2021, changes were enacted to increase the mainstream
corporation tax rate from 19% to 25% with effect from 1 April 2023.
At 31 December 2021, deferred tax balances were remeasured at 25%,
and in the case of credit cards and loans, at the combined
mainstream corporation tax rate (25%) and bank corporation tax
surcharge rate (8%) of 33% to the extent that the temporary
differences on which deferred tax had been calculated were expected
to reverse, or the tax loss was expected to be utilised, after 1
April 2023.
In 2022, further changes were enacted which, with effect from 1
April 2023, reduce the bank corporation tax surcharge rate from 8%
to 3% and increase the bank corporation tax surcharge allowance,
being the threshold below which banking profits are not subject to
the surcharge, from GBP25m to GBP100m.
To the extent the temporary differences on which deferred tax
has been calculated are expected to reverse after 1 April 2023,
deferred tax balances at 31 December 2022 and movements in deferred
tax balances during the year have therefore been measured at 25%
(2021: 25%) and, in the case of credit cards and personal loans, at
the combined mainstream corporation tax rate (25%) and bank
corporation tax surcharge rate (3%) of 28% (2021: 33%) except to
the extent the temporary differences reverse when profits from
credit cards and personal loans are expected to be below the bank
surcharge threshold, in which case deferred tax balances have been
measured at the combined rate of 25% (2021: 33%).
A tax charge of GBP3.2m (2021: credit of GBP5.0m) represents the
income statement adjustment to deferred tax as a result of these
changes and an additional deferred tax credit of GBP5.0m (2021:
charge of GBP6.4m) has been taken directly to other comprehensive
income in respect of items reflected in other comprehensive income.
Of the tax charge of GBP3.2m (2021: credit of GBP5.0m) taken to the
income statement, GBP3.2m (2021: GBP5.0m) relates to continuing
operations and GBPnil (2021: GBPnil) to discontinued
operations.
There was a GBPnil impact in 2022 (2021: GBPnil) on discontinued
operations from the change in tax rates as no deferred tax balances
were recognised in discontinued operations at 31 December 2022
(2021: GBPnil).
(b) Impact of bank corporation tax surcharge
The adverse impact of the bank corporation tax surcharge amounts
to GBP8.4m (2021: GBP12.2m) and represents tax at the bank
corporation tax surcharge rate of 8% on credit cards and personal
loans taxable profits in excess of GBP25m where taxable profits are
calculated ignoring the benefit of losses elsewhere in the Group,
including capital losses.
The only entity subject to bank corporation tax surcharge in the
Group is Vanquis Bank Limited which sits within continuing
operations.
(c) Impact of lower tax rates and losses overseas
Prior to its closure in 2021, the home credit business in the
Republic of Ireland was subject to tax at the Republic of Ireland
statutory tax rate of 12.5% rather than the UK statutory mainstream
corporation tax rate of 19.0%. In 2021, the home credit business in
the Republic of Ireland made a loss which can only be relieved
against future profits of the business in the Republic of Ireland
at the 12.5% statutory rate rather than the 19.0% UK statutory tax
rate. In light of the closure of the business, no deferred tax
asset was recognised in respect of this loss giving rise to a total
adverse impact on the Group tax charge of GBP3.5m, all of which
relates to discontinued operations.
In 2022, no tax liability arises on the release of various
provisions and accruals following the closure of the Irish business
giving a favourable impact on the tax charge of GBP0.2m (2021:
adverse impact of GBP3.5m), all of which relates to discontinued
operations.
(d) Write off of deferred tax assets
In 2021 deferred tax assets written off comprised: (a) GBP23.6m
of deferred tax assets related to discontinued operations for which
future tax relief was considered unlikely to be available following
the closure of the business; net of (b) a deferred tax credit of
GBP0.5m related to the deferred tax asset in respect of share
scheme awards which had previously been written off on the basis
that future deductions were expected to be lower than previously
anticipated. Of the GBP0.5m deferred tax credit, GBP0.3m related to
continuing operations and GBP0.2m related to discontinued
operations. The GBP23.6m deferred tax assets related to
discontinued operations which were written off in 2021, related to
tax losses carried forward and other temporary differences for
which, following the closure of the business, it was considered
unlikely that future tax relief would be available.
In 2022, the tax charge in respect of deferred tax assets
written off amounts to GBP0.2m and relates to share scheme awards
where future deductions are expected to be lower than previously
anticipated. It relates entirely to continuing operations.
(e) Adjustments in respect of prior years
The tax credit of GBP9.7m in respect of prior years (2021: tax
charge of GBP1.0m) comprises: (a) a net release of tax liabilities
in respect of prior years of continuing operations of GBP3.6m
following agreement of certain historical tax matters with HMRC;
(b) a GBP7.5m reinstatement of deferred tax assets in respect of
certain losses and temporary differences of discontinued operations
which were written off in 2021 but for which tax relief is
considered to be available in 2022; and (c) a GBP1.4m tax charge in
respect of a reduction in tax losses of the discontinued operations
available for group relief in prior years.
In 2021, the GBP1.0m tax charge in respect of prior years
primarily comprised adjustments related to prior year deferred tax
on share scheme awards and the impact of resolving historical tax
liabilities, of which GBP0.5m related to discontinued operations
and GBP0.5m related to continuing operations.
(f) Prior year adjustments related to transfer pricing and
losses
These comprise a GBP1.0m credit (2021: GBP7.8m charge) related
to discontinued operations net of a GBP1.0m charge (2021: GBP7.8m
credit) related to continuing operations and relate to transfer
pricing adjustments between the continuing operations and
discontinued operations in prior years, as well as adjustments
related to prior year tax losses of the discontinued operation
which were surrendered as group relief to the continuing operation
and which the continuing operation paid for at a discounted price
.
(g) Transfer pricing adjustments
In 2021, these comprised a GBP0.6m credit related to continuing
operations and a GBP0.6m charge related to discontinued operations,
and represented the impact of transfer pricing adjustments between
the profits of continuing and discontinued operations. They have a
GBPnil overall impact on the tax charge. There are no such
adjustments in 2022.
(h) Discount on payment for losses of discontinued
operations
This comprises a credit of GBP3.3m (2021: credit of GBP6.5m)
related to continuing operations and a charge of GBP3.3m (2021:
charge of GBP6.5m) related to discontinued operations, and relates
to tax losses of the discontinued operation which have been
surrendered as group relief to the continuing operation and which
the continuing operation has paid for at a discounted price. The
overall impact on the tax charge is GBPnil (2021: GBPnil).
(i) Non-deductible general expenses
In 2022, these primarily comprise: (a) in the case of
discontinued operations, costs for which tax deductions may not be
available post closure of the business net of the release of the
provision for costs associated with the FCA investigation into
affordable lending in CCD, part of which is non-taxable; and (b) in
the case of the continuing operations, the cost of certain projects
for which it is considered a tax deduction may not be
available.
(j) Exceptional complaints provision
In 2021, the release of the exceptional complaints provision in
CCD following the implementation of the Scheme of Arrangement gave
rise to a tax charge in CCD of GBP12.4m. As the release of the
provision was recognised as part of continuing rather than
discontinued operations, this gave rise to a tax reconciling
difference in 2021 of GBP12.4m between continuing and discontinued
operations.
These adjustments had a GBPnil overall impact on the 2021 tax
charge.
In 2021, a tax deduction was claimed for the GBP70m costs of the
Scheme of Arrangement incurred by Vanquis Banking Group plc which
was also recognised as part of continuing operations.
Tax on exceptional items:
The tax charge in respect of exceptional items amounts to
GBP0.6m (2021: tax credit of GBP10.2m) and comprises a GBP0.2m
credit (2021: GBP15.3m credit) relating to continuing operations
and a GBP0.8m charge (2021: GBP5.1m charge) related to discontinued
operations.
In 2022:
- The GBP0.2m tax credit relating to continuing operations
represents a tax credit in respect of all exceptional costs of the
continuing operations with the exception of certain project costs
for which it is considered tax deductions may not be available.
- The GBP0.8m tax charge relating to discontinued operations
represents the tax charge on the release of certain provisions and
accruals for which tax deductions were previously claimed with the
exception of those relating to the Irish branch which are
non-taxable.
In 2021:
- The GBP15.3m tax credit relating to continuing operations
represents: (i) a tax credit in respect of all exceptional costs of
the continuing operations with the exception of certain project
costs for which it is considered tax deductions may not be
available; and (ii) the tax reconciling difference between
continuing and discontinued operations referred to in note (j)
above.
- The GBP5.1m tax charge relating to discontinued operations
represents the tax reconciling difference between continuing and
discontinued operations referred to in note (j) above net of a tax
credit for the exceptional closure costs of the discontinued
operations with the exception of those costs related to the Irish
branch for which no effective tax relief is available.
The tax credit/(charge) on items taken directly to other
comprehensive income is as follows:
2022 2021
GBPm GBPm
----- -------
Deferred tax credit on fair value movement in investment - 1.4
Deferred tax credit/(charge) on actuarial movements
on retirement benefit asset 16.0 (5.2)
----- -------
Tax credit/(charge) on items taken directly to other
comprehensive income prior to impact of change in
UK tax rate 16.0 (3.8)
----- -------
Impact of change in UK tax rate 5.0 (6.4)
----- -------
Total tax credit/(charge) on items taken directly
to other comprehensive income 21.0 (10.2)
----- -------
The tax credit/(charge) on items taken directly to other
comprehensive income relates entirely to continuing operations.
The movement in the deferred tax balance during the year can be
analysed as follows:
2022 2021
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
Asset/(liability) GBPm GBPm GBPm GBPm GBPm GBPm
------------ ----------------- ------- ------------ ----------------- -------
At 1 January 6.9 - 6.9 12.1 31.9 44.0
Charge to the
income statement (10.2) - (10.2) - (31.9) (31.9)
Credit/(charge)
on other comprehensive
income prior
to impact of
change in UK
tax rate 16.0 - 16.0 (3.8) - (3.8)
Impact of change
in UK tax rate:
- (charge)/credit
to the income
statement (3.2) - (3.2) 5.0 - 5.0
- credit/(charge)
to other comprehensive
income 5.0 - 5.0 (6.4) - (6.4)
At 31 December 14.5 - 14.5 6.9 - 6.9
------------ ----------------- ------- ------------ ----------------- -------
6. Earnings/(loss) per share
Basic earnings/(loss) per share (E/LPS) is calculated by
dividing the profit/(loss) for the year attributable to equity
shareholders by the weighted average number of ordinary shares
outstanding during the year less the number of shares held by the
Employee Benefit Trust which are used to satisfy the share awards
such as DBP, PSP, LTIS, RSP and CSOP.
Diluted E/LPS calculates the effect on E/LPS assuming conversion
of all dilutive potential ordinary shares. Dilutive potential
ordinary shares are calculated as follows:
(i) For share awards outstanding under performance-related share
incentive schemes such as the Deferred Bonus Plan (DBP) (previously
the Performance Share Plan (PSP)), the Long Term Incentive Scheme
(LTIS), the Restricted Share Plan (RSP) and the Company Share
Option Plan (CSOP), the number of dilutive potential ordinary
shares is calculated based on the number of shares which would be
issuable if: (i) the end of the reporting period is assumed to be
the end of the schemes' performance period; and (ii) the
performance targets have been met as at that date.
(ii) For share options outstanding under non-performance-related
schemes such as the Save As You Earn scheme (SAYE), a calculation
is performed to determine the number of shares that could have been
acquired at fair value (determined as the average annual market
share price of the Company's shares) based on the monetary value of
the subscription rights attached to outstanding share options. The
number of shares calculated is compared with the number of share
options outstanding, with the difference being the dilutive
potential ordinary shares. The Group also presents an adjusted EPS,
prior to the amortisation of acquisition intangibles and
exceptional items.
Potential ordinary shares are treated as dilutive when, and only
when, their conversion to ordinary shares would decrease earnings
per share or increase loss per share.
Reconciliations of basic and diluted E/LPS for continuing
operations and the Group are set out below:
2022 2021
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Earnings of shares amount
Continuing operations GBPm m pence GBPm m pence
-------------------------- ----------- ---------------- --------- ----------- --------------- ---------
Basic earnings per share 82.3 250.9 32.8 134.6 250.7 53.7
Dilutive effect of share
options and awards - 2.8 (0.4) - 1.3 (0.3)
-------------------------- ----------- ---------------- --------- ----------- --------------- ---------
Diluted earnings per
share 82.3 253.7 32.4 134.6 252.0 53.4
-------------------------- ----------- ---------------- --------- ----------- --------------- ---------
2022 2021
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Loss of shares amount
Group GBPm m pence GBPm m pence
-------------------------- ----------- ----------- --------- ------- ----------- ---------
Basic earnings/(loss)
per share 77.4 250.9 30.8 (32.1) 250.7 (12.8)
Dilutive effect of share
options and awards - 2.8 (0.3) - - -
-------------------------- ----------- ----------- --------- ------- ----------- ---------
Diluted earnings/(loss)
per share 77.4 253.7 30.5 (32.1) 250.7 (12.8)
-------------------------- ----------- ----------- --------- ------- ----------- ---------
The directors have elected to show an adjusted earnings per
share prior to the amortisation of acquisition intangibles which
arose on the acquisition of Moneybarn in August 2014 and prior to
exceptional items (see note 3). This is presented to show the
adjusted earnings per share generated by the continuing and Group
operations. A reconciliation of continuing and Group basic/diluted
earnings/(loss) per share to adjusted basic and diluted earnings
per share is as follows:
2022 2021
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Earnings of shares amount
Continuing operations GBPm m pence GBPm m pence
----------- ----------- --------- -------------- ----------- ---------
Basic earnings per share 82.3 250.9 32.8 134.6 250.7 53.7
Amortisation of acquisition
intangibles, net of tax 6.1 - 2.4 6.7 - 2.7
Exceptional items, net
of tax 8.8 - 3.5 2.8 - 1.1
----------- ----------- --------- -------------- ----------- ---------
Adjusted basic earnings
per share 97.2 250.9 38.7 144.1 250.7 57.5
----------- ----------- --------- -------------- ----------- ---------
Diluted earnings per share 82.3 253.7 32.4 134.6 252.0 53.4
Amortisation of acquisition
intangibles, net of tax 6.1 - 2.4 6.7 - 2.7
Exceptional items, net
of tax 8.8 - 3.5 2.8 - 1.1
----------- ----------- --------- -------------- ----------- ---------
Adjusted diluted earnings
per share 97.2 253.7 38.3 144.1 252.0 57.2
----------- ----------- --------- -------------- ----------- ---------
2022 2021
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Loss of shares amount
Group GBPm m pence GBPm m pence
----------- ----------- --------- -------------- ----------- ---------
Basic earnings/(loss)
per share 77.4 250.9 30.8 (32.1) 250.7 (12.8)
Amortisation of acquisition
intangibles, net of tax 6.1 - 2.4 6.7 - 2.7
Exceptional items, net
of tax 5.0 - 2.0 50.5 - 20.1
----------- ----------- --------- -------------- ----------- ---------
Adjusted basic earnings
per share 88.5 250.9 35.2 25.1 250.7 10.0
----------- ----------- --------- -------------- ----------- ---------
Diluted earnings/(loss)
per share 77.4 253.7 30.5 (32.1) 252.0 (12.7)
Amortisation of acquisition
intangibles, net of tax 6.1 - 2.4 6.7 - 2.7
Exceptional items, net
of tax 5.0 - 2.0 50.5 - 20.0
----------- ----------- --------- -------------- ----------- ---------
Adjusted diluted earnings
per share 88.5 253.7 34.9 25.1 252.0 10.0
----------- ----------- --------- -------------- ----------- ---------
7. Dividends
2022 2021
GBPm GBPm
----- -----
2021 interim - 12p per share 30.1 -
2022 interim - 5p per share 12.7 -
----- -----
42.8 -
----- -----
The directors are recommending a final dividend in respect of
the financial year ended 31 December 2022 of 10.3p per share which
will amount to an estimated dividend of GBP26.1m. If approved, this
dividend will be paid on 7 June 2023 to shareholders who were on
the register of members at 21 April 2023.
2022 2021
GBPm GBPm
-------- --------
Credit cards 1,181.6 1,063.4
Vehicle finance 646.1 586.2
Personal loans 76.3 28.1
-------- --------
Total 1,904.0 1,677.7
Fair value adjustment for portfolio hedged risk (7.9) -
Total group 1,896.1 1,677.7
-------- --------
The fair value adjustment for the portfolio hedge risk relates
to the unamortised hedged accounting adjustment in relation to
discontinued balance guaranteed swap. In 2021 this was presented
within trade and other receivables (GBP3.6m).
An analysis of receivables by IFRS 9 stages is set out
below:
2022
Stage 1 Stage 2 Stage Total
3
GBPm GBPm GBPm GBPm
-------- -------- -------- --------
Gross receivables
Credit cards 1,116.6 148.7 186.7 1,452.0
Vehicle finance 351.0 169.3 452.0 972.3
Personal loans 78.1 2.1 5.3 85.5
Total group 1,545.7 320.1 644.0 2,509.8
-------- -------- -------- --------
Allowance account
Credit cards (93.2) (58.2) (119.0) (270.4)
Vehicle finance (15.9) (25.8) (284.5) (326.2)
Personal loans (5.0) (0.7) (3.5) (9.2)
Total group (114.1) (84.7) (407.0) (605.8)
-------- -------- -------- --------
Net receivables
Credit cards 1,023.4 90.5 67.7 1,181.6
Vehicle finance 335.1 143.5 167.5 646.1
Personal loans 73.1 1.4 1.8 76.3
Total group 1,431.6 235.4 237.0 1,904.0
-------- -------- -------- --------
2021
Stage 1 Stage 2 Stage Total
3
GBPm GBPm GBPm GBPm
-------- -------- -------- --------
Gross receivables
Credit cards 883.8 340.9 192.5 1,417.2
Vehicle finance 350.2 112.9 378.6 841.7
Personal loans 29.9 1.8 2.0 33.7
Total group 1,263.9 455.6 573.1 2,292.6
-------- -------- -------- --------
Allowance account
Credit cards (99.7) (102.1) (152.0) (353.8)
Vehicle finance (14.3) (15.8) (225.4) (255.5)
Personal loans (3.5) (0.8) (1.3) (5.6)
Total group (117.5) (118.7) (378.7) (614.9)
-------- -------- -------- --------
Net receivables
Credit cards 784.1 238.8 40.5 1,063.4
Vehicle finance 335.9 97.1 153.2 586.2
Personal loans 26.4 1.0 0.7 28.1
Total group 1,146.4 336.9 194.4 1,677.7
-------- -------- -------- --------
The movement in directly attributable acquisition costs included
within amounts receivable from customers can be analysed as
follows:
2022 2021
Credit Vehicle Personal CCD Total Credit Vehicle Personal CCD Total
cards finance loans cards finance loans
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- --------- --------- ----- ------- ------- --------- --------- ------ -------
Brought forward 29.4 32.4 0.2 - 62.0 32.9 27.9 - 0.4 61.2
Capitalised 11.9 30.2 1.8 - 43.9 10.0 23.3 0.2 0.2 33.7
Amortised (11.0) (18.3) (0.7) - (30.0) (13.5) (18.8) - (0.6) (32.9)
Carried forward 30.3 44.3 1.3 - 75.9 29.4 32.4 0.2 - 62.0
------- --------- --------- ----- ------- ------- --------- --------- ------ -------
A breakdown of the in-model and post-model overlays for credit
cards is shown below:
2022 2021
Credit Cards GBPm GBPm
------ ------
Core model 254.1 299.8
In-model overlays - 27.9
Post-model overlays 16.3 26.1
Total allowance account 270.4 353.8
------ ------
2022 2021
Description GBPm GBPm
------ ------
In-model overlays:
Covid-19 overlay (note (a)) - 27.9
------ ------
Total in-model overlays - 27.9
------ ------
Post-model overlays:
------ ------
Cost of living (note b)) 10.0 7.8
Persistent debt (note (c)) 2.8 5.8
Affordability (note (d)) 0.3 5.0
Recoveries (note (e)) 2.5 7.4
Other 0.7 0.1
Total post-model overlays 16.3 26.1
------ ------
Total overlays 16.3 54.0
------ ------
(a) Impact of Covid-19
The impact of Covid-19 significantly influenced credit card
provisioning methodology. The core IFRS 9 models utilise a
scorecard approach to calculating a 12-month PD and the
relationships between the established drivers of default risk found
in the PD scorecards; it was previously assumed the 12-month PD may
be distorted during the Covid-19 period. This potential distortion
could be caused by external government support initiatives or the
natural lag that is apparent when risk profiles change.
Accordingly, an in-model utilisation adjustment was made to the
probability of default models for credit cards.
However, the underlying risk profile of these customers has not
fundamentally changed, and over the course of 2022 it became
evident that this utilisation adjustment was no longer required.
Consequently this adjustment has been fully unwound during the
year.
(b) Cost of living
Consumer prices, as measured by the Consumer Prices Index (CPI)
was 10.5% in December 2022, and the government has announced a
range of measures to support households during the current economic
environment. After accounting for these policies most lower income
households are expected to be protected from the increase in
inflation. But for many other households, inflation is still a
looming risk albeit recent Government forecasts predict a weaker
than previously expected recession. The IFRS 9 macro-economic model
does not consider inflation or CPI, as there is no significant
correlation between inflation and expected credit losses. However
it is recognised that the increase in CPI may have some impact on
the existing book and hence management continue to retain a post
model overlay for cost of living of GBP10.0m (2021: GBP7.8m).
The underlying credit metrics of the receivables book remain
stable and show no signs of significant increase in credit risk.
The GBP10.0m overlay is based on management judgement, reflecting
the Group's proactive approach to risk management and is
appropriately supported by modelling analytics.
(c) Persistent debt
A post-model overlay was calculated to refine provisioning for
those customers who have entered PD36. These customers have been
split into two categories: those who have responded to
communications and agreed to pay down their outstanding balance;
and those who are making minimum payments but have not responded to
communications. The core model does not consider this refinement
and therefore a post-model overlay is required.
(d) Affordability
An additional IFRS 9 impairment provision has been created to
cover the principal balance of those customers impacted by risk
events which may need to be written off. These risk events arose
from minor temporary data misalignment instances impacting a small
number of accounts which have now been remediated.
(e) Recoveries
A post-model overlay was created in 2021 to account for an
estimated reduction in recoveries for debt sold to debt collection
agencies. Updated information and further refinement in
understanding the extent of the exposure has led to management
reducing the recoveries overlay from GBP7.4m to GBP2.5m.
A breakdown of the in-model and post-model overlays for vehicle
finance is shown below:
2022 2021
Vehicle finance GBPm GBPm
------ ------
Core model 328.7 257.5
In-model overlays - -
Post-model overlays (2.5) (2.0)
Total allowance account 326.2 255.5
------ ------
2022 2021
Description GBPm GBPm
------ ------
In-model overlays:
Total in-model overlays - -
------ ------
Post-model overlays:
------ ------
Cost of living (note (a)) 0.5 -
Fraud (note (b)) (3.0) (2.0)
Total post-model overlays (2.5) (2.0)
------ ------
Total overlays (2.5) (2.0)
------ ------
(a) Cost of living
Refer to credit cards cost of living overlays section for
economic update.
The credit acquisition and affordability models were updated in
early 2022 by a blended average of 8.75% reflecting the rise in
inflation, energy prices and other bills compared to income.
Vehicle finance implemented a new IFRS 9 suite of models with
revised behavioural PDs during late 2021 and therefore a
significant number of variables indicating financial distress are
already incorporated within this model.
However, considering the broader macro-economic environment and
the observations made above, the management opinion is that a cost
of living overlay of GBP0.5m should be recognised. This was derived
by taking the cohort of up-to-date accounts in stage 2 and
modelling a higher probability of default to replicate a situation
reflective of these falling into arrears.
(b) Fraud
The fraud overlay represents the cohort of live accounts within
the vehicle finance portfolio that have been identified as fraud
customers. There is a corresponding adjustment within gross
receivables for these accounts.
A breakdown of the in-model and post-model overlays for personal
loans is shown below:
2022 2021
Personal loans GBPm GBPm
------ ------
Core model 8.6 3.9
In-model overlays - -
Post-model overlays 0.6 1.7
Total allowance account 9.2 5.6
------ ------
2022 2021
Description GBPm GBPm
------ ------
In-model overlays:
Total in-model overlays - -
------ ------
Post-model overlays:
------ ------
Cost of living (note (a)) 0.3 -
Covid-19 overlay (note (b)) - 1.7
Other 0.3 -
Total post-model overlays 0.6 1.7
------ ------
Total overlays 0.6 1.7
------ ------
(a) Cost of living
In light of rising inflation and higher energy costs, an
additional provision is required for the expected rise in cost of
living which may impact customers' ability to make repayments.
(b) Covid-19 overlay
In December 2020, a post-model overlay for the payment holiday
population and any future take-up of payment holidays expected in
the personal loans portfolio was held, as these customers will
exhibit greater losses than indicated based on the historical
experience within the core model. This was updated in December 2021
as payment holidays ceased and an increased PD for up-to-date
accounts was applied as a result of more accounts being expected to
fall into default after the removal of the government support
scheme. Over the course of 2022 it became evident that the overlay
was no longer required and it has been gradually unwound during the
year.
The impairment charge in respect of amounts receivable from
customers can be analysed as follows:
2022 2021
GBPm GBPm
----- ------
Credit cards 16.8 3.7
Vehicle finance 40.8 44.6
Personal loans 8.5 2.1
----- ------
Total impairment charge - continuing operations 66.1 50.4
CCD - discontinued operations - 59.6
----- ------
Total impairment charge 66.1 110.0
----- ------
9. Investments
2022 2021
GBPm GBPm
----- -----
Visa Inc. shares 10.7 9.1
----- -----
Visa Inc. shares
The Visa Inc shares represent preferred stock in Visa Inc held
by Vanquis Bank Limited following completion of Visa Inc's
acquisition of Visa Europe Limited on 21 June 2016. In
consideration for Vanquis Bank Limited's interest in Visa Europe
Limited, Vanquis Bank Limited received cash consideration of
EUR15.9m (GBP12.2m) on completion, preferred stock with an
approximate value of EUR10.7m and deferred cash consideration of
EUR1.4m which was received in 2019.
The valuation of the preferred stock has been determined using
the common stock's value as an approximation as both classes of
stock have similar dividend rights. However, adjustments have been
made for: (i) illiquidity; as the preferred stock is not tradeable
on an open market and can only be transferred to other Visa
members; and (ii) future litigation costs which could affect the
valuation of the stock prior to conversion.
As at 31 December 2022, the total fair value of GBP10.7m of Visa
shares comprised of GBP4.6m of preferred stock and GBP6.1m of
common stock. The portion of the previously held preferred stock
was converted to common stock after the sixth anniversary
conversion event. The common stock (35,200 of Class A Common
shares) was fully sold after the year-end on 24 February 2023 for
$219.13 per share.
10. Other intangible assets
2022 2021
Acquisition Computer Acquisition Computer
intangibles software Total intangibles software Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------- ------ ------------- ---------- -------
Cost
At 1 January 75.0 43.5 118.5 75.0 77.9 152.9
Additions - 29.2 29.2 - 24.8 24.8
Disposals - (4.2) (4.2) - (59.2) (59.2)
------------- ---------- ------ ------------- ---------- -------
At 31 December 75.0 68.5 143.5 75.0 43.5 118.5
------------- ---------- ------ ------------- ---------- -------
Accumulated amortisation
and impairment
At 1 January 55.0 11.2 66.2 47.5 60.1 107.6
Charged to the income statement
- continuing operations 7.5 8.5 16.0 7.5 7.1 14.6
Charged to the income statement
- discontinued operations - - - - 3.6 3.6
Disposals - (2.0) (2.0) - (59.6) (59.6)
------------- ---------- ------ ------------- ---------- -------
At 31 December 62.5 17.7 80.2 55.0 11.2 66.2
------------- ---------- ------ ------------- ---------- -------
Net book value
At 31 December 12.5 50.8 63.3 20.0 32.3 52.3
------------- ---------- ------ ------------- ---------- -------
At 1 January 20.0 32.3 52.3 27.5 17.8 45.3
------------- ---------- ------ ------------- ---------- -------
Acquisition intangibles represent the fair value of the broker
relationships arising on acquisition of vehicle finance product in
August 2014. The intangible asset was calculated based on the
discounted cash flows associated with vehicle finance core broker
relationships and is being amortised over an estimated useful life
of 10 years.
Research and development expenditure recognised within operating
costs during 2022 was GBP1.0m.
Additions to computer software in the year of GBP29.2m (2021:
GBP24.8m) comprise GBP28.4m (2021: GBP24.2m) of internally
generated assets and GBP0.8m (2021: GBP0.6m) of externally
purchased software.
The GBP28.4m (2021: GBP24.2m) of internally generated assets
predominantly relates to the development of systems and
applications for the credit cards and personal loans
businesses.
The charge for continuing operations includes amortisation of
GBP16.0m (2021: GBP13.3m) and impairment of GBPnil (2021: GBP1.3m).
The charge for discontinued operations in 2021 included
amortisation GBP1.0m and impairment of GBP2.6m.
11. Retirement benefit asset
The group operates a defined benefit pension scheme: the
Provident Financial Staff Pension Scheme. The scheme is of the
funded, defined benefit type and it is now also closed to future
accrual.
The scheme provides pension benefits which were accrued on a
final salary and, more recently, on a cash balance basis. With
effect from 1 August 2021 it was fully closed to future accrual and
benefits are no longer linked to final salary, although accrued
benefits are subject to statutory inflationary increases.
The scheme is a UK registered pension scheme under UK
legislation. The scheme is governed by a Trust Deed and Rules, with
trustees responsible for the operation and the governance of the
scheme. The trustees work closely with the Group on funding and
investment strategy decisions. The most recent actuarial valuation
of the scheme was carried out as at 1 June 2021 by a qualified
independent actuary. The valuation used for the purposes of IAS 19
'Employee benefits' has been based on the results of the 2021
valuation to take account of the requirements of IAS 19 in order to
assess the liabilities of the scheme at the balance sheet date.
Scheme assets are stated at fair value as at the balance sheet
date.
The group is entitled to a refund of any surplus, subject to
tax, if the scheme winds up after all benefits have been paid.
As a result, the Group recognises surplus assets under IAS
19.
The Group is exposed to a number of risks, the most significant
of which are as follows:
- Investment risk - the liabilities for IAS 19 purposes are
calculated using a discount rate set with reference to corporate
bond yields. If the assets underperform this yield a deficit will
arise. The scheme has a long-term objective to reduce the level of
investment risk by investing in assets that better match
liabilities.
- Change in bond yields - a decrease in corporate bond yields
will increase the liabilities, although this will be partly offset
by an increase in matching assets.
- Inflation risk - some of the liabilities are linked to
inflation. If inflation increases then liabilities will increase,
although this will be partly offset by an increase in assets. As
part of a long-term de-risking strategy, the scheme has increased
its portfolio in inflation matched assets.
- Life expectancies - the scheme's final salary benefits provide
pensions for the rest of members' lives (and for their spouses'
lives). If members live longer than assumed, then the liabilities
in respect of final salary benefits increase.
The net retirement benefit asset recognised in the balance sheet
of the Group is as follows:
2022 2021
GBPm GBPm
-------- --------
Fair value of scheme assets 520.7 898.8
Present value of defined benefit obligation (490.0) (786.6)
-------- --------
Net retirement benefit asset recognised in the balance
sheet 30.7 112.2
-------- --------
The amounts recognised in the income statement were as
follows:
2022 2021
GBPm GBPm
------- --------
Current service cost (1.6) (2.1)
Interest on scheme liabilities (14.4) (11.8)
Interest on scheme assets 16.5 13.0
------- --------
Net credit/(charge) recognised in the income statement
before exceptional past service credit/(charge) 0.5 (0.9)
------- --------
Exceptional past service credit - Plan amendment
(note 3) - 1.5
Exceptional past service credit - Curtailment credit
(note 3) - 0.8
------- --------
Exceptional past service credit - 2.3
------- --------
Net credit recognised in the income statement 0.5 1.4
------- --------
The net credit recognised in the income statement has been
included within operating costs.
Movements in the fair value of scheme assets were as
follows:
2022 2021
GBPm GBPm
-------- -------
Fair value of scheme assets at 1 January 898.8 933.0
Interest on scheme assets 16.5 13.0
Actuarial movements on scheme assets (366.2) (20.2)
Contributions by the Group 2.2 4.0
Net benefits paid out (30.6) (31.0)
-------- -------
Fair value of scheme assets at 31 December 520.7 898.8
-------- -------
Movements in the present value of the defined benefit obligation
were as follows:
2022 2021
GBPm GBPm
-------- --------
Present value of defined benefit obligation at 1
January (786.6) (853.3)
Current service cost (1.6) (2.1)
Interest on scheme liabilities (14.4) (11.8)
Exceptional past service credit - Plan amendment
(note 3) - 1.5
Exceptional past service credit - Curtailment credit
(note 3) - 0.8
Actuarial movement - experience (6.6) (10.3)
Actuarial movement - demographic assumptions 5.4 12.9
Actuarial movement - financial assumptions 283.2 44.7
Net benefits paid out 30.6 31.0
-------- --------
Present value of defined benefit obligation at
31 December (490.0) (786.6)
-------- --------
The principal actuarial assumptions used at the balance sheet
date were as follows:
2022 2021
% %
----- -----
Price inflation - RPI 3.25 3.40
Price inflation - CPI 2.75 3.00
Rate of increase to pensions in payment 3.05 3.00
Inflationary increases to pensions in deferment 2.75 3.00
Discount rate 4.80 1.85
----- -----
The mortality assumptions are based on the self-administered
pension scheme (SAPS) series 3 tables (2021: SAPS series 2
tables):
- female non-pensioners: 105% of the 'Middle' table (2021: 101% of the 'All' table);
- male non-pensioners: 105% of the 'Middle' table (2021: 96% of the 'All' table);
- female pensioners: 102% of the 'Middle' table (2021: 101% of the 'All' table); and
- male pensioners: 99% of the 'All' table (2021: 96% of the 'All' table).
The above multipliers and table types were chosen following a
study of the scheme's membership. Where the multiplier is greater
than 100%, this reflects a shorter life expectancy within the
scheme compared to average pension schemes, with the opposite being
true where the multiplier is less than 100%. Also, the use of the
'Middle' table typically leads to slightly lower life expectancy
compared to using the corresponding 'All' table.
Future improvements in mortality are based on the Continuous
Mortality Investigation (CMI) 2021 model with a long-term
improvement trend of 1.00% per annum and a modest allowance (5%)
for the experience during 2020 and 2021 (where mortality was higher
due to coronavirus, which leads to lower assumed future
improvements in mortality). All other available parameters for the
mortality improvements model were adopted at the default (core)
level. Under these mortality assumptions, the life expectancies of
members are as follows:
Male Female
2022 2021 2022 2021
years years years years
------------ ----------- ------------ -----------
Current pensioner aged 65 21.7 21.7 23.3 23.4
Current member aged 45 from
age 65 21.6 22.7 24.3 24.6
------------ ----------- ------------ -----------
If the discount rate decreased by 2% (2021: 0.5%), the net
retirement benefit asset would have been increased by approximately
GBP160m (2021: GBP 64 m).
An analysis of amounts recognised in the statement of
comprehensive income is set out below:
2022 2021
GBPm GBPm
-------- -------
Actuarial movements on scheme assets (366.2) (20.2)
Actuarial movements on scheme liabilities 282.0 47.3
-------- -------
Actuarial movements recognised in the statement
of comprehensive income in the year (84.2) 27.1
-------- -------
Cumulative movement recognised in other comprehensive
income (154.7) (70.5)
-------- -------
12. Provisions
2022 2021
Scheme Others Total Scheme Others Total
GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- ------- ------- ------- -------
At 1 January 53.5 18.6 72.1 65.0 26.0 91.0
Created in the year 2.6 1.1 3.7 5.0 17.4 22.4
Reclassified in the year - 1.6 1.6 - - -
Utilised in the year (54.9) (9.1) (64.0) (16.5) (24.8) (41.3)
Released in the year - (8.2) (8.2) - - -
-------
At 31 December 1.2 4.0 5.2 53.5 18.6 72.1
------- ------- ------- ------- ------- -------
The Scheme of Arrangement (the Scheme): GBP1.2m (2021:
GBP53.5m)
The Scheme of Arrangement was sanctioned on 30 July 2021 and
will remediate all outstanding relevant claims, as well as new
relevant claims received before the claims submission deadline of
February 2022. The objective of the Scheme was to ensure: all
customers with redress claims are treated fairly; and outstanding
claims are treated consistently for all customers who submit a
claim under the Scheme. The Group will fund legitimate Scheme
claims with GBP50m and will cover further Scheme-related costs.
These were estimated at approximately GBP20m at 31 December 2021
with an additional GBP2.6m being recognised in 2022 for additional
expected costs in supporting the delivery of the Scheme.
Customer settlements in relation to the Scheme of Arrangement
commenced in H2'22 and GBP54.9m of provision has been utilised.
Other provisions include:
FCA investigation into CCD: GBPnil (2021: GBP4.1m)
CCD was informed in Q1'21 that the FCA had opened an enforcement
investigation focusing on the consideration of affordability and
sustainability of lending to customers, as well as the application
of an FOS decision into the complaint handling process, in the
period between February 2020 and February 2021. Analysis of lending
during the period of investigation resulted in a provision of GBP5m
being recognised in H1'21 which reflected the current best estimate
of the settlement, GBP0.9m of this was utilised in the second half
of 2021. On 7 July, the Group received notification from the FCA
that its investigation has closed and that no further action will
be taken. Consequently this provision was released during
H1'22.
ROP Provision: GBP2.0m (2021: GBP2.1m)
The Repayment Option Plan (ROP) provision principally reflects
the estimated cost of the forward flow of ROP complaints more
generally which may be received and in respect of which
compensation may need to be paid.
Customer compliance: GBP2.0m (2021: GBP3.4m)
The customer compliance provision relates to general customer
compliance matters.
Discontinued operations: GBPnil (2021: GBP9.0m)
A number of smaller provisions were recognised in 2021 in
relation to the closure of the CCD business which now have been
fully utilised. These were calculated based on estimated costs at
the 2021 year end.
13. Reconciliation of loss after tax to cash generated from operations
2022 2021
GBPm GBPm
------------------ -------
Profit/(loss) after taxation 77.4 (32.1)
Adjusted for:
- tax charge/(credit) 22.0 36.2
- finance costs 65.0 61.2
- exceptional costs on redemption of bonds - 3.9
- share-based payment charge 5.1 3.8
- retirement benefit (credit)/charge prior to exceptional
pension credit (0.5) 0.9
* exceptional pension credit - (2.3)
- amortisation of intangible assets 16.0 18.2
- provisions created in the year 3.7 22.4
- provisions released in the year (3.6) -
- provisions utilised in the year (64.0) (41.3)
- exceptional release of provisions (4.6) -
- depreciation of property, plant and equipment
and right of use assets 12.1 15.3
- loss/(profit) on disposal of property, plant and
equipment 0.9 (0.3)
- loss/(profit) on disposal of intangible assets 2.2 (0.4)
- profit on lease disposal - (1.2)
- hedge ineffectiveness (3.7) (0.2)
- proceeds from derivatives 11.8 -
- cumulative fair value movements on Visa shares
transferred to income statement - (5.2)
- current year fair value movements on Visa shares (1.6) 0.1
- contributions into the retirement benefit scheme (2.2) (4.0)
Changes in operating assets and liabilities
- amounts receivable from customers (226.3) 122.1
- trade and other receivables (22.8) 12.7
- trade and other payables (31.2) 30.7
Cash (used in)/generated from operations (144.3) 240.5
------------------ -------
14. Contingent liabilities
During the ordinary course of business the Group is subject to
other complaints and threatened or actual legal proceedings
(including class or group action claims) brought by or on behalf of
current or former employees, agents, customers, investors or third
parties. This extends to legal and regulatory reviews, challenges,
investigations and enforcement actions combined with tax
authorities taking a view that is different to the view the Group
has taken on the tax treatment in its tax returns, both in the UK
and overseas. All such material matters are periodically assessed,
with the assistance of external professional advisors, where
appropriate, to determine the likelihood of the Group incurring a
liability. In those instances where it is concluded that it is more
likely than not that a payment will be made, a provision is
established for management's best estimate of the amount required
at the relevant balance sheet date. In some cases it may not be
possible to form a view, for example because the facts are unclear
or because further time is needed to properly assess the merits of
the case, and no provisions are held in relation to such matters.
However, the Group does not currently expect the final outcome of
any such case to have a material adverse effect on its financial
position, operations or cash flows.
15. Post balance sheet events
Concluding in early 2023, the PRA have conducted a Capital
Supervisory Review and Evaluation Process (C-SREP) of the Group's
capital requirements, based on the ICAAP approved in September
2022. The outcome is that the Group's Total Capital Requirement own
funds requirements has reduced by more than a third, from 18.3% to
11.9%. Including the current regulatory combined buffer of 3.5%
(capital conservation buffer of 2.5% and countercyclical capital
buffer of 1.0%), the Group's overall capital requirement has
reduced by 6.4% from 21.8% to 15.4% (excluding any confidential and
management buffers). The reduction in capital requirements partly
reflects the Group's successful repositioning as a specialist
banking group focused on lower risk customers, the receipt of the
Core UK Group Waiver in November 2022, which enables the Group to
leverage its retail deposit funding capabilities to fund its other
lending products, and the significant amount of work undertaken to
strengthen the Group-wide risk management framework.
Directors' responsibility statement
Each of Patrick Snowball, Chairman; Malcolm Le May, Chief
Executive Officer; Neeraj Kapur, Chief Finance Officer; Andrea
Blance, Senior Independent Director; Angela Knight, Non-Executive
Director; Paul Hewitt, Non-Executive Director; Elizabeth Chambers,
Non-Executive Director; Margot James, Non-Executive Director and
Graham Lindsay, Non-Executive Director, Michele Greene,
Non-Executive Director confirms that, to the best of his or her
knowledge that:
(i) the group financial statements which have been prepared in
accordance with IFRS as adopted by the UK, give a true and fair
view of the assets, liabilities, financial position and profit of
the group, the company and the undertakings included in the
consolidation taken as a whole; and
(ii) the Strategic Report contained in the 2022 Annual Report
and Financial Statements includes a fair review of the development
and performance of the business and the position of the company and
group, and the undertakings included in the consolidation taken as
a whole, and a description of the principal risks and uncertainties
they face.
Alternative performance measures
In line with our continued repositioning as a specialist banking
group, the Group has taken the decision in the current year to
change the presentation of our Income Statement to align with the
wider banking industry. See page 22 in the statement of accounting
policies for further details on the change in presentation. In line
with these changes and to more closely align to our peers in the
industry, the Group have implemented updated APM's to provide more
relevant and reliable information for stakeholders. The changes to
APM's are summarised below and all presented APM's have been
retrospectively re-presented in line with these changes. Unless
stated below all other APM's are presented consistently with prior
years.
New terminology Previous terminology
Net interest margin (GBP) - Net interest margin (GBP) -
Interest income less interest Total revenue less interest
expense, excluding exceptional expense, excluding exceptional
items for 12 months ended 31 items for 12 months ended 31
December December
----------------------------------------
Risk-adjusted income (GBP) - Risk-adjusted margin (GBP) -
Total income, excluding exceptional Net interest margin, excluding
items less impairment charges exceptional items less impairment
----------------------------------------
New APM Previous APM
----------------------------------------
Average gross receivables - Average receivables - Average
Average of gross customer interest of net reported receivables
earning balances for the 13 for the 12 months ended 31 December
months ended 31 December
----------------------------------------
Net interest margin (NIM) - Net interest margin (NIM) -
Interest income less interest Revenue less funding costs,
expense, excluding exceptional excluding exceptional items
items for the 12 months ended for the 12 months ended 31 December
31 December as a percentage as a percentage of average net
of average gross receivables receivables
----------------------------------------
Risk-adjusted margin - Total Risk-adjusted net interest margin
income, excluding exceptional - NIM less impairment, excluding
items less impairment charge exceptional items for the 12
for the 12 months ended 31 December months ended 31 December as
as a percentage of average gross a percentage of average net
receivables receivables
----------------------------------------
Asset yield - Interest income Revenue yield - Revenue for
for the 12 months ended 31 December the 12 months ended 31 December
as a percentage of average gross as a percentage of average net
receivables receivables
----------------------------------------
Interest margin - Interest expense, Interest margin - Finance costs
excluding exceptional items for the 12 months ended 31 December
for the 12 months ended 31 December as a percentage of average net
as a percentage of average gross receivables
receivables
----------------------------------------
Cost of risk - Impairment charges Impairment rate/cost of risk
for the 12 months ended 31 December - Impairment charge for the
as a percentage of average gross 12 months ended 31 December
receivables as a percentage of average net
receivables
----------------------------------------
Cost:income ratio - Operating Cost:income ratio - Operating
costs, excluding exceptional costs, excluding exceptional
items as a percentage of total items as a percentage of net
income, excluding exceptional interest margin, excluding exceptional
items for the 12 months ended items for the 12 months ended
31 December 31 December
----------------------------------------
Adjusted return on assets (ROA) Adjusted return on assets (ROA)
- Adjusted profit after tax - Adjusted profit before interest
for the 12 months ended 31 December after tax for the 12 months
as a percentage of average total ended 31 December as a percentage
assets for the 13 months ended of average net receivables.
31 December
----------------------------------------
Adjusted return on equity (ROE) Adjusted return on equity (ROE)
- Adjusted profit after tax - Adjusted profit after tax
net of fair value gains for for the 12 months ended 31 December
the 12 months ended 31 December as a percentage of average opening
as a percentage of average adjusted and closing adjusted equity.
equity for the 13 months ended Adjusted equity is stated after
31 December. Adjusted equity deducting the Group's pension
is stated after deducting the asset, net of deferred tax,
Group's pension asset, net of and the fair value of derivative
deferred tax, and the fair value financial instruments, net of
of derivative financial instruments, deferred tax
net of deferred tax
----------------------------------------
Adjusted return on tangible Adjusted return on tangible
equity (ROTE) - Adjusted profit equity (ROTE) - Adjusted profit
after tax net of fair value after tax for the 12 months
gains for the 12 months ended ended 31 December as a percentage
31 December as a percentage of average opening and closing
of average adjusted tangible tangible equity. Average tangible
equity for the 13 months ended equity reflects average equity
31 December. Adjusted tangible over the period less intangible
equity is stated as equity after assets and goodwill
deducting the Group's pension
asset, net of deferred tax,
the fair value of derivative
financial instruments, net of
deferred tax less intangible
assets and goodwill
----------------------------------------
Adjusted return on required Adjusted return on required
equity (RORE) - Adjusted profit equity (RORE) - Adjusted profit
after tax for the 12 months after tax for the 12 months
ended 31 December as a percentage ended 31 December as a percentage
of the Group's average PRA regulatory of the Group's average opening
capital requirement including and closing PRA regulatory capital
PRA buffers for the 13 months requirement including PRA buffers
ended 31 December for the period
----------------------------------------
APM 2022 2021
New Previous New Previous
------ --------- ------ ---------
Net interest margin 21.0% 28.1% 20.5% 30.0%
------ --------- ------ ---------
Risk-adjusted margin 20.3% 24.2% 20.8% 26.9%
------ --------- ------ ---------
Asset yield 23.9% 31.5% 22.8% 33.1%
------ --------- ------ ---------
Interest margin/cost of
funds 2.9% 3.4% 2.4% 3.0%
------ --------- ------ ---------
Cost of risk 3.2% 3.8% 2.4% 3.1%
------ --------- ------ ---------
Cost:income ratio 59.9% 60.1% 54.8% 55.1%
------ --------- ------ ---------
Adjusted return on assets
(ROA) 3.8% 7.9% 5.3% 11.5%
------ --------- ------ ---------
Adjusted return on equity
(ROE) 17.1% 17.2% 25.6% 25.5%
------ --------- ------ ---------
Adjusted return on tangible
equity (ROTE) 22.2% 19.8% 32.2% 27.7%
------ --------- ------ ---------
Adjusted return on required
equity (RORE) 22.2% 21.4% 32.3% 32.6%
------ --------- ------ ---------
Information for shareholders
1. The 2022 Annual Report and Financial Statements together with
the notice of the annual general meeting will be posted to
shareholders on or around 18 April 2023.
2. The annual general meeting will be held on 25 May 2023 at the
offices of Clifford Chance LLP, 10 Upper Bank Street, Canary Wharf,
London, E14 5JJ.
[1] Excluding any confidential and management buffers and pre
C-SREP reduction.
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END
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