H1 2025 earnings call transcript

Our cost

income ratio was 62.5% at the half year. While that is a substantial improvement year- on-year, it remains above our guidance of high 50s for full year 25. We expect to close this gap in the second half through higher income, further transformation cost savings and lower complaint costs. Again, I will touch on those in more detail shortly.

Profit after tax of £5.6 million delivered a 3.1% return on tangible equity, so within our low single- digit guidance range for the full year.

And finally, we have the capital required to deliver on our plan.

Investor Relations

Let’s now look at some of the operational highlights across the five key initiatives we’ve shared with you in previous presentations - starting with our customer proposition and risk management approach that you can see on slide 6.

In our cards business we launched more flexible, tailored products - supporting 6% balance growth in the first half.

In Vehicle Finance, our upgraded decisioning engine helped improve our risk-adjusted margin to

9.7%.

Our Second Charge Mortgage book continues to grow well, with balances reaching over £370 million.

And we’ve broadened our savings range to give customers more flexibility - including new ISA products and launching the Snoop easy access savings account.

Speaking of Snoop, it continues to be a real strategic enabler, not just growing its user base, but also helping us improve customer engagement and enhance the overall customer experience as we deploy both the Snoop team and technology more broadly across the business. Active

Snoop users were up 7% in the first six months, with a 12% increase in Vanquis customers using the app.

Snoop also plays a key role in our ‘Not Yet’ customer strategy - you’ll remember that’s supporting customers who might not qualify for credit from us today, but who could do so in the future.

Instead of turning them away, we give them money management tools through Snoop which support them to build financial confidence. Where appropriate, we also refer them to trusted partners like Fair Finance.

And our partnership approach with Fair Finance is delivering real impact. In the first half of the year alone, we referred some 2,600 customers who Fair Finance helped to access affordable

Investor Relations credit and unlocked almost £10 million in unclaimed benefits for them – in some cases transforming their financial position.

By offering these kinds of solutions, we’re helping people improve their financial wellbeing and resilience - which in turn builds trust, loyalty, and long-term relationships with Vanquis.

Supporting a better overall customer experience, in February we created a single customer view in our new service platform. This combined 15 separate legacy data sources, enabling our colleagues to deliver faster, more tailored, more accurate support to our customers.

And in June, we brought that same commitment to life in our rebrand - reintroducing Vanquis to our customers as “the bank that’s got your back.” It’s more than a logo or campaign. It reflects how we show up for our customers and support them day in and day out in ways that other lenders either can’t or won’t.

And that approach is making a difference. Our Trustpilot score remains rated “Great,” with over

80% of our reviews being at 5 stars - reflecting the real value customers place on the products, service, and support that we provide to them.

Investor Relations

Turning to slide 7, I will cover three key areas you can see in the left-hand column: Technology transformation, Operational efficiency, and our People agenda.

Let’s start with technology. As I mentioned earlier, our Gateway technology transformation programme remains on track.

A recent milestone saw us load 30 billion rows of customer, product and decisioning data onto our new IT platform - significantly enhancing our ability to generate insights and make smarter, faster decisions.

This foundation is paving the way for upcoming launches, including our new mobile app and smarter credit card onboarding and decisioning tools, which will be launched over the next three months.

We have had a significant amount of technical debt to address, and introducing this modern infrastructure now sets the stage for a more digital, customer-focused experience.

And while we’re enhancing customer experience, we’ve also been driving operational efficiency across the business, expanding digital self-service, integrating AI, and strengthening our control frameworks to make our processes more efficient.

We’re seeing the impact through reduced complaints, tighter fraud controls and expanded debt sales - all of which are contributing to our cost transformation.

Alongside that, we’ve reshaped our operating model. In 2024, we completed a significant outsourcing programme that reduced our staffing costs by £25 million, and our headcount by

18%, year-over-year.

As a result, our UK headcount has remained broadly flat over the last six months.

Encouragingly, colleague engagement has continued to improve, with our mid-year pulse survey showing a 5-point increase, rising to 65%.

Investor Relations

We believe that reflects growing confidence from our colleagues and while there’s more to do, there’s a real sense that we’ve turned a corner and we’re now heading in the right direction.

Investor Relations

While we’ve been focused on turning around the business, there have been two external challenges that we have talked to you about before and that you know have weighed on the bank

- these are CMC complaint volumes, and motor finance commissions.

Let’s start with complaints and the recent positive developments on this. You can see the detail on slide 8.

As we flagged in our Q1 trading update, complaint costs were tracking in line with our expectations. Since the FOS fee reforms which came into effect in April, we’ve seen a sharp drop in unmerited referrals from Claims Management Companies.

I’m pleased to say that trend has continued. CMC complaints referred to the FOS remain negligible, and we’ve also seen a fall in the volume of CMC complaints submitted directly to us.

As a result, complaint costs in the first half were £16 million, which is 36% lower year-on-year

….and with a lower run rate in Q2 than in Q1. This supports our expectation that complaint costs in the second half will be lower again.

We do recognise the importance of the FOS in resolving customer disputes. But it’s critical that that process works fairly for all parties. That’s why we support the Government’s planned review aimed at reforming the FOS.

More broadly, we continue to engage with regulators on industry-wide solutions, particularly around proper oversight of CMCs and their practices.

And finally, a quick update on our High Court case against The Money Solicitor (TMS) – they’re the claims management company behind the largest number of unmerited complaints against us. Following success at the recent strike-out hearing, we’re now continuing to progress our case to the High Court.

Investor Relations

Turning to the second external overhang - the Supreme Court judgment on motor finance commission disclosures, and the FCA’s intention to consult on a compensation scheme. We are on slide 9 now.

Firstly, we welcome the clarity provided by the judgment from the Supreme Court, and the conclusion that dealer brokers did not owe fiduciary duties to their customers.

We believe our liability in relation to this matter is limited, and as a result, we haven’t taken a provision. However, in line with accounting standards - and with agreement from our auditors and Board – we have disclosed a contingent liability.

While we continue to work closely with the FCA, I wanted to share the number of reasons why we believe Vanquis’ exposure is less than others.

Importantly, as we have said many times before, Vanquis never operated discretionary commission arrangements (DCAs), and we are therefore not in scope for this element of any

FCA redress scheme.

However, the FCA have said they intend to consult on whether certain non-DCAs should be included as part of a redress scheme.

They list the factors they intend to consider, which are consistent with those the Supreme Court took into account when assessing an unfair relationship in the Johnson case.

Against each of these factors, Vanquis’ position is clearly differentiated.

We have outlined the rationale for this on the slide, but I would emphasise the following.

Our average, Vehicle Finance commissions as a percentage of the total credit charge were around 13% - much lower than the Johnson case, which, as you know, was 55%.

Investor Relations

We did not operate “right of first refusal” arrangements with brokers or dealers, and in fact, in a number of cases we were more like the “lender of last resort”.

Customers signed pre-contractual documentation confirming that they understood a commission would be paid.

As a result of all this, we do feel our position is clearly differentiated and look forward to more clarity emerging through the FCA consultation process.

Investor Relations

Vanquis remains committed to the Vehicle Finance market and we’re confident in the continued strategic transformation of the business for the reasons that we show on slide 10.

Through our Moneybarn subsidiary, we support an underserved customer segment – in line with our overall purpose as a bank. We help customers finance affordable, often older, vehicles that are essential to their daily lives. The most common type of car we finance is a nine-year-old Ford

Focus with some 70,000 miles on the clock. We finance essential travel for our customers, not luxuries.

This end of the market is resilient, with strong demand and limited direct competition, allowing us to price appropriately for risk, and maintain a broader credit appetite.

And, although the average loan size is lower at around £9,200, our weighted average APR is over

29%, reflecting the risk profile and that supports strong unit economics.

After resolving the well-documented challenges in the Vehicle Finance book that we shared in

2024, I’m pleased to report that our Vehicle Finance business returned to marginal profitability in the first half. It’s a positive step, though we have more to do, and scaling and cost-to-serve remain key focus areas.

To support this, we’re investing in a new onboarding and servicing platform through Gateway. It will reduce manual work, lower costs, and improve both the customer and the broker experience.

In the near term, we’re managing new lending carefully as we complete the IT platform build.

Balances are down 4% year-to-date, but improved portfolio visibility has enabled sharper pricing, lifting our risk-adjusted margin to 9.7%.

The long-term opportunity here remains compelling: the market is expected to grow by £6 billion over the next five years, creating a financing need of around £9 billion by 2030.

Investor Relations

We’re positioning this business for sustainable, profitable growth with a clear roadmap, a large addressable market, and a differentiated model for us that plays to our strengths.

Right, that wraps up my section for now. I’ll be back later for the Q&A session, but in the meantime, let me hand you over to Dave, who’ll walk you through our financials in more detail.

Dave.

Investor Relations

Dave Watts, Chief Financial Officer

Thanks, Ian.

Slide 12 summarises the Group’s financial performance for the first half of 2025.

I will comment mainly on our performance versus the second half of 2024.

In the first half, we generated a profit in both quarters supported by a 7% growth in gross customer interest-earning balances and a 13% increase in risk-adjusted income as impairments reduced.

Along with significantly lower operating costs, reflecting the absence of 2024’s one-off items, profit before tax from continuing operations was £6.2 million.

After factoring in tax and the profit from discontinued operations, related to the now sold

Personal Loans business, profit after tax was £5.6 million.

These results are on a statutory basis. Following last year’s notable items linked to the business turnaround, there were no notable items in the first half of 2025.

Investor Relations

Our key performance metrics are set out on Slide 13.

Our statutory return on tangible equity was 3.1%, in line with our 2025 guidance of low single digits.

Asset yield, NIM and total income margin reduced as expected, driven by a greater proportion of lower risk Second Charge Mortgages.

However, our risk-adjusted margin increased by 90 basis points to 12.4%, reflecting a 170-basis point reduction in the cost of risk.

With greater clarity on the cost of risk across the portfolios, we intend to focus on risk-adjusted margin, as a core metric going forward.

Investor Relations

The NIM drivers are set out on Slide 14.

Underlying asset yield improvements added 20 basis points, reflecting pricing discipline across portfolios.

Lower funding costs contributed to a further 30 basis points improvement.

These positives were offset by a 20-basis point reduction from a smaller Liquid Asset Buffer and most significantly, a 100-basis point dilution due to a shift in mix toward Second Charge

Mortgages.

As a result, NIM decreased to 17.4% as expected.

Despite this, due to balance growth, net interest income rose 1%.

Full year NIM guidance remains unchanged at greater than 17%.

Investor Relations

Slide 15 details our gross customer interest earning balances which increased to £2.46 billion.

Credit Card balances increased 6% all in the second quarter.

This reflected both new customer acquisitions and increased card utilisation by existing customers.

Vehicle Finance balances reduced 4%, as we managed new business growth while we develop the new IT platform that Ian has already talked about.

Second Charge Mortgages continued to grow strongly, increasing by over £150 million in the first half.

This more than offset the reduction from the Personal Loans sale.

As Ian has mentioned, we are now confident that we will outperform our previous guidance on balances. We are now guiding to greater than £2.6 billion of balances by the end of the year.

Investor Relations

Slide 16 highlights a much cleaner gross and net receivables position.

The 6% increase in gross receivables was driven by the £200 million growth, in interest-earning balances.

Other movements were small reflecting the now mature debt sale programmes.

We expect to transact more debt sales in the second half of the year.

Net receivables rose by 8% supported by improved asset quality.

Investor Relations

Slide 17 summarises the year-on-year impairment charge movement.

We have restructured the presentation of impairment drivers to separately show gross charge- offs and recoveries from IFRS9 modelled movements.

Bottom line, impairment reduced 18% largely driven by a 20% reduction in gross charge-offs, reflecting continued customer resilience.

Impairment on new originations increased 8% in line with balance growth.

Back-book credit risk improved with fewer negative stage migrations and lower impairment releases from write-offs and debt sales.

In summary, the overall Group cost of risk has reduced to 6.6%, with all products coming in below guided expectations reflecting our responsible approach to lending.

We do, however, expect impairment to increase in the second half, driven by new origination charges and therefore, the full year cost of risk by product should be within previously guided ranges.

Investor Relations

Slide 18 summarises Expected Credit Losses, noting that we have changed their presentation to be more logical.

ECL reduced 6% as originations and net risk movements outweighed releases.

Our coverage ratio fell 1.3% to 9.5%, reflecting increased stage 1 and stage 2 balances, and a reduction in stage 3.

Fundamentally, we are comfortable with the current coverage, based on a clearer understanding of the credit risk of the portfolios.

Investor Relations

Turning to operating costs on Slide 19.

Total operating costs fell 37% primarily due to the absence of 2024’s notable items.

Underlying costs were flat half-on-half with transformation savings and lower complaint costs, offset by inflation and growth-related increases.

We also accrued discretionary staff costs, having not paid bonuses to colleagues for the last two years.

As Ian mentioned, we have embedded cost discipline across the business.

We are on track to deliver £15 million in committed savings this year and we are accelerating some Gateway technology driven savings into 2025.

Our cost

income ratio was 62.5% in the first half, however, we remain committed to our full- year guidance of high 50’s.

Investor Relations

Slide 20 illustrates in detail the drivers of the reduction in complaint costs in the first half.

Complaint costs fell 28% driven by a 62% reduction in FOS fees due to a 58% fall in referrals.

This shift came primarily in the second quarter, following the new FOS fee charging structure.

Remediation costs increased due to timing of payouts while higher direct complaints partly reflect an increase in low-value servicing claims.

The reduced balance sheet position is consistent with our expectation that the significant overhang from elevated complaint costs is receding.

Investor Relations

In July, we published our 2024 results re-presented by product.

Slide 21 shows our first half 2025 product results on the same basis, offering greater transparency into each business line.

Importantly, all three lending products were profitable in the first half, as I will cover next.

Investor Relations

Turning to Credit Cards, on slide 22.

The business delivered a profit of £12.6 million in the first half and all of the 6% growth in balances came in the second quarter.

Headline asset yield declined 40 basis points to 27.8%, driven by the increased take-up of balance transfers and 0% promotional offers, which increased to 11% of the portfolio from 5% in December 2024.

As a result, the weighted average APR of the portfolio reduced to 35.5%. These product offers are effective acquisition tools that are expected to drive further interest income over time.

Excluding these offers, the portfolio’s weighted average APR increased by 40 basis points to

39.9%, reflecting our risk-based repricing strategy.

As part of this strategy, we have expanded our range to include cards with 60% plus APRs.

Combined with lower funding costs, NIM remained stable at 24%.

Overall, we are well-positioned for more profitable growth through the remainder of 2025 and beyond with continued focus on customer mix and pricing discipline.

Investor Relations

Slide 23 covers Vehicle Finance.

Balances reduced by 4%, as we managed new business volumes ahead of the Gateway IT platform launch in 2026.

The portfolio delivered a modest profit of £1.4 million in the first half with profitability improving year-on-year.

Repricing actions lifted the weighted average APR to 29.1%, boosting both asset yield and NIM.

Risk-adjusted margin increased to 9.7%, reflecting improved credit quality and the absence of last year’s receivables review impact.

That said, the cost: income ratio remains too high at 71%.

As Ian noted, building scale and automating processes enabled by the new IT platform will be key to improving efficiency.

Investor Relations

Second Charge Mortgages continued their strong growth in the first half, as shown on Slide 24.

Balances reached £371 million, NIM increased to 3%, and the business delivered a profit of £2.4 million.

With a weighted average loan-to-value of just over 70%, the cost of risk remains low.

As a secured product, Second Charge Mortgages have a low RWA density, driving attractive returns on capital.

We’ve rapidly become a market leader in this space. Through strong origination partnerships, we remain excited about its growth potential with the overall market originations growing annually at mid-teens percentages in recent years.

Investor Relations

Slide 25 shows the streamlined Corporate Centre, following the reallocation of both funding and costs to product lines.

Excluding notable items, the Corporate Centre has consistently reported a circa £10 million loss across the last three halves.

It includes returns from the Liquid Asset Buffer, interest costs on unallocated Tier 2 capital, operating costs from Retail Savings, and Snoop.

Investor Relations

Liquidity and funding remain core strengths, as shown on Slide 26.

We hold £619 million of excess high-quality liquid assets and we continue to improve returns from the Liquid Asset Buffer, with £115 million now invested in UK gilts.

Retail deposits have grown to over £2.4 billion, now representing 85% of total funding including

Tier 2 capital.

We have diversified our deposit mix. This has provided more pricing flexibility and has contributed to a 20 basis point reduction in the cost of funds over the past six months.

Investor Relations

As shown on Slide 27, our Tier 1 capital ratio stands at 18.5%, equating to £96 million in surplus capital over disclosed regulatory requirements.

The Group was capital accretive in the first half, reflecting a return to profitability.

The ratio reduced 30 basis points, driven by over £100 million of Credit Risk RWA growth.

This and tech investment-related intangibles, reduced the ratio by 150 basis points.

First half profits and the capital benefit from the Personal Loans sale partially offset this reduction.

We have enough capital to deliver our growth plans and expect the ratio to reduce in the second half towards our guidance of greater than 17.5% by the end of the year.

We continue to explore options to optimise our capital stack and we expect the Group’s capital requirements to be reviewed by the PRA in the second half of the year.

Investor Relations

Slide 28 reiterates our guidance from the start of the year, which remains unchanged apart from the increase in balance growth expectations.

We look forward to sharing a more in-depth strategy update, including our financial goals beyond 2026 alongside our full year 2025 results next year.

Investor Relations

Slide 29 summarises our eight key messages in our pursuit of creating long-term shareholder value.

While each is important, I would highlight three:

Firstly, we are profitable and growing, now;

Secondly, our strategic transformation is on track with a focus firmly on execution and delivery; and

Lastly, and most importantly, we are delivering for our customers to create long-term sustainable and profitable growth.

And with that, I will hand you back to Ian.

Ian McLaughlin, Chief Executive Officer

Dave, thank you for that, as always, detailed walk through.

Look, if I come up a level, as I said at the outset, we’re pleased with the progress we’re making across the business.

The summary points are on this slide you can see, but the main messages are that we are back to profitability and growth. Costs are well controlled, all product lines are profitable, and we’re transforming the business through improved technology and processes.

We're particularly encouraged by the return to growth in our Credit Card business and by the continued momentum in our Second Charge Mortgage portfolio.

As I said, the external factors that have weighed on us are either falling away or at least becoming clearer.

Investor Relations

We have momentum now, but we still have much to do.

Our progress is the result of the incredible efforts of our colleagues, and I’d like to take a moment to thank them for their huge commitment and hard work.

Ian McLaughlin, Chief Executive Officer

Investor Relations

We’re now happy to move to your questions.

While we get organized for that, I will leave you with a few quotes from our customers on the screen.

In their own words, you can see how we’re helping people every day supporting them to make the most of life’s opportunities.

With that, Operator, over to you for questions.