Vanquis Banking : Financial Document

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

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 £110.1m (FY'21: £142.2m) reflecting the increase in central costs referred to above.

• • Group adjusted profit before tax from continuing operations of £126.6m (FY'21: £167.8m) 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 £679m (FY'21: £707m), 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 £284m (FY'21: £344m) 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 £421m at the end of December 2022 (FY'21: £415m) 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 earnings4 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 £178.5m (FY'21: £173.9m) 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 £1,182m (FY'21: £1,063m).

• • 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 £38.0m (FY'21: £28.9m) 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 £646m (FY'21: £586m), 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 £342m (FY'21: £287m), 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 £15.7m for the period (FY'21 loss before tax: £8.7m) 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 £76m (FY'21: £28m).

• • 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 RelationsOwen.jones@vanquisbankinggroup.com

07341 007842

Media:

Richard King, Vanquis Banking Group

Nick Cosgrove/Simone Selzer, Brunswickvanquisbankinggroup@brunswickgroup.com

07919 866876 0207 4045959

• 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 the 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 £110.1m

(FY'21: £142.2m) reflecting higher central cost items year-on-year. The Group reported an adjusted profit before tax from continuing operations of £126.6m (FY'21: £167.8m), 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 £30m (FY'21: £18m) during the period reflecting the roll out of the shared services model, transformation & change spend increased to £35m (FY'21: £8m) and bond interest payments increased to £10m (FY'21: £nil), 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 £288m (FY'21: £264m) 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 £1,904m (FY'21: £1,678m) at the end of December.

At the end of December 2022, the Group's capital position remained robust with regulatory capital of £679m (FY'21: £707m), equating to a total capital ratio of 37.5% (FY'21: 40.6%). This equates to a surplus of £284m (FY'21: £344m) 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.