Distribution Finance Capital Holdings plc (DFCH.L) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Distribution Finance Capital Holdings plc Interim Results Investor Presentation. [Operator Instructions]. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CEO, Carl D'Ammassa. Good afternoon to you, sir.

Thanks very much. Apologies to everybody for the short delay in joining. We had a few technology challenges at our end. So I think a number of you will know me, may have been to these meetings before. I'm Carl D'Ammassa, I'm the CEO of DF Capital. And I'm joined today by Sameera, who is our new CFO. Sameera joined us in May and has a distinguished career covering over 20 years in financial services and banking and has most recently been -- had a role in finance at Skipton Building Society, which I think a number of you will know is a very, very large lender, GBP 35 billion balance sheet plus -- so really makes DF Capital look quite small in comparison. But Sameera has done everything top to bottom, left to right in finance. So it will be no surprise to you that she's really got our feet under the table, very, very quickly, got a handle on things and has had a really good extended handover from Gavin Morris, who is still going to be with us, retiring from the company at the end of this year. So we can draw on him as needed. But I think you'll agree as we go through this that Sameera has got a good handle on where we're at. So just moving on from introductions. There may be a number of you that this might be the first time that you've shown interest in the company or attended one of these meetings. So I thought it would be worth just taking a few minutes just to give a bit of background on DF Capital. The firm was founded in 2016 and started lending in 2017. And at that point, it was a nonbank. It was a nonbank lender. But the -- and we are funded at that time by wholesale funding, i.e., borrowing from other banks. And it was identified that there was quite a sizable market opportunity at that time. And the best course to actually capitalize on that was to go through a banking license application. And we -- I joined the firm in March 2020, took the firm through to full authorization as a bank in September. And we're now 5 years at the end of this month authorized as a bank. In fact, it's hard to believe now that I remember doing my first set of annual results based on 2019's numbers. And at that point, as a nonbank lender, we were losing about GBP 40 million. So for us to now be 5 years as a bank and 4 years, including this year, profitable has been staggering. And how have we done that? Well, we're not -- some people get us confused as an early-stage bank with challenger banks. We're not -- we're a specialty lender. We've been able to get ourselves to profitability by having a relentless commitment to the attractive niche underserved segments of the market that we support. Our reason for being really is to support the growth in sales of manufacturers, dealers and distributors with our lending products. And we use the banking license to provide us with the liquidity for us to be able to lend. And we've been able to really drive out the success in these markets based on the sector specialism, the expertise that we have that only allows us to build deep relationships with our customers because we speak the same language as that, but it helps us manage the risk and reward in each of those sectors that we support. So as a reminder, we're really supporting working capital or stock on the forecourt of dealers, predominantly based in the U.K. It covers a whole array of different sectors, Motorhomes, Caravan, Lodges, Holiday homes, all prefabricated, Plant and Machinery, Transportation, Construction Equipment more widely agriculture, Marine and Motorcycles. So we're very, very well diversified. But what is common to our lending is the exceptional customer-first proposition that we've built that is really enabled through a technology-based solution. But we are quite old-fashioned as well in recognizing the relationship side of things. So our team, we do have human beings as the telephone that are proactive in managing relationships. So the team are really not shuffling paper and processing information. They are relationship-focused individuals. And it will be no surprise that we get really good customer advocacy scores in relation to that, offering what I would describe a uniquely capital experience. You'll see as we go through this presentation that we're supporting more dealers and manufacturers than ever before. And we're now an exciting part of our journey where we're moving from being what we perhaps described as predominantly focused on one product sector, i.e., inventory finance to the natural adjacency of asset finance whilst still always being committed to those markets and the growth and sales of manufacturers, dealers and distributors. So just looking at the -- if we move on to the next slide, just talking about some of the relationships that we have and why people want to work with us and borrow from us. HDM Solar is a really great example, a fabulous business, early-stage business that saw opportunity in the renewables space to distribute and install solar panels and batteries right across the U.K. And this firm's ambition really had been constrained by their funding source, which was a mainstream invoice discounting facility. And we made contact with them and talked to them about how we could bolt together an inventory finance proposition with a receivables financing or invoice discounting capability. And that really has unlocked the potential for them to grow as a company and open more branches. It's been a real success story for them. Beverly is a smaller manufacturer of holiday homes and residential units. It's a manufacturer relationship that we have and a borrower as well. They've really enjoyed working with us because of our specialist nature, our specialism, our understanding of the market. We've been able to tailor a lending solution that really accommodates the seasonality in the market. We understand the challenges around sales at particular times of the year and the need for manufacturers to continue to be able to produce product through the year. We've got some solutions for that. And approved boats, I think there's a clue in the name there. They're a marine customer, a dealer selling boats more generally. And that's a business that's gone through growth. And we've been able to extend our facility with their growth to unlock further potential for them. So I think as you look at the testimonials, these are written by these individual customers. I think flexibility, customer service, focus, support and technology are all the hallmarks of why people want to transact with DF Capital. And as I say, we bring that to life by having expertise and human beings who wake up every morning with the ambition to help these customers in these markets grow. So moving on to the more exciting news. I mean, we're really, really pleased with where we've ended up at the end of the first half. It's been an exceptional start to the year. And our confidence in what we've achieved so far in the first half and the pipeline of opportunity that's ahead of us has given us the need and I guess, the desire and the confidence to actually upgrade our view for this year, and we're expecting the outturn for 2025 to be materially ahead of expectations, I guess, previous call. And why is that? Well, we've been smashing records left, right, and center, if I'm honest. Our profit for the first half was GBP 9 million, which is up 20% on the prior year. We've driven record new lending, almost GBP 830 million, which is up 17% on the prior year. And our closing loan book at the end of June was GBP 125 million up on the same period last year, which is over 20% as well. And having held our pricing disciplines, ensuring that we continue to achieve a strong net interest margin of around 8%, whilst managing the portfolio really, really well from a risk perspective with super low cost of risk. It is well within the 1% through the cycle guidance that we've given and a really low number of arrears cases generally, which I should remind everybody that we count arrears as 1 day past due and our arrears also include those workout cases that are in legal recovery as well. So we're super prudent in our arrears reporting. But those ingredients, the jaws continuing to open between cost and income has seen the tangible net assets of the firm increase to about GBP 117 million, which on a TNAV per share basis is 70.2p, which is up 18% on the same period last year. And what's really pleasing for us as well is that at the full year, we indicated that we'd shot through the 10% post-tax return on equity threshold. That is now well baked in with a return on equity of 11.3% in the first half of the year. So we're making great progress towards 2028 ambition that we've talked about of having a mid-teens return on equity as a pit stop on the journey towards a 20% return on equity at about GBP 1.5 billion to GBP 2 billion balance sheet. So I don't think there's anything on this page for us not to be happy about. And I'm sure you can appreciate why we're chopped a bit as a team as we enter this presentation to you. If we look at the next slide, I'm not going to spend too much on here, and I don't want it to come over as indulgent, but we have proven and for those of you that have seen our annual report, you'll see this is pretty consistent. We have been growing consistently year-on-year. Our loan book, as we say, has gone up 21%. But if we continue to grow as we have been and hold our pricing, have really good disciplines around our deposit raising, manage the arrears position really well and obviously, cost. Then it will be no surprise. I mean I'm obviously pointing out what's really clear. But that will push on with TNAV and TNAV per share, which obviously is an important measure when looking at the share price relative to the value of the company and its overall potential. So holding all those important KPIs and keeping them in check whilst growing is really the route to that medium-term ROE ambition. And if we move to the next slide, you can see that we have demonstrated consistently over the last 5 years that firm has potential to grow. In fact, we have a compound annual growth rate of about 25%, which in lending volumes. And that, frankly, we feel is broadly unheard of in the market. And how we done that? Well, we've driven growth through the period by growing our market share or share of wallet and taking away business from competitors by being great at what we do and demonstrating that we have product expertise. We've onboarded more relationships. We now got 97 manufacturer relationships and 1,500 dealer relationships, which clearly more relationships gives us more opportunity to grow. And we have also in the core inventory finance product, started to lend to entities in Europe through the relationships that we have, still quite small in our lending, but it does allow us to dip the toe in the water and see if ultimately, maybe at some point in the future, not in our current strategic plan, but we may want to explore further opportunity to scale on to a pan-European product set. Over and above that, we have done what we call structured finance, which is really tailored lending to support existing market participants. So those manufacturers, the dealers and the distributors in the markets that we know and that we operate when they have an opportunity that's a little bit different than perhaps the inventory finance product is per se, but it does help them develop their business, grow their business grow the market, then we're happy to help out there, and we've scaled lending in that area, although it will always be quite a small part of our overall lending. So it has been an exceptional first half for us. And I'll hand over to Sameera now to go into perhaps the meat and the verge of the financials.

Thanks, Carl. Good afternoon, everyone. And yes, as Carl mentioned, we're really delighted with our half year results, and I'm really pleased to present the story today. So I'll take us through a deeper dive of the financials and the drivers of the performance effectively. If we start with the P&L, which you'll see on the slides right now. Starting with income. Obviously, this is a key driver of our overall profitability. And I'm pleased to say that our net interest income is up 17% on the prior period. And that's largely been driven by two things. One is our strong levels of growth in our loan book, which Carl has touched on. And the other is our exceptional performance on net interest margin, which ended the period at 7.9%. So if I just give a bit of color to those two things. On the growth side, we've increased our loan book by 21% in the period. And as Carl said, record-breaking originations that have helped us get to that closing book position. But that's all been supported by the diversification of our product suite, increasing our manufacturer and dealer relationships, but also winning share in the sectors that we have a good presence in like the Motor and Power sector. So that's all supported a much stronger growth level and ultimately, the income that we drive off the back of that. From a NIM perspective, the primary driver is our overall asset yields. So these have held up really well above 12% for the period, so about 12.2%. And that's been driven through really careful management of our portfolio. So growing the book in the segments that are profitable and optimizing our returns across the whole portfolio. And we've managed to do that despite there being 2 base rate reductions in the period. So really strong performance there on asset yields. On the other side of net interest margin, obviously, we have the cost of our deposits, the cost of the retail funding. And competition is still very much prevalent in the retail market. Now obviously, our strategy is to provide market-leading customer rates to our savers, and that will always influence our cost of funding, but we've been able to navigate that carefully with the base rate reductions. And ultimately, that strong pricing discipline has helped us optimize cost of funding where we can. So that's led to our overall NIM of 7.9%. Now moving on just a bit into costs. So from a cost perspective, you'll see that our underlying costs have increased, and this was a purposeful decision to obviously invest in our new asset finance proposition. So we expected our cost to go up. And a lot of that has been delivering the tech, but also increasing the level of resource that we have to bring this proposition to the market. So we brought in the right skills and the capabilities and at the right levels as well. So together, those two things have meant that our cost-income ratio has actually improved for the period. So we've gone down to 57% from where we were previously. And that, as I said, is a combination of both the higher income in the period, but also the cost discipline. And I think just the point to make there is our culture still remains very much to be really tight on our cost discipline, ensuring that we're not allowing unnecessary cost creep. And actually, it's quite a positive story to be able to share these results today where we're outperforming our P&L despite having invested quite significantly in the asset finance proposition. So just moving to impairment for a moment, and I'll probably touch on this a bit more as we go through the slides, we have a section on this. But overall, our impairment charge has increased as expected with a growing balance sheet, but it remains very much within our tolerance of 1% through the cycle, as Carl mentioned. So what does all of this mean in terms of our overall profit? Well, you can see that this underlying trading performance has led to a really strong profit level for the half year, so GBP 9 million for the period. And if we look at that on a comparable basis to the previous period, then that's some 20% up on where we were last year. And I think the really strong trading performance that's led to these really robust levels of profitability just demonstrates the strength that we're building in our business for the long term. What that gives us in terms of the return on equity is 11.3%. So that's increased by just under 1% and well on our way to that trajectory of mid-teens return on equity in our strategic plan. So that's the summary of the P&L. If we move on to the balance sheet now. So I'll talk a bit about growth, but we have covered some of this. But you can see really, really strong levels of growth, record originations of GBP 828 million, and that's led to the overall book being up by 21%. And if I was to articulate how we've been able to do that, well, it comes back to what Carl mentioned at the start of this presentation, which is that focus on our customers and the markets that we serve. So we exist entirely for them. And it's that unwavering commitment that has set us apart from other banks, and it allowed us to not only expand our proposition, but deepen the relationships with our customers and gain more market share than perhaps we would have expected. So with that broader suite of products now and serving more of our customers' end-to-end needs through those bespoke products, we have more tools in our armory and we really do set the foundations for good future growth. Of course, none of this is possible without our retail franchise. We became a bank in 2020 even and haven't sort of looked back since then. We've been growing our retail book strongly, matching our growth pound for pound. And this remains kind of fundamental to our overall funding strategy. So it absolutely enables the continued growth and diversification of our balance sheet. We are funded predominantly through retail customers. That's still the core of our strategy. However, this year, we have made good progress in increasing our SME deposits via a partnership with Insignis. And this ultimately provides us with more flexibility and a wider distribution reach. And as I mentioned earlier, when we look to optimize cost of funding, it just gives us more levers to pull in terms of options to bring that funding in. From a provisions perspective, again, I'll touch on this more on the next slide. It's just over 1.1%. And effectively, this just demonstrates the consistency in our borrower profile and the security that we have against our lending that we're not seeing a huge increase in our provisions. So then just touching on capital because this obviously remains a key KPI for us and something that we monitor really, really closely. We remain in a really strong position. We've grown our regulatory capital to around GBP 112 million. So that's a combination of common equity Tier 1 capital and GBP 10 million of Tier 2 capital. Now we still have capacity to draw a further GBP 10 million on our Tier 2 facility, but combined with our underlying organic position, we have sufficient headroom to grow our balance sheet to around GBP 950 million. And if you factor on top of that, our expectations for future return earnings even, then that pushes us even further to GBP 1.3 billion by the end of 2028, and that's without the need for any further Tier 1 capital. We're continuing to utilize our relationship with the British Business Bank and ENABLE guarantee scheme and that really does help support our growth and capital efficiency. We're now standing at around GBP 350 million for that. And combined, all of that means our CET1 ratio stands strong at 19.7%, so comfortably above the regulatory minimum. And I guess the key thing for us from a capital perspective is continuing to ensure that we are using or utilizing our capital to the best effect and optimizing our risk-adjusted return on capital. And the final kind of metric on here, just to touch on, which Carl has spoken about is the tangible net asset value per share, which, again, we're very pleased that this is moving in the right direction, up 10p from the previous period and again, demonstrating our commitment to drive shareholder value. So if we just move on to credit loss performance. I think in terms of this, it remains a key driver of our business. It isn't just about growth for us. We're also focused on the quality of lending that we're placing on our book and ensuring that our credit controls remain robust. And I think the metrics on this page absolutely demonstrate that. They demonstrate the discipline in our approach to our credit strategy and the high quality of our customer base. And we're focused intently on that. So we've been really choosy about the new dealers that we onboard. And we've been bold enough to stop dealing with customers who have not managed their facility in line with our requirements or where they haven't met our credit criteria. So we're not afraid to do that. The chart on the left just shows the number of our dealers that were in arrears at the end of the period, and that remains exceptionally low. It was 38 for the end of the period, which represents about 2.5% of our overall dealer base. Now as Carl said, when you layer on top of that, the number of those cases that were in active recovery and fully provided for, which was around 30, then you can see that actually really, really well maintained position on arrears. The chart in the middle shows the value of those arrears, which has increased a little bit to 0.9%, albeit it remains low. And the key driver of this is a few larger cases that have defaulted. And similarly, if you look to the right, the cost of risk has remained broadly flat period-on-period. And I think all these metrics collectively demonstrate our strength and proactive approach to credit risk management and our ability to mitigate the impact of dealer defaults through redistribution of our products within our existing customer network or where necessary by sale of secured assets to third parties. So that demonstrates that strength in our underlying model. Okay. So just the last thing that is worth covering off, again, a little bit of color in terms of the markets that we serve and the resilience of them and how we've grown just to show the sort of positive underlying trends here. And I think first thing to mention is across all sectors, the level of security that we have over the assets is strong. We advance on wholesale, not retail value, and our loan-to-value sits at an average of around 86%. So you can see there we focus on three main sectors here, the Powersports, Commercial and Leisure. In the Powersports sector, you can see good levels of growth here. So a nice incline of growth period-on-period. Demand has remained robust, particularly in the high-end automotive sector, where affluent buyers continue to drive sales, particularly in sort of electric SVU and high-powered car sector. In the marine space, again, we've seen positive momentum for high-value boats and a steady increase in demand at the lower end, too, which has meant that overall, the sector has remained very resilient. And together, those two things have really helped that incline in the Powersports division. In the middle, we have what we call the Commercial business sector. So this includes transport, industrial and agriculture. It's probably been a bit more of a mixed bag here in terms of the underlying sectors, but we're seeing sort of green shoots of recovery in some, which I'll touch on. In the industrial space, we've had some good wins in terms of kind of new manufacturers, and that's really helped build our growth in this space, particularly in the Plant and Machinery segment, where demand for both new and used equipment has been very good. Transport remains steady. I describe it as steady. There's lots of competition in this space. I think we're very aware of that. We're very happy for the book to tick along here and it has been doing at a steady pace, which is positive. The one that struggles a bit more is the agricultural market. It's been a bit more challenging for farmers with extreme weather conditions, and that's disrupted kind of traditional buying cycles. The cost of living pressures has meant that farmers have adjusted their spending. But we do expect that to improve as rates and inflation comes more under control. And then finally, to the right, you can see the performance of our Leisure sector, and this remains the most lucrative sector in terms of overall growth. And you can see that Motorhomes and Caravans is dominating this. So we continue to put well above our weight in this space, and we're accelerating our market share ahead of some of our competitors in this space. And that's sort of compensated for, I guess, where we've seen some challenges in this sector in the lodging space. It's been more subdued in terms of demand in the last year, and we're yet to see how that will unfold and where the market recovers, although positively, we have seen an uptick in recent months. So that gives a bit of a flavor in terms of the underlying markets and where we've been able to secure the growth. And it concludes the section on financials, which I hope you can see through all the metrics across all our key KPIs, we're performing really well and are really pleased with the trends across the Board. So I'll just pass back to Carl to share a bit more about the outlook looking forward.

Thanks, Sameera. So I think this page is one I get really, really excited about. Now the routes and where we're heading hasn't changed year-over-year. I mean we are still shooting to get to the mid-teens post-tax return on equity in 2028. And the key ingredients to get to that is the continuing scaling of the loan book for us to continue to hold our net interest margin at about 7%, making sure impairments and arrears are well managed and impairments overall stay below 1% and the jaws between the costs in the organization and the income continue to widen, and we end up with the cost-to-income ratio below 50%. And that as well without needing to raise any additional equity capital, we believe we can get to that mid-teens post-tax return on return on equity. Now how are we going to get there through our lending? Well, look, there's still plenty of opportunity in the core inventory finance product. We've got about GBP 1.5 billion of pledged facilities to our dealers, and we're only drawn roughly half of that. So there's definitely opportunity for us to push lending further with existing dealers. There's opportunity to add around the edges, new OEMs and bringing on new manufacturers, brings on more and more dealers as well. We can also look to selectively continue to bring on Board dealers that are known to us that fit our credit profile and our credit appetite and would benefit from our level of service, but continuing, as I say, to be very selective, always having an eye on credit quality. And there's opportunity for us to use the inventory finance product like we have with HDM Solar, as I mentioned earlier, interfacing that with other lending products and bringing other stock financing propositions to life across a whole array of different sectors. However, what's most exciting is this asset finance capability. And we've estimated now having built this that of our existing manufacturer and dealer relationships, there's about GBP 10 billion market opportunity. And that proposition is live, it's built ground up organically. We've not acquired anything to bring this to life. We've made sure it's fully regulatory compliant, legally compliant, and we're out there in the market now with over 75 dealers signed up in relation to that product. Ginormous market for us. And then that's supplemented by the bolt-on tailored lending through structured finance that supports the growth and the sales of those manufacturers, dealers and distributors supports their ambitions, whether it's to acquire a park or to take on a new franchise or to refurbish a facility. It's really helping them capitalize on opportunity that they see. That part of the business is not one that we'll be leaning into to support growth. It's something that will be perhaps more opportunistic and reactive in nature. And it will probably be no more than 10% to 15% of our overall lending. But when we get to 2028, across the two main products, inventory finance and asset finance, we're expecting around a 50-50 split between those two products. I think when you look at this page, you can see that the company has had -- has never had so many opportunities to support growth. So we'll look to just wrap this up now, and then we'll look to answer some of the questions. But all the foundations are now in place. We've made all the investment. This is why we're really excited about the next part of our journey. Not only are we seeing opportunities to exceed market expectations materially this year, we are expecting a modest uptick next year as well. But our growth plan is really, really coming to life now as a multiproduct lender. We've got opportunity to grow in the core, whether that's growing market share or entering new sectors. We've got the sizable opportunity in asset finance, GBP 10 billion market. And frankly, we don't need to knock over an awful lot of that market to underpin our growth ambitions. In fact, I think our strongest year of growth in that market is 2028, and we need to do about GBP 400 million of lending. So it's a tiny, tiny portion of that GBP 10 billion opportunity that we see. And then there's a tailored lending, the bespoke lending that helps bring the dreams, the ambitions and the sales growth of the participants in our known markets to life. We're going to continue to invest in technology. That's one of our differentiators that we use market-leading tech that's going to continue, and that will allow us to widen the jaws between cost and income and get that cost-income ratio well below 50%. As Sameera mentioned, we've got latent capacity across our existing capital position, the British Business Bank and ENABLE Guarantee and Tier 2 that will allow us today to get to a loan book of GBP 950 million. And then that ongoing generation of healthy profitability bridges us from GBP 950 million to the GBP 1.3 billion that we talked about in 2028. And importantly, we do not need to do a capital raise to unlock that. It's all about retained earnings. So where is 2025 looking like it will shape up? Well, as I said, it's -- and I said at the outset, we're expecting to materially exceed the market expectations. Our loan book will land firmly in the range of GBP 750 million to GBP 800 million. We're going to continue to drive operational leverage. We're expecting net interest margin to remain strong. And actually, we've refined the narrative around net interest margin. I think we talked previously about net interest margin guidance being in excess of 6% or well in excess of 6%. We're now firming that up in the core product to circa 7%. That was some more realistic expectation for us. So I think in just summarizing what we said, really, really pleased with the first half, bucket loads of opportunity ahead in the second half and beyond. And really proud of what we've achieved so far this year and excited for our future prospects.

Perfect. Well, thank you very much for your presentation. [Operator Instructions] We do have about 12 minutes to go until we've been running for an hour. So what I'll do is I'll run through the questions and then D'Ammassa for closing comments at the end. The first question we have here, can you please outline your future capital distribution strategy? What are the sensitivities of the strategy in relation to capital requirements to support growth in the lending book?

Okay. So probably tag team this one.

Yes.

So I think we've been clear as far as getting through to 2028, we don't need additional capital to support that growth journey to the mid-teens return on equity. So that is achievable. And we would -- I would imagine moving beyond that as well. We shouldn't need to do a Tier 1 rise. However, we talk about distribution. I mean, I think -- you will have seen if you've been a shareholder for a while that we did have a windfall last year. That was something that was over and above our capital plan, and we made the decision given where our share price is performing to do a share buyback. And those things, including dividends are something that the management team and our Board are constantly keeping in review. Our current strategic plan is really to deploy the retained earnings back into support growth to get us to 2028. But there's no doubt now where we're generating really, really good profitability. So that really does give us optionality to respond to market conditions at point in time and maybe pivot things in whole or part. But the plan that we're laying out today and the guidance that we're giving does assume that we'll retain all of the profitability and support going forward. Sameera anything to add?

Yes. Just, I guess, in terms of options and the question there around debt and equity, we do have access, as I mentioned, to a Tier 2 facility with BBI. We still have an amount of additional capacity to draw down there. And we've got options as we scale to look at not only either expanding that scheme or looking at other schemes, looking at further enhancing our scheme with the British Business Bank. There are opportunities for us to review other options as we scale. But as Carl said, our main focus is how do we deploy the headroom that we've got to put it to best use so that actually we're as capital efficient as we can be and generating organic levels of capital thereafter.

That's great. Turning to the next question. How asset finance help you grow and strengthen relationships with dealers and manufacturers?

Well, look, asset finance is a sales aid product. And our sole reason for being is to drive the success, the growth and the sales of dealers and manufacturers. So the fact that we've now got an asset finance capability that's focused on businesses and consumers is something that our dealers have been saying we really would like some other options in the market. We're poorly served by a number of the incumbents, and we have put the proposition together that is a little bit different and should help those dealers and manufacturers sell more product, which is what will delight them and delighting them strengthens the relationship. So yes, I think that covers the question, hopefully.

That's great. With your rapid expansion, could you give details by percentage of your loan book thinking of single customer risk?

Okay. So we are restricted on the single loan size that we can provide to an individual customer and that is a regulatory requirement, and we operate well within those regulatory maximum. We would typically not extend credit beyond GBP 20 million. That would be arguably the largest facility that we would have. But it is important to note that our average facility size is just below GBP 1 million. So we're very, very well diversified in relation to single loan concentration. And as I say, operating well within regulatory maximum in relation to that. But this is, I guess, one of the exciting things about asset finance as well because I think you'll recognize that there's going to be a whole array of smaller loans here that we'll be originating through our scalable digital platform that does give us further diversification from an obligor perspective. And that has a slightly different capital treatments around it as well. So it should allow us to be a bit more efficient.

Thank you very much, Carl. Where are the risks to your growth story and major competitors in your sector?

So I guess the thing that people may view as a risk as well, I think we're quite well established and proven in the inventory finance space with still, as I say, latent opportunity. But I'm sure from the outside looking in, people will be thinking, well, the guys are hanging the hat on asset finance. And it's still in the early days yet. Well, yes, that is true. And we're not expecting to see the proof points this year. This year is going to be about putting the foundation build in place, getting the proposition out there, getting us known to dealers, getting the dealers onboarded. But that is a ginormous market. It's a GBP 10 billion market. And as I said earlier, we're only looking to originate about GBP 400 million in the strongest year. So we can be highly selective in who we deal with, who we select pricing, credit profile, all those sorts of things. And look, this is something that the dealers have been asking for, for a long time. It's been something that's been in our strategic plan since we put our banking license application in. Now is the right time to bring that to life, we've got sustainable profitability. But I could imagine people thinking, well, we need Carl and Sameera and the team to prove that they can bring this asset financing to life. I mean, over and above that, there's a usual macroeconomic noise and stuff, but who knows what could happen in November in the budget. But again, since I joined the firm and we had the pandemic to deal with the firm and his team have been throwing all sorts of curveballs, and we've reacted and responded really, really well to those and navigated our way through it, and I'd expect that to happen as well.

Just final thing to mention on consumer asset finance, where it really helps us actually as well is it's long tenure lending. So actually, we don't have to pedal as hard as we do right now. We have to generate a lot of loan originations to grow our book because of the short-dated nature of it. So in some ways, it derisks that because you have a lending that we'll bring on to our books that will stay there for 5, 10 years. So actually, that helps our balance sheet profile and overall growth.

That's great. We have another question here. What would ROE and profit be without start-up cost of asset finance?

We don't actually segment our book in that way, particularly because asset finance is so small right now. We committed and shared that for this year, we were expecting to spend sort of around GBP 2 million on the proposition in terms of cost. So we could do the math of if we didn't spend that. But as our book grows and we do start segmental reporting, we will be able to demonstrate more of that kind of return on equity and other metrics on a segment basis. But we don't currently right now because it is so small.

I guess I suppose that we have indicated previously that we expect it to be about GBP 2 million [indiscernible].

Yes.Yes.

This year and the investment we've made there. So we'll do the roughly enough I suppose at the end of the...

[indiscernible] and clearly, if we didn't have that, we would have a higher ROE, but this is about the long term and investing in that GBP 2 million today is actually what helps us get to the mid-teens by 2028.

Perfect. And perhaps time just for one final question because we are approaching the hour. Can you please elaborate more around trends in the average loan days and the velocity of deal inventory? What is the optimal length? Would a significant increase suggest loan losses would be likely to increase?

I mean that is a lengthy question, which would require a lengthy answer. But what I can do is in the annual report, there are tolerances for stock days. I mean stock days has improved. We've had a long-run average across all of the segments of about 150 days historically. That is not the extent of our appetite. And that's not -- that drift and we have seen it drift historically beyond that 150 days, it's not something that we would necessarily at the average, lose sleep about. It does vary by sector and frankly, it does vary by customer as well. We want dealers that are making sales. So somebody that's got low stock days and is not making any sales, that's a higher risk than somebody that's got longer stock days is making a fair amount of sales. So we do look at this asset by asset, dealer by dealer and manage it carefully. But I would say that there is more information in the annual report in relation to our tolerances on that front.

Well, that's great. Thank you very much for answering all of those questions from investors. Of course, the company can view the questions submitted today, and we will publish written responses and the audio clips on the Investor Meet Company platform. But just before redirecting investors provide you with their feedback is particularly important to the company, Carl, could I just ask you for a few closing comments?

Well, look, as I said, I mean, it's been a great start to the year. We're really excited about the opportunity ahead. For those of you that have been on this journey for a while with us, thank you for your support. For those that you're thinking about joining the share register, we've laid out -- you can see where the share price is. You can see where the potential of the firm is for further growth and to get to that mid-teens ROE. And you can already see where our tangible asset value per share is as well. So we're feeling very, very positive and excited about the future. And I hope to see many of you or speak to many of you at the full year results next year.

Thank you very much.

That's great. Well, thank you both for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. On behalf of the management team of Distribution Finance Capital Holdings plc, we'd like to thank you for attending today's presentation, and good afternoon.