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

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

Thanks very much, Paul. We're delighted to be here today our maiden presentation on the Investor Meet Company platform. I'm joined today by Gavin Morris, who is our Chief Financial Officer, and we will take you through our full year results for 2023. But given that this is our first presentation, we thought it would be useful just to give you a bit of a backdrop and introduce what we actually do at DF Capital for those of you that don't know the firm. So we are a Manchester-based specialist lender, who provides working capital solutions to manufacturers, distributors and dealers across the U.K. The firm was founded in 2016 with the investment from Arrowgrass Master Fund. And we were originally part of the TruFin stable of businesses, but we demerged from TruFin in May 2019 through an IPO joining AIM. We decided having been a specialist nonbank lender to pursue a banking license and seek full authorization from the Prudential Regulation Authority to become a bank, and we successfully received authorization in September 2020. And that gives us access to the retail deposit markets, which is our primary source of funding and liquidity that supports our lending operation. We feature on the Best Buy tables, and we have an online platform that our depositors use to transact their banking with us and to save with us. Since authorization, we've been very much focused on ensuring that we get to profitability as quickly as we possibly could. So we've now sufficiently scaled the bank to a point within 2 years of authorization that we reached profitability, which was last year. And now we're supporting over GBP 1 billion worth of new lending each year to more than 1,000 dealers and 89 manufacturers to help them sell products and services. So to give you a brief introduction on the core lending products, I think you will understand the savings proposition that we have. But our working capital allows manufacturers to ship products to dealers. That product sits on the dealer's forecourt so that their customers can view the product. And we're advancing against the wholesale price, which is important to note, the wholesale price, the factory gate price that the manufacturer sells their product to the dealer. The dealer is our obligor. We have title to the asset as it leaves the manufacturer, and we are repaid by the dealer once the asset is sold. So it's quite a neat working capital solution for the 1,000 or so dealers that we work with. We're operating across a diverse number of sectors. A number of those are consumer or leisure focused, so lodges, holiday homes, motorhome and caravans as examples, marine, motorcycles and automotive. And then we have a number of what we would call non-leisure or commercial segments, so transport, industrial, agricultural, plant machinery, those sorts of things. So as I say, a very diversified number of sectors that we support. Just in relation to our lending products at a summary level, I mentioned earlier that we advance against the factory gate price. We take title of the asset. So we have a strong security position as far as our loans are concerned. And because we are advancing at wholesale prices, and we typically talk around an LTV or a loan to value of 85% against the wholesale value, we do have additional protection as far as our security is concerned against the retail prices, which generally equates to about 20% additional cover. So we're typically 65% to 70% advanced against retail prices. As I said, we are repaid by the dealer when the asset is sold. Because we have 89 manufacturer relationships, the extent of those relationships do give us some additional support if dealers do hit a rough patch, which can happen through the life of a loan. And that business, we call program business through manufacturer programs, where we get access to the manufacturer's entire dealer base but we also have the benefits of repurchase in some cases and redistribution through the manufacturers network, which gives us that additional security on about 60% of our lending. This is a working capital product. It is fairly short in its lending tenor. And our typical loan duration is about 150 days. Gavin will talk about some of the financial dynamics later in the presentation. But it's important to note that this is really a fee-based product. So we charge fees as an asset hits the dealers' forecourt as it leaves the dealers' forecourt and for every period that an asset is on the dealers' forecourt. But as a gross yield to enable comparisons, this is a double-digit gross yield product. I think given the short tenor of the lending and the strong security position that we have, our losses and impairments in normal times are very, very low. And we see through the cycle losses and impairments of no greater than 1%. You'll hear later in the presentation as well that we do get very, very strong followship from the dealers and from the manufacturers. And that's not only demonstrated through the growth in lending that we've seen, but also through the customer satisfaction scores that we have. And in particular, we use a Net Promoter Score to ensure that we're on track and delivering to the customers' requirements. So that was a whistle stop tour of the business and a bit of background. Let me talk about 2023 and the out-turn. Well, I just want to start off by saying, as a firm, we're absolutely delighted with our full year results. I think as we talk through this, you'll see all of the inputs that ultimately drive out the improvement in pretax profit are all pretty amazing in what we've achieved. So we've seen over threefold increase in our pretax profit this year, closing 2023 at GBP 4.6 million worth of profit, from a GBP 1.3 million maiden profit in 2022. We've reported at the end of 2023, 10 consecutive quarters of loan book growth since we were authorized in 2020. We've actually already surpassed that milestone by reporting at the end of Q1, just having closed that out, our 11th consecutive quarter of loan book growth. New lending reached record levels in the year, up 20% on 2022 to GBP 1.2 billion. And we've grown the facilities that we provide to our dealers by 26% to over GBP 1 billion. All that new lending activity has seen our loan book reach an all-time high of GBP 581 million, up 32% on the prior year. And that does include some new lending products that we've entered that I'll talk about a little bit later on. One of the key drivers, I think, for our growth story has been making sure that the products continue to resonate with our dealers and manufacturers, and we've consistently added new dealers year-on-year. We added 330 new dealers last year that work with our 89 manufacturers. I think those of you that follow banks will know that in addition to having access to liquidity to support lending, having sufficient capital to support loan book growth is a key requirement. And we've been really pleased to unlock capacity to grow our loan book to in excess of GBP 800 million, over the medium term, through the ENABLE BBB, British Business Bank ENABLE Guarantee Scheme and also us taking some Tier 2 capital, GBP 20 million worth of Tier 2 capital from British Business Investments. So we can get to a loan book in excess of GBP 800 million without the requirement for any additional dilutive Tier 1 equity raise. I think as we've looked to scale the firm, we've materially improved returns and our earnings per share has increased on an adjusted basis. And our tangible net asset value per share is just shy of 56p a share. That sustainable growth really has been underpinned by improvements in the overall dynamics of the profitability. So Gavin will talk a little bit more about our net interest margin and how that's improved from our target of 6% to 7.6% through the year. We've also seen a significant widening in the jaws between our income generation and our cost improvement. So we're generating 3.5x more income than the additional cost that's gone into the firm to support the growth. And that's taken our cost-to-income ratio down from 82% in 2022 to 58%. And we're expecting those jaws to widen further as we continue to scale the firm. Portfolio quality has been strong through the period. We've had 30 dealers in arrears. I think it's important to note that unlike a lot of lenders who will report arrears 1 calendar month past due, we actually report our arrears cases 1 day past due. So the number of cases that we have 1 day past due or in legal recovery were 30 at the year-end, but we've already, through the first quarter, seen a significant improvement in that KPI. From an overall percentage, a very, very small number of our dealers that are in arrears. We've continued to reduce the loan to value. And as mentioned earlier, we've got the additional protection against the retail margin of circa 20%. So we're in that sort of 65%, 70% versus retail prices and 85% to wholesale price as far as our lending is concerned. You'll hear a little bit later on from Gavin that we've really focused as we brought on more dealers on ensuring that we bring on high-quality dealer relationships. And we now have almost 3/4 of our dealers in our 2 highest quality risk bands -- our 2 highest quality risk bands. Now aside from the unique single provision that we've needed to make this year in relation to RoyaleLife, which has been fully provided in our 2023 accounts. Our cost of risk on an underlying basis has been very, very low, 0.53%, which is well below our 1% through the cycle, which is modestly up on the 0.5%, 0.5% in 2022. I think the other thing that we're really, really pleased about is just the general level of our service proposition. And I mentioned earlier that our lending is supported by retail deposits. We have a really excellent deposit rating capability. People can open accounts very quickly in a matter of minutes. And we've raised GBP 575 million of deposits in aggregate and over 15,000 accounts we have in operation today. In the year, we've extended our range of savings products to include an easy access product as well. And that was a very successful launch that we had raising GBP 44 million deposits across over 1,000 accounts in about 36 hours. So it gives you a feel for the -- not only the size of the markets that we operate, but the quality of our service proposition that allows us to raise deposits to support our lending growth very, very quickly. The extent of our service is so good that we see about 75% of our maturing deposits retained through loyalty products or just the seamless transfer on the online platform. Services. The quality of service is echoed by our retail depositors through the 3 FIFO scores. We had last year over 1,800 reviews on FIFO. We received the Platinum Trusted Award from FIFO for the first time, and our score was 4.7 stars. That's actually increased in the first quarter to 4.8. So we're really pleased with that. And our obligors, our dealers and our manufacturers also rate us highly against our external benchmark on our Net Promoter Score of plus 37 is what we've achieved against the plus 30 target. And I think one of the things that we're most proud about is the journey that we've progressed through as a bank and the culture that we've created in the firm that's driven, I suppose, the extent of these sterling results. Our employees think working at DF Capital is fabulous. Our recent best company survey where over 90% of our employees participated, we were rated as a 3-star best company, which is offering world-class levels of employee engagement and it's the highest rating that you can achieve from best companies. So I think in relation to all of that, you can see why we're very, very pleased with the results for 2023. So I'll hand over to Gavin now to go into a little bit more detail in relation to the results.

Thanks, Carl, and good afternoon to everyone. So if I start off on this first financial slide, it's looking at the financial momentum in the year. As I go through these slides, I'm going to give a bit more detail around some of the points that Carl raised. So this first slide encapsulates -- has a number of graphs that encapsulates the significant financial momentum through 2023, we've had through continued scaling. Profit before tax, 250% increase to GBP 4.6 million. This has been driven by a 20% increase in our loan originations to GBP 1.2 billion, and that was key to our loan book increasing by 32% from GBP 439 million to GBP 581 million. The bottom 3 graphs show the fundamental ratios that underpin this P&L performance. The NIM has increased from 6.5% to 7.6%, and I'll touch on the reasons for that a little bit later. The cost of risk, excluding Royale was largely's unchanged at 53 basis points. However, if you take into account the RoyaleLife exposure and the full provision against that, that increased from 74% to 2.28% -- 74 basis points to 2.28%. Now our cost-to-income ratio has significantly reduced from 82% to 58%. And as Carl mentioned, this reflects the significant operational leverage we have as we grow the loan book with that cost to growing the loan book outstripping, the growth in income clearly outstripping the costs and a factor of 3.5 to 1. But as Carl said, we expect those jaws to widen as we continue to grow the loan book and really benefit from that. Moving on to the next slide. The aim of this slide is to show the key underlying drivers of movement in profit before tax, from the GBP 1.3 million in 2022. So if we start off, we had GBP 1.3 million in 2022. The growth in the average loan book gave us around GBP 13 million additional profit. NIM increased from '22 to '23 from 6.5% to 7.6%. That gives us about an extra GBP 5 million. And we know that in the longer term, we do expect that to come down back towards 6%. And again, I'll touch on that later. Operating cost growth was around GBP 5.5 million. This includes the introduction of the BBB ENABLE Guarantee scheme that Carl mentioned earlier, that enables us to sweat our capital, and there's a small cost involved in that. And then obviously, as the loan book increases, you would expect your cost of risk to increase. The GBP 3 million here we have in the chart, that assumes through the cycle 1% loss rate. Our actual losses, excluding Royale, as we said, was about 50 bps. But if we assume that it was a through-the-cycle loss rate of 1%, that will be GBP 3 million. So that will get you to a normalized profit before tax of GBP 11 million. Now at that level, you'd have a return on equity of 4.5 -- sorry, an EPS of 4.5p, and you'd have a return on equity of about 11%. Obviously, we did have the RoyaleLife provision. So if you then add that into the mix, that gets you back to your GBP 4.6 million PBT. So the headline numbers is the EPS went from 4.4p to 1.8p. But on a normalized basis, that would have been closer to 4.5p. Tangible net asset value per share went up from 53.2p to 55.6p. Again, on a more normalized basis, that would have been closer to 58.4p. Moving on to the next slide, which is our income statement. Kicking off with the gross revenues. These are up over 125% to GBP 60 million, and there are 2 underlying elements driving this. The first one is the increase in the loan book. And then the second one is gross yield we charge to customers. It increased from an average of 8.2% to 11.1%. It's worth just spending a bit of time on that. So under the contractual agreement with our dealers, as base rate rises, we can pass those base rate rises on to our dealers. This is not on existing book. This is on any new loans they write post the change in the base rate. The fact that we've been able to grow the loan book to the extent we have shows the ability of us to be able to pass on that base rate movement. The average life of the loans is about 150 days. So therefore, it takes about 150 days for those base rate rises to start flowing through the book. On the interest expense side, this has increased from GBP 6.4 million to GBP 22.3 million, and that reflects the average cost of our retail deposits that fund the loan book increasing to an average of 4.3% from 1.8%. And that's again reflective of as base rates have gone up, deposit rates have gone up, we pass those on to our retail customers. And therefore, it's the interplay of the revenue and the interest expense, which gives us our NIM increase from 6.5% to 7.6%. And that's because the loan book is pricing more quickly as it is about 150 days, about 5 months, the changes in base rate have flowed through to the loan book, whereas our deposits, the deposit tenors, they mature on a longer basis. Our deposit book is a mix of easy access, notice accounts, but it's predominantly fixed rate bonds, which tend to be 1 and 2 years. So the average term of those is about 6 to 9 months overall on a blended basis. And therefore, the increase in base rates has taken longer to flow through the deposit book. As a result of that, we benefited from that and our NIM has increased at 7.6%. As I said, in the longer term, as base rates start to come down, we'd expect that to start to trend back towards the 6%. Looking at OpEx, during 2022, we upgraded our commercial and retail and relationship management teams. And then we had the full benefit from an income perspective, but also you got the full cost of that during 2023. So OpEx increased by GBP 5 million in the year, but that compares to net income increasing by GBP 17.6 million. So that's a more than threefold increase. And again, that clearly demonstrates the operational leverage we have and underpins that reduction from 82% to 58% in the cost-income ratio. It's worth stressing that the cost to grow our loan book in the medium term and our core product, they're largely embedded. There will be additional costs when we go into an HP product that we'll come on to later. But in terms of our core product book, our costs are largely embedded given where we are today. I won't touch on the cost of risk because we touched on that earlier. So if we move on to the next slide. This next slide looks at how our increased capital efficiency supports our ongoing lending growth. Now the strength of our dealer and manufacturer relationships has given us record originations, and that's helped drive the loan book increase of 32%. Within that loan book increase, we've also had GBP 18 million of new products. Carl mentioned as a bank, obviously, capital is key for us as a bank. Our CET1 ratio is a reflection of the level of capital we have, divided by the regulatory risk weighting of our lending assets and the PRA set a ratio above which we have to remain above. And although the loan book has increased by 32%, our CET1 ratio, which everything else remaining equal, you would have then thought would drop. Our CET1 ratio has not reduced, but it's increased, and that's due to the implementation of the British Business Bank ENABLE Guarantee scheme, that reduces the average risk weighting of the assets together with the Tier 2 capital that we do then. And as I said earlier, effectively, British Business Bank ENABLE Guarantee and Tier 2 capital, that just enables us to sweat our capital more effectively. The impairment coverage, that's increased to 2.5% from the 0.84%, and that largely reflects the provision on Royale, RoyaleLife. If I look at Stage 1 and 2 provisions, which are more in our old school terms, general provision, that's remained steady at just under 0.5%. And within that, we put in a model overlay, so an increase to reflect the current macroeconomic uncertainties that are out there. And then I think Carl touched on the strong LTV position we've got. Moving on. In terms of the quality of our dealer base from a credit perspective, I guess we're very vigilant around the credit risks given the macroeconomic uncertainties. So we're not myopic on dealer growth. We're really focused on building high-quality, scalable relationships. And this is evidenced in the graphs on this page. So you can see that during 2023, of the GBP 149 million of facility limits approved, 74% were in our highest quality ratings, which is Risk Rating 1 and 2. This has increased the portfolio as a whole, the quality, 1 and 2 Risk Ratings is now at 74%, compared to 62% at the end of December '22. And if you look at Risk Ratings 1 to 5, which are the higher-quality Risk Ratings, we've now got 93% in those high-quality profiles. Moving on to the next slide. This just reiterates the point Carl was making about the strong portfolio quality and the underlying low arrears. The left graph just looks at the number of dealers in arrears. And again, to stress, this is 1 day or more in arrears. Of our 1,200 dealers at the year-end, there were 30 in arrears. So that's circa 2.5%. In terms of the underlying balance in arrears, excluding RoyaleLife, that was 0.7% of the loan book at the end of '23, a very slight increase compared to '22. And then the underlying performance in terms of cost of risk, we talked about it being through the cycle of 1%. And again, excluding the RoyaleLife impairment, that's at just over 50 basis points, so well under that through the cycle target. If we then move on to the next slide, and this looks at sort of how we scale our lending. It goes back to show the significant growth we've had since the bank authorization. So we were authorized as a bank in September 2020. At the end of 2020, our loan book was GBP 113 million. And you can see the cumulative annual growth rate of 72% since that date to take us to GBP 581 million at the end of 2023. And we generated that growth despite the faster loan repayment trends that we've seen post pandemic, and that's driven by a significant year-on-year origination increases. And then moving on to the final slide in the financial section. This looks at our portfolio. You can clearly see that we've got strong diversification across our sectors at the year-end. In terms of aging, they remain in line with our expectations with an average loan age of 148 days. That's well within our 240-day risk tolerance. What do we mean by risk tolerance? It means if the assets are sitting on the dealer forecourt for a period of time and they're not selling, that's the point at which we get concerned. And at the portfolio as a whole, that's around 240 days. You can see we are well off that. We looked at a more granular level at sector detail. And in the appendix, you can see this tolerance variance by sector together with the actuals we're seeing in each sector. One area I would just highlight on this page is Motorhome & Caravan, which is 23% of our portfolio. What we've seen in Motorhome & Caravan is very strong volumes, but faster-than-expected sales. What that, I guess, shows to us is although faster sales can impact slightly on the loan book coming down, it's positive that we've got that dealer vitality going through that sector, even in the time of year when you wouldn't necessarily expect that. So I think in terms of finishing on portfolio performance, it's a good segue back to Carl to talk about how the portfolio has performed in Q1.

Thanks very much, Gavin. So look, the momentum that we've seen through 2023 is very much continued. We've had very, very strong loan origination in the first quarter, up actually 22% on the same quarter last year, to GBP 330 million, which is not quite a record for us, but certainly getting very close to that. Our loan book quarter 1 last year to quarter 1 this year is up over GBP 100 million to GBP 610 million, which is 5% growth over the end of year numbers that we've just spoken about. As Gavin mentioned, we're expecting our net interest margin to be elevated above the 6% target, certainly through this year into next. So that's obviously going to be a feature of our performance for this year. Our stock turn, which is the average age of outstanding loan has slowed slightly from where we were at the end of the year to 150 days, as we've gone through the quieter or should be in normal times, the quieter period for sales. And that's well within our weighted risk tolerance of 240 days. So 240 days is when we're approaching on a portfolio basis, the extent of our risk appetite and we get concerned about dealer vitality that we've mentioned through this. Whilst not myopic on the growth of dealers, we have seen dealer number grow through the first quarter. So we've now got over 1,200. And we've extended now credit facilities of GBP 1.1 billion to those 1,200 or so counterparties. The portfolio quality, the portfolio performance, arrears, in particular, has been very strong through the quarter. The 30 dealers that we talked about at the end of the year is now down to 18 dealers, 1 day past due or in legal recoveries. And if we exclude the Royale balance, then arrears is now 0.3% of the entire loan book, which is significantly below our expectations. So I think whilst it is early in the year, we're really pleased with Q1, how things have unfolded both from a financial and operational perspective and is falling in line with our expectations of year-over-year improvement. So just thinking about some of the things that will support future growth. I mean one of the things that we realize at DF Capital is that we're certainly -- whilst we're focused very much on manufacturers and dealer relationships and building our proposition around that as a specialist lender, we certainly are never short of opportunities to consider growth. However, what we do look to do is do that in a very controlled and considered way so we manage risk appropriately. So where do we see future growth coming from? Well, there's no doubt there is market share growth in the sectors which we operate today. But we also see new sectors where we can take the core inventory finance, stock finance product and proposition and technology capability. Specialist automotive is one that we've recently pushed on, and we're already exceeding GBP 15 million worth of lending there, which is almost double where we closed 2023. We've just started a relationship in the renewables space, which will be solar panels and the like. And we think actually those sort of serialized what arguably are faster-moving goods with the right technology could be an area of significant growth for us at the right risk-adjusted returns. And we've also launched alongside the core product, invoice discounting with a partner who has strong technology capabilities here to give, I guess, alternate solutions for our existing dealer and manufacturer relationships to help them with their working capital needs. Over and above that, we do see some new product adjacencies that we've entered, wholesale funding to partners lending to lenders, I suppose, is the best way to describe that and development and receivables financing for the existing dealer and manufacturer and distributor network are 2 products in their own right, which we would see as complementary and additive to the relationships that we have. But I should say that whilst they offer great returns for us, we don't want that to be more than 10% to 15% of our loan book as we move forward. One of the things that I'm sure will be obvious to you. And we've talked about financing assets on the forecourt. And I'm sure you will recognize that as many of those assets leave the forecourt, they're generally financed by banks. And we don't provide currently any financing beyond the forecourt. So we have, on the back of strong requests from our existing dealer and manufacturer partners, we have started to build our own higher purchase capability, which will allow us to finance assets as they are sold to end users of the product. And I think when you look at perhaps an earlier slide that Gavin presented in relation to new loans increasing at pace, but us also having, I guess, fast repayments, which demonstrates the sort of vitality of the underlying markets. I mean it would be great for us to be in that position where those loan repayments where the stock is sold for that to be converted into another lending product. So as markets are having very, very strong end user sales, we can benefit from that as well with our higher purchase capability. So we're pushing on with that this year. It's about a GBP 2 million investment that's factored into our forecast for this year. And I very much hope that once we've got the relevant regulatory approvals and like, we should be ready to lend in 2025. We're also testing and learning around geographic expansion in a very controlled and considered way. That's what we tend to do with any of our new lending ideas that we'll almost put them in a sand pit and an incubator type approach. And we are using partners in Ireland, Republic of Ireland and the Netherlands for us to look at that, I guess, Eurozone multicurrency capability and how we could bring that to life given that we see a number of our pan-European competitors looking to retrench for various reasons. One of the things that we've been really successful that's driven an awful lot of the cost-to-income ratio improvement has been our focus on leveraging technology for automation. And we're going to continue to deploy robotic process automation and optical character recognition to enhance our proposition whilst always maintaining things that are important to our customers, whether those are depositors or borrowers, they love speaking to human beings. So we're very focused on leveraging technology, but still ensuring that we offer great intimacy through our proposition. Just on the deposit raising side of things, whilst the retail markets are significant, we have decided to build and launch in our own business or SME deposit account. We think that will allow us -- give us access to some pools of cheaper deposits as we look to move forward. And we should be launching our maiden SME deposit account during this quarter, the second quarter of this year. One of the things that we have been very active in is the pursuit of inorganic product development opportunities to support growth. So I guess that's a smart way of saying M&A to accelerate the product development side of things, particularly where it would accelerate our growth, give us access to new capabilities or actually drive capital accretion. Whilst we've quoted an awful lot of parties, we've not found the perfect strategic fit but we're continuing to be opportunistic in our pursuit of those inorganic opportunities. So I think just looking at -- and we'll launch into Q&A then. But just looking at the final outlook for the year. Look, we've mentioned about the net interest margin. We're expecting that to be above that 6% target for -- certainly for the balance of this year and the medium term. We're expecting operational leverage to continue with a reduction in cost/income ratio as we continue to scale the firm. We definitely are not complacent in relation to credit risk. You've seen that we're very disciplined in the onboarding of dealers. And we do actually want to be really rather than totally focused as it may appear on growth in dealer numbers, we want to make sure that we've got high-quality scalable dealer relationships to support our growth moving forward. Whilst we're absolutely delighted with the arrears performance in the first quarter and the underlying cost of risk performances that we've talked about extensively through the presentation, I think it's inevitable that we'll see some normalization in that through this year as we continue to scale the firm. And we are expecting to close the year with a loan book of about GBP 650 million to GBP 700 million in that range. I think giving you some confidence about our ability to continue with the pace of growth. We have got sufficient capital to get us to a loan book north of GBP 800 million. And when we get to GBP 800 million, we think without Tier 1 capital, we can grow at a steady roughly GBP 100 million a year beyond that and generate very healthy risk-adjusted returns at that point. We're 100% committed to being a multiproduct lending franchise. You've seen that the opportunity is there. We're going to continue to develop our products and services. And we see that alongside scaling the firm as the key ingredients to us achieving mid- to high-teen returns on capital over the medium term. So I guess just in overall summary, and then we'll open up to questions, I'll just go through the ticks in the boxes as far as 2023 is concerned. We've delivered significant scale and growth. We've improved returns, be that through net interest margin or the cost/income ratio improvements. Portfolio quality is very good as we enter 2024. And the RoyaleLife situation, which we've covered extensively in our annual report that's published today, that is fully provided. So we're not expecting any further impact off the back of that. But we are diligently pursuing recovery of losses where we can. Talked about growth, new product development, whether that's in the core business, higher purchase, the adjacencies and the capital. So a big tick in the box there. But I think ultimately, hopefully, you're taking away from this presentation that the culture of the firm is exceptionally good, whether that's providing the right outcomes for our customers, providing great service to them, leveraging technology whilst being intimate in the relationships. We're not caught up in the FCA motor finance review, which I think is going to be a significant distraction for a number of banks that operate in the space, certainly, the higher purchase space for sure, and I think that presents us with opportunity. But I think also the fact that our employees think we're a great place to work, we're a 3-star, best company, world-class place to work. So when you put all those ingredients together, we think what we've done and where we're heading in DF Capital is amazing, and we're looking forward to the journey ahead. So just as I mentioned, and then we'll open up for Q&A. We have published our annual report and accounts today. That has an awful lot of detail that supports this presentation. It is available on our investor website, www.dfcapital-investors.com. And you'll also be able to -- we'll be putting this presentation, this video presentation on there as well for those of you that want to have a recap. So I think that's it. I think we'll open for questions.

[Operator Instructions] Carl, Gavin, as you can see, we've received a number of questions throughout today's presentation. Thank you to all the investors for submitting those. Can I please just ask you to click on that Q&A tab and where appropriate to do so, just read out the question and give your response and I'll pick up from you at the end.

Great. So we have had a question in relation to RoyaleLife. It's one actually that we could probably spend certainly another half an hour talking around. But the question is really focused on what are the lessons learned, and we will provide a more comprehensive response actually to this in written form. But I suppose the summary point is lessons learned. I mean there have been a number. This is a client that's been working with the firm since 2018, a very complex set of businesses. I can't call it a group because it didn't have a group structure in place. The thing that knitted these businesses together was a common shareholder. I think it's fair to say the complexity, the complexity of debt stack, the complexity of organization, legal structure, the complexity around cash flows and I guess, the character at the top of the firm are all things that we've reflected on since 2022 actually because we've not put any new money out to this firm since 2022. And you can see in the numbers that it's a situation that's built over time. But there have been significant learnings that have been reflected in our credit policy. And the Board who have followed this right through its journey have certainly seen how we've managed this and how we can, for sure, make sure that this doesn't occur again. Pleased to say that we don't have any other similar situations in our portfolio of this nature. I think it would be wrong for people to think that because it was large, it was the problem. I think if -- even if it had been a smaller lend, the complexity here was something that has driven the loss in itself. As I say, we'll provide a more detailed response, and it is comprehensively covered in the annual report. I got a question on capital. We may have answered this. I mean there's 2 elements to it. How do we feel about retail investors and what -- do we feel that a lack of access to equity capital is going to hold us back and should we be considering a strategic review if equity is not available? Well, look, I think I'll deal with the latter part of the question first. We've just laid out that we've got sufficient runway in our capital stack to get us to GBP 800 million. We think growing at about GBP 100 million a year is sensible from a risk management perspective. We want to be very careful and considered with the growth. So we're not seeing any immediate requirements to need to raise capital to support growth. And when we get to GBP 800 million, profitability is such that we can continue to grow at GBP 100 million a year. It's no doubt that the state of the equity markets at the moment driving some of that, could we grow at a faster pace if equity capital was available, yes, we probably could, but we don't need to raise capital to support growth. And as far as retail investors are concerned, I mean, we are -- our register is largely dominated by institutional investors. We do think diversifying over time and having more retail investors is important, and we'd want to make sure if we did go down any other routes of raising capital that we were able to pursue that diversification strategy from a share register perspective. I think Gavin, I don't know if you want to -- should I deal with the other investor? We've got some more investor questions, Investor Relations. Why a new broker appointed and what are relations like with institutional investors? I mean, I'll let Gavin speak as well to this, but I think we've got really strong relationships with our institutional investors. They've been very supportive of our journey and the results that we've achieved. That being said, it's a tough place being a fund manager right now. And there's no doubt that whilst we have got a supportive register, there are a number of funds that have had outflows. It's very well reported. And that means they have to adjust their position not only with debt capital shares, but also across their portfolios. And I think that presents opportunity to other investors, whether those are retail or institutional. But I would say very good, strong, supportive institutional investors. Why the change in broker? Well, we've not appointed a new broker. We've just actually focused on one, we've had a joint broker arrangement between Investec and Liberum and certainly over the last year. And I think we've had a great journey with Investec. But as we're looking forward over the next few years, we think Liberum will be most appropriate to support our needs and those of the investor community that they interface with.

Just on the institutional investor relationship, just I guess, I would reiterate Carl's point. I mean, most of the institutional investors have been around for some time now. I think they understand our business very well. We've done many presentations to them. And I think the key thing for us that investors like is we've delivered on what we said we're going to deliver. So I think we've got very good relationships. Obviously, we're looking to expand the investor base as much as we can. But the existing institutional investors, I think we've got very good relationships with. And as Carl said, the fundamental issue you have is around liquidity in the market, it's not capital specific.

I've got one on HP experience. What experience does the company have with HP lending risk profile is different. I won't reveal all of the parameters of our risk policy. But I think as an investor community, I mean, you should take comfort that most of the senior management team here have experience of lending across an awful lot of lending products and HP being a key feature of that. Both Gavin and I have spent extensive times operating with HP in our lending portfolio. And where we have got gaps, that's part of the build to make sure that we're recruiting the right operational, I suppose, expertise where we've got any deficiencies. So rest assured, we're not going to be rushing this thing out. And we have to jump through a number of hoops with the regulator as well to make sure that we're doing things in the right way in a confident way. So yes, this is part of our strategy to diversify our product set, and we've made sure that there is capacity both in the senior and the middle management, both from an experience perspective, but also a capability perspective as well. What else have we got here? Gavin, if you got any how and when does management expect the discount to tangible net assets to close? Well, I'm really pleased that somebody has pointed that one out because we are -- tangible net assets is at 56p and share price is materially below that. I think when you draw comparisons against other bank stocks, the ratios look very, very similar. I mean, clearly, we are disappointed with where the market is at, but we consistently get told by our investor base that this is not something that is a DF Capital point per se. This is more a structural point around small cap equity. So I'm not sure beyond actually doing what we're continuing to do and which is delivering the results delivering the growth, delivering the increases in profitability as we have done in 2023, but also looking to continue to diversify the register as we are. I think that's probably as much as we can control the share price. I mean we've got to be focused on controlling what we -- controllables, I suppose.

I guess on that, Carl, if we continue to hit our numbers and grow as we expect to grow with the cost-income ratio coming down, you'd expect your return on equity to get into double digits. I mean we talked about normalized this year, it would have done that in '23. But I think if you've got an ROE in double digits, that should significantly help as well.

A question. What role do you see technology playing in expanding your offering and increasing margins? Well, I think as we look to continue to scale the firm, you are going to see that the jaws widen on the cost-to-income ratio. We think cost-to-income ratio will probably land somewhere in the 40s, probably at the lower end. But again, HP is a great example that we're looking to leverage the best technology, the best capabilities, deliver automation upfront. So it is inherent as it has been in both our deposit raising and our core inventory finance product from the outset that we can sufficiently scale the lending and deliver great risk-adjusted returns from the outset, whilst providing the intimacy of relationship management that our dealers and our customers will expect and probably aren't getting elsewhere in the market right now. So I think that is everything.

Fantastic. Carl, Gavin, of course, any further questions that do come through, you'll have the ability to review those and we can publish questions on the Investor Meet Company platform, and they'll be available on the dashboard. And perhaps just before redirecting investors to provide their feedback, which is particularly important to you and the company, Carl, I could just ask you for a few closing comments, please.

No, it's been a delight to be able to present to investors today, either those that are already invested or those potential investors. I mean, I really enjoy talking about the firm's performance and what we've done and what I'm very proud of what we've achieved as a team here at DF Capital. But I'd just like to say thank you to everybody, and thank you, Paul, for hosting this.

Thank you very much indeed. Carl, Gavin, thanks for updating investors today. Can I please ask investors not to close the session to be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, and it's greatly valued by the company. 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 to you all.