OSB Group Plc (OSB) Earnings Call Transcript & Summary

Hello, and welcome to the OSB Half Year Results for 2026. [Operator Instructions] I will now hand to Andy Golding to start proceedings.

Good morning, and thank you for joining OSB Group 2026 half-year results presentation. This morning, I'll take you through the key highlights for the first half, providing view and outlook for the remainder of 2026 and beyond, before finishing off with insights into the macro drivers supporting our business. Then I'll hand over to Victoria for the financials in more detail, before returning for concluding remarks. Starting with a high-level view of the business, in March 2025, at the investor update, we set out our strategy to remain the number one specialist lender and also our plan to improve RoTE in the medium term. I'm pleased with the resilient financial and operational performance the group has delivered in the first half. We have done what we said we would do, particularly against the backdrop of ongoing macroeconomic and geopolitical uncertainty, rising oil prices and the resulting volatility in swap rates and the impact on retail cost of funds. This slide highlights our three familiar themes. Firstly, we continue to deliver against our lending growth plan. Net loan book growth of 1.3% reflects our discipline in maintaining attractive returns from new lending. Due to strong demand, we wrote more than GBP 1 billion of new business in Buy-to-Let in the first half at sustainable margins. And this subsegment, therefore, remained at 68% of the portfolio. Despite that backdrop of macroeconomic uncertainty, originations in our higher-yielding subsegments also grew moderately. As expected, net interest margin reduced compared to the prior period, and I'll come back to that shortly. The strength of our underwriting expertise continues to be demonstrated in our low loan loss ratio and despite recent volatility remains in line with our long-term average. Secondly, we've maintained our cost discipline and efficiency while also creating capacity for investment. Our culture of challenging cost helped contain core costs, which were down by 0.4%. Cost-to-income and managed ratios reflect our investment in the transformation program and are in line with our expectations. Finally, delivering attractive RoTEs and capital returns to shareholders continues to be our primary objective. The GBP 187 million of profit before tax translates to a first half RoTE of 13.3% and TNAV per share of 584p, up from 579p at the year-end. Our commitment to rewarding shareholders is underlined by the 5% increase in the interim dividend. In addition, the GBP 100 million share buyback program that we announced in March is progressing well with circa GBP 69 million of shares repurchased so far. This will bring total capital distributions to shareholders over the last 18 months to GBP 360 million, demonstrating the strength of our capital generation and our commitment to shareholder returns. In summary, I'm pleased with our resilient performance in the first half and the progress we've made on transformation. Turning to our portfolio in greater detail. We remain disciplined in how we grow, balancing volume, capital allocation and returns. Those of you who have been following OSB will be familiar with our graphic equalizer concept that demonstrates our progress in delivering our lending growth plan. Our Buy-to-Let franchise performed well, enhanced by the launch of the Rely brand towards the end of last year. Residential originations were broadly flat in the first half, although we expect momentum to build in the second half following the full rollout of our residential proposition on the new platform. Originations grew moderately in our high-yielding subsegments despite the uncertain macroeconomic environment and the impact of higher mortgage rates on borrowers' purchase decisions. That said, our commitment to optimizing and diversifying the loan book remains unchanged, but this journey won't be linear as we continue to manage the business to optimize risk-adjusted returns. Taken together, I'm pleased with how we've responded to the challenging market conditions while continuing to execute our plan. We've made good progress in the first half and continue to expect full year growth to be in line with 2025. We're on track with our transformation program. Management actions taken continue to deliver tangible benefits across the group with the investments we've made over the last 3.5 years now translating into stronger commercial performance, better customer outcomes and greater efficiency. As you can see from the chart, the new platform gives us greater pricing agility, helping us respond more dynamically to market conditions in both savings and lending while maintaining our focus on returns. The combination of the new platform and the Rely brand has significantly enhanced the broker experience. For example, we can now deliver an agreement in principle in under 10 minutes and complete cases in as little as two hours. We're also seeing meaningful operational benefits with higher levels of automation and accelerated processing times. For example, automated valuations are now being used for around 10% of our cases originated through the new platform compared with none previously, improving both efficiency and customer outcomes. In savings, we continue to expand the range of products on the new platform. The technology is enabling much faster execution with actions that previously took weeks now completed in around an hour. Importantly, these benefits extend well beyond operational efficiency. Over time, the platform will enable us to respond more quickly to changing market conditions, improve customer and broker retention through a better service proposition and generate greater operational leverage as the business grows. Together, these capabilities strengthen our ability to protect margins, improve productivity and deliver sustainable returns over the medium term. Looking ahead, momentum continues into the second half. In savings, we'll continue to broaden the product offering, complete the migration of Kent Reliance customers onto the new platform and prepare for the transfer of Charter Savings Bank onto the new platform as well. In lending, our residential mortgage proposition, which is currently in soft launch phase will be rolled out more broadly to our broker network under the Precise brand, bringing the benefits we've already seen through the Buy-to-Let Rely launch to our residential customers. Overall, I'm pleased with the progress we're making. The program remains on track. Key milestones are being delivered successfully and costs are absolutely in line with the plan. The investments I've described are also creating the foundations for our adoption of AI. In our contact centers, AI is reducing notetaking time by around 35% and saving colleagues time on complex calls. AI is also helping us reduce fraud and support document verification, preventing fraudulent applications worth approximately $8 million. We're also using AI to support brokers by helping colleagues navigate complex credit policies more quickly and consistently, while internally, we're seeing productivity improvements across software engineering and routine administrative tasks. Importantly, this is not about replacing the expertise that differentiates OSB. Specialist lending will always rely on human judgment. We see AI as a tool that supports our people, helping them make better informed decisions and spend more time focused on our customers. Looking ahead, we'll continue to build on the data and technology foundation we've created, exploring opportunities in areas, including pricing, customer service and back-office efficiency. While still at an early stage, we believe AI can further enhance the strength that already differentiate OSB and support improved outcomes over time. Looking at what we can control in our business. We've made good progress in the half. We set out our plan in March '25, our guidance was based on stable funding costs and a more favorable set of macroeconomic assumptions. This slide highlights the elevated cost of retail funding as well as the volatility in the rates that we saw in H1 '26. It also shows how the macro environment has significantly changed since the plan start point in March '25 and for 2026 and more so in '27 across GDP growth, HPI, inflation and interest rates. The top right-hand chart shows the spread between average top quoted pay rates on one-year fixed rate deposits versus one-year fixed swap rates. The spread was widest in February and then narrowed briefly in March to provide a short window for more attractive funding costs for us. Since March, the rate has widened again, and now it is at a similar level to February, resulting in higher-than-anticipated cost of funding in the market. We've highlighted a number of times and most recently at the full year 2025 and Q1 '26 that our ability to deliver the full year '26 NIM of circa 225 basis points would depend on three factors: front book margin, back book dynamics and the cost of retail funds, the cost of funds being the most uncertain and hardest to forecast. The cost of funding in H1 '26 did average a circa SONIA plus 30 basis points, in line with our full year expectation. However, the volatility in funding costs in the half and market competition effect on the savings back book recycling was a headwind on NIM with an H1 NIM of 223 basis points versus 226 basis points for the full year '25. As we stand here today, we see no indication that the cost of retail funds will normalize this year. On this basis, we've revisited our NIM guidance and no longer assume normalization of cost of funds. We've updated our 2026 NIM guidance to 215 to 220 basis points from 225, preferring a range rather than a single number to reflect that level of uncertainty in the market. As a consequence of this change, we're now expecting to deliver a RoTE of closer to 12.5% for 2026. However, as we look into the medium term, the mechanical nature of factors which enable an RoTE uplift together with the management actions underway, mean that our guidance of mid-teens RoTE in 2028, rising to the upper end of mid-teens RoTE in '29 still stands. Let me spend some time taking you through the return drivers together over the plan to 2029 and why we have confidence in this delivery. We see five key drivers. The first driver has a near-term impact and is market-driven, the cost of retail funds. As I explained, as a consequence of the funding headwind, we now expect 2026 RoTE to be closer to 12.5%. If the funding cost pressures seen so far this year continue, this could result in a modest impact on our 2027 mid-teens RoTE aspiration. Beyond ' 27 and into '28 and '29, there are four positive drivers that we've already discussed with you. The first two in green are mechanical back book roll-off. The high-margin back book will roll off this year and the low-margin back book will roll off into 2028, and this becomes increasingly supportive by 2028. Next, MREL debt with call dates in September '27 and January '29 will reduce our cost of funding. Both of these result in a mechanical uplift in our RoTE outlook as the drag from these factors disappears. The next two in blue are within management's control and hence, also areas we're confident about. The return-enhancing portfolio diversification into higher-margin areas as the Buy-to-Let book reduces to 60% of the loans over the period is a driver of RoTE enhancement. As is our transformation program, investment will conclude in '27 with increasing benefits accruing thereafter, bringing the operational leverage benefits we're already seeing from the Kent Reliance savings of Rely Buy-to-Let to the rest of the business. The operating environment has become more volatile than we anticipated when we first laid out our medium-term aspirations. Interest rate expectations, swap rate movements and customer behavior have all become slightly less predictable. While this can influence the pace at which margins recover quarter-to-quarter, it does not alter the strategic action we are taking or our confidence in the medium-term earnings power of the franchise. Mechanical and management control positive RoTE drivers give us high confidence in our '28 mid-teens RoTE and '29 high end of mid-teens RoTE aspirations. Our objective remains to sustainably deliver mid-teens returns on tangible equity. The question is one of timing rather than destination. With that, I'll hand over to Victoria for further insights into the financial.

Thank you, Andy, and good morning, everyone. The first half delivered resilient financial performance in line with our expectations. I will now walk through the detail. Turning first to the P&L. Let me call out a few key items. Net interest income was GBP 340 million for the first half, up 1% compared with the prior period, and I will provide more color on the NIM dynamics on the next slide. The fair value loss on hedging activities reduced to GBP 2.5 million compared to GBP 14.3 million in the prior period. The key driver behind the loss was again fair value movements on our mortgage pipeline swaps. Total administrative expenses, of which core costs were GBP 117.4 million increased by 4% as we continue to invest in our transformation program. However, our core costs were down 0.4% compared to the prior period. This resulted in a 5% increase in profit before provisions and impairments to GBP 204 million for the first half. An impairment charge of GBP 16 million was recognized this half year. I will cover this charge in more detail later on. Finally, profit before tax for the first six months of the year was GBP 187 million, down 3% on prior period, and basic EPS grew to 38.4p per share, up 3%, primarily due to the lower weighted average number of shares. Looking at the NIM movement from H2 2025, NIM reduced by 3 basis points to 223 basis points this half year. Higher cost of funds caused downward pressure as our retail savings book continued to recycle on to more costly spreads to SONIA compared to those in the second half of 2025. The higher cost of retail funds was partially offset by lending spreads as back book dynamics rolled through in parallel to another six months of new business written at sustainable margins. We have also shown NIM, excluding liquid assets, which was 262 basis points in the first half. This presentation of our NIM better reflects the performance of the underlying business. It also allows for a more meaningful comparison with our closest peers. As Andy mentioned, we have updated our 2026 NIM guidance to a range of 215 to 220 basis points. The new guidance is based on the assumption of SONIA plus 40% for retail funding costs in the second half of 2026. This is an increase from our previous assumption as a result of strong competition and volatility we are currently seeing in the market. Our updated NIM guidance is shown on the right-hand side of the chart. This slide provides an overview of our funding franchise. The overall makeup of the group's funding remained broadly unchanged. As at the 30th of June, 89% of our total funding came from retail deposits that we raised under our two savings brands, Kent Reliance and Charter Savings Bank. Retail deposits grew by 3% in the first six months of the year, reaching nearly GBP 25 billion. The proportion of our fixed rate bonds versus easy access accounts remained broadly unchanged compared to year-end with fixed rate savings accounts representing 55%. The remainder of our funding came from debt and wholesale issuance, providing diversification and adding duration to our funding requirements. As at the 30th of June, Central Bank funding reduced to GBP 250 million, providing us with significant capacity and flexibility to draw more in line with our funding requirements and improve our overall cost of funds as we manage our way through the final nine months of deposit migration to our new more flexible platform. Moving on to costs. A key part of our plan is that we tightly manage our cost base to allow us to invest in transformation. We demonstrated that we achieved this in the first half of the year. This in the following page highlights our cost discipline and transformation spend. Administrative expenses were in line with expectations at GBP 136.5 million, up 4% compared to the first half of 2025. The main driver of the growth was the cost of the transformation program with a GBP 5 million increase compared to H1 2025. On the next slide, we provide more detail on our spend to date. I am pleased that the core costs reduced by 0.4% compared to the prior period as we optimize our U.K. real estate footprint. The cost-to-income ratio remained broadly flat at 40.1% compared to 40.3% in the prior period, and the management expense ratio was unchanged at 88 basis points. Looking forward, for 2026, we continue to expect administrative expenses of circa GBP 280 million, excluding the costs of our new CEO. We remain disciplined in our core cost management, and we'll continue to invest in our transformation program in line with our plan. Andy outlined earlier the benefits of 3.5 years of investment in transformation. On this slide, we summarize our expenditure since the start of the program for your reference. There is no change to the expected spend on the program until it completes at the end of 2027. On a semiannual basis, you can see that the total transformation spend, including intangible asset movement, has passed its peak in H2 2025. This slide presents the progress against our lending plan, combined with a disciplined approach to risk that we presented at the investor update in March 2025. Net loan book grew by 1.3% in the first half to GBP 26.3 billion, with Buy-to-Let subsegment representing 68% of total gross loans. We remain committed to our medium-term loan book diversification strategy and continue to see opportunities in these subsegments. The growth in the loan book was supported by originations of GBP 2.3 billion, an increase of 10% compared to the first half of 2025. We saw strong new business volumes in our core subsegments of Buy-to-Let and residential. Originations grew moderately in our high-yielding subsegments despite macroeconomic uncertainty and elevated mortgage rates. For 2026, we continue to expect net loan book growth to be broadly similar to that achieved in 2025. The next slide provides a waterfall of the movement in the impairment provision in the first half as well as the credit quality metrics of our secured loan book. As you can see from the chart, balance sheet ECL provisions increased in the period due to a net charge of GBP 7 million. The charge was the result of an increase in provision for macroeconomic scenarios, accounts with arrears of three months or more, new lending and individually assessed provisions. These were partially offset by provision releases for model enhancements and PMA updates as well as stage migrations. Overall, the P&L charge totaled GBP 15.8 million and represented a loan loss ratio of 12 basis points compared to 2 basis points in the prior period. It was broadly in line with a long-term average loan loss ratio of 10 basis points. You can see that our balance sheet total coverage ratio increased to 50 basis points at the end of June compared with 47 at the end of 2025. Our provision balance continues to be more than 10x higher than the average yearly write-offs in the last five years. Moving on to arrears. For the first six months of 2026, three months plus arrears decreased slightly to 1.6% from 1.7% at the end of 2025 as more Stage 3 accounts exited our 12-month cure period. We remain comfortable with our risk profile and our impairment provisions. We show here that if we were to move our IFRS 9 weighting 100% to our downside scenario that our ECLs would only increase by GBP 19 million. Next, capital. This half demonstrated another period of strong capital generation. Group CET1 ratio remained robust at 15.2% at the end of June. Our profitability net of loan book growth in the period was 90 basis points, up 10 basis points compared to the prior period. Before the effect of the GBP 100 million share repurchase program announced in March, the CET1 would have been 16% and the share repurchase had a 0.8% impact on the ratio. The group continues to generate enough capital to support loan book growth and a progressive dividend. The Board remains committed to returning excess capital to shareholders as we progress towards our new CET1 target of 13% to 13.5% post Basel 3.1. This slide prevents movements in net loans and RWAs. In the first half of 2026, loan book grew by 1.3% and RWAs increased by 1.1%. The chart on the right shows that loan book growth accounted for a GBP 0.2 billion increase in RWAs, while mix and other items had a neutral impact on RWAs in the period. We continue to expect the implementation of Basel 3.1 rules as written would reduce the CET1 ratio as of the 30th of June 2026 by 1.2% as a result of a 9% uplift in RWAs. This is compared to just over 1.3% and 9%, respectively, as at the 31st of December '25. This would mean that after the impact of Basel 3.1 rules, the pro forma CET1 ratio as of the 30th of June 2026 would be 14%. From this pro forma position, the drivers to our 13% to 13.5% post-Basel CET1 range will include RWA growth and shareholder returns underpinned by our profitability. I will now pass back to Andy.

Thank you, Vic. So in summary, the group has delivered a resilient performance in the first half despite that macroeconomic uncertainty. We've continued to grow and diversify the loan book at sustainable margins, leading to attractive RoTEs, and we prioritize returns to shareholders. Looking ahead, as we've explained this morning, we have updated our '26 full year NIM guidance to reflect the competitive pressure we've seen in the retail deposit market. And as a result, we've updated the '26 RoTE guidance to circa 12.5% However, we remain confident in the earnings power of the business. That confidence is underpinned by the mechanical benefits from MREL and back book roll-off alongside the strategic actions we're taking to diversify the lending book and the benefits the business will realize from the transformation program. These positive RoTE drivers give us confidence in our 2028 mid-teens RoTE and our 2029 high-end mid-teens RoTE aspirations. With that, we'll now turn to Q&A. And operator, could we please have...

[Operator Instructions] Our first question comes from Benjamin Toms.

Can you hear me?

Andy, can you hear Benjamin?

I think it's possible that participants can hear us here in the boardroom. Unfortunately, we can't hear anything coming back from the operator. We have just been asked by the technical company to stand by. [Technical Difficulty]

Our apologies. One moment. We will get this sorted. Benjamin, if you could go ahead again and see if we can be heard in the room at [Whitfield Street]. We still have a bit of an audio issue. One moment. We will get this sorted. [Technical Difficulty]

Ben, can you now hear me through the line?

I can hear you, Andy. Can you hear me?

Yes, I can. And I'm actually -- the appears to have failed. So I'm now doing it through a laptop that we have managed to flag on to the system. But I think -- apologies, everybody, because I hate being let down by technical issues. But Ben, I think you were first with a question. So why don't you dive in, and we'll try and get it fixed while we do it this way around.

And I think if this is the last time we hear from you, Andy, all the best in your future endeavors. And I guess parting gift is two questions on the net interest margin, which maybe Victoria will pick up. But I appreciate the management were really clear that deposit competition was a key risk to NIM. However, your new 2026 NIM guidance implies an exit NIM of 207 to 217 basis points and investors will need to decide how much of that to flow into 2027. Can you just provide some color on what has to happen to be at the top and bottom end of the guidance range for half 2? If SONIA -- if pricing went back to SONIA plus 30 basis points today, does that get [Technical Difficulty] That was my first question. Should I go with my second?

Yes. Sorry. So the first one is what are the factors that gets us to the top and the bottom end of the implied rate. So Victoria will cover that one in a minute. And what was the second one there?

And just more of a broader question really. What's driving deposit competition? Do you think it's structural hedge tailwinds for the bigger banks? And if that's the case, could the headwind persist until 2030, which is the date when structural hedges stop being additive to the big banks top lines?

Yes. So why don't I tackle the second one first and talk about some of the generic factors, and then we'll come back to Vic on more specifics around the numbers. So I mean, look, we're in a position at the moment where normally we can duck and dive a bit in terms of deposit competition. But we are doing a number of things as a function of the transformation program right now. So you can see from our numbers, we've skinned down the amount that we're borrowing from the Bank of England on long-term repo, and that's because we want to have lots of collateral headroom for the point when we get to doing the migration of the Charter Savings Bank portfolio, which is a significant retail savings portfolio across onto the new system. So we'll not have products on sale under that brand for a period. So we'll need to have additional sources of liquidity. So that's why we've created that headroom. That's a bit of a headwind to us because actually long-term index repo funding is a little bit cheaper than where the retail market is right now. So that's having a bit of downward pressure for us. The market is -- there is a lot of competition. There's quite a few new providers that are piggybacking on the back of other people's banking licenses, et cetera, and with a view to pulling in retail funding with high shiny rates and then hoping they can convince the savers to become bond customers, et cetera. And I think everyone is just making sure that they've got plenty of liquidity. And we're in a position where we are just about to migrate all of the Kent Reliance ISA customers across onto the new platform. That's the last of the Kent Reliance migrations which means for a little while, we haven't really had ISA products on sale and ISAs are one of the cheaper forms of retail funding. So we've been at a slight disadvantage or we're at a slight disadvantage as we come into half 2 that is having a bit of tailwind impact -- sorry, headwind impact in terms of the overall NIM. But as we move through '27 and complete that migration, we'll be in a much more BAU position and can get back to ducking and diving and optimizing as we go through the market. So hopefully, that gives you a bit of a steer in terms of the competitive dynamic and some of our positioning in it right now. Vic, do you want to touch on the other ones?

Yes. Ben, so in terms of your question about the range, yes, as you say, mathematically, that is the sort of NIM range you would come to. I mean the reason we've gone for a range is just due to the amount of uncertainty that there is there around cost of funding in our NIM guidance. As we've talked about before, there are three drivers of our main drivers of our NIM. We will continue on writing sustainable front book margins. The back book dynamics, as we've talked about before, we have got some of the high margin rolling off in '26 and then the low margin starts to roll off in '27 and beyond. But the main reason, as we sit here today and look at what's going to drive the -- where we exit and how that rolls into '27 is going to be that cost of funding. And that comprises we have front book, which we have said is that sort of SONIA plus 40% level. And if we look back at the average in H1, we were up at that level at the start of the year. It came down for a month to sort of SONIA plus 10%. So it is very volatile out there, and that's why we've gone with the range. We have got the retention mix and also you've got back book churn. So part of that in H1 is we saw probably, it's the last year for ISAs, as we saw more of the back book people churning from perhaps lower rate, easy access into more fixed rate bonds. So it is hard to predict, and I guess that's why we've gone for a range, but top or bottom predominantly will be driven by that cost of funds. We have pointed out, as you say, that if it really is too early to tell for '27. There's a lot that can happen between now and year-end. But hence, we sort of just pointed out, look, if that funding persists, it's a slight downward pressure on our 2027 aspiration of that medium term mid-teens RoTE.

Our next question comes from Rob Noble. Can you hear me okay?

Yes, we can. Good. So just a few small questions. So I see you paid down Central Bank facilities substantially in H1. So given that cost of retail funding you've been talking about, what's stopping you using that more -- or what's been stopping you using it more extensively this half? And can you use it more extensively going forward? Then on the EIR gain in H1, I think there's a gain at group level and there's a loss in the CCFS book. So what's actually going on there? And how long are you now assuming customers spend on the reversion rates in each of the books? And then just on costs. So I see the cost guidance as a footnote, excluding the CEO buyout costs. Can you give us an idea of how much they are? I presume it's sort of more than GBP 5 million for it to be literally explicitly separated from the cost guide.

Yes. Okay. Thanks, Rob. I'll touch on the first one in terms of Central Bank. I mean we have got bucket loads of collateral largely with the Bank of England ready to draw on, but we are using that for safety and security from a liquidity management perspective when we have to effectively shut acquisition down under the Charter Savings Bank brand and do the migration across to the new platform. So we're just basically creating a surety and a safety set of headroom by having paid down the facilities now at the point that we don't need the liquidity and then we'll ramp that facility back up at the point that we can't gather liquidity through the Charter Savings Bank brand while we do the migration. So that's the logic behind that one. And I think it is just -- it's a good liquidity management decision. And I think -- well, I hope shareholders would rather me as the CEO of this bank, worry about making sure we've got access to plenty of cash than 1 or 2 basis points of NIM here and there. So that's the thinking behind that one. I'll ask Victoria to cover the ER gain and probably wouldn't be appropriate for me to talk about CEO costs. So I'll ask her to cover that one as well.

Thanks for those questions. So yes, as you say, there was a GBP 4.6 million gain on EIR. We always look at the -- each half at the latest behaviors. And so some of that is the alignment to current behaviors. As you've noted, yes, there was an up-down between CCFS and Kent Reliance, our two entities. We are continually enhancing our modeling. So some of the work we did in this first half is we were down to the fine lines around what points people pay in the month around reversion and really looking to align how we model and build those curves going forward. So I would say, whilst we also did the behaviors, we are looking to sort of really refine and build out our modeling. So we've got the best sort of balanced forecast and views of this going forward. And it was that second sort of modeling piece that gave us the -- more of the up-down and some of the tail assumptions on Kent Reliance versus Precise. In terms of where the -- those weighted average lives are now, so the most sensitive historically we've had was the five-year Precise Buy-to-Let portfolio. So -- that's down to about three months now. It's just under. I think previously, last year when we updated it was 3.6. So that's down just under 3. And then Kent Reliance has always been it's about 2.2 months. That hasn't really moved much in the four years that I've been here. So that's at 2.2. We're still noting the sensitivity to that two-month move is down to about GBP 16 million, and it's really this year's cohort and some of next year that's the most sensitive. So it is chipping down. But as you're seeing now we're down to that sort of three-ish months and Kent at 2. We expect that variability to keep on reducing. So that was the EIR. Cost of the new CEO, I mean, we haven't disclosed that as yet as he's not arrived. It will be in the DRR reporting next year's ARA. You'll notice we have kept cost guidance at the GBP 280 million. There's a lot happening in H2, including new CEO arrival. We've got go-live of the residential and ISAs, residential mortgages and ISAs in our transformation. So we will always be looking to absorb what we can into that GBP 280 million, but it's all too early to commit at the minute. So that's why we've kept it to GBP 280 million, and we'll comment on the CEO transition costs as we get closer and he arrives.

Our next question comes from Grace Dargan.

And again, just to reiterate the comments, I guess, best of luck, Andy, going forward. So on my two questions, maybe firstly, just on the transformation. I know you just talked about the Charter Savings change. I guess, looking forward, should we expect any other disruptions? How long will you be out the market on that savings product? And is there anything else we should be thinking about? And indeed, as a result of those transformations, do we have another lever to help support 27% RoTE? And then on the second side, just thinking about lending, maybe you could talk about the pipeline into H2 on the specific areas, so thinking about development finance, asset finance, et cetera, what you're seeing there?

Sure. Yes. Look, I mean, on transformation, we are trying to -- and the Board have a very low risk appetite for getting it wrong, right? I think you've heard me say before, Grace, none of us want to do a TSP where you do a system change and everything falls over and your customers get very annoyed with you, which is why we are doing it product by product set, cohort by cohort. And as I said, ISA is the one from the Kent brand, which is occurring at the moment. Charter will be done in blocks, but there will be relatively large cohort blocks of product type. And therefore, some products will be off sale for a month or so. So we won't have ISAs for a month and a bit, then we won't have easy access for a month and a bit. We won't have bonds for a month and a bit. But once it's done, all bets are back on basically and the entire range with app functionality and with a significantly enhanced customer proposition and that ability to broaden the product range and price much more agile -- in a much more agile style across the entire range, that will be there as soon as it's done. And that does give us operational benefit in terms of being a bit more selective about how we fund and where we fund. And we think it will also give us a strong customer retention benefit. So once we come out the other side of it, I think that's a tailwind to net interest margin in terms of helping us manage the funding cost going forward. So I think that's the first thing I'd say, which is very positive. You asked me about pipeline. I mean our pipeline is very good. You specifically mentioned development finance. That's one where the opportunities that are being put in front of us, if they are from an existing borrower who's got plenty of cash to put in the scheme, we can see the salability of the scheme we're still lending. So the team in development finance will make good money this year in terms of their contribution to the group's overall profit. But we are not out there looking at schemes where there's not a lot of cash around and the resale doesn't look good and all of that sort of stuff. We're just being a little bit risk off on it because the market is pretty soggy right now for trading stock out. And we've seen some of the large house builders having to heavily discount or end up with sort of tail-end ramps of schemes that they're just really struggling to sell. So we're obviously being a bit careful. The commercial market softened in the first half of the year, but we've picked and choose -- chosen our way, sorry, through that and have grown the commercial book a little bit. The bridging market is still active because when there is sogginess in residential transaction market as there has been, sometimes bridging is the solution to that particular problem. And we want to continue to drive that up, particularly once we switch over all of our residential proposition under the Precise brand to the new platform. That will just give us much quicker product development, pricing ability to drop into the components of the market. So our pipeline looks healthy. We're going into the second half or we're well into the second half now with a healthy pipeline. The teams are very focused on that diversification play. And Buy-to-Let has continued to be a store where our borrowers have wanted to refinance and some of that's come to us on the way through. So it looks in pretty good shape.