Vanquis Banking Group plc (VANQ) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Vanquis Banking Group plc Half Year Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Ian McLoughlin. Good afternoon to you, sir.

Good Afternoon, Alex, and welcome, everybody. If we just go to our sort of intro slides, Look, it's -- I really appreciate you joining this afternoon. It's a bit of a frustrating update from Vanquis. I'm sure it is for you, if your investors, it certainly is for us as a management team. We are making really strong underlying progress. I'll go through a little bit of that in a second because I think it's important to talk about how we're doing with what we committed to do. But then probably the meat of today's presentation is what has happened towards the end of the first half that has caused us to change our guidance. So I'll take you through that. I'll then hand over to Dave Watts, our CFO. You can see on the screen, I've got James Cranstoun, our Head of Investor Relations with me and Dave as well. And then we'll go to your questions, which are always a bit where we get great value from. So look forward to that. Please do post your questions as we go. So look, as I said, a bit of a frustrating first half for us, really good underlying progress, particularly on transformation, but two headwinds and one particular tailwind, and that's what I want to unpack. So if we just go to the next slide, if I'm summarizing where are we on the -- our overall performance, it's sort of strange this in that you don't often get to say things like profit before tax is up 44%. We made more profit in the first half of this year than we did in all of the previous year. As you can see on the slide, our balances are up 24%, income is up 8%, credit quality is stable. Cost discipline. Our cost/income ratio is down 9.4%, so heading in the right direction. Dave will talk a bit about capital, but real improvements there. And at the very bottom of the slide, you can see as well, we've got some very pleasing external recognition from Euromoney, who you know are one of the premier awards and external recognition where we were recognized as the best bank transformation in Europe and the best for consumer lending in the U.K. So look, that's all good, right? And it is. We're very pleased with that. I'll just turn to the next slide and pull out a couple of the things that we've delivered that underpin those numbers, and I'll not talk to all of these, but you'll see the biggest one is top right, under scale profitably. Our strategy remains the three pillars that we've talked about before, serve more, serve responsibly and scale profitably. And probably the most important part of our gateway tech transformation that is the proof point of the quality of the build we're putting in to underpin the future sustainability and profitability of this business is around our mobile app. It's very rare. In fact, I can't remember in my entire career a mobile app transformation going quite as well as this one. 100% of our existing 1 million-plus cards customers voluntarily downloaded and set up our new mobile app. Now that was for some good reason. I'll talk about some of the things we've been doing to make that worth a while and to stimulate that in our existing customers. But that was a fantastic success. It was driven by our Snoop engineering team. They built that within a couple of months, and it was deployed, as I said, to all our customers between February and June this year. So a really big milestone for us. You'll see bottom right of that column, if I stay under scale profitably, we also deployed our first customer-facing gent agent. That's a big milestone for us as well and something that is incredibly important as we build through the rest of this year and into next year in terms of our cost to serve our customers. If I go to the left-hand side, you'll see a couple of things about installment lending and a prime upgrade. These are the things that I talked about, if you heard the Q&As from our actual presentation on last Thursday morning that we're not developing brand new product streams that cost quite a lot of money to do. We'll get to that in due course. But for now, we're concentrating on optimizing and deepening the number of customers that we can reach in our total addressable market, which, as you will remember, is vast at about 24 million. So how can we do more in our cards, in our vehicle finance and in our second charge mortgage mean asset products. And certainly, those two things for cards, both an installment lending, which you know with buy now, pay later regulation coming in, then there's real demand for that. And the prime upgrade one may sound a bit curious like why would a bank like Vanquis be doing a prime proposition? And the simple answer is because we're getting better and better at helping our customers learn to manage their money better using the tools that we give them. And therefore, we've got a couple of hundred thousand of them now in our book who have become prime. And that's -- in some ways, that's a really nice thing because it shows that the way we're working with our customers is really benefiting them. But there's a risk associated with that because as they become prime, even though they've got loyalty to us because we've helped them the whole way through, there is a danger that they can transfer their balances away to a prime card supplier. And therefore, what they're saying to us is we would like to stay with you, but we would like a product charged appropriate to our financial resilience and our credit score as it is today, not as it was maybe 5 years ago or 3 years ago when they came to us in the first place. So I think that's a really important one as well. And in the middle, I'll just call out the top two really. These are just, again, proof points on the underlying progress we're making. Our customer satisfaction index again increased and has increased above the industry benchmark. So we are serving our customers better than our peers. That is really good. And for the first time ever, we've got a service mark accreditation from the Institute of Customer Services. Vanquis has never had that before. If any of you have been through it in any other businesses, it's quite an achievement and real recognition that we're just making the underpinnings that support the future success of this business stronger and stronger as we go through each week, month, quarter, half year and year, and you should expect us to continue to do that. Those getting those foundations right is absolutely our #1 priority. But of course, we have to perform in the time that we're reporting on as well. So let me turn to the next page and talk about the two headwinds that we discussed last week. And both of these emerged pretty late in the quarter, and both of them are a drag on our performance, which we could frankly do without. But there's no point bleating about it. These things happen, everyone sets a strategy and sometimes things go in your favor and sometimes things go against you. We've had these two go against us. We are, therefore, doing what you'd expect us to do as a relatively mature management team at least in years. We are absorbing them, understanding what's causing them and reacting and planning as a result so that we still get to the goal that we've set, albeit it will take us a little bit longer. So what are the two headwinds? Well, you can see on the slide, we've called out that the first one and the most -- the one that worries me most is lower utilization than we had planned for with our existing credit card customers. And I'll come back to that. The second one was a more mechanical model adjustment, and we can pick this up in Q&A if you want to drill into it. But unemployment forecast in the U.K. from the start of the quarter to the end -- the start of the half year to the end of quarter 2 has increased. So it was 5.1 million. It's moved to 5.7 million. That takes GBP 8.5 million of a hit to our model straight out of our bottom line. So it is one of those things. It's mechanical. Every bank has its own version of it. It's supplied by an external provider. You can't pick and choose which forecast you want. It's all covered by our auditors, Deloitte. So it sort of is what it is. The obvious question is, if that gets worse, so if unemployment forecast goes up, -- could we take further hits? The answer simply is yes. Currently, it's forecast to trend back down through 2027, but we can't bake that in yet. So we are assuming that stays at its current level with that level of drain through the model adjustment onto our P&L. So we can talk a bit more about that, as I said, as we get into Q&A. But I'd almost park that one because it sort of is what it is. It's a mechanical model adjustment. There's nothing we can do to influence it. So -- but it's frustrating because we made GBP 8.9 million of a profit this year, and that would have been another GBP 8.5 million on top. But there you go. The first one that I mentioned is the one that I wanted to spend a bit more time on, and we've got a couple of charts coming up on our particular products. I'll spend most of my time on credit cards, but I do want to touch on vehicle finance and on second charge mortgages as well. But in very simple terms, the best way to illustrate this is our active cards customers, so customers that are with Vanquis that have gone outside of promotional onboarding period are spending more with us. So that is good. Their actual spend is up 10% in the first half. We know our competitors' equivalent number is minus 1% in the first half. Now that's not every competitor. That's a cut of those that are most like us in terms of the type of customers we serve. So we've got a delta of plus 11% to the market. Well, what's wrong with that, you may say. The simple answer is as we forecast the recovery of this business and all the work that we've been doing to stimulate our existing customers to use our card, we had a planning assumption north of 15% on that. So plus 10% is good, plus 10% versus peers at minus 1% is relatively plus 11%. So that is very good. But if you've got a planning assumption of plus [ 15 million, that's a 7 million delta ]. And that -- that's the headwind that probably you should pay more attention to because we have put a lot of good, well thought through previously proven simulation activities into this cards customer base, which is where the 10% uplift has come from. So things like we've done price draws with our customers where they could win a trip to Florida. We've done cash back. We've done rewards. We've done love to shop vouchers. We've currently got an FX free for the summer initiative out with our customers where the clue is in the title, but their foreign exchange spend on the card is free. So there's a range of things that we haven't really done before as a business that are making a difference and are improving that spend just not by as much as we had assumed. So you could say, well, you over assumed that. Yes, of course, with hindsight, it's always your best strategic planner. So we have 15 -- 10% is not 15%. So that's very obvious. But actually, the -- those underlying activities will continue, and we're assuming that 10% continues. But when we talk to our customers, what they're telling us is it's the link to that unemployment first, the other headwind that is making them more cautious about their bigger spend. And that's more worrying because for our customers, we would never want to overstimulate their spend. We don't want them taking on credit that they can't afford. That just flows through to our impairment line at some stage and is awful for the customers. So we're trying to hit a very delicate balance here about making them aware that there are good things available to them now through Vanquis that they probably haven't been used to before, but not overdoing that. And it is that consumer confidence, and you can see it in lots of surveys, the Bank of England put out an appetite for credit report last week. There's a GFK consumer confidence report that all says versions of the same thing that particularly for this sector of customers, their appetite to take on credit links to their confidence and their confidence is down. Now will that stay like that? We don't know. We've got a new Prime Minister. We'll see what happens with the talking up the U.K. maybe rather than talking it down. That can help. We'll see what happens with unemployment, but that is what is behind that second headwind. So I wanted to spend a bit of time on that. I always think when you look at any business, asking the management team, if something has happened that you weren't expecting, do you at least understand it? The answer to this is yes, we do. These are the two headwinds that hit us. And are you then clear about what you can do about it? And that's what I'll come on to talk about now. And yes, we are. So we have a very clear plan, but it will take us a little bit longer. So if I just go to the next slide, and if I stay on credit cards, we've shared this probably for the first time at this level of detail, but it's part of answering that question about are you clear on the problem and what you can do about the problem. And there's a couple of very important facts on this slide. So first of all, we have two main types of credit cards when customers come to us new. We have the traditional credit builder card, where some comes in, they want to build a credit score, they tend to get a very low balance with us. And then over time, we increase that balance, assuming that they are performing and paying. That's the chart on the left, the credit builder chart that you can see. The other proportion of our new business is for balance transfers in where customers have built up a credit card balance elsewhere. They bring it to us for a promotional period, which is usually not present at something between 6 and 18 months for us. There's a whole range of different cohorts. But they move to profitability with around two years the credit builder card, as you can see on the slide, takes longer because it's building the credit. So that's how long it takes our cards to become profitable. Once they get past that line, you can see on the ax season into profitability, they're very profitable, and they then become the existing customers, which is who I was talking about on the previous slide, who have spent 10% up, but not 15% up. So we want to get our customers to that stage, and that is working well for us. And if you look at the bar chart below, let me just illustrate, you can see circled in the middle at plus 19%. We increased our cards volume last year in 2025 by 19%. That is a very good performance by any standards. I talked to you about that back in February when we did the last one of these. That though, will take, on average, 2, 2.5 years to reach maturity. So that starts paying back and hitting that line during 2027. So 2027 is well underpinned by that bigger influx of new business in 2025. The challenge is the year before where we actually were down 10%, you can see it in the red in 2024 in our cards balances as we got to grips with what we inherited in the business, sorted that out and reset the business to go again in 2025. And the issue there is that, therefore, the volume of new business that we wrote in '24 that comes through into profitability in '26 as it hits that 2-year point, that is not as much volume as we would like, which is why we were working on stimulating more spend from our existing customers. '25 onwards, though, is good. So 2027 onwards is good. So what are we doing about the challenge of that 15% spend assumption versus 10% actual? The simple answer is we're going to write more business, new business through the rest of this year and into 2027. So we're filling the hopper up again that then pays back 2 years down the line as those customers stay with us and reach maturity. And that's all fine, but it's a lag because your existing customer spending today becomes an interest-bearing balance today, and that's the 10% to 15% that I've talked about. A new customer coming in and bringing you a balance and then starting to spend pays off 2 years down the line. And if you wanted the simple explanation about why have we pushed our guidance out a year, it's because we're having to fill our hopper with more new business which then has that payback period lag, and that's what means that our RoTE ambitions have gone out a year. So look, happy to touch on any or all of that as we get into questions. But hopefully, that slide has been helpful. We've been going around our existing investors over the last couple of days, and we've spent a lot of time with them on this. And the feedback is that it is at least giving clarity on not what's changed, but why has it changed and what are we doing about it and how does that then underpin our performance going forward. So I'll pause on cards there. Let me just flip to vehicle finance, if I may. So if we move to the next slide, and we've basically shown the same thing as we've just shown for cards, but for vehicle finance, and then I'll come to second charge mortgages. Now this one is a pretty simple one. You can see it pays back quicker than cards. it's at a slightly lower return on tangible equity absolute, but this is good business for us. So why are we not increasing our volumes? You can see in the blue bar charts that our volumes are staying broadly flat. And we talked about this back in February. We have a very unefficient inefficient legacy platform that underpins both the onboarding of new customers and the servicing of existing customers in our vehicle finance business, our MoneyBarn business. The last bit of our tech transformation that we're working on right now is to give us a new onboarding and servicing platform for vehicle finance. Currently -- well, if I go back a year, our cost-income ratio for this product was in the 70s, so high. It's come down to just under 60%. So it is getting better, but we want to get that down into the 40s to be in line with our cost/income ratio of the other asset products. So that means that scaling this business up, writing lots of new business is expensive for us in the short term, and we are, therefore, holding the volumes. We're writing enough new business to make up for the business that gets to the end of its 5-year term, so a little bit less than that just from behavior of customers, but we're writing enough to stand still. We're looking at that again very closely to see if we can do any more through the rest of this year and into '27 as we get that new platform deployed. But you'll understand why we're being cautious because it's just not an efficient business. But there's really good demand there and the feedback from customers as to how we serve them again is very positive. So it is a business we really like. We want to get going on. You'll see we've moved margins up a little bit in the meantime because there is decent demand. So we're passing on some of our increased cost of funds into this. So this business will broadly stay enough new coming in to make up for what's getting to the end of its term and then move into growth as we get the new platform or maybe we can do a little more in the second half. We'll come back to you on that. So that's vehicle finance, a bit simpler than cards. If I turn to the next slide, which is second charge mortgages, again, the same way of presenting the story, but a very different business here. This is obviously secured lending, all secured on the main residents, an average loan-to-value of about 70%, just slightly north of that. So very much in our sweet spot. And as you can see, our volumes here have been a roaring success. So we launched this business sort of mid-2024, we are -- it's not our second biggest book after cards. It's bigger than vehicle finance now from almost a standing start in a couple of years. So you can see the sort of growth figures. We're over GBP 800 million of the book now. But it is lower margin because it's secured, but it's also lower risk. So the RoTE hurdle of all 3 asset products that I've just talked about, including this one, is all mid-teens or above. So if we keep writing new business at a mid-teens RoTE, eventually, our overall business mathematically gets to the mid-teens RoTE that is our guidance. It's just that change in cards of the mix from existing customer spend to writing more new business that makes the difference and has pushed the guidance out. So hopefully, that makes sense. Again, I'm very happy to take questions on that as we get to it. So look, if I just summarize what I've said so far on the next slide, and then I'm going to hand to Dave. Basically, what is going on with Vanquis. I think as I said at the very beginning, we are very confident that we are doing all of the right things that will get this business to where it needs to get to in terms of a mid-teens RoTE. The headwinds that I've described have slowed us up a bit. The market hasn't reacted well to that. I completely understand that. That doesn't take away our determination to keep doing the right things and find a different path to the same destination. So one of the broker notes that you may or may not have seen summarized us as delayed, not derailed. And I think that's as good a summary as I could give. but we concentrate on keeping doing the right things. The worst thing we can do as a leadership team is get distracted, start making up new knee-jerk reaction answers. It stick to the plan that we know and react to what's gone against us and find a different path to get to the same destination. But that destination will still be underpinned by our new technology. And as you can see on point two here, we've actually found some further benefits from that as we get into 2028. Our liquidity and funding is good. Our capital actually has improved as of a couple of weeks ago. So Dave will talk to that in a second. And we're very clear that this business is serving customers well. You've seen the customer satisfaction scores that I've just talked about. And you've also seen that the Board has confirmed that it is looking to reinstate a dividend at the end of this year, subject to no other major changes. I think that is just a sign of how well underpinned the plan we believe NI is. So has it been a fun first half for us? Not really. We have had to absorb things that we hadn't planned for. So we'll learn from that, but we're not packing our toys up and going home. This is a time for resilience and determination, and that's exactly what we're doing as a management team. So hopefully, that gives you at least an overview of the story, what's changed, what we're doing about it and where does that then get us to as we look forward. I will pause there and pass over to Dave to take you through some more details on the financials. Dave, over to you.

Thank you, Ian, and good afternoon, everyone, and thanks so much for joining the call. I will go into more detail about the financial guidance on 3 slides before covering our capital requirements under the new Basel III. One regime, which comes into effect on 1st of January 2. So if you look on this slide here, this gives the updated guidance '26 and 2027 from what we published back in February of this year. This guidance assumes the impact of the consumer confidence that Ian has spoken about from uncertain macroeconomic environment continues through this next 18 months. As a consequence of that, balance growth can be expected to be driven by new customer acquisition, and this is going to moderate our returns in the short term. In the first line, you'll see the gross customer interest earning balances, and we're not changing the guidance there that we expect to get the greater GBP 3.3 billion of balance by the end of this year and GBP 3.7 billion by the end of 2027. You'll see on the net interest margin and risk-adjusted margin that those numbers have decreased over that period of time. This is exactly as we said previously, as we have more of our business going to the second charge mortgage business, which has a lower margin but also lower risk product, that was going to decrease. There's no change there. The absolute amounts have come down because of the new business being written in the newer customer acquisition, which at the outset, a lower yield on that. Cost-income ratio, we've nudged that down to low 50s in '26 the mid- to high 40s. This is a fact of the lower income that is going to come through. Then on statutory ROE, you'll see a 2.5% first half this year. We now move that out to low single digits this year, followed by low double digits in 2027 and then [indiscernible] mid-teens ROTE expected in 2028. Look I talked about this. It's given the confidence in the medium outlook of the business and assuming no deterioration in the U.K. economy, the Board intend to reestablish a modest dividend full year '26 from there. I will come back to CET1 ratio in a couple of slides time. This slide just gives a little bit more detail. I think you've seen some of this before. On the left-hand side, it just shows you in graphical terms, the pies on the left-hand side, you'll see on the all balances and all products are going to grow over the next 18 months. That's not changing. You'll see that the share of second mortgage in the silver is going to increase. You'll see the NIM trends and the RAM trends, margin trends just coming down a little bit as talked about earlier. And a note on the cost-income ratio, this is going to change and get better over time, not just from a growth in income, but also reduction in costs. What we've got is a change in guidance on the cost takeout of previously highlighting transformation save of GBP 23 million to GBP 28 million over the period '26 to '27, increase up to GBP 30 million to GBP 35 million over the period up to 2028. What is really what we laid out previously is that the cost of '26 will be lower than the cost in '25 and the cost in '27 will be lower than the cost in '26. So we have a downward trajectory on costs. On the next slide, it is an illustrative ROTE guidance walk. And what you see on the left-hand side is the bit from full year '25 to full year '26. And we've shown this to you before, but the bits and hashed out bit show what's changed. First, I'll go to the bit and the third bar across, is increased IFRS 9 macroeconomic provision. That has a 2.4% RoTE impact in 2026. On the left-hand side, you will see the lower income due to low expected credit card utilization from the high-yielding existing customers. That brings down a big drop down of income, which we expect to come through in '26 and no longer occur. And you get some credit against an underlying impairment you not write so much business. On the right-hand side, it just shows you how you go to full year '26 to full year '27. You can see the growth coming through our risk-adjusted income from the income from the new customer credit card we tend to do and continued growth in second charge mortgages. And importantly, in '27, a growth of vehicle finance portfolio. All other aspects in terms of these walks in terms of complaints coming down, transmission cost savings, underlying cost movements, et cetera, have not changed in our thinking at all. Right. The last slide is probably the most important one. This is a tailwind. We do get some tailwinds every once in a while. So as you all be aware, the regulatory requirement of capital is changing here in the U.K. with effect from 1st of January '27. And early on this year in January '27, the PRA issued its guidance on what happens to what we call our Pillar 1 RWAs and the Basel 1. And you'll see on the left-hand side, our RWAs will go up by 15%. That's only 1/2 of the equation. It shows you why the left-hand side mortgages it's going up, credit cards and operational risks. What's important and what's happened in the last month, we've got confirmation in writing from our regulator, what is going to be actual capital requirements or what they call the Pillar 2 requirements. And the net result of that, if you look on the right-hand side is we have reduced our guidance to the market on the CET1 ratio from 14.5% for 2026, bringing it down to 12% under the new regime. It's not directly the same. What is important to understand is the surplus capital above the guidance is increasing from GBP 23 million to GBP 38 million. So as a consequence of that, all things being equal, we have GBP 15 million additional CET1 capital to support our growth of the business further forward. This capital supported by a strong liquidity position and a strong funding position gives us a rock solid platform to continue to grow this business going forward. With that, I hand you back to Ian for wrap up.

Thank you. And look, there's some great questions in already. So we'll get to those pretty quickly. I sort of said this at the start, but if I just put the summary slide up, this is a business that is now profitable. It's not massively profitable, but it was massively unprofitable back in 2024. So that in itself is a very positive move. Our balances are growing. Our NIM and RAM are staying where we'd expect them to be for the mix, particularly of the secured business coming through. And our credit quality remains stable. We're making continued progress on costs, as Dave said, '25 costs were lower in '24, '26 is lower in '25, '27 will be lower. So we're continuing to work on that because that's within our direct control. And we're good on liquidity funding and capital, and the Board is feeling confident enough to signal dividend for the first time certainly in our tenure here. So there's a lot to like here, but I'm not shying away or sugarcoating the fact that we have delayed our guidance. That is one of the reasons that we've described. We are reacting to those reasons and bringing the best plan back that we can get access to without going crazy on actions that add extra risk because no one is going to thank us for that. So you should expect us to continue to do that. We are determined. We are resilient as a management team. Many of us have faced other things that probably felt at the time even more challenging than this in terms of global financial crisis and COVID and so on. But this is really annoying. And there's no -- you can be as emotional as you like, and I'm not overly emotional, but it is frustrating, but we are absolutely determined to get to where we've said we're going to get to. We had a few of our investors say slightly tongue in cheek, I think thank you for creating another buying opportunity for us. So a few others that are already invested say slightly different things. But depending on what stage you're at, this may or may not be that sort of opportunity. Our job as a management team is to stick to what we know is working. keep the focus on that and probably most importantly, as in any business, keep our teams motivated, engaged and focused on doing the right things, and that's exactly what you will see us do. So a challenging set of first half messages, but we continue to do the right things to get us to the right destination. I will stop there, and we can go to questions.

Great. Thank you, Ian. Thank you, Dave. So we have a few questions in the queue. So let me go through those, and I'll try and group them together in themes as much as possible. But I think let's start on this one. And I know, Ian, you covered a lot of this in your comments earlier, but maybe just give a little bit more color around the timing. Essentially, the question is what has dramatically changed since early May when we gave our Q1 trading update to the market that's caused us to sort of our guidance.

Yes. Look, very fair question. As you said, I've sort of covered some of this, but let me just quickly recap. We saw the unemployment forecast through -- that we have to take into our model, we got that on the 22nd of June, right? So it's a quarterly thing. It's right at the end of each quarter. So that was the one that affected the first half most. So I think that's a dramatic change to use the language in the question. On the other headwind of sort of consumer confidence and spend in particular, discretionary spend, we had a brilliant December. We had a really good March. We saw April and May tail off compared to our assumptions that I've already described. So it's really the impact of that coming through. And the fact that we're not going to [indiscernible] assume that, that magically gets better, okay? So we are assuming that those two headwinds stay at those levels, and that's therefore in our forecast going forward. But both of them a bit more towards the end of the second quarter, the end of the first half. So that's really -- I mean, we did -- there's some wording in our update that you can read back in May that does allude to us watching this very closely, but it really particularly post the start of the Iran war, which you remember was, I think, 28th of February. We saw that build through March and then through Q2 in terms of just consumer confidence, uncertainty, cost of living, fuel, all that stuff. So that probably is the best answer to that. David, if you want to add anything?

No, I think you covered it well.

Thank you. Next question, the investor calls out, I suppose, reducing asset yield in credit cards, the reducing NIM in our guidance. And obviously, you've explained the reasons for that. Question is, how much of the margin compression do you think is permanently structural due to competitive dynamics? So that's probably one question. And then the second question is what specific cost takeout could you put in place if the existing customer spending that you've already talked about remains depressed into 2027?

Yes. Do you want to take the first one on NIM, Dave, and then I'll talk about the cost aspect.

Yes. Okay. So on NIM, on actually the Slide 13, we did call out on the credit card, once we've got to a degree of growth is maturing on credit cards, we expect the NIM to stabilize post 2027. So the number we put up there for 27 was a 13% NIM. -- as I said earlier, we always knew it's going to come down because of the proportion of second charge mortgages coming through, which is low risk and lower margin. But once they're maturing our balances through post '27, we expect to hold the 13%.

Yes. And look, I think there's -- there's a factor here in terms of our NIM overall will change in relation to that mix. As I said, we're over GBP 800 million of second charge mortgages. Now if you go back 2 years, we were 0. So that just has a mechanical effect. It's a very different product. I think the other thing to just be aware of that I mentioned is that prime proposition in cards that will bring our cards NIM down as well, but far better to be getting some revenue from a customer staying with you on a lower rate than 100% of a higher APR and they've left, so you're getting nothing. It's a really simple one, but it will change the NIM as we mature our book. And look, I'm very confident that, that is a good thing. We want our customers to use the tools that we give them to help them manage their money better. That's what makes them loyal to us. That's where we add real value to them in their lives. But we don't want them to go through a period of getting -- repairing their credit with us and then leave. And they don't want to either. They are loyal and they want to stay. So even though NIM will look like it is compression coming through in cards as that builds, if that retains a couple of hundred thousand customers that otherwise might go to one of our prime competitors, I am absolutely fine with that. That is the right thing to do. To the second part of the question on costs, look, we are looking again at costs as you'd expect us to. I mean, as I said in my remarks, it's the one thing that we are in direct control of as a business. You've seen we've had a very good history of setting cost challenges to ourselves and beating them. We did that in 2024. We were over the GBP 25 million that we set. We did the same in 2025. We are looking again, we have a range of initiatives that are everything from the bits and pieces of travel and accommodation and entertaining and all of that stuff through to how much we're spending on marketing, but some of that is good spend. You don't want to go too far. But how do we balance that? We're looking at all of our sort of big contracts with suppliers and seeing if we can do anything else in that. So there are a range of other things that you would expect us to pull levers on to continue to improve that, and that is what we're doing, which is why that cost balance year-on-year will continue to go down. And I think that is absolutely right. That is the correct thing for us to do. And will -- it helps with that jaws that I talked about before, if we're getting our revenue going up and the margin right and we're getting our costs going down, a bit in between is impairments and profit. And impairments, as I said, stay stable in a business like this, we're very vigilant over that. But so far, so good. So you should expect us to see us do more on costs as we go forward. James, back to you.

[indiscernible] We as a business will continue to invest in the business, and that's crucial as we go further forward because if we don't do that would be in the same sort of sticky position we perhaps inherited 2 or 3 years ago where it's been underinvestment in the business. So expect the business to still occur transformation cost savings is paying for that inflation.

And it's a fair point. There are good costs in the business. So things like developing your tech and getting fit for purpose in that and investing in the right people, we'll continue to do that, and we are, but we need to be very mindful of every penny we spend if it's not in that good cost bucket. And you've seen, I mentioned it earlier, but we had a GBP 23 million to GBP 28 million cost saving forecast for '26 and '27 from our gateway initiatives. So putting better tech out there and getting a more efficient business as a result. That's not a GBP 30 million to GBP 35 million cost goal for us, albeit some of that's in 2028 as the business orientates around the better tech and gets more efficient. So Agentic is a good example. So yes, great question, and we will continue to manage margin very carefully. but to serve our customers where the demand is, and we will continue to manage our costs very carefully as well, but keep the focus, as Dave says, on investing in the business. That's a healthy thing to do.

Great. Thank you, Ian. Thank you, Dave. The next question, I think we'll turn to is sort of linked to the first part of the previous question, it's around the competitive environment across our products. So basically, has there been any discernible change in the competitive landscape that investor calls out cards and vehicle finance in particular, but I think we should also touch on the competitive landscape in second charge model.

Yes. And look, we haven't talked about liabilities or deposits either. It equally has its own competitive position, but it's going very well. We're sitting at GBP 3.2 billion. So I'll not say any more on that. But other than you might want to comment on interest rates aren't quite going the way that everyone 6, 8 months ago thought they might go. If I take the 3 asset products though, so what's happening with competitors, nothing dramatically different to what we've seen over the last couple of years. We do have people come in and go out in each of those product lines. We track it weekly. We do an impact assessment on our forecast volumes. They're pretty accurate. So we haven't seen anything dramatic. I think in vehicle finance, we saw one provider go bust last week or do a shrink wrap liquidation. So we're keeping a very close eye on that. We saw Secure Trust Bank with V12 pull out of the market over a year ago now. We haven't really seen the FCA scheme bite yet because it's obviously not deployed yet, but we're watching that very carefully. But remember, for us in vehicle finance, we're serving a very targeted and specific niche of customers whose demand is growing. So I think I said before that our average vehicle is a 9-year-old Ford Focus with [indiscernible] on the clock, and we're financing that for up to 5 years. So this is not like discretionary track day play things for the mad male egos or female eagers amongst us that might like those things. This is essentials for families to get their kids to school and get themselves to their jobs that their income. And we see real demand there. So we like that. And as I mentioned earlier, we've seen our margins go up a little bit in vehicle finance. Commensurately in second charge mortgages, which we also like, and as I said, is going really well, we've seen margins compress a little bit. We have seen some other providers come in. There's flurries of pricing activity and then it tends to ease off and then someone else comes in and we get the same. Overall, it's down a little, but it still hurdles our mid-teens review. So we still like that product. Again, guys, anything either of you want to add?

No, we don't.

Okay. So the next one I think we turn to is -- and again, the investors acknowledging the fact that the ROTE guidance for this year has been pushed or has reduced to low single digits. The CET1 ratio has reduced to 15.6% relative to our 14.5% guidance. And they also call out in our disclosures the severe macro scenario in IFRS 9 disclosures where if you're 100% risk weight or 100% weight that scenario, you get a sort of impact of GBP 14.2 million. So basically downside sort of a severe downside scenario. I suppose the question really is what's the absolute floor for your CET1 ratio before your plans to reestablish the dividend with full year results are canceled?