Vanquis Banking Group H1 2026 Earnings Report

Vanquis Banking Group EPS Results

• Actual EPS: GBX 1.80
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Vanquis Banking Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Vanquis Banking Group Announcement Details

• Quarter: H1 2026
• Date: 7/30/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, July 30, 2026
• Conference Call Time: 3:30AM ET

We’re Vanquis Banking Group (LON:VANQ), an FTSE All Share company and a leading specialist bank, established in 1880. We lend responsibly, providing tailored products and services to 1.75 million UK customers through Vanquis, Moneybarn, and Snoop. https://www.vanquisbankinggroup.com/shareholder-hub/investment-case/

Vanquis Banking Group H1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: First-half profit before tax rose 44% year over year to £8.9 million, exceeding Vanquis’s full-year 2025 result. Gross customer interest-earning balances increased 24% to more than £3 billion, while all three lending businesses remained profitable.
• Negative Sentiment: More cautious customer spending reduced existing Credit Card utilization, leaving first-half Credit Card income about £7 million below expectations. Vanquis also booked an additional £8.5 million IFRS 9 provision tied to a higher forecast U.K. unemployment peak, reducing first-half profitability by approximately £15 million versus expectations.
• Negative Sentiment: Management lowered near-term guidance, now expecting 2026 statutory ROTE in the single digits, net interest margin of approximately 14.5%, and a cost-to-income ratio in the low 50s. The company still targets low-double-digit ROTE in 2027 and mid-teens ROTE in 2028, assuming current customer spending behavior persists.
• Positive Sentiment: Second Charge Mortgages balances grew 34% to £800 million and are expected to continue increasing by roughly £30 million per month, while Vehicle Finance growth is expected to accelerate from 2027 after its new technology platform is completed. Transformation savings guidance was also raised to £30 million–£35 million through 2028.
• Positive Sentiment: Vanquis reported strong liquidity and capital capacity, including £93 million of surplus CET1 capital and a planned reduction in its target CET1 ratio to above 12% from 2027. The board intends to reestablish a modest dividend with the full-year 2026 results, subject to no significant deterioration in the U.K. economy.

Presentation

[Ian McLaughlin, CEO at Vanquis]

Good morning, everyone. Thanks for joining us for our 2026 Half-Year Results webcast and conference call. I'm Ian McLaughlin, the Chief Executive Officer of Vanquis, and I'm joined as usual by our Chief Financial Officer, Dave Watts. Dave, good morning and welcome.

[Dave Watts, CFO at Vanquis]

Good morning, Ian.

[Ian McLaughlin, CEO at Vanquis]

I'll start with an overview of our performance and the updates to our outlook that we've announced this morning. Dave will then take you through some more detail on our numbers and guidance, I'll come back to summarize, then, of course, we'll be happy to take your questions. If I can take you straight to slide four. The first half of 2026 represented another period of significant progress for Vanquis. We continued to lay the foundations for sustainable, profitable growth and attractive returns over the medium term. Let me draw out a couple of key points here. Firstly, we delivered a further two quarters of profitable growth. Statutory profit before tax increased by 44% year-on-year to GBP 8.9 million, exceeding the profit that we delivered for the whole of 2025.

[Ian McLaughlin, CEO at Vanquis]

Secondly, gross customer interest earning balances increased by 24% year-on-year to more than GBP 3 billion, principally reflecting growth in Second Charge Mortgages and in Credit Cards, this supported an 8% increase in income. Importantly, that growth was delivered while maintaining stable credit quality, reflecting our disciplined underwriting and the continued financial resilience of our customers. We also continued to improve our operational efficiency while still investing in the capabilities needed to support the future scalability of this business. Dave will take you through the key financial metrics on our capital position in more detail shortly, but at the bottom of the slide, you can see that our progress in transforming Vanquis and serving customers who are underserved by mainstream banks was recognized through two Euromoney Awards for Excellence, the Best Bank Transformation in Europe and Best for Consumer Lending in the U.K.

[Ian McLaughlin, CEO at Vanquis]

On behalf of all our colleagues, we were very pleased with that recognition. We know we have more to do, but we are growing with discipline, improving efficiency, and building a stronger foundation for sustainable profitability. Let me now turn to some of the specifics that we delivered during the first half to support the medium-term success of the business. We've made significant progress operationally, delivering tangible improvements across all three pillars of our strategy to serve more, serve responsibly, and scale profitably. I won't cover every initiative on the slide, but I will talk to four areas that we believe are particularly important. Firstly, underserved more. We are broadening our proposition by developing an installment lending solution to reflect customer demand and the introduction of regulation in the Buy Now, Pay Later market.

[Ian McLaughlin, CEO at Vanquis]

We're also delivering an enhanced Prime Upgrade Credit Card proposition for customers whose financial resilience that we've helped to improve over time and who may otherwise be in a position to move away from us to a prime lender. These initiatives will allow us to build deeper and longer-lasting customer relationships. Secondly, underserved responsibly, we continue to see strong evidence that the improvements we're making are translating into better customer experiences. Our customer satisfaction index score increased to 83.2, extending our outperformance against the industry benchmark, which stands now at 82. For the first time, we achieved service mark accreditation from the Institute of Customer Service.

[Ian McLaughlin, CEO at Vanquis]

This external recognition, again, is particularly important because it reflects not only the service that customers receive today, which has been through a period of significant change, but also shows that the standards, culture, and processes that we are embedding across the organization are working. Thirdly, perhaps the most significant operational milestone in the first half, we successfully migrated all our existing Credit Card customers to our new mobile banking app, which was built in-house and led by our Snoop engineering team as part of our Gateway technology transformation program. This was a large and complex build and migration, completed while not just maintaining but improving our customer service experience, as I've just described. The app has also received external recognition as the market's Best Mobile App Redesign, as you can see from the logo on the slide.

[Ian McLaughlin, CEO at Vanquis]

The importance of this goes well beyond completing just a technology build and migration. This new app is one of the most important deliverables in Gateway. It gives us a single modern tech platform through which we can deepen customer engagement, increase self-service, launch new functionality more quickly, and therefore reduce our cost to serve. This will help us build the operating leverage needed to reduce our cost-income ratio over time. Finally, we continue to evolve and scale our use of AI across customer service, analytics, decisioning, and colleague productivity. Another milestone was when our first customer-facing agent went live in June, helping us to improve customer outcomes, make faster and more consistent decisions, and operate more efficiently.

[Ian McLaughlin, CEO at Vanquis]

Taking together everything on this slide demonstrates that we are translating our strategic goals into tangible operational delivery, broadening our propositions, improving our customer experience, and leveraging technology to build the modern, scalable infrastructure needed to support sustainable growth and stronger returns. Everything I've described so far provides an important foundation for the future success of this business. We are continuing to make progress. We have had to adapt to two emerging headwinds as we begin to see the impact of increasing economic uncertainty emerge, particularly during the second quarter. The first of these was lower than expected utilization by existing Credit Card customers, secondly, an increased IFRS 9 impairment provision related to forecast U.K. unemployment. Taking each in turn, macro uncertainty has led to more cautious customer behavior, with spending lower than we had anticipated.

[Ian McLaughlin, CEO at Vanquis]

Customers are still increasing spending, just not by as much as we had originally planned. To illustrate this, our spend per active customer has increased by 10% year-on-year, but the initiatives we had launched to support this carried an expectation of more than a 15% uplift. We do know, though, that on the same basis, spending among relevant competitors actually declined by 1% over the same period. Our customers are spending more on our cards and we are outperforming the market, just not by as much as we had originally planned for. This resulted in Credit Card income in the first half being around GBP 7 million lower than we had expected. We are taking actions to address that, as you would expect. The second headwind I referenced was the additional impairment provision taken to reflect a forecast increase in U.K. unemployment.

[Ian McLaughlin, CEO at Vanquis]

As you all know, IFRS 9 requires us to recognize potential impairment using forward-looking assumptions. We therefore have increased our provision by GBP 8.5 million. The provision was based on the latest forecast published at the end of June, which assumed that U.K. unemployment would rise to a peak of 5.7% from a forecast peak of 5.1% at the start of the year. Together, these two factors reduced our first half profitability by approximately GBP 15 million relative to our expectations. Credit Card balances did increase by 2% during the half to GBP 1.55 billion. This growth was driven more by new customers, including 3.0% Balance Transfers and other promotional products, where balances are initially lower yielding than those of existing customers.

[Ian McLaughlin, CEO at Vanquis]

This change in mix shows in the reduction in asset yield from 26.5% in the second half of last year to 25.5% in the first half of this year. In total, new customer balances added GBP 127 million, but partially offset by a GBP 98 million or 6% reduction in balances held by our existing customers. The benefits from our back book stimulation initiatives, including prize draws and Vanquis Rewards cashback, helped to mitigate but did not fully offset the lower utilization by existing customers. When we look at our other product lines, Vehicle Finance balances were in line with our expectations, and Second Charge Mortgages continued to deliver strong growth, as you can see on the slide.

[Ian McLaughlin, CEO at Vanquis]

I will provide some more product detail in a moment because this is important. Our overall message is that balance growth has remained resilient across the group, though mix is moving. The two headwinds were therefore clear. Lower than expected balances amongst higher yielding existing Credit Card customers and the additional macroeconomic impairment provision for unemployment. We are obviously keeping these under very close review and will update on any further changes. Let me now take you through that further product detail that I mentioned to show why we remain confident in our outlook, and you can see the Credit Card detail on slide seven. The point at which new lending begins to contribute to earnings is central to understanding our medium-term outlook for cards.

[Ian McLaughlin, CEO at Vanquis]

Back in 2024, Credit Card balances reduced by 10% as we restructured the business, meaning there are fewer balances reaching maturity and then contributing to profitability in 2026 and beyond than would ordinarily be the case. In contrast, in 2025, we grew Credit Card balances by 19%, and the income contribution from that 2025 growth builds over time. As Balance Transfers mature and promotional periods end, customers move onto representative APRs, driving our interest earning balances. This is all progressing in line with our expectations. As a result, the 2025 front book is expected to make a meaningful contribution to profitability from 2027. We intend to grow balances through the second half of this year at a similar rate to the second half of 2025, primarily through new customer acquisition. We plan to deliver a similar full-year rate of balance growth through 2027.

[Ian McLaughlin, CEO at Vanquis]

We continue to price appropriately for risk and in line with Consumer Duty. You can see on this slide how these balances translate into profitability through the cumulative profit before tax generated by a typical Credit Builder customer and a typical Balance Transfer customer. New Credit Builder customers typically become profitable after around 3.5 years, whereas Balance Transfer customers become profitable in under two years once the promotional period has ended. In both cases, profitability then continues to build as the relationship develops. The chart on the right demonstrates the same effect across the portfolio. Newer vintages initially have lower asset yields, but those yields then improve progressively. We're planning on the basis that the more cautious spending behavior that we've seen in the second quarter of this year continues.

[Ian McLaughlin, CEO at Vanquis]

We will therefore focus on acquiring more new customers and building sustainable returns as those balances become interest-earning over time. This gives us confidence that the customer growth delivered since 2025 will make a more meaningful contribution to our profitability from 2027. If I move to slide eight and Vehicle Finance, this product was profitable in the first half and performed in line with our expectations. Our priority during 2026, as I've said before, is to complete the build of the new onboarding and servicing technology platform for Vehicle Finance. We will maintain profitable lending in the meantime, and balances remain broadly stable as planned at GBP 707 million as of the end of June. As previously guided, we will increase balance growth in Vehicle Finance from 2027, supported by the new tech platform.

[Ian McLaughlin, CEO at Vanquis]

That platform will provide better connectivity with our broker network, enhanced underwriting and pricing, and faster service for brokers and customers. These improvements will support higher profitability from 2027. As the slide shows, Vehicle Finance customers become profitable relatively quickly, meaning that the growth we expect to originate from 2027 will begin contributing to earnings within the first year. If I turn to Second Charge Mortgages in slide nine, this business continued to deliver strong growth. Balances increased by 34% during the first half, reaching GBP 800 million, and this growth contributed to increased profitability. We expect balances here to continue growing at a similar rate, approximately GBP 30 million per month. While competitive pressures are resulting in some yield compression, new lending continues to exceed our ROTE hurdle and will support our further profit growth.

[Ian McLaughlin, CEO at Vanquis]

As the chart shows, Second Charge Mortgages contribute to profitability from the outset, making them an important driver of the group's medium-term earnings as balances continue to build. As a result of the second quarter headwinds I've described, we have updated our financial guidance through to 2027, and you can see this on slide 10. The guidance assumes that the more cautious spending behavior seen in the second quarter continues at those current levels, and that balance growth is therefore increasingly driven by new customer acquisition. Doing this does moderate our returns in the near term, as I've just shown on the previous slides, but it strengthens the future earnings base as those new balances begin to contribute more income. We continue to expect gross customer interest earning balances to exceed GBP 3.3 billion by the end of 2026 and exceed GBP 3.7 billion by the end of 2027.

[Ian McLaughlin, CEO at Vanquis]

Reflecting that lower than expected Credit Card utilization by existing customers and the greater proportion of newly originated balances, we now expect net interest margin to be approximately 14.5% in 2026 and more than 13% in 2027. Risk-Adjusted Margin is also expected to exceed 8.5% in 2026 and 8% in 2027. It's important to note that our revised margin guidance principally reflects the product and customer mix of our growth rather than any change in underlying credit quality. The lower near-term income outlook also affects our operating leverage. We therefore expect the cost-to-income ratio to be in the low 50s in 2026 and the mid to high 40s in 2027, as those recently originated balances mature and contribute more income and further transformation savings are delivered.

[Ian McLaughlin, CEO at Vanquis]

Taken together, these factors mean that we now expect statutory return on tangible equity to be in single digits in 2026, compared with our previous expectation of low-double digits. It's worth noting that the additional IFRS 9 impairment provision alone accounts for approximately 2.4 percentage points of this change in our ROTE guidance. This change also reflects the lower near-term income contribution from existing Credit Card customers and our increased lending to new customers to build future earnings. We did consider all of the options available to us as these headwinds emerged. Constraining new lending volumes could protect short-term profitability, but it would just weaken the future earnings base and limit our ability to deliver sustainable returns over the medium and longer term. We therefore rejected that option.

[Ian McLaughlin, CEO at Vanquis]

We now expect the growing earnings contribution from the 2025 and 2026 Credit Card vintages, continued balance growth, and further operating efficiencies to support low-double-digit return on tangible equity in 2027, with mid-teens return on tangible equity now expected in 2028. On capital, our position remains strong and supports our growth plans. Dave will cover this in more detail shortly. The Board's confidence in our medium-term outlook, together with the strength of our capital position, supports our intention to reestablish a modest dividend with our full year 2026 results, alongside the outline of our wider capital allocation framework and distribution policy. We will therefore continue to grow this business while delivering the transformation benefits and operating efficiencies needed to materially improve returns in 2027 and achieve mid-teens ROTE in 2028. That approach is designed to create stronger, more sustainable profitability and long-term shareholder value.

[Ian McLaughlin, CEO at Vanquis]

While the timing of profitability improvement has changed as a result of the headwinds I've described, the fundamentals of our medium-term investment case remain intact, and this confidence is underpinned by the points that you can see on slide 11. We continue to see significant growth potential in the large underserved U.K. retail market. Our plans are supported by the completion of our technology transformation, lower operating costs, increased capital capacity from 2027, and through continued delivery against our balanced growth ambitions. These strengths reinforce our confidence in this strategy and in our ability to build a higher quality, more profitable business. Our objective remains clear: to deliver better outcomes for the customers we serve and stronger, more sustainable returns for our shareholders. With that, I'll now pause and hand you over to Dave to run you through the detail of the financials. Dave?

[Dave Watts, CFO at Vanquis]

Thank you, Ian. Let me start with a summary of the group's financial headlines for the first half of 2026, as set out on slide 12. As Ian highlighted, we generated a profit before tax of GBP 8.9 million, up 44% year-on-year. Balances grew 8% in the six months to June and 24% year-on-year. Average balances grew at a similar rate, up 25% year-on-year. However, the mix of this balance growth in Credit Cards and in lower risk, low margin Second Charge Mortgages has reduced net interest margin to 15%. Impairment charges increased 35% year-on-year, driven by the growth in balances and the GBP 8.5 million increase in the IFRS 9 provision for macroeconomic uncertainty. Despite this, impairment charges reduced 2% when compared to the second half of last year, reflecting the stable Credit quality of our portfolio.

[Dave Watts, CFO at Vanquis]

Operating costs decreased 8% year-on-year, generating 16% positive cost to income jaws and reducing the cost to income ratio by 9.4 percentage points to 53.1%. This delivered a ROTE of 2.5%. Slide 14 summarizes the drivers of our growth in gross customer interest earning balances, which reached over GBP 3 billion at the end of June. Ian went through the drivers of the balance movements by product earlier, so I will not cover this again. Our pricing discipline ensures that all new lending hurdles our mid-teens ROTE target. However, the mix of growth has been a meaningful impact on NIM, as can be seen on slide 15. 1.4% of the group NIM reduction was driven by product mix. Second Charge Mortgages grew from 13% of average balances in one half of 2025 to 24% of average balances in one half 2026, contributing a lower asset yield of 6.8%.

[Dave Watts, CFO at Vanquis]

At the same time, the proportion of Credit Card and Vehicle Finance average balances reduced 3% and 8% respectively. This has a dilutive effect on NIM, given their asset yields of 25.5% and 17.4%, respectively, in first half 2026. 1.2% of the group NIM reduction was driven by asset yield. Credit Card asset yield reduced 2.3%-25.5%, as growth was skewed towards initially lower yielding new business, coupled with a reduction in higher yielding existing customer balances for the reasons described earlier. Second Charge Mortgages yield reduced 0.8%-6.8%, reflecting pricing pressure from increased competition. Conversely, Vehicle Finance asset yield increased 0.5%-17.4%, driven by repricing initiatives. The combined Credit Card and Vehicle Finance NIM remained strong at 18.9%. Slide 16 summarizes the impairment charge, which increased 35% year-on-year. However, the charge reduced 2% half-on-half despite an 8% growth in balances.

[Dave Watts, CFO at Vanquis]

Group gross charge-offs increased 12%. Within this, Credit Card gross charge-offs increased 17%. This was in line with expectations given the increase in average balances year-on-year and the maturity of new customer business written in 2025. Importantly, the Credit Card gross charge-off rate remained stable at 13.7%. This is a key performance indicator, which we monitor in our Credit Cards business. This increase in gross charge-offs was partially offset by a small reduction in IFRS 9 modeled impairment. In summary, the underlying credit quality of our portfolio remained stable with a group cost of risk of 7%. As shown on slide 17, total operating costs reduced 8% year-on-year, driven by the GBP 11.5 million reduction in complaint costs. This reduction reflects the positive impact of the FOS commencing charging CMCs to submit claims from the 1st of April 2025.

[Dave Watts, CFO at Vanquis]

Transformation cost savings of GBP 7.8 million has facilitated additional investment for growth in the business and has helped to offset inflation. This investment includes the expanded use of AI across the business. This will be a key part of continuous IT improvement once the Gateway program concludes later this year. This investment will pay back in increased transformation savings, which we now expect to be GBP 30 million-GBP 35 million out to 2028, compared to the previous guidance of GBP 23 million-GBP 28 million out to 2027. Investment in Credit Card and Credit risk expertise drove the 2% increase in headcount. Slide 18 summarizes the segmental performance of the group by product. The key message here is that all three lending products were profitable in the first half, with improving operational efficiency.

[Dave Watts, CFO at Vanquis]

Let me now touch upon the performance of each of the lending products in turn, starting with Credit Cards on slide 19. The business delivered a profit before tax of GBP 12.8 million, marginally up year-on-year. This was driven by the 18% increase in average gross customer interest earning balances, which more than offset the decrease in asset yield and NIM that we've already talked about. A further increase in 0% Balance Transfer and promotional products to 17% of the portfolio, driven by the new customer growth, reduced the weighted average APR from 35.5% in June 2025 to 32.8% in June 2026. The cost of risk was 11% in the first half at the lower end of the guided range, despite the majority of the increased macroeconomic impairment provision being attributed to Credit Cards. Slide 20 covers Vehicle Finance.

[Dave Watts, CFO at Vanquis]

While balances remain stable, repricing initiatives improve the weighted average APR by 20 basis points to 29.3%. The 5.1% cost of risk was at the lower end of the guided range. The cost-income ratio improved 12 percentage points to 59%. The operational efficiency of the business still needs to improve. This will be delivered by both income growth and cost efficiency once we are using the new platform across our broker network in 2027. This will enable us to build both scale and to automate processes. As you can see on slide 21, and as Ian mentioned, Second Charge Mortgages continued their strong growth, with profit before tax increasing to GBP 7.1 million. The cost of risk remained low at 0.2%, with only one customer having defaulted in the last two years.

[Dave Watts, CFO at Vanquis]

Our portfolio has a weighted average loan to value of the combined first and Second Charge Mortgages in the low 70s. This underpins our confidence in guiding to a cost of risk below 1%. As the product is secured, the growth is capital efficient as it attracts a lower risk weighting than Credit Cards and Vehicle Finance. Liquidity and funding remain a core strength, as shown on slide 22. High quality liquid assets increased 22% in the first half to over GBP 1.2 billion. This was driven by our first Credit Card asset-backed security public issuance in June. We've also been more proactive in the investment of our HQLA, with 34% now invested in higher returning assets, including U.K. gilts, T-bills, and other sovereign equivalent instruments. The liquidity coverage ratio reduced to 221%, well above the 100% regulatory minimum.

[Dave Watts, CFO at Vanquis]

This reduction was driven by upcoming fixed term savings maturities and increased ISA balances. Total funding increased 32% year-on-year and 13% in the first half, reflecting the increased funding requirement for higher lending balances. The increase in retail deposits, which represent circa 84% of the group's funding, was driven by the growth in ISAs as we broaden the product range. ISAs are generally sticky balances, which now account for over GBP 1 billion of the nearly GBP 3.2 billion of retail deposits that we now hold. Average deposit rates reduced year-on-year. Given the increase in swap rates in recent months, we would expect industry deposit pricing to increase, creating a potential headwind for our future funding costs. We have factored this into our updated guidance. We continue to deploy capital for growth as set out on slide 23.

[Dave Watts, CFO at Vanquis]

As expected, the group's CET1 capital ratio reduced by 90 basis points to 15.6% in the first half. A 9% growth in net receivables translated to GBP 108 million of RWA growth, accounting for 80 basis points of the ratio's reduction. Continued investment in the technology transformation of the business via Gateway drove increased intangible spend, which also consumes capital. This was partially offset by the GBP 4.4 million of statutory profit. The group continues to maintain significant surplus CET1 capital, currently GBP 93 million, above the 11.3% disclosed regulatory minimum. We further optimized our capital stack in 2Q26, as set out on slide 24. We tended GBP 100 million of outstanding Tier 2 capital while concurrently issuing the equivalent amount for our new issuance at tighter spreads. This transaction had no impact on the total capital ratio.

[Dave Watts, CFO at Vanquis]

However, we have an additional GBP 41.5 million of the original Tier 2 instrument, which is not effective for capital purposes based on our current business plans. This is subject for call in October of this year, which, if called, will reduce the total capital ratio by 1.9%. Importantly, we have surplus capital at each of the CET1, Tier 1, and total capital levels to deliver our growth plans. As you will be aware, the group will be subject to a new regulatory capital framework from the start of next year when the Basel 3.1 rules come into effect and the group adopts the small domestic deposit takers, or SDDT regime. The impacts of this regulatory change are set out on slide 25. Under Basel 3.1, we expect RWAs to increase by around 15%.

[Dave Watts, CFO at Vanquis]

This is driven by a 10% risk weight on undrawn Credit Cards balances and an increased risk weight on higher loan-to-value Second Charge Mortgages. There is also a new calculation method for operational risk that drives RWA inflation. Importantly, these regulatory changes also drive lower CET1 ratio requirements, with the disclosed requirement reducing from 11.3% to 9.9% on a pro forma basis. These are transitional capital requirements. A formal SREP review of our final capital requirements is expected in 2027. Given the clarity now provided by the PRA, the Board are confident to reduce the target CET1 ratio from greater than 14.5% to greater than 12% from the start of 2027. This effectively creates GBP 15 million of additional CET1 capital to support our balanced growth plans. Slide 26 provides further detail on the updated financial guidance that Ian summarized earlier.

[Dave Watts, CFO at Vanquis]

We remain confident in our balanced growth guidance, and all our products are expected to grow by the end of next year, with the proportion of Second Charge Mortgages continue to increase. As previously guided, the continued mix shift towards this lower risk, lower margin product is a key driver of our reducing net interest margin guidance. The main reason for the revision downwards from the previous NIM guidance is a source of growth in Credit Cards. We are now assuming that this growth continues to be driven by the initially lower yielding new customer business rather than higher yielding back book growth. This dynamic also drives the reduction in our Risk-Adjusted Margin expectations. Note that our cost of risk guidance for all three lending products, which underpins our Risk-Adjusted Margin guidance, remains unchanged.

[Dave Watts, CFO at Vanquis]

As a result of the reduced income expectation from the lower NIM, we have marginally increased our cost income ratio guidance. Note that this reducing trend will be driven by both higher income and lower costs, with the expectation that year-on-year costs will be lower in each of 2026 and 2027. Finally, before handing you back to Ian, slide 27 lays out an illustrative updated statutory ROTE bridge for 2026 and 2027. The reduced income expectation in both years is driven by the lower than expected Credit Cards utilization by higher yielding existing customers. This drives some offsetting reduction in impairment on back book Credit Cards customers. In 2026, this is expected to be broadly offset by the increase in the IFRS 9 impairment provision.

[Dave Watts, CFO at Vanquis]

The income growth next year, although lower than originally expected, will be driven by maturing new Credit Card customer balances, alongside continued growth in Second Charge Mortgages and Vehicle Finance, which has a faster profitability payback. With that, I'll hand you back to Ian.

[Ian McLaughlin, CEO at Vanquis]

Thanks, Dave. Look, to conclude, we demonstrated continued progress in the first half. Though more cautious Credit Card spending than planned for and the additional IFRS 9 provision on unemployment has affected our near-term performance and outlook. We're having to adapt to these headwinds but must not lose sight of the progress being made. Our profitability is increasing. Our first half PBT exceeding the profit delivered for the whole of 2025. We grew balances by 8% during the half. We maintained stable credit quality across the portfolio. Our net interest margin and Risk-Adjusted Margin reflect the changing mix of growth in Second Charge Mortgages and Credit Cards. We maintained a clear focus on cost discipline, delivering transformation savings while continuing to invest in the business and to complete the Gateway technology transformation.

[Ian McLaughlin, CEO at Vanquis]

As Dave has just said, our capital funding and liquidity position also remains strong, providing capacity to support growth. The headwinds we've described today will slow returns in the near term, assuming that they persist. We've made an active decision to drive more new Credit Card lending to compensate, this will contribute more to income over time. Together with continued balance growth and further efficiency benefits, this gives us confidence in a material improvement in profitability from 2027. That confidence, together with our strong capital position, supports the board's intention to reestablish a modest dividend with our full year 2026 results, assuming no further significant changes in the U.K. economy. In the meantime, we remain focused on delivering our strategy, serving more customers, and building a more efficient and sustainably profitable Vanquis. Thank you. We'll now be happy to take your questions.

[Operator]

Thank you, Ian. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We'll pause here briefly as questions are being registered. We have a question from Abid Hussain from Panmure Liberum. Your line is now open.

[Abid Hussain, Analyst at Panmure Liberum]

Morning, everyone. Thanks for taking my questions. I've got three questions if I can, please. The first one is on card utilization. It's down in the second quarter. Can you help me? Can you separate how much is macro versus customer migrating or something else? What's the signal you're watching for a recovery in spend? Have I got that wrong? Do you not need that spend to come through to meet your new guidance? That's the first question. The second one is on the mid-teens 2028 ROTE. What's the split between the new cards vintage seasoning, cost income ratio improvement, and Second Charge Mortgages scaling? Which of those has the widest range of outcomes? I suppose, put it another way, where do you have the most control? The final question is on Basel 3.1.

[Abid Hussain, Analyst at Panmure Liberum]

It looks like you have some GBP 15 million of surplus. Where does that get deployed first? Thank you.

[Ian McLaughlin, CEO at Vanquis]

Abid, morning. Thank you for those three. I'll take the first one, then Dave, we can come to you, then I'll take the second, and maybe you can comment on the third one about Basel 3.1 in particular. Look, there's a mix of factors at play here, Abid, as we've just said in the presentation. We are definitely seeing while the card spend of existing customers is increasing, it's not increasing as much as we'd originally planned, right? I said that a couple of minutes ago. It is increasing, and it is increasing more than our competitors. We are watching that very carefully, which kind of links to your second question about what are the triggers. What we can't do is rely on that miraculously bouncing back. That wouldn't be a sensible way to plan.

[Ian McLaughlin, CEO at Vanquis]

What you've seen us do, which these things happen in any business, it doesn't always go the way you exactly plan it at outset, so we are reacting. We've worked out what we think the best way to drive growth that we can control, which is based on our confidence of the 19% cards growth that we delivered in 2025. We're going back to that. Now we have the capital clarity for the rest of this year and into 2027, and we firmly believe that is within our control. As I said, we did it last year. There's no reason we shouldn't be able to do it this year. I think that is really important. Dave, do you want to add anything on that?

[Dave Watts, CFO at Vanquis]

No, I'm good.

[Ian McLaughlin, CEO at Vanquis]

Okay. To your second question on the mid-teens ROTE 2028. Look, there are three asset lines at play here, we've always said we try to resist locking ourselves into, we expect X on this, Y on that, and Z on that. We deploy our capital where we see the best opportunity for a return, and we'll continue to do that. Second Charge Mortgages is performing very consistently and steadily. As I said in the slides, it pays back very quickly but at a lower rate. We'd expect that to be a bit of an underpin for the business going forward. The Vehicle Finance you didn't ask about, but I'll add in anyway. From 2027, we believe we can much more efficiently grow that as we get the new operating platform in place that I've talked about at length. We're feeling good about that.

[Ian McLaughlin, CEO at Vanquis]

On the cards bit again, where it contributes is that 2025 increased book growth seasons and matures from 2027 onwards in terms of delivering profitability. All three products actually come into play 2027 onwards, which gives us the confidence for 2028 and beyond. I'll maybe pause there. Dave, anything you want to add to those first two?

[Dave Watts, CFO at Vanquis]

Just on the ROTE point. As we've already set out in the presentation, we could control cost more than anything else. We said that costs will be lower in 2026 than 2025, and in 2027 will be lower than 2026. We should expect a degree of trajectory along the same lines and that one, which should help the ROTE out in 2028. Moving on to the Basel 3.1. Look, first of all, it's positive we got clarity on what our requirements are going to be from the 1st of January 2027. It's also positive to see that we have about GBP 15 million more capital deployed into assets for growth in the future. Where we deploy that, exactly as Ian said, where the best returning product is from a capital perspective, and we're very comfortable that we can deploy that in new customer growth and Credit Cards.

[Ian McLaughlin, CEO at Vanquis]

Great. Thank you, Abid.

[Abid Hussain, Analyst at Panmure Liberum]

Thank you.

[Operator]

Thank you. The next question is from Gary Greenwood from Shore Capital. Your line is now open.

[Ian McLaughlin, CEO at Vanquis]

Morning, Gary.

[Gary Greenwood, Analyst at Shore Capital]

Hi. Can you hear me okay?

[Ian McLaughlin, CEO at Vanquis]

We can. Thank you.

[Gary Greenwood, Analyst at Shore Capital]

Yep. Hi. Right. I've got three questions if I can. The first was, I recall you saying that all of your new lending achieves your 15% ROTE target, but obviously your Credit Cards, certainly for new customers, take sort of two or three years before they turn profitable. When you're talking about that 15% new lending, is that more like an IRR or a return at maturity? Because presumably they're sort of return negative sort of on day one. That was the first question. Second, just on Vehicle Finance. I thought previously you sort of indicated the balances would start growing again in the second half of this year. I think you're now signaling that will be 2027. It's a slight delay to expectation there.

[Gary Greenwood, Analyst at Shore Capital]

Lastly, I think in pretty much your opening remarks, you talked about potential to start an installment credit offering. If you could just talk a little bit about what you're thinking about doing there, given that over then the 12 home credit business installment credit's not been a great hunting ground for the group in the past.

[Ian McLaughlin, CEO at Vanquis]

Super. Thank you, Gary. Let me take the first one then. In fact, Dave, I might just come to you on this. The new lending and ROTE, and Gary's question, sorry, you were slightly muffled, Gary, was just for everyone, is the ROTE hurdling at outset or when the product matures post two years?

[Dave Watts, CFO at Vanquis]

Thanks for the question, Gary. It's basically at the lifetime of the product.

[Ian McLaughlin, CEO at Vanquis]

Yeah. That's one of Dave's succinct answers.

[Dave Watts, CFO at Vanquis]

Hope that's quite clear. Literally, you look at the marginal capital deployment, what's your return on that one there for that product lifetime? We know the average life of a vehicle finance transaction is between 30 months and 36 months, and we do that return on that basis. That clears the hurdle. Yeah. Hope that's clear.

[Gary Greenwood, Analyst at Shore Capital]

Understood. Yep, very clear

[Ian McLaughlin, CEO at Vanquis]

Gary, on your Vehicle Finance question, this is one to watch at the minute. We are really focused on getting the new platform out because this product has still got a roughly a 70% cost income ratio in it, which is too high. We are thoughtful and careful about not putting too much new business through that because it is inefficient, compared to where we know we can get it to. We'd rather hold back on the growth till the new platform's in place. That said, we do see opportunity in that market. We are in discussions with the teams right now as to, well, what does that look like for the second half of the year. How do we best calibrate that for not writing lots of volume, but at expensive underlying cost to do so versus there is opportunity.

[Ian McLaughlin, CEO at Vanquis]

You've seen, we've squeezed our pricing up a little bit in that product line. I think that's very indicative of the way we're thinking about it. If we can get the top line to move up a little bit, that kind of covers the higher cost to serve or cost to implement that we're currently sort of stuck with on the current platform. I think one to watch, again, Dave, anything you want to add on that?

[Dave Watts, CFO at Vanquis]

Just a couple of points to raise on that one, Ian. Last year you saw the volume, the receivables come down in Vehicle Finance. What you see in the first half of this year to maintain the same level and the operating efficiency associated with that has improved. We are doing the best we can to deliver the Vehicle Finance lending, with improved efficiency.

[Ian McLaughlin, CEO at Vanquis]

Yep. Okay. Gary, to your third question, look, you've got as much history with this business as anyone, and more than I do. Installment lending, I mentioned in my remarks a couple of minutes ago, we do see an opportunity and a demand in our customer base for this kind of thing. It's primarily being fulfilled by Buy Now, Pay Later. Obviously, the regulation is changing on that, therefore we are almost reacting to customer demand, but in cards, not as a standalone product. We're looking at installment options in the cards line rather than something brand new, as a product line that, as you said, may trigger some memories and some fears in people. Just to reassure on that, again, Dave, anything you want to add on that one?

[Dave Watts, CFO at Vanquis]

Only to add that it's continued to meet the needs of our customer.

[Ian McLaughlin, CEO at Vanquis]

Yeah.

[Dave Watts, CFO at Vanquis]

Simple as that.

[Ian McLaughlin, CEO at Vanquis]

Yeah.

[Gary Greenwood, Analyst at Shore Capital]

Would that be used more for customers that are finding the environment a bit more challenging and therefore an installment products may be a better option in terms of managing their exposure? Or is it just for, would it be for all customers?

[Ian McLaughlin, CEO at Vanquis]

It's.

[Gary Greenwood, Analyst at Shore Capital]

Is it a risk management product? Or is it a growth product?

[Ian McLaughlin, CEO at Vanquis]

Yeah. It's a reaction, as we said, to the customer demand. If someone is in a store and has an option of the store credit or that we could offer a similar installment product in our cards. We'd rather them spend the money on the card. We understand they like the idea of installment, it's very much in that space, Gary, that we're looking at.

[Gary Greenwood, Analyst at Shore Capital]

All right. Okay. Understood. Thanks very much.

[Ian McLaughlin, CEO at Vanquis]

Great. Thank you Gary.

[Dave Watts, CFO at Vanquis]

Thank you Gary.

[Operator]

As a reminder, to ask a question, please press star followed by one on your telephone keypad now. The next question is from Harry Macmillan from Berenberg. Your line is now open.

[Ian McLaughlin, CEO at Vanquis]

Morning, Harry.

[Dave Watts, CFO at Vanquis]

Morning, Harry.

[Harry Macmillan, Analyst at Berenberg]

Morning. Two from me, if I may. First one, just good to see the book growth in Second Charge Mortgages in the half. I was just wondering, could you elaborate on some of the competitive pressures that you're seeing in this division, and how you expect it to impact book growth and yields going forward? On the second one, just wanted to ask, is there any danger that length and maturity of two years per Balance Transfers customer or 3.5 years per Credit Cards customer is pushed out? If so, are there any mitigating actions that you can take? Thank you.

[Ian McLaughlin, CEO at Vanquis]

Thank you, Harry. I'll take the first one then maybe Dave, if you want to take the second one about the maturity period. Look, Second Charge Mortgages growth, Second Charge Mortgages has been a great growth story for us. We started this around two years ago, and we're over GBP 800 million of a book now, with our two forward flow providers that are long-term agreements. We really like this market. It fits very much to our purpose. We are seeing somewhere between 80% and 85% of the customers that take out a Second Charge Mortgages are using it for total or partial debt consolidation. This is people using a product that we support, to rearrange their finances and to give themselves some breathing room, and I think that's a really healthy thing. We are seeing that market grow considerably. It's sort of growing exponentially almost.

[Ian McLaughlin, CEO at Vanquis]

It's higher growth this year, I think about 27% up year-on-year. We are growing in a growing market. We've got substantial market share now between our two forward flow providers and the business is running at a steady beat, as I mentioned, of about GBP 30 million a month. That's all good and we like that. I think your question there was around, there's a little bit of impact on yield that you can see coming through, and that's sort of natural. I've said in presentations before that when we stand up and say, "Hey, look, you can grow GBP 800 million in a relatively short period of time," of course, our competitors are going to react to that and go, "Well, that looks like a great idea. Maybe we should do that, too." We are seeing a little bit more of that, but not substantially.

[Ian McLaughlin, CEO at Vanquis]

We're very confident that we can hold our share, because where we differentiate isn't actually on price and yield, it's on the service, and the proposition to the mortgage brokers that specialize in this market, and that's much harder to replicate if you're coming into a market reactively rather than in a very considered way as we did. We're feeling pretty good about that. Of course, like all our asset products, we watch carefully, but so far so good. It's performing very well. Again, Dave, anything you want to add?

[Dave Watts, CFO at Vanquis]

Just two points. From a returns perspective, it clears our mid-teens ROTE target. Secondly, as I mentioned earlier, we've only had one customer written off, and the cost of risk is very low.

[Ian McLaughlin, CEO at Vanquis]

Yeah. Okay. If I turn to your second question then, Dave, do you want to pick that one up on the could you see the return profile go out?

[Dave Watts, CFO at Vanquis]

Yeah. Clearly, we look for all our products and we've given a nice synopsis of a Balance Transfer and a Credit Builder. Within the Balance Transfers, there's different Balance Transfer products there. This is an illustrated example in place there. To date, we haven't seen any sort of pushing out on those return horizons from there. We're comfortable with what we've got at the moment, and that's the basis which we're pricing our products on.

[Ian McLaughlin, CEO at Vanquis]

Thank you, Harry.

[Harry Macmillan, Analyst at Berenberg]

Great. Thank you both.

[Operator]

As a final reminder, to ask any further questions, please press star one on your telephone keypad now. It appears we have no further questions, I'd like to hand back to the management team for closing remarks.

[Ian McLaughlin, CEO at Vanquis]

Should we maybe go to any questions on.

[Company Representative at Vanquis]

Yeah. There are a few questions on the website, or the webcast, I should say. Let me take those. There's two from Ross Luckman from Peel Hunt, related to the Credit Card business and really an extension from Harry's second question there. First one being, what is the broad split of the front book growth between Balance Transfers and the Credit Builder Cards, and have you seen competition responding to the evolving environment? Is there increased competition for new customers in these areas? Secondly, again, related to Credit Cards, how, if at all, does the change in customer behavior on the back book change the medium-term growth opportunity and the earnings potential for the business? I suppose that's a question around what we're assuming around the back book in our guidance.

[Ian McLaughlin, CEO at Vanquis]

Yeah. Okay. Look, Dave, maybe I'll come to you on that first one in terms of what we're seeing, split in terms of BTs and Credit Builder in terms of the new business flow.

[Dave Watts, CFO at Vanquis]

It's broadly 50/50 on new business coming through in between the BTs and the Credit Builder.

[Ian McLaughlin, CEO at Vanquis]

Yeah. Good. Look, to the broader question about are we seeing any change in competition in cards? Is there anything that we're seeing in the back book? I think nothing other than what we've already described in the remarks that we've made so far. It's a really interesting one, this back book spend. As I said, I want to reemphasize and be very clear, our active cards customers are spending more with us. I gave you that stat of they're up 10%, our relevant peer group is -1. We are winning, but not as much as we'd assumed when we originally did the plan a couple of years ago. That is quite a change and we're planning on the basis that those behaviors continue through the plan period to the end of 2027. We're not expecting them to worsen.

[Ian McLaughlin, CEO at Vanquis]

We're not expecting them to miraculously turn around and improve. Obviously, if anything changes, we will come back and let you know. I think I would make the point that normally in a business like this, where you're dealing with less prime customers, your worry is at the other end of the spectrum, which is your expected credit losses and are things going bad. Actually, what we're seeing is that the support that we're giving to our customers to help them improve their financial resilience and their sensible approach to uncertainty is to spend less, save a little bit more, and create a bit of headroom. I think over time that will turn out to be very positive, but it obviously has an impact in the plan assumptions that we had on back book retail spend in the short term.

[Ian McLaughlin, CEO at Vanquis]

That's why bringing more of those type of customers in is actually a very good thing as they season and mature, but it does take longer for them to season and mature than if it was the existing customers spending. There's a really interesting dynamic here, but we obviously have to change our planning and drive a different way of getting to our end result. We're not seeing any issue with getting to the end result. As Dave described, all of the business that we're writing across all three products hurdles. Eventually, if it hurdles mid-teens ROTE as it comes in, eventually you get to mid-teens ROTE. The question is how quickly, and that's what this moderated consumer confidence has eased us back on as we change the mix. Just to reiterate some of my remarks earlier. Again, Dave, anything you want to add?

[Dave Watts, CFO at Vanquis]

Just a couple of points. We will always react to how our customers' behavior changes over a period of time. That's the most appropriate way to run a business, and hence, as Ian said, we're planning our business on that basis there. As we've talked about in previous presentation, there's a big underserved market out there, which we need to go and serve more into. There is the actual demand for the products we're offering in the Credit Card business.

[Ian McLaughlin, CEO at Vanquis]

Yeah.

[Company Representative at Vanquis]

Thank you both. The final question on the webcast is very much around the macro. Essentially, they're suggesting that would you agree that this seems to be an inflection point for Vanquis and, in fact, Vanquis should benefit from a weaker economy in the long term, but the extent of the U.K. weakness and uncertainty, that we've seen, I suppose, referring to the dynamics around Credit Card spending of our existing customers, has outweighed that. Once the U.K. recovery starts, that should be a win-win for us? I suppose some comments on that would be helpful.

[Ian McLaughlin, CEO at Vanquis]

Yeah. I mean, I sort of covered it in my previous answer, I think we are being sensible here. Some things have not worked quite in line with our original plan assumptions. As I said, we are growing. We're just not growing quite as much in that cards back book as we'd originally planned, therefore, we are reacting to put a different plan in place that still gets us to our destination. Look, our experience, I think, in our careers, never mind just with Vanquis, is you always learn more when things don't go quite the way you planned. That's the time for cool heads, sharp pencils, resilience, and kind of working out, okay, if that's changed, how do we still get to the destination that we want to get to? That's exactly the process that we're going through.

[Ian McLaughlin, CEO at Vanquis]

I think the underlying question in what you've read out, James, is are we expecting to get a win from the U.K. economy? That would be great if it happens, actually, we're planning on a very sensible basis on what we factually can see at the minute, assuming that persists over this period. Therefore, reacting to make sure that we can still deliver what we want to deliver, albeit in a different way, by bringing more new customers in with that delay in profitability curve that we've already talked about. David, I don't know if you want to add any more there.

[Dave Watts, CFO at Vanquis]

I think I'd add is we've called out the GBP 8.5 million macro adjustment for the IFRS provisioning accounting. It is provisioning accounting under IFRS 9, we can't change that. Clearly, if you get an outlook for unemployment that improves from the peak forecast of 5.7% at the moment, you get a natural unwind of that over a period of time.

[Ian McLaughlin, CEO at Vanquis]

The final point I'd make, just to come back on that again, is don't underestimate the Board's intention on dividend that we've announced as well. I think that's a really important signal that both the board and management remain absolutely confident that we can get to where we want to get to. It's just the shape of how we're going to get there needs to change a bit to react to those two headwinds that I've spent a lot of time describing. I think that's a very important point to end on. Yeah.

[Company Representative at Vanquis]

Yep. No further questions on the webcast. Ian, back to you to close.

[Ian McLaughlin, CEO at Vanquis]

Okay. Look, I think that's hopefully been helpful to give you a bit of context around what's happened, why it's happened, what's within our control directly, what is more market related, and most importantly, as a relatively experienced, hopefully, management team, what are we going to do about it. We have a plan that takes us forward. We have a really committed team that if you look below the level of the headlines from this morning, there are some great things being delivered that will absolutely underpin the success of this business. That's what we need to focus on going forward. If things get easier, great, but actually, we're planning for things to stay as they are and still achieve our goals. I think that's the key message for today. Dave, you want to say anything?

[Dave Watts, CFO at Vanquis]

No. Thank you.

[Ian McLaughlin, CEO at Vanquis]

Okay. Thank you all very much for your attention. We look forward to seeing you on the road. Thank you.

Participants

Analysts

• Ian McLaughlin, CEO at Vanquis
• Dave Watts, CFO at Vanquis
• Abid Hussain, Analyst at Panmure Liberum
• Gary Greenwood, Analyst at Shore Capital
• Harry Macmillan, Analyst at Berenberg
• Company Representative at Vanquis