Vanquis Banking : Moneybarn NO.1 Limited Annual Report and Financial Statements for 2023

MONEYBARN NO.1 LIMITED (Company Number 04496573)

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

MONEYBARN NO.1 LIMITED (Company Number 04496573)

CONTENTS

	Page
Directors' report	1
Strategic report	3
Statement of directors' responsibilities	15
Independent auditor's report to the members of Moneybarn No.1 Limited	16
Statement of comprehensive income	20
Balance sheet	21
Statement of changes in shareholders' equity	22
Statement of cash flows	23
Statement of accounting policies	24
Financial and capital risk management	31
Notes to the financial statements	33

MONEYBARN NO.1 LIMITED (Company Number 04496573)

DIRECTORS REPORT

Moneybarn No.1 Limited (the 'Company') is part of Vanquis Banking Group plc. Vanquis Banking Group plc is a public limited company, listed on the London Stock Exchange, which, together with its subsidiaries, forms the Vanquis Banking Group (the 'Group'). The immediate parent undertaking of the Company is Moneybarn Group Limited.

The following provisions, which the directors are required to report in the Directors' report, have been included in the Strategic report:

• how the directors have engaged with colleagues, how they have had regard to colleague interests and the effect of that regard, including on the principal decision taken by the Company in the financial year (page 9); and,
• how the directors have had regard to the need to foster the Company's business relationship with suppliers, customers and others, and the effect of that regard, including on the principal decision taken by the Company in the financial year (pages 7 to 13).

Principal activities

The principal activity of the Company is the provision of finance for the purchase of motor vehicles by individuals via conditional sale agreements.

Results

The Statement of comprehensive income for the year is set out on page 20. The profit for the year of £18.5m (2022: £11.2m) has been added to retained earnings. The key drivers for the increase in profit in the current year have been considered in the Business review within the Strategic report.

Dividends

The directors do not recommend the payment of a dividend in respect of the year ended 31 December 2023 (2022: £nil).

Directors

The directors of the Company during the year ended 31 December 2023, all of whom were directors for the whole year then ended and to the date of this report, except where stated, were:

M Le May	(resigned 1 August 2023)
D Shrimpton-Davis	(resigned 30	November 2023)
N Kapur	(resigned 7 August 2023)
C Anderson	(resigned 30	November 2023)
I McLaughlin	(appointed 1	August 2023)
D Watts	(appointed 30	November 2023)
G Cronin	(appointed 30	November 2023)
P Estlin	(appointed 23	January 2024)

The Company has made qualifying third-party indemnity provisions for the benefit of its Directors which were in place during the year and remain in force at the date of this report. The Company maintains directors' and officers' liability insurance for its Directors and officers.

Climate change

A climate-related financial report is included in the Group's Annual Report and Financial Statements 2023 on pages 19 to 28 which includes:

• scope 1 and 2 greenhouse gas (GHG) emissions in tonnes of carbon dioxide equivalent;
• GHG emissions which related to material scope 3 categories in tonnes of carbon dioxide equivalent;
• compliance with four recommendations and eleven recommended disclosures of the Taskforce on
  Climate related financial disclosures ("TCFD");
• a relevant intensity ratio (i.e. kilograms of carbon dioxide equivalent per customer); and
• information on underlying energy use for 2023.

The disclosures are produced in accordance with the UK Government's Streamlined Energy and Carbon Reporting (SECR) policy that has been implemented through the Companies (Directors' Report) and Limited Liability Partnership (Energy and Carbon Report) Regulations 2018. This disclosure covers the greenhouse gas emissions and energy use for the Group and its operating divisions incorporating the Company.

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MONEYBARN NO.1 LIMITED (Company Number 04496573)

DIRECTORS REPORT (CONTINUED)

Climate change (continued)

In addition, by including a climate-related financial report in the Group's Annual Report and Financial Statements 2023 that is fully consistent with the four pillars and eleven recommended disclosures of the TCFD, the Group complies with the FCA's Listing Rule 9.8.6R(8) and meets the requirements of the Climate- related Financial Disclosure (CFD) Regulations 2022 and the UK Companies Act (that is, sections 414CB(2A)(a to h).

Financial risk management

The financial and capital risk management reports of the Company are set out on pages 31 to 32.

Auditor information

In accordance with section 418 of the Companies Act 2006, each person who is a director at the date of this report confirmed that:

1. so far as the director is aware, there is no relevant audit information of which the Company's auditor is unaware; and
2. the directors have taken all reasonable steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Auditor

Deloitte LLP will continue as auditor to the Company for the next financial year.

Approved by the Board and signed on behalf of the Board by:

1. McLaughlin Director
   23 April 2024

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MONEYBARN NO.1 LIMITED (Company Number 04496573)

STRATEGIC REPORT

Business review

Moneybarn No.1 Limited (the 'Company') is one of the leading suppliers of vehicle finance to non-prime customers in the United Kingdom. For the year ended 31 December 2023, the Company generated profit before tax of £24.2m (2022: £13.8m).

The following are considered the Company's key performance indicators:

Key Performance Indicators (KPIs)*	2023	2022
		(restated)
Asset yield	19.4%	21.4%
Cost of risk	1.9%	6.2%

*Certain alternative performance measures (APMs) have been used in this report. Please refer to page 4 for further detail.

The Company is an expert in helping customers to access finance when they might have struggled to get approval from mainstream lenders. Our customers represent one in five of UK adults who have a poor credit history but need a reliable car, motorbike or van to suit their lifestyle and financial situation. The core product offered by the Company is a Conditional Sale Agreement, which is a type of vehicle finance that helps spread the cost of a used vehicle over time, instead of paying for it all upfront. This is different to the other types of vehicle finance, like Hire Purchase (HP) or Personal Contract Purchase (PCP), as a Conditional Sale Agreement has no additional fee to own the vehicle; once the customer has made the final repayment, they legally own the vehicle. A Conditional Sale Agreement uses a fixed APR, so monthly payments are predictable and remain the same for the duration of the agreement, which is typically between 36-60 months.

Good customer outcomes are important to the Company, and once a customer is with us, the Company is focused on helping them to achieve the best outcomes possible, whether that's simply paying their finance each month until they own their used vehicle, or for example by supporting them if they're able to settle their agreement early. The Company understands that customers may experience difficulties during their agreement, and are focused on supporting them should that happen. The Company has a range of options that allow us to help customers get back on track, or to otherwise exit the agreement in the 'best way possible'.

Total customer numbers grew 11.7% to 111,700 as of December 2023 (2022: 100,000). This has been achieved through several initiatives that have included technology investment in Moneybarn Direct, targeted retention of customers, and entry into the Personal Contract Hire market.

New customer numbers for the year were 50,800, up 20.7% from 42,100 in 2022. This has been achieved as a result of strengthened distribution and competitive pricing. The improved price competitiveness was due to our funding costs from the Group's retail deposits being comparatively lower than the wholesale funding relied upon by most of our competitors. Notably, Moneybarn Direct, our direct to customer channel, had a strong year with approvals up 82%.

Financial performance

During the year, the Company generated profit before tax of £24.2m (2022: £13.8m) and receivables at the

year end of £792.2m (2022 restated: £655.4m). Throughout the year, the Company has focused on

sustainable growth, delivering 19.5% growth in average gross receivables to £784.7m (2022: £656.6m), with deliberate action taken to moderate growth in the second half of the year to improve profitability by reducing the day one impact of IFRS 9 driven expected credit losses from new business.

Interest Income from customers increased by 8.3% to £152.3m (2022: £140.6m) delivering 19.4% annualised

asset yield (2022: 21.4%).

Net Interest Income rose by 6.4% to £113.1m (2022: £106.3m) as a result of the increase in receivables being offset by rising interest expense due to market savings rates and the UK bank base rate moving upwards, impacting the Company and Group's funding cost.

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MONEYBARN NO.1 LIMITED (Company Number 04496573)

STRATEGIC REPORT (CONTINUED)

Financial performance (continued)

Risk adjusted income increased by £32.4m to £97.9m (2022: £65.5m) benefiting from impairment reducing

£25.6m to £15.2m (2022: £40.8m). The impairment reduction reflects continuing IFRS 9 model refinements

and recalibration leading to an impairment provision release of £47.0m in 2023 (2022: £0.5m), as the Company has purposefully transitioned towards the lower credit risk near prime market. This one-off impairment provision release masks higher expected losses from receivables growth (£18.1m) particularly evident during the first half of 2023. As a result, cost of risk dropped from 6.2% to 1.9%.

Operating costs rose by £22.0m (42.6%) to £73.7m (2022: £51.7m). Proactive management actions taken during the second half of 2023 has in part mitigated cost headwinds. These headwinds include inflation and heightened customer complaints. During 2023, the Company experienced elevated levels of customer compensation claims from claims management companies (CMC). The majority of these claims are speculative in nature, primarily driven by spurious CMC activity, and related to a wide range of different matters with no common theme or systematic issue, lack substance and are not upheld. However, the higher than normal volumes and reviewing them is impacting costs and the Group are therefore exploring proactive legal steps to address the situation. During the second half of the year this activity had begun to stabilise. The Company has never entered into discretionary broker commission arrangements.

The Group has continued investment in the diversification of customer propositions and the IT investment in the Gateway platform. Cost management is being embedded as a core discipline throughout the Group, and transformation cost savings remain on track.

On 3 October 2023, an additional 40 Ordinary shares of £1 each were issued and fully paid by the Company's immediate parent undertaking at a price of £0.5m per share. The Ordinary shares, which are held exclusively by the immediate parent undertaking carry full voting, dividend and capital distribution rights.

Although the Company has short-term challenges to address, a new strategy will deliver good outcomes for our customers. The next two years will be periods of restructuring for the Group with significant steps to redevelop our customer proposition and reset pricing to return to modest lending growth.

Prior year restatement

In the current year, as part of the Group's continual focus on improving the precision of its IFRS 9 impairment models, it was identified that recovery cash flows were being discounted to the date of default rather than the reporting date. This led to cash flows being discounted too heavily and therefore a higher core model impairment provision being historically recognised. In 2021, this would have resulted in an increase in the Company profit after tax of £7.5m, an increase in receivables of £9.3m and an increase in the current tax liability of £1.8m. The directors consider that a prior period restatement is appropriate and have retrospectively restated the 2022 Balance sheet which has result in an increase in receivables of £9.3m, an increase in the current tax liability of £1.8m and a corresponding increase of £7.5m through retained earnings.

Alternative performance measures (APMs)

In addition to statutory results and key performance indicators (KPIs) reported under international accounting standards as adopted by the UK, the Company provides certain alternative performance measures (APMs). These APMs are used internally by management and are also deemed helpful in understanding the Company's performance. These non-statutory measures should not be considered as replacements for IFRS measures. The definition of these non-statutory measures may not be comparable to similarly titled measures reported by other companies.

The APMs used within this report are calculated as follows:

Asset Yield

Interest income from customer receivables for the 12 months ended 31 December as a percentage of average gross receivables

Cost of risk

Impairment charges for the 12 months ended 31 December as a percentage of average gross receivables

Average gross receivables

Average of gross customer interest earning balances for the 13 months ended 31 December

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MONEYBARN NO.1 LIMITED (Company Number 04496573)

STRATEGIC REPORT (CONTINUED)

Principal risks and uncertainties and financial risk management

The Company operates a 'three lines of defence' model to articulate key accountabilities and responsibilities for managing risk and to support effective embedding of risk management across the business. The 'first line' consists of line management across the Company, who are responsible for identifying, assessing, monitoring and reporting risk within their respective areas whilst ensuring that appropriate internal controls, processes and systems are in place to deliver against business strategy and objectives. The Risk function of the Company act as the 'second line', in which the Risk Management Framework is established. This function provides independent oversight of governance, risk management and controls to ensure risks are identified, measured, managed and reported appropriately. The 'third line' consists of the Internal Audit function, which provides independent and objective assurance on the design adequacy and operational effectiveness of internal controls and overall effectiveness of the Company and Group's risk governance and risk management practices.

Credit risk

Credit risk is the principal risk faced by the Company. The possibility that customers will fail to honour their contracts and the market value of the underlying vehicle will be insufficient security to cover the customer's outstanding liabilities. To mitigate this risk, the Company has developed strong underwriting, loan to value and credit control policies, as well as an efficient disposal process.

The Risk Committee is responsible for setting credit policy. The Chief Risk Officer (CRO) is responsible for ensuring that the approach to lending is within sound risk and financial parameters and that key metrics are reviewed to ensure compliance with policy. The CRO discharges and informs this decision making through the Credit Committee. The Credit Committee meets at least 10 times a year.

The Group and Company credit quality has remained stable over the year, partly due to the strategy enhancements, improvements in credit decisioning and processes, and targeted credit tightening in response to market and regulatory changes.

Liquidity risk

Liquidity risk is the risk that the Company will have insufficient liquid resources available to fulfil its operational plans and/or to meet its financial obligations as they fall due.

The Company's Liquidity Policy is approved by the Board with day-to-day management delegated to the Treasury function which discharges and informs the decision-making through the Group and Company Asset- Liability Committee (ALCO). The ALCO meets at least 10 times per year and reports to the Board (via the Executive Committee).The ALCO is chaired by the Chief Financial Officer, the Chief Executive officer is a member and the Treasurer is deputy chair.

In January 2024, the FCA announced that it intends to review how motor finance firms have implemented a ban, originally introduced back in 2021, on discretionary (variable) commission levels. This announcement does not impact the Company directly. The Company do not pay, and have not paid historically, discretionary commission on our products.

Information on the management of specific financial risks including credit, market, liquidity, interest rate, and capital risks is provided on pages 31 to 32.

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MONEYBARN NO.1 LIMITED (Company Number 04496573)

STRATEGIC REPORT (CONTINUED)

Statement regarding section 172 of the Companies Act 2006

The directors have acted in a way that they considered, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, having regard to the matters set out in section 172(a) - (f) of the Companies Act 2006.

The Board met during the reporting period and received regular updates from management on engagement activities with the Company's key stakeholders including regulators, customers and colleagues. The Board is composed of three directors, all of whom are directors of the ultimate parent company which provides direct investor engagement and ensures that investors' views are considered during the Board's discussion and decisions.

Our purpose, as part of the Vanquis Banking Group, is predicated on our customers and is underpinned by a number of strategic themes and values. These aim to deliver an appropriate balance between the needs of our customers, our regulators, investors and our employees, in order to ensure that we are successful and sustainable for all of our stakeholders. Our stakeholders are individuals or groups who have an interest in, or are affected by, the activities of our business; our key stakeholders are set out in the table below. We seek to engage with them regularly to ensure that we are aware of their views and concerns with regard to a wide range of issues and we do this in a number of ways, as detailed in the below table. By balancing the interests of our stakeholders, lending responsibly, contributing to wider society and ensuring the appropriate corporate governance arrangements are in place, we can maintain a reputation for high standards of business conduct. You can read about how we have generated and preserved value over the long term in the Strategic report.

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MONEYBARN NO.1 LIMITED (Company Number 04496573)

STRATEGIC REPORT (CONTINUED)

Our Stakeholders	How? (How management	What? (What were the key	Key outcomes and actions
and why we	and/or directors engaged with	topics of engagement and	(What was the impact of the
engage with them	and considered our	consideration)	engagement and/or
	stakeholders)			consideration?)
Our Customers	• Utilising a wide variety of	•	Supporting customers	•	Enhanced forbearance
We engage with our		customer engagement		through the cost of living		measures to support
	methods including, third		crisis, including		customers through the cost-
customers to		party research, and		forbearance measures		of-living crisis and Board-level
determine whether
	complaints monitoring	•	Customer affordability,		oversight over the impact of
we are delivering
• Customer call listening by		vulnerability and		the crisis on our customers
our business		•
	the Group's Customer,		persistent debt	Management and Board
activities in
	Culture and Ethics	•	Customer outcomes		oversight of customer
accordance with our
	Committee which was fed		aligned with the FCA		complaints operations,
purpose and
	back to the Company		Consumer Duty		outcomes, strategy and
ensuring that we
•	Monitoring performance	•	Customer satisfaction,		vulnerable customers
deliver good	•
outcomes for them		against good customer		service level agreements,	Board approved an
throughout their		outcomes		care, service and		operational outsourcing
journey with us.	•	Considering the customer		complaints		arrangement with
Our customers'		experience, customer	• Policy suite including, but		Teleperformance to improve
	journeys and outcomes		not limited to, Anti Money		the quality of service provided
interests include	•	Designing and		Laundering ('AML'), Data		to our customers
access to affordable		implementing policies that		Protection, Complaints	• Partnership with Leasoo for
vehicle finance that		protect and support		Handling, Forbearance,		brand new vehicles via
meet their needs as
	customers		Collections, Vulnerable		personal contract hire
well as high quality
• Management reports to the		Customers and Financial
service.
	Board on the above		Promotions
		•
		methods of engagement	Continued partnership
		and the outcomes of such		with Stepchange
		engagement	•	Access to electronic
				vehicles

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MONEYBARN NO.1 LIMITED (Company Number 04496573)

STRATEGIC REPORT (CONTINUED)

Our Stakeholders	How? (How management	What? (What were the key	Key outcomes and actions
and why we	and/or directors engaged with	topics of engagement and	(What was the impact of the
engage with them	and considered our	consideration)	engagement and/or
	stakeholders)			consideration?)
Our shareholder	• Two of the Company	•	Strategy and long-term	•	Business model aligned with
The Company is a	Directors are members of		value creation	•	the Group's purpose
the Group Executive	• Culture and The Vanquis	Board-level oversight over the
wholly owned	Committee		Way values		Group Risk Policy Taxonomy,
subsidiary of	• Financial reporting, strategy	•	Financial and operational		Group Risk System and
Moneybarn Group	and common accounting		performance		Group Enterprise Risk
Limited, whose			Management function to
principles are utilised across	•	Harmonisation of risk
ultimate parent is		ensure a consistent approach
the Group to provide		management to provide a
Vanquis Banking			to risk management across
alignment		consistent and integrated
Group plc, and as			the Group
• The Budget and financial		approach to managing risk
such it is of		•	Group Board and Company
plan are developed as part		across the Group
paramount			Board refreshed their
importance that the	of the wider Group process	•	Corporate governance		corporate governance
Group is kept	• The Group has an aligned		arrangements and		framework to support effective
updated on the	corporate governance		alignment		decision-making, oversight
Company's	framework and structure and	•	Corporate responsibility		and accountability
progress in	Group wide Delegated	•	Interactions with the	•	Board approved intra-group
delivering the	Authorities Matrix		regulators		funding arrangements to
Group's shared	• The Group has a centralised	• Consideration of credit risk		provide more cost-efficient
purpose, its budget,	Corporate Responsibility		and lending policy in the		funding across the Group
its strategy,		•
team and a Group-wide		macro-economic	Input into the Group's Internal
governance, and
approach to Corporate		environment, specifically		Capital Adequacy Assessment
culture. Direct and
Social Responsibility.		arising from the cost-of-		Process
regular engagement		•
• Participating in the Group's		living crisis during the year	Board and Group Board
with our
		approved budget and
capital funding plan and	•	Operational Resilience
shareholder
	operational plan
ensures that the	contributing to the	• ICAAP and ILAAP process
•	Board governance manual
strenghtening of the Group's
Company has a		input		and aligned delegated
clear understanding	capital, liquidity and funding	•	Intragroup funding
of its role as part of	structure.		arrangements		authorities matrix
the Group.		•	Market and competitor
Our ultimate			landscape
shareholders'
interests include
return on
investment, long-
term growth and
good ESG
performance.

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