Earnings Call: H1 2018

May 15, 2018

Okay. I think we're ready to start. We're all good. Okay. Good morning, everyone, in London, obviously, and good evening to those of you joining our webcast from Australia, and welcome to CYBG's interim results presentation for 2018. I think you'll be pleased to know that our objective today is to limit the presentation to 30 minutes. I will briefly take you through our strategic process, and then Iain will talk through the detailed financial performance. So if you just look at the headlines, I think as will be evident from this, we continue to execute on the strategy we've outlined. I'm happy this is a somebody asked me earlier. I'm happy with the progress we've made in the transformation plan, and we are where I hoped we'd be at this stage. And that being said, we still have a lot to do, of course, but I have a lot of confidence in the momentum we have in particular and in our people. You would have seen we've also taken specific action significant action indeed on our legacy conduct matters during the first half, and Ian will cover some of that in more detail Later. The important factor for me is we've grown at 5% from an annualized lending growth perspective, And we have a 6% reduction in our costincome ratio to 64% and then have generated on the back of that 27 basis points of underlying capital in the 1st 6 months. And as a result of that, our underlying profit has increased by 28% to 158,000,000 The underlying ROTE has also improved to 10.6%, but just to be clear, after adjusting for a prior year tax correction, the comparable rate to look at is 8.7 And that still represents a significant year on year improvement in our performance. I will come back at the end of the presentation today To touch on the longer term potential in Open Banking, but just a small amount on that. Then our SME franchise and then the opportunities from the RBS, The alternative remedies package, as they call it. But before I get into any of those, let me hand you over to Iain, who will take you through the details. Thanks, David, and good morning, everyone. It's nice to see some of the usual friendly faces out there today, and good evening to those following this from Australia. I'm very pleased to be able to report a 28% increase in underlying PBT compared to the first half of twenty seventeen, and we continue to deliver improved business performance. Key contributors to the profit growth were increased net interest income, commensurate with growth in our balance sheet costs, 7% down, half on half. And once again, a very low cost of risk. In terms of KPIs, our net interest margin was 2 18 basis points, In line with our guidance of circa 2 20 basis points and a little ahead of the Q1 figure. We continue to improve the cost Income ratio, which now stands at 64%. As David mentioned, our underlying RoTE at 10.6% was flattered by an unusually low tax charge, Which included a substantial prior year adjustment. That prior year adjustment was £26,000,000 relates to the revaluation of The deferred tax asset for losses following a change in tax legislation. Applying a more normalized rate of tax, the RoTE would be 8.7%. I think you'll get us a decent increase building on the progress we made last year. Now before I move off this page, A few words on noninterest income as we don't cover it elsewhere. The income performance across our key business lines was pretty solid And broadly flat half on half. The headline reduction that you see here was caused by a couple of charges being taken against the noninterest income line. And the main one was the cost of our £250 incentive in our successful personal current account recruitment campaign in October 2017, And that recruited far more accounts than we had expected. We were diluted applications, and the 25,000 new customers The qualified to receive the incentive costed us £6,300,000 and that was taken against the noninterest income. Now it's a very successful campaign, particularly in terms of attracting our target segment of younger, more affluent customers And with a good geographical dispersion, we're very much part of our test and learn approach to marketing and PCA acquisition. And we'll review whether it's something that we do again. There are a lot of competing incentive offers out there. So as I say, learned a great deal from it, but It was taken against the OOI line. The key takeaway here is that core income performance is solid half on half. Turning to statutory earnings. You're familiar by now with what we exclude from underlying profit. And clearly, the main item here is legacy conduct. You'll recognize the bulk of the P and L charge, euros 202,000,000 that relates to PPI, which we announced a month ago. The other £18,000,000 relates to a small basket of non PPI issues, most of which are being closed out. These are legacy issues, But the impact is much greater than in previous periods because now we bear the full cost, whereas now it used to pick up 90%. So other than PPI, We're not materially exposed to legacy conduct issues. The deposit machine continues to tick along nicely. The balance is growing across all three of our product sets. Our standout contributor in retail is our baby, Bee, who will be 2 years old shortly. Bee's attracted over 170,000 customers with €1,600,000,000 of deposits and great customer satisfaction scores. David's going to talk a bit later about what's to come in terms of new B related capability, so I shan't steal his thunder. But it's not just a retail story. My SME colleagues wouldn't thank me if I didn't mention the contribution of the SME franchise to our liabilities mix, And we've seen continued growth in our low cost SME deposit base. Now I've said consistently that getting the volume and mix of deposits Right is key to margin management in an environment where retail asset pricing remains super competitive. Our blended average cost of deposits in the half ticked up slightly compared to the previous 6 months. And the increase Relates primarily to the base rate bump in November last year where we increased some customer rates. There's also a slightly richer mix than we planned for. But overall, I'm going to say that we stuck to our promise of blended cost of deposits staying flat. On wholesale funding, Nothing much to say there other than we closed out TFS drawings where we plan to be, and it's only 7% of our lending balances. We're seeing good asset growth in the first half across all three of our asset classes. Mortgages started the year with a great tailwind from a healthy pipeline. Things slowed a little as we got further into 2018, More on that later. But we've still grown at twice the market. And there have been no big changes in the type of business we've been doing compared to the previous 6 months, Right across purchase, remortgage, buy to let and first time buyer. I guess I'd say we've observed a slight reduction in the buy to let proportion of our new business Compared to the second half of twenty seventeen, but the other categories have picked up the slack. In the half, SME maintained pace On origination, so that's new facilities granted and also on drawdowns. But attrition, which can be quite lumpy, as you know, was lower in the second quarter. As a result, core SME balances grew by 5% annualized. The business we're writing in that space continues to be well dispersed across the real economy, And we're doing well in a market with slightly subdued demand for credit. Now despite what the bar chart appears to show, Retail unsecured really has grown 5% annualized. We've seen modest growth in personal loans balances, Offset by small reduction in credit cards. Now we've always said that while the PL market remained competitive and we lack capability, We'd be circumspect about growing in that space. So while the market might not be much better, we certainly are. We started to build a little bit of momentum in PLs in the second half of twenty seventeen, mainly when we sorted out our Smart Search capability for aggregator sites. And in the first half of twenty eighteen, we saw the introduction of in app purchase functionality. So customers that are pre assessed for creditworthiness Can now secure a loan at the click of a mouse. Our average personal loan front book pricing in the half It was 6.2%, down from 7% in the previous 6 months, reflecting the competitive market. Our net interest margin was 2 18 basis points, as I said, in line with our guidance of circa 2020. When we set out our guidance 6 months ago, it was in the context of flagging a step down in margin compared to 2016 2017 because of continued pressure On retail asset pricing. To recap, we said we'd see lower retail yields, flat SME and flat deposits. So I've already covered what's been happening in deposit costs and front book yields in retail unsecured. I thought it might be helpful to make some remarks about what's going on From a yield perspective in our 2 largest portfolios and really do something rather than a mechanical step through of a NIM waterfall. And I guess, for me, the point is that this is not just about what's happening to front book pricing or swap or LIBOR rates. The basis So comparison is first half of twenty eighteen versus first half twenty seventeen. And I'll talk a little bit about how average yields have changed this year compared to last. So the average customer rate on mortgages is down 19 basis points. The base rate increase in November Gave us 4 or 5 bps to play with. But this was offset by mix changes, principally a tick down in SVR And rate reductions as more of the book has moved over the last couple of years to lower fixed rates. The bulk of the net reduction is, therefore, Customer pricing in the competitive market, and I'm sure that won't surprise anybody. Conversely, We've seen a 17 basis point improvement in SME yields. Now much of this is rate related. Our SME lending is base and LIBOR linked. So really, around about 13 basis points of the increase is driven by rates, and about 4 basis points relates to improvements in customer mix And pricing. So I guess the key question is where do we go from here? We're not expecting to see big changes in SME rates or deposit costs over the next 6 months, And that helps to underpin our NIM guidance. And so in that respect, it's really all about mortgages. Now margin management in mortgage business has been challenging over the last year, 1.5 years. The vast majority of business This is fixed rate. An overall increase in yields across the swap curve haven't been passed on in customer pricing. And we'll continue to look To achieve the right balance between margin and volume. And indeed, over the last 6 months, we flexed our pricing at times really to try and preserve as much margin as we can. Going forward, we expect the mortgage market to remain competitive, but we're confident that a combination of our range and our propositions means that we should be able to balance Growth and margin considerations. Accordingly, we're happy to reiterate our overall NIM guidance of around 220 bps for the year. We're really pleased with the progress we made on cost In this half, we've been tracking down half on half over the last two years, and the initiatives we landed in the first half of FY 'eighteen Allow us to improve our guidance for the full year. Now in terms of what we've been doing on the cost front, it's a similar picture to what we showed 6 months ago, But we've banked a further £30,000,000 of run rate savings delivered across all four buckets of our key initiatives, and that adds up to £120,000,000 Of gross run rate savings so far for the program as a whole. The biggest contributors were network efficiency, Where we continue to benefit from sorting out our branch network and central cost management. And that's principally procurement savings, both in the investment space And in terms of 3rd party services. Now I've said previously that the last lap on the cost savings program is the hardest, So we have a clear line of sight to achieving our goal of more than £100,000,000 of sustainable net cost savings. So we previously guided to below £650,000,000 for this year. We're now confident that we'll do better than that and deliver a cost outturn below £640,000,000 for FY 'eighteen. And you'll GBP 640,000,000 for FY 'eighteen. And you'll notice that's getting dangerously close to the below GBP 630,000,000 The absolute target that we set for the end of 2019 back at our Capital Markets Day. Asset quality remains stable. Our CRO won't let me say pristine. I think that's because he's worried there'd be some sort of curse. But anyway, our credit performance was very strong. And once again, we've seen a very low cost of risk at 13 basis points. So this slide shows a very solid picture at top of bank and also across our 3 key asset classes. I think the only thing to call out here is that the SME cost of risk has settled down after a couple of larger specific provisions in the second half of FY 'seventeen. And that lumpiness is always going to be a feature of credit in SME land. In terms of asset quality measures other than cost of risk, All of the key portfolio metrics, such as impaired asset levels, are either stable or improved. Of course, Those metrics are really only a snapshot of the book today in what is a very benign credit environment. And key to maintaining quality It's sticking to rigorous underwriting with clear risk appetite settings. You have to build in the asset quality upfront. And those can be quite hard to evidence with a few stats, But I'll try. In mortgages, loan to value and loan to income metrics are tracking well, with small changes attributable to mix And in the case of indexed LTV, also impacted by the slowdown in HPI in London and the Southeast. In S and E, our internal risk ratings and the probability of default splitting out of our models on the new business we're writing Are all better than the current portfolio averages. I'd be happy to spend more time waxing lyrical about credit in a benign environment, But I'm pretty sure you guys get it. And suffice to say, the book's in really good shape. Now as you're well aware from our announcement a month ago, We've taken a significant top up to PPI provisions. And this top up captured 2 things: the additional cost of closing out our Closed case remediation program. And while the cost overrun was disappointing, at least it's now possible to say we're done. And as a result, the remaining provision of GBP 367,000,000 is entirely for dealing with walk in complaints. I was trying to be a bit more helpful this time and show utilization and provisions on an all in basis with the admin costs associated to those two programs of activity. So turning to walk ins. Similar to our peers, we've seen elevated levels of complaints in the first half, really driven by Frenetic CMC activity and media coverage. The FCA advertising campaigns had some impact on volumes, But it's really the other two factors that are the main drivers. Looking ahead, similar to our peers, We expect to see CMC activity abate, driven by the fee cap and limitations on cold calling that has just come into U. K. Law. We think these limitations will have a material impact on CMCs who drive the majority of our incoming walk in complaints. So our planning assumptions in setting the provision top up were that we'll see continuing high levels of complaints for the next 6 months or so, Really sort of at similar levels to the first half run rate, followed by a reduction after that out to the time bar at the end of August 2019. There are 2 other key assumptions that drive the cost of closing out PPI. We've seen a substantial reduction in the up hold rate over the last 12 months As CMC driven claims have become more speculative and of lower quality. And similarly, we've seen average redress paid come down over time as we work through the more complex, more expensive compensation claims. So I hope you'll agree that we've been clear on our assumptions. And as we've consistently guided, the key sensitivity is the level of complaint volumes going forward. And we've already seen a number of analysts estimate what that sensitivity might be, and we'll keep you updated on progress. Now I want to be clear on one other point important point of detail. Given the recent disclosures of some of our peers and some analyst comments about the read across to us, we don't have a Plevin problem. We've had to grapple with a number of issues in PPI over the years, but thankfully, PLEVIN is not one of them. Redress costs Directly related to the application of the FCA's PLEVIN rules have been less than £1,000,000 And put simply, This is because over the last couple of years, we've undertaken a full past business review of every customer and policy since 1 January 2005, And we have also remediated all 184,000 of our previously closed complaints. And in doing those two exercises, we've applied the highest standards in dealing with those complaints, including consideration of the commission levels earned. I'll spend a minute or 2 just on how the CET1 ratio has moved since September last year So our customary waterfall. Back in September, I talked about 2018 being an inflection year in terms of capital generation. With hindsight, I might wish I hadn't said it quite so loudly given what happened in PPI, but I'll stamp on that point. I argue that we'd see stronger gross capital generation. And as we put the heavy lifting phase of investment and restructuring behind us, In addition to dealing with legacy conduct, that would lead to net capital generation. And I think the signs are there. In the first half of FY 'eighteen, we saw underlying net capital generation of 27 basis points, and this compares to 13 basis points for the whole of FY 'seventeen. We're doing a lot to ourselves in order to improve the performance of the business, and I think it's making a difference. Clearly, the item that had the biggest impact on the CET1 ratio was the PPI charge we announced a month ago. And just to be clear, the 28 basis points of other CET1 absorbed, that's a mixture of things. It's got separation costs. It's got dividends. The principal item is a movement in reserves relating to a one off adjustment to deferred tax, And that's a cleanup of the NAV Indemnity. Now it's been fully utilized, and therefore, that won't recur. At 11.3 percent CET1 ratio, we continue to hold a significant buffer to both the PRA and CRD4 requirements. We show the position versus CIB 4 on the slide as we're not allowed to disclose the PRA's requirements. We've Continue to make good progress on IRB, and we thought for a while about how best do we convey that. I guess, As we said before, the PRA has been pretty open and helpful in setting out their expectations of applicants and being clear about the process that they have to go through. There are 10 modules in the evaluation process, and we've completed 8 of them. I noticed I say completed rather than passed. When we discussed this wording with the PRA, they're at pains to emphasize that it's a one Or single pass or fail decision, and that's module 9. But we've had extensive contact with the PRA over the last 2, 3 years I've submitted a great deal of evidence to them. And we're confident, based on the feedback so far, that we'll be successful. What happens after the decision in module 9 is there's a period of implementation where we'll confirm the risk rate outcomes and discuss The capital requirements with the PRA. We hope to complete Modules 9 and 10 in the second half of the year in accordance with our guidance And secure IRB accreditation for mortgages within the next 6 months. So having taken you through the performance for the first half, what do we think about the remainder of the year and beyond? 1st and foremost, we remain confident that we'll deliver on our medium term guidance, so no change there. As far as the FY 'eighteen downturn is concerned, following on from the first half performance, we're continuing to guide To a NIM of circa 2 20 basis points. I've already talked about the improvement in cost guidance, and we now expect to be below GBP 640,000,000 for the full year. There's no change to our funding approach, so the loan to deposit ratio limits remain the same. In terms of asset growth, Our SME pipeline is strong, so we expect to see more of the same in the second half. And unsecured continues to build from a low base. We've got our offering right in personal loans now, so expect to see continued measured progress. So we saw good mortgage growth in the first half results, and that was enabled by a healthy pipeline of applications coming into the year And also sterling work by our people in converting those applications. The pipeline at the start of the second half is a little less strong. The market in 2018 has been more subdued. Plenty of remortgage activity, but lower levels of new lending and competition remains pretty fierce. We've also had some challenges to deal with in our mortgage operation. In late 2017, we brought processing back onshore from India As part of our customer journey improvement initiatives, we encountered some teething troubles in the early stages with new people and processes. And that means for a period in early 2018, our broker pipeline build was lower than we'd hoped. Now this move onshore and the changes to our mortgage customer journey were absolutely the right thing to do for the long term success of our business and our growth ambitions. And I'm pleased to say that application volumes are now back on track. It does mean, though, that Q3 will be much slower than normal for balanced growth Because that's when we'll see the impact of lower applications from the start of 2018. But very much back in the saddle and expect to return to growth in the Q4. Despite this blip, we expect to be within our market guidance for mortgage growth for the year, Albeit at the lower end of the range. And more broadly, we're now in a better place to deliver our long term growth ambitions. Finally, the eagle eyed among you will have noticed that our CET1 operating range no longer appears on the page. We're currently outside that range following the conduct charge taken recently, albeit with a comfortable buffer over the reg requirements. We've consistently said that we'll revisit our CET1 operating levels after IRB, and that remains the plan. And I hope to be able to talk to you about that at the full year results in November. So that concludes my remarks, and I'll now hand you back to David. Thank you, Ian. And I'd like to just cover a couple of topics, but if I quickly turn to Open Banking. We've trailed this at the full year results, but we have continued to build out this technology at pace in order to deliver what we See it as an enhanced digital experience for our customers. Now we've talked about this a lot, but open banking has begun, But I think it will we will see a slow evolution, reflecting the industry challenges still to be overcome and also the need for To understand and build credibility and trust in the process. However, from our perspective, we're ready today. Our ID platform provides us with a market leading technology offering, and we're beginning to roll that out to our customers this month. Our vision of the future of digital, as we've described here, is to provide customers with a core offering, including our flagship B account. And as As we mentioned, 170,000 customers and 1,600,000,000 of deposits since its launch less than 2 years ago. And that low key launch, we didn't do a lot of advertising, Has achieved more success than many other neo brands. We will also launch B account aggregator as a tool at the end of this month. And then we will roll out a market leading digital offering for SMEs later this year. And in addition to that core offering, we'll supplement With a customer focused marketplace of products and services. Now these products and services will help make it easier for customers to avoid unnecessary costs, firstly, To spend less per unit, so if they're spending money, how do they spend less? And to plan and manage their finances more effectively. As you can see, We're continuing to make the progress as we've guided, and we're pretty excited about the longer term opportunities for us in Open Banking. We're in fact the only bank Outside the CMA9, we committed to meeting the deadline for Open Banking. But I think we will give you a much more fulsome update on progress, What consumers are doing and how we're delivering in the fullness of time. I thought it was also important before we close So spend a few minutes on our SME proposition and why I believe we can create a credible national competitor with the right support. And too often, people compare us to other challengers without understanding the full strength of our SME franchise. We're the only challenger bank with scale in SME, and we have a fantastic franchise in our historic heartlands. And to give you a feel for what that means, We have a 3.5% market share of business current accounts nationally, but we have a 15% share in our home markets. And if you can replicate that on a broader geographical plane, I think that's very attractive. And that demonstrates our ability to compete with the big five banks today. Also, our SME franchise is liability led. It's also relationship driven and one that contributes low cost funding to our overall franchise, not just the SME lending. The business also has multi generational relationships, very sticky, And many of the 200,000 plus customers have been with us for over 10 years. In addition, we have over 300 relationship managers who have an average 10 year of 14 years and deep sector specialism. So this isn't an easy business to win in, but that capability gives us great strength. The SME balance sheet also now is about €9,000,000,000 of low cost deposits at around 25 basis points with a lending book Of €7,400,000,000 at an average yield of 388 basis points. And the OOI yield or OOI as a percentage of lending is around 100 basis points, which is Double the overall group's yield, allowing us to drive strong OOI growth as we scale the franchise going forward. The SME business that we have also has strengths that others can't replicate easy. It's hard to build this business. These are long term relationships, sector specialisms, The risk management capability and people forget that, that's fundamentally important. And as I mentioned, we'll be adding a market dealing digital SME offering later this year. From my own perspective, since we've talked since the IPO, I'm delighted to see this business growing from strength to strength and we remain on track to deliver our 3 year published guidance of €6,000,000,000 of lending over the 3 years to 2019. Now why is that also important? If we turn to the ORBS remedies package. With this franchise in place, We think we can scale the franchise nationally by leveraging the RBS alternative remedies package. Now our initial focus It's on participating in the incentivized switching scheme and we stand ready to offer what we think is a very attractive home to customers leaving RBS. We have made a lot of progress in designing the switching and building infrastructure behind this. We have the people and the processes to ensure a smooth transition for those that switch to us. And that's fundamentally important because in order to successfully Switch and retain those SME customers, you need brand recognition, you need to be able to match their existing products and services, processes and systems. In addition, you need the risk management and relationship management experience, all of which we have today. And just to put it simply, if you don't have these products and services, You cannot meet the required competition criteria because you have nothing to switch them to. So it's fundamental. And therefore, we think There are a very limited number of competitors who have the capabilities to participate meaningfully in this scheme. We have confidence That we should be able to attract quite a sizable proportion of the 120,000 customers being switched. In addition, we are focused on Pool A, which is the capability and innovation funding, and that's the Top awards. And these top awards are not there to build a start up capability. They are there to provide the necessary resources to scale an existing Ability quickly to compete on a national basis. So our ambition, therefore, is to leverage a significant reward from Poule to accelerate our rollout and to genuinely disrupt the market on a national basis. Now clearly, it's a competitive process and therefore somewhat Out of our hands. But we will provide you with updates on the process as it unfolds. Key message there is, if you have the capabilities, you can switch. If you don't, you can't. We do have a fantastic capability, and we're hoping to leverage that with the funds to build national competition. Okay. So in summary, we recognize this is a challenging operating environment for U. K. Banks. We anticipated this when we reset our growth targets back in 2016 at our Capital Markets Day. Since then, what we focus on is We focus on executing the strategies within our control, and we are on track with the delivery of our strategic plan. As you can see from this slide, we adopt a prudent prefunding approach to our balance sheet growth and critically, we have a wide range of funding sources across retail, SME and Wholesale. We also benefit, as we described, from our loyal customer account base. We have not been a heavy user of TFS, as Iain has shown. And simply, we believe that a sustainable growth model Shouldn't be predicated on the assumption of a permanent supply of cheap government funding. We have a strong customer lending platform, both Bus SMEs, mortgages, strong capital and a scalable open banking technology that is already built and being deployed this month, today and not in years to come. So in my opinion, we're well placed to capitalize on these opportunities that we have ahead of us like The IRB accreditation, we're confident on. We have the RBS alternative remedies package, which I think we'll do very well in, and we're incredibly well positioned with Open Banking. So finally, you have listened patiently for approximately 30 minutes without me mentioning the topic, which I believe a lot of you might be interested in. But I can confirm that I'll have to sorely disappoint you given all of the restrictions imposed by the U. K. Takeover code. What I can say is what I've said publicly that I believe that a combination with Virgin Money would create the U. K. Leading challenger bank And no doubt, we'll deliver increased value for shareholders, which is one of our core criteria and would be supportive of customers in a positive way. But as you will probably be aware, I cannot and Ian and I cannot answer detailed questions on that topic today. As we've always said, our organic strategy is our primary focus. However, we do look at inorganic opportunities as they arise. But the Board will only proceed with the transaction if it is in line with our strategic objectives as stated and is in the best interest of our shareholders. As a result, Should we not conclude a transaction, it would not impact the delivery of our existing commitment to shareholders, and I can't stress that enough. With that, I I thank you for listening, and we're now happy to take any questions on our results. Thank you very much. And I think we're going to Owen, where are we going first? In the room here? Okay. We're just going to the front here, and I'll join in the chairs. Hi. Good morning. It's Ralf Sinov from JPMorgan Casanova. Can I have 3, please, all on results, if I may? Just the first one on the IRB transition. I was wondering if you'd give us some sense of where you expect the mortgage risk weighting to land now that you have Come a lot closer to the implementation period. And are there have there been any changes since the last time you gave us some disclosure Our guidance around that. The second one is around your assumption for stable deposit costs. Clearly, your TFS usage has been low, but there are a number of other banks in the market that have taken significantly higher Levels of government funding, as you called it, David. So there I guess there is an expectation that there could be strong deposit competition ahead. And could you give us some sense of how you expect that to mitigate that? And then the last one is just to understand The IT transformation ability inside CYBJ, could you tell us if you have migrated any of your existing customers On to B, we're already in the bank. How much of the 170 1,000 customers in new to bank versus existing. And also the €1,600,000,000 of deposits that B has gathered, how much of those are current accounts? Thank you. Okay. So I'll mark the two numbers ones. So on IRB and risk weighted I guess we had a couple of uncertainties when we set out our assumptions there. And the assumptions were that we would Deliver sort of $5,000,000,000 to $5,500,000,000 of RWA reductions. And critically, for the purposes of our targets, we'd assumed An average risk rate density of 20%. Nothing we've seen in our models as they've come closer to approval Have threatened those assumptions. And the other uncertainty we were looking at was the impact of the Basel III finalization And in particular, the application of risk weight floors. And again, as we've seen, the final proposals come through. They're not yet adopted, but the final proposals, again, haven't changed our assumptions in that regard. On deposit costs, I agree with you that we would expect to see a more competitive environment Certainly, over the next 2 to 3 years. Remember, our guidance is for the next 6 months. And what we've seen is A number of our competitors fill their boots ahead of the deadline. So yes, there's no question deposits get more competitive. One of the reasons that we feel good about where we are in that space is, 1st of all, mix. And that's both in terms of current account capability but also SME. And SME has been a great source of deposits for us going forward. And with With the RBS alternative remedies package, remember, this is a portfolio that is liability led. So a significant opportunity for us through switching and other mechanisms. But that ability to leverage The mix of funding and our diverse base, I think we're better placed than others to deal with the next 2 to 3 years in that regard. Sure. And if I turn to platforms, I'll be explicitly clear that I'm not commenting anything to do with Virgin when I talk about this platform. The technology capability we have, I just described as follows. We've invested $350,000,000 in the core platform and digital over the last A few years. That has gone very well. That has allowed us to create one common database for all of our customers. And we have migrated the majority of customers onto that B platform. Debbie, our CEO, would have to give specifics on the finality of some of that, Where I do know that we're staging and moving chunks of customers onto the IB platform in the SME world and the business world right now, But the majority of it's done. So if you think of this calendar year just for convenience, we will have a fully integrated platform for retail and SME and all of our customers With a fintech layer capability, plug and play for fintech and an open banking platform launched and operating in the market. So that mix It's our investment in resilience, core capabilities and then digital. And then I would add to that that we've talked before at the IPO and subsequent That we have scalability in the marketplace in terms of our or in the platform that we apply to the marketplace. So as we look to add Sort of growth in our model, we're not constrained in any way. So that's really our that's what we invested in and that's what we've delivered and that's all I can really say on that. Then B? Okay. So in terms of B, so just to clarify something David said there. When we say migrated customers onto the B platform, what we did was Replicate the B platform functionality for our Yorkshire Bank and Clydesdale Bank customers. So and Yes, they have that same capability and can use the functionality in the same way. So That's applied right across our 2,000,000 current account base. So it's just the top layer then that's been put in for the Yes, the IB microservices layer. To the extent that we've sort of moved 2,000,000 customers onto best in class Digital functionality, we've absolutely done that. In terms of our 170,000 B customers, most of those are new to bank. And The €1,600,000,000 of deposits, is that all? Most of those are new to bank. So we haven't Tively moved Yorkshire and Clydesdale customers to be. Clearly, where people make the choice, they do that. I guess what I'd A data point I can refer you back to is we talked about winning 25,000 new customers as a result of our incentive campaign. 90% of those went on to B. Sorry. And the GBP 1,600,000,000 of deposits, is that all PCAs? Or is that a mix of It's a mixture of So when we sign customs up to B, we have a current account and a savings account related to us across those two products. Thanks. We have one back here. It's Robert Sage from Macquarie. I've just got a quick question. I was sort of thinking about your sort of SME spreads because looking back, the Sort of the TFS was obviously instrumental in terms of sparking price competition in mortgages. And I was just wondering your view in terms of when the RBS alternative remedies package Comes through whether you think this could actually have some slightly negative impact competitively on pricing on SME yields. Yes. So I'll start and Iain can Follow. I think that the OBS remedies package, 120,000 customers, is going to be involving 3 or 4 players. So it's not 30 players. Now there will be some element of competition, but if those 3 or 4 players are going to win the majority of that because they have the Just in capability, then I think there is it's not a comparable universe to what we've seen in the rest. But there's no doubt will be some competition as people seek to put special offers on the table to attract that first tranche of customers. But beyond that first wave, I expect that to stabilize. Yes, sir. John, over here. Sorry, off the front there. Thank you. Three questions for myself, if I can. Just to come back to the IRB point again. So The previous guidance you issued was approximate and it was with respect to a potential reduction in the mortgage risk weighting Upon IRB migration to 20%, just trying to tie that in with a couple of things. A, your comments today around lower PDs on new business, which I appreciate is separate, but also to an extent interwoven. And B, for example, and it's nothing to do The current bid, but Virgin Money's application to get its own risk weighting and its mortgage book down from about 17%. Appreciate it's not an apples for apples comparison. It's a different model. But 20% seems rather high on that on both of those views At first glance, from my own perspective, if you could help there, that would be useful. And also, Part B of that question is in relation to the SME book. Well, you've clearly articulated that the mortgage book would be the first to move. The risk weighting on the SME book is still in excess of 100%, I believe. And it's very high in the context of the impaired loans coming down quite substantially. So anything you could say around potential for change there on a medium term view would be helpful. And secondly, just to come back to the SME growth point. And While you've clearly articulated how well you've done in your core regions historically and currently, there Does seem to be a bigger prize at stake. Even organically, how quickly could you move to expand in contiguous regions In terms of getting meaningful lending growth. And thirdly, I'm not sure how much you can say about this, but In the event that you were to migrate to IRB credit risk models in the relative near term, How likely is it that you think ignoring any possible use in acquisition currency terms, How likely is it do you think that the Peoria would be supportive in terms of an outright distribution to shareholders, particularly given what we've seen in the case of some European banks? Thank you. Okay. Shall I I'll lean in. So your first question about IRB risk rates for mortgages and related to that, PDs. I'm not going to be drawn on sort of narrowing the range other than to say we don't expect to be out of market. So because of the uncertainties associated with this, we're trying to be helpful in terms of shaping this Adopting a conservative planning assumption, certainly in terms of performance targets of 20% RWAs. And we also expressed it in terms of an absolute RWA reduction at that time. Clearly, the book's It's grown since then. So suffice to say, we don't expect to be out of the market in terms of where we end up, particularly Now we've had clarity around Basel III finalization, and that was a big uncertainty as to where people would go with output floors. The lower PD comment, John, that's really about in SME, where we've been the new business we've been putting on. And those PD models, it's relevant to your second question or no, question 1b. So those PD models are the ones that we are going to we're using in our foundation IRB application. The thing to understand about the rest of our book, and we're making good progress and going pretty quickly in terms of SME And Retail Unsecured is that net net, we'd expect to be IRB to be a fairly positive outcome for SME. That's primarily because of the levels of collateralization that we see across the book, and we'll benefit from that collateralization. The converse of that is we would expect IRB to push up average risk rates in unsecured. I think let's wait to come back to you on that as we make more progress. But progress is good in both of those spaces. SME, 100%. First, I'm saying is that I think net net on SME because of the collateralization, we'd expect Expect to go below the 100% that we're currently at. SME growth and thinking about growth outside our core regions. And David, you won't be able to resist taking that one. That means of the hospital pass. No, I think to look at it just genuinely, The €2,000,000,000 that we've been talking about, we delivered last year and we're on track to deliver this year and next year. That is not just In our heartlands, that also covers the Midlands, Birmingham, which we set up an office there and we won awards for business banking there. Coming across into the northwest, which wouldn't have been part of our heritage in Manchester. We have a business that is growing well. So all of those are growing at a good level and supporting that 2,000,000,000 We're opening up a new franchise office in flagship in Manchester, just like the one we've done in Birmingham. So If you look at that, there's a level of activity that is good, is strong and is moving into the right areas where there is significant growth potential in terms of The scale of the geography. What we're looking to do on the Williams and Glyn activity is take tens of thousands of customers from that process In those Heartland areas and also in Midland Midlands and the Northwest and then apply a leveraged or award Sums of significance to leverage that. So it's a 2 part answer. I think we are not waiting for RBS to grow our capability. We're hoping to accelerate it significantly if we do well in this process. Yes. And then to your third question, John, just about The PRA's disposition towards a distribution of capital surplus. So I the first thing we've always Thought about with this is, well, let's focus on delivering our IRB, lower risk weights and have the conversation about capital. And we sort of stayed away from or rather, our answer to what do you do with the capital surplus that might that may arise post IRB has always been about saying, well, first of all, it'd be nice to have. Secondly, It's really a conversation with shareholders about the best way to deploy that. Some of our shareholders have asked the PRA directly About whether they would stand in the way of distribution of genuine excess capital. And the PIRO said no. Now Yes. We'll cross that bridge when we come to it. But it's I suppose what we're focused on is, first of all, delivery. And then what we do with anything that comes from that is a good conversation to have down the line. Thank you. Thanks. We have 2 questions side by side over here on the right. Thank you. Guy Stebbings from Exane BNP Paribas. Two questions. The first one on the RoTE target for 2019. Presumably, that was set when you would have expected to go into 2019 with quite a higher tangible equity base Pre BPI top up, obviously, there's sensitivities around whether you could have distributed some capital before then. But presumably, your starting assumption would have been a higher would have been a higher tangible pace. So with that in mind, are you actually targeting significantly higher than a double digit RoTE target for next year? Am I reading too much into that? And then secondly, on capital and IRB, just interested to know around the timing of any ICAP work that you're doing, Stress testing related to that and how that interacts with IRB approval given the extern ratio has obviously come down quite a bit and the headroom now to your capital stack It's somewhat less. Okay. Thanks, Guy. Gosh, Guy. To be honest, we're a bit focused on making the business work. I haven't really thought about the advantage of a lower equity base. As far as the arithmetic is what it is, we've been focused on really delivering the R part of that It's ROTE equation. And I guess what I'd bring it back to is at 8.7% for the first half, Positive trajectory, both in terms of where we are with growth in the business and with costs. We're heading in the right direction, and we're probably Maybe going a little quicker than people expected us to at this stage. So We're really focused on the return part of it. I haven't genuinely really thought about the impact of a lower equity base. In terms of ICAPS, capital assessments, all those sorts of things, our conversation with the PRA is quite complicated Because on the one hand, we've got a this is a year for a capital threat for us. So there will be An assessment later in the year and that'll update the capital guidance we've had from PRA almost 2 years ago. And there's the IRB equation. And while IRB does drive lower risk weights, a lower Pillar 1 requirement, There's a discussion to be had around Pillar 2 and those kinds of things. Not for just stuff you with a capital add on, but to think about Concentration risk and other things that come into a more complex equation. So I think by the time we sit down with you guys in 6 months, we'll have Greater clarity on both of those issues. Sorry, Guy. I think, Christopher, you're going to go next. It's Chris from Autonomous. 2, if I may, please. If I could go back to Slide 12 in your deck, the PPI assumptions slide, And you've given us that sort of little schematic of what you expect to happen with the claims rate. If there's 110,000 complaints Prospectively, you've got 59,000, I think, is implied by the first dotted shape in the second half. So it'll be about 118,000 For the full year, your fiscal year to September. And then implicitly, it's dropping to about 51,000 In 2019, and I get that it's not quite a full year, but it is 11 months to the deadline. So you're going from 118,000 in 12 months to 51,000 in 11 months. I think most of your peers are probably assuming a broadly flat claims run rate out to the deadline. And I guess there's a bigger admin component in your provision than I Because I thought you'd be saying the same thing today. So why are you so confident that the claims rate will drop? I get that there's the CMC point. But as we go into the deadline, is there not a risk of some pull forwards of claims that would otherwise have gone in later periods as people try to Squeaking ahead of the deadline. It seems like a very precipitous drop in your assumed claims run rate. That would be the first question, if you could speak to that, please. And secondly, on your targets. You've reiterated your guidance for next year. Just conscious that you set a costincome target for next year rather than Just a specific cost number. And you've said that you're dangerously close to your €630,000,000 cost number for this You've just missed on revenues. Should we be expecting you to deliver your cost income target with a lower revenue base and a beat on that 6 30% number. That'll be the second question. You're now expecting lower pre provision profit in absolute terms than you were previously for 2019. Thank you. Okay. So I agree with your arithmetic on the volumes of claims. I don't think So our view is yes, we see what peers have done. We think it's appropriate to do what's right for our own situation. And I don't think the impact of CMCs on the market It can be underestimated. And similarly, I think that the new legislation is going to be helpful In that regard. About 70% of our claims activity over the last 6 months has been CMC driven. We have pretty good contacts into the CMC network, as you would expect, because we deal with them on a regular basis. The general sense in that community is that the fee cap is a bad outcome for them and their business models and We would expect to see, once the fee cap is applied, them to turn their attention elsewhere. So that's what underpins our volume assumptions. People can form different views. I think we've tried to be as helpful as we can in terms of those volumes. So I I guess that's what I'd say there. In terms of cost and cost income ratio, I go back to saying that we're not revising our guidance today. We're good at cost. We're really good at cost. And we've specified a range for costincome ratio For 18 months' time. And as I say, our reiteration of guidance means that we expect to come in that range. Thanks. Thanks. Are there more questions here? Or do we have them on the line or elsewhere? Owen? Yes. The first question comes from the line of Jarrod Mody from Credit Suisse. Please ask your question. Good morning. A couple of questions. First of all, on the RBS remedy package, could you provide a Time frame which you think the capability awards will be announced and then how you'll actually account for Those awards end in conjunction with your expense guidance. And then secondly, just on the current account incentives That you incurred in the first half, likelihood that competition will demand that you need Incentives in again, and therefore, it is a permanent step down in other operating income. Okay. Thanks, Jared. I'll pick up the first point and Iain will follow on the second. I think it's a little difficult to be precise because it is a government target That has been moving about, but I can say I can confirm they have appointed the independent body, which is going to oversee this process. So that has begun. What is likely to happen as a consequence if they move at a reasonable pace is that we would see A summer bidding for funds period, June, July hard to be exact and that you would probably see the switching begin In September, October, it really depends though on how we see the independent body get up Speed and how they move on delivering the process for this. But that's at least what the market sees as the most likely The outcome for now, but we'll keep people updated on that. And then Iain? You don't want to do the accounting question? I was going to have a go, but you might get cross. I look great. Good day, Jarrod. On the accounting, so if we were to we're successful in winning £100,000,000 That would be spent on building capability and infrastructure, So a digitally enabled SME bank. So that goes into your fixed asset base and is amortized over time. And essentially and again, my more precise finance colleagues will be holding their breath here. You amortized the grant received. And so I would expect that the amortization of the grant would offset the D and With the investments, and therefore, you're neutral from a P and L perspective. Your second question, just on PCA incentives. This generally was a sort of stick a toe in the water, and We are trying a number of approaches to attracting PCA customers at the moment. And there are a lot of banks out there offering incentives. Our incentive was, I'd say, very popular. And that Sort of paying customers to switch alongside more compelling offerings, what you might do on attractive interest rates, all those kinds of things. It's really just part of the suite of offers that we consider. So I generally don't think of this as a permanent deduction. As I say, we're thinking hard about how we attract customers going forward. And I think Our entry into the open banking environment with our partnership model, with some of the capability that we're deploying, Which is really, really strong, I think will be a powerful basis on which to attract customers. So I don't see it as a permanent Feature, but it was something we learned a lot from. And there are some people out there Take the incentive and then go somewhere else. Someone is offering another incentive, and we've seen some of those customers walk across the road to NatWest, and Good luck to them. But broadly speaking, we're going to rely on a package of measures to Thanks, Gerard. Thank you. There's more on the telephone, I think. Next question comes from the line of Pat Hennig from CLSA. Please ask your question. Hi, guys. A couple of questions from me. Firstly, can you just touch on So no dividend in the period. Can you talk about what your thoughts are on the dividend going forward and how we should think about it half on half? Or is this Really to do with the conduct charge this half. And then if we look at your growth rates So quarter on quarter, mortgages is obviously well down. And you're talking about another slowdown in the 3rd quarter. Is that going to slow down from your second half run rate? And then on deposits, deposits and there was a bit of a rounding error here, but deposits was actually negative in the Q2 and obviously had a Strong growth in the Q1 from the incentive campaign. Is that really just showing how hard it is in deposits at the moment? Okay. Good day, Ed. I'll take your questions in reverse. I'd see it differently. I'd see The deposit performance in the second quarter shows how good we are at deposits. We've got a number of levers that we deploy and flex In order to match liability gathering with assets, we had the foot Down strongly coming into FY 2018. We take the foot off the accelerator from time to Very confident that we're in good shape from a deposits perspective. Quarter on quarter growth in mortgages, Ed, I'll come back to what we said about guidance. We expect to be in the range, albeit towards the lower end for mortgages. And that's really about A single quarter blip. I mean, this was a very Isolated but impactful re onshoring or onshoring of that capability. The important thing for us is we're back in the saddle, and application volumes are where we expect them to be. So quarter 4 is normal service being resumed. And then in terms of dividend, We're really starting out on this. We have in mind in our medium term guidance that we would expect to build to a Substantial payout ratio over time. We took our first step last year. I can't remember whether we said this publicly, probably not because you'd have remembered. But we'll come back to this at the year end, and the Board will consider very carefully Where we are on dividends. But we expect to make progress over the next number of years on dividend but recognize that we're starting out It's in this process. Okay. Thank you. Thanks, Ed. We've got more Next question comes from the line of Brett Lemus Theurer from Shaw and Partners. Please ask Thanks. You said that you're getting a large benefit in your current account as a result of your marketing Ben, but when I look in your average balance sheet, I don't see a benefit there at all. I just see the current account and balances being Stable, no change from the second half twenty seventeen to the first half twenty eighteen. So why are you talking about current Well, I guess the critical stat for us is we acquired 25,000 new customers right in the sweet spot of customer acquisition. So that was the direct result of Advertising campaign. We'll see fluctuations in average balances and things like that over time. Our current account business is in good shape and It's an important part of our deposit mix. But the PCA campaign attracted 25,000 customers in a week. And so you're saying that you got more customers and lower balances. That's the conclusion, isn't it? That's maybe your conclusion, but what we've got here is a current account business that's going well. Okay. Can I ask another question? Could you tell us what the addition to capitalized software expenses was in this half? I don't have that number in front of me, but we'll get the IR guys to supply that. The change in the intangible assets It was £32,000,000 The intangible assets were equal to the capitalized software expenses in the annual report. I would presume that the answer would be close to that. Yes, you may be right, but we'll give you the number. Okay. Thanks. And lastly, You previously gave us the rate interest rate on new mortgage business, but you haven't missed time. Could you tell us what that is Well, what that was for the half? Yes. I mean, we haven't disclosed that, as you say. Our focus is on what's happening across the whole book. So Yes, we're not disclosing that at this point. Okay. Could you tell us Whether it was up or down compared to second half last year? Well, when I was talking about what was happening across the mortgage portfolio as a whole, I said that the 19 basis points reduction in the average yield across the book was related to lower Customer pricing. So I think you can take from that that we're in a competitive market where we are seeing front book rates Yes. I've gone lower in the last 6 months. And finally, just one other question. Do the rating agencies look at whether or not you get advanced accreditation on mortgages as a factor in your credit rating? Typically not, Brad. They've got their own methodologies for assessing Seeing sort of risk and capital requirements, they tend to ignore Sort of IRB basis when that they sort of almost think about it in a quasi standardized Approach. So do they think you have excess capital? They haven't really expressed a view. Okay, great. That's all the questions I have. Thank you. Thanks, Brian. Next question comes from the line of Edward Chris from KBW. Please ask the question. Yes. Good morning. Thanks very much. Just two quick questions. One was just on the intangible That number, the increase of $30,000,000 Could you just give us an idea of roughly how you expect that to progress going forward? Is there a lot more of increased investment that you I could start with question number 1. And then question number 2, if I give you them both. Just going back to Chris' question about your cost income target. I mean, you're currently at 64%, and you're targeting, well, I guess, the top end is 58%, which is, I guess, what you've got to Start that within 6 months' time in terms of delivering for the year. And certainly on my numbers, that's the only way you can get there is with a huge uptick in terms of revenue next year or a cost number that's going to be way below your target, like 610,000,000 something like that. So could you just give me some idea of how you're Thinking about that balance, certainly, is my math correct, I guess, is the first question. And secondly, how you would expect to come in on that 58? So Ed, let me on your question on investment, I guess I'd say a couple of things. What we talked about before, so what's in the market, is we're investing heavily in a couple of things that are coming to an end this year. The first is the TSA exit, so our separation from NAB. And that has been A substantial investment requirement. And then secondly, we have invested fairly heavily in the last 18 months or so was spent quite heavily on IRB. And I've given a number before in that regard, which was around about sort of 50,000,000 So the when both of those programs complete by the end of this year, the burden of investment is reduced. And that's, again, going back 6 months ago when I was talking Rent is reduced. And that's, again, going back 6 months ago when I was talking about how we move from Heavy capital absorption because of what we're investing in the business, that is what would drive net capital generation, conceptually. So that's what we said last time, and we'll stick to that. In terms of cost income So without sorry, just Without wishing to be a model, fellas, does that mean, therefore, that we should expect a further uptick towards the year end and that should be broadly it? I'm not giving guidance as to what we're going to spend in the second half of the year. Sorry, Ed. And then we're in a situation here where Yes. We've made some pretty clear disclosures, and we'll stick with them. In terms of costincome ratio and your reprise of Christopher's question, So what we're talking about here is hitting a costincome ratio target in 18 months' time and a business that is Showing revenue growth, we've explained why we the basis For the reduction in OI in this first half. So we're seeing revenue growth, and we're seeing a really good performance on cost. So I think over the next 18 months, that's we will make progress, and that is what underpins The confidence in our medium term guidance. So thanks, Ed. Okay. Next question comes from the line of Rob Nova from Please ask the question. Good morning, everyone. And just a follow-up from one of the previous questions. I'm interested in how mortgage pricing has moved in, Say the last couple of months, I see that you've put out a 99 basis point mortgage, for example. So has all of the mortgage rates come down in the last Couple of months, Paul, which direction has it gone? And then similarly, on buy to let, how has that moved as well? Obviously, a lot of your competitors have said different things in terms of mortgages She's repricing higher in the last couple of months and swap rates declining and that being a benefit. Just wondering if you've got the same thing. Thank you. Rob, It's a really mixed picture. There are some of your compatriots have asked lots of questions about our 99 basis point Mortgage offer. Suffice to say, we haven't written a lot of business at that rate. And we've got a range of product propositions. And we come in and out of the market. I realize I'm not being particularly helpful, but it is a complex picture. If I was to sort of give a gut feel, I think our experience over the last couple of months from a pricing perspective Feels a lot better than the Q1 of the year, but things can change. It's a competitive market, and things can change. And on the BioTelete space, is there anything different? Is your question about pricing or volumes or Question about pricing or volumes or what was No, pricing as well, yes. Is the pricing moved up on the viselet space Well or sorry, has it moved up in the buy to let space? Yes. I think our last pricing move was upwards in buy to let. And but it's a relatively subdued market at the moment. So in the space we play, which is The sort of noncommercial landlord type. Okay. Thank you very much. I think we have One more question and then we'll have to call time. Go ahead. Last question comes from the line of Azik Khan from Morgan Financial. Please ask your question. Thanks very much. Look, your conduct charge in the half with respect to non PPI issues was £18,000,000 How much is that related to FRTBL? What is your FRTBL provision balance as at 31 March? And in your FRTB provisioning assumptions, are you assuming a tapering off of complaints? Hi, I see. So There were sort of 5 or 6 issues included in that charge of GBP 18,000,000 As I say, in the good old days, that would have been a charge of GBP 1,800,000 And that I say that not to diminish it anyway, but to sort of say that's why it's so impactful compared to previous. A small portion of that relates to a sort of trickle of FRTBL Activity, and we are We're seeing very, very low levels of incoming complaints on FRTBLs. And so that's That's something that we feel is in a good place. In terms of what the remaining provision is, I'm looking at my IR colleagues to see if we give that If we disclose it, we'll draw your attention to it. But broadly speaking, FRTPLs is a very small item for us. Sure. And just a second question, if that's okay, and apologies if you've covered this already, but in terms of your effective tax Right. On an underlying basis, it looks to be very low in the first half at about 4%. Can you please explain what the drivers behind that were? Of course. And Again, I'm sure my IR colleagues will be happy to share how that works if I inadvertently confuse you now. So So there's 2 things in the tax charge, which coincidentally offset each other, which means on a statutory basis, we're around about 20%, Which for a bank that isn't paying surcharge on profits is the mainstream corporation tax rate. So the 2 things that are in there that offset each other is, first of all, that a good deal of conduct expenses is not tax deductible. And then we have, Going in the other direction, a tax credit for the revaluation of deferred tax Assets relating to historical losses. And coincidentally, those 2 offset each other, more or less. The trouble is when you then split between underlying and below the line items, Clearly, the nondeductible goes against your conduct and the credit goes against your underlying. So That's one of the reasons why we wanted to be very clear about what the sort of look through ROTE is. Broadly speaking, our effective tax rate at 20% is in the right place, and it is this construction of Underlying versus below the line that leads to a slight anomaly there. If I've inadvertently confused you there, the IR guys can help a bit later. Okay. Sure. And just one last question, if that's okay. With your mid single digit asset growth guidance, can you just confirm that, that doesn't take into account the incentivized switching scheme? That's correct. It does not take into account the incentivized switching scheme. As David said, Our expectation is that, that is something that is going to start later in the year. Okay. Thank you. And I think we're going to given the time has gone a little over the allocated time, and I know you have a lot to do, we're going to call it there. So thank you to everybody in Australia. Thanks, everybody, here. If there's anything left over, we'll hang around for a couple of minutes and we can follow-up. Thank you all very much. We'll close it there.