Good morning, everyone. I'm Ian McLaughlin, Chief Executive of Vanquis Banking Group. Thank you for joining our webcast today, where we'll cover our results for the first half of 2024. I'm joined by our Chief Financial Officer, Dave Watts, who I will hand over to shortly, and I've asked Dave to cover our financials in quite a degree of detail today. He's going to take you through a lot of information, but we think that will be helpful for everyone. Before we do that, I wanted to cover three key points. Firstly, to revisit the strategy that we set out back in March, and to provide an update on the progress that we've been making since then. Secondly, to cover the impact of the historic one-offs that we communicated in our market announcement on the sixteenth of July.
Finally, what this means for us now, to explain how we've been reviewing our plans to make sure we can stay on track. So firstly, on our strategy, and at the end of March, we described how we were going to transform our business and better serve our customers in line with our refreshed purpose, which you'll remember is to deliver caring banking so our customers can make the most of life's opportunities. We said we were focused on building an increasingly diversified and differentiated customer proposition and using insightful risk management to better price and therefore to provide more options for customers who were seeking credit. We also described our refreshed technology transformation program, including how it would improve our operational efficiency, reduce our costs, and help us to drive sustainable growth. We are making progress.
Customer growth at better margins is starting to show through in our trading numbers. We've built out our customer proposition across cards and vehicle finance, and we've launched a series of new savings products to further diversify our retail funding base. We're now 86% retail funded. We're particularly pleased with the growth we've seen in secured lending since the launch of our forward flow agreement with Interbridge Mortgages back on the sixteenth of May. New business volumes have been some three times higher than our initial expectations, so we're reflecting on the very positive feedback we're receiving from mortgage brokers on the proposition and the systems that have been launched, and we're reviewing the opportunity that we have in this market. We talked a lot about Snoop at our strategy day, and Snoop continues to be a strong strategic enabler for us.
New customers in the first half are up 91% compared with 2023, and we're particularly pleased to see strong growth over the period from the Vanquis customer base, with more than 24,000 Vanquis customers now using Snoop to help them better manage their money. Snoop's new credit score feature is being used by around 80,000 customers, and we're integrating Snoop functionality into our Vanquis app. Now, another pillar of our strategy was building out our proposition to help customers where if we can't offer them credit, instead of a hard no, we want to say, "Not yet," and then to make an introduction to other parties who may be able to help them in the meantime.
Doing this increases our customer loyalty, helps customers to improve their creditworthiness, and therefore improves our chances of being able to say yes to offering them credit in the future. So as part of this, and building on the partnership with H&T Pawnbrokers that we announced back in March, we have now entered into a new partnership agreement with Fair Finance. Fair Finance, as I'm sure you know, is a social business offering financial products and services to meet the needs of the financially excluded, and we're really looking forward to working together with Faisal and the team on this. We've also made good progress in driving operational efficiency and reducing our costs. Our operations outsourcing program was materially completed by the first of July, with around 900 roles now moved from the U.K. to South Africa.
And as well as the helpful cost saving, we're seeing improvements in call answering times and in call quality coming through. We've also launched enhanced self-service functionality for customers in our app, and these and the range of other initiatives that we started last October mean that we are on track for the GBP 60 million of cost savings that we previously committed to deliver through this year. Our technology transformation program, Gateway, is delivering to plan two and evolving into a more focused digital bank strategy, so more to come on that in the future. We delivered our first key technology milestone in June, a contact center platform that allows our agents to provide slicker and better service when our customers call.
Gateway Technology has also enabled us to implement AI automation for complaint logging, and this is helping us to deal with the costs associated with the complaints challenge that you know we're facing. So staying with the theme of complaints, these were obviously a major part of what we discussed back in March, so it's appropriate that I provide an update today, and Dave will come back to this in more detail. But the headlines are that while complaint volumes originated via claims management companies or CMCs do remain high, the volumes and costs are in line with our previous expectation and budgeting, so there's no new news on the downside there. There is progress at an industry level on complaints, too. We particularly welcome the FOS consultation on charging CMCs for filing complaints which are not upheld.
This change will ensure fairer distribution of financial responsibility and improve outcomes for our customers by enabling firms like us to focus on solving genuine complaints rather than having to process spurious ones. We do still remain cautious over the potential for disruptive CMC behavior in the run-up to the implementation of any change, and this is currently planned for October, but we already have contingency plans in place should that occur... We also welcome two actions taken by the Solicitors Regulation Authority. Firstly, in writing to their high-volume firms to remind them of their obligations in properly verifying claims before they submit them. And secondly, to align CMC fees to those of FCA-regulated firms, and this reduces the commissions being charged to customers from 45% to 30%, and came into effect on the 26th of July.
We do continue to pursue legal action against the CMC responsible for most of the spurious complaints that we've been dealing with up to now. I'm not going to comment more on that, but the most effective way to improve customer outcomes is to find industry-wide solutions, and we continue to work closely with our trade bodies, our regulators, and our peer banks on this. Let me turn to our trading performance, and we can see green shoots coming through towards the end of the first half. We've seen year-to-date growth in new customer numbers ahead of plan, improved margins, and a return to growth in receivables in June, which I'm pleased to say has continued through July. Underlying impairment charges are also in line with expectations.
Excluding the one-off items that I'll talk about in a moment, we would have been close to breakeven by the end of the first half, and that would have actually been a little ahead of our forecast position. This means we're heading in the right direction to reach low single-digit ROTE targeted by the end of this year, or we were. Now, you'll hear Dave and I talk a couple of times during our presentations today about our business performance, excluding one-off items. In saying this, we're not trying to diminish or ignore the impact of these items. We're just seeking to provide you with a better explanation of what the underlying business performance actually looks like. Let me turn to the one-off items that we announced on the 16th of July.
In our presentations back in March, we committed to review our Vehicle Finance Stage 3 receivables, and this review raised a range of issues, culminating in a GBP 29 million write-down of the value of these assets. This was a complicated piece of analysis, and Dave will take you through it in more detail shortly. Having found this, we then extended the review to cover the rest of our balance sheet, and we found a further GBP 11 million of one-off write-downs, around 20 individual line items. The most significant of these related to the development cost of a now redundant mobile app. Finding these one-off hits is disappointing and frustrating, but I'm grateful to Dave and the finance team for having done the right thing here. This work allows us to be confident that our financial position is now clearer and more stable.
So pulling all this together, what does this mean for our plan? Well, first and foremost, our purpose and strategy does not change. We have a vital role to play in the UK banking system, a unique social purpose. Our customers really need us, and we are continuing to improve the proposition that we offer them. And as I mentioned earlier, we also continue to protect and progress our technology transformation program. But to get us back on track and adjust for the impact of these historic one-off items, you will see us make two key changes in the second half of this year. Firstly, we will go further in streamlining our business by removing an additional GBP 15 million of cost by the end of 2025.
Secondly, the new talent that we've been bringing into our customer proposition team, in particular, have already identified some further opportunities for revenue optimization. By making these changes at pace, we now expect to return to modest receivables growth in the second half, and we are maintaining our targets of low single-digit ROTE for 2025 and mid-teens ROTE for 2026. I've been in role for almost exactly a year now, and while we have identified and addressed many challenges, we do still see opportunities to better support our customers and to grow this business, allowing us to deliver a more attractive financial performance for our shareholders. We had said previously that 2024 and 2025 would be periods of restructuring, and that we expected there would be bumps in the road as we executed our plan.
The balance sheet revaluations that we just talked about have been particularly disappointing and frustrating, but they are exactly that. They are bumps in the road. We understand them now, and we will come back stronger from them. And we must not lose sight of the fact that Vanquis occupies that unique role in the U.K. banking system. We are the largest specialist finance provider for underserved customers. Our business is more important than ever. You may have seen in the FT a couple of weeks ago that 44% of the U.K. population are now living in financially vulnerable circumstances. So let me end by coming back to our overarching priority: serving our customers. At our strategy seminar back in March, we shared lots of insights that we'd received directly from our customers, stories from them about how Vanquis had helped when no one else would.
I'm proud that our customer metrics reflect the tremendous work our colleagues are doing to enhance our customer experience. Our Trustpilot score, for example, is now up to 4.3. That's rated as excellent. I will finish by bringing the voice of the customer directly into the room again today with a message that we received just a few weeks ago. You can see it on the screen, but I will read it. "Yours is the best credit card so far, without a doubt. I've been trying to build my credit, but the other providers are so unfair to people like me. They won't even give us a chance. I've had another card for many years, but it never helped my credit.... I've been a Vanquis customer for just over a year, and I recently received a credit limit increase, which has significantly improved my credit score.
Thanks, Vanquis! Messages like that from customers show us that we have a valuable business here. That's why all of us are so passionate about making Vanquis a strong, well-managed, and sustainably performing business. Because our customers need us, because we love serving them, and because in doing that well, we will deliver attractive shareholder returns. I'll come back at the end to help answer any questions that you may have, but for now, let me pause, and Dave, hand over to you.
Thanks, Ian. Good morning, everyone. As highlighted by Ian, our first half results have been impacted by the outcomes of the Vehicle Finance Receivables review that we committed to undertake at our 27th of March results briefing, as well as a number of legacy one-off items identified from a wider review of our balance sheet. The outcome of the Vehicle Finance Review has deemed it necessary to restate and represent certain prior year figures. To provide a clear and transparent overview of these items, I will provide more details during this presentation. Reiterating what Ian has said, we now have a clearer and a more stable financial position upon which to grow our business. I will also provide an update on complaints and our underlying business performance, which shows positive signs, especially towards the end of the second quarter.
During the first six months of 2024, we posted an adjusted loss before tax of GBP 26.8 million, primarily due to legacy one-off items. We also incurred GBP 15.5 million of exceptional items, principally in relation to transforming our business. This has resulted in a half-year statutory loss of GBP 35.8 million, impacting our capital and reported ROTE. I will cover the Vehicle Finance Receivables review shortly, but the high-level P&L impact, as advised on the 16th of July, was a loss of GBP 28.9 million. GBP 12.8 million is included in the first six months of 2024, with the remainder of the loss relating to prior periods. We define legacy one-off items as relating to historic performance and decisions.
There are both negative and positive items, resulting in a net charge to the P&L of GBP 11.5 million. Of this amount, GBP 10.2 million is included in the adjusted operating costs, while a GBP 1.6 million impact is included in net interest income. There is a GBP 700,000 charge in impairments and a GBP 1 million credit included in exceptional items. We identified a number of legacy one-off items. The most notable included a GBP 8.5 million write-down of historical mobile app development costs that were determined not to be in line with Gateway and strategic requirements.
Instead, the build of a new mobile app is being undertaken in-house by the Snoop team, who have a proven track record in mobile app development and can deliver a higher quality product more efficiently, resulting in longer term cost savings and ultimately, better customer service. In assessing our real estate footprint, GBP 5 million of costs, most notably dilapidations and break fees, were required to be provided for. A cleanup of sundry balances included a GBP 1 million provision release relating to discontinued operations, which was no longer required. Net interest income was in line with the first half of 2023, despite a reduction in receivables, principally due to the repricing of our back book in cards. Non-interest income declined by GBP 3 million compared to the first half of 2023, primarily reflecting lower fee income in cards.
Our IFRS 9 model enhancements have now been completed, and we expect limited benefits from future model refinements. Excluding the one-off impairment charge from the Vehicle Finance Review, our underlying book has performed in line with expectations. We remain on track and in line with our prior guidance to deliver GBP 60 million of cost savings by the end of 2024. In addition, we plan to deliver a further GBP 15 million of cost saves by the end of 2025. Turning to our key metrics and ratios. Gross statutory receivables decreased by 14% due to the impact of the Vehicle Finance Review and lower customer interest earning balances. This also affects our net receivables position, albeit with a lower impact.
Gross customer interest earning receivables reduced in the first five months of the year due to active volume management, lower customer card spend, and higher repayments. However, we saw an increase in receivables in June due to higher mortgage volumes coming through and a marginal improvement in cards. ROTE has been impacted by the statutory loss, and for the first half of 2024, was negative 11.5%. Our Tier 1 capital position reduced to 19.8%, mostly due to the losses identified from the Vehicle Finance Review, which has also resulted in various restated metrics. Our NIM remains broadly stable at 18.8%. As our mortgage portfolio grows, we expect a dilution of our NIM to occur. Going forward, this impact will be presented separately. Our risk-adjusted margin is impacted by the variability in impairments.
For the first half of 2024, our risk-adjusted margin was 11.6%. Excluding the one-off impairment charge from the vehicle finance review, this would have been 12.7%, a slight increase on the first half of 2023. Our cost-to-income ratio has also been negatively impacted by approximately 4%-5% by the legacy one-off items already discussed. I appreciate this is, that this is a busy slide. However, it is necessary to show the various impacts of the vehicle finance review and importantly, our resulting position. As signposted on the 27th of March, we've undertaken a detailed review of our vehicle finance Stage 3 receivables to clean up our balance sheet with a view to future debt sales.
The full impact of this review was not clear until we closed our half-year books, and when we did, this necessitated the announcement on the 16th of July. By way of background, in 2022, the business represented a large balance of shortfall debt from gross customer interest-earning balances to coincide with the introduction of a revised market-consistent net interest margin methodology. By shortfall debt, we mean loans where we have recovered and sold the underlying vehicle with a residual loan remaining outstanding. These were not interest-earning loans due to their defaulted status and were mostly provided for. As there have been limited debt sales over prior years, the shortfall debt and ECL have increased over time. In June, we introduced a new charge-off policy for vehicle finance, and we reassessed and revalued our portfolio.
This resulted in, firstly, a reduction of shortfall debts and the accompanying deferred acquisition costs, as well as the ECL provision. This led to a GBP 15 million write-off of receivables with a small impact to P&L. Secondly, using our new charge-off policy, we established a true post-charge-off asset revalued at GBP 17.8 million, based on recent indicative debt sale prices. Unfortunately, this review also uncovered that we had held an asset for sale that had not been removed from the ECL account, i.e., a double count existed. Consequently, we have reported a prior year restatement of GBP 7.6 million for 2023, whose results have now been restated, and we have also adjusted our 2023 opening balance sheet for GBP 8.5 million relating to earlier periods.
The review also identified that a cohort of assets totaling GBP 51.6 million were incorrectly deducted from customer interest-earning balances. These assets should have been deducted from shortfall debt. This has been represented. Note, our net receivables are unchanged by this item. Separate to the review, we introduced IFRS 9 modeling enhancements in the first half of 2024, including a revised definition of default, which is aligned to our other products. This has resulted in the reclassification of certain vehicle finance receivables from Stage 2 and Stage 3 to Stage 1. This has resulted in over 66% of our vehicle finance book now being classed as Stage 1. As you can see in the vintage table, the average Stage 3 ECL coverage has increased to 62.9%, with higher coverage levels for more mature vintages.
This review has delivered a clearly defined and revalued post-charge-off asset of GBP 17.8 million and a significantly reduced Stage 3 receivables balance of GBP 190 million, which has a more appropriate ECL provision coverage. Turning to income, we took decisive action in the fourth quarter of 2023 to manage volumes and introduce repricing strategies for the cards back book and for new business in all products. These repricing initiatives have offset the reduction in receivables, and compared to the first six months of 2023, interest income has increased by 7.7%. Further segment and customer-specific risk-focused repricing opportunities exist. These are being explored for implementation later this year. Our interest expense has increased each half due to higher market rates being offered on the refinancing of maturing fixed-rate deposits.
As a result, our net interest income has remained stable at GBP 215 million. Repricing has resulted in our NIM marginally increasing to 18.8% during the first half of this year. Cards asset yields continue to improve due to price increases in 2023 and also at the end of the first quarter of 2024. For those customers which are deemed to be vulnerable, we have not increased prices. Vehicle finance asset yields were impacted by the review undertaken, with a GBP 3.1 million deferred acquisition cost write-down, reducing interest income in June. Excluding this, the asset yield would be on a slightly upward trajectory. Additional price increases were introduced in vehicle finance at the beginning of June, and the benefits of this will come through slowly due to the nature of the product.
Our cost of funds increased during the first six months. However, they remained below the Bank of England base rate. We have further expanded our retail savings proposition, including more flexible products, as well as ISAs. This will allow us to be more reactive to any changes in the bank base rate and to better serve our savings customers. With planned increased volumes coming through in our second charge mortgage proposition, we do expect some NIM dilution in the future. The Vehicle Finance Review has impacted statutory gross receivables balances. Other gross receivables have reduced from GBP 338 million to GBP 109 million, demonstrating the extent of cleansing actions undertaken. The residual positions primarily comprised deferred acquisition costs for both vehicle finance and cards, which have reduced in aggregate, as well as post-charge-off assets for both cards and vehicle finance.
The cards' post-charge-off asset has reduced by two-thirds to GBP 6.3 million, due to further successful debt sales in the first half of 2024. I will cover, I will cover customer interest-earning balances and the underlying trading performance on the next slide. Net receivables were less impacted by the Vehicle Finance Review. You should note there's a different split between the stages, with the proportion of Stage 1 balances increasing significantly to 85.8%, due to IFRS 9 model improvements and aligning default definitions across products, with the highest impact in vehicle finance. Customer interest-earning balances are the main driver of our income. These balances have reduced by 6.2% in the first six months of 2024, driven by volume management actions taken in the second half of 2023, which continued in the first quarter of 2024.
In addition, we experienced lower customer spend in cards and higher customer repayments in cards, loans, and vehicle finance. Since the 27th of March, we have initiated various actions to grow our receivables on a profitable basis. These are now beginning to come through in our reported balances. The rate of reduction reduced to 1.8% in April and May, and we experienced a modest growth in June. In cards, we have introduced new customer initiatives, as well as relaunching balance transfer proposition. This has resulted in a marginal increase in our June balance. We have restarted controlled lending in loans to existing customers in the second quarter, which has slowed down the repayments trend. We started to grow our second charge mortgage book in earnest in 2024.
In May, a key forward flow agreement with our introducer partner, Interbridge, went live. This, coupled with extending our forward flow arrangement with Selina Finance, increased receivables by GBP 17 million during June. Going forward, we expect second charge mortgage to be a significant driver of receivables growth. These secured assets have a lower IFRS 9 provision requirements, and therefore a lower P&L drag. This slide provides a detailed view of our impairment charge and its drivers. Excluding the impact of the Vehicle Finance Review, our impairment charge was broadly consistent with the first six months of 2023. Our multi-year IFRS 9 model enhancements are now complete, with limited benefits coming through in the first half of 2024. Our underlying impairment charge has moved in line with new business volumes. Our car debt sale program has matured, and therefore, associated P&L impacts will be at lower levels than historically.
As I said on the 27th of March, we expected some volatility in reported impairment charges for 2024. With the conclusion of the Vehicle Finance Review and the IFRS 9 model enhancements now concluded, coupled with progress on arrears management, we are now reaching a stage where impairment charges are more aligned to current business activity and book performance. From 2025, we expect a much cleaner impairment charge and consequently, greater clarity and consistency in our cost of risk. Turning to our expected credit loss provision. As already covered, the impact of the Vehicle Finance Review has reduced the ECL provision significantly. At December 2023, the Vehicle Finance Stage 3 provision comprised over 55% of the ECL balance. This has now reduced to 34% at the end of June.
The overall coverage ratio has reduced to 14.9% due to a far greater proportion of our book in Stage 1. However, as I mentioned earlier, the coverage ratio has increased for vehicle finance Stage 3 receivables. Our cost base increased by 1.6% compared to the first six months of 2023. Excluding the legacy one-off items, we would have reported a reduction in costs. Complaint costs remain high, mostly due to spurious CMC complaints, which I'll cover on the next slide. We are on track to deliver the GBP 60 million cost savings previously committed to by the end of 2024. Cost transformation initiatives and improved cost management disciplines are benefiting the business. However, our cost base remains too high. Consequently, we plan to deliver an additional GBP 15 million of cost savings by the end of 2025.
This will not stop our investment in Gateway to make our business more efficient and effective, to help our colleagues deliver a better product and service quality to our customers. Our staff costs have decreased by 21%, driven by a 32% reduction in headcount to around 1,300 employees. This staff reduction, coupled with hybrid working, has led us to take further actions to reduce our real estate footprint, consolidating locations and closing floors. The benefit of this is expected to come through from the second half of 2024. We continue to experience elevated levels of complaints, up a further 20% compared to the second half of 2023, focused on cards. Similar to 2023, the majority of complaints received in 2024 relate to lending origination.
These complaints relate to a wide range of different matters in the customer lending process, but with no particular underlying common theme. The high level of outstanding complaints that we saw at the end of 2023, mostly due to the increased volume of CMC complaints being received, has almost halved in the first half of 2024 due to automation and operational efficiencies. Over 90% of lending origination complaints originate from CMCs, of which 50% originate from the one CMC against whom we have taken legal action, and 19% from a second CMC. We are closely monitoring their activity and will act as necessary. We continue to do what is right for our customers, investigate all genuine complaints received. CMCs bulk refer complaints to the Financial Ombudsman Service. We are anticipating increased volatility ahead of the proposed new FOS fee charging rules that Ian covered earlier.
CMC uphold rates remain low at 7% internally. The increase observed when looking at CMC complaints at FOS is due to a backlog of complaints that were referred by CMCs. Excluding this backlog, we would expect the FOS uphold rate to be broadly in line with internal uphold rates. First half of 2024, resource costs remained broadly in line with the second half of 2023. With the proposed change in FOS fee charging and improved processes, we expect to be in line with the complaints cost previously guided for 2024. However, we expect complaint costs to decrease in 2025. In terms of service quality complaints, redress amounts and FOS fees remain significantly less, and costs incurred with these remain broadly flat. Let me provide a bit more insight into our two main products. Firstly, cards.
As mentioned before, cards asset yields have continued to improve due to repricing initiatives, with approximately 65% of our portfolio now attracting APR percentages between 30%-49.9%, compared to 59% of our portfolio in December. During the first 5 months of 2024, we saw customer balance repayments exceed their new spending levels. However, in June, we saw a marginal increase in receivables due to new initiatives beginning to take effect. New business volumes are on an upwards trend. We expect this moderated growth trend to continue in the second half of 2024. Vehicle finance receivables were broadly flat, with a slight increase in the second quarter due to certain targeted product improvements. As already covered, the vehicle finance reported asset yields have been impacted by accounting adjustments.
Excluding these adjustments, yields would be on a slight upward trajectory, albeit at lower levels than we would like. We've experienced increased contracts coming to the end of term, either voluntary, involuntarily, or at maturity. These have been offset by new business volumes. Turning to liquidity and funding. We have a strong liquidity and funding position, with an increased level of surplus liquidity as I speak, being GBP 789 million as at the thirtieth of July. We have settled GBP 75 million of TFSME funding early to reduce the refinancing risk of this debt expected in the second half of 2025. In line with our guidance, retail savings and deposits from nearly 48,000 customers now form over 86% of our funding. During July, we surpassed GBP 2 billion in retail savings and deposits for the first time.
Over 97% of retail deposit balances are protected by the Financial Services Compensation Scheme. Balances held on notice accounts first introduced in 2023 have increased by approximately GBP 190 million since December. These provide both our customers and ourselves more flexibility. This will allow us to better manage our cost of funds as interest rates change in the future. As already noted, the impacts of the vehicle finance review have led to a reduced restated Tier 1 capital ratio of 19.9% as at December 2023, and contributed to the loss in the first half of 2024. Our Tier 1 capital is further impacted by a statutory loss from exceptional items and certain legacy one-off items. Please note that the intangible asset write-off has a net nil capital impact.
Risk-weighted exposures have moved in line with the reduction in receivables. We remain adequately capitalized for planned future growth, noting that approximately 32% of our Tier 1 capital, or GBP 116 million, is surplus to published regulatory requirements. We have reset our target range to be 18.5%-19.5%, now that the group's position is clearer and more stable, with an emerging lower risk mix of business and a more predictable future P&L. I appreciate that we have provided a lot of information, but to summarize some key messages: the impact of the vehicle finance review and legacy one-off items has been difficult. However, we now have a clearer and more stable financial position. We've successfully delivered on repricing initiatives, and further pricing for risk opportunities exist in specific segments and customers, which we are exploring.
The marginal increase in card receivables in June, coupled with the successful launch of second charge mortgages, is promising for modest receivables growth during the remainder of 2024. Our underlying impairment charge is coming in line with business performance, and going forward, we should have a clearer cost of risk. We have a degree of uncertainty in complaints levels in the coming months, ahead of the proposed positive changes to FOS charging. However, our 2025 complaint costs should be lower than 2024. We will complete the delivery of GBP 60 million of cost saves by the end of 2024 and plan to deliver a further GBP 15 million of cost saves by the end of 2025. We will remain highly liquid and adequately capitalized for future growth. We are reaffirming our medium-term targets for 2025 and 2026.
As noted on the 27th of March, both 2024 and 2025 will be years of transformation, and our financial progress will not be linear. Due to the financial impacts of the vehicle finance receivables review and legacy one-off items, we have updated our 2024 guidance to a slightly higher cost-to-income ratio, while we expect to report a full-year loss for 2024, rather than a low single digits ROTE. I've already covered our change in target capital ratio. While there is a lot to do and some tough actions to take, we have clearly defined initiatives that we are executing at pace. I'd like to thank you for your time this morning. Ian and I welcome any questions that you may have. Thank you. If we pass to the operator.
Thank you. Thank you, sir. Ladies and gentlemen, if you'd like to ask an audio question, please press * one on your telephone keypad. So that's * one for questions. Our very first question today is coming from Gary Greenwood, calling from Shore Capital. Please go ahead, sir. Your line is open.
Oh, hi, thanks for taking my questions. I've got three, if I can. So the first one, which is on the road, I think you, Ian, that you expected-
Gary, sorry, you're really faint. I don't know if you can hear me, but we're only getting every third word.
Sorry. Is that better? Hello?
I, I heard the hello, Gary.
Hi. Can you hear me?
Yeah.
Try again. Let's see if we can catch you.
Yes. I have three questions. This is on, as you previously mentioned-
No, Gary, sorry. Sorry to cut across you again, Gary. My apologies. We really can't hear you. It might be better if you dial off and try and dial in again, and we'll maybe take another question in the meantime and come back to you, if that's okay. Apologies.
Gary, if the line doesn't work, log in on the webcast and we'll take a question that way. But, in the meantime, we have got some questions coming in on the webcast, so we'll move to those. The first question that we've got, I think is about CMCs, and the question is: Can you detail the potential for cost recovery through litigation and what the timescale might be?
Good one to start with, after we've heard Gary's, I think. Look, the simple answer to can we detail it is, no, we can't. It is subject to legal proceedings, and it wouldn't be appropriate, I think I mentioned in my opening remarks, for us to go into any detail on that. What I would say is that we have a case pending. We do not yet have a court date, but as that gets to the stage where we're able to share, then obviously we will do, but that wouldn't be appropriate at this stage, other than to maybe guide that it is substantial. I mean, you only have to look at our increased costs for complaints, particularly from this one CMC, and you can probably work back an approximate number from that.
Thank you. Here's another question coming in from the web, which says: Can you explain how ROTE improvements will quantitatively translate into profitability?
Dave, do you want to take that one?
Yeah. I mean, what we've done today is we reiterated our guidance for 2025 and 2026. In terms of profitability, we're not providing a steer on the levels of profitability at this point in time. We do need to continue to reflect on the impacts of what happened in at that half year in terms of the actual impact on our results for this year. However, we expect profitability to increase over in the medium to longer term on that particular matter in place. Okay? That's all I really want to say on this, unless, Ian, you want to say anything else.
I think that's fine.
The next question I have here is: Can you confirm if you've received approaches from other financial institutions? What is your view on future combinations? Is this something you would welcome or see as a distraction?
... Good question. Look, conversations happen sort of informally all the time, nothing formal, at all. Otherwise, we obviously would have reported on that. So, our focus as a leadership team is, while we never want to be myopic, we have a plan that we have gone into in a great deal of detail this morning, and Dave, thank you again for taking us all through that. Our focus as a team is on execution of that plan, so we're not looking for anything other than that. I have a long-held view, I think I've talked about it before, that you get your own house in order, you get your own business running in an exemplary way, and then you earn the right to look around at, at other opportunities.
In the meantime, we've still got a little bit of work to do to get to that stage, and that's what we're going to concentrate on.
I now do have Gary's questions-
Excellent
... via the webcast.
Gary's questions are always good, so we're glad to have them.
Okay. So his question, I'll give you these one at a time, actually. That's probably easier. You mentioned bumps in the road were expected. Are we now through those, or could there be more?
I do believe, and I'll get Dave to comment on this, that we are substantively through them. We have looked and looked again, and I think I described the very detailed and painstaking work that the finance team have done earlier. So we do have a high degree of confidence that we have identified all that we need to identify. It's a very brave CFO that says there couldn't be anything else, but we don't believe there's anything substantive. Dave, do you want to...
Yeah, just to reiterate what you said there, Ian, we've done a, the team's done a very thorough job going through the balance sheet, all areas of the balance sheet. You've seen impacts on, you know, quite a few different lines coming through, the tangible asset, intangible assets, vehicle finance, receivables. Look, I have a high degree of confidence that we've got everything, but as Ian said, never say never. There's always something that could pop out, but we have a high degree of confidence. What we have is all out there now.
I think the fact that, again, I mentioned this, that it was 20 individual line items, probably gives some reassurance in itself then. But, yeah.
Next one is, how should we think about IFRS 9 impairment charges developing? Will the impact of accelerated growth be compensated for by mix, given growth in lower risk second charge mortgages?
Yeah. And again, Dave, you can, you can add to this, but it's, it's always that balance of how fast do you grow and how much growth strain through the IFRS 9 offset that, that you can absorb at any time. Mix is critical, so I think Gary's question is absolutely, on, on the nail on that. That's why I mentioned that we're looking at the second charge mortgage volumes, because that is a lower RWE, and, and could be very helpful to us. So, we, we will, come back once we've, we've finished that, that review. Do you want to add anything else now for us?
I mean, just, just to reiterate what I said earlier on, the work we've done on the IFRS 9 model enhancements and the other work we've undertaken, the vehicle finance review, we're going to have a much clearer view of our impairment charges as we go through into 2025 than what we had the last few years. So that's a positive one from there. In terms of mix, as Ian said, we will continue to look at their mixing process. You know, the delivery we've had so far in the last couple of months in terms of our second charge mortgages has been excellent, and we need to... It's a great market to be in. We need to explore the other better possibilities in there to deploy our capital per se. There's a lower RWA density in place.
It's a secure product. So yeah, we'll continue to look at our mix as we go further forwards.
And the last question here, in fact, picks up on RWA density. Will the capital ratio stay above 18.5% in full year 2025, given accelerated balance sheet growth but low profitability?
Thank you, Gary. Look, we've reset the range of our capital to 18.5%-19.5%. That is what, based on what we expect over the coming months and a year to head on that one there. That is the guidance we have at this time. I'm not going to change the future guidance in that place there. We believe that we have the capital required to deliver on our plan in place there, and that is a range we're going to stick to at this time.
Okay, operator, that concludes the questions that I have on the webcast for the time being.
Thank you very much, ma'am. We do not appear to have any further audio questions either, so I'm going to call back over to Ian for any additional or closing remarks. Thank you.
Thank you, George. Thank you, Miriam, and thank you, Dave. Thank you to all of you for your time this morning. I did say we were going to take you through a fair amount of detail, and I think Dave delivered very well to that. Thank you for bearing with us. As ever, if there are any other questions, we're available, so come back to Dave, myself, or Miriam at any time. But I think, I'll not recap our recap. We'll close the call there. Thank you, everyone.