Final Results 2004

1

Final Results 2004
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Agenda

• Introduction and Group Highlights
• Financial Review
• Treasury Risk Management Review
• Regulation Legislation
• IFRS Overview
• Summary
• QA

Seán Mahon James Corr Mark Collins Seán
Mahon James Corr Seán Mahon
3
Group HighlightsSeán MahonGroup Chief Executive
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Cattles plcHighlights

• Profit before tax
  141.2m
• Earnings per share
  30.2p
• Dividends per share
  14.0p
• Controlled growth with stable arrears and bad
  debts
• Strong funding position at improved pricing
• Sale of Commercial Finance for 70m

up 15.1
up 14.5
up 15.7
Profit before tax and earnings per share are both
before goodwill amortisation
Strong trading performance during the year
5
Cattles plc 5 Year Summary
Profit before tax
Earnings per share
m
p
Profit before tax and earnings per share are both
before goodwill amortisation
Continued momentum of double digit growth in
earnings
6
Consumer Credit Highlights
Consumer Credit Profit before tax up 16.1

• Excellent profit growth up 16.1
• Customer arrears stable 10.1
• Bad debts stable 7.5
• New credit profiling scorecards developed with
  Experian

• Project Phoenix on target contracts with
  Siebel, Fiserv IBM
• Demand for Direct Repayment products remains
  strong

Another strong performance with continued
stability of arrears and bad debts
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Customers Direct Repayment
Early settlements
Settlements bad debts
New agreements
2004
2003
Customer base grown by 16 in line with 5 Year
Plan
8
Consumer Credit Record Volumes
Direct Repayment
Home Collected
m
CAGR 28
m
CAGR -12
Secured
HP
Personal loans
Record volumes of over 1bn in 2004
9
Customers Direct Repayment
Average advances
Segmental split by number of agreements
Around 70 of new customers receive 1,400
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Customers Home Collected

• Small value short term advances
• Typical advance remains 300
• Disengage sectors regarded as uneconomic
• 17.8 reduction in customers to 337,000
• Now represents around 11 divisions receivables

Customer reductions in line with 5 Year Plan
refocusing business
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Consumer CreditDistribution Channels
Dial4aloan
Welcome Car Finance

• Major finance broker for Consumer Division 18
  broker secured loans
• Subject to a number of regulatory changes during
  2004
• Broker secured market declined in Q4 (FLA
  -11.4)
• 42m secured and unsecured loans originated for
  Consumer Division 41 up on 2003

• Largest HP broker for Consumer Division 31 HP
  sales
• 5 new sites opened 2004
• 13 sites no more planned for 2005
• Challenging market conditions
• 10,000 vehicles sold in 2004

90.6
Continuing development and increased volumes from
distribution channels
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The Lewis Group Highlights
The Lewis Group Profit before tax up 19.0

• Excellent profit growth up 19.0
• Default debt portfolios of 21m purchased up
  55
• Strong competition for new debt portfolios
• External clients providing 85 of commission
  activity
• DWP secured as new commission debt client

An excellent performance in challenging market
conditions
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Corporate Division Highlights

• Sale of Commercial Finance for 70m cash
• Continued strong development of Cattles Invoice
  Finance
• Improvement in credit quality
• Management team strengthened in South small new
  offices opened
• Maidstone 2004
• Birmingham planned 2005

Cattles Invoice Finance Profit before tax up 15.0

Strong performance with opportunities to develop
the business
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Financial ReviewJames CorrGroup Finance
Director
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Profit and Loss Account
Before goodwill amortisation
Profit before tax and goodwill increased by 15.1
16
Turnover
Good growth in interest income, insurance, fees
and commissions
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Segmental Profits
Strong growth across all businesses
18
Cost Income Ratio
Cost Income Ratio relates to administration
expenses as a percentage of turnover
Strong control over operating costs
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Balance Sheet
Net receivables is gross receivables less
provisions for bad and doubtful debts
Strong balance sheet with over 1.5 billion of
net current assets
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Net Receivables
Strong demand for Direct Repayment products
drives growth in groups receivables
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Return on Average Net Receivables
Consumer Division
Corporate Division
Stable returns in both divisions
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Treasury Risk Management ReviewMark
CollinsTreasury Risk Director
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Funding During 2004

• Bank facilities of 353m matured in June/July
  2004
• New syndication launched June at 250m closed
  out at 500m
• Strong support from 25 bank relationships
• Five year funding with improved pricing
• Greater certainty and control over funding costs
• 90 of borrowings protected against future
  interest rate volatility

Strong support from banks and bondholders
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Maturity of Facilities
Average maturity profile is five years
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Borrowings
Majority of borrowings are in fixed interest
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Gearing and Interest
Excludes funds under management of 75m (2003
61m)
Gearing and interest cover well within covenants
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Headroom
Recent disposal of Commercial Finance has
enhanced headroom by a further 70m
Significant headroom to fund future growth
28
Cash Flow
Increase in borrowings invested in receivables
growth
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Consumer Division Arrears
Weekly
Consumer Division
Monthly
Base Rate
Stable arrears levels
30
Bad Debt Chargeand Percentage of Net Receivables
Bad debts stable within target range
31
Financial Services Authority

• Mortgage broking and insurance now regulated by
  the FSA
• Strengthening of internal compliance functions
• Comprehensive review of operating procedures
• Enhancement of training programmes, where
  appropriate
• Additional accreditation for customer facing
  employees
• Internal Audit continues to be provided by KPMG

Successful transition to newly regulated
activities
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Regulation LegislationSeán MahonGroup Chief
Executive
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Legislation

• Licensing
• In Consumer Credit Bill
• Will be nine types of consumer credit license
• Issued by OFT
• Can be indefinite, or for a specified period
• Guidance expected from OFT on how it will
  determine fitness of applicant to hold a
  license
• OFT assessment will be forward looking

• Alternative Dispute Resolution
• In Consumer Credit Bill
• Financial Ombudsman Service will be ADR
  provider
• Organisations have eight weeks to resolve
  complaint prior to ADR
• Free to consumers
• Due to commence April 2006, but concerns over FOS
  resourcing
• Assurances from DTI implementation will not take
  place until FOS able to provide timely service
  with consistent decisioning
• Funded by a levy on licensees and case fees
• Does not deal with matters of legitimate
  commercial judgement such as price, or refusal of
  credit

• Primary Legislation
• Consumer Credit Bill issued December 2004
• Currently being debated in parliament
• Minimal amendment is likely
• Expected implementation Spring 2006, but could be
  as early as autumn 2005
• New definition of individual includes
  partnerships of less than three people
• Removal of 25,000 ceiling for consumer credit
• Annual statements to be sent to consumers
• Arrears notice to be given to consumer when two
  monthly or four weekly payments missed or
  aggregate in arrears
• Arrears and default information notices to be
  prepared by OFT and must accompany lender notice
• Interest on default charges can only be simple,
  not compound interest
• Concept of unfair credit introduced

• Secondary Legislation
• New advertising regulations in place November
  2004
• Agreements Amendment Regulations - 31 May 2005
  require certain information to be included within
  regulated agreements
• Pre-contractual information required to be given
  to consumer before agreement is signed
• Early settlement regulations introduce actuarial
  approach to early settlement calculation
• Two or five year transitional period depending on
  loan term at inception pre 31 May 2005, for loans
  ten years and under implementation is 31 May 2007

• Unfair credit
• In Consumer Credit Bill
• Replaces 1974 Extortionate Credit provisions
• Reverse burden of proof creditor must prove to
  contrary if debtor alleges relationship unfair

We welcome the strengthening of existing consumer
credit legislation
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Other Regulation and Legislation

• EU Consumer Credit Directive
• Partial harmonisation of consumer credit across
  Europe
• Some activity on amendments in 2004
• UK regulation to be consistent with and
  complement European legislation
• Consultation document issued responses by 22
  April 2005

• Influencing the debate
• Cattles have actively responded to many
  consultations including
• - Voluntary Terminations
• - Doorstep selling
• - Consumer Education
• - Extending Competitive Markets
• - Company investigations
• - Overindebtedness (DCA)
• - Financial Ombudsman service
• Cattles is actively involved in lobbying and
  with associations to shape the agenda

• Competition Commission Inquiry
• Supercomplaint on Home Credit submitted and
  accepted by OFT June 2004
• OFT responded within required 90 days (September)
  but decision to refer not made until 20 December
  2004
• Cattles was fully co-operative with OFT and
  provided much supporting evidence
• Competition Commission (CC) team and committee
  now appointed
• CC have wider powers regarding provision of
  information, more formal process, binding
  outcomes
• Cattles welcomes the opportunity for a thorough
  and objective investigation into the home credit
  industry
• CC report expected Spring 2006 although the CC
  not required to report until December 2006
• Home collected loans now around 11 of our
  receivables

• Rate Ceilings
• DTI have not included rate ceilings in Consumer
  Credit Bill
• Research shows where ceilings operate choice of
  credit is narrower in particular to low income
  groups
• Most groups including Trading Standards and
  Citizens Advice against rate ceilings
• Minister announced no plans for rate ceilings but
  will be kept under review
• But pressure from a limited number of consumer
  groups to keep this on the agenda

• Financial Inclusion
• Priority theme for Treasury
• Published Promoting Financial Inclusion paper
  Autumn 2004
• Some initiatives implemented such as Child Trust
  Funds
• Other initiatives planned - Social Fund to be
  increased, stakeholder suite of simple investment
  products available April 2005
• Breaking the Cycle on social exclusion also
  issued

• Minimising over-indebtedness
• Evidence of joined up thinking with a series of
  consultation papers

• Over-regulation
• CBI published research into over-regulation
  autumn 2004
• Better Regulation Task Force established

We fully support the creation of a fair, clear
and competitive market
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IFRS OverviewJames CorrFinance Director
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Impact of IFRS

• No change in cash flows
• No change in growth strategy
• No change in credit quality
• No change in targeted growth in earnings
• No expected implications for dividend
• Significant change in timing of income
  recognition and loan loss provisioning
• Return on net assets remains over 30

Fundamentals of the business unaffected by IFRS
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Key Areas Impacted

• Interest rate hedging
• IAS 39 derivates at fair value on balance
  sheet
• Gains losses through income unless part of
  effective hedge
• Could result in significant income volatility
• Hedge accounting to be adopted to reduce some
  of this volatility

• Employee share schemes
• IFRS 2 fair value expensed over the life of
  scheme
• Expected to impact reported earnings

• Income recognition
• Effective interest rate method of spreading
  income and direct costs
  
• IAS 39 expected to impact on income profile and
  net assets

• IFRS Project
• To be adopted 1 January 2005
• Good progress made by dedicated project team in
  establishing accounting policies, systems and
  reporting changes
• Inappropriate to provide comprehensive
  impact analysis until transition project
  complete and uncertainty over IAS39 resolved

• Loan loss provisioning
• Objective evidence of impairment on future
  expected cash flows
• General provisions prohibited
• IAS 39 expected to impact on expense profile
  and net assets

• Pension accounting
• First time adoption will result in deficit
  charged to equity
• Thereafter under IAS 19 actuarial gains
  losses can be spread over average remaining
  service lives
• Impact on expenses and net assets

• Business combinations
• IFRS 3 does not permit continued amortisation
  of goodwill
• Annual impairment test

As highlighted at previous results
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PLIFRS Changes
Year ended
Year ended
m
31 December 2004
31 December 2004
Numbers quoted are indicative and subject to
further review and audit Profit before tax is
before goodwill amortisation
We will provide a detailed update in respect of
IFRS in May 2005
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Direct Repayment IFRS Changes
Net impact
Grossing up
Gross impact
Year ended 31 December 2004 m
Numbers quoted are indicative and subject to
further review and audit
We will provide a detailed update in respect of
IFRS in May 2005
40
Net AssetsIFRS Changes
As at
As at
m
31 December 2004
31 December 2004
Numbers quoted are indicative and subject to
further review and audit
We will provide a detailed update in respect of
IFRS in May 2005
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Income Recognition
Cumulative profit on 2 year unsecured personal
loan
No difference UK GAAP and IFRS in cumulative
recognition of income
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No Change in the Cash Flows
Numbers quoted are indicative and subject to
further review and audit
Implementation of IFRS results in no change to
the groups cash flows
43
Growth Rates
Numbers quoted are indicative and subject to
further review and audit Profit before tax is
before goodwill amortisation
Double digit growth maintained
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Summary

• Excellent results demonstrating strong growth
• Demand for our products remains strong
• 5 Year Plan remains on track
• 16.8 CAGR in Direct Repayment customers since
  2002
• Credit quality maintained
• Continued investment in distribution
• Looking forward to another successful year in 2005

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Final Results 2004
46

• This document is a summary only of certain
  information contained in the preliminary
  announcement dated 18 March 2005 and should be
  read in conjunction with the full text of the
  announcement.
• Certain statements made in this announcement are
  forward looking statements. Such statements are
  based on current expectations and are subject to
  a number of risks and uncertainties that could
  cause actual results to differ materially from
  any expected future results in forward looking
  statements.

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Appendices
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Income Recognition
Main change is fees and commissions being spread
49
Loan Loss Provisioning
IFRS rules more prescriptive with less
subjectivity