Provident Financial plc is the leading provider of credit products to those consumers who are not well served by mainstream lenders. The group serves 2.5 million customers and its operations consist of Vanquis Bank, the Consumer Credit Division (CCD) comprising Provident and Satsuma, and Moneybarn. The group’s results are being reported under IFRS 9 ‘Financial instruments’ for the first time in 2018 following the mandatory adoption of the standard from 1 January 2018.
Good progress being made in delivering the group’s operational aims for 2018
IFRS 9 group adjusted profit before tax1,2 of £74.9m (2017: pro forma IFRS 9 adjusted profit before tax1,2 of £98.6m, IAS 39 adjusted profit before tax2 of £115.3m), broadly in line with internal plan.
Statutory IFRS 9 group profit before tax1,2 of £34.6m (2017: pro forma IFRS 9 statutory profit before tax1,2 of £73.3m, IAS 39 statutory profit before tax1,2 of £90.0m).
The home credit operational recovery plan is expected to be substantially completed during the second half of the year with the objective of obtaining full authorisation from the Financial Conduct Authority (FCA) by the end of the year.
The roll-out of the Vanquis Bank Repayment Option Plan (ROP) refund programme to 1.2 million customers is underway.
Provisions made in 2017 for the ROP refund programme and the FCA investigation at Moneybarn remain appropriate.
The group’s capital position and liquidity are both strong following completion of the rights issue in April and the refinancing of the senior bond in June.
Announcement of Patrick Snowball as Chairman and the appointment of three new non-executive directors.
Significant activity is underway to strengthen the group’s culture and governance.
Based on the good progress made in the first half of the year, the Board reconfirms its intention to restore dividends with a nominal final dividend for 2018.
Vanquis Bank has delivered results in line with plan
Vanquis Bank has delivered 6.1% increase in its IFRS 9 adjusted profit before tax1,2 to £97.2m (2017: pro forma IFRS 9 adjusted profit before tax1,2 of £91.6m, IAS 39 adjusted profit before tax2 of £100.1m), in line with its internal plan.
New customer accounts of 187,000 (2017: 234,000) reflect the impact from the tightening of underwriting during the third quarter of last year as previously communicated and cessation of the Argos contract in early 2018.
Delinquency and arrears performance have remained broadly consistent with the first half of 2017.
Good progress made on implementing the home credit operational recovery plan
IFRS 9 adjusted loss before tax1,2 of £23.2m (2017: pro forma IFRS 9 adjusted profit before tax1,2 of £4.7m, IAS 39 adjusted profit before tax2 of £6.3m) as the business continues to implement its recovery plan following the operational disruption in the second half of 2017.
Actions to align the cost base with the reduced size of the business were completed in the first half, including a reduction in central headcount and careful management of field resource.
Collections performance in the second quarter of the year has remained approximately 10% lower than historic levels due to underperformance of the back book. However, business written since the fourth quarter of 2017 is performing satisfactorily and a series of actions to restore performance by spring 2019 are underway.
Provident remains the clear market leader in the home credit market and the business is expected to return to profitability in 2019.
Moneybarn delivers further strong growth in new business
IFRS 9 adjusted profit before tax1,2 up 2.9% to £10.6m (2017: pro forma IFRS 9 adjusted profit before tax1,2 of £10.3m, IAS 39 adjusted profit before tax2 of £16.9m) reflecting improved credit quality and investment in augmenting the senior management team and resources in customer services and collections.
Significant growth in new business volumes of 16%, notwithstanding tighter credit standards.
Default rates and arrears levels have now stabilised and the credit quality of new business being written is now materially better than 18 months ago following the tightening of underwriting in 2017.
Moneybarn continuesin a constructive dialogue with the FCA on the investigation into affordability, forbearance and termination options.
Patrick Snowball will join the Board on 21 September 2018 as Chairman and Stuart Sinclair, the current Interim Chairman, will retire from the Board.
Angela Knight, Elizabeth G Chambers and Paul Hewitt join the Board as non-executive directors with effect from 31 July 2018.Key financial results
Adjusted profit before tax2
Statutory profit before tax
Adjusted earnings per share2,3
Basic earnings per share3
Annualised return on assets4
Interim dividend per share
Malcolm Le May, Chief Executive, commented:
“I am pleased to report good progress against the 2018 goals we set out at results back in February. The implementation of the home credit operational recovery plan is going well, we have commenced our ROP refund programme after a successful pilot, and we remain engaged in constructive dialogue with the FCA on their investigation at Moneybarn. I am confident we are well placed to make good progress on all three goals during the second half of the year and within the provisions we made in 2017.
Today we have also significantly strengthened the Board, another key objective, with the appointment of Patrick Snowball as Chairman, and three new non-executive directors. These appointments will add to the Board’s financial services, consumer finance, regulatory and non-executive director skill set.
Operationally we have made good progress. Collections performance in home credit in the second quarter did not show the improvement we expected mainly due to lower collections from customers who were live during the poorly executed migration to the new operating model last summer. However, customers who took credit from us since then are performing in line with historic levels, indicating to me the changes we are making to our model are working. Vanquis Bank continues to perform well and in line with our expectations and has made the necessary changes required to meet the new regulatory requirements introduced by the FCA’s new rules addressing persistent debt. Moneybarn has delivered strong growth and continues to perform in line with our expectations.
I believe the group is well placed to champion the underserved, and through greater collaboration across our businesses we can provide them with the credit they need, when they need it, and on responsible terms. I look forward to continuing the journey of repositioning the group as the leading provider of credit to this underserved sector, and would like to thank all my colleagues for their hard work over the last six months."
Richard King/ Jade Byrne Provident Financial
Nick Cosgrove/Simone Selzer, Brunswick
The group has adopted IFRS 9 from its mandatory effective date of 1 January 2018 and made an opening balance sheet adjustment to restate the IAS 39 balance sheet onto an IFRS 9 basis at that date. However, 2017 statutory prior year comparatives have not been restated due to the IFRS 9 requirement in respect of de-recognition of financial assets which would require loans terminated prior to 1 January 2018 to remain under IAS 39 in the prior year. As this would distort comparability with the 2018 income statement and 2018 balance sheet which are on a full IFRS 9 basis, the group has also provided pro forma 2017 income statement and balance sheet comparatives as though IFRS 9 had been implemented retrospectively.
Adjusted profit before tax is stated before: (i) £3.7m of amortisation in respect of acquisition intangibles established as part of the acquisition of Moneybarn in August 2014 (2017: £3.7m); and (ii) an exceptional charge of £36.6m (2017: £21.6m) comprising £18.1m in respect of intangible and tangible asset write offs, redundancy and consultancy costs associated with the implementation of the home credit recovery plan following the poor execution of the migration to the new operating model in July 2017 (2017: £21.6m) and £18.5m in respect of the 8% premium and fees paid on the redemption of 89% of the £250m senior bonds maturing in October 2019 (2017: £nil).
The weighted average number of shares in the period prior to the rights issue in April 2018 has been adjusted to take account of the bonus element of the rights issue of 1.367 and EPS comparatives restated.
Annualised return on assets is calculated as adjusted profit before interest after tax as a percentage of average receivables for the 12 months ended 30 June.