Provident Financial plc, the leading UK non-standard lender, has made the following announcement ahead of an Investor & Analyst Event to be held today. 

Trading update

Since the company’s interim management statement on 22 October 2010, it is pleasing to report that the pick-up in Home Credit loan sales has continued. In the twelve weeks since the beginning of September, sales are running approximately 7% ahead of the corresponding period last year. This reflects an increased focus of field resources on serving credit to existing good quality customers against the tight credit standards that have been in place for some considerable time at a time when we believe customers have increased visibility on their household incomes. The collections performance continues to be stable. 

Vanquis Bank continues to receive a strong flow of new business. Underwriting standards remain unchanged and its performance continues to benefit from the favourable delinquency trends experienced since the second quarter of the year. 

Commenting on current trading, Peter Crook, Chief Executive, said:

“I am pleased to report continuing favourable trends in both businesses which reinforce management’s confidence of delivering a good result for the year.” 

Investor & Analyst Event

The Investor & Analyst Event will provide shareholders and analysts with the opportunity to gain further insight into: 

  • The company’s strategy and positioning in the non-standard credit market;
  • The characteristics of Home Credit customers and the business model used to serve them;
  • The growth opportunity at Vanquis Bank;
  • The company’s management of regulatory matters; and
  • Funding, capital and distribution policy.

Presentations will be made by members of the board and senior managers. The presentation slides will be available on the company’s website,, later today. 

Set out below is a summary of certain material to be covered at the Investor & Analyst Event relating to the Government’s Spending Review and the company’s funding, capital and distribution policy. 

Government Spending Review

Since the company’s interim management statement the Government has published further details relating to its Spending Review and published its White Paper on the Universal Credit and the company has undertaken further work on the effects of this review on its customer base. 

As stated previously, we believe that the proposed changes to benefits have a modest impact on our Home Credit customers: 

  • Less than half of Home Credit customers are in receipt of non-universal benefits. Home Credit declines some 75% of requests for loans selecting in favour of customers whose lifestyles are more stable and who are established members of the communities in which they live.  Accordingly, the Home Credit customer base is not representative of the broader population classified within the lower income bands who exhibit a greater reliance on welfare benefits support.
  • The quantification and published timetable in relation to benefit reforms provide clear visibility to our Customer Experience Managers of how these may impact their customers over the four year period over which the changes are to be phased in.  Furthermore, Customer Experience Managers are already building the nearer-term changes into their credit decisioning.
  • The switching of indexation of benefits from RPI to CPI does not reduce the level of benefits, only moderates future increases.
  • The capping of benefits that family households can receive at around £500 per week will affect under 1% of households served by Home Credit.
  • The cutting of child benefit will not affect Home Credit customers.
  • The capping of Local Housing Allowance will not have a significant impact on the small minority of Home Credit customers living in private rented accommodation and in receipt of benefits.  There is no change to Social Housing rents for existing tenants which is relevant to almost half of the customer base.
  • The restriction on Employment Support Allowance paid to those who are unable to work because of a disability or health condition to one year from 2012 will impact less than 5% of Home Credit customers.
  • The majority of Home Credit households derive their incomes from hourly paid, part time and casual work and therefore will typically not be directly affected by the proposed reduction in public sector employment. 

There are a number of positive impacts of the Government’s Spending Review and the June 2010 Budget on our Home Credit customers, namely: 

  • The Government has stated that it will financially protect benefit claimants through the planned transition to the Universal Credit by 2017.  Furthermore, the Government has estimated that its introduction will result in 2.5 million households receiving higher entitlements which should benefit the Home Credit business in due course.
  • At least a third of Home Credit customers will benefit from the April 2011 increase in the income tax threshold to £7,475 by £4 per week (£200 per annum). The threshold could be increased to £10,000 during the life of the current parliament which would increase the benefit to £12 per week (£650 per annum).

Funding, capital and distribution policy

The group’s balance sheet and liquidity are strong. Headroom on the group’s committed debt facilities amounted to £300m at the end of October. The group’s debt maturities in 2011 of £148m were fully pre-funded in the first quarter of 2010 and the group fully expects to have pre-funded 2012 maturities of £237m in the first quarter of 2011 in line with its normal funding policy. 

The group operates a very clear financial model which has been in place for over three years and aligns its dividend policy, gearing target and organic growth expectations. 

The company’s gearing target is 3.5 times which provides very significant headroom in comparison to the ratio of 5.0 times included in its bank covenants. The gearing ratio has been running below 3.5 times over the last three years. 

The company’s distribution policy results in 20% of profits being retained in the business to fund growth which, together with debt funding at its gearing target of 3.5 times, will accommodate receivables growth of £100m per annum which will increase as profits grow and the UK rate of corporation tax is reduced. This rate of growth is consistent with the group’s medium-term plans.

In summary, the group is able to meet its existing internal growth targets whilst distributing 80% of profits by way of dividend and maintaining a sustainable gearing ratio of 3.5 times.

At its current scale, Vanquis Bank has passed the point at which it is generating sufficient capital to fund its own growth. Management provided guidance to the market in March 2010 that Vanquis Bank would grow its receivables book to £450m by the end of 2012 whilst maintaining a post-tax return on equity of 30%. Vanquis Bank remains firmly on track to deliver these targets which would result in it being able to distribute at least £20m of dividends to Provident Financial during 2011 and 2012, representing an important contribution to the company’s dividend.

Download the Investor & Analyst Event presentation slides (PDF)



David Stevenson, Provident Financial - 01274 351351

Eilis Murphy, Brunswick - 020 7404 5959

Investor Relations

Gary Thompson, Provident Financial - 01274 351351