TIDMPFG
RNS Number : 1067H
Provident Financial PLC
30 July 2019
Provident Financial plc
Interim results for the six months ended 30 June 2019
Provident Financial plc (PFG or 'the group') is the leading
provider of credit products which provide financial inclusion for
those consumers who are not well served by mainstream lenders. The
group serves 2.4 million customers and its operations consist of
Vanquis Bank, Moneybarn, and the Consumer Credit Division (CCD)
comprising Provident home credit and Satsuma.
Key financial results
H1 H1
2019 2018 Change
----------- ----------- --------
Adjusted profit before tax(1) GBP74.9m GBP74.9m -%
Amortisation of acquisition intangibles (GBP3.7m) (GBP3.7m) -%
Exceptional costs (excluding bid defence
costs) (GBP10.0m) (GBP36.6m) 72.7%
--------
Profit before tax and bid defence costs GBP61.2m GBP34.6m 76.9%
Exceptional costs - bid defence costs (GBP23.6m) - n/a
----------- ----------- --------
Statutory profit before tax GBP37.6m GBP34.6m 8.8%
Adjusted basic earnings per share(1) 21.8p 24.2p (9.9%)
Basic earnings per share 8.1p 9.8p (17.3%)
Annualised return on assets(2) 7.7% 5.3% n/a
Interim dividend per share 9.0p -p n/a
Highlights
Continued good recovery of the group underpins the Board's
reinstatement of the interim dividend
-- Group profit before tax and bid defence costs up 76.9% to GBP61.2m (2018: GBP34.6m).
-- Group adjusted profit before tax(1) of GBP74.9m (2018:
GBP74.9m), in line with internal plans and the first half of
2018.
-- Improvement in the annualised return on assets from 5.3% to
June 2018 to 7.7% to June 2019, with Vanquis Bank and Moneybarn
both delivering returns above the group's target of 10%.
-- Strategic initiatives well underway to deliver the group's
'Vision for the Future', including a number of product
developments, combining online loans capabilities and cost and
funding efficiencies.
-- Further strengthening of the senior management team and Board
following the appointments of Neil Chandler as Managing Director of
Vanquis Bank, Robert East as Chairman of Vanquis Bank and a member
of the group Board and Graham Lindsay to the group Board.
-- Revolving syndicated facility successfully refinanced from
GBP450m to a planned level of GBP235m, reflecting a lower funding
requirement for the non-bank group now that Vanquis Bank is fully
ring fenced and funded with retail deposits.
-- The Board proposes an interim dividend of 9.0p per share
(2018: nil), underpinned by the group's ongoing recovery.
Vanquis Bank has delivered strong new account volumes despite
adapting to changes in regulation
-- In line with internal plans, Vanquis Bank's profit before tax
reduced to GBP85.0m (2018: GBP97.2m) primarily reflecting the
expected reduction in ROP income and a shift in mix to nearer
prime.
-- New customer account bookings of 190,000, 3,000 higher than
the first half of 2018 and ahead of management's plans,
notwithstanding tighter underwriting and the impact of revised
affordability processes.
-- Improvement in the annualised impairment rate from 15.7% of
average receivables to June 2018 to 15.1% to June 2019, reflecting
an improvement in delinquency trends due to tighter underwriting
and the shift in mix of business to nearer prime.
-- Costs and interest charges reduced by 2.1% and 12.6%
respectively, reflecting tight cost control and the impact of fully
funding the business with retail deposits.
Moneybarn delivers further strong growth in new business
-- Adjusted profit before tax(1) up 46.2% to GBP15.5m (2018:
GBP10.6m) reflecting strong growth and improved credit quality.
-- Demand for used cars has remained robust which, together with
an improved customer experience, has resulted in strong growth in
new business volumes of 34%, notwithstanding tighter credit
standards.
-- Annualised impairment rate of average receivables reduced to
12.3% (2018: 14.1%), reflecting stable default and arrears levels
following progressive tightening of underwriting through 2017 and
2018.
CCD turnaround progressing well with a view to return the
business to profitability in the second half of 2020
-- Reduction in adjusted loss before tax(1) to GBP15.1m (2018:
loss of GBP23.2m) reflects ongoing recovery of the home credit
business.
-- UK new customer growth in home credit 15% higher than the first half of 2018.
-- Reduction in first half costs of 11% reflects the impact of
headcount reductions over the last 18 months with cost efficiency
remaining an ongoing priority for the business.
-- Testing of enhanced performance management of the field force
through a balanced scorecard with some element of variable pay has
been well received, with full roll-out taking place through the
second half of 2019.
-- Satsuma has continued to deliver good growth and produced a
break even result in the first half of the year.
Malcolm Le May, Chief Executive Officer, commented:
"Despite the distraction of the unsolicited bid from February to
June this year, I am pleased with the group's operational and
financial performance during the first half of the year. We have
delivered strong new business volumes whilst maintaining stable
delinquency trends and our first half results are in line with our
internal plans. We are pleased to announce reinstatement of an
interim dividend of 9.0p per share, which reflects our confidence
in the ongoing recovery of the group. We will be hosting a Capital
Markets Day on 7 November 2019 where we will provide further detail
on the medium-term strategy and outlook for the group."
Enquiries:
Media
Richard King, Provident Financial 0203 620 3073
Nick Cosgrove/Simone Selzer,
Brunswick 0207 404 5959
Investor Relations
Gary Thompson/Vicki Turner,
Provident Financial
investors@providentfinancial.com 01274 351 900
(1) Adjusted profit before tax is stated before: GBP3.7m (2018:
GBP3.7m) of amortisation in respect of acquisition intangibles
established as part of the acquisition of Moneybarn in August 2014
and exceptional charges of GBP33.6m (2018: GBP36.6m) comprising:
(i) GBP23.6m of defence costs associated with Non-Standard
Finance's (NSF's) unsolicited offer for the group; and (ii)
GBP10.0m in relation to the turnaround of the home credit business
following the poor execution of the migration to the new operating
model in July 2017. Exceptional costs in the first half of 2018
also included GBP18.5m in respect of the refinancing of the senior
bonds maturing in October 2019.
(2) 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.
Note:
This report contains certain forward-looking statements. These
statements are made by the directors in good faith based on the
information available to them up to the time of their approval of
this report, but such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, like-for-like any such forward-looking information.
This report is intended solely to provide information to
shareholders to assess the group's strategies and neither the
company nor its directors accept liability to any other person,
save as would arise under English law. The report should not be
relied on by any other party or for any other purpose.
INTERIM REPORT
Chief Executive Officer's review
Introduction
Despite the significant distraction and associated costs of
defending the unsolicited NSF offer, the group has made good
operational and financial progress over the last 6 months. Adjusted
profit before tax of GBP74.9m was in line with both internal plans
and the first half of 2018 and each of the group's businesses has
delivered strong new customer growth whilst maintaining stable
delinquency. As a result of the continued resilient operational
performance of the group, and as we near completion of the
turnaround programme, I am pleased that the Board has confirmed an
interim dividend of 9.0p per share. As highlighted previously, the
interim dividend will be paid in September rather than in late
November, bringing the group in line with other financial
institutions and in recognition of the continued support of
shareholders.
PFG has been through a substantial period of change over the
past 2 years, adapting to a more stringent and continually evolving
regulatory environment necessitating significant changes to each of
our business models to ensure that they are sustainable.
Vanquis Bank is now providing credit under the enhanced
affordability guidance implemented last year and has introduced a
number of measures to adapt to the FCA's Credit Card Market Study
(CCMS) in respect of persistent debt. These include the
introduction of higher minimum payments due in 2018 together with
the recent introduction of recommended payments and communication
strategies to reduce the number of customers in persistent debt.
These measures are designed to encourage customers to pay off their
borrowing quicker, pay less overall and avoid getting into
persistent debt. The business has also made a number of changes to
its interest and fee structures, including downwards re-pricing for
customers of suitable credit quality and the basis for charging
late and over limit fees. The ROP refund programme was successfully
completed in the first half of the year, in line with provisions
originally established at the end of 2017.
The FCA investigation at Moneybarn is close to being concluded
with the expected financial impact within the previously announced
financial provisions.
In CCD, the changes made to the business model over the last 18
months has meant that the business and the enhanced customer
proposition was well placed for the introduction of the new
high-cost credit guidance in respect of home credit in the first
quarter of 2019. To comply with new regulatory requirements,
existing home credit customers must now make a specific request in
writing before a Customer Engagement Manager (CEM) can offer them a
loan. CEMs are also required to explain all available options to a
customer who wishes to borrow, including refinancing their existing
loan or taking out a concurrent loan. Importantly, the use of voice
recording on customer visits allows CCD to evidence compliance with
the new FCA rules, which also benefits the customer. In addition,
CCD has made good progress in the testing of an enhanced
performance management framework involving the introduction of a
balanced scorecard with an element of variable pay. The new
framework is expected to improve financial performance whilst
maintaining good customer outcomes and will be rolled out
nationwide in the second half of the year.
The group continues to focus on governance and culture, with a
number of senior appointments during the first half of the year,
including Neil Chandler, who was appointed as Managing Director of
Vanquis Bank, Robert East, who was appointed as Chairman of Vanquis
Bank and a member of the group Board, and Graham Lindsay, who was
appointed to the group Board. We have also made good progress in
embedding our Blueprint throughout the business to realign the
culture more closely with the developing needs of the customer
base.
As set out in the first quarter trading statement in May 2019,
the Board's vision is to be the best and most trusted provider of
credit to the underserved across a broader range of products and
distribution channels, in order to help our customers on a path to
a better everyday life.
The group's focus is on providing customers with credit products
appropriate for their circumstances, delivering good customer
outcomes and, through this, generating sustainable shareholder
returns. To do this we will:
-- Deliver a broader product range;
-- Enhance our distribution capabilities;
-- Establish a single view of our customer; and
-- Grow responsibly, delivering sustainable shareholder returns.
We continue to deliver and develop a number of initiatives
across each of these areas of focus:
Broader product range
With our existing customer base of 2.4 million customers, our
leading multi-channel distribution capabilities and the excellent
recognition enjoyed by our brands, the group is uniquely positioned
to reach those who require finance and to provide credit products
appropriate for them. The group will be building on its
multi-channel distribution capabilities to meet a broader set of
credit needs, developing a full product suite to support the aim of
full financial inclusion for our customers in our increasingly
digital world.
Management are progressing a number of product initiatives:
-- Combining Satsuma and Vanquis Bank loan capabilities in order
to provide a joined up range of online unsecured lending products
at various price points, terms and issue values to meet customer
needs. We plan to complete this process during the second half of
the year.
-- We continue to discuss with the FCA the possibility of
offering an enhanced ROP product, catering to customers who value
its features, providing them with additional forbearance measures
beyond those prescribed by regulation.
-- The trial of Provident Direct has recently commenced in one
area. Provident Direct leverages capabilities in both home credit
and Satsuma and is relationship managed in the home by a CEM, but
payments are collected remotely via continuous payment authority
(CPA). We believe this product will be attractive to customers who
value the human face-to-face customer relationship management but
who would also prefer the option of a direct repayment process.
Enhanced distribution capability across digital and face-to-face
channels
Through the combination of technology and human interface, the
group can help customers access a growing range of products that
includes credit cards, term loans and vehicle financing, offered at
rates commensurate with customers' credit standing, which we know
changes over time. During the first half, we have focused on
improving our distribution capabilities in a number of areas:
-- The Vanquis Bank app now has over 1.0 million active users
and Vanquis Bank customers now have access to Moneybarn car
finance. We aim to provide access to other group products in due
course.
-- Further development and integration of the Provident
Knowledge Universe (PKU) across the group. The PKU is our data
collaboration with Experian and allows us to enhance management of
the customer experience and ensure that we use this rich data
source to better identify and fulfil customer needs with the
group's products.
-- CCD has successfully trialled an enhanced performance
management framework, firstly in one area then in the whole of a
region, which includes measuring the performance of CEMs based on a
balanced scorecard and rewarding them with some element of variable
pay linked to the level of performance. The implementation of this
full suite of performance measures is essential to improving the
efficiency and effectiveness of the field organisation and is an
important component of returning the business to profitability in
the second half of 2020.
Establish a single view of our customer
Historically, the group has been organised in distinct
product-specific silos with little collaboration or cross-group
cohesion, and limited focus on realising synergies across the
group's customer and cost base, or development of shared
capabilities. This is now changing as a result of the new product
and distribution initiatives already highlighted, alongside the
renewed momentum within the management teams generated by the
changes enacted to the group and divisional structures over the
last 12 months. The strategy is to leverage the customer and
capability synergies which exist across the businesses and which,
together with the group's scale, represent a significant
competitive advantage for the group.
Responsible growth with a focus on sustainable shareholder
returns
It is clear that the group must focus on responsible growth,
supported by cost control and efficiency and on delivering products
from the most efficient capital structure.
In the first half of the year, the group has delivered a number
of actions focused on cost and capital efficiency:
-- Costs:
- Continued the extraction of costs across the group, extending
the actions taken in previous periods, to achieve run-rate annual
savings of GBP90m since early 2018.
- In January 2019, CCD announced a voluntary redundancy
programme in central support functions with the aim of reducing
central headcount by over 200. Together with actions already taken
and the ongoing tight control of costs, this is expected to result
in CCD's cost base reducing by c.GBP20m in 2019. Overall there has
been a reduction in roles within CCD approaching 1,000 over the
last 18 months. Cost efficiency remains a key priority in returning
the business to profitability in the second half of 2020.
- Established a medium-term objective, over the next three
years, to target a 500 basis points reduction in the cost income
ratio from 43% in 2018 to 38%.
-- Funding efficiencies:
- Successful refinancing of the group's syndicated banking facility in July 2019.
- Commenced the process of exploring the ability to use retail
deposits and securitisation to fund Moneybarn, which would offer
specific scaleable funding cost advantages and flexibility.
- Begun preparations for the normal Prudential Regulation
Authority (PRA) review of the group's capital requirements which
will commence in the fourth quarter of the year and conclude in the
first quarter of 2020. Management are assessing a number of areas
which could potentially lead to a reduction in capital requirements
from the current fully loaded Total Capital Requirement (TCR) of
25.5%.
Outlook
After a year of recovery in 2018, the first six months of 2019
has seen a renewed momentum in the delivery of the group's
long-term strategic objective to deliver good outcomes for
customers combined with sustainable and attractive returns to
shareholders. Despite the distraction of the unsolicited and
hostile offer, the group has maintained its focus on delivering on
its strategic initiatives. Looking forward to the full year, the
Board confirms that overall the group continues to trade in line
with internal plans.
CCD performed broadly in line with internal plan for the first
half of the year despite the impact of the new high-cost credit
guidance in respect of home credit. However, it is a strategic
imperative to return the business to profitability as soon as
possible. The Board is targeting CCD returning to profitability in
the second half of 2020, underpinned by the roll-out of enhanced
performance management in the second half of 2019, further cost
reduction and the recent launch of the Provident Direct trial.
Longer term, the group is confident that through our market
position, clear strategy and our complementary, synergistic and
industry-leading businesses, we will deliver an attractive
investment for shareholders. As the group transitions to a model in
which Vanquis Bank, with its enhanced product range, is the fulcrum
of the group, it is appropriate that our return metrics are fully
reflective of this. Accordingly, the target to deliver a return on
assets of approximately 10% for the group as a whole is consistent
with a target return on equity of between 20% and 25%, by 2021 and
beyond. We will also target sustainable receivables growth through
the cycle of between 5% and 10% per annum which we expect to
achieve over the medium term, maintain dividend cover of at least
1.4 times once the home credit business returns to profitability
and maintain a sensible buffer over the TCR as prescribed by the
PRA. The management team will present its views on the longer term
outlook for the group at a Capital Markets Day on 7 November
2019.
Malcolm Le May
Chief Executive Officer
30 July 2019
Financial review
Group performance
The group's 2019 interim results can be summarised as
follows:
Six months ended 30 June
2019 2018 Change
GBPm GBPm %
--------- -------- --------
Adjusted profit/(loss) before tax:
- Vanquis Bank 85.0 97.2 (12.6)
- Moneybarn 15.5 10.6 46.2
- CCD (15.1) (23.2) 34.9
- Central costs (10.5) (9.7) (8.2)
--------- -------- --------
Adjusted profit before tax(1) 74.9 74.9 -
--------- -------- --------
Amortisation of acquisition intangibles (3.7) (3.7) -
Exceptional costs (excluding bid defence
costs) (10.0) (36.6) 72.7
--------- -------- --------
Profit before tax and bid defence costs 61.2 34.6 76.9
--------- -------- --------
Exceptional costs - Bid defence costs (23.6) - n/a
--------- -------- --------
Statutory profit before tax 37.6 34.6 8.8
Adjusted basic EPS(1) 21.8p 24.2p (9.9)
--------- -------- --------
Basic EPS 8.1p 9.8p (17.3)
--------- -------- --------
Annualised ROA(2) 7.7% 5.3% n/a
--------- -------- --------
(1) Adjusted profit before tax is stated before: (i) GBP3.7m of
amortisation in respect of acquisition intangibles established as
part of the acquisition of Moneybarn in August 2014 (2018:
GBP3.7m); and (ii) exceptional charges of GBP33.6m (2018: GBP36.6m)
comprising GBP23.6m of costs in respect of defending the
unsolicited offer from NSF (2018: GBPnil) and GBP10.0m in relation
to the turnaround of the home credit business following the poor
execution of the migration to the new operating model in July 2017
(2018: GBP18.1m). Exceptional costs in the first half of 2018 also
included GBP18.5m in respect of the refinancing of the senior bonds
maturing in October 2019.
(2) 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.
Group adjusted profit before tax of GBP74.9m was in line with
both internal plans and the first half of 2018 (2018:
GBP74.9m).
Statutory profit before tax increased by 8.8% to GBP37.6m (2018:
GBP34.6m) due to a reduction in exceptional costs. Exceptional
costs in the first half of 2019 were GBP33.6m, lower than GBP36.6m
in the first half of 2018, and mainly comprised bid defence costs
of GBP23.6m in respect of the NSF unsolicited offer and GBP10.0m in
respect of the ongoing turnaround of the home credit business.
Excluding bid defence costs, the group's reported profit before tax
was up 76.9% to GBP61.2m (2018: GBP34.6m).
As expected, Vanquis Bank's adjusted profit before tax has
reduced by 12.6% to GBP85.0m (2018: GBP97.2m), principally
reflecting the continuing reduction in the revenue yield due to
lower ROP income and a shift in mix to better-quality, nearer prime
business. Full-year profits in 2019 are expected to be more evenly
spread between the first and second halves compared with 2018 which
experienced a strong performance in the first half followed by the
weaker performance in the second half caused by an increase in
impairment from the introduction of higher minimum due
payments.
Moneybarn's adjusted profit before tax has increased by 46.2% to
GBP15.5m (2018: GBP10.6m), reflecting strong growth and improved
credit quality.
CCD has reported a reduced adjusted loss before tax of GBP15.1m
(2018: loss of GBP23.2m) as the business continues to deliver on
its recovery plan whilst adapting to the impact of the new home
credit guidance within the high-cost credit review. As previously
communicated, the focus in 2019 is on stabilising the customer base
and continuing to reduce costs, both of which are necessary to
return the business to profitability. As a result of the ongoing
actions taken by management, the business expects to deliver a
reduced loss in the second half 2019. The first half of 2020 is
also expected to be a loss, reflecting normal seasonality, before
the business is expected to return to profitability in the second
half of 2020. Overall, 2020 is expected to be breakeven as a
whole.
Basic earnings per share reduced by 17.3% to 8.1p (2018: 9.8p)
due to the impact of the rights shares issued in April 2018 and due
to the defence costs being treated as significantly non-tax
deductible pending further analysis of the tax provision. Adjusted
basic earnings per share of 21.8p (2018: 24.2p) reduced by 9.9%,
reflecting the impact of the rights shares issued in April
2018.
Vanquis Bank
Six months ended 30 June
2019 2018 Change
GBPm GBPm %
--------- --------- -------
Customer numbers(1) ('000) 1,791 1,747 2.5
Period-end receivables 1,438.1 1,432.4 0.4
Average receivables(2) 1,440.9 1,487.1 (3.1)
------------------------------------ --------- --------- -------
Revenue 294.6 331.9 (11.2)
Impairment (96.6) (117.3) 17.6
--------- --------- -------
Revenue less impairment 198.0 214.6 (7.7)
Annualised revenue yield(3) 41.9% 45.0%
Annualised impairment rate(4) 15.1% 15.7%
Annualised risk-adjusted margin(5) 26.8% 29.3%
Costs (97.1) (99.2) 2.1
Interest (15.9) (18.2) 12.6
Profit before tax 85.0 97.2 (12.6)
--------- --------- -------
Annualised return on assets(6) 10.4% 11.2%
(1) Customer numbers previously included Vanquis Bank credit
card customers who had a Vanquis Bank loan as two separate
customers. In order to adopt a more holistic 'single view of
customer' approach, customer numbers now reflect Vanquis Bank
customers who have a loan as well as a credit card as one customer.
Accordingly, the June 2018 comparative for customer numbers has
been restated onto a comparable basis resulting in a reduction in
customer numbers from 1,764,000 to 1,747,000.
(2) Calculated as the average of month end receivables for the 6
months ended 30 June excluding the impact of the balance reduction
provision of GBP1.2m (2018: GBP69.3m) arising as a result of the
resolution of the FCA investigation into ROP reached on 27 February
2018.
(3) Revenue as a percentage of average receivables for the 12
months ended 30 June.
(4) Impairment as a percentage of average receivables for the 12
months ended 30 June.
(5) Revenue less impairment as a percentage of average
receivables for the 12 months ended 30 June.
(6) Profit before interest after tax as a percentage of average
receivables for the 12 months ended 30 June.
In line with management's internal plans, Vanquis Bank's
adjusted profit before tax reduced by 12.6% to GBP85.0m in the
first half of 2019 (2018: GBP97.2m). The reduction in profits
primarily reflects the continued moderation in the annualised
revenue yield from reduced ROP income and a shift in business mix
towards better quality, nearer prime. In addition, as expected,
receivables growth has been modest following the implementation of
persistent debt measures and revised affordability processes. These
adverse variances were partly offset by an improved impairment
rate, operational leverage and a reduction in interest costs.
Profits in 2018 were more weighted towards the first half of the
year as the second half of the year was adversely impacted by an
increase in impairment as a result of increased forbearance and the
introduction of higher minimum payments which both led to an
increase in payment arrangements.
Whilst the marketing activity of competitors in both the direct
mail and internet channels has continued, demand for Vanquis Bank's
credit cards continues to be strong. Despite tighter underwriting
standards, including the withdrawal of the 69.9% APR product, and
the implementation of revised affordability processes which have
reduced new booking volumes by approximately 25%, new customer
bookings of 190,000 were 3,000 higher than the first half of last
year and ahead of management's plans. This reflects the benefit
from the implementation of the new underwriting engine towards the
end of 2018 which has enabled Vanquis Bank to enhance the customer
onboarding journey. This includes the full roll-out of soft search
pre-application for all channels and the pre-approval and
pre-population for all affiliate channels, both of which have
resulted in an improvement in application completion rates. As a
result, customer numbers ended the first half at 1,791,000 (2018:
1,747,000), representing year-on-year growth of 2.5%, a lower rate
of growth than the 4% reported at the Q1 trading update due to the
sale of 18,000 semi-performing customers on payment arrangements
during the second quarter of the year. During the second half of
the year, Vanquis Bank will be undertaking a re-activation campaign
on approximately 250,000 customers who are currently not active and
will close down those customer accounts that do not re-activate in
order to manage contingent risk if there is any deterioration in
the economic environment.
Despite strong new booking volumes, receivables ended the first
half at GBP1,438.1m, a modest increase of 0.4% from GBP1,432.4m at
June 2018. This planned level of growth reflects lower average
customer balances due to the impact of two changes in regulation.
Firstly, in response to the FCA's definition of persistent debt
within the CCMS, Vanquis Bank increased minimum due payments in the
last quarter of 2018 and commenced testing of communication
strategies in respect of higher recommended payments during the
first quarter of the year. Approximately, 15% of Vanquis Bank
customers currently meet the definition of being in persistent debt
and the business is actively working with these customers with a
view to removing them from this position in advance of March 2020,
which is the first 36-month checkpoint after which customers who
still meet the definition of being in persistent debt will be
offered a way to repay their balance in a reasonable period.
Secondly, revised affordability processes introduced in November
2018, together with the impact of not extending credit to those
customers meeting the definition of persistent debt, has resulted
in a reduction in the level of further credit extended to existing
credit under the credit line increase programme. Credit line
increases in the first half of 2019 were approximately 50% lower
than the first half of 2018.
The focus of the Vanquis Bank loans proposition remains on
providing unsecured loans to existing credit card customers.
Volumes have been kept at modest levels during the first half of
the year as the group works towards combining Satsuma and Vanquis
Bank loan capabilities in order to provide a joined up range of
online unsecured lending products. The receivables book in respect
of Vanquis Bank loans at the end of the first half was GBP24.2m
(2018: GBP25.1m).
Revenue has shown an 11.2% reduction to GBP294.6m in the first
half of the year (2018: GBP331.9m) compared with the 3.1% reduction
in average receivables. The annualised revenue yield has moderated
from 45.0% to June 2018 to 41.9% to June 2019 due to three factors.
Firstly, a further decline in the penetration of ROP within the
customer base following the voluntary suspension of sales in April
2016. This resulted in a year-on-year reduction in ROP income of
approximately GBP10m. Secondly, there has been some further
moderation in the interest yield from: (i) the continued increase
in the mix of nearer prime customers; (ii) downwards re-pricing of
higher APR accounts where the customer has improved their credit
standing; (iii) balance reductions applied to accounts as part of
the ROP refund programme were typically at higher APRs. Finally,
there have been some changes to the basis for charging late and
over limit fees to customer accounts.
The ROP refund programme was completed during March 2019 within
the previously announced financial provision for refunds and
balance reductions and agreed timetable with the FCA. There has
been no material change in the level of complaints arising in
relation to ROP following the announcement of the settlement in
February 2018. The remaining provisions held in respect of the ROP
refund programme, including the balance reduction provision of
GBP1.2m within receivables (2018: GBP69.3m), amount to GBP29.8m at
June 2019 (2018: GBP159.8m). Discussions are continuing with the
FCA regarding the possibility of offering an enhanced ROP product
and a potential return to new sales in due course.
Delinquency trends showed a favourable movement compared with
the first half of last year due to a shift in business mix towards
better quality, nearer prime. In addition, the rate of increase in
payment arrangements experienced in the second half of 2018, due to
enhanced forbearance and the increase in minimum due payments, has
moderated through the first half of 2019. Accordingly, the
annualised impairment rate to June 2019 has reduced to 15.1% of
average receivables compared with 15.7% to June 2018. Underwriting
standards have been progressively tightened over the last two years
which, together with the historic resilience of the business model,
means that Vanquis Bank is well-positioned if there is any
deterioration in the UK economic environment.
The annualised risk-adjusted margin has moderated from 29.3% to
June 2018 to 26.8% to June 2019, reflecting the reduction in the
annualised revenue yield offset by the modest improvement in the
impairment rate discussed above.
Costs have reduced by 2.1% to GBP97.1m in the first half of 2019
(2018: GBP99.2m). Despite stronger new account bookings, Vanquis
Bank has been able to access operational leverage reflecting tight
cost control. Cost efficiency remains a strong focus for Vanquis
Bank. There are now over 1.0 million active users of Vanquis Bank's
new mobile app and customers now have access to Moneybarn car
loans. The new app and the PKU will allow enhanced management of
the customer journey and greater collaboration across the group's
divisions. The continuing development of digital capability is an
essential driver in delivering good customer outcomes and
maintaining the returns of Vanquis Bank in the context of a
moderating revenue yield.
Interest costs of GBP15.9m have reduced by 12.6% during the
first half of 2019 (2018: GBP18.2m). This reflects the reduction in
Vanquis Bank's blended funding rate, after taking account of the
cost of holding a liquid assets buffer, from 3.5% in the first half
of 2018 to 3.0% in the first half of 2019. This reflects the impact
of Vanquis Bank repaying its intercompany loan from PFG and
becoming fully funded with retail deposits in November 2018. The
intercompany loan represented a higher cost of funding for Vanquis
Bank.
Vanquis Bank's annualised return on assets has reduced to 10.4%
(2018: 11.2%), reflecting the moderation in the annualised
risk-adjusted margin partly offset by cost efficiency.
Moneybarn
Six months ended 30 June
2019 2018 Change
GBPm GBPm %
--------- -------- --------
Customer numbers ('000) 70 57 22.8
Period-end receivables 461.3 360.0 28.1
Average receivables(1) 436.6 360.6 21.1
------------------------------------ --------- -------- --------
Revenue 77.2 61.2 26.1
Impairment (27.8) (24.7) (12.6)
--------- -------- --------
Revenue less impairment 49.4 36.5 35.3
Annualised revenue yield(2) 35.6% 34.5%
Annualised impairment rate(3) 12.3% 14.1%
Annualised risk-adjusted margin(4) 23.3% 20.4%
Costs (20.2) (16.1) (25.5)
Interest (13.7) (9.8) (39.8)
Adjusted profit before tax(5) 15.5 10.6 46.2
--------- -------- --------
Annualised return on assets(6) 11.5% 9.5%
(1) Calculated as the average of month end receivables for the 6
months ended 30 June prior to the impact of the balance reduction
adjustment of GBP1.8m (2018: GBP12.1m) in respect of the FCA
investigation into affordability, forbearance and termination
options.
(2) Revenue as a percentage of average receivables for the 12
months ended 30 June.
(3) Impairment as a percentage of average receivables for the 12
months ended 30 June.
(4) Revenue less impairment as a percentage of average
receivables for the 12 months ended 30 June.
(5) Adjusted profit before tax is stated before the amortisation
of acquisition intangibles of GBP3.7m (2018: GBP3.7m).
(6) Adjusted profit before interest after tax as a percentage of
average receivables for the 12 months ended 30 June.
Moneybarn has delivered a 46.2% increase in first half adjusted
profit before tax to GBP15.5m (2018: GBP10.6m). This reflects
strong growth in receivables together with the benefit from
improved credit quality following the tightening of underwriting in
2017 and 2018 partly offset by the investment in strengthening the
management team and collections and customer service resource.
The non-standard vehicle finance market remains competitive,
particularly in the nearer prime segment of the market where there
has been a number of smaller new entrants. However, demand for used
cars has remained robust and, despite continued tight underwriting
standards, new business volumes during the first half have been
very strong. Continued development of core broker-introduced
distribution channels, including revising affordability processes
and a number of other operational developments, has resulted in a
better customer experience and reinforced Moneybarn's primacy
amongst its broker network. As a result, new business volumes were
34% higher than last year and customer numbers ended the first half
at 70,000, up from 62,000 at December 2018 and showing growth of
22.8% from 57,000 at June 2018.
Moneybarn continues to explore opportunities to extend its
product offering and distribution channels through: (i) using the
Vanquis Bank app to offer bespoke Moneybarn products to Vanquis
Bank customers which is now live; (ii) expansion of relationships
with lead generators and quotation search partners such as
Clearscore, leveraging Moneybarn's quotation search and digital
onboarding capabilities; (iii) introduction of a re-solicitation
programme to retain high-quality customers who currently settle
early and move to other lenders; and (iv) introduction and
development of new asset classes that resonate with Moneybarn's
target customer base, such as light commercial vehicles, motorbikes
and touring caravans.
The strong growth in new business volumes has resulted in
receivables growth of 28.1% to GBP461.3m (2018: GBP360.0m).
Receivables are stated after the remaining balance reduction
provision of GBP1.8m (December 2018: GBP1.8m, June 2018: GBP12.1m)
in respect of the FCA investigation into affordability, forbearance
and termination options. In addition, the provision in respect of
potential cash restitution, administration costs and an FCA fine
has reduced from GBP7.5m to GBP7.0m during the first half,
primarily reflecting costs in respect of communicating with
customers in respect of balances which have been written down as
part of the expected settlement with the FCA. The final settlement
agreement is expected in the near future and is expected to be
within the remaining provisions of GBP8.8m held by Moneybarn at 30
June 2019.
Revenue has increased by 26.1% compared with the growth in
average receivables of 21.1%. The annualised revenue yield has
increased to 35.6% to June 2019 from 34.5% to June 2018, reflecting
a lower mix of near prime business due to increased competition in
that segment of the market.
As previously reported, default rates through 2016 and 2017
showed a progressive increase principally reflecting: (i) the
change in product proposition from lending up to the trade value of
a vehicle to lending up to the retail value; and (ii) the strong
growth in new business volumes as Moneybarn's peak in defaults is
approximately 9 to 12 months following inception of a loan. As a
result of the higher level of defaults being experienced,
underwriting was tightened in the second quarter of 2017 on higher
risk categories of business and a tier of lower value business
which was only marginally profitable was also removed in the second
quarter of 2018. Default rates and arrears levels stabilised
through the second half of 2018 and have remained stable during the
first half of 2019. As a result of these factors, the annualised
impairment rate has reduced from 14.1% to June 2018 to 12.3% to
June 2019.
The improvement in the impairment rate has resulted in
Moneybarn's annualised risk-adjusted margin strengthening from
20.4% to June 2018 to 23.3% to June 2019.
Whilst headcount has only increased modestly to around 300
during the first half of 2019, the flow through from the investment
in additional headcount in 2018 has resulted in cost growth of
25.5%, modestly higher than the growth in average receivables of
21.1%. Due to the strong growth in the business over recent years,
Moneybarn has now outgrown its existing head office in Petersfield.
Accordingly, the business will shortly be moving into new premises,
very close to the existing site, which will accommodate up to 420
employees and support growth well into the medium term.
Interest costs have shown growth of 39.8% in the first half of
2019, higher than the growth in average receivables. This reflects
an increase in Moneybarn's group funding rate as the cost of
funding the non-bank segment of the group has increased following
Vanquis Bank becoming fully funded through retail deposits during
the second half of 2018.
Moneybarn has delivered an annualised return on assets of 11.5%
to June 2019, up from 9.5% to June 2018, reflecting the
strengthening of the annualised risk-adjusted margin partly offset
by the impact of the investment in strengthening the management
team and collections and customer service resource during 2018.
CCD
Six months ended 30 June
2019 2018 Change
GBPm GBPm %
--------- --------- -------
Customer numbers ('000) 531 765 (30.6)
Period-end receivables 245.4 293.7 (16.4)
Average receivables(1) 254.2 309.7 (17.9)
------------------------------------ --------- --------- -------
Revenue 152.1 179.4 (15.2)
Impairment (51.8) (70.6) 26.6
--------- --------- -------
Revenue less impairment 100.3 108.8 (7.8)
Annualised revenue yield(2) 117.3% 120.7%
Annualised impairment rate(3) 38.0% 78.6%
Annualised risk-adjusted margin(4) 79.3% 42.1%
Costs (110.3) (124.0) 11.0
Interest (5.1) (8.0) 36.3
Adjusted loss before tax(5) (15.1) (23.2) 34.9
--------- --------- -------
Annualised return on assets(6) (5.5%) (28.3%)
(1) Calculated as the average of month end receivables for the 6
months ended 30 June.
(2) Revenue as a percentage of average receivables for the 12
months ended 30 June.
(3) Impairment as a percentage of average receivables for the 12
months ended 30 June.
(4) Revenue less impairment as a percentage of average
receivables for the 12 months ended 30 June.
(5) Adjusted loss before tax is stated before exceptional costs
of GBP10.0m in relation to the turnaround of the home credit
business following the poor execution of the migration to the new
operating model in July 2017 (2018: GBP18.1m).
(6) Adjusted loss before interest after tax as a percentage of
average receivables for the 12 months ended 30 June.
The ongoing turnaround of the home credit business continued to
progress well in the first half of the year, with positive momentum
on new customer recruitment, the implementation of further actions
to right-size the cost base and support from the FCA in respect of
the introduction of enhanced performance management of the field
force.
CCD has reported a reduced adjusted loss before tax of GBP15.1m
in the first half (2018: loss of GBP23.2m), broadly in line with
management's internal plan, although average receivables have been
impacted by the new home credit guidance within the high-cost
credit review. Based on management's ongoing actions, the business
is expecting to deliver a reduced loss in the second half of 2019
and a loss in the first half of 2020, consistent with the normal
seasonality of the business. The business is then expecting to
deliver a profit in the second half of 2020 and a break even result
for 2020 as a whole.
CCD customer numbers ended the first half at 531,000, 30.6%
lower than June 2018 (2018: 765,000) which included approximately
200,000 customers who ceased paying in the second half of 2017
following the change in operating model and who have now been
removed from customer numbers. The focus for 2019 is on: (i)
stabilising the rate of decline in the home credit customer base;
and (ii) continuing to grow Satsuma customer numbers.
The improved momentum in new customer recruitment experienced in
the fourth quarter of 2018 has continued in home credit during the
first half of the year. The number of new UK home credit customers
was approximately 15% higher than the first half of 2018. Despite
the stronger growth, home credit customer numbers ended the first
half at 403,000, a reduction from 444,000 at December 2018 and
482,000 at June 2018, as the number of new customers recruited was
not at a level sufficient to stabilise the customer base during the
seasonally quiet first half. New customer recruitment is expected
to continue its upward trajectory during the seasonally busier
second half of the year.
Satsuma continues to experience a good flow of lending volumes
notwithstanding a number of further refinements in underwriting.
New business and further lending volumes increased by approximately
19% and customer numbers ended the first half at 128,000, up 29.5%
on June 2018. Satsuma delivered a break even result in the first
half of 2019 and continues to trade in line with the Board's
expectations.
Following agreement with the FCA, CCD has recently commenced
testing of an enhancement to the home credit product in one area.
Provident Direct leverages the capabilities in both home credit and
Satsuma, with the relationship managed in the home by a CEM and
payments collected remotely via CPA. The product enhancement should
allow CCD to attract new and former customers of suitable credit
quality who do not wish to have a weekly collections visit by a CEM
and should also improve efficiency in the field force. The
enhancement will be thoroughly tested through the second half of
the year before being rolled out on a measured basis to ensure that
it delivers positive customer outcomes whilst not resulting in a
deterioration in collections performance.
Total CCD receivables were GBP245.4m at June 2019 (2018:
GBP293.7m), 16.4% lower than June 2018, and comprised GBP202.5m in
respect of the home credit business (2018: GBP262.3m) and GBP42.9m
in respect of Satsuma (2018: GBP31.4m).
Home credit receivables have fallen by 22.8% in the first half
of 2019 compared with the 16.4% reduction in customer numbers. This
reflects average issue values being approximately 14% lower in the
first half of 2019 following the introduction of the new high cost
credit guidance issued by the FCA as part of its review of the
high-cost credit sector which came into force between December 2018
and March 2019. The new guidance includes the requirement for CEMs
to present customers with the option of taking out a concurrent
loan or refinancing their existing loan when they require further
credit. Experience to date shows that there has been a modest shift
in the proportion of customers opting for concurrent loans, which
are typically lower value and shorter in duration than refinanced
loans.
Satsuma's receivables have shown 36.6% growth on June 2018, due
to the 29.5% increase in customer numbers together with the
continued development of further lending to good quality
customers.
Revenue in CCD has fallen by 15.2% in the first half of 2019, a
modestly lower rate than the 17.9% reduction in average
receivables. The annualised revenue yield of 117.3% to June 2019
has increased from 115.5% to December 2018, reflecting a modest
shift in mix to shorter term, higher yielding products.
Impairment in CCD has reduced by 26.6%, better than the rate of
reduction in average receivables. This reflects the improvement in
collections performance, despite higher new customer volumes, due
to the stabilisation of operations and collections being a key area
of focus. As a result, the annualised impairment rate of 38.0% to
June 2019 is significantly lower than 78.6% to June 2018.
The collections performance of credit originated since the
fourth quarter of 2017 continues to remain broadly in line with the
levels achieved prior to the change of operating model in July
2017, where the CEM has issued the credit and has ownership of the
customer relationship. However, the collections performance on
credit originated prior to the fourth quarter of 2017, where the
CEM typically did not originate the credit following the change in
operating model, remains significantly lower than historic levels
and has not shown any improvement. These balances now only
represent approximately GBP11m of CCD's carrying value of
receivables.
As previously reported, the FCA confirmed in early March 2019
that the business can implement enhanced performance management of
CEMs based on a balanced scorecard supported by an element of
variable performance-related pay. The scorecard was tested for
impact on customer outcomes in one area during May and was expanded
to a region in June, including the introduction of an element of
variable pay. The business is adopting a measured approach to
implementation and will continue to calibrate the balanced
scorecard and the variable pay element to both enhance customer
outcomes and improve performance. Full roll-out of the balanced
scorecard to the whole of the UK will be completed during the
second half of the year. The implementation of this full suite of
performance measures is essential to improving the efficiency and
effectiveness of the field organisation, both in terms of
delivering consistently good customer outcomes and returning the
business to profitability through growing receivables and improving
collections performance.
CCD's annualised risk-adjusted margin has shown a significant
improvement from 42.1% to June 2018 to 79.3% to June 2019,
primarily reflecting the significant improvement in impairment.
As previously reported, in January 2019, CCD announced a
voluntary redundancy programme in central support functions which
has reduced central headcount by approximately 200. Together with
actions already taken and the ongoing tight control of costs, this
has resulted in an 11.0% reduction in the cost base to GBP110.3m
(2018: GBP124.0m) during the first half of the year. Overall, there
has been a reduction in roles within CCD approaching 1,000 over the
last 18 months and cost efficiency remains a key priority in
returning the business to profitability in the second half of
2020.
Interest costs in CCD have fallen by 36.3% to GBP5.1m in the
first half of 2019 (2018: GBP8.0m). This is a larger reduction than
the reduction in average receivables as CCD's funding rate has been
reduced to reflect a more balanced allocation of funding costs
between CCD and Moneybarn now that Vanquis Bank is fully funded
with retail deposits.
Central costs
Central costs in the first half of 2019 were GBP10.5m, up from
GBP9.7m in the first half of 2018. The increase primarily reflects
unallocated interest costs taken centrally as a result of the costs
of defending the unsolicited NSF offer. Notwithstanding the
additional interest costs, as a result of tight cost control the
group expects to maintain full-year central costs at a similar
level to 2018 as previously communicated.
Exceptional items
Exceptional costs of GBP33.6m in the first half of 2019
comprise: (i) GBP23.6m of defence costs associated with NSF's
unsolicited offer for the group; and (ii) GBP10.0m in relation to
the turnaround of the home credit business following the poor
execution of the migration to the new operating model in July 2017,
including a voluntary redundancy programme within central support
functions which resulted in a reduction in headcount of
approximately 200.
In the first half of 2018, an exceptional charge of GBP36.6m was
recognised comprising: (i) GBP18.1m in respect of intangible
and tangible asset write-offs (GBP10.9m), redundancy costs
(GBP4.5m) and consultancy costs (GBP3.3m) 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
net of an exceptional pension credit of GBP0.6m (see note 9); and
(ii) GBP18.5m in respect of the 8% premium plus fees paid on the
redemption of 89% of the GBP250m senior bonds maturing in October
2019.
Tax
The tax rate for the first half of 2019 of 26.3% (2018: 27.1%)
is the estimated effective tax rate on profit before tax,
amortisation of acquisition intangibles and exceptional items for
the 2019 financial year and is higher than the mainstream UK
statutory corporation tax rate. This reflects the impact of the
bank corporation tax surcharge of 8% which applies to Vanquis Bank
profits in excess of GBP25m and places an additional tax cost on
Vanquis Bank.
The tax credit (2018: tax credit) in respect of exceptional
costs in 2019 (2018: exceptional costs) amounts to GBP2.0m (2018:
GBP7.0m) and represents: (i) tax relief of GBP1.9m in respect of
the exceptional restructuring costs in CCD (2018: GBP3.5m); and
(ii) tax relief of GBP0.1m in respect of exceptional costs
associated with the defence of the unsolicited offer from NSF
(2018: GBPnil). The tax credit in the first half of 2018 also
included GBP3.5m in respect of the premium and fees paid on
redemption of GBP222.5m of the GBP250m senior bonds.
Despite changing the operating model of the UK home credit
business from a self-employed agent model to an employed workforce
in July 2017, the group continues to be subject to status claims
brought against it by either former agents in the UK or agents in
the Republic of Ireland, or tax authorities challenging the
historic employment status of the group's agents. To date the group
has successfully defended these claims and challenges although
there can be no guarantee that future claims or challenges will be
successfully defended.
Dividends
The group's dividend policy is to maintain a dividend cover
ratio of at least 1.4 times as the home credit business recovers
and moves into profitability. This will reflect the group's current
risk appetite of maintaining regulatory capital headroom in excess
of GBP50m and the remaining transitional impact of IFRS 9 on
regulatory capital of GBP175m over the next 4 years.
The Board is recommending the payment of an interim dividend of
9.0p per share (2018: nil). The interim dividend will be paid on 26
September 2019 to shareholders who are on the register of members
on 16 August 2019. As previously announced, the timing of the
payment of the interim dividend has been brought forward from
November to September.
Funding and capital
The group's current funding strategy is to maintain committed
facilities to meet contractual maturities and fund growth for at
least the following 12 months and maintain access to three main
sources of funding comprising: (i) the syndicated revolving bank
facility; (ii) market funding, including retail bonds,
institutional bonds and private placements; and (iii) retail
deposits which now fully funds the ring-fenced Vanquis Bank.
The group successfully refinanced its revolving syndicated bank
facility on 24 July 2019 with four leading UK banks. This was 2 to
3 months later than originally envisaged reflecting a temporary
pause in the dialogue with the banks during the NSF offer period.
The facility has reduced from GBP450m to GBP235m, reflecting: (i) a
reduction in the requirement of the group for a revolving facility
as Vanquis Bank is now fully funded with retail deposits and the
home credit business is significantly smaller than when the
previous facility was established; and (ii) the exit of two non-UK
banks from the syndicate. The new facility has a maturity of July
2022 and an interest rate of 300 bps plus LIBOR, up from 225 bps
plus LIBOR in the previous facility. The covenant package and
limits remain unchanged but will be assessed under IFRS 9 rather
than under IAS 39 in the old facility.
The flow of retail deposits within Vanquis Bank has continued in
line with its internal funding plan and, at 30 June 2019, Vanquis
Bank had retail deposit funding of GBP1,472.3m, up from GBP1,431.7m
at 31 December 2018, which reflects the modest level of Vanquis
Bank receivables growth.
Headroom on the group's committed debt facilities was GBP319m at
30 June 2019. Together with the ongoing retail deposits programme
and the recent refinancing of the revolving syndicated bank
facility, this is sufficient to fund contractual debt maturities
and projected growth in the group until September 2020. The group
is actively exploring additional funding options including: (i)
discussing with the PRA the potential to fund the group's other
businesses with retail deposits; (ii) funding the Moneybarn
receivables book through a securitisation; (iii) issuing further
bonds or private placements; and/or (iv) issuing a tier 2
instrument.
The group's funding rate during the first half of 2019 was 4.5%,
a modest increase from 4.3% in the first half of 2018
notwithstanding that Vanquis Bank is now fully funded with retail
deposits. The modest increase primarily reflects the significant
amount of headroom of over GBP300m being carried on the group's
revolving credit facility during the first half of the year.
On 5 April 2019, Fitch Ratings reaffirmed the group's credit
rating at BBB- with a negative outlook.
The group's minimum regulatory capital requirement set by the
PRA, together with the capital conservation buffer (2.5%) and
counter cyclical buffer (1.0%), represents a TCR of 25.5%. The
Board expects to maintain headroom in excess of GBP50m against this
requirement and a capital structure to support ongoing access to
funding from the bank and debt capital markets.
The group's CET 1 ratio on an accrued profits basis at 30 June
2019 was 28.2% compared with the group's TCR of 25.5%. On this
basis, the regulatory capital headroom was 2.7%, equivalent to
approximately GBP60m based on the group's risk weighted assets of
GBP2.3bn. This is consistent with the Board's current risk appetite
of maintaining a regulatory capital buffer in excess of GBP50m. The
reduction in headroom from GBP100m at 31 December 2018 reflects:
(i) the anticipated second year transitional impact of IFRS 9 of
GBP18m; (ii) the impact of the implementation of IFRS 16 'Leases'
from 1 January 2019 of GBP26m; and (iii) the exceptional costs of
GBP33.6m arising in respect of the costs of defending the
unsolicited offer from NSF and redundancies in CCD. These adverse
impacts were partly offset by profits from underlying operations
less accrued dividends.
As previously reported, the impact from the adoption of IFRS 9
on the group's net assets of GBP184.0m is being phased into
regulatory capital on a transitional basis over five years as
follows: 5% taken at the start of 2018 (GBP9m), 15% taken on 1
January 2019 (GBP18m), 30% in 2020 (GBP28m), 50% in 2021 (GBP37m),
75% (GBP46m) in 2022 and 100% (GBP46m) from the start of 2023. The
impact of the IFRS 9 transitional arrangements on CET 1 as at 30
June 2019 was GBP156.4m. For illustrative purposes, after adjusting
for the impact on risk weighted assets, the CET 1 ratio at 30 June
2019 would reduce from 28.3% to 21.8% if the IFRS 9 transitional
arrangements did not apply.
The group's next capital review (C-SREP) with the PRA is
scheduled for the first quarter of 2020. The group continues to
actively explore a number of options to improve capital efficiency.
These include, but are not limited to, potential reductions in
capital requirements for pensions and Pillar 2A add-ons. The Board
also continues to monitor its risk appetite in respect of the
appropriate level of regulatory capital headroom in light of the
group's ongoing recovery.
Board committee changes
The group is pleased to announce that it formally established
the Customer, Culture and Ethics Committee (the 'Committee') with
effect from 1 April 2019. The Committee, which is a committee of
the Board, is responsible for providing oversight of the group's
review, delivery and embedding of its culture, offerings and
business processes to ensure that they are focused on achieving
fair customer outcomes. The Committee will also support the Board's
compliance with the evolving corporate governance requirements. As
initially announced on 31 July 2018, the Committee will be chaired
by Non-executive director, Elizabeth Chambers.
Following the formal appointment of Robert East, the Board has
also reviewed its committee composition and has agreed changes to
Board committee membership with effect from 1 July 2019. The Board
committee membership with effect from 1 July 2019 is:
Remuneration Customer, Culture Audit Committee(1,2) Group Risk Nomination Disclosure
Committee(1) and Ethics Committee(1,2) Committee Committee
Committee(1)
Andrea Blance Libby Chambers Paul Hewitt Angela Knight Patrick Snowball Malcolm Le
(Chair) (Chair) (Chair) (Chair) (Chair) May (Chair)
Graham Lindsay Robert East Angela Knight Paul Hewitt Andrea Blance Simon Thomas
Angela Knight Graham Lindsay Andrea Blance Libby Chambers Libby Chambers Charley Davies
Angela Knight
Graham Lindsay
Paul Hewitt
Robert East
(1) Malcolm Le May attends meetings by way of invitation.
(2) Simon Thomas attends meetings by way of invitation.
Charley Davies joined the group on 1 April 2019 as Company
Secretary and General Counsel of both the group and Vanquis
Bank.
Regulation
Enhanced supervision by the FCA
As a consequence of: (i) the disruption to the home credit
business following the migration to the new operating model in July
2017 and the subsequent implementation of the recovery plan in
response to the disruption; (ii) the FCA's investigation into
Vanquis Bank's ROP product; and (iii) the FCA's ongoing
investigation into Moneybarn, the group continues to be subject to
enhanced supervision by the FCA as notified by the FCA Watchlist
Letter. The FCA Watchlist Letter requires that the group: (i)
provides the FCA with a draft of an executable wind-down plan for
the group and each of the entities within the group; (ii)
successfully executes the recovery plan in home credit; and (iii)
completes a successful turnaround of CCD so that CCD is financially
stable, and the group can meet its funding requirements to 2020.
Firms placed under enhanced supervision may be required to provide
formal commitments, where appropriate, to the FCA to tackle the
underlying concerns raised by the FCA and the FCA may also exercise
other wide-ranging powers.
FCA review of high-cost credit
On 18 December 2018, the FCA published CP18/43 in respect of its
review of high-cost credit, including final rules and guidance in
respect of home-collected credit. The rules introduced a package of
reforms to raise standards in disclosure and sales practices to
prevent home credit firms from offering new loans or refinancing
existing loans during home visits without the customer specifically
requesting it. CCD made the necessary changes to its processes to
ensure compliance with the new rules in advance of the new rules
coming into force on 19 March 2019. This included the requirement
for CEMs to explain all available options to a customer who wishes
to borrow, including refinancing their existing loan or taking out
a concurrent loan. The changes made to the home credit operating
model over the last two years, including the recording of all sales
interactions with customers, means that the business can evidence
compliance with the revised requirements.
FCA credit card market study
In February 2018, the FCA published PS18/4 setting out its final
policy rules in respect of persistent debt and earlier intervention
remedies from its Credit Card Market Study. The overall objective
of the package of remedies is to reduce the number of customers in
problem credit card debt and put borrowers in greater control of
their borrowing. The rules require credit card firms to undertake
particular measures in respect of customers defined as being in
persistent debt. The FCA define persistent debt as where, over a
period of 18 months, a customer pays more in interest, fees and
charges than they have repaid of the principal. At 18 months, firms
are required to prompt customers in persistent debt to change their
repayment behaviour if they can afford to. At 27 months firms are
required to send another reminder if payments indicate a customer
is still likely to be in persistent debt at the 36-month point.
Customers need to be made aware that, if they do not change their
repayment behavior, their card may be suspended, which may be
reported to credit reference agencies. The customer should also
receive contact details for debt advice services. At 36 months
firms need to intervene again if a customer remains in persistent
debt. Firms need to help the customer by proposing ways of repaying
more quickly over a reasonable period, usually between 3 and 4
years.
The proposals in PS18/4 came into force on 1 March 2018 and
firms had 6 months to be fully compliant. Approximately, 15% of
Vanquis Bank's customers currently meet the FCA's definition of
persistent debt and the first 36-month checkpoint for persistent
debt customers is in March 2020. Vanquis Bank increased its minimum
payment rates in the second half of 2018 and has introduced a
number of further measures in the first half of 2019, including
recommended payments and the testing of a number of communication
strategies, to encourage increased monthly repayments and reduce
the number of customers meeting the FCA's definition of being in
persistent debt.
FCA review of creditworthiness in consumer credit
In July 2018, the FCA published its policy statement (CP18/19)
entitled 'Assessing creditworthiness in consumer credit' in which
the FCA set out the changes to its existing rules and guidance in
this area. The FCA has amended its rules and guidance with regards
to creditworthiness (which the FCA stated comprises both credit
risk and affordability) and in particular, the rules introduce a
new explicit definition of 'affordability risk', in which the FCA
sets out the factors to be considered by firms when assessing if
credit is likely to be affordable for the borrower. The rules
require a more detailed creditworthiness assessment including
affordability at the outset. In particular, this applies to Vanquis
Bank in respect of all new non-prime credit card customers and for
significant individual or cumulative credit line increases
thereafter.
The final rules and guidance from PS18/19 came into effect on 1
November 2018. All the group's businesses have taken the necessary
measures to meet the affordability principles arising from this
review and the impact has been reflected in new business volumes
and credit line increases during the first half of 2019.
FCA review of the motor finance market
In the FCA's Business Plan for 2017/18 the FCA stated that it
was looking at the motor finance market to ensure that it works
well and to assess whether consumers are at risk of harm. The FCA
published an update on this work on 15 March 2018 and then
published its final findings on 4 March 2019. The FCA's final
findings indicated that they have concerns regarding four areas of
the motor finance market: (i) commission arrangements, in
particular non-flat rate structures; (ii) sufficient, timely and
transparent information, mainly in respect of broker practice and
information about DIC type commission arrangements; (iii) lender
controls in respect of the oversight of dealers and brokers; and
(iv) affordability assessments, whereby the FCA reference the
additional clarity given in PS18/19 last year around affordability
checks, and the expectation that all lenders have implemented the
appropriate additional practices.
Moneybarn has flat fee commission structures and has never given
discretion to brokers in setting the interest or commission levels.
Customers are made aware of the existence of a payment of
commission in Moneybarn's pre-contractual paperwork that all
brokers must provide to the customer and evidence that the customer
has received it. Moneybarn has an active physical audit programme
for all its brokers and was the first in the market to have such an
audit process in place. Like all the group's other businesses,
Moneybarn made all necessary changes to its processes required by
PS18/19 in advance of the 1 November 2018 deadline and there has
been no further updates since then from the FCA.
Irish Consumer Credit Bill on a cap on moneylenders' rates
In November 2018, a report entitled: 'Interest Rate Restrictions
on Credit for Low-income Borrowers' was published by the Social
Finance Foundation, an Irish government funded body set up in 2007
to provide funding for community organisations and social
enterprises. The report was part-funded by the Central Bank of
Ireland (CBI) and called for a rate-cap to be introduced on
interest and other charges and for the development of the credit
union sector to provide alternative sources of credit for
moneylending customers.
Following publication of the report, a private members' bill
which seeks to cap moneylenders' rates at 36% APR was then debated
in the Irish Parliament. The draft bill then passed its second
reading and will now enter the Finance Committee stage. No date for
the Finance Committee hearing has yet been published. Private
members' bills are generally voted down by the Irish Government
although the Irish Government's position is not clear in the case
of this private members' bill.
The group's operations in the Republic of Ireland are in respect
of the home credit business which has approximately 60,000
customers.
Irresponsible lending complaints and the Financial Ombudsman
Service (FOS)
There continues to be heightened claims management company
activity around non-standard lending sectors, particularly in
respect of irresponsible lending in high-cost credit and more
recently in home credit. As a result, CCD has seen a modest
increase in the number of such complaints and referrals to the FOS.
CCD continues to robustly defend inappropriate or unsubstantiated
claims and work closely with the FOS in this regard.
Principal risks and uncertainties
The principal risks and uncertainties affecting the group are
largely consistent with those set out in the 2018 Annual Report and
Financial Statements and comprise the following risks: credit risk,
capital risk, liquidity and funding risk, IT risk, operational
risk, regulatory and conduct risk and challenge to agent
self-employed status. A full assessment of the risks and
uncertainties, together with the controls and processes which are
in place to monitor and mitigate the risks where possible, are set
out on pages 44 to 54 of the 2018 Annual Report & Financial
Statements which is available on the group's website,
www.providentfinancial.com.
The most relevant risks and uncertainties for the remaining six
months of the 2019 financial year are in respect of: (i)
regulation, including the ongoing interaction with the FCA, PRA,
CBI and FOS; (ii) challenges to self-employed status of agents
prior to the change in the home credit operating model in July
2017; and (iii) the execution risk relating to the ongoing
turnaround of the home credit business. An update on these matters
has been provided within the Interim Report.
Related party transactions
There have been no changes in the nature of the related party
transactions as described in note 29 to the 2018 Annual Report and
Financial Statements and there have been no new related party
transactions which have had a material effect on the financial
position or performance of the group in the six months ended 30
June 2019.
Unaudited condensed interim financial statements
Consolidated income statement
Six months ended
30 June
Note 2019 2018
GBPm GBPm
--------- --------
Revenue 4 523.9 572.5
--------- --------
Finance costs (36.5) (54.7)
Impairment charges (176.2) (212.6)
Administrative and operating costs (273.6) (270.6)
--------- --------
Total costs (486.3) (537.9)
--------- --------
Profit before tax 4 37.6 34.6
------------------------------------------------ ----- --------- --------
Profit before tax, amortisation of acquisition
intangibles and exceptional items 4 74.9 74.9
Amortisation of acquisition intangibles 4 (3.7) (3.7)
Exceptional items 4 (33.6) (36.6)
------------------------------------------------ ----- --------- --------
Tax charge 5 (17.0) (12.6)
--------- --------
Profit for the period attributable to equity
shareholders 20.6 22.0
--------- --------
All the above activities relate to continuing operations.
Consolidated statement of comprehensive income
Six months ended
30 June
Note 2019 2018
GBPm GBPm
---------- -------
Profit for the period attributable to equity
shareholders 20.6 22.0
---------- -------
Items that will not be reclassified subsequently
to the income statement:
- actuarial movements on retirement benefit
asset 9 (15.7) 3.6
- tax on items that will not be reclassified
subsequently to the income statement 3.0 (0.7)
* impact of change in UK tax rate on items that will
not be reclassified subsequently to the income
statement (0.3) 0.1
Items that may be reclassified subsequently
to the income statement:
- fair value movement in investments 10 3.9 1.9
- exchange differences on translation of foreign
operations 0.1 -
- tax on items that may be reclassified subsequently
to the income statement (1.0) (0.5)
Other comprehensive (expense)/income for the
period (10.0) 4.4
Total comprehensive income for the period 10.6 26.4
---------- -------
Earnings per share Six months ended
30 June
Note 2019 2018
pence pence
--------- --------
Basic 6 8.1 9.8
--------- --------
Diluted 6 8.1 9.8
--------- --------
Six months ended
Dividends per share 30 June
2019 2018
pence pence
--------- --------
Interim dividend 7 9.0 -
--------- --------
Paid in the period* 7 10.0 -
--------- --------
* Dividends paid in the period were GBP25.1m (2018: GBPnil).
Consolidated balance sheet
30 June 31 December 30 June
Note 2019 2018 2018
GBPm GBPm GBPm
---------- ------------ ----------
ASSETS
Non-current assets
Goodwill 71.2 71.2 71.2
Other intangible assets 51.1 55.0 62.8
Property, plant and equipment 22.3 24.6 27.6
Right of use assets 3 79.8 - -
Financial assets:
- amounts receivable from customers 8 383.3 349.6 328.2
Retirement benefit asset 9 70.3 83.9 111.5
Deferred tax asset 38.7 38.3 14.3
716.7 622.6 615.6
---------- ------------ ----------
Current assets
Financial assets:
* investment held as fair value through other
comprehensive income 10 21.1 47.8 48.2
- amounts receivable from customers 8 1,761.5 1,813.3 1,757.9
- cash and cash equivalents 440.0 387.9 518.3
- trade and other receivables 73.2 49.6 59.8
Deferred tax asset - - 4.9
2,295.8 2,298.6 2,389.1
---------- ------------ ----------
Total assets 4 3,012.5 2,921.2 3,004.7
---------- ------------ ----------
LIABILITIES
Current liabilities
Financial liabilities:
- retail deposits (375.9) (339.3) (327.0)
- bank and other borrowings (83.8) (49.8) (18.2)
---------- ------------ ----------
Total borrowings (459.7) (389.1) (345.2)
---------- ------------ ----------
- trade and other payables (92.3) (91.8) (114.6)
- lease liabilities 3 (13.6) - -
Current tax liabilities (30.6) (24.6) (8.1)
Provisions 12 (35.6) (53.2) (97.9)
---------- ------------ ----------
(631.8) (558.7) (565.8)
---------- ------------ ----------
Non-current liabilities
Financial liabilities:
- retail deposits (1,096.4) (1,092.4) (1,163.6)
- bank and other borrowings (533.5) (574.0) (597.4)
---------- ------------ ----------
Total borrowings (1,629.9) (1,666.4) (1,761.0)
---------- ------------ ----------
- lease liabilities 3 (72.7) - -
---------- ------------ ----------
Total liabilities (2,334.4) (2,225.1) (2,326.8)
---------- ------------ ----------
NET ASSETS 4 678.1 696.1 677.9
---------- ------------ ----------
SHAREHOLDERS' EQUITY
Share capital 52.5 52.5 52.5
Share premium 273.2 273.2 273.1
Other reserves 295.6 292.1 291.5
Retained earnings 56.8 78.3 60.8
---------- ------------ ----------
TOTAL EQUITY 678.1 696.1 677.9
---------- ------------ ----------
Consolidated statement of changes in shareholders' equity
Share Share Other Retained
capital premium reserves earnings Total
GBPm GBPm GBPm GBPm GBPm
--------- --------- ---------- ---------- --------
At 31 December 2017 30.7 273.0 13.4 218.0 535.1
--------- --------- ---------- ---------- --------
Impact of adoption of IFRS 9 'Financial
instruments' - - - (184.0) (184.0)
--------- --------- ---------- ---------- --------
At 1 January 2018 30.7 273.0 13.4 34.0 351.1
--------- --------- ---------- ---------- --------
Profit for the period - - - 22.0 22.0
--------- --------- ---------- ---------- --------
Other comprehensive income/(expense):
* fair value movement in investments - - 1.9 - 1.9
* actuarial movements on retirement benefit asset (note
9) - - - 3.6 3.6
* tax on items taken directly to other comprehensive
income - - (0.5) (0.7) (1.2)
* impact of change in UK tax rate - - - 0.1 0.1
Other comprehensive income for the
period - - 1.4 3.0 4.4
--------- --------- ---------- ---------- --------
Total comprehensive income for the
period - - 1.4 25.0 26.4
--------- --------- ---------- ---------- --------
Transactions with owners:
- proceeds from rights issue 21.8 - 278.2 - 300.0
- issue of share capital - 0.1 - - 0.1
- share-based payment charge - - 0.3 - 0.3
- transfer of share-based payment
reserve - - (1.8) 1.8 -
--------- --------- ---------- ---------- --------
At 30 June 2018 and 1 July 2018 52.5 273.1 291.5 60.8 677.9
--------- --------- ---------- ---------- --------
Profit for the period - - - 38.3 38.3
--------- --------- ---------- ---------- --------
Other comprehensive income/(expense):
- fair value movement in investments - - 0.3 - 0.3
- actuarial movements on retirement
benefit asset (note 9) - - - (25.3) (25.3)
- tax on items taken directly to
other comprehensive income - - - 4.8 4.8
- impact of change in UK tax rate - - (0.2) (0.6) (0.8)
--------- --------- ---------- ---------- --------
Other comprehensive income/(expense)
for the period - - 0.1 (21.1) (21.0)
--------- --------- ---------- ---------- --------
Total comprehensive income for the
period - - 0.1 17.2 17.3
--------- --------- ---------- ---------- --------
Transactions with owners:
- issue of share capital - 0.1 - - 0.1
- share-based payment charge - - 0.8 - 0.8
- transfer of share-based payment
reserve - - (0.3) 0.3 -
--------- --------- ---------- ---------- --------
At 31 December 2018 52.5 273.2 292.1 78.3 696.1
--------- --------- ---------- ---------- --------
Impact of adoption of IFRS 16 'Leases'
(note 3) - - - (5.6) (5.6)
--------- --------- ---------- ---------- --------
At 1 January 2019 52.5 273.2 292.1 72.7 690.5
--------- --------- ---------- ---------- --------
Profit for the period - - - 20.6 20.6
--------- --------- ---------- ---------- --------
Other comprehensive income/(expense):
- fair value movement in investments - - 3.9 - 3.9
- actuarial movements on retirement
benefit asset (note 9) - - - (15.7) (15.7)
- exchange differences on translation
of foreign operations - - - 0.1 0.1
- tax on items taken directly to
other comprehensive income - - (1.0) 3.0 2.0
- impact of change in UK tax rate - - - (0.3) (0.3)
--------- --------- ---------- ---------- --------
Other comprehensive income/(expense)
for the period - - 2.9 (12.9) (10.0)
--------- --------- ---------- ---------- --------
Total comprehensive income for the
period - - 2.9 7.7 10.6
--------- --------- ---------- ---------- --------
Transactions with owners:
- share-based payment charge - - 2.1 - 2.1
- transfer of share-based payment
reserve - - (1.5) 1.5 -
- dividends - - - (25.1) (25.1)
At 30 June 2019 52.5 273.2 295.6 56.8 678.1
--------- --------- ---------- ---------- --------
The rights issue in April 2018 was undertaken through a cash box
structure which allowed merger relief to be applied to the issue of
shares rather than recording share premium. The resulting merger
reserve of GBP278.2m is included within other reserves, of which
GBP228.2m is distributable as the capital was retained for the
purposes of the company with the remaining GBP50.0m not
distributable as it was used to inject capital into Vanquis
Bank.
Consolidated statement of cash flows
Six months ended
30 June
Note 2019 2018
GBPm GBPm
--------- --------
Cash flows from operating activities
Cash generated from operations 13 67.4 89.8
Finance costs paid (31.3) (35.2)
Premium and fees paid on refinancing of senior
bonds 4 - (18.5)
Tax paid (8.1) (7.0)
--------- --------
Net cash generated from operating activities 28.0 29.1
Cash flows from investing activities
Purchase of intangible assets (2.5) (3.9)
Purchase of property, plant and equipment (3.7) (2.3)
Proceeds from disposal of property, plant
and equipment 1.1 0.3
Sale/(purchase) of government gilts 30.6 (0.5)
Net cash generated from/(used in) investing
activities 25.5 (6.4)
Cash flows from financing activities
Proceeds from bank and other borrowings 157.5 593.7
Repayment of bank and other borrowings (125.7) (681.1)
Payment of lease liabilities (6.8) -
Dividends paid to company shareholders 7 (25.1) -
Net proceeds from rights issue - 300.0
Proceeds from issue of share capital - 0.1
Net cash (used in)/generated from financing
activities (0.1) 212.7
Net increase in cash, cash equivalents and
overdrafts 53.4 235.4
Cash, cash equivalents and overdrafts at
beginning of period 380.9 279.8
Cash, cash equivalents and overdrafts at
end of period 434.3 515.2
--------- --------
Cash, cash equivalents and overdrafts at
end of period comprise:
Cash at bank and in hand 440.0 518.3
Overdrafts (held in bank and other borrowings) (5.7) (3.1)
--------- --------
Total cash, cash equivalents and overdrafts 434.3 515.2
--------- --------
Cash at bank and in hand includes GBP423.3m (2018: GBP495.0m) in
respect of the liquid assets buffer, including other liquidity
resources, held by Vanquis Bank in accordance with the PRA's
liquidity regime. As at 30 June 2019, GBP143.3m (2018: GBP282.1m)
of the buffer was available to finance Vanquis Bank's day-to-day
operations.
Notes to the unaudited condensed interim financial
statements
1. General information
The company is a public limited company, incorporated and
domiciled in the UK. The address of its registered office is No. 1
Godwin Street, Bradford, BD1 2SU. The company is listed on the
London Stock Exchange.
The unaudited condensed interim financial statements do not
constitute the statutory financial statements of the group within
the meaning of section 434 of the Companies Act 2006. The statutory
financial statements for the year ended 31 December 2018 were
approved by the board of directors on 13 March 2019 and have been
delivered to the Registrar of Companies. The report of the auditor
on those financial statements was unqualified, did not draw
attention to any matters by way of emphasis and did not contain any
statement under section 498(2) or (3) of the Companies Act
2006.
The unaudited condensed interim financial statements for the six
months ended 30 June 2019 have been reviewed, not audited, and were
approved by the board of directors on 30 July 2019.
2. Basis of preparation
The unaudited condensed interim financial statements for the six
months ended 30 June 2019 have been prepared in accordance with IAS
34 'Interim Financial Reporting' as adopted by the European Union.
The unaudited condensed interim financial statements should be read
in conjunction with the statutory financial statements for the year
ended 31 December 2018 which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union.
The directors have reviewed the group's budgets, plans and cash
flow forecasts for 2019 and 2020 together with outline projections
for the three subsequent years. Based on this review, they are
satisfied that the group has adequate resources to continue to
operate for the foreseeable future. For this reason, the directors
continue to adopt the going concern basis in preparing the
unaudited condensed interim financial statements.
3. Accounting policies
The accounting policies applied in preparing the unaudited
condensed interim financial statements are consistent with those
used in preparing the statutory financial statements for the year
ended 31 December 2018 with the exception of the adoption of IFRS
16 'Leases' from 1 January 2019.
Taxes on profits in interim periods are accrued using the tax
rate that will be applicable to expected total annual profits.
The impact of new standards adopted by the group from 1 January
2019
IFRS 16
IFRS 16 'Leases' has been adopted by the group from the
mandatory adoption date of 1 January 2019. IFRS 16 replaces IAS 17
'Leases' and provides a model for the identification of lease
arrangements and the treatment in the financial statements of both
lessees and lessors and provides a model for the identification of
lease arrangements and the treatment in the financial statements of
both lessees and lessors.
The standard distinguishes leases and service contracts on the
basis of whether an identified asset is controlled by the customer.
Distinctions between operating leases and finance leases are
removed for lessee accounting, and will be replaced by a model
where a right-of-use asset and a corresponding liability are
recognised for all leases where the Group is the lessee, except for
short-term assets and leases of low value assets.
The right of use asset is initially measured at cost and
subsequently measured at cost less accumulated amortisation and
impairment losses, adjusted for any re-measurement of the lease
liability. The lease liability is initially measured at the present
value of future minimum lease payments. Subsequently the lease
liability is adjusted for interest and lease payments, as well as
the impact of lease modifications, amongst others. The
classification of cash flows will be affected as under IAS 17
operating lease payments are presented as operating cash flows;
whereas under IFRS 16, the lease payments will be split into a
principal and interest portion which will be presented as operating
and financing cash flows respectively.
The adoption of IFRS 16 into the group's opening balance sheet
on 1 January 2019 resulted in an increase in assets of GBP81.9m and
liabilities of GBP89.0m, which net of deferred tax of GBP1.5m,
resulted in a reduction in net assets of GBP5.6m. The group has
taken the modified retrospective approach, as permitted by IFRS 16,
comparative information has therefore not been restated.
The impact of new standards not yet effective and not adopted by
the group from 1 January 2019
There are no new standards not yet effective and not adopted by
the group from 1 January 2019 which are expected to have a material
impact on the group.
Disclosure reclassification
Historically, interest accruals on borrowings and retail
deposits were presented within trade and other payables in the
balance sheet. As part of the preparation of the financial
statements for the year ended 31 December 2018, interest accruals
were disclosed as part of the principal balances to which they
relate within borrowings, replicating the presentation of interest
on customer receivables. Accordingly, prior year comparatives for
the six months ended 30 June 2018 have been reclassified.
The impact on the financial statements is presentational only
and there is no impact on the income statement or the statement of
cash flows.
4. Segment reporting
Revenue Profit/(loss) before
tax
Six months ended Six months ended
30 June 30 June
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
--------- -------- -------------- --------------
Vanquis Bank 294.6 331.9 85.0 97.2
Moneybarn 77.2 61.2 15.5 10.6
CCD 152.1 179.4 (15.1) (23.2)
Central costs - - (10.5) (9.7)
--------- -------- -------------- --------------
Total group before amortisation
of acquisition intangibles and
exceptional items 523.9 572.5 74.9 74.9
Amortisation of acquisition intangibles - - (3.7) (3.7)
Exceptional items - - (33.6) (36.6)
--------- -------- -------------- --------------
Total group 523.9 572.5 37.6 34.6
--------- -------- -------------- --------------
All the above activities relate to continuing operations.
Revenue between business segments is not significant.
Acquisition intangibles represent the fair value of the broker
relationships of GBP75.0m which arose on the acquisition of
Moneybarn in August 2014. The intangible asset was calculated based
on the discounted cash flows associated with Moneybarn's core
broker relationships and is being amortised over an estimated
useful life of 10 years. The amortisation charge in the first half
of 2019 amounted to GBP3.7m (2018: GBP3.7m).
Exceptional costs in the first half of 2019 comprise: (i)
GBP23.6m of defence costs associated with Non-Standard Finance
plc's (NSF's) unsolicited offer for the group; and (ii) GBP10.0m in
relation to the ongoing turnaround of the home credit business
following the poor execution of the migration to the new operating
model in July 2017 (2018: GBP18.1m), including a voluntary
redundancy programme within central support functions which
resulted in a reduction in headcount of approximately 200. The
redundancy costs are stated net of an exceptional pension credit of
GBP0.5m (see note 9).
In the first half of 2018, an exceptional charge of GBP36.6m was
recognised comprising: (i) GBP18.1m in respect of intangible
and tangible asset write-offs (GBP10.9m), redundancy costs
(GBP4.5m) and consultancy costs (GBP3.3m) associated with the
turnaround of the home credit business, net of an exceptional
pension credit of GBP0.6m (see note 9); and (ii) GBP18.5m in
respect of the 8% premium plus fees paid on the redemption of 89%
of the GBP250m senior bonds maturing in October 2019.
Segment assets Net assets/(liabilities)
30 June 31 December 30 June 30 June 31 December 30 June
2019 2018 2018 2019 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm
-------- ------------ -------- -------- ------------ --------
Vanquis Bank 2,010.3 1,958.7 2,041.5 384.5 381.3 307.9
Moneybarn 512.2 438.9 393.6 29.4 17.0 14.5
CCD 294.4 342.6 353.8 (28.7) (9.5) 40.1
Central 377.2 368.7 393.1 292.9 307.3 315.4
-------- ------------ -------- -------- ------------ --------
Total before intra-group
elimination 3,194.1 3,108.9 3,182.0 678.1 696.1 677.9
Intra-group elimination (181.6) (187.7) (177.3) - - -
-------- ------------ -------- -------- ------------ --------
Total group 3,012.5 2,921.2 3,004.7 678.1 696.1 677.9
-------- ------------ -------- -------- ------------ --------
Historically, segment net assets reflected the statutory basis
of the companies forming the group's business segments adjusted to
assume repayment of intra-group balances and rebasing of the
borrowings of CCD to reflect the group's target capital ratio. Due
to the significant losses incurred by CCD in 2017 and 2018, CCD's
statutory net assets are now considerably lower than the group's
target capital ratio. As a result, as part of the preparation of
the 2018 financial statements the presentation of segment net
assets was adjusted to show the statutory assets, liabilities and
net assets/(liabilities) of each of the group's divisions. This
results in an intra group elimination reflecting the difference
between the central intercompany funding provided to the divisions
and the external funding raised centrally. Comparatives for the six
months ended 30 June 2018 have been restated onto a similar basis
which has resulted in CCD's net assets at 30 June 2018 reducing
from GBP169.8m to GBP40.1m and central net assets increasing from
GBP185.7m to GBP315.4m.
The group's businesses operate in the UK and Republic of
Ireland.
5. Tax charge
The tax charge for the period has been calculated by applying
the directors' best estimate of the effective tax rate for the
financial year of 26.3% (2018: 27.1%), to the profit before tax,
amortisation of acquisition intangibles and exceptional items for
the period. The tax rate reflects the impact of the bank
corporation tax surcharge of 8% which came into force on 1 January
2016 and applies to Vanquis Bank profits in excess of GBP25m.
The tax credit (2018: tax credit) in respect of exceptional
costs in 2019 (2018: exceptional costs) amounts to GBP2.0m (2018:
GBP7.0m) and represents: (i) tax relief of GBP1.9m in respect of
the exceptional restructuring costs in CCD (2018: GBP3.5m); and
(ii) tax relief of GBP0.1m in respect of exceptional costs
associated with the defence of the unsolicited offer from NSF
(2018: GBPnil). The tax credit in the first half of 2018 also
included GBP3.5m in respect of the premium and fees paid on
redemption of GBP222.5m of the GBP250m senior bonds.
6. Earnings per share
Basic earnings per share is calculated by dividing the profit
for the year attributable to equity shareholders by the weighted
average number of ordinary shares outstanding during the year. 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 in accordance with IAS 33:
'Earnings per share'.
Diluted earnings per share calculates the effect on earnings per
share assuming conversion of all dilutive potential ordinary
shares. Dilutive potential ordinary shares are calculated as
follows:
(i) For share awards outstanding under performance-related share
incentive schemes such as the Performance Share Plan (PSP) and the
Long Term Incentive Scheme (LTIS), the number of dilutive potential
ordinary shares is calculated based on the number of shares which
would be issuable if: (i) the end of the reporting period is
assumed to be the end of the schemes' performance period; and (ii)
the performance targets have been met as at that date.
(ii) For share options outstanding under non-performance related
schemes such as the Save As You Earn scheme (SAYE), a calculation
is performed to determine the number of shares that could have been
acquired at fair value (determined as the average annual market
share price of the group's shares) based on the monetary value of
the subscription rights attached to outstanding share options. The
number of shares calculated is compared with the number of share
options outstanding, with the difference being the dilutive
potential ordinary shares.
Potential ordinary shares are treated as dilutive when, and only
when, their conversion to ordinary shares would decrease earnings
per share or increase loss per share.
Reconciliations of basic and diluted earnings per share are set
out below:
Six months ended 30 June
2019 2018
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Earnings of shares amount
GBPm m pence GBPm m pence
----------- ----------- --------- ----------- ----------- ---------
Basic earnings per share 20.6 253.3 8.1 22.0 225.3 9.8
Dilutive effect of share
options and awards - 1.2 - - 0.3 -
----------- ----------- --------- ----------- ----------- ---------
Diluted earnings per share 20.6 254.5 8.1 22.0 225.6 9.8
----------- ----------- --------- ----------- ----------- ---------
The directors have elected to show an adjusted earnings per
share prior to the amortisation of acquisition intangibles which
arose on the acquisition of Moneybarn in August 2014 and prior to
exceptional items (see note 4). This is presented to show the
earnings per share generated by the group's underlying operations.
A reconciliation of basic and diluted earnings per share to
adjusted basic and diluted earnings per share is as follows:
Six months ended 30 June
2019 2018
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Earnings of shares amount
GBPm m pence GBPm m pence
----------- ----------- --------- ----------- ----------- ---------
Basic earnings per share 20.6 253.3 8.1 22.0 225.3 9.8
Amortisation of acquisition
intangibles, net of tax 3.0 - 1.2 3.0 - 1.3
Exceptional items, net
of tax 31.6 - 12.5 29.6 - 13.1
----------- ----------- --------- ----------- ----------- ---------
Adjusted basic earnings
per share 55.2 253.3 21.8 54.6 225.3 24.2
----------- ----------- --------- ----------- ----------- ---------
Diluted earnings per share 20.6 254.5 8.1 22.0 225.6 9.8
Amortisation of acquisition
intangibles, net of tax 3.0 - 1.2 3.0 - 1.3
Exceptional items, net
of tax 31.6 - 12.4 29.6 - 13.1
----------- ----------- --------- ----------- ----------- ---------
Adjusted diluted earnings
per share 55.2 254.5 21.7 54.6 225.6 24.2
----------- ----------- --------- ----------- ----------- ---------
7. Dividends
Six months ended
30 June
2019 2018
GBPm GBPm
--------- --------
2018 final - 10.0p per share 25.1 -
Total dividends paid 25.1 -
--------- --------
The directors have declared an interim dividend in respect of
the six months ended 30 June 2019 9.0p per share (2018: nil) which
will amount to an estimated dividend payment of GBP22.8m (2018:
GBPnil). This dividend will be paid on 26 September 2019 to
shareholders who are on the register of members at 16 August 2019.
This dividend is not reflected in the balance sheet as at 30 June
2019 as it will be paid after the balance sheet date.
8. Amounts receivable from customers
30 June 31 December 30 June
2019 2018 2018
GBPm GBPm GBPm
-------- ------------ --------
Vanquis Bank 1,438.1 1,473.8 1,432.4
Moneybarn 461.3 396.6 360.0
CCD 245.4 292.5 293.7
Total group 2,144.8 2,162.9 2,086.1
Analysed as:
- due in more than one year 383.3 349.6 328.2
- due within one year 1,761.5 1,813.3 1,757.9
Total group 2,144.8 2,162.9 2,086.1
-------- ------------ --------
Vanquis Bank receivables comprise GBP1,413.9m (31 December 2018:
GBP1,447.8m, 30 June 2018: GBP1,407.3m) in respect of credit cards
and GBP24.2m (31 December 2018: GBP26.0m, 30 June 2018: GBP25.1m)
in respect of loans. The balance at 30 June 2019 is stated net of a
balance reduction provision of GBP1.2m (31 December 2018: GBP3.7m,
30 June 2018: GBP69.3m) following the resolution of the FCA
investigation into ROP on 27 February 2018.
Moneybarn receivables are stated net of a balance reduction
provision of GBP1.8m (31 December 2018: GBP1.8m, 30 June 2018:
GBP12.1m) in respect of the FCA investigation into affordability,
forbearance and termination options.
CCD receivables comprise GBP201.8m in respect of the home credit
business (31 December 2018: GBP251.9m, 30 June 2018: GBP260.6m),
GBP42.9m in respect of Satsuma (31 December 2018: GBP39.5m, 30 June
2018: GBP31.4m) and GBP0.7m in respect of the collect-out of glo
(31 December 2018: GBP1.1m, 30 June 2018: GBP1.7m).
An analysis of receivables by IFRS 9 stages is set out
below:
30 June 2019
Stage 1 Stage 2 Stage Total
3
GBPm GBPm GBPm GBPm
-------- -------- -------- ----------
Gross receivables
Vanquis Bank 1,263.9 215.5 430.1 1,909.5
Moneybarn 322.3 143.7 161.2 627.2
CCD 137.1 43.7 500.6 681.4
Total group 1,723.3 402.9 1,091.9 3,218.1
Allowance account
Vanquis Bank (122.5) (97.7) (251.2) (471.4)
Moneybarn (10.4) (29.9) (125.6) (165.9)
CCD (9.0) (11.1) (415.9) (436.0)
Total group (141.9) (138.7) (792.7) (1,073.3)
-------- -------- -------- ----------
Net receivables
Vanquis Bank 1,141.4 117.8 178.9 1,438.1
Moneybarn 311.9 113.8 35.6 461.3
CCD 128.1 32.6 84.7 245.4
Total group 1,581.4 264.2 299.2 2,144.8
-------- ------ ------ --------
31 December 2018
Stage 1 Stage 2 Stage Total
3
GBPm GBPm GBPm GBPm
-------- -------- -------- ----------
Gross receivables
Vanquis Bank 1,288.4 172.8 515.3 1,976.5
Moneybarn 282.1 125.9 126.5 534.5
CCD 183.6 48.4 493.6 725.6
Total group 1,754.1 347.1 1,135.4 3,236.6
Allowance account
Vanquis Bank (187.0) (58.7) (257.0) (502.7)
Moneybarn (9.2) (28.4) (100.3) (137.9)
CCD (12.0) (12.9) (408.2) (433.1)
Total group (208.2) (100.0) (765.5) (1,073.7)
-------- -------- -------- ----------
Net receivables
Vanquis Bank 1,101.4 114.1 258.3 1,473.8
Moneybarn 272.9 97.5 26.2 396.6
CCD 171.6 35.5 85.4 292.5
Total group 1,545.9 247.1 369.9 2,162.9
-------- ------ ------ --------
30 June 2018
Stage 1 Stage 2 Stage Total
3
GBPm GBPm GBPm GBPm
-------- -------- -------- ----------
Gross receivables
Vanquis Bank 1,419.7 99.4 378.9 1,898.0
Moneybarn 277.2 103.8 95.5 476.5
CCD 170.9 58.5 484.9 714.3
Total group 1,867.8 261.7 959.3 3,088.8
Allowance account
Vanquis Bank (146.6) (53.2) (265.8) (465.6)
Moneybarn (10.1) (32.2) (74.2) (116.5)
CCD (11.0) (15.1) (394.5) (420.6)
Total group (167.7) (100.5) (734.5) (1,002.7)
-------- -------- -------- ----------
Net receivables
Vanquis Bank 1,273.1 46.2 113.1 1,432.4
Moneybarn 267.1 71.6 21.3 360.0
CCD 159.9 43.4 90.4 293.7
Total group 1,700.1 161.2 224.8 2,086.1
-------- ------ ------ --------
The impairment charge in respect of amounts receivable from
customers can be analysed as follows:
Six months ended
30 June
2019 2018
GBPm GBPm
--------- --------
Vanquis Bank 96.6 117.3
Moneybarn 27.8 24.7
CCD 51.8 70.6
Total group 176.2 212.6
--------- --------
9. Retirement benefit asset
The group operates a defined benefit pension scheme: the
Provident Financial Staff Pension Scheme. The scheme is of the
funded, defined benefit type and has been substantially closed to
new members since 1 January 2003.
All future benefits in the scheme are now provided on a 'cash
balance' basis, with a defined amount being made available at
retirement, based on a percentage of salary that is revalued up to
retirement with reference to increases in price inflation. This
retirement account is then used to purchase an annuity on the open
market. The scheme provides pension benefits which were accrued in
the past on a final salary basis, but which are no longer linked to
final salary. The scheme also provides death benefits.
The scheme is a UK registered pension scheme under UK
legislation. The scheme is governed by a Trust Deed and Rules, with
trustees responsible for the operation and the governance of the
scheme. The trustees work closely with the group on funding and
investment strategy decisions. The most recent actuarial valuation
of the scheme was carried out as at 1 June 2015 by a qualified
independent actuary. A valuation as at 1 June 2018 is currently in
progress but is not yet finalised. The valuation used for the
purposes of IAS 19 'Employee benefits' has been based on the
preliminary results of the 2018 valuation to take account of the
requirements of IAS 19 in order to assess the liabilities of the
scheme at the balance sheet date. Scheme assets are stated at fair
value as at the balance sheet date.
The group is entitled to a refund of any surplus, subject to
tax, if the scheme winds up after all benefits have been paid.
The net retirement benefit asset recognised in the balance sheet
of the group is as follows:
30 June 31 December 30 June
2019 2018 2018
GBPm GBPm GBPm
-------- ------------ --------
Fair value of scheme assets 844.1 788.3 813.2
Present value of defined benefit obligation (773.8) (704.4) (701.7)
-------- ------------ --------
Net retirement benefit asset recognised
in the balance sheet 70.3 83.9 111.5
-------- ------------ --------
The amounts recognised in the income statement were as
follows:
Six months ended
30 June
2019 2018
GBPm GBPm
--------- --------
Current service cost (1.1) (1.3)
Interest on scheme liabilities (9.8) (8.6)
Interest on scheme assets 11.0 9.9
--------- --------
Net credit recognised in the income statement before 0.1 -
exceptional curtailment credit
--------- --------
Exceptional curtailment credit (note 4) 0.5 0.6
--------- --------
Net credit recognised in the income statement 0.6 0.6
--------- --------
The net credit recognised in the income statement has been
included within administrative and operating costs.
Movements in the fair value of scheme assets were as
follows:
Six months ended
30 June
2019 2018
GBPm GBPm
--------- --------
Fair value of scheme assets at 1 January 788.3 835.5
Interest on scheme assets 11.0 9.9
Actuarial movements on scheme assets 63.6 (16.4)
Contributions by the group 1.5 5.0
Net benefits paid out (20.3) (20.8)
--------- --------
Fair value of scheme assets at 30 June 844.1 813.2
--------- --------
Movements in the present value of the defined benefit obligation
were as follows:
Six months ended
30 June
2019 2018
GBPm GBPm
--------- --------
Present value of defined benefit obligation at 1
January (704.4) (733.2)
Current service cost (1.1) (1.3)
Interest on scheme liabilities (9.8) (8.6)
Exceptional curtailment credit (note 4) 0.5 0.6
Actuarial movements on scheme liabilities (79.3) 20.0
Net benefits paid out 20.3 20.8
--------- --------
Present value of defined benefit obligation at 30
June (773.8) (701.7)
--------- --------
The principal actuarial assumptions used at the balance sheet
date were as follows:
30 June 31 December 30 June
2019 2018 2018
% % %
-------- ------------ --------
Price inflation - RPI 3.30 3.30 3.10
Price inflation - CPI 2.20 2.20 2.00
Rate of increase to pensions in payment 3.00 3.00 2.90
Inflationary increases to pensions in deferment 2.20 2.20 2.00
Discount rate 2.20 2.80 2.50
-------- ------------ --------
A 0.1% change in the discount and inflation rates would change
the present value of the defined benefit obligation by
approximately GBP13m (31 December 2018: GBP12m, 30 June 2018:
GBP13m) and GBP6m (31 December 2018: GBP5m, 30 June 2018: GBP6m)
respectively.
The mortality assumptions are based on the self-administered
pension scheme (SAPS) series 2 tables (31 December 2018: series 2
tables, 30 June 2018: series 1 tables), with multipliers of 96% (31
December 2018: 96%, 30 June 2018: 105%) and 101% (31 December 2018:
101%, 30 June 2018: 115%) respectively for males and females. The
4% downwards (31 December 2018: 4% downwards, 30 June 2018: 5%
upwards) adjustment to mortality rates for males and a 1% upwards
(31 December 2018: 1% upwards, 30 June 2018: 15% upwards)
adjustment for females reflects higher life expectancies for males
and lower life expectancies for females within the scheme compared
to average pension schemes following an updated study of the
scheme's membership. Future improvements in mortality are based on
the latest available Continuous Mortality Investigation (CMI) model
with a long-term improvement trend of 1.25% per annum. Under these
mortality assumptions, the life expectancies of members are as
follows:
Male Female
30 June 31 December 30 June 30 June 31 December 30 June
2019 2018 2018 2019 2018 2018
Years Years Years Years Years years
-------- ------------ -------- -------- ------------ --------
Current pensioner aged
65 22.3 22.2 21.5 23.8 23.8 23.0
Current member aged 45
from age 65 23.7 23.6 22.9 25.4 25.3 24.6
-------- ------------ -------- -------- ------------ --------
If assumed life expectancies were one year greater, the net
retirement benefit asset would have been reduced by approximately
GBP30m (31 December 2018: GBP30m, 30 June 2018: GBP28m).
An analysis of amounts recognised in the statement of
comprehensive income is set out below:
Six months ended
30 June
2019 2018
GBPm GBPm
--------- --------
Actuarial movements on scheme assets 63.6 (16.4)
Actuarial movements on scheme liabilities (79.3) 20.0
--------- --------
Actuarial movements recognised in the statement
of comprehensive income in the period (15.7) 3.6
--------- --------
10. Investments
30 June 31 December 30 June
2019 2018 2018
GBPm GBPm GBPm
-------- ------------ --------
Government gilts 5.1 35.7 36.4
Visa Inc. shares 16.0 12.1 11.8
-------- ------------ --------
21.1 47.8 48.2
-------- ------------ --------
Government gilts
Government gilts comprise UK government gilts which form part of
the liquid assets buffer and other liquid resources held by Vanquis
Bank in accordance with the PRA's liquidity regime. Vanquis Bank's
total liquid assets buffer and other liquid resources, held in
accordance with the PRA's liquidity regime together with an
additional operational buffer, amounted to GBP428.4m (31 December
2018: GBP420.6m, 30 June 2018: GBP531.4m). This includes GBP423.3m
(31 December 2018: GBP384.9m, 30 June 2018: GBP495.0m) held in cash
and cash equivalents.
Visa Inc. shares
The Visa shares represents preferred stock in Visa Inc. held by
Vanquis Bank following completion of Visa Inc.'s acquisition of
Visa Europe Limited on 21 June 2016. In consideration for Vanquis
Bank's interest in Visa Europe Limited, Vanquis Bank received cash
consideration of EUR15.9m (GBP12.2m) on completion, preferred stock
with an approximate value of EUR10.7m and deferred cash
consideration of EUR1.4m due on the third anniversary of the
completion date. The preferred stock is convertible into Class A
common stock of Visa Inc. at a future date, subject to certain
conditions.
The fair value of the preferred stock in Visa Inc. held by
Vanquis Bank as at 30 June 2019 of GBP16.0m (31 December 2018:
GBP12.1m, 30 June 2018: GBP11.8m) is held at fair value through
OCI. The deferred cash consideration of GBP1.5m, previously held
within debtors (31 December 2018: GBP1.3m, 30 June 2018: GBP1.2m),
was received in June 2019. The increase in the fair value of the
investment during the six month period of GBP3.9m (2018: GBP1.9m)
in respect of the movement in the Visa Inc. share price and the
movement in foreign exchange rates has been recognised in the
statement of comprehensive income.
11. Fair value disclosures
The group holds the following financial instruments at fair
value:
30 June 31 December 30 June
2019 2018 2018
GBPm GBPm GBPm
-------- ------------ --------
Financial assets
Government gilts 5.1 35.7 36.4
Visa Inc. shares 16.0 12.1 11.8
Trade and other receivables - deferred
consideration - 1.3 1.2
-------- ------------ --------
Total 21.1 49.1 49.4
-------- ------------ --------
Except as detailed in the following table, the directors
consider that the carrying value of financial assets and financial
liabilities recorded at amortised cost in the financial statements
are approximately equal to their fair values:
Carrying value Fair value
------------------------------------ ------------------------------------
30 June 31 December 30 June 30 June 31 December 30 June
2019 2018 2018 2019 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------------ ---------- ---------- ------------ ----------
Financial assets
Amounts receivable
from customers 2,144.8 2,162.9 2,086.1 3,233.8 3,329.2 3,200.0
---------- ------------ ---------- ---------- ------------ ----------
Financial liabilities
Retail deposits (1,472.3) (1,431.7) (1,490.6) (1,468.3) (1,441.0) (1,487.0)
Bank and other borrowings (617.3) (623.8) (615.6) (619.6) (658.8) (622.6)
---------- ------------ ---------- ---------- ------------ ----------
Total (2,089.6) (2,055.5) (2,106.2) (2,087.9) (2,099.8) (2,109.6)
---------- ------------ ---------- ---------- ------------ ----------
12. Provisions
30 June 31 December 30 June
2019 2018 2018
GBPm GBPm GBPm
-------- ------------ --------
At 1 January 53.2 104.6 104.6
Used during the period (17.6) (62.2) (6.7)
Reclassification from balance reduction
provisions - 10.8 -
At the period end 35.6 53.2 97.9
-------- ------------ --------
Vanquis Bank
On 27 February 2018, Vanquis Bank agreed a settlement with the
FCA into the investigation into ROP. The investigation concluded
that Vanquis Bank did not adequately disclose in its sales calls
that the charges for ROP would be treated as a purchase transaction
and therefore potentially incur interest. The total estimated cost
of settlement amounted to GBP172.1m and was reflected in the 2017
financial statements, of which GBP75.4m was reflected as a balance
adjustment provision to receivables with the remaining GBP96.7m
reflected as a provision. The provision comprised: (i) cash
settlements to customers of GBP51.7m; (ii) higher expected forward
flow of ROP complaints more generally in respect of which
compensation may need to be paid of GBP30.7m; (iii) administration
costs of GBP12.3m; and (iv) the fine levied by the FCA of just
under GBP2.0m.
The ROP refund programme was completed in the first half of 2019
with over 1.3 million current and former ROP customers refunded. As
a result, the provision has reduced from GBP45.7m to GBP28.6m,
primarily reflecting cash settlements and administration costs of
GBP17.1m. The remaining provision mainly comprises the expected
forward flow of ROP complaints more generally in respect of which
compensation may need to be paid and sundry other costs. The
balance reduction provision has also reduced from GBP3.7m at the
end of 2018 to GBP1.2m at June 2019 (see note 8).
Moneybarn
Moneybarn continues to cooperate with the FCA with its ongoing
investigation into affordability, forbearance and termination
options. Management's best estimate of the potential liability in
respect of the investigation of GBP20.0m was reflected in the 2017
financial statements and comprised a GBP12.1m balance adjustment
provision to receivables with the remaining GBP7.9m reflected as a
provision in respect of potential cash restitution, administration
costs and an FCA fine.
Moneybarn has used GBP0.5m of the provision in 2019 in respect
of refund activity. The balance reduction adjustment provision
remains unchanged from December 2018 at GBP1.8m (see note 8). In
March 2019, Moneybarn agreed with the FCA the overall settlement to
be paid in respect of the investigation. The cost is expected to be
within the provisions held at the end of 2018, but this will not be
reflected until receipt of the final settlement agreement from the
FCA.
13. Reconciliation of profit after tax to cash generated from operations
Six months ended
30 June
2019 2018
GBPm GBPm
--------- --------
Profit after tax 20.6 22.0
Adjusted for:
- tax charge 17.0 12.6
- finance costs 36.5 36.2
- exceptional premium and fees paid on refinancing
of senior bonds (note 4) - 18.5
- share-based payment charge 2.1 0.3
- retirement benefit credit before exceptional curtailment
credit (note 9) (0.1) -
- exceptional pension curtailment credit (note 9) (0.5) (0.6)
- amortisation of intangible assets 7.6 10.3
- depreciation of property, plant and equipment
and right of use assets 8.8 4.6
* exceptional loss on write off of property, plant and
equipment and intangible assets (note 4) - 10.9
Changes in operating assets and liabilities:
- amounts receivable from customers 18.0 (14.8)
- trade and other receivables (23.5) (15.9)
- trade and other payables - 17.4
- contributions into the retirement benefit scheme
(note 9) (1.5) (5.0)
- provisions (note 12) (17.6) (6.7)
Cash generated from operations 67.4 89.8
--------- --------
14. Contingent liabilities
Threatened proceedings in respect of the company's alleged
failure to previously disclose certain matters contained in the
company's public announcement on 22 August 2017
On 26 January 2018, the company received a letter on behalf of
an institutional investor (which has a number of subsidiary
investment funds) in connection with certain matters disclosed in
its public announcement on 22 August 2017. On that date, as part of
a trading update, the company announced, among other things, that
Vanquis Bank was cooperating with an investigation by the FCA into
ROP, had agreed with the FCA to enter into a voluntary requirement
to suspend all new sales of ROP in April 2016 and had agreed with
the PRA, pending the outcome of the FCA investigation, not to pay
dividends to, or enter into certain transactions outside the normal
course of business with, the group without the PRA's consent. The
institutional investor asserted that the company is liable to
compensate it and its subsidiary investment funds for losses
suffered as a result of the fact that certain matters disclosed in
the trading update were not publicly announced earlier or disclosed
to them by the company in investor meetings. The institutional
investor did not quantify the losses that it alleged had been
incurred, although it alleged that it and its subsidiary investment
funds held significant positions in the company's shares at the
time. The institutional investor also asserted that the company's
earlier public announcements were false or misleading or,
alternatively, the delay in disclosing those matters publicly was
dishonest pursuant to Section 90A of the Financial Services and
Markets Act 2000, and the company made actionable misstatements
during those investor meetings.
The company has not received any further correspondence on this
matter and continues to believe the claims by the institutional
investor are unmeritorious and the prospects of the claims being
upheld to be limited. The company has responded to the claims and,
should further correspondence be received, intends to defend its
position vigorously and to the fullest extent possible. In the
event these claims, or claims brought by any other investors in
connection with these, or other, announcements or investor
meetings, were upheld, the compensation which the company may be
required to pay could have a material adverse effect on the group's
business, financial condition, results of operations, cash flows
and prospects.
Challenge to self-employed status of UK home credit agents
Based on recent discussions, it is understood that HMRC are
undertaking an industry wide review of the self-employed status of
agents, in particular the period from when the FCA took over
responsibility for the regulation of consumer credit in April
2014.
In July 2017, the group changed its home credit operating model
in the UK from a self-employed agent model to an employed workforce
to take direct control of all aspects of the customer relationship.
Policies and procedures were in place in the UK up to the
transition to the new operating model to ensure that the
relationship between the business and the agents it engaged were
such that self-employed status was maintained. Compliance with
policies was routinely evidenced and tested.
To date, the group has successfully defended claims and
challenges against the historic employment status of the group's UK
home credit agents although there can be no guarantee that future
claims or challenges will be successfully defended. Were the group
to be unsuccessful in defending such claims, it may be required to
pay additional taxes, in particular national insurance
contributions, to HMRC.
As discussions with HMRC are only in the preliminary stages, it
is not practicable to determine the possible financial effect
should the group be unsuccessful in defending the claims.
Other legal actions and regulatory matters
In addition, during the ordinary course of business the group is
subject to other complaints and threatened or actual legal
proceedings (including class or group action claims) brought by or
on behalf of current or former employees, agents, customers,
investors or other third parties, as well as legal and regulatory
reviews, challenges, investigations and enforcement actions, both
in the UK and overseas. All such material matters are periodically
reassessed, with the assistance of external professional advisers
where appropriate, to determine the likelihood of the group
incurring a liability. In those instances where it is concluded
that it is more likely than not that a payment will be made, a
provision is established to management's best estimate of the
amount required at the relevant balance sheet date. In some cases,
it will not be possible to form a view, for example because the
facts are unclear or because further time is needed properly to
assess the merits of the case, and no provisions are held in
relation to such matters. However, the group does not currently
expect the final outcome of any such case to have a material
adverse effect on its financial position, operations or cash
flows.
Statement of directors' responsibilities
The directors confirm that, to the best of their knowledge, the
unaudited condensed interim financial statements have been prepared
in accordance with IAS 34 as adopted by the European Union, and
that the interim report includes a fair review of the information
required by DTR 4.2.7R and DTR 4.2.8R, namely:
-- An indication of important events that have occurred during
the first six months of the financial year and their impact on the
unaudited condensed interim financial statements, and a description
of the principal risks and uncertainties for the remaining six
months of the financial year; and
-- Material related party transactions that have occurred in the
first six months of the financial year and any material changes in
the related party transactions described in the last annual report
and financial statements.
A list of current directors is maintained on the Provident
Financial website: www.providentfinancial.com. Graham Lindsay and
Robert East were appointed to the Board on 1 April 2019 and 26 June
2019 respectively. John Straw did not seek re-election as a
director at the AGM on 21 May 2019. There have been no other
changes in directors during the six months ended 30 June 2019.
The maintenance and integrity of the Provident Financial website
is the responsibility of the directors. The work carried out by the
auditor does not involve consideration of these matters and,
accordingly, the auditor accept no responsibility for any changes
that may have occurred to the unaudited condensed interim financial
statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of unaudited condensed interim financial statements
may differ from legislation in other jurisdictions.
By order of the board
Malcolm Le May - Chief Executive Officer Simon Thomas - Chief
Financial Officer
30 July 2019
INDEPENDENT REVIEW REPORT TO PROVIDENT FINANCIAL PLC
We have been engaged by the company to review the condensed
interim financial statements in the interim report for the six
months ended 30 June 2019 which comprise the consolidated income
statement, the consolidated statement of comprehensive income, the
consolidated balance sheet, the consolidated statement of changes
in shareholders' equity, the consolidated statement of cash flows
and related notes 1 to 14. We have read the other information
contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the
information in the condensed interim financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the interim report in accordance with the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed interim financial statements included
in this interim report have been prepared in accordance with
International Accounting Standard 34 "Interim Financial Reporting"
as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed interim financial statements in the interim report
based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed interim financial
statements in the interim report for the six months ended 30 June
2019 are not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
30 July 2019
Information for shareholders
1. The interim report will be posted to shareholders on 8 August
2019.
2. The shares will be marked ex-dividend on 15 August 2019.
3. The interim dividend will be paid on 26 September 2019 to
shareholders on the register at the close of business on 16 August
2019. Dividend warrants/vouchers will be posted on 24 September
2019.
4. The last date for elections to participate in the PFG
Dividend Re-investment Plan for the interim dividend is 5 September
2019.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR CKCDKFBKDQOB
(END) Dow Jones Newswires
July 30, 2019 02:00 ET (06:00 GMT)
Provident Financial (LSE:PFG)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Provident Financial (LSE:PFG)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024