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RNS Number : 5552S
Provident Financial PLC
07 November 2019
Provident Financial plc
Trading update and Capital Markets Day
7 November 2019
Provident Financial plc ('the group' or 'Provident') is the
leading provider of credit products which provide financial
inclusion for those consumers who are not well served by mainstream
lenders. This statement covers the group's trading highlights for
the third quarter and details of the Capital Markets Day being
hosted later today.
Summary
-- The group has continued to deliver results in line with
internal plans during the third quarter, with all three divisions
producing good business volumes and a stable impairment
performance.
-- Today's Capital Markets Day will outline the group's clear
vision for the future, including growth initiatives and medium term
financial commitments.
Malcolm Le May, Group Chief Executive Officer, commented:
"I am pleased to report third quarter performance in line with
internal plans, with continuing good momentum in new customer
volumes and stable delinquency. The ongoing improvement in
performance leaves the group well placed as we enter the important
fourth quarter trading period.
I am also delighted that we will be presenting our medium-term
strategic vision for Provident at today's Capital Markets Day. We
believe our plans will ensure that the group continues to be the
market leader in the provision of credit products to the
under-served.
We are well placed to meet changing customer needs, respond to
the evolving regulatory environment whilst at the same time
delivering attractive and sustainable returns for
shareholders."
2019 third quarter trading
Vanquis Bank
Vanquis Bank has delivered stable delinquency and results in
line with internal plans during the third quarter of the year.
New customer bookings continue to benefit from the
implementation of the new underwriting platform in late 2018 which
has enabled Vanquis Bank to enhance the customer onboarding
journey. Third quarter new customer bookings of 90,000 were
consistent with the second quarter of the year. Whilst this was
13,000 lower than the third quarter of last year, it reflects
tighter underwriting standards, including the withdrawal of the
69.9% APR product in the first half of the year and the
implementation of revised affordability processes in November 2018.
In addition, the phasing of the marketing programme in 2019 has
been weighted more evenly though the year compared with 2018
whereby expenditure was more weighted to the second and third
quarters in advance of the change to the new underwriting platform.
Customer numbers ended the third quarter at 1,811,000, 2% higher
than last year. Vanquis Bank will be undertaking a re-activation
campaign during the fourth quarter on approximately 100,000
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 were to be any deterioration in the
economic environment. Accordingly, customer numbers are expected to
reduce in the fourth quarter but this is not expected to have an
impact on Vanquis Bank's result for the year.
Receivables ended the third quarter at a similar level to last
year, consistent with previous guidance. This reflects the impact
of the implementation of revised affordability processes and the
measures taken to reduce the number of customers meeting the FCA's
definition of persistent debt, including the introduction of higher
minimum payments and recommended payments, restrictions in the
credit line increase programme and a number of communication
strategies. At September 2018, approximately 11% of active Vanquis
Bank customers were up to date but met the definition of being in
persistent debt (including customers in arrears and in payment
arrangements this increases to 15% of active customers). The
business has been 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 of no more than
four years. Approximately two thirds of customers from that cohort
no longer meet the definition of persistent debt and Vanquis Bank
continues to proactively work with the remaining customers in
advance of March 2020 as well as those customers who have met the
definition after September 2018.
Delinquency trends showed a favourable movement compared with
the third quarter of last year due to two factors. Firstly, a shift
in business mix towards better quality, nearer prime customers
reflecting the tightening of underwriting over the last 18 months.
Secondly, the third quarter of last year experienced an increase in
payment arrangements due to enhanced forbearance and the
introduction of higher minimum payments in preparation for the
advent of the persistent debt rules in March 2020.
Costs remain tightly controlled and are running at a similar
level to last year.
Moneybarn
Moneybarn has again delivered strong new customer volumes and
receivables growth during the third quarter.
New business volumes showed year-on-year growth of approximately
36%, ahead of management's plans. As a result, customer numbers at
the end of September 2019 stood at 73,000, up 24% on September
2018.
Default rates and arrears trends remain consistent with the
third quarter of last year and profits were broadly in line with
the group's internal plans, despite the adverse impact of stronger
than forecast growth under IFRS 9 and a modest reduction in used
car values. Underwriting has recently been tightened further to
remove the bottom tier of higher risk customers which was less
profitable.
The redress required to resolve the issues arising in respect of
the investigation into affordability, forbearance and termination
options has now been completed and Moneybarn awaits final notice
from the FCA. The total settlement is expected to be within the
previously announced financial provision of GBP20m.
On 15 October 2019, the FCA issued CP19/28 'Motor finance
discretionary commission models and consumer credit commission
disclosure' which sets out plans to prevent motor finance brokers
receiving commissions linked to the interest rate that customers
pay. Moneybarn is not affected by the proposals in CP19/28 as it
uses flat fee commission structures and has never given discretion
to brokers in setting the interest or commission levels.
Consumer Credit Division (CCD)
CCD, which comprises the group's home credit business,
Provident, and the digital loans business, Satsuma, has delivered
results broadly in line with internal plans during the third
quarter. The ongoing turnaround of the home credit business
continues to progress well.
The improved momentum in business volumes has continued with the
number of new and returning home credit customers being 6% higher
than the third quarter of 2018. Home credit customer numbers ended
the third quarter at 388,000, a reduction from 403,000 at June 2019
as the number of new customers recruited is not yet at a level
sufficient to stabilise the customer base. However, the rate of
reduction was approximately half of that experienced in the third
quarter of last year. New customer recruitment is expected to
continue its upward trajectory during the seasonal peak in trading
in the fourth quarter of the year. Average issue values have now
stabilised following the reductions experienced during the first
half of the year as a result of the introduction of the FCA's high
cost credit guidance.
Following successful testing, performance management based on a
balanced scorecard supported by an element of variable
performance-related pay was rolled out in the UK to Customer
Experience Managers (CEMs) and field managers during the third
quarter of the year. The implementation of this full suite of
performance measures is essential in continuing to improve the
efficiency and effectiveness of the field organisation whilst
delivering consistently good customer outcomes.
Early in the third quarter, CCD commenced testing of an
enhancement to the home credit product, Provident Direct, in the
Birmingham South area. Provident Direct is relationship managed in
the home by a CEM with payments collected remotely via Continuous
Payment Authority. Early feedback indicates that there is strong
demand for the product from both customers and the field
organisation. Provident Direct will be rolled-out progressively
from early 2020 in order to allow the business to refine the
customer journey and avoid disrupting the field organisation during
the seasonal peak in trading. The product 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 support improved efficiency in the field force.
Collections performance of credit originated since the fourth
quarter of 2017 has continued to remain broadly in line with the
levels achieved prior to the change in the UK home credit operating
model in July 2017.
Satsuma continues to experience a good flow of lending volumes
notwithstanding the progressive refinement in underwriting. New
business and further lending volumes increased by approximately 10%
and customer numbers ended the third quarter at 134,000, up 24% on
September 2018.
CCD has continued to take the necessary actions to reduce
headcount in response to the reduction in customer numbers. As a
result, a further 400 CEMs and field managers have either left or
are expected to leave the business by the end of 2019. Together
with actions already taken and the ongoing tight control of costs,
this is expected to result in CCD's cost base reducing to below
GBP200m in 2020 compared with an annual run rate of approximately
GBP260m in September 2017. Overall, there has been a reduction in
roles within CCD of 1,400 over the same time period. Exceptional
costs are expected to increase by approximately GBP5m from the
interim results, primarily in respect of restructuring and
redundancies in CCD.
CCD remains on track to deliver its 2019 objective of
stabilising the customer base and reducing the cost base in order
to deliver a break even result in 2020. The continued improvement
in trading performance during the critical fourth quarter trading
period is essential in delivering this objective.
Funding and capital
Consistent with the group's strategy to diversify its funding
base and lower the overall cost of funding, the group is in
advanced dialogue with a counterparty to fund Moneybarn new
business flows through a bilateral securitisation facility. The
facility is anticipated to commence in the first quarter of 2020
and would provide a comparable funding rate to the revolving credit
facility which reduced from GBP450m to GBP235m in July 2019.
Headroom on the group's committed debt facilities was GBP139m at 30
September 2019. Together with the ongoing retail deposits programme
and the proposed bilateral securitisation facility, this would be
sufficient to fund contractual debt maturities and projected growth
in the group until June 2022.
Regulatory capital headroom against the group's Total Capital
Requirement of 25.5% was approximately GBP60m at 30 September 2019.
This compares with the Board's risk appetite of maintaining
headroom of at least GBP50m. As previously reported, the group's
next capital review (C-SREP) with the PRA is scheduled for the
first quarter of 2020 with the result expected in the second
quarter. The group continues to actively explore a number of
options to improve capital efficiency.
Capital Markets Day
The group is later today hosting a Capital Markets Day which
will include presentations from group and divisional management
including:
-- The group's marketplace, strategy and customer base by
Malcolm Le May (Group Chief Executive Officer);
-- The changes Vanquis Bank has made to adapt to regulation and
the future growth opportunities by Neil Chandler (Vanquis Bank,
Managing Director);
-- The ongoing growth potential of Moneybarn by Shamus Hodgson (Moneybarn, Managing Director);
-- The plan to breakeven in CCD in 2020 and the future growth
prospects of the business by Chris Gillespie (CCD, Managing
Director); and
-- The group's funding and capital strategy by Simon Thomas (Group Chief Financial Officer).
The group will also reiterate the following medium-term
financial commitments:
-- Receivables growth of between 5% and 10% per annum over a
5-year timeframe to deliver group receivables of c.GBP3bn
(currently: GBP2.1bn), comprising c.GBP2bn in Vanquis Bank
(currently: GBP1.4bn), c.GBP750m in Moneybarn (currently: GBP490m)
and c.GBP300m in CCD (currently: GBP235m).
-- Delivery of a cost/income ratio(1) of 38% by 2022 (2018: 43%).
-- Generating a return on equity (ROE(2) ) of between 20% and
25% (broadly equating to a return on assets (ROA(3) ) of
approximately 10%). Based on planned receivables growth and the
guidance in respect of the cost/income ratio, the group expects to
deliver an ROE within the target range of 20% and 25% by 2021.
-- Evolving dividend cover to at least 1.4 times as the home
credit business recovers and returns to profitability.
The event starts at 1.30pm and concludes at approximately
4.30pm. A live audio webcast of the event will be available on the
group's website (www.providentfinancial.com). In addition, an on
demand audio webcast of the event will be available later in the
day, also on the group's website.
(1) Cost/income ratio is calculated as administrative and
operating costs, prior to the amortisation of acquisition
intangibles and exceptional items divided by revenue.
(2) ROE is calculated as adjusted profit after tax as a
percentage of average equity (average equity is stated after
deducting the pension asset and the fair value of derivatives).
(3) ROA is calculated as adjusted profit before interest after
tax divided by average receivables.
Forward looking statements
This announcement may contain certain "forward looking
statements" regarding the financial position, business strategy or
plans for future operations of Provident. All statements other than
statements of historical fact included in this document may be
forward looking statements. Forward looking statements also often
use words such as "believe", "expect", "estimate", "intend",
"anticipate" and words of a similar meaning. By their nature,
forward looking statements involve risk and uncertainty that could
cause actual results to differ from those suggested by them. Much
of the risk and uncertainty relates to factors that are beyond
Provident's ability to control or estimate precisely, such as
future market conditions and the behaviours of other market
participants, and therefore undue reliance should not be placed on
such statements which speak only as at the date of this document.
Provident does not assume any obligation to, and does not intend
to, revise or update these forward looking statements, except as
required pursuant to applicable law or regulation.
No statement in this announcement is intended as a profit
forecast or estimate for any period. No statement in this
announcement should be interpreted to indicate a particular level
of profit and, as a consequence, it should not be possible to
derive a profit figure for any future period from this
announcement.
Enquiries:
Media
Richard King, Provident Financial 07919 866876
Nick Cosgrove/Simone Selzer, Brunswick 0207 4045959
providentfinancial@brunswickgroup.com
Investor relations
Gary Thompson/Vicki Turner, Provident Financial 01274 351900
investors@providentfinancial.com
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END
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