TIDMPFG
RNS Number : 6833G
Provident Financial PLC
31 March 2022
Provident Financial plc
Preliminary results for the year ended 31 December 2021
Provident Financial plc ('the Group' or 'PFG'), a leading
specialist bank with a focus on underserved markets, today
publishes its results for the twelve months to the end of December
2021, unless otherwise stated.
Malcolm Le May, Chief Executive Officer, commented:
"I am pleased to report that the Group's financial performance
in FY'21 improved significantly year-on-year and, as a result, our
adjusted PBT from continuing operations was marginally ahead of
market expectations. We have exited high-cost short-term credit and
we are now focused on providing mid-cost credit products to over
1.6m customers.
2021 was a strategically important year for PFG: we commenced
the rebuilding of our cards franchise following the pandemic, we
established a personal loans business supported by a brand new IT
platform and we closed the Consumer Credit Division (CCD) in
response to changing industry dynamics. We also improved the
funding mix of the Group with the issuance of a Tier 2 subordinated
bond. Most importantly, we achieved all of this whilst maintaining
a focus on providing our customers with the credit products they
need.
Reflecting the improved performance of the Group, I am pleased
to report that the Board is proposing a dividend of 12p per share
for FY'21, which represents a pay-out ratio of adjusted continuing
earnings(3) of approximately 30%. Going forwards, we anticipate
moving towards a pay-out ratio of adjusted earnings of circa 40%
from FY'22 onwards .
During the first quarter of 2022, PFG has continued to see
positive momentum across its three businesses quarter-on-quarter.
In the credit card business, new account bookings are tracking
ahead of expectations and delinquency trends remain favourable and
consistent with the year-end position. In the vehicle finance
business, demand from customers remains buoyant, particularly in
the near-prime segment, and collections and arrears rates are
stable. In the personal loans business, the pilot phases for
Vanquis Bank Loans and Sunflower Loans continue to progress
encouragingly. PFG remains well positioned to cope with the
macroeconomic uncertainty that may arise from the current
inflationary environment in the UK and we continue to support our
customers through this time."
Key financial results
Twelve months ended 31 December
2021 2020
Continuing Operations: GBPm GBPm
--------------- -----------------
Adjusted profit before tax:
- Credit cards 173.9 39.5
- Vehicle finance 28.9 10.9
* Personal loans (8.7) (1.5)
- Central costs (26.3) (21.1)
--------------- -----------------
Adjusted continuing profit before
tax (1) 167.8 27.8
--------------- -----------------
Amortisation of acquisition intangibles (7.5) (7.5)
Adjusted discontinued operations:
CCD (95.5) (74.9)
--------------- -----------------
Adjusted profit/(loss) before
tax 64.8 (54.6)
--------------- -----------------
Exceptional items (60.7) (58.9)
--------------- -----------------
Profit/(loss) before tax 4.1 (113.5)
--------------- -----------------
Adjusted basic EPS from continuing
operations (1) 57.5 11.7
--------------- -----------------
Basic EPS from continuing operations 53.7 (14.6)
--------------- -----------------
Adjusted RORE(2) 32.6% 6.3%
--------------- -----------------
Highlights
2021 was an important year for PFG as it delivered several key
strategic initiatives
-- PFG continued to focus on its strategic goals during 2021,
with the launch of its personal loans business and the closure of
CCD, whilst supporting its customers and colleagues.
-- Group profit before tax of GBP4.1m (FY'20 loss before tax:
GBP113.5m) reflects an improvement in the profitability of the
Group driven by a favourable macroeconomic backdrop to the end of
2021.
-- Group adjusted profit before tax from continuing operations
of GBP167.8m (FY'20: GBP27.8m) improved significantly year-on-year
and excludes exceptional items relating to the closure of CCD and
various other corporate activities including the 2023 Senior
bond.
-- At the end of December 2021, the Group's capital and
liquidity positions remained robust with regulatory capital of
GBP707m (FY'20: GBP675m), equating to a CET1 ratio of 29.1% (FY'20:
34.2%) and, following the issuance of a Tier 2 subordinated bond in
October 2021, a total capital ratio of 40.6%. This equates to a
surplus of GBP344m (FY'20: GBP264m) above the minimum regulatory
requirement. Total Group liquidity at the end of December 2021 was
approximately GBP700m (FY'20: GBP900m) reflecting more normalised
levels.
-- As previously indicated, and enabled by the Group's strong
capital position, the Board is proposing an interim
dividend for FY'21 of approximately 30% of adjusted continuing
earnings(3) , which equates to a dividend per share of 12p. Going
forwards, the Board anticipates moving towards a pay-out ratio of
circa 40% of adjusted earnings(3) from FY'22 onwards.
Credit card adjusted PBT improved significantly year-on-year;
customer acquisition trends improved during Q1'22
-- The Group's credit card business reported adjusted PBT for
the year of GBP173.9m (FY'20: GBP39.5m) which was ahead of internal
plans and significantly better than last year driven by lower
impairment year-on-year.
-- New customer bookings for the period were 199k (FY'20: 241k)
reflecting the maintenance of tighter underwriting criteria in
response to Covid-19. The total number of customers at the end of
December stood at 1.54m (FY'20: 1.67m), which was driven by the
closure of approximately 114k dormant customer accounts broadly
offsetting lower charge offs during the period owing to the
benefits of furlough and payment holidays.
-- Customer credit card expenditure trends continued to track
closely with industry trends. At the end of December, spend on a
per average active customer basis was approximately 12% higher
year-on-year. This notwithstanding, when combined with lower
customer bookings year-on-year and payments per active customer
remaining stable, receivables at the end of December stood at
GBP1,063m (FY'20: GBP1,075m).
-- The annualised impairment rate at the end of December was
0.3% (FY'20: 19.3%) reflecting the benefit of impairment provision
releases during the period and the lower level of charge offs as a
result of Covid-19 customer support and furlough. As a result, the
risk-adjusted net interest margin improved to 36.0% (FY'20:
17.0%).
-- On 24 March 2022, PFG announced that it had hired Fiona
Anderson for the newly created role of Managing Director of Cards.
Fiona has a wealth of significant experience across credit cards
and personal banking. From 2019 to 2021, she served as Head of
Everyday Banking at HSBC and prior to that she held senior
positions at Mastercard and Barclaycard including Head of Growth
Accounts for Mastercard Worldwide. Her most recent role was
Managing Director, Global Consumer Solutions UK at Equifax, the
consumer credit reporting agency.
Vehicle finance adjusted PBT improved year-on-year; average
credit and customer quality remained high
-- The Group's vehicle finance business delivered adjusted PBT
for the period of GBP28.9m (FY'20: GBP10.9m) which represents
significant growth year-on-year. The increase was driven by a
reduction in impairment owing to Covid-19 support schemes and
furlough.
-- At the end of December, there were 94k vehicle finance
customers (FY'20: 91k) and receivables of GBP586m (FY'20: GBP567m).
Growth in customers and receivables year-on-year was moderated by
higher than anticipated early customer settlements driven by a
buoyant second hand car market.
-- Credit issued during 2021 was GBP287m, flat year-on-year,
despite new business volumes decreasing marginally to 37k (FY'20:
38k).
-- The annualised impairment rate decreased to 7.6% (FY'20:
13.6%) driven by lower arrears rates and provision releases as a
result of a more benign macroeconomic backdrop during the period.
As a result, the risk-adjusted net interest margin improved to
11.1% (FY'20: 6.9%).
Personal loans business established; loan pilot phases started
encouragingly
-- PFG has established a personal loans business under the
leadership of Hamish Paton (Managing Director). The business will
incorporate loans under two brands, Vanquis Bank Loans and
Sunflower Loans, both of which are currently in pilot phases that
have started encouragingly.
-- The two products will target distinct customer segments,
based on average credit score bands, and initially the loans will
range from GBP1-5k over a period of 12 to 48 months.
-- PFG invested in a new IT infrastructure platform, known as
'Gateway', in order to support the new personal loan product, and
which is capable of housing multiple products over time.
Importantly, it will provide customers with a single, holistic view
of PFG product offerings. The personal loans business is an
important part of PFG's strategy to diversify its product offering
and to cater to customer demand.
Enquiries:
Analysts and shareholders:
Owen Jones, Group Head of
Investor Relations 07341 007842
Owen.jones@providentfinancial.com
Media:
Richard King, Provident Financial 07919 866876
Nick Cosgrove/Simone Selzer,
Brunswick 0207 4045959
providentfinancial@brunswickgroup.com
(1) Adjusted profit before tax from continuing operations is
stated before: (i) GBP7.5m of amortisation in respect of
acquisition intangibles established as part of the acquisition of
Moneybarn in August 2014 (FY'20: GBP7.5m); (ii) exceptional costs
which includes Scheme of Arrangement costs, redundancy costs and
certain other corporate activities; and (iii) costs relating to the
closure of CCD of GBP95.5m (FY'20 GBP74.9m).
(2) Return on average required regulatory capital (RORE)
reflects annualised adjusted profit after tax divided by the
average regulatory capital requirement.
(3) Adjusted earnings of GBP98m in FY'21 is defined as profit
after tax from continuing operations before amortisation of
acquisition intangibles and any exceptional items including one-off
provision releases.
Note:
This report may contain certain "forward looking statements"
regarding the financial position, business strategy or plans for
future operations of PFG. 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 PFG'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 report. PFG 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 report.
Chief Executive Officer's review
Introduction
2021 was an important year for PFG as we successfully focussed
the Group on becoming a leading specialist bank focused on
underserved markets. From the outset, the Board and the executive
management team remained focused on key strategic initiatives,
whilst not losing sight of the critical role we play in our
customers' lives. Our credit card and vehicle finance businesses
commenced their rebound from the early impact of Covid-19,
delivering excellent profitability growth and receivables growth
from H1'21.
During 2021, we established a personal loan business, building
on the work already done within Vanquis Bank, and invested in a new
IT platform known as 'Gateway'. We also launched our second
successful partial tender of our 2023 Senior bonds whilst issuing
an oversubscribed Tier 2 subordinated debt instrument with gross
proceeds of GBP200m. This issuance increased the Total Capital
Ratio (TCR) to over 40%.
Group financials
Turning to the financial results for 2021, the Group reported an
adjusted profit before tax from continuing operations of GBP167.8m
(FY'20: GBP27.8m), which reflects lower impairment year-on-year
driven by provision releases. Including amortisation of
intangibles, CCD discontinued operations and exceptional items, the
Group PBT was GBP4.1m (FY'20 loss before tax: GBP113.5m).
At the start of the Covid-19 pandemic, the Group took the
prudent decision to tighten underwriting standards. These standards
were not relaxed during 2021 and, as a result, new customer
bookings across cards, loans and vehicle finance of 249k were lower
year-on-year (FY'20: 286k). At the end of December the Group had
1,635k customers (FY'20: 1,759k, excluding CCD). As lockdown
restrictions eased and demand for credit from customers returned,
the Group saw positive momentum in its receivables book during the
second half of the year until restrictions were reintroduced in
November 2021. As a result, total receivables stood at GBP1,678m
(FY'20: GBP1,661m, excluding CCD) at the end of December.
As we positioned PFG for the attractive market opportunity, we
have made changes in the Group including restructuring the Board of
Vanquis Bank and investing in a number of areas including a new IT
platform to initially support the mid-cost personal loans business,
the Group's Treasury capability and other growth initiatives
including a new cards mobile app and the launch of the Open Market
loans pilots.
The Group's capital and liquidity positions have remained robust
throughout the period. At the end of December, the Group held total
regulatory capital of GBP707m, equating to a Total Capital Ratio of
40.6% and a surplus above the minimum regulatory requirement of
GBP344m. During the year, we issued a Tier 2 subordinated bond with
gross proceeds of GBP200m, launched a successful partial tender for
our 2023 Senior bonds, refinanced and extended Moneybarn's
securitisation funding and Vanquis Bank accessed the Bank of
England Term Funding Scheme for SMEs (TFSME) for the first
time.
Closure of CCD
During 2021, the Board took the regrettable and difficult
decision to close the Consumer Credit Division (CCD) in response to
changing industry dynamics. It was closed on schedule by the end of
the year and was delivered within the closure cost guidance of up
to GBP100m. The closure of CCD involved launching a Scheme of
Arrangement in order to provide GBP50m of compensation for its
customers. The Board and I felt that this was necessary in order to
provide customers with the best possible outcome. The result of the
closure is that PFG has reduced its operational risk profile and no
longer operates in any 'high-cost' credit market segment. The Board
and I would like to extend our sincere thanks to all colleagues
from CCD for their excellent work during very difficult
circumstances.
Governance changes
Shortly after the period end, PFG announced the next phase of
its strategy to reinforce its position as a leading specialist bank
with a focus on underserved markets. PFG has restructured the Board
of Vanquis Bank to substantially align its membership with the
Board of PFG. This is an important step in the execution of the
Group's specialist bank strategy, which includes the wider use of
retail deposit funding across the Group from H2'22, subject to PRA
approval. PFG believes that streamlining the Boards of the two
legal entities in this way will create a simpler, more efficient
Group governance structure, whilst streamlining and enhancing both
PFG and Vanquis Bank's handling of corporate governance.
Environmental, Social and Corporate Governance (ESG)
As the Group works towards its vision of becoming a leading
specialist bank focused on underserved markets, its Purpose of
helping to put people on a path to a better everyday life continues
to underpin our commitment to integrating and reporting on issues
of Environmental, Social and Governance (ESG). For further details
of our approach to ESG topics, please see our 2021 Corporate
Responsibility report.
Throughout 2021, PFG continued to implement measures aimed at
reducing the impact that the Group's operations have on the
environment, particularly in relation to climate change. PFG
remains committed to meeting the recommendations of the Taskforce
on Climate-related Financial Disclosures and, to support this
objective, the Group became a signatory to the UN Global Compact's
Business Ambition for 1.5degC pledge. This agreement sets carbon
reduction targets which align with current climate science and are
approved by the Science Based Target Initiative.
PFG has continued to work with charities and other organisations
to address such issues as inequality and disadvantage in the
community. In 2021, we invested approximately GBP1.4m in activities
and initiatives which sought to support children and young people
whose education has been negatively impacted by Covid-19. By
supporting organisations like National Numeracy, the National
Literacy Trust and School-Home Support, PFG has been able to boost
education, skills and opportunities in the community.
Further underpinning our commitment, I joined the National
Numeracy Leadership Council in September 2021. The Council, which
includes representatives from Amazon, Bloomberg and Experian, will
grow the network of organisations and individuals actively
addressing the issue of poor numeracy in the UK. It will also
support people to improve their numeracy by creating positive
attitudes to numbers and maths, and in turn, their financial
wellbeing.
Outlook
PFG remains well placed in growing addressable markets of over
GBP17bn, and is underpinned by a strong, well capitalised balance
sheet with a customer-centric model and a new IT platform.
Reflecting the Board's confidence in the Group's ability to deliver
attractive and sustainable growth and returns for shareholders, the
Board, subject to market conditions, expects to move to a dividend
pay-out ratio of circa 40% of adjusted earnings from FY'22
onwards.
The current macroeconomic environment in the UK, and the
inflationary pressures our customers will be experiencing, have
been factored in to our underwriting processes, affordability
checks and capital adequacy planning. During the first two months
of 2022, overall trends in our credit card and vehicle finance
businesses have continued to see encouraging momentum. The personal
loans pilot phases continue to track broadly in-line with internal
plans.
For the remainder of FY'22, we anticipate credit card spend in
areas such as travel to increase, and non-discretionary elements,
such as food and other essentials, to continue and for receivables
growth to benefit as a result. We also expect impairment trends to
benefit from the ongoing release of provisions and overlays, of
which c.GBP60m remain, and PFG's continued evolution towards higher
quality customers and lower risk credit, resulting in lower
coverage ratios. Indeed, PFG will target a mid-teens coverage ratio
over the medium-term. The Group's cost to income ratio is expected
to reduce marginally in FY'22 versus FY'21, including the remaining
transformation investment in the Group's businesses, and we expect
it to reduce to c.40% from the end of 2024 onwards as the Group
benefits from operational efficiencies as a result of its
transformation programme. Assuming the Group's large limit waiver
application to the Prudential Risk Authority (PRA) is successful,
we expect to benefit from reducing funding costs, notwithstanding
the rising interest rate environment.
Malcolm Le May
Chief Executive Officer
30 March 2022
Financial review
Group performance
The Group's 2021 results can be summarised as follows:
Twelve months ended 31 December
2021 2020
Continuing Operations: GBPm GBPm
--------------- -----------------
Adjusted profit before tax:
- Credit cards 173.9 39.5
- Vehicle finance 28.9 10.9
* Personal loans (8.7) (1.5)
- Central costs (26.3) (21.1)
--------------- -----------------
Adjusted continuing profit before
tax (1) 167.8 27.8
--------------- -----------------
Amortisation of acquisition intangibles (7.5) (7.5)
Adjusted discontinued operations:
CCD (95.5) (74.9)
--------------- -----------------
Adjusted profit/(loss) before
tax 64.8 (54.6)
--------------- -----------------
Exceptional items (60.7) (58.9)
--------------- -----------------
Profit/(loss) before tax 4.1 (113.5)
--------------- -----------------
Adjusted basic EPS from continuing
operations (1) 57.5 11.7
--------------- -----------------
Basic EPS from continuing operations 53.7 (14.6)
--------------- -----------------
Adjusted RORE(2) 32.6% 6.3%
--------------- -----------------
(1) Adjusted profit before tax from continuing operations is
stated before: (i) GBP7.5m of amortisation in respect of
acquisition intangibles established as part of the acquisition of
Moneybarn in August 2014 (FY'20: GBP7.5m); (ii) exceptional costs
which includes Scheme of Arrangement costs, redundancy costs and
certain other corporate activities; and (iii) costs relating to the
closure of CCD of GBP95.5m (FY'20 GBP74.9m).
(2) Return on average required regulatory capital (RORE)
reflects annualised adjusted profit after tax divided by the
average regulatory capital requirement.
The Group reported an adjusted profit before tax from continuing
operations of GBP167.8m (FY'20: GBP27.8m), which reflects lower
impairment year-on-year driven by provision releases. Including
amortisation of intangibles, CCD discontinued operations and
exceptional items, the Group PBT was GBP4.1m (FY'20 loss before
tax: GBP113.5m).
The credit card business reported adjusted profit before tax for
the period of GBP173.9m (FY'20: GBP39.5m) and receivables ended the
period at GBP1,063m (FY'20: GBP1,075m).
The vehicle finance business generated a profit before tax of
GBP28.9m (FY'20: GBP10.9m) and receivables ended the period at
GBP586m (FY'20: GBP567m).
CCD reported a loss before tax of GBP95.5m (FY'20: GBP74.9m).
The loss for the period reflects the closure of the business as at
December 2021.
On an adjusted continuing basis, the Group reported an adjusted
basic EPS of 57.5p (FY'20: 11.7p) and a basic EPS of 53.7p for
FY'21 (FY'20 loss per share of 14.6p). On a statutory basis, the
Group reported a basic loss per share of 12.8p (FY'20: 32.9p) for
2021 reflecting the statutory loss after tax of GBP32.1m (FY'20
loss after tax: GBP83.4m).
Macroeconomic provision
Macroeconomic provisions are recognised to reflect the expected
impact of future economic events on a customer's ability to make
payments on their agreements and the losses which are expected to
be incurred given default. Following refinements to the models in
2021, these provisions are now included as part of the core model
provision.
The macroeconomic provision for continuing operations now
considers the relationship between hazard rate, the number of
people who were employed last month but who are unemployed the
following month (derived from unemployment), debt to income ratio
and default rates. Previously only the relationship between
unemployment and default rates was considered.
The provision reflects the potential for future changes under a
range of forecasts, as analysis has clearly evidenced correlation
between hazard rates, debt to income ratios and credit losses
incurred.
The unemployment data has been compiled from a consensus of
sources including the Bank of England, HM Treasury, the Office for
Budget Responsibility (OBR), Bloomberg and a number of prime
banks.
The Group will continue to analyse and assess if there are any
additional macroeconomic indicators which also correlate with
credit losses.
The table below shows the annual peak and average unemployment
assumptions adopted and the weightings applied to each. The
weightings have remained consistent with the prior year.
Unemployment Base Downside Upside Severe
rate
-------------- ----- --------- ------- -------
Weighting 50% 10% 35% 5%
2022
Peak 4.8% 6.2% 4.7% 8.0%
Average 4.6% 5.4% 4.2% 6.3%
2023
Peak 4.3% 6.5% 4.1% 8.6%
Average 4.3% 6.4% 3.9% 8.5%
Increasing the upside weighting by 5%, from 35% to 40%, and a
corresponding reduction in the base case would decrease the
allowance account by GBP2.5m for credit cards and personal
loans.
Increasing the downside weighting by 5%, from 10% to 15%, and a
corresponding reduction in the base case would increase the
allowance account by GBP0.4m for credit cards and personal
loans.
Changing the weightings for vehicle finance would not have a
material impact on the allowance account.
The impact on the 2021 allowance account if each of the
macroeconomic scenarios were applied at 100% weighting, rather than
the weightings set out above, is shown below:
Base Upside Downside Severe
100% weighting for
credit cards: (5.2) (13.6) 8.1 23.5
Credit Cards
Twelve months ended 31
December
2021 2020 Change
--------
GBPm GBPm
--------- -------- --------
Customer numbers ('000) 1,541 1,667 (7.6%)
Period-end receivables 1,063 1,075 (1.1%)
Average receivables(1) 1,003 1,207 (16.9%)
----------------------------------- --------- -------- --------
Revenue 389.5 472.4 (17.5%)
Interest (24.9) (33.7) 26.1%
----------------------------------- --------- -------- --------
Net interest margin 364.6 438.7 (16.9%)
Impairment (3.7) (233.3) 98.4%
----------------------------------- --------- -------- --------
Risk-adjusted net interest margin 360.9 205.4 75.7%
Costs (187.0) (165.9) (12.7%)
----------------------------------- --------- -------- --------
Adjusted profit before tax (2) 173.9 39.5 340.3%
----------------------------------- --------- -------- --------
Annualised revenue yield(3) 38.8% 39.1% (0.3%)
Annualised impairment rate(4) (0.3%) (19.3%) 19.0%
Annualised return on equity(5) 36.2% 8.9% 27.3%
(1) Calculated as the average of month end receivables for the 12 months ended 31 December.
(2) Vanquis Bank profits reflect an adjustment for GBP1.0m of
redundancy costs in 2021 and the release of a ROP provision
(GBP8.3m) in 2020.
(3) Revenue as a percentage of average receivables for the 12
months ended 31 December.
(4) Impairment as a percentage of average receivables for the 12 months ended 31 December.
(5) Adjusted profit after tax as a percentage of average equity
for the 12 months ended 31 December.
The Group's credit card business is a leading specialist lender
in the large and established credit card market with strong capital
and liquidity positions. For 2021, the business reported adjusted
profit before tax of GBP173.9m (FY'20: GBP39.5m) and receivables at
the end of the period of approximately GBP1,063m were broadly
in-line versus the prior year (FY'20: GBP1,075m).
New customer bookings for the year were 199k, down from 241k in
2020, as a result of tighter underwriting standards introduced
during Q2'20 being maintained during 2021, offset partly through
selective testing. The credit card business launched a brand
advertising campaign during 2021 - 'Walk Tall with Vanquis'- which
is designed to drive customer brand awareness. Approximately 114k
inactive customers had their accounts closed during Q1'21,
following communications with them in November 2020 that their
accounts would be closed if there was no activity within 60 days.
As a result, credit card customer numbers reduced to 1,541k as at
December 2021 (FY'20: 1,667k).
During 2021, Credit Line Increases amounting to approximately
GBP170m were issued to customers, which was approximately GBP30m
higher than the previous year, reflecting the cautious approach to
rebuilding the receivables book. At the end of December, the
average utilisation rate was approximately 52%, which remains below
levels seen pre-Covid. This reduction has been driven by customer
deleveraging throughout the pandemic.
Receivables ended the period at GBP1,063m (FY'20: GBP1,075m),
broadly flat year-on-year. However, receivables increased versus
the level seen at the end of June 2021 (H1'21: GBP977m) as customer
spend increased in-line with the wider market. During 2021,
customer spend was tracking ahead of levels seen in 2020 and, for
certain periods, ahead of levels seen in 2019. Towards the end of
the year, customer spend was curtailed by the spread of the Omicron
Covid variant which impacted customers' ability to visit retail and
leisure facilities, and travel restrictions meant that holiday
spend continued to be suppressed when compared to 2019.
The credit card business generated revenue of GBP389.5m during
the year, versus GBP472.4m in 2020, as a result of lower average
receivables. There was a slight moderation in the revenue yield to
38.8% (FY'20: 39.1%), which reflects the ongoing annual reduction
in Repayment Option Plan (ROP) income, a focus on higher quality
customers and reductions to late and over limit fees charged to
customers.
Funding costs decreased to GBP24.9m during the year, versus
GBP33.7m in 2020, reflecting lower average funding requirements
during the year and lower funding rates relating to funds accessed
through the Bank of England's TFSME.
The impairment charge for 2021 was GBP3.7m (FY'20: GBP233.3m), a
significant reduction year-on-year, which equated to an annualised
impairment rate of 0.3% (FY'20: 19.3%). The decrease in impairment
reflects benefit of impairment provision releases, as a result of
more benign macroeconomic conditions during H2'21, and lower levels
of charge off activity driven by Covid-19 and furlough schemes. The
lower impairment charge was sufficient to more than offset the
marginally lower revenue yield to produce a risk-adjusted net
interest margin improvement to 36.0% (FY'20: 17.0%).
Costs increased to GBP187.0m during the year versus GBP165.9m in
2020 and GBP174.0m in 2019 reflecting investments made to enhance
the governance and controls of the business, the improvements to
the Vanquis customer app, the advertising brand campaign and
discretionary bonus accruals, which did not occur in 2020.
The profitability of the credit card business recovered
significantly during 2021 and it has maintained its strong capital
and liquidity positions. It remains focused on enhancing its
customer and digital propositions, including a new Vanquis mobile
app, and improving its range of price points for customers.
Vehicle Finance
Twelve months ended 31
December
2021 2020 Change
--------
GBPm GBPm
------- -------- --------
Customer numbers ('000) 93.9 91.4 2.7%
Period-end receivables 586.2 566.6 3.5%
Average receivables(1) 593.8 533.1 11.4%
----------------------------------- ------- -------- --------
Revenue 137.9 134.0 2.9%
Interest (27.1) (24.6) (10.2%)
----------------------------------- ------- -------- --------
Net interest margin 110.8 109.4 1.3%
Impairment (44.6) (72.7) 38.7%
----------------------------------- ------- -------- --------
Risk-adjusted net interest margin 66.2 36.7 80.4%
Costs (37.3) (25.8) (44.6%)
----------------------------------- ------- -------- --------
Adjusted profit before tax(2) 28.9 10.9 165.1%
Annualised revenue yield(3) 23.2% 25.1% (1.9%)
Annualised impairment rate(4) (7.6%) (13.6%) 6.0%
Annualised return on assets(5) 7.6% 5.4% 2.2%
(1) Calculated as the average of month end receivables for the 12 months ended 31 December.
(2) Adjusted profit before tax is stated before the amortisation
of acquisition intangibles of GBP 7.5 m (FY'20: GBP7.5m) for
2021.
(3) Revenue as a percentage of average receivables for the 12 months ended 31 December.
(4) Impairment as a percentage of average receivables for the 12
months ended 31 December.
(5) Adjusted profit before interest after tax as a percentage of
average receivables for the 12 months ended 31 December.
The Group's vehicle finance business is one of the leading
suppliers of vehicle finance to non-prime customers in the UK. For
the twelve months to the end of 31 December 2021, Moneybarn
generated adjusted profit before tax of GBP28.9m (FY'20: GBP10.9m)
and receivables at the period end were GBP586m (FY'20:
GBP567m).
New business volumes during 2021 were broadly flat versus 2020
at 37k (FY'20: 38k) despite tighter underwriting standards which
were implemented during Q2'20 and which have since remained in
place. Consequently, the vehicle finance business ended the year
with 93.9k customers versus 91.4k in 2020. As a result of its focus
on higher quality customers on average, and the strong pricing
environment seen in the used-car market throughout 2021, the
average loan size increased to approximately GBP9k whilst
maintaining average Loan To Values consistent with 2020, which
drove total credit issued to over GBP287m after unwinds (FY'20:
GBP287m). For the year as a whole, approximately 33% (FY'20: 38%)
of Moneybarn's new lending was to people classified as key
workers.
At the end of December, receivables stood at GBP586.2m (FY'20:
GBP566.6m), driven by new business volumes and the average loan
size increasing. During the second half of the year, the business
started to experience higher levels of early settlement from
customers which impacted the year end receivables outcome.
Revenue during 2021 increased to GBP137.9m (FY'20: GBP134.0m) as
the business focused on higher quality customers, including the
launch of a 14.9% APR product. The annualised revenue yield has
decreased to 23.2% from 25.1% in 2020. This partly reflects the
Group's focus on higher quality customers and partly because of
furlough support schemes and provision releases.
Interest costs increased during the year to GBP27.1m from
GBP24.6m in 2020 reflecting a higher receivables balance throughout
the period. As a result, the net interest margin at the end of
December stood at 18.7% versus 20.5% a year earlier.
Impairment decreased significantly during the year to GBP44.6m
(FY'20: GBP72.7m) as a result of impairment provision releases,
driven by a more benign macroeconomic backdrop, and furlough
support schemes. As a consequence, the annualised impairment rate
decreased to 7.6% from 13.6% in 2020. This resulted in the
risk-adjusted net interest margin improving to 11.1% (FY'20:
6.9%).
Costs increased during the course of the year to GBP37.3m
(FY'20: GBP25.8m), reflecting the continued cost of supporting
colleagues to work remotely, together with significant spend on
change and transformation to enable the business to continue on its
growth trajectory.
For 2022, the vehicle finance business will continue to evaluate
the expansion of its offerings to customers with products and
services that will strengthen its relationships and provide for
evolving customer preferences.
Personal Loans
Twelve months ended 31
December
2021 2020 Change
---------
GBPm GBPm
-------- -------- ---------
Customer numbers ('000) 19.9 18.5 7.6%
Period-end receivables 28.1 19.1 47.1%
Average receivables(1) 18.9 26.6 (28.9%)
----------------------------------- -------- -------- ---------
Revenue 7.2 9.0 (20.0%)
Interest (0.8) (0.7) (14.3%)
----------------------------------- -------- -------- ---------
Net interest margin 6.4 8.3 (22.9%)
Impairment (2.1) (6.6) 68.2%
----------------------------------- -------- -------- ---------
Risk-adjusted net interest margin 4.3 1.7 152.9%
Costs (13.0) (3.2) (306.3%)
----------------------------------- -------- -------- ---------
Adjusted loss before tax (8.7) (1.5) (480.0%)
Annualised revenue yield(2) 38.1% 33.8% 4.3%
Annualised impairment rate(3) (11.1%) (24.8%) 13.7%
(1) Calculated as the average of month end receivables for the 12 months ended 31 December.
(2) Revenue as a percentage of average receivables for the 12 months ended 31 December.
(3) Impairment as a percentage of average receivables for the 12 months ended 31 December.
PFG has established a personal loans business, which includes
Vanquis Loans and Sunflower Loans, to diversify its product
offering to new and existing customers. Its products, which will be
branded as either Vanquis Loans or Sunflower Loans, are positioned
within the mid-cost credit segment of the market, and will
initially offer loans of between GBP1k - GBP5k over one to four
years. The typical personal loan customer will be similar in
nature, and average credit score, to existing credit card and
vehicle finance customers. The addressable market for the loan
business is estimated to be approximately GBP3.1bn as at December
2021 (Source: TransUnion) representing a significant opportunity
for customer and receivables growth.
New business volumes during 2021 were 12.8k, versus 7.8k in
2020, as the business no longer offers restricted loans to existing
credit card customers only. The business started offering loans via
an open market pilot scheme from October onwards which has started
encouragingly. The pilot scheme will be assessed at the end of
Q1'22. As a result of these new customer bookings, the personal
loans businesses ended the year with 19.9k customers versus 18.5k
at the end of 2020. At the end of December, receivables stood at
GBP28.1m versus GBP19.1m at the end of 2020, driven by new business
volumes increasing year-on-year.
The personal loans business generated revenue of GBP7.2m during
2021 (FY'20: GBP9.0m) as a result of lower average receivables
year-on-year driven by a tightening of underwriting as a response
to Covid-19. The revenue yield for the year was 38.1% versus 33.8%
in 2020 as the business broadened the product offering with a wider
range of pricing during H2'21, supported by a new scorecard for
existing customer decisioning.
The impairment charge for 2021 decreased to GBP2.1m, from
GBP6.6m in 2020, as the business established its underwriting
approach to new customers and released some Covid-19 impairment
provisions. This equated to an annualised impairment rate for the
year of 11.1% (FY'20: 24.8%). This resulted in the risk-adjusted
net interest margin improving to 22.8% versus 6.4% for the prior
year.
Interest costs for the year were broadly flat at GBP0.8m, versus
GBP0.7m in 2020, equating to an interest margin of 4.2% versus 2.6%
in 2020. Costs increased during the course of the year to GBP13.0m
(FY'20: GBP3.2m) reflecting higher new business volumes and the
investment in the new IT infrastructure platform known as
Gateway.
For 2022, the personal loans business will continue to assess
the potential to expand Open Market distribution, maintain its
focus on growing lending to existing credit card customers and
pursue opportunities to broaden the product offering.
Discontinued Operations
Consumer Credit Division
Year ended 31 December
2021 2020 Change
---------
GBPm GBPm
------- -------- ---------
Customer numbers ('000) - 311 -
Period-end receivables - 139.0 -
Average receivables(1) - 166.0 -
----------------------------------- ------- -------- ---------
Revenue 68.0 192.4 (64.7%)
Interest (12.1) (10.3) (17.5%)
----------------------------------- ------- -------- ---------
Net interest margin 55.9 182.1 (69.3%)
Impairment (59.6) (47.5) (25.5%)
----------------------------------- ------- -------- ---------
Risk-adjusted net interest margin (3.7) 134.6 (102.7%)
Costs (91.8) (209.5) 56.2%
----------------------------------- ------- -------- ---------
Adjusted loss before tax(2) (95.5) (74.9) (27.5%)
(1) Calculated as the average of month end receivables for the 12 months ended 31 December.
(2) Adjusted loss before tax is stated before exceptional items
of GBP42.6m (FY'20: GBP1.6m)
The Consumer Credit Division ('CCD') comprises Provident home
credit and Satsuma loans. The Group announced in 2021 that it had
decided to place the division into a managed run-off, as the
business faced a mounting number of operational and regulatory
headwinds. The business was closed as at the end of December
2021.
For 2021, CCD reported an adjusted loss before tax of GBP95.5m,
versus a loss before tax of GBP74.9m in 2020. The increased loss
for the period reflects the business being placed into a managed
run-off in 2021 and an accelerated collections effort being
introduced which saw receivables decrease throughout the
period.
Central costs
Central costs increased to GBP26.3m during the period versus
GBP21.1m in 2020. The increase was principally driven by
investments made to support central Group functions, including the
appointment of a new Chief Information Officer to drive the Group's
digital ambitions, and other transformation initiatives designed to
make the Group more efficient in the future.
Exceptional items
An exceptional cost of GBP18.1m was recognised for continuing
operations in 2021. This includes: (i) corporate costs including
CCD closure (GBP11.5m); (ii) additional Scheme costs (GBP5m); (iii)
Senior bond buy-back costs (GBP3.9m); offset by (iv) a pension
credit (GBP2.3m). This compares to an exceptional cost in 2020 of
GBP57.3m as a result of: (i) the complaints provision and
associated costs in relation to the CCD Scheme (GBP65m); (ii) a
release of provisions following completion of the ROP refund
programme at Vanquis Bank (GBP8.3m); and (iii) a gain in respect of
the redemption of the GBP75m senior bonds (GBP1.3m); offset by (iv)
costs of reshaping the Group and creating the intermediate holding
company PF Holdings Ltd (GBP1.2m); and (v) pension charges in
respect of GMP equalisation (GBP0.7m).
Tax
The tax charge for 2021 represents an effective tax rate of 5.3%
(FY'20: nil) on statutory profit before tax which results in a tax
charge of GBP7.6m being recognised in the year for continuing
operations (FY'20: GBPnil) which principally reflects:
i) the mainstream corporation tax rate of 19.0% on the Group's
profit before tax from continuing operations generating a tax
charge of GBP23.7m (FY'20: tax credit of GBP1.8m);
ii) the mainstream corporation tax rate of 19.0% on Group
exceptional items generating a tax credit of GBP15.3m (FY'20: tax
charge of GBP2.5m); and
iii) the mainstream corporation tax rate of 19.0% on the
amortisation of acquisition intangibles generating a tax credit of
GBP0.8m (FY'20: GBP0.7m).
The low effective tax rate is principally the result of:
i) the revaluation of deferred tax assets and liabilities for
the change in the mainstream corporation tax rate from 19.0% to
25.0% from 1 April 2023 which results in a tax credit of GBP5.0m
and, in the case of 2020, the change in the mainstream corporation
tax rate to 19.0% from 1 April 2020 following the cancellation of
the previous reduction in rate to 17.0% which results in a tax
credit of GBP2.5m;
ii) the impact of transfer pricing adjustments between the
profits of continuing and discontinued operations which results in
a tax credit of GBP0.6m (FY'20: tax charge of GBP4.4m);
iii) the beneficial impact of tax losses of the discontinued
operation being surrendered as Group relief to the continuing
operation at a discounted price which gives rise to a tax credit of
GBP6.5m (FY'20: GBPnil);
iv) the beneficial impact of prior year adjustments which gives
rise to a tax credit of GBP7.8m (FY'20: tax credit of GBP7.7m) and
relates principally to transfer pricing adjustments between
continuing and discontinued operations in the prior year and the
impact of the discontinued operations surrendering prior year
losses to the continuing operations at a discounted price (in
FY'20, the tax credit of GBP7.7m in respect of the prior year
represents the benefit of claiming deductions for the costs
incurred in 2019 in connection with the defence of the unsolicited
offer from NSF for which no tax deduction was assumed in the
previous year, along with a release of part of the provision for
uncertain tax liabilities);
v) the impact of the release of the exceptional complaints
provision in CCD following the implementation of the Scheme of
Arrangement (FY'20: increase in the exceptional complaints
provision in CCD) which is taxable (FY'20: tax deductible) in
discontinued operations but which on consolidation is recognised in
continuing operations (GBP12.4m);
vi) the adverse impact of the bank corporation tax surcharge of
GBP12.2m (FY'20: GBP2.1m); and
vii) in 2020, the benefit of using in-year and brought forward
capital losses to offset the capital gain arising in Vanquis Bank
on its conversion and disposal of the "B" preference shares in VISA
Inc.
Dividends
As a result of the Group's improved profitability, and given the
ongoing strength of the Group's balance sheet, the Board has
proposed an interim dividend of 12p per share in respect of FY'21.
The dividend will be payable to those shareholders on the register
as at 22 April 2022, with an ex-dividend date of 21 April 2022, and
will be paid on 20 May 2022.
Funding and capital
The Group has strong capital and liquidity positions
comprising:
-- Total regulatory capital of GBP707 m, equating to a total
capital ratio of 40.6% and a surplus above the minimum regulatory
requirement of GBP344m.
-- Headroom on committed facilities and surplus cash and liquid
resources amounting to approximately GBP290m. This is in addition
to approximately GBP400m of liquid resources held by Vanquis Bank
above Group Liquidity Coverage Ratio requirements and ongoing
access to the retail deposits market.
The Group has in place a Capital Principal Risk Policy, which
sets out the framework in which the Group aims to maintain a secure
funding and capital structure and establishes defined capital risk
appetite. Adherence to the policy ensures that the Group maintains
minimum capital levels and that the capital held at business
division levels is adequate to support the businesses' underlying
requirements and is sufficient to support growth in that business.
Internal capital is allocated to business lines and risk
categories, calibrated to maximise return on equity while remaining
within the risk appetite. The distribution of dividends is aligned
with the Group's growth targets, whilst continuing to meet the
required capital levels in line with regulatory requirements and
internal risk appetite.
In October 2021, the Group's first Tier 2 subordinated bond
since 2005 was issued with gross proceeds of GBP200m, with a
10.25-year maturity, that is callable at the Group's discretion
between 5 and 5.25 years, and that pays a coupon of 8.875%. The
issuance was written from the Group's GBP2bn EMTN Programme and was
oversubscribed by around 2 times in the market. It represents an
important milestone as the Group diversifies and optimises its
sources of capital in support of future lending growth.
At 31 December 2021, the Group's CET1 ratio was 29.1% (FY'20:
34.2%) and the Total Capital Ratio was 40.6% (FY'20: 34.2%). CET1
decreased from GBP675m to GBP507m during 2021 but total capital
increased from GBP675m to GBP707m as a result of the issuance of
Tier 2 debt capital. The continuing operations of the Group were
CET1 generative in 2021. The regulatory capital headroom above the
minimum regulatory requirement of 20.8% was GBP344m at the period
end. The increase in headroom from GBP264m at 31 December 2020
(versus the minimum regulatory requirement) predominantly reflects:
(i) the underlying profit excluding discontinued operations; (ii)
the issuance of GBP200m Tier 2 regulatory capital (including
GBP121m of Tier 2 to pre-fund future balance sheet growth); and
(iii) smaller risk weighted exposures in respect of customer
receivables. These benefits were partly offset by the loss incurred
on discontinued operations and the scheduled further unwind of the
IFRS 9 transitional relief in regulatory capital.
As previously reported, the Group has elected to phase in the
impact of adopting IFRS 9 over the five-year period ending 31
December 2022, by applying add back factors of 95%, 85%, 70%, 50%
and 25% for years one to five, respectively, to the initial IFRS 9
transition adjustment. This is in addition to any subsequent
increase in expected credit losses (ECL) in the non-credit-impaired
book from transition to the end of the reporting period. The PRA
ratified additional capital mitigation proposed by the Basel
Committee, in response to Covid-19, with these measures coming into
force from 27 June 2020. The new measures allow for the impact on
regulatory capital of any increase in ECL in the non-credit
impaired book arising from 1 January 2020 to be phased in over the
five year period to 31 December 2024 (FY'20: 100%, 2021: 100%,
2022: 75%, 2023: 50%, 2024: 25%). The impact of the IFRS 9
transitional arrangements on CET1 as at 31 December 2021 was
GBP108m.
In 2021, the Group delivered on a number of its funding
objectives: (i) Vanquis Bank gained access to the Bank of England's
TFSME scheme and has drawn approximately GBP170m of funding using
its AAA rated notes as collateral - this funding will diversify and
reduce the cost of funding for Vanquis Bank over time, while
remaining primarily retail funded; (ii) the auto loan
securitisation warehouse facility was re-financed and restructured
in July 2021 to improve the efficiency of the usage of collateral
such that drawn funding increased to GBP275m (and also providing
for a committed but currently undrawn amount of GBP50m which
provides contingent liquidity); (iii) in line with the Group's
existing strategy of reducing reliance on RCF, some of the new
securitisation funds were used to reduce the Group's RCF
commitments, initially to GBP90m alongside an extension of the
facility to July 2023; (iv) in line with its contractual maturity,
the Group repaid the 6.0% GBP65m Retail Bond on 27 September 2021;
and (v) on 7 October 2021, successfully completed a liability
management exercise involving: the partial tender and repurchase of
GBP71.5m of the then outstanding GBP175m 8.25% senior bonds
maturing June 2023, and the issue of GBP200m Tier 2 bonds.
At 31 December 2021, Vanquis Bank had retail deposit funding of
GBP1.0bn, down from GBP1.7bn a year earlier, reflecting a more
normalised funding level relative to lending and access to
alternative funding through TFSME.
Headroom on committed facilities (GBP110m) and surplus cash and
liquid resources (GBP210m) amounted to approximately GBP320m.
Headroom on committed facilities consists of undrawn amounts on the
warehouse facility (GBP50m) and the RCF (GBP60m). Of the GBP50m
undrawn warehouse facility, GBP30m was committed to further RCF
reductions at 31 December 2021 resulting in a net of GBP80m
contingent funding, meaning contingent funding and surplus cash and
liquid resources amounted to approximately GBP290m. The Group now
has no contractual wholesale maturities until H2'23, representing a
robust and diverse funding profile. Further, the Group is advanced
in its application to the PRA (Prudential Regulation Authority) to
allow the use of retail deposits held at Vanquis Bank to fund other
parts of the Group.
The Group continues to adopt a prudent approach to managing its
funding and liquidity resources within risk appetite, and will
continue to optimise these resources when new opportunities become
available to the Group.
In early 2022, the Group took the decision to early repay the
RCF on 30 March 2022. The Group does not require the funding and
did not plan to renew the facility on maturity. The headroom on
committed facilities of GBP110m at 31 December 2021 would have
reduced to GBP50m after repayment of the facility.
The Group applies a Capital Management Policy that requires
subsidiaries, including Vanquis Bank, to maintain sufficient
capital to meet regulatory requirements, manage for 12 months
growth and investment whilst maintaining a management buffer.
Thereafter and where applicable Vanquis Bank is required to
distribute a dividend to the Group.
Related party transactions
In August 2020 Vanquis Bank provided the Company with a GBP70m
intercompany loan facility to allow upstream funding. The loan has
a two-year term and an interest rate of 6.25%. The loan has been
fully utilised since it was provided, the balance outstanding at 31
December 2021 and 2020 was GBP70m.
The difference of GBP34.4m (FY'20: GBP11.4m) to the outstanding
balance reflects year end management recharges and Group relief on
trading losses which were settled shortly after the year end by the
Vanquis Bank.
In December 2020, a new subsidiary holding company, Provident
Financial Holdings Limited (PFH), was incorporated which simplified
the intercompany relationships across the Group. As part of that
process, certain intercompany loans with Moneybarn and CCD were
transferred from the Company to PFH and equivalent loans were
entered into between the Company and PFH. There are no transactions
with directors other than those disclosed in the Directors'
Remuneration Report.
Principal Risks and Uncertainties
As part of the Group Risk Harmonisation Programme we have
re-evaluated our Group Principal Risks, which are those risks most
critical to the alignment of the Group Strategy. We have added an
additional three Group Principal Risks to our Group Risk Management
Framework) - Climate Risk, Market Risk and Financial Crime Risk -
to ensure we drive consistency in the management of these areas
across the Group.
Capital risk
This is defined as the risk that the Group has insufficient
capital to either meet regulatory requirements or to sustain the
long-term viability of the business. The Group and Bank operate
within a defined capital risk appetite, with thresholds reported to
and monitored by Group Boards. Additional metrics and thresholds
have been developed for the Group and Vanquis Bank. All thresholds
have been calibrated above the Recovery & Resolution Plan
("RRP") triggers in order to provide advance warning of threshold
breaches.
Funding and Liquidity risk
This is defined as the risk that the Group has insufficient
liquidity to meet its obligations as they fall due, and or is
unable to maintain sufficient funding for its future needs. The
Group's current funding strategy seeks to maintain a secure funding
structure by maintaining committed facilities to pre-fund the
Group's liquidity and funding requirements for at least the next 12
months, maintaining access to four main sources of funding
comprising: (i) the syndicated revolving bank facility; (ii)
external market funding; (iii) securitisation; and (iv) retail
deposits.
Credit risk
This is defined as the risk of loss arising from lending to a
borrower who is unwilling or unable to repay, in full and/or in
accordance with agreed terms, the total amount payable for the
loan. Credit Risk appetite has been refreshed with metrics and
thresholds grouped by product lines to enable more focused
monitoring and management action to remain within appetite on a
timely basis. Regular reporting is in place which allows daily
monitoring of new business quality, collections performance and
concentration analysis. Extensive work has been undertaken to
enhance credit worthiness and affordability procedures.
Strategic risk
This is defined as the risk of making poor strategic decisions
related to acquisitions, products, distribution etc as a result of
ineffective governance arrangements, processes and controls. In
January 2022 we created an aligned board structure across PFG and
Vanquis Bank designed to make us more efficient and provide better,
more coordinated customer service. Board governance manual and
Delegated Authorities Manual (DAM) are in place to provide a
framework for key decision making at all levels across the Group
and divisions. Executive Director scorecards are in place with
reward incentives based on a combination of financial and
non-financial measures.
Legal and Governance Risk
This is defined as the risk that the Group is exposed to
financial loss, fines, censure or enforcement action due to failing
to comply with legal and governance requirements as a result of
ineffective arrangements, process and controls. The Group operates
in a highly regulated environment and in a sector where its
customers are more vulnerable and need careful management. At all
levels, the Group has worked hard to build and maintain positive
relationships with our key regulators. Any regulatory actions are
managed and monitored closely to ensure these are delivered fully
and within the spirit of any feedback received.
Operational Risk
This is defined as the risk of loss resulting from inadequate or
failed internal processes, people and systems or from external
events. The three lines of defence model throughout the Group
ensures there are clear lines of accountability between management
who own the risks, oversight by the risk function and independent
assurance provided by Internal Audit.
Model risk
This is defined as the risk of financial losses where models
fail to perform as expected due to poor governance (including
design and operation). A Group model risk management framework and
model risk policy is embedded with a model inventory in place to
ensure periodic review and strict change control. Critical IFRS9
models within Vanquis Bank and Moneybarn have been externally
validated.
Financial Crime risk (new principal risk category)
This is defined as the risk that the Group's products and
services are used to facilitate financial crime against the Group,
customers or third parties. The Group operate a strong and
risk-proportionate set of systems and controls to detect and
prevent financial crime. The Group is committed to complying with
applicable legislation for the management of Financial Crime Risk,
with all Divisions ensuring that they meet the minimum requirements
and expectations of the regulatory bodies and those set by
legislation, relevant to that Division, for managing Financial
Crime Risk effectively.
Market risk (new principal risk category)
This is defined as the risk of loss due to adverse market
movements caused by active trading positions taken in interest
rates, foreign exchange markets, bonds and equities. The Group's
corporate policies do not permit it to undertake position taking or
trading books of this type and therefore it does not do so.
Climate risk (new principal risk category)
This is defined as the likelihood over a specified time period
of severe alterations in the normal functioning of a community or a
society due to hazardous physical events interacting with
vulnerable social conditions, leading to widespread adverse human,
material, economic, or environmental effects. The Group continues
to develop an approach to Climate risk management through the
Climate Risk Committee and risk management activities to identify
the physical and transition climate related risks that have
implications for the Group's business model and stakeholders.
Conduct and Regulatory risk
Conduct Risk is defined as the risk of customer detriment due to
poor design, distribution and execution of products and services or
other activities which could lead to unfair customer outcomes or
regulatory censure. Regulatory Risk is defined as the risk that the
Group is exposed to financial loss, fines, censure or enforcement
action due to failing to comply with laws or regulations (including
handbooks, codes of conduct, statutory and regulatory guidance).
Conduct and Regulatory risk remains a key focus for the Group with
detailed risk appetite statements, metrics and thresholds in place
in relation to the fair treatment and management of our customers.
Conduct Risk frameworks and governance have been enhanced which
clearly identify intended customer outcomes and the associated
monitoring, testing, data sources and management information
required.
People Risk
This is defined as the failure to maintain a properly engaged
and skilled workforce who are aligned to our purpose and Group
culture. In managing our people risk, we ensure we have adequate
controls across the whole colleague life cycle covering the
onboarding, development and management of our colleagues. This
extends to ensuring we have sufficient operational capacity and
colleagues with the right skills in meeting our financial, customer
and regulatory responsibilities.
Technology and Information Security Risk
This is defined as the risk arising from compromised or
inadequate technology, security and data that could affect the
confidentiality, integrity or availability of the Group's data or
systems. This risk is managed in conjunction with Operational risk
with additional and particular focus on cyber and technology
infrastructure. Extensive work within Vanquis under the First Line
Controls Review programme is on track and there is sufficient
oversight in place to ensure early detection of further potential
delay.
Consolidated financial statements
Consolidated income statement for the year ended 31 December
Note 2021 2020
Continuing operations GBPm GBPm
Interest income 474.3 531.9
Fee income 60.3 83.5
-------- ---------------
Total Revenue 3 534.6 615.4
Finance costs (53.0) (59.9)
Net interest margin 481.6 555.5
Impairment charges 8 (50.4) (312.6)
-------- ---------------
Risk-adjusted net interest margin 431.2 242.9
Operating costs (289.0) (279.9)
-------- ---------------
Profit/(loss) before taxation from continuing
operations 3 142.2 (37.0)
------------------------------------------------------- ----- -------- ---------------
Profit before tax, amortisation of acquisition
intangibles and exceptional items 3 167.8 27.8
Amortisation of acquisition intangibles 3 (7.5) (7.5)
Exceptional items 3 (18.1) (57.3)
------------------------------------------------------- ----- -------- ---------------
Tax charge 5 (7.6) -
-------- ---------------
Profit/(loss) for the year from continuing operations 134.6 (37.0)
-------- ---------------
Loss after tax from discontinued operations 4 (166.7) (46.4)
-------- ---------------
Loss for the year attributable to equity shareholders (32.1) (83.4)
-------- ---------------
Consolidated statement of comprehensive income for the year
ended 31 December
Note 2021 2020
GBPm GBPm
------- -------
Loss for the year attributable to equity shareholders (32.1) (83.4)
------- -------
Items that will not be reclassified subsequently
to the income statement:
- actuarial movements on retirement benefit
asset 11 27.1 (1.7)
- fair value movements transferred to income
statement(1) 10 (5.2) 3.8
- tax on items taken directly to other comprehensive
income 5 (3.8) (0.7)
* impact of change in UK tax rate on items in other
comprehensive income 5 (6.4) (1.7)
* deferred tax credit on disposal of investments 5 - 2.0
* current tax charge on disposal of investments 5 - (2.0)
Other comprehensive income/(expense) for the
year 11.7 (0.3)
Total comprehensive expense for the year (20.4) (83.7)
------- -------
(1 Refer to accounting policies for details on changes in
accounting treatment.)
Loss per share
Note 2021 2020
pence pence
------- -------
Basic 6 (12.8) (32.9)
------- -------
Diluted 6 (12.8) (32.9)
------- -------
The above loss per share is on a Group basis including
discontinued operations.
Dividends per share
Note 2021 2020
pence pence
------ ------
Interim dividend 7 12 -
------ ------
The total cost of dividends paid in the year was GBPnil (2020:
GBPnil).
Consolidated balance sheets
Note 31 December 31 December
2021 2020
GBPm GBPm
------------ ------------------------------
ASSETS
Cash and cash equivalents 717.7 919.7
Amounts receivable from customers 8 1,677.7 1,799.8
Trade and other receivables 18.8 35.7
Investment 10 9.1 9.2
Property, plant and equipment 8.4 15.5
Right of use assets 47.9 58.0
Goodwill 71.2 71.2
Other intangible assets 9 52.3 45.3
Retirement benefit asset 11 112.2 79.7
Derivative financial instruments 3.1 -
Deferred tax assets 5 6.9 44.0
TOTAL ASSETS 3 2,725.3 3,078.1
------------ ------------------------------
LIABILITIES AND EQUITY
Liabilities
Trade and other payables 95.6 64.9
Current tax liabilities 3.8 0.6
Provisions 12 72.1 91.0
Lease liabilities 58.9 69.4
Retail deposits 1,018.5 1,683.2
Bank and other borrowings 845.2 520.0
Derivative financial instruments - 1.3
Total liabilities 2,094.1 2,430.4
------------ ------------------------------
Equity attributable to owners
of the parent
Share capital 52.6 52.6
Share premium 273.3 273.2
Merger reserves 278.2 278.2
Other reserves 9.8 14.6
Retained earnings 17.3 29.1
------------ ------------------------------
Total equity 3 631.2 647.7
------------ ------------------------------
TOTAL LIABILITIES AND EQUITY 2,725.3 3,078.1
------------ ------------------------------
Consolidated statement of changes in shareholders' equity
Share Share Merger Other Retained
capital premium reserve reserves earnings Total
GBPm
GBPm GBPm GBPm GBPm GBPm
--------- --------- --------- ---------- ---------- --------
At 1 January 2020 52.5 273.2 278.2 17.7 107.7 729.3
--------- --------- --------- ---------- ---------- --------
Loss for the year - - - - (83.4) (83.4)
--------- --------- --------- ---------- ---------- --------
Other comprehensive (expense)/income:
- actuarial movements on retirement
benefit asset (note 11) - - - - (1.7) (1.7)
- fair value movement in investments
(note 10) - - - 3.8 - 3.8
- tax on items taken directly to
other
comprehensive income (note 5) - - - (1.0) 0.3 (0.7)
- impact of change in UK tax rate
(note 5) - - - (0.2) (1.5) (1.7)
- deferred tax credit on disposal
of investments (note 5) - - - 2.0 - 2.0
- current tax charge on disposal
of investments (note 5) - - - (2.0) - (2.0)
--------- --------- --------- ---------- ---------- --------
Other comprehensive income/(expense)
for the period - - - 2.6 (2.9) (0.3)
--------- --------- --------- ---------- ---------- --------
Total comprehensive income/(expense)
for the period - - - 2.6 (86.3) (83.7)
--------- --------- --------- ---------- ---------- --------
Transfer of cumulative gain on
disposal of investment - - - (7.4) 7.4 -
Transfer of tax on disposal of
investment - - - 2.0 (2.0) -
Issue of share capital 0.1 - - - - 0.1
Share-based payment charge - - - 2.3 - 2.3
Transfer of share-based payment
reserve - - - (2.6) 2.6 -
Purchase of shares for share awards - - - - (0.3) (0.3)
At 31 December 2020 52.6 273.2 278.2 14.6 29.1 647.7
--------- --------- --------- ---------- ---------- --------
At 1 January 2021 52.6 273.2 278.2 14.6 29.1 647.7
--------- --------- --------- ---------- ---------- --------
Loss for the year - - - - (32.1) (32.1)
--------- --------- --------- ---------- ---------- --------
Other comprehensive income/(expense):
- actuarial movements on retirement
benefit asset (note 11) - - - - 27.1 27.1
- fair value movement transferred
to income statement (note 10) - - - (5.2) - (5.2)
- tax on items taken directly to
other
comprehensive income (note 5) - - - 1.4 (5.2) (3.8)
- impact of change in UK tax rate
(note 5) - - - - (6.4) (6.4)
Other comprehensive (expense)/income
for the period - - - (3.8) 15.5 11.7
--------- --------- --------- ---------- ---------- --------
Total comprehensive expense for
the period - - - (3.8) (16.6) (20.4)
--------- --------- --------- ---------- ---------- --------
Issue of share capital - 0.1 - - - 0.1
Share-based payment charge - - - 3.8 - 3.8
Transfer of share-based payment
reserve on vesting of share awards - - - (4.8) 4.8 -
At 31 December 2021 52.6 273.3 278.2 9.8 17.3 631.2
--------- --------- --------- ---------- ---------- --------
Goodwill arising on acquisitions prior to 1 January 1998 was
eliminated against shareholders' funds under UK GAAP and was not
reinstated on transition to IFRS. Accordingly, retained earnings
are shown after directly writing off cumulative goodwill of
GBP1.6m. In addition, cumulative goodwill of GBP2.3m has been
written off against the merger reserve in previous years.
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. Of the resulting merger
reserve of GBP278.2m, GBP228.2m was 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 Limited. Following the transfer of Vanquis Bank
Limited to Provident Financial Holdings Limited in December 2020
the full merger reserve of GBP278.2m is now considered
distributable.
Consolidated statement of cash flows for the year ended 31
December
Note 2021 2020
GBPm GBPm
---------- --------
Cash flows from operating activities
Cash generated from operations 13 240.5 450.6
Finance costs paid (71.3) (63.1)
Tax paid (6.1) (23.6)
---------- --------
Net cash generated from operating activities 163.1 363.9
Cash flows from investing activities
Purchase of intangible assets 9 (24.8) (16.3)
Purchase of property, plant and equipment (1.3) (5.9)
Proceeds from disposal of property, plant
and equipment 3.8 0.7
Net cash used in investing activities (22.3) (21.5)
Cash flows from financing activities
Proceeds from bank and other borrowings 746.0 926.8
Repayment of bank and other borrowings (1,081.5) (690.3)
Payment of lease liabilities (9.6) (11.2)
Purchase of shares for share awards - (0.3)
Proceeds from issue of share capital 0.1 0.1
Net cash (used in)/generated from financing
activities (345.0) 225.1
Net (decrease)/increase in cash, cash equivalents
and overdrafts (204.2) 567.5
Cash, cash equivalents and overdrafts at
beginning of year 918.3 350.8
Cash, cash equivalents and overdrafts at
end of year 714.1 918.3
---------- --------
Cash, cash equivalents and overdrafts at
end of year comprise:
Cash at bank and in hand 717.7 919.7
Overdrafts (held in bank and other borrowings) (3.6) (1.4)
---------- --------
Total cash, cash equivalents and overdrafts 714.1 918.3
---------- --------
Cash at bank and in hand includes GBP414.8m (2020: GBP833.3m) in
respect of the liquid assets buffer, including other liquidity
resources, held by Vanquis Bank Limited in accordance with the
PRA's liquidity regime. As at 31 December 2021, GBP268.3m (2020:
GBP691.9m) of the buffer was available to finance Vanquis Bank
Limited's day-to-day operations.
Notes to the financial information
1. Basis of preparation
The preliminary announcement has been prepared in accordance
with the Listing Rules of the FCA and is based on the 2021
financial statements which have been prepared under International
Financial Reporting Standards (IFRS) as adopted by the UK,
International Financial Reporting Interpretations Committee (IFRIC)
interpretations and the Companies Act 2006.
The change in basis of preparation from IFRS as adopted by the
EU to IFRS as adopted by the UK is required as a result of the UK's
exit from the EU on 31 January 2020. This change does not
constitute a change in accounting policy and there is no impact on
recognition, measurement or disclosure between the two frameworks
in the period reported.
The financial information set out in this announcement does not
constitute the Group's statutory accounts for the year ended 31
December 2021 or the year ended 31 December 2020. The financial
information for the year ended 31 December 2020 is derived from the
statutory accounts for that year which have been delivered to the
Registrar of Companies. The auditors reported on those accounts:
their report was unqualified, did not draw attention to any matters
by way of emphasis and did not contain a statement under s498(2) or
(3) of the Companies Act 2006. The audit of the statutory accounts
for the year ended 31 December 2021 is not yet complete. These
accounts will be finalised on the basis of the financial
information presented by the Directors in this preliminary
announcement and will be delivered to the Registrar of Companies
following the Company's annual general meeting.
The statutory financial statements have been prepared on a going
concern basis under the historical cost convention, as modified by
the revaluation of derivative financial instruments and investments
held at fair value through profit and loss.
In assessing whether the Group is a going concern, the Directors
have reviewed the Group's corporate plan as approved in December
2021, which includes capital and liquidity forecasts from 2022 to
2026. The assessment included consideration of the Group's
principal risks and uncertainties, with a focus on capital and
liquidity.
The Directors have also reviewed the Group's stress testing
projections which are based on a severe but plausible scenario in
which unemployment peaks at 12%. This shows that the Group is able
to maintain sufficient capital headroom above minimum requirements.
The Directors have reviewed the Group's reverse stress testing
projections to the point of non-viability, which concluded that the
Group's viability only comes into question under an unprecedented
macroeconomic scenario.
2. Accounting policies
Group principal accounting policies under IFRS have been
consistently applied to all the years presented, with the exception
of the reclassification of the Visa Inc shares previously
classified as fair value through other comprehensive income (OCI)
to fair value through profit and loss, and the adoption of the
IFRIC agenda decision on Software-as-a-Service (SaaS) and Interest
Rate Benchmark Reform Phase 2.
Visa Inc shares
Following review of the treatment of the Visa Inc shares held in
Vanquis Bank being recognised as fair value through OCI (FVTOCI) it
was determined that on adoption of IFRS 9, the election to treat
these shares as FVTOCI was not appropriate as they did not meet the
definition of an equity instrument. The shares should have been
treated as a financial asset recognised at fair value through
profit or loss.
The Group has concluded that this is an immaterial change
relative to the Group results and the cumulative impact has
therefore been adjusted in the 2021 financial period rather than as
a prior year adjustment.
The assets have been reclassified in 2021 resulting in the 2020
closing fair value reserve of GBP3.8m being recognised in the
income statement. This has resulted in an increase in profit before
tax of GBP5.2m and an increase in the tax charge of GBP1.4m. The
cumulative fair value movements of GBP5.2m and all future fair
value movements will be presented within operating costs in the
income statement.
Software-as-a-Service (SaaS)
The IFRS Interpretations Committee (IFRIC) recently published
two agenda decisions clarifying how certain aspects of cloud
technology, SaaS, should be accounted for. The first agenda
decision, published in March 2019, concludes that a contract that
conveys to the customer only the right to receive access to the
supplier's application software in the future is a service contract
(SaaS) rather than a software lease or the acquisition of a
software intangible asset. The customer receives the service-the
access to the software-over the contract term. The second agenda
decision, published in April 2021, addresses how a customer should
account for the costs of configuring or customising the supplier's
application software in a SaaS arrangement that is determined to be
a service contract.
Where a change in accounting policy is required to apply the
conclusions reached by the IFRS Interpretations Committee this must
be accounted for in line with IAS 8 'Accounting Policies, Changes
in Accounting Estimates and Errors' and, if material, prior period
comparatives restated. The agenda decisions have not resulted in a
material impact on the Group or Company and therefore the
comparatives have not been restated.
Interest Rate Benchmark Reform Phase 2
In 2021, the Group adopted the Interest Rate Benchmark Reform
Phase 2 amendments issued by the IASB. These amendments require
that changes to expected future cash flows that both arise as a
direct result of IBOR Reform and are economically equivalent to the
previous cash flows are accounted for as a change to the effective
interest rate with
no adjustment to the asset or liability carrying value and no
immediate gain or loss is recognised.
The new requirements also provide relief from the requirements
to discontinue hedge accounting as a result
of amending hedge documentation if the changes are required
solely as a result of IBOR Reform. As at the end of 2021, the Group
has refinanced all LIBOR linked derivatives to SONIA resulting in
no impact from the implementation of these changes.
3. Segment reporting
Revenue Profit/(loss) before
tax
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
------ ------ --------------- --------------------
Credit cards 389.5 472.4 173.9 39.5
Vehicle finance 137.9 134.0 28.9 10.9
Personal loans 7.2 9.0 (8.7) (1.5)
Central costs - - (26.3) (21.1)
------ ------ --------------- --------------------
Total group before amortisation
of acquisition intangibles and
exceptional items 534.6 615.4 167.8 27.8
Amortisation of acquisition intangibles
(note 9) - - (7.5) (7.5)
Exceptional items - - (18.1) (57.3)
------ ------ --------------- --------------------
Total Group - continuing operations 534.6 615.4 142.2 (37.0)
CCD - discontinued operations
(note 4) 68.0 192.4 (95.5) (74.9)
CCD - discontinued operations
exceptional items (note 4) - - (42.6) (1.6)
------ ------ --------------- --------------------
Total Group 602.6 807.8 4.1 (113.5)
------ ------ --------------- --------------------
Revenue for credit cards, vehicle finance and personal loans
comprises interest earned on amounts receivable from customers and
fee income.
Acquisition intangibles represent the fair value of the broker
relationships of GBP75.0m which arose on the acquisition of
Moneybarn in August 2014. The amortisation charge in 2021 amounted
to GBP7.5m (2020: GBP7.5m).
Exceptional items for continuing operations represent a net
exceptional charge of GBP18.1m in 2021 (2020: GBP57.3m) and
comprise:
2021 2020
GBPm GBPm
------- -----------------
Corporate costs including CCD closure (11.5) -
CCD Scheme of Arrangement costs and provisions
(note 12) (5.0) (65.0)
(Costs)/gain in respect of the redemption of bonds (3.9) 1.3
Pension credit/(charges) (note 11) 2.3 (0.7)
Release of provisions in respect of ROP refund
programme (note 12) - 8.3
Costs in respect of the new intermediate holding
company - (1.2)
Total exceptional items (18.1) (57.3)
------- -----------------
Corporate costs including CCD closure include redundancy amounts
of GBP1.0m
Segment net
Segment assets assets/(liabilities)
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
------------ ----------- ----------------- ----------------
Credit cards and personal loans 1,639.1 2,037.1 374.5 326.5
Vehicle finance 698.3 611.0 105.8 19.3
Central 546.5 730.4 446.0 517.0
Continuing operations before intra-group
elimination 2,883.9 3,378.5 926.3 862.8
Discontinued operations 0.3 187.8 (295.1) (215.1)
Intra-Group elimination (158.9) (488.2) - -
------------ ----------- ----------------- ----------------
Total Group 2,725.3 3,078.1 631.2 647.7
------------ ----------- ----------------- ----------------
The presentation of segment net assets reflects the statutory
assets, liabilities and net assets 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.
Following the wind-down of CCD, the Group's businesses operate
principally in the UK.
4. Discontinued operations
The Group has closed CCD comprising Home Credit and Satsuma
during the year and in accordance with IFRS 5 'Non-current Assets
Held for Sale and Discontinued Operations' these businesses are
presented as discontinued operations.
The results from discontinued operations, which are included in
the Group income statement, are set out below.
2021 2020
GBPm GBPm
Interest income 68.0 192.4
Finance costs (12.1) (9.7)
-------- --------
Net interest margin 55.9 182.7
Impairment (59.6) (47.5)
Risk-adjusted net interest margin (3.7) 135.2
Operating costs:
- other (91.8) (210.1)
- exceptional items (42.6) (1.6)
-------- --------
Loss before taxation (138.1) (76.5)
Tax (charge)/credit (28.6) 30.1
-------- --------
Loss from discontinued operations (166.7) (46.4)
-------- --------
Basic loss per share (p) (66.5) (18.3)
-------- --------
Diluted loss per share (p) (66.5) (18.3)
-------- --------
5. Tax charge
The tax charge/(credit) in the income statement is as
follows:
2021 2020
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
GBPm GBPm GBPm GBPm
------------ ------------- ------ --------------------------- -------
Current tax:
- UK 12.6 (3.3) 9.3 (3.5) (7.2) (10.7)
Deferred tax
- UK - 31.9 31.9 6.0 (22.0) (16.0)
- overseas - - - - 0.1 0.1
Impact of change
in UK tax rate (5.0) - (5.0) (2.5) (1.0) (3.5)
Total tax charge/(credit) 7.6 28.6 36.2 - (30.1) (30.1)
------------ ------------- ------ ------------ ------------- -------
2021
--------------------------------------------------------------------------------------
Continuing operations Discontinued operations
------------------------------------------------- -----------------------------------
Adjusted Exceptional Adjusted Exceptional
PBT items Amortisation Total PBT items Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- ------------ --------------- ------- --------- ------------ ----------
Profit/(loss)
before taxation 167.8 (18.1) (7.5) 142.2 (95.5) (42.6) (138.1)
--------- ------------ --------------- ------- --------- ------------ ----------
Profit/(loss)
before tax multiplied
by standard rate
of corporation
tax in the UK
of 19% 31.8 (3.4) (1.4) 27.0 (18.1) (8.1) (26.2)
Effects of:
- impact of change
in UK tax rate
(note (a)) (5.8) 0.2 0.6 (5.0) - - -
- impact of bank
corporation tax
surcharge (note
(b)) 12.3 (0.1) - 12.2 - - -
- impact of lower
tax rates and
losses overseas
(note (c)) - - - - 2.7 0.8 3.5
- write off of
deferred tax assets
(note (d)) (0.3) - - (0.3) 23.4 - 23.4
- adjustments
in respect of
prior years (note
(e)) 0.5 - - 0.5 0.5 - 0.5
- prior year adjustments
related to transfer
pricing and losses
(note (f)) (7.8) - - (7.8) 7.8 - 7.8
- non-deductible
general expenses 0.1 0.4 - 0.5 0.1 - 0.1
- transfer pricing
adjustments (note
(g)) (0.6) - - (0.6) 0.6 - 0.6
- discount on
payment for losses
of discontinued
operations (note
(h)) (6.5) - - (6.5) 6.5 - 6.5
- benefit of capital
losses offset
against capital - - - - -
gain (note (i)) - -
- reversal of
exceptional complaints
provision (note
(j)) - (12.4) - (12.4) - 12.4 12.4
23.7 (15.3) (0.8) 7.6 23.5 5.1 28.6
--------- ------------ --------------- ------- --------- ------------ ----------
2020
-------------------------------------------------------------------------------------
Continuing operations Discontinued operations
------------------------------------------------- ----------------------------------
Adjusted Exceptional Adjusted Exceptional
PBT items Amortisation Total PBT items Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- ------------ --------------- ------- --------- ------------ ---------
Profit/(loss)
before taxation 27.8 (57.3) (7.5) (37.0) (74.9) (1.6) (76.5)
--------- ------------ --------------- ------- --------- ------------ ---------
Profit/(loss)
before tax multiplied
by standard rate
of corporation
tax in the UK
of 19% 5.3 (10.9) (1.4) (7.0) (14.2) (0.4) (14.6)
Effects of:
- impact of change
in UK tax rate
(note (a)) (3.2) - 0.7 (2.5) (1.0) - (1.0)
- impact of bank
corporation tax
surcharge (note
(b)) 1.4 0.7 - 2.1 - - -
- impact of lower
tax rates and
losses overseas
(note (c)) - - - - 1.8 - 1.8
- write off of
deferred tax assets
(note (d)) 0.7 - - 0.7 0.3 - 0.3
- adjustments
in respect of
prior years (note
(e)) (7.7) - - (7.7) 0.2 - 0.2
- prior year adjustments
related to transfer
pricing and losses - - - - -
(note (f)) - -
- non-deductible
general expenses (0.7) 0.3 - (0.4) - - -
- transfer pricing
adjustments (note
(g)) 4.4 - - 4.4 (4.4) - (4.4)
- discount on
payment for losses
of discontinued - - - - -
operations (note
(h)) - -
- benefit of capital
losses offset
against capital
gain (note (i)) (0.9) - - (0.9) - - -
- Utilisation
of losses not
recognised for
deferred tax (1.1) - - (1.1) - - -
- exceptional
complaints provision
(note (j)) - 12.4 - 12.4 - (12.4) (12.4)
(1.8) 2.5 (0.7) - (17.3) (12.8) (30.1)
--------- ------------ --------------- ------- --------- ------------ ---------
(a) Impact of change of UK tax rate
In 2016, changes in corporation tax rates were enacted which
reduced the mainstream corporation tax rate to 17% with effect from
1 April 2020. Prior to 1 April 2020, the mainstream corporation tax
rate was 19%. In 2020, the reduction in the mainstream corporation
tax rate to 17% was cancelled and the rate remained at 19% for
2020. During 2021, a further change was enacted to increase the
mainstream corporation tax rate from 19% to 25% with effect from 1
April 2023.
Deferred tax balances at 31 December 2019 were measured at 17%
and, in the case of credit cards and personal loans, at the
combined mainstream corporation tax rate (17%) and the bank
corporation tax surcharge rate (8%) of 25% to the extent that the
temporary differences on which the deferred tax was calculated were
expected to reverse after 1 April 2020. At 31 December 2020, these
deferred tax balances were re-measured at 19% and, in the case of
credit cards and personal loans, at the combined mainstream
corporation tax (19%) and bank corporation tax surcharge rates (8%)
of 27%, as were movements in the deferred tax balances during the
year.
At 31 December 2021, the deferred tax balances have been
remeasured at 25% (2020: 19%) and, in the case of credit cards and
personal loans, at the combined mainstream corporation tax (25%)
and bank corporation tax surcharge rates (8%) of 33% (2020: 27%) to
the extent that the temporary differences on which deferred tax has
been calculated are expected to reverse, or the tax loss is
expected to be utilised, after 1 April 2023. A tax credit of
GBP5.0m (2020: credit of GBP3.5m) represents the income statement
adjustment to deferred tax as a result of these changes and an
additional deferred tax charge of GBP6.4m (2020: charge of GBP1.7m)
has been taken directly to other comprehensive income in respect of
items reflected in other comprehensive income. Of the tax credit of
GBP5.0m (2020: credit of GBP3.5m) taken to the income statement,
GBP5.0m related to continuing operations (2020: GBP2.5m) and GBPnil
(2020: GBP1.0m) to discontinued operations.
There is no impact in 2021 on discontinued operations from the
change in tax rates as no deferred tax balances are recognised in
discontinued operations at 31 December 2021.
(b) Impact of bank corporation tax surcharge
The adverse impact of the bank corporation tax surcharge amounts
to GBP12.2m (2020: GBP2.1m) and represents tax at the bank
corporation tax surcharge rate of 8% on credit cards and personal
loans taxable profits in excess of GBP25m where taxable profits are
calculated ignoring the benefit of losses elsewhere in the Group,
including capital losses.
The only entity subject to bank corporation tax surcharge in the
Group is Vanquis Bank Limited which sits within continuing
operations.
(c) Impact of lower tax rates and losses overseas
Prior to its closure in 2021, the home credit business in the
Republic of Ireland was subject to tax at the Republic of Ireland
statutory tax rate of 12.5% (2020: 12.5%) rather than the UK
statutory mainstream corporation tax rate of 19% (2020: 19%). In
2021, the home credit business in the Republic of Ireland made a
loss (2020: loss) which can only be relieved against future profits
of the business in the Republic of Ireland at the 12.5% statutory
rate rather than the 19% UK statutory tax rate. In light of the
closure of the business, no deferred tax asset has been recognised
in respect of this loss giving rise to a total adverse impact on
the Group tax charge of GBP3.5m (2020: GBP1.8m), all of which
relates to discontinued operations.
(d) Write off of deferred tax assets
Deferred tax assets written off comprise (a) GBP23.6m of
deferred tax assets related to discontinued operations for which
future tax relief is unlikely to be available following the closure
of the business; net of (b) a deferred tax credit of GBP0.5m (2020:
deferred tax charge of GBP1.0m) related to the deferred tax asset
in respect of share scheme awards which had previously been written
off on the basis that future deductions were expected to be lower
than previously anticipated. Of the GBP0.5m deferred tax credit
(2020: deferred tax charge of GBP1.0m), GBP0.3m (2020: deferred tax
charge of GBP0.7m) relates to continuing operations and GBP0.2m
(2020: deferred tax charge of GBP0.3m) relates to discontinued
operations. The GBP23.6m deferred tax assets related to
discontinued operations which have been written off in 2021 (2020:
GBPnil) relate to tax losses carried forward and other temporary
differences for which, following the closure of the business, it is
considered unlikely that future tax relief will be available.
(e) Adjustments in respect of prior years
The GBP1.0m tax charge in respect of prior years (2020: tax
credit of GBP7.5m) primarily comprises adjustments related to prior
year deferred tax on share scheme awards and the impact of
resolving historical tax liabilities, of which a GBP0.5m charge
(2020: charge of GBP0.2m) relates to discontinued operations and a
GBP0.5m charge (2020: credit of GBP7.7m) relates to continuing
operations.
In 2020, the GBP7.5m credit in respect of prior years primarily
relates to continuing operations and represents the benefit of
claiming deductions for the costs incurred in 2019 in connection
with the defence of the unsolicited offer from NSF, for which no
tax deduction was assumed in the prior year, along with a release
of part of the provision for uncertain tax liabilities net of other
prior year adjustments .
(f) Prior year adjustments related to transfer pricing and
losses
This comprises a GBP7.8m charge (2020: GBPnil) related to
discontinued operations net of a GBP7.8m credit (2020: GBPnil)
related to continuing operations and relates to transfer pricing
adjustments between the continuing operations and discontinued
operations in prior years, as well as adjustments related to prior
year tax losses of the discontinued operation which have been
surrendered as group relief to the continuing operation and which
the continuing operation has paid for at a discounted price. They
have a GBPnil (2020: GBPnil) overall impact on the tax charge.
(g) Transfer pricing adjustments
These comprise a GBP0.6m credit (2020: charge of GBP4.4m)
related to continuing operations and a GBP0.6m charge (2020:
GBP4.4m credit) related to discontinued operations, and represent
the impact of transfer pricing adjustments between the profits of
continuing and discontinued operations. They have a GBPnil (2020:
GBPnil) overall impact on the tax charge.
(h) Discount on payment for losses of discontinued
operations
These comprise a credit of GBP6.5m (2020: GBPnil) related to
continuing operations and a GBP6.5m charge (2020: GBPnil) related
to discontinued operations, and relate to tax losses of the
discontinued operations which have been surrendered as group relief
to the continuing operations and which the continuing operations
have paid for at a discounted price. The overall impact on the tax
charge is GBPnil (2020: GBPnil).
(i) Benefit of capital losses offset against capital gain and
utilisation of losses not recognised for deferred tax
The conversion and subsequent sale of part of the preferred
stock in Visa Inc during 2020 gave rise to a capital gain which was
offset partly by: (i) in-year capital losses which give rise to a
beneficial impact on the tax charge of GBP0.9m; and (ii) brought
forward capital losses in respect of which a deferred tax asset was
not previously recognised, which gave rise to a beneficial impact
on the tax charge of GBP1.1m.
(j) Exceptional complaints provision
In 2020, the exceptional complaints provision which was booked
in CCD gave rise to a tax credit in CCD of GBP12.4m. As the
exceptional complaints provision has been recognised as part of
continuing rather than discontinued operations, this gives rise to
a tax reconciling difference of GBP12.4m between continuing and
discontinued operations.
In 2021, the release of the exceptional complaints provision in
CCD following the implementation of the Scheme of Arrangement gives
rise to a tax charge in CCD of GBP12.4m. As the release of the
provision has been recognised as part of continuing rather than
discontinued operations, this gives rise to a similar tax
reconciling difference in 2021 of GBP12.4m between continuing and
discontinued operations.
These adjustments have a nil (2020: nil) overall impact on the
tax charge.
In 2021, a tax deduction has been claimed for the GBP70m costs
of the Scheme of Arrangement incurred by Provident Financial plc
which have also been recognised as part of continuing
operations.
Tax on exceptional items:
The tax credit in respect of exceptional items amounts to
GBP10.2m (2020: tax credit of GBP10.3m) and comprises a GBP15.3m
credit (2020: charge of GBP2.5m) relating to continuing operations
and a GBP5.1m charge (2020: GBP12.8m credit) relating to
discontinued operations.
In 2021:
- The GBP15.3m tax credit relating to continuing operations
represents: (i) a tax credit in respect of all exceptional costs of
the continuing operation with the exception of certain project
costs for which it is considered tax deductions may not be
available; and (ii) the tax reconciling difference between
continuing and discontinued operations referred to in note (j)
above.
- The GBP5.1m tax charge relating to discontinued operations
represents the tax reconciling difference between continuing and
discontinued operations referred to in note (j) above net of a tax
credit for the exceptional closure costs of the discontinued
operations with the exception of those costs related to the Irish
branch, for which no effective tax relief is available.
In 2020 :
- The GBP2.5m tax charge relating to continuing operations
represents: (i) a tax charge of GBP2.3m, being tax at the combined
mainstream corporation tax and bank corporation tax surcharge rates
of 27% in respect of the GBP8.3m exceptional release of the
provisions established in 2017 following completion of the refund
programme in respect of ROP and a re-evaluation of the forward flow
of claims that may arise in respect of ROP complaints more
generally; and (ii) a tax charge of GBP0.2m, being tax on the
exceptional net gain on the bond buyback net of a tax credit on the
GMP pensions equalisation charge and exceptional restructuring
costs.
- The GBP12.8m credit relating to discontinued operations
represents a tax credit of GBP12.4m in respect of the exceptional
provision for customer claims and associated costs which have been
booked in CCD and a tax credit of GBP0.4m in respect of exceptional
restructuring costs in CCD.
The tax credit/(charge) on items taken directly to other
comprehensive income is as follows:
2021 2020
GBPm GBPm
------- ------
Deferred tax credit/(charge) on fair value movement
in investment 1.4 (1.0)
Deferred tax credit on disposal of investment - 2.0
Current tax charge on disposal of investment - (2.0)
Deferred tax (charge)/credit on actuarial movements
on retirement benefit asset (5.2) 0.3
------- ------
Tax charge on items taken directly to other comprehensive
income prior to impact of change in UK tax rate (3.8) (0.7)
------- ------
Impact of change in UK tax rate (6.4) (1.7)
------- ------
Total tax charge on items taken directly to other
comprehensive income (10.2) (2.4)
------- ------
The tax (charge)/credit on items taken directly to other
comprehensive income relates entirely to continuing operations.
During 2020, Vanquis Bank Limited converted and subsequently
sold its holding in the 'A' preference shares in Visa Inc which
gave rise to a capital gain. In 2020, the GBP1.0m deferred tax
charge recognised in other comprehensive income represents deferred
tax at the combined mainstream UK corporation tax and bank
corporation tax surcharge rate of 27.0% on the movement in the
valuation of the 'B' preference shares in Visa Inc which were
retained, as well as the movement in the valuation of the 'A'
preference shares in Visa Inc up to the point of conversion and
sale. The conversion and sale of the 'A' preference shares in Visa
Inc in 2020 resulted in a deferred tax credit of GBP2.0m in other
comprehensive income which represents the reversal of the GBP2.0m
deferred tax charge in respect of the valuation of the company's
shareholding in the 'A' preference shares in Visa Inc that had been
recognised in other comprehensive income, and a current tax charge
of GBP2.0m, representing tax at the combined mainstream UK
corporation tax and bank corporation tax surcharge rates of 27.0%
on the cumulative fair value gain on the disposed shares which had
been recognised in other comprehensive income. In 2021, the GBP1.4m
deferred tax credit represents the reversal of the deferred tax at
the combined mainstream UK corporation tax and bank corporation tax
surcharge rates on the cumulative movement in the valuation of the
'B' preference shares in Visa Inc which has previously been
recognised in other comprehensive income and is now being
recognised in the income statement, with the shares now recognised
at fair value through profit and loss rather than previously at
fair value through other comprehensive income.
The movement in the deferred tax balance during the year can be
analysed as follows:
2021 2020
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
Asset/(liability) GBPm GBPm GBPm GBPm
------------ ------------- ------- --------------------------- ------
At 1 January 12.1 31.9 44.0 16.0 9.0 25.0
(Charge)/credit
to the income
statement - (31.9) (31.9) (6.0) 21.9 15.9
(Charge)/credit
on other comprehensive
income prior
to impact of
change in UK
tax rate (3.8) - (3.8) 1.3 - 1.3
Impact of change
in UK tax rate:
- credit to the
income statement 5.0 - 5.0 2.5 1.0 3.5
- change to other
comprehensive
income (6.4) - (6.4) (1.7) - (1.7)
At 31 December 6.9 - 6.9 12.1 31.9 44.0
------------ ------------- ------- ------------ ------------- ------
6. Earnings/(loss) per share
Basic earnings/(loss) (E/LPS) per share is calculated by
dividing the profit/(loss) for the year attributable to equity
shareholders by the weighted average number of ordinary shares
outstanding during the year less the number of shares held by the
Employee Benefit Trust holds which are used to satisfy the share
awards such as DBP, PSP, LTIS, RSP and CSOP.
Diluted E/LPS calculates the effect on E/LPS 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 Deferred Bonus Plan (DBP) (previously
the Performance Share Plan (PSP)), the Long Term Incentive Scheme
(LTIS), the Restricted Share Plan (RSP), and the Company Share
Option Plan (CSOP), 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 Company'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. The Group also presents an adjusted EPS,
prior to the amortisation of acquisition intangibles and
exceptional items.
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 E/LPS for continuing
operations and the Group are set out below:
2021 2020
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Loss of shares amount
Continuing operations GBPm m pence GBPm m pence
-------------------------- ----------- --------------- --------- ------- ----------- ---------
Basic earnings/(loss)
per share 134.6 250.7 53.7 (37.0) 253.6 (14.6)
Dilutive effect of share
options and awards - 1.3 (0.3) - - -
-------------------------- ----------- --------------- --------- ------- ----------- ---------
Diluted earnings/(loss)
per share 134.6 252.0 53.4 (37.0) 253.6 (14.6)
-------------------------- ----------- --------------- --------- ------- ----------- ---------
2021 2020
Weighted Weighted
average Per average Per
number share number share
Loss of shares amount Loss of shares amount
Group GBPm m pence GBPm m pence
-------------------------- ------- ----------- --------- ------- ----------- ---------
Basic loss per share (32.1) 250.7 (12.8) (83.4) 253.6 (32.9)
Dilutive effect of share
options and awards - - - - - -
-------------------------- ------- ----------- --------- ------- ----------- ---------
Diluted loss per share (32.1) 250.7 (12.8) (83.4) 253.6 (32.9)
-------------------------- ------- ----------- --------- ------- ----------- ---------
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 3). This is presented to show the
earnings per share generated by the Group's continuing operations.
A reconciliation of basic and diluted earnings/(loss) per share to
adjusted basic and diluted earnings/(loss) per share is as
follows:
2021 2020
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Earnings of shares amount
Continuing operations GBPm m pence GBPm m pence
-------------- ----------- --------- -------------- ----------- ---------
Basic earnings/(loss) per
share 134.6 250.7 53.7 (37.0) 253.6 (14.6)
Amortisation of acquisition
intangibles, net of tax 6.7 - 2.7 6.8 - 2.7
Exceptional items, net
of tax 2.8 - 1.1 59.8 - 23.6
-------------- ----------- --------- -------------- ----------- ---------
Adjusted basic earnings
per share 144.1 250.7 57.5 29.6 253.6 11.7
-------------- ----------- --------- -------------- ----------- ---------
Diluted earnings/(loss)
per share 134.6 252.0 53.4 (37.0) 254.2 (14.6)
Amortisation of acquisition
intangibles, net of tax 6.7 - 2.7 6.8 - 2.7
Exceptional items, net
of tax 2.8 - 1.1 59.8 - 23.6
-------------- ----------- --------- -------------- ----------- ---------
Adjusted diluted earnings
per share 144.1 252.0 57.2 29.6 254.2 11.7
-------------- ----------- --------- -------------- ----------- ---------
2021 2020
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Loss of shares amount
Group GBPm m pence GBPm m pence
-------------- ----------- --------- -------------- ----------- ---------
Basic loss per share (32.1) 250.7 (12.8) (83.4) 253.6 (32.9)
Amortisation of acquisition
intangibles, net of tax 6.7 - 2.7 6.8 - 2.7
Exceptional items, net
of tax 50.5 - 20.1 48.6 - 19.2
-------------- ----------- --------- -------------- ----------- ---------
Adjusted basic earnings/(loss)
per share 25.1 250.7 10.0 (28.0) 253.6 (11.0)
-------------- ----------- --------- -------------- ----------- ---------
Diluted loss per share (32.1) 252.0 (12.7) (83.4) 253.6 (32.9)
Amortisation of acquisition
intangibles, net of tax 6.7 - 2.7 6.8 - 2.7
Exceptional items, net
of tax 50.5 - 20.0 48.6 - 19.2
-------------- ----------- --------- -------------- ----------- ---------
Adjusted diluted earnings/(loss)
per share 25.1 252.0 10.0 (28.0) 253.6 (11.0)
-------------- ----------- --------- -------------- ----------- ---------
7. Dividends
There have been no dividends paid in the current or prior
year.
The directors are recommending an interim dividend in respect of
the financial year ended 31 December 2021 of 12p per share which
will amount to an estimated dividend of GBP30m. This dividend will
be paid on 20 May 2022 to shareholders who were on the register of
members at 22 April 2022 with an ex-dividend date of 21 April
2022.
8. Amounts receivable from customers
2021 2020
GBPm GBPm
-------- --------
Credit cards and personal loans 1,091.5 1,094.2
Vehicle finance 586.2 566.6
-------- --------
Total - continuing operations 1,677.7 1,660.8
CCD - discontinued operations - 139.0
-------- --------
Total group 1,677.7 1,799.8
-------- --------
Credit cards and personal loans receivables comprise GBP1,063.4m
(2020: GBP1,075.1m) in respect of credit cards and GBP28.1m (2020:
GBP19.1m) in respect of personal loans.
An analysis of receivables by IFRS 9 stages is set out
below:
2021
Stage 1 Stage 2 Stage Total
3
GBPm GBPm GBPm GBPm
-------- -------- -------- --------
Gross receivables
Credit cards and personal loans 913.7 342.7 194.5 1,450.9
Vehicle finance 350.2 112.9 378.6 841.7
CCD - - - -
-------- -------- -------- --------
Total group 1,263.9 455.6 573.1 2,292.6
-------- -------- -------- --------
Allowance account
Credit cards and personal loans (103.2) (102.9) (153.3) (359.4)
Vehicle finance (14.3) (15.8) (225.4) (255.5)
CCD - - - -
Total group (117.5) (118.7) (378.7) (614.9)
-------- -------- -------- --------
Net receivables
Credit cards and personal loans 810.5 239.8 41.2 1,091.5
Vehicle finance 335.9 97.1 153.2 586.2
CCD - - - -
-------- -------- -------- --------
Total group 1,146.4 336.9 194.4 1,677.7
-------- -------- -------- --------
2020
Stage 1 Stage 2 Stage Total
3*
GBPm GBPm GBPm GBPm
-------- -------- -------- --------
Gross receivables
Credit cards and personal loans 1,044.5 188.3 335.6 1,568.4
Vehicle finance 443.8 100.1 221.4 765.3
CCD 76.9 17.9 359.4 454.2
-------- -------- -------- --------
Total group 1,565.2 306.3 916.4 2,787.9
-------- -------- -------- --------
Allowance account
Credit cards and personal loans (170.0) (90.2) (214.0) (474.2)
Vehicle finance (21.8) (17.9) (159.0) (198.7)
CCD (5.7) (3.8) (305.7) (315.2)
Total group (197.5) (111.9) (678.7) (988.1)
-------- -------- -------- --------
Net receivables
Credit cards and personal loans 874.5 98.1 121.6 1,094.2
Vehicle finance 422.0 82.2 62.4 566.6
CCD 71.2 14.1 53.7 139.0
-------- -------- -------- --------
Total group 1,367.7 194.4 237.7 1,799.8
-------- -------- -------- --------
* Gross loan receivables and impairment provisions for expected
credit losses were unintentionally reduced by equal amounts of
GBP30.9m in the prior year to reflect the net revenue recognition
for loans in stage 3. Comparatives included in note 8 have been
amended to remove this adjustment as part of Moneybarn's
implementation of new IFRS 9 models. This prior period adjustment
has no impact on the Group's primary statements.
The movement in directly attributable acquisition costs included
within amounts receivable from customers can be analysed as
follows:
2021 2020
Credit
cards Credit
and personal cards
loans Vehicle and personal Vehicle
finance CCD Total loans finance CCD Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ---------- ------ -------- --------------- ---------- ------ --------
Brought forward 32.9 27.9 0.4 61.2 31.8 24.6 1.9 58.3
Capitalised 10.2 23.3 0.2 33.7 11.9 22.4 1.6 35.9
Amortised (13.5) (18.8) (0.6) (32.9) (10.8) (19.1) (3.1) (33.0)
Carried forward 29.6 32.4 - 62.0 32.9 27.9 0.4 61.2
-------------- ---------- ------ -------- --------------- ---------- ------ --------
Macroeconomic provision
Macroeconomic provisions are recognised to reflect the expected
impact of future economic events on a customer's ability to make
payments on their agreements and the losses which are expected to
be incurred given default. Following refinements to the models in
2021, these provisions are now included as part of the core model
provision.
The provisions now consider the relationship between hazard
rate, the number of people who were employed last month but who are
unemployed the following month (derived from unemployment), debt to
income ratio and default rates.
The Group will continue to assess if there are any additional
macroeconomic indicators which also correlate to credit losses.
The impairment charge in respect of amounts receivable from
customers can be analysed as follows:
2021 2020
GBPm GBPm
------ ------
Credit cards 3.7 233.3
Vehicle finance 44.6 72.7
Personal loans 2.1 6.6
------ ------
Total impairment charge - continuing operations 50.4 312.6
CCD - discontinued operations 59.6 47.5
------ ------
Total impairment charge 110.0 360.1
------ ------
9. Other intangible assets
2021 2020
Acquisition Computer Acquisition Computer
intangibles software Total intangibles software Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------- ------- ------------- ---------- ------
Cost
At 1 January 75.0 77.9 152.9 75.0 65.4 140.4
Additions - 24.8 24.8 - 16.3 16.3
Disposals - (59.2) (59.2) - (3.8) (3.8)
------------- ---------- ------- ------------- ---------- ------
At 31 December 75.0 43.5 118.5 75.0 77.9 152.9
------------- ---------- ------- ------------- ---------- ------
Accumulated amortisation
and impairment
At 1 January 47.5 60.1 107.6 40.0 56.3 96.3
Charged to the income statement
- continuing operations 7.5 7.1 14.6 7.5 5.4 12.9
Charged to the income statement
- discontinued operations - 3.6 3.6 - 2.2 2.2
Disposals - (59.6) (59.6) - (3.8) (3.8)
------------- ---------- ------- ------------- ---------- ------
At 31 December 55.0 11.2 66.2 47.5 60.1 107.6
------------- ---------- ------- ------------- ---------- ------
Net book value
At 31 December 20.0 32.3 52.3 27.5 17.8 45.3
------------- ---------- ------- ------------- ---------- ------
At 1 January 27.5 17.8 45.3 35.0 9.1 44.1
------------- ---------- ------- ------------- ---------- ------
Acquisition intangibles represent the fair value of the broker
relationships arising on acquisition of vehicle finance product in
August 2014. The intangible asset was calculated based on the
discounted cash flows associated with vehicle finance core broker
relationships and is being amortised over an estimated useful life
of 10 years.
Additions to computer software in the year of GBP24.8m (2020:
GBP16.3m) comprise GBP24.2m (2020: GBP13.8m) of internally
generated assets and GBP0.6m (2020: GBP2.5m) of externally
purchased software.
The GBP24.8m (2020: GBP16.3m) of computer software expenditure
predominantly relates to the development of systems in
relation to the personal loans business.
10. Investments
2021 2020
GBPm GBPm
----- -----
Visa Inc. shares 9.1 9.2
----- -----
Visa Inc. shares
The Visa Inc shares represent preferred stock in Visa Inc held
by Vanquis Bank Limited following completion of Visa Inc's
acquisition of Visa Europe Limited on 21 June 2016. In
consideration for Vanquis Bank Limited's interest in Visa Europe
Limited, Vanquis Bank Limited 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 which was received in 2019.
During 2021 the Visa Inc shares previously classified as fair
value through OCI were reclassified as fair value through income
statement; refer to note 2 for details of the change in accounting
policy. This has resulted in an increase in profit before tax of
GBP5.2m and an increase in the tax charge of GBP1.4m. The
cumulative fair value movements of GBP5.2m and all future fair
value movements will be presented within operating costs in the
income statement.
During 2020 there was a partial conversion event and 50% of the
preferred stock was converted into class A shares which were then
sold in December, as the shares are non-core to the business and it
was deemed economically efficient by management to liquidate. On
disposal of the shares, the cumulative gain recognised in the fair
value reserve was transferred to retained earnings (GBP7.4m) net of
the tax arising on the disposal (GBP2.0m). The movement in the fair
value during the year of the A shares, until they were sold, and
the preferred stock, was recognised in the statement of
comprehensive income (GBP3.8m).
The valuation of the preferred stock has been determined using
the common stock's value as an approximation as both classes of
stock have similar dividend rights. However, adjustments have been
made for: (i) illiquidity, as the preferred stock is not tradeable
on an open market and can only be transferred to other Visa
members; and (ii) future litigation costs which could affect the
valuation of the stock prior to conversion.
11. 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 it is now also closed to future
accrual.
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 on
a final salary and, more recently, on a cash balance basis. With
effect from 1 August 2021 it was fully closed to future accrual and
benefits are no longer linked to final salary, although accrued
benefits are subject to statutory inflationary increases.
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 2018 by a qualified
independent actuary. The valuation used for the purposes of IAS 19
'Employee benefits' has been based on 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.
As a result, the Group recognises surplus assets under IAS
19.
The Group is exposed to a number of risks, the most significant
of which are as follows:
- Investment risk - the liabilities for IAS 19 purposes are
calculated using a discount rate set with reference to corporate
bond yields. If the assets underperform this yield a deficit will
arise. The scheme has a long-term objective to reduce the level of
investment risk by investing in assets that better match
liabilities.
- Change in bond yields - a decrease in corporate bond yields
will increase the liabilities, although this will be partly offset
by an increase in matching assets.
- Inflation risk - some of the liabilities are linked to
inflation. If inflation increases then liabilities will increase,
although this will be partly offset by an increase in assets. As
part of a long-term de-risking strategy, the scheme has increased
its portfolio in inflation matched assets.
- Life expectancies - the scheme's final salary benefits provide
pensions for the rest of members' lives (and for their spouses'
lives). If members live longer than assumed, then the liabilities
in respect of final salary benefits increase.
The net retirement benefit asset recognised in the balance sheet
of the group is as follows:
2021 2020
GBPm GBPm
-------- --------
Fair value of scheme assets 898.8 933.0
Present value of defined benefit obligation (786.6) (853.3)
-------- --------
Net retirement benefit asset recognised in the balance
sheet 112.2 79.7
-------- --------
The amounts recognised in the income statement were as
follows:
2021 2020
GBPm GBPm
-------- --------
Current service cost (2.1) (1.7)
Interest on scheme liabilities (11.8) (15.1)
Interest on scheme assets 13.0 16.7
-------- --------
Net charge recognised in the income statement before
exceptional past service credit/(charge) (0.9) (0.1)
-------- --------
Exceptional past service credit/(charge) - Plan
amendment (note 3) 1.5 (0.7)
Exceptional past service credit - Curtailment credit 0.8 -
(note 3)
-------- --------
Exceptional past service credit/(charge) 2.3 (0.7)
-------- --------
Net credit/(charge) recognised in the income statement 1.4 (0.8)
-------- --------
The net credit/(charge) recognised in the income statement has
been included within operating costs.
Movements in the fair value of scheme assets were as
follows:
2021 2020
GBPm GBPm
------- -------
Fair value of scheme assets at 1 January 933.0 842.6
Interest on scheme assets 13.0 16.7
Actuarial movements on scheme assets (20.2) 102.8
Contributions by the Group 4.0 4.2
Net benefits paid out (31.0) (33.3)
------- -------
Fair value of scheme assets at 31 December 898.8 933.0
------- -------
Movements in the present value of the defined benefit obligation
were as follows:
2021 2020
GBPm GBPm
-------- --------
Present value of defined benefit obligation at 1
January (853.3) (764.6)
Current service cost (2.1) (1.7)
Interest on scheme liabilities (11.8) (15.1)
Exceptional past service charge - Plan amendment
(note 3) 1.5 (0.7)
Exceptional past service credit - Curtailment credit
(note 3) 0.8 -
Actuarial movement - experience (10.3) 4.3
Actuarial movement - demographic assumptions 12.9 (2.0)
Actuarial movement - financial assumptions 44.7 (106.8)
Net benefits paid out 31.0 33.3
-------- --------
Present value of defined benefit obligation at 31
December (786.6) (853.3)
-------- --------
The principal actuarial assumptions used at the balance sheet
date were as follows:
2021 2020
% %
----- -----
Price inflation - RPI 3.40 2.85
Price inflation - CPI 3.00 2.25
Rate of increase to pensions in payment 3.00 2.70
Inflationary increases to pensions in deferment 3.00 2.20
Discount rate 1.85 1.30
----- -----
The mortality assumptions are based on the self-administered
pension scheme (SAPS) series 2 tables (2020: SAPS series 2 tables),
with multipliers of 96% (2020: 96%) and 101% (2020: 101%)
respectively for males and females. The 4% downwards (2020: 4%
downwards) adjustment to mortality rates for males and a 1% upwards
(2020: 1% upwards) adjustment for females reflect higher life
expectancies for males and lower life expectancies for females
within the scheme compared to average pension schemes, which was
concluded following a study of the scheme's membership. Future
improvements in mortality are based on the Continuous Mortality
Investigation (CMI) 2020 model with a long-term improvement trend
of 1.00% per annum. Under these mortality assumptions, the life
expectancies of members are as follows:
Male Female
2021 2020 2021 2020
years years years years
------------ ----------- ------------ -----------
Current pensioner aged 65 21.7 21.9 23.4 23.5
Current member aged 45 from
age 65 22.7 23.2 24.6 25.0
------------ ----------- ------------ -----------
If the discount rate decreased by 0.5% (2020: 0.5%), the net
retirement benefit asset would have been increased by approximately
GBP64m (2020: GBP 79 m).
An analysis of amounts recognised in the statement of
comprehensive income is set out below:
2021 2020
GBPm GBPm
------- --------
Actuarial movements on scheme assets (20.2) 102.8
Actuarial movements on scheme liabilities 47.3 (104.5)
------- --------
Actuarial movements recognised in the statement
of comprehensive income in the period 27.1 (1.7)
------- --------
Cumulative movement recognised in other comprehensive
income (70.5) (97.6)
------- --------
12. Provisions
2021 2020
Scheme Others Total Scheme Others Total
GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- ------- ------- ------- -------
At 1 January 65.0 26.0 91.0 - 14.5 14.5
Created in the period 5.0 17.4 22.4 65.0 45.5 110.5
Reclassified in the period - - - - 17.6 17.6
Utilised during the year (16.5) (24.8) (41.3) - (43.3) (43.3)
Released during the year - - - - (8.3) (8.3)
-------
At 31 December 53.5 18.6 72.1 65.0 26.0 91.0
------- ------- ------- ------- ------- -------
All provisions are expected to be utilised within 12 months of
the year end.
The Scheme of Arrangement (the Scheme): Group GBP53.5m (2020:
GBP65m)
The Scheme of Arrangement was sanctioned on 30 July 2021. The
Scheme will now remediate all outstanding relevant claims, as well
as new relevant claims received before the claims submission
deadline in February 2022. The objective of the Scheme is to
ensure:
- all customers with redress claims are treated fairly; and
- outstanding claims are treated consistently for all customers
who submit a claim under the Scheme.
The Group will fund legitimate Scheme claims with GBP50m and
will cover further Scheme-related costs. These were estimated at
approximately GBP15m at 31 December 2020 with an additional GBP5m
being recognised in the year for additional expected costs in
supporting the delivery of the Scheme. At 31 December 2021,
GBP16.5m of the provision for costs of the scheme has been
utilised.
Other provisions include:
Complaints of irresponsible lending: GBPnil (2020: GBP23.4m)
Significantly higher claims volumes were received by CCD in 2020
in respect of irresponsible lending of home credit loans. GBP23.4m
was provided at 31 December 2020 for the claims received for
irresponsible lending. This reflected the recent uphold rates and
settlement values. The provision also assumed a settlement rate of
customer claims to the date of the Practice Statement Letter (PSL)
being issued on 15 March 2021, as part of the Scheme of Arrangement
(the Scheme). These amounts were fully utilised during the first
half of 2021.
FCA investigation into CCD: GBP4.1m (2020: GBPnil)
CCD was informed in Q1'21, that the FCA had opened an
enforcement investigation focusing on the consideration of
affordability and sustainability of lending to customers, as well
as the application of a FOS decision into the complaint handling
process, in the period between February 2020 and February 2021.
Discussions continue with the FCA on this matter. Analysis of
lending during the period of investigation has resulted in a
provision of GBP5m being recognised which reflects the current best
estimate of the settlement; GBP0.9m of this was utilised in the
second half of the year.
ROP Provision: GBP2.1m (2020: GBP2.6m)
The remaining ROP provision of GBP2.1m (2020: GBP2.6m)
principally reflects the estimated cost of the forward flow of ROP
complaints more generally which may be received and in respect of
which compensation may need to be paid.
Customer compliance: GBP3.4m (2020: GBPnil)
The customer compliance provision relates to general customer
compliance matters.
Discontinued operations: GBP9.0m (2020: GBPnil)
A number of smaller provisions have been recognised in relation
to the closure of the CCD business. These have been calculated
based on estimated costs at the year end.
13. Reconciliation of loss after tax to cash generated from operations
2021 2020
GBPm GBPm
------- -------
Loss after tax (32.1) (83.4)
Adjusted for:
- tax charge/(credit) 36.2 (30.1)
- finance costs 61.2 71.5
- exceptional costs/(gain) on redemption of bonds 3.9 (1.9)
- share-based payment charge 3.8 2.3
- retirement benefit charge before exceptional past
service charge/(credit) 0.9 0.1
* exceptional pension (credit)/charge (2.3) 0.7
- amortisation of intangible assets 18.2 15.1
- exceptional complaints provision in CCD - 65.0
- provisions created in the year 22.4 45.5
- depreciation of property, plant and equipment
and right of use assets 15.3 15.7
- profit on disposal of property, plant and equipment (0.3) 0.6
- profit on disposal of intangible assets (0.4) -
- profit on lease disposal (1.2) -
- exceptional release of provisions - (8.3)
- hedge ineffectiveness (0.2) 0.7
Changes in operating assets and liabilities
- amounts receivable from customers 122.1 399.8
- trade and other receivables 12.7 11.6
- trade and other payables 30.7 (6.8)
- provisions (41.3) (43.3)
- cumulative fair value movements on Visa shares
transferred to income statement (5.2) -
- current year fair value movements on Visa shares 0.1 -
- contributions into the retirement benefit scheme (4.0) (4.2)
Cash generated from operations 240.5 450.6
------- -------
14. Contingent liabilities
A contingent liability is a liability that is not sufficiently
certain to qualify for recognition as a provision where uncertainty
exists regarding the outcome of future events and the obligation
cannot be measured with sufficient reliability.
Challenge to self-employed status of UK home credit agents
In July 2017, Provident Personal Credit Limited (PPC) changed
its home-collected 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.
It is understood from discussions with HMRC that they commenced
an industry-wide review of the self-employed status of agents in
2019. The Group's discussions with HMRC, which are focusing on the
period from when the FCA took over responsibility for the
regulation of consumer credit in April 2014 to the change of
operating model in July 2017, have remained in the initial
fact-finding stages. The Group has continued to work positively and
collaboratively with HMRC but it remains the case that HMRC has
reached no decision on the position.
Were the Group to be unsuccessful in defending the historic
self-employed position of agents with HMRC, PPC could be liable for
additional taxes, including employer's National Insurance
contributions, on the commission it paid to agents in the UK for
the years concerned. However, PPC does not know the amounts of tax
and National Insurance contributions paid by agents through self
assessment which are available for offset, and it is therefore
difficult to calculate an accurate liability should the Group be
unsuccessful in defending the position. HMRC has raised protective
assessments on PPC which have been appealed pending the outcome of
the review. These are a procedural matter to ensure that, in the
event the review concludes that taxes are payable, HMRC can recover
such amounts that would otherwise be excluded due to the lapse of
statutory time limits.
The Group has worked with HMRC over many years to manage
employment status risk and it remains confident, based on advice
received, that agents were self-employed as a matter of law
throughout their engagement by PPC.
PPC has now completed the managed run-off of its home credit
business, which has not resulted in a surplus for creditors of the
Scheme of Arrangement, or more generally, and the company is
expected ultimately to be placed into formal wind-down proceedings.
Any contingent liabilities in respect of any additional tax
liabilities would then be dealt with as part of those
proceedings.
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 third parties. This extends to legal and regulatory
reviews, challenges, investigations, enforcement actions combined
with tax authorities taking a view that is different to the view
the Group has taken on the tax treatment in its tax returns, both
in the UK and overseas. All such material matters are periodically
assessed, with the assistance of external professional advisors
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 may not be possible to form a view, for example because the
facts are unclear or because further time is needed to properly
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 of cash
flows.
15. Post balance sheet events
In line with the Group's funding strategy to place less reliance
on this source of funding the Group exercised its contractual
option to early repay the RCF on 30(th) March 2022, ahead of its
contractual maturity in July 2023. The Group does not require the
funding and did not plan to renew the facility. The headroom on
committed facilities of GBP110m at 31 December 2021 would have
reduced to GBP50m after repayment of the facility.
Directors' responsibility statement
Each of Patrick Snowball, Chairman; Malcolm Le May, Chief
Executive Officer; Neeraj Kapur, Chief Financial Officer; Andrea
Blance, Senior independent director; Angela Knight, non-executive
director; Paul Hewitt, non-executive director; Elizabeth Chambers,
non-executive director; Margot James, non-executive director and
Graham Lindsay, non-executive director, confirms that, to the best
of his or her knowledge that:
(i) the group financial statements which have been prepared in
accordance with IFRS as adopted by the UK, give a true and fair
view of the assets, liabilities, financial position and profit of
the group, the company and the undertakings included in the
consolidation taken as a whole; and
(ii) the Strategic Report contained in the 2021 Annual Report
and Financial Statements includes a fair review of the development
and performance of the business and the position of the company and
group, and the undertakings included in the consolidation taken as
a whole, and a description of the principal risks and uncertainties
they face.
Information for shareholders
1. The 2021 Annual Report and Financial Statements together with
the notice of the annual general meeting will be posted to
shareholders on or around 25 April 2022.
2. The annual general meeting will be held on 29 June 2022 at
the Bradford office of Provident Financial plc, No. 1 Godwin
Street, Bradford, BD1 2SU.
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END
FR JMMTTMTJJTBT
(END) Dow Jones Newswires
March 31, 2022 02:01 ET (06:01 GMT)
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