TIDMPFG
RNS Number : 2211I
Provident Financial PLC
11 August 2021
Provident Financial plc
Interim results for the six months ended 30 June 2021
Provident Financial plc ('PFG' or 'the Group'), the leading
provider of credit products to consumers who are underserved by
mainstream banks, today publishes its interim results for the six
months ended June 2021, unless otherwise stated.
Malcolm Le May, Chief Executive Officer, commented:
" The first six months of 2021 showed a marked contrast to the
extremely difficult conditions seen throughout 2020. Underlying
customer trends and macroeconomic conditions have improved
year-on-year, allowing us to focus on the core businesses, which is
reflected in our results. For the first six months of the year, the
Group generated an adjusted ongoing profit before tax, excluding
our Consumer Credit Division (CCD), of GBP63.5m. Including losses
from CCD, the Group generated a statutory loss before tax of
GBP44.2m for the period.
In March, we notified the market of our intention to launch a
Scheme of Arrangement for CCD and in May, regrettably, we took the
difficult decision to place the business into a managed run-off. I
am pleased that the proposed Scheme of Arrangement for CCD, which
was provided for in our 2020 accounts, was sanctioned by the High
Court on 4 August. We can now continue to move forwards with our
plans to close the business before paying customer redress claims
during 2022.
During the remainder of 2021, PFG will accelerate its transition
towards becoming the leading specialist bank focused on financially
underserved customers, serving growing market segments with a range
of mid-cost products across credit cards, vehicle finance and
unsecured personal loans. We are well positioned to complete this
transition successfully and our strategy is underpinned by a robust
balance sheet with access to a diverse range of funding
options."
Key financial results
Six months ended 30 June
2021 2020(1)
GBPm GBPm
------------ -------------
Adjusted profit/(loss) before tax:
- Vanquis Bank 57.1 11.8
- Moneybarn 15.5 2.3
- Central costs (9.1) (9.2)
------------ -------------
Adjusted ongoing PBT (excluding
CCD)(2) 63.5 4.9
CCD (57.7) (37.6)
------------ -------------
Adjusted PBT/(LBT)(3) 5.8 (32.7)
Exceptional (costs)/credit (46.3) 8.3
Amortisation of acquisition intangibles (3.7) (3.7)
------------ -------------
Statutory loss before tax (44.2) (28.1)
Adjusted basic EPS (including CCD)(3) (3.1) (10.1)
------------ -------------
Basic EPS (19.6) (9.2)
------------ -------------
Annualised RORE(4) 19.5% 3.8%
------------ -------------
Highlights
Strong performance from ongoing operations; Scheme of
Arrangement for CCD sanctioned after the period end
-- Group adjusted ongoing profit before tax (PBT), excluding
CCD, of GBP63.5m (H1'20 restated PBT: GBP4.9m) reflects a reduction
in impairment and costs year-on-year which combined to offset the
fall in revenue.
-- Group statutory loss before tax (LBT) of GBP44.2m (H1'20
restated LBT: GBP28.1m) includes GBP46.3m of exceptional costs
related to the wind-down of the CCD businesses.
-- Vanquis Bank and Moneybarn were profitable for the period,
including and excluding the impact of provision releases triggered
by an improvement in macroeconomic outlook. The businesses remain
conscious of potential macroeconomic shocks that may arise during
H2'21 as government support schemes come to an end.
-- At the end of June, the Group held regulatory capital of
approximately GBP585m, which equated to a CET1 ratio of 32.5%
(H1'20: 35.4%). The reduction year-on-year predominantly reflects
the performance in the period and the transitional impact of IFRS
9.
-- Total Group liquidity at the end of June stood at
approximately GBP510m (H1'20: GBP1.2bn) including approximately
GBP280m held by Vanquis Bank, which represents a more normalised
level of liquidity for the Bank.
-- Shortly after the period end, the Group successfully
refinanced its Revolving Credit Facility and Moneybarn's
securitisation facility to at least 2023, increasing its net
committed funding by approximately GBP120m since the year end.
-- The Board is not proposing a dividend with respect to this
interim period (H1'20: nil) as the focus remains on preserving
capital during the period of closure of the CCD business. The Group
will revisit its policy at the year end, allowing time for the
Board to assess the impact of the end of furlough, and any future
lockdown restrictions, on the Group's customers.
Credit card customer expenditure improved during H1'21;
delinquency trends remain favourable
-- The Group's credit card and personal loans business, Vanquis
Bank, reported an adjusted PBT for the first six months of the year
of GBP57.1m (H1'20: GBP11.8m), driven by lower impairments as a
result of more favourable macroeconomic conditions.
-- New customer bookings for the period were 97k (H1'20: 147k)
as the business retained a cautious approach to risk appetite and
as lockdown restrictions reduced customer demand.
-- Customer expenditure trends improved progressively throughout
the first six months of the year as lockdown restrictions were
lifted. At the end of June, expenditure levels were up by 17%
year-on-year and were in-line with levels seen in June 2019 on a
per customer basis.
-- Customer receivables ended the period at GBP994m (H1'20:
GBP1,202m), including unsecured personal loan receivables of
c.GBP16m. The overall reduction year-on-year reflects lower
customer acquisition and a reduction in customer expenditure during
lockdown.
-- The take-up of payment holidays amounted to approximately
0.4% (H1'20: 2%) of customers and 0.1% (H1'20: 4%) of receivables
at the end of June.
-- The annualised impairment rate at the end of June of 6.1%
(H1'20: 22.3%) reflects a significant reduction in the impairment
charge year-on-year to GBP30.8m (H1'20: GBP149.9m) and the fall in
receivables. The coverage ratio increased by 1.3% to 31.5%, as the
impact of the improved unemployment outlook has been more than
offset by the lower than usual charge offs observed over the last
12 months as customers have been supported by government support on
a reduced receivables book.
Vehicle finance receivables passed GBP600m for the first time
and customer demand remains buoyant
-- The Group's vehicle finance business, Moneybarn, delivered an
adjusted PBT for the period of GBP15.5m (H1'20 restated: GBP2.3m)
driven by higher revenue year-on-year, as a result of the growth in
the receivables book, and lower impairment.
-- For the first six months of the year, customer demand for
used vehicles improved progressively as lockdown restrictions were
eased and this resulted in credit issued increasing by nearly 30%
to approximately GBP150m (H1'20: GBP121m).
-- Customer receivables were GBP602m at the end of June (H1'20
restated: GBP516m), representing the first time that receivables
have exceeded GBP600m, vs. the GBP130m of receivables the business
had when it was acquired in August 2014.
-- Payment holiday take-up by Moneybarn customers remains
extremely low and ended the period at just 0.1% of customers
(H1'20: 3.5%).
-- The annualised impairment rate improved to 6.8% during the
period (H1'20: 14.1%) following Moneybarn's inability to repossess
vehicles last year and due to an improved arrears picture across
the book.
-- Shortly after the period end, PFG signed a new warehouse
securitisation facility for Moneybarn. This increases its committed
funding to GBP325m (from GBP150m at 31 December 2020) over a new 24
month period (plus any amortisation thereafter) and will increase
the weighted average duration of the Group's funding sources and
decrease its weighted average cost of funds to Moneybarn.
Managed run-off of CCD is progressing well; Scheme of
Arrangement sanctioned by the High Court
-- On 10 May 2021, PFG announced the regrettable decision to
withdraw from the home credit market and subsequently placed the
home credit business into a managed run-off, with the expectation
that the run-off will be completed by 2022.
-- The Scheme received creditor approval of approximately 98%
and was sanctioned by the High Court on 4 August 2021, following
the hearing on 30 July 2021.
-- As at the end of July, the CCD receivables book stood at
approximately GBP37m and, as previously announced, PFG expects the
closure of CCD to lead to losses of up to GBP100m.
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) The 2020 June comparatives have been restated to incorporate
the changes in Moneybarn accounting policies in relation to the
definition of default reflected in the 2020 financial
statements
(2) Adjusted profit before tax from ongoing operations is
defined as adjusted profit before tax before any losses incurred
relating to CCD
(3) Adjusted profit before tax is stated before amortisation of
acquisition intangibles and exceptional costs of GBP46.3m relating
to the closure of CCD and the CCD Scheme of Arrangement which
include: (i) redundancy costs of GBP22.9m, net of a curtailment
credit of GBP0.8m on the pension scheme; (ii) costs associated with
the wind down of CCD including asset write downs and supplier and
property exit costs (GBP13.4m); (iii) additional costs in relation
to the Scheme (GBP5m); and (iv) expected costs in relation to the
CCD enforcement investigation where a provision of GBP5m has now
been recognised, which includes management's estimate of
liabilities which have not yet been discussed or agreed with the
FCA.
(4) Return on average required regulatory capital (RORE)
reflects statutory profit after tax for the period, excluding CCD,
multiplied by 365/181 divided by the average regulatory capital
requirement for the period.
Note:
This report may contain certain "forward looking statements"
regarding the financial position, business strategy or plans for
future operations of the Group. All statements other than
statements of historical fact included in this document may be
forward looking statements. Forward looking statements 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. These
statements are made by the directors in good faith based on the
information available to them up to the time of their approval of
this report, but such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors. 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 report is intended as a profit forecast or
estimate for any period. No statement in this report 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. This report is intended
solely to provide information to shareholders to assess the group's
strategies and neither the company nor its directors accept
liability to any other person, save as would arise under English
law. The report should not be relied on by any other party or for
any other purpose
INTERIM REPORT
Chief Executive Officer's review
Introduction
As the UK remained under lockdown restrictions during January
and February 2021, the financial year began with the Group's
businesses focusing on collections from customers and maintaining
operational resilience. Demand for credit cards was subdued and
consumer expenditure was lower year-on-year by some 20%. However,
as restrictions eased in March, consumer activity increased, and
this was reflected by improving credit card expenditure and demand
for vehicle finance growing sequentially from February.
In March, PFG announced that its Consumer Credit Division would
seek to launch a Scheme of Arrangement in relation to potential
redress claims arising from complaints based on historic home
credit lending prior to 17 December 2020. In April, the High Court
made an order enabling CCD to convene a meeting of Scheme creditors
to consider the Scheme. In May, PFG announced that it had
regrettably made the decision to withdraw from the home credit
market and place CCD into a managed run-off with the expectation
that this run-off will be completed by 2022. The creditor meeting
took place on 19 July 2021 and the Scheme was approved by its
creditors with votes cast in favour of approximately 98% by both
value and number. Following the sanction hearing on 30 July, the
Scheme was sanctioned by the High Court on 4 August 2021.
During the second half of 2021, the Group will continue to
evolve into a specialist bank, providing mid-cost credit products
to financially underserved customers. Our core products will be
credit cards, vehicle finance and unsecured personal loans. As a
result, PFG will no longer serve the high-cost segment of the
credit market. We see this transition as being a core part of our
drive towards making PFG a more sustainable lender, focused on
providing much needed credit to our customers, whilst enabling good
customer outcomes, and providing sustainable returns for our
shareholders over the medium-term.
Consumer Credit Division (CCD)
PFG announced its intention to launch a Scheme of Arrangement
for CCD in March 2021 . The Scheme received creditor approval of
approximately 98 % and was sanctioned by the High Court on 4 August
2021, following a hearing on 30 July 2021. On 10 May 2021, PFG
announced its decision to withdraw from the home credit market and,
regrettably, placed the business into a managed run-off with the
expectation that the run-off will be completed by 2022.
Since the announcement on 10 May, the run-off of the CCD
businesses has progressed well. The Irish home credit business has
been closed and, at the end of June, approximately 1,200 colleagues
from across CCD left the organisation. PFG plans to move forward
with the closure of the business, following the sanction of the
Scheme, during the remainder of 2021. At the end of July 2021, the
CCD receivables book stood at approximately GBP37m and, as
previously announced, PFG expects the closure of CCD to lead to
losses of up to GBP100m.
As a separate matter, CCD was informed in March by the FCA that
it 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. During H1'21, PFG worked closely with the FCA to
help with their investigation. The Group has taken a provision of
GBP5m during the first half to cover expected cost (including
potential liabilities) related to the investigation which, as
previously stated, is not expected to conclude until 2022 at the
earliest.
Group financials
For the first six months of the year, the Group reported an
adjusted profit before tax of GBP5.8m (H1'20 restated loss before
tax (LBT) of GBP32.7m), which improved year-on-year as a result of
lower revenues, following lower levels of lending, being offset by
a reduction in costs and impairment. Adjusted profit from ongoing
operations, excluding CCD, was GBP63.5m (H1'20: GBP4.9m) reflecting
an improvement in profitability from the Group's credit card and
vehicle finance businesses. The Group reported a statutory loss of
GBP44.2m for the period (H1'20 restated LBT: GBP28.1m).
Group receivables ended the period at GBP1,637m (H1'20 restated:
GBP1,865m) split between credit cards of GBP978m (H1'20:
GBP1,174m), vehicle finance of GBP602m (H1'20 restated: GBP516m)
and unsecured personal loans of GBP16m (H1'20: GBP28m). CCD
receivables stood at GBP42m (H1'20: GBP147m) at the end of
June.
The Group's balance sheet remains appropriately and adequately
capitalised to execute the Group's strategy. At the end of June,
the Group held total regulatory capital of approximately GBP585m
(H1'20: GBP705m), equating to a total CET1 ratio of 32.5% (H1'20:
35.4%) and a surplus above the minimum regulatory requirement of
approximately GBP210m (H1'20: GBP215m).
Funding update
After the period end, the Group extended both its Moneybarn
securitisation facility and its Revolving Credit Facility
(RCF).
In January 2020, Moneybarn entered into a securitisation
warehouse which provided GBP150m of committed funding over an 18
month period to July 2021. The new facility, announced today, will
result in the committed amount increasing to GBP325m over a new
extended period of 24 months (plus any period of amortisation
thereafter). The cost of the new facility is broadly unchanged from
the previous warehouse and its advance rate is significantly
higher, resulting in a reduction in the weighted average cost of
funding for Moneybarn.
At present, PFG also has a multi-currency RCF in place provided
by several banks which had a total facility size of approximately
GBP148m as at 31 December 2020. In line with the Group's existing
strategy of reducing the reliance on its RCF, some of the new
securitisation funds will be used to reduce the Group's RCF
commitments, initially to GBP90m. The facility has also been
extended to the second half of 2023. The net result of these
changes will see the Group's access to funding and its weighted
average duration increase.
Regulation
In February, the initial findings of the Woolard Review were
published. The recommendations included encouraging alternatives to
high-cost credit, promoting better access to debt advice and that
the FCA work with the Bank of England and the UK Government to
allow credit unions to expand their product offering. PFG is
reviewing the recommendations set out in the Woolard Review and
will look to incorporate anything taken forward by the FCA.
Notably, the Group's new unsecured personal loan product will be a
mid-cost offering, in keeping with the Review's suggestions.
In February, Moneybarn was able to start collecting vehicles
from customers where a Default Termination (DT) had occurred. Prior
to this, as per FCA guidance, Moneybarn was only able to collect
vehicles from Voluntary Terminations (VT).
During the period, the FCA's 'Breathing Space' guidelines came
into force which enable customers in financial or mental distress
to seek protection from creditors for up to 60 days. The Group's
businesses have adopted the guidelines and are already helping
customers who meet the requirements.
Environmental, Social and Corporate Governance (ESG)
PFG's purpose of helping to put people on a path to a better
everyday life is key to ensuring that we provide our customers with
sustainable and responsible products and services. It also ensures
that we have the right corporate culture and commits us to play an
active role in wider society. As such, an important part of our ESG
strategy is to be a sustainable and successful business.
Throughout the first half of 2021, PFG has continued to develop
its ESG agenda and focus attention on addressing the most pressing
ESG related issues. The Group has supported colleagues and other
stakeholders of CCD, who have been impacted by the announcement
made in May 2021 to withdraw from the home credit market and place
the division into a managed run-off and this effort will
continue.
During the period, a group-wide Climate Risk Committee was
established to support our reporting obligations under the
Taskforce on Climate-related Financial Disclosures (TCFD). It is
designed to ultimately help PFG disclose the actual and potential
impacts of climate-related risks and opportunities on our
businesses and Group strategy. In the second half of 2021, PFG will
focus on developing its climate impact stress testing and
continuing to improve its TCFD disclosures.
Outlook
The last 18 months have been extremely challenging for
customers, colleagues, and the wider economy. However, the sanction
of the Scheme and closure of CCD, coupled with the Covid-19
vaccination programme, should provide clarity around the future of
PFG.
Macroeconomic uncertainty will remain as government support
schemes, including furlough, come to an end. However, the Board and
I can see scope for cautious optimism as our chosen markets return
to growth. As we progress through the remainder of the year, the
Board will seek to update its perspective on the potential for a
phased release of provisions taken at the height of the Covid-19
pandemic.
We will continue to work towards the strategic initiatives,
first introduced in November 2019, during the remainder of 2021 and
over the medium-term. These include: fortifying our strong
positions in growing market segments with a focus on growth in our
core offerings; enabling funding efficiencies across the Group
which leverage our existing deposit taking capabilities and seeking
to streamline our governance and corporate framework. We will
revisit these topics in greater depth at a Capital Markets Day
during Q1'22, whilst keeping the market updated during the second
half of this year.
As we finalise the closure of CCD, the Group will no longer
serve the high-cost segment of the market. Instead, it will focus
on becoming a specialist bank providing mid-cost products via its
credit card, vehicle finance and unsecured personal loan offerings.
In aggregate these products will target a growing market of over
GBP16bn. The unsecured personal loan product is on track to launch
its open market offering during the fourth quarter and complements
our existing offerings extremely well.
We are confident in both the market opportunity and our ability
to execute our strategic initiatives to deliver improving and
sustainable returns for our shareholders. As we focus on providing
credit to the underserved customer in the mid-cost credit card,
vehicle finance and personal loan markets, we will see a step
change in our addressable markets from GBP11bn to c.GBP16bn.
Furthermore, as a result of Covid-19, the number of potential
customers in these markets is set to increase to approximately 14
million (from 10-12 million historically). In this market context,
the Group's strategic ambitions and its capital allocation
framework, the Board will review the Group's ability to resume
dividend payments at the end of the year.
Our credit card and vehicle finance businesses have started the
second half of 2021 in line with our expectations. There continues
to be positive momentum in customer spend on credit cards and
delinquency remains stable. Our vehicle finance business reported
lower volumes in July month-on-month, in line with seasonal trends
seen across the vehicle finance market, and delinquency also
remains stable.
Malcolm Le May
Chief Executive Officer
11 August 2021
Financial Review
Group performance
The Group's 2021 interim results can be summarised as
follows:
Six months ended 30 June
2021 2020(1)
GBPm GBPm
------------ -------------
Adjusted profit/(loss) before tax:
- Vanquis Bank 57.1 11.8
- Moneybarn 15.5 2.3
- Central costs (9.1) (9.2)
------------ -------------
Adjusted ongoing PBT (excluding
CCD)(2) 63.5 4.9
CCD (57.7) (37.6)
------------ -------------
Adjusted PBT/(LBT)(3) 5.8 (32.7)
Exceptional (costs)/credit (46.3) 8.3
Amortisation of acquisition intangibles (3.7) (3.7)
------------ -------------
Statutory loss before tax (44.2) (28.1)
Adjusted basic EPS (including CCD)(3) (3.1) (10.1)
------------ -------------
Basic EPS (19.6) (9.2)
------------ -------------
Annualised RORE(4) 19.5% 3.8%
------------ -------------
(1) The 2020 June comparatives have been restated to incorporate
the changes in Moneybarn accounting policies in relation to the
definition of default reflected in the 2020 financial
statements
(2) Adjusted profit before tax from ongoing operations is
defined as adjusted profit before tax before any losses incurred
relating to CCD
(3) Adjusted profit before tax is stated before amortisation of
acquisition intangibles and exceptional costs of GBP46.3m relating
to the closure of CCD and the CCD Scheme of Arrangement which
include: (i) redundancy costs of GBP22.9m, net of a curtailment
credit of GBP0.8m on the pension scheme; (ii) costs associated with
the wind down of CCD including asset write downs and supplier and
property exit costs (GBP13.4m); (iii) additional costs in relation
to the Scheme (GBP5m); and (iv) expected costs in relation to the
CCD enforcement investigation where a provision of GBP5m has now
been recognised, which includes potential liabilities.
(4) Return on average required regulatory capital (RORE)
reflects statutory profit after tax for the period, excluding CCD,
multiplied by 365/181 divided by the average regulatory capital
requirement for the period.
The Group reported an adjusted ongoing PBT (excluding CCD) of
GBP63.5m for the period. Including CCD, the Group reported an
adjusted profit before tax of GBP5.8m (H1'20 restated adjusted LBT:
GBP32.7m) for the first six months of the year. The significant
improvement year-on-year is driven by lower revenues, from a lower
receivables base, being offset by significantly lower impairment
and costs in the business. The Group statutory loss before tax of
GBP44.2m (H1'20 restated LBT: GBP28.1m) includes GBP46.3m of
exceptional items which relate to the closure of the CCD
business.
The Group's credit card and personal loan business, Vanquis
Bank, reported an adjusted profit before tax for the period of
GBP57.1m (H1'20: GBP11.8m) and receivables ended the period at
GBP993m (H1'20: GBP1,202m).
The Group's vehicle finance business, Moneybarn, generated an
adjusted profit before tax of GBP15.5m (H1'20 restated: GBP2.3m),
with the increase driven by significantly lower impairment and
higher revenues year-on-year. Receivables crossed the GBP600m mark
for the first time and ended the period at GBP602m (H1'20 restated:
GBP516m).
For the first six months, CCD reported an adjusted loss before
tax of GBP57.7m (H1'20: GBP37.6m), driven by the cessation of new
lending during the period.
The Group reported a basic loss per share of (19.6p) for the
period vs. a basic loss per share of (9.2p) in H1'20. This reflects
the loss-making position of the Group on a statutory basis. On an
adjusted basis, the Group reported a loss per share of (3.1p) vs. a
loss per share of (10.1p) in H1'20.
Impairment provisioning
The Group is the leading provider of credit to the underserved
in the UK. Our customers have similar traits across all our
businesses: they manage their lives on low to average incomes; may
have irregular or variable earnings and are often new to credit in
the UK or have little or no credit history. It is for these reasons
that the impairment provisions held are higher than those which
would be reported by prime banks on similar products.
The Group's coverage ratio has increased marginally in the
period from 34.7% to 36.7%:
June-21 December-20 Change
Vanquis Bank 31.5% 30.2% 1.3%
-------- ------------ -------
Moneybarn 23.5% 22.8% 0.7%
-------- ------------ -------
CCD 88.0% 69.4% 18.6%
-------- ------------ -------
Group 36.7% 34.7% 2.0%
-------- ------------ -------
The coverage ratio in Vanquis Bank has increased by 1.3% to
31.5%, as the impact of the improved unemployment outlook has been
more than offset by the lower than usual charge offs observed over
the last 12 months as customers have been supported by furlough,
payment freezes and the rent moratorium on a reduced receivables
book.
The Moneybarn coverage ratio increased by 0.7% to 23.5%
reflecting increased Stage 3 provisions following the end of the
FCA moratorium allowing customer agreements to be terminated.
The coverage ratio in CCD increased by 18.6% to 88.0% reflecting
the expected deterioration in the customer recoveries as
collections transfer from the field-based CEM's to third-party Debt
Collection Agencies.
Our customers are also typically less sensitive to changes in
economic conditions as they are more used to managing on tight
budgets and they have lower levels of debt than prime customers.
They are, therefore, often better placed to manage a recession than
prime customers which is why our businesses have proven to be
resilient during a downturn in economic conditions. However,
underwriting has been tightened over the last 18 months to manage
exposure during the period of uncertainty.
Credit cards - Vanquis Bank
Six months ended 30 June
2021 2020 Change
--------
GBPm GBPm
-------- --------- --------
Customer numbers ('000) 1,537 1,694 (9.3%)
Period-end receivables 993 1,202 (17.4%)
Average receivables(1) 1,004 1,341 (25.1%)
----------------------------------- -------- --------- --------
Revenue 195.6 261.1 (25.1%)
Interest (14.2) (16.3) 12.9%
----------------------------------- -------- --------- --------
Net interest margin 181.4 244.8 (25.9%)
Impairment (30.8) (149.9) 79.5%
----------------------------------- -------- --------- --------
Risk-adjusted net interest margin 150.6 94.9 (58.7%)
Costs (93.5) (83.1) (12.5%)
----------------------------------- -------- --------- --------
Adjusted Profit before tax 57.1 11.8 383.9%
----------------------------------- -------- --------- --------
Annualised revenue yield(2) 39.0% 38.9% 0.1%
Annualised impairment rate(3) (6.1%) (22.4%) 16.2%
Annualised return on equity(4) 28.2% 5.6% 22.4%
(1) Calculated as the average of month end receivables for the 6 months ended 30 June.
(2) Revenue for the period multiplied by 365/181 as a percentage
of average receivables for the 6 months ended 30 June.
(3) Impairment for the period multiplied by 365/181 as a
percentage of average receivables for the 6 months ended 30
June.
(4) Adjusted profit after tax for the period multiplied by
365/181 as a percentage of average equity for the 6 months ended 30
June.
The Group's credit card business, Vanquis Bank, is a leading
specialist in the large and established credit card market in the
UK. The business reported an adjusted profit before tax of GBP57.1m
in H1'21, up from GBP11.8m in H1'20. This reflects a significant
reduction in impairment as H1'20 was impacted by the initial phase
of the Covid-19 pandemic and a more pessimistic view of the
economic outlook. Receivables at the end of the first half stood at
GBP993m (H1'20: GBP1,202m), approximately 17% lower year-on-year,
as customer acquisition and customer expenditure reduced
significantly during 2020 as a result of Covid-19 restrictions.
New account bookings for the first half were 97k, down from 147k
in H1'20. Vanquis continues to maintain a cautious stance compared
with pre-Covid-19 risk appetite although there has been a modest
relaxation in underwriting standards since the reduction in volumes
of 75% implemented in April 2020 at the onset of Covid-19.
Accordingly, new account bookings during May 2021 and June 2021
were approximately 50% higher than the corresponding period last
year following a new TV advertising campaign. Customer numbers
ended the period at 1,537k (H1'20: 1,694k) reflecting the closure
of approximately 114k dormant accounts and lower new business
volumes. This has been partly offset by lower charge offs which are
currently at c.50% of historical levels reflecting the impact of
Government measures such as the furlough and payment freezes.
Net receivables ended the period at GBP993m (H1'20: GBP1,202m),
with the year-on-year fall being driven by lower customer
acquisition volumes, reduced card expenditure during 2020 and
increased impairment provision.
Customer expenditure remained below historical levels through
the first quarter of the year, as lockdown restrictions persisted.
However, during the second quarter, spend per customer returned to
the levels last seen in the equivalent period in 2019. Accordingly,
the gross receivables (before impairment provision) plateaued
through the second quarter and showed modest growth in June.
Revenue of GBP195.6m in the first half was down from GBP261.1m
in the first half of 2020. The reduction was driven by a
combination of the fall in receivables and a stable revenue yield.
The annualised revenue yield at the end of June was 39.0% vs. 38.9%
in H1'20. This reflected the ongoing reduction in non-interest
income associated with ROP and changes to over limit and default
charges being offset by the higher average impairment provision
held over the last 12 months.
The impairment charge for the period was GBP30.8m, a significant
improvement compared to H1'20 of GBP149.9m, which reflected a
materially worse economic outlook at that stage of Covid-19.
Delinquency and charge-off levels are currently at historical lows
reflecting the impact of Government measures as noted earlier.
However, there remains ongoing uncertainty in H2'21 as Government
measures are withdrawn and unemployment is expected to increase.
The impairment provision coverage ratio has increased by 1.3% to
31.5%, as the impact of the improved unemployment outlook has been
more than offset by the lower than usual charge offs observed over
the last 12 months as customers have been supported by furlough,
payment freezes and the rent moratorium on a reduced receivables
book.
The lower impairment charge equates to an annualised impairment
rate at the end of June of 6.1% vs. 22.4% for H1'20. The number of
customers on payment freezes amounted to approximately 0.4% (H1'20:
2%) of customers and 0.1% (H1'20: 4%) of receivables at the end of
June, significantly lower than at the equivalent time last
year.
The risk-adjusted net interest margin increased to 30.0% at June
2021 vs. 14.2% at June 2020 reflecting the materially lower
impairment charge during the period, which offsets the fall in
revenue.
First half costs increased by GBP10.4m to GBP93.5m (H1'20:
GBP83.1m), reflecting the launch of the new brand campaign (Walk
Tall), including TV advertising, investment in change and IT
resource and the ongoing increase in risk, controls and compliance
costs.
Interest costs showed a year-on-year reduction of nearly 13% to
GBP14.2m (H1'20: GBP16.3m) during H1'21, in line with the reduction
in gross receivables. The net funding rate for Vanquis was
unchanged at broadly 2.8% in H1'21.
Vanquis Bank has continued to support both customers and
colleagues through the significant disruption caused by Covid-19.
The business has delivered an increase in first half profits and
has strong capital and liquidity positions. As a result, the
business is well-placed to navigate the ongoing effects of Covid-19
and deliver sustainable growth in customers and receivables in the
future. Further investment in the bank's data and digital
capability, as well as broadening the product range, remain key
strategic aims.
Vehicle finance - Moneybarn
Six months ended 30 June
2021 2020(1) Change
---------
GBPm GBPm
-------- -------- ---------
Customer numbers ('000) 94 82 14.8%
Period-end receivables 602 516 16.5%
Average receivables(2) 588 505 16.5%
----------------------------------- -------- -------- ---------
Revenue 68.8 64.1 7.3%
Interest (14.1) (13.3) (6.0%)
----------------------------------- -------- -------- ---------
Net interest margin 54.7 50.8 7.7%
Impairment (20.0) (35.6) 43.8%
----------------------------------- -------- -------- ---------
Risk-adjusted net interest margin 34.7 15.2 (128.3%)
Costs (19.2) (12.9) (48.8%)
----------------------------------- -------- -------- ---------
Adjusted profit before tax(3) 15.5 2.3 573.9%
Annualised revenue yield(4) 23.4% 25.4% (2.0%)
Annualised impairment rate(5) (6.8%) (14.1%) 7.3%
Annualised return on assets(6) 10.3% 6.2% (4.1%)
(1) The 2020 June comparatives have been restated to incorporate
the changes in Moneybarn accounting policies in relation to the
definition of default reflected in the 2020 financial
statements.
(2) Calculated as the average of month end receivables for the 6 months ended 30 June.
(3) Adjusted profit before tax is stated before the amortisation
of acquisition intangibles of GBP 3.7 m (2020: GBP3.7m).
(4) Revenue for the period multiplied by 365/181 as a percentage
of average receivables for the 6 months ended 30 June.
(5) Impairment for the period multiplied by 365/181 as a
percentage of average receivables for the 6 months ended 30
June.
(6) Profit before interest after tax for the period multiplied
by 365/181 as a percentage of average receivables for the 6 months
ended 30 June.
The Group's vehicle finance business, Moneybarn, was acquired in
2014 and has grown since to become one of the largest suppliers of
vehicle finance to underserved customers in the UK. For the first
six months of the year, Moneybarn generated an adjusted profit
before tax of GBP15.5m (H1'20 restated: GBP2.3m), with the increase
driven by growth in receivables, enabling higher revenue
generation, and a significant reduction in impairment
year-on-year.
New business volumes during January and February were lower
year-on-year as the lockdown restrictions dampened demand for
vehicles. However, from March onwards as restrictions eased,
customer demand picked up accordingly and new customer volumes
increased. Underwriting standards have not been eased since they
were tightened in H1'20 and, as a result, new business written
continues to be to customers with a higher credit rating on
average. A second feature of new business written during the period
was that approximately 34% went to people classed as key
workers.
Moneybarn ended the period with 93.8k customers, representing an
increase vs. H1'20 of 12.1k or 14.8%. At the end of June,
receivables stood at GBP602m vs. GBP516m in H1'20 driven by
continued healthy new business volumes of 20k (H1'20: 16k) and
credit issued of approximately GBP155m (H1'20: GBP121m).
As a result of the higher receivables base, revenues during
H1'21 increased by 7.3% year-on-year to GBP68.8m (H1'20 restated:
GBP64.1m). The annualised revenue yield at the end of June was
23.4% vs. 25.4% in June 2020, which reflects a shift in the make-up
of the lending book away from higher risk, higher APR loans towards
near-prime and lower APR loans.
Impairment reduced by 43.8% during the period to GBP20.0m (H1'20
restated: GBP35.6m) as H1'20 was impacted by the early stages of
the Covid-19 pandemic, and as a result of favourable delinquency
trends and lower arrears rates year-on-year, which have been helped
by the stock of repossessions reducing from February onwards. As a
result, the annualised impairment rate decreased from 14.1% in June
2020 to 6.8%.
At the end of June, the number of customers with active payment
holidays was 69 which equates to less than 0.1% of customers.
The marginally lower revenue yield seen during the period was
offset by the reduction in the impairment rate, resulting in the
risk-adjusted net interest margin increasing to 11.8% at the end of
June vs. 6.0% a year earlier.
Costs and expenses increased in the period to GBP19.2m, from
GBP12.9m last year, reflecting an increase in headcount, volume
driven costs and increased collections costs as the company dealt
with higher levels of repossessions than in H1'20. In addition,
approximately GBP1m of capitalised software costs were written off
during H1'21.
Interest costs were stable year-on-year at GBP14.1m (H1'20:
GBP13.3m) as a lower cost of funding was offset by a higher
receivables base.
For the remainder of the year and into 2022, Moneybarn will
continue to focus on strengthening its partnerships with key
introducers, whilst also developing its direct proposition. It will
continue to focus on developing its core offering as well, which
includes evaluating new products and services for its
customers.
Consumer Credit Division
Six months ended 30 June
2021 2020 Change
--------
GBPm GBPm
--------- -------- --------
Customer numbers ('000) 198 379 (47.6%)
Period-end receivables 42.1 146.9 (71.3%)
Average receivables(1) 89 191 (53.7%)
----------------------------------- --------- -------- --------
Revenue 52.3 118.4 (55.8%)
Interest (6.1) (4.6) (32.6%)
----------------------------------- --------- -------- --------
Net interest margin 46.2 113.8 (59.4%)
Impairment (38.5) (52.9) 27.2%
----------------------------------- --------- -------- --------
Risk-adjusted net interest margin 7.7 60.9 (87.4%)
Costs (65.4) (98.5) 33.6%
----------------------------------- --------- -------- --------
Adjusted loss before tax(2) (57.7) (37.6) (53.5%)
Annualised revenue yield(3) 118.2% 123.8% (5.6%)
Annualised impairment rate(4) (90.9%) (62.6%) (28.3%)
Annualised return on assets(5) (116.4%) (34.5%) (81.9%)
(1) Calculated as the average of month end receivables for the 6 months ended 30 June.
(2) In 2021, adjusted loss before tax was stated before
exceptional costs of GBP46.3m predominantly in relation to the
scheme of arrangement and closure of CCD.
(3) Revenue for the period multiplied by 365/181 as a percentage
of average receivables for the 6 months ended June 30.
(4) Impairment for the period multiplied by 365/181 as a
percentage of average receivables for the 6 months ended 30
June.
(5) Profit before interest after tax for the period multiplied
by 365/181 as a percentage of average receivables for the 6 months
ended 30 June.
For the first six months of 2021, CCD reported an adjusted loss
before tax of GBP57.7m (H1'20: GBP37.6m). The loss for the period
reflects materially lower lending year-on-year, reflecting tighter
underwriting standards and operational restrictions due to Covid-19
and the subsequent decision to place the division into a managed
run-off.
In May, PFG announced that it had taken the difficult decision
to withdraw from the home collected credit market and, as a result,
to place the division into managed run-off. At that point, all
lending stopped, and the business focused on ensuring customers
were able to make their repayments. Since then, collections
performance has remained within management expectations facilitated
by the operational capabilities put in place as part of the
response to Covid-19 which have enabled remote and digital
repayments from customers online, through card payments over the
phone, Allpay cards and Provident Direct.
Customer numbers ended the period at 198k (H1'20: 379k), which
represents a reduction vs. H1'20 of c.48%, driven by significantly
reduced new customer bookings, higher levels of customer attrition
during the period and the closure of the Republic of Ireland
business at the end of June. New credit issue value also reduced by
c.80% vs. H1'20 to GBP14.1m (H1'20: GBP72.0m) as a result of
operational restrictions and as the business was placed into
run-off.
CCD receivables at the period end stood at GBP42.1m (H1'20:
GBP146.9m) split between home credit (GBP39.9m) and Satsuma
(GBP2.2m), which in total represents a decline of approximately 71%
year-on-year reflecting the wind down of the business.
Revenue for the period was GBP52.3m, a reduction of 56% vs.
H1'20, reflecting the lower receivables base year-on-year. The
reported annualised revenue yield at the end of June is 118.2%
(H1'20: 123.8%).
Impairment for the first six months of the year amounted to
GBP38.5m (H1'20: GBP52.9m), a decrease of c.27% vs. H1'20
reflecting the receivables balance as the company is wound down and
a more supportive economic environment during the period. The
impairment charge equates to an annualised impairment rate at the
end of June of 90.9% vs. 62.6% in H1'20.
Costs of GBP65.4m were GBP33.1m lower vs. H1'20 predominantly
reflecting a reduction in complaint related costs following the
announcement of the proposed Scheme of Arrangement and a reduction
in headcount year-on-year. Interest costs for the period stood at
GBP6.1m (H1'20: GBP4.6m) reflecting a higher cost of funds being
offset by a lower receivables base.
Central costs
Central costs were broadly flat year-on-year at GBP9.1m (H1'20:
GBP9.2m).
Exceptional items
Exceptional costs in the first half of 2021 of GBP46.3m relate
to the closure of CCD and the CCD Scheme of Arrangement and
include: (i) redundancy costs of GBP22.9m, net of a curtailment
credit of GBP0.8m on the pension scheme; (ii) costs associated with
the wind down of CCD including asset write downs and supplier and
property exit costs (GBP13.4m); (iii) additional costs in relation
to the Scheme (GBP5m); and (iv) expected costs in relation to the
CCD enforcement investigation where a provision of GBP5m has now
been recognised, which includes potential liabilities.
The exceptional credit in the first half of 2020 reflects the
GBP8.3m exceptional release of provisions established in 2017
following the completion of the ROP refund programme in 2019 and
the re-evaluation of the forward flow of claims which may arise in
respect of ROP complaints more generally.
Tax
The tax charge for the period on profit before tax, amortisation
of acquisition intangibles and exceptional items is GBP13.6m
(H1'20: tax credit GBP7.0m). The tax charge (H1'20: credit)
reflects (i) the impact of the bank corporation tax surcharge of 8%
which applies to Vanquis Bank profits in excess of GBP25m; and (ii)
the impact of losses in the branch in the Republic of Ireland for
which no tax relief is available. It also reflects (i) the
beneficial impact of measuring deferred tax balances at 25% to the
extent the underlying temporary differences will reverse after 1
April 2023 (H1'20: 19%), and in the case of Vanquis Bank at 33%
(H1'20: 27%), following the announcement in the March 2021 Budget
that the rate of mainstream UK corporation tax would be increased
to 25% from 1 April 2023; and (ii) the adverse impact of the write
off of deferred tax assets in CCD amounting to GBP14.8m (H1'20:
nil) in respect of losses carried forward and other temporary
differences for which tax relief is now unlikely to be available
following the announcement of the closure of the business.
The tax credit in respect of the exceptional charge amounts to
GBP7.5m and represents tax at the mainstream corporation tax rate
of 19% in respect of the exceptional costs apart from those costs
which are attributable to the Irish branch in respect of which tax
relief will not be available and costs which may be considered
capital and therefore non-deductible for tax purposes. The tax
charge in respect of the exceptional credit in 2020 amounted to
GBP2.2m which represented tax at the combined mainstream
corporation tax rate and bank corporation tax surcharge rate of 27%
in respect of the GBP8.3m exceptional release of provisions
established in 2017 following the completion of the ROP refund
programme in 2019 and the re-evaluation of the forward flow of
claims that may arise in respect of ROP complaints more
generally.
The tax credit in respect of the amortisation of acquisition
intangibles is GBP0.7m (H1'20: GBP0.1m) and represents a tax credit
of GBP0.7m (H1'20: GBP0.7m) in respect of the amortisation, and in
the case of 2020 is net of GBP0.6m, being the impact of measuring
the related deferred tax liability at 19% following the
announcement in 2020 that the rate of mainstream UK corporation tax
would remain at 19% from 1 April 2020 rather than the previously
enacted rate of 17%. The change in the rate of mainstream
corporation tax to 25% from 1 April 2023 has no impact in the
period as the temporary differences in respect of the related
deferred tax liability are all expected to reverse prior to 1 April
2023.
Dividends
The Board is not proposing an interim dividend with respect to
this interim period (H1'20: 0.0p per share). The focus remains on
preserving capital during the period of closure of the CCD
business. The Group will revisit its policy at the year end,
allowing time for the Board to assess the impact of the end of
furlough, and any future lockdown restrictions, on the Group's
customers.
Funding and Capital
The Group maintained its capital and liquidity positions,
comprising:
-- Total regulatory capital of approximately GBP585 m, equating
to a total CET1 ratio of 32.5% and a surplus above its regulatory
capital requirements and capital buffers of approximately
GBP210m.
-- Liquidity resources comprising surplus cash and headroom on
committed facilities of c.GBP226m. This is in addition to an excess
of GBP220m of liquid resources held by Vanquis Bank above Group
Liquidity Coverage Ratio requirements which represents a more
normalised level of liquidity resource held by the Bank.
-- Shortly after 30 June, the Group completed a refinancing of
the securitisation of Moneybarn assets for GBP325m of which GBP275m
is now drawn (GBP200m at 30 June). It also refinanced its Revolving
Credit Facility for GBP90m (GBP141m on 30 June). Both facilities in
aggregate provide funding of GBP415m with contractual maturities
that have been extended to at least H2'23. The incremental funding
lowers the weighted average cost of funds to the Moneybarn book and
further strengthens the Group's liquidity and funding position.
-- The Group continues to maintain its GBP2bn EMTN Programme
from which it can issue Senior Unsecured Debt and Tier 2
Subordinated Debt Capital, subject to market conditions.
The Group's CET1 ratio at 30 June 2021 was 32.5% vs. a minimum
regulatory requirement of 20.8% including combined buffers but
excluding any confidential PRA and management buffers, if any .
This represents regulatory capital headroom above the Group's
minimum regulatory requirement of approximately GBP210m. The
decrease in headroom from GBP264m at 31 December 2020 predominantly
reflects the performance in the period and the transitional impact
of IFRS 9.
The Group continues to phase-in the impact of adopting IFRS 9
over the five-year period ending 31 December 2022 through add-back
factors of 95%, 85%, 70%, 50% and 25% over years one to five of the
transitional period. 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 (2020: 100%, 2021:
100%, 2022: 75%, 2023: 50%, 2024: 25%). The impact of the IFRS 9
transitional arrangements (including relief from the new measures
in response to Covid-19) on CET1 as at 30 June 2021 was
GBP155m.
The Group continues to explore a number of options to improve
capital efficiency. These include supplementing the existing
capital base that is made up entirely of Common Equity Tier one
with debt capital (in particular Tier 2) to support growth and the
Group's return on capital, and that can be issued from the Group's
EMTN programme. The Board continually monitors its risk appetite in
respect of the appropriate level of regulatory capital
headroom.
The performance of retail deposits in Vanquis Bank has continued
to be strong and, at 30 June 2021, Vanquis Bank had retail deposit
funding of GBP1.1bn. The decrease from GBP1.9bn a year earlier
represents a managed return to normalised levels following the
steps taken by Vanquis Bank to increase liquidity in response to
Covid-19. There remains a significant excess of liquidity of
GBP220m over the Bank's regulatory requirements.
At 30 June 2021, headroom on committed facilities (GBP77m) and
surplus cash and liquid resources (GBP149m) amounted to
approximately GBP226m of available liquidity compared to GBP144m at
31 December 2020. The strengthening of the position reflects a
further GBP50m drawing from the Moneybarn securitisation in
February 2021 to GBP200m, together with the receipt of dividends
from Vanquis Bank in line with the Group's internal 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. Any excesses are distributed to
the Group.
Shortly after 30 June 2021, the Group extended both its
Moneybarn securitisation facility and its Revolving Credit
Facility. The new Moneybarn facility will result in the committed
amount increasing to GBP325m, of which GBP275m is initially drawn,
over a new extended period of 24 months (plus any period of
amortisation thereafter). The cost of the new facility is broadly
unchanged from the previous warehouse and its advance rate is
significantly higher, resulting in a reduction in the weighted
average cost of funding for Moneybarn.
The Group also had a multi-currency RCF in place provided by
several banks with a total facility size of approximately GBP148m
as at 31 December 2020. In line with the Group's existing strategy
of reducing any potential reliance on the RCF, a portion of the new
securitisation funds were used to reduce the Group's RCF
commitments, initially to GBP90m, alongside an extension to the
facility to the second half of 2023. It is also now funded by fewer
banks.
In aggregate, the new Moneybarn securitisation facility and RCF
refinancing provides GBP415m funding with a contractual maturity of
H2 2023 and beyond, so increasing the weighted average duration of
the Group's funding sources. It further strengthens the Group's
liquidity resources. Beyond the scheduled maturity of the Group's
2021 Retail Bond for GBP65m in September 2021 the Group has no
further external contractual maturities until mid-2023.
Shortly after the period end, we received notification that
Vanquis Bank AAA-rated notes have been accepted as eligible
collateral for the Bank of England funding and liquidity
schemes.
Macroeconomic provision
Separate macroeconomic provisions are recognised to reflect an
increased probability of default (PD) and loss given default (LGD),
in addition to the core impairment provisions, already recognised
based on future macroeconomic scenarios.
For Vanquis Bank, the provision reflects the potential for
future changes in unemployment under a range of unemployment
forecasts. For Moneybarn, typically changes in unemployment and
used car sales values are assumed. The PD impacts from rising
unemployment in Moneybarn, follows consistent methodology with
Vanquis Bank. Given the favourable trends on used car sales prices
through 2021, a macro-economic overlay has not been recognised for
used vehicle resale values at 30 June 2021 which would normally
reflect estimated recoveries from the sale of repossessed vehicles
at auction.
CCD customers are not considered to be reflective of the wider
economy as they are less indebted and are therefore not impacted by
the same macroeconomic factors or to the same degree.
Consequently, there is no evidence of any significant
correlation between the impairment charge and macro employment
statistics. Consistent with the 2020 year end, a separate
macroeconomic provision is not held for CCD.
For Vanquis Bank and Moneybarn, 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 several the prime banks.
The table below shows the annual peak and average unemployment
assumptions adopted by Vanquis Bank and Moneybarn and the
weightings applied to each. The weightings used are consistent with
those used at the year end.
Base Upside Downside Severe
----------- ----- ------- --------- -------
Weighting 50% 10% 35% 5%
2021
Peak 6.0 5.0 8.6 10.1
Average 5.4 4.6 7.3 8.8
2022
Peak 5.9 4.9 8.4 9.8
Average 5.5 4.6 7.9 9.2
The unemployment assumptions have reduced from the year end
reflecting the improving outlook of the UK macro-economic
environment since 31 December 2020.
Whilst the forward-looking nature of IFRS 9 requires provisions
to be established for all losses arising out of the current
Covid-19 crisis, the level of uncertainty may mean that additional
impairment provision, or releases, may be required in future
periods.
Principal risks and uncertainties
The principal risks and uncertainties affecting the Group are
largely consistent with those set out in the 2020 Annual Report and
Financial Statements and comprise the following risks: Capital,
Liquidity and Funding, Credit, Strategy and Governance, Legal,
Regulatory and Conduct, Operational, People, Business Resilience
and Information and Data Security and Model. We are in the process
of adding Financial Crime and Climate risk as principal risks in
H2'21 and these will feature in the 2021 Annual Report.
A full assessment of the risks and uncertainties, together with
the controls and processes which are in place to monitor and
mitigate the risks where possible, are set out on pages 48 to 61 of
the 2020 Annual Report and Financial Statements which is available
on the Group's website, www.providentfinancial.com .
Capital
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 and Bank Boards. The Board's current view on
risk appetite is to maintain a capital buffer in excess of GBP100m
due to market uncertainties. The Group has also refined the capital
buffer it maintains to be proportionate to the risk-weighted
exposures and thus reflect the current and expected state of the
balance sheet. The Group's capital review (C-SREP) with the PRA
concluded in July 2020. The Group's TCR has been lowered from
20.65% to 18.33% during 2020 and the fixed monetary add-on in
respect of pension risk has been removed.
Liquidity and Funding
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
This is defined as the risk that the Group will suffer loss in
the event of a default by a customer, bank counterparty or the UK
Government. In 2020 and 2021 in response to the pandemic, each
division within the Group reviewed its respective credit profiles
and undertook selective tightening of scorecards to ensure any
higher than desired risk segments have been addressed. The Group
and each division continue to assess the evolving Economic
environment to ensure that Credit Risk Appetite remains
appropriate. There continues to be enhanced focus on Early Warning
Indicators (EWIs) of customer stress, and predictive performance of
scorecards.
Strategy and Governance
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. The
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, and an
effective Risk Adjustment framework has been implemented
appropriately.
Legal, Regulatory and Conduct
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 regulations (including handbooks, codes of conduct,
financial crime etc.). 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. In Q1'21, the FCA opened a CCD
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. The
Business is cooperating fully with the FCA in this matter.
Operational, People, Business Resilience and Information and
Data Security
This is defined as the risk of loss resulting from inadequate or
failed internal processes, people and systems or from external
events. The Group continues to assess and enhance its systems
resilience. There has been a comprehensive effort to ensure people
risk has been managed as effectively as possible. This was
particularly heightened due to Covid-19. 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 Group
Internal Audit.
Model
This is defined as the risk of financial losses where models
fail to perform as expected due to poor governance (including
design and operation). The Group Head of Model Risk, recruited in
2020, has now fully resourced the team and a series of Model
validations have been undertaken in H1'21. This team will embed in
H2'21 which should lead to enhanced Model Governance throughout the
Group.
Related party transactions
During the period, Provident Financial plc received dividend
payments from Vanquis Bank amounting to GBP65m.
Unaudited condensed interim financial statements
Consolidated income statement
Six months ended
30 June
Note 2021 2020
(restated)(1)
GBPm GBPm
--------------- ----------------
Interest income 285.8 398.2
Fee income 30.9 45.4
--------------- ----------------
Total revenue 4 316.7 443.6
--------------- ----------------
Finance costs (31.2) (36.0)
--------------- ----------------
Net interest margin 285.5 407.6
Impairment charges (89.3) (238.4)
--------------- ----------------
Risk-adjusted net interest margin 196.2 169.2
--------------- ----------------
Operating costs (240.4) (197.3)
Loss before tax 4 (44.2) (28.1)
--------------------------------------------------------- ----- --------------- ----------------
Profit/(loss) before tax, amortisation of acquisition
intangibles and exceptional items 4 5.8 (32.7)
Amortisation of acquisition intangibles 4 (3.7) (3.7)
Exceptional items 4 (46.3) 8.3
--------------------------------------------------------- ----- --------------- ----------------
Tax (charge)/credit 5 (5.4) 4.9
--------------- ----------------
Loss for the period attributable to equity shareholders (49.6) (23.2)
--------------- ----------------
All of the above activities relate to continuing operations.
Consolidated statement of comprehensive income
Six months ended
30 June
Note 2021 2020
(restated)(1)
GBPm GBPm
------- ---------------
Loss for the period attributable to equity
shareholders (49.6) (23.2)
------- ---------------
Items that will not be reclassified subsequently
to the income statement:
- actuarial movements on retirement benefit
asset 9 10.7 38.3
- fair value movement in investments 10 0.5 1.4
- tax on items taken directly to other comprehensive
income (2.7) (7.7)
* impact of change in UK tax rate on items in other
comprehensive income (5.1) (1.9)
Other comprehensive income for the period 3.4 30.1
Total comprehensive (expense)/income for the
period (46.2) 6.9
------- ---------------
Loss per share Six months ended
30 June
Note 2021 2020
(restated)(1)
pence pence
------- ---------------
Basic 6 (19.6) (9.2)
------- ---------------
Diluted 6 (19.6) (9.2)
------- ---------------
Six months ended
Dividends per share 30 June
2021 2020
pence pence
------- ---------------
Interim dividend 7 - -
------- ---------------
Paid in the period(2) 7 - -
------- ---------------
(1) Refer to note 2 for details of restatement.
(2) Dividends paid in the period were GBPnil (2020: GBPnil).
Consolidated balance sheet
Note 30 June 31 December 30 June
2021 2020 2020
(restated)(1)
GBPm GBPm GBPm
-------- ------------ ---------------
ASSETS
Cash and cash equivalents 485.8 919.7 1,042.7
Amounts receivable from customers 8 1,637.2 1,799.8 1,865.3
Trade and other receivables 37.4 35.7 45.5
Current tax asset 3.5 - -
Investment held as fair value
through other comprehensive income 10 9.7 9.2 18.0
Property, plant and equipment 12.9 15.5 19.1
Right of use assets 52.0 58.0 62.4
Goodwill 71.2 71.2 71.2
Other intangible assets 40.8 45.3 40.7
Retirement benefit asset 9 92.7 79.7 118.4
Deferred tax assets 5 26.7 44.0 21.0
TOTAL ASSETS 4 2,469.9 3,078.1 3,304.3
-------- ------------ ---------------
LIABILITIES AND EQUITY
Liabilities
Retail deposits 1,062.8 1,683.2 1,917.3
Bank and other borrowings 567.2 520.0 476.3
Trade and other payables 106.2 64.9 80.1
Derivative financial instrument 0.2 1.3 1.2
Lease liabilities 64.9 69.4 73.6
Current tax liabilities 5 - 0.6 10.2
Provisions 12 65.6 91.0 9.0
Total liabilities 1,866.9 2,430.4 2,567.7
-------- ------------ ---------------
Equity attributable to owners
of the parent
Share capital 52.6 52.6 52.6
Share premium 273.2 273.2 273.2
Merger reserves 278.2 278.2 278.2
Other reserves 14.8 14.6 17.3
Retained earnings (15.8) 29.1 115.3
-------- ------------ ---------------
Total equity 4 603.0 647.7 736.6
-------- ------------ ---------------
TOTAL LIABILITIES AND EQUITY 2,469.9 3,078.1 3,304.3
-------- ------------ ---------------
(1) Refer to note 2 for details of restatement.
Consolidated statement of changes in shareholders' equity
Share Share Merger Other Retained
capital premium reserve reserves earnings Total
(restated)(1)
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 period - - - - (23.2) (23.2)
--------- --------- --------- ---------- --------------- --------
Other comprehensive income/(expense):
- fair value movement in investments - - - 1.4 - 1.4
- actuarial movements on retirement
benefit asset (note 9) - - - - 38.3 38.3
- tax on items taken directly
to OCI - - - (0.4) (7.3) (7.7)
- impact of change in UK tax
rate - - - (0.3) (1.6) (1.9)
--------- --------- --------- ---------- --------------- --------
Other comprehensive income for
the period - - - 0.7 29.4 30.1
--------- --------- --------- ---------- --------------- --------
Total comprehensive income for
the period - - - 0.7 6.2 6.9
--------- --------- --------- ---------- --------------- --------
Issue of share capital 0.1 - - - - 0.1
Share-based payment charge - - - 0.3 - 0.3
Transfer of share-based payment
reserve - - - (1.4) 1.4 -
At 30 June 2020 and 1 July 2020 52.6 273.2 278.2 17.3 115.3 736.6
--------- --------- --------- ---------- --------------- --------
Loss for the period - - - - (60.2) (60.2)
--------- --------- --------- ---------- --------------- --------
Other comprehensive income/(expense):
- fair value movement in investments - - - 2.4 - 2.4
- actuarial movements on retirement
benefit asset (note 9) - - - - (40.0) (40.0)
- tax on items taken directly
to OCI - - - (0.6) 7.6 7.0
- impact of change in UK tax
rate - - - 0.1 0.1 0.2
- deferred tax credit on disposal
of investments - - - 2.0 - 2.0
- current tax charge on disposal
of investments - - - (2.0) - (2.0)
--------- --------- --------- ---------- --------------- --------
Other comprehensive income/(expense)
for the period - - - 1.9 (32.3) (30.4)
--------- --------- --------- ---------- --------------- --------
Total comprehensive income/(expense)
for the period - - - 1.9 (92.5) (90.6)
--------- --------- --------- ---------- --------------- --------
Transfer of cumulative gain
on disposal of investment - - - (7.4) 7.4 -
Transfer of tax on disposal
of investment - - - 2.0 (2.0) -
Share-based payment charge - - - 2.0 - 2.0
Transfer of share-based payment
reserve - - - (1.2) 1.2 -
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 period - - - - (49.6) (49.6)
--------- --------- --------- ---------- --------------- --------
Other comprehensive income/(expense):
- fair value movement in investments - - - 0.5 - 0.5
- actuarial movements on retirement
benefit asset (note 9) - - - - 10.7 10.7
- tax on items taken directly
to OCI - - - (0.1) (2.6) (2.7)
- impact of change in UK tax
rate - - - (0.3) (4.8) (5.1)
Other comprehensive income for
the period - - - 0.1 3.3 3.4
--------- --------- --------- ---------- --------------- --------
Total comprehensive income/(expense)
for the period - - - 0.1 (46.3) (46.2)
--------- --------- --------- ---------- --------------- --------
Share-based payment charge - - - 1.5 - 1.5
Transfer of share-based payment
reserve - - - (1.4) 1.4 -
At 30 June 2021 52.6 273.2 278.2 14.8 (15.8) 603.0
--------- --------- --------- ---------- --------------- --------
(1) Refer to note 2 for details of restatement.
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. Following the transfer
of Vanquis Bank to Provident Financial Holdings No. 2 in December
2020 the full merger reserve of GBP278.2m is now considered
distributable.
Consolidated statement of cash flows
Six months ended
30 June
Note 2021 2020
GBPm GBPm
--------- --------
Cash flows from operating activities
Cash generated from operations 15 184.4 330.0
Finance costs paid (36.1) (28.7)
Tax paid - (23.4)
--------- --------
Net cash generated from operating activities 148.3 277.9
Cash flows from investing activities
Purchase of intangible assets (0.9) (3.8)
Purchase of property, plant and equipment (8.2) (3.9)
Proceeds from disposal of property, plant
and equipment - 0.7
Net cash used in investing activities (9.1) (7.0)
Cash flows from financing activities
Proceeds from bank and other borrowings 143.9 809.3
Repayment of bank and other borrowings (712.5) (384.5)
Payment of lease liabilities (4.7) (4.7)
Proceeds from issue of share capital - 0.1
Net cash (used in)/generated from financing
activities (573.3) 420.2
Net (decrease)/increase in cash, cash equivalents
and overdrafts (434.1) 691.1
Cash, cash equivalents and overdrafts at
beginning of period 918.3 350.8
Cash, cash equivalents and overdrafts at
end of period 484.2 1,041.9
--------- --------
Cash, cash equivalents and overdrafts at
end of period comprise:
Cash at bank and in hand 485.8 1,042.7
Overdrafts (held in bank and other borrowings) (1.6) (0.8)
--------- --------
Total cash, cash equivalents and overdrafts 484.2 1,041.9
--------- --------
Cash at bank and in hand includes GBP279.3m (2020: GBP1,014.4m)
in respect of the liquid assets buffer, including other liquidity
resources, held by Vanquis Bank in accordance with the PRA's
liquidity regime. As at 30 June 2021, GBP86.3m (2020: GBP825.0m) of
the buffer was available to finance Vanquis Bank's day-to-day
operations.
Notes to the unaudited condensed interim financial
statements
1 . General information
The company is a public limited company, incorporated and
domiciled in the UK. The address of its registered office is No. 1
Godwin Street, Bradford, BD1 2SU. The company is listed on the
London Stock Exchange.
The unaudited condensed interim financial statements do not
constitute the statutory financial statements of the Group within
the meaning of section 434 of the Companies Act 2006. The statutory
financial statements for the year ended 31 December 2020 were
approved by the board of directors on 10 May 2021 and have been
delivered to the Registrar of Companies. The report of the auditor
on those financial statements was unqualified, did not draw
attention to any matters by way of emphasis and did not contain any
statement under section 498(2) or (3) of the Companies Act
2006.
The unaudited condensed interim financial statements for the six
months ended 30 June 2021 have been reviewed, not audited, and were
approved by the board of directors on 11 August 2021.
2. Basis of preparation
The unaudited condensed interim financial statements for the six
months ended 30 June 2021 have been prepared in accordance with IAS
34 'Interim Financial Reporting' as adopted by the UK. The annual
report and financial statements for the year ended 2021 will also
be prepared on this basis. 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 unaudited condensed
interim financial statements should be read in conjunction with the
statutory financial statements for the year ended 31 December
2020.
In assessing whether the Group is a going concern, the directors
have reviewed the Group's reforecast, as approved in May 2021,
which includes capital and liquidity forecasts, on detailed
projections for 2021 and 2023. This assessment has included
consideration of the Group's principal risks and uncertainties,
including that of Covid-19, and the likelihood of these risks
materialising into losses.
Given the uncertain outlook as a result of Covid-19, stress
testing has been performed through modelling a range of
macro-economic scenarios, consistent with the full year assessment
performed in May 2021. This assumes a severe but plausible
downturn, with 'severe' being defined consistently with the Group's
IFRS 9 'severe' macro-economic weighting. The Group's TCR is
exceeded in all scenarios modelled both with and without management
actions. The point of non-viability has been assessed for both the
Group and Vanquis Bank which would need to materialise to prevent
the directors from adopting the going concern assumption. This is
materially higher than any economic forecasts. The Group's
reforecast does not require market access for capital or liquidity
during the going concern period.
Based on this review, the directors are satisfied that the Group
has the required resources to continue in business for a period of
at least twelve months following the approval of the interim
financial statements. For this reason, the directors continue to
adopt the going concern basis in preparing the unaudited condensed
interim financial statements.
3. Accounting policies
The accounting policies applied in preparing the unaudited
condensed interim financial statements are consistent with those
used in preparing the statutory financial statements for the year
ended 31 December 2020. The 2020 June comparatives have been
restated to reflect the change in definition of default from
'termination of the vehicle contract' accounting policy reflected
in the 2020 financial statements.
Change in treatment of default of 'termination of the vehicle
contract'
Following the scheduled review of the Moneybarn IFRS 9 model in
late 2020, it was determined that the previous definition of
default of 'termination of the vehicle contract' did not meet the
requirements of IFRS 9. Loans in IFRS 9 stage 2 were identified to
have been greater than 90 days past due, despite it being
inappropriate to rebut the 90-day backstop presumption included
within IFRS 9. The change in the point of default from termination
to 3 missed payments (90 days) resulted in higher impairment
charges being recognised in current and prior periods.
The change in definition of default did not affect the 30 days
past due trigger for receivables moving to IFRS 9 stage 2. It did
however impact the point at which receivables should have moved to
IFRS 9 stage 3. As revenue is calculated based on the net
receivable in IFRS 9 stage 3, the change in the point of default
resulted in lower revenue as more accounts are considered
defaulted. This has no impact profit before tax as it is offset by
an equivalent decrease in impairment charges.
At the 2020 year end management concluded that this was a prior
period error and therefore retrospectively restated the 2019
results. The June 2020 consolidated income statement, consolidated
statement of comprehensive income, balance sheet and statement of
changes in shareholders' equity have also been restated.
The 2020 first half loss before tax decreased by GBP0.1m,
comprising a reduction in impairment of GBP1.9m and a reduction in
revenue of GBP2.0m. Receivables at 30 June 2020 reduced by
GBP13.1m.
Critical accounting judgements and key sources of estimation
uncertainty
The significant accounting judgements exercised by management
and key sources of estimation uncertainty in the interim financial
statements are consistent with those adopted in the statutory
financial statements for the year ended 31 December 2020.
Amounts receivable from customers
As disclosed in the 2020 Annual report and financial statements,
the valuation of amounts receivable from customers remains a
significant accounting judgement.
The amounts receivable from customers are reviewed for
impairment at each balance sheet date. For the purposes of
assessing the impairment, customers are categorised into IFRS 9
stages and cohorts which are considered to be the most reliable
indication of future payment performance.
Significant increase in credit risk (SICR):
Assessments are made to determine whether there is objective
evidence of a significant increase in credit risk (SICR) which
indicates there has been an adverse effect on Probability of
Default (PD). A SICR for customers in Vanquis Bank is when there
has been a significant increase in behavioural score or when one
contractual monthly payment has been missed. In Moneybarn, a SICR
is typically when one contractual monthly payment has been
missed.
In CCD, collection curves have been used historically to
estimate the expected future losses on loans exhibiting similar
risk characteristics. The collection curves were based on
historical performance. However, collections will now continue both
by some CEM's collecting from customers in the field, but
increasingly through the transfer of collections to Debt Collection
Agencies. The collection curves have therefore been refreshed at 30
June 2021 with judgemental performance haircuts applied to the
collections levels in order to reflect the expected reduction in
collection performance. The impact of the collections shortfall has
been recognised at 30 June 2021. To the extent that the collections
performance exceeded/(fell short) from the current expected
performance by 5%, this would increase/(reduce) the CCD net
receivable at 30 June 2012 by GBP2.0m.
Default
For the purpose of IFRS 9, default is assumed in Vanquis Bank
and Moneybarn when three contractual repayments have been missed or
when a customer enters a payment arrangement.
Key sources of estimation uncertainty:
The level of impairment recognised by each of the Group's
businesses is calculated using models which utilise historical
payment performance to generate the estimated amount and timing
of future cash flows from each cohort of customers in each arrears
stage. These are regularly tested using subsequent cash collections
to assess accuracy.
The impact of Covid-19 significantly influenced ECL during the
pandemic. Each division has reviewed customer behaviour in light of
Covid-19 to adjust the previous assumptions within PD, EAD and LGD.
This reflects assumptions in respect of:
- higher PD for customers who have already activated a payment
holiday including the expectation of how a customer will continue
to repay following the end of the payment holiday;
- higher PD from increased arrears where a customer may not have
been able to meet their repayments but not activated a payment
holiday. Future repayment expectations have been derived from
detailed analysis of previous customer behaviour, including payment
history or evidence of a SICR from bureau analysis;
- higher loss given default where recoveries from the customer
may be impacted, as well as lower recoveries from third-party debt
collection agencies and external debt sales. For Moneybarn, trends
in the used vehicle resale values have been analysed to estimate
recoveries from the sale of the vehicle at auction; and
- the potential impact to PD and LGD as a result of changing
forecasts in the macroeconomic environment.
Macro-economic provision
Macroeconomic provisions are recognised in Vanquis Bank and
Moneybarn to reflect an increased PD and LGD, in addition to the
core impairment provisions, already recognised based on future
macroeconomic scenarios. The provision reflects the potential for
future changes in unemployment under a range of unemployment
forecasts, as analysis has clearly evidenced correlation between
changes in unemployment and credit losses incurred. The Group will
continue to analyse and assess if there are any additional
macroeconomic indicators which also correlate with credit
losses.
For Vanquis Bank and Moneybarn, 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 table below shows the annual peak and average unemployment
assumptions adopted by Vanquis Bank and Moneybarn and the
weightings applied to each. The weightings used are consistent with
those used at the year end.
Base Upside Downside Severe
----------- ----- ------- --------- -------
Weighting 50% 10% 35% 5%
2021
Peak 6.0 5.0 8.6 10.1
Average 5.4 4.6 7.3 8.8
2022
Peak 5.9 4.9 8.4 9.8
Average 5.5 4.6 7.9 9.2
The unemployment assumptions have reduced from the year end
reflecting the improving outlook of the UK macro-economic
environment during 2021.
Increasing the downside weighting by 5% from 35% to 40% and a
corresponding reduction in the base case would increase the
allowance account by GBP5.5m for Vanquis Bank and GBP0.7m for
Moneybarn.
Increasing the upside weighting by 5% from 10% to 15%, and a
corresponding reduction in the base case would decrease the
allowance account by GBP0.4m for Vanquis Bank and GBP0.1m for
Moneybarn.
Whilst the forward-looking nature of IFRS 9 requires provisions
to be established for all potential losses arising out of the
Covid-19 pandemic, the level of uncertainty is currently heightened
given customer support in the form of furlough, payment freezes and
the rent moratorium on a reduced receivables book. Although a
conservative approach to provisioning is currently adopted,
performance when these support measures come to an end may mean
that additional impairment provision, or releases, may be required
in future periods.
The impact of new standards adopted by the Group from 1 January
2021
There are no new standards adopted by the Group from 1 January
2021.
The impact of new standards not yet effective and not adopted by
the Group from 1 January 2021
There are no new standards not yet effective and not adopted by
the Group from 1 January 2021 which are expected to have a material
impact on the Group
4. Segment reporting
Revenue Profit/(loss) before
tax
Six months ended Six months ended
30 June 30 June
2021 2020 2021 2020
(restated)(1) (restated)(1)
GBPm GBPm GBPm GBPm
------------------- --------------- -------------------- ------------------------------
Vanquis Bank 195.6 261.1 57.1 11.8
Moneybarn 68.8 64.1 15.5 2.3
CCD 52.3 118.4 (57.7) (37.6)
Central costs - - (9.1) (9.2)
------------------- --------------- -------------------- ------------------------------
Total Group before
amortisation
of acquisition
intangibles and
exceptional items 316.7 443.6 5.8 (32.7)
Amortisation of
acquisition intangibles - - (3.7) (3.7)
Exceptional items - - (46.3) 8.3
------------------- --------------- -------------------- ------------------------------
Total Group 316.7 443.6 (44.2) (28.1)
------------------- --------------- -------------------- ------------------------------
All of the above activities relate to continuing operations.
Revenue between business segments is not significant.
Acquisition intangibles represent the fair value of the broker
relationships of GBP75.0m which arose on the acquisition of
Moneybarn in August 2014. The intangible asset was calculated based
on the discounted cash flows associated with Moneybarn's core
broker relationships and is being amortised over an estimated
useful life of 10 years. The amortisation charge in the first half
of 2021 amounted to GBP3.7m (2020: GBP3.7m).
Exceptional costs in the first half of 2021 of GBP46.3m relate
to the closure of CCD and the CCD scheme of arrangement and
include: (i) redundancy costs of GBP22.9m, net of an curtailment
credit of GBP0.8m on the pension scheme; (ii) costs associated with
the wind down of CCD including asset write downs and supplier and
property exit costs (GBP13.4m); (iii) additional costs in relation
to the Scheme (GBP5m) and; (iv) cost in relation to the CCD
enforcement where a provision of GBP5.0m has now been
recognised.
The exceptional credit in the first half of 2020 reflects the
GBP8.3m exceptional release of provisions established in 2017
following the completion of the ROP refund programme in 2019 and
the re-evaluation of the forward flow of claims which may arise in
respect of ROP complaints more generally.
Segment assets Net assets/(liabilities)
30 June 31 December 30 June 30 June 31 December 30 June
2021 2020 2020 2021 2020 2020
(restated)(1) (restated)(1)
GBPm GBPm GBPm GBPm GBPm GBPm
-------- ----------------- --------------- --------------- ------------ ---------------
Vanquis Bank 1,389.0 2,037.1 2,332.1 310.7 326.5 333.7
Moneybarn 653.5 611.0 553.4 31.9 19.3 28.1
CCD 58.6 187.8 183.6 (330.6) (215.1) (96.1)
Central 659.4 730.4 544.4 591.0 517.0 470.9
-------- ----------------- --------------- --------------- ------------ ---------------
Total before
intra-Group
elimination 2,760.5 3,566.3 3,613.5 603.0 647.7 736.6
Intra-group elimination (290.6) (488.2) (309.2) - - -
-------- ----------------- --------------- --------------- ------------ ---------------
Total Group 2,469.9 3,078.1 3,304.3 603.0 647.7 736.6
-------- ----------------- --------------- --------------- ------------ ---------------
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.
Up to 30 June 2021, the Group's businesses operate in the UK and
Republic of Ireland.
(1) Refer to note 2 for details of restatement.
5. Tax charge
Given the impact of CCD losses on the tax charge, the H1-21
charge has been calculated by:
-- calculating the best estimate of the effective tax rate for
each division for the financial year, excluding deferred tax asset
write offs and revaluations of deferred tax balances at 31 December
2020;
-- applying this to the profit/(loss) before tax, amortisation
of acquisition intangibles and exceptional items for the relevant
division for the period and aggregating the resultant amount;
and
-- adding to this the write off of deferred tax assets in CCD
and the revaluations of deferred tax balances at 31 December 2020
due to the change in the mainstream corporation tax rate, which are
attributable to the first half of the financial year.
The H1-20 tax credit reflected the best estimate of the
effective tax rate for the Group for the FY-20 financial year,
including revaluations of deferred tax balances and any write off
of deferred tax assets. This was applied to the H1-20 loss before
tax, amortisation of acquisition intangibles and exceptional items.
The treatment of the revaluation of deferred tax balances in H1-21
is a change in accounting policy compared with the comparative
period, where the revaluation was included within the estimate of
the effective tax rate for the financial year. The prior period
comparatives have not been restated as the change in accounting
policy would not be material.
This gives a tax charge for the period on profit before tax,
amortisation of acquisition intangibles and exceptional items of
GBP13.6m (2020: tax credit GBP7.0m). The tax charge (2020: credit)
reflects:
-- the impact of the bank corporation tax surcharge of 8% which
applies to Vanquis Bank profits in excess of GBP25m; and
-- the impact of losses in the branch in the Republic of Ireland
for which no tax relief is available.
It also reflects:
-- the beneficial impact of measuring deferred tax balances at
25% to the extent the underlying temporary differences will reverse
after 1 April 2023 (2020: 19%), and in the case of Vanquis Bank at
33% (2020: 27%), following the announcement in the March 2021
Budget that the rate of mainstream UK corporation tax would be
increased to 25% from 1 April 2023; and
-- the adverse impact of the write off of deferred tax assets in
CCD amounting to GBP14.8m (2020: GBPnil) in respect of losses
carried forward and other temporary differences for which tax
relief is now unlikely to be available following the announcement
of the closure of the business.
The tax charge reflects the recognition of deferred tax assets
in respect of losses and other temporary differences elsewhere
across the Group to the extent the Group is expected to have
sufficient taxable profits available in the future to enable such
deferred tax assets to be recovered.
The tax credit in respect of the exceptional charge amounts to
GBP7.5m and represents tax at the mainstream corporation tax rate
of 19% in respect of the exceptional costs apart from those costs
which are attributable to the Irish branch in respect of which tax
relief will not be available and costs which may be considered
capital and therefore non-deductible for tax purposes.
The tax charge (2020: tax credit) in respect of the exceptional
credit in 2020 amounted to GBP2.2m which represented tax at the
combined mainstream corporation tax rate and bank corporation tax
surcharge rate of 27% in respect of the GBP8.3m exceptional release
of provisions established in 2017 following the completion of the
ROP refund programme in 2019 and the re-evaluation of the forward
flow of claims that may arise in respect of ROP complaints more
generally.
The tax credit in respect of the amortisation of acquisition
intangibles is GBP0.7m (2020: GBP0.1m) and represents a tax credit
of GBP0.7m (2020: GBP0.7m) in respect of the amortisation, and in
the case of 2020 is net of GBP0.6m, being the impact of measuring
the related deferred tax liability at 19% following the
announcement in 2020 that the rate of mainstream UK corporation tax
would remain at 19% from 1 April 2020 rather than the previously
enacted rate of 17%. The change in the rate of mainstream
corporation tax to 25% from 1 April 2023 has no impact in the
period as the temporary differences in respect of the related
deferred tax liability are all expected to reverse prior to 1 April
2023.
6. Loss per share
Basic loss per share is calculated by dividing the profit for
the year attributable to equity shareholders by the weighted
average number of ordinary shares outstanding during the year.
Diluted loss per share calculates the effect on earnings per
share assuming conversion of all dilutive potential ordinary
shares. Potential ordinary shares are treated as dilutive when, and
only when, their conversion to ordinary shares would decrease
earnings per share or increase loss per share. 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 and the Long-Term
Incentive Scheme (LTIS), the number of dilutive potential ordinary
shares is calculated based on the number of shares which would be
issuable if: (i) the end of the reporting period is assumed to be
the end of the schemes' performance period; and (ii) the
performance targets have been met as at that date.
(ii) For share options outstanding under non-performance related
schemes such as the Save As You Earn scheme (SAYE), a calculation
is performed to determine the number of shares that could have been
acquired at fair value (determined as the average annual market
share price of the Group's shares) based on the monetary value of
the subscription rights attached to outstanding share options. The
number of shares calculated is compared with the number of share
options outstanding, with the difference being the dilutive
potential ordinary shares.
Reconciliations of basic and diluted loss per share are set out
below:
Six months ended 30 June
2021 2020
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Earnings of shares amount
(restated)(1)
GBPm m pence GBPm m pence
----------- ----------- --------- ---------------- ----------- ---------
Basic loss per share (49.6) 253.6 (19.6) (23.2) 253.5 (9.2)
Dilutive effect of share
options and awards - - - - - -
----------- ----------- --------- ---------------- ----------- ---------
Diluted loss per share (49.6) 253.6 (19.6) (23.2) 253.5 (9.2)
----------- ----------- --------- ---------------- ----------- ---------
An adjusted loss per share has been presented prior to the
amortisation of acquisition intangibles which arose on the
acquisition of Moneybarn in August 2014 and prior to exceptional
items (see note 4). This is presented to show the loss per share
generated by the Group's underlying operations. A reconciliation of
basic and diluted loss per share to adjusted basic and diluted loss
per share is as follows:
Six months ended 30 June
2021 2020
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Earnings of shares amount
(restated)(1)
GBPm m pence GBPm m pence
----------- ----------- --------- ---------------- ----------- ---------
Basic loss per share (49.6) 253.6 (19.6) (23.2) 253.5 (9.2)
Amortisation of acquisition
intangibles, net of tax 3.0 - 1.2 3.6 - 1.5
Exceptional items, net
of tax 38.8 - 15.3 (6.1) - (2.4)
----------- ----------- --------- ---------------- ----------- ---------
Adjusted basic loss per
share (7.8) 253.6 (3.1) (25.7) 253.5 (10.1)
----------- ----------- --------- ---------------- ----------- ---------
Diluted loss per share (49.6) 253.6 (19.6) (23.2) 253.5 (9.2)
Amortisation of acquisition
intangibles, net of tax 3.0 - 1.2 3.6 - 1.5
Exceptional items, net
of tax 38.8 - 15.3 (6.1) - (2.4)
----------- ----------- --------- ---------------- ----------- ---------
Adjusted diluted loss
per share (7.8) 253.6 (3.1) (25.7) 253.5 (10.1)
----------- ----------- --------- ---------------- ----------- ---------
(1) Refer to note 2 for details of restatement.
7. Dividends
There have been no dividends paid or declared by the Company in
the six months ended 30 June 2021 or 30 June 2020.
The directors have not declared an interim dividend in respect
of the six months ended 30 June 2021 (2020: GBPnil).
8. Amounts receivable from customers
30 June 31 December 30 June
2021 2020 2020
(restated)(1)
GBPm GBPm GBPm
--------------------- ------------------------ ---------------
Vanquis Bank 993.5 1,094.2 1,202.1
Moneybarn 601.6 566.6 516.3
CCD 42.1 139.0 146.9
Total Group 1,637.2 1,799.8 1,865.3
Vanquis Bank receivables comprise GBP977.5m (31 December 2020:
GBP1,075.1m, 30 June 2020: GBP1,174.1m) in respect of credit cards
and GBP16.0m (31 December 2020: GBP19.1m, 30 June 2020: GBP28.0m)
in respect of loans.
CCD receivables comprise GBP39.9m in respect of the home credit
business (31 December 2020: GBP135.3m, 30 June 2020: GBP130.5m),
GBP2.2m in respect of Satsuma (31 December 2020: GBP3.7m, 30 June
2020: GBP16.4m).
An analysis of receivables by IFRS 9 stages is set out
below:
30 June 2021
Stage Stage 2 Stage 3 Total
1
GBPm GBPm GBPm GBPm
-------- -------- -------- --------
Gross receivables
Vanquis Bank 913.0 221.1 315.3 1,449.4
Moneybarn 485.4 106.1 195.4 786.9
CCD 20.7 11.9 318.6 351.2
Total Group 1,419.1 339.1 829.3 2,587.5
Allowance account
Vanquis Bank (158.9) (97.2) (199.8) (455.9)
Moneybarn (21.7) (18.8) (144.8) (185.3)
CCD (3.1) (5.0) (301.0) (309.1)
Total Group (183.7) (121.0) (645.6) (950.3)
-------- -------- -------- --------
Net receivables
Vanquis Bank 754.1 123.9 115.5 993.5
Moneybarn 463.7 87.3 50.6 601.6
CCD 17.6 6.9 17.6 42.1
Total Group 1,235.4 218.1 183.7 1,637.2
-------- ------ ------ --------
31 December 2020
Stage 1 Stage 2 Stage 3 Total
GBPm GBPm GBPm GBPm
-------- -------- -------- --------
Gross receivables
Vanquis Bank 1,044.5 188.3 335.6 1,568.4
Moneybarn 443.8 100.1 190.5 734.4
CCD 76.9 17.9 359.4 454.2
-------- -------- -------- --------
Total Group 1,565.2 306.3 885.5 2,757.0
-------- -------- -------- --------
Allowance account
Vanquis Bank (170.0) (90.2) (214.0) (474.2)
Moneybarn (21.8) (17.9) (128.1) (167.8)
CCD (5.7) (3.8) (305.7) (315.2)
Total Group (197.5) (111.9) (647.8) (957.2)
-------- -------- -------- --------
Net receivables
Vanquis Bank 874.5 98.1 121.6 1,094.2
Moneybarn 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
-------- ------ ------ --------
30 June 2020 (restated) (1)
Stage 1 Stage 2 Stage 3 Total
GBPm GBPm GBPm GBPm
-------- -------- -------- --------
Gross receivables
Vanquis Bank 1,139.0 165.2 350.6 1,654.8
Moneybarn 372.2 114.7 164.8 651.7
CCD 68.2 22.9 425.3 516.4
Total Group 1,579.4 302.8 940.7 2,822.9
Allowance account
Vanquis Bank (153.8) (86.4) (212.5) (452.7)
Moneybarn (10.0) (24.9) (100.5) (135.4)
CCD (3.4) (5.2) (360.9) (369.5)
Total Group (167.2) (116.5) (673.9) (957.6)
-------- -------- -------- --------
Net receivables
Vanquis Bank 985.2 78.8 138.1 1,202.1
Moneybarn 362.2 89.8 64.3 516.3
CCD 64.8 17.7 64.4 146.9
Total Group 1,412.2 186.3 266.8 1,865.3
-------- ------ ------ --------
Macro-economic provision
Separate 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, in addition to the core
impairment provisions, already recognised.
For Vanquis Bank, the provision reflects an adjustment for
future losses based on changes in unemployment under a range of
forecasts provided by a number of economists, as approved by the
Group Treasury Committee.
For Moneybarn, changes in unemployment is used to calculate a
separate macroeconomic provision. Used car sales prices were also
considered at 31 December 2021. However, given the favourable
trends on used car sales prices through 2021, a macro-economic
overlay has not been recognised for used vehicle resale values
which would normally estimate recoveries from the sale of
repossessed vehicles at auction.
CCD customers often have unpredictable levels of disposable
income as they are often not in salaried roles. They are therefore
not considered to be reflective of the wider economy. They are
typically less indebted and are therefore not impacted by the same
macroeconomic factors or to the same degree. Consequently, there is
no evidence of any meaningful correlation between the impairment
charge and any macro employment statistics. A separate
macroeconomic provision is therefore not held. The assumptions are
reviewed at each balance sheet date.
The impairment charge in respect of amounts receivable from
customers can be analysed as follows:
Six months ended
30 June
2021 2020
(restated)(1)
GBPm GBPm
----- ---------------
Vanquis Bank 30.8 149.9
Moneybarn 20.0 35.6
CCD 38.5 52.9
Total Group 89.3 238.4
----- ---------------
(1) Refer to note 2 for details of restatement.
9. Retirement benefit asset
The group operates a defined benefit pension scheme: the
Provident Financial Staff Pension Scheme. The scheme is of the
funded, defined benefit type and has been substantially closed to
new members since 1 January 2003.
All future benefits in the scheme are now provided on a 'cash
balance' basis, with a defined amount being made available at
retirement, based on a percentage of salary that is revalued up to
retirement with reference to increases in price inflation. This
retirement account is then used to purchase an annuity on the open
market. The scheme provides pension benefits which were accrued in
the past on a final salary basis, but which are no longer linked to
final salary. The scheme also provides death benefits.
The scheme is a UK registered pension scheme under UK
legislation. The scheme is governed by a Trust Deed and Rules, with
trustees responsible for the operation and the governance of the
scheme. The trustees work closely with the group on funding and
investment strategy decisions. The most recent actuarial valuation
of the scheme was carried out as at 1 June 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:
30 June 31 December 30 June
2021 2020 2020
GBPm GBPm GBPm
-------- ------------ --------
Fair value of scheme assets 870.6 933.0 933.1
Present value of defined benefit obligation (777.9) (853.3) (814.7)
-------- ------------ --------
Net retirement benefit asset recognised
in the balance sheet 92.7 79.7 118.4
-------- ------------ --------
The amounts recognised in the income statement were as
follows:
Six months ended
30 June
2021 2020
GBPm GBPm
--------- --------
Current service cost (1.1) (0.8)
Interest on scheme liabilities (5.5) (7.6)
Interest on scheme assets 6.0 8.4
--------- --------
Net cost recognised in the income statement before (0.6) -
exceptional curtailment credit
--------- --------
Exceptional curtailment credit (note 4) 0.8 -
--------- --------
Net credit recognised in the income statement 0.2 -
--------- --------
The net credit recognised in the income statement has been
included within operating costs.
Movements in the fair value of scheme assets were as
follows:
Six months ended
30 June
2021 2020
GBPm GBPm
--------- --------
Fair value of scheme assets at 1 January 933.0 842.6
Interest on scheme assets 6.0 8.4
Actuarial movements on scheme assets (59.3) 95.9
Contributions by the Group 2.1 2.1
Net benefits paid out (11.2) (15.9)
--------- --------
Fair value of scheme assets at 30 June 870.6 933.1
--------- --------
Movements in the present value of the defined benefit obligation
were as follows:
Six months ended
30 June
2021 2020
GBPm GBPm
--------- --------
Present value of defined benefit obligation at 1
January (853.3) (764.6)
Current service cost (1.1) (0.8)
Interest on scheme liabilities (5.5) (7.6)
Past service costs - curtailment 0.8 -
Actuarial movements on scheme liabilities 70.0 (57.6)
Net benefits paid out 11.2 15.9
--------- --------
Present value of defined benefit obligation at 30
June (777.9) (814.7)
--------- --------
The principal actuarial assumptions used at the balance sheet
date were as follows:
30 June 31 December 30 June
2021 2020 2020
% % %
-------- ------------ --------
Price inflation - RPI 3.15 2.85 2.80
Price inflation - CPI 2.70 2.25 1.90
Rate of increase to pensions in payment 2.95 2.70 2.60
Inflationary increases to pensions in deferment 2.55 2.20 2.00
Discount rate 1.85 1.30 1.50
-------- ------------ --------
A 0.5% change in the discount rate would change the present
value of the defined benefit obligation by approximately GBP70.3m
(31 December 2020: GBP79m, 30 June 2020 (0.1% change): GBP15m). A
0.1% change in the inflation rate would change the present value of
the defined benefit obligation by approximately GBP6.2m (31
December 2020: GBP7m, 30 June 2020: GBP7m) respectively.
The mortality assumptions are based on the self-administered
pension scheme (SAPS) series 2 tables (31 December 2020: series 2
tables, 30 June 2020: series 2 tables), with multipliers of 96% (31
December 2020: 96%, 30 June 2020: 96%) and 101% (31 December 2020:
101%, 30 June 2020: 101%) respectively for males and females. The
4% downwards (31 December 2020: 4% downwards, 30 June 2020: 4%
downwards) adjustment to mortality rates for males and a 1% upwards
(31 December 2020: 1% upwards, 30 June 2020: 1% upwards) adjustment
for females reflects higher life expectancies for males and lower
life expectancies for females within the scheme compared to average
pension schemes following an updated study of the scheme's
membership. Future improvements in mortality are based on the
latest available Continuous Mortality Investigation (CMI) model
with a long-term improvement trend of 1.00% per annum.
Under these mortality assumptions, the life expectancies of
members are as follows:
Male Female
30 June 31 December 30 June 30 June 31 December 30 June
2021 2020 2020 2021 2020 2020
Years Years Years Years Years years
-------- ------------ -------- -------- ------------ --------
Current pensioner aged
65 21.7 21.9 21.9 23.4 23.5 23.5
Current member aged 45
from age 65 22.7 23.2 23.2 24.6 25.0 25.0
-------- ------------ -------- -------- ------------ --------
If assumed life expectancies were one year greater, the net
retirement benefit asset would have been reduced by approximately
GBP35m (31 December 2020: GBP 43 m, 30 June 2020: GBP41m).
An analysis of amounts recognised in the statement of
comprehensive income is set out below:
Six months ended
30 June
2021 2020
GBPm GBPm
--------- --------
Actuarial movements on scheme assets (59.3) 95.9
Actuarial movements on scheme liabilities 70.0 (57.6)
--------- --------
Actuarial movements recognised in the statement
of comprehensive income in the period 10.7 38.3
--------- --------
10. Investments
30 June 31 December 30 June
2021 2020 2020
GBPm GBPm GBPm
-------- ------------ --------
Visa Inc. shares 9.7 9.2 18.0
-------- ------------ --------
Visa Inc. shares
The Visa Inc. shares represent preferred stock in Visa Inc. held
by Vanquis Bank following completion of Visa Inc.'s acquisition of
Visa Europe Limited on 21 June 2016. 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
2020. 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 fair value as at 30 June 2021 of GBP9.7m (31 December 2020:
GBP9.2m, 30 June 2020: GBP18.0m) is held at fair value through OCI.
The increase in the fair value of the investment during the six
month period of GBP0.5m (2020: GBP1.4m) in respect of the movement
in the Visa Inc. share price and the movement in foreign exchange
rates has been recognised in other comprehensive income.
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. Fair value disclosures
The Group holds the following financial instruments at fair
value:
30 June 31 December 30 June
2021 2020 2020
GBPm GBPm GBPm
-------- ------------ --------
Financial assets
Visa Inc. shares 9.7 9.2 18.0
-------- ------------ --------
9.7 9.2 18.0
-------- ------------ --------
Financial liabilities
Derivatives (0.2) (1.3) (1.2)
-------- ------------ --------
Derivatives of GBP0.2m ( 31 December 2020 GBP1.3m, 30 June 2020:
GBP1.2m) relate to the balance guaranteed swap entered into as part
of the Moneybarn securitisation in January 2020.
Except as detailed in the following table, the directors
consider that the carrying value of financial assets and financial
liabilities recorded at amortised cost in the financial statements
are approximately equal to their fair values:
Carrying value Fair value
-------------------------------------- -----------------------------------------
30 June 31 December 30 June 30 June 31 December 30 June
2021 2020 2020 2021 2020 2020
GBPm GBPm (Restated) GBPm GBPm (Restated)(1)
GBPm GBPm
---------- ------------ ------------ ---------- ------------ ---------------
Financial assets
Amounts receivable
from customers 1,637.2 1,799.8 1,865.3 1,971.9 2,246.5 2,336.4
---------- ------------ ------------ ---------- ------------ ---------------
Financial liabilities
Retail deposits (1,062.8) (1,683.2) (1,917.3) (1,066.5) (1,689.2) (1,921.9)
Bank and other borrowings (567.2) (520.0) (476.3) (576.6) (635.5) (463.4)
---------- ------------ ------------ ---------- ------------ ---------------
Total (1,630.0) (2,203.2) (2,393.6) (1,643.1) (2,324.7) (2,385.3)
---------- ------------ ------------ ---------- ------------ ---------------
(1) Refer to note 2 for details of restatement.
12. Provisions
30 June 31 December 30 June
2021 2020 2020
GBPm GBPm GBPm
-------- ------------ --------
At 1 January 91.0 14.5 14.5
Created in the period 7.4 45.5 8.9
Created in the period (scheme) 5.0 65.0 -
-------- ------------ --------
Total created in the period 12.4 110.5 8.9
Reclassified in the period - 17.6 8.6
Used during the period (37.8) (43.3) (14.7)
Released in the period - (8.3) (8.3)
At the period end 65.6 91.0 9.0
-------- ------------ --------
During 2020, the Group reassessed both the probability and the
reliability of the estimates in settling a number of liabilities
previously included within accruals. The level of certainty
required to include these amounts as accruals was not evident.
Therefore, the accruals have been reclassified to provisions.
Complaints of irresponsible lending in CCD and the scheme of
arrangement
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 of 15 March 2021, as part of
the Scheme of Arrangement (the 'Scheme'). These amounts were fully
utilised during H1 21.
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 with 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 H1-21 for additional expected costs in
supporting the delivery of the Scheme. At 30 June 2021, GBP14.2m of
the provision for costs of the scheme has been utilised.
FCA investigation into CCD
CCD was informed in Q1 2021, 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 at 30 June 2021 which reflects
the current best estimate of the settlement.
Vanquis Bank
The remaining ROP provision of GBP2.4m (31 December 2020:
GBP2.6m; 30 June 2020; GBP2.9m) principally reflects the estimated
cost of the forward flow of ROP complaints more generally in
respect of which compensation may need to be paid.
13. 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
It is understood from discussions with HMRC that they have
commenced an industry-wide review of the self-employed status of
agents.
In July 2017, the Group changed its home credit operating model
in the UK from a self-employed agent model to an employed workforce
to take control of all aspects of the customer relationship.
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, remain in the initial fact-finding
stages. The Group is working positively and collaboratively with
HMRC and it is expected that the review could continue for at least
another year. Were the Group to be unsuccessful in defending the
historic self-employed position of agents, it may be required to
pay additional taxes, in particular National Insurance
contributions, on the approximate GBP80m per annum commission it
paid to agents in the UK for the years concerned. As discussions
with HMRC remain in the preliminary stages and the Group does not
know the amounts of tax and National Insurance contributions paid
by agents through self-assessment which are available for offset,
it is difficult to calculate an accurate liability should the Group
be unsuccessful in defending the position. HMRC has raised
protective assessments which have been appealed but these are
purely 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 the advice
received that agents were self-employed as a matter of law
throughout their engagement by the home credit business.
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 advisers
where appropriate, to determine the likelihood of the Group
incurring a liability. In those instances where it is concluded
that it is more likely than not that a payment will be made, a
provision is established to management's best estimate of the
amount required at the relevant balance sheet date. In some cases,
it 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.
14. Capital
The Group's capital management policy is focused on optimising
shareholder value, in a safe and sustainable manner. There is a
clear focus on delivering organic growth and ensuring capital
resources are sufficient to support planned levels of growth. The
Board regularly reviews the capital position. The following table
shows the regulatory capital resources as managed by the Group:
30 June 31 December 30 June
2021 2020 2020
GBPm GBPm GBPm
-------- ------------ --------
Share capital 52.6 52.6 52.6
Share premium 273.2 273.2 273.2
Retained earnings and other reserves 277.2 321.9 422.1
-------- ------------ --------
Total equity 603.0 647.7 747.9
-------- ------------ --------
Retirement benefit asset (net of tax) (69.5) (64.6) (95.9)
Goodwill (71.2) (71.2) (71.2)
Intangible assets (net of tax) (34.9) (40.1) (35.1)
Dynamic 1 and 2 adjustments 63.2 74.2 -
IFRS 9 transition adjustment 92.0 128.8 159.2
-------- ------------ --------
CET 1 capital before foreseeable dividend 582.6 674.8 704.9
-------- ------------ --------
Deduction of foreseeable dividend - - -
Own funds 582.6 674.8 704.9
-------- ------------ --------
The capital resources shown in the table above include accrued
losses for the periods to 30 June 2021, 31 December 2020 and 30
June 2020 which are automatically deducted from own funds.
The transitional adjustment to capital arises from the Group
making an election to phase in the impact of transitioning to IFRS
9 over a five-year period, 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 plus 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 increase in
ECL in the non-credit impaired book arising in 2020 and 2021 to be
fully added back in those years. This relief is then phased out
over the following three years on a straight-line basis (2022: 75%,
2023: 50%, 2024: 25%, 2025: 0%). At 30 June 2021, the impacts of
these adjustments amounted to the following:
30 June 31 December 30 June
2021 2020 2020
GBPm GBPm GBPm
-------- ------------ --------
Initial IFRS 9 transition adjustment 184.0 184.0 184.0
Increase in ECL in the non-credit impaired
book from transition 22.7 22.7 22.7
206.7 206.7 206.7
-------- ------------ --------
Percentage add back 50% 70% 70%
-------- ------------ --------
103.4 144.7 144.7
Increase in ECL on the non-performing
book during the 6 months ended 30 June
2021 51.8 58.3 14.5
Percentage add back 100% 100% 100%
-------- ------------ --------
51.8 58.3 14.5
IFRS 9 transition adjustment 155.2 203.0 159.2
-------- ------------ --------
15. Reconciliation of Loss after tax to cash generated from operations
Six months ended
30 June
2021 2020
(restated)
(1)
GBPm GBPm
------- ------------
Loss after tax (49.6) (23.2)
Adjusted for:
- tax charge 5.4 (4.9)
- finance costs 31.2 36.0
- share-based payment charge 1.5 0.3
- retirement benefit credit before exceptional curtailment 0.6 -
credit (note 9)
- exceptional pension curtailment credit (note 9) (0.8) -
- amortisation of intangible assets 7.5 7.3
- depreciation of property, plant and equipment
and right of use assets 6.6 8.0
- Exceptional amortisation and depreciation charge 5.6 -
- Loss on sale of property, plant and equipment 0.3 -
- Loss on sale of intangibles 2.5 -
Changes in operating assets and liabilities:
- amounts receivable from customers 162.6 334.3
- trade and other receivables (2.8) (11.3)
- trade and other payables 41.3 (9.2)
- contributions into the retirement benefit scheme
(note 9) (2.1) (2.1)
- derivative financial instruments - 0.3
- provisions (note 12) (25.4) (5.5)
Cash generated from operations 184.4 330.0
------- ------------
(1) Refer to note 2 for details of restatement.
16. Post balance sheet events
In July 2021, the Group extended both its Moneybarn
securitisation facility and its Revolving Credit Facility.
The previous Moneybarn securitisation warehouse provided GBP150m
of committed funding to July 2021. The new facility will result in
the committed amount increasing to GBP325m, of which GBP275m was
initially drawn, over a new extended period of 24 months (plus any
period of amortisation thereafter). The cost of the new facility is
broadly unchanged from the previous warehouse and its advance rate
is significantly higher, resulting in a reduction in the weighted
average cost of funding for Moneybarn.
The Group also had a multi-currency RCF in place provided by
several banks with a total facility size of approximately GBP140m
as at 30 June 2020. In line with the Group's existing strategy of
reducing the reliance on its RCF, a portion of the new
securitisation funds were used to reduce the Group's RCF
commitments, initially to GBP90m and funded by fewer banks,
alongside an extension of the facility h to the second half of
2023.
In March, the Group announced that the Consumer Credit Division
would seek to launch a Scheme of Arrangement in relation to
potential redress claims arising from complaints based on historic
home credit lending prior to 17 December 2020. In April, the High
Court made an order enabling CCD to convene a meeting of Scheme
creditors to consider the Scheme. The creditor meeting took place
on 19 July 2021 and the Scheme was approved by its creditors with
votes cast in favour of approximately 98% by both value and number.
Following the sanction hearing on 30 July, the Scheme was
sanctioned by the High Court on 4 August 2021.
Alternative Performance Measures (APMs)
APM Method of calculation Relevance
Net interest margin Revenue less funding This measure shows the
(NIM) costs, excluding exceptional returns generated from
items for the period customers to allow comparison
multiplied by 365/181 to other banks and banking
as a percentage of average groups.
receivables for the
6 months ended 30 June.
------------------------------- --------------------------------
Risk-adjusted net interest Net interest margin This measure shows the
margin less impairment, excluding returns from customers
exceptional items for after impairment charges.
the period multiplied
by 365/181 as a percentage
of average receivables
for the 6 months ended
30 June.
------------------------------- --------------------------------
Adjusted basic earnings Profit after tax, excluding This is used to assess
per share (EPS) the amortisation of the Group's operational
acquisition intangibles performance from continuing
and exceptional items, operations per ordinary
divided by the weighted share. It removes the
average number of shares effect of amortisation
in issue. of acquisition intangibles
and exceptional items.
------------------------------- --------------------------------
Average receivables Average month-end receivables This is used to smooth
for the 6 months ended the seasonality of receivables
30 June across the divisions
in calculating performance
KPIs.
------------------------------- --------------------------------
Dividend cover Adjusted basic earnings This shows the rate
per share divided by that the Company is
dividend per share. paying its dividends
out of earnings. The
dividend policy will
reflect the Board's
risk appetite of maintaining
a regulatory capital
headroom in excess of
GBP100m and the remaining
transitional impact
of IFRS 9.
------------------------------- --------------------------------
Cost income ratio Operating costs as a This ratio is a measure
percentage of revenue of the efficiency of
for the period. the Group's cost base.
------------------------------- --------------------------------
Adjusted return on assets Adjusted profit before This measures the return
(ROA) interest after tax for a company generates
the period multiplied from its assets prior
by 365/181 as a percentage to the impact of funding
of average receivables strategy for each division.
for the 6 months ended
30 June
------------------------------- --------------------------------
Adjusted return on equity Adjusted profit after ROE shows the return
(ROE) tax for the period multiplied being generated from
by 365/181 as a percentage the shareholders' equity
of average equity for retained in the business.
the 6 months ended 30
June. Equity is stated
after deducting the
Group's pension asset,
net of deferred tax,
and the fair value of
derivative financial
instruments.
------------------------------- --------------------------------
Return on required equity Statutory profit after This demonstrates how
(RORE) tax for the period, well the Group's returns
excluding CCD, multiplied are reinvested and is
by 365/181 divided by an indicator of its
the average regulatory growth potential.
capital requirement
for the period.
------------------------------- --------------------------------
Common equity tier 1 The ratio of the Group's
(CET1) ratio regulatory capital to
the Group's risk-weighted
assets measured in accordance
with CRD IV.
------------------------------- --------------------------------
Funding headroom Committed bank and debt This represents the
facilities less borrowings difference between the
on those facilities. total amount of committed
contractual debt facilities
provided by banks, bond
holders and other lenders
and the amount of funds
drawn on those facilities
plus cash held on deposit.
------------------------------- --------------------------------
Income statement metrics have been reported by utilising the
income or expense for the period multiplied by 365/181 as a
percentage of average receivables for the 6 months ended 30 June .
This better reflects performance in the period, as opposed to the
historical annualised basis using a rolling 12 months of income or
expense. This is particularly relevant in periods where
profitability does not show a stable trend such as during the
Covid-19 pandemic.
Statement of directors' responsibilities
The directors confirm that, to the best of their knowledge, the
unaudited condensed interim financial statements have been prepared
in accordance with IAS 34 as adopted by the UK, and that the
interim report includes a fair review of the information required
by DTR 4.2.7R and DTR 4.2.8R, namely:
-- An indication of important events that have occurred during
the first six months of the financial year and their impact on the
unaudited condensed interim financial statements, and a description
of the principal risks and uncertainties for the remaining six
months of the financial year; and
-- Material related party transactions that have occurred in the
first six months of the financial year and any material changes in
the related party transactions described in the last annual report
and financial statements.
A list of current directors is maintained on the Provident
Financial plc website: www.providentfinancial.com .There have been
no changes in directors during the six months ended 30 June
2021.
The maintenance and integrity of the Provident Financial website
is the responsibility of the directors. The work carried out by the
auditor does not involve consideration of these matters and,
accordingly, the auditor accept no responsibility for any changes
that may have occurred to the unaudited condensed interim financial
statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of unaudited condensed interim financial statements
may differ from legislation in other jurisdictions.
By order of the board
Malcolm Le May - Chief Executive Officer Neeraj Kapur - Chief
Financial Officer
11 August 2021
INDEPENT REVIEW REPORT TO PROVIDENT FINANCIAL PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2021 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in shareholders' equity, the consolidated statement of
cash flows and related notes 1 to 16. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
International Financial Reporting Standards. The condensed set of
financial statements included in this half-yearly financial report
has been prepared in accordance with United Kingdom adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review..
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
11 August 2021
Information for shareholders
The interim report will be posted to shareholders on 19 August
2021.
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END
IR DZGMRNGGGMZM
(END) Dow Jones Newswires
August 11, 2021 02:00 ET (06:00 GMT)
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