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RNS Number : 7370P
Provident Financial PLC
21 October 2021
Provident Financial plc
Third quarter trading update
This announcement contains inside information
Provident Financial plc ('PFG' or 'the Group'), the specialist
bank for the underserved operating in the mid-cost segment of the
market, publishes a trading update covering the three months to the
end of September 2021, unless otherwise stated.
Malcolm Le May, Chief Executive Officer, commented:
"The Group's trading performance during the third quarter
improved significantly as a result of more favourable macroeconomic
conditions reducing the impact of IFRS 9 accounting combined with
customer demand for credit returning to pre-pandemic levels.
Subject to these improvements continuing on a similar trajectory
until the end of the year, the Board would consider declaring an
ordinary dividend pay-out of approximately 30% of adjusted ongoing
PBT(1) in respect of FY'21.
The Group remains conservatively positioned for any changes to
the UK unemployment rate which occur as a result of job support
schemes closing at the end of September. The early indication from
our analysis of customer data is that the end of furlough is likely
to have a lower impact on unemployment than previously thought. As
such, the Board will review the Group's coverage levels at the year
end with a view to making provision releases, if appropriate, which
will reflect the unwind of our macroeconomic provisions taken
during the pandemic.
Over the last 18 months, we have supported our customers
throughout a difficult period whilst focusing on several important
strategic initiatives. The Board and I remain focused on
establishing PFG as the specialist bank for the underserved
operating in the mid-cost segment of the market, at present built
on our three core products, and delivering growth and sustainable
returns to our shareholders over the medium-term."
Highlights
-- The Group's trading performance during the third quarter of
2021 improved significantly as a result of the more favourable
macroeconomic backdrop, reducing the impact from IFRS 9 provision
accounting, combined with a return to pre-pandemic levels of demand
for credit from customers. In addition, the Board will review the
Group's coverage levels at the year end with a view to allowing
historic provision releases, if appropriate.
-- In the Group's credit card and personal loans business,
delinquency trends remain consistent with the experience seen year
to date and the improvement in customer expenditure trends seen
during the first six months of the year continued into the third
quarter. Expenditure levels per customer increased by approximately
20% year-on-year at the end of September and by approximately 5%
versus September 2019. As a result, the receivables book grew by
approximately 5% during the third quarter.
Shortly after the period end, and in keeping with the previously
announced timeframe, Vanquis Bank launched its unsecured personal
loans product to the open market. The roll out will be on a phased
basis using distribution partners and affiliate channels.
-- The Group's vehicle finance business continued to experience
a buoyant second-hand vehicle market during the third quarter and
arrears trends were favourable. Credit issued grew by approximately
3% year-on-year, but new business volumes were lower as Q3'20
benefitted significantly from Covid-19 related demand dynamics.
Receivables at the period end were broadly flat versus the end of
June and the business remains well placed for the full year.
-- The planned closure of CCD (Consumer Credit Division)
continued to progress in-line with expectations during the period.
At the end of September, receivables had reduced significantly
since the end of June and were approximately GBP14m. The previously
announced anticipated closure costs of up to GBP100m remain on
track.
-- The Group's balance sheet position at the end of September
was robust, with regulatory capital of c.GBP570m and a CET1 ratio
of 32.9%. Including the Tier 2 bond, issued in October, the Group's
total capital ratio increases to 37.5%. Liquidity reflected a more
normalised level for the Group, as flagged with the H1'21 results,
with total Group liquidity of approximately GBP580m, including
approximately GBP400m held by Vanquis, and headroom on committed
facilities of GBP50m.
Funding Update
During the period, Vanquis Bank gained access to the Bank of
England's Term Funding Scheme for SMEs (TFSME) and, ahead of the
closure of the scheme this month, has drawn approximately GBP170m
of funding using its AAA rated notes as collateral. This funding
will diversify and reduce the cost of funding for Vanquis Bank over
time, while remaining primarily retail funded.
PFG announced in October that it had successfully priced its
first subordinated Tier 2 debt capital to the external markets
since 2005. The issuance was for GBP200m with a 10.25 year
maturity, callable after 5.25 years, and a coupon of 8.875%. This
reflected the strong interest received from the market and the
Group's improving credit narrative. The bond was rated B+ by Fitch.
Concurrently, a partial tender of the Group's 2023 Senior Bonds,
that pay a coupon of 8.25% but do not qualify as regulatory
capital, was offered. The Group successfully repurchased GBP71.5m
of the GBP175m outstanding marking the second time that PFG has
successfully repurchased some of these bonds, the last time being
August 2020 for GBP75.0m.
During the period, the Group also refinanced both its Moneybarn
securitisation programme with GBP325m of committed funding (H1'21:
GBP200m) while reducing its Revolving Credit Facility to GBP90m
(H1'21: GBP141m). The Group now has no contractual wholesale
maturities until H2'23, representing a very robust, diverse and
stable funding profile. Further, the Group has recently submitted
its application to the PRA (Prudential Regulation Authority) to
allow the use of retail deposits held at Vanquis Bank to fund other
parts of the Group.
Dividend policy update
Should the recent improvement in macroeconomic conditions
continue on a similar trajectory for the remainder of this
financial year, the Board would consider declaring an ordinary
dividend pay-out of 30% of adjusted ongoing PBT(1) in respect of
FY'21. The Board will provide further clarity on the Group's
longer-term dividend policy, beyond this financial year, at the
previously announced Capital Markets Day in Q1'22.
Notes:
(1) Adjusted profit before tax (PBT) from ongoing operations is
defined as PBT before any losses incurred relating to CCD,
amortisation of acquisition intangibles and any exceptional items
including one-off provision releases.
Enquiries:
Analysts and shareholders:
Owen Jones, Group Head of Investor
Relations, PFG 07341 007842
Owen.jones@providentfinancial.com
Media:
Richard King, Group Corporate Communications,
PFG
Richard.king@providentfinancial.com 07919 866876
Nick Cosgrove/Simone Selzer, Brunswick 0207 4045959
providentfinancial@brunswickgroup.com
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END
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