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RNS Number : 9850N
Provident Financial PLC
27 May 2020
Provident Financial plc
Trading Statement
27 May 2020
Provident Financial plc, the leading provider of credit products
to consumers who are underserved by mainstream lenders, has
published a trading statement this morning covering the period from
1 January to 30 April 2020, unless otherwise stated.
Highlights
Operational adaptations to Covid-19 are underpinned by strong
capital and liquidity positions
-- Our businesses have adapted well to the unprecedented
challenges of Covid-19 and our operational response has been swift
and effective.
-- The Group's priority was to keep supporting our customers
through implementing new lending and collections practices. Tighter
underwriting standards across the Group saw new business volumes
reduce in April, however, there are signs of a modest recovery in
May.
-- The Group's capital and liquidity positions remained strong,
with regulatory capital of c.GBP710m equating to a CET1 ratio of
c.33.4% and a surplus above the minimum regulatory requirement of
c.GBP190m(1) . Total Group liquidity, including Vanquis Bank,
stands at c.GBP1.2bn(2) .
-- Vanquis Bank adapted well to Covid-19. By mid-April, c.80% of
contact centre colleagues were working remotely. Customer spending
has contracted, in line with peers, but the take-up of payment
holidays has been modest.
-- Moneybarn has remained open to new business, enabling brokers
to keep serving customers and, indeed, lending to key workers has
accounted for c.40% of new business.
-- CCD has fundamentally adapted its operations in response to
Covid-19. All home credit collections are now being carried out
remotely and are tracking at over 80% of pre-Covid
expectations.
Malcolm Le May, Group Chief Executive, commented:
"During these challenging times, the Group has adapted quickly
and efficiently. Our priority has been to keep supporting the
financial needs of our customers, whilst safeguarding our
colleagues, by implementing new lending and collecting practices,
the results of which have been encouraging. I would like to thank
my colleagues for their perseverance and hard work over recent
weeks in continuing to support our customers.
Our capital and liquidity positions remain extremely strong. We
believe we have the strongest and most diverse funding options in
our sector, a key competitive advantage for us.
Despite 2020 being a difficult and unprecedented year, the
combination of our customer offering, together with our robust
balance sheet, mean that I remain confident in the group's ability
to become a broader banking group for the financially underserved
population, whilst generating attractive returns for our
shareholders over the medium-term."
Capital and Liquidity
The Group has strong capital and liquidity positions,
comprising:
-- Regulatory capital of c.GBP710m at 30 April 2020, equating to
a core CET1 ratio of c.33.4% and headroom of approximately
GBP190m(1) above the minimum regulatory requirement. This is before
taking into account the capital conservation buffer of
approximately GBP50m, which is held and may be used in the event of
a stress scenario such as the one currently being experienced in
the UK.
-- Total headroom on committed facilities and surplus cash and
liquid resources amounts to approximately GBP1.2bn(2) . This
includes approximately GBP1bn of liquid resources held by Vanquis
Bank, with its ongoing access to the retail deposits market, versus
c.GBP200m in respect of their Individual Liquidity Requirement.
During the first quarter, the Group repaid an outstanding
balance of GBP50m for a loan facility with M&G, half of which
was an early repayment ahead of a contractual obligation in January
2021, and also repaid a GBP25m bond. There are no further
contractual maturities of the Group's facilities until the second
half of 2021.
We have not accessed any of the Government funding schemes put
in place by HM Treasury or the Bank of England such as the
Coronavirus Large Business Interruption Loan Scheme (CLBILS) or
TFSME. However, this option remains open to us in the future.
The macroeconomic provisions held by Vanquis Bank and Moneybarn
have been updated, in accordance with IFRS 9, to incorporate
conservative unemployment forecasts. It is our intention to publish
further detail on the assumptions adopted as part of our interim
results, which we expect to announce in August.
On 27 March 2020, we announced that the Board has decided, given
the uncertainties, that the 2019 final dividend of 16.0p per share
would no longer be proposed at the Annual General Meeting (AGM).
The cash and capital impact is approximately GBP40m. This was
clearly a difficult decision, and it was not one taken lightly. It
is our intention to maintain a strong capital position whilst
facing unprecedented levels of uncertainty in order to support
business stability and growth, when the opportunity arises. Future
dividend decisions will be taken as and when conditions
normalise.
As part of the Group's wider response to Covid-19, the Board and
senior management have agreed to reduce their pay by 20% for three
months from April onwards.
(1) Regulatory capital headroom is calculated based on the
group's Total Capital Requirement (TCR) of 24.5% (which has reduced
by 1% due to the reduction in the counter cyclical buffer from 1%
to 0%) and includes the dynamic transitional adjustment for IFRS 9
of approximately GBP15m (the dynamic transitional adjustment for
IFRS 9 allows 70% of new stage 1 and 2 provisions since the
adoption of IFRS 9 to be reversed in line with the transitional
arrangements for IFRS 9).
(2) Total liquidity as at 26 May 2020.
Vanquis Bank
Vanquis Bank adapted its operations well to the Covid-19 crisis.
By mid-April, c.80% of Vanquis contact centre and 100% of head
office colleagues were working remotely. Contact centre staff have
been able to continue using dialler technology to support customers
and SMS communications have been increased. Approximately 1% of
Vanquis staff have been placed on Government furlough.
Underwriting standards have been tightened significantly in
response to Covid-19. As a result, during the period, new customer
bookings have been reduced by approximately 75% and the Credit Line
Increase programme has been temporarily paused.
We are working on recalibrating our decisioning scorecards with
a view to recommencing normal levels of lending as soon as
possible.
As set out in the preliminary results announcement in February,
customer spending began to trend down at the end of 2019 and this
continued during the first two months of this year. This trend has
been significantly exacerbated by the Covid-19 crisis with customer
spending through April and May being around 60% of normal levels,
in line with peers. As a result, receivables are now approximately
10% lower than at December 2019.
We are focused on supporting our customers through the Covid-19
crisis. Approximately 3% have so far been granted payment holidays
and, based on current take-up rates, this may trend to a moderately
higher level by the end of July when the three month holiday period
ends. In addition, customers with the Repayment Option Plan (ROP)
product have been utilising the ability to freeze their account. We
have not applied any credit line decreases to our customer accounts
for Covid-19 reasons.
Moneybarn
Moneybarn has remained open to new business throughout the
Covid-19 crisis, enabling brokers and dealerships to continue
offering loans to our customers. Lending criteria were tightened
with extra checks put in place to ensure affordability, fraud
mitigation and a reduction in acceptance rates for the highest risk
tier that we lend to.
In early May, some contact centre staff were moved back to the
office, under strict social distancing measures, which enabled
inbound and outbound call volumes to increase. This has seen
customer contact rates improve. Approximately 50% of the workforce
have been retrained to help with customer queries and steps have
been taken to make collections more straightforward over the
telephone. Across Moneybarn, around 5% of staff have been placed on
Government furlough and a similar number have been redeployed into
other customer facing roles.
The level of payment holidays is around 22% of Moneybarn
customers. The rate of increase has slowed in recent weeks and
positive customer outcomes remain the primary focus.
New business volumes during January and February remained
strong, and were consistent with 2019 growth trends, as were the
first three weeks of March. For April, new business volumes fell
significantly, before starting to recover in May. As a result, new
business volumes have reduced by approximately 20% year to date at
the end of April. Key workers have accounted for around 40% of new
business volumes recently, reflecting the Group's wider purpose to
support our customers with their everyday financial needs.
Since the start of Covid-19, impairment has increased due to
increased arrears and a prudent approach to the treatment of
payment holidays, which are starting to stabilise. The period end
receivables for April was consistent with that at December
2019.
Consumer Credit Division (CCD)
Home credit
The business and its customers have also adapted well in
response to the Covid-19 crisis. Significant changes to lending and
collecting practices have been delivered quickly and successfully,
whilst colleagues have been unable to visit customer homes.
At present, collections across home credit are over 80% of
normal levels, which shows the resilience of the relationship model
underpinning home credit.
Lending to existing customers was paused whilst the ability to
disburse loans into customer bank accounts was introduced for Home
Credit UK in early April and for the Republic of Ireland (ROI) in
early May. For existing customers, lending decisioning and
affordability checks have been adapted for Covid-19.
Provident Direct was rolled out nationally by the end of March,
several months ahead of schedule. This enables Customer Experience
Managers (CEMs) to support customers with the additional option of
direct repayment via continuous payment authority. Provident Direct
is currently available to existing customers only and represents
approximately 35% of repeat lending volumes. Overall, lending to
existing customers is currently c.30% of expected volumes.
Lending to new customers was paused following the Government
lockdown. New customer lending in Home Credit UK restarted in
mid-May with a cautious approach including tighter credit
decisioning and an adapted model for Covid-19.
Collections levels have remained resilient throughout the
period. Prior to Covid-19, approximately 25% of collections in the
UK and 5% in the ROI were made via card payments or other remote
methods. Since the Covid-19 restrictions were introduced, all home
credit collections have migrated to remote methods. To support
this, we have implemented the capability for CEMs to take customer
payments over the telephone and extra payment cards have been
distributed to customers who still wish to make cash payments.
The cost reduction programme continues to deliver initiatives to
further reduce operating expenditure. In addition, further cost
savings are being achieved from reduced activity during the
Covid-19 restrictions, including c.12% of staff from across CCD
currently being on Government furlough.
Receivables declined in the first quarter in line with seasonal
trends, as collections outweigh new lending. However, the
significantly reduced lending volumes as a result of the Covid-19
restrictions, combined with good customer repayment levels, has
seen the receivables book decline by c.33% since December 2019 at
the end of April.
Satsuma
Lending in Satsuma has been temporarily paused during the
Covid-19 crisis whilst the effectiveness of the digital channel,
under the current circumstances, is reviewed. All applications are
now being referred to Provident. Collections in Satsuma remain
robust and are broadly in line with pre-Covid expectations, even
after accounting for the impact of some customers choosing to take
a payment holiday. Restarting lending in Satsuma remains under
constant review.
Enquiries:
Analysts and shareholders:
Owen Jones, 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
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END
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