Provident Financial - Interim Report & Accounts 2005

Prospects for 2005

UK consumer credit division: We expect that market conditions for UK home credit will remain competitive and that the business will continue to see reductions in customer numbers for 2005. Growth in credit issued is expected for the year as a whole, although at a slightly lower level than for the half-year. This is because those customers already served with larger, longer term loans are unlikely to require further loans during the second half of 2005. In common with other consumer lenders we have recently seen early signs that the pressure on consumers’ disposable incomes from rising fuel and utility prices is leading to an increase in arrears and impairment charges. We continue to expect a modest reduction in profit this year with a further reduction in 2006 if current market conditions persist.

At Yes Car Credit, the comprehensive improvement plan which is being implemented by the new management team is aimed at improving all areas of the business with particular focus on increasing sales, profit margins and reducing impairment charges. Our target is for the business to return to profitable trading during 2006, breaking-even for 2006 as a whole. We are closely monitoring performance against this plan and will conclude a strategic review of this business within the next six months. 2005 will be a year of re-building and, as previously indicated, we expect pre-tax trading losses in the range of £15-20 million.

Vanquis Bank is expected to grow its cardholder numbers and customer receivables strongly during the second half. Vanquis has also seen the results of increased pressure on consumers’ disposable incomes from rising fuel and utility prices and has tightened its underwriting standards in response to an increase in arrears and impairment charges. Overall, Vanquis is developing in line with plan. We expect start-up losses of around £15 million in 2005, with a much reduced loss in 2006 as the card portfolio matures and benefits from scale economies, and profits in 2007.

Motor insurance division: We expect our underwriting results to continue to benefit from the favourable development of claims costs and the business is expected to deliver excellent results for the year.

International division: International division is set to continue to deliver strong growth and good results for the year. In Mexico, we will further expand our operations in the Puebla-Veracruz region and we continue to expect start-up losses of about £5 million for this year. In central Europe, we expect strong growth and a good performance for the year.

Group outlook: We expect good performances from the majority of the group in 2005 with growth offset by the trading losses at Yes Car Credit.

John van Kuffeler
14 September 2005