The group’s mission is to refocus on customer solutions and continue to be the leader in the non-standard market responsibly providing access to credit to customers who are not well served by mainstream lenders. We will develop our culture and governance to build better regulatory relationships and play a positive role in the communities we serve.
At a glance
"Provident Financial prides itself on its 140 year history of providing valued customers with access to credit where others will not. Recent events have demonstrated a need to refresh the group’s direction, focus and culture."
Stuart Sinclair Interim Non-Executive Chairman
CHIEF EXECUTIVE'S REVIEW
"In 2018, the group will continue to rebuild trust with our customers, regulators, shareholders and employees. The group’s turnaround is making progress, but the Board and I realise there is still much to do to achieve a customer centric business delivering long-term sustainable returns to our shareholders. "
Malcolm Le May Chief Executive Officer
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Everyone at Provident Financial was shocked and deeply saddened at the sudden death of Executive Chairman Manjit Wolstenholme on 23 November 2017. It was a great privilege to know her personally and to work alongside her over the last few years. She showed exceptional leadership in stepping up to the role of Executive Chairman in the months leading up to her death.
Manjit was known and respected for her achievements and championing diversity in British business, and we would like to pay tribute to her contribution to the business landscape. Her passion, belief and commitment for the role PFG plays in customers’ lives was unwavering and we owe her a huge debt of gratitude.
|Vanquis Bank||Consumer Credit Division||Moneybarn|
|Non-standard credit cards||Home credit||Online lending||Non-standard vehicle finance|
Vanquis Est 2003
Vanquis Bank is the leading supplier of credit cards in the non-standard credit market. We provide new customers with a low credit limit and only increase it when we have sufficient experience of the customer handling their account responsibly. We maintain a high level of contact with customers, from the initial call welcoming the customer to Vanquis Bank and continuing throughout our relationship.
Provident Est 1880
Provident offers home credit loans, typically of a few hundred pounds, to consumers on low incomes and tight budgets who require affordable credit to manage the household budget or one-off items of expenditure. Customers value the face-to-face relationship of home credit as well as the simple, flexible and transparent nature of the product, with its fixed repayments and no extra charges, even if payments are missed.
Satsuma Est 2013
Satsuma is our online instalment loan product. We give new customers a small-sum, short-term loan and collect repayments by continuous payment authority either weekly or monthly, on a day agreed with the customer. Our UK-based call centre is always there to discuss any issues customers may have and just like our home credit product, the total amount repayable is fixed at the outset, so there are no extra charges.
Moneybarn Est 1992
Moneybarn is the market leader in the provision of vehicle finance for people in the non-standard credit market. Moneybarn is able to help those who may have had problems with credit in the past but who are now over them to get to work, take their children to school and live their lives.
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Big Advice Day was extremely useful and gave me clarity and confidence in moving ahead. I have written a four‑month plan which helped me to stop feeling overwhelmed, be realistic about my capacity and review my scattergun approach to funding. I just feel more focused, professional, positive and less scared. So thank you!
Founder, Words for Wellbeing
To underline the group’s aim to support local community initiatives, the group sponsored Small Charities Week in 2017. Small Charities Week was established in 2010 by the Foundation for Social Improvement (FSI) with the aim of:
- Celebrating the contribution that the UK’s small charity sector makes to the lives of millions of vulnerable individuals and communities.
- Improving the knowledge, representation and sustainability of small charities.
- Highlighting the work of the small charity sector to the broadest possible audience.
- Encouraging public giving.
- Working with the small charity sector to develop political engagement at a national and local level.
Since I started my role, I am very confident and love helping to support others with learning disabilities, as I understand their struggles as I faced them myself. I am happy that I am less dependent on my benefits and can earn my own money now.
In 2016, Vanquis Bank signed a three-year partnership with Mencap to help support people with a learning disability into employment. Through direct funding, Vanquis Bank has enabled Mencap to establish new employment programmes in areas with limited employment support.
Like many schools in the Bradford area, a large number of our students have low levels of literacy as they start secondary education. We know that running this innovative partnership in our school and across the city is having a positive effect on teaching and students’ learning.
Combined with our new library, funded by the group, this is exposing young people to high‑quality learning materials that is having a massive impact on unlocking their potential by improving their ability to read and understand the written word.
Head teacher at the One In A Million Free School in Bradford
A key area of focus for Provident Financial Group under the education element of the group’s Social Impact Programme continues to relate to contributing to tackling the UK’s literacy challenge. This is why Provident Financial Group is a signatory to the National Literacy Trust’s ‘Vision for Literacy Business Pledge’.
I have more energy to work and play because I get my breakfast at school.
Student, aged 10
Vanquis Bank is supporting FareShare to save fresh, in date and good to eat, surplus food from the food industry. In the first year of this partnership a total of 2,115 tonnes of food was saved from waste, supporting 504 frontline charities and community groups in Bradford, Kent and London. These community groups turned this food into over four million nutritious meals for vulnerable people in our local communities.
The implementation of biomass cookstoves not only reduces GHG emissions but also improves families’ health.
During 2017, we continued to offset the GHG emissions associated with our total operational footprint. The group’s operational carbon footprint in 2017 was 9,758 tonnes of carbon dioxide equivalent (CO2e). We offset this total footprint through carbon credits, which were certified to the Gold Standard, in a project that delivers clean and efficient biomass cookstoves to households in rural areas of China. Charcoal is the traditional fuel used for cooking and heating water in China.
Adjusted profit before tax 1 £m
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Employee costs 3 £m
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Total tax contribution 4 £m
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- Stated prior to the amortisation of acquisition intangibles and exceptional items.
- Adjusted profit before interest after tax as a percentage of average receivables.
- Stated prior to exceptional items.
- Comprises both direct and indirect tax contributions
The group is successful in lending to customers whom others find it difficult to serve because of the way we manage the customer relationship and the solid foundations that we have built for our business.
1. 1: Secure longer-term, lower rate funding
We borrow longer, at lower rates than we lend, from diverse wholesale and retail sources, always with at least a years headroom. We do this through strong relationships with our banks, deposit taking, a BBB- credit rating and a FTSE 250 listing. We create value by allowing investors to participate in our markets indirectly and our businesses to meet customer demand throughout the cycle. Our funders enjoy a reliable source of good solid diversified income. Our customers enjoy affordable, sustainable, and responsible access to credit.
2. 2: Develop tailored products to meet customers’ needs
We focus on the UK non-standard credit market, developing simple, transparent products with flexibility to help customers cope with life. Adapting to the needs of a specific target market, we generate high customer satisfaction and loyalty. We create value by covering the higher cost included in serving non-standard consumers with loans at affordable rates, enabling us to lend to those otherwise financially excluded. We have longer experience, and a wider range of specialised products than our competitors, better suiting the market diversity and dynamism. We continue to innovate to match consumer trends.
3. 3: Attract target customers
We use many ways to reach non-standard consumers. We target our offers using mailing and increasingly digital methods, as well as face-to-face and partners such as brokers, agents and retailers. We create value for customers and third parties by responsibly offering credit to the otherwise excluded and enabling them to make purchases or deal with life on tight incomes. Consumers are able to shop in the modern world, get to work and deal with larger expenses. Partners earn commission, and retailers make more sales. Our longer experience makes us more effective than our competitors. Our ability to lend and commitment throughout the cycle has earned us trust and loyalty of both intermediaries and customers.
4. 4: Assess affordability and credit worthiness
We carefully assess applicant credit worthiness, along with affordability, suitability and sustainability. We use internal and external data, including face-to-face interactions, taking into account the current situation and the likely future. Our specialisation, experience and bespoke approach allows us to create value by maximising approvals while maintaining sufficient returns. Customers get the credit they need more often, where responsible, and each assessment and outcome adds experience and knowledge, improving future decisions. We have been active in the non-standard market for longer than most, with a wider range of products at a larger scale helping us to maintain our advantage in assessing applications.
5. 5: Lend responsibly
We tend to lend smaller amounts over shorter periods and take a ‘low and grow’ approach as customers demonstrate sustainability. Where a vehicle is held as security, we can lend more credit for a longer duration. We create value by helping customers enter or re-enter the credit market, stay in control and build credit scores for greater future access and choice. Our customers are no longer financially excluded from modern life, now or in the future. Our focus and specialised experience makes us better at helping customers on this journey than our direct competitors, and able to lend where mainstream lenders cannot.
6. 6: Collect repayments due
We offer many ways to pay in cash and remotely, maintaining high levels of frequent customer contact. We stay close to customers through call centre, digital communications and face-to-face meetings weekly in the home. We help our customers to stay on track and build better credit scores by adapting our methods to suit the realities of customers’ lives in an understanding way. Self-employed agents earn income from successful payments encouraging them to build skills and experience in dealing with customers. The scale of our high-tech contact centres and our experienced well-trained employees set us apart from our competitors, and our volumes help us to maintain our superior performance. We share these best in class collections capabilities across the group to help established and new businesses improve quicker and earlier.
7. 7: Manage arrears and customer difficulties
We establish early contact and an ongoing dialogue with customers who have difficulties, with a sympathetic approach, trying to understand and offer forbearance. Our focus is on making a difficult situation easier to deal with by taking a personal approach to resolving problems. Our customers value this understanding highly, as it minimises their arrears, and damage to their credit score. It also maximises recoveries, and enables customers to qualify for further credit. Our far more rapid, intensive and personal approach sets us apart from mainstream lenders and our scale, experience and greater investment differentiates us from other specialists. We are able to share our arrears management capabilities across the group to help established and new businesses improve performance and customer satisfaction.
8. 8: Pay for funds and generate surplus capital to deploy
We grow our attractive ROA, cash and capital generative businesses, under a funding model that now pays 75% of earnings in dividends and retains 25% equity to combine with external funds at a low gearing to fund growth. We create shareholder value by delivering superior returns throughout the cycle and our strong capital base sustains our ability to grow and attract external funding. Investors and funders rely on good returns. Business units rely on funding being available, and customers rely on credit availability regardless of constraints elsewhere. We enjoy better capital generation and less reliance on external funding through the cycle, allowing us to plan longer-term with confidence to take advantage of market opportunities.
Our KPIs are helpful in assessing progress but are not exhaustive as management also takes account of a wide range of other measures in assessing underlying performance. Adjusted measures are presented where management feel this is more representative of the underlying business performance as opposed to the statutory equivalent.
Growing sustainable, customer-centric businesses that deliver attractive returns in non-standard markets
Acting responsibly and with integrity in all we do
Maintaining a secure funding and capital structure
Generating consistent and sustainable shareholder returns
Apply exacting standards in allocating capital to organic and acquisition opportunities to invest in businesses that:
- Deliver a target return on assets for the group of approximately 10%. Attractive returns are available in the non‑standard market to those companies that have developed tailored business models and focus on delivering good customer outcomes.
- Are sustainable and maintain attractive levels of regulatory compliance at all times.
- Have good growth potential to deliver future earnings and dividends growth.
- Enjoy a strong market position, preferably a top‑ three market position in each segment of the non‑standard market in order to develop the market in a responsible manner.
- Have sustainable management and cultural fit.
Our focus for 2018
- Realign our culture more closely around the developing needs of the customer.
- Work with external advisors to develop a more comprehensive balanced scorecard approach to performance management.
- Focus on helping customers on their credit worthiness journey where possible.
- Maintain tight underwriting standards in all businesses against the backdrop of an uncertain UK economic outlook.
- Develop the digital agenda.
- Improve the interaction between businesses and how best practice is shared.
- Recruitment of two new non-executive directors with directly relevant experience.
- Improve the relationship with the regulator through more regular dialogue and co-ordinating the relationship at a group level.
- Continued strengthening of risk management and governance throughout the group.
- Deliver a group ROA of around 8%-9%.
- Operating our core business of lending to our customers in a responsible and sustainable manner, putting their needs at the heart of everything we do.
- Acting responsibly and sustainably in all our stakeholder relationships in order to:
- Create a working environment that is safe, inclusive and meritocratic;
- Treat our suppliers fairly; and
- Support our communities.
Our focus for 2018
- Maintain or improve customer satisfaction levels in all businesses.
- Maintain an investment of 1% of group profit before tax in the community.
- Introduction of monthly recommended payment levels within Vanquis Bank.
- Introduction of enhanced affordability assessments in Vanquis Bank as part of the credit line increase programme.
- Launch of personal loans in Satsuma to provide customers with a pathway to cheaper credit.
- Leverage the newly established role of Group Chief Risk Officer to champion the interests of the customer internally.
- Continue to evolve and use new proven technologies to meet the needs and preferences of customers better.
- Establish a new Board committee, to be chaired by one of the new non-executive directors, focusing on the customer, culture and ethics to drive changes in behaviours and attitudes across the group.
- Maintain borrowing facilities which, together with Vanquis Bank’s retail deposits programme, meet contractual maturities and fund growth over at least the next 12 months.
- Maintain a CET 1 ratio for the group of 25.5%, being the expected minimum regulatory requirement post the rights issue, together with a suitable level of headroom to ensure ongoing access to funding from the bank and debt capital markets. This broadly equates to funding new receivables at a target gearing ratio of 3.5 times compared with a bank covenant of 5.0 times and is equivalent to maintaining a borrowings to net tangible assets ratio of 2.8 times.
- Continue to diversify the group’s sources of funding.
Our focus for 2018
- Complete the rights issue to meets the costs of resolving the FCA investigation into ROP at Vanquis Bank and the estimated cost of the ongoing FCA investigation at Moneybarn and recapitalise the group.
- Continue to manage the flow of retail deposits in Vanquis Bank to continue to pay down the outstanding balance on the intercompany loan with Provident Financial plc and ensure an appropriate amount of headroom is maintained on the group’s committed facilities.
- Review and consider additional funding options to support growth in Moneybarn and Satsuma and the refinancing on maturing facilities.
- Manage regulatory capital and liquidity in accordance with PRA requirements.
- Deliver sustainable receivables growth of between 5% and 10% per annum, subject to economic conditions and maintaining the group’s minimum returns thresholds.
- Maintain a dividend cover of at least 1.4 times.
Our focus for 2018
- Deliver receivables growth of between 5% and 10%, whilst maintaining the group’s minimum returns thresholds.
- Restore dividends with a nominal dividend for the 2018 financial year before adopting a progressive dividend, in line with the group’s minimum dividend cover of at least 1.4 times, from the 2019 financial year.