Key performance indicators
The group uses a number of KPIs to assess progress against each of its strategic objectives, including both financial and non-financial measures.
These KPIs are helpful in assessing progress but are not exhaustive as management also takes account of a wide range of other measures in assessing performance.
Growing sustainable, customer-centric businesses that deliver attractive returns in non-standard markets
- 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.
Adjusted profit before tax (£m)
Adjusted profit before tax decreased by 67.3% to £109.1m (2016: £334.1m) reflecting the significant adjusted loss of £118.8m (2016: profit of £115.2m) arising within CCD as a result of the disruption caused on the transition to the new operating model within the home credit business and subsequent implementation of the recovery plan to re-establish relationships with customers and stabilise the operation following the poor execution of the migration during the year. Consistent with internal plans, Vanquis Bank delivered stable adjusted profits of £206.6m (2016: £204.5m), with new credit card customer bookings of 437,000, up from 406,000 in 2016. Moneybarn delivered adjusted profits growth of 9.6% to £34.1m (2016: £31.1m), with new business volumes 17% higher than 2016.
Adjusted profit before tax in 2017 is stated before: (i) £7.5m of amortisation in respect of acquisition intangibles established as part of the acquisition of Moneybarn in August 2014 (2016: £7.5m); and (ii) exceptional costs of £224.6m comprising £172.1m in respect of the estimated cost of restitution, other costs and a fine following resolution on 27 February 2018 of the FCA investigation into ROP in Vanquis Bank, £20.0m in respect of the estimated cost arising in respect of the ongoing FCA investigation into affordability, forbearance and termination options at Moneybarn and £32.5m in respect of redundancy, retention, training and consultancy costs associated with the migration to the new home credit operating model within CCD (2016: net exceptional credit of £17.3m).
Group ROE % and Group ROA %
The group’s ROE and ROA have reduced to 18% (2016: 45%) and 6.9% (2016: 15.3%) respectively due to the significant loss arising in CCD together with a moderation in returns at Vanquis Bank and Moneybarn. The reduction in Vanquis Bank’s returns reflect a reduction in RAM from 32.2% in 2016 to 30.2% in 2017 due to: (i) the continued reduction in the penetration of ROP following the voluntary suspension of sales in April 2016 as well as a more stable delinquency position in the year compared with the improving trend in delinquencies experienced in 2016; and (ii) the additional year-on-year investment of approximately £12m to augment the medium-term growth of the business. Moneybarn’s returns have reduced due to the reduction in the RAM from 24.1% in 2016 to 21.8% in 2017 following an increase in impairments due to the strong growth in new business volumes and increased defaults from higher risk customers prior to the tightening of underwriting standards in the second quarter of 2017.
Risk-adjusted margin (%)
In line with previous guidance, the annualised risk-adjusted margin has moderated from 32.2% to December 2016 to 30.2% to December 2017, reflecting a reduction in the revenue yield due to a further decline in the penetration of ROP within the customer base and some moderation in the interest yield from the changing mix of business.
Return on assets (%)
Vanquis Bank delivered an annualised return on assets of 11.9% to December 2017, lower than 13.8% to December 2016.
CONSUMER CREDIT DIVISION
CCD risk-adjusted margin (%)
Impairment in CCD showed a significant increase of 144.6% to £293.5m in 2017 (2016: £120.0m) reflecting the significant disruption experienced on migration to the new operating model and the rate of reconnection with those customers whose relationship had been adversely impacted being at the lower end of expectations.
The significant increase in impairment experienced during 2017 resulted in CCD’s annualised risk-adjusted margin reducing from 78.4% to 31 December 2016 to 35.5% to 31 December 2017.
CCD return on assets (%)
CCD’s ROA has reduced from a positive return of 22.3% in 2016 to a negative return of 17.4% in 2017, reflecting the significant impairment arising as a result of the operational disruption in home credit following the poorly executed migration to the new operating model in July 2017.
Risk-adjusted margin (%)
The annualised risk-adjusted margin has moderated from 24.1% to December 2016 to 21.8% to December 2017 reflecting additional impairment associated with the step-up in new business volumes and the flow through of impairment from higher risk categories of business prior to the tightening of underwriting in the second quarter.
Return on assets (%)
Moneybarn delivered an annualised return on assets of 11.6% to 31 December 2017, modestly down from 13.1% to 31 December 2016, reflecting additional impairment associated with the step-up in new business volumes and the flow through of impairment from higher risk categories of business prior to the tightening of underwriting in the second quarter.
Generating high shareholder returns
- Generate sustainable growth in profits and dividends to deliver increasing shareholder returns; and
- Maintain a dividend cover of at most 1.25 times.
Adjusted earnings per share (p)
Adjusted basic earnings per share reduced by 64.8% to 62.5p (2016: 177.5p), broadly in line with the reduction in adjusted profit before tax of 67.3%. The basic loss per share fell by 149.9% to 90.7p (2016: earnings per share of 181.8p).
Dividend per share (p)
On 22 August 2017, as a result of the impact of the trading disruption in home credit and the FCA investigation into ROP, the Board announced that the interim dividend for the 2017 financial year was withdrawn and a final dividend was unlikely in order to retain liquidity and balance sheet stability. On 13 October 2017, the Board confirmed that a full-year dividend in respect of 2017 would not be paid.
Total shareholder return (%)
Annual total shareholder return of -65.3% in 2017 (2016: -11.6%), principally reflecting the significant reduction in the group’s share price following the trading update on 22 August 2017.
Dividend cover has reduced to 1.32 times (2015: 1.35 times) but is well above the group’s minimum dividend cover target of 1.25 times. The group’s dividend is supported by strong capital generation.
Maintaining a secure funding and capital structure
- 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.
The group’s underlying gearing increased from 2.3 times at 31 December 2016 to 3.0 times at 31 December 2017, consistent with the increase in the borrowings to tangible net worth ratio. After recognising the exceptional costs in respect of the FCA investigations, the group’s gearing increases to 4.3 times as reported at 31 December 2017, before decreasing to 2.2 times on an unaudited pro forma basis after assuming successful completion of the proposed rights issue. This compares with a covenant limit of 5.0 times.
Acting responsibly and with integrity in all we do
- 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.
Customer satisfaction (%)
Customer satisfaction of 85% for Provident home credit (2016: 93%), 87% for Vanquis Bank (2016: 89%), a Feefo score of 4.7 out of 5 for Moneybarn (2016: 4.7 out of 5) and a Reviews.co.uk score of 4.8 out of 5 for Satsuma (2016: 4.6).
Community investment (£m)
Invested a total of £2.6m in various community programmes, money advice programmes and social research (2016: £3.1m).
Adjusted profit before tax – Profit before tax, the amortisation of acquisition intangibles and exceptional item.
Return on assets (ROA) – Adjusted profit before interest after tax as a percentage of average receivables.
Return on equity (ROE) – Adjusted profit after tax as a percentage of average shareholders’ equity. Shareholders’ equity is stated after deducting the group’s pension asset, net of deferred tax, the fair value of derivative financial instruments (hedging reserve), and the proposed final dividend.
Risk-adjusted margin (RAM) – Revenue less impairment as a percentage of average receivables.
Adjusted basic earnings per share – Profit after tax, excluding the amortisation of acquisition intangibles and exceptional items, divided by the weighted average number of shares in issue, excluding own shares held by the group.
Dividends per share – The total dividend per share, comprising the interim dividend per share paid and the proposed final dividend per share.
Gearing – Borrowings (excluding deferred arrangement fees) less the liquid assets buffer, including liquid resources, divided by equity. Equity is stated after deducting the group’s pension asset, net of deferred tax and the fair value of derivative financial instruments, in line with the group’s banking covenants.
Customer satisfaction – The percentage of customers surveyed who are satisfied with the service they have been provided with.
Community investment – The amount of money invested in support of community programmes, money advice programmes and social research.
Total shareholder return – The change in the group’s share price, together with any dividend returns made to shareholders.