Interim Results for the 6 months ending 30 June 2021

Provident Financial plc (‘PFG’ or ‘the Group’), the leading provider of credit products to consumers who are underserved by mainstream banks, today publishes its interim results for the six months ended June 2021, unless otherwise stated.

Malcolm Le May, Chief Executive Officer, commented:

 “The first six months of 2021 showed a marked contrast to the extremely difficult conditions seen throughout 2020. Underlying customer trends and macroeconomic conditions have improved year-on-year, allowing us to focus on the core businesses, which is reflected in our results. For the first six months of the year, the Group generated an adjusted ongoing profit before tax, excluding our Consumer Credit Division (CCD), of £63.5m. Including losses from CCD, the Group generated a statutory loss before tax of £44.2m for the period.

 In March, we notified the market of our intention to launch a Scheme of Arrangement for CCD and in May, regrettably, we took the difficult decision to place the business into a managed run-off. I am pleased that the proposed Scheme of Arrangement for CCD, which was provided for in our 2020 accounts, was sanctioned by the High Court on 4 August. We can now continue to move forwards with our plans to close the business before paying customer redress claims during 2022.

During the remainder of 2021, PFG will accelerate its transition towards becoming the leading specialist bank focused on financially underserved customers, serving growing market segments with a range of mid-cost products across credit cards, vehicle finance and unsecured personal loans. We are well positioned to complete this transition successfully and our strategy is underpinned by a robust balance sheet with access to a diverse range of funding options.”

Key financial results

Highlights

Strong performance from ongoing operations; Scheme of Arrangement for CCD sanctioned after the period end

• Group adjusted ongoing profit before tax (PBT), excluding CCD, of £63.5m (H1’20 restated PBT: £4.9m) reflects a reduction in impairment and costs year-on-year which combined to offset the fall in revenue.
• Group statutory loss before tax (LBT) of £44.2m (H1’20 restated LBT: £28.1m) includes £46.3m of exceptional costs related to the wind-down of the CCD businesses.
• Vanquis Bank and Moneybarn were profitable for the period, including and excluding the impact of provision releases triggered by an improvement in macroeconomic outlook. The businesses remain conscious of potential macroeconomic shocks that may arise during H2’21 as government support schemes come to an end.
• At the end of June, the Group held regulatory capital of approximately £585m, which equated to a CET1 ratio of 32.5% (H1’20: 35.4%). The reduction year-on-year predominantly reflects the performance in the period and the transitional impact of IFRS 9.
• Total Group liquidity at the end of June stood at approximately £510m (H1’20: £1.2bn) including approximately £280m held by Vanquis Bank, which represents a more normalised level of liquidity for the Bank.
• Shortly after the period end, the Group successfully refinanced its Revolving Credit Facility and Moneybarn’s securitisation facility to at least 2023, increasing its net committed funding by approximately £120m since the year end.
• The Board is not proposing a dividend with respect to this interim period (H1’20: nil) as the focus remains on preserving capital during the period of closure of the CCD business. The Group will revisit its policy at the year end, allowing time for the Board to assess the impact of the end of furlough, and any future lockdown restrictions, on the Group’s customers.

Credit card customer expenditure improved during H1’21; delinquency trends remain favourable

• The Group’s credit card and personal loans business, Vanquis Bank, reported an adjusted PBT for the first six months of the year of £57.1m (H1’20: £11.8m), driven by lower impairments as a result of more favourable macroeconomic conditions.
• New customer bookings for the period were 97k (H1’20: 147k) as the business retained a cautious approach to risk appetite and as lockdown restrictions reduced customer demand.
• Customer expenditure trends improved progressively throughout the first six months of the year as lockdown restrictions were lifted. At the end of June, expenditure levels were up by 17% year-on-year and were in-line with levels seen in June 2019 on a per customer basis.
• Customer receivables ended the period at £994m (H1’20: £1,202m), including unsecured personal loan receivables of c.£16m. The overall reduction year-on-year reflects lower customer acquisition and a reduction in customer expenditure during lockdown.
• The take-up of payment holidays amounted to approximately 0.4% (H1’20: 2%) of customers and 0.1% (H1’20: 4%) of receivables at the end of June.
• The annualised impairment rate at the end of June of 6.1% (H1’20: 22.3%) reflects a significant reduction in the impairment charge year-on-year to £30.8m (H1’20: £149.9m) and the fall in receivables. The coverage ratio increased by 1.3% to 31.5%, as the impact of the improved unemployment outlook has been more than offset by the lower than usual charge offs observed over the last 12 months as customers have been supported by government support on a reduced receivables book.

Vehicle finance receivables passed £600m for the first time and customer demand remains buoyant

• The Group’s vehicle finance business, Moneybarn, delivered an adjusted PBT for the period of £15.5m (H1’20 restated: £2.3m) driven by higher revenue year-on-year, as a result of the growth in the receivables book, and lower impairment.
• For the first six months of the year, customer demand for used vehicles improved progressively as lockdown restrictions were eased and this resulted in credit issued increasing by nearly 30% to approximately £150m (H1’20: £121m).
• Customer receivables were £602m at the end of June (H1’20 restated: £516m), representing the first time that receivables have exceeded £600m, vs. the £130m of receivables the business had when it was acquired in August 2014.
• Payment holiday take-up by Moneybarn customers remains extremely low and ended the period at just 0.1% of customers (H1’20: 3.5%).
• The annualised impairment rate improved to 6.8% during the period (H1’20: 14.1%) following Moneybarn’s inability to repossess vehicles last year and due to an improved arrears picture across the book.
• Shortly after the period end, PFG signed a new warehouse securitisation facility for Moneybarn. This increases its committed funding to £325m (from £150m at 31 December 2020) over a new 24 month period (plus any amortisation thereafter) and will increase the weighted average duration of the Group’s funding sources and decrease its weighted average cost of funds to Moneybarn.

Managed run-off of CCD is progressing well; Scheme of Arrangement sanctioned by the High Court

• On 10 May 2021, PFG announced the regrettable decision to withdraw from the home credit market and subsequently placed the home credit business into a managed run-off, with the expectation that the run-off will be completed by 2022.
• The Scheme received creditor approval of approximately 98% and was sanctioned by the High Court on 4 August 2021, following the hearing on 30 July 2021.
• As at the end of July, the CCD receivables book stood at approximately £37m and, as previously announced, PFG expects the closure of CCD to lead to losses of up to £100m.

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¹     The 2020 June comparatives have been restated to incorporate the changes in Moneybarn accounting policies in relation to the definition of default reflected in the 2020 financial statements

 ²       Adjusted profit before tax from ongoing operations is defined as adjusted profit before tax before any losses incurred relating to CCD

 ³       Adjusted profit before tax is stated before amortisation of acquisition intangibles and exceptional costs of £46.3m relating to the closure of CCD and the CCD Scheme of Arrangement which include: (i) redundancy costs of £22.9m, net of a curtailment credit of £0.8m on the pension scheme; (ii) costs associated with the wind down of CCD including asset write downs and supplier and property exit costs (£13.4m); (iii) additional costs in relation to the Scheme (£5m); and (iv) expected costs in relation to the CCD enforcement investigation where a provision of £5m has now been recognised, which includes management’s estimate of liabilities which have not yet been discussed or agreed with the FCA.

 ⁴       Return on average required regulatory capital (RORE) reflects statutory profit after tax for the period, excluding CCD, multiplied by 365/181 divided by the average regulatory capital requirement for the period.