Provident Financial plc is the leading non-standard lender in the UK. The group serves 2.5 million customers and its operations consist of Vanquis Bank, the Consumer Credit Division (CCD) comprising Provident and Satsuma, and Moneybarn.
Dividend maintained recognising the group’s medium-term growth opportunities
First-half adjusted profit before tax1 reduced by 22.6% to £115.3m (2016: £148.9m) and adjusted basic earnings per share1 down by 22.6% to 60.3p (2016: 77.9p) as a result of disruption from the migration of the home credit business to a new operating model with Vanquis Bank, Moneybarn and Satsuma continuing to experience strong growth.
First half statutory profit before tax reduced by 45.6% to £90.0m (2016: £165.4m) and basic earnings per share down 46.3% to 46.2p (2016: 86.0p).
Annualised return on assets2 of 13.1% to June 2017, reduced from 15.7% to June 2016, primarily due to the impact of trading disruption in home credit and the investment to support medium-term growth in Vanquis Bank.
Interim dividend per share maintained at 43.2p (2016: 43.2p).
Strong growth momentum in Vanquis Bank
27% uplift in first half new customer bookings reflects momentum from expanded credit card proposition.
Customer numbers and receivables growth of 13.6% and 15.3% respectively against unchanged credit standards.
Loans pilot, currently focused on serving existing credit card customers, is progressing well.
Adjusted profit before tax1 up 0.3% to £100.1m (2016: £99.8m) is stated after the cost associated with the step-up in new business volumes and additional year-on-year investment of £10m to augment medium-term growth.
Annualised return on assets2 of 12.8% to June 2017, down from 14.2%3 to June 2016, reflects investment in growth and expected moderation in RAM.
CCD profitability impacted by disruption from migration to a new operating model
Strategic rationale for the new operating model, which delivers complete ownership and management of the customer relationship, is compelling.
New operating model was launched on 6 July 2017 with focus through the third quarter on embedding the new model and collections.
Higher than expected agent attrition together with reduced agent effectiveness during the transition increased impairment by approximately £40m reflecting operational disruption rather than credit quality.
Very good progress made in developing the further lending and digital capability at Satsuma.
Adjusted profit before tax1 reduced by £37.2m to £6.3m (2016: £43.5m) and annualised return on assets2 of 15.8% to June 2017, down from 22.3% to June 2016.
Moneybarn delivers further strong growth in new business
Significant growth in new business volumes of 15%.
Adjusted profit before tax1 up 24.3% to £16.9m (2016: £13.6m).
Stable annualised return on assets2 of 12.8% (2016: 12.9%).
Funding and liquidity position
Headroom, including retail deposits capacity, sufficient to fund contractual maturities and projected growth in the business until the seasonal peak in 2018.
Gearing of 2.7 times (2016: 2.3 times) compared with a banking covenant limit of 5.0 times.
Key financial results
Adjusted profit before tax1
Statutory profit before tax
Adjusted earnings per share1
Basic earnings per share
Annualised return on assets2
Interim dividend per share
Peter Crook, Chief Executive, commented:
“Whilst I remain disappointed by the higher than expected operational disruption to trading in the home credit business, the new business model was deployed as planned during the first week in July. Our focus will be on customer service, embedding the new model and improving collections through the third quarter of the year. I am confident in the strategic rationale for the change and the business is working hard to improve customer service and collections performance ahead of the seasonally busy fourth quarter.
Vanquis Bank, Moneybarn and Satsuma are booking record volumes of new business derived from a combination of product innovation and enhanced distribution.
The group has continued to exercise strong discipline around credit and not observed changes in customer behaviour in relation to either demand for credit or credit performance.
The board has maintained the interim dividend recognising the group’s medium-term growth opportunities.”
David Stevenson/ Jade Byrne Provident Financial
Nick Cosgrove/Simone Selzer, Brunswick
Adjusted profit before tax is stated before: (i) £3.7m of amortisation in respect of acquisition intangibles established as part of the acquisition of Moneybarn in August 2014 (2016: £3.7m); and (ii) an exceptional charge of £21.6m in respect of redundancy, retention and training costs associated with the migration to the new home credit operating model within CCD (2016: gain on disposal of £20.2m in respect of Vanquis Bank’s interest in Visa Europe following completion of Visa Inc.’s acquisition of Visa Europe on 21 June 2016).
Annualised return on assets is calculated as adjusted profit before interest after tax as a percentage of average receivables for the 12 months ended 30 June.
Vanquis Bank’s reported annualised return on assets of 14.9% to June 2016 has been adjusted to assume the 8% corporation tax surcharge effective from 1 January 2016 was payable through the whole 12 month period in order to aid comparison.