Provident Financial plc (‘the Group’) is the leading provider of credit products to consumers who are underserved by mainstream lenders. The Group serves c.2.2 million customers and its operations consist of Vanquis Bank, Moneybarn, and the Consumer Credit Division (‘CCD’) comprising Provident home credit and Satsuma.
Key financial results
|Adjusted profit/(loss) before tax:|
|– Vanquis Bank||11.8||90.5|
|– Central costs||(9.2)||(10.5)|
|Adjusted (loss)/profit before tax2||(32.6)||80.4|
|Amortisation of acquisition intangibles||(3.7)||(3.7)|
|(Loss)/profit before tax||(28.0)||43.1|
|Adjusted basic EPS2||(10.1)||23.4|
Malcolm Le May, Chief Executive Officer, commented:
“I would like to thank all my colleagues for their hard work and compassion in helping our customers through a very difficult period in their lives. The first six months of this year have been the most difficult and testing in my career. However, I am very pleased with how well the Group has responded to the challenges brought about by Covid-19, and how effectively we have operated. We are reporting an adjusted loss before tax for the period of £32.6m, this result is better than our initial view of Covid-19’s potential impact on our businesses. Pleasingly, within this number Vanquis Bank and Moneybarn were both profitable.
Looking forward, our strong financial position will mean that we can keep helping, and responsibly lending to, our customers, many of whom are key workers, as we, and they, face the challenge of furlough support ending and unemployment rising in the coming months. Provident Financial has performed robustly in the first half of the year because we focused on our customers, colleagues and strengthening our balance sheet for the challenges the pandemic would bring. In fact financial and operational performance were better than expected, and therefore we have decided to repay all furlough support to the government. We believe this is the right thing to do, and on behalf of customers have also advocated the government should support wider funding for the sector. Our market will grow due to the pandemic, but at present it appears the supply of credit into the market is decreasing, which cannot be a good outcome for customers, nor a public policy one for the UK.”
Strong capital and liquidity built during H1’20; operational adaptations to Covid-19 challenges effective
- Group statutory loss before tax of £28.0m (H1’19 PBT: £43.1m1) includes an exceptional provision release of £8.3m (H1’19: £33.6m exceptional cost) following the completion of the ROP refund programme in 2019 and the re-evaluation of the forward flow of claims that may arise in respect of ROP in future.
- Group adjusted loss before tax of £32.6m (H1’19 PBT: £80.4m1) is favourable to internal plans, created at the beginning of lockdown.
- Strong capital and liquidity positions built during the period with regulatory capital of £705m at the end of June, which equates to a CET1 ratio of 35.4%, and a surplus of £215m above the minimum regulatory requirement.
- Total Group liquidity at the end of June stood at £1.2bn, including c.£1bn held by Vanquis Bank.
- The Voluntary Requirement (VREQ) entered into by Vanquis Bank in December 2016, in respect of payments of dividends and loans to companies within the Group, has been lifted by the Prudential Regulatory Authority (PRA).
- In June, a waiver was agreed up to (but excluding) 31 December 2020 and an amendment with respect to its interest cover covenant on its Revolving Credit Facility (RCF) with the lending banks.
- The Group has taken the decision to repay HMRC all money received to date in respect of the Government’s job retention scheme as well as all deferred tax payments and to not benefit from future Government support in this respect.
- The Board is not proposing an interim dividend (H1’19: 9.0p per share), with the continued aim of preserving capital and supporting business stability. However, it remains the Group’s intention to resume dividend payments to shareholders as soon as operational and financial conditions normalise.
Vanquis Bank responded well to the impact of Covid-19; customer spend trends improving more recently
- Vanquis Bank reported PBT for the first six months of the year of £11.8m (H1’19 restated: £90.5m1), in line with recently produced internal plans, but lower than last year driven by the reduction in customer spend and impairment caused by Covid-19.
- New customer bookings for the period were 147k (H1’19: 190k). Decisive action was taken in April to significantly tighten underwriting and reduce new customer bookings by 75%. New customer booking has been re-established in July at volumes close to 50% of pre-Covid-19 levels as scorecards are recalibrated.
- Customer expenditure trends continue to improve as lockdown restrictions have eased. In April, spend was 40% lower year-on-year, but the progressive improvement in customer spending has continued in the third quarter with the gap to prior year narrowing to 15% in July and August.
- Payment holiday take up by Vanquis Bank credit card customers was c.2% at the end of June representing c.4% of outstanding balances, comparatively lower than market competitors.
- The annualised impairment rate at the end of June of 18.0% (H1’19: 14.9%) reflected additional first half impairment of approximately £70m from the impact of Covid-19 and the adverse macro-economic outlook.
Moneybarn stayed open for business during lockdown and has seen new business recover strongly
- Moneybarn delivered PBT for the period of £2.4m (H1’19: £15.5m1) ahead of management plans created post-lockdown but down year-on-year. The increase in Moneybarn’s revenue year-on-year was offset by increased impairment.
- Moneybarn remained open to new business throughout April, at a time when many of its competitors stopped lending, and has improved its market share, as well as credit quality, as a result.
- Demand for used cars has rebounded strongly and new business volumes have followed suit, with July being a record month with over 4,500 deals written despite tighter underwriting.
- Payment holiday take-up by Moneybarn customers peaked at c.28% of customers and has now reduced to c.3.5% at the end of July.
- The annualised impairment rate increased to 12.0% (H1’19: 7.1%) driven by higher arrears across the book and provisions for the deteriorating macro-economic outlook.
CCD experienced the greatest level of operational challenges but proved its adaptability & resilience
- CCD reported a loss before tax (LBT) of £37.6m (H1’19 LBT: £15.1m), favourable compared to internal plans but a larger loss than last year, reflecting a significant reduction in receivables and an increase in impairment.
- Customer numbers ended June at c.379k (H1’19: c.531k) driven by lower customer demand and a reduction in new business.
- In home credit, collections performance for July was running at >90% of pre-Covid-19 levels with the split between cash and remote collections of c.19% and c.81% respectively. Issue values to existing customers were c.90% of pre-Covid levels in July and c.40% to new customers, demonstrating our stricter approach to lending post-lockdown.
- Receivables at the end of June stood at £147m (H1’19: £245m) reflecting lower levels of new lending and better than expected collections during the first half.
- Provident Direct (Continuous Payment Authority payment of loan instalments) was rolled out nationally in the UK by the end of March, several months ahead of schedule, to provide a non-face-to-face payment channel.
Analysts and shareholders:
Owen Jones, Head of Investor Relations: 07341 007842, Owen.email@example.com
Richard King, Provident Financial: 07919 866876
Nick Cosgrove/Simone Selzer, Brunswick: 0207 4045959, firstname.lastname@example.org
- The 2019 June comparatives have been restated to incorporate two changes in accounting policies reflected in the 2019 financial statements: (i) change in treatment of directly attributable deferred acquisition costs in Vanquis Bank; and (ii) changes in the recognition of revenue on credit impaired receivables and treatment of directly attributable acquisition costs in Moneybarn.
- Adjusted (Loss)/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 (2019: £3.7m); and (ii) an exceptional credit of £8.3m (2019: exceptional cost of £33.6m) following the completion of the ROP refund programme in 2019 and the re-evaluation of the forward flow of claims that may arise in respect of ROP in future.
- Return on average required regulatory capital (RORE) reflects annualised statutory profit after tax divided by the annualised average monthly regulatory capital requirement.
This report may contain certain "forward looking statements" regarding the financial position, business strategy or plans for future operations of Provident. All statements other than statements of historical fact included in this document may be forward looking statements. Forward looking statements also often use words such as "believe", "expect", "estimate", "intend", "anticipate" and words of a similar meaning. By their nature, forward looking statements involve risk and uncertainty that could cause actual results to differ from those suggested by them. Much of the risk and uncertainty relates to factors that are beyond Provident’s ability to control or estimate precisely, such as future market conditions and the behaviours of other market participants, and therefore undue reliance should not be placed on such statements which speak only as at the date of this report. Provident does not assume any obligation to, and does not intend to, revise or update these forward looking statements, except as required pursuant to applicable law or regulation.
No statement in this announcement is intended as a profit forecast or estimate for any period. No statement in this announcement should be interpreted to indicate a particular level of profit and, as a consequence, it should not be possible to derive a profit figure for any future period from this report.