This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulation (EU) No 596/2014.
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 home credit and Satsuma, and Moneybarn
Settlement agreed with the Financial Conduct Authority (FCA) on Vanquis Bank’s Repayment Option Plan (ROP) investigation
Resolution reached on 27 February 2018 in respect of the FCA investigation into ROP within Vanquis Bank for failure to adequately disclose the potential charging of interest on ROP charges.
Total estimated cost of settlement of £172.1m reflected in the 2017 financial statements comprising customer restitution in the form of balance reductions and cash settlements of £127.1m, other estimated costs and provisions of £43.0m and a fine levied by the FCA of just under £2.0m.
Vanquis Bank will be working with the FCA on a plan to resume sales of ROP to new customers.
Moneybarn continues to cooperate with the FCA in its ongoing investigation into affordability, forbearance and termination options with an estimated liability of £20.0m.
Rights issue launched to ensure the group has appropriate levels of regulatory capital to meet its current and future requirements and position the group to deliver attractive returns for shareholders
Fully-underwritten rights issue launched to raise approximately £300m net proceeds (gross proceeds of £331m less expenses of £31m) to meet the estimated costs of the FCA investigations and ensure the group has appropriate levels of buffer over increased regulatory capital requirements, primarily due to an increase of approximately £100m in respect of conduct and operational risk assessments.
Group’s common equity tier (CET) 1 ratio of 14.5% at 31 December 2017 (2016: 21.9%) reflects full provision for the estimated costs of the FCA investigations, with an unaudited pro forma ratio, after the proposed rights issue proceeds, of 28.7%, comfortably above the revised minimum regulatory capital requirement of 25.5%.
Invesco Limited and Woodford Investment Management Limited, who in aggregate hold 48.3% of the company’s share capital, are supportive of the group’s plans and the rights issue.
Good progress made in implementing the home credit recovery plan whilst Vanquis Bank and Moneybarn continue to deliver good growth
Actions taken by management in home credit since August 2017 are delivering a significant improvement in customer service and operational performance, and the business enters 2018 with 527,000 active customers and receivables of £352.2m, consistent with the recovery plan.
Rationalisation of home credit central support functions underway reflecting the reduced size of the business.
Vanquis Bank new customer bookings of 437,000, up from 406,000 in 2016, reflects expansion in the credit card proposition, including the Chrome near prime credit card.
Customer numbers and average receivables growth in Vanquis Bank of 11.3% and 14.6% respectively, against credit standards which were tightened in the third quarter of the year, recognising the uncertainties faced by the UK economy.
Strong growth in Moneybarn new business volumes of 17%.
Group performance significantly impacted by the operational disruption in home credit following the poorly executed migration to the new operating model in July 2017
Adjusted profit before tax1 in 2017 reduced by 67.3% to £109.1m (2016: £334.1m) and adjusted basic earnings per share1 down by 64.8% to 62.5p (2016: 177.5p).
Exceptional costs of £224.6m reflected in 2017 (2016: exceptional gain of £17.3m) comprising estimated cost of settlement in respect of the FCA investigations in Vanquis Bank (£172.1m) and Moneybarn (£20.0m) together with costs incurred in CCD in respect of the migration to the new home credit operating model and subsequent implementation of the recovery plan (£32.5m).
Statutory loss before tax reduced by 135.8% to £123.0m (2016: profit of £343.9m) and basic loss per share down 149.9% to 90.7p (2016: earnings per share of 181.8p).
As previously indicated, the interim dividend was withdrawn in August 2017 (2016: 43.2p) and no final dividend is proposed in respect of 2017 (2016: 91.4p) in order to retain liquidity and balance sheet stability.
Group’s businesses have strong positions in their respective markets with clear path to future growth and attractive returns for shareholders
Significant actions underway to strengthen culture and governance with positive customer outcomes placed firmly at the centre of the group’s strategy.
Target financial model updated to reflect a moderation in the target group ROA to approximately 10%, sustainable receivables growth targets of between 5% and 10% per annum, maintaining an appropriate buffer over the group’s revised minimum capital requirement of a CET 1 ratio of 25.5% and a dividend cover ratio of at least 1.4 times.
The Board intends to restore dividends with a nominal dividend for the 2018 financial year before adopting a progressive dividend, in line with the above dividend policy, from the 2019 financial year.
Key financial results
2017 2016 Change
Adjusted profit before tax1 £109.1m £334.1m (67.3%)
Statutory (loss)/profit before tax (£123.0m) £343.9m (135.8%)
Adjusted earnings per share1 62.5p 177.5p (64.8%)
Basic (loss)/earnings per share (90.7p) 181.8p (149.9)%
Return on assets2 6.9% 15.3%
Final dividend per share -p 91.4p n/a
Total dividend per share -p 134.6p n/a
Malcolm Le May, Chief Executive Officer (CEO), commented:
“When I became group CEO, I stated my key objective was to execute a turnaround of the group. Today we have made progress on that objective by agreeing a resolution with the FCA in relation to Vanquis Bank and we now have a clear view on the estimated cost of the FCA investigation of Moneybarn.
To grow the business and deliver long-term sustainable returns to our shareholders, PFG needs to strengthen its balance sheet. Today we have announced a proposed rights issue to raise net proceeds of £300m which the Board believes will allow the group to implement its strategy and restart paying a progressive dividend in 2019.
The group’s businesses of Vanquis Bank, Provident home credit, Satsuma, and Moneybarn are all well positioned in their markets, with products that customers’ value and which operate well throughout the economic cycle. The recovery in Provident home credit is on track with collections performance continuing to improve.
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.”
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 provisions 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 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 and subsequent implementation of the recovery plan to re-establish relationships with customers and stabilise the operation following the poor execution of the migration (2016: net exceptional credit of £17.3m).
Adjusted profit before interest after tax as a percentage of average receivables.