Provident Financial plc, the leading UK non-standard lender, makes the following update on trading for the financial year ended 31 December 2015, ahead of its preliminary results for the year which will be announced on 23 February 2016.
The group expects to report results for 2015 in line with market expectations*.
Vanquis Bank continued to deliver strong growth and good margins through the fourth quarter of the year. The customer acquisition programme generated record bookings of 433,000 for 2015, marginally up from 430,000 in 2014, and UK customer numbers ended the year at 1,421,000, 9.9% higher than the previous year. The growth in customer numbers and credit line increases to established customers combined to produce average receivables growth for the year of approximately 19%.
Underwriting criteria have remained unchanged, delinquency levels have been stable and the annualised risk-adjusted margin for 2015 of just below 33% is consistent with September 2015.
Consumer Credit Division (CCD)
CCD is expected to report profits for the year marginally above 2014 as a result of strong execution against the programme of work to transition the home credit business to a smaller but leaner, better-quality, modern business focused on returns.
Sales in the home credit business through the seasonal peak were marginally above the fourth quarter of last year, notwithstanding the year on year reduction in the customer base, benefitting from the progressive improvement in credit quality and continued modest improvements in demand and customer confidence. As planned, the reduction in CCD customer numbers and receivables of 11% and 7% respectively was fully mitigated by a significant strengthening in the risk-adjusted margin to over 80%. The risk-adjusted margin is over 10% higher than 2014 through a combination of a continued strong collections performance and an increase in the revenue yield.
As reported in the third quarter Interim Management Statement, Satsuma has continued to develop and refine its underwriting standards, typical for a nascent business of this nature. This evolution resulted in a significant tightening of credit from October which reduced the conversion rate by some 5% to around 10% and impacted growth in the fourth quarter. Customer numbers and receivables ended 2015 at 49,000 and £12.1m respectively compared with 53,000 and £13.8m respectively at September 2015. Importantly, the expected step-change in the credit quality of new business has materialised and the business is also seeing a good flow of further lending to established customers. Demand for Satsuma loans is strong and the business remains on track to produce a modest profit contribution in 2016.
Moneybarn has continued to enjoy strong new business volumes. Access to the group’s funding since acquisition in August 2014 and extension of the product offering, including lending up to retail value, has enabled the business to generate 2015 new business volumes 69% higher than the previous year. Fourth quarter growth was 28% versus the comparative period that was the first under the group’s ownership. As at 31 December 2015, customer numbers were 31,000 (December 2014: 22,000) and receivables were close to £220m (December 2014: £151.7m), showing year on year growth of approximately 45%.
The group’s funding position remains strong. The headroom on the group’s committed debt facilities at 31 December 2015 amounted to approximately £222m which, together with the retail deposit programme at Vanquis Bank, is sufficient to fund maturities and projected growth until May 2018.
Commenting on the final quarter of the year, Peter Crook, Chief Executive, said:
“I am pleased to tell you that the group is expected to report 2015 results in line with market expectations.
All our businesses have traded well through the final quarter of the year and our funding position remains strong.”
* Market expectations in this announcement represent a consensus 2015 group profit before tax, amortisation of acquisition intangibles and exceptional costs of £291m based on the average of forecasts published by 10 equity research analysts.