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RNS Number : 0701N
Provident Financial PLC
15 January 2019
Provident Financial plc
Trading update
15 January 2019
Provident Financial plc, the leading provider of credit products
to those consumers who are not well served by mainstream lenders,
makes the following update on trading for the financial year ended
31 December 2018, ahead of its preliminary results for the year
which will be announced on 27 February 2019.
Group
The group has made further good progress during the final
quarter against its operational objectives for 2018:
-- The Consumer Credit Division (CCD) achieved full
authorisation from the Financial Conduct Authority (FCA) on 9
November 2018. Management continue to progress discussions with the
FCA regarding the implementation of enhanced performance management
of our Customer Experience Managers (CEMs), including some element
of variable related pay, which is important in returning the
business to run-rate profitability in due course;
-- Vanquis Bank has made significant progress in delivering the
Repayment Option Plan (ROP) refund programme, with over 1 million
customers now refunded, and adapting to the measures in the Credit
Card Market Study (CCMS). The refund programme is on-track to be
substantially completed in early 2019;
-- Moneybarn continues to assist the FCA in its investigation
into affordability, forbearance and termination options and is
working towards concluding the matter in the first half of
2019;
-- Further strengthening of the Board and governance framework; and
-- The group's funding and capital positions remain strong.
Moneybarn has continued to perform well and CCD has performed in
line with internal plans during the last quarter of the year.
Vanquis Bank has delivered further customer and receivables growth
although impairment has been modestly higher than expected. This
reflects the continued increase in the use of payment arrangements
from enhanced forbearance measures as reported in the October
trading statement. The group therefore expects to report profits
for 2018 towards the lower end of the range of market expectations
of GBP151m to GBP166m.*
Commenting on the final quarter of the year, Malcolm Le May,
Chief Executive Officer, said:
"I am very pleased with the progress we have made in 2018 on
delivering against the operational objectives we set ourselves at
the start of the year. The FCA authorisation of CCD and the
substantial completion of the ROP refund programme in Vanquis Bank
have been major milestones for the group. In addition, we have made
good progress on the FCA investigation at Moneybarn and are working
towards concluding this matter in the first half of 2019.
We have been progressively tightening our underwriting standards
throughout the group in anticipation of the current uncertain UK
economic environment we are facing. We will continue to monitor
underwriting standards in light of any changes in customer
behaviour.
The group has strong funding and capital positions and the
actions we have taken over the last 18 months have established a
solid foundation for continuing to deliver on our strategic aim of
being the leading provider of credit products to the 10 to 12
million consumers who are not well served by mainstream
lenders."
Vanquis Bank
Vanquis Bank delivered fourth quarter new account bookings of
76,000, 17,000 lower than the last quarter of 2017. Total new
account bookings for 2018 were 366,000, 71,000 lower than 2017
which reflects the impact of tighter underwriting, the cessation of
the Argos contract in early 2018 and a temporary reduction in the
marketing programme in the fourth quarter as the business focused
on implementation of a new underwriting platform which went live in
November.
Customer numbers ended the year at 1,773,000, representing
year-on-year growth of 3.1%. The growth in customer numbers and
credit line increases to established customers combined to produce
receivables growth for the year of approximately 5%. In response to
the CCMS measures on persistent debt, the business increased the
required minimum payments due from customers in the fourth quarter
of the year and expects to roll-out the use of recommended payments
in the near future. The timing of implementation of these measures
has not resulted in a material impact on receivables growth in 2018
as was anticipated at the start of the year. However, the measures
are expected to moderate receivables growth in 2019 as they fully
flow through into customer repayment behaviour.
There has been some pressure on delinquency and arrears metrics
in the second half of the year. This primarily reflects the
continued increase in the use of payment arrangements, as first
reported in October 2018, relating to enhanced forbearance
procedures. Underwriting standards have been progressively
tightened over the last 18 months which, together with the historic
resilience of the business model, means that Vanquis Bank is
well-positioned if there is any deterioration in the UK economic
environment.
The annualised risk-adjusted margin has shown a further
reduction in the last quarter. This reflects two factors. Firstly,
the anticipated moderation in the revenue yield, primarily due to
the continuing reduction in the penetration of the ROP product
within the customer base following the cessation of sales to new
customers in April 2016 together with the continued expansion of
the product offering into the near prime segment of the market
through the Chrome branded card. Secondly, the modest increase in
impairment.
The refund programme to current and past ROP customers is
on-track to be substantially completed in early 2019. Following the
step up in the volume of refunds being processed in the final
quarter, over 1 million customers have now been refunded,
representing approximately GBP160m of cash refunds and balance
reductions. The level of ROP-related complaints has remained lower
than expected following the announcement of the settlement on 27
February 2018.
CCD
CCD was fully authorised by the FCA on 9 November 2018. This
followed the successful implementation of the home credit recovery
plan over the previous 12 months, including the roll-out of a new
operating model which provides improved oversight and control over
field activity and customer outcomes.
The recruitment of new customers in home credit was marginally
above plan during the peak fourth quarter trading period. In
addition, Satsuma continued to deliver strong growth with fourth
quarter new business and further lending volumes showing a
year-on-year increase of approximately 38%. As a result, CCD active
customer numbers and receivables ended the year at 560,000 and
approximately GBP290m respectively, marginally ahead of internal
expectations and stable with June 2018.
The collections performance of credit originated since the
fourth quarter of 2017 continues to remain broadly in line with the
levels achieved prior to the change of operating model from
self-employed agents to employed CEMs in July 2017, where the CEM
has issued the credit and the ownership of the customer
relationship is strong. However, the collections performance on
credit originated prior to the fourth quarter of 2017, where the
CEM typically did not originate the credit following the change in
operating model, remains significantly lower than historic levels
and has not shown any improvement, consistent with the experience
reported in the second and third quarters of the year. Importantly,
however, these balances now represent less than 10% of the carrying
value of receivables.
As previously indicated, performance management of the field
force continues to be focused on managing activity and customer
outcomes without the use of performance-related pay or financial
objectives. The business is continuing to progress discussions with
the FCA regarding the implementation of enhanced performance
management of CEMs based upon a balanced scorecard approach and
some element of variable related pay. The implementation of
enhanced performance management is essential to improving the
efficiency and effectiveness of the field organisation, both in
terms of delivering consistently good customer outcomes and
returning the business to run-rate profitability in due course
through growing the customer base and improving collections
performance.
Action continues to be taken to align the cost base with the
reduced size of the business. Whilst the business has invested in
field management to improve oversight and control, the number of
CEMs has shown a further reduction from around 2,300 at the end of
September to around 2,100 at the end of December. In addition, the
central cost base and resources within central support functions
continues to be carefully managed.
Moneybarn
Moneybarn has continued to deliver strong growth with demand and
used car prices remaining robust. As a result, fourth quarter new
business volumes showed year-on-year growth of 21%. Customer
numbers ended the year at 62,000, representing year-on-year growth
of approximately 24%, with receivables showing a similar level of
growth.
Default rates and arrears levels in Moneybarn have remained
stable over the last six months following the initial tightening of
underwriting in the second quarter of 2017 on higher risk
categories of business and the removal of a tier of lower value
business in the second quarter of 2018. As a result, the annualised
risk-adjusted margin has shown further improvement during the final
quarter of the year.
Moneybarn continues to assist the FCA in respect of its ongoing
investigation into affordability, forbearance and termination
options and is working towards concluding the matter in the first
half of 2019.
Exceptional costs
The group expects to report exceptional costs of approximately
GBP55m in 2018, of which GBP37m were incurred in the first half,
representing: (i) costs associated with the implementation of the
home credit recovery plan of approximately GBP30m, comprising
intangible and tangible asset write offs, redundancy and
consultancy costs (June 2018: GBP18.1m); (ii) the 8% premium and
fees paid on redemption of 89% of the GBP250m senior bonds maturing
in October 2019 amounting to GBP18.5m (June 2018: GBP18.5m); and
(iii) approximately GBP7m of non-cash pension charges in respect of
the equalisation of Guaranteed Minimum Pensions following the High
Court judgement against Lloyds Bank PLC and others in October 2018
(June 2018: GBPnil).
Regulation
The FCA's final rules and guidance from PS18/19 'Assessing
creditworthiness in consumer credit' came into effect on 1 November
2018. All of the group's businesses have taken the necessary
measures to meet the affordability principles arising from this
review.
On 18 December 2018, the FCA published CP18/43 in respect of its
review of high-cost credit, including final rules and guidance in
respect of home-collected credit. The changes made by CCD to the
home credit operating model over the last 18 months, in particular
the recording of all sales interactions with customers, means that
the business will be able to evidence compliance with the revised
requirements by the deadline of 19 March 2019.
Dividends
As previously communicated, the Board expects to declare a
nominal dividend in respect of the 2018 financial year.
* Market expectations in this announcement represent a mean
consensus 2018 group profit before tax, amortisation of acquisition
intangibles and exceptional items of GBP159m with a range of
GBP151m to GBP166m based on the forecasts published by 12 equity
research analysts.
Enquiries:
Media
Richard King, Provident Financial 0203 6203073
Jade Byrne, Provident Financial 01274 351900
Nick Cosgrove/Simone Selzer, Brunswick 0207 4045959
providentfinancial@brunswickgroup.com
Investor relations
Gary Thompson/Vicki Turner, Provident
Financial 01274 351900
investors@providentfinancial.com
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END
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