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RNS Number : 9434B
Provident Financial PLC
16 January 2018
This announcement contains inside information for the purposes
of article 7 of the Market Abuse Regulation (EU) No 596/2014
Provident Financial plc
Trading update
16 January 2018
Provident Financial plc, the leading UK non-standard lender,
makes the following update on trading for the financial year ended
31 December 2017, ahead of its final results for the year which
will be announced on 27 February 2018.
Summary
-- Vanquis Bank and Moneybarn have both traded satisfactorily
through the final quarter of the year.
-- The Consumer Credit Division (CCD) is expected to report a
pre-exceptional loss of approximately GBP120m which is at the upper
end of the guidance provided in August 2017. This reflects a lower
than expected rate of reconnection through the fourth quarter with
those home credit customers whose relationship had been adversely
impacted following the poorly executed migration to the new
operating model in July 2017.
-- Home credit management has delivered substantial improvements
in customer service and operational performance since August and
the business enters 2018 with some 530,000 active customers, up
from approximately 500,000 at September 2017.
-- Vanquis Bank and Moneybarn have both commenced dialogue with
the Financial Conduct Authority (FCA) with a view to reaching a
resolution to their respective investigations.
Malcolm Le May, Interim Executive Chairman, commented:
"I am pleased to report that good progress has been made towards
restoring customer service in the home credit business and that we
are engaged in a dialogue with the FCA with a view to reaching a
resolution of the regulatory investigations at Vanquis Bank and
Moneybarn. In addition, we continue to make progress in the search
for a new group Chief Executive.
All of our businesses have strong positions in their respective
markets. Our priorities for 2018 are to rebuild trust with our
customers, regulators, shareholders and employees. I would like to
thank all our employees for their continuing hard work and
dedication throughout a difficult period for the group."
Vanquis Bank
Total new customer bookings for 2017 were 437,000, up from
406,000 in 2016, reflecting the benefit from the actions put in
place in the second half of last year to develop the credit card
proposition and enhance distribution, including the launch of the
Chrome near prime credit card. Customer numbers ended the year at
1,710,000, representing year-on-year growth of 11%. The growth in
customer numbers and credit line increases to established customers
combined to produce receivables growth for the year of
approximately 13%.
Fourth quarter new customer bookings of 93,000 showed a
reduction of 20% from the same period in 2016. In the context of
the heightened macroeconomic uncertainties, underwriting was
tightened during the third quarter of the year and reduced new
booking volumes by approximately 10%. In addition, volumes
delivered by the Argos partnership during the seasonally busier
fourth quarter were 1,000 in 2017 compared with 15,000 in 2016.
Following its acquisition by Sainsbury's in September 2016, Argos
has reviewed all its strategic financial services partnerships and
in late December informed Vanquis Bank of its intention to exit the
partnership arrangement when the contract expires in early 2018 and
to take all of their card-issuing activities in-house.
Delinquency levels have remained broadly stable through the
fourth quarter of the year reflecting the sound quality of the
receivables book and the stable UK employment market. In line with
previous guidance, the annualised risk-adjusted margin has
moderated from 30.7% to September 2017 to just over 30% to December
2017 (December 2016: 32.2%), reflecting a reduction in the revenue
yield from a further decline in the penetration of the Repayment
Option Plan (ROP) within the customer base and some moderation in
the interest yield from the changing product mix.
The Vanquis Bank loans pilot, currently focused on loans to
existing credit card customers, continues to make steady progress.
Customer numbers and receivables ended 2017 at 10,000 and GBP15m
respectively and credit quality is in line with expectations.
CCD
The home credit business has made good progress in implementing
the recovery plan outlined in the trading update on 13 October
2017. The actions taken by management are delivering a significant
improvement in customer service and operational performance.
Collections performance in December of 78% was up from 65% in
September and 57% in August. However, following the disruption
experienced on migration to the new operating model, the rate of
reconnection with those customers whose relationship had been
adversely impacted was at the lower end of expectations through the
fourth quarter. As a result, the associated higher impairment
charge is expected to result in the home credit business reporting
a full-year pre-exceptional loss of approximately GBP115m.
Active home credit customer numbers ended the year at
approximately 530,000, up from approximately 500,000 at September
2017 and home credit receivables ended December at approximately
GBP350m, up from GBP316m at September 2017 (December 2016:
GBP560.0m).
As part of an ongoing process of reviewing its cost base, the
home credit business is announcing a proposed rationalisation of
its central support functions which is subject to workforce
consultation. This is a necessary step to align the cost base to
the reduced size of the business. In addition, the business expects
to secure improvements in the effectiveness and efficiency of the
field organisation as the new business model continues to be
embedded. Customer facing resource is being managed very carefully
in order to ensure that further improvements in customer service
are delivered.
Satsuma has continued to experience a step-up in volumes through
the ongoing improvements in the customer journey and product
distribution. New business volumes and further lending to
established customers during the fourth quarter was approximately
40% higher than the same period in 2016. Accordingly, customer
numbers have increased from 71,000 at September 2017 to 79,000 at
December 2017 (December 2016: 55,000) and receivables increased
from GBP32m to GBP35m over the same period (December 2016:
GBP18.2m). Satsuma is expected to report a loss of approximately
GBP5m in 2017, modestly lower than last year and adverse to its
internal plan. The loss reflects the strong development of the
monthly product during 2017, the underwriting of which has been
tightened during the latter part of the year in response to higher
than planned impairment.
Overall, CCD is expected to report a pre-exceptional loss of
approximately GBP120m which is at the upper end of the guidance of
a pre-exceptional loss of between GBP80m and GBP120m provided in
August 2017.
Moneybarn
Moneybarn has continued to enjoy a good flow of new business
volumes during the fourth quarter of the year, despite the
tightening of underwriting on higher risk categories of business
during the second quarter of the year as previously communicated.
Extension of both the product offering and distribution channels
and further service enhancements to intermediaries has generated
new business volumes approximately 30% higher compared to the
relatively weak fourth quarter of 2016. Customer numbers and
receivables ended the year at 50,000 and GBP376m showing
year-on-year growth of 22% and 26% respectively.
The annualised risk-adjusted margin has moderated from 22.7% to
September 2017 to 21.8% to December 2017 (December 2016: 24.1%)
reflecting additional impairment associated with the step-up in new
business volumes over the last year and the flow through of
impairment from higher risk categories of business prior to the
tightening of underwriting in the second quarter.
Regulation
Vanquis Bank has commenced a dialogue with the FCA with a view
to reaching a resolution of the investigation into ROP. More
recently, Moneybarn has also engaged with the FCA in order to
resolve the investigation in relation to customer affordability
assessments and the treatment of customers in financial
difficulties.
The voluntary requirement agreed between Vanquis Bank and the
FCA to suspend all new sales of ROP in April 2016 remains in place
and the agreement with the Prudential Regulation Authority (PRA)
not to pay dividends to, or enter into certain transactions outside
the normal course of business with, the Provident Financial Group
without the PRA's consent, also remains in place.
CCD continues to operate under an interim permission whilst the
home credit business implements its recovery plan.
Funding
The group continues to actively monitor its capital and
liquidity positions in the context of the uncertainties surrounding
the home credit recovery plan and the ongoing FCA investigations
into ROP and Moneybarn.
At 31 December 2017, the group had cash resources of GBP34m,
excluding the liquid asset buffer held by Vanquis Bank, and
headroom on the group's committed debt facilities amounted to
GBP66m. The flow of retail deposits within Vanquis Bank has
continued in line with its internal funding plan and the additional
capacity for Vanquis Bank to take retail deposits amounted to
GBP77m at the end of 2017. Maturities in 2018 comprise the third
instalment of the M&G term loan of GBP15m due in January 2018
and GBP20m of private placement loan notes due in March 2018.
Enquiries:
Media
Richard King/Jade Byrne,
Provident Financial 01274 351900
Nick Cosgrove/Charlie Pretzlik, 020 7404
Brunswick 5959
Investor Relations
Gary Thompson/Vicki Turner,
Provident Financial 01274 351900
investors@providentfinancial.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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