Provident Financial plc Provident Financial plc 2018 interim results 2018 interim results 31 July 2018 1
Provident Financial plc 2018 interim results Today’s presentation • Progress against 2018 objectives Malcolm Le May • Financial review Andrew Fisher • Strategy and outlook Malcolm Le May • Questions • Appendix 2
Provident Financial plc Provident Financial plc 2018 interim results 2018 objectives Malcolm Le May – Group Chief Executive 3
Provident Financial plc 2018 interim results 2018 objectives Our 2018 objectives 1. Deliver the home credit recovery plan 2. Complete the ROP refund programme and adopt new regulation in Vanquis Bank 3. Strengthen the Board, governance and culture 4. Progress the Moneybarn FCA investigation 5. Re-access debt markets 4
Provident Financial plc 2018 interim results 2018 objectives Progress to date • Good progress in implementing the operational recovery plan • Constructive relationship with the FCA with regular dialogue both at a group and divisional level • A number of significant actions have been implemented during the first half of the year: ‒ Recording of customer interactions, including mandatory voice recording for all sales transactions ‒ New arrears strategy together with central support ‒ Digital document capture through the Lending App Deliver the ‒ Enhanced activity management home credit ‒ Piloting of a new field structure to reduce spans of control recovery plan • Collections performance remained at 10% below historical levels through Q2 with actions in place to deliver further improvements • Remaining actions required to implement the recovery plan are expected to be substantially in place during the second half • Objective to obtain full authorisation by the end of the year • Intending to introduce an enhanced performance management system based on a balanced scorecard approach and some variable pay, subject to agreement with the FCA 5
Provident Financial plc 2018 interim results 2018 objectives Progress to date (continued) • Systems and capability required to deliver the ROP refund programme to some 1.2 million customers has largely been built • Pilot was successfully completed in early June and the roll-out of the full refund programme has now commenced • No material change in the level of ROP complaints following the announcement of the settlement Complete the ROP refund • Total provisions and balance reductions set aside in 2017 remain appropriate programme and • Business has recently increased minimum contractual payments and will shortly adopt new regulation in roll-out higher recommended payments and other communication strategies to Vanquis Bank address customers defined as being in persistent debt • Enhanced affordability assessments being introduced • Impact from regulatory measures has already been included in the guidance for 2018 6
Provident Financial plc 2018 interim results 2018 objectives Progress to date (continued) • Patrick Snowball to join the Board as Chairman on 21 September 2018 and Stuart Sinclair, current Interim Chairman, will retire from the Board • Angela Knight, Elizabeth G Chambers and Paul Hewitt join the Board as non- executive directors with effect from 31 July 2018 • Further strengthening of the governance framework during the first half of the year: ‒ Central risk team to work under the Interim CRO Strengthen the ‒ Group co-ordination of IT and procurement under the Interim Group Chief IT Officer Board, ‒ Recent recruitment of a new Interim Head of Internal Audit and Group Head of HR governance and culture ‒ Plans to recruit a new Head of Regulation are well advanced • The group Executive Committee, reconstituted in late 2017, now driving delivery of the group’s vision through greater collaboration • Significant activity underway to realign the group’s culture more closely with the developing needs of the customer • A new Board committee focusing on the customer, culture and ethics to help drive changes in behaviours and attitudes across the group 7
Provident Financial plc 2018 interim results 2018 objectives Progress to date (continued) • The group is continuing to work with the FCA into their investigation into affordability, forbearance and termination options • Scope of the investigation is well understood and the estimated cost of £20m Progress the Moneybarn FCA reflected in 2017 continues to be management’s prudent estimate of the outcome investigation • A final resolution is likely to take up to 18 months • Completion of the £300m rights issue recapitalised the group • Re-financing of £250m senior bonds in June Re-access debt • CET 1 ratio of 30% provides headroom of c.£90m against a fully loaded regulatory markets capital requirement of 25.5% 8
Provident Financial plc Provident Financial plc 208 interim results Financial review Andrew Fisher – Group Finance Director 9
Provident Financial plc 2018 interim results Financial review IFRS 9 • IFRS 9 implemented from 1 January 2018 • Provisions made for expected losses are made on inception of a loan based on the PD and LGD • Differs to IAS 39 which adopted an incurred loss model whereby impairment provisions where reflected on a missed payment • IFRS 9 results in a delayed recognition of profits which has a greater impact on growing businesses • IFRS 9 methodology now finalised and fully implemented • Comparatives not restated but pro forma results under IFRS 9 presented* • IFRS 9 only impacts the timing of the recognition of profits with no changes to the cash flow or loan economics • Bank covenants unaffected • Transitional rules for regulatory capital * Appendix provides a business by business comparison of IFRS 9 and IAS 39 results for 2017 10
Provident Financial plc 2018 interim results Financial review Group IFRS IF RS 9 9 resu results su summa mmary Six months ended 30 June 2018 2017 1 Change £m £m % Vanquis Bank 97.2 91.6 6.1 CCD (23.2) 4.7 (593.6) Moneybarn 10.6 10.3 2.9 Central costs (9.7) (8.0) (21.3) Adjusted profit before tax 74.9 98.6 (24.0) Adjusted basic earnings per share 2 (pence) 24.2 37.7 (35.8) Annualised return on assets (%) 5.3% 11.9% n/a Interim dividend per share (pence) - - n/a Amortisation of acquisition intangibles (3.7) (3.7) Exceptional items (36.6) (21.6) 1 The group has adopted IFRS 9 from 1 January 2018 and made an opening balance sheet adjustment to restate the IAS 39 balance sheet onto an IFRS 9 basis at that date. However, 2017 statutory prior year comparatives have not been restated due to the IFRS 9 requirement in respect of de-recognition of financial assets which would require loans terminated prior to 1 January 2018 to remain under IAS 39 in the prior year. As this distorts comparability with the 2018 income statement and 2018 balance sheet which are on a full IFRS 9 basis, the group has also provided pro forma 2017 income statement and balance sheet comparatives as though IFRS 9 had been implemented retrospectively (see Appendix) 2 The weighted average number of shares in the period prior to the rights issue in April 2018 has been adjusted to take account of the bonus element of the rights issue of 1.367 and EPS comparatives restated 11
Provident Financial plc 2018 interim results Financial review Vanquis Bank IFRS IF RS 9 9 resu results Six months ended 30 June 2018 2017 1 Change £m £m % Customer numbers (‘000) 1,764 1,645 7.2 Period-end receivables prior to balance reduction 2 1,501.7 1,345.5 11.6 Reported period-end receivables 1,432.4 1,345.5 6.5 Average receivables 1,487.1 1,321.5 12.5 Revenue 331.9 319.0 4.0 Impairment (117.3) (109.5) (7.1) Revenue less impairment 214.6 209.5 2.4 Annualised revenue yield 45.0% 48.8% Annualised impairment rate 15.7% 17.1% Annualised risk-adjusted margin 29.3% 31.7% Costs (99.2) (98.9) (0.3) Interest (18.2) (19.0) 4.2 Adjusted profit before tax 97.2 91.6 6.1 Annualised return on assets 11.2% 12.2% 1 Pro forma IFRS 9 comparative financial information as though IFRS 9 had been implemented retrospectively (see Appendix ) 2 Period-end receivables at 30 June 2018 are stated prior to the estimated balance reduction in receivables of £69.3m (December 2017: £75.4m, June 2017: £nil) arising as a result of the resolution of the FCA investigation into ROP reached on 27 February 2018 12
Provident Financial plc 2018 interim results Financial review CCD IFRS IF RS 9 9 resu results Six months ended 30 June 2018 2017 1 Change £m £m % Customer numbers (‘000) 765 801 (4.5) Reported period-end receivables 293.7 444.2 (33.9) Average receivables 309.7 467.0 (33.7) Revenue 179.4 265.3 (32.4) Impairment (70.6) (124.0) 43.1 Revenue less impairment 108.8 141.3 (23.0) Annualised revenue yield 120.7% 100.9% Annualised impairment rate 78.6% 31.9% Annualised risk-adjusted margin 42.1% 69.0% Costs (124.0) (125.2) 1.0 Interest (8.0) (11.4) 29.8 Adjusted (loss)/profit before tax 2 (23.2) 4.7 (593.6) Annualised return on assets (28.3%) 14.9% 1 Pro forma IFRS 9 comparative financial information as though IFRS 9 had been implemented retrospectively (see Appendix) 2 Adjusted (loss)/profit before tax for the six months ended 30 June 2018 is stated before exceptional costs of £18.1m in respect of the implementation of the recovery plan following the poor execution of the migration to the new operating model in July 2017 (2017: £21.6m) 13
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