Vanquis Banking Group Plc · LSE:VANQ
Vanquis Banking — Provident Financial — FY2009 Earnings Presentation
43 slides from Vanquis Banking's earnings presentation, Mar 2, 2010
Slide 1: Maintaining the flow of credit through turbulent times
Provident Financial plc 2009 Results Presentation Maintaining the flow of credit through turbulent times 2 March 2010
Slide 2: Today's presentation
Provident Financial plc Today’s presentation • Strategy and approach Peter Crook • Financial review Andrew Fisher • Consumer Credit Division Chris Gillespie • Vanquis Bank and Outlook Peter Crook 1
Slide 3: Highlights
Highlights Good performance in tough conditions • Profit before tax and exceptional costs up £1.3m to £130.1m • Sound credit quality in both divisions through effective management of the balance between growth, impairment and costs • Growth in home credit customers of 5.1% • Demand for home credit t
Slide 4: Strategy
Strategy Addressing the UK non-standard lending market through responsible lending • Our aim is to be the leading non-standard lender in the UK, acting responsibly in all our relationships and playing a positive role in the communities we serve • The UK non-standard market will increasingly be the d
Slide 5: Market conditions and management response
Market conditions and management response Sound management through tough conditions • Severe reduction in flow of new lending into the UK non non-standard standard market • Competitive conditions in the home-collected segment are largely unchanged and the flow of credit has been maintained • Vanquis
Slide 6: Market conditions and management response
Market conditions and management response Sound management through tough conditions • Pressure on household budgets from unemployment and under under-employment employment leading to increasingly cautious customer behaviour • strong emphasis upon customer affordability and responsible lending reinfo
Slide 7: Financial review
Provident Financial plc 2009 Results Presentation Financial re review ie
Slide 8: Profit before taxation
Financial review Profit before taxation 2009 2008 Change £m £m £m Home credit 128.9 128.8 0.1 Real Personal Finance (market test) (7.7) (2.7) (5.0) Vanquis Bank 14.1 8.0 6.1 Yes Car Credit (collect-out) 0.2 (2.9) 3.1 Central - Costs (7.0) (5.5) (1.5) - Interest receivable 1.6 3.1 (1.5) Total central
Slide 9: Home credit income statement
Home credit Income statement 2009 2008 Change Year ended 31 December £m £m % Customer numbers (‘000) 1,842 1,753 5.1 Average customer receivables 759.2 704.8 7.7 Revenue 673.7 645.9 4.3 Impairment (216.7) (197.3) (9.8) Revenue less impairment p 457.0 448.6 1.9 Costs (288.4) (283.6) (1.7) Interest (3
Slide 10: Home credit: stable impairment as a % of revenue
Home credit Stable impairment as a % of revenue 40% 38% 36% 34% 32% 30% 28% 26% 24% 22% 20% Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 ---------- Annualised impairment as a % of revenue for Home credit ---------- Adjusted for impact of change to Early Settlement Rebates 9
Slide 11: Home credit impairment policy
Home credit Impairment policy • Based on last 12 weeks payment performance • Loans deemed impaired if more than 1 contractual weekly payment missed in previous 12 weeks • 95%+ provision against loans for which no payment received in last 90 days Timely, realistic provisioning which has been applied
Slide 12: Home credit IFRS disclosures
Home credit IFRS 7 disclosures: % of closing receivables as at 31 December 2009 2008 % % In order 36.9 37.6 In arrears: - Past due but not impaired 15.0 13.6 - Impaired 48.1 48.8 TOTAL 100 0 100.0 100 0 100.0 11
Slide 13: Home credit income statement
Home credit Income statement 2009 2008 Change Year ended 31 December £m £m % Customer numbers (‘000) 1,842 1,753 5.1 Average customer receivables 759.2 704.8 7.7 Revenue 673.7 645.9 4.3 Impairment (216.7) (197.3) (9.8) Revenue less impairment p 457.0 448.6 1.9 Costs (288.4) (283.6) (1.7) Interest (3
Slide 14: Vanquis Bank income statement
Vanquis Bank Income statement 2009 2008 Change Year ended 31 December £m £m % Customer numbers (‘000) 426 404 5.4 Average customer receivables 231.1 177.5 30.2 Revenue 131.3 94.6 38.8 Impairment (61.7) (38.2) (61.5) Revenue less impairment 69.6 56.4 23.4 Risk-adjusted margin* 30.1% 31.8% Impairment
Slide 15: Vanquis Bank: maintaining the risk-adjusted margin
Vanquis Bank Maintaining the risk-adjusted margin 60% 50% 40% 30.1% 30% 20% 10% 0% H2-05 H1-06 H2-06 H1-07 H2-07 H1-08 H2-08 H1-09 H2-09 Annualised yield / average net receivables Annualised impairment / average net receivables • Risk-adjusted margin at target of 30% • Active management of credit li
Slide 16: Vanquis Bank impairment policy
Vanquis Bank Impairment policy • Loans deemed to be impaired as soon as 1 contractual monthly payment is missed • Provision of over 80% made against accounts that are 90 days in arrears* Realistic accounting policy applied consistently which is prudent when benchmarked against other card issuers * s
Slide 17: Vanquis Bank IFRS disclosures
Vanquis Bank IFRS 7 disclosures: % of closing receivables as at 31 December 2009 2008 % % In order 82.9 83.2 In arrears: - Past due but not impaired - - - Impaired 17.1 16.8 TOTAL 100 0 100.0 100 0 100.0 16
Slide 18: Vanquis Bank income statement
Vanquis Bank Income statement 2009 2008 Change Year ended 31 December £m £m % Customer numbers (‘000) 426 404 5.4 Average customer receivables 231.1 177.5 30.2 Revenue 131.3 94.6 38.8 Impairment (61.7) (38.2) (61.5) Revenue less impairment 69.6 56.4 23.4 Risk-adjusted margin* 30.1% 31.8% Impairment
Slide 19: Profit before taxation
Financial review Profit before taxation 2009 2008 Change £m £m £m Home credit 128.9 128.8 0.1 Real Personal Finance (market test) (7.7) (2.7) (5.0) Vanquis Bank 14.1 8.0 6.1 Yes Car Credit (collect-out) 0.2 (2.9) 3.1 Central - Costs (7.0) (5.5) (1.5) - Interest receivable 1.6 3.1 (1.5) Total central
Slide 20: Balance sheet
Balance sheet Strong balance sheet with modest gearing levels 2009 2008 £m £m Receivables: - Consumer Credit Division 883.8 852.1 - Vanquis Bank 255.5 205.4 - Yes Car Credit - 5.8 1,139.3 1,063.3 Pension asset 19.9 50.9 Borrowings* (883.4) (803.9) Other (7.4) (32.4) Net assets 268.4 277.9 Equity(†)
Slide 21: Borrowings and committed facilities
Borrowings and committed facilities Borrowing long and lending short March Current 2009 £m £m Committed facilities: - syndicated bank facilities 707.5 707.5 - bilateral bank facilities 55.0 55.0 - private placement notes 190.1 190.1 - senior bonds 250.0 0.0 - subordinated bonds 6.0 100.0 Total commi
Slide 22: Maturity of committed borrowing facilities
Maturity of committed borrowing facilities Improving the duration and diversity of funding sources Facilities as at March 2009 1,400 1,200 1,000 800 £m 600 400 200 0 0 1 2 3 09 9 10 0 11 1 12 09 10 11 12 13 2 -1 -1 -1 -1 -0 -1 -1 -1 p- p- p- p- n- n- n- n- n- ar ar ar ar ec ec ec ec Ju Ju Ju Ju Ju S
Slide 23: Maturity of committed borrowing facilities
Maturity of committed borrowing facilities Enhanced duration and diversity of funding sources Facilities as at March 2010 1,400 1,200 1,000 800 £m 600 400 200 0 0 1 2 3 09 9 10 0 11 1 12 09 10 11 12 2 13 -1 -1 -1 -1 -0 -1 -1 -1 p- p- p- p- n- n- n- n- n- ar ar ar ar ec ec ec ec Ju Ju Ju Ju Ju Se Se
Slide 24: Maturity of committed borrowing facilities
Maturity of committed borrowing facilities Enhanced duration and diversity of funding sources Facilities as at March 2010 1,400 1,200 1,000 800 £m 600 400 200 0 0 1 2 3 09 9 10 0 11 1 12 09 10 11 12 2 13 -1 -1 -1 -1 -0 -1 -1 -1 p- p- p- p- n- n- n- n- n- ar ar ar ar ec ec ec ec Ju Ju Ju Ju Ju Se Se
Slide 25: Earnings, dividends and capital
Earnings, dividends and capital Clear focus on prudent capital management • Pre-exceptional earnings per share increased to 71.4p per share (2008: 70.9p) • 2009 full-year dividend maintained at 63.5p per share • dividend cover being g rebuilt following g demerger g in 2007 • cover currently at 1.12x
Slide 26: Consumer Credit Division
Provident Financial plc 2009 Results Presentation Cons mer Credit Di Consumer Division ision
Slide 27: Home credit: delivering sustainable growth
Home credit Delivering sustainable growth • 596,000 new customers in 2009 (2008: 558,000) • Growth rate slowed through first half to 3.3% to manage credit risk and focus upon collections • Autumn marketing initiatives lifted growth rate to 5.1% at year end • Significant contribution from non-agent c
Slide 28: Managing credit quality and collections through the downturn
Home credit Managing credit quality and collections through the downturn • Credit standards tightened further • application scoring of new customers and behavioural scoring of existing customers tightened in first half of 2009 and maintained during second half • focus on more defensive shorter-term
Slide 29: Demand for credit in the current environment
Home credit Demand for credit in the current environment • Pressure on household incomes from unemployment and underemployment • unemployment stands 448,000 higher than a year ago • part-time or temporary workers wanting to work full-time is 389,000 higher • Customers are concerned about their futur
Slide 30: Direct repayment loans: conclusions from market test
Direct repayment loans Conclusions from market test • Market test of Real Personal Finance from 50 locations completed • Business case built around 50:50 split of business sourced from home credit network and customer database and broker-introduced leads respectively • Major problem in sourcing adeq
Slide 31: Direct repayment loans: focus upon known prospects
Direct repayment loans Focus upon known prospects • Decision to focus solely on home credit sourced leads and, accordingly, releasing d di t d RPF salesforce dedicated l f and d related l t d central t l overhead h d • Direct repayment product positioned as a product extension (Provident Direct, Gre
Slide 32: Home credit approach to lending
Home credit approach to lending “Low Low and grow” grow Typical duration, target customers and issue size of home credit products Short-term Core product Longer larger loans Direct repayment • 23 to 33 weeks • 50 to 57 weeks • 81 & 106 weeks • up to 36 months • newer customers • established and • be
Slide 33: Vanquis Bank
Provident Financial plc 2009 Results Presentation Vanq is Bank Vanquis
Slide 34: Vanquis Bank: strong progress towards medium-term targets
Vanquis Bank Strong progress towards medium-term targets Customer numbers Average receivables 450k £250m 400k 350k £200m 300k £150m 250k 200k £100m 150k 100k £50m 50k - - 2006 2007 2008 2009 2006 2007 2008 2009 Risk-adjusted margin Profit before tax 35% £20m 30% £15m 25% £10m 20% £5m 15% - 10% -£5m
Slide 35: On track to deliver on the medium-term targets set in 2007
Vanquis Bank On track to deliver on the medium-term targets set in 2007 Medium term Medium-term £m 2008 2009 target Profit before tax 8.0 14.1 25.0 Average g receivables 177.5 231.1 300.0 Equity backing (20%) 35.5 46.2 60.0 Post-tax return on equity 16.1% 22.0% 30.0% • 2009 performance reflects the
Slide 36: Vanquis Bank: performance in the current downturn
Vanquis Bank Performance in the current downturn 170 160 150 140 130 120 110 100 90 80 May-08 May-09 Mar-08 Apr-08 Mar-09 Apr-09 Aug-08 Nov-08 Aug-09 Nov-09 an-08 eb-08 un-08 JJul-08 ep-08 Oct-08 D ec-08 an-09 eb-09 un-09 JJul-09 ep-09 Oct-09 Ja Fe Ju Se Ja Fe Ju Se O O A A M M M M Fitch Index 60-18
Slide 37: New medium-term targets
Vanquis Bank New medium-term targets • Market opportunity for Vanquis continues to look attractive • competitive landscape benign due to retreat of mainstream competitors • strong demand for small-sum lines of revolving credit • non-standard card market likely y to remain the domain of specialists p
Slide 38: Regulation: current developments
Regulation Current developments • OFT review of £35bn high-cost consumer credit market • focussing on the impact of the downturn on competition, business models of lenders and consumer protection • Provident Financial is assisting the OFT with its review • interim findings in December 2009 with conc
Slide 39: Outlook
Provident Financial plc 2009 Results Presentation O tlook Outlook
Slide 40: Outlook
Outlook • The group has reported a solid performance in 2009 against the backdrop of pressure on customers’ household budgets from rising unemployment and reduced working hours. The group’s plans assume that these conditions will continue during 2010 and credit standards will be maintained to underp
Slide 41: Questions
Provident Financial plc 2009 Results Presentation Q estions Questions
Slide 42: Maintaining the flow of credit through turbulent times
Provident Financial plc 2009 Results Presentation Maintaining the flow of credit through turbulent times 2 March 2010
Slide 43: Contact details
Provident Financial plc Contact details Provident Financial plc Colonnade Sunbridge Road Bradford West Yorkshire BD1 2LQ Contact: Stuart Caldwell – Group Treasurer & Head of Investor Relations Telephone: (+44) 1274 377941 E-mail: stuart.caldwell@providentfinancial.com www.providentfinancial.com 42