Vanquis Banking Group PLC · LSE:VANQ
Vanquis Banking — Provident Financial — FY2008 Earnings Presentation
51 slides from Vanquis Banking's earnings presentation, Mar 3, 2009
Slide 1: A straightforward approach in turbulent times
Provident Financial plc 2008 Results Presentation A straightforward approach in turbulent times 3 March 2009
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: 2008 Highlights
2008 Highlights Delivering high quality growth • Profit before tax from continuing operations up by 11.8% to £128.8m • Continued, carefully managed growth, reflecting strong demand, but greater selectivity and tight underwriting standards • Stable and transparent impairment levels in both CCD and Va
Slide 4: Strategy and approach
Provident Financial plc 2008 Results Presentation Strategy and approach
Slide 5: Strategy – addressing the UK non-standard lending market
Strategy – addressing the UK non-standard lending market Opportunity to expand in a growing and increasingly under-served market • 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
Slide 6: Strategy – addressing the UK non-standard lending market
Strategy – addressing the UK non-standard lending market Opportunity to expand in a growing and increasingly under-served market Competitor withdrawal More mainstream More impaired lenders’ declines credit records Direct repayment over 10 million (c.7 million) consumers Home collected (c.3 million)
Slide 7: Market conditions
Market conditions Favourable conditions, well-suited to the group’s business model • Favourable conditions for Provident Financial as mainstream and other non-standard lenders restrict the supply of credit • Provident Financial’s businesses are inherently resilient through a cyclical downturn… • …al
Slide 8: Management approach
Management approach Maintaining a cautious and responsible approach to lending • Management has taken a cautious approach to lending for nearly two years • marked deterioration in economy anticipated in middle of 2007 • continual tightening of underwriting standards, particularly at Vanquis Bank • f
Slide 9: Management approach
Management approach Maintaining a cautious and responsible approach to lending • Continued investment to sustain high quality growth • Credit management tools in both main businesses • Collections capability Home Credit: roll-out of enhanced agent commission system, additional field-based resource a
Slide 10: Financial review
Provident Financial plc 2008 Results Presentation Financial review
Slide 11: Financial review
Financial review Profit before taxation from continuing operations 2008 2007 Change £m £m £m Consumer Credit Division 126.1 123.5 2.6 Vanquis Bank 8.0 (0.9) 8.9 Yes Car Credit (collect-out) (2.9) (2.9) - Central - Costs (5.5) (6.5) 1.0 - Interest receivable 3.1 2.0 1.1 Total central (2.4) (4.5) 2.1
Slide 12: Consumer Credit Division
Consumer Credit Division Income statement 2008 2007 Change £m £m % Customer numbers (‘000) 1,762 1,650 6.8 Average customer receivables 712.7 636.1 12.0 Revenue 651.8 590.5 10.4 Impairment (197.9) (175.3) (12.9) Revenue less impairment 453.9 415.2 9.3 Costs (291.2) (256.7) (13.4) Interest (36.6) (35
Slide 13: Consumer Credit Division
Consumer Credit Division Stable impairment as a % of revenue 35% 34% 33% 32% 31% 30% 29% 28% 27% 26% 25% Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Annualised impairment as a % of revenue 12
Slide 14: Home Credit impairment policy
Consumer Credit Division 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 provisioni
Slide 15: Consumer Credit Division
Consumer Credit Division IFRS 7 disclosures: % of closing Home Credit receivables as at 31 December 2008 2007 % % In order 37.6 35.4 In arrears: - Past due but not impaired 13.6 15.0 - Impaired 48.8 49.6 TOTAL 100.0 100.0 14
Slide 16: Consumer Credit Division
Consumer Credit Division Income statement 2008 2007 Change £m £m % Customer numbers (‘000) 1,762 1,650 6.8 Average customer receivables 712.7 636.1 12.0 Revenue 651.8 590.5 10.4 Impairment (197.9) (175.3) (12.9) Revenue less impairment 453.9 415.2 9.3 Costs (291.2) (256.7) (13.4) Interest (36.6) (35
Slide 17: Vanquis Bank
Vanquis Bank Income statement 2008 2007 Change £m £m % Customer numbers (‘000) 404 316 27.8 Average customer receivables 177.5 120.3 47.5 Revenue 94.6 63.5 49.0 Impairment (38.2) (25.2) (51.6) Revenue less impairment 56.4 38.3 47.3 % of average receivables 31.8% 31.8% Costs (39.4) (33.2) (18.7) Inte
Slide 18: Vanquis Bank
Vanquis Bank Margin development 60% 50% 40% 30% 20% 10% 0% H2-05 H1-06 H2-06 H1-07 H2-07 H1-08 H2-08 Annualised yield / average net receivables Annualised impairment / average net receivables 17
Slide 19: Vanquis Bank
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 which is prudent when benchmarked against other card issuers * subject to estimated r
Slide 20: Vanquis Bank
Vanquis Bank IFRS 7 disclosures: % of closing receivables as at 31 December 2008 2007 % % In order 83.2 84.5 In arrears: - Past due but not impaired - - - Impaired 16.8 15.5 TOTAL 100.0 100.0 19
Slide 21: Vanquis Bank
Vanquis Bank Income statement 2008 2007 Change £m £m % Customer numbers (‘000) 404 316 27.8 Average customer receivables 177.5 120.3 47.5 Revenue 94.6 63.5 49.0 Impairment (38.2) (25.2) (51.6) Revenue less impairment 56.4 38.3 47.3 % of average receivables 31.8% 31.8% Costs (39.4) (33.2) (18.7) Inte
Slide 22: Financial review
Financial review Profit before taxation from continuing operations 2008 2007 Change £m £m £m Consumer Credit Division 126.1 123.5 2.6 Vanquis Bank 8.0 (0.9) 8.9 Yes Car Credit (collect-out) (2.9) (2.9) - Central - Costs (5.5) (6.5) 1.0 - Interest receivable 3.1 2.0 1.1 Total central (2.4) (4.5) 2.1
Slide 23: Balance sheet
Balance sheet Strong balance sheet with modest gearing levels 2008 2007 £m £m Receivables: - Consumer Credit Division 852.1 749.0 - Vanquis Bank 205.4 143.1 - Yes Car Credit 5.8 33.3 1,063.3 925.4 Pension asset 50.9 61.5 Borrowings* (803.9) (670.9) Other (32.4) (20.1) Net assets 277.9 295.9 Equity(†
Slide 24: Borrowings and committed facilities
Borrowings and committed facilities Borrowing long and lending short £m Committed facilities: - Syndicated bank facilities 707.5 - Bilateral bank facilities 55.0 - Private placement notes 190.1 - Subordinated bonds 100.0 Total committed facilities 1,052.6 Borrowings on committed facilities as at 31
Slide 25: Maturity of committed borrowing facilities
Maturity of committed borrowing facilities Borrowing long & lending short 1,200 1,000 800 600 £m 400 200 0 09 12 10 11 8 9 0 1 2 -1 -0 -0 -1 -1 n- n- n- n- ec c c c c De De De De Ju Ju Ju Ju D Subordinated bonds Syndicated & bilateral bank facilities Private placements • Recently extended £213m of s
Slide 26: Earnings and dividends
Earnings and dividends Moving towards medium-term targets per share 2008 Dividends Interim (paid in Nov-08) 25.4p Final (to be paid in Jun-09) 38.1p 63.5p Earnings per share 70.9p Dividend cover (target 1.25x) 1.12x 25
Slide 27: Regulatory capital
Regulatory capital Basel II as at 31 December 2008 2008 £m Risk weighted assets 899.3 Pillar I capital requirement 79.4 Tier 1 capital 232.8 Tier 2 capital 100.0 Total capital 332.8 Total capital as a % 419% of Pillar I minimum capital requirement 26
Slide 28: Surplus capital
Surplus capital In line with plan • Approximately £55m of surplus capital as at 31 December 2008 in line with internal plans • Vanquis Bank expected to generate sufficient capital to fund its own growth in 2009 • Plan to use up to a further £20m of surplus capital until group reaches target dividend
Slide 29: Consumer Credit Division
Provident Financial plc 2008 Results Presentation Consumer Credit Division
Slide 30: Responsible lending model
Consumer Credit Division Responsible lending model maintaining an appropriate balance between growth and quality and capacity BALANCE Y H IT QUALITY GROWT CAPAC 29
Slide 31: Home Credit
Provident Financial plc 2008 Results Presentation Home Credit
Slide 32: Growth opportunity
Growth opportunity Delivering high quality growth • 558,000 new customers in 2008 (2007: 525,000) • Primary focus remains on agent-sourced leads • two-thirds of all new customers recruited via agents • high quality, low cost source of new customers • Continued development of new channels • over 200,
Slide 33: Credit quality
Credit quality Maintaining portfolio quality in difficult economic conditions • Further enhancements to decision tools available to agents • new applications pre-screened centrally • agent’s decision to grant further credit supported by credit analytics • every loan to every customer underwritten fa
Slide 34: Credit quality - continued
Credit quality - continued Maintaining portfolio quality in difficult economic conditions • Lending shorter • 2008 growth came primarily from the core 57-week or shorter products • allows affordability to be re-assessed in detail more frequently • product mix share of longer term loans stable in 200
Slide 35: Field capacity
Field capacity Tight controls over collections and arrears • Investment in Field Management to reinforce collections and arrears activity • Development Managers look after around 10 agents each • routinely visit customers with deteriorating arrears profile • recruitment of over 80 additional Develop
Slide 36: Field capacity - continued
Field capacity - continued Tight controls over collections and arrears • Central debt recovery • used very effectively for late-stage arrears • allows Field Managers to focus on early / mid-stage arrears • investments made in systems, headcount and breadth of activities in last 2 years • significant
Slide 37: Resilience of the Home Credit model
Resilience of the Home Credit model Inherent strengths of business model in a downturn • Agents are naturally cautious • commissions based on collections, not credit issued • no incentive to over-lend to customers • commission scheme encourages proactive arrears management • Customer profile • limit
Slide 38: Resilience of the Home Credit model - continued
Resilience of the Home Credit model - continued Inherent strengths of business model in a downturn • Extensive and valuable field experience • average length of experience: • Development Managers – 7 years • Agents – 8 years • Area / Branch Managers – 14 years • Regional / Divisional Managers – 21 y
Slide 39: Real Personal Finance
Provident Financial plc 2008 Results Presentation Real Personal Finance
Slide 40: Real Personal Finance
Real Personal Finance Monthly home credit: seizing a major opportunity in our core market • Now almost total withdrawal of mainstream lenders • Peer group competition much depleted or operating at reduced capacity • Market test is progressing well operating from 50 locations with around 10,000 custo
Slide 41: Vanquis Bank
Provident Financial plc 2008 Results Presentation Vanquis Bank
Slide 42: Highlights
Highlights A year of strong progress and investment • Strong progress towards medium-term targets • Further withdrawal of mainstream issuers and direct competitors in 2008 • Consistent tightening of criteria applied to underwriting applications and to credit line increases to existing customers • St
Slide 43: Customer and receivables growth
Customer and receivables growth On track to meet medium-term targets 450 200 400 180 Customer numbers (000) Average receivables (£m) 350 160 140 300 120 250 100 200 80 150 60 100 40 50 20 0 0 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Customers Annualised average receivables • On track to achi
Slide 44: Delivering high quality growth
Delivering high quality growth Significant investment and development • Continued development of highly bespoke scorecards for each channel • uses up to 600 pieces of raw data from credit bureau records • customer data re-checked each month to detect signs of credit stress • scorecards constantly mo
Slide 45: Delivering high quality growth - continued
Delivering high quality growth - continued Significant investment and development • Strict adherence to the “low and grow” approach • customers typically start with a credit line of £250 • increased gradually over time if customers exhibit appropriate behaviours • average credit line is currently c.
Slide 46: Comparison of card issuers
Comparison of card issuers Vanquis Bank is very different to a prime card issuer • Customer status Prime issuer Vanquis Bank Employment status Employed Employed Annual income £25k+ p.a. £12-25k p.a. Residential status House-owner / mortgaged Tenant Use of other credit cards High Low Use of secured /
Slide 47: Comparison of card issuers - continued
Comparison of card issuers - continued Vanquis Bank is very different to a prime card issuer • Competitive features Prime issuer Vanquis Bank Competition Strong Very limited Customer motive Price - adverse selection Service Customer loyalty Lower Higher • Operational features Prime issuer Vanquis Ba
Slide 48: Outlook
Provident Financial plc 2008 Results Presentation Outlook
Slide 49: Outlook statement
Outlook statement • Provident Financial continues to experience significant demand for its products from an increasingly under-served non-standard credit market • The group’s increasingly cautious approach to lending over a period of nearly two years has been fundamental to maintaining an appropriat
Slide 50: Questions
Provident Financial plc 2008 Results Presentation Questions
Slide 51: A straightforward approach in turbulent times
Provident Financial plc 2008 Results Presentation A straightforward approach in turbulent times 3 March 2009