Vanquis Banking Group PLC · LSE:VANQ
Vanquis Banking — Provident Financial — H1 2007 Earnings Presentation
47 slides from Vanquis Banking's earnings presentation, Sep 11, 2007
Slide 1: Interim results 2007
Provident Financial plc Interim results 2007 11 September 2007 0
Slide 2: Our Presentation Today
Provident Financial plc Our Presentation Today • Overview - Peter Crook • Financial review - Andrew Fisher • UK home credit - Peter Crook • Vanquis Bank • Results - Peter Crook • Early observations - Michael Lenora • Group outlook - Peter Crook 1
Slide 3: Overview: Our ongoing UK operations
Provident Financial plc Overview Our ongoing UK operations UK home credit Vanquis Bank Provident Personal Credit Greenwood Personal Credit Small, unsecured personal loans Revolving, Visa-branded credit card Average loan size: £333 Average credit line: £685 Number of customers: 1.5m Number of custome
Slide 4: Current environment
Provident Financial plc Overview Current environment • growing opportunities in the UK non-standard lending market • advantage of highly responsive national network • little exposure to broad consumer indebtedness • rising interest rates have little impact on customers or the company • the UK unempl
Slide 5: Responsive national network
Provident Financial plc Current environment Responsive national network • national network of branches • more than 11,500 agents visiting our customers’ homes each week • up-to-date granular data captured locally & nationally each week • highly responsive to changes in local & national market condit
Slide 6: Consumer over-indebtedness
Provident Financial plc Current environment Consumer over-indebtedness • our customers have relatively limited usage of other credit products • our underwriting approach is careful and assesses each customer’s ability to repay • there is no financial incentive for our agents to over-lend • The incre
Slide 7: Rising UK interest rates
Provident Financial plc Current environment Rising UK interest rates 6.00% 5.75% 5.50% • Limited impact on customers 5.25% 5.00% • main pressures on our 4.75% customers’ disposable incomes 4.50% 4.25% are food, fuel, utility & council 4.00% Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 tax costs Source: Bank o
Slide 8: UK unemployment rate
Provident Financial plc Current environment UK unemployment rate 12% 10% 8% 6% • Potentially the most material 4% 2% factor adversely affecting our 0% 1983- 1991- 2000 2001 2002 2003 2004 2005 2006 2007 customers’ disposable incomes 85 93 Source: Office of National Statistics • latest data suggests
Slide 9: Worldwide credit crisis
Provident Financial plc Current environment Worldwide credit crisis • no impact upon the group’s access to capital • long-term funding in place for short-term customer lending • little or no impact upon our customers • other lenders are continuing to retreat from the UK non-standard lending market 8
Slide 10: Financial highlights
Provident Financial plc Financial highlights Ongoing UK operations PROFIT BEFORE TAX* AVERAGE CUSTOMER RECEIVABLES + 19.4% to + 11.5% to £38.2m £735.0m Continuing operations (comprising ongoing UK operations & International) PROFIT BEFORE TAX* EARNINGS PER SHARE* + 19.8% to + 20.2% to £56.3m 15.38p
Slide 11: A good first half from ongoing UK operations
Provident Financial plc Overview A good first half from ongoing UK operations • UK home credit: • continued customer number & receivables growth • continued evolution • stable impairment and growth in net revenue • profits stable • Vanquis Bank: • management actions to put the business on a sounder
Slide 12: Financial review
Provident Financial plc Financial review 11
Slide 13: 2007 interim: profit before taxation
Provident Financial plc Financial review 2007 interim: profit before taxation 2007 2006 Change £m £m £m Ongoing UK operations 38.2 32.0 6.2 International 18.1 15.0 3.1 Continuing operations 56.3 47.0 9.3 Discontinued operation - Motor Insurance 11.8 19.0 (7.2) Profit before tax and exceptional items
Slide 14: Profit before taxation from ongoing UK operations
Provident Financial plc Financial review 2007 interim: profit before taxation from ongoing UK operations 2007 2006 Change £m £m £m UK home credit 47.0 47.0 - Vanquis Bank (4.2) (10.7) 6.5 Yes Car Credit (1.2) (0.5) (0.7) Central costs (3.4) (3.8) 0.4 Profit before tax 38.2 32.0 6.2 Note: group inter
Slide 15: Consolidated & pro forma demerged balance sheets
Provident Financial plc Balance Sheet Consolidated & pro forma demerged balance sheets as at 30 June 2007 £m PF Group IPF UK Group UK Group (pro forma) (pro forma) (pro forma as at 31 Dec 06) † Receivables 1,154.2 355.2 799.0 901.7 Pension asset 68.6 3.5 65.1 18.5 Borrowings (844.5) (262.4) (582.1)
Slide 16: Surplus capital for the ongoing UK operations
Provident Financial plc Balance Sheet Surplus capital for the ongoing UK operations • Target of 15% Ordinary Shareholders’ Capital to receivables • Still approximately £80m of surplus as at June 2007, disregarding the pension asset and taking into account operational seasonality and dividend flows •
Slide 17: Regulatory capital – ongoing UK operations
Provident Financial plc Balance Sheet Regulatory capital – ongoing UK operations 2007 £m Receivables 799.0 Other risk weighted assets 52.9 Total risk weighted assets 851.9 Capital reserves – Tier 1 217.3 Subordinated debt – Tier 2 100.0 Total capital resources 317.3 Capital adequacy ratio 37.2% 16
Slide 18: Borrowings & committed facilities
Provident Financial plc Balance Sheet Borrowings & committed facilities £m Committed facilities Syndicated bank facilities 707.5 Private placement notes 234.8 Subordinated bonds 100.0 Total committed facilities 1,042.3 Pro forma borrowings at 30 June 2007 582.1 Committed headroom available 460.2 17
Slide 19: Maturity of committed borrowing facilities
Provident Financial plc Balance Sheet Maturity of committed borrowing facilities 1,200 1,000 800 £m 600 400 200 0 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun11 Dec11 Jun12 Dec12 Subordinated bonds Syndicated bank facilities Private placements • Senior issuer default rating of BBB+ fr
Slide 20: Sale of Motor Insurance: Profit on disposal
Provident Financial plc Sale of Motor Insurance Profit on disposal £m Sales proceeds 170.5 Less adjustments for termination of swaps (£6.9m), pension (£3.4m) & disposal costs (£7.8m) (18.1) Tax recoverable from purchaser 1.7 Total net consideration 154.1 Net assets on disposal (90.5) Pension credit
Slide 21: Interim dividend
Provident Financial plc Dividends Interim dividend 2006 Dividend of 36.5p per share PFplc, IPFplc, 31.75p 4.75p • continue to pay c.40% as an interim dividend • 31.75p x 40% x 2 = 25.40p per PFplc share consolidation ratio • interim dividend of 1.90p per IPFplc share • Phasing of dividend payments:
Slide 22: UK home credit
Provident Financial plc UK home credit 21
Slide 23: UK home credit Interim 2007: results
Provident Financial plc UK home credit Interim 2007: results 2007 2006 Change £m £m % Customer numbers (‘000) 1,486 1,472 1.0 Credit issued 393.1 390.8 0.6 Average net customer receivables 630.0 591.7 6.5 Revenue 292.0 289.6 0.8 Impairment (107.4) (106.4) (0.9) Revenue less impairment 184.6 183.2 0.
Slide 24: New channels add significant profitable volume
Provident Financial plc UK home credit New channels add significant profitable volume Total New Accounts Booked Non-Agent Sources 70 60 Internet Direct Mail 50 Directories 40 (k) Inserts 30 Face to Face 20 Brokers Press 10 Door to Door & other 0 2006 2007 23
Slide 25: Customers and credit issued
Provident Financial plc UK home credit Customers and credit issued (MAT) at June 1,800 1,000 1,600 900 Customer numbers ('000) 1,400 800 Credit issued (£m) 1,200 700 600 1,000 500 800 400 600 300 400 200 200 100 0 0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Customer numbers ('000) Credit issue
Slide 26: Enhanced credit management
Provident Financial plc UK home credit Enhanced credit management • Aiming to maintain the quality of the receivables book • keep tight control over impairment • reduction in level of customer attrition over time, resulting in lower acquisition and arrears management costs • Pre-screening process fo
Slide 27: Product Innovation
Provident Financial plc Product Innovation Real Personal Finance Remote Sales Face-to-face Face-to-face Remote Collections 26
Slide 28: Real Personal Finance Growth
Provident Financial plc Real Personal Finance Growth Retain Recruit Paid up HC customers or New customers via broker existing HC attrition risks and internet • 200,000 satisfied customers migrate from UK home credit annually • RPF is a logical extension of the existing business • offers monthly, rem
Slide 29: Real Personal Finance Business model
Provident Financial plc Real Personal Finance Business model • Extension of weekly home credit • Customers underwritten face to face in the home by Personal Finance Manager (PFM) • Repayments collected monthly by direct debit • Unsecured personal loans of c.£3,000 over c.36 months • Early arrears ha
Slide 30: Vanquis Bank
Provident Financial plc Vanquis Bank 29
Slide 31: Vanquis Bank – overview
Provident Financial plc Vanquis Bank – overview Business now on a sounder commercial footing • Existing portfolio re-priced at end of 2006 • no material levels of customer attrition • no material reduction in credit line utilisation • Underwriting criteria tightened progressively since 2005 • Arrear
Slide 32: Improvements in quality of underwriting
Provident Financial plc Vanquis Bank Improvements in quality of underwriting 75 70 65 60 % 55 50 45 40 Dec-05 Jun-06 Dec-06 Jun-07 Impairment as a % of revenue (MAT) 31
Slide 33: Strong growth in customer numbers & average receivables
Provident Financial plc Vanquis Bank Strong growth in customer numbers & average receivables 350 120 300 100 Average receivables (£m) Customer numbers ('000) 250 80 200 60 150 40 100 50 20 0 0 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Customer numbers ('000) Average receivables (£m) 32
Slide 34: Vanquis Bank Interim 2007: results
Provident Financial plc Vanquis Bank Interim 2007: results 2007 2006 Change £m £m % Customer numbers (‘000) 289 212 36.3 Average net customer receivables 105.0 67.2 56.3 Revenue 27.8 13.9 100.0 Impairment (12.8) (8.1) (58.0) Revenue less impairment 15.0 5.8 158.6 Costs (16.6) (15.4) (7.8) Interest (
Slide 35: Vanquis Bank – medium-term targets
Provident Financial plc Vanquis Bank – medium-term targets Medium-term June 2007 targets Customers 289k 500k+ Average credit utilised £367 £600 Receivables £105m £300m+ Post-tax annual c.30% return on equity 34
Slide 36: Vanquis Bank Early observations
Provident Financial plc Vanquis Bank Early observations • People • Facilities • Customer Base • Key drivers • Summary 35
Slide 37: Early observations: People
Provident Financial plc Vanquis Bank – early observations People • Young • Enthusiastic • Quantitative • Tired of the Investment Phase 36
Slide 38: Early observations: Facilities
Provident Financial plc Vanquis Bank – early observations Facilities • Locations • City of London: key to attracting skilled positions • Chatham: within easy reach, significantly more cost-effective than London, capable of supporting 750,000 accounts • Systems: very current, no legacy systems • Repo
Slide 39: Early observations: Customer base
Provident Financial plc Vanquis Bank – early observations Customer base – as expected • Earning £12-25k p.a. • Not particularly sensitive to current market conditions • sterling interest rate changes • sub-prime mortgage market • “Low and Grow” strategy perfect for current environment • Unlike the g
Slide 40: Early observations: Market size / opportunity
Provident Financial plc Vanquis Bank – early observations Market size / opportunity • UK non-standard lending market is c.9m people • Prime lenders’ flight to quality • In the card marketplace, this means: • Tighter screening criteria for new solicitations • Historically high levels of declines • A
Slide 41: Early observations: Key business drivers
Provident Financial plc Vanquis Bank – early observations Key business drivers • Attract/retain top talent • Engender a growth environment • Incentives • Performance • Focus on daily disciplines • Timely production of management information • Marketing-driven management style • Keep management in fr
Slide 42: Key business drivers (cont.)
Provident Financial plc Vanquis Bank – early observations Key business drivers (cont..) • Diversify sources of customer leads • Continue to drive existing organic growth channels (internet and direct mailing) • Develop a broader acquisition strategy (including the use of partnership / affinity relat
Slide 43: Early observations: Summary
Provident Financial plc Vanquis Bank – early observations Summary • Has built a strong infrastructure of people and systems from which to grow further • Is not as sensitive to external market conditions as mainstream / prime issuers • Is benefiting from the recent flight to quality and competitors’
Slide 44: Group outlook
Provident Financial plc Group outlook 43
Slide 45: Group outlook
Provident Financial plc Group outlook • Strengthened management • Improved medium-term prospects for both UK home credit & Vanquis Bank • Strong position from which to focus on strategy to develop a broader range of credit products for the non-standard UK lending market “We are confident that our co
Slide 46: QUESTIONS
Provident Financial plc Summary QUESTIONS 45
Slide 47: Interim results 2007
Provident Financial plc Interim results 2007 11 September 2007 46