Vanquis Banking Group Plc · LSE:VANQ
Vanquis Banking — Provident Financial — Debt Investor Presentation (October 2009)
41 slides from Vanquis Banking's debt investor presentation, October 2009
Slide 1: Debt Investor Update
Provident Financial plc Debt Investor Update October 2009
Slide 2: Overview
Provident Financial plc Debt Investor Update Overview
Slide 3: Overview
Provident Financial plc Overview • UK’s leading community lender – small value, short-term loans • Established in 1880 – profitable through many cycles • Market leader with over 2.1m customers & growing • Market capitalisation of c.£1.2bn • 2009 first-half profits up 3.5% • Highly cash & capital gen
Slide 4: Management team
Management team Established team, with broad experience of the non-standard lending market Peter Crook – Chief Executive • joined Provident in September 2005 • appointed to the Board in March 2006 • previously UK Managing Director of Barclaycard 2000-2005 & Managing Director of UK Consumer Finance f
Slide 5: Strategy
Provident Financial plc Debt Investor Update Strategy
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 • 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 7: Market dynamics
Market dynamics 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) Write-offs and New customers unservable c
Slide 8: Market conditions
Market conditions Group’s business model well-suited to current market conditions • Constraint on flow of new lending into the UK non-standard market as participants withdraw or restructure • Competitive conditions in the home-collected segment are little changed • Pressure on household budgets from
Slide 9: Management approach
Management approach Maintaining the balance between growth, credit quality and collections capacity • Management has taken a cautious approach to lending for two years • marked deterioration in economy anticipated in middle of 2007 • slower rates of customer growth in both businesses during first ha
Slide 10: Management approach
Management approach Maintaining the balance between growth, credit quality and collections capacity • Collections and arrears management • recalibration of agents’ commission scheme during 2008 • key principle of commission based upon collections maintained • greater emphasis placed upon customers i
Slide 11: Business structure
Provident Financial plc Debt Investor Update Business structure
Slide 12: Business structure
Business structure Complementary business structure sharply focused on core market Consumer Credit Division Vanquis Bank Home collected credit Direct repayment loans Credit cards with lower card limits Brands Brands Provident Personal Credit Real Personal Finance Greenwood Personal Credit Products P
Slide 13: Summary financial information
Summary financial information High returns from strong balance sheet Year ended 31 December 2008 PBT Receivables £m £m Consumer Credit Division 126.1 852.1 Vanquis Bank 8.0 205.4 Central & YCC (collect-out) (5.3) 5.8 Group profit before tax 128.8 1,063.3 Net assets as at 31 December 2008* 203.2 Post
Slide 14: Home collected credit
Home collected credit Providing a valued community service • Community based model – business conducted face-to-face by agents who typically live in the communities they serve • Provides access to credit for those who might otherwise be financially excluded by smoothing the cost of seasonal or one-o
Slide 15: Home collected credit
Home collected credit Community based lending model: resilient through the economic cycle • Customer profile • limited access to other forms of credit, so not highly indebted • diversity of sources of household income • average weekly household income of c.£250 • Agents are naturally cautious • comm
Slide 16: Home collected credit
Home collected credit All loans are underwritten face-to-face in the customers’ home • Regular face-to-face contact with our customers… • our home credit customers are visited by our agents every week • this means that we make nearly 90 million visits each year • …allows us to routinely manage chang
Slide 17: Home collected credit
Home collected credit Leading market share in our attractive core market • Over 1.7m customers at June 2009, reflecting a c.60% market share • Substantial modernisation programme undertaken over last 3 years, now largely completed • development of new recruitment channels for sourcing leads • deploy
Slide 18: Consumer Credit Division
Consumer Credit Division Income statement Six months ended 30 June 2009 2008 Change £m £m % Customer numbers (‘000) 1,726 1,661 3.9 Average customer receivables 773.4 689.5 12.2 Revenue 339.9 324.0 4.9 Impairment (131.6) (121.2) (8.6) Revenue less impairment 208.3 202.8 2.7 Costs (137.2) (134.3) (2.
Slide 19: 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 Jun-09 Annualised impairment as a % of revenue 18
Slide 20: 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 21: Consumer Credit Division
Consumer Credit Division IFRS 7 disclosures: % of closing Home Credit receivables as at 30 June 2009 2008 % % In order 32.3 32.3 In arrears: - past due but not impaired 12.2 11.2 - impaired 55.5 56.5 Total 100.0 100.0 20
Slide 22: Direct repayment loans
Direct repayment loans Monthly home credit seizing a major opportunity in our core market • Targeting the 200k home credit customers who climb up the credit ladder each year, augmented progressively by direct business via the internet • Customer base is immediately adjacent to the home collected seg
Slide 23: Vanquis Bank
Vanquis Bank Revolving, Visa-branded credit card building value, leveraging management skill set and core market opportunity • Developed organically, rolled out in 2005 • Over 416,000 UK customers • Small credit lines with high levels of credit utilisation – average balance is c.£550 on an average c
Slide 24: Vanquis Bank
Vanquis Bank Strong progress towards medium term growth prospects • 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 • 83% of credit applications current
Slide 25: Vanquis Bank
Vanquis Bank Income statement Six months ended 30 June 2009 2008 Change £m £m % Customer numbers (‘000) 416 374 11.2 Average customer receivables 218.3 162.0 34.8 Revenue 60.1 42.9 40.1 Impairment (28.4) (16.5) (72.1) Revenue less impairment 31.7 26.4 20.1 Risk-adjusted margin* 30.0% 33.7% Impairmen
Slide 26: Vanquis Bank
Vanquis Bank Maintaining the risk-adjusted margin 60% 50% 40% 30% 30% 20% 10% 0% H2-05 H1-06 H2-06 H1-07 H2-07 H1-08 H2-08 H1-09 Annualised yield / average net receivables Annualised impairment / average net receivables • Risk-adjusted margin at target of 30% • Active management of credit line utili
Slide 27: 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 28: Vanquis Bank
Vanquis Bank IFRS 7 disclosures: % of closing receivables as at 30 June 2009 2008 % % In order 82.3 86.1 In arrears: - past due but not impaired - - - impaired 17.7 13.9 Total 100.0 100.0 27
Slide 29: 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 30: 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 31: Vanquis Bank
Vanquis Bank Performance in the current downturn 170 160 150 140 130 120 110 100 90 80 Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 Fitch Index 60-180 DI Vanquis Fitch Index 60-180 DI • Chart shows the relativ
Slide 32: Capital structure
Provident Financial plc Debt Investor Update Capital structure
Slide 33: Balance Sheet
Balance Sheet Strong balance sheet with modest gearing levels 2009 2008 As at 30 June £m £m Receivables 1,011.5 895.5 Borrowings on committed facilities* 786.9 678.2 Pension asset 10.6 57.9 Net assets 236.8 280.3 Gearing (†) 3.2x 2.9x Total committed facilities 1,052.6 Headroom on committed faciliti
Slide 34: 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 10 11 12 8 9 0 1 2 -1 -0 -0 -1 -1 n- n- n- n- c c c c c De De De De De Ju Ju Ju Ju Subordinated bonds Syndicated & bilateral bank facilities Private placements • Extended £213m of syndicated
Slide 35: Funding strategy
Funding strategy Clear focus on prudent capital management • Treasury policy to have at least 12 months committed funding in place at all times • Currently funded until seasonal peak towards the end of 2010 • Fully committed to maintaining existing funding sources • bank syndicate • private placemen
Slide 36: Dividend and surplus capital
Dividend and surplus capital Clear focus on prudent capital management • 2008 full-year dividend maintained at 63.5p per share, and an unchanged interim dividend of 25.4p declared in June 2009 • dividend cover being rebuilt following demerger in 2007 • medium-term target cover ratio of 1.25x • cover
Slide 37: Summary
Provident Financial plc Summary • Prudent capital management • strong balance sheet position • strong funding and liquidity in place • focus on high-return operations to support organic growth • Focused management team in place, with broad experience in UK non-standard lending market, capable of del
Slide 38: 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 37
Slide 39: Appendix
Provident Financial plc Debt Investor Update Appendix
Slide 40: Income Statement
Income Statement 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 41: 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(†
Provident Financial — Debt Investor Presentation (October 2009) on 6ix