Vanquis Banking Group PLC · LSE:VANQ
Vanquis Banking — Provident Financial — FY2010 Earnings Presentation
36 slides from Vanquis Banking's earnings presentation, Mar 1, 2011
Slide 1: 2010 Preliminary Results Announcement
Provident Financial plc 2010 Preliminary Results Announcement 1 March 2011
Slide 2: Today's presentation
2010 Preliminary Results Announcement Today’s presentation • Strategy and approach Peter Crook • Financial review Andrew Fisher • Regulatory update and outlook Peter Crook • Questions 1
Slide 3: Strategy and approach
Preliminary Results Announcement – 1 March 2011 Strategy and approach Peter Crook – Chief Executive 2
Slide 4: Highlights
Highlights Continued good progress • Profit before tax and exceptional costs up 11.1% to £144.5m • Sound credit quality and collections performance in both businesses • Home Credit performance underpinned by strong management of yield and costs • Strong growth and favourable delinquency trends at Va
Slide 5: Strategy
Strategy Addressing 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 • UK non-standard market will increasingly be the domain of
Slide 6: Market conditions and business positioning: Home Credit
Market conditions and business positioning Home Credit Market conditions Business positioning • Competitive landscape little changed • Business plan for 2010 based on • Pressure on household incomes from lower growth under-employment and inflation • Tight stance on underwriting new risks • Cautious
Slide 7: Market conditions and business positioning: Vanquis Bank
Market conditions and business positioning Vanquis Bank Market conditions Business positioning • Vanquis Bank remains the most active • No change to tight underwriting and participant in the non-standard credit credit line increase criteria in place card market since mid-2009 • Strong flow of applic
Slide 8: Market conditions and business positioning: Summary
Market conditions and business positioning Summary • Approach in both businesses has proved to be appropriate to current market conditions • No change to current positioning of both businesses due to potential uncertainty stemming from future direction of employment market • Both businesses enter 20
Slide 9: Financial review
Preliminary Results Announcement – 1 March 2011 Financial review Andrew Fisher – Finance Director 8
Slide 10: Profit before taxation
Financial review Profit before taxation Year ended 31 December 2010 2009 Change £m £m £m Home Credit 129.1 128.9 0.2 Real Personal Finance (1.8) (7.7) 5.9 Vanquis Bank 26.7 14.1 12.6 Yes Car Credit - 0.2 (0.2) Central: - Costs (8.1) (7.0) (1.1) - Interest (payable)/receivable (1.4) 1.6 (3.0) Total c
Slide 11: Home Credit income statement
Home Credit Income statement 2010 2009 (53 weeks) (52 weeks) Change Year ended 31 December £m £m % Customer numbers (‘000) 1,861 1,842 1.0% Year-end customer receivables 867.2 866.0 0.1% Average customer receivables 753.6 759.2 (0.7%) Revenue 701.1 673.7 4.1% Impairment (230.6) (216.7) (6.4%) Revenu
Slide 12: Home Credit: Uplift in revenue yield
Home Credit Uplift in revenue yield 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% 80% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Annualised revenue as a % of average receivables for Home Credit 11
Slide 13: Home Credit income statement
Home Credit Income statement 2010 2009 (53 weeks) (52 weeks) Change Year ended 31 December £m £m % Customer numbers (‘000) 1,861 1,842 1.0% Year-end customer receivables 867.2 866.0 0.1% Average customer receivables 753.6 759.2 (0.7%) Revenue 701.1 673.7 4.1% Impairment (230.6) (216.7) (6.4%) Revenu
Slide 14: Home Credit: Impairment as a % of revenue
Home Credit Impairment as a % of revenue 40% 38% 36% 34% 32% 30% 28% 26% 24% 22% 20% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Annualised impairment as a % of revenue for Home Credit 13
Slide 15: 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 12 weeks Timely, realistic provisioning which has been applied
Slide 16: Home Credit: IFRS disclosures
Home Credit IFRS 7 disclosures - % of year-end receivables 2010 2009 % % In order 36.1 36.9 In arrears: - Past due but not impaired 16.1 15.0 - Impaired 47.8 48.1 Total 100.0 100.0 15
Slide 17: Home Credit income statement
Home Credit Income statement 2010 2009 (53 weeks) (52 weeks) Change Year ended 31 December £m £m % Customer numbers (‘000) 1,861 1,842 1.0% Year-end customer receivables 867.2 866.0 0.1% Average customer receivables 753.6 759.2 (0.7%) Revenue 701.1 673.7 4.1% Impairment (230.6) (216.7) (6.4%) Revenu
Slide 18: Vanquis Bank income statement
Vanquis Bank Income statement 2010 2009 Change Year ended 31 December £m £m % Customer numbers (‘000) 544 426 27.7% Year-end customer receivables 345.0 255.5 35.0% Average customer receivables 289.2 231.1 25.1% Revenue 162.0 131.3 23.4% Impairment (63.9) (61.7) (3.6%) Revenue less impairment 98.1 69
Slide 19: Vanquis Bank: Maintaining the risk-adjusted margin
Vanquis Bank Maintaining the risk-adjusted margin 70% 60% 50% 40% 33.9% 30% 20% 10% 0% H2-07 H1-08 H2-08 H1-09 H2-09 H1-10 H2-10 Annualised revenue % average receivables Annualised impairment % average receivables • Risk-adjusted margin of 33.9% above target level of 30% • Stability of risk-adjusted
Slide 20: Vanquis Bank: Expansion of risk-adjusted margin
Vanquis Bank Expansion of risk-adjusted margin 60% 32% Annualised impairment % average receivables 59% Annualised revenue % average receivables 30% 58% 57% 28% 56% 55% 26% 54% 24% 53% 52% 22% 51% 50% 20% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Annualised revenue % average receivables Annual
Slide 21: 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 22: Vanquis Bank: IFRS disclosures
Vanquis Bank IFRS 7 disclosures - % of year-end receivables 2010 2009 % % In order 86.5 82.9 In arrears: - Past due but not impaired - - - Impaired 13.5 17.1 Total 100.0 100.0 21
Slide 23: Vanquis Bank income statement
Vanquis Bank Income statement 2010 2009 Change Year ended 31 December £m £m % Customer numbers (‘000) 544 426 27.7% Year-end customer receivables 345.0 255.5 35.0% Average customer receivables 289.2 231.1 25.1% Revenue 162.0 131.3 23.4% Impairment (63.9) (61.7) (3.6%) Revenue less impairment 98.1 69
Slide 24: EPS and dividends
Financial review EPS and dividends Year ended 31 December 2010 2009 Change Profit before tax and exceptional costs (£m) 144.5 130.1 11.1% Tax rate 28% 28% Adjusted earnings per share 78.6p 71.4p 10.1% Dividend per share 63.5p 63.5p Dividend cover (before exceptional costs) 1.24x 1.12x 23
Slide 25: Balance sheet
Balance sheet Strong balance sheet with modest gearing levels 2010 2009 As at 31 December £m £m Receivables: - Consumer Credit Division 874.3 883.8 - Vanquis Bank 345.0 255.5 1,219.3 1,139.3 Pension asset 41.0 19.9 Liquid assets buffer 10.0 - Borrowings* (959.0) (883.4) Other (1.9) (7.4) Net assets
Slide 26: Borrowings and committed facilities
Borrowings and committed facilities Increasing diversification and headroom £m Committed facilities: - Bank facilities 690.0 - Private placement notes 161.9 - Senior bonds 250.0 - Retail bonds 25.2 - Subordinated bonds 6.0 Year-end committed facilities 1,133.1 - M&G facility 100.0 - Other private pl
Slide 27: Maturity of committed borrowing facilities
Maturity of committed borrowing facilities Borrowing long and lending short Committed facilities at 28 February 2011 1,400 1,200 1,000 800 £m 600 400 200 0 Mar-11 Mar-12 Mar-13 Jun-10 Jun-11 Jun-12 Jun-13 Sep-10 Dec-10 Sep-11 Dec-11 Sep-12 Sep-13 Dec-13 Dec- 12 Public bonds Syndicated & bilateral ba
Slide 28: Capital and dividend strategy: Strong capital generation
Capital and dividend strategy Strong capital generation • Group generated £80m of capital in 2010 versus dividend cost of £85m – Modest growth in receivables in Home Credit – Vanquis Bank now generating surplus capital – After one-off expenditure of £9.1m to fit-out new Consumer Credit Division head
Slide 29: Capital and dividend strategy: Alignment
Capital and dividend strategy Alignment of dividend policy, gearing and growth ALIGNMENT DISTRIBUTION GEARING GROWTH POLICY 3.5x versus covenant Supports £100m+ 80% of earnings of 5x receivables growth p.a • Current dividend of c.£85m 1.25x covered at pre-tax profits of £148m • 20% retention (£22m)
Slide 30: Regulatory update
Preliminary Results Announcement – 1 March 2011 Regulatory update Peter Crook – Chief Executive 29
Slide 31: Regulation: Recent developments
Regulation Recent developments • Relevant provisions of Irresponsible Lending Guidance to Creditors and EU Directive on Consumer Credit implemented by February 2011 as required • Work with UK Cards Association to implement BIS findings completed during 2010 and early 2011 • Responded to BIS call for
Slide 32: Outlook
Preliminary Results Announcement – 1 March 2011 Outlook Peter Crook – Chief Executive 31
Slide 33: Outlook
Outlook • Both Home Credit and Vanquis Bank have made a good start to 2011 • Home Credit has delivered a sound collections performance together with year-on-year sales growth in first two months of 2011 • Vanquis Bank has entered 2011 with a high quality receivables book and experienced strong growt
Slide 34: Investment case
Investment case • Non-standard credit market will remain the domain of specialists • An attractive business model – Fully invested and modernised Home Credit business poised for growth – Strong, profitable and now capital generative growth in Vanquis Bank • Minimal impact from austerity measures • R
Slide 35: Questions
Preliminary Results Announcement – 1 March 2011 Questions 34
Slide 36: Contact details
Provident Financial plc Contact details Provident Financial plc No. 1 Godwin Street Bradford BD1 2SU Contact: Gary Thompson – Group Financial Controller and Head of Investor Relations Telephone: 01274 351019 E-mail: gary.thompson@providentfinancial.com www.providentfinancial.com 35