Provident Financial Holdings, Inc. · NASDAQ:PROV
Provident Financial — FY2011 Earnings Presentation
47 slides from Provident Financial's earnings presentation, Feb 28, 2012
Slide 1: 2011 Preliminary Results Announcement
2011 PRELIMINARY RESULTS PRELIMINARY RESULTS ANNOUNCEMENT 28 February 2012
Slide 2: Today's Presentation
2011 PRELIMINARY RESULTS TODAY’S TODAY S PRESENTATION • Highlights Hi hli ht and dbbusiness i overview i P t Crook Peter C k • Financial review Andrew Fisher • Consumer Credit Division Chris Gillespie • Regulation and outlook Peter Crook • Questions Q 1
Slide 3: Highlights and Business Overview
2011 PRELIMINARY RESULTS HIGHLIGHTS AND BUSINESS OVERVIEW Peter Crook – Chief Executive 2
Slide 4: Highlights
2011 PRELIMINARY RESULTS Highlights CONTINUED GOOD PROGRESS • Profit before tax up 12.2% to £162.1m and EPS up 14.0% to 89.6p • Total dividend per share up 8.7% to 69.0p, 1.30 times covered and supported by strong capital generation • Cautious approach to extending credit has continued to yield favo
Slide 5: Market conditions and business positioning – Home Credit
2011 PRELIMINARY RESULTS Market conditions and business positioning – Home Credit MARKET CONDITIONS BUSINESS POSITIONING • Competitive landscape unchanged • Tighter credit standards applied to underwriting new customers and re-serving re serving existing • Household disposable incomes under pressure
Slide 6: Market conditions and business positioning – Vanquis Bank
2011 PRELIMINARY RESULTS Market conditions and business positioning – Vanquis Bank MARKET CONDITIONS BUSINESS POSITIONING • Vanquis Bank remains the most active • No change to tight underwriting and credit line participant in the underserved non non-standard standard increase criteria which is suppo
Slide 7: Financial Review
2011 PRELIMINARY RESULTS FINANCIAL REVIEW Andrew Fisher – Finance Director 6
Slide 8: Group – Profit before tax
2011 PRELIMINARY RESULTS Group – Profit before tax Year ended 31 December 2011 *2010 Change £m £m £m CCD: Home Credit 127.5 **129.1 (1.6) Real Personal Finance - (1.8) 1.8 Total CCD 127.5 127.3 0.2 Vanquis Bank 44.2 26.7 17.5 Central: - costs (10.2) (8.1) (2.1) - interest receivable/(payable) 0.6 (1
Slide 9: Home Credit – Income statement
2011 PRELIMINARY RESULTS Home Credit – Income statement 2011 2010 Year ended 31 December (52 weeks) (53 weeks) Change £m £m % Customer numbers (‘000) ( 000) 1 825 1,825 1 861 1,861 (1 9%) (1.9%) Year-end receivables 876.7 867.2 1.1% Average receivables 783.4 753.6 4.0% Revenue 697.1 701.1 (0.6%) Imp
Slide 10: Home Credit – Revenue yield
2011 PRELIMINARY RESULTS Home Credit – Revenue yield 100% • Revenue yield moderated during first half of 98% 2011 reflecting business plan to focus on 96% serving g good-quality g q y existing g customers who 94% tend to be served with slightly longer term 92% products 90% • Yield not expected to ch
Slide 11: Home Credit – Impairment % revenue
2011 PRELIMINARY RESULTS Home Credit – Impairment % revenue 40% • Improvement in impairment rates due to: 38% 36% – Tighter credit standards applied to new 34% customers and re serving existing re-serving 32% customers 30% – Enhanced arrears management from 28% g to agents’ changes g commission sche
Slide 12: Home Credit – Impairment policy
2011 PRELIMINARY RESULTS 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, Timely realistic
Slide 13: Home Credit – IFRS 7 disclosures
2011 PRELIMINARY RESULTS Home Credit – IFRS 7 disclosures As at 31 December 2011 2010 % % In order 35.2 36.1 In arrears: - past due but not impaired 15.8 16.1 - impaired 49.0 47.8 Total 100 0 100.0 100 0 100.0 • Based on contractual arrears • Past due but not impaired includes customers who have mis
Slide 14: Vanquis Bank – Income statement
2011 PRELIMINARY RESULTS Vanquis Bank – Income statement Year ended 31 December 2011 2010 Change £m £m % Customer numbers (‘000) ( 000) 691 544 27 0% 27.0% Year-end receivables 453.4 345.0 31.4% Average receivables 391.2 289.2 35.3% Revenue 213.7 162.0 31.9% Impairment (76.9) (63.9) (20.3%) Revenue
Slide 15: Vanquis Bank – Above target risk-adjusted margin
2011 PRELIMINARY RESULTS Vanquis Bank – Above target risk-adjusted risk adjusted margin • Ri Risk-adjusted k dj d margin i iinherently h l stable bl ddue to 70% active management of: 60% – Credit line utilisation to minimise 50% contingent undrawn exposure (‘low( low and 40% grow’) 35.0% 30% – Manag
Slide 16: Vanquis Bank – Impairment policy
2011 PRELIMINARY RESULTS 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 a
Slide 17: Vanquis Bank – IFRS 7 disclosures
2011 PRELIMINARY RESULTS Vanquis Bank – IFRS 7 disclosures As at 31 December 2011 2010 % % In order 89.0 86.5 In arrears: - past due but not impaired - - - impaired 11.0 13.5 Total 100 0 100.0 100 0 100.0 • Favourable change in profile reflects record low delinquency 16
Slide 18: Strong balance sheet
2011 PRELIMINARY RESULTS Strong balance sheet As at 31 December 2011 2010 £m £m Receivables: - Home Credit 876.7 867.2 - Real Personal Finance 2.6 7.1 - Vanquis Bank 453.4 345.0 Total receivables 1 332 7 1,332.7 1 219 3 1,219.3 Pension asset 13.5 41.0 Liquid assets buffer 17.5 10.0 Debt funding (909
Slide 19: Modest gearing levels
2011 PRELIMINARY RESULTS Modest gearing levels 4.0 • Gearing at December 2011 of 3.2 times versus a banking covenant of 5.0 times 3.0 • Strong capital generation has funded dividends and growth leaving gearing unchanged 2.0 1.0 0.0 Dec-08 Dec-09 Dec-10 Dec-11 Gearing (measured on a banking basis) 18
Slide 20: Funding programme
2011 PRELIMINARY RESULTS Funding programme • Executed 3-year strategic plan to establish a diversified, sustainable funding base → New medium medium-term term bond and private placement funding totalling £465m with an average remaining period to maturity of 7 years → Retail deposits programme establ
Slide 21: Diversified funding base
2011 PRELIMINARY RESULTS Diversified funding base As at 31 December 2011 Post-renewal Originated £m £m Banks Core bank group 2010/2012 420 383 Non-extending overseas banks 2007 197 - 617 383 Bonds and private placements Senior public bond 2009 250 250 M&G term loan 2011 100 100 Other sterling/euro m
Slide 22: Renewal of core bank facility
2011 PRELIMINARY RESULTS Renewal of core bank facility • Syndicate y comprises p g group’s p core relationship p banks • All-in cost of funds very similar and terms, conditions and covenant package are consistent with previous facility Covenant Limit Performance in 2011 G i Gearing < 5.0 5 0 titimes
Slide 23: Maturity profile of debt
2011 PRELIMINARY RESULTS Maturity profile of debt 1,000 900 800 700 600 £m 500 400 300 200 100 0 Mar-11 Jun-11 Mar-12 Mar-13 Sep-11 Dec-11 Jun-12 Mar-14 Sep-12 Dec-12 Jun-13 Mar-15 Sep-13 Dec-13 Jun-14 Sep-14 Dec-14 Jun-15 Sep-15 Dec-15 Syndicated bank facilities Bonds Private placements • No furthe
Slide 24: Retail deposits programme
2011 PRELIMINARY RESULTS Retail deposits programme • Programme commenced in July • Fixed term deposits of 1, 2, 3 and 5 years • Redeemable only in the event of death or mandated legal reasons Fixed maturity profile • Target to build funding up to 80% of Vanquis Bank’s receivables • Offered through i
Slide 25: Profile and maturity of retail deposits
2011 PRELIMINARY RESULTS Profile and maturity of retail deposits Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12* Total Rates £ £m £ £m £ £m £ £m £ £m £ £m £ £m £ £m £ £m % Product 1 year 0.1 7.8 18.5 1.7 0.5 4.0 5.3 2.4 40.3 3.15-3.45 2 year - 0.3 19.4 2.9 6.3 45.6 11.6 4.8 90.9 3.49-3.98 3
Slide 26: Alignment of dividend policy, gearing and growth
2011 PRELIMINARY RESULTS Alignment of dividend policy policy, gearing and growth High ROE businesses Dividend Gearing Growth P li Policy 3 5 versus covenantt 3.5x S Supportst £110m+ £110 Cover ≥ 1.25x of 5.0x receivables growth p.a • Minimum retention of 20% of profits supports receivables growth of
Slide 27: Strong capital generation
2011 PRELIMINARY RESULTS Strong capital generation 2011 2010 2009 2008 £m £m £m £m Consumer Credit Division 107.3 93.3 67.6 66.9 Vanquis Bank 14.8 6.3 5.1 (5.0) Central (12.0) (19.2) (17.0) 1.6 Capital generated 110.1 80.4 55.7 63.5 Dividends payable (93.2) (84.9) (84.5) (84.0) Capital retained/(abs
Slide 28: Vanquis Bank – Capital generation
2011 PRELIMINARY RESULTS Vanquis Bank – Capital generation C it l Capital E it to Equity t generation Equity Receivables receivables £m £m £m % At 31 December 2010 70.5 345.0 20.4% Profit before tax 44.2 44.2 Tax (11.7) (11.7) Profit after tax 32.5 32.5 To fund growth in receivables (20% x £108 £108
Slide 29: Dividends
2011 PRELIMINARY RESULTS Dividends • 2011 full-year dividend of 69.0p per share (£93.2m) • Increase of 8.7% on historical rate of 63.5p per share → 14% increase in 2011 EPS → Exceptionally strong capital generation of £110m → Strength of group’s funding and liquidity positions → Cover of 1.30 times
Slide 30: Consumer Credit Division
2011 PRELIMINARY RESULTS CONSUMER CREDIT DIVISION Chris Gillespie – Managing Director, Consumer Credit Division 29
Slide 31: Continuing development of CCD
2011 PRELIMINARY RESULTS Continuing development of CCD • There has been significant investment in developing the CCD business over recent years: – Investment in IT systems – Development of credit skills and decisioning – Creation of distribution channels and marketing capability – Enhancements to ag
Slide 32: Delivering sustainable growth
2011 PRELIMINARY RESULTS Delivering sustainable growth Growing agent capacity Ongoing Achieving Expanding the product sustainable growth footprint innovation Process efficiency and improvement 31
Slide 33: Enhancing agent effectiveness
2011 PRELIMINARY RESULTS Enhancing agent effectiveness • The number of agencies has been reduced and their average size increased Agency numbers have reduced by 8% to 10,500 Growing agent capacity Hiring more committed agents Improving the agency base • Agents A t who h show h motivation ti ti tto •
Slide 34: Creating a virtuous circle
2011 PRELIMINARY RESULTS Creating a virtuous circle • An agent is more likely to succeed if they are committed, have a desire for growth and are provided with a sound, profitable agency at the outset • Combination of high high-quality quality growth and strong collections allows an agent to grow the
Slide 35: Planning based on a deep understanding of local markets
2011 PRELIMINARY RESULTS Planning based on a deep understanding of local markets • Planning process builds on a deep understanding of local market dynamics • Continuously updated through statistical analysis of data enriched by local field management knowledge – Customer opportunity in each location
Slide 36: Expanding the existing footprint
2011 PRELIMINARY RESULTS Expanding the existing footprint • Home Credit has 1.8m customers compared with 1.5m in 2005 • Field resources operate through 237 management centres covering over 400 branches • Efficiency-led amalgamations in 1990s led to a number of smaller stand-alone locations in medium
Slide 37: Case study – Stafford
2011 PRELIMINARY RESULTS Case study – Stafford • In mid-2011 Stafford was opened p as a p pilot • Background: – Stafford was merged into Stoke in 1992 and more recently moved from Stoke to Telford – Became a lower priority for local management team – Slowly declining customer base of less than 1,000
Slide 38: Process efficiency and improvement
2011 PRELIMINARY RESULTS Process efficiency and improvement • A continuous focus on achieving systems and process improvements/efficiencies in order to: – Reduce time taken to issue credit and release further capacity for growth – Reduce reliance on less efficient manual processes and form filling –
Slide 39: Product innovation to underpin customer satisfaction and growth
2011 PRELIMINARY RESULTS Product innovation to underpin customer satisfaction and growth • Current initiatives include: – Using cards rather than cheques in core customer and agent processes processes, including the launch of a reloadable Moneycard – Building on success of Shopportunity proposition
Slide 40: Delivering sustainable growth
2011 PRELIMINARY RESULTS Delivering sustainable growth Growing agent capacity Achieving Ongoing product Expanding the sustainable innovation footprint growth Process efficiency and improvement • Remain R i primarily i il ffocussed d on quality li off receivables i bl b book k through h h diffi diffi
Slide 41: Regulation and Outlook
2011 PRELIMINARY RESULTS REGULATION AND OUTLOOK Peter Crook– Chief Executive 40
Slide 42: Regulatory update
2011 PRELIMINARY RESULTS Regulatory update • Implemented relevant parts of Irresponsible Lending Guidance for C dit Creditors and d th the EU Di Directive ti on C Consumer C Credit dit b by F February b 2011 • On 1 November 2011, FSA and OFT issued a joint consultation on proposed guidance in relati
Slide 43: Outlook
2011 PRELIMINARY RESULTS Outlook • Both businesses enter 2012 with benefit of very sound credit quality • Credit standards will remain unchanged whilst pressure on customers’ disposable incomes continues in an employment market that is displaying some weakness • Group’s funding position is extremely
Slide 44: Investment case – Vanquis Bank potential
2011 PRELIMINARY RESULTS Investment case – Vanquis Bank potential • Vanquis V i B Bankkh has th the potential t ti l tto accrue significant i ifi t value l ffor shareholders • Strong investment in developing the customer base: – Should support continuing receivables growth at a similar level to rece
Slide 45: Investment case – Group
2011 PRELIMINARY RESULTS Investment case – Group • Non-standard N t d d credit dit market k t will ill remain i th the d domain i off specialists i li t • An attractive business model: – Home Credit business with opportunities for growth Growing agent capacity Expanding the footprint – Strong, p
Slide 46: Questions
2011 PRELIMINARY RESULTS QUESTIONS 45
Slide 47: Contact details
2011 PRELIMINARY RESULTS 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 p Website: www.providentfinancial.com 46