Vanquis Banking Group PLC · LSE:VANQ
Vanquis Banking — Provident Financial — H1 2008 Earnings Presentation
39 slides from Vanquis Banking's earnings presentation, Jul 30, 2008
Slide 1: 2008 Interim Results Presentation
Provident Financial plc 2008 Interim Results Presentation Our approach 30 July 2008
Slide 2: Our presentation today
Provident Financial plc Our presentation today • Overview Peter Crook • Financial review Andrew Fisher • Consumer Credit Division Peter Crook • Vanquis Bank Peter Crook • Summary and outlook Peter Crook 1
Slide 3: Highlights
Highlights Delivering high high-quality quality growth • Customer numbers up 10 10.5% 5% to over 2 2.0m 0m • Profit before tax up 34.3% to £51.3m from continuing operations • Adjusted EPS* up 27.6% to 28.2p f from continuing i i operations i • Interim dividend 25.4p per share • Funding headroom over
Slide 4: Group strategy
Group strategy Addressing g the UK non-standard lending g market Competitor withdrawal More mainstream M i t More impaired M i i d lenders’ declines credit records c.10 million Direct repayment consumers (c.7 million) Home collected (c.3 million) Write-offs Write offs and New customers unservable cu
Slide 5: Market conditions
Market conditions Favourable conditions, conditions well suited to the group group’ss business model • Favourable conditions for Provident Financial,, as mainstream and other non-standard lenders restrict the supply of credit • worsening economic environment • continuing liquidity issues • Provident
Slide 6: Delivering high-quality growth
Delivering high-quality growth Consistently improving the quality of lending • Provident Financial has been consistently taking action to improve the quality of its lending and enhance its collections processes over the past two years • Consumer Credit Division • credit decisioning for agent and non
Slide 7: Delivering high-quality growth (continued)
Delivering high-quality growth (continued) Consistently improving the quality of lending • Vanquis Bank • consistent application of a “Low & Grow” strategy • significant tightening of underwriting since 2006 as part of a package of measures to reposition the business • continuous refinement of highl
Slide 8: Summary of first half
Summary of first half Delivering high high-quality quality growth • High-quality growth in customers and profits delivered in both the Consumer Credit Division and Vanquis Bank • Stable impairment levels in both businesses • Real Personal Finance market test progressing well • Strong funding and liq
Slide 9: Financial review
Provident Financial plc 2008 Interim Results Presentation Financial review 8
Slide 10: Financial review: profit before taxation
Financial review Profit before taxation from continuing operations 2008 2007 Change £m £m £m Consumer Credit Division 50.2 47.0 3.2 Vanquis Bank 3.0 (4.2) 7.2 Yes Car Credit (collect out) (1.0) (1.2) 0.2 Central - Costs (2.7) (4.5) 1.8 - Interest receivable bl 1.8 1.1 0.7 Total central (0.9) (3.4) 2
Slide 11: Consumer Credit Division income statement
Consumer Credit Division Income statement 2008 2007 Change £m £m % Customer numbers (‘000) 1,661 1,553 7.0 Average customer receivables 689 5 689.5 630 0 630.0 94 9.4 Revenue 324.0 292.0 11.0 Impairment (121.2) (107.4) (12.8) Revenue less impairment 202.8 184.6 9.9 Costs (134.3) (120.4) (11.5) Inter
Slide 12: Consumer Credit Division impairment as a % of revenue
Consumer Credit Division Impairment as a % of revenue 35% 34% 33% 32% 31% 30% 29% 28% 27% 26% 25% Dec-05 Dec 05 Jun-06 Jun 06 Dec-06 Dec 06 Jun-07 Jun 07 Dec-07 Dec 07 Jun-08 Jun 08 11
Slide 13: Consumer Credit Division IFRS disclosures
Consumer Credit Division IFRS 7 disclosures: % of closing Home Credit receivables as at 30 June 2008 2007 % % In order 32.3 31.7 In arrears: - Past due but not impaired 11.2 10.9 - Impaired 56.5 57.4 TOTAL 100 0 100.0 100 0 100.0 12
Slide 14: Vanquis Bank income statement
Vanquis Bank Income statement % of ave. ave 2008 2007 Change receivables* £m £m % Customer numbers (‘000) 374 289 29.4 Average customer receivables 162 0 162.0 107 8 107.8 50 3 50.3 Revenue 53.3% 42.9 27.8 54.3 Impairment 19.6% (16.5) (12.8) (28.9) Revenue less impairment 33.7% 26.4 15.0 76.0 Costs
Slide 15: Vanquis Bank IFRS disclosures
Vanquis Bank IFRS 7 disclosures: % of closing receivables as at 30 June 2008 2007 % % In order 86.1 85.7 In arrears: - Past due but not impaired - - - Impaired 13.9 14.3 TOTAL 100 0 100.0 100 0 100.0 14
Slide 16: Financial review: profit before taxation
Financial review Profit before taxation from continuing operations 2008 2007 Change £m £m £m Consumer Credit Division 50.2 47.0 3.2 Vanquis Bank 3.0 (4.2) 7.2 Yes Car Credit (collect out) (1.0) (1.2) 0.2 Central - Costs (2.7) (4.5) 1.8 - Interest receivable bl 1.8 1.1 0.7 Total central (0.9) (3.4) 2
Slide 17: Balance sheet
Financial review Balance sheet as at 30 June 2007 2008 pro forma* £m £m Receivables: - Consumer Credit Division 701.7 623.9 - Vanquis Bank 177.5 114.3 - Yes Car Credit 16.3 60.8 895.5 799.0 Pension asset 57.9 65.1 Borrowings** (678.2) (582.1) Other 5.1 4.1 Net assets 280.3 286.1 Equity(†) : Receivab
Slide 18: Regulatory capital at June 2008
Financial review Regulatory capital at 30 June 2008 Basel II £m Risk weighted assets 783.2 Pill I capital Pillar it l requirement i t 68 6 68.6 Tier 1 capital 213.4 Tier 2 capital 100.0 Total capital 313.4 Total capital as a % 457% of Pillar I capital requirement 17
Slide 19: Borrowings and committed facilities
Financial review Borrowings and committed facilities £m Committed facilities: - Syndicated y 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 30 June 2008 8* 6
Slide 20: Maturity of committed borrowing facilities
Financial review Maturity of committed borrowing facilities 1,200 1,000 800 600 £m m 400 200 0 08 09 10 11 12 8 9 0 1 2 -1 -0 -0 -1 -1 n- n- n- n- n- c c c c c De De De De De Ju Ju Ju Ju Ju Subordinated bonds Syndicated & bilateral bank facilities Private placements • Senior issuer default rating of
Slide 21: Surplus capital
Financial review Surplus capital • Target T t ratio ti off 15% ordinary di shareholders’ h h ld ’ capital it l to t receivables i bl • Approximately £70m of surplus capital as at 30 June 2008 against this target ratio, excluding the pension asset and taking into account dividend flows • In view of t
Slide 22: Consumer Credit Division
Provident Financial plc 2008 Interim Results Presentation Consumer Credit Division 21
Slide 23: Consumer Credit Division review
Consumer Credit Division Review • Lending L di model d l • Development of sales channels • Change programme • Real Personal Finance 22
Slide 24: Home Credit: community based lending model
Home Credit Community based lending model: robust through the economic cycle • Regular face-to-face contact with our customers… • all loans are underwritten face-to-face in the customer’s home • our Home Credit customers are visited by our agents every week • this means that we make over 80 million
Slide 25: Home Credit: new channel development
Home Credit New channel development delivering sustainable growth 100 New customers from non-agent sources 80 60 Internet '000 Direct Mail 40 Brokers Other 20 0 2006 2007 2008 • Volumes generated from new channels are delivering sustainable, profitable growth • Modest underlying growth in the servab
Slide 26: Home Credit: change programme progressing well
Home Credit Change programme progressing well • Roll-out of Focus platform • provides a platform for future business initiatives • successfully implemented in approximately 80% of branches, with minimal business disruption bu d up o • will be fully rolled-out ahead of plan by late summer • Agent com
Slide 27: Home Credit: change programme progressing well
Home Credit Change programme progressing well • Credit and arrears management • continuous enhancement to data analytics used in arrears management • preparing p p g for increased use of external (CRA) ( ) data in credit application pp decisioning (2009) • next generation of data analytics to suppor
Slide 28: Real Personal Finance
Real Personal Finance A natural extension of the core Home Credit business • Targeting up to 200,000 Home Credit customers who climb up the credit ladder each year • Customer base is immediately adjacent to the home-collected segment • Will be progressively augmented by direct business via brokers a
Slide 29: Real Personal Finance: progress to date
Real Personal Finance Progress to date • Currently C tl in i around d 50 locations l ti • Early business metrics encouraging • receivables of approximately £5m • arrears levels well within expectations • Two-thirds of customers have had a previous relationship with Home Credit • Investment I t t iin
Slide 30: Vanquis Bank
Provident Financial plc 2008 Interim Results Presentation Vanquis Bank 29
Slide 31: Vanquis Bank review
Vanquis Bank Review • Lending L di model d l • Customer and receivables growth • Profitability • Chatham call centre relocation 30
Slide 32: Lending model
Lending model Closer to our core customers • Different to mainstream card issuers • specifically designed as a non-standard credit card • application and underwriting process includes a telephone interview • initial line assignments are low, normally £250, which then grow as customers demonstrate pe
Slide 33: Customer and receivables growth
Customer and receivables growth On track to meet medium medium-term term targets 400 160 350 140 Customerr numbers (000) Average rreceivables (£m) 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 Customers Annualised average receivables • On track to achieve 2
Slide 34: Profitability
Profitability On track to meet medium medium-term term targets 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% H2-05 H1-06 H2-06 H1-07 H2-07 H1-08 Annualised yield / average net receivables Annualised impairment / average net receivables • Now close to target risk-adjusted margin of 35% • Consiste
Slide 35: Development plans
Development plans Good progress being made • Chatham call centre • new facility capable of serving up to 750,000 accounts • on track to be occupied later this summer • IT also being upgraded this year to accommodate further growth 34
Slide 36: Summary and outlook
Provident Financial plc 2008 Interim Results Presentation Summary and outlook 35
Slide 37: Summary and outlook
Provident Financial plc Summary and outlook “Our decision to be increasingly cautious in our approach to granting new credit dit over th the llastt 12 months th h has resulted lt d iin th the group’s ’ businesses delivering high-quality customer and profit growth. The group’s strong funding position
Slide 38: Questions
Provident Financial plc 2008 Interim Results Presentation Questions 37
Slide 39: Our approach
Provident Financial plc 2008 Interim Results Presentation Our approach 30 July 2008