Provident Financial Holdings, Inc. · NASDAQ:PROV
Provident Financial — H1 2011 Earnings Presentation
38 slides from Provident Financial's earnings presentation, Jul 27, 2011
Slide 1: Interim Results Presentation
2011 Interim Results Interim Results Presentation 27 July 2011
Slide 2: Today's presentation
2011 Interim Results Today’s y p presentation • Highlights g g and business overview: Peter Crook • Financial review: Andrew Fisher • Regulatory update and outlook: Peter Crook • Questions 2
Slide 3: Highlights and business overview
2011 Interim Results Highlights g g and business overview Peter Crook – Chief Executive
Slide 4: Highlights
2011 Interim Results Highlights Continued good progress • Profit before tax up 15 15.4% 4% to £62 £62.3m 3m • Cautious approach to extending credit yielding favourable impairment trends in both businesses • Home Credit performance underpinned by focus on serving good-quality existing g customers • S
Slide 5: Deposit taking activated
2011 Interim Results Deposit taking activated 5
Slide 6: Market conditions and business positioning - Home Credit
2011 Interim Results Market conditions and business positioning i i i - Home H Credit C di Market conditions Business positioning • Competitive landscape little changed • Business plan for 2011 based on modest receivables growth • Customer behaviour less cautious than 12 months ago • Tighter stance
Slide 7: Market conditions and business positioning - Vanquis Bank
2011 Interim Results Market conditions and business positioning i i i - Vanquis V i Bank B k Market conditions Business positioning • Vanquis Bank remains the most active participant • No change to tight underwriting and credit line in the non-standard credit card market increase criteria • Strong f
Slide 8: Market conditions and business positioning: Summary
2011 Interim Results Market conditions and business positioning iti i Summary • Management’s approach in both businesses proving effective in current market conditions • No change to cautious stance on extending new credit in recognition of continuing pressure on real incomes and uncertainty over fu
Slide 9: Financial review
2011 Interim Results Financial review Andrew Fisher – Finance Director
Slide 10: Group - Profit before tax
2011 Interim Results Group - Profit before tax 2011 2010 Change Six months ended 30 June £m £m £m Home Credit 50.2 51.1 (0.9) Real Personal Finance - (1.8) 1.8 Vanquis Bank 17.6 9.1 8.5 Central: - Costs (4.9) (4.1) (0.8) - Interest I payable bl (0 6) (0.6) (0 3) (0.3) (0 3) (0.3) Total central (5.5)
Slide 11: Home Credit - Income statement
2011 Interim Results Home Credit - Income statement 2011 2010 (26 weeks) (27 weeks) Si months Six th ended d d 30 June J £ £m £ £m Ch Change Customer numbers (‘000) 1,803 1,805 (0.1%) Period-end receivables 785.5 747.7 5.1% Average receivables 784.3 749.5 4.6% Revenue 350.2 362.3 (3.3%) I Impairment
Slide 12: Home Credit - Revenue yield
2011 Interim Results Home Credit - Revenue yield • R Revenue yield i ld moderated d t d 100% during first half of 2011 as 98% 96% previously indicated 94% 92% • Reflects focus on serving 90% good-quality g q y existingg 88% customers who tend to be 86% 84% served with slightly longer term 82% produc
Slide 13: Home Credit - Income statement
2011 Interim Results Home Credit - Income statement 2011 2010 (26 weeks) (27 weeks) Si months Six th ended d d 30 June J £ £m £ £m Ch Change Customer numbers (‘000) 1,803 1,805 (0.1%) Period-end receivables 785.5 747.7 5.1% Average receivables 784.3 749.5 4.6% Revenue 350.2 362.3 (3.3%) I Impairment
Slide 14: Home Credit - Impairment as a % of revenue
2011 Interim Results Home Credit - Impairment as a % of revenue • Strong first half collections 40% performance reflects tighter 38% underwriting and improvement 36% 34% in quality of the book 32% 30% • Enhancements to agents’ 28% 26% commission scheme are 24% proving p g effective 22% 20% • Impairm
Slide 15: Home Credit - Impairment policy
2011 Interim 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, realistic provisioning
Slide 16: Home Credit - IFRS 7 disclosures
2011 Interim Results Home Credit - IFRS 7 disclosures 2011 2010 % % In order 31.6 30.4 In arrears: - Past P t due d b butt nott impaired i i d 11.8 11 8 12.6 12 6 - Impaired 56.6 57.0 Total 100 0 100.0 100 0 100.0 16
Slide 17: Home Credit - Income statement
2011 Interim Results Home Credit - Income statement 2011 2010 (26 weeks) (27 weeks) Si months Six th ended d d 30 June J £ £m £ £m Ch Change Customer numbers (‘000) 1,803 1,805 (0.1%) Period-end receivables 785.5 747.7 5.1% Average receivables 784.3 749.5 4.6% Revenue 350.2 362.3 (3.3%) I Impairment
Slide 18: Vanquis Bank - Income statement
2011 Interim Results Vanquis Bank - Income statement 2011 2010 Six months ended 30 June £m £m Change Customer numbers (‘000) 610 483 26.3% Period-end Period end receivables 380 1 380.1 281 2 281.2 35 2% 35.2% Average receivables 361.6 265.3 36.3% Revenue 99.3 74.7 32.9% Impairment (38.9) (33.3) (16.
Slide 19: Vanquis Bank - Maintaining the risk-adjusted margin
2011 Interim Results Vanquis Bank - Maintaining the risk-adjusted margin 70% • Risk-adjusted margin of 34.7%, well above 60% minimum target of 30% 50% • Stable risk-adjusted margin underpinned by 40% 34.7% active management of: 30% – Credit line utilisation to minimise 20% contingent undrawn exposur
Slide 20: Vanquis Bank - Expansion of the risk-adjusted margin
2011 Interim Results Vanquis Bank - Expansion of the risk-adjusted margin 70% 40% • Margin expansion reflects: Annualis ed impairment % average rece eivables 60% 35% – Improvement in underlying quality of alised revenue % average rece 50% 30% receivables book 40% 34.7% 25% Tightening of underwriti
Slide 21: Vanquis Bank - Impairment policy
2011 Interim 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 against
Slide 22: Vanquis Bank - IFRS 7 disclosures
2011 Interim Results Vanquis Bank - IFRS 7 disclosures 2011 2010 % % In order 87.9 83 7 83.7 In arrears: - Past due but not impaired - - - Impaired I i d 12 1 12.1 16 3 16.3 Total 100.0 100.0 22
Slide 23: Vanquis Bank - Income statement
2011 Interim Results Vanquis Bank - Income statement 2011 2010 Six months ended 30 June £m £m Change Customer numbers (‘000) 610 483 26.3% Period-end Period end receivables 380 1 380.1 281 2 281.2 35 2% 35.2% Average receivables 361.6 265.3 36.3% Revenue 99.3 74.7 32.9% Impairment (38.9) (33.3) (16.
Slide 24: Strong balance sheet
2011 Interim Results Strong balance sheet 2011 2010 As at 30 June £m £m Receivables: - Home Credit 785.5 747.7 - Real Personal Finance 39 3.9 10 8 10.8 - Vanquis Bank 380.1 281.2 1,169.5 1,039.7 Pension asset 58.9 1.0 Liquid assets buffer 10.8 - g Borrowings* ((930.6)) ((818.5)) Other 9.9 22.1 Net a
Slide 25: Modest gearing levels
2011 Interim Results Modest gearing levels 5.0 4.5 • Gearing at June 2011 of 3.3 4.0 times versus a banking 3.5 3.0 covenant of 5.0 times 2.5 2.0 • S Strong capital generation has 1.5 funded dividends and growth 1.0 leaving gearing unchanged 05 0.5 - Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Gearing
Slide 26: Diversified funding base
2011 Interim Results Diversified funding base Originated £m Banks UK-centric bank group 2010 420 Non-extending overseas banks 2007 197 617 Bonds B d and d private i t placements l t Senior public bond 2009 250 M&G term loan 2011 100 Other sterling/euro medium term notes 2011 42 Retail bonds - Issue
Slide 27: Maturities and funding
2011 Interim Results Maturities and funding Maturities £m Funding g 2011 US private placements 16 • Extension by May 2012 of UK-centric bank group 2012 facilities of £420m maturing in May 2013 Non-extending overseas banks 197 2013 UK-centric bank group 420 • Vanquis Bank deposit programme to provide
Slide 28: Vanquis as a self-funding business
2011 Interim Results Vanquis as a self-funding business 28
Slide 29: Retail deposits programme
2011 Interim Results Retail deposits programme • Fixed term deposits p of typically yp y 1 to 3 yyears • Redeemable only in the event of death or mandated legal reasons Fixed maturity profile f • 18 month programme to build funding to 80% of Vanquis Bank’s Bank s receivables • Offered through intern
Slide 30: Strong capital generation
2011 Interim Results Strong capital generation • Group pggenerated £91.6m* of capital p in the 12 months to 30 June 2011 compared with dividend payments of £84.9m • Vanquis Bank is generating more than sufficient capital to fund its own growth and paid a maiden dividend of £5.0m to PFG in July • Reg
Slide 31: Vanquis Bank - Capital generation
2011 Interim Results Vanquis Bank - Capital generation Capital Equity to generation Equity Receivables receivables £m £m £m % At 31 December 2010 76.5 345.0 22.2 Profit after tax 12.9 12.9 p Other capital movements ((0.7)) 12.2 To fund growth in receivables (20% x £35.1m) (7.0) Surplus capital gener
Slide 32: Alignment of dividend policy, gearing and growth
2011 Interim Results Alignment of dividend policy, gearing and growth Alignment Distribution Gearing Growth P li Policy 3 5 versus covenantt 3.5x S Supports t £100m+ £100 80% of earnings of 5.0x receivables growth p.a • Historic dividend of 63.5p per share, 1.25x covered at pre-tax profits of £145m
Slide 33: Regulatory update
2011 Interim Results Regulatory g y update Peter Crook – Chief Executive
Slide 34: Regulation
2011 Interim Results Regulation Recent developments p • Relevant provisions of Irresponsible Lending Guidance to Creditors and EU Directive on Consumer Credit implemented by February 2011 as required • Government published a summary of submissions received as part of its review of consumer credit an
Slide 35: Outlook
2011 Interim Results Outlook Peter Crook – Chief Executive
Slide 36: Outlook
2011 Interim Results Outlook • Strength g of g group’s p balance sheet has been augmented g by y activating g Vanquis Bank’s retail deposits programme • Credit quality in both businesses is very sound as evidenced by favourable impairment trends in first half and provides foundation for good quality
Slide 37: Questions
2011 Interim Results Questions
Slide 38: Provident Financial plc contact details
2011 Interim Results Provident Financial plc p Contact details Provident Financial plc No. 1 Godwin Street Bradford BD1 2SU Contact: Garyy Thompson p – Groupp Financial Controller and Head of Investor Relations Telephone: 01274 351019 E-mail: gary.thompson@providentfinancial.com Website: www.provide