Vanquis Banking Group PLC · LSE:VANQ
Vanquis Banking — Provident Financial — FY2004 Earnings Presentation
61 slides from Vanquis Banking's earnings presentation, Mar 16, 2005
Slide 1: Full year results to 31 December 2004
PROVIDENT FINANCIAL Full year results to 31 December 2004 16 March 2005
Slide 2: Our presentation today
PROVIDENT FINANCIAL Our presentation today > Highlights – Robin Ashton > UK consumer credit – Chris Johnstone > International – David Swann > Regulatory review – John Harnett > IFRS impact review > Motor insurance – Robin Ashton > Outlook > Questions
Slide 3: Highlights
PROVIDENT FINANCIAL Highlights PBT* EPS* DPS up 7.0% to up 7.0% to up 4.2% to £220.7 million 61.57p 34.40p *excludes goodwill amortisation
Slide 4: Highlights
PROVIDENT FINANCIAL Highlights > International – excellent results > UK consumer credit > UK home credit – stable profit > Yes Car Credit – disappointing performance > Vanquis Bank – successful market test > Motor insurance – strong performance
Slide 5: International progress
PROVIDENT FINANCIAL International progress 1998 2004 Countries 3 5 Customers (‘000) 18 1,559 Agents 479 19,991 Employees 164 3,440 Credit issued £m 3 437 Turnover £m 1 235 Profit/(loss) before tax £m (4.7) 49.2
Slide 6: Financial review
PROVIDENT FINANCIAL Financial review Divisional results 2004 2003 Change £m £m % UK consumer credit 148.0 157.1 (5.8) International 49.2 29.3 67.8 Motor insurance 34.6 28.6 21.1 Central costs (11.1) (8.8) (26.3) Profit before tax* 220.7 206.2 7.0 Tax rate 29.3% 29.5% - Earnings per share* 61.57p 57.
Slide 7: UK consumer credit
PROVIDENT FINANCIAL UK consumer credit 2004 results
Slide 8: UK consumer credit
PROVIDENT FINANCIAL UK consumer credit Profit before tax 2004 2003 Change £m £m % UK home credit 152.3 152.6 (0.3) Yes Car Credit 4.4 11.2 (60.4) Vanquis Bank (8.7) (6.7) (29.4) 148.0 157.1 (5.8)
Slide 9: UK home credit: Overview
PROVIDENT FINANCIAL UK home credit Overview > External > customers better off > increased competition > Internal > focus on recruiting and retaining profitable customers > identify and withdraw from unprofitable recruitment channels > tight cost control > increase issue to selected customers
Slide 10: UK home credit: Customers and credit issued
PROVIDENT FINANCIAL UK home credit Customers and credit issued Customer Credit numbers issued `000 £m 1,800 1,000 1,600 900 1,400 800 700 1,200 600 1,000 500 800 400 600 300 400 200 200 100 0 0 92 93 94 95 96 97 98 99 00 01 02 03 04 Customer numbers ('000) Credit issued (£m)
Slide 11: UK home credit: 2004 results
PROVIDENT FINANCIAL UK home credit 2004 results 2004 2003 Change £m £m % Customer numbers (m) 1.53 1.61 (4.7) Credit issued 894 916 (2.4) Collections 1,300 1,320 (1.5) Turnover 491 496 (1.0) Bad debt 86.4 88.0 1.8 Bad debt as % of credit issued 9.7 9.6 - Operating costs 251.8 255.0 1.2 Profit before
Slide 12: UK home credit: Prospects for 2005
PROVIDENT FINANCIAL UK home credit Prospects for 2005 > Challenging market conditions to continue > Continued reduction in customer numbers > Recruit and retain profitable customers > Credit issued per customer to rise > Manage costs tightly > Credit quality stable > Profit to fall a little in 2005
Slide 13: Yes Car Credit: Overview
PROVIDENT FINANCIAL Yes Car Credit Overview > Tough year > Used car credit market trading conditions difficult > Increased competition > Performance below expectations
Slide 14: Yes Car Credit: Sales performance versus the FLA
PROVIDENT FINANCIAL Yes Car Credit Sales performance of Yes Car Credit versus the FLA YCC FLA 160 140 120 100 80 60 40 20 0 Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Indexed to 100 in Q1, 2002
Slide 15: Yes Car Credit: 2004 results
PROVIDENT FINANCIAL Yes Car Credit 2004 results 2004 2003 Change £m £m % Cars sold (units) 37,319 37,892 (1.5) Turnover 281.8 269.2 4.7 Gross profit 126.5 112.1 12.8 Bad debt 42.9 33.4 (28.2) Operating costs 79.2 67.5 (17.3) Profit before tax 4.4 11.2 (60.4) Average customer receivables (ACR) 281.5
Slide 16: Yes Car Credit: Prospects for 2005
PROVIDENT FINANCIAL Yes Car Credit Prospects for 2005 > Tough trading conditions to continue > Changes to improve business performance > further strengthen the management team > improve effectiveness of marketing > reduce cost base > close two branches > IFRS loss for 2005 to be similar to 2004
Slide 17: Vanquis Bank: Overview
PROVIDENT FINANCIAL Vanquis Bank Overview > Market test since April 2003 > Unique and differentiated credit card offer > 90,000 customers recruited > 76,000 active customers at year end > Strong demand, good customer retention, satisfactory credit quality > Profitable and shareholder value-adding op
Slide 18: Vanquis Bank: 2004 results
PROVIDENT FINANCIAL Vanquis Bank 2004 results 2004 2003 £m £m Cards in issue 76,000 36,800 Net receivables 26.1 7.4 Turnover 6.7 1.3 Net loss (8.7) (6.7) Year ended 31 December
Slide 19: Vanquis Bank: The product
PROVIDENT FINANCIAL Vanquis Bank The product > Designed for target market > Higher level of customer contact > Lower credit limits > interest rates 16% - 40% > ‘Stay in control’ features through three offers > ‘no surprises’ card > fixed repayment > standard variable card with higher minimum repayme
Slide 20: Vanquis Bank: Customer profile
PROVIDENT FINANCIAL Vanquis Bank Customer profile > Majority have no other credit card > Rejected or not targeted by other credit card providers > Past credit problem or no credit history > Lower than average income > C1, C2 and D demographic > Average age of customers: 38 > Predominantly tenants >
Slide 21: Vanquis Bank: Prospects
PROVIDENT FINANCIAL Vanquis Bank Prospects > Aim to add c.100,000 cardholders in 2005 > Break-even expected in 2006 at c.250,000 customers > Start-up losses of £14 million in 2005 > Substantially reduced loss in 2006 > Profit in 2007 > Mid-single digit pre-tax return on assets
Slide 22: International: 2004 results
PROVIDENT FINANCIAL International 2004 results Annual profits/(losses) since 1997 (£m) 60.0 50.0 40.0 30.0 £m 20.0 10.0 0.0 -10.0 1997 1998 1999 2000 2001 2002 2003 2004 -20.0 Profit/(loss) before tax for the twelve months to December (£m)
Slide 23: International: Overview
PROVIDENT FINANCIAL International Overview > Excellent results > Exceptional performance in Poland > Steady progress in Czech Republic > Maiden full year profit in Hungary > Strong growth in Slovakia > Mexico developing well
Slide 24: International: 2004 results
PROVIDENT FINANCIAL International 2004 results 2004 2003 2003 Change £m £m £m %* -- ------- -- ------- FX - - adjusted Customer numbers (m) 1.56 1.24 - 25.3 Credit issued 436.8 360.6 350.7 24.6 Collections 562.1 464.3 448.7 25.3 Turnover 235.0 191.4 185.2 26.9 Bad debt 39.2 37.2 35.6 (10.1) Bad debt
Slide 25: Central European progress versus targets
PROVIDENT FINANCIAL International Central European progress versus targets 2004 Target Customer numbers (‘000) 1,524 1,625 Poland 941 1,000 Czech Republic 230 250 Hungary 251 250 Slovakia 102 125 Profit per customer £44 £58 Poland £51 £60 Czech Republic £45 £60 Hungary £34 £60 Slovakia £(7) £40
Slide 26: Mexico: Progress
PROVIDENT FINANCIAL Mexico Progress > 35,000 customers > 600 agents > Four branches > £2.2 million net receivables > Experienced management team > Well-educated and hard working employees > Credit quality satisfactory > Pilot has confirmed attractive market for home credit > Decision made to roll-ou
Slide 27: Mexico: Potential
PROVIDENT FINANCIAL Mexico Potential > 103 million population > Low level of unemployment > Good economic prospects > Little direct competition > Large potential home credit market: three million customers > Annual profit per customer c.£20 at maturity
Slide 28: Mexico: Prospects for 2005
PROVIDENT FINANCIAL Mexico Prospects for 2005 > Controlled expansion > Phased, regional approach > Expansion in Puebla-Veracruz region in 2005 > Build brand awareness > Build experienced management > Start-up loss expected to be £5-6 million in 2005
Slide 29: International: Prospects for 2005
PROVIDENT FINANCIAL International Prospects for 2005 > Excellent prospects > Poland and Hungary major contributors to growth > Continued steady progress in Czech market > Slovakia to move towards break-even > Expand business in Mexico > Focus on Mexico in 2005, new country in 2006 > Strong growth, e
Slide 30: Regulation
PROVIDENT FINANCIAL Regulation > UK consumer credit law > Competition Commission > Poland: proposed rate ceiling
Slide 31: Regulation: Consumer Credit Act
PROVIDENT FINANCIAL Regulation Consumer Credit Act > UK Consumer Credit legislation > update of 1974 Consumer Credit Act > New Consumer Credit Bill key changes > unfair relationships > Ombudsman system > licensing and Office of Fair Trading supervision > We welcome these proposals
Slide 32: Regulation: Competition Commission
PROVIDENT FINANCIAL Regulation Competition Commission (CC) > National Consumer Council super-complaint in June 2004 > 90-day OFT investigation > OFT refers to Competition Commission in December 2004 > Five OFT areas of concerns > home credit customers may be in poor bargaining position > customers m
Slide 33: Regulation: Competition Commission
PROVIDENT FINANCIAL Regulation Competition Commission > Our initial response to OFT > market is increasingly competitive > customers have a wide choice of credit products > home credit is the most transparent credit product > loan comparability a problem with other types of credit products > custome
Slide 34: Regulation: Competition Commission timetable
PROVIDENT FINANCIAL Regulation Competition Commission > Timetable > Receipt of off the shelf data Jan 2005 > Initial submissions Jan 2005 > Receipt of detailed questionnaires Mar 2005 > CC publishes issues statement Apr 2005 > Emerging thinking document published Sept 2005 > Provisional findings rep
Slide 35: Regulation: Poland
PROVIDENT FINANCIAL Regulation Poland > Minority party proposal for an interest rate ceiling > Submitted in June 2004 > Procedural first reading in July 2004 > Parliamentary sub-committee review > Polish government and the central bank oppose the proposal > Not in the interests of consumers
Slide 36: IFRS: Key differences 2004
PROVIDENT FINANCIAL IFRS Key differences: 2004 > Profit before tax and goodwill amortisation down 6.9% (post amortisation down by 4.9%) > Net assets down £112 million from £526 million to £414 million > Key profit and loss impact > slower revenue recognition > earlier impairment recognition > no cha
Slide 37: IFRS: Impact on profit
PROVIDENT FINANCIAL IFRS Impact of adoption of IFRS on profit 2004 £m UK GAAP profit before tax* 220.7 Revenue 93.6 Impairment (107.4) (13.8) Share-based payments (1.3) Derivatives (1.6) Pensions 1.5 IFRS profit before tax 205.5 *excludes goodwill amortisation
Slide 38: IFRS: Profit before tax
PROVIDENT FINANCIAL IFRS Profit before tax IFRS UK GAAP 2004 2004 £m £m UK home credit 154.0 152.3 Yes Car Credit (2.7) 4.4 Vanquis Bank (9.0) (8.7) UK consumer credit 142.3 148.0 International 39.8 49.2 Motor insurance 34.6 34.6 Total central costs (11.2) (11.1) Group profit before tax* 205.5 220.7
Slide 39: IFRS: Impact on net assets
PROVIDENT FINANCIAL IFRS Impact of adoption of IFRS on net assets 2004 £m UK GAAP net assets 525.5 Pensions (115.8) Revenue and impairment (52.0) Derivatives (1.0) Dividends 52.7 Goodwill 4.6 Share-based payments 0.1 IFRS net assets 414.1 *Net asset impacts are stated after taking account of deferre
Slide 40: Motor insurance: 2004 results
PROVIDENT FINANCIAL Motor insurance 2004 results Policyholders PBT `000 £m 900 40 800 35 700 30 600 25 500 20 400 15 300 200 10 100 5 0 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Policyholders PBT
Slide 41: Motor insurance: Overview
PROVIDENT FINANCIAL Motor insurance Overview > Competitive market conditions continued > Market premiums down by approximately 3.5% > Price for an adequate return on equity > Lower claims cost inflation > Policyholder numbers down by 14.7% to 501,000, but stable in H2 > Costs reduced sharply > Profi
Slide 42: Motor insurance: 2004 results
PROVIDENT FINANCIAL Motor insurance 2004 results 2004 2003 Change £m £m % Gross written premium 164.8 188.2 (12.5) Gross earned premium 168.9 216.4 (22.0) Costs 157.6 212.4 25.8 Underwriting profit 11.3 4.0 183.8 Combined ratio (%) 93 98 5.0 Investment income 23.3 24.6 (5.3) Profit before tax 34.6 2
Slide 43: Motor insurance: Prospects
PROVIDENT FINANCIAL Motor insurance Prospects > Policyholder numbers to remain stable > Favourable trends in claims costs > Expect 2005 to be another good year
Slide 44: Group: Prospects for 2005
PROVIDENT FINANCIAL Group Prospects for 2005 > Guidance based on IFRS and relative to 2004 IFRS results > Continue strategy to expand internationally and broaden the product range > A year of substantial (£20 million) investment > full launch of Vanquis Bank > regional roll-out of home credit in Mex
Slide 45: PROVIDENT FINANCIAL
PROVIDENT FINANCIAL
Slide 46: Appendices
PROVIDENT FINANCIAL Appendices
Slide 47: Capital structure
PROVIDENT FINANCIAL Capital structure Appendix 2004 2003* Change £m £m £m Receivables 1,272 1,109 163 Borrowings 862 789 73 Consumer credit capital 346 280 66 Consumer credit goodwill 83 88 (5) Motor insurance capital 97 81 16 Group capital 526 449 77 Consumer credit capital % net receivables 27 25
Slide 48: Free cash flow and surplus capital
PROVIDENT FINANCIAL Free cash flow and surplus capital Appendix 2004 2003 £m £m UK home credit free cash flow 101.3 102.0 Yes Car Credit free cash flow (43.8) (77.4) Vanquis Bank free cash flow (25.6) (14.0) International home credit free cash flow (41.7) (20.5) Consumer credit free cash flow (9.8)
Slide 49: Sterling exchange rates: 2003 and 2004
PROVIDENT FINANCIAL Sterling exchange rates: 2003 and 2004 Appendix Polish Czech Hungarian Slovak euro Mexican zloty crown forint crown peso Average exchange rate 6.68 47.00 370.21 58.99 1.47 20.66 during 2004 Exchange rate as at 5.77 42.87 346.36 54.70 1.41 21.34 31 December 2004 Average exchange r
Slide 50: Country profit/(loss) before tax
PROVIDENT FINANCIAL Country profit/(loss) before tax Appendix 2004 2003 Change £m £m £m Poland 44.4 33.1 11.3 Czech Republic 10.0 8.8 1.2 Hungary 6.4 (1.9) 8.3 Slovakia (0.5) (1.6) 1.1 Mexico (2.2) (1.2) (1.0) Divisional overhead (8.9) (7.9) (1.0) UK GAAP profit before tax 49.2 29.3 19.9 Year ended
Slide 51: Poland
PROVIDENT FINANCIAL Poland Appendix +11% +16% 241.1 941 217.1 813 Customer Credit issued 184.9 660 numbers (£m) 140.0 504 (`000) 305 74.3 72 15.2 10 1.6 1998 1999 2000 2001 2002 2003 2004 1998 1999 2000 2001 2002 2003 2004 44.4 +34% Annual profits 33.1 (£m) 16.7 6.7 (1.5) (2.6) (2.8) 1998 1999 2000
Slide 52: Poland: profit and loss account
PROVIDENT FINANCIAL Poland: profit and loss account Appendix 2004 2003 2003 Change £m £m £m %* -- ------- -- ------- FX - - adjusted Turnover 138.6 127.9 122.3 13.3 Operating costs 58.6 57.2 54.4 (7.6) Bad debt 25.3 24.3 22.8 (11.0) Bad debt % of credit issued (MAT) 10.5 10.8 - - Interest payable 10
Slide 53: Czech Republic
PROVIDENT FINANCIAL Czech Republic Appendix Customer Credit issued numbers (£m) (`000) +6% +3% 72.9 73.0 77.4 218 223 230 53.0 62.0 161 189 66 16.0 6 1.0 1998 1999 2000 2001 2002 2003 2004 1998 1999 2000 2001 2002 2003 2004 Annual profits (£m) +14% 8.8 10.0 5.1 2.5 (1.1) (2.7) 0.1 1998 1999 2000 200
Slide 54: Czech Republic: profit and loss account
PROVIDENT FINANCIAL Czech Republic: profit and loss account Appendix 2004 2003 2003 Change £m £m £m %* -- ------- -- ------- FX - - adjusted Turnover 41.2 39.4 38.6 6.7 Operating costs 21.5 19.9 19.5 (9.9) Bad debt 7.5 8.2 8.0 6.1 Bad debt % of credit issued (MAT) 9.7 11.0 - - Interest payable 2.2 2
Slide 55: Hungary
PROVIDENT FINANCIAL Hungary Appendix Customer Credit issued numbers (£m) (`000) +91% +76% 87.2 251 45.6 143 55 14.3 10 1.9 1998 1999 2000 2001 2002 2003 2004 1998 1999 2000 2001 2002 2003 2004 Annual profits (£m) 6.4 (2.3) (3.1) (1.9) 1998 1999 2000 2001 2002 2003 2004 Credit issued figures are retr
Slide 56: Hungary: profit and loss account
PROVIDENT FINANCIAL Hungary: profit and loss account Appendix 2004 2003 2003 Change £m £m £m %* -- ------- -- ------- FX - - adjusted Turnover 42.7 18.3 18.3 133.0 Operating costs 28.7 15.0 14.9 (93.2) Bad debt 3.9 3.6 3.6 (6.5) Bad debt % of credit issued (MAT) 4.5 8.0 - - Interest payable 3.7 1.6
Slide 57: Slovakia
PROVIDENT FINANCIAL Slovakia Appendix Customer Credit issued numbers (£m) (`000) +64% +83% 102 27.2 62 5.7 14.8 5 27 0.8 1998 1999 2000 2001 2002 2003 2004 1998 1999 2000 2001 2002 2003 2004 Annual profits (£m) (1.3) (2.0) (1.6) (0.5) 1998 1999 2000 2001 2002 2003 2004 Credit issued figures are retr
Slide 58: Slovakia: profit and loss account
PROVIDENT FINANCIAL Slovakia: profit and loss account Appendix 2004 2003 2003 Change £m £m £m %* -- ------- -- ------- FX - - adjusted Turnover 11.0 5.8 5.9 85.9 Operating costs 8.1 5.6 5.7 (41.9) Bad debt 2.4 1.2 1.2 (102.1) Bad debt % of credit issued (MAT) 8.8 8.0 - - Interest payable 1.0 0.6 0.6
Slide 59: Mexico: Profit and loss account
PROVIDENT FINANCIAL Mexico Profit and loss account 2004 2003 Change £m £m £m Customer numbers (‘000) 35 3 32 Issue 3.9 0.2 3.7 Collections 3.5 0.1 3.4 Turnover 1.5 0.1 1.4 Operating costs 3.4 1.3 (2.1) Bad debt 0.1 - (0.1) Interest payable 0.2 - (0.2) Loss (2.2) (1.2) (1.0) Year ended 31 December
Slide 60: Country profit/(loss) before tax: IFRS
PROVIDENT FINANCIAL Country profit/(loss) before tax: IFRS Appendix IFRS UK GAAP Change 2004 2004 2004 £m £m £m Poland 39.5 44.4 (4.9) Czech Republic 9.3 10.0 (0.7) Hungary 5.5 6.4 (0.9) Slovakia (1.7) (0.5) (1.2) Mexico (2.2) (2.2) - Divisional overhead (10.6) (8.9) (1.7) IFRS profit before tax 39.
Slide 61: PROVIDENT FINANCIAL
PROVIDENT FINANCIAL