Vanquis Banking Group Plc · LSE:VANQ
Vanquis Banking — Provident Financial — FY2017 Earnings Presentation
41 slides from Vanquis Banking's earnings presentation, Feb 27, 2018
Slide 1: 2017 year-end results
Provident Financial Provident Financial plc plc 2017 year-end results 2017 year-end results 27 February 2018 1
Slide 2: Today's presentation
Provident Financial plc 2017 year-end results Today’s presentation • Highlights and business overview Malcolm Le May • Financial review Andrew Fisher • Strategy and action plan Malcolm Le May • Questions • Appendix – Detailed financials 2
Slide 3: Highlights and business overview
Provident Financial Provident Financial plc plc 2017 year-end results Highlights and business overview Malcolm Le May – Group Chief Executive 3
Slide 4: Review of 2017
Provident Financial plc 2017 year-end results Highlights and business overview Review of 2017 • During 2017, the group announced that it was facing a number of uncertainties including: ‒ Operational disruption in home credit following the poorly executed migration to the new operating model in July
Slide 5: Business overview
Provident Financial plc 2017 year-end results Highlights and business overview Business overview • Fully-underwritten rights issue proposed to raise approximately £300m (net of expenses): ‒ To fund the estimated cost of the settlement in respect of the FCA investigation in Vanquis Bank and the estim
Slide 6: Regulatory update
Provident Financial plc 2017 year-end results Highlights and business overview Regulatory update ROP Moneybarn • Resolution agreed on ROP investigation • There are a defined number of specific cohorts of customers identified that may potentially be at risk of detriment based on historical practices
Slide 7: Financial review
Provident Financial Provident Financial plc plc 2017 year-end results Financial review Andrew Fisher – Group Finance Director 7
Slide 8: Group results summary
Provident Financial plc 2017 year-end results Financial review Group Results summary Year ended 31 December 2017 2016 Change £m £m % Vanquis Bank 206.6 204.5 1.0 CCD (118.8) 115.2 (203.1) Moneybarn 34.1 31.1 9.6 Central costs (12.8) (16.7) 23.4 Adjusted profit before tax1 109.1 334.1 (67.3) Adjusted
Slide 9: Group exceptional costs
Provident Financial plc 2017 year-end results Financial review Group Exceptional costs Year ended 31 December 2017 Balance reductions Tax charge/(credit) to receivables Provisions Total £m £m £m £m Balance reduction to receivables 75.4 - 75.4 Cash restitution (including notional interest) - 51.7 51.
Slide 10: Vanquis Bank results
Provident Financial plc 2017 year-end results Financial review Vanquis Bank Results Year ended 31 December 2017 2016 Change £m £m % Customer numbers (‘000) 1,720 1,545 11.3 Year-end receivables prior to balance reduction1 1,630.1 1,424.7 14.4 Reported year-end receivables 1,554.7 1,424.7 9.1 Average
Slide 11: CCD results
Provident Financial plc 2017 year-end results Financial review CCD Results Year ended 31 December 2017 2016 Change £m £m % Customer numbers (‘000)1 780 862 (9.5) Year-end receivables2 390.6 584.8 (33.2) Average receivables3 443.8 508.7 (12.8) Revenue 451.2 518.8 (13.0) Impairment (293.5) (120.0) (14
Slide 12: Home credit recovery plan
Provident Financial plc 2017 year-end results Financial review Home credit recovery plan • Satisfactorily traded through peak period re-connecting with many Collections and receivables by month customers 77.2% 78.1% 80% 414 450 68.6% • 527,000 active customers with a receivables book of £352m at 70%
Slide 13: Moneybarn results
Provident Financial plc 2017 year-end results Financial review Moneybarn Results Year ended 31 December 2017 2016 Change £m £m % Customer numbers (‘000) 50 41 22.0 Year-end receivables prior to balance reduction1 376.2 297.3 26.5 Reported year-end receivables 364.1 297.3 22.5 Average receivables2 34
Slide 14: Rights issue
Provident Financial plc 2017 year-end results Financial review Rights issue • The depletion in the capital position of the group requires a proposed rights issue of £300m (net of expenses): ‒ Ensures that Vanquis Bank has the appropriate levels of regulatory capital to meet current and future regula
Slide 15: Rights issue terms and timetable
Provident Financial plc 2017 year-end results Financial review Rights issue terms and timetable • Issue price of 315 pence per share with 17 new shares for every 24 existing shares • Discount of 33.7% to Theoretical Ex-Rights Price (TERP) • Fully underwritten by Barclays and J.P. Morgan Cazenove (th
Slide 16: Regulatory capital (IAS 39)
Provident Financial plc 2017 year-end results Financial review Group Regulatory capital (IAS 39) At 31 December 2017 Prior to FCA investigation FCA investigation Proposed rights At 31 December adjustments adjustments1 Reported issue2 Pro forma 2016 £m £m £m £m £m £m Net assets 729.6 (194.5) 535.1 30
Slide 17: Funding and liquidity
Provident Financial plc 2017 year-end results Financial review Group Funding and liquidity • Following the proposed rights issue, the group’s funding strategy will be broadly unchanged: ‒ Security of funding through maintaining facilities to meet contractual maturities and growth over at least the n
Slide 18: Diversified funding base
Provident Financial plc 2017 year-end results Financial review Group Diversified funding base At 31 December 2017 Bridge finance2 Proposed rights issue3 Pro forma £m £m £m £m Banks 450 - - 450 Underwriting banks - 85 (85) - Bonds and private placements: - Senior public bond 250 - - 250 - M&G term lo
Slide 19: Balance sheet (IAS 39)
Provident Financial plc 2017 year-end results Financial review Group Balance sheet (IAS 39) At 31 December 2017 Prior to FCA investigation FCA investigation Proposed rights At 31 December adjustments adjustments1 Reported issue2 Pro forma 2016 £m £m £m £m £m £m Goodwill 71.2 - 71.2 - 71.2 71.2 Acqui
Slide 20: Target financial model
Provident Financial plc 2017 year-end results Financial review Target financial model Group Invest in businesses with attractive ROAs of approximately 10% Growth Dividend Deliver receivables growth CET 1 of between 5% and 10% per ≥ 25.5% policy annum Cover ≥ 1.4x Alignment of growth, capital require
Slide 21: Strategy and action plan
Provident Financial Provident Financial plc plc 2017 year-end results Strategy and action plan Malcolm Le May – Group Chief Executive 21
Slide 22: Enhancing governance and culture
Provident Financial plc 2017 year-end results Strategy and action plan Enhancing governance and culture • Appointed a new group CEO, appointed an interim Chairman and initiated the recruitment of a new permanent external Chairman • Reaffirmed a clear purpose, vision, mission and set of values which
Slide 23: Group strategy
Provident Financial plc 2017 year-end results Strategy and action plan Group strategy Market-leading businesses with attractive returns • Maintain leading position in non-standard credit cards Vanquis Bank • Further expand into the near prime sector and develop an instalment loans business • Provide
Slide 24: Group business case
Provident Financial plc 2017 year-end results Strategy and action plan Group business case PFG is well placed to deliver attractive returns to shareholders • Market leader in non-standard credit with sustainable business models focused on the customer • Good mix of businesses with attractive growth
Slide 25: Outlook
Provident Financial plc 2017 year-end results Strategy and action plan Outlook Group • Major regulatory and capital uncertainties faced by the group are now resolved • Home credit recovery plan is on-track and the group’s regulatory agenda focused on the customer first will underpin the delivery of
Slide 26: Questions
Provident Financial Provident Financial plc plc 2017 year-end results Questions Malcolm Le May – Group Chief Executive Andrew Fisher – Group Finance Director 26
Slide 27: Appendix
Provident Financial Provident Financial plc plc 2017 year-end results Appendix 27
Slide 28: Vanquis Bank customer numbers and new customer bookings
Provident Financial plc 2017 year-end results Appendix – Detailed financials Vanquis Bank Customer numbers and new customer bookings • New customer credit card bookings of 437,000 in 2017, Customer numbers and new customer bookings 7.6% higher than 2016 (2016: 406,000): New account bookings Customer
Slide 29: Vanquis Bank receivables
Provident Financial plc 2017 year-end results Appendix – Detailed financials Vanquis Bank Receivables • Receivables growth of 14.4% during 2017: Receivables (£m) Receivables growth Receivables ‒ Growth in customer numbers of 11.3% 1,750 500 ‒ Good performance from the credit line increase 1,500 Rece
Slide 30: Vanquis Bank risk-adjusted margin
Provident Financial plc 2017 year-end results Appendix – Detailed financials Vanquis Bank Risk-adjusted margin (RAM) • Business model supports stability of RAM: RAM ‒ ‘Low and grow’ strategy Annualised revenue % average receivables Annualised impairment % average receivables ‒ High credit line utili
Slide 31: Vanquis Bank risk-adjusted margin
Provident Financial plc 2017 year-end results Appendix – Detailed financials Vanquis Bank Risk-adjusted margin (RAM) • RAM moderated from 32.2% to 30.2% over last RAM 12 months: Annualised revenue % average receivables Annualised impairment % average receivables Lower interest yield due to mix (incl
Slide 32: Vanquis Bank retail deposits programme
Provident Financial plc 2017 year-end results Appendix – Detailed financials Vanquis Bank Retail deposits programme • Retail deposits represent 79% of Vanquis Bank’s Retail deposits maturity profile (£m) receivables (2016: 66%): 1,400 ‒ Funding growth 1,200 Retail deposits outstanding ‒ Historically
Slide 33: CCD customer numbers
Provident Financial plc 2017 year-end results Appendix – Detailed financials CCD Customer numbers • Repositioning of home credit as a smaller, better-quality Customer numbers (000) business through 2013 to 2016: 1,600 ‒ Tighter credit standards 1,400 ‒ Curtailed recruitment of more marginal customer
Slide 34: CCD receivables
Provident Financial plc 2017 year-end results Appendix – Detailed financials CCD Receivables • Significant reduction in home credit receivables between Receivables (£m) 2013 and 2016 following repositioning of the business Home credit Satsuma • Home credit receivables fell by 37.1% in 2017: 50 1,000
Slide 35: CCD risk-adjusted margin
Provident Financial plc 2017 year-end results Appendix – Detailed financials CCD Risk-adjusted margin (RAM) • Significant expansion in RAM from repositioning of home RAM credit between 2013 and 2016 Annualised revenue % average receivables • RAM of 35.5% in 2017 versus 78.4% in 2016 Annualised impai
Slide 36: Moneybarn new business volumes and customer numbers
Provident Financial plc 2017 year-end results Appendix – Detailed financials Moneybarn New business volumes and customer numbers • 2017 new business volumes of 25,300 show year-on-year Half yearly new business volumes (000) growth of 17%: 14 ‒ Extension of product offering and distribution channels
Slide 37: Moneybarn receivables
Provident Financial plc 2017 year-end results Appendix – Detailed financials Moneybarn Receivables Receivables (£m) • Year-on-year receivables growth of 26.5%, before impact 400 of estimated cost of balance reduction 350 • Reflects 22% increase in customer volumes and strong 300 growth in Q4 2017 25
Slide 38: Moneybarn risk-adjusted margin
Provident Financial plc 2017 year-end results Appendix – Detailed financials Moneybarn Risk-adjusted margin (RAM) • RAM moderated from 24.1% in 2016 to 21.8% in 2017: RAM ‒ Flow through of impairment from higher risk categories Annualised revenue % average receivables of business prior to tightening
Slide 39: IFRS 9 balance sheet
Provident Financial plc 2017 year-end results Appendix – Detailed financials IFRS 9 balance sheet As at 31 December 2017 Proposed rights IAS 39 IFRS 9 adjustment IFRS 9 issue1 Pro forma £m £m £m £m £m Vanquis Bank 1,554.7 (143.1) 1,411.6 - 1,411.6 CCD 390.6 (43.3) 347.3 - 347.3 Moneybarn 364.1 (37.0
Slide 40: IFRS 9 income statement
Provident Financial plc 2017 year-end results Appendix – Detailed financials IFRS 9 income statement Year ended 31 December 2017 IAS 39 IFRS 9 adjustment IFRS 9 IAS 39 receivables Adjusted profit/(loss) before tax £m £m £m growth1 Vanquis Bank 206.6 (17.1) 189.5 14.4% CCD (118.8) 14.5 (104.3) (33.2%
Slide 41: Contact details
Provident Financial plc 2017 year-end results Contacts Contact details Group Provident Financial plc No.1 Godwin Street Bradford BD1 2SU Contacts: Gary Thompson – Group Financial Controller and Head of Investor Relations Vicki Turner – Senior Group Finance and Investor Relations Manager Telephone: +