Vanquis Banking Group Plc · LSE:VANQ
Vanquis Banking — Provident Financial — FY2006 Earnings Presentation
65 slides from Vanquis Banking's earnings presentation, Mar 7, 2007
Slide 1: 2006 results and demerger update
Provident Financial 2006 results and demerger update 07 March 2007
Slide 2: Our presentation today
Provident Financial Our presentation today 2006 results • Overview – John van Kuffeler • Financial review – Andrew Fisher • UK home credit – Peter Crook • Vanquis Bank – Peter Crook • Motor insurance – Peter Crook • International – John Harnett Outlook – John van Kuffeler Sale of Provident Insurance
Slide 3: Overview: Group
Provident Financial Overview Group Profit before tax and Pre-exceptional Dividend per share exceptional items earnings per share up 5.5% to up 5.0% to + 3.0% to £191.3m 52.92p 36.50p
Slide 4: A year of investment and development
Provident Financial Overview A year of investment and development • UK home credit: • customer growth restored and improved medium term prospects • improved credit management • investment in technology to drive efficiency • Competition Commission inquiry concluded • Vanquis Bank: • credit quality im
Slide 5: 2006 results: profit before taxation
Provident Financial Financial review 2006 results: profit before taxation* 2006 2005 Change £m £m £m Established businesses 223.2 225.0 (1.8) Start-up businesses (30.4) (19.0) (11.4) Yes Car Credit (1.5) (24.6) 23.1 191.3 181.4 9.9 Year ended 31 December *pre-exceptional items
Slide 6: 2006 results: established businesses
Provident Financial Financial review 2006 results: established businesses 2006 2005 Change £m £m £m UK home credit 1 127.5 130.0 (2.5) International 58.3 54.2 4.1 Motor insurance 41.0 40.0 1.0 Central costs: - costs (6.0) (8.3) 2.3 - interest receivable 1 2.4 9.1 (6.7) Total central costs (3.6) 0.8
Slide 7: 2006 results: UK home credit
Provident Financial Financial review 2006 results: UK home credit £m Reported profit 127.5 Interest allocation 12.0 2005 basis 139.5 Impact of pension credit (5.5) For comparison with forecasts 134.0 Year ended 31 December *pre-exceptional items
Slide 8: 2006 results: established businesses
Provident Financial Financial review 2006 results: established businesses 2006 2005 Change £m £m £m UK home credit 1 127.5 130.0 (2.5) International 58.3 54.2 4.1 Motor insurance 41.0 40.0 1.0 Central costs: - costs (6.0) (8.3) 2.3 - interest receivable 1 2.4 9.1 (6.7) Total central costs (3.6) 0.8
Slide 9: 2006 results: start-up businesses
Provident Financial Financial review 2006 results: start-up businesses 2006 2005 Change £m £m £m International: - new countries (12.1) (3.1) (9.0) Vanquis Bank (18.3) (15.9) (2.4) (30.4) (19.0) (11.4) Year ended 31 December
Slide 10: Capital generation
Provident Financial Financial review Capital generation* 2006 2005 £m £m UK home credit 94.5 85.0 Vanquis Bank (28.3) (18.2) International 11.7 29.0 Yes Car Credit (6.4) (36.4) Motor insurance 29.4 26.2 Central (4.7) 1.8 Net surplus capital before dividends 96.2 87.4 Dividends paid (91.4) (88.6) Gro
Slide 11: Balance sheet
Provident Financial Financial review Balance sheet 2006 2005 £m £m Consumer credit receivables 1,233 1,274 Consumer credit borrowings 1,021 983 Group net assets 354 317 Comprising: Consumer credit capital 270 239 Consumer credit goodwill 3 3 273 242 Motor insurance capital 81 75 Consumer credit capi
Slide 12: Consumer credit regulatory capital
Provident Financial Financial review Consumer credit regulatory capital 2006 2005 £m £m Receivables 1,233 1,274 Other risk weighted assets 276 268 Total risk weighted assets 1,509 1,542 Capital reserves – Tier 1 247 228 Subordinated debt – Tier 2 100 100 Total capital resources 347 328 Capital adequ
Slide 13: UK home credit
Provident Financial UK home credit
Slide 14: UK home credit: 2006 overview
Provident Financial UK home credit 2006 overview • growth in customer numbers restored • product innovation • enhanced credit management • business streamlining and investment in technology driving efficiency and effectiveness • conclusion to long-running Competition Commission inquiry • our externa
Slide 15: New distribution channels
Provident Financial UK home credit New distribution channels Direct response Internet • Direct mail • Important source and response • Inserts handling vehicle • Press • Growth area • Directories • Specialist internet marketing • Internet / email resource utilised Widen net beyond agent contacts Leve
Slide 16: Product innovation
Provident Financial UK home credit Product innovation Product Rationale Status Longer • customers using other credit • launched in 2005 larger sources for larger amounts • significant sales generated loans • desire for larger amounts • credit quality maintained from UK home credit VISA • plastic has
Slide 17: Enhanced credit management
Provident Financial UK home credit Enhanced credit management •Phase 1 rolled out • Phase 2+ 2007 • Ability to grant New •Internal data • All new small sums Customers •Free phone customers remotely number • External data • Greater control •Behavioural scorecard to categorise customers into risk grad
Slide 18: Streamlined field organisation
Provident Financial UK home credit Streamlined field organisation • combine field management and administration of two brands: • Provident Personal Credit (PPC) • Greenwood Personal Credit (GPC) • improved efficiency, reduced costs • supports growth through a single management and cost structure • i
Slide 19: Insight program
Provident Financial UK home credit Insight program Agent benefits • replaces old paper administration processes Best • technology for agents and collection managers times • improved customer service Credit • reduction of costs Professional scoring • platform to improve on-line agent effectiveness In
Slide 20: Competition Commission
Provident Financial UK home credit Competition Commission • inquiry concluded in November 2006 • CC confirmed that: • there was a high level of customer satisfaction • the home credit product was suitable for its target customers • the relationship between agents and customers was professional and a
Slide 21: UK home credit 2006 results
Provident Financial UK home credit 2006 results 2006 2005 Change £m £m % Customer numbers (m) 1.52 1.49 2.0 Credit issued 940.8 926.5 1.5 Average net customer receivables 601.3 559.0 7.6 Revenue 576.7 578.9 1.8 1 Impairment (178.8) (171.8) (4.1) Revenue less impairment 397.9 407.1 (2.3) Costs (240.0
Slide 22: Impairment as % of revenue
Provident Financial UK home credit Impairment as % of revenue 35.0% 30.2% 31.0% 29.7% 30.0% 27.6% 28.3% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Dec-04 Jun-05 Dec-05 Jun-06 Dec-06
Slide 23: Highly cash-generative business that is growing again
Provident Financial UK home credit Highly cash-generative business that is growing again 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 05 6 Customer numbers ('000) Credit issue
Slide 24: Vanquis Bank
Provident Financial Vanquis Bank
Slide 25: Vanquis Bank Overview 2006
Provident Financial Vanquis Bank Overview 2006 • customer numbers passed 250,000 • established wider distribution for its products • underwriting criteria improved • impairment well-controlled but slower revenue growth • assets re-priced towards the end of 2006 • expected to be around break-even for
Slide 26: New account quality rising
Provident Financial Vanquis Bank New account quality rising • tighter initial underwriting • benefits of scorecard development Average Credit Score (6 mth moving avg) 560 540 520 Jun-05 Dec-05 Jun-06 Dec-06 Credit score is an internal underwriting score. Minimum score 517 with c.80% booked below 600
Slide 27: Better quality feeding through
Provident Financial Vanquis Bank Better quality feeding through assisted by: • a continuous improvement programme in collections • improved subsequent credit line increase decisions • maturing book 3 + Down Arrears % After 6 Months Good to 1 Down Arrears "Roll Rate" % (3 mth rolling average) (3 mth
Slide 28: Vanquis Bank 2006 results
Provident Financial Vanquis Bank 2006 results 2006 2005 £m £m Customer numbers (000’s) 251 160 Average customer receivables 77.3 42.5 Revenue 34.2 17.8 Impairment (19.4) (12.4) Revenue less impairment 14.8 5.4 Costs (30.0) (20.0) Interest (3.1) (1.3) Loss before tax (18.3) (15.9) Impairment as a % o
Slide 29: Motor insurance
Provident Financial Motor insurance
Slide 30: Motor insurance Overview 2006
Provident Financial Motor insurance Overview 2006 • another strong performance in a competitive market • 37% ROE in 2006 • market prices improving and policy numbers now growing • favourable development of prior year claims • yesinsurance.co.uk on plan • 2007 profit expectation influenced by lower c
Slide 31: Motor insurance 2006 results
Provident Financial Motor insurance 2006 results 2006 2005 Change £m £m % Gross written premium 158.0 154.7 2.1 Costs (131.8) (134.4) 1.9 Underwriting profit 26.2 20.3 29.1 Combined ratio (%) 83% 87% Investment income 18.1 21.6 (16.2) Profit before tax and yesinsurance.co.uk 44.3 41.9 5.7 yesinsuran
Slide 32: International
Provident Financial International
Slide 33: International Overview 2006
Provident Financial International Overview 2006 • credit controls improved in all markets • increase in profit from Central Europe driven by much improved credit quality • Polish business successfully adapted to rate cap and credit quality substantially improved • Czech and Slovakia made excellent p
Slide 34: Key initiatives 2006
Provident Financial International Key initiatives 2006 • new application and behavioural scoring systems introduced Credit management • centralised collections piloted in Poland • impairment metrics integrated into weekly performance reporting • rate cap compliant product introduced in Poland New pr
Slide 35: Key initiatives 2006 - continued
Provident Financial International Key initiatives 2006 - continued • new core systems rolled out in all markets IT • all branches linked by satellite communications • separate IT and data processing infrastructure built • new HQ opened • pan-European customer management system introduced • new ‘peop
Slide 36: International 2006 results: profit before tax
Provident Financial International 2006 results : profit before tax 2006 2005 Change £m £m £m Central Europe – home credit 68.8 61.4* 7.4 - new products (3.1) (0.7) (2.4) 65.7 60.7 5.0 Central divisional costs (7.4) (6.5)* (0.9) Established businesses 58.3 54.2 4.1 New countries - Mexico (9.7) (3.1)*
Slide 37: International 2006 results
Provident Financial International 2006 results CER 2006 2005 2005* Change £m £m £m % Customer numbers (‘000) 1,781 1,777 1,777 0.2 Credit issued 524.3 544.9 550.7 (4.8) Average customer receivables 307.7 281.7 286.3 7.5 Revenue 365.3 358.6 363.0 0.6 Impairment (103.1) (132.4) (134.8) 23.5 Revenue le
Slide 38: Investment in new markets
Provident Financial International Investment in new markets (£m) £14m £12.1m £12m £10m £8m £9.7m £6m £4m £2m £3.1m £2.3m £2.4m £0m 2004 2005 2006 Romania Mexico
Slide 39: Central Europe underlying profit
Provident Financial Central Europe Underlying profit* £80m £68.8m £70m £61.4m £60m £49.8m £50m £40m +12.1% £30m +23.3% £20m £10m £0m 2004 2005 2006 *excludes new product costs
Slide 40: Central Europe 2006 results
Provident Financial Central Europe 2006 results CER 2006 2005 2005* Change £m £m £m % Customer numbers (‘000) 1,523 1,646 1,646 (7.5) Credit issued 474.9 522.3 529.3 (10.3) Average customer receivables 292.9 275.9 280.9 4.3 Revenue 338.6 347.9 353.0 (4.1) Impairment (90.6) (128.8) (131.4) 31.1 Reven
Slide 41: Poland Key initiatives
Provident Financial Poland Key initiatives • new unbundled rate cap compliant products successfully introduced • leadership change in June • significant tightening of credit controls • centralised collections process introduced • established foundations for growth • recruitment of an additional 150
Slide 42: Poland 2006 key statistics
Provident Financial Poland 2006 key statistics 2006 2005* 2004* Customer numbers (‘000) 854 968 941 (11.8%) 2.9% Credit issued (£m) 235.6 291.8 280.0 (19.3%) 4.2% Average customer receivables (£m) 159.2 165.9 148.4 (4.0%) 11.8% Revenue (£m) 185.0 211.7 192.4 (12.6%) 10.0% Impairment (£m) 56.0 90.6 6
Slide 43: Poland Impairment as a % of revenue
Provident Financial Poland Impairment as a % of revenue 45.0% 42.8% 39.7% 40.1% 40.0% 36.0% 35.0% 30.3% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Dec-04 Jun-05 Dec-05 Jun-06 Dec-06
Slide 44: Czech Republic 2006 key statistics
Provident Financial Czech Republic 2006 key statistics 2006 2005* 2004* Customer numbers (‘000) 254 250 230 1.6% 8.7% Credit issued (£m) 97.4 94.7 87.0 2.9% 8.9% Average customer receivables (£m) 56.8 48.0 43.7 18.3% 9.8% Revenue (£m) 60.7 55.9 51.8 8.6% 7.9% Impairment (£m) 9.6 14.2 15.4 (32.4%) (7
Slide 45: Czech Republic Impairment as a % of revenue
Provident Financial Czech Republic Impairment as a % of revenue 35.0% 29.7% 30.0% 25.6% 25.4% 25.0% 22.5% 20.0% 15.8% 15.0% 10.0% 5.0% 0.0% Dec-04 Jun-05 Dec-05 Jun-06 Dec-06
Slide 46: Hungary Overview
Provident Financial Hungary Overview • strong performance impacted by PSZAF resolution • suspension of trading on 17 October pending - conversion of representatives to employee status - certain procedural changes requiring IT changes • close co-operation with the PSZAF to enable lending to resume on
Slide 47: Hungary 2006 key statistics
Provident Financial Hungary 2006 key statistics 2006 2005* 2004* Customer numbers (‘000) 284 306 251 (7.2%) 21.9% Credit issued (£m) 102.7 105.3 82.7 (2.5%) 27.3% Average customer receivables (£m) 57.0 50.5 33.5 12.9% 50.7% Revenue (£m) 70.6 65.3 44.0 8.1% 48.4% Impairment (£m) 17.2 17.5 8.9 (1.7%)
Slide 48: Hungary Impairment as a % of revenue
Provident Financial Hungary Impairment as a % of revenue 30.0% 27.7% 26.8% 24.0% 24.4% 25.0% 20.2% 20.0% 15.0% 10.0% 5.0% 0.0% Dec-04 Jun-05 Dec-05 Jun-06 Dec-06
Slide 49: Slovakia 2006 key statistics
Provident Financial Slovakia 2006 key statistics 2006 2005* 2004* Customer numbers (‘000) 131 122 102 7.4% 19.6% Credit issued (£m) 39.2 37.5 29.4 4.5% 27.6% Average customer receivables (£m) 19.9 16.5 10.0 20.6% 65.0% Revenue (£m) 22.3 20.1 12.6 10.9% 59.5% Impairment (£m) 7.8 9.1 5.2 (14.3%) 75.0%
Slide 50: Slovakia Impairment as a % of revenue
Provident Financial Slovakia Impairment as a % of revenue 50.0% 45.5% 45.3% 45.0% 41.9% 41.3% 40.0% 35.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Dec-04 Jun-05 Dec-05 Jun-06 Dec-06
Slide 51: Mexico 2006 performance
Provident Financial Mexico 2006 performance • a year of significant growth • fastest growing new market • increase in branch infrastructure from 16 to 34 • Guadalajara region opened • however, some operational issues • higher levels of agent and staff turnover than Central European markets • gradual
Slide 52: Mexico 2006 results
Provident Financial Mexico 2006 results CER 2006 2005 2005* Change £m £m £m % Customer numbers (‘000) 252 131 131 92 Credit issued 48.1 22.6 21.4 125 Average customer receivables 14.5 5.8 5.4 169 Revenue 26.4 10.7 10.0 164 Impairment (12.5) (3.6) (3.4) (268) Revenue less impairment 13.9 7.1 6.6 111
Slide 53: Mexico Impairment as a % of revenue
Provident Financial Mexico Impairment as a % of revenue 50.00% 47.3% 45.00% 40.8% 40.00% 33.3% 34.0% 35.00% 29.4% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Dec-04 Jun-05 Dec-05 Jun-06 Dec-06
Slide 54: Improvement plan for Puebla region
Provident Financial Mexico Improvement plan for Puebla region • paused further branch opening in August to build experience • credit controls tightened • ex-pat team strengthened • remuneration structures for staff and agents re-aligned • credit controls tightened • management changes initiated in S
Slide 55: Romania
Provident Financial Romania
Slide 56: Romania Overview
Provident Financial Romania Overview • pilot launched in 2006 with full senior management team in place • 4 branches now open in Bucharest and surrounding area • product well received and good customer demand • year end customers at 6,000 • progressing according to plan • start up loss in 2006 of £2
Slide 57: Outlook
Provident Financial Outlook • with growth in UK home credit customers restored, medium term outlook improved and business well-placed to take advantage of changing market conditions • Vanquis Bank is expected to trade around break-even in 2007 • expect to see continued progress in Central Europe in
Slide 58: Sale of Provident Insurance: Summary
Provident Financial Sale of Provident Insurance Summary • structured process to establish value following 17 January announcement • received acceptable indicative offers • detailed due diligence underway • formal offers due end March • completion expected before end of Q2
Slide 59: Demerger Background
Provident Financial Demerger Background • International is now a self sufficient and stand-alone entity with local management structures • distinct business agendas requiring different management skills • International will focus on capturing the growth from developing home credit in existing and ne
Slide 60: Demerger plans well advanced
Provident Financial Demerger Demerger plans well advanced 9 primary debt funding secured 9 legal separation mechanics ready 9 demerger documentation well progressed 9 boards and management roles confirmed 9 main tax clearances obtained 9 IT systems and infrastructure separated 9 fully funded pension
Slide 61: Demerger Structure
Provident Financial Demerger Structure International Personal Provident Financial plc Finance UK home credit Central Europe Vanquis Bank Mexico Yes Car Credit Romania (sales and financing (pilot) activities closed)
Slide 62: Demerger: Provident Financial plc
Provident Financial Demerger Provident Financial plc Chairman John van Kuffeler Non-Executive Director Chief Executive John Maxwell Peter Crook Non-Executive Director Robert Hough Finance Director Andrew Fisher Non-Executive Director TBA
Slide 63: Demerger: International Personal Finance plc
Provident Financial Demerger International Personal Finance plc Executive Chairman Christopher Rodrigues Senior Non-Executive Director Ray Miles Chief Operating Officer John Harnett Non-Executive Director Charles Gregson Finance Director Non-Executive Director David Broadbent Tony Hales Non-Executiv
Slide 64: Capital structure and dividend
Provident Financial Demerger Capital structure and dividend • full details of capital structures following sale of Provident Insurance • a proportion of the expected gain on the disposal of Provident Insurance will be retained to assist the capitalisation of IPF • aggregate dividends per share for 2
Slide 65: Questions?
Provident Financial 2006 results and demerger update Questions?