Annual Financial Report

RNS Number : 9364I

Provident Financial PLC

22 March 2010

 



2009 Annual Financial Report Announcement

Provident Financial plc announces that as from today the Provident Financial plc Annual Report and Financial Statements 2009 are available on its website www.providentfinancial.com.

This document will be submitted to the UK Listing Authority on 26 March 2010, when the Annual Report and Financial Statements 2009 and the Provident Financial plc Notice of 2010 Annual General Meeting are mailed to shareholders and will shortly thereafter be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at:

The Financial Services Authority

25 The North Colonnade

Canary Wharf

London

E14 5HS

Tel:  [phone]

Attached to this announcement is the additional information for the purposes of compliance with the Disclosure and Transparency Rules including disclosure on risks, related party transactions and a responsibility statement.

The preliminary announcement of the group's 2009 results was issued on 2 March 2010. The preliminary announcement was prepared in accordance with the Listing Rules of the Financial Services Authority and was based on the 2009 financial statements which have been prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The disclosures made in the preliminary announcement met the requirements of IAS 34 'Interim Financial Reporting'. A copy of the preliminary announcement can be found on the group's website at www.providentfinancial.com.

ADDITIONAL INFORMATION

Risks

The group has a rigorous risk management framework. This is designed to identify the risks that could adversely impact the delivery of the group's strategic aims and to ensure that adequate controls and procedures are in place to mitigate the risks.

The group's risks, together with the controls and procedures in place to mitigate the risks, are as follows:

Risk	Definition	Controls and procedures
Credit risk	The risk that the group will suffer loss in the event of a default by a customer or bank counterparty. A default occurs when the customer or bank fails to honour repayments as they fall due. Customer defaults in the non-standard market are typically higher than in more mainstream markets. In addition, the current economic climate has led to increased impairment levels in the credit market generally.	Customers: ·   CCD and Vanquis Bank credit committees set policy and review credit performance. ·   CCD - home credit loans are underwritten face-to-face by agents in the customers' home; agents maintain weekly contact with the customer and stay up to date with their circumstances; agents' commission is based on collections not credit issued; application and behavioural scoring is used to assist agents' underwriting; home credit issues short-term, small sum loans, with average issue values of between £300 and £500 typically repayable over one year; direct repayment loans are underwritten in the home with the use of external bureau data. ·   Vanquis Bank - uses highly bespoke underwriting including full external bureau data; a telephone interview is conducted prior to issuing credit; initial credit limits are low (typically £250); customers are re-scored monthly; an intensive call centre-based operation focuses on collections; underwriting and credit line increases have been tightened progressively since the middle of 2007 in light of economic conditions. ·   Comprehensive daily, weekly and monthly reporting on KPIs. Bank counterparties ·   A board approved policy is in place for bank counterparties. ·   Transactions are only undertaken with high quality counterparties. ·   Exposures to counterparties are linked to their credit rating and regulatory capital requirements.
Regulatory risk	The risk of loss arising from a breach of existing regulation or regulatory changes in the markets within which the group operates. The current volatile economic environment has resulted in greater focus on regulation, with an increase in the level of scrutiny placed upon participants in the broader banking and consumer lending market.	·   A central in-house legal team is in place which monitors legislative changes and supports divisional compliance functions. ·   Expert third party legal advice is taken where necessary. ·   Divisional compliance functions are in place which manage compliance and report to divisional boards. ·   There is constructive dialogue with regulators. ·   Full and active participation in all relevant regulatory review and consultation processes in the UK and EU.
Liquidity risk	The risk that the group will have insufficient liquid resources available to fulfill its operational plans and/or meet its financial obligations as they fall due. Credit markets have been significantly disrupted since the second half of 2008 making it more challenging for companies to obtain funding.	·   A board approved policy is in place to maintain committed borrowing facilities which provide funding headroom for at least the following 12 months. ·   Liquidity is managed by an experienced central treasury department. ·   There is daily monitoring of actual and expected cash flows. ·   The group 'borrows long and lends short' meaning that the duration of the receivables book is significantly less than the average duration of the group's funding. ·   £250m 10-year senior public bonds issued in October 2009 and syndicated bank facilities extended in February 2010. ·   Headroom on committed facilities of £331.0m as at 31 December 2009.
Reputational risk	The risk that an event or circumstance could adversely impact on the group's reputation including adverse publicity from the activities of legislators, pressure groups and the media.	·   Dedicated teams and established procedures are in place for dealing with media issues. ·   A pro-active communication programme is targeted at key opinion formers and is co-ordinated centrally. ·   Regular customer satisfaction surveys are undertaken. ·   The group invests in a centrally co-ordinated community programme.
Pension risk	The risk that there may be insufficient assets to meet the liabilities of the group's defined benefit pension scheme.	·   The group's pension asset stands at £19.9m as at 31 December 2009. ·   The defined benefit pension scheme was substantially closed to new members from 1 January 2003. ·   Cash balance arrangements are now in place within the defined benefit pension scheme to reduce the exposure to improving mortality rates. ·   The pension investment strategy ensures that there is an appropriate balance of assets between equities and bonds. ·   New employees are invited to join the group's stakeholder pension scheme which carries no investment or mortality risk for the group.
Operational risk	The risk of loss resulting from inadequate or failed internal processes, people and systems.	IT systems: ·   IT is managed in CCD and Vanquis Bank by experienced teams. ·   There are established disaster recovery procedures which are tested on a regular basis. ·   Specialist project teams are used to manage change programmes. ·   Insurance policies are in place to cover eventualities such as business interruption, loss of IT systems and crime. Health and safety: ·   Significant time and expenditure is invested in ensuring staff are safety conscious. ·   Assistance is given to agents to ensure that they are safety aware. ·   Induction sessions and regular updates are provided on safety awareness. ·   Safety awareness weeks form part of the annual calendar. Fraud: ·   Specialist departments are in place in each business to prevent, detect and monitor fraud. ·   There is regular reporting to divisional boards and the group audit committee. Key person risk: ·   Effective recruitment, retention and succession planning strategies are in place. ·   The group has competitive remuneration and incentive structures. ·   Effective training, development and communication is in place throughout the group.
Business risk	The risk of loss arising from the failure of the group's strategy or management actions over the planning horizon.	·   A clear group strategy is in place. ·   A board strategy and planning conference is held annually. ·   A dedicated central resource is in place to develop corporate strategy. ·   New products and processes are thoroughly tested prior to roll-out. ·   There is comprehensive monitoring of competitor products, pricing and strategy. ·   Robust change programme functions oversee business change. ·   The group has comprehensive monthly management accounts, a monthly rolling forecast and a bi-annual budgeting process.
Tax risk	The risk of loss arising from changes in tax legislation or practice.	·   A board approved tax strategy is in place. ·   An experienced in-house tax team deals with all tax matters. ·   Advice is sought from external advisers on key corporate and indirect tax matters, including the self-employed status of agents. ·   Material transactions are agreed with the relevant authorities in advance where appropriate.
Interest rate risk	The risk that a change in external interest rates leads to an increase in the group's cost of borrowing.	·   There is a board approved policy on hedging interest rate risk. ·   The group uses derivative financial instruments to hedge the risk of movements in interest rates. ·   Exposures are monitored by an experienced central treasury department. ·   The interest cost represents a relatively small part of the group's cost base.
Foreign exchange rate risk	The risk that a change in foreign currency exchange rates leads to a reduction in profits or equity.	·   Foreign exchange exposures are limited to certain borrowings denominated in US dollars and euros and CCD's Republic of Ireland operations. ·   There is a board approved policy on hedging foreign exchange rate risk. ·   Exposures are monitored by an experienced central treasury department. ·   The group uses derivative financial instruments to hedge the risk of movements in foreign exchange rates.
Concentration risk	The risk arising from the lack of diversification in the group's business either geographical, demographic or by product.	·   The group's customer base of over two million is well dispersed across the UK and Ireland. ·   New product development continues to be undertaken outside the core home credit business.
Market risk	The risk of loss due to adverse market movements caused by active trading positions taken in interest rates, foreign exchange markets, bonds and equities.	·   The group's policies do not permit it to undertake position taking or trading books of this type and therefore it does not do so.

Related party transactions

There are no related party transactions which have had a material effect on the financial position or performance of the group in the year ended 31 December 2009.

Statement of directors' responsibilities

The directors are responsible for preparing the annual financial report announcement and the preliminary results announcement.

The directors confirm to the best of their knowledge:

·        The condensed financial statements contained in the preliminary results announcement have been prepared in accordance with IFRS as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and profit and loss of the group; and

·        The chairman's statement and financial results commentary contained in the preliminary results announcement together with the additional information on risks contained in the annual financial report announcement comprise a fair review of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties faced by the group.

By order of the board

Peter Crook - Chief Executive                                                Andrew Fisher - Finance Director

22 March 2010

Cautionary statement

All statements other than statements of historical fact included in the preliminary announcement and the annual financial report announcement, including, without limitation, those regarding the financial condition, results, operations and business of Provident Financial plc and its strategy, plans and objectives and the markets in which it operates, are forward-looking statements. Such forward-looking statements which reflect the directors' assumptions made on the basis of information available to them at this time, involve known and unknown risks, uncertainties and other important factors which could cause the actual results, performance or achievements of Provident Financial plc or the markets in which it operates to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Nothing in the annual financial report announcement or preliminary results announcement shall be regarded as a profit forecast and the directors of Provident Financial plc accept no liability to third parties in respect of the annual financial report announcement or the preliminary results announcement save as would arise under English law. In particular, section 463 of the Companies Act 2006 limits the liability of the directors of Provident Financial plc so that their liability is solely to Provident Financial plc.

 

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