Pre-close briefing
Provident Financial PLC
04 July 2006
Pre-close briefing
Provident Financial will today provide the following pre-close briefing to
analysts and investors.
UK home credit
In UK home credit it is pleasing to see that increased marketing investment, in
existing and new sales channels, has resulted in increasing numbers of new
customers, with year-on-year customer growth being recorded in June after three
years of reducing customer numbers. Credit issued volumes also showed growth,
up 1% for the five months to May 2006 compared to the same period in 2005,
despite 2005's volumes benefiting from the increased issue of larger loans
repayable over eighteen months to two years.
Impairment costs continue to increase reflecting growth in receivables of 7%
together with continued pressure on customers' disposable incomes.
As planned, first half marketing and IT costs are running some £5m ahead of the
corresponding period in 2005. This expenditure will reduce half year profits
but benefit results in future periods. The integration of the back office and
field operations of Provident Personal Credit and Greenwood Personal Credit has
been executed ahead of plan and the programme to develop hand-held personal
computers for agents and field staff, which will deliver both efficiency gains
and increased agent effectiveness, is on track to begin roll-out during 2007.
In April, the Competition Commission (CC) published its Provisional Findings and
Possible Remedies resulting from its inquiry into the UK home credit sector and
delayed the scheduled date of its final report to October 2006.
Vanquis Bank
Through the early part of 2006 Vanquis has improved the underwriting criteria it
applies to new customers and to the extension of credit to established
customers. In addition, the business has now established viable distribution of
its products through the internet and face to face canvassing which supplement
its direct mail channel and increase customer reach.
Customer numbers now exceed 200,000 and the rate of growth has improved in the
second quarter as the new sales channels have come on stream. The tightening of
credit in the second half of 2005 and the more recent improvement to
underwriting criteria have successfully controlled impairment charges. The
trade-off has been slower growth in revenues during the first half of 2006,
which, when coupled with the recent increase in marketing activity, will
increase 2006 start-up losses to approximately £15m. These start-up losses will
be heavily weighted towards the first half. The second half should see
customer numbers pass 250,000 and a substantial reduction in the rate of
start-up losses. We continue to expect the business to move into profit for
2007.
Yes Car Credit
The collection of the Yes Car Credit receivables book is progressing well with
total collections of £70m, £3m ahead of plan, representing 30% of the 2005 year
end receivables of £235m.
The disposal of vehicle stock has been completed and good progress has been made
in surrendering branch lease obligations within the costs provided in the 2005
accounts.
Motor insurance
Provident Insurance is trading as expected, with profits continuing to benefit
from the favourable development of claims costs.
International
As planned, 2006 has seen a significant step-up in start-up losses to support
expansion of the international division. This comprises the regional roll-out
in Mexico, the opening of the Romanian business in April, the piloting of a new
range of monthly home collected and monthly remotely collected loan products in
Poland and preparatory work on potential new country openings in 2007 and 2008.
The aggregate of these investments in 2006, all of which impact the profit and
loss account, will be approximately £15m, up from £4m in 2005.
Hungary, the Czech Republic and Slovakia displayed good growth and, in
aggregate, customer numbers at the end of May and credit issued during the five
months ended May both achieved double digit growth over the prior year.
In Poland, customer numbers and credit issued have reduced as a result of the
actions taken to tighten credit controls to address the adverse trends in
collections and impairment which emerged during 2005. These actions will
continue to reduce receivables, credit issued and revenues, below previously
expected levels, in the near term. However, the tighter credit policies will
begin to benefit impairment costs in the second half of 2006 and into 2007.
Poland will then have a stronger platform from which growth can resume. During
the current year, we have successfully completed the roll-out of the modified
home credit offer to comply with the Polish interest rate cap legislation.
As a result of the focus on improving the quality of lending in Poland, customer
numbers in Central Europe at the end of May were just 3% higher than a year
earlier and credit issued in the five months ended May reduced by 1% compared to
the same period in 2005.
Expansion continues in Mexico with customer numbers reaching 171,000 at the end
of May, up from 131,000 at the start of the year. The business in
Puebla-Veracruz has been augmented by the expansion in Guadalajara-Leon, the
second of five regions we intend to develop, each with a population of about 20
million.
Separate listing for International
We said, at the time of our 2005 preliminary results announcement last March,
that we were at the early stages of considering the benefits of obtaining a
separate listing for International.
Since that time, we have made good progress with our review and consulted
extensively with our larger shareholders. The board believes that a demerger
would create shareholder value by allowing the international growth opportunity
to be captured more quickly. Work is underway to implement the separation and
the board currently expects the demerger to take place in Spring 2007 following
the announcement of the 2006 results. A further update will be provided with
the interim results in September and we expect to publish full details of the
demerger in March 2007.
Interim results
The group's interim results for the half year ended 30 June 2006 will be
published on 13 September 2006.
Enquiries: Today Thereafter
Media
David Stevenson, Provident Financial 01274 731111 01274 731111
Kevin Byram, Brunswick 01274 731111 020 7404 5959
Investor Relations
Helen Waggott, Provident Financial 01274 731111 01274 731111
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