Provident Financial Group

Annual Report 2014

Serving people in the
non-standard credit market

Our mission is to be the leading non-standard specialist lender in our
chosen markets, acting responsibly in all our relationships and playing a
positive role in the communities we serve.

3,555 - Number of employees 2.4m - Number of customers £2.4m - Community investment £1.8bn - Year-end receivables

Financial highlights

Generating
consistent returns

We have consistently delivered
sustainable growth since the demerger of our international business in 2007, which
has benefited all of our stakeholders. In 2014, we once again demonstrated the strength of our customer proposition and delivered another strong financial performance.

1.Stated prior to the amortisation of acquisition intangibles and exceptional costs.

2.Adjusted profit before interest after tax as a percentage of
average receivables.

3.Comprises both direct and indirect taxes.

Adjusted profit before tax1 (£m)

£234.4m, +19.5%

Statutory profit before tax (£m)

£224.6m, +23.1%

Dividend per share (p)

98.0p, +15.3%

Gearing(times)

2.4 times

Customer numbers(’000)

2.4m

Employee costs (£m)

£158.4m

Adjusted earnings per share1 (p)

132.6p, +18.4%

Basic earnings per share (p)

126.5p, +21.4%

Dividend cover11 (times)

1.35 times

Return on assets1,2 (%)

15.1%

Community investment(£m)

£2.4m

Total tax contribution3 (£m)

£124.5m

Our stories

Since 1880, we've helped people who are either excluded from the
mainstream credit market, or whose needs are not well met by
mainstream credit market products, to finance the things they need to
get on with their lives.

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Our business model

All the businesses within our group have a common approach and focus on the non-standard credit market, while also adapting what they do to closely suit the needs of their particular customers.

What our businesses provide

What allows us to do what we do

Overarching purpose to lend where others don't and increase financial inclusion.

130 years of experience in serving non-standard customers.

Specialisation and focus on non-standard credit.

Track record, strong reputation and prudent accounting and governance.

Commitment to corporate social responsibility.

What we do for our customers

1
Offer simple transparent and suitable products, tailored to non-standard customer needs.
3
Take a different approach to managing the customer relationship, tailored to non-standard customer needs.
2
Learn, refine and improve what we offer based on our experience with non-standard customers.
4
Do the right thing for customers with responsibility, sustainability and compliance fundamental and built-in.

The value this creates

  • Financial inclusion and good outcomes for customers.
  • Growing returns for shareholders.
  • Consistently high levels of customer satisfaction.
  • Further capital for investment.
  • Access to funding through the cycle.
  • Making a positive difference in the communities we serve.

Vanquis Bank

What allows us to do what we do

  • Specialisation and focus on non-standard credit cards.
  • 650 contact centre staff in 2 UK locations.
  • VISA card issuer status.
  • Industry standard outsourced credit card systems.
  • Over 10 years of direct experience in the UK non-standard credit card market since foundation.
  • Management team with depth of experience in non-standard credit cards.
  • World-class collections capabilities.

What we do for our customers

1
Adopt a responsible and prudent ‘low and grow’ approach to extending small amounts of credit starting from £150, up to a maximum of £3,500.
3
Close customer contact from the outset, with a welcome call and multiple forms of immediate communication in the event of any issues arising.
2
Close customer contact from the outset, with a welcome call and multiple forms of immediate communication in the event of any issues arising.
4
Offer optional Repayment Option Plan (ROP) only after a customer has their card to allow them to manage any shortterm payment difficulties smoothly and painlessly.

The value this creates

  • Financial inclusion and rebuilding of credit history for over 1.3 million credit card customers.
  • Improving credit scores whilst providing access to small credit lines over an average of four years with Vanquis Bank.
  • Good, safe returns for depositors.
  • High levels of customer satisfaction.
  • Stable risk-adjusted margins through the cycle.
  • Strong growth from foundation in 2003 to over 1.3 million customers as competitors struggled with appropriate models and access to funding.

Consumer Credit Division

What allows us to do what we do

  • 30 years of experience with home credit. Nationwide coverage. The vast majority of 7,700 self-employed agents using smartphones to conduct their round.
  • Over 1 million visits per week to over 3% of UK households. 2,230 staff in 300 branches using technology effectively.
  • Long experience with non-standard customer needs as they move on from home credit.
  • Understanding of the fundamentals of lending that work for customers from home credit experience (small manageable payments, no penalties and transparent pricing).
  • Prices that are below the high-cost short-term credit (HCSTC) price cap from the outset.

What we do for our customers

1
Simple cash-based loans that come to the customer with nothing extra to pay, ever, no matter what happens.
3
Skill and judgement of agents increasingly bolstered by sophisticated affordability assessment and credit scoring systems.
2
Weekly home visit from self-employed, largely female, agents who collect and lend.
4
Weekly personal assessment of all customer situations and forbearance where necessary at no extra cost to the customer whatsoever.
1
Simple online loans with manageable payments and nothing extra to pay, ever, no matter what happens.
3
Sophisticated credit scoring and affordability systems using a range of data sources to aid a responsible and sustainable ‘low and grow’ approach to lending.
2
Close contact from the outset with a representative on the phone whenever a customer needs to talk to somebody.
4
No fees, charges or added interest whatsoever, along with forbearance when needed and a personal approach to online lending.

The value this creates

  • Financial inclusion and in-built discipline and control for over 1 million customers.
  • Help for customers coping with cost of living pressures while wages remain subdued.
  • Improving quality of book as customer numbers fall.
  • Stable returns in a mature market.
  • Very high customer satisfaction.
  • Better outcomes for customers, helping them to manage their tight budgets.
  • Lending that is far better suited to non-standard customer needs than typical online and 'payday' lending.
  • For customers for whom the home credit market is not suitable, a responsible and sustainable alternative to typical ‘payday’ and ‘payday-style’ lending and lender practices.
  • Strong growth opportunity in a market with large demand, poorly served by mainstream lenders and increasingly constrained ‘payday' lenders.

Moneybarn

What allows us to do what we do

  • Market leader in non-standard used car finance with over 20 years of experience in the car finance market.
  • Provide finance for used cars, the primary use of which is to travel to work, bought through dealerships.
  • Focus on non-standard customers, less well served by mainstream and manufacturer-tied lenders.
  • Strong broker relationships maintained and built by consistent lending through the cycle.
  • Simple broker commission structures.

What we do for our customers

1
Simple hire purchase car finance with no add-ons or insurances focused on the needs of the non-standard secondhand car buyer.
3
Investment in automation and credit scoring systems where appropriate, building market-leading service levels with acceptance in principle decisions within four seconds of application.
2
Customer relationships established with a welcome call and maintained with individual discussions when issues arise.
4
Fairness is at the centre of all discussions with customers,always looking to keep the customer in their car if possibleand looking for the best outcome for them overall.

The value this creates

  • Better outcomes for customers – helping people get to work.
  • Low level of upheld Financial Ombudsman Service (FOS) complaints.
  • Low level of upheld FOS complaints.
  • High levels of customer satisfaction.
  • Strong growth opportunity in a market with large demand, poorly served by mainstream lenders through the cycle.
  • Primacy with key brokers to access the best leads available.

Strategy

Our excellent track record, consistent strategy, robust business model and
strong market position mean that we are in a very good position to
further develop our businesses in 2015.

Growing high-return
businesses in
non-standard markets

  • Maintain strong growth in Vanquis Bank within the UK non-standard credit card market, whilst seeking opportunities to utilise the existing business model to expand into other markets and products;
  • Continue to update the home credit business within CCD and maximise returns whilst developing an online loans business to generate sustainable growth;
  • Unlock the growth potential within Moneybarn in the non-standard vehicle finance market; and
  • Extend our product offerings to ensure that we have the appropriate range of products for our chosen markets.

What it means for us in 2015

Vanquis Bank
  • Continue to invest in the customer acquisition programme, maintaining the growth in customer numbers and receivables at similar levels;
  • Further develop the channels to market to mitigate any increase in competition;
  • Maintain a tight stance on underwriting and credit line increases;
  • Deliver a RAM in the range of 31% to 32%, after allowing for the impact of the changes made to the ROP product and its sales process in the third quarter of 2013 and European legislation reducing intercharge fees; and
  • Ensure an orderly run-off of the Polish receivables book.
CCD
  • Continue the programme of updating the home credit business through the further roll-out of technology, standardisation of processes and the development of the people programme;
  • Continue to develop the product and marketing proposition in Satsuma to capture the growth opportunity available in the online instalment loans market;
  • Complete the pilot of glo and assess whether the business is capable of delivering the group’s target returns;
  • Further strengthen the RAM by maintaining a tight underwriting stance and further embedding the standardised collections and arrears management processes;
  • Maintain tight cost control, subject to investment in business development activities; and
  • Seek to grow profits at a modest level.
Moneybarn
  • Capture the growth opportunity in the non-standard vehicle finance market by growing the customer base from 22,000 to 30,000;
  • Invest in the cost base to support growth and strengthen governance and controls to be in line with the rest of the group; and
  • Continue to investigate and test product extensions beyond the current model, including lower value vehicles, commercial vehicles and relationships with prime finance businesses.

Generating high
shareholder returns

  • Generate sustainable growth in profits and dividends to deliver increasing shareholder returns.
  • Maintain a dividend cover of at least 1.25 times.

What it means for us in 2015

  • Deliver further EPS and TSR growth.
  • Maintain a minimum dividend cover of at least 1.25 times

Maintaining a secure
funding and capital
structure

  • Maintain borrowing facilities which, together with Vanquis Bank’s retail deposits programme, meet contractual maturities and fund growth over at least the next 12 months;
  • Maintain a maximum gearing ratio of 3.5 times to ensure alignment with the minimum dividend cover target of 1.25 times and the group’s growth plans, whilst maintaining a comfortable surplus of regulatory capital over the capital requirements set by the Prudential Regulation Authority (PRA); and
  • Continue to diversify the group’s sources of funding.

What it means for us in 2015

  • Maintain capital and gearing at prudent levels;
  • Continue to manage the flow of retail deposits in Vanquis Bank to ensure the headroom on the group’s committed facilities is maintained at an appropriate, but not excessive, level;
  • Review and consider issues into the retail bond and private placement markets to support the growth in Moneybarn and Satsuma; and
  • Effectively manage the transitional arrangements within the Capital Requirements Directive IV (CRD IV) for regulatory capital and liquidity reporting to the PRA.

Acting responsibly
and with integrity in
all we do

  • Operating our core business of lending to our customers in a responsible and sustainable manner, putting their needs at the heart of everything we do;
  • Acting responsibly and sustainably in all our stakeholder relationships in order to:
    • Create a working environment that is safe, inclusive and meritocratic;
    • Treat our suppliers fairly;
    • Support our communities;
    • Proactively engage with the investment community on sustainability matters; and
    • Minimise the environmental impacts of our business.

What it means for us in 2015

  • Maintain or improve customer satisfaction levels in both Vanquis Bank and CCD;
  • Develop a formal customer feedback process in Moneybarn;
  • Maintain an investment of 1% of group profit before tax in the community through various community programmes, money advice programmes and social research;
  • Embed Moneybarn into the group's community programme;
  • Continue to effectively manage the transition of all of our businesses from regulation by the Financial Services Authority (FSA) and Office of Fair Trading (OFT) to the PRA and Financial Conduct Authority (FCA); and
  • Continue to place positive customer outcomes at the forefront of our product and service offering.
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