Announcement re: Rights Issue

RNS Number : 0473G

Provident Financial PLC

27 February 2018

 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, CANADA, JAPAN, SOUTH AFRICA, THE RUSSIAN FEDERATION, THE PEOPLE'S REPUBLIC OF CHINA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

THIS ANNOUNCEMENT IS AN ADVERTISEMENT FOR THE PURPOSES OF THE UK PROSPECTUS RULES OF THE FINANCIAL CONDUCT AUTHORITY ("FCA") AND DOES NOT CONSTITUTE A PROSPECTUS OR A PROSPECTUS EQUIVALENT DOCUMENT. NEITHER THIS ANNOUNCEMENT NOR ANY PART OF IT SHOULD FORM THE BASIS OF OR BE RELIED ON IN CONNECTION WITH OR ACT AS AN INDUCEMENT TO ENTER INTO ANY CONTRACT OR COMMITMENT WHATSOEVER. INVESTORS SHOULD NOT SUBSCRIBE FOR OR PURCHASE ANY SHARES REFERRED TO IN THIS ANNOUNCEMENT EXCEPT ON THE BASIS OF INFORMATION CONTAINED IN THE PROSPECTUS TO BE PUBLISHED BY THE COMPANY IN DUE COURSE IN CONNECTION WITH THE RIGHTS ISSUE. COPIES OF THE PROSPECTUS WILL, FOLLOWING PUBLICATION, BE AVAILABLE FROM THE COMPANY'S REGISTERED OFFICE AND ON ITS WEBSITE WWW.PROVIDENTFINANCIAL.COM.

This announcement constitutes inside information for the purposes of article 7 of the Market Abuse Regulation (EU) No 596/2014

PROVIDENT FINANCIAL PLC

27 February 2018

17 for 24 fully underwritten £331 million Rights Issue and settlement of the FCA's investigation into Vanquis Bank's Repayment Option Plan

The Board of Provident Financial plc (the "Company" and, together with its subsidiaries, the "Provident Financial Group"), a leading lender in the UK non-standard credit market, today announces a fully underwritten rights issue (the "Rights Issue") to raise gross proceeds of approximately £331 million. The Provident Financial Group's full year results for the financial year ended 31 December 2017 have also been released today in an accompanying announcement.

The Provident Financial Group has today reached a settlement with the FCA in relation to its investigation into the sale of Vanquis Bank's Repayment Option Plan (the "ROP"). In connection with the settlement, the Provident Financial Group has taken a provision of £172.1 million in its audited consolidated financial statements for the year ended 31 December 2017.

Moneybarn is continuing to cooperate with the FCA with its ongoing investigation into affordability, forbearance and termination options. The estimated cost of £20 million, representing management's estimate of the expected outcome in respect of the investigation, has been reflected as an exceptional cost in the Provident Financial Group's audited consolidated financial statements for the year ended 31 December 2017.

The Provident Financial Group is taking necessary action to raise additional capital to meet the costs of resolving the investigation by the FCA into Vanquis Bank's ROP, restore the Provident Financial Group's prudent capital position, seek to maintain the Provident Financial Group's investment grade rating and re-establish normal access to funding from the bank and debt capital markets. The Provident Financial Group is seeking to raise additional capital of approximately £300 million (£331 million gross proceeds before deduction of expenses of approximately £31 million) through the Rights Issue.

Details of the Rights Issue and use of proceeds:

·      17 for 24 fully underwritten Rights Issue of 104,998,731 New Ordinary Shares to raise gross proceeds of £331 million (approximately £300 million net of expenses).

·      The issue price of 315 pence per New Ordinary Share represents a discount of 46.4 per cent. to the closing price of 588 pence per Existing Ordinary Share on 26 February 2018 (being the last Business Day prior to the date of this announcement) and a 33.7 per cent. discount to the theoretical ex-rights price of 475 pence per Ordinary Share by reference to the closing price on the same basis.

·      The net proceeds of the Rights Issue will be used to bolster the Provident Financial Group's regulatory capital position to enable it to meet its current and future regulatory capital requirements, as well as strengthen its balance sheet with the appropriate level of buffers in order to enable it to capture underlying organic growth opportunities, seek to maintain the Provident Financial Group's investment grade rating and re-establish normal access to funding from the bank and debt capital markets.

·      The provisions that have been made by the Provident Financial Group in its audited consolidated financial statements for the year ended 31 December 2017 in connection with (i) resolving the FCA's investigation in relation to Vanquis Bank's ROP and (ii) Moneybarn's estimated liability in connection with the FCA's ongoing investigation into Moneybarn have depleted the Provident Financial Group's regulatory capital, with the CET1 capital ratio of the Provident Financial Group reducing to 14.5 per cent. as at 31 December 2017.  The receipt of the £300 million net proceeds of the Rights Issue will result in an accretion of the Provident Financial Group's CET1 capital ratio of 14.2 per cent., to 28.7 per cent. as at 31 December 2017 on a pro forma basis which the Directors believe will provide the Provident Financial Group with an appropriate level of regulatory capital to meet its current and future requirements. Additionally, the Company will inject approximately £50 million of the net proceeds of the Rights Issue into Vanquis Bank by way of a subscription of equity, as an additional management buffer, resulting in an accretion of Vanquis Bank's CET1 capital ratio of 3.8 per cent., from 21.6 per cent. as at 31 December 2017 to 25.4 per cent. on a pro forma basis. The PRA is familiar with, the details of the Provident Financial Group's discussions with the FCA, its current capital position and proposed capital plan including the Rights Issue.

·      The Company expects to use the net cash proceeds to: (i) inject approximately £50 million into Vanquis Bank by way of a subscription of equity, as an additional management buffer; (ii) repay the £85 million outstanding in full under the Bridge Facility; and (iii) £165 million to create further funding headroom, through either increasing cash held on deposit or repaying borrowings, under the Revolving Credit Facility.

·      The Rights Issue, which is subject to shareholder approval, is fully underwritten by Barclays Bank PLC ("Barclays") and J.P. Morgan Securities plc (which conducts its UK investment banking activities as J.P. Morgan Cazenove) ("J.P. Morgan Cazenove", and together with Barclays, the "Underwriters"), who are acting as Joint Global Co-ordinators and Joint Bookrunners to the Rights Issue, and J.P. Morgan Cazenove is acting as Sole Sponsor in connection with the Rights Issue.

·      The Directors are fully supportive of the Rights Issue and intend to vote in favour of the resolution to approve the Rights Issue and to either take up in full their beneficial rights or sell sufficient of their rights in order to acquire the balance of their rights to an aggregate of 216,798 New Ordinary Shares under the Rights Issue.

·      Invesco Limited and certain discretionary managed investments funds (acting through Woodford Investment Management Limited as their agent and discretionary investment manager), who in aggregate hold Ordinary Shares representing approximately 48 per cent. of the Ordinary Shares, are supportive of the Company's plans and the Rights Issue.

Background to the Rights Issue

·      The transition to a new operating model by the Provident Financial Group's Home Credit business, announced by the Company on 28 February 2017, which was intended to, among other things, establish more centralised control over a distributed workforce and enhance regulatory standards, resulted in disruption to the Home Credit business.

·      On 22 August 2017, due to the disruption to the Home Credit business, the Company announced significantly reduced full year profit guidance for CCD to a pre-exceptional pre-tax loss of between £80 million and £120 million for 2017. The Provident Financial Group also announced that the FCA was conducting an investigation into Vanquis Bank's ROP and the Provident Financial Group had agreed to enter into a voluntary requirement to suspend all new sales of ROP. Vanquis Bank also agreed to enter into a voluntary requirement with the PRA pursuant to which it agreed not to: (i) pay dividends to or make any distribution of capital to the Provident Financial Group; (ii) provide loans or facilities to the Provident Financial Group; (iii) conduct non "business as usual" liquidity transactions or transactions which have or may have the effect of transferring any cash or assets in favour of any member of, the Provident Financial Group; or (iv) provide any security for the obligations of any member of the Provident Financial Group, outside the normal course of business without the PRA's consent.

·      The FCA informed the Provident Financial Group in December 2017 that it had commenced an investigation into Moneybarn covering the adequacy of creditworthiness assessments as well as the treatment of customers in default or arrears with forbearance and due consideration, and the provision of information about termination processes.

·      Today, the Provident Financial Group announced its final results for the year ended 31 December 2017. The Provident Financial Group's adjusted profit before tax in 2017 reduced by 67.3 per cent. to £109.1 million (2016: £334.1 million) and adjusted basic earnings per share fell by 64.8 per cent. to 62.5 pence per share (2016: 177.5 pence per share). Profit before tax reduced by 135.8 per cent. to a loss of £123.0 million (2016: profit £343.9 million) and basic earnings per share reduced to a loss of 90.7 pence per share (2016: earnings 181.8 pence per share).

·      CCD reported adjusted profit before tax of a loss in 2017 of £118.8 million (2016: adjusted profit before tax of £115.2 million), reflecting significant impairment arising as a result of the operational disruption in Home Credit following the poorly executed migration to the new operating model in July 2017. Such pre-tax loss for CCD is consistent with the upper end of the guidance previously issued by the Company on 22 August 2017.

·      The Provident Financial Group has reached settlement with the FCA in relation to its investigation into the sale of Vanquis Bank's ROP. In connection with the settlement, the Provident Financial Group has taken a provision of £172.1 million in its audited consolidated financial statements for the year ended 31 December 2017.

·      The Provident Financial Group is taking necessary action to raise additional capital to meet the costs of resolving the investigation by the FCA into Vanquis Bank's ROP, restore the Provident Financial Group's prudent capital position, seek to maintain the Provident Financial Group's investment grade rating and re-establish normal access to funding from the bank and debt capital markets. The Provident Financial Group intends to redirect its strategic focus toward the customer, improve governance and oversight, and work towards delivering consistently strong performance once again.

·      Following a thorough review of the various options available to the Provident Financial Group to improve its capital position vis-a-vis the Provident Financial Group's short- and medium-term priorities, the Board has decided to pursue a fully underwritten Rights Issue.

A summary of the Provident Financial Group's current position

Regulatory Update

·      The Provident Financial Group has reached settlement with the FCA in relation to its investigation into the sale of Vanquis Bank's ROP, with Vanquis Bank accepting that it had breached Principle 6 (Customers' interests) and Principle 7 (Communications with clients) of the FCA's Principles for Businesses between 1 April 2014 and 19 April 2016 in relation to its telephone sales of Vanquis Bank's ROP.  Pursuant to the settlement: (i) Vanquis Bank has agreed to pay a financial penalty of £1,976,000 (the "ROP Financial Penalty"), (ii) the FCA has required Vanquis Bank to pay restitution of £11,876,000 on the agreed basis to customers who opted into the ROP from 1 April 2014 to 19 April 2016 and (iii) Vanquis Bank has voluntarily agreed to pay restitution of £156,905,000 on the agreed basis to customers who opted into the ROP from the inception of the ROP in 2003 to 31 March 2014, notwithstanding that this is a period before the FCA regulated consumer credit activities, for a total gross amount of restitution to be paid by Vanquis Bank of £168,781,000, including notional interest (the "Gross Restitution Amount").  The restitution payments are to refund those customers with the interest element of the ROP from the inception of the ROP in 2003 up until, broadly, the end of December 2016. In connection with the settlement, the Provident Financial Group has taken a provision of £172.1 million in its audited consolidated financial statements for the year ended 31 December 2017 which includes (i) the ROP Financial Penalty of £2.0 million, (ii) the Gross Restitution Amount, offset by charged off balances of £26.9 million and less a release of impairment provisions of £14.7 million, resulting in a net restitution payment amount of £127.1 million, (iii) the operational costs associated with these payments (amounting to £12.3 million) and (iv) a contingency in respect of potential additional liability which may arise related to forward flow of complaints in relation to ROP more generally as described below in connection with the ROP (amounting to £30.7 million).

·      Moneybarn is continuing to cooperate with the FCA with its ongoing investigation into affordability, forbearance and termination options. The estimated cost of £20 million, representing management's estimate of the expected outcome in respect of the investigation, has been reflected as an exceptional cost in the Provident Financial Group's audited consolidated financial statements for the year ended 31 December 2017. A final resolution to the investigation is likely to take up to 24 months.

·      As a consequence of, among other things, the disruption to the Provident Financial Group's Home Credit business following the implementation of its new operating model in July 2017 and the subsequent implementation of the Recovery Plan in response to such disruption, and the FCA's investigation into Vanquis Bank's ROP and the FCA's ongoing investigation into Moneybarn, the Provident Financial Group is subject to enhanced supervision by the FCA.

Financing Update

·      The Provident Financial Group has agreed with each of its lenders under the Revolving Credit Facility and Term Loan Facility that they will amend certain covenants contained in the Revolving Facility Agreement and the Term Loan Agreement to provide the Provident Financial Group with greater covenant headroom. These amendments would cease to have effect if, among other things, the Rights Issue were not to proceed and complete.

·      The Provident Financial Group has also entered into a £85 million bridge loan facility with Barclays Bank PLC and JPMorgan Chase Bank, N.A., London Branch (the "Bridge Facility"). The Bridge Facility will provide the Provident Financial Group with sufficient funds to allow Vanquis Bank to draw down in full the New Intercompany Loan Agreement between the Provident Financial Group and Vanquis Bank, providing Vanquis Bank with an additional £85 million of funding which Vanquis Bank intends to hold as additional liquid resources. The Provident Financial Group plans to repay the Bridge Facility in full using approximately £85 million of the net proceeds of the Rights Issue.

Capital Plan

·      In finalising its new capital plan reflecting its current and expected capital requirements, the Provident Financial Group has taken into account, amongst, other things, (i) the receipt of £300 million net proceeds from the Rights Issue, (ii) the Provident Financial Group's revised dividend policy described below and estimated future levels of dividends to be paid by the Company and Vanquis Bank, (iii) the estimated payments to be made in connection with Vanquis Bank's settlement with the FCA in connection with ROP, (iv) the estimated outcome of the Moneybarn investigation which has been reflected as an exceptional cost of £20.0 million in the Provident Financial Group's audited consolidated financial statements for the year ended 31 December 2017 in connection with the FCA's ongoing investigation into Moneybarn, (v) the amendment of certain covenants under the Revolving Credit Facility and the Term Loan Facility and (vi) management actions planned and proposed to be taken. Provident Financial Group has discussed the capital plan with the PRA. The PRA is familiar with the details of the Provident Financial Group's discussions with the FCA, its current capital position and proposed capital plan, including the Rights Issue.

Target Returns and Dividend Policy

·      The Directors believe that a target ROA of approximately 10 per cent. per annum alongside receivables growth of between 5 and 10 per cent. per annum is both achievable and sustainable for the Provident Financial Group as the Home Credit business moves to profitability in 2019, subject to economic conditions. The Directors also believe that there are attractive growth opportunities available to each of the Provident Financial Group's businesses within the non-standard credit market which would allow for receivables growth of between 5 and 10 per cent. per annum, subject to economic conditions and maintaining the Provident Financial Group's minimum returns thresholds.

·      Based on the target level of returns and maintaining an appropriate capital structure, the Provident Financial Group's dividend policy is to maintain a dividend cover ratio of at least 1.4 times once the Home Credit Recovery Plan has been fully delivered during 2018.

·      The Board remains strongly committed to the payment of future dividends and delivering long-term value to shareholders. The Provident Financial Group will therefore aim to restore dividends with a nominal initial dividend for the financial year ending 31 December 2018 before adopting a progressive dividend policy, in line with the above dividend policy, from the financial year commencing 1 January 2019.

Malcolm Le May, Group Chief Executive Officer of the Provident Financial Group, commented:

"When I became group CEO, I stated my key objective was to execute a turnaround of the Provident Financial Group. Today we have made progress on that objective by agreeing a settlement with the FCA in relation to its investigation into Vanquis Bank's Repayment Option Plan and we now have a clear view on the estimated cost of the FCA investigation of Moneybarn.

To grow the business and deliver long-term sustainable returns to our shareholders, the Provident Financial Group needs to strengthen its balance sheet. Today we announce a proposed rights issue to raise net proceeds of £300 million which the Board believes will allow the Provident Financial Group to implement its strategy and restart paying a progressive dividend in 2019.

The Provident Financial Group's businesses of Vanquis Bank, Provident Home Credit, Satsuma, and Moneybarn are all well positioned in their markets, with products that customers value and which operate well throughout the economic cycle. The recovery in Provident Home Credit is on track with collections performance continuing to improve.

In 2018, the Provident Financial Group will continue to rebuild trust with our customers, regulators, shareholders and employees. The Provident Financial Group's turnaround is making progress, but the Board and I realise there is still much to do to achieve a customer centric business delivering long-term sustainable returns to our shareholders."

Abridged expected timetable of principal events

Prospectus published, Circular and forms of proxy despatched...................	27 February 2018
Latest time and date for receipt of forms of proxy for the General Meeting.	11.00 a.m. on 19 March 2018
Record Date for entitlement under the Rights Issue for Qualifying Shareholders.......................................................................................................	Close of business on 19 March 2018
General Meeting...................................................................................................	11.00 a.m. on 21 March 2018
Despatch of Provisional Allotment Letters (to Qualifying non-CREST Shareholders only).............................................................................................	21 March 2018
Dealings in New Ordinary Shares, nil paid, commence on the London Stock Exchange..................................................................................................	8.00 a.m. on 22 March 2018
Existing Ordinary Shares marked "Ex-Rights" by the London Stock Exchange..............................................................................................................	8.00 a.m. on 22 March 2018
Latest time and date for receipt of an acceptance, payment in full and registration of renunciation of Provisional Allotment Letters.............	11.00 a.m. on 9 April 2018
Results of Rights Issue to be announced through a Regulatory Information Service..................................................................................................................	by 8.00 a.m. on 10 April 2018
Dealings in New Ordinary Shares, fully paid, commence on the London Stock Exchange...................................................................................	8.00 a.m. on 10 April 2018

Documentation

·      The Prospectus containing full details of the Rights Issue will be made available on www.providentfinancial.com shortly.

·      The Prospectus will be submitted to the National Storage Mechanism and be available for inspection at www.morningstar.co.uk/uk/NSM 

·      The Circular containing notice of the General Meeting is expected to be posted to shareholders and made available on www.providentfinancial.com shortly.

The preceding summary should be read in conjunction with the full text of this announcement, together with the Prospectus once available. Capitalised terms used in this announcement shall have the meaning set out in the Appendix to this announcement.

Enquiries:

Provident Financial plc 

Gary Thompson, Head of Investor Relations	[phone]
Vicki Turner, Investor Relations Manager	[phone]
Richard King, Director of Corporate Affairs	[phone]
Jade Byrne, Corporate Communications Manager	[phone]

Barclays Bank PLC (Joint Global Co-ordinator and Joint Bookrunner)

Kunal Gandhi	[phone]
Derek Shakespeare	[phone]
Peter Mason	[phone]
Tom Macdonald	[phone]
Ben West	[phone]

J.P. Morgan Securities plc (which conducts its UK investment banking activities as J.P. Morgan Cazenove) (Sole Sponsor, Joint Global Co-ordinator and Joint Bookrunner)

Edmund Byers	[phone]
Jeremy Capstick	[phone]
Barry Meyers	[phone]
Kamalini Hull	[phone]
Virginia Khoo	[phone]

Shareholder Helpline

If you have any questions relating to the Rights Issue, and the completion and return of the Provisional Allotment Letter, please contact Link Asset Services on [phone]. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. The helpline is open from 9.00 a.m. to 5.30 p.m (London time), Monday to Friday, excluding public holidays in England and Wales. Different charges may apply to calls from mobile telephones and calls may be recorded and randomly monitored for security and training purposes. Please note that the helpline cannot provide advice on the merits of the Rights Issue nor give financial, tax, investment or legal advice.

IMPORTANT NOTICE

This announcement has been issued by and is the sole responsibility of Provident Financial. The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may or should be placed by any person for any purpose whatsoever on the information contained in this announcement or on its accuracy or completeness. The information in this announcement is subject to change.

This announcement is not a prospectus but an advertisement and investors should not acquire any Nil Paid Rights, Fully Paid Rights or New Ordinary Shares referred to in this announcement except on the basis of information contained in the Prospectus. Any purchase of Nil Paid Rights, Fully Paid Rights or New Ordinary Shares in the Rights Issue should be made solely on the basis of the information contained in the Prospectus.

A copy of the Prospectus when published will be available from the registered office of Provident Financial and on Provident Financial's website at www.providentfinancial.com provided that the Prospectus will not, subject to certain exceptions, be available (whether through the website or otherwise) to Shareholders in the Excluded Territories or the United States.

Neither the content of Provident Financial's website (or any other website) nor any website accessible by hyperlinks on Provident Financial's website (or any other website) is incorporated in, or forms part of, this announcement.

This announcement is for information purposes only and is not intended to and does not constitute or form part of any offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for, Nil Paid Rights, Fully Paid Rights or New Ordinary Shares or to take up any entitlements to Nil Paid Rights in any jurisdiction in which such an offer or solicitation is unlawful. The information contained in this announcement is not for release, publication or distribution to persons in the United States or any of the Excluded Territories and should not be distributed, forwarded to or transmitted in or into any jurisdiction where to do so might constitute a violation of local securities laws or regulations.

This announcement does not constitute, or form part of, an offer to sell or the solicitation of an offer to purchase or subscribe for any securities of the Company in the United States or any of the Excluded Territories. The Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares have not been and will not be registered under the US Securities Act of 1933, as amended (the "US Securities Act") or under any securities laws of any state or other jurisdiction of the United States, and may not be offered, sold, taken up, exercised, resold, renounced, or otherwise transferred, directly or indirectly, in or into the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States.

There will be no public offering of the Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares in the United States.

The distribution of this announcement into jurisdictions other than the United Kingdom may be restricted by law, and, therefore, persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such jurisdiction. In particular, subject to certain exceptions, this announcement, the Prospectus and the Provisional Allotment Letter should not be distributed, forwarded to or transmitted in or into the United States or any of the Excluded Territories.

Recipients of this announcement and/or the Prospectus should conduct their own investigation, evaluation and analysis of the business, data and information described in this announcement and/or the Prospectus. This announcement does not constitute a recommendation concerning the Rights Issue. The price and value of securities can go down as well as up. Past performance is not a guide to future performance. Acquiring investments to which this announcement relates may expose an investor to a significant risk of losing all of the amount invested. The contents of this announcement are not to be construed as legal, business, financial or tax advice. Each Shareholder or prospective investor should consult his, her or its own legal adviser, business adviser, financial adviser or tax adviser for legal, financial, business or tax advice.

The Underwriters, who are each authorised in the UK by the Prudential Regulatory Authority and regulated in the UK by the Prudential Regulatory Authority and the Financial Conduct Authority, are acting exclusively for Provident Financial and no one else in connection with the Rights Issue and will not regard any other person as their respective clients in relation to the Rights Issue and will not be responsible to any person other than Provident Financial for providing the protections afforded to clients of the Underwriters, nor for providing advice in relation to the Rights Issue, the contents of this announcement or any transaction, arrangement or any other matters referred to herein.

Apart from the responsibilities and liabilities, if any, which may be imposed on the Underwriters under FSMA or the regulatory regime established thereunder, none of the Underwriters or any of their respective directors, officers, employees, advisers or agents accepts any responsibility or liability whatsoever for the contents of this announcement, (or whether any information has been omitted from the announcement), or makes any representation or warranty, express or implied, as to its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with Provident Financial, the Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares or the Rights Issue, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available, or for any loss arising from any use of this announcement or its contents or otherwise arising in connection therewith. Subject to applicable law, each of the Underwriters accordingly disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this announcement or any such statement.

In connection with the Rights Issue, the Underwriters and any of their affiliates, acting as investors for their own accounts, may subscribe for or purchase Nil Paid Rights, Fully Paid Rights or New Ordinary Shares and in that capacity may retain, purchase, sell, offer to sell or otherwise deal for their own accounts in such Nil Paid Rights, Fully Paid Rights or New Ordinary Shares and other securities of the Company or related investments in connection with the Rights Issue or otherwise. Accordingly, references in the Prospectus, once published, to the Nil Paid Rights, Fully Paid Rights or New Ordinary Shares being issued, offered, subscribed, acquired, placed or otherwise dealt in should be read as including any issue or offer to, or subscription, acquisition, placing or dealing by, the Underwriters and any of their affiliates acting as investors for their own accounts. In addition, the Underwriters or any of their affiliates may enter into financing arrangements and swaps in connection with which they or their affiliates may from time to time acquire, hold or dispose of Nil Paid Rights, Fully Paid Rights or New Ordinary Shares. The Underwriters do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligations to do so.

The Underwriters and certain of their respective affiliates have from time to time engaged in, are currently engaged in, and may in future engage in, various commercial banking, investment banking and financial advisory transactions and services in the ordinary course of their business with the Company. They have received and will receive customary fees and commissions for these transactions and services. In addition, Barclays is one of the RCF Lenders (as defined herein) and each of Barclays and JPMorgan Chase Bank, N.A., London Branch is a Bridge Lender.  Each of Barclays and J.P. Morgan Cazenove may have performed its own credit analysis on the Company. The Company intends to use a portion of the net proceeds from the Rights Issue to repay the Bridge Facility in full and to make repayments under the Revolving Credit Facility.

Information to Distributors

Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended ("MiFID II"); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, the "MiFID II Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the Product Governance Requirements) may otherwise have with respect thereto, the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares have been subject to a product approval process, which has determined that the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, Distributors should note that: the price of the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares may decline and investors could lose all or part of their investment; the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares offer no guaranteed income and no capital protection; and an investment in the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Rights Issue. Furthermore, it is noted that, notwithstanding the Target Market Assessment, the Joint Bookrunners will only procure investors who meet the criteria of professional clients and eligible counterparties.

For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares.

Each distributor is responsible for undertaking its own target market assessment in respect of the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares and determining appropriate distribution channels.

Cautionary statement regarding forward-looking statements

This announcement may contain certain forward-looking statements with respect to the financial condition, results of operations and business of the Provident Financial Group. No forward-looking statement is a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as "may", "will", "seek", "continue", "aim", "anticipate", "target", "expect", "estimate", "projected", "intend", "plan", "goal", "believe", "achieve" or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding the Group's future financial position, income growth, assets, impairments, charges, business strategy, capital and leverage ratios, payment of dividends (including dividend pay-out ratios), projected costs, estimates of capital expenditures, and plans and objectives for future operations and other statements that are not historical fact.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Provident Financial Group's actual performance, financial condition, results of operations, cash flows and prospects may differ materially from the forward-looking statements contained in this announcement. In addition, even if the Provident Financial Group's actual performance, financial condition, results of operations, cash flows and prospects are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods.

Important factors that may cause these differences include but are not limited to, UK domestic, US, the Republic of Ireland, Eurozone and global macroeconomic and business conditions, the effects of continued volatility in credit markets, the effects of the UK's decision to exit the European Union, market related risks such as changes in interest rates and foreign exchange rates, effects of changes in valuation of credit market exposures, volatility in capital markets, particularly as it may affect the timing and cost of planned capital raisings, including the Rights Issue, the failure of the Provident Financial Group to implement its Home Credit Recovery Plan, the policies and actions of governmental and regulatory authorities including (i) the CBI and FCA in relation to the Home Credit business's  AML, CTF and sanctions policies, procedures and practices, and (ii) the FCA in relation to its investigations relating to Moneybarn and to Vanquis Bank's ROP and  its enhanced supervision of the Provident Financial Group, the risk of non-compliance with the RMP by the Home Credit business in the Republic of Ireland, changes in legislation, demand for non-standard credit products, changes in distribution channels or relationships, the effectiveness of the Provident Financial Group's marketing and advertising programs, the failure of CCD to receive a full interim permission from the FCA, challenges to the employment status of the Provident Financial Group's Home Credit agents in the UK and the employment status of its agents in the Republic of Ireland, the further development of standards and interpretations under IFRS applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS and prudential capital and leverage rules, the outcome of current and future legal or regulatory proceedings, the amounts that the Provident Financial Group will be required to pay in connection with claims relating to Vanquis Bank's ROP, the performance of the Home Credit business, future levels of conduct provisions, the success of future acquisitions and other strategic transactions and the impact of competition, negative attention and news regarding the non-standard credit market or any harm to the Provident Financial Group's brand, a number of which factors are beyond the Provident Financial Group's control. As a result of these uncertain events and circumstances, the Provident Financial Group's actual future results, dividend payments and capital and leverage ratios may differ materially from the plans, goals and expectations set forth in such forward-looking statements. The list above is not exhaustive and there are other factors that may cause the Company's actual results to differ materially from the forward-looking statements contained in this announcement and the Prospectus.

Forward-looking statements speak only as at the date of this announcement. Except as required by the FCA, the London Stock Exchange, the Prospectus Directive, the Listing Rules, the Disclosure Guidance and Transparency Rules, or applicable law, the Company, the Underwriters and their respective affiliates expressly disclaim any obligation or undertaking to update, review or revise any forward-looking statement contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based or otherwise.

Nothing in this announcement is intended, or is to be construed, as a profit forecast or estimate or to be interpreted to mean that earnings per Provident Financial share or overall earnings for the current or future financial years will necessarily match or exceed the historical published earnings per Provident Financial share or overall earnings.

You are advised to read this announcement and the Prospectus, once available, in their entirety for a further discussion of the factors that could affect Provident Financial's future performance. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this announcement may not occur.

17 for 24 fully underwritten £331 million Rights Issue and settlement of the FCA's investigation into Vanquis Bank's Repayment Option Plan

1.     Introduction

The Board of Provident Financial plc, a leading lender in the UK non-standard credit market, today announces a fully underwritten rights issue to raise gross proceeds of approximately £331 million.

The Rights Issue is being made on the basis of 17 New Ordinary Shares for every 24 Existing Ordinary Shares held by Shareholders at close of business on the Record Date. The Rights Issue is fully underwritten by the Underwriters on the terms and subject to the conditions of the Underwriting Agreement, which requires, amongst other things, the Underwriters to subscribe for any New Ordinary Shares not taken up under the Rights Issue at the Issue Price.

The Rights Issue is conditional on, inter alia, the passing by Shareholders of the Resolution at a General Meeting of the Company being convened at 11.00 a.m. on 21 March 2018.

The Directors are fully supportive of the Rights Issue and intend to vote in favour of the resolution to approve the Rights Issue.

The Prospectus containing full details of the Rights Issue is expected to be made available on www.providentfinancial.com later today.

2.     Background To And Reasons For The Rights Issue

a.       Developments over the past 12 months

On 28 February 2017, the Provident Financial Group announced developments to the Home Credit business's operating model that focused on changing from a self-employed agency model to an employed workforce, aimed at delivering a more efficient and effective business. The proposals were intended to enhance the Home Credit operating model by: (i) serving customers through full-time employed Customer Experience Managers rather than self-employed agents to take direct control of all aspects of the relationship with the customer; (ii) changing the field management structure in the UK, with newly defined roles and ways of working; and (iii) developing further technology to improve efficiency and effectiveness. The migration to the new Home Credit operating model, with more centralised control over a distributed workforce and greater evidencing of customer interactions through voice recording technology (currently unique to the Provident Financial Group in the home credit sector), was also intended to enhance regulatory standards. It sought to achieve this by improving first line oversight of field staff through more consistent and accurate evidencing of interactions with customers than might be the case in circumstances where dual visits (when CEMs are accompanied by field management to monitor the interaction between the CEM and the customer) and apps are utilised to perform the same function.

On 20 June 2017, the Provident Financial Group provided an update on the transition to the new Home Credit operating model indicating that operational disruption associated with the transition was higher than anticipated, with agent attrition rates and vacancy levels adversely impacting collections, sales penetration, customer retention and profits. At that time, it was expected that collections would normalise after the transitional period but the disruption relating to the transition to the new operating model would result in 2017 full year pre-exceptional pre-tax profits for CCD reducing to around £60 million (2016: £115 million).

On 22 August 2017, the Provident Financial Group released a further trading update on the Home Credit and Vanquis Bank businesses. The disruption in the Home Credit business was more severe than originally anticipated, and the full year profit guidance for CCD was significantly reduced to a pre-exceptional pre-tax loss of between £80 million and £120 million for 2017. The Provident Financial Group announced that the FCA was conducting an investigation into Vanquis Bank's ROP and that in April 2016 it had agreed to enter into a voluntary requirement with the FCA to suspend all new sales of ROP and to conduct a customer contact exercise, which was completed in late 2016. Vanquis Bank also agreed to enter into a voluntary requirement with the PRA pursuant to which it agreed not to: (i) pay dividends to or make any distribution of capital to the Provident Financial Group; (ii) provide loans or facilities to the Provident Financial Group; (iii) conduct non "business as usual" liquidity transactions or transactions which have or may have the effect of transferring any cash or assets in favour of any member of, the Provident Financial Group; or (iv) provide any security for the obligations of any member of the Provident Financial Group, outside the normal course of business without the PRA's consent. As a result of the impact of the disruption and the investigation, the interim dividend for the 2017 financial year was withdrawn and the Board indicated that a full year 2017 dividend was unlikely, to retain liquidity and balance sheet stability. Under the circumstances, Peter Crook stepped down as Chief Executive Officer and Manjit Wolstenholme assumed the role of Executive Chairman.

During this time the Provident Financial Group continued to assess and discuss with the FCA processes applied by Moneybarn in relation to customer affordability assessments for vehicle finance and the treatment of customers in financial difficulties; this included Moneybarn entering into a voluntary requirement with the FCA pursuant to which it agreed to amend its processes for dealing with loan terminations to ensure that customers receive information which enables them to make an informed decision as to which termination option to adopt. On 5 December 2017, however, the Provident Financial Group was informed that the FCA had commenced an investigation into Moneybarn covering the adequacy of creditworthiness assessments as well as the treatment of customers in default or arrears with forbearance and due consideration, and the provision of information about termination processes.

As the issues above emerged during the summer of 2017, we moved swiftly to put in place a near-term action plan focused on ensuring stability and addressing the immediate challenges. The most pressing issues were stabilising and turning around the performance of the Home Credit business, reaching a resolution with the FCA in relation to Vanquis Bank's ROP and continuing to cooperate with the FCA with its ongoing investigation into Moneybarn, and ensuring that the Provident Financial Group's capital base and liquidity were appropriate to rebuild the business.

Over the last six months, the Provident Financial Group has taken action to:

·          conduct a search to identify suitably qualified candidates for the role of Chief Executive Officer. On 2 February 2018, the Company announced the appointment of Malcolm Le May as Group Chief Executive Officer. In making this decision the Board has consulted with, and received support from, certain of the Company's leading shareholders, as well as discussing his appointment with the FCA. The Board firmly believes that under Malcolm's leadership the Provident Financial Group can once again return to delivering attractive returns for shareholders whilst establishing strong relationships with all our stakeholders including our customers and regulators;

·          strengthen leadership of the Home Credit business through the re-appointment of Chris Gillespie as Managing Director of the Home Credit business at the end of August 2017 with a mandate to improve the operating model in order to re-establish relationships with customers and restore collections and stability in the business. Chris Gillespie previously acted as Managing Director of the CCD from 2007 to 2013;

·          clearly understand the root causes of the issues in deploying the new operating model in the Home Credit business which included insufficient recognition of the importance of the collector/customer relationship to the performance of the business. In addition, an inflexible approach was adopted in implementing the new operating model which lacked customer focus. These were clearly largely managerial failings in implementation, rather than fundamental flaws in the main concepts behind the new approach;

·          swiftly design and implement the Recovery Plan for the Home Credit business based on a revised and more flexible operating model alongside a right-sizing of the cost base, with a focus on re-establishing customer service levels and relationships. The Recovery Plan is expected to be substantially implemented by the end of the first half of 2018;

·          assess conduct risks and improve internal controls, including commissioning an external review of the effectiveness of CCD's first and second lines of defence in the risk management process, as well as its governance and culture in general;

·          work closely with the FCA to resolve the Provident Financial Group's immediate challenges, including implementing the Home Credit Recovery Plan, improving risk management controls and oversight in CCD as discussed above, and to fully resolve the FCA's investigation into Vanquis Bank's ROP and to continue to cooperate with the FCA with its ongoing investigation into certain issues in Moneybarn;

·          address governance and culture issues more widely across the Provident Financial Group, refocusing on the customer first. The Board has placed positive customer outcomes and enhanced regulatory engagement firmly at the centre of the Provident Financial Group's strategy;

·          closely monitor the capital and liquidity position of the Provident Financial Group on a consolidated basis and of Vanquis Bank on a solo basis, whilst maintaining regular and frequent dialogue with the Provident Financial Group's bank lending group, M&G Investments Limited, the Provident Financial Group's rating agency, the PRA (primarily through Vanquis Bank) and the FCA;

·          develop a new capital plan based on revised forecasts for the Provident Financial Group's three businesses to establish the appropriate scale and nature of resources required to execute the Provident Financial Group's strategy and generate capital with a view to restoring the shareholder dividend as soon as possible as further described below; and

·          assess the various options available to the Provident Financial Group to meet the potential costs of redress and to ensure the Provident Financial Group has appropriate levels of regulatory capital.

During this time, while working to push forward these actions Manjit Wolstenholme tragically died suddenly on 23 November 2017, with Malcolm Le May assuming the role of Interim Executive Chairman until his appointment, as mentioned above, as Group Chief Executive Officer and Stuart Sinclair's simultaneous appointment as Interim Chairman pending the completion of the Provident Financial Group's search for a new external Chairman.

On 16 January 2018, the Provident Financial Group released a trading update which disclosed the expectation of a pre-exceptional pre-tax loss for CCD of approximately £120 million, consistent with the upper end of the guidance previously issued on 22 August 2017. Although the actions taken by management had delivered a significant improvement in customer service and operational performance in the Home Credit business since August 2017, the rate of reconnection with those Home Credit customers whose relationship had been adversely impacted following the poorly executed migration to the new operating model in July 2017 was at the lower end of expectations through the fourth quarter of 2017.

As part of an ongoing process of reviewing its cost base, the Home Credit business also announced at this time a proposed rationalisation of its central support functions, subject to workforce consultation. This is a necessary step to align the cost base of the Home Credit business to the reduced size of its business. In addition, the Home Credit business said that it expected to secure improvements in the effectiveness and efficiency of its field organisation as the new operating model continues to be embedded. However, the Home Credit business also made clear that customer facing resources were being managed very carefully in order to ensure that further improvements in customer service are delivered.

b.       The Provident Financial Group's current position

Regulatory Update

The Provident Financial Group has reached settlement with the FCA in relation to its investigation into the sale of Vanquis Bank's ROP, with Vanquis Bank accepting that it had breached Principle 6 (Customers' interests) and Principle 7 (Communications with clients) of the FCA's Principles for Businesses between 1 April 2014 and 19 April 2016 in relation to its telephone sales of Vanquis Bank's ROP. Pursuant to the settlement: (i) Vanquis Bank has agreed to pay a financial penalty of £1,976,000 (the "ROP Financial Penalty"), (ii) the FCA has required Vanquis Bank to pay restitution of £11,876,000 on the agreed basis to customers who opted into the ROP from 1 April 2014 to 19 April 2016 and (iii) Vanquis Bank has voluntarily agreed to pay restitution of £156,905,000 on the agreed basis to customers who opted into the ROP from the inception of the ROP in 2003 to 31 March 2014, notwithstanding that this is a period before the FCA regulated consumer credit activities, for a total gross amount of restitution to be paid by Vanquis Bank of £168,781,000, including notional interest (the "Gross Restitution Amount"). The restitution payments are to refund those customers with the interest element of the ROP from the inception of the ROP, in 2003, up until, broadly, the end of December 2016. In connection with the settlement, the Provident Financial Group has taken a provision of £172.1 million in its audited consolidated financial statements for the year ended 31 December 2017 which includes (i) the ROP Financial Penalty of £2.0 million, (ii) the Gross Restitution Amount, offset by charged off balances of £26.9 million and less a release of impairment provisions of £14.7 million, resulting in a net restitution payment amount of £127.1 million, (iii) the operational costs associated with these payments (amounting to £12.3 million) and (iv) a contingency in respect of potential additional liability which may arise related to forward flow of complaints in relation to ROP more generally as described below in connection with the ROP (amounting to £30.7 million).

The agreed settlement with the FCA relates to breaches of Principle 6 (Customers' Interests) and Principle 7 (Communications to Customers) of the FCA's Principles for Businesses. In particular, as a result of the failure to disclose during the sales call that ROP was treated as a purchase transaction and that interest would accordingly be charged and accrue on the ROP fee, there was a serious risk that customers agreed to purchase the ROP without understanding the full cost of the ROP and that customers were unaware that interest could be charged on the ROP.

Having agreed this settlement with the FCA, Vanquis Bank will be working with the FCA on a plan to resume sales of a ROP to new customers.

Whilst Moneybarn is continuing to cooperate with the FCA with its ongoing investigation into affordability, forbearance and termination options, and hence the outcome of such investigation remains uncertain, the estimated cost of £20 million, representing management's estimate of the expected outcome in respect of the investigation, has been reflected as an exceptional cost in the Provident Financial Group's audited consolidated financial statements for the year ended 31 December 2017. A final resolution to the investigation is likely to take up to 24 months.

The FCA has conducted a preliminary review regarding certain aspects of the Company's public announcement on 20 June 2017 and the 22 August Announcement and has confirmed that it does not intend to take any further action in relation to the two announcements at the present time. The Company has, however, received a letter on behalf of an institutional investor (which has a number of subsidiary investment funds) asserting, amongst other things, that certain of the Company's earlier announcements were false or misleading and the Company acted dishonestly in delaying the public announcement of information. Whilst the matters alleged on behalf of the institutional investor are complex and the Company is at an early stage of analysing the claims, the Company currently believes the claims by the institutional investor are unmeritorious and considers the prospects of the claims being upheld to be limited. As such, the Company intends to defend its position vigorously and to the fullest extent possible.

The Provident Financial Group is, and has been, subject to various regulatory reviews, requests for information and investigations across the Provident Financial Group. As a consequence of these, the disruption to the Provident Financial Group's Home Credit business following the implementation of its new operating model in July 2017 and the subsequent implementation of the Recovery Plan in response to such disruption, and the FCA's investigation into Vanquis Bank's ROP and the FCA's ongoing investigation into Moneybarn, the Provident Financial Group is subject to enhanced supervision by the FCA as notified to the Provident Financial Group by the FCA Watchlist Letter. The FCA Watchlist Letter requires that the Provident Financial Group: (i) provide the FCA with a draft of an executable wind-down plan for the Provident Financial Group and each of the entities within the Provident Financial Group (and a draft wind-down plan was submitted to the FCA on 31 January 2018 in accordance with this requirement); (ii) successfully executes the Recovery Plan; and (iii) complete a successful turnaround of CCD so that CCD is financially stable and the Provident Financial Group can meet its funding requirements to 2020. Firms placed under enhanced supervision may be required to provide formal commitments, where appropriate, to the FCA to tackle the underlying concerns raised by the FCA and the FCA may also exercise other wide-ranging powers.

Financing Update

The Provident Financial Group has agreed with each of its lenders under the Revolving Credit Facility and the Term Loan Facility that they will amend certain covenants contained in the Revolving Facility Agreement and the Term Loan Agreement to provide the Provident Financial Group with greater covenant headroom to address the impact arising from the disruption at the Home Credit business in 2017 and the impact of the provisions taken by the Provident Financial Group in its audited consolidated financial statements for the year ended 31 December 2017 relating to the settlement of ROP and the ongoing discussions with the FCA in relation to its investigation of issues at Moneybarn. These amendments would cease to have effect if, among other things, the Rights Issue were not to proceed and complete.

The Provident Financial Group has entered into a £85 million bridge loan facility with Barclays Bank PLC and JPMorgan Chase Bank, N.A., London Branch (the "Bridge Facility"). The Bridge Facility will provide the Provident Financial Group with sufficient funds to allow Vanquis Bank to draw down in full the New Intercompany Loan Agreement between the Provident Financial Group and Vanquis Bank, providing Vanquis Bank with an additional £85 million of funding which Vanquis Bank intends to hold as additional liquid resources. The Provident Financial Group plans to repay the Bridge Facility in full using approximately £85 million of the net proceeds of the Rights Issue.

Capital Plan

In finalising its new capital plan reflecting its current and expected capital requirements, the Provident Financial Group has taken into account, amongst other things, (i) the receipt of £300 million net proceeds from the Rights Issue, (ii) the Provident Financial Group's revised dividend policy described below and estimated future levels of dividends to be paid by the Company and Vanquis Bank, (iii) the estimated payments to be made in connection with Vanquis Bank's settlement with the FCA in connection with ROP, (iv) the estimated outcome of the Moneybarn investigation which has been reflected as an exceptional cost of £20.0 million in the Provident Financial Group's audited consolidated financial statements for the year ended 31 December 2017 in connection with the FCA's ongoing investigation into Moneybarn, (v) the amendment of certain covenants under the Revolving Credit Facility and the Term Loan Facility and (vi) management actions planned and proposed to be taken. Provident Financial Group has discussed the capital plan with the PRA. The PRA is familiar with the details of the Provident Financial Group's discussions with the FCA, its current capital position and proposed capital plan, including the Rights Issue.

2017 Financial Results

The Provident Financial Group has today also announced its final results for the year ended 31 December 2017. The Provident Financial Group's adjusted profit before tax in 2017 reduced by 67.3 per cent. to £109.1 million (2016: £334.1 million) and adjusted basic earnings per share fell by 64.8 per cent. to 62.5 pence per share (2016: 177.5 pence per share). Profit before tax reduced by 135.8 per cent. to a loss of £123.0 million (2016: profit £343.9 million) and basic earnings per share reduced to a loss of 90.7 pence per share (2016: earnings 181.8 pence per share).

c.       Culture and governance

The need for change

The Provident Financial Group was founded 140 years ago on a strong social purpose of providing much valued access to credit for customers in the non-standard credit market who often find themselves ignored or under-served by mainstream lenders. The Provident Financial Group's customers, who come from many different walks of life, have always valued highly the way we provide access to credit closely tailored to their needs and the realities of their lives, often involving smaller sums, shorter terms and more flexible repayment options. Customers on modest and less predictable incomes want, and deserve, access to credit to help them cope with everyday challenges, and to allow them to participate fully in the traditional and online economies.

Recent events have demonstrated that although the Provident Financial Group's intentions were good in what it was seeking to do for customers, its delivery methods and its culture and governance around them have not always been at the high standards it would have wished.  As a result of these shortcomings, it is clear to the Board that the Provident Financial Group needs to address its culture and governance, refocusing on the customer first, thereby improving its regulatory compliance and as a result begin to rebuild and enhance its reputation with regulators. Malcolm Le May has a clear agenda of engagement to address these issues that the Board fully supports.

Actions taken and planned

The Provident Financial Group has now completed an initial review of its governance arrangements. The Provident Financial Group has identified where enhancement and change was needed to ensure greater Board effectiveness, clarity of Group purpose and divisional roles and responsibilities, and significantly improve Group risk and conduct management.

Following completion of the review, the Provident Financial Group has:

(a)           brought together all of its senior Executive and Non-Executive management from the whole of the Provident Financial Group to discuss where it has fallen short and why, what the Provident Financial Group's aspirations are going forward and what needs to change within the Provident Financial Group as a result;

(b)           appointed a new Group Chief Executive Officer and initiated the recruitment of a new external Chairman;

(c)           reaffirmed a clear purpose, vision, mission and set of values which are centred firmly on the customer, and helping customers to help themselves to build brighter financial futures;

(d)           re-initiated a clear and consistent 'tone from the top' from the Board in line with these customer-centric values that also emphasises the need to collaborate more effectively and work together across the Provident Financial Group;

(e)           provided greater clarity over the roles and responsibilities of each of the divisions as well as those that exist at the broader Provident Financial Group level, and in doing so begun to disseminate the more consistent and clear vision, mission and values more widely; 

(f)           initiated the recruitment of two additional new Non-Executive Directors with directly relevant experience (and in line with a Board skills needs assessment), to work alongside the new CEO to deliver on the Board's vision;

(g)           established a Group Chief Risk Officer (the "Group CRO") role for the first time who will, once appointed, work closely with the Board and the CEO to provide Group-wide oversight of governance, risk and conduct and ensure that these all remain a key focus of the Provident Financial Group and appointed an interim Group Chief Risk Officer ("Interim Group CRO");

(h)           re-constituted a wider Executive Committee which will play a far greater part in delivering on the Provident Financial Group's vision and in enhancing the information flows and control between the Provident Financial Group and its divisions;

(i)            begun the recruitment of a number of Executives to create key Provident Financial Group functions. An interim IT Strategy & Procurement Executive has been appointed and the Provident Financial Group also intends to appoint a Group HR Executive. These appointments are intended to improve coordination, cooperation and efficiency across the Provident Financial Group in pursuit of its aims and in support of the Executive Committee; and

(j)            begun the process of establishing a new Board Committee, to be chaired by one of the new Non-Executive Directors noted above, focusing on the customer, culture and ethics to help drive changes in behaviours and attitudes across the Provident Financial Group.

The changes listed above have already been implemented or initiated. Additional changes are planned in the longer-term through to 2020 in order to continue to refocus the culture on the customer first thereby improving the Provident Financial Group's regulatory compliance, and the Provident Financial Group will reassess its structure to ensure the changes the Provident Financial Group has made endure.

The Provident Financial Group plans to realign its culture more closely around the developing needs of the customer, and to better coordinate and cooperate internally across its businesses to deliver better customer outcomes more efficiently as a result.  More specifically, the Provident Financial Group plans to focus on helping customers on their creditworthiness journey where possible, helping them to help themselves build brighter financial futures, using all of its resources and offers, going beyond granting the much valued financial inclusion to as many people as is responsible within each area of the Provident Financial Group.

Remuneration has an important part to play in realigning the Provident Financial Group's culture. The Provident Financial Group plans to continue to operate within the constraints of the remuneration policy approved by Shareholders at the 2017 AGM.  However, in light of recent events and the latest Shareholder feedback, in the short-term the Provident Financial Group has reduced Director remuneration so as to operate well within the parameters of the current policy.  In addition to reducing the level of pension and benefits for new Executive Director appointments, the Provident Financial Group plans to make no further grants of matching shares under the performance share plan ("PSP"), although part of the annual bonus will continue to be deferred for three years. For awards under the Provident Financial Group's Long Term Incentive Scheme ("LTIS") the Provident Financial Group plan to change the performance condition from absolute Total Shareholder Return ("TSR") to a more common relative TSR metric, in relation to a suitable comparator group for all new grants. LTIS awards and the annual bonus for senior management will also be subject to a more rounded set of metrics designed to improve performance and culture.  Furthermore, the Provident Financial Group plans to introduce a post-vesting sale restriction period of two years to all new LTIS grants, and has enhanced the withholding (malus) and recovery (clawback) provisions currently in place. In the longer-term, the Provident Financial Group will work with external advisors to develop a more comprehensive balanced scorecard approach to performance management with an appropriate balance of financial, customer, risk and strategic metrics which is reflected in a revised executive remuneration policy to support the Provident Financial Group's desired culture and approach to greater coordination of Provident Financial Group resources for the benefit of customers.  In due course any proposed new remuneration policy will be discussed fully with Shareholders and submitted for their approval thereafter at a subsequent AGM.

Given the position of the Provident Financial Group in the non-standard credit sector, there is an opportunity and an expectation that the Provident Financial Group will lead by example, becoming a true champion for less creditworthy customers and taking positive steps to help them.  The Provident Financial Group plans to leverage the newly established role of Group CRO (once appointed) to champion the interests of the customer internally and thereby begin to transform the nature of our interactions with regulators and provide greater consistency and coordination across its regulated businesses. The Provident Financial Group has begun to build and staff a Group Risk and Compliance function for the first time under the leadership of the Interim Group CRO. This new function will be responsible for leading the design and implementation of the governance and risk management changes required, with a view to improving Provident Financial Group oversight of divisional risk and compliance functions. The Interim Group CRO is, and once appointed, the permanent Group CRO will be, responsible for maintaining involvement in all regulatory interactions across the Provident Financial Group so as to ensure consistency with the culture, direction and risk appetite set by the Board, reflecting the greater importance the Provident Financial Group is placing on its key regulatory relationships.

Having taken action to strengthen governance in the short-term, the Provident Financial Group believes that it is well placed to address the longer-term matter of implementing an appropriate corporate structure, including the nature and interaction of the regulated entities within the Provident Financial Group.  The Provident Financial Group, under the direction of our new CEO, will consider all opportunities to improve coordination and organisation of resources to deliver better customer outcomes and regulatory interactions in a more effective and efficient manner.  In evaluating these opportunities the Provident Financial Group aims to carefully balance the benefits and advantages of any changes with the costs and risks involved, in light of the need to continue to grow its businesses and adapt to the changing external environment.

d.       The Provident Financial Group's Strategy

Future prospects

The Directors believe that the Provident Financial Group plays an important social purpose in providing access to credit to the approximately 10 to 12 million people (equivalent to approximately 25 per cent. of the UK adult population as at 31 December 2017) in the UK non-standard market which remains in demand and highly valued.  The Directors believe that the need and demand for responsibly provided affordable credit, delivered in a way that is tailored to the needs of non-standard customers, remains strong across the product sectors in which the Provident Financial Group operates.  Therefore, the Directors believe that there remains an attractive opportunity for specialised non-standard lenders such as the Provident Financial Group in the UK.

The Directors believe that the Provident Financial Group's businesses have strong positions in their respective markets, and that the future prospects of the Provident Financial Group's businesses will be strengthened by the governance and cultural changes already made and planned as noted above.  The Directors believe that a target ROA of approximately 10 per cent. per annum alongside receivables growth of between 5 and 10 per cent. per annum is both achievable and sustainable for the Provident Financial Group as the Home Credit business moves to profitability in 2019, subject to economic conditions. 

The actions required to refocus on the customer first, as outlined above, together with any further actions that may be required, will result in a moderation of returns, however, the Directors believe that the Provident Financial Group's businesses have strong customer focused growth strategies going forward which position them well to deliver attractive returns for shareholders:

•               Vanquis Bank aims to maintain its leading position in non-standard credit cards, continue to expand into the nearer prime sector and develop an instalment loans business.

•               CCD aims to rebuild its market leading position in home credit based on a differentiated approach to customer service and compliance in the sector.

•               Satsuma aims to move into profitability and develop the business beyond HCSTC into longer term loans at lower APRs and revolving credit offers.

•               Moneybarn aims to maintain its leadership position in non-standard car finance through widening its channel presence and product range including building a larger direct business.

Underpinning the plans of each of the businesses is the effective use of proven new technologies to deliver better customer experiences and deliver them more efficiently.  The Directors believe that the Provident Financial Group has successfully evolved its product offering and operations over time through the deployment of new technologies and sophisticated techniques that better meet customer needs, help demonstrate compliance with regulatory requirements and increase efficiency.  For example, in Vanquis Bank non-voice promises to pay from customers have surpassed call centre interactions as customers increasingly want to use online, automated, app-based and mobile account management options introduced by the business.  Across the Provident Financial Group, apps have been successfully deployed and developed to replace paper and manual processes, as well as to interact more effectively with customers in the way they prefer.  The Provident Financial Group plans to continue to evolve and seek to use new proven technologies to meet the needs and preferences of its customers better, and improve the efficiency of resources deployed in serving them.  For example, the Provident Financial Group is developing innovative ways to help customers understand and monitor their financial health more clearly and simply, along with the options open to them that could help improve their standing or reduce the overall costs of borrowing.  This use of technology also makes it easier for customers to take action based on an up to date and comprehensive view of their situation.

The Provident Financial Group's businesses have worked together very effectively in certain areas to share resources and expertise, such as Vanquis Bank's collections capabilities which support Satsuma.  There are also some areas where supplier relationships have been successfully shared and leveraged, and where shared customer relationships have been piloted.  However, the Provident Financial Group's businesses have largely been developed and operated separately which provides an opportunity to serve customers better and improve efficiency over time by implementing greater coordination and cooperation going forward.  The Provident Financial Group will increasingly seek to drive the building and organising of its resources and skills by what serves the customer needs the best, in the most efficient way, rather than necessarily being based on individual businesses operating in isolation. The Provident Financial Group's revised approach will also help implement the cultural shift that the Provident Financial Group is seeking to achieve resulting in a more seamless Provident Financial Group product offering and customer progression.

Capital, balance sheet and financial model

The Provident Financial Group is taking necessary action to raise additional capital to meet the costs of resolving the investigation by the FCA into Vanquis Bank's ROP, restore the Provident Financial Group's prudent capital position, seek to maintain the Provident Financial Group's investment grade rating and re-establish normal access to funding from the bank and debt capital markets. The Provident Financial Group intends to redirect its strategic focus toward the customer, improve governance and oversight, and work towards delivering consistently strong performance once again.

Following a thorough review of the various options available to the Provident Financial Group to improve its capital position vis-a-vis the Provident Financial Group's short- and medium-term priorities, the Board has decided to pursue a fully underwritten Rights Issue. Taking into account the receipt by the Company of the net proceeds of the Rights Issue and the intended use of proceeds, on a pro forma basis the CET1 capital ratios of the Provident Financial Group (on a consolidated basis) and Vanquis Bank (on a solo basis) would have been 28.7 per cent. and 25.4 per cent., respectively, as at 31 December 2017, representing an accretion of 14.2 per cent. and 3.8 per cent., respectively, from the CET1 ratios of the Provident Financial Group and Vanquis Bank as at 31 December 2017. The Board believes that this level of capital is aligned with leverage expectations for investment grade credit status, and as such, the Provident Financial Group expects to re-establish normal access to funding from the bank and debt capital markets which have been negatively impacted by the uncertainty relating to the outcome of the FCA's investigation into Vanquis Bank's ROP as access to funding was restricted and/or available only at a price and on terms which the Company did not consider to be in the best interests of the Provident Financial Group.

To support the delivery of the Provident Financial Group's strategy, it will seek to continue to operate a financial model that is founded on investing in capital generative businesses offering a good return, and which aligns the dividend policy with a strong capital base and future growth plans.

Having taken steps focused on ensuring that the customer comes first, the Board accepts that returns will moderate as a result, although the Directors believe that they will continue to remain attractive.  The Board considers that a target ROA of approximately 10 per cent. is a sustainable level of return for the Provident Financial Group as the Home Credit business moves to profitability in 2019, after taking account of the outcome of the FCA's investigation into Vanquis Bank's ROP, meeting forthcoming changes in regulation which include anticipated changes arising out of the FCA's Credit Card Market Study and CP17/27 ("Assessing creditworthiness in consumer credit") and delivering good customer outcomes. The Directors also believe that there are attractive growth opportunities available to each of the Provident Financial Group's businesses within the non-standard credit market which would allow for receivables growth of between 5 and 10 per cent. per annum, subject to economic conditions and maintaining the Provident Financial Group's minimum returns thresholds.

The minimum capital requirement of the Provident Financial Group is 25.5 per cent. CET1 capital ratio (which includes an additional capital requirement of £96 million in respect of conduct and operational risk compared with the previous TCR set by the PRA). The Board expects to maintain a suitable level of headroom against such regulatory capital requirements and an efficient capital structure to support ongoing access to funding from the bank and debt capital markets.

Based on the target level of returns and maintaining an appropriate capital structure, the Provident Financial Group's dividend policy is to maintain a dividend cover ratio of at least 1.4 times once the Home Credit Recovery Plan has been fully delivered during 2018.

The Board remains strongly committed to the payment of future dividends and delivering long-term value to shareholders. The Provident Financial Group will therefore aim to restore dividends with a nominal initial dividend for the financial year ending 31 December 2018 before adopting a progressive dividend, in line with the above dividend policy, from the financial year commencing 1 January 2019.

The Directors believe that with the proceeds of a successful Rights Issue deployed, the business model is attractive and sustainable within a robust governance and oversight framework, and the future prospects of the Provident Financial Group are strong. The Directors also believe that the Provident Financial Group offers an attractive proposition for shareholders based firmly on good outcomes for customers and a sound financial model.

3.     Use of Proceeds

The Provident Financial Group is seeking to raise additional capital of approximately £300 million (£331 million gross proceeds before deduction of expenses of approximately £31 million) through the Rights Issue.

The net proceeds of the Rights Issue will be used to bolster the Provident Financial Group's regulatory capital position to enable it to meet its current and future regulatory capital requirements, as well as strengthen its balance sheet with the appropriate level of buffers in order to enable it to capture underlying organic growth opportunities, seek to maintain the Provident Financial Group's investment grade rating and re-establish normal access to funding from the bank and debt capital markets.

The provisions that have been made by the Provident Financial Group in its audited consolidated financial statements for the year ended 31 December 2017 in connection with (i) resolving the FCA's investigation in relation to Vanquis Bank's ROP and (ii) Moneybarn's estimated liability in connection with the FCA's ongoing investigation into Moneybarn have depleted the Provident Financial Group's regulatory capital, with the CET1 capital ratio of the Provident Financial Group reducing to 14.5 per cent. as at 31 December 2017.  The receipt of the £300 million net proceeds of the Rights Issue will result in an accretion of the Provident Financial Group's CET1 capital ratio of 14.2 per cent., to 28.7 per cent. as at 31 December 2017 on a pro forma basis which the Directors believe will provide the Provident Financial Group with an appropriate level of regulatory capital to meet its current and future requirements. Additionally, the Company will inject approximately £50 million of the net proceeds of the Rights Issue into Vanquis Bank by way of a subscription of equity, as an additional management buffer, resulting in an accretion of Vanquis Bank's CET1 capital ratio of 3.8 per cent., from 21.6 per cent. as at 31 December 2017 to 25.4 per cent. on a pro forma basis.

The Company expects to use the net cash proceeds to: (i) inject approximately £50 million into Vanquis Bank by way of a subscription of equity, as an additional management buffer; (ii) repay the £85 million outstanding in full under the Bridge Facility; and (iii) £165 million to create further funding headroom, through either increasing cash held on deposit or repaying borrowings, under the Revolving Credit Facility.

The proceeds from the Bridge Facility will be used to increase the liquid resources held by Vanquis Bank. To enable Vanquis Bank to reduce reliance on the Company over the medium-term, on 26 February 2018 the Company and Vanquis Bank terminated the existing £140 million committed facility provided by the Company to Vanquis Bank (the "Existing Intercompany Facility") under the existing intercompany loan agreement entered into by the Company and Vanquis Bank (the "Existing Intercompany Loan Agreement") and entered into a new intercompany loan agreement (the "New Intercompany Loan Agreement") providing for a new £125 million committed facility until a repayment date of 30 June 2020 (with the Company having the ability to extend the repayment date for a further period of 30 months or any such shorter period as the Company and Vanquis Bank may agree) (the "New Intercompany Facility"). Pursuant to the New Intercompany Loan Agreement, all amounts outstanding and accrued under the Existing Intercompany Facility have been deemed advanced as a term loan of £40 million under the New Intercompany Facility and the Existing Intercompany Loan Agreement has ceased to have any further force or effect.  The remaining available amount under the New Intercompany Facility will be drawn prior to the settlement of the Rights Issue and funded by borrowings by the Company under the Bridge Facility. The New Intercompany Loan Agreement also amends certain commercial terms as compared to those contained in the Existing Intercompany Loan Agreement, including the maturity date and the interest rate payable thereunder. Vanquis Bank will use the funding provided under the New Intercompany Loan Agreement to increase its liquid resources to compensate for the reduction in the undrawn committed headroom previously available from the Company. The capital injection into Vanquis Bank will result in a buffer above its capital requirements and will be used by Vanquis Bank, together with its cash and funding from retail depositors, to: (i) pay for the costs of resolving the FCA's investigation into Vanquis Bank's ROP which are currently expected to amount to approximately £172.1 million; and (ii) subject to the liquidity profile of Vanquis Bank continuing to be satisfactory and, potentially, regulatory approval, repay the remainder of the New Intercompany Facility, as detailed above, from the Company by 2019, with Vanquis Bank being fully funded through retail deposits thereafter.

The Board continues to believe in the strong growth opportunities available to the Provident Financial Group's attractive businesses and aims to leverage the Rights Issue and its revised strategy to build a robust foundation for the long-term strength of the Provident Financial Group. The Board remains confident of the Provident Financial Group's underlying prospects and value, and is committed to restoring sustainable earnings growth and reliable operational performance, together contributing to attractive future shareholder returns.

4.     Principal Terms of the Rights Issue

The Company is offering 104,998,731 New Ordinary Shares by way of the Rights Issue at 315 pence per New Ordinary Share. The New Ordinary Shares are being offered to Qualifying Shareholders. The Rights Issue is expected to raise approximately £300 million (net of expenses).

The Issue Price represents a discount of approximately:

•               46.4 per cent. to the Closing Price of 588 pence on 26 February 2018 (being the last Business Day prior to the date of this letter); and

•               33.7 per cent. to the theoretical ex-rights price of 475 pence, based on the Closing Price on 26 February 2018.

The Rights Issue will be made on the basis of:

17 New Ordinary Shares for every 24 Existing Ordinary Shares

held by Shareholders at close of business on the Record Date (being 19 March 2018).

Entitlements to New Ordinary Shares will be rounded down to the next lowest whole number (or to zero in the case of Qualifying Shareholders holding fewer than two Existing Ordinary Shares). Fractions of New Ordinary Shares will not be allotted but will be aggregated and, if possible, sold, nil paid. The net proceeds of such sales (after deduction of expenses) will be aggregated and will be for the account of the Company.

The Rights Issue is fully underwritten by the Underwriters pursuant to the Underwriting Agreement.

The Rights Issue will result in 104,998,731 New Ordinary Shares being issued (representing approximately 70.8 per cent. of the existing issued share capital and 41.5 per cent. of the enlarged issued share capital immediately following completion of the Rights Issue.

Invesco Limited and certain discretionary managed investments funds (acting through Woodford Investment Management Limited as their agent and discretionary investment manager), who in aggregate hold Ordinary Shares representing approximately 48 per cent. of the Ordinary Shares, are supportive of the Company's plans and the Rights Issue.

The Rights Issue is conditional, amongst other things, upon Admission becoming effective by no later than 8.00 a.m. (London time) on 22 March 2018 (or such later time and/or date, being not later than 16 April 2018, as the Company and the Underwriters may agree).

Application will be made to the UK Listing Authority and to the London Stock Exchange for the New Ordinary Shares to be admitted to the premium listing segment of the Official List and to trading on the main market for listed securities of the London Stock Exchange. It is expected that Admission will become effective and that dealings in the New Ordinary Shares (nil paid) on the London Stock Exchange will commence at 8.00 a.m. on 22 March 2018.

The New Ordinary Shares will rank equally with other Ordinary Shares in all respects, including the right to receive other dividends and distributions (if any) made, paid or declared after the date of issue.

The Rights Issue has been structured in a way that is expected to have the effect of providing the Company with the ability to realise distributable reserves approximately equal to the net proceeds of the Rights Issue less the nominal value of the New Ordinary Shares issued by the Company.

5.     Overseas Shareholders

The attention of Overseas Shareholders who have registered addresses outside the UK, or who are citizens of or resident or located in countries other than the UK, is drawn to the information which will appear in paragraph 2.6 of Part III "Terms and Conditions of the Rights Issue" of the Prospectus, once available.

6.     Shareholder Authorisation And General Meeting

A notice convening a General Meeting to be held at the offices of Clifford Chance LLP at 10 Upper Bank Street, London E14 5JJ at 11.00 a.m. on 21 March 2018 at which the Resolution will be proposed is set out in the Circular. The purpose of the General Meeting is to consider and, if thought fit, pass the Resolution as summarised below and set out in full in the Notice of General Meeting contained in the Circular.

Because of the size of the Rights Issue, the Shareholder authorities granted under the resolution passed at the AGM held on 12 May 2017 are not sufficient for the Rights Issue, and accordingly further Shareholder authority for the allotment and issue of the New Ordinary Shares is required.

The Resolution is an ordinary resolution to provide the Directors with the necessary power and authority to allot sufficient Ordinary Shares to undertake the Rights Issue, which will expire at close of business on 31 December 2018. This resolution will pass if more than 50 per cent. of the votes cast (either in person or by proxy) are in favour.

7.     Importance of Vote

The deterioration in trading at the Provident Financial Group's Home Credit business following implementation of its new operating model, and the provisions that have been made by the Provident Financial Group in its audited consolidated financial statements for the year ended 31 December 2017 in connection with (i) resolving the FCA's investigation in relation to Vanquis Bank's ROP and (ii) Moneybarn's estimated liability in connection with the FCA's ongoing investigation into Moneybarn, the Provident Financial Group's headroom in respect of certain of its financial covenants under its Revolving Facility Agreement and Term Loan Agreement, eroded Vanquis Bank's regulatory capital position and resulted in the Provident Financial Group being non-compliant with its TCR, together with the fixed add-on in respect of pension risk, (previously ICG), countercyclical buffer, capital conservation buffer and capital planning buffer requirements.

The Provident Financial Group has agreed with its lenders under each of the Revolving Facility Agreement and the Term Loan Agreement, pursuant to the terms of the Consent Request Letters, that such lenders will, among other things grant a temporary reduction in (a) the minimum level of the Interest Cover Ratio Covenant for the 12 months ending 31 March 2018 and the 12 months ending 30 June 2018 from a level of 2.0 times to 1.25 times; (b) the requirement that the Net Worth Covenant in respect of the year-end date falling on 31 December 2017 and the quarter-end date falling on 31 March 2018, such that consolidated net worth shall not be less than £375,000,000; and (c) the requirement that the Net Worth Excluding Vanquis Bank Covenant in respect of the year-end date falling on 31 December 2017 and the quarter-end date falling on 31 March 2018, such that consolidated net worth less Vanquis Bank net worth shall not be less than £100,000,000. The lenders also gave certain waivers of defaults or events of default resulting from any matter relating directly to the investigations by the FCA into Vanquis Bank's ROP and certain aspects of Moneybarn's business and/or any agreements reached with the relevant authorities in relation to such investigations.

The amendments granted pursuant to the terms of the Consent Request Letters provide the Provident Financial Group with greater covenant headroom under the terms of the Revolving Facility Agreement and the Term Loan Agreement but will cease to have effect if, among other things, the Company has not received the net proceeds from the Rights Issue within three months of the date hereof or the Underwriting Agreement or the Bridge Facility Agreement ceases to be effective or is terminated.

If the Rights Issue were not to proceed, for example, if the Resolution was not passed or any of the other conditions in the Underwriting Agreement were not satisfied or waived by 16 April 2018 being the long-stop date specified in the Underwriting Agreement, either Underwriter (after prior consultation with the Company to the extent reasonably practicable) would have the right to terminate the Underwriting Agreement in accordance with the terms of the Underwriting Agreement. 

Termination of the Underwriting Agreement is an event of default under the Bridge Facility Agreement giving the lenders under such facility the right to accelerate the repayment of all amounts owing thereunder, as well as an event upon which the amendments and waivers granted pursuant to the Consent Request Letters would cease to be effective. As such, prior to the occurrence of such event or circumstance, the Company would urgently seek to enter into discussions with the Underwriters with a view to seeking to resolve the issue.  The Provident Financial Group would also seek to enter into discussions with its lenders under the Bridge Facility, the Revolving Credit Facility and the Term Loan Facility, the Bondholders and the PRA with a view to reaching an agreed solution as quickly as possible.  Those discussions might include seeking to obtain alternative committed facilities and/or carry out disposals of assets or businesses and/or the amendment or restructuring of some or all of the Provident Financial Group's indebtedness or a combination of some or all of these measures, and the ability of the Provident Financial Group to achieve all or any of these measures may depend on first obtaining a standstill agreement among the relevant creditors not to demand repayment for a sufficient period of time to allow such measures to be negotiated and implemented.

If either of the Underwriters were not willing to waive its right to terminate the Underwriting Agreement (assuming it would be capable of waiver) and the Provident Financial Group were unable to obtain an alternative source of capital or carry out disposals of assets and business or obtain agreement to a full or partial debt restructuring, the lenders under the Bridge Facility could decide to accelerate repayment of all amounts owing thereunder. This in turn would result in the Provident Financial Group being in default under the Revolving Credit Facility and the Term Loan Agreement giving the lenders under each of those facilities the right to accelerate all amounts owing thereunder and the Bondholders the right to accelerate repayment of all amounts owing under the Outstanding Bonds. The Provident Financial Group (on a consolidated basis) would continue to be in breach of the minimum level of regulatory capital which the PRA expects the Provident Financial Group (on a consolidated basis) to hold (known as the Provident Financial Group's Total Capital Requirement or "TCR", together with the fixed add-on in respect of pension risk, previously Individual Capital Guidance or "ICG"), as well as its current own internal assessment of its minimum regulatory capital requirements.  In such event, the Company would, in all likelihood, intend to follow the steps in its wind-down plan which has been discussed with the FCA in draft form and its recovery and resolution plan, and the PRA would have the ability to exercise any of its wide-ranging powers over the Provident Financial Group which could include varying the Provident Financial Group's permissions, restricting the Provident Financial Group's businesses, or, in conjunction with other regulatory bodies and authorities, imposing a resolution procedure on Vanquis Bank and/or any other member of the Provident Financial Group under the Banking Act. Even if the PRA were to exercise forbearance in respect of such breaches of minimum regulatory capital requirements, it could at a later date revisit that decision or the basis upon which any forbearance was granted.

In addition, without the benefit of the net proceeds from the Rights Issue, the Provident Financial Group (on a consolidated basis) would continue to be unable to meet certain regulatory capital requirements. In particular, without the net proceeds from the Rights Issue the Provident Financial Group would continue not to have the minimum level of TCR, together with the fixed add-on in respect of pension risk, previously ICG).  In addition, the Provident Financial Group would continue not to have sufficient capital to meet its current own internal assessment of its minimum regulatory capital requirements.

As such, if the Rights Issue were not to proceed, if the Underwriters were not willing to waive their right to terminate the Underwriting Agreement (assuming any such right is capable of being waived), and a mutually acceptable solution was not found with the Provident Financial Group's lenders under the Bridge Facility, the Revolving Credit Facility and the Term Loan Facility and the Bondholders under the Outstanding Bonds, it might result in insolvency proceedings being initiated against the Provident Financial Group which could result in Shareholders losing all or a substantial amount of the value of their investment in the Company.

As such, Shareholders are asked to vote in favour of the Rights Issue so that, assuming that the other conditions are satisfied, it can proceed.

8.     Directors' Intentions Regarding the Rights

The Directors are fully supportive of the Rights Issue and intend to vote in favour of the resolution to approve the Rights Issue and to either take up in full their beneficial rights or sell sufficient of their rights in order to acquire the balance of their rights to an aggregate of 216,798 New Ordinary Shares under the Rights Issue.

APPENDIX

Definitions

The following definitions shall apply throughout this announcement unless the context requires otherwise:

"2018 Bonds"	the issued £20.0 million in aggregate principal amount of floating rate guaranteed bonds due in March 2018
"2019 Bonds"	the £250.0 million in aggregate principal amount of fixed rate guaranteed bonds due 23 October 2019
"2020 Bonds"	the £25.2 million in aggregate principal amount of fixed rate guaranteed bonds due 14 April 2020
"2021 Bonds"	the £65.0 million in aggregate principal amount of fixed rate guaranteed bonds due 27 September 2021
"2023 Bonds"	the £60.0 million in aggregate principal amount of fixed rate guaranteed bonds due 9 October 2023
"AGM"	Annual General Meeting
"APR"	annual percentage rate
"Banking Act"	UK Banking Act 2009, as amended
"Barclays"	Barclays Bank PLC
"Board" or "Board of Provident Financial plc"	the board of directors of the Company
"Bondholders"	the holders of one or more of the Outstanding Bonds
"Bridge Facility"	the £85 million bridge loan facility entered into on 20 February 2018 with Barclays Bank PLC and JPMorgan Chase Bank, N.A., London Branch as original lenders
"CBI"	Central Bank of Ireland
"CCD"	Consumer Credit Division of the Provident Financial Group
"CEMs"	Customer Experience Managers
"CET1"	common equity tier 1
"Chief Executive Officer" or "CEO"	chief executive officer of the Company
"Circular"	the circular dated 27 February 2018 sent to Shareholders in connection with the General Meeting
"Companies Act"	the UK Companies Act 1948, as amended, the UK Companies Act 1985, as amended or the UK Companies Act 2006, as the context so requires
"CONC"	the FCA Consumer Credit Sourcebook
"CP17/27"	FCA Consultation Paper 17/27
"Credit Card Market Study"	FCA market study 14/6
"Directors"	the Executive Directors and Non-executive Directors of the Company
"Disclosure Guidance and Transparency Rules"	the Disclosure Guidance and Transparency Rules contained in the FCA's sourcebook
"European Union" or "EU"	the European Union
"Eurozone"	those member states of the European Union which have adopted the euro
"Excluded Territories" and each an "Excluded Territory"	Canada, Japan, People's Republic of China, Republic of South Africa and Russian Federation and any other jurisdiction where the extension into or availability of the Rights Issue would breach any applicable law
"Executive Committee"	the Provident Financial Group Executive Committee
"Executive Directors"	the executive directors of the Company
"Existing Facilities Agreement"	together, the Revolving Facility Agreement and the Term Loan Agreement
"Existing Facilities"	the facilities made available under the Existing Finance Agreements
"Existing Ordinary Shares"	the Ordinary Shares in issue as at the date of this Announcement
"FCA Watchlist Letter"	the letter from the FCA to the Provident Financial Group in December 2017
"Financial Conduct Authority" or "FCA"	the Financial Conduct Authority of the UK
"FSMA"	the Financial Services and Markets Act 2000, as amended
"Fully Paid Rights"	rights to acquire the New Ordinary Shares, fully paid
"General Meeting"	the general meeting of the Company to be held at 11.00 a.m. on 21 March 2018 at the offices of Clifford Chance LLP at 10 Upper Bank Street, London E14 5JJ (and any adjournment thereof) for the purposes of considering and, if thought fit, approving the Resolutions
"Group CRO"	Group Chief Risk Officer
"Group"	Provident Financial plc together with its subsidiaries
"HCSTC"	High-Cost Short-Term Credit
"Home Credit" or "Provident Financial Group's Home Credit business"	means the home credit business of the Provident Financial Group provided through Provident
"ICG"	Individual Capital Guidance
"IFRS"	International Financial Reporting Standards as issued by the International Accounting Standards Board
"Issue Price"	315 pence per New Ordinary Share
"Joint Bookrunners"	Barclays and J.P. Morgan Cazenove
"Joint Global Co-ordinators"	Barclays and J.P. Morgan Cazenove
"J.P. Morgan Cazenove"	J.P. Morgan Securities plc (which conducts its UK investment banking business as J.P. Morgan Cazenove)
"Listing Rules"	the Listing Rules made by the FCA under Part VI of FSMA
"London Stock Exchange"	London Stock Exchange plc or its successor(s)
"LTIS"	the Provident Financial Group's Long Term Incentive Scheme
"New Ordinary Shares"	Ordinary Shares to be allotted and issued pursuant to the Rights Issue
"Newco"	PF JerseyCo Limited
"Nil Paid Rights"	New Ordinary Shares in nil paid form to be provisionally allotted to Shareholders pursuant to the Rights Issue
"Non-executive Directors"	the non-executive directors of the Company
"Ordinary Shares"	the ordinary shares of 208/11 pence each in the share capital of the Company (including, if the context requires, the New Ordinary Shares)
"Outstanding Bonds"	the 2018 Bonds, 2019 Bonds, 2020 Bonds, 2021 Bonds and 2023 Bonds
"Overseas Shareholders"	Shareholders with registered addresses outside the UK or who are citizens or residents of, or located in, countries outside the UK
"Provident Financial" or "Company"	Provident Financial plc, a company incorporated under the laws of England and Wales (with registered number 00668987), with its registered office at No. 1 Godwin Street, Bradford, West Yorkshire BD1 2SU.
"Principles for Businesses"	the FCA's Principles for Businesses
"Prospectus Directive"	Directive 2003/71/EC, as amended
"Prospectus"	the prospectus expected to be published on 27 February 2018
"Provisional Allotment Letters"	the renounceable provisional allotment letter expected to be sent to Qualifying non-CREST Shareholders in respect of the New Ordinary Shares to be provisionally allotted to them pursuant to the Rights Issue
"Prudential Regulatory Authority" or "PRA"	the Prudential Regulatory Authority of the UK
"PSP"	the Provident Financial Group's Performance Share Plan 2013
"Qualifying non-CREST Shareholder"	a Qualifying Shareholder holding Ordinary Shares in certificated form
"Qualifying Shareholder"	a holder of Ordinary Shares on the register of members of the Company at close of business on the Record Date with the exclusion (subject to certain exceptions) of persons with a registered address or located or resident in an Excluded Territory
"Receiving Agent"	Link Asset Services
"Record Date"	19 March 2018
"Recovery Plan"	the recovery plan for the Home Credit business which is centred around a revised version of the new operating model, retaining the employed CEM approach and some of the new technology, but improving the ability of the Home Credit business to connect with customers at the right time and place consistently, stabilising the operation of the Home Credit business and improving collections performance
"Republic of Ireland"	the Republic of Ireland
"Resolution"	the ordinary resolution to be proposed at the General Meeting
"Revolving Credit Facility"	has the meaning given in paragraph 16.4 of Part XIV "Additional Information" of the Prospectus
"Revolving Facility Agreement"	has the meaning in paragraph 16.4 of Part XIV "Additional Information" of the Prospectus
"Rights Issue"	the proposed issue by way of rights of New Ordinary Shares to Shareholders on the basis described in this Announcement, the Prospectus (when published) and, in the case of Qualifying non-CREST Shareholders, in the Provisional Allotment Letter
"ROA"	Adjusted Return on Assets
"ROP"	Vanquis Bank's Repayment Option Plan
"Satsuma"	Satsuma Loans, a division of the Provident Financial Group, which provides on-line unsecured loans
"Shareholder" or "Provident Financial Shareholder"	a holder of Ordinary Shares
"Sponsor"	J.P. Morgan Cazenove
"Term Loan Agreement"	has the meaning given in paragraph 16.5 of Part XIV "Additional Information" of the Prospectus
"Term Loan Facility"	has the meaning given in paragraph 16.5 of Part XIV "Additional Information" of the Prospectus
"Term Loan Lenders"	the lenders under the Term Loan Agreement
"Underwriters"	Barclays and J.P. Morgan Cazenove
"Underwriting Agreement"	the underwriting and sponsor's agreement dated 27 February 2018 between the Company and the Underwriters relating to the Rights Issue
"United Kingdom" or "UK"	the United Kingdom of Great Britain and Northern Ireland
"United States" or "US"	the United States of America, its territories and possessions, any state of the United States and the District of Columbia
"US Securities Act"	the United States Securities Act of 1933, as amended

 

END

 

 

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