Final Results

Provident Financial PLC 22 February 2001 Preliminary announcement of the final results for the year ended 31 December 2000 H I G H L I G H T S Group + Strong growth in turnover (up 25%) and customers (up 20%) + Profit before tax up 6.9% to £160.2 million + Earnings per share up 10.1% to 47.52p + Full year dividend per share up 10.1% to 27.3p UK home credit + Bad debt ratio down from 8.4% of credit issued to 8.1% International + Targets achieved + Division in profit for second half of 2000 + Customer numbers trebled to 500,000 + Expanding into Hungary and Slovakia in 2001 Motor insurance + Record year - profit up 20% to £30.5 million 'Improving quality at home and growth overseas best summarise the considerable progress we have made in 2000. The board is confident of a good result for 2001, delivered by a combination of responsible lending in the UK and rapid international growth, supported by another strong performance from motor insurance.' John van Kuffeler Chairman 22 February 2001 Enquiries: Today Thereafter Media David Stevenson 020 7628 5646 01274 731111 Investor Relations Elizabeth Bottomley 020 7628 5646 01274 731111 Chairman's statement I am pleased to announce a year of excellent progress at home and overseas. We achieved strong growth during 2000, with group turnover up by 25% to £728 million and group customer numbers up by 20% to 3.2 million (1999 2.7 million). Group profit, as adjusted for the additional interest costs of debt used to fund share buy-backs, increased by 6.9% to £160.2 million, (1999 £ 155.0 million). Earnings per share increased by 10.1% from 43.15p to 47.52p per share. These group results are after investment of £6.7 million in start-up losses in our international division (1999 £8.4 million). The directors recommend a final dividend of 16.4p (1999 14.9p) giving a dividend for the year of 27.3p per ordinary share (1999 24.8p), an increase of 10.1%. Operations Improving quality at home and growth overseas best summarise the considerable progress we have made in home credit. The UK home credit division has had success in improving the quality of credit issued and the effectiveness of its field force. As a result, bad debt as a percentage of credit issued fell from 8.4% in 1999 to 8.1% in 2000. Collections increased by 6.7% to £1.24 billion, benefiting from the improved collection performance achieved in 2000. Growth in customer numbers, at 1.2%, and credit issued, at 4.4%, reflect our determination to maintain the quality of our lending. Turnover rose by 8.2% to £457 million. Profit before tax increased by 2.1% to £147.0 million (1999 £143.9 million). The international division has performed exceptionally well. We more than trebled our customer numbers from 149,000 to 500,000 and the rate of customer growth has accelerated: in the first half of the year customer numbers grew by 132,000 and in the second half by 219,000. We also completed national coverage in Poland and the Czech Republic and we are well on the way to achieving the target we set ourselves of over one million customers in these two countries well ahead of our 2005 target date. Most importantly, we turned the corner into profitability in the division in the second half of the year. The motor insurance division also performed very well, benefiting from good conditions in the motor insurance market. Profit was up by 20% to £30.5 million and underwriting policyholders up by 30% to 788,000. The group has been strongly cash generative and in line with our policy to return excess capital to shareholders, we purchased for cancellation 9.4 million shares during the early part of the year at an average cost of 520p per share, reducing shareholders' funds by £49.1 million. A detailed review of operations is given in the Chief Executive's review. Board changes The following board changes complete the succession plans that we began two years ago. Howard Bell, Chief Executive, will retire at the end of September and will be succeeded by Robin Ashton, currently Deputy Chief Executive. Howard has worked for the group for 34 years, serving on the board for the last 12 years. Robin joined the group in 1983 and held senior positions in the motor insurance division and the UK home credit division before becoming Group Finance Director in 1993. In 1999, he was appointed Deputy Chief Executive. Peter Bretherton, Director of Corporate Affairs, will retire at the end of the Annual General Meeting on 26 April. He has worked for the group for 23 years, the last 17 years as a director. Chris Johnstone, Managing Director of the UK home credit division, and David Swann, Managing Director of the international division, will join the board at the AGM on 26 April, retaining their current responsibilities. Chris has worked for the group for 17 years and was Managing Director of the motor insurance division before moving to head the UK home credit division in 1999. David joined the group in 1973. He has led the international division since its inception in 1997 and previously held senior positions in the UK home credit division. Prospects In 2001, we will continue the shift from being largely UK based to becoming a sizeable international business. The UK home credit division will continue to concentrate on maintaining the quality of its lending in 2001. Customers, credit issued and profit are therefore expected to grow at similar rates to those in 2000. The bad debt ratio is expected to remain at or around the current level. The international division's customer numbers, credit issued and profit are expected to grow rapidly. In the spring of 2001, we plan to open offices in Hungary and Slovakia. We will begin with pilot operations and if these prove successful move to a controlled national roll-out within the year. The division as a whole is on target to report a profit in 2001, after bearing start-up losses of £4 million in developing Hungary and Slovakia, and to earn increasing levels of profit thereafter. We are firmly convinced that home credit is a service with considerable international appeal, providing an excellent investment opportunity. The motor insurance market is cyclical and we are currently benefiting from conditions towards the top of the cycle. We expect another good result in 2001, but with premium increases broadly similar to claims cost inflation and lower investment yields, profit is expected to increase less rapidly than in 2000. The board is confident of a good result for 2001, delivered by a combination of responsible lending in the UK and rapid international growth, supported by another strong performance from motor insurance. John van Kuffeler Chairman 22 February 2001 Chief Executive's review Strategy The board has a clear strategy for the development of the group. Our aim is to be a leading international provider of simple financial services. During 2000, we made good progress towards this goal. Home credit will remain the bedrock of the business. The UK market is expected to continue to provide attractive returns. We will also seek new opportunities for growth by extending the range of financial services we offer. Our international expansion will provide strong growth. Building on the success already achieved, we intend to launch our service in at least one new country each year. The strategy for our motor insurance business remains unchanged. It is to concentrate on our specialist market in the UK and to manage the business to earn attractive margins rather than maximise market share. UK home credit division During 2000, in the context of a demanding market, the UK home credit division did well to achieve its major objective of improving bad debts. Bad debt as a percentage of credit issued fell from 8.4% in 1999 to 8.1% in 2000. Our focus on quality was achieved by slowing growth in customer numbers, by more cautious lending and by improving customer care through a strengthening of our field force that cost £7 million. Customer numbers grew by 1.2% (1999 4.6%) and credit issued increased by 4.4% (1999 5.2%). Agent numbers increased by 3.9% (1999 6.7%), a little ahead of customer growth. We were pleased that during this year of investment we were able to increase profit before tax by 2.1% to £147.0 million (1999 £143.9 million). Looking forward to 2001, we expect the current conditions in the home credit market to continue. More widespread availability of credit is a feature of the sustained period of economic growth seen in the UK economy. We are close to our customers and this gives us crucial advantages over an economic cycle in providing credit responsibly to our target market. Our agents, the majority of whom are women, live in the communities where they work and often build up close relationships with their customers. With an average service of seven years, they are often the first people our customers talk to about financial matters. This allows us to make continuous and informed credit assessments and to lend responsibly. We are determined to maintain our focus on quality and so we will continue to be cautious in customer recruitment and lending. International division During 2000, our international operations produced an excellent performance. We more than trebled our international customer numbers, from 149,000 to 500,000. We also more than doubled our workforce of staff and agents to just over 10,000, opening 51 new locations. Turnover increased from £9 million to £ 42 million and credit issued was up from £29 million to £121 million. The figures alone do not adequately reflect the hard work and the scale of the achievements of our international team. In just over 18 months, we have recruited and trained almost 8,000 staff and agents, we have built a full national branch network in the Czech Republic and Poland and have turned the corner into profitability. In South Africa, we have successfully expanded in the Pietersburg area of the Northern Province and we now have 34,000 customers. The excellent repayment record of our international customers has continued, with underlying bad debt at around 6% of credit issued in the Czech Republic and Poland and 8% in South Africa. During the second half of 2000 the division achieved its main objective of moving into profit, reporting a second half profit of £0.2 million after start-up losses of £6.9 million in the first half. The Czech Republic, the division's most advanced market, earned a second half profit of £1.5 million turning a first half loss of £1.4 million into a profit of £0.1 million for the year. These results prove that we have the ability to build and manage overseas operations successfully and to bring these operations to profit. Using these skills, we intend to open offices in Hungary (population 10 million) and Slovakia (population 5 million) during the spring of 2001. In South Africa we intend to continue with cautious expansion, restricting total receivables to no more than £5 million and we are on track to move into profit during the year. In Poland and the Czech Republic we have completed our national branch network and we will focus on rapid customer growth and expect both countries to be profitable for 2001. Motor insurance division Our motor insurance division produced record results with strong performances from both underwriting and broking. Profit before tax for the division increased by 20% to £30.5 million. In our underwriting business, we continue to focus on the market we know best - non-comprehensive insurance for women drivers, drivers of second cars, older cars and those who do low mileage. One of our key strengths is our ability to transact low-value policies cost effectively. During 2000, we increased our premiums by 17% as compared to 1999. With premium increases in the market averaging 20%, our continued improvement in price competitiveness resulted in a 30% increase in policyholders from 606,000 to 788,000. We also benefited from the substantial income from our large investment fund which, during 2000, grew by 17.5% to £343 million. These positive factors combined to increase the profit in our underwriting business to £30.1 million (1999 £24.2 million). Our insurance broking business also benefited from rising premiums in the motor market and reported profit was up by 18.8% to £1.9 million (1999 £1.6 million). The division has also led a pilot of a new budgeting service for paying household bills called balance. The pilot in Sheffield has established a nucleus of customers and is testing the concept and appeal of the service. The results are being carefully monitored. The cost of the pilot in 2000 was £1.5 million (1999 £0.4 million). Howard Bell Chief Executive 22 February 2001 Preliminary announcement of the final results for the year ended 31 December 2000 Consolidated profit and loss account 2000 1999 £'000 £'000 Turnover 727,894 582,561 ____________ ____________ Operating profit and profit before taxation 160,219 155,021 Taxation (42,613) (43,406) ____________ ____________ Profit after taxation 117,606 111,615 Dividends (note 3) (65,810) (63,683) ____________ ____________ Retained profit for the year 51,796 47,932 ____________ ____________ Earnings per share (note 4) - Basic 47.52p 43.15p - Diluted 47.27p 42.79p ____________ ____________ Dividend per share (net of tax credit) to ordinary shareholders (note 3) a. Interim - paid 10.9p 9.9p b. Final - proposed 16.4p 14.9p ____________ ____________ Total ordinary dividend 27.3p 24.8p ____________ ____________ Dividend cover is: 1.74 1.75 ____________ ____________ The results shown in the profit and loss account derive wholly from continuing activities. There is no material difference between the retained profit shown above and the historical cost equivalent. Segmental reporting Analyses of turnover and profit before taxation by class of business are set out below: Turnover Profit before taxation 2000 1999 2000 1999 £'000 £'000 £'000 £'000 UK home credit 457,242 422,633 146,985 143,911 International home credit 41,901 8,757 (6,745) (8,434) Motor insurance 228,751 151,171 30,549 25,374 _________ _________ _________ _________ 727,894 582,561 170,789 160,851 Central - - (10,570) (5,830) _________ _________ _________ _________ Total 727,894 582,561 160,219 155,021 _________ _________ _________ _________ Turnover between segments is not material. Central costs for 2000 include an additional £5.1 million of interest costs arising on debt taken to fund the share buy-backs (note 10). The international home credit loss before taxation can be analysed as follows: 2000 1999 £'000 £'000 Poland (2,769) (2,657) Czech Republic 87 (2,679) South Africa (789) (703) Central divisional overheads (3,274) (2,395) ____________ ____________ Total (6,745) (8,434) ____________ ____________ Analyses by class of business are based on the group's divisional structure. Consolidated balance sheet As at 31 December As at 31 December 2000 1999 £'000 £'000 Fixed assets 41,184 36,074 ____________ ____________ Current assets Amounts receivable from customers (note 5) - due within one year 637,706 565,662 - due in more than one year 9,497 9,470 Debtors 162,727 130,342 Investments - realisable within one year 330,000 256,302 - realisable in more than one year - 10,000 Cash at bank and in hand 50,881 42,423 ____________ ____________ 1,190,811 1,014,199 ____________ ____________ Current liabilities Bank and other borrowings (37,133) (23,138) Creditors - amounts falling due within (166,091) (167,315) one year Insurance accruals and deferred income (374,611) (306,660) ____________ ____________ (577,835) (497,113) ____________ ____________ Net current assets 612,976 517,086 ____________ ____________ Total assets less current liabilities 654,160 553,160 ____________ ____________ Non-current liabilities Bank and other borrowings (384,908) (294,144) Provision for deferred taxation (2,566) - ____________ ____________ Net assets 266,686 259,016 ____________ ____________ Capital and reserves Called-up share capital 25,798 26,705 Share premium account 51,638 47,211 Revaluation reserve 1,641 1,641 Other reserves 3,967 2,990 Profit and loss account 183,642 180,469 ____________ ____________ Equity shareholders' funds (note 6) 266,686 259,016 ____________ ____________ Gearing ratio (note 7) 1.58 1.22 ____________ ____________ Consolidated cash flow statement 2000 1999 £'000 £'000 Net cash inflow from operating activities 136,994 128,278 Taxation (49,628) (19,524) Capital expenditure and financial investment 28,264 30,303 Equity dividends paid (63,367) (60,924) Management of liquid resources (98,698) (32,667) Financing 48,938 (34,822) ____________ ____________ Increase in cash in the period 2,503 10,644 ____________ ____________ The cash flow statement above has been prepared in accordance with FRS1 (Revised 1996) 'Cash Flow Statements'. As required by that standard, the statement aggregates the cash flows arising from the motor insurance and home credit divisions. However, the cash and investments held by the motor insurance division are required by its regulators to be strictly segregated from the rest of the group and are not available to repay group borrowings. At 31 December 2000 the cash and investments held by the motor insurance division amounted to £342.5 million (1999 £292.4 million). Reconciliation of net cash flow to movement in net debt 2000 1999 £'000 £'000 Increase in net cash for the period 2,503 10,644 Cash outflow from increase in liquid resources 98,698 32,667 ____________ ____________ 101,201 43,311 Cash inflow from increase in debt (97,766) (297) ____________ ____________ Change in net debt resulting from cash flows 3,435 43,014 Exchange adjustments (1,038) - Net debt at 1 January (53,557) (96,571) ____________ ____________ Net debt at 31 December (51,160) (53,557) ____________ ____________ Analysis of changes in net debt 1 January Cash Other 31 December 2000 flows changes 2000 £'000 £'000 £'000 £'000 Cash at bank and in hand 42,423 8,458 - 50,881 Overdrafts (6,434) (5,955) - (12,389) _______ _______ _______ _______ 35,989 2,503 - 38,492 Investments realisable within 221,302 98,698 - 320,000 one year Bank and other borrowings: - less than one year (16,704) (1,322) (6,718) (24,744) - more than one year (294,144) (96,444) 5,680 (384,908) _______ _______ _______ _______ Net debt (53,557) 3,435 (1,038) (51,160) _______ _______ _______ _______ Other changes include non-cash changes of £6,718,000 and exchange losses of £ 1,038,000. Cash, borrowings and overdraft balances shown above at 31 December 2000 and 1999 agree to the balance sheets at those dates. Investments realisable within one year exclude those current asset investments which are not considered to be liquid resources (being those investments with more than one year to maturity when acquired, but less than one year to maturity at the balance sheet date). Reconciliation of operating profit to net cash inflow from operating activities 2000 1999 £'000 £'000 Operating profit 160,219 155,021 Depreciation 5,935 5,044 Loss on sale of tangible fixed assets 312 128 Increase in amounts receivable from customers (72,071) (43,918) Increase in debtors (33,098) (22,327) Increase in unearned insurance premiums 43,030 21,857 Increase/(decrease) in insurance claims provision 24,608 (7,110) (Decrease)/increase in amounts due to retailers (1,741) 506 Increase in accruals 8,488 5,297 Increase in other liabilities and deferred income 1,312 13,780 ____________ ____________ Net cash inflow from operating activities 136,994 128,278 ____________ ____________ Net cash inflow from operating activities can be analysed as follows: 2000 1999 £'000 £'000 UK home credit 131,320 125,819 International home credit (50,936) (19,480) Motor insurance 67,163 27,935 Central (10,553) (5,996) ____________ ____________ 136,994 128,278 ____________ ____________ Notes - Preliminary announcement of the final results for the year ended 31 December 2000 1. This preliminary announcement, which has been prepared on a basis consistent with the previous year, does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The announcement has been agreed with the company's auditors for release. 2. The information for the year ended 31 December 1999 is an extract from the statutory accounts to that date which have been delivered to the Registrar of Companies. Those accounts included an audit report which was unqualified and which did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2000 upon which the auditors have still to report, will be delivered to the Registrar following the company's annual general meeting. 3. Dividends 2000 1999 £'000 £'000 Interim dividend paid 10.9p (1999 9.9p) 25,421 25,737 Final dividend proposed 16.4p (1999 14.9p) 40,389 37,946 ____________ ____________ 65,810 63,683 ____________ ____________ 4. Earnings per share The basic and diluted earnings per share figures have been calculated using the profit for the year attributed to ordinary shareholders of £ 117,606,000 (1999 £111,615,000) and the weighted average number of shares in issue during the year. The weighted average number of shares in issue during the year can be reconciled to the number used in the basic and diluted earnings per share calculations as follows: 2000 1999 Weighted average number of shares Number Number In issue during the year 250,221,347 262,281,979 Held by the QUEST (2,727,626) (3,640,080) ____________ ____________ Used in basic earnings per share calculation 247,493,721 258,641,899 Issuable on conversion of outstanding options 1,286,831 2,190,714 ____________ ____________ Used in diluted earnings per share calculation 248,780,552 260,832,613 ____________ ____________ The movement on the number of shares in issue during the year is as follows: Number At 1 January 2000 258,690,685 Shares issued pursuant to the exercise of options 37,514 Shares issued to the QUEST 637,887 Shares purchased and subsequently cancelled (10,435,056) ____________ At 31 December 2000 248,931,030 ____________ 5. Amounts receivable from customers 2000 1999 £'000 £'000 a) Instalment credit receivables Gross instalment credit receivables 976,269 878,917 Less: provision for bad and doubtful debts (79,220) (84,771) ____________ ____________ Instalment credit receivables after provision for bad 897,049 794,146 and doubtful debts Less: deferred revenue thereon (249,846) (219,014) ____________ ____________ 647,203 575,132 ____________ ____________ Analysed as: - due within one year 637,706 565,662 - due in more than one year 9,497 9,470 ____________ ____________ 647,203 575,132 ____________ ____________ At 31 December 2000 the net amounts receivable from UK home credit customers were £585,449,000 (1999 £562,052,000) and from international home credit customers were £61,754,000 (1999 £13,080,000). 2000 1999 £'000 £'000 b) Bad and doubtful debts Gross provision at 31 December 79,220 84,771 Less: deferred revenue thereon (24,400) (23,948) ____________ ____________ Net provision at 31 December 54,820 60,823 Net provision at 1 January (60,823) (53,229) ____________ ____________ (Decrease)/increase in provision (net of deferred (6,003) 7,594 revenue) Amounts written off (net of deferred revenue) 82,307 64,558 ____________ ____________ Net charge to profit and loss account for bad and 76,304 72,152 doubtful debts ____________ ____________ Analysed as: - UK home credit 71,460 71,098 - International home credit 4,844 1,054 ____________ ____________ 76,304 72,152 ____________ ____________ The gross provision is made against the total amount receivable from customers which includes unearned service charges ('deferred revenue'). The relevant proportion of the gross provision is appropriated from deferred revenue and the balance from the profit and loss account. 6. Reconciliation of movement in equity shareholders' funds 2000 1999 £'000 £'000 Profit attributable to equity shareholders 117,606 111,615 Dividends (65,810) (63,683) ____________ ____________ Retained profit 51,796 47,932 New share capital issued 6,376 472 Share capital cancelled on share buy-back (1,879) (1,006) Share buy-back (47,173) (34,585) Shares issued to the QUEST (1,610) - Currency translation differences 160 (1,099) ____________ ____________ Net addition to equity shareholders' funds 7,670 11,714 Equity shareholders' funds at 1 January 259,016 247,302 ____________ ____________ Equity shareholders' funds at 31 December 266,686 259,016 ____________ ____________ 7. The gearing ratio is calculated as gross bank and other borrowings divided by consolidated equity shareholders' funds. 8. Credit issued 2000 1999 Growth £'000 £'000 % UK home credit 883,900 846,900 4.4 International home credit 121,500 29,400 313 9. Collections 2000 1999 Growth £'000 £'000 % UK home credit 1,239,100 1,161,600 6.7 International home credit 112,600 24,900 352 10. Profit before taxation on a like for like basis In the last quarter of 1999, the company purchased 5.2 million shares at a cost of £35.5 million, which were subsequently cancelled. In addition, in the first quarter of 2000 the company purchased and cancelled a further 9.4 million shares at a cost of £49.1 million. These purchases of 14.6 million shares at a cost of £84.6 million gave rise to additional interest costs in 2000 compared with 1999. If these transactions had taken place on 1 January 1999, an additional interest cost of £5.1 million would have been incurred in 1999 resulting in a reduction in profit before taxation from £155.0 million to £149.9 million. Consequently, on a like for like basis, the profit in 2000 increased by 6.9%, from £149.9 million to £160.2 million. Shareholder information 1. The shares will be marked ex-final dividend on 11 April 2001. 2. Dividend warrants/vouchers in respect of the final dividend will be posted on 8 May 2001. 3. The final dividend will be paid on 9 May 2001 to shareholders on the register at the close of business on 17 April 2001. 4. The 2000 annual report and accounts together with the notice of annual general meeting will be posted to shareholders on 23 March 2001. 5. The Provident Financial Company Nominee Scheme ('the scheme') enables shareholders who are eligible to use it (i.e. individuals) to take advantage of the CREST system for settling transactions in shares in the company by means of a low-cost dealing service. It includes a dividend reinvestment scheme. Shareholders who wish to take advantage of the scheme should contact the company's registrar, Capita IRG Plc, Bourne House, 34 Beckenham Road, Kent, BR3 4TU (telephone 020 8639 2000) to request an information pack. 6. The annual general meeting will be held at 12 noon on 26 April 2001, at the Cedar Court Hotel, Mayo Avenue, off Rooley Lane, Bradford, BD5 8HZ.

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