Final Results
Provident Financial PLC
27 February 2002
Preliminary announcement of the final results
for the year ended 31 December 2001
H I G H L I G H T S
Group
• Strong growth in turnover (up 14%) and customers (up 9%)
• Profit before tax up 5.9% to £169.6 million
• Earnings per share up 6.0% to 50.39p
• Full year dividend per share up 7.5% to 29.35p
UK home credit
• Steady growth in customers (up 2.0%) and credit issued (up 3.6%)
• Bad debt ratio at 8.3% of credit issued
• Profit before tax up 2.3% to £150.4 million
International
• Customer numbers up 208,000 (up 42%) to 708,000
• Poland profit before tax of £6.7 million (2000 £2.8 million loss)
• Czech profit before tax £2.5 million (2000 £0.1 million)
• Hungary and Slovakia successfully opened
• South African operation closed
Motor insurance
• Another record year - profit up 14% to £36.6 million
• Policyholders up 8.5% to 855,000
• Gross written premiums up 16% to £255 million
'I'm pleased to report that Provident Financial continues to make good progress.
We have an excellent record of growth and expect this to continue in 2002'.
John van Kuffeler
Chairman
27 February 2002
Enquiries:
Today Thereafter
Media
David Stevenson 020 7628 5646 (7.30am-1.45pm) 01274 731111
020 7861 3232 (1.45pm-4.00pm)
Investor Relations
Elizabeth Bottomley 020 7628 5646 (7.30am-1.45pm) 01274 731111
020 7861 3232 (1.45pm-4.00pm)
Chairman's statement
I am pleased to announce our results for 2001. Strong growth continued during
the year, with group turnover up by 14% to £833 million and group customer
numbers up by 9% to 3.5 million (2000 3.2 million). Group profit increased by
5.9% to £169.6 million, (2000 £160.2 million) after incurring losses and closure
costs totalling £5.0 million from the South African and Provident balance
operations that were closed during the year. Earnings per share increased by
6.0% from 47.52p to 50.39p per share. The directors recommend a final dividend
of 17.6p (2000 16.4p) giving a dividend for the year of 29.35p per ordinary
share (2000 27.3p), an increase of 7.5%.
Operations
UK home credit
The UK home credit division continues to make steady progress. Credit issued
increased by 3.6%, customer numbers by 2.0% and profit before tax by 2.3%.
Credit quality remains good with bad debt as a percentage of credit issued at
8.3%. The introduction of two new products during the year, a mail order
catalogue and a motor insurance offer, made a useful contribution, adding £18
million to credit issued and attracting 44,000 new customers.
International
The international division has grown substantially during the year, achieving
excellent growth in profit in Poland and the Czech Republic and successfully
establishing new operations in Hungary and Slovakia. Our South African operation
was unable to establish a profitable business model and so was closed. It
reported a loss, including closure costs, of £3.6 million for the year (2000
loss of £0.8 million).
Our business in Poland performed very well, achieving a pre-tax profit of £6.7
million, an improvement of £9.5 million over the loss of £2.8 million in 2000.
Credit issued grew 113% to £158 million while customer numbers rose 65% to
504,000. Bad debt as a percentage of credit issued rose to 7.5%. The underlying
level of bad debt as a percentage of credit issued that we expect over the full
term of the loans currently written also increased and is now in the range of 9%
to 10%. This level of bad debt is acceptable given the rapid growth in the
business and its excellent profitability.
Our Czech operation achieved pre-tax profit of £2.5 million, an increase of £2.4
million from £0.1 million in 2000. Credit issued rose by 26% to £53 million
while customer numbers rose by 17% to 189,000. Progress in the year was slowed
by a rise in the level of bad debt as a percentage of credit issued to 11.2%.
The underlying bad debt as a percentage of credit issued now stands in the range
of 11% to 12%, a level at which both profitability and return on capital remain
good. The Czech team has performed well and has achieved a good result for the
year.
We opened for business in March 2001 in Slovakia and May 2001 in Hungary. These
are pilot scale operations designed to test our business model prior to a full
launch. We currently have two branches in each country, a total of 15,700
customers, good collections and low bad debts. Both businesses are progressing
well. The start up losses from the two countries in 2001 were £3.6 million.
The international division as a whole reported a pre-tax profit, excluding the
losses of the discontinued South African operation, of £0.8 million (2000 £5.9
million loss). This is an encouraging result, reflecting an outstanding
performance from the staff and management of the division.
Motor insurance
The motor insurance division had another record year, benefiting from conditions
at the top of the motor insurance cycle. Profit before tax increased by 14% to
£36.6 million (2000 £32.0 million) while policyholder numbers rose by 8.5% to
reach a new peak of 855,000. Gross written premiums increased by 16% to £255
million.
Share buy-back
The group continues to be strongly cash generative and, in line with our policy
of maintaining an efficient capital structure, we purchased for cancellation 3.8
million shares during the second half of the year at a total cost of £23.2
million and an average cost per share of 615 pence.
Prospects
Provident Financial has an excellent record of growth and we expect this to
continue in 2002.
The UK home credit division is a substantial, profitable and cash generative
business, serving 1.6 million customers. It has enormous strengths in the
personal relationship between agent and customer and offers a product that is
flexible, convenient and tailored to the customer's requirements. It is the
leader in a UK market that is relatively mature. We expect growth from the
division for 2002 to be at a similar rate to that for 2001.
We see excellent prospects for growth in customer numbers, credit issued and
profit from our international division. We believe that there are other
international markets offering the prospect for profitable development. In 2002,
however, we intend to build on our success in central Europe, to focus on
growing profits in Poland and the Czech Republic and to develop further our
businesses in Hungary and Slovakia. It is not our intention, at this time, to
open in a further country during 2002.
2001 has been another record year for profit from our motor insurance division
and our policyholder numbers are at an all time high. There are now signs of a
change in pricing conditions in the market. Our premium rates increased by 6% in
2001 compared to 17% in 2000 and, in a more competitive market, premium rates
increased only slightly in the second half of the year. Although the outlook is
uncertain, we believe the motor insurance market is at the top of the cycle and,
with annual claims inflation running at about 9%, we continue to caution that a
downturn in margins may begin in 2002.
I am pleased to conclude that Provident Financial continues to make good
progress. We remain a profitable and sound business that is relevant to our
customers. While preserving our traditional values, we're also working hard to
shape our future - not least, by emphasising a culture in which Provident people
are determined to win and can move quickly to seize new opportunities. We've
shown we can do it in central Europe and expect to see a strong emphasis on
performance, creativity and innovation across the business.
We look forward to continuing our good progress in 2002.
John van Kuffeler
Chairman
27 February 2002
Preliminary announcement of the final results for the year ended 31 December
2001
Consolidated profit and loss account
2001 2000
£'000 £'000
Turnover 833,178 727,894
________ ________
Operating profit and profit before taxation 169,610 160,219
Taxation (45,795) (42,613)
________ ________
Profit after taxation 123,815 117,606
Dividends (note 3) (71,788) (65,810)
________ ________
Retained profit for the year 52,027 51,796
________ ________
Earnings per share (note 4)
- Basic 50.39p 47.52p
- Adjusted 51.89p 48.19p
- Diluted 50.08p 47.27p
________ ________
Dividend per share (net of tax credit) to ordinary shareholders (note 3)
a) Interim - paid 11.75p 10.90p
b) Final - proposed 17.60p 16.40p
________ ________
Total ordinary dividend 29.35p 27.30p
________ ________
Dividend cover is: 1.72 1.74
________ ________
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
2001 2000 2001 2000
£'000 £'000 £'000 £'000
UK home credit 465,539 457,242 150,376 146,985
International home credit,
excluding South Africa 99,615 40,187 758 (5,956)
Motor insurance 266,023 228,723 36,597 32,042
________ ________ ________ ________
831,177 726,152 187,731 173,071
Central - - (13,081) (10,570)
________ ________ ________ ________
Ongoing operations 831,177 726,152 174,650 162,501
South Africa 1,964 1,714 (3,608) (789)
balance 37 28 (1,432) (1,493)
________ ________ ________ ________
Total 833,178 727,894 169,610 160,219
________ ________ ________ ________
Turnover between segments is not material.
Turnover and cost of sales for the UK home credit division in 2000 included the
cost of goods sold to customers under arrangements with retail suppliers of
£8,868,000. Divisional turnover net of these items was £448,374,000. In 2001,
the cost of goods sold to customers under such arrangements has been excluded
from turnover and cost of sales to better reflect the underlying nature of these
arrangements. Turnover in 2001 in respect of these arrangements represents
solely the revenue earned in the period on the amount of credit advanced to the
customer. The 2000 figure for UK home credit turnover has not been restated as
the impact is not material.
For the year ended 31 December 2001 the international home credit division,
including South Africa, reported turnover of £101,579,000 (2000 £41,901,000) and
a loss before taxation of £2,850,000 (2000 £6,745,000).
For the year ended 31 December 2001 the motor insurance division, including
balance, reported turnover of £266,060,000 (2000 £228,751,000) and a profit
before taxation of £35,165,000 (2000 £30,549,000).
The international home credit result before taxation, excluding South Africa,
can be analysed as follows:
2001 2000
£000 £'000
Poland 6,746 (2,769)
Czech Republic 2,455 87
Hungary (2,257) -
Slovakia (1,293) -
Central divisional overheads (4,893) (3,274)
________ ________
Profit/(loss) 758 (5,956)
________ ________
Analyses by class of business are based on the group's divisional structure.
Consolidated balance sheet
As at 31 December As at 31 December
2001 2000
£'000 £'000
Fixed assets 52,938 41,184
________ ________
Current assets
Amounts receivable from customers (note 5)
- due within one year 719,637 637,706
- due in more than one year 9,614 9,497
Debtors 173,216 162,727
Investments
- realisable within one year 430,621 330,000
Cash at bank and in hand 44,623 50,881
________ ________
1,377,711 1,190,811
________ ________
Current liabilities
Bank and other borrowings (42,969) (37,133)
Creditors - amounts falling due within one year (173,047) (166,091)
Insurance accruals and deferred income (438,838) (374,611)
________ ________
(654,854) (577,835)
________ ________
Net current assets 722,857 612,976
________ ________
Total assets less current liabilities 775,795 654,160
________ ________
Non-current liabilities
Bank and other borrowings (473,231) (384,908)
Provision for deferred taxation (6,016) (2,566)
________ ________
Net assets 296,548 266,686
________ ________
Capital and reserves
Called-up share capital 25,433 25,798
Share premium account 51,840 51,638
Revaluation reserve 1,641 1,641
Other reserves 4,358 3,967
Profit and loss account 213,276 183,642
________ ________
Equity shareholders' funds (note 6) 296,548 266,686
________ ________
Gearing ratio (note 7) 1.63 1.44
________ ________
Consolidated cash flow statement
2001 2000
£'000 £'000
Net cash inflow from operating activities 159,713 136,994
Taxation (46,436) (49,628)
Capital expenditure and financial investment (6,487) 28,264
Acquisitions and disposals (2,510) -
Equity dividends paid (69,360) (63,367)
Management of liquid resources (110,621) (98,698)
Financing 81,000 48,938
________ ________
Increase in cash in the period 5,299 2,503
________ ________
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
2001 the cash and investments held by the motor insurance division amounted to
£426.5 million (2000 £342.5 million).
Reconciliation of net cash flow to movement in net debt
2001 2000
£'000 £'000
Increase in net cash for the period 5,299 2,503
Cash outflow from increase in liquid resources 110,621 98,698
________ ________
115,920 101,201
Cash inflow from increase in debt (103,045) (97,766)
________ ________
Change in net debt resulting from cash flows 12,875 3,435
Loans relating to business acquired (975) -
Exchange adjustments (1,696) (1,038)
Net debt at 1 January (51,160) (53,557)
________ ________
Net debt at 31 December (40,956) (51,160)
________ ________
Analysis of changes in net debt
1 Jan Cash Other 31 Dec
2001 flows changes Acquisition 2001
£'000 £'000 £'000 £'000 £'000
Cash at bank and in
hand 50,881 (7,090) 832 - 44,623
Overdrafts (12,389) 12,389 - - -
________ ________ ________ ________ ________
38,492 5,299 832 - 44,623
Investments realisable
within one year 320,000 110,621 - - 430,621
Bank and other borrowings:
- less than one year (24,744) 6,117 (24,342) - (42,969)
- more than one year (384,908) (109,162) 21,814 (975) (473,231)
________ ________ ________ ________ ________
Net debt (51,160) 12,875 (1,696) (975) (40,956)
________ ________ ________ ________ ________
Other changes include non-cash changes of £24,342,000 and exchange losses of
£1,696,000.
Cash, borrowings and overdraft balances shown above at 31 December 2000 and 2001
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
2001 2000
£'000 £'000
Operating profit 169,610 160,219
Depreciation and amortisation 8,217 5,935
Loss on sale of tangible fixed assets 451 312
Increase in amounts receivable from customers (80,661) (72,071)
Increase in debtors (8,124) (33,098)
Increase in unearned insurance premiums 12,642 43,030
Increase in insurance claims provision 51,569 24,608
Decrease in amounts due to retailers (1,518) (1,741)
Increase in accruals 11,755 8,488
(Decrease)/increase in other liabilities and deferred income (4,228) 1,312
________ ________
Net cash inflow from operating activities 159,713 136,994
________ ________
Net cash inflow from operating activities can be analysed as follows:
2001 2000
£'000 £'000
UK home credit 123,535 131,320
International home credit (52,523) (50,936)
Motor insurance 99,429 67,163
Central (10,728) (10,553)
________ ________
159,713 136,994
________ ________
Notes - Preliminary announcement of the final results for the year ended 31
December 2001
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 2000 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 2001 upon which
the auditors have still to report, will be delivered to the Registrar following
the company's annual general meeting.
3. Dividends
2001 2000
£'000 £'000
Interim dividend paid 11.75p (2000 10.9p) 28,971 25,421
Final dividend proposed 17.60p (2000 16.4p) 42,817 40,389
________ ________
71,788 65,810
________ ________
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 £123,815,000 (2000
£117,606,000) and 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:
2001 2000
Weighted average number of shares Number Number
In issue during the year 248,147,454 250,221,347
Held by the QUEST (2,456,807) (2,727,626)
__________ ___________
Used in basic earnings per share calculation 245,690,647 247,493,721
Issuable on conversion of outstanding options 1,546,712 1,286,831
__________ ___________
Used in diluted earnings per share calculation 247,237,359 248,780,552
__________ ___________
The adjusted earnings per share figures have been calculated prior to the post
tax losses of £3,680,000 (2000 £1,675,000) relating to the South African
operation and Provident balance Limited which were closed during 2001.
The movement on the number of shares in issue during the year is as follows:
Number
At 1 January 2001 248,931,030
Shares issued pursuant to the exercise of options 254,309
Shares purchased and subsequently cancelled (3,772,000)
__________
At 31 December 2001 245,413,339
__________
5. Amounts receivable from customers
2001 2000
£'000 £'000
a) Instalment credit receivables
Gross instalment credit receivables 1,105,511 976,269
Less: provision for bad and doubtful debts (86,251) (79,220)
________ ________
Instalment credit receivables after provision for bad
and doubtful debts 1,019,260 897,049
Less: deferred revenue thereon (290,009) (249,846)
________ ________
729,251 647,203
________ ________
Analysed as:
- due within one year 719,637 637,706
- due in more than one year 9,614 9,497
________ ________
729,251 647,203
________ ________
At 31 December 2001 the net amounts receivable from UK home credit customers
were £618,025,000 (2000 £585,449,000) and from international home credit
customers were £111,226,000 (2000 £61,754,000).
2001 2000
£'000 £'000
b) Bad and doubtful debts
Gross provision at 31 December 86,251 79,220
Less: deferred revenue thereon (27,589) (24,400)
________ ________
Net provision at 31 December 58,662 54,820
Net provision at 1 January (54,820) (60,823)
________ ________
Increase/(decrease) in provision (net of deferred
revenue) 3,842 (6,003)
Amounts written off (net of deferred revenue) 92,204 82,307
________ ________
Net charge to profit and loss account for bad and
doubtful debts 96,046 76,304
________ ________
Analysed as:
- UK home credit 76,345 71,460
- International home credit 19,701 4,844
________ ________
96,046 76,304
________ ________
6. Reconciliation of movement in equity shareholders' funds
2001 2000
£'000 £'000
Profit attributable to equity shareholders 123,815 117,606
Dividends (71,788) (65,810)
________ ________
Retained profit 52,027 51,796
New share capital issued 1,135 6,376
Share capital cancelled on share buy-back (907) (1,879)
Share buy-back (22,273) (47,173)
Shares issued to the QUEST - (1,610)
Currency translation differences (120) 160
________ ________
Net addition to equity shareholders' funds 29,862 7,670
Equity shareholders' funds at 1 January 266,686 259,016
________ ________
Equity shareholders' funds at 31 December 296,548 266,686
________ ________
7. The gearing ratio is calculated as bank and other borrowings, net of home
credit cash, divided by consolidated equity shareholders' funds.
8. Credit issued
2001 2000 Growth
£'000 £'000 %
UK home credit 915,489 883,900 3.6
International home credit 217,091 121,500 78.7
________ ________
Total 1,132,580 1,005,400
________ ________
9. Collections
2001 2000 Growth
£'000 £'000 %
UK home credit 1,273,116 1,239,100 2.7
International home credit 255,044 112,600 126.5
________ ________
Total 1,528,160 1,351,700
________ ________
10. FRS 17 retirement benefits
The company has adopted the transitional arrangements under FRS 17 and will
disclose the impact of the standard as a note to the accounts. If the standard
had been adopted in full in 2001, earnings would have been reduced by £2.0
million and net assets at 31 December 2001 by £57.2 million. This reduction in
net assets has been assessed at a time when equity markets are at a relatively
low valuation compared to recent years. The company has committed to a programme
of increased pension contributions over the next 5 years.
Shareholder information
1. The shares will be marked ex-dividend on 17 April 2002.
2. Dividend warrants/vouchers in respect of the final dividend will be posted on
8 May 2002.
3. The final dividend will be paid on 10 May 2002 to shareholders on the
register at the close of business on 19 April 2002.
4. The 2001 annual report and accounts together with the notice of annual
general meeting will be posted to shareholders on 25 March 2002.
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, Beckenham,
Kent BR3 4TU, (telephone: 0870 162 3100) to request an information pack.
6. The annual general meeting will be held on 1 May 2002 at the Hanover
International Hotel and Club, Mayo Avenue, off Rooley Lane, Bradford, West
Yorkshire, BD5 8HZ
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