Interim Results

Provident Financial PLC 23 July 2001 Interim report for the half-year ended 30 June 2001 H I G H L I G H T S Group * Strong growth in turnover (up 17%) and customers (up 15%) * Profit before tax up 7.8% to £70.2 million * Earnings per share up 7.5% to 20.52 pence * Interim dividend up 7.8% to 11.75 pence UK home credit * Credit issued up 7.3% (3.5% like for like) to £390.6 million * Bad debt ratio stable at 8.2% of credit issued * Profit before tax up 1.7% to £61.3 million International * Poland and Czech Republic in profit * Successful entry into Hungary and Slovakia * Turnover up 258% to £46.2 million * Customer numbers up by 141,000 (28%) to 641,000 in the first six months of the year * Divisional first half loss much reduced, from £6.9 million down to £2.3 million Motor insurance * Profits up 19% to £19.4 million * Policyholders up 18% to 833,000 'Overall, we are making good progress. Our international division is on target to report a profit in 2001 and it is particularly pleasing to see Poland and the Czech Republic reporting first half profits. We remain confident of a good result for 2001'. John van Kuffeler Chairman 23 July 2001 Enquiries: Today Thereafter Media David Stevenson 0207 628 5646 01274 731111 Investor Relations Elizabeth Bottomley 0207 628 5646 01274 731111 Chairman's statement Overview I am pleased to announce that the group has made good progress in the first half of 2001. We achieved strong growth, with turnover up by 17% to £399 million and customers up by 15% to 3.4 million (2000 2.9 million). Profit before tax increased 7.8% to £70.2 million (2000 £65.1 million). Earnings per share increased by 7.5% from 19.08 pence to 20.52 pence per share. An interim dividend of 11.75 pence (2000 10.9 pence), an increase of 7.8%, has been declared. Operations An analysis of the results for the first half of 2001 is set out below: Half year ended 30 June 2001 2000 £m £m UK home credit 61.3 60.3 International (2.3) (6.9) Motor insurance 19.4 16.3 balance (1.8) (0.6) Central costs (6.4) (4.0) _____ _____ 70.2 65.1 _____ _____ UK home credit division Explanatory note The 2000 financial year comprised 53 working weeks, the last of which fell between Christmas and New Year. This traditionally poor week for credit issued and collections usually forms the first week of the new financial year. This has had the effect of inflating the growth in turnover, credit issued and collections in the first half of 2001 and distorting the comparison with the first half of 2000. In order to give a true comparative, adjusted 'like for like' figures are provided. Trading in the first half of the year has been as expected. Turnover for the UK home credit division rose by 5.6% (3.4% like for like) to £224.3 million and profit before tax increased by 1.7% to £61.3 million (2000 £60.3 million). The UK home credit market remains competitive but stable. The market conditions we experienced in 2000 have, as expected, continued into 2001. Consequently, we have continued to focus on maintaining the quality of our lending and in the first half of this year we have further tightened our controls over customer recruitment. Customer numbers have fallen slightly (0.8%), as compared to June 2000. Bad debt as a percentage of credit issued has remained stable at 8.2% (June 2000 8.2%). Credit issued grew by 7.3% (3.5% like for like), in the first half of 2001 to £390.6 million and collections were up by 6.3% (4.5% like for like) to £634 million. We are working actively to improve our customer recruitment techniques in order to increase the recruitment and retention of good quality customers. We have recently launched a Provident branded home-shopping catalogue produced and managed by Findel plc. In addition, we intend to roll out the cross-selling of motor insurance, which we piloted successfully last year, throughout the agent network. As a result, promotional expenditure has increased by over £2 million in the first half of the year and we expect to see the benefit of these initatives in improved customer growth during the second half. International division In the international division, our aims for this year were to continue with rapid customer growth in Poland and the Czech Republic, bringing both countries into profit for the year, and to open pilot operations in Hungary and Slovakia. Our progress in the first half of this year has been good with both Poland and the Czech Republic reporting a profit. The division has reported turnover up 258% to £46.2 million and a half year loss of £2.3 million, much reduced from the £6.9 million loss at the 2000 half year. This includes an investment of £1.3 million in start-up losses in launching our home credit service in Hungary and Slovakia. Customer numbers for the division have increased by 141,000 (28%) to 641,000 in the first half of the year. Poland has for the first time reported a profit of £0.9 million compared to a loss of £3.4 million in the first half of 2000 and customer numbers have grown by 111,000 (36.4%) from 305,000 to 416,000 in the first half of the year. The Czech Republic has reported a profit of £0.8 million compared to a first half loss in 2000 of £1.4 million and customer numbers grew by 23,000 (14.3%) from 161,000 to 184,000. As expected, as the businesses mature, the bad debt rate in the fast growing Central European operations is increasing from the exceptionally low levels seen in 2000. In Poland, our largest international market, credit quality is developing broadly as expected and bad debts as a percentage of credit issued are running at around 6% (June 2000 4.3%). In the Czech Republic, bad debt as a percentage of credit issued has increased a little more than was expected to 7.25% (June 2000 4.0%) and prices have been increased to compensate for the additional costs. South Africa remains a small part of the international division. It has experienced tougher trading conditions and, in particular, rising levels of bad debt in the first half of this year. This is disappointing after the substantial improvement in performance seen in the second half of 2000. We have taken remedial action, shortening the maturity of loans and tightening lending criteria. We intend to review the success of these actions in the second half of this year. Motor insurance division The motor insurance division has performed well, benefiting from good conditions in the motor insurance market. Profits were up by 19% to £19.4m and policyholders up by 18% to 833,000. As expected, premium increases in the market have slowed significantly, averaging about 5% in the first half of this year compared to about 10% at the same time last year and there are clear signs that we have reached the top of the insurance pricing cycle. balance We have piloted a bill paying service in a small number of UK locations during the last year. In June we reviewed the performance of these pilots and concluded that the prospects for the service were insufficiently good to merit further investment. Consequently, the business has been closed. A loss of £1.8 million, inclusive of all closure costs, was incurred in the first half of 2001 (2000 £0.6 million). Prospects In the UK home credit division we expect the current market conditions to continue for this year and into next and so we will continue to concentrate on maintaining the quality of our lending. As a result, we continue to expect customer numbers, credit issued and profits for 2001 to grow at similar rates to those in 2000. The bad debt ratio is expected to remain stable at around the current level. The international division's customer numbers, credit issued and profits are expected to grow substantially. The division as a whole is on target to report a profit in 2001, after bearing start-up losses of about £4 million in developing Hungary and Slovakia and to earn increasing levels of profit thereafter. We are closely monitoring the quality of lending in the division. In response to the recent increase in bad debt, we intend to ease slightly the rate of growth in customer numbers and credit issued to allow the better management of credit quality, particularly in the Czech Republic. We continue to believe home credit has wide international appeal and our aim remains to launch our service in one new country each year. The motor insurance market is cyclical and we are currently benefiting from conditions at the top of the cycle. We continue to expect another good result in 2001 but we have seen the first signs of more competitive market conditions. Overall, we are making good progress and remain confident of a good result for 2001. John van Kuffeler Chairman 23 July 2001 Consolidated profit and loss account for the half-year to 30 June 2001 Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 Turnover 398,951 340,325 727,894 ________ ________ ________ Operating profit and profit before taxation 70,210 65,116 160,219 Taxation (note 3) (19,659) (17,581) (42,613) ________ ________ ________ Profit after taxation 50,551 47,535 117,606 Dividends (note 4) (28,946) (25,333) (65,810) ________ ________ ________ Retained profit 21,605 22,202 51,796 ________ ________ ________ Earnings per share (note 5) - Basic 20.52p 19.08p 47.52p - Diluted 20.37p 19.02p 47.27p ________ ________ ________ Dividend per share (note 4) 11.75p 10.90p 27.30p ________ ________ ________ 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. Statement of total recognised gains and losses for the half-year to 30 June 2001 Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 Profit after taxation 50,551 47,535 117,606 Currency translation differences 654 (148) 160 ________ ________ ________ Total recognised gains and losses relating to the period 51,205 47,387 117,766 ________ ________ ________ Segmental analysis of turnover for the half-year to 30 June 2001 Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 UK home credit 224,267 212,374 457,242 International home credit 46,168 12,909 41,901 Insurance 128,479 115,038 228,723 balance 37 4 28 ________ ________ ________ 398,951 340,325 727,894 ________ ________ ________ Segmental analysis of profit before taxation for the half-year to 30 June 2001 Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 UK home credit 61,329 60,332 146,985 International home credit (2,347) (6,860) (6,745) Insurance 19,451 16,259 32,042 balance (1,828) (614) (1,493) Central costs (6,395) (4,001) (10,570) ________ ________ ________ 70,210 65,116 160,219 ________ ________ ________ The international home credit turnover and profit/(loss) before taxation can be analysed as follows: Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 Turnover Poland 33,014 7,525 26,020 Czech Republic 11,794 4,867 14,167 South Africa 1,331 517 1,714 New countries 29 - - ________ ________ ________ 46,168 12,909 41,901 ________ ________ ________ Profit/(loss) before taxation Poland 900 (3,430) (2,769) Czech Republic 820 (1,369) 87 South Africa (779) (505) (789) New countries (1,262) - - Divisional overheads (2,026) (1,556) (3,274) ________ ________ ________ (2,347) (6,860) (6,745) ________ ________ ________ Consolidated balance sheet as at 30 June 2001 Unaudited at Unaudited at Audited at 30 June 2001 30 June 2000 31 Dec 2000 £'000 £'000 £'000 Fixed assets 50,227 37,143 41,184 ________ ________ ________ Current assets Amounts receivable from customers (note 7) - due within one year 606,133 519,405 637,706 - due in more than one year 8,091 7,524 9,497 Debtors 171,165 146,118 162,727 Investments - realisable within one year 365,000 289,647 330,000 - realisable in more than one year - 10,000 - Cash at bank and in hand 69,396 38,490 50,881 ________ ________ ________ 1,219,785 1,011,184 1,190,811 ________ ________ ________ Current liabilities Bank and other borrowings (20,891) (25,513) (37,133) Creditors - amounts falling due within one year (170,842) (138,844) (166,091) Insurance accruals and deferred income (408,843) (335,945) (374,611) ________ ________ ________ (600,576) (500,302) (577,835) ________ ________ ________ Net current assets 619,209 510,882 612,976 ________ ________ ________ Total assets less current liabilities 669,436 548,025 654,160 ________ ________ ________ Non-current liabilities Bank and other borrowings (377,142) (311,084) (384,908) Creditors - amounts falling due after more than one year - (4,923) - Provision for liabilities and charges - deferred taxation (2,566) - (2,566) ________ ________ ________ (379,708) (316,007) (387,474) ________ ________ ________ Net assets 289,728 232,018 266,686 ________ ________ ________ Capital and reserves Called-up share capital 25,814 25,728 25,798 Share premium account 52,405 45,332 51,638 Revaluation reserve 1,641 1,641 1,641 Other reserves 3,967 3,967 3,967 Profit and loss account 205,901 155,350 183,642 ________ ________ ________ Equity shareholders' funds (note 6) 289,728 232,018 266,686 ________ ________ ________ Consolidated cash flow statement for the half-year to 30 June 2001 Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 Net cash inflow from operating activities 145,314 116,934 136,994 Taxation (15,867) (17,160) (49,628) Capital expenditure and financial investment (8,816) 15,920 28,264 Acquisitions and disposals (2,510) - - Equity dividends paid (40,401) (36,545) (63,367) Management of liquid resources (35,000) (53,345) (98,698) Financing (22,328) (29,909) 48,938 ________ ________ ________ Increase/(decrease) in cash in the period 20,392 (4,105) 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 insurance and home credit divisions. However, the cash and investments held by the 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 30 June 2001 the cash and investments held by the insurance division amounted to £386 million (30 June 2000 - £316 million). Reconciliation of net cash flow to movement in net (debt)/funds Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 Increase/(decrease) in net cash for the period 20,392 (4,105) 2,503 Cash outflow from increase in liquid resources 35,000 53,345 98,698 ________ ________ ________ 55,392 49,240 101,201 Cash outflow/(inflow) from decrease/(increase) in debt 23,111 (19,143) (97,766) ________ ________ ________ Change in net debt resulting from cash flows 78,503 30,097 3,435 Loans relating to business acquired (975) - - Exchange adjustments (5) - (1,038) Net debt at start of period (51,160) (53,557) (53,557) ________ ________ ________ Net (debt)/funds at end of period 26,363 (23,460) (51,160) ________ ________ ________ Analysis of changes in net (debt)/funds 31 Dec Cash Acquisition Exchange 30 June 2000 flows movements 2001 £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 50,881 17,757 - 758 69,396 Overdrafts (12,389) 2,635 - - (9,754) _______ ______ _______ _______ _______ 38,492 20,392 - 758 59,642 Investments realisable within one year 320,000 35,000 - - 355,000 Bank and other borrowings: - less than one year (24,744) 13,607 - - (11,137) - more than one year (384,908) 9,504 (975) (763) (377,142) ________ ______ _______ _______ _______ (409,652) 23,111 (975) (763) (388,279) ________ ______ _______ _______ _______ Net (debt)/funds (51,160) 78,503 (975) (5) 26,363 ________ ______ _______ _______ _______ Cash, borrowings and overdraft balances shown above at 31 December 2000 and 30 June 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, other than investments which are traded on an active market). Reconciliation of operating profit to net cash inflow from operating activities Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 Operating profit 70,210 65,116 160,219 Depreciation 3,549 2,858 5,935 Loss on sale of tangible fixed assets 124 154 312 Decrease/(increase) in amounts receivable from customers 33,381 48,203 (72,071) Increase in debtors (8,144) (15,776) (33,098) Increase in insurance accruals and deferred income 34,232 29,091 67,638 Increase/(decrease) in other creditors 11,962 (12,712) 8,059 ________ ________ ________ Net cash inflow from operating activities 145,314 116,934 136,994 ________ ________ ________ Net cash inflow from operating activities can be analysed as follows: Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 UK home credit 124,644 109,565 131,320 International home credit (31,923) (18,246) (50,936) Insurance 56,699 32,030 67,163 Central (4,106) (6,415) (10,553) ________ ________ ________ 145,314 116,934 136,994 ________ ________ ________ Notes to the financial information 1. The financial information, which has been prepared on the basis of the accounting policies set out in the group's 2000 statutory accounts, does not constitute a set of statutory accounts and is unaudited. This document (the 2001 interim report) will be published on the company's website (in addition to the normal paper version). The maintenance and integrity of the Provident Financial website is the responsibility of the directors and the work carried out by the auditors does not involve consideration of these matters. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 2. The information relating to the full year ended 31 December 2000 is an extract from the latest published accounts on which the auditors gave an unqualified opinion and which have been delivered to the Registrar of Companies. 3. The taxation charge has been calculated by applying the directors' best estimate of the effective tax rate for the year, which is 28% (30 June 2000 - 27%), to the profit for the period. 4. Dividends paid and proposed Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 Interim dividend declared - 11.75p (2000 - 10.9p) 28,946 25,333 25,421 Final dividend paid - 16.4p - - 40,389 ________ ________ ________ 28,946 25,333 65,810 ________ ________ ________ Dividend cover 1.75 1.75 1.74 ________ ________ ________ 5. Earnings per share The basic and diluted earnings per share figures have been calculated using the profit for the period attributed to ordinary shareholders of £50,551,000 (30 June 2000 - £47,535,000) and the weighted average number of shares in issue during the period. The weighted average number of shares in issue during the period can be reconciled to the number used in the basic and diluted earnings per share calculations as follows: Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 Weighted average number of shares In issue during the period 248,965,864 252,066,217 250,221,347 Held by the QUEST (2,643,915) (2,990,972) (2,727,626) ___________ __________ ___________ Used in basic earnings per share calculation 246,321,949 249,075,245 247,493,721 Issuable on conversion of outstanding options 1,821,287 852,768 1,286,831 ___________ __________ ___________ Used in diluted earnings per share calculation 248,143,236 249,928,013 248,780,552 ___________ __________ ___________ The movement on the number of shares in issue during the period is as follows: Number At 1 January 2001 248,931,030 Shares issued pursuant to the exercise of options 184,309 ___________ At 30 June 2001 249,115,339 ___________ 6. Reconciliation of movement in equity shareholders' funds Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 Profit attributable to equity shareholders 50,551 47,535 117,606 Dividends (28,946) (25,333) (65,810) ________ ________ ________ Retained profit 21,605 22,202 51,796 New share capital issued 783 - 6,376 Share capital cancelled on share buy-back - (1,879) (1,879) Share buy-back - (47,173) (47,173) Shares issued to the QUEST - - (1,610) Currency translation differences 654 (148) 160 ________ ________ ________ Net addition to/(reduction in) equity shareholders' funds 23,042 (26,998) 7,670 Equity shareholders' funds at beginning of period 266,686 259,016 259,016 ________ ________ ________ Equity shareholders' funds at end of period 289,728 232,018 266,686 ________ ________ ________ 7. Amounts receivable from customers Unaudited Unaudited Audited at at at 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 a) Instalment credit receivables Gross instalment credit receivables 945,475 817,536 976,269 Less: provision for bad and doubtful debts (91,196) (90,420) (79,220) ________ ________ ________ Instalment credit receivables after provision for bad and doubtful debts 854,279 727,116 897,049 Less: deferred revenue thereon (240,055) (200,187) (249,846) ________ ________ ________ 614,224 526,929 647,203 ________ ________ ________ Analysed as: - due within one year 606,133 519,405 637,706 - due in more than one year 8,091 7,524 9,497 ________ ________ ________ 614,224 526,929 647,203 ________ ________ ________ At 30 June 2001 the net amounts receivable from UK home credit customers were £520.3 million (30 June 2000 - £500.6 million) and from international home credit customers were £93.9 million (30 June 2000 - £26.3 million). Unaudited Unaudited Audited Half-year to Half-year to Full year 30 June 2001 30 June 2000 2000 £'000 £'000 £'000 b) Bad and doubtful debts Gross provision at end of period 91,196 90,420 79,220 Less: deferred revenue thereon (28,560) (26,280) (24,400) ________ ________ ________ Net provision at end of period 62,636 64,140 54,820 Net provision at start of period (54,820) (60,823) (60,823) ________ ________ ________ Increase/(decrease) in provision (net of deferred revenue) 7,816 3,317 (6,003) Amounts written off (net of deferred revenue) 42,499 36,307 82,307 ________ ________ ________ Net charge to profit and loss account for bad and doubtful debts 50,315 39,624 76,304 ________ ________ ________ Analysed as: - UK home credit 41,008 37,760 71,460 - International home credit 9,307 1,864 4,844 ________ ________ ________ 50,315 39,624 76,304 ________ ________ ________ c) The figures for receivables, provisions and bad and doubtful debts at 30 June 2001 should be compared with the equivalent information at 30 June 2000 in view of the long established seasonal patterns in lending and collections. 8. Credit issued Half-year to Half-year to 30 June 2001 30 June 2000 Growth £'000 £'000 % UK home credit 390,601 363,963 7.3 International home credit 106,934 38,957 174.5 ________ ________ ________ 497,535 402,920 23.5 ________ ________ ________ 9. Collections Half-year to Half-year to 30 June 2001 30 June 2000 Growth £'000 £'000 % UK home credit 634,108 596,325 6.3 International home credit 116,119 36,891 214.8 ________ ________ ________ 750,227 633,216 18.5 ________ ________ ________ Independent review report to Provident Financial plc Introduction We have been instructed by the company to review the financial information which comprises the consolidated profit and loss account, statement of total recognised gains and losses, consolidated balance sheet, consolidated cash flow statement and related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999 /4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2001. PricewaterhouseCoopers Chartered Accountants and Registered Auditors Leeds 23 July 2001 Shareholder information 1. The shares will be marked ex-dividend on 19 September 2001. 2. The interim dividend will be paid on 19 October 2001 to shareholders on the register at the close of business on 21 September 2001. 3. Dividend warrants/vouchers will be posted on 17 October 2001. 4. The interim report will be posted to shareholders on 3 August 2001. 5. The Provident Financial Company Nominee Scheme ('the scheme') enables shareholders who are eligible, namely 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 for those who wish to use this facility. 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: 0208 639 2000) to request an information pack.

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