Interim Results
Provident Financial PLC
13 September 2006
Provident Financial plc
Interim results for the half-year to 30 June 2006
H I G H L I G H T S
Provident Financial is a leading international group providing home credit,
credit cards and motor insurance with 3.9 million customers in the UK, Republic
of Ireland, Central Europe, Mexico and Romania.
Key financial results
H1 H1
2006 2005 Change
£m £m
Ongoing operations
Revenue 568.7 542.3 + 5%
Profit before tax
Established businesses 85.6 98.3 - 13%
Start-up businesses and development costs (19.1) (9.2) - 108%
66.5 89.1 - 25%
Group
Revenue 595.6 663.3 - 10%
Profit before tax 66.0 82.9 - 20%
Earnings per share 18.26p 23.07p - 21%
Interim dividend per share 14.48p 14.06p + 3%
• Revenue growth in core UK and international home credit businesses, up 5%
• Investment in start-up businesses and new products to drive future growth
doubled to £19.1m, including Vanquis Bank credit card business £10.7m
(2005 £7.2m) and international start-ups in Mexico and Romania £5.8m
(2005 £1.5m)
• After a step-up in marketing in UK home credit, customer numbers are
growing for the first time in three years
• Pre-tax profit from established Central European home credit businesses up
11% to £28.0m (2005 £25.2m)
• Vanquis Bank customer numbers expected to exceed 250,000 in the second half
and business expected to move into profit in 2007
• Motor insurance pre-tax profit down 18% to £19.0m (2005 £23.1m) from record
levels in 2005
• Good progress with collect-out of Yes Car receivables with collections of
£83m in the first half running ahead of plan
Chairman's comment:
'The medium term outlook for UK home credit has improved, with the business now
delivering growth in customer numbers and credit issued. Our established
Central European countries continued to deliver profits growth, despite the
distraction in Poland resulting from the introduction of new products to comply
with the recently introduced rate cap legislation.
2006 is a year of significant investment to enhance the future growth of the
group's UK and international businesses. The group remains strongly cash and
capital generative and the interim dividend has been increased by 3%.'
Enquiries: Today Thereafter
Media
David Stevenson, Provident Financial 020 7404 5959 01274 731111
Kevin Byram, Brunswick 020 7404 5959 020 7404 5959
Nigel Prideaux, Brunswick 020 7404 5959 020 7404 5959
Investor Relations
Helen Waggott, Provident Financial 020 7404 5959 01274 731111
Chairman's statement
The first half of 2006 has been a significant period of investment and
development to support the future growth of the group's UK and international
businesses. UK home credit has stepped up its marketing expenditure aimed at
developing new sales channels and is now seeing growth in customer numbers after
three years of reduction. It is also investing over the next two years in
technology which will improve the efficiency and effectiveness of the agency
force. Vanquis Bank has successfully developed distribution of its credit cards
through the internet and face to face canvassing to augment the customer reach
available from its direct mail programme whilst building the foundation for
profitable growth through developing its underwriting and credit processes.
International has invested heavily in opening up the Mexican and Romanian
markets as well as developing future growth opportunities through piloting new
products and researching potential new countries. In Poland, the modified home
credit product to comply with the Polish interest rate cap legislation has been
successfully rolled out and, at the same time, management action has been taken
to deal with the adverse trend in impairment following the rapid expansion of
credit in late 2004 and early 2005.
Revenue from ongoing operations in the six months to June 2006 increased by 5%
to £568.7 million. Group profit before tax from ongoing operations was £66.5
million (June 2005 £89.1 million) after charging start-up losses and development
costs totalling £19.1 million (June 2005 £9.2 million). These comprise start-up
losses of £5.8 million in Mexico and Romania, £10.7 million in Vanquis Bank,
£1.3 million in launching an internet-based distribution channel for our motor
insurance division, and £1.3 million on piloting new credit products in Poland.
Earnings per share reduced from 23.07p to 18.26p and an interim dividend of
14.48p per share (June 2005 14.06p) has been declared, an increase of 3.0%.
Operations
UK home credit
H1 H1
2006 2005 Change
£m £m %
Customers numbers ('000) 1,472 1,462 1
Credit issued 390.8 386.9 1
Average customer receivables 591.7 549.5 8
Revenue 289.6 281.6 3
Impairment (106.4) (100.9) (5)
Revenue less impairment 183.2 180.7 1
Costs (121.2) (114.3) (6)
Interest (10.3) (5.9) (75)
Profit before tax 51.7 60.5 (15)
In UK home credit it is encouraging to see an improving trend in customer
numbers after three years of reduction. Increased marketing expenditure in new
sales channels including direct mail, direct response advertising, the internet
and affinity relationships with retailers has proved successful. As a result,
year-on-year customer numbers have shown growth of 1% to 1.47 million, a
pleasing result in a competitive market and particularly given the tighter
credit controls being applied to new customers.
Credit issued showed growth of 1% to £390.8 million for the six months to June
2006 compared with the same period in 2005 and revenue increased by 3% to £289.6
million. This was achieved against 2005 volumes which benefited from the
increased issue of larger loans repayable over 18 months to two years.
As a result of increased pressure on our customers' disposable incomes and
growth in receivables, impairment costs increased at a faster rate than
revenues, up by 5% to £106.4 million.
In order to improve lending decisions, the use of statistical credit management
techniques has been further enhanced and this will allow us to lend more to
lower risk customers and less to higher risk customers. Arrears management
processes are also being improved. These changes are important, to balance
growth and credit quality, as the business pursues controlled customer growth in
the current environment.
As planned, operating costs for the six months of £121.2 million showed an
increase of £6.9 million compared with the first half of 2005, the majority
resulting from the step-up in expenditure on marketing and IT. Interest costs
increased by £4.4 million mainly due to funding the pension deficit at the start
of 2006.
Improving future cost efficiency is a priority and during the first half of this
year we have completed, ahead of schedule, the integration of the Greenwood
Personal Credit field management and administration into Provident Personal
Credit. The 'Insight' programme to develop hand-held personal computers for
agents and field staff is on track to begin roll-out in 2007. As well as
increasing efficiency through the replacement of paper-driven processes, the
programme will also deliver increased agent effectiveness and improved customer
service through, for example, more flexible agent working and on-line credit
checks.
Mainly as a consequence of investment in new sales channels and IT, profit
before tax reduced by 15% to £51.7 million (June 2005 £60.5 million).
Although the UK home credit market remains competitive, the opportunity to grow
customer numbers has improved in the last six to twelve months. Overall, we
expect growth in both customer numbers and credit issued in 2006. However,
continued investment in marketing and IT will result in a reduction in profit in
2006 as compared to last year, the majority having occurred in the first six
months of the year.
Vanquis Bank
Vanquis Bank was launched as a new business at the end of 2004. The tightening
of credit imposed in the second half of 2005 to curtail impairment charges has
proved effective and during the first six months of 2006, the business has also
focused on refining the underwriting criteria applied to new customer
recruitment and to the extension of credit to established customers. Whilst
these actions slowed revenue growth during the early part of 2006, the rate of
new customer recruitment accelerated through the second quarter, assisted by the
development of new sales channels, including the internet and face to face
canvassing which have augmented the direct mail programme and increased customer
reach. Customer numbers at 30 June 2006 stood at 212,000 and are expected to
exceed 250,000 in the second half of the year.
Receivables at the half-year were up 81% at £75.9 million compared to June 2005
and revenue increased by 93% to £13.9 million over the corresponding period in
2005. The loss before tax for the six months to June 2006 was £10.7 million
(June 2005 loss of £7.2 million). The rate of start-up losses in the second
half of 2006 is expected to reduce and the business is expected to move into
profit in 2007.
Yes Car Credit
The collection of the Yes Car Credit receivables book has progressed well.
Collections of £83 million in the six months were ahead of plan and the
receivables book now stands at £161 million. The disposal of vehicle stock and
the surrender of nearly all branch lease obligations have been completed at a
cost in line with the amounts provided in the 2005 financial statements.
In the six months to June 2006, a loss of £0.5 million was incurred (June 2005
loss of £6.2 million). We continue to estimate that costs of collection will
broadly match the revenue earned and do not expect a material profit or loss
over the period during which the receivables are collected.
International division
Percentage change figures for credit issued, average net customer receivables,
revenue, impairment and costs are calculated after restating prior year figures
at the current year average exchange rate in order to present a like-for-like
comparison.
H1 H1
2006 2005 Change
£m £m £m
Established countries 28.0 25.2 2.8
Central divisional costs (5.9) (4.3) (1.6)
22.1 20.9 1.2
Investment in new countries
Mexico (4.7) (1.5) (3.2)
Romania (1.1) - (1.1)
Investment in new products (1.3) (0.2) (1.1)
(7.1) (1.7) (5.4)
Reported profit before tax 15.0 19.2 (4.2)
During the first half of 2006, the international division continued its
expansion programme, developing the Mexican market, starting a pilot operation
in Romania, piloting new products and exploring the potential opportunities for
new country openings in 2007 and beyond. The performance of the division
reflects good results in the Czech Republic, Hungary and Slovakia, but was
restrained by Poland's performance which was impacted by the disruption of
adapting to the new rate cap legislation and the action taken to improve adverse
impairment trends.
Profit before tax from the established international businesses after central
divisional costs increased by 6% to £22.1 million. Investment in new countries
and products cost £7.1 million, up from £1.7 million in the first half of 2005
and profit before tax, after absorbing these costs, reduced by £4.2 million to
£15.0 million.
The rate of investment to expand the international division will continue in the
second half and total some £15 million for 2006, up from £4 million in 2005.
This comprises expansion in Mexico and the start-up in Romania (£12 million),
and the development of monthly home collected and remotely collected loan
products in Poland (£3 million).
Overall, as a result of the start-up losses to support expansion into new
territories, new product development costs and slower than expected progress in
Poland, profit from the international division will run a little behind the
prior year through the second half of 2006.
Central Europe
The Czech Republic, Hungary and Slovakia grew well, with stable credit quality
and in aggregate recorded double digit growth in customer numbers, credit
issued, revenue and profit in the first half of the year. We expect these
countries will continue to achieve good results during 2006.
In Poland, the last eighteen months has been a challenging period for the Polish
business for two reasons.
Firstly, the introduction of a cap on interest rates in February of this year
meant that our home credit product design and pricing had to be significantly
reconfigured. To enable this, it was also necessary to accelerate the
introduction of new computer systems. The roll-out of the reconfigured product
to comply with the rate cap legislation has been successfully achieved and the
take-up by customers of the optional home collection service has been good.
Secondly, the business has had to respond to a rise in impairment which resulted
from a rapid expansion of credit in late 2004 and early 2005. As a result,
credit controls have been tightened and collections and arrears activity have
been the primary focus for field staff and agents. There are now clear signs of
an improvement in the quality of lending which is expected to benefit impairment
charges in the second half of 2006 and in 2007. However, the tightening of
credit coupled with the significant shift in focus to collections and arrears
activity has had a significant impact on customer numbers, credit issued and
revenue which is likely to constrain growth from the established Central
European businesses in 2007 before growth improves from a stronger foundation.
We remain confident that the medium and longer term opportunities for profitable
growth remain excellent.
Results of established Central European countries
H1 H1
2006 2005 Change
£m £m %
Customer numbers ('000) 1,578 1,563 1
Credit issued 231.7 240.3 (4)
Average customer receivables 290.5 264.4 6
Revenue 175.4 168.5 1
Impairment (64.1) (70.7) 12
Revenue less impairment 111.3 97.8 10
Costs (75.5) (64.4) (14)
Interest (7.8) (8.2) 7
Profit before tax 28.0 25.2 11
At the end of June 2006, customer numbers in Central Europe were up by 1%, to
1.58 million compared to June 2005. In aggregate, the Czech Republic, Hungary
and Slovakia recorded double digit growth which offset the reduction in Poland.
Credit issued fell by 4% to £231.7 million. Again, in aggregate, the Czech
Republic, Hungary and Slovakia recorded double digit growth whilst credit issued
in Poland reduced due to the combination of reduced customer numbers and the
actions taken to tighten credit.
In the first half, average customer receivables showed a year on year increase
of 6% to £290.5 million assisted by increased issue of longer, larger loans.
The growth in receivables supported a more modest uplift in first half revenues
of 1% to £175.4 million. The impairment charge reduced by 12% to £64.1 million
in comparison to the first half of 2005. The year on year reduction reflects
the increase in impairment provisions incurred in the first half of 2005 by the
Polish business as credit quality worsened following the rapid expansion of
credit in late 2004 and early 2005. Impairment charges across the other Central
European countries were well controlled through the first half of the current
year.
First half pre-tax profit from established Central European countries increased
by 11% to £28.0 million.
Mexico
In the first half of 2006, we have continued to focus on developing our branch
network and customer base. The Puebla-Veracruz region has been augmented by
opening in the Guadalajara-Leon region, the second of five regions with a
population of 20 million which we intend to develop. Customer numbers increased
to 184,000 at the end of June 2006, compared with 131,000 at the end of 2005.
Since June, customer numbers in Mexico have increased to 200,000. No further
branches will be opened during the next six months, in order to build the
experience of local management before resuming further geographic expansion.
Pre-tax start-up losses for the half-year were, as expected, £4.7 million (June
2005 loss of £1.5 million).
Romania
In early 2006, we opened an office in Bucharest, obtained the necessary licence
to trade and in April issued our first loan. A full management team has been
recruited to develop the business and customer numbers have now passed 1,600.
Motor insurance division
Provident Insurance delivered a good performance in a UK motor insurance market
that remained competitive during the first half of this year. Average premiums
in the market continued to drift down by about 2%. We maintained our policy of
pricing for an adequate return on equity and increased our base premiums whilst
also making selective changes to improve our competitiveness on certain, more
profitable, parts of the business. As a result, motor insurance policyholder
numbers reduced to 455,000 (December 2005 473,000). The profitability of current
year business is relatively weak reflecting the absence of increases in market
premiums since 2002, together with a small increase in the number of large
personal injury claims which have been reserved prudently at this early stage of
their development. Claims provisions, in respect of earlier claims years, have
continued to develop favourably and have benefited underwriting profit. The
average investment fund reduced by 14% to £372 million and yielded income of
£8.9 million (June 2005 £10.8 million).
The rapid development of the internet as the preferred channel for motorists to
obtain insurance quotes has created the opportunity for us to progress with a
full roll-out of an internet-based distribution channel during the first half of
2006. The new brand, yesinsurance.co.uk, offers car insurance as well as home
insurance and van insurance policies underwritten by a panel of insurers
including Provident Insurance. It provides a new distribution channel with
significantly lower acquisition costs and a greater degree of control over the
relationship with the customer than the traditional intermediated business. In
the first half of 2006, yesinsurance.co.uk sold 30,000 policies and incurred
start-up costs totalling £1.3 million.
First half pre-tax profit for motor insurance, after the yesinsurance.co.uk
start up costs, reduced by 18% to £19.0 million (June 2005 £23.1 million).
The market remains competitive and most insurers have been holding or reducing
prices despite increasing claims costs. We have recently seen indications that
some competitors may begin to increase prices - this action is needed and
overdue. The favourable development of claims provisions is expected to
continue, but to produce a smaller benefit than in 2005. The start-up loss of
yesinsurance.co.uk is expected to be £3 million for the full year, rising to £5
million in 2007, with the business reaching its breakeven point towards the end
of 2008. Overall, we expect a good profit again from motor insurance in 2006,
but lower than the record level of 2005.
Regulatory developments
The Competition Commission inquiry into the UK home credit sector continues. The
Commission published its Proposed Remedies paper on 18 August 2006 which broadly
follows the Possible Remedies outlined in its April 2006 Provisional Findings
report. Our discussions with the Commission continue. The final report is
expected in October 2006.
Proposed demerger
Work is underway to implement the separation of the international business and
we have made good progress in recent months. The board currently expects the
demerger to take place in Spring 2007, following the announcement of the 2006
results in March 2007, when we expect to publish full details of the demerger.
Group outlook
2006 is a year of significant investment to enhance the future growth of the
group's UK and international businesses. The medium term outlook for UK home
credit has improved during the last 12 months. Although growth in Central Europe
is expected to be slower over the next eighteen months as actions to improve the
Polish business take effect, the opportunity for profitable growth in existing
and new international markets remains excellent. The group remains strongly cash
and capital generative and the interim dividend has been increased by 3%.
John van Kuffeler
Chairman
13 September 2006
Consolidated interim income statement
Notes Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
Revenue 2 595.6 663.3 1,337.5
Ongoing operations 2 568.7 542.3 1,110.0
Yes Car Credit 2 26.9 121.0 227.5
Finance income 12.3 13.9 27.7
Total income 607.9 677.2 1,365.2
Finance costs (33.6) (27.6) (61.9)
Operating costs (355.7) (423.9) (861.0)
Administrative expenses (152.6) (142.8) (401.9)
Total costs (541.9) (594.3) (1,324.8)
Profit before taxation 2 66.0 82.9 40.4
Established businesses 2 85.6 98.3 227.4
Start-up businesses and development costs 2 (19.1) (9.2) (21.4)
Ongoing operations 66.5 89.1 206.0
Yes Car Credit 2 (0.5) (6.2) (165.6)
Tax expense - UK (15.1) (19.7) (28.1)
- Overseas (4.4) (4.6) (12.3)
Total tax expense 3 (19.5) (24.3) (40.4)
Profit after taxation attributable to equity
shareholders
10 46.5 58.6 -
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
Earnings per share
Basic 4 18.26p 23.07p -
Diluted 4 18.19p 22.93p -
Dividend per share
Proposed dividend 5 14.48p 14.06p 21.37p
Paid in the period 5 21.37p 20.75p 34.81p
Statement of recognised income and expense
Notes Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
Profit after taxation attributable to equity
shareholders 46.5 58.6 -
Exchange differences on foreign currency
translations (4.8) (2.3) 2.7
Net fair value losses - cash flow hedges (0.7) (2.9) (5.0)
Actuarial gains/(losses) on retirement benefit
asset/obligations 9 7.7 (18.5) (20.1)
Tax on items taken directly to equity (2.0) 6.1 7.5
Net income/(expense) recognised directly in equity 0.2 (17.6) (14.9)
Total recognised income/(expense) for the period 46.7 41.0 (14.9)
Consolidated interim balance sheet
Notes Unaudited Unaudited Audited
As at As at As at
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
ASSETS
Non-current assets
Goodwill 6 3.1 94.1 3.1
Other intangible assets 28.0 22.9 27.5
Property, plant and equipment 47.2 44.9 42.8
Retirement benefit asset 9 6.7 - -
Deferred income tax assets 31.9 73.8 64.5
116.9 235.7 137.9
Current assets
Inventories - 11.3 7.4
Financial assets:
- Amounts receivable from customers:
- due within one year 7 967.1 913.5 952.8
- due in more than one year 7 152.2 220.3 321.1
- Derivative financial instruments 5.3 10.6 9.0
Trade and other receivables 36.6 35.7 32.9
Insurance assets 63.3 83.3 65.4
Current income tax assets - 4.0 0.9
Cash and cash equivalents 438.3 505.7 451.9
1,662.8 1,784.4 1,841.4
Total assets 1,779.7 2,020.1 1,979.3
LIABILITIES
Current liabilities
Financial liabilities:
- Bank and other borrowings (28.3) (17.0) (35.2)
- Derivative financial instruments (39.4) (33.6) (30.1)
Trade and other payables (89.3) (126.2) (126.0)
Insurance accruals and deferred income 8 (347.8) (395.4) (359.2)
Current income tax liabilities (15.3) (53.4) (33.4)
Provisions (1.3) - (16.2)
(521.4) (625.6) (600.1)
Non-current liabilities
Financial liabilities:
- Bank and other borrowings (948.3) (855.2) (947.7)
Provisions - - (8.5)
Retirement benefit obligations 9 - (133.2) (105.6)
(948.3) (988.4) (1,061.8)
Total liabilities (1,469.7) (1,614.0) (1,661.9)
NET ASSETS 310.0 406.1 317.4
SHAREHOLDERS' EQUITY
Called-up share capital 10 26.5 26.5 26.5
Share premium account 10 108.1 107.4 107.7
Other reserves 10 0.1 (1.2) 5.5
Retained earnings 10 175.3 273.4 177.7
TOTAL EQUITY 10 310.0 406.1 317.4
Consolidated interim cash flow statement
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
Cash flows from operating activities
Cash generated from operations 64.5 101.4 68.2
Interest paid (40.4) (30.7) (60.8)
Interest received 13.0 14.1 27.8
Income tax paid (6.1) (31.4) (53.2)
Net cash generated from/(used in) operating activities 31.0 53.4 (18.0)
Cash flows from investing activities
Purchases of property, plant and equipment (13.2) (11.8) (20.9)
Proceeds from sale of property, plant and equipment 2.0 1.5 3.2
Purchases of intangible assets (2.0) (4.3) (9.8)
Acquisition of subsidiary - - (19.1)
Net cash used in investing activities (13.2) (14.6) (46.6)
Cash flows from financing activities
Proceeds from borrowings 174.2 105.0 161.8
Repayment of borrowings (155.1) (85.4) (60.9)
Dividends paid to company shareholders (54.4) (52.7) (88.6)
Proceeds from issue of share capital 0.4 2.0 2.3
Proceeds from the sale of /(purchase of) treasury shares 0.2 (0.4) 0.7
Net cash (used in)/generated from financing activities (34.7) (31.5) 15.3
Net (decrease)/increase in cash and bank overdrafts (16.9) 7.3 (49.3)
Cash and bank overdrafts at beginning of period 444.4 493.5 493.5
Exchange (losses)/gains on cash and bank overdrafts (0.6) (2.0) 0.2
Cash and bank overdrafts at end of period 426.9 498.8 444.4
Cash and bank overdrafts at end of period comprise:
Cash at bank and in hand 51.4 50.2 54.6
Short-term deposits 386.9 455.5 397.3
Cash and cash equivalents 438.3 505.7 451.9
Overdrafts (held in bank and other borrowings) (11.4) (6.9) (7.5)
426.9 498.8 444.4
All short-term deposits have a maturity of three months or less on acquisition.
The cash and short-term deposits held by those businesses that are regulated are
required to be strictly segregated from those of the rest of the group and are
not available to repay group borrowings. At 30 June 2006 the cash and
short-term deposits held by the group's regulated businesses amounted to £396.4m
(30 June 2005: £462.7m, 31 December 2005: £404.5m).
Cash generated from operations
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
Profit for the period 46.5 58.6 -
Adjusted for:
Tax expense 19.5 24.3 40.4
Finance costs 33.6 27.6 61.9
Finance income (12.3) (13.9) (27.7)
Share-based payment (credit)/charge (0.3) 1.5 3.2
Depreciation of property, plant and equipment 6.2 6.3 12.2
Impairment of property, plant and equipment - - 4.6
Amortisation of intangible assets 1.5 0.4 1.3
Impairment of goodwill (note 6) - - 91.0
(Profit)/loss on sale of property, plant and equipment (0.2) 0.1 -
Changes in operating assets and liabilities:
Inventories 7.4 5.3 9.2
Amounts receivable from customers 138.2 51.0 (67.0)
Trade and other receivables (8.2) (8.4) -
Insurance assets 2.1 6.9 24.8
Trade and other payables (29.9) (13.6) 0.6
Insurance accruals and deferred income (11.4) (29.5) (65.7)
Retirement benefit asset/obligations (104.6) (15.1) (44.3)
Derivative financial instruments (0.2) (0.1) (1.0)
Provisions (23.4) - 24.7
Cash generated from operations 64.5 101.4 68.2
Notes to the interim financial information
1. Basis of preparation
The financial information comprises the consolidated balance sheets for the
periods ended 30 June 2006, 30 June 2005 and 31 December 2005 and the income
statements and cash flow statements for the periods then ended of Provident
Financial plc (hereinafter referred to as 'the financial information'). The
financial information has been prepared in accordance with the listing rules of
the Financial Services Authority. In preparing this financial information
management have used the accounting policies set out in the group's 2005
financial statements. The group has chosen not to adopt IAS 34 'Interim
Financial Reporting' in preparing the 2006 interim report.
This financial information does not constitute a set of statutory accounts under
s.240 of the UK Companies Act 1985 and is unaudited. The comparative figures
for the financial year ended 31 December 2005 are an extract from the group's
2005 financial statements which have been reported on by the company's auditors
and delivered to the Registrar of Companies. The report of the auditors was
unqualified and did not contain statements under section 237(2) or (3) of the UK
Companies Act 1985.
This document (the 2006 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 plc 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
accounts may differ from legislation in other jurisdictions.
2. Segment information
Primary reporting format - business segments
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
Revenue
Established businesses:
UK home credit 289.6 281.6 578.9
International 175.4 168.5 347.9
Motor insurance 77.0 82.0 154.7
Total established businesses 542.0 532.1 1,081.5
Start-up businesses and development costs:
International - new countries* 11.4 3.0 10.7
- new products 0.4 - -
11.8 3.0 10.7
Vanquis Bank 13.9 7.2 17.8
Motor insurance 1.0 - -
Total start-up businesses and development costs 26.7 10.2 28.5
Ongoing operations 568.7 542.3 1,110.0
Yes Car Credit 26.9 121.0 227.5
Total group 595.6 663.3 1,337.5
Analysed by division as:
UK home credit 289.6 281.6 578.9
International 187.2 171.5 358.6
Vanquis Bank 13.9 7.2 17.8
Motor insurance 78.0 82.0 154.7
Ongoing operations 568.7 542.3 1,110.0
Yes Car Credit 26.9 121.0 227.5
Total group 595.6 663.3 1,337.5
* Comprises Mexico and Romania
Primary reporting format - business segments
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
Profit before taxation
Established businesses:
UK home credit 51.7 60.5 146.3
International 22.1 20.9 54.7
Motor insurance 20.3 23.4 41.9
Central (8.5) (6.5) (15.5)
Total established businesses 85.6 98.3 227.4
Start-up businesses and development costs:
International - new countries* (5.8) (1.5) (2.9)
- new products (1.3) (0.2) (0.7)
(7.1) (1.7) (3.6)
Vanquis Bank (10.7) (7.2) (15.9)
Motor insurance (1.3) (0.3) (1.9)
Total start-up businesses and development costs (19.1) (9.2) (21.4)
Ongoing operations 66.5 89.1 206.0
Yes Car Credit (0.5) (6.2) (165.6)
Total group 66.0 82.9 40.4
Analysed by division as:
UK home credit 51.7 60.5 146.3
International 15.0 19.2 51.1
Vanquis Bank (10.7) (7.2) (15.9)
Motor insurance 19.0 23.1 40.0
Central (8.5) (6.5) (15.5)
Ongoing operations 66.5 89.1 206.0
Yes Car Credit (0.5) (6.2) (165.6)
Total group 66.0 82.9 40.4
* Comprises Mexico and Romania
All of the above activities relate to continuing operations as defined in IFRS
5. Consistent with the treatment in the 2005 financial statements, the Yes Car
Credit operation has been classified as part of continuing operations on the
basis that revenue and impairment will continue to be generated from the loan
book until it has been fully collected out.
The Yes Car Credit loss before taxation in the year ended 31 December 2005
included £141.0m of closure costs (half-year ended 30 June 2005: £nil)
comprising £91.0m of goodwill impairment (note 6), £14.9m of provisions for
onerous property obligations, £14.4m additional impairment charge on customer
receivables following closure (note 7), £10.1m provision for redundancy costs,
£4.6m of impairment to property, plant and equipment, £2.0m of inventory write
downs and £4.0m of other costs. Of the total closure costs, £40.1m has been
classified as operating costs and £100.9m has been classified as administrative
expenses in the consolidated income statement.
Secondary reporting format - geographical segments
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
Revenue
UK and Republic of Ireland 381.5 370.8 751.4
Central Europe 175.8 168.5 347.9
Mexico 11.4 3.0 10.7
Romania - - -
Ongoing operations 568.7 542.3 1,110.0
UK and Republic of Ireland (Yes Car Credit) 26.9 121.0 227.5
Total group 595.6 663.3 1,337.5
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
Profit before taxation
UK and Republic of Ireland 45.6 65.6 144.7
Central Europe 26.7 25.0 64.2
Mexico (4.7) (1.5) (2.9)
Romania (1.1) - -
Ongoing operations 66.5 89.1 206.0
UK and Republic of Ireland (Yes Car Credit) (0.5) (6.2) (165.6)
Total group 66.0 82.9 40.4
3. Tax expense
The tax expense for the period has been calculated by applying the directors'
best estimate of the effective tax rate for the year, which is 29.5% (30 June
2005: 29.3%), to the profit for the period.
The tax credit in respect of Yes Car Credit closure costs in the year ended 31
December 2005 was £12.8m (30 June 2005: £nil).
4. Earnings per share
Basic earnings per share (EPS) is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the year, excluding those shares held by the Provident
Financial Qualifying Share Ownership Trust and in respect of the Performance
Share Plan. For diluted EPS, the weighted average number of ordinary shares in
issue is adjusted to assume conversion of all dilutive potential ordinary
shares.
The profit after taxation for the period attributable to equity shareholders
used in the calculation of basic and diluted EPS is £46.5m (30 June 2005:
£58.6m, 31 December 2005: £nil). The weighted average number of shares in issue
during the period can be reconciled to the number used in the basic and diluted
EPS calculations as follows:
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
Number Number Number
Weighted average number of shares m m m
In issue during the period 255.5 255.2 255.4
Held by the QUEST (0.8) (1.1) (1.1)
Used in basic earnings per share calculation 254.7 254.1 254.3
Issuable on conversion of outstanding options 0.9 1.4 0.6
Used in diluted earnings per share calculation 255.6 255.5 254.9
The directors have elected to show an adjusted EPS, excluding the loss after
taxation of Yes Car Credit which was closed during 2005. This is presented to
show the EPS generated by the group's ongoing operations. A reconciliation of
reported profit after tax to profit after taxation from ongoing operations is
set out below:
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
Profit after taxation 46.5 58.6 -
Loss for the period from Yes Car Credit 0.3 4.3 145.4
Profit after taxation from ongoing operations 46.8 62.9 145.4
A reconciliation of basic and diluted EPS to basic and diluted EPS from ongoing
operations is as follows:
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
Pence Pence Pence
Basic EPS 18.26 23.07 -
Loss for the period from Yes Car Credit 0.12 1.69 57.18
Basic EPS from ongoing operations 18.38 24.76 57.18
Diluted EPS 18.19 22.93 -
Loss for the period from Yes Car Credit 0.12 1.69 57.04
Diluted EPS from ongoing operations 18.31 24.62 57.04
5. Dividends paid and proposed
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
2004 final - 20.75p - 52.7 52.7
2005 interim - 14.06p - - 35.9
2005 final - 21.37p 54.4 - -
Dividends paid 54.4 52.7 88.6
An interim dividend in respect of 2006 of 14.48p per share, amounting to a total
dividend of £36.9m, has been declared by the directors. The interim financial
information does not reflect this dividend payable as it will be paid after the
balance sheet date.
6. Goodwill
Goodwill of £3.1m (30 June 2005: £94.1m, 31 December 2005: £3.1m) relates wholly
to the acquisition of N&N Cheque Encashment Limited in 2001.
Goodwill as at 30 June 2005 included £91.0m in respect of the acquisition of Yes
Car Credit in 2002. Following closure of this business at the end of 2005, the
goodwill in relation to this acquisition was fully impaired.
7. Amounts receivable from customers
Unaudited Unaudited Audited
As at As at As at
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
UK home credit 587.7 546.6 649.9
International 294.5 275.6 328.7
Vanquis Bank 75.9 42.0 60.0
Ongoing operations 958.1 864.2 1,038.6
Yes Car Credit 161.2 269.6 235.3
Total group 1,119.3 1,133.8 1,273.9
Analysed as:
- due within one year 967.1 913.5 952.8
- due in more than one year 152.2 220.3 321.1
1,119.3 1,133.8 1,273.9
The impairment charge in respect of amounts receivable from customers reflected
within operating costs can be analysed as follows:
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
UK home credit 106.4 100.9 171.8
International 69.5 71.7 132.4
Vanquis Bank 8.1 4.4 12.4
Ongoing operations 184.0 177.0 316.6
Yes Car Credit 14.2 18.9 51.2
Total group 198.2 195.9 367.8
The Yes Car Credit impairment charge in the year to 31 December 2005 included
£14.4m arising as a result of the expected deterioration in collections
performance following the closure of the business.
8. Insurance accruals and deferred income
Unaudited Unaudited Audited
As at As at As at
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
Provision for unpaid insurance claims 270.0 312.9 284.0
Unearned insurance premiums 76.4 82.1 74.8
Other deferred income 1.4 0.4 0.4
347.8 395.4 359.2
The profit before tax of motor insurance for the period ended 30 June 2006
includes £16.2m (30 June 2005: £13.2m, 31 December 2005: £24.9m) in respect of
the release of provisions for prior year claims.
9. Retirement benefit asset/obligations
The group operates two funded defined benefit schemes in the UK. A full
actuarial valuation was carried out by a qualified independent actuary on both
schemes at 1 June 2004. The valuation used for IAS 19 purposes has been based
on these valuations which have been updated by the actuary to take account of
the requirements of IAS 19 in order to assess the liabilities of the scheme at
30 June 2006. Scheme assets are stated at fair value at 30 June 2006. The
assumptions used by the actuary were:
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
% % %
Rate of increase in salaries 4.58 4.18 4.38
Rate of increase in pensions 3.00 2.60 2.80
Discount rate 5.10 5.00 4.80
Inflation assumption 3.00 2.60 2.80
The amounts recognised in the balance sheet are determined as follows:
Unaudited Unaudited Audited
As at As at As at
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
Fair value of scheme assets 441.4 265.0 331.1
Present value of funded defined benefit obligations
(434.7) (398.2) (436.7)
Asset/(liability) in the balance sheet 6.7 (133.2) (105.6)
The movement in the (liability)/asset recognised in the balance sheet is as
follows:
Unaudited Unaudited Audited
Half-year to Half-year to Full year to
30 June 2006 30 June 2005 31 Dec 2005
£m £m £m
Liability at beginning of period (105.6) (129.8) (129.8)
Total expense in the income statement (0.4) (5.3) (10.1)
Actuarial gain/(loss) 7.7 (18.5) (20.1)
Contributions paid 105.0 20.4 54.4
Asset/(liability) at end of period 6.7 (133.2) (105.6)
The group made additional special contributions of £13.0m in May 2005 and £31.0m
in December 2005. A further special contribution of £102.2m was made in January
2006 in order to ensure that the defined benefit pension schemes were fully
funded based on the June 2005 deficit position.
10. Consolidated interim statement of changes in shareholders' equity
Unaudited
Attributable to equity shareholders of the company
Called-up Share
share premium Other Retained
capital account reserves earnings Total
£m £m £m £m £m
Balance at 1 January 2005 26.4 105.5 2.4 280.4 414.7
Exchange differences on foreign currency
translations - - (2.3) - (2.3)
Net fair value losses - cash flow hedges - - (2.9) - (2.9)
Actuarial losses on retirement benefit
obligations - - - (18.5) (18.5)
Tax on items taken directly to equity - - 0.5 5.6 6.1
Net expense recognised directly in equity - - (4.7) (12.9) (17.6)
Profit for the period - - - 58.6 58.6
Total recognised (expense)/income for the
period - - (4.7) 45.7 41.0
Increase in share capital 0.1 - - - 0.1
Increase in share premium - 1.9 - - 1.9
Movement in treasury shares - - (0.4) - (0.4)
Share-based payment charge - - 1.5 - 1.5
Dividend - - - (52.7) (52.7)
Balance at 30 June 2005 26.5 107.4 (1.2) 273.4 406.1
Balance at 1 July 2005 26.5 107.4 (1.2) 273.4 406.1
Exchange differences on foreign currency
translations - - 5.0 - 5.0
Net fair value losses - cash flow hedges - - (2.1) - (2.1)
Actuarial losses on retirement benefit
obligations - - - (1.6) (1.6)
Tax on items taken directly to equity - - 1.0 0.4 1.4
Net income/(expense) recognised directly in
equity - - 3.9 (1.2) 2.7
Loss for the period - - - (58.6) (58.6)
Total recognised income/(expense) for the
period - - 3.9 (59.8) (55.9)
Increase in share premium - 0.3 - - 0.3
Movement in treasury shares - - 1.1 - 1.1
Share-based payment charge - - 1.7 - 1.7
Dividend - - - (35.9) (35.9)
Balance at 31 December 2005 26.5 107.7 5.5 177.7 317.4
Balance at 1 January 2006 26.5 107.7 5.5 177.7 317.4
Exchange differences on foreign currency
translations - - (4.8) - (4.8)
Net fair value losses - cash flow hedges - - (0.7) - (0.7)
Actuarial gains on retirement benefit asset - - - 7.7 7.7
Tax on items taken directly to equity - - 0.2 (2.2) (2.0)
Net (expense)/income recognised directly in
equity - - (5.3) 5.5 0.2
Profit for the period - - - 46.5 46.5
Total recognised (expense)/income for the
period - - (5.3) 52.0 46.7
Increase in share premium - 0.4 - - 0.4
Share-based payment credit - - (0.3) - (0.3)
Movement in treasury shares - - 0.2 - 0.2
Dividend - - - (54.4) (54.4)
Balance at 30 June 2006 26.5 108.1 0.1 175.3 310.0
Independent review report to Provident Financial plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2006 which comprises the consolidated interim
balance sheet as at 30 June 2006 and the related consolidated interim statements
of income, recognised income and expense and cash flows for the six months then
ended 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 Listing Rules
of the Financial Services Authority require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual financial statements except where any
changes, and the reasons for them, are disclosed.
This interim report has been prepared in accordance with the basis set out in
note 1.
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 disclosed accounting policies have been applied.
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 and therefore provides a lower level of assurance. Accordingly we do not
express an audit opinion on the financial information. This report, including
the conclusion, has been prepared for and only for the Company for the purpose
of the Listing Rules of the Financial Services Authority and for no other
purpose. We do not, in producing this report, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our prior consent in
writing.
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 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
Leeds
13 September 2006
Information for shareholders
1. The shares will be marked ex-dividend on 20 September 2006.
2. The interim report will be posted to shareholders on 22 September 2006.
3. The interim dividend will be paid on 20 October 2006 to shareholders on
the register at the close of business on 22 September 2006. Dividend
warrants/vouchers will be posted on 18 October 2006.
4. 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 Registrars, The Registry, 34 Beckenham
Road, Beckenham, Kent BR3 4TU (telephone: 0870 162 3100) to request
an information pack. The registrar's website is www.capitaregistrars.com.
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