TIDMPFG
RNS Number : 8344T
Provident Financial PLC
27 July 2022
Provident Financial plc
Interim results for the six months ended 30 June, 2022
Provident Financial plc ('PFG' or 'the Group'), a leading
specialist banking group focused on underserved markets, today
publishes its interim results for the six months ended 30 June
2022, unless otherwise stated.
Malcolm Le May, Chief Executive Officer, commented:
"I am delighted with the Group's first half performance. We have
delivered growth and returns in line with market expectations and,
reflecting the Board's confidence and our robust financial
position, we are recommending an interim dividend of 5.0p per
share.
We have successfully repositioned PFG as a specialist banking
group focused on the mid-cost and near-prime sectors, increasing
the size of our addressable market to some 14m people in the UK. We
are investing in our IT infrastructure to deliver future efficiency
savings and broadening our service proposition with Vanquis
Personal Loans. CCD is in the final stages of being wound down and
the PRA have confirmed that they will review the Group's capital
requirements during the second half of the year. The FCA has also
decided not to proceed with their investigation into historic
lending at CCD. We are all acutely aware of the potential
challenges that the macroeconomic environment might present.
However, we are confident that our increased focus on lower risk
customer segments together with our capital strength position us
well to withstand the challenges ahead, support our customers and
deliver sustainable growth and returns to our shareholders."
Key financial results
Six months ended 30 June
2022 2021
Continuing operations: GBPm GBPm
------------ -------------
Adjusted profit before tax:
- Credit cards 75.8 57.0
- Vehicle finance 20.2 15.5
- Personal loans (10.7) 0.1
- Central costs(1) (31.0) (9.1)
------------ -------------
Adjusted continuing profit before
tax(2) 54.3 63.5
Amortisation of acquisition intangibles (3.7) (3.7)
Exceptional items - continuing operations (3.7) (2.1)
------------ -------------
Statutory continuing profit before
tax 46.9 57.7
Loss for discontinued operations (9.6) (101.9)
Statutory profit/(loss) before
tax 37.3 (44.2)
Adjusted basic EPS from continuing
operations(3) (p) 15.4 26.7
------------ -------------
Basic EPS from continuing operations(3)
(p) 12.7 24.8
------------ -------------
Annualised RORE(4) 18.0% 30.9%
------------ -------------
Highlights
Well positioned to support customers and deliver sustainable
returns despite the challenging macro backdrop
-- Group adjusted continuing profit before tax (PBT) of GBP54.3m
(H1'21 PBT: GBP63.5m) reflects growth in the receivables book
year-on-year and new customer bookings partly offset by the planned
increase in central costs.
-- Group statutory PBT of GBP37.3m (H1'21 LBT: GBP44.2m)
includes GBP3.7m of exceptional costs related to corporate costs
incurred centrally and GBP9.6m of discontinued items related to the
continued wind-down of the Consumer Credit Division (CCD).
-- At the end of June, the Group held Common Equity Tier 1 of
approximately GBP460m (H1'21: GBP585m), which equated to a CET1
ratio of 27.3% (H1'21: 32.5%) and total capital of approximately
GBP660m (H1'21: GBP585m) equating to a Total Capital Ratio (TCR) of
39.2% (H1'21: 32.5%). The increase in total capital year-on-year
reflects the statutory performance of the Group and the issuance of
a Tier 2 bond in H2'21, partly offset by the unwind of the IFRS 9
transition on 1 January 2022.
-- Total Group liquidity at the end of June stood at
approximately GBP520m (H1'21: GBP510m) including approximately
GBP430m (H1'21: GBP280m) held by Vanquis Bank, of which GBP145m is
surplus non-bank funds placed on deposit with the Bank.
-- The Board is proposing an interim dividend of 5.0p with
respect to H1'22 (H1'21: GBPnil), consistent with its capital
management framework of aiming to provide attractive and
sustainable returns to its shareholders.
-- In July, the Group was notified by the regulator that it has
decided not to proceed with its planned investigation into CCD's
historic lending between February 2020 and February 2021. This has
resulted in a GBP4.1m provision being released as an exceptional
credit through discontinued operations in the H1'22 results.
-- Following the continued wind-down of CCD, the Group now
focuses exclusively on the mid-cost and near-prime segments of the
credit market. This is expected to have a positive impact on the
impairment and cost profile of the Group. Combined with its strong
balance sheet, this is expected to enable the Group to deliver
focussed and sustainable growth whilst also delivering attractive
returns to shareholders.
The credit card business delivered growth in receivables and
customers year-on-year with stable delinquency trends
-- The Group's credit card business reported a profit before tax
for the first six months of the year of GBP75.8m (H1'21: GBP57.0m),
driven by receivables growth and active customer spend levels being
maintained year-on-year.
-- New customer bookings for the period were 105k (H1'21: 93k)
notwithstanding the ongoing prudent approach to risk management
amidst an uncertain macroeconomic environment.
-- Credit card spend per active customer during the period was
consistent with pre-pandemic levels. However, utilisation rates are
still lower at approximately 48% (H1'21: 50%).
-- Customer receivables ended the period at GBP1,035m (H1'21:
GBP978m) representing growth year-on-year driven by new customer
bookings and active customer spend trends improving
year-on-year.
-- During the first six months of the year, delinquency trends
remained stable and, as a result, the annualised impairment rate
remained below trend at 3.5% (H1'21: 5.8%). This also represents
the work that has been done over the last two years to refocus the
credit card business towards lower risk customers on average. This
trend can also be seen on the balance sheet, where the coverage
ratio decreased by 0.6% to 24.4% during H1'22.
The vehicle finance business delivered meaningful growth in PBT
year-on-year
-- The Group's vehicle finance business delivered a PBT for the
period of GBP20.2m (H1'21: GBP15.5m) driven by higher revenue
year-on-year, as a result of the growth in the average receivables
book, and lower interest and impairment costs.
-- Credit issued during the period increased to approximately
GBP155m (H1'21: GBP150m) driven by new business volumes and a
buoyant pricing market for used vehicles.
-- Customer receivables were GBP598m at the end of June (H1'21:
GBP602m), which is broadly consistent with the level reported at
the end of December 2021 as new customer bookings were offset by
early customer settlements.
-- The annualised impairment rate improved to 6.0% during the
period (H1'21: 6.8%) which also reflects the move towards a lower
risk customer base on average since the start of the pandemic.
Personal loans pilot phases concluded at the end of June with
good receivables and customer growth
-- The Vanquis Bank Open Market Loans pilot significantly
exceeded internal expectations and saw consistently strong demand
from its target customer segment with good new business volumes.
The Sunflower Loans pilot phase also exceeded internal expectations
but the Open Banking trial ended its pilot phase below commercial
expectations despite high brand and customer approval scores.
-- As a result, the personal loans business will focus on
developing its core offering around Vanquis Bank Loans (VBL) at
sub-50% APR. This offering will be supported by the Group's new IT
platform, 'Gateway', and work will commence to transition VBL in
H2'22.
-- At the end of June, the personal loans business had
receivables of GBP42m (H1'21: GBP16m) and total customer numbers of
24k (H1'21: 16k).
Provident Financial plc has appointed Shore Capital as joint
corporate broker with immediate effect, working alongside Barclays
Bank plc and Numis Securities.
Enquiries:
Analysts and shareholders:
Owen Jones, Group Head of Investor
Relations 07341 007842
Owen.jones@providentfinancial.com
Media:
Richard King, Provident Financial 07919 866876
Nick Cosgrove/Simone Selzer,
Brunswick 0207 4045959
providentfinancial@brunswickgroup.com
(1) Central costs increased during the period to GBP31.0m
(H1'21: GBP9.1m), owing to an increased level of cost being
recognised centrally, including the centralisation of certain costs
from the businesses, certain residual CCD costs and investment in
the Group's transformation capabilities towards its target
operating model. These investments are expected to drive
significant improvements in cost efficiency in the future.
(2) Adjusted continuing profit before tax is stated before
amortisation in respect of acquisition intangibles established as
part of the acquisition of Moneybarn in August 2014; exceptional
items and any losses incurred relating to CCD.
(3) Adjusted basic EPS from continuing operations is defined as
profit after tax stated before amortisation of acquisition
intangibles; exceptional items and any losses incurred relating to
CCD. Basic EPS from continuing operations is defined as profit
after tax before any losses incurred relating to CCD.
(4) Return on average required regulatory capital (RORE)
reflects adjusted profit after tax for the period, excluding CCD,
multiplied by 365/181 divided by the average regulatory capital
requirement for the period.
Note:
This report may contain certain "forward looking statements"
regarding the financial position, business strategy or plans for
future operations of PFG. All statements other than statements of
historical fact included in this document may be forward looking
statements. Forward looking statements also often use words such as
"believe", "expect", "estimate", "intend", "anticipate" and words
of a similar meaning. By their nature, forward looking statements
involve risk and uncertainty that could cause actual results to
differ from those suggested by them. Much of the risk and
uncertainty relates to factors that are beyond PFG's ability to
control or estimate precisely, such as future market conditions and
the behaviours of other market participants, and therefore undue
reliance should not be placed on such statements which speak only
as at the date of this report. PFG does not assume any obligation
to, and does not intend to, revise or update these forward-looking
statements, except as required pursuant to applicable law or
regulation. No statement in this announcement is intended as a
profit forecast or estimate for any period. No statement in this
announcement should be interpreted to indicate a particular level
of profit and, as a consequence, it should not be possible to
derive a profit figure for any future period from this report.
INTERIM REPORT
Chief Executive Officer's review
Introduction
The Group continued to execute well against its strategy during
the first six months of the year, despite the challenging
macroeconomic backdrop and is now fully repositioned in the lower
risk mid-cost and near-prime segments of the credit market. It is
focused on delivering sustainable growth and returns to
shareholders. The lower risk profile of the customer base in the
mid-cost segment is expected to result in lower impairment and
delinquency trends over the medium-term and the Group's disciplined
approach to costs will increase our capacity to invest in our core
capabilities to support growth as market conditions improve. Our
clear strategy continues to be underpinned by strong capital and
liquidity positions and our capital management framework.
During H1'22, credit card spend per active customer was
maintained at pre-pandemic levels, however, utilisation rates are
yet to recover fully. Within the vehicle finance business, the
near-prime product continued to see strong customer demand,
exceeding management's expectations. The pilot phase for the
personal loans business offering concluded at the end of June.
Vanquis Bank Loans exceeded expectations throughout its open market
pilot phase and received strong demand from customers. Sunflower
Loans performed less consistently and experienced lower engagement
from customers on the Open Banking journey. Consistent with the
strategic repositioning of the Group, the personal loans business
will focus on the loans offering with APRs below 50% under the
single brand of Vanquis Bank.
Group financials
For the first six months of the year, the Group reported an
adjusted continuing profit before tax of GBP54.3m (H1'21 PBT:
GBP63.5m) driven by year-on-year receivables growth and lower
impairment trends partially offset by higher central costs. The
Group reported a statutory profit of GBP37.3m for the period (H1'21
loss before tax: GBP44.2m).
Central costs increased during the period to GBP31.0m (H1'21:
GBP9.1m), owing to an increased level of cost being recognised
centrally, including the centralisation of certain costs from the
businesses, certain residual CCD costs and investment in the
Group's transformation capabilities to its target operating model.
These investments are expected to drive significant improvements in
cost efficiency in the future.
Group receivables ended the period at GBP1,675m (H1'21:
GBP1,637m) split between credit cards of GBP1,035m (H1'21:
GBP978m), vehicle finance of GBP598m (H1'21: GBP602m) and unsecured
personal loans of GBP42m (H1'21: GBP16m). CCD receivables stood at
GBPnil (H1'21: GBP42m) at the end of June following its
wind-down.
The Group's balance sheet remains well capitalised to execute
the Group's strategy. At the end of June, the Group held total
regulatory capital of approximately GBP660m (H1'21: GBP585m), had a
total capital ratio of 39.2% (H1'21: 32.5%) and a surplus above the
minimum regulatory requirement of approximately GBP310m (H1'21:
GBP210m).
Governance changes
In January, PFG announced the next phase of its strategy to
reinforce its position as a leading specialist bank with a focus on
underserved markets. PFG took the decision to restructure the Board
of Vanquis Bank to substantially align its membership with the
Board of PFG. This is an important step in the execution of the
Group's specialist banking group strategy, which includes the wider
use of retail deposit funding across the Group, subject to PRA
approval. PFG believes that streamlining the Boards of the two
legal entities will create a simpler, more efficient Group
governance structure, whilst enhancing both PFG and Vanquis Bank's
corporate governance.
Product and Customer Strategy
For the remainder of 2022 and beyond, the Group will continue to
work on a number of initiatives designed to grow the loan book,
provide additional services for customers and to diversify and
strengthen its product offering. The Group's customer insights
continue to improve, allowing PFG to tailor products and services
more closely. This will also enable PFG to target its marketing
spend more effectively, to launch tailored new products and help
customers to build a better financial future.
From a product perspective, the credit card business has already
introduced new APR price points and limit options for customers.
This is designed to ensure that customers can be offered the most
appropriate rate for them whilst also serving to make the business
more competitive on price. It has also launched an updated Balance
Transfer offering. As the credit market re-establishes itself, and
recovers post-Covid, the business will look to optimise how it
funnels new business and drive 'front of wallet' behaviour for its
customers.
The vehicle finance business will continue to seek new
partnership agreements in the UK, which should have the potential
to drive meaningful new business levels over time. It will continue
to assess new asset classes and product extensions and to improve
overall customer retention efforts.
The personal loans business, which is still in its relative
infancy, will continue to broaden its 'Open Market' proposition and
distribution reach through its brand new IT platform, 'Gateway' and
target growth of lending share with existing customers.
Environmental, Social and Governance (ESG)
PFG continued to support its communities and invest in their
development during the period. It initiated a new strategy that
will aim to support children and young people from low income
backgrounds by providing them with access to education, social and
financial inclusion and economic development opportunities. This
will involve the ongoing support for its UK-wide partnerships, e.g.
National Numeracy, the National Literacy Trust and School-Home
Support, to help children and young people in disadvantaged
communities to develop literacy, numeracy and employability skills.
In the areas of the country where PFG has its largest presence and
colleagues, namely in Bradford, Chatham, London and Petersfield, it
continued to support local organisation to address a range of
social and financial inclusions issues at a local level. In June
2022, PFG established two new partnerships to provide funding and
support to families who need financial assistance with the cost of
school uniforms. In addition, PFG has worked with an existing
partner - IncomeMax - to develop a digital self-guided tool which
signposts customers to money advice and support.
Outlook
The macroeconomic outlook for the UK remains challenging, with
the impact on growth and household finances uncertain. However, we
expect that PFG's strong focus on risk and credit quality
management, together with its robust capital position, will enable
it to deliver focussed and sustainable loan book growth in growing
addressable markets with product-based initiatives.
For the second half of 2022, we expect consistent impairment
trends reflecting the repositioning of our loan books towards lower
risk customers and anticipate an ongoing reduction in expected
credit loss provisions. The Group will continue to invest in its
platform and its people to create greater operating leverage, and
to further improve the customer experience, with total costs in the
second half of the year expected to remain flat versus the first
six months of 2022. For 2023, we expect our total cost base to
reduce, reflecting investments made to date. In addition, one-off
investments in Group capabilities will continue during 2023, albeit
at a lower level than 2022, before reducing significantly
consistent with our target cost to income ratio target of 40% from
the end of 2024 onwards.
In addition, the Group is in discussions with regulators
regarding its future capital requirements following the wind-down
of the higher-risk CCD business. This capital clarity will further
support the Group's capital management framework which includes
organic and selective inorganic growth opportunities and
shareholder distributions. As the macroeconomic environment
stabilises, and when PFG has greater clarity as to its future
capital requirements, the Group intends to hold a Capital Markets
Day to update the market on its financial targets, customer vision
and growth strategy.
Malcolm Le May
Chief Executive Officer
26 July 2022
Financial Review
Group performance
The Group's 2022 interim results can be summarised as
follows:
Six months ended 30 June
2022 2021
Continuing operations: GBPm GBPm
------------ -------------
Adjusted profit before tax:
- Credit cards 75.8 57.0
- Vehicle finance 20.2 15.5
- Personal loans (10.7) 0.1
- Central costs(1) (31.0) (9.1)
------------ -------------
Adjusted continuing profit before
tax(2) 54.3 63.5
Amortisation of acquisition intangibles (3.7) (3.7)
Exceptional items - continuing operations (3.7) (2.1)
------------ -------------
Statutory continuing profit before
tax 46.9 57.7
Loss for discontinued operations (9.6) (101.9)
Statutory profit/(loss) before
tax 37.3 (44.2)
Adjusted basic EPS from continuing
operations(3) (p) 15.4 26.7
------------ -------------
Basic EPS from continuing operations(3)
(p) 12.7 24.8
------------ -------------
Annualised RORE(4) 18.0% 30.9%
------------ -------------
(1) Central costs increased during the period to GBP31.0m
(H1'21: GBP9.1m), owing to an increased level of cost being
recognised centrally, including the centralisation of certain costs
from the businesses, certain residual CCD costs and investment in
the Group's transformation capabilities towards its target
operating model. These investments are expected to drive
significant improvements in cost efficiency in the future.
(2) Adjusted continuing profit before tax is stated before
amortisation of acquisition intangibles; exceptional items and any
losses incurred relating to CCD.
(3) Adjusted basic EPS from continuing operations is defined as
profit after tax stated before amortisation of acquisition
intangibles; exceptional items and any losses incurred relating to
CCD. Basic EPS from continuing operations is defined as profit
after tax before any losses incurred relating to CCD.
(4) Return on average required regulatory capital (RORE)
reflects adjusted profit after tax for the period, excluding CCD,
multiplied by 365/181 divided by the average regulatory capital
requirement for the period.
The Group reported an adjusted continuing PBT of GBP54.3m for
the period. Including exceptional items and discontinued operations
relating to CCD, the Group reported a statutory profit before tax
of GBP37.3m (H1'21 LBT: (GBP44.2m) for the first six months of the
year. The improvement year-on-year is driven by receivables growth
year-on-year, lower impairment and lower discontinued and
exceptional items.
The Group's credit card business reported a PBT for the period
of GBP75.8m (H1'21: GBP57.0m) and receivables ended the period at
GBP1,035m (H1'21: GBP978m).
The Group's vehicle finance business generated an PBT of
GBP20.2m (H1'21: GBP15.5m) and receivables ended the period at
GBP598m (H1'21 : GBP602m).
The Group's personal loan business reported a loss before tax of
GBP10.7m (H1'21 PBT: GBP0.1m) as the business continues to grow
quickly as it establishes itself and as it continues to invest in
its IT capabilities.
The Group reported basic earnings per share of 8.6 p for the
period vs. a basic loss per share of (19.6p) in H1'21. This
reflects the profitable position of the Group on a statutory basis.
On an adjusted basis, the Group reported an earnings per share of
10.0p vs. a loss per share of (3.1p) in H1'21.
Impairment provisioning
The Group is a leading specialist banking group focused on
underserved markets. Our customers have similar traits across all
our businesses: they manage their lives on low to average incomes;
may have irregular or variable earnings; and are often new to
credit in the UK or have little or no credit history. It is for
these reasons that the impairment provisions held are higher than
those which would be reported by prime banks offering similar
products.
The Group's coverage ratio has increased marginally in the
period from 26.8% to 27.3%:
June-22 December-21 Change
Credit cards 24.4% 25.0% 0.6%
-------- ------------ --------
Vehicle finance 32.6% 30.4% (2.2%)
-------- ------------ --------
Personal loans 13.1% 16.8% 3.7%
-------- ------------ --------
Group 27.3% 26.8% ( 0.5%)
-------- ------------ --------
The coverage ratio for credit cards has decreased by 0.6% from
December 2021 to 24.4%, reflecting the continued release of
provisions recognised at the onset of Covid-19 that are no longer
required, and the continued application of more stringent credit
lending criteria in light of the current macro-economic
outlook.
The vehicle finance coverage ratio increased by 2.2% to 32.6%
reflecting increased Stage 3 provisions due to an absence of debt
sale activity. This is expected to fall when debt sales resume.
Personal loans coverage ratio has reduced from 16.8% to 13.1%
due to stronger new business volumes in open market lending, which
is more weighted to lower risk customers and hence requires a lower
level of provision.
Macroeconomic environment
Macroeconomic provisions are recognised to reflect an increased
probability of default (PD) based on future macroeconomic
scenarios.
These provisions reflect the potential for future changes in
hazard rate, defined as the number of people who were employed last
month but who are unemployed the following month (derived from
unemployment rates), and the debt to income ratio.
The provision reflects the potential for future changes under a
range of forecasts, as analysis has evidenced strong correlation
between hazard rates, debt to income ratios, and credit losses
incurred.
The scenario five year peak and average unemployment assumptions
are set out on page 21.
There is a risk that the UK economy enters into a period of
stagflation, where the UK unemployment rate increases to a level
which is much higher than current forecasts, and, at the same time,
the UK Inflation Rate remains elevated. Previous analysis of the
influence of macroeconomic indicators on credit performance has
shown that inflation alone, whilst having some effect on credit
performance, is unlikely to trigger significant increases in
default. This is borne out by data from previous economic cycles,
where the correlation between inflation and increasing default
rates has been relatively low.
At year end a provision of GBP7.8m was recognised in credit
cards for cost of living (note 9) in light of rising inflation and
higher energy costs potentially impacting customers' ability to
make repayments. The outlook remains uncertain, with high inflation
driven through volatile energy prices exacerbated by the war in
Ukraine yet unemployment levels remaining low and stable. The
impact on customers of the increased cost of living is being
monitored closely and currently there are no early warning
indicators suggesting any deterioration in credit risk. However,
based on the current economic situation, and reflecting the Group's
proactive approach to risk management and is appropriately
supported by modelling analytics, management has determined the
cost of living provision be increased to GBP10m in credit cards and
GBP0.5m in vehicle finance. This will be closely monitored through
the second half of the year.
Credit cards
Six months ended 30 June
2022 2021 Change
GBPm GBPm
--------- --------
Customer numbers ('000) 1,541 1,537 0.2%
Period-end receivables 1,035 978 5.9%
Average receivables(1) 1,028 987 4.1%
----------------------------------- --------- -------- --------
Revenue 190.4 192.4 (1.0%)
Interest (9.1) (14.0) 35.0%
----------------------------------- --------- -------- --------
Net interest margin 181.3 178.4 1.6%
Impairment (18.1) (29.0) 37.6%
----------------------------------- --------- -------- --------
Risk-adjusted net interest margin 163.2 149.4 9.2%
Costs (87.4) (92.4) 5.4%
----------------------------------- --------- -------- --------
Profit before tax 75.8 57.0 33.0%
----------------------------------- --------- -------- --------
Annualised revenue yield(2) 37.1% 39.0% (1.9%)
Annualised impairment rate(3) (3.5%) (5.8%) 2.3%
Annualised return on equity(4) 29.2% 29.0% 0.2%
(1) Calculated as the average of month end receivables for the 6 months ended 30 June.
(2) Revenue for the period multiplied by 365/181 as a percentage
of average receivables for the 6 months ended 30 June.
(3) Impairment for the period multiplied by 365/181 as a
percentage of average receivables for the 6 months ended 30
June.
(4) Profit after tax for the period multiplied by 365/181 as a
percentage of average equity for the 6 months ended 30 June.
The Group's credit card business is a leading specialist in the
large and established credit card market in the UK. The business
reported a PBT of GBP75.8m in H1'22, up from GBP57.0m in H1'21.
This reflects a continuation of a more favourable impairment
performance, as seen throughout 2021, new customer bookings, and
spend per active customer levels staying in-line with 2019 levels.
Receivables at the end of the first half stood at GBP1,035m (H1'21:
GBP978m), with the increase being driven by new customer bookings
and spend levels being maintained year-on-year.
New account bookings for the first half were 105k, an increase
of 12% from 93k in H1'21. The increase in new customer bookings
year-on-year does not reflect any loosening of underwriting
standards. In fact, underwriting standards have been progressively
tightened throughout 2021 and higher risk scorebands were switched
off. The increase in new customer bookings reflects strong
underlying demand in the near-prime segment, the highly successful
'Walk Tall' branding campaign and distribution channel initiatives.
Customer numbers ended the period at 1,541k (H1'21: 1,537k)
reflecting the previously mentioned better performance in new
customer bookings and lower charge-off activity.
Net receivables ended the period at GBP1,035m (H1'21: GBP978m),
with the year-on-year increase being driven by higher customer
acquisition volumes, card expenditure increasing slightly
year-on-year and the Credit Line Increase programme. Card spend per
active customer remained in-line with pre-pandemic levels
throughout the first six months of the year. However, overall
credit card spend levels are below pre-pandemic levels owing to
lower customer numbers.
Revenue of GBP190.4m in the first half was marginally lower
year-on-year (H1'21: GBP192.4m) driven by higher average
receivables year-on-year offset by a reduction in the revenue yield
to 37.1% (H1'21: 39.0%). The annualised revenue yield reflected the
ongoing reduction in non-interest income associated with the
cessation of ROP and changes to default charges.
The impairment charge for the period was GBP18.1m, an
improvement compared to H1'21 of GBP29.0m, which reflects the
ongoing release of provisions. Delinquency rates remained broadly
stable during the period, despite the uncertain backdrop,
reflecting the focus on lower risk customers in recent years. The
lower impairment charge equates to an annualised impairment rate at
the end of June of 3.5% vs. 5.8% for H1'21.
The risk-adjusted net interest margin increased to 31.8% in June
2022 vs. 30.3% in June 2021 reflecting the materially lower
impairment charge during the period and broadly stable revenue.
First half costs reduced by GBP5.0m to GBP87.4m (H1'21:
GBP92.4m), reflecting lower salary costs, run-rate cost saves and
other cost challenge initiatives. Interest costs showed a
year-on-year reduction to GBP9.1m (H1'21: GBP14.0m) during H1'22
driven by the inclusion of TFSME (as defined later in the document)
funding for the first time. The net funding rate for Vanquis fell
from 2.8% in H1'21 to 1.8% in H1'22, despite the BOE interest rate
rises.
During the first six months of the year, the credit card
business launched: three new APR price points; new limit offers;
and improved its Balance Transfer offering. For the remainder of
2022, the credit card business will continue to focus on its
product and service offering to customers including the ongoing
optimisation of its new business channels, a graduation of
high-quality dormant and low utilised accounts to a prime offering
and continuing to improve its Credit Line Increase programme.
Vehicle finance
Six months ended 30 June
2022 2021 Change
GBPm GBPm
--------- --------
Customer numbers ('000) 95 94 1.1%
Period-end receivables 598 602 (0.5%)
Average receivables(1) 593 588 0.9%
----------------------------------- --------- -------- --------
Revenue 70.4 68.8 2.3%
Interest (11.6) (14.1) 17.7%
----------------------------------- --------- -------- --------
Net interest margin 58.8 54.7 7.5%
Impairment (17.8) (20.0) 11.0%
----------------------------------- --------- -------- --------
Risk-adjusted net interest margin 41.0 34.7 18.2%
Costs (20.8) (19.2) (8.3%)
----------------------------------- --------- -------- --------
Profit before tax 20.2 15.5 30.3%
Annualised revenue yield(2) 23.8% 23.4% 0.4%
Annualised impairment rate(3) (6.0%) (6.8%) 0.8%
Annualised return on assets(4) 8.7% 8.2% 0.5%
(1) Calculated as the average of month end receivables for the 6 months ended 30 June.
(2) Revenue for the period multiplied by 365/181 as a percentage
of average receivables for the 6 months ended 30 June.
(3) Impairment for the period multiplied by 365/181 as a
percentage of average receivables for the 6 months ended 30
June.
(4) Profit before interest after tax for the period multiplied
by 365/181 as a percentage of average receivables for the 6 months
ended 30 June.
The Group's vehicle finance business is one of the leading
suppliers of vehicle finance near-prime and mid-cost customers in
the UK. For the first six months of the year, it generated a PBT of
GBP20.2m (H1'21: GBP15.5m), with the increase driven by growth in
average receivables, enabling higher revenue generation, and a
reduction in impairment and interest costs year-on-year.
The vehicle finance business, consistent with the rest of the
Group, continued to focus on lower risk customers during the
period. In early 2021, it launched a near-prime product which now
accounts for approximately 20% of new business volumes. The
business ended the period with 95k customers (H1'21: 94k). At the
end of June, receivables stood at GBP598m vs. GBP602m in H1'21
driven by new business volumes of 19k (H1'21: 20k) and credit
issued of approximately GBP155m (H1'21: GBP150m) offset by early
settlement activity.
As a result of the higher average receivables base, revenues
during H1'22 increased by 2.3% to GBP70.4m (H1'21: GBP68.8m). The
annualised revenue yield at the end of June was 23.8% vs. 23.4% in
June 2021.
Impairment reduced by 11% during the period to GBP17.8m (H1'21:
GBP20.0m) as favourable delinquency trends continued. As a result,
the annualised impairment rate decreased from 6.8% in June 2021 to
6.0%. The marginally higher revenue yield seen during the period
combined with the reduction in the impairment rate resulting in the
risk-adjusted net interest margin increasing to 13.8% the end of
June vs. 11.8% a year earlier.
Costs and expenses increased marginally to GBP20.8m, from
GBP19.2m last year, reflecting continued investment in the
business' platform and core capabilities. Interest costs were lower
year-on-year at GBP11.6m (H1'21: GBP14.1m) reflecting lower funding
costs being offset by higher average receivables.
The vehicle finance business will continue to seek new
partnership agreements in the UK, which should have the potential
to drive meaningful new business levels over time. It will continue
to assess new asset classes and product extensions and to improve
overall customer retention efforts.
Personal loans
Six months ended 30 June
2022 2021 Change
GBPm GBPm
-------- --------
Customer numbers ('000) 24 16 50.0%
Period-end receivables 42 16 162.5%
Average receivables(1) 34 17 100.0%
----------------------------------- -------- -------- ---------
Revenue 5.4 3.2 68.8%
Interest (0.5) (0.2) (150.0%)
----------------------------------- -------- -------- ---------
Net interest margin 4.9 3.0 63.3%
Impairment (2.6) (1.8) (44.4%)
----------------------------------- -------- -------- ---------
Risk-adjusted net interest margin 2.3 1.2 91.7%
Costs (13.0) (1.1) -
----------------------------------- -------- -------- ---------
Profit before tax (10.7) 0.1 -
----------------------------------- -------- -------- ---------
Annualised revenue yield(2) 31.5% 38.0% (6.5%)
Annualised impairment rate(3) (15.2%) (21.4%) 6.2%
(1) Calculated as the average of month end receivables for the 6 months ended 30 June.
(2) Revenue for the period multiplied by 365/181 as a percentage
of average receivables for the 6 months ended 30 June.
(3) Impairment for the period multiplied by 365/181 as a
percentage of average receivables for the 6 months ended 30
June.
During 2021, PFG established a personal loans business, which
included Vanquis Loans and Sunflower Loans, to diversify its
product offering to new and existing customers. Its products are
positioned within the near-prime and mid-cost credit segment of the
market, and initially offered loans of between GBP1k - GBP5k over
one to four years. In Q4'21, the business launched two pilot phases
for its loan offerings which concluded at the end of June 2022.
The Vanquis Bank Open Market Loans pilot significantly exceeded
internal expectations and saw consistently strong demand from its
target customer segment with good conversion rates. The Sunflower
Loans pilot phase using Open Banking ended its pilot phase below
commercial expectations despite good brand recognition of nearly
60% among applicants. As a result, the personal loans business will
focus on developing its core offering around Vanquis Bank Loans
(VBL) at sub-50% APR using. This offering will be supported by the
Group's new IT platform, 'Gateway', and work will commence to
transition VBL in 2023.
New business volumes during H1'22 were 10k, versus 4k in H1'21,
as the business continued with its push towards its Open Market
pilot schemes. As a result of these new customer bookings, the
personal loans businesses ended the period with 24k customers
versus 16k at the end of H1'21. At the end of June, receivables
stood at GBP42m versus GBP16m at the end of H1'21, driven by new
business volumes increasing year-on-year.
The personal loans business generated revenue of GBP5.4m during
H1'22 (H1'21: GBP3.2m) as a result of higher average receivables
year-on-year. The revenue yield for the period was 31.5% versus
38.0% in H1'21 as the business focused its activities on lower APR
products within Vanquis Bank Loans.
The impairment charge for H1'22 increased to GBP2.6m, from
GBP1.8m in H1'21, reflecting the growth in customers and
receivables year-on-year. This equated to an annualised impairment
rate for the period of 15.2% (H1'21: 21.4%) and a risk-adjusted net
interest margin of 13.4% versus 14.2% for H1'21.
Interest costs for the year were increased to GBP0.5m, versus
GBP0.2m in H1'21, equating to an interest margin of 2.9% versus
2.4% in H1'21. Costs increased during the course of the period to
GBP13.0m (H1'21: GBP1.1m) reflecting higher new business volumes
and the continued investment in the new IT infrastructure.
For the remainder of 2022, the personal loans business will
continue to broaden its Open Market offering, optimise existing
customer lending, maintain its focus on growing lending to existing
credit card customers and pursue opportunities to broaden the
product offering.
Central costs
Central costs increased during the period to GBP31.0m (H1'21:
GBP9.1m), owing to an increased level of cost being recognised
centrally, including the centralisation of certain costs from the
businesses, certain residual CCD costs and investment in the
Group's transformation capabilities towards its target operating
model. These investments are expected to drive significant
improvements in cost efficiency in the future.
Exceptional items
Exceptional costs in the first half of 2022 of GBP3.7m relate to
corporate costs incurred centrally.
Exceptional costs in the first half of 2021 of GBP2.1m related
to CCD closure costs including the curtailment credit of GBP0.8m on
the pension scheme.
Exceptional costs for discontinued operations in the first half
of 2022 relate to the release of the provision for the FCA
investigation into CCD, resulting in a GBP4.1m credit. Exceptional
costs in the first half of 2021 of GBP44.2m in relation to
discontinued operations were in relation to closure activity of
GBP34.2m including redundancy costs, costs in relation to the
Scheme of arrangement (GBP5m) and cost in relation to the CCD
enforcement where a provision of GBP5.0m was recognised.
Tax
The tax charge (2021: credit) for the period on profit before
tax, amortisation of acquisition intangibles and exceptional items
is GBP15.7m (2021: tax credit GBP4.2m). The tax charge (2021:
credit) reflects:
-- the adverse impact of the bank corporation tax surcharge of
8% which applies to Vanquis Bank's profits in excess of GBP25m;
-- in the current period, the adverse impact of revaluing
deferred tax assets in Vanquis Bank at the combined mainstream
corporation tax and bank surcharge rates of 28% (2021:33%) to the
extent the underlying temporary differences are expected to reverse
after 1 April 2023, following the changes to bank corporation tax
surcharge enacted in Finance Act 2022;
-- in 2021, the beneficial impact of measuring deferred tax
balances at 25% (2020: 19%) and in the case of Vanquis Bank at 33%
(2020: 27%) to the extent the underlying temporary differences were
expected to reverse after 1 April 2023, following the announcement
in the March 2021 Budget that the rate of mainstream UK corporation
tax would be increased to 25% from 1 April 2023;
-- in 2021, the expected benefit of recognising the costs of the
Scheme of Arrangement as part of continuing operations.
Dividends
The Board is proposing an interim dividend of 5.0p with respect
to H1'22 (H1'21: GBPnil), consistent with its capital management
framework of aiming to provide attractive and sustainable returns
to its shareholders. Shareholders on the register as at 12 August
2022 will be eligible and it will be paid on the 22 September
2022.
Funding and Capital
The Group has strong capital and liquidity positions
comprising:
-- Total regulatory capital of approximately GBP660m, equating
to a total capital ratio of 39.2% and a surplus above the minimum
regulatory requirement of GBP310m.
-- Headroom on committed facilities and surplus cash and liquid
resources available to the non-bank Group amounting to
approximately GBP230m (GBP145m of which has been placed on deposit
with Vanquis Bank). Inclusive of the GBP145m deposit, Vanquis Bank
is holding approximately GBP330m of liquid resources above Group
Liquidity Coverage Ratio requirements and has ongoing access to the
retail deposits market.
The Group has in place a Capital Principal Risk Policy, which
sets out the framework in which the Group aims to maintain a secure
funding and capital structure and establishes defined capital risk
appetite. Adherence to the policy ensures that the Group maintains
minimum capital levels and that the capital held at business
division levels is adequate to support the businesses' underlying
requirements and is sufficient to support growth in that business.
Internal capital is allocated to business lines and risk
categories, calibrated to maximise return on equity while remaining
within the risk appetite. The distribution of dividends is aligned
with the Group's growth targets, whilst continuing to meet the
required capital levels in line with regulatory requirements and
internal risk appetite.
At 30 June 2022, the Group's CET1 ratio was 27.3% (H1'21: 32.5%)
and the Total Capital Ratio was 39.2% (H1'21: 32.5%). CET1 has
decreased from GBP507m to GBP459m during 2022 and total capital
decreased from GBP707m to GBP659m. The continuing operations of the
Group are CET1 generative in 2022. The regulatory capital headroom
above the minimum regulatory requirement of 20.8% was GBP309m at
the end of the period. The decrease in headroom from GBP344m at 31
December 2021 (versus the minimum regulatory requirement)
predominantly reflects the scheduled further unwind of the IFRS 9
transitional relief in regulatory capital (GBP54m). This was partly
offset by (i) the underlying profit excluding discontinued
operations; and (ii) smaller risk weighted exposures in respect of
customer receivables.
As previously reported, the Group has elected to phase in the
impact of adopting IFRS 9 over the five-year period ending 31
December 2022, by applying add back factors of 95%, 85%, 70%, 50%
and 25% for years one to five, respectively, to the initial IFRS 9
transition adjustment. This is in addition to any subsequent
increase in expected credit losses (ECL) in the non-credit-impaired
book from transition to the end of the reporting period. The PRA
ratified additional capital mitigation proposed by the Basel
Committee, in response to Covid-19, with these measures coming into
force from 27 June 2020. The new measures allow for the impact on
regulatory capital of any increase in ECL in the non-credit
impaired book arising from 1 January 2020 to be phased in over the
five-year period to 31 December 2024 (FY'20: 100%, 2021: 100%,
2022: 75%, 2023: 50%, 2024: 25%). The impact of the IFRS 9
transitional arrangements on CET1 as at 30 June 2022 was
GBP54m.
In 2022, the Group has continued to deliver on a number of its
funding objectives: (i) in line with the Group's strategy to reduce
its reliance on Revolving Credit Facilities (RCF) as a source of
funds the Group took the decision to repay the RCF early on 30
March 2022 (the Group does not require the funding and did not plan
to renew the facility on maturity); (ii) the Group has applied for
a Core UK Group waiver to allow the use of retail deposits held at
Vanquis Bank to fund other parts of the Group and the PRA
(Prudential Regulation Authority) has confirmed that it has no
further questions and that the application has been submitted to
their approval governance committee; (iii) the GBP70m loan from
Vanquis Bank to Provident Financial plc has been repaid early on 30
June; (iv) Vanquis Bank has extended a GBP70m loan to Moneybarn
under the existing Large Exposure Limit on 30 June (that is not
waiver dependent); and (v) the Group has placed non-bank surplus
funds on deposit with the Bank of England via Vanquis Bank.
At 30 June 2022, Vanquis Bank had retail deposit funding of
GBP0.9bn, down from GBP1.1bn a year earlier, reflecting a more
normalised funding level relative to lending and access to
alternative funding through Term Funding Scheme with additional
incentives for Small and Medium-sized Enterprises (TFSME).
Headroom on committed facilities (GBP50m) and surplus cash and
liquid resources (GBP180m) amounted to approximately GBP230m.
Headroom on committed facilities consists of undrawn amounts on the
warehouse facility (GBP50m). Of the surplus cash, GBP145m has been
placed on callable deposit with Vanquis Bank. The Group has no
contractual wholesale maturities until H2'23, representing a robust
and diverse funding profile.
The Group continues to adopt a prudent approach to managing its
funding and liquidity resources within risk appetite and will
continue to optimise these resources when new opportunities become
available to the Group.
The Group applies a Capital Management Policy that requires
subsidiaries, including Vanquis Bank, to maintain sufficient
capital to meet regulatory requirements, manage for 12 months
growth and investment whilst maintaining a management buffer.
Thereafter and where applicable Vanquis Bank is required to
distribute a dividend to the Group. Vanquis Bank paid a dividend to
the Group of GBP69m on 30 June 2022.
The PRA has confirmed that it will conduct a capital adequacy
review (C-SREP) of the Group and Bank in H2'22.
Principal Risks and Uncertainties
Our principal risks are those which are most critical to the
alignment of our Group Strategy. Principal risk categories and
associated risk appetite statements are reviewed and approved by
the Board on an annual basis.
Capital risk
This is defined as the risk that the Group is unable to maintain
appropriate, minimum regulatory capital or an internal management
buffer to cover risk exposures and withstand a severe stress as
defined in its risk appetite and in the ICAAP. The Group and Bank
operate within a defined capital risk appetite, with thresholds
reported to and monitored by Group Boards. Additional metrics and
thresholds have been developed for the Group and Vanquis Bank. All
thresholds have been calibrated above the Recovery & Resolution
Plan ("RRP") triggers in order to provide advance warning of
threshold breaches.
Funding and Liquidity risk
This is defined as the risk that the Group has insufficient
liquidity to meet its obligations as they fall due, and or is
unable to maintain sufficient funding for its future needs. The
Group's current funding strategy seeks to maintain a secure funding
structure by maintaining committed facilities to pre-fund the
Group's liquidity and funding requirements for at least the next 12
months, maintaining access to four main sources of funding
comprising: (i) external market funding; (ii) securitisation; and
(iii) retail deposits and (iv) liquidity and funding facilities at
the Bank of England.
Credit risk
This is defined as the risk of loss arising from lending to a
borrower who is unwilling or unable to repay, in full and/or in
accordance with agreed terms, the total amount payable for the
loan. Credit Risk appetite has been refreshed with metrics and
thresholds grouped by product lines to enable more focused
monitoring and management action to remain within appetite on a
timely basis. Regular reporting is in place which allows daily
monitoring of new business quality, collections performance and
concentration analysis. Extensive work has been undertaken to
enhance credit worthiness and affordability procedures.
Strategic risk
This is defined as the risk of making poor strategic decisions
related to acquisitions, products, distribution etc as a result of
ineffective governance arrangements, processes and controls. In
January 2022 the Group created an aligned board structure across
PFG and Vanquis Bank designed to make it more efficient and provide
better, more coordinated customer service. Board governance manual
and Delegated Authorities Manual (DAM) are in place to provide a
framework for key decision making at all levels across the Group
and divisions. Executive Director scorecards are in place with
reward incentives based on a combination of financial and
non-financial measures.
Legal and Governance Risk
This is defined as the risk that the Group is exposed to
financial loss, fines, censure or enforcement action due to failing
to comply with legal and governance requirements as a result of
ineffective arrangements, process and controls. The Group operates
in a highly regulated environment and in a sector where its
customers are more vulnerable and need careful management. At all
levels, the Group has worked hard to build and maintain positive
relationships with our key regulators. Any regulatory actions are
managed and monitored closely to ensure these are delivered fully
and within the spirit of any feedback received.
Operational Risk
This is defined as the risk of loss resulting from inadequate or
failed internal processes, people and systems or from external
events. The three lines of defence model throughout the Group
ensures there are clear lines of accountability between management
who own the risks, oversight by the risk function and independent
assurance provided by Internal Audit.
Model risk
This is defined as the risk of loss as a consequence of
decisions that are based on incorrect or misused model outputs and
poor governance or errors in the development, implementation, or
use of models. A Group model risk management framework and model
risk policy is embedded with a model inventory in place to ensure
periodic review and strict change control. Critical IFRS9 models
across the Group have been independently validated by the Model
Risk team within the Group Risk Function.
Financial Crime risk
This is defined as the risk that the Group's products and
services are used to facilitate financial crime against the Group,
customers or third parties. The Group operate a strong and
risk-proportionate set of systems and controls to detect and
prevent financial crime. The Group is committed to complying with
applicable legislation for the management of Financial Crime Risk,
with all Divisions ensuring that they meet the minimum requirements
and expectations of the regulatory bodies and those set by
legislation, relevant to that Division, for managing Financial
Crime Risk effectively.
Market risk
This is defined as the risk of loss due to adverse market
movements caused by active trading positions taken in interest
rates, foreign exchange markets, bonds and equities. The Group's
corporate policies do not permit it to undertake position taking or
trading books of this type and therefore it does not do so.
Climate risk
This is defined as the physical risk of the impacts of climate
change and the business risk posed to the Group and its
counterparties related to non-compliance costs and financial loss
associated with the process of adjusting to a low -- carbon
economy. The Group continues to develop an approach to Climate risk
management through the Climate Risk Committee and risk management
activities to identify the physical and transition climate related
risks that have implications for the Group's business model and
stakeholders.
Conduct and Regulatory risk
Conduct Risk is defined as the risk of customer detriment due to
poor design, distribution and execution of products and services or
other activities which could lead to unfair customer outcomes or
regulatory censure. Regulatory Risk is defined as the risk that the
Group is exposed to financial loss, fines, censure or enforcement
action due to failing to comply with laws or regulations (including
handbooks, codes of conduct, statutory and regulatory guidance).
Conduct and Regulatory risk remains a key focus for the Group with
detailed risk appetite statements, metrics and thresholds in place
in relation to the fair treatment and management of our customers.
Conduct Risk frameworks and governance have been enhanced which
clearly identify intended customer outcomes and the associated
monitoring, testing, data sources and management information
required.
People Risk
This is defined as the failure to maintain a properly engaged
and skilled workforce who are aligned to our purpose and Group
culture. In managing our people risk, we ensure we have adequate
controls across the whole colleague life cycle covering the
onboarding, development and management of our colleagues. This
extends to ensuring we have sufficient operational capacity and
colleagues with the right skills in meeting our financial, customer
and regulatory responsibilities.
Technology and Information Security Risk
This is defined as the risk arising from compromised or
inadequate technology, security and data that could affect the
confidentiality, integrity or availability of the Group's data or
systems. This risk is managed in conjunction with Operational risk
with additional and particular focus on cyber and technology
infrastructure. Extensive work within Vanquis under the First Line
Controls Review programme is on track and there is sufficient
oversight in place to ensure early detection of further potential
delay.
Related party transactions
During the period, Provident Financial plc received dividend
payments from Vanquis Bank, via Provident Financial Holdings
Limited, amounting to GBP69m (H1'21: GBP65m).
In August 2020 Vanquis Bank provided Provident Financial plc
with a GBP70m intercompany loan facility to allow upstream funding.
On the 30(th) June 2022 Provident Financial plc repaid the loan
early and Vanquis Bank extended a GBP70m loan to Moneybarn.
Unaudited condensed interim financial statements
Consolidated income statement
Six months ended
30 June
Note 2022 2021
GBPm GBPm
-------------- ----------------
Interest income 240.1 233.5
Fee income 26.1 30.9
-------------- ----------------
Total revenue 4 266.2 264.4
-------------- ----------------
Finance costs (23.9) (25.1)
-------------- ----------------
Net interest margin 242.3 239.3
Impairment charges 9 (38.5) (50.8)
-------------- ----------------
Risk-adjusted net interest margin 203.8 188.5
-------------- ----------------
Operating costs (156.9) (130.8)
Profit before tax from continuing operations 4 46.9 57.7
--------------------------------------------------- ----- -------------- ----------------
Profit before tax, amortisation of acquisition
intangibles and exceptional items 4 54.3 63.5
Amortisation of acquisition intangibles 4 (3.7) (3.7)
Exceptional items 4 (3.7) (2.1)
--------------------------------------------------- ----- -------------- ----------------
Tax (charge)/credit 6 (15.0) 5.3
-------------- ----------------
Profit for the period from continuing operations 31.9 63.0
Loss after tax for the period from discontinued
operations 5 (10.4) (112.6)
-------------- ----------------
Profit/(loss) for the period attributable to
equity shareholders 21.5 (49.6)
-------------- ----------------
Consolidated statement of comprehensive income
Six months ended
30 June
Note 2022 2021
GBPm GBPm
--------- --------
Profit/(loss) for the period attributable
to equity shareholders 21.5 (49.6)
--------- --------
Items that will not be reclassified subsequently
to the income statement:
- actuarial movements on retirement benefit
asset 10 (32.7) 10.7
- fair value movement in investments 11 - 0.5
- tax on items taken directly to other comprehensive
income 6.2 (2.7)
* impact of change in UK tax rate on items in other
comprehensive income 2.0 (5.1)
Other comprehensive (expense)/income for the
period (24.5) 3.4
Total comprehensive expense for the period (3.0) (46.2)
--------- --------
Earnings/(loss) per share
Six months ended
30 June
Note 2022 2021
pence pence
--------- ----------
Basic 7 8.6 (19.6)
--------- ----------
Diluted 7 8.5 (19.6)
--------- ----------
The above earnings/(loss) per share is on
a Group basis including discontinued operations
Six months ended
Dividends per share 30 June
2022 2021
pence pence
--------- ----------
Interim dividend 8 5.0 -
--------- ----------
Paid in the period (1) 8 12.0 -
--------- ----------
(1) Dividends paid in the period were GBP30.1m (2021:
GBPnil).
Consolidated balance sheet
Note 30 June 31 December 30 June
2022 2021 2021
GBPm GBPm GBPm
-------- ------------ --------
ASSETS
Cash and cash equivalents 559.5 717.7 485.8
Amounts receivable from customers 9 1,667.4 1,677.7 1,637.2
Trade and other receivables 25.5 18.8 37.4
Current tax asset - - 3.5
Investments held at fair value
through profit and loss 11 8.8 9.1 9.7
Property, plant and equipment 8.2 8.4 12.9
Right of use assets 43.9 47.9 52.0
Goodwill 71.2 71.2 71.2
Other intangible assets 53.2 52.3 40.8
Retirement benefit asset 10 81.8 112.2 92.7
Derivative financial instruments 7.7 3.1 -
Deferred tax assets 6.4 6.9 26.7
TOTAL ASSETS 4 2,533.6 2,725.3 2,469.9
-------- ------------ --------
LIABILITIES AND EQUITY
Liabilities
Trade and other payables 65.1 95.6 106.2
Current tax liabilities 3.0 3.8 -
Provisions 13 58.4 72.1 65.6
Lease liabilities 54.1 58.9 64.9
Retail deposits 926.9 1,018.5 1,062.8
Bank and other borrowings 824.8 845.2 567.2
Derivative financial instruments - - 0.2
Total liabilities 1,932.3 2,094.1 1,866.9
-------- ------------ --------
Equity attributable to owners
of the parent
Share capital 52.6 52.6 52.6
Share premium 273.5 273.3 273.2
Merger reserves 278.2 278.2 278.2
Other reserves 11.4 9.8 14.8
Retained (deficit)/earnings (14.4) 17.3 (15.8)
-------- ------------ --------
Total equity 4 601.3 631.2 603.0
-------- ------------ --------
TOTAL LIABILITIES AND EQUITY 2,533.6 2,725.3 2,469.9
-------- ------------ --------
Consolidated statement of changes in shareholders' equity
Share Share Merger Other Retained
capital premium reserve reserves earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------- --------- --------- ---------- ---------- --------
At 1 January 2021 52.6 273.2 278.2 14.6 29.1 647.7
--------- --------- --------- ---------- ---------- --------
Loss for the period - - - - (49.6) (49.6)
--------- --------- --------- ---------- ---------- --------
Other comprehensive income/(expense):
- fair value movement in investments - - - 0.5 - 0.5
- actuarial movements on retirement
benefit asset (note 10) - - - - 10.7 10.7
- tax on items taken directly
to OCI - - - (0.1) (2.6) (2.7)
- impact of change in UK tax
rate - - - (0.3) (4.8) (5.1)
--------- --------- --------- ---------- ---------- --------
Other comprehensive income for
the period - - - 0.1 3.3 3.4
--------- --------- --------- ---------- ---------- --------
Total comprehensive income/(expense)
for the period - - - 0.1 (46.3) (46.2)
--------- --------- --------- ---------- ---------- --------
Share-based payment charge - - - 1.5 - 1.5
Transfer of share-based payment
reserve - - - (1.4) 1.4 -
At 30 June 2021 and 1 July
2021 52.6 273.2 278.2 14.8 (15.8) 603.0
--------- --------- --------- ---------- ---------- --------
Profit for the period - - - - 17.5 17.5
--------- --------- --------- ---------- ---------- --------
Other comprehensive (expense)/income:
- fair value movement in investments - - - (0.5) - (0.5)
- actuarial movements on retirement
benefit asset (note 10) - - - - 16.4 16.4
- Fair value movements transferred
to income statement - - - (5.2) - (5.2)
- tax on items taken directly
to OCI - - - 1.5 (2.6) (1.1)
- impact of change in UK tax
rate - - - 0.3 (1.6) (1.3)
Other comprehensive (expense)/income
for the period - - - (3.9) 12.2 8.3
--------- --------- --------- ---------- ---------- --------
Total comprehensive(expense)/income
for the period - - - (3.9) 29.7 25.8
--------- --------- --------- ---------- ---------- --------
Issue of share capital - 0.1 - - - 0.1
Share-based payment charge - - - 2.3 - 2.3
Transfer of share-based payment
reserve - - - 3.4 3.4 -
At 31 December 2021 52.6 273.3 278.2 9.8 17.3 631.2
--------- --------- --------- ---------- ---------- --------
At 1 January 2022 52.6 273.3 278.2 9.8 17.3 631.2
--------- --------- --------- ---------- ---------- --------
Profit for the period - - - - 21.5 21.5
--------- --------- --------- ---------- ---------- --------
Other comprehensive (expense)/income:
- actuarial movements on retirement
benefit asset (note 10) - - - - (32.7) (32.7)
- tax on items taken directly
to OCI - - - - 6.2 6.2
- impact of change in UK tax
rate - - - - 2.0 2.0
Other comprehensive expense
for the period - - - - (24.5) (24.5)
--------- --------- --------- ---------- ---------- --------
Total comprehensive expense
for the period - - - - (3.0) (3.0)
--------- --------- --------- ---------- ---------- --------
Increase in share premium - 0.2 - - - 0.2
Share-based payment charge - - - 3.0 - 3.0
Transfer of share-based payment
reserve - - - (1.4) 1.4 -
Dividends - - - - (30.1) (30.1)
At 30 June 2022 52.6 273.5 278.2 11.4 (14.4) 601.3
--------- --------- --------- ---------- ---------- --------
The rights issue in April 2018 was undertaken through a cash box
structure which allowed merger relief to be applied to the issue of
shares rather than recording share premium. Following the transfer
of Vanquis Bank to Provident Financial Holdings Limited in December
2020 the full merger reserve of GBP278.2m is now considered
distributable.
Consolidated statement of cash flows
Six months ended
30 June
Note 2022 2021
GBPm GBPm
--------- --------
Cash flows from operating activities
Cash generated from operations 16 38.4 184.4
Finance costs paid (21.3) (36.1)
Tax paid (7.9) -
--------- --------
Net cash generated from operating activities 9.2 148.3
Cash flows from investing activities
Purchase of intangible assets (10.7) (0.9)
Purchase of property, plant and equipment (1.2) (8.2)
Net cash used in investing activities (11.9) (9.1)
Cash flows from financing activities
Proceeds from bank and other borrowings 66.7 143.9
Repayment of bank and other borrowings (186.3) (712.5)
Payment of lease liabilities (4.8) (4.7)
Dividends paid to company shareholders (30.1) -
Proceeds from issue of share capital 0.2 -
Net cash used in financing activities (154.3) (573.3)
Net decrease in cash, cash equivalents and
overdrafts (157.0) (434.1)
Cash, cash equivalents and overdrafts at
beginning of period 714.1 918.3
Cash, cash equivalents and overdrafts at
end of period 557.1 484.2
--------- --------
Cash, cash equivalents and overdrafts at
end of period comprise:
Cash at bank and in hand 559.5 485.8
Overdrafts (held in bank and other borrowings) (2.4) (1.6)
--------- --------
Total cash, cash equivalents and overdrafts 557.1 484.2
--------- --------
Cash at bank and in hand includes GBP430.4m (2021: GBP279.3m) in
respect of the liquid assets buffer, including other liquidity
resources, held by Vanquis Bank in accordance with the PRA's
liquidity regime. As at 30 June 2022, GBP63.5m (2021: GBP86.3m) of
the buffer was available to finance Vanquis Bank's day-to-day
operations.
Notes to the unaudited condensed interim financial
statements
1 . General information
The company is a public limited company, incorporated and
domiciled in the UK. The address of its registered office is No. 1
Godwin Street, Bradford, BD1 2SU. The company is listed on the
London Stock Exchange.
The unaudited condensed interim financial statements do not
constitute the statutory financial statements of the Group within
the meaning of section 434 of the Companies Act 2006. The statutory
financial statements for the year ended 31 December 2021 were
approved by the board of directors on 6 April 2022 and have been
delivered to the Registrar of Companies. The report of the auditor
on those financial statements was unqualified, did not draw
attention to any matters by way of emphasis and did not contain any
statement under section 498(2) or (3) of the Companies Act
2006.
The unaudited condensed interim financial statements for the six
months ended 30 June 2022 have been reviewed, not audited, and were
approved by the board of directors on 26 July 2022.
2. Basis of preparation
The unaudited condensed interim financial statements for the six
months ended 30 June 2022 have been prepared in accordance with IAS
34 'Interim Financial Reporting' as adopted by the UK. The
unaudited condensed interim financial statements should be read in
conjunction with the statutory financial statements for the year
ended 31 December 2021.
The interim financial statements have been prepared on a going
concern basis under the historical cost convention.
In assessing whether the Group is a going concern, the directors
have reviewed the Group's corporate plan as approved in December
2021, which includes capital and liquidity forecasts from 2022 to
2026. The assessment included consideration of the Group's
principal risks and uncertainties, with a focus on capital and
liquidity.
The directors have also reviewed the Group's stress testing
projections which are based on a severe but plausible scenarios in
which unemployment peaks at 12%. This shows that the Group is able
to maintain sufficient capital headroom above minimum requirements.
The directors have reviewed the Group's reverse stress testing
projections to the point of non-viability, which concluded that the
Group's viability only comes into question under an unprecedented
macroeconomic scenario.
Based on this review, the directors are satisfied that the Group
has the required resources to continue in business for a period of
at least twelve months following the approval of the interim
financial statements. For this reason, the directors continue to
adopt the going concern basis in preparing the unaudited condensed
interim financial statements.
3. Accounting policies
The accounting policies applied in preparing the unaudited
condensed interim financial statements are consistent with those
used in preparing the statutory financial statements for the year
ended 31 December 2021.
Critical accounting judgements and key sources of estimation
uncertainty
The significant accounting judgements exercised by management
and key sources of estimation uncertainty in the interim financial
statements are consistent with those adopted in the statutory
financial statements for the year ended 31 December 2021.
Amounts receivable from customers
As disclosed in the 2021 annual report and financial statements,
the valuation of amounts receivable from customers remains a
significant accounting judgement. Personal loans customer
receivable balances are not regarded a critical estimation
uncertainty due to the current size of the balances, however,
follow a similar impairment approach to the credit cards.
The amounts receivable from customers are reviewed for
impairment at each balance sheet date. For the purposes of
assessing the impairment, customers are categorised into IFRS 9
stages and cohorts which are considered to be the most reliable
indication of future repayment performance.
Significant increase in credit risk (SICR) :
Assessments are made to determine whether there is objective
evidence of a significant increase in credit risk (SICR) which
indicates there has been an adverse effect on Probability of
Default (PD). A SICR for customers in credit cards, vehicle finance
and personal loans is when there has been a significant increase in
behavioural PD when compared to origination PD or when the
contractual monthly payment is over 30 DPD (days passed due) or
when customers are identified as vulnerable.
The determination of the SICR thresholds used in the models for
credit card, vehicle finance and personal loans required management
judgement to optimise the performance and therefore effectiveness
of the staging methodology. Assessments are made to determine
whether there is objective evidence of a SICR which indicates there
has been an adverse effect on PD.
Default
For the purpose of IFRS 9, default is assumed in credit cards
and personal loans when three contractual repayments have been
missed.
In vehicle finance, a customer is deemed to have defaulted when
they are 90 DPD in arrears or enter a forbearance arrangement.
Customer agreements which have been terminated, either voluntarily,
by the customer settling their agreement early, or through the
agreement being default terminated, are also included within stage
3.
The Group's impairment models are subject to periodic
monitoring, validation and back testing performed on model
components, including probability of default, exposure at default
and loss given default, to ensure model outputs remain
appropriate.
The level of impairment recognised is calculated using models
which utilise historical payment performance to generate the
estimated amount and timing of future cash flows from each cohort
of customers in each arrears stage. The models are regularly tested
to ensure they retain sufficient accuracy.
Limitations in the Group's impairment models or data inputs may
be identified through the ongoing assessment and validation of the
output of the models. In these circumstances, management makes
appropriate adjustments to the Group's allowance for impairment
losses to ensure that the overall provision adequately reflects all
material credit risks. These adjustments are determined by
considering the particular attributes of exposures which have not
been adequately captured by the impairment models and range from
changes to model inputs and parameters, at account level, through
to more qualitative post-model overlays. Those changes applied to
model inputs and parameters are deemed to be in-model overlays;
more qualitative changes that have a higher degree of management
judgement are deemed to be post -- model overlays. All adjustments
are reviewed quarterly and are subject to internal review and
challenge to ensure that amounts are appropriately calculated.
During Covid-19 in an economic environment which differed
significantly from the historical economic conditions upon which
the impairment models had been built, there was a greater need for
management judgement to be applied in determining appropriate
post-model adjustments. Following refinements to the models during
2021, a number of the post-model adjustments are now included as
part of the core model calculations. A breakdown of the in-model
and post-model overlays is included within note 9.
Macroeconomic impairment provision adjustments are now
recognised in the core model to reflect an increased PD, based on
future macroeconomic scenarios.
These provisions reflect the potential for future changes in
hazard rate, the number of people who were employed last month but
who are unemployed the following month (derived from unemployment
rates), and the debt to income ratio. The provision reflects the
potential for future changes under a range of forecasts, as
analysis has clearly evidenced strong correlation between hazard
rates, debt to income ratios and credit losses incurred.
Management judgement was required to determine the appropriate
macroeconomic indicators to be used in the model by assessing their
correlation with credit losses incurred by the business.
Unemployment is judged to be a key macroeconomic indicator as
analysis has clearly evidenced correlation between changes in
unemployment and credit losses incurred by the business. This will
continue to be analysed to assess if there are any additional
macroeconomic indicators which also correlate to credit losses.
Key sources of estimation uncertainty:
The level of impairment recognised is calculated using models
which utilise historical payment performance to generate the
estimated amount and timing of future cash flows from each cohort
of customers in each arrears stage. The models are regularly tested
to ensure they retain sufficient accuracy. Sensitivity analysis has
been performed in note 9 which shows the impact of a 1% movement of
gross exposure into stage 2 from stage 1 on the allowance
accounts.
The unemployment data used in the macroeconomic provisions has
been compiled from a consensus of sources including the Bank of
England, HM Treasury, the Office for Budget Responsibility (OBR),
Bloomberg and a number of prime banks. These estimates are used to
derive base case, upside, downside and severe scenarios.
The table below shows the scenario five-year peak and average
unemployment assumptions adopted and the weightings applied to
each. The weightings have remained consistent with 31 December 2021
and 30 June 21 .
Scenario as at 30 June 2022 Base Upside Downside Severe
Weighting 50% 10% 35% 5%
----------------------------- ------------- -------------- -------------- ----------
2022 4.0% 3.8% 4.2% 4.5%
2023 4.2% 3.6% 5.8% 7.5%
2024 4.3% 3.9% 6.1% 8.0%
2025 4.3% 4.0% 5.3% 6.5%
2026 4.3% 4.0% 4.8% 5.4%
----------------------------- ------------- -------------- -------------- ----------
Five year peak 4.7% 4.7% 6.3% 8.5%
----------------------------- ------------- -------------- -------------- ----------
Scenario as at 31 December 2021 Base Upside Downside Severe
Weighting 50% 10% 35% 5%
--------------------------------- ----- ------- --------- -------
2022 4.6% 4.2% 5.4% 6.3%
2023 4.3% 3.9% 6.4% 8.5%
2024 4.3% 4.1% 5.9% 7.5%
2025 4.3% 4.1% 5.3% 6.2%
2026 4.3% 4.1% 4.9% 5.4%
--------------------------------- ----- ------- --------- -------
Five year peak 4.8% 4.7% 6.5% 8.6%
--------------------------------- ----- ------- --------- -------
Sensitivity analysis has been performed on the weightings which
show that changing the weightings for vehicle finance and personal
loans would not have a material impact on the allowance
account.
For credit cards and personal loans, increasing the downside
weighting by 5%, from 35% to 40%, and a corresponding reduction in
the base case would increase the allowance account by GBP1.4m for
credit cards and personal loans. Increasing the upside weighting by
5%, from 10% to 15%, and a corresponding reduction in the base case
would decrease the allowance account by GBP0.3m.
The impact on the allowance account for the credit cards and
personal loans, if each of the macroeconomic scenarios were applied
at 100% weighting, rather than the weightings set out above, is
shown below:
Base Upside Downside Severe
GBPm GBPm GBPm GBPm
--------------------------------- ------ ------- --------- -------
Credit cards and personal loans (4.0) (9.9) 5.9 18.6
--------------------------------- ------ ------- --------- -------
Cost of living post model provisions are recognised in credit
cards (GBP10m) and vehicle finance (GBP0.5m) which reflect
management's view of potential credit losses in light of the
current economic environment. This will continue to be closely
monitored throughout the remainder of the year.
Key sources of estimation uncertainty:
Retirement benefit asset
The valuation of the retirement benefit asset is dependent upon
a series of assumptions, the key assumptions being mortality rates
and the discount rate applied to liabilities. The most significant
assumption which could lead to material adjustment is a change in
discount rates.
Discount rates are based on the market yields of high -- quality
corporate bonds which have terms closely linked with the estimated
term of the retirement benefit obligation. Mortality estimates are
based on standard mortality tables, adjusted where appropriate to
reflect the Group's own expected experience.
Sensitivity analysis of the Group's main assumptions is set out
in note 10.
The impact of new standards adopted by the Group from 1 January
2022
There are no new standards adopted by the Group from 1 January
2022.
The impact of new standards not yet effective and not adopted by
the Group from 1 January 2022
There are no new standards not yet effective and not adopted by
the Group from 1 January 2022 which are expected to have a material
impact on the Group
4. Segment reporting
Revenue Profit/(loss) before
tax
Six months ended Six months ended
30 June 30 June
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
------------------ ------ ------------------- -------------------
Credit cards 190.4 192.4 75.8 57.0
Vehicle finance 70.4 68.8 20.2 15.5
Personal loans 5.4 3.2 (10.7) 0.1
Central costs - - (31.0) (9.1)
------------------ ------ ------------------- -------------------
Total Group before amortisation
of acquisition intangibles and
exceptional items 266.2 264.4 54.3 63.5
Amortisation of acquisition intangibles - - (3.7) (3.7)
Exceptional items - - (3.7) (2.1)
------------------ ------ ------------------- -------------------
Total Group - continuing operations 266.2 264.4 46.9 57.7
CCD - discontinued operations - 52.3 (13.7) (57.7)
CCD - discontinued operations
exceptional items - - 4.1 (44.2)
------------------ ------ ------------------- -------------------
Total Group 266.2 316.7 37.3 (44.2)
------------------ ------ ------------------- -------------------
Revenue between business segments is not significant.
Acquisition intangibles represent the fair value of the broker
relationships of GBP75.0m which arose on the acquisition of
Moneybarn in August 2014. The intangible asset was calculated based
on the discounted cash flows associated with Moneybarn's core
broker relationships and is being amortised over an estimated
useful life of 10 years. The amortisation charge in the first half
of 2022 amounted to GBP3.7m (2021: GBP3.7m).
Exceptional costs for continuing operations in the first half of
2022 of GBP3.7m relate to corporate costs incurred centrally.
Exceptional costs for continuing operations in the first half of
2021 of GBP2.1m related to CCD closure costs including curtailment
credit of GBP0.8m on the pension scheme.
Exceptional costs for discontinued operations in the first half
of 2022 relate to the release of the provision for the FCA
investigation into CCD, resulting in a GBP4.1m credit. Exceptional
costs in the first half of 2021 of GBP44.2m in relation to
discontinued operations were in relation to closure activity of
GBP34.2m including redundancy costs, costs in relation to the
Scheme of arrangement (GBP5m) and cost in relation to the CCD
enforcement where a provision of GBP5.0m was recognised.
Segment assets Net assets/(liabilities)
30 June 31 December 30 June 30 June 31 December 30 June
2022 2021 2021 2022 2021 2021
GBPm GBPm GBPm GBPm GBPm GBPm
-------- ---------------- -------- -------------- ------------ --------
Credit cards and
personal loans 1,623.5 1,639.1 1,389.0 372.4 374.5 310.7
Vehicle finance 714.1 698.3 653.5 169.7 105.8 31.9
Central 480.0 546.5 659.4 454.6 446.0 591.0
-------- ---------------- -------- -------------- ------------ --------
Continuing operations
before intra-group
elimination 2,817.6 2,883.9 2,701.9 996.7 926.3 933.6
Discontinued operations - 0.3 58.6 (395.4) (295.1) (330.6)
Intra-group elimination (284.0) (158.9) (290.6) - - -
-------- ---------------- -------- -------------- ------------ --------
Total Group 2,533.6 2,725.3 2,469.9 601.3 631.2 603.0
-------- ---------------- -------- -------------- ------------ --------
The presentation of segment net assets reflects the statutory
assets, liabilities and net assets of each of the Group's
divisions. This results in an intra Group elimination reflecting
the difference between the central intercompany funding provided to
the divisions and the external funding raised centrally.
Up to 30 June 2021, the Group's businesses operated in the UK
and Republic of Ireland. Following the closure of the ROI home
credit business in 2021, it now operates solely in the UK.
5. Discontinued operations
The Group closed CCD comprising Home Credit and Satsuma during
2021 and in accordance with IFRS 5 'Non-current Assets Held for
Sale and Discontinued Operations' these businesses are presented as
discontinued operations.
The results from discontinued operations, which are included in
the Group income statement, are set out below.
30 June 30 June
2022 2021
GBPm GBPm
Interest income - 52.3
Finance costs (6.2) (6.1)
-------- --------
Net interest margin (6.2) 46.2
Impairment - (38.5)
Risk-adjusted net interest margin (6.2) 7.7
Operating costs:
- other (7.5) (65.4)
- exceptional items 4.1 (44.2)
-------- --------
Loss before taxation (9.6) (101.9)
Tax charge (0.8) (10.7)
-------- --------
Loss from discontinued operations (10.4) (112.6)
-------- --------
Basic loss per share (p) (4.1) (44.4)
-------- --------
Diluted loss per share (p) (4.1) (44.4)
-------- --------
6. Tax charge
The tax charge (2021: charge) can be summarised as follows:
Continuing operations Discontinued operations
PBT Exceptional Amortisation Total LBT Exceptional Total
items items
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------ ------------ ------------- ------ ------- ------------ --------
Six months ended
30 June 2022
Profit/(loss) on ordinary
activities before
tax 54.3 (3.7) (3.7) 46.9 (13.7) 4.1 (9.6)
Tax charge/(credit) 15.7 - (0.7) 15.0 - 0.8 0.8
Six months ended
30 June 2021
Profit/(loss) on ordinary
activities before
tax 63.5 (2.1) (3.7) 57.7 (57.7) (44.2) (101.9)
Tax (credit)/charge (4.2) (0.4) (0.7) (5.3) 17.8 (7.1) 10.7
The tax charge on profit/(loss) before tax, amortisation of
acquisition intangibles and exceptional items from continuing and
discontinued operations has been calculated by:
-- calculating the best estimate of the effective tax rate for
each division for the financial year, excluding deferred tax asset
write offs and revaluations of deferred tax balances;
-- applying this to the profit/(loss) before tax, amortisation
of acquisition intangibles and exceptional items for the relevant
division for the period and aggregating the resultant amount;
and
-- adding to this (a) in 2021, the write off of deferred tax
assets in CCD and the revaluations of deferred tax balances at 31
December 2020 due to the change in mainstream corporation tax rate
from 1 April 2023 announced in the March 2021 Budget; and (b) in
2022, the revaluations of deferred tax balances in Vanquis Bank at
31 December 2021 due to the changes in the bank corporation tax
surcharge introduced in Finance Act 2022 which are attributable to
the first half of the financial year, and which with effect from 1
April 2023 (a) increase the surcharge threshold from GBP25m to
GBP100m; and (b) decrease the rate of surcharge from 8% to 3%.
This gives a tax charge for the period on profit before tax,
amortisation of acquisition intangibles and exceptional items from
continuing operations of GBP15.7m (2021: tax credit GBP4.2m). The
tax charge (2021: credit) reflects:
-- the adverse impact of the bank corporation tax surcharge of
8% which applies to Vanquis Bank's profits in excess of GBP25m;
-- in the current period, the adverse impact of revaluing
deferred tax assets in Vanquis Bank at the combined mainstream
corporation tax and bank surcharge rates of 28% (2021:33%) to the
extent the underlying temporary differences are expected to reverse
after 1 April 2023, following the changes to bank corporation tax
surcharge enacted in Finance Act 2022;
-- in 2021, the beneficial impact of measuring deferred tax
balances at 25% (2020: 19%) and in the case of Vanquis Bank at 33%
(2020: 27%) to the extent the underlying temporary differences were
expected to reverse after 1 April 2023, following the announcement
in the March 2021 Budget that the rate of mainstream UK corporation
tax would be increased to 25% from 1 April 2023;
-- in 2021, the expected benefit of recognising the costs of the
Scheme of Arrangement as part of continuing operations.
The H1-22 tax charge (2021: charge) on the loss (2021; loss)
before tax and exceptional items from discontinued operations
amounts to GBPnil (2021: GBP17.8m) and reflects:
-- in the current period, the fact that the loss relates to
costs incurred after discontinued operations have ceased to trade
and may not therefore be tax deductible;
-- in 2021, the adverse impact of the write off of deferred tax
assets in CCD amounting to GBP14.8m in respect of losses carried
forward and other temporary differences for which it was considered
tax relief was unlikely to be available following the announcement
of the closure of the business;
-- in 2021, the adverse impact of losses of CCD's branch in the
Republic of Ireland for which no tax relief was available; and
-- in 2021, the expected adverse impact of the effective release
of the complaints provision in CCD following the announcement of
the Scheme of Arrangement.
The tax charge (2021: charge) reflects the recognition of
deferred tax assets in respect of losses and other temporary
differences to the extent the Group expects to have sufficient
taxable profits available in the future to enable such deferred tax
assets to be recovered.
The tax charge (2021: credit) in respect of exceptional items
amounts to GBP0.8m (2021: tax credit GBP7.5m). The GBP0.8m tax
charge in the current period represents tax on the exceptional
release of provisions related to the discontinued operation; no tax
relief has been assumed for the exceptional costs related to
continuing operations as they may be considered capital and
therefore non-deductible for tax purposes. In 2021, the tax credit
represents tax at the mainstream corporation tax rate of 19% in
respect of the exceptional costs apart from those costs which are
attributable to CCD's Irish branch in respect of which tax relief
will not be available and certain capital costs which it was
considered may be non-deductible for tax purposes.
7. Earnings/(loss) per share
Basic earnings/(loss) per share (E/LPS) is calculated by
dividing the profit/(loss) for the year attributable to equity
shareholders by the weighted average number of ordinary shares
outstanding during the year less the number of shares held by the
Employee Benefit Trust which are used to satisfy the share awards
such as DBP, PSP, LTIS, RSP and CSOP.
Diluted E/LPS calculates the effect on E/LPS assuming conversion
of all dilutive potential ordinary shares. Dilutive potential
ordinary shares are calculated as follows:
(i) For share awards outstanding under performance -- related
share incentive schemes such as the Deferred Bonus Plan (DBP)
(previously the Performance Share Plan (PSP)), the Long Term
Incentive Scheme (LTIS), the Restricted Share Plan (RSP), and the
Company Share Option Plan (CSOP), the number of dilutive potential
ordinary shares is calculated based on the number of shares which
would be issuable if: (i) the end of the reporting period is
assumed to be the end of the schemes' performance period; and (ii)
the performance targets have been met as at that date.
(ii) For share options outstanding under non -- performance --
related schemes such as the Save As You Earn scheme (SAYE), a
calculation is performed to determine the number of shares that
could have been acquired at fair value (determined as the average
annual market share price of the Company's shares) based on the
monetary value of the subscription rights attached to outstanding
share options. The number of shares calculated is compared with the
number of share options outstanding, with the difference being the
dilutive potential ordinary shares. The Group also presents an
adjusted EPS, prior to the amortisation of acquisition intangibles
and exceptional items.
Potential ordinary shares are treated as dilutive when, and only
when, their conversion to ordinary shares would decrease earnings
per share or increase loss per share.
Reconciliations of basic and diluted E/LPS for continuing
operations and the Group are set out below:
Six months ended 30 June
2022 2021
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Earnings of shares amount
Continuing operations GBPm m pence GBPm m pence
----------- ----------- --------- ----------- ----------- ---------
Basic earnings per share 31.9 250.9 12.7 63.0 253.6 24.8
Dilutive effect of share
options and awards - 1.8 (0.1) - 0.5 -
----------- ----------- --------- ----------- ----------- ---------
Earnings per share 31.9 252.7 12.6 63.0 254.1 24.8
----------- ----------- --------- ----------- ----------- ---------
Six months ended 30 June
2022 2021
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Loss of shares amount
Group GBPm m pence GBPm m pence
------------ ------------ ---------- -------- ----------- ---------
Basic earnings/(loss)
per share 21.5 250.9 8.6 (49.6) 253.6 (19.6)
Dilutive effect of share
options and awards - 1.8 (0.1) - - -
------------ ------------ ---------- -------- ----------- ---------
Diluted earnings/(loss)
per share 21.5 252.7 8.5 (49.6) 253.6 (19.6)
------------ ------------ ---------- -------- ----------- ---------
An adjusted earnings per share has been presented prior to the
amortisation of acquisition intangibles which arose on the
acquisition of Moneybarn in August 2014 and prior to exceptional
items (see note 4). This is presented to show the earnings per
share generated by the Group's continuing operations. A
reconciliation of continuing and group basic and diluted earnings
per share to adjusted basic and diluted earnings per share is as
follows:
Six months ended 30 June
2022 2021
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Earnings of shares amount
Continuing operations GBPm m pence GBPm m pence
----------- ----------- --------- ----------- ----------- ---------
Basic earnings per share 31.9 250.9 12.7 63.0 253.6 24.8
Amortisation of acquisition
intangibles, net of tax 3.0 - 1.2 3.0 - 1.2
Exceptional items, net
of tax 3.7 - 1.5 1.7 - 0.7
----------- ----------- --------- ----------- ----------- ---------
Adjusted basic earnings
per share 38.6 250.9 15.4 67.7 253.6 26.7
----------- ----------- --------- ----------- ----------- ---------
Diluted earnings per
share 31.9 252.7 12.6 63.0 254.1 24.8
Amortisation of acquisition
intangibles, net of tax 3.0 - 1.2 3.0 - 1.2
Exceptional items, net
of tax 3.7 - 1.5 1.7 - 0.7
----------- ----------- --------- ----------- ----------- ---------
Adjusted diluted earnings
per share 38.6 252.7 15.3 67.7 254.1 26.7
----------- ----------- --------- ----------- ----------- ---------
2022 2021
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Loss of shares amount
Group GBPm m pence GBPm m pence
----------- ----------- --------- ----------- ----------- ---------
Basic earnings/(loss)
per share 21.5 250.9 8.6 (49.6) 253.6 (19.6)
Amortisation of acquisition
intangibles, net of tax 3.0 - 1.2 3.0 - 1.2
Exceptional items, net
of tax 0.4 - 0.2 38.8 - 15.3
----------- ----------- --------- ----------- ----------- ---------
Adjusted basic earnings/(loss)
per share 24.9 250.9 10.0 (7.8) 253.6 (3.1)
----------- ----------- --------- ----------- ----------- ---------
Diluted earnings/(loss)
per share 21.5 252.7 8.5 (49.6) 253.6 (19.6)
Amortisation of acquisition
intangibles, net of tax 3.0 - 1.2 3.0 - 1.2
Exceptional items, net
of tax 0.4 - 0.2 38.8 - 15.3
----------- ----------- --------- ----------- ----------- ---------
Adjusted diluted earnings/(loss)
per share 24.9 252.7 9.9 (7.8) 253.6 (3.1)
----------- ----------- --------- ----------- ----------- ---------
8. Dividends
Six months ended
30 June
2022 2021
GBPm GBPm
--------- --------
2021 interim - 12p per share 30.1 -
--------- --------
Total dividends paid 30.1 -
--------- --------
The directors are recommending an interim dividend in respect of
the financial year ended 31 December 2022 of 5.0p per share which
will amount to an estimated dividend of GBP13m. This dividend will
be paid on 22 September 2022 to shareholders who were on the
register of members at 12 August 2022 with an ex-dividend date of
11 August 2022 .
9. Amounts receivable from customers
30 June 31 December 30 June
2022 2021 2021
GBPm GBPm GBPm
-------------------- ---------------------- --------
Credit cards and personal loans 1,076.6 1,091.5 993.5
Vehicle finance 598.4 586.2 601.6
Total - continuing operations 1,675.0 1,677.7 1,595.1
CCD - discontinued operations - - 42.1
Fair value adjustment for portfolio
hedged risk (7.6) - -
Total reported amounts receivable
from customers 1,667.4 1,677.7 1,637.2
Vanquis Bank receivables comprise GBP1,034.7m (31 December 2021:
GBP1,063.4m, 30 June 2021: GBP977.5m) in respect of credit cards
and GBP41.9m (31 December 2021: GBP28.1m, 30 June 2021: GBP16.0m)
in respect of loans.
Fair value adjustment for portfolio hedged risk relates to the
hedged accounting adjustments recognised in relation to the balance
guaranteed swap (see note 12).
An analysis of receivables by IFRS 9 stages is set out
below:
30 June 2022
Stage Stage 2 Stage 3 Total
1
GBPm GBPm GBPm GBPm
-------- -------- -------- --------
Gross receivables
Credit cards and personal loans 873.2 334.4 208.8 1,416.4
Vehicle finance 334.3 139.8 413.8 887.9
Total Group 1,207.5 474.2 622.6 2,304.3
Allowance account
Credit cards and personal loans (89.1) (103.0) (147.7) (339.8)
Vehicle finance (14.8) (21.2) (253.5) (289.5)
Total Group (103.9) (124.2) (401.2) (629.3)
-------- -------- -------- --------
Net receivables
Credit cards and personal loans 784.1 231.4 61.1 1,076.6
Vehicle finance 319.5 118.6 160.3 598.4
Total Group 1,103.6 350.0 221.4 1,675.0
-------- ------ ------ --------
31 December 2021
Stage 1 Stage 2 Stage 3 Total
GBPm GBPm GBPm GBPm
-------- -------- -------- --------
Gross receivables
Credit cards and personal loans 913.7 342.7 194.5 1,450.9
Vehicle finance 350.2 112.9 378.6 841.7
Total Group 1,263.9 455.6 573.1 2,292.6
-------- -------- -------- --------
Allowance account
Credit cards and personal loans (103.2) (102.9) (153.3) (359.4)
Vehicle finance (14.3) (15.8) (225.4) (255.5)
Total Group (117.5) (118.7) (378.7) (614.9)
-------- -------- -------- --------
Net receivables
Credit cards and personal loans 810.5 239.8 41.2 1,091.5
Vehicle finance 335.9 97.1 153.2 586.2
Total Group 1,146.4 336.9 194.4 1,677.7
-------- ------ ------ --------
30 June 2021 (restated)(1)
Stage 1 Stage 2 Stage 3 Total
GBPm GBPm GBPm GBPm
-------- -------- -------- --------
Gross receivables
Credit cards and personal loans 913.0 221.1 315.3 1,449.4
Vehicle finance 485.4 106.1 238.9 830.4
CCD - discontinued operations 20.7 11.9 318.6 351.2
Total Group 1,419.1 339.1 872.8 2,631.0
Allowance account
Credit cards and personal loans (158.9) (97.2) (199.8) (455.9)
Vehicle finance (21.9) (16.4) (190.5) (228.8)
CCD - discontinued operations (3.1) (5.0) (301.0) (309.1)
Total Group (183.9) (118.6) (691.3) (993.8)
-------- -------- -------- --------
Net receivables
Credit cards and personal loans 754.1 123.9 115.5 993.5
Vehicle finance 463.7 89.7 50.6 601.6
CCD - discontinued operations 17.6 6.9 17.6 42.1
Total Group 1,235.2 220.5 181.5 1,637.2
-------- ------ ------ --------
(1) Gross loan receivables and provisions for expected credit
losses were unintentionally reduced by equal amounts of GBP43.5m at
30 June 2021 to reflect the net revenue recognition for loans in
stage 3. Comparatives included above have been restated to remove
this adjustment as part of the vehicle finance implementation of
new IFRS 9 models. This restatement has no impact on the Group's
primary statements.
Credit cards and personal loans overlays
30 June 31 December
2022 2021
GBPm GBPm
Core Model 302.9 303.7
-------- ------------
Overlays:
Covid-19 overlay for credit cards (a) 10.2 27.9
Affordability (b) 5.0 5.0
Covid-19 overlay for personal loans (c) 1.4 1.7
Persistent debt (d) 2.9 5.8
Cost of living (e) 10.0 7.8
Recoveries (f) 7.4 7.4
Other - 0.1
Total overlays 36.9 55.7
-------- ------------
Total allowance account 339.8 359.4
-------- ------------
(a) Covid-19 overlay for credit cards
The impact of Covid-19 has significantly influenced credit card
ECL. The core IFRS 9 models utilise a scorecard approach to
calculating a 12-month PD and the relationships between the
established drivers of default risk found in the PD scorecards; the
12-month PD may be distorted during Covid-19. This potential
distortion could be caused by external government support
initiatives or the natural lag that is apparent when risk profiles
change. Accordingly, a utilisation adjustment is made to the
probability of default models:
- An adjustment was made to account for the impact of lower
utilisation of credit cards due to Covid-19. The introduction of
numerous lockdowns during 2020 and 2021, alongside travel bans, has
meant that customer spending since March 2020 has put additional
pressure on declining utilisation trends. The model is built using
pre-Covid-19 data and utilisation is a key driver of the 12-month
PD. Accordingly, reduced utilisation throughout Covid-19 has meant
that the 12-month PD estimates produced by the existing models have
reduced. However, the underlying risk profile of these customers
has not fundamentally changed.
(b) Affordability
An additional IFRS 9 impairment provision has been created to
cover the principal balance of those customers impacted by risk
events which may need to be written off. These risk events arose
from minor temporary data misalignment instances impacting a small
number of accounts which have now been remediated.
(c) Covid-19 overlay for personal loans
In December 2020, a post-model adjustment for the payment
holiday population and any future take-up of payment holidays
expected in the personal loans portfolio was held, as these
customers will exhibit greater losses than indicated based on the
historical experience within the core model. However, this is no
longer applicable for June 2022 as payment holidays have ceased. An
increased PD for up-to-date accounts was applied as a result of
more accounts being expected to fall into default after the removal
of the government support scheme has been maintained for June
2022.
(d) Persistent debt
A post-model adjustment was calculated to refine ECL for those
customers who have entered PD36. These customers have been split
into two categories: those who have responded to communications and
agreed to pay down their outstanding balance; and those who are
making minimum payments but have not responded to communications.
The core model does not consider this refinement and therefore a
post-model overlay is required.
(e) Cost of living
Consumer prices, as measured by the Consumer Prices Index (CPI)
was 9.1% in May 2022, and the government has announced a range of
measures to support households during the current economic
environment. After accounting for these policies most lower income
households are expected to be protected from the increase in
inflation. But for many other households, inflation is still a
looming risk and is expected to increase more quickly than post-tax
and benefit incomes this year. The IFRS 9 macro-economic model does
not consider inflation or CPI, as it there is no significant
correlation between inflation and expected credit losses. However
it is recognised that the increase in CPI may have some impact on
the existing book and hence post model adjustments now exist for
cost of living.
A portion of the Covid-19 provision was repurposed to create a
cost of living overlay of GBP7.8m as at Dec-21. This has been
increased to GBP10.0m. The underlying credit metrics of the
receivables book remain stable and show no signs of significant
increase in credit risk. The increase to GBP10.0m is based on
management judgement in light of the current economic environment,
reflecting the Group's proactive approach to risk management and is
appropriately supported by modelling analytics.
(f) Recoveries
A post-model adjustment was created in 2021 and maintained
throughout HY 2022 to account for an estimated reduction in
recoveries for debt sold to debt collection agencies.
Vehicle finance overlays
30 June 31 December
2022 2021
GBPm GBPm
Core Model 291.8 257.5
-------- ------------
Overlays:
Fraud (a) (2.5) (2.0)
Cost of living (b) 0.5 -
Depreciation (c) (0.3) -
Total overlays (2.3) (2.0)
-------- ------------
Total allowance account 289.5 255.5
-------- ------------
(a) Fraud
The fraud overlay represents the cohort of live accounts within
the vehicle finance portfolio that have been identified as fraud
customers.
(b) Cost of living
Refer to credit cards and personal loans cost of living overlays
section for economic update.
The credit acquisition and affordability models were updated in
early Q2 by a blended average of 8.75% reflecting the rise in
inflation, energy prices and other bills compared to Income.
Vehicle finance implemented a new IFRS 9 suite of models with
revised behavioural PDs during late 2021 and therefore a
significant number of variables indicating financial distress are
already incorporated within this model.
However, considering the broader macro-economic environment and
the observations made above, the management opinion is that a cost
of living overlay of GBP0.5m should be maintained. This was derived
by taking the cohort of up-to-date accounts in stage 2 and
modelling a higher probability of default to replicate a situation
reflective of these falling into arrears.
(c) Depreciation
Vehicle finance loans are secured against a vehicle, the
repossession and sale of which can be a significant recovery which
is currently used to offset any losses incurred as a result of
defaulted contracts. Over the longer term, vehicles are typically
considered depreciating assets as the vehicles value reduces due to
mileage, wear and tear and supply and demand dynamics.
The model currently considers the latest vehicle valuations each
month. However, the depreciation curves are predicated on pre covid
data which assumes a stable constant depreciation for future
periods. The last 2 months have seen a significant downward shift
in vehicle values, bringing the total movement in average vehicle
values on our book to 6% in 2 months. Since the vehicle values have
been adjusted in the model monthly, the subsequent application of
depreciation curves means the underlying secured assets in some
segments are undervalued. Based on this, management has applied a
qualitative adjustment to depreciation rates generating a post
model adjustment of GBP0.3m.
The impairment charge in respect of amounts receivable from
customers can be analysed as follows:
Six months ended
30 June
2022 2021
GBPm GBPm
--------- --------
Credit cards 18.1 29.0
Vehicle finance 17.8 20.0
Personal loans 2.6 1.8
Total impairment charge - continuing operations 38.5 50.8
CCD - discontinued operations - 38.5
Total impairment charge 38.5 89.3
--------- --------
10. Retirement benefit asset
The Group operates a defined benefit scheme: the Provident
Financial Staff Pension Scheme. The scheme is of the funded,
defined benefit type. It is now also closed to future accrual.
The scheme provides pension benefits which were accrued on a
final salary and, more recently, on a cash balance basis. With
effect from 1 August 2021 it was fully closed to future accrual and
benefits are no longer linked to final salary, although accrued
benefits are subject to statutory inflationary increases.
The scheme is a UK registered pension scheme under UK
legislation. The scheme is governed by a Trust Deed and Rules, with
trustees responsible for the operation and the governance of the
scheme. The trustees work closely with the Group on funding and
investment strategy decisions. The most recent actuarial valuation
of the scheme was carried out as at 1 June 2021 by a qualified
independent actuary. The valuation used for the purposes of IAS 19
'Employee Benefits' has been based on the results of the 2021
valuation to take account of the requirements of IAS 19 in order to
assess the liabilities of the scheme at the balance sheet date.
Scheme assets are stated at fair value as at the balance sheet.
The Group is entitled to a refund of any surplus, subject to
tax, if the scheme winds up after all benefits have been paid. As a
result, the Group recognises surplus assets under IAS 19 .
The Group is exposed to a number of risks, the most significant
of which are as follows:
-- Investment risk - the liabilities for IAS 19 purposes are
calculated using a discount rate set with reference to corporate
bond yields. If the assets underperform this yield a deficit will
arise. The scheme has a long -- term objective to reduce the level
of investment risk by investing in assets that better match
liabilities.
-- Change in bond yields - a decrease in corporate bond yields
will increase the liabilities, although this will be partly offset
by an increase in matching assets.
-- Inflation risk - some of the liabilities are linked to
inflation. If inflation increases then liabilities will increase,
although this will be partly offset by an increase in assets. As
part of a long -- term de -- risking strategy, the scheme has
increased its portfolio in inflation matched assets.
-- Life expectancies - the scheme's final salary benefits
provide pensions for the rest of members' lives (and for their
spouses' lives). If members live longer than assumed, then the
liabilities in respect of final salary benefits increase.
The net retirement benefit asset recognised in the balance sheet
of the Group is as follows:
30 June 31 December 30 June
2022 2021 2021
GBPm GBPm GBPm
-------- ------------ --------
Fair value of scheme assets 653.6 898.8 870.6
Present value of defined benefit obligation (571.8) (786.6) (777.9)
-------- ------------ --------
Net retirement benefit asset recognised
in the balance sheet 81.8 112.2 92.7
-------- ------------ --------
The amounts recognised in the income statement were as
follows:
Six months ended
30 June
2022 2021
GBPm GBPm
--------- --------
Current service cost (0.5) (1.1)
Interest on scheme liabilities (7.2) (5.5)
Interest on scheme assets 8.3 6.0
--------- --------
Net cost recognised in the income statement before
exceptional curtailment credit 0.6 (0.6)
--------- --------
Exceptional curtailment credit (note 4) - 0.8
--------- --------
Net credit recognised in the income statement 0.6 0.2
--------- --------
The net credit recognised in the income statement has been
included within operating costs.
Movements in the fair value of scheme assets were as
follows:
Six months ended
30 June
2022 2021
GBPm GBPm
---------- -------
Fair value of scheme assets at 1 January 898.8 933.0
Interest on scheme assets 8.3 6.0
Actuarial movements on scheme assets (242.2) (59.3)
Contributions by the Group 1.7 2.1
Net benefits paid out (13.0) (11.2)
---------- -------
Fair value of scheme assets at 30 June 653.6 870.6
---------- -------
Movements in the present value of the defined benefit obligation
were as follows:
Six months ended
30 June
2022 2021
GBPm GBPm
--------- --------
Present value of defined benefit obligation at 1
January (786.6) (853.3)
Current service cost (0.5) (1.1)
Interest on scheme liabilities (7.2) (5.5)
Exceptional service costs - curtailment - 0.8
Actuarial movements on scheme liabilities 209.5 70.0
Net benefits paid out 13.0 11.2
--------- --------
Present value of defined benefit obligation at
30 June (571.8) (777.9)
--------- --------
The principal actuarial assumptions used at the balance sheet
date were as follows:
30 June 31 December 30 June
2022 2021 2021
% % %
-------- ------------ --------
Price inflation - RPI 3.25 3.40 3.15
Price inflation - CPI 2.80 3.00 2.70
Rate of increase to pensions in payment 2.95 3.00 2.95
Inflationary increases to pensions in deferment 2.85 3.00 2.55
Discount rate 3.70 1.85 1.85
-------- ------------ --------
A 0.5% change in the discount rate would change the present
value of the defined benefit obligation by approximately GBP43m (31
December 2021: GBP64m, 30 June 2021: GBP70.3m). A 0.1% change in
the inflation rate would change the present value of the defined
benefit obligation by approximately GBP4m (31 December 2021: GBP6m,
30 June 2021: GBP6.2m) respectively.
The mortality assumptions are based on the self -- administered
pension scheme (SAPS) series 3 mid tables (31 December 2021: series
2 tables, 30 June 2021: series 2 tables), with multipliers of 99%
(31 December 2021: 96%, 30 June 2021: 96%) and 102% (31 December
2021: 101%, 30 June 2021: 101%) respectively for males and females.
The 3% upwards (31 December 2021: 4% downwards, 30 June 2021: 4%
downwards) adjustment to mortality rates for males and a 1% upwards
(31 December 2021: 1% upwards, 30 June 2021: 1% upwards) adjustment
for females reflect higher life expectancies for males and lower
life expectancies for females within the scheme compared to average
pension schemes, which was concluded following a study of the
scheme's membership. Future improvements in mortality are based on
the Continuous Mortality Investigation (CMI) 2021 model with a long
-- term improvement trend of 1.00% per annum.
Under these mortality assumptions, the life expectancies of
members are as follows:
Male Female
30 June 31 December 30 June 30 June 31 December 30 June
2022 2021 2021 2022 2021 2021
Years Years Years Years Years years
-------- ------------ -------- -------- ------------ --------
Current pensioner aged
65 21.8 21.7 21.7 23.4 23.4 23.4
Current member aged 45
from age 65 21.8 22.7 22.7 24.4 24.6 24.6
-------- ------------ -------- -------- ------------ --------
If assumed life expectancies were one year greater, the net
retirement benefit asset would have been reduced by approximately
GBP26m (31 December 2021: GBP38m, 30 June 2021: GBP35m).
An analysis of amounts recognised in the statement of
comprehensive income is set out below:
Six months ended
30 June
2022 2021
GBPm GBPm
---------- -------
Actuarial movements on scheme assets (242.2) (59.3)
Actuarial movements on scheme liabilities 209.5 70.0
---------- -------
Actuarial movements recognised in the statement
of comprehensive income in the period (32.7) 10.7
---------- -------
11. Investments
30 June 31 December 30 June
2022 2021 2021
GBPm GBPm GBPm
-------- ------------ --------
Visa Inc. shares 8. 8 9.1 9.7
-------- ------------ --------
Visa Inc. shares
The Visa Inc shares represent preferred stock in Visa Inc held
by Vanquis Bank Limited following completion of Visa Inc's
acquisition of Visa Europe Limited on 21 June 2016. In
consideration for Vanquis Bank Limited's interest in Visa Europe
Limited, Vanquis Bank Limited received cash consideration of
EUR15.9m (GBP12.2m) on completion, preferred stock with an
approximate value of EUR10.7m and deferred cash consideration of
EUR1.4m which was received in 2019.
During 2021 the Visa Inc shares previously classified as fair
value through OCI were reclassified as fair value through income
statement. This resulted in an increase in profit before tax of
GBP5.2m and an increase in the tax charge of GBP1.4m. The
cumulative fair value movements of GBP5.2m at 31 December 2021 and
all future fair value movements are now presented within operating
costs in the income statement.
The valuation of the preferred stock has been determined using
the common stock's value as an approximation as both classes of
stock have similar dividend rights. However, adjustments have been
made for: (i) illiquidity, as the preferred stock is not tradeable
on an open market and can only be transferred to other Visa
members; and (ii) future litigation costs which could affect the
valuation of the stock prior to conversion.
12. Fair value disclosures
The Group holds the following financial instruments at fair
value:
30 June 31 December 30 June
2022 2021 2021
GBPm GBPm GBPm
-------- ------------ --------
Financial assets
Derivatives 7.7 3.1 -
Visa Inc. shares 8.8 9.1 9.7
-------- ------------ --------
16.5 12.2 9.7
-------- ------------ --------
Financial liabilities
Derivatives - - (0.2)
-------- ------------ --------
Derivatives of GBP7.7m ( 31 December 2021 (asset) GBP3.1m, 30
June 2021 (liability): GBP0.2m) relate to the balance guaranteed
swap entered into as part of the vehicle finance securitisation in
January 2020 in order to manage the market risk associated with
movements in interest rates.
Except as detailed in the following table, the directors
consider that the carrying value of financial assets and financial
liabilities recorded at amortised cost in the financial statements
are approximately equal to their fair values:
Carrying value Fair value
------------------------------------ ------------------------------------
30 June 31 December 30 June 30 June 31 December 30 June
2022 2021 2021 2022 2021 2021
GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------------ ---------- ---------- ------------ ----------
Financial assets
Amounts receivable
from customers 1,675.0 1,677.7 1,637.2 2,174.4 2,063.8 1,971.9
---------- ------------ ---------- ---------- ------------ ----------
Financial liabilities
Retail deposits (926.9) (1,018.5) (1,062.8) (916.2) (1,026.4) (1,066.5)
Bank and other borrowings (824.8) (845.2) (567.2) (828.1) (878.1) (576.6)
---------- ------------ ---------- ---------- ------------ ----------
Total (1,751.7) (1,863.7) (1,630.0) (1,744.3) (1,904.5) (1,643.1)
---------- ------------ ---------- ---------- ------------ ----------
13. Provisions
30 June 2022 31 December 2021 30 June 2021
Scheme Others Total Scheme Others Total Scheme Others Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------- ------- ------- ------- ------- --------- -------- -------
Opening balance 53.5 18.6 72.1 65.0 26.0 91.0 65.0 26.0 91.0
Created in the
period - 0.5 0.5 5.0 17.4 22.4 5.0 7.4 12.4
Reclassified
in the period - 1.7 1.7 - - - - - -
Utilised during
the period (3.0) (8.1) (11.1) (16.5) (24.8) (41.3) (14.2) (23.6) (37.8)
Released during
the period - (4.8) (4.8) - - - - - -
--------------- -------- ------- ------- ------- ------- --------- -------- -------
Closing balance 50.5 7.9 58.4 53.5 18.6 72.1 55.8 9.8 65.6
--------------- -------- ------- ------- ------- ------- --------- -------- -------
The Scheme of Arrangement (the Scheme) GBP50.5m (Dec 21
GBP53.5m, June 21: GBP55.8m)
The Scheme of Arrangement was sanctioned on 30 July 2021 and
will remediate all outstanding relevant claims, as well as new
relevant claims received before the claims submission deadline of
February 2022. The objective of the Scheme was to ensure: all
customers with redress claims are treated fairly; and outstanding
claims are treated consistently for all customers who submit a
claim under the Scheme. The Group will fund legitimate Scheme
claims with GBP50m and will cover further Scheme-related costs.
These were estimated at approximately GBP15m at 31 December 2020
with an additional GBP5m being recognised in 2021 for additional
expected costs in supporting the delivery of the Scheme.
Customer settlements in relation to the Scheme of Arrangement
have commenced in H2 22 and the entire provision is expected to be
fully utilised.
Other provisions include:
FCA investigation into CCD GBPnil (Dec 21 GBP4.1m, June 21:
GBP5m)
CCD was informed in Q1'21, that the FCA had opened an
enforcement investigation focusing on the consideration of
affordability and sustainability of lending to customers, as well
as the application of a FOS decision into the complaint handling
process, in the period between February 2020 and February 2021.
Analysis of lending during the period of investigation resulted in
a provision of GBP5m being recognised in H1 2021 which reflected
the current best estimate of the settlement; GBP0.9m of this was
utilised in the second half of 2021. On 7(th) July, the Group
received notification from the FCA that their investigation has
closed and that no further action will be taken. Consequently this
provision was released during H1'22.
ROP Provision: GBP2.0m (Dec 21 GBP2.1m, June 21: GBP2.4m)
The remaining repayment option plan (ROP) provisions principally
reflects the estimated cost of the forward flow of ROP complaints
more generally which may be received and in respect of which
compensation may need to be paid.
Customer compliance: GBP4.9m (Dec 21 GBP3.4m, June 21
GBP2.4m)
The customer compliance provision relates to general customer
compliance matters.
Discontinued operations: GBP1.0m (Dec 21 GBP9.0m, June 21
GBPnil)
A number of smaller provisions have been recognised in relation
to the closure of the CCD business. These have been calculated
based on estimated costs at each period end.
14. Contingent liabilities
During the ordinary course of business the Group is subject to
other complaints and threatened or actual legal proceedings
(including class or group action claims) brought by or on behalf of
current or former employees, agents, customers, investors or third
parties. This extends to legal and regulatory reviews, challenges,
investigations and enforcement actions combined with tax
authorities taking a view that is different to the view the Group
has taken on the tax treatment in its tax returns, both in the UK
and overseas. All such material matters are periodically assessed,
with the assistance of external professional advisors, where
appropriate, to determine the likelihood of the Group incurring a
liability. In those instances where it is concluded that it is more
likely than not that a payment will be made, a provision is
established for management's best estimate of the amount required
at the relevant balance sheet date. In some cases it may not be
possible to form a view, for example because the facts are unclear
or because further time is needed to properly assess the merits of
the case, and no provisions are held in relation to such matters.
However, the Group does not currently expect the final outcome of
any such case to have a material adverse effect on its financial
position, operations or cash flows.
15. Regulatory capital and liquidity disclosures
The Group's capital management policy is focused on optimising
shareholder value, in a safe and sustainable manner. There is a
clear focus on delivering organic growth and ensuring capital
resources are sufficient to support planned levels of growth. The
Board regularly reviews the capital position. The following table
shows the regulatory capital resources as managed by the Group:
30 June 31 December 30 June
2022 2021 2021
GBPm GBPm GBPm
-------- ------------ --------
Share capital 52.6 52.6 52.6
Share premium 273.5 273.3 273.2
Retained earnings and other reserves 275.2 305.3 277.2
-------- ------------ --------
Total equity 601.3 631.2 603.0
-------- ------------ --------
Retirement benefit asset (net of tax) (61.4) (84.2) (69.5)
Goodwill (71.2) (71.2) (71.2)
Intangible assets (net of tax) (48.2) (47.3) (34.9)
Dynamic 1 and 2 adjustments 8.2 16.4 63.2
IFRS 9 transition adjustment 46.0 92.0 92.0
-------- ------------ --------
CET 1 capital before deduction of unverified
profits and foreseeable dividends 474.7 536.9 582.6
-------- ------------ --------
Deduction of foreseeable dividend (15.4) (30.4) -
CET 1 459.3 506.5 582.6
-------- ------------ --------
Tier 2 Capital 200.0 200.0 -
-------- ------------ --------
Total regulatory capital (accrued) 659.3 706.5 582.6
-------- ------------ --------
The capital resources shown in the table above include accrued
profits of GBP21.5m (offset by a foreseeable dividend of GBP15.4m)
for the period to 30 June 2022. Accrued losses are included in the
periods ending 31 December 2021 and 30 June 2021, which are
automatically deducted from own funds. On a verified basis
following the deduction of unverified profits and reversing the
associated foreseeable dividend, capital resources are
GBP653.2m
The transitional adjustment to capital arises from the Group
making an election to phase in the impact of transitioning to IFRS
9 over a five-year period, by applying add back factors of 95%,
85%, 70%, 50% and 25% for years one to five respectively to the
initial IFRS 9 transition adjustment plus any subsequent increase
in expected credit losses (ECL) in the non-credit-impaired book
from transition to the end of the reporting period. The PRA
ratified additional capital mitigation proposed by the Basel
Committee, in response to Covid-19, with these measures coming into
force from 27 June 2020. The new measures allow for the increase in
ECL in the non-credit impaired book arising in 2020 and 2021 to be
fully added back in those years. This relief is then phased out
over the following three years on a straight-line basis (2022: 75%,
2023: 50%, 2024: 25%, 2025: 0%). At 30 June 2022, the impacts of
these adjustments amounted to the following:
30 June 31 December 30 June
2022 2021 2021
GBPm GBPm GBPm
-------- ------------ --------
Initial IFRS 9 transition adjustment 184.0 184.0 184.0
Increase in ECL in the non-credit impaired
book from transition 32.7 32.7 22.7
216.7 216.7 206.7
-------- ------------ --------
Percentage add back 25% 70% 50%
-------- ------------ --------
54.2 108.4 103.4
Increase in ECL on the non-performing
book from 1 January 2020 to the period
end - - 51.8
Percentage add back 75% 100% 100%
-------- ------------ --------
- - 51.8
IFRS 9 transition adjustment 54.2 108.4 155.2
-------- ------------ --------
The Group makes the following disclosures for the first time in
accordance with the PRA rulebook (implementing UK Capital
Requirement Regulation 2). In line with the instructions for
disclosure, the disclosure of data for previous periods is not
required when such data has not previously been disclosed. As such,
no 30 June 2021 comparative is disclosed. 31 December 2021
comparatives were set out in the Group's Pillar 3 document. This is
a PRA fixed format template, therefore cells not required have been
left blank. Figures are stated on a verified basis, as reported
under the COREP regime.
30 June 31 December
UK KM1 - Key metrics template
2022 2021
GBPm GBPm
-------- ------------
Available own funds (amounts)
1 Common Equity Tier 1 (CET1) capital 453.2 506.5
2 Tier 1 capital 453.2 506.5
3 Total capital 653.2 706.5
Risk-weighted exposures
4 Total risk-weighted exposure amount 1,681.7 1,740.6
Capital ratios (as a percentage of risk-weighted exposure amount)
5 Common Equity Tier 1 ratio (%) 26.9 29.1
6 Tier 1 ratio (%) 26.9 29.1
7 Total capital ratio (%) 38.8 40.6
Additional own funds requirement based on SREP (as a percentage
of risk-weighted exposure amount)
UK 7a Additional CET1 SREP requirements (%) 5.8 5.8
UK 7b Additional AT1 SREP requirements (%) 1.9 1.9
UK 7c Additional T2 SREP requirements (%) 2.6 2.6
-------- ------------
UK 7d Total SREP own funds requirements 18.3 18.3
-------- ------------
Combined buffer requirement (as a percentage of risk-weighted
exposure amount)
8 Capital conservation buffer (%) 2.5 2.5
UK 8a Conservation buffer due to macro-prudential - -
or systemic risk identified at the level
of a Member State (%)
9 Institution specific countercyclical - -
capital buffer (%)
UK 9a Systemic risk buffer (%) - -
10 Global Systemically Important Institution - -
buffer (%)
UK 10a Other Systemically Important Institution - -
buffer (%)
-------- ------------
11 Combined buffer requirement (%) 2.5 2.5
-------- ------------
UK 11a Overall capital requirement (%) 20.8 20.8
-------- ------------
CET1 available after meeting the total
12 SREP own funds requirements (%) 8.6 10.8
Leverage ratio
Total exposure measure excluding claims
13 on central banks 2,130.0
Leverage ratio excluding claims on central 21.3
14 banks (%)
Additional level ratio disclosure requirements(1)
14a Fully loaded ECL accounting model leverage
ratio excluding claims on central banks
(%)
14b Leverage ratio including claims on central
banks (%)
14c Average leverage ratio excluding claims
on central banks (%)
14d Average leverage ratio including claims
on central banks (%)
14e Countercyclical leverage ratio buffer
(%)
Liquidity Coverage Ratio
Total high-quality liquid assets (HQLA)
15 (Weighted value - average) 430.4
UK 16a Cash outflows - total weighted value 133.6
UK 16b Cash inflows - total weighted value 34.5
16 Total net cash outflows (adjusted value) 99.1
17 Liquidity Coverage Ratio (%) 434 2,073
Net Stable Funding Ratio
18 Total available stable funding
19 Total required stable funding
(1) In line with the UK KM1 template instructions only LREQ
firms shall disclose values in rows 14a to 14e.
(2) In line with PS17/21 'Implementation of Basel standards' the
first disclosures of the Net Stable Funding Ratio (NSFR) are not
required until after 1 January 2023.
16. Reconciliation of profit/(loss) after tax to cash generated from operations
Six months ended
30 June
2022 2021
GBPm GBPm
--------- --------
Profit/(loss) after tax 21.5 (49.6)
Adjusted for:
- tax charge 15.8 5.4
- finance costs 30.1 31.2
- share-based payment charge 3.0 1.5
- retirement benefit credit before exceptional curtailment
credit (note 10) (0.6) 0.6
- exceptional pension curtailment credit (note 10) - (0.8)
- amortisation of intangible assets 7.8 7.5
- depreciation of property, plant and equipment
and right of use assets 5.4 6.6
- Exceptional amortisation and depreciation charge - 5.6
- Loss on sale of property, plant and equipment - 0.3
- Loss on sale of intangibles 2.0 2.5
Changes in operating assets and liabilities:
- amounts receivable from customers 10.3 162.6
- trade and other receivables (3.2) (2.8)
- trade and other payables (28.8) 41.3
- contributions into the retirement benefit scheme
(note 10) (1.7) (2.1)
- provisions (note 13) (15.3) (25.4)
- fair value movement on Visa shares 0.3 -
- derivative financial instrument (8.2) -
Cash generated from operations 38.4 184.4
--------- --------
17. Post balance sheet events
CCD was informed in Q1'21, that the FCA had opened an
enforcement investigation focusing on the consideration of
affordability and sustainability of lending to customers, as well
as the application of a FOS decision into the complaint handling
process, in the period between February 2020 and February 2021.
Analysis of lending during the period of investigation resulted in
a provision of GBP5m being recognised in H1 2021 which reflected
the current best estimate of the settlement; GBP0.9m of this was
utilised in the second half of 2021.
On 7th July 2022, the Group received notification from the FCA
that their investigation has closed and that no further action will
be taken. Consequently the remaining provision of GBP4.1m was
released during H1'22 and the effects of which have been recognised
in the financial statements for the half year ended 30 June
2022.
Alternative Performance Measures (APMs)
APM Method of calculation Relevance
Net interest margin Revenue less funding This measure shows the
(NIM) (1) costs, excluding exceptional returns generated from
items for the period customers to allow comparison
multiplied by 365/181 to other banks and banking
as a percentage of average groups.
receivables for the
6 months ended 30 June.
------------------------------- --------------------------------
Risk-adjusted net interest Net interest margin This measure shows the
margin (1) less impairment, excluding returns from customers
exceptional items for after impairment charges.
the period multiplied
by 365/181 as a percentage
of average receivables
for the 6 months ended
30 June.
------------------------------- --------------------------------
Adjusted basic earnings Profit after tax, excluding This is used to assess
per share (EPS) the amortisation of the Group's operational
acquisition intangibles performance from continuing
and exceptional items, operations per ordinary
divided by the weighted share. It removes the
average number of shares effect of amortisation
in issue. of acquisition intangibles
and exceptional items.
------------------------------- --------------------------------
Average receivables Average month-end receivables This is used to smooth
(1) for the 6 months ended the seasonality of receivables
30 June across the divisions
in calculating performance
KPIs.
------------------------------- --------------------------------
Cost income ratio (1) Operating costs as a This ratio is a measure
percentage of net interest of the efficiency of
margin for the period. the Group's cost base.
------------------------------- --------------------------------
Adjusted return on assets Adjusted profit before This measures the return
(ROA) (1) interest after tax for a company generates
the period multiplied from its assets prior
by 365/181 as a percentage to the impact of funding
of average receivables strategy for each division.
for the 6 months ended
30 June
------------------------------- --------------------------------
Adjusted return on equity Adjusted profit after ROE shows the return
(ROE) (1) tax for the period multiplied being generated from
by 365/181 as a percentage the shareholders' equity
of average equity for retained in the business.
the 6 months ended 30
June. Equity is stated
after deducting the
Group's pension asset,
net of deferred tax,
and the fair value of
derivative financial
instruments, net of
deferred tax.
------------------------------- --------------------------------
Return on required equity Adjusted profit after This demonstrates how
(RORE) (1) tax for the period, well the Group's returns
excluding CCD, multiplied are reinvested and is
by 365/181 divided by an indicator of its
the average PRA regulatory growth potential.
capital requirement
including PRA buffers
for the period.
------------------------------- --------------------------------
Common equity tier 1 The ratio of the Group's The CET1 Ratio is a
(CET1) ratio regulatory capital to key measure of whether
the Group's risk-weighted a firm has adequate
assets measured in accordance CET1 to cover the risks
with CRR. associated with its
assets.
------------------------------- --------------------------------
Funding headroom Committed bank and debt This represents the
facilities less borrowings difference between the
on those facilities, total amount of committed
plus available cash contractual debt facilities
and liquid resources. provided by banks, bond
holders and other lenders
and the amount of funds
drawn on those facilities
plus cash held on deposit.
------------------------------- --------------------------------
Income statement metrics have been reported by utilising the
income or expense for the period multiplied by 365/181 as a
percentage of average receivables for the 6 months ended 30 June
.
(1) APM's related to continuing operations.
Statement of directors' responsibilities
The directors confirm that, to the best of their knowledge, the
unaudited condensed interim financial statements have been prepared
in accordance with IAS 34 as adopted by the UK, and that the
interim report includes a fair review of the information required
by DTR 4.2.7R and DTR 4.2.8R, namely:
-- An indication of important events that have occurred during
the first six months of the financial year and their impact on the
unaudited condensed interim financial statements, and a description
of the principal risks and uncertainties for the remaining six
months of the financial year; and
-- Material related party transactions that have occurred in the
first six months of the financial year and any material changes in
the related party transactions described in the last annual report
and financial statements.
A list of current directors is maintained on the Provident
Financial plc website: www.providentfinancial.com . All directors
were present throughout the six months ended 30 June 2022 other
than those set out below:
- Robert East resigned from the Company on 13 January 2022.
The maintenance and integrity of the Provident Financial website
is the responsibility of the directors. The work carried out by the
auditor does not involve consideration of these matters and,
accordingly, the auditor accept no responsibility for any changes
that may have occurred to the unaudited condensed interim financial
statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of unaudited condensed interim financial statements
may differ from legislation in other jurisdictions.
By order of the board
Malcolm Le May - Chief Executive Officer Neeraj Kapur - Chief
Financial Officer
26 July 2022
INDEPENT REVIEW REPORT TO PROVIDENT FINANCIAL PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2022 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in shareholders' equity, the consolidated statement of
cash flows and related notes 1 to 17.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2022 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE (UK), however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the group a conclusion on the
condensed set of financial statement in the half-yearly financial
report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council. Our work
has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
26 July 2022
Information for shareholders
1. The interim report will be posted to shareholders on 4 August
2022 or as soon as possible thereafter.
2. The shares will be marked ex-dividend on 11 August 2022.
3. The interim dividend will be paid on 22 September 2022 to
shareholders on the register at the close of business on 12 August
2022. Dividend warrants/vouchers will be posted on 20 September
2022.
4. The last date for elections to participate in the PFG
Dividend Re-investment Plan for the interim dividend is 1 September
2022.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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END
IR PPUQUMUPPGRQ
(END) Dow Jones Newswires
July 27, 2022 02:00 ET (06:00 GMT)
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