TIDMPFG
RNS Number : 9886X
Provident Financial PLC
28 February 2017
Provident Financial plc
Preliminary results for the year ended 31 December 2016
Provident Financial plc is the leading non-standard lender in
the UK. The group serves 2.4 million customers and its operations
consist of Vanquis Bank, the Consumer Credit Division (CCD)
comprising Provident and Satsuma, and Moneybarn.
Highlights
Strong financial performance and dividend increase
-- Adjusted profit before tax(1) up 14.1% to GBP334.1m (2015:
GBP292.9m) and adjusted basic earnings per share(1) up 9.2% to
177.5p (2015: 162.6p).
-- Statutory profit before tax up 25.7% to GBP343.9m (2015:
GBP273.6m) and basic earnings per share up 19.8% to 181.8p (2015:
151.8p).
-- Return on assets(2) of 15.3%, reduced from 16.1% in 2015 due
to the impact of the 8% bank corporation tax surcharge on Vanquis
Bank profits which became effective from 1 January 2016.
-- Total dividend per share up 12.1% to 134.6p (2015: 120.1p),
supported by strong capital generation.
Excellent growth momentum in Vanquis Bank
-- Adjusted profit before tax(1) up by 11.3% to GBP204.5m (2015: GBP183.7m).
-- Customer numbers and receivables growth of 8.7% and 13.8%
respectively against continued tight credit standards.
-- Strong lift in fourth quarter new account bookings reflecting
momentum from expanded credit card proposition.
-- Testing of instalment loans to credit card customers launched
in November with encouraging early results.
-- Return on assets(2) of 13.8% in 2016, reduced from 15.8% in
2015 primarily due to the bank corporation tax surcharge.
CCD delivering strong returns with Satsuma poised for profitable
growth
-- Adjusted profit before tax(1) up 9.3% to GBP115.2m (2015: GBP105.4m).
-- Robust demand has resulted in year-on-year receivables growth of 7.3%.
-- Increase in return on assets(2) to 22.3% in 2016, up from
21.2% in 2015, reflecting a GBP12m reduction in start-up losses in
Satsuma.
-- Cost efficient distribution now firmly established at Satsuma
allowing a step-up in lending volumes of 25% in the fourth
quarter.
-- Programme launched in home credit to migrate to a more
efficient and effective field organisation structure during 2017
supported by the deployment of further technology.
Further strong growth and returns at Moneybarn
-- Adjusted profit before tax(1) of GBP31.1m in 2016, 46.0%
higher than 2015 profits of GBP21.3m.
-- Significant year-on-year growth in new business volumes of 28.0%.
-- Return on assets(2) of 13.1% in 2016, up from 12.9% in 2015
due to the benefit of operational leverage.
Sound funding position and capital generation
-- Gearing stable at 2.3 times (2015: 2.2 times).
-- Funded to October 2019 following extension of core banking
facilities and increase from GBP383m to GBP450m in January
2017.
-- Capital generated(3) of GBP233.2m (2015: GBP189.9m)
supporting dividends of GBP195.7m (2015: GBP174.4m) in respect of
2016.
Key financial results 2016 2015 Change
---------- ---------- ---------
Adjusted profit before tax(1) GBP334.1m GBP292.9m 14.1%
Statutory profit before tax GBP343.9m GBP273.6m 25.7%
Adjusted basic earnings per share(1) 177.5p 162.6p 9.2%
Basic earnings per share 181.8p 151.8p 19.8%
Return on assets(2) 15.3% 16.1%
Final dividend per share 91.4p 80.9p 13.0%
Total dividend per share 134.6p 120.1p 12.1%
Peter Crook, Chief Executive, commented:
"I am delighted to announce adjusted earnings per share growth
of 9.2% in 2016 and a 12.1% increase in the dividend for the year,
supported by strong capital generation and a very robust funding
position.
Vanquis Bank has reported profits up 11.3%. Growth is being
delivered against continued tight credit standards and I'm
particularly pleased with the momentum of new business being
generated through a reinvigoration of the credit card proposition
and its distribution by the new leadership team.
CCD's profits increased by 9.3%, reflecting a robust profit
performance from the repositioned Provident home credit business
and a sharp reduction in the Satsuma start-up loss. The home credit
business is actively pursuing plans to better serve its customers
by migrating to a more efficient field organisation structure
during 2017 supported by the deployment of further technology.
Satsuma has made great strides in developing its online instalment
loan product and it is now on course to deliver profitable growth
from the attractive market opportunity available to it.
Moneybarn has again performed extremely well. Since its
acquisition in August 2014, the business has more than doubled in
size and maintained its margins through a period of significant
investment.
The group has made a good start to 2017. Vanquis Bank and
Moneybarn have continued to trade very well and the home credit
business has produced a sound collections performance."
Enquiries:
Media
David Stevenson/Jade
Byrne, Provident Financial 01274 351900
Nick Cosgrove/Simone
Selzer, Brunswick 0207 4045959
Investor Relations
Gary Thompson/Vicki
Turner, Provident Financial 01274 351900
investors@providentfinancial.com
(1) Adjusted profit before tax in 2016 is stated before: (i)
GBP7.5m of amortisation in respect of acquisition intangibles
established as part of the acquisition of Moneybarn in August 2014
(2015: GBP7.5m) - see note 6; and (ii) a net exceptional credit of
GBP17.3m comprising an exceptional gain of GBP20.2m in respect of
Vanquis Bank's interest in Visa Europe following completion of Visa
Inc.'s acquisition of Visa Europe on 21 June 2016 and an
exceptional impairment charge of GBP2.9m in respect of glo's IT
platform within CCD following the decision to develop guarantor
loans as part of the wider Vanquis Bank loans proposition on a
separate IT platform (2015: exceptional cost of GBP11.8m in respect
of a business restructuring in CCD) - see note 2.
(2) Adjusted profit before interest after tax as a percentage of average receivables.
(3) Represents net cash generated from operating activities,
after adding back 80% of the growth in receivables funded by
borrowings, less net cash used in investing activities.
Group summary
The group has reported a strong set of results with profit
before tax, amortisation of acquisition intangibles and exceptional
items up 14.1% to GBP334.1m (2015: GBP292.9m). This reflects strong
growth in profits at Vanquis Bank and Moneybarn and an improved
profit performance in CCD following a reduction in the start-up
losses associated with Satsuma. Statutory profit before tax
increased by 25.7% to GBP343.9m (2015: GBP273.6m). Adjusted basic
earnings per share of 177.5p (2015: 162.6p) grew by 9.2%, a lower
rate than adjusted pre-tax profits due to the impact of the 8% bank
corporation tax surcharge on Vanquis Bank's profits in excess of
GBP25m which was effective from 1 January 2016. Basic earnings per
share increased by 19.8% to 181.8p (2015: 151.8p).
Vanquis Bank delivered another strong performance in 2016 with
adjusted profit before tax up 11.3% to GBP204.5m (2015: GBP183.7m).
The customer acquisition programme delivered new customer bookings
of 406,000, lower than 433,000 in 2015. The year-on-year reduction
can be attributed to the curtailment of bookings through the
face-to-face channel due to the lower quality and weak account
activation levels experienced in 2015 whilst the proposition and
customer acquisition processes are re-engineered. Nonetheless,
fourth quarter bookings were 9,000 higher than the last quarter in
2015 with momentum continuing to build during the fourth quarter as
a result of a range of new initiatives put in place during the
year. Year-on-year customer growth of 8.7% and receivables growth
of 13.8% have been delivered against continued tight credit
standards. Delinquency levels were stable through the fourth
quarter having improved modestly, and assisted financial
performance, through the first nine months of the year.
Accordingly, Vanquis Bank delivered a risk-adjusted margin for 2016
of 32.2% (2015: 32.8%), notwithstanding the decline in the revenue
yield previously communicated. The actions to augment medium-term
growth of the cards business are well progressed and are producing
a good pipeline of opportunities which should add further momentum
to growth during 2017, including the Chrome branded card which
extends the business into the nearer prime segment of the
non-standard market and meets the group's minimum returns
thresholds. In addition, Vanquis Bank has successfully developed a
loans platform and in November commenced testing instalment loans,
initially to its credit card customer base, with encouraging early
results.
CCD's adjusted profit before tax in 2016 was up 9.3% to
GBP115.2m (2015: GBP105.4m), reflecting a stable performance from
home credit and reduced start-up losses associated with
Satsuma.
Demand and customer confidence within home credit has remained
robust. The tighter credit standards introduced as part of the
repositioning of the business in September 2013 have continued to
curtail the recruitment of more marginal customers and driven up
the quality of the receivables book. As a result, CCD customer
numbers showed a year-on-year reduction of approximately 9.1% to
862,000, the majority of which took place in the first half of the
year. Despite the reduction in customer numbers, receivables ended
the year 7.3% higher than 2015 reflecting the focus on serving good
quality existing customers eligible for larger amounts of credit
over a longer duration. Collections performance and the arrears
profile has remained stable through 2016. The risk-adjusted margin
of 78.4% is down from 82.2% in 2015 reflecting a reduction in the
revenue yield due to the increased mix of longer duration lending
which carries a lower yield and a stable delinquency performance
compared with the strong improvements seen in 2015. Performance
also continues to benefit from the cost reduction programme
successfully implemented within home credit over recent years which
has been assisted by the roll-out of technology. As a result, costs
showed a year-on-year reduction of 7.7% in 2016. The business
continues to pursue an agenda to identify further improvements in
the efficiency and effectiveness of the organisation and has
recently launched a programme to migrate to a more efficient and
effective field organisation structure during 2017 supported by the
deployment of further technology.
Alongside the stable performance of home credit, CCD has
continued to develop its market presence and further enhanced its
capability in its online direct repayment loan product, Satsuma.
Through the first nine months of the year, the business adopted a
measured approach to new customer growth. This was wholly
consistent with the drive to further develop underwriting,
cost-effective distribution channels and the customer journey. The
success of these actions, together with the launch of a monthly
product in late November, supported a 25% increase in new business
volumes and further lending to established customers during the
fourth quarter of the year. The current development trajectory of
Satsuma is encouraging and customer numbers and receivables ended
the year at 55,000 and GBP18.2m respectively, up from 49,000 and
GBP12.1m at the end of 2015. The start-up loss associated with
Satsuma has reduced by approximately GBP12m in 2016 as the business
approaches break even.
Moneybarn has performed very well during 2016 delivering
adjusted profits of GBP31.1m, up 46.0% on 2015. Continued
development of its best in class customer platform together with
extension of the product offering has enabled the business to
generate new business volumes 28.0% higher than last year whilst
maintaining the risk-adjusted margin at a stable level.
An exceptional credit of GBP17.3m has been recognised in the
income statement comprising a GBP20.2m gain made on Vanquis Bank's
interest in Visa Europe Ltd following completion of its acquisition
by Visa Inc. on 21 June 2016 net of an exceptional impairment
charge of GBP2.9m in respect of glo's IT platform within CCD
following the decision to develop guarantor loans as part of the
wider Vanquis Bank loans proposition on a separate IT platform
(2015: exceptional cost of GBP11.8m following a business
restructuring in CCD). The group's statutory profit before tax is
also stated after a GBP7.5m charge (2015: GBP7.5m) in respect of
the amortisation of an intangible asset attributed to Moneybarn's
broker relationships which was recognised on acquisition.
The group's funding and liquidity positions remain strong with
gearing of 2.3 times (2015: 2.2 times). The group has recently
entered into a new GBP450m syndicated bank facility maturing in May
2020 and cancelled the existing committed bank facility of GBP383m
which was due to mature in May 2018. The all-in cost of the new
facility is lower than the cancelled facility with broadly
consistent terms, conditions and financial covenant package. As at
31 December 2016, headroom on the group's committed facilities
amounted to GBP140m and, including the additional capacity
available for Vanquis Bank to take retail deposits, total funding
capacity amounted to GBP374m. The group's committed debt
facilities, together with the recent renewal of bank facilities and
the retail deposits programme at Vanquis Bank, are now sufficient
to fund contractual maturities and projected growth of the group
until October 2019.
The proposed final dividend per share has been increased by
13.0% to 91.4p (2015: 80.9p) which, together with the 10.2%
increase in the interim dividend, represents a 12.1% increase in
the total dividend per share to 134.6p (2015: 120.1p). Dividend
cover for 2016, prior to the amortisation of acquisition
intangibles and exceptional items, is 1.32 times (2015: 1.35 times)
and is consistent with the group's stated target of maintaining
annual dividend cover of at least 1.25 times. The increase in the
full-year dividend is supported by the group's growth in earnings
and strong capital generation.
The group generated capital of GBP233.2m (2015: GBP189.9m) which
more than covers dividends in respect of 2016 of GBP195.7m (2015:
GBP174.4m).
Vanquis Bank
Financial performance
Vanquis Bank generated a profit before tax and exceptional items
of GBP204.5m in 2016 (2015: GBP183.7m) analysed as follows:
Year ended 31
December
2016 2015 Change
GBPm GBPm %
------- ------- -------
Profit/(loss) before tax:
- UK 204.5 185.5 10.2
- Poland - (1.8) 100.0
Total Vanquis Bank 204.5 183.7 11.3
------- ------- -------
UK
Year ended 31
December
2016 2015 Change
GBPm GBPm %
-------- -------- -------
Customer numbers ('000) 1,545 1,421 8.7
Year-end receivables 1,424.7 1,252.0 13.8
Average receivables 1,307.0 1,157.1 13.0
------------------------- -------- -------- -------
Revenue 583.7 538.6 8.4
Impairment (162.4) (158.9) (2.2)
-------- -------- -------
Revenue less impairment 421.3 379.7 11.0
Risk-adjusted margin(1) 32.2% 32.8%
Costs (174.4) (151.1) (15.4)
Interest (42.4) (43.1) 1.6
Adjusted profit before
tax(2) 204.5 185.5 10.2
======== ======== =======
Return on assets(3) 13.8% 15.8%
(1) Revenue less impairment as a percentage of average receivables.
(2) Adjusted profit before tax is stated before an exceptional
gain of GBP20.2m in respect of Vanquis Bank's interest in Visa
Europe following completion of Visa Inc.'s acquisition of Visa
Europe on 21 June 2016.
(3) Adjusted profit before interest after tax as a percentage of average receivables.
Vanquis Bank has delivered a good performance in 2016, reporting
UK profits 10.2% higher than 2015. The business has delivered a
return on assets of 13.8% in 2016, lower than 15.8% in 2015
primarily due to the impact of the 8% bank corporation tax
surcharge which became effective from 1 January 2016 together with
the expected modest reduction in risk-adjusted margin.
Whilst the marketing activity of competitors in both the direct
mail and internet channels has continued, demand for non-standard
credit cards continues to be strong. Against unchanged credit
standards and a stable acceptance rate of around 25%, the business
has delivered new account bookings of 406,000 (2015: 433,000),
27,000 lower than 2015. The year-on-year reduction can be
attributed to a reduction of 43,000 in bookings through the
face-to-face channel. Sales have been curtailed as a response to
the lower quality and weak account activation levels experienced in
2015 whilst the proposition and customer acquisition processes are
re-engineered.
As reported at the interim results, new account bookings in the
first half of the year were 32,000 lower than the first half of
2015 due to the spend on Vanquis Bank's 2016 direct mail programme
being weighted towards the second half of the year and the
significant reduction in bookings in the face-to-face channel.
Bookings in the second half of the year showed year-on-year growth
of 5,000 benefiting from the greater weighting of marketing spend
to the second half together with a number of actions to expand
distribution and the credit card proposition which have been put in
place since the new Managing Director, Chris Sweeney, joined the
business at the start of the year. These actions include the launch
of the Chrome nearer prime credit card, a new 'Express Check'
service which allows customers to check their likelihood of
acceptance without affecting their credit score, new affiliate
arrangements, SMS and email campaigns and a reinvigorated
member-get-member offer.
The improved new account booking momentum during the second half
of 2016, together with a pipeline of initiatives to augment the
medium-term growth of the business, are expected to lead to a
step-up in full-year booking volumes in 2017. This would produce
the related increase in year one investment associated with all new
vintages resulting from the cost of acquiring new customers, early
impairments and the progressive revenue from the 'low and grow'
approach to issuing credit.
Customer numbers ended the year at 1,545,000 (2015: 1,421,000),
up 8.7% on 2015. The growth in customer numbers, together with the
credit line increase programme to customers who have established a
sound payment history, generated a 13.0% increase in average
receivables. Returns from the 'low and grow' approach to extending
credit remain consistently strong and are underpinned by average
credit line utilisation of nearly 70% which delivers a strong
stream of revenue whilst maintaining a relatively low level of
contingent risk from undrawn credit lines.
The risk-adjusted margin in 2016 was 32.2%, compared with 32.8%
in 2015. The reduction in the risk-adjusted margin over the last 12
months primarily reflects a 1.0% decline in the revenue yield from
the fall in interchange income following the agreement between Visa
and the EU which took full effect from December 2015 together with
the further reduction in penetration of the ROP product within the
customer base. These are partly offset by a 0.4% benefit from
improved delinquency during the first nine months of the year.
Although the UK employment market has continued to improve,
Vanquis Bank will continue to apply the tight credit standards
which have been in place since the economic downturn between 2008
and 2010, a period when the business successfully delivered its
minimum targeted returns. The rate of delinquency progressively
reduced to record lows through the first nine months of the year
and then remained stable through the fourth quarter. This produced
a 1.3% reduction in the rate of impairment compared with 2015. Over
the same period, the improving quality of the receivables book has
seen the revenue yield from interest and late and over limit fees
reduce by around 0.9%. Taken together, these explain the net
benefit of 0.4% to the risk-adjusted margin from improved
delinquency over the last year.
Based on the stable delinquency trends experienced during the
fourth quarter, together with the expected growth of Vanquis Bank's
presence in the nearer prime segment of the market and some further
reduction in the penetration of the ROP product, the risk-adjusted
margin is expected to moderate towards 30% during 2017.
Costs increased by 15.4%, above the 13.0% growth in average
receivables. The cost base in 2016 includes expenditure of
approximately GBP6m during the second half of the year to support
the programme of initiatives which will augment the medium-term
growth of the business. This rate of expenditure will continue into
2017.
Interest costs reduced by 1.6% during 2016. This reflects the
reduction in Vanquis Bank's blended funding rate, after taking
account of the cost of holding a liquid assets buffer, from 5.3% in
2015 to 4.6% in 2016 due to a lower blended interest rate on retail
deposits and a lower group funding rate on the intercompany loan
from PFG.
Business development
Vanquis Bank continues to develop a number of new initiatives to
augment the medium-term growth of the business.
An analysis of Vanquis Bank's credit card customer base has
indicated that a sizeable population of customers have unsecured
borrowings with other lenders. Vanquis Bank's credit card business
enjoys high levels of customer satisfaction and has rich data on
the credit performance of its customers. Extending the product
range to attract loan customers from those other lenders is
therefore a logical extension of Vanquis Bank's credit card
offering. In addition, the larger sum, longer duration non-standard
loans market is an under-served and growing segment of the market.
Accordingly, during 2016 Vanquis Bank has successfully developed a
loans platform and has recently launched a wider loans proposition
which is initially focused on providing unsecured loans to existing
credit card customers. The loans offered are currently between
GBP1,000 and GBP2,000 over 12 to 24 months and are priced at a
similar or lower rate than the credit card offering. A measured
approach to developing the loans proposition will be taken,
observing the results from the loans provided to existing credit
card customers and refining underwriting and the loans proposition
as appropriate. The business then intends to develop an open market
proposition and a fresh guarantor loans product during 2017.
Expanding the capability to provide non-standard consumer
finance through partnering with other lending institutions, brokers
or providers of retail finance represents an attractive opportunity
to expand the distribution of Vanquis Bank's credit card
proposition. During 2016, a new relationship has been established
with Pay4Later who provide the IT platform that acts as the
interface between a number of retailers and a panel of lenders.
Vanquis Bank is Pay4Later's designated provider of revolving credit
and a number of retailer relationships are expected to be
established with Vanquis Bank during 2017. Discussions are also
progressing with a number of other retailers, brokers and lending
institutions.
Vanquis Bank also continues to progress a number of other
opportunities including: (i) improving the digital capability of
the business, particularly the forthcoming launch of an enhanced
mobile app allowing greater functionality and the ability to
present other potential offers to customers; and (ii) the
development of a number of customer value management programmes,
comprising reactivation and retention programmes and the
development of a group wide customer prospects database.
Further detail on Vanquis Bank's initiatives to augment the
medium-term growth of its credit card proposition, together with
its business plan for developing a loans proposition, will be
provided at the Capital Markets Day on 4 April 2017.
CCD
Financial performance
CCD generated a profit before tax and exceptional items of
GBP115.2m in 2016 (2015: GBP105.4m) as set out below:
Year ended 31
December
2016 2015 Change
GBPm GBPm %
-------- -------- -------
Customer numbers ('000) 862 948 (9.1)
Year-end receivables 584.8 545.1 7.3
Average receivables 508.7 499.5 1.8
------------------------- -------- -------- -------
Revenue 518.8 517.4 0.3
Impairment (120.0) (106.6) (12.6)
-------- -------- -------
Revenue less impairment 398.8 410.8 (2.9)
Risk-adjusted margin(1) 78.4% 82.2%
Costs (257.0) (278.3) 7.7
Interest (26.6) (27.1) 1.8
Adjusted profit before
tax(2) 115.2 105.4 9.3
======== ======== =======
Return on assets(3) 22.3% 21.2%
(1) Revenue less impairment as a percentage of average receivables.
(2) Adjusted profit before tax is stated before an exceptional
impairment charge of GBP2.9m in respect of glo's IT platform within
CCD following the decision to develop guarantor loans as part of
the wider Vanquis Bank loans proposition on a separate IT platform
(2015: an exceptional cost of GBP11.8m in respect of business
restructuring).
(3) Adjusted profit before interest after tax as a percentage of
average receivables.
CCD has made further good progress in executing on its strategic
plan to develop a broader based lending business. The repositioned
Provident home credit business is delivering strong returns and has
supported the continued investment in developing the Satsuma online
loans proposition. Profits in 2016 have increased by 9.3% or
GBP9.8m, reflecting a reduction in the start-up losses of Satsuma
of approximately GBP12m. The strategic development of CCD continues
to drive improved returns with the return on assets increasing to
22.3% in 2016, up from 21.2% in 2015.
Customer numbers in CCD have remained stable during the second
half of 2016 and the majority of the year-on-year reduction of 9.1%
to 862,000 (2015: 948,000) took place in the first half of the
year. The reduction on 2015 reflects the tighter credit standards
introduced as part of the repositioning of the business in
September 2013 which have continued to curtail the recruitment of
more marginal customers and improve overall credit quality.
Demand and customer confidence have remained robust and when
combined with the focus on serving good-quality existing customers
has resulted in a 9% year-on-year improvement in sales during 2016.
As a result, CCD receivables ended the year 7.3% higher than
December 2015.
The revenue yield in 2016 of 102.0% has reduced modestly from
103.6% in 2015. The reduction reflects the continued focus on
serving good quality customers who tend to be served with longer
term, lower yielding products.
The benefit of standardised arrears and collections processes
coupled with continued tight credit standards have resulted in a
stable collections performance and arrears profile in 2016. This
compares with the strong improvements in both these metrics during
2015 which benefited the impairment charge last year. As a result,
the ratio of impairment to average receivables has increased from
21.4% in 2015 to 23.6% in 2016.
The modest reduction in revenue yield together with the stable
delinquency performance compared with the strong improvements seen
in 2015 has produced a risk-adjusted margin for CCD of 78.4% in
2016, lower than 82.2% in 2015.
Business performance continues to benefit from the successful
completion during 2015 of the programme to deploy technology
throughout the field operation to support an improvement in
productivity and enhance compliance. Costs in 2016 were GBP21.3m or
7.7% lower than 2015, with around one third of the reduction
resulting from the annualised savings of approximately GBP14m
secured in June 2015 within the field infrastructure. The remaining
reduction reflects a reduction in agents' commission costs together
with lower costs in Satsuma as a result of much more cost effective
marketing.
Interest costs were 1.8% lower than last year compared with a
1.8% increase in average receivables. This reflects a marginal
reduction in the funding rate for the business from 6.8% in 2015 to
6.6% in 2016 due to a reduction in group borrowing costs.
Business development
Home credit
The repositioning of the home credit business as a smaller,
better quality business has been successful in maintaining the
profitability of the business and increasing returns in a mature
market. In particular, the business has successfully deployed hand
held technology to the field force, reduced the number of
self-employed agents from over 10,000 to 4,500, reduced the field
headcount by over 1,000, including the full removal of all field
administration, and developed sophisticated central underwriting
and data analytics.
The self-employed model for agents has been an effective
operating model for the home credit business for a long period of
time. However, continually increasing customer service expectations
together with the development of hand held technology and enhanced
data analytics have led to the conclusion that further developments
to the current operating model would deliver a more efficient and
effective business. As a result, the business has developed a
proposal, which is subject to workforce consultation, to enhance
the home credit operating model in three ways: (i) serving
customers through full time employed Customer Experience Managers
rather than self-employed agents to take direct control of all
aspects of the relationship with the customer; (ii) changing the
field management structure in the UK, with newly defined roles and
ways of working; and (iii) deploying further technology to improve
efficiency and effectiveness.
The business is proposing the creation of a number of new roles
including over 2,500 full time employed Customer Experience Manager
roles which would be tasked with serving customers in a way which
is controlled and directed by the business. This means customers
would no longer be served by self-employed agents. The proposal
will enable the business to manage every aspect of the customer
relationship thereby improving the effectiveness of the field
organisation and enhancing the customer experience. In addition,
the proposed deployment of further technology in 2017 includes
route planning and voice recording which provides the business with
the opportunity to improve efficiency and provide customers with
more choice and flexibility.
Subject to workforce consultation, the business also proposes to
change the field management structure in the UK, removing the
current Area and Development Manager roles and replacing them with
new field roles with different responsibilities which includes
separating the collections and arrears elements of the business to
maximise efficiency.
A migration to the enhanced operating model, which features more
centralised control over a distributed workforce and greater
evidencing of customers interactions, would also enhance regulatory
standards. The enhanced operating model is proposed to be fully
operational from July 2017.
The 2017 Capital Markets Day on 4 April 2017 will provide more
detail on how the enhanced operating model would work, including
more detail on the potential financial benefit. The proposed next
stage in home credit's development is a logical extension of the
excellent progress made by CCD in repositioning the business since
2013.
Satsuma
Good progress has been made during 2016 in developing the
distribution, digital platform and further lending capability in
Satsuma in order to develop a sustainable business both in the
competitive online small-sum, short-term credit market and into
lending larger amounts of over GBP1,000 and beyond a year in
duration. There is now evidence that the industry consolidation
expected in 2015 is beginning to materialise due to competitive
pressures, more exacting FCA regulation and the funding constraints
of a number of competitors.
Satsuma remains the third most recognised brand within online
small-sum, short-term credit and the business has continued to
develop its multi-channel distribution capability, focusing on
recruiting new customers through more cost effective channels such
as digital, social media and the broker channels rather than
through the more expensive above the line advertising used in 2015.
This has contributed to the GBP12m reduction in start-up losses
associated with Satsuma during 2016 as the business approaches
break even.
Satsuma's trading performance in 2016 also reflects the
significant tightening of credit standards implemented in the
fourth quarter of 2015 and developed further in 2016 as well as the
current narrow focus on small-sum, short term, weekly repaid credit
of less than a year in duration. Whilst growth during the first
nine months of the year was relatively modest, the business has
been developing a number of improvements to the customer journey
and its product proposition, including the introduction of a
monthly product in November. As a result, the business achieved a
25% year-on-year increase in new business volumes and further
lending to established customers during the fourth quarter.
The current development trajectory of Satsuma is encouraging and
customer numbers and receivables ended 2016 at 55,000 (2015:
49,000) and GBP18.2m (2015: GBP12.1m) respectively.
glo
A decision was made to close CCD's guarantor loans business,
glo, to new business in early October 2016. This decision reflected
the longer than envisaged timescale in CCD obtaining FCA
authorisation which had delayed the transfer of glo to Vanquis Bank
together with Vanquis Bank being at an advanced stage of developing
its own loans platform to provide a wider unsecured loans
proposition. As a result, the glo receivables book has been placed
into run-off within CCD and an exceptional impairment charge of
GBP2.9m in respect of glo's IT platform has been reflected in 2016.
Vanquis Bank will incorporate the learnings from glo when it
introduces a fresh guarantor loans product as part of its wider
loans proposition during 2017.
As at 31 December 2016, the run-off of glo had 5,000 customers
(2015: 4,000) and a receivables book of GBP6.6m (2015: GBP10.8m).
The costs of run-off in 2017 are not expected to be material.
Moneybarn
Financial performance
Moneybarn has contributed a profit before tax and amortisation
of acquisition intangibles of GBP31.1m (2015: GBP21.3m) in 2016 as
set out below:
Year ended 31
December
2016 2015 Change
GBPm GBPm %
------- ------- -------
Customer numbers ('000) 41 31 32.3
Year-end receivables 297.3 219.6 35.4
Average receivables 266.6 190.8 39.7
------------------------- ------- ------- -------
Revenue 80.7 55.3 45.9
Impairment (16.4) (8.9) (84.3)
------- ------- -------
Revenue less impairment 64.3 46.4 38.6
Risk-adjusted margin(1) 24.1% 24.3%
Costs (20.5) (15.6) (31.4)
Interest (12.7) (9.5) (33.7)
Adjusted profit before
tax(2) 31.1 21.3 46.0
======= ======= =======
Return on assets(3) 13.1% 12.9%
(1) Revenue less impairment as a percentage of average receivables.
(2) Adjusted profit before tax is stated before the amortisation
of acquisition intangibles of GBP7.5m (2015: GBP7.5m).
(3) Adjusted profit before interest after tax as a percentage of average receivables.
Moneybarn has performed well during 2016, delivering an increase
in adjusted profits of 46.0%. Strong growth in the receivables book
and robust margins have enabled the business to invest in the
necessary headcount and its platform to support growth whilst
delivering a return on assets of 13.1% in 2016, marginally higher
than 12.9% in 2015.
New business volumes during 2016 have remained strong. Continued
development of its best in class customer platform together with
extension of the product offering, including lending up to retail
value and the reduction in the minimum lend from GBP5,000 to
GBP4,000, has reinforced Moneybarn's primacy amongst its broker
network. As a result, new business volumes were 28.0% higher than
last year and customer numbers ended the year at 41,000 (2015:
31,000), up 32.3% on 2015. Demand for second hand cars in the
non-standard market and year-on-year growth in new business volumes
reduced during the seasonally quieter fourth quarter against a
strong comparative trading period which included the full benefit
of the changes made to the product proposition following
acquisition. Demand and new business volumes have been strong in
early 2017.
The strong growth in new business volumes has resulted in
receivables growth of 35.4% to GBP297.3m at December 2016 (2015:
GBP219.6m). Average new loan sizes during 2016 were around
GBP8,200, lower than the historical average of GBP8,900, reflecting
a modest shift in the mix in business towards marginally lower
value vehicles which carry a higher yield.
Default rates have increased during 2016 consistent with the mix
of business being written. Moneybarn's risk-based pricing models
have proved effective in maintaining its risk-adjusted margin at
24.1% in 2016, compared with 24.3% in 2015.
The business has continued to invest in the resources necessary
to support future growth as well as meet the more exacting
regulatory standards set by the FCA. Accordingly, headcount has
increased from 151 at the end of 2015 to 195 at the end of 2016.
This has resulted in cost growth of 31.4%, lower than the growth in
average receivables as the business has benefited from some
operational leverage. This produced a return on assets of 13.1%, up
from 12.9% in 2015.
Interest costs have shown growth of 33.7% in 2016 compared with
average receivables growth of 39.7%. The group's funding rate for
Moneybarn has remained unchanged and, therefore, the lower rate of
growth in interest costs reflects the retention of profits since
acquisition as the capital base is built towards the group's target
gearing ratio of 3.5 times.
Business development
Moneybarn continues to explore other opportunities to develop
and extend its product offering. During 2016, Moneybarn has
continued to develop its used light commercial vehicles proposition
through its existing broker network. The results remain encouraging
with volumes expected to increase during 2017. Further
opportunities to develop and extend the product offering are under
active consideration.
The business has also made good progress in developing its
digital proposition. A new broker management system was launched in
early 2016 which provides improved links between Moneybarn's and
brokers' systems as well as significantly enhancing functionality
for brokers. Moneybarn is the first non-standard car finance
provider to launch eID and eSign which allows customers to be
identified and to sign their credit agreements electronically
thereby speeding up the application process and improving the
customer journey. In addition, to support the development of
Moneybarn's direct to consumer proposition, the business has also
redeveloped its website to give it a more modern look and feel,
improve the customer application journey and enable it to be fully
compatible with mobile phones and tablets. The development of
Vanquis Bank's digital platform will also further raise the
awareness of Moneybarn's car finance proposition to Vanquis Bank
customers.
Central costs
Central costs reduced to GBP16.7m in 2016 (2015: GBP17.5m),
reflecting reduced legal, professional and advisory fees.
Exceptional items
The group income statement reflects a net exceptional gain of
GBP17.3m (2015: exceptional cost of GBP11.8m in respect of CCD
business restructuring).
On 21 June 2016, Visa Inc. completed the acquisition of Visa
Europe Limited creating a single global payments business under the
VISA brand. Vanquis Bank was a member and shareholder of Visa
Europe and in exchange for its one redeemable ordinary share has
received cash consideration of EUR15.9m, preferred stock with an
approximate value of EUR10.7m and will receive deferred cash
consideration of EUR1.4m on the third anniversary of the completion
date. The preferred stock is convertible into Class A common stock
of Visa Inc. at a future date, subject to certain conditions. An
exceptional gain of GBP20.2m has been recycled from equity and
recognised in the income statement in 2016 representing the fair
value of the proceeds. The fair value of the preferred stock in
Visa Inc. of GBP8.0m as at 31 December 2016 (2015: GBP17.5m) is
recognised as an available for sale investment and the fair value
of the deferred cash consideration of GBP1.1m (2015: GBPnil) is
recognised within debtors.
The exceptional gain in respect of Visa is partly offset by an
exceptional impairment charge of GBP2.9m in respect of glo's IT
platform within CCD following the decision to develop guarantor
loans as part of the wider Vanquis Bank loans proposition on a
separate IT platform.
Taxation
The tax charge for 2016 represents an effective rate of 23.20%
(2015: 20.25%) on profit before tax, amortisation of acquisition
intangibles and exceptional items. The rate is higher than the
mainstream UK statutory corporation tax rate which reduced from 21%
to 20% on 1 April 2015 due to the impact of the bank corporation
tax surcharge of 8% which came into force on 1 January 2016. The
surcharge applies to Vanquis Bank profits in excess of GBP25m and
places an additional tax cost on Vanquis Bank of approaching GBP15m
per annum. The group is expected to benefit in future years from
the further rate reductions to 19% on 1 April 2017 and to 17% on 1
April 2020 announced by the Government and enacted in the 2016
Finance Act.
Dividends
The proposed final dividend per share has been increased by
13.0% to 91.4p (2015: 80.9p) which, together with the 10.2%
increase in the interim dividend, represents a 12.1% increase in
the total dividend per share to 134.6p (2015: 120.1p). Dividend
cover for 2016, prior to the amortisation of acquisition
intangibles and exceptional items, is 1.32 times (2015: 1.35 times)
and is consistent with the group's stated target of maintaining
annual dividend cover of at least 1.25 times. The increase in the
full-year dividend is supported by the group's growth in earnings
and strong capital generation.
Funding and capital
The group's funding and liquidity positions are strong and
diverse, including access to retail deposits within Vanquis Bank.
Gearing remains stable at 2.3 times (2015: 2.2 times) and compares
with a banking covenant limit of 5.0 times.
At the end of December, Vanquis Bank had taken GBP941.2m of
retail deposits (66% of Vanquis Bank's receivables), up from
GBP731.0m at 31 December 2015 (58% of Vanquis Bank's receivables),
with additional retail deposits capacity of GBP234m, representing
the remaining outstanding balance on the intercompany loan with
Provident Financial. Due to the high level of committed debt
funding, the flow of new funds from the retail deposits programme
was managed to relatively modest levels during the first half of
2016. However, retail deposit volumes were increased during the
second half of the year through appropriate pricing.
On 31 January 2017, the group successfully entered into a new
syndicated bank facility of GBP450m maturing in May 2020 and
cancelled the existing facility of GBP382.5m which was due to
expire in May 2018. The syndicate continues to comprise the group's
core relationship banks and the all in cost of funds is lower than
the previous facility with broadly consistent terms, conditions and
financial covenant package.
Headroom on the group's committed debt facilities at 31 December
2016 amounted to GBP140m and, including the additional capacity
available for Vanquis Bank to take retail deposits, total funding
capacity amounted to GBP374m. The group's committed debt
facilities, together with the retail deposits programme at Vanquis
Bank and the recent extension to the group's syndicated bank
facility, are sufficient to fund contractual maturities and
projected growth of the group until October 2019, when the GBP250m
senior bond matures.
The group's funding rate during 2016 was 5.5%, down from 5.9% in
2015. This principally reflects a lower average blended rate on
retail deposits and a lower average rate on the group's syndicated
bank facilities.
The group's credit rating from Fitch Ratings was reviewed in May
2016 and remains unchanged at BBB with a stable outlook.
The group continues to be highly capital generative, reflecting
its strategy of developing and growing businesses which generate a
high return on capital to support the group's dividend policy. In
2016, capital generated amounted to GBP233.2m (2015: GBP189.9m)
compared with dividends in respect of 2016 of GBP195.7m (2015:
GBP174.4m).
The group maintains a strong capital position and, as at 31
December 2016, the common equity tier one ratio and leverage ratio
of the group were 21.9% (2015: 22.0%) and 16.9% (2015: 16.9%)
respectively.
Brexit
The UK's EU referendum on 23 June 2016 has resulted in a
decision to leave the EU (Brexit). Brexit has had a significant
impact on capital markets. Most economists and market commentators
have been predicting a period of instability in the UK economy over
the near or medium term which may result in weak GDP growth and may
result in increased unemployment and inflation in the UK economy.
The emergence of such changes is unlikely to have a significant
impact on the group through 2017.
Despite any potential second order risks of Brexit, the group
has proven resilient during previous economic downturns due to the
specialist business models deployed by its divisions which are
tailored to serving non-standard customers.
Vanquis Bank demonstrated during the last downturn that it is
considerably less sensitive to changes in the employment market
than mainstream card issuers, maintaining a risk-adjusted margin
above 30%, despite a modest increase in impairment. Although the UK
employment market has continued to improve, Vanquis Bank has
maintained tight credit standards since 2009 and maintains strict
discipline over managing card utilisation.
Moneybarn experiences relatively low default rates and has
recourse to the vehicle in the event of default. Its robust
risk-adjusted margin is capable of absorbing an increase in
impairment during a period of rising unemployment.
The home credit business has been repositioned since the last
downturn with a significant tightening of underwriting, the
standardisation of arrears practices through the implementation of
technology and a focus on serving good-quality existing customers.
The business is, therefore, in a strengthened position to manage
the impact of significant increases in inflation such as those
experienced on food, fuel and utility bills during 2011 to 2013
which reduced disposable incomes, led to a moderation in demand and
resulted in an increase in impairment. In addition, home credit
customers' employment tends to be biased towards more casual,
temporary and part-time employment and they are, therefore, late
cycle and impacted by under employment rather than
unemployment.
The group's funding position is strong, with significant
headroom on committed facilities and a diverse range of funding
sources, including retail deposits which are a valuable source of
funds, particularly when wholesale debt markets are weak.
It is also possible that the group's addressable customer base
may increase during a downturn as prime and other wholesale funded
non-standard lenders may reduce risk appetite or experience funding
constraints.
Regulation
Transfer of regulation to the FCA
The FCA assumed responsibility for the regulation of the
consumer credit industry from 1 April 2014. CCD and Moneybarn
obtained interim permissions under the new regime and submitted
their applications for full authorisation prior to the 31 May 2015
deadline. Vanquis Bank, which was already an authorised firm,
submitted its application for a variation of permissions in
December 2014.
During 2016, Vanquis Bank's change of permission was approved by
the FCA and Moneybarn received its full authorisation. CCD
continues to operate under an interim permission awaiting full
authorisation, consistent with the other sizeable firms operating
in the home credit market.
The ongoing supervisory framework is more exacting than was
previously the case prior to the change in regulation from the
Office of Fair Trading (OFT) to the FCA. In particular, the FCA
place a significant focus on affordability, income verification,
forbearance and general customer outcomes with the potential for
adverse impacts on the group being inherently uncertain.
FCA credit card review
In July 2016, the FCA published its final report following its
market-wide study of the UK credit card industry. The FCA and UK
credit card industry have since agreed three informational remedies
which are not expected to have a significant impact on Vanquis Bank
to be in place by the second quarter of 2018. As part of its
market-wide study, the FCA is continuing its review of persistent
debt, early intervention and how the industry applies credit limit
increases to cardholder accounts. These issues are expected to be
subject to a further consultation expected in the first quarter of
2017. The group continues to be involved in the ongoing dialogue
with the FCA through the credit card industry body, the UK Cards
Association.
FCA review of high-cost credit
During 2016, the FCA announced that it is to undertake a market
review of the high-cost credit market during 2017. The market
review of high-cost credit follows on from the other market-wide
studies performed by the FCA and the timing reflects: (i) the FCA
is scheduled to review the High-Cost, Short-Term Credit (HCSTC)
price controls and associated rules introduced in 2015 against
payday loans and short-term credit of less than a year in duration
and with an APR in excess of 100% during 2017; and (ii) following
the Competition and Markets Authority (CMA) report on overdrafts in
August 2016, the FCA has decided to review competition in the
current account market, in particular, improving transparency for
overdraft users which the FCA consider to be high-cost credit. As a
result, the FCA has decided to extend these reviews to incorporate
a full review of the wider high-cost credit market, including
adjacent high-cost products such as home credit, guarantor loans,
rent to own and pawn broking, as part of this review. Consistent
with all regulatory reviews of this nature, the group will respond
to information requests as they are received and maintain a
constructive dialogue with the regulator to assist them in
conducting their review.
Outlook
Vanquis Bank continues to deliver a strong financial
performance. The momentum of new account bookings is excellent with
a good pipeline of initiatives to further augment growth in 2017
and beyond. The performance of the recently launched unsecured
loans pilot is encouraging and represents a significant opportunity
within both the Vanquis Bank customer base and the wider market
which is an under-served area of the non-standard market.
The repositioned Provident home credit business delivered a
robust performance in 2016. The business is now actively pursuing
its plans to secure significant financial benefits from migrating
to a more effective and efficient field organisation structure
during 2017 supported by the deployment of further technology.
Satsuma has made good progress in developing the underwriting and
marketing of its online instalment loan product and it is now on
course to deliver profitable growth from the attractive market
opportunity available to it.
Moneybarn has achieved another significant uplift in new
business volumes, supported by access to the group's funding lines
and product development. This has reinforced its primacy across the
broker network which, when combined with further product
development opportunities, leaves the business in excellent shape
to deliver strong growth.
The group's funding and liquidity positions are strong, allowing
it to meet contractual debt maturities and fund its internal growth
plans through to October 2019.
The group has made a good start to 2017. Vanquis Bank and
Moneybarn have continued to trade very well and the home credit
business has produced a sound collections performance.
Consolidated income statement for the year ended 31 December
Note 2016 2015
GBPm GBPm
-------- --------
Revenue 2 1,183.2 1,113.1
-------- --------
Finance costs (81.7) (80.0)
Operating costs (445.9) (436.9)
Administrative costs (311.7) (322.6)
-------- --------
Total costs (839.3) (839.5)
-------- --------
Profit before taxation 2 343.9 273.6
--------------------------------------------- ----- -------- --------
Profit before taxation, amortisation
of acquisition intangibles and exceptional
items 2 334.1 292.9
Amortisation of acquisition intangibles 6 (7.5) (7.5)
Exceptional items 2 17.3 (11.8)
--------------------------------------------- ----- -------- --------
Tax charge 3 (81.0) (55.4)
-------- --------
Profit for the year attributable to
equity shareholders 262.9 218.2
-------- --------
All of the above activities relate to continuing operations.
Consolidated statement of comprehensive income for the year
ended 31 December
Note 2016 2015
GBPm GBPm
------- ------
Profit for the year attributable to
equity shareholders 262.9 218.2
------- ------
Other comprehensive income:
- fair value movements on available
for sale investment 9 3.1 17.5
- gain on available for sale investment
recycled to the income statement 9 (20.2) -
- fair value movements on cash flow
hedges 0.4 3.6
- actuarial movements on retirement
benefit asset 8 (0.1) (5.7)
- exchange differences on translation
of foreign operations (1.2) 0.7
- tax on items taken directly to other
comprehensive income 3 4.6 (3.3)
- impact of change in UK tax rate 3 0.6 (0.2)
Other comprehensive income for the
year (12.8) 12.6
Total comprehensive income for the
year 250.1 230.8
------- ------
Earnings per share
Note 2016 2015
pence pence
------ ------
Basic 4 181.8 151.8
------ ------
Diluted 4 179.9 149.8
------ ------
Dividends per share
Note 2016 2015
pence pence
------ ------
Proposed final dividend 5 91.4 80.9
------ ------
Total dividend for the year 5 134.6 120.1
------ ------
Paid in the year* 5 124.1 103.1
------ ------
* The total cost of dividends paid in the year was GBP180.6m
(2015: GBP148.9m).
Consolidated balance sheet as at 31 December
Note 2016 2015
GBPm GBPm
---------- ----------
ASSETS
Non-current assets
Goodwill 71.2 71.2
Other intangible assets 6 78.1 85.2
Property, plant and equipment 30.3 29.5
Financial assets:
- amounts receivable from customers 7 307.6 218.0
Retirement benefit asset 8 72.4 62.3
559.6 466.2
---------- ----------
Current assets
Financial assets:
- available for sale investment 9 8.0 17.5
- amounts receivable from customers 7 1,999.2 1,798.7
- cash and cash equivalents 223.7 153.4
- trade and other receivables 36.1 32.4
2,267.0 2,002.0
---------- ----------
Total assets 2 2,826.6 2,468.2
---------- ----------
LIABILITIES
Current liabilities
Financial liabilities:
- bank and other borrowings (320.4) (253.4)
- derivative financial instruments (0.2) -
- trade and other payables (104.8) (98.3)
Current tax liabilities (65.6) (50.5)
(491.0) (402.2)
---------- ----------
Non-current liabilities
Financial liabilities:
- bank and other borrowings (1,534.7) (1,342.8)
- derivative financial instruments (0.1) (0.6)
Deferred tax liabilities 3 (10.7) (14.9)
(1,545.5) (1,358.3)
---------- ----------
Total liabilities (2,036.5) (1,760.5)
---------- ----------
NET ASSETS 2 790.1 707.7
---------- ----------
SHAREHOLDERS' EQUITY
Share capital 30.6 30.5
Share premium 272.7 270.7
Other reserves 24.3 35.6
Retained earnings 462.5 370.9
---------- ----------
TOTAL EQUITY 790.1 707.7
---------- ----------
Consolidated statement of changes in shareholders' equity for
the year ended 31 December
Share Share Other Retained
Note capital premium reserves earnings Total
GBPm GBPm GBPm GBPm GBPm
-------- -------- --------- --------- --------
At 1 January 2015 30.3 268.3 19.0 295.4 613.0
-------- -------- --------- --------- --------
Profit for the year - - - 218.2 218.2
-------- -------- --------- --------- --------
Other comprehensive
income:
* fair value movements on available for sale investment 9 - - 17.5 - 17.5
- fair value movements
on cash flow hedges - - 3.6 - 3.6
* actuarial movements on retirement benefit asset 8 - - - (5.7) (5.7)
* exchange differences on translation of foreign
operations - - - 0.7 0.7
* tax on items taken directly to other comprehensive
income 3 - - (4.5) 1.2 (3.3)
- impact of change
in UK tax rate 3 - - (1.1) 0.9 (0.2)
-------- -------- --------- --------- --------
Other comprehensive
income for the year - - 15.5 (2.9) 12.6
Total comprehensive
income for the year - - 15.5 215.3 230.8
-------- -------- --------- --------- --------
Transactions with owners:
- issue of share capital 0.2 2.4 - - 2.6
- purchase of own shares - - (0.3) - (0.3)
* transfer of own shares on vesting of share awards - - 0.1 (0.1) -
- share-based payment
charge - - 10.5 - 10.5
* transfer of share-based payment reserve on vesting of
share awards - - (9.2) 9.2 -
- dividends 5 - - - (148.9) (148.9)
-------- -------- --------- --------- --------
At 31 December 2015 30.5 270.7 35.6 370.9 707.7
-------- -------- --------- --------- --------
At 1 January 2016 30.5 270.7 35.6 370.9 707.7
-------- -------- --------- --------- --------
Profit for the year - - - 262.9 262.9
-------- -------- --------- --------- --------
Other comprehensive
income:
* fair value movements on available for sale investment 9 - - 3.1 - 3.1
* gain on available for sale investment recycled to the
income statement 9 - - (20.2) - (20.2)
- fair value movements
on cash flow hedges - - 0.4 - 0.4
* actuarial movements on retirement benefit asset 8 - - - (0.1) (0.1)
* exchange differences on translation of foreign
operations - - - (1.2) (1.2)
* tax on items taken directly to other comprehensive
income 3 - - 4.6 - 4.6
* impact of change in UK tax rate 3 - - - 0.6 0.6
-------- -------- --------- --------- --------
Other comprehensive
income for the year - - (12.1) (0.7) (12.8)
-------- -------- --------- --------- --------
Total comprehensive
income for the year - - (12.1) 262.2 250.1
-------- -------- --------- --------- --------
Transactions with owners:
- issue of share capital 0.1 2.0 - - 2.1
- purchase of own shares - - (0.1) - (0.1)
* transfer of own shares on vesting of share awards - - 0.1 (0.1) -
- share-based payment
charge - - 10.9 - 10.9
* transfer of share-based payment reserve on vesting of
share awards - - (10.1) 10.1 -
- dividends 5 - - - (180.6) (180.6)
-------- -------- --------- --------- --------
At 31 December 2016 30.6 272.7 24.3 462.5 790.1
-------- -------- --------- --------- --------
Consolidated statement of cash flows for the year ended 31
December
Note 2016 2015
GBPm GBPm
-------- --------
Cash flows from operating activities
Cash generated from operations 10 147.8 202.0
Finance costs paid (71.7) (73.0)
Tax paid (64.4) (47.5)
-------- --------
Net cash generated from operating
activities 11.7 81.5
Cash flows from investing activities
Purchase of intangible assets (12.8) (15.8)
Purchase of property, plant and
equipment (10.6) (11.2)
Proceeds from disposal of property,
plant and equipment 0.6 1.4
Proceeds from disposal of available
for sale investment 9 12.2 -
Net cash used in investing activities (10.6) (25.6)
Cash flows from financing activities
Proceeds from bank and other borrowings 505.6 344.2
Repayment of bank and other borrowings (248.8) (254.9)
Dividends paid to company shareholders 5 (180.6) (148.9)
Proceeds from issue of share capital 2.1 2.6
Purchase of own shares (0.1) (0.3)
Net cash generated from/(used in)
financing activities 78.2 (57.3)
Net increase/(decrease) in cash,
cash equivalents and overdrafts 79.3 (1.4)
Cash, cash equivalents and overdrafts
at beginning of year 139.3 140.7
Cash, cash equivalents and overdrafts
at end of year 218.6 139.3
-------- --------
Cash, cash equivalents and overdrafts
at end of year comprise:
Cash at bank and in hand 223.7 153.4
Overdrafts (held in bank and other
borrowings) (5.1) (14.1)
-------- --------
Total cash, cash equivalents and
overdrafts 218.6 139.3
-------- --------
Cash at bank and in hand includes GBP168.9m (2015: GBP134.2m) in
respect of the liquid assets buffer, including other liquid
resources, held by Vanquis Bank in accordance with the PRA's
liquidity regime. This buffer is not available to finance the
group's day-to-day operations.
Notes to the preliminary announcement
1. Basis of preparation
The preliminary announcement has been prepared in accordance
with the Listing Rules of the FCA and is based on the 2016
financial statements which have been prepared under International
Financial Reporting Standards (IFRS) as adopted by the European
Union and those parts of the Companies Act 2006 applicable to
companies reporting under IFRS.
The accounting policies applied in preparing the preliminary
announcement are consistent with those used in preparing the
statutory financial statements for the year ended 31 December
2015.
The preliminary announcement does 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 2015 have been filed with the Registrar
of Companies. The auditor has reported on those financial
statements and on the statutory financial statements for the year
ended 31 December 2016, which will be filed with the Registrar of
Companies following the annual general meeting. Both the audit
reports were unqualified, did not draw attention to any matters by
way of emphasis, without qualifying their report, and did not
contain any statements under Section 498(2) or (3) of the Companies
Act 2006.
The preliminary announcement has been agreed with the company's
auditor for release.
2. Segment reporting
Profit/(loss)
Revenue before taxation
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
-------- -------- --------- --------
Vanquis Bank 583.7 540.4 204.5 183.7
CCD 518.8 517.4 115.2 105.4
Moneybarn 80.7 55.3 31.1 21.3
Central costs - - (16.7) (17.5)
--------
Total group before amortisation
of acquisition intangibles and
exceptional items 1,183.2 1,113.1 334.1 292.9
-------- -------- --------- --------
Amortisation of acquisition
intangibles (note 6) - - (7.5) (7.5)
Exceptional items - - 17.3 (11.8)
-------- -------- --------- --------
Total group 1,183.2 1,113.1 343.9 273.6
-------- -------- --------- --------
Exceptional items in 2016 comprise: (i) an exceptional credit of
GBP20.2m (2015: GBPnil) reflecting the gain made on Vanquis Bank's
interest in Visa Europe Ltd following its acquisition by Visa Inc.
(see note 9); and (ii) an exceptional impairment charge of GBP2.9m
in respect of glo software development costs held as an intangible
asset within CCD following the decision to develop guarantor loans
as part of the wider Vanquis Bank loans proposition on a separate
IT platform (see note 6). An exceptional cost of GBP11.8m was
recognised in 2015 in respect of a business restructuring in CCD.
The exceptional cost comprised GBP14.4m of redundancy costs
associated with approximately 500 field managers and field
administration employees as a result of the ongoing deployment of
technology within CCD and an exceptional pension credit of GBP2.6m
associated with those employees made redundant who were part of the
group's defined benefit pension scheme (see note 8).
All of the above activities relate to continuing operations.
Revenue between business segments is not material.
Segment assets Net assets
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
-------- -------- ------ ------
Vanquis Bank 1,624.1 1,423.0 379.9 355.1
CCD 644.9 597.9 155.2 134.6
Moneybarn 321.5 237.4 36.3 16.3
Central 304.2 286.1 218.7 201.7
-------- -------- ------ ------
Total before intra-group elimination 2,894.7 2,544.4 790.1 707.7
Intra-group elimination (68.1) (76.2) - -
-------- -------- ------ ------
Total group 2,826.6 2,468.2 790.1 707.7
-------- -------- ------ ------
Segment net assets are based on the statutory accounts of the
companies forming the group's business segments adjusted to assume
repayment of intra-group balances and rebasing the borrowings of
CCD to reflect a borrowings to receivables ratio of 80%. The impact
of this is an increase in the notional allocation of group
borrowings to CCD of GBP68.1m (2015: GBP76.2m) and an increase in
the notional cash allocated to central activities of the same
amount. The intra-group elimination adjustment removes this
notional allocation to state borrowings and cash on a consolidated
group basis.
The group's businesses operate principally in the UK and
Republic of Ireland. Vanquis Bank established a branch in Poland as
part of a pilot credit card operation during the first half of
2012. A decision was taken to withdraw from the pilot operation in
early 2015 and the receivables book was sold to a third party with
the economic interest transferring from 1 April 2015. The revenue
in respect of the branch in 2015 up until the point at which the
economic interest was transferred amounted to GBP1.8m and the loss
amounted to GBP1.8m. These figures are included within the Vanquis
Bank figures in the tables above. There were no assets or
liabilities associated with the branch on 31 December 2016 or 31
December 2015.
3. Tax charge
The tax charge in the income statement is as follows:
2016 2015
GBPm GBPm
------- -------
Current tax:
- UK (79.4) (56.9)
- overseas (0.6) (0.7)
------- -------
Total current tax (80.0) (57.6)
Deferred tax (1.0) (0.2)
Impact of change in UK tax rate - 2.4
Total tax charge (81.0) (55.4)
------- -------
The tax charge in respect of the exceptional gain in 2016
amounts to GBP5.1m and represents a GBP5.7m tax charge on the
disposal of Vanquis Bank's interest in Visa Europe Limited at the
combined mainstream UK corporation tax and bank corporation tax
surcharge rates of 28% and a tax credit of GBP0.6m relating to tax
relief for the impairment of glo intangible fixed assets at the
mainstream UK corporation tax rate of 20%. The tax credit in
respect of exceptional costs in 2015 amounted to GBP2.4m and
represented tax relief in respect of the exceptional restructuring
costs in CCD. The tax credit in respect of the amortisation of
acquisition intangibles amounted to GBP1.5m (2015: GBP1.5m).
The effective tax rate for 2016, prior to the amortisation of
acquisition intangibles and exceptional items, is 23.20% (2015:
20.25%). The increase in the rate reflects the impact of the bank
corporation tax surcharge of 8%, which came into effect on 1
January 2016 and applies to Vanquis Bank profits in excess of
GBP25m, net of a tax credit in respect of prior years.
In addition to the introduction of the bank corporation tax
surcharge with effect from 1 January 2016, during 2015, changes
were also enacted reducing the mainstream corporation tax rate from
20% to 19% with effect from 1 April 2017 and from 19% to 18% with
effect from 1 April 2020. In 2016, further reductions to statutory
corporation tax rates were enacted, reducing the mainstream
corporation tax rate from 18% to 17% with effect from 1 April 2020.
As the temporary differences on which deferred tax is calculated
are expected to reverse largely after 1 April 2020 (2015: 1 April
2020), deferred tax at 31 December 2016 has been re-measured at 17%
(2015: 18%) and, in the case of Vanquis Bank, at the combined
mainstream UK corporation tax and bank corporation tax surcharge
rates of 25% (2015: 26%). In 2016, movements in deferred tax
balances have been measured at the mainstream corporation tax rate
for the year of 20% (2015: 20.25%), and, in the case of Vanquis
Bank, at the combined mainstream UK corporation tax and bank
corporation tax surcharge rates for the year of 28% (2015: 20.25%).
A tax charge of GBPnil (2015: credit of GBP2.4m) represents the
income statement adjustment to deferred tax as a result of these
changes and an additional deferred tax credit of GBP0.6m (2015:
charge of GBP0.2m) has been taken directly to other comprehensive
income in respect of items reflected directly in other
comprehensive income.
The tax charge on items taken directly to other comprehensive
income is as follows:
2016 2015
GBPm GBPm
------ ------
Deferred tax credit/(charge) on fair
value movements in available for sale
investment 4.7 (3.5)
Deferred tax charge on fair value movements
in cash flow hedges (0.1) (1.0)
Deferred tax credit on actuarial movements
on retirement benefit asset - 1.2
------ ------
Tax credit/(charge) on items taken directly
to other comprehensive income prior
to impact of change in UK tax rate 4.6 (3.3)
Impact of change in UK tax rate 0.6 (0.2)
------ ------
Total tax credit/(charge) on items taken
directly to other comprehensive income 5.2 (3.5)
------ ------
The deferred tax charge of GBP3.5m on the available for sale
investment in 2015 represents the deferred tax on the valuation of
Vanquis Bank's interest in Visa Europe Limited of GBP17.5m as at 31
December 2015 which was taken directly to other comprehensive
income. Deferred tax was provided on the consideration, comprising
cash, deferred cash and preferred stock in Visa Inc., which Vanquis
Bank expected to receive on selling its shareholding in Visa Europe
Limited and was initially provided at the statutory corporation tax
rate for 2015 of 20.25%. Deferred tax was then re-measured at the
combined mainstream UK corporation tax and bank corporation tax
surcharge rates for the year of 28% on that element of the profit
attributed to the cash and deferred cash consideration which would
be taxed in 2016. Deferred tax on the profit attributable to the
preferred stock element was re-measured at 26% as this was not
expected to be taxed until the preferred stock, or the shares into
which they convert, are sold. The deferred tax charge arising as a
result of these rate changes was GBP1.3m, taking the total deferred
tax charge in respect of the available for sale investment to
GBP4.8m.
The GBP4.7m deferred tax credit in 2016 on the available for
sale investment represents the reversal of the GBP4.8m deferred tax
charge in 2015, reflecting the sale of Vanquis Bank's interest in
Visa Europe Limited in the year, net of a deferred tax charge of
GBP0.1m arising on the movement in the valuation of the Visa Inc.
stock between its acquisition and the end of the year.
The movement in deferred tax (liabilities)/assets during the
year can be analysed as follows:
2016 2015
GBPm GBPm
------- -------
At 1 January (14.9) (13.6)
Charge to the income statement (1.0) (0.2)
Credit/(charge) on other comprehensive
income prior to impact of change in
UK tax rate 4.6 (3.3)
Impact of change in UK tax rate:
- credit to the income statement - 2.4
- credit/(charge) to other comprehensive
income 0.6 (0.2)
At 31 December (10.7) (14.9)
------- -------
The rate of tax charge on the profit before taxation for the
year is higher than (2015: in line with) the average rate of
mainstream corporation tax in the UK of 20% (2015: 20.25%). This
can be reconciled as follows:
2016 2015
GBPm GBPm
------- -------
Profit before taxation 343.9 273.6
------- -------
Profit before taxation multiplied by
the average rate of mainstream corporation
tax in the UK of 20% (2015: 20.25%) (68.8) (55.4)
Effects of:
- benefit of lower tax rates overseas 0.4 0.5
- adjustment in respect of prior years 3.9 (2.6)
- non-deductible general expenses (0.2) (0.3)
- impact of change in UK tax rate - 2.4
- impact of bank corporation tax surcharge (16.3) -
Total tax charge (81.0) (55.4)
------- -------
The profits of the home credit business in the Republic of
Ireland have been taxed at the Republic of Ireland statutory tax
rate of 12.5% (2015: 12.5%) rather than the UK statutory mainstream
corporation tax rate of 20% (2015: 20.25%) giving rise to a
beneficial impact on the group tax charge of GBP0.4m (2015:
GBP0.5m).
The GBP3.9m credit (2015: GBP2.6m charge) in respect of prior
years represents the benefit of settling historic tax liabilities
and of securing tax deductions for employee share awards which are
higher than those originally anticipated.
The GBP2.4m tax credit in 2015 arose primarily as a result of
taking deferred tax assets in Vanquis Bank, which were originally
measured at the mainstream corporation tax rate of 20%, and
re-measuring them at the combined mainstream corporation tax and
bank surcharge rate of 26%, along with the benefit of taking
deferred tax liabilities elsewhere in the group which were
originally measured at 20% and re-measuring these at 18%. The
further reduction in the mainstream corporation tax rate enacted in
2016 has not resulted in any impact on the tax charge for 2016.
4. Earnings per share
Basic earnings per share is calculated by dividing the profit
for the year attributable to equity shareholders by the weighted
average number of ordinary shares outstanding during the year,
adjusted for treasury shares (own shares held). Diluted earnings
per share calculates the effect on earnings per share 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 Performance Share Plan (PSP) and the
Long Term Incentive Scheme (LTIS), 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.
Reconciliations of basic and diluted earnings per share are set
out below:
2016 2015
Weighted Weighted
average average
number Per number Per
Earnings of shares share Earnings of shares share
amount amount
GBPm m pence GBPm m pence
----------- ----------- --------- ----------- ----------- ---------
Earnings per share
Shares in issue
during the year 147.6 146.9
Own shares held (3.0) (3.2)
----------- ----------- --------- ----------- ----------- ---------
Basic earnings
per share 262.9 144.6 181.8 218.2 143.7 151.8
Dilutive effect
of share options
and awards - 1.5 (1.9) - 2.0 (2.0)
----------- ----------- --------- ----------- ----------- ---------
Diluted earnings
per share 262.9 146.1 179.9 218.2 145.7 149.8
----------- ----------- --------- ----------- ----------- ---------
The directors have elected to show an adjusted earnings per
share prior to the amortisation of acquisition intangibles which
arose on the acquisition of Moneybarn on 20 August 2014 (see note
6) and prior to exceptional items (see note 2). This is presented
to show the earnings per share generated by the group's underlying
operations. A reconciliation of basic and diluted earnings per
share to adjusted basic and diluted earnings per share is as
follows:
2016 2015
Weighted Weighted
average average
number Per number Per
Earnings of shares share Earnings of shares share
amount amount
GBPm m pence GBPm m pence
----------- ----------- --------- ----------- ----------- ---------
Basic earnings
per share 262.9 144.6 181.8 218.2 143.7 151.8
Amortisation of
acquisition intangibles,
net of tax 6.0 - 4.1 6.0 - 4.2
Exceptional items,
net of tax (12.2) - (8.4) 9.4 - 6.6
Adjusted basic
earnings per share 256.7 144.6 177.5 233.6 143.7 162.6
----------- ----------- --------- ----------- ----------- ---------
Diluted earnings
per share 262.9 146.1 179.9 218.2 145.7 149.8
Amortisation of
acquisition intangibles,
net of tax 6.0 - 4.2 6.0 - 4.1
Exceptional items,
net of tax (12.2) - (8.4) 9.4 - 6.4
Adjusted diluted
earnings per share 256.7 146.1 175.7 233.6 145.7 160.3
----------- ----------- --------- ----------- ----------- ---------
5. Dividends
2016 2015
GBPm GBPm
------ ------
2014 final - 63.9p per share - 92.3
2015 interim - 39.2p per share - 56.6
2015 final - 80.9p per share 117.8 -
2016 interim - 43.2p per share 62.8 -
------ ------
Dividends
paid 180.6 148.9
------ ------
The directors are recommending a final dividend in respect of
the financial year ended 31 December 2016 of 91.4p per share (2015:
80.9p) which will amount to an estimated dividend payment of
GBP132.9m (2015: GBP117.8m). If approved by the shareholders at the
annual general meeting on 12 May 2017, this dividend will be paid
on 23 June 2017 to shareholders who are on the register of members
at 19 May 2017. This dividend is not reflected in the balance sheet
as at 31 December 2016 as it is subject to shareholder
approval.
6. Other intangible assets
2016 2015
Acquisition Computer Acquisition Computer
intangibles software Total intangibles software Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------- ------ ------------- ---------- ------
Cost
At 1 January 75.0 59.6 134.6 75.0 44.5 119.5
Additions - 12.8 12.8 - 15.8 15.8
Disposals - - - - (0.7) (0.7)
------------- ---------- ------ ------------- ---------- ------
At 31 December 75.0 72.4 147.4 75.0 59.6 134.6
------------- ---------- ------ ------------- ---------- ------
Accumulated amortisation
At 1 January 10.0 39.4 49.4 2.5 32.7 35.2
Charged to the income
statement 7.5 9.5 17.0 7.5 7.4 14.9
Exceptional impairment
charge (note 2) - 2.9 2.9 - - -
Disposals - - - - (0.7) (0.7)
------------- ---------- ------ ------------- ---------- ------
At 31 December 17.5 51.8 69.3 10.0 39.4 49.4
------------- ---------- ------ ------------- ---------- ------
Net book value
At 31 December 57.5 20.6 78.1 65.0 20.2 85.2
------------- ---------- ------ ------------- ---------- ------
At 1 January 65.0 20.2 85.2 72.5 11.8 84.3
------------- ---------- ------ ------------- ---------- ------
Acquisition intangibles represents the fair value of the broker
relationships arising on acquisition of Moneybarn on 20 August
2014. The intangible asset has been 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.
7. Amounts receivable from customers
2016 2015
GBPm GBPm
-------- --------
Vanquis Bank 1,424.7 1,252.0
CCD 584.8 545.1
Moneybarn 297.3 219.6
Total group 2,306.8 2,016.7
Analysed as:
- due in more than one year 307.6 218.0
- due within one year 1,999.2 1,798.7
Total group 2,306.8 2,016.7
-------- --------
Vanquis Bank receivables comprise GBP1,424.7m (2015:
GBP1,252.0m) in respect of the UK business and GBPnil (2015:
GBPnil) in respect of the Polish pilot operation. The receivables
in respect of the Polish pilot operation were derecognised on 1
April 2015 following the sale and transfer of the economic interest
to a third party.
CCD receivables comprise GBP560.0m in respect of the Provident
home credit business (2015: GBP522.2m), GBP18.2m in respect of
Satsuma (2015: GBP12.1m) and GBP6.6m in respect of glo (2015:
GBP10.8m). Following the decision to develop guarantor loans as
part of Vanquis Bank's wider loans proposition during 2017, glo
ceased to issue new business in early October 2016 and the
receivables book is now in run-off.
The impairment charge in respect of amounts receivable from
customers reflected within operating costs can be analysed as
follows:
2016 2015
GBPm GBPm
------ ------
Vanquis Bank 162.4 160.5
CCD 120.0 106.6
Moneybarn 16.4 8.9
Total group 298.8 276.0
------ ------
The impairment charge in Vanquis Bank comprises GBP162.4m (2015:
GBP158.9m) in respect of the UK business and GBPnil in respect of
the Polish pilot operation prior to the transfer of the economic
interest to a third party on 1 April 2015 (2015: GBP1.6m).
Impairment in Vanquis Bank and Moneybarn is deducted from the
carrying value of amounts receivable from customers by the use of
an allowance account. The Vanquis Bank allowance account as at 31
December 2016 amounted to GBP261.4m (2015: GBP225.0m) and the
Moneybarn allowance account amounted to GBP35.4m (2015: GBP18.5m).
Within CCD, impairment is deducted directly from amounts receivable
from customers without the use of an allowance account.
8. Retirement benefit asset
The group operates a defined benefit pension scheme: the
Provident Financial Staff Pension Scheme. The scheme is of the
funded, defined benefit type and has been substantially closed to
new members since 1 January 2003.
All future benefits in the scheme are now provided on a 'cash
balance' basis, with a defined amount being made available at
retirement, based on a percentage of salary that is revalued up to
retirement with reference to increases in price inflation. This
retirement account is then used to purchase an annuity on the open
market. The scheme also provides pension benefits that were accrued
in the past on a final salary basis, but which are no longer linked
to final salary.
The most recent actuarial valuations of scheme assets and the
present value of the defined benefit obligation were carried out as
at 1 June 2015 by a qualified independent actuary. The valuation
used for the purposes of IAS 19 'Employee benefits' has been based
on the 2015 valuation updated by the actuary 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 at the balance sheet date.
The net retirement benefit asset recognised in the balance sheet
of the group is as follows:
2016 2015
GBPm GBPm
-------- --------
Equities 83.1 74.7
Other diversified return seeking investments 73.9 67.5
Corporate bonds 141.2 133.0
Fixed interest gilts 193.0 208.3
Index-linked gilts 337.4 181.7
Cash and money market funds 1.5 1.2
Fair value of scheme assets 830.1 666.4
Present value of defined benefit obligation (757.7) (604.1)
-------- --------
Net retirement benefit asset recognised
in the balance sheet 72.4 62.3
-------- --------
As part of a de-risking strategy agreed between the company and
the pension trustees to hedge the inflation and interest rate risks
associated with the liabilities of the pension scheme, a
substantial amount of more volatile growth funds (equities) were
reinvested in liability protection assets (fixed interest and
index-linked gilts) in January 2015.
The amounts recognised in the income statement were as
follows:
2016 2015
GBPm GBPm
------- -------
Current service cost (4.0) (5.0)
Interest on scheme liabilities (22.3) (23.5)
Interest on scheme assets 24.8 25.7
------- -------
Net charge recognised in the income statement
before exceptional curtailment credit (1.5) (2.8)
Exceptional curtailment credit (note
2) - 2.6
------- -------
Net charge recognised in the income statement (1.5) (0.2)
------- -------
The net charge recognised in the income statement has been
included within administrative costs.
Movements in the fair value of scheme assets were as
follows:
2016 2015
GBPm GBPm
------- -------
Fair value of scheme assets at 1 January 666.4 700.1
Interest on scheme assets 24.8 25.7
Actuarial movement on scheme assets 153.7 (52.4)
Contributions paid by the group 11.7 12.2
Net benefits paid out (26.5) (19.2)
------- -------
Fair value of scheme assets at 31 December 830.1 666.4
------- -------
Movements in the present value of the defined benefit obligation
were as follows:
2016 2015
GBPm GBPm
-------- --------
Present value of defined benefit obligation
at 1 January (604.1) (644.1)
Current service cost (4.0) (5.0)
Interest on scheme liabilities (22.3) (23.5)
Exceptional curtailment credit - 2.6
Actuarial movement on scheme liabilities (153.8) 46.7
Net benefits paid out 26.5 19.2
-------- --------
Present value of defined benefit obligation
at 31 December (757.7) (604.1)
-------- --------
The principal actuarial assumptions used at the balance sheet
date were as follows:
2016 2015
% %
----- -----
Price inflation - RPI 3.25 3.00
Price inflation - CPI 2.15 2.00
Rate of increase to pensions in payment 3.00 2.80
Inflationary increases to pensions in
deferment 2.15 2.00
Discount rate 2.55 3.75
----- -----
A 0.1% change in the discount and inflation rates would change
the present value of the defined benefit obligation by
approximately GBP15m (2015: GBP11m) and GBP7m (2015: GBP5m)
respectively.
The mortality assumptions are based on the self-administered
pension scheme (SAPS) series 1 tables, with multipliers of 105% and
115% respectively for males and females. The 5% upwards adjustment
to mortality rates for males and a 15% upwards adjustment for
females reflects the lower life expectancies 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)
2015 model with a long-term improvement trend of 1.25% per annum.
Under these mortality assumptions, the life expectancies of members
are as follows:
Male Female
2016 2015 2016 2015
years years years years
------ ------ ------ ------
Current pensioner aged 65 21.8 21.7 23.3 23.3
Current member aged 45 from
age 65 23.5 23.4 25.2 25.1
------ ------ ------ ------
If assumed life expectancies were one year greater, the net
retirement benefit asset would have been reduced by approximately
GBP30m (2015: GBP18m).
An analysis of amounts recognised in the statement of
comprehensive income is set out below:
2016 2015
GBPm GBPm
-------- -------
Actuarial movements on scheme assets 153.7 (52.4)
Actuarial movements on scheme liabilities (153.8) 46.7
-------- -------
Actuarial movements recognised in the
statement of comprehensive income in
the year (0.1) (5.7)
-------- -------
9. Available for sale investment
2016 2015
GBPm GBPm
----- -----
Fair value of Visa shares 8.0 17.5
----- -----
On 2 November 2015, Visa Inc. announced the proposed acquisition
of Visa Europe Limited to create a single global payments business
under the VISA brand. Vanquis Bank was a member and shareholder of
Visa Europe and in exchange for its one redeemable ordinary share
(previously held at cost of EUR10) was due to receive a combination
of up front consideration in the form of cash, preferred stock in
Visa Inc. on completion of the transaction and deferred cash
consideration contingent on certain performance thresholds being
met. Following announcement of the proposed transaction, Vanquis
Bank's interest in Visa Europe was valued at a fair value of
GBP17.5m which reflected the expected upfront cash proceeds and a
number of factors and uncertainties relating to the other
consideration. The corresponding credit was taken directly to an
available for sale reserve within equity.
On 21 June 2016, Visa Inc. completed the acquisition of Visa
Europe Limited. The final terms of the transaction resulted in
Vanquis Bank receiving 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 due on the third
anniversary of the completion date. The preferred stock is
convertible into Class A common stock of Visa Inc. at a future
date, subject to certain conditions.
Following completion of the transaction during 2016, the gain
taken through equity in 2015 in respect of the Visa Europe shares
has been recycled through the income statement together with the
GBP2.7m movement in the fair value of the consideration between the
year end and completion of the transaction. This has resulted in an
exceptional gain of GBP20.2m (2015: GBPnil) being recognised in
2016 (see note 2). The fair value of the preferred stock in Visa
Inc. held by Vanquis Bank of GBP8.0m as at 31 December 2016 is held
as an available for sale investment and the fair value of the
deferred cash consideration of GBP1.1m is included within debtors.
The movement in the fair value of the available for sale investment
since completion of the transaction of GBP3.1m has been recognised
in the statement of comprehensive income in 2016.
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.
10. Reconciliation of profit after taxation to cash generated from operations
2016 2015
GBPm GBPm
-------- --------
Profit after taxation 262.9 218.2
Adjusted for:
- tax charge (note 3) 81.0 55.4
- finance costs 81.7 80.0
- share-based payment charge 10.9 10.5
- retirement benefit charge prior to
exceptional curtailment credit (note
8) 1.5 2.8
- exceptional curtailment credit (note
8) - (2.6)
- amortisation of intangible assets (note
6) 17.0 14.9
- exceptional amortisation of intangible
assets (note 2) 2.9 -
- exceptional gain on available for sale
investment (note 9) (20.2) -
- depreciation of property, plant and
equipment 8.7 7.7
- loss on disposal of property, plant
and equipment 0.5 -
Changes in operating assets and liabilities:
- amounts receivable from customers (290.1) (167.5)
- trade and other receivables (2.8) (8.1)
- trade and other payables 5.5 2.9
- contributions into the retirement benefit
scheme (note 8) (11.7) (12.2)
Cash generated from operations 147.8 202.0
-------- --------
Information for shareholders
1. The shares will be marked ex-dividend on 18 May 2017.
2. The final dividend will be paid on 23 June 2017 to
shareholders on the register at the close of business on 19 May
2017. Dividend warrants/vouchers will be posted on 21 June
2017.
3. The 2016 annual report and financial statements together with
the notice of the annual general meeting will be posted to
shareholders on or around 31 March 2017.
4. The annual general meeting will be held on 12 May 2017 at the
head office of Provident Financial plc, No. 1 Godwin Street,
Bradford, BD1 2SU.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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