Provident Financial Group strategy
To be a leading international provider of simple financial services. Provident Financial Vital statistics
• 2001 PBT: £170 million
• Market Capitalization: £1.6 billion
• Business sectors: Unsecured consumer lending Motor insurance: underwriting and broking
• Customers 3.5m customers Provident Financial International business
• UK
• Irish Republic
• Poland
• Slovakia - pilot scale
• Hungary - pilot scale Provident Financial International business
2001 Provident Financial Group composition (end 2001)
Division % of sales % of profit Competitive Primary activities before tax position
UK home 56% 79% 50% market share Serves 1.61 million credit customers in the UK and the Republic of Ireland with small unsecured cash loans
International 12% n/a 100% market Commenced in 1997 and home credit share. Provident now serves 0.70 million has created new customers in central Europe markets, with no with small unsecured cash direct competitor loans. The division moved into profitability in the second half of 2000
Motor 32% 21% Top 3 underwriter Operates only in the UK and insurance in the third party underwrites or brokers market motor insurance policies for 1.2 million customers Provident Financial A good track record Profit Before Tax (£m) 169.6 155.0 160.2 145.9 136.5 118.5 101.1 81.1 62.5 40.7 34.1
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Provident Financial A good track record Return on equity (%)
44.1 42.4 43.1 41.8
32.2 29.5
1996 1997 1998 1999 2000 2001 Provident Financial Excellent cash flow generation Free cash flow (£m)
£102.0m £77.2m £95.1m £35.9m £19.8m £31.4m
1996 1997 1998 1999 2000 2001
UK home credit International Motor insurance Provident Financial UK home credit division Provident Financial What is home credit?
•• SSmallmall unsecured, unsecured, cash cash loans loans •• DDeliveredelivered and and collected collected in in the the home home •• SServiceervice provided provided by by self-employed self-employed agents agents •• WWeeklyeekly repayment repayment •• WWomanoman to to woman woman •• FFixedixed charges charges •• SSimpleimple and and convenient convenient Provident Financial Uses of home credit
• Balancing the household budget
• Holiday spending money
• Christmas presents
• School uniform for children Provident Financial How do we operate?
Customers Agents Agency
130 development manager 130
130
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130
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130 UK home credit Target market for UK home collected credit
• C1, C2, D, E
• 26 million adults
• 3.3 million home credit users
• Modest growth potential UK home credit Customers Provident UK customer demographic profile
35 37 33 32 38 37 38
31 31 34 35 30 32 31 32 31 32 32 31 28 28 1995 1996 1997 1998 1999 2000 2001 E D C1/ C 2 AB UK home credit Customers access a range of other credit products
59%
34%
22%
13% 13% 10% 10%
Mail order Credit HP (home) Bank loan HP (car) Store Bank card cards overdraft UK home credit Market share 3.3m UK home credit customers
Small providers 33% 50% Provident
17%
Cattles UK home credit Costs and profit of UK home credit % of turnover
Bad debt Profit 17% Interest cost 4% 32%
Overheads 24% 23% Agents' Commission UK home credit UK home credit profit record PBIT (£m)
+2.5% +3.0% +1.7% +10.4% 170. 6 163. 6 166. 4 158. 8 +16.7%
143. 9 +17.7%
123. 3
1996 1997 1998 1999 2000 2001 UK home credit Resilient to economic cycles Bad debt and pre-tax profit as a percentage of credit issued
20 18 16.4% 16 14 Profit 12 Bad debt% 10 8.3% 8 6 4 2 0 86 88 90 92 94 96 98 99 00 01 Provident Financial International home credit
Poland Czech Republic Hungary Slovakia International home credit Timeline of international development
Poland Market research Czech Single location
Hungary Slow rollout Accelerated rollout Slovakia
1995 1996 1997 1998 1999 2000 2001 International home credit Strong customer growth continues Customers at 31 December 708,000 15,000
189,000 Hungary and Slovakia 466,000 Czech Republic
161,000 Poland
504,000
305,000 138,000 66,000 72,000 1999 2000 2001 International home credit Polish coverage
Gdansk Koszalin Olsztyn Szczecin Bydgoszcz Bialystok Gorzow Ciechanow Wielkopolski Torun Warsaw Poznan Siedlce Sochaczew Zielona Kalisz Lodz Gora PiotrkowTryb . Radom Lublin Belchatow Legnica Kielce Wroclaw Ostrowiec Sw . Opole Czestochowa Gliwice Katowice Krakow Rzeszow Bielsko -Biala International home credit Poland Market potential
• Assume market segments as UK
• Home credit market c.2m customers
• Provident to have leading market position
• Issue per customer about 2/3rds of UK
• Underlying level of bad debt at 9% - 10%
• Profit per customer c. £60 International home credit Czech coverage
Usti nad Jablonec nad Nisou Labem Most Chomutov Ceska Lipa Hradec Kralove Karlovy Vary Kladno Pardubice Prague Opava Ostrava Svitavy Plzen Olomouc Novy Jicin Jihlava
Zlin Brno
Ceske Budejovice Hodonin International home credit Czech Republic Market potential
• Assume market segments as UK
• Home credit market c.0.5m customers
• Issue per customer about 2/3rds of UK
• Underlying level of bad debt in range 11% - 12%
• Profit per customer expected to be c. £60 Provident Financial Motor insurance division Motor insurance The business
• Underwriting and broking • Underwriting - a niche market: • Women drivers • Second cars • Low average premium • Non comprehensive • Competitive advantage from cost efficiency and underwriting focus Motor insurance Market profit trends Motor insurance industry profit as % of earned premiums 20 15 10 5 0 -5 -10 -15 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 OO
Mar ket 4 1 -5 -5 2 6 6 -4 -8 2 13 18 12 1 -8 -11 -12 4 Motor insurance Motor insurance division profit trends (£m)
36.6 32.0
25.8
19.6 13.7 10.6
1996 1997 1998 1999 2000 2001