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Purpose & progress Provident Financial plc Annual Report and Financial Statements 2019 Provident Financial plc Annual Report and Financial Statements 2019 C PAGE TITLE Underhead Purpose We help put people on a path to a better everyday life. We are a specialist lender, here to provide financial inclusion to the 1 in 5 UK adults who are not well served by mainstream lenders. This unifies us and is something we can get behind both practically and emotionally. Read more on page 13 Progress The Strategic Blueprint provides guidance to make the right decisions to deliver our strategy on a daily basis. This entitles us to drive the business forward to deliver our Vision for the Future. Read more on page 12 To find out more visit: View our Corporate providentfinancial.com Responsibility Report online: providentfinancial.com/ corporate-responsibility/ Provident Financial plc C Annual Report and Financial Statements 2019 HIGHLIGHTS Strategic report Strategic Customer numbers Amounts receivable from customers 2,319k £2,212.6m (2018: 2,395k) (2018: £2,204.0m) Adjusted basic earnings per share Basic earnings per share 47.3p 33.3p (2018: 48.7p) (2018: 27.3p) Adjusted profit before tax Statutory profit before tax £162.6m £128.8m (2018: £160.1m) (2018: £97.3m) Certain alternative performance measures (APMs) have been used in this report. See page 237 for an explanation of relevance as well as their definition. Strategic report Governance Directors’ remuneration report 1 Highlights 88 Board leadership and Company purpose 146 Annual statement by the Chairman 2 Group overview 88 Chairman’s introduction of the Remuneration Committee 4 Chairman’s statement 92 Our Board 149 Annual report on remuneration 6 Chief Executive Officer’s review 98 How the Board has promoted 162 Directors’ remuneration policy long-term sustainable success 12 The Blueprint Financial statements 103 The Board: driving culture 13 Business model 170 Consolidated income statement 106 Customer, Culture 14 Strategic drivers 170 Consolidated statement and Ethics Committee 22 Behaviours of comprehensive income 107 Shareholder and investor relations 24 Our market 170 Earnings per share 107 Effective engagement 30 Credit Card Division 170 Dividends per share with shareholders and 34 Vehicle Finance Division other stakeholders 171 Balance sheets 38 Consumer Credit Division 112 IR Programme 172 Statements of changes in shareholders’ equity 42 Risk management and principal risks 114 Division of responsibilities 174 Statements of cash flows 54 Relations with regulators 119 Composition, succession and evaluation 175 Statement of accounting policies 56 Financial review 119 Board composition 183 Financial and capital risk management 65 Corporate responsibility 120 Induction for new directors 188 Notes to the financial statements 83 Section 172 121 Board evaluation 226 Independent auditor’s report 125 Nomination Committee report 237 Alternative performance measures 129 Audit, risk and internal control 129 Audit Committee report Shareholder information 135 Group Risk Committee report 240 Information for Shareholders 138 Directors’ report Provident Financial plc Annual Report and Financial Statements 2019 1 GROUP OVERVIEW Our businesses We help put people on a path to a better everyday life through our market-leading businesses. Founded in Bradford in 1880 by Sir Joshua Kelley Waddilove, range of credit card products, unsecured personal loans for its we have been providing financial inclusion for consumers existing customers and savings products. Moneybarn offers whose needs are not well met by mainstream lenders for nearly secured motor finance on a range of asset classes, including 140 years. We are a responsible lender providing tailored product cars, motorbikes and light commercial vehicles. The Consumer and service propositions for 2.3 million customers throughout Credit Division offers unsecured personal loans through the UK and the Republic of Ireland. Provident home credit and Satsuma online loans. We are the leader in our chosen market segments and today Our customers are served by our 4,900 colleagues based in we meet the needs of our customers through our three divisions: Bradford, London, Chatham, Petersfield and in nearly 100 area Vanquis Bank, Moneybarn and our Consumer Credit Division (CCD), offices across the UK and the Republic of Ireland. We are united supported by a central corporate office. Vanquis Bank offers a by our purpose of ‘helping to put people on a path to a better everyday life’. Read more on our business model on page 13 Credit cards Vehicle finance Home credit and online loans Credit cards and personal loans Vehicle finance Home credit Online lending Customers: Customers: Customers: Customers: 1.7m 77,000 386,000 136,000 Credit card limits: £250–£4,000 Loan range: Loan range: Loan range: Loan range: £1,000–£5,000 £4,000–£25,000 £100–£2,500 £100–£1,000 Loan terms: Loan terms: Loan terms: Loan terms: 1–3 years 3–5 years 13–104 weeks 3–12 months Read more on page 25 Read more on page 27 Read more on page 28 Read more on page 29 Provident Financial plc 2 Annual Report and Financial Statements 2019 Our customers report Strategic We are a specialist lender here to serve the 1 in 5 UK adults who are not well served by mainstream lenders. We feel consumers may not be well served by mainstream providers for a number of reasons: Experienced a significant life event, Managing everyday life on low, irregular e.g. divorce or loss of a job or average incomes with limited or no savings New to credit in the UK and therefore Have variable incomes, e.g. self-employed have little or no credit history or a number of part-time jobs Looking to build or rebuild their Value a more tailored product credit rating and service The customers we specialise in serving have many similarities to mainstream credit customers. However, there are important differences due to their specific circumstances, requiring a tailored approach and a wider range of suitable and sustainable credit solutions to best serve their more varied needs and circumstances. These needs and circumstances also tend to change more over time, requiring us to provide a more flexible approach. Our customers’ typical characteristics Not working/benefits/part time and casual Income source Full-time salaried/15–20% self-employed Below national average (£10–15k) Income levels Around national average (£20–30k) Rented accommodation/social housing Housing Renters/c.20% mortgages 35–64 years 18–34 years Typical age 25–44 years 35–54 years >80% 100% Bank account 100% 100% Limited or no savings Savings Some savings for specific goals Provident Financial plc Annual Report and Financial Statements 2019 3 CHAIRMAN’S STATEMENT Delivering our Vision for the Future Introduction 2019 has been my first full year as the Chairman of the Group. As I set out last year, I joined the Board in the second half of 2018 as I felt I could provide support and assistance to the Chief Executive Officer in delivering on the commitments provided at the time of the rights issue. To recall, these were stabilising the home credit business, rebuilding trust with our regulators, strengthening the governance and culture across the Group, and refinancing the Group’s bonds to ensure we had a robust funding and capital position to take the Group forward. We made good progress on these matters in 2018 and our objectives for 2019 were to build on this momentum by substantially completing the turnaround of the Group, clearly establishing our Vision for the Future and ensuring that we are well placed to begin to grow the business in 2020. Despite the significant challenges we faced in 2019, particularly from the unsolicited bid from Non-Standard Finance plc (NSF) in the first half of the year and the ongoing economic uncertainty in the UK, I am very pleased to report that we have delivered on our 2019 objectives. I am confident that going forward we are well placed to continue to serve our customers with the products and services they need whilst delivering attractive returns At the end of my first full year to shareholders. as Chairman of the Group, I am Unsolicited approach from NSF delighted with the progress that has The unsolicited approach for the Group, made by NSF in February 2019, was highly opportunistic. The Board did not been made by the Chief Executive believe the bid was in the best interests of the Group and its stakeholders. The lapse in June was therefore a relief. Despite Officer, the wider management team being clearly in the best interests of all stakeholders, I deeply regret the unnecessary distraction, cost and impact of the and all employees under extremely uncertainty on the Group’s customers and employees caused challenging circumstances. We have by NSF pursuing a poorly thought through bid. strengthened the business, continued The Board has carefully reflected on the terms of the offer and, having done so, clearly communicated the Group’s strategy to rebuild trust with regulators and through our Vision for the Future. We remain focused on this strategy and committed to maximising value for all of the defended an unsolicited takeover stakeholders in fulfilling the Group’s potential. bid from NSF. Dividends As a result of the Group’s ongoing recovery and good performance Patrick Snowball in 2019, the Board has declared a final dividend of 16p per share Chairman (2018: 10p) which, together with the interim dividend of 9p per share (2018: £nil), results in a total dividend of 25p per share for 2019 (2018: 10p), a 150% increase on 2018. As previously stated, the Board’s policy is to maintain a dividend cover of at least 1.4 times as the home credit business recovers and moves into profitability. The resumption of dividend payments has led to a more diversified shareholder register through 2019.