16th Mar 2005 07:00
Provident Financial PLC16 March 2005 Provident Financial plc Preliminary announcement of the final results for the year ended 31 December 2004 HIGHLIGHTS Provident Financial is a leading international company providing home credit,credit cards, motor finance and motor insurance. Key financial results 31 Dec 2004 31 Dec 2003 Percentage change Group turnover £1,167m £1,134m + 2.9%Profit before tax* £220.7m £206.2m + 7.0%Earnings per share* 61.57p 57.54p + 7.0%Full year dividend per share 34.40p 33.00p + 4.2% * before goodwill amortisation Key points • Group pre-tax profits*, up by 7% to £220.7m• Excellent international performance, pre-tax profit up 68% to £49.2m (2003 £29.3m)• UK home credit pre-tax profit of £152.3m (2003 £152.6m)• Motor insurance pre-tax profit up 21% to £34.6m (2003 £28.6m)• Yes Car Credit pre-tax profit down by £6.8m to £4.4m (2003 £11.2m) John van Kuffeler, Chairman of Provident Financial, commented: "We have made good progress in 2004 and during 2005 we will continue ourstrategy of expanding our international businesses and broadening our range ofcredit products. We expect that 2005 will be a year of further progress both inimplementing our strategy and improving group performance." Enquiries: Today Thereafter MediaDavid Stevenson, Provident Financial 020 7404 5959 01274 731111Kevin Byram, Brunswick 020 7396 5352 020 7396 5352Craig Breheny, Brunswick 020 7396 7429 020 7396 7429 Investor RelationsHelen Waggott, Provident Financial 020 7404 5959 01274 731111 Chairman's statement I am pleased to announce our results for 2004. Group turnover increased by 2.9%to £1.2 billion and customer receivables rose by 14.7% to £1.3 billion. Beforegoodwill amortisation, profit before tax increased by 7.0% to £220.7 million(2003 £206.2 million) and earnings per share increased by 7.0% to 61.57p (200357.54p). After goodwill amortisation, profit before tax increased by 7.0% to£216.1 million (2003 £201.9 million) and earnings per share increased by 7.0% to59.74p (2003 55.84p). The directors recommend a final dividend of 20.75p (200319.90p), giving a total dividend for the year of 34.40p per share (2003 33.00p),an increase of 4.2% for the year. Operations UK consumer credit division UK home credit Conditions in the UK home credit sector continue to be challenging withincreased competition, particularly from credit card providers. This reflectsan increased involvement in near and sub-prime credit markets by some mainstreamcredit providers together with wider access to credit products by home creditcustomers who have seen increasing household incomes during recent years. Ourresponse has been to recruit and retain profitable customers, to identify andwithdraw from unprofitable recruitment channels and to manage costs tightly. During 2004 customer numbers fell by 4.7% to 1.53 million. About half of thisreduction resulted from our withdrawal from unprofitable recruitment channelsand the other half from the more competitive market. Credit issued for the yearreduced by 2.4%. This was less than we had expected because lending during theChristmas period was strong with credit issued for December up by 2.7% on theprevious year. Collections for the year decreased by 1.5% to £1,300 million andturnover reduced by 1.0% to £490.5 million. Costs were managed carefully and,as a result, reduced by 1.2% to £251.8 million. Credit quality was stable withbad debt as a percentage of credit issued at 9.7% (2003 9.6%) and bad debt costsdecreased by 1.8% to £86.4 million. Profit before tax was little changed, at£152.3 million (2003 £152.6 million). Yes Car Credit Yes Car Credit had a tough year in 2004 with increased competition from newentrants into its market combined with difficult trading conditions in the usedcar credit market which reported volumes down by 6% for the year. For the yearas a whole, Yes Car Credit performed better than the market with unit salesvolumes down by 1.5% to 37,319 units (2003 37,892). However, during the secondhalf of the year Yes Car Credit lost market share with unit sales falling by 16%compared with an 8% fall in the market. Although we increased advertising andexpanded our network of branches to 29, this performance was well below ourexpectations. Net receivables increased by 16% to £294 million at 31 December2004, although average net receivables were up by 32% to £282 million reflectingthe impact of strong growth in the final quarter of the previous year. Despite the fall in vehicle sales, turnover in 2004 increased by 4.7% to £281.8million helped by increased contribution from both finance and insurancecommission revenues, reflecting business written in previous years. Theincreased contribution from these revenue streams also benefited gross profitwhich increased by 12.8% to £126.5 million. However, operating costs increasedfaster than gross profit, rising 17.3% to £79.2 million, because of the enlargedbranch network and increased advertising spend. In addition, whilst bad debtcosts as a percentage of average net receivables at December 2004 was steady at15.2% (December 2003 15.7%), bad debt costs increased by 28.2% to £42.9million, driven by the strong growth during 2004 in average net receivables.Profit before tax reduced by £6.8 million to £4.4 million (2003 £11.2 million). Vanquis Bank Vanquis Bank was established in February 2003 and has conducted a market test ofcredit cards tailored to the requirements of UK customers needing cards withsmall credit limits. A range of offers to new and existing customers deliveredby direct marketing and through home credit agents was tested throughout 2003and 2004. The collection of repayments by remote channels such as direct debitand by home credit agents was also tested. The market test provided clearevidence of a profitable market opportunity for a differentiated credit cardoffer. At 31 December 2004, 76,000 cards were in issue with net customer receivables of£26.1 million. The loss before tax for 2004 was £8.7 million (2003 loss of £6.7million). International division Percentage growth figures for credit issued, collections and turnover arecalculated after restating prior year figures at the current year averageexchange rate in order to present a like-for-like comparison. The international division has once again produced excellent results. Customernumbers increased by 25% to 1.6 million and now exceed the number of customersin our UK home credit business. Credit issued increased by 25% to £437 million,and turnover rose by 27% to £235 million. Profit before tax increased by 68% to£49.2 million (2003 £29.3 million). Poland Poland, our largest international business, performed exceptionally well.Customer numbers increased by 16% to 941,000; credit issued by 11% to £241.1million; collections by 12% to £326.0 million; and turnover by 13% to £138.6million. Bad debt as a percentage of credit issued was 10.5% for 2004 (200310.8%). Profit before tax increased strongly, up 34% to £44.4 million (2003£33.1 million). Czech Republic Our Czech operation grew customer numbers and credit issued more slowly butproduced good profit growth. Customer numbers rose by 3% to 230,000 and creditissued was up by 6% to £77.4 million. Collections increased by 7% to £106.8million and turnover increased by 7% to £41.2 million. Credit quality improvedwith bad debt as a percentage of credit issued for 2004 at 9.7% (2003 11.0%).Profit before tax increased by 13.6% to £10.0 million (2003 £8.8 million). Hungary Hungary achieved very rapid growth in 2004 and reported its maiden full yearprofit of £6.4 million, a year ahead of plan. Customer numbers rose by 76% to251,000 and credit issued increased by 91% to £87.2 million. Collections wereup by 130% to £99.0 million and turnover increased by 133% to £42.7 million.Credit quality continues to be satisfactory and because of the growing maturityof the loan book we were able to replace the general bad debt provision, set at8% of credit issued in prior years, with a specific provision. The release ofsurplus provisions from prior years benefited profit for the year by £2.0million. Profit before tax increased by £8.3 million, turning a loss of £1.9million in 2003 to a profit of £6.4 million for 2004. Slovakia Slovakia also produced strong growth during 2004 and, following a loss in thefirst half of the year of £0.9 million, reported a maiden second half profit of£0.4 million. Customer numbers rose by 64% to 102,000 and credit issuedincreased by 83% to £27.2 million. Collections were up by 82% to £26.8 millionand turnover increased by 86% to £11.0 million. Credit quality is satisfactorywith bad debt as a percentage of credit issued being 8.8% for 2004 (2003 8.0%).As in Hungary, we have based the 2004 bad debt charge on a specific provisionrather than the general provision made in earlier years. The release of surplusprovisions from prior years benefited the results by £0.4 million in 2004. Thebusiness reported a loss before tax for 2004 of £0.5 million, a significantimprovement on the loss of £1.6 million for 2003. Mexico Our pilot operation launched in Mexico in August 2003 has performed well. At theend of December 2004 it operated from four branches in the Puebla area, had35,000 customers (2003 3,000) and net customer receivables of £2.2 million.Credit quality is good and the performance of the Mexican business is similar tothat of the central European businesses at the same stage of their development.The loss for the year was, as expected, £2.2 million (2003 loss of £1.2million). Motor insurance division The UK motor insurance market remained competitive during 2004 and averagepremiums continued to fall, with average market rates down by approximately3.5%. We maintained our policy of pricing for an adequate return on equity andso held our premium rates in the first half of the year but were able to reducethem by 5% in the middle of the year in response to lower than expected claimscost inflation. Policyholder numbers fell by 14.7% during the year to 501,000but stabilised in the second half following the mid-year premium reductions.Gross written premiums reduced by 13% to £164.8 million, broadly in line withthe fall in the number of policyholders, and gross earned premiums fell by 22%to £168.9 million. Costs were sharply reduced in 2004 in line with the reducedrevenues and this, together with lower claims costs, resulted in an increase inunderwriting profit to £11.3 million (2003 £4.0 million). Income earned on theinvestment fund, held to meet the cost of future claims, was £23.3 million (2003£24.6 million). Profit before tax increased by 21% to £34.6 million (2003 £28.6million). Regulatory developments Following a super-complaint in the summer of 2004 from the National ConsumerCouncil (NCC) to the Office of Fair Trading (OFT) under the Enterprise Act 2002regarding the competitiveness of the UK home credit industry, the OFT conducteda short, 90-day investigation. This culminated in the decision by the OFT inDecember 2004, to refer the supply of home credit to the Competition Commissionfor further investigation on the grounds that it suspects there are features ofthe market that prevent, restrict, or distort competition. We do not agree withthe OFT's conclusions and have set out our reasons in an initial submission tothe Competition Commission. This is available on our website. The CompetitionCommission inquiry is scheduled to publish an "Emerging Thinking" document inSeptember 2005 and "Provisional Findings" in December 2005. The inquiry isexpected to conclude by April 2006. In Poland, a minority party proposal for an interest rate ceiling was submittedto the Polish parliament in June 2004 and, following a procedural first readingin July, has been subject to scrutiny by a parliamentary sub-committee. ThePolish government and the central bank oppose the rate ceiling proposal.Alongside other financial institutions, we continue to make it clear that such ameasure is not in the interests of consumers. The UK Consumer Credit Bill, which amends the 1974 Consumer Credit Act, iscurrently being considered by the UK parliament and is expected to become law inApril 2005. We welcome this bill which is designed to protect consumers andcreate a fairer, more competitive credit market. International Financial Reporting Standards In future the group will report its results under International FinancialReporting Standards (IFRS). To assist in understanding the impact on the groupof the change to IFRS, we have provided with this preliminary announcement anunaudited pro forma 2004 profit and loss account and an unaudited pro formastatement of net assets as at 31 December 2004 prepared using IFRS. Profitbefore tax and goodwill amortisation for 2004 would have been reduced by theadoption of IFRS, down by 6.9% from £220.7 million (UK GAAP) to £205.5 million(IFRS). Profit before tax for 2004 would have been reduced by 4.9% from £216.1million (UK GAAP) to £205.5 million (IFRS). Insurance division profits wouldhave been unchanged and our UK home credit business would have been littleaffected, but profit before tax from our fast growing international divisionwould have reduced by £9.4 million to £39.8 million, because of the requirementfor slower revenue recognition and earlier recognition of bad debt under IFRS.Similarly, at Yes Car Credit, a combination of the requirement for slowerrevenue recognition and earlier bad debt provisioning would have reduced profitby £7.1 million, turning a profit of £4.4 million into a loss of £2.7 million.It is important to note that cash flows are unchanged and the majority of thereduction in group profits relates to the timing of recognition of revenue andbad debt charge and does not imply a reduction in the underlying profitabilityof our credit agreements or credit quality. Net assets are reduced by £111.4million from £525.5 million (UK GAAP) to £414.1 million (IFRS), largely as aresult of changes to the accounting for defined benefit pension funds. The revenue we earn from our home credit loan agreements is fixed at the outsetand no further charges are levied in the event that a customer misses repaymentsand takes longer than agreed to repay the loan. Customers value this flexibleapproach and many repay our loans over a longer period than that contracted.IFRS requires that we continue to accrue revenue at the effective interest rateof the loan agreement over the full period a loan is outstanding with the resultthat more revenue is recognised than we are contractually entitled to collect.Since this additional revenue is not collectable, it is immediately matched bythe creation of an impairment provision. The result is an overstatement of bothturnover and the impairment charge under IFRS. Consequently we will continue todisclose bad debt charge as a percentage of credit issued (as calculated underUK GAAP) for our home credit businesses as the most meaningful measure of creditquality. The reduction in group earnings under IFRS would have reduced dividend cover in2004 to 1.66 times, which is slightly below our target of approximately 1.75times. Nonetheless, we intend to continue to pursue our progressive dividendpolicy but gradually, over time, to rebuild cover to approximately 1.75 times. Prospects The guidance which follows is based upon IFRS and is relative to the IFRSresults for 2004 included in this announcement. UK home credit The UK home credit sector is expected to continue to face increasing competitionfrom other small sum credit products, particularly credit cards. Customernumbers are expected to reduce in 2005 but credit issued per customer is likelyto increase as a result of better marketing to lower risk customer segments.Overhead costs will be tightly managed and credit quality is expected to bestable. Overall, we expect profits will fall a little in 2005 and may reducefurther in subsequent years if current market conditions persist. Yes Car Credit We expect that the tough trading conditions in the used car credit market seenin 2004 will continue into 2005. We will respond to this by making a number ofchanges to improve Yes Car Credit's business performance, including a furtherstrengthening of the management team, improving the effectiveness of marketingand making reductions to the cost base, including closing two branches. Thesechanges will take time to have an effect and so we expect the performance fromthe business in 2005 to be similar to that in 2004 (IFRS loss of £2.7 million). Vanquis Bank In December 2004 we announced our intention of bringing Vanquis Bank tooperational scale during 2005. We will actively market credit card products tonew and existing customers both by direct mail and through our agent network.We believe the combination of the remote recruitment and customer servicingskills of Vanquis Bank with the reach, knowledge and capabilities of our UK homecredit business will allow us to establish and grow a distinctive and profitablecredit card business. We aim to grow in a measured way and to add about 100,000card holders during 2005. We expect that the cost of customer acquisition andearly credit losses will result in start-up losses of about £14 million in 2005.We estimate the business will reach breakeven with a portfolio of about250,000 card holders and our aim is to reach this position during 2006. As aresult, we expect substantially reduced losses in 2006 and profits thereafter. International division We continue to see excellent prospects for growth from our internationaldivision with Poland and Hungary expected to be the major contributors. The pilot in Mexico has proved successful and so during 2005 we will begin toextend our geographic coverage. Mexico is a large potential market. In thelong term we estimate the market should support three million home creditcustomers yielding an annual profit per customer of about £20. We will adopt aphased, regional approach to geographic expansion, starting in 2005 in thePuebla-Veracruz region. The rate at which further regions are opened willdepend on the performance of this region and also the rate at which we are ableto develop local management resources. At this early stage it is envisaged thatwe will open one new region each year. Start-up losses in Mexico of about £5-£6million are expected in 2005. During 2005 we will focus on developing Mexico but plan to open in a new countryin 2006. Overall, we expect that the international division in 2005 will continue todeliver strong growth and excellent results. Motor insurance division The motor insurance division is expected to have another good year in 2005benefiting from favourable trends in claims costs. Group outlook During 2005 we will continue our strategy of expanding our internationalbusinesses and broadening our range of credit products. In 2005, we will make asubstantial investment, £20 million, in start-up losses to develop the newcredit card business in the UK and expand home credit in Mexico. We believethat both initiatives will generate substantial shareholder value in the yearsto come. We expect that 2005 will be a year of further progress both inimplementing our strategy and improving group performance. John van KuffelerChairman16 March 2005 Preliminary announcement of the final results for the year ended 31 December2004 Consolidated profit and loss account Unaudited Audited 2004 2003 £m £m Turnover 1,166.7 1,134.2 ------------ ------------Profit before taxation and goodwill amortisation 220.7 206.2Goodwill amortisation (4.6) (4.3) ------------ ------------Profit before taxation 216.1 201.9Taxation (64.7) (60.8) ------------ ------------Profit after taxation 151.4 141.1Dividends (note 3) (87.3) (83.4) ------------ ------------Retained profit for the year (note 6) 64.1 57.7 ------------ ------------Earnings per share (note 4)- Basic 59.74p 55.84p- Adjusted 61.57p 57.54p- Diluted 59.47p 55.68p ------------ ------------Dividend per share to ordinaryshareholders (note 3)a) Interim - paid 13.65p 13.10pb) Final - proposed 20.75p 19.90p ------------ ------------Total ordinary dividend 34.40p 33.00p ------------ ------------ There is no material difference between the reported profit before taxation andthe retained profit shown above and their historical cost equivalents in thecurrent or prior year. Segmental reporting Analyses of turnover and profit before taxation by class of business are set outbelow: Turnover Profit before taxation 2004 2003 2004 2003 £m £m £m £m UK home credit 490.5 495.6 152.3 152.6Yes Car Credit 281.8 269.2 4.4 11.2Vanquis Bank 6.7 1.3 (8.7) (6.7) ------------ ------------ ------------ ------------UK consumer credit 779.0 766.1 148.0 157.1 International 235.0 191.4 49.2 29.3Motor insurance 152.7 176.7 34.6 28.6 ------------ ------------ ------------ ------------ 1,166.7 1,134.2 231.8 215.0Central - - (11.1) (8.8) ------------ ------------ ------------ ------------Turnover and profit before taxationand goodwill amortisation 1,166.7 1,134.2 220.7 206.2 Goodwill amortisation* - - (4.6) (4.3) ------------ ------------ ------------ ------------Turnover and profit before taxation 1,166.7 1,134.2 216.1 201.9 ------------ ------------ ------------ ------------ * Goodwill amortisation in 2004 includes £4.4 million in respect of Yes CarCredit (2003 £4.1 million) and £0.2 million in respect of UK home credit (2003£0.2 million). Turnover between segments is not material. Analyses by class of business arebased on the group's divisional structure. The international profit before taxation comprises: 2004 2003 £m £m Poland 44.4 33.1Czech Republic 10.0 8.8Hungary 6.4 (1.9)Slovakia (0.5) (1.6)Mexico (2.2) (1.2)Central divisional overheads (8.9) (7.9) ------------ ------------Profit before taxation 49.2 29.3 ------------ ------------ Consolidated balance sheet Unaudited Audited as at 31 December as at 31 December 2004 2003 as restated (see note 6) £m £m Fixed assets (including goodwill) 144.0 135.9 ------------ ------------Current assetsStock 16.6 14.6Amounts receivable from customers (note 5(a))- due within one year 1,048.3 905.3- due in more than one year 224.0 204.1Debtors 157.3 153.1Investments realisable within one year 461.7 514.5Cash at bank and in hand 38.4 38.8 ------------ ------------ 1,946.3 1,830.4 ------------ ------------Current liabilitiesBank and other borrowings (35.3) (19.6)Creditors - amounts falling due within one year (236.9) (220.8)Insurance provisions and deferred income (424.9) (462.9) ------------ ------------ (697.1) (703.3) ------------ ------------Net current assets 1,249.2 1,127.1 ------------ ------------Total assets less current liabilities 1,393.2 1,263.0 ------------ ------------Non-current liabilitiesBank and other borrowings (855.1) (799.8)Creditors - amounts falling due after more than oneyear (9.8) (11.6)Provision for deferred taxation (2.8) (2.6) ------------ ------------Net assets 525.5 449.0 ------------ ------------Capital and reservesCalled-up share capital 26.4 26.3Share premium account 105.5 101.5Revaluation reserve 2.7 2.7Other reserves 4.4 4.4Profit and loss account 386.5 314.1 ------------ ------------Equity shareholders' funds (note 6) 525.5 449.0 ------------ ------------Gearing ratio (note 7) 164% 176% ------------ ------------ Consolidated cash flow statement Unaudited Audited 2004 2003 as restated (see note 6) £m £m Net cash inflow from operating activities 54.3 57.1Taxation (54.5) (45.1)Capital expenditure and financial investment (22.8) (17.1)Acquisitions and disposals - (5.4)Equity dividends paid (84.9) (79.7)Management of liquid resources 58.6 (13.1)Financing 48.3 87.6 ------------ ------------Decrease in cash in the year (1.0) (15.7) ------------ ------------ The cash flow statement above has been prepared in accordance with FRS 1(Revised 1996) 'Cash Flow Statements'. As required by that standard, thestatement aggregates the cash flows arising from each division within the group.However, the cash and investments held by those businesses that are regulatedare required to be strictly segregated from those for the rest of the group andare not available to repay group borrowings. At 31 December 2004 the cash andinvestments held by the group's regulated businesses amounted to £469.6 million(2003 £508.7 million). Reconciliation of net cash flow to movement in net debt 2004 2003 £m £m Decrease in net cash for the year (1.0) (15.7)Cash (inflow)/outflow from (decrease)/increasein liquid resources (58.6) 13.1 ------------ ------------ (59.6) (2.6)Cash inflow from increase in debt (42.3) (86.6) ------------ ------------Change in net debt resulting from cash flows (101.9) (89.2)Exchange adjustments (22.3) 4.4Net debt at 1 January (266.1) (181.3) ------------ ------------Net debt at 31 December (390.3) (266.1) ------------ ------------ Analysis of changes in net debt 1 Jan Exchange Other 31 Dec 2004 Cash flows movements changes 2004 £m £m £m £m £m Cash at bank and in hand 38.8 (1.7) 1.3 - 38.4Overdrafts (7.3) 0.7 - - (6.6) ----------- ----------- ---------- ------------ ----------- 31.5 (1.0) 1.3 - 31.8Investments realisablewithin one year 514.5 (58.6) 5.8 - 461.7Bank and otherborrowings:- less than one year (12.3) 2.7 - (19.1) (28.7)- more than one year (799.8) (45.0) (29.4) 19.1 (855.1) ----------- ----------- ---------- ------------ ----------- (812.1) (42.3) (29.4) - (883.8) ----------- ----------- ---------- ------------ -----------Net debt (266.1) (101.9) (22.3) - (390.3) ----------- ----------- ---------- ------------ ----------- Reconciliation of operating profit to net cash inflow from operating activities 2004 2003 £m £m Operating profit 216.1 201.9Depreciation and amortisation 15.6 14.3Loss on sale of tangible fixed assets 0.1 0.4Increase in amounts receivable from customers (134.0) (158.1)Decrease in stock and debtors 3.4 14.3Decrease in unearned insurance premiums (4.1) (28.2)Decrease in insurance claims provision (33.7) (4.1)(Decrease)/increase in trade creditors, accruals andother liabilities (9.1) 16.6 ------------ ------------Net cash inflow from operating activities 54.3 57.1 ------------ ------------ Net cash inflow from operating activities can be analysed as follows: 2004 2003 £m £m UK home credit 141.5 149.1Yes Car Credit (40.4) (79.5)Vanquis Bank (27.1) (13.1) ------------ ------------UK consumer credit 74.0 56.5 International (17.5) (11.1)Motor insurance 12.3 23.2Central (14.5) (11.5) ------------ ------------ 54.3 57.1 ------------ ------------ Notes - Preliminary announcement of the final results for the year ended 31December 2004 1. This preliminary announcement, which has been prepared on a basisconsistent with the previous year other than in respect of the adoption of UITF38 'Accounting for ESOP Trusts' (see note 6), does not constitute statutoryaccounts within the meaning of Section 240 of the Companies Act 1985. Theannouncement has been agreed with the company's auditors for release. 2. Except for the restatement set out in note 6, the information for the yearended 31 December 2003 is an extract from the statutory accounts to that datewhich have been delivered to the Registrar of Companies. Those accountsincluded an audit report which was unqualified and which did not contain astatement under Section 237(2) or (3) of the Companies Act 1985. The statutoryaccounts for the year ended 31 December 2004 upon which the auditors have stillto report, will be delivered to the Registrar following the company's annualgeneral meeting. 3. Dividends 2004 2003 £m £m Interim dividend paid - 13.65p (2003 - 13.10p) 34.6 33.1Final dividend proposed - 20.75p (2003 - 19.90p) 52.7 50.3 ------------ ------------ 87.3 83.4 ------------ ------------ 4. Earnings per share The basic and diluted earnings per share figures have been calculated using theprofit for the year attributable to ordinary shareholders of £151.4 million(2003 £141.1 million). The weighted average number of shares in issue duringthe year can be reconciled to the number used in the basic, adjusted and dilutedearnings per share calculations as follows: 2004 2003 Number NumberWeighted average number of shares m m In issue during the year 254.9 254.3Held by the QUEST (1.5) (1.6) --------------- ---------------Used in basic and adjusted earnings per sharecalculation 253.4 252.7Issuable on conversion of outstanding options 1.2 0.7 --------------- ---------------Used in diluted earnings per share calculation 254.6 253.4 --------------- --------------- The adjusted earnings per share figures have been calculated using a profitafter tax, excluding goodwill amortisation of £156.0 million (2003 £145.4million). The impact on earnings per share is as follows: 2004 2003 2004 Earnings 2003 Earnings Earnings per share Earnings per share £m pence £m penceBasic earnings and earnings pershare 151.4 59.74 141.1 55.84Goodwill amortisation 4.6 1.83 4.3 1.70 ------------ ------------ ------------ ------------Adjusted earnings and earnings pershare 156.0 61.57 145.4 57.54 ------------ ------------ ------------ ------------ The movement in the number of shares in issue during the year is as follows: Number m At 1 January 2004 254.3Shares issued pursuant to the exercise of options 0.8 --------------At 31 December 2004 255.1 -------------- 5. Amounts receivable from customers (a) Amounts receivable from customers represent: 2004 2003 £m £m UK home credit (note 5(b)) 642.2 642.5International (note 5(c)) 310.0 207.1Yes Car Credit (note 5(d)) 294.0 252.4Vanquis Bank (note 5(e)) 26.1 7.4 ------------ ------------ 1,272.3 1,109.4 ------------ ------------Analysed as:- due within one year 1,048.3 905.3- due in more than one year 224.0 204.1 ----------- ----------- 1,272.3 1,109.4 ----------- ----------- (b) UK home credit receivables 2004 2003 £m £m Gross instalment credit receivables 984.2 985.3Less: provision for bad and doubtful debts (79.2) (83.7) ------------ -----------Instalment credit receivables after provision for bad anddoubtful debts 905.0 901.6Less: deferred revenue thereon (262.8) (259.1) ------------ ----------- 642.2 642.5 ------------ -----------Analysed as:- due within one year 632.2 632.6- due in more than one year 10.0 9.9 ------------ ----------- 642.2 642.5 ------------ ----------- (c) International receivables 2004 2003 £m £m Gross instalment credit receivables 521.4 341.5Less: provision for bad and doubtful debts (55.7) (33.4) ------------ -----------Instalment credit receivables after provision for badand doubtful debts 465.7 308.1Less: deferred revenue thereon (155.7) (101.0) ------------ -----------Total - due within one year 310.0 207.1 ------------ ----------- (d) Yes Car Credit receivables 2004 2003 £m £m Gross car finance receivables 457.6 421.4Less: deferred revenue thereon (142.6) (142.9) ----------- ----------- 315.0 278.5Less: provision for bad and doubtful debts (21.0) (26.1) ----------- ----------- 294.0 252.4 ----------- -----------Analysed as:- due within one year 80.0 58.2- due in more than one year 214.0 194.2 ----------- ----------- 294.0 252.4 ----------- ----------- (e) Vanquis Bank receivables 2004 2003 £m £m Gross credit card receivables 29.0 8.2Less: deferred revenue thereon (0.6) (0.2) ----------- ----------- 28.4 8.0Less: provision for bad and doubtful debts (2.3) (0.6) ----------- -----------Total - due within one year 26.1 7.4 ----------- ----------- (f) Bad debt charge 2004 2003 £m £m UK home credit 86.4 88.0Yes Car Credit 42.9 33.4Vanquis Bank 4.0 0.7 ------------ ------------UK consumer credit 133.3 122.1International 39.2 37.2 ------------ ------------Bad debt charge 172.5 159.3 ------------ ------------ 6. Reconciliation of movement in equity shareholders' funds 2004 2003 as restated £m £m Profit attributable to equity shareholders 151.4 141.1Dividends (87.3) (83.4) ------------ ------------Retained profit 64.1 57.7New share capital issued 4.1 0.6Proceeds in respect of QUEST shares 1.9 0.4Currency translation differences 6.4 (1.6) ------------ ------------Net addition to equity shareholders' funds 76.5 57.1 ------------ ------------Equity shareholders' funds at 1 January as reported 449.0 402.7Prior year adjustment - (10.8) ------------ ------------Equity shareholders' funds at 1 January as restated 449.0 391.9 ------------ ------------Equity shareholders' funds at 31 December 525.5 449.0 ------------ ----------- UITF 38 'Accounting for ESOP Trusts' has been adopted for the first time in2004. As a result, shares in Provident Financial plc held by the QUEST, adiscretionary trust established for the benefit of the employees of the group,have been reclassified from fixed asset investments to the profit and lossreserve within equity shareholders' funds. This change has been accounted foras a prior year adjustment and previously reported figures have been restatedaccordingly. As a result, equity shareholders' funds at 31 December 2004 havedecreased by £8.5 million (31 December 2003 £10.4 million) and proceeds from theexercise of QUEST shares have been reclassified in the cash flow statement fromcapital expenditure and financial investment cash flows to financing cash flows.The prior year adjustment has had no impact on the performance statements ofthe current or previous year. 7. The gearing ratio is calculated as bank and other borrowings, net of consumercredit cash, divided by year end consolidated equity shareholders' funds. 8. FRS 17 'Retirement Benefits' The company has adopted the transitional arrangements under FRS 17 and willdisclose the impact of the standard as a note to the accounts. If the standardhad been adopted in full in 2004, earnings would have increased by £1.0 million(2003 earnings reduced by £2.7 million) and net assets at 31 December 2004 wouldhave reduced by £114.7 million (31 December 2003 £92.1 million). This reductionin net assets comprises a post tax FRS 17 liability of £89.7 million (2003 £73.4million) and the elimination of a post tax SSAP 24 prepayment of £25.0 million(2003 £18.7 million). The company intends to make additional cash contributionsto the two major defined benefit pension schemes in the UK of £13.0 million in2005. Unaudited pro forma IFRS information The group currently prepares its accounts in accordance with the UK CompaniesAct 1985 and applicable UK accounting standards (together UK GAAP). For theyear ending 31 December 2005, the group will produce its accounts underInternational Financial Reporting Standards (IFRS) which differ significantlyfrom UK GAAP in a number of areas. In order to illustrate the impact of IFRS on the group, the following pro formafinancial information for the year ended 31 December 2004 has been preparedwhich reconciles the UK GAAP financial information to that under IFRS. The pro forma has been prepared on the basis of IFRS expected to be in effectfor the year ending 31 December 2005. The IFRS in effect at that date maychange due to the EU endorsement process, the issue of any interpretativeguidance issued by the International Accounting Standards Board (IASB)/International Financial Reporting Interpretations Committee and changes in UKRelated Shares:
PFG.L