8th Mar 2006 07:03
Provident Financial PLC08 March 2006 Provident Financial plc Preliminary announcement of the final results for the year ended 31 December 2005 H I G H L I G H T S Provident Financial is a leading international group providing home credit,credit cards and motor insurance with 3.9 million customers in the UK, Republicof Ireland, Central Europe and Mexico. Key financial results The table below shows the results of the ongoing group, before the tradinglosses and closure costs of Yes Car Credit, and for the group as a whole: 2005 2004 Percentage change Ongoing operationsGroup revenue £1,110.0m £1,000.3m +11.0%Profit before tax £206.0m £208.2m -1.1%Earnings per share 57.18p 57.74p -1.0%Full year dividend per share 35.43p 34.40p + 3.0% ReportedGroup revenue £1,337.5m £1,272.4m +5.1%Profit before tax £40.4m £205.5m -80.3%Earnings per share Nil 57.00p -100.0%Full year dividend per share 35.43p 34.40p + 3.0% Results key points • Increased investment of £18.8m in start-up losses in Mexico and Vanquis Bank reduces pre-tax profit from ongoing operations by 1.1% to £206.0m • International pre-tax profit up 28% to £51.1m (2004 £39.8m) • UK home credit pre-tax profit of £146.3m (2004 £154.0m) • Motor insurance pre-tax profit up 16% to £40.0m (2004 £34.6m) • Investment in start-up losses in Vanquis Bank of £15.9m (2004 £9.0m) • Mexico performing well - target annual pre-tax profit raised to £30 per customer • Romanian pilot now in progress • Yes Car Credit business closed with combined pre-tax trading losses and closure costs of £165.6m Strategic Developments • Group at early stages of considering a separate listing for its international business to capture growth opportunities more quickly John van Kuffeler, Chairman, commented: "While UK home credit is an excellent, cash-generative business, we seeattractive prospects for continued expansion internationally in our existingmarkets and in new countries. Because our successful organic growth modelinvolves investment in start-up losses, which depress short term profits, we areat the early stages of considering whether obtaining a separate listing forinternational, in due course, would allow the international growth opportunityto be captured more quickly. The intention is to maximise shareholder value inthe near and longer term. An update will be given with our interim results inSeptember." John van KuffelerChairman8 March 2006 Enquiries: Today Thereafter Media David Stevenson, Provident Financial 020 7404 5959 01274 731111Kevin Byram, Brunswick 020 7404 5959 020 7404 5959Nigel Prideaux, Brunswick 020 7404 5959 020 7404 5959 Investor Relations Helen Waggott, Provident Financial 020 7404 5959 01274 731111 Chairman's statement Revenue growth from ongoing operations in 2005 was strong and increased 11.0% to£1,110 million with customer receivables up by 12.3% to £1,039 million.However, due to investments totalling £18.8 million (2004 £11.2 million) instart-up losses at Vanquis Bank and in Mexico, profit before tax from ongoingbusinesses of £206.0 million was 1.1% lower than in the previous year (2004£208.2 million) and earnings per share on the same basis reduced by 1.0% to57.18p (2004 57.74p). We announced in December 2005 the closure of the car sales and financingactivities of Yes Car Credit. This business incurred a pre-tax loss of £165.6million in 2005, comprising trading losses of £24.6 million, closure costs of£50.0 million and a goodwill write-off of £91.0 million. Profit before tax andafter Yes Car Credit was £40.4 million (2004 £205.5 million). Earnings pershare on the same basis were nil (2004 57.00p). The directors recommend a final dividend of 21.37p (2004 20.75p), giving a totaldividend for the year of 35.43p per share (2004 34.40p), an increase of 3.0% forthe year. Operations UK consumer credit division UK home credit As expected, conditions in the UK home credit sector continued to be challengingwith strong competition, particularly from banks and credit cards, and a toughercredit environment resulting from pressure on customers' disposable incomes.Customer numbers have been reducing since 2002 as a result of increasedcompetition, together with actions to eliminate unprofitable sources ofcustomers, and this trend continued in 2005 with a further reduction of 2.7% to1.49 million. This was better than we had expected because of the success ofcustomer recruitment initiatives in the final quarter of the year. However,despite reduced customer numbers, credit issued rose by 3.7% to £927 million andaverage net customer receivables increased by 4% to £559 million with acorresponding 3.7% increase in revenue to £579 million. This reflects thesuccess of our increased focus on the issue of larger loans repaid over 18months or two years. These loans meet the needs of established, lower riskcustomers for larger sums of credit, typically of around £1,000, repaid at amanageable weekly rate. The proportion of our credit issued on these newproducts increased from 4% in 2004 to 14% in 2005. As a result of increased pressure on our customers' disposable incomes fromrising fuel and utility prices, collections performance reduced, mainly duringthe second half of the year. This caused the impairment charge to rise by 11.6%to £172 million. The bad debt charge measured under UK GAAP remains the bestmeasure of credit quality and this displayed a similar trend with bad debt as apercentage of credit issued increasing from 9.7% for 2004 to 10.4% for 2005.Costs increased in line with revenue, up by 4.2% to £261.0 million. Profitbefore tax reduced by 5.0% to £146.3 million (2004 £154.0 million). Vanquis Bank Vanquis Bank was established to provide credit cards tailored to the needs ofcustomers on average and below average incomes. After a period of markettesting a full product launch in the UK commenced in January 2005. The businessperformed broadly as planned during 2005 although the tougher UK creditenvironment caused impairment charges to be higher than expected. In response,underwriting criteria were tightened early in the second half of the year whichslowed growth in customer numbers and customer receivables. Nonetheless, overthe course of the year customer numbers increased by 84,000 to 160,000 and netcustomer receivables rose by £34 million to £60 million. The loss before taxfor the year was £15.9 million (2004 £9.0 million), reflecting investment ininfrastructure, customer acquisition costs and impairment charges, which arehigher in the early stages of building customer relationships. Yes Car Credit As announced in the trading update of 14 December 2005, following a strategicreview of Yes Car Credit it was concluded that the business was no longerviable. Increased competition from motor dealers for sub-prime financecustomers together with regulatory changes that had reduced sales of insuranceproducts resulted in operating conditions that were very different from when thebusiness was acquired. Accordingly the motor sales and financing activity ofYes Car Credit ceased in December 2005, all branches were closed and themajority of employees made redundant. Provision was made in the 2005 financialstatements for the cost of closure, including redundancy costs, losses on thedisposal of vehicle stock and fixed assets, the cost of exiting property leasesand additional impairment provisions to customer receivables to allow for theestimated impact of closure on collections performance. The net amount ofcustomer receivables outstanding at the end of 2005 was £235 million. We have ateam focused and incentivised on successfully collecting out these receivablesand during the early months of this year collections have progressed well. Weestimate that costs of collection will broadly match the revenue earned and sothere will be no material profit or loss over the period during which thereceivables are collected. International division Percentage growth figures for credit issued, average net customer receivables,revenue, impairment and costs are calculated after restating prior year figuresat the current year average exchange rate in order to present a like-for-likecomparison. The international division continued to grow rapidly. Customer numbersincreased by 14% to 1.8 million and credit issued rose by 15% to £545 million.Average net customer receivables grew by 21% to £280 million and revenue rosecorrespondingly, up by 21% to £359 million. Strong receivables growth togetherwith a reduction in collections performance in Poland caused a 37% increase inthe impairment charge to £133 million. However the division continues to becomemore efficient as it grows and so costs increased by just 12% to £175 million.Profit before tax increased substantially, up by 28% to £51.1 million (2004£39.8 million). Central Europe Central Europe produced good growth in 2005 with strong performances from theCzech Republic, Hungary and Slovakia more than offsetting a subdued performancein Poland. Customer numbers increased by 8% to 1.65 million, exceeding theinitial target we set in 1999, and credit issued increased by 11% to £522million. Average net customer receivables rose by 19% to £275 million and thisled to an 18% increase in revenue to £348 million. In Poland, we responded to areduction in collections performance and corresponding rise in the impairmentcharge by tightening our lending criteria. This action slowed growth andallowed us to focus our efforts on collections. It has now begun to yieldbenefits. Impairment charges for Central Europe rose by 34% to £129 millionwith UK GAAP bad debt as a percentage of credit issued rising from 9.0% for 2004to 12.2% in 2005. Profit before tax increased strongly, up 22% to £64.2 million(2004 £52.6 million) and is progressing well towards our target of £95 million. Mexico Mexico has performed well and at this stage of its development represents ourfastest new country start-up. Our key focus during 2005 was the expansion ofthe branch infrastructure and customer base in the Puebla-Veracruz region - anarea with a 20 million population. This has progressed well and we now have 14branches in that region. In December 2005, we established a second operation inLeon to develop simultaneously the Guadalajara-Leon region of Mexico, which alsohas a 20 million population. During the year, customer numbers increased by96,000 to 131,000 and credit issued by £18 million to £23 million. Creditquality is good and the start-up loss for the year was a little lower thanexpected at £2.9 million (2004 £2.2 million). Overall, our experience in Mexicohas been very positive and we now expect that at maturity we will achieve profitper customer of £30 per annum, £10 per customer higher than our previousestimate. Romania In December 2005, we announced our intention to open a pilot operation inRomania, a country with excellent potential and a population of 22 millionpeople. We have opened an office in Bucharest, installed a management team,obtained the necessary licence to trade and have now started to recruitemployees. Motor insurance division The motor insurance division delivered a record profit in a UK motor insurancemarket that remained competitive during 2005. Average premiums continued tofall, with market rates down by approximately 2%. We maintained our policy ofpricing for an adequate return on equity and so held our premium rates.Policyholder numbers fell by 6% during the year to 473,000 and gross writtenpremiums reduced correspondingly by 6% to £155 million. Provisions for claimscosts, particularly from earlier years' claims, have continued to developfavourably with the result that underwriting profit increased from £11.3 millionto £18.4 million. Income earned on the investment fund, held to meet the costof future claims, was £21.6 million (2004 £23.3 million). Profit before taxincreased by 16% to a record high of £40.0 million (2004 £34.6 million). Regulatory developments The Competition Commission inquiry into the UK home credit sector continues.Following the publication of its 'emerging thinking' document in October 2005 wehave provided further evidence to the Commission demonstrating the increasinglycompetitive nature of the market for the supply of small sum credit in which weoperate, low barriers to entry and high levels of customer satisfaction. TheCommission is scheduled to publish its 'provisional findings' in March/April2006 and the inquiry is expected to conclude in July 2006. In Poland, a new law establishing a maximum interest rate at four times theLombard rate was introduced in August 2005. This became effective for loansissued from 20 February 2006. We developed a revised offer to meet bothcustomer needs and the requirement of the new law which was successfullyintroduced to approximately 30% of customers by the end of 2005. All creditissued since 7 February 2006 has been issued on the new product. The standardoutgoing home credit product bundled all elements of the service into a simple,single fixed charge. The new product includes three main heads of charge;interest, credit insurance and an optional home collection charge. For thecustomer who selects all these options the cost of the product is similar to theold product. To date our experience suggests that the majority of customersvalue highly each element of the product and particularly the convenience ofagent collection. In the UK, the Consumer Credit Bill, which amends the 1974 Consumer Credit Act,is in the final stages of the parliamentary process and is expected to pass intolaw in 2006. We welcome this bill which is designed to protect consumers andcreate a fairer, more competitive credit market. Management We announced in January that David Swann, managing director of our internationaldivision, is to retire at the AGM in May after 33 years service; that JohnHarnett is to succeed David Swann as managing director of the internationaldivision and that Andrew Fisher is to join the board as finance director, havingpreviously been the finance director at Premier Farnell for eleven years. In addition, Peter Crook will today join the board, with responsibility for UKhome credit. Peter who is 42 years of age, was the UK managing director ofBarclaycard between 2000 and 2005 and has extensive experience of consumercredit. He joined Provident in September 2005 as managing director of UK homecredit. Prospects for 2006 UK home credit UK home credit is the leading provider of home credit in the UK and succeedsbecause it is focused on meeting customers needs and so achieves consistentlyhigh levels of customer satisfaction. It is an excellent and cash generativebusiness. The UK home credit sector is expected to remain competitive with the current,tougher credit environment sustained by continued pressure on customers'disposable incomes. In recent months, we have improved the systems we use toidentify unprofitable, higher risk new customers and during 2006 these will bedeployed. We expect this will allow us to better manage credit risk and willbenefit the impairment charge but at the same time will reduce the number of newcustomers we recruit. The success of our marketing initiatives in the finalquarter of 2005 gives us confidence that we can offset this by more activemarketing but overall we continue to expect a small net reduction in customernumbers during 2006. In 2005, credit issued grew because of the success of larger loans repaid over18 or 24 months. Customers who took out longer-term loans in 2005 will typicallynot want another until the first loans have run their course. As a result, therise in credit issued in 2005 is unlikely to be repeated in 2006 and creditissued, customer receivables and revenue are likely to reduce in line withcustomer numbers. Overhead costs are being actively managed and during thecourse of 2006, we intend to combine the back office and field operations ofProvident Personal Credit and Greenwood Personal Credit to reduce theadministrative and operating costs associated with managing two home collectedcredit brands. During 2005, we successfully trialled hand held personalcomputers for our agents and field staff. The results suggest that thesedevices will improve our administrative efficiency and make our agents moreeffective and so, in 2006, we will fully develop this solution with the aim ofintroducing them during 2007. The costs of these new initiatives together withincreased marketing expenditure will cause overhead costs to rise a littleduring 2006. Overall, we expect a reduction in profit in 2006 in line withmarket expectations. Vanquis Bank Vanquis Bank is expected to continue to increase its customer numbers andcustomer receivables during 2006. Whilst new business strain from customeracquisition costs and high early impairment charges will remain significant, itsimpact will be diluted by the increasing proportion of revenue earned from thematuring customer portfolio. In addition, overhead cost per customer will fallas the scale of the business continues to grow. We therefore continue toexpect a reduced loss in 2006, with a much stronger performance in the secondhalf of the year than in the first half, and profit in 2007. International division Our strategy of international growth has been very successful and has deliveredsubstantial shareholder value. From its establishment in 1997 the division hasgrown rapidly, breaking even in 2002 and earning profit before tax of £51.1million in 2005. In Central Europe during 2005, we passed our target of 1.6million customers and we are well on the way to achieving our Central Europeanannual profit target of £95 million. We intend to continue this success byexpanding into new overseas markets and in 2006 the international division willmake a substantial investment of £12 million in developing new markets. Thiswill comprise a pilot operation in Romania costing £3 million and the rapidexpansion in two major regions in Mexico with a start-up loss of approximately£9 million. We have divided Mexico into five regions, each having a populationof about 20 million people and we are now targeting at maturity 3 millioncustomers yielding an annual pre-tax profit per customer of £30. This makesMexico an important market with the potential for an annual pre-tax profit of£90 million. We will enter the remaining three regions over the coming three tofour years and expect Mexico as a whole to be profitable in 2008. We expect ourestablished market in Central Europe will continue to deliver good growth in2006 and we expect a stronger performance in the second half as the benefits ofimprovements made to the Polish business feed through. For some time it has been our intention to broaden the range of credit productswe offer in order to take advantage of the well established brands andinfrastructure we have in these fast growing, international credit markets.During 2005, we trialled both a monthly home collected loan product and aremotely collected loan product in Poland; the latter being supported by theskills and systems of Vanquis Bank. This has proved successful and during 2006we intend to pilot these products on a larger scale in Poland. In due course,if this is successful, we envisage introducing these products to our otherinternational markets. Overall, profit from the international division is likely to reduce a little asa result of the investment in start-up losses and new product development costs,before growth recommences in 2007. Motor insurance division We expect market conditions to be similar to 2005 with policyholder numbers andgross written premiums continuing to drift downwards. The favourabledevelopment of claims costs provisions is likely to continue but is expected todeliver a smaller benefit than in 2005 with the result that profit is expectedto reduce from the current record level. Group outlook In recent years the small sum credit market in the UK has become increasinglycompetitive. We have responded by raising the efficiency of our UK home creditbusiness and by improving the service we offer our customers. We have clearplans to continue to improve our operating efficiencies and our service tocustomers and so we expect this to remain an excellent, cash-generativebusiness. We have also sought new opportunities for growth by expanding into overseasmarkets and broadening our range of credit products. International expansionhas already been very successful and created substantial shareholder value andwe expect the new credit products delivered through Vanquis Bank will also addto shareholder value. We expect the group will remain strongly cash and capital generative and thatthis will continue to support our progressive dividend policy. We see excellent prospects for continued international expansion in existingmarkets and in new countries. However, our successful organic growth modelinvolves investment start-up losses which depress short term profits. We are,therefore, at the early stages of considering whether obtaining a separatelisting for international, in due course, would allow the international growthopportunity to be captured more quickly. The aim would be to maximiseshareholder value in both the near and longer term. We will provide a furtherupdate on the results of this review with our interim results in September. John van KuffelerChairman8 March 2006 Consolidated income statement for the year ended 31 December 2005 2005 (Unaudited) 2004 (Unaudited) Yes Car Yes Car Ongoing Credit Ongoing Credit operations operations Notes (note 3) Total (note 3) Total £m £m £m £m £m £m Revenue 2 1,110.0 227.5 1,337.5 1,000.3 272.1 1,272.4Finance income 27.7 - 27.7 27.4 - 27.4Total income 1,137.7 227.5 1,365.2 1,027.7 272.1 1,299.8 Finance costs (47.4) (14.5) (61.9) (45.1) (12.0) (57.1)Operating costs (615.7) (245.3) (861.0) (540.9) (226.8) (767.7)Administrative expenses (268.6) (133.3) (401.9) (233.5) (36.0) (269.5)Total costs (931.7) (393.1) (1,324.8) (819.5) (274.8) (1,094.3) Profit before taxation 2 206.0 (165.6) 40.4 208.2 (2.7) 205.5Tax expense (60.6) 20.2 (40.4) (61.9) 0.8 (61.1)Profit for the year 145.4 (145.4) - 146.3 (1.9) 144.4 Notes Unaudited Unaudited 2005 2004Earnings per shareBasic 4 - 57.00pDiluted 4 - 56.74p Dividends per shareProposed final dividend 5 21.37p 20.75pTotal dividend in respect of the year 5 35.43p 34.40pPaid in the year 5 34.81p 33.55p Consolidated statement of recognised income and expense for the year ended 31December 2005 Notes Unaudited Unaudited 2005 2004 £m £mProfit for the year - 144.4Exchange differences on foreign currency translations 2.7 3.9Net fair value losses - cash flow hedges (5.0) (4.9)Actuarial losses on retirement benefit obligations 10 (20.1) (34.3)Tax on items taken directly to equity 7.5 11.9Net expense recognised directly in equity 11 (14.9) (23.4)Total recognised (expense)/income for the year 11 (14.9) 121.0 Consolidated balance sheet as at 31 December 2005 Notes Unaudited Unaudited 2005 2004 £m £mASSETSNon-current assetsGoodwill 6 3.1 87.8Intangible assets 27.5 19.0Property, plant and equipment 42.8 41.8Deferred income tax assets 64.5 67.0 137.9 215.6Current assetsInventories 7.4 16.6Financial assets:- Amounts receivable from customers: - due within one year 7 952.8 990.1 - due in more than one year 7 321.1 210.1- Derivative financial instruments 9.0 6.7Trade and other receivables 32.9 29.3Insurance assets 65.4 90.2Current income tax assets 0.9 4.0Cash and cash equivalents 451.9 500.1 1,841.4 1,847.1Total assets 1,979.3 2,062.7 LIABILITIESCurrent liabilitiesFinancial liabilities:- Bank and other borrowings (35.2) (35.3)- Derivative financial instruments (30.1) (40.6)Trade and other payables (126.0) (134.9)Insurance accruals and deferred income 8 (359.2) (424.9)Current income tax liabilities (33.4) (60.1)Provisions 9 (16.2) - (600.1) (695.8) Non-current liabilitiesFinancial liabilities:- Bank and other borrowings (947.7) (822.4)Provisions 9 (8.5) -Retirement benefit obligations 10 (105.6) (129.8) (1,061.8) (952.2)Total liabilities (1,661.9) (1,648.0)NET ASSETS 317.4 414.7 SHAREHOLDERS' EQUITYCalled-up share capital 11 26.5 26.4Share premium account 11 107.7 105.5Other reserves 11 5.5 2.4Retained earnings 11 177.7 280.4TOTAL EQUITY 11 317.4 414.7 Consolidated cash flow statement for the year ended 31 December 2005 Notes Unaudited Unaudited 2005 2004 £m £mCash flows from operating activitiesCash generated from operations 68.2 79.7Finance costs paid (60.8) (53.3)Finance income received 27.8 27.9Income tax paid (53.2) (54.5)Net cash used in operating activities (18.0) (0.2) Cash flows from investing activitiesPurchases of property, plant and equipment (20.9) (19.7)Proceeds from sale of property, plant and equipment 3.2 3.3Purchases of intangible assets (9.8) (6.4)Acquisition of a subsidiary 6 (19.1) -Net cash used in investing activities (46.6) (22.8) Cash flows from financing activitiesProceeds from borrowings 161.8 181.9Repayment of borrowings (60.9) (139.6)Dividends paid to company shareholders 5 (88.6) (84.9)Proceeds from issue of share capital 2.3 4.1Proceeds from sale of treasury shares 0.7 1.9Net cash generated from/(used in) financing activities 15.3 (36.6) Net decrease in cash and cash equivalents (49.3) (59.6)Cash and cash equivalents at beginning of period 493.5 546.0Exchange gains on cash and cash equivalents 0.2 7.1Cash and cash equivalents at end of period 444.4 493.5 Cash and cash equivalents at end of period comprise:Cash at bank and in hand 54.6 38.4Short term deposits 397.3 461.7Cash and cash equivalents 451.9 500.1Overdrafts (held in borrowings) (7.5) (6.6) 444.4 493.5 The cash and investments held by those businesses that are regulated arerequired to be strictly segregated from those of the rest of the group and arenot available to repay group borrowings. At 31 December 2005 the cash and shortterm deposits held by the group's regulated businesses amounted to £404.5m (31December 2004: £469.6m). Reconciliation of profit after taxation to cash flows from operations Unaudited Unaudited 2005 2004 £m £m Profit after taxation - 144.4Adjusted for: Tax expense 40.4 61.1 Finance costs 61.9 57.1 Finance income (27.7) (27.4) Share-based payment charge 3.2 1.4 Depreciation of property, plant and equipment 12.2 10.9 Impairment of property, plant and equipment (note 3) 4.6 - Amortisation of intangible assets 1.3 0.1 Impairment of goodwill (note 3) 91.0 - Loss on sale of property, plant and equipment - 0.1Changes in operating assets and liabilities: Inventories 9.2 (2.0) Amounts receivable from customers (67.0) (120.6) Trade and other receivables - (2.7) Insurance assets 24.8 17.4 Trade and other payables 0.6 (11.4) Insurance accruals and deferred income (65.7) (38.0) Retirement benefit obligations (44.3) (10.6) Derivative financial instruments (1.0) (0.1) Provisions 24.7 -Cash generated from operations 68.2 79.7 Notes to the preliminary announcement 1. Basis of preparation As a result of the adoption of IAS Regulation EC 1606/2002 on 19 July 2002 bythe European Parliament, Provident Financial plc will prepare its consolidatedfinancial statements for the year ended 31 December 2005 in accordance withInternational Financial Reporting Standards (IFRS) adopted for use in theEuropean Union (EU) as at 31 December 2005 (EU endorsed IFRS) in order to complywith Article 4 of the EU IAS Regulation. Accordingly, this preliminaryannouncement has been prepared on the basis of all EU endorsed IFRS togetherwith the Listing Rules of the UK Listing Authority. For the year ended 31 December 2004, Provident Financial plc prepared itsconsolidated financial statements in accordance with the UK Companies Act 1985and applicable UK accounting standards (together UK GAAP). All financialinformation relating to the year ended 31 December 2004 for the group has beenrestated from UK GAAP to EU endorsed IFRS (including the adoption of IAS 32 'Financial Instruments: Disclosure and Presentation', IAS 39 'FinancialInstruments: Recognition and Measurement' and IFRS 4 'Insurance Contracts').Accordingly, the preliminary announcement has not been prepared on a basisconsistent with the previous year. A full schedule of accounting policies underIFRS and reconciliations between previously reported UK GAAP results and EUendorsed IFRS were included in the group's 2005 interim report and can be foundon the company's website at www.providentfinancial.com. This preliminary announcement, which has been prepared on the basis set outabove, does not constitute statutory accounts within the meaning of Section 240of the Companies Act 1985. The statutory accounts for the year ended 31 December2005 upon which the auditors have still to report, will be delivered to theRegistrar of Companies following the company's annual general meeting. Thestatutory accounts for the year ended 31 December 2004 have been delivered tothe Registrar and included an audit report which was unqualified and which didnot contain a statement under Section 237(2) or (3) of the Companies Act 1985. The preliminary announcement has been agreed with the company's auditors forrelease. 2. Segment information Primary reporting format - business segments Revenue Profit before taxation Unaudited Unaudited Unaudited Unaudited 2005 2004 2005 2004 £m £m £m £mUK home credit 578.9 558.4 146.3 154.0Vanquis Bank 17.8 5.9 (15.9) (9.0)UK consumer credit 596.7 564.3 130.4 145.0International 358.6 271.2 51.1 39.8Motor insurance 154.7 164.8 40.0 34.6Central - - (15.5) (11.2)Total ongoing operations 1,110.0 1,000.3 206.0 208.2Yes Car Credit (closed business) 227.5 272.1 (24.6) (2.7)Closure costs - - (141.0) -Total Yes Car Credit 227.5 272.1 (165.6) (2.7)Total group 1,337.5 1,272.4 40.4 205.5 Secondary reporting format - geographical segments Revenue Profit before taxation Unaudited Unaudited Unaudited Unaudited 2005 2004 2005 2004 £m £m £m £mUK and Republic of Ireland 751.4 729.1 144.7 157.8Central Europe 347.9 269.4 64.2 52.6Mexico 10.7 1.8 (2.9) (2.2)Total ongoing operations 1,110.0 1,000.3 206.0 208.2Yes Car Credit (closed business) - UK and Republic of Ireland 227.5 272.1 (165.6) (2.7)Total group 1,337.5 1,272.4 40.4 205.5 3. Closure of Yes Car Credit On 14 December 2005, the directors made the decision to close the tradingactivities of the subsidiaries forming the Yes Car Credit operation. Thebusiness ceased selling and financing used vehicles on 14 December 2005. During the year, Yes Car Credit incurred a loss before taxation and closurecosts of £24.6m (2004: £2.7m). After taking account of closure costs of £141.0m(2004: £nil), the reported loss before taxation was £165.6m (2004: £2.7m). Closure costs can be analysed as follows: £m Goodwill impairment (note 6) 91.0Provision for onerous property obligations (note 9) 14.9Additional impairment charge on customer receivables (note 7) 14.4Provision for redundancy costs (note 9) 10.1Impairment of property, plant and equipment 4.6Write down of inventories 2.0Other 4.0 141.0 Of the total closure costs, £40.1m has been classified as operating costs and£100.9m has been classified as administrative costs in the consolidated incomestatement. The tax credit in respect of closure costs was £12.8m (2004: £nil). The group will continue to collect out the remaining customer receivables of YesCar Credit as they fall due over the next four years. The Yes Car Creditoperation has been classified as part of continuing operations on the basis thatrevenue and impairment will continue to be generated from the loan book until ithas been fully collected out. 4. Earnings per share Basic earnings per share (EPS) is calculated by dividing the earningsattributable to ordinary shareholders by the weighted average number of ordinaryshares outstanding during the year, excluding those shares held by the ProvidentFinancial Qualifying Share Ownership Trust and in respect of the PerformanceShare Plan. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. The directors have elected to show an adjusted earnings per share, excluding theloss after taxation of Yes Car Credit which was closed on 14 December 2005. Thisis presented to show the earnings per share generated by the group's ongoingoperations. Reconciliations of the earnings and weighted average number of shares used inthe calculations are set out below: 2005 (Unaudited) 2004 (Unaudited) Weighted Weighted average average number of Per share number of Per share Earnings shares amount Earnings shares amount £m m pence £m m penceBasic EPS - 254.3 - 144.4 253.4 57.00Dilutive effect of options - 0.6 - - 1.2 (0.26)Diluted EPS - 254.9 - 144.4 254.6 56.74 Adjusted EPSBasic EPS - 254.3 - 144.4 253.4 57.00Loss for the year from Yes Car Credit 145.4 - 57.18 1.9 - 0.74Adjusted EPS 145.4 254.3 57.18 146.3 253.4 57.74 5. Dividends paid and proposed Pence per share Unaudited Unaudited 2005 2004 £m £m 2003 final - 19.90p - 50.32004 interim - 13.65p - 34.62004 final - 20.75p 52.7 -2005 interim - 14.06p 35.9 - Dividends paid 88.6 84.9 The directors are recommending a final dividend in respect of the financial yearended 31 December 2005 of 21.37p per share which will amount to a total dividendpayment of £54.6m. If approved by the shareholders at the annual general meetingon 17 May 2006, this dividend will be paid on 26 May 2006 to shareholders whoare on the register of members at 7 April 2006. This dividend is not reflectedin the balance sheet as at 31 December 2005 as it is subject to shareholderapproval. 6. Goodwill £m CostAt 1 January 2005 87.8Additions 6.3At 31 December 2005 94.1 Accumulated impairment lossesAt 1 January 2005 -Impairment on closure of Yes Car Credit 91.0At 31 December 2005 91.0 Net book value at 31 December 2005 3.1 Net book value at 31 December 2004 87.8 During 2005, the contingent consideration in respect of the acquisition of YesCar Credit was settled for a total amount of £19.1m. The original calculation ofgoodwill estimated that the settlement would be £12.8m. Accordingly, theadditional consideration of £6.3m has been taken to goodwill during the year. Following the decision of the directors to close the Yes Car Credit operation,the whole of the goodwill in respect of that acquisition, amounting to £91.0m,has been impaired (note 3). The remaining goodwill, amounting to £3.1m, relatesto the acquisition of N&N Cheque Encashment Limited in 2001. 7. Amounts receivable from customers Unaudited Unaudited 2005 2004 £m £m UK home credit 649.9 613.5International 328.7 285.1Vanquis Bank 60.0 26.0Total ongoing operations 1,038.6 924.6Yes Car Credit (closed business) 235.3 275.6Total group 1,273.9 1,200.2 Analysed as:- due within one year 952.8 990.1- due in more than one year 321.1 210.1 1,273.9 1,200.2 The impairment charge in respect of amounts receivable from customers reflectedwithin operating costs can be analysed as follows: Unaudited Unaudited 2005 2004 £m £m UK home credit 171.8 154.0International 132.4 87.0Vanquis Bank 12.4 4.0Total ongoing operations 316.6 245.0Yes Car Credit (closed business) - pre-closure impairment charge 36.8 40.1 - additional impairment on closure (note 3) 14.4 - 51.2 40.1Total group 367.8 285.1 The additional impairment on the Yes Car Credit customer receivables arises as aresult of the expected deterioration in collections performance following theclosure of the business. 8. Insurance accruals and deferred income Unaudited Unaudited 2005 2004 £m £m Provision for unpaid insurance claims 284.0 343.4Unearned insurance premiums 74.8 81.0Other deferred income 0.4 0.5 359.2 424.9 The profit before tax of motor insurance for 2005 includes £24.9m (2004: £10.8m)in respect of the release of provisions for prior year claims. 9. Provisions Unaudited Onerous property obligations Restructuring provision Total £m £m £m At 1 January 2005 - - -Created in the year (note 3) 14.9 10.1 25.0Utilised in the year - (0.3) (0.3)At 31 December 2005 14.9 9.8 24.7 Included in current liabilities 16.2Included in non-current liabilities 8.5 24.7 The onerous property obligations relate to the estimated costs of exiting theYes Car Credit property portfolio. The provision has been calculated by takinginto account the full lease term, any sublet income that may be recoverable andthe potential for lease assignment. The provision is expected to be utilisedover the next three years. The restructuring provision relates to redundancy and other people related costsfollowing the announcement of the closure of Yes Car Credit on 14 December 2005.The provision covers the redundancy cost of approximately 820 employees and isexpected to be fully utilised during 2006. 10. Retirement benefit obligations The group operates a number of UK based pension schemes. The two major definedbenefit schemes are the Provident Financial Senior Pension Scheme ('the seniorpension scheme') and the Provident Financial Staff Pension Scheme ('the staffpension scheme'). The schemes cover 79% of employees with company providedpension arrangements and are of the funded, defined benefit type. The assets ofthe schemes are held in separate, trustee administered funds. The two definedbenefit schemes were closed to new members from 1 January 2003. The most recent actuarial valuations of plan assets and the present value of thedefined benefit obligation were carried out at 1 June 2004 by a qualifiedindependent actuary. The valuation used for the purposes of IAS 19 has beenbased on these valuations which have been updated by the actuary to take accountof the requirements of IAS 19 in order to assess the liabilities of the schemeat 31 December 2005. Scheme assets are stated at fair value at 31 December2005. The major assumptions used by the actuary were: Unaudited Unaudited 2005 2004 % % Price inflation 2.80 2.75Rate of increase in pensionable salaries 4.38 4.34Rate of increase to pensions in payment 2.80 2.75Discount rate 4.80 5.40 The amounts recognised in the balance sheet are determined as follows: Unaudited Unaudited 2005 2004 £m £m Total fair value of scheme assets 331.1 231.4Present value of funded defined benefit obligations (436.7) (361.2)Net liability recognised in the balance sheet (105.6) (129.8) Movements in the present value of the defined benefit obligation were asfollows: Unaudited Unaudited 2005 2004 £m £m Defined benefit obligation at 1 January (361.2) (299.7)Current service cost (7.2) (7.4)Interest cost (19.6) (16.6)Contributions paid by scheme participants (3.8) (4.0)Actuarial losses on scheme liabilities (50.4) (41.4)Net benefits paid out 5.5 7.9Defined benefit obligation at 31 December (436.7) (361.2) Movements in the fair value of scheme assets were as follows: Unaudited Unaudited 2005 2004 £m £m Fair value of scheme assets at 1 January 231.4 193.6Expected return on assets 16.7 14.8Actuarial gains on scheme assets 30.3 7.1Contributions by the group 54.4 19.8Contributions paid by scheme participants 3.8 4.0Net benefits paid out (5.5) (7.9)Fair value of scheme assets at 31 December 331.1 231.4 During 2005, the group made additional special contributions of £13.0m in May2005 and £31.0m in December 2005. The group made a further additional specialcontribution of £102.2m in January 2006 in order to ensure that the definedbenefit pension schemes were fully funded based on the June 2005 deficitposition (the latter payment will be reflected in the 2006 financialstatements). Following these payments, new, more sustainable pensionarrangements for future pension accrual have been established that will providegreater certainty as to the cost of pension provision and, in particular, aredesigned to reduce the volatility of the group's pension costs to changes inwage inflation and longevity. The increase in the group's interest payableafter funding the deficit will be broadly offset by a reduction in the IAS 19pension charge to the group's income statement. 11. Consolidated statement of changes in shareholders' equity Unaudited Attributable to equity shareholders of the company Called-up Share share premium Other Retained capital account reserves earnings Total £m £m £m £m £mBalance at 1 January 2004 as previously reportedunder UK GAAP 26.3 101.5 7.1 314.1 449.0Changes upon transition to IFRS - - (8.4) (69.4) (77.8)Restated balance under IFRS 26.3 101.5 (1.3) 244.7 371.2Exchange differences on foreign currencytranslations - - 3.9 - 3.9Net fair value losses - cash flow hedges - - (4.9) - (4.9)Actuarial losses on retirement benefit obligations - - - (34.3) (34.3)Tax on items taken directly to equity - - 1.4 10.5 11.9Net income/(expense) recognised directly in equity - - 0.4 (23.8) (23.4)Profit for the period - - - 144.4 144.4Total recognised income for the period - - 0.4 120.6 121.0Increase in share capital 0.1 - - - 0.1Increase in share premium - 4.0 - - 4.0Movement in treasury shares - - 1.9 - 1.9Share-based payment adjustment to reserves - - 1.4 - 1.4Dividends - - - (84.9) (84.9)Balance at 31 December 2004 26.4 105.5 2.4 280.4 414.7Balance at 1 January 2005 26.4 105.5 2.4 280.4 414.7Exchange differences on foreign currencytranslations - - 2.7 - 2.7Net fair value losses - cash flow hedges - - (5.0) - (5.0)Actuarial losses on retirement benefit obligations - - - (20.1) (20.1)Tax on items taken directly to equity - - 1.5 6.0 7.5Net expense recognised directly in equity - - (0.8) (14.1) (14.9)Profit for the period - - - - -Total recognised expense for the period - - (0.8) (14.1) (14.9)Increase in share capital 0.1 - - - 0.1Increase in share premium - 2.2 - - 2.2Movement in treasury shares - - 0.7 - 0.7Share-based payment adjustment to reserves - - 3.2 - 3.2Dividends - - - (88.6) (88.6)Balance at 31 December 2005 26.5 107.7 5.5 177.7 317.4 Information for shareholders 1. The shares will be marked ex-dividend on 5 April 2006. 2. The final dividend will be paid on 26 May 2006 to shareholders on the register at the close of business on 7 April 2006. Dividend warrants/vouchers will be posted on 24 May 2006. 3. The annual report and financial statements 2005 together with the notice of the annual general meeting will be posted to shareholders on or around 7 April 2006. 4. The Provident Financial Company Nominee Scheme ('the scheme') enables shareholders who are eligible, namely individuals, to take advantage of the CREST system for settling transactions in shares in the company by means of a low-cost dealing service. It includes a dividend reinvestment scheme for those who wish to use this facility. Shareholders who wish to take advantage of the scheme should contact the company's registrar, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU (telephone: 0870 162 3100) to request an information pack. The registrar's website is www.capitaregistrars.com. 5. The annual general meeting will be held on 17 May 2006 at the Cedar Court Hotel, Mayo Avenue, off Rooley Lane, Bradford, West Yorkshire, BD5 8HZ. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
PFG.L