13th Sep 2006 07:03
Provident Financial PLC13 September 2006 Provident Financial plc Interim results for the half-year to 30 June 2006 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, Mexico and Romania. Key financial results H1 H1 2006 2005 Change £m £mOngoing operationsRevenue 568.7 542.3 + 5%Profit before tax Established businesses 85.6 98.3 - 13% Start-up businesses and development costs (19.1) (9.2) - 108% 66.5 89.1 - 25%GroupRevenue 595.6 663.3 - 10%Profit before tax 66.0 82.9 - 20%Earnings per share 18.26p 23.07p - 21%Interim dividend per share 14.48p 14.06p + 3% • Revenue growth in core UK and international home credit businesses, up 5% • Investment in start-up businesses and new products to drive future growth doubled to £19.1m, including Vanquis Bank credit card business £10.7m (2005 £7.2m) and international start-ups in Mexico and Romania £5.8m (2005 £1.5m) • After a step-up in marketing in UK home credit, customer numbers are growing for the first time in three years • Pre-tax profit from established Central European home credit businesses up 11% to £28.0m (2005 £25.2m) • Vanquis Bank customer numbers expected to exceed 250,000 in the second half and business expected to move into profit in 2007 • Motor insurance pre-tax profit down 18% to £19.0m (2005 £23.1m) from record levels in 2005 • Good progress with collect-out of Yes Car receivables with collections of £83m in the first half running ahead of plan Chairman's comment: "The medium term outlook for UK home credit has improved, with the business nowdelivering growth in customer numbers and credit issued. Our establishedCentral European countries continued to deliver profits growth, despite thedistraction in Poland resulting from the introduction of new products to complywith the recently introduced rate cap legislation. 2006 is a year of significant investment to enhance the future growth of thegroup's UK and international businesses. The group remains strongly cash andcapital generative and the interim dividend has been increased by 3%." Enquiries: Today Thereafter MediaDavid 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 RelationsHelen Waggott, Provident Financial 020 7404 5959 01274 731111 Chairman's statement The first half of 2006 has been a significant period of investment anddevelopment to support the future growth of the group's UK and internationalbusinesses. UK home credit has stepped up its marketing expenditure aimed atdeveloping new sales channels and is now seeing growth in customer numbers afterthree years of reduction. It is also investing over the next two years intechnology which will improve the efficiency and effectiveness of the agencyforce. Vanquis Bank has successfully developed distribution of its credit cardsthrough the internet and face to face canvassing to augment the customer reachavailable from its direct mail programme whilst building the foundation forprofitable growth through developing its underwriting and credit processes.International has invested heavily in opening up the Mexican and Romanianmarkets as well as developing future growth opportunities through piloting newproducts and researching potential new countries. In Poland, the modified homecredit product to comply with the Polish interest rate cap legislation has beensuccessfully rolled out and, at the same time, management action has been takento deal with the adverse trend in impairment following the rapid expansion ofcredit in late 2004 and early 2005. Revenue from ongoing operations in the six months to June 2006 increased by 5%to £568.7 million. Group profit before tax from ongoing operations was £66.5million (June 2005 £89.1 million) after charging start-up losses and developmentcosts totalling £19.1 million (June 2005 £9.2 million). These comprise start-uplosses of £5.8 million in Mexico and Romania, £10.7 million in Vanquis Bank,£1.3 million in launching an internet-based distribution channel for our motorinsurance division, and £1.3 million on piloting new credit products in Poland. Earnings per share reduced from 23.07p to 18.26p and an interim dividend of14.48p per share (June 2005 14.06p) has been declared, an increase of 3.0%. Operations UK home credit H1 H1 2006 2005 Change £m £m % Customers numbers ('000) 1,472 1,462 1Credit issued 390.8 386.9 1Average customer receivables 591.7 549.5 8 Revenue 289.6 281.6 3Impairment (106.4) (100.9) (5)Revenue less impairment 183.2 180.7 1 Costs (121.2) (114.3) (6)Interest (10.3) (5.9) (75) Profit before tax 51.7 60.5 (15) In UK home credit it is encouraging to see an improving trend in customernumbers after three years of reduction. Increased marketing expenditure in newsales channels including direct mail, direct response advertising, the internetand affinity relationships with retailers has proved successful. As a result,year-on-year customer numbers have shown growth of 1% to 1.47 million, apleasing result in a competitive market and particularly given the tightercredit controls being applied to new customers. Credit issued showed growth of 1% to £390.8 million for the six months to June2006 compared with the same period in 2005 and revenue increased by 3% to £289.6million. This was achieved against 2005 volumes which benefited from theincreased issue of larger loans repayable over 18 months to two years. As a result of increased pressure on our customers' disposable incomes andgrowth in receivables, impairment costs increased at a faster rate thanrevenues, up by 5% to £106.4 million. In order to improve lending decisions, the use of statistical credit managementtechniques has been further enhanced and this will allow us to lend more tolower risk customers and less to higher risk customers. Arrears managementprocesses are also being improved. These changes are important, to balancegrowth and credit quality, as the business pursues controlled customer growth inthe current environment. As planned, operating costs for the six months of £121.2 million showed anincrease of £6.9 million compared with the first half of 2005, the majorityresulting from the step-up in expenditure on marketing and IT. Interest costsincreased by £4.4 million mainly due to funding the pension deficit at the startof 2006. Improving future cost efficiency is a priority and during the first half of thisyear we have completed, ahead of schedule, the integration of the GreenwoodPersonal Credit field management and administration into Provident PersonalCredit. The 'Insight' programme to develop hand-held personal computers foragents and field staff is on track to begin roll-out in 2007. As well asincreasing efficiency through the replacement of paper-driven processes, theprogramme will also deliver increased agent effectiveness and improved customerservice through, for example, more flexible agent working and on-line creditchecks. Mainly as a consequence of investment in new sales channels and IT, profitbefore tax reduced by 15% to £51.7 million (June 2005 £60.5 million). Although the UK home credit market remains competitive, the opportunity to growcustomer numbers has improved in the last six to twelve months. Overall, weexpect growth in both customer numbers and credit issued in 2006. However,continued investment in marketing and IT will result in a reduction in profit in2006 as compared to last year, the majority having occurred in the first sixmonths of the year. Vanquis Bank Vanquis Bank was launched as a new business at the end of 2004. The tighteningof credit imposed in the second half of 2005 to curtail impairment charges hasproved effective and during the first six months of 2006, the business has alsofocused on refining the underwriting criteria applied to new customerrecruitment and to the extension of credit to established customers. Whilstthese actions slowed revenue growth during the early part of 2006, the rate ofnew customer recruitment accelerated through the second quarter, assisted by thedevelopment of new sales channels, including the internet and face to facecanvassing which have augmented the direct mail programme and increased customerreach. Customer numbers at 30 June 2006 stood at 212,000 and are expected toexceed 250,000 in the second half of the year. Receivables at the half-year were up 81% at £75.9 million compared to June 2005and revenue increased by 93% to £13.9 million over the corresponding period in2005. The loss before tax for the six months to June 2006 was £10.7 million(June 2005 loss of £7.2 million). The rate of start-up losses in the secondhalf of 2006 is expected to reduce and the business is expected to move intoprofit in 2007. Yes Car Credit The collection of the Yes Car Credit receivables book has progressed well.Collections of £83 million in the six months were ahead of plan and thereceivables book now stands at £161 million. The disposal of vehicle stock andthe surrender of nearly all branch lease obligations have been completed at acost in line with the amounts provided in the 2005 financial statements. In the six months to June 2006, a loss of £0.5 million was incurred (June 2005loss of £6.2 million). We continue to estimate that costs of collection willbroadly match the revenue earned and do not expect a material profit or lossover the period during which the receivables are collected. International division Percentage change 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. H1 H1 2006 2005 Change £m £m £m Established countries 28.0 25.2 2.8Central divisional costs (5.9) (4.3) (1.6) 22.1 20.9 1.2Investment in new countries Mexico (4.7) (1.5) (3.2) Romania (1.1) - (1.1)Investment in new products (1.3) (0.2) (1.1) (7.1) (1.7) (5.4) Reported profit before tax 15.0 19.2 (4.2) During the first half of 2006, the international division continued itsexpansion programme, developing the Mexican market, starting a pilot operationin Romania, piloting new products and exploring the potential opportunities fornew country openings in 2007 and beyond. The performance of the divisionreflects good results in the Czech Republic, Hungary and Slovakia, but wasrestrained by Poland's performance which was impacted by the disruption ofadapting to the new rate cap legislation and the action taken to improve adverseimpairment trends. Profit before tax from the established international businesses after centraldivisional costs increased by 6% to £22.1 million. Investment in new countriesand products cost £7.1 million, up from £1.7 million in the first half of 2005and profit before tax, after absorbing these costs, reduced by £4.2 million to£15.0 million. The rate of investment to expand the international division will continue in thesecond half and total some £15 million for 2006, up from £4 million in 2005.This comprises expansion in Mexico and the start-up in Romania (£12 million),and the development of monthly home collected and remotely collected loanproducts in Poland (£3 million). Overall, as a result of the start-up losses to support expansion into newterritories, new product development costs and slower than expected progress inPoland, profit from the international division will run a little behind theprior year through the second half of 2006. Central Europe The Czech Republic, Hungary and Slovakia grew well, with stable credit qualityand in aggregate recorded double digit growth in customer numbers, creditissued, revenue and profit in the first half of the year. We expect thesecountries will continue to achieve good results during 2006. In Poland, the last eighteen months has been a challenging period for the Polishbusiness for two reasons. Firstly, the introduction of a cap on interest rates in February of this yearmeant that our home credit product design and pricing had to be significantlyreconfigured. To enable this, it was also necessary to accelerate theintroduction of new computer systems. The roll-out of the reconfigured productto comply with the rate cap legislation has been successfully achieved and thetake-up by customers of the optional home collection service has been good. Secondly, the business has had to respond to a rise in impairment which resultedfrom a rapid expansion of credit in late 2004 and early 2005. As a result,credit controls have been tightened and collections and arrears activity havebeen the primary focus for field staff and agents. There are now clear signs ofan improvement in the quality of lending which is expected to benefit impairmentcharges in the second half of 2006 and in 2007. However, the tightening ofcredit coupled with the significant shift in focus to collections and arrearsactivity has had a significant impact on customer numbers, credit issued andrevenue which is likely to constrain growth from the established CentralEuropean businesses in 2007 before growth improves from a stronger foundation.We remain confident that the medium and longer term opportunities for profitablegrowth remain excellent. Results of established Central European countries H1 H1 2006 2005 Change £m £m % Customer numbers ('000) 1,578 1,563 1Credit issued 231.7 240.3 (4)Average customer receivables 290.5 264.4 6 Revenue 175.4 168.5 1Impairment (64.1) (70.7) 12Revenue less impairment 111.3 97.8 10 Costs (75.5) (64.4) (14)Interest (7.8) (8.2) 7Profit before tax 28.0 25.2 11 At the end of June 2006, customer numbers in Central Europe were up by 1%, to1.58 million compared to June 2005. In aggregate, the Czech Republic, Hungaryand Slovakia recorded double digit growth which offset the reduction in Poland.Credit issued fell by 4% to £231.7 million. Again, in aggregate, the CzechRepublic, Hungary and Slovakia recorded double digit growth whilst credit issuedin Poland reduced due to the combination of reduced customer numbers and theactions taken to tighten credit. In the first half, average customer receivables showed a year on year increaseof 6% to £290.5 million assisted by increased issue of longer, larger loans.The growth in receivables supported a more modest uplift in first half revenuesof 1% to £175.4 million. The impairment charge reduced by 12% to £64.1 millionin comparison to the first half of 2005. The year on year reduction reflectsthe increase in impairment provisions incurred in the first half of 2005 by thePolish business as credit quality worsened following the rapid expansion ofcredit in late 2004 and early 2005. Impairment charges across the other CentralEuropean countries were well controlled through the first half of the currentyear. First half pre-tax profit from established Central European countries increasedby 11% to £28.0 million. Mexico In the first half of 2006, we have continued to focus on developing our branchnetwork and customer base. The Puebla-Veracruz region has been augmented byopening in the Guadalajara-Leon region, the second of five regions with apopulation of 20 million which we intend to develop. Customer numbers increasedto 184,000 at the end of June 2006, compared with 131,000 at the end of 2005.Since June, customer numbers in Mexico have increased to 200,000. No furtherbranches will be opened during the next six months, in order to build theexperience of local management before resuming further geographic expansion.Pre-tax start-up losses for the half-year were, as expected, £4.7 million (June2005 loss of £1.5 million). Romania In early 2006, we opened an office in Bucharest, obtained the necessary licenceto trade and in April issued our first loan. A full management team has beenrecruited to develop the business and customer numbers have now passed 1,600. Motor insurance division Provident Insurance delivered a good performance in a UK motor insurance marketthat remained competitive during the first half of this year. Average premiumsin the market continued to drift down by about 2%. We maintained our policy ofpricing for an adequate return on equity and increased our base premiums whilstalso making selective changes to improve our competitiveness on certain, moreprofitable, parts of the business. As a result, motor insurance policyholdernumbers reduced to 455,000 (December 2005 473,000). The profitability of currentyear business is relatively weak reflecting the absence of increases in marketpremiums since 2002, together with a small increase in the number of largepersonal injury claims which have been reserved prudently at this early stage oftheir development. Claims provisions, in respect of earlier claims years, havecontinued to develop favourably and have benefited underwriting profit. Theaverage investment fund reduced by 14% to £372 million and yielded income of£8.9 million (June 2005 £10.8 million). The rapid development of the internet as the preferred channel for motorists toobtain insurance quotes has created the opportunity for us to progress with afull roll-out of an internet-based distribution channel during the first half of2006. The new brand, yesinsurance.co.uk, offers car insurance as well as homeinsurance and van insurance policies underwritten by a panel of insurersincluding Provident Insurance. It provides a new distribution channel withsignificantly lower acquisition costs and a greater degree of control over therelationship with the customer than the traditional intermediated business. Inthe first half of 2006, yesinsurance.co.uk sold 30,000 policies and incurredstart-up costs totalling £1.3 million. First half pre-tax profit for motor insurance, after the yesinsurance.co.ukstart up costs, reduced by 18% to £19.0 million (June 2005 £23.1 million). The market remains competitive and most insurers have been holding or reducingprices despite increasing claims costs. We have recently seen indications thatsome competitors may begin to increase prices - this action is needed andoverdue. The favourable development of claims provisions is expected tocontinue, but to produce a smaller benefit than in 2005. The start-up loss ofyesinsurance.co.uk is expected to be £3 million for the full year, rising to £5million in 2007, with the business reaching its breakeven point towards the endof 2008. Overall, we expect a good profit again from motor insurance in 2006,but lower than the record level of 2005. Regulatory developments The Competition Commission inquiry into the UK home credit sector continues. TheCommission published its Proposed Remedies paper on 18 August 2006 which broadlyfollows the Possible Remedies outlined in its April 2006 Provisional Findingsreport. Our discussions with the Commission continue. The final report isexpected in October 2006. Proposed demerger Work is underway to implement the separation of the international business andwe have made good progress in recent months. The board currently expects thedemerger to take place in Spring 2007, following the announcement of the 2006results in March 2007, when we expect to publish full details of the demerger. Group outlook 2006 is a year of significant investment to enhance the future growth of thegroup's UK and international businesses. The medium term outlook for UK homecredit has improved during the last 12 months. Although growth in Central Europeis expected to be slower over the next eighteen months as actions to improve thePolish business take effect, the opportunity for profitable growth in existingand new international markets remains excellent. The group remains strongly cashand capital generative and the interim dividend has been increased by 3%. John van Kuffeler Chairman 13 September 2006 Consolidated interim income statement Notes Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mRevenue 2 595.6 663.3 1,337.5 Ongoing operations 2 568.7 542.3 1,110.0Yes Car Credit 2 26.9 121.0 227.5Finance income 12.3 13.9 27.7Total income 607.9 677.2 1,365.2Finance costs (33.6) (27.6) (61.9)Operating costs (355.7) (423.9) (861.0)Administrative expenses (152.6) (142.8) (401.9)Total costs (541.9) (594.3) (1,324.8) Profit before taxation 2 66.0 82.9 40.4 Established businesses 2 85.6 98.3 227.4Start-up businesses and development costs 2 (19.1) (9.2) (21.4)Ongoing operations 66.5 89.1 206.0Yes Car Credit 2 (0.5) (6.2) (165.6)Tax expense - UK (15.1) (19.7) (28.1) - Overseas (4.4) (4.6) (12.3)Total tax expense 3 (19.5) (24.3) (40.4)Profit after taxation attributable to equityshareholders 10 46.5 58.6 - Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005Earnings per share Basic 4 18.26p 23.07p -Diluted 4 18.19p 22.93p - Dividend per shareProposed dividend 5 14.48p 14.06p 21.37p Paid in the period 5 21.37p 20.75p 34.81p Statement of recognised income and expense Notes Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mProfit after taxation attributable to equityshareholders 46.5 58.6 -Exchange differences on foreign currencytranslations (4.8) (2.3) 2.7Net fair value losses - cash flow hedges (0.7) (2.9) (5.0)Actuarial gains/(losses) on retirement benefitasset/obligations 9 7.7 (18.5) (20.1)Tax on items taken directly to equity (2.0) 6.1 7.5Net income/(expense) recognised directly in equity 0.2 (17.6) (14.9)Total recognised income/(expense) for the period 46.7 41.0 (14.9) Consolidated interim balance sheet Notes Unaudited Unaudited Audited As at As at As at 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mASSETSNon-current assetsGoodwill 6 3.1 94.1 3.1Other intangible assets 28.0 22.9 27.5Property, plant and equipment 47.2 44.9 42.8Retirement benefit asset 9 6.7 - -Deferred income tax assets 31.9 73.8 64.5 116.9 235.7 137.9Current assetsInventories - 11.3 7.4Financial assets:- Amounts receivable from customers: - due within one year 7 967.1 913.5 952.8 - due in more than one year 7 152.2 220.3 321.1- Derivative financial instruments 5.3 10.6 9.0Trade and other receivables 36.6 35.7 32.9Insurance assets 63.3 83.3 65.4Current income tax assets - 4.0 0.9Cash and cash equivalents 438.3 505.7 451.9 1,662.8 1,784.4 1,841.4Total assets 1,779.7 2,020.1 1,979.3 LIABILITIESCurrent liabilitiesFinancial liabilities:- Bank and other borrowings (28.3) (17.0) (35.2)- Derivative financial instruments (39.4) (33.6) (30.1)Trade and other payables (89.3) (126.2) (126.0)Insurance accruals and deferred income 8 (347.8) (395.4) (359.2)Current income tax liabilities (15.3) (53.4) (33.4)Provisions (1.3) - (16.2) (521.4) (625.6) (600.1)Non-current liabilitiesFinancial liabilities:- Bank and other borrowings (948.3) (855.2) (947.7)Provisions - - (8.5)Retirement benefit obligations 9 - (133.2) (105.6) (948.3) (988.4) (1,061.8) Total liabilities (1,469.7) (1,614.0) (1,661.9)NET ASSETS 310.0 406.1 317.4 SHAREHOLDERS' EQUITY Called-up share capital 10 26.5 26.5 26.5Share premium account 10 108.1 107.4 107.7Other reserves 10 0.1 (1.2) 5.5Retained earnings 10 175.3 273.4 177.7TOTAL EQUITY 10 310.0 406.1 317.4 Consolidated interim cash flow statement Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mCash flows from operating activitiesCash generated from operations 64.5 101.4 68.2Interest paid (40.4) (30.7) (60.8)Interest received 13.0 14.1 27.8Income tax paid (6.1) (31.4) (53.2)Net cash generated from/(used in) operating activities 31.0 53.4 (18.0) Cash flows from investing activitiesPurchases of property, plant and equipment (13.2) (11.8) (20.9)Proceeds from sale of property, plant and equipment 2.0 1.5 3.2Purchases of intangible assets (2.0) (4.3) (9.8)Acquisition of subsidiary - - (19.1)Net cash used in investing activities (13.2) (14.6) (46.6) Cash flows from financing activitiesProceeds from borrowings 174.2 105.0 161.8Repayment of borrowings (155.1) (85.4) (60.9)Dividends paid to company shareholders (54.4) (52.7) (88.6)Proceeds from issue of share capital 0.4 2.0 2.3Proceeds from the sale of /(purchase of) treasury shares 0.2 (0.4) 0.7Net cash (used in)/generated from financing activities (34.7) (31.5) 15.3 Net (decrease)/increase in cash and bank overdrafts (16.9) 7.3 (49.3)Cash and bank overdrafts at beginning of period 444.4 493.5 493.5Exchange (losses)/gains on cash and bank overdrafts (0.6) (2.0) 0.2Cash and bank overdrafts at end of period 426.9 498.8 444.4 Cash and bank overdrafts at end of period comprise: Cash at bank and in hand 51.4 50.2 54.6Short-term deposits 386.9 455.5 397.3Cash and cash equivalents 438.3 505.7 451.9Overdrafts (held in bank and other borrowings) (11.4) (6.9) (7.5) 426.9 498.8 444.4 All short-term deposits have a maturity of three months or less on acquisition.The cash and short-term deposits 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 30 June 2006 the cash andshort-term deposits held by the group's regulated businesses amounted to £396.4m(30 June 2005: £462.7m, 31 December 2005: £404.5m). Cash generated from operations Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £m Profit for the period 46.5 58.6 - Adjusted for: Tax expense 19.5 24.3 40.4 Finance costs 33.6 27.6 61.9 Finance income (12.3) (13.9) (27.7) Share-based payment (credit)/charge (0.3) 1.5 3.2 Depreciation of property, plant and equipment 6.2 6.3 12.2 Impairment of property, plant and equipment - - 4.6 Amortisation of intangible assets 1.5 0.4 1.3 Impairment of goodwill (note 6) - - 91.0 (Profit)/loss on sale of property, plant and equipment (0.2) 0.1 -Changes in operating assets and liabilities: Inventories 7.4 5.3 9.2 Amounts receivable from customers 138.2 51.0 (67.0) Trade and other receivables (8.2) (8.4) - Insurance assets 2.1 6.9 24.8 Trade and other payables (29.9) (13.6) 0.6 Insurance accruals and deferred income (11.4) (29.5) (65.7) Retirement benefit asset/obligations (104.6) (15.1) (44.3) Derivative financial instruments (0.2) (0.1) (1.0) Provisions (23.4) - 24.7Cash generated from operations 64.5 101.4 68.2 Notes to the interim financial information 1. Basis of preparation The financial information comprises the consolidated balance sheets for theperiods ended 30 June 2006, 30 June 2005 and 31 December 2005 and the incomestatements and cash flow statements for the periods then ended of ProvidentFinancial plc (hereinafter referred to as "the financial information"). Thefinancial information has been prepared in accordance with the listing rules ofthe Financial Services Authority. In preparing this financial informationmanagement have used the accounting policies set out in the group's 2005financial statements. The group has chosen not to adopt IAS 34 "InterimFinancial Reporting" in preparing the 2006 interim report. This financial information does not constitute a set of statutory accounts unders.240 of the UK Companies Act 1985 and is unaudited. The comparative figuresfor the financial year ended 31 December 2005 are an extract from the group's2005 financial statements which have been reported on by the company's auditorsand delivered to the Registrar of Companies. The report of the auditors wasunqualified and did not contain statements under section 237(2) or (3) of the UKCompanies Act 1985. This document (the 2006 interim report) will be published on the company'swebsite in addition to the normal paper version. The maintenance and integrityof the Provident Financial plc website is the responsibility of the directorsand the work carried out by the auditors does not involve consideration of thesematters. Legislation in the UK governing the preparation and dissemination ofaccounts may differ from legislation in other jurisdictions. 2. Segment information Primary reporting format - business segments Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mRevenueEstablished businesses:UK home credit 289.6 281.6 578.9International 175.4 168.5 347.9Motor insurance 77.0 82.0 154.7Total established businesses 542.0 532.1 1,081.5Start-up businesses and development costs:International - new countries* 11.4 3.0 10.7 - new products 0.4 - - 11.8 3.0 10.7Vanquis Bank 13.9 7.2 17.8Motor insurance 1.0 - -Total start-up businesses and development costs 26.7 10.2 28.5 Ongoing operations 568.7 542.3 1,110.0 Yes Car Credit 26.9 121.0 227.5 Total group 595.6 663.3 1,337.5 Analysed by division as:UK home credit 289.6 281.6 578.9International 187.2 171.5 358.6Vanquis Bank 13.9 7.2 17.8Motor insurance 78.0 82.0 154.7Ongoing operations 568.7 542.3 1,110.0Yes Car Credit 26.9 121.0 227.5Total group 595.6 663.3 1,337.5 * Comprises Mexico and Romania Primary reporting format - business segments Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mProfit before taxationEstablished businesses:UK home credit 51.7 60.5 146.3International 22.1 20.9 54.7Motor insurance 20.3 23.4 41.9Central (8.5) (6.5) (15.5)Total established businesses 85.6 98.3 227.4Start-up businesses and development costs:International - new countries* (5.8) (1.5) (2.9) - new products (1.3) (0.2) (0.7) (7.1) (1.7) (3.6)Vanquis Bank (10.7) (7.2) (15.9)Motor insurance (1.3) (0.3) (1.9) Total start-up businesses and development costs (19.1) (9.2) (21.4) Ongoing operations 66.5 89.1 206.0 Yes Car Credit (0.5) (6.2) (165.6) Total group 66.0 82.9 40.4 Analysed by division as:UK home credit 51.7 60.5 146.3International 15.0 19.2 51.1Vanquis Bank (10.7) (7.2) (15.9)Motor insurance 19.0 23.1 40.0Central (8.5) (6.5) (15.5) Ongoing operations 66.5 89.1 206.0Yes Car Credit (0.5) (6.2) (165.6)Total group 66.0 82.9 40.4 * Comprises Mexico and Romania All of the above activities relate to continuing operations as defined in IFRS5. Consistent with the treatment in the 2005 financial statements, the Yes CarCredit operation has been classified as part of continuing operations on thebasis that revenue and impairment will continue to be generated from the loanbook until it has been fully collected out. The Yes Car Credit loss before taxation in the year ended 31 December 2005included £141.0m of closure costs (half-year ended 30 June 2005: £nil)comprising £91.0m of goodwill impairment (note 6), £14.9m of provisions foronerous property obligations, £14.4m additional impairment charge on customerreceivables following closure (note 7), £10.1m provision for redundancy costs,£4.6m of impairment to property, plant and equipment, £2.0m of inventory writedowns and £4.0m of other costs. Of the total closure costs, £40.1m has beenclassified as operating costs and £100.9m has been classified as administrativeexpenses in the consolidated income statement. Secondary reporting format - geographical segments Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mRevenueUK and Republic of Ireland 381.5 370.8 751.4Central Europe 175.8 168.5 347.9Mexico 11.4 3.0 10.7Romania - - -Ongoing operations 568.7 542.3 1,110.0UK and Republic of Ireland (Yes Car Credit) 26.9 121.0 227.5Total group 595.6 663.3 1,337.5 Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mProfit before taxationUK and Republic of Ireland 45.6 65.6 144.7Central Europe 26.7 25.0 64.2Mexico (4.7) (1.5) (2.9)Romania (1.1) - -Ongoing operations 66.5 89.1 206.0UK and Republic of Ireland (Yes Car Credit) (0.5) (6.2) (165.6)Total group 66.0 82.9 40.4 3. Tax expense The tax expense for the period has been calculated by applying the directors'best estimate of the effective tax rate for the year, which is 29.5% (30 June2005: 29.3%), to the profit for the period. The tax credit in respect of Yes Car Credit closure costs in the year ended 31December 2005 was £12.8m (30 June 2005: £nil). 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 EPS, the weighted average number of ordinary shares inissue is adjusted to assume conversion of all dilutive potential ordinaryshares. The profit after taxation for the period attributable to equity shareholdersused in the calculation of basic and diluted EPS is £46.5m (30 June 2005:£58.6m, 31 December 2005: £nil). The weighted average number of shares in issueduring the period can be reconciled to the number used in the basic and dilutedEPS calculations as follows: Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 Number Number NumberWeighted average number of shares m m mIn issue during the period 255.5 255.2 255.4Held by the QUEST (0.8) (1.1) (1.1)Used in basic earnings per share calculation 254.7 254.1 254.3Issuable on conversion of outstanding options 0.9 1.4 0.6Used in diluted earnings per share calculation 255.6 255.5 254.9 The directors have elected to show an adjusted EPS, excluding the loss aftertaxation of Yes Car Credit which was closed during 2005. This is presented toshow the EPS generated by the group's ongoing operations. A reconciliation ofreported profit after tax to profit after taxation from ongoing operations isset out below: Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mProfit after taxation 46.5 58.6 -Loss for the period from Yes Car Credit 0.3 4.3 145.4Profit after taxation from ongoing operations 46.8 62.9 145.4 A reconciliation of basic and diluted EPS to basic and diluted EPS from ongoingoperations is as follows: Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 Pence Pence PenceBasic EPS 18.26 23.07 -Loss for the period from Yes Car Credit 0.12 1.69 57.18Basic EPS from ongoing operations 18.38 24.76 57.18 Diluted EPS 18.19 22.93 -Loss for the period from Yes Car Credit 0.12 1.69 57.04Diluted EPS from ongoing operations 18.31 24.62 57.04 5. Dividends paid and proposed Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £m2004 final - 20.75p - 52.7 52.72005 interim - 14.06p - - 35.92005 final - 21.37p 54.4 - -Dividends paid 54.4 52.7 88.6 An interim dividend in respect of 2006 of 14.48p per share, amounting to a totaldividend of £36.9m, has been declared by the directors. The interim financialinformation does not reflect this dividend payable as it will be paid after thebalance sheet date. 6. Goodwill Goodwill of £3.1m (30 June 2005: £94.1m, 31 December 2005: £3.1m) relates whollyto the acquisition of N&N Cheque Encashment Limited in 2001. Goodwill as at 30 June 2005 included £91.0m in respect of the acquisition of YesCar Credit in 2002. Following closure of this business at the end of 2005, thegoodwill in relation to this acquisition was fully impaired. 7. Amounts receivable from customers Unaudited Unaudited Audited As at As at As at 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mUK home credit 587.7 546.6 649.9International 294.5 275.6 328.7Vanquis Bank 75.9 42.0 60.0Ongoing operations 958.1 864.2 1,038.6Yes Car Credit 161.2 269.6 235.3Total group 1,119.3 1,133.8 1,273.9 Analysed as:- due within one year 967.1 913.5 952.8- due in more than one year 152.2 220.3 321.1 1,119.3 1,133.8 1,273.9 The impairment charge in respect of amounts receivable from customers reflectedwithin operating costs can be analysed as follows: Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mUK home credit 106.4 100.9 171.8International 69.5 71.7 132.4Vanquis Bank 8.1 4.4 12.4Ongoing operations 184.0 177.0 316.6Yes Car Credit 14.2 18.9 51.2Total group 198.2 195.9 367.8 The Yes Car Credit impairment charge in the year to 31 December 2005 included£14.4m arising as a result of the expected deterioration in collectionsperformance following the closure of the business. 8. Insurance accruals and deferred income Unaudited Unaudited Audited As at As at As at 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mProvision for unpaid insurance claims 270.0 312.9 284.0Unearned insurance premiums 76.4 82.1 74.8Other deferred income 1.4 0.4 0.4 347.8 395.4 359.2 The profit before tax of motor insurance for the period ended 30 June 2006includes £16.2m (30 June 2005: £13.2m, 31 December 2005: £24.9m) in respect ofthe release of provisions for prior year claims. 9. Retirement benefit asset/obligations The group operates two funded defined benefit schemes in the UK. A fullactuarial valuation was carried out by a qualified independent actuary on bothschemes at 1 June 2004. The valuation used for IAS 19 purposes has been basedon these valuations which have been updated by the actuary to take account ofthe requirements of IAS 19 in order to assess the liabilities of the scheme at30 June 2006. Scheme assets are stated at fair value at 30 June 2006. Theassumptions used by the actuary were: Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 % % %Rate of increase in salaries 4.58 4.18 4.38Rate of increase in pensions 3.00 2.60 2.80Discount rate 5.10 5.00 4.80Inflation assumption 3.00 2.60 2.80 The amounts recognised in the balance sheet are determined as follows: Unaudited Unaudited Audited As at As at As at 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mFair value of scheme assets 441.4 265.0 331.1Present value of funded defined benefit obligations (434.7) (398.2) (436.7)Asset/(liability) in the balance sheet 6.7 (133.2) (105.6) The movement in the (liability)/asset recognised in the balance sheet is asfollows: Unaudited Unaudited Audited Half-year to Half-year to Full year to 30 June 2006 30 June 2005 31 Dec 2005 £m £m £mLiability at beginning of period (105.6) (129.8) (129.8)Total expense in the income statement (0.4) (5.3) (10.1)Actuarial gain/(loss) 7.7 (18.5) (20.1)Contributions paid 105.0 20.4 54.4Asset/(liability) at end of period 6.7 (133.2) (105.6) The group made additional special contributions of £13.0m in May 2005 and £31.0min December 2005. A further special contribution of £102.2m was made in January2006 in order to ensure that the defined benefit pension schemes were fullyfunded based on the June 2005 deficit position. 10. Consolidated interim 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 2005 26.4 105.5 2.4 280.4 414.7Exchange differences on foreign currencytranslations - - (2.3) - (2.3)Net fair value losses - cash flow hedges - - (2.9) - (2.9)Actuarial losses on retirement benefitobligations - - - (18.5) (18.5)Tax on items taken directly to equity - - 0.5 5.6 6.1Net expense recognised directly in equity - - (4.7) (12.9) (17.6)Profit for the period - - - 58.6 58.6Total recognised (expense)/income for theperiod - - (4.7) 45.7 41.0Increase in share capital 0.1 - - - 0.1Increase in share premium - 1.9 - - 1.9Movement in treasury shares - - (0.4) - (0.4)Share-based payment charge - - 1.5 - 1.5Dividend - - - (52.7) (52.7)Balance at 30 June 2005 26.5 107.4 (1.2) 273.4 406.1Balance at 1 July 2005 26.5 107.4 (1.2) 273.4 406.1Exchange differences on foreign currencytranslations - - 5.0 - 5.0Net fair value losses - cash flow hedges - - (2.1) - (2.1)Actuarial losses on retirement benefitobligations - - - (1.6) (1.6)Tax on items taken directly to equity - - 1.0 0.4 1.4Net income/(expense) recognised directly inequity - - 3.9 (1.2) 2.7Loss for the period - - - (58.6) (58.6)Total recognised income/(expense) for theperiod - - 3.9 (59.8) (55.9)Increase in share premium - 0.3 - - 0.3Movement in treasury shares - - 1.1 - 1.1Share-based payment charge - - 1.7 - 1.7Dividend - - - (35.9) (35.9)Balance at 31 December 2005 26.5 107.7 5.5 177.7 317.4Balance at 1 January 2006 26.5 107.7 5.5 177.7 317.4Exchange differences on foreign currencytranslations - - (4.8) - (4.8)Net fair value losses - cash flow hedges - - (0.7) - (0.7)Actuarial gains on retirement benefit asset - - - 7.7 7.7Tax on items taken directly to equity - - 0.2 (2.2) (2.0)Net (expense)/income recognised directly inequity - - (5.3) 5.5 0.2Profit for the period - - - 46.5 46.5Total recognised (expense)/income for theperiod - - (5.3) 52.0 46.7Increase in share premium - 0.4 - - 0.4Share-based payment credit - - (0.3) - (0.3)Movement in treasury shares - - 0.2 - 0.2Dividend - - - (54.4) (54.4)Balance at 30 June 2006 26.5 108.1 0.1 175.3 310.0 Independent review report to Provident Financial plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 which comprises the consolidated interimbalance sheet as at 30 June 2006 and the related consolidated interim statementsof income, recognised income and expense and cash flows for the six months thenended and related notes. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual financial statements except where anychanges, and the reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out innote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the Company for the purposeof the Listing Rules of the Financial Services Authority and for no otherpurpose. We do not, in producing this report, accept or assume responsibilityfor any other purpose or to any other person to whom this report is shown orinto whose hands it may come save where expressly agreed by our prior consent inwriting. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. PricewaterhouseCoopers LLP Chartered Accountants Leeds 13 September 2006 Information for shareholders 1. The shares will be marked ex-dividend on 20 September 2006. 2. The interim report will be posted to shareholders on 22 September 2006. 3. The interim dividend will be paid on 20 October 2006 to shareholders on the register at the close of business on 22 September 2006. Dividend warrants/vouchers will be posted on 18 October 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. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
PFG.L