Provident is on the road to recovery

The '‹Bradford-based FTSE 100 '‹company, which provides credit to people who do not meet the lending criteria of mainstream banks, said pre'‹-'‹tax profit fell '‹23 per cent '‹to '‹Â£'‹115.3'‹m '‹in the six months '‹to June 30'‹,'‹ hit by a reduction in the number of debt collection agents at its home credit division.'‹ CEO Peter Crook said he was disappointed by the higher than expected operational disruption to trading in the home credit business'‹ as the group switched from using self-employed agents to directly employed ones."Basically more of our agents walked off the case than we expected," he said."88 per cent stayed whereas we thought we'd keep 92 to 93 per cent. Perhaps they were not as fired up and motivated. Fortunately it's behind us now and we have got a fully employed workforce. It will take until the end of September to bed it down. The good news is we are on the journey to recovery."The group now has 2,500 customer experience managers, 160 arrears managers and 400 people in field management.The company billed the reorganisation as a way to create a more efficient and effective home credit business.Provident has maintained its interim dividend at 43.2p, reflecting the group's confidence in the future."The board has looked through the temporary nature of the disruption. The other businesses are all trading very well," said Mr Crook.The group said it has seen no change in behaviour following the recent political upheaval."Everybody is looking for it. We are very diligent, but we can't see any change in customer behaviour," said Mr Crook.The Bank of England has ordered banks to apply credit rules prudently and prove by September they are not being too complacent about risks to their balance sheets, amid concerns a jump in consumer borrowing could be unsustainable.Mr Crook said that while there had been big growth in credit card debt, a lot of that was fuelled by zero per cent balance transfer offers.“Some of the debt being put onto credit cards is being consolidated from other places, so I’m not so sure the overall rate of growth is quite as high as it seems,” he said.Provident operates Vanquis Bank and consumer credit brands including Satsuma, Provident and glo and Moneybarn.Home credit receivables ended the first half at £471.7m, down £18.3m from June 2016, with customer numbers down 11.1 per cent to 731,000.However Vanquis signed up 234,000 new customers to produce a record half year. The credit quality improved slightly and Vanquis now has 1.65 million customers.Steve Clayton, manager of the £264m '‹Hargreaves Lansdown Select UK Income Shares fund, which has a 3.7'‹ per cent'‹ position in Provident'‹, said:'‹ '‹“Interim results from Provident Financial show the impact of their botched introduction of a new way of working in their consumer credit division. Overall, adjusted profits dropped 23'‹ per cent'‹ to £115m, with growth at Moneybarn and Vanquis offset by a collapse in the Consumer Credit Division’s earnings.'‹"'‹Management has been changed in the troubled division, but crucially, with the new operating model now in place, the costs of the stumble are no greater than first warned. It’s too early to say that all will be rosy going forward, but the group’s message on credit quality across the business is reassuring. Vanquis Bank, which generates the lion’s share of the group’s income, is growing strongly, as is Moneybarn.'‹"'‹Provident Financial may not be out of the woods yet, and it will be some time before the new system can be said to have bedded down and delivered the hoped'‹ '‹for improvements, but the early signs are that the group has picked itself up and begun dusting down."'‹Analysts at JP Morgan said: "Adjusted pre-tax profit of £115.3m was modestly ahead of our estimate of £112.4m, but more importantly management has reconfirmed the £60mfull year pre-tax profit target within the Consumer Credit Division. "We also encouraged that the operational issues have been isolated to the Consumer Credit Division, with the other businesses continuing to experience strong growth which we believe is reflected in the decision to hold the interim dividend flat at 43.2p."