Vanquis: Bradford-based specialist lender warns over hit to profits from surge in claims and strategy overhaul

It warned that, even though the “vast majority” of complaints are not upheld, rising costs of reviewing them will “materially” affect profits.

But the group stressed it is not subject to the Financial Conduct Authority’s investigation into motor financing, which is a small part of its business.

Vanquis added that income is also being knocked by moves to overhaul its products, and pricing and will be “materially lower” than the £583.3m predicted in the market.

It said that, as a result of the claims costs and lower income, underlying pre-tax profits for 2024 are set to be “substantially lower” than the £75.1m expected.

Vanquis said it is looking into taking “proactive legal steps” in the face of soaring and costly third-party complaints submissions.

It is thought most of the complaints relate to a single claims management company.

Vanquis chief executive Ian McLaughlin said: “We have short-term challenges to address but remain confident that the group’s new strategy will deliver good outcomes for our customers and attractive and sustainable returns for our shareholders.”

The group – which last year bought former Virgin Money boss Dame Jayne-Anne Gadhia’s money-saving app Snoop – said it is also taking big steps in the first quarter of 2024 to redevelop its customer proposition and reset pricing.

It expects these measures to help it return to “modest” lending growth from the start of the second quarter.

“However, income is expected to be materially lower than market consensus expectations for 2024,” it said.

But the lender said 2023 underlying profits are still expected to come in at £25m.

The group is to lay out a new strategy plan on March 27.

“At its strategy seminar, the group will describe in detail the initiatives already under way to serve a broader, carefully targeted addressable market with a more extensive customer proposition,” it said.

“It will also present a detailed route map to achieve significant payback across the business in 2026 from its technology infrastructure investment.”

Analysts from Shore Capital said: “Given the scale of the near-term earnings forecast downgrades we would expect the market to be initially disappointed with this update.

"However, we encourage investors not to be too disheartened and look to the sunnier uplands of FY26F (results for the 2026 financial year), when management expects to deliver a significant improvement in profit.”

Analysts from Shore Capital also noted that, having completed its strategic review, the refreshed management team, led by Mr McLaughlin, believes the group has a compelling business plan.