Doorstep lender hit by heavy profit warning and watchdog inquiry
SHARES IN one of Yorkshire’s largest companies, Provident Financial, plummeted by 66 per cent after it warned of heavy losses following a period of “substantial underperformance”.
The Bradford-based doorstep lending company’s chief executive Peter Crook quit after it was revealed to investors that its projected losses could run as high as £120m, a performance one analyst described as a “disaster”.
Manjit Wolstenholme is to assume the role of executive chairman with the firm, which provides loans to individuals unable to draw credit from mainstream lenders.
To compound the misery, the firm revealed that the Financial Conduct Authority (FCA) has opened an investigation into a Repayment Option Plan (ROP) Provident offers through its Vanquis Bank arm.
The announcement is the second profit warning from the FTSE 100 firm in as many months and saw £2bn wiped off of its Stock Market value at one point.
The firm’s debt collection rate has fallen from last year’s 90 per cent to 57 per cent now, resulting in sales being £9m a week lower.
It also revealed it would be cancelling its interim dividend payment and announced it would be carrying out a “thorough and rapid review” of its home credit unit.
A statement from the firm read: “The rate of progress being made is too weak and the business is now falling a long way short of achieving these objectives. Collections performance and sales are both showing substantial under-performance against the comparable period in 2016.”
The firm said its pre-exceptional loss this year is likely to be in the range of £80m to £120m.
Regarding the FCA investigation, the firm said: “The FCA
indicated that it has concerns about the ROP product and is investigating the period from 1 April 2014 to 19 April 2016.
“Vanquis Bank agreed with the FCA to enter into a voluntary requirement to suspend all new sales of the ROP in April 2016 and to conduct a customer contact exercise, which has now been completed.”
The firm had recently begun a review of its historic business model in which agents would go door to door to offer and collect loans, with plans under way to bring increasing automation into the business.
Manjit Wolstenholme, inset, said: “I am very disappointed to have to announce the rapid deterioration in the outlook for the home credit business.
“Protecting the group’s capital base through withdrawing the interim dividend, and in all likelihood the full-year dividend, is the appropriate response to maintain the highly valuable franchises of Vanquis Bank, Moneybarn and Satsuma. “My immediate priority is to lead the turnaround of the home credit business.” Gary Greenwood, an analyst at Shore Capital, said he expected the departure of Mr Crook to not be isolated and predicted that further heads would roll with the lender. “Overall, this is without doubt a disaster for a company and management team which, up until recent times, we regarded extremely highly,” he said. “We expect the shares to fall sharply and endure a period of increased volatility going forwards. “Future profit performance will depend on management’s ability to rescue the situation which is highly uncertain at present, making accurate forecasting extremely difficult.” Founded in 1880, Provident provided loans through the Wall Street crash of 1929 and both world wars.