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Doorstep lender Provident's chief quits after profit warning Provident Financial sees nearly £1.7bn wiped off stock market value
(about 5 hours later)
Provident Financial’s stock market value has more than halved after the doorstep lender issued its second profit warning in two months, parted company with its chief executive and cancelled a dividend for shareholders. Provident Financial has lost two-thirds of its stock market value in a day, after the doorstep lender was hit by a “quadruple whammy” of body blows.
The company, which joined the FTSE100 in December 2015, said it expected its core home credit division to make losses of up to £120m this year, having predicted a profit of £60m just two months ago. The company, which specialises in lending to people in financial difficulty, issued its second profit warning in two months, parted company with its chief executive and cancelled a dividend for shareholders.
The rapid deterioration in Provident’s performance comes after a failed attempt to overhaul its century-old business model by cutting staff numbers and ramping up its use of technology. It also announced that it is facing a regulatory probe by City watchdog the Financial Conduct Authority into the sale of a product that allowed people to freeze their credit card debt.
Its chief executive, Peter Crook, who oversaw the change, has stepped down, with Manjit Wolstenholme taking on the role of executive chairman. The company will also cancel its interim dividend and “in all likelihood” the full-year payout in an attempt to conserve cash. The perfect storm of bad news for investors sent shares in the sub-prime lender plummeting more than 66%, from more than £17 to 589.5p, wiping nearly £1.7bn off its stock market value.
Shares in the sub-prime lender have fallen 70% so far on Tuesday, from more than £17 to 448p, wiping nearly £2bn off its stock market value. The rapid deterioration in Provident’s performance, less than two years after it entered the FTSE 100, comes after a botched attempt to overhaul its 130-year-old business model by cutting staff numbers and ramping up its use of technology.
Provident grew rapidly in the years after the financial crisis, stepping in to offer credit to people in financial difficulty who could not secure loans as banks became more wary of risky lending. Its chief executive, Peter Crook, who earned £6.3m in pay and bonuses last year, stepped down with immediate effect, with Manjit Wolstenholme becoming executive chairman.
But earlier this year it announced changes to its traditional business model of sending self-employed sales agents door to door, offering loans and collecting debts. Provident, which downgraded forecasts for its consumer credit division to a profit of £60m two months ago, now expects the business to suffer losses of up to £120m in the current financial year.
In a move seen as part of the financial services industry’s attempt to embrace automation, Crook unveiled plans to do away with its 4,500 sales agents. The company will cancel its interim dividend – and “in all likelihood” the full-year payout in a bid an attempt to conserve cash, in a move analysts said could save about £200m.
It planned to replace them with 2,500 full-time “customer experience managers”, who would be connected to head office via iPads, their time managed more efficiently thanks to analytical software. Provident grew rapidly in the years after the financial crisis, stepping in to offer credit to people who could not secure it from banks, as they became more wary of risky lending.
But in a statement to the stock market, Provident said the software had presented some early issues, while the new operating model had “not allowed sufficient local autonomy”, leading to poor allocation of resources. Interest rates on such loans are typically high, with £100 borrowed from Provident over 13 weeks incurring a repayment of £143. The division has about £500m out on loan.
The firm’s debt collection rate has fallen from 90% last year to 57% as a result, while sales are £9m a week lower. Earlier this year it announced changes to its traditional business model of sending self-employed sales agents door to door, offering loans and collecting debts.
“The primary objectives set for the third quarter of 2017 were to embed the new operating model and to progressively restore customer service and collections performance to acceptable levels in preparation for the seasonal peak in lending during the fourth quarter,” it said. In a move to embrace automation, Crook unveiled plans to do away with its 4,500 sales agents.
“The rate of progress being made is too weak and the business is now falling a long way short of achieving these objectives.” It replaced them with 2,500 full-time “customer experience managers”, who would be connected to head office via iPads, their time managed more efficiently thanks to analytical software.
Wolstenholme said: “I am very disappointed to have to announce the rapid deterioration in the outlook for the home credit business.” The result has been a fall in its debt collection rates from 90% last year to just 57%.
Provident said it would begin a thorough and rapid review of its home credit division in an effort to turn it around. Analyst Stuart Duncan of Peel Hunt said: “They’ve taken a model which was centuries old and have pretty much broken it.”
The company also admitted that its Vanquis Bank division was being investigated by the Financial Conduct Authority over the sale of repayment option plans (ROP), a product that helps people freeze their credit card debt. In a statement to the stock market, Provident said the software had “presented some early issues”.
Wolstenholme said this was partly down to the wrong schedules and routes being used, which meant staff ended up visiting when borrowers were not home.
She added that some of the “customer experience managers” were underperforming but that it was too early to say how. “I’ve got to work out why the hell that’s happening,” she said.
She insisted that Provident would not abandon the strategy of employing full-time staff, which she said would make it easier to comply with regulations in the long term. But she conceded that the software used to direct those staff might have to be “tweaked”.
“We seem to have lost something along the way in trying to be a bit too automated about it,” she added. “We had a good business and we need to make sure we get back there.”
The company also admitted that its Vanquis Bank division is being investigated by the Financial Conduct Authority over the sale of repayment option plans (ROP), a product that helps people freeze credit card debt.
The investigation relates to sales made between April 2014 and April 2016. Provident has agreed to suspend the sale of ROPs, which were worth £70m a year in revenues.The investigation relates to sales made between April 2014 and April 2016. Provident has agreed to suspend the sale of ROPs, which were worth £70m a year in revenues.
Analysts at RBC Capital Markets called the string of negative announcements a “quadruple whammy” as Provident’s share price nosedived.Analysts at RBC Capital Markets called the string of negative announcements a “quadruple whammy” as Provident’s share price nosedived.
“We expect ongoing substantial losses in the share price, and would not be buyers at any price,” they said, adding that its shares “are not investible until greater clarity is received, which may not be until next year at the earliest”. Peel Hunt’s Stuart Duncan said the company did not seem to be in imminent danger of collapse, but warned it could face problems if Vanquis Bank customers start withdrawing deposits.
“If they read that Provident or Vanquis is in trouble, it will be interesting to see how the deposit base behaves over the next few years.”