Annual Report • Dec 31, 2016
Annual Report
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Annual Report and Financial Statements 2016
| Overview Strategic report |
01 Our mission 02 Our social purpose and the market we serve 03 Our values underpin how we do business 'HOLYHULQJȵH[LEOHSURGXFWV through our three divisions 06 The value our business creates 08 Chairman's review 10 Our business model &KLHI([HFXWLYHȇVUHYLHZ 16 Our strategy and progress |
34 Consumer Credit Division 42 Moneybarn 45 Risk management and SULQFLSDObULVNV |
|---|---|---|
| 22 The non-standard credit market 28 Vanquis Bank |
51 Financial review 57 Corporate responsibility |
|
| Governance | 69 Introduction from the Chairman 2XUGLUHFWRUVDQGRɝFHUV 72 Leadership (HFWLYHQHVV 79 Shareholder engagement |
81 Risk advisory committee 84 Audit committee and auditor 88 Nomination committee 93 Directors' report |
| Directors' remuneration report |
99 Annual statement by the Chairman of the Remuneration Committee 100 Remuneration policy 106 Annual Report on remuneration |
|
| Financial statements |
120 Consolidated income statement 120 Consolidated statement of comprehensive income 120 Earnings per share 120 Dividends per share 121 Balance sheets 122 Statements of changes in shareholders' equity |
6WDWHPHQWVRIFDVKȵRZV 125 Statement of accounting policies 131 Financial and capital risk management 1RWHVWRWKHȴQDQFLDOVWDWHPHQWV 172 Independent auditor's report |
| Shareholder information |
179 Information for shareholders |
All statements other than statements of historical fact included in this document, including, without limitation, those UHJDUGLQJWKHȴQDQFLDOFRQGLWLRQ results, operations and business of Provident Financial plc and its strategy, plans and objectives and the markets in which it operates, are forward-looking statements. Such forward-looking VWDWHPHQWVZKLFKUHȵHFWWKHGLUHFWRUVȇ assumptions made on the basis of information available to them at this time, involve known and unknown risks, uncertainties and other important factors which could cause the actual results, performance or achievements of Provident Financial plc or the markets in ZKLFKLWRSHUDWHVWREHPDWHULDOO\GLHUHQW from future results, performance or achievements expressed or implied by such forward-looking statements. Nothing in the document shall be UHJDUGHGDVDSURȴWIRUHFDVWDQGLWV directors accept no liability to third parties in respect of this report save as would arise under English law. In particular, section 463 of the Companies Act 2006 limits the liability of the directors of Provident Financial plc so that their liability is solely to Provident Financial plc.
Read more about our customers on pages 26,32 and 40
Read more about our Corporate responsibility on pages 57–67
Read more about Governance on pages 69–97
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| 2016 £334.1m 14.1% |
|
|---|---|
| 2015 | 292.9 |
| 2014 | 234.4 |
| 2013 | 196.1 |
| 2012 | 178.4 |
| 2016 £343.9m 25.7% |
|
|---|---|
| 2015 | 273.6 |
| 2014 | 224.6 |
| 2013 | 182.4 |
| 2012 | 194.0 |
| 2015 151.8 2014 126.5 2013 104.2 2012 108.9 |
2016 181.8p 19.8% |
|---|---|
| 2016 1.32 times | |
|---|---|
| 2015 | 1.35 |
| 2014 | 1.35 |
| 2013 | 1.32 |
| 2012 | 1.30 |
| 2016 15.3% | ||
|---|---|---|
| 2015 | 16.1 | |
| 2014 | 15.1 | |
| 2013 | 14.2 | |
| 2012 | 14.5 |
| 2016 | 2.3 times | |
|---|---|---|
| 2015 | 2.2 | |
| 2014 | 2.4 | |
| 2013 | 3.0 | |
| 2012 | 3.2 |
| 2016 2.448m 2.0% |
|
|---|---|
| 2015 | 2.400 |
| 2014 | 2.445 |
| 2013 | 2.635 |
| 2012 | 2.738 |
| 2016 3.1m | |
|---|---|
| 2015 | 3.1 |
| 2014 | 2.4 |
| 2013 | 2.0 |
| 2012 | 1.9 |
| 2016 £185.9m 2.1% |
|
|---|---|
| 2015 | 182.1 |
| 2014 | 158.4 |
| 2013 | 158.6 |
| 2012 | 127.0 |
| 2016 £155.6m 14.8% |
|
|---|---|
| 2015 | 135.5 |
| 2014 | 124.5 |
| 2013 | 109.3 |
| 2012 | 110.2 |
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| 08 Chairman's review |
|---|
| 10 Our business model |
| 12 Chief Executive's review |
| 16 Our strategy and progress |
| 22 The non-standard credit market |
| 28 Vanquis Bank |
| 34 Consumer Credit Division |
| 42 Moneybarn |
| 45 Risk management and principal risks |
| 51 Financial review |
57 Corporate responsibility
KDVEHHQD\HDURIVLJQLȴFDQWFKDQJHDQG progress in developing the Provident Financial *URXSΖWbLVbWHVWDPHQWWRWKHGHGLFDWHGHPSOR\HHV throughout the group that we have delivered excellent UHVXOWVZKLOVWPDQDJLQJWKLVKHDY\ZRUNORDGȋ
Manjit Wolstenholme Chairman
ΖQZHFRQWLQXHGWKHGHOLYHU\RIRXU mission of being the leading non-standard specialist lender in our chosen markets, acting responsibly in all our relationships and playing a positive role in the communities ZHVHUYH:HKDYHEHHQDEOHWRGRWKLVE\ broadening and evolving the distribution of our product base to a wider range of customers, strengthening the compliance functions across our divisions and investing RIJURXSSURȴWEHIRUHWD[LQWRWKH FRPPXQLWLHVZHVHUYH
2016 has been an unprecedented year of political and economic change both globally DQGLQWKH8.7KH8.ȇVGHFLVLRQWROHDYHWKH EU has resulted in an uncertain economic outlook for the UK with the potential for LQFUHDVHGLQȵDWLRQIURPDZHDNVWHUOLQJ rising unemployment and the potential for reduced capital and liquidity as lenders UHGXFHWKHLUULVNDSSHWLWH'HVSLWHWKLV EDFNGURSΖDPYHU\SOHDVHGZLWKKRZWKH JURXSKDVSHUIRUPHGGXULQJDQGΖDP FRQȴGHQWWKDWWKHJURXSȇVUREXVWEXVLQHVV models and strong balance sheet leaves us well placed to trade through any economic GRZQWXUQZKLFKPD\LPSDFWWKH8.
Our strategy has remained unchanged since the point of demerger in 2007:
We invest in high return businesses; which enables us to generate high shareholder returns;
We maintain a secure funding and capital structure; and
We act responsibly and with integrity LQbDOObZHGR
PFG has a long track record of successfully VHUYLQJQRQVWDQGDUGFRQVXPHUV As a specialist in non-standard credit, we XQGHUVWDQGRXUFXVWRPHUVDQGWKHLUQHHGV We recognise that non-standard consumers require smaller sums of credit, require more IUHTXHQWFRQWDFWDQGQHHGȵH[LELOLW\DQGD sympathetic response when unexpected HYHQWVRFFXU7RGRWKLVZHKDYHGHYHORSHG sustainable business models which ensure that we lend responsibly and deliver the best SRVVLEOHFXVWRPHURXWFRPHV2XUH[SHUWLVH in distributing, underwriting, managing and collecting through all aspects of the customer journey allow us to maintain a competitive advantage whilst delivering KLJKbUHWXUQVWRRXUVKDUHKROGHUV
During 2016, we started to focus on two areas which will ensure that we maintain our competitive advantage and continue to give our customers the best possible VHUYLFH)LUVWO\ZHDUHGHYHORSLQJRXUGLJLWDO capability throughout the group to ensure that we are better placed to serve customers LQDPRUHGLJLWDOZRUOG\$QGVHFRQGO\ZH are making sure our businesses work more closely together so we can develop best practice and ensure that when customers' circumstances change we have the right SURGXFWWRVXLWWKHLUFLUFXPVWDQFHV:HFDOO WKLVȆWKHELJJHUSLFWXUHȇ:HSODQWRGHYHORS both of these areas further in 2017 and further detail is provided in the Chief ([HFXWLYHȇVUHYLHZ
:HKDYHLQFUHDVHGRXUȴQDOGLYLGHQGSHU VKDUHE\WRSS ZKLFKWRJHWKHUZLWKWKHLQFUHDVHLQ WKHLQWHULPGLYLGHQGUHSUHVHQWVD increase in the total dividend per share to SS 'LYLGHQGFRYHUIRU 2016, prior to the amortisation of acquisition LQWDQJLEOHVDQGH[FHSWLRQDOLWHPVLV WLPHVWLPHV DQGLVFRQVLVWHQW with the group's stated target of maintaining DQQXDOGLYLGHQGFRYHURIDWOHDVWWLPHV
The increase in the full-year dividend is supported by the group's growth in earnings DQGVWURQJFDSLWDOJHQHUDWLRQ
Our secure funding and capital structure continues to provide us with a competitive advantage and enables us to serve our FXVWRPHUVLQDVXVWDLQDEOHPDQQHU
Our balance sheet remains robust with JHDULQJRIWLPHVZKLFKLVZHOOEHORZRXU PD[LPXPUDWLRRIWLPHV2XUFRUHHTXLW\ tier 1 ratio has also remained strong in the \HDUDWbOLWWOHFKDQJHGIURPODVW\HDU
The group has recently entered into a new £450m syndicated bank facility maturing in May 2020 and cancelled the existing FRPPLWWHGEDQNIDFLOLW\7KHDOOLQFRVWRIWKH new facility is lower than the cancelled facility with broadly consistent terms, conditions DQGȴQDQFLDOFRYHQDQWSDFNDJH\$VDW 31 December 2016, headroom on the group's committed facilities amounted to £140m and, after taking account if the renewal of the syndicated bank facility and including the additional capacity available for Vanquis Bank to take retail deposits, total funding capacity DPRXQWHGWReP7KHJURXSȇVIXQGLQJ FDSDFLW\LVQRZVXɝFLHQWWRIXQGFRQWUDFWXDO maturities and projected growth of the group XQWLO2FWREHU
7KHȴQDOSLHFHLQRXUVWUDWHJ\LVWRFRQWLQXDOO\ GHPRQVWUDWHDQGEXLOGRXUVRFLDOSXUSRVH :HSURPRWHȴQDQFLDOLQFOXVLRQIRUWKRVHZKR are not well served by mainstream credit products or who may otherwise be excluded DOWRJHWKHU:HNQRZWKDWDOPRVWKDOIRI adults in the UK do not have enough savings WRFRYHUDQXQH[SHFWHGELOORIe\$QGD WKLUGRIIDPLOLHVKDYHQRVDYLQJVZKDWVRHYHU This drives us to build a sustainable business model which can help these people when WKH\QHHGLWPRVW
To do this, we provide our customers with appropriate amounts of credit and maintain close contact with them throughout the WHUPRIWKHLUORDQ:HHQVXUHRXUSURGXFWV are transparent and work with them V\PSDWKHWLFDOO\LIWKH\H[SHULHQFHGLɝFXOWLHV The terms and conditions of our products are also designed to meet our customers' SDUWLFXODUQHHGV:HWKHQPDNHULJRURXV checks to ensure that our customers can DRUGWKHLUUHSD\PHQWV:HKDYHEHHQ GRLQJbWKLVVXFFHVVIXOO\IRURYHU\HDUV
7RVXSSRUWWKLVVRFLDOSXUSRVHZHKDYHȴYH core values which run throughout all of our divisions: These are to be:
We are fair and reasonable in our dealings ZLWKVWDNHKROGHUV
We conduct our business dealings responsibly and ensure that we have a positive impact on WKHHQYLURQPHQWDQGFRPPXQLWLHVZHVHUYH
We provide our customers with access to SURGXFWVWKDWPHHWWKHLUQHHGV
We are straightforward, open and honest LQbDOORXUGHDOLQJV
We anticipate and respond to the challenges RIDFKDQJLQJZRUOG
Our social purpose extends beyond our FXUUHQWFXVWRPHUVΖȇPSURXGWKDWZHLQYHVWHG over £3m in the communities we serve across WKH8.DQGΖUHODQG7KLVLQYHVWPHQWLVPDGH across two areas:
Community programmes :HKDYHLQYHVWHGLQRYHUGLHUHQW projects in 2016 ranging from cash support DQGFUHDWLQJRSSRUWXQLWLHVIRURXUVWDWR get involved in local community projects to PDWFKLQJHPSOR\HHJLYLQJ
Money advice and social research We have also invested in a wide range of free and voluntary money advice organisations which helps educate people RQKRZWRPDNHEHWWHUȴQDQFLDOGHFLVLRQV and also helps support those people who PD\DOUHDG\EHLQȴQDQFLDOGLɝFXOW\
Read more about how we act responsibly: CR section, pages 57 to 67
The group's strategy has continued to be underpinned by the high standards of corporate governance which are critical to its success, and are driven by the board and DUHHPEHGGHGLQWKHFXOWXUHRIWKHJURXS The board has continued to have detailed DQGHHFWLYHRYHUVLJKWRIWKHGLYLVLRQVGXULQJ 2016 through the corporate governance structure in place, and has complied throughout the year with the provisions of the UK Corporate Governance Code SXEOLVKHGLQ6HSWHPEHUbWKH&RGH
ΖQDFFRUGDQFHZLWKWKH&RGHWKHERDUG carried out an external board and committee evaluation in 2016 and the actions LGHQWLȴHGDVDUHVXOWRIWKHHYDOXDWLRQZLOO EHbLPSOHPHQWHGRYHUWKHQH[WPRQWKV
Read more about our governance: Governance section, pages 68 to 97
Read more about our board evaluation: Governance section, pages 77 to 78
ΖQOLQHZLWKRXUGLJLWDODJHQGDDQGWKH ongoing development of the group's FKDQQHOVWRPDUNHWΖȇPYHU\SOHDVHGWR announce the recruitment of two additional independent non-executive directors appointed to the Board on 1 January 2017: 'DYLG6HDUDQG-RKQ6WUDZ'DYLGLVDSURYHQ ȴQDQFLDOVHUYLFHVSURIHVVLRQDOZLWKDVWURQJ track record in digital transformation and customer engagement, in particular within WKHSD\PHQWVHUYLFHVVHFWRU-RKQLVDQ experienced digital entrepreneur who has led and advised on critical projects across DbQXPEHURIVHFWRUV
Read more about the recruitment of the QHZbQRQH[HFXWLYHGLUHFWRUV Governance section, page 91
KDVEHHQD\HDURIVLJQLȴFDQWFKDQJH and progress in developing Provident Financial and managing the transition to the PRUHH[DFWLQJ)&\$UHJLPHΖWLVWHVWDPHQW to the dedicated employees throughout the group that we have delivered excellent UHVXOWVZKLOVWPDQDJLQJWKLVKHDY\ZRUNORDG
ZLOOEHDQRWKHU\HDURIVLJQLȴFDQW change as we drive the digital agenda, develop the way our businesses work together, pursue our plans to enhance the home credit operating model and continue to invest in the growth initiatives within 9DQTXLV%DQN0RQH\EDUQDQG6DWVXPD
ΖDPYHU\FRQȴGHQWWKDWWKHJURXSLVZHOO placed to manage these developments as well as any economic uncertainties arising as a result of Brexit whilst continuing to deliver JRRGUHWXUQVWRRXUVKDUHKROGHUV
28 February 2017
The group is successful in lending to customers whom RWKHUVȴQGLWGLɝFXOWWRVHUYHEHFDXVHRIWKHZD\ ZHPDQDJHWKHFXVWRPHUUHODWLRQVKLSDQGWKHVROLG IRXQGDWLRQVWKDWZHKDYHEXLOWIRURXUEXVLQHVV
Our customers 6HHSDJH
Our people and suppliers 6HHSDJH
The communities in which we operate 6HHSDJH
| Secure longer-term, lower rate funding |
We borrow longer, at lower rates than we lend, from diverse wholesale and retail sources, always with at least a years' headroom. We do this through strong relationships with our banks, deposit taking, a BBB credit rating and a FTSE 100 listing. We create value by allowing investors to participate in our markets indirectly and our businesses to meet customer demand throughout the cycle. Our funders enjoy a reliable source of good solid diversified income. Our customers enjoy affordable, sustainable, and responsible access to credit. |
|---|---|
| Develop tailored products to meet customers' needs |
We focus on the UK non-standard credit market, developing simple, transparent products with flexibility to help customers cope with life. Adapting to the needs of a specific target market, we generate high customer satisfaction and loyalty. We create value by covering the higher cost included in serving non-standard consumers with loans at affordable rates, enabling us to lend to those otherwise financially excluded. We have longer experience, and a wider range of specialised products than our competitors, better suiting the market diversity and dynamism. We continue to innovate to match consumer trends. |
| Attract target customers |
We use many ways to reach non-standard consumers. We target our offers using mailing and increasingly digital methods, as well as face-to-face and partners such as brokers, agents and retailers. We create value for customers and third parties by responsibly offering credit to the otherwise excluded and enabling them to make purchases or deal with life on tight incomes. Consumers are able to shop in the modern world, get to work and deal with larger expenses. Partners earn commission, and retailers make more sales. Our longer experience makes us more effective than our competitors. Our ability to lend and commitment throughout the cycle has earnt us trust and loyalty of both intermediaries and customers. |
| Assess affordability and credit worthiness |
We carefully assess applicant creditworthiness, along with affordability, suitability and sustainability. We use internal and external data, including face-to-face interactions, taking into account the current situation and the likely future. Our specialisation, experience, and bespoke approach allows us to create value by maximising approvals while maintaining sufficient returns. Customers get the credit they need more often, where responsible, and each assessment and outcome adds experience and knowledge, improving future decisions. We have been active in the non-standard market for longer than most, with a wider range of products at a larger scale helping us to maintain our advantage in assessing applications. |
| Lend responsibly | We tend to lend smaller amounts over shorter periods and take a 'low and grow' approach as customers demonstrate sustainability. Where a vehicle or guarantor is involved, we can lend more, longer and sooner. We create value by helping customers enter or re-enter the credit market, stay in control and build credit scores for greater future access and choice. Our customers are no longer financially excluded from modern life, now or in the future. Our focus and specialised experience makes us better at helping customers on this journey than our direct competitors, and able to lend where mainstream lenders cannot. |
| Collect repayments due |
We offer many ways to pay in cash and remotely, maintaining high levels of frequent customer contact. We stay close to customers through call centre, digital communications and face-to-face meetings weekly in the home. We help our customers to stay on track and build better credit scores by adapting our methods to suit the realities of customers' lives in an understanding way. Self-employed agents earn income from successful payments encouraging them to build skills and experience in dealing with customers. The scale of our high-tech contact centres and our experienced well-trained employees set us apart from our competitors, and our volumes help us to maintain our superior performance. We share these best in class collections capabilities across the group to help established and new businesses improve quicker and earlier. |
| Manage arrears and customer difficulties |
We establish early contact and an ongoing dialogue with customers who have difficulties, with a sympathetic approach, trying to understand and offer forbearance. Our focus is on making a difficult situation easier to deal with by taking a personal approach to resolving inevitable problems. Our customers value this understanding highly, as it minimises their arrears, and damage to their credit score. It also maximises recoveries, and enables customers to qualify for further credit. Our far more rapid, intensive and personal approach sets us apart from mainstream lenders and our scale, experience and greater investment differentiates us from other specialists. We are able to share our arrears management capabilities across the group to help established and new businesses improve performance and customer satisfaction. |
| Pay for funds and generate surplus capital to deploy |
We grow our high ROA, cash and capital generative businesses, under a funding model that pays 80% of earnings in dividends and retains 20% equity to combine with external funds at a low gearing to fund growth. We create shareholder value by delivering superior returns throughout the cycle and our strong capital base sustains our ability to grow and attract external funding. Investors and funders rely on good returns. Business units rely on funding being available, and customers rely on credit availability regardless of constraints elsewhere. We enjoy better capital generation and less reliance on external funding through the cycle, allowing us to plan longer term with confidence to take advantage of market opportunities. |
See how the model applies to each of our businesses in the divisional performance reviews.
2016 has been another successful year for the group. :HKDYHGHOLYHUHGDVWURQJȴQDQFLDOSHUIRUPDQFHDQG KDYHPDGHYHU\JRRGSURJUHVVRQDQXPEHURILPSRUWDQW RSHUDWLRQDOGHYHORSPHQWVZKLFKZLOOVKDSHWKHIXWXUHRI the group. This has been achieved against the backdrop of PDQDJLQJWKHWUDQVLWLRQWRWKHQHZ)&\$UHJXODWRU\UHJLPH DQGPDUNHWDQGHFRQRPLFXQFHUWDLQWLHVDULVLQJIURP%UH[LWȋ
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|
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| 2016 | 89% | 93% | 89% | |
|---|---|---|---|---|
| 2015 | 88 | 93 | 89 | |
| 2014 | 84 | 93 | ||
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UK non-standard credit is a diverse, dynamic, specialist market…
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Non-standard consumer needs and situations are far more varied and changeable than mainstream standard credit consumers.
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The non-standard credit market (continued)
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"When I was planning my wedding, I wanted a credit card so I could book things online and pay deposits and organise my big day. As I made regular repayments and was using the card sensibly, Vanquis increased my credit limit, which was handy for some of the larger purchases. I receive regular updates from Vanquis about when my payments are due and to review my bill, and they get the balance right so I feel like I'm being reminded in a friendly way without being harassed. ΖSDLGRP\EDODQFHDIWHUWKHZHGGLQJDQG recently used my card again to celebrate P\bKXVEDQGȇVWKELUWKGD\ΖZRXOG QRWKHVLWDWHWRUHFRPPHQGWKLVFDUGbWR anyone else."
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Vanquis Bank is the leading provider of credit cards to people in the non-standard credit market, SURPRWLQJȴQDQFLDOLQFOXVLRQE\EULQJLQJFUHGLW FDUGVWRbSHRSOHZKRDUHW\SLFDOO\GHFOLQHGE\ mainstream credit card providers. In doing so, WKHEXVLQHVVKHOSVSHRSOHWRbHVWDEOLVKRUUHEXLOG DFUHGLWKLVWRU\DQGHQDEOHVWKRVHLQWKHQRQ VWDQGDUGFUHGLWPDUNHWWRVKDUHLQPRGHUQEX\LQJ PHWKRGVVXFKDVRQOLQHVKRSSLQJWKDWFDQRQO\ UHDOO\EHDFKLHYHGZLWKFDUGEDVHGSURGXFWV
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9DQTXLV%DQNSURPRWHVȴQDQFLDOLQFOXVLRQE\EULQJLQJ WKHEHQHȴWVRIFUHGLWFDUGVWRFRQVXPHUVZKRDUH typically excluded by mainstream lenders, helping SHRSOHWRHVWDEOLVKRUUHEXLOGWKHLUFUHGLWSURȴOHV DQGHQMR\WKHLQFUHDVLQJXWLOLW\RIFDUGEDVHGFUHGLW including online shopping. Vanquis Bank's 'low and grow' approach to extending credit and high levels of customer contact underpin a sustainable, responsible lending model which produces consistently high levels RIbFXVWRPHUVDWLVIDFWLRQDSSURDFKLQJ
Vanquis Bank has demonstrated that it is considerably less sensitive to changes in the employment market than mainstream card issuers. Although the UK employment market has continued to improve, Vanquis Bank has PDLQWDLQHGWLJKWFUHGLWVWDQGDUGVVLQFHDQG maintains strict discipline over managing card utilisation.
Competitors continue to be active in both the direct mail and internet distribution channels. However, the business continues to generate strong demand from GHYHORSLQJWKHXQGHUVHUYHGQRQVWDQGDUG8.FUHGLW FDUGPDUNHW1RQHWKHOHVVGXULQJWKHEXVLQHVVKDV developed a number of actions to expand distribution and the credit card proposition, including the Chrome branded card which extends the business into the QHDUHUSULPHVHJPHQWRIWKHQRQVWDQGDUGPDUNHW
7KHQRQVWDQGDUGPDUNHWIRUXQVHFXUHGORDQVRI JUHDWHUWKDQPRQWKVLQGXUDWLRQLVJURZLQJDQGLV underserved, often due to a combination of funding constraints and shortcomings in the underwriting capability of credit providers. An analysis of Vanquis Bank's credit card customer base has indicated that a sizeable population of customers have unsecured borrowings with other lenders. Extending the product range to displace the existing lender is a logical H[WHQVLRQRI9DQTXLV%DQNȇVFUHGLWFDUGRHULQJDQG represents an attractive opportunity from which to build an unsecured loans business. As a result, the business recently commenced a pilot unsecured loans proposition to credit card customers.
9DQTXLV%DQNKDVRYHU\HDUVRIH[SHULHQFHVLQOHQGLQJ responsibly to its chosen target market. Its success LVEDVHGRQDFOHDUO\GHȴQHGVWUDWHJ\DQGDWDLORUHG DSSURDFKWRVHUYLQJFXVWRPHUVLQWKHQRQVWDQGDUG credit market.
7 8
6 3 4 5
Divisional review – Vanquis Bank (continued)
| Year ended 31 December | |||
|---|---|---|---|
| 2016 £m |
2015 £m |
Change % |
|
| 3URȴWORVV EHIRUHWD[ | |||
| – UK | 204.5 | 185.5 | 10.2 |
| – Poland | – | (1.8) | 100.0 |
| Total Vanquis Bank | 204.5 | 183.7 | 11.3 |
| Year ended 31 December | |||
| 2016 £m |
2015 £m |
Change % |
|
| Customer numbers ('000) | 1,545 | 1,421 | 8.7 |
| Year-end receivables | 1,424.7 | 1,252.0 | 13.8 |
| Average receivables | 1,307.0 | 1,157.1 | 13.0 |
| Revenue | 583.7 | 538.6 | 8.4 |
| Impairment | (162.4) | (158.9) | (2.2) |
| Revenue less impairment | 421.3 | 379.7 | 11.0 |
| Risk-adjusted margin1 | 32.2% | 32.8% | |
| Costs | (174.4) | (151.1) | (15.4) |
| Interest | (42.4) | (43.1) | 1.6 |
| \$GMXVWHGSURȴWEHIRUHWD[2 | 204.5 | 185.5 | 10.2 |
| Return on assets3 | 13.8% | 15.8% |
5HYHQXHOHVVLPSDLUPHQWDVDSHUFHQWDJHRIDYHUDJHUHFHLYDEOHV
\$GMXVWHGSURȴWEHIRUHWD[LVVWDWHGEHIRUHDQH[FHSWLRQDOJDLQRIePLQUHVSHFWRI9DQTXLV%DQNȇVLQWHUHVW LQb9LVDb(XURSHIROORZLQJFRPSOHWLRQRI9LVDΖQFȇVDFTXLVLWLRQRI9LVD(XURSHRI-XQHeQLO
\$GMXVWHGSURȴWEHIRUHLQWHUHVWDIWHUWD[DVDSHUFHQWDJHRIDYHUDJHUHFHLYDEOHV
Vanquis Bank has delivered a good SHUIRUPDQFHLQUHSRUWLQJ8.SURȴWV 10.2% higher than 2015. The business has GHOLYHUHGDUHWXUQRQDVVHWVRILQ 2016, lower than 15.8% in 2015 primarily due WRWKHLPSDFWRIWKHEDQNFRUSRUDWLRQ WD[VXUFKDUJHZKLFKEHFDPHHHFWLYHIURP -DQXDU\WRJHWKHUZLWKWKHH[SHFWHG modest reduction in risk-adjusted margin.
:KLOVWWKHPDUNHWLQJDFWLYLW\RIFRPSHWLWRUV in both the direct mail and internet channels KDVFRQWLQXHGGHPDQGIRUQRQVWDQGDUG credit cards continues to be strong. Against unchanged credit standards and DVWDEOHDFFHSWDQFHUDWHRIDURXQG the business has delivered new account ERRNLQJVRI lower than 2015. The year-on-year reduction FDQEHDWWULEXWHGWRDUHGXFWLRQRILQ ERRNLQJVWKURXJKWKHIDFHWRIDFHFKDQQHO Sales have been curtailed as a response to the lower quality and weak account DFWLYDWLRQOHYHOVH[SHULHQFHGLQZKLOVW the proposition and customer acquisition processes are re-engineered.
As reported at the interim results, new DFFRXQWERRNLQJVLQWKHȴUVWKDOIRIWKH\HDU ZHUHORZHUWKDQWKHȴUVWKDOIRI GXHWRWKHVSHQGRQ9DQTXLV%DQNȇV direct mail programme being weighted
WRZDUGVWKHVHFRQGKDOIRIWKH\HDUDQG WKHVLJQLȴFDQWUHGXFWLRQLQERRNLQJVLQ WKHIDFHWRIDFHFKDQQHO%RRNLQJVLQWKH VHFRQGKDOIRIWKH\HDUVKRZHG\HDURQ \HDUJURZWKRIEHQHȴWLQJIURPWKH JUHDWHUZHLJKWLQJRIPDUNHWLQJVSHQGWR WKHVHFRQGKDOIWRJHWKHUZLWKDQXPEHU RIDFWLRQVWRH[SDQGGLVWULEXWLRQDQGWKH credit card proposition which have been put in place since the new Managing Director, Chris Sweeney, joined the business at the VWDUWRIWKH\HDU7KHVHDFWLRQVLQFOXGHWKH ODXQFKRIWKH&KURPHQHDUHUSULPHFUHGLW FDUGDQHZȆ([SUHVV&KHFNȇVHUYLFHZKLFK allows customers to check their likelihood RIDFFHSWDQFHZLWKRXWDHFWLQJWKHLUFUHGLW VFRUHQHZDɝOLDWHDUUDQJHPHQWV606 and email campaigns and a reinvigorated PHPEHUJHWPHPEHURHU
The improved new account booking PRPHQWXPGXULQJWKHVHFRQGKDOIRI WRJHWKHUZLWKDSLSHOLQHRILQLWLDWLYHVWR DXJPHQWWKHPHGLXPWHUPJURZWKRIWKH EXVLQHVVDUHH[SHFWHGWROHDGWRDVWHS XSLQIXOO\HDUERRNLQJYROXPHVLQ This would produce the related increase in year one investment associated with all new YLQWDJHVUHVXOWLQJIURPWKHFRVWRIDFTXLULQJ new customers, early impairments and the SURJUHVVLYHUHYHQXHIURPWKHȆORZDQGJURZȇ approach to issuing credit.
Customer numbers ended the year at XSRQ The growth in customer numbers, together with the credit line increase programme to customers who have established a sound SD\PHQWKLVWRU\JHQHUDWHGDLQFUHDVH in average receivables. Returns from the 'low and grow' approach to extending credit remain consistently strong and are underpinned by average credit line utilisation RIQHDUO\ZKLFKGHOLYHUVDVWURQJVWUHDP of revenue whilst maintaining a relatively low level of contingent risk from undrawn credit lines.
7KHULVNDGMXVWHGPDUJLQLQZDV FRPSDUHGZLWKLQ7KHUHGXFWLRQ LQWKHULVNDGMXVWHGPDUJLQRYHUWKHODVW PRQWKVSULPDULO\UHȵHFWVDGHFOLQHLQ the revenue yield from the fall in interchange income following the agreement between 9LVDDQGWKH(8ZKLFKWRRNIXOOHHFWIURP 'HFHPEHUWRJHWKHUZLWKWKHIXUWKHU reduction in penetration of the ROP product within the customer base. These are partly RVHWE\DEHQHȴWIURPLPSURYHG GHOLQTXHQF\GXULQJWKHȴUVWQLQHPRQWKV RIbWKH\HDU
Although the UK employment market has continued to improve, Vanquis Bank will continue to apply the tight credit standards which have been in place since the economic GRZQWXUQEHWZHHQDQGDSHULRG when the business successfully delivered its minimum targeted returns. The rate of delinquency progressively reduced to UHFRUGORZVWKURXJKWKHȴUVWQLQHPRQWKV of the year and then remained stable through the fourth quarter. This produced DUHGXFWLRQLQWKHUDWHRILPSDLUPHQW FRPSDUHGZLWK2YHUWKHVDPHSHULRG the improving quality of the receivables book has seen the revenue yield from interest and late and over limit fees reduce by DURXQG7DNHQWRJHWKHUWKHVHH[SODLQ WKHQHWEHQHȴWRIWRWKHULVNDGMXVWHG margin from improved delinquency over WKHbODVW\HDU
Based on the stable delinquency trends experienced during the fourth quarter, together with the expected growth of Vanquis Bank's presence in the nearer prime segment of the market and the ongoing FKDQJHVPDGHWRWKH523SURGXFWWKHULVN adjusted margin is expected to moderate WRZDUGVGXULQJ
&RVWVLQFUHDVHGE\DERYHWKH growth in average receivables. The cost EDVHLQLQFOXGHVH[SHQGLWXUHRI DSSUR[LPDWHO\ePGXULQJWKHVHFRQGKDOI of the year to support the programme of LQLWLDWLYHVZKLFKZLOODXJPHQWWKHPHGLXP term growth of the business. This rate of H[SHQGLWXUHZLOOFRQWLQXHLQWR
ΖQWHUHVWFRVWVUHGXFHGE\GXULQJ 7KLVUHȵHFWVWKHUHGXFWLRQLQ9DQTXLV%DQNȇV blended funding rate, after taking account RIWKHFRVWRIKROGLQJDOLTXLGDVVHWVEXHU IURPLQWRLQGXHWRD lower blended interest rate on retail deposits and a lower group funding rate on the intercompany loan from PFG.
Vanquis Bank continues to develop a number RIQHZLQLWLDWLYHVWRDXJPHQWWKHPHGLXP term growth of the business.
'XULQJWKHEXVLQHVVKDVVXFFHVVIXOO\ developed a loans platform and has recently launched a wider loans proposition which is initially focused on providing unsecured loans to existing credit card customers. 7KHORDQVRHUHGDUHFXUUHQWO\EHWZHHQ eDQGeRYHUWRPRQWKVDQG are priced at a similar or lower rate than the FUHGLWFDUGRHULQJ\$PHDVXUHGDSSURDFK to developing the loans proposition will be taken, observing the results from the loans provided to existing credit card customers DQGUHȴQLQJXQGHUZULWLQJDQGWKHORDQV proposition as appropriate. The business then intends to develop an open market proposition and a fresh guarantor loans SURGXFWGXULQJ
([SDQGLQJWKHFDSDELOLW\WRSURYLGHQRQ VWDQGDUGFRQVXPHUȴQDQFHWKURXJK partnering with other lending institutions, EURNHUVRUSURYLGHUVRIUHWDLOȴQDQFH represents an attractive opportunity to expand the distribution of Vanquis Bank's FUHGLWFDUGSURSRVLWLRQ'XULQJDQHZ relationship has been established with 3D\/DWHUZKRSURYLGHWKHΖ7SODWIRUP that acts as the interface between a number of retailers and a panel of lenders. 9DQTXLV%DQNLV3D\/DWHUȇVGHVLJQDWHG provider of revolving credit and a number of retailer relationships are expected to be established with Vanquis Bank during 'LVFXVVLRQVDUHDOVRSURJUHVVLQJZLWK a number of other retailers, brokers and lending institutions.
Vanquis Bank also continues to progress DbQXPEHURIRWKHURSSRUWXQLWLHVLQFOXGLQJ
SXUFKDVLQJWUDQFKHVRIQRQSHUIRUPLQJ debt and applying Vanquis Bank's collections expertise, customer contact data and debt rehabilitation skills in order to generate a strong return on investment as well as generating the opportunity to provide rehabilitated customers with a credit card; and
Further detail on Vanquis Bank's initiatives WRDXJPHQWWKHPHGLXPWHUPJURZWKRIWKH business, together with its business plan for developing a loans proposition, will provided DWWKH&DSLWDO0DUNHWV'D\RQ\$SULO
"I've been with Provident for years and I normally take a loan out once a year, for Christmas. I'm a full-time carer for my youngest son who has autism and speech GLɝFXOWLHV:LWKWKHORDQΖFDQJHWVRPH pressies for the boys and family, and food shopping. Christmas is so expensive and without the loan I would've had to have gone without and waited for the sales and I want my boys to be able to celebrate and have fun too.
My agent is a lovely lady and very friendly. If anyone I know needed a loan I would always VD\3URYLGHQWȴUVWΖȇYHQHYHUKDGFDXVHIRU complaint, and they provide a nice friendly VHUYLFHDQGWKHSD\PHQWVDUHDRUGDEOHȋ
93% Provident customer satisfaction
The Consumer Credit Division is the group's longest running business, stretching back to the company's foundation in 1880. Provident home credit has stood the test of time, serving customers through thick and thin, including two world wars and numerous economic cycles. Satsuma has been established more recently and provides a unique customer proposition for those customers who wish to transact online.
\$GMXVWHGSURȴWEHIRUHWD[
£585m Year-end receivables
Customers
2017 will see further enhancements to the business model to ensure the businesses can manage every aspect of the customer relationship in order to meet customers' needs in an ever FKDQJLQJZRUOGȋ
Mark Stevens Managing Director Consumer Credit Division
7KH3URYLGHQWKRPHFUHGLWEXVLQHVVFRQWLQXHVWRȴOO an important need for consumers in the non-standard market, providing access to credit for those who might RWKHUZLVHEHȴQDQFLDOO\H[FOXGHG&RQVXPHUVRQORZ LQFRPHVDQGWLJKWEXGJHWVUHTXLUHDRUGDEOHFUHGLW in order to manage the peaks and troughs in their KRXVHKROGEXGJHWVRURQHRLWHPVRIH[SHQGLWXUH ZKLFKPD\DULVH7KH\YDOXHWKHVLPSOHȵH[LEOHDQG transparent nature of the home credit product with LWVbȴ[HGUHSD\PHQWVDQGQRDGGLWLRQDOIHHVRUFKDUJHV even if payments are missed. Customers value these features as well as the face-to-face relationship. 7KLVLVbHYLGHQFHGE\FRQVLVWHQWO\KLJKOHYHOVRIFXVWRPHU satisfaction running in excess of 90%. The regular FRQWDFWZLWKFXVWRPHUVDQGWKRURXJKDRUGDELOLW\ checking further reinforces Provident's responsible lending approach.
Home credit customers' employment tends to be biased towards more casual, temporary and part-time employment. Demand from home credit customers has continued to improve during DQGFXVWRPHUFRQȴGHQFHKDVEHHQUREXVW Household incomes and the cost of living have both shown a modest improvement.
There continues to be a stable core of between two and three million non-standard UK consumers for whom home credit is the right solution because a face-to-face UHODWLRQVKLSLVFULWLFDOWRWKHDVVHVVPHQWRIDRUGDELOLW\ and forbearance measures which cannot be replicated through a remote lending relationship.
Although the competitive landscape in the home credit market remains largely unchanged, there is evidence of some industry consolidation materialising as a result of more exacting regulation under the Financial Conduct Authority (FCA).
Since 2013, the home credit business has been successfully repositioned as a smaller, better quality business, supported by the deployment of technology. Subject to workforce consultation, 2017 will see further enhancements to the business model to ensure the business can manage every aspect of the customer relationship in order to meet customers' needs LQbDQbHYHUFKDQJLQJZRUOG
| Read more about the group business model on pages 10 to 11 |
||
|---|---|---|
| 1 Secure longer-term, ORZHUbUDWHbIXQGLQJ |
> Intercompany loan provided by PFG. > Guarantor to group facilities. |
|
| 2 Develop tailored products to meet customers' needs |
> Simple cash loans delivered by a self-employed agent in the home. > Enables the customer to manage WKHbKRXVHKROGEXGJHW > \$RUGDEOHZHHNO\SD\PHQWV |
> \$OOLQȴ[HGFKDUJHȂQRODWHIHHV RUbDGGLWLRQDOLQWHUHVW > 135 years of serving non-standard customers. > High levels of customer satisfaction. |
| 3 Attract target customers |
Typical customer: > Part-time/casual employment. > /RZLQFRPHVȂeWRe per annum. > Limited indebtedness. > Typically live in rented accommodation RUbVRFLDOKRXVLQJ > Often female, middle-aged. |
Channels to market: > Multi channel recommendation, direct mail, internet or through self-employed agents. > Strong brand with loyal customer base. > Builds on existing customer relationships. |
| 4 \$VVHVVDRUGDELOLW\ and credit worthiness |
> \HDUVRIH[SHULHQFHbRIOHQGLQJKRPH credit to non-standard customers. > &HQWUDOXQGHUZULWLQJJHQHUDWHVDbȆQRȇ RUbȆPD\EHȇGHFLVLRQ |
> \$RUGDELOLW\DQGOHQGLQJGHFLVLRQPDGH LQbWKHKRPHE\bDbVHOIHPSOR\HGDJHQW > \$JHQWVDUHW\SLFDOO\IHPDOHKDYHDQbDYHUDJH of seven years' experience, and live LQbWKHbFRPPXQLWLHVWKH\VHUYH |
| 5 Lend responsibly |
> 6PDOOVXPFUHGLWZLWKLQLWLDOORDQbRIbe > Low and grow approach to extending credit. |
> \$JHQWVRQO\SDLGFRPPLVVLRQRQbZKDWWKH\ FROOHFWWKHUHIRUHQRbLQFHQWLYHWR over-lend. > Representative APR of 535.3%. |
| 6 Collect repayments due |
> Collections typically made weekly by the agent in cash from the customer's home. |
|
| 7 Manage arrears and FXVWRPHUGLɝFXOWLHV |
> :HHNO\IDFHWRIDFHYLVLWIURPWKHbDJHQW DOORZVGLVFXVVLRQRIbWKHbFXVWRPHUȇVVLWXDWLRQ > Agents can agree reduced payments RUbDbWHPSRUDU\SD\PHQWKROLGD\ |
> No additional fees or interest for late payment. |
| 8 Pay for funds and generate surplus capital to deploy |
> High ROA business. > Strong capital generation funds growth and allows surplus capital to be paid in dividends to PFG. |
7 8
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1RWHȂ7KHDERYHEXVLQHVVPRGHOGRHVQRWWDNHDFFRXQWRIWKHSURSRVDOVWRPLJUDWHWKHKRPHFUHGLWEXVLQHVVWRDQSURSRVHGRSHUDWLQJPRGHOLQVHHSDJH
'LYLVLRQDOUHYLHZȂ&RQVXPHU&UHGLW'LYLVLRQFRQWLQXHG
Tighter regulation has meant that a number of smaller payday loan companies have already exited the market and larger operators have revised their business models DQGVLJQLȴFDQWO\ curtailed their payday OHQGLQJDFWLYLWLHVȋ
Consumer Credit Division
Satsuma addresses underserved consumers of adequate credit quality whose preference is to access small-sum credit online and make repayments direct from their bank account without the need for a face-to-face relationship. It is relevant to WKHVLJQLȴFDQWDXGLHQFHRIXQGHUVHUYHG consumers between Vanquis Bank and the Provident home credit business. In order to maintain the group's responsible approach to lending, the Satsuma product retains many of the features of the home credit product. There are no extra charges with ȴ[HGSD\PHQWVEDVHGRQDSUHGHWHUPLQHG schedule. Customers can have regular contact with a customer account manager and there are a number of forbearance measures in place for those customers ZKRJHWLQWRȴQDQFLDOGLɝFXOW\ΖQDGGLWLRQ 6DWVXPDLVXWLOLVLQJWKHKLJKO\HHFWLYH distribution, underwriting and collections capabilities of both CCD and Vanquis Bank.
Customer demand in the online small-sum, short-term unsecured loans market, in which payday lending was previously the PRVWVLJQLȴFDQWSDUWLFLSDQWFRQWLQXHVWR be strong. However, as a result of clearer, tighter regulation around payday lending implemented from 1 July 2014, including the introduction of a rate cap from 2 January WKHUHKDVEHHQDVLJQLȴFDQWVKLIWLQ VXSSO\IURPSD\GD\ORDQVWRPRUHDRUGDEOH and responsible instalment lending products. Tighter regulation has meant that a number of smaller payday loan companies have already exited the market and larger operators have revised their business PRGHOVDQGVLJQLȴFDQWO\FXUWDLOHGWKHLU payday lending activities. This has resulted in the online small-sum, short-term credit market, which typically represents lending of up to one year in duration, becoming more crowded with the main participants investing heavily to attract new customers and struggling to make positive returns. There is now evidence that the industry consolidation expected in 2015 is beginning to materialise due to competitive pressures, more exacting FCA regulation and the funding constraints RIbDQXPEHURIFRPSHWLWRUV
Since its inception in 2013, Satsuma has focused solely on small-sum, short-term credit, primarily through weekly repaid products of between 13 and 52 weeks, FRQVLVWHQWZLWKWKHJURXSȇVȆORZDQGJURZȇ approach to lending. However, the business continues to invest in developing its product proposition, distribution channels and IT platform to support further lending to good-quality existing customers and has also launched a monthly instalment product in late 2016 as part of its journey to establish DbOHDGLQJSRVLWLRQLQWKHRQOLQHORDQVPDUNHW
7 8
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| Read more about the group business model on pages 10 to 11 |
||
|---|---|---|
| 1 Secure longer-term, ORZHUbUDWHbIXQGLQJ |
> Intercompany loan provided by PFG. > *XDUDQWRUWRJURXSEDQNIDFLOLWLHV |
|
| 2 Develop tailored products to meet customers' needs |
> Simple short-term loans delivered remotely. > \$OORZVFXVWRPHUVIDVWDFFHVVWRȴQDQFH > Manageable weekly or monthly payments. > 1RDGGLWLRQDOKLGGHQIHHV |
> 6XLWHGWRFXVWRPHUVZKRSUHIHUWRbWUDQVDFW RQOLQHZLWKRXWWKHQHHGRIDIDFHWRIDFH relationship. > +LJKOHYHOVRIFXVWRPHUVDWLVIDFWLRQ |
| 3 Attract target customers |
Typical customer: > Full or part-time employments. > /RZWRDYHUDJHLQFRPHVRIEHWZHHQe DQGe > Limited indebtedness. > Mainly lives in rented accommodation. > 7\SLFDODYHUDJHDJHRIEHWZHHQbDQG years old. |
Channels to market: > +LJKOHYHOVRIEUDQGDZDUHQHVV > Focus currently on digital and social media. > Developing B2B relationships. > Building on existing customer relationships. |
| 4 \$VVHVVDRUGDELOLW\ and credit worthiness |
> 8VHRIH[WHUQDOFUHGLWEXUHDXGDWD > %HVSRNHFUHGLWVFRULQJXVLQJDbUDQJH RIbGDWDVRXUFHV |
> 3HUIRUPYDOLGDWHGDRUGDELOLW\DVVHVVPHQWV using payslips and external data. |
Lend responsibly |
> /RZDQGJURZDSSURDFKWRbH[WHQGLQJFUHGLW > /RDQVRIEHWZHHQeDQGe UHSD\DEOHEHWZHHQbDQGbPRQWKV > 7\SLFDOLQLWLDOORDQRIe |
> Alternative to payday lending with no DGGLWLRQDOLQWHUHVWRUODWHIHHVDQG PDQDJHDEOHZHHNO\bRUPRQWKO\UHSD\PHQWV UDWKHUWKDQbȆEXOOHWȇUHSD\PHQW > 5HSUHVHQWDWLYH\$35RI |
| 6 Collect repayments due |
> &RQWLQXRXV3D\PHQW\$XWKRULW\&3\$ IURP WKHbFXVWRPHUȇVEDQNDFFRXQW > Compliant CPA policy with customer FRQWDFWHGDIWHURQHIDLOHGDWWHPSW |
> Experienced UK-based contact centre team. > 'HGLFDWHGVHOIVHUYHDUHDRQZHEVLWHEHLQJ GHYHORSHGWRDOORZbHOHFWURQLFSD\PHQWV |
| 7 Manage arrears DQGFXVWRPHUGLɝFXOWLHV |
> Immediate contact made when payments are missed. > 0XOWLSOHIRUEHDUDQFHPHWKRGVDYDLODEOHZLWK QRDGGLWLRQDOIHHVRUFKDUJHV |
|
| 8 3D\IRUIXQGVDQGJHQHUDWH surplus capital to deploy |
> 3URJUHVVWRGDWHFRQȴUPVWKHbDELOLW\WRPHHW the group's target returns. |
Strategic report
| Year ended 31 December | ||||
|---|---|---|---|---|
| 2016 £m |
2015 eP |
Change % |
||
| &XVWRPHUQXPEHUVȆ | 862 | 948 | (9.1) | |
| Year-end receivables | 584.8 | 545.1 | 7.3 | |
| Average receivables | 508.7 | 499.5 | 1.8 | |
| Revenue | 518.8 | 517.4 | 0.3 | |
| Impairment | (120.0) | (106.6) | (12.6) | |
| Revenue less impairment | 398.8 | 410.8 | (2.9) | |
| Risk-adjusted margin1 | 78.4% | 82.2% | ||
| Costs | (257.0) | (278.3) | 7.7 | |
| Interest | (26.6) | (27.1) | 1.8 | |
| \$GMXVWHGSURȴWEHIRUHWD[2 | 115.2 | 105.4 | 9.3 | |
| Return on assets3 | 22.3% | 21.2% |
b5HYHQXHOHVVLPSDLUPHQWDVDSHUFHQWDJHRIDYHUDJHUHFHLYDEOHV
\$GMXVWHGSURȴWEHIRUHWD[LVVWDWHGEHIRUHDQH[FHSWLRQDOLPSDLUPHQWFKDUJHRIePLQUHVSHFWRIJORΖ7SODWIRUP within CCD following the decision to develop guarantor loans as part of the wider Vanquis Bank loans proposition RQbDbVHSDUDWHΖ7SODWIRUPDQH[FHSWLRQDOFRVWRIePLQUHVSHFWRIEXVLQHVVUHVWUXFWXULQJ
\$GMXVWHGSURȴWEHIRUHLQWHUHVWDIWHUWD[DVDSHUFHQWDJHRIDYHUDJHUHFHLYDEOHV
CCD has made further good progress in executing on its strategic plan to develop DbEURDGHUEDVHGOHQGLQJEXVLQHVV7KH repositioned Provident home credit business is delivering strong returns and has supported the continued investment in developing the Satsuma online loans SURSRVLWLRQ3URȴWVLQKDYHLQFUHDVHGE\ RUePUHȵHFWLQJDUHGXFWLRQLQWKH start-up losses of Satsuma of approximately eP7KHVWUDWHJLFGHYHORSPHQWRI&&' continues to drive improved returns with the return on assets increasing to 22.3% in 2016, up from 21.2% in 2015.
Customer numbers in CCD have remained stable during the second half of 2016 and the majority of the year on year reduction of WR WRRNSODFH LQWKHȴUVWKDOIRIWKH\HDU7KHUHGXFWLRQRQ UHȵHFWVWKHWLJKWHUFUHGLWVWDQGDUGV introduced as part of the repositioning of the business in September 2013 which have continued to curtail the recruitment of more marginal customers and improve overall credit quality.
'HPDQGDQGFXVWRPHUFRQȴGHQFHKDYH remained robust and when combined with the focus on serving good-quality existing customers has resulted in a 9% year-onyear improvement in sales during 2016. \$VDbUHVXOW&&'UHFHLYDEOHVHQGHGWKH\HDU 7.3% higher than December 2015.
The revenue yield in 2016 of 102.0% has reduced modestly from 103.6% in 2015. 7KHUHGXFWLRQUHȵHFWVWKHFRQWLQXHGIRFXV on serving good quality customers who tend to be served with longer term, lower yielding products.
7KHEHQHȴWRIVWDQGDUGLVHGDUUHDUV and collections processes coupled with continued tight credit standards have resulted in a stable collections performance DQGDUUHDUVSURȴOHLQ7KLVFRPSDUHV with the strong improvements in both these PHWULFVGXULQJZKLFKEHQHȴWHGWKH impairment charge last year. As a result, the ratio of impairment to average receivables has increased from 21.4% in 2015 to 23.6% in 2016.
The modest reduction in revenue yield together with the stable delinquency performance compared with the strong improvements seen in 2015 has produced a risk-adjusted margin for CCD of 78.4% in 2016, lower than 82.2% in 2015.
Business performance continues to EHQHȴWIURPWKHVXFFHVVIXOFRPSOHWLRQ during 2015 of the programme to deploy WHFKQRORJ\WKURXJKRXWWKHȴHOGRSHUDWLRQ to support an improvement in productivity and enhance compliance. Costs in 2016 ZHUHePRUORZHUWKDQ with around one third of the reduction resulting from the annualised savings of DSSUR[LPDWHO\ePVHFXUHGLQ-XQH ZLWKLQWKHȴHOGLQIUDVWUXFWXUH7KHUHPDLQLQJ UHGXFWLRQUHȵHFWVDUHGXFWLRQLQDJHQWVȇ commission costs together with lower costs in Satsuma as a result of much more cost HHFWLYHPDUNHWLQJ
Interest costs were 1.8% lower than last year compared with a 1.8% increase in DYHUDJHUHFHLYDEOHV7KLVUHȵHFWVDPDUJLQDO reduction in the funding rate for the business from 6.8% in 2015 to 6.6% in 2016 due to DbUHGXFWLRQLQJURXSERUURZLQJFRVWV
The repositioning of the home credit business as a smaller, better quality business has been successful in maintaining the SURȴWDELOLW\RIWKHEXVLQHVVDQGLQFUHDVLQJ returns in a mature market. In particular, the business has successfully deployed KDQGKHOGWHFKQRORJ\WRWKHȴHOGIRUFH reduced the number of self-employed agents from over 10,000 to 4,500, reduced WKHȴHOGKHDGFRXQWE\RYHULQFOXGLQJ WKHUHPRYDORIDOOȴHOGDGPLQLVWUDWLRQ and developed sophisticated central underwriting and data analytics.
The self-employed model for agents has EHHQDQHHFWLYHRSHUDWLQJPRGHOIRUWKH home credit business for a long period of time. However, continually increasing customer service expectations together with the development of hand held technology and enhanced data analytics have led to the conclusion that further developments to the current operating model would deliver DPRUHHɝFLHQWDQGHHFWLYHEXVLQHVV As a result, the business has developed a proposal, which is subject to workforce consultation, to enhance the home credit RSHUDWLQJPRGHOLQWKUHHZD\VL VHUYLQJ customers through full time employed Customer Experience Managers rather than self-employed agents to take direct control of all aspects of the relationship with the FXVWRPHULL FKDQJLQJWKHȴHOGPDQDJHPHQW VWUXFWXUHLQWKH8.ZLWKQHZO\GHȴQHG roles and ways of working; and (iii) deploying IXUWKHUWHFKQRORJ\WRLPSURYHHɝFLHQF\ DQGHHFWLYHQHVV
The business is proposing the creation of a number of new roles including over 2,500 full time employed Customer Experience Manager roles which would be tasked with serving customers in a way which is controlled and directed by the business. This means customers would no longer be served by self-employed agents. The proposal will enable the business to manage every aspect of the customer relationship thereby improving WKHHHFWLYHQHVVRIWKHȴHOGRUJDQLVDWLRQ and enhancing the customer experience. In addition, the proposed deployment of further technology in 2017 includes route planning and voice recording which provides the business with the opportunity to improve HɝFLHQF\DQGSURYLGHFXVWRPHUVZLWKPRUH FKRLFHDQGȵH[LELOLW\
Subject to workforce consultation, the business also proposes to change the ȴHOGPDQDJHPHQWVWUXFWXUHLQWKH8. removing the current Area and Development Manager roles and replacing them with new ȴHOGUROHVZLWKGLHUHQWUHVSRQVLELOLWLHV which includes separating the collections and arrears elements of the business to PD[LPLVHHɝFLHQF\
A migration to the enhanced operating model, which features more centralised control over a distributed workforce and greater evidencing of customers interactions, would also enhance regulatory standards. The enhanced operating model is proposed to be fully operational from July 2017.
The 2017 Capital Markets Day on 4 April 2017 will provide more detail on how the enhanced operating model would work, including more detail on the potential ȴQDQFLDOEHQHȴW7KHSURSRVHGQH[WVWDJH in home credit's development is a logical extension of the excellent progress made by CCD in repositioning the business since 2013.
Good progress has been made during 2016 in developing the distribution, digital platform and further lending capability in Satsuma in order to develop a sustainable business both in the competitive online small-sum, short-term credit market and into OHQGLQJODUJHUDPRXQWVRIRYHUeDQG beyond a year in duration.
Satsuma remains the third most recognised brand within online small-sum, short-term credit and the business has continued to develop its multi-channel distribution capability, focusing on recruiting new FXVWRPHUVWKURXJKPRUHFRVWHHFWLYH channels such as digital, social media and the broker channels rather than through the more expensive above the line advertising used in 2015. This has contributed to the ePUHGXFWLRQLQVWDUWXSORVVHVDVVRFLDWHG with Satsuma during 2016 as the business approaches break even.
Satsuma's trading performance in 2016 also UHȵHFWVWKHVLJQLȴFDQWWLJKWHQLQJRIFUHGLW standards implemented in the fourth quarter of 2015 and developed further in 2016 as well as the current narrow focus on small-sum, short term, weekly repaid credit of less than D\HDULQGXUDWLRQ:KLOVWJURZWKGXULQJWKH ȴUVWQLQHPRQWKVRIWKH\HDUZDVUHODWLYHO\ modest, the business has been developing a number of improvements to the customer journey and its product proposition which has supported a 25% year-on-year increase in new business volumes and further lending to established customers during WKHbIRXUWKTXDUWHU
Further lending capability has been boosted by the successful introduction of customer login functionality which allows existing customers to view their account, make electronic payments and apply IRUIXUWKHUFUHGLWLQDQHɝFLHQWPDQQHU Further enhancements for 2017 include allowing customers to monitor their credit status and arrears management functionality. The business is now JHQHUDWLQJDVWURQJȵRZRIIXUWKHUOHQGLQJWR established, good-quality customers which is fundamental to developing strong returns from the business.
Over three quarters of customer applications are made from hand held devices.
Consequently, a mobile app is currently in beta testing with a small proportion of the customer base. The app will replicate the majority of the features within customer login and is expected to further improve the customer experience when it is fully rolled RXWLQWKHȴUVWKDOIRI
&RQVLVWHQWZLWKWKHJURXSȇVȆORZDQGJURZȇ approach to lending, the business launched a monthly product in late November to meet the needs of the larger population of customers who are paid monthly and prefer WRPDQDJHWKHLUȴQDQFHVRQDPRQWKO\EDVLV This new product has been well received. In due course, Satsuma intends to further develop its lending to larger amounts of over eDQGEH\RQGD\HDULQGXUDWLRQZKLFK remains an underserved area within the nonstandard market.
The credit quality of 2016 cohorts of lending are performing in line with expectations and FRQWLQXHWREHQHȴWIURPWKHKLJKO\HHFWLYH and scalable collections capability of Vanquis Bank's contact centre in Chatham.
The current development trajectory of Satsuma is encouraging and customer numbers and receivables ended 2016 DW DQGeP eP UHVSHFWLYHO\
A decision was made to close CCD's guarantor loans business, glo, to new business in early October 2016. This decision UHȵHFWHGWKHORQJHUWKDQHQYLVDJHG timescale in CCD obtaining FCA authorisation which had delayed the transfer of glo to Vanquis Bank together with Vanquis Bank being at an advanced stage of developing its own loans platform to provide a wider unsecured loans proposition. As a result, the glo receivables book has been placed LQWRUXQRZLWKLQ&&'DQGDQH[FHSWLRQDO LPSDLUPHQWFKDUJHRIePLQUHVSHFWRI JORȇVΖ7SODWIRUPKDVEHHQUHȵHFWHGLQ Vanquis Bank will incorporate the learnings from glo when it introduces a fresh guarantor loans product as part of its wider loans proposition during 2017.
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Peter Minter Managing Director
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7KHUHYLHZRIWKHWKUHH\HDUSODQLV XQGHUSLQQHGE\WKHUHJXODUERDUGEULHȴQJV SURYLGHGE\WKHGLYLVLRQDOPDQDJLQJ directors and the discussion of any new strategies undertaken by the board in its normal course of business. These reviews
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7KHGLDJUDPRSSRVLWHUHȵHFWVWKH SULQFLSDOULVNVDQGXQFHUWDLQWLHVIDFLQJWKH JURXSLQEDVHGRQUREXVWTXDUWHUO\ assessment within the divisions and at JURXSOHYHO7KHVHULVNVUHSUHVHQW WKRVHWKDWDUHWKHPRVWSHUWLQHQWWRWKH EXVLQHVVDQGWKHFRPSDQ\ȇVVWUDWHJ\ ZLWKWKRVHPRVWUHOHYDQWDQGHYROYLQJ risks discussed in more detail. The risks IDFLQJWKHJURXSDUHFRQVLGHUHGZLWKLQ the current evolving regulatory and SROLWLFDOHQYLURQPHQWDQGZLWKWKH JURXSȇVVWUDWHJLFREMHFWLYHVWREURDGHQ WKHSURGXFWRHUDQGLQFUHDVLQJO\ PHHWFRQVXPHUVȇGLJLWDOH[SHFWDWLRQV LQPLQG\$VDUHVXOWFRPSHWLWLRQ QHZLQLWLDWLYHVFKDQJHPDQDJHPHQW LQIRUPDWLRQVHFXULW\UHVSRQVLEOH OHQGLQJ8.UHJXODWLRQDQGOLTXLGLW\DUH DOODUHDVRILQFUHDVLQJULVNDQGIRFXV ZKLOHFRQGXFWFUHGLW(8UHJXODWLRQ FDSLWDODQGUHFUXLWPHQWDQGUHWHQWLRQ UHPDLQLPSRUWDQWDQGFHQWUDOWRULVN PDQDJHPHQWHRUWV
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The ability to win and retain customers through better, more WDUJHWHGRHUVHQDEOHVXVWR maintain our leading position in the UK non-standard credit market.
Ongoing monitoring of all existing markets, consumers and competitors at group and divisional level feeding into the biannual budgeting and strategy review process.
Forward-looking as well as current and historic analysis of our consumers, sectors and the UK non-standard credit market LQbJHQHUDO
Product development frameworks and business development processes in all divisions take explicit account of external environment and competitiveness.
Failures in forward-looking market and competitor analysis and forecasting might UHVXOWLQQHZRUH[LVWLQJFRPSHWLWRUVRHULQJ lower prices, better products or identifying DQGUHDFKLQJFRQVXPHUVPRUHHHFWLYHO\ than anticipated. This would reduce new customer recruitment, new lending and customer retention, undermining generation of expected returns.
The group would rapidly seek to understand and address the sources of competitive disadvantage.
Failures in conception, design, planning, implementation or oversight could lead to failure of internal initiatives to successfully GHOLYHUDQWLFLSDWHGQHZRHUVFXVWRPHUV capabilities or returns. If it is not possible to UHFWLI\WKHLVVXHVWKHJURXSPD\DOVRVXHU ORVWLQYHVWPHQWPD\XQGHUPLQHFRQȴGHQFH LQIXWXUHGHOLYHU\DQGPD\VXHUH[LWFRVWV The group would seek to identify issues as early as possible and where they cannot be resolved, close and wind-up the new initiative DVTXLFNO\DQGFRVWHHFWLYHO\DVSRVVLEOH paying due attention to the outcomes for
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and new initiatives under development internally fail, or are delayed in achieving scale or expected returns.
Future growth, returns and competitiveness rely in part on LQWHUQDOO\GHYHORSHGQHZRHUV and capabilities, especially to expand the product range and engage customers in new ways.
management:
The risk that operational and technology changes do not align or fail to meet strategy requirements leading to poor business and customer outcomes. Ongoing improvement in existing businesses in response to developing customer needs, along with development of QHZRHUVDQGPHWKRGVUHO\ RQWKHDELOLW\WRHHFWLYHO\
Biannual budgeting process.
Annual corporate planning conferences in all divisions and at group level where current and potential new initiatives are thoroughly discussed.
Plans for new initiatives are reviewed and approved by divisional boards, and as part RIbWKHEXGJHWLQJSURFHVVE\WKHJURXSbERDUG
Comprehensive daily, weekly and monthly reporting on performance KPIs.
New businesses and initiatives are subject to pilot testing phases before full implementation is approved.
External advice and specialist training and coaching for internal change functions.
Dedicated divisional change boards and oversight committees monitor the plans and activities of dedicated change functions.
Group board reviews, approves and oversees major change programmes.
Internal audit and specialist external assurance reviews are undertaken on key change programmes at inception and at critical points during delivery.
Overall change and strategic plans and progress reviewed and updated biannually in budgeting process, approved by divisional and group boards.
Failure to appropriately design, plan, implement or oversee a major change programme might leave the group unable WRRSHUDWHHHFWLYHO\RUOHDYHLWDWDFXUUHQW or future competitive disadvantage in responding to customer needs, preferences and expectations.
The group would seek to identify developing and actual failures as early as possible and take swift action to address and rectify the situation using both internal and external UHVRXUFHVDVDSSURSULDWHDQGbUHTXLUHG
The group would also seek to understand the root cause of the failure and ensure there is no repeat.
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The risk of data loss or unauthorised change causing a security issue, data or systems abuse, cyber attack or denial of service to systems.
The quality and integrity of our data and systems is increasingly paramount to our ability to continue to operate and safeguard our customers' interests, especially as their preferences change.
Dedicated internal teams supported by external providers which assess and PRQLWRUbULVN
Internal and external testing of human and system/automated defences and vulnerabilities.
Divisional and group risk committees oversee cyber security risks, monitoring and management plans in relation to industry accepted practices and standards.
Internal audit and external third-party review and assessment of cyber security status across all businesses.
Aim to minimise risks of a breach occurring and maintain procedures to tightly manage any issues should they arise.
)DLOXUHWRVXɝFLHQWO\SURWHFWGDWDRUV\VWHPV DJDLQVWDF\EHUDWWDFNDQGRULQHHFWLYH procedures to identify, contain and resolve issues arising could leave the group with ORVVRIFRQȴGHQWLDOLW\LQWHJULW\RUDYDLODELOLW\ RIFRQȴGHQWLDOFXVWRPHURUEXVLQHVV information which may lead to customer detriment, regulatory penalties, loss of revenue, loss of competitiveness and/or loss of reputation.
In the event of a successful cyber attack, the group would act as quickly as possible to identify and address the source, keeping all stakeholders fully informed, and acting to redress any customer detriment appropriately in a timely fashion.
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| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| £m | Vanguis Bank |
CCD Moneybarn | Group | Vanguis Bank |
CCD. | Moneybarn | Group | |
| Adjusted profit before tax 1 | 204.5 | 115.2 | 31.1 | 334.1 | 1855 | 1054 | 21.3 | 292.9 |
| Interest | 42.4 | 26.6 | 12.7 | 81.7 | 43.1 | 27.1 | 9.5 | 80.0 |
| Adjusted PBIT 1 | 246.9 | 141.8 | 43.8 | 415.8 | 228.6 | 132.5 | 30.8 | 372.9 |
| Corporation tax | (66.7) | (28.4) | (8.8) | (96.5) | (46.3) | (26.8) | (6.2) | (75.5) |
| Adjusted PBIAT1 | 180.2 | 113.4 | 35.0 | 319.3 | 182.3 | 105.7 | 24.6 | 297.4 |
| Average receivables | 1,307.0 | 508.7 | 266.6 | 2,082.3 | 1.157.1 | 499.5 | 190.8 | 1,851.2 |
| ROA 1 | 13.8% | 22.3% | 13.1% | 15.3% | 15.8% | 21.2% | 2.9% | 16.1% |
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| f m | 2016 | 2015 |
|---|---|---|
| Adjusted profit before tax 1 | 334.1 | 292.9 |
| Tax | (77.4) | (59.3) |
| Adjusted profit after tax 1 | 256.7 | 233.6 |
| Shareholders' equity | 790.1 | 707.7 |
| Pension asset | (72.4) | (62.3) |
| Deferred tax on pension asset | 12.3 | 11.2 |
| Hedging reserve | 0.2 | ი 5 |
| Proposed final dividend | (132.9) | (117.0) |
| Adjusted equity | 597.3 | 540.1 |
| Average adjusted equity | 568.7 | 510.0 |
| ROE 1 | 45% | 46% |
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| Covenant | Limits post- Limits pre- | renewal 1 renewal 6 | 2016 | 2015 |
|---|---|---|---|---|
| Gearing 2 | $<$ 5.0 times $<$ 5.0 times | 2.3 | 2.2 | |
| Net worth | ||||
| $-$ group 3 | >E400m | $> f$ 765m 730.2 | 657.1 | |
| - excluding Vanquis |
||||
| Bank 3 | $> f155m$ $> f140m$ 350.5 302.0 | |||
| Interest | ||||
| cover 4 | $>$ 2.0 times $>$ 2.0 times | 5.2 | 4.8 | |
| Cash cover 5 | $>1.0$ times $>1.1$ times | 1.22 | 126 |
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| fm | 2016 | 2015 |
|---|---|---|
| Operating cash flow | 147.8 | 202.0 |
| Interest paid | (71.7) | (73.0) |
| Tax paid | (64.4) | (47.5) |
| Net capital expenditure | (10.6) | (25.6) |
| Add back 80% of receivables growth funded by debt |
232.1 | 134.0 |
| Capital generated | 233.2 | 189.9 |
| Analysed as: | ||
| - Vanquis Bank | 152.2 | 143.5 |
| – CCD | 80.1 | 65.1 |
| – Moneybarn | 7.2 | 0.2 |
| – Central | (6.3) | (18.9) |
| Dividends declared | 195.7 | (174.4) |
| Capital retained | 37.5 | 15.5 |
| Dividend cover 1 | 1.32 | 1.35 |
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| Female | Male | |
|---|---|---|
| Proportion of female/male company directors (%) |
22 | 78 |
| Proportion of female/ male employees in senior management positions (%) |
28 | 72 |
| Proportion of female/male employees (%) |
49 | 51 |
| Percentage of employees from Black, Asian and Minority Ethnic (BAME) communities |
17% | |
| Percentage of our employees who | 0.7% |
have declared a disability
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| 1 Cash | £2,700,944 (2015: £2,829,013) |
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| 2 0DQDJHPHQWFRVWV | £285,744 (2015: £229,147) |
| 3 9DOXHRIHPSOR\HH time |
£66,756 (2015: £40,399) |
| Total | £3,053,444 (2015: £3,098,559) |
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Made4U in ML2 is a community centre based in Wishaw, North Lanarkshire. The centre aims to make the local community stronger by working with young people, individuals and families to empower them to have positive lifestyles through a diverse programme of group activities and health and wellbeing initiatives.
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Vanquis Bank has been working with The Outward Bound Trust since 2014. The organisation is an educational charity that runs adventurous and challenging outdoor learning programmes to HTXLS\RXQJSHRSOHIURPGLHUHQW backgrounds with valuable skills for education, work and life.
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We actively manage and report the GHG emissions that relate to the activities for which we are directly responsible, including combustion of fuel or operation of any facility, and for which we are indirectly responsible, such as the electricity and heat we purchase. This not only enables us to meet the requirements of the Companies Act 2006 (Strategic Report and Directors' Reports) 5HJXODWLRQVLWDOVRHQDEOHVbXV WRPHHWWKHQHHGVRILQYHVWRUVbZKR are increasingly interested in our GHG emissions as they look to better understand the carbon intensity of RXUbDFWLYLWLHV
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1,422 |
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2,728 |
| 3 \$VVRFLDWHGLQGLUHFW&22 VFRSH &22HbHPLVVLRQV |
965 |
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| 261 | |
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| 1 \$LUWUDYHO | |
| 2 5DLOWUDYHO | 105 |
| 3 Car travel – own vehicles | 1,057 |
| 4 &RPSDQ\FDUIXHOXVH | 1,092 |
| 5 &DUWUDYHOȂVHOIHPSOR\HGDJHQWV | 1,346 |
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| Total | 4,387 |
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Read more on pages 91-92
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Read more on pages 100-105
Appointed to the board: 2006
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Independent non-executive Chairman
Appointed to the board: 2007
Appointed as Chairman: 2014
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Chairman:
Nomination committee
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Independent non-executive director and Senior Independent Director
Appointed to the board: 2014
\$XGLWFRPPLWWHHULVNDGYLVRU\FRPPLWWHHDQG nomination committee
Remuneration committee
Key strengths:
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Appointed to the board: 2014
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Independent non-executive director
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([WHQVLYHUHWDLOH[SHULHQFHDQGNQRZOHGJHRIWKH type of consumer served by the group.
Operational business experience which is relevant to the group's businesses.
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Independent non-executive director
Appointed to the board: 1 January 2017
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Key strengths: > Experienced digital entrepreneur who has led and
advised on critical digital transformations across a number of sectors.
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General Counsel and Company Secretary
Appointed to the board: 2007
Secretary: Executive committee, remuneration committee, DXGLWFRPPLWWHHULVNDGYLVRU\FRPPLWWHHDQG nomination committee
5HRUJDQLVLQJWKHSURSHUW\DQGHPSOR\PHQW legal teams.
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Negotiating Heads of Terms to secure the redevelopment of the premises adjacent to the JURXSȇVKHDGRɝFHLQ%UDGIRUG
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Independent non-executive director
Appointed to the board: 1 January 2017
Chairman:
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Manjit Wolstenholme Chairman
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Risk advisory committee See pages 81 to 83
Audit committee
Nomination committee
Remuneration committee
Disclosure Committee
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| Board | Audit committee |
Nomination committee |
Remuneration committee |
Risk advisory committee |
Percentage attended |
|
|---|---|---|---|---|---|---|
| 7RWDOQXPEHURIPHHWLQJV | 9 | 4 | 4 | 6 | 4 | |
| 0DQMLW:ROVWHQKROPH | 9 | – | 4 | – | 4 | 100% |
| 3HWHU&URRN | 9 | – | – | – | – | 100% |
| \$QGUHZ)LVKHU | 9 | – | – | – | – | 100% |
| 0DOFROP/H0D\ | 9 | 4 | 4 | 6 | 4 | 100% |
| Rob Anderson | 9 | 4 | 4 | 6 | 4 | 100% |
| \$OLVRQ+DOVH\ | 9 | 4 | 4 | 6 | 4 | 100% |
| Stuart Sinclair | 8 | 4 | 4 | 4 | 92% |
Leadership (continued)
Board composition
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| Chairman Chief Executive |
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Manjit Wolstenholme is also a non-executive director RIb)XWXUHSOF7KH8QLWHURXSSOF&\$/\$URXS+ROGLQJV Limited and CMC Markets plc. These appointments LQYROYHbQRPRUHWKDQRQHDQGDKDOIGD\VȇZRUNSHU ZHHNDQGWKHUHKDYHEHHQQRPDWHULDOFKDQJHVLQKHU other commitments since 1 January 2017. She dedicates VXɝFLHQWWLPHWRWKHH[HUFLVHRIKHUUHVSRQVLELOLWLHV 0DQMLW:ROVWHQKROPHȇVWHUPRIDSSRLQWPHQWKDVEHHQ H[WHQGHGIRUDQDGGLWLRQDOWKUHH\HDUVVXEMHFWWR shareholder approval at the 2017 AGM. 3HWHU&URRNDOVRFKDLUVWKHGLYLVLRQDOERDUGRI&&'DQG FKDLUHGWKH0RQH\EDUQERDUGXQWLO'HFHPEHU |
|---|---|---|
| WKHRSHUDWLRQSHUIRUPDQFHDQGVWUDWHJ\RIWKHJURXSȇVEXVLQHVVHVZLWK WKHH[FHSWLRQRIWKRVHPDWWHUVUHVHUYHGWRWKHERDUG > 5HVSRQVLEOHIRURYHUVHHLQJWKHGHOLYHU\RIWKHFRUSRUDWHUHVSRQVLELOLW\ DJHQGDRIbWKHJURXS |
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| Executive directors |
> 5HVSRQVLEOHIRUDOOPDWWHUVDHFWLQJWKHSHUIRUPDQFHRIWKHJURXS > 5HVSRQVLEOHIRULPSOHPHQWDWLRQRIVWUDWHJ\SROLFLHVEXGJHWVDQGWKH ȴQDQFLDOSHUIRUPDQFHRIWKHJURXSLQDPDQQHUFRQVLVWHQWZLWKWKHJURXS VWUDWHJ\ULVNDSSHWLWHDQGRWKHUSURFHGXUHVDSSURYHGE\WKHbERDUG > 3URYLGHVSHFLDOLVWNQRZOHGJHDQGH[SHULHQFHWRWKHERDUG > Responsible for the successful leadership and management RIbWKHbULVNbDQGbȴQDQFHIXQFWLRQVDFURVVWKHJURXS |
Peter Crook and Andrew Fisher comprise the executive committee which deals with matters relating to the running of the group other than those reserved to the ERDUGDQGWKHRWKHUFRPPLWWHHV |
| Non-executive directors |
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The non-executive directors have a wide range of recent DQGUHOHYDQWȴQDQFLDOVHUYLFHVFRUSRUDWHJRYHUQDQFH retail consumer and digital experience as detailed on SDJHVWRb 7KH\DUHDSSRLQWHGIRUȴ[HGSHULRGVRIWKUHH\HDUV VXEMHFWWRFRQȴUPDWLRQE\VKDUHKROGHUV7KLVWKUHH \HDUSHULRGPD\EHH[WHQGHGIRUDIXUWKHUWKUHH\HDUV DQGLQH[FHSWLRQDOFDVHVIXUWKHUH[WHQGHG VXEMHFW WRDQQXDOUHDSSRLQWPHQWE\VKDUHKROGHUV7KHLUOHWWHUV RIDSSRLQWPHQWPD\EHLQVSHFWHGDWWKHFRPSDQ\ȇV UHJLVWHUHGRɝFHRUFDQEHREWDLQHGRQUHTXHVWIURP WKHb&RPSDQ\6HFUHWDU\ 0DOFROP/H0D\ȇVWHUPRIDSSRLQWPHQWKDVEHHQ H[WHQGHGbIRUDQDGGLWLRQDOWKUHH\HDUVVXEMHFW WRbVKDUHKROGHUDSSURYDODWWKH\$0 \$OLVRQ+DOVH\ȇVWHUPRIDSSRLQWPHQWH[SLUHGRQ-DQXDU\ 2017. She will however remain a non-executive director XQWLOWKH\$0EXWZLOOQRWEHVHHNLQJUHDSSRLQWPHQW 'DYLG6HDUDQG-RKQ6WUDZZHUHERWKDSSRLQWHGDV non-executive directors on 1 January 2017 for an initial WHUPRIWKUHH\HDUVVXEMHFWWRVKDUHKROGHUDSSURYDODW WKHb\$*0 |
| Senior Independent 'LUHFWRU6Ζ' |
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Malcolm Le May assumed the role of SID on 1 January 2014. He was selected for this role on account of his extensive H[SHULHQFHLQWKHȴQDQFLDOVHUYLFHVVHFWRUDQGKLVZLGH UDQJLQJSXEOLFFRPSDQ\DQGFRUSRUDWHH[SHULHQFH |
| Company Secretary |
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7KHUHLVDOVRDIRUPDOSURFHGXUHE\ZKLFKDQ\GLUHFWRU may take independent professional advice relating to the SHUIRUPDQFHRIDQ\DVSHFWRIWKHLUGXWLHVDWWKHFRPSDQ\ȇV H[SHQVHZKLFKLVIDFLOLWDWHGE\WKH&RPSDQ\6HFUHWDU\ The appointment and removal of the Company Secretary |
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| Areas | Evaluation (2015) | Action points (2015) | Progress (2016) |
|---|---|---|---|
| 1. Role of directors and the board |
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| 2. Board composition |
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| 3. Board meetings |
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| 4. Monitoring performance |
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| 6. Corporate governance |
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| Board composition | The composition of the board was positively rated although there was an acknowledgment that the addition of digital experience would be beneficial. |
|---|---|
| Board expertise | The board's understanding of the views and requirements of major investors, employees, customers and regulators was rated positively. |
| Board dynamics | The board dynamics, particularly the relationship between board members and management, were highly rated overall. |
| Management of meetings | The management of meetings and the structure of committees, together with board support, was positively rated as was the quality of management presentations and the structure and content of board packs. |
| Focus of meetings | The focus of board and committee meetings and the oversight of the operating divisions was considered appropriate as was risk management and internal control. |
| Strategic oversight | The board's testing and development of strategy was rated highly as was the board's oversight of the implementation of the agreed strategy. |
| Risk management and control | The effectiveness with which the board takes risk into account when making major decisions was positively rated. |
| Succession planning and human resource management |
The structure of the group at a senior level was positively rated. The board's oversight of succession plans for top management was considered adequate, as was the level of interaction between the board and top management in board meetings, in the business and in informal and social settings. |
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| ⊸∪–∪ $\overline{\overset{000}{\circ}}\overset{000}{\circ}$ |
||
|---|---|---|
| February | March | April |
| > Preliminary results announcement. > London investor/sales team roadshows. |
> US roadshow (New York and Chicago). > Barclays UK Select Conference. |
$\geq$ London wealth manager roadshow. |
| July | September | October |
| > Interim results announcement. > London investor/sales team roadshows. |
> Edinburgh investor roadshow. | > Q3 IMS and analysts call. > Frankfurt, Zurich and Geneva investor roadshow. > Amsterdam, Brussels and Madrid investor roadshow. |
| December | ||
| > Berenberg European Conference. |
Find out more online - we publish our results and presentations on our investor website at |
|
| www.providentfinancial.com |
A key focus of the committee's work in 2016 has been ensuring a greater consistency of risk reporting across the group and overseeing the divisions' work with their regulators."
Stuart Sinclair
Risk advisory committee chairman
Recommending an overall conduct risk appetite, culture and tone for approval E\bWKHERDUG
0RQLWRULQJWKHHHFWLYHQHVVRIWKH divisions in establishing and maintaining risk management frameworks, policies DQGSURFHGXUHV
Carrying out a robust assessment of the principal risks facing the group, including those that would threaten its business model, future performance, solvency or liquidity. A description of the principal risks and the actions taken to manage or mitigate those risks is set out in detail on SDJHVWRRIWKHVWUDWHJLFUHSRUW
Reviewing the group's capability to identify and manage new risk types, and NHHSLQJXQGHUUHYLHZWKHHHFWLYHQHVV of the group's internal control and risk management systems in conjunction ZLWKbWKHDXGLWFRPPLWWHH
5HYLHZLQJWKHJURXSȇVLGHQWLȴFDWLRQ of current and forward-looking ULVNH[SRVXUHV
Reviewing the group's business FRQWLQXLW\SODQV
Notifying the board of any changes in the VWDWXVDQGFRQWURORIULVNVDQG
Reviewing and approving the Internal Capital Adequacy Assessment Process (ICAAP) stress testing and capital allocation approach and the Internal Liquidity Adequacy Assessment Process (ILAAP) and the recovery and resolution plan (RRP) adopted by Vanquis Bank on an individual and consolidated basis for submission to the board for ȴQDODSSURYDO
Other mandatory attendees at the risk 0RUWORFNDQGWKHPDQDJLQJGLUHFWRUV
| 1 Setting group risk management | 10% |
|---|---|
| 2 Setting overall risk appetite | 5% |
| \$VVHVVLQJRXWFRPHVYVbDSSHWLWH | 25% |
| \$VVHVVLQJULVNPDQDJHPHQWHHFWLYHQHVV | 20% |
| 5 Overseeing management actions | 25% |
| 6 Approving ICAAP, ILAAP and RRP | 15% |
ILAAP for Vanquis Bank.
Reviewed the ICAAP, including the Vanquis Bank RRP and
Risk advisory committee (continued)
As chairman of the risk advisory committee, I am pleased to present the report of the work of the risk advisory committee during 2016. Risk management is the process of identifying, quantifying, and managing the conduct, strategic, operational, compliance DQGȴQDQFLDOULVNVWKDWWKHJURXSIDFHV including those arising from market disruption and the evolving regulatory UHTXLUHPHQWVSDUWLFXODUO\LQWKHȴQDQFLDO services sector. The primary role of the risk advisory committee is to ensure the divisions understand and manage their risks in a manner consistent with what the board is willing to accept in the context of the overall corporate strategy.
Reviewed the overall risk management VWDWXVRIWKHJURXS
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Reviewed the risk appetite status across WKHJURXS
Reviewed the quarterly internal audit RSLQLRQRQULVNPDQDJHPHQWUHSRUWLQJDQG
Reviewed minutes and actions from prior meetings, and of the risk advisory group.
2XUULVNPDQDJHPHQWIUDPHZRUNLVȴUPO\ embedded within our management and governance processes, and incorporates WKHbSURFHVVGHWDLOHGRQSDJH
This risk management framework was in operation throughout 2016 and continued to operate up to the date of approval of this Annual Report and Financial Statements 2016. This framework is the process by which group-wide compliance with laws and UHJXODWLRQVWKHUHOLDELOLW\RIWKHȴQDQFLDO reporting process (including in relation to the preparation of consolidated accounts) and WKHHHFWLYHQHVVDQGHɝFLHQF\RIRSHUDWLRQV are reviewed. The framework assists in the LGHQWLȴFDWLRQHYDOXDWLRQDQGPDQDJHPHQWRI principal risks as required by the Code and is designed to manage rather than eliminate the risk of failure to achieve business objectives. The board believes the framework provides reasonable, but not absolute, assurance against material misstatement or loss.
(2) to have divisional managing directors
(3) to have the risk advisory committee
A consistently applied method is used at divisional and group level to identify the key ULVNVWKDWFRXOGKDYHDVLJQLȴFDQWLPSDFWRQ the ability of the group to achieve its strategic REMHFWLYHV5LVNRZQHUVDUHLGHQWLȴHGDQG given responsibility for ensuring actions are implemented with appropriate review dates.
The board provides oversight to help ensure that the group and its divisions maintain sound internal control and risk management systems. Through the risk advisory committee, it reviews the assessment of risks and the risk management frameworks.
The risk registers are reviewed by the risk advisory group and updated at least quarterly. The risk advisory committee, through the risk advisory group is responsible for monitoring the key actions and metrics LGHQWLȴHGE\WKHGLYLVLRQVDQGWKHJURXS in the management of all risks, including in particular conduct risk, and ensures that customer outcomes remain central to the group's risk management programme.
7KHERDUGLVVDWLVȴHGWKDWWKHJURXSȇVULVN management and internal control systems, LQFOXGLQJLQSDUWLFXODUWKHȴQDQFLDOUHSRUWLQJ SURFHVVHVZHUHHHFWLYHWKURXJKRXW and up to 28 February 2017 and continue WREHVR7KHERDUGGRHVWKLVWKURXJK the risk advisory committee, which carries out a robust assessment of the principal risks facing the group and receives detailed reports from the risk advisory group on all risks, including conduct and regulatory ULVNDQG WKHDXGLWFRPPLWWHHZKLFK reviews the work of the group internal audit function and their opinion on risk and FRQWUROHHFWLYHQHVV7KHDXGLWFRPPLWWHH actively monitors the risk management and LQWHUQDOFRQWUROV\VWHPVLQFOXGLQJȴQDQFLDO operational and compliance controls on an ongoing basis. This annual review and RQJRLQJPRQLWRULQJFRQȴUPVWKDWWKH internal control and risk management SURFHVVHVHHFWLYHO\VXSSRUWDQGPDQDJH the achievement of the overall group objectives and provide suitable protection of the group's assets, reputation and sustainability. A strong risk management and control culture exists across the group and areas where improvements could be
PDGHZHUHLGHQWLȴHG\$QDFWLRQSODQKDV been established to ensure that the systems and processes continue to evolve as the regulatory environment in which the group operates continues to change.
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The board believes that the risk management SURFHVVLQFOXGLQJLQSDUWLFXODUWKHȴQDQFLDO reporting processes, are in accordance with the Financial Reporting Council's (FRC) Guidance on Risk Management, Internal Control and Related Financial and Business Reporting ('the FRC's Guidance') and the FCA's 'LVFORVXUH*XLGDQFHDQG7UDQVSDUHQF\5XOHV
Further insight into the group's principal risks, and the management of these, can be found on pages 47 to 50 of the strategic report.
The committee formally considered its HHFWLYHQHVVLQDWLWVPHHWLQJLQ January 2017. This was undertaken as part of the external board and committee evaluation process carried out by Lintstock. Each director was able to comment and rate various aspects of the committee's role by responding to a series of questions relating to the performance of the committee contained in the external questionnaire. On the basis of the evaluation undertaken, the overall view ZDVWKDWLWZDVZRUNLQJHHFWLYHO\WRIXOȴOLWV UHVSRQVLELOLWLHVDQGGXWLHVDQGQRVLJQLȴFDQW DFWLRQVZHUHLGHQWLȴHG
Risk advisory committee chairman 28 February 2017
The audit committee provides governance and oversight of the ȴQDQFLDOUHSRUWLQJDQG disclosure process, the audit process and the system of internal controls DQGbFRPSOLDQFHȋ
Alison Halsey
Audit committee chairman
The primary function of the committee is WRDVVLVWWKHERDUGLQIXOȴOOLQJLWVRYHUVLJKW responsibilities by monitoring the integrity RIWKHȴQDQFLDOVWDWHPHQWVRIWKHJURXSDQG RWKHUȴQDQFLDOLQIRUPDWLRQEHIRUHSXEOLFDWLRQ DQGUHYLHZLQJWKHVLJQLȴFDQWȴQDQFLDO reporting judgements contained in them. ΖQDGGLWLRQWKHFRPPLWWHHDOVRUHYLHZV
7KHV\VWHPVRILQWHUQDOȴQDQFLDO operational and compliance controls on a continuing basis, and the arrangements and procedures in place to deal with ZKLVWOHEORZLQJIUDXGDQGEULEHU\DQG
7KHDFFRXQWLQJDQGȴQDQFLDOUHSRUWLQJ processes, along with the roles and HHFWLYHQHVVRIERWK the group internal audit function and the external auditor.
The ultimate responsibility for reviewing and approving the Annual Report and Financial Statements 2016 remains with the board.
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Initiating and oversight of any tender process in relation to the appointment RIbDQbH[WHUQDODXGLWRU
Negotiation of the scope and fee for WKHDXGLW
Assisting the board in assessing the company's ongoing viability, the basis RIWKHbDVVHVVPHQWDQGWKHSHULRGRI WLPHFRYHUHG
Approving the group internal audit plan DQQXDOO\DQG
.HHSLQJXQGHUUHYLHZWKHHHFWLYHQHVV RIWKHbJURXSȇVV\VWHPRILQWHUQDOFRQWUROV and risk management by considering group internal audit activity reports at each meeting and reporting to the board on a regular basis.
Secretary
Ken Mullen
'DYLG0RUWORFNDQGWKHH[WHUQDODXGLWRU 'HORLWWH//3
| 1 Governance | 10% |
|---|---|
| 2 Financial reporting | 20% |
| 3 External Audit | 25% |
| 4 Internal audit | 40% |
| 5 Other | 5% |
going concern paper and WKHbȴQDOUHVXOWV
As chairman of the audit committee, I am pleased to present the audit committee's UHSRUWIRUWKH\HDUHQGHG'HFHPEHU This report is intended to provide a summary of the activities of the audit committee and its key responsibilities as a separate report in accordance with the FRC's guidance and the Financial Reporting Lab's 'Reporting of \$XGLW&RPPLWWHHȇV*XLGDQFHȇDQGFRQȴUPV compliance with the Competition and Markets Authority's Statutory Services Order.
Reviewed the group internal audit DFWLYLW\UHSRUW
Reviewed the minutes of the Vanquis Bank DXGLWFRPPLWWHHDQG
Had a discussion with the external auditor without any executive director or employee being present.
At the request of the board, the committee considered whether, in its opinion, the Annual Report and Financial Statements 2016, taken as a whole, is fair, balanced, and understandable and provides the necessary information for shareholders to assess the group's position and performance, business model and strategy.
In justifying this statement the committee considered the robust process in place to create the Annual Report and Financial 6WDWHPHQWVLQFOXGLQJ
7KHIXOODQGHHFWLYHDVVHVVPHQWV made by the divisions of any conduct risks and the oversight of this process by the risk advisory group and the risk DGYLVRU\FRPPLWWHH
The early involvement of the committee in the preparation of the Annual Report and Financial Statements 2016 which enabled it to provide input into the overall messages DQGWRQH
The input provided by divisional and group senior management and the process RIUHYLHZHYDOXDWLRQDQGYHULȴFDWLRQWR HQVXUHEDODQFHDFFXUDF\DQGFRQVLVWHQF\
The reviews conducted by external advisors appointed to advise on EHVWSUDFWLFH
The regular review of the group internal audit activity reports which are presented at committee meetings and the opportunity for the non-executive directors to meet the external auditor without any employee of the group EHLQJSUHVHQW
The meetings held by the committee to review and consider the draft Annual Report and Financial Statements 2016 in DGYDQFHRIWKHȴQDOVLJQRDQG
7KHȴQDOVLJQRSURFHVVE\WKHERDUG
When forming its opinion, the committee UHȵHFWHGRQWKHLQIRUPDWLRQLWKDG received and its discussions through the year. In particular, the committee FRQVLGHUHGZKHWKHU
Is the narrative reporting on the divisions consistent with the reporting in the ȴQDQFLDOVWDWHPHQWV"
Are the key messages in the QDUUDWLYHUHSRUWLQJUHȵHFWHGLQWKH ȴQDQFLDOUHSRUWLQJ"
Are the KPIs disclosed at an appropriate OHYHOEDVHGRQWKHȴQDQFLDOUHSRUWLQJ"
Is there a good level of consistency between the narrative reporting and the ȴQDQFLDOUHSRUWLQJDQGLVWKHPHVVDJLQJLQ each consistent when read independently RIHDFKRWKHU"
Are the statutory and adjusted measures explained clearly and given appropriate SULRULW\DQGSURPLQHQFH"
Are the key judgements referred to in the QDUUDWLYHUHSRUWLQJDQGWKHVLJQLȴFDQW issues reported in this audit committee report consistent with the disclosures and critical judgements set out in the ȴQDQFLDOVWDWHPHQWV"
How do these compare with the risks that the external auditor will include in LWVUHSRUW"
Is there a clear and understandable VWUXFWXUHDQGSUHVHQWDWLRQWRWKHUHSRUW"
Are the important messages highlighted appropriately and consistently throughout the document with clear signposting to where additional information can EHIRXQG"
This assessment was also underpinned by WKHIROORZLQJ
The key judgement papers prepared by management including the impairment RIUHFHLYDEOHVLQ&&'9DQTXLV%DQNDQG Moneybarn, the annual impairment review of goodwill, and the going concern statement which were carefully reviewed DQGFKDOOHQJHGE\WKHbFRPPLWWHHZLWKWKH assistance of the external auditor who also fully analysed the papers as part of the \HDUHQGSURFHVV
The consistency between the risks LGHQWLȴHGDQGWKHLVVXHVWKDWDUHRI FRQFHUQWRWKHFRPPLWWHH
\$YHULȴFDWLRQSURFHVVLQUHODWLRQWR the factual content of various aspects of the Annual Report and Financial 6WDWHPHQWV
The comprehensive reviews undertaken DWGLHUHQWOHYHOVLQWKHJURXSWKDWDLPWR HQVXUHFRQVLVWHQF\DQGRYHUDOOEDODQFH and
The external auditor's report on the Annual Report and Financial Statements 2016.
Following its review, the committee was of the opinion that the Annual Report and Financial Statements 2016 is representative of the year, and presents a fair, balanced, and understandable overview, providing the necessary information for shareholders to assess the group's position, performance, business model and strategy.
The group operates an in-house group internal audit function which is managed by the Head of Group Internal Audit, with specialist services provided by third-party consultants where necessary. The group internal audit function also reports to the committee which helps to ensure the function's independence from group management. The committee reviews regular reports on the activity of this function and as chairman of the audit committee, I also meet separately with the Head of Group Internal Audit on a quarterly basis.
The group internal audit function encompasses all divisions within the group and therefore provides a consistent and balanced overview of the group to the committee.
7KHVLJQLȴFDQWLVVXHVDQGDUHDVRIMXGJHPHQWFRQVLGHUHGE\WKHDXGLWFRPPLWWHHLQUHODWLRQWRWKH\$QQXDO5HSRUWDQG)LQDQFLDO Statements 2016 are outlined below. We discussed these with the external auditor during the year and, where appropriate, these have been addressed as areas of audit focus as outlined in the auditor's report on pages 172 to 177.
| Issue | Judgement | Actions |
|---|---|---|
| Impairment of receivables ZLWKLQb&&' 5HFHLYDEOHVDUHLPSDLUHGLQ&&' when the cumulative amount of two or more contractual weekly payments have been missed in the previous 12 weeks. Impairment is FDOFXODWHGXVLQJPRGHOVZKLFKbXVH historical payment performance to generate the estimated amount and WLPLQJRIIXWXUHFDVKȵRZVIURPHDFK arrears stage. |
Judgement is applied as to the appropriate point at which receivables are impaired and whether past payment performance provides a reasonable guide as to the collectability of the current receivables book. Accordingly, this is a primary VRXUFHRIDXGLWHRUWIRUWKH group's external auditor, 'HORLWWH//3'HORLWWH |
> Reviewed management's report and In order to assess the appropriateness of the judgements applied, management challenged management on the results produce a detailed report for the external DQGMXGJHPHQWVXVHGLQWKHWHVW DXGLWRUVHWWLQJRXWL WKHDVVXPSWLRQV > Considered the work performed XQGHUSLQQLQJWKHUHFHLYDEOHVYDOXDWLRQ E\'HORLWWHRQYDOLGDWLQJWKHGDWD and (ii) a scenario analysis comparing XVHGLQWKHbWHVWLQJSHUIRUPHGE\ the receivables valuation with alternative management and their challenge valuations based upon various forecasts of RIbWKHbDVVXPSWLRQVXVHG future cash collections, including prior year > &RQVLGHUHGWKHȴQGLQJVZLWKLQWKH performance, current performance and report in light of current trading budget performance. performance and expected future ΖQDVVHVVLQJWKHDGHTXDF\RI&&'ȇV SHUIRUPDQFHDQG LPSDLUPHQWSURYLVLRQVWKHFRPPLWWHH > Considered the work performed by > Reviewed management's report on the the group internal audit function on accounting treatment and assumptions information technology controls and adopted within the impairment operational controls such as cash calculations across the group and any collections, credit management and changes made to this approach during arrears management. WKH\HDU |
| Impairment of receivables at 9DQTXLVb%DQNDQG0RQH\EDUQ Receivables are impaired in Vanquis Bank and Moneybarn when one or more contractual monthly payment(s) have been missed. The impairment provision is calculated using models which use historical payment performance to generate the estimated amount and timing of IXWXUHFDVKȵRZVIURPHDFKDUUHDUV stage. Management update the methodology monthly to ensure the assumptions accurately take account of the current economic environment, product mix and recent customer payment performance. |
Judgement is applied on whether past payment performance is a good indication of how a customer may pay in the future. Accordingly, this is a primary source of focus IRU'HORLWWHGXULQJWKH audit process. |
In assessing the adequacy of Vanquis > &RQVLGHUHGWKHȴQGLQJVLQOLJKWRI current trading performance and Bank's and Moneybarn's impairment H[SHFWHGIXWXUHSHUIRUPDQFH SURYLVLRQVWKHFRPPLWWHH > Considered the work performed by > Reviewed management's report on the the group internal audit function on accounting treatment and assumptions information technology controls and adopted within the impairment operational controls such as cash calculations across the group and any collections, credit management and changes made to this approach during DUUHDUVPDQDJHPHQWDQG WKH\HDU > Considered the review performed > Considered the work performed by by the Vanquis Bank audit 'HORLWWHRQYDOLGDWLQJWKHGDWDXVHGDQG committee on the Vanquis Bank their challenge of the assumptions used impairment provisions. E\PDQDJHPHQW |
| 5HWLUHPHQWEHQHȴWDVVHW The valuation of the retirement EHQHȴWDVVHWLVGHSHQGHQWXSRQ a series of assumptions. The key assumptions are the discount rate, LQȵDWLRQUDWHVDQGPRUWDOLW\UDWHV used to calculate the present value of future liabilities. |
Judgement is applied in formulating each of the assumptions used in calculating the retirement EHQHȴWDVVHW |
The company's external actuary, ZRUNSHUIRUPHGE\'HORLWWHRQWKH Willis Towers Watson, propose the valuation and their views on the suitable appropriate assumptions and calculate ranges of assumptions based on WKHYDOXHRIWKHUHWLUHPHQWEHQHȴW their experience. asset. The committee considered the |
| Annual impairment review RIbJRRGZLOO In accordance with IFRS 3 'Business Combinations', the goodwill of £71.2m arising on acquisition of Moneybarn in August 2014 is subject to an annual impairment review. The impairment review is conducted by comparing the discounted estimated future FDVKȵRZVRI0RQH\EDUQZLWKWKH carrying value of goodwill in the ȴQDQFLDOVWDWHPHQWV |
-XGJHPHQWLVDSSOLHGLQL deriving the forecast cash ȵRZVRI0RQH\EDUQDQGLL establishing the appropriate discount rate to apply to the IRUHFDVWFDVKȵRZV |
In assessing the reasonableness of ZRUNSHUIRUPHGE\'HORLWWHDQGWKHLU the impairment review of goodwill, views on the appropriateness of the the committee considered a detailed assumptions used by management paper produced by management on based on their experience. the methodology adopted. In addition, the committee also considered the |
| Taxation The group provides for tax liabilities based on an assessment of the probability of such liabilities falling due. |
Judgement is applied to determine the quantum of such liabilities and the probability of them occurring. |
The committee considered SHUIRUPHGE\'HORLWWHLQFRQVLGHULQJ management's assessment of the the reasonableness of the assessment likelihood and quantum of any potential carried out. liability and the views and work |
The committee considers the reappointment of the external auditor, including the rotation of the audit partner, annually. This includes an assessment of the independence of the external auditor and an assessment of their performance in the previous year. This is achieved primarily through a questionnaire and scorecard which is completed by key stakeholders involved in the annual audit process, including the audit committee and KHDGVRIȴQDQFHLQHDFKRIWKHGLYLVLRQV The scores and results of the questionnaire are collated and shared with the external auditor and an action plan to address any DUHDVRIFRQFHUQLGHQWLȴHGLVDJUHHG
The group carried out a rigorous audit tender process in June 2012 and, as a UHVXOW'HORLWWHZHUHDSSRLQWHGDVWKH group's external auditor. The committee will continue to assess the performance of the external auditor on an ongoing basis WRHQVXUHWKDWLWLVVDWLVȴHGZLWKWKHTXDOLW\ of the services provided. As part of that process, it recommended to the board the UHDSSRLQWPHQWRI'HORLWWHDVDXGLWRUWRWKH FRPSDQ\DQGDUHVROXWLRQWRWKLVHHFWZLOO be proposed at the 2017 AGM. In accordance with the Code, the external audit contract will be put out to tender at least every 10 years.
The external auditor is required to rotate the audit partner responsible for the group DXGLWHYHU\ȴYH\HDUV7KHFXUUHQWOHDGDXGLW SDUWQHUKDVEHHQLQSODFHIRUȴYH\HDUV and as a result, the lead audit partner will change in 2017 following completion of the audit on the Annual Report and Financial Statements 2016.
In accordance with best practice and guidance issued by the FRC, the committee ZLOOFRQWLQXHWRUHYLHZWKHTXDOLȴFDWLRQ expertise, resources and independence RIbWKHH[WHUQDODXGLWRUDQGWKHHHFWLYHQHVV of the audit process during the next ȴQDQFLDO\HDU
The committee has adopted a policy on WKHDSSRLQWPHQWRIVWDIURPWKHH[WHUQDO auditor to positions within the various group ȴQDQFHGHSDUWPHQWVΖWJUDGHVDSSRLQWPHQWV into four categories and sets out the approvals required. Neither a partner of the DXGLWȴUPZKRKDVDFWHGDVHQJDJHPHQW partner, the quality review partner, other key audit partners or partners in the chain of command, nor a senior member of the audit engagement team, may be employed DVJURXSȴQDQFHGLUHFWRUJURXSȴQDQFLDO FRQWUROOHURUGLYLVLRQDOȴQDQFHGLUHFWRU
At each of its meetings, the committee has a separate session with the external auditor without any executive director or employee RIbWKHJURXSEHLQJSUHVHQW7KLVJLYHV members of the committee the opportunity to raise any issues, including any issues on WKHbLQWHULPDQGȴQDOUHVXOWVRIWKHJURXS directly with the external auditor.
The company has a formal policy on the use of the external auditor for non-audit work. This policy is reviewed annually by the committee.
The award of non-audit work to the external auditor is managed and monitored in order to ensure that the external auditor is able to conduct an independent audit and is perceived to be independent by the group's shareholders and other stakeholders.
Work is awarded only when, by virtue of their knowledge, skills or experience, the external auditor is clearly to be preferred over alternative suppliers.
The group maintains an active relationship with at least three other professional advisors. The nature and cost of all nonaudit work awarded to the group's external auditor for the period since the last meeting and for the year to date is reported at each meeting of the committee, together with an explanation as to why the external auditor was the preferred supplier.
No information technology, remuneration, recruitment, valuation or general FRQVXOWDQF\bZRUNPD\EHDZDUGHGWRWKH external auditor without my prior written approval and such approval is only given in H[FHSWLRQDOFLUFXPVWDQFHV:KHUH'HORLWWH is used for non-audit work, prior approval LVbREWDLQHGIURPWKHFRPPLWWHH7KHH[WHUQDO auditor may not perform internal audit work. External specialist resource for the group internal audit function is provided E\b.30*//3
I am also required to approve in advance any single award of non-audit work with an aggregate cost of £250,000 or more. 7KHFRPPLWWHHVHHNVFRQȴUPDWLRQWKDW 'HORLWWHȇVREMHFWLYLW\DQGLQGHSHQGHQFH are safeguarded.
'XULQJWKH\HDUWKHFRPPLWWHHUHJXODUO\ considered a schedule of audit and non-DXGLWZRUNFDUULHGRXWE\'HORLWWH7KLVIHOO EURDGO\LQWRIRXUFDWHJRULHVIHHVSD\DEOH IRUWKHDXGLWbRIWKHSDUHQWFRPSDQ\DQG FRQVROLGDWHGȴQDQFLDOVWDWHPHQWVDXGLW of the company's subsidiaries pursuant WROHJLVODWLRQRWKHUVHUYLFHVSXUVXDQWWR OHJLVODWLRQDQGWD[VHUYLFHV
)HHVSDLGWR'HORLWWHIRUQRQDXGLWZRUN during the year amounted to £206,000 e FRPSULVLQJeIRUWKH group interim review, £56,000 for the review RISURȴWVIRUUHJXODWRU\UHSRUWLQJSXUSRVHV £61,000 for agreed upon procedures work in respect of the adoption of IFRS9 throughout the year and £24,000 for other projects. The ratio of audit to non-audit fees during WKHb\HDUZDV
The committee formally considered its SHUIRUPDQFHDQGHHFWLYHQHVVDWLWVPHHWLQJ LQ'HFHPEHU7KLVZDVXQGHUWDNHQDV part of the external board and committee evaluation process carried out by Lintstock. Each director was able to comment and rate various aspects of the committee's role by responding to a series of questions relating to the performance of the committee contained in the external questionnaire. On the basis of the evaluation undertaken, the overall view was that the committee was operating HɝFLHQWO\DQGHHFWLYHO\DQGQRDFWLRQV ZHUHLGHQWLȴHG
Following the conclusion of the AGM, at which I will not be seeking reappointment, Andrea Blance will be appointed as chairman of the DXGLWFRPPLWWHH'HWDLOVRIKHUDSSRLQWPHQW can be found on pages 90 to 91. However, ΖbZLOOEHDYDLODEOHDWWKH\$*0RQ0D\ to answer any questions on the work of the committee.
Audit committee chairman 28 February 2017
This year our main focus has been on the recruitment of two new non-executive directors in order to strengthen the board's skillset in the key DUHDVLGHQWLȴHGLQYDULRXV board evaluations which will ensure the board is ȴWIRUSXUSRVHIRUWKH next phase of the group's development."
0DQMLW:ROVWHQKROPH Chairman
The primary function of the committee is to monitor the balance of skills, knowledge, experience and diversity on the board and make recommendations for change, as appropriate, to the board.
Regularly reviews the structure, size and composition (including skills, knowledge, experience and diversity) of the board, and makes recommendations to the board for any changes to its composition to ensure it UHPDLQVDSSURSULDWHO\UHIUHVKHG
Fully considers the succession planning requirements for directors and the senior PDQDJHPHQWWHDPVLQWKHFRUSRUDWHRɝFH and in the divisions to ensure that succession LVPDQDJHGVPRRWKO\DQGHHFWLYHO\
Keeps under review the leadership needs of the group, to ensure it remains competitive in WKHPDUNHWSODFH
Evaluates the balance of skills, knowledge, experience and diversity on the board before any appointments are made and prepares DGHVFULSWLRQRIWKHUROHDQGLGHQWLȴHV the capabilities required for a particular appointment. The committee considers candidates on merit and against objective FULWHULDZLWKGXHUHJDUGWRWKHEHQHȴWVRI GLYHUVLW\LQFOXGLQJJHQGHU
ΖGHQWLȴHVDQGQRPLQDWHVWRWKHERDUG FDQGLGDWHVWRbȴOObERDUGYDFDQFLHVDQG
Reviews and considers the performance DQGHHFWLYHQHVVRIWKHFRPPLWWHHWKURXJK the results of the board and committee performance evaluation process.
Manjit Wolstenholme(chairman)
Malcolm Le May
Secretary
Ken Mullen
by Manjit Wolstenholme, the Chairman. by invitation. His role as an attendee is progress on the recruitment of the new
| 1 Succession planning | 20% |
|---|---|
| 2 Leadership | 30% |
| 3 Recruitment | 40% |
| 3HUIRUPDQFHDQGHHFWLYHQHVV | 10% |
H[HFXWLYHGLUHFWRUV-RKQ6WUDZDQG'DYLG6HDU
Recommended the extension of Malcolm Le May's term XQWLOb0D\
I am pleased to present to you the report of the work of the nomination committee during 2016. We have again been active in monitoring the succession planning processes in place across the group for senior positions. The committee also completed a detailed review of the composition of the board, which considered the knowledge and VNLOOVUHTXLUHGWRHHFWLYHO\LPSOHPHQWWKH group strategy and the output from previous board and committee evaluation processes, particularly in relation to the need to address WKHVNLOOVVKRUWIDOORQWKHERDUGLQbWKH digital space.
The committee also reviewed the appointments of Manjit Wolstenholme and Malcolm Le May as their current terms RIRɝFHZHUHGXHWRH[SLUHGXULQJ The committee is pleased to report that it is VDWLVȴHGZLWKWKHRQJRLQJSHUIRUPDQFHRI both Manjit Wolstenholme and Malcolm Le May and recommended to the board that their terms of appointment be extended for a further three years.
The group recognises the importance of diversity, including gender diversity, at all levels of the group, as well as at board level. The group believes that diversity amongst directors helps contribute towards a high SHUIRUPLQJDQGHHFWLYHERDUG7KHERDUG through the nomination committee, strives to UHFUXLWGLUHFWRUVIURPGLHUHQWEDFNJURXQGV with diverse experience, perspectives, personalities, skills and knowledge. In the case of non-executive directors, the selection process is designed to ensure there is LQGHSHQGHQFHRIPLQGJLYHQWKHVSHFLȴF responsibilities of the non-executive directors on the board. For more information about the board's composition, see page 74.
The nomination committee and the group as a whole is committed to increasing diversity across all group operations and supporting the development and promotion of talented individuals, regardless of gender, nationality or ethnic background. As previously reported, the board has been supportive of the recommendations FRQWDLQHGLQ/RUG'DYLHVȇUHSRUWȆ:RPHQRQ Boards' and the board remains committed to reaching 33% female representation on the board by 2020. Following the launch of the Hampton Alexander Review in November 2016, the board has also reviewed and accepted the recommendations set out in the report and I am committed to taking an active role in overseeing the progress towards achieving the target of 33% female
coaching through the appointment of boards. Following the appointment of 6WXDUW6LQFODLUWRWKH&&'ERDUGLQ Rob Anderson was appointed to the board of Moneybarn to replace Malcolm Bank as a non-executive director committee in 2016. The committee based on the director's individual skills,
representation on the executive committee and in direct reports by 2020 across the two populations. The committee will review action plans and assess progress against the plans at least once a year. The nomination committee, however, continues to believe that appointments to the board or to senior management positions should be based on merit. The board nevertheless remains committed to strengthening the pipeline of VHQLRUIHPDOHH[HFXWLYHVDQGLVVDWLVȴHGWKDW there are no barriers to women succeeding at WKHbKLJKHVWOHYHOVZLWKLQWKHJURXS
Last year we reported that, despite the progress that has been made, the committee was conscious that the divisional boards were considerably lacking in female representation. The board is committed to working towards improving the position and in 2016 the board RYHUVDZWKHUHFRQȴJXUDWLRQRIWKH9DQTXLV Bank executive committee which included the recruitment of a new human resources director and a general counsel, both of whom are female.
In support of our policy on diversity, we will continue to operate in accordance with the IROORZLQJSULQFLSOHVDQGLQLWLDWLYHV
We will consider candidates for appointment as non-executive directors from a wider pool, including those with little RUQROLVWHGFRPSDQ\ERDUGH[SHULHQFH
We will only engage executive search ȴUPVZKRKDYHVLJQHGXSWRWKHYROXQWDU\ code of conduct on gender diversity and EHVWSUDFWLFH
We will ensure the board evaluation process includes an assessment of the ERDUGȇVGLYHUVLW\LQFOXGLQJJHQGHUDQG
Where possible, each time a member of a senior management team or a director is recruited, at least one of the shortlisted candidates will be female.
Nomination committee (continued)
The composition of our board is reviewed annually by the nomination committee to HQVXUHWKDWWKHUHLVDQHHFWLYHEDODQFHRI skills, experience and knowledge.
7KHFRPPLWWHHFRQGXFWHGDVSHFLȴF review of the independence of both Manjit Wolstenholme and Malcolm Le May during the year as their current three-year terms were due to expire on 31 July 2016 and 1 January 2017 respectively. Neither Manjit nor Malcolm were present during the committee's discussion which took into DFFRXQWWKHIROORZLQJFRQVLGHUDWLRQV
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Having conducted its review, the committee ZDVVDWLVȴHGWKDWLWZDVDSSURSULDWHWR recommend to the board that Manjit and Malcolm's terms of appointment each be extended for a further three years (subject to reappointment by shareholders at the 2017 AGM).
In light of the development of the group and further to the output from previous board and committee evaluations, the committee embarked upon an exercise in 2016 to strengthen the digital expertise amongst the independent non-executive directors. The process was very successful and two candidates with considerable GLJLWDOH[SHULHQFHZHUHLGHQWLȴHGDQG recommended to the board for appointment. 'HWDLOVRIWKHDSSRLQWPHQWSURFHVVIRU-RKQ 6WUDZDQG'DYLG6HDUDUHVHWRXWRSSRVLWH on page 91. The recommendations were accepted and both joined the board on -DQXDU\DQGZLOOVLJQLȴFDQWO\HQKDQFH and broaden the skillset of the board which ZLOOHQVXUHLWVȴWIRUSXUSRVHDQGDEOHWR steer the group through the next stage of LWVbGHYHORSPHQW%LRJUDSKLFDOGHWDLOVRIERWK -RKQ6WUDZDQG'DYLG6HDUFDQEHIRXQG RQbSDJH
Malcolm Le May, our senior independent director, is also a senior advisor to Heidrick & Struggles. In accordance with the group's FRQȵLFWRILQWHUHVWSROLF\KHGHFODUHGWKLV interest when it was proposed to appoint Heidrick & Struggles to assist in the recruitment process and their appointment was approved on the basis there was no FRQȵLFWRIbLQWHUHVW0DOFROPQHYHUWKHOHVV agreed not to participate in the decision process in order to avoid any potential FRQȵLFWRILQWHUHVW
Having completed her three year term, \$OLVRQb+DOVH\ZLOOQRWVHHNUHDSSRLQWPHQW DWbWKH\$*0\$OLVRQKDVKRZHYHU DJUHHGbWRUHPDLQLQSRVWXQWLOWKHFRQFOXVLRQ of the 2017 AGM in order to oversee the year-end audit.
Andrea Blance will also join the board as an independent non-executive director LQb0DUFK'HWDLOVRIWKHDSSRLQWPHQW of Andrea Blance is set out opposite on page 91. Andrea has held a variety of ȴQDQFHUROHVGXULQJD\HDUFDUHHUDW Legal & General plc. Latterly she led the strategy and marketing functions and prior WRWKLVVKHZDVWKHJURXSFKLHIULVNRɝFHU where she led contact with the regulator. Andrea is currently a non-executive director at Scottish Widows and Lloyds Banking Group insurance division where she chairs the risk oversight committee. Her experience of conduct risk and the regulatory agenda, particularly regarding customer outcomes, will be invaluable to the group in the current regulatory environment.
In order to address the lack of digital experience and expertise on the board, the committee embarked upon an exercise in 2016 to strengthen the board's skills and knowledge in this area.
Heidrick & Struggles is a signatory to the voluntary code of conduct on gender diversity for external search consultants. 'XULQJ+HLGULFN 6WUXJJOHVSURYLGHGQRRWKHUVHUYLFHVQRUKDGDQ\RWKHUFRQQHFWLRQWRWKHJURXSRWKHUWKDQDV VHWbRXWRQSDJH
Having completed her three year term, Alison Halsey will not seek reappointment at the 2017 AGM. The committee led the selection and appointment process for a new non-executive director and chairman of the audit committee.
=\JRVLVDVLJQDWRU\WRWKHYROXQWDU\FRGHRIFRQGXFWRQJHQGHUGLYHUVLW\IRUH[WHUQDOVHDUFKFRQVXOWDQWV'XULQJ=\JRV provided no other services nor had any other connection to the group.
Succession planning and personal development for the executive directors and senior management teams across the group are kept under regular review by the committee.
Below board level, succession planning within the divisions safeguards the pipeline of talented individuals within the group who are capable and have the potential to succeed the executive directors and other members of the senior management team in the short, medium and long term. The committee also monitors candidates externally to ensure that the board is continuously refreshed and strengthened in any areas of perceived weakness. The committee intends to support the group's diversity policy within its succession planning activities E\FRQWLQXLQJWRbHQVXUHWKDWWKHOHYHORI female representation within the senior management teams across the group is maintained and, where possible, improved during the course of 2017 whilst ensuring that the right level of knowledge, skills and experience is maintained.
The nomination committee will continue its work of ensuring there are appropriate succession plans in place across the group and a suitable mix of skills and experience amongst both the executive and nonexecutive directors. The committee keeps under review a detailed succession plan for the executive directors, the Chairman and the most senior management within the divisions. The committee has decided to undertake a thorough refresh of its approach to talent development by engaging, on a parttime basis, the services of the new human resources director recently appointed to the Vanquis Bank executive committee to assist in further developing the pipeline of high calibre talent. Vanquis Bank has agreed to make her services available to the committee and her considerable experience will greatly DVVLVWWKHFRPPLWWHHLQPDNLQJWKHSODQȴW for purpose as the group moves into the next stage of its development. She will be invited to meetings of the nomination committee in 2017 and thereafter as required.
With a greater emphasis on developing internal candidates, the Chief Executive prepared a report on the talent within the group following the acquisition of Moneybarn which was reviewed by the board and the committee during 2015. The report LGHQWLȴHGWKHSRWHQWLDOVXFFHVVRUVIRUVHQLRU management positions (taking into account the group's policy on diversity), the talent pool across the group and areas where external recruitment may be required.
As a result, the sales and commercial director of Moneybarn was appointed as managing director following the retirement of Peter Minter as managing director on 1 January 2017. The committee is now overseeing the restructure of the Moneybarn executive team following this change and will ensure the policies on recruitment and succession planning, including those related to diversity as set out in this report are adhered to.
7KLVUHSRUWDOVRLGHQWLȴHGWKHQHHGWR VWUHQJWKHQWKHΖ7FDSDELOLWLHVRIWKH&&' senior management team, particularly in light of the proposed changes to the home credit business model which makes an increasing use of technology in the delivery of the products and services to customers. As a consequence, an experienced IT director was recruited in February 2016 who has engaged in a programme of strengthening and enhancing the IT team in the business through a combination of internal promotions and external recruits to ensure the technological needs of the business ZLOObEHPHW
The committee has also been kept informed of the other proposed senior management promotions during 2016 which have been made to help broaden and strengthen the divisional senior management teams.
7KHFRPPLWWHHFRQWLQXHVWREHVDWLVȴHG that adequate succession planning is in place for the executive directors and senior management teams across the group. Succession planning will remain a key ongoing focus of the committee in 2017 and beyond.
The committee will ensure that the board composition retains an appropriately balanced range of skills, experience and technical ability so that the group is well placed to achieve its objectives and long-term strategy in an ever changing regulatory environment.
The board's policy on other directorships is designed to ensure that all directors remain able to discharge their responsibilities to the company.
The letters of appointment of the nonexecutive directors state that any proposed appointment to the board of another company will require the prior approval of the board. The company's policy is that a QRQH[HFXWLYHGLUHFWRUVKRXOGKDYHVXɝFLHQW WLPHWRIXOȴOKLVKHUGXWLHVWRWKHFRPSDQ\ including, where appropriate, chairing a committee.
The board will consider all requests for permission to accept other directorships FDUHIXOO\VXEMHFWWRWKHIROORZLQJSULQFLSOHV
A non-executive director would not be expected to hold more than four other PDWHULDOQRQH[HFXWLYHGLUHFWRUVKLSV
If a non-executive director holds an executive role in a FTSE 350 company, they would not be expected to hold more than two other material non-H[HFXWLYHGLUHFWRUVKLSV
In line with the Code, an executive director will be permitted to hold one non-executive directorship in a FTSE 100 company (and to retain the fees from that appointment) provided that the board considers that WKLVZLOOQRWDGYHUVHO\DHFWWKHLUH[HFXWLYH UHVSRQVLELOLWLHVWRWKHFRPSDQ\DQG
The board would not permit an executive director to take on the chairmanship of Db)76(FRPSDQ\
Any request for an exception to this policy LVbFRQVLGHUHGRQLWVPHULWVDQGGHWHUPLQHGE\ the board.
At its meeting in February 2017, the committee formally considered its HHFWLYHQHVVLQ7KLVZDVXQGHUWDNHQ as part of the external board and committee evaluation process carried out by Lintstock. Each director was able to comment and rate various aspects of the committee's role by responding to a series of questions relating to the performance of the committee contained in the external questionnaire. On the basis of the evaluation which was undertaken, the overall view was that the FRPPLWWHHZDVZRUNLQJHHFWLYHO\DQGKDG made good progress in 2016, in particular in relation to board composition through the recruitment of two new non-executive GLUHFWRUVZLWKGLJLWDOH[SHULHQFHWRȴOOWKH perceived gap in the board's digital skillset and in the recruitment of a an additional non-executive director to succeed the audit committee chairman.
Nomination committee chairman 28 February 2017
(HFWLYHJRYHUQDQFH LVRIbSDUDPRXQW importance for the ERDUGbWRFRPSO\ with all its statutory requirements and to ensure consideration LVJLYHQWRbDOObLWV VWDNHKROGHUVLQ DbEDODQFHGDQG transparent manner."
General Counsel and Company Secretary
In accordance with section 414C(11) of the Companies Act 2006 (the Act), the directors present their report for the year ended 31 December 2016. The following provisions, which the directors are required to report on LQbWKH'LUHFWRUVȇ5HSRUWKDYHEHHQLQFOXGHGLQWKHVWUDWHJLFUHSRUW
Future business developments (throughout the strategic report, LQbSDUWLFXODURQSDJHVWR
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5LVNPDQDJHPHQWSDJHVWR
%RWKWKHVWUDWHJLFUHSRUWDQGWKH'LUHFWRUVȇ5HSRUWKDYHEHHQ prepared and presented in accordance with, and in reliance upon, applicable company law. The liabilities of the directors in connection ZLWKERWKWKH'LUHFWRUVȇ5HSRUWDQGWKHVWUDWHJLFUHSRUWVKDOOEH VXEMHFWWRWKHbOLPLWDWLRQVDQGUHVWULFWLRQVSURYLGHGE\FRPSDQ\ODZ 2WKHULQIRUPDWLRQWREHbGLVFORVHGLQWKH'LUHFWRUVȇ5HSRUWLVJLYHQ LQbWKLVbVHFWLRQ
The membership of the board and biographical details of the directors at the year end are given on pages 70 to 71 and are incorporated into this report by reference.
All directors served throughout 2016 and up WRWKHGDWHRIVLJQLQJRIWKH\$QQXDO5HSRUW and Financial Statements 2016. There were QRFKDQJHVLQGLUHFWRUVLQ:LWKHHFW IURPWKHEHJLQQLQJRIWKHȴQDQFLDO year there have been a number of changes to the board composition as detailed on pages 69 and 90 to 91. John Straw and David Sear were appointed as non-executive directors on 1 January 2017, Alison Halsey ZLOOQRWVHHNUHDSSRLQWPHQWDWWKH \$*0DQG\$QGUHDb%ODQFHZLOOEHDSSRLQWHG DVDQRQH[HFXWLYHGLUHFWRUZLWKHHFWIURP 1 March 2017.
During the year, no director had a material LQWHUHVWLQDQ\FRQWUDFWRIVLJQLȴFDQFH to which the company or a subsidiary XQGHUWDNLQJZDVDSDUW\
5XOHVDERXWWKHDSSRLQWPHQWDQG replacement of directors are set out in WKHFRPSDQ\ȇV\$UWLFOHVΖQDFFRUGDQFH with the recommendations of the Code, all directors, except Alison Halsey, will RHUWKHPVHOYHVIRUDSSRLQWPHQWRU reappointment, as appropriate, at the 2017 \$*07KHGLUHFWRUVȇSRZHUVDUHFRQIHUUHG on them by UK legislation and by the Articles. Changes to the Articles must be approved
by shareholders passing a special resolution and must comply with the provisions of the \$FWDQGWKH)&\$ȇV'LVFORVXUH*XLGDQFHDQG 7UDQVSDUHQF\5XOHV
A resolution to amend the Articles is being proposed at the 2017 AGM for approval by shareholders, and further information on this and the other resolutions proposed is set out in the Notice of AGM and accompanying circular.
The Articles permit it to indemnify directors of the company (or of any associated company) in accordance with section 234 RIbWKH\$FW
The company may fund expenditure incurred by directors in defending proceedings against them. If such funding is by means RIDbORDQWKHGLUHFWRUPXVWUHSD\WKHORDQ to the company, if they are convicted in any criminal proceedings or judgment is given against them in any civil proceedings. The company may indemnify any director of the company or of any associated company against any liability.
However, the company may not provide an LQGHPQLW\DJDLQVWL DQ\OLDELOLW\LQFXUUHG by the director to the company or to any DVVRFLDWHGFRPSDQ\LL DQ\OLDELOLW\LQFXUUHG by the director to pay a criminal or regulatory SHQDOW\LLL DQ\OLDELOLW\LQFXUUHGE\WKH director in defending criminal proceedings LQZKLFKWKH\DUHFRQYLFWHGLY DQ\OLDELOLW\ incurred by the director in defending any civil proceedings brought by the company (or an
associated company) in which judgment is JLYHQDJDLQVWWKHPRUY LQFRQQHFWLRQZLWK certain court applications under the Act. No indemnity was provided and no payments pursuant to these provisions were made in 2016 or at any time up to 28 February 2017.
There were no other qualifying indemnities LQbSODFHGXULQJWKLVSHULRG
7KHFRPSDQ\PDLQWDLQV'LUHFWRUVȇDQG 2ɝFHUVȇ/LDELOLW\LQVXUDQFHZKLFKJLYHV appropriate cover for any legal action brought against its directors.
ΖQIRUPDWLRQUHTXLUHGXQGHU/55 DQG LVVHWRXWLQWKHGLUHFWRUVȇ remuneration report on pages 98 to 118.
During the year, the ordinary share capital LQLVVXHLQFUHDVHGE\VKDUHV WRVKDUHVDWb'HFHPEHU 2016. Details are set out in note 24 to the ȴQDQFLDOVWDWHPHQWV
7KHFRPSDQ\ȇVLVVXHGRUGLQDU\VKDUHFDSLWDO comprises a single class of ordinary share. The rights attached to the ordinary shares are set out in the Articles. Each share carries the right to one vote at general meetings of the company.
'XULQJWKH\HDURUGLQDU\VKDUHV in the company with an aggregate nominal YDOXHRIeZHUHLVVXHGDVIROORZV
280,118 shares in relation to the Provident )LQDQFLDO/RQJ7HUPΖQFHQWLYH6FKHPH DWDbSULFHRIS
132,631 shares in relation to the Provident Financial Performance Share Plan 2013 at DbSULFHRIS
10,820 shares in relation to the Provident Financial Executive Share Option Scheme DWDSULFHRISDQG
172,201 shares in relation to the Provident )LQDQFLDO6DYLQJV5HODWHG6KDUH2SWLRQ Scheme 2013 and the Provident Financial (PSOR\HH6DYLQJV5HODWHG6KDUH2SWLRQ Scheme (2003) at prices ranging between SDQGS
\$OORIWKHFRPSDQ\ȇVLVVXHGRUGLQDU\VKDUHV DUHIXOO\SDLGXSDQGUDQNHTXDOO\LQDOO respects and there are no special rights with regard to control of the company. The rights attached to them, in addition to those conferred on their holders by law, are set out in the Articles. There are no restrictions on the transfer of ordinary shares or on the exercise of voting rights attached to WKHPbH[FHSW
In accordance with the Disclosure *XLGDQFHDQG7UDQVSDUHQF\5XOHV'75 WKHFRPSDQ\DVDW)HEUXDU\ (being the latest practicable date before SXEOLFDWLRQRIWKLVUHSRUW KDVEHHQQRWLȴHG of the following disclosable interests in its LVVXHGbRUGLQDU\VKDUHV
| ΖQYHVFR/LPLWHG | 18.02% |
|---|---|
| Woodford Investment Management /LPLWHG8. |
17.40% |
| %ODFN5RFNΖQYHVWPHQW0DQDJHPHQW | |
| /LPLWHG | 6.11% |
| 0DUDWKRQ\$VVHW0DQDJHPHQW//38. | 4.83% |
| M&G Investment Management | |
| /LPLWHGb8. | 4.36% |
| Aberdeen Asset Management Group | 3.71% |
| -XSLWHU\$VVHW0DQDJHPHQW/LPLWHG8. |
Interests as at 31 December 2016 were DVIROORZV
| ΖQYHVFR/LPLWHG | |
|---|---|
| Woodford Investment Management /LPLWHG8. |
|
| %ODFN5RFNΖQYHVWPHQW0DQDJHPHQW | |
| /LPLWHG | 6.71% |
| 0DUDWKRQ\$VVHW0DQDJHPHQW//38. | |
| M&G Investment Management | |
| /LPLWHGb8. | 4.28% |
| Aberdeen Asset Management Group | 3.40% |
All interests disclosed to the company in DFFRUGDQFHZLWK'75WKDWKDYHRFFXUUHG since 23 February 2017 can be found on the JURXSȇVZHEVLWHZZZSURYLGHQWȴQDQFLDOFRP
7KHEHQHȴFLDOLQWHUHVWVRIWKHGLUHFWRUVLQ the issued share capital of the company were DVIROORZV
| Number of shares | ||||||
|---|---|---|---|---|---|---|
| 31 | 31 | |||||
| December | December | |||||
| 2016 | ||||||
| 3HWHU&URRN1 | 520,933 | |||||
| Andrew Fisher1 | 346,677 | |||||
| 5RE\$QGHUVRQ | 4,178 | |||||
| Manjit Wolstenholme | 12,196 | |||||
| 0DOFROP/H0D\ | – | – | ||||
| Stuart Sinclair | – | – | ||||
| Alison Halsey | – | – |
1 These interests include conditional share awards JUDQWHGXQGHUWKH/7Ζ6DZDUGVXQGHUWKH363DQG shares purchased under the SIP as detailed on pages 112 to 118 of the annual report on remuneration. 1RGLUHFWRUKDGDQ\QRQEHQHȴFLDOLQWHUHVWV at 31 December 2016 or at any time up to 28 February 2017.
7KHUHZHUHQRFKDQJHVLQWKHEHQHȴFLDORU QRQEHQHȴFLDOLQWHUHVWVRIWKHGLUHFWRUV EHWZHHQb-DQXDU\DQG)HEUXDU\ 2017, except for the automatic monthly purchases under the SIP, details of which can EHIRXQGRQWKHJURXSȇVZHEVLWH
Information on dividend waivers currently LQbSODFHFDQEHIRXQGRQSDJHVDQG
Subject to the Articles, UK legislation and any directions given by special resolution, the business of the company is managed by the board. The directors currently have powers both in relation to the issuing and EX\LQJEDFNRIWKHFRPSDQ\ȇVVKDUHVZKLFK were granted by shareholders at the 2016 \$*07KHERDUGLVVHHNLQJUHQHZDORIWKHVH powers at the 2017 AGM.
The current schemes for employees resident in the UK are the Provident Financial plc (PSOR\HH6DYLQJV5HODWHG6KDUH2SWLRQ Scheme (2003), the Provident Financial 6DYLQJV5HODWHG6KDUH2SWLRQ6FKHPH and the Provident Financial Share Incentive Plan (SIP).
The current scheme for employees resident LQWKH5HSXEOLFRIΖUHODQGLVWKH3URYLGHQW )LQDQFLDOΖULVK6DYLQJV5HODWHG6KDUH2SWLRQ Scheme 2014.
Share schemes are a long-established and VXFFHVVIXOSDUWRIWKHWRWDOUHZDUGSDFNDJH RHUHGE\WKHFRPSDQ\HQFRXUDJLQJDQG supporting employee share ownership. 7KHFRPSDQ\ȇVIRXUVFKHPHVDLPWR HQFRXUDJHHPSOR\HHVȇLQYROYHPHQWDQG
LQWHUHVWLQWKHȴQDQFLDOSHUIRUPDQFH and success of the group through share ownership.
Around 1,419 employees were participating LQWKHFRPSDQ\ȇVVDYHDV\RXHDUQVFKHPHV DVDW'HFHPEHU
7KHFRPSDQ\ȇV6Ζ3RHUVHPSOR\HHVWKH opportunity to further invest in the company DQGWREHQHȴWIURPWKHFRPSDQ\ȇVRHUWR match that investment on the basis of one matching share for every four partnership shares purchased. Around 330 employees were investing in company shares under the 6Ζ3DVDW'HFHPEHU
Awards are also outstanding under the 3URYLGHQW)LQDQFLDO/RQJ7HUPΖQFHQWLYH Scheme 2006 and the Provident Financial /RQJ7HUPΖQFHQWLYH6FKHPHWKH/7Ζ6 and the Provident Financial Performance Share Plan (2013) (the PSP).
\$VVHWRXWRQSDJHRIWKHGLUHFWRUVȇ remuneration report, the remuneration committee did not grant any options during WKH\HDUXQGHUWKH/7Ζ6RU363
7KH(%7DGLVFUHWLRQDU\WUXVWIRUWKHEHQHȴW of executive directors and employees, was established in 2007. The trustee, Kleinwort %HQVRQ-HUVH\ 7UXVWHHV/LPLWHGLVQRW a subsidiary of the company. The EBT RSHUDWHVLQFRQMXQFWLRQZLWKWKH/7Ζ6DQG the PSP and either purchases shares in WKHPDUNHWRUVXEVFULEHVIRUWKHLVVXHRI new shares. The number of shares held by the EBT at any time, when added to the number of shares held by any other trust HVWDEOLVKHGE\WKHFRPSDQ\IRUWKHEHQHȴW RIbHPSOR\HHVZLOOQRWH[FHHGRIWKH issued share capital of the company. The EBT is funded by loans from the company which DUHWKHQXVHGWRDFTXLUHHLWKHUYLDPDUNHW purchase or subscription, ordinary shares to satisfy conditional share awards granted XQGHUWKH/7Ζ6DQGDZDUGVJUDQWHGXQGHU WKH363)RUWKHSXUSRVHRIWKHȴQDQFLDO statements, the EBT is consolidated into the company and group. As a consequence, the loans are eliminated and the cost of the shares acquired is deducted from equity as set out in note 26 on page 167 of the ȴQDQFLDOVWDWHPHQWV
In relation to its operation in conjunction ZLWKWKH/7Ζ6WKH(%7WUDQVIHUVWKHEHQHȴFLDO interest in the shares to the executive directors and employees when conditional share awards are made, and the legal interest is only transferred on vesting. In relation to
WKH363WKHOHJDODQGEHQHȴFLDOLQWHUHVW in the Basic Award is transferred to the executive directors and other participants when the awards are made, but is subject to certain forfeiture conditions. However, RQO\WKHEHQHȴFLDOLQWHUHVWLQWKH0DWFKLQJ Award is transferred when the award is made and the legal interest is transferred to the participant on vesting. Full vesting of awards JUDQWHGXQGHUWKH/7Ζ6DQGWKH0DWFKLQJ Award granted under the PSP is subject to the achievement of the relevant performance targets set out on pages 112 to 113 of the GLUHFWRUVȇUHPXQHUDWLRQUHSRUW
In 2016, the EBT subscribed for the issue of 280,118 new shares in order to satisfy the DZDUGVPDGHXQGHUWKH/7Ζ6DQG shares in order to satisfy the awards made under the 2013 PSP.
As at 31 December 2016, the EBT held the QRQEHQHȴFLDOLQWHUHVWLQVKDUHV LQWKHFRPSDQ\ 7KH(%7 may exercise or refrain from exercising any voting rights in its absolute discretion and is not obliged to exercise such voting rights in a manner requested by the HPSOR\HHEHQHȴFLDULHV
The PF Trust, a discretionary trust for WKHEHQHȴWRIH[HFXWLYHGLUHFWRUVDQG employees, was established in 2003 and operated in conjunction with the PSP. The trustee, Provident Financial Trustees 3HUIRUPDQFH6KDUH3ODQ /LPLWHGLVD subsidiary of the company. The number of shares held by the PF Trust at any time, when added to the number of shares held by any other trust established by the company for WKHEHQHȴWRIHPSOR\HHVZLOOQRWH[FHHG of the issued share capital of the company.
The PF Trust has not been operated with the PSP since 2012, when the previous PSP expired. As at 31 December 2016, the PF 7UXVWKDGQRbLQWHUHVWLQDQ\VKDUHVLQWKH FRPSDQ\QLO
The Provident BAYE Trust (the BAYE Trust) LVbDbGLVFUHWLRQDU\WUXVWZKLFKZDVHVWDEOLVKHG in 2013 to operate in conjunction with the SIP. The trustee, YBS Trustees, is not a subsidiary of the company. The BAYE Trust is funded by loans from the company which are then XVHGWRDFTXLUHRUGLQDU\VKDUHVYLDPDUNHW purchase to satisfy the matching awards for participants of the SIP.
)RUWKHSXUSRVHVRIWKHȴQDQFLDOVWDWHPHQWV the BAYE Trust is consolidated into the company and group. Participants in the SIP can direct the trustee on how to exercise its voting rights in respect of the shares it
holds on behalf of the participant. As at 31 December 2016, the BAYE Trust held the QRQEHQHȴFLDOLQWHUHVWLQVKDUHV VKDUHV
7KHSURȴWEHIRUHWD[DWLRQDPRUWLVDWLRQ of acquisition intangibles and exceptional LWHPVDPRXQWVWRePeP The directors have declared dividends DVIROORZV
| Ordinary shares | (p) per share |
|---|---|
| Paid interim dividend | 43.2p per share SSHUVKDUH |
| 3URSRVHGȴQDOGLYLGHQG | 91.4p per share SSHUVKDUH |
| Total ordinary dividend | 134.6p per share SSHUVKDUH |
7KHȴQDOGLYLGHQGZLOOEHSDLGRQ-XQH 2017 to shareholders whose names are on the register of members at the close RIbEXVLQHVVRQ0D\
The group operates four pension schemes. (PSOR\HHLQYROYHPHQWLQWKHJURXSGHȴQHG EHQHȴWSHQVLRQVFKHPHLVDFKLHYHGE\ the appointment of member-nominated trustees and by regular newsletters and communications from the trustees to members. In addition, there is a website dedicated to pension matters. The trustees PDQDJHWKHDVVHWVRIWKHGHȴQHGEHQHȴW pension scheme which are held under trust separately from the assets of the group. (DFKWUXVWHHLVHQFRXUDJHGWRXQGHUWDNH training and regular training sessions on current issues are carried out at meetings RIWKHWUXVWHHVE\WKHWUXVWHHVȇDGYLVRUV The training schedule is based on The 3HQVLRQ5HJXODWRUȇV7UXVWHH.QRZOHGJH and Understanding requirements and the sessions are tailored to current issues, HPHUJLQJLVVXHVRUWRDGGUHVVDQ\VNLOOJDSV The trustees have a business plan and, at the start of each year, review performance against the plan and objectives from the previous year. In addition, they agree objectives and a budget for the current \HDU7KHWUXVWHHVKDYHDULVNUHJLVWHUDQG DQDVVRFLDWHGDFWLRQSODQDQGDFRQȵLFWVRI interest policy, both of which are reviewed DWbOHDVWDQQXDOO\
There are currently four members nominated trustees and two trustees appointed by the company.
The group also operates a group personal pension plan for employees who joined the group from 1 January 2003. Employees in this plan have access to dedicated websites which provide information on their funds DQGbJHQHUDOLQIRUPDWLRQDERXWWKHSODQ
In 2011, the company established an 8QIXQGHG8QDSSURYHG5HWLUHPHQW%HQHȴWV 6FKHPH885%6 IRUWKHEHQHȴWRIWKRVH HPSOR\HHVZKRDUHDHFWHGE\WKH+05& annual allowance and lifetime allowance which applies to members of registered SHQVLRQVFKHPHV7KH885%6RHUVDQ alternative to a cash payment in lieu of a SHQVLRQEHQHȴW
In October 2013, the group auto-enrolled all HOLJLEOHVWDLQWRDQHZVFKHPHGHVLJQHGIRU auto-enrolment.
ΖQWKHWUXVWHHVLPSOHPHQWHGDQHZ investment strategy which had been agreed with the company. The objective RIWKHQHZVWUDWHJ\ZDVWRUHGXFHWKHULVN WKDWWKHDVVHWVZRXOGEHLQVXɝFLHQWLQWKH future to meet the liabilities of the scheme. 7KHGHULVNLQJLQYHVWPHQWVWUDWHJ\LVNHSW under close review by both the trustees and the company.
The company arranges Pension Trustee Indemnity Insurance to cover all of the JURXSȇVSHQVLRQVFKHPHVZKHUHLQGLYLGXDOV act as trustees. The trustees are protected
E\DQLQGHPQLW\ZLWKLQHDFKVFKHPHȇVUXOHV DQGWKLVLQVXUDQFHHHFWLYHO\SURWHFWV the business against the cost of potential claims impacting on the solvency of the pension schemes.
Health and safety standards and EHQFKPDUNVKDYHEHHQHVWDEOLVKHGLQWKH divisions and compliance by the divisions LVbPRQLWRUHGE\WKHERDUG
7KHFRUSRUDWHSROLFLHVUHȵHFWWKH requirements of the Bribery Act 2010 and a corporate hospitality register is maintained XVLQJDULVNEDVHGDSSURDFK\$OWKRXJKWKH ULVNVIRUWKHJURXSDULVLQJIURPWKH%ULEHU\ Act 2010 continue to be assessed as low, the divisions are, nevertheless, required to undergo appropriate training and LQVWUXFWLRQWRHQVXUHWKDWWKH\KDYHHHFWLYH anti-bribery and corruption policies and procedures in place. Compliance is regularly PRQLWRUHGE\WKHULVNDGYLVRU\FRPPLWWHH and is subject to periodic review by the group internal audit function.
The group is committed to conducting its business in a manner that protects the environment. This means ensuring that all relevant environmental legislation, regulations and approved codes of practice are met or exceeded, reducing consumption RIUHVRXUFHVDQGLQFUHDVLQJWKHHɝFLHQF\ of the use of these resources, and avoiding or minimising the use of hazardous or toxic material or products and preventing pollution from our operations and facilities. 'LVFORVXUHVUHODWLQJWRWKHJURXSȇVGLUHFW and indirect greenhouse gas emissions are LQFOXGHGLQWKH6WUDWHJLF5HSRUWRQSDJH
The group has an overseas branch in the 5HSXEOLFRIΖUHODQG
There have been no important events since WKHHQGRIWKHȴQDQFLDO\HDU
The group is committed to employee involvement in each of its divisions. (PSOR\HHVDUHNHSWZHOOLQIRUPHGRIWKHȴQDQFLDODQGRSHUDWLRQDO SHUIRUPDQFHDQGVWUDWHJ\RIWKHGLYLVLRQVWKURXJKZHHNO\KXGGOHVRU PRQWKO\ȆWRZQKDOOȇVW\OHPHHWLQJVSHUVRQDOEULHȴQJVDQGWKURXJKDQ increasing use of modern technology. The divisions continue to use social QHWZRUNVLWHVLQWUDQHWGLVFXVVLRQERDUGVDQGEORJVE\HPSOR\HHVDQG managing directors. The managing director of CCD also does a regular RSHQLQYLWDWLRQIRUXPFDOOHGȆ4XHVWLRQ0DUNȇZKHUHFROOHDJXHVEDVHG LQ%UDGIRUGDUHDEOHWRDVNTXHVWLRQVFRQFHUQLQJDQ\DVSHFWRIWKH&&' EXVLQHVV7KHUHLVDOVRDUHJXODUSRGFDVWȆ7KH%LJ&RQYHUVDWLRQȇIHDWXULQJ members of the CCD board where information is imparted concerning current performance and long-term planning which is accessible to all CCD employees.
The group consults with employees regularly, including through employee forums, trade unions and employee surveys, so that their views can be WDNHQLQWRDFFRXQWZKHQPDNLQJGHFLVLRQVWKDWDUHOLNHO\WRDHFWWKHLU interests. During 2016 CCD created a new Colleague Forum called the &ROOHDJXH9RLFH7KLVIRUXPȇVDLPLVWRSURYLGHDQLPSURYHGSODWIRUPWR enable more views and opinions to be heard. The Colleague Voice plans WRZRUNZLWKOHDGHUVLQWKHEXVLQHVVWRLPSURYHWKHFRPPXQLFDWLRQRI decisions that create long-term growth for CCD and support the delivery RIbWKHGLYLVLRQȇVVWUDWHJLFSULRULWLHV
As in previous years the divisions have conducted employee surveys and questionnaires, with excellent response rates and opportunities for managers to discuss action plans with their teams to address any issues that have arisen from the surveys.
\$GGLWLRQDOO\IROORZLQJERWK0RQH\EDUQȇVDQG9DQTXLVȇHPSOR\HHVXUYH\ TXHVWLRQQDLUHWKH\KHOGIXUWKHUZRUNVKRSVIRFXVLQJRQWKHWRSIRXUDUHDV for improvement with employees across the division. Vanquis launched a 5HFRJQLWLRQ1RPLQDWLRQ3URJUDPPHLQZKHUHE\HPSOR\HHVDUHDEOH to recognise and nominate fellow colleagues for outstanding achievements DQG0RQH\EDUQFRQWLQXHWRRSHUDWHLWVSRSXODUȆ*ROGHQ&RQHȇQRPLQDWLRQV programme which is colleague to colleague recognition for outstanding achievement or for going that extra mile. Moneybarn continue to operate DVLJQLȴFDQWRQERDUGLQJLQGXFWLRQSURFHVVIRUDOOQHZFROOHDJXHV embedding its culture and values.
The group also continues to be involved in a number of community projects, details of which can be found on pages 62 to 66 of this report. (PSOR\HHVDUHDOVRDEOHWRVKDUHLQWKHJURXSȇVUHVXOWVWKURXJKYDULRXV VKDUHVFKHPHVDVVHWRXWRQSDJHVWRRIWKLVUHSRUW
The group is fully committed to continued personal and professional development, encouraging employees at all levels to study for relevant HGXFDWLRQDOTXDOLȴFDWLRQVΖQSDUWLFXODUWKHJURXSKDVLQLWLDWHGDVHULHVRI talent and development initiatives as part of its investment in the career SURJUHVVLRQRIbLWVHPSOR\HHV7KHJURXSLVDOVRIXOO\FRPPLWWHGWRWKH ODXQFKRIWKH\$SSUHQWLFHVKLS/HY\LQDQGKDVSODQVLQSODFHWRJURZ both its Graduate entry and Apprenticeship training programmes.
Moneybarn have also recruited a new training manager in order to enhance the training provided for its employees.
3URYLGHQW)LQDQFLDOSOFLVDXWKRULVHGE\WKH6ROLFLWRUV5HJXODWLRQ\$XWKRULW\ and the Institute of Chartered Accountants of England and Wales to issue training contracts to employees wishing to qualify as solicitors or chartered accountants, respectively.
The group is committed to employment policies, which follow best practice, based on equal opportunities for all employees, irrespective of gender, pregnancy, race, colour, nationality, ethnic or national origin, disability, sexual orientation, age, marital or civil partner status, gender reassignment or religion or belief. The group has recently signed up to the National (TXDOLW\6WDQGDUGDQGLVXQGHUWDNLQJDIXOOUHYLHZRILWVSROLFLHVDQG procedures in relation to equality, diversity and inclusion (EDI). The group gives full and fair consideration to applications for employment from disabled persons, having regard to their particular aptitudes and abilities. Appropriate arrangements are made for the continued employment and training, career development and promotion of disabled persons employed E\WKHJURXSLQFOXGLQJPDNLQJUHDVRQDEOHDGMXVWPHQWVZKHUHUHTXLUHG ΖIPHPEHUVRIVWDEHFRPHGLVDEOHGHYHU\HRUWLVPDGHE\WKHJURXSWR ensure their continued employment, either in the same or an alternative position, with appropriate retraining being given if necessary.
7KHJURXSȇVFRUSRUDWHJRYHUQDQFHUHSRUW is set out on pages 68 to 97. The group has complied with the provisions of the Code throughout 2016.
'HWDLOVRIWKHȴQDQFLDOULVNPDQDJHPHQW objectives and policies of the group and WKHH[SRVXUHRIWKHJURXSWRFUHGLWULVN OLTXLGLW\ULVNFDVKȵRZULVNSULFHULVN LQWHUHVWUDWHULVNDQGIRUHLJQH[FKDQJHUDWH ULVNDUHLQFOXGHGRQSDJHVWRRIbWKH ȴQDQFLDOVWDWHPHQWV
There are no agreements between any group company and any of its employees or any director of any group company which provide for compensation to be paid to an employee or a director for termination of employment RUIRUORVVRIRɝFHDVDFRQVHTXHQFHRI DbWDNHRYHURIWKHFRPSDQ\
The following statement, which should be read in conjunction with the independent DXGLWRUȇVUHSRUWRQSDJHVWRLV made to distinguish for shareholders the respective responsibilities of the directors and of the external auditor in relation to the ȴQDQFLDOVWDWHPHQWV
The directors are responsible for SUHSDULQJWKHDQQXDOUHSRUWWKHGLUHFWRUVȇ UHPXQHUDWLRQUHSRUWDQGWKHȴQDQFLDO statements in accordance with applicable ODZVbDQGUHJXODWLRQV
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The directors have also considered and DFFHSWHGWKHUHYLHZXQGHUWDNHQDQGWKH report provided by the audit committee, DVbVHWRXWRQSDJHRIWKHUHSRUWDQGDUH VDWLVȴHGWKDWWKH\$QQXDO5HSRUWDQG)LQDQFLDO 6WDWHPHQWVWDNHQDVDZKROHLVIDLU balanced and understandable and provides the necessary information for shareholders WRDVVHVVWKHFRPSDQ\ȇVSRVLWLRQDQG performance, business model and strategy.
7KHGLUHFWRUVDUHDOVRUHTXLUHGE\WKH)&\$ȇV Disclosure Guidance and Transparency 5XOHV'75 WRLQFOXGHDPDQDJHPHQWUHSRUW containing a fair review of the business of the group and the company and a description of WKHSULQFLSDOULVNVDQGXQFHUWDLQWLHVIDFLQJ the group and company.
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Enable them to ensure that the ȴQDQFLDOVWDWHPHQWVDQGWKHGLUHFWRUVȇ remuneration report comply with the \$FWDQGDVUHJDUGVWKHJURXSȴQDQFLDO VWDWHPHQWV\$UWLFOHRIWKHΖ\$65HJXODWLRQ They are also responsible for safeguarding the assets of the company and the group DQGKHQFHWDNLQJUHDVRQDEOHVWHSVIRUWKH prevention and detection of fraud and other irregularities.
7KH\$QQXDO5HSRUWDQG)LQDQFLDO6WDWHPHQWV ZLOOEHSXEOLVKHGRQWKHJURXSȇV website in addition to the normal paper version. The directors are responsible for the PDLQWHQDQFHDQGLQWHJULW\RIWKHFRPSDQ\ȇV ZHEVLWH/HJLVODWLRQLQWKH8QLWHG.LQJGRP governing the preparation and dissemination RIȴQDQFLDOVWDWHPHQWVPD\GLHUIURP legislation in other jurisdictions.
(DFKRIWKHGLUHFWRUVOLVWHGEHORZFRQȴUPV WKDWWRWKHEHVWRIWKHLUNQRZOHGJHWKH JURXSȴQDQFLDOVWDWHPHQWVZKLFKKDYH EHHQSUHSDUHGLQDFFRUGDQFHZLWKΖ)56DV adopted by the EU, give a true and fair view RIWKHDVVHWVOLDELOLWLHVȴQDQFLDOSRVLWLRQDQG SURȴWRIWKHJURXSWKHFRPSDQ\DQGWKH XQGHUWDNLQJVLQFOXGHGLQWKHFRQVROLGDWLRQ WDNHQDVDZKROHDQGWKDWWKHVWUDWHJLF UHSRUWFRQWDLQHGLQWKLV\$QQXDO5HSRUWDQG Financial Statements 2016 includes a fair review of the development and performance of the business and the position of the FRPSDQ\DQGJURXSDQGWKHXQGHUWDNLQJV LQFOXGHGLQWKHFRQVROLGDWLRQWDNHQDVD ZKROHDQGDGHVFULSWLRQRIWKHSULQFLSDOULVNV and uncertainties they face.
| Manjit Wolstenholme Chairman | |
|---|---|
| 0DOFROP/H0D\ | Senior Independent Director |
| Alison Halsey | Non-executive director |
| Stuart Sinclair | Non-executive director |
| 5RE\$QGHUVRQ | Non-executive director |
| 3HWHU&URRN | Chief Executive |
| Andrew Fisher | Finance Director |
In accordance with section 418 of the Act, HDFKSHUVRQZKRbLVDGLUHFWRUDVDWWKHGDWH RIWKLVUHSRUWbFRQȴUPVWKDW
So far as they are aware, there is no relevant audit information of which the FRPSDQ\ȇVDXGLWRULVXQDZDUHDQG
7KH\KDYHWDNHQDOOVWHSVWKDWRXJKWWR KDYHEHHQWDNHQDVDGLUHFWRULQRUGHUWR PDNHWKHPVHOYHVDZDUHRIDQ\UHOHYDQW audit information and to establish WKDWWKHFRPSDQ\ȇVDXGLWRULVDZDUH RIbWKDWLQIRUPDWLRQ
Deloitte, the auditor for the company, was appointed in 2012 and a resolution proposing their reappointment will be proposed at the 2017 AGM.
The AGM will be held at 10.00 am RQb0D\bDWWKHRɝFHVRI 3URYLGHQWb)LQDQFLDOSOF1R*RGZLQ 6WUHHW%UDGIRUG:HVW<RUNVKLUH%' 2SU. The Notice of AGM, together with an explanation of the items of business, is contained in the circular to shareholders dated 31 March 2017.
Approved by the board on 28 February 2017 and signed by order of the board.
General Counsel and Company Secretary 28 February 2017
98
Directors' remuneration report
99 Annual statement by the chairman RIbWKHbUHPXQHUDWLRQFRPPLWWHH 100 Remuneration policy 106 Annual report on remuneration
7KLVUHSRUWVHWVRXWGHWDLOVRIWKHbUHPXQHUDWLRQSROLF\IRURXUH[HFXWLYH and non-executive directors, describes the implementation of the approved remuneration policy and sets out the remuneration received by WKHGLUHFWRUVIRUWKH\HDUHQGHGb'HFHPEHU7KHUHSRUWFRPSOLHV ZLWKWKHSURYLVLRQVRIWKH&RPSDQLHV\$FW6FKHGXOHbRIb7KH/DUJH and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and the Listing Rules of the Financial Conduct Authority (FCA). The company also follows the requirements RIbWKH8.&RUSRUDWH*RYHUQDQFH&RGHSXEOLVKHGLQ6HSWHPEHU The remuneration policy (set out on pages 100 to 105) will be put to shareholders for approval in a binding vote at the 2017 Annual General Meeting (AGM). The annual statement by the chairman of the remuneration committee (set out on this page) and the annual report RQbUHPXQHUDWLRQVHWRXWRQSDJHVWR ZLOOEHVXEMHFWWRDQ advisory vote at the 2017 AGM.
On behalf of the board, I am pleased to present the directors' remuneration report IRUWKH\HDUHQGHGb'HFHPEHU
Our remuneration policy is designed to encourage achievement of our strategic goals and priorities by rewarding in line with underlying company performance whilst encouraging appropriate leadership behaviour through: (1) an annual bonus OLQNHGWRDFKLHYLQJSURȴWDEOHJURZWKDQG VSHFLȴFVWUDWHJLFDQGSHUVRQDOREMHFWLYHV and (2) long-term incentives that only reward for absolute shareholder value creation and delivery of long-term earnings growth.
The company has continued to deliver sustainable returns and growth for its shareholders during 2016, with the NH\bKLJKOLJKWVEHLQJbDVIROORZV
3URȴWEHIRUHWD[DPRUWLVDWLRQRI acquisition intangibles and exceptional items up by 14.1% to £334.1m (2015: £292.2m);
Adjusted earnings per share (EPS) growth of 9.2%; and
A 12.1% increase in dividend for the year from 120.1p to 134.6p.
The annual bonus scheme is based on an adjusted EPS1 target and personal objectives. For 2016, the adjusted EPS target was set at 167.0p, with threshold and maximum EPS at 95% and 105% of the target respectively. Based upon an adjusted EPS1 of 177.5p, bonuses of 100% of the maximum of the EPS element were awarded to Peter Crook and Andrew Fisher in respect of 2016, UHȵHFWLQJWKHVWURQJȴQDQFLDOSHUIRUPDQFH of the company. Having considered the achievement against personal objectives, overall bonuses of 100% of the maximum were awarded to Peter Crook and Andrew
Fisher. Both executive directors have chosen to waive the maximum two-thirds of their annual bonus in order to participate in the Provident Financial Performance Share Plan (2013) (PSP) this year.
Awards made under the Provident Financial Long Term Incentive Scheme (LTIS) in 2014 are due to vest in April 2017. These awards are subject to a performance target based on annualised adjusted EPS1 growth and absolute annualised TSR over the WKUHHȴQDQFLDO\HDUVHQGHG'HFHPEHU 2016. In order for the award to vest in full, annualised TSR of 15% and annualised adjusted EPS1 growth of 11% was required. Based upon an actual annualised TSR of 26.8% and an annualised adjusted EPS growth of 16.6%, the committee, having VDWLVȴHGLWVHOIWKDWWKHYHVWLQJZDVFRQVLVWHQW ZLWKWKHEURDGHUȴQDQFLDOSHUIRUPDQFHRI the company, determines that 100% of the award will vest in April 2017. Awards made under the 2013 PSP are also due to vest in April 2017. In order for the Basic Award to be matched in full, an average annual adjusted EPS1 growth of 11% was required over the WKUHHȴQDQFLDO\HDUVHQGHG'HFHPEHU 2016. Based upon an actual average annual adjusted EPS growth of 20.0%, the Basic Awards were matched in full and will vest in April 2017.
The directors' remuneration policy, set out at pages 100 to 105, will be put to shareholders for approval at the 2017 AGM and will have HHFWIURPWKHGDWHDSSURYDOLVREWDLQHG
The company carried out a consultation process with its top twenty shareholders and the shareholder advisory bodies in GXULQJZKLFKLWFRQȴUPHGLWVLQWHQWLRQ to retain the same remuneration policy as previously approved by shareholders at the 2014 AGM, with no changes. Overall, the company received positive feedback from shareholders about the proposal, particularly with regards to the unchanged quantum in relation to the executive directors' entitlement under the long term incentive schemes and annual bonus scheme.
I will be available to answer questions on the remuneration policy and the annual report RQUHPXQHUDWLRQDWWKH\$*0RQb0D\
Remuneration committee chairman 28 February 2017
The committee is responsible for the remuneration of the Chairman, the executive directors and the Company Secretary. The remuneration and terms of appointment of the non-executive directors are determined E\WKHERDUGDVDZKROH7KHFRPPLWWHHDOVRUHYLHZVWKHbUHPXQHUDWLRQ of the senior management teams within the three divisions and the FRUSRUDWHRɝFH
The Chief Executive is consulted on proposals relating to the remuneration of the other executive director and the senior management teams and the Chairman is consulted on proposals relating to the Chief Executive's remuneration. When appropriate, ERWKbDUHLQYLWHGE\WKHFRPPLWWHHWRDWWHQGPHHWLQJVEXWDUHQRW present when their own remuneration is considered.
7KHFRPPLWWHHUHFRJQLVHVDQGPDQDJHVDQ\FRQȵLFWRILQWHUHVWZKHQ consulting the Chief Executive or Chairman about its proposals.
In setting the remuneration policy for the executive directors and senior management, the committee takes into account the following:
Pay and conditions elsewhere in the JURXSZHUHFRQVLGHUHGZKHQȴQDOLVLQJ the policy for executive directors and the senior management teams. The same principles apply throughout the group but are proportionate relative to an individual's LQȵXHQFHDWJURXSOHYHO7KHEDVHVDODU\ increases awarded to the executive directors are consistent with the average percentage increases awarded elsewhere in the group DQGUHȵHFWWKHVWURQJȴQDQFLDOSHUIRUPDQFH of the group and each individual director's personal performance. The committee does not formally consult directly with employees on executive pay but does receive periodic updates from the divisions on remuneration LVVXHVLQJHQHUDODQGVSHFLȴFDOO\LQUHODWLRQ to remuneration structures throughout the group.
Remuneration for the level below executive director (including share LQFHQWLYHVERQXVEHQHȴWVDQGSHQVLRQ entitlement) is set primarily by reference WRbPDUNHWFRPSDUDWLYHV
Long-term incentives are typically only provided to the most senior executives and DUHUHVHUYHGIRUWKRVHLGHQWLȴHGDVKDYLQJ WKHJUHDWHVWSRWHQWLDOWRLQȵXHQFHJURXS level performance.
We remain committed to taking into account shareholder views on any proposed changes to our remuneration policy. The committee chairman maintains contact, as required, with the company's principal shareholders about all relevant remuneration issues and the company consulted with its principal shareholders, as well as the shareholder advisory bodies, in relation to the renewal of its remuneration policy. On the basis that the policy is unchanged from the policy approved by shareholders at the 2014 AGM, including in relation to quantum, the proposal was generally supported. Ongoing and transparent dialogue with our shareholders on the topic of executive remuneration is very important to us and the feedback received on the proposed remuneration policy was carefully considered and discussed by the committee.
| Element | 3XUSRVHDQGOLQN to strategy |
Operation including maximum levels |
Performance targets and provisions for recovery of sums paid |
||||
|---|---|---|---|---|---|---|---|
| Salary Annual bonus Performance Share Plan (PSP) |
7RUHȵHFWWKH | 5HYLHZHGDQQXDOO\DQGHHFWLYHIURPb-DQXDU\ | Broad assessment of group and individual performance | ||||
| responsibilities of the individual role. |
Typically set following review of the budget for the forthcoming year, taking into account salary levels |
DVbSDUWRIWKHUHYLHZSURFHVV Malus and clawback provisions do not apply. |
|||||
| 7RUHȵHFWWKHLQGLYLGXDOȇV skills and experience and |
LQbFRPSDQLHVRIDVLPLODUVL]HDQGFRPSOH[LW\ Typically targeted at or around median. |
||||||
| their performance over time. |
Annual increases typically linked to those of the | ||||||
| To provide an appropriate OHYHORIEDVLFȴ[HGLQFRPH and avoid excessive risk taking arising from RYHUUHOLDQFHRQbYDULDEOH income. |
wider workforce. Increases beyond those granted to the wider workforce may be awarded in certain circumstances such as where there is a change in responsibility, progression in the role, or a VLJQLȴFDQWLQFUHDVHLQWKHVFDOHRIWKHUROHDQGRU VL]HYDOXHDQGRUFRPSOH[LW\RIWKHJURXS |
||||||
| Incentivises annual | Financial and operational goals set annually. | A minimum of 50% of any bonus opportunity will be subject | |||||
| delivery of agreed ȴQDQFLDODQGRSHUDWLRQDO goals. |
Maximum opportunity of 120% of salary for the Chief Executive and 100% of salary for the Finance 'LUHFWRUDQGDQ\RWKHUH[HFXWLYHGLUHFWRU |
WRȴQDQFLDOWDUJHWVHJ(36 ZLWKXSWROLQNHGWRSHUVRQDO objectives. In relation to the EPS element, a graduated scale operates |
|||||
| Rewards the achievement of an agreed set of annual ȴQDQFLDODQGRSHUDWLRQDO goals. |
One-third of the bonus is subject to compulsory waiver in which case an award is made under WKHb363 |
from threshold performance through to the maximum performance level of 105% of adjusted targeted group EPS. ΖQUHODWLRQWRȴQDQFLDOWDUJHWVQRQHRIWKLVSDUWRIWKHERQXV becomes payable for achieving the threshold performance |
|||||
| Executive directors may waive up to an additional one-third of bonus. |
target with a graduated scale operating thereafter for higher OHYHOVRIȴQDQFLDOSHUIRUPDQFHΖQUHODWLRQWRSHUVRQDO |
||||||
| Any award granted following waiver of bonus will be eligible for Matching Awards under the PSP. |
objectives, it is not always practicable to set a sliding scale for each objective. Where it is, a similar proportion of the bonus becomes payable for exceeding the threshold performance |
||||||
| Remainder of bonus paid in cash. | OHYHODVIRUȴQDQFLDOWDUJHWV | ||||||
| Malus and clawback provisions apply where there is a material prior period error requiring restatement of the JURXSȴQDQFLDOVWDWHPHQWVRUDQHUURULQWKHFDOFXODWLRQ of the extent to which the bonus targets are achieved. The period of clawback is three years from the date of payment. |
|||||||
| 'HWDLOVRIWKHERQXVPHDVXUHVRSHUDWLQJHDFK\HDUZLOOEH included in the relevant annual report on remuneration. |
|||||||
| The committee reserves the power to make changes over the life of the policy to achieve alignment with the group's annual strategy. |
|||||||
| Alignment of management's long-term |
Invitations to participate and awards made annually. |
The Basic Awards are subject to certain forfeiture conditions over the three year performance period. The Matching |
|||||
| strategic interests with long-term interests of shareholders. |
Opportunity to waive up to two-thirds of annual bonus and receive a basic award together with DbPDWFKLQJVKDUHDZDUG |
Awards vest based on a three-year performance period against a challenging range of EPS growth targets set and assessed by the committee. 25% of the Matching Award (half |
|||||
| Encourages an increased | Executive directors eligible for a matching award | of one matching share) vests at the threshold performance level with full vesting (two matching shares), taking place on |
|||||
| VKDUHKROGLQJLQWKHbJURXS | of up to two times based on a waiver of up to two-thirds of annual bonus with a minimum compulsory waiver of one-third. |
a graduated scale for achieving the maximum performance level. The performance condition is reviewed annually by the committee prior to grant (in terms of the range of |
|||||
| Maximum bonus being earned and a maximum | WDUJHWVDQGWKHFKRLFHRIPHWULF DQGPD\EHUHȴQHGWR ensure that the condition remains aligned with the group's |
||||||
| ERQXVZDLYHUUHVXOWVLQDPD[LPXPEHQHȴWRI 160% of salary in the case of the Chief Executive and 133% of salary in the case of the Finance 'LUHFWRU'LYLGHQGVPD\DOVREHSD\DEOHRQEDVLF awards and in addition, dividend equivalent |
VWUDWHJ\DQGNH\SHUIRUPDQFHLQGLFDWRUV.3ΖV \$Q\ substantive reworking of the current performance condition would be accompanied by appropriate dialogue with the JURXSȇVVKDUHKROGHUVDQGRUDSSURYDOVRXJKWIRUDUHYLVHG UHPXQHUDWLRQSROLF\GHSHQGLQJRQWKHQDWXUHRIbWKHFKDQJH |
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| provisions allow the committee to pay dividends on vested Matching Awards at the time of vesting. |
Malus and clawback provisions apply where there is a material prior period error requiring restatement of the JURXSȴQDQFLDOVWDWHPHQWVRUDQHUURULQWKHFDOFXODWLRQRI the extent to which the performance target is achieved. The period of clawback is three years from the date of vesting. |
Remuneration policy (continued)
| Element | 3XUSRVHDQGOLQN to strategy |
Operation including maximum levels |
Performance targets and provisions for recovery of sums paid |
|---|---|---|---|
| Long Term Incentive Scheme (LTIS) |
Alignment of management's long-term strategic interests with long-term interests of shareholders. 5HZDUGVVWURQJȴQDQFLDO performance and sustained increase in shareholder value. Encourages an increased VKDUHKROGLQJLQWKHbJURXS |
Annual grant of share awards (structured as conditional share awards or nil-cost options). Executive directors are eligible for awards of up to 200% of salary which is the maximum opportunity contained within the scheme rules. 'LYLGHQGHTXLYDOHQWSURYLVLRQVDOORZWKH committee to pay dividends on vested shares at WKHWLPHbRIYHVWLQJ Shareholders approved the renewal of the LTIS DWbWKH\$*0 |
Awards vest based on a three year performance period against a challenging range of EPS and TSR targets set and assessed by the committee. 20% of the award vests at the threshold performance level with full vesting taking place on a graduated scale for achieving the maximum performance level. The performance targets are reviewed annually by the committee prior to grant (in terms of the range of targets DQGWKHFKRLFHRIPHWULFV DQGPD\EHUHȴQHGWRHQVXUHWKDW the targets remain aligned with the group's strategy and .3ΖV\$Q\VXEVWDQWLYHUHZRUNLQJRIWKHFXUUHQWSHUIRUPDQFH targets would be accompanied by appropriate dialogue with WKHFRPSDQ\ȇVVKDUHKROGHUVDQGRUDSSURYDOVRXJKWIRUD revised remuneration policy depending on the nature of WKHbFKDQJH |
| Malus and clawback provisions apply where there is a material prior period error requiring restatement of the JURXSȴQDQFLDOVWDWHPHQWVRUDQHUURULQWKHFDOFXODWLRQ RIbWKHH[WHQWWRZKLFKWKHSHUIRUPDQFHWDUJHWVDUH DFKLHYHGb7KHSHULRGRIFODZEDFNLVWKUHH\HDUVIURPWKH date of vesting. |
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| Retirement EHQHȴWV |
Provision of a range of schemes and arrangements to enable executive directors to IXQGbWKHLUbUHWLUHPHQW |
Available pension arrangements include the cash EDODQFHVHFWLRQRIWKH3URYLGHQW)LQDQFLDO6WD 3HQVLRQ6FKHPHDQ8QIXQGHG8QDSSURYHG 5HWLUHPHQW%HQHȴWV6FKHPHDFDVKVXSSOHPHQW LQbOLHXRISHQVLRQDQGRUDFRQWULEXWLRQWR individual Self Invested Personal Pensions (SIPPs). Pension credit of up to 30% of salary per annum |
Not applicable. |
| LVbJLYHQWRDOOH[HFXWLYHGLUHFWRUV | |||
| Other EHQHȴWVb |
Provision of a range of insured and non-insured EHQHȴWVFRPPHQVXUDWH with the role. |
%HQHȴWVZLOOEHDSSURSULDWHWRDQH[HFXWLYH director's circumstances and include: Life cover of six times salary (subject to the provision of satisfactory medical evidence), DbSHUPDQHQWKHDOWKLQVXUDQFHEHQHȴWRI of basic salary after six months' illness and membership of the group's private medical insurance scheme; |
Not applicable. |
| Fully expensed company car or a cash equivalent; and |
|||
| Participation in any all-employee share plans operated by the company on the same basis as other eligible employees. |
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| Share ownership |
To ensure alignment of the long-term interests RIbH[HFXWLYHGLUHFWRUV DQGbVKDUHKROGHUV |
Executive directors have been required to build and maintain a holding of 200% of salary in the IRUPRIVKDUHVLQWKHFRPSDQ\VLQFHb-DQXDU\ 2016. |
Not applicable. |
| Executive directors are required to retain half of any shares vesting (net of tax) under the LTIS until WKHJXLGHOLQHLVPHW8QYHVWHGVKDUHVKHOGXQGHU the PSP are not taken into account. |
The committee will operate the incentive schemes within the policy detailed above and in accordance with their respective rules. In relation to the discretions included within the scheme rules, these include, but are not limited to: (i) who participates in the schemes; (ii) testing of the relevant performance targets; (iii) undertaking an annual review of performance targets and weightings; (iv) the determination of the treatment RIOHDYHUVLQOLQHZLWKWKHVFKHPHUXOHVY DGMXVWPHQWVWRH[LVWLQJSHUIRUPDQFHWDUJHWVDQGRUVKDUHDZDUGVXQGHUWKHLQFHQWLYHVFKHPH LIFHUWDLQUHOHYDQWHYHQWVWDNHSODFHHJDFDSLWDOUHVWUXFWXULQJDPDWHULDODFTXLVLWLRQGLYHVWPHQWHWF ZLWKDQ\VXFKDGMXVWPHQWVWRUHVXOWLQ the revised targets being no more or less challenging to achieve; and (vi) dealing with a change of control. For the purposes of incentive pay, (36bLVbFDOFXODWHGRQDQDGMXVWHGEDVLVWRVKRZWKH(36JHQHUDWHGE\WKHJURXSȇVXQGHUO\LQJRSHUDWLRQV
I was pleased with the feedback we received during our consultation on the Remuneration Policy. We decided to propose a renewal of the 2014 policy without amendment as the committee believes it LVȴWIRUSXUSRVHDQG is very much aligned to delivering superior returns to shareholders, which it has."
Remuneration committee chairman
Whilst this remuneration policy will be proposed at the 2017 AGM for shareholder approval, all variable remuneration arrangements previously disclosed in prior years' directors' remuneration reports will remain eligible to vest or become payable RQWKHLURULJLQDObWHUPVDQGYHVWLQJGDWHV subject to any related clawback provisions.
The committee is mindful that regulatory FKDQJHVLQWKHȴQDQFLDOVHUYLFHVVHFWRU may result in a need to rebalance the executive directors' pay and, accordingly, the committee retains discretion to adjust WKHFXUUHQWSURSRUWLRQVRIȴ[HGDQGYDULDEOH pay within the current total remuneration package if new legislation were to impact the executive directors in due course. Should this be the case, the company would enter into appropriate dialogue with its major shareholders and, depending on the nature of any changes, may be required to seek shareholder approval for a revised remuneration policy.
Base salary levels will be set in accordance with the approved remuneration policy, taking into account the experience and FDOLEUHRIWKHLQGLYLGXDO%HQHȴWVZLOODOVR be provided in line with the approved remuneration policy and relocation H[SHQVHVDUUDQJHPHQWVPD\EHSURYLGHG if necessary.
The maximum level of variable pay that PD\EHRHUHGRQDQRQJRLQJEDVLVDQG the structure of remuneration will be in accordance with the approved remuneration policy. This limit does not include the value of any buyout arrangements.
\$Q\LQFHQWLYHRHUHGDERYHWKHVHOLPLWV would be contingent on the company receiving shareholder approval for an amendment to the approved remuneration policy at its next AGM.
'LHUHQWSHUIRUPDQFHPHDVXUHVPD\EH set initially for the annual bonus, taking into account the responsibilities of the individual DQGWKHSRLQWLQWKHȴQDQFLDO\HDUWKDWWKH\ join the company.
The above policy applies to both an internal promotion to the board or an external hire.
In the case of an external hire, if it is QHFHVVDU\WREX\RXWLQFHQWLYHSD\RUEHQHȴW arrangements (which would be forfeited on leaving a previous employer), then the form (cash or shares), timing and expected value (i.e. likelihood of meeting any existing performance criteria) of the remuneration RUEHQHȴWEHLQJIRUIHLWHGZLOOEHWDNHQLQWR account. The company will not pay any more than necessary and will not pay more than the expected value of the remuneration RUEHQHȴWEHLQJIRUIHLWHG7KHDSSURYHG remuneration policy will apply to the balance of the remuneration package. The company will also not make a golden hello payment.
In the case of an internal promotion, any outstanding variable pay awarded in relation to the previous role will be allowed to pay out according to its terms of grant (adjusted as relevant to take into account the board appointment), even if inconsistent with the policy prevailing when the commitment LVIXOȴOOHG
On the appointment of a new chairman or non-executive director, the fees will be set taking into account the experience and FDOLEUHRIWKHLQGLYLGXDO:KHUHVSHFLȴF cash or share arrangements are delivered to non-executive directors, these will not include share options or other performancerelated elements.
The performance metrics used for the annual bonus scheme, the LTIS and the PSP have EHHQVHOHFWHGWRUHȵHFWWKHNH\LQGLFDWRUVRI WKHJURXSȇVȴQDQFLDOSHUIRUPDQFH
EPS continues to be considered by the committee as one of the broadest and most well understood measures of the group's ORQJWHUPȴQDQFLDOSHUIRUPDQFHDQG therefore it remains appropriate to maintain the option to use it as a key metric in our long-term incentive plans.
Furthermore, EPS is fully aligned with the group's objective of continuing to deliver DbKLJKGLYLGHQG\LHOGDQGWKXVLVDOLJQHG ZLWKbWKHVKDUHKROGHUEDVHZKLFKLVZHLJKWHG towards longer-term income investors.
In 2012, the link to RPI was removed from the performance targets for the LTIS and PSP following consideration by the committee of various factors prevailing at the time. This approach has been retained in relation to awards under the PSP and the LTIS since 2012. Performance targets will, however, be assessed annually when setting targets for future awards to take account of prevailing UDWHVRILQȵDWLRQ
In addition, TSR is used to provide an appropriate external balance to the internal EPS measure used under the LTIS and is consistent with delivering superior returns to shareholders which remains the group's NH\bRYHUDUFKLQJORQJWHUPREMHFWLYH
The committee has determined that absolute TSR remains an appropriate performance measure as relevant market indices are considered too diverse against which to compare relative TSR performance.
\$OVRWKHJHQHUDOȴQDQFLDOVHFWRULVDGLYHUVH group of companies, none of which is considered to be directly comparable to the group. The committee agreed, however, to keep the appropriateness of this measure under review and at its meeting in February 2017 the committee determined that an absolute TSR target remained appropriate for the 2017 LTIS awards.
No performance targets are set for options granted under the company's Save As You Earn Scheme (SAYE) or for awards under the company's Share Incentive Plan (SIP) as they form part of the all-employee arrangements which are designed to encourage employee share ownership across the group.
The committee ensures that the contractual terms for the executive directors take due account of best practice.
Service contracts normally continue until the director's agreed retirement date or such other date as the parties agree. All service contracts contain provisions for early termination. The contracts of the executive directors are dated 27 April 2006 for the &KLHI([HFXWLYHDQG-DQXDU\IRUWKH )LQDQFH'LUHFWRU\$OOFRQWUDFWVRSHUDWHRQD rolling basis with 12 months' notice required to be served by either the executive director or the company.
An executive director's contract may be terminated without notice and without any further payment or compensation, except for sums accrued up to the date of termination, on the occurrence of certain events such as gross misconduct. No director has a service contract providing liquidated damages on termination.
In the event of the termination of a service contract, it is the current policy to seek mitigation of loss by the executive director concerned and to aim to ensure that any payment made is the minimum which is commensurate with the company's legal REOLJDWLRQV3D\PHQWVLQbOLHXRIQRWLFHDUH not pensionable.
In the event of a change of control of the company, there is no enhancement to contractual terms.
Notice periods are limited to 12 months. If the company terminates the employment of an executive director without giving the period of notice required under the contract, then the executive director may be entitled to receive up to 12 months' compensation. Compensation is limited to: base salary due for any unexpired notice period; any amount assessed by the committee as representing WKHYDOXHRIFRQWUDFWXDOEHQHȴWVDQGSHQVLRQ which would have been received during the period; and any annual bonus which the executive director might otherwise have been eligible to receive on a pro rata basis, subject to the committee's assessment of ȴQDQFLDODQGSHUVRQDOSHUIRUPDQFH
To the extent that an executive director seeks to bring a claim against the company in relation to the termination of their HPSOR\PHQWHJbIRUbEUHDFKRIFRQWUDFWRU unfair dismissal), the committee retains the right to make an appropriate payment in settlement of such claims.
In the case of a termination by the company of the contract of any new executive director who has been appointed where a payment in lieu of notice is made, the committee would normally seek to limit WKLVWREDVHVDODU\SHQVLRQDQGEHQHȴWV for up to 12 months. An amount in respect of loss of annual bonus for the period of QRWLFHVHUYHGSURbUDWD ZRXOGRQO\EH included in exceptional circumstances and would not apply in circumstances of poor SHUIRUPDQFH)RUWKHbDYRLGDQFHRIGRXEW in such exceptional circumstances, the director would be eligible to be considered in the normal way for an annual bonus for any period they have served as a GLUHFWRUVXEMHFWbWRbWKHQRUPDODVVHVVPHQW E\WKHFRPPLWWHHRIȴQDQFLDObDQG personal performance.
Any share-based entitlements granted to an executive director under the company's share incentive schemes will be determined by reference to the relevant scheme rules. In the case of a 'bad leaver' (e.g. resignation) awards will typically lapse and in certain 'good leaver' circumstances (e.g. ill-health) awards will remain eligible to vest subject to assessment of the relevant performance target and a pro rata reduction (unless the committee determines otherwise).
Any buyout arrangements agreed between the company and the relevant directors would be treated in accordance with WKHWHUPVDJUHHGRQȴQDOLVDWLRQRIWKH buyout arrangement.
Executive directors are permitted to hold non-executive directorships but may only hold one non-executive directorship in a FTSE 100 company (and may retain the fees from their appointment) provided that the board considers that this will not adversely DHFWWKHLUH[HFXWLYHUHVSRQVLELOLWLHV
&RSLHVRIGLUHFWRUVȇVHUYLFHFRQWUDFWVDQGRU letters of appointment are available from WKHb&RPSDQ\6HFUHWDU\RQUHTXHVW
Non-executive directors are not employed under service contracts and do not UHFHLYHFRPSHQVDWLRQIRUORVVRIRɝFH 7KH\DUHDSSRLQWHGIRUȴ[HGWHUPVRIWKUHH years, renewable for a further three-year term and, in exceptional circumstances, further extended if both parties agree. Any such extension will be subject to annual reappointment by shareholders.
The table on page 105 shows details of the terms of appointment for the non-executive directors. All directors, except for Alison Halsey, will seek reappointment at the forthcoming AGM.
| Non-executive director remuneration policy |
||
|---|---|---|
| Element | 3XUSRVHDQGOLQNWRVWUDWHJ\ | Operation including maximum levels |
| Fees | To attract and retain a high-calibre Chairman and non-executive GLUHFWRUVE\RHULQJPDUNHW |
The Chairman and non-executive directors receive annual fees (paid in monthly instalments). The fee for the &KDLUPDQLVVHWE\WKHUHPXQHUDWLRQFRPPLWWHHDQGWKHbIHHVbIRUWKHQRQH[HFXWLYHGLUHFWRUVDUHDSSURYHG E\bWKHERDUG |
| FRPSHWLWLYHIHHVZKLFKUHȵHFWWKH individual's skills, experience and responsibilities. |
The Chairman is paid an all-inclusive fee for all board responsibilities. The other non-executive directors UHFHLYHbDEDVLFQRQH[HFXWLYHGLUHFWRUIHHZLWKVXSSOHPHQWDU\IHHVbSD\DEOHIRUDGGLWLRQDOUHVSRQVLELOLWLHV including a fee for chairing a committee and, from 2016, for membership of the risk and audit committees EXWbQRWLISHUIRUPLQJDFKDLUPDQUROH |
|
| The non-executive directors do not participate in any of the company's incentive arrangements. | ||
| 5HOHYDQWH[SHQVHVDQGRUEHQHȴWVPD\EHSURYLGHGWRWKHQRQH[HFXWLYHGLUHFWRUV | ||
| The fee levels are reviewed on a regular basis and may be increased taking into account factors such as the time commitment of the role and market levels in companies of comparable size and complexity. |
||
| )OH[LELOLW\LVUHWDLQHGWRJRDERYHWKHFXUUHQWIHHOHYHOVDQGRUWRSURYLGHWKHIHHVLQDIRUPRWKHUWKDQFDVK (but not as share options or other performance-related incentives) if necessary to appoint a new Chairman RUbQRQH[HFXWLYHGLUHFWRURIDQDSSURSULDWHFDOLEUH |
| Name | Appointment | Date of most recent term |
Expected date of expiry |
|---|---|---|---|
| Manjit Wolstenholme | -XO\ | -XO\ | -XO\ |
| Rob Anderson | 2 March 2009 | 30 March 2015 | 30 March 2018 |
| Stuart Sinclair | 1 October 2012 | 31 October 2015 | 31 October 2018 |
| Malcolm Le May | -DQXDU\ | -DQXDU\ | -DQXDU\ |
| Alison Halsey | -DQXDU\ | -DQXDU\ | 12 May 2017 |
| David Sear | -DQXDU\ | -DQXDU\ | -DQXDU\ |
| John Straw | -DQXDU\ | -DQXDU\ | -DQXDU\ |
5HPXQHUDWLRQSD\PHQWVDQGSD\PHQWVIRUORVVRIRɝFHZLOORQO\EHPDGHLIFRQVLVWHQWZLWKWKLVDSSURYHGUHPXQHUDWLRQ SROLF\RUbRWKHUZLVHDSSURYHGE\DQRUGLQDU\UHVROXWLRQRIVKDUHKROGHUV
Malcolm Le May Remuneration committee chairman
28 February 2017
This annual report on remuneration provides an overview of the workings of the committee during the year, sets out details of how WKHDSSURYHGUHPXQHUDWLRQSROLF\ZDVLPSOHPHQWHGLQDQG H[SODLQVWKHWRWDOUHPXQHUDWLRQHDUQHGE\WKHGLUHFWRUVLQ It also sets out details of how the proposed remuneration policy ZLOObEHbLPSOHPHQWHGbLQb
7KLVUHSRUWZLOOEHVXEMHFWWRDQDGYLVRU\YRWHDWWKHb\$*0RIWKH FRPSDQ\WREHKHOGRQ0D\
The role of the committee is set out in its terms of reference which are reviewed annually and were last updated in December 7KHVHFDQEHIRXQGRQWKHJURXSȇV ZHEVLWHDWZZZSURYLGHQWȴQDQFLDOFRP The committee meets at least three times a year and thereafter as circumstances dictate.
The committee regularly reviews the approved remuneration policy in the context of the group's strategy and the group's risk management framework to ensure it does not inadvertently promote irresponsible behaviour. It has coordinated its work with both the audit committee and the risk advisory committee, who assist with the monitoring and assessment of risk PDQDJHPHQWVSHFLȴFDOO\LQUHODWLRQWRWKH incentives provided under the approved remuneration policy.
The remuneration committee reviewed a remuneration framework risk assessment as part of the renewal of the company's remuneration policy. It has been agreed that WKHUHPXQHUDWLRQSROLF\ZLOOQRWEH DPHQGHGDQGIRUPVWKHEDVLVRIWKH remuneration policy to be submitted to VKDUHKROGHUVIRUDSSURYDODWWKH\$*0
Continue to engage with shareholders
Reviewed the minutes of the previous meeting and progress against any actions arising; and
Reviewed the minutes of the Vanquis Bank remuneration committee.
The members of the committee, all of ZKRPbDUHFRQVLGHUHGWREHLQGHSHQGHQW and their attendance at meetings during WKHb\HDULVVKRZQLQWKHWDEOHEHORZ
Details of the work undertaken by the committee during the year are set out RQbSDJH
On the basis of an external board and committee evaluation carried out by Lintstock, further details of which can be IRXQGRQSDJHWKHFRPPLWWHHFRQVLGHUHG LWVSHUIRUPDQFHDQGHHFWLYHQHVVLQDW LWVPHHWLQJLQ'HFHPEHU
As part of the external board and evaluation process, each director was able to comment and rate various aspects of the committee's role by responding to a series of questions relating to the performance of the committee contained in an external questionnaire.
Overall, the committee determined that LWZDVRSHUDWLQJHHFWLYHO\DQGWKDWLW continued to have appropriate regard for the key issues within its remit.
ΖQWKHFRPPLWWHHDJDLQHQJDJHG1HZ %ULGJH6WUHHW1%6 DWUDGLQJQDPHRI\$RQ SOF1%6ȇVSDUHQWFRPSDQ\ WRSURYLGH remuneration consultancy services. 7KHWRWDOIHHVSDLGWR1%6LQUHVSHFWRI such services to the committee during the \HDUZHUHe1%6LVDVLJQDWRU\WRWKH Remuneration Consultants' Code of Conduct. Aon plc also provides pension consultancy and investment advice to the company. 7KHFRPPLWWHHLVVDWLVȴHGWKDWWKHVH additional services in no way compromised WKHLQGHSHQGHQFHRIbWKHDGYLFHbIURP1%6
7KHWHUPVRIHQJDJHPHQWIRU1%6DUH available from the Company Secretary on request.
The Company Secretary is secretary to the committee and on behalf of the committee, agrees the scope of the services WREHSURYLGHGE\1%6DQGDȴ[HGIHHLQ respect of each deliverable. The Company Secretary attended all the meetings of the FRPPLWWHHLQDQGSURYLGHVOHJDODQG technical support.
In selecting advisors, the committee considers a range of factors, such DVbLQGHSHQGHQFHDQGREMHFWLYLW\H[SHULHQFH technical ability and market knowledge. These factors are reviewed on a regular basis, and were last considered by the FRPPLWWHHDWLWVPHHWLQJLQ)HEUXDU\
The approved remuneration policy will EHbLPSOHPHQWHGLQVXEMHFWWR VKDUHKROGHUDSSURYDODWWKH\$*0 as follows:
Salaries for executive directors and the senior management teams are reviewed annually by the committee, although not necessarily increased. At its meeting LQ'HFHPEHUWKHFRPPLWWHH FRQVLGHUHGWKHFRPSDQ\ȇVVWURQJȴQDQFLDO performance and each individual's responsibilities, abilities, experience and personal performance. The committee also
| Name | Notes | Date appointed |
2016 Attendance |
Percentage attended |
|---|---|---|---|---|
| Malcolm Le May | Chairman | -DQXDU\ | RXWRI | |
| Rob Anderson | b | 0DUFK | RXWRI | |
| Alison Halsey | -DQXDU\ | RXWRI | ||
| Stuart Sinclair | 2FWREHU | RXWRI |
considered both the group's own salary structures, pay and conditions and, although used with caution in order to avoid paying more than necessary, market data on salary rates for similar positions in comparative companies . As a result, it agreed to increase WKHH[HFXWLYHGLUHFWRUVȇVDODULHVLQ as follows:
| Director's name | % increase 2017 |
Salary £ |
|---|---|---|
| Peter Crook | ||
| Andrew Fisher |
These increases are broadly consistent with the average percentage increases awarded elsewhere in the group.
&RPSDUDWRUFRPSDQLHVLQFOXGHIRUH[DPSOH Lb*URXSbSOF\$EHUGHHQ\$VVHW0DQDJHPHQWSOF \$GPLUDO*URXSSOF\$VKPRUH*URXSSOF&ORVH%URWKHUV *URXSSOF&<%*SOF'LUHFW/LQHΖQVXUDQFH*URXS SOF+DUJUHDYHV/DQVGRZQSOF+HQGHUVRQ*URXSSOF +LVFR[/WGΖ&\$3SOFΖ**URXS+ROGLQJVSOFΖQYHVWHFbSOF -XSLWHU)XQG0DQDJHPHQWSOF0DQ*URXSSOF0HWUR %DQNSOF2OG0XWXDOSOF56\$ΖQVXUDQFH*URXS SOF6FKURGHUVSOF6W-DPHVȇV3ODFHSOF6WDQGDUG Life plc, The PDUDJRQ*URXSRI&RPSDQLHVSOFDQG 9LUJLQb0RQH\b+ROGLQJV8. SOF
The group operates an annual bonus scheme which provides the framework for an annual incentive for executive directors. The aim of the scheme is to improve the company's performance through the achievement RIFHUWDLQȴQDQFLDODQGRSHUDWLRQDOJRDOV The maximum bonus opportunity will FRQWLQXHWREHUHVWULFWHGWRRIVDODU\ IRUWKH&KLHI([HFXWLYHDQGRIVDODU\IRU
the Finance Director and any other executive director. The performance conditions for the DQQXDOERQXVZLOOFRQWLQXHWREHEDVHG RQWKHJURXSȇV(36DQGSHUVRQDOREMHFWLYHV as follows:
| Peter Crook | Andrew Fisher | ||||||
|---|---|---|---|---|---|---|---|
| Measure | Maximum bonus opportunity |
Maximum bonus opportunity |
|||||
| Targeted group EPS |
|||||||
| Personal REMHFWLYHV |
(36LVWKHNH\LQWHUQDOPHDVXUHRIȴQDQFLDO performance as it is the broadest measure RIWKHJURXSȇVȴQDQFLDOSHUIRUPDQFH and is aligned to the shareholder base which is weighted towards longer-term income investors.
The committee considers corporate performance on environmental, social and JRYHUQDQFH(6* LVVXHVZKHQVHWWLQJWKH performance conditions for the annual bonus scheme and share incentive plans DQGbZLOOXVHLWVGLVFUHWLRQWRHQVXUHWKDW where appropriate, the management RI(6*ULVNVLVUHȵHFWHGLQWKHUHZDUGV JUDQWHGbWRH[HFXWLYHGLUHFWRUVDQGWKH VHQLRUbPDQDJHPHQWWHDP
Straight-line vesting will operate between RIWKHWDUJHWHGJURXS(36DWZKLFKSRLQW RIWKHERQXVVXEMHFWWRWKLVPHDVXUHZLOO EHSD\DEOHDQGWKHPD[LPXPRIRI WKHWDUJHWHGJURXS(36RIWKHERQXV VXEMHFWWRWKLVPHDVXUHZLOOEHSD\DEOHIRU
target levels of performance. The personal REMHFWLYHVHOHPHQWRIWKHVFKHPHZLOO continue to be underpinned by the threshold level of the targeted group EPS. On the EDVLVWKDWWKHYDVWPDMRULW\RIWKHJURXSȇV competitors are unlisted, and on the basis that the EPS target is consistent with the JURXSȇVREMHFWLYHRIFRQWLQXLQJWRGHOLYHUD high dividend yield, the committee considers that disclosure of the actual EPS target for WKHDQQXDOERQXVVFKHPHLQZRXOG SXWWKHFRPSDQ\DWDVLJQLȴFDQWFRPPHUFLDO disadvantage. When setting EPS targets, the committee takes account of internal and external market forecasts and prevailing economic conditions. Details of the extent to which the bonus targets are achieved will, however, be set out in the next annual report on remuneration.
0DOXVDQGFODZEDFNSURYLVLRQVDOVRDSSO\WR annual bonus payments which will enable the committee to recover value overpaid in the event of a restatement of the company's Annual Report and Financial Statements or an error in the calculation of the extent to which the performance target has been met. The mechanisms open to the committee when undertaking a clawback include the ZLWKKROGLQJRIYDULDEOHSD\WRRVHWWKHYDOXH to be clawed back and/or seeking repayment from the individual of the value overpaid. The period of clawback is three years from the date on which the bonus is paid.
Any bonuses paid are non-pensionable and are not taken into account when determining base salary for performancerelated remuneration.
Remuneration committee
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The company's long-term incentive arrangements for executive directors DUHbWKHb/7Ζ6DQGWKH363
A replacement PSP was approved by VKDUHKROGHUVDWWKH\$*0IROORZLQJ H[SLU\RIWKHSUHYLRXV363LQ
7KH/7Ζ6H[SLUHGLQ0D\DQGD resolution to renew the scheme on substantially similar terms was approved E\bVKDUHKROGHUVDWWKH\$*0
The Provident Financial Executive Share 2SWLRQ6FKHPHWKH(626 DOVRH[SLUHG LQ0D\DQGKDVQRWEHHQUHSODFHG
ΖQDQGIXWXUH\HDUVH[HFXWLYHGLUHFWRUV will participate in the LTIS and the PSP.
The committee is responsible for selecting eligible employees, including executive directors, to participate in the LTIS and for granting conditional share awards under the LTIS. Participants are eligible to be FRQVLGHUHGIRUDZDUGVDQQXDOO\1RSD\PHQW is required on grant or vesting of an award. 8QWLODQDZDUGYHVWVDSDUWLFLSDQWKDVQR voting, dividend or other rights in respect RIbWKHVKDUHVVXEMHFWWRWKHDZDUG
The aggregate market value of awards made to a participant under the LTIS in any one ȴQDQFLDO\HDUPD\QRWH[FHHGRIEDVLF salary which is the normal grant policy under the LTIS and the committee intends to grant awards under the LTIS at this level in respect RIWKHFXUUHQWȴQDQFLDO\HDU7KLVOLPLW does not include the value of any dividend equivalent payable on shares vesting under an LTIS award which is also paid on the vesting date.
)RUDZDUGVLQLWLVSURSRVHGWKDWWKH performance targets continue to be based on absolute EPS growth and absolute TSR, with the range of targets remaining XQFKDQJHGIURP
The actual range of the EPS targets for DZDUGVLQZLOOEHDVIROORZVZLWKD sliding scale of vesting on a straight-line basis EHWZHHQWKHVHORZHUDQGXSSHUWDUJHWV
| Annualised growth in EPS |
3HUFHQWDJHYHVWLQJ (of EPS part of award) |
|---|---|
| %HORZ | |
The actual range of the TSR targets for DZDUGVLQZLOOEHDVIROORZVZLWKD sliding scale of vesting on a straight-line basis EHWZHHQWKHVHORZHUDQGXSSHUWDUJHWV
| Annualised TSR | 3HUFHQWDJHYHVWLQJ (of TSR part of award) |
|---|---|
| %HORZ | |
1RWZLWKVWDQGLQJDFKLHYHPHQWDJDLQVWWKH challenging EPS targets, vesting will only take place to the extent that the committee considers the vesting to be consistent with WKHEURDGHUȴQDQFLDOSHUIRUPDQFHRIWKH company and the committee may scale back vesting if this is not considered to be the case. The committee introduced this underpin to the already demanding EPS targets to ensure that the executive directors do not place too great an emphasis on EPS alone. There is also a general underpin which applies to the TSR target whereby the FRPPLWWHHQHHGVWREHVDWLVȴHGWKDWWKH 765SHUIRUPDQFHLVDJHQXLQHUHȵHFWLRQRI the underlying performance of the company before any award vests.
Executive directors are required to waive a minimum of one third of annual bonus payable in which case they receive awards under the PSP. They may also elect to waive up to a further third of bonus. They then receive a Basic Award under the PSP which is VXEMHFWWRIRUIHLWXUHFRQGLWLRQVRYHUDWKUHH \HDUSHULRGDQGD0DWFKLQJ\$ZDUGZKLFKLV VXEMHFWWRDSHUIRUPDQFHWDUJHWEDVHGRQ absolute EPS growth.
At the lower end of the performance target range, one-half of a matching share will vest up to a maximum of two matching shares at the upper end of the performance target range for each basic share awarded following bonus waiver. The value of the award can therefore increase or decrease depending on the prevailing share price at the date of vesting.
The actual range of the EPS targets for DZDUGVLQUHPDLQVXQFKDQJHGIURP DQGZLOOEHDVIROORZV
| \$QQXDODYHUDJH growth in EPS |
Matching shares YHVWLQJ |
|---|---|
| %HORZ | 1RYHVWLQJ |
| Half of one matching share | |
| Two matching shares | |
The same general underpin to the EPS WDUJHWVLQWKH/7Ζ6DVVHWRXWDERYH DSSOLHVbWRDOODZDUGVJUDQWHGXQGHUWKH 363bVLQFH
Savings-related share option scheme The executive directors (together with RWKHUHOLJLEOHHPSOR\HHV PD\SDUWLFLSDWH in the Provident Financial Savings Related 6KDUH2SWLRQ6FKHPH6\$<( 3DUWLFLSDQWVVDYHDȴ[HGVXPHDFKPRQWK IRUWKUHHRUȴYH\HDUVDQGPD\XVHWKHVH IXQGVWRSXUFKDVHVKDUHVDIWHUWKUHHRUȴYH \HDUV7KHH[HUFLVHSULFHLVȴ[HGDWXSWR below the market value of the shares at the date directors and employees are invited to participate and monthly savings amounts DUHbVXEMHFWWR+05&OLPLWV
ΖQDGGLWLRQWRWKH6\$<(WKHH[HFXWLYH directors may participate in the Provident )LQDQFLDO6KDUHΖQFHQWLYH3ODQȆ6Ζ3ȇ 7KLVLV DQDOOHPSOR\HHSODQZKLFKRHUVDIXUWKHU mechanism through which employees can acquire shares in a tax-approved manner. Executive directors are invited to participate in the SIP on the same terms as other eligible employees. The SIP provides an opportunity to invest in the company's VKDUHVDQGEHQHȴWIURPWKHFRPSDQ\ȇVRHU to match that investment on the basis of one matching share for every four partnership shares purchased.
\$VLJQLȴFDQWSURSRUWLRQRIUHPXQHUDWLRQ is linked to performance, particularly at maximum performance levels. The charts to the right show how much the executive directors could earn under the policy XQGHUGLHUHQWSHUIRUPDQFHVFHQDULRV The following assumptions have been made:
0LQLPXPSHUIRUPDQFHEHORZWKUHVKROG Ȃȴ[HGSD\RQO\ZLWKQRYHVWLQJXQGHUWKH LTIS or PSP and no annual bonus;
2QWDUJHWȂȴ[HGSD\SOXVDERQXVDWWDUJHW RIWKHPD[LPXPRSSRUWXQLW\ DQG YHVWLQJRIRIWKH0DWFKLQJ\$ZDUG XQGHUWKH363DQGRIWKHDZDUG XQGHUbWKH/7Ζ6DQG
0D[LPXPSHUIRUPDQFHPHHWVRUH[FHHGV PD[LPXP Ȃȴ[HGSD\SOXVPD[LPXP ERQXVRIVDODU\ DQGPD[LPXP vesting under the PSP and LTIS.
Fixed pay comprises:
Awards under the PSP and LTIS have been assumed as follows:
L 363Ȃ0DWFKLQJ\$ZDUGRIWZRWKLUGVRI bonus earned at target and maximum performance levels; and
LL /7Ζ6ȂDZDUGHTXDOWRRIVDODU\
Partnership and matching shares under the 6Ζ3DQGRSWLRQVXQGHUWKH6\$<(KDYHQRW been included.
The scenarios do not include any growth or a fall in the share price or any dividend assumptions.
It should be noted that as this analysis shows what could be earned by the executive directors based on the approved remuneration policy (ignoring the potential LPSDFWRIVKDUHSULFHPRYHPHQWV WKH QXPEHUVZLOOEHGLHUHQWWRWKHYDOXHV LQFOXGHGLQWKHWDEOHRQSDJHGHWDLOLQJ what was actually earned by the executive GLUHFWRUVLQUHODWLRQWRWKHȴQDQFLDO\HDU HQGHG'HFHPEHUVLQFHWKHVH values are based on the actual levels of SHUIRUPDQFHDFKLHYHGWR'HFHPEHU DQGLQFOXGHWKHLPSDFWRIVKDUHSULFH movements in relation to share awards.
Fixed pay Annual bonus Long-term incentives
1RQH[HFXWLYHGLUHFWRUVȇIHHV
\$WLWVPHHWLQJLQ'HFHPEHUWKHERDUG reviewed the non-executive directors' fees in the context of a benchmarking exercise XQGHUWDNHQE\1%6WDNLQJGXHDFFRXQW of the need to use such benchmarking exercises with caution. After taking into account the changes made last year and the increases awarded to the wider workforce, WKHIROORZLQJIHHOHYHOVIRUZHUHDJUHHG
1RQH[HFXWLYHGLUHFWRUEDVHIHHe LQFUHDVHGE\e
Supplementary fee for chairing the audit, remuneration or risk advisory committee: eQRFKDQJH
Supplementary fee for membership RIbWKHDXGLWFRPPLWWHHRUULVNDGYLVRU\ FRPPLWWHHeQRFKDQJH This fee is not paid to the chairman RIbWKHVHbFRPPLWWHHVDQG
Supplementary fee for the role of Senior ΖQGHSHQGHQW'LUHFWRU6Ζ' e QRFKDQJH
The committee reviewed the Chairman's fees also on the basis of a benchmarking H[HUFLVHFDUULHGRXWE\1%6LQ'HFHPEHU WDNLQJGXHDFFRXQWRIWKHQHHGWRXVH such benchmarking exercises with caution. The committee agreed that the Chairman's IHHVIRUEHLQFUHDVHGWRe e WRUHȵHFWWKHLQFUHDVHV awarded to the wider workforce.
'HWDLOVRIWKHLPSOHPHQWDWLRQRIWKHFRPSDQ\ȇVDSSURYHGUHPXQHUDWLRQSROLF\LQDUHVHWRXWEHORZ
7KHWRWDODJJUHJDWHGLUHFWRUVȇHPROXPHQWVGXULQJWKH\HDUDPRXQWHGWRePeP DQDO\VHGDVIROORZV
| Fixed pay | Variable pay | Total | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ȴ[HGSD\ | Total | 6KDUHLQFHQWLYH schemes |
Total YDULDEOHSD\ |
|||||||||||||||||
| Salary | in kind1 | %HQHȴWV | Pension | Annual cash bonus3 |
LTIS | PSP | GLYLGHQGV | PSP | ||||||||||||
| 2016 | 2016 | 2016 | 2016 | 2016 | 20164 | 20165 | 2016 | 2016 | 2016 | |||||||||||
| Director's name | £'000 | eȇ | £'000 | eȇ | £'000 | eȇ | £'000 | eȇ | £'000 | eȇ | £'000 | eȇ | £'000 | eȇ | £'000 | eȇ | £'000 | eȇ | £'000 | eȇ |
| ([HFXWLYHGLUHFWRUV | ||||||||||||||||||||
| Peter Crook | 730 | 102 | 248 | 1,080 | 876 | 2,107 2,175 | 77 | 5,235 | 6,315 | |||||||||||
| Andrew Fisher | 520 | 61 | 176 | 757 | 520 | 1,504 1,353 | 47 | 3,424 | 4,181 | |||||||||||
| Total | 1,250 | 163 | 424 | 1,837 1,396 3,611 3,528 | 124 | 8,659 10,496 |
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7KHDQQXDOERQXVUHSUHVHQWVWKHJURVVERQXVSD\DEOHWRWKHGLUHFWRUVLQUHVSHFWRI(DFKGLUHFWRUKDVDJUHHGWRZDLYHWZRWKLUGVRIJURVVERQXVSD\DEOHLQRUGHUWR participate in the PSP.
\$PRXQWFDOFXODWHGEDVHGRQYHVWLQJRIDZDUGVPXOWLSOLHGE\DQDYHUDJHVKDUHSULFHIRUWKHWKUHHPRQWKVHQGHGb'HFHPEHU1RDFFRXQWKDVEHHQWDNHQRIWKH GLYLGHQGHTXLYDOHQWSD\DEOHRQWKHVHVKDUHVZKLFKZLOOEHFDOFXODWHGRQWKHYHVWLQJGDWHRI\$SULO7KHDFWXDOYDOXHPD\YDU\GHSHQGLQJRQWKHDFWXDOVKDUHSULFHRQWKH vesting date.
\$PRXQWFDOFXODWHGEDVHGRQYHVWLQJRIEDVLFDQGPDWFKLQJDZDUGVPXOWLSOLHGE\DQDYHUDJHVKDUHSULFHIRUWKHWKUHHPRQWKVHQGHGb'HFHPEHU1RDFFRXQWKDV EHHQWDNHQRIWKHGLYLGHQGHTXLYDOHQWSD\DEOHRQWKHPDWFKLQJDZDUGVKDUHVZKLFKZLOOEHFDOFXODWHGRQWKHYHVWLQJGDWHRI\$SULO7KHDFWXDOYDOXHPD\YDU\GHSHQGLQJRQ WKHDFWXDOVKDUHSULFHRQbWKHYHVWLQJGDWH
| Fees | Annual cash bonus | %HQHȴWVLQNLQG | Total | |||||
|---|---|---|---|---|---|---|---|---|
| Director's name | 2016 £'000 |
eȇ |
2016 £'000 |
eȇ |
2016 £'000 |
eȇ |
2016 £'000 |
eȇ |
| Chairman | ||||||||
| 0DQMLW:ROVWHQKROPH | 310 | – | – | 7 | 317 | |||
| 1RQH[HFXWLYHGLUHFWRUV | ||||||||
| Rob Anderson | 76 | – | – | 2 | 78 | |||
| Stuart Sinclair | 91 | – | – | 1 | 92 | |||
| Alison Halsey | 91 | – | – | 1 | 92 | |||
| 0DOFROP/H0D\ | 106 | – | – | 0 | 106 | |||
| Total | 674 | – | – | 11 | 685 |
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\$QGUHZ)LVKHUZDVDSSRLQWHGDVDQRQH[HFXWLYHGLUHFWRURI\$UURZ*OREDO*URXS3/&RQ'HFHPEHUDQGUHWDLQVWKHIHHIURPWKDW DSSRLQWPHQW'XULQJWKHSURUDWHGbIHHVDPRXQWHGWReeQLO
7KHDQQXDOERQXVVFKHPHZDV EDVHGRQDGMXVWHGWDUJHWHGJURXS EPS (excluding exceptional items and DPRUWLVDWLRQRIDFTXLVLWLRQLQWDQJLEOHV DQGbSHUVRQDOREMHFWLYHV
The maximum bonus opportunity in respect RIZDVUHVWULFWHGWRRIVDODU\IRU WKH&KLHI([HFXWLYHDQGRIVDODU\IRU the Finance Director and was split as follows:
| Measure | 0D[LPXPERQXVRSSRUWXQLW\ | |||
|---|---|---|---|---|
| Targeted JURXSb(36 |
||||
| Personal REMHFWLYHV |
7KHDFWXDOSURSRUWLRQVRIWKHDGMXVWHG targeted group EPS and the corresponding DGMXVWHGWDUJHWHGJURXS(36WKDWQHHGHG to be achieved, which the committee FRQVLGHUHGWRbEHFKDOOHQJLQJZHUHDVIROORZV
| Threshold | Target Maximum | ||
|---|---|---|---|
| % of the adjusted targeted group (36bDFKLHYHG |
|||
| % of EPS element of annual ERQXVbSDLG |
|||
| Adjusted targeted group EPS |
S | S | S |
Straight-line vesting operated between DQGRIWKHDGMXVWHGWDUJHWHG group EPS.
The committee carries out a detailed review of the computations undertaken in determining the group's EPS and ensures that the rules of the scheme are applied consistently. The company's auditor is also asked to perform agreed-upon procedures on behalf of the committee on the EPS calculations.
\$WLWVPHHWLQJLQ)HEUXDU\WKH committee assessed the group's SHUIRUPDQFHDJDLQVWWKHDGMXVWHGWDUJHWHG JURXS(367KHDGMXVWHG(36DFKLHYHGRI SH[FHHGHGWKHDGMXVWHGWDUJHWHG JURXS(36RISE\PRUHWKDQ DQGWKHbFRPPLWWHHWKHUHIRUHGHWHUPLQHG WKDWRIWKH(36HOHPHQWRIWKH DQQXDObERQXVVKRXOGEHSDLG
The balance of the annual bonus, as detailed in the table of directors' remuneration RQSDJHZDVSDLGRQWKHEDVLVRIWKH committee's assessment of the extent WRZKLFKWKHSHUVRQDOREMHFWLYHVIRUWKH H[HFXWLYHGLUHFWRUVZHUHDFKLHYHGIRU as set out in the table opposite.
The bonus payable as a percentage of VDODU\bLQUHODWLRQWRZDVWKHUHIRUH IRUWKH&KLHI([HFXWLYHDQGIRUWKH Finance Director.
Peter Crook
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| 3HUVRQDO2EMHFWLYH | Assessment | Percentage Earned of the Maximum 20% |
|---|---|---|
| 6SHFLȴFVWUDWHJLFDQG performance targets UHODWLQJWRbHDFKRIWKH divisions |
> Vanquis Bank: introduction of alternative JURZWKbVWUDWHJLHV > CCD: redesign of the business model. > 0RQH\EDUQVPRRWKWUDQVLWLRQLQOHDGHUVKLSVXFFHVVLRQ |
5 |
| FCA authorisation | > Vanquis Bank: variation of permission secured. > CCD: constructive dialogue but not yet authorised. > 0RQH\EDUQIXOO\DXWKRULVHG |
4 |
| Succession planning IRUbWKHbGLYLVLRQDO management teams |
> Vanquis Bank: reconstitution of the executive committee. > CCD: recruitment of an experienced IT director to address the future technology needs of the business. > 0RQH\EDUQUHSODFHGWKHUHWLULQJPDQDJLQJGLUHFWRUE\ promoting the sales and commercial director. > *URXSZRUNHGZLWKWKH&KDLUPDQWRUHFUXLWDGGLWLRQDO non-executive directors to enhance the board composition. |
3 |
| Working relationship with WKHb&KDLUPDQ |
> Assisted and supported the Chairman in the development of relationships with the divisional senior management teams and with external stakeholders. |
4 |
| 0DLQWDLQWKHJURXSȇV relationship with H[WHUQDObVWDNHKROGHUV |
> Continued to have an active role in the FCA's practitioner's panel. > 6HFXUHGVSRQVRUVKLSRIKHOSHGSURPRWHDQGMRLQHG WKHb%UDGIRUG/LWHUDWXUH)HVWLYDO\$GYLVRU\%RDUG > Became interim chair of Producer City Board. |
4 |
| Andrew Fisher | ||
| 3HUVRQDO2EMHFWLYH | Assessment | Percentage Earned of the Maximum 20% |
| \$FKLHYHPHQWRIVSHFLȴF divisional strategic and performance targets |
> :RUNHGHHFWLYHO\ZLWKWKH&KLHI([HFXWLYH LQRYHUVHHLQJbWKHGHYHORSPHQWRIWKHJURZWK LQLWLDWLYHVbLQb9DQTXLV%DQN |
4 |
| Tax charge for the group | > *URXSȇVHHFWLYHWD[UDWHLV | 3 |
| 0DQDJHPHQWRIJURXS WUHDVXU\bDQGLQSDUWLFXODU WKHbΖ&\$\$3SURFHVV |
> Ζ&\$\$3DQGΖ/\$\$3VXEPLWWHGDQGVXɝFLHQWUHJXODWRU\ capital in excess of the individual capital guidance maintained at all times. |
3 |
| Enhancing the group ULVNbIXQFWLRQ |
> Roles of the risk advisory group and risk advisory FRPPLWWHHHHFWLYHO\UHDOLJQHGWRHQKDQFHWKHUHSRUWLQJ |
4 |
and management of key risks across the group, including in particular conduct risk. (HFWLYHPDQDJHPHQW RIbFLW\H[SHFWDWLRQV > (HFWLYHURDGVKRZVXQGHUWDNHQLQWKH8.(XURSH DQGb86\$IROORZLQJWKHJURXSȇVUHVXOWVDQQRXQFHPHQWV 1RFRQFHUQVUDLVHGE\VKDUHKROGHUVDQGSRVLWLYH IHHGEDFNIURPLQYHVWRUbVXUYH\V 3 Developing and enhancing the > ΖQYROYHGLQUHFUXLWPHQWRIDQHZGLYLVLRQDOȴQDQFH director at Vanquis Bank and continued to develop the 3
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ΖQWKHFRPPLWWHHFRQWLQXHGZLWK the policy of making conditional share awards to executive directors and the senior management teams under the LTIS and awards under the PSP. This policy is in line with prevailing market practice and recognises that conditional share awards, and the waiver of annual bonus in the case RIbWKH363SURYLGHJUHDWHUDOLJQPHQWZLWK shareholders' interests.
Historically, and dependent upon satisfactory personal and corporate performance, the committee's policy has been to grant conditional share awards at WKHPD[LPXPOHYHORIRIEDVLFVDODU\ Executive directors received maximum JUDQWVLQ
The proposed performance targets for DZDUGVPDGHXQGHUWKH/7Ζ6LQZHUH reviewed by the committee at its meeting LQb)HEUXDU\DQGLWZDVFRQVLGHUHGWKDW they remained appropriately challenging given market forecasts and the economic environment prevailing at the time. The actual range of the targets for awards LQLVWKHVDPHLQWHUPVRIPHWULFVDQG annual growth requirements as the targets EHLQJSURSRVHGIRUWKH/7Ζ6DZDUGV further details of which are set out on SDJHb
9HVWLQJRIWKHFRQGLWLRQDOVKDUH DZDUGVZKLFKDUHGXHWRYHVWRQ\$SULO was split equally between the company's DQQXDOLVHGJURZWKLQDGMXVWHG(36DQG its annualised TSR over the three year performance period as follows:
| Annualised JURZWKbLQ DGMXVWHGb(36 |
3HUFHQWDJHYHVWLQJ (of EPS part of award) |
|---|---|
| %HORZ | |
| Annualised TSR | 3HUFHQWDJHYHVWLQJ (of TSR part of award) |
|---|---|
| %HORZ | |
A sliding scale of vesting (on a straight-line EDVLV DSSOLHGEHWZHHQWKHORZHUDQGXSSHU EPS and TSR targets.
'HWDLOVRIWKHFRQGLWLRQDOVKDUHDZDUGVJUDQWHGWRWKHH[HFXWLYHGLUHFWRUVGXULQJDUHVXPPDULVHGEHORZ
| Director's name | Date of award |
Number of shares |
Face YDOXH1 |
Percentage of salary |
Performance condition2 |
Performance period |
YHVWLQJ at threshold |
|---|---|---|---|---|---|---|---|
| Peter Crook | e | EDVHGRQ absolute TSR and |
Three consecutive ȴQDQFLDO\HDUVHQGLQJ |
||||
| Andrew Fisher | e | EDVHGRQ absolute EPS growth |
'HFHPEHU |
)DFHYDOXHFDOFXODWLRQLVEDVHGRQWKHVKDUHSULFHRIeRQ)HEUXDU\$FWXDOYDOXHDWYHVWLQJPD\EHJUHDWHURUOHVVHUGHSHQGLQJRQDFWXDOVKDUHSULFHDWYHVWLQJDQGDV a result of any dividend equivalent payable on vested shares.
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| Director's name | Date of award |
Awards held at 01.01.2016 |
Awards granted during the year |
Awards YHVWHG during the year1 |
Awards lapsed during the year |
Awards held at 31.12.2016 |
Market price at date of grant (p) |
Market price at date of YHVWLQJS |
Vesting date |
|---|---|---|---|---|---|---|---|---|---|
| Peter Crook | – | – | – | ||||||
| – | – | – | – | ||||||
| – | – | – | – | ||||||
| – | – | – | – | ||||||
| Andrew Fisher | – | – | – | ||||||
| – | – | – | – | ||||||
| – | – | – | – | ||||||
| – | – | – | – |
'LYLGHQGVKDUHVRQDZDUGVZKLFKYHVWHGLQZHUHUHFHLYHGDVIROORZV3HWHU&URRNVKDUHVDQG\$QGUHZ)LVKHUVKDUHV
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+DOIWKHDZDUGYHVWVVXEMHFWWR(36JURZWKZLWKRIWKLVSDUWRIWKHDZDUGYHVWLQJIRU(36JURZWKRISHUDQQXPWKURXJKWRIXOOYHVWLQJIRU(36JURZWKRISHUDQQXP 7KHUHPDLQLQJKDOIRIWKHDZDUGLVVXEMHFWWRDEVROXWH765ZLWKRIWKLVSDUWRIWKHDZDUGYHVWLQJIRUDEVROXWH765SHUDQQXPDQGIXOOYHVWLQJIRUDEVROXWH765RISHU DQQXP1RYHVWLQJWDNHVSODFHEHORZWKHWKUHVKROGSHUIRUPDQFHOHYHOVZLWKVWUDLJKWOLQHYHVWLQJWDNLQJSODFHEHWZHHQWKUHVKROGDQGPD[LPXPSHUIRUPDQFHOHYHOVΖQDGGLWLRQ ZLWKUHJDUGWRWKHDEVROXWH765SHUIRUPDQFHWDUJHWVWKDWSDUWRIWKHDZDUGZLOOQRWYHVWXQOHVVWKHFRPPLWWHHLVVDWLVȴHGWKDWWKH765SHUIRUPDQFHLVbDbJHQXLQHUHȵHFWLRQRI WKHXQGHUO\LQJSHUIRUPDQFHRIWKHFRPSDQ\DQG ZLWKUHJDUGWRWKHDEVROXWH(36SHUIRUPDQFHWDUJHWVWKDWSDUWRIWKHDZDUGZLOOQRWYHVWXQOHVVWKHFRPPLWWHHLVVDWLVȴHG WKDWWKHYHVWLQJLVFRQVLVWHQWZLWKWKHEURDGHUȴQDQFLDOSHUIRUPDQFHRIWKHFRPSDQ)XOOGHWDLOVRIKLVWRULFSHUIRUPDQFHWDUJHWVKDYHEHHQIXOO\VHWRXWLQSUHYLRXVGLUHFWRUVȇ remuneration reports.
The assessment of the extent to which these performance conditions were met was discussed by the committee at its meeting LQ)HEUXDU\ZLWKDVVLVWDQFHIURP 1%67KHFRPSDQ\ȇVDQQXDOLVHGJURZWKLQ DGMXVWHG(36RYHUWKHSHUIRUPDQFHSHULRG ZDVZKLFKH[FHHGHGWKHPD[LPXP DQQXDOLVHGJURZWKLQ(36WDUJHWRI 7KHFRPPLWWHHWKHUHIRUHDSSURYHGD vesting of the EPS element of the award, KDYLQJVDWLVȴHGLWVHOIWKDWWKHYHVWLQJ ZDVFRQVLVWHQWZLWKWKHEURDGHUȴQDQFLDO performance of the company.
1%6DOVRFRQȴUPHGWKDWWKHFRPSDQ\ȇV annualised TSR over the three-year SHUIRUPDQFHSHULRGZDVZKLFK exceeded the maximum annualised TSR WDUJHWRIUHVXOWLQJLQRIWKH765 element of the award vesting.
The committee therefore approved DYHVWLQJRIWKHDZDUGV KDYLQJDOVRVDWLVȴHGLWVHOIWKDWWKH765 SHUIRUPDQFHZDVDJHQXLQHUHȵHFWLRQRIWKH underlying performance of the company.
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The executive directors have waived any entitlement to dividends payable during the performance period on their conditional share awards. To the extent an award vests at the end of the performance period, either additional ordinary shares in the company or a cash amount equivalent to the dividends that would have been paid on the vested awards from the date of grant, will be provided to the executive directors on vesting.
\$VLQSUHYLRXV\HDUVDZDUGVPDGHLQ to employees within CCD, Vanquis Bank DQG0RQH\EDUQDUHVXEMHFWWRDFKDOOHQJLQJ divisional performance target rather than group EPS and TSR targets.
ΖQSDUWLFLSDWLRQLQWKH363LQFOXGHG the executive directors, who were able WRHOHFWWRZDLYHXSWRWZRWKLUGVZLWKbD FRPSXOVRU\bPLQLPXPRIRQHWKLUG RI their annual bonus payable, and other eligible employees who were able to waive XSWRRUGHSHQGLQJRQWKHLU OHYHORIVHQLRULW\ RIWKHLUDQQXDOERQXV payable. Participants then received a basic award of shares equal to the value of their waived bonus, together with an equivalent 0DWFKLQJ\$ZDUGRQWKHEDVLVRIRQHVKDUH for each share acquired pursuant to the SDUWLFLSDQWȇVEDVLFDZDUG ZKLFKLVVXEMHFW WRDSHUIRUPDQFHFRQGLWLRQRYHUDbSHULRG RIbWKUHH\HDUV
Awards to executive directors and certain members of the senior management teams LQZHUHKRZHYHUPDGHRQWKHEDVLV RIbXSWRWZRVKDUHVIRUHDFKVKDUHDFTXLUHG pursuant to their basic award, the second PDWFKLQJVKDUHEHLQJVXEMHFWWRDPRUH stretching performance target.
'HWDLOVRIWKHDZDUGVJUDQWHGWRWKHH[HFXWLYHGLUHFWRUVGXULQJDUHVXPPDULVHGEHORZ
| Director's name | Date of award |
Type of award |
Number of shares |
Face YDOXH1 |
Percentage of salary |
Performance condition2 |
Performance period |
YHVWLQJ at threshold |
|
|---|---|---|---|---|---|---|---|---|---|
| Peter Crook | Basic | e | EDVHG | Three consecutive | |||||
| b | b | 0DWFKLQJ | e | on absolute EPS growth of EHWZHHQ DQG |
ȴQDQFLDO | Half a | |||
| Andrew Fisher | Basic | e | years ending 'HFHPEHU |
matching share |
|||||
| b | 0DWFKLQJ | e |
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\$ZDUGVKHOGE\WKHH[HFXWLYHGLUHFWRUVXQGHUWKH363DW'HFHPEHUZHUHDVIROORZV
| Director's name | Date of grant |
Basic awards (number of shares) held at 01.01.2016 |
Matching awards (number of shares) held at 01.01.2016 |
Total basic awards (number of shares) YHVWHG during the year |
Total matching awards (number of shares) YHVWHG during the year1 |
Total basic awards (number of shares) held at 31.12.2016 |
Total matching awards (number of shares) held at 31.12.2016 |
Market price at date of grant (p) |
Market price at date of YHVWLQJS |
Vesting date |
|---|---|---|---|---|---|---|---|---|---|---|
| Peter Crook | – | – | b | |||||||
| – | – | – | ||||||||
| – | – | – | ||||||||
| – | – | – | – | – | ||||||
| Andrew Fisher | – | – | ||||||||
| – | – | – | ||||||||
| – | – | – | ||||||||
| – | – | – | – | – |
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'HWDLOVRIWKHSHUIRUPDQFHWDUJHWIRUWKHDZDUGVZHUHLQFOXGHGLQWKHDQQXDOUHSRUWRQUHPXQHUDWLRQLQ
7KHPDWFKLQJDZDUGVYHVWVXEMHFWWRDSHUIRUPDQFHWDUJHWEDVHGRQDYHUDJHDQQXDOJURZWKLQ(36ZLWKRIWKHPDWFKLQJDZDUGYHVWLQJIRU(36JURZWKRISHUDQQXP WKUHVKROG WKURXJKWRIXOOYHVWLQJIRU(36JURZWKRISHUDQQXP1RYHVWLQJWDNHVSODFHEHORZWKHWKUHVKROGSHUIRUPDQFHOHYHOZLWKVWUDLJKWOLQHYHVWLQJWDNLQJSODFHEHWZHHQ WKUHVKROGDQGPD[LPXPSHUIRUPDQFHOHYHOVΖQDGGLWLRQQRDZDUGVZLOOYHVWXQOHVVWKHFRPPLWWHHLVVDWLVȴHGWKDWWKHYHVWLQJLVFRQVLVWHQWZLWKWKHEURDGHUȴQDQFLDOSHUIRUPDQFH RIWKHFRPSDQ)XOObGHWDLOVRIKLVWRULFSHUIRUPDQFHWDUJHWVKDYHEHHQIXOO\VHWRXWLQSUHYLRXVGLUHFWRUVȇUHPXQHUDWLRQUHSRUWV
)RUDZDUGVJUDQWHGIURPWKH committee changed the EPS target to an absolute EPS growth target, which is consistent with the absolute EPS target which was introduced for awards under the LTIS IURPDVVHWRXWRQSDJH
The actual range of the EPS targets for DZDUGVJUDQWHGLQLVDVIROORZV
| \$YHUDJHDQQXDO growth in EPS |
0DWFKLQJVKDUHVYHVWLQJ |
|---|---|
| %HORZ | 1RYHVWLQJ |
| Half of one matching share | |
| Two matching shares |
A sliding scale of vesting (on a straight-line EDVLV DSSOLHVEHWZHHQWKHVHORZHUDQG upper targets which are measured over a SHULRGRIWKUHHFRQVHFXWLYHȴQDQFLDO\HDUV WKHȴUVWRIZKLFKLVWKHȴQDQFLDO\HDUVWDUWLQJ immediately before the grant date of the 0DWFKLQJ\$ZDUG
)RUDZDUGVJUDQWHGLQZKLFKDUHGXHWR YHVWRQ\$SULOWKHDFWXDOUDQJHRIWKH EPS targets was as follows:
| \$YHUDJHDQQXDO growth in EPS |
0DWFKLQJVKDUHVYHVWLQJ |
|---|---|
| %HORZ | 1RYHVWLQJ |
| Half of one matching share | |
| Two matching shares |
A sliding scale of vesting (on a straight-line EDVLV DSSOLHGEHWZHHQWKHVHORZHUDQG upper targets which were measured over a SHULRGRIWKUHHFRQVHFXWLYHȴQDQFLDO\HDUV WKHȴUVWRIZKLFKZDVWKHȴQDQFLDO\HDU \$WLWVPHHWLQJLQ)HEUXDU\WKH committee considered the extent to which the performance target for the awards JUDQWHGLQKDGEHHQPHW7KHDYHUDJH DQQXDOJURZWKLQDGMXVWHG(36RYHUWKH SHUIRUPDQFHSHULRGZDVDQGWKLVOHYHO of EPS growth exceeded the maximum target RIUHVXOWLQJLQYHVWLQJRIWKH DZDUGVKDYLQJVDWLVȴHGLWVHOIWKDWWKHYHVWLQJ ZDVFRQVLVWHQWZLWKWKHEURDGHUȴQDQFLDO performance of the company.
)RUDZDUGVJUDQWHGIURPRQZDUGVWKH dividend payable on the Basic Award only is paid to participants on the normal dividend payment date. Any dividend payable on the matching shares granted will be paid to participants as a dividend equivalent on the normal vesting date and to the extent of vesting.
7KHGLYLGHQGVUHFHLYHGLQXQGHUWKH363 ZHUH3HWHU&URRNee DQG\$QGUHZ)LVKHUee 7KHVHȴJXUHVKDYHEHHQLQFOXGHGLQWKHWDEOH RIGLUHFWRUVȇUHPXQHUDWLRQRQSDJH
The mid-market closing price of the FRPSDQ\ȇVVKDUHVRQ'HFHPEHUb ZDVbS7KHUDQJHGXULQJZDV SWRbS
1RFRQVLGHUDWLRQLVSD\DEOHRQWKHDZDUG RIbFRQGLWLRQDOVKDUHV
There were no changes in directors' conditional share awards or PSP DZDUGVEHWZHHQ-DQXDU\bDQG )HEUXDU\
The rules of the LTIS and PSP allow these VFKHPHVWREHRSHUDWHGLQFRQMXQFWLRQ with any employee trust established by the company. The company established WKH3URYLGHQW)LQDQFLDOSOF(PSOR\HH %HQHȴW7UXVW(%7 LQ-HUVH\ZLWK.OHLQZRUW %HQVRQ-HUVH\ 7UXVWHHV/LPLWHG.% 7UXVWHHV DFWLQJDVWKHWUXVWHHRIbWKHWUXVW
The EBT, together with any other trust HVWDEOLVKHGE\WKHFRPSDQ\IRUWKHEHQHȴW of employees cannot, at any time, hold PRUHWKDQRIWKHLVVXHGVKDUHFDSLWDO RIbWKHFRPSDQ\
.%7UXVWHHVDVWUXVWHHRIWKH(%7VXEVFULEHG IRURUGLQDU\VKDUHVLQ0DUFK IRUWKHSXUSRVHRIVDWLVI\LQJWKHDZDUGV made pursuant to the LTIS. The trustee WUDQVIHUUHGWKHEHQHȴFLDORZQHUVKLSVXEMHFW to the performance conditions set out on SDJH LQRIWKHVKDUHVIRUQR consideration to the executive directors on \$SULO
.%7UXVWHHVDOVRVXEVFULEHGIRU RUGLQDU\VKDUHVLQ0DUFKIRUWKH SXUSRVHRIVDWLVI\LQJWKHDZDUGVPDGH pursuant to the PSP. The trustee transferred WKHEHQHȴFLDORZQHUVKLSVXEMHFWWRWKH SHUIRUPDQFHFRQGLWLRQVVHWRXWRQSDJH LQRIWKHVKDUHVIRUQRFRQVLGHUDWLRQ WRWKHH[HFXWLYHGLUHFWRUVRQ0DUFK and also transferred the legal ownership in RIWKHVKDUHVIRUQRFRQVLGHUDWLRQ WRWKHH[HFXWLYHGLUHFWRUV.%7UXVWHHVKDV entered into a dividend waiver agreement in respect of all the shares it holds in the company at any time.
\$WWKH\$*0WKHGLUHFWRUVȇDQQXDOUHSRUWRQUHPXQHUDWLRQUHFHLYHGWKHIROORZLQJYRWHVIURPVKDUHKROGHUV
| ∕o o† | ||
|---|---|---|
| Total number | otes | |
| :ast | ||
| For ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, |
16,167,049 | I5 99 |
| Against ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, |
||
| Total votes cast (for and against) |
7KHWRWDOQXPEHURIYRWHVZLWKKHOGZDV
\$WWKH\$*0WKHGLUHFWRUVȇUHPXQHUDWLRQSROLF\UHFHLYHGWKHIROORZLQJbYRWHVbIURPVKDUHKROGHUV
| % of | |
|---|---|
| otes/ | |
| tast: | |
| For ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, |
76.C |
| Against |
|
| Total votes cast (for and against) |
7KHWRWDOQXPEHURIYRWHVZLWKKHOGZDV
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7KLVVFKHPHGRHVQRWFRQWDLQSHUIRUPDQFHFRQGLWLRQVDVLWLVDQ+05&DSSURYHGVFKHPHGHVLJQHGIRUHPSOR\HHVDWDOOOHYHOVΖQYLWDWLRQVWR MRLQWKHVFKHPHZHUHLVVXHGWRHOLJLEOHHPSOR\HHVLQ6HSWHPEHU1RFRQVLGHUDWLRQLVSD\DEOHRQWKHJUDQWRIbDQRSWLRQ
'XULQJWKH\HDU3HWHU&URRNH[HUFLVHGKLVRSWLRQRYHUVKDUHVXQGHUWKH3URYLGHQW)LQDQFLDOSOF(PSOR\HH6DYLQJV5HODWHG6KDUH2SWLRQ 6FKHPH DQG\$QGUHZ)LVKHUH[HUFLVHGKLVRSWLRQRYHUVKDUHVXQGHUWKH3URYLGHQW)LQDQFLDO6DYLQJV5HODWHG6KDUH2SWLRQ6FKHPH 7KHUHZDVWKHUHIRUHDeQRWLRQDOJDLQIRU3HWHU&URRNDQGDeQRWLRQDOJDLQIRU\$QGUHZ)LVKHUUHSUHVHQWLQJWKHGLHUHQFH EHWZHHQWKHH[HUFLVHSULFHDQGWKHPDUNHWSULFHRIWKHVKDUHVDWWKHGDWHRIH[HUFLVH RQWKHH[HUFLVHbRIVKDUHRSWLRQVeQLO
7KHUHZHUHQRFKDQJHVLQGLUHFWRUVȇVKDUHRSWLRQVEHWZHHQ-DQXDU\DQG)HEUXDU\1RQHRIWKHGLUHFWRUVKDVQRWLȴHGWKH company of an interest in any other shares, transactions or arrangements which requires disclosure.
2SWLRQVKHOGE\WKHH[HFXWLYHGLUHFWRUVXQGHUWKHFRPSDQ\ȇVVDYLQJVUHODWHGVKDUHRSWLRQVFKHPHVDW'HFHPEHUZHUHDVIROORZV
| Director's name | Options held at 01.01.2016 |
Granted in 2016 |
Exercised in 2016 |
Dptions held at 31.12.2016 |
Exercise price (p) |
Market value at date of exercise (p) |
Range of normal exercisable dates of options held at 31.12.2016 |
|---|---|---|---|---|---|---|---|
| Peter Crook | 868 | 2,877.0 | |||||
| 1.246 | .246 | 2.406 | 01 12 2021 - 31 05 2022 | ||||
| Andrew Fisher | 68 c | 689 | 1,305 | 2.877.0 | |||
| 547 | -547 | 1.644 | $01.12.2017 - 31.05.2018$ | ||||
| Total | 3.013 | 466 | 793 |
In accordance with the recommendations within the Code and other best practice guidance, the committee, having consulted ZLWK1%6LQWURGXFHGPDOXVDQGFODZEDFN provisions into all awards under the annual bonus scheme, LTIS and the PSP from 'HFHPEHU7KLVHQDEOHVWKHFRPPLWWHH at its discretion, to clawback value overpaid for a period of three years from the date of YHVWLQJSD\PHQWLQWKHHYHQWRIL DPDWHULDO prior period error requiring restatement RIWKHJURXSȴQDQFLDOVWDWHPHQWVRU LL bDQbHUURULQDVVHVVLQJWKHH[WHQWWRZKLFK a performance target (and/or any other FRQGLWLRQ KDVEHHQPHW
The mechanisms open to the committee when undertaking a clawback include the ZLWKKROGLQJRIYDULDEOHSD\WRRVHWWKHYDOXH to be clawed back and/or seeking repayment from the individual of the value overpaid.
Following the demerger of the international EXVLQHVVLQDQGWKHVXEVHTXHQWVKDUH consolidation, the number of shares in issue was halved. As a consequence of this, WKHDQWLGLOXWLRQOLPLWFRQWDLQHGZLWKLQ the company's executive share incentive schemes was completely utilised so that it was no longer possible for the company to satisfy any new awards granted under the executive share incentive schemes using newly issued shares (as opposed to satisfying awards by making market purchases of VKDUHV +DGWKHGHPHUJHUQRWRFFXUUHG WKHFRPSDQ\ZRXOGKDYHKDGVXɝFLHQW KHDGURRPXQGHUWKHWKHQH[LVWLQJOLPLW to continue to satisfy awards under the executive share incentive schemes using newly issued shares.
The committee considers the LTIS an important means of incentivising and retaining the executive directors and senior management and consequently a resolution seeking shareholder approval for the UHPRYDORIWKHDQWLGLOXWLRQOLPLWIURPWKH rules of the LTIS was passed at the company's \$*0DQGDJDLQDWWKHb\$*0 in respect of the renewed LTIS. The PSP, DSSURYHGE\VKDUHKROGHUVDWWKH\$*0 DOVRKDVWKHDQWLGLOXWLRQUHPRYHG Information on the relevant resolution was included in the shareholders' circular and QRWLFHRIWKH\$*0WKH\$*0DQG WKH\$*0\$ZDUGVJUDQWHGXQGHUWKH renewed LTIS and PSP can therefore be VDWLVȴHGXVLQJQHZO\LVVXHGVKDUHVXSWRWKH DQWLGLOXWLRQOLPLWLQDQ\HDUVZKLFK applies to all share schemes operated by the company. In due course, the committee LQWHQGVWRUHLQWURGXFHWKHOLPLWZKHQWKH /7Ζ6DQG363FDQEHHHFWLYHO\RSHUDWHGLQ DFFRUGDQFHZLWKDQGVXEMHFWWRDDQWL dilution limit.
The table below sets out the headroom available for all share schemes and shares KHOGLQWUXVWDVDWb'HFHPEHU
| Headroom | 2016 | |
|---|---|---|
| All share schemes | 5.1% | |
| Shares held in trust | 3.3% |
7KHUHZHUHQRSD\PHQWVIRUORVVRIRɝFH during the year.
*UDSK VKRZVWKHWRWDOVKDUHKROGHU return for Provident Financial plc against WKH)76(LQGH[IRUWKHSDVWHLJKW \HDUVDQGWKH)76(LQGH[IRUWKHSDVW year. Both indexes have been chosen for comparison because the company was DPHPEHURIWKH)76(LQGH[IRUWKH YDVWPDMRULW\RIWKHHLJKW\HDUSHULRG EHIRUHLWVHQWU\LQWRWKH)76(ΖQGH[RQ 'HFHPEHU*UDSK VKRZVWKH comparison for the period from demerger RIbWKHLQWHUQDWLRQDOEXVLQHVVWR'HFHPEHU DJDLQVWERWKWKH)76(DQG)76( LQGH[HVZKLFKWKHFRPPLWWHHEHOLHYHV is a more accurate representation of the FRPSDQ\ȇVSHUIRUPDQFH7DEOH VKRZVWKH WRWDOUHPXQHUDWLRQȴJXUHIRU3HWHU&URRNWKH Chief Executive, over the eight-year period. 7KHWRWDOUHPXQHUDWLRQȴJXUHLQFOXGHVWKH annual bonus paid together with LTIS and PSP awards which vested based on the relevant performance targets in those years. The annual bonus, LTIS and PSP percentages show the payout for each year as a percentage of the maximum opportunity.
| Year ended 31 December | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | ||
| 6LQJOHWRWDOȴJXUHRI remuneration (£'000) |
2,023 | 2,727 | 3,443 | 4,326 | 4,985 | 6,594 | 7,500 | 6,315 | |
| Annual bonus (%) | – | 81 | 100 | 98 | 89 | 100 | 98 | 100 | |
| LTIS vesting (%) | 100 | 66 | 49 | 100 | 100 | 100 | 100 | 100 | |
| PSP vesting (%) | – | 100 | 79 | – | 100 | 100 | 100 | 100 |
7DEOH VKRZVWKHSHUFHQWDJH\HDURQ\HDUFKDQJHLQVDODU\EHQHȴWVDQGDQQXDOERQXVHDUQHGEHWZHHQWKH\HDUVHQGHG'HFHPEHU DQG'HFHPEHUIRU3HWHU&URRNWKH&KLHI([HFXWLYHFRPSDUHGWRWKHDYHUDJHIRUWKHFRUSRUDWHRɝFHHPSOR\HHVGXULQJWKHVDPH SHULRG\$FRPSDULVRQZLWKWKHFRUSRUDWHRɝFHHPSOR\HHVLVFRQVLGHUHGWREHPRUHVXLWDEOHGXHWRWKHUDQJHDQGFRPSRVLWLRQRIHPSOR\HHV DFURVVWKHJURXSDQGWKHZLGHUDQJHRIGLHUHQWUHPXQHUDWLRQVWUXFWXUHVDQGSUDFWLFHVZKLFKRSHUDWHLQWKHGLYLVLRQVPDNLQJDQ\PHDQLQJIXO FRPSDULVRQGLɝFXOW
| 2015/2016 | 2014/2015 | ||||||
|---|---|---|---|---|---|---|---|
| % | Salary | %HQHȴWV | Annual bonus | Salary | %HQHȴWV | \$QQXDOERQXV | |
| Chief Executive | 3.4% | -14.4%1 | 3.4% | 1 | |||
| \$YHUDJHFRUSRUDWHRɝFHHPSOR\HH | 2.6% | 8.8% | 11.4% |
)URP0D\3HWHU&URRNKDVUHFHLYHGDQDOORZDQFHGXHWRKLVSODFHRIZRUNFKDQJLQJIURP%UDGIRUGWR/RQGRQ/DVW\HDUWKLVZDVUHSRUWHGWKURXJKWKH36\$DQGZDVLQFOXVLYH RIbWKHUHOHYDQWLQFRPHWD[HOHPHQW
\$FURVVWKHJURXSWKHEXGJHWHGVDODU\LQFUHDVHUDQJHGIURPWR
7KHWDEOHEHORZVKRZVWKHWRWDOSD\LQFOXGLQJERQXVHV IRUDOOWKHJURXSȇVHPSOR\HHVLQbWKHDQGȴQDQFLDO\HDUVFRPSDUHGWR WKHGLVWULEXWLRQVPDGHWRVKDUHKROGHUVLQWKHVDPHSHULRGV
| Year ended 31 December | % | % | |||
|---|---|---|---|---|---|
| 2016 | 2015 | 2014 | change 2014/2015 |
change 2015/2016 |
|
| Total employee remuneration (£m) | 145.9 | 131.6 | 10.9 | ||
| Total shareholder distributions (£m) | 180.6 | 148.9 | 21.3 |
7KHFRPSDQ\KDVVKDUHRZQHUVKLSJXLGHOLQHVIRUH[HFXWLYHGLUHFWRUVZKLFKLQUHTXLUHGWKHPWRDFTXLUHDQGPDLQWDLQVKDUHVLQWKH FRPSDQ\ZLWKDYDOXHRIRIEDVLFVDODU([HFXWLYHGLUHFWRUVDUHUHTXLUHGWRUHWDLQRIYHVWHG/7Ζ6DZDUGVQHWRIWD[XQWLOWKLV UHTXLUHPHQWKDVbEHHQUHDFKHG
7KHFRPPLWWHHUHYLHZVWKHVKDUHKROGLQJVRIWKHH[HFXWLYHGLUHFWRUVLQWKHOLJKWRIWKHVHJXLGHOLQHVRQFHD\HDUEDVHGRQWKHbPDUNHWYDOXH RIbWKHFRPSDQ\ȇVVKDUHVDWWKHGDWHRIDVVHVVPHQW:KHQSHUIRUPLQJWKHFDOFXODWLRQWRDVVHVVSURJUHVVDJDLQVWWKHJXLGHOLQHVVKDUHVKHOG E\bDVSRXVHGHSHQGDQWRULQDQΖ6\$RUSHQVLRQVFKHPHDUHLQFOXGHGZKLOVWXQYHVWHG/7Ζ6DZDUGVDQGDZDUGVJUDQWHGXQGHUWKH363DUHQRW
7KHH[HFXWLYHGLUHFWRUVFRPSOLHGZLWKWKHVHJXLGHOLQHVDVDW'HFHPEHU
| Director's name | Actual share ownership as a percentage of salary |
|---|---|
| 3HWHU&URRN | |
| \$QGUHZ)LVKHU |
'HWDLOVRIVKDUHVKHOGE\WKHH[HFXWLYHGLUHFWRUVDQGWKHLUFRQQHFWHGSHUVRQVDUHbVKRZQLQWKHWDEOHRQSDJH
'LUHFWRUVȇVKDUHRSWLRQVDW'HFHPEHUJUDQWHGXQGHUWKH3URYLGHQW)LQDQFLDOSOF(PSOR\HH6DYLQJV5HODWHG6KDUH2SWLRQ6FKHPH DQGWKH3URYLGHQW)LQDQFLDO6DYLQJV5HODWHG6KDUH2SWLRQ6FKHPHDUHVHWRXWLQWKHWDEOHRQSDJH
\$QQXDO5HSRUWRQUHPXQHUDWLRQFRQWLQXHG
| ([HFXWLYHGLUHFWRUVȇVKDUHRZQHUVKLS | 8QYHVWHG | ||||
|---|---|---|---|---|---|
| Director | Type | Owned outright |
Subject to performance conditions |
Not subject to performance conditions |
Total as at 31.12.16 |
| Peter Crook | Own name | – | – | ||
| b | +HOGLQ%DUFOD\VKDUH1RPLQHHV/LPLWHG | – | – | ||
| b | +HOGLQ<%67UXVWHHV6Ζ3 | – | – | ||
| LTIS | – | – | |||
| PSP | – | ||||
| Total | b | ||||
| Andrew Fisher | Own name | – | – | ||
| b | +HOGLQ<%67UXVWHHV6Ζ3 | – | – | ||
| LTIS | – | – | |||
| PSP | – | ||||
| Total |
7KHUHKDYHEHHQQRFKDQJHVLQWKHEHQHȴFLDORUQRQEHQHȴFLDOLQWHUHVWVRIWKHH[HFXWLYHGLUHFWRUVEHWZHHQ-DQXDU\ DQGb)HEUXDU\
| Age as at | Normal | Accrued retirement account DVDWb'HFHPEHU1 |
Increase in retirement account2 | |||
|---|---|---|---|---|---|---|
| 'HȴQHGEHQHȴWV | 31 December 2016 |
retirement age |
2016 £'000 |
2015 £'000 |
2016 £'000 |
2015 £'000 |
| Cash balance | b | b | b | b | ||
| Peter Crook | 53 | – | – | – | – | |
| Andrew Fisher | 58 | – | – | – | – | |
| UURBS | b | b | b | b | b | |
| Peter Crook | 53 | |||||
| Andrew Fisher | 58 |
7KHWUDQVIHUYDOXHRIWKHDFFUXHGUHWLUHPHQWDFFRXQWLVWKHVDPHDVWKHDFFUXHGUHWLUHPHQWDFFRXQW
7KHLQFUHDVHLQWKHWUDQVIHUYDOXHRIWKHDFFUXHGUHWLUHPHQWDFFRXQWLVWKHVDPHDVWKHLQFUHDVHLQWKHUHWLUHPHQWDFFRXQW7KHWRWDOLQFUHDVHVIRUHDFKGLUHFWRULQ ZKLFKbDUHLQFOXGHGLQWKHWDEOHRIGLUHFWRUVȇUHPXQHUDWLRQRQSDJH ZHUH3HWHU&URRNeDQG\$QGUHZ)LVKHUe
ΖQ'HFHPEHUWKH)LQDQFH\$FW introduced the Reduced Annual Allowance ZKLFKOLPLWHGWKHEHQHȴWVWKDWFDQEH provided by the group's registered pension VFKHPHVRQDWD[HɝFLHQWEDVLVWRDYDOXH RIeLQDQ\HDUZKLFKUHGXFHGWR eIURP\$SULO\$VDUHVXOWWKH company has provided a range of options through which executive directors can FKRRVHWRUHFHLYHUHWLUHPHQWEHQHȴWVZLWK DbYDOXHHTXLYDOHQWWRRIEDVLFVDODU\
Peter Crook and Andrew Fisher were members of the cash balance section of the SHQVLRQVFKHPHXQWLO\$SULODQG-XQH UHVSHFWLYHO\ ZKHQWKH\WUDQVIHUUHG the value of their pension rights into a Self ΖQYHVWHG3HUVRQDO3HQVLRQVFKHPH6Ζ33
ΖIWKHGLUHFWRUGLHVLQVHUYLFHDGHDWKEHQHȴW of six times salary is payable.
Details of the pension entitlements earned under the company's pension arrangements are set out above.
3URYLGHQW)LQDQFLDOb6WDb3HQVLRQb6FKHPH 1RGLUHFWRUVQLO DFFUXHGUHWLUHPHQW EHQHȴWVLQWKH\HDUXQGHUWKHFDVKEDODQFH VHFWLRQRIWKH3URYLGHQW)LQDQFLDO6WD 3HQVLRQ6FKHPHWKHSHQVLRQVFKHPH 7KHSHQVLRQVFKHPHLVDGHȴQHGEHQHȴW VFKHPHZLWKFDVKEDODQFHEHQHȴWV
1RGLUHFWRUVQLO SDLGRUKDG contributions paid on their behalf into the 3)*5HWLUHPHQW3ODQLQWKH\HDU7KH3)* 5HWLUHPHQW3ODQLVD*URXS3HUVRQDO3HQVLRQ Plan insured with Standard Life.
Peter Crook and Andrew Fisher also have personal pension arrangements to which WKHbFRPSDQ\KDVPDGHFRQWULEXWLRQV in previous years but did not make any FRQWULEXWLRQVLQeQLO
7KHFRPSDQ\RSHUDWHVDQ8QIXQGHG 8QDSSURYHG5HWLUHPHQW%HQHȴWV6FKHPH 885%6 WRSURYLGHFDVKEDODQFHEHQHȴWV WRWKRVHHPSOR\HHVDHFWHGE\WKH/LIHWLPH Allowance or the Reduced Annual Allowance. Details of the pension credits earned under
WKH885%6DUHVHWRXWLQWKHWDEOHDERYH 7KHDFFXPXODWHG885%6FUHGLWLQFUHDVHV each year by the lower of the increase in RPI SOXVDQG\$WUHWLUHPHQW885%6 EHQHȴWVZLOOEHSURYLGHGLQDFFRUGDQFHZLWK FXUUHQW+05&SUDFWLFH
\$IXUWKHURSWLRQIRUHPSOR\HHVDHFWHG by the Lifetime Allowance or the Reduced Annual Allowance is to receive a cash supplement in lieu of other forms of retirement provision.
The elements of the directors' remuneration report (including pension entitlements and VKDUHRSWLRQVVHWRXWRQSDJHVWRRI WKLVUHSRUW ZKLFKDUHUHTXLUHGWREHDXGLWHG have been audited in accordance with the &RPSDQLHV\$FW
This annual report on remuneration has been approved by the remuneration committee and the board and signed on its behalf.
Remuneration committee chairman )HEUXDU\
Provident Financial plc | Annual Report and Financial Statements 2016
119
)RUWKH\HDUHQGHG'HFHPEHU
| Group | ||
|---|---|---|
| 2016 | 2015 | |
| Note | £m | £m |
| Revenue 1,2 |
1,183.2 | 1,113.1 |
| Finance costs 3 |
(81.7) | (80.0) |
| Operating costs | (445.9) | (436.9) |
| Administrative costs | (311.7) | (322.6) |
| Total costs | (839.3) | (839.5) |
| 3URȴWEHIRUHWD[DWLRQ 1,4 |
343.9 | 273.6 |
| 1,4 Ʉ3URȴWEHIRUHWD[DWLRQDPRUWLVDWLRQRIDFTXLVLWLRQLQWDQJLEOHVDQGH[FHSWLRQDOLWHPV |
334.1 | 292.9 |
| 11 Ʉ\$PRUWLVDWLRQRIDFTXLVLWLRQLQWDQJLEOHV |
(7.5) | (7.5) |
| Ʉ([FHSWLRQDOLWHPV 1 |
17.3 | (11.8) |
| 5 7D[FKDUJH |
(81.0) | (55.4) |
| 3URȴWIRUWKH\HDUDWWULEXWDEOHWRHTXLW\VKDUHKROGHUV | 262.9 | 218.2 |
\$OORIWKHDERYHDFWLYLWLHVUHODWHWRFRQWLQXLQJRSHUDWLRQV
)RUWKH\HDUHQGHG'HFHPEHU
| Group | ||
|---|---|---|
| 2016 | 2015 | |
| Note | £m | £m |
| 3URȴWIRUWKH\HDUDWWULEXWDEOHWRHTXLW\VKDUHKROGHUV | 262.9 | 218.2 |
| Other comprehensive income: | ||
| ȂIDLUYDOXHPRYHPHQWRQDYDLODEOHIRUVDOHLQYHVWPHQW 15 |
3.1 | 17.5 |
| 15 ȂJDLQRQDYDLODEOHIRUVDOHLQYHVWPHQWUHF\FOHGWRWKHLQFRPHVWDWHPHQW |
(20.2) | – |
| 17 ȂIDLUYDOXHPRYHPHQWVRQFDVKȵRZKHGJHV |
0.4 | 3.6 |
| ȂDFWXDULDOPRYHPHQWVRQUHWLUHPHQWEHQHȴWDVVHW 19 |
(0.1) | (5.7) |
| ȂH[FKDQJHGLHUHQFHVRQWUDQVODWLRQRIIRUHLJQRSHUDWLRQV | (1.2) | 0.7 |
| 5 ȂWD[RQLWHPVWDNHQGLUHFWO\WRRWKHUFRPSUHKHQVLYHLQFRPH |
4.6 | (3.3) |
| ȂLPSDFWRIFKDQJHLQ8.WD[UDWH 5 |
0.6 | (0.2) |
| Other comprehensive income for the year | (12.8) | 12.6 |
| 7RWDOFRPSUHKHQVLYHLQFRPHIRUWKH\HDU | 250.1 | 230.8 |
)RUWKH\HDUHQGHG'HFHPEHU
| Group | ||
|---|---|---|
| 2016 | 2015 | |
| Note | pence | pence |
| Basic 6 |
181.8 | 151.8 |
| Diluted 6 |
179.9 | 149.8 |
)RUWKH\HDUHQGHG'HFHPEHU
| Group | ||
|---|---|---|
| 2016 | 2015 | |
| Note | pence | pence |
| 7 3URSRVHGȴQDOGLYLGHQG |
91.4 | 80.9 |
| Total dividend for the year 7 |
134.6 | 120.1 |
| Paid in the year* 7 |
124.1 | 103.1 |
7KHWRWDOFRVWRIGLYLGHQGVSDLGLQWKH\HDUZDVePeP
\$VDW'HFHPEHU
| 2016 Note £m ASSETS Non-current assets 10 71.2 *RRGZLOO 11 78.1 2WKHULQWDQJLEOHDVVHWV Property, plant and equipment 12 30.3 13 – ΖQYHVWPHQWLQVXEVLGLDULHV Financial assets: ȂDPRXQWVUHFHLYDEOHIURPFXVWRPHUV 14 307.6 18 – ȂWUDGHDQGRWKHUUHFHLYDEOHV 19 72.4 5HWLUHPHQWEHQHȴWDVVHW 559.6 Current assets Financial assets: ȂDYDLODEOHIRUVDOHLQYHVWPHQW 15 8.0 14 1,999.2 ȂDPRXQWVUHFHLYDEOHIURPFXVWRPHUV – cash and cash equivalents 21 223.7 |
Group 2015 £m 71.2 85.2 29.5 |
2016 £m – |
&RPSDQ\ 2015 £m |
|---|---|---|---|
| – | |||
| – | – | ||
| 6.8 | 7.8 | ||
| – | 497.5 | 496.3 | |
| b | b | ||
| 218.0 | – | – | |
| – | 871.6 | 919.1 | |
| 62.3 | 72.4 | 62.3 | |
| 466.2 | 1,448.3 | 1,485.5 | |
| b | b | ||
| 17.5 | – | – | |
| 1,798.7 | – | – | |
| 153.4 | 31.2 | 7.0 | |
| ȂWUDGHDQGRWKHUUHFHLYDEOHV 18 36.1 |
32.4 | 706.8 | 606.4 |
| b | 2,002.0 | 738.0 | 613.4 |
| Total assets 1 b |
2,468.2 | 2,186.3 | 2,098.9 |
| LIABILITIES | b | b | |
| &XUUHQWOLDELOLWLHV | |||
| )LQDQFLDOOLDELOLWLHV | |||
| ȂEDQNDQGRWKHUERUURZLQJV 22 (320.4) |
(253.4) | (132.5) | (72.9) |
| 17 (0.2) ȂGHULYDWLYHȴQDQFLDOLQVWUXPHQWV |
– | – | – |
| 23 (104.8) ȂWUDGHDQGRWKHUSD\DEOHV |
(98.3) | (133.3) | (118.8) |
| (65.6) &XUUHQWWD[OLDELOLWLHV |
(50.5) | (5.1) | (0.5) |
| (491.0) | (402.2) | (270.9) | (192.2) |
| 1RQFXUUHQWOLDELOLWLHV | b | b | |
| )LQDQFLDOOLDELOLWLHV | |||
| 22 (1,534.7) ȂEDQNDQGRWKHUERUURZLQJV |
(1,342.8) | (778.8) | (791.1) |
| 17 (0.1) ȂGHULYDWLYHȴQDQFLDOLQVWUXPHQWV |
(0.6) | (0.1) | (0.5) |
| 20 (10.7) 'HIHUUHGWD[OLDELOLWLHV |
(14.9) | (9.8) | (8.8) |
| (1,545.5) | (1,358.3) | (788.7) | (800.4) |
| 1 (2,036.5) 7RWDOOLDELOLWLHV |
(1,760.5) | (1,059.6) | (992.6) |
| NET ASSETS 1 790.1 |
707.7 | 1,126.7 | 1,106.3 |
| SHAREHOLDERS' EQUITY | b | b | |
| Share capital 24 30.6 |
30.5 | 30.6 | 30.5 |
| Share premium 272.7 |
270.7 | 272.7 | 270.7 |
| Other reserves 26 24.3 |
35.6 | 634.9 | 633.8 |
| Retained earnings 462.5 |
370.9 | 188.5 | 171.3 |
| TOTAL EQUITY 790.1 |
707.7 | 1,126.7 | 1,106.3 |
7KHȴQDQFLDOVWDWHPHQWVRQSDJHVWRZHUHDSSURYHGDQGDXWKRULVHGIRULVVXHE\WKHERDUGRIGLUHFWRUVRQ)HEUXDU\ DQGbVLJQHGRQbLWVEHKDOIE\
3HWHU&URRN \$QGUHZ)LVKHU
&KLHI([HFXWLYH )LQDQFH'LUHFWRU &RPSDQ\1XPEHUȂ
| 6KDUH FDSLWDO |
6KDUH SUHPLXP |
2WKHU reserves |
5HWDLQHG HDUQLQJV |
Total | ||
|---|---|---|---|---|---|---|
| Group | Note | £m | £m | £m | £m | £m |
| At 1 January 2015 | 30.3 | 268.3 | 19.0 | 295.4 | 613.0 | |
| 3URȴWIRUWKH\HDU | b | – | – | – | 218.2 | 218.2 |
| Other comprehensive income: | b | b | b | b | b | b |
| ȂIDLUYDOXHPRYHPHQWRQDYDLODEOHIRUVDOHLQYHVWPHQW | 15 | – | – | 17.5 | – | 17.5 |
| ȂIDLUYDOXHPRYHPHQWVRQFDVKȵRZKHGJHV | 17 | – | – | 3.6 | – | 3.6 |
| ȂDFWXDULDOPRYHPHQWVRQUHWLUHPHQWEHQHȴWDVVHW | 19 | – | – | – | (5.7) | (5.7) |
| ȂH[FKDQJHGLHUHQFHVRQWUDQVODWLRQRIIRUHLJQRSHUDWLRQV | b | – | – | – | 0.7 | 0.7 |
| ȂWD[RQLWHPVWDNHQGLUHFWO\WRRWKHUFRPSUHKHQVLYHLQFRPH | 5 | – | – | (4.5) | 1.2 | (3.3) |
| ȂLPSDFWRIFKDQJHLQ8.WD[UDWH | 5 | – | – | (1.1) | 0.9 | (0.2) |
| Other comprehensive income for the year | – | – | 15.5 | (2.9) | 12.6 | |
| Total comprehensive income for the year | – | – | 15.5 | 215.3 | 230.8 | |
| 7UDQVDFWLRQVZLWKRZQHUV | b | b | b | b | b | b |
| – issue of share capital | 24 | 0.2 | 2.4 | – | – | 2.6 |
| ȂSXUFKDVHRIRZQVKDUHV | b | – | – | (0.3) | – | (0.3) |
| ȂWUDQVIHURIRZQVKDUHVRQYHVWLQJRIVKDUHDZDUGV | b | – | – | 0.1 | (0.1) | – |
| ȂVKDUHEDVHGSD\PHQWFKDUJH | 25 | – | – | 10.5 | – | 10.5 |
| ȂWUDQVIHURIVKDUHEDVHGSD\PHQWUHVHUYHRQYHVWLQJRIVKDUHDZDUGV | b | – | – | (9.2) | 9.2 | – |
| – dividends | 7 | – | – | – | (148.9) | (148.9) |
| \$W'HFHPEHU | 30.5 | 270.7 | 35.6 | 370.9 | 707.7 | |
| At 1 January 2016 | 30.5 | 270.7 | 35.6 | 370.9 | 707.7 | |
| 3URȴWIRUWKH\HDU | b | – | – | – | 262.9 | 262.9 |
| Other comprehensive income: | ||||||
| ȂIDLUYDOXHPRYHPHQWRQDYDLODEOHIRUVDOHLQYHVWPHQW | 15 | – | – | 3.1 | – | 3.1 |
| ȂJDLQRQDYDLODEOHIRUVDOHLQYHVWPHQWUHF\FOHGWRWKH LQFRPHbVWDWHPHQW |
15 | – | – | (20.2) | – | (20.2) |
| ȂIDLUYDOXHPRYHPHQWVRQFDVKȵRZKHGJHV | 17 | – | – | 0.4 | – | 0.4 |
| ȂDFWXDULDOPRYHPHQWVRQUHWLUHPHQWEHQHȴWDVVHW | 19 | – | – | – | (0.1) | (0.1) |
| ȂH[FKDQJHGLHUHQFHVRQWUDQVODWLRQRIIRUHLJQRSHUDWLRQV | b | – | – | – | (1.2) | (1.2) |
| ȂWD[RQLWHPVWDNHQGLUHFWO\WRRWKHUFRPSUHKHQVLYHLQFRPH | 5 | – | – | 4.6 | – | 4.6 |
| ȂLPSDFWRIFKDQJHLQ8.WD[UDWH | 5 | – | – | – | 0.6 | 0.6 |
| Other comprehensive income for the year | – | – | (12.1) | (0.7) | (12.8) | |
| Total comprehensive income for the year | – | – | (12.1) | 262.2 | 250.1 | |
| 7UDQVDFWLRQVZLWKRZQHUV | b | |||||
| – issue of share capital | 24 | 0.1 | 2.0 | – | – | 2.1 |
| ȂSXUFKDVHRIRZQVKDUHV | b | – | – | (0.1) | – | (0.1) |
| ȂWUDQVIHURIRZQVKDUHVRQYHVWLQJRIVKDUHDZDUGV | b | – | – | 0.1 | (0.1) | – |
| ȂVKDUHEDVHGSD\PHQWFKDUJH | 25 | – | – | 10.9 | – | 10.9 |
| ȂWUDQVIHURIVKDUHEDVHGSD\PHQWUHVHUYHRQYHVWLQJRIVKDUHDZDUGV | b | – | – | (10.1) | 10.1 | – |
| – dividends | 7 | – | – | – | (180.6) | (180.6) |
| \$W'HFHPEHU | 30.6 | 272.7 | 24.3 | 462.5 | 790.1 |
*RRGZLOODULVLQJRQDFTXLVLWLRQVSULRUWR-DQXDU\ZDVHOLPLQDWHGDJDLQVWVKDUHKROGHUVȇIXQGVXQGHU8.*\$\$3DQGZDVQRWUHLQVWDWHG RQWUDQVLWLRQWRΖ)56\$FFRUGLQJO\UHWDLQHGHDUQLQJVDUHVKRZQDIWHUGLUHFWO\ZULWLQJRFXPXODWLYHJRRGZLOORIePΖQDGGLWLRQFXPXODWLYH JRRGZLOORIePKDVEHHQZULWWHQRDJDLQVWWKHPHUJHUUHVHUYHLQSUHYLRXV\HDUV
Other reserves are further analysed in note 26.
| 6KDUH FDSLWDO |
6KDUH SUHPLXP |
2WKHU reserves |
5HWDLQHG HDUQLQJV |
Total | ||
|---|---|---|---|---|---|---|
| &RPSDQ\ | Note | £m | £m | £m | £m | £m |
| At 1 January 2015 | 30.3 | 268.3 | 629.6 | 149.2 | 1,077.4 | |
| 3URȴWIRUWKH\HDU | b | – | – | – | 170.7 | 170.7 |
| Other comprehensive income: | b | b | b | b | b | b |
| ȂIDLUYDOXHPRYHPHQWVRQFDVKȵRZKHGJHV | 17 | – | – | 3.9 | – | 3.9 |
| ȂDFWXDULDOPRYHPHQWVRQUHWLUHPHQWEHQHȴWDVVHW | 19 | – | – | – | (5.7) | (5.7) |
| ȂWD[RQLWHPVWDNHQGLUHFWO\WRRWKHUFRPSUHKHQVLYHLQFRPH | b | – | – | (0.8) | 1.2 | 0.4 |
| ȂLPSDFWRIFKDQJHLQ8.WD[UDWH | b | – | – | – | 0.9 | 0.9 |
| Other comprehensive income for the year | – | – | 3.1 | (3.6) | (0.5) | |
| Total comprehensive income for the year | – | – | 3.1 | 167.1 | 170.2 | |
| 7UDQVDFWLRQVZLWKRZQHUV | b | b | b | b | b | b |
| – issue of share capital | 24 | 0.2 | 2.4 | – | – | 2.6 |
| ȂSXUFKDVHRIRZQVKDUHV | b | – | – | (0.3) | – | (0.3) |
| ȂWUDQVIHURIRZQVKDUHVRQYHVWLQJRIVKDUHDZDUGV | b | – | – | 0.1 | (0.1) | – |
| ȂVKDUHEDVHGSD\PHQWFKDUJH | 25 | – | – | 5.3 | – | 5.3 |
| ȂWUDQVIHURIVKDUHEDVHGSD\PHQWUHVHUYHRQYHVWLQJRIVKDUHDZDUGV | b | – | – | (4.0) | 4.0 | – |
| – dividends | 7 | – | – | – | (148.9) | (148.9) |
| \$W'HFHPEHU | 30.5 | 270.7 | 633.8 | 171.3 | 1,106.3 | |
| At 1 January 2016 | 30.5 | 270.7 | 633.8 | 171.3 | 1,106.3 | |
| 3URȴWIRUWKH\HDU | b | – | – | – | 192.3 | 192.3 |
| Other comprehensive income: | ||||||
| ȂIDLUYDOXHPRYHPHQWVRQFDVKȵRZKHGJHV | 17 | – | – | 0.4 | – | 0.4 |
| ȂDFWXDULDOPRYHPHQWVRQUHWLUHPHQWEHQHȴWDVVHW | 19 | – | – | – | (0.1) | (0.1) |
| ȂWD[RQLWHPVWDNHQGLUHFWO\WRRWKHUFRPSUHKHQVLYHLQFRPH | b | – | – | (0.1) | – | (0.1) |
| ȂLPSDFWRIFKDQJHLQ8.WD[UDWH | b | – | – | – | 0.6 | 0.6 |
| Other comprehensive income for the year | – | – | 0.3 | 0.5 | 0.8 | |
| Total comprehensive income for the year | – | – | 0.3 | 192.8 | 193.1 | |
| 7UDQVDFWLRQVZLWKRZQHUV | b | |||||
| – issue of share capital | 24 | 0.1 | 2.0 | – | – | 2.1 |
| ȂSXUFKDVHRIRZQVKDUHV | b | – | – | (0.1) | – | (0.1) |
| ȂWUDQVIHURIRZQVKDUHVRQYHVWLQJRIVKDUHDZDUGV | b | – | – | 0.1 | (0.1) | – |
| ȂVKDUHEDVHGSD\PHQWFKDUJH | 25 | – | – | 5.1 | – | 5.1 |
| ȂWUDQVIHURIVKDUHEDVHGSD\PHQWUHVHUYHRQYHVWLQJRIVKDUHDZDUGV | b | – | – | (5.1) | 5.1 | – |
| ȂVKDUHEDVHGSD\PHQWPRYHPHQWLQLQYHVWPHQWLQVXEVLGLDULHV | – | – | 0.8 | – | 0.8 | |
| – dividends | 7 | – | – | – | (180.6) | (180.6) |
| \$W'HFHPEHU | 30.6 | 272.7 | 634.9 | 188.5 | 1,126.7 |
ΖQDFFRUGDQFHZLWKWKHH[HPSWLRQDOORZHGE\VHFWLRQRIWKH&RPSDQLHV\$FWWKHFRPSDQ\KDVQRWSUHVHQWHGLWVRZQLQFRPH VWDWHPHQWRUVWDWHPHQWRIRWKHUFRPSUHKHQVLYHLQFRPH7KHUHWDLQHGSURȴWIRUWKHȴQDQFLDO\HDUUHSRUWHGLQWKHȴQDQFLDOVWDWHPHQWV RIbWKHbFRPSDQ\ZDVePeP
Other reserves are further analysed in note 26.
)RUWKH\HDUHQGHG'HFHPEHU
| Group | &RPSDQ\ | |||||
|---|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | |||
| Note | £m | £m | £m | £m | ||
| &DVKȵRZVIURPRSHUDWLQJDFWLYLWLHV | ||||||
| Cash generated from/(used in) operations | 30 | 147.8 | 202.0 | (85.7) | (48.0) | |
| Finance costs paid | (71.7) | (73.0) | (55.3) | (59.2) | ||
| Finance income received | – | – | 83.8 | 83.8 | ||
| 7D[SDLG | (64.4) | (47.5) | (7.7) | – | ||
| 1HWFDVKJHQHUDWHGIURPXVHGLQ RSHUDWLQJDFWLYLWLHV | 11.7 | 81.5 | (64.9) | (23.4) | ||
| &DVKȵRZVIURPLQYHVWLQJDFWLYLWLHV | ||||||
| 3XUFKDVHRILQWDQJLEOHDVVHWV | 11 | (12.8) | (15.8) | – | – | |
| Purchase of property, plant and equipment | 12 | (10.6) | (11.2) | (0.5) | (2.3) | |
| Proceeds from disposal of property, plant and equipment | 12 | 0.6 | 1.4 | – | 0.1 | |
| 3URFHHGVIURPGLVSRVDORIDYDLODEOHIRUVDOHLQYHVWPHQW | 15 | 12.2 | – | – | – | |
| /RQJWHUPORDQVUHSDLGE\VXEVLGLDULHV | – | – | 47.5 | 64.7 | ||
| 'LYLGHQGVUHFHLYHGIURPVXEVLGLDULHV | – | – | 179.0 | 153.3 | ||
| 1HWFDVKXVHGLQ JHQHUDWHGIURPLQYHVWLQJDFWLYLWLHV | (10.6) | (25.6) | 226.0 | 215.8 | ||
| &DVKȵRZVIURPȴQDQFLQJDFWLYLWLHV | ||||||
| 3URFHHGVIURPEDQNDQGRWKHUERUURZLQJV | 505.6 | 344.2 | 112.1 | 60.0 | ||
| 5HSD\PHQWRIEDQNDQGRWKHUERUURZLQJV | (248.8) | (254.9) | (60.0) | (116.8) | ||
| Dividends paid to company shareholders | 7 | (180.6) | (148.9) | (180.6) | (148.9) | |
| Proceeds from issue of share capital | 24 | 2.1 | 2.6 | 2.1 | 2.6 | |
| 3XUFKDVHRIRZQVKDUHV | 26 | (0.1) | (0.3) | (0.1) | (0.3) | |
| 1HWFDVKJHQHUDWHGIURPXVHGLQ ȴQDQFLQJDFWLYLWLHV | 78.2 | (57.3) | (126.5) | (203.4) | ||
| 1HWLQFUHDVHGHFUHDVH LQFDVKFDVKHTXLYDOHQWVDQGRYHUGUDIWV | 79.3 | (1.4) | 34.6 | (11.0) | ||
| &DVKFDVKHTXLYDOHQWVDQGRYHUGUDIWVDWEHJLQQLQJRI\HDU | 139.3 | 140.7 | (5.9) | 5.1 | ||
| &DVKFDVKHTXLYDOHQWVDQGRYHUGUDIWVDWHQGRI\HDU | 218.6 | 139.3 | 28.7 | (5.9) | ||
| Cash, cash equivalents and overdrafts at end of year comprise: | ||||||
| &DVKDWEDQNDQGLQKDQG | 21 | 223.7 | 153.4 | 31.2 | 7.0 | |
| 2YHUGUDIWVKHOGLQEDQNDQGRWKHUERUURZLQJV | 22 | (5.1) | (14.1) | (2.5) | (12.9) | |
| 7RWDOFDVKFDVKHTXLYDOHQWVDQGRYHUGUDIWV | 218.6 | 139.3 | 28.7 | (5.9) |
&DVKDWEDQNDQGLQKDQGLQFOXGHVePeP LQUHVSHFWRIWKHOLTXLGDVVHWVEXHULQFOXGLQJRWKHUOLTXLGLW\UHVRXUFHVKHOGE\ 9DQTXLV%DQNLQDFFRUGDQFHZLWKWKH3UXGHQWLDO5HJXODWLRQ\$XWKRULW\ȇV35\$ OLTXLGLW\UHJLPHVHHQRWH 7KLVEXHULVQRWDYDLODEOHWRȴQDQFH the group's day-to-day operations.
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The company is a public limited company incorporated and domiciled LQWKH8.7KHDGGUHVVRILWVUHJLVWHUHGRɝFHLV1R*RGZLQ 6WUHHW%UDGIRUG%'687KHFRPSDQ\LVOLVWHGRQWKH/RQGRQ Stock Exchange.
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The consolidated income statement, consolidated statement of FRPSUHKHQVLYHLQFRPHEDODQFHVKHHWVWDWHPHQWRIFKDQJHVLQ VKDUHKROGHUVȇHTXLW\VWDWHPHQWRIFDVKȵRZVDQGQRWHVWRWKH ȴQDQFLDOVWDWHPHQWVLQFOXGHWKHȴQDQFLDOVWDWHPHQWVRIWKHFRPSDQ\ DQGDOORILWVVXEVLGLDU\XQGHUWDNLQJVGUDZQXSIURPWKHGDWHFRQWURO passes to the group until the date control ceases.
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Impairment is charged to the income statement as part of operating costs.
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| $\frac{0}{0}$ | Method | |
|---|---|---|
| Land | Nil | |
| Freehold and long leasehold buildings | $7\frac{1}{2}$ | Straight line |
| Short leasehold buildings | Over the lease period | Straight line |
| Equipment (including computer | ||
| hardware) | 10 to 331/ 3 | Straight line |
| Motor vehicles | 25 | Reducing balance |
The residual values and useful economic lives of all assets are UHYLHZHGDQGDGMXVWHGLIDSSURSULDWHDWHDFKEDODQFHVKHHWGDWH All items of property, plant and equipment, other than land, are WHVWHGIRULPSDLUPHQWZKHQHYHUHYHQWVRUFKDQJHVLQFLUFXPVWDQFHV LQGLFDWHWKDWWKHFDUU\LQJYDOXHPD\QRWEHUHFRYHUDEOH/DQGbLV VXEMHFWWRDQDQQXDOLPSDLUPHQWWHVW\$QLPSDLUPHQWORVVLV UHFRJQLVHGIRUWKHDPRXQWE\ZKLFKWKHDVVHWȇVFDUU\LQJYDOXH H[FHHGVWKHKLJKHURIWKHDVVHWȇVYDOXHLQXVHDQGLWVIDLUYDOXHOHVV costs to sell.
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Depreciation is charged to the income statement as part of administrative costs.
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&UHGLWULVNLVPDQDJHGXVLQJDFRPELQDWLRQRIOHQGLQJSROLF\FULWHULD FUHGLWVFRULQJLQFOXGLQJEHKDYLRXUDOVFRULQJ SROLF\UXOHVLQGLYLGXDO OHQGLQJDSSURYDOOLPLWVFHQWUDOXQGHUZULWLQJDQGDKRPHYLVLWLQWKH KRPHFUHGLWEXVLQHVVWRPDNHDGHFLVLRQRQDSSOLFDWLRQVIRUFUHGLW
7KHORDQVRHUHGE\WKHZHHNO\KRPHFUHGLWEXVLQHVVDUHVKRUWWHUP W\SLFDOO\DFRQWUDFWXDOSHULRGRIDURXQGD\HDUZLWKDQDYHUDJHYDOXH RIDSSUR[LPDWHO\e7KHORDQVDUHXQGHUZULWWHQLQWKHKRPHE\ DQDJHQWZLWKHPSKDVLVSODFHGRQDQ\SUHYLRXVOHQGLQJH[SHULHQFH ZLWKWKHFXVWRPHUDRUGDELOLW\DQGWKHDJHQWȇVDVVHVVPHQWRIWKH FUHGLWULVNEDVHGRQDFRPSOHWHGDSSOLFDWLRQIRUPDQGWKHKRPHYLVLW 2QFHDORDQKDVEHHQPDGHWKHDJHQWW\SLFDOO\YLVLWVWKHFXVWRPHU ZHHNO\WRFROOHFWSD\PHQW7KHDJHQWLVZHOOSODFHGWRLGHQWLI\VLJQVRI strain on a customer's income and can moderate lending accordingly. Equally, the regular contact and professional relationship that the DJHQWKDVZLWKWKHFXVWRPHUDOORZVWKHPWRPDQDJHFXVWRPHUVȇ UHSD\PHQWVHHFWLYHO\HYHQZKHQWKHKRXVHKROGEXGJHWLVWLJKW 7KLVFDQEHLQWKHIRUPRIWDNLQJSDUWSD\PHQWVDOORZLQJPLVVHG SD\PHQWVRURFFDVLRQDOO\UHVWUXFWXULQJWKHGHEWLQRUGHUWRPD[LPLVH cash collections.
\$JHQWVDUHSULPDULO\SDLGFRPPLVVLRQIRUZKDWWKH\FROOHFWDQG QRWIRUZKDWWKH\OHQGVRWKHLUPDLQIRFXVLVRQHQVXULQJORDQV DUHDRUGDEOHDWWKHSRLQWRILVVXHDQGWKHQRQFROOHFWLQJFDVK \$RUGDELOLW\LVUHDVVHVVHGE\WKHDJHQWHDFKWLPHDQH[LVWLQJ FXVWRPHULVUHVHUYHGRUQRWDVWKHFDVHPD\EH7KLVQRUPDOO\ WDNHVbSODFHZLWKLQPRQWKVRIWKHSUHYLRXVORDQEHFDXVHRIWKH short-term nature of the product.
\$UUHDUVPDQDJHPHQWZLWKLQWKHKRPHFUHGLWEXVLQHVVLVD FRPELQDWLRQRIFHQWUDOOHWWHUVFHQWUDOWHOHSKRQ\DQGȴHOGDFWLYLW\ XQGHUWDNHQE\ȴHOGPDQDJHPHQW7KLVZLOORIWHQLQYROYHDKRPH YLVLWbWRGLVFXVVWKHFXVWRPHUȇVUHDVRQVIRUQRQSD\PHQWDQGWR DJUHHbDVXLWDEOHUHVROXWLRQ
7KHDERYHDQDO\VLVLVSULRUWRWKHSURSRVHGFKDQJHVWRPLJUDWH WKHKRPHFUHGLWEXVLQHVVWRDPRUHHɝFLHQWDQGHHFWLYH RSHUDWLQJPRGHOGXULQJZKLFKLVFXUUHQWO\WKHVXEMHFWRI ZRUNIRUFHFRQVXOWDWLRQ
&UHGLWULVNZLWKLQ0RQH\EDUQLVPDQDJHGE\WKH0RQH\EDUQFUHGLW FRPPLWWHHZKLFKPHHWVDWOHDVWPRQWKO\DQGLVUHVSRQVLEOHIRU DSSURYLQJXQGHUZULWLQJSDUDPHWHUVGHFLVLRQLQJVWUDWHJ\DQG credit control policy.
\$FXVWRPHUȇVFUHGLWULVNSURȴOHDQGDELOLW\WRDRUGWKHSURSRVHG FRQWUDFWLVLQLWLDOO\HYDOXDWHGERWKDWWKHSRLQWRIDSSOLFDWLRQDQG VXEVHTXHQWO\VKRXOGWKHFXVWRPHUIDOOLQWRDUUHDUV\$VFRUHFDUG EDVHGRQKLVWRULFSD\PHQWSDWWHUQVRIFXVWRPHUVLVXVHGWRDVVHVV the applicant's potential default risk. The scorecard incorporates data from the applicant, such as income and employment, and GDWDIURPDQH[WHUQDOFUHGLWEXUHDX7KHDSSOLFDWLRQDVVHVVPHQW SURFHVVLQYROYHVYHULȴFDWLRQRINH\DVSHFWVRIWKHFXVWRPHUGDWD Certain policy rules including customer age, proposed loan size and YHKLFOHW\SHDUHDOVRDVVHVVHGLQWKHGHFLVLRQLQJSURFHVVDVZHOODV DRUGDELOLW\FKHFNVWRHQVXUHWKDWDWWKHWLPHRIDSSOLFDWLRQWKH FXVWRPHUFDQDRUGWKHORDQUHSD\PHQWV
Arrears management is conducted by way of a combination of letters, inbound and outbound telephony, SMS, email and outsourced debt collection agency activities. Contact is made with the customer WRGLVFXVVWKHUHDVRQVIRUQRQSD\PHQWDQGVSHFLȴFVWUDWHJLHV are employed to support the customer in returning to a good standing and retaining use of the vehicle. These include appropriate forbearance arrangements, or where the contract has become unsustainable for the customer, then an appropriate exit strategy is implemented.
The group's maximum exposure to credit risk on bank counterparties as at 31 December 2016 was £31.8m (2015: £2.6m).
Counterparty credit risk arises as a result of cash deposits placed ZLWKEDQNVDQGWKHXVHRIGHULYDWLYHȴQDQFLDOLQVWUXPHQWVZLWKEDQNV DQGbRWKHUȴQDQFLDOLQVWLWXWLRQVZKLFKDUHXVHGWRKHGJHLQWHUHVWUDWH risk and foreign exchange rate risk.
Counterparty credit risk is managed by the group's treasury committee and is governed by a board-approved counterparty policy ZKLFKHQVXUHVWKDWWKHJURXSȇVFDVKGHSRVLWVDQGGHULYDWLYHȴQDQFLDO instruments are only made with high-quality counterparties with the OHYHORISHUPLWWHGH[SRVXUHWRDFRXQWHUSDUW\ȴUPO\OLQNHGWRWKH strength of its credit rating. In addition, there is a maximum exposure limit for all institutions, regardless of credit rating. This is linked to the group's regulatory capital base in line with the group's regulatory reporting requirements on large exposures to the PRA.
/LTXLGLW\ULVNLVWKHULVNWKDWWKHJURXSZLOOKDYHLQVXɝFLHQWOLTXLG UHVRXUFHVDYDLODEOHWRIXOȴOLWVRSHUDWLRQDOSODQVDQGRUWRPHHW LWVȴQDQFLDOREOLJDWLRQVDVWKH\IDOOGXH
Liquidity risk is managed by the group's centralised treasury GHSDUWPHQWWKURXJKGDLO\PRQLWRULQJRIH[SHFWHGFDVKȵRZVLQ DFFRUGDQFHZLWKDbERDUGDSSURYHGJURXSIXQGLQJDQGOLTXLGLW\SROLF\ This process is monitored regularly by the treasury committee.
The group's funding and liquidity policy is designed to ensure that the group is able to continue to fund the growth of the business. The group therefore maintains headroom on its committed borrowing facilities to fund growth and contractual maturities for at least the following 12 months, after assuming that Vanquis Bank will fully fund itself through retail deposits and repay its intercompany loan from Provident Financial plc. As at 31 December 2016, the group's committed borrowing facilities had a weighted average period to maturity of 2.5 years (2015: 2.6 years) and the headroom on these committed facilities amounted to £110.2m (2015: £222.3m).
7KHKHDGURRPȴJXUHDERYHGRHVQRWWDNHDFFRXQWRIL ePRI cash held on deposit at 31 December 2016 which was used to repay the syndicated bank facility immediately after the year end; (ii) the funding capacity for Vanquis Bank to take retail deposits up to the amount of the intercompany loan with Provident Financial plc which amounted to £233.5m at 31 December 2016; and (iii) the renewal of the bank syndicated bank facility on 31 January 2017 which increased the facility from £382.5m to £450.0m and extended the maturity date from May 2018 to May 2020. After taking account of these factors, the group's funding capacity is £441.2m as follows:
| Funding capacity | |
|---|---|
| £m | |
| Headroom on committed facilities at 31 December 2016 | 110.2 |
| Repayment of bank facility immediately after the year end | 30.0 |
| Adjusted headroom on committed facilities at 31 December 2016 | 140.2 |
| Additional retail deposit capacity | 233.5 |
| Total funding capacity | 373.7 |
| Increase in syndicated bank facility | 67.5 |
| Adjusted total funding capacity | 441.2 |
The weighted average period to maturity of the group's committed facilities increased from 2.5 years to 2.9 years following the renewal of the syndicated bank facility.
The group is less exposed than other mainstream lenders to liquidity risk as the loans issued by the home credit business are of short-term duration (typically around one year), whereas the group's borrowings extend over a number of years.
As a PRA regulated institution, Vanquis Bank is required to maintain DOLTXLGDVVHWVEXHUDQGRWKHUOLTXLGUHVRXUFHVEDVHGXSRQGDLO\ VWUHVVWHVWVLQRUGHUWRHQVXUHWKDWLWbKDVVXɝFLHQWOLTXLGUHVRXUFHV WRIXOȴOLWVRSHUDWLRQDOSODQVDQGPHHWLWVȴQDQFLDOREOLJDWLRQVDVWKH\ IDOOGXH\$VDW'HFHPEHUWKHOLTXLGDVVHWVEXHULQFOXGLQJ other liquidity resources, held by Vanquis Bank amounted to £168.9m (2015: £134.2m).
In addition, from 1 October 2015 (with a transitional period extending to 1 January 2018), the group and Vanquis Bank have been UHTXLUHGWRbPHHWWKHOLTXLGLW\FRYHUDJHUDWLR/&5 7KH/&5UHTXLUHV LQVWLWXWLRQVWRPDWFKQHWOLTXLGLW\RXWȵRZVGXULQJDGD\SHULRG ZLWKDEXHURIbȆKLJKTXDOLW\ȇOLTXLGDVVHWV
The group and Vanquis Bank developed systems and controls to monitor and forecast the LCR and have been submitting regulatory reports on the ratio since 1 January 2014. The group's LCR at 31 December 2016 amounted to 207% (2015: 141%). Both the group and Vanquis Bank continue to meet the LCR requirements.
\$PDWXULW\DQDO\VLVRIWKHXQGLVFRXQWHGFRQWUDFWXDOFDVKȵRZVRI WKHJURXSȇVEDQNDQGRWKHUERUURZLQJVLQFOXGLQJGHULYDWLYHȴQDQFLDO instruments settled on a net and gross basis, is shown below.
7KHWDEOHEHORZVKRZVWKHIXWXUHFDVKSD\DEOHXQGHUFXUUHQWGUDZLQJV7KLVUHȵHFWVERWKWKHLQWHUHVWSD\DEOHDQGWKHUHSD\PHQWRIWKHERUURZLQJRQPDWXULW\'XHWRWKH VHDVRQDOQDWXUHRIWKHKRPHFUHGLWEXVLQHVVGUDZLQJVXQGHUWKHJURXSȇVUHYROYLQJEDQNIDFLOLWLHVDUHW\SLFDOO\GUDZQIRURQO\WKUHHPRQWKVDWDQ\WLPHGHVSLWHKDYLQJWKHDELOLW\WR GUDZWKHERUURZLQJVIRUPXFKORQJHUXQGHUWKHFRPPLWWHGERUURZLQJIDFLOLW\ΖQWKHWDEOHEHORZWKHFDVKȵRZVRIERUURZLQJVPDGHXQGHUWKHJURXSȇVV\QGLFDWHGUHYROYLQJEDQN IDFLOLW\DUHUHTXLUHGWREHVKRZQDVEHLQJGXHZLWKLQRQH\HDUGHVSLWHWKHJURXSKDYLQJWKHDELOLW\WRUHGUDZWKHVHDPRXQWVXQWLOWKHFRQWUDFWXDOPDWXULW\RIWKHXQGHUO\LQJIDFLOLW\ LQ0D\7KHPDWXULW\RIWKHV\QGLFDWHGEDQNIDFLOLW\ZDVH[WHQGHGIURP0D\WR0D\RQ-DQXDU\
| )LQDQFLDOOLDELOLWLHV | ||||||
|---|---|---|---|---|---|---|
| 5HSD\DEOH | Over | |||||
| RQGHPDQG | \HDU | Ȃ\HDUV | Ȃ\HDUV | \HDUV | Total | |
| ȂJURXS | £m | £m | £m | £m | £m | £m |
| %DQNDQGRWKHUERUURZLQJV | b | b | b | b | b | b |
| ȂEDQNIDFLOLWLHV | 5.1 | 275.6 | – | – | – | 280.7 |
| ȂVHQLRUSXEOLFERQGV | – | 20.0 | 20.0 | 270.0 | – | 310.0 |
| – private placement loan notes | – | 15.4 | 47.3 | 69.9 | – | 132.6 |
| ȂUHWDLOERQGV | – | 137.2 | 8.9 | 114.0 | 66.2 | 326.3 |
| – retail deposits | – | 194.5 | 211.5 | 600.7 | – | 1,006.7 |
| 7RWDOEDQNDQGRWKHUERUURZLQJV | 5.1 | 642.7 | 287.7 | 1,054.6 | 66.2 | 2,056.3 |
| 'HULYDWLYHȴQDQFLDOLQVWUXPHQWVȂVHWWOHGQHW | – | 0.1 | – | – | – | 0.1 |
| 7UDGHDQGRWKHUSD\DEOHV | – | 104.8 | – | – | – | 104.8 |
| Total | 5.1 | 747.6 | 287.7 | 1,054.6 | 66.2 | 2,161.2 |
| 5HSD\DEOH | Over | |||||
|---|---|---|---|---|---|---|
| RQGHPDQG | \HDU | Ȃ\HDUV | Ȃ\HDUV | \HDUV | Total | |
| ȂJURXS | £m | £m | £m | £m | £m | £m |
| 'HULYDWLYHȴQDQFLDOLQVWUXPHQWVȂVHWWOHGQHW | – | 0.1 | – | – | – | 0.1 |
| 7UDGHDQGRWKHUUHFHLYDEOHV | – | 36.1 | – | – | – | 36.1 |
| Total | – | 36.2 | – | – | – | 36.2 |
| 5HSD\DEOH | Over | |||||
|---|---|---|---|---|---|---|
| on demand | < 1 year | 1–2 years | 2–5 years | 5 years | Total | |
| ȂJURXS | £m | £m | £m | £m | £m | £m |
| %DQNDQGRWKHUERUURZLQJV | b | b | b | b | b | b |
| ȂEDQNIDFLOLWLHV | 14.1 | 161.1 | – | – | – | 175.2 |
| ȂVHQLRUSXEOLFERQGV | – | 20.0 | 20.0 | 290.0 | – | 330.0 |
| – private placement loan notes | – | 16.1 | 16.1 | 92.2 | 25.4 | 149.8 |
| ȂUHWDLOERQGV | – | 71.0 | 137.3 | 50.9 | 138.1 | 397.3 |
| – retail deposits | – | 189.5 | 163.3 | 434.4 | – | 787.2 |
| 7RWDOEDQNDQGRWKHUERUURZLQJV | 14.1 | 457.7 | 336.7 | 867.5 | 163.5 | 1,839.5 |
| 'HULYDWLYHȴQDQFLDOLQVWUXPHQWVȂVHWWOHGQHW | – | 0.8 | – | – | – | 0.8 |
| 7UDGHDQGRWKHUSD\DEOHV | – | 98.3 | – | – | – | 98.3 |
| Total | 14.1 | 556.8 | 336.7 | 867.5 | 163.5 | 1,938.6 |
| )LQDQFLDODVVHWV | ||||||
| 5HSD\DEOH | Over | |||||
| on demand | < 1 year | 1–2 years | 2–5 years | 5 years | Total | |
| ȂJURXS | £m | £m | £m | £m | £m | £m |
| 'HULYDWLYHȴQDQFLDOLQVWUXPHQWVȂVHWWOHGQHW | – | 0.1 | – | – | – | 0.1 |
7UDGHDQGRWKHUUHFHLYDEOHV – 32.4 – – – 32.4 Total – 32.5 – – – 32.5
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| 2016 | 2015 | |
|---|---|---|
| Group Note |
£m | £m |
| 22 %RUURZLQJV |
1,855.1 | 1,596.2 |
| Arrangement fees 22 |
2.2 | 6.7 |
| 21 /LTXLGDVVHWVEXHULQFOXGLQJRWKHUOLTXLGUHVRXUFHV |
(168.9) | (134.2) |
| %RUURZLQJVIRUJHDULQJSXUSRVHV | 1,688.4 | 1,468.7 |
| Shareholders' equity | 790.1 | 707.7 |
| Pension asset 19 |
(72.4) | (62.3) |
| 'HIHUUHGWD[RQSHQVLRQDVVHW | 12.3 | 11.2 |
| Hedging reserve 26 |
0.2 | 0.5 |
| Equity for gearing purposes | 730.2 | 657.1 |
| *HDULQJWLPHV | 2.3 | 2.2 |
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| 2016 | 2015 | |
|---|---|---|
| Group Note |
£m | £m |
| Shareholders' equity | 790.1 | 707.7 |
| 11 2WKHULQWDQJLEOHDVVHWV |
(78.1) | (85.2) |
| 10 *RRGZLOO |
(71.2) | (71.2) |
| 'HIHUUHGWD[RQDFTXLUHGLQWDQJLEOHDVVHW | 9.8 | 11.7 |
| Pension asset 19 |
(72.4) | (62.3) |
| 'HIHUUHGWD[RQSHQVLRQDVVHW | 12.3 | 11.2 |
| Hedging reserve 26 |
0.2 | 0.5 |
| 'LYLGHQGDFFUXHGRQSURȴWVUHFRJQLVHG | (132.9) | (117.0) |
| 7RWDOUHJXODWRU\FDSLWDOKHOG | 457.8 | 395.4 |
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| 3URȴWORVV | ||||
|---|---|---|---|---|
| Revenue | EHIRUHWD[DWLRQ | |||
| 2016 | 2015 | 2016 | 2015 | |
| Group | £m | £m | £m | £m |
| Vanquis Bank | 583.7 | 540.4 | 204.5 | 183.7 |
| CCD | 518.8 | 517.4 | 115.2 | 105.4 |
| 0RQH\EDUQ | 80.7 | 55.3 | 31.1 | 21.3 |
| Central costs | – | – | (16.7) | (17.5) |
| 7RWDOJURXSEHIRUHDPRUWLVDWLRQRIDFTXLVLWLRQLQWDQJLEOHVDQGH[FHSWLRQDOFRVWV | 1,183.2 | 1,113.1 | 334.1 | 292.9 |
| \$PRUWLVDWLRQRIDFTXLVLWLRQLQWDQJLEOHV | – | – | (7.5) | (7.5) |
| ([FHSWLRQDOLWHPV | – | – | 17.3 | (11.8) |
| 7RWDOJURXS | 1,183.2 | 1,113.1 | 343.9 | 273.6 |
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| 6HJPHQWDVVHWV | 6HJPHQWOLDELOLWLHV | Net assets | ||||
|---|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| Group | £m | £m | £m | £m | £m | £m |
| Vanquis Bank | 1,624.1 | 1,423.0 | (1,244.2) | (1,067.9) | 379.9 | 355.1 |
| CCD | 644.9 | 597.9 | (489.7) | (463.3) | 155.2 | 134.6 |
| 0RQH\EDUQ | 321.5 | 237.4 | (285.2) | (221.1) | 36.3 | 16.3 |
| Central | 304.2 | 286.1 | (85.5) | (84.4) | 218.7 | 201.7 |
| 7RWDOEHIRUHLQWUDJURXSHOLPLQDWLRQ | 2,894.7 | 2,544.4 | (2,104.6) | (1,836.7) | 790.1 | 707.7 |
| Intra-group elimination | (68.1) | (76.2) | 68.1 | 76.2 | – | – |
| 7RWDOJURXS | 2,826.6 | 2,468.2 | (2,036.5) | (1,760.5) | 790.1 | 707.7 |
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|---|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| Group | £m | £m | £m | £m | £m | £m |
| Vanquis Bank | 3.3 | 3.4 | 1.6 | 1.5 | 1.1 | 1.4 |
| CCD | 17.3 | 20.5 | 5.1 | 4.5 | 10.8 | 5.6 |
| 0RQH\EDUQ | 2.3 | 0.8 | 0.5 | 0.3 | 0.5 | 0.4 |
| Central | 0.5 | 2.3 | 1.5 | 1.4 | 7.5 | 7.5 |
| 7RWDOJURXS | 23.4 | 27.0 | 8.7 | 7.7 | 19.9 | 14.9 |
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| Group | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| Interest income | 1,039.6 | 967.8 |
| Fee income | 143.6 | 145.3 |
| Total revenue | 1,183.2 | 1,113.1 |
All fee income earned relates to Vanquis Bank.
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| Group | ||
|---|---|---|
| 2016 | 2015 | |
| ΖQWHUHVWSD\DEOHRQ | £m | £m |
| %DQNERUURZLQJV | 13.1 | 12.8 |
| 6HQLRUSXEOLFDQGUHWDLOERQGV | 41.3 | 41.2 |
| Private placement loan notes | 5.7 | 6.2 |
| 6XERUGLQDWHGORDQQRWHV | – | 0.2 |
| Retail deposits | 21.6 | 19.6 |
| 7RWDOȴQDQFHFRVWV | 81.7 | 80.0 |
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| Group | ||
|---|---|---|
| 3URȴWEHIRUHWD[DWLRQLVVWDWHGDIWHUFKDUJLQJFUHGLWLQJ | 2016 £m |
2015 £m |
| \$PRUWLVDWLRQRIRWKHULQWDQJLEOHDVVHWV | ||
| ȂFRPSXWHUVRIWZDUHQRWH | 9.5 | 7.4 |
| ȂDFTXLVLWLRQLQWDQJLEOHVQRWH | 7.5 | 7.5 |
| ȂH[FHSWLRQDOLPSDLUPHQWFKDUJHQRWH | 2.9 | – |
| Depreciation of property, plant and equipment (note 12) | 8.7 | 7.7 |
| Loss on disposal of property, plant and equipment (note 12) | 0.5 | – |
| Operating lease rentals: | ||
| – property | 13.3 | 13.3 |
| (PSOR\PHQWFRVWVSULRUWRH[FHSWLRQDOFXUWDLOPHQWFUHGLWDQGUHGXQGDQF\FRVWVQRWHE | 185.9 | 170.3 |
| ([FHSWLRQDOFXUWDLOPHQWFUHGLWQRWHD | – | (2.6) |
| ([FHSWLRQDOUHGXQGDQF\FRVWVQRWHE | – | 14.4 |
| ΖPSDLUPHQWRIDPRXQWVUHFHLYDEOHIURPFXVWRPHUVQRWH | 298.8 | 276.0 |
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| Group | ||
|---|---|---|
| 2016 | 2015 | |
| \$XGLWRUȇVUHPXQHUDWLRQ | £m | £m |
| )HHVSD\DEOHWRWKHFRPSDQ\ȇVDXGLWRUIRUWKHDXGLWRISDUHQWFRPSDQ\DQGFRQVROLGDWHGȴQDQFLDOVWDWHPHQWV | 0.1 | 0.1 |
| )HHVSD\DEOHWRWKHFRPSDQ\ȇVDXGLWRUDQGLWVDVVRFLDWHVIRURWKHUVHUYLFHV | ||
| ȂDXGLWRIFRPSDQ\ȇVVXEVLGLDULHVSXUVXDQWWROHJLVODWLRQ | 0.5 | 0.3 |
| – other services pursuant to legislation | 0.2 | 0.5 |
| 7RWDODXGLWRUȇVUHPXQHUDWLRQ | 0.8 | 0.9 |
| Group | ||
|---|---|---|
| 2016 | 2015 | |
| 7D[FKDUJHLQWKHLQFRPHVWDWHPHQW | £m | £m |
| &XUUHQWWD[ | ||
| – UK | (79.4) | (56.9) |
| – overseas | (0.6) | (0.7) |
| 7RWDOFXUUHQWWD[ | (80.0) | (57.6) |
| 'HIHUUHGWD[QRWH | (1.0) | (0.2) |
| ΖPSDFWRIFKDQJHLQ8.WD[UDWHQRWH | – | 2.4 |
| 7RWDOWD[FKDUJH | (81.0) | (55.4) |
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| Group | ||
|---|---|---|
| 2016 | 2015 | |
| Tax credit/(charge) on items taken directly to other comprehensive income | £m | |
| Deferred tax credit/(charge) on fair value movement in available for sale investment | 4.7 | |
| Deferred tax charge on fair value movements on cash flow hedges | (0.1 | |
| Deferred tax credit on actuarial movements on retirement benefit asset | ||
| Tax credit/(charge) on items taken directly to other comprehensive income prior to impact of change in UK tax rate | 4.6 | |
| Impact of change in UK tax rate | 0.6 | |
| Total tax credit/(charge) on items taken directly to other comprehensive income |
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| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Weighted | Weighted | |||||
| average | average | |||||
| number of | Per share | number of | Per share | |||
| Earnings | shares | amount | Earnings | shares | amount | |
| Group | £m | m | pence | m | pence | |
| Earnings per share |
||||||
| Shares in issue during the year | 147.6 | 146.9 | ||||
| Own shares held | (3.0) | |||||
| Basic earnings per share | 262.9 | 144.6 | 181.8 | 218.2 | 1437 | 151.8 |
| Dilutive effect of share options and awards | 1.5 | (1.9) | 2.C | (2.0) | ||
| Diluted earnings per share | 262.9 | 146.1 | 179.9 | 218.2 | 145. | 49.8 |
7KHGLUHFWRUVKDYHHOHFWHGWRVKRZDQDGMXVWHGHDUQLQJVSHUVKDUHSULRUWRWKHDPRUWLVDWLRQRIDFTXLVLWLRQLQWDQJLEOHVZKLFKDURVHRQWKH DFTXLVLWLRQRI0RQH\EDUQLQ\$XJXVWVHHQRWH DQGSULRUWRH[FHSWLRQDOLWHPVVHHQRWH 7KLVLVSUHVHQWHGWRVKRZWKHHDUQLQJVSHU VKDUHJHQHUDWHGE\WKHJURXSȇVXQGHUO\LQJRSHUDWLRQV\$UHFRQFLOLDWLRQRIEDVLFDQGGLOXWHGHDUQLQJVSHUVKDUHWRDGMXVWHGEDVLFDQGGLOXWHG HDUQLQJVSHUVKDUHLVDVIROORZV
| 2016 | ||||||
|---|---|---|---|---|---|---|
| Weighted | Weighted | |||||
| average | average | |||||
| number of | Per share | number of | Per share | |||
| Earnings | shares | amount | Earnings | shares | amount | |
| Group | £m | m | pence | m | pence | |
| Basic earnings per share | 262.9 | 144.6 | 181.8 | 218.2 | 1431 | 1518 |
| Amortisation of acquisition intangibles, net of tax ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, |
6.0 | 61 | ||||
| Exceptional items, net of tax | (12.2) | (8.4) | 9.4 | 6.6 | ||
| Adjusted basic earnings per share | 256.7 | 144.6 | 177.5 | 233.6 | 1437 | 162.6 |
| Diluted earnings per share | 262.9 | 146.1 | 179 9 | 118.2 | ||
| Amortisation of acquisition intangibles, net of tax . |
6.0 | hľ | ||||
| Exceptional items, net of tax | 9.4 | 6.4 | ||||
| Adjusted diluted earnings per share | 256.7 | 146.1 | '33.6 |
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| *URXSDQGFRPSDQ\ | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| ȴQDOȂSSHUVKDUH | – | 92.3 |
| 2015 interim – 39.2p per share | – | 56.6 |
| ȴQDOȂSSHUVKDUH | 117.8 | – |
| 2016 interim – 43.2p per share | 62.8 | – |
| 'LYLGHQGVSDLG | 180.6 | 148.9 |
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| *URXSDQGFRPSDQ\ | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| 6KRUWWHUPHPSOR\HHEHQHȴWV | 4.1 | 3.4 |
| 3RVWHPSOR\PHQWEHQHȴWV | 0.5 | 0.3 |
| 6KDUHEDVHGSD\PHQWFKDUJH | 4.0 | 4.3 |
| Total | 8.6 | 8.0 |
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| Group | ||
|---|---|---|
| 2016 1XPEHU |
2015 1XPEHU |
|
| Vanquis Bank | 1,370 | 1,303 |
| CCD | 1,943 | 2,179 |
| 0RQH\EDUQ | 174 | 127 |
| Central | 63 | 58 |
| 7RWDOJURXS | 3,550 | 3,667 |
| Analysed as: | ||
| Full time | 3,261 | 3,310 |
| Part time | 289 | 357 |
| 7RWDOJURXS | 3,550 | 3,667 |
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| Group | ||
|---|---|---|
| 2016 | 2015 | |
| \$JJUHJDWHJURVVZDJHVDQGVDODULHVSDLGWRWKHJURXSȇVHPSOR\HHV | £m 145.9 |
£m 131.6 |
| (PSOR\HUVȇ1DWLRQDOΖQVXUDQFHFRQWULEXWLRQV | 16.5 | 15.4 |
| 3HQVLRQFKDUJHSULRUWRH[FHSWLRQDOSHQVLRQFUHGLW | 9.2 | 11.6 |
| 6KDUHEDVHGSD\PHQWFKDUJHQRWH | 14.3 | 11.7 |
| 7RWDOHPSOR\PHQWFRVWSULRUWRH[FHSWLRQDOFRVWV | 185.9 | 170.3 |
| ([FHSWLRQDOFXUWDLOPHQWFUHGLWQRWH | – | (2.6) |
| ([FHSWLRQDOUHGXQGDQF\FRVWVQRWH | – | 14.4 |
| Total employment costs | 185.9 | 182.1 |
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| Group | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| Cost | ||
| \$W-DQXDU\DQG'HFHPEHU | 73.3 | 73.3 |
| \$FFXPXODWHGDPRUWLVDWLRQ | ||
| \$W-DQXDU\DQG'HFHPEHU | 2.1 | 2.1 |
| 1HWERRNYDOXHDW-DQXDU\DQG'HFHPEHU | 71.2 | 71.2 |
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| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Group | \$FTXLVLWLRQ LQWDQJLEOHV £m |
Computer VRIWZDUH £m |
Total £m |
Acquisition LQWDQJLEOHV £m |
Computer VRIWZDUH £m |
Total £m |
| Cost | ||||||
| At 1 January | 75.0 | 59.6 | 134.6 | 75.0 | 44.5 | 119.5 |
| Additions | – | 12.8 | 12.8 | – | 15.8 | 15.8 |
| Disposals | – | – | – | – | (0.7) | (0.7) |
| \$W'HFHPEHU | 75.0 | 72.4 | 147.4 | 75.0 | 59.6 | 134.6 |
| \$FFXPXODWHGDPRUWLVDWLRQ | ||||||
| At 1 January | 10.0 | 39.4 | 49.4 | 2.5 | 32.7 | 35.2 |
| Charged to the income statement | 7.5 | 9.5 | 17.0 | 7.5 | 7.4 | 14.9 |
| ([FHSWLRQDOLPSDLUPHQWFKDUJHQRWH | – | 2.9 | 2.9 | – | – | – |
| Disposals | – | – | – | – | (0.7) | (0.7) |
| \$W'HFHPEHU | 17.5 | 51.8 | 69.3 | 10.0 | 39.4 | 49.4 |
| 1HWERRNYDOXHDW'HFHPEHU | 57.5 | 20.6 | 78.1 | 65.0 | 20.2 | 85.2 |
| 1HWERRNYDOXHDW-DQXDU\ | 65.0 | 20.2 | 85.2 | 72.5 | 11.8 | 84.3 |
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| )UHHKROG ODQGDQG EXLOGLQJV |
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Total | |
|---|---|---|---|---|
| Group | £m | £m | £m | £m |
| Cost | b | b | ||
| At 1 January 2016 | 3.9 | 4.7 | 66.1 | 74.7 |
| Additions | 0.1 | 1.4 | 9.1 | 10.6 |
| Disposals | – | – | (3.7) | (3.7) |
| \$W'HFHPEHU | 4.0 | 6.1 | 71.5 | 81.6 |
| \$FFXPXODWHGGHSUHFLDWLRQ | ||||
| At 1 January 2016 | 3.3 | 0.6 | 41.3 | 45.2 |
| Charged to the income statement | – | 0.5 | 8.2 | 8.7 |
| Disposals | – | – | (2.6) | (2.6) |
| \$W'HFHPEHU | 3.3 | 1.1 | 46.9 | 51.3 |
| 1HWERRNYDOXHDW'HFHPEHU | 0.7 | 5.0 | 24.6 | 30.3 |
| 1HWERRNYDOXHDW-DQXDU\ | 0.6 | 4.1 | 24.8 | 29.5 |
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| Group | Freehold land and EXLOGLQJV £m |
Leasehold land and EXLOGLQJV £m |
Equipment and vehicles £m |
Total £m |
|---|---|---|---|---|
| Cost | b | b | ||
| At 1 January 2015 | 3.9 | 4.6 | 59.2 | 67.7 |
| Additions | – | 0.1 | 11.1 | 11.2 |
| Disposals | – | – | (4.2) | (4.2) |
| \$W'HFHPEHU | 3.9 | 4.7 | 66.1 | 74.7 |
| \$FFXPXODWHGGHSUHFLDWLRQ | ||||
| At 1 January 2015 | 3.3 | 0.3 | 36.7 | 40.3 |
| Charged to the income statement | – | 0.3 | 7.4 | 7.7 |
| Disposals | – | – | (2.8) | (2.8) |
| \$W'HFHPEHU | 3.3 | 0.6 | 41.3 | 45.2 |
| 1HWERRNYDOXHDW'HFHPEHU | 0.6 | 4.1 | 24.8 | 29.5 |
| 1HWERRNYDOXHDW-DQXDU\ | 0.6 | 4.3 | 22.5 | 27.4 |
| &RPSDQ\ | )UHHKROG ODQGDQG EXLOGLQJV £m |
/HDVHKROG ODQGDQG EXLOGLQJV £m |
(TXLSPHQW DQG YHKLFOHV £m |
Total £m |
| Cost | b | b | ||
| At 1 January 2016 | 3.9 | 0.2 | 12.8 | 16.9 |
| Additions | 0.1 | – | 0.4 | 0.5 |
| Disposals | – | – | (0.1) | (0.1) |
| \$W'HFHPEHU | 4.0 | 0.2 | 13.1 | 17.3 |
| \$FFXPXODWHGGHSUHFLDWLRQ | ||||
| At 1 January 2016 | 3.3 | 0.1 | 5.7 | 9.1 |
| Charged to the income statement | – | – | 1.5 | 1.5 |
| Disposals | – | – | (0.1) | (0.1) |
| \$W'HFHPEHU | 3.3 | 0.1 | 7.1 | 10.5 |
| 1HWERRNYDOXHDW'HFHPEHU | 0.7 | 0.1 | 6.0 | 6.8 |
| 1HWERRNYDOXHDW-DQXDU\ | 0.6 | 0.1 | 7.1 | 7.8 |
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| Freehold | Leasehold | Equipment | ||
|---|---|---|---|---|
| land and | land and | and | ||
| EXLOGLQJV | EXLOGLQJV | vehicles | Total | |
| &RPSDQ\ | £m | £m | £m | £m |
| Cost | b | b | ||
| At 1 January 2015 | 3.9 | 0.2 | 10.8 | 14.9 |
| Additions | – | – | 2.3 | 2.3 |
| Disposals | – | – | (0.3) | (0.3) |
| \$W'HFHPEHU | 3.9 | 0.2 | 12.8 | 16.9 |
| \$FFXPXODWHGGHSUHFLDWLRQ | ||||
| At 1 January 2015 | 3.3 | 0.1 | 4.5 | 7.9 |
| Charged to the income statement | – | – | 1.4 | 1.4 |
| Disposals | – | – | (0.2) | (0.2) |
| \$W'HFHPEHU | 3.3 | 0.1 | 5.7 | 9.1 |
| 1HWERRNYDOXHDW'HFHPEHU | 0.6 | 0.1 | 7.1 | 7.8 |
| 1HWERRNYDOXHDW-DQXDU\ | 0.6 | 0.1 | 6.3 | 7.0 |
| &RPSDQ\ | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| Cost | ||
| At 1 January | 528.2 | 528.2 |
| Additions | 0.8 | – |
| \$W'HFHPEHU | 529.0 | 528.2 |
| \$FFXPXODWHGLPSDLUPHQWORVVHV | ||
| At 1 January | 31.9 | 31.9 |
| Credited to the income statement | (0.4) | – |
| \$W'HFHPEHU | 31.5 | 31.9 |
| 1HWERRNYDOXHDW'HFHPEHU | 497.5 | 496.3 |
| 1HWERRNYDOXHDW-DQXDU\ | 496.3 | 496.3 |
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7KHDGGLWLRQVLQRIePUHSUHVHQWWKHΖ)5Ζ&DGMXVWPHQWUHODWLQJWRVKDUHRSWLRQVDZDUGVSURYLGHGWRVXEVLGLDU\HPSOR\HHV8QGHUΖ)5Ζ&WKHIDLUYDOXHRIWKHRSWLRQV DZDUGVLVVXHGLVUHTXLUHGWREHWUHDWHGDVDFDSLWDOFRQWULEXWLRQDQGDQLQYHVWPHQWLQWKHUHOHYDQWVXEVLGLDU\QHWRIDQ\VKDUHRSWLRQVDZDUGWKDWKDYHYHVWHG7KHDGMXVWPHQWLQ UHVSHFWRIΖ)5Ζ&LQDPRXQWHGWRDQHWGHELWRIePDQGZDVWKHUHIRUHWUHDWHGDVDQDGGLWLRQ7KHDGMXVWPHQWIRUΖ)5Ζ&LQDPRXQWHGWReQLO
7KHIROORZLQJDUHWKHVXEVLGLDU\XQGHUWDNLQJVZKLFKLQWKHRSLQLRQRIWKHGLUHFWRUVSULQFLSDOO\DHFWWKHSURȴWRUDVVHWVRIWKHJURXSRUDUH DJXDUDQWHHLQJVXEVLGLDU\RIWKHJURXSȇVV\QGLFDWHGEDQNIDFLOLW\DQGFHUWDLQRWKHUERUURZLQJV\$IXOOOLVWRIVXEVLGLDU\XQGHUWDNLQJVZLOOEH DQQH[HGWRWKHQH[WDQQXDOUHWXUQRIWKHFRPSDQ\WREHȴOHGZLWKWKH5HJLVWUDURI&RPSDQLHVVHHQRWH \$OOVXEVLGLDULHVDUHFRQVROLGDWHG DQGKHOGGLUHFWO\E\WKHFRPSDQ\H[FHSWIRUWKRVHQRWHGEHORZZKLFKDUHKHOGE\ZKROO\RZQHGLQWHUPHGLDWHFRPSDQLHV
| b | b \$FWLYLW\ |
&RXQWU\RI LQFRUSRUDWLRQ |
Class RIFDSLWDO |
% KROGLQJ |
|
|---|---|---|---|---|---|
| Vanquis Bank | Vanquis Bank Limited | Financial services | England | Ordinary | 100 |
| CCD | Provident Financial Management Services Limited | Management services | England | Ordinary | 100 |
| Provident Personal Credit Limited | Financial services | England | Ordinary | 100* | |
| *UHHQZRRG3HUVRQDO&UHGLW/LPLWHG | Financial services | England | Ordinary | 100* | |
| 0RQH\EDUQ | Duncton Group Limited | Financial services | England | Ordinary | 100 |
| b | 0RQH\EDUQ*URXS/LPLWHG | Financial services | England | Ordinary | 100* |
| b | 0RQH\EDUQ1R/LPLWHG | Financial services | England | Ordinary | 100* |
| Central | Provident Investments plc | Financial intermediary | England | Ordinary | 100 |
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7KHDERYHFRPSDQLHVRSHUDWHSULQFLSDOO\LQWKHLUFRXQWU\RILQFRUSRUDWLRQ
On inception of a loan, receivables represent the amounts initially advanced to customers plus directly attributable issue costs. Subsequently, receivables are increased by the revenue recognised and reduced by cash collections and any deduction for impairment. Revenue is recognised on the net value of the receivable after deduction for impairment and not on the gross receivable prior to impairment.
Illustrative examples of revenue and impairment accounting in home credit can be found in the investor section of the company's website.
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Due in | Due in | |||||
| Due within | more than | Due within | more than | |||
| one year | one year | Total | one year | one year | Total | |
| Group | £m | £m | £m | £m | £m | £m |
| Vanquis Bank | 1,424.7 | – | 1,424.7 | 1,252.0 | – | 1,252.0 |
| CCD | 496.0 | 88.8 | 584.8 | 484.6 | 60.5 | 545.1 |
| Moneybarn | 78.5 | 218.8 | 297.3 | 62.1 | 157.5 | 219.6 |
| Total group | 1,999.2 | 307.6 | 2,306.8 | 1,798.7 | 218.0 | 2,016.7 |
Vanquis Bank's receivables grew by 13.8% in 2016 as a result of growth in customer numbers of 13.7% together with the success of the credit line increase programme to goodquality existing customers through the 'low and grow' approach to lending. CCD receivables comprise £560.0m in respect of the Provident home credit business (2015: £522.2m), ePLQUHVSHFWRI6DWVXPDeP DQGePLQUHVSHFWRIJOReP +RPHFUHGLWUHFHLYDEOHVVKRZHGJURZWKRILQUHȵHFWLQJWKHFRPELQDWLRQRI UREXVWGHPDQGDQGFXVWRPHUFRQȴGHQFHWRJHWKHUZLWKWKHIRFXVRQVHUYLQJJRRGTXDOLW\H[LVWLQJFXVWRPHUVZKLFKUHVXOWHGLQD\HDURQ\HDULPSURYHPHQWLQVDOHV6DWVXPD UHFHLYDEOHVVKRZHGJURZWKRIEHQHȴWLQJIURPD\HDURQ\HDULQFUHDVHLQQHZEXVLQHVVYROXPHVDQGIXUWKHUOHQGLQJWRHVWDEOLVKHGFXVWRPHUVGXULQJWKHIRXUWKTXDUWHU RIWKH\HDU7KHJORUHFHLYDEOHVERRNLVLQUXQRIROORZLQJWKHGHFLVLRQWRFORVHJORWRQHZEXVLQHVVZLWKLQ&&'IURPHDUO\2FWREHUDQGGHYHORSJXDUDQWRUORDQVDVSDUWRI Vanquis Bank's wider loan proposition.
7KHDYHUDJHHHFWLYHLQWHUHVWUDWHIRUWKH\HDUHQGHG'HFHPEHUZDVIRU9DQTXLV%DQN IRU&&' and 30% for Moneybarn (2015: 28%). The average period to maturity of the amounts receivable from customers within CCD is 7.0 months PRQWKV DQGZLWKLQ0RQH\EDUQLVPRQWKVPRQWKV :LWKLQ9DQTXLV%DQNWKHUHLVQRȴ[HGWHUPIRUUHSD\PHQWRIFUHGLW card loans other than a general requirement for customers to make a monthly minimum repayment towards their outstanding balance. For the majority of customers, this is currently the greater of 2.3% of the amount owed plus any fees and interest charges in the month and £5.
The fair value of amounts receivable from customers is approximately £3.3 billion (2015: £3.3 billion). Fair value has been derived by GLVFRXQWLQJH[SHFWHGIXWXUHFDVKȵRZVQHWRIFROOHFWLRQFRVWV DWWKHJURXSȇVZHLJKWHGDYHUDJHFRVWRIFDSLWDODWWKHEDODQFHVKHHWGDWH Under IFRS 13, 'Fair value measurement', receivables are classed as Level 3 as they are not traded on an active market and the fair value LVbWKHUHIRUHGHWHUPLQHGWKURXJKIXWXUHFDVKȵRZV
The credit quality of amounts receivable from customers is as follows:
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| Credit quality of amounts | Vanquis Bank | CCD | Moneybarn | Group | Vanquis Bank | CCD | Moneybarn | Group |
| UHFHLYDEOHIURPbFXVWRPHUV | £m | £m | £m | £m | £m | £m | £m | £m |
| Neither past due nor impaired | 1,338.8 | 323.1 | 235.3 | 1,897.2 | 1,168.4 | 279.9 | 192.6 | 1,640.9 |
| Past due but not impaired | – | 63.9 | – | 63.9 | – | 58.1 | – | 58.1 |
| Impaired | 85.9 | 197.8 | 62.0 | 345.7 | 83.6 | 207.1 | 27.0 | 317.7 |
| Total | 1,424.7 | 584.8 | 297.3 | 2,306.8 | 1,252.0 | 545.1 | 219.6 | 2,016.7 |
| 2016 | 2015 | |||||||
| Credit quality of amounts UHFHLYDEOHIURPbFXVWRPHUV |
Vanquis Bank % |
CCD % |
Moneybarn % |
Group % |
Vanquis Bank % |
CCD % |
Moneybarn % |
Group % |
| Neither past due nor impaired | 94.0 | 55.3 | 79.1 | 82.2 | 93.3 | 51.3 | 87.7 | 81.4 |
| Past due but not impaired | – | 10.9 | – | 2.8 | – | 10.7 | – | 2.9 |
| Impaired | 6.0 | 33.8 | 20.9 | 15.0 | 6.7 | 38.0 | 12.3 | 15.7 |
| Total | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 |
Past due but not impaired balances all relate to home credit loans within CCD. There are no accounts/loans within Vanquis Bank or Moneybarn which are past due but not impaired. In home credit, past due but not impaired balances relate to loans which are contractually overdue. However, contractually overdue loans are not deemed to be impaired unless the customer has missed two or more cumulative weekly SD\PHQWVLQWKHSUHYLRXVZHHNSHULRGVLQFHRQO\DWWKLVSRLQWGRWKHH[SHFWHGIXWXUHFDVKȵRZVIURPORDQVGHWHULRUDWHPDWHULDOO\
7KHLPSURYHGDUUHDUVSURȴOHLQ9DQTXLV%DQNUHȵHFWVWKHFRQVLVWHQWO\WLJKWFUHGLWVWDQGDUGVDQGDQLPSURYLQJHPSOR\PHQWPDUNHWZKLFKUHVXOWHGLQGHOLQTXHQF\UDWLRV progressively improving and reaching record lows of for the business by the end of the third quarter. Delinquency rates remained stable in the fourth quarter. The improvement in WKHDUUHDUVSURȴOHRI&&'UHȵHFWVbWKHRQJRLQJLPSURYHPHQWLQWKHFUHGLWTXDOLW\RIWKHUHFHLYDEOHVERRNDVDUHVXOWRIWKHWLJKWHUFUHGLWVWDQGDUGVLQWURGXFHGLQ6HSWHPEHU DQGWKHEHQHȴWIURPWKHLPSOHPHQWDWLRQRIVWDQGDUGLVHGDUUHDUVDQGFROOHFWLRQVSURFHVVHV7KHLQFUHDVHLQWKHSURSRUWLRQRILPSDLUHGDFFRXQWVZLWKLQ0RQH\EDUQGXULQJ UHȵHFWVDQLQFUHDVHLQGHIDXOWVFRQVLVWHQWZLWKWKHPL[RIEXVLQHVVEHLQJZULWWHQ
The following table sets out the ageing analysis of past due but not impaired balances within the home credit and Satsuma businesses of CCD based on contractual arrears since the inception of the loan:
| Group | ||
|---|---|---|
| 2016 | 2015 | |
| Ageing analysis of past due but not impaired balances | £m | £m |
| One week overdue | 46.1 | 41.1 |
| Two weeks overdue | 10.4 | 9.9 |
| Three weeks or more overdue | 7.4 | 7.1 |
| Past due but not impaired | 63.9 | 58.1 |
Impairment in Vanquis Bank and Moneybarn is deducted from the carrying value of amounts receivable from customers by the use of an allowance account. The movement in the allowance accounts during the year are as follows:
| Group | ||
|---|---|---|
| 2016 | 2015 | |
| Vanquis Bank allowance account | £m | £m |
| At 1 January | 225.0 | 178.6 |
| Charge for the year | 162.4 | 160.5 |
| \$PRXQWVZULWWHQRGXULQJWKH\HDU | (153.9) | (127.1) |
| Amounts recovered during the year | 27.9 | 23.5 |
| Sale of Polish receivables | – | (10.5) |
| At 31 December | 261.4 | 225.0 |
| Group | |||
|---|---|---|---|
| 2016 | 2015 | ||
| Moneybarn allowance account | £m | £m | |
| At 1 January | 18.4 | 27.1 | |
| Charge for the year | 16.4 | 8.9 | |
| \$PRXQWVZULWWHQRGXULQJWKHSHULRG | (0.7) | (2.0) | |
| Sale of delinquent receivables | – | (15.6) | |
| At 31 December | 34.1 | 18.4 |
Within CCD, impairments are deducted directly from amounts receivable from customers without the use of an allowance account.
7KHLPSDLUPHQWFKDUJHLQUHVSHFWRIDPRXQWVUHFHLYDEOHIURPFXVWRPHUVUHȵHFWHGZLWKLQRSHUDWLQJFRVWVFDQEHDQDO\VHGDVIROORZV
| Group | ||
|---|---|---|
| 2016 | 2015 | |
| Impairment charge on amounts receivable from customers | £m | £m |
| Vanquis Bank | 162.4 | 160.5 |
| CCD | 120.0 | 106.6 |
| Moneybarn | 16.4 | 8.9 |
| Total group | 298.8 | 276.0 |
The 2015 impairment charge in Vanquis Bank comprised £158.9m in respect of the UK business and £1.6m in respect of the Polish pilot operation prior to the transfer of the economic interest to a third party on 1 April 2015.
Interest income recognised on amounts receivable from customers which have been impaired can be analysed as follows:
| Group | ||
|---|---|---|
| 2016 | 2015 | |
| Interest income recognised on impaired amounts receivable from customers | £m | £m |
| Vanquis Bank | 38.2 | 35.4 |
| CCD | 286.1 | 249.9 |
| Moneybarn | 10.0 | 6.7 |
| Total group | 334.3 | 292.0 |
IFRS requires interest revenue to be recognised on the net carrying value of a receivable after deductions for impairment and not on the outstanding amount of the loan prior to impairment. Using Vanquis Bank as an example, whilst interest revenue for customer statement balances is broadly calculated on the gross receivables balance of £1,686.1m (subject to the normal suspension of interest, where applicable, and the timing of customer payments), interest revenue for IFRS purposes is calculated based on the net receivables balance of £1,424.7m, which is stated after the deduction of the impairment allowance account of £261.4m. The non-standard customers served by the group are generally more likely to miss payments compared with more mainstream customers. As the group recognises impairment events early – after missing two weekly payments in the last 12 weeks in home credit and Satsuma and after missing one monthly payment in Vanquis Bank and Moneybarn – the group's level of revenue on impaired loans is comparatively high.
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| Group | ||
|---|---|---|
| 2016 | 2015 | |
| &XUUHQF\SURȴOHRIDPRXQWVUHFHLYDEOHIURPFXVWRPHUV | £m | £m |
| Sterling | 2,248.0 | 1,961.6 |
| Euro | 58.8 | 55.1 |
| Total group | 2,306.8 | 2,016.7 |
Euro receivables represent loans issued by the home credit business in the Republic of Ireland, and amount to 10% of CCD's receivables (2015: 10%).
| Group | ||
|---|---|---|
| 2016 | 2015 | |
| Available for sale investment | £m | £m |
| Fair value of shares in Visa Europe Limited | 8.0 | 17.5 |
On 2 November 2015, Visa Inc. announced the proposed acquisition of Visa Europe Limited to create a single global payments business under the VISA brand. Vanquis Bank was a member and shareholder of Visa Europe and in exchange for its one redeemable ordinary share (previously held at cost of €10) was due to receive a combination of up front consideration in the form of cash, preferred stock in Visa Inc. on completion of the transaction and deferred cash consideration contingent on certain performance thresholds being met. Following announcement of the proposed transaction, Vanquis Bank's interest in Visa Europe was valued at a fair value of £17.5m ZKLFKUHȵHFWHGWKHH[SHFWHGXSIURQWFDVKSURFHHGVDQGDQXPEHURIIDFWRUVDQGXQFHUWDLQWLHVUHODWLQJWRWKHRWKHUFRQVLGHUDWLRQ The corresponding credit was taken directly to an available for sale reserve within equity.
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Following completion of the transaction during 2016, the gain taken through equity in 2015 in respect of the Visa Europe shares has been recycled through the income statement together with the £2.7m movement in the fair value of the consideration between the year end and completion of the transaction. This has resulted in an exceptional gain of £20.2m (2015: £nil) being recognised in 2016 (see note 1). The fair value of the preferred stock in Visa Inc. held by Vanquis Bank of £8.0m as at 31 December 2016 is held as an available for sale investment DQGbWKHIDLUYDOXHRIWKHGHIHUUHGFDVKFRQVLGHUDWLRQRIePLVLQFOXGHGZLWKLQGHEWRUV7KHPRYHPHQWLQWKHIDLUYDOXHRIWKHDYDLODEOH IRUbVDOHbLQYHVWPHQWVLQFHFRPSOHWLRQRIWKHWUDQVDFWLRQRIePKDVEHHQUHFRJQLVHGLQWKHVWDWHPHQWRIFRPSUHKHQVLYHLQFRPHLQ
The valuation of the preferred stock has been determined using the common stock's value as an approximation as both classes of stock have similar dividend rights. However, adjustments have been made for: (i) illiquidity, as the preferred stock is not tradeable on an open market and FDQRQO\EHWUDQVIHUUHGWRRWKHU9Ζ6\$PHPEHUVDQGLL IXWXUHOLWLJDWLRQFRVWVZKLFKFRXOGDHFWWKHYDOXDWLRQRIWKHVWRFNSULRUWRFRQYHUVLRQ
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| 2016 | ||||||
|---|---|---|---|---|---|---|
| Loans and receivables |
Available for sale |
Amortised cost |
Hedging derivatives |
1RQȴQDQFLDO assets/ liabilities |
Total | |
| Group | £m | £m | £m | £m | £m | £m |
| Assets | b | b | b | |||
| Available for sale investment | – | 8.0 | – | – | – | 8.0 |
| Cash and cash equivalents | 197.5 | 26.2 | – | – | – | 223.7 |
| Amounts receivable from customers | 2,306.8 | – | – | – | – | 2,306.8 |
| Trade and other receivables | 35.0 | 1.1 | – | – | – | 36.1 |
| 5HWLUHPHQWEHQHȴWDVVHW | – | – | – | – | 72.4 | 72.4 |
| Property, plant and equipment | – | – | – | – | 30.3 | 30.3 |
| Goodwill | – | – | – | – | 71.2 | 71.2 |
| Other intangible assets | – | – | – | – | 78.1 | 78.1 |
| Total assets | 2,539.3 | 35.3 | – | – | 252.0 | 2,826.6 |
| Liabilities | ||||||
| Bank and other borrowings | – | – | (1,855.1) | – | – | (1,855.1) |
| 'HULYDWLYHȴQDQFLDOLQVWUXPHQWV | – | – | – | (0.3) | – | (0.3) |
| Trade and other payables | – | – | (104.8) | – | – | (104.8) |
| Current tax liabilities | – | – | – | – | (65.6) | (65.6) |
| Deferred tax liabilities | – | – | – | – | (10.7) | (10.7) |
| Total liabilities | – | – | (1,959.9) | (0.3) | (76.3) | (2,036.5) |
)LQDQFLDODVVHWVKHOGDVDYDLODEOHIRUVDOHUHODWHWR8.JRYHUQPHQWJLOWVKHOGDVSDUWRI9DQTXLV%DQNȇVOLTXLGDVVHWVEXHUVHHQRWH DQGWKH deferred cash and shares in respect of the Visa transaction (see note 15).
| 2015 | ||||||
|---|---|---|---|---|---|---|
| Group | Loans and receivables £m |
Available for sale £m |
Amortised cost £m |
Hedging derivatives £m |
1RQȴQDQFLDO assets/ liabilities £m |
Total £m |
| Assets | b | b | b | |||
| Available for sale investment | – | 17.5 | – | – | – | 17.5 |
| Cash and cash equivalents | 132.7 | 20.7 | – | – | – | 153.4 |
| Amounts receivable from customers | 2,016.7 | – | – | – | – | 2,016.7 |
| Trade and other receivables | 32.4 | – | – | – | – | 32.4 |
| 5HWLUHPHQWEHQHȴWDVVHW | – | – | – | – | 62.3 | 62.3 |
| Property, plant and equipment | – | – | – | – | 29.5 | 29.5 |
| Goodwill | – | – | – | – | 71.2 | 71.2 |
| Other intangible assets | – | – | – | – | 85.2 | 85.2 |
| Total assets | 2,181.8 | 38.2 | – | – | 248.2 | 2,468.2 |
| Liabilities | b | b | b | |||
| Bank and other borrowings | – | – | (1,596.2) | – | – | (1,596.2) |
| 'HULYDWLYHȴQDQFLDOLQVWUXPHQWV | – | – | – | (0.6) | – | (0.6) |
| Trade and other payables | – | – | (98.3) | – | – | (98.3) |
| Current tax liabilities | – | – | – | – | (50.5) | (50.5) |
| Deferred tax liabilities | – | – | – | – | (14.9) | (14.9) |
| Total liabilities | – | – | (1,694.5) | (0.6) | (65.4) | (1,760.5) |
7KHIROORZLQJWDEOHVHWVRXWWKHFDUU\LQJYDOXHRIWKHFRPSDQ\ȇVȴQDQFLDODVVHWVDQGOLDELOLWLHVLQDFFRUGDQFHZLWKWKHFDWHJRULHVRIbȴQDQFLDO LQVWUXPHQWVVHWRXWLQΖ\$6\$VVHWVDQGOLDELOLWLHVRXWVLGHWKHVFRSHRIΖ\$6DUHVKRZQZLWKLQQRQȴQDQFLDODVVHWVOLDELOLWLHV
| 2016 | |||||
|---|---|---|---|---|---|
| 1RQȴQDQFLDO | |||||
| Loans and | Amortised | Hedging | assets/ | ||
| receivables | cost | derivatives | liabilities | Total | |
| Company | £m | £m | £m | £m | £m |
| Assets | |||||
| Cash and cash equivalents | 31.2 | – | – | – | 31.2 |
| Investment in subsidiaries | – | – | – | 497.5 | 497.5 |
| Trade and other receivables | 1,578.4 | – | – | – | 1,578.4 |
| 5HWLUHPHQWEHQHȴWDVVHW | – | – | – | 72.4 | 72.4 |
| Property, plant and equipment | – | – | – | 6.8 | 6.8 |
| Total assets | 1,609.6 | – | – | 576.7 | 2,186.3 |
| Liabilities | |||||
| Bank and other borrowings | – | (911.3) | – | – | (911.3) |
| 'HULYDWLYHȴQDQFLDOLQVWUXPHQWV | – | – | (0.1) | – | (0.1) |
| Trade and other payables | – | (133.3) | – | – | (133.3) |
| Current tax liabilities | – | – | – | (5.1) | (5.1) |
| Deferred tax liabilities | – | – | – | (9.8) | (9.8) |
| Total liabilities | – | (1,044.6) | (0.1) | (14.9) | (1,059.6) |
| 2015 | |||||
|---|---|---|---|---|---|
| 1RQȴQDQFLDO | |||||
| Loans and | Amortised | Hedging | assets/ | ||
| receivables | cost | derivatives | liabilities | Total | |
| Company | £m | £m | £m | £m | £m |
| Assets | b | b | |||
| Cash and cash equivalents | 7.0 | – | – | – | 7.0 |
| Investment in subsidiaries | – | – | – | 496.3 | 496.3 |
| Trade and other receivables | 1,525.5 | – | – | – | 1,525.5 |
| 5HWLUHPHQWEHQHȴWDVVHW | – | – | – | 62.3 | 62.3 |
| Property, plant and equipment | – | – | – | 7.8 | 7.8 |
| Total assets | 1,532.5 | – | – | 566.4 | 2,098.9 |
| Liabilities | b | b | |||
| Bank and other borrowings | – | (864.0) | – | – | (864.0) |
| 'HULYDWLYHȴQDQFLDOLQVWUXPHQWV | – | – | (0.5) | – | (0.5) |
| Trade and other payables | – | (118.8) | – | – | (118.8) |
| Current tax liabilities | – | – | – | (0.5) | (0.5) |
| Deferred tax liabilities | – | – | – | (8.8) | (8.8) |
| Total liabilities | – | (982.8) | (0.5) | (9.3) | (992.6) |
7KHGHULYDWLYHȴQDQFLDOLQVWUXPHQWVKHOGE\WKHJURXSDUHLQWHUHVWUDWHVZDSVXVHGWRȴ[WKHLQWHUHVWUDWHVSDLGRQWKHJURXSȇVERUURZLQJVDQGIRUHLJQH[FKDQJHFRQWUDFWVXVHGWR manage the foreign exchange risk arising on CCD's operations in the Republic of Ireland.
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| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Contractual/ notional |
Contractual/ notional |
|||||
| amount | Assets | Liabilities | amount | Assets | Liabilities | |
| Group | £m | £m | £m | £m | £m | £m |
| Interest rate swaps | 110.0 | – | (0.1) | 120.0 | – | (0.5) |
| Foreign exchange contracts | 7.6 | – | (0.2) | 9.0 | – | (0.1) |
| Total group | 117.6 | – | (0.3) | 129.0 | – | (0.6) |
| Analysed as – due within one year | – | (0.2) | – | – | ||
| – due in more than one year | – | (0.1) | – | (0.6) |
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Contractual/ notional amount |
Assets | Liabilities | Contractual/ notional amount |
Assets | Liabilities | |
| Company | £m | £m | £m | £m | £m | £m |
| Interest rate swaps | 110.0 | – | (0.1) | 120.0 | – | (0.5) |
| Total company | 110.0 | – | (0.1) | 120.0 | – | (0.5) |
| Analysed as – due within one year | – | – | – | – | ||
| – due in more than one year | – | (0.1) | – | (0.5) | ||
| – | (0.1) | – | (0.5) |
7KHIDLUYDOXHRIGHULYDWLYHȴQDQFLDOLQVWUXPHQWVKDVEHHQFDOFXODWHGE\GLVFRXQWLQJFRQWUDFWXDOIXWXUHFDVKȵRZVXVLQJUHOHYDQWPDUNHW interest rate yield curves and foreign exchange rates prevailing at the balance sheet date.
7KHIDLUYDOXHRIGHULYDWLYHȴQDQFLDOLQVWUXPHQWVLVUHTXLUHGWREHUHȵHFWHGLQWKHEDODQFHVKHHW*HQHUDOO\SURYLGLQJWKHGHULYDWLYHȴQDQFLDOLQVWUXPHQWVPHHWFHUWDLQDFFRXQWLQJ UHTXLUHPHQWVDQ\PRYHPHQWLQWKHIDLUYDOXHRIWKHGHULYDWLYHȴQDQFLDOLQVWUXPHQWVFDXVHGE\ȵXFWXDWLRQVLQLQWHUHVWUDWHVRUIRUHLJQH[FKDQJHUDWHVLVGHIHUUHGLQWKHKHGJLQJ UHVHUYHDQGGRHVQRWLPSDFWWKHLQFRPHVWDWHPHQW7KHJURXSȇVGHULYDWLYHȴQDQFLDOLQVWUXPHQWVDOOFXUUHQWO\PHHWWKHVHFULWHULDΖIWKHLQWHUHVWUDWHVSD\DEOHRQLQWHUHVWUDWH swaps are higher than the current interest rate at the balance sheet date, then a derivative liability is recognised. Conversely, if the interest rates payable on interest rate swaps DUHORZHUWKDQWKHFXUUHQWȵRDWLQJLQWHUHVWUDWHDWWKHEDODQFHVKHHWGDWHWKHQDGHULYDWLYHDVVHWLVUHFRJQLVHG
7KHPRYHPHQWLQWKHKHGJLQJUHVHUYHZLWKLQHTXLW\DVDUHVXOWRIWKHFKDQJHVLQWKHIDLUYDOXHRIGHULYDWLYHȴQDQFLDOLQVWUXPHQWVFDQEH summarised as follows:
| Group | Company | ||||
|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | ||
| £m | £m | £m | £m | ||
| Interest rate swaps | 0.4 | 3.9 | 0.4 | 3.9 | |
| Foreign exchange contracts | – | (0.3) | – | – | |
| Net credit to the hedging reserve | 0.4 | 3.6 | 0.4 | 3.9 |
8QGHUΖ)56Ȇ)DLUYDOXHPHDVXUHPHQWȇDOOGHULYDWLYHȴQDQFLDOLQVWUXPHQWVDUHFODVVHGDV/HYHODVWKH\DUHQRWWUDGHGLQDQDFWLYHPDUNHW DQGWKHIDLUYDOXHLVWKHUHIRUHGHWHUPLQHGWKURXJKGLVFRXQWLQJIXWXUHFDVKȵRZVXVLQJDSSURSULDWHPDUNHWUDWHVDQG\LHOGFXUYHV
\$OOFDVKȵRZKHGJHVDUHGHHPHGWREHHHFWLYH7KHUHZDVQRLPSDFWRQWKHLQFRPHVWDWHPHQWRIWKHJURXSDQGWKHFRPSDQ\LQWKH\HDU LQUHVSHFWRIWKHPRYHPHQWLQWKHIDLUYDOXHRIbLQHHFWLYHLQWHUHVWUDWHVZDSVSUHYLRXVO\GHVLJQDWHGDVFDVKȵRZKHGJHVeQLO
– (0.3) – (0.6)
The group and company use interest rate swaps in order to manage the interest rate risk on the group's borrowings. The group has entered LQWRYDULRXVLQWHUHVWUDWHVZDSVZKLFKZHUHGHVLJQDWHGDQGHHFWLYHXQGHUΖ\$6DVFDVKȵRZKHGJHVDWLQFHSWLRQ7KHPRYHPHQWLQWKHIDLU YDOXHRIHHFWLYHLQWHUHVWUDWHVZDSVGXULQJWKH\HDUZDVDVIROORZV
| Group and company | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| Liability at 1 January | (0.5) | (4.4) |
| Credited to the hedging reserve | 0.4 | 3.9 |
| Liability at 31 December | (0.1) | (0.5) |
The weighted average interest rate and period to maturity of the interest rate swaps held by the group and company were as follows:
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Weighted | Weighted | Weighted | Weighted | |||
| average | Range of | average | average | Range of | average | |
| interest | interest | period to | interest | interest | period to | |
| rate | rates | maturity | rate | rates | maturity | |
| Group and company | % | % | years | % | % | years |
| Sterling | 0.7 | 0.6–0.8 | 0.1 | 3.2 | 3.1–3.3 | 0.4 |
The group uses foreign exchange contracts in order to manage the foreign exchange rate risk arising from CCD's euro operations in the Republic of Ireland. A liability of £0.2m is held in the group balance sheet as at 31 December 2016 in respect of foreign exchange contracts (2015: liability of £0.1m).
The group's foreign exchange contracts comprise forward foreign exchange contracts to buy sterling and sell euros for a total notional amount of £7.6m (2015: £9.0m). These contracts have a range of maturity dates from 17 January 2017 to 12 December 2017 (2015: 18 January 2016 to 'HFHPEHU 7KHVHFRQWUDFWVZHUHGHVLJQDWHGDVFDVKȵRZKHGJHVDQGZHUHHHFWLYHXQGHUΖ\$6\$FFRUGLQJO\WKHPRYHPHQWLQIDLU value of £nil has been charged to the hedging reserve within equity (2015: credit of £0.3m).
| Company | ||
|---|---|---|
| 2016 | 2015 | |
| Non-current assets | £m | £m |
| Amounts owed by group undertakings | 871.6 | 919.1 |
There are no amounts past due and there is no impairment provision held against amounts owed by group undertakings due for repayment in more than one year (2015: £nil). The amounts owed by group undertakings are unsecured, due for repayment in more than one year and accrue interest at rates linked to LIBOR.
| Group | Company | ||||
|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | ||
| Current assets | £m | £m | £m | £m | |
| Trade receivables | 0.1 | 0.1 | – | – | |
| Other receivables | 7.7 | 7.3 | – | – | |
| Amounts owed by group undertakings | – | – | 704.2 | 604.4 | |
| Prepayments and accrued income | 28.3 | 25.0 | 2.6 | 2.0 | |
| Total | 36.1 | 32.4 | 706.8 | 606.4 |
Trade and other receivables include utility prepayments, prepaid marketing costs, amounts receivable from CCD voucher providers and amounts paid on behalf of the group's pension scheme but not yet recharged. There are £nil amounts past due in respect of trade and other receivables due in less than one year (2015: £nil). Within the company, an LPSDLUPHQWSURYLVLRQRIePeP LVKHOGDJDLQVWDPRXQWVRZHGE\JURXSXQGHUWDNLQJVGXHLQOHVVWKDQRQH\HDUUHSUHVHQWLQJWKHGHȴFLHQF\LQWKHQHWDVVHWV of those group undertakings. There has been a £0.2m charge to the company income statement in 2016 (2015: £0.6m) in respect of the increased provision.
Amounts owed by group undertakings are unsecured, repayable on demand or within one year, and generally accrue interest at rates linked to LIBOR.
The maximum exposure to credit risk of trade and other receivables equates to the carrying value (2015: carrying value) set out above.
There is £nil collateral held in respect of trade and other receivables (2015: £nil).
7KHUHWLUHPHQWEHQHȴWDVVHWUHȵHFWVWKHGLHUHQFHEHWZHHQWKHSUHVHQWYDOXHRIWKHJURXSȇVREOLJDWLRQWRFXUUHQWDQGSDVWHPSOR\HHVWRSURYLGHDGHȴQHGEHQHȴWSHQVLRQDQG the fair value of assets held to meet that obligation. As at 31 December 2016, the fair value of the assets exceeded the obligation and hence a net pension asset has been recorded.
7KHJURXSRSHUDWHVDGHȴQHGEHQHȴWVFKHPHWKH3URYLGHQW)LQDQFLDO6WD3HQVLRQ6FKHPH7KHVFKHPHLVRIWKHIXQGHGGHȴQHGEHQHȴWW\SH and has been substantially closed to new members since 1 January 2003.
\$OOIXWXUHEHQHȴWVLQWKHVFKHPHDUHQRZSURYLGHGRQDȆFDVKEDODQFHȇEDVLVZLWKDGHȴQHGDPRXQWEHLQJPDGHDYDLODEOHDWUHWLUHPHQWEDVHG RQDSHUFHQWDJHRIVDODU\WKDWLVUHYDOXHGXSWRUHWLUHPHQWZLWKUHIHUHQFHWRLQFUHDVHVLQSULFHLQȵDWLRQ7KLVUHWLUHPHQWDFFRXQWLVWKHQXVHG WRSXUFKDVHDQDQQXLW\RQWKHRSHQPDUNHW7KHVFKHPHDOVRSURYLGHVSHQVLRQEHQHȴWVZKLFKZHUHDFFUXHGLQWKHSDVWRQDȴQDOVDODU\EDVLV EXWZKLFKDUHQRORQJHUOLQNHGWRȴQDOVDODU\7KHVFKHPHDOVRSURYLGHVGHDWKEHQHȴWV
The scheme is a UK registered pension scheme under UK legislation and is not contracted-out of the State Second Pension. The scheme is governed by a Trust Deed and Rules, with trustees responsible for the operation and the governance of the scheme. The trustees work closely with the group on funding and investment strategy decisions. The most recent actuarial valuation of the scheme was carried out as at 1 June E\DTXDOLȴHGLQGHSHQGHQWDFWXDU\7KHYDOXDWLRQXVHGIRUWKHSXUSRVHVRIΖ\$6Ȇ(PSOR\HHEHQHȴWVȇKDVEHHQEDVHGRQUHVXOWVRIWKH 2015 valuation, updated by the actuary to take account of the requirements of IAS 19 in order to assess the liabilities of the scheme as at the balance sheet date. Scheme assets are stated at fair value as at the balance sheet date.
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7KHJURXSLVH[SRVHGWRDQXPEHURIULVNVWKHPRVWVLJQLȴFDQWRIZKLFKDUHDVIROORZV
Investment risk the liabilities for IAS 19 purposes are calculated using a discount rate set with reference to corporate bond yields. If the DVVHWVXQGHUSHUIRUPWKLV\LHOGDGHȴFLWZLOODULVH7KHVFKHPHKDVDORQJWHUPREMHFWLYHWRUHGXFHWKHOHYHORILQYHVWPHQWULVNE\LQYHVWLQJ in assets that better match liabilities.
&KDQJHLQERQG\LHOGVȂDGHFUHDVHLQFRUSRUDWHERQG\LHOGVZLOOLQFUHDVHWKHOLDELOLWLHVDOWKRXJKWKLVZLOOEHSDUWO\RVHWE\DQLQFUHDVH in matching assets.
ΖQȵDWLRQULVNȂSDUWRIWKHOLDELOLWLHVDUHOLQNHGWRLQȵDWLRQΖILQȵDWLRQLQFUHDVHVWKHQOLDELOLWLHVZLOOLQFUHDVHDOWKRXJKWKLVZLOOEHSDUWO\RVHW E\bDQLQFUHDVHLQDVVHWV\$VSDUWRIDORQJWHUPGHULVNLQJVWUDWHJ\WKHVFKHPHKDVLQFUHDVHGLWVSRUWIROLRLQLQȵDWLRQPDWFKHGDVVHWV
/LIHH[SHFWDQFLHVȂWKHVFKHPHȇVȴQDOVDODU\EHQHȴWVSURYLGHSHQVLRQVIRUWKHUHVWRIPHPEHUVȇOLYHVDQGIRUWKHLUVSRXVHVȇOLYHV ΖIPHPEHUVOLYHORQJHUWKDQDVVXPHGWKHQWKHOLDELOLWLHVLQUHVSHFWRIȴQDOVDODU\EHQHȴWVLQFUHDVH
7KHQHWUHWLUHPHQWEHQHȴWDVVHWUHFRJQLVHGLQWKHEDODQFHVKHHWRIWKHJURXSDQGFRPSDQ\LVDVIROORZV
| Group and company | ||||
|---|---|---|---|---|
| 2016 | 2015 | |||
| £m | % | £m | % | |
| Equities | 83.1 | 10 | 74.7 | 11 |
| 2WKHUGLYHUVLȴHGUHWXUQVHHNLQJLQYHVWPHQWV | 73.9 | 9 | 67.5 | 10 |
| Corporate bonds | 141.2 | 17 | 133.0 | 20 |
| Fixed interest gilts | 193.0 | 23 | 208.3 | 31 |
| Index-linked gilts | 337.4 | 41 | 181.7 | 28 |
| Cash and money market funds | 1.5 | – | 1.2 | – |
| Total fair value of scheme assets | 830.1 | 100 | 666.4 | 100 |
| 3UHVHQWYDOXHRIIXQGHGGHȴQHGEHQHȴWREOLJDWLRQ | (757.7) | (604.1) | ||
| 1HWUHWLUHPHQWEHQHȴWDVVHWUHFRJQLVHGLQWKHEDODQFHVKHHW | 72.4 | 62.3 |
\$VSDUWRIDGHULVNLQJVWUDWHJ\DJUHHGEHWZHHQWKHFRPSDQ\DQGWKHSHQVLRQWUXVWHHVWRKHGJHWKHLQȵDWLRQDQGLQWHUHVWUDWHULVNVDVVRFLDWHGZLWKWKHOLDELOLWLHVRIWKHSHQVLRQ VFKHPHDVXEVWDQWLDODPRXQWRIPRUHYRODWLOHJURZWKIXQGVHTXLWLHV ZHUHUHLQYHVWHGLQOLDELOLW\SURWHFWLRQDVVHWVȴ[HGLQWHUHVWDQGLQGH[OLQNHGJLOWV LQ-DQXDU\
| The valuation of the pension scheme has increased from £62.3m at 31 December 2015 to £72.4m at 31 December 2016. A high level reconciliation of the movement is as follows: | |
|---|---|
| *URXSDQGFRPSDQ\ | £m |
| Pension asset as at 31 December 2015 | 62 |
| Cash contributions made by the group | 12 |
| \$FWXDULDOO\EDVHGFRVWRIQHZEHQHȴWV | |
| Return on assets being held to meet pension obligations | 154 |
| Decrease in discount rate used to discount future liabilities | |
| ΖQFUHDVHLQLQȵDWLRQUDWHXVHGWRIRUHFDVWSHQVLRQV | |
| /RZHULQȵDWLRQDU\SHQVLRQLQFUHDVHVIURP-DQXDU\ | 5 |
| 3HQVLRQDVVHWDVDW'HFHPEHU | 72 |
The amounts recognised in the income statement were as follows:
| *URXS | &RPSDQ\ | |||
|---|---|---|---|---|
| 2015 | 2015 | |||
| £m | £m | £m | £m | |
| Current service cost | (5.0) | (5.0) | ||
| Interest on scheme liabilities | (23.5) | (23.5) | ||
| Interest on scheme assets | 25.7 | 25.7 | ||
| Contributions from subsidiaries | – | – | 11.6 | |
| Net (charge)/credit recognised in the income statement before exceptional curtailment credit | (2.8) | 8.8 | ||
| Exceptional curtailment credit | – | 2.6 | – | 2.6 |
| 1HWFKDUJH FUHGLWUHFRJQLVHGLQWKHLQFRPHVWDWHPHQW | (0.2) | 11.4 |
The exceptional curtailment credit of £2.6m in 2015 related to the reduction in headcount of 500 people following a business restructuring within CCD (see note 1).
The net (charge)/credit recognised in the income statement of the group and company has been included within administrative costs.
Movements in the fair value of scheme assets were as follows:
| *URXS | &RPSDQ\ | |||
|---|---|---|---|---|
| 2015 | 2015 | |||
| £m | £m | £m | £m | |
| )DLUYDOXHRIVFKHPHDVVHWVDW-DQXDU\ | 700.1 | 700.1 | ||
| Interest on scheme assets | 25.7 | 25.7 | ||
| Contributions by subsidiaries | – | – | 11.6 | |
| Actuarial movement on scheme assets | (52.4) | (52.4) | ||
| Contributions by the group/company | 12.2 | 0.6 | ||
| 1HWEHQHȴWVSDLGRXW | (19.2) | (19.2) | ||
| )DLUYDOXHRIVFKHPHDVVHWVDW'HFHPEHU | 666.4 | 666.4 |
7KHJURXSFRQWULEXWLRQVWRWKHGHȴQHGEHQHȴWSHQVLRQVFKHPHLQWKH\HDUHQGLQJ'HFHPEHUDUHH[SHFWHGWREH DSSUR[LPDWHO\beP
0RYHPHQWVLQWKHSUHVHQWYDOXHRIWKHGHȴQHGEHQHȴWREOLJDWLRQZHUHDVIROORZV
| Group and company | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| 3UHVHQWYDOXHRIWKHGHȴQHGEHQHȴWREOLJDWLRQDW-DQXDU\ | (604.1) | (644.1) |
| Current service cost | (4.0) | (5.0) |
| Interest on scheme liabilities | (22.3) | (23.5) |
| Exceptional curtailment credit | – | 2.6 |
| Actuarial movement on scheme liabilities | (153.8) | 46.7 |
| 1HWEHQHȴWVSDLGRXW | 26.5 | 19.2 |
| 3UHVHQWYDOXHRIWKHGHȴQHGEHQHȴWREOLJDWLRQDW'HFHPEHU | (757.7) | (604.1) |
7KHOLDELOLWLHVRIWKHVFKHPHDUHEDVHGRQWKHFXUUHQWYDOXHRIH[SHFWHGEHQHȴWSD\PHQWVRYHUWKHQH[W\HDUV7KHZHLJKWHGDYHUDJH duration of the scheme liabilities is approximately 19 years.
The principal actuarial assumptions used at the balance sheet date were as follows:
| Group and company | ||
|---|---|---|
| 2016 | 2015 | |
| % | % | |
| 3ULFHLQȵDWLRQȂ53Ζ | 3.25 | 3.00 |
| 3ULFHLQȵDWLRQȂ&3Ζ | 2.15 | 2.00 |
| Rate of increase to pensions in payment | 3.00 | 2.80 |
| ΖQȵDWLRQDU\LQFUHDVHVWRSHQVLRQVLQGHIHUPHQW | 2.15 | 2.00 |
| Discount rate | 2.55 | 3.75 |
The pension increase assumption shown above applies to pensions increasing in payment each year in line with RPI up to 5%. Pensions DFFUXHGSULRUWRDUHVXEVWDQWLDOO\VXEMHFWWRȴ[HGLQFUHDVHVHDFK\HDUΖQGHIHUPHQWLQFUHDVHVSULRUWRUHWLUHPHQWDUHOLQNHGWR&3Ζ
The mortality assumptions are based on the self-administered pension scheme (SAPS) series 1 tables, with multipliers of 105% and 115% respectively for males and females. The 5% upwards adjustment to mortality rates for males and a 15% upwards adjustment for females UHȵHFWVWKHORZHUOLIHH[SHFWDQFLHVZLWKLQWKHVFKHPHFRPSDUHGWRDYHUDJHSHQVLRQVFKHPHVZKLFKZDVFRQFOXGHGIROORZLQJDVWXG\RI the scheme's membership. Future improvements in mortality are based on the Continuous Mortality Investigation (CMI) 2015 model with DbORQJWHUPLPSURYHPHQWWUHQGRISHUDQQXP8QGHUWKHVHPRUWDOLW\DVVXPSWLRQVWKHOLIHH[SHFWDQFLHVRIPHPEHUVDUHDVIROORZV
| Female | |||||
|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | ||
| Group and company | years | years | years | years | |
| Current pensioner aged 65 | 21.8 | 21.7 | 23.3 | 23.3 | |
| Current member aged 45 from age 65 | 23.5 | 23.4 | 25.2 | 25.1 |
7KHWDEOHEHORZVKRZVWKHVHQVLWLYLW\RQWKHGHȴQHGEHQHȴWREOLJDWLRQQRWLQFOXGLQJDQ\LPSDFWRQDVVHWV RIFKDQJHVLQWKHNH\DVVXPSWLRQV Depending on the scenario, there would also be compensating asset movements.
| Group and company | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| Discount rate decreased by 0.1% | 15 | 11 |
| ΖQȵDWLRQLQFUHDVHGE\ | 7 | 5 |
| Life expectancy increased by 1 year | 30 | 18 |
The actual return on scheme assets compared to the expected return is as follows:
| Group and company | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| Interest on scheme assets | 24.8 | 25.7 |
| Actuarial movement on scheme assets | 153.7 | (52.4) |
| Actual return on scheme assets | 178.5 | (26.7) |
Actuarial gains and losses are recognised through other comprehensive income in the period in which they occur.
An analysis of the amounts recognised in the statement of comprehensive income is as follows:
| Group and company | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| Actuarial movement on scheme assets | 153.7 | (52.4) |
| Actuarial movement on scheme liabilities | (153.8) | 46.7 |
| Total movement recognised in other comprehensive income in the year | (0.1) | (5.7) |
| Cumulative movement recognised in other comprehensive income | (82.0) | (81.9) |
7KHKLVWRU\RIWKHQHWUHWLUHPHQWEHQHȴWDVVHWUHFRJQLVHGLQWKHEDODQFHVKHHWDQGH[SHULHQFHDGMXVWPHQWVIRUWKHJURXSLVDVIROORZV
| Group and company | |||||
|---|---|---|---|---|---|
| 2016 £m |
2015 £m |
2014 £m |
2013 £m |
2012 £m |
|
| Fair value of scheme assets | 830.1 | 666.4 | 700.1 | 613.8 | 570.7 |
| 3UHVHQWYDOXHRIIXQGHGGHȴQHGEHQHȴWREOLJDWLRQ | (757.7) | (604.1) | (644.1) | (584.6) | (547.7) |
| 5HWLUHPHQWEHQHȴWDVVHWUHFRJQLVHGLQWKHEDODQFHVKHHW | 72.4 | 62.3 | 56.0 | 29.2 | 23.0 |
| Experience gains/(losses) on scheme assets: | b | b | b | b | |
| – amount (£m) | 153.7 | (52.4) | 77.9 | 20.1 | 25.3 |
| – percentage of scheme assets (%) | 18.5 | (7.9) | 11.9 | 3.3 | 4.4 |
| Experience gains/(losses) on scheme liabilities: | |||||
| – amount (£m) | 4.5 | 25.9 | 4.1 | (0.9) | 16.3 |
| – percentage of scheme liabilities (%) | 0.6 | 4.3 | 0.7 | (0.2) | 3.0 |
The group operates a stakeholder pension plan into which group companies contribute a proportion of pensionable earnings of the member W\SLFDOO\UDQJLQJEHWZHHQDQG GHSHQGHQWRQWKHSURSRUWLRQRISHQVLRQDEOHHDUQLQJVFRQWULEXWHGE\WKHPHPEHUWKURXJKDbVDODU\ VDFULȴFHDUUDQJHPHQWW\SLFDOO\UDQJLQJEHWZHHQDQG 7KHDVVHWVRIWKHVFKHPHDUHKHOGVHSDUDWHO\IURPWKRVHRIWKHJURXS DQGFRPSDQ\7KHSHQVLRQFKDUJHLQWKHFRQVROLGDWHGLQFRPHVWDWHPHQWUHSUHVHQWVFRQWULEXWLRQVSDLGE\WKHJURXSLQUHVSHFWRIbWKHbSODQ DQGDPRXQWHGWRePIRUWKH\HDUHQGHG'HFHPEHUeP &RQWULEXWLRQVPDGHE\WKHFRPSDQ\DPRXQWHGWRbeP (2015: £0.4m). £0.2m contributions were payable to the fund at the year end (2015: £nil).
The group contributed £nil to individual personal pension plans in the year (2015: £0.2m), £0.6m into the Unfunded, Unapproved Retirement %HQHȴW6FKHPH885%6 eP DQGePLQWRFDVKVXSSOHPHQWVeP
'HIHUUHGWD[LVDIXWXUHWD[OLDELOLW\RUDVVHWUHVXOWLQJIURPWHPSRUDU\GLHUHQFHVRUWLPLQJGLHUHQFHVEHWZHHQWKHDFFRXQWLQJYDOXHRIDVVHWVDQGOLDELOLWLHVDQGWKHLUYDOXHIRU WD[SXUSRVHV'HIHUUHGWD[DULVHVSULPDULO\LQUHVSHFWRIGHULYDWLYHȴQDQFLDOLQVWUXPHQWVWKHJURXSȇVSHQVLRQDVVHWGHGXFWLRQVIRUHPSOR\HHVKDUHDZDUGVZKLFKDUHUHFRJQLVHG GLHUHQWO\IRUWD[SXUSRVHVSURSHUW\SODQWDQGHTXLSPHQWZKLFKLVGHSUHFLDWHGRQDGLHUHQWEDVLVIRUWD[SXUSRVHVFHUWDLQFRVWSURYLVLRQVIRUZKLFKWD[GHGXFWLRQVDUHRQO\ available when the costs are paid and available for sale assets which are taxed only on disposal. The deferred tax liability recognised on the acquisition of Moneybarn relates primarily to the intangible asset in respect of Moneybarn's broker relationships which will be amortised in future periods but for which tax deductions will not be available.
'HIHUUHGWD[LVFDOFXODWHGLQIXOORQWHPSRUDU\GLHUHQFHVXQGHUWKHEDODQFHVKHHWOLDELOLW\PHWKRG'XULQJUHGXFWLRQVLQFRUSRUDWLRQ WD[UDWHVZHUHHQDFWHGUHGXFLQJWKHPDLQVWUHDP8.FRUSRUDWLRQWD[UDWHIURPWRZLWKHHFWIURP\$SULODQGIURPWR ZLWKHHFWIURP\$SULOΖQDGGLWLRQWKH*RYHUQPHQWLQWURGXFHGDEDQNFRUSRUDWLRQWD[VXUFKDUJHHQDFWHGLQWKH)LQDQFH1R \$FWZKLFKLPSRVHVZLWKHHFWIURP-DQXDU\DQDGGLWLRQDOFRUSRUDWLRQWD[RQSURȴWVRI9DQTXLV%DQNRYHUeP\$VWKHWHPSRUDU\ GLHUHQFHVRQZKLFKGHIHUUHGWD[ZDVFDOFXODWHGDW'HFHPEHUZHUHH[SHFWHGWRODUJHO\UHYHUVHDIWHU\$SULOGHIHUUHGWD[DW 31 December 2015 was measured at 18% and, in the case of Vanquis Bank, at the combined mainstream corporation tax and bank surcharge rate of 26%.
In 2016, further reductions to corporation tax rates were enacted, reducing the mainstream corporation tax rate from 18% to 17% with HHFWIURP\$SULO\$VWKHWHPSRUDU\GLHUHQFHVRQZKLFKGHIHUUHGWD[LVFDOFXODWHGDUHH[SHFWHGWRODUJHO\UHYHUVHDIWHU\$SULO (2015: 1 April 2020), deferred tax at 31 December 2016 has been re-measured at 17% (2015: 18%) and, in the case of Vanquis Bank, at the combined mainstream UK corporation tax and bank corporation tax surcharge rates of 25% (2015: 26%). In 2016, movements in deferred tax balances have been measured at the mainstream corporation tax rate for the year of 20% (2015: 20.25%), and, in the case of Vanquis Bank, at the combined mainstream UK corporation tax and bank corporation tax surcharge rates for the year of 28% (2015: 20.25%). A tax charge of £nil (2015: credit of £2.4m) represents the income statement adjustment to deferred tax as a result of these changes and an additional deferred WD[FUHGLWRIePFKDUJHRIeP KDVEHHQWDNHQGLUHFWO\WRRWKHUFRPSUHKHQVLYHLQFRPHLQUHVSHFWRILWHPVUHȵHFWHGGLUHFWO\LQ other comprehensive income.
The movement in the deferred tax balance during the year can be analysed as follows:
| Group | Company | |||
|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | |
| Liability | £m | £m | £m | £m |
| At 1 January | (14.9) | (13.6) | (8.8) | (8.2) |
| Charge to the income statement (note 5) | (1.0) | (0.2) | (1.6) | (1.9) |
| &UHGLWFKDUJH RQRWKHUFRPSUHKHQVLYHLQFRPHSULRUWRLPSDFWRIFKDQJHLQ8.WD[UDWHQRWHb | 4.6 | (3.3) | (0.1) | 0.4 |
| Impact of change in UK tax rate: | b | b | ||
| – credit to the income statement | – | 2.4 | 0.1 | – |
| – credit/(charge) to other comprehensive income | 0.6 | (0.2) | 0.6 | 0.9 |
| At 31 December | (10.7) | (14.9) | (9.8) | (8.8) |
An analysis of the deferred tax liability for the group is set out below:
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| Accelerated capital |
Other temporary |
Retirement EHQHȴW |
Accelerated capital |
Other temporary |
Retirement EHQHȴW |
|||
| allowances | GLHUHQFHV | obligations | Total | allowances | GLHUHQFHV | obligations | Total | |
| Group – (liability)/asset | £m | £m | £m | £m | £m | £m | £m | £m |
| At 1 January | 2.4 | (6.3) | (11.0) | (14.9) | 2.0 | (4.7) | (10.9) | (13.6) |
| Credit/(charge) to the income statement | 0.2 | 0.8 | (2.0) | (1.0) | 0.5 | 1.7 | (2.4) | (0.2) |
| Credit/(charge) on other comprehensive income prior to change in UK tax rate |
– | 4.6 | – | 4.6 | – | (4.5) | 1.2 | (3.3) |
| Impact of change in UK tax rate: | ||||||||
| – (charge)/credit to the income statement | (0.2) | (0.1) | 0.3 | – | (0.1) | 2.3 | 0.2 | 2.4 |
| – credit/(charge) to other comprehensive income | – | – | 0.6 | 0.6 | – | (1.1) | 0.9 | (0.2) |
| At 31 December | 2.4 | (1.0) | (12.1) | (10.7) | 2.4 | (6.3) | (11.0) | (14.9) |
An analysis of the deferred tax liability for the company is set out below:
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| Accelerated capital allowances |
Other temporary GLHUHQFHV |
Retirement EHQHȴW obligations |
Total | Accelerated capital allowances |
Other temporary GLHUHQFHV |
Retirement EHQHȴW obligations |
Total | |
| Company – (liability)/asset | £m | £m | £m | £m | £m | £m | £m | £m |
| At 1 January | (0.2) | 2.4 | (11.0) | (8.8) | (0.3) | 3.0 | (10.9) | (8.2) |
| Credit/(charge) to the income statement | – | 0.4 | (2.0) | (1.6) | 0.1 | 0.4 | (2.4) | (1.9) |
| (Charge)/credit on other comprehensive income prior to impact of change in UK tax rate |
– | (0.1) | – | (0.1) | – | (0.8) | 1.2 | 0.4 |
| Impact of change in UK tax rate: | ||||||||
| – (charge)/credit to the income statement | – | (0.2) | 0.3 | 0.1 | – | (0.2) | 0.2 | – |
| – credit to other comprehensive income | – | – | 0.6 | 0.6 | – | – | 0.9 | 0.9 |
| At 31 December | (0.2) | 2.5 | (12.1) | (9.8) | (0.2) | 2.4 | (11.0) | (8.8) |
'HIHUUHGWD[DVVHWVKDYHEHHQUHFRJQLVHGLQUHVSHFWRIDOOWHPSRUDU\GLHUHQFHVEHFDXVHLWLVSUREDEOHWKDWWKHVHDVVHWVZLOOEHUHFRYHUHG
&DVKDQGFDVKHTXLYDOHQWVLQFOXGHVFDVKDWEDQNDQGKHOGLQVKRUWWHUPGHSRVLWVȵRDWVKHOGE\DJHQWVZLWKLQ&&'DQG9DQTXLV%DQNȇVOLTXLGDVVHWVEXHULQFOXGLQJRWKHUOLTXLG UHVRXUFHVKHOGLQDFFRUGDQFHZLWKWKH35\$ȇVOLTXLGLW\UHJLPH7KH35\$UHTXLUHVUHJXODWHGHQWLWLHVWRPDLQWDLQDOLTXLGDVVHWVEXHUDQGRWKHUOLTXLGUHVRXUFHVWRHQVXUHWKH\KDYH DYDLODEOHIXQGVWRKHOSSURWHFWDJDLQVWXQIRUHVHHQFLUFXPVWDQFHV7KHDPRXQWRIWKHOLTXLGDVVHWVEXHULVFDOFXODWHGXVLQJΖQGLYLGXDO/LTXLGLW\*XLGDQFHΖ/* VHWE\WKH35\$ based on the Individual Liquidity Adequacy Assessment Process (ILAAP) prepared by Vanquis Bank. In addition, further liquid resources must be maintained based upon daily VWUHVVWHVWVOLQNHGWRWKUHHNH\OLTXLGLW\ULVNVRI9DQTXLV%DQNQDPHO\UHWDLOGHSRVLWVPDWXULWLHVXQGUDZQFUHGLWFDUGOLQHVDQGRSHUDWLQJFDVKȵRZV7KLVUHVXOWVLQDG\QDPLFOLTXLG UHVRXUFHVUHTXLUHPHQWODUJHO\GULYHQE\UHWDLOGHSRVLWVPDWXULWLHVLQWKHIROORZLQJWKUHHPRQWKV9DQTXLV%DQNȇVOLTXLGDVVHWVEXHULQFOXGLQJRWKHUOLTXLGUHVRXUFHVDPRXQWVWR £168.9m at 31 December 2016 (2015: £134.2m) and is held in a combination of UK government gilts of £26.2m (2015: £20.7m) and a Bank of England reserves account of £142.7m (2015: £113.5m).
| Group | Company | |||
|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | |
| £m | £m | £m | £m | |
| Cash at bank and in hand | 223.7 | 153.4 | 31.2 | 7.0 |
In addition to cash and cash equivalents, the group had £5.1m of bank overdrafts at 31 December 2016 (2015: £14.1m) and the company had £2.5m of bank overdrafts (2015: £12.9m) both of which are disclosed within bank and other borrowings (see note 22).
7KHFXUUHQF\SURȴOHRIFDVKDQGFDVKHTXLYDOHQWVLVDVIROORZV
| Group | Company | |||
|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | |
| £m | £m | £m | £m | |
| Sterling | 222.1 | 153.2 | 31.2 | 7.0 |
| Euro | 1.6 | 0.1 | – | – |
| Zloty | – | 0.1 | – | – |
| Total cash and cash equivalents | 223.7 | 153.4 | 31.2 | 7.0 |
Cash and cash equivalents are non-interest bearing other than in respect of the cash held on deposit and the amounts held by Vanquis %DQNDVDOLTXLGDVVHWVEXHUDQGRWKHUOLTXLGbUHVRXUFHVLQDGKHUHQFHZLWKWKH35\$ȇVOLTXLGLW\UHJLPHZKLFKEHDULQWHUHVWDWUDWHVOLQNHGWR8. JRYHUQPHQWJLOWVDQGWKH%DQNbRIb(QJODQGEDVHUDWH
Borrowings principally comprise syndicated and bilateral bank facilities, together with overdrafts and uncommitted loans which are repayable on demand, senior public bonds (see note 22(d)), loan notes privately placed with UK institutions (see note 22(e)), retail bonds (see note 22f)) and retail deposits issued by Vanquis Bank (see note 22(g)). As at 31 December 2016, borrowings under these facilities amounted to £1,855.1m (2015: £1,596.2m).
The maturity of borrowings, together with the maturity of facilities, is as follows:
| 2016 | ||||
|---|---|---|---|---|
| Group | Borrowing facilities available £m |
Borrowings £m |
Borrowing facilities available £m |
Borrowings £m |
| Repayable: | b | b | ||
| On demand | 24.2 | 5.1 | 23.7 | 14.1 |
| In less than one year | 315.3 | 315.3 | 239.3 | 239.3 |
| Included in current liabilities | 339.5 | 320.4 | 263.0 | 253.4 |
| Between one and two years | 622.3 | 511.7 | 279.8 | 279.0 |
| %HWZHHQWZRDQGȴYH\HDUV | 964.8 | 963.7 | 1,142.0 | 918.9 |
| ΖQPRUHWKDQȴYH\HDUV | 60.0 | 59.3 | 150.0 | 144.9 |
| Included in non-current liabilities | 1,647.1 | 1,534.7 | 1,571.8 | 1,342.8 |
| Total group | 1,986.6 | 1,855.1 | 1,834.8 | 1,596.2 |
Borrowings are stated after deducting £2.2m of unamortised arrangement fees (2015: £6.7m).
In order to reconcile the borrowings shown in the table above and the headroom on committed facilities shown in 22(h), the facilities and borrowings in respect of amounts repayable on demand should be deducted and unamortised arrangement fees should be added back to borrowings as follows:
| 2016 | 2015 | |||
|---|---|---|---|---|
| Facilities | Borrowings | Facilities | Borrowings | |
| Group | £m | £m | £m | £m |
| Total group facilities and borrowings | 1,986.6 | 1,855.1 | 1,834.8 | 1,596.2 |
| Repayable on demand | (24.2) | (5.1) | (23.7) | (14.1) |
| Unamortised arrangement fees | – | 2.2 | – | 6.7 |
| Total group committed facilities and borrowings | 1,962.4 | 1,852.2 | 1,811.1 | 1,588.8 |
| Headroom on committed facilities | 110.2 | 222.3 |
| 2016 | 2015 | |||
|---|---|---|---|---|
| Company | Borrowing facilities available £m |
Borrowings £m |
Borrowing facilities available £m |
Borrowings £m |
| Repayable: | b | b | ||
| On demand | 24.2 | 2.5 | 23.7 | 12.9 |
| In less than one year | 130.0 | 130.0 | 60.0 | 60.0 |
| Included in current liabilities | 154.2 | 132.5 | 83.7 | 72.9 |
| Between one and two years | 426.0 | 315.4 | 130.0 | 129.1 |
| %HWZHHQWZRDQGȴYH\HDUV | 405.2 | 404.1 | 740.1 | 517.1 |
| ΖQPRUHWKDQȴYH\HDUV | 60.0 | 59.3 | 150.0 | 144.9 |
| Included in non-current liabilities | 891.2 | 778.8 | 1,020.1 | 791.1 |
| Total company | 1,045.4 | 911.3 | 1,103.8 | 864.0 |
As at 31 December 2016, the weighted average period to maturity of the group's committed facilities, including retail deposits, was 2.5 years (2015: 2.8 years) and for the company's committed facilities was 2.3 years (2015: 3.2 years). Excluding retail deposits, the weighted average period to maturity of the group's committed facilities was 2.3 years (2015: 3.2 years). Following the renewal of the syndicated bank facility on 31 January 2017, the group's weighted average period to maturity of committed facilities including retail deposits increased to 2.9 years and excluding retail deposits increased to 3.1 years.
Before taking account of the various interest rate swaps and cross-currency swap arrangements entered into by the group and company, WKHbLQWHUHVWUDWHDQGIRUHLJQH[FKDQJHUDWHH[SRVXUHRQERUURZLQJVLVDVIROORZV
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Group | Fixed £m |
Floating £m |
Total £m |
Fixed £m |
Floating £m |
Total £m |
| Sterling | 1,459.6 | 335.0 | 1,794.6 | 1,295.0 | 245.4 | 1,540.4 |
| Euro | – | 60.5 | 60.5 | – | 55.8 | 55.8 |
| Total group | 1,459.6 | 395.5 | 1,855.1 | 1,295.0 | 301.2 | 1,596.2 |
| 2016 | 2015 | |||||
| Company | Fixed £m |
Floating £m |
Total £m |
Fixed £m |
Floating £m |
Total £m |
| Sterling | 518.4 | 332.4 | 850.8 | 564.0 | 244.2 | 808.2 |
| Euro | – | 60.5 | 60.5 | – | 55.8 | 55.8 |
| Total company | 518.4 | 392.9 | 911.3 | 564.0 | 300.0 | 864.0 |
As detailed in note 17, the group and company have entered into various interest rate swaps to hedge the interest rate exposure on ERUURZLQJV\$IWHUWDNLQJDFFRXQWRIWKHbDIRUHPHQWLRQHGLQWHUHVWUDWHVZDSVWKHJURXSȇVȴ[HGUDWHERUURZLQJVDUHePeP DQGWKHFRPSDQ\ȇVȴ[HGUDWHERUURZLQJVDUHePeP
On 23 October 2009, the company issued £250.0m of senior public bonds. The bonds have an annual coupon of 8.0% and are repayable RQb2FWREHU
On 13 January 2011, the company entered into a committed £100.0m facility agreement with the Prudential/M&G Investments UK Companies )LQDQFLQJ)XQGWRSURYLGHD\HDUWHUPORDQZKLFKDPRUWLVHVEHWZHHQ\HDUVȴYHDQGWHQ7KHȴUVWUHSD\PHQWRIePZDVUHSDLGLQOLQH with its maturity on 13 January 2016 with the second repayment of £10.0m repaid on 13 January 2017. The next instalment of £15m is due on 13 January 2018.
The company has also entered into a £20m private placement loan notes with a third party on 4 March 2011 repayable over a seven-year period at rates linked to LIBOR and a euro 10m facility agreement over a seven year period on 3 February 2011 at rates linked to EURIBOR, which was repaid one year ahead of its maturity date in February 2017.
The company has four outstanding retail bonds issued on the Order Book for Retail Bonds (ORB) platform established by the London Stock Exchange as follows:
| Issue date | Amount £m |
Rate % |
Maturity date |
|---|---|---|---|
| 14 April 2010 | 25.2 | 7.5%* | 14 April 2020 |
| 4 April 2012 | 120.0 | 7.0% | 4 October 2017 |
| 27 March 2013 | 65.0 | 6.0% | 27 September 2021 |
| 9 April 2015 | 60.0 | 5.125% | 9 October 2023 |
| Total group and company | 270.2 |
The retail bonds issued on 25 March 2011 amounting to £50.0m and accruing interest at 7.5% were repaid in full on their maturity date of 30 September 2016.
* Represents an all-in cost of 7.5%, comprising a 7.0% interest rate payable to the bond holder and 0.5% payable to the distributor.
Vanquis Bank is a PRA regulated bank and commenced taking retail deposits in July 2011. As at 31 December 2016, £941.2m (2015: £731.0m) RIȴ[HGUDWHȴ[HGWHUPUHWDLOGHSRVLWVRIRQHWZRWKUHHIRXUDQGȴYH\HDUVKDGEHHQWDNHQ7KHGHSRVLWVLQLVVXHDW'HFHPEHUKDYH been issued at rates of between 1.51% and 2.71%.
A reconciliation of the movement in retail deposits is set out below:
| 2016 | 2015 | |
|---|---|---|
| Group | £m | £m |
| At 1 January | 731.0 | 580.3 |
| New funds received | 316.6 | 225.7 |
| Maturities | (177.7) | (121.6) |
| Retentions | 76.9 | 58.5 |
| Cancellations | (15.1) | (19.4) |
| Capitalised interest | 9.5 | 7.5 |
| At 31 December | 941.2 | 731.0 |
The group's funding and liquidity policy is designed to ensure that the group is able to continue to fund the growth of the business. The group therefore maintains headroom on its committed borrowing facilities to fund growth and contractual maturities for at least the following 12 months, after assuming that Vanquis Bank will fully fund itself through retail deposits and repay its intercompany loan to Provident Financial plc.
The undrawn committed borrowing facilities at 31 December were as follows:
| Group and company | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| Expiring within one year | – | – |
| Expiring within one to two years | 110.2 | – |
| Expiring in more than two years | – | 222.3 |
| Total group and company | 110.2 | 222.3 |
The headroom on committed facilities does not include the impact of £30m of cash held on deposit at 31 December 2016 which was used to repay the syndicated bank facility immediately after the year end. Adjusted headroom, after taking account of this repayment amounts to £140.2m.
The table above also does not include the additional capacity for Vanquis Bank to take retail deposits up to the value of the intercompany loan from Provident Financial plc of £233.5m as at 31 December 2016. Accordingly, Vanquis Bank's retail deposits capacity at 31 December 2016 amounts to £233.5m. The group's total funding capacity therefore amounts to £373.7m, being the group's adjusted headroom on undrawn committed borrowing facilities of £140.2m plus the amount of Vanquis Bank's intercompany loan RIbeP
The group's syndicated bank facility was renewed on 31 January 2017, with the facility increasing from £382.5m to £450.0m. For illustrative purposes, headroom on committed facilities increases to £207.7m and funding capacity increases to £441.2m after taking account of the increase in facility.
Before taking account of the various interest rate swaps entered into by the group and company, the weighted average interest rate and the ZHLJKWHGDYHUDJHSHULRGWRPDWXULW\RIWKHJURXSDQGFRPSDQ\ȇVȴ[HGUDWHERUURZLQJVLVDVIROORZV
| 2016 | 2015 | |||
|---|---|---|---|---|
| Weighted | Weighted | Weighted | Weighted | |
| average | average | average | average | |
| interest | period to | interest | period to | |
| rate | maturity | rate | maturity | |
| Group | % | years | % | years |
| Sterling | 4.22 | 2.77 | 4.80 | 2.94 |
| 2016 | 2015 | |||
| Weighted | Weighted | Weighted | Weighted | |
| average | average | average | average | |
| interest | period to | interest | period to | |
| rate | maturity | rate | maturity | |
| Company | % | years | % | years |
| Sterling | 7.14 | 3.06 | 7.19 | 3.77 |
\$IWHUWDNLQJDFFRXQWRILQWHUHVWUDWHVZDSVWKHVWHUOLQJZHLJKWHGDYHUDJHȴ[HGLQWHUHVWUDWHIRUWKHJURXSZDV DQGIRUWKH company was 6.00% (2015: 6.50%). The sterling-weighted average period to maturity on the same basis is 2.5 years (2015: 2.9 years) for the group and 2.9 years (2015: 3.6 years) for the company.
The fair values of the group and company's bank and other borrowings are compared to their book values as follows:
| 2016 | 2015 | |||
|---|---|---|---|---|
| Book value | Fair value | Book value | Fair value | |
| Group | £m | £m | £m | £m |
| Bank loans and overdrafts | 275.2 | 275.3 | 167.6 | 167.6 |
| Senior public bonds | 250.0 | 288.5 | 250.0 | 283.4 |
| Sterling private placement loan notes | 110.0 | 122.0 | 120.0 | 134.7 |
| Euro private placement loan notes | 8.5 | 9.0 | 7.4 | 8.1 |
| Retail bonds | 270.2 | 285.7 | 320.2 | 333.0 |
| Retail deposits | 941.2 | 954.7 | 731.0 | 746.4 |
| Total group | 1,855.1 | 1,935.2 | 1,596.2 | 1,673.2 |
| 2016 | 2015 | |||
| Book value | Fair value | Book value | Fair value | |
| Company | £m | £m | £m | £m |
| Bank loans and overdrafts | 272.6 | 272.7 | 166.4 | 166.4 |
| Senior public bonds | 250.0 | 288.5 | 250.0 | 283.4 |
| Sterling private placement loan notes | 110.0 | 122.0 | 120.0 | 134.7 |
| Euro private placement loan notes | 8.5 | 9.0 | 7.4 | 8.1 |
| Retail bonds | 270.2 | 285.7 | 320.2 | 333.0 |
| Total company | 911.3 | 977.9 | 864.0 | 925.6 |
The fair value of the sterling and euro private placement loan notes, the retail deposits and the subordinated loan notes have been calculated E\GLVFRXQWLQJWKHH[SHFWHGIXWXUHFDVKȵRZVDWWKHUHOHYDQWPDUNHWLQWHUHVWUDWH\LHOGFXUYHVSUHYDLOLQJDWWKHEDODQFHVKHHWGDWH
| Group | Company | |||
|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | |
| Current liabilities | £m | £m | £m | £m |
| Trade payables | 5.4 | 2.1 | – | – |
| Amounts owed to group undertakings | – | – | 103.4 | 89.5 |
| Other payables including taxation and social security | 8.0 | 9.1 | 1.5 | 1.5 |
| Accruals | 91.4 | 87.1 | 28.4 | 27.8 |
| Total | 104.8 | 98.3 | 133.3 | 118.8 |
The amounts owed to group undertakings are unsecured, due for repayment in less than one year and accrue interest at rates linked to LIBOR.
Accruals principally relate to normal operating accruals such as rent, rates and utilities, interest accrued on the group's borrowings and national insurance contributions accrued in respect of share-based payments.
| 2016 | 2015 | |||
|---|---|---|---|---|
| Issued and | Issued and | |||
| Group and company | Authorised | IXOO\bSDLG | Authorised | fully paid |
| Ordinary shares of 208ȗ11p each – £m |
40.0 | 30.6 | 40.0 | 30.5 |
| – number (m) | 193.0 | 147.8 | 193.0 | 147.2 |
The movement in the number of shares in issue during the year was as follows:
| 2016 | 2015 | |
|---|---|---|
| Group and company | m | m |
| At 1 January | 147.2 | 146.4 |
| Shares issued pursuant to the exercise/vesting of options and awards | 0.6 | 0.8 |
| At 31 December | 147.8 | 147.2 |
The shares issued pursuant to the exercise/vesting of options and awards comprised 595,770 ordinary shares (2015: 760,488) with a nominal value of £123,487 (2015: £157,628) and an aggregate consideration of £3.5m (2015: £2.6m).
3URYLGHQW)LQDQFLDOSOFVSRQVRUVWKH3URYLGHQW)LQDQFLDOSOF(PSOR\HH%HQHȴW7UXVW(%7 ZKLFKLVDGLVFUHWLRQDU\WUXVWHVWDEOLVKHGIRU WKHEHQHȴWRIWKHHPSOR\HHVRIWKHJURXS7KHFRPSDQ\KDVDSSRLQWHG.OHLQZRUW%HQVRQ-HUVH\ 7UXVWHHV/LPLWHGWRDFWDVWUXVWHHRIWKH(%7 The trustee has waived the right to receive dividends on the shares it holds. As at 31 December 2016, the EBT held 2,020,734 (2015: 2,556,478) shares in the company with a cost of £0.4m (2015: £0.5m) and a market value of £57.6m (2015: £80.1m). The shares have been acquired by the EBT to meet obligations under the Provident Financial Long Term Incentive Scheme 2006 and the 2013 Performance Share Plan. The Trust was also established to operate in conjunction with the Performance Share Plan (PSP). As at 31 December 2016, awards held in respect of the PSP were 819,962 (2015: 966,020) ordinary shares with a cost of £0.2m (2015: £0.2m) and a market value of £23.4m (2015: £33.5m).
The group issues share options and awards to employees as part of its employee remuneration packages. The group operates three equity settled share schemes: the Long Term Incentive Scheme (LTIS), employees' savings-related share option schemes typically referred to as Save As You Earn schemes (SAYE), and the Performance Share Plan (PSP).The group also operates a cash-settled share incentive scheme, the Provident Financial Equity Plan (PFEP) for eligible employees based on a percentage of salary. The group previously operated senior executive share option schemes (ESOS/SESO), although no options have been granted under these schemes since 2006.
When an equity settled share option or award is granted, a fair value is calculated based on the share price at grant date, the probability of the option/award vesting, the group's recent share price volatility, and the risk associated with the option/award. A fair value is calculated based on the value of awards granted and adjusted at each balance sheet date for the probability of vesting against performance conditions.
The fair value of all options/awards are charged to the income statement on a straight-line basis over the vesting period of the underlying option/award.
During 2016, awards/options have been granted under the LTIS, PSP, SAYE and PFEP schemes (2015: awards/options have been granted under the LTIS, PSP, SAYE and 3)(3bVFKHPHV
The charge to the income statement in 2016 for equity settled schemes was £10.9m for the group (2015: £10.5m) and £5.1m for the FRPSDQ\beP
The fair value per award/option granted and the assumptions used in the calculation of the equity settled share-based payment charges IRUbWKHJURXSDQGFRPSDQ\DUHDVIROORZV
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Group | PSP | LTIS | SAYE | PSP | LTIS | SAYE |
| Grant date | 1 Mar 2016 | 1 Mar 2016 | 28 Sep 2016 | 25 Feb 2015 | 25 Feb 2015 | 18 Sep 2015 |
| Share price at grant date (£) | 32.49 | 32.49 | 29.30 | 27.26 | 27.26 | 30.90 |
| Exercise price (£) | – | – | 24.06 | – | – | 21.58 |
| Shares awarded/under option (number) | 117,631 | 274,136 | 179,620 | 179,008 | 319,478 | 233,006 |
| Vesting period (years) | 3 | 3 | 3 and 5 | 3 | 3 | 3 and 5 |
| Expected volatility | 23.1% | 23.1% | 25.4%–27.2% | 20.0% | 20.0% | 20.8%–22.7% |
| Award/option life (years) | 3 | 3 | Up to 5 | 3 | 3 | Up to 5 |
| Expected life (years) | 3 | 3 | Up to 5 | 3 | 3 | Up to 5 |
| Risk-free rate | 0.76% | 0.76% | 0.42%–0.47% | 1.19% | 1.19% | 1.21%–1.53% |
| Expected dividends expressed as a dividend yield | n/a | n/a | 3.0% | n/a | n/a | 3.0% |
| Fair value per award/option (£) | 32.49 | 32.49 | 6.21–6.28 | 27.26 | 20.39–27.26 | 6.57–7.41 |
| 2016 | 2015 | |||||
| Company | PSP | LTIS | SAYE | PSP | LTIS | SAYE |
| Grant date | 1 Mar 2016 | 1 Mar 2016 | 28 Sep 2016 | 25 Feb 2015 | 25 Feb 2015 | 18 Sep 2015 |
| Share price at grant date (£) | 32.49 | 32.49 | 29.30 | 27.26 | 27.26 | 30.90 |
| Exercise price (£) | – | – | 24.06 | – | – | 21.58 |
| Shares awarded/under option (number) | 90,639 | 115,488 | 7,916 | 105,922 | 126,494 | 8,678 |
| Vesting period (years) | 3 | 3 | 3 and 5 | 3 | 3 | 3 and 5 |
| Expected volatility | 23.1% | 23.1% | 25.4%–27.2% | 20.0% | 20.0% | 20.8%–22.7% |
| Award/option life (years) | 3 | 3 | Up to 5 | 3 | 3 | Up to 5 |
| Expected life (years) | 3 | 3 | Up to 5 | 3 | 3 | Up to 5 |
| Risk-free rate | 0.76% | 0.76% | 0.42%–0.47% | 1.19% | 1.19% | 1.21%–1.53% |
| Expected dividends expressed as a dividend yield | n/a | n/a | 3.0% | n/a | n/a | 3.0% |
| Fair value per award/option (£) | 32.49 | 32.49 | 6.21–6.28 | 27.26 | 20.39 | 6.57–7.41 |
7KHH[SHFWHGYRODWLOLW\LVEDVHGRQKLVWRULFDOYRODWLOLW\RYHUWKHODVWWKUHHRUȴYH\HDUVGHSHQGLQJRQWKHOHQJWKRIWKHRSWLRQDZDUG 7KHbH[SHFWHGOLIHLVWKHDYHUDJHH[SHFWHGSHULRGWRH[HUFLVH7KHULVNIUHHUDWHRIUHWXUQLVWKH\LHOGRQ]HURFRXSRQ8.*RYHUQPHQW ERQGVbRIbDbVLPLODUGXUDWLRQWRWKHOLIHRIWKHVKDUHRSWLRQ
A reconciliation of award/share option movements during the year is shown below:
| PSP | LTIS | SAYE | ESOS/SESO | ||||
|---|---|---|---|---|---|---|---|
| Weighted | Weighted | Weighted | Weighted | ||||
| average | average | average | average | ||||
| exercise | |||||||
| price | |||||||
| Number | £ | Number | £ | Number | £ | Number | £ |
| 649,026 | – | 1,184,417 | – | 700,849 | 16.35 | 10,820 | 5.77 |
| 117,631 | – | 274,136 | – | 179,620 | 24.04 | – | – |
| (3,542) | – | (141,450) | – | (80,396) | 17.07 | – | – |
| (263,787) | – | (355,543) | – | (174,627) | 11.67 | (10,820) | 5.77 |
| 499,328 | – | 961,560 | – | 625,446 | 19.42 | – | – |
| – | – | – | – | 9,042 | 11.40 | – | – |
| exercise price |
exercise price |
exercise price |
| PSP | LTIS | SAYE | ESOS/SESO | |||||
|---|---|---|---|---|---|---|---|---|
| Weighted | Weighted | Weighted | Weighted | |||||
| average | average | average | average | |||||
| exercise | exercise | exercise | exercise | |||||
| price | price | price | price | |||||
| Group | Number | £ | Number | £ | Number | £ | Number | £ |
| Outstanding at 1 January 2015 | 719,525 | – | 1,356,343 | – | 814,660 | 12.25 | 10,820 | 5.77 |
| Awarded/granted | 179,008 | – | 319,478 | – | 233,006 | 21.65 | – | – |
| Lapsed | – | – | (108,178) | – | (90,407) | 14.02 | – | – |
| Exercised | (249,507) | – | (383,226) | – | (256,410) | 9.39 | – | – |
| Outstanding at | ||||||||
| b'HFHPEHUb | 649,026 | – | 1,184,417 | – | 700,849 | 16.35 | 10,820 | 5.77 |
| Exercisable at 31 December 2015 | – | – | – | – | 20,851 | 9.67 | 10,820 | 5.77 |
Share awards outstanding under the LTIS scheme at 31 December 2016 had an exercise price of £nil (2015: £nil) and a weighted average remaining contractual life of 1.1 years (2015: 1.1 years). Share options outstanding under the SAYE schemes at 31 December 2016 had exercise prices ranging from 662p to 2,406p (2015: 656p to 2,158p) and a weighted average remaining contractual life of 1.1 years (2015: 2.0 years). Share awards outstanding under the PSP schemes at 31 December 2016 had an exercise price of £nil (2015: £nil) and a weighted average remaining contractual life of 1.0 years (2015: 1.1 years). There were no share options outstanding under the ESOS/SESO schemes at 31 December 2016 (2015: 10,820).
| PSP | LTIS | SAYE | ||||
|---|---|---|---|---|---|---|
| Weighted | Weighted | Weighted | ||||
| average | average | average | ||||
| exercise | exercise | exercise | ||||
| price | price | price | ||||
| Company | Number | £ | Number | £ | Number | £ |
| Outstanding at 1 January 2016 | 410,447 | – | 521,817 | – | 32,815 | 16.56 |
| Awarded/granted | 90,639 | – | 115,488 | – | 7,916 | 24.06 |
| Lapsed | – | – | – | – | (1,298) | 19.06 |
| Exercised | (172,209) | – | (219,957) | – | (6,466) | 12.09 |
| Outstanding at 31 December 2016 | 328,877 | – | 417,348 | – | (32,967) | 19.24 |
| Exercisable at 31 December 2016 | – | – | – | – | 689 | 13.05 |
| PSP | LTIS | SAYE | ||||
| Weighted | Weighted | Weighted | ||||
| average | average | average | ||||
| exercise | exercise | exercise | ||||
| price | price | price | ||||
| Company | Number | £ | Number | £ | Number | £ |
| Outstanding at 1 January 2015 | 473,980 | – | 664,481 | – | 30,845 | 13.79 |
| Awarded/granted | 105,922 | – | 126,494 | – | 8,678 | 21.58 |
| Lapsed | – | – | (7,788) | – | (878) | 15.60 |
| Exercised | (169,455) | – | (261,370) | – | (5,830) | 10.58 |
| Outstanding at 31 December 2015 | 410,447 | – | 521,817 | – | 32,815 | 16.56 |
| Exercisable at 31 December 2015 | – | – | – | – | – | – |
Share awards outstanding under the LTIS scheme at 31 December 2016 had an exercise price of £nil (2015: £nil) and a weighted average remaining contractual life of 1.1 years (2015: 1.0 years). Share options outstanding under the SAYE schemes at 31 December 2016 had exercise SULFHVUDQJLQJIURPSWRSSWRS DQGDZHLJKWHGDYHUDJHUHPDLQLQJFRQWUDFWXDOOLIHRI\HDUVb\HDUV Share awards outstanding under the PSP schemes at 31 December 2016 had an exercise price of £nil (2015: £nil) and a weighted average remaining contractual life of 1.1 years (2015: 1.1 years).
During 2016, cash awards were granted under the PFEP to eligible employees that require the group and company to pay amounts linked to DbFRPELQDWLRQRIVDODU\ȴQDQFLDOSHUIRUPDQFHDQGVKDUHSULFHSHUIRUPDQFHRI3URYLGHQW)LQDQFLDOSOF7KHFKDUJHWRWKHLQFRPHVWDWHPHQW in 2016 was £3.4m for the group (2015: £1.2m) and £0.3m for the company (2015: £0.1m). The group has a liability of £4.6m as at 31 December 2016 (2015: £1.2m) and £0.3m for the company (2015: £0.1m).
| 3URȴW retained by subsidiary |
Capital redemption reserve |
Hedging reserve |
Treasury shares reserve |
Share-based payment reserve |
Available for sale reserve |
Total other reserves |
|
|---|---|---|---|---|---|---|---|
| Group | £m | £m | £m | £m | £m | £m | £m |
| At 1 January 2015 | 0.8 | 3.6 | (3.3) | (0.8) | 18.7 | – | 19.0 |
| Other comprehensive income: | b | b | b | b | b | b | b |
| – fair value movements on available for sale investment (note 15) |
– | – | – | – | – | 17.5 | 17.5 |
| ȂIDLUYDOXHPRYHPHQWVRQFDVKȵRZKHGJHVQRWH | – | – | 3.6 | – | – | – | 3.6 |
| – tax on items taken directly to other comprehensive income (note 5) |
– | – | (1.0) | – | – | (3.5) | (4.5) |
| – impact of change in UK tax rate (note 5) | – | – | 0.2 | – | – | (1.3) | (1.1) |
| Other comprehensive income for the year | – | – | 2.8 | – | – | 12.7 | 15.5 |
| Transactions with owners: | b | b | b | b | b | b | b |
| – purchase of own shares | – | – | – | (0.3) | – | – | (0.3) |
| – transfer of own shares on vesting of share awards | – | – | – | 0.1 | – | – | 0.1 |
| – share-based payment charge (note 25) | – | – | – | – | 10.5 | – | 10.5 |
| – transfer of share-based payment reserve on YHVWLQJbRIVKDUHDZDUGV |
– | – | – | – | (9.2) | – | (9.2) |
| At 31 December 2015 | 0.8 | 3.6 | (0.5) | (1.0) | 20.0 | 12.7 | 35.6 |
| At 1 January 2016 | 0.8 | 3.6 | (0.5) | (1.0) | 20.0 | 12.7 | 35.6 |
| Other comprehensive income: | b | b | b | b | b | b | b |
| – fair value movements on available for sale investment (note 15) |
– | – | – | – | – | 3.1 | 3.1 |
| – gain on available for sale investment recycled to the income statement (note 15) |
– | – | – | – | – | (20.2) | (20.2) |
| ȂIDLUYDOXHPRYHPHQWVRQFDVKȵRZKHGJHVQRWH | – | – | 0.4 | – | – | 0.4 | |
| – tax on items taken directly to other comprehensive income (note 5) |
– | – | (0.1) | – | – | 4.7 | 4.6 |
| Other comprehensive income for the year | – | – | 0.3 | – | – | (12.4) | (12.1) |
| Transactions with owners: | |||||||
| – purchase of own shares | – | – | – | (0.1) | – | – | (0.1) |
| – transfer of own shares on vesting of share awards | – | – | – | 0.1 | – | – | 0.1 |
| – share-based payment charge (note 25) | – | – | – | – | 10.9 | – | 10.9 |
| – transfer of share-based payment reserve on YHVWLQJbRIVKDUHDZDUGV |
– | – | – | – | (10.1) | – | (10.1) |
| At 31 December 2016 | 0.8 | 3.6 | (0.2) | (1.0) | 20.8 | 0.3 | 24.3 |
7KHFDSLWDOUHGHPSWLRQUHVHUYHUHSUHVHQWVSURȴWVRQWKHUHGHPSWLRQRISUHIHUHQFHVKDUHVDULVLQJLQSULRU\HDUVWRJHWKHUZLWKWKHFDSLWDOLVDWLRQRIWKHQRPLQDOYDOXHRIVKDUHV purchased and cancelled, net of the utilisation of this reserve to capitalise the nominal value of shares issued to satisfy scrip dividend elections.
7KHKHGJLQJUHVHUYHUHȵHFWVWKHFRUUHVSRQGLQJHQWU\WRWKHIDLUYDOXHRIKHGJLQJGHULYDWLYHVKHOGRQWKHEDODQFHVKHHWDVHLWKHUDVVHWVRUOLDELOLWLHVQHWRIGHIHUUHGWD[ VHHbQRWHb
The treasury shares reserve represents shares acquired by the company, through various trusts, both from the market and through a fresh issue to satisfy awards under WKHbJURXSȇVYDULRXVVKDUHVFKHPHVVHHQRWH 7KHFRVWRIWKHVKDUHVLVWUHDWHGDVDGHGXFWLRQIURPHTXLW\:KHQWKHUHOHYDQWDZDUGVYHVWWKHFRVWRIWKHVKDUHVSURYLGHG WRbHPSOR\HHVLVWUDQVIHUUHGWRUHWDLQHGHDUQLQJV
7KHVKDUHEDVHGSD\PHQWUHVHUYHUHȵHFWVWKHFRUUHVSRQGLQJFUHGLWHQWU\WRWKHFXPXODWLYHVKDUHEDVHGSD\PHQWFKDUJHVPDGHWKURXJKWKHLQFRPHVWDWHPHQWDVWKHUHLV QRbFDVKFRVWRUUHGXFWLRQLQDVVHWVIURPWKHFKDUJHV:KHQRSWLRQVDQGDZDUGVYHVWWKDWHOHPHQWRIWKHVKDUHEDVHGSD\PHQWUHVHUYHUHODWLQJWRWKRVHDZDUGVDQGRSWLRQV LVbWUDQVIHUUHGWRUHWDLQHGHDUQLQJV
7KHDYDLODEOHIRUVDOHUHVHUYHUHȵHFWVWKHIDLUYDOXHPRYHPHQWVLQWKHDYDLODEOHIRUVDOHLQYHVWPHQWQHWRIGHIHUUHGWD[VHHQRWH
| Company | Non distributable reserve £m |
Merger reserve £m |
Capital redemption reserve £m |
Hedging reserve £m |
Treasury shares reserve £m |
Share-based payment reserve £m |
Total other reserves £m |
|---|---|---|---|---|---|---|---|
| At 1 January 2015 | 609.2 | 2.3 | 3.6 | (3.5) | (0.8) | 18.8 | 629.6 |
| Other comprehensive income: | b | b | b | b | b | b | b |
| ȂIDLUYDOXHPRYHPHQWVRQFDVKȵRZKHGJHVQRWH | – | – | – | 3.9 | – | – | 3.9 |
| – tax on items taken directly to other comprehensive income |
– | – | – | (0.8) | – | – | (0.8) |
| Other comprehensive income for the year | – | – | – | 3.1 | – | – | 3.1 |
| Transactions with owners: | |||||||
| – purchase of own shares | – | – | – | – | (0.3) | – | (0.3) |
| – transfer of own shares on vesting of share awards | – | – | – | – | 0.1 | – | 0.1 |
| – share-based payment charge (note 25) | – | – | – | – | 5.3 | 5.3 | |
| – transfer of share-based payment reserve on vesting of share awards |
– | – | – | – | – | (4.0) | (4.0) |
| At 31 December 2015 | 609.2 | 2.3 | 3.6 | (0.4) | (1.0) | 20.1 | 633.8 |
| At 1 January 2016 | 609.2 | 2.3 | 3.6 | (0.4) | (1.0) | 20.1 | 633.8 |
| Other comprehensive income: | b | b | b | b | b | b | b |
| ȂIDLUYDOXHPRYHPHQWVRQFDVKȵRZKHGJHVQRWH | – | – | – | 0.4 | – | – | 0.4 |
| – tax on items taken directly to other comprehensive income |
– | – | – | (0.1) | – | – | (0.1) |
| Other comprehensive income for the year | – | – | – | 0.3 | – | – | 0.3 |
| Transactions with owners: | |||||||
| – purchase of own shares | – | – | – | – | (0.1) | – | (0.1) |
| – transfer of own shares on vesting of share awards | – | – | – | – | 0.1 | – | 0.1 |
| – share-based payment charge (note 25) | – | – | – | – | – | 5.1 | 5.1 |
| – transfer of share-based payment reserve on vesting of share awards |
– | – | – | – | – | (5.1) | (5.1) |
| – share-based payment movement in investment in subsidiaries |
– | – | – | – | – | 0.8 | 0.8 |
| At 31 December 2016 | 609.2 | 2.3 | 3.6 | (0.1) | (1.0) | 20.9 | 634.9 |
7KHQRQGLVWULEXWDEOHUHVHUYHZDVFUHDWHGDVDUHVXOWRIDQLQWUDJURXSUHRUJDQLVDWLRQWRFUHDWHDPRUHHɝFLHQWFDSLWDOVWUXFWXUHWKDWPRUHDFFXUDWHO\UHȵHFWVWKHJURXSȇV management structure.
Commitments under operating leases are as follows:
| Group | Company | |||
|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | |
| £m | £m | £m | £m | |
| Due within one year | 14.5 | 12.6 | 3.1 | 3.0 |
| 'XHEHWZHHQRQHDQGȴYH\HDUV | 44.5 | 28.9 | 12.8 | 12.3 |
| 'XHLQPRUHWKDQȴYH\HDUV | 66.1 | 54.0 | 13.6 | 17.1 |
| Total | 125.1 | 95.5 | 29.5 | 492.4 |
2SHUDWLQJOHDVHFRPPLWPHQWVSULQFLSDOO\UHODWHWRWKHIXWXUHUHQWDOSD\PHQWVXQWLOWKHȴUVWEUHDNRQL WKH&&'KHDGRɝFHSURSHUW\LQ%UDGIRUGLL WKH&&'EUDQFKHV QDWLRQZLGHDQGLLL WKH9DQTXLV%DQNKHDGRɝFHLQ/RQGRQDQGFRQWDFWFHQWUHLQ&KDWKDP
Other group commitments are as follows:
| Group | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| Unutilised credit card facilities at 31 December | 771.8 | 619.0 |
The company has £nil unutilised credit card facilities at 31 December 2016 (2015: £nil).
| Company | ||
|---|---|---|
| 2016 | 2015 | |
| £m | £m | |
| Vanquis Bank intercompany loan facility | 305.0 | 460.0 |
The company provides its subsidiary, Vanquis Bank, with a committed intercompany loan facility which is used to fund growth in the business alongside retail deposits. The facility is renewed semi-annually. At 31 December 2016, the facility of £305m (2015: £460m), had a maturity date of 30 June 2019 (2015: 30 June 2018).
The company recharges the pension scheme referred to in note 19 with a proportion of the costs of administration and professional fees incurred by the company. The total amount recharged during the year was £0.4m (2015: £0.4m) and the amount due from the pension scheme at 31 December 2016 was £0.2m (2015: £0.2m).
Details of the transactions between the company and its subsidiary undertakings, which comprise management recharges and interest charges on intra-group balances, along with any balances outstanding at 31 December are set out below:
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Company | Management recharge £m |
Interest credit £m |
Outstanding balance £m |
Management recharge £m |
Interest credit £m |
Outstanding balance £m |
| Vanquis Bank | 4.4 | (21.5) | 227.6 | 4.1 | (20.8) | 275.1 |
| CCD | 7.0 | (47.8) | 982.7 | 7.4 | (48.8) | 951.9 |
| Moneybarn | 1.1 | (18.2) | 283.0 | 0.7 | (14.2) | 220.2 |
| Other central companies | – | – | 102.5 | – | – | 109.9 |
| Total | 12.5 | (87.5) | 1,595.8 | 12.2 | (83.8) | 1,557.1 |
The outstanding balance represents the gross intercompany balance receivable by the company, against which a provision of £123.4m (2015: £123.1m) is held.
During 2016, the company received a dividend of £45.0m from Provident Financial Management Services Limited, the holding company RIbWKHbFRPSDQLHVIRUPLQJ&&'eP DQGGLYLGHQGVRIePIURP9DQTXLV%DQN/LPLWHGeP
There are no transactions with directors other than those disclosed in the directors' remuneration report.
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The only contingent liabilities within the group relate to bank guarantees provided from one subsidiary to another and a charge in respect of the Unfunded Unapproved 5HWLUHPHQW%HQHȴWV6FKHPH885%6
The company has a contingent liability for guarantees given in respect of borrowing facilities of certain subsidiaries to a maximum of £112.8m eP \$W'HFHPEHUWKHȴ[HGDQGȵRDWLQJUDWHERUURZLQJVLQUHVSHFWRIWKHVHJXDUDQWHHVDPRXQWHGWRePeP 1RORVVLVH[SHFWHGWRDULVH7KHVHJXDUDQWHHVDUHGHȴQHGDVȴQDQFLDOJXDUDQWHHVXQGHUΖ\$6DQGWKHLUIDLUYDOXHDW'HFHPEHUZDV not deemed to be material (2015: not material).
\$ȵRDWLQJFKDUJHLVKHOGRYHU&&'ȇVUHFHLYDEOHVRIXSWRePLQUHVSHFWRIWKHXQIXQGHGSHQVLRQEHQHȴWSURPLVHVPDGHWRH[HFXWLYH GLUHFWRUVDQGFHUWDLQPHPEHUVRIVHQLRUPDQDJHPHQWDHFWHGE\WKHUHGXFHGDQQXDODOORZDQFHWRSHQVLRQVFKHPHVLQWURGXFHGLQ under the UURBS. No loss is expected to arise.
| Group | Company | ||||
|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | ||
| Note | £m | £m | £m | £m | |
| 3URȴWDIWHUWD[DWLRQ | 262.9 | 218.2 | 192.3 | 170.7 | |
| Adjusted for: | b | b | |||
| – tax charge | 5 | 81.0 | 55.4 | 7.4 | 2.1 |
| ȂȴQDQFHFRVWV | 3 | 81.7 | 80.0 | 64.0 | 60.4 |
| ȂȴQDQFHLQFRPH | – | – | (83.8) | (83.8) | |
| – dividends received | 28 | – | – | (179.0) | (153.3) |
| – share-based payment charge | 25 | 10.9 | 10.5 | 5.1 | 5.3 |
| ȂUHWLUHPHQWEHQHȴWFKDUJHFUHGLW SULRUWRH[FHSWLRQDOSHQVLRQFUHGLW | 19 | 1.5 | 2.8 | (9.6) | (8.8) |
| – exceptional curtailment credit | 19 | – | (2.6) | – | (2.6) |
| – amortisation of intangible assets | 11 | 17.0 | 14.9 | – | – |
| – exceptional amortisation of intangible assets | 1 | 2.9 | – | – | – |
| – exceptional gain on available for sale investment | 15 | (20.2) | – | – | – |
| – depreciation of property, plant and equipment | 12 | 8.7 | 7.7 | 1.5 | 1.4 |
| – loss on disposal of property, plant and equipment | 12 | 0.5 | – | – | – |
| – release of impairment provision against investment in subsidiaries | 13 | – | – | (0.4) | – |
| Changes in operating assets and liabilities: | b | b | |||
| – amounts receivable from customers | (290.1) | (167.5) | – | – | |
| – trade and other receivables | (2.8) | (8.1) | (99.5) | (26.5) | |
| – trade and other payables | 5.5 | 2.9 | 16.9 | (12.3) | |
| ȂFRQWULEXWLRQVLQWRWKHUHWLUHPHQWEHQHȴWVFKHPH | 19 | (11.7) | (12.2) | (0.6) | (0.6) |
| Cash generated from/(used in) operations | 147.8 | 202.0 | (85.7) | (48.0) |
The subsidiary undertakings of the group at 31 December 2016 are shown below. The company is the parent or ultimate parent of all subsidiaries and they are all 100% owned by the group. All companies are incorporated within the UK with the exception of Erringham Holdings Limited which is incorporated in Jersey.
| Company Name | Company number |
Company Name | Company number |
|---|---|---|---|
| Registered at 1 Godwin Street, Bradford, BD1 2SU: | Provident Financial Trustees (Performance Share Plan) Limited | 4625062 | |
| Vanquis Bank Limited | 2558509 | Provident Financial Trustees Limited | 3477678 |
| Provident Financial Management Services Limited | 328933 | Provident Home Shopping Limited | 543498 |
| Provident Personal Credit Limited | 146091 | Provident Motor Finance Limited | 4806693 |
| Greenwood Personal Credit Limited | 125150 | Provident No 1 Limited3 | 1524084 |
| N&N Simple Financial Solution Limited | 3803565 | Provident No 2 Limited4 | 4586511 |
| Cheque Exchange Limited | 2927947 | Provident Personal Credit (Ireland) Limited | 506462 |
| Provident Investments plc | 4541509 | Provident Personal Credit (London) Limited | 499964 |
| Direct Auto Finance Insurance Services Limited | 3834656 | Provident Personal Credit (Midlands) Limited | 506464 |
| Direct Auto Finance Limited | 3412137 | Provident Personal Credit (North) Limited | 100957 |
| Direct Auto Financial Services Limited | 3444409 | Provident Personal Credit (South) Limited | 716773 |
| 3URYȴQ/LPLWHG | 1879771 | Provident Yes Finance Limited | 4795230 |
| Provident Limited | 575965 | The Provident Clothing and Supply Company Limited | 509371 |
| Provident Print Limited | 2211204 | Yes Car Finance Limited | 4063510 |
| Provident Yes Car Credit Limited | 4253314 | Yes Express Car Credit Limited | 3834590 |
| Yes Car Credit (Holdings) Limited | 194214 | Yes Finance Limited | 4063490 |
| Yes Car Credit Limited | 3459042 | 5HJLVWHUHGDW7KH1HZ%DUQ%HGIRUG5RDG3HWHUVȴHOG | |
| Accepted Car Credit Limited | 4417055 | Hampshire, GU32 3LJ: | |
| Aquis Cards Limited1 | 7036307 | Moneybarn No.1 Limited | 4496573 |
| Arden Insurance Services | 670843 | Duncton Group Limited | 6308608 |
| Bridgesun (1) Limited | 4584597 | Moneybarn Group Limited | 4525773 |
| Colonnade Insurance Services Limited | 1877501 | Moneybarn Limited | 2766324 |
| Ellaf Limited | 1858423 | Moneybarn No. 4 Limited | 8582214 |
| Envoyhead Limited | 1910002 | Moneybarn Vehicle Finance Limited | 7431494 |
| Express Car Credit Limited | 3906842 | Registered at Suite 2/04 King James VI Business Centre, Friarton Road, | |
| HT Greenwood Limited | 954387 | Perth, Scotland, PH2 8DY: | |
| Impact Collection Services Limited | 4584578 | First Tower LP (1) Limited | SC122077 |
| I for Insurance Services Limited | 2422430 | First Tower LP (2) Limited | SC125164 |
| Money Transfers International Limited | 4043838 | First Tower LP (3) Limited | SC129388 |
| Motorplus Insurance Services Limited | 1885139 | First Tower LP (4) Limited | SC118423 |
| Peoples Motor Finance Limited | 1078365 | First Tower LP (5) Limited | SC127062 |
| Policyline Limited | 1294141 | First Tower LP (6) Limited | SC127489 |
| 3URYȴQΖQYHVWPHQWV/LPLWHG | 953919 | First Tower LP (7) Limited | SC127807 |
| Provident Car Credit Limited | 4795225 | First Tower LP (8) Limited | SC118257 |
| Provident Car Finance Limited | 4806398 | First Tower LP (9) Limited | SC118428 |
| Provident Check Traders Limited | 1730008 | First Tower LP (10) Limited | SC118426 |
| Provident Family Finance Limited | 912244 | First Tower LP (11) Limited | SC122181 |
| Provident Finance Limited | 40725 | First Tower LP (12) Limited | SC129378 |
| Provident Financial Group Limited2 | 642504 | Lawson Fisher Limited | SC004758 |
| Provident Financial Trust Limited | 811697 | 5HJLVWHUHGDW&DVWOH6WUHHW6W+HOLHU-HUVH\&KDQQHObΖVODQGV-(87 |
Erringham Holdings Limited 39894
1 Previously Provident Financial Investments Limited.
2 Previously Provident balance Limited.
3 Previously Provident Financial Group Limited.
4 Previously Aquis Bank Limited.
In our opinion:
| the year then ended; | > WKHȴQDQFLDOVWDWHPHQWVJLYHDWUXHDQGIDLUYLHZRIWKHVWDWHRIWKHJURXSȇVDQGRI WKHSDUHQWFRPSDQ\ȇVDDLUVDVDW'HFHPEHUDQGRIWKHJURXSȇVSURȴWIRU |
||||||
|---|---|---|---|---|---|---|---|
| Union; | > WKHJURXSȴQDQFLDOVWDWHPHQWVKDYHEHHQSURSHUO\SUHSDUHGLQDFFRUGDQFHZLWK International Financial Reporting Standards (IFRSs) as adopted by the European |
||||||
| > WKHSDUHQWFRPSDQ\ȴQDQFLDOVWDWHPHQWVKDYHEHHQSURSHUO\SUHSDUHGLQ accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and |
|||||||
| > WKHȴQDQFLDOVWDWHPHQWVKDYHEHHQSUHSDUHGLQDFFRUGDQFHZLWKWKH UHTXLUHPHQWVRIWKH&RPSDQLHV\$FWDQGDVUHJDUGVWKHJURXSȴQDQFLDO statements, Article 4 of the IAS Regulation. |
|||||||
| 7KHȴQDQFLDOVWDWHPHQWVWKDWZHKDYHDXGLWHGFRPSULVH | |||||||
| > the Consolidated Income Statement; | |||||||
| > the Consolidated Statement of Comprehensive Income; | |||||||
| > the Consolidated and Parent Company Balance Sheets; | |||||||
| > the Consolidated and Parent Company Statements of Cash Flows; | |||||||
| > the Consolidated and Parent Company Statements of Changes in Shareholders' Equity; | |||||||
| > the Statement of Accounting Policies; | |||||||
| > WKHȴQDQFLDODQGFDSLWDOULVNPDQDJHPHQWVHFWLRQDQG | |||||||
| > the related notes 1 to 31. | |||||||
| Companies Act 2006. | 7KHȴQDQFLDOUHSRUWLQJIUDPHZRUNWKDWKDVEHHQDSSOLHGLQWKHLUSUHSDUDWLRQLV DSSOLFDEOHbODZDQGΖ)56VDVDGRSWHGE\WKH(XURSHDQ8QLRQDQGDVUHJDUGVWKHSDUHQW FRPSDQ\ȴQDQFLDOVWDWHPHQWVDVDSSOLHGLQDFFRUGDQFHZLWKWKHSURYLVLRQVRIWKH |
||||||
| Summary of our audit approach | Key risks | 7KHNH\ULVNVWKDWZHLGHQWLȴHGLQWKHFXUUHQW\HDUZHUH | |||||
| > Provision for impairment losses against loans and receivables (Consumer Credit Division and Vanquis Bank) |
|||||||
| > Revenue recognition (Consumer Credit Division and Vanquis Bank) | |||||||
| > 'HȴQHGEHQHȴWSHQVLRQVFKHPHYDOXDWLRQ | |||||||
| Materiality | The materiality that we used in the current year was £16.3m which was GHWHUPLQHGRQWKHEDVLVRIRISUHWD[SURȴWH[FOXGLQJWKHeP net exceptional gain recognised in the year as disclosed in note 1 to the ȴQDQFLDOVWDWHPHQWV |
||||||
| Scoping | As in the prior year, our group audit scope focused on all of the principal trading subsidiaries within the group's three reportable segments which DFFRXQWIRURIWKHJURXSȇVSURȴWEHIRUHWD[9DQTXLV%DQNDQG Consumer Credit Division is audited by a separate component team, under the supervision of the group team who have maintained regular communication throughout the audit. |
||||||
| 6LJQLȴFDQW changes in our approach |
7KHUHKDYHEHHQQRVLJQLȴFDQWFKDQJHVWRRXUDXGLWSODQ |
*RLQJFRQFHUQDQGWKHGLUHFWRUVȇDVVHVVPHQW
| of the principal risks that would threaten the solvency or liquidity of the group |
the appropriateness of the going concern basis of accounting set out on page 97 to the ȴQDQFLDOVWDWHPHQWVDQGWKHGLUHFWRUVȇVWDWHPHQWRQWKHORQJHUWHUPYLDELOLW\RIWKHJURXS contained within the strategic report. |
|---|---|
| We are required to state whether we have anything material to add or draw attention to in relation to: |
|
| > WKHGLUHFWRUVȇFRQȴUPDWLRQRQSDJHWKDWWKH\KDYHFDUULHGRXWDUREXVWDVVHVVPHQW of the principal risks facing the group, including those that would threaten its business model, future performance, solvency or liquidity; |
|
| > the disclosures on pages 47-50 that describe those risks and explain how they are being managed or mitigated; |
|
| > WKHGLUHFWRUVȇVWDWHPHQWZLWKLQWKHGLUHFWRUVȇUHSRUWRQSDJHWRWKHȴQDQFLDO statements about whether they considered it appropriate to adopt the going FRQFHUQEDVLVRIDFFRXQWLQJLQSUHSDULQJWKHPDQGWKHLULGHQWLȴFDWLRQRIDQ\PDWHULDO uncertainties as to the group's ability to continue to do so over a period of at least 12 PRQWKVIURPWKHGDWHRIDSSURYDORIWKHȴQDQFLDOVWDWHPHQWVDQG |
|
| > the directors' explanation within the directors' report on page 46 as to how they have assessed the prospects of the group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related GLVFORVXUHVGUDZLQJDWWHQWLRQWRDQ\QHFHVVDU\TXDOLȴFDWLRQVRUDVVXPSWLRQV |
|
| :HFRQȴUPWKDWZHKDYHQRWKLQJPDWHULDOWRDGGRUGUDZDWWHQWLRQWRLQUHVSHFWRI these matters. |
|
| :HDJUHHGZLWKWKHGLUHFWRUVȇDGRSWLRQRIWKHJRLQJFRQFHUQEDVLVRIDFFRXQWLQJ and we did not identify any such material uncertainties. However, because not all future events or conditions can be predicted, this statement is not a guarantee as WRWKHJURXSȇVDELOLW\WRFRQWLQXHDVDJRLQJFRQFHUQ |
|
| Independence | We are required to comply with the Financial Reporting Council's Ethical Standards for \$XGLWRUVDQGFRQȴUPWKDWZHDUHLQGHSHQGHQWRIWKHJURXSDQGZHKDYHIXOȴOOHGRXURWKHU ethical responsibilities in accordance with those standards. |
| :HFRQȴUPWKDWZHDUHLQGHSHQGHQWRIWKHJURXSDQGZHKDYHIXOȴOOHGRXURWKHU HWKLFDOUHVSRQVLELOLWLHVLQDFFRUGDQFHZLWKWKRVHVWDQGDUGV:HDOVRFRQȴUP we have not provided any of the prohibited non-audit services referred to in those standards. |
|
| Our assessment of risks RIbPDWHULDOPLVVWDWHPHQW |
The assessed risks of material misstatement described below are those that had the JUHDWHVWHHFWRQRXUDXGLWVWUDWHJ\WKHDOORFDWLRQRIUHVRXUFHVLQWKHDXGLWDQGGLUHFWLQJ WKHHRUWVRIWKHHQJDJHPHQWWHDP |
As required by the Listing Rules we have reviewed the directors' statement regarding
| Risk description | The provision for impairment losses is calculated by modelling portfolios of receivables within the group. The assessment of the group's calculation of the £345.7m (2015: £317.7m) of provisions is complex and requires PDQDJHPHQWWRPDNHVLJQLȴFDQWMXGJHPHQWVUHJDUGLQJWKHOHYHODQGWLPLQJRIH[SHFWHGIXWXUHFDVKȵRZV from loans that have experienced a loss event. Further detail in respect of these assumptions is set out in the governance section on page 86, the key assumptions and estimates section of the accounting policies on page DQGQRWHRIWKHȴQDQFLDOVWDWHPHQWV |
|---|---|
| Within the Consumer Credit Division, management uses historical collection curves to determine expected IXWXUHFDVKȵRZVWKHVHDUHIRUPDOO\DVVHVVHGELDQQXDOO\E\PDQDJHPHQWZLWKUHIHUHQFHWRFXUUHQWFROOHFWLRQV experience and future expectations in order to determine their ongoing accuracy. The key judgements incorporated within these models include the determination of a loss event, the risk rating of the customer and WKHTXDQWXPDQGWLPLQJRIIXWXUHFDVKȵRZV |
|
| :LWKLQ9DQTXLV%DQNWKHLPSDLUPHQWSURYLVLRQPHWKRGRORJ\UHȵHFWVUHFHQWSRUWIROLRGDWDDQGWDNHVLQWR account current economic conditions (e.g. unemployment levels), product mix and recent customer behaviour. Management also calculates an Incurred But Not Reported ('IBNR') loss provision in relation to the up-to-date HOHPHQWRIWKHORDQERRNDQGDQRYHUOD\WRWDNHDFFRXQWRIPDFURHFRQRPLFULVNVQRWUHȵHFWHGLQWKHKLVWRULFDO GDWDZLWKLQWKHSURYLVLRQPRGHOV:KLOVWWKHUHDUHDQXPEHURIGLHUHQWHOHPHQWVWRWKHSURYLVLRQWKHNH\ MXGJHPHQWDUHDVDUHWKHGHWHUPLQDWLRQRIDORVVHYHQWDQGWKHHVWLPDWHRIWKHH[SHFWHGIXWXUHFDVKȵRZVZKLFK are generated using data sourcing techniques and SAS scripts (computer programming code) to extract data from the underlying lending system. |
|
| How the scope of our audit responded to the risk |
:LWKLQERWKWKH&RQVXPHU&UHGLW'LYLVLRQDQG9DQTXLV%DQNZHWHVWHGWKHRSHUDWLQJHHFWLYHQHVVRINH\ FRQWUROVUHODWLQJWRWKHLGHQWLȴFDWLRQDQGUHFRUGLQJRILPSDLUPHQWSURYLVLRQVDQGWKHDULWKPHWLFDODFFXUDF\ RIWKHbPRGHOVXVHGWRFDOFXODWHLPSDLUPHQW:LWKLQWKH&RQVXPHU&UHGLW'LYLVLRQWKLVLQFOXGHGXVLQJRXU Ζ7VSHFLDOLVWVWRWHVWWKHGDWDȵRZVIURPVRXUFHV\VWHPVWRWKHVSUHDGVKHHWEDVHGPRGHOVWRWHVWWKHLU completeness and accuracy. |
| In Vanquis Bank we challenged management's IBNR adjustment using an independently developed range of provision estimates in conjunction with the economic overlay provision. |
|
| We challenged the key assumptions in the models including the impairment trigger and the projected future FDVKȵRZVEDVHGRQDFWXDODQGKLVWRULFDOFROOHFWLRQV |
|
| Key observations | The provision models across the group were found to be working as intended and our work on the completeness DQGDFFXUDF\RIGDWDLGHQWLȴHGQRVLJQLȴFDQWLVVXHV |
| :HIRXQGWKHDVVXPSWLRQVUHODWLQJWRWKHLGHQWLȴFDWLRQRILPSDLUHGDFFRXQWVZLWKLQWKHJURXSȇVLQFXUUHGORVV models to be appropriate. |
|
| We found that the collections expectations used within the Consumer Credit Division are materially consistent with recent and budgeted collections. |
|
| Within Vanquis Bank we found that taken together the modelled provision, the macroeconomic overlay and the Ζ%15SURYLVLRQDUHVXɝFLHQWWRFRYHUWKHOHYHORILPSDLUPHQWLQWKHORDQERRN:HIRXQGWKDWWKHLPSDLUPHQW models of the group were working materially as intended. |
| Risk description | ΖQWKH&RQVXPHU&UHGLW'LYLVLRQPDQDJHPHQWPDLQWDLQVDQXPEHURI(HFWLYHΖQWHUHVW5DWHȆ(Ζ5ȇ PRGHOVIRU the purpose of determining revenue recognition in accordance with the requirements of IAS 39. The EIR method spreads directly attributable revenues and costs over the behavioural life of the loan. These models are reliant RQWKHTXDOLW\RIWKHXQGHUO\LQJGDWDȵRZLQJLQWRWKHPRGHOV |
|---|---|
| In Vanquis Bank, the key risk relates to the daily interest charge between the statement cycle date and the month-end. The calculation of the unbilled interest accrual involves manually performed steps, and is therefore more prone to error. |
|
| Further detail in respect of the accounting policies and revenue recognised is set out in the accounting policies RQSDJHDQGQRWHDQGRIWKHȴQDQFLDOVWDWHPHQWV |
|
| How the scope of our audit responded to the risk |
:HWHVWHGWKHNH\FRQWUROVUHODWLQJWRWKHUHFRUGLQJRIUHYHQXHZKLFKIRFXVHGRQWKHȵRZRIGDWDIURPVRXUFH systems into EIR models. This included an assessment by our IT specialists of automated controls and SAS scripts to determine whether the data within the EIR models were complete and accurate. We also tested the arithmetical accuracy of the models to assess whether they were working as intended and in compliance with the requirements of IAS 39. |
| We challenged the assumptions used in the recognition of revenue by reference to the group's historical behavioural life experience and macroeconomic factors. |
|
| Key observations | We found the models to be working as intended and the underlying assumptions to be reasonable. We found WKHUHOHYDQWΖ7FRQWUROVWREHRSHUDWLQJHHFWLYHO\DQGIURPWKHHYLGHQFHZHREWDLQHGWKHXQGHUO\LQJGDWDXVHG were found to be complete and accurate. |
| 'HȴQHGEHQHȴWSHQVLRQVFKHPHYDOXDWLRQ | |
| Risk description | 8QGHUΖ\$6WKHYDOXHRIWKHGHȴQHGEHQHȴWSHQVLRQVFKHPHLVUHFRJQLVHGRQWKHJURXSȇVEDODQFHVKHHW UHȵHFWLQJDQDFWXDULDOYDOXDWLRQRIWKHDVVHWVDQGOLDELOLWLHVRIWKHVFKHPHDWWKHEDODQFHVKHHWGDWH7KHNH\ risk is the valuation of the pension obligation of £757.7m (2015: £604.1m). This valuation involves judgements LQUHODWLRQWRLQȵDWLRQUDWHVGLVFRXQWUDWHVDQGPRUWDOLW\UDWHV7KHPRVWFULWLFDOHOHPHQWLGHQWLȴHGZDVWKH discount rate assumption as set out in the sensitivity analysis in note 19. |
| Further detail in respect of these assumptions is set out in the governance section on page 86, the key assumptions and estimates section of the accounting policies on page 130 and note 19 of the ȴQDQFLDOVWDWHPHQWV |
|
| How the scope of our audit responded to the risk |
We used our actuarial specialists to assist us in evaluating the appropriateness of the principal actuarial DVVXPSWLRQVXVHGLQWKHFDOFXODWLRQRIWKHUHWLUHPHQWEHQHȴWREOLJDWLRQ7KLVLQYROYHGEHQFKPDUNLQJ management's assumptions against those used by a range of organisations as at 31 December 2016 and considering the consistency of those judgements compared to prior year. |
| Key observations | \$OODVVXPSWLRQVLQFOXGLQJWKHGLVFRXQWUDWHDQGWKH53ΖLQȵDWLRQUDWHDGRSWHGE\PDQDJHPHQWDUHZLWKLQZKDW we deem to be an acceptable range. |
7KHVHPDWWHUVZHUHDGGUHVVHGLQWKHFRQWH[WRIRXUDXGLWRIWKHȴQDQFLDOVWDWHPHQWVDVDZKROHDQGLQIRUPLQJRXURSLQLRQWKHUHRQDQGZH do not provide a separate opinion on these matters.
:HGHȴQHPDWHULDOLW\DVWKHPDJQLWXGHRIPLVVWDWHPHQWLQWKHȴQDQFLDOVWDWHPHQWVWKDWPDNHVLWSUREDEOHWKDWWKHHFRQRPLFGHFLVLRQVRID UHDVRQDEO\NQRZOHGJHDEOHSHUVRQZRXOGEHFKDQJHGRULQȵXHQFHG:HXVHPDWHULDOLW\ERWKLQSODQQLQJWKHVFRSHRIRXUDXGLWZRUNDQGLQ evaluating the results of our work.
%DVHGRQRXUSURIHVVLRQDOMXGJHPHQWZHGHWHUPLQHGPDWHULDOLW\IRUWKHȴQDQFLDOVWDWHPHQWVDVDZKROHDVIROORZV
| Group materiality | £16.3m (2015: £16.4m) |
|---|---|
| Basis for determining materiality |
:HXVHG RISUHWD[SURȴWDGMXVWHGWRH[FOXGHH[FHSWLRQDOLWHPVDVLGHQWLȴHGLQWKH ȴQDQFLDOVWDWHPHQWV |
| Rationale for the benchmark applied |
3URȴWEDVHGPHDVXUHVDUHWKHȴQDQFLDOPHDVXUHVPRVWUHOHYDQWWRXVHUVRIWKHȴQDQFLDOVWDWHPHQWV :HFRQVLGHUHGWKHPRVWUHOHYDQWEDVLVIRUPDWHULDOLW\WREHWKHSURȴWVHDUQHGIURPFRQWLQXLQJEXVLQHVV RSHUDWLRQVDQGKDYHWKHUHIRUHH[FOXGHGWKHH[FHSWLRQDOLWHPVDVLGHQWLȴHGE\PDQDJHPHQWLQQRWHWRWKH ȴQDQFLDOVWDWHPHQWV7KH9LVDVKDUHJDLQLVH[FOXGHGDVLWLVDVLJQLȴFDQWRQHRH[FHSWLRQDOJDLQDQGWKH LQWDQJLEOHZULWHRLVGXHWRDRQHRFORVXUHRIDGLYLVLRQ7KHGHFUHDVHLQWKHSHUFHQWDJHXVHGLVWRDOLJQ more closely with comparable companies in the FTSE 100. |
:HDJUHHGZLWKWKH\$XGLW&RPPLWWHHWKDWZHZRXOGUHSRUWWRWKH&RPPLWWHHDOODXGLWGLHUHQFHVLQH[FHVVRIePeP DVZHOO DVGLHUHQFHVEHORZWKDWWKUHVKROGWKDWLQRXUYLHZZDUUDQWHGUHSRUWLQJRQTXDOLWDWLYHJURXQGV:HDOVRUHSRUWWRWKH\$XGLW&RPPLWWHHRQ GLVFORVXUHPDWWHUVWKDWZHLGHQWLȴHGZKHQDVVHVVLQJWKHRYHUDOOSUHVHQWDWLRQRIWKHȴQDQFLDOVWDWHPHQWV
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and assessing the risks of material misstatement at the group level. Based on that assessment, and as in the prior year, our group audit scope focused on DOORIWKHSULQFLSDOWUDGLQJVXEVLGLDULHVZLWKLQWKHJURXSȇVWKUHHUHSRUWDEOHVHJPHQWVZKLFKDFFRXQWIRURIWKHJURXSȇVSURȴWEHIRUHWD[ Moneybarn has the same engagement partner as the group audit; Vanquis Bank and Consumer Credit Division are audited by a separate component team, under the supervision of the group team who have maintained regular communication throughout the audit.
In our opinion, based on the work undertaken in the course of the audit:
the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006;
WKHLQIRUPDWLRQJLYHQLQWKHVWUDWHJLFUHSRUWDQGWKHGLUHFWRUVȇUHSRUWIRUWKHȴQDQFLDO\HDUIRUZKLFKWKHȴQDQFLDOVWDWHPHQWVDUHSUHSDUHGLV FRQVLVWHQWZLWKWKHȴQDQFLDOVWDWHPHQWVDQG
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not LGHQWLȴHGDQ\PDWHULDOPLVVWDWHPHQWVLQWKHVWUDWHJLFUHSRUWDQGWKHGLUHFWRUVȇUHSRUW
| Adequacy of explanations | Under the Companies Act 2006 we are required to report to you if, in our opinion: |
|---|---|
| UHFHLYHGDQGbDFFRXQWLQJUHFRUGV | > we have not received all the information and explanations we require for our audit; or |
| > adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or |
|
| > WKHSDUHQWFRPSDQ\ȴQDQFLDOVWDWHPHQWVDUHQRWLQDJUHHPHQWZLWKWKHDFFRXQWLQJUHFRUGVDQGUHWXUQV | |
| We have nothing to report in respect of these matters. | |
| Directors' remuneration | Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors' remuneration have not been made or the part of the directors' remuneration report to be audited is not in agreement with the accounting records and returns. |
| We have nothing to report arising from these matters. | |
| Corporate Governance Statement |
Under the Listing Rules we are also required to review part of the Corporate Governance Statement relating to the company's compliance with certain provisions of the UK Corporate Governance Code. |
| We have nothing to report arising from our review. | |
| Our duty to read other information in the annual report |
Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is: |
| > PDWHULDOO\LQFRQVLVWHQWZLWKWKHLQIRUPDWLRQLQWKHDXGLWHGȴQDQFLDOVWDWHPHQWVRU | |
| > apparently materially incorrect based on, or materially inconsistent with, our knowledge of the group acquired in the course of performing our audit; or |
|
| > otherwise misleading. | |
| ΖQSDUWLFXODUZHDUHUHTXLUHGWRFRQVLGHUZKHWKHUZHKDYHLGHQWLȴHGDQ\LQFRQVLVWHQFLHVEHWZHHQRXU knowledge acquired during the audit and the directors' statement that they consider the annual report fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed. |
|
| :HFRQȴUPWKDWZHKDYHQRWLGHQWLȴHGDQ\VXFKLQFRQVLVWHQFLHVRUPLVOHDGLQJVWDWHPHQWV | |
| Respective responsibilities of directors and auditor |
As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for WKHSUHSDUDWLRQRIWKHȴQDQFLDOVWDWHPHQWVDQGIRUEHLQJVDWLVȴHGWKDWWKH\JLYHDWUXHDQGIDLUYLHZ 2XUUHVSRQVLELOLW\LVWRDXGLWDQGH[SUHVVDQRSLQLRQRQWKHȴQDQFLDOVWDWHPHQWVLQDFFRUGDQFHZLWK applicable law and International Standards on Auditing (UK and Ireland). We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our TXDOLW\FRQWUROSURFHGXUHVDUHHHFWLYHXQGHUVWRRGDQGDSSOLHG2XUTXDOLW\FRQWUROVDQGV\VWHPVLQFOXGH our dedicated professional standards review team and independent partner reviews. |
| This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. |
|
| Scope of the audit RIWKHȴQDQFLDOVWDWHPHQWV |
\$QDXGLWLQYROYHVREWDLQLQJHYLGHQFHDERXWWKHDPRXQWVDQGGLVFORVXUHVLQWKHȴQDQFLDOVWDWHPHQWV VXɝFLHQWWRJLYHUHDVRQDEOHDVVXUDQFHWKDWWKHȴQDQFLDOVWDWHPHQWVDUHIUHHIURPPDWHULDOPLVVWDWHPHQW whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's and the parent company's circumstances and have been consistently applied DQGDGHTXDWHO\GLVFORVHGWKHUHDVRQDEOHQHVVRIVLJQLȴFDQWDFFRXQWLQJHVWLPDWHVPDGHE\WKHGLUHFWRUV DQGWKHRYHUDOOSUHVHQWDWLRQRIWKHȴQDQFLDOVWDWHPHQWVΖQDGGLWLRQZHUHDGDOOWKHȴQDQFLDODQGQRQ ȴQDQFLDOLQIRUPDWLRQLQWKHDQQXDOUHSRUWWRLGHQWLI\PDWHULDOLQFRQVLVWHQFLHVZLWKWKHDXGLWHGȴQDQFLDO statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. |
for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Manchester, United Kingdom 28 February 2017
| Dividend announced | 28 February 2017 |
|---|---|
| Annual general meeting | 12 May 2017 |
| Ex-dividend date for ordinary shares |
18 May 2017 |
| Record date for the dividend | 19 May 2017 |
| Payment date for the dividend | 23 June 2017 |
The company's shares are listed on the London Stock Exchange under share code 'PFG.L'. The share price is quoted daily in a number of national newspapers and is available on our website at ZZZSURYLGHQWȴQDQFLDOFRP
Shareholders may take out an ISA which includes shares in the company with a provider of their choice. However, the company has made arrangements for its shareholders and employees to use Redmayne-Bentley's ISA and general share dealing services. Shareholders who are eligible and who wish to discuss associated fees and charges should contact:
Phil Armitage Redmayne-Bentley LLP 9 Bond Court Leeds LS1 2JZ
Telephone: 0113 200 6433
Redmayne-Bentley LLP is a Limited Liability Partnership. Registered in England and Wales. Registered No: OC344361 5HJLVWHUHGRɝFH%RQG&RXUW/HHGV LS1 2JZ. Members of the London Stock Exchange Authorised and Regulated E\bWKHb)LQDQFLDOb&RQGXFW\$XWKRULW\ VAT number: GB 165 8810 81 LEI: 21380053IRIPK1R3JQ58.
The following information is intended WRbSURYLGHJHQHUDOJXLGDQFHWRLQGLYLGXDOV who are tax resident in the UK. It does not constitute professional advice. Shareholders who are in any doubt as to their personal WD[bSRVLWLRQVKRXOGVHHNWKHLURZQ professional advice, as should shareholders who are not resident in the UK.
For UK resident individuals, the tax treatment of dividends depends on whether the dividends are received before or after 5 April 2016.
A UK tax resident individual shareholder who receives a dividend prior to 5 April 2016 will be subject to tax on the dividend as follows:
The cash dividend you receive (the amount paid into your bank account) is grossed up for a notional 10% tax credit so that you are taxed on a gross dividend of 10/9ths RIbWKHFDVKGLYLGHQG\RXUHFHLYH
The gross dividend is then taxed as follows:
You can then deduct the notional 10% tax credit.
The overall result, after deducting the notional tax credit, is that you will have VXHUHGDQHHFWLYHUDWHRIWD[RQWKH FDVKbGLYLGHQG\RXUHFHLYHRI
For dividends received after 6 April 2016 WKHbQRWLRQDOWD[FUHGLWLVDEROLVKHG
Instead, a UK tax resident individual shareholder will be taxed on the total cash dividends you receive (the amount paid into your bank account) above the new £5,000 annual tax free dividend allowance at the following rates:
7.5% for basic rate taxpayers
32.5% for higher rate taxpayers
38.1% for additional rate taxpayers
The dividend allowance means that you can receive up to £5,000 of dividends tax free no matter what other non-dividend income you have in the tax year.
The company's registrar is:
Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
Telephone: 0871 664 0300 (from within the UK)
Calls cost 12p per minute plus your phone company's access charge. Calls outside the UK will be charged at the applicable international rate. Lines are open between 9.00am-5.30pm, Monday to Friday excluding public holidays in England and Wales.
Telephone: +44 (0)20 8639 3399 (from outside the UK)
&DSLWD\$VVHW6HUYLFHVRHUVDVKDUH portal service which enables registered shareholders to manage their Provident Financial shareholdings quickly and easily online. Once registered for this service, you will have access to your personal shareholding and a range of services including: setting up or amending dividend bank mandates, proxy voting and amending personal details. For further information visit www.capitashareportal.com
&DSLWD\$VVHW6HUYLFHVRHUVD'LYLGHQG Reinvestment Plan whereby shareholders can acquire further shares in the company by using their cash dividends to buy additional shares. For further information contact Capita Asset Services:
Telephone: 0371 664 0381 (from within the UK)
Calls cost 12p per minute plus your phone company's access charge. Calls outside the UK will be charged at the applicable international rate. Lines are open between 9.00am-5.30pm, Monday to Friday excluding public holidays in England and Wales.
Telephone: +371 664 0381 (from outside the UK)
A black-and-white large text version of this document (without pictures) is available on request from the Company Secretary at the address overleaf. A PDF version of the full DQQXDOUHSRUWDQGȴQDQFLDOVWDWHPHQWVLV available on our website.
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Provident Financial plc No. 1 Godwin Street Bradford West Yorkshire BD1 2SU
Telephone: +44 (0)1274 351 351 Fax: +44 (0)1274 730 606 Website: ZZZSURYLGHQWȴQDQFLDOFRP
ΖQGHSHQGHQWDXGLWRU Deloitte LLP 2 Hardman Street Manchester M60 2AT
and stockbrokers J.P. Morgan Cazenove 25 Bank Street London E14 5JP
Addleshaw Goddard LLP Sovereign House Sovereign Street Leeds LS1 1HQ
Allen & Overy LLP One Bishops Square London E1 6AD
Eversheds LLP Bridgewater Place Water Lane Leeds LS11 5DR
Herbert Smith Freehills LLP Exchange House Primrose Street London EC2A 2EG
668987
Designed and produced by Radley Yeldar
This report has been printed on Lumi Silk – an FSC®FHUWLȴHGSDSHUFRQWDLQLQJ(&)SXOSDQG manufactured at a mill accredited with the ISO 14001 DQGb(0\$6HQYLURQPHQWDOVWDQGDUGVDQGLVSULQWHG by an FSC®DQGΖ62FHUWLȴHGSULQWHUXVLQJ vegetable oil-based inks and an alcohol-free (0% IPA) process. The carbon footprint of this publication was FDOFXODWHGDQGFDUERQFUHGLWVERXJKWWRRVHWDQG make this publication completely CarbonNeutral®. These carbon credits are invested in projects around
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Printed by CPI Colour
No.1 Godwin Street Bradford BD1 2SU United Kingdom +44 (0)1274 351351 ZZZSURYLGHQWȴQDQFLDOFRP
Company number 668987
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