Provident Financial shares plunge as home credit shake-up hits profits
Shares in Provident Financial collapsed 16% on Wednesday morning after the FTSE 100 group warned that reorganising its home credit division would take a much bigger toll on profits than expected.
The lender said the reorganisation was now "nearing completion", but added that the process had been much more disruptive than originally anticipated, resulting in profits at its consumer credit division almost halving in 2017.
Shares tanked 16% in morning trading to 4,403p.
In a market update after the close on Tuesday, Provident said it had experienced "higher operational disruption than planned", which it blamed on "reduced agent effectiveness" during the period of transition for the home credit business.
Agent vacancy levels doubled in recent months to 12% which, coupled with a "deterioration" in performance from development managers, resulted in fewer customer calls and therefore fewer customer collections.
As a result of these troubles, Provident now expects full-year pre-exceptional profits from its consumer credit division to be around £60 million, down from £115 million in 2016.
"The one-off exceptional charge of approximately £20 million in respect of redundancy, retention and training costs remains in line with previous guidance and will be reflected in the first-half results," the group said.
Chief executive Peter Crook said: "I am disappointed to report higher than expected operational disruption from the migration of the home credit business to a new operating model.
"Nonetheless, the strategic rationale for the change remains strong and I am confident that it will deliver the substantial benefits previously communicated."
Provident announced its plan to reorganise its home credit business back in February, including plans to replace thousands of its self-employed agents with fewer full-time managers.
Analysts at Liberum said the latest announcement shows the new model is "not working as expected".
"We had been concerned about rising impairments and customer attrition in the consumer credit division as the new model was implemented.
"The transition appears to have been more painful than expected ... The sheer speed of the deterioration has taken us by surprise."