Subprime lender Provident Financial sees profits plunge amid business overhaul
Provident Financial has seen profits drop by more than a fifth after suffering disruption while shifting its home credit business to a new model.
Pre-tax profits dropped by 22.6% to £115.3 million in the six months to the end of June, with the firm booking a £40 million hit as agent effectiveness dipped during the transition.
The subprime lender, which offers loans and finance to people with bad credit scores, saw annualised returns on assets slip to 12.8% for the period, down from 14.2% in 2016.
But the group enjoyed a brighter performance from its short-term loans division Satsuma, with credit card issuer Vanquis Bank and car finance provider Moneybarn also notching up "record volumes of new business".
Chief executive Peter Crook said the firm had seen no change in customer behaviour over credit performance or demand.
He said: "Whilst I remain disappointed by the higher than expected operational disruption to trading in the home credit business, the new business model was deployed as planned during the first week in July.
"I am confident in the strategic rationale for the change and the business is working hard to improve customer service and collections performance ahead of the seasonally busy fourth quarter."
Revenues picked up for the half-year, rising 8% to £619.4 million, with the group keeping its dividend at 43.2p.
Shares in the FTSE 100 firm have dropped 30% since October, and were 2% down during morning trading on the London Stock Exchange.
Provident, which has around 2.5 million customers, launched its new home credit model at the beginning of July with the aim of moving from self-employed agents to full-time customer experience managers (CEMs).
Steve Clayton, Hargreaves Lansdown fund manager, said the half-year results laid bare the "botched introduction" of a new way of working with the consumer credit division.
He added: " Management has been changed in the troubled division, but crucially, with the new operating model now in place, the costs of the stumble are no greater than first warned.
"It's too early to say that all will be rosy going forward, but the group's message on credit quality across the business is reassuring.
"Vanquis Bank, which generates the lion's share of the group's income, is growing strongly, as is Moneybarn.
"Provident Financial may not be out of the woods yet, and it will be some time before the new system can be said to have bedded down and delivered the hoped-for improvements, but the early signs are that the group has picked itself up and begun dusting down.
"The shares have recovered a little of the lost ground in early trading today as a result."