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Description of nature of entity's operations and principal activities
1 Jan 2021 to 31 Dec 2021
Cumulative goodwill write-off
1 Jan 2020 to 31 Dec 2020
Merger reserve [member]
Equity
31 Dec 2021
Merger reserve [member]
Distributable merger reserve
1 Jan 2020 to 31 Dec 2020
Merger reserve [member]
Equity
31 Dec 2021
Merger reserve [member]
Non-distributable merger reserve
1 Jan 2020 to 31 Dec 2020
Merger reserve [member]
Cumulative goodwill write-off
1 Jan 2021 to 31 Dec 2021
Retained earnings [member]
Liquid asset buffer included in cash and cash equivalents
31 Dec 2021
Liquid asset buffer included in cash and cash equivalents
31 Dec 2020
Liquid asset buffer available to finance day-to-day operations
31 Dec 2021
Liquid asset buffer available to finance day-to-day operations
31 Dec 2020
Legal form of entity
1 Jan 2021 to 31 Dec 2021
Country of incorporation
1 Jan 2021 to 31 Dec 2021
Address of entity's registered office
1 Jan 2021 to 31 Dec 2021
Name of reporting entity or other means of identification
1 Jan 2021 to 31 Dec 2021
Interest income
1 Jan 2021 to 31 Dec 2021
Interest income
1 Jan 2020 to 31 Dec 2020
Fee and commission income
1 Jan 2021 to 31 Dec 2021
Fee and commission income
1 Jan 2020 to 31 Dec 2020
Revenue
1 Jan 2021 to 31 Dec 2021
Revenue
1 Jan 2020 to 31 Dec 2020
Finance costs
1 Jan 2021 to 31 Dec 2021
Finance costs
1 Jan 2020 to 31 Dec 2020
Net interest margin
1 Jan 2021 to 31 Dec 2021
Net interest margin
1 Jan 2020 to 31 Dec 2020
Impairment loss (reversal of impairment loss) recognised in profit or loss
1 Jan 2021 to 31 Dec 2021
Impairment loss (reversal of impairment loss) recognised in profit or loss
1 Jan 2020 to 31 Dec 2020
Risk-adjusted net interest margin
1 Jan 2021 to 31 Dec 2021
Risk-adjusted net interest margin
1 Jan 2020 to 31 Dec 2020
Operating expense
1 Jan 2021 to 31 Dec 2021
Operating expense
1 Jan 2020 to 31 Dec 2020
Profit (loss) before tax
1 Jan 2021 to 31 Dec 2021
Profit (loss) before tax
1 Jan 2020 to 31 Dec 2020
Profit before taxation, amortisation of acquisition intangibles and exceptional items
1 Jan 2021 to 31 Dec 2021
Profit before taxation, amortisation of acquisition intangibles and exceptional items
1 Jan 2020 to 31 Dec 2020
Amortisation expense
1 Jan 2021 to 31 Dec 2021
Amortisation expense
1 Jan 2020 to 31 Dec 2020
Exceptional items
1 Jan 2021 to 31 Dec 2021
Exceptional items
1 Jan 2020 to 31 Dec 2020
Tax expense (income)
1 Jan 2021 to 31 Dec 2021
Tax expense (income)
1 Jan 2020 to 31 Dec 2020
Profit (loss) from continuing operations
1 Jan 2021 to 31 Dec 2021
Profit (loss) from continuing operations
1 Jan 2020 to 31 Dec 2020
Profit (loss) from discontinued operations
1 Jan 2021 to 31 Dec 2021
Profit (loss) from discontinued operations
1 Jan 2020 to 31 Dec 2020
Profit (loss), attributable to owners of parent
1 Jan 2021 to 31 Dec 2021
Profit (loss), attributable to owners of parent
1 Jan 2020 to 31 Dec 2020
Profit (loss), attributable to owners of parent
1 Jan 2021 to 31 Dec 2021
Profit (loss), attributable to owners of parent
1 Jan 2020 to 31 Dec 2020
Other comprehensive income, before tax, gains (losses) on remeasurements of defined benefit plans
1 Jan 2021 to 31 Dec 2021
Other comprehensive income, before tax, gains (losses) on remeasurements of defined benefit plans
1 Jan 2020 to 31 Dec 2020
Other comprehensive income, before tax, gains (losses) from investments in equity instruments
1 Jan 2021 to 31 Dec 2021
Other comprehensive income, before tax, gains (losses) from investments in equity instruments
1 Jan 2020 to 31 Dec 2020
Income tax relating to components of other comprehensive income that will not be reclassified to profit or loss
1 Jan 2021 to 31 Dec 2021
Income tax relating to components of other comprehensive income that will not be reclassified to profit or loss
1 Jan 2020 to 31 Dec 2020
Impact of change in UK tax rate on items in other comprehensive income
1 Jan 2021 to 31 Dec 2021
Impact of change in UK tax rate on items in other comprehensive income
1 Jan 2020 to 31 Dec 2020
Deferred tax credit on disposal of investments
1 Jan 2021 to 31 Dec 2021
Deferred tax credit on disposal of investments
1 Jan 2020 to 31 Dec 2020
Current tax charge on disposal of investments
1 Jan 2021 to 31 Dec 2021
Current tax charge on disposal of investments
1 Jan 2020 to 31 Dec 2020
Other comprehensive income
1 Jan 2021 to 31 Dec 2021
Other comprehensive income
1 Jan 2020 to 31 Dec 2020
Comprehensive income
1 Jan 2021 to 31 Dec 2021
Comprehensive income
1 Jan 2020 to 31 Dec 2020
Basic earnings (loss) per share
1 Jan 2021 to 31 Dec 2021
Basic earnings (loss) per share
1 Jan 2020 to 31 Dec 2020
Diluted earnings (loss) per share
1 Jan 2021 to 31 Dec 2021
Diluted earnings (loss) per share
1 Jan 2020 to 31 Dec 2020
Dividends proposed or declared before financial statements authorised for issue but not recognised as distribution to owners per share
1 Jan 2021 to 31 Dec 2021
Dividends proposed or declared before financial statements authorised for issue but not recognised as distribution to owners per share
1 Jan 2020 to 31 Dec 2020
Cash and cash equivalents
31 Dec 2021
Cash and cash equivalents
31 Dec 2020
Loans and advances to customers
31 Dec 2021
Loans and advances to customers
31 Dec 2020
Trade and other receivables
31 Dec 2021
Trade and other receivables
31 Dec 2020
Financial assets at fair value through profit or loss
31 Dec 2021
Financial assets at fair value through profit or loss
31 Dec 2020
Property, plant and equipment
31 Dec 2021
Property, plant and equipment
31 Dec 2020
Right-of-use assets
31 Dec 2021
Right-of-use assets
31 Dec 2020
Goodwill
31 Dec 2021
Goodwill
31 Dec 2020
Intangible assets other than goodwill
31 Dec 2021
Intangible assets other than goodwill
31 Dec 2020
Investments in subsidiaries
31 Dec 2021
Investments in subsidiaries
31 Dec 2020
Net defined benefit asset
31 Dec 2021
Net defined benefit asset
31 Dec 2020
Derivative financial assets
31 Dec 2021
Derivative financial assets
31 Dec 2020
Deferred tax assets
31 Dec 2021
Deferred tax assets
31 Dec 2020
Assets
31 Dec 2021
Assets
31 Dec 2020
Trade and other payables
31 Dec 2021
Trade and other payables
31 Dec 2020
Current tax liabilities
31 Dec 2021
Show more results
Validation results
| Severity | Code | Message |
|---|
+
-
A leading
specialist bank
focused on
underserved
markets
Provident Financial plc Annual Report and Financial Statements 2021
Blueprint strategic drivers
Our strategic roadmap
We help to put people on the path to a better everyday life
To operate our business
of lending to our customers
in a responsible manner
To act responsibly and sustainably
in all our stakeholder relationships
Read more on pages 48 to 74
Read more on pages 14 to 19
Be hungry for better
Put the customer
on the team
Act like it’s yours
Grow customer-centric
businesses
Act responsibly
and with integrity
Maintain a secure funding
and capital structure
Read more on pages 26 to 30
Customer
progression
Human
experiences
Head
AND heart
decisions
Fighting fit
Purpose
Our behaviours
Our strategy
Our ESG strategy
Visit: providentfinancial.com
View: Corporate Responsibility Report at
www.providentfinancial.com/sustainability/
corporate-responsibility-report-2021
Strategic report
1 At a glance
2 Chairman’s statement
4 Chief Executive Officer’s review
6 Group overview
8 Environmental, Social
and Governance overview
14 Our Purpose
20 A bank for the underserved
22 Investment case
24 Business model
26 Strategy
31 Key performance indicators
34 Market overview
40 Credit Card Division
43 Vehicle Finance Division
46 Personal Loans Division
48 Environmental, Social and Governance
75 Section 172
87 Risk management and principal risks
100 Relations with regulators
101 Viability statement
102 Financial review
Governance
108 Board leadership and Company Purpose
108 Chairman’s introduction
112 Our Board
116 Setting our strategy
120 Promoting long-term sustainable
success: Board activities
123 The Board: our culture – promoting
colleague voice
127 Stakeholders and investor relations
127 Stakeholder engagement
132 Effective engagement with
shareholders and stakeholders:
investor relations
134 Division of responsibilities
139 Composition, succession and evaluation
139 Board composition
140 Induction for new directors
141 Board evaluation
143 Nomination Committee Report
150 Customer, Culture and Ethics
Committee Report
153 Audit, risk and internal control
153 Audit Committee Report
158 Risk Committee Report
162 Directors’ Report
Directors’ Remuneration Report
169 Annual Statement by the Chair
of the Remuneration Committee
174 Remuneration at a glance
177 Annual Report on Remuneration
Financial statements
193 Consolidated income statement
193 Consolidated statement
of comprehensive income
193 Loss per share
193 Dividends per share
194 Balance sheets
195 Statements of changes
in shareholders’ equity
197 Statements of cash flows
198 Statement of accounting policies
206 Financial and capital risk management
211 Notes to the financial statements
261 Independent auditor’s report
271 Alternative performance measures
Shareholder information
275 Glossary
276 Information for shareholders
Provident Financial plc Annual Report and Financial Statements 2021
1
Strategic report
£1.7bn
Amounts receivable
from customers
1
(2020: £1.7bn)
At a glance
1.6m
Customer numbers
1
(2020: 1.8m)
0.2m
£167.8m
Adjusted profit before tax –
continuing operations
(2020: £27.8m)
£142.2m
100%
2
Statutory profit before tax –
continuing operations
(2020: LBT (£37.0m))
Operational carbon
footprint offset
(2020: 100%)
£140.0m
£0.7bn£706.5m
Regulatory capital
(2020: £674.8m)
Liquidity
(2020: £1.0bn)
£31.7m
£0.3bn
1 Continuing operations.
2 Not including Scope 3 emissions
associated with purchased goods
and services.
Certain alternative performance
measures (APMs) have been used
in this report (see pages 271 to 274)
£179.2m
Provident Financial plc Annual Report and Financial Statements 2021
2
Chairman’s statement
We are committed
to serving customers
in underserved markets
Introduction
2021 was a strategically important year for PFG as we
successfully transitioned the Group to becoming a leading
specialist bank focused on underserved markets. The Board
and Executive Management team delivered a number of
significant strategic initiatives during 2021, including closing
our Consumer Credit Division, establishing a personal loans
business and, shortly after the period end, making some
important changes to the Group’s governance structure.
The Board and I look forward to 2022 with confidence. We will
continue to establish PFG as a leading specialist bank built
on a platform of credit cards, vehicle finance and personal
loans, all of which is underpinned by a strong and diversified
balance sheet, aligned governance and harmonised risk
management. I am delighted to report that we have been
able to reinstate the dividend to our shareholders for FY’21.
2021 was the year in which we
repointed and restructured PFG.
In 2022 we will progress with
our plan to make PFG a leading
specialist bank focused on
underserved markets in the UK.
Patrick Snowball
Chairman
Governance
Our primary responsibility as the Board is the effective
oversight of the Group and to determine its strategic direction
and objectives. We are committed to the highest possible
standards of corporate governance and delivering long-term,
sustainable shareholder value. Shortly after the period end,
we announced the next phase of our strategy. We have
restructured the Board of Vanquis Bank to substantially align
its membership with the Board of PFG. This is an important
step in the execution of the Group’s specialist bank strategy,
which includes the wider use of retail deposit funding across
the Group from H2’22. I believe that streamlining the Boards
of the two legal entities in this way will create a simpler, more
efficient Group governance structure, whilst streamlining and
enhancing both PFG and Vanquis Bank’s handling of corporate
governance. Further details of these changes can be found
on page 134.
Our Consumer Credit Division
The Board took the regrettable and difficult decision to
close our Consumer Credit Division (CCD) during 2021 in
response to changing industry dynamics. We committed to
close the business by the end of the year. We achieved this,
within the closure cost guidance of up to £100m. The closure
Strategic report
Provident Financial plc Annual Report and Financial Statements 2021
3
We have made some changes to our governance structure
which included Malcolm Le May, Neeraj Kapur (Group CEO and
CFO, respectively) and me as Chairman assuming the same
responsibilities for Vanquis Bank. As a result of these changes,
Robert East, Neil Chandler and Gary Thompson (Chairman,
MD and FD of Vanquis Bank respectively) have decided to
leave the business at the end of March 2022. I would like to
personally thank them for their efforts in managing our credit
card business so well during such difficult times.
Outlook
The Board and I look forward to 2022 with confidence. We
have achieved a lot in 2021, but there is still a great deal to look
forward to as we establish PFG as a leading specialist bank
focused on underserved markets. The provision of credit to
these customers will remain our primary focus, enabling us
to deliver our social purpose, whilst also ensuring that we can
generate attractive and sustainable returns to our shareholders.
Patrick Snowball
Chairman
6 April 2022
of CCD involved launching a Scheme of Arrangement
for its customers. This was a step that we did not have to
take, but we felt that it was necessary to protect customer
outcomes. The result is that PFG has reduced its operational
risk profile and no longer operates in any ‘high-cost’ credit
market segment.
I would like to take this opportunity to extend my sincere
gratitude to all our former colleagues from across CCD
for their hard work and dedication, and for doing such an
outstanding job in difficult circumstances.
Shareholders
2021 was another busy year of shareholder engagement, and I
personally met with several of PFG’s investors. The focus of our
discussions was the Scheme of Arrangement, and the closure
of CCD, ESG and the strategic vision for refocusing PFG. Please
see our Corporate Responsibility section for more details on
the work we are doing around ESG, including how we lend
responsibly to our customers and how we approach financial
inclusion, on pages 48 to 74.
Unfortunately, Covid-19 meant that we were still unable to
meet with our shareholders in person. In 2022 we plan to have
more face-to-face engagement with our shareholders and
prospective investors.
Our People
On behalf of the Board of Directors, I would like to extend my
sincere thanks to Malcolm Le May, the wider management
team and everyone at PFG for their hard work and dedication
to our customers during 2021. Once again I would like to
recognise the outstanding commitment of our colleagues
in CCD during the most very difficult time. We have achieved
a significant amount whilst still supporting our customers,
colleagues and communities, which is no mean feat.
Read more in our Corporate Responsibility Report at
www.providentfinancial.com/sustainability/
corporate-responsibility-report-2021
Supporting our communities
Through the Board’s engagement with the Group via our Customer, Culture and Ethics (CCE) Committee on the work that is
being delivered on the ESG agenda, I have been particularly proud of the activities and initiatives that have been supported
during 2021 via the PFG Social Impact Programme. The strategy of this programme, which is aligned with the Group’s Purpose,
is to invest in community-based activities and initiatives which seek to address some of the key factors which, on their own
or acting together, can reduce social and financial inclusion. The work that has been delivered to support financial wellbeing,
the education and skills agenda, and community investment during 2021 has been inspirational.
Financial
wellbeing
The work we supported The Money Charity to
deliver during 2021 focused on providing information,
advice and guidance to people of all ages, so
that they can manage their money well and
increase their financial wellbeing by delivering:
– 332 hours’ worth of financial education
workshops to 7,640 young people;
– 79 hours’ worth of financial wellbeing, Covid-19
response and bespoke workshops to 675
adults; and
– 10 hours’ worth of workshops to 67
young people impacted by the criminal
justice system.
Education
and skills
Community
investment
Through our longstanding partnership with
National Numeracy, approximately 11,000
children, parents and teachers from 19 schools
in areas of need across England were supported
to develop the numeracy skills they will need,
both at school and throughout their lives.
During 2021, PFG distributed £307,000 to 51 grass
roots voluntary organisations via community
foundation partners in Bradford, London, Kent,
Hampshire and parts of Scotland and Wales
to address a range of financial and social
inclusion issues.
Provident Financial plc Annual Report and Financial Statements 2021
4
Chief Executive Officer’s review
PFG is a leading
specialist bank focused
on underserved markets
Introduction
2021 was an important year for PFG as we successfully focused
the Group on becoming a leading specialist bank focused
on underserved markets. From the outset, the Board and
the Executive Management team remained focused on key
strategic initiatives, whilst not losing sight of the critical role
we play in our customers’ lives. Our credit card and vehicle
finance businesses commenced their rebound from the early
impact of Covid-19, delivering excellent profitability growth
and receivables growth from H1’21.
During 2021, we established a personal loans business, building
on the work already done within Vanquis Bank, and invested
in a new IT platform known as ‘Gateway’. We also launched
our second successful partial tender of our 2023 Senior
bonds whilst issuing an oversubscribed Tier 2 subordinated
debt instrument with gross proceeds of £200m. This issuance
increased the Total Capital Ratio (TCR) to over 40%.
PFG remains committed to
delivering long-term, sustainable
and attractive returns to its
shareholders as we target the
growing mid-cost segment
of the market.
Malcolm Le May
Chief Executive Officer
Group financials
Turning to the financial results for 2021, the Group reported
an adjusted profit before tax from continuing operations
of £167.8m (FY’20: £27.8m), which reflects lower impairment
year-on-year driven by provision releases. Including amortisation
of intangibles, CCD discontinued operations and exceptional
items, the Group PBT was £4.1m (FY’20 loss before tax: £113.5m).
At the start of the Covid-19 pandemic, the Group took the
prudent decision to tighten underwriting standards. These
standards were not relaxed during 2021 and, as a result, new
customer bookings across cards, loans and vehicle finance
of 249k were lower year-on-year (FY’20: 286k). At the end of
December the Group had 1,635k customers (FY’20: 1,759k,
excluding CCD). As lockdown restrictions eased and demand
for credit from customers returned, the Group saw positive
momentum in its receivables book during the second half of
the year until restrictions were reintroduced in November 2021.
As a result, total receivables stood at £1,678m (FY’20: £1,661m,
excluding CCD) at the end of December.
Provident Financial plc Annual Report and Financial Statements 2021
5
Strategic report
PFG remains committed to meeting the recommendations
of the Task Force on Climate-related Financial Disclosures
and, to support this objective, the Group became a signatory
to the UN Global Compact’s Business Ambition for 1.5°C
pledge. This agreement sets carbon reduction targets which
align with current climate science and are approved by the
Science Based Targets initiative.
PFG has continued to work with charities and other organisations
to address issues such as inequality and disadvantage
in the community. In 2021, we invested approximately £1.4m
in activities and initiatives which sought to support children
and young people whose education has been negatively
impacted by Covid-19. By supporting organisations like
National Numeracy, the National Literacy Trust and
School-Home Support, PFG has been able to boost
education, skills and opportunities in the community.
Further underpinning our commitment, I joined the National
Numeracy Leadership Council in September 2021. The Council,
which includes representatives from Amazon, Bloomberg
and Experian, will grow the network of organisations and
individuals actively addressing the issue of poor numeracy in
the UK. It will also support people to improve their numeracy
by creating positive attitudes to numbers and maths,
supporting financial wellbeing.
Outlook
PFG remains well placed in growing addressable markets of
over £17bn, and is underpinned by a strong, well capitalised
balance sheet with a customer-centric model and a new IT
platform. Reflecting the Board’s confidence in the Group’s
ability to deliver attractive and sustainable growth and returns
for shareholders, the Board, subject to market conditions,
expects to move to a dividend pay-out ratio of circa 40%
of adjusted earnings from FY’22 onwards.
The current macroeconomic environment in the UK, and
the inflationary pressures our customers will be experiencing,
have been factored in to our underwriting processes,
affordability checks and capital adequacy planning. During
the first two months of 2022, overall trends in our credit
card and vehicle finance businesses have continued to see
encouraging momentum. The personal loans pilot phases
continue to track broadly in-line with internal plans.
For the remainder of FY’22, we anticipate credit card spend
in areas such as travel to increase, and non-discretionary
elements, such as food and other essentials, to continue and
for receivables growth to benefit as a result. We also expect
impairment trends to benefit from the ongoing release of
provisions and overlays, of which c.£60m remain, and PFG’s
continued evolution towards higher quality customers and
lower risk credit, resulting in lower coverage ratios. Indeed,
PFG will target a mid-teens coverage ratio over the medium
term. The Group’s cost to income ratio is expected to reduce
marginally in FY’22 versus FY’21, including the remaining
transformation investment in the Group’s businesses, and
we expect it to reduce to c.40% from the end of 2024 onwards
as the Group benefits from operational efficiencies as a result
of its transformation programme. Assuming the Group’s large
limit waiver application to the Prudential Risk Authority (PRA)
is successful, we expect to benefit from reducing funding
costs, notwithstanding the rising interest rate environment.
Malcolm Le May
Chief Executive Officer
6 April 2022
As we positioned PFG for the attractive market opportunity,
we have made changes in the Group including restructuring
the Board of Vanquis Bank and investing in a number of areas
including a new IT platform to initially support the mid-cost
personal loans business, the Group’s Treasury capability
and other growth initiatives including a new cards mobile
app and the launch of the Open Market loans pilots.
The Group’s capital and liquidity positions have remained
robust throughout the period. At the end of December, the
Group held total regulatory capital of £707m, equating to a
Total Capital Ratio of 40.6% and a surplus above the minimum
regulatory requirement of £344m. During the year, we issued
a Tier 2 subordinated bond with gross proceeds of £200m,
launched a successful partial tender for our 2023 Senior
bonds, refinanced and extended Moneybarn’s securitisation
funding and Vanquis Bank accessed the Bank of England
Term Funding Scheme for SMEs (TFSME) for the first time.
Certain alternative performance measures (APMs) have
been used in this report. See pages 271 to 274 for an
explanation of relevance as well as their definition.
Closure of CCD
During 2021, the Board took the regrettable and difficult
decision to close the Consumer Credit Division (CCD) in
response to changing industry dynamics. It was closed on
schedule by the end of the year and was delivered within
the closure cost guidance of up to £100m. The closure of
CCD involved launching a Scheme of Arrangement in order
to provide £50m of compensation for its customers. The
Board and I felt that this was necessary in order to provide
customers with the best possible outcome. The result of the
closure is that PFG has reduced its operational risk profile and
no longer operates in any ‘high-cost’ credit market segment.
The Board and I would like to extend our sincere thanks to
all colleagues from CCD for their excellent work during very
difficult circumstances.
Governance changes
Shortly after the period end, PFG announced the next
phase of its strategy to reinforce its position as a leading
specialist bank with a focus on underserved markets. PFG has
restructured the Board of Vanquis Bank to substantially align
its membership with the Board of PFG. This is an important
step in the execution of the Group’s specialist bank strategy,
which includes the wider use of retail deposit funding across
the Group from H2’22, subject to PRA approval. PFG believes
that streamlining the Boards of the two legal entities in this
way will create a simpler, more efficient Group governance
structure, whilst streamlining and enhancing both PFG and
Vanquis Bank’s handling of corporate governance.
PFG recently announced the hiring of Fiona Anderson for the
newly created role of Managing Director of Cards. Fiona has
a wealth of significant experience across credit cards and
personal banking.
Environmental, Social and Governance (ESG)
As the Group works towards its vision of becoming a leading
specialist bank focused on underserved markets, its Purpose
of helping to put people on a path to a better everyday life
continues to underpin our commitment to integrating and
reporting on issues of Environmental, Social and Governance
(ESG). For further details of our approach to ESG topics, please
see our 2021 Corporate Responsibility Report.
Throughout 2021, PFG continued to implement measures aimed
at reducing the impact that the Group’s operations have on
the environment, particularly in relation to climate change.
Provident Financial plc Annual Report and Financial Statements 2021
6
We help customers through our
market-leading businesses
PFG meets the needs of its customers through three distinct products: credit cards, vehicle finance and unsecured personal
loans. The credit card business offers credit cards, over a wide range of price points, and retail deposits. The vehicle finance
business offers secured finance on a range of vehicle types, including cars, motorbikes and light commercial vehicles.
The personal loans business offers unsecured loans of between £1k and £5k over one to four years.
Credit cards
Vehicle finance
Personal loans
1.5m
£150-
£4,000
93,900
19,900
£4,000-
£25,000
£1,000-
£5,000
3-5
years
1-4
years
Our awards
Credit cards Vehicle finance
Specialist Lender of the Year and
Vehicle Finance Provider of the Year
at the National Credit Awards 2021.
Best Brand at the Lending
Awards 2020.
A Lotus Award for Culture
for the third year running in 2020.
Sub-Prime Lender of the Year
at the Motor Finance Awards 2021.
Non-prime Lender of the Year at the
Motor Finance Europe Awards 2020.
Customers* Credit card limits
Customers*
Customers
*
Loan range
Loan range
Loan terms
Loan terms
Nominated for the Best Fintech Partnership with the
LOQBOX partnership at the Banking Tech Awards 2021.
Submitted for Best Marketing Campaign
and Changing Lives in the Community at The Card
and Payments Awards 2022.
Shortlisted for the Credit Builder Card Provider of the
Year award at the Moneyfacts Consumer Awards 2021.
Shortlisted in the Social, Sustainable and Responsible
Banking category at The Banker: Innovation in Digital
Banking Awards for the LOQBOX partnership.
Success in Customer Service at The Card and
Payments Awards 2021 for our persistent debt
personalised video.
Moneyfacts Consumer Awards 2020 – Credit Builder
Card Provider of the Year – highly commended.
Named one of the UK’s Best
Workplaces™ in 2020 by Great
Place to Work (in the Large
Organisations category).
* Customer numbers as at 2021 year end.
Group overview
Read our investment case on pages 22 and 23
Read more on pages 40 to 42
Read more on pages 43 to 45
Read more on pages 46 and 47
Provident Financial plc Annual Report and Financial Statements 2021
7
Strategic report
Credit cards Personal loansVehicle finance
We understand
our customers
by mainstream lenders for a multitude of reasons:
Managing on below-average incomes
with limited savings, meaning unforeseen
expenses can be challenging
Have variable incomes (e.g. self-employed,
on a zero-hours contract, have multiple
part-time jobs)
Experienced a significant life event
(e.g. job loss, ill health, divorce)
New to credit or new to the UK and
therefore have little or no credit history
Looking to build or
rebuild their credit rating
Value a more tailored
product and service
Our customers’ typical characteristics
Full-time salaried (77%)
or self-employed (15%)
Full or part-time salaried (66%)
or self-employed (16%)
Full or part-time salaried (77%)
or self-employed (6%)
Earning around the national average (£30k) with core spread between £20k and £50k
10% hold a mortgage
1
20% hold a mortgage
1
16% hold a mortgage
1
Limited savings
Circa half have material savings
(enough to cover emergencies or anything unexpected)
Income
source
Income
level
Housing
Savings
Typical
age
Credit
score
Read our market overview on pages 34 to 39
36–55 years old 46–65 years old 26–45 years old
Mid-cost/near prime Mid-cost/near prime Mid-cost/near prime
Typical customer credit scores sit between 500 and 600
2
Source: BoxClever survey of 3,510 non-prime consumers and 2,929 PFG customers, December 2019.
1 The mortgage holders’ data was sourced from internal customer data.
2 Customer credit scores based on TransUnion Gauge 2 score.
A wider range of suitable and sustainable credit products is required than is typically provided by mainstream lenders.
In addition, our customers sit across a broad range of risk profiles. It is therefore important that a range of price points can
be offered, increasing financial inclusion. Finally, our customers’ needs and circumstances are often more fluid than those
of consumers served by mainstream providers, requiring us to provide a more flexible approach.
Provident Financial plc Annual Report and Financial Statements 2021
8
Environmental, Social and Governance overview
Delivering on ESG matters
to support our Purpose
At PFG, our Purpose of
helping to put people on a
path to a better everyday life
fundamentally informs the
decisions and choices that
we make as a business.
This is not just about the decisions and choices we
make in the day-to-day running of our business,
but also about the ones that are longer term and
ensure that PFG is a force for good and plays its part
in addressing globally important issues such as
climate change. Our Purpose is therefore just as much
about continuing to provide our customers with the
responsible credit products and services that meet
their particular needs, as it is about ensuring that
we address the social, environmental and ethical
challenges facing our business and society at large.
Ensuring that we take positive action on ESG-related
matters is therefore an important way that we can
demonstrate that our Purpose is aligned with our
strategy of lending responsibly to our customers, and
ensuring that we act in a responsible and sustainable
manner in all our other stakeholder relationships.
This enables us to create a fair, inclusive and diverse
workplace, support our local communities, take
positive action on climate change, treat suppliers
fairly, and engage with our investors on the wider
ESG agenda.
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ESG
At PFG, our commitment to managing and reporting
ESG-related matters is most clearly expressed
through our Purpose of helping to put people on a
path to a better everyday life. So, as interest in the
ESG agenda has gained momentum amongst all
our stakeholders, not just campaigners and certain
parts of the City, it is reassuring that it is part and
parcel of who PFG is. By continuing to commit to
the ESG agenda, I know we can continue to deliver
outstanding products and services to customers
who are underserved by mainstream banks, as well
as do our bit to build a better world. This will not only
enable us to ensure that PFG’s growth is sustainable,
but also that our competitiveness, profitability and
share price improve.
Malcolm Le May
Chief Executive Officer
Provident Financial plc Annual Report and Financial Statements 2021
9
Strategic report
Customers
Continuing to support
our customers as the
economy returns to
pre-pandemic levels
and by establishing
PFG as the specialist
diversified bank
and focusing on the
mid-cost segment
of our market.
Colleagues
Building and
sustaining an inclusive
culture and diverse
workforce which
ensure the wellbeing
of all our colleagues,
and enable us to
respond to the
needs of our diverse
customer base,
while at the same
time enabling them
to realise their own
career aspirations.
Communities
Providing ongoing
support to our
communities,
particularly to children
and young people, so
that they can achieve
their full potential
and participate
in, and contribute
to, a brighter and
more sustainable
future for all.
The environment
Taking positive action
to reduce our impact
on the environment,
particularly in
relation to climate
change, and to
help build a more
sustainable financial
services industry.
ESG governance and key performance indicators
Over the past year, our approach to managing our ESG performance has sought to
prioritise the following four areas, because the effects of Covid-19 continued to be felt
by some of our key stakeholders during 2021, and also because the need to take positive
action on climate change is an important issue for PFG:
Our stakeholders
Our customers
The environmentOur colleagues Our communities
The Board and its committees
Customer,
Culture and Ethics
Committee
Remuneration
Committee
Nomination
Committee
Risk
Committee
Audit
Committee
Group Executive Committee
Climate Risk Committee Inclusion Steering Group
The Provident Financial plc Board takes overall accountability for the delivery of PFG’s strategy and reviews the Group’s ESG
performance. The Board’s Customer, Culture and Ethics Committee supports the Board in providing oversight of the Group’s
approach to managing and reporting ESG-related matters. The Group Executive Committee, with support from the Climate Risk
Committee and Inclusion Steering Group, provides management oversight of the progress being made by PFG in managing its
strategic ESG objectives.
Provident Financial plc Annual Report and Financial Statements 2021
10
Environmental, Social and Governance overview continued
To enable us to assess our performance against our ongoing ESG commitments, we have
developed a range of non-financial measures.
These measures are included in a ‘Blueprint’ Dashboard, which is shared with the Board’s Customer, Culture and Ethics
Committee and the PFG Executive Committee so that Board members and directors can monitor and challenge the embedding
of the Group’s culture and the management of a range of ESG-related matters, and ensure that the Group’s businesses are
delivering positive outcomes to our customers.
For further details on ESG initiatives and activities and progress against 2022 targets, see pages 48 to 74
Objective Measure Performance in 2021
Customers
Customer outcomes are
positive and consistent with
PFG’s Purpose and culture.
Levels of customer
satisfaction.
Credit card: 4.7/5 (2020: 4.6/5.5).
Vehicle finance: 4.4/5
(2020: 4.5/5).
Number/percentage of
customer complaints.
Total: 66,516 (2020: 90,264).
Number of complaints referred
to the FOS: 13,313 (2020: 13,736).
Colleagues
PFG’s Blueprint is embedded
and colleagues are engaged
with and supportive of the
Group’s Purpose and culture.
Colleague engagement
score as measured
by annual colleague
engagement survey.
Overall colleague engagement
score 68% (2020: 72%).
Better Everyday Index
score which relates to PFG’s
culture and the way we treat
customers and colleagues.
Better Everyday Index score 63%
(2020: 60%).
Communities
Positively impact the lives of
the people in the communities
we serve, particularly children
and young people, by providing
them with access to education,
social and financial inclusion,
money advice and economic
development opportunities.
The amount invested per
year to support community
programmes, money
advice programmes and
social research, including
the number of grants
distributed to grass roots
community organisations.
£1.4m invested to support
community programmes, money
advice programmes and social
research (2020: £1.2m).
425 hours volunteered by
colleagues during work hours
(2020: 509).
The environment
Continue action to reduce our
impacts on the environment,
particularly in relation to
climate change.
Absolute scope 1 and 2
greenhouse gas emissions.
Scope 1 and 2 emissions: 1,239
tonnes of CO
2
e (2020: 1,521 tonnes
of CO
2
e), a reduction of 19%.
Total scope 1 and 2 (and associated
scope 3) emissions: 1,648 tonnes
of CO
2
e (2020: 1,848 tonnes of
CO
2
e), a reduction of 11%.
The progress of our
work in meeting the
recommendations of TCFD.
Refer to pages 68 to 72.
Assessing performance
against our ongoing
ESG commitments
Provident Financial plc Annual Report and Financial Statements 2021
11
Strategic report
2021: Continuing to
support our stakeholders
during Covid-19
While the impacts of Covid-19 were less severe in 2021 than in 2020, the effects of the virus have
nevertheless continued to be felt throughout the year by many of our stakeholders. We have
responded effectively to the challenges of Covid-19 by ensuring the safety and wellbeing of
our customers and colleagues, and contributing support to the communities we serve.
Customers
During 2021, we continued
to support our customers
throughout a difficult period
whilst delivering on several
important strategic initiatives.
For example, the closure of the
Consumer Credit Division at
the end of December and the
launch of a new personal
loans offering, Sunflower
Loans, supported by
a newly
developed IT platform
, which
has the ability to share
customers across our product
groups. Due to the changeable
macroeconomic conditions
that were experienced during
the year, we took the prudent
decision to maintain the
underwriting standards that
were tightened at the start
of the Covid-19 pandemic
in 2020. Our colleagues,
however, despite themselves
experiencing significant
disruption which saw many
of them continue to work
remotely, have been able
to maintain high levels of
customer service. Throughout
this period, we continued to
support customers in financial
difficulty by ensuring that
we adopt a sympathetic
approach to understand
their circumstances
and offer forbearance
where appropriate.
Colleagues
Ensuring the health, safety
and wellbeing of all our
colleagues throughout 2021
remained one of our highest
priorities. During this time we
have continued to run our
offices in accordance with
government guidance and
have made sure that where
colleagues cannot work
remotely they can do so in a
way that is socially distanced,
and safe and secure. We have
also dedicated a lot of effort
to support the positive mental
wellbeing of our colleagues.
This has involved hosting
regular online check-ins
and, as social distancing
restrictions have started to
be lifted, running sessions for
colleagues on returning to
work and mental health (read
more on page 59). We are also
using our positive experiences
of remote working over the
past two years to develop
plans to shift our workplaces
to flexible arrangements
which will, where appropriate
for the business and our
colleagues, see remote
working and virtual meetings
continue, albeit less intensely
than at the pandemic’s peak.
Communities
We know, through the
work we deliver in the many
communities we serve, that
Covid-19 has continued to
provide many challenges to
organisations in the charity
and voluntary sectors,
precisely at the time when
the services they deliver have
been in high demand. This
is why we have continued
to honour the funding
commitments we made
to our existing community
partners and work with them
flexibly to respond to the
‘lockdown’ situation. This
has enabled our partners,
many of which are directly
providing frontline community
support or disbursing grants
to organisations involved
in the response to Covid-19,
to continue to support the
communities we serve,
some of which will be
facing a tougher recovery
from the challenges.
Provident Financial plc Annual Report and Financial Statements 2021
12
Environmental, Social and Governance overview continued
2021: Contributing to the
Sustainable Development
Goals (SDGs)
Lending responsibly
Our customers
– Provide our customers with the credit products that
meet their particular needs and deliver fair customer
outcomes throughout their journey with us
Acting sustainably
Our investors
– Engage with the investment community
on sustainability matters
Our regulators and government
– Remain a responsible taxpayer
Our colleagues
– Create an inclusive and engaging workplace
Our suppliers
– Ensure that we treat our suppliers fairly
Our communities
– Support our Purpose through
our Social Impact Programme
Our environment
– Taking action on climate change
PFG’s commitment to growing our business in a truly responsible way is longstanding. This is
not only about continuing to provide our customers with the responsible credit products and
services that meet their particular needs, it is also about ensuring that we address the social,
environmental and ethical challenges facing our business and society at large.
In working towards achieving this, we recognise the importance of ensuring that our sustainability strategy, and the ESG activities
we deliver to support it, align with existing, globally accepted frameworks. To this end, we have ensured that the work we do
is aligned to the United Nations Sustainable Development Goals (SDGs), supports the Paris Agreement and the UK’s transition
to a net-zero economy and takes urgent action to tackle climate change and its impacts.
Our Purpose
Helping to put people on a path to a better everyday life
Our sustainability strategy
Read more on page 54
Read more on page 55
Read more on pages 56 to 59
Read more on pages 60 and 61
Read more on pages 62 to 67
Read more on pages 68 to 73
Read more on pages 52 and 53
Provident Financial plc Annual Report and Financial Statements 2021
13
Strategic report
No
poverty
Quality
education
Gender
equality
Aim
To end poverty in all its forms everywhere.
Aim
To ensure inclusive and equitable quality
education and promote lifelong learning
opportunities for
all.
Aim
To achieve gender equality and empower
all women and girls.
PFG objective
By 2030, we will contribute to ending poverty
in all its forms everywhere, by ensuring our
customers have access to cost-effective and
appropriate products for their needs and
supporting them through financial difficulty.
PFG objective
By 2030, we will contribute to ensuring inclusive
and equitable quality education and promote
lifelong learning opportunities for all by
partnering with organisations that will help to
equip children and adults with essential skills
and knowledge that will allow them to excel in
many different directions.
PFG objective
By 2024, we will have 40% female representation
in the Group’s senior management population.
FY 2021 highlights and achievements
Our Purpose to help put people on a path to a
better everyday life is about lending responsibly
and aiding financial inclusion by supporting
the one in five people in the UK who cannot get
access to credit products through mainstream
banks and building societies. We currently do
this by providing our 1.6 million customers in
the UK with credit cards and loans through
our Vanquis business and vehicle finance
through Moneybarn. Through our Social Impact
Programme, we also provide grants to charities
and specialist partners to address issues such
as customer vulnerability, product accessibility
and financial difficulties. To contribute to
this Goal in 2021, the funding we provided
to The Money Charity enabled it to provide
information, advice and guidance to people of
all ages, so that they can manage their money
well and increase their financial wellbeing
by delivering: 332 hours’ worth of financial
education workshops to 7,640 young people;
79 hours’ worth of financial wellbeing, Covid-19
response and bespoke workshops to 675 adults;
and 10 hours’ worth of workshops to 67 young
people impacted by the criminal justice system.
FY 2021 highlights and achievements
We contribute to this SDG through the
education workstream of our PFG Social Impact
Programme which supports children, young
people and adults to boost their education,
skills and aspirations, in order to participate in
society and secure a brighter financial future.
Through our longstanding partnerships with
National Numeracy, the National Literacy Trust
and Leading Children we have supported a
number of programmes which aim to boost
the literacy and numeracy skills of children,
young people and adults. For example, our
funding in 2021 enabled National Numeracy to
deliver its ‘Becoming a Numeracy Champion’
programme which supported approximately
11,000 children, parents and teachers from 19
schools in areas of need across England to
develop the numeracy skills they will need, both
at school and throughout their lives. We have
also continued to provide funding for School-
Home Support practitioners in four schools
across Bradford and Medway who work with
families. During the year, these practitioners
supported 284 individuals which contributed
to achieving an average school attendance
increase of 10.9%.
FY 2021 highlights and achievements
PFG’s senior management population currently
has 27% female representation. The key actions
we undertook throughout 2020 to support
this SDG included: ensuring that there is a
50/50 gender balanced short-list when we
recruit for senior leadership roles across PFG;
continuing to deliver leadership development
programmes to high potential women from
across PFG to help strengthen the female talent
pipeline at the senior/middle management
level; and running colleague-led Peer Circles
to encourage peer support for women in
relation to a range of issues, including on
interview techniques, performance reviews
and menopause support. Through our Social
Impact Programme, we also support projects
which aim to empower women and girls. For
example, this has included in 2021 providing
a grant to the Kurdish and Middle Eastern
Women’s Organisation in North London to
deliver its ‘Breaking Digital and Personal Barriers
to Employment’ project, which works with
women to break down the barriers they face
in achieving their personal goals including low
digital skills, childcare, caring responsibilities,
language, self-esteem, self-worth, low
confidence, and lack of support.
Decent work and
economic growth
Reduced
inequalities
Aim
To promote sustained, inclusive and sustainable
economic growth, full and productive
employment and decent work for all.
Aim
To reduce inequality within
and among countries.
Aim of the TCFD recommendations
To support the UK’s transition to a net-zero
economy and take urgent action to tackle
climate change and its impacts.
PFG objective
By 2030, we will contribute to promoting
sustained, inclusive and sustainable economic
growth, full and productive employment and
decent work for all by creating opportunities for
all generations and protecting and promoting
labour rights in both our business and
supply chains.
PFG objective
By 2030, we will contribute to reducing
inequality by building our capabilities to better
identify, support and empower our stakeholders
who may face inequality and exclusion whether
it is because of their age/sex/gender identity/
race/ethnicity/origin/disability/ability/where
they live/what their economic status is.
PFG target
To achieve net-zero carbon dioxide emissions
by 2040 (which relates to the scope 1, 2 and 3
emissions that arise from PFG’s operations).
FY 2021 highlights and achievements
Many of the activities and initiatives we support
through the PFG Social Impact Programme
continue to contribute to supporting this
SDG and creating opportunities for inclusive
and sustainable economic growth, full and
productive employment and decent work for
the communities we serve. In 2021, this has
involved providing grants to Ripe Enterprises
to deliver weekly one-to-one and group digital
skills training with employability support
to people experiencing disadvantage in
Southwark and Lambeth, and Autus to deliver
twice weekly online workshops delivering
digital skills training and employability support
to young autistic people. We also continue to
support and participate in the Social Mobility
Business Partnership, which brings together
large corporate organisations and professional
sports clubs to remove barriers, develop
skills and provide experiences to sixth form
and college students from disadvantaged
backgrounds. The programme helps build
aspirations and inspire the students to pursue
a career in a profession that they may not
have previously considered. During 2021,
PFG colleagues played virtual hosts to 33
Year 11 students and delivered presentations
and workshops on a range of legal and
professional topics to inspire the young people
who attended.
FY 2021 highlights and achievements
To support this SDG, and contribute to reducing
inequality, we have provided funding to a
range of projects through our PFG Social
Impact Programme in 2021. For example, we
provided core costs to Leeds GATE – a Gypsy
and Traveller-led youth project – that aims
to build the skills and confidence of this
extremely marginalised community of young
people through a programme of activities
and one-to-one work and by connecting
them to opportunities. We also supported the
Dadihiye Somali Development Organisation
to deliver one day per week of linguistic and
culturally appropriate debt advice supporting
ethnic minority people (predominantly Somali
women) over a year in Kensington and Chelsea.
In terms of providing an inclusive and secure
workplace at PFG, we have our well-established,
Group-wide Inclusion Community, which
comprises five aligned Affinity Groups focused
on Disability, LGBTQ+, Gender Balance, Ethnicity
and Social Mobility. These groups currently have
125 active and representative members, as well
as an extensive network of Affinity Group allies,
and help to coordinate work across the Group
to celebrate, learn and increase awareness
around an extensive range of inclusion and
diversity-related events, including Pride,
Inclusion Week, Living with Autism and Black
History Month.
FY 2021 highlights and achievements
TCFD is built around four overarching pillars:
governance, risk management, strategy,
and metrics and targets, which in turn
include 11 recommendations to support the
development of meaningful climate-related
financial disclosures. Taken together, these
provide a consistent framework for companies
to report on their exposure to material
climate
-r
elated risks and opportunities, and
a means to communicate decision-useful
information to investors, regulators and other
stakeholders. Set out on pages 68 to 72 is
an update on the progress made by PFG
during 2021 in meeting the recommendations
of the TCFD.
Provident Financial plc Annual Report and Financial Statements 2021
14
Our Purpose is to help put
people on a path to a better
everyday life.
We do this by providing customers with
opportunities to borrow in a transparent, responsible
and sustainable way, so they can live their lives with
access to finance.
The Group has been providing financial inclusion
for consumers whose needs are not well met by
mainstream lenders for nearly 140 years. We are
a responsible lender providing tailored products
and service propositions to 1.6 million customers
throughout the UK.
Serving our customers in a responsible manner
As a specialist bank, helping customers in underserved
markets, we provide customers with credit cards, vehicle
finance and personal loans. We help our customers by
offering appropriate and affordable amounts of credit,
maintaining close contact with them throughout the term of
their borrowing, and working with them sympathetically if they
experience difficulties.
Improving customer satisfaction
Customer satisfaction is a key metric for PFG. It helps us
determine whether our products and services are working
for our customers, and also how we can improve them. In
2021 for our credit card product, which has almost 1.5 million
customers, our customer satisfaction rating was 4.7/5,
up on 2020.
Further details on our customers can be found
on pages 52 and 53
Customers (m)
20 21
1.6m
customers
1.8
1.6
Vanquis Bank
Moneybarn
Our Purpose
Helping
our customers
Handling customer complaints responsibly
Keeping customer complaints to an absolute minimum is a
good indicator that we’re treating customers fairly. In 2021
our total number of complaints referred to the Financial
Ombudsman Service was down on 2020. When we do get a
complaint, we aim to ensure our Customer Complaints teams
are the best they can be, and in 2021 we had over 39,000 hours
of customer-focused training for our colleagues.
Supporting customers in vulnerable situations
We know that customers can find themselves in challenging
financial situations, driven often by unforeseen circumstances
such as ill health, loss of income or family bereavement.
We therefore ensure our customer-facing colleagues are
trained to recognise vulnerability, provide forbearance for
our customers who require it, and work with money advice
organisations like the Money Advice Trust and IncomeMax
which can provide tailored support to our customers.
Customer case study - Eric’s story
My name is Eric, I live in South London with my family and I’m
a Resettlement Case Worker and Musician. Music has always
been in my life. It’s been my career for the most part, working
with bands such as The Orb, but more recently I’ve spent more
time doing charity work.
As a Resettlement Case Worker, I work with people who are
homeless, people in recovery and ex-offenders. When people
are recovering from addiction or if they’re an ex-offender, they
need a base. They need a home, so we help in whichever way
we can. I work with clients to help them find somewhere to live,
and then I continue to work with them for a further 12 months.
In that time, I’m working to empower them so they can be
independent and start their life, anew.
I first got a Vanquis card around four years ago because
I needed a credit history. I saw it as Vanquis taking a chance
on me, because I haven’t got much experience using credit.
I was really careful, particularly in the beginning. And, basically,
having the card has got me in the habit of making a small
purchase and paying back on a set date. I try to pay off the
whole balance, but if I don’t, I make a note so that everything
is paid off in due time.
I mainly spend on my card because it is just so convenient. I’ve
got peace of mind and security on my purchases and it’s so
easy to use. I can use it contactless, and manage my account
from my phone or online – it’s wonderful. This week I bought a
laptop with my Vanquis card so that I can do some work, do
some music production and get online on the go. I’m currently
doing some vocals and music production on a dance project,
so hopefully you’ll hear that in the near future!
I mainly spend on my card
because it is just so convenient.
I’ve got peace of mind and
security on my purchases
and it’s so easy to use.
Eric
Resettlement Case Worker
Watch Eric’s full interview at
www.providentfinancial.com/who-we-are/
our-customers/meet-eric
Strategic report
Provident Financial plc Annual Report and Financial Statements 2021
15
Provident Financial plc Annual Report and Financial Statements 2021
16
Our Purpose continued
Supporting
our colleagues
We provide an encouraging, supportive and inclusive workplace
culture. Our colleagues are key to our long-term success, and their
dedication and hard work are what give PFG its unique character and
culture, which enable us to deliver the best service to our customers.
We have around 2,500 colleagues* based in
Bradford, Chatham, London and Petersfield. During
the pandemic they mainly worked from home, with
some colleagues in the office. As we return to the
office, PFG will be implementing a hybrid model,
which will deliver positive outcomes for customers
and colleagues.
Listening to our colleagues’ thoughts and opinions
With lockdown in place for the start of the year, it was important
PFG engaged and supported colleagues through potentially
challenging times. Engagement, though, is a two-way street,
and PFG carried out its colleague engagement survey to find
out what colleagues thought and felt about working here.
Scores for engagement were strong, though slightly down on
2020, which could be due to pandemic tiredness and a desire
to return to normal life. Key colleague engagement scores
for 2021 are:
83%
of colleagues understand
PFG’s Purpose and what we
are trying to achieve
89%
of colleagues feel their
manager treats them fairly
and with respect
84%
of colleagues feel people
help and support each
other at PFG
85%
of colleagues care about
the future of PFG
88%
of colleagues feel well
equipped to work
regardless of whether at
home or in the office
Further details on our colleagues can be found
on pages 56 to 59
* We consider ‘colleagues’ to be full and
part-time colleagues excluding contractors.
Provident Financial plc Annual Report and Financial Statements 2021
17
Strategic report
Spotlight on inclusion and diversity
PFG’s ambition is to create a truly inclusive workplace. To
achieve this, we need to build a diverse workforce that reflects
the customers we serve, and the communities we work in.
In the future we will be setting diversity goals, but that has
not stopped us making progress now. We have successfully
launched our Group-wide Inclusion Community, delivered
targeted training on inclusion, and set-up Peer circles across
the Group through our inclusion Affinity Groups. PFG also
joined the Government’s Social Mobility Taskforce in 2021,
which aims to improve the socio-economic diversity of senior
leaders in financial services.
19.6%
of colleagues informed us they had a disability
or long-term health condition.
19.2%
of colleagues informed us they came from a Black,
Asian or Minority Ethnic background.
6.5%
of colleagues informed us they were part
of the LGBTQ+ community.
17.2%
of colleagues informed us they had free school meals and
33.7% of colleagues came from a working class background.
Read more about how we support our colleagues at
www.providentfinancial.com/sustainability/
supporting-our-colleagues
I chose to lead the Ethnicity Affinity
Group because I wanted to make
a difference for our colleagues as
well as customers. I have the ability
to shape PFG’s culture, ensuring our
diverse workforce feels included in
every way, and to help create an
environment that colleagues and
customers can be proud of.
Rita Patel
Solutions Architect
Focus on gender diversity
A key area of activity for PFG has been gender diversity. The
Group is striving to achieve a better balance going forward in
gender for our senior leadership population. In 2019 the Group
signed the HM Treasury Women in Finance Charter, with a
target of achieving 40% female representation in the Group’s
senior management population by 2024. We are on track to
achieve this aim and have completed various initiatives in
2021 to help us achieve it. For example, we delivered the Next
Generation Women’s Leadership Programme, and gender
balanced short-lists for all senior leadership vacancies.
27%
of senior management representation is female.
37%
of employees who received a promotion identified as female.
Our commitment to colleague health, safety
and wellbeing
At PFG we recognise the importance of supporting colleague
mental health and wellbeing, both in terms of our individual
colleague’s welfare and the impact it can have on our
customers. We have promoted and arranged targeted
activities on mental health and wellbeing, whilst fostering
an internal culture of resilience and openness. We provide
a dedicated Employee Assistance Programme, work with
the Bank Workers Charity on wellbeing, and have delivered
live colleague sessions with it on ‘Positive mental health in
the workplace’ and reduce/raise awareness of loneliness
and isolation.
Provident Financial plc Annual Report and Financial Statements 2021
18
Our Purpose continued
Investing in
our communities
We support our Purpose through
our Social Impact Programme. Its
aim is to address the key barriers
to financial and social exclusion,
and help people overcome them.
Our Corporate Responsibility Programme is based
on the core themes of ‘customers, education
and community partners’, and supports the UN
Sustainable Development Goals programme. We
invest in activities that could affect someone’s ability
to get credit. We support children, young people and
adults to boost their education and skills, so they
can participate better in society, and we support
community projects in areas where people are more
likely to face social and financial exclusion.
In 2021 we invested £1.4m in our Corporate Responsibility
Programme, of which £307,000 was invested in 51 grass
roots voluntary organisations via community foundations.
Colleagues also volunteered 425 hours for community projects.
Unlocking talent in our communities
Through our education programme we have partnered with
literacy and numeracy organisations to help young people
in disadvantaged areas. In 2021 we supported National
Numeracy’s National Numeracy Day, aimed at getting
everyone to improve their numeracy. With the National Literacy
Trust, we worked with schools in London and Birmingham, and
help to deliver its ‘Early Words Together’ programme. With
Leading Children, through a partnership with an Education
Consultant, we worked with teachers in Bradford which helped
Nursery and Reception teachers improve their teaching of
literacy. Also, with School-Home Support, we worked with
practitioners in Bradford and Medway, to help break down any
barriers that could prevent children from attending school.
Cash
2021: £1,230,677
2020: £1,035,984
Management costs
2021: £126,649
2020: £143,129
Value of employee time
2021: £12,116
2020: £11,219
2021 community
investment figures
Further details on our communities
can be found on pages 62 to 67
Cash Management
costs
Value of
employee
time
Total
£1,369,442
2020: £1,190,332
Provident Financial plc Annual Report and Financial Statements 2021
19
Strategic report
How our community foundation
partnerships work
We work community foundation partners in our key
colleague locations: Bradford, Chatham, London and
Petersfield. The funding we provide supports financial
inclusion and social mobility and involves our colleagues
in their respective locations by making grants to local
charities that support our aims. In 2021 we allocated
over £300,000 to 51 of these projects.
In London, we funded the Havelock Family Centre to deliver
money management workshops to vulnerable clients
experiencing financial difficulties.
In Bradford we funded Bradford Community Broadcasting,
which helps children and young people to increase their
oracy, digital skills, confidence and self-esteem.
In Petersfield, we funded Wet Wheels, which provides
sailing trips to people with disabilities aimed at increasing
mental health and mental wellbeing.
In Chatham, we funded Refocus, which provides
educational sessions on the dangers around gangs,
violence, drugs and grooming.
Read more about how we invest in our communities at
www.providentfinancial.com/sustainability/investing-our-communities
I just want to say a huge thank you
to PFG for the amazing contribution it
makes to School-Home Support. 2021
was a challenging year for so many
of the families we work with, but PFG’s
continued commitment has helped
us to give every child the chance to
thrive and achieve despite immense
challenges caused by the pandemic.
Jaine Stannard
School-Home Support CEO
Provident Financial plc Annual Report and Financial Statements 2021
20
A bank for the underserved
Becoming a leading
specialist bank focused
on underserved markets
We want to be the best and most trusted provider of credit
to customers not well served by mainstream finance. We will
support our customers on the path to a better everyday life
through a broad range of products and distribution channels.
The starting point on this journey is Vanquis, which, through its banking licence, will provide the anchor from which
we can explore funding opportunities and efficiencies to benefit the whole Group.
Our vision is to be a bank focused on underserved markets in the UK
+
Funded through:
– Retail deposits
(fixed term and instant access)
– Securitisation
Product offering:
– Revolving credit (Vanquis Bank)
– Secured finance (Moneybarn)
– Loans (Vanquis Bank
and Sunflower)
– Helping customers save
Well positioned in
growing addressable
markets across…
– Credit cards
– Vehicle finance
– Personal loans
…underpinned by a
customer-centric vision
and strong balance sheet
– Well capitalised for growth
– Access to retail deposit funding
– Capital management
framework
A long-term, sustainable business model targeting sustainable and attractive returns to shareholders
…targeting
sustainable returns
– Strong receivables growth
over the medium term
– Attractive returns
on a sustainable basis
– The Board anticipates moving
towards a pay-out ratio of
circa 40% from FY’22 onwards
*
,
subject to market conditions
and on a sustainable basis
1 2 3
How we will become a bank focused on underserved markets
* Dividends to be paid out of adjusted earnings, which is defined as profit after tax before amortisation of acquisition intangibles and any exceptional items
including one-off provision releases.
Provident Financial plc Annual Report and Financial Statements 2021
21
Strategic report
How we will become a bank focused on underserved markets
Our focus will be on providing customers with credit products appropriate for their circumstances, delivering good customer
outcomes and, through this, generating sustainable shareholder returns. To do this we will:
Deliver a broader product range
Establish a single view of our customer
Enhance our distribution capabilities
Grow responsibly, delivering
sustainable shareholder returns
One
Group
One
One
team
– During 2021, PFG has moved away from serving the high-cost segment of the credit market following its withdrawal from
the home credit and high-cost short-term credit markets. We see this transition as being a core part of our drive towards
making PFG a more sustainable lender, focused on providing much needed credit to our customers, whilst enabling good
customer outcomes and providing sustainable returns for our shareholders over the medium term.
– Looking forward, we’re moving towards a Group-level structure which operates the product lines and is supported by
shared central services and centres of excellence:
Credit cards Vehicle finance Personal loans
Savings
Other products
– Restructuring the Board of Vanquis Bank to substantially align its membership
with the Board of PFG (announced 13 January) was the next phase in the journey
and will drive increased efficiency and improved corporate governance
and oversight.
– Shared services and centres of excellence will facilitate sharing of best practice
across the Group.
– The streamlining of the Vanquis Bank and PFG Boards is an important part of the
Group’s plans to enable it to utilise its retail deposit funding more widely across
the Group from H2’22, reducing cost of funds and increasing funding optionality.
– PFG will remain structured around its core product lines (credit cards, vehicle
finance, personal loans and savings) whilst exploring opportunities for expansion
into adjacent markets.
PLC
Retail deposit funding
Shared central services and centres of excellence and single customer view
Product lines
Provident Financial plc Annual Report and Financial Statements 2021
22
PFG is a leading specialist bank and a constituent of the FTSE 250 Index. We aim to deliver attractive
and sustainable returns for our shareholders through our strong market positions, robust balance
sheet and competitive advantages. Our investment case is based on five key areas:
Investment case
We operate in growing
addressable markets
We are well positioned in the large and growing
market segments across credit cards, vehicle
finance and unsecured personal loans
In the UK, there are between 10 and 14 million working adults who are
underserved by mainstream lenders. With our broad range of products
and services, we are well positioned to be the credit provider of choice
for these customers. In aggregate our addressable market is >£17bn.
We have a Purpose-driven strategic Blueprint,
which sets us up for sustainable growth
Our Blueprint brings together why PFG exists as an organisation, framed in
the context of the role our business plays in the lives of our customers. It also
sets out the strategic focus and key priorities that will drive both competitive
advantage and commercial success for the whole Group. From our recent
colleague survey 85% of colleagues care about the future of PFG.
We have a customer-centric, responsible culture
While our customers share many similarities with mainstream credit
customers, there are important differences arising from their individual
circumstances. Our customers need a tailored approach and a wider range
of suitable and sustainable credit solutions to best serve their needs. We
aim to put the customer on the team. We have invested in a brand new
IT platform that in the future will support all of our products.
Financial resilience and strong capital position
Over the medium term, our plan is to become a broader banking group
operating in underserved markets. To achieve this, we are working
collaboratively across the Group and focusing on our customers. We have
significant opportunities to take our Group forward as we look towards new
markets, new products and new digital advancements and we have the
financial strength to achieve this. Our Total Capital Ratio is >40%.
Sustainable growth over the medium term
To support the delivery of our Purpose, we have a financial model founded
on investing in customer-centric businesses with attractive returns, which
aligns an appropriate capital structure with the Group’s dividend policy
and future growth plans. We will operate with a progressive dividend policy
and we anticipate moving towards a payout ratio of approximately 40%
of adjusted earnings from 2022.
>£17bn
Read more on
pages 34 to 39
85%
Read more on
pages 26 to 30
New IT
platform
Read more on
pages 14 and 15
>40%
Read more on
pages 102 to 107
>30%
Read more on
pages 48 to 74
Strategic report
Provident Financial plc Annual Report and Financial Statements 2021
23
Customer case study - Graeme’s story
My name’s Graeme and I live in London with my partner in a Mews
just off the back of Regent’s park. We live in a three-storey town
house and, given where it is, it’s quite small, but it’s very quiet round
here and we like it. I run my own companies in the insurance industry
and I’ve done that most of my adult life, since I left the army.
I had a financial catastrophe about five years ago when my
businesses all went into liquidation and as a result I was made
bankrupt because of personal guarantees I’d given to banks.
I came out of bankruptcy three years ago, and when I did, my
credit rating was about as poor as it was going to get, so I had
to restructure my life.
I was able to start my own businesses again, which I did, but with
the credit rating I had, getting any sort of credit card just felt
impossible. A few months later, I was checking my credit score
regularly, and Vanquis came up as an option that might offer
me a credit card. I applied to them and to my surprise, I was
granted one. And I’ve used it ever since. The card is contactless
as well which is helpful and I got it at a time when no one else
would help me.
In the three years I’ve had the card, my rating has improved
massively; they’ve increased my credit limit as I’ve used it too.
I like the Vanquis app because it’s simple; it’s dead easy to use
and I’m not a massive technological wizard. It’s always got your
balance right in front of you, what your next bill is and what you’ve
spent, so I’m ever so happy with it. For me, it’s just so easy.
I would absolutely recommend Vanquis to anyone. They helped
me out when no one else would, and I’m more confident
financially because of this.
In the three years I’ve had the
card, my rating has improved
massively; they’ve increased my
credit limit as I’ve used it too.
Graeme
Business Consultant
Watch Graeme’s full interview at
www.providentfinancial.com/who-we-are/
our-customers/meet-graeme
Provident Financial plc Annual Report and Financial Statements 2021
24
Business model
We are driven by our
Purpose to create value
for our stakeholders
Customers
Our 1.6 million customers are at the heart of what we do; they
are the 20% of UK adults who at any one time are looking for
something that mainstream lenders do not offer.
– We have developed tailored products to meet their
needs through a detailed understanding of their needs
and challenges.
– We carefully assess affordability and creditworthiness
and are specialists in managing arrears and supporting
customers in financial difficulty.
– Our Customer, Culture and Ethics Committee is focused
on ensuring the best outcomes for customers across all
our customer interactions.
Colleagues
Our 3,000 colleagues are critical to delivering our business
model. The success of the Group is dependent upon
having motivated colleagues with the right expertise
and skills to help deliver our strategy.
– We conduct an annual colleague survey to register
sentiment and continually focus on making
improvements for the betterment of our colleagues.
– We have diversity and inclusion working groups
(focusing on gender, race, disability and LGBTQ+)
that meet regularly and focus on ensuring the work
environment is inclusive.
– We offer support to colleagues through our Employee
Assistance Programme (EAP) and through the provision
of the Thrive app to all colleagues.
Equity and debt investors
We secure long-term, lower-rate funding through strong
relationships with our lending banks, depositors and
investors. We engage in discussions with our equity and
debt investors to understand their needs and expectations
leading to better outcomes over the long term and
improving our sustainability.
– We interact with debt investors and shareholders
through half-yearly results presentations, regular
trading updates and management meetings.
– Our Board and ExCo receive periodic updates from
Investor Relations on market activity and investor sentiment.
– Our Tier 2 debt issuance in October 2021 was oversubscribed.
Suppliers
Our suppliers are essential to provide our divisions with
the goods and services required to enable us to continue
to meet our customers’ needs. They play a vital role in
our operations so it is important that we develop strong
relationships with them.
– We have launched a new Supplier Management
Framework to engage with suppliers effectively including
having executive sponsorship for our key relationships.
– We have signed up to the Prompt Payment Code and
are committed to paying the majority of our suppliers
within 30 days.
Communities
Our community investment strategy is aligned to our social
purpose and seeks to invest in activities and initiatives which
address the key factors that tend to reduce access to credit.
– In 2021, we invested £1.4m in the PFG Social Impact
Programme, which supports our partners in addressing
issues such as customer vulnerability and financial
difficulties, helping children, young people and adults
to boost their education and enabling community
foundations and other partners to address a wide range
of social inclusion and social mobility issues.
– Our CEO became a member of the National Numeracy
Leadership Council in September 2021, which aims
to grow the network of organisations and individuals
actively addressing the issue of poor numeracy and
elevate the understanding and importance of the issue
at a national level.
Regulators and government
We believe maintaining an open, constructive and trusting
dialogue with policymakers and regulators (the Prudential
Regulation Authority (PRA) and Financial Conduct Authority
(FCA)) is critical. We work closely with our regulators to
ensure we meet all regulatory standards and contribute
to a safe and robust banking system.
– We have submitted our application to the PRA to allow
us to use retail deposits to fund different parts of the Group.
– Our CEO was a member of the Woolard Review advisory panel.
– During the Scheme of Arrangement, we worked
collaboratively and openly with the FCA to deliver
the best outcome for customers.
At our core, we focus on acting responsibly and sustainably in all our stakeholder relationships:
We respond to the needs of our stakeholders by creating a fair, inclusive and diverse workplace,
supporting our local communities, responding to climate change, treating suppliers fairly,
and engaging with them on environmental, social and governance (ESG) matters.
Read more on pages 50 and 51
Provident Financial plc Annual Report and Financial Statements 2021
25
Strategic report
1
We develop tailored
products to meet
customers’ needs.
We focus on the UK credit market,
developing simple, transparent
products with flexibility to help
customers manage life despite
not being well served by
mainstream lenders.
4
We lend responsibly.
We tend to lend smaller
amounts over shorter periods
and only lend when customers
demonstrate suitability.
5
We collect payments due.
We offer many ways for customers
to pay or get in touch to discuss
their payments. We maintain
frequent customer contact and
stay close to customers through
our call centres and digital
communications (including
texts, emails and mobile
app notifications).
3
We carefully assess
customer affordability
and creditworthiness.
We use internal and external data,
taking into account both the
current situation and the likely
future.
6
We manage arrears and
customer difficulties.
We establish early contact and
ensure an ongoing dialogue
with customers who have
difficulties. This provides a
sympathetic approach to
understand customer
circumstances and
offer forbearance.
2
We attract customers
who we can serve.
We use many ways to reach
consumers including increasingly
digital methods, as well as
through partners such as
agents and brokers.
Customers are
at the heart
of what we do
How we help to put people on a better path
We support financial inclusion and social mobility by lending
responsibly to the financially underserved
Read more on pages 48 to 53
Provident Financial plc Annual Report and Financial Statements 2021
26
Grow customer-centric businesses
which continue to diversify to meet customer
expectations by delivering positive outcomes
and providing positive returns for shareholders.
Act responsibly and with integrity
in all we do. Create sustainable businesses
which our stakeholders are proud to be a part of.
Maintain a secure funding
and capital structure
to enable us to continue to provide
for all of our stakeholders.
Objective
– Grow businesses to provide customers with products
which help put them on a path to a better everyday life.
– Tailor products to meet the needs of our customers.
– Ensure products are distributed and collected in a way
which meets both customer and regulator expectations.
– Generate a sustainable return from each division
which meets the Group’s target returns.
Objective
– Lend to customers in a sustainable manner, offering support
when needed throughout the customer journey.
– Develop a positive and proactive relationship with
the regulators.
– Ensure colleagues are proud of what they do and how it will
benefit customers’ lives.
– Generate sustainable profitability to provide a positive return
to shareholders.
– Continue to support the communities where we lend.
– Treat all suppliers fairly.
Objective
– Maintain a secure funding structure which meets contractual
maturities and fund growth over the subsequent 12 months.
– Diversify the Group’s funding sources.
– Maintain regulatory headroom above internally set risk
appetite limits, which are in excess of our regulatory
prescribed requirements.
– Adopt a progressive dividend policy.
Performance
£167.8m
Adjusted profit
– continuing
operations
1.6m
Customers
£1.7bn
Amounts receivable
from customers
Performance
71%
Colleague
engagement
£1.4m
Community
investment
12p
Dividend
per share
Performance
29.1%
CET1 ratio
£0.4bn
Liquidity
£290m
Funding headroom
Read more on page 25 Read more on page 26 Read more on page 27
Progress in 2021
– Launch of personal loans pilots in the open market through
both the Vanquis and Sunflower brands.
– Broadening of Vanquis Bank card offering including trials
of a number of new APRs and balance transfer offers.
– Closure of the Consumer Credit Division including write off
of balances outstanding at year end.
– Launch of near-prime offering in Moneybarn.
– Successful launch of Scheme of Arrangement.
Progress in 2021
– LOQBOX partnership launched with Vanquis Bank to build
customer credit scores.
– Group inclusion and diversity programme established.
– During the Scheme of Arrangement, we worked collaboratively
and openly with the FCA to deliver the best outcome
for customers.
– Launch of new Supplier Management Framework.
– Our CEO joined the National Numeracy Leadership Council.
– Continued investment in the community.
Progress in 2021
– Successful issuance of £200m Tier 2 debt capital providing
capacity for future growth.
– Successful tender and buyback of £71m of £175m 2023
Senior Bonds.
– Completion of access to Bank of England Liquidity
and Funding Schemes (TFSME).
– Submission of application to the PRA to allow us to use retail
deposits to fund different parts of the Group.
– Reduction in liquidity to more normalised levels (following
steps taken in 2020 to increase liquidity at the onset of the
Covid-19 pandemic).
– Resumption of dividends.
Challenges in 2021
– Continued lower credit card spend as a result of Covid-19
restrictions, particularly in the travel sector.
– Rising inflation and cost of living squeeze risks impacting
customers’ disposable incomes.
Challenges in 2021
– Overall colleague engagement score fell to 68% (from 72%).
– Establishment and roll-out of hybrid working for colleagues.
Challenges in 2021
– Integration of PFG and Vanquis Bank Treasury teams.
Risks
– Credit risk.
– Operational risk.
– Information and
data security risk.
– Regulatory risk.
– Conduct risk.
– Business
resilience risk.
– People risk.
– Model risk.
Risks
– Information and data security risk.
– Conduct risk.
– People risk.
Risks
– Capital risk.
– Liquidity and funding risk.
– Model risk.
Read more on pages 48 to 61 Read more on pages 48 to 61 Read more on pages 48 to 61
Focus for 2022
– Leverage existing expertise to expand the Group’s personal
loans pilots.
– Broadening of Vanquis Bank proposition including launch
of digital wallets.
– Continued growth of the Moneybarn near-prime
product offering.
– Consideration of launch of new asset classes in Moneybarn.
– Complete customer remediation through the Scheme
of Arrangement.
Focus for 2022
– Continued investment in the communities we serve through
community foundation partnerships.
– Maintain existing high levels of customer satisfaction.
– Development of the IR programme and a 2022 Capital Markets
Day to communicate the Group’s ongoing strategy following
a period of significant change.
Focus for 2022
– Delivery of application to the PRA to allow us to use retail
deposits to fund different parts of the Group, resulting in lower
cost of funds for the non-bank group.
– Ongoing diversification of the non-bank group funding.
Our Blueprint strategic drivers
Our Blueprint strategic drivers
Our Blueprint strategic drivers
Strategy
Building a
sustainable
Group
The Group’s strategy provides the direction
needed to ensure that we can help to put
people on a path to a better everyday life.
The strategy has remained consistent over time but
has, more recently, been supported by the strategic
Blueprint. This defines not only what we do, but how
we do it. The three key pillars of our strategy are
aligned to the Blueprint which ensures all of our
decisions are aligned to stakeholder expectations.
When stakeholder expectations are aligned, we can
build a sustainable Group which will continue to
provide for both our current and future customers.
Our Blueprint strategic drivers
Customer progression
Head AND heart decisions
Human experiences
Fighting fit
Key
Certain alternative performance measures (APMs) have
been used in this report. See pages 245 and 246 for an
explanation of relevance as well as their definition.
1
Provident Financial plc Annual Report and Financial Statements 2021
27
Strategic report
Grow customer-centric businesses
which continue to diversify to meet customer
expectations by delivering positive outcomes
and providing positive returns for shareholders.
Act responsibly and with integrity
in all we do. Create sustainable businesses
which our stakeholders are proud to be a part of.
Maintain a secure funding
and capital structure
to enable us to continue to provide
for all of our stakeholders.
Objective
– Grow businesses to provide customers with products
which help put them on a path to a better everyday life.
– Tailor products to meet the needs of our customers.
– Ensure products are distributed and collected in a way
which meets both customer and regulator expectations.
– Generate a sustainable return from each division
which meets the Group’s target returns.
Objective
– Lend to customers in a sustainable manner, offering support
when needed throughout the customer journey.
– Develop a positive and proactive relationship with
the regulators.
– Ensure colleagues are proud of what they do and how it will
benefit customers’ lives.
– Generate sustainable profitability to provide a positive return
to shareholders.
– Continue to support the communities where we lend.
– Treat all suppliers fairly.
Objective
– Maintain a secure funding structure which meets contractual
maturities and fund growth over the subsequent 12 months.
– Diversify the Group’s funding sources.
– Maintain regulatory headroom above internally set risk
appetite limits, which are in excess of our regulatory
prescribed requirements.
– Adopt a progressive dividend policy.
Performance
£167.8m
Adjusted profit
– continuing
operations
1.6m
Customers
£1.7bn
Amounts receivable
from customers
Performance
71%
Colleague
engagement
£1.4m
Community
investment
12p
Dividend
per share
Performance
29.1%
CET1 ratio
£0.4bn
Liquidity
£290m
Funding headroom
Read more on page 25 Read more on page 26 Read more on page 27
Progress in 2021
– Launch of personal loans pilots in the open market through
both the Vanquis and Sunflower brands.
– Broadening of Vanquis Bank card offering including trials
of a number of new APRs and balance transfer offers.
– Closure of the Consumer Credit Division including write off
of balances outstanding at year end.
– Launch of near-prime offering in Moneybarn.
– Successful launch of Scheme of Arrangement.
Progress in 2021
– LOQBOX partnership launched with Vanquis Bank to build
customer credit scores.
– Group inclusion and diversity programme established.
– During the Scheme of Arrangement, we worked collaboratively
and openly with the FCA to deliver the best outcome
for customers.
– Launch of new Supplier Management Framework.
– Our CEO joined the National Numeracy Leadership Council.
– Continued investment in the community.
Progress in 2021
– Successful issuance of £200m Tier 2 debt capital providing
capacity for future growth.
– Successful tender and buyback of £71m of £175m 2023
Senior Bonds.
– Completion of access to Bank of England Liquidity
and Funding Schemes (TFSME).
– Submission of application to the PRA to allow us to use retail
deposits to fund different parts of the Group.
– Reduction in liquidity to more normalised levels (following
steps taken in 2020 to increase liquidity at the onset of the
Covid-19 pandemic).
– Resumption of dividends.
Challenges in 2021
– Continued lower credit card spend as a result of Covid-19
restrictions, particularly in the travel sector.
– Rising inflation and cost of living squeeze risks impacting
customers’ disposable incomes.
Challenges in 2021
– Overall colleague engagement score fell to 68% (from 72%).
– Establishment and roll-out of hybrid working for colleagues.
Challenges in 2021
– Integration of PFG and Vanquis Bank Treasury teams.
Risks
– Credit risk.
– Operational risk.
– Information and
data security risk.
– Regulatory risk.
– Conduct risk.
– Business
resilience risk.
– People risk.
– Model risk.
Risks
– Information and data security risk.
– Conduct risk.
– People risk.
Risks
– Capital risk.
– Liquidity and funding risk.
– Model risk.
Read more on pages 48 to 61 Read more on pages 48 to 61 Read more on pages 48 to 61
Focus for 2022
– Leverage existing expertise to expand the Group’s personal
loans pilots.
– Broadening of Vanquis Bank proposition including launch
of digital wallets.
– Continued growth of the Moneybarn near-prime
product offering.
– Consideration of launch of new asset classes in Moneybarn.
– Complete customer remediation through the Scheme
of Arrangement.
Focus for 2022
– Continued investment in the communities we serve through
community foundation partnerships.
– Maintain existing high levels of customer satisfaction.
– Development of the IR programme and a 2022 Capital Markets
Day to communicate the Group’s ongoing strategy following
a period of significant change.
Focus for 2022
– Delivery of application to the PRA to allow us to use retail
deposits to fund different parts of the Group, resulting in lower
cost of funds for the non-bank group.
– Ongoing diversification of the non-bank group funding.
Our Blueprint strategic drivers
Our Blueprint strategic drivers
Our Blueprint strategic drivers
2 3
Provident Financial plc Annual Report and Financial Statements 2021
28
We moved out of London because
I was offered a media teaching job
with better prospects at a college in
Basingstoke. But I could only take it if I
had a car. When I got my car through
Moneybarn and started my job, I was
just teaching media studies, but now
I’m leading my course and teaching a
new subject and have taken on more
responsibility in the college, which is
really quite nice because I’m evolving
within my career.
Natasha
Media and E-Sports Teacher
Strategy continued
Grow customer-centric businesses
Our strategy
in action
Launch of personal loans
Our Purpose is to help put people on a path to a better
everyday life by supplying personal credit products to the
non-prime population. The broader the range of credit profile
we can support, the better we fulfil this Purpose. In support
of this we launched two loan propositions in 2021:
– The Vanquis Loans proposition is an expansion of our
existing customer offering which launched in 2016. It
utilises the significant learnings made (across credit
risk, customer servicing, IT systems and others) through
our existing customer lending and provides unsecured
personal loans to customers, predominantly via brokers.
– The Sunflower Loans proposition has been designed to
address a customer demographic that sits at a slightly
higher risk profile than those being served through
Vanquis. With this customer profile, particular care has
been taken to build a robust approach to creditworthiness
and the customer journey includes speaking with
customers to validate their application.
We recognise the need to continually evolve in an increasingly
digital and competitive landscape. Our Sunflower Loans
product has been delivered on a new IT platform (named
Gateway) using best in class third-party providers. The
Gateway platform has been designed to be agile, ensuring
it is adaptable, can be changed rapidly and will provide a
source of competitive advantage into the future. In addition,
the Gateway platform has the potential to provide the IT
infrastructure for every product across the Group in time.
Moneybarn expansion into near prime
In recent years, Moneybarn has expanded from not only
providing cars to our customers but also offering finance
on motorbikes and vans. This followed increased demand
and therefore our offering has been adapted to meet
customers’ needs.
Across 2020 and 2021, the credit quality of our customers
has improved and we have significantly reduced the level of
lending in the highest risk bands. In addition, in January 2021,
we launched our near-prime vehicle finance product. This has
increased the size of our addressable market and provides a
large area for future growth.
1
Provident Financial plc Annual Report and Financial Statements 2021
29
Strategic report
I’m really grateful to Vanquis
because they gave me a card
when no one else would help me
out. Since then I’ve been able to
build up my credit rating by buying
my everyday shopping on my card
and paying it off the next month.
The app is good as well because it
sends me little reminders, so I don’t
get behind or anything.
Stephen
Warehouse Manager
Supporting our customers
PFG is in the business of providing tailored and responsible
products, services and partnerships. We serve a wide range
of customers. Some may bring in a regular salary while others
have less consistent incomes or receive benefits. Many bring
home average salaries, but we also work with customers
with lower incomes and those who have had to deal with
significant life events, such as divorce, job losses or long-term
illness, which can cause them financial difficulty.
Short or longer-term financial difficulties can damage
customers’ credit files, which can lead to them being
underserved or totally excluded by prime lenders. The
products, services and partnerships we offer are made to
meet the specific needs of these customers in the non-prime
market. Our services can help people enter or re-enter the
credit market, stay in control of their finances and build up
their credit scores for the future.
Supporting our communities
In 2021, we invested £1.4m in the PFG Social Impact Programme
which supports our Purpose by addressing the key barriers to
social and financial inclusion by helping people to overcome
them. Through our Social Impact Programme, we support
charities and specialist partners to address issues such as:
– customer vulnerability and financial difficulties;
– supporting children, young people and adults to boost
their education and skills; and
– aiding community foundations and other partners in
addressing the wide range of social inclusion and social
mobility issues.
During 2021, we offered a number of Company-led
volunteering opportunities to colleagues through our Social
Impact Programme where 25 colleagues took part in 6 grant
panels giving 175 volunteering hours.
In support of our Social Impact Programme, our CEO became
a member of the National Numeracy Leadership Council
in September 2021. The National Numeracy Leadership
Council aims to grow the network of organisations and
individuals actively addressing the issue of poor numeracy
and elevate the understanding and importance of the issue
at a national level.
25 6 175
colleagues
took part in
grant panels giving volunteering hours
during work time
Act responsibly and with integrity
2
Provident Financial plc Annual Report and Financial Statements 2021
30
Maintain a secure funding
and capital structure
Our strategy
in action continued
Strategy continued
Capital
At December 2021, PFG had capital resources significantly
in excess of the overall capital requirement. This follows
a successful Tier 2 capital issue of £200m in Q4’21.
PFG retains a credit rating, has extensive wholesale markets
franchise and has observed strong performance in debt
capital markets, providing numerous opportunities for
additional capital to be raised should it be required.
Funding
At December 2021 and early into 2022 the Group had a
highly liquid position, with in excess of £300m held by both
Vanquis Bank and the Group above liquidity coverage
ratio requirements.
During 2021 and into early 2022, we have optimised our funding
maturity profile meaning the Group now has no wholesale
funding maturities until 2023. This activity included:
– refinancing and upsizing Moneybarn’s bilateral
securitisation to at least 2023;
– issuing £200m of Tier 2 subordinated debt capital;
– Vanquis Bank AAA-rated notes were accepted as
eligible collateral for the Bank of England Liquidity
and Funding Schemes;
– continued access to £2bn EMTN Programme, updated
in September 2021;
– repayment of £65m retail bond in September 2021;
– tender and buyback of £71m 2023 Senior Bonds
(previously £175m outstanding); and
– early repayment of the RCF borrowing.
In addition, post year end, we have submitted our application
to the PRA to allow us to use retail deposits to fund different
parts of the Group.
Read more on page 106
PFG funding (£m)
2,281 1,972
Facilities
Retail deposits
Tier 2
TFSME
Senior bonds
Retail bonds
Securitisation
RCF
Undrawn capacity
Dec
20
Dec
21
*
79
69
150
125
175
1,683
275
30
110
60
104
174
200
£598m
£953m
3
1,019
* The undrawn capacity reduced to £50m
on early repayment of the RCF in March 2022.
Provident Financial plc Annual Report and Financial Statements 2021
31
Strategic report
Key performance indicators
Adjusted PBT –
continuing operations (£m)
Statutory PBT –
continuing operations (£m)
Adjusted basic EPS –
continuing operations (p)
Customer receivables –
continuing operations (£bn)
19 19 19
1919
20 20 20
2020
21 21 21
2121
£167.8m
Performance
£142.2m
Performance
55.1%
Performance
57.5p
Performance
£1.7bn
Performance
25.5%
Performance
Adjusted ROE –
continuing operations (%)
Definition
Adjusted profit/(loss) before tax is stated before amortisation of acquisition intangibles,
discontinued operations and exceptional items. Statutory profit/(loss) before tax is stated
before discontinued operations.
Strategic focus
Profits/(losses) which will impact organic investment within the Group or dividend payments
to the Group’s shareholders.
Comment
Adjusted profit has increased by £140.0m and statutory profit by £179.2m. As the credit outlook
has improved, impairment provisions raised following the onset of Covid-19 have been released.
This has been partially offset by increased investment in the Group transformation programme.
Definition
Adjusted PBT for continuing operations
divided by the weighted average number
of shares in issue.
Strategic focus
Demonstrates value generated/(sustained)
per shareholder.
Comment
Profit has increased in the year following
improvements in the macroeconomic outlook
driving lower impairments. Share capital has
remained unchanged.
Definition
Amounts receivable from customers
as reported on the balance sheet for the
Group’s continuing operations representing
gross receivables less impairment provision
calculated in accordance with IFRS 9.
Strategic focus
Amounts receivable from customers in
helping to put them on a path to a better
everyday life.
Comment
Customer receivables have remained stable
with a reduction in credit card receivables as
a result of lower customer spending offset by
growth in vehicle finance.
Definition
Adjusted annualised operating costs as a
percentage of annualised net interest margin
for continuing operations.
Strategic focus
Efficiency of the cost base in delivering returns.
Cost to income ratio is expected to reduce
marginally in FY’22 versus FY’21, including the
remaining transformation investment in the
Group’s businesses. We expect it to reduce to
circa 40% from the end of 2024 onwards as the
Group benefits from operational efficiencies
as a result of its transformation programme.
Comment
Deteriorated cost:income ratio in 2021 largely
due to increased spend on the Group’s
transformation programme.
Definition
Adjusted profit after tax for continuing
operations as a percentage of average equity.
Equity is stated after deducting the Group’s
pension asset, net of deferred tax, and the fair
value of derivative financial instruments.
Strategic focus
Returns generated on equity held show
how efficiently the Group is delivering
for its shareholders.
Comment
Profitability has improved following the release
of impairment provisions as macroeconomic
expectations have improved.
173.6
154.2
Cost:income ratio –
continuing operations (%)
19 20 21
33.9
38.6
55.1
2.0
1.7
1.7
27.8
(37.0)
11.7
57.5
25.5
4.7
17.1
49.2
167.8
142.2
RR
R
R
The key performance indicators (KPIs) represent the principal metrics reported to Group management
on a monthly basis to support the strategic decision making across the Group.
Grow customer-centric businesses
1
Provident Financial plc Annual Report and Financial Statements 2021
32
Employee numbers (‘000) Dividend per share (p)
Customer satisfaction
Employee engagement (%)
Community investment (£m)
19 19
19 19
1920 20
20 2120 20
2021 21
21 21
21
2.5k 12p
Performance
Credit
cards
4.7
Vehicle
finance
4.4
Feefo rating
(out of 5)
71%
£1.4m
Definition
Number of people working for the Group at
year end under contracts of employment.
Strategic focus
Number of employees delivering
for all stakeholders.
Comment
Employee numbers continued to decrease
following the decision to close CCD.
Definition
Dividends declared in the period.
Strategic focus
Dividend returns provided to our shareholders
from the value generated by the Group. Subject
to market conditions the Group expects to move
to a dividend pay-out ratio of circa 40% of
adjusted earnings from FY’22 onwards.
Comment
2021 dividend represents a pay-out ratio of
adjusted continuing earnings of approximately
30%. Adjusted earnings of £98m in 2021 is defined
as profit after tax from continuing operations
before amortisation of acquisition intangibles
and any exceptional items including one-off
provision releases.
Definition
The rate at which surveyed customers were satisfied
(or more than satisfied) with the service they have been provided.
Strategic focus
Demonstrates how happy our customers are with the service they
are receiving.
Comment
Customers participating in the customer surveys have continued
to demonstrate they are satisfied with the service being provided.
Definition
The number of employees who responded
to the Colleague Pulse Survey, divided by the
number of employees who were asked to
respond to the survey.
Strategic focus
Employees feeling engaged at work and
wanting to provide their views to improve
the Group.
Comment
Survey response rate decreased, but still
provides a strong representative sample
for decision making.
Definition
The cash cost of contributions provided
to community projects or charities.
Strategic focus
Investments in the communities we serve
to improve our customers’ lives.
Comment
The Group has committed to invest 1%
of returns in the communities it serves.
This has resumed growth as the Group
has returned to profitability.
4.9
4.2
2.5
4.5
4.6
4.7 4.6
4.5
4.4
1.7
1.2
1.4
74
71
9
12
—
Act responsibly and with integrity
2
Key performance indicators continued
Provident Financial plc Annual Report and Financial Statements 2021
33
Strategic report
Funding headroom (£m)
CET1 ratio (%) Total capital ratio (%)
19
19 19
19
20
20 20
20
21
21 21
21
£290.2m
Performance
29.1%
Performance
40.6%
Performance
32.6%
Performance
Adjusted RORE -
continuing operations (%)
Definition
Available cash reserves and funding on
committed facilities to fund the non-bank
group businesses.
Strategic focus
Demonstrates liquidity immediately available
to fund the non-bank group.
Comment
Funding headroom has increased as a
result of refinancing actions taken to move
contractual maturities on the Group’s
borrowings to 2023 and beyond, together with
the issuance of £200m of Tier 2 debt capital
that pre-funds future balance sheet growth.
Definition
The ratio of the Group’s Common Equity Tier 1
(CET1) to the Group’s risk-weighted assets
measured in accordance with the Capital
Requirements Ratio (CRR).
Strategic focus
Demonstrates the Group’s ability to withstand
financial distress.
Comment
CET1 ratio has decreased in the year reflecting
the losses sustained from discontinued
operations and the scheduled unwind of the
IFRS transitional relief, partly offset by a 12%
reduction in risk-weighted exposures.
Definition
The ratio of the Group’s total regulatory capital
(own funds) to the Group’s risk-weighted
assets measured in accordance with the CRR.
Strategic focus
Demonstrates the Group’s ability to withstand
financial distress and the ability to facilitate
future growth in risk-weighted assets.
Comment
Total capital ratio has increased in the year
reflecting the £200m issuance of Tier 2 debt
capital, notwithstanding the decrease in CET1.
Definition
Adjusted profit/(loss) after tax for continuing
operations divided by the Group’s monthly
average PRA regulatory capital requirement
including PRA buffers for the period.
Strategic focus
Demonstrates how well the Group’s returns
are reinvested and is an indicator of its
growth potential.
Comment
Profitability has increased in the year partially
offset by a reduction in regulatory capital.
93.4
143.7
290.2
31.6
31.6
25.7
34.2
34.2
6.3
29.1
40.6
32.6
Maintain a secure funding and capital structure
Key
Links to remuneration
R
Read more on pages 169 to 191
See pages 271 to 274 for
an explanation of relevance
as well as their definition
Certain alternative
performance measures
(APMs) have been used
in this report
R
R
R
3
Provident Financial plc Annual Report and Financial Statements 2021
34
Market overview
We understand
our markets
Market developments Market compositionMarket overview
We specialise in supporting the
one in five adults (10 to 12 million
people) in the UK who are not well
served by mainstream lenders.
These consumers’ needs and
circumstances typically change
over time, resulting in the market
being relatively fluid; circa 1 to 2
million consumers move in and
out of the market each year.
We believe our market could
increase in the short to medium
term as more consumers find
their access to mainstream
lending restricted, due to the end
of government and regulatory
support provided during the
pandemic and a return to normal
levels of consumer spending
and borrowing, coupled with a
continued reduced risk appetite
from mainstream lenders.
Our market is highly and robustly
regulated, primarily by the FCA
and PRA, with regulation subject
to ongoing evolution and change.
There are three main categories
of products in our market:
– revolving credit accounts,
including credit cards;
– secured loans, where an
asset is used as security
for the loan; and
– unsecured loans, including
personal loans, home
credit and online high-cost
short-term lending.
Average customer credit risk score
Higher
Lower
Risk
Credit cards
Personal loans
Vehicle finance
Note: Bubble size is proportionate to debt outstanding in the market at December 2021.
Provident Financial plc Annual Report and Financial Statements 2021
35
Strategic report
The products we offer
Decline/unable to lend
Revolving credit Unsecured loans Secured loans
APR
>20%
APR
>100%
APR
>50%
Credit card,
store card
and retail
credit accounts
Personal loans
and retail point-
of-sale finance
Vehicle
finance
Over-
drafts
Buy
now,
pay
later
Guarantor loans
Salary finance
Salary
advance
1st and
2nd
charge
mort-
gages
Pawnbroking
Lines of credit
Decreasing APRs
Prime/mainstream
We will continue to evolve our product offering through 2022, enabling us to support more consumers on their credit journey.
In particular:
– We will continue to develop our unsecured loans
product offering via both the Vanquis and Sunflower
brands for existing customers and customers in the
open market, including broadening the range of APRs
offered and broadening our loan sizes and terms.
– Within vehicle finance, we continue to review our
product proposition, including loan sizes, terms, APRs
and asset classes. For example, today we cover cars,
motorbikes and LCVs, but we aspire to broaden this to
enable us to support more customers’ needs.
Provident Financial plc Annual Report and Financial Statements 2021
36
Market overview continued
Macro trends
affecting our industry
We remain vigilant in analysing
the trends in our industry to
ensure we employ the correct
strategy, either by maintaining
course or through adaptation.
The end of furlough, whilst
important symbolically, has had
a muted impact on our industry.
Many changes brought about
by Covid-19 continue to have an
impact on the way people live
their lives (for example through
continued home working for
many), meaning that we have
had to adapt to this ‘new normal’.
Finally, the rising cost of living
(driven by high inflation) is
expected to have an impact on
households across the country
and is something we maintain a
watching brief on to ensure we
continue to lend to customers in
a way that is suitable, affordable
and sustainable as prices rise.
1
2
3
Links to strategy
Grow customer-centric businesses
Act responsibly and with integrity
Maintain a secure funding
and capital structure
Find our full list
of key risks on page 92
Links to risks
Read more on our strategy
on pages 148 to 171
The end of furlough
Short-term trend
Covid-19 and GDP
Medium-term trend
Inflationary pressures
Medium-term trend
2
P4
P9
1
2
P5
1
2
P4
P5
P9
– The furlough scheme, which
supported employers to keep
people in work during the worst of
the pandemic, ended in September
2021. The scheme disproportionately
covered people on lower or less
stable incomes, particularly in the
hospitality industry.
– Covid-19 continues to affect the
economy and change consumer
behaviours. For example, people
continue to do a large proportion
of their shopping online post-
Covid-19 and the travel industry
is yet to recover to the levels seen
prior to the pandemic. GDP has
recently returned to pre-Covid-19
levels; however, future GDP growth
is expected to be muted (circa 1%)
due to slower growth in demand for
goods and rising energy prices.
– The UK is currently experiencing a
higher than targeted rise (the Bank
of England targets inflation of up to
2% per annum) in the cost of goods.
In particular, the price cap on utility
bills has risen by around 50% and
may increase further, fuelled by the
current geopolitical situation. This
is squeezing household incomes as
wages don’t keep pace.
11.7m
Number of
people that
have been
on furlough
1.1m
Number of
people on furlough
by the end of
the scheme
1.8%
Year to Q1’23
forecast
GDP growth
1.1%
Year to Q1’24
forecast
GDP growth
7.3%
Peak 2022
CPI forecast
5.4%
Year to Q1’23
CPI forecast
Impact on our industry
– There were companies that
could unfortunately no longer
support employees that had been
on furlough when the scheme
ended, resulting in job losses and
a significant change in the lives
of those consumers.
– However, the overall impact
of ending furlough on the market
has been muted.
Impact on our industry
– Consumers have changed the
way they prefer to borrow and to
spend through the pandemic with
an increasing preference for online.
This has led to changes in product
constructs to meet rising consumer
digital expectations.
– Consumers have ever increasing
digital expectations as their lives
moved online during the pandemic.
Impact on our industry
– The affordability challenges
potentially facing consumers
through 2022 as inflation peaks
has led some mainstream lenders
to tighten their assessments,
increasing the non-prime
lending market.
– Customers may begin to experience
difficulties in repayment as a result
of the rising cost of living.
How we are responding
– Throughout the pandemic we used
indicators to identify customers who
may be experiencing repayment
difficulties due to furlough or
job loss.
– We offer tailored support to any
customer experiencing repayment
difficulties, regardless of reason.
How we are responding
– We continuously assess and
refine our product offerings, both
in terms of propositional features
and products offered.
– We are investing heavily in the
development of our digital
channels, with a particular focus
on the redevelopment of the
Vanquis app.
How we are responding
– We are actively reviewing and
tightening our affordability
approach where required to ensure
all our lending remains suitable,
affordable and sustainable.
– We monitor our customers
performance and use early
warning indicators to highlight
potential changing circumstances
where tailored support may
be required.
– We continuously review our product
offering to ensure we’re meeting our
customers’ needs.
P
Provident Financial plc Annual Report and Financial Statements 2021
37
Strategic report
0.0
1.0
2.0
4.0
3.0
8.0
7.0
6.0
5.0
%
9.0
Q2’00
Unemployment
Q2’01
Q2’02
Q2’03
Q2’04
Q2’05
Q2’06
Q2’07
Q2’08
Q2’09
Q2’10
Q2’11
Q2’12
Q2’13
Q2’14
Q2’15
Q2’16
Q2’17
Q2’18
Q2’19
Q2’20
Q2’21
0
40
20
60
80
100
120
Retail sales volumes (indexed to 2019)
Q1’00
Q1’01
Q1’02
Q1’03
Q1’04
Q1’05
Q1’06
Q1’07
Q1’08
Q1’09
Q1’10
Q1’11
Q1’12
Q1’13
Q1’14
Q1’15
Q1’16
Q1’17
Q1’18
Q1’19
Q1’20
Q1’21
UK unemployment increased following the onset of Covid-19, albeit it
remained at historically low levels and has subsequently dropped again.
It reached 4.1% in the three months to December 2021, its lowest level
since the start of the pandemic. It is forecast to improve further as the
labour market continues to tighten, with job vacancies at a record high
(1.2 million in the three months to December 2021). A strong labour market
is positive for our customer base.
Retail sales volumes have recovered well from the beginning of Covid-19
and numerous UK lockdowns. Volumes fell slightly (by 0.9%) in December
2021 but remain 2.6% higher than pre-Covid-19 levels. We view strong retail
sales as a positive indicator of the return of consumer confidence and a
return to more normalised levels of consumer spending and borrowing.
The end of furlough
Short-term trend
Covid-19 and GDP
Medium-term trend
Inflationary pressures
Medium-term trend
2
P4
P9
1
2
P5
1
2
P4
P5
P9
– The furlough scheme, which
supported employers to keep
people in work during the worst of
the pandemic, ended in September
2021. The scheme disproportionately
covered people on lower or less
stable incomes, particularly in the
hospitality industry.
– Covid-19 continues to affect the
economy and change consumer
behaviours. For example, people
continue to do a large proportion
of their shopping online post-
Covid-19 and the travel industry
is yet to recover to the levels seen
prior to the pandemic. GDP has
recently returned to pre-Covid-19
levels; however, future GDP growth
is expected to be muted (circa 1%)
due to slower growth in demand for
goods and rising energy prices.
– The UK is currently experiencing a
higher than targeted rise (the Bank
of England targets inflation of up to
2% per annum) in the cost of goods.
In particular, the price cap on utility
bills has risen by around 50% and
may increase further, fuelled by the
current geopolitical situation. This
is squeezing household incomes as
wages don’t keep pace.
11.7m
Number of
people that
have been
on furlough
1.1m
Number of
people on furlough
by the end of
the scheme
1.8%
Year to Q1’23
forecast
GDP growth
1.1%
Year to Q1’24
forecast
GDP growth
7.3%
Peak 2022
CPI forecast
5.4%
Year to Q1’23
CPI forecast
Impact on our industry
– There were companies that
could unfortunately no longer
support employees that had been
on furlough when the scheme
ended, resulting in job losses and
a significant change in the lives
of those consumers.
– However, the overall impact
of ending furlough on the market
has been muted.
Impact on our industry
– Consumers have changed the
way they prefer to borrow and to
spend through the pandemic with
an increasing preference for online.
This has led to changes in product
constructs to meet rising consumer
digital expectations.
– Consumers have ever increasing
digital expectations as their lives
moved online during the pandemic.
Impact on our industry
– The affordability challenges
potentially facing consumers
through 2022 as inflation peaks
has led some mainstream lenders
to tighten their assessments,
increasing the non-prime
lending market.
– Customers may begin to experience
difficulties in repayment as a result
of the rising cost of living.
How we are responding
– Throughout the pandemic we used
indicators to identify customers who
may be experiencing repayment
difficulties due to furlough or
job loss.
– We offer tailored support to any
customer experiencing repayment
difficulties, regardless of reason.
How we are responding
– We continuously assess and
refine our product offerings, both
in terms of propositional features
and products offered.
– We are investing heavily in the
development of our digital
channels, with a particular focus
on the redevelopment of the
Vanquis app.
How we are responding
– We are actively reviewing and
tightening our affordability
approach where required to ensure
all our lending remains suitable,
affordable and sustainable.
– We monitor our customers
performance and use early
warning indicators to highlight
potential changing circumstances
where tailored support may
be required.
– We continuously review our product
offering to ensure we’re meeting our
customers’ needs.
Provident Financial plc Annual Report and Financial Statements 2021
38
Market overview continued
Trends in
our market
We take a holistic approach
to analysing the trends in our
market and use these insights to
determine our strategic priorities.
The digital revolution is changing
how customers expect to be
served. We are able to adapt
quickly to changes in the macro-
environment and the competitive
landscape as both evolve and
the impact of Covid-19 unwinds.
Sustainability is of increasing
importance to our stakeholders
and aligns to our Group
Purpose and we continually
review our business model to
ensure our lending remains
suitable, sustainable and
affordable for customers,
in line with our regulatory
and social responsibilities.
1
2
3
Links to strategy
Grow customer-centric businesses
Act responsibly and with integrity
Maintain a secure funding
and capital structure
Find our full list
of key risks on page 92
Links to risks
Read more on our strategy
on pages 148 to 171
Key trend Narrative How we are responding Annual Report reference
Digital revolution
1
3
P9
– Consumer expectations continue to rise in the
digital space, driven by the broad array of mobile
banking applications and digital-first lending
businesses which are continually raising the bar
for speed and convenience of customer journeys.
As a result, consumers now expect a frictionless
experience in all channels, including mobile.
– This trend accelerated through Covid-19 as later
adopters became more accustomed to interacting
digitally.
– Within Vanquis, we are investing in our mobile app and self-service capabilities,
enabling customers to interact digitally where this is their preference.
– Within Moneybarn, considerable improvements have been made to our customer
onboarding journey, removing friction and making the process clearer and
simpler from the outset.
– Within the personal loans business, the proposition has been developed
with significant consideration provided to ensuring consumers can interact
with us digitally.
– Page 28: Our strategy in action –
grow customer-centric businesses
Macroeconomic
factors
2
3
P4
– The cost of goods is currently increasing at rates
considerably above the Bank of England’s 2%
target. This is squeezing household incomes
as wages do not keep pace.
– The Bank of England is now forecasting peak
CPI inflation of 7.25% in 2022.
– We are well placed to serve customers who may be excluded from
mainstream lending due to a deterioration in the economy as we have
significant experience in lending to underserved markets and specialist
affordability and credit risk assessments.
– We also have a broad risk appetite, offering products across a range of price
points and increasing financial inclusion across the market.
– In addition, we are monitoring customer performance and have the necessary
controls in place to ensure we can quickly respond to changing customer
circumstances and offer tailored support.
– Pages 200 and 201: Impairment
accounting policies
– Pages 36 and 37: Trends in our industry
Competitive
landscape
1
2
P2
– A number of competitors in our sector have
been constrained by funding or have entered
administration due to an inability to adapt
to evolving regulation.
– This trend accelerated through Covid-19 and could
worsen through 2022 as the cost of living crisis
impacts consumers.
– We have a strong balance sheet and access to low-cost retail deposit funding
through Vanquis Bank. We have submitted an application to the PRA to enable
us to utilise this deposit funding more broadly across the Group.
– In addition, we are constantly exploring opportunities to diversify our retail
offering as well as considering commercial funding options.
– A reduction in supply presents an opportunity for us to meet consumers’ unmet
credit needs where it is sustainable, suitable and affordable for the consumer,
with our broad range of products.
– Page 40: Credit card market
– Page 43: Vehicle finance market
– Page 46: Personal loans market
Sustainability
2
3
P6
P9
– There is increasing consumer, investor and political
expectation that firms will conduct their operations
in a sustainable manner.
– We welcome the increased focus on sustainability and have a Corporate
Responsibility Programme focused on making a positive contribution towards
addressing key issues that fit with our Purpose.
– We have set long-term objectives which relate to five of the UN’s Sustainable
Development Goals and the Task Force on Climate-related Financial Disclosures.
– We work with charities and partners in the communities we serve to address
issues such as debt advice, financial education and other consumer
vulnerability matters.
– Pages 12 and 13: PFG’s contribution to the
UN’s Sustainable Development Goals
– Pages 48 to 74: ESG
– 2021 Corporate Responsibility Report
Regulatory
environment
1
2
P5
P9
– Firms need to continue to adapt as the regulatory
environment continues to evolve.
– The regulators’ focus is on ensuring all lending
is sustainable, suitable and affordable.
– We support regulation that protects consumers and maintains a fair and
effective market. We continually review our business model to ensure our
products remain sustainable, suitable and affordable for customers.
– We have an ongoing transparent dialogue with our regulators and have built
a good relationship with them.
P
Provident Financial plc Annual Report and Financial Statements 2021
39
Strategic report
Key trend Narrative How we are responding Annual Report reference
Digital revolution
1
3
P9
– Consumer expectations continue to rise in the
digital space, driven by the broad array of mobile
banking applications and digital-first lending
businesses which are continually raising the bar
for speed and convenience of customer journeys.
As a result, consumers now expect a frictionless
experience in all channels, including mobile.
– This trend accelerated through Covid-19 as later
adopters became more accustomed to interacting
digitally.
– Within Vanquis, we are investing in our mobile app and self-service capabilities,
enabling customers to interact digitally where this is their preference.
– Within Moneybarn, considerable improvements have been made to our customer
onboarding journey, removing friction and making the process clearer and
simpler from the outset.
– Within the personal loans business, the proposition has been developed
with significant consideration provided to ensuring consumers can interact
with us digitally.
– Page 28: Our strategy in action –
grow customer-centric businesses
Macroeconomic
factors
2
3
P4
– The cost of goods is currently increasing at rates
considerably above the Bank of England’s 2%
target. This is squeezing household incomes
as wages do not keep pace.
– The Bank of England is now forecasting peak
CPI inflation of 7.25% in 2022.
– We are well placed to serve customers who may be excluded from
mainstream lending due to a deterioration in the economy as we have
significant experience in lending to underserved markets and specialist
affordability and credit risk assessments.
– We also have a broad risk appetite, offering products across a range of price
points and increasing financial inclusion across the market.
– In addition, we are monitoring customer performance and have the necessary
controls in place to ensure we can quickly respond to changing customer
circumstances and offer tailored support.
– Pages 200 and 201: Impairment
accounting policies
– Pages 36 and 37: Trends in our industry
Competitive
landscape
1
2
P2
– A number of competitors in our sector have
been constrained by funding or have entered
administration due to an inability to adapt
to evolving regulation.
– This trend accelerated through Covid-19 and could
worsen through 2022 as the cost of living crisis
impacts consumers.
– We have a strong balance sheet and access to low-cost retail deposit funding
through Vanquis Bank. We have submitted an application to the PRA to enable
us to utilise this deposit funding more broadly across the Group.
– In addition, we are constantly exploring opportunities to diversify our retail
offering as well as considering commercial funding options.
– A reduction in supply presents an opportunity for us to meet consumers’ unmet
credit needs where it is sustainable, suitable and affordable for the consumer,
with our broad range of products.
– Page 40: Credit card market
– Page 43: Vehicle finance market
– Page 46: Personal loans market
Sustainability
2
3
P6
P9
– There is increasing consumer, investor and political
expectation that firms will conduct their operations
in a sustainable manner.
– We welcome the increased focus on sustainability and have a Corporate
Responsibility Programme focused on making a positive contribution towards
addressing key issues that fit with our Purpose.
– We have set long-term objectives which relate to five of the UN’s Sustainable
Development Goals and the Task Force on Climate-related Financial Disclosures.
– We work with charities and partners in the communities we serve to address
issues such as debt advice, financial education and other consumer
vulnerability matters.
– Pages 12 and 13: PFG’s contribution to the
UN’s Sustainable Development Goals
– Pages 48 to 74: ESG
– 2021 Corporate Responsibility Report
Regulatory
environment
1
2
P5
P9
– Firms need to continue to adapt as the regulatory
environment continues to evolve.
– The regulators’ focus is on ensuring all lending
is sustainable, suitable and affordable.
– We support regulation that protects consumers and maintains a fair and
effective market. We continually review our business model to ensure our
products remain sustainable, suitable and affordable for customers.
– We have an ongoing transparent dialogue with our regulators and have built
a good relationship with them.
Provident Financial plc Annual Report and Financial Statements 2021
40
Credit Card Division
Credit cards
Vanquis Bank has been operating in the UK credit card market since
2003 and has been the largest part of the Group, on a receivables
basis, since 2013. It is a key player in the credit card market for
consumers not well served by mainstream lenders, offering a range
of card products across a broad range of price points to reflect
consumers’ varied risk profiles.
Model
– Credit card providers typically offer low initial limits and
responsibly grow these through credit line increases.
– Consumers are predominantly acquired online, with
affiliates (e.g. ClearScore, Totally Money, etc.) becoming
increasingly used by consumers who want guaranteed
acceptance before applying. Mobile apps have become
the principal way to manage an account.
– New advancements in credit cards include the increasing
use of open banking to assess affordability and digital/
virtual cards.
Market characteristics
– The credit card market is large and stable. It reduced
slightly in 2020, driven by lower consumer spending, but
has rebounded strongly through 2021.
– Competition in the market remains stable with key
competitors including Capital One, NewDay own-brand
cards and the Barclaycard Forward card.
– There have been a few new entrants in recent years
(Zopa and Level), although these providers are yet to reach
significant scale.
– Vanquis is the only specialist, covering the broadest range
of risk categories in the market.
Market appeal
– Credit cards have high cultural adoption and acceptance
in the UK, meaning a substantial and established
domestic market.
– There is an ongoing customer relationship as credit cards
have everyday utility as a means of transacting.
– Credit cards are growing in importance as a means
of transacting given the additional protections credit
cards provide to consumers (through section 75 of the
Consumer Credit Act).
Malcolm Le May
Vanquis Bank Managing Director
Non-prime credit card
market (stock)*
Dec
20
Dec
21
£4,640m
£4,820m
25%
21%
Vanquis
share
* Internal analysis of TransUnion
debt outstanding data as at
December 2020 and 2021.
21%
Vanquis share
Provident Financial plc Annual Report and Financial Statements 2021
41
Strategic report
Credit card adjusted PBT improved significantly
year-on-year; customer spend trends improved during Q1’22
– The Group’s credit card business reported adjusted PBT
for the year of £173.9m (FY’20: £39.5m) which was ahead of
internal plans and significantly better than last year driven
by lower impairment year-on-year.
– New customer bookings for the period were 199k (FY’20:
241k) reflecting the ongoing implementation of tighter
underwriting criteria in response to Covid-19. The total
number of customers at the end of December stood at
1.54m (FY’20: 1.67m), which was driven by the closure of
approximately 114k dormant customer accounts broadly
offsetting lower charge offs during the period owing to the
benefits of furlough and payment holidays.
– Customer credit card expenditure trends continue to
track closely with industry trends. At the end of December,
spend on a per customer basis was approximately 12%
higher year on year. This notwithstanding, when combined
with lower customer bookings year on year and payments
per active customer remaining stable, receivables at the
end of December stood at £1,063m (FY’20: £1,075m).
– Total Group liquidity at the end of December was £1.0bn,
including c.£0.8bn held by Vanquis Bank in retail deposits.
Credit cards – financial performance
Credit card KPIs
Revenue
yield
Impairment
rate
38.8%
19.3%
0.3%
39.1%
20
21
– The annualised impairment rate at the end of December
was 0.3% (FY’20: 19.3%) reflects the benefit of impairment
provision releases during the period and the lower level of
charge offs as a result of Covid-19 customer support and
furlough. As a result, the risk-adjusted net interest margin
improved to 36.0% (FY’20: 17.0%).
– For the first quarter of 2022, credit card expenditure
improved gradually from February onwards, as travel
restrictions eased, and core delinquency trends remained
favourable. Receivables balances at the end of the quarter
stood at c.£1.1bn.
The Group’s credit card
business is a leading
specialist lender in the large
and established credit card
market with strong capital
and liquidity positions
Provident Financial plc Annual Report and Financial Statements 2021
42
Credit cards
The Group’s credit card business is a leading specialist in
the large and established credit card market with strong
capital and liquidity positions. For 2021, the business reported
adjusted profit before tax of £173.9m (FY’20: £39.5m) and
receivables at the end of the period of £1,063m were broadly
flat versus the prior year (FY’20: £1,075m).
New customer bookings for the year were 199k, down from 241k
in 2020, as a result of tighter underwriting standards originally
put in place during Q2’20 not being relaxed during 2021 and
reflecting the cautious approach to rebuilding the receivables
book. The credit card business launched a brand advertising
campaign during 2021 (the ‘Walk Tall with Vanquis’ campaign)
which contributed approximately 20k customers through
direct channels. Approximately 100k inactive customers had
their account closed during Q1’21, following communications
to them in November 2020 that their account would be closed
if there was no activity within 60 days. As a result, credit card
customer numbers reduced to 1,541k as at December 2021
(FY’20: 1,667k).
During 2021, Credit Line Increases amounting to approximately
£170m were issued to customers, which was approximately
£30m higher than the previous year. At the end of December,
the average utilisation rate was approximately 52%, which
remains below levels seen pre-Covid. This reduction has been
driven by customer deleveraging throughout the pandemic.
Receivables ended the period at £1,063m (FY’20: £1,075m),
broadly flat year-on-year. However, receivables increased
versus the level seen at the end of June 2021 (H1’21: £977m)
as customer spend increased in-line with the wider market.
During 2021, customer spend was tracking ahead of levels
seen in 2020 and, for certain periods, ahead of levels seen
in 2019. Towards the end of the year, customer spend was
curtailed by the spread of the Omicron Covid variant which
impacted customers’ ability to visit retail and leisure facilities.
The credit card business generated revenue of £389.5 during
the year, versus £472.4m in 2020, as a result of lower average
receivables. There was a slight moderation in the revenue
yield to 38.8% (FY’20: 39.1%), which reflects the ongoing annual
reduction in ROP income, a focus on higher quality customers
on average and changes to late & over limit fees charged
to customers.
Funding costs decreased to £24.9m during the year, versus
£33.7m in 2020, reflecting lower average funding requirements
during the year, lower funding rates related to funds accessed
through the Bank of England’s TFSME and interest income
generated from the intercompany loan to Group of £70m
in August 2020.
The impairment charge for 2021 was £3.7m (FY’20: £233.3m),
a significant reduction year-on-year, which equated to an
annualised impairment rate of 0.3% (FY’20: 19.3%) at the end
of December. The decrease in impairment reflects benefit
of impairment provision releases, as a result of more benign
macroeconomic conditions, and lower levels of charge off
activity driven by Covid-19 and furlough schemes. The lower
impairment charge was sufficient to more than offset the
marginally lower revenue yield to produce a risk-adjusted net
interest margin improvement to 36.0% (FY’20: 17.0%).
12 months ended 31 December
2021 2020
£m £m Change
Customer numbers (‘000) 1,541 1,667 (7.6%)
Period-end receivables 1,063 1,075 (1.1%)
Average receivables
1
1,003 1,207 (16.9%)
Revenue 389.5 472.4 (17.5%)
Interest (24.9) (33.7) 26.1%
Net interest margin 364.6 438.7 (16.9%)
Impairment (3.7) (233.3) 98.4%
Risk-adjusted net
interest margin
360.9 205.4 75.7%
Costs (187.0) (165.9) (12.7%)
Adjusted profit before tax
2
173.9 39.5 340.3%
Annualised revenue yield
3
38.8% 39.1% (0.3%)
Annualised impairment rate
4
(0.3%) (19.3%) 19.0%
Annualised return
on required equity
5
41.9% 9.1% 32.8%
1 Calculated as the average of month end receivables for the 12 months
ended 31 December.
2 Vanquis Bank profits reflect an adjustment for £1.0m of redundancy costs
in 2021 and the release of a ROP provision (£8.3m) in 2020.
3 Revenue as a percentage of average receivables for the 12 months
ended 31 December.
4 Impairment as a percentage of average receivables for the 12 months
ended 31 December.
5 Adjusted profit after tax as a percentage of average equity for the 12 months
ended 31 December.
Costs increased to £187.0m during the year versus £165.9m
in 2020 and £174.0m in 2019 reflecting investments made to
improve the operational capability of the business during the
period, such as the Vanquis customer app, the advertising
brand campaign and discretionary accruals which did not
occur in 2020.
The profitability of the card business recovered significantly
during 2021 and it has maintained its strong capital and
liquidity positions. It remains focused on enhancing its
customer and digital propositions, including a new Vanquis
mobile app, and improving its range of price points
for customers.
Certain alternative performance measures (APMs) have
been used in this report. See pages 271 to 274 for an
explanation of relevance as well as their definition.
Credit Card Division continued
Credit cards – financial performance continued
Provident Financial plc Annual Report and Financial Statements 2021
43
Strategic report
Vehicle Finance Division
Vehicle finance
Moneybarn was acquired by the Group in 2014, enabling us to
broaden our offering into secured motor finance. Moneybarn
has since become a leading player in the market. In addition,
Moneybarn’s expansion into the near-prime motor finance market
in 2021 provides further opportunities for Moneybarn to support more
consumers excluded from mainstream lending.
Non-prime vehicle
finance market (stock)*
20 21
£8,583m
£9,189m
Moneybarn
share
9%
9%
David Shrimpton
Moneybarn Managing Director
Model
– Motor finance is typically on three to five-year secured
hire purchase contracts.
– Consumers in this market are not accessing finance with
the manufacturer or with their bank and are typically
acquired through intermediaries.
– There are typically small levels of repeat loans with
the same lender.
– The technology in this market is evolving from a manual
process to increased digitisation and smoother customer
onboarding (e.g. auto-affordability and ID verification).
Market characteristics
– Motor finance is a secured product. Secured finance is a
well-established and culturally accepted way to purchase
big ticket items, such as a car, with opportunity for further
growth in used car acquisition.
– Customers have an incentive to maintain their repayments
due to the utility of the vehicle (e.g. a car is needed to
get to work).
Market appeal
– The non-standard motor finance market is large and growing.
– Only 30% of used car sales are on finance, offering
attractive growth prospects for lenders as finance
penetration develops.
– There are numerous providers that span over a range
of risk appetites (e.g. Advantage, MoneyWay and
Close Brothers).
– Moneybarn has the broadest coverage of APRs in the
non-prime market and its expansion into near-prime
lending enables utilisation of existing capabilities to
support more consumers requiring access to finance
in order to purchase a vehicle.
– Moneybarn’s access to lower cost funding provides
a significant competitive advantage over a number
of competitors.
* Internal analysis of TransUnion
debt outstanding data as at
December 2020 and 2021.
9%
Moneybarn share
Provident Financial plc Annual Report and Financial Statements 2021
44
12 months ended 31 December
2021 2020
£m £m Change
Customer numbers (‘000) 93.9 91.4 2.7%
Period-end receivables 586.2 566.6 3.5%
Average receivables
1
593.8 533.1 11.4%
Revenue 137.9 134.0 2.9%
Interest (27.1) (24.6) (10.2%)
Net interest margin 110.8 109.4 1.3%
Impairment (44.6) (72.7) 38.7%
Risk-adjusted net
interest margin 66.2 36.7 80.4%
Costs (37.3) (25.8) (44.6%)
Adjusted profit before tax
2
28.9 10.9 165.1%
Annualised revenue yield
3
23.2% 25.1% (1.9%)
Annualised impairment rate
4
(7.6%) (13.6%) 6.0%
Annualised return
on assets
5
7.6% 5.4% 2.2%
1 Calculated as the average of month end receivables for the 12 months
ended 31 December.
2 Adjusted profit before tax is stated before the amortisation of acquisition
intangibles of £7.5m (FY’20: £7.5m) for 2021.
3 Revenue as a percentage of average receivables for the 12 months ended
31 December.
4 Impairment as a percentage of average receivables for the 12 months
ended 31 December.
5 Adjusted profit before interest after tax as a percentage of average
receivables for the 12 months ended 31 December.
Vehicle finance – financial performance
Vehicle finance adjusted PBT improved year-on-year
whilst average credit and customer quality remains high
– The Group’s vehicle finance business delivered adjusted
PBT for the period of £28.9m (FY’20: £10.9m) which
represents significant growth year-on-year. The increase
was driven by a reduction in impairment owing to Covid-19
support schemes and furlough.
– At the end of December, there were 94k vehicle finance
customers (FY’20: 91k) and receivables of £586m (FY’20:
£567m). Growth in customers and receivables year-on-
year was moderated by higher than anticipated early
customer settlements driven by a buoyant second hand
car market.
– Credit issued during 2021 was £287m, flat year-on-year,
despite new business volumes decreasing marginally to
37k (FY’20: 38k).
– The annualised impairment rate decreased to 7.6% (FY’20:
13.6%) driven by lower arrears rates and provision releases
as a result of a more benign macroeconomic backdrop
during the period. As a result, the risk-adjusted net interest
margin improved to 11.1% (FY’20: 6.9%).
Vehicle finance
The Group’s vehicle finance business is one of the leading
suppliers of vehicle finance to non-prime customers in the
UK. For the twelve months to the end of 31 December 2021,
Moneybarn generated adjusted profit before tax of £28.9m
(FY’20: £10.9m) and receivables at the period end were £586m
(FY’20: £567m).
New business volumes during 2021 were broadly flat versus
2020 at 37k (FY’20: 38k) despite tighter underwriting standards
which were implemented during Q2’20 and which have since
remained in place. Consequently, the vehicle finance business
ended the year with 93.9k customers versus 91.4k in 2020. As
a result of its focus on higher quality customers on average,
and the strong pricing environment seen in the used-car
market throughout 2021, the average loan size increased to
approximately £9k whilst maintaining average Loan To Values
consistent with 2020, which drove total credit issued to over
£287m after unwinds (FY’20: £287m). For the year as a whole,
approximately 33% (FY’20: 38%) of Moneybarn’s new lending
was to people classified as key workers.
At the end of December, receivables stood at £586.2m
(FY’20: £566.6m), driven by new business volumes and the
average loan size increasing. During the second half of the
year, the business started to experience higher levels of early
settlement from customers which impacted the year end
receivables outcome.
Revenue during 2021 increased to £137.9m (FY’20: £134.0m) as
the business focused on higher quality customers, including
the launch of a 14.9% APR product. The annualised revenue yield
has decreased to 23.2% from 25.1% in 2020. This partly reflects
the Group’s focus on higher quality customers and partly
because of furlough support schemes and provision releases.
Interest costs increased during the year to £27.1m from £24.6m
in 2020 reflecting a higher receivables balance throughout
the period. As a result, the net interest margin at the end
of December stood at 18.7% versus 20.5% a year earlier.
Impairment decreased significantly during the year to £44.6m
(FY’20: £72.7m) as a result of impairment provision releases,
driven by a more benign macroeconomic backdrop, and
furlough support schemes. As a consequence, the annualised
impairment rate decreased to 7.6% from 13.6% in 2020. This
resulted in the risk-adjusted net interest margin improving
to 11.1% (FY’20: 6.9%).
Costs increased during the course of the year to £37.3m
(FY’20: £25.8m), reflecting the continued cost of supporting
colleagues to work remotely, together with significant spend
on change and transformation to enable the business to
continue on its growth trajectory.
For 2022, the vehicle finance business will continue to evaluate
the expansion of its offerings to customers with products and
services that will strengthen its relationships and provide for
evolving customer preferences.
Vehicle finance KPIs
Revenue
yield
Impairment
rate
23.2%
13.6%
7.6%
25.1%
20
21
Certain alternative performance measures (APMs) have been
used in this report. See pages 271 to 274 for an explanation
of relevance as well as their definition.
Vehicle Finance Division continued
All text from last year, to be updated
Customer case study - Leah’s story
My name’s Leah, I’m from Stoke on Trent and I live by myself.
I work as a UK Support Manager for a company called Food
Hub, looking after our UK clients. I make sure that they’re happy
and I run a team in our Stoke-on-Trent office.
For fun I like to go on road trips, always jumping in the car,
going down the coast and looking for a beach. I like weekends
away, shopping and spending time with family and friends –
anything I can do to get out and about.
The day I passed my test I wanted to get a new car, so I drove
to a showroom, I had a nice deposit with me and I told them
I wanted a black or red car with bluetooth and a cupholder,
and that’s what they had there. The process was so simple;
I went for a test drive down the road, decided that was the car
I wanted, we did the paperwork when I got back and I drove
away in my new car that day!
Being with Moneybarn has really helped me change my life.
You don’t realise till you get a bit older that what you did in
your younger years with credit can have an effect on you later
on. So it’s been really good for me having the opportunity with
Moneybarn, for someone to see that yes I’ve got a good job,
yes I can afford to do this and not just be turned down straight
away because you have a bad history.
The people at the end of the phone at Moneybarn are lovely.
It’s just like talking to a friend. I’d recommend Moneybarn to
everyone, and not just people with a poor credit history. I think
the level of service that you get and the ease of using the
service is second to none.
Being with Moneybarn has
really helped me change
my life. I’d recommend
Moneybarn to everyone,
and not just people with
a poor credit history.
Leah
UK Support Manager
Watch Leah’s full interview at
www.providentfinancial.com/who-we-are/
our-customers/meet-leah
Strategic report
Provident Financial plc Annual Report and Financial Statements 2021
45
Provident Financial plc Annual Report and Financial Statements 2021
46
Personal loans
We launched two personal loans pilots in 2021, one via the
Sunflower brand and one via the Vanquis brand. These are in
addition to our existing credit card customer personal loans
offering which has been in place since 2016. Initial results from the
loans pilots are very positive and lending volumes continue to rise.
Model
– We offer personal loans over one to five years across
a broad range of APRs.
– Personal loans are typically taken to meet a specific
one-off need.
– Customers are acquired increasingly through internet
affiliates, with customers then typically managing their
account through an online login or mobile app.
Market characteristics
– The market is of a substantial size and growing.
– The launch into the open market via two brands across
a broad range of APRs has significantly increased PFG’s
addressable market.
– Providers operate at a range of price points (circa 15–100%
APR) enabling consumers with a broad range of risk
profiles to access unsecured loans.
– There have been a number of new near-prime entrants
(e.g. Lendable and Chetwood Financial) in recent years.
Market appeal
– The non-prime personal loans market is substantial in size
and growing.
– Personal loans have high cultural adoption and
acceptance in the UK.
– Offering personal loans provides the opportunity to
leverage core skills in loans and allows Vanquis Bank
to meet more of its existing customer needs.
– In addition, PFG has strong access to funding, low cost
of funds and considerable capital strength versus
competitors in this market, providing an opportunity for
PFG to meet a greater level of the demand in the market.
Non-prime personal
loans market (stock)*
20 21
£2,917m
£3,086m
1% 1%
Vanquis
share
Personal Loans Division
Hamish Paton
Personal Loans Managing Director
* Internal analysis of TransUnion
debt outstanding data as at
December 2020 and 2021.
1%
Vanquis share
Provident Financial plc Annual Report and Financial Statements 2021
47
Strategic report
12 months ended 31 December
2021 2020
£m £m Change
Customer numbers (‘000) 19.9 18.5 7.6%
Period-end receivables 28.1 19.1 47.1%
Average receivables
1
18.9 26.6 (28.9%)
Revenue 7.2 9.0 (20.0%)
Interest (0.8) (0.7) (14.3%)
Net interest margin 6.4 8.3 (22.9%)
Impairment (2.1) (6.6) 68.2%
Risk-adjusted net
interest margin 4.3 1.7 152.9%
Costs (13.0) (3.2) (306.3%)
Adjusted loss before tax (8.7) (1.5) (480.8%)
Annualised revenue yield
2
38.1% 33.8% 4.3%
Annualised impairment rate
3
(11.1%) (24.8%) 13.7%
1 Calculated as the average of month end receivables for the 12 months
ended 31 December.
2 Revenue as a percentage of average receivables for the 12 months
ended 31 December.
3 Impairment as a percentage of average receivables for the 12 months
ended 31 December.
4 Adjusted profit after tax as a percentage of average equity for the
12 months ended 31 December.
Personal loans – financial performance
Personal loans business established; pilot phases
have started encouragingly
– Over recent years, PFG has established a personal loans
business, which will be led by Hamish Paton (Managing
Director). The business will incorporate loans branded as
Vanquis Bank Loans and Sunflower Loans, both of which are
currently in pilot phases that have started encouragingly.
– The two products will target distinct customer segments,
based on different affordability criteria and average credit
scores, and initially the loans will range from £1-5k over a
period of 12 to 48 months.
– PFG invested in a new IT infrastructure platform, known
as ‘Gateway’ in order to support the new personal loan
product. It is a brand new IT platform which is capable of
housing multiple products over time. Ultimately, it will provide
customers with a single, holistic view of PFG product offerings.
The personal loans business is an important part of PFG’s
strategy to diversify its product offering and to cater to
customer demand.
Personal loans
Over recent years, PFG has established an personal loans
business to diversify its product offering to new and existing
customers. Its products, which will be branded as either Vanquis
Loans or Sunflower Loans, will be positioned within the mid-
cost credit segment of the market, and initially will offer loans
of between £1 - £5k over one to four years. The typical personal
loan customer will be similar in nature, and average credit
score, to existing credit card and vehicle finance customers.
The addressable market for the loan business is estimated to
be approximately £2.9bn as at December 2020 representing a
significant opportunity for customer and receivables growth.
New business volumes during 2021 were 12.8k, versus 7.8k in 2020,
as the business moved from offering loans to existing credit card
customers only. The business started offering loans via an open
market pilot scheme from October onwards which has started
encouragingly. The pilot scheme will be assessed at the end of
Q1’22. As a result of these new customer bookings, the personal
loans businesses ended the year with 19.9k customers versus 18.5k
at the end of 2020. At the end of December, receivables stood at
£28.1m versus £19.1m at the end of 2020, driven by new business
volumes increasing year-on-year.
The personal loans business generated revenue of £7.2m during
2021 (FY’20: £9.0) as a result of lower average receivables year-
on-year driven by lower new business volumes in 2020 because
tightened underwriting criteria. The revenue yield for the year was
38.1% versus 33.8% in 2020 as the business broadened the product
offering with a wider range of pricing during H2’21, supported by a
new scorecard used for existing customer decisioning.
The impairment charge for 2021 decreased to £2.1m, from £6.6m
in 2020, as the business developed its score cards, established
its underwriting approach to new customers and because
of impairment provision releases as a result of a benign
macroeconomic backdrop. This equated to an impairment rate
for the year of 11.1% (FY’20: 24.8%). This resulted in the risk-adjusted
net interest margin improving to 22.8% versus 6.4% for the
prior year.
Interest costs for the year were broadly flat at £0.8m, versus
£0.7m in 2020, equating to an interest margin of 4.2% versus 2.6%
in 2020. Costs increased during the course of the year to £13.0m
(FY’20: £3.2m) reflecting the investment in the new IT infrastructure
platform known as Gateway.
For 2022, the personal loans business will continue to expand
its open market distribution efforts, continue to focus on
growing lending to existing credit card customers and pursue
opportunities to broaden its product offering.
Personal loans KPIs
Revenue
yield
Impairment
rate
38.1%
24.8%
11.1%
33.8%
20
21
Certain alternative performance measures (APMs) have been
used in this report. See pages 271 to 274 for an explanation of
relevance as well as their definition.
Provident Financial plc Annual Report and Financial Statements 2021
48
Creating better
everyday lives
Environmental, Social and Governance
At PFG, we are committed to delivering products
and services that help put our customers on a
path to a better everyday life. In order to do this,
we need to be financially sustainable. We also
need to take account of the wider role that PFG
plays in society and the ESG issues that matter
to our key stakeholders. This is why we have a
sustainability strategy which not only focuses
on responsibly serving our customers, but also
underlines our commitment to taking action on
issues such as climate change, inequality and
poverty, and creating a truly sustainable business.
This strategy is integral to our long-term success
and the value we create for all our stakeholders,
and frames the way we manage and report our
ESG responsibilities.
Malcolm Le May
Chief Executive Officer
Our commitment to ESG-related matters
Our sustainability strategy is aligned with our Purpose and
enables us to manage and report material ESG-related
matters. This strategy centres on the following two areas:
– Operating our business of lending to our customers in
a responsible manner – we provide our customers with
credit products that meet their particular needs, deliver
fair outcomes throughout their journeys with us, and put
them on a path to a better everyday life.
– Acting responsibly and sustainably in all our stakeholder
relationships – we respond to the needs of our
stakeholders by creating a fair, inclusive and diverse
workplace, supporting our local communities, taking
action on climate change, treating suppliers fairly, and
engaging with investors on ESG-related matters.
Governance and management of the ESG agenda
Overall responsibility for the delivery of PFG’s Purpose, and
the sustainability strategy that it is closely aligned with, rests
with the Provident Financial plc Board generally and Malcolm
Le May, the Chief Executive Officer (CEO), specifically. The PFG
Executive Committee also plays an important supporting
role as it reviews and approves aspects of the responsible
business programme and its budget.
The Board’s CCE Committee also continues to play a key
role in providing oversight of matters that relate to the
sustainability agenda. The Committee is now chaired by
non-executive director Graham Lindsay and its members
in 2021 include other non-executive directors Elizabeth
Chambers, Margot James and Robert East (resigned 13
January 2022).
We also have a Climate Risk Committee to provide oversight
and drive implementation of the TCFD recommendations
and help to deliver the Group’s wider climate risk strategy,
and an Inclusion Steering Group, which supports the delivery
of the Group’s inclusion and wellbeing strategy.
The day-to-day delivery of the PFG Corporate Responsibility
(CR) Programme is carried out by the Group’s CR team,
which is supported by colleagues from across the business.
This includes the colleagues who sit on the various working
groups we have in place and oversee the management of
environmental and community investment matters.
Strategic report
Provident Financial plc Annual Report and Financial Statements 2021
49
Lending responsibly
Our customers
– Provide our customers with the credit products that
meet their particular needs and deliver fair customer
outcomes throughout their journey with us
Read more on pages 52 and 53
Acting sustainably
Our investors
– Engage with the investment community
on sustainability matters
Read more on page 54
Our regulators and government
– Remain a responsible taxpayer
Read more on page 55
Our colleagues
– Create an inclusive and engaging workplace
Read more on pages 56 to 59
Our suppliers
– Ensure that we treat our suppliers fairly
Read more on pages 60 and 61
Our communities
– Support our Purpose through
our Social Impact Programme
Read more on pages 62 to 67
Our environment
– Taking action on climate change
Read more on pages 68 to 73
Our sustainability strategy
Our Purpose
Helping to put people on a path to a better everyday life
To help us to identify and prioritise the ESG risks/
issues that are most material to our business and
our key stakeholders, we undertake a materiality
assessment every two years.
These assessments are carried out in accordance with ESG
reporting best practice, and involve conducting interviews
with internal and external stakeholders and taking account
of the outcomes of any existing stakeholder engagement
activities (for example, our investor perception audit reports,
colleague engagement surveys and supplier due diligence
assessments). Having carried out our last materiality
assessment during April and May 2021, the following material
ESG risks/issues were identified:
– Environmental issues: climate change.
– Social issues: customer vulnerability, financial inclusion,
Covid-19, community contributions, living standards
and macro social trends.
– Governance/management issues: accountability and
transparency, customer satisfaction and care, diversity
and inclusion, ethical business conduct, Future of
Work, governance and management, mental health
and wellbeing, responsible lending practices and
responsible procurement.
These ESG risks/issues have been plotted on the matrix
below according to their relative importance to both our
business and key stakeholders.
Materiality matrix
EnvironmentSocialBusiness
Importance to the business
Importance to stakeholders
Macro social trends
Responsible procurement
Community contributions
Living standards
Customer vulnerability
Customer satisfaction and customer care
Accountability and transparency
Responsible lending practices
Ethical business conduct
Governance and management
Diversity and inclusion
Financial inclusion
Future of Work
Covid-19
Climate change
Mental health and wellbeing
Provident Financial plc Annual Report and Financial Statements 2021
50
Stakeholder Strategic stakeholder engagement objectives
Customers
Our businesses employ a wide range of techniques (e.g. customer satisfaction surveys)
to engage with customers throughout their time with us. In addition to continuing to use
these methods, we will:
– convene more customer panels/groups;
– involve customers in the inclusive design of products and services so that they can
be designed to be accessible to, and usable by, as many of them as possible from the
outset; and
– ensure that existing collaborative initiatives (e.g. Vanquis’ partnership with IncomeMax)
are accessible to other PFG businesses where appropriate.
Colleagues
We will continue to engage with colleagues in order to maintain and encourage
a supportive and inclusive workplace culture by:
– using a range of communications channels (e.g. our PFG-wide intranet, face-to-face
meetings and remote platforms) to provide colleagues with business-related updates
and to encourage them to provide feedback or, for example, participate in community
investment activities;
– encouraging colleagues to get involved in the PFG Inclusion Community (which
comprises five Affinity Groups based around Disability, Ethnicity, Gender Balance, LGBTQ+
and Social Mobility) to help the Group shape related policies and ways of working, and
push to educate colleagues across our businesses; and
– utilising Colleague Forums, which have a designated non-executive director, to engage
collaboratively with colleagues across PFG on key issues affecting the Group.
Regulators
We will continue to focus on maintaining open and trusting dialogue with our regulators
and policymakers by:
– ensuring that our regulatory responses (e.g. our contributions to consultation exercises
and correspondence on specific issues) continue to be channelled through a single
team so that they are coordinated;
– engaging with our regulators through our trade association memberships;
– where possible, contributing to, or participating in, multi-stakeholder forums involving
our regulators and other businesses within the financial services sector;
– identifying opportunities to inform and educate our regulators about aspects of our
business models, including collections, complaints, income and expenditure, etc; and
– participating in discussions and events on a broader range of issues that are material to PFG.
Environmental, Social and Governance continued
Our stakeholder engagement strategy
Interest from many of our stakeholders in our ESG credentials
and performance, along with our responses to this interest,
continues to rise. To be able to respond to this interest we
need to have effective stakeholder relationships and engage
in meaningful dialogue. This enables us to understand and
prioritise the ESG-related views and concerns that our key
stakeholders have with regard to their relationships with PFG;
it also helps us to respond appropriately to stakeholders’
interest and supports our ongoing compliance with the
requirements of s.172 of the Companies Act 2006 (see pages
75 to 86 for more information).
We have identified our key stakeholders as being our
customers, colleagues, communities, suppliers, investors
(both debt and equity), regulators and government, as well
as the environment. We engage with these stakeholders on
an ongoing basis to ensure that we understand any views
and concerns they may have, making sure to factor them
into decision making processes as and when it is appropriate
to do so. There are also a number of other stakeholders with
which we engage on a more periodic basis. These include,
the media, the money advice sector, claims management
companies, trade associations, debt collection agencies,
consumer forums and competitors.
To guide our approach to stakeholder engagement, we
have established a range of strategic objectives within our
approach to how we engage with each group so that we can
systematically seek stakeholders’ perspectives and expertise,
and understand, address and manage their expectations
with regard to a range of ESG matters. By doing this, we can
identify opportunities, manage and enhance our corporate
reputation, reduce risk and comply with regulatory and
voluntary standards. These objectives are set out below:
Provident Financial plc Annual Report and Financial Statements 2021
51
Strategic report
Stakeholder Strategic stakeholder engagement objectives
Government
We will continue to engage with the Government at the CEO level, and through our think
tank partners and participation in multi-stakeholder forums and government-sponsored
initiatives and schemes. In addition, we will engage with the Government by:
– participating in discussions and events on a broader range of issues that are material
to PFG (e.g. with the Bank of England with National Numeracy).
Investors
(debt and equity)
Given that we are required to comply with disclosure obligations which relate to the
transparency of information we will continue to engage with investors using the methods
already employed.
Strategic priorities in terms of engaging with our investors include:
– attending broker conferences and other events with a view to meeting prospective
shareholders;
– using existing channels (e.g. presentations and meetings) to engage with our investors
on our ESG strategy;
– publishing thought leadership articles on topics that would be of interest to investors
on social media and other channels; and
– engaging more with our debt investors (with the help of the PFG Treasury team)
to promote our ESG credentials with that audience.
Suppliers
We will continue to develop and embed our Supplier Relationship Management Framework,
ensuring that tools, processes and procedures are aligned across PFG.
We will also engage with our suppliers on other issues (e.g. the climate-related risk and
opportunity agenda).
The environment
Climate change represents a priority ESG issue for our business, particularly in the context
of managing material climate-related risks and meeting the recommendations of the
TCFD. Given the work we have delivered during 2021 which has enabled us to meet these
recommendations (i.e. established a new Climate Risk Committee), our stakeholder
engagement activities will focus on:
– continuing to include TCFD updates in our Annual Report and Accounts and CR Reports;
– including TCFD content in investor relations materials (e.g. presentations) and
regulatory-related documentation (e.g. VBL’s ICAAP);
– informing and involving colleagues by engaging them on climate-related matters
(e.g. through e-learning, intranet-based campaigns and involvement in working groups);
– profiling relevant activities (e.g. our support of the Grange Festival/WWF project and the
UN’s Business Ambition for 1.5°C pledge) via the intranet and social media channels; and
– ensuring that regular updates on our climate change-related work are provided to the
CCE Committee, Risk Committee, Group ExCo and business unit boards/committees.
Read more on pages 75 to 86
Provident Financial plc Annual Report and Financial Statements 2021
52
Environmental, Social and Governance continued
Our customers
Serving our customers responsibly
Our Purpose is to help put people on a path to a better
everyday life. To do this, we provide customers with
opportunities to borrow a sensible amount in a transparent,
responsible and sustainable way. PFG’s core business is to
provide tailored and responsible products, services and
partnerships that help put our customers on a path to a
better everyday life. The 1.6 million customers we are proud
to serve come from all across the UK. We offer credit cards
through our Vanquis brand and vehicle finance products
via Moneybarn and have a growing personal loans business
with both our Vanquis and Sunflower Loans products.
Credit cards
4.7/5
(2020: 4.6/5)
(CSat score)
Vehicle
finance
4.4/5
(2020: 4.5/5)
(Feefo rating)
Delivering customer satisfaction
We continue to monitor customer satisfaction rates across
our businesses to ensure that we are providing our customers
with products, services and partnerships that meet their
particular needs, and which help put them on a path to a
better everyday life. Information on customer satisfaction is
collected through a variety of methods such as online forums,
and phone and face-to-face surveys, as well as focus groups.
Our businesses have supported our customers throughout
the pandemic by continuing to lend to existing customers
where appropriate and activating forbearance measures
where needed. This has enabled us to maintain high customer
satisfaction ratings across credit card and vehicle finance
products. The overall customer satisfaction rates in 2021 for
each of our products are set out below.
Strategic report
Provident Financial plc Annual Report and Financial Statements 2021
53
Handling customer complaints responsibly
We are committed to ensuring that we keep customer
complaints to an absolute minimum as we believe that doing
so is a good indicator that we are treating our customers fairly
and that our products, services and partnerships meet their
specific needs. Understanding the reasons behind complaints
also helps us to improve the services we offer. We have well-
established complaint handling processes, procedures and
timescales to guide our Customer Relations teams in resolving
issues in a professional and timely way. Vital to resolving
customer complaints satisfactorily is ensuring colleagues
are trained well enough to deliver excellent customer service
whether face to face, on the telephone or via email. The total
amount of hours colleagues spent on customer-focused
training in 2021 was 39,509 (2020: 55,229).
We provide the contact details of the Financial Ombudsman
Service (FOS) to all our customers, so they have another option
if they feel we have been unable to resolve their complaint to
their satisfaction.
During 2021, the total number of customer complaints that
were received by PFG was 66,516 (2020: 90,264). This figure
includes 38,282 complaints (2020: 66,694) that relate to our
Consumer Credit Division which was closed in December 2021.
The total number of customer complaints received in 2021 for
each of our products are set out below. Also, during the year,
13,313 complaints (2020: 13,736) were referred to the FOS, with
8,581 referred complaints (2020: 8,933) being upheld in favour
of the customer.
Supporting customer vulnerability issues
A key pillar of our Group-wide Social Impact Programme
focuses on providing grants to charities and specialist
partners to address issues such as customer vulnerability,
product accessibility and financial difficulties. The
organisations we support also guide and advise our
colleagues to support our customers when addressing
these kinds of issues.
We understand that our customers can find themselves, at
times, in financially challenging situations due to unforeseen
circumstances such as ill health, loss of income, family
bereavement or other significant life events. Therefore, we
ensure that our call centre colleagues are trained in recognising
signs that might indicate a customer could be classified as
‘vulnerable’, or may be facing financial difficulty, whether in the
short or long term. In 2021, this involved continuing to deliver our
programme of work with the charity Surviving Economic Abuse
which involves delivering training to frontline colleagues to build
their capacity to recognise the signs of economic abuse.
In addition to ensuring that our customer-facing colleagues
are equipped with the skills they need to support our
customers throughout their journeys with us, we are able
to draw on the relationships we have developed over the
years with organisations in the money advice and financial
education sectors. By supporting these organisations, our
customers can also access free independent and personal
financial advice and support if they are facing financial strain.
The organisations we support include the Money Advice
Trust, Money Advice Scotland, The Money Charity, Advice
UK, Christians Against Poverty, StepChange, IncomeMax,
the Institute of Money Advisers, and the Money Advice
Liaison Group (see pages 31 and 32 of our 2021 CR Report
for more information).
Credit cards
19,517
(2020: 17,177)
Vehicle
finance
8,717
(2020: 6,393)
IncomeMax case study
Our credit card business continues to work with IncomeMax,
through an innovative partnership that began in 2015, to
support customers who are experiencing financial difficulties.
IncomeMax is a community interest company that helps
people to maximise their household income by providing
them with independent advice and support to navigate the
complex welfare system, allowing individuals to take control
of their finances. The advice provided by IncomeMax helps
individuals and households to increase their income, reduce
household bills, apply for white goods, switch utility tariffs and
access specialist support services such as debt advice should
this be required. IncomeMax can find tens of thousands
of pounds of back dated income that clients are entitled
to and eligible for in some cases.
During 2021, the credit card business has invested further
in IncomeMax, working closely with it to support its digital
proposition development. Recognising that customers’ digital
capacity is evolving and that a growing number may now
prefer to engage digitally, this will provide even better access
to specialist advice.
By providing funding for core costs, the new platform will
benefit Vanquis and non-Vanquis customers, improving
access for a wider community of individuals who may be
facing financial difficulties. The digital platform is planned
for launch in 2022.
Currently we are also working on making additional resources
available to customers through access to the IncomeMax
telephone referral service as well as online tools which
we will be launching in partnership in early 2022.
Provident Financial plc Annual Report and Financial Statements 2021
54
Our investors
Engaging with investors and the major
rating agencies
PFG is committed to continuing to build not only a financially
stronger and sustainable business but also a better company
that balances profit with our Purpose. In order to deliver on
this commitment it is important that we are transparent in
our engagement with investors regarding a range of key ESG
issues including our exposure to material climate-related risks
and advancing inclusion and diversity, as well as that we are
a responsible taxpayer.
The main means by which we inform our investors of our
ESG-related performance is through the publication of our
annual CR Report. We also inform and listen to investors
through the submissions we make to the main sustainability
investment indices and rating agencies.
In 2021, we were recognised for our ESG efforts,
with highlights including:
– Dow Jones Sustainability Indices (DJSI): Inclusion in the
DJSI Europe means that PFG is in the top 20% of the largest
600 European companies in the S&P Global BMI based on
long-term economic, environmental and social criteria.
– FTSE4Good: PFG remains a constituent of the FTSE4Good,
an extra-financial market index, which measures the
performances of over 800 companies against a range
of ESG criteria.
Environmental, Social and Governance continued
– CDP: Following the submission made in the summer to
CDP, the largest climate change-focused data collection
and assessment programme which, each year, requests
information from companies on greenhouse gas emissions,
energy use and the risks and opportunities from climate
change, PFG was notified in December 2021 that it had
been given a B- score (up from a D score in 2020). This reflects
progress made by PFG in meeting the recommendations
of the TCFD (go to pages 68 to 72 for more information).
Plans for 2022
During 2022, we will continue to make annual submissions to
the indices and rating agencies mentioned here and respond
to ESG-related enquiries from our equity investors. In doing so,
our focus will include explaining how the ESG agenda affects
our key stakeholders, in particular our customers. We will also
seek to engage with our debt investors to promote our ESG
credentials with that particular audience.
We’re proud that we were awarded a
CDP rating of B- for our climate risk
efforts over the past 18 months. It reflects
the great work we’ve delivered in
meeting the recommendations of the
TCFD, which underlines our commitment
to being transparent in our approach to
managing climate-related risks and
opportunities across our business.
Muhrah Alsultan
Corporate Responsibility Manager
Provident Financial plc Annual Report and Financial Statements 2021
55
Strategic report
Our regulators and government
Engagement with our regulators
The nature of our market and customer base means building
and maintaining an open dialogue with our policymakers
and regulators is a critical part of our business model. These
include the Prudential Regulation Authority (PRA) and Financial
Conduct Authority (FCA). For information on the key regulatory
developments that relate to our business activities, go
to page 100.
We engage with both the FCA and PRA via regular planned
meetings and calls, and by responding to consultation
exercises regarding, for example, proposed changes to the
regulatory rules that relate to our sector. We also engage with
our regulators through our trade association memberships
and by participating in multi-stakeholder events (e.g. at
conferences). We have also started to publish thought
leadership articles on topics that might be of interest to our
regulators and policymakers on our social media and other
communication channels. An example of this in 2021, is the
article published by PFG’s CEO, Malcolm Le May, on the need
for Buy Now Pay Later products to be regulated.
Engaging with policymakers
To help ensure we stay up to date with regulatory matters,
PFG’s businesses are members of the Finance and Leasing
Association and UK Finance. We also retain a specialist
consultancy firm to provide the Group with policy advice.
However, this firm does not arrange meetings with ministers
or regulators and does not attend meetings with ministers or
regulators. PFG also does not make any monetary contributions
or allocate any spending to political campaigns, political
organisations, lobbyists or lobbying organisations and/or
other tax exempt groups.
Being a responsible taxpayer
We are committed to being a fair and responsible taxpayer.
We operate in an open, honest and straightforward manner
in all tax matters and we are fair and reasonable in all our
dealings with tax authorities. As such, we seek to make sure
that we comply with all tax rules and regulations in the places
where we operate. This helps to safeguard our reputation as
a responsible taxpayer, while recognising that we also have a
responsibility to protect shareholder value by managing and
controlling our tax liabilities.
Our tax strategy, which was last updated and approved
by our Board in December 2021 and can be accessed at
www.providentfinancial.com, follows our Purpose and is
aligned with HMRC’s Code of Practice on Taxation for Banks
(the Code), which sets out the principles and behaviours
expected of banking groups with regard to tax, and we have
unconditionally adopted the Code. To read more about what
makes us a responsible taxpayer and to see comprehensive
details on the total direct and indirect tax contributions we
pay on an annual basis, go to pages 79 to 83 of the PFG 2021
CR Report which can be found at www.providentfinancial.com.
Provident Financial plc Annual Report and Financial Statements 2021
56
Our colleagues
The colleagues who work for PFG are critical to the long-term
success of our business, from those who develop our products
and serve our customers, to those who keep our operations
running and make sure that the technology we use works.
This is why we are committed to building and sustaining a
culture for our colleagues that is inclusive, open and caring.
And it is why we provide our colleagues with access to
training and development opportunities so that they can
develop the skills they need and promote a healthy and safe
working environment where they can be themselves and
feel engaged.
Colleague engagement
An important element of the workplace culture we aspire
to build and sustain relates to engaging in effective
communication with colleagues and providing them with
opportunities to provide feedback and raise concerns and
feel that they have been listened to and had their views taken
into account.
Covid-19 continued to have an impact on colleagues
throughout 2021 which meant that we had to adapt how we
engaged with our teams so that we could communicate with
both those who were working in our offices and remotely from
home. During 2021, we continued to use video conferencing
platforms, our ‘Blueprint: Stay Connected’ magazine and
video blogs from our CEO and other members of the senior
management team to ensure that all colleagues were kept
Environmental, Social and Governance continued
up to date on PFG’s strategy and operational developments.
Alongside this, colleagues were encouraged to develop a
sense of community using a variety of tools, including the PFG
‘Stay Connected’ intranet. This has enabled them to host a
range of events, from ‘pub’ quizzes to book clubs, and baking
sessions to wellbeing talks.
We also conducted our third Group-wide annual colleague
engagement survey in November which covered a range
of topics relating to our Purpose, leadership, management,
roles and responsibilities of colleagues, working together and
development and reward. This year, 71% of colleagues from
across the Group took their time to respond to the survey,
down marginally by 3% on the previous year. Our overall results
show that we have maintained good levels of engagement
throughout what has been a difficult and challenging year
with the backdrop of the pandemic and significant change
across PFG including launching the Scheme of Arrangement
and closure of CCD. Our overall colleague engagement
score (which comprises five questions relating to loyalty and
advocacy) dipped slightly to 68% (2020: 72%). The headline
results from the 2021 survey are set out opposite.
As we have done in previous years, the results from our 2021
survey will be shared and discussed by our Colleague Forums
and the individual teams within our divisions throughout the
first half of 2022 to inform and develop collective action plans
and to address any specific issues.
We know that by bringing
colleagues from across PFG
together and celebrating our
differences in an inclusive working
environment where our Blueprint
behaviours are understood and
lived, we can achieve better
business results and a better
everyday life for our people.
Cheryl Ball
Chief Human Resources Officer
Provident Financial plc Annual Report and Financial Statements 2021
57
Strategic report
69+16+15+N
65+18+17+I
Your
role
69%
65%
16%
18%
15%
17%
65+22+13+N
61+22+17+I
Doing the
right thing
for customers
65%
61%
22%
22%
13%
17%
63+25+12+N
65+23+12+I
Our
Purpose
63%
65%
25%
23%
12%
68+32+N
72+28+I
Overall
colleague
engagement
68%
72%
64+19+17+N
61+20+19+I
64%
19%
20%
17%
Working
together
61%
19%
54+27+19+N
52+27+21+I
Leadership
19%
21%
27%
54%
52%
27%
78+13+9+N
9%
74+15+11+I
Your
manager
11%
13%
15%
78%
74%
52+24+24+N
51+25+24+I
Your
development
and rewards
24%
24%
52%
51%
24%
25%
Favourable response
2021 2020
Neutral response
2021 2020
Unfavourable response
2021 2020
28%
32%
12%
Colleague responses to key areas across the Group
Provident Financial plc Annual Report and Financial Statements 2021
58
Be Yourself – inclusion and diversity at PFG
PFG’s ambition is to create a truly inclusive workplace.
To achieve this, we need to build a diverse and balanced
workforce that reflects the customers we serve. We believe an
inclusive culture celebrates difference, allowing our colleagues
to bring their true selves to work and always feel they belong.
We also believe a culture of this nature to be intrinsically linked
to our Group Purpose, informing what we do and how we do it,
as we help put people on a path to a better everyday life.
What we have delivered in 2021
– Successfully launched our Group-wide Inclusion Community
through five aligned Affinity Groups: Disability, LGBTQ+, Gender
Balance, Ethnicity and Social Mobility. Our Affinity Groups
currently have 125 active and representative members, as
well as an extensive network of Affinity Group allies.
– Monthly inclusion and diversity (I&D) steering meetings
which are led by our Inclusion Chairs and deliver quarterly
progress updates to the PFG Executive Committee.
– Agreed and incorporated a new ‘Be Yourself’ I&D index into
our annual colleague engagement survey. This represents
a new set of questions designed to support and measure
the efficacy of our I&D programme. We are pleased
to report a positive response from 71% of colleagues
on questions relating to I&D (+3% on the overall
engagement score).
– Implemented a self-disclosure data capture process in
Moneybarn and Vanquis; this will be expanded to include
the wider Group in 2022.
– Targeted training for our Inclusion Community members
through our partnership with Inclusive Employers. We also
rolled out localised ‘unconscious bias’ training sessions
to the Inclusion Community through our Learning and
Development teams.
– A Be Yourself inclusion calendar and intranet homepage.
These allow colleagues across the Group to celebrate,
learn about and increase their awareness around an
extensive range of I&D-related events, including Pride,
Inclusion Week, Living with Autism and Black History Month.
– Peer Circles across the business via our Affinity Groups,
and a consistent I&D statement for use on recruitment
advertising and offer letters. The Affinity Groups have also
worked with our HR teams to draft a new PFG I&D policy,
Disability guide, Menopause guide and Transgender guide,
all of which we plan to launch in 2022.
Inclusion and diversity data as at 31 December 2021*
Environmental, Social and Governance continued
81%
73%
45%
21 21 21 21 21 21
20 20 20 20 20 20
2,280
1,952
7
27
1,362
1,173
6
25
20
53
142
207
121
100
1,106
826
Total staff Directors Senior
management
Middle
management
First-level
management
Other
colleagues
46%
54%
19%
27%
59%
41%
55%
43%
57%
79%
21%
Female Male
19%
(2020: 11%)
Ethnic background
Percentage of colleagues from an
ethnically diverse background
6%
(2020: 7%)
Sexual orientation
Percentage of colleagues
who disclose they are LGBTQ+
19%
(2020: 5%)
Disability
Percentage of colleagues who
disclose they have an impairment,
health condition or learning difference
43%
(2020: 39%)
Caring responsibilities
Percentage of colleagues
who disclose they have
caring responsibilities
* This data is based on colleagues’ voluntary self-declaration via our
November 2021 colleague engagement survey. It accounts for 71%
of the PFG workforce.
Our colleagues continued
Gender diversity across colleague levels as at 31 December 2021
73%
18
49
27%
133
221
62%
38%
53%
158
177
47%
1,948
1,594
45%
55%
46%
54%
Women in Finance Charter: 2021 update
As of 31 December 2021, we had 27% (2020: 27%) female representation in our senior management population. We continue
to focus our attention on working towards having 40% female representation in the Group’s senior management population
by December 2024. Key actions we have delivered over the past 12 months to help us to achieve our target have related to:
– updating and aligning all equal opportunities wording provided on job application processes, so that it encourages more
females to apply for roles at all levels and in all disciplines across the Group;
– introducing Peer Circles (run exclusively by colleagues) to encourage peer support for a range of issues. Some examples
of the issues that have been covered in the sessions that have been delivered to date, which specifically support females,
include; pregnancy, interview techniques, performance reviews and menopause support; and
– placing a focus on gender data by introducing the voluntary capture of inclusion and diversity data to support better
knowledge of women in roles from Black, Ethnic and LBGTQ+ backgrounds. We intend to be able to focus more on females
in senior positions/promotion opportunities once we understand our data more effectively across PFG.
Along with other companies, PFG is required to publish any difference in the average pay of male and female colleagues.
Further details for PFG are available in our Gender Pay Reports (see pages 42 and 43 of our 2021 CR Report for more information).
Strategic report
Provident Financial plc Annual Report and Financial Statements 2021
59
Focus on gender diversity
The PFG I&D strategy that we have in place centres on creating
and maintaining a fair, diverse and inclusive culture for our
colleagues and other stakeholders. A key focus of this strategy
is about achieving a better gender balance in our senior
management population. Improving female representation at
senior management and director level is extremely important
for the long-term sustainability of PFG.
Set out below are some of the actions PFG has put in place
over the past 12 months to support achieving a better gender
balance in our senior management:
Commitment: PFG signed up to the HM Treasury Women in
Finance Charter, a government initiative to improve gender
diversity in senior positions within the financial services sector,
in March 2019.
Targets: On becoming a Charter signatory, we set ourselves
a target to have 33% or more female representation in the
Group’s senior management population by December 2020,
a target that was not met because of the disruption we
encountered in 2019, and 40% female representation in the
Group’s senior management population by December 2024.
Raising awareness: Through the ‘Be Yourself’ programme we
have facilitated panel discussions and delivered regular vlogs
and events to profile events such as International Women’s
Day and National Inclusion Week.
Balanced short-lists: Ensuring we have 50/50 gender balance
short-lists when we recruit for senior leadership roles across
PFG. We work in partnership with the recruitment agencies we
use to ensure they are clear on our expectations regarding our
I&D commitments.
Strengthening our talent pipeline: Delivering our Next
Generation Women’s Leadership Programme to high-potential
women from across PFG to help strengthen the female talent
pipeline at the senior/middle management level. This supported
the appointment of Jo Simms as CRO, in our vehicle finance
business. In 2022, we will build on this Programme and start
to deliver an inclusive leadership programme to PFG’s wider
management population to cement equality, diversity, and
inclusion as a central pillar of their professional lives and PFG’s
long-term success.
Colleague health and wellbeing
At PFG, we believe that supporting the mental wellbeing of our
colleagues is just as important as looking after their physical
health and safety. We recognise the importance of doing this,
both in terms of individual welfare and the impact it can have
on our business. Now more than ever, mental wellbeing is a key
contributor to our colleagues’ health and safety, their social
wellbeing and their ability to fulfil their potential at work.
Throughout 2021, our network of Mental Health First Aiders ran
mental wellbeing awareness campaigns that lined up with
external activity, giving us an opportunity to highlight specific
mental health issues and signpost the relevant support
available to all colleagues. In partnership with the Bank Workers
Charity, we delivered a series of webinars exploring key topics
around improving and maintaining mental wellbeing.
All PFG colleagues and their families have access to free
confidential mental health and wellbeing support, available
24/7 through our Employee Assistance Programme (EAP).
EAP features include:
– a dedicated helpline with calls answered by experienced
in-house counsellors and legal and financial
specialists; and
– a smartphone app and personalised online wellbeing
content, including videos, webinars, mini health checks
and health coaching.
Provident Financial plc Annual Report and Financial Statements 2021
60
Our suppliers
Supply chain responsibility
In 2021, PFG’s annual procurement spend was £200m. Most
of the Group’s tier one suppliers are based within the UK.
These suppliers range in size and scale from small and
medium-sized enterprises, to large multinational corporations.
The highest area of spend for the Group is on professional
services (consultants, contractors, etc.), postage, credit card
processing, customer referrals, data centre hosting, credit
score checking services and consultancy and legal fees.
Other areas of high spend include software licences and
support, contractor sourcing and recruitment, and property
and facilities management.
Environmental, Social and Governance continued
We are committed to engaging with all our suppliers in
a responsible manner and are opposed to slavery and
human trafficking in both our direct operations and in the
indirect operations of the supply chains we have. As such,
the Group will not knowingly support or do business with any
organisation involved in slavery or human trafficking. This
commitment is underpinned by the Group’s Corporate Policy
on Human Rights and Modern Slavery which endorses the
United Nation’s Universal Declaration of Human Rights and
the International Labour Organisation’s (ILO’s) Declaration
on Fundamental Principles and Rights at Work. The Group
also acknowledges the United Nation’s Guiding Principles on
Business and Human Rights as the recognised framework for
the Group and its divisions to respect human rights in their
own operations and through their relationships with other key
stakeholders (e.g. suppliers) and is a signatory to the United
Nations Global Compact.
In accordance with the requirements of the Modern Slavery
Act 2015, our most recent statement on modern slavery and
human trafficking, dated March 2022, sets out the actions
that the Group is taking to ensure instances of modern
slavery or human trafficking are not occurring directly in
our businesses as well as indirectly in the supply chains
that we use to procure goods and services. The statement
also communicates the measures we have taken to
improve internal understanding and awareness around
modern slavery and human trafficking and can be found
at www.providentfinancial.com.
Prompt payment of suppliers
We are committed to the prompt payment of our suppliers,
and endeavour to pay all invoices within agreed terms and
in accordance with requirements of the UK Government’s
Prompt Payment Code. PFG has been a signatory to this Code
for almost a decade and is committed to paying all suppliers
within 60 days of receiving an invoice, and paying 95% of
invoices from small suppliers within 30 days.
Strategic report
Provident Financial plc Annual Report and Financial Statements 2021
61
21
20
92%
99%
Group corporate office
21
20
99%
99%
Vehicle finance
21
20
100% 99%
Credit card
Percentage of suppliers paid in 60 days in 2021
Percentage of suppliers paid in 30 days in 2021
21
20
84%
81%
Group corporate office
21
20
98%
96%
Vehicle finance
21
20
100%
94%
Credit card
Provident Financial plc Annual Report and Financial Statements 2021
62
Environmental, Social and Governance continued
Our communities
87+12+1+N
87+12+1+I
Total
£1,369,442
2020: £1,190,332
Cash
2021: £1,230,677
2020: £1,035,984
Management costs
2021: £126,649
2020: £143,129
Value of employee time
2021: £12,116
2020: £11,219
Our 2021 community investment figures
Delivering a positive social impact
Our Purpose of helping to put people on a path to a better
everyday life underpins our reason for being and the role we
play in the lives of our customers, it also informs the choices
we make in our community investment activities. This is why
we launched the PFG Social Impact Programme in 2019.
Through the knowledge and understanding of our customers,
and the market we have served since 1880, we have been able
to develop our approach to community investment which
focuses on investing in activities and initiatives which seek to
address some of the key factors which, on their own or acting
together, can reduce social and/or financial inclusion. These
factors include lack of literacy or numeracy skills; disabilities
and/or mental health issues; unemployment or under-employment;
low levels of educational attainment; and low, uncertain or
fluctuating incomes. The three core themes of our Social
Impact Programme strategy are set out on page 63.
In 2021, we committed a total of £1.4m (2020: £1.2m) to fund a
range of activities through our Social Impact Programme.
Supporting customer and colleague wellbeing
We continue to support the customer and colleague wellbeing
agenda through a dedicated workstream of the Group’s Social
Impact Programme. The focus of this workstream is twofold:
supporting charities and specialist partners to address issues
such as money/debt advice, customer vulnerability and
financial difficulties (details of some of the money/debt advice
organisations are set out on page 53) and ensuring that all
our colleagues can access support and tools to help them
maintain positive mental health and wellbeing (see page 59
for more information).
Provident Financial plc Annual Report and Financial Statements 2021
63
Strategic report
Through this pillar of our programme, we worked with The
Money Charity during 2021 to produce a number of videos
to help engage people of all ages across the UK with
financial wellbeing and financial education. These videos
were produced in response to Covid-19 and were designed
to help people of all ages to develop the skills, knowledge,
attitudes and behaviours they need to manage their money
better every day and achieve their financial goals. The
videos explored the themes of ‘Financial Education for Young
People’, which followed the charity’s Young People’s team as it
delivered money management workshops in schools, colleges
and community organisations throughout the UK. In addition,
the ‘Financial Wellbeing in the Workplace’ and ‘Financial
Wellbeing in the Community’ videos show how its work with
adults brings financial wellbeing workshops and webinars
to a wide range of commercial and charitable settings.
Supporting our colleagues to get involved
in our communities
Despite the challenges of the Covid-19-related restrictions we
have had to deal with throughout 2021, we have continued to
use our Social Impact Programme to provide our colleagues
with volunteering and fundraising opportunities. Through our
Volunteering and Matched Funding Policy, colleagues are able
to take a full day’s paid leave to volunteer for a community
organisation or charity of their choosing. We also offer a
range of Company-led opportunities to colleagues. This is
an important aspect of the PFG Social Impact Programme
because it enables colleagues to use their career journeys,
backgrounds and experiences to inspire children and young
people and help them on their own journeys, develop their
own skills, and give something back to the many communities
we serve across the UK.
Core themes What we do We do this by Why we do this
Customers
and colleagues
Invest in activities
and initiatives that
seek to address key
factors which may
affect customer and
colleague wellbeing.
– Ensuring colleagues have the
skills to deal with customers’
additional needs.
– Funding independent
research into financial
decision making and
supporting the delivery of
financial education, including
for hard to reach groups.
– Funding a range of debt
advice organisations.
– Helping customers and
colleagues to maintain
positive mental health
and wellbeing.
– To ensure our customers and
colleagues have access to
appropriate financial services
and wellbeing support. Where
they do not, to help them
recognise and overcome the
barriers to financial inclusion
and support their health
and wellbeing.
– To ensure help is available
to those with additional
needs, for example, those
in financial difficulty.
Education
Support children,
young people and
adults to boost their
education, skills and
aspirations, in order to
participate in society
and secure a brighter
financial future.
– Providing support for
programmes to boost the
literacy and numeracy of
children, young people
and adults.
– Offering young people
and adults insights into the
world of work and the skills
that will help them secure
opportunities, including
employment.
– The right skill set is essential
for social inclusion. Those
who live in disadvantaged
communities can lack
confidence, as well as
awareness of where and how
they might acquire skills or
boost those they have.
– Developing skills promotes
personal confidence,
aspirations and the potential
to participate in society.
Community
Support community
projects in areas
where people are
more likely to face
social and financial
exclusion.
– Providing grants to grass
roots organisations and
charities through community
foundations which will
support local people in
improving aspects of their life.
– To help people overcome
personal difficulties that
might be preventing them
from feeling socially or
financially included in the
communities in which they
live and work.
Provident Financial plc Annual Report and Financial Statements 2021
64
The Purpose of our business is to help put
people on the path to a better everyday life.
One of the ways we do this is through our
education programme. We support children,
young people, and adults from disadvantaged
areas in their learning as well as providing
them with insights into the world of work. It’s all
about raising aspirations and giving them a
future in which they’re included in society. It’s
also a great way for colleagues to develop
their own skills.
Cathy Prior
PFG Social Impact Manager (Education)
Hearing from the Headmaster
about how much the project means
to the children gave context to what
we were doing and why, and made
us want to do a really great job to
finish off the play areas that they
had so brilliantly started. I feel very
proud of what we achieved
together as a team.
Amber Bibi
PFG Company Secretarial Assistant
Community team challenge in Bradford
In November 2021, a number of colleagues in the PFG
corporate office braved the elements to deliver a team
challenge with The Venturists, a project at The Academy at
St James primary school in Allerton, Bradford. The Venturists
is a unique project designed for primary schools, in particular
for 9 to 11 year olds, which gives them the opportunity to
understand and explore issues in their community and what
they might do to help to resolve them. Many of the pupils
at the school face challenges at home, often related to
different forms of disadvantage, and may therefore be more
likely to disengage from their education. The Venturists is an
innovative project which gets them interested and involved
in their own communities, whilst also helping their personal
development, confidence and resilience. As part of the
challenge, the PFG team helped to build an upcycled play
area and new wildlife garden.
Building children’s aspirations
During the year, colleagues from across PFG have supported
children and young people to develop their literacy skills and
prepare them for the world of work through a programme we
have established with the Ahead Partnership.
This has seen them volunteer to take part in:
– Careers panels: Colleague volunteers shared their career
journeys, the roles they do and what it is like to work for an
organisation like ours.
– Mock interview sessions: Colleague volunteers helped
students practice speaking about themselves and their
strengths before they leave school to move to a real-life
work situation.
– Work insight days: Colleague volunteers hosted virtual work
insight days where students learned about delivering excellent
customer service, and renting and buying commercial
property and even pitched ideas to our Digital Dragons’ Den.
– Reading partnerships: Colleague volunteers helped younger
children to practise reading to improve their literacy skills,
develop a love of stories and feel confident about their
own ability.
Environmental, Social and Governance continued
Our communities continued
Provident Financial plc Annual Report and Financial Statements 2021
65
Strategic report
Delivering positive social impacts in our communities
PFG has well-established Social Impact Funds with
Community Foundation Wales and Foundation Scotland,
as well as with the Community Foundations for Hampshire
and Isle of Wight, Kent, Leeds and London. These community
foundation partnerships have been established in areas
of the country where our main business premises, and
therefore colleagues, are based in Bradford, Chatham,
London and Petersfield, and in parts of the UK where we have
traditionally had high numbers of customers. The funds we
have with our community foundation partners are referred
to as ‘immediate grant-making’ funds where the full value
we donate to them on an annual basis is immediately made
available for grant making. The criteria for the funds we have
established focus on:
– improving people’s personal finance capabilities
(debt and financial advice/education);
– improving physical and/or mental health;
– providing support which enhances, creates and sustains
positive family relationships;
– addressing issues of low educational attainment
and improving learning outcomes; and
– providing people with opportunities to reduce inequality,
exclusion and disadvantage, including projects which
increase access to employment.
Grant panels which are made up of colleagues from across
PFG and facilitated by representatives from the community
foundations with which we have funds play a key role in
reviewing the grant applications. They meet throughout the
course of the year to agree which of them will be awarded a
grant. In 2021, these funds disbursed grants totalling almost
£307,000 to 51 small community organisations. Details of the
organisations our grants supported during 2021 are set out
on page 66.
These kinds of panels are really unique
because PFG colleagues are involved
in the decision-making process too. It’s
wonderful that colleagues can bring their
own diverse personal experiences and
input to the panel, which encourages
healthy discussions.
Bruce Topham
Grants Manager, Kent Community Foundation
I feel honoured to have taken part in
the grant panel. We assessed many
applications, and it was inspiring to see the
amazing work so many charities do, and
the outreach they have in our community.
Knowing I work for a company that helps
our communities is one of the many
reasons I’m proud to work for PFG.
Lara Hoban
Compliance Officer, Moneybarn
Boosting the education, skills and aspirations
of children and young people
We believe that by supporting the education agenda we
can help to put the people who live and work in the many
communities we serve across the UK on a path to a better
everyday life. Through the PFG Social Impact Programme, we
have developed an education programme to help children,
young people and adults to acquire or boost their skills and
aspirations in order to participate in society and progress in
education, the workplace or the communities they live in.
By supporting bespoke and targeted initiatives delivered
by expert partners, our education programme takes a
wide-ranging approach to education and skills acquisition.
We support both literacy and numeracy interventions, as well
as opportunities to gain insights into the world of work and
acquire crucial life skills that contribute to social mobility. We
also recognise that it is important for support to be delivered
in different ways and in different locations, such as schools,
workplaces and community settings, in order to better match
the needs of those who would benefit most from participation.
The solutions we support under this workstream are delivered
by eight key partners: National Numeracy, The Money Charity,
the National Literacy Trust, Social Mobility Business Partnership
and Outward Bound Trust operating on a nationwide basis
and Leading Children, the Ahead Partnership and School-Home
Support operating locally in Bradford and Chatham, where
we have some of our main offices.
Becoming a Numeracy Champion programme:
Maths mindset and money
In addition to again being lead supporter of National
Numeracy Day on 19 May 2021, one of the areas where we
have provided support to National Numeracy has been in
relation to the development and roll-out of new Family Maths
resources. This enhanced National Numeracy’s Supporting
Children’s Numeracy work, which has been more important
than ever due to the impact of school closures on children’s
education. The new resources are curriculum-linked maths
activities for children to complete with their families or other
adults who support them. They explore financial capability
and growth mindset in open-ended activities for ages 4 to 16,
with information sheets provided for adults about developing
their own and children’s confidence with numbers.
Organisations given the resources to use within their
community settings include past and current PFG partners
Sedbergh Community Centre, Scholemoor Beacon, School-Home
Support, One in a Million, and Christians Against Poverty. The
resources are also now part of the popular Family Maths Toolkit,
an integral part of National Numeracy’s Parental Engagement
Programme, which equips the adults involved in children’s
care to support the building of positive attitudes and skills.
In 2021, around 11,000 children, families and teachers from
19 schools in areas of need in the West Midlands, London
and Ayrshire have been supported through this programme
and offered those resources.
Provident Financial plc Annual Report and Financial Statements 2021
66
Environmental, Social and Governance continued
Projects supported through our PFG Social Impact Programme funds
Our communities continued
To read more detail on the projects that we support,
view our Corporate Responsibility Report at:
www.providentfinancial.com/sustainability/
corporate-responsibility-report-2021
Foundation Scotland London Community Foundation
– I Am Me Scotland
– Rise Against Abuse
– Home-Start Renfrewshire & Inverclyde
– Greenock Glenpark Harriers
– Magic Torch Comics
– Man On! Inverclyde
– Autus
– Dadihiye Somali Development Organisation
– Havelock Family Centre
– Kurdish and Middle Eastern Women’s Organisation
– Lewisham Multilingual Advice Service
– Ripe Enterprises
– The Women’s Centre Sutton
– Youth Legal Resource Centre
Leeds Community Foundation Hampshire and IOW Community Foundation
– Bradford Community Broadcasting
– Flourished Minds
– Impact Hub Bradford
– Keighley Association for Women & Children’s Centre
– Leeds Gypsy and Traveller Exchange
– Meridian Centre
– Participate Projects
– Café West Healthy Living Centre
– Hollings Youth Association CIC
– Mary Magdalene CIC
– The Valley Project
– Frontline Petersfield
– Home-Start Butser
– Wet Wheels
– Gosport & Fareham MS Society
– Making Space
– Interim
– Moving On
– Y Services
– Marvels & Meltdowns
– Love Outdoors
– Disabled Sailors Association
Kent Community Foundation Community Foundation Wales
– Cornerstone City Church
– Gillingham Baptist Church
– Great Leaps Adventure CIC
– Kent Savers Credit Union
– Maidstone Mediation
– Medway Education Business Partnership
– Medway Puzzles
– Medway Watersports Trust
– Refocus
– Walderslade Together CIC
– Bethel Trust Port Talbot
– Horn Development Association - ‘Go Girls’
– Llanelli LGBTQ+
– St Paul’s Family Centre
– Swansea Music Art Digital
Provident Financial plc Annual Report and Financial Statements 2021
67
Strategic report
Delivering a positive social impact in the future
Given the changes that have taken place at PFG during 2021,
we took the view that it was appropriate for us to review and
update our approach to community investment. This was
done to help us to ensure that it is better aligned with our
Purpose but also that it supports our focus on becoming a
broader banking group which provides credit to underserved
customers in the mid-cost markets.
We also believe that we have a duty to add a ‘legacy’
component to our approach so that PFG can continue to
provide some of the local communities we have served for
over 140 years with meaningful, ongoing financial support
to help put them on a path to a better everyday life and
tackle the social exclusion issues that disproportionately
impact some of the people that live, work and study
in these communities.
In 2022, we will therefore replace the PFG Social Impact
Programme with a new PFG Foundation. By structuring our
approach under a Foundation model, we will be able to
coordinate our community investment activities under one
banner, establish signature programmes which are targeted
specifically at supporting children and young people, and
allocate sufficient time, capability and investment.
Under this new model, we will develop signature programmes
which focus on:
1
Supporting educational partners and grass roots charities
and community organisations in the communities where
our main offices are based, and where our customers live
and work, to help address a range of social and financial
exclusion issues facing children and young people. This
will involve us continuing to support our UK-wide partnerships
with National Numeracy, the National Literacy Trust, the
Outward Bound Trust and Social Mobility Business Partnership
which deliver benefits to stakeholders and have become
more aligned with our business objectives. It also includes
maintaining the funds we have with our community
foundation partners in the areas of the country where
our main business premises, and therefore colleagues,
are based.
2
Establishing a new flagship initiative which will deliver a
programme to further inspire and support children and
young people to access education, and boost their skills
and aspirations.
3
Providing repayable finance to voluntary, charity and
social enterprise sector organisations which deliver products
and services to address a range of issues which benefit
children and young people.
Kurdish and Middle Eastern Women’s
Organisation (KMEWO)
KMEWO has been providing specialist support
services for Kurdish, Middle Eastern and North
African women for over 21 years. It provides
specialist violence against women and girls
(VAWG) services and crisis intervention to some
of the most vulnerable minoritised women
who are survivors of domestic violence and
harmful practices, forced marriage and ‘honour’
based abuse. Its approach is a combination of
individual and group holistic activities designed
to help survivors of VAWG through recovery.
Our funding is enabling KMEWO to provide digital skills
training, English for Speakers of Other Languages (ESOL)
support and employment coaching to 15 marginalised
ethnic minority women over six months in North London,
through its ‘Breaking Digital and Personal Barriers to
Employment’ project. The project works with women
to break down the barriers they face in achieving their
personal goals including poor digital skills, childcare,
caring responsibilities, language, self-esteem, self-worth,
low confidence and lack of support.
Workshops and training include one-to-one advice and
guidance sessions to identify barriers; digital skills learning
(how to keep safe online, emails, setting up, accessing
and installing apps, virtual meetings, using social media
and skills to create documents); ESOL for employability;
coaching and career-building workshops to prepare
women for volunteering or employment opportunities;
and personalised one-to-one employment support
including online job searching and CV creation.
PFG’s funding will cover the core costs of an Employability
Support Worker for six months to coordinate the project
and work individually with each woman to support goal
setting and access to support, advice and counselling.
It will also be used for tutor costs for digital skills, ESOL
and employability workshops.
Provident Financial plc Annual Report and Financial Statements 2021
68
Our environment
Protecting the environment and taking action
on climate change
We recognise that the long-term success of our business
depends on the resilience of our operations, supply chains,
and the communities where our customers and colleagues
live and work. This means that it is essential that we minimise
our environmental impacts and work with others to take
action on the globally important issue of climate change
which means embracing the Paris Agreement and keeping
global warming to 1.5°C above the temperature set before
the beginning of the Industrial Revolution. The future of PFG
depends on this.
Managing our impact on the environment
We continue to actively work to reduce our environmental
impacts through the environmental management system
(EMS) we have in place at our Bradford head office, Vanquis
Bank’s business premises in London and Chatham, and
Moneybarn’s offices in Petersfield. Our EMS helps us to identify,
assess and reduce key environmental risks and impacts; set
and deliver against environmental targets; and ensure our
legal compliance. Our EMS is independently audited each year
against the requirements of the international management
standard ISO 14001:2015. Following the audit that was carried
out in 2021, all our business premises continue to be certified
to ISO 14001:2015, which means that all PFG’s main premises
are accredited to an internationally recognised environmental
management standard.
Managing climate change-related risk
Our TCFD update: PFG’s climate-related risk disclosure
To deliver on our stated net-zero carbon emissions ambition
by 2040 (which relates to the scope 1, 2 and 3 emissions that
arise from PFG’s operations) and achieve the goal of the 2015
Paris Agreement to hold the increase in the global average
temperature to well below 2°C above pre-industrial levels, and
ideally to 1.5°C, we recognise the importance of understanding
and reporting the actual and potential impacts of climate
change-related risks and opportunities on PFG. This requires
PFG to report in line with the recommendations of the TCFD.
PFG has reported against the TCFD recommendations. As
such, PFG complies with the FCA’s Listing Rule 9.8.6R(8) and has
Environmental, Social and Governance continued
published a disclosure that is consistent with the 2017 TCFD
recommendations and recommended disclosures. We will
ensure that the future disclosures we publish in line with the
TCFD recommendations annually consider relevant TCFD
guidance and materials and evolving best practice.
Set out below is an update on the work undertaken by PFG
during 2021 in meeting the recommendations of the TCFD.
TCFD is built around four overarching pillars: governance, risk
management, strategy, and metrics and targets, which in
turn include 11 recommendations to support the development
of meaningful climate-related financial disclosures. Taken
together, these provide a consistent framework for companies
to report on their exposure to material climate-related
risks and opportunities, and a means to communicate
decision-useful information to investors, regulators
and other stakeholders.
Context
PFG is a FTSE 250 company listed on the London Stock Exchange.
With approximately 2,500 UK-based colleagues, the business
serves 1.6 million people through the provision of credit cards,
vehicle finance and personal loans. The approach taken by
PFG to determine its exposure to material climate-related risks
and opportunities is from the perspective of a listed company
whose business model is affected by climate-related risks and
opportunities and whose operational activities can have both
direct and indirect impacts on climate change.
Recommendation 1
Governance: Disclose the organisation’s governance
around climate-related risks and opportunities
1.a The Board’s oversight of climate-related risks
and opportunities:
The Provident Financial plc Board takes overall accountability
for the delivery of PFG’s strategy and reviews the Group’s
sustainability performance, including matters which relate
to the climate change agenda. The Board’s CCE Committee
supports the Board in providing oversight of the Group’s
approach to managing and reporting its impact on the
environment, which includes impacts related to climate
change. The CCE Committee provides an update to the
Board on climate-related matters annually. The Board’s Audit
Committee also reviews PFG’s TCFD disclosures.
PFG’s CEO, with support from the Executive Committee, provides
management oversight of the progress being made by the
Group in managing its strategic ESG objectives, including those
that relate to climate change. This includes reviewing and
updating associated risk management policies, and setting
and monitoring climate-related performance objectives.
1.b. Management’s role in assessing and managing
climate-related risks and opportunities:
Ongoing management of the climate risk agenda, is provided
by PFG’s Climate Risk Committee (CRC) which was established
in April 2021. This senior management committee, which is
chaired by PFG’s Chief Risk Officer, consists of representatives
from a range of business lines and function teams across the
Group including Risk, Finance, Operations, Compliance and
Sustainability to provide oversight and drive implementation
of the TCFD recommendations and the Group’s wider climate
risk strategy. The Committee reports to senior management
on PFG’s response to the issue of climate change biannually.
These reports cover PFG’s approach to climate-related
risks and opportunities within the business, and ensure the
Group’s public commitments on the TCFD recommendations
are upheld.
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69
Strategic report
Key climate-related risks
Risk
Description
Potential
financial impact
Time horizon
Transition
The imposition of new climate-related regulations,
policies and taxes could add to PFG’s operational and
compliance costs. They could also discourage PFG’s
customers from accessing its products and services
through their impact on levels of disposable income.
Finally, failure by PFG to respond to changing consumer
preferences could reduce demand for products
and services.
Increased
expenses
or reduced
revenues
Short and
long term
Physical
Adverse climate-related events (e.g. floods, droughts,
storms, etc.) could impact PFG’s operations as well
as key stakeholders such as customers, colleagues
and suppliers.
Increased
expenses
Long term
Reputational
Failure to respond to legislative requirements and
the needs of stakeholders could lead to regulatory
or financial censure and/or reduced customer loyalty
and shareholder divestment.
Reduced
revenues
Short and
long term
Key climate-related opportunities
Opportunity
Description
Potential
financial impact
Time horizon
Resource
efficiency
Through its sustainability strategy, PFG seeks to operate
its business in way that has minimal impacts on the
environment and improves operational efficiencies.
This provides PFG with opportunities to implement
initiatives and programmes that support the Group’s
journey to net zero (e.g. by using 100% renewable
energy and reducing waste and greenhouse
gas emissions).
Reduced
expenses
Short and
long term
New products
and services
There will be increased demand amongst consumers
for financial products and services that align with
their climate-related needs (e.g. that support
energy efficiency). This could present PFG with
revenue-generating opportunities.
Increased
revenues
Short and
long term
The CRC is supported by a newly established Climate Risk Working Group (CRWG). The CRWG assists the CRC in the process of
analysing the risks and opportunities that climate change presents to PFG’s operations and stakeholders. The analytical work
that the CRWG undertakes assists the CRC to provide guidance and direction for the assessment and management of climate
change-related risks and opportunities, and supports the Group’s ongoing compliance in meeting the recommendations
of the TCFD.
The remuneration of the executive directors is partly linked to our progress in building a more sustainable future and is aligned
with a number of environmental, social and governance (ESG) objectives. More information on these objectives is set out in the
Directors’ Remuneration Report on pages 177 to 191.
Provident Financial plc Annual Report and Financial Statements 2021
70
Environmental, Social and Governance continued
Protecting the environment and taking action
on climate change continued
Managing climate change-related risk continued
Recommendation 2
Strategy: Disclose the actual and potential impacts
of climate-related risks and opportunities on the
organisation’s businesses, strategy, and financial
planning, where such information is material
Our strategy to understand the potential for future climate
change to impact PFG, involves undertaking a scenario analysis
which is a forward-looking projection of risk outcomes that
focuses on: identifying physical and transition risk scenarios;
linking the impacts of the scenarios to financial risks;
assessing any sensitivities to those risks; and extrapolating
the impacts of those sensitivities to calculate an aggregate
measure of exposure and potential losses. In the first instance,
our approach to doing this has involved undertaking a
forward-looking, qualitative scenario analysis which will
allow us to explore relationships and trends in the absence
of reliable numerical data. It is recognised that, by using this
approach, qualitative scenario narratives have been used
to help PFG to explore the potential range of climate change
implications for the Group. Over the course of 2022, our
scenario analysis methodology will evolve to use quantitative
information to enhance our assessment of the potential
financial impacts of climate change on PFG, and to improve
future TCFD reports.
Following consultation with the PFG CRC, three climate-related
risks and two opportunities for the short term (1-5 years) and
the long term (5-10 years) have been identified as being most
material to the Group (these are set out on page 69).
2.a. The climate-related risks and opportunities the
organisation has identified over the short, medium,
and long term.
2.b. The impact of climate-related risks and opportunities
on the organisation’s businesses, strategy, and
financial planning.
2.c. The resilience of the organisation’s strategy, taking into
consideration different climate-related scenarios, including
a 2°C or lower scenario:
The TCFD recommends that organisations use different
climate-related scenarios, including a 2°C or lower scenario.
As we acknowledge the overwhelming scientific evidence of
the UN Intergovernmental Panel on Climate Change (IPCC)
experts and agree with the need to keep the temperature
increase below 2°C, we have therefore adopted the following
two scenarios in line with this recommendation. The sources
for these scenarios are the Fifth Assessment Report of the IPCC
and International Energy Agency (IEA):
Scenario 1 – Alignment (transition risks, major; physical
risks, minor): There is strong international alignment to limit
the global temperature increase to below 1.5°C in an orderly
manner. This sees strict product and regulatory standards,
high carbon pricing and strategic investment in low-carbon
technologies, and consumers who are, by and large, on board.
Scenario 2 – Fragmentation (transition risks, minor; physical
risks, major): Progress towards a low-carbon economy is
fragmented and inconsistent, leading to a global temperature
increase of between 2°C and 4°C. It is assumed that physical
risks will increase, with an intensification of natural disasters
associated with, for example, rising sea levels and more
frequent abnormal weather events.
During 2021, our qualitative scenario analysis work has focused
on the potential for climate-related transition risks to impact
our operations and customers, specifically how increases
in the price of wholesale gas, an accepted transition fuel
which is already subject to the Climate Change Levy in the
case of business energy use and other environmental and
social taxes in the case of domestic energy use, could impact
PFG’s operating costs and the income and expenditure of
our customers. The analysis also acknowledges that the
introduction in the UK of a ban on the sale of new petrol and
diesel cars and vans by 2030, with all new vehicles required to
be 100% zero emissions from 2035, as a material consideration
for the Group. However, it is recognised that the list price of
the majority of used electric vehicles is currently a barrier to
ownership for many middle and lower income consumers. We
will therefore continue to develop further insight into the used
electric vehicle market. Finally, our analysis has also focused
on determining whether PFG’s operations are exposed to
any material climate-related physical risks. Our qualitative
scenario analysis work has fed into Vanquis Bank’s Internal
Capital Adequacy Assessment Process (ICAAP).
Scenario analysis summary results
Scenario 1
PFG’s exposure to climate-related transition risks under this
scenario is considered to be primarily indirect, with such risk
principally having the potential to affect future revenues and
expenses (as opposed to assets and liabilities). For example,
forecasted energy price rises are recognised as being a
material issue for customers in this context. As such, our
businesses will continue to review, and where appropriate
adjust, their affordability assessments to ensure that these
increases are taken into account.
In terms of PFG’s exposure to physical risks, although it is
accepted that extreme weather events will increase in
number and severity compared to the present, they are
unlikely to be as severe as those expected under Scenario
2. Also, the direct financial impacts associated with these
events are considered to be minimal for PFG because its four
main offices are leased, and insurance is in place to help
mitigate the impacts of such physical risks. Furthermore, PFG
Our environment continued
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71
Strategic report
maintains and tests business continuity plans to ensure the
continuity of its operations in a range of situations, including
those where an extreme weather event occurs, and having
successfully operated throughout the Covid-19 pandemic,
the business has shown that it can work productively and
effectively remotely.
In the long term, we would expect that a transition scenario,
where there is strong international alignment to limit the global
temperature to below a 1.5°C increase in an orderly manner,
will result in better outcomes for PFG and its customers than
in scenarios which involve physical risks. This is because the
severity of the physical climate-related risks will be reduced,
resulting in more stable economic conditions in the long term.
In the meantime, PFG will continue to manage the transition
risks that are short and medium term by continuing to deliver
its business strategy in line with its stated ambition and other
environmental commitments.
Scenario 2
It is assumed that government policy and regulations
will not be tightened as much as under Scenario 1, and
therefore the impacts of responding to transition risks will be
comparatively lower.
It is also expected that physical risks will increase, and the
damage caused by extreme weather events and other natural
disasters will be more severe than under Scenario 1. However,
as described above, it is considered that, for PFG, the direct
financial impacts associated with such events would be
minimal. This is because PFG’s four main offices are leased,
insurance is in place to help mitigate the impacts of such
physical risks and business continuity plans are maintained
and tested to ensure the continuity of PFG’s operations in a
range of situations, including those where an extreme weather
events occurs. If climate change progresses and extreme
weather events and natural disasters occur on an increasing
scale this could have a negative influence on the UK economy
which, in turn, has potential to impact consumers. These
impacts will continue to be monitored to determine the
potential for them to cause PFG customers to, for example,
lose income.
In preparing the Group’s financial statements (see pages 192
to 275), we have considered the impact of the results of our
qualitative scenario analysis and climate-related risks on
our financial performance, and while the effects of climate
change represent a source of uncertainty, there has not been
a material impact on our financial judgements and estimates
due to the physical and transition climate-related risks in the
short to medium term. We are committed to understanding
and assessing the risks associated with climate change and
the impact on PFG’s financial results and will continue to update
our approach to scenario analysis as more business-related,
economic and climate data becomes available.
Recommendation 3
Risk management: Disclose how the organisation
identifies, assesses, and manages climate-related risks
3.a. The organisation’s processes for identifying and
assessing climate-related risks:
Climate change has been designated as a principal risk
within the Group’s Risk Management Framework. This is
because PFG is committed to minimising its environmental
impacts, along with determining the short, medium and
long-term risks that climate change poses to the business,
its customers and stakeholders as part of the Group’s wider
ESG strategy. The Group has also adopted a ‘risk cautious’
appetite for exposure to climate risk and is committed to
setting and working towards science-based targets in line
with our other obligations to combat climate change which
will be submitted to the Science Based Targets initiative for
approval. In 2021, we introduced a Group Climate Principal Risk
Policy which sets out clear expectations regarding how we will
understand, review, and address our exposure to climate risks,
meet our commitments on climate targets and report in line
with relevant government legislation and recommendations,
and seek new opportunities arising from climate change.
3.b. The organisation’s processes for managing
climate-related risks:
As with all principal risks, the PFG Risk Management Framework
sets out the high-level control principles that are in place and
those responsible for managing both the overall risk and the
relevant mitigating controls (go to pages 87 and 99 for more
information). All risks are monitored and reviewed throughout
the course of the year to identify changes that could impact
the risk profile. Day-to-day management responsibility of
climate-related risks is dispersed across PFG depending
on the nature and likely impact of the risk. For example,
the memberships of both the CRC and CRWG described
above include representatives from a range of functions (for
example, from PFG’s Finance, Risk, Procurement and Building
Management teams) which enables any material climate-
related risks to be identified, assessed and managed.
3.c. Processes for identifying, assessing, and managing
climate-related risks are integrated into the organisation’s
overall risk management:
PFG will stress test the risks and their impact across the Group
once metrics are identified and approved by the CRC.
Provident Financial plc Annual Report and Financial Statements 2021
72
Environmental, Social and Governance continued
Our environment continued
Protecting the environment and taking action
on climate change continued
Managing climate change-related risk continued
Recommendation 4
Metrics and targets: Disclose the metrics and targets
used to assess and manage relevant climate-related
risks and opportunities where such information
is material
4.a. The metrics used by the organisation to assess
climate‑related risks and opportunities in line with its
strategy and risk management process:
PFG has set an overarching target to achieve net-zero carbon
dioxide emissions by 2040 (which relates to the scope 1, 2 and
3 emissions that arise from PFG’s operations). To support this
long-term target, we will set a science-based target and other
related interim targets by September 2023 that will enable
us to transition to net zero. This target will be submitted to
the Science Based Targets initiative for approval. To support
our commitment to do this, we have signed up to the UN’s
Business Ambition for 1.5°C pledge.
4.b. Scope 1, scope 2 and, if appropriate, scope 3 greenhouse
gas (GHG) emissions and the related risks:
PFG has measured and reported its GHG emissions since
2007 and currently reports this information in accordance
with the UK Government’s Streamlined Energy and Carbon
Reporting (SECR) policy that has been implemented through
the Companies (Directors’ Report) and Limited Liability
Partnership (Energy and Carbon Report) Regulations 2018.
Details of our scope 1 and 2 GHG emissions in tonnes of carbon
dioxide equivalent (CO
2
e), along with a relevant intensity
ratio (i.e. kilograms of CO
2
e per customer) and information
on underlying energy use for 2021, are set out opposite. Our
2021 disclosure covers the GHG emissions and energy use
for the Group and its operating divisions – Vanquis Bank,
Moneybarn and the Consumer Credit Division (see page 73 for
more information). In addition, we report scope 3 emissions
which relate to business travel by colleagues, operational
waste and water use and the production, transportation
and distribution of fuels used by the transport and utilities
providers that the Group uses. In 2021, we reviewed how
we can capture the other scope 3 emissions that occur in
our value chain and have, for the first time, calculated and
reported the scope 3 category associated with purchased
goods and services. The capture and reporting of additional
scope 3 categories will be explored where data and
methodologies permit. PFG’s GHG emissions data has been
subject to a limited assurance by Corporate Citizenship
in accordance with the ISAE 3000 Assurance Standard.
Corporate Citizenship’s full assurance statement is available
on PFG’s corporate website at www.providentfinancial.com.
We continue to offset some of the direct and indirect GHG
emissions that make up PFG’s operational carbon footprint.
We do this by financing sustainable development projects
which help to mitigate the effects our operations have on the
climate. This year we offset 10,000 tonnes of carbon through
the purchase of carbon offset certificates in two wind power
projects; one in Thailand and one in Vietnam (see page 73
for more information). Both carbon offset projects are
accredited to the ‘Gold Standard to Global Goals’ scheme.
4.c. The targets used by the organisation to manage
climate‑related risks and opportunities and performance
against targets:
CDP, the largest climate change focused data collection
and assessment programme which, each year, requests
information from companies on GHG emissions, energy use
and the risks and opportunities from climate change, notified
PFG in December 2021 that it had been given a B- score (up
from a D score in 2020). This reflects the work carried out by
PFG during 2021 to meet the recommendations of the TCFD.
Relevant metrics include consumption of water and energy,
and waste management. GHG emissions are calculated in line
with the GHG Protocol.
Our environmental performance
Further details on our approach to managing our environmental
performance are set out on pages 18 and 19 of our 2021
Corporate Responsibility Report at www.providentfinancial.com.
Our carbon footprint (tonnes of CO
2
e)
Our business activities have an impact on the environment,
whether this occurs directly as a result of the energy that is used
by our offices and by our people when they travel, or indirectly
through the activities in our supply chains. We are committed to
minimising our environmental impacts, in particular to reducing
the GHG emissions associated with our business activities,
thereby lessening our contribution to climate change.
This year, we are reporting an increase in our carbon footprint
compared to last year as we have increased the breadth of
our scope 3 GHG emissions reporting. This has seen us include
new elements to measure our carbon footprint as we commit
to reporting in line with the Science-Based Targets initiative by
2023. With regards to our scope 3 emissions, we have included
the emissions from Category 1 ‘Purchased Goods and Services’,
which also covers the emissions from Category 2 ‘Capital Goods’
and Category 4 ‘Upstream Transportation and Distribution’. We
have also included emissions from hotel stays and paper usage
under the emissions resulting from Category 6 ‘Business Travel’
and Category 1 ‘Purchased Goods and Services’.
Provident Financial plc Annual Report and Financial Statements 2021
73
Strategic report
2021 2020
Scope 1 (tonnes CO
2
e)
Gas use
†
200 230
Diesel and petrol
†
111 178
Scope 2 (tonnes CO
2
e)*
Electricity use (market-based emissions) 125 Not measured
Electricity use (location-based emissions) 928 1,113
Scope 3 (tonnes CO
2
e)
Scope 1 and 2 associated ‘well-to-tank’ emissions
†‡
409 327
Scope 3 associated ‘well-to-tank’ emissions
‡
74 475
Business travel 269 2,271
Purchased goods and services** 17,579 —
Waste collection and management 15 102
Water 4 24
Downstream leased assets*** 0 Not measured
Total energy consumed (kilowatt hours)**** 5,460,285 10,768,000
Scope 1 and 2 (and associated scope 3) emissions
intensity ratio (kg of CO
2
e/per customer) 1.02 0.88
† Mandatorily reported emissions to meet the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.
†‡ Our emissions are reported in accordance with WRI/WBCSD Greenhouse Gas (GHG) Protocol. We use a financial control approach to account for our GHG
emissions and use emission conversion factors from Defra/DECC’s GHG Conversion Factors for Company Reporting 2021. Our GHG emissions are calculated
using energy use data accessed via meters and energy suppliers, and from records of fuel use, business travel bookings and waste management data.
Where challenges have occurred in obtaining data, estimates have been used and assured by our assurance provider. All GHG relates to UK only emissions.
‡ GHG emissions associated with the production, transportation and distribution of fuels used by transport and utilities providers.
* When calculating electricity emissions, we have applied both market and location-based methods. Where electricity suppliers can provide us with the
relevant conversion factor, we implemented the market-based method; otherwise, we used the location-based method. We also calculated the average
electricity and gas consumption in December 2021 for one of the Vanquis Bank offices as the invoices for that period are still outstanding at the time of reporting.
** When calculating the suppliers’ carbon emissions using the spend-based method, we used the US EEIO factors. Although these factors are calculated based
on the US economy, they are more recent (from 2018) and detailed than the UK ones which we find more accurate and transparent to our reporting. The exchange
rate at the time of calculation is £1 = $1.36 (18 January 2022); these calculations are conducted based on the assumption that suppliers have no climate-
related strategy. In 2022, we aim to improve our methodology and plan to communicate directly with suppliers to implement the suppliers-specific method.
*** We used the market-based method to calculate the electricity emissions related to an operating lease that PFG runs.
****All energy consumed relates to the UK only.
1+0.5+4.5+2+1+1.4+87+1+1+D
Scope 1: 311
(2020: 408)
Scope 2: 928
(2020: 1,113)
Scope 3: 18,350
(2020: 3,199)
Total
19,589
(2020: 4,720)
Offsetting our GHG emissions
We continue to offset our direct operational carbon footprint.
We do this by financing renewable energy projects around the
world which help to mitigate the effects our operations have on
climate change. During 2022, we offset 10,000 tonnes of CO
2
e,
which accounted for over half of the Group’s 2021 carbon footprint.
These emissions were offset through the purchase of
carbon
offset certificates in two projects. We reduced 9,800 tonnes
of CO
2
e
through producing electricity from wind power in Northeast
Thailand, and 200 tonnes of CO
2
e in a wind power generation
project in Bac Lieu Province, Vietnam.
In addition to producing electricity from renewable sources,
these two projects also deliver a range of additional positive
environmental and social impacts, including:
– These two projects will generate a combined of 820,000
MWh of renewable electricity every year and feed it into
Thailand and Vietnam’s national grids, helping to bridge
the gap between supply and demand that currently exists.
– By replacing electricity generated from fossil fuel fired
power plants with renewable electricity generated
using wind power, these wind farms will prevent around
250,000 tonnes of CO
2
and 143,000 tonnes of CO
2
from
being emitted into the atmosphere every year in Thailand
and Vietnam, respectively.
– These projects provide around 180 jobs to local people
who operate the wind power plants, as well as providing
local support, development and activities annually,
including community festivals, educational projects,
and sports days.
Provident Financial plc Annual Report and Financial Statements 2021
74
Environmental, Social and Governance continued
Find out more in our
2021 Corporate
Responsibility Report
Our 2021 CR Report is designed to provide a balanced account of how PFG’s Purpose and strategic
drivers are aligned to the Group’s responsible business strategy, as well as further details of the
progress that has been made during 2021 in delivering against this strategy. The report relates to the
non-financial aspects of Provident Financial plc and our key stakeholders: customers, colleagues,
shareholders and debt investors, regulators, communities, suppliers and the environment. It provides
information and updates on our CR activities, performance and achievements from 1 January to
31 December 2021 unless otherwise stated and has been independently assured by Corporate
Citizenship in accordance with the ISAE 3000 Assurance Standard.
For further details on
our approach to corporate
responsibility, visit
www.providentfinancial.com
Provident Financial plc Annual Report and Financial Statements 2021
75
Strategic report
Our regulators
and
government
(and other
b
odies)
Our
investors
(equity
and
debt)
Our
suppliers
O
ur
communities
O
ur
environment
O
ur
colleagues
O
ur
customers
We engage
with our stakeholders
Section 172
Statement regarding section 172 of the Companies Act 2006
Who does the Board deem to be the Group’s
key stakeholders?
We define our stakeholders as individuals or groups who have
an interest in, or are affected by, the activities of our business.
We recognise fourteen stakeholders, seven of which we
identify as key stakeholders and, following the outcome of our
materiality assessment, we have grouped them into the two
categories illustrated above. You can read about why and how
we engage with them in our ESG overview on pages 8 to 13.
You can also read about how we create value for our
stakeholders in our business model on pages 24 and 25; how
we build a sustainable Group on pages 26 and 27; our strategy
in action for our stakeholders on pages 28 to 31; and how we
understand our market and the products we offer on page 35.
The needs of our stakeholders can change over time and we
explain more about how we respond to the trends in our industry
and market on pages 36 to 39 and the environmental risks to
our climate on page 69.
To understand more about how our Board operates, and the
way in which it reaches decisions, including the matters it
considered during the year, please see pages 120 to 122. We
explain how we track and monitor stakeholder metrics in our
Customer, Culture and Ethics (CCE) Committee Report on
pages 150 to 152. Implicit in its decision making the Board pays
consistent regard to the Group’s reputation for high standards
of business conduct. The desire to do the right and best thing
for the Group’s stakeholders in a balanced and pragmatic
way is demonstrated throughout, and particularly within the
principal decisions.
Building upon the Group’s stakeholder mapping exercise
conducted in 2020, a stakeholder materiality assessment
was completed in the year, designed to assist the Group in
understanding the ESG-related matters most important to
its stakeholders and to prioritise them accordingly. You can
see the results on pages 51 which were reported to the CCE
Committee. Our Stakeholder Engagement Strategy and
associated strategic stakeholder engagement objectives
were developed and approved by the CCE Committee and are
set out on pages 49 to 51. The Board oversaw that the strategy
and objectives: a) were aligned to the Group’s priorities; b)
accounted for stakeholder interests; and c) promoted the
long-term success of the Group. More about the Board’s
role in stakeholder engagement can be found on pages 127
to 133. This work has supported the Board to ensure that the
Group has continued to meet the requirements of s.172 of
the Companies Act 2006 (CA 2006). More detail about the
stakeholder engagement objectives, and our progress against
these objectives, is within our 2021 Corporate Responsibility
Report, available at www.providentfinancial.com.
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Key stakeholders
Other stakeholders
Provident Financial plc Annual Report and Financial Statements 2021
76
Section 172 continued
Statement regarding section 172 of the Companies Act 2006 continued
Principal decision – the CCD Scheme of Arrangement
Strategic options
The Group announced on 15 March 2021 its intention to pursue a
Scheme of Arrangement (the Scheme), under Part 26 of the Companies
Act 2006, in relation to potential redress claims arising from customer
creditworthiness complaints based on historical lending in CCD prior to
17 December 2020. During the second half of 2020, industry dynamics
had changed the operating environment materially for CCD, making it
untenable to treat customer complaints as part of ongoing operating
costs. The number of complaints referred to the Financial Ombudsman
Service (FOS) across the home credit market in this period had
increased by circa 200% compared to the first half of the same year,
primarily driven by claims management companies.
External advice
The Board considered viable alternatives to the Scheme and was
focused in its deliberations on fairly considering the requirements of
all stakeholders, which it recognised as differing, and potentially at
odds. The Board commissioned legal advice of the factors it should
consider when determining whether to support the Scheme, including
a summary of the key considerations in relation to its duties under
English company law. Interrogation of this analysis supported the Board
to ensure robust and thorough consideration of all relevant factors.
The Group had supported CCD financially for some time in efforts to
return CCD to profitability and appointed
Ernst & Young to undertake
an independent valuation assessment of the division. Furthermore,
the Board commissioned independent advice regarding the future
prospects of the high-cost credit and home credit markets. The
outcome of these reviews concluded that for the Group the only credible
alternative to the Scheme was to commence insolvency proceedings for
CCD, an option which attracted less cost for the Group in the short term.
However, in those circumstances CCD’s customers would have received
no compensation. With administration confirmed as the only viable
alternative and giving consideration to the Group’s Purpose, reputation
and long-term position within the market, the Scheme was decided
upon by the Board because it provided certainty to stakeholders and
ensured customers with legitimate claims would receive fair access
to redress payments.
Regulatory engagement
In considering the Scheme, and if there were any other viable alternatives,
the Board engaged directly and constructively with the FCA and FOS to
determine, as far as possible, their views about repeat lending and their
non-objection or otherwise to such a Scheme. Throughout this period, the
Group CEO, Malcolm Le May, undertook several meetings and engaged
in regular correspondence with the FCA, maintaining an emphasis on
openness and transparency in line with the Group’s cultural Blueprint.
Feedback from the FCA was reported to the Board regularly during the
period and the Board listened to and sought input from the FCA in its
efforts to resolve its concerns. The Board considered the potential impact
of the Scheme and insolvency on its other subsidiaries and engaged with
the PRA directly to provide reassurance with regard to Vanquis Bank and
its credit card and retail deposit customers. Other regulatory stakeholders
with whom the Board engaged directly included the HM Treasury
and the FOS.
Financial implications
After close scrutiny of the relevant financial modelling data the Board
agreed to fund legitimate Scheme claims with £50m and allocated a
further £15m to Scheme costs, a total commitment that was met out
of the Group’s existing resources. The Board engaged directly with the
FCA on the financial support available for the Scheme, recognising that,
although customers would stand to receive less than the value of their
claims, the figures were based on sound financial analyses and the
decision offered the fairest compromise for all stakeholders. The Board
gave careful consideration of its equity and debt investors, with whom
it engaged directly and provided confirmation of the Group’s continued
ability to meet regulatory capital requirements over the longer term. On
21 June 2021 the Board announced that it would meet any increase in
Scheme administration costs which had in part been incurred to achieve
a higher voter turnout ahead of the Scheme meeting which the Board
agreed was important for the Scheme.
Communication
A comprehensive Scheme meeting communication timeline was
developed and supported the Board to ensure that the appropriate
stakeholder engagement plans had been put in place.
For investors a series of more than 25 meetings were arranged directly
after the announcement with Malcolm Le May and the Group CFO, Neeraj
Kapur, to help explain the Scheme. A number of calls were also arranged
with CMCs to explain the impact of the Scheme. To provide enhanced
support for creditors in June 2021 the Group appointed an independent
and experienced customer advocate who assessed and provided
comment and recommendations for improvement on the proposed
communications around the Scheme with customers, media groups and
consumer bodies. As a direct result of this engagement, and in advance of
the Scheme’s creditors meeting held on 19 July 2021, the Group broadened
its communication methods beyond newspapers to include social media
platforms to ensure that messaging was inclusive and representative of the
customer base. In addition the Group sought to simplify, where possible, the
language in the Scheme’s supplementary explanatory statement and other
communications sent to Scheme creditors. The Board was pleased to note
that following the engagement with creditors 420,000 voted in favour of the
Scheme, representing 98% of the total votes received.
The Scheme was sanctioned by the High Court after the court hearing
held on 30 July 2021 and became binding on 5 August 2021. The deadline
for submission of claims was 28 February 2022 and we are on track to
settle all valid claims and close the Scheme by the end of this year (2022).
19–22 April 2021
Staff comms briefings
22 April 2021
Convening hearing
23 April 2021
Notice of Order published on website
5 August 2021
Scheme effective and Scheme
help video added to website
27 August 2021
Scheme implementation date
27 August 2021
Claims portal opens
3-8 June 2021
Emails to customers who had not yet voted
8 June 2021
‘Voting is open’ follow-up campaign
24 June 2021
Adverts placed in newspapers
6 May 2021
Printing starts for mail activity
13 May 2021
Adverts placed
4–14 May 2021
Customer-facing colleague training, social
media videos and additional FAQs prepared
17–19 May 2021
Email and postal notices sent to customers,
voting portal opens and website updated
with FAQs and videos
14 July 2021
Online voting deadline
19 July 2021
Scheme meeting
30 July 2021
Sanction hearing
Scheme meeting communication timeline
APR JUNMAY JUL AUG SEP
Provident Financial plc Annual Report and Financial Statements 2021
77
Strategic report
Our customers See page 31 for key KPIs
How
The Board has established a customer-centric culture through setting the Group’s Purpose and Blueprint and
recognises that this continues to emerge as the Blueprint embeds throughout the organisation. Responding to
recommendations from the Board effectiveness survey, the Board invited the managing directors of each division to
CCE Committee meetings to provide in-depth reports on their customers and customer strategy. The outcome of this
engagement is an enhanced depth of knowledge for the Board of the intricacies of each customer base, enabling
the Board to oversee and shape the implementation of customer experience strategies within the divisions.
In deciding upon the Scheme and the regrettable wind-down of CCD, the Board considered the impact on its
customers, appointing a customer advocate for the Scheme. You can read more about this and the Board’s
consideration of customers in the wind-down of CCD in our principal decision on page 78. The Board has continued
to monitor key customer data on these programmes, including the collections performance and the number
and root causes of customer complaints. The Scheme is on track to settle all valid claims by the end of 2022.
All outstanding CCD home credit and Satsuma loans were settled on 15 December 2021.
The CCE Committee commissioned a deep dive report on the customer impact of the Covid-19 pandemic 12 months
after it had commenced. At its meeting in March 2021 the CCE Committee received detailed customer feedback
from the customer surveys taking place in each division. The CCE had overseen the introduction of a Customer
Pulse Survey at Vanquis Bank and the customer panel in Moneybarn and both these customer forums had shown
the importance of government and industry support that was made available for customers during the pandemic.
The surveys provided the Group’s businesses with valuable insights into how many of its customers were or had been
on furlough, and for how long, allowing management to plan and tailor customer support services appropriately.
The Board continues to engage indirectly with customers through verbal reports from Graham Lindsay, Chairman
of the CCE Committee, on matters considered at the Committee meetings. The CCE Committee receives Customer
and Blueprint Dashboards that facilitate oversight of key customer metrics including customer service levels,
availability, complaints, customer satisfaction and net promoter scores. For those metrics that require it, independent
assurance is gathered, such as GHG emissions from Corporate Citizenship (see page 72). The CCE Committee
continues its regular customer call listening exercise across the brands, becoming closer to the voice of the customer
and experiencing examples of customer service first hand. The learnings from this engagement support the Board
to comment on and oversee the formulation of new, or development of existing, customer propositions.
In approving the launch of the Sunflower Loans pilot the Board considered the customer segment analysis and
customer need, ensuring that the product was designed to reflect customers’ need for access to flexible, accessible
credit options and was differentiated from the Group’s existing products through loan APR and value.
Topics
The impact of the pandemic on our customers, new and existing products, customer experience and service
performance, customer communication preferences, forbearance options, government support during the
pandemic and access to credit for our chosen customer segments.
Significant
feedback and
value added
Customers had confirmed the importance of the support provided by the Government and industry. That CCD
customers continued to receive high quality of service throughout the wind-down period.
That the market opportunity for an unsecured personal loans product was estimated to be £1bn and that significant
regulatory and governmental intervention had been the most influential factor in the market demand for credit.
The independent assessment of the comments received from Scheme creditors by the Scheme customer advocate.
Recommendation that the relatives of deceased creditors be included in the Scheme.
Key outcomes
– The regrettable decision to exit the home credit market, responding to the changing industry and regulatory
dynamics in the sector, as well as shifting customer preferences. See our principal decision on page 78.
– The effective communication and management of CCD customers’ collections through the wind-down of CCD
and support for customers in their transition to debt collection agencies.
– Successful delivery of the Scheme.
– The necessary dispensations were applied for regarding the Scheme to ensure that all customers with claims
received equal and fair treatment.
– The Board’s expansion of the unsecured personal loans proposition at Vanquis Bank.
– The development and pilot launch of a new, digitally driven, mid-cost loan offering for which customer feedback
will be sought.
Provident Financial plc Annual Report and Financial Statements 2021
78
Section 172 continued
Statement regarding section 172 of the Companies Act 2006 continued
Principal decision – exiting the home credit
market and the managed run-off of CCD
Macroeconomic environment
On 10 May 2021 the Group announced the result of the operational
review of CCD and it was with regret that the Group confirmed
its decision to withdraw from the home credit market and place
the business into managed run-off or consider a disposal. In
commissioning the operational review and assessing the results
the Board acknowledged the terminal decline of the home credit
market and the decreasing relevance of a home credit proposition as
customers had transitioned towards digital transactions (a preference
accelerated by the Covid-19 pandemic) as well as an unsustainable
trajectory of complaints driven by Claims Management Companies.
During a joint meeting between the FOS, the FCA and consumer credit
lenders in November 2020, the expectation of repeat lending was
clarified such that the traditional home credit business model was
no longer sustainable for the Group.
Reviewing our options
The operational review of CCD was commissioned by the Board in
November 2020 and was conducted by Hamish Paton, Managing
Director of CCD. It considered a number of options including whether
an economic return could be made in home credit following the
changes in the macroeconomic environment and regulatory approach
and provided the Board with a comprehensive comparison of
implications for stakeholders on a full wind-down basis and also on
the basis of a continuance of a minimum viable business-as-usual
operating model. Alternative scenario forecasts interrogated by the
Board did not indicate a return to profitability and recognised the
historical, complex and increasingly costly operating model. The Board
also commissioned an independent legal and regulatory opinion on
high-cost credit (HCC) which summarised the regulatory scrutiny of the
high-cost short-term credit (HCSTC) market, and the increasing focus
on HCC, including home credit. The FCA’s recent activities had included
the introduction of a daily cost cap, a default charge cap and total cost
cap for consumers; and a focus on enforcement action against HCSTC
firms for any practices deemed as unfair. The Group had proactively
engaged directly with the FCA on these and other similar topics. Taken
together the Board recognised the pace of change, the expected
further regulation, the decreasing popularity and relevance of a home
credit product and that there was extensive evidence to suggest that
it would become more difficult to operate a sustainable profitable
business in the market.
Planning for change
Ahead of making its decision the Board acknowledged the impact of
the potential closure of CCD on its stakeholders, including approximately
2,000 colleagues and 300,000 customers. There were societal implications
of the exit in the communities in which the Group operated and
potential uncertainty for suppliers both of which could pose
reputational risks for the Group. Prior to the announcement on 10 May
2021, the Board considered management’s detailed communication
plans with customers, colleagues, suppliers, investors and regulators.
The Board approved a four-pillar plan which had been designed by
management to be cost effective and mitigate risk. Detailed stakeholder
communication plans were presented to the Board setting out potential
stakeholder concerns and the possible implications of the wind-down
upon existing relationships and proposing suitable management
actions to address the same, including a supplier engagement plan.
The Board recognised the ways in which management proposed to
address stakeholder concerns in its communication plan and set
the tone for external communications, emphasising its regret and
recognising the important role that CCD had performed for customers
in the underserved segment throughout its long history.
Communicating with empathy
The Board ensured that customers were supported, fully understood
their options and were reassured about how the change would impact
them, including how their existing loans would be collected and managed.
Careful consideration was given to the use of debt collection agencies
and the Board challenged management to ensure that good service
quality was maintained for customers, whilst they paid down their
balances, through effective supplier management. The Board oversaw
engagement with debt advisory bodies recognising these as important
sources of information and support for CCD customers. The low number
of customer queries received about the wind-down to date indicates that
customer communications have been well positioned and understood.
Colleagues’ concerns were a priority for the Board and the Colleague
Forums were utilised to assist in the gathering and disseminating of colleague
feedback. Communication principles, such as tone, timing and methods
of engagement, were agreed and a colleague content hub published on
the intranet provided a consistent colleague experience and fully accessible
self-service support. The Board’s Designated Non-Executive Colleague
Champion, Graham Lindsay, attended several Colleague Forum meetings
to share messages from the Board and listen to colleagues’ concerns,
and reported back to the Board on his engagement. The CCE Committee
commissioned and received a detailed report setting out the colleague
impact of the wind-down of CCD. The CCE Committee recognised issues
raised by colleagues and oversaw the adaptations in approach in response
to colleague feedback, where possible, such as management directly
addressing one of colleagues’ main concerns that redundancy terms
would be honoured in the event of the division falling into administration
(should the Scheme not be approved). Every effort was made to minimise
redundancies and job opportunities elsewhere in the Group were shared
with CCD colleagues, including those across multiple locations, made
possible due to new hybrid working arrangements. 10% of colleagues at
risk were redeployed elsewhere in the Group. Impacted colleagues were
provided with outplacement support that included support plans,
one-to-one career coaching, and access to materials and resources
to assist them in finding new employment as well as to support their
emotional and financial wellbeing.
Valuing our relationships
A review of all suppliers had been completed by management with
the results and subsequent supplier engagement plan reported to
the Board. The Board recognised the varying impact on suppliers of
the wind-down of CCD, many of whom provided important services
to other divisions. The Board ensured that suppliers were contacted
directly by management following the announcement of the wind-
down of CCD and was pleased to note the continued confidence of
suppliers in the Group, demonstrating positive relationships and the
successful execution of the supplier engagement plan. PFG’s Purpose
of helping to put people on a path to a better everyday life drives the
Board to ensure that the products and services the Group provides are
sustainable, responsible and commensurate with the Group’s strategic
ambition to be the specialist leading bank to the underserved mid-cost
market. The Board’s decision to exit the home credit market and wind
down the CCD business, whilst difficult and regrettable, was necessary
to adapt to the macroeconomic environment with a view to securing
the long-term future of the Group. You can read more about how we are
becoming a bank for the underserved on pages 20 and 21. The Board
continued to oversee and monitor the execution of the wind-down
plan and, with customer collection rates having consistently exceeded
expectation, CCD took the decision to write off all outstanding home
credit and Satsuma loans on 31 December 2021.
Provident Financial plc Annual Report and Financial Statements 2021
79
Strategic report
Our colleagues See page 32 for key KPIs
How
Colleague engagement was extensive in 2021, particularly as stricter Covid-19 pandemic restrictions were reintroduced
in the early part of the year and as the Board shaped the Future of Work programme. The Future of Work comprised
assessments of the success and value of the adaptations adopted during the pandemic and gave consideration as
to how they might be incorporated into existing workforce policy and practices. You can read more about the Future
of Work programme in our principal decision on page 80. Communications were primarily via email and the intranet
with links to frequent vlogs by the CEO, Malcolm Le May. Colleagues received quarterly video updates on the Group’s
results from the CFO, Neeraj Kapur, and other important news via the colleague newsletter, ‘Stay Connected’.
Following the regrettable announcement of the wind-down of CCD on 10 May 2021 a comprehensive colleague
communication and support plan was executed. Colleagues were briefed in advance of any direct customer
communications to allow time for them to absorb the news on a personal level and prepare more effective
conversations with customers, and the well-established Colleague Forums, attended by Graham Lindsay, were used
to support the colleague consultation process for impacted CCD colleagues. You can find more detail about this in
our principal decision on page 78.
The Group is continuing to develop its approach to colleague engagement regarding executive director (ED) pay
and, to this end, two engagement sessions were held with HR colleagues representing a mix of divisions, levels and
areas within HR. The sessions took place in November and December 2021 and were run by Graham Lindsay together
with Andrea Blance, our Senior Independent Director. Colleagues provided direct feedback on topics including ED
remuneration, the ED scorecard and objectives, performance management, communication, the link to colleagues’
own personal objectives and overall Group strategy. The output identified opportunities to improve colleague
communication, and in particular to enhance visibility of the ED scorecard, amongst other actions which will be taken
forward by HR. You can read more about this in our Remuneration Report starting on page 169. It was agreed that the
feedback sessions had been successful in sharing colleague views with the non-executive directors and the exercise,
when completed again, would be extended to a broader range of colleagues.
In September 2021 the Board visited the Chatham office to meet directly with colleagues and experience first hand
the Vanquis Operations teams. The Board noted how internal talent had been identified and nurtured to deliver
enhanced capability in operations and how colleague engagement had increased by 3% overall in the team
since 2020. Topics discussed by the Board and colleagues included technology, the Future of Work and an open
Q&A session.
At its November 2021 meeting the CCE Committee received a follow-up paper on the Future of Work and considered
the Group’s updated workforce policies. In addition the CCE Committee considered the results of a comprehensive
review of the effectiveness of the Colleague Forums which confirmed that they had benefited hugely from the
attendance of Graham. The allocation of time for Graham to update colleagues on Board decisions and issues was
well received by the Forums. A number of recommendations arose from the review which were supported by the
CCE Committee and will be progressed by management. Updates on the CCE Committee’s consideration of these
matters were provided to the Board by the Chairman of the CCE Committee.
The Board engaged directly with colleagues through its participation in Affinity Group activities. Over 125 colleagues
are members of the Group’s inclusion network and our Board members have participated in a number of the activities it
has arranged to promote exclusivity and celebrate diversity, such as a virtual cookalong in celebration of world foods.
The CCE Committee has overseen the implementation of a Management and Leadership Development programme.
The Nomination Committee considered the succession framework for senior executives and considered in detail
the implementation of the common Board structure, further details of which are contained in our principal decision
on page 86.
Topics
The wind-down of CCD and support for colleagues at risk of redundancy. Executive director remuneration, the Future
of Work, health and safety and workforce engagement mechanisms. The gender pay gap, diversity and inclusion and
leadership management and development. The management governance structure. The Restricted Share Plan and
its value to participants.
Significant
feedback and
value added
The Board recognised that a majority of colleagues supported a hybrid working model which delivered increased
flexibility and improved work-life balance.
Senior leadership confirmed that productivity had remained stable and business needs continued to be met when
colleagues were working remotely.
Overall colleague engagement through the Pulse survey remained stable at 71%.
To enhance visibility of the ED scorecard for colleagues and consider development of mandatory objectives such
as for inclusion or wellbeing.
Key outcomes
– Engagement with colleagues helped define the Future of Work as outlined in our principal decision on the next page.
– A Board-led consistent tone and messaging for colleagues regarding the wind-down of CCD and a comprehensive
package of colleague support including outplacement support – see our principal decision on the previous page.
– Revisiting the Colleague Forum structure to ensure that the geography and demography of the workforce were
represented fairly and continuous improvement of the Colleague Forums as a two-way form of engagement
between the Board and colleagues.
– In response to colleague feedback catering facilities were reinstated at the Bradford office.
– To provide certainty, assist colleagues in financial planning and support colleague retention earlier than usual
announcements were made by the Group CEO regarding the Board’s confidence that a year-end bonus would be
paid for qualifying colleagues.
– A Group Vaccine Policy and free flu jabs for colleagues.
Provident Financial plc Annual Report and Financial Statements 2021
80
Section 172 continued
Statement regarding section 172 of the Companies Act 2006 continued
Principal decision – Future of Work
The ‘stay at home’ requirement arising from the Covid-19 pandemic
required many companies to revise their operations. We were no
exception and the Board oversaw the transition to home working for
the majority of colleagues in March 2020 which remained in place
throughout the year and for a proportion of 2021. As reported in last
year’s Annual Report, the return to office strategy was recognised as
a key emerging risk by the Board in 2020 and management evolved
the focus on working from home to begin to develop a Future of Work
proposition that capitalised on the lessons learned from the pandemic.
The Board engaged indirectly with colleagues through updates to the
CCE Committee and subsequent reports to the Board from the CCE
Committee Chairman. In January the CCE Committee had assessed
the feedback from colleagues and management which had been
gathered via colleague surveys. The majority of colleagues supported
the introduction of a hybrid working model and a strong majority of
senior leaders confirmed that productivity had remained stable or
improved since colleagues had been working remotely. Senior leaders
also fed back to the CCE Committee their support for a blended way
of working. Through the CCE Committee, and after consideration
of the risks and benefits, support was provided for management’s
proposal to agree hybrid working and a Future of Work programme was
established, sponsored and led by the Group HR Director.
In April 2021 a Future of Work steering committee (Steerco) was set up
to deliver a three-phase plan to introduce a hybrid working model
and arrange a safe return to working in offices for colleagues. In
June the Future of Work programme was considered by both the CCE
Committee and Board which received a report from the Group HR
Director as to management’s progress. The Board engaged indirectly
with colleagues receiving the detailed results from the colleague and
leadership surveys. The Board encouraged management’s continued
consideration of all stakeholders in programme design, emphasising
the importance of retaining productivity and high service quality
for customers, further highlighting culture, health and safety and
colleague wellbeing as important areas of focus.
Following feedback from the Board and CCE Committee the principles
of hybrid working were established which considered the needs of key
stakeholders and included, amongst others things, that there would
be no detriment to customer experience or service and sufficient
supervisions were in place to assist colleagues when dealing with
vulnerable customers or difficult conversations.
From June 2021 and throughout the second half of the year, regular
direct communications were issued to colleagues via email and the
intranet about the Future of Work milestones, to confirm the working
arrangements that were in place at each stage and how they might
apply to a colleague’s personal circumstances and set out how
long they were expected to last. A dedicated Future of Work Hub was
launched on the intranet and housed a new Flexible Working Policy, a
Group Vaccine Policy, management and colleague guides for hybrid
working and guides for working safely both remotely and in the office.
Colleagues returned to working in the office in phases and from 19 July
to the end of August 2021 those colleagues deemed a priority (due to
a personal or business need) returned to the office on a hybrid basis;
all remaining colleagues returned to the office on a hybrid basis from
October until government guidance changed in December 2021 and
colleagues were asked to return to home working. The CCE Committee
emphasised the health and safety of colleagues as a priority for the
Board and colleagues were asked to complete training before returning
to the office. Ongoing feedback was provided regarding hybrid working
arrangements including desk space allocation, parking allocation,
catering, facilities and safety procedures whilst in the office. On 28
September 2021 the Board visited the Chatham office, home to our
Vanquis Bank Operations teams, to meet with Vanquis Bank colleagues
and witness the arrangements that had been put in place. The Board
had an open Q&A session with colleagues and a dedicated session
on the Future of Work including the challenges and opportunities it
presented. HR and management undertook to execute any actions
arising. Separately our non-executive directors have visited the
Moneybarn offices in Petersfield.
You can read more about how we supported our colleagues
during Covid-19 on page 11
Provident Financial plc Annual Report and Financial Statements 2021
81
Strategic report
Our investors (equity and debt) See pages 31 to 33 for key KPIs
How
For more detail about how we engage with our investors through our investor relations programme including our
investor days, market announcements, the AGM and the Annual Report, please refer to pages 132 and 133. The AGM
held in June was pleasingly open for shareholders to attend in person and engage directly with the Board or to follow
remotely and shareholder questions were welcomed in advance. Appropriate social distancing restrictions were in
place commensurate with the Government’s Covid-19 guidance in place at the time.
In the reporting period, and following the relaxation of Covid-19 rules, the Chairman, Patrick Snowball, has engaged
directly with the Group’s top ten shareholders to listen, develop and enrich stakeholder relationships. Key topics for
the conversations included the Group’s strategic direction, corporate governance matters and the macroeconomic
environment. This direct engagement has resulted in investor feedback being front of mind for the Chairman and
woven into the fabric of Board discussions on those topics. The Chairman and Head of Investor Relations provided the
wider Board with feedback from the meetings through an informal update and the Investor Relations Board report.
In May following the announcement of the Scheme and the results of the operational review in CCD, management,
including the executive Board members, ran a series of more than 25 investor meetings. You can find out more on
our principal decision on page 76. The market presentation accompanying the announcement of the Scheme and
release of the Group’s results included an open question and answer session for the market. A recording of this
presentation is available in the shareholder hub on our external website along with all our other announcements:
www.providentfinancial.com/shareholder-hub. Verbatim feedback from investors received by the Board at its Group
Strategy Conference in June indicated that investors had appreciated the engagement and understood the Scheme.
The Board receives regular investor relations update reports through which the progress and execution of the investor
relations programme is overseen and investor feedback is indirectly provided. A comprehensive report on how the
market viewed the future of the Group was provided to the Board at its Group Strategy Conference in June 2021 and
this report included verbatim feedback from institutional investors. The feedback informed management’s business
plan through recognition of the importance to the Group of Vanquis Bank and the future opportunities for growth it
presented. Malcolm Le May, our CEO, talks about this in his review on pages 4 and 5 .
In November 2021 the Board commissioned a further independent Investor Perception Study to offer insights into
how the Group is perceived, clarify areas of focus for investors and identify opportunities to improve investor
communications. There was strong participation in the study, representing 57% of the issued share capital and a mix
of shareholders. The output report provided valuable feedback that was discussed by the Board in December 2021.
In particular the Board noted shareholder expectations about Group performance in the context of the budget. The
Board acknowledged the feedback on key topics and communication and oversaw their integration into the investor
communication plan. The Board reviews and approves all trading and results statements issued to the market and
receives periodic updates on external communications.
The Board has overseen the successful execution of a number of initiatives to implement the Group’s Capital
Funding Plan, approving the Group’s first subordinated Tier 2 debt capital to the external markets since 2005 (the Euro
Medium-Term Note Programme or EMTN). Proactive engagement with debt investors, through roadshows hosted by
the CFO, Neeraj Kapur, ensured that the issuance was successful with the Group’s bond being rated as B+ by Fitch.
Concurrently the Board oversaw the repurchase of some of the Group’s 2023 Senior Bonds, the reduction of the
Group’s revolving credit facility and the refinance of its Moneybarn securitisation programme with £325m committed
funding. The Group now has no contractual wholesale maturities until the second half of 2023, thereby delivering a
very secure, diverse and stable funding profile commensurate with investor expectations.
Topics
The Scheme and closure of CCD, particularly what the Scheme involved, the legal process and expected timelines
for completion. The Group’s strategic direction, subsidiaries, valuation, capital return, results, strategy and progress
towards achieving its ambition to become a specialist bank for the underserved. In addition the funding activities
including the Euro Medium-Term Note Programme (EMTN) prospectus, offering circular, investment quality rating
and the price of the Group’s Senior Bonds. Early in 2022 the Board considered the timeline for publication of this,
and future, Annual Report and Accounts which had been impacted by the Covid-19 pandemic.
Significant
feedback and
value added
The Board received specific shareholder feedback, following the announcement of the Scheme in March 2021, that
shareholders continued to support the product model outlined by the Group at its 2019 Capital Markets Day. The
Board also received confirmation from investors that Vanquis Bank remains a key asset and central to the Group’s
long-term success.
The Board has received indirect feedback via its corporate brokers at the Group Strategy Conference in June about
investor perception of the Group’s overall position in the market, capital position, opportunities for growth and
regulatory matters. The Board received an independent Investor Perception Study in November which reported
shareholder expectations around performance and the importance of shareholder distributions. For more information
about our investor relations programme please see the Investor Relations Report on pages 132 and 133.
For more information on the Scheme see our principal decision on page 76.
Key outcomes
– Approval of all resolutions at the AGM.
– Investor support of the strategy and continued momentum towards the Group’s strategic imperative to establish PFG
as the specialist bank for the underserved operating in the mid-cost market segment.
– Enhanced investor knowledge of the Scheme.
– Support for initiatives forming part of the Capital Funding Plan delivering secure, diverse and stable funding profile.
– Reduction of the revolving credit facility to £90m (previously £148m, and subsequently early repaid in March 2022).
– 6.4% improvement in the Group’s total capital ratio (TCR).
– Key topics incorporated into the investor communication plan.
– A desire to return the publication date of the Annual Report and Accounts to align more with historical norms from 2024.
Provident Financial plc Annual Report and Financial Statements 2021
82
Section 172 continued
Statement regarding section 172 of the Companies Act 2006 continued
Principal decision – Group funding initiatives including the EMTN
and Tier 2 pricing and the Senior Bond tender
In last year’s Annual Report Neeraj Kapur, the Group’s CFO, explained
that a key focus area for 2021 was to retain a strong capital, liquidity and
funding structure to ensure the financial security of the Group, utilising
Vanquis Bank deposits where possible. The Board considered the
Group’s Capital Funding Plan at the Group Strategy Conference held in
June 2021 and received insight from our corporate advisors with regard
to the market perception of the Group. The indirect feedback confirmed
that strong liquidity and the ability to raise deposits through Vanquis
Bank was considered by investors to be a key positive differentiator
for the Group. The Board approved the Capital Funding Plan and the
funding initiatives have been successfully executed in the second half
of 2021 to diversify funding, reduce associated costs and facilitate
efficient intra-group lending.
On 23 September 2021 the Group published an updated offering circular
in connection with the Group’s £2bn EMTN Programme. The Board
approved the publication of the offering circular and the execution
of the amended and restated documentation supporting the EMTN
Programme. The FCA was engaged directly to review and approve the
offering circular and the significant updates that had been made to
it since the previous version which had been published in late 2020,
to reflect the wind-down of CCD and the Scheme.
The Group also announced an issuance of Tier 2 securities. The
proposed transaction was presented to investors by the CFO, Group
Treasurer and Head of Investor Relations through 25 virtual roadshows
in September 2021. The offer was well received and, following strong
demand and demonstrating investor support of the Group’s strategic
objectives, was successful at raising £200m of Tier 2 subordinated debt
capital, with a 10.25-year maturity, callable at 5.25 years, and a coupon
of 8.875%. Concurrently, a partial tender of the Group’s 2023 Senior
Bonds was offered and was also well received by investors. The Group
successfully repurchased £71.5m of the £175m outstanding bonds.
The Board endorsed the activity which was aligned with investors’
expectations as presented in the broker report at the Group Strategy
Conference. The outcome was the improved efficiency of the capital
structure and lower overall cost of capital. Incorporating the £200m Tier
2 debt capital in own funds, at the time of issuance the Group’s total
capital ratio improved by 11% from 32% to 43%. You can read more about
the execution of our Capital Funding Plan on pages 106 to 107.
In July 2021 the Group executed a new warehouse securitisation
programme for Moneybarn which refinanced the initial programme
entered into in 2020 and injected additional drawn funding into the
Group, whilst at the same time reducing its exposure to but extending
the tenure of its revolving credit facility (RCF). In approving these
activities the Board engaged with funding partners to execute the
activities to deliver improved liquidity in the non-bank part of the
Group and eliminated any contractual funding maturities until 2023,
significantly reducing the Group’s funding risks. The RCF has already
been repaid early ahead of its contractual maturity in July 2023 and at
the same time has been cancelled at the discretion of the Group and
as allowed for in the terms of the facility.
A further funding initiative was approved by the Board in January
2021 which saw Vanquis Bank securitise a portion of its credit card
portfolio in order to gain access to the Bank of England’s Term Funding
Scheme with additional incentives for Small and Medium-sized
Enterprises (TFSME).
Taken together the funding activities approved by the Board have
delivered a more robust, diverse and stable funding profile for the
Group as a whole and represent a more cost effective way of funding.
You can read more about how we maintain a secure funding and
capital structure on page 33.
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Our communities See page 32 for key KPIs
How
The community impact of the wind-down of CCD was recognised by the Board, in particular for those locations
which had a high density of customers or colleagues. A significant proportion of the circa 2,000 colleague redundancies
were based at the Group’s Head Office in Bradford and the Board oversaw the engagement with Bradford Council.
The outcome of this engagement was that a number of local employers advertised opportunities to affected
colleagues, with them also being alerted to job opportunities through social media and being advised of local
community support.
The Board has received regular updates about the Group’s community investment and the execution of the
Group’s Social Impact Programme indirectly through its CCE Committee. The Social Impact Programme, which has
been running for a number of years, is aligned to the Group’s strategy and Purpose and has delivered community
investment focused in three distinct areas: community, customers and education (see pages 64 and 67). It had
served the Group well to deliver an effective programme of support, financial and otherwise, to its chosen community
partners. However, the CCE Committee reconsidered the Group’s Social Impact Programme in June 2021, in light of the
evolution of the Group, and commissioned a review of the aspects of community work undertaken by CCD and how
they might be carried forward following the wind-down.
In November 2021 management presented an alternative to the Social Impact Programme. The new strategy aligned
PFG’s community investment activities under a single ‘PFG Foundation’ and developed a vision, a mission and three
signature programmes all designed to support young people (0-25) from low-income backgrounds. More about the
new PFG Foundation is set out on page 67 and in our CR Report. The views of the Group’s affinity champions have
been built in at the design phase to facilitate good integration of equality, diversity and inclusion into the Group’s
community funding approach. The new community investment strategy was approved by the CCE and recognised
as delivering other benefits to stakeholder engagement including broadening the Group’s opportunities for external
stakeholder communication regarding social matters.
The CCE Committee regularly monitors and reports to the Board the Group’s progress against the long-term targets
linked to the five UN Sustainable Development Goals.
Topics
Key topics have included customer vulnerability, the community foundation strategy and structure, community
contributions and charitable giving. Volunteering activities in the context of the Covid-19 pandemic, and the strategic
review as a result of the evolution of the Group. Redundancy, equality, diversity and inclusion and community
partnerships have also been discussed.
Significant
feedback and
value added
Community engagement with the wind-down of CCD. The alignment of the Group’s approach to community funding
with the broader change in customer base as a result of the closure of CCD, including the restructure of the Social
Impact Programme to become a foundation, was supported by the CCE Committee. Support for the Group to
continue to appropriately fund and promote its social activities, including supporting colleagues in the same.
Key outcomes
– Tailored ESG training delivered for divisional boards.
– A change of community investment structure from Social Impact Programme to a foundation model and a change
of name from Social Impact Programme to the ‘PFG Foundation’.
– Evolved strategy to adopt a targeted approach to community investment activities to support children and young
people (0-25) from low-income backgrounds.
– Funding approved for the School Home Support Charity including matched colleague fundraising.
– The IncomeMax partnership with Vanquis Bank which provides customers with independent personal
welfare advice.
– Closer integration of the community funding approach with equality, diversity and inclusion through involvement
of the Affinity Groups in the design phase.
– The CCE Committee endorsed the Group’s approach to supporting its community partners through
the Covid-19 pandemic.
– The CCE Committee approved the Group’s commitment to the five long-term ESG objectives that were aligned
with both the Sustainable Development Goals and TCFD.
– The Group being the lead supporter for the National Numeracy Day, held in May 2021, and the appointment
of the Group’s CEO, Malcolm Le May, to the National Numeracy Leadership Council.
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Statement regarding section 172 of the Companies Act 2006 continued
Our environment See pages 68 to 73 for key KPIs
How
Throughout the year the Board, via the CCE Committee, has received regular updates about the Group’s implementation
of the Task Force on Climate-related disclosures Financial Disclosures (TCFD). In November the Head of Sustainability
confirmed the integration of climate-related risks into the Group’s Risk Management Framework with a risk appetite
headline and statement having been articulated. The Board approved the ‘risk cautious’ appetite for exposure to
climate risk as recommended by the Risk Committee. Following on from the engagement the Group has established
a Climate Risk Committee and Climate Risk Working Group each with specific responsibilities to support the reporting
requirements for TCFD and the Board will oversee progress in this regard through reporting into its Risk Committee.
Initial work has been undertaken by the Climate Risk Committee to define the climate-related risks that are most
material to the Group which are regulatory, physical and reputational risks. In addition the Climate Risk Committee
has determined the methodology that will be used by the Climate Risk Working Group to undertake scenario analysis
which will enable us to better understand the actual and potential impacts of climate-related risks and opportunities
on our business activities and stakeholders.
In addition the CCE Committee has overseen the Group’s progress toward the commitments made in 2020 to achieve
net zero carbon dioxide emissions by 2040 and against the UN Sustainable Development Goals (SDGs).
The Group continues to manage environmental impacts via the established Environmental Management System
(EMS). This EMS was certified to the international management standard ISO 14001 in July 2021. You can read about our
efforts and achievements to reduce our carbon footprint year on year on pages 68 to 73.
In December 2021 the Group achieved a B- rating from the Carbon Disclosure Project, a significant improvement from
the previous D rating and recognition of the Group’s commitment to sustainability and environmental management.
The CDP report was discussed by the CCE Committee which recognised the Group’s above average scores in
governance and opportunities for improvement in value chain engagement and emissions reduction initiatives.
Topics
Climate change, climate risk and climate risk appetite, strategies to mitigate climate-related risks, details
of greenhouse gas emissions and the achievement of TCFD objectives.
Significant
feedback and
value added
Climate risk was approved by the Risk Committee as a principal risk. Physical, regulatory and reputational risks
were defined as the three most material climate-related risks.
The Board approved the Group’s risk appetite for exposure to climate risk.
Key outcomes
– Climate risk was approved as a principal risk by the Risk Committee.
– A Climate Risk Committee was established with terms of reference approved by the CCE Committee, chaired
by the Group’s Chief Risk Officer.
– A Climate Risk Working Group has been established with specific responsibilities to support the reporting
requirements for TCFD and undertake scenario analysis for climate-related risks.
– The Board approved the Group’s target to reach net zero by 2040.
– The CCE Committee approved the Group’s commitment to the Business Ambition for 1.5°C pledge.
– Our operational carbon footprint is 19,589 tonnes CO
2
e in 2021 (5,493 tonnes CO
2
e in 2020). These emissions have
been partially offset through the purchase of carbon offset certificates in two wind power projects in Thailand.
For further information on the Group’s operational carbon footprint see page 73.
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Our suppliers See pages 60 and 61 for key KPIs
How
The Board has overseen the establishment of a Group Procurement function operating as a central shared service
under the leadership of the Group CFO. The Group Procurement function has implemented a new process for
reviewing major contracts which has enhanced the efficacy of the buying process and delivers a consistent
experience for all suppliers. The process requires Board engagement for those contracts that are of an appropriate
size or value or of strategic importance to the Group as defined in our Group Delegated Authorities Manual. During
the period supplier due diligence processes were reviewed and updated to ensure the Group continues to purchase
products and services from those which operate responsibly.
Supplier engagement activities are conducted through a Supplier Relationship Management Framework. The CCE
Committee discussed and was supportive of a tiered approach to engagement based upon supplier classification,
the outcome of which means that the Group’s most critical suppliers participate in an enhanced engagement
schedule that includes regular touchpoints for executive, relationship and performance review. Through the
CEO and CFO the Board engages directly with some of the Group’s most significant suppliers through meetings
at onboarding and at regular intervals throughout the relationship. Topics discussed include business success,
continual improvement, supplier concerns and contract negotiation. The meetings are attended by the Group Head
of Procurement or their delegate, who plans and executes any actions arising.
In May 2021 the Board approved significant investment in new IT architecture. The Board oversaw the rationale for
vendor selection to ensure the investment delivered modern customer-centric architecture that would allow for
broader application across the Group in support of the Group’s strategy. The Board received independent assurance
over the approach to vendor selection, the vendor selection process itself and the reputation and robustness of the
participating vendors. As part of this process interviews and surveys were undertaken with the potential supplier
stakeholders and the results reported back to the Board. The Board’s approval was provided based on the robust
rationale, the detailed tender and selection process, and the outcome of the assurance reports.
The Board oversaw the effective management of the supplier workstream which formed part of the CCD wind-down
programme. You can read more about this in our principal decision on page 78 .
The Group continues its commitment to fair, consistent treatment and prompt payment for suppliers and the CCE
Committee reviews the Group’s prompt payment performance on behalf of the Board through its monitoring of the
Blueprint Dashboard. The Board approved the Modern Slavery Act Declaration in March 2020.
Topics
The Scheme and managed run-off of CCD. Prompt payment practices, data protection, GDPR and modern slavery.
Vendor selection processes were conducted throughout the year for the provision of share plan administration
and purchase of new IT infrastructure. The efficacy of the vendor selection process and the Supplier Relationship
Management Framework.
Significant
feedback and
value added
Recommendations to the Board following robust vendor selection processes for the provision of new IT architecture
and independent assurance over the same.
Supplier sentiment, including continued supplier confidence in the Group following announcement of the
wind-down of CCD.
Key outcomes
– A well-executed supplier engagement plan resulting in continued supplier confidence through the Scheme
and CCD wind-down and maintenance of services for other divisions.
– Continued prompt payment of suppliers, thereby remaining a signatory of the Prompt Payment Code
and maintaining the Group’s reputation for high standards of business conduct.
– Approval of the Group’s Modern Slavery Statement.
– Commencement of the formal reappointment of Deloitte as the Group’s external auditor, the vendor selection
process for which concluded early in 2021.
– Approval of significant investment in new IT architecture for Sunflower Loans.
– The appointment of a new administrator for the Group’s share plans.
Principal decision – streamlining our corporate governance
and transforming our operating model
On 13 January 2022 the Company announced a restructure of the Board
of Vanquis Bank to substantially align its membership with the Board
of the Company. The decision to streamline the Boards of the two legal
entities has delivered immediate benefits of efficiency and reduced
duplication in the Group’s governance structure. However, the changes
were also an important step in transforming the operating model and
executing the Group’s strategy. You can read more about the Group’s
strategy in our Strategic Report on pages 28 to 32.
The Board began its deliberations in May 2021 and, after giving careful
thought to the implications of the CRD V regulation which introduced
the requirement for financial holding companies to be subject to
supervisory approval and consolidated supervision of the Group’s
structure, commissioned a review of the risks and opportunities
to evolving the Group’s corporate governance arrangements
and operating model.
Integrated operating model
Historically the Group has been organised in a federated model,
by division with the entities operating on a largely separate basis.
Alongside CRD V, direct Board engagement through conversations
with the regulator had reflected that the FCA regarded the Group
and its entities as one and expected the Group as a whole to apply
consistency to areas of key importance such as credit risk.
To address these points the Board contemplated an integrated
operating model which would: a) create an aligned Board structure to
simplify governance; b) develop a shared service model to improve
control and reduce cost; c) use a Treasury function to optimise funding;
and d) create a Group IT capability to enable a single customer view
across multiple products and streamline future technology investment.
The Board discussed stakeholder benefits of an integrated operating
model, which included more varied career progression for colleagues
and enhanced potential to delivery long-term value for shareholders.
The Board approved management’s proposal to further pursue the
benefits of an integrated operating model and you can read more
about the governance changes in our CEO’s Review on page 5.
Activity undertaken to optimise funding includes the EMTN Programme
described in our principal decision on page 82, and progress on our IT
capability in our personal loans update on page 47.
Alignment
The Group assessed its corporate governance arrangements relative
to its peers and noted that other banking groups were run on an
integrated basis. Furthermore, there had been simplification elsewhere
in the Group following the wind-down of CCD which prompted the
Board to reassess the effectiveness of the dual Board structure. Under
the dual Board structure Provident Financial plc and Vanquis Bank
Boards sat separately and had different members. With Vanquis
Bank being the Group’s largest subsidiary, the structure necessitated
duplication of reporting efforts, management time in meetings and
costs. The structure also overcomplicated the management of risk
and distribution of tasks under CRD V.
The Board engaged directly with the FCA and PRA on the proposal to
streamline its governance arrangements and sought independent
professional advice that considered the legal and regulatory
expectations on the companies and implications of any change.
The advice confirmed to the Board that legal and regulatory
considerations favoured the proposed alignment, after which
the Board approved the work to progress.
An independent and thorough process was undertaken to assess the
skills and experience of all the directors after which the necessary
regulatory applications were submitted. You can find out more about
our directors in their biographies on pages 112 to 114, and their roles in
our division of responsibilities on pages 134 to 136 and in our Nomination
Committee Report starting on page 143.
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Statement regarding section 172 of the Companies Act 2006 continued
PFG’s contribution
to risk management
and principal risks
Q&A
Q1.
How are we strengthening our risk
management capabilities to support
the delivery of the Group’s strategy?
The Group Risk Harmonisation Programme
(RHP) was established in 2020 with the aim of
providing a more consistent and integrated
approach to risk management across the
Group. During 2021 there has been significant
continued progress in the alignment of risk
management processes for the identification,
assessment and management of the Group’s
principal risks, and in strengthening second
line oversight. This has been underpinned
by a structured programme approach
delivering significant improvements in the
risk strategy, governance, operating model,
process, controls and technology. When
the programme is fully embedded in 2022,
the Group will have an enhanced single
Enterprise Risk Management Framework
(ERMF) and associated policies, tools, systems
and processes which will further enhance
the Group’s capability to consistently and
effectively manage its risks. We have also
strengthened the Group Risk senior leadership
team to ensure we have expert oversight
and coverage for all our Group principal
risks and to make key contributions to
regulatory developments.
Q2.
How are we proactively responding
to the significant changes in our
regulatory environment?
As part of the Group RHP we have re-evaluated
our Group principal risks, which are those
risks most critical to the alignment of the
Group strategy. We have added an additional
three Group principal risks to our Group Risk
Management Framework (GRMF) – climate
risk, market risk and financial risk – to ensure
we drive consistency in the management of
these areas across the Group.
In recognition of increased regulatory scrutiny
around customer outcomes, in particular
the Consumer Duty Consultation and key
themes surrounding affordability and
creditworthiness, vulnerability and financial
difficulty and forbearance, we have replaced
legacy and divisional risk management for
these matters with the Group Conduct Forum
(GCF). The GCF has representation from across
the Group and prioritises the development of
a Group-wide Conduct Risk Framework, and
the enhancement of the Group’s responsible
lending and Group vulnerability policies
and procedures.
Q3.
What is our main risk focus for the next
12 months?
A key part of our focus for 2022 is to further
embed the RHP and continue to develop our
risk management approach, capabilities and
culture to make sure we manage the risks to
which we are exposed to as a Group. We will
continue to influence, support and challenge
the business in managing its strategic risk
pillars by:
– maintaining a secure and efficient capital
and funding structure;
– delivering sustainable growth and returns
to our shareholders;
– optimising our reputation and becoming
the trusted bank for the underserved;
– establishing a strong risk and
customer-led culture;
– maintaining operational resilience
and business capabilities; and
– managing execution risk associated with
strategic and operational change activity.
In order to successfully implement the Group’s
risk strategy, we have defined a purpose and
adopted a set of principles within the Group
Risk function. These principles and purpose
enable us to demonstrate a proactive approach
to the Group’s strategic drivers and expected
behaviours. Group Risk’s purpose is to support
and challenge PFG to help put our customers
on a path to a better everyday life by helping
the business understand its risks and by
building a strong control environment through
insight, influence and assurance. This will
strengthen the Group’s ability to become
the bank for the underserved.
Gareth Cronin
Group Chief Risk Officer
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Risk management and principal risks
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88
Risk management and principal risks continued
Introduction and recent
developments
Introduction/overview
During 2021 the Group significantly strengthened its risk
management capabilities and embedded these into
business-as-usual practices. This has been delivered primarily
through the RHP via further embedding of an enhanced
single Enterprise Risk Management Framework (ERMF)
and associated policies, tools, systems and processes.
The Group’s approach to risk management
Risk management is recognised as an integral component
of good management and governance. In the context of PFG
it is critical to enable us to optimise our shareholder return,
and maximise our business opportunities while maintaining
positive outcomes for all our key stakeholders that include
shareholders, customers, colleagues and regulators. The
GRMF plays an important role in supporting the Group Board
and Executive in the implementation of an integrated business
strategy. The GRMF is based around an ‘enterprise’ approach
that enable a single view of all risks, and managing those risks
in a consistent way up, down and across the enterprise.
We proactively identify and manage our emerging risks,
defined as risks that can arise from external future events
such as political, economic, social or environmental issues.
Emerging risks are typically those of which the timing and
impact are uncertain and which are generally beyond
our control. They are subject to the same enterprise risk
management activity as our Group principal risks, which
includes risk identification, monitoring and reporting within
the Risk function and the Group’s governance structure.
Risk culture
Our Purpose, strategic drivers and behaviours combine to
drive us to always do the best we can for our customers
and colleagues. We promote a risk culture that supports
appropriate risk awareness, behaviours and judgements
in the level of risk we are willing to take. We have a number
of strategic risk drivers with the overall aim of delivering
sustainable profits as a Group whilst meeting the needs and
requirements of all our key stakeholders including customers,
regulators, investors, colleagues, communities and suppliers.
Our culture is underpinned by an appropriate balance
between risk and reward, with accountabilities reinforced
through the Senior Managers and Certification Regime.
Risk objectives are also included as part of non-financial
measures in Group and divisional executive scorecards and
we have embedded a Risk Adjustment Framework to formally
record the linkage between risk management and reward.
Risk appetite
The Group defines its risk appetite as the amount and type
of risk the organisation is prepared to seek, accept or tolerate
at any point in time, measured over a rolling 12-month
period. Our risk appetite is holistic and covers the 13 principal
risks detailed later in this report. The Board is responsible
for approving the Group’s risk appetite statements at least
annually with the supporting Board-level metrics cascaded
into more detailed business appetite metrics, limits and
thresholds at a divisional level.
Recent developments
The Group has continued to make significant progress on key
initiatives to strengthen and embed its overall risk governance,
frameworks and capabilities:
– We have continued to make significant progress embedding
our RHP with the goal of consolidating the various divisional
frameworks into an integrated single group ERMF. This
incorporates a number of key activities including the
development of a consistent suite of Group-wide Risk
Policies and a risk and control self-assessment (RCSA)
methodology. The majority of this is expected to be
embedded during 2022, led by our newly appointed
Group Head of Enterprise Risk.
– An agreement was signed with an external vendor for a
Group-wide integrated Group risk system. Implementation
of the Group risk system is a significant enabler for risk
harmonisation and will demonstrate delivery against
regulatory commitments to enhance Group-wide risk
capability, improve risk and control effectiveness, and
realise resource efficiencies with the automation of
processes and reporting.
Modern working model
As the Covid-19 pandemic continues to impact the economy
and society, we have continued to respond in a fluid and agile
manner. Our ongoing priorities have been to:
– ensure we continue to deliver fair customer outcomes;
– maintain an optimal capital and liquidity position;
– manage the health and wellbeing of our colleagues
through revised working arrangements, home working
and technology support; and
– maintain strong and proactive relationships with
our regulators, especially where we were needed to
implement significant change, e.g. the closure of CCD
and Scheme of Arrangement.
Many of the changes we made due to the initial impact
of the pandemic have now become business-as-usual
enhancements to our risk management processes and
we will continue to be agile in 2022 and beyond.
We continue to enhance our risk
management capabilities while
harmonising our supporting risk
infrastructure and frameworks through
significant investment in our Risk function.
Gareth Cronin
Group Chief Risk Officer
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Risk governance structure
The Group’s risk governance structure is outlined below. In combination, the various Board, executive and risk
committees strengthen our ability to identify, assess, manage and, as appropriate, escalate risks, while also
supporting the Group in responding to the changing external and regulatory environment.
Group Board
Reviews the Group RMF annually to ensure that it remains fit for purpose and complies with relevant laws
and regulations including the 2018 UK Corporate Governance Code (the Code).
Board committees
Risk Committee (RC)
Board committee responsible for ensuring that there is an
appropriate risk management framework embedded across
the Group, monitoring key risk positions and trends, and
providing oversight and advice to the Board in relation to the
current and potential future risk strategy and exposures.
Customer, Culture and Ethics Committee
Board committee responsible for reviewing the Group’s
culture and business processes to ensure they are focused
on delivering fair customer outcomes, overseeing the
Group’s delivery and embedding of its Blueprint and ensuring
the Board meets its corporate governance requirements
under the Code.
Management committees
Group Executive Committee (Group ExCo)
Executive committee chaired by the Group CEO
responsible for developing, proposing and implementing
Board-approved strategy. In doing so, it is responsible for
managing the Group strategic risks and overseeing divisional
risks. Detailed assessment and oversight of these risks are
delegated to the Group Executive Risk Committee.
Group Executive Risk Committee (GERC)
Executive committee chaired by the Group CRO responsible
for managing the Group’s strategic and emerging risks and
overseeing divisional risks. The GERC receives reports from the
divisional CROs which cover key risks within their respective
divisions. The Group CRO also provides a regular report from
a second line perspective on the enterprise-wide risks facing
the Group, how they are trending, and whether there is an
agreed ‘path to green’ to ensure these are managed within
risk appetite.
Cross-Divisional Risk Forum (CDRF)
Risk Forum chaired by the Group CRO, bringing each of the divisional CROs and Head of Enterprise Risk together. It primarily acts
as a platform for sharing views, coordinating forward-looking risk assessment, identifying new and emerging risks and providing
an independent forum for the divisional CROs to escalate material risks. The CDRF enables the Group CRO to give an independent
viewpoint on both the risks of the divisions and the Group and assists the Chair of the GRC to better understand and prioritise the
key risks of the Group.
Three lines of defence (3LOD) model
The Group operates a 3LOD model to articulate key accountabilities and responsibilities for managing risk
and to support effective embedding of risk management across the organisation.
The first line of defence – line management
Owns the risk and is responsible for identifying, assessing, monitoring and reporting risk within its respective areas whilst ensuring that
appropriate internal controls, processes and systems are in place to deliver against business strategy and objectives.
The second line of defence – Group and divisional risk functions
Sets minimum policy and control standards and establishes effective risk management frameworks, providing independent challenge and
oversight, including agreeing risk appetite, and protecting the Group against non-compliance with laws or regulation.
The third line of defence – Group Internal Audit
Provides independent and objective assurance on the design adequacy and operational effectiveness of internal controls, and overall
effectiveness of the Group’s risk governance and risk management practices, and provides assurance on whether the first and second lines
of defence fulfil their respective responsibilities.
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Risk management and principal risks continued
Risk appetite framework
The Group risk appetite framework creates a clear link between PFG’s business
strategy and its strategic risk objectives. It defines the overarching approach
through which the Group’s risk appetite is established and communicated.
Group strategy and Purpose
We help put people on a path to a better everyday life
Risk appetite framework
Customer
progression
Fighting fit
Human
experiences
Head and
heart decisions
Our principal risks
Credit
Capital
Legal and governance
People
Operational
Strategy
Market
Funding and liquidity
Conduct and regulatory
Climate
Technology and information security
Financial crime
Model
Strategic risk objectives
Maintaining a secure and efficient
capital and funding structure
Delivering sustainable growth
and returns to our shareholders
Optimising our reputation
and becoming the trusted bank
for the underserved
Establishing a strong risk
and customer-led culture
Maintaining operational resilience
and business capabilities
Managing execution risk associated
with strategic and operational
change activity
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Risk appetite headlines
We will maintain sufficient capital,
both in quantity and quality, to meet
regulatory requirements and will hold
a management buffer as agreed with
the Board.
Capital
Conduct and
regulatory
Funding
and liquidity
We will maintain a properly engaged
and skilled workforce which is aligned
to our Purpose and Group culture.
People
The Group will manage our credit risk
exposures through effective underwriting
processes, systems and controls to
support appropriate lending decisions.
We will maintain robust, resilient
technology platforms/systems and
services with strong information security
and data controls to prevent significant
customer detriment, regulatory
breaches or reputational damage.
Technology
and information
security
Credit
We will seek new business opportunities,
both organic and inorganic, which remain
aligned to our customer, regulatory and
commercial objectives.
Strategic
We will limit operational losses as a result
of control failures attributed to people,
processes and systems including those
over external suppliers.
Operational
We will aim to avoid any material
legal breaches. In the event that they
do occur, we will, where possible,
correct them promptly and in all cases
carry out necessary management
to mitigate risks and learn from our
mistakes. We will maintain oversight
of our business through robust and
clearly documented governance
and delegation arrangements.
Legal and
governance
We will operate a strong and risk-proportionate set of systems and controls to detect and prevent financial crime
breaches. In the event that they do occur, we will investigate them promptly and learn from control failings, gaps
or issues. We will maintain oversight of our business through robust and clearly documented governance and
delegation arrangements.
Financial crime
We will ensure that under a severe and
adverse change in interest rates, any
risk to our capital (economic value) or
earnings remains within levels agreed
with the Board and for which Pillar 2A
capital is held.
We will understand, review and address
our exposure to climate risks, meet our
commitments on climate targets and
reporting in line with relevant government
legislation and recommendations, and
seek new opportunities arising from
climate change. We will ensure that our
climate targets are set in line with our
commitment to support the UN’s Business
Ambition campaign to hold the increase
in global temperatures to 1.5°C above
pre-industrial levels.
Market Climate
Through strong governance all
material models will perform in line
with expectations.
Model
We will deliver fair outcomes for our
customers at all stages of the customer
lifecycle. We will aim to avoid any material
regulatory breaches and, in the event
that they do occur, we will correct them
promptly and learn from our mistakes.
Our funding risk appetite is to maintain a
stable and prudent funding profile without
any significant reliance on any single
source of funds, retaining a sufficient level
of unencumbered assets and unutilised
funding sources as contingency.
Our liquidity risk appetite is to maintain
sufficient liquidity resources to be able to
meet our liabilities as they fall due, whether
in normal conditions or stress, while also
meeting our regulatory requirements.
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92
Key risks
Principal risks
Minor Moderate Major
Critical
Remote Unlikely Possible
Probable
Probability
Impact
Capital
P1
Strategy
P5
Funding and liquidity
P2
Climate
P6
Market
P3
Legal and governance
P7
Credit
P4
Financial crime
Technology and
information security
P8
P11
Conduct and
regulatory
Operational
P9
P12
People
Model
P10
P13
Residual risk
Gross risk
Risk management and principal risks continued
Increased
Stable Decreased
Change during the year
Links to strategy
Grow
customer-centric
businesses
Act responsibly
and with integrity
Maintain a secure
funding and
capital structure
1
2 3
Minor
Risk rating after mitigation
MajorModerate Critical
!
P6
P2
P11
P4
P7
P1
P12
P8
P10
P8
P6
P5
P7
P2
P9
P4
P11
P12
P1
P3
P13
P10
P3
P5
P9
P13
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Principal risks
Principal risks are risks which are inherent to the Group’s strategy and business model, and
have formally been articulated as part of the Group’s risk appetite framework. Principal risk
categories and associated risk appetite statements are reviewed and approved by the
Board on an annual basis, effectively defining the Group’s overall risk appetite.
P1 Capital risk
3
Risk description
The risk that the Group
is unable to maintain
appropriate, minimum
regulatory capital or an
internal management
buffer to cover risk
exposures and withstand
a severe stress as defined
in its risk appetite and in
the ICAAP.
Mitigating activities and other considerations
– The Group and bank operate within a defined capital risk appetite, with thresholds
reported to and monitored by Group and bank Boards. The boards regularly review both
the existing and forecast capital position to ensure that planned capital resources are
sufficient for planned changes in the balance sheet.
– In line with the PRA’s requirements, the Group’s Internal Capital Adequacy Assessment
Process (ICAAP) is updated at least annually and identifies the levels of capital required
under the regulatory total capital requirement (consisting of Pillar 1 and Pillar 2A risks)
and any PRA and confidential buffers (to the extent that any are required). The 2021
ICAAP evidenced that the Group and bank will continue to be able to meet their capital
requirements including in stress scenarios over a five-year time horizon.
– In line with industry practice, to ensure preservation of capital and support business
stability, the 2019 dividend was cancelled and no dividends were paid by the Group to its
shareholders in respect of 2020. As the macroeconomic outlook has now improved and
in line with the Group’s results, the Group is proposing a dividend in respect of 2021, to be
paid in 2022.
– In October 2021, the Group’s first Tier 2 subordinated bond since 2005 was issued for an
amount of £200m. It has a 10.25-year maturity that is callable at the Group’s discretion
between 5 and 5.25 years, and pays a coupon of 8.875%. The issuance was written from
the Group’s £2bn EMTN Programme and was oversubscribed by around 2 times in the
market. The issuance represents an important milestone as the Group diversifies and
optimises its sources of capital in support of future lending growth. The Group’s risk
monitoring measures have been updated to take account of the Tier 2 issuance.
– At 31 December 2021, the Group’s CET1 ratio was 29.1% (2020: 34.2%) and the total capital
ratio was 40.6% (2020: 34.2%). CET1 decreased over 2021 from £675m to £507m, reflecting
the costs of closing CCD and the scheduled unwind of the IFRS 9 transitional relief in
regulatory capital. Total capital increased over 2021 from £675m to £707m due to the
issuance of Tier 2 debt capital and includes £121m of Tier 2 capital to pre-fund future
balance sheet growth.
– On 13 December 2021, the Financial Policy Committee (FPC) announced an increase to
the UK countercyclical capital buffer rate to 1%, to be implemented by 13 December 2022.
Provided the UK economy continues to recover, the FPC expects to increase the rate
further to 2% in quarter 2 of 2022, to take effect in quarter 2 of 2023. These increases are
absorbed within the capital plans of the Group and bank.
– As previously reported, the Group and bank have elected to phase in the impact of
adopting IFRS 9 over a five-year period. In response to Covid-19, the PRA ratified additional
capital mitigation in 2020 which the Group also fully adopted.
– The Group and bank plans for the unwind of the IFRS 9 transitional adjustment as part
of both regular capital planning and under stress scenarios.
– The Group’s Pillar 3 disclosures contain a comprehensive assessment of its capital
requirement and resources. Pillar 3 disclosures for the year ended 31 December 2021
are published separately on the Group’s website, www.providentfinancial.com.
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94
Risk management and principal risks continued
P2 Funding and liquidity risk
3
Risk description
The risk that the Group has
insufficient liquidity to meet
its obligations as they fall
due, and/or is unable to
maintain sufficient funding
for its future needs.
Mitigating activities and other considerations
– Liquidity and funding risk appetite is established at Group and bank level, with thresholds
reported to and monitored by the Group and bank Boards.
– The Group’s current funding strategy is to maintain sufficient available funds and
committed facilities to pre-fund the Group’s liquidity and funding requirements for at
least the next 12 months, maintaining access to diversified sources of funding comprising:
(i) external market funding, including retail bonds, institutional bonds and private
placements; (ii) securitisation; (iii) retail deposits; and (iv) access to the Bank of England
Liquidity and Funding Schemes at Vanquis Bank.
– The Group continued to utilise its auto loan securitisation warehouse facility, drawing
a further £50m in February 2021, taking its total drawings to £200m. The warehouse
was refinanced and restructured in July 2021 to improve the efficiency of the usage of
collateral such that drawn funding increased to £275m with no significant increase in
asset encumbrance. The facility also provides for a committed but currently undrawn
amount of £50m which provides contingent liquidity.
– As at 31 December 2020, the Group had a multi-currency RCF with a total facility size of
approximately £148m. In line with the Group’s strategy of reducing reliance on the RCF,
some of the new securitisation funds were used to reduce the Group’s RCF commitments,
initially to £90m alongside an extension of the facility to July 2023. In line with the strategy
to reduce its reliance on the RCF as a source of funding, the Group took the decision to
early repay and cancel the facility in March 2022.
– In September 2021, the Group repaid its £65m, 6.0% retail bond in line with its
contractual maturity.
– In October 2021, the Group successfully completed a liability management exercise
involving the partial tender and repurchase of £71.5m of the then outstanding £175m
8.25% senior bonds maturing in June 2023, and the issue of £200m Tier 2 bonds
(described in capital risk above).
– The above actions taken by the Group during 2021 extended the weighted average
maturity of its non-bank funding.
– The bank accepts retail deposits and, in line with its regulatory requirements, maintains
high-quality liquid assets to meet the liquidity coverage ratio (LCR) and its internal stress
tests as stipulated within its Internal Liquidity Adequacy Assessment Process (ILAAP). The
Group and bank monitor and report the LCR to the PRA on a consolidated and solo basis
as applicable.
– The bank maintained a significant surplus of liquidity against its regulatory and internal
requirements throughout 2021, and is managing this down in a prudent manner as the
uncertainty arising from the pandemic is reduced.
– In January 2021, the bank completed its inaugural issue from its newly established credit
card receivable master trust. The transaction has been rated (AAAsf/Aaa(sf)/AAAsf) by
Fitch Ratings, Kroll Bond Rating Agency and Standard & Poor’s. The bonds are listed on
the London Stock Exchange. These notes have enabled access to the Bank of England’s
Liquidity and Funding Schemes. The majority of the senior rated notes have now been
pledged to the Bank of England to support borrowing of £174m from the Term Funding
Scheme with additional incentives for Small and Medium-sized Enterprises (TFSME).
Principal risks continued
Increased
Stable Decreased
Change during the year
Links to strategy
Grow
customer-centric
businesses
Act responsibly
and with integrity
Maintain a secure
funding and
capital structure
1
2 3
Minor
Risk rating after mitigation
MajorModerate Critical
!
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Strategic report
P3 Market risk
3
Risk description
The risk to the Group’s
current and prospective
capital and income position
arising from adverse
movements in interest rates.
Mitigating activities and other considerations
– The Group and bank have established interest rate risk appetites, with thresholds
reported to and monitored by Group and bank Boards.
– The Group and bank do not actively seek to take significant unmatched positions
and do not operate a trading book.
– Analysis of an interest rate sensitivity gap is principally used to assess the Group’s
exposure to interest rate risk by identifying unmatched duration positions.
– The Group and bank report their exposure to interest rate risk considering earnings at
risk (EaR) and market value sensitivity (MVS). Risk appetite is assessed against a 100bps
and 200bps parallel shock to interest curves respectively. Risk appetite has also been
established for economic value of equity (EVE) which is monitored against a 200bps
parallel shift in rates, as well as the six standardised shocks prescribed by the Basel
Committee on Banking Supervision (effective from the 31 December 2021).
– The Group and bank also monitor their exposure to basis risk, with the Bank of
England base rate and SONIA the only external reference rates for on-balance sheet
positions. The Group no longer has any exposure to LIBOR having refinanced the RCF
and Moneybarn’s securitisation facility in 2021, which included revision to the external
reference rate to SONIA.
P4 Credit risk
1
2
Risk description
The risk of unexpected credit
losses arising through either
adverse macroeconomic
factors or parties with whom
the Group has contracted
failing to meet their
financial obligations.
Mitigating activities and other considerations
– The Group has continued with a cautious approach to credit risk through the pandemic.
Arrears have remained low as consumers continued to receive support via government
initiatives, including the furlough scheme.
– Vanquis Bank has implemented a number of pre-emptive measures to manage
exposures as government support is withdrawn. These include a limit decrease strategy
for the up-to-date, active book and restriction of credit lines where external indicators
of increasing financial stress are present.
– The Group has maintained prudent post-model adjustments in its provision calculations
to compensate for the muting of credit risk indicators, driven by government support
measures through the pandemic.
– Concentration risks arising from the pandemic have been considered by the Group’s
divisions. Populations likely to be impacted by the pandemic have been identified and
are subject to ongoing monitoring. The Group has continued to acquire additional data
sources to support the identification of customers experiencing income shocks or other
adverse financial impacts. This data has been integrated into lending decisions for our
new and existing customers.
– Performance of risk models is being closely monitored, with adjustments implemented
where any deviation from expected performance is evidenced.
– The Group continues to pursue opportunities to supplement existing data sources
to enhance both credit and affordability risk, i.e. open banking.
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96
Risk management and principal risks continued
Increased
Stable Decreased
Change during the year
Links to strategy
Grow
customer-centric
businesses
Act responsibly
and with integrity
Maintain a secure
funding and
capital structure
1
2 3
Minor
Risk rating after mitigation
MajorModerate Critical
!
P5 Strategic risk
1
2
3
Risk description
The risk of making poor
strategic decisions related
to acquisitions, products,
distribution, etc. as a result
of ineffective governance
arrangements, processes
and controls.
Mitigating activities and other considerations
– The Board and its sub-committees make risk-based decisions in the formulation
of business strategy, in line with the delegated authority framework and subject
to independent oversight from the Risk function.
– Strategic redirection from high-cost to medium-cost lending following the closure of CCD
and SOA to cap potential liabilities that would adversely affect the Group.
– Board governance manual and Delegated Authorities Manual (DAM) in place to provide
framework for key decision making at all levels across the Group and divisions.
– Executive director scorecards in place with reward incentives based on a combination
of financial and non-financial measures.
– Group risk appetite framework in place with agreed measures and thresholds approved
by the Group Board.
– Strategic and emerging risks reported to the GERC and GRC on any areas of concern.
– Risk overlay completed annually by the Group CRO on behalf of the RemCo to provide
recommendations on adjustments to variable reward where governance has failed.
P6 Climate risk
2
Risk description
The physical risk of the
impacts of climate change
and the business risk
posed to the Group and
its counterparties related
to non-compliance
costs and financial loss
associated with the
process of adjusting to
a low-carbon economy.
Mitigating activities and other considerations
– Climate risk adopted as a Group principal risk, with supporting risk appetite established
to provide greater focus on compliance with the Task Force for Climate-related Financial
Disclosures (TCFD) recommendations, forming the basis for the development of
science-based targets from 2022 onwards.
– Group-wide climate strategy and policy in place to ensure appropriate governance,
controls and processes are in place to support compliance with TCFD recommendations
and broader ESG strategy (including net-zero targets).
– Climate Risk Committee operational, supported by Climate Risk and Environmental
Working Groups, facilitating integration of climate considerations into the Group’s
broader Risk Management Framework through its reporting lines into the Customer,
Culture and Ethics Committee and Group Executive Committee.
– New scenario analysis and stress testing framework in development to drive enhanced
monitoring of PFG’s exposure to material short and long-term impacts of transition and
physical climate-related risks, and to inform forward-looking strategy. ICAAP activity continues
to take account of material climate-related financial impacts, meeting PRA requirements.
– Monitoring of material supplier emissions and colleague and customer impacts, such as
altered commuting activity and changes to living costs, including energy price increases.
– Continued offsetting of direct operational (scope 1 and 2) greenhouse gas emissions
via investment in sustainable development projects and all the Group’s main premises
certified to the environmental management standard ISO 14001:2015.
Principal risks continued
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97
Strategic report
P7 Legal and governance risk
2
Risk description
The risk that the Group
is exposed to financial
loss, fines, censure or
enforcement action due
to failing to comply with
legal and governance
requirements as a result of
ineffective arrangements,
processes and controls.
Mitigating activities and other considerations
– Board governance manual and Delegated Authorities Manual (DAM) in place to provide
framework for key decision making at all levels across the Group and divisions.
– Board effectiveness is assessed on annual basis with action plans in place to promote
a culture of continuous improvement.
– Explicit approval from the Group Board is required before decisions and actions that
could result in risks outside of appetite are made.
– Conflicts of Interest Policy and processes in place to ensure all employees meet their
fiduciary responsibilities.
– All regulatory interactions are recorded and tracked, with regular reporting through
our executive and Board committees to ensure consistency and read across through
a Group lens.
– The Group proactively engages with regulatory authorities and industry bodies
on forthcoming regulatory changes.
P8 Financial crime risk
2
Risk description
The risk that the Group’s
products and services are
used to facilitate financial
crime against the Group,
customers or third parties.
Mitigating activities and other considerations
– The Group is committed to operating a strong and risk-proportionate set of systems
and controls to manage the risk within appetite.
– Financial crime improvement programme in Vanquis, primarily focused on implementing
enhanced surveillance technology, has largely been completed.
– Financial crime risk appetite statement and metrics refreshed providing improved insight
of the key risks to senior management.
– Regulatory actions and notifications are managed/monitored in line with relevant
timescales and regular horizon scanning is in place to identify relevant and significant
regulatory change.
– New financial crime risk assessment methodology implemented which will enhance
identification of financial crime risks and threats and how these are mitigated through
the organisation. This has begun with Vanquis and will be rolled out across the Group.
– System investment for PSD II and better decision making science within the ruleset
resulting in less losses and victims of fraud within Vanquis.
P9 Conduct and regulatory risk
1
2
Risk description
Conduct risk: The risk
of customer detriment
due to poor design,
distribution and execution
of products and services
or other activities which
could lead to unfair
customer outcomes or
regulatory censure.
Regulatory risk: The risk
that the Group is exposed
to financial loss, fines,
censure or enforcement
action due to failing
to comply with laws or
regulations (including
handbooks, codes of
conduct, and statutory
and regulatory guidance).
Mitigating activities and other considerations
– Conduct risk appetite refreshed providing greater focus on outcome measures.
– New Conduct Risk Framework is being developed to provide improved monitoring of
customer outcomes across all high-risk interactions including lending, forbearance,
vulnerability and complaints.
– Conduct policies and procedures in place at a divisional level to ensure appropriate
controls and processes that deliver fair customer outcomes.
– New Group Responsible Lending Policy has been developed providing overarching
principles for all the divisions in response to the changing regulatory environment
and requirements around sustainable lending.
– During the pandemic we have ensured that our customers continue to receive the
service they need during these difficult times, in particular the provision of payment
deferrals in line with FCA guidance.
– A number of regulatory programmes remain under close management, most notably
Persistent Debt and PSD II (SCA). Projects are in place to oversee delivery and updates
provided to the regulators as required.
– Establishment of Group Complaints Forum and reporting to ensure we are learning from
complaints trends across the divisions, including any FOS referrals or upholds and actions
of claims management companies. This has resulted in a number of strategic changes
outlined in our emerging risks ‘Threats to our business model’ and ‘Responsible lending’.
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98
Risk management and principal risks continued
P10 People risk
2
Risk description
The risk that the Group fails
to provide an appropriate
colleague and customer-
centric culture, supported
by robust reward and
wellbeing policies and
processes, effective
leadership to manage
colleague resources,
effective talent and
succession management,
and robust controls to
ensure all colleague-related
requirements are met.
Mitigating activities and other considerations
– Harmonisation of People and Human Resource functions into central shared service.
– Move to Group-consistent framework for performance management including
the roll-out of ‘Be Better’ objective setting.
– Succession plans completed and in place for all executive and senior management.
– Balanced scorecards introduced and aligned across the Group and divisions with clear
frameworks and evaluation criteria established through RemCo for variable pay.
– A number of ongoing communications have been and continue to be shared with
colleagues at a Group and divisional level to keep them informed of business changes
to support wellbeing.
– Full health and safety risk assessment completed of all our key work locations
with mitigating actions completed.
P11 Technology and information security risk
2
Risk description
The risk arising from
compromised or
inadequate technology,
security and data that could
affect the confidentiality,
integrity or availability of the
Group’s data or systems.
Mitigating activities and other considerations
– An IT First Line Controls Review (FLCR) is in progress which will baseline and standardise
risk management and control across the Group’s IT functions.
– Group-wide security improvement programme has been initiated to deliver an ISO 27001
aligned framework.
– The investment and development of a new Group IT platform capable of housing multiple
products, the new Sunflower Loans business being the first, and addressing technical
debt/legacy issues being faced/experienced across the Group.
– Data Protection Officer (DPO) reporting transferred to the Group Risk function to reinforce
independence of office covering oversight arrangements.
– Group governance and centres of excellence/communities of interest have been
established for security, architecture, resilience and risk (GRC).
Principal risks continued
Increased
Stable Decreased
Change during the year
Links to strategy
Grow
customer-centric
businesses
Act responsibly
and with integrity
Maintain a secure
funding and
capital structure
1
2 3
Minor
Risk rating after mitigation
MajorModerate Critical
!
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Strategic report
P12 Operational risk
2
Risk description
The risk of loss resulting
from inadequate or failed
internal processes, people
and systems or from
external events.
Mitigating activities and other considerations
– The 3LOD model throughout the Group ensures there are clear lines of accountability
between management which owns the risks, oversight by the Risk function and
independent assurance provided by Internal Audit.
– Operating arrangements put in place in response to the Covid-19 pandemic have
become business-as-usual practice as we continue to operate in an agile manner.
– Risk Harmonisation Programme launched to build out single ERMF including control
self-assessment, consolidated risk policy taxonomy, and risk reporting.
– The operational risk and control self-assessment methodology has been enhanced
and expanded to cover the full suite of risks facing the Group with more timely reporting,
monitoring and escalation.
– Vanquis Risk Enhancement Programme to enhance first line risk and control activity
established and significantly progressed against its objectives.
– Group Transformation function has been established to provide central change
and programme management capabilities.
P13 Model risk
2
Risk description
The risk of loss as a
consequence of decisions
that are based on incorrect
or misused model outputs
and poor governance or
errors in the development,
implementation, or use
of models.
Mitigating activities and other considerations
– Further embedding of the new Group Model Risk Management Framework and Model
Risk Policy as well as the development and implementation of necessary supporting
modelling standards.
– Material models across the Group are independently validated as required in the policy
and as per the independent model validation plan.
– Group model inventory, containing key models across the Group, is reviewed and
updated on a regular basis and has all the necessary information to enable effective
model risk reporting and planning.
– High-risk issues and findings on material models are addressed urgently and
outstanding model risk issues and findings are monitored and reported to relevant
governance forums across the Group.
– Group Model Governance Forum meets regularly and effectively provides model risk
oversight and drives standardised approach to model development and governance
across the Group.
– Model risk target operating model delivered including the recruitment of additional
resources to enhance the current model validation and governance capability.
Strong relationships
with our regulators
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100
Relations with regulators
Key regulatory interactions
– Strong proactive relationships with regular lines
of communication are in place with both the FCA
and the PRA.
– We are not aware of any part of the Group and divisions
currently being placed on any regulatory watchlist.
– In March 2021, CCD was notified by the FCA enforcement
team that it will be starting an investigation into the
affordability and sustainability of lending to customers,
as well as the application of an FOS decision into the
complaint handling process in the period between
26 February 2020 and 11 February 2021. We have supplied
all the information that has been requested.
We have continued to focus on maintaining strong
and proactive relationships with our regulators.
We believe maintaining an open, constructive and trusting dialogue with policy
makers and regulators (the Prudential Regulation Authority (PRA) and Financial
Conduct Authority (FCA)) is critical. We work closely with our regulators to ensure
we meet all regulatory standards and contribute to a safe and robust banking
system. As the bank of the underserved we do have unique insights into those
sections of the market and frequently share these views with our regulators
with a view to make the underserved credit market work effectively for all.
In accordance with the 2018 FRC Corporate Governance Code,
the directors confirm that they have a reasonable expectation
that the Group will be able to continue to operate and meet
its liabilities as they fall due over the next three years to
31 December 2024 (the Viability Period). The Viability Period
represents the period over which the Board has a reasonable
degree of confidence over anticipated events whilst also
providing an appropriate longer-term outlook.
In making the Group viability statement, the directors have
made an assessment of the Group’s current financial position
and prospects, as outlined within the Strategic Report, together
with the principal risks and other factors likely to affect the Group’s
future performance and development. This assessment
is made following consideration of a wide range of
information, including:
– the Group’s five-year corporate plan, which sets out
financial, capital, liquidity and funding projections,
together with an overview of relevant risks for the period
from 2021 to 2026;
– the principal and emerging risks which could impact
the performance of the Group;
– a severe but plausible stress testing scenario, which
is designed to assess the potential impact of certain
underlying risks on the Group’s capital and funding
resources, together with the availability and effectiveness
of mitigating actions; and
– reverse stress testing analysis, which is designed to assess
the point at which Group is no longer a viable concern.
The Group’s five-year corporate plan was approved by the
Board in December 2021. The Group’s annual planning process
takes into account the Group’s strategic objectives and
business model. The business model focuses on relatively
short-term lending to consumers and operates conservative
underwriting. The plan makes certain assumptions about
the regulatory environment, future economic conditions and
anticipated changes within the markets in which the Group
operates and also makes an assessment of the Group’s ability
to fund new business growth.
The Board obtains independent assurance from Group Risk
over the alignment of the corporate plan with the Group’s
strategy and the Board’s risk appetite. Specific focus is placed
on capital risk as well as liquidity and funding risk. The
assessment also considers the key risks which may impact
delivery of the Group’s operating plan. The Group’s principal
risks are included on pages 92 to 99.
The current corporate plan is based on a macroeconomic
scenario which was in line with market consensus estimates
and which envisages a continuation in the recovery of the
UK economy following the Covid-19 crisis. In particular, the
plan assumes that the UK unemployment rate peaks in
December 2021 at approximately 4.9% before a gradual
decline thereafter. The corporate plan makes an assumption
that the Group’s future funding requirements are pre-funded
12 months in advance. The Group does not have any external
capital or funding requirements within the 12 months following
this statement.
Board approval of the five-year corporate plan follows a
number of specific reviews of the plan provided by Group and
divisional management, together with other regular briefings
on and discussion of new strategies, business developments
and current financial performance. These reviews consider a
range of market opportunities and developments, together with
associated risks from within the Board’s risk appetite framework.
The five-year corporate plan has been stress tested using a
severe macroeconomic scenario which is broadly consistent
with the PRA’s 2021 Solvency Stress Test. The stress test
scenario envisages a severe shock to the UK economy in
2022 which results in an increase in the UK unemployment
rate, peaking at approximately 12%. The stress test scenario
takes into account the availability and effectiveness of
mitigating actions which could be taken by management to
avoid or reduce the impact of the macroeconomic stress.
The corporate plan has also been reverse stress tested to
the point of non-viability after reflecting available mitigating
actions. The viability assessment concluded that the Group’s
viability only comes into question under an unprecedented
macroeconomic scenario in which the UK unemployment rate
reaches a peak of 20%.
The directors also considered it appropriate to prepare the
financial statements on the going concern basis, as set out
on page 168 and page 198.
Group
viability statement
Viability statement
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Strategic report
Provident Financial plc Annual Report and Financial Statements 2021
102
Financial review
Building a more
sustainable business
The Group made great strides
during 2021 and I am pleased to
report that the Group delivered
against many of its strategic
ambitions, including its plan to create
a more sustainable organisation.
The closure of the Consumer Credit
Division (CCD), including a Scheme of
Arrangement for CCD customers, and
the significant enhancements to our
capital and funding positions serve
to strengthen the Group’s already
strong operating platform. The Group
is well positioned to face any future
challenges including any related
economic uncertainty. However, we
are well placed to deliver attractive
and sustainable returns for our
shareholders over the
medium term.
Neeraj Kapur
Chief Finance Officer
Income statement
2021
£m
2020
£m
Income 534.6 615.4
Funding costs (49.1) (61.2)
Net interest margin 485.5 554.2
Impairment (50.4) (312.6)
Risk-adjusted net interest margin 435.1 241.6
Costs (267.3) (213.8)
Adjusted profit before tax –
continuing operations 167.8 27.8
Amortisation of acquisition intangibles (7.5) (7.5)
Exceptional items – continuing operations (18.1) (57.3)
Statutory profit/(loss) before tax –
continuing operations 142.2 (37.0)
Loss for discontinued operations (138.1) (76.5)
Group profit/(loss) before tax 4.1 (113.5)
Tax – continuing operations (7.6) —
Tax – discontinued operations (28.6) 30.1
Loss after tax (32.1) (83.4)
Certain alternative performance measures (APMs) have
been used in this report. See pages 271 to 274 for an
explanation of relevance as well as their definition.
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103
Strategic report
Trading performance
Detailed analysis of the trading results of the Group’s three
operating divisions can be found on pages 40 to 42 for credit
cards, 43 and 44 for vehicle finance and 46 and 47 for
personal loans.
Profit before tax
As a result of a release of impairment provisions no longer
required, partially offset by lower revenue and higher costs
arising from investment in the transformation programme,
the Group reported adjusted profit before tax from continuing
operations of £167.8m (2020: £27.8m). The Group’s statutory
profit before tax from continuing operations was £142.2m
(2020: loss of £37.0m). Including amortisation of acquisition
intangibles, CCD discontinued operations and exceptional
items, the Group profit before tax was £4.1m (2020: loss before
tax of £113.5m).
An exceptional cost of £18.1m was recognised in 2021.
This includes:
– corporate costs including CCD closure (£11.5m);
– additional Scheme costs (£5m);
– senior bond buy-back costs (£3.9m); and
– pension credit (£2.3m).
This compares to an exceptional cost in 2020 of £57.3m as a
result of: (i) the complaints provision and associated costs in
relation to the CCD Scheme (£65m); (ii) a release of provisions
following completion of the ROP refund programme at Vanquis
Bank (£8.3m); and (iii) a gain in respect of the redemption of
the £75m senior bonds (£1.3m); offset by (iv) costs of reshaping
the Group and creating the intermediate holding company
PF Holdings Ltd (£1.2m); and (v) pension charges in respect
of GMP equalisation (£0.7m).
Discontinued operations
Discontinued operations represent the home credit and
Satsuma loans businesses within the CCD division, which
meet the criteria for classifying as discontinued operations
for 2021 following the decision to withdraw from the home
credit and high-cost short-term credit markets entirely and
close those businesses. Any remaining balances in relation to
customer receivables were written off at the end of 2021 as no
further collection activity was being performed. Discontinued
operations reported a loss after tax of £166.7m (2020: loss after
tax of £46.4m) driven by lower revenue and lower costs as the
business lines were wound up during 2021. Impairment in 2021
of £59.6m was higher than prior year (2020: £47.5m) with any
loans remaining being fully written off at the end of the year.
Discontinued operations exceptional items include
redundancy costs of £24.8m, other costs associated with the
wind-up of the business of £12.8m, and costs in relation to the
CCD enforcement provision of £5m.
Earnings per share (EPS)
The £171.6m increase in profit after tax from continuing
operations of £134.6m (2020: loss of £37.0m) has resulted
from the £262.2m reduction in impairment provisions no
longer required, partially offset by higher costs of £53.5m
from investment in the Group’s transformation programme
and exceptional costs reducing by £39.2m in 2021, largely
due to the £65.0m exceptional complaints provision
recognised in 2020.
As a result, basic earnings per share from continuing
operations increased from a loss per share of 14.6p in 2020
to earnings per share of 53.7p in 2021. The adjusted basic
earnings per share from continuing operations increased
from 11.7p per share in 2020 to 57.5p in 2021.
Gross revenue margin
Revenue represents interest and fee income and is made up
of interest income charged on credit cards, vehicle finance
and loans across the Group, and fee income, charged
primarily on credit cards.
Revenue was £534.6m in 2021, a reduction of 13.1% from 2020
(2020: £615.4m), which exceeds the 8.6% reduction in average
receivables from £1,767.1m in 2020 to £1,616.0m in 2021. The
revenue yield reduced from 34.8% in 2020 to 33.1% in 2021,
which reflects the reduction in the higher risk credit card
revenue yields from 39.1% to 38.8% as lower fees have been
recognised following a reduction in ROP, default and over-limit
fee income. In vehicle finance, the revenue yield has reduced
from 25.1% in 2020 to 23.2% in 2021 due to the shift in the make-up
of the lending book away from higher risk, higher APR loans
towards near-prime and lower APR loans.
Funding costs
Funding costs are made up of retail deposits and funding from
the Bank of England’s Term Funding Scheme with additional
incentives for Small and Medium-sized Enterprises (TFSME)
in Vanquis Bank, combined with non-bank group funding
through bonds and bank borrowings. The funding cost
reduced from £61.2m in 2020 to £49.1m in 2021, a decrease
of 19.8% as a result of successful progress against a number
of the Group’s funding objectives during 2021.
Net interest margin (NIM)
The Group’s NIM reduced by 1.4% from 31.4% in 2020 to 30.0%
in 2021 reflecting the reduction in new business volumes in
vehicle finance and lower revenue yield from the change
in mix of the lending book, partially offset by an increase in
average receivables. NIM in credit cards remained static
year on year at 36.3%.
Provident Financial plc Annual Report and Financial Statements 2021
104
Financial review continued
Group total
capital ratio
(%)
40.6%
20 21
Years
Cost:income ratio –
continuing operations
(%)
20 21
Years
Adjusted RORE –
continuing operations
(%)
20 21
Years
Receivables – continuing
operations
(£bn)
20 21
Years
Impairment rate
During the second half of 2021 the Group implemented new
IFRS 9 models to further refine provision requirements based
on market driven metrics. The Group’s impairment rate has
decreased from 17.7% to 3.1% in the year primarily due to a
release of impairment provisions no longer required in credit
cards, which were built up during 2020 following the onset
of Covid-19.
The macroeconomic environment, particularly lower than
expected unemployment, and a less than expected impact
of Covid-19, together with strengthening credit metrics of the
credit card receivables, has resulted in a circa £100m release
of core model calculated provision for credit cards, plus a
further release of in-model and post-model adjustments
amounting to circa £15m. Accordingly, the provision coverage
ratio for credit cards has reduced from 30.2% at December
2020 to 24.8% at December 2021.
The Moneybarn impairment coverage ratio has increased
from 27.6% at June 2021 to 30.4% at December 2021 due to
refinements reflected in the new IFRS 9 model and, to a lessor
extent, some roll-over of accounts into Stage 3.
Risk-adjusted NIM
The risk-adjusted NIM has increased from 13.7% in 2020
to 26.9% in 2021 as a result of the release of impairment
provision in credit cards, together with lower impairments
in vehicle finance.
Cost:income ratio
The cost:income ratio has increased 16.5% in the year from
38.6% to 55.1% as a result of the £68.7m (12.4%) reduction in
net interest margin reflecting the 8.6% reduction in average
receivables, and the 25.0% increase in costs to £267.3m. The
cost base has been inflated by the additional investment
across the Group to commence a significant transformation
programme including building a new loans platform.
Returns
Investing in capital-generative businesses remains central
to the Group’s business model. The Group now calculates
returns based on return on required equity and return on
tangible equity:
– Adjusted return on required equity (RORE) – profit after
tax for continuing operations, prior to the amortisation
of acquisition intangibles and exceptional items, divided
by average required equity. Average required equity is
stated on a risk-weighted basis in line with PRA reporting
requirements. The Group’s target is to deliver an RORE
of between 20% and 25%.
The Group’s adjusted RORE for continuing operations has
increased from 6.3% in 2020 to 32.6% in 2021. The average
required equity has reduced by £29.3m year on year. The
increase in RORE reflects the release of impairment provisions
no longer required.
– Return on tangible equity (ROTE) – Profit after tax for
continuing operations, prior to the amortisation of
acquisition intangibles and exceptional items, divided by
average tangible equity. Average tangible equity reflects
average equity over the period less intangible assets
and goodwill.
Consistent with the increase in RORE, the Group’s ROTE has
increased from 5.2% in 2020 to 27.7% in 2021. The average
tangible equity has reduced by 9.3% year on year.
Dividend policy
The Board is proposing an interim dividend in respect of 2021
of approximately 30% of adjusted continuing earnings, which
equates to a dividend per share of 12p. Adjusted continuing
earnings of £98m in 2021 is defined as profit after tax from
continuing operations before amortisation of acquisition
intangibles and any exceptional items including one-off
provision releases. Going forwards, the Board anticipates
moving towards a pay-out ratio of circa 40% of adjusted
earnings from FY’22 onwards.
Tax
The tax charge for 2021 represents an effective tax rate of 5.3%
(2020: nil) on statutory profit before tax which results in a tax
charge of £7.6m being recognised in the year for continuing
operations (2020: £nil) which principally reflects:
– the mainstream corporation tax rate of 19.0% on the Group’s
profit before tax from continuing operations generating a
tax charge of £23.7m (2020: tax credit of £1.8m);
– the mainstream corporation tax rate of 19.0% on Group
exceptional items generating a tax credit of £15.3m
(2020: tax charge of £2.5m); and
– the mainstream corporation tax rate of 19.0% on the
amortisation of acquisition intangibles generating a tax
credit of £0.8m (2020: £0.7m).
The low effective tax rate is principally the result of:
– the revaluation of deferred tax assets and liabilities for
the change in the mainstream corporation tax rate from
19.0% to 25.0% from 1 April 2023 which results in a tax credit
of £5.0m and, in the case of 2020, the change in the
mainstream corporation tax rate to 19.0% from 1 April 2020
following the cancellation of the previous reduction in rate
to 17.0% which results in a tax credit of £2.5m;
– the impact of transfer pricing adjustments between the
profits of continuing and discontinued operations which
results in a tax credit of £0.6m (2020: tax charge of £4.4m);
34.2% 38.6% 6.3%
55.1% 32.6% £1.7bn
£1.7bn
Provident Financial plc Annual Report and Financial Statements 2021
105
Strategic report
– the beneficial impact of tax losses of discontinued
operations being surrendered as Group relief to continuing
operations at a discounted price which gives rise to a tax
credit of £6.5m (2020: £nil);
– the beneficial impact of prior year adjustments which
gives rise to a tax credit of £7.8m (2020: tax credit of £7.7m)
and relates principally to transfer pricing adjustments
between continuing and discontinued operations in the
prior year and the impact of the discontinued operations
surrendering prior year losses to the continuing operations
at a discounted price (in 2020, the tax credit of £7.7m in
respect of the prior year represents the benefit of claiming
deductions for the costs incurred in 2019 in connection with
the defence of the unsolicited offer from NSF, for which no
tax deduction was assumed in the previous year, along with
a release of part of the provision for uncertain tax liabilities);
– the impact of the release of the exceptional complaints
provision in CCD following the implementation of the Scheme
of Arrangement (2020: increase in the exceptional complaints
provision in CCD) which is taxable (2020: tax deductible)
in discontinued operations but which on consolidation is
recognised in continuing operations (£12.4m);
– the adverse impact of the bank corporation tax surcharge
of £12.2m (2020: £2.1m); and
– in 2020 the benefit of using in-year and brought forward
capital losses to offset the capital gain arising in Vanquis
Bank on its conversion and disposal of the ‘B’ preference
shares in VISA Inc.
Summarised balance sheet
2021
£m
2020
£m
Assets
Cash and balances at central banks 717.7 917.0
Amounts receivable from customers 1,677.7 1,660.8
Pension asset 112.2 79.7
Goodwill and other intangibles 123.5 115.3
Other assets 93.9 117.5
Discontinued operations 0.3 187.8
2,725.3 3,078.1
Liabilities
Retail deposits 1,018.5 1,683.2
Bank and other borrowings 845.2 520.0
Trade and other payables 77.1 22.6
Other liabilities 121.5 78.6
Discontinued operations 31.8 126.0
2,094.1 2,430.4
Assets have decreased by 11.5% to £2,725.3m. This was driven
by the 21.7% reduction in cash and balances held at central
banks, which reflects a return to more normalised levels of
liquidity for Vanquis Bank following steps taken to increase
liquidity resources in response to Covid-19 in 2020.
Liabilities have decreased by 13.8% to £2,094.1m. Retail
deposits decreased by 39.5%, offset by non-bank group
funding increasing by 62.5%, the latter due to proceeds from
the issuance of Tier 2 bonds in October 2021 and the funding
through the Bank of England TFSME scheme.
Amounts receivable from customers
– Group amounts receivable from customers increased
by £16.9m (1.0%) in the year from £1,660.8m in 2020 to
£1,677.7m in 2021.
– Credit card receivables reduced by 1.1% to £1,063.4m
(2020: £1,075.1m) as a result of lower customer spending,
a reduced credit line increase programme and a focus
on promoting uptake of our loan product.
– Vehicle finance receivables continued to show growth
and increased by 3.5% to £586.2m (2020: £566.6m) largely
as a result of continued portfolio growth driven by new
business volumes.
– Unsecured loans receivables increased by 47.1% to £28.1m
(2020: £19.1m).
The Group’s coverage ratio has reduced from 28.8% at
December 2020 to 26.8% at December 2021 reflecting the
improvement in the macroeconomic environment and the
associated release of provisions.
Credit cards
H2’20
30%
32%
25%
Vehicle finance
26%
28%
30%
Continuing Group
29%
30%
27%
Coverage ratios
H1’21 H2’21 H2’20 H1’21 H2’21 H2’20 H1’21 H2’21
Provident Financial plc Annual Report and Financial Statements 2021
106
Funding
The Group’s current funding strategy is to maintain sufficient
available funds and committed facilities to pre-fund the
Group’s liquidity and funding requirements for at least the
next 12 months, maintaining access to diversified sources
of funding comprising: (i) external market funding, including
retail bonds, institutional bonds and private placements;
(ii) securitisation; (iii) retail deposits; and (iv) liquidity and
funding facilities at the Bank of England.
Retail deposits and access to the Bank of England facilities
are used to fund Vanquis Bank, and the other sources of
liquidity generally fund Moneybarn and central operations
(the non-bank group).
Group borrowings at the end of 2021 were £1,863.7m
(2020: £2,203.2m), including £10.8m (2020: £15.7m) of interest
accrued on borrowings and short-term overdrafts (net of
amortising fees). Vanquis Bank accepts retail deposits and,
at 31 December 2021, had retail deposit funding of £1,018.5m
(2020: £1,683.2m). Retail deposit funding in Vanquis Bank has
fallen during the year, reflecting a more normalised funding level
relative to lending and access to alternative funding through
the Bank of England’s Term Funding Scheme with additional
incentives for Small and Medium-sized Enterprises (TFSME).
In 2021, the Group delivered on a number of its funding objectives:
– In January 2021, Vanquis Bank completed its inaugural
issue from its newly established credit card receivable
master trust. The senior notes in the transaction have been
rated (AAAsf/Aaa(sf)/AAAsf) by Fitch Ratings, Kroll Bond
Rating Agency and Standard & Poor’s respectively and
the bonds are listed on the London Stock Exchange. The
rated notes were accepted as eligible for use in the Bank
of England’s Liquidity and Funding Schemes, providing
access to a low cost of funds and a source for contingent
liquidity where unutilised. The majority of the senior rated
notes have been placed with the Bank of England to
support borrowing of £174m from the TFSME.
– The Group continued to utilise its auto loan securitisation
warehouse facility, drawing a further £50m in February
2021 taking its total drawings to £200m. The warehouse
facility was refinanced and restructured in July 2021 to
improve the efficiency of the usage of collateral such
that drawn funding increased to £275m. The facility also
provides for a committed but currently undrawn amount
of £50m which provides contingent liquidity.
– The Group had a multi-currency RCF with a total facility
size of approximately £148m as at 31 December 2020. In
line with the Group’s existing strategy of reducing reliance
on the RCF, some of the new securitisation funds were
used to reduce the Group’s RCF commitments, initially to
£90m alongside an extension of the facility to July 2023.
As at 31 December 2021, the Group has drawn £30m,
with a further £60m undrawn.
– In September 2021, the Group repaid the 6.0% retail bond
in line with its contractual maturity.
– In October 2021, the Group successfully completed a
liability management exercise involving: the partial tender
and repurchase of £71.5m of the then outstanding £175m
8.25% senior bonds maturing in June 2023, and the issue
of £200m Tier 2 bonds.
– The above actions taken by the Group during 2021
extended the weighted average maturity of its non-bank
funding and increased non-bank liquidity from £144m to
£290m. There are no contractual maturities of the Group’s
wholesale funding until June 2023.
In line with the Group’s funding strategy to place less reliance
on this source of funding the Group exercised its contractual
option to early repay the RCF on 30 March 2022, ahead of
its contractual maturity in July 2023. The Group does not
require the funding and did not plan to renew the facility. The
headroom on committed facilities of £110m at 31 December 2021
would have reduced to £50m after repayment of the facility.
The Group continues to adopt a prudent approach to
managing its funding and liquidity resources within risk
appetite, and will optimise these resources when new
opportunities become available to the Group.
Liquidity
The Group uses a number of measures to manage liquidity.
These include:
– the Overall Liquidity Adequacy Rule (OLAR), which is
Vanquis Bank’s view of the liquidity needs as set out in
the Internal Liquidity Adequacy Assessment Process
(ILAAP) at the Vanquis Bank solo level. Liquid resources
must be maintained above the OLAR. The Group is in the
process of enhancing the ILAAP to include a consolidated
Group OLAR; and
– the liquidity coverage ratio (LCR), which is a regulatory
measure that assesses net 30-day cash outflows as a
proportion of high-quality liquid assets (HQLA).
As at 31 December 2021, the HQLA amounted to £414.8m
(2020: £833.3m). The decrease during the year reflects a more
normalised level of liquidity for Vanquis Bank following steps
taken to increase liquidity resources in response to Covid-19
in 2020. HQLA have been in significant surplus to the minimum
requirements throughout 2021. Vanquis Bank currently holds its
liquid assets buffer, including other liquid resources, solely in a
Bank of England reserve account.
As at 31 December 2021, the Group, on a consolidated basis,
and Vanquis Bank, on an individual basis, had an LCR of 2,073%
(2020: 2,830%) and 587% (2020: 1,498%) respectively.
Capital
The Group, incorporating Vanquis Bank, Moneybarn and
central operations, is the subject of consolidated supervision
by the PRA by virtue of Provident Financial plc being the parent
company of Vanquis Bank, which is regulated by the PRA. The
PRA sets requirements for Vanquis Bank as an individual entity
and the consolidated Group in respect of capital adequacy,
liquidity and large exposures.
The Group’s regulatory capital currently consists of CET1 and
Tier 2 debt capital. CET1 comprises shareholders’ funds, after
adding back the IFRS 9 transition adjustment, and deducting
the defined benefit pension asset and intangible assets
(including goodwill), all of which are net of deferred tax.
In October 2021, the Group’s first Tier 2 subordinated bond
since 2005 was issued for an amount of £200m, with a
10.25-year maturity that is callable at the Group’s discretion
between 5 and 5.25 years, and that pays a coupon of 8.875%.
The issuance was written from the Group’s £2bn EMTN
Programme and was well subscribed by around 2 times in the
market. It represents an important milestone as the Group
diversifies and optimises its sources of capital in support
of future lending growth.
At 31 December 2021, the Group’s CET1 ratio was 29.1% (2020: 34.2%)
and the total capital ratio was 40.6% (2020: 34.2%). CET1
decreased over 2021 from £675m to £507m, reflecting the
costs of closing CCD and the scheduled unwind of the IFRS 9
transition relief in regulatory capital. Total capital increased
over 2021 from £675m to £707m due to the issuance of Tier 2
debt capital.
Financial review continued
Provident Financial plc Annual Report and Financial Statements 2021
107
Strategic report
The Group’s risk-weighted assets have reduced by £230m,
largely reflecting the £175m reduction in risk-weighted
exposures in respect of customer receivables.
The leverage ratio is defined by the Capital Requirements
Regulation as Tier 1 capital divided by on and off-balance sheet
asset exposure values, expressed as a percentage. The UK
leverage ratio framework sets a minimum ratio of 3.25%. The
Group’s leverage ratio at 31 December 2021 of 18.1% (2020: 20.8%)
remains comfortably above the minimum requirement.
Capital resources
The Group has elected to phase in the impact of adopting
IFRS 9 over a five-year period ending 31 December 2022, as
permitted by regulation. This is achieved by applying add
back factors of 95%, 85%, 70%, 50% and 25% for years one to
five respectively to the initial IFRS 9 transition adjustment (net
of attributable deferred tax) plus any subsequent increase in
expected credit losses (ECL) in the non-credit-impaired book
from transition to the end of the reporting period. The PRA
ratified additional capital mitigation proposed by the Basel
Committee, in response to Covid-19, with these measures
coming into force from 27 June 2020. The new measures allow
for the increase in ECL in the non-credit-impaired book arising
after 31 December 2019 to be fully added back in 2020 and 2021
(the ‘quick-fix’ measures). This relief is then phased out over
the following three years on a straight-line basis, ending
31 December 2024 (2022: 75%, 2023: 50%, 2024: 25%).
The Group’s capital headroom, at 31 December 2021, does
not include any benefit as a result of the quick fix measures as
consolidated provisions were below 31 December 2019 levels.
Further information on the impact of the IFRS 9 transitional
arrangements is provided in the Group’s Pillar 3 disclosures
available on the Group’s website, www.providentfinancial.com.
Capital and capital resources
31 December
2021
31 December
2020
CET1 ratio 29.1% 34.2%
Total capital ratio 40.6% 34.2%
Leverage ratio 18.1% 20.8%
CET1 £506.5m £674.8m
Tier 2 capital £200.0m —
Total regulatory capital £706.5m £674.8m
Risk-weighted exposures £1,740.6m £1,973.5m
Capital requirements
The Group operates the standardised approach to credit
risk, whereby risk weightings are applied to the Group’s on
and off-balance sheet exposures. The weightings applied
are those stipulated in the Capital Requirements Regulation
(CRR). The Group’s Individual Capital Adequacy Assessment
Process (ICAAP) includes a summary of the capital required
to mitigate the identified risks across the Group and the
amount of capital that the Group has available. The Group has
complied during the year with all of the externally imposed
capital requirements. The overall capital requirement, set by
the PRA, includes both the calculated requirement derived
using the standardised approach and the additional capital
derived in conjunction with the ICAAP. In addition, capital is
held to cover buffers set at a macroeconomic level by the
PRA. The capital conservation buffer has been held at 2.5% of
total risk exposure since 1 January 2019. The UK countercyclical
capital buffer (CCyB) was reduced by the PRA to 0% during
2020 as part of its response to Covid-19. On 13 December 2021,
the Financial Policy Committee (FPC) announced an increase
to the UK CCyB rate to 1%, to be implemented by 13 December
2022. Provided the UK economy continues to recover, the
FPC expects to increase the rate further to 2% in quarter 2
of 2022, to take effect in quarter 2 of 2023. These increases
are absorbed within the capital plans of the Group and
Vanquis Bank.
The Group operates within a defined capital risk appetite,
with thresholds reported to and monitored by Group Board.
The Board regularly reviews both the existing and forecast
capital position to ensure that planned capital resources
are sufficient for planned changes in the balance sheet.
Pillar 3 disclosures
As part of the regulatory supervision by the PRA, the Group,
consistent with other regulated financial institutions, is
required to make annual Pillar 3 disclosures which set out
information on the Group’s regulatory capital, risk exposures
and risk management processes. A considerable amount of
the information required by the Pillar 3 disclosures is included
within the 2021 Annual Report and Financial Statements. The
Group’s full Pillar 3 disclosures can be found on the Group’s
website, www.providentfinancial.com.
Neeraj Kapur
Chief Finance Officer
6 April 2022
Provident Financial plc Annual Report and Financial Statements 2021
108
Chairman’s
introduction
Board leadership and Company Purpose
I am continually impressed by
the adaptability and dedication
of our colleagues, who have worked
tirelessly to deliver significant
progress towards the Group’s
strategic objectives.
Patrick Snowball
Chairman
Page
Code
principle
Board leadership and
Company Purpose
108
Chairman’s introduction 108
Our Board 112 A
Setting our strategy 116 C
Promoting long-term sustainable success:
Board activities 120 A
Our culture 123 B
Stakeholders and investor
relations
127
Stakeholder engagement 127 D, E
Effective engagement with shareholders
and stakeholders: investor relations 132 D
Division of responsibilities 134 F, G, H, I
Page
Code
principle
Composition, succession
and evaluation
139
Board composition 139 J, K
Induction for new directors 140
Board evaluation 141 L
Nomination Committee Report 143 J, K
Customer, Culture and
Ethics Committee Report
150 B, D
Audit, risk and internal control 153
Audit Committee Report 153 M, N
Risk Committee Report 158 O
Directors’ Report 162
Remuneration Report 169 P, Q, R
Compliance with the UK Corporate Governance Code
For the year ended 31 December 2021 the Board considers
that the appropriate corporate governance standards were in
place. For the period under review, the Company complied in
full with the provisions of the UK Corporate Governance Code
(the Code).
This report explains the main aspects of the Company’s
governance structure to give a greater understanding of how
the Company has applied the principles and complied with the
provisions in the Code. The Corporate Governance Statement
also explains compliance with the FCA’s Disclosure Guidance
and Transparency Sourcebook. The UK Corporate Governance
Code is published by the Financial Reporting Council (FRC)
and is available on its website, www.frc.org.uk.
Further information on the Company’s corporate governance
arrangements and compliance with the Code can be found
as follows:
Provident Financial plc Annual Report and Financial Statements 2021
109
Governance
Dear fellow shareholder,
I am pleased to introduce the Corporate Governance Report
for 2021.
As we announce our 2021 results we are facing into yet more
uncertainty around the cost of living pressures in the UK and
the eco political uncertainties in Europe. Whilst the Board is
extremely pleased with the progress made in 2021 we need
to be aware of these uncertainties as we consider our growth
plans for 2022/2023.
As another challenging year comes to a close, I am mindful to
reflect on the incredible resilience of our colleagues and wider
stakeholders in this increasingly uncertain and ever changing
business environment. The significant progress we have made
towards our vision, Purpose and strategy would not have been
possible without their continued support.
I particularly want to recognise the commitment and integrity
of our CCD colleagues following the Group’s withdrawal from
the home credit market and consequent wind-down of the
division. The Board did not take this difficult decision lightly,
but considered it necessary to protect the long-term interests
of the Group and deliver sustainable value. In reaching this
conclusion, the Board was cognisant of all our colleagues and
sought to minimise the impact upon them as far as possible
by offering employment and other support. You can read
more about this on page 78.
We were pleased to receive approval from the High Court
Scheme of Arrangement (the Scheme) in August 2021 which
provided certainty to stakeholders and ensured customers
with legitimate claims would receive fair access to redress
payments. Please see page 76 for more details. Approval of
the Scheme has allowed the Board to focus its attention on
winding down CCD in a controlled manner, driving the Group
towards the next step in its 1PFG journey and the pursuance of
opportunities to deliver long-term sustainable growth to our
stakeholders as outlined to the market at our Capital Markets
Day in 2019.
The Covid-19 pandemic continues to impact our customers
in their daily lives. The Group has robust contingency
plans in place, supported by strong capital and liquidity
positions. I am therefore confident that we can deliver our
strategic objectives and capitalise upon opportunities for
sustainable growth.
Purpose and culture
At the heart of everything we do is our Purpose of ‘helping
to put customers on the path to a better everyday life’. This
is why the Board is progressing with the Group’s transition
towards becoming the leading specialist bank focused on
underserved markets. We have made some progress in this
regard and you can read more about this from page 20. You
can also read more about our Purpose and how this drives our
strategy on pages 14 and 116.
Our Blueprint underpins everything we do at PFG. It is our
reason for being, supported by our strategic drivers, our
behaviours and our desired culture. The Colleague Survey
results (reported on pages 16 and 57) revealed that our
colleagues see evidence of the Blueprint behaviours driving
positive change in our culture. Furthermore, colleague
performance and reward frameworks have been closer
aligned with our Blueprint in 2021 to reinforce our culture.
Please see page 123 to read how the Board has continued to
support the embedding of the Group’s culture and Blueprint.
We are also continuing to foster a culture of accountability
and openness through our Speak Up culture initiatives and
the development of a Speak Up Dashboard of metrics to
monitor our culture and ensure we are positioned to correct
any misalignments; please see page 125 for more information.
Our Customer, Culture and Ethics Committee (CCE) continues
to monitor metrics relating to our culture and further details
of its work are located on pages 150 to 152.
Sustainable growth through the execution
of strategy
At the Capital Markets Day in 2019 we outlined our ‘vision for
the future’ and growth ambitions. The Group has made good
progress this year towards these objectives, as summarised
below and detailed on pages 118 and 119.
We have implemented various initiatives during the year to
focus on responsible growth, supported by cost efficiency,
and on delivering products from the most efficient capital
structure. You can read about these initiatives in the Financial
Review section from page 102. The Board’s oversight over
change spend has been enhanced as a result of revised
governance processes and reporting processes implemented
by our Group Transformation function. The second and third
lines of defence provide assurance over change projects,
including audit memos issued by Group Internal Audit that
are reported to management and the Audit Committee and
include culture indicators.
The Board’s approval of the Sunflower Open Market Loans and
Vanquis Open Market Loans pilots represents the next phase of
our vision to becoming a specialist bank for the underserved
mid-cost market. These products aim to facilitate the provision
of credit to a broader range of underserved customers. You
can read more about these products on pages 46 and 47.
We have moved closer to our objective of establishing a single
view of our customer through simplifying our governance
structure with the design of a new target operating model.
This will create a better customer experience, drive cost
efficiencies across the Group and lead to a more sustainable,
capital generative and better governed business. Please see
the following page for more information.
Provident Financial plc Annual Report and Financial Statements 2021
110
Board leadership and Company Purpose continued
Chairman’s introduction continued
Target operating model and changes
to the Board’s responsibilities
As reported in our announcement of 13 January 2022, a
common Board structure for Provident Financial plc and
Vanquis Bank was implemented as part of our new target
operating model (see page 86). With external support from
PwC, the Nomination Committee considered and approved
the new combined Board composition and governance
structure prior to it being implemented. Further details can
be found in the Nomination Committee Report on page 143.
Following a comprehensive review of the Board governance
arrangements, a number of documents were revised
and approved by the Board to support the successful
implementation of a combined Board, such as the Matters
Reserved for the Board, Board and committee terms of
reference, Delegated Authorities Manual and division
of responsibilities between the Chairman and CEO. Our
Conflicts of Interest Policy was also enhanced to support
Board member independence and the successful execution
of their statutory duties as directors.
A new Board meeting schedule with annual cyclical business
items has been designed with the support of specialist board
management consultancy firm Board Intelligence. A Board
training plan has also been created for the new combined
Board which includes training and deep dives to address
development areas identified in the 2021 Board evaluation
and specific areas relevant to the directors of a regulated
bank. Further, the Board member induction plan is under
review and will be updated in 2022.
I am confident that the streamlined governance
arrangements will ensure that the Board and its committees
are best placed to operate effectively under the new target
operating model.
Stakeholder developments
I am proud of how management has adapted our working
practices and policies this year to deliver certainty for
stakeholders and safeguarded their interests, as we learn
to live and work in a Covid-19 environment. We utilised the
Colleague Forums to garner colleagues’ views on the Group’s
response to Covid-19 and our Future of Work programme
prior to adopting a hybrid working model and undertaking
a Group-wide Workforce Policy review. Please see our
stakeholder engagement section from page 127 for further
information on our colleague engagement mechanisms
during the year.
I have personally enjoyed returning to the office and
engaging face to face with Board members and colleagues
alike as we adopted our hybrid working model. This was
a great achievement made possible by the effective risk
management and governance processes that were put in
place to support the programme. You can read more about
how the Board maintained appropriate oversight of the
Future of Work programme in the CCE Committee Report
on page 150.
I am pleased to report that the CCE Committee approved
a Stakeholder Engagement Strategy following a stakeholder
mapping exercise and external materiality assessments. The
CCE Committee Report can be found on page 150 which also
details how we have kept close to and protected the interests
of our suppliers during the year; further details can also be
read on pages 60, 61 and 85.
The 2021 United Nations Climate Change Conference
reaffirmed the importance of firms operating responsibly and
sustainably. We have committed to five of the UN Sustainable
Development Goals and established arrangements that have
enabled the Group to meet the recommendations of the Task
Force on Climate-related Financial Disclosures (TCFD). You can
read more about how we will achieve these in our Sustainability
Report starting from page 68 and in our standalone Corporate
Responsibility Report available on our website.
Although we had to make adjustments to the way our AGM
was held due to UK Government restrictions, I was glad that we
could invite shareholders to attend in person, and provide the
opportunity to follow the meeting remotely via a live webcast
and submit questions to the Board in advance of the meeting.
I look forward to meeting shareholders in person at our next
AGM, provided we are able to do so safely and responsibly.
Board composition, succession and effectiveness
I continue to believe that the Board’s composition is
appropriate to fulfil its role effectively. Furthermore, the
Board has functioned well as a team to deliver key strategic
initiatives and make effective decisions in challenging and
uncertain circumstances. As such, I am pleased to report
that there are no proposed changes to the composition of
the Board this year. As part of the Board structure changes
under our new target operating model (see page 86 for
more details), Robert East stepped down from the Board with
effect from 13 January 2022. I would like to thank Robert for his
support and contributions as a member of the Group Board
and for his chairmanship of Vanquis Bank.
Provident Financial plc Annual Report and Financial Statements 2021
111
Governance
The Nomination Committee continues to support the Board in
ensuring it is composed of the appropriate mix of individuals
and you can read more about the Committee’s work on
page 143.
Our Nomination Committee has continued to focus on
diversity and inclusion as part of the Group HR’s talent and
succession planning. The Committee has reviewed our talent
and succession plans, inclusion and diversity initiatives and
the diversity of our talent pipeline. Further information can be
found on page 147.
This year’s Board evaluation was internally facilitated by Group
Company Secretariat and 360-degree feedback was sought
from the executive team and those in regular contact with the
Board in order to strengthen relationships and accountability.
The process and the findings of this year’s evaluation can be
found on pages 141 and 142, together with progress achieved
against our 2020 evaluation actions.
Effective risk management and governance
The assessment and management of risk is integrated into
the Board’s decision making processes via the inclusion of
a risk assessment within the Board’s reporting templates.
Additionally, full risk assessments were conducted on strategic
initiatives by the Risk Committee and we have put in place
second and third line assurance of key projects.
As a result of the 2020 Board evaluation results, enhancements
have been made to the Board’s oversight and monitoring
of risk including the regular reporting of risk to the Board by
the Group Chief Risk Officer (CRO). Further details on these
enhancements can be found in the Board evaluation section
on page 141.
Significant progress has been made this year on delivering
our Risk Harmonisation Programme which the Board has
continued to monitor and oversee through its Risk Committee.
The programme will provide a more consistent and integrated
approach to risk management across the Group, delivering
efficiencies and maximising capabilities across the divisions.
The programme is being led by our Group CRO, Gareth Cronin,
who transitioned to the role in May 2021 from being the Group
Chief Internal Auditor.
This year the Board has determined climate change to be
a principal risk and consequently we have enhanced the
management and oversight of climate change risk with the
establishment of a Climate Change Forum, chaired by the
Group CRO, and development of a Climate Risk Appetite
Statement. Please see the Risk Management and Principal
Risks section starting on page 87 and Risk Committee Report
on page 158.
Dividend
I am delighted to report that the Board has proposed a
dividend of 12p per share to shareholders in respect of 2021
after taking into account regulatory capital requirements,
levels of sustainable receivables growth and the resultant IFRS
9 impairment provisions. Our Board is focused on delivering
stable and sustainable dividends in future periods.
Patrick Snowball
Chairman
6 April 2022
Governance
Our Risk Harmonisation
Programme is a key
illustration of how the Group’s
strategy is supported,
underpinned and driven by
effective risk management
and governance processes.
Patrick Snowball
Chairman
Provident Financial plc Annual Report and Financial Statements 2021
112
Board leadership and Company Purpose continued
Our Board
Patrick Snowball
Chairman
N
Appointed: 21 September 2018
Tenure: 3 years
Career and experience:
Patrick was CEO of Suncorp Group Limited,
an ASX 20 Australian financial services
group, between 2009 and 2015 where
he successfully led the turnaround of
the group following the global financial
crisis. Before joining the Board, Patrick
was Chairman of IntegraFin Holdings
plc between 2017 and 2018 and was
Chairman of Sabre Insurance Group plc
until September 2020. Prior to this Patrick
was a Non-Executive Director at Jardine
Lloyd Thompson Group plc from 2008 to
2009, Deputy Chairman at Towergate
Partnership between 2007 and 2009 and
a member of the FSA Practitioner Panel
from 2006 to 2008.
Patrick’s contribution to the Board,
key strengths, skills and reasons
for re-election:
Patrick’s unique career and experiences
bring a wealth of skills to the Board. In
particular, as Chairman, his previous
leadership and demonstrable success in
driving change, strengthening governance,
creating strong and effective boards, and
instilling stability through a positive culture
are key strengths he brings to the Board.
– Experienced chairman, non-executive
director and chief executive officer.
– Extensive experience of the
financial services industry and
the regulatory environment.
– Wealth of knowledge of the challenges
faced by the financial services sector,
acquired over a 30-year career.
– Long track record in leading companies
to develop and deliver growth plans.
– Change project management, typically
involving digital transformation and
brand building.
– Building strong customer relationships,
leveraging data and insights, as well
as leading and developing wider
stakeholder engagement.
Current external appointments:
– Director at The Old Dove Dairy Limited.
– Chairman designate at AMP Capital’s
private markets business.
Malcolm Le May
Chief Executive Officer
D
Appointed as CEO: 1 February 2018
Tenure: 8 years
Career and experience:
Malcolm joined the Group as an
Independent Non-Executive Director
in 2014, becoming Interim Executive
Chairman in November 2017. Malcolm
provided effective leadership to the
Board, working with it to redefine roles
and responsibilities, and initiated a
process to ensure the Board had the right
mix of skills, experience and diversity.
Prior to joining the Group, he held several
senior positions within banking, including
as Co-Head of Banking for Barclays in
New York, Head of European Investment
Banking at UBS and Deputy CEO at Morley
Fund Management (now Aviva Investors).
Malcolm’s contribution to the Board,
key strengths, skills and reasons
for re-election:
Malcolm’s extensive career, his deep
knowledge of various businesses
and sectors, his understanding of the
regulatory environment and turnaround
situations and his proven leadership
skills are considered by the Board to be
invaluable qualities that make him best
placed to lead the business, as well as
effectively contributing to the Board.
– A deep knowledge and experience
of the financial services industry
and regulatory environment.
– Relationships with key stakeholders,
such as investors and the Group’s
banks, enabling the Group access
to funding.
– The strengthening of the Group’s
governance framework and the
realignment of the Group’s culture
more closely to the developing needs
of the customer.
Current external appointments:
– Director at IG Group Holdings plc.
– Trustee at the Grange Festival.
– Trustee at Peace at the Crease.
– Director at IG Markets Limited.
– Chairman at IGNA.
Neeraj Kapur
Chief Finance Officer
D
Appointed: 1 April 2020
Tenure: 2 years
Career and experience:
Neeraj was Group Chief Financial Officer
of Secure Trust Bank plc, a UK retail and
SME bank. He is an experienced chief
financial officer with a strong retail banking
background, including consumer finance
and savings products expertise. He brings
versatility and intellectual agility to the
Board and Group Executive Committee.
Neeraj’s contribution to the Board,
key strengths, skills and reasons
for re-election:
As a qualified accountant, Neeraj is
technically strong and has a diverse
background that has included time as
a pilot in the RAF and an entrepreneur
running his own business and working
in a large-scale regulated bank. Neeraj
has a strong retail banking background,
including consumer finance and savings
products expertise, and has experience
in accounting, finance, professional
services, governance, operations,
marketing and risk.
– Experienced chief financial officer.
– Significant experience in leading
end-to-end finance functions,
including for a bank and other
corporates, as well as managing
accounts for individuals and small
business owners.
– Proven ability to build effective working
relationships with key stakeholders,
including regulators, investors
and analysts.
– Deep understanding of, and strong
experience in, the Group’s sector.
Current external appointments:
– Trustee at Edgeborough
Educational Trust.
– Trustee at The Worshipful Company
of Chartered Accountants.
Committee key:
Nomination Committee
N
Audit Committee
A
Risk Committee
Ri
Remuneration Committee
Re
Customer, Culture
and Ethics Committee
Disclosure Committee
C D
Committee Chairman
During the year the Company directors except Elizabeth Chambers were appointed
as directors of the Vanquis Bank Board, with effect from 13 January 2022.
Provident Financial plc Annual Report and Financial Statements 2021
113
Governance
Andrea Blance
Senior Independent Director
(SID)
N A Re
Appointed: 1 March 2017
Tenure: 5 years
Career and experience:
Andrea has extensive board and financial
services experience. She spent her
executive career at Legal & General Group
plc, where she was a member of the
group executive committee and held a
range of senior leadership roles, including
Divisional Chief Financial Officer, Group
Financial Controller, Group Chief Risk
Officer and Strategy & Marketing Director.
Andrea’s past non-executive roles include
Senior Independent Director and Audit
Committee Chair at Reassure Group plc,
Risk Committee Chair at Scottish Widows
plc and Lloyds Banking Group Insurance,
Non-Executive Director at The Mentoring
Foundation and a member of William &
Glyn’s pre-IPO board.
Andrea’s contribution to the Board,
key strengths, skills and reasons
for re-election:
Andrea brings a wealth of relevant
experience, including her understanding
of governance, the regulatory
environment and conduct risk. She has
extensive experience of strategy and
customer marketing, complex change,
finance and reporting, investor relations
and stakeholder management.
– Experienced senior independent
director, non-executive director, board
committee chair and senior leader.
– Deep understanding of the financial
services industry.
– Track record of working with businesses
at different stages of development
and supporting both growth and
recovery strategies.
Current external appointments:
– Non-Executive Director at Hargreaves
Lansdown plc.
– Non-Executive Director at Aviva plc.
Elizabeth Chambers
Independent Non-Executive
Director
N Ri C
Appointed: 31 July 2018
Tenure: 3 years
Career and experience:
Elizabeth is an experienced board
director, senior financial services
executive, strategist and marketing
leader in the UK and globally. Her previous
board experience includes being a
Non-Executive Director at Hastings Group
plc, Dollar Financial Group, Hibu plc
(formerly Yell Group) and The Home and
Savings Bank. Elizabeth served on the
board of Western Union International Bank
and boards relating to consumer finance
joint ventures between Barclaycard and
other brands, such as Argos and Thomas
Cook. She has extensive executive
experience through roles including
Chief Marketing Officer at Barclays
and Barclaycard.
Elizabeth’s contribution to the Board,
key strengths, skills and reasons
for re-election:
Elizabeth brings more than 25 years of
experience in strategy, marketing and
product development across a range
of financial services. As an executive,
she has a long track record of driving
revenue growth and solving complex
business challenges at major global
financial institutions. In various roles she
has led businesses through brand and
reputation transformations, strengthened
customer acquisition and engagement,
built innovative digital businesses, and
led major business turnarounds.
– C-suite marketing and
communications executive, board
director and strategist.
– Proven people leader.
– Broad and deep knowledge of financial
services, including credit cards and
payments products, a wide range
of customer loan segments and
marketing in a regulated environment.
– Substantial expertise in turnarounds,
as well as M&A and cultural change.
– Wide exposure to international
operations and the unique challenges
of leading them.
Current external appointments:
– Non-Executive Director at TSB Bank Plc.
– Non-Executive Director at Tilney Smith
& Williamson Ltd and subsidiaries.
– Non-Executive Director at University
of Colorado Anschutz Medical
Campus (non-profit).
– Operating Partner to Searchlight
Capital Partners and its
portfolio companies.
Paul Hewitt
Independent Non-Executive
Director
N A Ri
Appointed: 31 July 2018
Tenure: 3 years
Career and experience:
Paul is an experienced chief financial
officer, chairman, non-executive director
and audit committee chair who operates
in a number of different sectors. Paul’s
past non-executive director roles include
chairing the audit committees of Tokio
Marine, Kiln, NEST Corporation, Tesco Bank,
Collins Stewart Hawkpoint, Charles Taylor
Plc and GMT Global Aviation. He began his
executive career in finance, working for over
20 years as a finance director of various
companies, culminating in becoming
Deputy Group Chief Executive and CFO
of the Co-operative Group between
2003 and 2007.
Paul’s contribution to the Board,
key strengths, skills and reasons
for re-election:
Paul’s varied and wide-ranging career is
built on a successful career in finance. He
has a track record of creating and realising
value for shareholders and has worked
across a number of sectors including
financial services, technology, healthcare,
retail and business services, including good
understanding of corporate governance.
Through his non-executive roles, he has
helped several management teams adapt
their business models to respond to, and
anticipate, changes in their competitive
and regulatory environments. In both his
executive and non-executive career, he has
had extensive experience of transactions
and ensuring that businesses have an
appropriate financial structure.
– Experienced non-executive director,
chairman and chief financial officer.
– Broad experience of the financial services
industry and the regulatory environment.
– Strong track record in delivering good
returns for shareholders.
– Extensive experience of transactions.
– Broad experience as both an executive
and a non-executive of developing
and challenging business strategies.
– Has helped several management
teams adapt business models in
anticipation of changes in their
environments and markets.
Current external appointments:
– Non-Executive Director at ICNH Limited
(trading as Dr Doctor).
– Non-Executive Director at Feebris Limited.
– Non-Executive Director at The
Ombudsman Service Limited.
– Non-Executive Director of E-Negotiation
Ltd (trading as Amicable).
Provident Financial plc Annual Report and Financial Statements 2021
114
Board leadership and Company Purpose continued
Our Board continued
Angela Knight
Independent Non-Executive
Director
N RiA
Appointed: 31 July 2018
Tenure: 3 years
Career and experience:
Angela has extensive experience in both
the public and private sectors. Prior to
joining the Board, Angela was CEO at
Energy UK, British Bankers Association (BBA,
now UK Finance) and APCIMS (now Personal
Investment Management and Financial
Advice Association). She was previously
a Member of Parliament and Treasury
Minister between 1992 and 1997 and was the
Chairman of the Office of Tax Simplification
from December 2015 to March 2019.
Previously Angela was also a Non-Executive
Director at Taylor Wimpey plc and Senior
Independent Director at TP ICAP plc.
Angela’s contribution to the Board,
key strengths, skills and reasons
for re-election:
Her experience in the public sector means
Angela has a strong understanding of
the expectations of regulators and other
public stakeholders. This combination
means she is a skilled director who knows
how to manage organisations and how
to challenge management to deliver.
Angela’s thought leadership, technical
and policy skills, as well as a deep
understanding of the financial sector, are
demonstrated through her leadership
of the repositioning of Energy UK in the
energy sector and of the BBA through
the banking crisis.
– Experienced Government Minister, CEO,
chair and non-executive director.
– Wealth of knowledge of the financial
services sector.
– Deep knowledge of regulated industries.
– Adept at solving difficult problems with
effective solutions.
– Understanding of public presentation,
in particular as a proficient
public speaker.
Current external appointments:
– Non-Executive Director at Arbuthnot
Latham & Co.
– Non-Executive Director at Encore
Capital Group, Inc.
– Director at Froggatt Trustee Limited.
– Chair at Pool Reinsurance
Company Limited.
Graham Lindsay
Independent Non-Executive
Director
N Re C
Appointed: 1 April 2019
Tenure: 3 years
Career and experience:
Graham has held a number of senior
executive roles, including responsibility
for the Lloyds branch network and as
Corporate Responsibility Director. Graham
joined the Wonga UK board in 2016 as part
of the new leadership team engaged to
improve the business and deliver change.
Graham sat on the Board of the Institute
of Banking & Financial Services and on the
Professional Standards Board. He is Senior
Independent Director at One Family,
a mutual life assurance business.
Graham’s contribution to the Board,
key strengths, skills and reasons
for re-election:
Graham brings to the Board extensive
experience in commercial and retail
banking following a 40-year career
at Lloyds Banking Group and a deep
understanding across various distribution
channels. Graham has had demonstrable
success in focusing organisations on their
customers, ensuring they are at the heart
of decision making and product design.
Graham also has a strong appreciation
of the Group’s regulatory environment.
– Extensive customer knowledge, strong
customer focus and a track record of
enabling and overseeing businesses
to ensure that they put the customer
at the heart of what they do.
– Significant stakeholder
engagement experience.
Current external appointments:
– Senior Independent Director
at OneFamily.
– Vice Chair and Trustee at the Brain
Tumour Charity.
– Director at Family Assurance Staff
Pension Scheme Trustees Limited.
Margot James
Independent Non-Executive
Director
N Re C
Appointed: 27 July 2020
Tenure: 1 year
Career and experience:
Margot served as a Member of Parliament
between 2010 and 2019 and has held a
number of ministerial offices, latterly as
Minister of State for the Department of
Digital, Culture, Media & Sport, where she
championed the interests of both industry
and consumers in the digital world. In her role
as Parliamentary Under Secretary of State
at the Department for Business, Energy &
Industrial Strategy, Margot had responsibility
for small businesses, consumers and
corporate governance, including labour
markets and the retail sector.
Margot’s contribution to the Board,
key strengths, skills and reasons
for election:
Margot has a wide-ranging successful
career in both the public and private sectors.
Her public-sector experience provides
Margot with a strong understanding of
the expectations of regulators and other
public stakeholders, as well as strong
knowledge of corporate governance,
labour markets and the UK’s technology
and retail sectors. She has a track record
of driving value for shareholders and has
a demonstrable record as a successful
entrepreneur and CEO.
– Experienced Government Minister
and Member of Parliament.
– Results-focused entrepreneurial
business owner.
– Strong track record as a CEO
and business leader.
– Non-executive director
and chair experience.
– Deep governance knowledge.
– Strong relationships with wider
stakeholders in a variety of sectors.
Current external appointments:
– Executive Chair at the Warwick
Manufacturing Group.
– Governor Emeritus of the London
School of Economics.
– Chair at Internet Matters Ltd.
– Chair at Taso Advisory.
Committee key:
Nomination Committee
N
Audit Committee
A
Risk Committee
Ri
Remuneration Committee
Re
Customer, Culture
and Ethics Committee
C
Disclosure Committee
D
Committee Chairman
The Company directors, except Elizabeth Chambers, were appointed as directors of
the Vanquis Bank Board, with effect from 13 January 2022.
Governance
Provident Financial plc Annual Report and Financial Statements 2021
115
Charlotte Davies
Group General Counsel
and Company Secretary
Appointed: 1 April 2019
Career and experience:
Charlotte brings a wealth of experience
in the financial services sector and is
an experienced general counsel and
company secretary. Charlotte previously
worked at Cabot Credit Management
where she was General Counsel and
Company Secretary for many years and
reviewed the governance structure and
redesigned the regulatory structure in
consultation with the FCA.
Prior to this Charlotte was General
Counsel of Lockton.
Charlotte’s contribution to the Board,
key strengths and skills:
Charlotte’s legal experience has been
gained predominantly within insurance
before moving into the debt purchasing
space. Charlotte brings extensive
experience in and knowledge of the
financial services sector, and has legal
experience in corporate, commercial,
risk management, regulatory and
governance advice.
Provident Financial plc Annual Report and Financial Statements 2021
116
Board leadership and Company Purpose continued
The Board’s role in setting
strategy, monitoring its progress
and promoting long-term
sustainable growth
A number of key strategic decisions were made by the Board
this year, the most difficult of which was the decision to exit the
home credit market. This was made with the deepest regret in
light of the changing industry and regulatory dynamics in the
home credit sector, as well as shifting customer preferences.
Further details on the matters considered in our decision
making process, as well as the other principal decisions we
made during the year, can be found in our s.172 statement
on page 78. Despite the challenging environment, the Board
has continued to be led by its Purpose and ensured that CCD
colleagues impacted by the wind-down of the business were
provided with specialist outplacement support and were kept
informed of internal vacancies within other areas of the Group
as well as external opportunities.
Strategy underpinned by Purpose
In recognition of the evolving sub-prime market post
Covid-19, the Board continued to review, oversee and monitor
the Group’s strategy and Purpose during the year. The Group
exists to help put people on a path to a better everyday life;
our Group Purpose is well established and was reaffirmed
at the Group Strategy Conference in June 2021. This Group
Purpose underpins our strategy of being a specialist bank
for the underserved operating in the mid-cost segment
of the market. The Covid-19 pandemic has changed
our operational environment as well as the lives of our
customers, but our Board is confident that our Purpose
remains relevant and guides us to deliver the right
outcomes for our key stakeholders.
Effective governance supporting delivery
In accordance with our Purpose and strategy, the Board
approved the implementation of a new target operating
model in July in order to deliver efficiencies, reduce
duplication and execute the Group’s strategy. Under the new
operating model, the Board of Vanquis Bank was restructured
to substantially align its membership with the Group Board;
further details on the new operating model can be found
on page 86. This represents the next phase of the Board’s
strategy to reinforce its position as a leading specialist bank
with a focus on the financially underserved and the Board
believes that the new operating model will create a simpler,
more efficient Group governance structure. The Nomination
Committee and Risk Committee supported the Board in making
this key strategic decision (please see pages 143 and 158,
respectively, for further information).
Our robust governance framework enables the effective
running of the Group and supports the Board to make
high-quality decisions that balance the interests of our
stakeholders, as is evident from the diagram on the next page.
Following a comprehensive review of the Group’s governance
framework to support the Vanquis Bank Board changes
described above, the Board approved refreshed governance
documentation to create an enhanced and streamlined
approach to corporate governance. Please see our website
for further details.
As formally documented in the Matters Reserved for the
Board, the Board has sole responsibility for setting the
Group’s strategy, reviewing the implementation of strategy
and overseeing the Group’s operations through effective
monitoring of internal controls and risk management.
The Board has delegated authority to the Group CEO and
its committees, as defined and formally documented in
the Group Delegated Authorities Manual, which supports
effective decision making and ensures that key strategic
decisions are made by the appropriate forum. Furthermore,
the Group CEO is responsible for the execution of our strategy
and the Chairman is responsible for running the Board and
maximising its effectiveness. There is a clear separation of
these two key roles which is formally documented in our
division of responsibilities between the Chairman and CEO
(see page 134).
Appropriate monitoring of progress
Our governance structure supports the Board in the
monitoring of performance against strategy and assessing
the strategy against the needs of our customers. The
Board has established committees with defined terms of
reference (which can be accessed through our website:
www.providentfinancial.com/who-we-are/corporate-
governance/board-committees/) to support in its oversight,
monitoring and challenging of the progress made by
management against delivering our strategy.
Setting our strategy
Provident Financial plc Annual Report and Financial Statements 2021
117
Governance
Group Board
The Committee Chairs report to the Board at each meeting
on the work of their committee and escalate any concerns or
risks for the Board’s attention. Key performance indicators are
regularly reported to the Board through management reports
to monitor the implementation of our strategy. The Group
CEO and CFO produce separate reports to the Board, which
include key performance indicators relating to operational
performance, financial performance and performance
against budget, to allow the Board to assess the progress
made by the divisions against the Group’s strategy and
budget. The Board approved management’s proposed
approach for the 2022 budget process during the first half
of the year, and approved the 2022 budget in December,
following endorsement by the Executive Committee and
subject matter experts. The 2022 budget included the
assumption of a dividend payment for 2021 based on
the Group’s performance.
Committees supporting strategy
Risk Committee
Assists the Board by taking an active role in defining risk appetite; advising on the current principal and emerging
risk exposures of the Group and future risk strategy; and monitoring the risk management systems across the Group.
The Risk Committee is supported by the Group CRO and the Group Risk senior management team. In collaboration
with the CCE Committee, the Risk Committee also supports the embedding of a risk culture aligned to the strategic
Blueprint. Please see the Risk Committee Report on page 158.
Audit Committee
Keeps under review the effectiveness of the Group’s internal financial controls systems that identify, assess,
manage and monitor financial risks, and other internal control systems. The Audit Committee also monitors the
capital management plan and allocation which is central to our strategy, and tracks the progress of strategic
initiatives via third line assurance, inviting management to update on progress as appropriate. Please see the
Audit Committee Report on page 153 for the work completed by the Committee during the year.
Nomination Committee
Delivery of our strategy requires the right leadership team comprised of individuals with sufficient diversity to
enhance the quality of strategic discussions and decision making. We have a Group-wide Diversity and Inclusion
Policy and the Nomination Committee monitors metrics on diversity and inclusion. The Committee regularly
reviews the composition of the Board against its long-term strategy to identify any gaps in knowledge, experience
or diversity, and oversees succession planning for the Board and senior management teams. Please see the
Nomination Committee Report on page 143.
Remuneration Committee
Ensures that remuneration policies and practices are designed to support our strategy and promote long-term
sustainable success, encouraging behaviours consistent with the Group’s Purpose, values, strategy and business
model. Please see the Remuneration Report on page 169 for further details.
CCE Committee
Employee behaviour and culture are key enablers in delivering our strategy and Purpose. Our CCE Committee
monitors the Group’s culture and behaviours to enable the Board to identify and address any misalignments
with the desired culture. The Committee also garners customer insights (for example through call listening and
customer survey results) which are fed into the Board’s decision making and strategic conversations. Please see
the CCE Committee Report on page 150 for the work completed by the Committee during the year.
Executive Committee
A management committee, chaired by the CEO, responsible for developing, proposing and implementing
Board approved strategy in line with the culture, Purpose and ethics of the Group. In doing so, it is responsible for
managing the Group strategic risks and divisional risks alongside the Group Risk Committee where these risks are
overseen in greater detail.
Provident Financial plc Annual Report and Financial Statements 2021
118
2
The Board decided to withdraw the Vanquis Bank Repayment Option
Plan from the market in response to the evolving regulatory landscape
and several forbearance enhancements. The CCE Committee
reviewed the implementation and customer communication
approach for the product discontinuation
2
The 2022 budget was approved by the Board following discussion and
challenge of the divisional budgets by the Group Executive Committee,
as well as assurances from the Chief Risk Officer, Transformation
Director and Chief Information Officer on the risk, prioritisation and
deliverability of the change spend forecasts in the budget
Nov
1
Board approved the pilot launch of Sunflower Loans
1
Moneybarn successfully expanded its vehicle finance product
offering to the near-prime sector, and the Board was kept apprised of
Moneybarn’s performance through the CEO report which is reported
at each Board meeting
1
2
3
A new reporting framework was developed to increase the Board’s
oversight over change investments and projects, as well as to help to
strengthen cost culture across the Group and optimise investments.
Change spend forecasts were also incorporated into the 2022
budget process
2
3
Board approved the Moneybarn warehouse securitisation
Board leadership and Company Purpose continued
Setting our strategy continued
2021 strategic progress
C
Risk Committee approved the Group Risk Management Framework in
May and continued to monitor the ongoing progress of the Group Risk
Harmonisation Programme to create an aligned risk management
approach across the Group in support of 1PFG
D
Decision made to exit the home credit market to protect the long-term
interests of the Group
2
Board oversaw the Future of Work programme
Following the establishment of a dedicated Climate Risk
Committee and the development of a climate risk appetite
statement, the Risk Committee approved a Climate Principal
Risk Policy to set the overall principles for the Group to follow in
effectively managing its climate risks
2
Board agreed the actions arising from the Group Strategy Conference
1
2
3
Board approved and monitored the implementation of a new target
operating model, with support from the Nomination Committee
and Risk Committee, which was the next step in the execution of our
1PFG strategy
C
D
A new target IT architecture, approved by the Board in July, was
developed by the Group CIO to support the achievement of 1PFG
based upon a single customer view and to increase cost efficiencies.
The Board received regular updates on the programme via CRO
Reports and held an IT strategy ‘deep dive’ session with the Group CIO.
A Group Head of IT and Change Risk was also appointed to provide
second line assurance
Dec
Jul
Jul
continued
Jun
May
continued
Jan Feb
Provident Financial plc Annual Report and Financial Statements 2021
119
Governance
Long-term sustainable growth
In 2019, the Board set out its vision and growth
ambitions to be the best and most trusted provider
of credit to the underserved, delivered across
a broader range of products and distribution
channels, in order to help our customers on the
path to a better everyday life. During 2021 the
Board has driven many strategic developments
with a focus on creating long-term growth for
its stakeholders and delivering on its strategic
objectives. The timeline (opposite) highlights the
progress made against each of these strategic
objectives and how our Board has enabled such
progress with the support of a robust governance
structure. For information on the matters
considered by the Board in making its principal
decisions please refer to our s.172 statement on
page 73 and for further information on the delivery
of our strategy please refer to page 28.
For the 2021 Group Strategy Conference, the Board
and Group Executive Committee agreed that
particular focus this year should be given to the
evolving regulatory landscape, creating good
customer outcomes in line with the FCA’s Consumer
Duty, improving the maturity level of information
security across the Group and delivering our ESG
strategy. These were considered to be areas of
strategic importance. With the Board’s direction,
the Group Executive Committee met for a full
day strategy session, discussing these areas and
analysing the Group’s financial performance and
marketplace. Actions arising from the Strategy
Conference were assigned to Group Executive
Committee members, agreed by the Board and
monitored by the Group Executive Committee.
A key output of the 2020 Strategy Conference was
the recognition that a key strategic imperative was
ensuring the Group had in place the appropriate
capabilities, resources, framework and tools
to oversee and deliver key strategic initiatives
and change projects. The Group has delivered
on this output by establishing a new Group
Transformation function dedicated to improving
the way that change is managed across the Group.
Significant enhancements have been made in the
management of change (such as the creation
and implementation of a new Change Delivery
Framework) which have given the Board greater
oversight over change spend and projects as well
as more transparency regarding the benefits of
change activity.
Long-term
sustainable
growth
1
Vanquis Bank launched a new personal loans range to the open market.
Throughout the year the Board maintained oversight and scrutiny over the
proposed launch in the context of the Group’s overall loan strategy
Oct
1
Board approved funding to rebuild the Vanquis Bank mobile app.
Management’s progress was monitored through reports from the Group
CEO and Group Transformation function in accordance with enhanced
governance and reporting over change spend
1
3
Board approved the Core UK Group Waiver application to deliver the 1PFG strategy
3
Board approved the issuance of Tier 2 debt capital to the market to improve
capital efficiency and lower capital costs
Sep
2
3
Decision made to pursue a Scheme of Arrangement to provide redress
to CCD customers and protect the long-term viability of the Group
2
Board approved the agenda for the Group Strategy Conference which
was held in June 2021
May
Mar
1
2
3
Links to strategy
Grow customer-centric businesses
Act responsibly and with integrity
Maintain a secure funding
and capital structure
Provident Financial plc Annual Report and Financial Statements 2021
120
Board leadership and Company Purpose continued
Promoting long-term sustainable success: Board activities
Board meetings follow a carefully designed agenda that is agreed by the Chairman, in conjunction with the CEO and General
Counsel and Company Secretary. A typical Board meeting would comprise reports on operational and financial performance,
legal and governance updates and chosen deep dives into areas of strategic importance. The following pages provide
examples of key Board activities during the year. Whilst the table is non-exhaustive, it provides an insight into the Board’s
discussions and how the directors promote the success of the Company. You can also read about principal decisions made
during the year in our s.172 statement on pages 75 to 86.
Strategy
Group Strategy Conference
The Group’s strategy remained a key area of focus
for the Board. In addition to discussions regarding
strategy held at Board meetings during the year, the
Board held a Group Strategy Conference in June 2021.
Topics discussed included: a recap of the actions
taken in the previous 12 months to deliver our strategy;
the Group’s Purpose and customer vision; the wider
market and competitive environment; the regulatory
landscape; customer outcomes; our product offering;
and funding strategy.
Pricing
During the year the Board reviewed Vanquis Bank’s
pricing and returns model, which is used for product
decisioning, including enhancements made and
future developments.
Mid-cost personal loans offering
and new digital platform
The Board has overseen changes to enhance our
personal loans offering to customers, including the
launch of Vanquis Bank’s unsecured personal loans
product to the open market. As part of the Group’s
strategy to offer relevant products to its addressable
market and to diversify its product offering, the Group is
establishing a digitally distributed unsecured personal
loans business. To support this, the Board reviewed
and approved the launch of a pilot of the Group’s new
personal loans offering, Sunflower Loans. The Group has
invested in a highly scalable, digital platform known as
‘Gateway’ to initially support the new Sunflower Loans
product. The Board oversaw the delivery plan for this new
digital infrastructure, including the risks and mitigations,
and approved the necessary investment to implement it.
Gateway will also have the ability in the future to enable
customers to access all of their products from a single
mobile app. It will also enable PFG to configure and bring
prospective products to market rapidly. You can read
more about this on pages 28 and 47.
Key stakeholders
– Investors
– Customers
– Regulators
Links to strategy
1
2
Links to risks
P4
P5
P9
P10
P11
P13
Budget, financing and performance
Budget and five-year plan (the Budget)
The Board has reviewed and approved the Group’s
annual Budget, ensuring adequate resources were
in place for the Company to meet its objectives. In
approving the Budget, the Board considered a range
of issues, including its basis of preparation, forecasted
performance and the risks and opportunities in relation
to the Budget.
Operational and financial performance
The Board reviews operational and financial
performance at each meeting, including progress
against the agreed Budget. The CEO and CFO
present their own reports to the Board, including the
performance of each division.
Dividends
The Board considered whether a final dividend and an
interim dividend should be paid during 2021. The Board
determined that a dividend should not be proposed to
shareholders or paid during 2021 in line with its decision
to preserve capital and support business stability
during the period of closure of the CCD business. As
announced in October 2021, it was determined that
should the improvement in macroeconomic conditions
experienced continue on a similar trajectory for the
remainder of the financial year, the Board would
consider declaring an ordinary dividend pay-out of
30% of adjusted ongoing earnings in respect of the
2021 financial year. As a result of the Group’s improved
profitability, and given the ongoing strength of the
Group’s balance sheet, the Board has proposed a
dividend of 12p per share in respect of 2021.
Funding
The Board has overseen several key funding activities
during the year. The Board approved the Group’s first
subordinated Tier 2 debt capital to the external markets
since 2005. The Board also approved a concurrent
partial tender of the Group’s 2023 Senior Bonds. During
the year, the Board also considered and approved the
refinancing of its Moneybarn securitisation programme
with £325m of committed funding, whilst reducing its
revolving credit facility to £90m. The Group now has no
contractual wholesale maturities until the second half
of 2023, representing a very robust, diverse and stable
funding profile. During 2021, Vanquis Bank also gained
access to the Bank of England’s Term Funding Scheme
with additional incentives for Small and Medium-sized
Enterprises and, ahead of the closure of the scheme,
had drawn approximately £174m of funding using its AAA
rated notes as collateral. Furthermore, the Board has
overseen the Group’s application submitted to the PRA
to allow the use of retail deposits held at Vanquis Bank to
fund other parts of the Group.
Key stakeholders
– Investors
– Debt providers
– Colleagues
Links to strategy
1
2
3
Links to risks
P1
P2
P3
P4
P9
P10
P12
1 2 3
Links to strategy
Links to risks
Grow customer-centric businesses
Act responsibly and with integrity
Maintain a secure funding
and capital structure
Find our full list of key risks on page 92
P
Provident Financial plc Annual Report and Financial Statements 2021
121
Governance
IT and cyber risk
IT architecture
Following the appointment of a new Group Chief
Information Officer (CIO), the Board reviewed and
approved changes to the Group’s IT investment
categorisation and prioritisation process. The Board
also reviewed the Group’s existing IT architecture
and considered and approved proposals regarding
enhancing the Group’s IT architecture in order to
support the delivery of the Group’s strategy and
ambition of Group-wide digital-first customer
centricity. The Board also reviewed the newly
developed digital platform for personal loans products
during the year, as described on the previous page.
Cyber risk
The Board has also held a cyber risk session to consider:
the cyber risks posed to the Group and wider financial
services sector; the potential impact of those risks; how
cyber security can manage those risks and enable
business opportunities; best practice in cyber security;
and a cyber attack case study. You can read more about
technology and information security risk on page 98.
Key stakeholders
– Customers
– Colleagues
– Regulators
Links to strategy
2
Links to risks
P7
P9
P11
P12
Governance and risk
Business continuity management (BCM)
The Board reviewed the Group’s BCM arrangements,
including the Group’s response to the Covid-19
pandemic. The Board noted the BCM activities
taking place across the Group, including how hybrid
working arrangements could impact the Group’s
BCM approach and the activities in Vanquis Bank in
response to the PRA’s publishing of the final rules and
guidance on operational resilience.
Board governance
As announced in January 2022, the Group has
restructured the Board of Vanquis Bank, our wholly
owned subsidiary, to substantially align its membership
with that of the Company’s Board. During the year the
Board considered this as the next phase of the Group’s
specialist bank strategy and determined that the
necessary work and stakeholder engagement should
be undertaken to create a simpler, more efficient
Group governance structure. In January 2022 the Board
approved the proposed Board changes and believes
that the changes will help streamline and enhance
both the Company’s and Vanquis Bank’s handling of
corporate governance. You can read more about the
decision on page 86.
Principal and emerging risks and
effectiveness of risk management
In addition to regular updates from the Group Chief
Risk Officer, the Board reviewed an assessment of the
Group’s principal and emerging risks following review
and approval by the Risk Committee. The Board also
considered an assessment of the effectiveness of the
Group’s Risk Management Framework following review
by the Risk Committee. The Board noted the overall
effectiveness of the framework, the enhancements
made to risk management during the year and areas
identified for further enhancement.
Key stakeholders
– Investors
– Regulators
– Colleagues
– Debt providers
Links to strategy
2
Links to risks
P5
P7
P9
P10
P12
People and culture
Future of work
The Board received an update on the Group’s phased
planning and actions for the safe return of colleagues
to offices under a hybrid working model. The Board
considered the potential impact of the proposed
approach to working arrangements on customers,
colleagues and culture and it was agreed that, as
part of any changes to working arrangements, it was
important to ensure all stakeholders were considered
and the Group’s culture continued to be embedded.
Colleague Surveys and Colleague Forums
The Board received an update regarding the results
of the 2020 Colleague Survey, which had been
discussed in detail by the Customer, Culture and Ethics
Committee. The Designated Non-Executive Colleague
Champion also updated the Board on engagement
with colleagues and the Colleague Forums, including
insights from engagement with colleagues on the
alignment of executive director and wider colleague
reward and also regarding the impact on colleagues of
the wind-down of the CCD business. Feedback from the
CCD Colleague Forum was taken on board and CCD’s
approach adapted where possible and appropriate.
Enhancements to the Group’s colleague engagement
model were identified for implementation during 2022
and reported to the Board.
Modern slavery
The Board reviewed and approved the Group’s revised
Modern Slavery Act Statement which had been
updated to reflect development during 2020 and which
supported the Group’s compliance with the Modern
Slavery Act 2015.
Whistleblowing
During the year, the Board received an update on the
Group’s arrangements for colleagues to be able to raise
concerns in confidence and, if they wish, anonymously.
As part of this, the Board noted the reduction in the
number of reports received from colleagues, learnings
identified from reports and enhancements identified to
the Group’s whistleblowing processes and procedures.
Key stakeholders
– Colleagues
– Suppliers
– Communities
– Government
Links to strategy
2
Links to risks
P7
P9
P10
Looking forward to 2022, focus areas are expected to include:
– the Sunflower Loans pilot and Group’s product strategy;
– business performance and delivery of the Group’s
strategic initiatives;
– implementing our strategy to establish PFG
as a leading specialist bank focused on
underserved markets;
– implementing our new IT platform digital infrastructure,
Gateway; and
– overseeing the Group’s culture and customer centricity.
Provident Financial plc Annual Report and Financial Statements 2021
122
Customer and regulatory
Woolard Review on unsecured
consumer lending
The Board considered the findings from the Woolard
Review on unsecured consumer lending and the
implications for the sectors in which the Group
operates and its stakeholders.
Consumer Duty of Care
The Board received updates regarding the FCA’s
Consumer Duty Consultation Paper in which the FCA
outlined its intention to implement a new Consumer
Duty principle, with supporting rules and guidance
focused on consumer outcomes. The Board considered
the potential implications of the new Consumer Duty
principle and what action could be required by the
Group in response to the same and the Group provided
a response to the consultation in July 2021.
CCD investigation
The Board received updates on the progress of the
previously announced FCA investigation covering CCD’s
lending to customers, as well as the application of an
FOS decision into the complaint handling process, in the
period between February 2020 and February 2021. See
page 5 for more information.
Pillar 3 disclosure
The Board reviewed and approved the Group’s Pillar 3
disclosure, having considered the approach taken to
the disclosure and the changes made from the previous
year’s disclosure.
Key stakeholders
– Customers
– Regulators
– Investors
Links to strategy
1
2
Links to risks
P1
P2
P3
P4
P5
P7
P9
CCD Scheme of Arrangement and exiting the home credit market and the managed run-off of CCD
During 2021 the Board made two key decisions
in relation to its CCD division, following due
and careful consideration.
In March 2021 the Group announced its decision
to pursue a Scheme of Arrangement (the Scheme)
under Part 26 of the Companies Act 2006 in relation
to potential redress claims arising from customer
creditworthiness complaints based on historical
lending in CCD prior to 17 December 2020. Following
approval by the Scheme creditors at a meeting on
19 July 2021, the Scheme was sanctioned by the High
Court on 30 July 2021.
Furthermore, following the outcome of an operational
review, on 10 May 2021 the Group announced that it
would regretfully withdraw from the home credit market
and place CCD into managed run-off or consider a
disposal. CCD was closed on schedule by the end of
2021 and was delivered within the closure cost guidance
of up to £100m. As described above, the closure of CCD
involved launching the Scheme in order to provide £50m
of compensation for its customers. The result of the
closure is that the Group has reduced its operational risk
profile and no longer operates in any ‘high-cost’ credit
market segment. You can read about these two principal
decisions and the related stakeholder considerations and
engagement in our s.172 statement on pages 75 and 86.
Key stakeholders
– Customers
– Regulators
– Colleagues
– Investors
– Debt investors
– Communities
– Suppliers
Links to strategy
1
2
3
Links to risks
P5
P7
P9
P10
Board leadership and Company Purpose continued
Promoting long-term sustainable success: Board activities continued
1 2 3
Links to strategy
Links to risks
Grow customer-centric businesses
Act responsibly and with integrity
Maintain a secure funding
and capital structure
Find our full list of key risks on page 92
P
The Board: our culture –
promoting colleague voice
Leading by
example
Embedding
our culture
Assessing
and monitoring
culture
Aligning
culture and
incentives
Provident Financial plc Annual Report and Financial Statements 2021
123
Governance
The ongoing pandemic has accelerated trends such as digital
collaboration and transformation, much of which has been
adopted by the Group, such as the enhancements to the
mobile applications which have informed processes within
the Group. It has been essential during this period of change
to ensure our colleagues feel involved and come on this
journey with us.
Progress has been made against all four Blueprint quadrants
during the year and in leading, embedding, assessing and
aligning our culture. During the pandemic the innovative use
of remote communication tools has been vital to maintaining
engagement with our colleagues. The CEO has embraced
these methods and has regularly updated colleagues on
business performance, the Future of Work programme and
wellbeing matters through his monthly vlogs.
Our Board understands that a strong culture, underpinned by
good governance, enables long-term growth and generates
sustainable value for our stakeholders. You can read on pages
75 to 86 how the Board has had regard to the interests of our
stakeholders and their s.172 responsibilities to deliver long-term
growth. Our Board and committees continue to align and
monitor culture through regular reporting at the meetings.
The Board is responsible for ensuring the governance
framework supports the embedding of the desired culture.
This underpins the appropriate information flow, enabling the
Board to oversee management and challenge performance,
culture and strategy. During the year the Board has overseen
enhancements to its culture metrics and related reporting,
with the CCE Committee approving three colleague-related
metrics within the Blueprint Dashboard. These metrics provide
further insight into levels of colleague engagement and
morale across the Group.
Following extensive work by management on the Future of
Work programme, the Board understands that flexibility in
our working environment will be a key principle that shapes
the future of the business, meeting both the physical and
wellbeing needs of our colleagues. To this end significant work
has been undertaken to ensure that our Flexible Working Policy
is reflective of our colleagues’ needs, fosters engagement with
them and enables them to perform to the best of their ability.
1
2
4 3
The Board is responsible for setting and overseeing the
embedding of Group culture, to ensure that we do what
we say we will in a manner reflective of our values.
Graham Lindsay
Designated Employee NED & Colleague Champion
The Board continues to support the embedding of the Group’s culture, driving direct
and indirect communication to harness our colleague voice.
Provident Financial plc Annual Report and Financial Statements 2021
124
1
Leading by example
In order to maintain a positive culture within the business,
the Board sets the tone and expectations to ensure that the
Group’s decision making and behaviours are guided by a set
of values which enable the achievement of the right outcomes
for our stakeholders.
As mentioned on the previous page, during the year the Group
CEO updated colleagues through monthly vlogs, outlining
business performance, the impact upon operations of the
ongoing Covid-19 pandemic, the Future of Work programme,
mental health wellbeing and other important matters.
Board meetings were held regularly throughout the
year to provide oversight and direction on key strategic
business activities, the work of its committees and legal
and governance matters. This allowed the Board to hold
management to account and reinforce the tone from the top.
Due to the lifting of Covid-19-related restrictions, the Board
sought to return to face-to-face meetings and the office as
soon as safely possible to ensure it led by example and was
visible to colleagues.
Culture and governance are intrinsically linked: a healthy
culture is underpinned by good governance. We have
therefore made changes to the Group’s operating model and
restructured the Board of Vanquis Bank to substantially align
its membership with the Board of the Company, producing
a single Board structure for the Company and Vanquis Bank.
The move to a single Board will help to further the 1PFG agenda
by centralising key operational functions and management
has reviewed and updated the Group’s Delegated Authorities
Manual accordingly. During 2022, the Group’s corporate
support functions (Finance, Legal, Enterprise Risk, Audit,
Information Technology and Data Protection) will be further
centralised under the 1PFG model.
To lead by example, the Board must be willing to listen to
feedback and understand when action is required to maintain
the Group’s culture. To this end the Board has encouraged
a Speak Up culture through various channels such as the
Colleague and Pulse Surveys, the Speak Up Dashboard,
Colleague Forums, policies and whistleblowing tools.
Our inclusion and diversity ambition remains to build and
sustain an inclusive culture and diverse workforce which will
help us to respond to the needs of our customers and be a
welcoming and inclusive place to work. Our Affinity Groups
continue to develop plans that will support their community
and the wider inclusion agenda. The Board continues to
support the ‘Be Yourself’ inclusion community. Each Affinity
Group has two senior sponsors and it is their job to role model
inclusive attitudes and behaviours across the business. Our
Nomination Committee oversees our performance in relation
to diversity and inclusion, and further details can be found on
pages 147 to 148.
A healthy culture requires a growth mindset and the Board
fosters this via its own continuous training and development;
each member of the Board has their own tailored training and
personal development plan. In addition they also receive deep
dive training sessions.
The Board’s governance framework includes an annual
evaluation of its performance, its committees and individual
directors. This year’s evaluation included 360-degree feedback
from management in order to strengthen relationships and
accountability including additional questions pertaining
to diversity and emotional intelligence. The evaluation
recognised that the CCE Committee undertakes the key role
of overseeing the culture within the Group, and identifies areas
of improvement such as the direct oversight and monitoring
by the Board. The 360-degree feedback also identified that
management felt the Board generally role-modelled the
desired culture and promoted a Speak Up culture.
Cultivating the desired culture and delivering our long-term
strategy also require an appropriate risk management and
internal control framework. The Board maintains responsibility
for reviewing the effectiveness of the Group’s internal control
and risk management systems. Following feedback from
Board members, the Chief Risk Officer has been invited to
Board meetings, strengthening the reporting and discussion
of risk at the Board. You can read more about this in the Risk
Committee Report on page 158.
2
Embedding our culture
During the year the Colleague Forums benefited hugely from
the support and visibility of our Designated Non-Executive
Colleague Champion who attended several virtual meetings.
Whilst restrictions were in place during the year, the Board took
the opportunity to visit the Chatham office when they were
lifted, to engage with the Vanquis Bank Operations teams
and update colleagues on the plans for the future of work.
Colleagues were also given the opportunity to ask questions
directly of the Board.
The Board supported management in the continued
operation of existing initiatives and delivery of new initiatives
to unite and support colleagues throughout the year
as follows:
– regular Colleague Forum meetings across each division,
with the Designated Non-Executive Colleague Champion
in attendance to engage with colleagues and feed back
to the Board;
– our Blueprint, ‘Stay Connected’ magazine and monthly
vlogs from the CEO;
– dedicated professional mental wellbeing support
through our Thrive mobile application, our Employee
Assistance Programme and the Be Well Webinars with
external experts;
– our colleagues were kept regularly updated on the
Government’s guidance on Covid-19 and our response to
the pandemic and were provided with access to support
resources, and the Board considered proposals regarding
the Future of Work model for the Group, including the
benefits and risks associated with increased flexibility and
remote working;
– mandatory e-learning modules on a wide variety of key
processes, such as returning safely to the workplace, and
expected behaviours, including diversity, equality and
mental health awareness;
– our diversity and inclusion communities formed four
Affinity Groups based around gender, LGBTQ+, ethnicity
and disability; a fifth Affinity Group will be launching in
early 2022, focusing on social mobility;
– the Designated Non-Executive Colleague Champion
held forum meetings with groups of employees who
were representing different areas of the business, which
provided an opportunity to freely express their views and
Board leadership and Company Purpose continued
The Board: our culture – promoting colleague voice continued
Provident Financial plc Annual Report and Financial Statements 2021
125
Governance
share ideas. Feedback was sought on a number of key
matters, including the Future of Work programme and the
Company’s response to the Covid-19 pandemic, and views
on what the Company could improve in its response to
help its employees;
– a Future of Work Steerco was established during the year
to help plan the safe and successful return of colleagues
to our offices;
– a ‘Better Everyday’ award scheme to recognise colleagues
who demonstrate our Blueprint behaviours;
– introduction of a new set of Group HR Policies designed to
support the Group’s culture, drive fairness and consistency
across the Group and consolidate a number of existing
policies, including a Flexible Working Policy and a new
Remote Working Guide;
– following the wind-down of CCD, colleagues from that
division were offered other opportunities within the Group
where possible; and
– our inclusion and diversity (I&D) ambition remains to build
and sustain an inclusive culture and diverse workforce
which will help us to respond to the needs of our diverse
customer base and support our Purpose of putting
our customers on a path to a better everyday life. Last
year, four Affinity Groups were set up and each are at
different stages of evolution. Each group has identified
its own working group leads and has a rhythm of regular
meetings, with structured agendas focusing on Group-
wide I&D to discuss progress on key initiatives that it has
started to focus on.
3
Assessing and monitoring culture
The Group Designated Non-Executive Colleague Champion
provides a valuable link between the Board and the Company’s
workforce through the Colleague Forum meetings and he
chairs the CCE Committee. When attending Colleague Forum
meetings, Graham has updated them on key Board decisions
and has encouraged the honest sharing of views, which has
been welcomed by colleagues. Graham reports to the Board
on the issues discussed and ensures that colleague views are
shared and understood.
The CCE Committee continues to monitor the enhanced
Blueprint and Customer Dashboards. During the year
additional metrics were added to the Blueprint Dashboard
which would bring further insight into levels of colleague
engagement and morale across the Group. The key
performance indicators within the Blueprint Dashboard
monitor the turnover and absenteeism rates. The Dashboard
also tracks the promptness of payments to suppliers in line
with the Prompt Payment Code. Customer updates from each
division were presented by the divisional managing directors
at the CCE Committee and members listened to a variety
of customer calls to identify and provide management with
insights and feedback. Further information on the work of the
CCE Committee is detailed on pages 150 and 152.
A Speak Up culture is where people feel safe to speak out
and raise issues when they experience them and concerns
when they feel something is not right. Having a Speak Up
culture is conducive to a healthy, supportive environment,
where everyone feels free to share their ideas, opinions
and concerns, without fear of retaliation or penalty. To
embed this within the Group, a Speak Up Dashboard was
developed in 2021, incorporating a more rounded and robust
set of measures including the total number and type of
whistleblowing cases and colleague grievances. One of the
ways the Board measures the Speak Up culture is through
its annual Colleague Survey. Over the past year the Speak
Up scores have seen positive improvements in questions
such as “the leadership team here make the effort to listen to
colleagues” and “people can and do speak openly regardless
of position or level”.
The CCE Committee received an update on the introduction
of a new set of Group-wide HR Policies designed to support
the Group’s culture by driving fairness and consistency. A number
of core polices are also in place that support the Speak Up
culture such as the Whistleblowing and the Grievance,
Harassment and Bullying Policies. The Board ensures that all
colleagues are able to raise concerns confidentially through
appropriate whistleblowing procedures. During the year, the
Board reviewed the annual Whistleblowing Report and approved
an enhanced Whistleblowing Policy to increase oversight
of whistleblowing incidents and promote ethical conduct.
The work of the Whistleblowing Forum continues, chaired
by the Group General Counsel and Company Secretary.
Our Group-wide Colleague Surveys are also a vital feedback
tool, as they allow colleagues to anonymously have their say
about the leadership, culture and working life in the Group.
This year we conducted the ‘Pulse’ Survey in February 2021
and a Group-wide Colleague Survey in October 2021 as a
temperature check on the wellbeing of colleagues and to seek
their views on how the Group had responded to the ongoing
pandemic and working from home strategy. You can read
more about our colleague engagement initiatives on pages
129 to 131 and find the results of our surveys on page 16. The
Board tracks the lowest scored questions and actions are
identified and tracked in order to improve engagement and
make the Group a better place to work.
The Colleague Forums have been helpful in ensuring the
business strikes the right balance between ongoing customer
service and health and safety for our employees, especially
ongoing mental health considerations for colleagues in
different circumstances and working environments, including
the risk assessment, policy changes and health and safety
measures to ensure each workplace is Covid-19 secure.
The Forums have also been invaluable in understanding
and taking the ‘on the ground’ temperature regarding how
colleagues were feeling about returning to the office.
The Board carried out a robust assessment of the principal
and emerging risks facing the Group in the year, as well as
assessing the businesses performance against the approved
Board risk appetite. Following feedback from members, the
Chief Risk Officer regularly reports to the Board and the Chair
of the Risk Committee updates the Board on risk matters. The
Board also received updates on the Future of Work strategy,
internal audit reviews (including management awareness
ratings) and whistleblowing statistics, which help to identify
any areas falling below expected standards and enable the
appropriate corrective actions to be taken. Information on
the Group Risk Adjustment Framework can be found in the
Remuneration Report on page 181.
Provident Financial plc Annual Report and Financial Statements 2021
126
Board leadership and Company Purpose continued
The Board: our culture – promoting colleague voice continued
4
Aligning culture and incentives
The Group job levelling framework is designed to drive better
alignment of job roles and more comparable pay for colleagues
with the same levels of responsibility. Colleagues have a
maximum target bonus each year which is dependent upon
both the Company’s and their own performance. When reviewing
colleague performance, significant weight is placed on how
they have achieved in line with the Blueprint metrics, fostering
emphasis on the correct behaviours to enable a healthy culture.
You can read more about this and on the work of our
Remuneration Committee on the remuneration principles
and policy on page 178. Additionally, the non-financial
performance objectives of our executive directors
are aligned to our Blueprint.
During 2021, we launched the Group Reward Framework
across the business which will be fully embedded by the
end of 2022. The Group Reward Framework is underpinned by
a job-level methodology which drives consistency where roles
with similar expertise and responsibilities align across the
Group. It supports career development and progression and
makes it easier to move between divisions with aligned pay
and benefits.
During the pandemic, our CEO, Malcolm established a regular vlog which is housed on
our upgraded intranet, and shared via email to all colleagues in the business. Malcolm’s
updates have been designed to deliver business and performance updates, share
messages on wellbeing matters and has helped to raise the profile of teams and activities
across the whole organisation.
The Group is committed to promoting a supportive workplace in which our colleagues can thrive. Covid-19 has taken a
toll on everyone’s emotional, psychological and social wellbeing. By providing tailored assistance and developing colleague
resilience we can positively influence how colleagues handle stress, relate to others and make choices in their daily lives.
Colleague wellbeing in action
The Employee Assistance Programme (EAP) was launched in 2020. All colleagues have
access to the EAP, which is provided by Health Assured. The EAP is a confidential 24/7
support service designed to help colleagues deal with personal and professional
problems, such as stress and anxiety, lifestyle addictions, and personal and family
matters, that might be affecting colleagues’ home or work life, health or general wellbeing.
Health Assured offers expert advice and compassionate guidance on a wide range of
issues. There is reactive support available when colleagues need it, as well as proactive
and preventative support to help colleagues manage everyday issues so they do not get
out of hand. For further details on the employee engagement see page 32.
There are Mental Health First Aiders working right across the Group, trained and ready to
listen and support. We’re one big team at PFG, so colleagues can freely contact any one
of the Mental Health First Aiders.
Colleagues now have free access to Thrive, the UK’s only NHS-approved wellbeing app.
The award-winning app uses games to help colleagues track their mood and teach
them methods to take control of stress and anxiety. Colleagues can learn relaxation
techniques, like meditation and deep-breathing, to help them cope better with stressful
situations and manage negative thoughts.
The Bank Workers Charity hosted three Be Well Webinars; each session focused on
different topics, such as exploring the different ways we can be affected by stress,
particularly in the workplace, and exploring how a better understanding of our resilience
can help us withstand the pressures we face across the different areas of our lives. Other
sessions included steps on how to manage loneliness and an overview of mental health
problems and how work can reduce or exacerbate their impact.
Setting the tone remotely
Provident Financial plc Annual Report and Financial Statements 2021
127
Governance
Strategic and meaningful stakeholder engagement
The Group’s activities affect a wide variety of stakeholders which represent different viewpoints and sometimes competing
interests. Our Board has, through the work of the CCE Committee, continued to enhance the effectiveness and strategic focus
of its stakeholder engagement activities. Last year the Committee carried out a stakeholder mapping exercise and approved a
Stakeholder Map under the direction of the Board in order to understand the influence and interest that our stakeholders have in
our business. During the year, the Committee commissioned an external stakeholder materiality assessment, undertaken by the
Group’s sustainability partner, Corporate Citizenship, to understand and prioritise the views and concerns of our stakeholders.
This involved a series of interviews with internal and external stakeholders as well as the outcomes of recent stakeholder
engagement activity such as our investor perception audit, Colleague Surveys and supplier due diligence assessments. The
results of the materiality assessment have been used to create a new Stakeholder Engagement Strategy which identified four
levels of engagement and has guided how the Group ‘Informed’, ‘Listened’, ‘Involved’ and ‘Collaborated’ with its stakeholders
throughout the year. The Committee will review the various methods of engagement annually and devise annual strategic
engagement objectives for the following year, which will be assessed at the year end and fed into the following year’s objectives.
You can read more about the new Stakeholder Engagement Strategy on page 49. For information on how the outputs of our
strategic engagement objectives are measured please see the CCE Committee Report on page 150.
Stakeholder Engagement Strategy
Stakeholder Strategic engagement objectives for 2021–22
Our customers
Our businesses employ a wide range of techniques to engage with customers throughout their
time with us. These methods of engagement are outlined in our s.172 statement on page 77.
In addition to continuing to use these methods, we will:
– convene more customer panels/groups;
– involve customers in the inclusive design of products and services so that they can be
designed to be accessible to, and usable by, as many of them as possible from the outset; and
– ensure that collaborative initiatives and partnerships with external organisations are
accessible to and benefit customers across the different divisions.
Our colleagues
We will continue to engage with colleagues using the wide range of channels, some of which have only
recently been introduced (for example the Group-wide intranet, inclusion community and Colleague
Forums). These methods of engagement are outlined on page 79.
Stakeholders and investor relations
Stakeholder engagement
How does the Board ensure that stakeholder engagement is meaningful and effective?
The Board recognises that the long-term success of the Group is dependent upon listening, engaging and communicating
with stakeholders in a meaningful and effective way. Our s.172 statement on page 75 outlines how we have engaged throughout
the year and the impact of that engagement upon the Board’s decision making. This section explains how our approach
to stakeholder engagement has evolved during the year and how the Board has adapted the mechanisms, including the
generation of a Stakeholder Engagement Strategy, to ensure that they remain effective.
Fantastic progress was made during the year to strengthen our stakeholder relationships through our 2021
materiality assessment and consequent Stakeholder Engagement Strategy and increased collaboration
with our Colleague Forums. I have personally enjoyed interacting more frequently and directly with colleagues
this year at Colleague Forum events and seeing the value added by them, particularly in how they helped
to shape our Future of Work programme.
Graham Lindsay
Designated Non-Executive Colleague Champion
Provident Financial plc Annual Report and Financial Statements 2021
128
Stakeholders and investor relations continued
Stakeholder engagement continued
Stakeholder Strategic engagement objectives for 2021–22
Our regulators
and government
Given the evolving regulatory landscape, our engagement activities will focus on:
– continuing to engage with our regulators, ensuring that engagement is coordinated, and any
resultant outcomes are reported back to the relevant committees of the Board and Group
Executive Committee;
– ensuring that certain responses to our regulators continue to be channelled through a single
team to ensure coordination;
– engaging with our regulators through our trade association memberships; and
– where possible, contributing to or participating in multi-stakeholder forums involving
our regulators and other businesses within the financial services sector.
We will continue to engage with the Government at the CEO level, and through our think tank
partners and participation in multi-stakeholder forums and government-sponsored initiatives
and schemes. In addition, we will engage with the Government by participating in discussions
and events on a broader range of issues that are material to the Group (such as with the
Bank of England on National Numeracy).
Our investors
We will continue to engage with investors using the methods already employed, as described
on page 81. Strategic priorities in terms of engaging with our investors include:
– attending broker conferences and other similar events;
– using existing channels, such as presentations and meetings, to engage with our investors
on our ESG strategy;
– publishing thought leadership articles on topics that would be of interest to investors on social
media and other channels; and
– engaging more with our debt investors to develop our ESG credentials with that audience.
Our suppliers
We will continue to develop and embed the Supplier Relationship Management Framework,
ensuring that tools, processes and procedures are aligned across the Group.
We will also engage with our suppliers on other issues, such as the climate risk agenda
and the recommendations of the TCFD.
Our communities
Maintain levels of engagement with all community partners with emphasis on the following:
– raising awareness of the work we deliver in partnership with our community partners with other
key stakeholders, in particular regulators, government, investors and colleagues; and
– ensuring that regular updates on our community investment work are provided to the CCE
Committee and Group Executive Committee.
We will also seek to align community investment activities, where possible, with the Group’s
inclusion community. You can read more about our community engagement on page 62
and in our CR Report.
Our environment
Climate change represents a priority ESG issue for our business, particularly in the context of
managing material climate-related risks and the recommendations of the TCFD. Following the
establishment of a dedicated Climate Risk Committee, our stakeholder engagement activities
will focus on:
– continuing to include TCFD updates in our Annual Report and Accounts and CR Reports
for transparency and accountability to our stakeholders;
– including TCFD content in investor relations materials and regulatory-related documentation;
– informing and involving colleagues by engaging them on climate-related matters (such as
through e-learning, intranet-based campaigns and involvement in working groups); and
– ensuring that regular updates on our climate change-related work are provided to the CCE
Committee, Risk Committee, Group Executive Committee and business unit boards/committees.
Strategic and meaningful stakeholder engagement continued
Provident Financial plc Annual Report and Financial Statements 2021
129
Governance
Colleague engagement mechanisms
We have adapted how we listen to, inform, involve and collaborate with our colleagues throughout the year in response to the
challenges posed by the Covid-19 pandemic and our shift to hybrid working. The below table highlights the key engagement
activity that has taken place during the year, including the increased virtual engagement that has been utilised. One such
example is the launch of the new Group-wide intranet, which has provided an interactive two-way dialogue with colleagues for
socialising, discussing key topics and keeping up to date on developments across the Group. You can read about our colleague
engagement activities in more detail on page 79.
Furthermore, the Board has procedures in place to make sure that colleagues’ views are reported up to the Board and
considered in discussions and decision making. The CCE Committee has delegated responsibility from the Board to oversee
colleague engagement and the Committee’s work is reported to the Board by our Designated Non-Executive Colleague
Champion and Chair of the Committee via regular updates at Board meetings. The views obtained from our Colleague Forums
are also fed back to the Board through our Designated Non-Executive Colleague Champion. Furthermore, the results of and
outcomes arising from the Colleague Surveys are discussed at the CCE Committee and reported up to the Board within the
Group CEO’s report. The survey results are cascaded to colleagues, with management holding sessions with their teams to
discuss the results and seek their feedback on how to improve the lowest scoring areas. Following these sessions, action plans
are developed and tracked by HR and the Group Executive Committee.
Level of engagement Methods of engagement in 2021
Inform
– Launch of new Group-wide intranet which provides colleagues with information on a range
of issues (including a dedicated ‘return to office’ page).
– Regular internal e-comms from Group HR, the CEO and other Group Executive Committee
members on Covid-19 updates, business updates and our Future of Work programme.
– ‘Be Better’ performance management framework which enables us to define to colleagues and
measure the behaviours that will ultimately change and improve our culture and performance.
– Dedicated professional mental health and wellbeing support through our Thrive mobile
application and Employee Assistance Programme, and dissemination of related guides.
– Mandatory e-learning on Covid-19 health and safety measures in place upon colleagues’
return to the office.
Listen
– 2021 ‘Be Open’ Colleague Survey followed by a Pulse Survey to garner colleagues’ views half-
way through the year, and an additional Future of Work survey to provide colleagues with the
opportunity to shape the Group’s future working practices.
– Our non-executive directors visited colleagues at our Chatham office to gain insights into the
culture and concerns of colleagues at different levels of the business.
– Leadership conversations held within the business units (such as ‘Natter with Neil’ in Vanquis Bank
and ‘Ask the ExCo’ sessions in Moneybarn) and virtual ‘town hall’ meetings where colleagues are
invited to attend open sessions with executives to share feedback on a range of issues.
– Whistleblowing Forum which oversees whistleblowing investigations, reviews management
information and monitors trend data closely.
Involve
– Colleague Forums have been used to involve colleagues across the divisions in key issues
affecting the Group, including the Future of Work programme and executive director remuneration.
You can read more about the work of our Colleague Forums in the section below.
– The new Group-wide intranet is interactive and allows for two-way communication with
colleagues via Q&A sessions, polls and social spaces. There is a dedicated ‘Be Social’ page which
features virtual social activities and informal opportunities for networking between colleagues.
– The Group inclusion community (comprised of four Affinity Groups based around disability,
ethnicity, gender and LGBTQ+) which helps the Group improve its related policies and shape
our ways of working and seeks to educate colleagues across our businesses.
Collaborate
– The Colleague Forums have been utilised to collaborate with colleagues on the Future of Work
programme and Covid-19 measures to keep colleagues safe as they return to working in the office.
– The PFG inclusion community is a collaborative Group-wide initiative, with an executive sponsor
from each division, whereby leadership works in partnership with colleagues around the topics
of inclusion and diversity, and colleagues’ views are reported to the Group Executive Committee.
Provident Financial plc Annual Report and Financial Statements 2021
130
Engagement in action
Colleague Forums and Designated Non-Executive Colleague Champion
The Group continues to utilise its Colleague Forums and a
Designated Non-Executive Colleague Champion to engage
with its colleagues. These methods remain effective for
the Group because the Forums provide a representative
voice for each division and meet on a regular basis to
consult on current issues. The Designated Non-Executive
Colleague Champion is also Chair of the CCE Committee,
and he oversees colleague engagement and attends
the Colleague Forum meetings to provide a two-way
communication channel between the Board and the Forums.
Over the past year, the Forums have progressed to become a
well-established consultation channel, with clearer alignment
to issues that are of strategic importance to the Group. Next
year the Chairs of the Forums will be invited to attend a CCE
Committee meeting to strengthen engagement between the
Board and the wider workforce.
Non-Executive Directors’ engagement with colleagues on
aligning executive remuneration with the wider workforce
Led by the Designated Non-Executive Colleague Champion,
engagement sessions were held with colleagues during the
year to discuss the setting of executive remuneration in the
context of wider workforce pay. Colleagues were encouraged
by the fact that executives’ performance was measured
against a scorecard of metrics and aligned to the Group’s
long-term value and vision, which determined their overall
remuneration. However, colleagues expressed a desire
for the scorecard to be made more visible and cascaded
appropriately at the start of the year, which the NEDs and
Group HR function agreed to do as a way to improve the
transparency of executive pay.
NEDs’ visit to Vanquis Bank contact centre
Following the relaxation of Covid-19 restrictions, the NEDs
were pleased to reinstate their annual visit to Vanquis
Bank colleagues based in the Chatham office. The visit
was facilitated by Vanquis Bank’s Head of Operations
and was attended by a wide variety of colleagues from
multiple functions and levels. The NEDs learned first hand
how customers had been supported during the Covid-19
pandemic and how Vanquis Bank’s operations had evolved
over the year. There was also an opportunity for colleagues
and the Board to ask each other questions and engage more
informally during a ‘speed dating’ session.
Stakeholders and investor relations continued
Stakeholder engagement continued
Colleague Forums
Key discussions this year have focused on the
Group’s response to Covid-19 and the Future
of Work programme; the Forums provided
invaluable feedback which was used to inform
management’s strategy around our new hybrid
working model. Since May 2021, the CCD Forums
have been utilised for collective consultation
to ensure that colleagues are adequately
supported through CCD’s wind-down and the
feedback loop has operated as follows:
1
The primary focus of the CCD Forums has
been collective consultation to consult with
colleagues on redundancy proposals and the
provision of post-redundancy support.
2
The Designated Non-Executive Colleague
Champion and CCD management updated the
CCE Committee on the negotiations, outcomes
and key issues of colleagues expressed at the
collective consultations.
3
The Designated Non-Executive Colleague
Champion fed this information up to the
Board and apprised the Board of the
CCE Committee’s involvement.
4
In response to concern expressed from
colleagues at the CCD Forums, the CEO and
executive management guaranteed the
payment of redundancy monies in the event
of CCD’s administration should the Scheme
of Arrangement not be approved by the
High Court.
Colleague
Forums -
feedback loop
to the Board
Forums meet regularly
to share views, shape
policies and consult on
current issues
The Designated
Non-Executive
Colleague Champion
and management provide
updates to the CCE
Committee on the Forums’
activities and views
The Board is updated
on the CCE Committee
and Forums’ work by the
Designated Non-Executive
Colleague Champion
Feedback is
incorporated into
Board and executive-
level decision making and
the Forums are updated
as appropriate through the
Designated Non-Executive
Colleague Champion
and Human Resources
management
4
3
2
1
Governance
Provident Financial plc Annual Report and Financial Statements 2021
131
Workforce policies and practices
Having workforce policies and practices that are aligned
with the Company’s Purpose and values is a key focus of
the Board to support the desired culture. Therefore, given
the transformational changes that have taken place within
the Group during the year, the workforce policies are being
reviewed to create a simplified approach to ensure more
consistency and to accommodate our new hybrid working
model, as well as to ensure the policies are aligned with our
values and desired culture.
Investing and rewarding our workforce
The year the ‘Blueprint behaviours’ performance management
framework was used fully for the first time to assess colleagues’
performance and determine bonus allocations in line with the
Group’s values. This provides for an assessment of the ‘what’
and ‘how’ delivered by our colleagues during the year and
brings consistency and transparency across the Group. Work
has continued on harmonising pay and benefits opportunities
for equivalent roles across the divisions through the new Group
Reward Framework with a major roll-out in Q1’22. Group-wide
job levels have also been rolled out to help drive consistency
throughout our divisions and create a more unified colleague
experience. This has enabled the movement of colleagues
across divisions to support retention and create development
opportunities. For example, following the decision to exit the
home credit market, certain CCD colleagues have been
redeployed to other divisions in the Group. The new job levels
clearly articulate the competencies and behaviours required
at each level; associated training programmes have also been
developed to help colleagues progress to the next stage of
their development. You can read more about the ways in which
we invest in our workforce on page 59 and about our approach
to rewarding our workforce on page 126.
Working with our suppliers
We have continued to strengthen our strategic relationships
with key suppliers. A Group-wide Head of Procurement was
appointed during the year, and a new Group Procurement
Policy finalised, to ensure the Group operates within a
strategic supplier management framework which produces
commercial outcomes and exemplifies high ethical standards.
In order to ensure that the suppliers we contract with uphold
our high ethical standards, we conduct due diligence checks
prior to engagement to ensure the suitability of the supplier,
which will include some or all of the following areas depending
on the services received: financial stability, Corporate Criminal
Offence compliance, data protection, information security,
business continuity, regulatory compliance, corporate
responsibility, and PEPs and sanctions/director checks.
The CCE Committee monitors our procurement and supplier
payment practices to ensure that they comply with the
Group’s policies to minimise supply chain risk and prevent
human rights issues. The CCE Committee conducted its
annual review of the Group’s Modern Slavery Statement
and concluded that the statement and the approach
taken reflected best practice and were representative of
the Group’s activities to promote ethical business practices
and policies. This provided the Board with assurance when
it reviewed and approved the statement for 2021. A copy
of our statement can be found on the Company’s website,
www.providentfinancial.com/modern-slavery-statement/.
The Group’s commitment to protecting the human rights of its
stakeholders is supported by the Group Procurement Policy
and the Group’s corporate Equality, Diversity and Inclusion
Policy which endorses the United Nations Universal Declaration
of Human Rights and the International Labour Organisation’s
Fundamental Conventions. Other corporate policies which
support this commitment include the Health and Safety Policy,
Whistleblowing Policy, Bribery Policy and Human Resources
Policy. Our s.172 statement on page 75 provides information
on how the Group has engaged with its suppliers and how the
Board has considered their interests when making decisions.
For example, the Board received regular reports from
management as regards supplier performance.
Part of treating suppliers fairly is paying them promptly, which
is why the Group is a signatory of the Prompt Payment Code
which requires us to pay suppliers within 60 days of receiving
an invoice. The Board monitors our compliance with this
commitment through the Blueprint Dashboard which includes
a metric on the % of suppliers paid within 60 days. For further
information on our Blueprint Dashboard please see page 151.
You can read more about how we are committed to acting
responsibly and with integrity towards all our stakeholders in
our ESG Report on pages 48 to 74.
2021 highlights
of colleagues participated in
our Future of Work survey in May
of colleagues participated
in our bi-annual
Colleague Surveys
internal e-comms on
Covid-19 updates and the
Future of Work programme
90%
3%
71%
4%
38
8
Provident Financial plc Annual Report and Financial Statements 2021
132
Bondholder Notice –
Accession of Guarantor
7 January 2021
Q4 Trading Update
16 March 2021
Preliminary Results
Announcement, Annual Report
and CR Report
10 May 2021
AGM
30 June 2021
Scheme of
Arrangement
Announcement
3 May 2021
2021 IR Programme
Jan MarFeb Apr May
Stakeholders and investor relations continued
Effective engagement with shareholders and stakeholders: investor relations
Key investor engagement themes in 2021
Engagement overview
The Group is committed to engaging in open and honest dialogue with its investors and maintains the following mechanisms
to ensure effective engagement with its investors:
– meetings with shareholders;
– a Capital Markets Day every two years (last held in 2019);
– the Annual Report and Financial Statements;
– the Annual General Meeting (AGM);
– stock exchange announcements (RNS) and press releases;
– a dedicated Investor Relations team;
– investor roadshows;
– investor perception audits;
– the Corporate Responsibility Report; and
– the Investors section of the Group website.
Regular engagement provides shareholders with an opportunity to discuss particular areas of interest and raise any concerns
which can be communicated to the Board. The Group aims to communicate its plans effectively and understand investor
views on its overall strategy and performance. In turn, this enables our shareholders and investment analysts to formulate
a strong understanding of our Purpose, strategy, performance and culture.
How the Board engages
One aspect of our Chairman’s role is to ensure effective engagement with investors and to understand their views. This is enabled
by the various communication channels listed above. The Chairman also ensures that the Board as a whole receives feedback
and has a clear understanding of the views of investors.
The Group has a dedicated Investor Relations (IR) team which is in regular dialogue with our shareholders and sell-side analysts.
The IR team reports regularly to the Board, outlining the general nature of matters communicated and discussed with investors,
including feedback and engagement plans. Furthermore, feedback from our joint corporate brokers, Barclays and Numis, is
distributed to the Board and senior management team after each market update. An independent perception study of investor
views is commissioned once a year and reviewed by the Board. Our quarterly management statements and half and full-year
results statements are reviewed and approved by the Board prior to their release. Further information regarding how the Board
engages with our shareholders and debt investors is contained within our s.172 statement on page 81.
Annual General Meeting (AGM)
The AGM presents investors with an opportunity to ask Board members questions and to cast their votes for proposed courses
of action, including the appointment of Board members and the approval of the DRR.
Government restrictions in response to the global Covid-19 pandemic resulted in the 2021 AGM being held behind closed doors.
Investors were asked to provide any questions for the Board in writing in advance of the meeting and to vote by proxy.
Jun
Provident Financial plc Annual Report and Financial Statements 2021
133
Governance
Interim Results
Announcement
11 August 2021
Q3 Trading
Statement
21 October 2021
Dec
Investor
Perceptions Study
November 2021
EMTN Programme
Final Terms
Announcement
11 October 2021
Scheme of
Arrangement
Hearing
4 August 2021
EMTN Programme
Offer Circular
Announcement
23 September 2021
Jul Nov
IR Programme
Our dedicated IR team maintains a planned IR Programme throughout the year that ensures ongoing dialogue
with our shareholders and debt investors. Other investor engagement activities during the year included the following:
1
The Annual Report
This is the most significant engagement tool and is intended
to show shareholders how the Board has set the Company’s
Purpose and strategy, and how the Board is actively focused on
meeting its objectives and achieving outcomes through the
decisions it has taken. Most importantly, it enables investors
to evaluate our approach to governance arrangements.
2
The Group website
The Group website provides investors with timely information
about each of our three divisions, our management team and
Board members and the Group’s strategy and performance.
It also provides investors with details regarding up-to-date
financial information, regulatory news and all released RNS,
together with detail regarding how the Group meets its
Code obligations.
3
Investor days
The Group holds a Capital Markets Day every two years (last
held in 2019). These events are a key engagement tool which
allow our stakeholders to hear the latest views from senior
management and for us to communicate the strategic
ambitions for the Group. A Capital Markets Day is planned
for Q1’21.
4
Investor/analyst meetings
The Group takes a proactive approach by inviting investors and
analysts to meet with senior management on a regular basis.
5
US and European roadshow programmes
The Group is dedicated to facilitating necessary access
for overseas investors to management, enabling them to
receive the same access to information as investors in the UK.
Roadshows are usually attended by the CEO, the CFO and the
Head of IR. The Group did not undertake overseas roadshow
activity in 2021 due to Covid-19 travel restrictions. However,
we continued to interact with our international shareholders
via video conference. The Group plans to resume overseas
roadshows when permitted.
6
Attending broker conferences
Senior management regularly presents at industry conferences
hosted by sell-side analysts and brokers to ensure accessibility
for a wide variety of stakeholders. Attendance at broker
conferences was limited to video conference during 2021, and
senior management spoke at the Barclays Global Financial
Services Conference in September and the Goodbody Conference
in November. Such events continue to form a core part of our
shareholder engagement programme for 2022.
7
The Corporate Responsibility Report
(the CR Report)
The CR Report offers investors a clear and comprehensive insight
into the Group’s Blueprint and its social purpose of providing
financial inclusion for those who are underserved. It also highlights
the Group’s contribution towards reducing carbon emissions.
8
Shareholder correspondence
The Group is committed to engaging and responding to all
investor queries on a timely basis and this role is performed
by our dedicated IR team.
9
Investor perception study
The Group commissioned an investor perception study,
undertaken by Tulchan Communications LLP, during the fourth
quarter of 2021. This was designed to collate the views of our
shareholders and other market participants. Its findings, which
were presented to the Board in December, were:
– Vanquis and Moneybarn are strong businesses operating
in attractive markets;
– the Board took the right decision and management has
executed well on the exit from CCD;
– less regulatory risk and higher growth prospects for PFG
following the decision to wind down CCD;
– holding a banking licence is a strength
and a competitive advantage;
– a strong balance sheet that provides the financial
resources for growth, both capital and funding;
– clear expectation that PFG is now on a path of recovery
towards its RoE target; and
– shareholder distributions are an important part
of the equity story.
Aug OctSep
Provident Financial plc Annual Report and Financial Statements 2021
134
How we structure
our governance
Nomination Committee
The Nomination Committee
determines the right structure,
size and composition of the Board.
It also considers Board diversity,
succession and the leadership needs
of the Group and recommends any
Board appointments.
Audit Committee
The Audit Committee examines the
integrity of the Group’s financial
statements and oversees the system
of internal controls. It monitors the
independence and effectiveness of
both Internal and External Audit.
Risk Committee (RC)
The RC considers the Group’s risk
appetite, recommends its adoption
to the Board and monitors the status
of the Group’s risks against it. It
examines the Group’s principal and
emerging risks and oversees the
effective implementation of the Risk
Management Framework, including
associated assessment processes. The
RC is also responsible for reviewing the
Internal Capital Adequacy Assessment
Process (ICAAP).
Board committees
Remuneration Committee
The Remuneration Committee
determines the DRP and ensures
that it aligns with the Group Purpose
and strategy. It sets the level of
remuneration for senior management,
executive directors and the
Chairman and examines workforce
remuneration-related policies. The
Committee provides oversight of key
remuneration-related matters for
those divisions that do not have a
remuneration committee.
Customer, Culture and
Ethics (CCE) Committee
The CCE Committee oversees
stakeholder engagement and the
alignment of Group policies, procedures,
systems and behaviours with the
Group’s desired customer outcomes.
Furthermore, the Committee examines
the embedding of the Group’s Purpose,
culture, ethics and Blueprint behaviours.
The Committee oversees the Group’s
environmental impact and activities
and corporate responsibility strategies.
Disclosure Committee
The Disclosure Committee ensures
compliance with the Market Abuse
Regulation and the Disclosure
Guidance and Transparency Rules. It
oversees that there are appropriate
policies and processes in place to
govern the identification, treatment
and disclosure of inside information.
Our Board is responsible to its shareholders and other stakeholders
for the management, performance and long-term success of the
Group. It sets and oversees the Group’s Purpose and strategy and
ensures that the Group is managed effectively. Our Board provides
challenge and advice to management, and has established a
number of committees with specific remits to assist it in operating
effectively. There are certain matters that are reserved for the
Board’s approval and cannot be delegated. These include, but are
not limited to, the following:
– approval of and monitoring implementation of the
corporate strategy;
– oversight of the Group’s operational and subsidiary performance;
– approval of the annual budgets for the Group and its subsidiaries;
– approval of the Annual Report and Financial Statements;
– oversight of the Group’s system of internal controls, risk
management processes and the adequacy of both;
– the setting, instilling and monitoring of the Group’s Purpose,
culture and values; and
– approval of any major changes to the Group’s capital or
corporate structures.
Read more on page 150
Read more on page 153 Read more on page 158
Read more on page 169
Read more on page 143
Division of responsibilities
Our Board
Streamlining our structure
On 13 January 2022 we announced the substantial alignment
of the membership of the Board of Vanquis Bank to that of the
Company. The purpose of the change was to create a simpler,
more efficient Group governance structure in support of our
strategy to be the leading specialist bank with a focus on
the financially underserved. As part of these governance
changes a review of the terms of reference was completed
and they were updated to reflect the alignment of the
Company and Vanquis Bank Boards. The terms of reference
are available on our website at www.providentfinancial.com/
who-we-are/corporate-governance.
The benefits of efficiency and simplicity are in part delivered
through the Board and committee meetings of both the
Company and Vanquis Bank taking place at the same time.
The interests of the Company and Vanquis Bank are aligned in
most instances and the aligned structure assists this, reduces
unnecessary duplication and makes the most of the Board’s
and management’s time and effort. The Group has a Conflicts
of Interest Policy and a clear process to identify and manage
any conflicts of interest is in place.
The underlying Purpose and roles of the Company Board and
its committees remain unaffected by the combined structure.
Provident Financial plc Annual Report and Financial Statements 2021
135
Group Executive Committee
Terms of reference
We have established clear terms of reference for all forums
within our governance framework. The terms of reference define
the duties, responsibilities, authorities and membership of
each committee and are consistent in format. Group Company
Secretariat reviews the suite of terms of reference regularly
and this year a detailed review was undertaken in order to
combine the Group and Vanquis Bank Board and committee
terms of reference. In our work to update the documents we
considered the Chartered Governance Institute best practice
recommendations, combined board terms of reference for
other banks, and sought independent assurance.
Policies
The Group has established a suite of corporate policies
that set out at a high level the codes of conduct, controls,
processes and requirements of all employees, divisions and the
corporate office. The divisions are responsible for embedding
the corporate policies at a local level via the implementation
of divisional policies and procedures, with the Board having
oversight on the effectiveness of that implementation. The
corporate policies are reviewed on a regular basis.
Our governance framework has been designed to establish good
governance practices and accountability to the Company’s
stakeholders including shareholders. The governance framework
enables the Board to discharge its governance responsibilities
under the Code effectively. To reflect the alignment of the Group
and Vanquis Bank Boards the key component documents of the
governance framework have been updated to cover both the
Group and Vanquis Bank.
Documents that are key components of the governance
framework, in addition to the terms of reference, are:
The Board Governance Manual
The Board Governance Manual sets out how we govern the
Group, including the key roles and responsibilities, details of our
committee structure and their purpose.
The Group Delegated Authorities Manual
The Group Delegated Authorities Manual (GDAM) formalises what
matters can be approved, and by whom, including thresholds
for escalation, below Board level. The alignment of Board and
committee membership for the Group and Vanquis Bank has
facilitated streamlined decision making, particularly for Vanquis
Bank which will no longer be required to refer decisions on matters
reserved to the Group Board. The refreshed GDAM has been
updated and communicated to colleagues.
Where a matter is not reserved to the Board or one of its
committees, it is delegated to the CEO, who has established the
Group Executive Committee, which he chairs, to assist him in his
decision making and in making recommendations to the Board.
The Committee membership includes the managing directors
(MDs) of each division and those senior Group executives with
functional reporting lines including HR, Finance, Internal Audit, Risk,
Legal and IT. The Committee oversees delivery of the strategy and
day-to-day management of the Group, promoting the Group’s
culture, values and Purpose. It receives reports from each of the
divisional MDs and works to achieve consistency and alignment
across the Group. The Committee meets regularly and considers
most material matters ahead of the Board.
Matters that the Committee has considered this year include: the
wind-down of CCD and execution of the associated action plans;
colleague working arrangements in response to Covid-19 and the
Future of Work; the Group’s Operational Resilience programme;
financial forecasts, including year-end forecasting, reforecasting
in response to the Covid-19 pandemic, budgets and financial
scenario modelling; credit policy and affordability; customer
outcome testing and vulnerability; and updates from the Group’s
inclusion networks.
Following the substantive alignment of the Boards of PF plc and
Vanquis Bank on 13 January 2022, the responsibility for risk has
transferred from the Group Executive Risk Committee (GERC) to
the Group Executive Committee. The Committee now monitors
the strategic approach to risk management across the Group,
including the overall coordination, review and, as appropriate,
delivery of risk management activity. The Group Executive
Committee supports the Group and its divisions to operate within
the risk appetite parameters approved by the Board. Matters
that the GERC considered during 2021 include: the ICAAP, risk
harmonisation and risk and control self-assessment; risk event
tracking and closure; regulatory contact and horizon scanning;
divisional risk management; new or material amendments to
products; and the Group’s risk appetite.
Governance
Our Board is responsible for the management, performance and long-term
success of the Group. It sets the Group’s Purpose and strategy and oversees
their execution by management.
Governance framework
Information and reporting
The Chairman is responsible for ensuring that the Board receives the information it needs, when it needs it, in order to effectively carry out
its role. The General Counsel and Company Secretary, together with her team, facilitates the effective flow of information to and from the
Board, committees and management by working with the Chairman, the CEO and the management team. Our reporting is standardised
and our templates have been redesigned following the combining of the Board and committee meetings of the Company and Vanquis
Bank. The templates ensure that consideration is given to s.172 matters, risk and conflicts of interest when reporting. Particularly important
to facilitate the combined meetings, our templates have been enhanced to clearly signpost which material is relevant to which entity. The
templates ensure the quality and consistency of our reporting and assist our directors in navigating the information, enabling them to use
their time effectively. As part of the roll-out of new templates Group Company Secretariat has delivered report writing training sessions to
colleagues. We ask our Board members to comment on the length, structure and timeliness of materials during the year and take action on
the feedback received. As a direct result of Board feedback this year, we have repositioned the section that sets out the input being sought
from the Board to the top of the report to sit adjacent to the executive summary.
Each committee has an annual forward agenda plan that is based upon the duties and responsibilities documented in its terms of
reference and is presented to the final meeting of each year for the year ahead. Group Company Secretariat performed a thorough
review of the terms of reference ahead of the combining of the Board and committee meetings and monitors adherence with the terms
of reference on an annual basis, thereby ensuring that the Board and its committees successfully deliver on their responsibilities.
Provident Financial plc Annual Report and Financial Statements 2021
136
Chief Finance Officer
– Leads the Group Finance function
– Supports the CEO to develop and
implement the Group’s strategy
– Is responsible for effective financial
reporting, processes and controls
– Deputises for the CEO as required
Non-executive directors
– Provide independent, constructive
challenge and strategic guidance
– Monitor and review the performance
of the executive directors
– Apply their knowledge and
experience from other sectors
to the Group
– Chair committees in their area of
expertise as appropriate
– One non-executive director
undertakes the role of Designated
Non-Executive Colleague Champion
(see page 130 for further details)
General Counsel and
Company Secretary
– Provides comprehensive legal support
to the Board and individual directors
– Is the subject matter expert on
corporate governance matters
– Ensures that Board-level information
is fit for purpose
– Facilitates effective discussion
between management and the Board
– Is responsible for communicating
with shareholders on
governance-related matters
Chief Executive Officer (CEO)
– Provides leadership for the Group
and executive team
– Is responsible for day-to-day
management
– Is responsible for developing
the strategy
– Recommends long-term objectives
to the Board
– Is responsible for ensuring risk
management and internal controls
are in place
Senior Independent Director
(SID)
– Is available to shareholders to
address any concerns
– Is a sounding board for
the Chairman
– Acts as a conduit for other directors
– Leads reviews of the effectiveness
of the Chairman
Chairman
– Leads the Board
– Ensures alignment of strategic
objectives
– Safeguards corporate governance
– Leads with integrity
– Promotes critical discussion and
encourages challenge
– Promotes diversity and inclusion
– Ensures shareholder value is
generated and stakeholders
are engaged
– Ensures Board decisions are taken
on a sound, well informed basis
Division of responsibilities continued
How we structure our governance continued
How we divide our key responsibilities
We define the roles of our Chairman, CEO and Senior Independent Director (SID) clearly and in writing and they are available
on our website, www.providentfinancial.com/who-we-are/leadership. Patrick, our Chairman, leads the Board in setting our
strategy and generating long-term sustainable value and also in ensuring its effectiveness. Malcolm, our CEO, is responsible for
implementing the strategy, running the Company’s business and leading the Group Executive Committee. In her role as SID, Andrea
acts as sounding board for the Chairman and serves as an intermediary for the CEO, the other directors and shareholders.
Provident Financial plc Annual Report and Financial Statements 2021
137
Governance
Independence of non-executive directors
Independent non-executive directors provide independent
oversight and constructive challenge to executive directors.
They also bring valuable skills, experience, and their own
personal qualities to the boardroom.
The Nomination Committee and Board review the independence
of its directors on appointment and thereafter annually, taking
into consideration the factors set out in the Code and any other
circumstances which may impair independence. Following
consideration and recommendation from the Nomination
Committee, the Board has determined that each non-executive
director remains independent except the Chairman, who was
independent on appointment.
All directors are required to disclose to the Board any outside
interests which may pose a conflict with their duty to act in
the best interests of the Company. The Board reviewed and
approved a Conflicts of Interest Policy during the year which
applies to all Group directors and sets out the arrangements for
when a director of any company within the Group has an actual
or potential conflict of interest. Further details on conflicts of
interest can be found in the Directors’ Report on page 163.
Board appointments and time commitment
To support the robustness and transparency of our Board
appointments, we have a formally documented Board
Appointment Process which sets out what the Nomination
Committee needs to consider when recommending Board
appointments, including the Board’s diversity, directors’ skills,
other commitments, independence and culture. The process
also stipulates that open advertising be used for the recruitment
of the position of Chair, CEO or non-executive director.
Directors are required to ensure that they will have sufficient
time to meet what is expected of them effectively. The
Board reviews the time commitment of each director on
appointment and on an ongoing basis in response to changes
in their external time commitments. In deciding to combine
the Board and committee meetings of the Company and
Vanquis Bank, directors’ time commitment was thoroughly
reviewed to reduce duplication and support effective and
efficient meetings, resulting in only a modest increase in
time commitment for directors. For the period under review
the Board determined that all directors had sufficient time to
effectively discharge their responsibilities.
The Board will consider appointments that the directors may
wish to take on in order that they do not compromise their
effectiveness and the Code also requires that additional external
appointments should not be undertaken without prior approval
of the Board. The Board’s External Appointment Policy is designed
to ensure that all directors remain able to effectively discharge
their responsibilities to the Company, whilst recognising the
benefit of external appointments to director development and
experience. The Board considers all requests for permission
to accept other directorships carefully, subject to the
following principles:
– a non-executive director would not be expected to hold
more than four other material non-executive directorships;
– 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-executive directorships;
– 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 this will not adversely
affect their executive responsibilities to the Company; and
– the Board would not permit an executive director to take
on the chairmanship of a FTSE 100 company.
The Board holds meetings at regular intervals, where the
Group’s financial and business performance is reviewed, along
with risk, IT, legal, human resources and strategic matters.
There is a comprehensive meeting pack and agenda which
are circulated before both Board and committee meetings
to allow the directors adequate opportunity to consider the
matters to be discussed. Board and committee meetings are
scheduled more than a year in advance and if any director is
unable to attend a meeting, they are encouraged to provide
their opinions and comment on the papers and matters
to be considered upon circulation prior to the meeting.
Meetings are structured such that appropriate time is
devoted to all agenda items. In addition to these scheduled
meetings, ‘ad-hoc’ meetings are held outside the published
cycle where circumstances require, for example, key
strategic developments.
Board balance
70+30+N
Independent
non-executive directors 7
Executive directors
and Chairman 3
During the year, the Board considered
Patrick Snowball’s appointment as
Chairman designate of AMP Capital’s
Private Markets business. The Board
took account of his existing time
commitments and resolved that he
would have sufficient time to discharge
his duties to the Company and as such
approved the appointment.
Provident Financial plc Annual Report and Financial Statements 2021
138
Division of responsibilities continued
How we structure our governance continued
Member attendance at Board and committee meetings in 2021
The table below sets out the Board and committee attendance during the year. Attendance is shown as the number of meetings
attended out of the total number of meetings possible for each individual director. During 2021, the attendance was very strong
both at the scheduled and additional meetings. The Board continues to be satisfied that each of the directors is able to allocate
sufficient time to the Company. The absences shown below were a result of either an urgent personal matter or other pre-
planned commitments. The Chair of each committee reports regularly to the Board on how that committee has discharged its
responsibilities. Following completion of the restructure of the Board of Vanquis Bank to substantially align its membership with the
Board of the Company, additional time commitment will be required by directors during 2022 and onwards in order to successfully
execute their duties.
Board
member Board Ad hoc
Audit
Committee Ad hoc
Nomination
Committee
Ad hoc
Remuneration
Committee Ad hoc
Risk
Committee Ad hoc
Customer,
Culture
and Ethics
Committee
Ad hoc
Total
number of
meetings
9 8 6 1 5 — 6 1 4 4 3 1
Patrick
Snowball
9/9 8/8 — — 5/5 — — — — — — —
Malcolm
Le May
9/9 8/8 — — — — — — — — — —
Neeraj
Kapur
9/9 8/8 — — — — — — — — — —
Andrea
Blance
9/9 8/8 6/6 1/1 5/5 — 6/6 1/1 — — — —
Graham
Lindsay
9/9 8/8 — — 5/5 — 6/6 1/1 — — 3/3 1/1
Robert
East
9/9 7/8 — — 5/5 — — — — — 3/3 1/1
Paul
Hewitt
9/9 8/8 6/6 1/1 5/5 — — — 4/4 4/4 — —
Elizabeth
Chambers
9/9 7/8 — — 5/5 — — — 4/4 4/4 2/3 1/1
Angela
Knight
9/9 8/8 6/6 1/1 5/5 — — — 4/4 4/4 — —
Margot
James
9/9 8/8 — — 5/5 — 5/6 1/1 — — 3/3 1/1
Directors’ Board tenure as at 1 April 2022
2014 2015 2016 2017 2018 2019 2020 2021 2022 Total tenure
Patrick Snowball
3 years, 6 months
2 months
Malcolm Le May
4 years, 2 months
2 months
3 years, 9 months
Neeraj Kapur 2 years
Andrea Blance 5 years, 1 month
Elizabeth Chambers 3 years, 8 months
Paul Hewitt 3 years, 8 months
Angela Knight 3 years, 8 months
Graham Lindsay 3 years
Robert East 2 years, 9 months
Margot James
1 year, 8 months
Malcolm Le May key: Chief Executive Officer Interim Executive Chairman Non-Executive Director
Patrick Snowball key: Chairman Interim Chief Executive Officer
Provident Financial plc Annual Report and Financial Statements 2021
139
Governance
Composition, succession and evaluation
Board composition
Board composition
The Board is structured to ensure an appropriate combination
of skills, experience, knowledge and independence is
achieved. In determining this, consideration is given to
the length of service of the Board as a whole to ensure
membership is appropriately refreshed. We believe the
right Board composition is a key cornerstone of Board
effectiveness and successful delivery of the Group’s strategy.
Overall findings of the annual Board evaluation pertaining
to Board composition are shared with and discussed by the
Nomination Committee; these are then used to identify gaps
in skills and experiences for incorporation into the Board
training and development programme. You can read more
about this in the Nomination Committee Report on page 143.
A review of the Board to consider its composition and diversity
and how effectively its members work together to achieve
the Group’s objectives is undertaken annually. Further to
this, the Board’s composition was also reviewed prior to the
Board approving the alignment of the Company and Vanquis
Bank Boards.
The Nomination Committee ensures that a rigorous and
transparent appointment procedure is followed, with a diverse
pool of candidates considered for any vacancy which arises.
Appointments are based on merit, having regard to the skills,
competencies and experience of the candidate. The Board
believes that good succession planning contributes to the
long-term success of a company.
The Group-wide talent and succession approach provides
a consolidated, single view of talent and succession across
the Group. This enables visibility of the combined talent pool
and enables more robust conversations and calibration to
support succession planning, identify skills gaps, and support
cross-business opportunities, which, in turn, develops our
talent and promotes retention.
The Group’s Equality, Diversity and Inclusion (EDI) Policy is
designed to promote equality, diversity and inclusion across
the Group and to ensure that our business and working
environment is one that respects and includes everyone. This
means understanding the potential that all people bring to
the workplace regardless of age, disability, gender, gender
reassignment, marital and civil partnership status, pregnancy
and maternity, race, religion or belief, or sexual orientation.
The Nomination Committee oversees the development of
a diverse pipeline for succession within the organisation.
Developing a diverse executive pipeline is vital to reflecting
society as a whole with the associated skills and insights
which will support the successful growth of the Company.
Improving diversity at each level of the Company is important
if we wish to have a fully embedded diverse workforce. You
can read more about the EDI Policy on page 165 and the
oversight of diversity and inclusion within the Nomination
Committee Report on pages 147 and 148.
The Board continues to meet the Hampton-Alexander target
of at least 33% female representation on the Board. The Board
also continues to meet the recommendations of the Parker
Review to have at least one director of colour by 2024. Further
details on our EDI initiatives, objectives and progress can be
found within the Nomination Committee Report on pages
148 and 149.
Graham Lindsay has continued in his role as Designated
Non-Executive Colleague Champion. Graham has attended a
number of Colleague Forums virtually, where he has provided
oversight and support on key ongoing matters such as the
Future of Work strategy. You can read more about this work
in the CCE Report on pages 150 to 152.
On appointment, non-executive directors receive a formal
appointment letter and executive directors receive a formal
service contract, which identifies the time commitment
expected of them.
Board changes
The current Board composition remained in place throughout
the year; however, on 13 January 2022, the non-executive
directors except Elizabeth Chambers were appointed to the
Board of Vanquis Bank as part of the Group’s review and
changes to the target operating model. As a consequence
of these changes, Robert East (Independent Non-Executive
Director on the Company’s Board and Chairman of Vanquis
Bank) stepped down from the Board and the Vanquis Bank
Board with effect from 13 January 2022. The changes are
described further in the Nomination Committee Report on
pages 143 to 144.
As at March 2022, the Board of directors comprises the
Non-Executive Chairman, one Senior Independent Director,
five independent non-executive directors and two executive
directors, who all bring considerable knowledge, skills and
experience to the Group. Biographical details of all directors
are given on pages 112 to 114.
More details of the directors’ skills and experience can be
found in the Nomination Committee Report on page 143
and in their biographies on pages 112 to 114.
Provident Financial plc Annual Report and Financial Statements 2021
140
Board induction
The Chairman and General Counsel and Company Secretary
ensure that all new directors receive a comprehensive and
tailored induction programme to suit the requirements of
their role. Our induction provides directors with an in-depth
understanding of the business, our Purpose, culture and
values, and the markets in which the business operates. The
induction also includes dedicated time for new directors to
meet with colleagues. The induction programme comprises
a combination of site visits and meetings with other Group
executives and senior management as illustrated below.
Whilst we did not make any significant changes to our
induction programme during 2021, the pandemic taught us
to embrace virtual meetings and we have now integrated
these to ensure inductions are conducted in a timely manner.
Following the implementation of a common Board structure
for the Company and Vanquis Bank, a review of our induction
plan is underway and an updated version will be rolled
out in 2022.
The tailored induction programme
All new directors participate in a tailored induction programme
when they join the Board. The induction programme is designed
to ensure that full understanding of the Group is achieved, an
example of which may include the following:
One-to-one meetings
Meetings are scheduled with senior management including
the members of the Group Executive Committee and the
divisional MDs. A director’s specific induction is tailored to the
role they are appointed to; therefore, senior management
induction meetings are also held as appropriate, including
with Group Internal Audit, Group Finance, and key individuals
from the Finance and Risk functions. New directors will also
meet key stakeholders relevant to their specific role such as
the Group’s key advisors and brokers, representatives from
the FCA and Prudential Regulatory Authority (PRA), the Group’s
major investors, and the Group’s auditor, Deloitte LLP.
Induction materials
Newly appointed directors are provided with full access to an
electronic ‘reading room’ within the secure Diligent platform,
which includes induction materials such as the Group’s
governance policies and structures, terms of reference, Group
organisation charts, the latest trading statements, the Annual
Report and Accounts, the Group Delegated Authorities Manual,
recent shareholder information, broker notes, past Board and
committee papers and relevant regulatory correspondence.
Materials from Board training sessions are also stored in
Diligent for reference.
Field and site visits
Due to the easing of government restrictions, site visits were
rescheduled in the second half of 2021 and the Board visited
the Chatham office to observe the Vanquis Operations teams.
Management and colleagues took the opportunity to update
the Board on how the pandemic was impacting the workplace
and what measures were in place to overcome this, and
presented an update on the Future of Work strategy. A Q&A
with the Board members also took place.
Ongoing Board training and development
Under the direction of the Chairman, the General Counsel
and Company Secretary facilitates Board training and
assists the Board with ongoing professional development.
Directors undertake training they consider necessary to
assist them in carrying out their duties and responsibilities.
Every year the non-executive directors discuss their
professional development with the Chairman. During 2021,
directors continued to receive training in line with the Board’s
annual training plan, attending sessions on cyber and
information security, the Scheme of Arrangement and Capital
Requirements Directive V (CRD V) to gain further insight into
current key subject matters. These sessions were led by both
internal and external facilitators. Following the streamlining
of the Group and Vanquis Bank Boards, a Board training plan
incorporating both Vanquis Bank and Group matters has been
produced for completion in 2022.
In accordance with best practice and the ever-evolving
regulatory landscape, there is an increased need to
continuously scan the horizon and identify any significant
developments that require the Board’s prioritisation. As
such, the General Counsel and Company Secretary delivers
updates to the Board on any developing regulations, laws and
corporate governance developments by presenting Legal
Reports at each meeting. Regular updates are also provided
by the Chief Risk Officer in relation to emerging regulatory
themes and anticipated regulatory changes and various
others, including our internal subject matter experts, on a
range of topics pertinent to their areas of responsibility.
The Nomination Committee reviewed and approved an
enhanced Board Skills Matrix during the year, to reflect the
widening breadth of skills required following the changes to
the governance structure. You can read more about how the
Board Skills Matrix is used in the Nomination Committee Report
on page 143.
Directors are also given access to an external online academy
tool which provides a wide array of briefings, education and
bespoke training. Following the Board evaluation which was
carried out in 2021 and the scores from the Board Skills Matrix,
individual Board member training plans are being drafted to
help them develop further in their roles.
Preliminary Board training schedule 2022
Examples of the topics expected to form part of the Board’s
training programme during 2022 include:
– Senior Managers and Certification Regime and general
banking regulation;
– financial and cyber crime;
– unconscious bias; and
– presentation from a debt charity.
Composition, succession and evaluation continued
Induction for new directors
Provident Financial plc Annual Report and Financial Statements 2021
141
Governance
The draft report on Board and
committee effectiveness was reviewed
by the Chairman in December 2021
and a final report shared with the wider
Board, including the Chairs of each
committee, in February 2022. The Senior
Independent Director reviewed the
Chairman’s effectiveness report prior
to its discussion by the Board members
(excluding the Chairman).
Data collation
and analysis
The responses to the questionnaires
were collated by the Group Company
Secretariat, which prepared anonymised
reports on the Board and its committees,
the Chairman and individual director
effectiveness. The reports summarised the
findings of the evaluation and proposed
recommendations for consideration.
2021 internal evaluation
The Board monitors and seeks to enhance performance by
reviewing the continuing effectiveness of its activities, and
the quality and effectiveness of its discussions and decision
making and by considering the contributions of the Board as
a whole, as well as of individual directors. In accordance with
the 2018 Code, the 2021 Board effectiveness evaluation was
conducted internally, led by the Chairman and facilitated by
the Group General Counsel and Company Secretary.
This year’s evaluation sought to explore further the themes
and focus areas identified in the 2020 evaluation, whilst also
seeking feedback on Board effectiveness from a broader
group of management stakeholders. A population of
colleagues who have regular engagement with the Board,
its committees and members were asked to complete
an anonymous questionnaire regarding the Board’s
performance, meeting effectiveness and culture, in order
to provide the Board with honest insight and feedback.
This approach demonstrated the Board’s commitment
to stakeholder engagement and a culture of openness.
The process for the 2021 evaluation is set out below.
The 2021 evaluation process
Design of evaluation approach
1
Review of results
Board discussion
and actions
Board evaluation
At its February 2022 meeting, the Board
discussed the evaluation results and
approved focus areas to enhance
the effectiveness of the Board and its
committees. Feedback on the Chairman’s
performance was discussed without
the Chairman present and the outcome
of the discussion relayed to the Chairman
by the Senior Independent Director.
Individual performance discussions
for directors were held with the
Chairman in January 2022.
In September 2021, the Board approved the scope of the evaluation, which had been previously reviewed by the Chairman. Detailed
questionnaires were then designed, agreed and issued in relation to the following areas: Board and committee effectiveness, Chairman
effectiveness, individual director effectiveness, and management feedback on Board effectiveness.
Effectiveness evaluation cycle
2020
Internal
evaluation
2019
External
evaluation
2021
Internal
evaluation
Update on areas of focus from the 2020 evaluation
Focus area Progress
Continue to enhance the Board’s
awareness of and affinity for the
Group’s customer base through
actions to be developed by the
CCE Committee.
Our Customer, Culture and Ethics (CCE) Committee reviewed the most appropriate way to continue to drive Board
focus on our customers. Following this, the managing directors of each of our operating divisions attended future
CCE Committee meetings and presented on their customers, including on their customer base profile. The CCE
Committee continued to review its ‘Customer Dashboard’ of KPIs and to undertake customer call listening at each
meeting. This allows the Committee the opportunity to explore, understand and interrogate relevant customer
metrics and gain a better understanding and appreciation of customer views and expectations.
Continue to focus on how
to enhance the Board’s
oversight of risk.
During the year a new Group CRO was appointed to work with the Chair of the Risk Committee to support the
Committee in its oversight of risk. The Board receives a regular Group CRO report to support its considerations of
risk. We also continued to make positive progress in our Group Risk Harmonisation Programme, which you can read
more about on page 87.
Drive continued focus on the
Board’s oversight of the Group’s IT
and digital strategy.
Following the appointment of the new Group CIO, the Board has received several updates in relation to information
security maturity and a newly developed IT platform for loans products. The Board has also considered the Group’s
existing IT architecture and its future-state IT architecture and roadmap. The Board has also held a cyber risk
session to consider the cyber risks posed to the Group and wider financial services sector.
Continue to drive enhancements to
the Group’s strategy and how it sets
its strategy.
The Group held its Group Strategy Conference during the year in which it reviewed the Group’s strategy, including
focus on the evolving regulatory landscape and creating good customer outcomes. You can read more about how
we set our strategy and the role of governance in strategy on pages 116 to 119.
2 3 4
Provident Financial plc Annual Report and Financial Statements 2021
142
Outcome of individual director effectiveness
review, independence and reappointment
As noted above, individual director performance and
contribution was assessed through a questionnaire, which
supported individual performance and development
discussions with the Chairman.
The composition of our Board is reviewed annually by the
Nomination Committee to ensure that there is an effective
balance of skills, experience and knowledge. Having
considered the skills, experience, knowledge and tenure of
the Board, and the independence and time commitment of
the directors and Chairman, together with the Chairman and
individual director performance evaluation, the Nomination
Committee and Board considered that each director
continued to be committed to their roles, have sufficient time
available to perform their duties and to contribute effectively
and, accordingly, should stand for re-election at the 2022
AGM. The independence of the Non-Executive directors is
also considered at least annually along with their character,
judgement, commitment and performance. The Board took
into consideration the 2018 Code and circumstances which
would likely impair, or could appear to impair, a non-executive
director’s independence, including their length of service.
At the year end, all of the non-executive directors, with the
exception of the Chairman, whose independence is only
determined on appointment, have been determined by the
Board to be independent. In determining the independence
of those non-executive directors who are also non-executive
directors of Vanquis Bank, the Nomination Committee and
Board did take into account their appointments to Vanquis
Bank and confirmed that they remained independent in
relation to their appointments to the Company.
Outcome of the Chairman’s effectiveness review
The review of the Chairman’s performance focused on,
amongst other matters, the effectiveness of his relationship
with the executive and non-executive Board members, the
management of Board meetings and how the Chairman
facilitates the effective contribution of the directors both inside
and outside of meetings. Following discussion by the Board
(excluding the Chairman), it was concluded that the Chairman
was performing his role of leading the Board effectively.
Andrea Blance, as Senior Independent Director, discussed the
feedback and areas for development with the Chairman.
Composition, succession and evaluation continued
Board evaluation continued
Outcome of the 2021 evaluation process: Board and committees
The overall conclusion from this year’s Board evaluation was that the Board and its committees continue to operate to a high
standard and work effectively. The Board collectively views the Board and its committees as effective in discharging their
responsibilities, with a number of key strengths, including those noted below. The evaluation also highlighted opportunity areas
to enhance effectiveness, as highlighted below. The feedback provided by management as part of the evaluation process
has proven a useful insight into the Board’s effectiveness and its relationship with management. Progress regarding Board
effectiveness and the improvement focus areas identified will continue to be monitored and assessed by the Board and
committees, as appropriate.
– The balance of skills and experience on the Board.
– The effective relationships on the Board and overall cohesion.
– How the Board works together as a team to deliver objectives
and the oversight of the delivery of key strategic projects.
– The effectiveness of the Board committees.
– The Board’s understanding of the views and requirements
of investors.
– The reporting by the Board committees to the Board.
– Continue to focus on how to enhance the Board’s
oversight of risk.
– Increase the level of engagement between the Board
and senior management and between the Board
and the wider workforce.
– Continue to focus on how the Board oversees and engages
with the Group’s customers.
– Drive continued focus on the Group’s digital and data
strategy and the enhancement of the Board’s understanding
and discussion of digital market trends and opportunities.
– Implement a robust Board training plan for 2022.
Some of the Board strengths identified Areas of focus to enhance performance
Board members are keen
to understand the business
and challenges facing
management and ask probing
and insightful questions to
drive the business forward.
Feedback from a member
of the management team
The Board is working hard to
get closer to our workforce,
visiting them and spending
time with them.
Feedback from
a Board member
Working together to achieve
the Board’s objectives has
always been a strong suit
of this Board.
Feedback from
a Board member
Provident Financial plc Annual Report and Financial Statements 2021
143
Governance
Members
Patrick Snowball (Chairman)
Andrea Blance
Elizabeth Chambers
Paul Hewitt
Angela Knight
Graham Lindsay
Margot James
Allocation of time
Diversity 14%
Succession and talent 42%
Board composition and appointments 31%
Governance 13%
14+42+31+13+N
Patrick Snowball
Nomination Committee Chairman
Ensuring we have the
right skills and experience
Nomination Committee Report
The Committee’s terms of reference are available at:
www.providentfinancial.com
The Committee is responsible for
ensuring the leadership needs of the
Group are met, overseeing a framework
which seeks to drive a high-performing
and inclusive leadership team for now
and for the future.
Patrick Snowball
Nomination Committee Chairman
The delivery of our Purpose is dependent upon all of the
colleagues we have across the Group. Our colleagues are at the
heart of all that we do and how we serve our customers, and this
emphasises the importance of the Nomination Committee in our
governance framework and in the delivery of our strategy. The
Committee is responsible for ensuring the leadership needs of
the Group are met, overseeing a framework which seeks to drive
a high-performing and inclusive leadership team for now and
for the future. There were no changes to the Board membership
during 2021, and this stability was important in a year full of
significant change for the Group, the Board and our colleagues.
In January 2022 we announced that we had restructured
the Board of Vanquis Bank, our wholly owned subsidiary, to
substantially align its membership with that of the Company’s
Board. We believe this is an important step in the execution
of the Group’s specialist bank strategy. It is our view that
combining the Boards of the two legal entities in this way will
create a simpler, more efficient Group governance structure,
whilst streamlining and enhancing both the Company’s
and Vanquis Bank’s handling of corporate governance.
The Committee played a key role in enabling this transition,
reviewing the proposed Vanquis Bank Board membership and
assessing the skills and experience of the Company’s directors
who were proposed for key senior management function roles
on the Vanquis Bank Board.
We fully recognise that it is essential that the directors of
Vanquis Bank have the skills and experience required to
undertake roles on the board of a bank and, as you can read
on the next page, we have adapted our Board Skills Matrix,
which is a key input into our assessment of Board composition
and our succession planning, to better reflect the skills and
experience needed for the boards of both a publicly listed
company and a bank. Furthermore, in its overseeing of these
changes, the Committee considered the high-level operational
design to support the Group’s specialist bank strategy and how
the changes impacted management, including where broader
responsibilities were being undertaken. Changes to roles and
to boards can lead to increased retention risk in certain areas,
and the Committee discussed this and the mitigations for it as
it discharged its role of ensuring that the Group’s leadership
needs continue to be met and that appropriate succession
plans are in place. The Committee also considered the impact
of the changes on diversity and the importance of remaining
focused on this when making Board or management changes.
Provident Financial plc Annual Report and Financial Statements 2021
144
Composition, succession and evaluation continued
Nomination Committee Report continued
Board leadership
Composition and succession
Our Board composition is informed by an assessment of the
skills, experience and diversity needed to deliver a strong and
well-balanced Board and by our plans for orderly succession
within Board roles.
Effective succession planning remains a key component of
good governance and an essential enabler to the delivery
of our strategy through ensuring the continuity of skills,
experience and diversity on our Board to support effective
discussions and decisions. During our review of non-executive
director succession this year, the Committee considered
our documented succession plan for each role on the Board
and determined that no further changes were required to
the succession plan. The Committee discussed the tenure
of the non-executive directors and whilst the relatively short
tenure of our directors results in no immediate concerns
regarding succession planning, the Committee agreed that
it was important to ensure the Board proactively planned and
managed non-executive director succession and changes
in order to stagger non-executive director succession in the
future. This will enable us to balance continuity and stability
on the Board with an appropriate refresh of skills, experience
and diversity of perspectives. The succession plans for our
executive director roles are considered as part of the wider
talent management review, and you can read more about this
on pages 144 and 145.
The Committee undertakes an ongoing assessment of the
Board’s collective skills and experience in order to support
its considerations regarding Board composition, succession,
training and development needs. In order to provide the
Committee with a clear picture of the Board’s areas of
strength and gaps, we have in place a Board Skills Matrix
which sets out an assessment of the skills and experience of
our directors individually, and the Board as a whole, across a
number of core skills and experience areas identified as key
to Board effectiveness and therefore the Group’s long-term
success. Our Board Skills Matrix includes interpersonal skills
as well as more commercial skills and experience, some of
which are shown in the skills diagram on the next page. In the
design and use of our Board Skills Matrix, the Committee has
recognised that the Board requires a diverse representation
of skills and experience and that individual directors
bring their own specific strengths and views to the Board
based upon their personal attributes and experience, thus
providing greater strength to the Board as a unit. Having a
clear understanding of the particular skills, experience and
contribution each director brings the Board enables effective
identification of the skills and experience needed to ensure
continued diversity and effectiveness when succession
planning and assessing Board composition. During the year,
the Committee agreed that the Board Skills Matrix should
be evolved through the introduction of additional skills and
experience categories that reflected those areas needed to
successfully support the Group’s transition to: 1) be a leading
specialist bank focused on underserved markets; and 2)
reflect the roles that the majority of the Company’s directors
have on the Board of Vanquis Bank, thus driving greater
alignment of our assessment of Board composition and
succession with the Group’s strategy.
As noted above, there were no appointments made to the
Board during the year; however, our robust and transparent
Board appointment process remains in place for any future
such appointments.
There is in place a documented Board appointment process
which sets out that appointments should be based on
merit and objective criteria and, within this context, should
promote diversity of gender, social and ethnic backgrounds,
and cognitive and personal strengths. When undertaking a
Board appointment process, the Committee ensures that
searches are alert to all aspects of diversity and inclusion
and that diverse short lists of candidates are prepared for
the Group’s consideration. Candidate specifications for roles
are prepared to clearly recognise the value of diversity in
the boardroom and throughout the Group, particularly in
enabling us to understand our stakeholders. Whilst there
were no Board appointments during the year, when we do
undertake searches for new directors, we use the support
of search consultants which follow the Enhanced Voluntary
Code of Conduct for Executive Search Firms, which specifically
acknowledges those firms with a strong track record in
promotion of gender diversity in FTSE 350 companies against
the scope of the Davies Review. During our search and
interview process we work to understand how candidates
understand and act in alignment with our culture.
The Committee has undertaken its annual review of the
composition and balance of the Board and its committees
taking into account several key factors, including: diversity;
balance of skills, experience and knowledge; director length
of service and time commitment; stakeholder expertise; the
size and structure of the Board; and director independence.
We continue to firmly believe that the Board’s composition is
appropriate to fulfil its role effectively and we are recommending
to shareholders that all directors be re-elected at the 2022
AGM. You can read about each director’s contribution to the
Board in their biographies on pages 112 to 114.
As a consequence of the changes described above, Robert East, who was a non-executive director of the Company and
Chairman of Vanquis Bank, stepped down from both Boards in January 2022. I would like to thank Robert for his chairmanship
of the Vanquis Bank Board and his support as a member of the Group Board. I would also like to extend my gratitude to the other
departing members of the Vanquis Bank Board for their help and support.
Committee role
The Committee oversees the leadership and succession requirements of the Group. As part of this, the Committee monitors the
balance of skills and experience on the Board and its committees to ensure that they comprise individuals with the necessary
skills, knowledge, experience and diversity to operate effectively. Set out in the table below are those key Committee activities
in 2021 and key Committee priorities for 2022.
Committee activities in 2021 Committee priorities for 2022
– Oversight of the Board governance changes and the
impact of the changes, including regarding diversity.
– Review of our talent and succession plans and retention
risk mitigation actions.
– Review of our inclusion and diversity initiatives, progress
and the diversity of our Board and talent pipeline.
– Oversee how the Group makes progress in reaching its
target of 40% female representation in the Group’s senior
management population by December 2024.
– Continue to proactively review and plan
for Board succession.
Provident Financial plc Annual Report and Financial Statements 2021
145
Governance
Independence and conflicts of interest
In reviewing the composition of the Board and its committees,
the Committee and Board considered the independence of
the non-executive directors during the year and concluded
that they all remain independent in character and judgement
and contribute effectively to Board discussions and debate.
In considering their independence, the Committee and Board
took into account the appointment of the majority of the
non-executive directors to the Board of Vanquis Bank. We do not
believe that their appointment as independent non-executive
directors of Vanquis Bank impinges on their independence,
with their previous roles solely on the Company’s Board already
requiring oversight of Vanquis Bank, as the Group’s largest
subsidiary. Additionally, an enhanced Conflict of Interest Policy
has been put in place to mitigate and manage the risk of
intra-group conflicts arising as a result of common directors
on the Company’s Board and those of its subsidiaries.
Time commitment
The expected time commitment of the Chair and non-
executive directors is agreed and set out in writing in the
letter of appointment to the positions, at which point we
assess any external demands on an individual’s time in order
to confirm their ability to undertake the role effectively. We
also reassess time commitment annually and when any
changes in a director’s internal or external responsibilities
occur. In appointing the majority of the Company’s Board
to the Board of Vanquis Bank, the impact of this change on
the time commitment required of directors of the Group was
reviewed and considered. The Committee and Board continue
to consider that the Board members have sufficient time to
undertake their roles effectively.
Board evaluation
The Committee discussed the outcome of the 2020 Board
evaluation as it pertained to the composition of the Board.
The Committee agreed that good progress had been made
in relation to the Board’s access to IT and risk expertise,
following new appointments to the Group Chief Risk Officer
and Chief Information Officer roles. It was also agreed that
the CCE Committee should continue its work to enhance the
Board’s awareness of and affinity for the Group’s customer
base. You can read more about the progress in relation to the
focus areas identified in the 2020 Board evaluation on page
141. This year an internal evaluation was undertaken of the
effectiveness of the Board and its committees, and you can
read about this in more detail on pages 141 and 142. In relation
to Board composition, the balance of skills and experience
on the Board was rated very highly in this year’s evaluation.
The diversity of the Board as a whole and the cohesion of
the Board as a team are key drivers of success and this
year’s evaluation presented positive ratings for the Board’s
diversity and for its effectiveness as a team, with strong
working relationships in place and an appropriately open
and challenging Board environment. The Board recognised
the importance of maintaining its focus on diversity in its
broadest sense, including age and social background, and
continuing to consider this as part of succession planning
and future Board appointments. In the Board evaluation, the
Committee was rated as very effective and a continued focus
on Board and management diversity, talent management
and succession planning was identified as a priority.
1
2
3
Links to strategy
Grow customer-centric businesses
Act responsibly and with integrity
Maintain a secure funding
and capital structure
This diagram shows those Board members with competent
or very competent skills or experience in some key skill areas.
This diagram, together with the biographies on pages 112 to 114,
shows the combined strength of our Board in areas central to
delivering the Group’s sustainable success.
Board Skills Matrix
Leadership: culture and ethics
Audit and financial reporting
Customers
Strategy
Product development
Change management
Banking regulation
Shareholder engagement
Banking
Sub to near-prime lending
HR, talent and employee engagement
Risk management
M&A transactions
Regulatory landscape and engagement
IT and digital initiatives
Loans
Capital management and treasury
1
2
3
1
3
2
3
1
2
1
2
1
2
3
2
3
1
2
1
1
2
1
2
1
2
1
2
3
2
1
3
2
3
Provident Financial plc Annual Report and Financial Statements 2021
146
Composition, succession and evaluation continued
Nomination Committee Report continued
Talent identification grid Succession planning
Retention risk reviewCareer profiles
Inclusion and diversity
We identify who in our colleague population has the
potential to undertake a bigger and broader role,
or who might be a future leader. An assessment is
undertaken which helps focus discussions on the
colleagues that have been identified as high potential.
It also identifies the other senior leaders who are
important to the business, but who might not at that
point in time be ready to progress or do more.
We identify who might be ‘ready now’, or the talent we
need to grow to fill leadership and business-critical
roles in the future using a consistent approach to
consider the short, medium and long-term successors.
We also identify immediate and emergency replacements
and track our leadership needs to ensure pipeline
talent is ready to fulfil vacant roles when they occur.
We undertake an assessment of retention risk and this
allows us to shape tailored solutions which are targeted
to have the greatest impact.
We enable colleagues to be actively involved in the
talent process through establishing career profiles for
our senior leaders, allowing them to demonstrate their
skills, experiences and aspirations. This tool supports
the succession planning process and helps to raise
a colleague’s profile.
To support a diverse pipeline of talent, inclusion and diversity are considered throughout the talent management process
and discussed by management and the Nomination Committee together with talent management and succession matters.
Inclusion and diversity remains a key focus of our talent agenda. You can read more about this on the following pages.
Bi-annually, HR works with
Group Executive Committee
members to complete the
talent management process
for their teams.
HR reviews the outputs and
completes a bi-annual
calibration discussion with the
Group Executive Committee.
The Nomination Committee
discusses the outcomes of
the talent management and
succession review and the
diversity of our talent pipeline at
Group Executive Committee level.
Talent management
Our high-level process
Our talent management building blocks
Provident Financial plc Annual Report and Financial Statements 2021
147
Governance
Talent management and succession
During the year, the Committee continued to work with HR
to deepen its understanding of our talent pool and, in light
of recent changes to our target operating model, talent
management and retention remained an important focus
area for us.
We as a Committee have focused on the impact of the
changes we have made to reinforce our position as a
leading specialist bank, reviewing changes to our target
operating model and their potential impact on our leadership
population and succession plans, including the diversity of
those populations impacted. As part of this, the Committee
was updated on the process used to determine those
members of management who would undertake Group
Executive Committee roles under the new target operating
model and discussed how a transparent and merit-based
selection process for roles under the new target operating
model would be implemented so as to support diversity in the
management population.
Our talent management framework is designed to support
the identification, development, retention and progression
of a diverse pipeline, and you can see our high-level talent
management framework on the previous page. The Committee
undertakes an annual review of the Group’s talent and
succession planning. This year’s review included an update
on the progress being made in the implementation of the
Group’s talent management framework and how increased
visibility of our combined talent pool has enabled more robust
conversations and calibration to support succession planning,
identify any gaps, and support cross-business opportunities
and moves, which, in turn, support the development of our
talent and promote retention.
Succession planning and its oversight is a continuous cycle
of activity and as part of the talent management review, the
Committee reviewed succession plans for our Group Executive
Committee members. This included plans for emergency,
immediate, short to medium-term and longer-term succession,
which could be addressed with internal or external talent.
In reviewing the Group’s succession plans, the Committee
discussed areas of strength and areas for enhancement. In
recent years, we have made a number of key external hires to
senior roles; whilst this has ensured strong talent in key roles,
it does mean that we as a Committee and our management
team need to remain focused on our continued efforts and
activities to build our internal talent pipeline. The Committee
has also discussed in detail during the year the Group’s
strong internal talent pipeline of those with the potential
to operate as future Chief Executive Officers, reviewing the
Group’s high-potential development framework, which has
been designed and implemented to proactively support their
continued development. Furthermore, the Committee has
reviewed those other individuals identified as high potential
and those who are considered to currently have the potential
to undertake bigger and broader roles in the future.
A key element of our talent management framework and
succession planning process is our retention risk assessment,
which provides us with a clear understanding of which are
our most critical roles and the required levels of engagement
to maintain our key talent, enabling the Committee and
management to plan and act proactively to mitigate retention
and succession risk. The Committee discussed key retention risks
during the year and the tailored action plans in place to mitigate
this risk, including the roles that are key to the successful delivery
of our strategy.
We recognise the fundamental importance of a diverse
pipeline of talent to ensure the Group has a diverse and
effective senior management team and Board. As such, we
as a Committee consider the diversity of our talent pipeline
as part of our review of the Group’s talent management and
succession planning and diversity is embedded in our talent
management framework. We have made good progress as a
Group in implementing a spectrum of inclusion and diversity
initiatives needed to support a diverse talent pipeline and
inclusive culture; however, we still have more progress to
make in driving greater diversity in our senior management
population. You can read more about our actions and
progress in relation to inclusion and diversity below.
Inclusion and diversity
Policy, objectives and link to strategy
As a Group we are committed to supporting diversity in
the broadest sense, within the boardroom and across the
organisation, including amongst our senior management
team, and we believe that a wide range of experience, age,
background, perspectives, skills and knowledge combine
to contribute towards a high-performing and effective
leadership team. Our policy is designed to promote equality,
diversity and inclusion across all parts of the Group and to
ensure that our business and working environment is one that
respects and includes everyone, understanding the potential
that all people bring to the workplace. Our policy seeks for us
to exceed the minimum requirements set out in legislation
and proactively encourage a culture that supports equality,
inclusion and diversity. You can read about our progress
during the year in relation to these objectives on page 149.
Our Purpose emphasises our commitment to inclusion and
diversity through our aim to put people on a path to a better
everyday life, and it is the Group’s ambition to build and
sustain an inclusive culture and diverse workforce which will
help us to respond to our diverse customer base. It is the
Board’s view that diversity and inclusion provide the basis
for a wider range of perspectives and ideas represented at
each level of management and at the Board level, providing
the foundations for us as a Group to better understand and
deliver for our stakeholders, challenge each other effectively
and achieve the Group’s overall strategic aims. We believe
that a diverse team of colleagues enables us to better
understand, and therefore serve, our diverse customer base.
In creating an inclusive and diverse culture, it is also our
objective to support the attraction and retention of talented
people, improve effectiveness, deliver superior performance
and enhance the success of the Company.
To ensure our appointment and succession processes
support diversity, they are transparent and based solely on
merit. Our Equality, Diversity and Inclusion Policy requires that
we advertise our vacancies externally and internally using
appropriate channels to give us the best possible choice for
selection from the widest available talent pool. Under our
policy, all vacancy advertisements should include language
which will encourage applications from a diverse talent
pool and will be written in language that avoids gender
specific terminology and where recruitment agencies are
required, their working practices and approach must align
to those of the Company. We avoid the possibility of gender
discrimination by proactively challenging candidate short lists
to ensure as far as possible that there is a gender balance.
During the year, as a Committee we have discussed how
cultural barriers to diversity can impact our progress to
delivering greater diversity across the organisation and how
having a diverse and inclusive leadership team can break
down such barriers. As noted above, we have also discussed
how the selection process for roles as part of our transition to
our new target operating model would be implemented in a
way that aligned with our inclusion and diversity ambitions
and culture. The Committee has reviewed the broad range
of initiatives underway to support inclusion and diversity
across the Group, which also support the diversity of our talent
pipeline, and you can read more about these initiatives below.
Provident Financial plc Annual Report and Financial Statements 2021
148
56 +44+N
Board gender
diversity
Male 56%
Female 44%
89 +11+N
BAME representation
on the Board
Non-BAME 89%
BAME 11%
Board tenure*
* As at 1 April 2022.
11 +67+22+N
0-1 years 1 (11%)
2-4 years 6 (67%)
5+ years 2 (22%)
Group Executive
Committee and direct
reports gender diversity
76 +24+N
Male 76%
Female 24%
Composition, succession and evaluation continued
Nomination Committee Report continued
Inclusion and diversity continued
Policy, objectives and link to strategy continued
The Committee also reviewed our diversity targets during
the year, which you can read on the next page, together
with the progress made. I am pleased that we continue
to exceed the Board gender diversity target set out in the
Hampton-Alexander Review and that we also continue to
meet the recommendations of the Parker Review to have
at least one director of colour by 2024.
Developing a diverse pipeline
As noted above the Committee’s considerations of the
diversity of its talent pipeline have been integrated with its
review of talent management and succession.
Gender balance, along with broader diversity, remains a key
focus for our talent agenda. As a Committee and leadership
team we feel that we must continue to act to meet our HM
Treasury’s Women in Finance Charter target to increase
female representation in our senior management population
to 40% by 2024. Whilst we did not meet our initial Women
in Finance Charter target of 33% female representation in
our senior management population by December 2020, we
remain focused on our overall target for 2024 and believe we
have several key actions in place to support greater female
diversity in this population. We are pleased to report that
once the pending appointment of the MD of Cards expected
in April 2022 has been made, this will take our Group Executive
Committee gender mix to 33% female. Our continued focus
remains on ensuring that gender balance continues to
improve within the direct reports of our Group Executive
Committee members.
In order to drive broader diversity in our pipeline and across
the Group, we will continue to focus on delivering the inclusion
and diversity initiatives we have in place, as these are essential
to the development of a diverse talent pipeline and for
creating an inclusive culture, where differences are valued
and our colleagues are empowered to reach their potential.
The Committee received an update on these initiatives during
the year, including the progress that has been made on the
implementation of our Group Job Levelling Framework which
will enable us to look at our senior population more broadly
than previously, will support us in achieving our diversity
objectives and will also allow the Group to better focus its
talent interventions to build talent pipelines. Examples of the
Group’s other inclusion and diversity initiatives are:
– The Group continues to seek to enhance its diversity data,
which is key in order to understand the Group’s colleague
populations, identify diversity gaps, design inclusion and
diversity initiatives and set robust internal diversity objectives.
– We have introduced and operate a ‘Be Yourself’ (I&D) Index
within our Colleague Survey. This is a new set of questions
created to support our Inclusion and Diversity programme.
We are pleased that a positive response of 71% was
received in our recent survey.
– We continue to operate our inclusion community across
the Group with four aligned Affinity Groups (Disability,
LGBTQ+, Gender Balance, Ethnicity and Social Mobility).
We currently have circa 125 active members and a wider
‘ally’ membership. Inclusion targeted training has been
delivered to our inclusion community members and
sponsors. In addition, localised unconscious bias training
sessions have been delivered to the inclusion community.
– We continue to focus on ensuring that we have gender
balanced short lists and, equally importantly, candidates
from other diverse backgrounds and communities. We
have seen good success with this approach, such as with
the appointment of the Group Chief Internal Auditor.
The Committee and our leadership team will remain focused
on our diversity agenda during 2022, including the intended
launch our Inclusive Leadership Programme.
In order to drive broader diversity in our pipeline and across the
Group, we will continue to focus on delivering the inclusion and
diversity initiatives we have in place.
Patrick Snowball
Nomination Committee Chairman
Provident Financial plc Annual Report and Financial Statements 2021
149
Governance
Objective Progress and implementation
To ensure a rounded
and diverse Board
and Group Executive
Committee,
appointments will
be made on merit,
taking into account
different backgrounds,
diverse experience,
perspectives,
personalities, skills and
knowledge, as well as
alignment with the
Group’s culture.
Our Group Equality, Diversity and Inclusion Policy and our formal documented Board appointment
process set out that appointments to the Board and Group Executive Committee are to be made
on merit, taking into account diversity in its broadest sense and alignment with the Group’s
culture. There were no Board appointments made during the year. We have described above how
diversity is included in our appointment and succession planning process and the Committee’s
considerations in this regard during the year, including how diversity would be addressed as part
of our target operating model changes. We seek to utilise a number of mechanisms to embed
diversity and culture into our director and senior executive recruitment processes, including:
– our Chief Human Resources Officer oversees the diversity of candidate shortlists as we seek
to drive shortlists of candidates for roles, incorporating gender and wider diversity;
– utilising diverse interview/assessment panels; and
– assessing candidates for cultural fit and against our strategic behaviours from our cultural Blueprint.
We have experienced recent success in improving the diversity through utilising these
mechanisms, such as in relation to the appointment of the Group Chief Internal Auditor during 2021.
Furthermore, when reviewing the proposed Board changes to the Vanquis Bank Board, the
Committee considered the impact on the diversity of the Vanquis Bank Board, noting that the
changes improved the female representation on that Board.
This year the Committee continued to review Board composition, including diversity. The Committee
also reviewed the Board Skills Matrix which sets out the diverse experience, commercial skills
and interpersonal skills of the Board.
To ensure Board
appointment ‘long
lists’ reflect the Board’s
diversity commitments.
For new Board appointments, the Nomination Committee works with executive search firms to drive
diverse candidate ‘long lists’ for consideration by the Committee and considers culture as part of the
appointment process. No Board appointment processes were operated during the year.
To maintain a balance
of one-third of the
directors being
women as a minimum.
We have maintained our position of 40% female representation on the Board, exceeding the
Hampton-Alexander Review target. Diversity will remain a key focus for any future Board appointments.
To maintain a minimum
of one director from
an ethnic minority
background in support of
the Parker Review target.
We have maintained our position of having one director on the Board from an ethnic minority
background, meeting the target. Diversity will remain a key focus for any future Board appointments.
The Board will
support and monitor
Group activities
undertaken to meet
its diversity objectives
and to increase
the percentage of
senior management
roles held by
women and other
underrepresented
groups across
the Group.
During 2021 the Committee has continued to keep under review the inclusion and diversity
initiatives in place across the Group to support progress in enhancing the diversity of our senior
management and colleague population and in enabling an inclusive culture. When reviewing talent
management and succession, the Committee has reviewed the diversity of our talent pipeline and
discussed barriers to greater diversity. You can read more on our diversity initiatives in the Nomination
Committee Report above and on page 17. During the year we experienced good success with
our approach to diversity in external senior management searches following the appointment
of the Group Chief Internal Auditor.
Additional management diversity objective
As a signatory to the
HM Treasury’s Women
in Finance Charter,
we have a target to
have 40% female
representation in
the Group’s senior
management
population by
December 2024.
We remain a signatory of the Women in Finance Charter with the aim to increase female
representation in our senior management population to 40% by December 2024. Our current
female representation in our Group Executive Committee and direct reports population is 24%. We
continue to be focused on addressing the gender balance within the senior team and are pleased
to report that once the pending appointment of the MD of Cards expected in April 2022 has been
made, this will take our Group Executive Committee gender mix to 33% female. Our continued
focus remains on ensuring that gender balance continues to improve within the direct reports of
our Group Executive Committee members. We described in the Nomination Committee Report
above and on page 17 the initiatives and processes we have in place to drive greater female
representation in this population.
Patrick Snowball
Nomination Committee Chairman
6 April 2022
Provident Financial plc Annual Report and Financial Statements 2021
150
Customer, Culture and Ethics Committee Report
Monitoring our
culture and strategy
I am pleased to present the Customer, Culture and Ethics
(CCE) Committee Report in what has proven a busy and
challenging year for the Committee. In May 2021, the Group
made the difficult decision to close the home credit business,
the Consumer Credit Division (CCD), and this report explains
the Committee’s supporting role during CCD’s wind-down. This
report also summarises the significant changes made during
the year in how the Committee has overseen the adaptation
of colleague working arrangements whilst ensuring that
customers remained appropriately supported during the
Covid-19 pandemic.
At each meeting, the Committee:
– reviewed and discussed the set of key performance
measures within the Group’s Blueprint Dashboard
for the previous reporting period;
– reviewed and discussed the set of key performance
measures pertinent to our customers for the previous
reporting period;
– listened to a wide range of randomly selected customer
calls from across the different divisions to monitor
customer outcomes and identify any opportunities
for improvement, which were fed back to the
divisional CROs; and
– received detailed reporting on colleague engagement
mechanisms and actions being taken to address issues
identified in the Colleague Survey and from Colleague
Forums. Key discussions at the Colleague Forums during
2021 centred on the Group’s response to the ongoing
Covid-19 pandemic and the Future of Work programme.
You can read more about this in the Culture Report
on page 124.
Key Committee responsibilities
The primary role of the Committee is to assist the Board
in fulfilling its responsibilities by monitoring the Group’s
culture, stakeholders’ expectations and evolving governance
requirements. A stakeholder materiality assessment was
undertaken and the Committee approved the stakeholder
engagement strategy during the year. You can read more
about the stakeholder materiality assessment on page 51.
Members
Graham Lindsay (Chairman)
Elizabeth Chambers
Robert East (resigned 13 January 2022)
Margot James
Allocation of time
Monitoring customer outcomes
and KPI tracking 30%
Reviewing products, business
practices and policies against
the Group’s Purpose and culture 20%
Monitoring governance, ESG
commitments and corporate
responsibility reporting 34%
Monitoring stakeholders’ expectations
and engagement mechanisms 16%
30+20+34+16+N
Graham Lindsay
Customer, Culture and Ethics Committee
Chairman and Designated Non-Executive
Colleague Champion
Corporate culture is important for the
motivation and retention of talented
colleagues. It is our people who deliver
our strategy and how we choose to
treat them will directly influence the
experience of our stakeholders.
Graham Lindsay
Customer, Culture and Ethics Committee Chairman
The Committee’s terms of reference are available at:
www.providentfinancial.com
Provident Financial plc Annual Report and Financial Statements 2021
151
Governance
The Committee’s principal areas of responsibilities are
as follows:
– assisting the Board with the evolving corporate governance
requirements, ensuring full compliance with the Code and
the accountabilities of the Board under s.172 to consider the
interests of wider stakeholders in its decision making. For
further information on our compliance with the Code this
year please see page 168;
– supporting the Board in overseeing progress against
key performance indicators (KPIs), to ensure that the
Group conducts and develops business responsibly and
consistently in accordance with the Company’s customer
objectives, Purpose and corporate culture;
– overseeing the embedding and monitoring of the Group’s
culture and whistleblowing reports, ensuring that any
material issues in regard to the culture and ethics applied
across the Group are addressed;
– ensuring that appropriate employee engagement
mechanisms and opportunities are in place for the Board
to understand the views of colleagues in order to factor
these views into its decision making, and keeping these
mechanisms under regular review. This has been more
difficult during a period of lockdown;
– reviewing and providing guidance for external
communications and the Group’s public statements
on key reputational issues; and
– providing advice and overseeing plans for the return of
colleagues to work places and the Future of Work programme.
Monitoring Dashboards
As part of its duties, the Committee adopts a KPI and
evidence-based approach to its work.
The Customer Dashboard includes five customer commitments
with a set of measures that are based around the Financial
Conduct Authority’s (FCA’s) six customer outcomes that
firms should strive for in the fair treatment of customers.
Each division has tailored metrics that are relevant to that
division’s products, channels and customer segments. These
metrics are tracked and reported at a divisional level to
the Committee. The Customer Director of Vanquis Bank is a
standing attendee of the Committee and has responsibility
for monitoring and reporting all divisional metrics to the
Committee. Performance reviews that were held during the
year suggested that the majority of measures within the
Customer Dashboard had been above target.
The Blueprint Dashboard consists of four Blueprint outcomes,
each measured by a variety of metrics, with targets set where
appropriate, to ensure that the Group is able to demonstrate
that it is delivering business activities in accordance with
the agreed Blueprint. The Group’s Head of Corporate
Responsibility is a standing attendee at the Committee
meetings and has responsibility for monitoring and reporting
metrics within the Blueprint Dashboard. This involves using
an updated dashboard of metrics from the previous year,
to oversee the Group’s embedding of the Blueprint, with
a particular focus on determining whether the Group is
delivering business activities in accordance with its Purpose
and behaviours. The Blueprint Dashboard is updated and
submitted for review by the Committee at each meeting
so that it can monitor and challenge the embedding of the
Group’s culture and delivery of positive customer outcomes.
Metrics added during the year included the Better Everyday
Index and colleague turnover and absenteeism rates. These
metrics were used to provide further insight into the level of
colleague engagement and morale across the Group. During
the year, the Blueprint Dashboard indicated that performance
in relation to the cost-to-income ratio metric has fallen with
lower receivables as a result of strong collections and lower
lending through the period of the pandemic. This metric
is tracked to ensure that the Group is being run in an
efficient manner.
Given the restrictions that were in place for periods of 2021, the
Committee recognised that the number of hours volunteered
by colleagues to support our communities, whilst below
historical norms, had slightly improved on 2020. If it is safe to
do so in 2022, colleagues will be encouraged to participate in
community volunteering activities again. The Committee took
responsibility to assess and opine on the Group non-financial
metrics contained within the Group scorecard and with relevance
to the elements that were appropriate for the Committee.
ESG and stakeholder considerations
During the year the Committee oversaw the review and
approach to its community investment. The Committee fully
supported management’s decision to update the Social
Impact Programme. The aim of the new strategy will be to
focus on helping to put children and young people on a
path to a better everyday life by providing them with access
to education, social and financial inclusion and economic
development opportunities. We will have more to say on this
programme in the future.
Being a signatory to the Prompt Payment Code, the Group is
committed to paying its suppliers within 60 days of invoice;
however, it generally aims to pay them within 30 days. The
Group’s Blueprint Dashboard tracked the performance in this
regard, which was in line with expectations. The vast majority of
suppliers were paid within 60 days, with a high proportion being
paid within 30 days. For further details please see pages 60 to 61.
The Committee measures the Group’s Blueprint objectives of
ensuring customer outcomes are consistent with the Company’s
Purpose and culture by using metrics such as customer
satisfaction surveys, Trustpilot results, Google reviews and
product and service complaints; these measures are tracked
on the Blueprint Dashboard and are reported at each meeting.
The Committee has kept under close scrutiny the impact
of Covid-19 upon the Group’s customers. Each business
has utilised different approaches to gathering customer
feedback and insight during the pandemic. The Committee
received updates from the Customer Director of each division.
Moneybarn’s customer panel and the Vanquis Customer
Pulse Survey had shown the importance of government and
industry support to their customers during the pandemic.
The Committee continued to pay particular attention to the
Group’s workforce engagement during the pandemic period
and the adequacy of support made available, including
attending colleague forums to hear first hand experiences
and requirements. The Committee also oversees corporate
responsibility activity so that the Group can be recognised
as a responsible and inclusive employer that colleagues feel
proud to work for. The Chair will continue to ensure that the
Board has appropriate oversight of the work of the Committee.
Moneybarn has established feedback loops such as
Trustpilot, Google reviews and Voice of Customer which
enabled changes in customer communications that fostered
enhanced customer experiences during the pandemic.
Vanquis has introduced and is using a Customer Pulse Survey
to complement feedback and insight from Voice of Customer,
Trustpilot and annual surveys. The Customer Pulse Survey has
become a valuable source of customer insight and supports
the development of Vanquis’ customer-focused culture with
the monthly survey results shared each month to stakeholders
across Vanquis at the Customer Proposition Forum. This is
being extended across the Group.
Provident Financial plc Annual Report and Financial Statements 2021
152
Customer, Culture and Ethics Committee Report continued
Monitoring our culture and strategy continued
CCD
The difficult decision was taken during the year to cease trading
in the CCD business with the regretted consequential result.
The Committee assisted in providing support on the colleague
redundancy proposals and the closure of the CCD business.
As part of its review into the closure of CCD, the Committee
noted the significant efforts made by the management team
in addressing the redundancy proposals at the consultation
meetings. The Committee had been fully supportive of the
internal opportunities across the Group which were shared
with all CCD colleagues and efforts made to introduce
colleagues to other employment opportunities. The Committee
also spent time monitoring closely the impact on customers and
all associated communications.
Future of Work
The Committee paid particular attention to the Group’s Future
of Work programme, the work of the Committee focused on
overseeing the Future of Work strategy initiatives that were
developed by management to keep our colleagues and
customers safe. This enabled the Committee to oversee
management actions and assisted the Committee in keeping
the Board informed on the safe return of colleagues to offices
under a new hybrid working model. The Committee received an
update on the introduction of a new set of workforce policies
to support 1PFG and to create a simplified approach across
the divisions, align with our Blueprint and create a fair and
consistent employee experience. I look forward to another
year of development and improvement and will ensure the
Committee retains its focus on all our stakeholders.
Graham Lindsay
Customer, Culture and Ethics Committee Chairman
6 April 2022
Committee activities in 2021 Committee priorities for 2022
– Reviewed and approved the inclusion of the additional colleague-related metrics in
the Blueprint Dashboard, such as the Better Everyday Index, colleague turnover and
absenteeism rates.
– Reviewed progress made on workforce engagement including the return to office
strategy, Colleague Surveys and wellbeing initiatives.
– Listened to customer calls and provided feedback on whether fair customer outcomes
had been achieved and identified opportunities for improvement where appropriate.
– Approved the Group’s Modern Slavery Act Statement.
– Received updates on the consolidation of the Group HR Policies including the launch
of the Group policy hub. The policies which required updating due to the Covid-19
pandemic, such as the Flexible Working Policy, were prioritised.
– Reviewed and approved the updated non-financial metrics within the 2021 Group
scorecard; the updated definitions now include examples of (i) below target, (ii) target,
and (iii) above target descriptors.
– Received updates from divisional managing directors covering all aspects
of their customers.
– Approved the newly introduced engagement mechanisms within the Stakeholder
Engagement Plan for colleagues; this included the internal communication activities
(e.g. the Blueprint ‘Stay Connected’ magazine and regular vlogs from the CEO)
and updates were received on the Social Investment Programme.
– Approved the Stakeholder Engagement Strategy which set out the objectives that will
enable the Group to ensure that stakeholder engagement activities support the delivery
of the Group’s priorities and ensure that we continue to comply with the requirements
of s.172 and respond appropriately to stakeholder interests in the ESG agenda, and
considered the external materiality assessment exercise which was undertaken to help
understand and prioritise the ESG-related views and concerns that our stakeholders
have with regard to their relationships with the Group.
– Received updates and provided oversight on the Group’s withdrawal from the home
credit market, including consultation and redundancy proposals as well as oversight
of customer treatment.
– Reviewed the recommended Task Force on Climate-related Financial Disclosures
(TCFD) that were required for Group and approved the Group signing up to the Business
Ambition for 1.5°C pledge.
– Approved the product specification for the new Customer Product Plan ensuring
it delivers good customer outcomes.
– Continue to discuss and review workplace-
related matters including the results of PFG’s
Colleague Surveys, feedback from Colleague
Forums, the diversity and inclusion agenda
and leadership and development provision,
monitoring progress with the Future of
Work programme.
– Continue to focus on the customer
agenda by monitoring progress on customer
metrics relating to the embedding of a
customer-focused culture across PFG and
ensuring that customer outcomes and
interests are considered throughout every
stage of the customer lifecycle.
– Review the previous year’s s.172 statement
against the market, consider external advice
and identify areas for enhanced reporting
in this area.
– Oversee PFG’s approach to minimising its
contribution to climate change by reviewing
the delivery of the Group’s net zero strategy
and by managing climate-related risks
through its Task Force on Climate-related
Financial Disclosures (TCFD) work.
– Review PFG’s disclosure and dialogue
with investors, regulators and other key
stakeholders on ESG issues.
– Review PFG’s compliance with relevant
regulatory and voluntary requirements,
including the Company’s Modern Slavery
Statement, Gender Pay Gap Reports and
Prompt Payment Code.
– Invite the Chairs of each Colleague Forum
to attend the Committee on an annual basis
to share views and to raise their exposure.
– Review and approve PFG’s Community
Investment Strategy for 2022-23.
– Continue to oversee implementation
of consolidated Group HR Policies.
– Oversee the embedding of the Stakeholder
Engagement Strategy and monitor progress
against the same.
– Review whistleblowing data and consider
any cultural root causes and issues.
– Review and approve the relevant
non-financial metrics within the 2022
Group scorecard.
Provident Financial plc Annual Report and Financial Statements 2021
153
Governance
Audit, risk and internal control
Audit Committee Report
Maintaining an
effective control environment
At each meeting, the Committee:
– had, on a rotating basis, a discussion with both the
external and internal auditor without any executive
director being present;
– reviewed a Group internal audit activity report; and
– reviewed updates from the external auditor.
I am pleased to present the Audit Committee Report for the year
ended 31 December 2021. This report summarises the activities of
the Audit Committee during 2021 and confirms compliance with
the Competition and Markets Authority’s Statutory Audit Services
Order. Furthermore, I look forward to attending the AGM on 29 June
to answer any questions on the work of the Committee, subject to
prevailing government restrictions at that time.
Committee membership remains consistent with the prior
two years and comprises a wide range of business and
financial experience and has retained sector competence in
compliance with the Code Provision 24. Member biographies,
including details of my recent and relevant financial experience,
are detailed on pages 113 and 114. Angela Knight, the GRC
Chairman, continues to be a member of the Committee to
ensure the work of both committees remains coordinated.
As reported in our Nomination Committee Report on page
143 we have restructured the Board of Vanquis Bank to
substantially align its membership with that of the Company’s
Board, resulting in the Committee extending its responsibilities
to oversee the internal control environment within Vanquis Bank.
As part of this work I worked with Group Company Secretariat
to perform a comprehensive review of the Committee’s terms
of reference and agendas to ensure they were reflective of
governance best practice and focused the Committee’s
attention on the appropriate matters.
Key Committee responsibilities
The primary role of the Committee is to assist the Board in
fulfilling its oversight responsibilities by monitoring the integrity
of the financial statements of the Group and other financial
information before publication, and reviewing significant
financial reporting judgements contained in them.
Members
Paul Hewitt (Chairman)
Andrea Blance
Angela Knight
Allocation of time
Governance 14%
Financial reporting 37%
External audit 15%
Internal audit 21%
Management reporting 13%
14+37+15+21+13+N
Paul Hewitt
Audit Committee Chairman
The Committee’s roles in both challenging
the judgements made in the external
reporting process and ensuring that
Internal Audit provides robust assurance
over the Group’s control environment have
never been more important.
Paul Hewitt
Audit Committee Chairman
The Committee’s terms of reference are available at:
www.providentfinancial.com
Provident Financial plc Annual Report and Financial Statements 2021
154
Key Committee responsibilities continued
In addition, the Committee also reviews:
– the system of internal financial and operational controls
on a continuing basis (the GRC reviews the internal control
and risk management systems); and
– the accounting and financial reporting processes, along
with the roles and effectiveness of both the Group Internal
Audit function and the external auditor.
The Committee is also specifically responsible for:
– conducting the tender process and making recommendations
to the Board in relation to the appointment of an external
auditor, and approving the remuneration and terms of
engagement of the external auditor;
– reviewing and monitoring the external auditor’s
independence and objectivity;
– reviewing the effectiveness of the external audit process;
– developing, implementing and monitoring compliance
with the Group’s policy on the engagement of the external
auditor to supply non-audit services;
– assisting the Board in assessing the Company’s going
concern status and ongoing viability, the basis of the
assessment and the period of time covered;
– reviewing and recommending to the Board quarterly
trading statements;
– approving the Group internal audit plan on a bi-annual
basis; and
– keeping under review the effectiveness of the Group’s
system of internal financial controls.
Committee activities in 2021
Committee priorities
for 2022
– Reviewed and approved the 2020 financial statements and areas of significant judgement,
including the going concern basis and viability statement. Confirmed that the 2020 financial
statements were fair, balanced and understandable.
– Reviewed and approved the Preliminary Results Announcement.
– Reviewed and approved the Non-Audit Fees Policy and non-audit fees for 2020.
– Reviewed and approved the external audit fees.
– Confirmed Internal Audit’s charter, statement of independence and objectivity and effectiveness.
– Reviewed the 2020 external auditor’s full-year report, management letter and 2021 internal
controls report and recommended approval of the same by the Board.
– Reviewed the results of the FRC’s Audit Quality Review (AQR) of the external auditor for the 2020-21
cycle, which had improved year on year with no significant findings for individual inspections.
– Reviewed and confirmed the results of the Internal Audit Effectiveness Self-Assessment
in March 2021.
– Commissioned and reviewed the results of Ernst & Young’s External Quality Assessment (EQA)
of Internal Audit, presented in November 2021, which confirmed that Internal Audit generally
conforms with expected standards.
– Reviewed and approved the annual internal statement of governance, risk management
and internal control.
– Received an update from Enterprise Risk on the Group Risk Management Framework
and its effectiveness assessment.
– Received management’s response to the FRC’s Financial Reporting Review Panel (FRRP) letter
on the 2020 Annual Report and Financial Statements.
– Received a ‘lessons learned’ review on the performance of the three lines of defence
in relation to programme management of the First Line Controls Review within Vanquis.
– Received the results of the external assurance reports and updates regarding internal audit
actions in relation to Group IT remediation, model validation, financial crime processes
and first line controls within Vanquis Bank.
– Received the external auditor’s interim review.
– Received and approved the external auditor’s proposed 2021 audit plan.
– Reviewed the accounting judgements proposed by management including update reports
on the development and implementation of enhancements to the suite of IFRS 9 models.
– Received an update from management on the proposed future structure of the Group
Finance function.
– Received an update from Enterprise Risk on its implementation of an Integrated Assurance
Framework across the three lines of defence.
– Reviewed and approved the interim management statement.
– Confirmed the coordination of activities between internal and external audit.
– Reviewed and recommended to the Board the Q1 and Q3 Trading Statements.
– Reviewed and approved the 2022 internal audit plan.
– Received the results of an internal financial controls maturity assessment, conducted by a third party.
– Reviewed and approved the Committee’s terms of reference, 2022 forward agenda planner
and adherence with its terms of reference during 2021.
– Provide oversight
of the Risk Mitigation
Programme within
Vanquis and Control
Enhancement
Programme within
Moneybarn.
– Continue to monitor
the closure of
historical overdue
audit actions.
– Oversee change
in audit partner
following Deloitte LLP’s
reappointment
as external
auditor in 2022.
– Ensure that Internal
Audit’s capabilities
grow in line
with the EQA.
– Monitor Group
Finance’s
transformation
to ensure it is well
positioned to
operate at the
required level of
maturity for an
enhanced control
regime as alluded
to in the BEIS White
Paper of March 2021.
– Review
developments to
the IFRS 9 model
monitoring
framework.
– Oversee the
implementation
of the Integrated
Assurance
Framework within
the three lines
of defence.
Audit, risk and internal control continued
Audit Committee Report continued
Provident Financial plc Annual Report and Financial Statements 2021
155
Governance
Fair, balanced and understandable
As in previous years, the Committee considered, in accordance
with Code Principle N, whether, in its opinion, the Annual Report
and Financial Statements 2021, taken as a whole, is fair, balanced
and understandable and provides the necessary information
for the reader to assess the Group’s position and performance,
business model and key audit matters.
In justifying this statement the Committee adopted the same
robust process as adopted in prior years, including:
– the early involvement of the Committee in the preparation
of the Annual Report and Financial Statements 2021
which enabled it to provide input into the overall
messages and tone;
– the input provided by divisional and Group senior
management and the process of review, evaluation and
verification to ensure balance, accuracy and consistency;
– 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 executive of the Group being
present via the private sessions of the Committee;
– the Committee reviewed and considered the draft Annual
Report and Financial Statements 2021 in advance of the
final sign-off;
– the reviews conducted by external advisors appointed
to advise on best practice; and
– the final sign-off process by the Board.
In addition to this approach, the Committee considered in detail
management’s critical accounting assumptions detailing the
approach taken and key sources of estimation uncertainty set
out in the financial statements on pages 204 to 205.
These and the going concern assumption were carefully
reviewed and challenged by the Committee, and following
this were reviewed by the external auditor, which also fully
analysed and concurred with the assumptions made as part
of the year-end process. A review of the consistency between
the risks identified and the issues which were of concern to the
Committee was performed.
Following the conclusion of this review, the Committee is of
the opinion that the Annual Report and Financial Statements
2021 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.
However, the ultimate responsibility for reviewing and
approving the Annual Report and Financial Statements 2021
remains with the Board.
Financial reporting process internal control
and risk management systems
The effectiveness of the risk management and internal control
systems is reviewed regularly by the Board and the Audit
Committee, which also receive reports of reviews undertaken
by Group Risk and Group Internal Audit. The Audit Committee
receives reports from Deloitte LLP, the Group’s external auditor.
Deloitte LLP also provides a management letter on an annual
basis, which draws significant internal control matters which
have been identified to the Audit Committee’s attention, along
with management’s response. The Audit Committee also
holds discussions with the external auditor at least three times
a year without executives present, to ensure that there are no
unresolved issues of concern.
The Group’s risk management and internal control systems
are reviewed by the Board and are consistent with the Guidance
on Risk Management, Internal Control and Related Financial
and Business Reporting issued by the Financial Reporting
Council and compliant with the requirements of CRD IV. They
have been in place for the full year under review and up to the
date of the approval of the Annual Report.
In response to the BEIS White Paper, ‘Restoring trust in audit
and corporate governance’, published in March 2021, the
Committee commissioned a third party to conduct a review
of the Group’s internal financial controls environment and
provide recommendations that the Group should take to be
ready for the future requirements. The results of this review
were presented to the Committee at the November meeting
and identified that continuing effort was required on three
in-flight programmes: 1) the implementation of a Group-wide
integrated risk system; 2) the embedding of 1PFG; and 3) the IT
platform modernisation, to ensure that the Group reached the
expected level of maturity for an enhanced control regime.
The Committee will continue to oversee these programmes
during 2022.
Annual assessment of risk management
and internal control systems
To assess the effectiveness of the risk management and internal
control systems within the Group, Internal Audit conducted
an analysis of the aggregate outcomes from audits carried
out in 2021 from both a control environment and a risk and
control culture perspective, assessed the progress made in
terms of the enhancement of the second line of defence, and
assessed the number of open and overdue audit issues. In
addition Internal Audit also worked closely with the second line
of defence to monitor levels of risk awareness across the Group.
Internal Audit confirmed to the Committee that both the control
environment and the level of risk and control awareness had
improved within the Group during 2021, evidenced particularly
through the progress made by the Vanquis Bank ‘First Line
Controls Review’ programme and the swift remediation of the
Moneybarn finance control environment. Management has
robust plans for the continued remediation of the Vanquis Bank
IT control environment, and is committed, across the Group, to
the continued improvement of the control environment and the
embedding of a risk-aware culture. This is demonstrated through
the ongoing Risk Enhancement Programme within Vanquis
Bank and the Control Mitigation Programme within Moneybarn.
The Risk Harmonisation Programme referred to on page 87 will
deliver improvements in developing a risk aware culture.
Internal Audit
The Group operates an in-house Group Internal Audit function
which is managed by the Group Chief Internal Auditor,
appointed in June 2021, with specialist services provided by
third-party consultants where necessary. The Group Internal
Audit function also reports, via the Group Chief Internal Auditor,
to the Committee at each meeting, ensuring the function’s
independence from Group management. As Chairman of the
Audit Committee, I also meet separately with the Group Chief
Internal Auditor on at least a quarterly basis.
Internal auditor effectiveness
The Committee approves the internal audit charter on an
annual basis and reviews, approves and monitors progress
against the annual internal audit plan. As part of this approval
process, the Committee requires confirmation from the
Group’s Chief Internal Auditor that the Internal Audit function
has the requisite expertise and resources to successfully
fulfil its role. The Committee also confirms annually that the
activities of Internal and External Audit are coordinated.
The Committee commissioned an External Quality Assessment
(EQA) of Internal Audit, and this was performed by Ernst &
Young during the second half of 2021, with the results reported
at the November Committee meeting. This found that Internal
Audit generally conforms with the International Professional
Practices Framework (IPPF) and the CIIA Financial Services
Code, benchmarks against good practice for internal audit
functions operating within the financial services sector in the UK.
Provident Financial plc Annual Report and Financial Statements 2021
156
Internal auditor effectiveness continued
There was particular recognition that Internal Audit had
responded to the Covid-19 pandemic with flexibility and
pragmatism and had enhanced relations with the first
line of defence, achieving the highest possible colleague
engagement index scores. In addition, the EQA showed
that Internal Audit benchmarked well against the internal
audit functions in equivalent organisations. The Committee
confirmed Internal Audit’s plan to address the areas where
conformance could be enhanced and confirmed the
effectiveness of the Internal Audit function for the year ended
31 December 2021.
The Committee debated and approved the internal audit
plan for H1’22 and I can confirm that the audit plan is reflective
of the material risk themes the Group faces, as well as the
Group’s strategic drivers. Further, the Committee is satisfied
that the Group Internal Audit function has the appropriate
resources to deliver the 2022 plan.
External audit
Principle M of the Code states that the Board should establish
formal and transparent policies and procedures to ensure
the independence and effectiveness of Internal and External
Audit functions.
External auditor appointment and tenure
Deloitte LLP, the Group’s external auditor, has been the Group’s
auditor for nine years, having been appointed in 2012. It is the
Group’s policy to undertake a formal tender process every
10 years, or earlier, if the Audit Committee feels that this would
be in the best interests of the Group. As was reported last
year, a formal audit tender was conducted in the second
half of 2020, with Deloitte LLP selected by the selection panel
for reappointment in December 2020. Further to this, at the
February 2022 meeting it was concluded that Deloitte LLP was
performing in line with expectations and was considered to
be independent of the Group and it was therefore considered
that Deloitte LLP be proposed to be reappointed as the Group’s
auditor for the financial year ended 31 December 2022.
Deloitte LLP’s reappointment will be proposed to shareholders
at the 2022 AGM.
In accordance with best practice and guidance issued by the
FRC, the Committee will continue to review the qualification,
expertise, resources and independence of the external auditor
and the effectiveness of the audit process during the next
financial year.
Working with the external auditor
The Committee held separate sessions with the external
auditor without any executive director or employee of the
Group being present at four of its meetings in 2021. This gave
members of the Committee the opportunity to raise any
issues, including any issues on the interim and final results of
the Group, directly with the external auditor. The Committee
schedules private sessions with the internal and external
auditors on a rotating basis, with the option for an additional
private session upon request. In addition I meet with the
external audit partner on a quarterly basis to discuss pertinent
issues. An annual assessment of the performance of Deloitte
LLP is undertaken following finalisation of the Annual Report
and Financial Statements and this report was discussed by
the Committee at the July 2021 meeting.
External auditor independence and objectivity
The Committee has in place a policy on the appointment of
staff from the external auditor to positions within the various
Group finance departments. Neither a partner of the audit firm
who has acted as engagement partner, nor the quality review
partner, nor other key audit partners, nor partners in the chain
of command, nor a senior member of the audit engagement
team, may be employed as Group Chief Finance Officer,
Group Financial Controller or any Divisional Finance Director.
The Committee has considered the independence of the
Deloitte LLP audit team and has deemed that adequate
safeguards have been in place including: separate partners
and staff are responsible for the delivery of this work; the
non-audit team does not prepare anything which would be
relied upon in the audit of the Group; and the work performed
is also subject to an independent Professional Standards
Review and Engagement Quality Control Review process.
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 its 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 Heads of Finance in each of the
divisions and at Group level. The scores and results of the
questionnaire are collated and shared with the external
auditor and an action plan to address any areas of concern
identified is agreed.
Policy on non-audit work
The Company has a formal policy on the use of the external
auditor for non-audit work which reflects the requirements of
the EU Audit Directive and Regulations. This policy is reviewed
annually by the Committee and was reviewed and approved
at the December 2021 meeting.
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 its
knowledge, skills or experience, the external auditor is clearly
to be preferred over alternative suppliers.
I am also required to approve in advance any single award
of non-audit work with an aggregate cost of between
£50,000 and £250,000 and the Committee must provide prior
approval for items in excess of £250,000. The Committee will
always seek confirmation that Deloitte LLP’s objectivity and
independence are safeguarded.
The level of fees paid to Deloitte LLP for non-audit work
during the year was £1.2m (2020: £0.2m). The ratio of audit
to non-audit fees during the year was 1.4:1. The increase
in non-audit fees from £0.2m in 2020 to £1.2m in 2021 was
in relation to support with ongoing Group projects.
Significant issues and areas of judgement
The critical accounting assumptions and key sources of
estimation uncertainty considered by the Committee in
relation to the Annual Report and Financial Statements 2021
are outlined on pages 204 to 205. In addition to the matters
set out on the next page, the Committee also considered the
going concern statement set out on page 198. The Committee
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 Independent Auditor’s Report
on pages 261 to 270.
Audit, risk and internal control continued
Audit Committee Report continued
Provident Financial plc Annual Report and Financial Statements 2021
157
Governance
Issue Judgement Actions
Impairment of amounts
receivable from customers
Receivables are impaired on
recognition in accordance with IFRS 9.
The impairment allowance is initially
dependent on the probability of default
(PD), the loss given default (LGD) and
the exposure at default (EAD) within
12 months, discounted at the original
effective interest rate (EIR).
Lifetime losses are recognised following
a significant increase in credit risk.
The assessment of credit risk and
therefore impairment allowance should
be probability weighted, and should
utilise all information available, including
past events, current conditions and
supportable forecasts of economic
conditions at the reporting date.
In 2021, adjustments have been
required to impairment allowances
due to Covid-19. During the second
half of 2021 the Group implemented
new IFRS 9 models to further refine
provision requirements based on market
driven metrics.
Judgement is applied to the impairment
allowance required. This includes
whether past performance provides a
reasonable estimate of future losses
implicit within the PD, LGD and EAD.
An assessment of macroeconomic
factors, including the latest economic
factors, is also required to estimate
expected losses.
This judgement was significantly
enhanced in 2020 in light of
the pandemic.
During 2021 the macroeconomic
environment, particularly lower
than expected unemployment and
a less than expected impact of
Covid-19, resulted in a part release
of in-model adjustments which were
introduced in 2020.
In light of rising inflation and rising
energy costs, a cost of living post-model
adjustment has been recognised.
The Audit Committee reviews and challenges
the key judgements applied throughout the year.
This includes adjustments to determining significant
increases in credit risk and default. Post-model
adjustments are reviewed and challenged
when impacting PD, LGD or EAD. The process
of creating future estimates is considered
with peer analysis performed.
The design, implementation and testing of new
models and any associated model enhancements
are reviewed and challenged. The embedding of
the new IFRS 9 model monitoring control framework
during 2022 will be overseen by the Committee, and
the required ongoing monitoring of these models
together with associated controls will be reviewed
and challenged. Evidence following the period end
is assessed to determine if the evidence would have
been available at the period end and included
within the assessments.
The work performed by Deloitte LLP on validating the
management assumptions is considered. Findings
are presented in Deloitte LLP’s report to the Audit
Committee which is challenged with knowledge
of the latest circumstances.
The work performed by Group Internal Audit is
considered, in particular, on technology and
operational controls. The review performed by
the Vanquis Bank Audit Committee on the Vanquis
Bank significant assumptions was also taken
into account.
Provisions for customer redress
The Group makes provisions for customer
remediation if all of the following
are present:
(i) a present obligation (legal or
constructive) has arisen as a result
of a past event;
(ii) payment is probable (more likely
than not); and
(iii) the settlement amount can be
estimated reliably.
A contingent liability is recognised if the
present obligation is not probable or the
amount cannot be estimated reliably or
there is a possible obligation dependent
on a future event occurring.
Provisions were created in 2020 in
respect of ongoing customer claims of
irresponsible lending of home credit in
CCD and for the resulting Scheme to
provide remediation, combined with
the costs of delivering the remediation.
These provisions are included within the
continuing operations following approval
of the Scheme and classification of CCD
as a discontinued operation during 2021.
Following the Scheme approval during
2021 the remediation costs were no
longer considered to be a key source
of estimation uncertainty as a fixed
amount is payable. The provision was
passed to a separate SPV in line with the
terms of the Scheme and will be held
there until the remediation is paid out.
In order to assess the appropriateness
of the judgements applied, the Committee:
– challenged the assumptions made by
management to determine the provision for
redress to be recognised, including the impact
of post balance sheet events;
– where a provision is not recognised and a
contingent liability is disclosed, reviewed the level
of disclosure;
– reviewed the work performed by external
consultants in respect of conduct matters
relating to the investigations where
applicable; and
– considered the work performed by Deloitte
LLP and its views on the appropriateness of
assumptions used by management, based
on its experience.
Retirement benefit asset
The valuation of the retirement benefit
asset is dependent upon a series of
actuarial assumptions.
The key assumptions are in respect of
the discount rate, inflation rates and
mortality rates used to calculate the
present value of future liabilities.
Judgement is applied in formulating
each of the assumptions used in
calculating the retirement benefit asset.
This considers any adjustments made
to the key judgements to ensure they
remain appropriate for the Group’s
defined benefit pension scheme.
The Company’s external actuary, Willis Towers
Watson, proposes the appropriate assumptions and
calculates the value of the retirement benefit asset.
The Committee considers the adjustments made
by management to the core assumptions proposed
by the actuary. The Committee also considers
the audit work performed by Deloitte LLP on the
assumptions and to what extent the assumptions
are within the suitable ranges of assumptions
based on audit experience.
Compliance statement
The Group has fully complied with the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use
of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 throughout the 2021 financial year.
Paul Hewitt
Audit Committee Chairman
6 April 2022
Provident Financial plc Annual Report and Financial Statements 2021
158
Audit, risk and internal control continued
Risk Committee Report
Holistic risk management
to support our future strategy
At each meeting, the Committee:
– reviewed and assessed the overall risk management
status of the Group;
– reviewed and assessed the Group’s key strategic
and emerging risks;
– reviewed and confirmed the risk appetite status across
the Group;
– reviewed the Group Regulatory Report including horizon
scanning and breaches;
– reviewed divisional risk reports;
– reviewed minutes and actions from prior meetings; and
– received quarterly reports from the Group Executive Risk
Committee (GERC).
The Committee has overseen the establishing of the Group
Conduct Forum in recognition of the increased regulatory
scrutiny around customer outcomes. Specifically, the
Group Conduct Forum will be addressing the Consumer
Duty Consultation and the key themes of affordability,
creditworthiness, vulnerability, financial difficulty and
forbearance. The Group Conduct Forum has representation
from across the Group and has prioritised the development
of the Group Conduct Risk Framework, as well as the
enhancement of the Group Responsible Lending and Group
Vulnerability policies and procedures. These were approved
by the Committee during the year.
Prudential risk has been another key priority for the Committee
in 2021 and it has received regular updates as the ICAAP has
been refreshed in addition to reports on the Group’s capital,
liquidity and financial risk.
The Group CRO reported at each meeting on the second line
oversight and the support and challenge that were undertaken
in respect of the design and execution of the Group’s strategic
programmes. This included the Group transformation activity
which assisted the future direction of 1PFG; the Sunflower Loans
proposition; the Vanquis Risk Mitigation Programme; and the
Future of Work programme. The objectives of the Group Risk
function were designed to ensure that these programmes were
implemented in a controlled, sustainable and effective manner
with the end result that our colleagues are well positioned
to serve our customers.
Members
Angela Knight (Chairman)
Elizabeth Chambers
Paul Hewitt
Allocation of time
Reviewing Group strategic and emerging
risks and monitoring divisional risk reporting 21%
Setting overall risk appetite, framework
and policy and risk harmonisation 21%
Reviewing regulatory and prudential
risk reporting 26%
Assessing risk management effectiveness 18%
Maintaining good governance and
approving external reporting 14%
21+21+26+18+14+N
Angela Knight
Risk Committee Chairman
This has proven to be a year of
unprecedented strategic development
within the Group, and the Committee has
provided vital programme assurance to
the Board whilst overseeing the evolution
of the Group Risk function.
Angela Knight
Risk Committee Chairman
The Committee’s terms of reference are available at:
www.providentfinancial.com
Provident Financial plc Annual Report and Financial Statements 2021
159
Governance
Additionally, the Committee oversaw the work undertaken
by the Group Risk function to establish a common approach
to assessing the risk appropriateness of each of the Group’s
products. As part of this, the Committee approved the Group
Responsible Lending policy in July 2021.
The Group is committed to undertaking its business in a
sustainable manner and having recognised climate risk
as an emerging risk in 2020, a Climate Risk Committee was
created during 2021. The Climate Risk Committee is supported
by a Climate Risk Working Group, which is focused on
understanding and analysing the main climate-related risks
to the Group. The intention is to design a strategy to stress
test, mitigate and demonstrate resilience to the impacts of
climate change. The Committee received inputs from first and
second line colleagues and approved the Group’s Climate
Risk Appetite Statement and Policy in 2021. Following the
reclassification of climate risk as a principal risk during 2021,
a suite of appropriate metrics will be designed in 2022. For
further information on climate risk please see page 96.
As I look ahead to 2022, there are several priorities for
the Committee. Overseeing the embedding of the Risk
Harmonisation Programme and the approach to mitigating
the strategic and emerging risks are two important issues. In
addition, the Group is going through a period of significant
change and therefore there is a high level of execution risk.
The management and mitigation of this risk is a key focus for
the Committee. As Covid-19 hopefully steadily moves from
pandemic to endemic status this will result in a diminishing
of risk. However, the Committee recognises that as times
continue to be uncertain credit risk is another area of key
focus and close monitoring will be required.
I am pleased to be able to report that IT risk management has
improved in 2021, although there is room for significant further
improvement and so the Committee will be receiving regular
updates throughout 2022. Just as the Risk Committee received
a series of updates on conduct risk during 2021, so we will
continue to monitor this closely in 2022.
Committee responsibilities
The primary roles of the Committee are to ensure that there
is an appropriate Enterprise Risk Management Framework in
operation across the Group, enabling effective oversight over
the Group’s principal risks and the aggregated risk position
and to provide advice to the Board in relation to the Group’s
current and potential future risk strategies and exposures. The
Committee’s principal areas of responsibility are as follows:
– understanding the Board’s strategy, desired culture and
direction and identifying the key strategic and emerging
risks which might prevent delivery;
– endorsing an overall risk appetite and recommending
it to the Board for approval at least annually;
– carrying out an assessment of the principal risks facing
the Group;
– monitoring the overall effectiveness of risk management
across the Group and divisions as overseen by the
Group CRO;
– in conjunction with the Audit Committee, reviewing the
Group’s capability to identify and manage new risk types,
and keeping under review the effectiveness of the Group’s
internal control and risk management systems;
– reviewing the Group’s management of current and
forward-looking risk exposures;
– reviewing the Group’s business continuity plans;
– notifying the Board of any changes in the status and
control of material risks;
– reviewing and approving the Group ICAAP, Vanquis ILAAP
and Group liquidity assessment, including the stress
testing and capital allocation approach; and
– continuous improvement of risk outcomes for the Group
through effective risk management planning.
Risk Harmonisation Programme
The Committee has overseen significant progress on the
Risk Harmonisation Programme, with the newly appointed
Group Head of Enterprise Risk reporting on the consolidation
of the divisional frameworks into one integrated single
Group-wide Enterprise Risk Management Framework (ERMF).
All risk management, conduct and compliance activities
performed within the second line of defence across the
Group and divisions have been merged into one function,
led by the Group CRO, to ensure consistent application of
common practice across the organisation. The Committee
has further approved a single risk and control self-assessment
methodology and a consistent suite of Group Risk Policies.
These will be monitored and embedded during 2022. The
implementation of this Group risk system will improve risk
and control effectiveness and, through the automation of
both the processes and the reporting, will result in enhanced
information being presented to the Committee.
Each of the product lines are developing their risk and control
self-assessment approaches, facilitated by Group Risk. These
are all at differing levels of maturity. Through this approach,
key controls are identified, evaluated and monitored by line
management as part of day-to-day activities. All product lines
have continued to enhance these internal control frameworks
during the year, with greater focus on end-to-end processes
to bring about a better articulation of risks and controls.
To manage risk and ensure compliance with regulatory
obligations, the Board sets the overall risk appetite of the
Group. The Committee receives regular reporting on the
risk appetite measures as well as progress updates on the
development of enhanced risk appetite statements, metrics
and thresholds, aligned to the Group Risk Policy Framework.
The Committee regularly reports to the Board with updates
and escalations.
The Group operates a three lines of defence model,
bringing clarity to accountabilities and responsibilities for
managing risk and to support the effective embedding of
risk management across the Group. Further information on
the Group risk appetite and three lines of defence model is
on page 89.
The Group is committed to undertaking
its business in a sustainable manner
and having recognised climate risk as
an emerging risk in 2020, a Climate Risk
Committee was created during 2021.
Angela Knight
Risk Committee Chairman
Provident Financial plc Annual Report and Financial Statements 2021
160
Audit, risk and internal control continued
Risk Committee Report continued
Committee activities in 2021 Committee priorities for 2022
– Approved the Group Risk Management Framework, Risk Policy Framework and Risk Policies.
– Received risk reports and opinion in relation to the wind-down of CCD, the common Board
structure and the First Line Controls Review in Vanquis.
– Reviewed the principal risks, internal control and committee reports within the 2020 Annual
Report and Financial Statements.
– Approved the prudential regulation timetable for 2021.
– Reviewed and approved the Group ICAAP, Vanquis ILAAP and Group liquidity assessment,
including the stress testing and capital allocation approach.
– Received a risk review of the Group’s 2022 Budget and five-year Corporate Plan.
– Following completion of the Group Credit Underwriting Review, oversaw the generation
of a Group-wide Affordability Strategy and the alignment of creditworthy assessments
as appropriate across the Group.
– Oversaw the generation and approval of a Group Conduct Risk Framework and the design
of customer outcome testing.
– Approved the Group Risk Adjustment Framework.
– Received the CRO’s assessment of the executive directors’ non-financial scorecard for 2021.
– Confirmed the effectiveness of the annual Group Risk Management Framework following
an internal review by management.
– Received regular Group CRO reports outlining the Group’s strategic and emerging risks.
– Received the Group MLRO Report detailing divisional performance.
– Monitored in detail complaints performance across the Group and oversaw resulting
operational and process changes.
– Monitored IT resilience across the Group and the progress of the IT Modernisation Plan
via regular reporting from the Group Chief Information Officer (CIO).
– Monitored the progress of the Group Risk Harmonisation Programme, including resource,
reporting and risk appetite.
– Reviewed the Group’s Business Continuity Plan.
– Approved the Group Model Risk Policy and oversaw the embedding of model governance
within the divisions.
– Received a prudential risk report from the Group Treasurer.
– Approved the Committee’s revised terms of reference (ToR) and forward agenda planner.
– Received updates on the Group pension scheme and associated risks.
– Received an update on gifts and hospitality.
– Received regular data protection performance reports and action plan updates.
– Approved the Group’s annual risk acceptance approach.
– Oversaw the recruitment and formation of a Group-wide Risk senior leadership team
with sufficient capability to challenge all principal risks.
– Oversee the embedding of the Risk
Harmonisation Programme, including
the Group-wide risk system.
– Monitor execution risk associated
with strategic and operational
change activity.
– Approval of the Group ICAAP and ILAAP.
– Continued enhancement of our
approach to managing conduct risk.
– Monitor credit risk change in light
of changes to the macroeconomic
environment.
Provident Financial plc Annual Report and Financial Statements 2021
161
Governance
Principal and emerging risks
The Committee is responsible for carrying out an assessment
of the principal and emerging risks to the Group, including those
which have the potential to impact delivery of its strategy and
culture, business model and future performance. The Committee
received reports from the CRO detailing the Group’s aggregated
risk profile, reviewing this in detail and confirming its accuracy.
Our principal and emerging risks are set out in the table below:
Principal risks
Key strategic
and emerging risks
– Capital risk.
– Funding and liquidity risk.
– Market risk.
– Credit risk.
– Strategic risk.
– Climate risk.
– Legal and governance risk.
– Financial crime risk.
– Conduct and regulatory risk.
– People risk.
– Technology and information
security risk.
– Operational risk.
– Model risk.
– Execution risk.
– Responsible lending.
– People risk,
return to office.
– Credit risk as we
move to endemic
environment.
– General IT controls
and robustness
of IT platform.
Opportunities
A robust and embedded ERMF underpins the strategy of the
Group, as it is only by understanding the level of risk the Board
is willing to take so that we can identify and pursue strategic
opportunities. Further, the second line’s reporting on its
monitoring and assurance of in-flight strategic programmes,
ensures that the Committee can constructively challenge
management’s implementation and identify execution risks
at an early stage. For further details regarding the principal
and emerging risk assessment, full details of those principal
and emerging risks the Board is willing to take in order to
achieve its long-term strategic objectives, and the related risk
appetites, please see pages 90 to 99.
Committee review of internal risk management
and controls
In accordance with the 2018 UK Corporate Governance
Code Principle O, the Group Board has a responsibility to
establish procedures to manage risk, oversee the internal
control framework, and determine the nature and extent
of the principal risks the Company is willing to take in order
to achieve its long-term strategic objectives. Provision
29 requires the Board to monitor the Company’s risk
management and internal control systems. Following a
detailed review by the Committee, the directors can confirm
that the Group’s key risks have been robustly assessed and
are effective. 2021 was a year of significant improvement in
terms of Group risk management. In reaching this conclusion,
the Group Risk function has assessed the following criteria:
– a comparison between the strategic and emerging risk
profile and positioning on both 1 January of 2021 and 2022,
indicating an improvement year on year;
– an assessment of the progress made with the Group Risk
Harmonisation Programme, including the expertise and
experience within the Group Risk function, with a full suite
of Group Risk Policies and a redesigned and enhanced
suite of risk appetite metrics approved in the year;
– key strategic decisions taken and executed in 2021 which
alter the risk profile of the Group, including the wind-down
of CCD, and the implementation of a common Board
between the Group and Vanquis;
– an assessment of our relationships with our regulators,
which demonstrates a multi-year improvement; and
– other key indicators such as the reduction in open and
overdue audit actions and enhanced risk awareness
within first line management.
The Committee appreciates that the embedding of a
risk-aware culture is a continual and iterative process, and
to this end we have overseen the commencement of work on
a number of initiatives to further enhance the Group’s control
environment during 2022:
1. embedding of the improvements made in 2021 within
the Risk Harmonisation Programme to support first line
management with a more consistent, efficient and
integrated approach to managing the Group’s risk within
its appetite;
2. preparing and planning for Consumer Duty regulation,
ensuring we can demonstrate delivery of customer
centricity and optimal customer outcomes; and
3. continuing to enhance our capital and credit model
capability to strengthen our ability to sustain the
long-term viability of the Group.
Angela Knight
Risk Committee Chairman
6 April 2022
Provident Financial plc Annual Report and Financial Statements 2021
162
Directors’ Report
Introduction
In accordance with section 414C(11) of the Companies Act, the
directors present their report for the year ended 31 December
2021. The following provisions, which the directors are required
to report on in the Directors’ Report, have been included in the
Strategic Report:
– future business developments (throughout the Strategic
Report, in particular on pages 20 to 33);
– important events since the balance sheet date
(throughout the Strategic Report and on page 167);
– viability statement (page 101);
– greenhouse gas emissions, energy consumption
and energy efficient action (pages 72 and 73);
– risk management (pages 87 to 100);
– how the directors have engaged with employees, how they
have had regard to employee interests and the effect of
that regard, including on the principal decisions taken by
the Company in the financial year (pages 75 to 86); and
– how the directors have had regard to the need to foster the
Company’s business relationships with suppliers, customers
and others, and the effect of that regard, including on
the principal decisions taken by the Company during
the financial year (pages 75 to 86).
Both the Strategic Report and the Directors’ Report have been
prepared and presented in accordance with, and in reliance
upon, applicable company law. The liabilities of the directors
in connection with both the Directors’ Report and the Strategic
Report shall be subject to the limitations and restrictions
provided by company law. Other information to be disclosed
in the Directors’ Report is given in this section.
Directors
The membership of the Board and biographical details of the
directors at the year end are given on pages 112 to 114 and are
incorporated into this report by reference.
All directors were present throughout 2021 and up to the date
of signing the Annual Report and Financial Statements 2021
other than those set out below:
– Robert East resigned from the Company
on 13 January 2022.
Further commentary about the Board’s composition
and Board tenure can be found on page 138.
Appointment and replacement of directors
Rules about the appointment and replacement of directors
are set out in the Company’s articles of association. In
accordance with the recommendations of the 2018 UK
Corporate Governance Code (the Code), all directors will
offer themselves for appointment or reappointment, as
appropriate, at the 2022 AGM.
Articles of association
The directors’ powers are conferred on them by UK legislation
and by the articles of association. Changes to the articles
of association must be approved by shareholders passing
a special resolution and must comply with the provisions of
the Companies Act and the FCA’s Disclosure Guidance and
Transparency Rules.
Directors’ indemnities
The articles of association permit the Company to indemnify
directors of the Company (or of any associated company) in
accordance with section 234 of the Companies Act.
The Company may fund expenditure incurred by directors
in defending proceedings against them. If such funding is
by means of a loan, the director must repay the loan 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.
Our responsibilities
as a listed business
Charlotte Davies
General Counsel and Company Secretary
The Group’s growth and delivery of good
customer outcomes remain its focal points
for 2022 and beyond.
Charlotte Davies
General Counsel and Company Secretary
Provident Financial plc Annual Report and Financial Statements 2021
163
Governance
However, the Company may not provide an indemnity against:
1. any liability incurred by the director to the Company
or to any associated company;
2. any liability incurred by the director to pay a criminal
or regulatory penalty;
3. any liability incurred by the director in defending criminal
proceedings in which they are convicted;
4. any liability incurred by the director in defending any civil
proceedings brought by the Company (or an associated
company) in which judgment is given against them; or
5. in connection with certain court applications under
the Companies Act, no indemnity was provided and no
payments pursuant to these provisions were made in 2021
or at any time up to the date of this report.
There were no other qualifying indemnities in place during
this period.
The Company maintains both a deed of indemnity in favour
of the directors and directors’ and officers’ liability insurance
which gives appropriate cover for any legal action brought
against its directors.
Information required by Listing Rule 9.8.4R
Information required to be disclosed by LR 9.8.4R
(starting on page indicated):
Interest capitalised Not applicable
Publication of unaudited financial
information Not applicable
Details of long-term incentive schemes 181 to 182
Waiver of emoluments by a director 179 and 182
Waiver of future emoluments by a director 182
Non-pre-emptive issues of equity for cash Not applicable
Item (7) in relation to major
subsidiary undertakings Not applicable
Parent participation in a placing
by a listed subsidiary Not applicable
Contracts of significance 256
Provision of services by
a controlling shareholder Not applicable
Shareholder waivers of dividends 182
Shareholder waivers of future dividends 182
Agreements with controlling shareholders Not applicable
Share capital
The Company’s issued ordinary share capital comprises
a single class of ordinary shares. The rights attached to the
ordinary shares are set out in the articles of association.
Each share carries the right to one vote at general meetings
of the Company.
No new shares were issued to satisfy awards made under the
Provident Financial Long Term Incentive Scheme 2015 (LTIS), the
RSP or the Provident Financial Savings-Related Share Option
Scheme 2013.
Conflicts of interest
The Companies Act and the articles of association require
the Board to consider any potential conflicts of interest of
its members.
The Board has a formal policy and operates formal procedures
regarding conflicts of interest in order to identify and manage
conflicts and to maintain independent judgement. All members
of the Board have completed conflict of interest forms which
are reviewed annually. All directors have an ongoing duty
to notify the Company of any changes and to ensure that
appropriate authorisation is sought where required and are
required to renew and confirm their external interests annually.
The Board (excluding the director concerned) considers and,
if appropriate, authorises each director’s reported actual
and potential conflict of interest, taking into consideration
what is in the best interests of the Company and whether the
director’s ability to act in accordance with his or her duties is
affected. The Board will refer to the Conflict of Interest Policy
for the most appropriate mitigating control.
Records and Board minutes of all authorisations granted by
the Board and the scope of any approvals given are held and
maintained by the Company Secretary.
Rights of ordinary shares
All of the Company’s issued ordinary shares are fully paid
up and rank equally in all 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 of association. There
are no restrictions on the transfer of ordinary shares or on the
exercise of voting rights attached to them, except:
1. where the Company has exercised its right to suspend
its voting rights or to prohibit their transfer following the
omission by their holder or any person interested in them
to provide the Company with information requested by it
in accordance with Part 22 of the Companies Act; or
2. where their holder is precluded from exercising voting
rights by the FCA’s Listing Rules or the City Code on
Takeovers and Mergers.
Substantial shareholdings
In accordance with the Disclosure Guidance and
Transparency Rules (DTR 5) the Company, as at 14 March
2022 (being the latest practicable date prior to publication
of this report), had been notified that the following persons
hold directly or indirectly 3% or more of the voting rights of
the Company.
Redwood Capital Management 14.03%
Schroder Investment Management 12.99%
Davidson Kempner Capital Management 8.45%
BlackRock 7.43%
Marathon Asset Management 5.21%
Aberforth Partners 4.68%
Vanguard Group 4.59%
Premier Miton Investors 3.55%
Coltrane Asset Management CfD 3.00%
Provident Financial plc Annual Report and Financial Statements 2021
164
Substantial shareholdings continued
Interests as at 31 December 2021 were as follows:
Schroder Investment Management 16.32%
Redwood Capital Management 14.04%
Davidson Kempner Capital Management 6.77%
Aberforth Partners 5.86%
BlackRock 5.56%
Marathon Asset Management 5.37%
Vanguard Group Inc. 3.44%
Coltrane Asset Management CfD 3.00%
All interests disclosed to the Company in accordance with DTR
5 that have occurred since 23 March 2022 can be found on the
Group’s website: www.providentfinancial.com.
Directors’ interests in shares
The beneficial interests of the directors in the issued share
capital of the Company were as follows:
Number of shares
31 December
2021
31 December
2020
Malcolm Le May 942,231 914,241
Neeraj Kapur 400,838 300,143
Patrick Snowball 96,477 96,477
Andrea Blance — —
Elizabeth Chambers 12,000 12,000
Robert East 5,000 5,000
Paul Hewitt 34,205 34,205
Margot James — —
Angela Knight — —
Graham Lindsay 9,771 9,771
The above interests include those held by connected persons.
There have been no changes to the above interests between
31 December 2021 and the date of this report.
Dividend waiver
Information on dividend waivers currently in place can be
found on page 182.
Powers of the directors
Subject to the articles of association, 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 buying back of
the Company’s shares, which were granted by shareholders at
the 2021 AGM. The Board is seeking renewal of these powers at
the 2022 AGM.
All-employee share schemes
The current schemes for employees resident in the UK are the
Provident Financial Savings-Related Share Option Scheme
2013 and the Provident Financial Share Incentive Plan (SIP).
Share schemes are a long-established and successful
part of the total reward package offered by the Company,
encouraging and supporting employee share ownership.
The Company’s schemes aim to encourage employees’
involvement and interest in the financial performance and
success of the Group through share ownership.
Approximately 864 employees were participating in the
Company’s Save As You Earn schemes as at 31 December 2021
(2020: 1,100).
The Company’s SIP offers employees the opportunity to further
invest in the Company and to benefit from the Company’s
offer to match that investment on the basis of one matching
share for every four partnership shares purchased.
Approximately 139 employees were participating in the SIP
as at 31 December 2021 (2020: 344).
Executive share incentive schemes
Awards are also outstanding under the RSP and DBP. The
Remuneration Committee did not grant any options during
the year under the LTIS or DBP. RSP and CSOP options were
granted under the RSP on 18 August 2021. Further information
is set out on page 181.
Shares were awarded to the CEO under the role-based
allowance (RBA). Further information is set out on page 183.
Provident Financial plc 2007 Employee Benefit
Trust (EBT)
The EBT, a discretionary trust for the benefit of executive directors
and employees, was established in 2007. The trustee, SG
Kleinwort Hambros Trust (CI) Limited, is not a subsidiary of
the Company. The EBT operates in conjunction with the LTIS,
RSP, RBA and DBP and either purchases shares in the market
or subscribes for the issue of new shares. The EBT is funded
by loans from the Company which are then used to acquire,
either via market purchase or subscription, ordinary shares
to satisfy awards granted under the LTIS, RSP and DBP. Funds
are used to acquire shares by way of market purchase for
the RBA. For the purpose of the financial 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 29 on page 254 of the
financial statements.
In 2021, the EBT agreed to satisfy awards made under the
RSP and CSOP options under the RSP in relation to 1,419,974
shares in the Company. In 2021, the EBT also agreed to satisfy
a buyout award agreement in relation to 34,265 shares in
the Company and to satisfy an award under the RBA of 3,208
shares in the Company by way of market purchase.
As at 31 December 2021, the EBT held the non-beneficial
interest in 2,864,456 shares in the Company (2020: 2,857,442).
The EBT 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 beneficiaries.
Provident Financial Employee Benefit Trust
(the PF Trust)
The PF Trust, a discretionary trust for the benefit of executive
directors and employees, was established in 2003 and
operated in conjunction with the PSP. The trustee, Provident
Financial Trustees (Performance Share Plan) Limited, is a
subsidiary of the Company.
The PF Trust has not been operated with the Performance
Share Plan since 2012, when the previous PSP expired. As at
31 December 2021, the PF Trust had no interest in any shares
in the Company (2020: nil).
Provident BAYE Trust (the BAYE Trust)
The Provident BAYE Trust is a discretionary trust which was
established 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 used to acquire ordinary shares via market purchase to
satisfy the Matching Awards for participants of the SIP.
For the purposes of the financial statements, 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 2021, the BAYE Trust held the non-beneficial
interest in 211,894 shares (2020: 284,183 shares).
Directors’ Report continued
Provident Financial plc Annual Report and Financial Statements 2021
165
Governance
Profit and dividends
The continuing operations profit before taxation, amortisation
of acquisition intangibles and exceptional items amounts to
£167.8m (2020 profit: £27.8m).
As at the date of this report, the directors have declared
dividends as follows:
Ordinary shares (p) per share
Interim dividend
2022 12p
2021 £nil
2020 £nil
Proposed final dividend
2021 £nil
2020 (dividend withdrawn) £nil
Total ordinary dividend
2022 12p
2021 £nil
2020 £nil
Colleague engagement and involvement
The Group is committed to colleague involvement across
the Group. You can also read about how our directors have
engaged with colleagues, how they had regard to colleague
interests and the effect of that regard on pages 79 to 80
and 129 to 130.
In a conscious effort to further align all divisions, a new
Group-wide intranet has been developed in order to keep all
colleagues across the Group apprised of all relevant matters,
including the ongoing Covid-19 return to office plans. The second
half of 2021 has seen colleagues slowly return to the office under
safe and documented processes; colleagues have adapted
well to a hybrid working environment, with many individuals
dividing up their working week between their respective office
and their home. Furthermore, continuing on from 2020, we
provided colleagues with information on matters of concern
to them through a number of mechanisms, including: workforce
panels in each division, Company briefings and updates, mobile
applications, ‘town halls’ and internal newsletters from our CEO
and managing directors. Following external announcements
regarding the Group’s operational and financial performance,
internal communications and engagement are carried out
to keep colleagues up to date on Group performance. Senior
leaders across the Group regularly keep colleagues updated on
financial and operational performance and relevant strategic
issues through frequent updates. A regular vlog-style update
from the CEO, Malcolm Le May, highlights our progress and focus
on plans across the Group.
Colleagues are consulted with via our Group-wide
Colleague Survey and a Colleague Pulse Survey was also
undertaken during the year. Colleagues are also consulted
via our divisional workforce panels, as well as other local
engagement initiatives. We have a Designated Non-Executive
Colleague Champion who plays a lead role in Board
engagement with colleagues and understanding colleague
interests. You can read more about this on pages 129 and 130.
You can read how we encourage the involvement of UK
colleagues in the Company’s performance through an
employee share scheme on page 164.
The Group recognises Unite Ireland in respect of employee
relations, collective consultation and pay and conditions
for approximately 60 staff in the Republic of Ireland and the
Group engages with Unite Ireland as appropriate.
Business relationships with suppliers, customers
and others
You can read about how our directors had regard to the
need to foster the Company’s business relationships with
suppliers, customers and others and the effect of that regard,
including on the principal decisions taken by the Company,
on pages 75 to 86.
Learning and leadership development
The Group is fully committed to continual personal and
professional development, encouraging colleagues at all
levels to explore development opportunities available to them.
Following the successful launch of our Blueprint behaviours
and their alignment to our performance management
process, we have launched a Group-wide Management
Development programme, ‘Manager Blueprint’. Accredited
by the Institute of Leadership and Management, its aim is to
equip our managers with the skills and behaviours to be as
effective as possible in their role. In 2022 we will be launching
our Inclusive Leadership programme which will build on the
foundations of management and focus on developing the
key competencies which drive an inclusive culture through
our leadership practice. Our talent development activity
will continue to invest in the career development of our
colleagues, focusing on leadership development, professional
qualifications and coaching.
We continue to commit to and utilise the apprenticeship levy
as we support upskilling existing colleagues and utilising the
levy to support in role development and professional qualifications.
Equal Opportunities and Diversity Policy
The Group is committed to employment policies which follow
best practice, based on equal opportunities for all colleagues,
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 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
by the Group including making reasonable adjustments
where required. If members of staff become disabled, every
effort is made by the Group to ensure their continued
employment, either in the same or an alternative position, with
appropriate retraining being given if necessary. 2021 saw the
successful launch of the Group’s inclusion community across
the Group with four aligned Affinity Groups (Disability, LGBTQ+,
Gender Balance, Ethnicity and Social Mobility). We currently
have 125 active members and a wider ally membership.
Further commentary on this initiative can be found on page 58.
Investing in our workforce
We invest in our colleagues through recognition, reward,
development, wellbeing, the working environment and culture.
Colleagues are recognised through our new ‘Better Everyday’
recognition platform and our ‘Perks at Work’ scheme, which
offers colleagues in-store and online rewards and discounts,
online training courses and mental wellbeing courses.
Vanquis Bank, alongside all divisions, has recently rolled
out a new levelling structure linked to a harmonised Group
Reward Framework. This is part of our journey to becoming
1PFG and will enable clear career progression and movement
around the Group. A new Manager Blueprint programme has
been designed and roll-out has started in Vanquis and the
Company and this has been accredited by the Institute of
Leadership Management. Moneybarn’s ‘Be Brilliant’ leadership
programme saw 43 managers at varying levels undertake
the programme over a six-month period, with plans to pilot
a Group-wide Manager Blueprint programme in early 2022.
Provident Financial plc Annual Report and Financial Statements 2021
166
Investing in our workforce continued
Moneybarn introduced the Academy in 2021 in an attempt
to bolster its onboarding experience and help support
staff with low quality assurance scores, which has seen the
average result exceed the 85% benchmark and, after three
months in their role, 100% of agents agreed that they felt the
Academy had equipped them to work independently in the
contact centre.
With the challenges that 2021 has brought in relation to
the wind-down of CCD, the Group has looked to redeploy
employees where possible throughout the rest of the business
and limit the overall impact to existing colleagues. The Group
has looked to maintain the support for those colleagues and
facilitate a smooth transition.
As reported on page 126, our divisions support colleague
wellbeing in a number of ways, such as through mental
health training and Mental Health First Aiders, as well as the
newly utilised Thrive application that enables colleagues to
confidentially access materials that manage stress, anxiety
and related conditions.
In 2019, we signed up to the Women in Finance Charter
and this year we increased our female senior leadership
representation following the appointment of Cheryl Ball,
Chief Human Resources Officer, to the Group Executive
Committee. We also remain committed to achieving 40%
female senior leadership representation by December 2024.
Pensions
The Group operates two pension schemes in the UK.
Employee involvement in the Group defined benefit pension
scheme is achieved by 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 manage the
assets of the defined benefit pension scheme which are held
under trust separately from the assets of the Group. Each
trustee is encouraged to undertake training and regular
training sessions on current issues are carried out at meetings
of the trustees by the trustees’ advisors. The training schedule
is based on The Pensions Regulator’s Trustee Knowledge and
Understanding requirements. 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
year. The trustees have a risk register and an associated
action plan and a Conflicts of Interest Policy, both of which
are reviewed at least annually.
As at the year end there were three trustees nominated by
members and five trustees appointed by the Company.
The trustees have implemented a de-risking investment
strategy which has been agreed with the Company. The
objective of the strategy is to reduce the risk that the assets
would be insufficient in the future to meet the liabilities of the
scheme. The de-risking investment strategy is kept under
close review by both the trustees and the Company.
The Company has put Pension Trustee Indemnity Insurance
in place to cover all of the Group’s pension schemes where
individuals act as trustees. The trustees are also protected by
an indemnity within each scheme’s rules and this insurance
effectively protects the Group against the cost of potential
claims impacting on the solvency of the pension schemes.
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 and general
information about the plan.
The Group also operates a Group Personal Pension Plan
for employees of Moneybarn who joined the Group from
1 January 2003. Employees in this plan have access to the
insurer’s website which provides information on their funds
and general information about the plan.
Health and safety
The Group is committed to achieving high standards of health
and safety in relation to all of its colleagues, those affected
by its business activities and those attending its premises.
Each division has its own health and safety agenda, policy
standards and mandatory training in place to help colleagues
work safely at all times.
CCD had the particular risk of personal safety whilst out
collecting from customers but is now in wind-down.
During 2021, the Company has continued to support the
government in its efforts to ensure measures are put in place
that will prevent the spread of Covid-19 in the workplace.
A Future of Work plan has been implemented, with a continued
focus on preventing accidents, injuries and ill health, whilst
maintaining a flexible and proportionate approach. Hybrid
working capabilities have been put into effect with new
preventative strategies to promote healthy working practices,
and safe working procedures when working at home and in
the office.
There has been a significant decline in accidents and
incidents during the year, mainly attributable to the increase
in remote working, reduced work travel, minimised field visits
and risk reduction measures.
Anti-bribery and corruption
The Group policy
The Group has a policy on anti-bribery and corruption which
reflects the requirements of the Bribery Act 2010 (the Policy).
The Policy sets out the Group’s zero-tolerance approach
to bribery and corruption and its commitment to acting
professionally, fairly and with integrity in all its business
dealings and relationships, wherever it operates, and
implementing and enforcing effective systems and controls
to counter bribery, corruption and other financial crimes.
The Policy applies to all employees, self-employed agents,
contractors and directors in relation to the business activities
undertaken by, or on behalf of, the Group. It also applies to
any third party which is undertaking business for or on behalf
of the Group, which must comply with the Policy or maintain
equivalent standards and safeguards to prevent bribery
and corruption.
Under the Policy, all employees, self-employed agents,
contractors, directors, and relevant third parties of the Group
and its divisions must comply with the following minimum
requirements:
– they must not directly or indirectly engage in bribery
or corruption in any form; and
– they also must not accept, solicit, agree to receive,
promise, offer or give a bribe, or facilitate payment,
kickback or other improper payment.
The Policy also states that if an employee, self-employed
agent, contractor, director or relevant third party of the Group
or its divisions becomes aware of a breach of the above
minimum requirements they must immediately comply
with applicable protocols and procedures to inform an
appropriate person within the Group who must as soon as
is reasonably practicable report the incident to the Deputy
Company Secretary.
Directors’ Report continued
Provident Financial plc Annual Report and Financial Statements 2021
167
Governance
Compliance
The Risk and Audit Committees oversee compliance
and work together to review the systems and controls for
the prevention of bribery. Compliance is also monitored
by the Divisional Boards.
Related policies
Gifts and Corporate Hospitality Policy
The Group also has a Corporate Hospitality Policy which
requires divisional review, approval and documentation of
any gifts or corporate hospitality which are accepted, offered
or provided. The Audit Committee oversees the Corporate
Hospitality Policy.
Whistleblowing Policy
The Group has a Whistleblowing Policy which is overseen
by the Board. The Group is committed to fostering a culture
of openness, honesty and accountability and requires
the highest possible standards of professional and
ethical conduct.
A Group Whistleblowing Forum is in place which oversees
whistleblowing investigations, reviews management
information and takes the opportunity to consider
any concerns regarding persistent trends and shares
best practice.
Should any Group colleagues have any concerns relating
to anti-bribery and corruption or corporate hospitality then
anonymous concerns can be raised through the Group’s
external third-party helpline facility as detailed in the Group
Whistleblowing Policy. Whistleblowing arrangements are
overseen by the Board.
Training
The Group provides anti-bribery and corruption and
whistleblowing training to all of its colleagues.
Environment and greenhouse gas emissions
The Group’s greenhouse gas (GHG) and energy use
reporting is undertaken in accordance with our obligations
under both The Companies Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013 and the UK Government’s
Streamlined Energy and Carbon Reporting (SECR) policy that
has been implemented through the Companies (Directors’
Report) and Limited Liability Partnership (Energy and Carbon
Report) Regulations 2018. These emissions are reported in
accordance with WRI/WBCSD GHG Protocol. We use a financial
control approach to account for our GHG emissions and
use emission conversion factors from Defra/DECC’s GHG
Conversion Factors for Company Reporting 2020. Our GHG
emissions are calculated using energy use data accessed
via meters and energy suppliers, and from records of fuel use,
business travel bookings and waste management data.
The Group’s total GHG emissions, in tonnes of CO
2
equivalent (CO
2
e), along with details of our energy use
and an intensity ratio, are reported in the table on page
73. Corporate Citizenship has provided limited level ISAE
3000 (Revised) assurance in respect of this data. Its full,
independent assurance statement is available online at:
www.providentfinancial.com/sustainability. Where challenges
have occurred in obtaining data, estimates have been used
and assured by Corporate Citizenship.
To support the Group to meet the recommendations of the
Financial Stability Board’s Task Force on Climate-related
Financial Disclosures (TCFD), we established a new Climate Risk
Committee in 2021 to help us to assess and manage material
climate-related risks and opportunities. This Committee
is chaired by Gareth Cronin, the Group Chief Risk Officer,
and includes senior representatives from functions such as
Finance, Risk, Operations and Sustainability. Further details on
the progress the Group has made during 2021 in meeting the
TCFD recommendations are set out on pages 68 to 72.
To help us to manage and reduce our wider impacts on
the environment the Group continues to have in place
an environmental management system (EMS). Our EMS
helps us to identify, assess and reduce key environmental
risks and impacts; set and deliver against environmental
targets; and ensure our legal compliance. This EMS is
independently audited each year against the requirements
of the international management standard ISO 14001:2015.
Following the audits carried out in 2021, all our main premises
in Bradford, London, Chatham in Kent and Petersfield in
Hampshire were recertified to ISO 14001:2015. The ongoing
functioning of this EMS is overseen by the environmental
working groups that are in place across PFG.
Overseas branches
The Group closed its overseas branches in the
Republic of Ireland on 30 June 2021.
Important events since the end of the financial
year (31 December 2021)
On 13 January 2022 the Company announced a restructure
of the Board of Vanquis Bank to substantially align its
membership with the Board of the Company. The decision to
streamline the Boards of the two legal entities formed part of
the Group’s new target operating model which has delivered
immediate benefits of efficiency and reduced duplication
in the Group’s governance structure. The changes were an
important step in transforming the operating model and
executing the Group’s strategy. You can read more about the
Group’s strategy in our Strategic Report on pages 1 to 107 and
the governance process underpinning our strategy on page 117.
Corporate governance statement
The Group’s Corporate Governance Report is set out on pages
108 to 168. The Group was fully compliant with all the provisions
of the Code throughout the whole of 2021.
Financial instruments
Details of the financial risk management objectives and
policies of the Group and the exposure of the Group to credit
risk, liquidity risk, cash flow risk, price risk, interest rate risk and
foreign exchange rate risk are included on pages 206 to 210
of the financial statements.
Significant agreements
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 on termination of employment or for loss of office as
a consequence of a takeover of the Company.
Political donations
The Group did not make any political donations nor incur any
political expenditure during the year.
Directors’ responsibilities
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable
law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law, the directors
are required to prepare the group financial statements in
accordance with UK-adopted international accounting standards.
Provident Financial plc Annual Report and Financial Statements 2021
168
Directors’ responsibilities continued
In preparing these financial statements, International
Accounting Standard 1 requires that directors:
– properly select and apply accounting policies;
– present information, including accounting policies,
in a manner that provides relevant, reliable, comparable
and understandable information;
– provide additional disclosures when compliance with
the specific requirements in IFRS Standards are insufficient
to enable users to understand the impact of particular
transactions, other events and conditions on the entity’s
financial position and financial performance; and
– make an assessment of the company’s ability to continue
as a going concern.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the company’s transactions and disclose with reasonable
accuracy at any time the financial position of the company
and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible
for safeguarding the assets of the company and hence for
taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors’ responsibility statement
We confirm that to the best of our knowledge:
– the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the company and the undertakings included in the
consolidation taken as a whole;
– the strategic report includes a fair review of the
development and performance of the business and the
position of the company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face; and
– the annual report and financial statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess
the company’s position, performance, business model
and strategy.
The directors are also required by the FCA’s Disclosure
Guidance and Transparency Rules (DTR) to include a
management report containing a fair review of the business
of the Group and the Company and a description of the
principal risks, emerging risks and uncertainties facing the
Group and Company.
The Directors’ Report and the Strategic Report constitute
the management report for the purposes of DTR 4.1.5R and
DTR 4.1.8R. The directors are responsible for keeping proper
accounting records that are sufficient to:
– show and explain the Company’s transactions;
– disclose with reasonable accuracy at any time the
financial position of the Company and Group; and
– enable them to ensure that the financial statements
and the Directors’ Remuneration Report comply with
the Act and, as regards the Group financial statements,
Article 4 of the IAS Regulation. They are also responsible
for safeguarding the assets of the Company and the
Group and taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Annual Report and Financial Statements 2021 will be
published on the Group’s website in addition to the normal
paper version.
The directors are responsible for the maintenance and integrity
of the Group’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Responsibility statement
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
are required to prepare the Group financial statements
in accordance with relevant IFRS, IFRIC interpretations
and the Companies Act 2006.
Patrick Snowball Chairman
Malcolm Le May Chief Executive Officer
Neeraj Kapur Chief Finance Officer
Andrea Blance Senior Independent Director
Angela Knight Independent Non-Executive Director
Elizabeth Chambers Independent Non-Executive Director
Margot James Independent Non-Executive Director
Paul Hewitt Independent Non-Executive Director
Graham Lindsay Independent Non-Executive Director
Disclosure of information to auditor
In accordance with section 418 of the Act, each person
who is a director as at the date of this report confirms that:
– so far as they are aware, there is no relevant audit information
of which the Company’s external auditor is unaware; and
– they have taken all steps that ought to have been taken
as a director in order to make themselves aware of any
relevant audit information and to establish that the
Company’s external auditor is aware of that information.
Auditor
Deloitte LLP, the external auditor for the Company, was first
appointed in 2012 and, following a tender process in 2021, a resolution
proposing its reappointment will be proposed at the 2022 AGM.
2022 AGM
The 2022 AGM will be held at our Bradford office at No 1 Godwin
Street, Bradford BD1 2SU, on 29 June 2022 at 3pm. The Notice of
AGM, together with an explanation of the items of business, will
be contained in the circular to shareholders dated 6 April 2022.
Approved by the Board on 6 April 2022 and signed by order
of the Board.
Charlotte Davies
General Counsel and Company Secretary
6 April 2022
Directors’ Report continued
Provident Financial plc Annual Report and Financial Statements 2021
169
Directors’ Remuneration Report
Ensuring remuneration
reflects business outcomes
Directors’ Remuneration Report
Annual Statement by the Chair of the Remuneration Committee
The report complies with the provisions of the
Companies Act, the Large and Medium-sized
Companies and Groups (Accounts and Reports)
Regulations 2008 and the Listing Rules of the Financial
Conduct Authority (FCA). The Company also follows the
requirements of the UK Corporate Governance Code
(the Code) updated in July 2018.
On behalf of the Board, and as the Chair of the
Remuneration Committee, I am pleased to present
the Directors’ Remuneration report for the year
ended 31 December 2021. The report sets out how the
Committee carried out its responsibilities during the
year and our approach to remuneration in 2021 and
explains the rationale for our decision making.
Committee members (attendance)
Andrea Blance (Chair) (6/6 plus 1/1 ad hoc)
Margot James (6/6 plus 0/1 ad hoc)
Graham Lindsay (6/6 plus 1/1 ad hoc)
The Chairman, the Group Chief Executive Officer
(CEO), the Chief Human Resources Officer (CHRO),
the Group Reward Director and the Committee’s
independent advisor (PwC) attend Committee
meetings by invitation. No person is in attendance
when their own remuneration is being discussed.
Andrea Blance
Remuneration Committee Chair
Our Remuneration Policy has been stress
tested in the last two years by the events
of the pandemic and we believe it has
delivered the right behaviours and reward
outcomes across the Group.
Andrea Blance
Remuneration Committee Chair
Provident Financial plc Annual Report and Financial Statements 2021
170
Directors’ Remuneration Report continued
Annual Statement by the Chair of the Remuneration Committee continued
It has been a testing year for us all. The lessons we learned in 2020 about living, and operating, in a pandemic were at the
forefront of all of our minds as we entered 2021. Whilst recognising the human cost in 2021, we were all better prepared to
manage in a pandemic environment and our colleagues continued to perform admirably and support our customers whose
confidence increased noticeably during 2021.
As a result, 2021 was strategically important as it allowed us to focus on our journey to becoming a leading specialist bank
focused on underserved markets. Our colleagues delivered the restructuring of the business to enable us to take the next
step in our strategy and created (and launched) important new products to service our customers. Our new organisational
structure, new products and robust liquidity ensure that we are well positioned to deliver attractive and sustainable returns
to shareholders from our platform of credit cards, vehicle finance and personal loans supported by a strong balance sheet.
All of this was underpinned by the announcement by PFG that we intended to restart dividend payments in 2022 with a
communicated dividend strategy.
The remuneration strategy that we have been pursuing for a number of years also demonstrated clearly that it was sufficiently
flexible to deliver the correct outcomes in this changing environment. 2020 was a year in which financial performance (albeit on
many occasions outside of our control) was insufficient and this was reflected in zero bonuses for all management. 2021 was a
year of material change and very significant successes in both our financial and non-financial metrics, which has meant that
remuneration (via bonus payments) has responded in a proportionate manner.
2021 AGM and engagement with shareholders
The 2020 Remuneration Report received very strong support at the 2021 AGM, with 98.98% of votes received in favour. We believe
this outcome provided further evidence that shareholders remain satisfied with the Group’s remuneration structure, approved
at the 2020 GM, and its implementation. During the year we have maintained ongoing engagement with investors about
remuneration largely via our Chairman following our intensive schedule of meetings in 2020.
The existing Remuneration Policy has worked well during the pandemic and the outcomes in 2020 (when we decided not to pay
bonus) and in 2021 (when we are paying bonus) are appropriate. As such, the Group remuneration framework will follow a similar
approach for the year ahead. During 2022, we also look to refine our approach to remuneration taking into account our business
needs, changing regulation and evolving best practice. This evolution will be presented to shareholders at the AGM in 2023 when
we seek to update our Directors’ Remuneration Policy, as required.
2021 was strategically important as it
allowed us to focus on our journey to
becoming a leading specialist bank
focused on underserved markets. Our
colleagues delivered the restructuring of
the business to enable us to take the next
step in our strategy and created (and
launched) important new products to
service our customers.
Andrea Blance
Remuneration Committee Chair
Provident Financial plc Annual Report and Financial Statements 2021
171
Directors’ Remuneration Report
2021 Group performance
As mentioned earlier, 2021 was a strategically important year for PFG as we delivered very strong performance driven by
favourable macroeconomic conditions and demand for credit from customers, reinforcing our position as the leading specialist
bank focused on underserved markets. The Company launched the pilot of its new personal loans offering, Sunflower Loans,
in the fourth quarter and the Vanquis Bank open market loans pilot has started encouragingly, demonstrating strong demand
for a loans product in its target customer demographic.
In addition, there has been a strong focus on ensuring that our underlying financial position (and the supporting organisational
structure) is sufficiently robust that we can attain our strategic goals.
One of the main organisational changes was in the withdrawal from the home credit market. This was due to a response to
evolving customer demand, changing regulation, changing home credit market dynamics and the desire to focus on larger
market segments. The home credit business was placed into a managed run-off, which was concluded before the end of 2021.
As a result, Group adjusted profit before tax (continuing operations), of £167.8m (up from £27.8m in 2020) reflects a reduction in
impairment year on year which offsets the fall in revenue and rise in costs. For reference, the Adjusted profit before tax (including
discontinued operations) is £72.3m (2020: loss of £47.1m). Adjusted Return on Required Equity (“RORE”) for continuing operations is up
from 6.3% to 32.6% and the Board is proposing a dividend of 30% of adjusted ongoing earnings with respect to 2021 (nil in 2020).
The Board and I look forward to 2022 with confidence, as reflected in the Board’s dividend policy guidance. I would like to thank
all our colleagues and customers without whom such important achievements would not have been possible. PFG is well
positioned to deliver attractive and sustainable returns to shareholders built on a platform of credit cards, vehicle finance
and personal loans underpinned by a strong balance sheet.
Executive director remuneration in 2021
Annual bonus for executive directors
The annual bonus pool is determined based on performance against corporate scorecard targets. The Committee reviews the
specific metrics, and weightings, on an annual basis to ensure alignment between the interests of our executive directors, our
strategy and the interests of our stakeholders. The targets are set, by reference to internal and external forecasts, to encourage
stretching levels of performance and to align with the Group’s annual budget. The Committee regularly reviews throughout the
year the ongoing performance against the metrics.
The financial element of the annual bonus reflected the Group’s strong performance over 2021, with exceptional delivery on
targets for adjusted profit before tax and adjusted RORE. The Committee determined that the financial element of the annual
bonus outcome should vest at 100% for both the CEO and CFO. With regard to achievement under the Group’s non-financial
scorecard, the Committee determined a vesting outcome of 90% for both executives based on strong performance against
scorecard objectives. This results in an overall annual bonus vesting of 96% for the CEO and CFO (nil for both in 2020). We have
set out in more detail the annual bonus results for 2021 on page 180.
The Committee believes that the remuneration outcomes accurately reflect the performance of the Group over the year and are
justified in context of the experience across its stakeholders.
LTIS 2019 vesting
The 2019 Long Term Incentive Scheme (LTIS) award for the CEO was due to vest in March 2022 based on performance over three
years from 2019 to 2021.
The EPS and TSR measures (which account for 90% of the overall award) have not been met. The risk position of the Group
has slightly improved from last year, resulting in the risk measure (which accounts for 10% of the overall award) being partially
met. Taking into consideration the wider context and to remain consistent with our assessment of LTIS in previous years, the
Committee exercised its discretion and determined that the vesting outcome for the 2019 LTIS awards is nil.
Note, we have chosen not to adjust the performance targets to reflect the increased stretch in both the financial and strategic
measures caused by the impact of the pandemic for existing LTIS awards.
Single total figures of remuneration for 2021
The resulting single total figure of remuneration was £1,972k for the CEO and £1,301k for the CFO. Full details are set out in the
Annual Report on Remuneration on page 179. This represents a year-on-year increase of 141% and 52% driven entirely by the
award of a bonus in 2021 which was not payable in 2020.
Wider employee pay
The Board is committed to ensuring there is an open dialogue with our colleagues over various decisions. The Committee Chairs
(Remuneration and Culture, Customer and Ethics (CCE)) have discussed the remuneration policy and practice for executive
directors with the Colleague Forum in 2021. In 2020, the Committee conducted a review of the wider colleague remuneration
and incentives with a key part being consistency and fairness across the organisation via an appropriate framework. We have
started to introduce a Group Reward Framework which brings full consistency in salary, bonus and benefit levels with the only
variation being due to location (salary levels) and personal/divisional performance outcomes (bonus levels). This increase
in fairness and transparency is particularly important as we continue our efforts to evolve to a 1PFG environment. It is also
important as we can now more clearly demonstrate the linkages in bonus outcomes at all levels within PFG and the cascade
of metrics between all our colleagues including the executive directors.
Provident Financial plc Annual Report and Financial Statements 2021
172
Implementation of Remuneration Policy in 2022
The Committee considers that the current Policy, approved at the November 2020 GM, has operated as intended and does
not require a fundamental change. However, we are proposing the following changes which the Committee considers to be
appropriate to ensure that the Policy will continue to operate effectively in line with our strategic priorities and support attraction
and retention of key talent.
– base salary: increase level of base salary for executive directors of 5% in line with the average increase for the wider 5%
colleague increase;
– remuneration package for the CFO: increase restricted stock awards for the CFO to 100% of base salary which is the
maximum allowed under the Policy (actual award levels to date have been at 75% of base salary); and
– annual bonus and corporate scorecard: equalise the weighting of the measures under the Group non-financial scorecard
for annual bonus, so each individual measure is 20% of the non-financial scorecard (currently 20% strategy, 40% regulatory
risk and conduct, 10% investor relations, 20% customer and 10% colleague). We believe that this is the appropriate mix in 2022
and is in line with our priorities.
Base salary for executive directors
In line with our Policy, the Committee reviewed base salaries for the executive directors against comparator groups and
considered what was appropriate given internal increases. The Committee concluded that a 5% increase, in line with our
colleagues (all performing colleagues are receiving a 5% increase), is suitable with changes taking effect from 1 January 2022.
The Company previously announced a commitment for all eligible employees to receive a 5% salary increase in the 2022
financial year. This standard approach is a ‘one-off’ for us as we normally distribute our salary increases based on a
performance vs market approach. However, we felt that as we exited the pandemic with all the associated increases in fuel,
travel, etc. that this was the fairest approach for 2022.
Remuneration package for the CFO
During 2021, we reviewed the CFO’s remuneration in recognition of his significant contribution in the ongoing evolution of
business strategy and the ever-changing marketplace. We concluded that increasing the CFO’s salary (beyond the standard
colleagues’ increase of 5%), or bonus, would not be appropriate. However, we concluded it was appropriate to increase his
long-term incentive maximum opportunity from 75% of salary to align with the CEO at 100% of salary (actual award levels to
date have been at 75% of base salary). We believe that this approach further strengthens his alignment to shareholders as we
continue to deliver on our ambition to be the leading specialist bank focused on underserved markets. The change to his annual
restricted stock grant will take place from 2022 onwards.
Annual bonus and corporate scorecard
There is no change in the mix of financials (60%) and non-financials (40%) – with an underlying risk underpin. We have used this
structure for a number of years and it remains optimal. Each year we review the mix within the non-financial scorecard to make
sure that it reflects our business plan priorities. For 2022, we have made a number of changes as follows:
The weightings will be reviewed, as usual, for 2023.
Directors’ Remuneration Report continued
Annual Statement by the Chair of the Remuneration Committee continued
Strategy
20%
(2020: 20%)
Regulatory
risk and conduct
20%
(2020: 40%)
Investor
relations
20%
(2020: 10%)
Customer
20%
(2020: 20%)
People
20%
(2020: 10%)
Provident Financial plc Annual Report and Financial Statements 2021
173
Directors’ Remuneration Report
2022 RSP to be granted in April 2022
After considering 2021 performance, 2022 RSP awards will be granted to the CEO, and the CFO, of 100% of base salary in line with
our Policy. Subject to underpin criteria, as set out in our Policy, awards will vest in three years with an additional retention period
of two years after vesting. All bonus and stock plans are subject to our Malus and Clawback Policy.
Chair and NED fees
In order to reflect the increased time and focus required as a result of the changes arising from the streamlining of the Group’s
governance, the Committee Chair fees increased from £20,000 to £25,000.
The increases in Chairman fees, NED base fees, committee membership fees and SID fees are in line with the 5% increase
awarded to the wider workforce. All increases were applied from 1 January 2022.
Conclusion
Overall, the Committee is satisfied that the Remuneration Policy (approved at the 2020 GM), with the proposed changes as
mentioned earlier, supports PFG’s business strategy. As mentioned earlier, we believe that the Policy has been stress tested in
the last two years by the events of the pandemic and we believe that it has delivered the right behaviours and reward outcomes
across the Group, and competitively positions the Company’s remuneration against its peers. The executive directors, the senior
management team and all of our colleagues have made exceptional contributions to the business over the year, showing great
resilience to support the Group through yet another challenging year. This is reflected in the outcomes of the bonus pool in 2021
(payable 2022) as opposed to 2020 (payable 2021).
In the rest of this report we present the disclosures required by regulations, as well as additional information to explain how our
executive remuneration aligns with our strategy, with shareholder interests and with wider workforce pay.
I would like to thank our shareholders for their continued support during the year. I will be available at the Company’s 2022 AGM
to answer any questions in relation to this Remuneration Report.
Andrea Blance
Remuneration Committee Chair
6 April 2022
Provident Financial plc Annual Report and Financial Statements 2021
174
Directors’ Remuneration Report continued
Remuneration at a glance
The following section sets out:
– an illustration of the operation of the Policy for 2022;
– a summary of the executive directors’ single total remuneration figures, and outcomes under the 2021 Annual Bonus Plan
and the LTIS 2019; and
– an overview of executive directors’ shareholdings.
Illustration of the Directors’ Remuneration Policy in 2022
Salary: 5% increase in line with average increase
for the wider workforce
– CEO: £749,700
– CFO: £551,250
Role-based allowance (RBA): No change from 2021
– CEO: 15% of salary
– Maximum annual RBA grant for individual – 25% of salary
– Delivered in shares. Released in equal instalments over
three years
Pension: Executive pensions aligned with the wider workforce
by end of 2022
– Current EDs:
– CEO: 15% of salary (reducing to 10% of salary as of
31 December 2022, in line with the wider workforce)
– CFO: 10% of salary (in line with the wider workforce)
– New EDs: In line with the wider workforce
Annual bonus: Changes to weightings of measures within
non-financial scorecard to reflect business priorities for 2022
– Maximum opportunity:
– CEO: 150% of salary
– CFO: 125% of salary
– Performance conditions:
– 60% financial
– Adjusted PBT (30%)
– Adjusted RORE (30%)
– 40% non-financial:
– Strategy 8% (2021: 8%)
– Regulatory risk and conduct 8% (2021: 16%)
– Investor relations 8% (2021: 4%)
– Customer 8% (2021: 8%)
– People 8% (2021: 4%)
– Risk overlay and CET1 underpin
– Deferral: At least 40% deferred for three years in Company shares
RSP: Increase in award level for CFO in line with Policy
– Award level:
– CEO: 100% of salary
– CFO: 100% of salary (2021: 75% of salary)
– As a part of grant process, Committee will consider
individuals’ personal and business performance for the prior
year and determine whether the proposed level of grant
remains appropriate
– Performance conditions: Underpin of Remuneration Committee
discretion on vesting
– Vesting: Three years with a two-year holding period post-vesting
Shareholding requirement: No change from 2021
– CEO/CFO: 200% of salary
– Full requirement to be held for two years post-cessation
Restricted Share Plan
100% of salary
Restricted
shares
Salary,
pension,
benefits
paid
RBA
RBA RBA RBA
Shares
vest after
three years
Deferred
bonus vests
Vested
shares
released
after
two years
Deferred
bonus
At least 40%
Cash
bonus
Year 0
(performance
year)
+1 +2 +3 +4 +5
Minimum shareholding of 200% of salary
Pre-grant
performance
consideration
Vesting period
subject to continued
employment and
underpin
Two-year
holding
period
Part of the bonus
is deferred
RBA vests in equal
tranches
Annual bonus
CEO – 150% of salary
CFO – 125% of salary
Fixed remuneration
Provident Financial plc Annual Report and Financial Statements 2021
175
Directors’ Remuneration Report
2021 annual bonus outcome
The tables below summarise performance against the targets set for the 2021 bonus and the outcome, before and after
Committee discretion.
Performance range
Threshold Target Maximum
85% 100% 110% Actual* Weighting Outcome
Financial 60% 100%
Adjusted PBT £59.4m £69.9m £76.9m £147.2m 30% 100%
Adjusted RORE 12.1% 14.3% 15.7% 32.6% 30% 100%
Non-financial 40% 90%
Risk overlay Satisfactory
CET1 gateway
The Group achieved a CET1 ratio of 29.1%
(above our hurdle)
Total outcome before Committee discretion 96%
Total outcome after Committee discretion 96%
* The above targets were set during the finalisation of the CCD re-organisation and the outcomes of PBT and RORE have been suitably adjusted. Hence,
the apparent variation between the published Adjusted PBT and what is stated in this table.
Executive director 2021 remuneration outcomes
The chart below shows an estimate of the remuneration that could be received by executive directors under the
Policy and how our performance has flowed through to the remuneration provided to our executive directors. The full
explanatory notes for each element of remuneration are detailed on page 185 in the Annual Report on Remuneration.
Remuneration (£’000)
Fixed
Annual bonus
RSP
Share price
Minimum Minimum
Malcolm Le May, Chief Executive Officer Neeraj Kapur, Chief Finance Officer
Maximum Single
figure
2021
Single
figure
2020
Single
figure
2021
Single
figure
2020
Maximum
100%
990
618
100%
On-
target
1,927
On-
target
1,239
3,239
1,972
818
2,134
1,301
857
51%
29%
19%
28%
22%
50%
35%
23%
12%
31%
52%
48%
100%
32%
26%
13%
29%
52%
48%
100%
– Minimum pay is fixed pay only, i.e. salary + benefits + pension + RBA.
– On-target pay includes fixed pay, 60% of the maximum bonus (equal to 150% of salary for the CEO and 125%
for the CFO) and 100% vesting of the RSP awards (with grant levels of 100% of salary for the CEO and CFO).
– Maximum pay includes fixed pay and assumes 100% vesting of both the annual bonus and the RSP awards.
The illustration assumes a 50% share price increase on RSP shares over the vesting period.
– All amounts have been rounded to the nearest £1,000.
– The value of taxable benefits is the cost of providing those benefits in the year ended 31 December 2021.
Provident Financial plc Annual Report and Financial Statements 2021
176
Directors’ Remuneration Report continued
Remuneration at a glance continued
LTIS 2019 vesting
The table shows the outcome of the 2019 LTIS awards, for
which the performance period ended on 31 December 2021.
The value in the table below is based on the Remuneration
Committee’s assessment of the standard proportion of the
total potential LTIS vesting.
The Committee determined that whilst our risk position was
improving, remaining consistent with our assessment in 2020
and taking into account the wider context then, as in 2021,
there should be a nil vest.
Weighting Threshold Maximum Assessment Vesting outcome
Cumulative EPS 60% 153p 187p Below threshold 0%
Relative TSR 30% Median UQ Below threshold 0%
Risk indicators 10% 7 10 8 (out of 10)
0%
(based on
Committee discretion)
Executive directors’ shareholdings
Executives are expected to build and maintain a Company shareholding in direct proportion to their remuneration in
order to align their interests to those of shareholders. The chart below sets out the minimum shareholding requirements
and the actual shareholdings for the individuals. The percentages are a function of base salary.
Our executive directors are on track to meet their shareholding requirements of 200% within the required time frame of five years.
In addition, executive directors are required to hold shares worth 200% of base salary – the in-employment requirement
(or the executive’s actual shareholding on cessation if lower) for two years following cessation of employment.
Shares held outright
Unvested shares not subject to performance
Unvested shares subject to performance
Unvested share options subject to performance
Chief Executive Officer Chief Finance Officer
315%
183%
63%
160%
92%
175%
8%
Link between remuneration and equity
of the executive directors
We believe that equity has an important part to play in the
remuneration of the executive directors. There is a need for the
executive directors to understand from first-hand experience
the position of the shareholders and our Restricted Share Plan
(and deferred bonus schemes) are structured to support that
understanding. This link has been strengthened in the last few
years as we require our executive directors to hold their shares
for a period of two years post-departure. We monitor regularly
that the directors are on track to meet their obligations under
the Share Ownership Policy and we confirm that they are both
currently on track.
We believe that the remuneration outcomes of the last few years
demonstrate the clear link to Company performance. Further
evidence of the clear linkage can be found in the outcomes of the
vesting stock plans (and the decisions made by the Committee).
To ensure that our executive directors are incentivised to
take a long-term, sustainable view of the performance of the
Company, when we look at the remuneration paid in the year,
we also look at the total equity they hold and its value based
on the performance of the Company.
The table sets out the number of shares beneficially owned
by the executive directors at the beginning and end of the
financial year, and the impact on the value of these shares
taking the opening and closing price for the year.
2021
single
figure
£’000
Shares
held at
the start
of the year
Shares
held at
the end
of the year
Value of
shares at
the start of
the year
1
£‘000
Value of
shares at
the end of
the year
2
£’000
Difference
£’000
CEO 1,972 703,834 942,231 2,160.8 3,384.5 1,223.7
CFO 1,301 287,695 400,838 883.2 1,439.8 556.6
1 Based on a closing share price on 31 December 2020 of £3.070.
2 Based on a closing share price on 31 December 2021 of £3.592.
Provident Financial plc Annual Report and Financial Statements 2021
177
Directors’ Remuneration Report
Annual Report
on Remuneration
The report complies with the provisions of the Companies Act 2006, the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 and the Listing Rules of the Financial Conduct Authority (FCA). The Company also
follows the requirements of the UK Corporate Governance Code (the Code) updated in July 2018.
Certain alternative performance measures (APMs) have been used in this report. See page 181 for an explanation of relevance
as well as their definition.
Contents
Detail Page
Remuneration principles 178
Remuneration governance 179
Single total figure of remuneration (audited) 179
2021 bonus outcome calculation (audited) 180
RSP 2021 grant 181
LTIS 2019 vesting (audited) 182
Fees from other directorships 182
Statement of directors’ shareholding and share interests (audited) 182
Statement of directors’ compliance with the Share Ownership Policy 183
Relative importance of spend on pay 184
Implementation of Policy in 2022 185
Our approach to fairness and wider workforce considerations 187
Overview of workforce remuneration and the Committee’s review 187
Communication and engagement with colleagues 188
Living Wage, equal opportunities and diversity initiatives 189
Gender pay gap 189
CEO pay ratio 189
CEO and average colleague pay against total shareholder return (TSR) 190
Percentage change in directors’, and employees’, remuneration 191
Provident Financial plc Annual Report and Financial Statements 2021
178
Remuneration principles
We strongly believe in fair and transparent reward throughout the organisation and when making decisions on executive
remuneration the Committee considers the context of wider workforce remuneration. This section shows how the 2018 Code is
embedded in our remuneration principles and how they are cascaded throughout the organisation. The table below shows how
the Policy is aligned with the factors set out in Provision 40, and how our principles and Policy are aligned with the 2018 Code.
Our strategy
Grow customer-centric
businesses
Act responsibly
and with integrity
Maintain a secure funding
and capital structure
Our remuneration principles
– Support delivery
of the Group’s
business
strategy, realise
our Blueprint
vision and
be customer
champion within
our sector.
– Have
flexibility in
delivering total
remuneration
outcomes
in changing
market,
economic,
commercial
and regulatory
circumstances.
– Maintain a competitive reward and
recognition offering in the markets in
which we compete, thereby supporting
our talent attraction, engagement and
retention aims.
– Align the interests of our employees with
those of our customers, regulators and
shareholders.
– Ensure remuneration outcomes are
fair and consistent, reflect pay for
performance and are clear and
transparent for all our employees.
– Drive the Group’s diversity, equality
and inclusion agenda.
– Support and mitigate any conflicts of interests.
– Manage remuneration opportunities and
outcomes for regulated employees under
the Senior Managers and Certification
Regime and material risk takers under the
Remuneration Code.
– Support the effectiveness of the Group’s
Enterprise Risk Management Framework
and incentivise the delivery of the business
strategy within risk appetite via a controls-
based framework and positive risk
conduct culture.
How does the Committee address the requirements under Provision 40?
Culture
alignment
– The Committee
ensures that the
overall reward
framework
embeds
our Purpose.
– The Committee
reviews the
executive reward
framework
regularly
to ensure it
supports the
Company’s
culture
and strategy.
– The ED
Remuneration
Policy is
cascaded down
the organisation
ensuring that
there are
common goals.
Proportionality
– Performance
measures
under the
annual bonus
as well as the
RSP underpin
are aligned with
the Company’s
scorecard
and the
payouts reflect
achievement
against
the target.
– The Committee
may apply
discretion
to reduce
outcomes
under the
annual bonus
and RSP – if they
are considered
inconsistent
with the
underlying
performance of
the business.
Simplicity
– Policy for EDs is
simple and clear,
consisting of:
– fixed pay
(salary, fixed
pension
contribution,
role-based
allowance)
set to reflect
the typical
rate provided
to the UK
workforce; and
– variable pay
comprising
an annual
bonus scheme
(partly
deferred into
shares) and
restricted
stock awards
which provide
focus over the
long term.
– The Committee
avoids
unnecessary
complexity in
operating the
arrangements.
Predictability
– The Committee
sets specific
targets for
different levels
of performance
which are
communicated
to the EDs and
disclosed to
shareholders.
Clarity
– Remuneration
arrangements
have defined
parameters
that can be
transparently
communicated to
shareholders and
stakeholders.
– The Committee
consulted with
shareholders as
part of the design
phase of the
Policy approved
at the 2020 GM.
How executives’
pay is set has
subsequently been
communicated
to the wider
workforce along
with how it is
aligned with
the Company’s
approach to wider
pay policy and
how decisions
are made by the
Committee.
Risk
– Remuneration
arrangements
are designed to
have robust link
between pay and
performance thereby
mitigating risk of
excessive reward.
– Policy has safeguards
including Committee
discretion to adjust
incentive outcomes.
– The Committee
ensures that a
significant portion
of reward is equity
based and has
deferral (40% of
annual bonus
deferred in shares for
three years and 100%
of RSP is in shares)
thereby linked to
shareholder return.
– Recovery provisions
such as malus and
clawback apply to
the Policy.
– Executives are
required to build
significant personal
shareholdings in
the Company.
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Provident Financial plc Annual Report and Financial Statements 2021
179
Directors’ Remuneration Report
Remuneration governance
The Committee met seven times in 2021. The following schematic sets out the key considerations for the Remuneration Committee
during 2021:
Governance Annual bonus Share plans
All
colleague
matters General DRR
Design Review Grant Review Risk Shareholder
January
March
May
July
September
November
December
The CEO, the Chief Human Resources Officer and the Group Reward Director also attend meetings, by invitation, to provide
advice and respond to specific questions. Such attendances are specifically excluded on any matter concerning their own
remuneration. The Chief Risk Officer attends several meetings throughout the year to provide updates, where necessary.
The Company Secretary acts as secretary to the Committee.
Advisors to the Committee
To ensure that the Company’s remuneration practices are in line with best practice, the Remuneration Committee has
appointed independent external remuneration advisors, PricewaterhouseCoopers LLP (PwC). This appointment in 2020 followed
a competitive tender process. PwC attends meetings of the Committee. The Committee reviewed the performance of PwC
during 2021 and determined that it was strong and that the appointment should continue throughout 2022.
Fees, on a time-spent basis, for the advice provided by PwC to the Committee during the year were £114,575 excluding VAT
(2020: £97,000). Other than in relation to advice on remuneration, PwC provides support to management in relation to tax
compliance, IT and internal audit and ad-hoc tax and accounting advice. The Committee is satisfied that PwC engagement
partners and teams which provided remuneration advice to the Committee do not have connections with the Group or the
executive directors that may impair their objectivity and independence.
Single total figure of remuneration (audited)
The table below sets out a single total figure of remuneration for each director for the year ended 31 December 2021 and the prior year:
Salary/fees
£’000
Role-based
allowance
(RBA)
£’000
Taxable
benefits
1
£’000
Annual
bonus
2
£’000
LTIS/RSP
5
£’000
Pension
3
£’000
Total
£’000
Total
fixed
remuneration
£’000
Total
variable
remuneration
£’000
Executive directors
Malcolm Le May 2021 714 107 16 1,028 — 107 1,972 944 1,028
2020 679 — 32 0 — 107 818 818 0
Neeraj Kapur 2021 607 — 12 630 — 52 1,301 671 630
2020 808 — 8 0 — 41 857 857 0
Non-executive directors
Patrick Snowball 2021 320 — 1 — — — 321 321 —
2020 347 — 3 — — — 350 350 —
Andrea Blance 2021 118 — 1 — — — 119 119 —
2020 112 — 2 — — — 114 114 —
Elizabeth Chambers 2021 83 — 23 — — — 106 106 —
2020 82 — 23 — — — 105 105 —
Robert East
4
2021 78 — — — — — 78 78 —
2020 74 — — — — — 74 74 —
Paul Hewitt 2021 103 — 3 — — — 106 106 —
2020 98 — 2 — — — 100 100 —
Margot James 2021 83 — — — — — 83 83 —
2020 36 — — — — — 36 36 —
Angela Knight 2021 103 — — — — — 103 103 —
2020 101 — — — — — 101 101 —
Graham Lindsay 2021 103 — 2 — — — 105 105 —
2020 95 — 4 — — — 99 99 —
1 Directors receive standard market comparable benefits such as medical insurance and life assurance. NEDs have travel expenses reimbursed and,
to the extent that those are taxable, grossed up for tax and NIC.
2 40% of the annual bonus is deferred into shares for an additional three years (subject to continued service, in normal circumstances).
3 Pension participation is via a defined contribution plan (or cash alternative) with no executive director having a prospective entitlement under a defined benefit plan.
4 Robert East also receives an additional fee for his chairmanship of Vanquis Bank.
5 2019 LTIS vesting outcome was nil. None of the previous RSP awards have vested yet.
Provident Financial plc Annual Report and Financial Statements 2021
180
2021 bonus outcome calculation (audited)
The bonus is based 60% on financial performance conditions and 40% on non-financial performance conditions. The tables
below set out performance against the targets set for the 2021 bonus and the outcome.
Details of the financial assessment
Performance range
Percentage vesting Weighting
Threshold
85%
Target
100%
Maximum
110% Actual
Outcome
as % of max
Weighted
outcome
Adjusted PBT targets and performance 30% £59.4m £69.9m £76.9m £147.2m 100% 30%
Adjusted return on required equity (RORE) 30% 12.1% 14.3% 15.7% 32.6% 100% 30%
Details of the non-financial assessment
The non-financial element was assessed at 90% achievement with this broken down, in 2021, as follows:
Objective Assessment of non-financial metrics Rating
Strategy
– 20%
Corporate reorganisation and operating model development
– New 1PFG corporate and management structure for the Group developed and implemented for improved governance
and efficiency.
– Development of a Group-wide shared services model covering back-office support functions.
Capital adequacy and funding plans
– Established, ahead of plan, a new intermediate holding company to optimise the Group legal structure and distributable
reserves for the Group.
– Issued £200m of Tier 2 subordinate debt capital achieved on terms ahead of plan, de-risking the Group of any future
fundraise and enabling successful switching of debt funding into capital funding.
Non-bank funding requirements
– RCF successfully renegotiated.
– Moneybarn securitisation successfully expanded, achieving increased advance rates at attractive terms and strongly
positioning the Group with no debt maturities until 2023.
Credit card pricing models
– Profitability models refreshed, validated and embedded in the Product team to further enhance the decision making process.
TFSME funding
– Developed supporting securitisation structures in Vanquis cards enabling successful application for TFSME enabling
funding of £174m by 2021 from the Bank of England by late 2021.
CCD wind-down
– Delivered, ahead of plan, the wind-down of CCD, with costs within plan which resulted in accelerated collections of the
book by December 2021, and implemented customer redress programme to enable all CCD customers to have access
to redress scheme.
Above
target –
100%
Regulatory
risk and
conduct
– 40%
Risk upgrade
– Delivered progress ahead of plan on the Group-wide Risk Harmonisation Programme.
IFRS models
– Developed and embedded, ahead of schedule, new, enhanced IFRS models across the Vanquis Bank
and Moneybarn businesses.
Conduct risk management
– Developed, ahead of plan, revised Group-wide vulnerable customer and affordability frameworks and approaches
to mitigate risk in the event of further regulatory change.
Transformation
– New Group transformation capability established to lead the work on structural and operating model changes
referred to above.
– Group’s divisional Change teams continually enhanced including the development of a Group-wide shared services model.
Above
target –
85%
Investor
and public
relations
– 10%
Investor dialogue
– Strong and supportive market feedback received following 2021 results announcements (including shareholder
perception survey).
Reputation
– Enhanced reputation with key stakeholders and maintained good relationships with regulators. This was reflected in the
approval of the CCD Scheme, regulatory approvals for operating model roles changes and the oversubscribed support for
a material Tier 2 debt capital issue. Repositioned the Group as a leading specialist bank focused on underserved markets.
ESG
– Developed comprehensive governance and management structures and strategy/risk management framework to meet
the recommendations of the Task Force on Climate-related Financial Disclosures.
– Progressed well in terms of setting a carbon reduction target which aligns with the Science Based Targets initiative by 2023.
Above
target –
90%
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181
Directors’ Remuneration Report
Customer
– 20%
Customer outcomes
– Delivery of customer outcomes balanced scorecard (net promoter score/Trustpilot/credit score improvement/
complaints) ahead of targets.
– Institute of Customer Service (ICS) study ranks Vanquis net promoter score (44.5) ahead of banks and building societies
(average of 24). Vanquis also ranked highest in the industry for ‘ease of doing business’.
– Excellent Trustpilot scores across Vanquis and Moneybarn with almost 75% of paying Vanquis customers having seen
their credit score improve materially within two years of becoming a customer.
– Complaints remained favourable (vs risk appetite), excl. CCD, and Vanquis achieved significant reductions in late fees
on credit cards.
Vanquis open market personal loans launch
– Enhanced customer proposition with Vanquis branded open market loans pilot launch in Q4’21.
– Early volumes above expectations with loan performance in line with plan.
Moneybarn near-prime launch
– Enhanced customer proposition with launch of near-prime proposition, ahead of plan, in H1’21.
Sunflower Loans open market launch
– Enhanced customer proposition with the Q4’21 launch of our Sunflower Loans branded personal loans pilot, including
development of a new IT platform.
Above
target –
85%
People
– 10%
Employee opinion survey
– High annual colleague survey response rate with a strong engagement index and a significant increase in our Better
Everyday index.
D&I
– Launched and embedded inclusion networks and design. Introduced D&I index in the colleague survey, the results
of which showed 82% of colleagues feel they can be themselves at work (vs financial services average of 71%).
Leadership
– Design of Inclusive Leadership Programme to be rolled out in 2022 due to Covid-19. Management and Leadership
framework developed and launched across the organisation.
Talent and performance
– Updated Group-wide Talent Management Succession Plans (including plans to address gaps), standardised
performance management and increased colleague rotation.
Return to office (RTO)
– Developed and rolled out a RTO strategy, including increased communications, new hybrid working model and improved
H&S standards including an online DSE tool to support colleagues.
Remuneration
– Established and rolled out a common levelling, Remuneration Policy and Reward Framework across the organisation
which has created a harmonised approach across the organisation and improved fairness of bonus outcomes.
This was a three-year project delivered in one year.
Above
target –
85%
Overall Improvement in risk position since 2020. Taking the above into consideration and following feedback from the CRO,
the Committee determined that no discretion should be applied to remuneration outcomes.
Above
target –
90%
Risk overlay
A risk overlay approach was used for potential risk adjustment with a range of factual criteria for assessment agreed with the
Committee. This forms the basis of our Group Variable Risk Adjustment Framework and allows for a more flexible and holistic
approach to be adopted which considers not only the business outcomes (quantitative), but also how these have been
achieved (qualitative).
After discussion with the Group CRO, and the Chair of the Group Risk Committee, the Committee concluded that, overall,
progress has been made this year on improving risk control in all parts of the Group. No risk adjustment was applied to the
CEO or the CFO.
Scheme interests awarded in the year (audited)
RSP 2021 grant
The 2021 RSP awards were made in August 2021 as set out below. The reason for the delay in the grant was that the Board
(and management) felt it inappropriate to make the grant in April/May due to the announcement of the reorganisation of CCD.
An award of 100% of salary was made to the CEO and 75% of salary to the CFO. This represented a 0% discount to the normal level
permitted under the Policy.
The face value is based on the Company’s share price at the date of grant of 336.88p. The grant price is calculated using the
average price of a PFG share for the five dealing days prior to grant.
Director Date of award RSP award (shares) Face value of award Date of vesting End of holding period
Malcolm Le May 18 August 2021 211,944 £714,000 18 August 2024 18 August 2026
Neeraj Kapur 18 August 2021 116,881 £393,750 18 August 2024 18 August 2026
Certain alternative performance measures (APMs) have
been used in this report. See pages 271 to 274 for an
explanation of relevance as well as their definition.
Provident Financial plc Annual Report and Financial Statements 2021
182
Scheme interests awarded in the year (audited) continued
RSP 2021 grant continued
These awards are conditional share awards without any performance targets. However, they are subject to underpins that will
apply over the initial three-year vesting period. The Committee will take into account the following factors (amongst others)
when determining whether to exercise its discretion to adjust the number of shares vesting:
– whether threshold performance levels have been achieved for the performance conditions for the Bonus Plan for each
of the three years in the vesting period;
– the underlying financial performance progression over the vesting period, considering factors such as profit growth, return
on equity and shareholder returns (amongst others);
– whether there have been any sanctions or fines issued by a regulatory body – participant responsibility may be allocated
collectively or individually;
– whether there has been material damage to the reputation of the Company or the Group – participant responsibility may
be allocated collectively or individually; and
– the level of employee and customer engagement over the vesting period.
In all cases, vesting is subject to the Committee’s holistic assessment based on business performance, individual performance
or wider Group considerations.
The RSP awards vest subject to continued employment (or ‘Good Leaver’ status) and must be held (subject to sales to meet PAYE
and NIC liabilities) for a period of two years following vesting.
For awards prior to 2022, to the extent an award vests either additional ordinary shares in the Company or a cash amount
equivalent to the dividends that would have been paid on the shares vesting from the date of grant will be provided to the
executive directors on vesting.
LTIS 2019 vesting (audited)
The following table sets out the outcome of the LTIS 2019 targets:
Performance condition (% of award) Threshold Target Maximum Actual Outcome
EPS (60%) 153p 170p 187p <153p 0%
Relative total shareholder return (30%) Median Median Upper quartile <Median 0%
Risk indicators (10%)* 7 7 10 8 0%
* The Remuneration Committee, when considering the wider context, determined that no vesting should take place.
Fees from other directorships
Malcolm Le May has been a non-executive director of IG Group plc since September 2015. He retains the fees from this
appointment. During 2021, the fees amounted to £156,000 (2020: £91,559). He does not receive any fees for being a non-executive
of Vanquis Bank.
Neeraj Kapur did not hold any external directorship for the period from 1 January 2021 to 31 December 2021. He does not receive
any fees for being a non-executive of Vanquis Bank.
Statement of directors’ shareholding and share interests (audited)
The table below shows the interests of the directors and connected persons in shares (owned outright or unvested) as at
31 December 2021. The table also incorporates a move of 2,180 shares from Malcolm Le May to ‘shares owned outright’ and the zero vesting
of
the LTIS 2019. There have been no further changes in directors’ interests in the period between 31 December 2021 and 30 March 2022.
Outstanding scheme interests
Shares
owned
outright
Unvested
shares not
subject to
performance
Unvested
share options
subject to
performance
Unvested
shares
subject to
performance
Total
scheme
interests
Shareholding
guideline
% of salary
Current
shareholding
% of salary *
Guideline
met
Executive directors
Malcolm Le May 3,250 183,952 476,217 — 660,169 200% 79.9% No
Neeraj Kapur 18,079 141,397 241,362 — 382,759 200% 92.6% No
Non-executive directors
Patrick Snowball 96,477 — — — — n/a n/a n/a
Andrea Blance — — — — — n/a n/a n/a
Elizabeth Chambers 12,000 — — — — n/a n/a n/a
Robert East** 5,000 — — — — n/a n/a n/a
Paul Hewitt 34,205 — — — — n/a n/a n/a
Margot James — — — — — n/a n/a n/a
Angela Knight — — — — — n/a n/a n/a
Graham Lindsay 9,771 — — — — n/a n/a n/a
* Based on the share price of £3.20. Shares owned outright have been included. The shareholding guidelines have not yet been met but the Policy provides for
more time to be compliant. A breakdown of the journey to compliance can be seen below.
** Correct as at date of departure – 13 January 2022.
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Provident Financial plc Annual Report and Financial Statements 2021
183
Directors’ Remuneration Report
Statement of directors’ compliance with the Share Ownership Policy
The following sets out the expected level of share ownership that the executive directors will acquire over the period 2021 to 2025.
A number of assumptions have been made about: (i) retention; (ii) personal tax rates; (iii) Company performance; (iv) Company
share price; and (v) ongoing grant policy. The calculations below therefore show the shareholding if the RSP is included when:
(i) granted; and (ii) vested. The RSP has been included on a net of tax basis.
The current executive director holding requirement is 200% of base salary and it can be seen (under whichever model considered)
that this will be achieved in the next few years – as per our requirement. Finally, in addition to the inclusion (or otherwise)
of the RSP, this calculation includes: (i) shares held outright; (ii) shares provided due to ‘buyout’, i.e. Neeraj Kapur, tranches 2
and 3; (iii) shares deferred under the Bonus Plan; (iv) shares deferred under the role-based allowance, i.e. Malcolm Le May; and
(v) shares under the SAYE plan.
The charts below illustrate the forward-looking shareholding progression as a % of base salary. The charts on the left includes
RSP when granted and the charts on the right includes RSP when it vests. The current shareholding requirement for executive
directors is 200% of salary.
Shareholding progression (includes RSP when granted)
Included RSP when granted
2021 20212022 20222023 20232024 20242025 2025
Malcolm Le May, Chief Executive Officer Neeraj Kapur, Chief Finance Officer
161%
109%
249%
194%
349%
465%
598%
292%
405%
534%
2021 20212022 20222023 20232024 20242025 2025
Malcolm Le May, Chief Executive Officer Neeraj Kapur, Chief Finance Officer
60%
68%
77%
106%
97%
274%
369%
149%
284%
361%
Included RSP when vests
– The above charts use the assumption that the share price will increase by 15% p.a. from the 2021 share price of £2.40.
– Dates above are calculated for April of each year.
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184
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Annual Report on Remuneration continued
Relative importance of spend on pay
The table below shows how the Company’s performance metrics compare to total colleague pay expenditure for the financial
years ended 31 December 2020 and 31 December 2021.
Relative importance of spend on pay 2021 2020
Year-on-year
change
Shareholder distributions £0 £0 0%
Net income £485.5m £554.2m (12.4)%
Adjusted PBT £167.8m £27.8m 503.6%
Adjusted EPS 57.5m 11.7 391.5%
Total remuneration costs £210.2m £197.2m 6.6%
Service contracts
The executive directors are employed under contracts of employment with the Company. The principal terms of the executive
directors’ service contracts are as follows.
Notice period
Executive director Position Effective date of contract From Company From director
Malcolm Le May Chief Executive Officer 1 February 2018 12 months 12 months
Neeraj Kapur Chief Finance Officer 1 April 2020 12 months 12 months
The Chairman and non-executive directors have letters of appointment. Dates of the directors’ letters of appointment are set
out below:
Name Date of original appointment Date and actual date of expiry
Patrick Snowball 21 September 2018 21 May 2022
Andrea Blance 1 March 2017 27 February 2023
Elizabeth Chambers 31 July 2018 30 June 2024
Robert East* 26 June 2019 26 June 2022
Paul Hewitt 31 July 2018 30 June 2024
Margot James 27 July 2020 28 June 2023
Angela Knight 31 July 2018 30 June 2024
Graham Lindsay 1 April 2019 29 June 2022
* Resigned with effect from 13 January 2022.
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Directors’ Remuneration Report
Implementation of Policy in 2022
The Policy was approved at the GM on 3 November 2020 and will continue to apply until the 2023 AGM unless changes are
required. The table below summarises the key features of the Policy and how we plan to implement it in 2022/23. Full details
of the Policy can be found under the Shareholder Hub section of providentfinancial.com.
Element of
remuneration
Key features of Policy Implementation in 2022
Salary
An executive director’s base salary is set on appointment
and reviewed annually or when there is a change in position
or responsibility.
When determining an appropriate level of base salary,
the Committee considers:
– pay increases for other colleagues;
– remuneration practices within the Group;
– any change in scope, role and responsibilities;
– the general performance of the Group and each individual;
– the experience of the relevant director; and
– the economic environment.
5% increase (average colleague increase) to 2021 salaries
for CEO and CFO (0% increase in 2021).
Malcolm Le May
2022: £749,700
2021: £714,000
Neeraj Kapur
2022: £551,250
2021: £525,000
Benefits
Benefits include market standard benefits. No change from 2021.
Role-based
allowance
(RBA)
RBA of 15% of base salary.
RBAs are non-pensionable and will be released in equal
instalments over three years in the form of shares.
The maximum annual value of an RBA grant for an individual
is 25% of base salary.
No change from 2021.
Pension
The Company provides a pension contribution allowance
that is fair, competitive and in line with corporate governance
best practice.
No change from 2021.
CEO 15% of salary*.
CFO 10% of salary.
10% is the norm for the PFG Pension Plan.
* This will reduce to 10% as of 31 December 2022.
Bonus
The Committee will determine the maximum annual
participation in the Annual Bonus Plan for each year, which
will not exceed 150% of base salary.
The Annual Bonus Plan is based on a mix of financial and
strategic/operational conditions and is measured over
a period of one financial year.
The financial measures will account for no less than 50%
of the bonus opportunity.
No change from 2021.
Maximum opportunity:
CEO: 150% of salary.
CFO: 125% of salary.
Measures:
Financial performance conditions in line with 2021:
– adjusted PBT (30%); and
– adjusted return on required equity (RORE) (30%).
Strategic and operational objectives (40%) of which:
– strategy (8%);
– regulatory risk and conduct (8%);
– investor relations (8%);
– customer (8%); and
– colleague (8%).
Weightings for individual non-financial objectives have been
rebalanced so that each objective has the same weighting.
In addition, there is a risk overlay and CET1 underpin.
No change.
Deferral:
At least 40% of the bonus is deferred for three years in
Company shares. No change.
Provident Financial plc Annual Report and Financial Statements 2021
186
Directors’ Remuneration Report continued
Annual Report on Remuneration continued
Element of
remuneration
Key features of Policy Implementation in 2022
Restricted
Share
Plan (RSP)
Awards are granted annually to executive directors in the
form of conditional awards or options. Awards vest at the end
of a three-year period subject to:
– the executive director’s continued employment at the date
of vesting; and
– the satisfaction of an underpin as determined by the
Committee whereby the Committee can adjust vesting for
business, individual and wider Company performance.
A two-year holding period will apply following the three-year
vesting period for all awards granted to the executive directors.
Upon vesting, sufficient shares may be sold to pay tax
on the shares.
The Committee is intending to grant an RSP award of
100% of base salary to our CEO and CFO in line with the
Policy maximum.
This reflects an increase for the CFO who was awarded an RSP
at 75% of salary in 2021.
No change from 2021 except for the CFO.
Shareholding
requirements
Normal shareholding requirement of 200% of salary.
Additional requirement to hold 200% of salary for two years
following cessation of employment.
Executive directors have agreed to be bound by the terms
of the requirements and Company Secretariat will monitor
compliance.
No change from 2021.
Malus
and clawback
Standard market practice (and regulatory requirements)
malus and clawback provisions as at the time the Policy
was adopted.
Small technical change from 2021, i.e. provisions strengthened
to refer specifically to risk management failure and
corporate failure.
Chair
and NED fees
Provides a level of fees to support recruitment and retention
of a Chairman and NEDs with the necessary experience to
advise and assist with establishing and monitoring the Group’s
strategic objectives.
The fee levels as at 1 January 2022 for the Chairman and
NEDs are as below. These reflect a 5% increase from 2021
levels in line with the average colleague (further details
in the following section).
Changes reflect the average colleague rise of 5% –
excepting Committee Chair fees, which rose by £5k.
Non-executive director fees for 2022
In 2021, the Committee reviewed non-executive director fee levels to ensure that they remain competitive with other listed
companies of equivalent size and complexity. Taking this into account, and to reflect the increased focus and time required
of the NEDs following the restructuring of the Group’s governance structure, the Committee proposed the following increases
to fees effective from January 2022. The table below shows fee levels for each role and how they compare to 2021.
2022 2021 % change
Chairman of the Board £336,000 £320,000 5%
Board fee £71,400 £68,000 5%
Senior Independent Director £15,750 £15,000 5%
Committee Chair £25,000 £20,000 25%
Committee members £15,750 £15,000 5%
Implementation of Policy in 2022 continued
Provident Financial plc Annual Report and Financial Statements 2021
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Directors’ Remuneration Report
Additional remuneration disclosures
Our approach to fairness and wider workforce considerations
This section of the report brings visibility of remuneration across the entire workforce together in one place. In this section, we
provide context to our director pay by explaining our colleague policies and our approach to fairness, including the following:
– the report received by the Committee on wider workforce pay policies and whether the approach to executive remuneration
is consistent and the alignment of the incentives operated by the Company with its culture and strategy;
– general pay and conditions in the Group;
– gender diversity and pay gap; and
– comparison metrics on executive and colleague remuneration.
In order for the Committee to carry out its oversight review of wider workforce pay, policies and incentives the Committee
receives a report annually from the Company setting out key details of remuneration throughout the Company. Details of the
information reviewed by the Committee and findings are set out below.
Overview of workforce remuneration and the Committee’s review
The table illustrates how the remuneration policy for executive directors cascades throughout the employee population.
% of
workforce
Average
increase
in base
salaries
1
Variable pay
2
Share
plans
3
Pension
4
Benefits
5
Colleague group
Commission
schemes
Annual
bonus
Executive directors 0.1% 5% No All Yes Yes Yes
Senior management 3.2% 5% No All Yes Yes Yes
Management 15.7% 5% No All Yes Yes Yes
All other colleagues 81.1% 5% No Role dependent Yes Yes Yes
1 Base salaries:
– Base salaries are market competitive and determined with reference to role type, location, experience and market practice.
– Annual salary increases are applied on an equitable and objective basis dependent on role type. Due to the unusual nature of 2021, we decided that
the standard increase would be 0% (and this was the norm) albeit that in a few roles an adjustment did take place due to market competitiveness).
The base salaries of sales focused colleagues are subject to periodic market benchmarking rather than annual salary reviews due to the commission
structures in place.
2 Variable pay:
– In line with our approach to executive director remuneration, a proportion of the remuneration of the wider workforce is in the form of variable pay, linked
to the achievement of stretching targets that align with the Company’s strategic goals.
– Approximately 90% of the workforce benefit from variable pay which is linked to the Group’s performance in the form of annual bonuses. Variable pay
is determined with reference to financial performance and/or the achievement of objectives which are aligned to the Group’s strategic priorities.
3 Share plans:
– Historically, long-term incentive participation has been limited since the Group’s variable pay arrangements provide the strong linkage between
workforce remuneration and the Group’s financial performance and/or strategic priorities.
– All colleagues have access to share ownership schemes (SAYE (an all-employee plan enabling colleagues to save monthly and receive an option to
purchase PFG shares at a discount following a minimum of three years) and SIP (an all-employee plan enabling the colleagues to purchase PFG shares
on a monthly basis out of deductions from salaries, also receiving some “matching” awards from PFG)) but only senior management participates
in the RSP.
4 Pension:
– Maximum employer contributions are consistent across the Group (maximum 10% employer contribution for the PFG DC arrangements), with minor
deviations appropriate for role type or for historical reasons. There also exists a NEST pension arrangement.
5 Benefits:
– Consistent approach applied and determined with reference to role type, market practice and seniority.
The levels of remuneration and the types offered will vary across the Company depending on a colleague’s level of seniority and
role. The Committee is not looking for a homogeneous approach; when conducting its review, it is paying particular attention to:
– whether the element of remuneration is consistent with the Company’s remuneration principles;
– if there are differences, whether they are objectively justifiable; and
– whether the approach is fair and equitable in the context of other colleagues.
Provident Financial plc Annual Report and Financial Statements 2021
188
Directors’ Remuneration Report continued
Annual Report on Remuneration continued
Additional remuneration disclosures continued
Overview of workforce remuneration and the Committee’s review continued
The key findings of the Committee’s review for 2021 have been set out in the following table.
Element Findings
Salary
Average salary increases for colleagues across the Company are being applied on an equitable and objective basis.
Incentives
The majority of our colleagues have the ability to share in the success of the Company through incentive
compensation in the form of variable pay linked to performance.
Shareholding
requirements
Executive directors are required to adhere to minimum shareholding guidelines.
Pensions
All colleagues are eligible for enrolment in a defined contribution pension arrangement. The CEO has agreed that
his current pension contribution will be reduced in order to achieve alignment with the wider workforce at the end
of 2022. The pension contributions for the CFO are already aligned to the wider workforce.
Benefits
Benefits are offered according to the level of seniority of the role in line with market practice. Our benefits offering
is broadly in line with similar companies but our ‘wellbeing’ offering is competitive vs companies of a similar size.
Having carried out a full review in 2021, the Committee is satisfied that the approach to remuneration across the Company
is broadly consistent with the Company’s principles of remuneration and the pay. Further, in the Committee’s opinion the
approach to executive remuneration aligns with the wider Company pay policy and there are no anomalies specific to the
executive directors.
Communication and engagement with colleagues
The Board is committed to ensuring there is an open dialogue with our colleagues over various decisions and the Committee
has the authority to ask for additional information from the Company in order to carry out its responsibilities.
The Colleague Forum was established to facilitate effective engagement between the Board and the workforce and to
encourage workforce participation in shaping strategic initiatives. It supports the Group in satisfying Provision 5 of the UK
Corporate Governance Code published in July 2018, as well as capturing meaningful input and feedback from staff.
Our Colleague Forum has colleague representatives from across all areas and all levels of the business and meets quarterly.
The Non-Executive Director and Chair of the Customer, Culture and Ethics Committee (the CCE Committee) works closely with
the Colleague Forum in his capacity as engagement sponsor on behalf of the Board to agree a rhythm of dialogue and meeting
attendance to further cement the link between the Colleague Forum and the Board.
Alongside the Colleague Forum, we commission a Colleague Engagement Survey, which is independently administered by
People Insight, as a channel for colleague voice and feedback. The output from each Colleague Engagement Survey is reviewed
by the CCE Committee and appropriate actions are taken in response to any findings.
In 2021, the Committee conducted a review of the wider colleague remuneration and incentives with a key part being
consistency and fairness across the organisation via an appropriate framework. The conclusions of this review are currently
being implemented and they are bringing greater consistency, transparency and fairness across the Group.
In addition, this year the ‘Blueprint behaviours’ performance management framework was used fully across the Group for
the first time to assess colleagues’ performance and determine bonus allocations in line with the Group’s values. Work has
continued on harmonising pay and benefits opportunities for equivalent roles across the divisions through the new Group
Reward Framework which will be implemented early next year. Group-wide job levels have also been rolled out to help drive
consistency throughout our divisions and create a more unified colleague experience and support talent mobility.
Provident Financial plc Annual Report and Financial Statements 2021
189
Directors’ Remuneration Report
Living Wage, equal opportunities and diversity initiatives
A summary of the Company’s general policies in relation to Living Wage, equal opportunities and diversity initiatives are
as follows:
Policy Description
Living Wage employer
The National Living Wage is the amount of money all colleagues aged over 25 are legally entitled to. Our policy
is to ensure that all colleagues, whatever their age, are paid the National Living Wage or above.
Equal opportunities
and diversity
initiatives
The Company is committed to an active equal opportunities policy from recruitment and selection, through to training
and development, performance reviews and promotion. All decisions relating to employment practices are objective,
free from bias and based solely upon work criteria and individual merit. The Company is responsive to the needs of its
colleagues, customers and the community. We are an organisation which uses everyone’s talents and abilities, and
where diversity is valued. The Company ensures its promotion and recruitment practices are fair and objective and
encourages the continuous development and training of its colleagues, as well as the provision of equal opportunities
for the training and career development of all colleagues. Further details are provided in the Customer, Culture and
Ethics Committee Report on pages 150 to 152.
Gender pay gap
We feel strongly about the importance of having a workforce which represents the customers we serve. We hire from diverse
backgrounds, employing 46% men and 54% women across our business, and our recruitment policies, salary and bonus
structures are designed to be gender neutral.
The Group recognises that the key driver behind both our hourly rate and bonus gap is a higher proportion of male colleagues in
senior roles, and so we continue to remain focused on initiatives to increase female representation at senior management and
leadership level. PFG produced a gender pay report in 2020 though the publication (October 2021) was delayed due to Covid-19.
We are currently finishing the 2021 review which will be published at the end of March 2022.
Chief Executive Officer (CEO) pay ratio
We have decided to leverage our gender pay gap reporting data for the purposes of calculating the CEO pay ratio (Option B,
as set out in the requirements). This decision reflects that the hourly pay metric used in the Group’s gender pay gap reporting
continues to provide an appropriate comparison of workforce pay to CEO pay. This is due to the components of remuneration
that are not captured in hourly pay being either highly standardised (benefits) or, where more variable (such as bonus awards),
of a relatively low absolute and relative value, as evidenced in the table below.
In assessing our pay ratio versus likely ratios from industry peers, we believe that we are comparable but note that annual and
long-term incentive payments have varied considerably amongst this group. We recognise that ratios will be influenced by
levels of colleague pay, and in the sector, colleague pay will be lower than in many other sectors of the economy.
The key reason for the difference between 2021 and 2020 is the impact of the pandemic on 2020 pay outcomes for the CEO.
The inclusion of bonuses in 2021 (nil bonus in 2020) resulted in an increase in the pay ratio from the prior year. Therefore, the 2021
pay ratio is more akin to the 2019 figure. For the purposes of clarity, we have provided a set of ratios based on the CEO receiving
‘target’ levels of remuneration, i.e. as if a bonus had been payable.
The significant volatility in this ratio is caused by the fact that the CEO pay is made up of a higher proportion of incentive pay
than that of our colleagues, in line with the expectations of our shareholders. This introduces a higher degree of variability in his
pay each year which affects the ratio.
Year
25th
percentile
pay ratio
Median
pay ratio
75th
percentile
pay ratio
2021 (actual) 79.6:1 66.3:1 44.1:1
2020 (actual) 28.9:1 26.9:1 21.3:1
2021 (incl. target bonus) 64.5:1 53.8:1 36.8:1
2020 (incl. target bonus) 55.8:1 51.8:1 41.0:1
Provident Financial plc Annual Report and Financial Statements 2021
190
Directors’ Remuneration Report continued
Annual Report on Remuneration continued
Additional remuneration disclosures continued
CEO pay ratio continued
Base salary and total pay and benefits for CEO and employee percentiles
2021
Base salary (£’000) 714.0
Total pay and benefits (£’000) 1,972.0
Employees 2,574
Base salary (£’000)
Employee at the 25th percentile 22.2
Employee at the 50th percentile 25.9
Employee at the 75th percentile 39.2
Total pay and benefits (£’000)
Employee at the 25th percentile 24.8
Employee at the 50th percentile 29.8
Employee at the 75th percentile 44.8
Total remuneration for each colleague was calculated on a full-time equivalent basis and the lower quartile, median and
upper quartile colleagues were identified as at 31 December 2021. The hourly rates were annualised using the same number of
contractual hours as the CEO. Colleague total remuneration includes: basic salary, maternity/paternity pay, annual cash bonus,
commissions earned and benefits. The total remuneration for the relevant colleagues was compared to that of the CEO.
The Company believes that the median pay ratio for 2021 is consistent with the pay, reward and progression policies for the
Company’s employees. We also considered the pay composition of the employees who represent the median, lower and upper
quartiles and were comfortable that it fairly represents pay in the Company.
CEO and average colleague pay against total shareholder return (TSR)
The chart below shows the single figure of remuneration for our CEO over time, and the pay of our average colleague, each
rebased to 2011. We have also included our TSR performance over this period against the FTSE 250, based on £100 invested.
The FTSE 250 was chosen as, in the opinion of the Committee, the size and complexity of the Company make this an appropriate
basis for comparison.
Pay performance: TSR chart
(£’000)
0
Value (£) (rebased)
Provident Financial plc FTSE 250 (excl. investment trusts) CEO pay
Dec
20
Dec
19
Dec
11
Dec
12
Dec
13
Dec
14
Dec
15
Dec
16
Dec
17
Dec
18
Dec
21
0
100
200
150
50
250
300
350
400
450
500
Provident Financial plc Annual Report and Financial Statements 2021
191
Directors’ Remuneration Report
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
CEO single figure of
remuneration (£’000) 4,326 4,985 6,594 7,500 6,315 962 1,387 1,507 818 1,972
Annual bonus/
earning (% of
maximum) 98 89 100 98 100 — 69 53 — 96
LTIS/RSP vesting
(% of maximum) 100 100 100 100 100 — — — — —
The greater volatility of our CEO pay is due to the higher proportion of incentive pay in his package compared with that of our
colleagues, which introduces a higher degree of variability in his pay each year versus colleagues. The above data incorporates
prior CEO data before 2018.
Percentage change in directors’, and employees’, remuneration
The Committee monitors the changes year on year between our directors’ pay and average colleague pay. As per our Policy,
salary increases applied to executive directors will typically be in line with those of the wider workforce. In accordance with
The Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019, the table below shows
the percentage change in executive director and non-executive director total remuneration compared to the change for the
average of the percentage change for colleagues within the Company. The comparator group is based on all colleagues.
Salary/fees Taxable benefits Short-term variable pay
5
2021 2020 2021 2020 2021 2020
Executive directors
Malcolm Le May
1
18.1% 2% (51.2)% (24)% See below (100)%
Neeraj Kapur
2
(31.6)% n/a 54.9% n/a See below n/a
Non-executive directors
Patrick Snowball (7.8)% — (67)% n/a n/a n/a
Andrea Blance 5.4% — (50)% — n/a n/a
Elizabeth Chambers 1.2% — 0% n/a n/a n/a
Robert East 5.4% — n/a n/a n/a n/a
Paul Hewitt 5.1% — 50% n/a n/a n/a
Margot James
3
130.6% n/a n/a% n/a n/a n/a
Angela Knight 2.0% — n/a n/a n/a n/a
Graham Lindsay 8.4% — (50)% n/a n/a n/a
Average colleague
4
3.1% 4.0% 0.0% 7.2% 723% (54)%
1 Caused entirely by voluntary reduction in pay during Covid-19 in 2020 and there were no pay rises for executive directors in 2021.
2 Caused by (i) no buyout in 2021 (buyout awarded on joining in 2020), and (ii) voluntary reduction in pay during Covid-19 in 2020 and there were no pay rises
for executive directors in 2021.
3 Joined mid-year 2020.
4 Variable pay is complicated by significantly reduced bonus during 2021 (relating to 2020) – hence the % are an increase on a small amount.
5 The bonus percentages are made meaningless by no bonus being paid in 2020 and resumed in 2021 – the percentage increases are disproportionately
high (no matter what bonus is payable).
With respect to the non-executive directors, the year-on-year problems of the executive directors are replicated for the
following reasons:
1 Patrick Snowball took on an executive role for a limited period due to the planned medical leave of the CEO; and
2 the non-executive directors (and the executive directors) took a voluntary 20% reduction in fees for three months (due to Covid-19).
The Committee is pleased to note the correlation between the executive directors, the non-executive directors and other
colleagues in terms of the change in the remuneration above, which supports the Committee’s conclusion that there is
alignment between executive remuneration and wider workforce pay principles.
Andrea Blance
Remuneration Committee Chair
6 April 2022
Provident Financial plc Annual Report and Financial Statements 2021
192
Financial statements
Contents
Detail Page
Consolidated income statement 193
Consolidated statement of comprehensive income 193
Loss per share 193
Dividends per share 193
Balance sheets 194
Statements of changes in shareholders’ equity 195
Statements of cash flows 197
Statement of accounting policies 198
Financial and capital risk management 206
Notes to the financial statements 211
Independent auditor’s report 261
Alternative performance measures 271
Provident Financial plc Annual Report and Financial Statements 2021
193
Financial statements
Financial statements
Consolidated income statement
For the year ended 31 December
Group
Continuing operations Note
2021
£m
2020
£m
Interest income 474.3 531.9
Fee income 60.3 83.5
Total revenue 1,3 534.6 615.4
Finance costs 4 (53.0 ) (59.9 )
Net interest margin 481.6 555.5
Impairment 12 (50.4 ) (312.6 )
Risk-adjusted net interest margin 431.2 242.9
Operating costs (289.0 ) (279.9 )
Profit/(loss) before taxation from continuing operations 1,5 142.2 (37.0 )
Profit before taxation, amortisation of acquisition intangibles and exceptional items 1,5 167.8 27.8
Amortisation of acquisition intangibles 18 (7.5 ) (7.5 )
Exceptional items 1 (18.1 ) (57.3 )
Tax charge 6 (7.6 ) —
Profit/(loss) for the year from continuing operations 134.6 (37.0 )
Loss after tax from discontinued operations 2 (166.7 ) (46.4 )
Loss for the year attributable to equity shareholders (32.1 ) (83.4 )
Consolidated statement of comprehensive income
For the year ended 31 December
Group
Note
2021
£m
2020
£m
Loss for the year attributable to equity shareholders (32.1 ) (83.4 )
Items that will not be reclassified subsequently to the income statement:
– actuarial movements on retirement benefit asset 20 27.1 (1.7 )
– fair value movements transferred to income statement
1
14 (5.2 ) 3.8
– tax on items taken directly to other comprehensive income 6 (3.8 ) (0.7 )
– impact of change in UK tax rate on items in other comprehensive income 6 () ()
– deferred tax credit on disposal of investments — 2.0
– current tax charge on disposal of investments — (2.0 )
Other comprehensive income/(expense) for the year 11.7 (0.3 )
Total comprehensive expense for the year (20.4 ) (83.7 )
1 Refer to accounting policies for details on changes in accounting treatment.
Loss per share
For the year ended 31 December
Group
Note
2021
pence
2020
pence
Basic 7 (12.8 ) (32.9 )
Diluted 7 (12.8 ) (32.9 )
The above loss per share is on a Group basis including discontinued operations.
Dividends per share
For the year ended 31 December
Group
Note
2021
pence
2020
pence
Interim dividend 8 12 —
The total cost of dividends paid in the year was £nil (2020: £nil).
Provident Financial plc Annual Report and Financial Statements 2021
194
Financial statements continued
Balance sheets
Group Company
Note
At
31 December
2021
£m
At
31 December
2020
£m
At
31 December
2021
£m
At
31 December
2020
£m
ASSETS
Cash and cash equivalents 11 717.7 919.7 206.6 59.1
Amounts receivable from customers 12 1,677.7 1,799.8 — —
Trade and other receivables 13 18.8 35.7 1,053.2 1,050.6
Investments held at fair value through profit and loss 14 9.1 9.2 — —
Property, plant and equipment 15 8.4 15.5 1.2 1.6
Right of use assets 16 47.9 58.0 15.3 17.9
Goodwill 17 71.2 71.2 — —
Other intangible assets 18 52.3 45.3 — —
Investment in subsidiaries 19 — — 225.4 230.9
Retirement benefit asset 20 112.2 79.7 112.2 79.7
Derivative financial instruments 24 3.1 — — —
Deferred tax assets 21 6.9 44.0 — —
TOTAL ASSETS 1 2,725.3 3,078.1 1,613.9 1,439.8
LIABILITIES AND EQUITY
Liabilities
Trade and other payables 23 95.6 64.9 386.7 264.8
Current tax liabilities 3.8 0.6 — 1.1
Provisions 26 72.1 91.0 3.5 —
Lease liabilities 25 58.9 69.4 18.9 21.9
Retail deposits 22 1,018.5 1,683.2 — —
Bank and other borrowings 22 845.2 520.0 395.3 369.0
Deferred tax liabilities 21 — — 22.6 14.2
Derivative financial instruments 24 — 1.3 — —
Total liabilities 1 2,094.1 2,430.4 827.0 671.0
Equity attributable to owners of the parent
Share capital 28 52.6 52.6 52.6 52.6
Share premium 273.3 273.2 273.3 273.2
Merger reserve 278.2 278.2 280.5 280.5
Other reserves 30 9.8 14.6 9.0 10.0
Retained earnings 17.3 29.1 171.5 152.5
Total equity 1 631.2 647.7 786.9 768.8
TOTAL LIABILITIES AND EQUITY 2,725.3 3,078.1 1,613.9 1,439.8
In accordance with the exemption allowed by section 408 of the Companies Act 2006, the Company has not presented its
own income statement or statement of other comprehensive income. The retained profit for the financial year reported in the
financial statements of the Company was £2.7m (2020: £117.6m).
The financial statements on pages 193 to 260 were approved and authorised for issue by the Board of directors on 6 April 2022
and signed on its behalf by:
Malcolm Le May Neeraj Kapur
Chief Executive Officer Chief Finance Officer
Company Number – 668987
Provident Financial plc Annual Report and Financial Statements 2021
195
Financial statements
Statements of changes in shareholders’ equity
Group Note
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Total
£m
At 1 January 2020 52.5 273.2 278.2 17.7 107.7 729.3
Loss for the year — — — — (83.4 ) (83.4 )
Other comprehensive (expense)/income:
– actuarial movements on retirement benefit asset 20 — — — — (1.7 ) (1.7 )
– fair value movement on investments 14 — — — 3.8 — 3.8
– tax on items taken directly to other
comprehensive income 6 — — — (1.0 ) 0.3 (0.7 )
– impact of change in UK tax rate 6 () () ()
– deferred tax credit on disposal of investments 6 — — — 2.0 — 2.0
– current tax charge on disposal of investments 6 — — — (2.0 ) — (2.0 )
Other comprehensive income/(expense) for the year — — — 2.6 (2.9 ) (0.3 )
Total comprehensive income/(expense) for the year — — — 2.6 (86.3 ) (83.7 )
Transfer of cumulative gain on disposal
of investment — — — (7.4 ) 7.4 —
Transfer of tax on disposal of investment — — — 2.0 (2.0 ) —
Issue of share capital 0.1 — — — — 0.1
Share-based payment charge 29 — — — 2.3 — 2.3
Transfer of share-based payment reserve on vesting
of share awards — — — (2.6 ) 2.6 —
Purchase of shares for share awards — — — — (0.3 ) (0.3 )
At 31 December 2020 52.6 273.2 278.2 14.6 29.1 647.7
At 1 January 2021 52.6 273.2 278.2 14.6 29.1 647.7
Loss for the year — — — — (32.1 ) (32.1 )
Other comprehensive income/(expense):
– actuarial movements on retirement
benefit asset 20 — — — — 27.1 27.1
– fair value movements transferred to
income statement 14 — — — (5.2 ) — (5.2 )
– tax on items taken directly to other
comprehensive income 6 — — — 1.4 (5.2 ) (3.8 )
– impact of change in UK tax rate 6 () ()
Other comprehensive (expense)/income for the year — — — (3.8 ) 15.5 11.7
Total comprehensive expense for the year — — — (3.8 ) (16.6 ) (20.4 )
Issue of share capital — 0.1 — — — 0.1
Share-based payment charge 29 — — — 3.8 — 3.8
Transfer of share-based payment reserve on vesting
of share awards — — — (4.8 ) 4.8 —
At 31 December 2021 52.6 273.3 278.2 9.8 17.3 631.2
Goodwill arising on acquisitions prior to 1 January 1998 was eliminated against shareholders’ funds under UK GAAP and was not
reinstated on transition to IFRS. Accordingly, retained earnings are shown after directly writing off cumulative goodwill of £1 .6 m.
In addition, cumulative goodwill of £2 . 3 m has been written off against the merger reserve in previous years.
The rights issue in April 2018 was undertaken through a cash box structure which allowed merger relief to be applied to the
issue of shares rather than recording share premium. Of the resulting merger reserve of £2 78. 2 m, £228 . 2 m was distributable
as the capital was retained for the purposes of the Company with the remaining £50 .0 m not distributable as it was used to
inject capital into Vanquis Bank Limited. Following the transfer of Vanquis Bank Limited to Provident Financial Holdings Limited
in December 2020 the full merger reserve of £278 . 2 m is now considered distributable.
Other reserves are further analysed in note 30.
Provident Financial plc Annual Report and Financial Statements 2021
196
Financial statements continued
Statements of changes in shareholders’ equity continued
Company Note
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Total
£m
At 1 January 2020 52.5 273.2 280.5 10.3 36.9 653.4
Profit for the year — — — — 117.6 117.6
Other comprehensive (expense)/income:
– actuarial movements on retirement benefit asset 20 — — — — (1.7) (1.7)
– tax on items taken directly to other
comprehensive income — — — — 0.3 0.3
– impact of change in UK tax rate — — — — (1.5) (1.5)
Other comprehensive expense for the year — — — — (2.9) (2.9)
Total comprehensive income for the year — — — — 114.7 114.7
Issue of share capital 0.1 — — — — 0.1
Share-based payment charge 29 — — — 0.7 — 0.7
Transfer of share-based payment reserve on vesting
of share awards — — — (1.2) 1.2 —
Share-based payment movement in investment
in subsidiaries — — — 0.2 — 0.2
Purchase of shares for share awards — — — — (0.3) (0.3)
At 31 December 2020 52.6 273.2 280.5 10.0 152.5 768.8
At 1 January 2021 52.6 273.2 280.5 10.0 152.5 768.8
Profit for the year — — — — 2.7 2.7
Other comprehensive income/(expense):
– actuarial movements on retirement benefit asset 20 — — — — 27.1 27.1
– tax on items taken directly to other
comprehensive income — — — — (5.2) (5.2)
– impact of change in UK tax rate — — — — (6.4) (6.4)
Other comprehensive income for the year — — — — 15.5 15.5
Total comprehensive income for the year — — — — 18.2 18.2
Issue of share capital — 0.1 — — — 0.1
Share-based payment charge 29 — — — 1.7 — 1.7
Transfer of share-based payment reserve on vesting
of share awards — — — (0.8) 0.8 —
Share-based payment movement in investment
in subsidiaries — — — (1.9) — (1.9)
At 31 December 2021 52.6 273.3 280.5 9.0 171.5 786.9
Other reserves are further analysed in note 30.
Provident Financial plc Annual Report and Financial Statements 2021
197
Financial statements
Statements of cash flows
For the year ended 31 December
Group Company
Note
2021
£m
2020
£m
2021
£m
2020
£m
Cash flows from operating activities
Cash generated from/(used in) operations 33 240.5 450.6 (110.9) (51.8)
Finance costs paid (71.3 ) (63.1 ) (29.7) (37.3)
Finance income received — — 51.7 58.0
Tax paid (6.1 ) (23.6 ) — —
Net cash generated from/(used in) operating activities 163.1 363.9 (88.9) (31.1)
Cash flows from investing activities
Purchase of intangible assets 18 (24.8 ) (16.3 ) — —
Purchase of property, plant and equipment 15 (1.3 ) (5.9 ) — —
Proceeds from disposal of property, plant and equipment 15 3.8 0.7 — —
Dividends received from subsidiaries 31 — — 88.8 110.0
Net cash (used in)/generated from investing activities (22.3 ) (21.5 ) 88.8 110.0
Cash flows from financing activities
Proceeds from bank and other borrowings 746.0 926.8 197.5 —
Repayment of bank and other borrowings (1,081.5 ) (690.3 ) (175.2) (247.4)
Loan from subsidiaries — — 128.2 214.6
Payment of lease liabilities (9.6 ) (11.2 ) (3.0) (3.4)
Purchase of shares for share awards — (0.3 ) — (0.3)
Proceeds from issue of share capital 28 0.1 0.1 0.1 0.1
Net cash (used in)/generated from financing activities (345.0 ) 225.1 147.6 (36.4)
Net (decrease)/increase in cash, cash equivalents and overdrafts (204.2 ) 567.5 147.5 42.5
Cash, cash equivalents and overdrafts at beginning of year 918.3 350.8 59.1 16.6
Cash, cash equivalents and overdrafts at end of year 714.1 918.3 206.6 59.1
Cash, cash equivalents and overdrafts at end of year comprise:
Cash at bank and in hand 11 717.7 919.7 206.6 59.1
Overdrafts (held in bank and other borrowings) 22 (3.6 ) (1.4 ) — —
Total cash, cash equivalents and overdrafts 714.1 918.3 206.6 59.1
Cash at bank and in hand includes £414 . 8 m (2020: £833 . 3 m) in respect of the liquid assets buffer, including other liquidity resources,
held by Vanquis Bank Limited in accordance with the PRA’s liquidity regime. As at 31 December 2021, £268 . 3 m (2020: £691 .9 m) of the
buffer was available to finance Vanquis Bank Limited’s day-to-day operations.
Provident Financial plc Annual Report and Financial Statements 2021
198
Statement of accounting policies
General information
The Company is a public limited company incorporated
and domiciled in the UK
is No. 1 Godwin Street, Bradford, England BD1 2SU . The Company
is listed on the London Stock Exchange.
Basis of preparation
The financial statements of the Group and Company are
prepared in accordance with IFRS as adopted by the UK,
International Financial Reporting Interpretations Committee
(IFRIC) interpretations and the Companies Act 2006.
The change in basis of preparation from IFRS as adopted by
the EU to IFRS as adopted by the UK is required as a result of
the UK’s exit from the EU on 31 January 2020. This change does
not constitute a change in accounting policy and there is no
impact on recognition, measurement or disclosure between
the two frameworks in the period reported.
The financial statements have been prepared on a going
concern basis under the historical cost convention, as
modified by the revaluation of derivative financial instruments
and investments held at fair value through profit and loss.
In assessing whether the Group is a going concern, the
directors have reviewed the Group’s corporate plan as
approved in December 2021, which includes capital and
liquidity forecasts from 2022 to 2026. The assessment included
consideration of the Group’s principal risks and uncertainties,
with a focus on capital and liquidity.
The directors have also reviewed the Group’s stress testing
projections which are based on a severe but plausible
scenario in which unemployment peaks at 12%. This shows
that the Group is able to maintain sufficient capital headroom
above minimum requirements. The directors have reviewed
the Group’s reverse stress testing projections to the point
of non-viability, which concluded that the Group’s viability
only comes into question under an unprecedented
macroeconomic scenario.
Changes in accounting treatment in 2021
The Group and Company’s principal accounting policies
under IFRS have been consistently applied to all the years
presented, with the exception of the Visa Inc shares previously
classified as fair value through other comprehensive income
(OCI) which have been reclassified to fair value through
profit or loss, the adoption of the IFRIC agenda decision on
Software-as-a-Service (SaaS) and Interest Rate Benchmark
Reform Phase 2.
Visa Inc shares
Following review of the treatment of the Visa Inc shares held
in Vanquis Bank being recognised as fair value through OCI
(FVTOCI) it was determined that on adoption of IFRS 9, the
election to treat these shares as FVTOCI was not appropriate
as they did not meet the definition of an equity instrument.
The shares should have been treated as a financial asset
recognised at fair value through profit or loss.
The Group has concluded that this is an immaterial change
relative to the Group results and the cumulative impact has
therefore been adjusted in the 2021 financial period rather
than as a prior year adjustment.
The assets have been reclassified in 2021 resulting in the 2020
closing fair value reserve of £3.8m being recognised in the
income statement. This has resulted in an increase in profit
before tax of £5.2m and an increase in the tax charge of £1.4m.
The cumulative fair value movements of £5.2m and all future
fair value movements will be presented within operating costs
in the income statement.
Software-as-a-Service (SaaS)
The IFRS Interpretations Committee (IFRIC) recently published
two agenda decisions clarifying how certain aspects of cloud
technology, SaaS, should be accounted for. The first agenda
decision, published in March 2019, concludes that a contract
that conveys to the customer only the right to receive access
to the supplier’s application software in the future is a service
contract (SaaS) rather than a software lease or the acquisition
of a software intangible asset. The customer receives the
service—the access to the software—over the contract term.
The second agenda decision, published in April 2021, addresses
how a customer should account for the costs of configuring
or customising the supplier’s application software in a SaaS
arrangement that is determined to be a service contract.
Where a change in accounting policy is required to apply the
conclusions reached by the IFRS Interpretations Committee
this must be accounted for in line with IAS 8 ‘Accounting Policies,
Changes in Accounting Estimates and Errors’ and, if material,
prior period comparatives restated. The agenda decisions have
not resulted in a material impact on the Group or Company
and therefore the comparatives have not been restated.
Interest Rate Benchmark Reform Phase 2
In 2021, the Group adopted the Interest Rate Benchmark
Reform Phase 2 amendments issued by the IASB. These
amendments require that changes to expected future cash
flows that both arise as a direct result of IBOR Reform and
are economically equivalent to the previous cash flows are
accounted for as a change to the effective interest rate with
no adjustment to the asset or liability carrying value and no
immediate gain or loss is recognised.
The new requirements also provide relief from the
requirements to discontinue hedge accounting as a result
of amending hedge documentation if the changes are
required solely as a result of IBOR Reform. As at the end of
2021, the Group has refinanced all LIBOR linked derivatives
to SONIA resulting in no impact from the implementation
of these changes.
The impact of new standards not yet effective
and not adopted by the Group from 1 January 2022
There are no new standards not yet effective and not adopted
by the Group from 1 January 2022 which are expected to have
a material impact on the Group.
Basis of consolidation
The consolidated income statement, consolidated statement
of comprehensive income, balance sheet, statement of
changes in shareholders’ equity, statement of cash flows
and notes to the financial statements include the financial
statements of the Company and all of its subsidiary
undertakings drawn up from the date control passes
to the Group until the date control ceases.
Control is achieved when the Group:
– has the power over the investee;
– is exposed, or has rights, to variable returns from
its involvement with the investee; and
– has the ability to use its power to affect returns.
All intra-group transactions, balances and unrealised gains
on transactions between Group companies are eliminated
on consolidation.
The accounting policies of subsidiaries are consistent
with the accounting policies of the Group.
Provident Financial plc Annual Report and Financial Statements 2021
199
Financial statements
Revenue
Revenue comprises interest and fee income earned by credit
cards, personal loans and vehicle finance products.
Group revenue excludes value added tax and
intra-group transactions.
Company revenue includes intra-group transactions
and dividends received.
Interest is calculated on credit card advances to customers
using the effective interest rate on the daily balance outstanding.
Annual fees charged to customers’ credit card accounts are
recognised as part of the effective interest rate.
Other fees are recognised at the time the charges are made
to customers on the basis that the performance obligation
is complete.
Within CCD and vehicle finance, revenue on customer
receivables is recognised using an effective interest rate.
The effective interest rate is calculated using estimated cash
flows. For CCD this reflected estimated cash flows, being
contractual payments adjusted for the impact of customers
who either repay early, to term or beyond term, but do not
trigger the IFRS 9 default arrears stage during the full life of
the loan. Directly attributable incremental issue costs are
also taken into account in calculating the effective interest
rate. Interest income continues to be accrued on impaired
receivables using the original effective interest rate applied
to the loan’s carrying value until revenue equal to the loan’s
original service charge has been fully recognised.
Revenue is recognised on the gross receivable when accounts
are in IFRS 9 stages 1 and 2 and on the net receivable for
accounts in stage 3. Accounts can only move between stages
for revenue recognition purposes at the Group’s interim or
year-end balance sheet date.
Directly attributable acquisition costs are capitalised as part
of receivables and amortised over the life of the loan as a
deduction to revenue.
Finance costs
Finance costs principally comprise the interest on retail
deposits, bank and other borrowings, securitisation and,
for the Company, intra-group loan arrangements, and are
recognised on an effective interest rate basis.
Dividend income
Dividend income is recognised in the income statement when
the Company’s right to receive payment is established.
Goodwill
All acquisitions are accounted for using the purchase method
of accounting.
Goodwill is an intangible asset and is measured as the excess
of the fair value of the consideration over the fair value of the
acquired identifiable assets, liabilities and contingent liabilities
at the date of acquisition. Gains and losses on the disposal of
a subsidiary include the carrying amount of goodwill relating
to the subsidiary sold.
Goodwill is allocated to cash-generating units for the
purposes of impairment testing. The allocation is made to
those cash-generating units or groups of cash-generating
units which are expected to benefit from the business
combination in which the goodwill arose.
Goodwill is tested annually for impairment and is carried at
cost less accumulated impairment losses. Impairment is
tested by comparing the carrying value of the asset to the
discounted expected future cash flows from the relevant
cash-generating unit. Expected future cash flows are derived
from the Company’s latest budget projections and the discount
rate is based on the Company’s risk-adjusted cost of equity
at the balance sheet date.
Investments in subsidiaries
The Company’s investments in subsidiaries are stated at cost
less provisions for impairment where required. Impairment
provisions reflect the shortfall between the carrying value of
the investment with the higher of: (i) fair value less costs to sell;
and (ii) value in use of the subsidiary.
Leases
The Group and Company as a lessee
The Group and Company assess whether a contract contains
a lease at inception of a contract. A right of use asset and
a corresponding liability are recognised with respect to all
lease arrangements where it is a lessee, except for short-term
leases (leases with a lease term of 12 months or less) and
leases of low-value assets (less than £4,000). For these leases,
the lease payment is recognised within operating expenses
on a straight-line basis over the lease term.
The lease liability is initially measured at the present value of
the lease payments at the commencement date, discounted
using the rate implicit in the lease. This rate could not be
readily determined, therefore the incremental borrowing rate
has been used. This is defined as the rate of interest that the
lessee would have to pay to borrow, over a similar term and
with similar security, the funds necessary to obtain an asset of
a similar value to the right of use asset in a similar economic
environment. For Vanquis Bank Limited, this would represent
an average retail deposit rate; for all other companies this
would be based on the Group’s non-bank funding rate.
The lease payments included in the measurement of the
lease liability comprise:
– fixed lease payments;
– variable lease payments; and
– payment of penalties for terminating the lease, if the
lease term reflects the exercise of an option to terminate
the lease.
The lease liability is subsequently measured by increasing
the carrying amount to reflect interest on the lease, using
the effective interest rate method, and reducing the carrying
amount to reflect the lease payments made.
The lease liability is remeasured whenever:
– the lease term has changed, in which case the lease
liability is remeasured by discounting the revised lease
payments using a revised discount rate;
– the lease payments change due to changes in an index
or rate, in which case the lease liability is remeasured by
discounting the revised lease payments using the initial
discount rate; and
– the lease contract is modified and the modification is not
accounted for as a separate lease, in which case the lease
liability is remeasured by discounting the revised lease
payments using a revised discount rate.
The Group or Company did not make any such adjustments
during the year.
The right of use asset comprises the initial measurement
of the corresponding lease liability and is subsequently
measured at cost less accumulated depreciation and
impairment losses.
Right of use assets are depreciated over the shorter period
of lease term and useful life of the underlying asset.
The lease liability and right of use asset are presented
as separate line items on the balance sheet. The interest
on the lease and depreciation are charged to the income
statement and presented within finance costs and
operating costs respectively.
Provident Financial plc Annual Report and Financial Statements 2021
200
Statement of accounting policies continued
Leases continued
The Group and Company as a lessor
Vehicle finance is considered a lessor for its conditional
sale agreements to customers; however, both revenue and
impairment are accounted for under IFRS 9.
Other intangible assets
Other intangible assets include acquisition intangibles
in respect of the broker relationships at vehicle finance,
standalone computer software and development costs
of intangible assets across the Group.
The fair value of vehicle finance broker relationships on
acquisition of the Moneybarn Group was estimated by
discounting the expected future cash flows from vehicle
finance core broker relationships over their estimated useful
economic life which was deemed to be 10 years. The asset is
being amortised on a straight-line basis over its estimated
useful life.
Computer software and computer software development
assets represent the costs incurred to acquire or develop
software and bring it into use. Directly attributable costs
incurred in the development of software are capitalised as an
intangible asset if the software will generate future economic
benefits. Directly attributable costs include the cost of software
development employees and an appropriate portion of
relevant directly attributable overheads.
Computer software and computer software development
costs are amortised on a straight-line basis over their
estimated useful economic life which is generally estimated
to be between three and 10 years. The residual values
and economic lives of intangible assets are reviewed
by management at each balance sheet date.
Other intangible assets are valued at cost less subsequent
amortisation and impairment. Amortisation is charged
to the income statement as part of operating costs. An
impairment loss is recognised for the amount by which the
asset’s carrying value exceeds the higher of the asset’s
value in use and its fair value less costs to sell.
Foreign currency translation
Items included in the financial statements of each of the
Group’s subsidiaries are measured using the currency of
the primary economic environment in which the subsidiary
operates (the functional currency). The Group’s subsidiaries
primarily operate in the UK. The consolidated and Company
financial statements are presented in sterling, which is the
Company’s functional and presentational currency.
Transactions that are not denominated in the Group’s
functional currency are recorded at the rate of exchange
ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated
into the relevant functional currency at the exchange rates
ruling at the balance sheet date. Differences arising on
translation are charged or credited to the income statement,
except when deferred in equity as effective cash flow hedges.
If a foreign operation were to be disposed of, the cumulative
amount of the differences arising on translation recognised in
other comprehensive income would be recognised in the income
statement when the gain or loss on disposal is recognised.
Amounts receivable from customers
Customer receivables are initially recognised at fair value
which represents the amount advanced to the customer plus
directly attributable issue costs less an impairment provision
for expected losses. The receivables are originated under a
business model that intends to collect the contractual cash
flows and includes only elements of principle and interest,
so are subsequently measured at amortised cost less
impairment provisions. The impairment provision recognised
is based on the probability of default (PD) within 12 months,
the loss given default (LGD) and the exposure at default (EAD).
On initial recognition, all accounts are recognised in IFRS 9 stage 1.
The account moves to stage 2 when a significant increase
in credit risk (SICR) becomes evident, such as a missed
payment or a significant increase in PD, but has not defaulted.
In absence of other factors indicating SICR, this will occur
at 30 days past due.
An account moves to stage 3 and is deemed to have defaulted
at 90 days past due, when a payment arrangement is initiated,
or when other unlikeliness to pay factors arise (like customer
bankruptcy proceedings).
Credit cards and personal loans
On inception an expected loss impairment provision is
recognised using PD/LGD/EAD models which forecast
customer behaviour to calculate losses.
For credit cards, the PD is determined by utilising a customer’s
behavioural score used for underwriting the credit card. The
LGD discounts the exposure at default (EAD) which adjusts the
current card balance for future expected spend and interest.
It does not include any future credit line increases.
For personal loans, the EAD follows the amortisation schedules
of the loan and is adjusted for expected missed payments at
point of default.
Following a SICR, evident from a missed monthly payment
or a significant increase in PD, lifetime losses are recognised.
A customer is deemed to have defaulted when they become
three minimum monthly payments in arrears or they enter a
temporary payment arrangement. A customer is written off
in the following cycle after becoming six minimum monthly
payments in arrears.
Vehicle finance
Losses are recognised on inception of a loan based on the
probability of a customer defaulting within 12 months. This
is determined with reference to historical customer data
and outcomes.
An account moves from stage 1 to stage 2 when there
has been a SICR or when the customer is assessed as
vulnerable. Lifetime losses are recognised for all accounts
in stages 2 and 3.
A customer is deemed to have defaulted when they become
three monthly payments in arrears or enter into a forbearance
arrangement. Customer agreements which have been
terminated, either voluntarily, by the customer settling their
agreement early, or through the agreement being default
terminated, are also included within stage 3. Cure from stage
3 is limited to some default reasons and for contracts not
already terminated.
A customer’s debt is written off when it is sold to debt
collection agencies.
Provident Financial plc Annual Report and Financial Statements 2021
201
Financial statements
Amounts receivable from customers continued
CCD
Following the wind-down of CCD and the decision to stop
collections, all customers’ debt was written off in 2021.
Customers under forbearance
Customers are moved to IFRS 9 stage 3 and lifetime losses
are recognised for all divisions where forbearance is provided
to the customer or alternative payment arrangements
are established. Customers under temporary payment
arrangements are separately identified according to the type
of arrangement. The carrying value of receivables under each
type of payment arrangement is calculated using historical
cash flows under that payment arrangement, discounted
at the original effective interest rate.
Macroeconomic scenarios
Macroeconomic provisions are recognised to reflect the
expected impact of future economic events on a customer’s
ability to make payments on their agreements and the losses
which are expected to be incurred given default. Following
refinements to the models in 2021, these provisions are now
included as part of the core model provision.
The provisions now consider the relationship between hazard
rate, the number of people who were employed last month
but who are unemployed the following month (derived from
unemployment), debt to income ratio and default rates.
Property, plant and equipment
Property, plant and equipment is shown at cost less
accumulated depreciation and impairment, except for land,
which is shown at cost less impairment.
Cost represents invoiced cost plus any other costs that are
directly attributable to the acquisition of the items. Repairs
and maintenance costs are expensed as incurred.
Depreciation is calculated to write down assets to their
estimated realisable values over their useful economic lives.
The following principal bases are used:
% Method
Land Nil —
Leasehold improvements Over the
lease period
Straight-line
Equipment (including
computer hardware)
10 to 33 1/3 Straight-line
Motor vehicles 25 Reducing balance
The residual values and useful economic lives of all assets are
reviewed, and adjusted if appropriate, at each balance sheet
date. All items of property, plant and equipment, other than
land, are tested for impairment whenever events or changes
in circumstances indicate that the carrying value may not
be recoverable. Land is subject to an annual impairment test.
An impairment loss is recognised for the amount by which the
asset’s carrying value exceeds the higher of the asset’s value
in use and its fair value less costs to sell. Gains and losses on
disposal of property, plant and equipment are determined
by comparing any proceeds with the carrying value of the
asset and are recognised within operating costs in the
income statement.
Depreciation is charged to the income statement as part
of operating costs.
Investments
Investments held at fair value through profit and loss
During 2021 the Visa Inc shares previously classified as fair
value through OCI were reclassified to fair value through profit
or loss; refer to page 198 for details.
Visa Inc shares are measured at fair value in the balance
sheet as a reliable estimate of the fair value can be
determined. Valuation adjustments arising as a result of
routine mark-to-market revaluation are recognised in the
income statement against operating costs.
Fair value changes including any impairment losses and
foreign exchange gains or losses are recognised within
operating costs in the income statement. The fair value
of monetary assets denominated in foreign currency is
determined through translation at the spot rate at the
balance sheet date.
Dividends on equity instruments are recognised in the
income statement when the Group’s right to receive the
dividends is established.
Derivative financial instruments
and hedge accounting
As permitted by IFRS 9, the Group continues to apply the
requirements of IAS 39 to its hedging relationships. The only
derivative held by the Group is a balance guaranteed swap
(BGS) entered into as part of the vehicle finance securitisation.
It is recognised at fair value with changes recognised in the
income statement.
Hedge accounting allows the BGS to be designated as a
hedge of another financial instrument, in this case customer
receivables. At the inception of the hedge relationship,
formal documentation is drawn up specifying the hedging
strategy, the hedged item, the hedging instrument and the
methodology that will be used to measure the effectiveness
of the hedge relationship in offsetting changes in the fair
value or cash flow of the hedged risk. The effectiveness of
the hedging relationship is tested both at inception and
throughout its life and if at any point it is concluded that it
is no longer highly effective in achieving its documented
objective, hedge accounting is discontinued.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in
hand which includes amounts invested in the Bank of England
reserve account held in accordance with the Prudential
Regulation Authority’s (PRA’s) liquidity regime. Cash held as
part of securitisations is not immediately available due to the
terms of the arrangements. Bank overdrafts are presented
in borrowings to the extent that there is no right of offset with
cash balances.
Intercompany
Expected credit losses on Company intercompany balances
are assessed at each balance sheet date. The PDs and LGDs
are determined for each loan based on the subsidiary’s
available funding and cash flow forecasts.
Provident Financial plc Annual Report and Financial Statements 2021
202
Statement of accounting policies continued
Borrowings
Borrowings are recognised initially at fair value, being issue
proceeds less any transaction costs incurred. Borrowings
are subsequently stated at amortised cost; any difference
between proceeds less transaction costs and the redemption
value is recognised in the income statement over the expected
life of the borrowings using the effective interest rate.
Dividends paid
Dividend distributions to the Company’s shareholders are
recognised in the Group and the Company’s financial
statements as follows:
– final dividend: when approved by the Company’s
shareholders at the Annual General Meeting; and
– interim dividend: when paid by the Company.
Retirement benefits
Defined benefit pension schemes
The charge in the income statement in respect of defined
benefit pension schemes comprises the actuarially assessed
current service cost of working employees, together with the
interest on pension liabilities offset by the interest on pension
scheme assets. All charges are recognised within operating
costs in the income statement.
The retirement benefit asset recognised in the balance sheet
in respect of defined benefit pension schemes is the fair value
of the schemes’ assets less the present value of the defined
benefit obligation at the balance sheet date. A retirement
benefit asset is recognised to the extent that the Group and
Company have an unconditional right to a refund of the asset
or if it will be recovered in future years as a result of reduced
contributions to the pension scheme.
The defined benefit obligation is calculated annually by
independent actuaries using the projected unit credit method.
The present value of the defined benefit obligation is determined
by discounting the estimated future cash outflows using interest
rates of high-quality corporate bonds that have terms to maturity
approximating to the terms of the related pension liability.
Actuarial gains and losses arising from experience adjustments
and changes in actuarial assumptions are recognised
immediately in the statement of comprehensive income.
Past service costs are recognised immediately in the
income statement.
Defined contribution pension schemes
Contributions to defined contribution pension schemes are
charged to the income statement on an accruals basis.
Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares are shown
in equity as a deduction, net of tax, from the proceeds.
Merger reserve
The rights issue completed in 2018 was transacted through
a ‘cash box’ structure. The proceeds would ordinarily be
recognised as share capital and share premium. However, as
the proceeds were generated through a cash box structure,
the proceeds are held as share capital and a merger reserve.
The share capital generated is in line with the 20 8/11p par
value of the shares with the additional amounts credited to
the merger reserve. All fees were recognised on an accruals
basis and deducted from the merger reserve with the net
credit being deemed distributable, subject to the capital
injected into Vanquis Bank Limited. Following the transfer of
Vanquis Bank Limited to Provident Financial Holdings No. 2
in December 2020 the full merger reserve of £278.2m is now
considered distributable.
Share-based payments
Equity-settled schemes
The Company grants options under employee savings-related
share option schemes (typically referred to as Save As You
Earn schemes (SAYE)) and makes awards under the Deferred
Bonus Plan (DBP), the Long Term Incentive Scheme (LTIS), the
Restricted Share Plan (RSP) and the Company Share Option
Plan (CSOP). All of these schemes are equity settled.
The cost of providing options and awards to Group and
Company employees is charged to the income statement of
the entity over the vesting period of the related options and
awards. The corresponding credit is made to a share-based
payment reserve within equity. The grant by the Company
of options and awards over its equity instruments to the
employees of subsidiary undertakings is treated as an
investment in the Company’s financial statements. The fair
value of employee services received, measured by reference
to the fair value at the date of grant, is recognised over the
vesting period as an increase in investments in subsidiary
undertakings, with a corresponding adjustment to the
share-based payment reserve within equity.
The cost of options and awards is based on their fair value.
A binomial model is used for calculating the fair value of SAYE
options which have no performance conditions attached
and the RSP for which vesting is based on the discretion of the
Remuneration Committee. No charge has been recognised
for the CSOP as it is linked to the RSP awards granted at the
same time. Any gains made by an employee in relation to the
CSOP reduces the number of shares exercisable under the
RSP award.
The value of the charge is adjusted at each balance sheet
date to reflect lapses and expected or actual levels of
vesting, with a corresponding adjustment to the share-based
payment reserve.
For LTIS schemes, performance conditions are based on EPS,
total shareholder return (TSR) versus a peer group and risk
metrics. Employees of credit cards, personal loans, vehicle
finance and CCD also have targets relating to profit before tax
of their division. The fair value of awards is determined using
a combination of the binomial and Monte Carlo option pricing
models. The value of the charge is adjusted at each balance
sheet date to reflect lapses and expected or actual levels of
vesting. Where the Monte Carlo option pricing model is used
to determine fair value of the TSR component, no adjustment
is made to reflect expected or actual levels of vesting as the
probability of the awards vesting is taken into account in the
initial calculation of the fair value of the awards.
Provident Financial plc Annual Report and Financial Statements 2021
203
Financial statements
Share-based payments continued
Equity-settled schemes continued
Cancellations by employees of contributions to the Group’s
SAYE plans are treated as non-vesting conditions and the
Group recognises, in the year of cancellation, the amount of
the expense that would have otherwise been recognised over
the remainder of the vesting period.
Modifications are assessed at the date of modification
and any incremental charges are recognised in the
income statement.
A transfer is made from the share-based payment reserve
to retained earnings when options and awards vest, lapse or
are cancelled. In respect of the SAYE options, the proceeds
received, net of any directly attributable transaction costs,
are credited to share capital and share premium when the
options are exercised.
Taxation
The tax charge represents the sum of current and deferred tax.
Current tax
Current tax is calculated based on taxable profit for the year
using tax rates that have been enacted or substantively
enacted by the balance sheet date. Taxable profit differs from
profit before taxation as reported in the income statement
because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes
items that are never taxable or deductible.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable
on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding
tax bases used in the computation of taxable profit, and is
accounted for using the balance sheet liability method.
Deferred tax is determined using tax rates (and laws) that
have been enacted or substantively enacted by the balance
sheet date and are expected to apply when the related
deferred tax asset is realised or the deferred tax liability is
settled. Deferred tax is also provided on temporary differences
arising on investments in subsidiaries, except where the timing
of the reversal of the temporary difference is controlled by the
Company and it is probable that the temporary difference will
not reverse in the future.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profits will be available against
which the temporary differences can be utilised.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the taxable entity or different taxable
entities where there is an intention to settle the balances
on a net basis.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event,
it is probable that the Group will be required to settle that
obligation and a reliable estimate can be made of the
amount of the obligation.
The amount recognised as a provision is the best estimate
of the consideration required to settle the present obligation
at the balance sheet date, taking into account the risks and
uncertainties surrounding the obligation. Where a provision is
measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash
flows (when the effect of the time value of money is material).
Contingent liabilities
Contingent liabilities are possible obligations arising from
past events, whose existence will be confirmed only by
uncertain future events, or present obligations arising from
past events that are not recognised because either an outflow
of economic benefits is not probable or the amount of the
obligation cannot be reliably measured. Contingent liabilities
are not recognised in the balance sheet but information
about them is disclosed unless the possibility of any economic
outflow in relation to settlement is remote.
Exceptional items
Exceptional items are items which the directors consider
should be disclosed separately to enable a full understanding
of the Group’s results. An exceptional item needs to meet at
least two of the following criteria:
– the financial impact is material;
– it is one-off and not expected to recur;
– it is outside the normal course of business.
Examples include, but are not limited to, costs arising from
redundancy, acquisition or restructuring activities. The
Audit Committee and Board may also apply judgement
to determine whether an item should be classified as an
exceptional item and be an allowable adjustment to a
statutory measure.
Critical accounting judgements and key sources
of estimation uncertainty
In applying the accounting policies set out above, the Group
and Company make judgements (other than those involving
estimates) that have a significant impact on the amounts
recognised and to make estimates and assumptions that
affect the reported amounts of assets and liabilities. The
estimates and judgements are based on historical experience;
actual results may differ from these estimates.
In preparing the financial statements the Group and
Company has considered the impact of the qualitative
scenario analysis and climate-related risks on financial
performance set out on pages 68 to 73. Whilst the effects of
climate change represent a source of uncertainty, there has
not been a material impact on any financial judgements and
estimates due to the physical and transition climate-related
risks in the short to medium term.
Provident Financial plc Annual Report and Financial Statements 2021
204
Statement of accounting policies continued
Critical accounting judgements and key sources
of estimation uncertainty continued
Amounts receivable from customers (note 12)
Group: £1,677.7m (2020: £1,799.8m)
Critical accounting judgements
The Group reviews amounts receivable from customers for
impairment at each balance sheet date. For the purposes
of assessing the impairment, customers are categorised
into IFRS 9 stages and cohorts which are considered to be
the most reliable indication of future payment performance.
The determination of expected credit losses involves complex
modelling techniques and requires management to apply
significant judgements to calculate expected credit losses.
The most critical judgements are outlined below.
The determination of the significant increase in credit risk
(SICR) thresholds to be used in the new models for credit card,
vehicle finance and personal loans required management
judgement to optimise the performance and therefore
effectiveness of the staging methodology. Assessments are
made to determine whether there is objective evidence of
a SICR which indicates there has been an adverse effect on
PD. A SICR for customers in credit cards is when there has
been a significant increase in behavioural score or when one
contractual monthly payment has been missed. In vehicle
finance, a SICR is when there has been a significant increase
in behavioural score or when one contractual monthly
payment has been missed.
For the purpose of IFRS 9, default is assumed in credit cards,
personal loans and vehicle finance when three contractual
repayments have been missed.
During the second half of 2021 the Group implemented
new IFRS 9 models to more accurately assess provision
requirements based on market driven metrics. These models
will be regularly tested using subsequent cash collections to
assess accuracy. The impact of implementing these models
was a c.£9m increase in the credit cards provision and
c.£3.1m increase in the vehicle finance provision. For vehicle
finance, the macroeconomic provision and revenue netting
adjustment, previously included as post-model overlays,
are now incorporated within the core model.
The Group’s impairment models are subject to periodic
monitoring, validation and back testing performed on model
components, including probability of default, exposure
at default and loss given default to ensure management
judgements remain appropriate.
Limitations in the Group’s impairment models or data inputs
may be identified through the ongoing assessment and
validation of the output of the models. In these circumstances,
management makes appropriate adjustments to the Group’s
allowance for impairment losses to ensure that the overall
provision adequately reflects all material credit risks. These
adjustments are determined by considering the particular
attributes of exposures which have not been adequately
captured by the impairment models and range from changes
to model inputs and parameters, at account level, through
to more qualitative post-model overlays. Those changes
applied to model inputs and parameters are deemed to be
in-model overlays; more qualitative changes that have a
higher degree of management judgement are deemed to be
post-model overlays. All adjustments are reviewed quarterly
and are subject to internal review and challenge to ensure
that amounts are appropriately calculated.
During Covid-19, in an economic environment which differed
significantly from the historical economic conditions upon
which the impairment models had been built, there was a
greater need for management judgement to be applied in
determining appropriate post-model adjustments. Following
the refinements to the models during 2021 a number of the
post-model adjustments are now included as part of the core
model calculations.
A breakdown of the in-model and post-model overlays
is included within note 12.
Macroeconomic impairment provision adjustments are now
recognised in the core model to reflect an increased PD,
based on future macroeconomic scenarios.
These provisions reflect the potential for future changes
in hazard rate, the number of people who were employed
last month but who are unemployed the following month
(derived from unemployment), and debt to income ratio.
The provision reflects the potential for future changes under
a range of forecasts, as analysis has clearly evidenced
correlation between hazard rates, debt to income ratios
and credit losses incurred.
Management judgement was required to determine the
appropriate macroeconomic indicators to be used in the
model by assessing their correlation with credit losses
incurred by the business. Unemployment is judged to be a key
macroeconomic indicator as analysis has clearly evidenced
correlation between changes in unemployment and credit
losses incurred by the business. This will continue to be analysed
to assess if there are any additional macroeconomic
indicators which also correlate to credit losses.
Provident Financial plc Annual Report and Financial Statements 2021
205
Financial statements
Critical accounting judgements and key sources
of estimation uncertainty continued
Amounts receivable from customers (note 12)
Group: £1,677.7m (2020: £1,799.8m) continued
Key sources of estimation uncertainty
The level of impairment recognised is calculated using
models which utilise historical payment performance to
generate the estimated amount and timing of future cash
flows from each cohort of customers in each arrears stage.
The models are regularly tested to ensure they retain sufficient
accuracy. Sensitivity analysis has been performed in note 12
which shows the impact of a 1% movement of gross exposure
into stage 2 from stage 1 on the allowance accounts.
The unemployment data used in the macroeconomic
provisions has been compiled from a consensus of sources
including the Bank of England, HM Treasury, the Office for
Budget Responsibility (OBR), Bloomberg and a number of
prime banks. These estimates are used to derive base case,
upside, downside and severe scenarios.
The table below shows the scenario five-year peak and
average unemployment assumptions adopted and the
weightings applied to each. The weightings have remained
consistent with prior year.
Scenario for year
ended 2021 Base Upside Downside Severe
Weighting 50% 10% 35% 5%
2022 4.6% 4.2% 5.4% 6.3%
2023 4.3% 3.9% 6.4% 8.5%
2024 4.3% 4.1% 5.9% 7.5%
2025 4.3% 4.1% 5.3% 6.2%
2026 4.3% 4.1% 4.9% 5.4%
Five-year peak 4.8% 4.7% 6.5% 8.6%
Scenario for year
ended 2020 Base Upside Downside Severe
Weighting 50% 10% 35% 5%
2021 7.1% 5.7% 9.0% 11.2%
2022 6.1% 4.8% 7.7% 9.0%
2023 5.1% 4.8% 5.8% 6.9%
2024 5.0% 4.8% 5.5% 6.1%
2025 5.0% 4.8% 5.5% 6.0%
Five-year peak 7.9% 6.2% 10.1% 12.7%
Weightings applied to the macroeconomic assumptions
were reviewed and reconfirmed at the December 2021
Assumptions Committee meeting and remain unchanged
from December 2020.
Sensitivity analysis has been performed on the weightings
which show that changing the weightings for vehicle finance
and personal loans would not have a material impact on the
allowance account.
For credit cards, increasing the downside weighting by
5%, from 35% to 40%, and a corresponding reduction in the
base case would increase the allowance account by £2.5m
for credit cards and personal loans. Increasing the upside
weighting by 5%, from 10% to 15%, and a corresponding
reduction in the base case would decrease the allowance
account by £0.4m.
The impact on the 2021 allowance account for the credit cards
and personal loans, if each of the macroeconomic scenarios
were applied at 100% weighting, rather than the weightings set
out above, is shown below:
Base
£m
Upside
£m
Downside
£m
Severe
£m
Credit cards and
personal loans (5.2) (13.6) 8.1 23.5
Whilst the forward-looking nature of IFRS 9 requires provisions
to be established for all losses arising out of the current
Covid-19 crisis, the level of uncertainty may mean that
additional impairment provision, or releases, may be required
in future periods.
Retirement benefit asset (note 20)
Group and Company: £112.2m (2020: £79.7m)
Key sources of estimation uncertainty:
– The valuation of the retirement benefit asset is dependent
upon a series of assumptions, the key assumptions being
mortality rates and the discount rate applied to liabilities.
The most significant assumption which could lead to
material adjustment is a change in discount rates.
– Discount rates are based on the market yields of
high-quality corporate bonds which have terms closely
linked with the estimated term of the retirement benefit
obligation. Mortality estimates are based on standard
mortality tables, adjusted where appropriate to reflect
the Group’s own expected experience.
Sensitivity analysis of the Group’s main assumptions is set out
in note 20.
Provident Financial plc Annual Report and Financial Statements 2021
206
Financial and capital risk management
Financial risk management
The Group’s activities expose it to a variety of financial risks,
which can be categorised as credit risk, liquidity risk, interest
rate risk, foreign exchange rate risk and market risk. The
objective of the Group’s Risk Management Framework is to
identify and assess the risks facing the Group and to minimise
the potential adverse effects of these risks on the Group’s
financial performance. Financial risk management is overseen
by the Risk Committee.
Further details of the Group’s Risk Management Framework
are described on pages 87 to 99.
(a) Credit risk
Credit risk is the risk that the Group will suffer loss in the event
of a default by a customer, a bank counterparty or the UK
Government. A default occurs when the customer or bank fails
to honour repayments as they fall due.
(i) Amounts receivable from customers
The Group’s maximum exposure to credit risk on amounts
receivable from customers as at 31 December 2021 is the
carrying value of amounts receivable from customers
of £1,677.7m (2020: £1,799.8m).
Credit cards and personal loans
The Risk Committee is responsible for setting the credit policy.
The CRO is responsible for ensuring that the approach to
lending is within sound risk and financial parameters and that
key metrics are reviewed to ensure compliance with policy.
The CRO discharges and informs this decision making through
the Credit Committee.
The Credit Risk Forum meets at least 10 times a year.
A customer’s risk profile and credit line are evaluated at the
point of application and at various times during the agreement.
Internally generated scorecards based on historical payment
patterns of customers are used to assess the applicant’s
potential default risk and their ability to manage a specific
credit line. For new customers, the scorecards incorporate
data from the applicant, such as income/expenditure and
employment, and data from external credit bureaux. An
affordability assessment is also carried out at application.
For existing customers, the scorecards also incorporate data
on actual payment performance and product utilisation
and take data from an external credit bureau each month to
refresh customers’ payment performance position with other
lenders. Credit lines can go up as well as down according to
this point in time risk assessment.
Arrears management is a combination of central letters,
inbound and outbound telephony, SMS, email and outsourced
debt collection agency activities. Contact is made with
the customer to discuss the reasons for non-payment and
specific strategies are employed to support the customer
in returning to a good standing or appropriate forbearance
arrangements are put in place.
Vehicle finance
Credit risk within vehicle finance is managed by the vehicle
finance Credit Committee which meets at least monthly
and is responsible for approving underwriting parameters,
decisioning strategy and credit control policy.
A customer’s credit risk profile and ability to afford the
proposed contract is initially evaluated at the point of
application, and subsequently at the time of arrangement
of any forbearance measures to address customer arrears.
A scorecard based on historical payment patterns of
customers is used to assess the applicant’s potential default
risk. The scorecard incorporates data from the applicant,
such as income and employment, and data from an external
credit bureau. The application assessment process involves
verification of key aspects of the customer data. Certain
policy rules including customer profile, proposed loan size
and vehicle type are also assessed in the decisioning process,
as well as affordability checks to ensure that, at the time
of application, the loan repayments are affordable.
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 to discuss the reasons for non-payment
and specific strategies 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 FCA moratorium introduced as part of Covid-19 support
measures restricted vehicle finance from terminating customer
contracts and recovering the vehicle from a customer where
a default termination would ordinarily have occurred. The
restriction was lifted from 31 January 2021. Vehicle finance
has subsequently worked with customers affected.
Provident Financial plc Annual Report and Financial Statements 2021
207
Financial statements
Financial risk management continued
(a) Credit risk continued
(ii) Bank and government counterparties
The Group’s maximum exposure to credit risk on bank and
government counterparties as at 31 December 2021 was
£738.7m (2020: £947.4m).
Counterparty credit risk arises as a result of cash deposits
placed with banks and central government.
Counterparty credit risk is managed by the Group’s
Treasury Committee and is governed by a Board-approved
Counterparty Policy which ensures that the Group’s cash
deposits and derivative financial instruments are only made
with high-quality counterparties with the level of permitted
exposure to a counterparty firmly linked to the 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.
(b) Liquidity risk
Liquidity risk is the risk that the Group will have insufficient
liquid resources available to fulfil its operational plans and/or
to meet its financial obligations as they fall due.
Liquidity risk is managed by the Group’s centralised treasury
department through daily monitoring of expected cash flows
in accordance with a Board-approved Group Funding and
Liquidity Policy. This process is monitored regularly by the
Assets and Liabilities Committee (ALCO).
Liquidity and funding risk appetite is established at Group
and Vanquis Bank Limited level, with thresholds reported to
and monitored by the Group and Vanquis Bank Limited Boards.
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 within vehicle
finance and contractual maturities on its bank, private
placement and bond funding for at least the following
12 months. As at 31 December 2021, the Group’s committed
borrowing facilities including retail deposits had a weighted
average period to maturity of 2.5 years (2020: 1.5 years)
and the headroom on these committed facilities amounted
to £110.0m (2020: £79.3m).
Vanquis Bank Limited is a PRA-regulated institution and is
fully funded via retail deposits. It is required to maintain a
liquid assets buffer, and other liquid resources, based upon
daily stress tests, in order to ensure that it has sufficient liquid
resources to fulfil its operational plans and meet its financial
obligations as they fall due. It also maintains an operational
buffer over such requirements in line with the bank’s risk
appetite. As at 31 December 2021, the liquid assets buffer,
including other liquid resources and the operational buffer,
held by Vanquis Bank Limited, in cash and cash equivalents
amounted to £414.8m (2020: £833.3m). Cash held has reduced
in 2021 as the Group took on surplus liquidity in 2020 following
the onset of the pandemic; this has now reduced to more
typical levels.
Both the Group and Vanquis Bank Limited are required to meet
the liquidity coverage ratio (LCR). The LCR requires institutions
to match net liquidity outflows during a 30-day period with a
buffer of ‘high-quality’ liquid assets.
Vanquis Bank Limited accepts retail deposits and, in line
with its regulatory requirements, maintains high-quality
liquid assets to meet the LCR and its internal stress tests as
stipulated within its Internal Liquidity Adequacy Assessment
Process (ILAAP). The Group and Vanquis Bank Limited monitor
and report the LCR to the PRA on a consolidated and solo basis
respectively. The Group’s LCR at 31 December 2021 amounted
to 2,073% (2020: 2,830%). Both the Group and Vanquis Bank
Limited continue to meet the LCR requirements. Vanquis Bank
Limited maintained a significant surplus of liquidity against its
internal requirements throughout 2021, and is managing this
down in a prudent manner to normalised levels.
The Group’s funding strategy is to maintain sufficient available
funds and committed facilities to pre-fund the Group’s
liquidity and funding requirements for at least the next 12
months, maintaining access to diversified sources of funding
comprising: (i) external market funding; (ii) securitisation; (iii)
retail deposits; and (iv) liquidity and funding facilities at the
Bank of England.
In line with the Group’s funding strategy to place less reliance
on this source of funding, the facility was repaid early ahead
of its contractual maturity in July 2023 and at the same time
was cancelled at the discretion of the Group as allowed
for in the terms of the facility. The headroom on committed
facilities of £110.0m at 31 December 2021 reduced to £50.0m
after cancellation of the facility. The Group does not require
the funding and was not expecting to renew the facility
on maturity.
The Group will continue to explore further funding options as
appropriate including, but not limited to, using retail deposits
taken in Vanquis Bank Limited to fund vehicle finance, further
securitisation issuance and institutional bond issuance.
The Group continues to adopt a prudent approach to
managing its funding and liquidity resources within risk
appetite, and will optimise these resources when new
opportunities become available to the Group. A maturity
analysis of the undiscounted contractual cash flows of the
Group’s bank and other borrowings is shown on page 208.
This reflects both the interest payable and the repayment of
the borrowing on maturity. For operational flexibility, drawings
under the Group’s revolving bank facilities are typically drawn
for only three months at any time despite having the ability to
draw the borrowings for much longer under the committed
borrowing facility. Retail deposits’ maturity within Vanquis
Bank Limited is closely matched to the average life of a credit
card customer. In the table on page 208, the cash flows of
borrowings made under the Group’s syndicated revolving
bank facility shown as being due within one year given the
discretionary cancellation of the facility by the Group in
March 2022.
Provident Financial plc Annual Report and Financial Statements 2021
208
Financial and capital risk management continued
Financial risk management continued
(b) Liquidity risk continued
Financial liabilities
2021 – Group
Repayable
on demand
£m
<1 year
£m
1–2 years
£m
2–5 years
£m
Over 5
years
£m
Total
£m
Retail deposits
1
— 409.1 361.4 272.7 — 1,043.2
Bank and other borrowings:
– bank facilities 3.6 30.0 — — — 33.6
– senior public bonds — 8.3 107.7 — — 116.0
– securitisation — 7.9 114.9 174.0 — 296.8
– retail bonds — 3.1 63.1 — — 66.2
– Tier 2 capital — 17.8 17.8 53.3 306.5 395.4
– TFSME — 1.3 1.3 176.6 — 179.2
Total borrowings 3.6 477.5 666.2 676.6 306.5 2,130.4
Trade and other payables — 95.6 — — — 95.6
Lease liabilities — 10.6 10.5 26.0 18.8 65.9
Total 3.6 583.7 676.7 702.6 325.3 2,291.9
2020 – Group
Repayable
on demand
£m
<1 year
£m
1–2 years
£m
2–5 years
£m
Over 5
years
£m
Total
£m
Retail deposits
1
— 919.9 332.3 472.6 — 1,724.8
Bank and other borrowings:
– bank facilities 1.4 69.3 — — — 70.7
– senior public bonds — 14.0 14.0 189.0 — 217.0
– securitisation — 3.2 3.3 157.4 — 163.9
– retail bonds — 67.0 3.1 63.1 — 133.2
Total borrowings 1.4 1,073.4 352.7 882.1 — 2,309.6
Trade and other payables — 64.9 — — — 64.9
Derivative financial instruments — 0.7 0.4 0.2 — 1.3
Lease liabilities — 10.9 10.9 32.4 22.7 76.9
Total 1.4 1,149.9 364.0 914.7 22.7 2,452.7
1 Following the onset of Covid-19 in 2020, the Group took on significant additional retail deposits to ensure it had adequate liquidity. This has reduced
over the course of 2021 resulting in a more normal maturity profile.
The unutilised credit card commitments are included in note 12.
2021 – Company
Repayable
on demand
£m
<1 year
£m
1–2 years
£m
2–5 years
£m
Over 5
years
£m
Total
£m
Bank and other borrowings:
– bank facilities — 30.0 — — — 30.0
– senior public bonds — 8.3 107.7 — — 116.0
– retail bonds — 3.1 63.1 — — 66.2
– Tier 2 capital — 17.8 17.8 53.3 306.5 395.4
Total borrowings — 59.2 188.6 53.3 306.5 607.6
Trade and other payables — 386.7 — — — 386.7
Lease liabilities — 3.6 3.6 8.0 6.5 21.7
Total — 449.5 192.2 61.3 313.0 1,016.0
Provident Financial plc Annual Report and Financial Statements 2021
209
Financial statements
Financial risk management continued
(b) Liquidity risk continued
Financial liabilities continued
2020 – Company
Repayable
on demand
£m
<1 year
£m
1–2 years
£m
2–5 years
£m
Over 5
years
£m
Total
£m
Bank and other borrowings:
– bank facilities — 69.3 — — — 69.3
– senior public bonds — 14.0 14.0 189.0 — 217.0
– retail bonds — 67.0 3.1 63.1 — 133.2
Total borrowings — 150.3 17.1 252.1 — 419.5
Trade and other payables — 264.8 — — — 264.8
Lease liabilities — 3.4 3.6 10.8 7.4 25.2
Total — 418.5 20.7 262.9 7.4 709.5
(c) Interest rate risk
Interest rate risk is the risk of potential loss through unhedged
or mismatched asset and liability positions, which are sensitive
to changes in interest rates. Primarily, the Group is at risk of a
change in external interest rates which leads to an increase
in the Group’s cost of borrowing.
The Group’s exposure to movements in interest rates is
managed by the Treasury Committee and is governed by a
Board-approved Interest Rate Hedging Policy which forms part
of the Group’s treasury policies.
The Group seeks to limit the net exposure to changes in
interest rates. This is achieved through a combination of
issuing fixed-rate debt and by the use of derivative financial
instruments such as interest rate swaps.
A 2% movement in the interest rate applied to borrowings
during 2021 and 2020 would not have had a material impact
on the Group’s profit before taxation or equity given that
the Group’s receivables can be repriced over a relatively
short timeframe.
LIBOR reform
Key benchmark interest rates and indices, such as the London
Interbank Offered Rate (LIBOR), were reformed in favour of
risk-free rates such as the Sterling Overnight Index Average
(SONIA) in the UK. LIBOR was withdrawn at the end of 2021.
Over the course of 2021, the Group has refinanced all
historically LIBOR-linked liabilities to reference SONIA.
(d) Foreign exchange rate risk
Foreign exchange rate risk is the risk of a change in foreign
currency exchange rates leading to a reduction in profits
or equity.
Following the wind-down of the CCD operation there is no
longer an exposure to movement in the sterling to euro
exchange rate.
As at 31 December 2021, a 2% movement in the sterling to US
dollar exchange rate would have led to a £0.2m (2020: £0.2m)
movement in the investment held at fair value through profit
and loss (2020: through other comprehensive income) and
a £0.2m (2020: £0.2m) impact on equity.
(e) Market risk
Market risk is the risk of loss due to adverse market movements
caused by active trading positions taken in interest rates,
foreign exchange markets, bonds and equities.
The Group’s corporate policies do not permit it to undertake
position taking or trading books of this type and therefore it
does not do so.
(f) Exposures to structured entities
Starting in 2020, the Group has issued two securitisations
to diversify its sources of funding. As at the end of 2021, the
Group has securitised £810.1m of receivables, in exchange for
receiving £275m of funding from external sources. A further
£174m of funding has been obtained by using retained notes
as collateral in the Bank of England’s Term Funding Scheme
with additional incentives for Small and Medium-sized
Enterprises (TSFME).
The Group holds an exposure to the performance of these
vehicles in the form of retained notes and has a contractual
right to the variable returns of the vehicles. This risk is limited
to the performance of the underlying assets, which have not
been derecognised in the financial statements. The Group
has no exposure to other contractual risks associated with
the vehicles; no additional credit enhancements have been
provided beyond the exposure created by the retained notes.
2021 2020
Vehicle
Receivables
secured
£m
Notes in
issue
£m
Receivables
secured
£m
Notes in
issue
£m
Oban-Cards
2021-1 Holdings
Limited 453.1 232.0 — —
Moneybarn
Financing Limited 357.0 275.0 319.1 150.0
Provident Financial plc Annual Report and Financial Statements 2021
210
Capital risk management
To support the delivery of the Group’s Purpose, the Group
operates a financial model that is founded on investing in
customer-centric businesses offering attractive returns which
aligns an appropriate capital structure focused on optimising
shareholder value, in a safe and sustainable manner. The
Capital Principal Risk Policy of the Group helps to ensure
capital resources are sufficient to support planned levels
of growth.
The Assets and Liabilities Committee is responsible
for monitoring the level of regulatory capital. The level
of surplus regulatory capital against requirements is
reported to the Board on a monthly basis in the Group’s
management accounts.
The minimum regulatory capital requirement imposed by
the PRA on firms is the sum of the total capital requirement,
combined CRD buffer requirements as applicable and the
PRA buffer requirements as applicable. The minimum amount
of regulatory capital held by the Group and Vanquis Bank
Limited represents the higher of the imposed requirement
and their respective internal assessments of minimum capital
requirements based upon an assessment of risks facing the
Group. The Internal Capital Adequacy Assessment Process
(ICAAP) considers all risks facing the business, including credit,
operational, counterparty, conduct, pension and market risks,
and assesses the capital requirement for such risks in the
event of downside stresses should such requirement exceed
that set out under the Pillar 1 framework.
The Group has elected to phase in the impact of adopting
IFRS 9 over a five-year period ending 31 December 2022,
arbitrarily named the dynamic 1 adjustment. This is achieved
by applying add back factors of 95%, 85%, 70%, 50% and
25% for years one to five respectively to the initial IFRS 9
transition adjustment (net of attributable deferred tax) plus
any subsequent increase in expected credit losses (ECL)
in the non-credit-impaired book from transition to the end
of the reporting period. The PRA ratified additional capital
mitigation proposed by the Basel Committee, in response
to Covid-19, with these measures coming into force from
27 June 2020. The new measures allow for the increase in ECL
in the non-credit-impaired book arising after 31 December 2019
to be fully added back in 2020 and 2021, arbitrarily named
the dynamic 2 adjustment. This relief is then phased out over
the following three years on a straight-line basis, ending
31 December 2024 (2022: 75%; 2023: 50%; 2024: 25%). The Group
had no relief from the new measures at 31 December 2021 as
the ECL in the non-credit impaired book had fallen back below
the level at 31 December 2019.
The Group has in place a Capital Principal Risk Policy, which
sets out the framework in which the Group aims to maintain a
secure funding and capital structure and establishes defined
capital risk appetite. Adherence to the policy ensures that
the Group maintains minimum capital levels and that the
capital held at business division levels is adequate to support
the businesses’ underlying requirements and is sufficient to
support growth in that business. Internal capital is allocated
to business lines and risk categories, calibrated to maximise
return on equity while remaining within the risk appetite. The
distribution of dividends is aligned with the Group’s growth
targets, whilst continuing to meet the required capital levels
in line with regulatory requirements and internal risk appetite.
The following table reconciles the Group’s equity to the
regulatory capital resources for the Group.
Regulatory capital (unaudited)
2021
£m
2020
£m
Net assets 631.2 647.7
IFRS 9 transition 92.0 128.8
Dynamic 1 and 2 adjustments 16.4 74.2
Pension (112.2) (79.7)
Deferred tax on pension 28.0 15.1
Goodwill (71.2) (71.2)
Intangible assets (52.3) (45.3)
Deferred tax on acquired intangible asset 5.0 5.2
Foreseeable dividend (30.4) —
Common equity tier 1 506.5 674.8
Tier 2 capital 200.0 —
Total regulatory capital 706.5 674.8
Risk-weighted exposures 1,740.6 1,973.5
CET1 ratio 29.1% 34.2%
Total capital ratio¹ 40.6% 34.2%
1 In October 2021 the Group issued Tier 2 subordinated notes for gross
proceeds of £200m, this further strengthened the Group’s balance sheet
and increased total capital resources and therefore the total capital ratio.
Pillar 3 complements Basel’s Pillar 1 and Pillar 2 frameworks
and seeks to encourage market discipline by developing a set
of disclosure requirements which would allow market participants
to assess key pieces of information on a firm’s capital, risk
exposures and risk assessment processes. Pillar 3 disclosures
for the Group, for the year ended 31 December 2021, are
published as a separate document and are available
on the Group’s website.
Financial and capital risk management continued
Provident Financial plc Annual Report and Financial Statements 2021
211
Financial statements
Notes to the financial statements
1 Segment reporting
IFRS 8 requires segment reporting to be based on the internal financial information reported to the chief operating decision
maker. The Group’s chief operating decision maker is deemed to be the Group ExCo, whose primary responsibility is to support the
Chief Executive Officer in managing the Group’s day-to-day operations and analyse trading performance. The Group’s segments
comprise credit cards and personal loans (Vanquis Bank), vehicle finance (Moneybarn), CCD (discontinued operations) and
Central which are those segments reported in the Group’s management accounts used by the Group ExCo as the primary
means for analysing trading performance. The Group ExCo assesses profit performance using profit before tax measured
on a basis consistent with the disclosure in the Group financial statements.
Revenue
Profit/(loss)
before taxation
Group
2021
£m
2020
£m
2021
£m
2020
£m
Credit cards 389.5 472.4 173.9 39.5
Vehicle finance 137.9 134.0 28.9 10.9
Personal loans 7.2 9.0 (8.7) (1.5)
Central costs — — (26.3) (21.1)
Total Group before amortisation of acquisition intangibles and exceptional items 534.6 615.4 167.8 27.8
Amortisation of acquisition intangibles (note 18) — — (7.5) (7.5)
Exceptional items — — (18.1) (57.3)
Total Group – continuing operations 534.6 615.4 142.2 (37.0)
CCD – discontinued operations (note 2) 68.0 192.4 (95.5) (74.9)
CCD – discontinued operations exceptional items (note 2) — — (42.6) (1.6)
Total Group 602.6 807.8 4.1 (113.5)
Revenue for credit cards, vehicle finance and personal loans comprises interest earned on amounts receivable from customers
and fee income.
Acquisition intangibles represent the fair value of the broker relationships of £75.0m which arose on the acquisition of Moneybarn
in August 2014. The amortisation charge in 2021 amounted to £7.5m (2020: £7.5m).
Revenue between business segments is not material.
Exceptional items for continuing operations represent a net exceptional charge of £18.1m in 2021 (2020: £57.3m) and comprise:
2021
£m
2020
£m
Corporate costs including CCD closure (11.5) —
CCD Scheme of Arrangement costs and provision (note 26) (5.0) (65.0)
(Costs)/gain in respect of the redemption of bonds (note 4) (3.9) 1.3
Pension credit/(charge) (note 20) 2.3 (0.7)
Release of provisions in respect of ROP refund programme (note 26) — 8.3
Costs in respect of the new intermediate holding company (note 19) — (1.2)
Total exceptional items (18.1) (57.3)
Corporate costs including CCD closure include redundancy amounts of £1.0m (see note 10).
Provident Financial plc Annual Report and Financial Statements 2021
212
Notes to the financial statements continued
1 Segment reporting continued
Segment assets Segment liabilities Net assets/(liabilities)
Group
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Credit cards and personal loans 1,639.1 2,037.1 (1,264.6) (1,710.6) 374.5 326.5
Vehicle finance 698.3 611.0 (592.5) (591.7) 105.8 19.3
Central 546.5 730.4 (100.5) (213.4) 446.0 517.0
Continuing operations before intra-group elimination 2,883.9 3,378.5 (1,957.6) (2,515.7) 926.3 862.8
Discontinued operations 0.3 187.8 (295.4) (402.9) (295.1) (215.1)
Intra-group elimination (158.9) (488.2) 158.9 488.2 — —
Total Group 2,725.3 3,078.1 (2,094.1) (2,430.4) 631.2 647.7
The presentation of segment net assets reflects the statutory assets, liabilities and net assets of each of the Group’s divisions. This results
in an intra-group elimination reflecting the difference between the central intercompany funding provided to the divisions and the
external funding raised centrally.
Following the wind-down of CCD, the Group’s businesses now operate principally in the UK.
Capital expenditure Depreciation Amortisation
Group
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Credit cards and personal loans 24.8 19.1 2.2 2.7 5.0 4.6
Vehicle finance 1.1 0.8 0.8 0.8 2.1 0.8
Central — — 0.4 1.1 7.5 7.5
Continuing operations 25.9 19.9 3.4 4.6 14.6 12.9
Discontinued operations 0.2 2.3 1.5 1.6 3.6 2.2
Total Group 26.1 22.2 4.9 6.2 18.2 15.1
Capital expenditure in 2021 comprises expenditure on intangible assets of £24.8m (2020: £16.3m) and property, plant and equipment
of £1.3m (2020: £5.9m).
The acquired intangible asset in respect of vehicle finance broker relationships is held on consolidation and, therefore, the amortisation
charge has been allocated to Central in the above analysis, consistent with the segment net asset analysis.
2 Discontinued operations
The Group has closed CCD comprising Home Credit and Satsuma loans business during the year and in accordance with IFRS 5
‘Non-current Assets Held for Sale and Discontinued Operations’ these businesses are now presented as discontinued operations.
The results from discontinued operations, which are included in the Group income statement, are set out below.
2021
£m
2020
£m
Interest income (note 3) 68.0 192.4
Finance costs (note 4) (12.1) (9.7)
Net interest margin 55.9 182.7
Impairment (note 12) (59.6) (47.5)
Risk-adjusted net interest margin (3.7) 135.2
Operating cost:
– other (91.8) (210.1)
– exceptional items (42.6) (1.6)
Loss before taxation (138.1) (76.5)
Tax (charge)/credit (note 6) (28.6) 30.1
Loss from discontinued operations (166.7) (46.4)
Basic loss per share (p) (66.5) (18.3)
Diluted loss per share (p) (66.5) (18.3)
Provident Financial plc Annual Report and Financial Statements 2021
213
Financial statements
2 Discontinued operations continued
During the year the discontinued operations used cash of £0.8m (2020: £3.5m) in respect of operating activities, generated £1.2m
(2020: used £1.9m) in respect of investing activities and used £2.1m (2020: £1.2m) in respect of financing activities. Discontinued
operations cash flows relating to exceptional items were £20.2m (2020: £2.1m) in respect of operating activities.
3 Revenue
Revenue is recognised by applying the effective interest rate (EIR) to the carrying value of a loan. The EIR is calculated at inception and
represents the rate which exactly discounts the future contractual cash receipts from a loan to the amount of cash advanced under
that loan, plus directly attributable issue costs (e.g. aggregator/broker fees). In addition, in vehicle finance, the EIR takes account of
customers repaying early.
Fee income is recognised at the time the charges are made to the customer on the basis the performance obligation is complete.
Group
2021
£m
2020
£m
Interest income 474.3 531.9
Fee income 60.3 83.5
Revenue – continuing operations 534.6 615.4
Revenue – discontinued operations (note 2) 68.0 192.4
Total revenue 602.6 807.8
Fee income predominantly relates to credit cards.
Interest income relates to the interest charges on credit cards, net of deferred acquisition costs, and vehicle finance conditional sale
agreements. Fee income predominantly relates to credit cards and personal loans, and reflects default and over-limit fees as well as other
ancillary income streams such as ROP fees. Interchange income is also recognised within credit cards and personal loans as part of fee
income on an accruals basis. Fee income in 2021 represented 15% (2020: 17%) of credit cards and personal loans revenue.
4 Finance costs
Group
Interest payable on:
2021
£m
2020
£m
Retail deposits 24.4 33.4
Senior public and retail bonds 23.8 25.2
Bank borrowings 4.5 7.1
Securitisation 6.8 3.5
Private placement loan notes — 0.4
Lease liabilities finance costs 1.7 1.9
Exceptional cost/(gain) in respect of the redemption of bonds (note 22) 3.9 (1.9)
Total finance costs 65.1 69.6
Finance costs – continuing operations 53.0 59.9
Finance costs – discontinued operations (note 2) 12.1 9.7
Discontinued finance costs included £0.3m (2020: £0.4m) in respect of lease liabilities.
Exceptional costs of £3.9m relate to the £71.5m tender of the 2018 five-year fixed-rate bond in October 2021 (see note 22(e)) following
the Group’s successful issuance of Tier 2 capital (see note 22(h)). In 2020 the exceptional gain of £1.9m relates to the tender and early
redemption of £75m of the 2018 five-year fixed-rate bond in August 2020.
Discontinued finance costs included £nil (2020: £0.6m gain) in respect of exceptional costs.
Provident Financial plc Annual Report and Financial Statements 2021
214
Notes to the financial statements continued
5 Profit/(loss) before taxation
Group
Profit/(loss) before taxation for continuing operations is stated after charging/(crediting):
2021
£m
2020
£m
Amortisation of other intangible assets:
– computer software (note 18) 7.1 5.4
– acquisition intangibles (note 18) 7.5 7.5
Depreciation of property, plant and equipment (note 15) 3.4 4.6
Loss on disposal of property, plant and equipment (note 15) 0.1 0.4
Profit on disposal of intangibles (note 18) (0.4) —
Depreciation of right of use assets (note 16) 8.1 8.4
Lease liability finance costs (note 4) 1.4 1.5
Short-term lease costs (note 25) — 0.1
Impairment of amounts receivable from customers (note 12) 50.4 312.6
Employment costs (prior to exceptional redundancy costs and pension costs/(credit) (note 10(b)) 122.2 90.9
Exceptional items:
Exceptional costs in relation to corporate costs including CCD closure 10.5 —
Exceptional CCD Scheme of Arrangement costs and provision (note 26) 5.0 65.0
Exceptional costs/(gain) in respect of the redemption of bonds (note 4) 3.9 (1.3)
Exceptional redundancy cost (note 10(b)) 1.0 —
Exceptional pension (credit)/charges (note 20(a)) (2.3) 0.7
Exceptional release of provisions in respect of ROP refund programme (note 26) — (8.3)
Exceptional costs in respect of the new intermediate holding company (note 19) — 1.2
All of the above activities relate to continuing activities.
Group
Auditor’s remuneration
2021
£m
2020
£m
Fees payable to the Company’s auditor for the audit of Company and consolidated financial statements 0.4 0.4
Fees payable to the Company’s auditor and its associates for other services:
– audit of Company’s subsidiaries pursuant to legislation 1.3 1.3
– other non-audit services 1.2 0.2
Total auditor’s remuneration 2.9 1.9
The increase in non-audit fees from £0.2m in 2020 to £1.2m in 2021 was in relation to support with ongoing Group projects.
6 Tax charge
Group
2021 2020
Tax charge/(credit) in the income statement
Continuing
operations
£m
Discontinued
operations
£m
Total
£m
Continuing
operations
£m
Discontinued
operations
£m
Total
£m
Current tax – UK 12.6 (3.3) 9.3 (3.5) (7.2) (10.7)
Deferred tax (note 21)
– UK — 31.9 31.9 6.0 (22.0) (16.0)
– overseas — — — — 0.1 0.1
Impact of change in UK tax rate (note 21) (5.0) — (5.0) (2.5) (1.0) (3.5)
Total tax charge/(credit) 7.6 28.6 36.2 — (30.1) (30.1)
Provident Financial plc Annual Report and Financial Statements 2021
215
Financial statements
6 Tax charge continued
2021
Continuing operations Discontinued operations
Adjusted
PBT
£m
Exceptional
items
£m
Amortisation
£m
Total
£m
Adjusted
PBT
£m
Exceptional
items
£m
Total
£m
Profit/(loss) on ordinary activities before tax 167.8 (18.1) (7.5) 142.2 (95.5) (42.6) (138.1)
Profit/(loss) before tax multiplied by standard
rate of corporation tax in the UK of 19% 31.8 (3.4) (1.4) 27.0 (18.1) (8.1) (26.2)
Effect of:
– impact of change of UK tax rate (note (a)) (5.8) 0.2 0.6 (5.0) — — —
– impact of bank corporation tax surcharge
(note (b)) 12.3 (0.1) — 12.2 — — —
– impact of lower tax rates overseas and
overseas losses (note (c)) — — — — 2.7 0.8 3.5
– write off of deferred tax assets (note (d)) (0.3) — — (0.3) 23.4 — 23.4
– adjustments in respect of prior years
(note (e)) 0.5 — — 0.5 0.5 — 0.5
– prior year adjustments related to transfer
pricing and losses (note (f)) (7.8) — — (7.8) 7.8 — 7.8
– non-deductible general expenses 0.1 0.4 — 0.5 0.1 — 0.1
– transfer pricing adjustments (note (g)) (0.6) — — (0.6) 0.6 — 0.6
– discount on payment for losses of
discontinued operations (note (h)) (6.5) — — (6.5) 6.5 — 6.5
– benefit of capital losses offset against
capital gain (note (i)) — — — — — — —
– reversal of exceptional complaints
provision (note (j)) — (12.4) — (12.4) — 12.4 12.4
23.7 (15.3) (0.8) 7.6 23.5 5.1 28.6
2020
Continuing operations Discontinued operations
Adjusted
PBT
£m
Exceptional
items
£m
Amortisation
£m
Total
£m
Adjusted
PBT
£m
Exceptional
items
£m
Total
£m
Profit/(loss) on ordinary activities before tax 27.8 (57.3) (7.5) (37.0) (74.9) (1.6) (76.5)
Profit/(loss) before tax multiplied by standard
rate of corporation tax in the UK of 19% 5.3 (10.9) (1.4) (7.0) (14.2) (0.4) (14.6)
Effect of:
– impact of change of UK tax rate (note (a)) (3.2) — 0.7 (2.5) (1.0) — (1.0)
– impact of bank corporation tax surcharge
(note (b)) 1.4 0.7 — 2.1 — — —
– impact of lower tax rates overseas and
overseas losses (note (c)) — — — — 1.8 — 1.8
– write off of deferred tax assets (note (d)) 0.7 — — 0.7 0.3 — 0.3
– adjustments in respect of prior years
(note (e)) (7.7) — — (7.7) 0.2 — 0.2
– prior year adjustments related to transfer
pricing and losses (note (f)) — — — — — — —
– non-deductible general expenses (0.7) 0.3 — (0.4) — — —
– transfer pricing adjustments (note (g)) 4.4 — — 4.4 (4.4) — (4.4)
– discount on payment for losses of
discontinued operation (note (h)) — — — — — — —
– benefit of capital losses offset against
capital gain (note (i)) (0.9) — — (0.9) — — —
– utilisation of losses not recognised
for deferred tax (note (i)) (1.1) — — (1.1) — — —
– exceptional complaints provision (note (j)) — 12.4 — 12.4 — (12.4) (12.4)
(1.8) 2.5 (0.7) — (17.3) (12.8) (30.1)
Provident Financial plc Annual Report and Financial Statements 2021
216
Notes to the financial statements continued
6 Tax charge continued
(a) Impact of change of UK tax rate
In 2016, changes in corporation tax rates were enacted which reduced the mainstream corporation tax rate to 17% with effect
from 1 April 2020. Prior to 1 April 2020, the mainstream corporation tax rate was 19%. In 2020, the reduction in the mainstream
corporation tax rate to 17% was cancelled and the rate remained at 19% for 2020. During 2021, a further change was enacted to
increase the mainstream corporation tax rate from 19% to 25% with effect from 1 April 2023.
Deferred tax balances at 31 December 2019 were measured at 17% and, in the case of credit cards and personal loans, at the
combined mainstream corporation tax rate (17%) and the bank corporation tax surcharge rate (8%) of 25% to the extent that the
temporary differences on which the deferred tax was calculated were expected to reverse after 1 April 2020. At 31 December
2020, these deferred tax balances were remeasured at 19% and, in the case of credit cards and personal loans, at the combined
mainstream corporation tax (19%) and bank corporation tax surcharge rates (8%) of 27%, as were movements in the deferred tax
balances during the year.
At 31 December 2021, the deferred tax balances have been remeasured at 25% (2020: 19%) and, in the case of credit cards and
personal loans, at the combined mainstream corporation tax (25%) and bank corporation tax surcharge rates (8%) of 33% (2020: 27%)
to the extent that the temporary differences on which deferred tax has been calculated are expected to reverse, or the tax
loss is expected to be utilised, after 1 April 2023. A tax credit of £5.0m (2020: credit of £3.5m) represents the income statement
adjustment to deferred tax as a result of these changes and an additional deferred tax charge of £6.4m (2020: charge of £1.7m)
has been taken directly to other comprehensive income in respect of items reflected in other comprehensive income. Of the
tax credit of £5.0m (2020: credit of £3.5m) taken to the income statement, £5.0m related to continuing operations (2020: £2.5m)
and £nil (2020: £1.0m) to discontinued operations.
There is no impact in 2021 on discontinued operations from the change in tax rates as no deferred tax balances are recognised
in discontinued operations at 31 December 2021.
(b) Impact of bank corporation tax surcharge
The adverse impact of the bank corporation tax surcharge amounts to £12.2m (2020: £2.1m) and represents tax at the bank
corporation tax surcharge rate of 8% on credit cards and personal loans taxable profits in excess of £25m where taxable profits
are calculated ignoring the benefit of losses elsewhere in the Group, including capital losses.
The only entity subject to bank corporation tax surcharge in the Group is Vanquis Bank Limited which sits within continuing operations.
(c) Impact of lower tax rates overseas and overseas losses
Prior to its closure in 2021, the home credit business in the Republic of Ireland was subject to tax at the Republic of Ireland
statutory tax rate of 12.5% (2020: 12.5%) rather than the UK statutory mainstream corporation tax rate of 19% (2020: 19%). In 2021, the
home credit business in the Republic of Ireland made a loss (2020: loss) which can only be relieved against future profits of the
business in the Republic of Ireland at the 12.5% statutory rate rather than the 19% UK statutory tax rate. In light of the closure of the
business, no deferred tax asset has been recognised in respect of this loss giving rise to a total adverse impact on the Group tax
charge of £3.5m (2020: £1.8m), all of which relates to discontinued operations.
(d) Write off of deferred tax assets
Deferred tax assets written off comprise (a) £23.6m of deferred tax assets related to discontinued operations for which future
tax relief is unlikely to be available following the closure of the business; net of (b) a deferred tax credit of £0.5m (2020: deferred
tax charge of £1.0m) related to the deferred tax asset in respect of share scheme awards which had previously been written
off on the basis that future deductions were expected to be lower than previously anticipated. Of the £0.5m deferred tax credit
(2020: deferred tax charge of £1.0m), £0.3m (2020: deferred tax charge of £0.7m) relates to continuing operations and £0.2m
(2020: deferred tax charge of £0.3m) relates to discontinued operations. The £23.6m deferred tax assets related to discontinued
operations which have been written off in 2021 (2020: £nil) relate to tax losses carried forward and other temporary differences
for which, following the closure of the business, it is considered unlikely that future tax relief will be available.
(e) Adjustments in respect of prior years
The £1.0m tax charge in respect of prior years (2020: tax credit of £7.5m) primarily comprises adjustments related to prior year
deferred tax on share scheme awards and the impact of resolving historical tax liabilities, of which a £0.5m charge (2020: charge
of £0.2m) relates to discontinued operations and a £0.5m charge (2020: credit of £7.7m) relates to continuing operations.
In 2020, the £7.5m credit in respect of prior years primarily relates to continuing operations and represents the benefit of
claiming deductions for the costs incurred in 2019 in connection with the defence of the unsolicited offer from NSF, for which no
tax deduction was assumed in the prior year, along with a release of part of the provision for uncertain tax liabilities net of other
prior year adjustments.
(f) Prior year adjustments related to transfer pricing and losses
This comprises a £7.8m charge (2020: £nil) related to discontinued operations net of a £7.8m credit (2020: £nil) related to
continuing operations and relates to transfer pricing adjustments between the continuing operations and discontinued
operations in prior years, as well as adjustments related to prior year tax losses of the discontinued operation which have been
surrendered as group relief to the continuing operation and which the continuing operation has paid for at a discounted price.
They have a £nil (2020: £nil) overall impact on the tax charge.
(g) Transfer pricing adjustments
These comprise a £0.6m credit (2020: charge of £4.4m) related to continuing operations and a £0.6m charge (2020: £4.4m credit)
related to discontinued operations, and represent the impact of transfer pricing adjustments between the profits of continuing
and discontinued operations. They have a £nil (2020: £nil) overall impact on the tax charge.
(h) Discount on payment for losses of discontinued operations
These comprise a credit of £6.5m (2020: £nil) related to continuing operations and a £6.5m charge (2020: £nil) related to
discontinued operations, and relate to tax losses of the discontinued operations which have been surrendered as group relief to
the continuing operations and which the continuing operations have paid for at a discounted price. The overall impact on the
tax charge is £nil (2020: £nil).
Provident Financial plc Annual Report and Financial Statements 2021
217
Financial statements
6 Tax charge continued
(i) Benefit of capital losses offset against capital gain and utilisation of losses not recognised for deferred tax
The conversion and subsequent sale of part of the preferred stock in Visa Inc during 2020 gave rise to a capital gain which
was offset partly by: (i) in-year capital losses which give rise to a beneficial impact on the tax charge of £0.9m; and (ii) brought
forward capital losses in respect of which a deferred tax asset was not previously recognised, which gave rise to a beneficial
impact on the tax charge of £1.1m.
(j) Exceptional complaints provision
In 2020, the exceptional complaints provision which was booked in CCD gave rise to a tax credit in CCD of £12.4m. As the
exceptional complaints provision has been recognised as part of continuing rather than discontinued operations, this gives rise
to a tax reconciling difference of £12.4m between continuing and discontinued operations.
In 2021, the release of the exceptional complaints provision in CCD following the implementation of the Scheme of Arrangement
gives rise to a tax charge in CCD of £12.4m. As the release of the provision has been recognised as part of continuing rather
than discontinued operations, this gives rise to a similar tax reconciling difference in 2021 of £12.4m between continuing and
discontinued operations.
These adjustments have a nil (2020: nil) overall impact on the tax charge.
In 2021, a tax deduction has been claimed for the £70m costs of the Scheme of Arrangement incurred by Provident Financial plc
which have also been recognised as part of continuing operations.
Tax on exceptional items
The tax credit in respect of exceptional items amounts to £10.2m (2020: tax credit of £10.3m) and comprises a £15.3m credit (2020:
charge of £2.5m) relating to continuing operations and a £5.1m charge (2020: £12.8m credit) relating to discontinued operations.
In 2021:
– The £15.3m tax credit relating to continuing operations represents: (i) a tax credit in respect of all exceptional costs of the
continuing operation with the exception of certain project costs for which it is considered tax deductions may not be available;
and (ii) the tax reconciling difference between continuing and discontinued operations referred to in note (j) above.
– The £5.1m tax charge relating to discontinued operations represents the tax reconciling difference between continuing and
discontinued operations referred to in note (j) above net of a tax credit for the exceptional closure costs of the discontinued
operations with the exception of those costs related to the Irish branch, for which no effective tax relief is available.
In 2020:
– The £2.5m tax charge relating to continuing operations represents: (i) a tax charge of £2.3m, being tax at the combined
mainstream corporation tax and bank corporation tax surcharge rates of 27% in respect of the £8.3m exceptional release
of the provisions established in 2017 following completion of the refund programme in respect of ROP and a re-evaluation
of the forward flow of claims that may arise in respect of ROP complaints more generally; and (ii) a tax charge of £0.2m,
being tax on the exceptional net gain on the bond buyback net of a tax credit on the GMP pensions equalisation charge
and exceptional restructuring costs.
– The £12.8m credit relating to discontinued operations represents a tax credit of £12.4m in respect of the exceptional
provision for customer claims and associated costs which have been booked in CCD and a tax credit of £0.4m in respect
of exceptional restructuring costs in CCD.
The tax credit on items taken directly to other comprehensive income is as follows:
Group
Tax (charge)/credit on items taken directly to other comprehensive income
2021
£m
2020
£m
Deferred tax credit/(charge) on fair value movement in investment 1.4 (1.0)
Deferred tax credit on disposal of investment — 2.0
Current tax charge on disposal of investment — (2.0)
Deferred tax (charge)/credit on actuarial movements on retirement benefit asset (5.2) 0.3
Tax charge on items taken directly to other comprehensive income prior to impact of change in UK tax rate (3.8) (0.7)
Impact of change in UK tax rate (6.4) (1.7)
Total tax charge on items taken directly to other comprehensive income (10.2) (2.4)
The tax (charge)/credit on items taken directly to other comprehensive income relates entirely to continuing operations.
During 2020, Vanquis Bank Limited converted and subsequently sold its holding in the ‘A’ preference shares in Visa Inc which
gave rise to a capital gain. In 2020, the £1.0m deferred tax charge recognised in other comprehensive income represents
deferred tax at the combined mainstream UK corporation tax and bank corporation tax surcharge rate of 27% on the movement
in the valuation of the ‘B’ preference shares in Visa Inc which were retained, as well as the movement in the valuation of the
‘A’ preference shares in Visa Inc up to the point of conversion and sale. The conversion and sale of the ‘A’ preference shares in
Visa Inc in 2020 resulted in a deferred tax credit of £2.0m in other comprehensive income which represents the reversal of the
£2.0m deferred tax charge in respect of the valuation of the company’s shareholding in the ‘A’ preference shares in Visa Inc that
had been recognised in other comprehensive income, and a current tax charge of £2.0m, representing tax at the combined
mainstream UK corporation tax and bank corporation tax surcharge rates of 27% on the cumulative fair value gain on the
disposed shares which had been recognised in other comprehensive income. In 2021, the £1.4m deferred tax credit represents
the reversal of the deferred tax at the combined mainstream UK corporation tax and bank corporation tax surcharge rates on
the cumulative movement in the valuation of the ‘B’ preference shares in Visa Inc which has previously been recognised in other
comprehensive income and is now being recognised in the income statement, with the shares now recognised at fair value
through profit and loss rather than previously at fair value through other comprehensive income.
Provident Financial plc Annual Report and Financial Statements 2021
218
Notes to the financial statements continued
7 Earnings/(loss) per share
Basic earnings/(loss) (E/LPS) per share is calculated by dividing the profit/(loss) for the year attributable to equity shareholders by the
weighted average number of ordinary shares outstanding during the year less the number of shares held by the Employee Benefit Trust
which are used to satisfy the share awards such as DBP, PSP, LTIS, RSP and CSOP.
Diluted E/LPS calculates the effect on E/LPS assuming conversion of all dilutive potential ordinary shares. Dilutive potential ordinary
shares are calculated as follows:
(i) For share awards outstanding under performance-related share incentive schemes such as the Deferred Bonus Plan (DBP)
(previously the Performance Share Plan (PSP)), the Long Term Incentive Scheme (LTIS), the Restricted Share Plan (RSP), and the
Company Share Option Plan (CSOP), the number of dilutive potential ordinary shares is calculated based on the number of shares
which would be issuable if: (i) the end of the reporting period is assumed to be the end of the schemes’ performance period; and
(ii) the performance targets have been met as at that date.
(ii) For share options outstanding under non-performance-related schemes such as the Save As You Earn scheme (SAYE), a calculation
is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual
market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding
share options. The number of shares calculated is compared with the number of share options outstanding, with the difference
being the dilutive potential ordinary shares. The Group also presents an adjusted EPS, prior to the amortisation of acquisition
intangibles and exceptional items.
Potential ordinary shares are treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings
per share or increase loss per share.
Reconciliations of basic and diluted E/LPS for continuing operations and the Group are set out below:
2021 2020
Continuing operations
Earnings
£m
Weighted
average
number of
shares
m
Per share
amount
pence
Loss
£m
Weighted
average
number of
shares
m
Per share
amount
pence
Basic earnings/(loss) per share 134.6 250.7 53.7 (37.0) 253.6 (14.6)
Dilutive effect of share options and awards — 1.3 (0.3) — — —
Diluted earnings/(loss) per share 134.6 252.0 53.4 (37.0) 253.6 (14.6)
2021 2020
Group
Loss
£m
Weighted
average
number of
shares
m
Per share
amount
pence
Loss
£m
Weighted
average
number of
shares
m
Per share
amount
pence
Basic loss per share (32.1) 250.7 (12.8) (83.4) 253.6 (32.9)
Dilutive effect of share options and awards — — — — — —
Diluted loss per share (32.1) 250.7 (12.8) (83.4) 253.6 (32.9)
The directors have elected to show an adjusted earnings per share prior to the amortisation of acquisition intangibles which arose
on the acquisition of vehicle finance in August 2014 (see note 18) and prior to exceptional items (see note 1). This is presented to
show the earnings per share generated by the Group’s continuing operations. A reconciliation of continuing and Group basic/diluted
earnings/(loss) per share to adjusted basic and diluted earnings/(loss) per share is as follows:
2021 2020
Continuing operations
Earnings
£m
Weighted
average
number of
shares
m
Per share
amount
pence
Earnings
£m
Weighted
average
number of
shares
m
Per share
amount
pence
Basic earnings/(loss) per share 134.6 250.7 53.7 (37.0) 253.6 (14.6)
Amortisation of acquisition intangibles, net of tax 6.7 — 2.7 6.8 — 2.7
Exceptional items, net of tax 2.8 — 1.1 59.8 — 23.6
Adjusted basic earnings per share 144.1 250.7 57.5 29.6 253.6 11.7
Diluted earnings/(loss) per share 134.6 252.0 53.4 (37.0) 254.2 (14.6)
Amortisation of acquisition intangibles, net of tax 6.7 — 2.7 6.8 — 2.7
Exceptional items, net of tax 2.8 — 1.1 59.8 — 23.6
Adjusted diluted earnings per share 144.1 252.0 57.2 29.6 254.2 11.7
Provident Financial plc Annual Report and Financial Statements 2021
219
Financial statements
7 Earnings/(loss) per share continued
2021 2020
Group
Earnings
£m
Weighted
average
number of
shares
m
Per share
amount
pence
Loss
£m
Weighted
average
number of
shares
m
Per share
amount
pence
Basic loss per share (32.1) 250.7 (12.8) (83.4) 253.6 (32.9)
Amortisation of acquisition intangibles, net of tax 6.7 — 2.7 6.8 — 2.7
Exceptional items, net of tax 50.5 — 20.1 48.6 — 19.2
Adjusted basic earnings/(loss) per share 25.1 250.7 10.0 (28.0) 253.6 (11.0)
Diluted loss per share (32.1) 252.0 (12.7) (83.4) 253.6 (32.9)
Amortisation of acquisition intangibles, net of tax 6.7 — 2.7 6.8 — 2.7
Exceptional items, net of tax 50.5 — 20.0 48.6 — 19.2
Adjusted diluted earnings/(loss) per share 25.1 252.0 10.0 (28.0) 253.6 (11.0)
8 Dividends
There have been no dividends paid in the current or prior years.
The directors are recommending an interim dividend in respect of the financial year ended 31 December 2021 of 12p per share
which will amount to an estimated dividend of £30m. This dividend will be paid on 20 May 2022 to shareholders who were on
the register of members at 22 April with an ex-dividend date of 21 April 2022.
Going forwards, the Group anticipates moving towards a pay-out ratio of adjusted earnings of circa 40% from FY’22 onwards.
9 Directors’ remuneration
The remuneration of the directors, who are the key management personnel of the Group, is set out below in aggregate for each
of the categories specified in IAS 24 ‘Related Party Disclosures’.
Group and Company
2021
£m
2020
£m
Short-term employee benefits 2.6 2.9
Share-based payment charge 1.0 0.5
Total directors’ remuneration 3.6 3.4
Short-term employee benefits comprise salary/fees, bonus, benefits earned in the year and pension salary supplements for executive directors.
The share-based payment charge reflects the expected vesting of the Group’s share-based incentives.
10 Employee information
(a) Average monthly number of employees in the Group:
2021 2020
Credit
cards and
personal
loans
Vehicle
finance Central CCD Group
Credit
cards and
personal
loans
Vehicle
finance Central CCD Group
Full time 1,312 363 132 1,232 3,039 1,328 317 75 2,335 4,055
Part time 179 49 13 114 355 177 43 12 257 489
Total 1,491 412 145 1,346 3,394 1,505 360 87 2,592 4,544
Total – continuing operations 1,491 412 145 — 2,048 1,505 360 87 — 1,952
Total – discontinued operations — — — 1,346 1,346 — — — 2,592 2,592
Employees comprise all head office and contact centre employees within credit cards, personal loans and vehicle finance. Central
employees represent corporate office employees and executive and non-executive directors employed by the Company. Discontinued
operations includes employees who are part of the CCD operation. Central employees have increased by 67% largely to support the
Group’s transformation programme.
Provident Financial plc Annual Report and Financial Statements 2021
220
Notes to the financial statements continued
10 Employee information continued
(b) Employment costs
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Aggregate gross wages and salaries paid to the Group’s employees 103.1 79.4 17.5 13.3
Employer’s National Insurance contributions 11.3 8.4 2.4 1.7
Pension charge/(credit), prior to exceptional pension (credit)/cost 5.3 2.3 (0.7) (3.2)
Share-based payment charge (note 29) 2.5 0.8 1.7 0.7
Total employment cost prior to exceptional costs 122.2 90.9 20.9 12.5
Exceptional redundancy cost 1.0 — — —
Exceptional pension (credit)/cost (note 20) (2.3) 0.7 (2.3) 0.7
Total employment costs – continuing operations 120.9 91.6 18.6 13.2
Employment costs – discontinued operations 85.0 106.3 — —
Total employment costs 205.9 197.9 18.6 13.2
The pension charge comprises the retirement benefit charge for defined benefit schemes, contributions to the stakeholder pension plan
and contributions to personal pension arrangements. The £0.7m credit (2020: £3.2m) in the Company for the pension charge represents
contributions received from the subsidiaries in relation to the defined benefit schemes, partly offset by the charge in relation to the
defined contribution schemes.
The increase in the share-based payment charge from a £0.8m charge in 2020 to a £2.5m charge in 2021 primarily reflects the higher RSP
scheme costs in the year. The share-based payment charge of £2.5m (2020: £0.8m) relates to equity-settled scheme charges of £3.0m
(2020: £1.4m) and a cash-settled scheme credit of £0.5m (2020: £0.6m). The share-based payment charge of £0.8m (2020: £0.9m) relates
to equity-settled schemes in respect of discontinued operations.
The redundancy cost of £1.0m (2020: £nil) relates to Vanquis Bank Limited.
11 Cash and cash equivalents
Cash and cash equivalents includes cash at bank and held in short-term deposits and Vanquis Bank Limited’s liquid assets buffer,
including other liquid resources. In 2020 cash also included floats held by CEMs within CCD.
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Central bank reserves 414.8 833.3 — —
Cash at bank 306.2 87.7 206.6 59.1
Cash in hand (3.3) (1.3) — —
Total cash and cash equivalents 717.7 919.7 206.6 59.1
In addition to cash and cash equivalents, the Group had £3.6m of bank overdrafts at 31 December 2021 (2020: £1.4m) and the
Company had £nil bank overdrafts (2020: £nil), both of which are disclosed within bank and other borrowings (see note 22).
All cash and cash equivalents is held with investment grade rated banks.
Vanquis Bank Limited’s total liquid assets buffer is held in the Bank of England Central reserve account and amounted to £414.8m
(2020: £833.3m). As at 31 December 2021, £268.3m (2020: £691.9m) of the buffer was available to finance Vanquis Bank Limited’s
day-to-day operations.
The currency profile of cash and cash equivalents is as follows:
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Sterling 716.3 919.0 205.2 58.5
Euro 1.4 0.7 1.4 0.6
Total cash and cash equivalents 717.7 919.7 206.6 59.1
Cash and cash equivalents are non-interest bearing other than in respect of the cash held on deposit and the amounts held
by Vanquis Bank Limited as a liquid assets buffer and other liquid resources which bear interest at rates linked to the Bank of
England base rate.
Provident Financial plc Annual Report and Financial Statements 2021
221
Financial statements
12 Amounts receivable from customers
2021 2020
Due
within
one year
£m
Due in
more than
one year
£m
Total
£m
Due
within
one year
£m
Due in
more than
one year
£m
Total
£m
Credit cards and personal loans 1,083.1 8.4 1,091.5 1,092.7 1.5 1,094.2
Vehicle finance 168.5 417.7 586.2 174.8 391.8 566.6
Total – continuing operations 1,251.6 426.1 1,677.7 1,267.5 393.3 1,660.8
CCD – discontinued operations — — — 126.5 12.5 139.0
Total reported amounts receivable from customers 1,251.6 426.1 1,677.7 1,394.0 405.8 1,799.8
Credit cards and personal loans receivables comprise £1,063.4m (2020: £1,075.1m) in respect of credit cards and £28.1m (2020: £19.1m)
in respect of personal loans.
The gross amounts receivable from customers and allowance account which form the net amounts receivable from customers
are as follows:
2021 2020
Group
Credit
cards and
personal
loans
£m
Vehicle
finance
£m
CCD
£m
Group
£m
Credit
cards and
personal
loans
£m
Vehicle
finance
£m
CCD
£m
Group
£m
Gross amounts receivable
from customers 1,450.9 841.7 — 2,292.6 1,568.4 765.3 454.2 2,787.9
Allowance account (359.4) (255.5) — (614.9) (474.2) (198.7) (315.2) (988.1)
Reported amounts receivable
from customers 1,091.5 586.2 — 1,677.7 1,094.2 566.6 139.0 1,799.8
Provident Financial plc Annual Report and Financial Statements 2021
222
Notes to the financial statements continued
12 Amounts receivable from customers continued
Amounts receivable from customers for credit cards and personal loans can be reconciled as follows:
2021 2020
Credit cards and personal loans
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Gross carrying amount
At 1 January 1,044.5 188.3 335.6 1,568.4 1,367.9 171.6 363.6 1,903.1
New financial assets originated
and new drawdowns 2,003.1 81.3 34.6 2,119.0 1,931.7 47.5 31.6 2,010.8
Net transfers and changes in credit risk:
– from stage 1 to stage 2 (835.2) 835.2 — — (664.7) 664.7 — —
– from stage 1 to stage 3 (51.8) — 51.8 — (127.5) — 127.5 —
– from stage 2 to stage 1 545.0 (545.0) — — 412.9 (412.9) — —
– from stage 2 to stage 3 — (121.8) 121.8 — — (224.9) 224.9 —
– from stage 3 to stage 1 63.5 — (63.5) — 46.0 — (46.0) —
– from stage 3 to stage 2 — 24.9 (24.9) — — 23.8 (23.8) —
Write offs (11.2) (11.1) (159.7) (182.0) (12.2) (13.4) (253.1) (278.7)
Recoveries (2,171.3) (176.1) (127.9) (2,475.3) (2,334.5) (127.0) (115.3) (2,576.8)
Revenue 321.5 60.4 14.8 396.7 418.3 56.4 6.7 481.4
Other movements 5.6 6.6 11.9 24.1 6.6 2.5 19.5 28.6
At 31 December 913.7 342.7 194.5 1,450.9 1,044.5 188.3 335.6 1,568.4
Allowance account
At 1 January 170.0 90.2 214.0 474.2 146.6 85.2 209.8 441.6
Movements through income statement:
– drawdowns and net transfers
and changes in credit risk:
– from stage 1 to stage 2 (157.5) 331.1 — 173.6 (137.3) 334.5 — 197.2
– from stage 1 to stage 3 (9.9) — 24.3 14.4 (20.7) — 62.8 42.1
– from stage 2 to stage 1 122.2 (248.3) — (126.1) 95.5 (212.5) — (117.0)
– from stage 2 to stage 3 — (80.3) 93.0 12.7 — (153.2) 167.5 14.3
– from stage 3 to stage 1 6.3 — (9.4) (3.1) 3.4 — (7.1) (3.7)
– from stage 3 to stage 2 — 6.5 (3.8) 2.7 — 2.3 (1.6) 0.7
– other movements (18.1) 13.4 (63.7) (68.4) 93.6 46.1 (33.4) 106.3
Total movements through income
statement (57.0) 22.4 40.4 5.8 34.5 17.2 188.2 239.9
Other movements:
– write offs (11.2) (11.1) (159.7) (182.0) (12.2) (13.4) (253.1) (278.7)
– amounts recovered 1.4 1.4 58.6 61.4 1.1 1.2 69.1 71.4
Allowance account at 31 December 103.2 102.9 153.3 359.4 170.0 90.2 214.0 474.2
Reported amounts receivable
from customers at 31 December 810.5 239.8 41.2 1,091.5 874.5 98.1 121.6 1,094.2
Reported amounts receivable
from customers at 1 January 874.5 98.1 121.6 1,094.2 1,221.3 86.4 153.8 1,461.5
Credit card and personal loans refined their IFRS 9 models during the year, further details can be found on page 204.
Write offs have reduced significantly in 2021 due to: (i) tightened underwriting of new customer bookings as a result of Covid-19;
(ii) lower new customer bookings; and (iii) a higher number of accounts remaining up to date due to payment holidays and government
support. The allowance accounts also include the macroeconomic provision which takes account of the expected changes in
unemployment under a range of unemployment forecasts.
Other movements through income statement include movements from risk level changes that do not result in staging movements,
charged off accounts, exited accounts and debt sales.
As at 31 December unutilised credit card commitments were £1,229.3m (2020: £1,180.6m).
An increase of 1% of the gross exposure into stage 2 from stage 1 would result in an increase in the allowance account of £1.7m
(2020: £3.3m) based on applying the difference between the coverage ratios from stage 1 to stage 2 to the movement in
gross exposure.
Provident Financial plc Annual Report and Financial Statements 2021
223
Financial statements
12 Amounts receivable from customers continued
A breakdown of the in-model and post-model adjustments for credit cards and personal loans is shown below:
2021
£m
2020
£m
Core model 303.7 403.4
In-model adjustments 27.9 59.6
Post-model adjustments 27.8 11.2
Total allowance account 359.4 474.2
Description
2021
£m
2020
£m
In-model overlays:
Covid-19 overlay for cards (note (a)) 27.9 59.6
Total in-model overlays 27.9 59.6
Post-model overlays:
Affordability (note (b)) 5.0 —
Covid-19 overlay for personal loans (note (c)) 1.7 3.3
Persistent debt (note (d)) 5.8 9.1
Cost of living (note (e)) 7.8 —
Recoveries (note (f)) 7.4 —
Other 0.1 (1.2)
Total post-model overlays 27.8 11.2
Total overlays 55.7 70.8
(a) Impact of Covid-19
The impact of Covid-19 has significantly influenced credit card ECL. The core IFRS 9 models utilise a scorecard approach to
calculating a 12-month PD and the relationships between the established drivers of default risk found in the PD scorecards;
the 12-month PD may be distorted during Covid-19. This potential distortion could be caused by external government support
initiatives or the natural lag that is apparent when risk profiles change. Accordingly, a utilisation adjustment is made to the
probability of default models:
– An in-model adjustment was made to account for the impact of lower utilisation of credit cards due to Covid-19. The
introduction of numerous lockdowns during 2020 and 2021, alongside travel bans, has meant that customer spending
since March 2020 has put additional pressure on declining utilisation trends. The model is built using pre-Covid-19 data
and utilisation is a key driver of the 12-month PD. Accordingly, reduced utilisation throughout Covid-19 has meant that
the 12-month PD estimates produced by the existing models have reduced. However, the underlying risk profile of these
customers has not fundamentally changed.
(b) Affordability
An additional IFRS 9 impairment provision has been created to cover the principal balance of those customers impacted by risk
events which may need to be written off. These risk events arose from minor temporary data misalignment instances impacting
a small number of accounts which have now been remediated.
(c) Covid-19 overlay for personal loans
In December 2020, a post-model adjustment for the payment holiday population and any future take-up of payment holidays
expected in the personal loans portfolio was held, as these customers will exhibit greater losses than indicated based on the
historical experience within the core model. However, this is no longer applicable for December 2021 as payment holidays have
ceased. An increased PD for up-to-date accounts was applied as a result of more accounts being expected to fall into default
after the removal of the government support scheme has been maintained for December 2021.
(d) Persistent debt
A post-model adjustment was calculated to refine ECL for those customers who have entered PD36. These customers have been
split into two categories: those who have responded to communications and agreed to pay down their outstanding balance;
and those who are making minimum payments but have not responded to communications. The core model does not consider
this refinement and therefore a post-model overlay is required.
(e) Cost of living
In light of rising inflation and higher energy costs, an additional provision is required for the expected rise in cost of living which
may impact customers ability to make repayments.
(f) Recoveries
A post-model adjustment was created in 2021 to account for an estimated reduction in recoveries for debt sold to debt
collection agencies.
Provident Financial plc Annual Report and Financial Statements 2021
224
Notes to the financial statements continued
12 Amounts receivable from customers continued
A breakdown of the gross receivable by internal credit risk rating is shown below:
2021 2020
Credit cards and personal loans
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Good 789.5 270.5 — 1,060.0 937.6 89.5 — 1,027.1
Satisfactory 124.2 72.2 — 196.4 106.9 98.8 — 205.7
Lower quality — — 194.5 194.5 — — 335.6 335.6
Total 913.7 342.7 194.5 1,450.9 1,044.5 188.3 335.6 1,568.4
Low quality receivables relate to defaulted accounts and are therefore assigned as stage 3. Satisfactory receivables consist of accounts
that are above a prescribed PD cut off, dependent on the customer’s credit score. High quality receivables consist of accounts that are
below a prescribed PD cut off, dependent on the customer’s credit score.
Amounts receivable from customers for vehicle finance can be reconciled as follows:
2021 2020
Vehicle finance
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
2
£m
Total
2
£m
Gross carrying amount
At 1 January 443.8 100.1 221.4 765.3 335.4 131.0 120.4 586.8
New financial assets originated 272.8 — — 272.8 286.5 — — 286.5
Transfers due to changes in credit risk:
– from stage 1 to stage 2 (108.2) 108.2 — — (69.2) 69.2 — —
– from stage 1 to stage 3 (156.1) — 156.1 — (52.5) — 52.5 —
– from stage 2 to stage 1 2.8 (2.8) — — 21.0 (21.0) — —
– from stage 2 to stage 3 — (73.8) 73.8 — — (56.0) 56.0 —
– from stage 3 to stage 1 0.1 — (0.1) — 1.7 — (1.7) —
– from stage 3 to stage 2 — 0.5 (0.5) — — 4.8 (4.8) —
Write offs (0.3) (0.7) (15.6) (16.6) — — (1.0) (1.0)
Recoveries (199.6) (47.3) (103.7) (350.6) (171.4) (47.0) (44.4) (262.8)
Revenue
1
93.7 27.6 46.3 167.6 91.6 29.2 41.9 162.7
Other changes 1.2 1.1 0.9 3.2 0.7 (10.1) 2.5 (6.9)
At 31 December 350.2 112.9 378.6 841.7 443.8 100.1 221.4 765.3
Allowance account
At 1 January 21.8 17.9 159.0 198.7 9.5 12.4 75.8 97.7
Movements through income statement:
– new financial assets originated 39.1 — — 39.1 10.0 — — 10.0
– transfers due to changes in credit risk:
– from stage 1 to stage 2 (12.7) 15.0 — 2.3 (1.3) 6.4 — 5.1
– from stage 1 to stage 3 (23.5) — 46.8 23.3 (1.1) — 13.4 12.3
– from stage 2 to stage 1 0.1 (0.4) — (0.3) 0.7 (3.1) — (2.4)
– from stage 2 to stage 3 — (12.5) 23.6 11.1 — (9.6) 21.5 11.9
– from stage 3 to stage 1 — — (0.1) (0.1) — — (0.4) (0.4)
– from stage 3 to stage 2 — — (0.2) (0.2) — 0.6 (1.3) (0.7)
– remeasurements within existing stage (10.2) (3.5) (23.2) (36.9) 4.0 11.2 22.7 37.9
– other changes — — 6.3 6.3 — — (1.0) (1.0)
Total amount recorded in impairment charges
(7.2) (1.4) 53.2 44.6 12.3 5.5 54.9 72.7
Amounts netted off against revenue
for stage 3 assets — — 29.7 29.7 — — 28.7 28.7
Other movements:
– write offs (0.3) (0.7) (15.6) (16.6) — — — —
– other changes — — (0.9) (0.9) — — (0.4) (0.4)
Allowance account at 31 December 14.3 15.8 225.4 255.5 21.8 17.9 159.0 198.7
Reported amounts receivable
from customers at 31 December 335.9 97.1 153.2 586.2 422.0 82.2 62.4 566.6
Reported amounts receivable
from customers at 1 January 422.0 82.2 62.4 566.6 325.9 118.6 44.6 489.1
1 In the income statement vehicle finance revenue is £137.9m (2020: £134.0m) is reported net of the impairment charge for stage 3 assets of £29.7m (2020: £28.7m).
2
Gross loan receivables and provisions for expected credit losses were unintentionally reduced by equal amounts of £30.9m in 2020 to reflect the net revenue
recognition for loans in stage 3. Comparatives included in note 12 have been amended to remove this adjustment as part of Moneybarn’s implementation
of new IFRS 9 models. This prior period adjustment has no impact on the Group’s primary statements.
Provident Financial plc Annual Report and Financial Statements 2021
225
Financial statements
12 Amounts receivable from customers continued
Moneybarn refined its IFRS 9 models during the year, further details can be found on page 204.
Including within vehicle finance receivables is £2.9m in relation to receivables classified as purchased or originated as credit impaired
under IFRS 9.
Vehicles are held as collateral against a vehicle finance conditional sale agreement until it is repaid in full. The impact of
holding the collateral of £494.7m (2020: £423.6m) on the allowance account as at 31 December 2021 was £85.8m (2020: £76.4m),
representing 84% (2020: 76%) of the balance.
Vehicle finance gross receivables are stated net of unearned finance income of £322.4m (2020: £335.8m).
An increase of 1% of the gross exposure into stage 2 from stage 1 would result in an increase in the allowance account of £0.4m
(2020: £0.6m) based on applying the difference between the coverage ratios from stage 1 to stage 2 to the movement in
gross exposure.
A breakdown of the in-model and post-model adjustments for vehicle finance is shown below:
2021
£m
2020
2
£m
Core model 257.5 165.7
In-model adjustments — 13.1
Post-model adjustments (2.0) 19.9
Total allowance account 255.5 198.7
Description
2021
£m
2020
£m
In-model overlays:
Definition of default (note (a)) — 13.1
Total in-model overlays — 13.1
Post-model overlays:
Macroeconomic assumption (note (b)) — 6.6
FCA moratorium (note (c)) — 13.3
Fraud (note (d)) (2.0) —
Total post-model overlays (2.0) 19.9
Total overlays (2.0) 33.0
(a) Definition of default
Following the scheduled review of the IFRS 9 model in late 2020, it was determined that the previous definition of default of
‘termination of the vehicle contract’ did not meet the requirements of IFRS 9. Loans in IFRS 9 stage 2 were identified to have been
greater than 90 days past due, despite it being inappropriate to rebut the 90-day backstop presumption included within IFRS 9.
The change in the point of default from termination to three missed payments (90 days) for this cohort of customers resulted
in this in-model adjustment in 2020.
The models were updated during 2021 and this is now part of the core model provision.
(b) Macroeconomic assumptions
A post-model macroeconomic provision was in place to reflect an increased PD and LGD, in addition to the core impairment
provisions already recognised, based on future macroeconomic scenarios. The provision reflected the potential for future
changes in unemployment under a range of unemployment forecasts that are not included in the underlying models. Following
refinements to the model during 2021 this is now part of the core model provision.
(c) FCA moratorium
The FCA moratorium initiated in response to Covid-19 temporarily restricted Moneybarn from terminating customer contracts
and recovering the vehicle from a customer where a default termination would ordinarily have occurred. This led to c.12k contracts
which could not be terminated at the end of 2020. This post-model adjustment was designed to recalibrate modelled LGDs,
to reflect the inability to maximise recoveries, and was calculated using observed termination experience. This overlay was
no longer required in 2021.
(d) Fraud
The fraud overlay represents a small cohort of live accounts that have been identified as fraud customers.
Provident Financial plc Annual Report and Financial Statements 2021
226
Notes to the financial statements continued
12 Amounts receivable from customers continued
A breakdown of the gross receivable by internal credit risk rating is shown below:
2021 2020
Vehicle finance
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
2
£m
Total
£m
Good 113.6 35.1 33.0 181.7 106.5 11.2 11.8 129.5
Satisfactory 224.6 71.2 258.6 554.4 305.9 71.8 139.0 516.7
Lower quality 12.0 6.5 83.9 102.4 31.0 16.8 67.6 115.4
Below standard — 0.1 3.1 3.2 0.4 0.3 3.0 3.7
Total 350.2 112.9 378.6 841.7 443.8 100.1 221.4 765.3
Internal credit risk rating is based on the internal credit score of a customer at inception of the loan.
2021 2020
CCD – discontinued operations
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Gross carrying amount
At 1 January 76.9 17.9 359.4 454.2 155.9 36.0 402.0 593.9
New financial assets originated 13.8 0.3 — 14.1 160.7 3.4 — 164.1
Transfers due to changes in credit risk:
– from stage 1 to stage 2 (8.3) 8.3 — — (13.0) 13.0 — —
– from stage 1 to stage 3 (16.9) — 16.9 — (58.2) — 58.2 —
– from stage 2 to stage 1 1.4 (1.4) — — 3.5 (3.5) — —
– from stage 2 to stage 3 — (15.0) 15.0 — — (18.9) 18.9 —
– from stage 3 to stage 1 0.5 — (0.5) — 3.2 — (3.2) —
– from stage 3 to stage 2 — 2.9 (2.9) — — 3.7 (3.7) —
Write offs (8.1) (6.7) (360.1) (374.9) (0.2) (0.3) (80.5) (81.0)
Recoveries (102.4) (17.2) (41.0) (160.6) (299.3) (41.5) (76.9) (417.7)
Revenue 43.3 10.9 13.8 68.0 123.4 25.7 42.2 191.3
Other movements (0.2) — (0.6) (0.8) 0.9 0.3 2.4 3.6
At 31 December — — — — 76.9 17.9 359.4 454.2
Allowance account
At 1 January 5.7 3.8 305.7 315.2 10.4 10.1 324.4 344.9
Movements through income
statement:
– new financial assets originated 0.5 — — 0.5 7.6 0.5 — 8.1
– transfers due to changes
in credit risk:
– from stage 1 to stage 2 (2.1) 2.1 — — (0.6) 0.6 — —
– from stage 1 to stage 3 (4.2) — 4.2 — (2.9) — 2.9 —
– from stage 2 to stage 1 0.6 (0.6) — — 0.5 (0.5) — —
– from stage 2 to stage 3 — (6.9) 6.9 — — (5.9) 5.9 —
– from stage 3 to stage 1 0.4 — (0.4) — 0.9 — (0.9) —
– from stage 3 to stage 2 — 2.4 (2.4) — — 1.1 (1.1) —
– remeasurements within
existing stages 7.1 5.9 46.1 59.1 (11.4) (2.2) 53.1 39.5
– other movements — — — — — — (0.1) (0.1)
Total movements through
income statement 2.3 2.9 54.4 59.6 (5.9) (6.4) 59.8 47.5
Other movements:
– write offs (8.0) (6.7) (360.1) (374.8) (0.2) (0.3) (80.5) (81.0)
– other movements — — — — 1.4 0.4 2.0 3.8
Allowance account at 31 December — — — — 5.7 3.8 305.7 315.2
Reported amounts receivable
from customers at 31 December — — — — 71.2 14.1 53.7 139.0
Reported amounts receivable
from customers at 1 January 71.2 14.1 53.7 139.0 145.5 25.9 77.6 249.0
Provident Financial plc Annual Report and Financial Statements 2021
227
Financial statements
12 Amounts receivable from customers continued
As part of the closure of the CCD business the remaining receivables balance was written off at the end of the year.
A breakdown of the gross receivable by internal credit risk rating for 2020 is shown below:
2021 2020
CCD
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Very good — — — — 38.6 5.7 4.4 48.7
Good — — — — 15.6 4.2 7.4 27.2
Satisfactory — — — — 16.7 5.5 25.2 47.4
Lower quality — — — — 3.1 1.7 55.6 60.4
Below standard — — — — 2.9 0.8 266.8 270.5
Total — — — — 76.9 17.9 359.4 454.2
The movement in directly attributable acquisition costs included within amounts receivable from customers can be analysed as follows:
2021 2020
Group
Credit
cards and
personal
loans
£m
Vehicle
finance
£m
CCD
£m
Group
£m
Credit
cards and
personal
loans
£m
Vehicle
finance
£m
CCD
£m
Group
£m
Brought forward 32.9 27.9 0.4 61.2 31.8 24.6 1.9 58.3
Capitalised 10.2 23.3 0.2 33.7 11.9 22.4 1.6 35.9
Amortised (13.5) (18.8) (0.6) (32.9) (10.8) (19.1) (3.1) (33.0)
Carried forward 29.6 32.4 — 62.0 32.9 27.9 0.4 61.2
The impairment charge in respect of amounts receivable from customers can be analysed as follows:
Group
Impairment charge on amounts receivable from customers
2021
£m
2020
£m
Credit cards 3.7 233.3
Vehicle finance 44.6 72.7
Personal loans 2.1 6.6
Total impairment charge – continuing operations 50.4 312.6
CCD – discontinued operations 59.6 47.5
Total impairment charge 110.0 360.1
The average effective interest rate for the year ended 31 December 2021 was 24% for credit cards (2020: 24%), and 29% for vehicle
finance (2020: 34%).
The average period to maturity of the amounts receivable from customers within vehicle finance is 35 months (2020: 36 months).
Within credit cards and personal loans, there is no fixed term for repayment of credit 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 3% of the amount owed plus any fees and interest charges in the month and £10.
Provident Financial plc Annual Report and Financial Statements 2021
228
Notes to the financial statements continued
12 Amounts receivable from customers continued
The currency profile of amounts receivable from customers is as follows:
Group
2021
£m
2020
£m
Sterling 1,677.7 1,781.5
Euro — 18.3
Reported amounts receivable from customers 1,677.7 1,799.8
Euro receivables in 2020 represented loans issued by the home credit business in the Republic of Ireland.
13 Trade and other receivables
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Trade receivables 0.3 0.1 — —
Other receivables 2.5 14.8 — —
Stock 1.6 2.2 — —
Fair value adjustment for portfolio hedged risk (3.6) 0.6 — —
Amounts owed by Group undertakings — — 1,050.0 1,047.6
Prepayments and accrued income 18.0 18.0 3.2 3.0
Total assets 18.8 35.7 1,053.2 1,050.6
There are £nil amounts past due in respect of trade and other receivables (2020: £nil).
Within the Company, an impairment provision of £105.2m (2020: £123.8m) is held against amounts owed by Group undertakings due in
less than one year. This consists of performing loans of £1,049.6m, categorised as stage 1 against which no provision is recognised and
£106.2m loans categorised as stage 3 against which a provision of £105.2m has been recognised. Performing loans have no provision
recognised as the loans entities have sufficient expected cash flow to service their obligations and sufficient realisable net assets to
sell in the event of a default. Non performing loans are close to fully provided as they have either little or no expected cash flow and are
recognised at the realisable value of net assets. The Company has assessed the estimated credit losses for these intercompany loans,
as a result of which there has been a £18.6m credit to the Company income statement in 2021 primarily relating to the liquidation of
dormant companies (2020: £2.4m cost) (see note 31).
Stock represents cars held by vehicle finance where customer agreements have been terminated.
Fair value adjustment for portfolio hedged risk relates to the hedge accounting adjustments recognised in relation to the balance
guaranteed swap (see note 24).
Amounts owed by Group undertakings are unsecured, repayable on demand or within one year, and generally accrue interest
at rates linked to SONIA.
14 Investments
Group
2021
£m
2020
£m
Visa shares 9.1 9.2
Total investments 9.1 9.2
Visa shares
The Visa Inc shares represent preferred stock in Visa Inc held by Vanquis Bank Limited following completion of Visa Inc’s
acquisition of Visa Europe Limited on 21 June 2016. In consideration for Vanquis Bank Limited’s interest in Visa Europe Limited,
Vanquis Bank Limited received cash consideration of €15.9m (£12.2m) on completion, preferred stock with an approximate value
of €10.7m and deferred cash consideration of €1.4m which was received in 2019.
During 2021 the Visa Inc shares previously classified as fair value through OCI were reclassified as fair value through income
statement; refer to page 198 for details of the change in accounting policy. This has resulted in an increase in profit before tax
of £5.2m and an increase in the tax charge of £1.4m. The cumulative fair value movements of £5.2m and all future fair value
movements will be presented within operating costs in the income statement.
During 2020 there was a partial conversion event and 50% of the preferred stock was converted into class A shares which were
then sold in December, as the shares are non-core to the business and it was deemed economically efficient by management
to liquidate. On disposal of the shares, the cumulative gain recognised in the fair value reserve was transferred to retained
earnings (£7.4m) net of the tax arising on the disposal (£2.0m). The movement in the fair value during the year of the A shares,
until they were sold, and the preferred stock, was recognised in the statement of comprehensive income (£3.8m).
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 can only be transferred to other Visa members; and (ii) future litigation costs which could
affect the valuation of the stock prior to conversion.
Provident Financial plc Annual Report and Financial Statements 2021
229
Financial statements
15 Property, plant and equipment
Group
Leasehold
land and
buildings
£m
Equipment
and
vehicles
£m
Total
£m
Cost
At 1 January 2021 8.6 56.0 64.6
Additions 0.3 1.0 1.3
Disposals — (35.5) (35.5)
At 31 December 2021 8.9 21.5 30.4
Accumulated depreciation and impairment
At 1 January 2021 2.8 46.3 49.1
Charged to the income statement – continuing operations 0.8 2.6 3.4
Charged to the income statement – discontinued operations — 1.5 1.5
Disposals — (32.0) (32.0)
At 31 December 2021 3.6 18.4 22.0
Net book value at 31 December 2021 5.3 3.1 8.4
Net book value at 1 January 2021 5.8 9.7 15.5
The profit on disposal of property, plant and equipment in 2021 amounted to £0.3m (2020: loss of £0.6m) and included a profit
of £0.4m in respect of discontinued operations (2020: £0.2m). The profit comprised proceeds received of £1.5m (2020: £0.7m) less
the net book value of disposals of £1.2m (2020: £1.3m). In 2020 there was also a transfer of £2.2m between property, plant and
equipment and trade and other receivables in the year.
The charge to the income statement for continuing operations comprises of depreciation. The charge to the income statement
for discontinued operations includes depreciation of £0.4m and impairment of £1.1m.
Additions in 2021 and 2020 principally comprise expenditure in respect of the routine replacement of IT equipment. Disposals in 2021
principally relate to the write-off of assets no longer used including £26.4m for discontinued operation.
Group
Leasehold
land and
buildings
£m
Equipment
and
vehicles
£m
Total
£m
Cost
At 1 January 2020 8.6 60.6 69.2
Additions — 5.9 5.9
Disposals — (10.5) (10.5)
At 31 December 2020 8.6 56.0 64.6
Accumulated depreciation and impairment
At 1 January 2020 1.9 48.0 49.9
Charged to the income statement – continuing operations 0.9 3.7 4.6
Charged to the income statement – discontinued operations — 1.6 1.6
Disposals — (7.0) (7.0)
At 31 December 2020 2.8 46.3 49.1
Net book value at 31 December 2020 5.8 9.7 15.5
Net book value at 1 January 2020 6.7 12.6 19.3
Provident Financial plc Annual Report and Financial Statements 2021
230
Notes to the financial statements continued
15 Property, plant and equipment continued
Company
Leasehold
land and
buildings
£m
Equipment
and
vehicles
£m
Total
£m
Cost
At 1 January 2021 0.2 12.3 12.5
Additions — — —
Disposals — (0.1) (0.1)
At 31 December 2021 0.2 12.2 12.4
Accumulated depreciation
At 1 January 2021 0.1 10.8 10.9
Charged to the income statement — 0.4 0.4
Disposals — (0.1) (0.1)
At 31 December 2021 0.1 11.1 11.2
Net book value at 31 December 2021 0.1 1.1 1.2
Net book value at 1 January 2021 0.1 1.5 1.6
The profit on disposal of property, plant and equipment in 2021 amounted to £0.1m (2020: £nil) and represented proceeds
received of £0.1m (2020: £nil) less the net book value of disposals of £nil (2020: £nil).
Company
Leasehold
land and
buildings
£m
Equipment
and
vehicles
£m
Total
£m
Cost
At 1 January 2020 0.2 12.4 12.6
Additions — — —
Disposals — (0.1) (0.1)
At 31 December 2020 0.2 12.3 12.5
Accumulated depreciation
At 1 January 2020 0.1 9.8 9.9
Charged to the income statement — 1.1 1.1
Disposals — (0.1) (0.1)
At 31 December 2020 0.1 10.8 10.9
Net book value at 31 December 2020 0.1 1.5 1.6
Net book value at 1 January 2020 0.1 2.6 2.7
Provident Financial plc Annual Report and Financial Statements 2021
231
Financial statements
16 Right of use assets
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Cost
At 1 January 84.0 84.6 23.0 23.6
Additions 0.3 0.6 — —
Disposals (4.3) (1.2) — (0.6)
At 31 December 80.0 84.0 23.0 23.0
Accumulated depreciation and impairment
At 1 January 26.0 17.5 5.1 2.8
Charged to the income statement – continuing operations 8.1 8.4 2.6 2.9
Charged to the income statement – discontinued operations 2.3 1.1 — —
Disposals (4.3) (1.0) — (0.6)
At 31 December 32.1 26.0 7.7 5.1
Net book value at 31 December 47.9 58.0 15.3 17.9
Net book value at 1 January 58.0 67.1 17.9 20.8
Lease liabilities are disclosed in note 25.
All right of use assets relate to property leases. There have been no modifications to leases in the year.
Additions in the year relate to the lease of new branch offices by vehicle finance.
All disposals related to discontinued operations.
The charge to the income statement for continuing operations comprises of depreciation. The charge to the income statement
for discontinued operations includes depreciation of £0.4m and impairment of £1.9m.
17 Goodwill
Group
2021
£m
2020
£m
Cost
At 1 January and 31 December 73.3 73.3
Accumulated impairment
At 1 January and 31 December 2.1 2.1
Net book value at 1 January and 31 December 71.2 71.2
Goodwill is tested annually for impairment, or more frequently if there are indications that goodwill might be impaired. The net
book value of goodwill relates wholly to the acquisition of vehicle finance product in 2014. The recoverable amount is determined
from a value in use calculation. The key assumptions used in the value in use calculation relate to the discount rates and growth
rates adopted. Management adopts pre-tax discount rates which reflect the time value of money and the risks specific to the
vehicle finance business. The cash flow forecasts are based on the most recent financial budgets approved by the Group Board
for the next five years and extrapolate cash flows for the following five years using a terminal growth rate of 2% (2020: 2%). The
rate used to discount the forecast cash flows is 10.5% (2020: 10.5%); this represents the Company’s risk-adjusted cost of capital.
No reasonably foreseeable reduction in the assumptions would give rise to an impairment and therefore no further sensitivity
analysis has been presented.
Provident Financial plc Annual Report and Financial Statements 2021
232
Notes to the financial statements continued
18 Other intangible assets
2021 2020
Acquisition
intangibles
£m
Computer
software
£m
Total
£m
Acquisition
intangibles
£m
Computer
software
£m
Total
£m
Cost
At 1 January 75.0 77.9 152.9 75.0 65.4 140.4
Additions — 24.8 24.8 — 16.3 16.3
Disposals — (59.2) (59.2) — (3.8) (3.8)
At 31 December 75.0 43.5 118.5 75.0 77.9 152.9
Accumulated amortisation and impairment
At 1 January 47.5 60.1 107.6 40.0 56.3 96.3
Charged to the income statement – continuing operations 7.5 7.1 14.6 7.5 5.4 12.9
Charged to the income statement – discontinued
operations — 3.6 3.6 — 2.2 2.2
Disposals — (59.6) (59.6) — (3.8) (3.8)
At 31 December 55.0 11.2 66.2 47.5 60.1 107.6
Net book value at 31 December 20.0 32.3 52.3 27.5 17.8 45.3
Net book value at 1 January 27.5 17.8 45.3 35.0 9.1 44.1
Acquisition intangibles represent the fair value of the broker relationships arising on acquisition of Moneybarn in August 2014.
The intangible asset was calculated based on the discounted cash flows associated with vehicle finance core broker
relationships and is being amortised over an estimated useful life of 10 years.
Additions to computer software in the year of £24.8m (2020: £16.3m) comprise £24.2m (2020: £13.8m) of internally generated
assets and £0.6m (2020: £2.5m) of externally purchased software.
The £24.8m (2020: £16.3m) of computer software expenditure predominantly relates to the development of systems in relation
to the personal loans business.
The charge for continuing operations includes amortisation of £13.3m and impairment of £1.3m. The charge for discontinued
operations includes amortisation £1.0m and impairment of £2.6m.
19 Investment in subsidiaries
Company
2021
£m
2020
£m
Cost
At 1 January 257.8 817.0
Additions 35.1 197.1
Disposals (1.9) (756.3)
At 31 December 291.0 257.8
Accumulated impairment losses
At 1 January 26.9 421.8
Charge to the income statement 38.7 —
Disposals — (394.9)
At 31 December 65.6 26.9
Net book value at 31 December 225.4 230.9
Net book value at 1 January 230.9 395.2
The directors consider the value of investments to be supported by their underlying assets and cash flow forecasts.
Provident Financial plc Annual Report and Financial Statements 2021
233
Financial statements
19 Investment in subsidiaries continued
The £35.1m addition in the year and the £38.7m impairment charge relates to the issue of shares to settle intercompany loans as part
of the wind-down of Direct Auto Finance Limited and Direct Auto Financial Services Limited. The companies were placed into members’
voluntary liquidation on 22 July 2021 and the liquidations were subsequently closed on 28 March 2022.
The £1.9m disposal is in relation to the IFRIC 11 adjustment relating to share options/awards provided to subsidiary employees. Under
IFRIC 11, the fair value of the share options/awards issued is required to be treated as a capital contribution and an investment in the
relevant subsidiary, net of any share options/awards that have vested.
The £197.1m addition in 2020 related to the shares acquired in Provident Financial Holdings Limited (£196.8m) and £0.2m in relation
to the IFRIC 11 adjustment.
An investment valuation review was performed at the balance sheet date; a £38.7m impairment charge has been recognised
in 2021. The cost, accumulated impairment losses and carrying value of investment at 31 December 2021 are shown below:
Company
Cost
£m
Accumulated
impairment
losses
£m
Carrying
value
£m
Provident Financial Holdings Limited 196.8 — 196.8
Erringham Holdings Limited 13.6 (0.1) 13.5
Yes Car Credit (Holdings) Limited 29.9 (22.8) 7.1
Provident Print Limited 5.1 — 5.1
Direct Auto Finance Limited 18.8 (18.8) —
Direct Auto Financial Services Limited 16.3 (16.3) —
Other 10.5 (7.6) 2.9
Net book value at 31 December 291.0 (65.6) 225.4
The following are the subsidiary undertakings which, in the opinion of the directors, principally affect the profit or assets of the
Group or are a guaranteeing subsidiary of the Group’s syndicated bank facility and certain other borrowings. A full list of subsidiary
undertakings will be annexed to the next annual return of the Company to be filed with the Registrar of Companies (see note 35).
All subsidiaries are consolidated and held directly by the Company except for those noted below, which are held by wholly owned
intermediate companies.
Company Activity
Country of
incorporation
Class
of capital
%
holding
Vanquis Bank Vanquis Bank Limited Financial services England Ordinary 100
1
Moneybarn Duncton Group Limited Financial services England Ordinary 100
1
Moneybarn Group Limited Financial services England Ordinary 100
1
Moneybarn No. 1 Limited Financial services England Ordinary 100
1
Central Provident Financial Holdings Limited Intermediate holding company England Ordinary 100
1 Shares held by wholly owned intermediate companies.
The entities Provident Financial Management Services Limited and Provident Personal Credit Limited form part of the CCD
discontinued operations and are no longer considered to principally affect the profit or assets of the Group.
The above companies operate principally in their country of incorporation.
Provident Financial plc Annual Report and Financial Statements 2021
234
Notes to the financial statements continued
20 Retirement benefit asset
(a) Pension schemes – defined benefit
The retirement benefit asset reflects the difference between the present value of the Group’s obligation to current and past employees
to provide a defined benefit pension and the fair value of assets held to meet that obligation. As at 31 December 2021, the fair value
of the assets exceeded the obligation and hence a net pension asset has been recorded.
The Group operates a defined benefit scheme: the Provident Financial Staff Pension Scheme. The scheme is of the funded,
defined benefit type. It is now also closed to future accrual.
The scheme provides pension benefits which were accrued on a final salary and, more recently, on a cash balance basis. With
effect from 1 August 2021 it was fully closed to future accrual and benefits are no longer linked to final salary, although accrued
benefits are subject to statutory inflationary increases.
The scheme is a UK registered pension scheme under UK legislation. 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 2018 by a
qualified independent actuary. The valuation used for the purposes of IAS 19 ‘Employee Benefits’ has been based on the results
of the 2018 valuation to take account of the requirements of IAS 19 in order to assess the liabilities of the scheme at the balance
sheet date. Scheme assets are stated at fair value as at the balance sheet.
The Group is entitled to a refund of any surplus, subject to tax, if the scheme winds up after all benefits have been paid.
As a result, the Group recognises surplus assets under IAS 19.
The Group is exposed to a number of risks, the most significant of which are as follows:
– Investment risk – the liabilities for IAS 19 purposes are calculated using a discount rate set with reference to corporate bond
yields. If the assets underperform this yield a deficit will arise. The scheme has a long-term objective to reduce the level
of investment risk by investing in assets that better match liabilities.
– Change in bond yields – a decrease in corporate bond yields will increase the liabilities, although this will be partly offset
by an increase in matching assets.
– Inflation risk – some of the liabilities are linked to inflation. If inflation increases then liabilities will increase, although this will
be partly offset by an increase in assets. As part of a long-term de-risking strategy, the scheme has increased its portfolio
in inflation matched assets.
– Life expectancies – the scheme’s final salary benefits provide pensions for the rest of members’ lives (and for their spouses’
lives). If members live longer than assumed, then the liabilities in respect of final salary benefits increase.
The net retirement benefit asset recognised in the balance sheet of the Group and the Company is as follows:
Group and Company
2021 2020
£m % £m %
Equities 95.8 11 80.6 9
Corporate bonds 129.7 14 383.0 41
Other quoted securities 672.7 75 — —
Fixed interest gilts — — 275.2 29
Index-linked gilts — — 192.7 21
Cash and money market funds 0.6 — 1.5 —
Total fair value of scheme assets 898.8 100 933.0 100
Present value of funded defined benefit obligation (786.6) (853.3)
Net retirement benefit asset recognised in the balance sheet 112.2 79.7
Provident Financial plc Annual Report and Financial Statements 2021
235
Financial statements
20 Retirement benefit asset continued
(a) Pension schemes – defined benefit continued
The Company and the pension trustees have agreed a low risk investment strategy which involves hedging the inflation and interest
rate risks associated with the liabilities of the pension scheme, whilst also holding a modest allocation to growth funds, such as equities.
This position is reviewed periodically by the trustees, who consult the Company as part of this process.
The valuation of the pension scheme has increased from £79.7m at 31 December 2020 to £112.2m at 31 December 2021. A high-level
reconciliation of the movement is as follows:
Group and Company
2021
£m
2020
£m
Pension asset as at 1 January 80 78
Cash contributions made by the Group 4 4
Return on assets being held to meet pension obligations in excess of discount rate (20) 103
Change in mortality assumptions 13 (2)
Decrease/(increase) in discount rate used to discount future liabilities 79 (102)
Increase in inflation rate used to forecast pensions (34) (4)
Actuarial/membership experience (10) 4
Other — (1)
Pension asset as at 31 December 112 80
The amounts recognised in the income statement were as follows:
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Current service cost (2.1) (1.7) (2.1) (1.7)
Interest on scheme liabilities (11.8) (15.1) (11.8) (15.1)
Interest on scheme assets 13.0 16.7 13.0 16.7
Contributions from subsidiaries — — 2.7 3.9
Net (charge)/credit recognised in the income statement before exceptional past
service credit/(cost) (0.9) (0.1) 1.8 3.8
Exceptional past service credit/(cost) – plan amendment (note 1) 1.5 (0.7) 1.5 (0.7)
Exceptional past service credit – curtailment credit (note 1) 0.8 — 0.8 —
Exceptional past service credit/(cost) 2.3 (0.7) 2.3 (0.7)
Net credit/(charge) recognised in the income statement 1.4 (0.8) 4.1 3.1
The exceptional credit in 2021 relates to a curtailment credit of £0.8m in respect of the closure of the CCD division and a £1.5m
credit in relation to the closure of the cash balance section of the scheme during the year.
The cost for plan amendment in 2020 relates to charges in respect of the estimated liabilities arising due to amending members’
benefits for historical transfer values in relation to the equalisation of Guaranteed Minimum Pensions, following the High Court
judgment in November 2020.
The net credit/(charge) recognised in the income statement of the Group and the Company has been included within
operating costs.
Movements in the fair value of scheme assets were as follows:
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Fair value of scheme assets at 1 January 933.0 842.6 933.0 842.6
Interest on scheme assets 13.0 16.7 13.0 16.7
Contributions by subsidiaries — — 2.7 3.9
Actuarial movement on scheme assets (20.2) 102.8 (20.2) 102.8
Contributions by the Group/Company 4.0 4.2 1.3 0.3
Net benefits paid out (31.0) (33.3) (31.0) (33.3)
Fair value of scheme assets at 31 December 898.8 933.0 898.8 933.0
The Group contributions to the defined benefit pension scheme in the year ending 31 December 2022 are expected to be
approximately £3.5m.
Provident Financial plc Annual Report and Financial Statements 2021
236
Notes to the financial statements continued
20 Retirement benefit asset continued
(a) Pension schemes – defined benefit continued
Movements in the present value of the defined benefit obligation were as follows:
Group and Company
2021
£m
2020
£m
Present value of the defined benefit obligation at 1 January (853.3) (764.6)
Current service cost (2.1) (1.7)
Interest on scheme liabilities (11.8) (15.1)
Exceptional past service credit/(cost) – plan amendment (note 1) 1.5 (0.7)
Exceptional past service credit – curtailment credit (note 1) 0.8 —
Actuarial movement – experience (10.3) 4.3
Actuarial movement – demographic assumptions 12.9 (2.0)
Actuarial movement – financial assumptions 44.7 (106.8)
Net benefits paid out 31.0 33.3
Present value of the defined benefit obligation at 31 December (786.6) (853.3)
The liabilities of the scheme are based on the current value of expected benefit payments over the next 80 years. The weighted
average duration of the scheme liabilities is approximately 17 years (2020: 18 years).
The principal actuarial assumptions used at the balance sheet date were as follows:
Group and Company
2021
%
2020
%
Price inflation – RPI 3.40 2.85
Price inflation – CPI 3.00 2.25
Rate of increase to pensions in payment 3.00 2.70
Inflationary increases to pensions in deferment 3.00 2.20
Discount rate 1.85 1.30
The pension increase assumption shown above applies to pensions increasing in payment each year in line with RPI up to 5%.
Pensions accrued prior to 2000 are substantially subject to fixed 5% increases each year. In deferment increases prior to
retirement are linked to CPI.
The mortality assumptions are based on the self-administered pension scheme (SAPS) series 2 tables (2020: SAPS series 2 tables),
with multipliers of 96% (2020: 96%) and 101% (2020: 101%) respectively for males and females. The 4% downwards (2020: 4% downwards)
adjustment to mortality rates for males and a 1% upwards (2020: 1% upwards) adjustment for females reflect higher life expectancies
for males and lower life expectancies for females within the scheme compared to average pension schemes, which was
concluded following a study of the scheme’s membership. Future improvements in mortality are based on the Continuous
Mortality Investigation (CMI) 2020 model with a long-term improvement trend of 1.00% per annum. Under these mortality
assumptions, the life expectancies of members are as follows:
Male Female
Group and Company
2021
years
2020
years
2021
years
2020
years
Current pensioner aged 65 21.7 21.9 23.4 23.5
Current member aged 45 from age 65 22.7 23.2 24.6 25.0
The table below shows the sensitivity on the defined benefit obligation (not including any impact on assets) of changes
in the key assumptions. Depending on the scenario, there would also be compensating asset movements.
Group and Company
2021
£m
2020
£m
Discount rate decreased by 0.5% (2020: 0.5%) 64 79
Inflation increased by 0.1% 6 7
Life expectancy increased by one year 38 43
Provident Financial plc Annual Report and Financial Statements 2021
237
Financial statements
20 Retirement benefit asset continued
(a) Pension schemes – defined benefit continued
The actual return on scheme assets compared to the expected return is as follows:
Group and Company
2021
£m
2020
£m
Interest on scheme assets 13.0 16.7
Actuarial movement on scheme assets (20.2) 102.8
Actual return on scheme assets (7.2) 119.5
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 other comprehensive income is as follows:
Group and Company
2021
£m
2020
£m
Actuarial movement on scheme assets (20.2) 102.8
Actuarial movement on scheme liabilities 47.3 (104.5)
Total movement recognised in other comprehensive income in the year 27.1 (1.7)
Cumulative movement recognised in other comprehensive income (70.5) (97.6)
The history of the net retirement benefit asset recognised in the balance sheet and experience adjustments for the Group is as follows:
Group and Company
2021
£m
2020
£m
2019
£m
2018
£m
2017
£m
Fair value of scheme assets 898.8 933.0 842.6 788.3 835.5
Present value of funded defined benefit obligation (786.6) (853.3) (764.6) (704.4) (733.2)
Retirement benefit asset recognised in the balance sheet 112.2 79.7 78.0 83.9 102.3
Experience (losses)/gains on scheme assets:
– amount (£m) (20.2) 102.8 67.4 (31.3) 18.2
– percentage of scheme assets (%) (2.2) 11.0 8.0 (4.0) 2.2
Experience gains/(losses) on scheme liabilities:
– amount (£m) 10.3 (4.3) (0.1) (9.1) (3.7)
– percentage of scheme liabilities (%) 1.3 (0.1) — (1.3) (0.5)
(b) Pension schemes – defined contribution
The Group operates a Group Personal Pension Plan into which Group companies contribute a proportion of pensionable earnings
of the member (typically ranging between 5.1% and 10.6%) dependent on the proportion of pensionable earnings contributed by
the member through a salary sacrifice arrangement (typically ranging between 3% and 8%). The assets of the scheme are held
separately from those of the Group and Company.
The Group also operates a separate pension scheme for auto-enrolment into which the Company and subsidiaries contribute a
proportion of qualifying earnings of the member of 4%. The assets of the scheme are held separately from those of the Group or
the Company. The pension charge in the consolidated income statement represents contributions paid by the Group in respect
of these plans and amounted to £12.1m for the year ended 31 December 2021 (2020: £10.2m). Contributions made by the Company
amounted to £0.8m (2020: £0.7m). £0.6m contributions were payable to the fund at the year end (2020: £0.6m).
The Group contributed £nil in 2021 into individual personal pension plans in the year (2020: £nil).
Provident Financial plc Annual Report and Financial Statements 2021
238
Notes to the financial statements continued
21 Deferred tax
Deferred tax is a future tax liability or asset resulting from temporary differences between the accounting value of assets
and liabilities and their value for tax purposes or from tax losses carried forward at the reporting date.
Deferred tax arises primarily in respect of: (a) property, plant and equipment which is depreciated on a different basis for tax
purposes (accelerated capital allowances); (b) the Group’s retirement benefit asset; (c) Vanquis Bank Limited’s investment
in the preference shares in Visa Inc which are recognised at fair value for accounting purposes but which are taxed only
on disposal; (d) the opening balance sheet adjustments to restate the IAS 39 balance sheet to an IFRS 9 basis for which tax
deductions are available over 10 years; (e) tax losses carried forward to be relieved against profits in future periods; and (f) other
temporary differences including: (i) deductions for employee share awards which are recognised differently for tax purposes,
(ii) certain cost provisions for which tax deductions are only available when the costs are paid, (iii) the opening balance sheet
adjustment in respect of the change in accounting treatment of directly attributable acquisition costs in Vanquis Bank Limited
which is taxable over 10 years; (iv) the opening balance sheet adjustment in respect of the adoption of IFRS 16 ‘Leases’ which
is deductible over the average period of the relevant leases; and (v) the balance guaranteed swap entered into as part of the
vehicle finance securitisation.
In addition, a deferred tax liability is recognised in respect of the acquisition of the vehicle finance product relating primarily
to the intangible asset in respect of vehicle finance broker relationships which are amortised in future periods but for which tax
deductions are not available.
In 2016, changes in corporation tax rates were enacted which reduced the mainstream corporation tax rate to 17% with effect
from 1 April 2020. Prior to 1 April 2020, the mainstream corporation tax rate was 19%. In 2020, the reduction in the mainstream
corporation tax rate to 17% was cancelled and the rate remained at 19% for 2020. During 2021, a further change was enacted
to increase the mainstream corporation tax rate from 19% to 25% with effect from 1 April 2023.
Deferred tax balances at 31 December 2019 were measured at 17% and, in the case of credit cards and personal loans, at
the combined mainstream corporation tax (17%) and bank corporation tax surcharge rates (8%) of 25% to the extent that the
temporary differences on which the deferred tax was calculated were expected to reverse after 1 April 2020. At 31 December 2020,
these deferred tax balances were remeasured at 19% and, in the case of credit cards and personal loans, at the combined
mainstream corporation tax (19%) and bank corporation tax surcharge rates (8%) of 27%, as were movements in the deferred
tax balances during the year.
At 31 December 2021, the deferred tax balances have been remeasured at 25% (2020: 19%) and, in the case of credit cards
and personal loans, at the combined mainstream corporation tax (25%) and bank corporation tax surcharge rates (8%) of 33%
(2020: 27%) to the extent that the temporary differences on which deferred tax has been calculated are expected to reverse, or
the tax loss is expected to be utilised, after 1 April 2023, as have movements in deferred tax balances during the year. A tax credit
of £5.0m (2020: credit of £3.5m) represents the income statement adjustment to deferred tax as a result of these changes and
an additional deferred tax charge of £6.4m (2020: charge of £1.7m) has been taken directly to other comprehensive income in
respect of items reflected in other comprehensive income. Of the tax credit of £5.0m (2020: credit of £3.5m) taken to the income
statement, £5.0m related to continuing operations (2020: £2.5m) and £nil (2020: £1.0m) to discontinued operations. The tax
charge/(credit) on items taken directly to other comprehensive income relates entirely to continuing operations.
During 2021, the UK Government announced that the rate of bank corporation tax surcharge will decrease from 8% to 3%
with effect from 1 April 2023. At the same time the bank corporation tax surcharge allowance, being the threshold below which
banking profits are not subject to the bank corporation tax surcharge, will increase from £25m to £100m. These changes were not
substantively enacted by the reporting date of 31 December 2021 and so are not reflected in the measurement of the carrying
value of deferred tax balances at 31 December 2021. In line with the requirements of IAS 10, the expected impact of these changes
is a reduction of deferred tax balances of £4.1m.
The movement in the deferred tax balance during the year can be analysed as follows:
Asset/(liability)
Group
Company2021 2020
Continuing
operations
£m
Discontinued
operations
£m
Total
£m
Continuing
operations
£m
Discontinued
operations
£m
Total
£m
2021
£m
2020
£m
At 1 January 12.1 31.9 44.0 16.0 9.0 25.0 (14.2) (11.6)
(Charge)/credit to the income
statement — (31.9) (31.9) (6.0) 21.9 15.9 3.2 (1.5)
(Charge)/credit on other
comprehensive income prior to
impact of change in UK tax rate (3.8) — (3.8) 1.3 — 1.3 (5.2) 0.3
Impact of change in UK tax rate:
– credit to the
income statement 5.0 — 5.0 2.5 1.0 3.5 — 0.1
– charge to other
comprehensive income (6.4) — (6.4) (1.7) — (1.7) (6.4) (1.5)
At 31 December 6.9 — 6.9 12.1 31.9 44.0 (22.6) (14.2)
Provident Financial plc Annual Report and Financial Statements 2021
239
Financial statements
21 Deferred tax continued
Group – asset/(liability)
2021
Continuing operations Discontinued operations
Accelerated
capital
allowances
£m
Visa
shares
£m
Tax
losses
£m
IFRS 9
£m
Retirement
benefit
obligations
£m
Other
temporary
differences
£m
Total
£m
Accelerated
capital
allowances
£m
Tax
losses
£m
IFRS 9
£m
Other
temporary
differences
£m
Total
£m
Total
Group
£m
At 1 January 1.0 (2.5) — 34.3 (15.1) (5.6) 12.1 2.1 23.6 6.0 0.2 31.9 44.0
Credit/(charge) to the
income statement
0.5 (1.4) 3.7 (4.9) (1.0) 3.1 — (2.1) (23.6) (6.0) (0.2) (31.9) (31.9)
Credit/(charge) on
other comprehensive
income prior to
change in UK tax rate
— 1.4 — — (5.2) — (3.8) — — — — — (3.8)
Impact of change
in UK tax rate:
– credit/(charge)
to the income
statement
0.4 (0.5) — 5.6 (0.3) (0.2) 5.0 — — — — — 5.0
– charge to other
comprehensive
income
— — — — (6.4) — (6.4) — — — — — (6.4)
At 31 December 1.9 (3.0) 3.7 35.0 (28.0) (2.7) 6.9 — — — — — 6.9
Group – asset/(liability)
2020
Total
Group
£m
Continuing operations Discontinued operations
Accelerated
capital
allowances
£m
Visa
shares
£m
Tax
losses
£m
IFRS 9
£m
Retirement
benefit
obligations
£m
Other
temporary
differences
£m
Total
£m
Accelerated
capital
allowances
£m
Tax
losses
£m
IFRS 9
£m
Other
temporary
differences
£m
Total
£m
At 1 January 0.7 (4.1) — 36.2 (13.4) (3.4) 16.0 2.2 — 6.2 0.6 9.0 25.0
Credit/(charge) to the
income statement
0.2 1.0 — (4.9) (0.5) (1.8) (6.0) (0.4) 23.6 (0.9) (0.4) 21.9 15.9
Credit on other
comprehensive
income prior to
change in UK tax rate
— 1.0 — — 0.3 — 1.3 — — — — — 1.3
Impact of change
in UK tax rate:
– credit/(charge)
to the income
statement
0.1 (0.2) — 3.0 — (0.4) 2.5 0.3 — 0.7 — 1.0 3.5
– charge to other
comprehensive
income
— (0.2) — — (1.5) — (1.7) — — — — — (1.7)
At 31 December 1.0 (2.5) — 34.3 (15.1) (5.6) 12.1 2.1 23.6 6.0 0.2 31.9 44.0
Deferred tax assets on losses and other temporary differences
At 31 December 2020, there were £124.5m of carried forward UK tax losses in CCD on which a deferred tax asset was recognised.
At 31 December 2021, there are £96.7m of carried forward UK tax losses in CCD (2020: £124.5m) for which it is no longer appropriate
to recognise a deferred tax asset as the ability to carry forward the losses for offset against future Group profits is likely to have
lapsed following the closure of the business. At 31 December 2021, no deferred tax assets are recognised in respect of any other
temporary differences in CCD or in respect of the losses of the home credit business in the Republic of Ireland for similar reasons.
There are £19m (2020: £nil) of losses carried forward in the continuing Group. A deferred tax asset of £3.7m (2020: £nil) has been
recognised in full on these losses at the mainstream corporation tax rate of 19% on the basis that the Group considers it probable
that sufficient future taxable profits will be available across the Group before 1 April 2023 for the losses to be fully utilised against
Group profits. This recoverability assessment takes into account the corporate loss restriction rules whereby the use of brought
forward losses is restricted to 50% of relevant Group taxable profits above a £5m Group allowance.
No deferred tax asset has been recognised in respect of the Group’s capital losses carried forward of £133.1m (2020: £133.1m)
as it is not probable that future chargeable gains will be realised against which these losses can be utilised.
Provident Financial plc Annual Report and Financial Statements 2021
240
Notes to the financial statements continued
21 Deferred tax continued
Deferred tax assets on losses and other temporary differences continued
During 2020, Vanquis Bank Limited converted and subsequently sold its holding in the ‘A’ preference shares in Visa Inc which
gave rise to a capital gain. In 2020, the £1.0m deferred tax credit recognised in other comprehensive income relates to (i) a £1.0m
deferred tax charge being tax at the combined mainstream UK corporation tax and bank corporation tax surcharge rates of
27% on the movement in the valuation of the ‘B’ preference shares in Visa Inc which were retained, as well as the movement in
the valuation of the ‘A’ preference shares in Visa Inc up to the point of conversion and sale; and (ii) a deferred tax credit of £2.0m
recognised as a result of the sale of the ‘A’ preference shares in Visa Inc and represents the reversal of the £2.0m deferred tax
charge in respect of the valuation of the Vanquis Bank’s shareholding in the ‘A’ preference shares in Visa Inc that had been
recognised in other comprehensive income. In 2021, the £1.4m deferred tax credit represents the reversal of the deferred tax at
the combined mainstream UK corporation tax and bank corporation tax surcharge rates on the cumulative movement in the
valuation of the ‘B’ preference shares in Visa Inc which has previously been recognised in other comprehensive income and is
now being recognised in the income statement, with the shares now recognised at fair value through profit and loss rather than
previously at fair value through other comprehensive income.
An analysis of the deferred tax liability for the Company is set out below:
2021 2020
Company – asset/(liability)
Accelerated
capital
allowances
£m
Tax
losses
£m
Other
temporary
differences
£m
Retirement
benefit
obligations
£m
Total
£m
Accelerated
capital
allowances
£m
Other
temporary
differences
£m
Retirement
benefit
obligations
£m
Total
£m
At 1 January 0.3 — 0.6 (15.1) (14.2) 0.1 1.7 (13.4) (11.6)
Credit/(charge) to the income
statement — 3.6 0.6 (1.0) 3.2 0.2 (1.2) (0.5) (1.5)
(Charge)/credit on other
comprehensive income prior to
impact of change in UK tax rate — — — (5.2) (5.2) — — 0.3 0.3
Impact of change in UK tax rate:
– credit/(charge) to the
income statement 0.1 — 0.2 (0.3) — — 0.1 — 0.1
– charge to other
comprehensive income — — — (6.4) (6.4) — — (1.5) (1.5)
At 31 December 0.4 3.6 1.4 (28.0) (22.6) 0.3 0.6 (15.1) (14.2)
Provident Financial plc Annual Report and Financial Statements 2021
241
Financial statements
22 Borrowings
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Retail deposits 1,018.5 1,683.2 — —
Bank and other borrowings 845.2 520.0 395.3 369.0
Total 1,863.7 2,203.2 395.3 369.0
(a) Facilities and borrowings
A breakdown of borrowings is shown below:
Group
2021
£m
2020
£m
Retail deposits: 1,010.4 1,668.8
– accrued interest 8.1 14.4
Total retail deposits (note (b)) 1,018.5 1,683.2
Bank and other borrowings:
– senior bonds (note (e)) 103.5 175.0
– vehicle finance securitisation (note (f)) 275.0 150.0
– syndicated bank facility 30.0 68.7
– retail bonds (note (g)) 60.0 125.0
– Tier 2 (note (h)) 200.0 —
– TFSME (note (i)) 174.0 —
– bank overdrafts 3.6 1.4
– accrued interest 6.0 2.9
– arrangement fees (6.9) (3.0)
Total bank and other borrowings 845.2 520.0
Total borrowings 1,863.7 2,203.2
(b) Retail deposits
Vanquis Bank Limited is a PRA-regulated bank and is now fully funded through retail deposits. As at 31 December 2021, £1,018.5m
(2020: £1,683.2m) of fixed-rate, fixed-term retail deposits of six months and one, two, three, four and five years had been taken.
The deposits in issue at 31 December 2021 have been issued at rates of between 0.05% and 2.7%.
A reconciliation of the movement in retail deposits is set out below:
Group
2021
£m
2020
£m
At 1 January 1,683.2 1,345.2
New funds received 121.8 680.9
Maturities (906.3) (434.3)
Retentions 125.2 95.9
Cancellations (16.4) (22.9)
Interest 11.0 18.4
At 31 December 1,018.5 1,683.2
Provident Financial plc Annual Report and Financial Statements 2021
242
Notes to the financial statements continued
22 Borrowings continued
(c) Maturity profile borrowings
The maturity of borrowings, together with the maturity of facilities, is as follows:
2021 2020
Group
Borrowing
facilities
available
£m
Borrowings
£m
Borrowing
facilities
available
£m
Borrowings
£m
Repayable:
On demand (uncommitted) 4.6 3.6 5.5 1.4
In less than one year 399.6 399.6 965.7 965.7
Between one and two years 927.4 817.3 466.0 386.7
Between two and five years 436.0 436.0 835.1 835.1
In more than five years 200.0 200.0 — —
Accrued interest — 14.1 — 17.3
Arrangement fees — (6.9) — (3.0)
Total Group 1,967.6 1,863.7 2,272.3 2,203.2
Borrowings are stated after deducting £6.9m of unamortised arrangement fees (2020: £3.0m) and the addition of accrued
interest of £14.1m (2020: £17.3m).
2021 2020
Company
Borrowing
facilities
available
£m
Borrowings
£m
Borrowing
facilities
available
£m
Borrowings
£m
Repayable:
On demand (uncommitted) 1.0 — 5.5 —
In less than one year — — 65.0 65.0
Between one and two years 253.5 193.5 148.1 68.7
Between two and five years — — 235.0 235.0
In more than five years 200.0 200.0 — —
Accrued interest — 5.6 — 2.9
Arrangement fees — (3.8) — (2.6)
Total Company 454.5 395.3 453.6 369.0
As at 31 December 2021, the weighted average period to maturity of the Group’s committed facilities, including retail deposits,
was 2.5 years (2020: 1.5 years) and for the Company’s committed facilities was 4.0 years (2020: 1.9 years). Excluding retail deposits,
the weighted average period to maturity of the Group’s committed facilities was 3.7 years (2020: 2.5 years). In line with the Group’s
funding strategy to place less reliance on this source of funding, the syndicated bank facility was repaid early in March 2022
ahead of its contractual maturity in July 2023 and at the same time was cancelled at the discretion of the Group as allowed
for in the terms of the facility (see note 34).
(d) Interest rate and currency profile of borrowings
The interest rate and foreign exchange rate exposure on borrowings is as follows:
2021 2020
Group
Fixed
£m
Floating
£m
Total
£m
Fixed
£m
Floating
£m
Total
£m
Sterling 1,383.5 480.2 1,863.7 1,983.6 200.9 2,184.5
Euro — — — — 18.7 18.7
Total Group 1,383.5 480.2 1,863.7 1,983.6 219.6 2,203.2
2021 2020
Company
Fixed
£m
Floating
£m
Total
£m
Fixed
£m
Floating
£m
Total
£m
Sterling 365.0 30.3 395.3 300.4 49.9 350.3
Euro — — — — 18.7 18.7
Total Company 365.0 30.3 395.3 300.4 68.6 369.0
Provident Financial plc Annual Report and Financial Statements 2021
243
Financial statements
22 Borrowings continued
(e) Senior public bonds
On 4 June 2018, the Group issued £250m of five-year fixed-rate bonds carrying a semi-annual coupon of 8.25%. In October 2021
£71.5m of the bonds which were due to be repaid in 2023 were tendered early following the Group’s successful issuance of Tier 2
capital (see note 22(h)).
(f) Vehicle finance securitisation
The Group successfully renegotiated the bilateral securitisation facility in July 2021, adding Barclays as an additional lender,
extending the facility and achieving an improved advance rate. At 31 December 2021 £275m had been drawn. The rates paid on
the borrowings are linked to SONIA and the facility has a maturity date of June 2024.
(g) Retail bonds
The Company has one outstanding retail bond 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
27 March 2013 65.0 6.9% 27 September 2021
9 April 2015 60.0 5.125% 9 October 2023
Total Group and Company 125.0
The £65.0m retail bond was repaid in line with its contractual maturity date on 27 September 2021.
(h) Tier 2
On 7 October 2021, the Group issued Tier 2 subordinated bonds for a total amount of £200m. The bonds have a 10.25 year
maturity that is callable at the Group’s discretion between 5 and 5.25 years, and that pays a coupon of 8.875%. The issuance was
written from the Group’s £2bn EMTN Programme as the Group diversifies and optimises its sources of capital in support of future
lending growth.
(i) TFSME
Following the onset of Covid-19, the Bank of England announced a resumption of the Term Funding Scheme with additional
incentives for Small and Medium-sized Enterprises (TFSME) to provide liquidity support for the banking sector. In January 2021,
Vanquis Bank Limited completed its inaugural issue from its newly established credit card receivable master trust. The senior
notes in the transaction have been rated (AAAsf/Aaa(sf)/AAAsf) by Fitch Ratings, Kroll Bond Rating Agency and Standard & Poor’s
respectively and the bonds are listed on the London Stock Exchange. The rated notes were accepted as eligible for use in the
Bank of England’s Liquidity and Funding Schemes, providing access to a low cost of funds, and a source for contingent liquidity
where unutilised. The majority of the senior rated notes have now been placed as collateral with the Bank of England to support
borrowing of £174m from the TFSME at a rate of 21bps over bank rate. This funding is expected to be fully repaid by October 2025.
(j) Undrawn committed borrowing facilities
The Group’s current funding strategy is to maintain diversified committed facilities to meet contractual maturities and fund growth and
maintain access to five main sources of funding comprising: (i) the syndicated revolving bank facility; (ii) market funding, including retail
bonds, institutional bonds and private placements; (iii) securitisation; (iv) tier 2 capital and (v) retail deposits.
The undrawn committed borrowing facilities at 31 December were as follows:
Group and Company
2021
£m
2020
£m
Expiring within one year — —
Expiring within one to two years 110.0 79.3
Expiring in more than two years — —
Total undrawn committed borrowing facilities 110.0 79.3
Undrawn committed facilities of £110.0m exclude available cash and liquid resources of £714.1m. Of the £50.0m undrawn
securitisation facility, £30.0m has been committed to further revolving credit facility reductions, meaning the £110.0m undrawn
committed borrowing facilities gave the Group access to £80.0m of additional liquidity resources. In line with the Group’s funding
strategy to place less reliance on it, the syndicated bank facility was repaid early ahead of its contractual maturity in July 2023 and
at the same time was cancelled at the discretion of the Group as allowed for in the terms of the facility (see note 34). Undrawn
committed facilities would have been £50m had this event occurred prior to 31 December 2021. The Group has committed
borrowing facilities of £1,933.0m (2020: £2,266.8m) at the end of 2021.
Provident Financial plc Annual Report and Financial Statements 2021
244
Notes to the financial statements continued
22 Borrowings continued
(j) Undrawn committed borrowing facilities continued
Headroom on the Group’s committed debt facilities was £290.2m at 31 December 2021 together with ongoing access to the
retail deposits programme in Vanquis Bank Limited. There are no contractual maturities of the Group’s wholesale funding until
a scheduled maturity of the £103.5m Senior Bond in June 2023.
In order to reconcile the borrowings and the headroom on committed facilities shown, the facilities and borrowings in respect of
amounts repayable on demand and interest accrued and cash held on deposit should be deducted and unamortised arrangement
fees should be added back to borrowings as follows:
2021 2020
Group
Facilities
£m
Borrowings
£m
Facilities
£m
Borrowings
£m
Total facilities and borrowings 1,967.6 1,863.7 2,272.3 2,203.2
Repayable on demand (4.6) (3.6) (5.5) (1.4)
Unamortised arrangement fees — 6.9 — 3.0
Accrued interest — (14.1) — (17.3)
Total committed facilities and borrowings 1,963.0 1,852.9 2,266.8 2,187.5
Headroom on committed facilities 110.0 79.3
Headroom committed to further syndicated bank facility reduction (30.0) —
Available cash and liquid resources 210.2 64.4
Total headroom on committed facilities, available cash and liquid resources 290.2 143.7
In line with the Group’s funding strategy to place less reliance on this source of funding, the syndicate bank facility was repaid
early in March 2022, ahead of its contractual maturity in July 2023 and at the same time was cancelled at the discretion of the
Group as allowed for in the terms of the facility. The headroom on committed facilities of £110.0m at 31 December 2021 would
have reduced to £50.0m after cancellation of the facility. The Group does not require the funding and did not plan to renew
the facility on maturity (see note 34).
(k) Weighted average interest rates and periods to maturity
The weighted average interest rate and the weighted average period to maturity of the Group and Company’s fixed-rate
borrowings are as follows:
2021 2020
Group
Weighted
average
interest
rate
%
Weighted
average
period to
maturity
years
Weighted
average
interest
rate
%
Weighted
average
period to
maturity
years
Sterling 3.6 2.7 2.9 1.3
2021 2020
Company
Weighted
average
interest
rate
%
Weighted
average
period to
maturity
years
Weighted
average
interest
rate
%
Weighted
average
period to
maturity
years
Sterling 8.1 6.2 6.4 2.1
(l) Fair values
The fair values of the Group and Company’s borrowings are compared to their book values as follows:
2021 2020
Group
Book value
£m
Fair value
£m
Book value
£m
Fair value
£m
Retail deposits 1,018.5 1,026.4 1,683.2 1,703.7
Bank loans and overdrafts 33.5 33.5 69.0 69.0
Senior public bonds 103.5 109.0 175.0 176.1
Retail bonds 60.5 59.9 126.4 125.7
Securitisation 274.1 288.9 149.6 162.8
Tier 2 201.4 214.6 — —
TFSME 172.2 172.2 — —
Total Group 1,863.7 1,904.5 2,203.2 2,237.3
All the above numbers include interest and fees.
Provident Financial plc Annual Report and Financial Statements 2021
245
Financial statements
22 Borrowings continued
(l) Fair values continued
2021 2020
Company
Book value
£m
Fair value
£m
Book value
£m
Fair value
£m
Bank loans and overdrafts 29.9 29.9 67.7 67.7
Senior public bonds 103.5 109.0 175.0 176.1
Retail bonds 60.5 59.9 126.3 125.7
Tier 2 201.4 214.6 — —
Total Company 395.3 413.4 369.0 369.5
All the above numbers include interest and fees.
23 Trade and other payables
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Trade payables 12.5 7.7 — —
Amounts owed to Group undertakings — — 371.7 255.4
Other payables including taxation and social security 6.2 11.5 0.5 1.0
Accruals 76.9 45.7 14.5 8.4
Total trade and other payables 95.6 64.9 386.7 264.8
The amounts owed to Group undertakings are unsecured and accrue interest at rates linked to SONIA. Included with the
amounts owed to Group undertakings is £70.0m (2020: £70.0m) of upstream funding provided by Vanquis Bank Limited to the
Company, and £272.8m (2020: £144.6m) of funding provided from the vehicle finance securitisation via Provident Financial
Holdings Limited.
24 Derivative financial instruments
Group
2021
£m
2020
£m
Balance guaranteed swap 3.1 (1.3)
The balance guaranteed swap was entered into as part of the vehicle finance securitisation in January 2020 in order to manage
the market risk associated with movements in interest rates. The derivative is a bespoke over-the-counter interest rate swap. The
securitised notes are floating rate, whilst the vehicle finance receivables against which the notes are secured have fixed interest
rates, creating interest rate risk exposure. Only the interest rate risk on the portfolio is hedged; other risks such as credit risk are
managed but not hedged.
Over the course of 2021, the Group has renegotiated the facility with lenders and both the swap and the notes are now linked
to SONIA, enabling the Group to comply with IBOR reform.
The Group has elected to apply fair value hedge accounting in the consolidated accounts, using the portfolio hedging rules
under IAS 39.
The effectiveness of the hedge is assessed prospectively using matched terms as the swap has been specifically designed
to perfectly match the underlying assets. Retrospectively, the swap only experiences ineffectiveness from changes in notional
value as a result of prepayment or additions.
Had hedge accounting not been applied, the Group would have recognised an additional £4.2m credit to the income statement
(2020: cost of £0.6m) relating to derivative instruments. The swap is expected to mature in June 2024 in line with the securitisation.
Group
2021
£m
2020
£m
Notional value 344.0 262.4
Fair value adjustments for portfolio hedged risk (3.6) 0.6
Hedge ineffectiveness (0.2) 0.7
Fair value of balance guaranteed swap 3.1 (1.3)
The fair value adjustments for portfolio hedged risk of (£3.6m) (2020: £0.6m) are included within trade and other receivables
(see note 13). The ineffectiveness is recognised within operating costs in the income statement.
Provident Financial plc Annual Report and Financial Statements 2021
246
Notes to the financial statements continued
25 Lease liabilities
A maturity analysis of the lease liabilities is shown below:
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Due within one year 10.6 10.9 3.6 3.4
Due between one and five years 36.5 43.3 11.6 14.4
Due in more than five years 18.8 22.7 6.5 7.4
Total 65.9 76.9 21.7 25.2
Unearned finance cost (7.0) (7.5) (2.8) (3.3)
Total lease liabilities 58.9 69.4 18.9 21.9
Right of use assets are disclosed in note 16.
Lease payments for the Group of £11.4m (2020: £11.8m) include: (i) capital repayments of £9.6m (2020: £9.3m); (ii) interest of £1.5m
(2020: £1.9m); and (iii) short-term lease cash outflows of £0.3m (2020: £0.6m). At 31 December 2021, the Group is also committed
to £nil (2020: £0.2m) for short-term leases. Total cash outflows for the Company amounted to £3.3m (2020: £3.5m) and include:
(i) capital repayments of £3.0m (2020: £3.1m); and (ii) interest of £0.3m (2020: £0.4m).
Short-term lease cash outflows included £0.3m (2020: £0.6.m) in respect of discontinued operations.
26 Provisions
Group Company
2021 2020 2021 2020
Provisions
Scheme
£m
Others
£m
Total
£m
Scheme
£m
Others
£m
Total
£m
Scheme
£m
Total
£m
Scheme
£m
Total
£m
At 1 January 65.0 26.0 91.0 — 14.5 14.5 — — — —
Created in the year 5.0 17.4 22.4 65.0 45.5 110.5 5.0 5.0 — —
Reclassified in the year — — — — 17.6 17.6 15.0 15.0 — —
Utilised in the year (16.5) (24.8) (41.3) — (43.3) (43.3) (16.5) (16.5) — —
Released in the year — — — — (8.3) (8.3) — — — —
At 31 December 53.5 18.6 72.1 65.0 26.0 91.0 3.5 3.5 — —
The Scheme of Arrangement (the Scheme): Group: £53.5m (2020: £65m) Company: £3.5m (2020: £nil)
The Scheme of Arrangement was sanctioned on 30 July 2021. The Scheme will now remediate all outstanding relevant claims,
as well as new relevant claims received before the claims submission deadline in February 2022. The objective of the Scheme
is to ensure:
– all customers with redress claims are treated fairly; and
– outstanding claims are treated consistently for all customers who submit a claim under the Scheme.
The Group will fund legitimate Scheme claims with £50m and will cover further Scheme-related costs. These were estimated
at approximately £15m at 31 December 2020 with an additional £5m being recognised in the year for additional expected costs
in supporting the delivery of the Scheme. At 31 December 2021, £16.5m of the provision for costs of the scheme has been utilised.
Following the Scheme approval in August 2021 the £50m remediation costs were no longer considered to be a key source of
estimation uncertainty for the Group as a fixed amount is payable.
Other provisions include:
Complaints of irresponsible lending: £nil (2020: £23.4m)
Significantly higher claims volumes were received by CCD in 2020 in respect of irresponsible lending of home credit loans.
£23.4m was provided at 31 December 2020 for the claims received for irresponsible lending. This reflected the recent uphold
rates and settlement values. The provision also assumed a settlement rate of customer claims to the date of the Practice
Statement Letter (PSL) being issued on 15 March 2021, as part of the Scheme of Arrangement (the Scheme). These amounts
were fully utilised during the first half of 2021.
FCA investigation into CCD: £4.1m (2020: £nil)
CCD was informed in Q1’21, that the FCA had opened an enforcement investigation focusing on the consideration of affordability
and sustainability of lending to customers, as well as the application of a FOS decision into the complaint handling process,
in the period between February 2020 and February 2021. Discussions continue with the FCA on this matter. Analysis of lending
during the period of investigation has resulted in a provision of £5m being recognised which reflects the current best estimate
of the settlement; £0.9m of this was utilised in the second half of the year.
Provident Financial plc Annual Report and Financial Statements 2021
247
Financial statements
26 Provisions continued
The Scheme of Arrangement (the Scheme): Group: £53.5m (2020: £65m) Company: £3.5m (2020: £nil) continued
ROP Provision: £2.1m (2020: £2.6m)
The remaining ROP provision of £2.1m (2020: £2.6m) principally reflects the estimated cost of the forward flow of ROP complaints
more generally which may be received and in respect of which compensation may need to be paid.
Customer compliance: £3.4m (2020: £nil)
The customer compliance provision relates to general customer compliance matters.
Discontinued operations: £9.0m (2020: £nil)
A number of smaller provisions have been recognised in relation to the closure of the CCD business. These have been calculated
based on estimated costs at the year end.
27 Financial instruments
(a) Classification and measurement
The following table sets out the carrying value of the Group’s financial assets and liabilities in accordance with the categories
of financial instruments set out in IFRS 9. Assets and liabilities outside the scope of IFRS 9 are shown within non-financial
assets/liabilities:
2021
Group
Investment/
derivative
held at
FVTPL
£m
Amortised
cost
£m
Non-
financial
assets/
liabilities
£m
Total
£m
Assets
Cash and cash equivalents — 717.7 — 717.7
Amounts receivable from customers — 1,677.7 — 1,677.7
Trade and other receivables — 16.3 2.5 18.8
Investments held at fair value through profit and loss 9.1 — — 9.1
Property, plant and equipment — — 8.4 8.4
Right of use assets — — 47.9 47.9
Goodwill — — 71.2 71.2
Other intangible assets — — 52.3 52.3
Retirement benefit asset — — 112.2 112.2
Derivative financial instruments 3.1 — — 3.1
Deferred tax assets — — 6.9 6.9
Total assets 12.2 2,411.7 301.4 2,725.3
Liabilities
Retail deposits — (1,018.5) — (1,018.5)
Bank and other borrowings — (845.2) — (845.2)
Trade and other payables — (95.6) — (95.6)
Lease liabilities — (58.9) — (58.9)
Current tax liabilities — — (3.8) (3.8)
Provisions — — (72.1) (72.1)
Total liabilities — (2,018.2) (75.9) (2,094.1)
Provident Financial plc Annual Report and Financial Statements 2021
248
Notes to the financial statements continued
27 Financial instruments continued
(a) Classification and measurement continued
The carrying value for all financial assets represents the maximum exposure to credit risk.
2020
Group
Investment
held at fair
value
through
OCI
£m
Derivative
held at fair
value
through
P&L
£m
Amortised
cost
£m
Non-
financial
assets/
liabilities
£m
Total
£m
Assets
Cash and cash equivalents — — 919.7 — 919.7
Amounts receivable from customers — — 1,799.8 — 1,799.8
Trade and other receivables — — 18.7 17.0 35.7
Investments held at fair value through other comprehensive income 9.2 — — — 9.2
Property, plant and equipment — — — 15.5 15.5
Right of use assets — — — 58.0 58.0
Goodwill — — — 71.2 71.2
Other intangible assets — — — 45.3 45.3
Retirement benefit asset — — — 79.7 79.7
Deferred tax assets — — — 44.0 44.0
Total assets 9.2 — 2,738.2 330.7 3,078.1
Liabilities
Retail deposits — — (1,683.2) — (1,683.2)
Bank and other borrowings — — (520.0) — (520.0)
Trade and other payables — — (64.9) — (64.9)
Derivative financial instruments — (1.3) — — (1.3)
Lease liabilities — — (69.4) — (69.4)
Current tax liabilities — — — (0.6) (0.6)
Provisions — — — (91.0) (91.0)
Total liabilities — (1.3) (2,337.5) (91.6) (2,430.4)
Assets and liabilities outside the scope of IFRS 9 are shown within non-financial assets/liabilities:
2021
Company
Amortised
cost
£m
Non-
financial
assets/
liabilities
£m
Total
£m
Assets
Cash and cash equivalents 206.6 — 206.6
Trade and other receivables 1,050.0 3.2 1,053.2
Property, plant and equipment — 1.2 1.2
Right of use assets — 15.3 15.3
Investment in subsidiaries — 225.4 225.4
Retirement benefit asset — 112.2 112.2
Total assets 1,256.6 357.3 1,613.9
Liabilities
Bank and other borrowings (395.3) — (395.3)
Trade and other payables (386.7) — (386.7)
Lease liabilities (18.9) — (18.9)
Provisions — (3.5) (3.5)
Deferred tax liabilities — (22.6) (22.6)
Total liabilities (800.9) (26.1) (827.0)
Provident Financial plc Annual Report and Financial Statements 2021
249
Financial statements
27 Financial instruments continued
(a) Classification and measurement continued
2020
Company
Amortised
cost
£m
Non-
financial
assets/
liabilities
£m
Total
£m
Assets
Cash and cash equivalents 59.1 — 59.1
Trade and other receivables 1,047.5 3.1 1,050.6
Property, plant and equipment — 1.6 1.6
Right of use assets — 17.9 17.9
Investment in subsidiaries — 230.9 230.9
Retirement benefit asset — 79.7 79.7
Total assets 1,106.6 333.2 1,439.8
Liabilities
Bank and other borrowings (369.0) — (369.0)
Trade and other payables (264.8) — (264.8)
Lease liabilities (21.9) — (21.9)
Current tax liabilities — (1.1) (1.1)
Deferred tax liabilities — (14.2) (14.2)
Total liabilities (655.7) (15.3) (671.0)
(b) Fair values of financial assets and liabilities held at fair value
The Group holds certain financial assets and liabilities at fair value, grouped into Levels 1 to 3 of the fair value hierarchy on the
degree to which the fair value is observable.
The following financial assets and liabilities are held at fair value:
2021 2020
Group
Level 1
£m
Level 2
£m
Level 3
£m
Level 1
£m
Level 2
£m
Level 3
£m
Investments held at fair value through P&L:
– Visa Inc shares — — 9.1 — — —
Investments held at fair value through OCI:
– Visa Inc shares — — — — — 9.2
Derivative held at fair value through P&L:
– balance guaranteed swap — — 3.1 — — (1.3)
Total — — 12.2 — — 7.9
Level 1 fair value measurements are those derived from quoted market prices in active markets for identical assets and liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted market prices included in Level 1 that are
observable for the asset or liability either directly or indirectly.
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs). The Group holds Visa shares and the balance guaranteed swap
in Level 3.
Transfers between the different levels of the fair value hierarchy would be made when the inputs used to measure the fair value
no longer satisfy the conditions required to be classified in a certain level within the hierarchy. There have been no transfers
between levels in the current or prior year.
Provident Financial plc Annual Report and Financial Statements 2021
250
Notes to the financial statements continued
27 Financial instruments continued
(b) Fair values of financial assets and liabilities held at fair value continued
Visa Inc shares
The valuation has been determined using a combination of observable and non-observable inputs. As the common stock share
price of Visa Inc is readily available, this input is deemed to be observable. However, certain assumptions have been made in
respect of the illiquidity adjustment to the share price and the likelihood of future litigation costs. These inputs are therefore
deemed to be a significant unobservable input.
The following table sets out their movement during the year:
Group
2021
£m
2020
£m
At 1 January 9.2 16.6
(Losses)/gain recognised in income statement (0.1) 3.8
Disposal of investment — (11.2)
At 31 December 9.1 9.2
The illiquidity adjustment for the shares still held has been estimated at around 6% and the expected future litigation costs have
been estimated at around 15% of the Visa Inc share price. These assumptions are consistent with 2020.
The higher the illiquidity and future litigation costs the lower the fair value. The sensitivity to the unobservable inputs, in isolation,
is set out in the table below:
Group
2021
£m
2020
£m
Illiquidity +/-1% 0.1 0.1
Future litigation costs +/-1% 0.1 0.1
Balance guaranteed swap
The Group entered into a balance guaranteed swap to manage the interest rate risk on the vehicle finance securitisation.
The following table sets out the movement during the year:
Group
2021
£m
2020
£m
At 1 January (1.3) —
Fair value gain/(loss) recognised in income statement 4.4 (1.3)
At 31 December 3.1 (1.3)
The fair value gain recognised in the income statement of £3.1m is before hedge accounting is applied. The effect of applying
hedge accounting reduced the gain to £0.2m.
Whilst the swap is linked to SONIA, it has a non-standard repayment curve as it is tailored to match the expected repayment
profile of the vehicle finance receivables. This is a combination of the remaining contractual term and an assumption about
prepayment rates. Both of these are deemed to be unobservable inputs with the prepayment rate being the significant input.
A 5% movement on the prepayment rate would not have a material impact on the Group’s profit before tax.
Provident Financial plc Annual Report and Financial Statements 2021
251
Financial statements
27 Financial instruments continued
(c) Fair values of financial assets and liabilities not held at fair value
The table below shows the fair value of financial assets and liabilities not presented at fair value in the balance sheet:
2021 2020
Group
Fair value
£m
Book value
£m
Fair value
£m
Book value
£m
Assets
Cash and cash equivalents 717.7 717.7 919.7 919.7
Amounts receivable from customers 2,063.8 1,677.7 2,246.5 1,799.8
Trade and other receivables 18.8 18.8 35.7 35.7
Total assets 2,800.3 2,414.2 3,201.9 2,755.2
Liabilities
Retail deposits (1,026.4) (1,018.5) (1,703.7) (1,683.2)
Bank and other borrowings (878.1) (845.2) (533.6) (520.0)
Trade and other payables (95.6) (95.6) (64.9) (64.9)
Lease liabilities (58.9) (58.9) (69.4) (69.4)
Total liabilities (2,059.0) (2,018.2) (2,371.6) (2,337.5)
2021 2020
Company
Fair value
£m
Book value
£m
Fair value
£m
Book value
£m
Assets
Cash and cash equivalents 206.6 206.6 59.1 59.1
Trade and other receivables 1,053.2 1,053.2 1,050.6 1,050.6
Total assets 1,259.8 1,259.8 1,109.7 1,109.7
Liabilities
Bank and other borrowings (413.4) (395.3) (369.5) (369.0)
Trade and other payables (386.7) (386.7) (264.8) (264.8)
Lease liabilities (18.9) (18.9) (21.9) (21.9)
Total liabilities (819.0) (800.9) (656.2) (655.7)
Key considerations in the calculation of fair values of those financial assets and liabilities not presented at fair value in the balance
sheet are set out below. Where there is no significant difference between carrying value and fair value no additional information
has been presented.
The fair value of amounts receivable from customers has been derived by discounting expected future cash flows (net of collection
costs) at the credit risk-adjusted discount rate at the balance sheet date. They are categorised within Level 3 as the expected
future cash flows and discount rate are deemed to be significant unobservable inputs.
The fair value of retail deposits has been calculated by discounting the expected future cash flows at the relevant market interest
rate yield curves prevailing at the balance sheet date and they are categorised within Level 3 of the fair value hierarchy as the
expected future cash flows are deemed to be significant unobservable inputs.
Within bank and other borrowings, the Tier 2 capital, senior public bonds and retail bonds are classed as Level 1 as they are valued
within quoted market prices. The TFSME and RCF are floating rate instruments with a fair value equivalent to book value. The fair
value of the securitisation was calculated using a discounted cash flow and is classed as level 3. Whilst it uses publicly available
information for the discount rate, the cash flow forecast is not publicly available.
28 Share capital
Group and Company
2021
Issued and
fully paid
2020
Issued and
fully paid
Ordinary shares of 20 8⁄11p each – £m 52.6 52.6
– number (m) 253.7 253.6
Provident Financial plc Annual Report and Financial Statements 2021
252
Notes to the financial statements continued
28 Share capital continued
The movement in the number of shares in issue during the year was as follows:
Group and Company
2021
m
2020
m
At 1 January 253.6 253.4
Shares issued pursuant to the exercise/vesting of options and awards 0.1 0.2
At 31 December 253.7 253.6
The shares issued pursuant to the exercise/vesting of options and awards comprised 83,755 ordinary shares (2020: 237,193)
with a nominal value of £17,360 (2020: £49,164) and an aggregate consideration of less than £0.1m (2020: £0.1m).
Provident Financial plc sponsors the Provident Financial plc 2007 Employee Benefit Trust (EBT) which is a discretionary trust
established for the benefit of the employees of the Group. The Company has appointed SG Kleinwort Hambros Trust Company
(CI) Limited to act as trustee of the EBT. The trustee has waived the right to receive dividends on the shares it holds. As at
31 December 2021, the EBT held 2,846,456 (2020: 2,857,442) shares in the Company with a cost of £0.6m (2020: £0.6m) and
a market value of £10.3m (2020: £8.8m). The shares have been acquired by the EBT to meet obligations under the Provident
Financial Deferred Bonus Plan (previously the 2013 Performance Share Plan), the Restricted Share Plan and the Company
Share Option Plan.
29 Share-based payments
The Group issues share options and awards to employees as part of its employee remuneration packages. The Group operates five
equity-settled share schemes: the Long Term Incentive Scheme (LTIS), the Restricted Share Plan (RSP), the Company Share Option Plan
(CSOP), employees’ savings-related share option schemes typically referred to as Save As You Earn schemes (SAYE), and the Deferred
Bonus Plan (DBP) (previously 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; no awards have been granted since 2018.
No awards have been granted under the LTIS in 2021. Certain employees who were granted shares under the 2020 LTIS had the option
to forfeit those shares in November 2020 and replace them with an award under the RSP and CSOP. This has been treated as a
modification under IFRS 2 and an incremental charge recognised for the new awards.
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 is charged to the income statement on a straight-line basis over the vesting period of the underlying
option/award.
During 2021, awards/options have been granted under the RSP/CSOP and SAYE (UK) schemes (2020: awards/options have been granted
under the LTIS, DBP, RSP/CSOP and SAYE (UK only)).
(a) Equity-settled schemes
The charge to the income statement in 2021 for equity-settled schemes was £3.8m for the Group (2020: £2.3m) and £1.7m
for the Company (2020: £0.7m). The charge included £0.8m (2020: £0.9m) in respect of discontinued operations.
The fair value per award/option granted and the assumptions used in the calculation of the equity-settled share-based
payment charges for the Group and the Company are as follows:
2021 2020
Group RSP/CSOP SAYE RSP/CSOP DBP LTIS SAYE
Grant date 18 Aug 2021 5 Oct 2021 9 Nov 2020 30 Mar
2020
30 Mar
2020
7 Oct 2020
Share price at grant date (£) 3.43 3.32 2.73 2.02 2.02 2.19
Exercise price (£) — 2.84 — — — 1.82
Shares awarded/under option (number) 1,657,986 403,204 2,157,605 237,193 3,767,551 3,495,925
Vesting period (years) 3 3 and 5 3 3 3 3 and 5
Expected volatility 61.2% 61.5%–78.5% 68.2% 85.0% 85.0% 68.5%–76.0%
Award/option life (years) 3 Up to 5 3 3 3 Up to 5
Expected life (years) 3 Up to 5 3 3 3 Up to 5
Risk-free rate — 0.5%–0.7% — — 0.13% (0.01%)–(0.06%)
Expected dividends expressed as a dividend yield n/a 5.1%–6.0% n/a n/a n/a 6.8%
Fair value per award/option (£) 3.34 1.06– 1.33 2.41 2.20 1.42 0.71–0.80
Provident Financial plc Annual Report and Financial Statements 2021
253
Financial statements
29 Share-based payments continued
(a) Equity-settled schemes continued
2021 2020
Company RSP/CSOP SAYE RSP/CSOP DBP LTIS SAYE
Grant date 18 Aug 2021 5 Oct 2021 9 Nov 2020 30 Mar 2020 30 Mar 2020 7 Oct 2020
Share price at grant date (£) 3.43 3.32 2.73 2.02 2.02 2.19
Exercise price (£) — 2.84 — — — 1.82
Shares awarded/under option (number) 947,693 46,953 934,625 172,863 1,788,694 304,577
Vesting period (years) 3 3 and 5 3 3 3 3 and 5
Expected volatility 61.2% 61.5%–78.5% 68.2% 85.0% 85.0% 68.5%–76.0%
Award/option life (years) 3 Up to 5 3 3 3 Up to 5
Expected life (years) 3 Up to 5 3 3 3 Up to 5
Risk-free rate — 0.5%–0.7% — — 0.13% (0.01%)–(0.06%)
Expected dividends expressed as a
dividend yield
n/a 5.1%–6.0% n/a n/a n/a 6.80%
Fair value per award/option (£) 3.34 1.06– 1.33 2.41 2.20 1.38 0.71–0.80
The expected volatility is based on historical volatility over the last three or five years depending on the length of the option/
award. The expected life is the average expected period to exercise. The risk-free rate of return is the yield on zero coupon UK
Government bonds of a similar duration to the life of the share option.
A reconciliation of award/share option movements during the year is shown below:
RSP/CSOP DBP/PSP LTIS SAYE
Group Number
Weighted
average
exercise
price
£ Number
Weighted
average
exercise
price
£ Number
Weighted
average
exercise
price
£ Number
Weighted
average
exercise
price
£
Outstanding at
1 January 2021
2,157,605 — 322,991 — 2,389,447 — 4,424,320 2.32
Awarded/granted 1,657,986 — — — — — 403,204 2.84
Lapsed (227,590) — — — (1,549,255) — (1,774,090) 2.77
Exercised — — — — — — (118,124) 1.82
Outstanding at
31 December 2021
3,588,001 — 322,991 — 840,192 — 2,935,310 2.15
Exercisable at
31 December 2021
— —
—
— — — 64,192 5.38
RSP/CSOP DBP/PSP LTIS SAYE
Group Number
Weighted
average
exercise
price
£ Number
Weighted
average
exercise
price
£ Number
Weighted
average
exercise
price
£ Number
Weighted
average
exercise
price
£
Outstanding at
1 January 2020
— — 196,492 — 3,121,418 — 2,674,402 3.87
Awarded/granted 2,157,605 — 237,193 — 3,767,551 — 3,495,925 1.82
Cancelled — — — — (3,144,898) — — —
Lapsed — — (62,171) — (1,354,624) — (1,745,460) 3.68
Exercised — — (48,523) — — — (547) 17.07
Outstanding at
31 December 2020
2,157,605 — 322,991 — 2,389,447 — 4,424,320 2.32
Exercisable at
31 December 2020
— —
—
— — — — —
The amounts included in the RSP/CSOP table reflect the total amount of shares awarded under both schemes.
Provident Financial plc Annual Report and Financial Statements 2021
254
Notes to the financial statements continued
29 Share-based payments continued
(a) Equity-settled schemes continued
Share awards outstanding under the LTIS at 31 December 2021 had an exercise price of £nil (2020: £nil) and a weighted average
remaining contractual life of 0.3 years (2020: 0.9 years). Share options outstanding under the SAYE schemes at 31 December 2021
had exercise prices ranging from 182p to 1,723p (2020: 182p to 1,707p) and a weighted average remaining contractual life of 2.3 years
(2020: 2.9 years). Share awards outstanding under the DBP/PSP schemes at 31 December 2021 had an exercise price of £nil (2020: £nil)
and a weighted average remaining contractual life of 1.0 year (2020: 2.0 years). Share awards outstanding under the RSP at
31 December 2021 had an exercise price of £nil (2020: £nil) and a weighted average remaining contractual life of 2.2 years
(2020: 2.9 years). Share awards outstanding under the CSOP at 31 December 2021 had an exercise price ranging from
241p to 334p (2020: 241p) and a weighted average remaining contractual life of 2.2 years (2020: 2.9 years).
Cash awards were granted under the PFEP to eligible employees that require the Group to pay amounts linked to a combination
of salary, and the financial performance and share price performance of Provident Financial plc. The credit to the income
statement in 2021 was £0.5m (2020: £0.6m) and the Group has a liability of £nil as at 31 December 2021 (2020: £0.5m).
RSP/CSOP DBP/PSP LTIS SAYE
Company Number
Weighted
average
exercise
price
£ Number
Weighted
average
exercise
price
£ Number
Weighted
average
exercise
price
£ Number
Weighted
average
exercise
price
£
Outstanding at 1 January 2021 934,625 — 242,170 — 1,279,367 — 340,836 2.03
Awarded/granted 947,693 — — — — — 46,953 2.84
Lapsed (101,900) — — — (775,226) — (56,757) 2.58
Transferred 70,764 — — — 29,308 — — —
Exercised — — — — — — — —
Outstanding at 31 December 2021 1,851,182 — 242,170 — 533,449 — 331,032 2.05
Exercisable at 31 December 2021 — — — — — — 1,204 5.38
RSP/CSOP DBP/PSP LTIS SAYE
Company Number
Weighted
average
exercise
price
£ Number
Weighted
average
exercise
price
£ Number
Weighted
average
exercise
price
£ Number
Weighted
average
exercise
price
£
Outstanding at 1 January 2020 — — 146,776 — 1,259,432 — 162,617 3.45
Awarded/granted 934,625 — 172,863 — 1,788,694 — 304,577 1.82
Cancelled — — — — (1,615,578) — — —
Lapsed — — (40,055) — (153,181) — (126,358) 3.33
Exercised — — (37,414) — — — — —
Outstanding at 31 December 2020 934,625 — 242,170 — 1,279,367 — 340,836 2.03
Exercisable at 31 December 2020 — — — — — — — —
Share awards outstanding under the LTIS at 31 December 2021 had an exercise price of £nil (2020: £nil) and a weighted average
remaining contractual life of 0.2 years (2020: 0.9 years). Share options outstanding under the SAYE schemes at 31 December 2021
had exercise prices ranging from 182p to 538p (2020: 182p to 333p) and a weighted average remaining contractual life of 2.3 years
(2020: 2.9 years). Share awards outstanding under the DBP/PSP schemes at 31 December 2021 had an exercise price of £nil
(2020: £nil) and a weighted average remaining contractual life of 1.0 year (2020: 2.0 years). Share awards outstanding under the
RSP at 31 December 2021 had an exercise price of £nil (2020: £nil) and a weighted average remaining contractual life of 2.3 years
(2020: 2.9 years). Share awards outstanding under the CSOP at 31 December 2021 had an exercise price ranging from 241p to 334p
(2020: 241p) and a weighted average remaining contractual life of 2.3 years (2020: 2.9 years).
There was no liability in the Group or Company in relation to the PFEP at 31 December 2021.
(b) Cash-settled scheme
Cash awards were granted under the PFEP to eligible employees that require the Group and Company to pay amounts linked
to a combination of salary, and the financial performance and share price performance of Provident Financial plc. No awards
have been granted since 2018. The credit to the income statement in 2021 was £0.5m for the Group (2020: £0.6m) and £nil for the
Company (2020: £nil). The Group has a liability of £nil as at 31 December 2021 (2020: £0.5m) and £nil for the Company (2020: £nil).
Provident Financial plc Annual Report and Financial Statements 2021
255
Financial statements
30 Other reserves
Group
Profit
retained by
subsidiary
£m
Capital
redemption
reserve
£m
Share-
based
payment
reserve
£m
Fair value
reserve
£m
Total
other
reserves
£m
At 1 January 2020 0.8 3.6 6.7 6.6 17.7
Other comprehensive income/(expense):
– fair value movements in investments (note 14) — — — 3.8 3.8
– tax on items taken directly to other comprehensive income (note 6) — — — (1.0) (1.0)
– impact of change in UK tax rate — — — (0.2) (0.2)
– deferred tax release on disposal of investment — — — (2.0) (2.0)
– current tax recognised on disposal of investment — — — 2.0 2.0
Other comprehensive income for the year — — — 2.6 2.6
Transfer of cumulative gain on disposal of investment — — — (7.4) (7.4)
Transfer of tax on disposal of investment — — — 2.0 2.0
Share-based payment charge (note 29) — — 2.3 — 2.3
Transfer of share-based payment reserve on vesting of share awards — — (2.6) — (2.6)
At 31 December 2020 0.8 3.6 6.4 3.8 14.6
At 1 January 2021 0.8 3.6 6.4 3.8 14.6
Other comprehensive income/(expense):
– fair value movements transferred to income statement (note 14) — — — (5.2) (5.2)
– tax on items taken directly to other comprehensive income (note 6) — — — 1.4 1.4
Other comprehensive income for the year — — — (3.8) (3.8)
Share-based payment charge (note 29) — — 3.8 — 3.8
Transfer of share-based payment reserve on vesting of share awards — — (4.8) — (4.8)
At 31 December 2021 0.8 3.6 5.4 — 9.8
The capital redemption reserve represents profits on the redemption of preference shares arising in prior years, together with the
capitalisation of the nominal value of shares purchased and cancelled, net of the utilisation of this reserve to capitalise the nominal
value of shares issued to satisfy scrip dividend elections.
The share-based payment reserve reflects the corresponding credit entry to the cumulative share-based payment charges made
through the income statement as there is no cash cost or reduction in assets from the charges. When options and awards vest, that
element of the share-based payment reserve relating to those awards and options is transferred to retained earnings.
The movements in 2021 through the fair value reserve reflect the transfer of investments held at fair value through other comprehensive
income to fair value through P&L, net of deferred tax (see note 14).
Company
Capital
redemption
reserve
£m
Share-
based
payment
reserve
£m
Total
other
reserves
£m
At 1 January 2020 3.6 6.7 10.3
Share-based payment charge (note 29) — 0.7 0.7
Transfer of share-based payment reserve on vesting of share awards — (1.2) (1.2)
Share-based payment movement in investment in subsidiaries — 0.2 0.2
At 31 December 2020 3.6 6.4 10.0
At 1 January 2021 3.6 6.4 10.0
Share-based payment charge (note 29) — 1.7 1.7
Transfer of share-based payment reserve on vesting of share awards — (0.8) (0.8)
Share-based payment movement in investment in subsidiaries — (1.9) (1.9)
At 31 December 2021 3.6 5.4 9.0
Company distributable reserves include: (i) retained earnings, adjusted to reflect the unrealised gain on the retirement benefit asset;
(ii) share-based payment reserve, net of deferred tax and the IFRIC 11 adjustment; and (iii) merger reserve. The distributable reserves
do not include distributable reserves currently held within subsidiary companies.
Provident Financial plc Annual Report and Financial Statements 2021
256
Notes to the financial statements continued
31 Related party transactions
The Company recharges the pension scheme referred to in note 20 with a proportion of the costs of administration and professional
fees incurred by the Company. The total amount recharged during the year was £0.3m (2020: £0.7m) and the Company amount
payable to the pension scheme at 31 December 2021 was £0.1m (2020: £0.1m).
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:
2021 2020
Company
Management
recharge
£m
Interest
credit
£m
Outstanding
balance
£m
Management
recharge
£m
Interest
credit
£m
Outstanding
balance
£m
Vanquis Bank 8.4 4.4 (35.6) 5.2 1.7 (58.6)
Moneybarn 3.5 — — 2.0 (24.5) —
CCD 3.6 — 16.5 6.9 (9.9) (15.5)
Provident Financial Holdings — (52.6) 739.5 — — 890.5
Other central companies 1.3 — 63.1 — — 99.6
Total related party transactions 16.8 (48.2) 783.5 14.1 (32.7) 916.0
The outstanding balance represents the gross intercompany balance receivable to/(payable by) the Company.
In August 2020 Vanquis Bank provided the Company with a £70m intercompany loan facility to allow upstream funding. The loan
has a two-year term and an interest rate of 6.25%. The loan has been fully utilised since it was provided; the balance outstanding
at 31 December 2021 and 2020 was £70m. The difference of £34.4m (2020: £11.4m) to the outstanding balance reflects year-end
management recharges and Group relief on trading losses which were settled shortly after the year end by Vanquis Bank.
In December 2020, a new subsidiary holding company, Provident Financial Holdings Limited (PFH), was incorporated which
simplified the intercompany relationships across the Group. As part of that process certain intercompany loans with Moneybarn
and CCD were transferred from the Company to PFH and equivalent loans were entered into between the Company and PFH.
A revolving loan facility of £340m is provided to Provident Personal Credit Limited from PFH which is reviewed every three months.
A £684m facility is provided to Moneybarn No. 1 Limited which is reviewed every 12 months and an upwards funding facility
of £396m provided from Moneybarn No. 1 Limited to PFH. The intercompany loans accrue interest at the Company’s monthly
weighted average cost of funds plus a margin.
The outstanding balance represents the gross intercompany balance receivable by the Company, against which a provision of
£105.2m (2020: £123.8m) is held. The reduction of £18.6m in 2021 relates to impairment of CCD intercompany loans of £16.5m offset
by a release of intercompany provisions of £35.1m. This release was offset in the income statement by a corresponding increase
in investment provisions. The net charge to the income statement for both intercompany and investment provisions in 2021 is
therefore £16.5m (2020: credit of £2.4m).
PFH approved and paid dividends totalling £85m in 2021 (2020: £nil). PFH received equivalent dividends from Vanquis Bank.
In 2020 Vanquis Bank paid dividends of £110m direct to the Company.
Direct Auto Finance Insurance Services Limited approved and paid dividends totalling £3.8m in 2021 (2020: £nil).
There are no transactions with directors other than those disclosed in the Directors’ Remuneration Report.
32 Contingent liabilities
A contingent liability is a liability that is not sufficiently certain to qualify for recognition as a provision where uncertainty exists
regarding the outcome of future events and the obligation cannot be measured with sufficient reliability.
(a) Challenge to self-employed status of UK home credit agents
In July 2017, Provident Personal Credit Limited (PPC) changed its home credit operating model in the UK from a self-employed
agent model to an employed workforce to take direct control of all aspects of the customer relationship.
It is understood from discussions with HMRC that they commenced an industry-wide review of the self-employed status of
agents in 2019. The Group’s discussions with HMRC, which are focusing on the period from when the FCA took over responsibility
for the regulation of consumer credit in April 2014 to the change of operating model in July 2017, have remained in the initial
fact-finding stages. The Group has continued to work positively and collaboratively with HMRC but it remains the case that HMRC
has reached no decision on the position.
Were the Group to be unsuccessful in defending the historic self-employed position of agents with HMRC, PPC could be liable
for additional taxes, including employer’s National Insurance contributions, on the commission it paid to agents in the UK for the
years concerned. However, PPC does not know the amounts of tax and National Insurance contributions paid by agents through
self-assessment which are available for offset, and it is therefore difficult to calculate an accurate liability should the Group be
unsuccessful in defending the position. HMRC has raised protective assessments on PPC which have been appealed pending
the outcome of the review. These are a procedural matter to ensure that, in the event the review concludes that taxes are
payable, HMRC can recover such amounts that would otherwise be excluded due to the lapse of statutory time limits.
Provident Financial plc Annual Report and Financial Statements 2021
257
Financial statements
32 Contingent liabilities continued
(a) Challenge to self-employed status of UK home credit agents continued
The Group has worked with HMRC over many years to manage employment status risk and it remains confident, based
on advice received, that agents were self-employed as a matter of law throughout their engagement by PPC.
PPC has now completed the managed run-off of its home credit business, which has not resulted in a surplus for creditors of
the Scheme of Arrangement, or more generally, and the company is expected ultimately to be placed into formal wind-down
proceedings. Any contingent liabilities in respect of any additional tax liabilities would then be dealt with as part of those proceedings.
(b) Other legal actions and regulatory matters
In addition, during the ordinary course of business the Group is subject to other complaints and threatened or actual legal
proceedings (including class or group action claims) brought by or on behalf of current or former employees, agents,
customers, investors or third parties. This extends to legal and regulatory reviews, challenges, investigations and enforcement
actions combined with tax authorities taking a view that is different to the view the Group has taken on the tax treatment in its
tax returns, both in the UK and overseas. All such material matters are periodically assessed, with the assistance of external
professional advisors, where appropriate, to determine the likelihood of the Group incurring a liability. In those instances where
it is concluded that it is more likely than not that a payment will be made, a provision is established for management’s best
estimate of the amount required at the relevant balance sheet date. In some cases it may not be possible to form a view, for
example because the facts are unclear or because further time is needed to properly assess the merits of the case, and no
provisions are held in relation to such matters. However, the Group does not currently expect the final outcome of any such case
to have a material adverse effect on its financial position, operations or cash flows.
33 Reconciliation of (loss)/profit after taxation to cash generated from/(used in) operations
Group Company
Note
2021
£m
2020
£m
2021
£m
2020
£m
(Loss)/profit after taxation (32.1) (83.4) 2.7 117.6
Adjusted for:
– tax charge/(credit) 6 36.2 (30.1) (19.5) (2.0)
– finance costs 4 61.2 71.5 33.7 38.6
– exceptional costs/(gain) on redemption of bonds 4 3.9 (1.9) — —
– finance income — — (51.7) (58.0)
– dividends received 31 — — (88.8) (110.0)
– share-based payment charge 29 3.8 2.3 1.7 0.7
– retirement benefit charge/(credit) prior to exceptional pension
(credit)/charge 20 0.9 0.1 (1.8) (3.8)
– exceptional pension (credit)/charge 20 (2.3) 0.7 (2.3) 0.7
– amortisation of intangible assets 18 18.2 15.1 — —
– exceptional complaints provision in CCD 26 — 65.0 — —
– provisions created in the year 26 22.4 45.5 5.0 —
– depreciation of property, plant and equipment and right of use assets 15 15.3 15.7 3.0 4.0
– (profit)/loss on disposal of property, plant and equipment 15 (0.3) 0.6 — —
– profit on disposal of intangible assets 18 (0.4) — — —
– profit on lease disposal 16 (1.2) — — —
– provision for investment impairment — — 38.7 —
– provision for intercompany impairment — — (18.6) —
– exceptional release of provisions 26 — (8.3) — —
– hedge ineffectiveness 24 (0.2) 0.7 — —
Changes in operating assets and liabilities:
– amounts receivable from customers 122.1 399.8 — —
– trade and other receivables 12.7 11.6 11.1 (153.6)
– disposal of investments through intercompany — — — 164.5
– trade and other payables 30.7 (6.8) (6.3) (50.2)
– provisions 26 (41.3) (43.3) (16.5) —
– cumulative fair value movements on Visa shares transferred to
income statement 14 (5.2) — — —
– current year fair value movements on Visa shares 14 0.1 — — —
– contributions into the retirement benefit scheme 20 (4.0) (4.2) (1.3) (0.3)
Cash generated from/(used in) operations 240.5 450.6 (110.9) (51.8)
Provident Financial plc Annual Report and Financial Statements 2021
258
Notes to the financial statements continued
33 Reconciliation of (loss)/profit after taxation to cash generated from/(used in) operations continued
The movement in amounts receivable from customers of £122.1m (2020: £399.8m) includes the non-cash movement
in the impairment provision of £373.2m (2020: £103.9m).
Group
2021
£m
2020
£m
Cash movement in amounts receivable from customers 495.3 295.9
Non-cash provision movement – allowance account (373.2) 103.9
Net movement in amounts receivable from customers 122.1 399.8
The table below details changes in the Group and Company’s liabilities arising from financing activities, including both cash and
non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be,
classified in the cash flow statement as cash flows from financing activities.
2021
Cash changes Non-cash changes
Group
1 January
2021
£m
Financing
cash flows
£m
Lease
payments
£m
Amortised
fees
£m
Interest
paid
£m
Included
within
overdrafts
£m
Lease
additions
and
disposals
£m
31 December
2021
£m
Total borrowings (note 22) (2,203.2) 335.5 — (4.8) 11.0 (2.2) — (1,863.7)
Lease liabilities (note 25) (69.4) — 11.1 — (1.5) — 0.9 (58.9)
Total (2,272.6) 335.5 11.1 (4.8) 9.5 (2.2) 0.9 (1,922.6)
2020
Cash changes Non-cash changes
Group
1 January
2020
£m
Financing
cash flows
£m
Lease
payments
£m
Amortised
fees
£m
Interest
paid
£m
Included
within
overdrafts
£m
Lease
additions
and
disposals
£m
31 December
2020
£m
Total borrowings (note 22) (1,963.5) (236.5) — (1.7) (2.9) 1.4 — (2,203.2)
Lease liabilities (note 25) (78.3) — 11.2 — (1.9) — (0.4) (69.4)
Total (2,041.8) (236.5) 11.2 (1.7) (4.8) 1.4 (0.4) (2,272.6)
2021
Cash changes Non-cash changes
Company
1 January
2021
£m
Financing
cash flows
£m
Lease
payments
£m
Amortised
fees
£m
Interest
paid
£m
Included
within
overdrafts
£m
31 December
2021
£m
Total borrowings (note 22) (369.0) (22.3) — (1.3) (2.7) — (395.3)
Lease liabilities (note 25) (21.9) — 3.3 — (0.3) — (18.9)
Total (390.9) (22.3) 3.3 (1.3) (3.0) — (414.2)
2020
Cash changes Non-cash changes
Company
1 January
2020
£m
Financing
cash flows
£m
Lease
payments
£m
Amortised
fees
£m
Interest
paid
£m
Included
within
overdrafts
£m
31 December
2020
£m
Total borrowings (note 22) (616.3) 247.4 — (2.9) 2.0 0.8 (369.0)
Lease liabilities (note 25) (24.9) — 3.4 — (0.4) — (21.9)
Total (641.2) 247.4 3.4 (2.9) 1.6 0.8 (390.9)
Provident Financial plc Annual Report and Financial Statements 2021
259
Financial statements
34 Post balance sheet events
In line with the Group’s funding strategy to place less reliance on this source of funding the Group exercised its contractual
option to early repay the RCF on 30 March 2022, ahead of its contractual maturity in July 2023. The Group does not require the
funding and did not plan to renew the facility. The headroom on committed facilities of £110m at 31 December 2021 would have
reduced to £50m after repayment of the facility.
35 Details of subsidiary undertakings
The subsidiary undertakings of the Group at 31 December 2021 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
Registered at No. 1 Godwin Street, Bradford BD1 2SU:
Provident Financial Holdings Limited 13061852
Provident SPV Limited
1
12988335
Vanquis Bank Limited
1
2558509
Provident Financial Management Services Limited
1
328933
Provident Personal Credit Limited
1
146091
Greenwood Personal Credit Limited
1
125150
N&N Simple Financial Solution Limited
1
3803565
Cheque Exchange Limited
1
2927947
Provident Investments Limited 4541509
PFG Corporate Services Limited
1
13423666
Direct Auto Finance Insurance Services Limited
2
3834656
Direct Auto Finance Limited
2
3412137
Direct Auto Financial Services Limited
2
3444409
Provfin Limited
1
1879771
Provident Limited 575965
Provident Print Limited 2211204
Provident Yes Car Credit Limited 4253314
Provident Financial Group Limited (previously known as Yes Car Credit (Holdings) Limited) 194214
Yes Car Credit Limited 3459042
Aquis Cards Limited 7036307
HT Greenwood Limited
1
954387
Peoples Motor Finance Limited 1078365
Policyline Limited 1294141
Provfin Investments Limited 953919
Provident Family Finance Limited 912244
Provfin No.1 Limited (previously known as Provident Financial Group Limited) 642504
Provident Financial Trustees (Performance Share Plan) Limited 4625062
The Provident Clothing and Supply Company Limited 509371
Registered at Athena House, Bedford Road, Petersfield, Hampshire GU32 3LJ:
Moneybarn No. 1 Limited
1
4496573
Duncton Group Limited
1
6308608
Moneybarn Group Limited
1
4525773
Moneybarn Limited
1
2766324
Moneybarn No. 4 Limited
1
8582214
Registered at 13 Castle Street, St. Helier, Jersey, Channel Islands JE4 5UT:
Erringham Holdings Limited 39894
1 Companies whose immediate parent is not Provident Financial plc.
2 The companies were placed into members’ voluntary liquidation on 22 July 2021 and the liquidations were subsequently closed on 28 March 2022.
Provident Financial plc Annual Report and Financial Statements 2021
260
Notes to the financial statements continued
35 Details of subsidiary undertakings continued
Company name
Company
number
Registered at DWF LLP, No.2 Lochrin Square,
96 Fountainbridge, Edinburgh EH3 9QA:
First Tower LP (1) Limited
1
SC122077
First Tower LP (2) Limited
1
SC125164
First Tower LP (3) Limited
1
SC129388
First Tower LP (4) Limited
1
SC118423
First Tower LP (5) Limited
1
SC127062
First Tower LP (6) Limited
1
SC127489
First Tower LP (7) Limited
1
SC127807
First Tower LP (8) Limited
1
SC118257
First Tower LP (9) Limited
1
SC118428
First Tower LP (10) Limited
1
SC118426
First Tower LP (11) Limited
1
SC122181
First Tower LP (12) Limited
1
SC129378
Lawson Fisher Limited
1
SC004758
1 Companies whose immediate parent is not Provident Financial plc.
The following companies act as a vehicle to allow the
securitisation of the Moneybarn customer receivables and
Vanquis Bank’s TFSME. These companies are not owned by
Provident Financial plc but form part of the consolidated Group
due to meeting the requirements of IFRS 10 ‘Consolidated
Financial Statements’.
Company name
Company
number
Registered at 5th Floor, 100 Wood Street,
London, England EC2V 7EX:
Moneybarn Financing Limited 12323134
Company name
Company
number
Registered at 10th Floor, 5 Churchill Place,
London, England E14 5HU:
Oban Cards 2021-1 Holdings Limited 12754762
Oban Cards 2021-1 PLC 12757121
Oban Cards Receivables Trustee Limited 12756504
The following subsidiaries are taking an audit exemption and
are therefore exempt from the requirement to the audit of
accounts under section 479A of the Companies Act 2006.
Company name
Company
number
Provident Investments Limited 4541509
Greenwood Personal Credit Limited 125150
N&N Simple Financial Solution Limited 3803565
Cheque Exchange Limited 2927947
Provfin Limited 1879771
Provident Limited 575965
Provident Print Limited 2211204
Provident Yes Car Credit Limited 4253314
Provident Financial Group Limited 194214
Duncton Group Limited 6308608
Moneybarn Group Limited 4525773
First Tower LP (1) Limited SC122077
First Tower LP (2) Limited SC125164
First Tower LP (3) Limited SC129388
First Tower LP (4) Limited SC118423
First Tower LP (5) Limited SC127062
First Tower LP (6) Limited SC127489
First Tower LP (7) Limited SC127807
First Tower LP (8) Limited SC118257
First Tower LP (9) Limited SC118428
First Tower LP (10) Limited SC118426
First Tower LP (11) Limited SC122181
First Tower LP (12) Limited SC129378
Provident Financial plc Annual Report and Financial Statements 2021
261
Financial statements
Independent auditor’s report to the members of Provident Financial plc
Report on the audit of the financial statements
1. Opinion
In our opinion:
– the financial statements of Provident Financial plc
(the parent company) and its subsidiaries (the Group)
give a true and fair view of the state of the Group’s and
of the parent company’s affairs as at 31 December 2021
and of the Group’s profit for the year then ended;
– the Group financial statements have been properly
prepared in accordance with United Kingdom adopted
international accounting standards;
– the parent company financial statements have been
properly prepared in accordance with United Kingdom
adopted international accounting standards and
as applied in accordance with the provisions of the
Companies Act 2006; and
– the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
– the consolidated income statement;
– the consolidated statement of comprehensive income;
– the consolidated and parent company balance sheets;
– the consolidated and parent company statements
of changes in equity;
– the consolidated cash flow statement;
– the statement of accounting policies; and
– the related notes 1 to 35.
The financial reporting framework that has been applied
in their preparation is applicable law and United Kingdom
adopted international accounting standards and, as regards
the parent company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described
in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group and the parent company
in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including
the Financial Reporting Council’s (FRC’s) Ethical Standard as
applied to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. The non-audit services provided to the Group
and parent company for the year are disclosed in note 5
to the financial statements. We confirm that we have not
provided any non-audit services prohibited by the FRC’s
Ethical Standard to the Group or the parent company.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
– the estimation of expected credit losses in Vanquis Bank and Moneybarn; and
– the valuation of the pension obligation.
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the Group and parent company financial statements was £6.3m (2020: £6.5m)
and £6.0m (2020: £6.1m) respectively which was determined on the basis of 1.0% of net assets.
Scoping
The Group is organised into two continuing operating segments: Vanquis Bank and Moneybarn.
The Consumer Credit Division (CCD) no longer represents a continuing operating segment due
to the closure of the division during 2021. CCD is therefore presented as a discontinued operation.
As in the prior year, our Group audit scope focused on Vanquis Bank, Moneybarn and CCD which, together
with the parent company, account for 100% of the Group’s net assets.
Significant
changes in
our approach
We have re-focused our key audit matter in relation to the estimation of expected credit losses to
Vanquis Bank and Moneybarn due to the closure of CCD and the remaining loan account balances being
written off prior to the year end.
We no longer identify provisions for liabilities under the Scheme of Arrangement in CCD as a key
audit matter following approval of the Scheme by the Courts in August 2021 which reduced the level
of management judgement required in determining customer redress.
In the prior year we identified revenue recognition in Vanquis Bank as a key audit matter, specifically
the appropriateness of the behavioural life assumption used to amortise directly attributable acquisition
costs (DAC). We have revised our risk assessment as the expected behavioural life assumption is no
longer considered as sensitive in the context of our materiality.
Provident Financial plc Annual Report and Financial Statements 2021
262
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and parent company’s ability to continue to adopt the going concern
basis of accounting included:
– evaluating management’s stress testing and reverse stress testing analysis as well as consideration of the impact of
ongoing macroeconomic factors and strategic projects in order to understand, challenge and assess the key judgements
made by management using our knowledge of the Group, the industry and the regulatory environment;
– assessing management’s capital and liquidity stress testing and calculation of Total Capital Ratio (TCR);
– obtaining an understanding of relevant controls around management’s going concern assessment including Board approval;
– supported by our prudential regulation specialists:
– reading the most recent Internal Capital Adequacy Assessment and Internal Liquidity Adequacy Assessment, assessing
management’s capital and liquidity projections, assessing the results of management’s capital and liquidity stress
testing and evaluating key assumptions and methods used in the capital and liquidity stress testing models; and
– testing the mechanical accuracy of the forecasts, including reconciling opening capital and liquidity ratios to the
year-end Common Reporting Framework regulatory submissions and assessing whether the year-end balance sheet
within the model was consistent with the audited position;
– inspecting correspondence with regulators to understand the capital and liquidity requirements imposed on the Group
by the Prudential Regulation Authority (PRA), and evaluating any changes to those requirements; and
– assessing the appropriateness of the disclosures made in the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s and parent company’s ability to continue as a going
concern for a period of at least 12 months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
5.1. Estimation of expected credit losses in Vanquis Bank and Moneybarn
Key audit matter
description
The Group holds portfolios of receivables from credit card, personal loans and vehicle financing
arrangements, totalling £1,677.7m (2020: £1,799.8m), net of provisions.
The IFRS 9 expected credit losses on amounts receivable from customers are calculated by modelling
expected credit performance of the receivables’ portfolios. During 2021 management has adopted new
IFRS 9 models in Vanquis Bank and Moneybarn. The underlying modelling techniques are complex and
require management to make significant judgements regarding the quantum and timing of expected
future cash flows to calculate expected credit losses. Provisions for expected credit losses are an area
of management judgement where there is a risk of fraud due to the potential ability of management
to introduce inappropriate bias to judgements made in the estimation process.
IFRS 9 requires that an impairment assessment should be the best estimate of expected credit losses
and that reasonable forward-looking information should be incorporated into the calculation as at
the balance sheet date. The ongoing impacts of the Covid-19 pandemic, alongside uncertainties
in the macroeconomic environment and inflationary pressures, mean there exists a wide range of
scenarios with different loss outcomes. The key economic variables relevant for the Group’s portfolio
were determined to be the hazard rate, which is the likelihood of moving from employment to
unemployment in a given time period, and debt-to-income (DTI) ratios. The hazard rate is not a widely
used variable for which forecasts are published; however, there is a strong correlation between hazard
rates and unemployment such that hazard rates can be predicted based on unemployment forecasts.
There is significant judgement in determining the probability weighting of the scenarios adopted by
management and the associated assumptions.
The Group’s provision for impairment against loans and receivables is £614.9m (2020: £988.1m).
Within Vanquis Bank modelling techniques are applied by management to estimate the provision for
expected credit losses on credit card receivables. Provisions for expected credit losses as at 31 December 2021
amounted to £359.4m (2020: £474.2m).
Independent auditor’s report to the members of Provident Financial plc continued
Provident Financial plc Annual Report and Financial Statements 2021
263
Financial statements
5. Key audit matters continued
5.1. Estimation of expected credit losses in Vanquis Bank and Moneybarn
continued
Key audit matter
description
continued
The expected credit loss provision estimate is driven by account-specific estimation of probability
of default (PD), exposure at default (EAD) and loss given default (LGD) which represent the key areas of
judgement. We focused our work on the significant increases in credit risk (SICR) criteria and the valuation
of Covid-19 in-model adjustments (IMAs).
The key area of challenge in relation to SICR is around the determination of the point at which a relative
change in PD constitutes a SICR. Whilst historical data can be used to inform these thresholds it also
requires significant management judgement to determine the criteria that best evidences this SICR.
The Covid-19 IMA reduced from £59.6m to £27.9m as at 31 December 2021. The IMA is designed to continue
to adjust PDs to reflect that actual default experience observed in 2021 did not increase as anticipated.
Furthermore, lower levels of utilisation of credit cards typically indicating a reduction in credit risk, are
distorted by spending patterns in the pandemic and are unlikely to represent a genuine improvement
in credit quality.
Within Moneybarn provisions for expected credit losses at 31 December 2021 were £255.5m (2020: £198.7m).
The expected credit loss provision estimate is driven by account-specific estimation of probability
of default (PD), exposure at default (EAD) and loss given default (LGD) which represent the key areas
of judgement. We focused our work on the significant increases in credit risk (SICR) criteria.
Further detail in respect of these is set out in the accounting policies on pages 203 to 205, in note 12
of the financial statements and also within the Strategic Report on page 105.
How the scope
of our audit
responded to the
key audit matter
Control procedures
Within Vanquis Bank and Moneybarn we obtained an understanding of relevant controls relating
to the identification, valuation and recording of expected credit losses.
Substantive procedures
We obtained an understanding of the new IFRS 9 methodology and its implementation in the new models
in both Vanquis Bank and Moneybarn. We engaged our credit risk modelling specialists to assist in our
assessment and challenge of management’s methodology and evaluated whether the methodology is
compliant with the requirements of IFRS 9. In performing these procedures, we further considered whether
there were any indicators of bias in the methodology applied by management or in the estimation of the
amount and timing of expected future cash flows, through a stand back assessment performed on the
ECL coverage ratios derived from the new models.
In respect of the macroeconomic scenarios applied we engaged with our internal economics specialist
to review the appropriateness of the shape of the hazard rate and DTI curves and the respective weightings
attached to the curves, whilst also testing the underlying data used in this assessment for completeness
and accuracy.
We benchmarked the underlying unemployment economic variables against various external sources
including Her Majesty’s Treasury forecasts, Office for Budget Responsibility forecasts, Bank of England
Monetary Policy Report, Office for National Statistics and other available data.
We challenged the significant changes in credit risk (SICR) criteria within Vanquis Bank and Moneybarn,
with the assistance of our credit risk modelling specialists, and assessed the staging criteria against the
requirements of IFRS 9. In addition, we tested that the SICR thresholds had been appropriately implemented
in the models through review of the underlying scripts, tested the completeness and accuracy of the
historical data used to form the SICR thresholds and challenged management’s conclusions regarding
the appropriateness of the SICR threshold changes in the current macroeconomic environment.
We tested the valuation of Covid-19 IMAs for Vanquis Bank by evaluating and challenging the validity of
the adjustments incorporated by management and testing their accuracy by challenging the model
logic and the accuracy of underlying data. This included, where appropriate, a review and challenge of
the methodology and scripts to value IMAs with support from our credit risk modelling specialists. We also
considered, through a completeness assessment, whether inclusion or exclusion of IMAs by management
was indicative of bias or fraud.
We also challenged, using the assistance of our credit risk modelling specialists, whether the potential
impact of economic uncertainty, including inflation, had been appropriately incorporated into expected
credit loss calculations through inclusion of reasonable forward-looking information. This resulted in an
additional PMA of £7.8m being recognised in relation to inflation and cost of living expectations as at
the balance sheet date.
Key observations
Based on our substantive testing we found that the provision for expected credit losses is appropriate.
We considered the macroeconomic assumptions and weightings, SICR thresholds and IMAs in Vanquis
to be appropriate and the data used in the models to be accurate.
Provident Financial plc Annual Report and Financial Statements 2021
264
5.2. Valuation of the pension obligation
Key audit matter
description
Under IAS 19, the value of the Group’s defined benefit pension scheme is recognised on the Group’s
balance sheet, reflecting the fair value of the assets and an actuarial valuation of the liabilities of the
scheme at the balance sheet date. The valuation of the pension obligation involves judgements in
relation to inflation, discount and mortality rates. The most critical element identified was the discount
rate assumption as set out in the sensitivity analysis in note 20.
The pension obligation is £786.6m as at 31 December 2021 (2020: £853.3m). Further detail in respect
of these assumptions is set out in the accounting policies on page 202 and note 20 of the financial
statements and within the Audit Committee Report on page 157.
How the scope
of our audit
responded to the
key audit matter
We obtained an understanding of the relevant controls surrounding the determination of the discount
rate and other inputs used in the pension valuation.
We used internal actuarial specialists to assist us in evaluating the appropriateness of the principal
actuarial assumptions used in the calculation of the pension obligation being the discount rate, mortality
rates and inflation rates. We also challenged and benchmarked management’s assumptions against
those used by a range of organisations as at 31 December 2021 and considered the consistency of
those judgements compared with the prior year.
Key observations
All assumptions, including the discount rate adopted by management, are within what we considered
to be an acceptable range.
Independent auditor’s report to the members of Provident Financial plc continued
5. Key audit matters continued
Provident Financial plc Annual Report and Financial Statements 2021
265
Financial statements
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
£6.3m (2020: £6.5m) £6.0m (2020: £6.1m)
Basis for
determining
materiality
1% of net assets (2020: 1% of net assets) 1% of net assets (2020: 1% of net assets)
Rationale for
the benchmark
applied
Our benchmark upon which materiality is determined is consistent with the prior period. We determined
that net assets continue to be a more stable and relevant measure used by investors, regulators and
stakeholders when assessing the performance and longer-term prospects of the Group and parent
company as well as the importance of net assets to the Group’s regulatory capital position.
Group materiality
£6.3m
Net assets
£631.8m
Component
materiality range
£0.01m to £6.0m
Audit Committee
reporting
threshold
£0.32m
99++1++II
Net assets Group materiality
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected
and undetected misstatements exceed the materiality for the financial statements as a whole.
Group financial statements
Parent company financial statements
Performance
materiality
70% (2020: 70%) of Group materiality 70% (2020: 70%) of parent company materiality
Basis and
rationale for
determining
performance
materiality
In determining performance materiality, we considered a number of factors, including: our understanding
of the control environment and controls reliance obtained; our understanding of the business; and the
number of uncorrected misstatements identified in the prior year.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.32m (2020: £0.13m),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. The change in the
reporting threshold has been made following our reassessment of what matters require communicating. We also report to the
Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
Provident Financial plc Annual Report and Financial Statements 2021
266
7. An overview of the scope of our audit
7.1. Identification and scoping of components
The Group is organised into two continuing operating segments: Vanquis Bank and Moneybarn. CCD no longer represents
a continuing operating segment due to the closure of the division during 2021. CCD is therefore presented as a discontinued
operation. 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 Vanquis Bank, Moneybarn and CCD which, together with the parent company, account
for 100% of the Group’s net assets. Vanquis Bank, Moneybarn and CCD are audited by separate engagement teams led by the
Group audit partner.
7.2. Our consideration of the control environment
We identified the financial reporting, lending and deposit business cycles to be the most relevant to the audit, including the
identification, valuation and recording of expected credit losses. We were able to take a controls reliance approach over the
Vanquis Bank credit card lending and deposit business cycles and with the assistance of our IT specialists we tested and relied
upon IT controls across the credit card lending and deposit systems identified for Vanquis Bank only. Vanquis Bank outsources
the processing of customer deposits and card transaction processing to a third party. We engaged with our IT specialists
to review the service auditor’s report. We have shared observations from our procedures with management and the Audit
Committee. The assessment of the Group’s internal control environment is set out on pages 154 to 155 and 161.
7.3. Our consideration of climate-related risks
In planning our audit, we have considered the potential impact of climate change on the Group’s business
and its financial statements.
The Group continues to develop its assessment of the potential impacts of climate change which is currently being considered
using two scenarios: a low-carbon scenario and a high-carbon scenario, as explained in the Strategic Report on pages 68 to 73.
Management has performed forward-looking qualitative scenario analysis to explore the potential range of climate change
implications on the Group. Over the next year, the scenario analysis will include quantitative information to enhance their assessment.
As part of our audit, we have obtained management’s climate-related risk assessment and held discussions with the Head of
Sustainability, the Chief Risk Officer and Finance to understand the process of identifying climate-related risks, the determination
of mitigating actions and the impact on the Group’s financial statements. Management has identified there to be no material
impact arising from climate change on the judgements and estimates made in the financial statements as explained in
accounting policies on page 203.
We performed our own qualitative and quantitative risk assessment of the potential impact of climate change material
misstatement. Our procedures included reading disclosures included in the Strategic Report with the involvement of our climate
change and sustainability specialists and audit team consideration as to whether they are materially consistent with the
financial statements and our knowledge obtained in the audit.
Independent auditor’s report to the members of Provident Financial plc continued
Provident Financial plc Annual Report and Financial Statements 2021
267
Financial statements
8. Other information
The other information comprises the information included in the Annual Report, other than the financial statements and our
Auditor’s Report thereon. The directors are responsible for the other information contained within the Annual Report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives
rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no
realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report.
Provident Financial plc Annual Report and Financial Statements 2021
268
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud, is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance
with laws and regulations, we considered the following:
– the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
– results of our enquiries of management and the Audit Committee about its own identification and assessment of the risks
of irregularities;
– any matters we identified having obtained and reviewed the Group’s documentation of its policies and procedures
relating to:
– identifying, evaluating and complying with laws and regulations and whether it was aware of any instances
of non-compliance;
– detecting and responding to the risks of fraud and whether it has knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; and
– the matters discussed among the audit engagement team and relevant internal specialists, including pensions, tax,
valuations, share-based payments, data analytics, information technology, prudential regulatory, fraud, macroeconomic
and credit risk modelling specialists, regarding how and where fraud might occur in the financial statements and any
potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud
and identified the greatest potential for fraud in the following areas: the estimation of expected credit losses and valuation of the
pension obligation. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to
the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions
of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules and
tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements
but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included
the regulation set by the Financial Conduct Authority and by the Prudential Regulation Authority relating to the regulatory capital
and liquidity requirements.
11.2. Audit response to risks identified
As a result of performing the above, we identified estimation of expected credit losses and valuation of the pension obligation
as key audit matters related to the potential risk of fraud or non-compliance with laws and regulations. The key audit matters
section of our report explains the matters in more detail and also describes the specific procedures we performed in response
to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
– reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with
provisions of relevant laws and regulations described as having a direct effect on the financial statements;
– enquiring of management, the Audit Committee and in-house legal counsel concerning actual and potential litigation
and claims;
– performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
– reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
correspondence with regulatory bodies such as the Prudential Regulation Authority, the Financial Conduct Authority
and HMRC; and
– in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential
bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course
of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Independent auditor’s report to the members of Provident Financial plc continued
Provident Financial plc Annual Report and Financial Statements 2021
269
Financial statements
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
– the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and the parent company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance
Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
– the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any
material uncertainties identified set out on page 101;
– the directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the
period is appropriate set out on page 101;
– the directors’ statement on fair, balanced and understandable set out on page 168;
– the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 125;
– the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems
set out on page 155; and
– the section describing the work of the Audit Committee set out on pages 153 to 157.
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– 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
– the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. 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 in respect of this matter.
Provident Financial plc Annual Report and Financial Statements 2021
270
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the directors on 29 June 2012 to audit the
financial statements for the year ended 31 December 2012 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is 10 years, covering the years ended 31 December 2012
to 31 December 2021.
15.2. Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance
with ISAs (UK).
16. Use of our report
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.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial
statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National
Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard (ESEF RTS). This Auditor’s Report
provides no assurance over whether the Annual Financial Report has been prepared using the single electronic format specified
in the ESEF RTS.
Matthew Perkins (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
6 April 2022
Independent auditor’s report to the members of Provident Financial plc continued
Provident Financial plc Annual Report and Financial Statements 2021
271
Financial statements
Alternative performance measures
In addition to statutory results and key performance indicators (KPIs) reported under International Financial Reporting Standards
(IFRS), the Group provides certain alternative performance measures (APMs). These APMs are used internally by management
and are also deemed helpful in understanding the Group’s performance. These non-statutory measures should not be considered
as replacements for IFRS measures. The definition of these non-statutory measures may not be comparable to similarly titled
measures reported by other companies. All the below APMs are on continuing operations basis.
APM Method of calculation Relevance
Adjusted profit
before tax –
continuing
operations
A reconciliation of adjusted profit before tax to statutory profit before tax for
continuing operations, is shown below:
Year ended 31 December
2021 2020
Continuing
operations
Adjusted
£m
Exceptionals
£m
Amortisation
£m
Statutory
£m
Adjusted
£m
Exceptionals
£m
Amortisation
£m
Statutory
£m
Revenue 534.6 — — 534.6 615.4 — — 615.4
Finance costs (49.1) (3.9) — (53.0) (61.2) 1.3 — (59.9)
Net interest
margin 485.5 (3.9) — 481.6 554.2 1.3 — 555.5
Impairment (50.4) — — (50.4) (312.6) — — (312.6)
Risk-adjusted
net interest
margin 435.1 (3.9) — 431.2 241.6 1.3 — 242.9
Operating costs
(267.3) (14.2) (7.5) (289.0) (213.8) (58.6) (7.5) (279.9)
Profit/(loss)
before tax 167.8 (18.1) (7.5) 142.2 27.8 (57.3) (7.5) (37.0)
– Credit cards 173.9 39.5
– Vehicle
finance 28.9 10.9
– Personal
loans (8.7) (1.5)
– Central costs (26.3) (21.1)
Adjusted profit
before tax 167.8 27.8
Adjusted profit before tax for continuing operations is stated before £7.5m
(2020: £7.5m) of amortisation in respect of acquisition intangibles established
as part of the acquisition of Moneybarn in August 2014 and exceptional items.
Exceptional items in 2021 represent net exceptional charges of £18.1m
(2020: £57.3m) and comprise:
2021
£m
2020
£m
Corporate costs including CCD closure (11.5) —
CCD Scheme of Arrangement costs and provision (note 26) (5.0) (65.0)
(Costs)/gain in respect of the redemption of bonds (note 4) (3.9) 1.3
Pension credit/(charges) (note 20) 2.3 (0.7)
Release of provisions in respect of ROP refund programme (note 26) — 8.3
Costs in respect of the new intermediate holding company (note 19) — (1.2)
Total exceptional items (18.1) (57.3)
Adjusted profit before tax for
continuing operations excludes
the impact of amortisation of
acquisition intangibles and
exceptional items and is used
to provide further clarity on the
ongoing, underlying financial
performance of the divisions
and Group.
Provident Financial plc Annual Report and Financial Statements 2021
272
APM Method of calculation Relevance
Net interest
margin (NIM)
1
Revenue less funding costs, excluding exceptional items, divided
by the average receivables.
2021
£m
2020
£m
Total revenue 534.6 615.4
Finance costs (49.1) (61.2)
NIM 485.5 554.2
Average receivables 1,616.0 1,767.1
NIM (%) 30.0% 31.4%
This measure shows the returns
generated from customers to allow
comparison to other banks and
banking groups.
Risk-adjusted
net interest
margin
1
NIM less impairment, excluding exceptional items, divided
by average receivables.
2021
£m
2020
£m
NIM 485.5 554.2
Impairment (50.4) (312.6)
Risk-adjusted NIM 435.1 241.6
Average receivables 1,616.0 1,767.1
Risk-adjusted NIM (%) 26.9% 13.7%
This measure shows the
returns from customers after
impairment charges.
Adjusted basic
earnings per
share (EPS)
Profit after tax, excluding the amortisation of acquisition intangibles and
exceptional items, divided by the weighted average number of shares
in issue (see note 7 for more details).
This is used to assess the
Group’s operational performance
from continuing operations per
ordinary share. It removes the
effect of amortisation of acquisition
intangibles and exceptional items.
Average
receivables
1
Average of receivables for the period ended 31 December.
2021
£m
2020
£m
Credit cards 1,003.3 1,207.4
Vehicle finance 593.8 533.1
Personal loans 18.9 26.6
Total average receivables 1,616.0 1,767.1
This is used to smooth the
seasonality of receivables across
the divisions in calculating
performance KPIs.
Cost:income
ratio
1
Operating costs as a percentage of net interest margin.
2021
£m
2020
£m
Net interest margin 485.5 554.2
Operating costs (267.3) (213.8)
Cost:income ratio 55.1% 38.6%
This ratio is a measure of the efficiency
of the Group’s cost base.
1 APMs related to continuing operations.
Alternative performance measures continued
Provident Financial plc Annual Report and Financial Statements 2021
273
Financial statements
APM Method of calculation Relevance
Adjusted return
on assets (ROA)
1
Adjusted profit before interest after tax as a percentage of average
receivables.
2021
£m
2020
£m
Adjusted profit before tax 167.8 27.8
Interest 49.1 61.2
Adjusted profit before interest and tax 216.9 89.0
Tax (charge)/credit (30.6) 5.8
Adjusted profit before interest after tax 186.3 94.8
Average receivables 1,616.0 1,767.1
ROA 11.5% 5.4%
This measures the return a
company generates from its assets
prior to the impact of funding
strategy for each division.
Adjusted return
on equity (ROE)
1
Adjusted profit after tax as a percentage of average equity. Equity is stated
after deducting the Group’s pension asset, net of deferred tax, and the fair
value of derivative financial instruments, net of deferred tax.
2021
£m
2020
£m
Adjusted profit before tax 167.8 27.8
Tax (charge)/credit (23.7) 1.8
Adjusted profit after tax 144.1 29.6
Average adjusted equity 564.5 624.4
ROE 25.5% 4.7%
Average equity
2021
£m
2020
£m
Equity as per balance sheet 631.2 647.7
Pension asset (112.2) (79.7)
Deferred tax on pension asset 28.0 15.1
Derivative financial instrument (3.1) 1.3
Deferred tax on derivative financial instrument 0.8 (0.2)
Adjusted equity 544.7 584.2
Opening adjusted equity 584.2 664.6
Average adjusted equity 564.5 624.4
ROE shows the return being
generated from the shareholders’
equity retained in the business.
Adjusted return
on required
equity (RORE)
1
Adjusted profit after tax divided by the Group’s average PRA regulatory
capital requirement including PRA buffers for the period.
2021
£m
2020
£m
Adjusted profit before tax 167.8 27.8
Tax (charge)/credit (23.7) 1.8
Adjusted profit after tax 144.1 29.6
Average equity requirement 442.6 471.9
RORE 32.6% 6.3%
Average equity requirement
2021
£m
2020
£m
Equity requirement 440.3 444.8
Opening equity requirement 444.8 499.0
Average equity requirement 442.6 471.9
This demonstrates how well the
Group’s returns are reinvested
and is an indicator of its growth
potential.
Provident Financial plc Annual Report and Financial Statements 2021
274
Alternative performance measures continued
APM Method of calculation Relevance
Adjusted return
on tangible
equity (ROTE)
1
Adjusted profit after tax, divided by average tangible equity. Average
tangible equity reflects average equity over the period less intangible assets
and goodwill.
2021
£m
2020
£m
Adjusted profit before tax 167.8 27.8
Tax (charge)/credit (23.7) 1.8
Adjusted profit after tax 144.1 29.6
Average tangible equity 519.5 572.6
ROTE 27.7% 5.2%
Average tangible equity £m £m
Equity as per balance sheet 631.2 647.7
Intangible assets (52.3) (45.3)
Goodwill (71.2) (71.2)
Tangible equity 507.7 531.2
Opening tangible equity 531.2 614.0
Average tangible equity 519.5 572.6
This demonstrates how well the
Group’s returns are generated from
its tangible equity, removing the
impact of whether development
has occurred through organic
or inorganic growth.
Funding
headroom
Committed bank and debt facilities less borrowings on those facilities
and amounts committed to further syndicated bank facility reduction,
plus available cash and liquid resources (see note 22(j) for more details).
This represents the difference
between the total amount of
committed contractual debt
facilities provided by banks, bond
holders and other lenders and the
amount of funds drawn on those
facilities plus cash held on deposit.
Liquidity Liquidity is the sum of all liquid resources held by Vanquis Bank Limited in the
Bank of England reserve account, cash held with relationship bank (net of
restricted funds) and available undrawn committed borrowing facilities.
Customer
satisfaction
The rate at which surveyed customers were satisfied (or more than satisfied)
with the service they have been provided.
Common equity
tier 1 (CET1) ratio
The ratio of the Group’s CET1 to the Group’s risk-weighted assets measured
in accordance with the CRR (see page 210 for more details).
The CET1 Ratio is a key measure of
weather a firm has adequate CET1
to cover the risks associated with
its assets.
Total capital
ratio (TCR)
The ratio of the Group’s total regulatory capital (own funds) to the Group’s
risk-weighted assets measured in accordance with the CRR.
The Total Capital Ratio is a key
measure of whether a firm has
adequate total regulatory capital
to cover the risks associated with
its assets.
Regulatory
capital
Common Equity Tier 1 capital (CET1) is the sum of the Group’s equity as
calculated in accordance with IFRS, an accrued foreseeable dividend and
regulatory adjustments. Tier 2 is the sum of capital instruments meeting the
criteria for Tier 2 as set out in the Capital Requirements Regulation (CRR). Total
available regulatory capital is the sum of these two elements for the Group
(as the Group does not hold any Additional Tier 1 instruments). The calculation
is set out under Capital Risk Management on page 210.
Provident Financial plc Annual Report and Financial Statements 2021
275
Shareholder information
Glossary
3LOD Three lines of defence
ABS Asset-backed security
AGM Annual General Meeting
APR Annual percentage rate
BOE Bank of England
CBI Central Bank of Ireland
CCD Consumer Credit Division
CCE Customer, Culture
and Ethics Committee
CDP Carbon Disclosure Project
CEM Customer Experience Managers
CEO Chief Executive Officer
CET1 Common equity tier 1
CFO Chief Finance Officer
CHRO Chief Human Resources Officer
CJRS
Coronavirus Job Retention Scheme
CLI Credit line increase
CMC Claims management company
CPA Continuous Payment Authority
CPC Corporate Planning Conference
CRD Capital Requirements Directive
CRO Chief Risk Officer
CRR Capital Requirements Regulation
CSOP Company Share Option Plan
CR Corporate responsibility
DAM Delegated Authorities Manual
DBP Deferred Bonus Plan
DJSI Dow Jones Sustainability
World World Indices
DPO Data Protection Officer
DRP Directors’ Remuneration Policy
DRR Directors’ Remuneration Report
DT Default termination
DTR Disclosure Guidance and
Transparency Rules
DWF Discount Window Facility
EAD Exposure at default
EAP Employee Assistance Programme
EBT Employee Benefit Trust
ECL Expected credit losses
EIR Effective interest rate
EMS Environmental
Management System
EMTN European Medium Term Notes
EPS Earnings per share
ERMF Enterprise Risk
Management Framework
ESG Environmental, Social and
Corporate governance
EWI Early warning indicators
FCA Financial Conduct Authority
FLCR First Line Controls Review
FOS Financial Ombudsman Service
FY Financial year
GERC Group Executive Risk Committee
GM General Meeting
HMRC Her Majesty’s Revenue
and Customs
HQLA High-quality liquid assets
HR Human Resources
IAS International
Accounting Standards
ICAAP Internal Capital Adequacy
Assessment Process
IFRIC International Financial Reporting
Interpretations Committee
IFRS International Financial
Reporting Standards
ILAAP Internal Liquidity Adequacy
Assessment Process
KPI Key performance indicators
LBT Loss before tax
LCR Liquidity coverage ratio
LGD Loss given default
LIBOR London Inter-bank Offered Rate
LSO Liquidity Support Operations
LTIS Long Term Incentive Scheme
MB Moneybarn
MP Member of Parliament
NEET Not in Education, Employment
or Training
NHS National Health Service
NIM Net interest margin
OCI Other comprehensive income
ORB Order Book for Retail Bonds
PBT Profit before tax
PD Probability of default
PFEP Provident Financial Equity Plan
PFG Provident Financial Group plc
PFH Provident Financial Holdings
PFMSL Provident Financial Management
Services Limited
PRA Prudential Regulation Authority
PSD2 Payment Services Directive
PSP Performance Share Plan
RAF Risk appetite framework
RAM Risk-adjusted margin
RBA Role-based allowance
RC Risk Committee
RCF Revolving credit facility
RemCo Remuneration Committee
RMF Risk Management Framework
ROE Return on equity
ROP Release of provisions
RORE Return on required equity
ROTE Return on tangible equity
RSP Restricted Share Plan
RTO Return to office
SAYE Save As You Earn
SDG Sustainable Development Goal
SICR Significant increase in credit risk
SID Senior Independent Director
SIP Social Impact Programme
SIP Share Incentive Plan
SMCR Senior Managers and
Certification Regime
SMF Sterling Monetary Framework
SONIA Sterling Overnight Index Average
TCFD Task Force on Climate-related
Financial Disclosures
TFSME Term Funding Scheme with
additional incentives for Small
and Medium-sized Enterprises
TSR Total shareholder return
UN United Nations
UURBS Unfunded Unapproved
Retirement Benefits Scheme
VBC Vanquis Bank cards
VLOG Video log
VREQ Voluntary Requirements Notice
VT Voluntary termination
Provident Financial plc Annual Report and Financial Statements 2021
276
Information for shareholders
Share price
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 the Group’s website at www.providentfinancial.com.
Tax on dividends
The following information is intended to provide general
guidance to individuals who are tax resident in the UK. It does
not constitute professional advice. Shareholders who are in
any doubt as to their personal tax position should seek their
own professional advice, as should shareholders who are not
resident in the UK.
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 annual tax-free dividend allowance
at the following rates:
– 7.5% for basic rate taxpayers;
– 32.5% for higher-rate taxpayers; and
– 38.1% for additional rate taxpayers.
The dividend allowance means that you can receive
certain amounts of dividends tax free no matter what other
non-dividend income you have in the tax year. The dividend
allowance for the tax years from 2015/16 to 2016/17 was £5,000.
This allowance was reduced to £2,000 from the 2018/19 tax
year onwards.
From April 2022 the rate of tax on dividends will
increase by 1.25%.
Registrar
The Company’s registrar is:
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Shareholder helpline
For information relating to your shares call:
+44 (0)371 664 0300
Website helpline
For information on using our website call:
+44 (0)371 664 0391
Calls to 0371 are charged at the standard geographic rate
and will vary by provider.
Calls outside the United Kingdom are charged at the
applicable international rate.
We are open between 9.00am and 5.30pm, Monday to Friday
excluding public holidays in England and Wales.
Link Signal Hub
Link Asset Services offers a share portal service which
enables registered shareholders to manage their Provident
Financial plc 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.linksignalhub.com.
Link Dividend Reinvestment Plan
Link Asset Services offers a Dividend Reinvestment Plan
whereby shareholders can acquire further shares in the
Company by using their cash dividends to buy additional
shares. For further information contact Link Asset Services:
Telephone: 0371 664 0381 (from within the UK)
Calls are charged at the standard geographic rate and will
vary by provider. Calls outside the UK will be charged at the
applicable international rate. Lines are open between 9.00am
and 5.30pm, Monday to Friday excluding public holidays
in England and Wales.
Telephone: +371 664 0381 (from outside the UK)
Special requirements
A PDF version of the full Annual Report and Financial
Statements is available on our website.
Provident Financial plc’s commitment to environmental issues is reflected in this Annual Report, which has been
printed on Symbol Matt Plus, an FSC
®
certified material. This document was printed by Park Communications using its
environmental print technology, which minimises the impact of printing on the environment. Vegetable-based inks
have been used and 99% of dry waste is diverted from landfill. The printer is a CarbonNeutral
®
company. Both the printer
and the paper mill are registered to ISO 14001.
Advisors
Independent auditor
Deloitte LLP
4 Brindley Place
Birmingham
B1 2HZ
Company advisors
and stockbrokers
Barclays
1 Churchill Place
Canary Wharf
London
E14 5HP
Numis Securities Limited
10 Paternoster Square
London
EC4M 7LT
Fenchurch Advisory
Partners LLP
110 Bishopsgate
London
EC2N 4AY
Solicitors
Clifford Chance LLP
10 Upper Bank Street
London
E14 5JJ
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London
EC2A 2EG
Addleshaw Goddard LLP
Milton Gate
60 Chiswell Street
London
EC1Y 4AG
TLT LLP
1 Redcliff Street
Bristol
BS1 6TP
Company details
Registered office
and contact details:
Provident Financial plc
No. 1 Godwin Street
Bradford
West Yorkshire
England
BD1 2SU
Telephone:
+44 (0)1274 351 351
Fax:
+44 (0)1274 730 606
Website:
www.providentfinancial.com
Company number
668987
Provident Financial plc’s commitment to environmental issues is reflected in this Annual Report, which has been
printed on Symbol Matt Plus, an FSC
®
certified material. This document was printed by Park Communications using its
environmental print technology, which minimises the impact of printing on the environment. Vegetable-based inks
have been used and 99% of dry waste is diverted from landfill. The printer is a CarbonNeutral
®
company. Both the printer
and the paper mill are registered to ISO 14001.
Advisors
Independent auditor
Deloitte LLP
4 Brindley Place
Birmingham
B1 2HZ
Company advisors
and stockbrokers
Numis Securities Limited
10 Paternoster Square
London
EC4M 7LT
Barclays
1 Churchill Place
Canary Wharf
London
E14 5HP
Solicitors
Clifford Chance LLP
10 Upper Bank Street
London
E14 5JJ
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London
EC2A 2EG
Addleshaw Goddard LLP
Milton Gate
60 Chiswell Street
London
EC1Y 4AG
TLT LLP
1 Redcliff Street
Bristol
BS1 6TP
Company details
Registered office
and contact details:
Provident Financial plc
No. 1 Godwin Street
Bradford
West Yorkshire
England
BD1 2SU
Telephone:
+44 (0)1274 351 351
Fax:
+44 (0)1274 730 606
Website:
www.providentfinancial.com
Company number
668987
CBP011648
Provident Financial plc
No. 1 Godwin Street
Bradford
BD1 2SU
United Kingdom
+44 (0)1274 351 351
www.providentfinancial.com
Company number 668987
View and download
the online version here:
www.providentfinancial.com/
shareholder-hub/annual-report-2021
Provident Financial plc Annual Report and Financial Statements 2021
Provident Financial plc Annual Report and Financial Statements 2021