Poland - Provident Financial

Merrill Lynch
Speciality Finance Conference
25 November 2002
International Development
Provident Financial
Group strategy
> UK home credit: good returns, strong cashflow but relatively mature
> Potential from the export of home credit to new markets
> Target combined pre-tax profit of £75m p.a from our Polish and Czech
businesses within 5 years
> Established pilot operations in Hungary and Slovakia in 2001 and
announced full roll out in July this year
> Further countries intended for 2003 and beyond
> International expansion is a key element of strategy for future growth
Provident Financial
Vital statistics
> 2001 profit before tax:
£170 million
> Market capitalisation:
£1.7 billion
> Business sectors:
Unsecured consumer lending
Motor insurance underwriting
> Customers:
3.5 million customers
Provident Financial
International business
2001
Provident Financial
What is home credit?
Provident Financial
What is home credit?
>
•
>
•
>
•
Small unsecured, cash loans
Small unsecured, cash loans
Delivered and collected in the home
Delivered and collected in the home
Service provided by self-employed agents
Service provided by self-employed agents
>• Weekly
repayment
Weekly
repayment
>• Woman
to woman
Woman
to woman
>• Fixed
charges
Fixed
charges
>• Simple
andand
convenient
Simple
convenient
Provident Financial
Uses of home credit
> Balancing the household budget
> Holiday spending money
> Christmas presents
> School expenses for children
Provident Financial
International home credit
> Poland
> Czech Republic
> Hungary
> Slovakia
Provident Financial
International home credit
Poland
Population (million)
Czech Hungary Slovakia
Total
39
10
10
5
64
Estimated market size (000)
2,000
500
500
250
3,250
Target customers (000)
1,000
250
250
125
1,625
Current customers (000)
576
209
33
15
844
Target annual credit issued per
customer (£)
400
400
400
270
390
60
60
60
40
58
Target annual profit
per customer (£)
Poland
Targets
> Population
39 million
> Estimated market size
2 million
> Customers
1 million
> Target annual credit issued per customer
> Target annual profit per customer
£400
£60
Poland
Poland
Progress towards targets
Target
June 2002
Estimated market size
2 million
2 million
Customers
1 million
561,000
£400
£346
£60
£21
Annual credit issued per customer
Annual profit per customer
Poland
Progress towards targets
Year to 30 June: £m
Target
2002
Gap
Credit issued
400.0
169.1
230.9
Revenue
220.0
88.7
131.3
Agent commission
-
(14.2)
-
Interest
-
(12.6)
-
Bad debt
-
(15.8)
-
160.0
(35.8)
78.4
81.6
60.0
10.3
49.7
Expenses
Total costs
Profit
Poland
Poland
Key performance drivers
> Customer growth
Customer growth:
Issue per
per customer
customer:
> Issue
561,000
561,000
£346
£346
Gross revenue margin: 52%
Costs as
% of revenue:
> Gross
revenue
margin 88% 52%
> Costs as % of revenue
Ö
88%
Ö
ÖÖ
1,000,000
1,000,000
£400
£400
Ö
55%
Ö
Ö73%
55%
Ö
73%
Poland
Customer growth: the market
> The market
> 2 million potential market
> Target segments
> Target segments
> Competition
> Competition
Poland
Customer growth: customer numbers (000’s)
305
0.4
3
10
32
72
416
576
504 561
164
Dec 97 Jun 98Dec 98 Jun 99 Dec 99 Jun 00 Dec 00 Jun 01Dec 01 Jun 02 Aug 02
Poland
Issue per customer
> Target increase
£346 Ö £400
> Typical first loan issue value
£164
> Average re-serve issue value
£237
> Target loans per customer
2 loans per year
> Currently
1.7 loans per year
> Introduction of multiple loans
Poland
Marketing materials
Poland
Polish TV campaign December 2001
Poland
Gross revenue margin
26-week
(zloty)
750
39-week
(zloty)
1,100
52-week
(zloty)
1,600
379
723
1,179
Gross revenue margin
50.5%
65.7%
73.7%
Total amount payable
1,129
1,823
2,779
Weekly rate
43.43
46.75
53.44
Typical loan amount
Charges
Poland
Poland
Costs
Costs as % of revenue
12 months to June 2002
UK
Commission
23
16
-
Bad debt
17
18
-
Expenses
24
40
-
4
11
-
68
85
73
14
N/A
Interest - like for like*
Total
*Interest - reported
4
Poland
Target
Poland
Bad debt as a percentage of credit issued
9.3
7.5
5.9
2.8
4.2
3.5
4.3
3.9
Dec 98 Jun 99 Dec 99 Jun 00 Dec 00
Jun 01 Dec 01 Jun 02
Poland
Expenses
%
Employee related expenses
61
Marketing and PR
10
Infrastructure costs
29
Total
100
Poland
Employee-related costs: employee numbers
1,505 1,594 1,597 1,599
800
23
23
78
206
1,048
326
Dec 97 Jun 98 Dec 98 Jun 99 Dec 99 Jun 00 Dec 00 Jun 01 Dec 01 Jun 02 Aug 02
Poland
Infrastructure costs: branches
33
1
1
3
7
41
51
53
54
10
Dec 97 Jun 98 Dec 98 Jun 99 Dec 99 Jun 00 Dec 00 Jun 01 Dec 01 Aug 02
Poland
Infrastructure costs: current locations
Wejherowo
Lę bork
Gdynia
Koś cierzyna
Gdań sk
Sł upsk
Koł obrzeg
Gryfice
Ś winoujś cie
R2
Koszalin
Malbork
Starogard Gd.
DrawskoPomorskie
Szczecinek
Zł otów
Stargard
Szczeciń ski
Szczecin
Gorzów R1
Wielkopolski
Kostrzyn
Strzelce
Krajeń skie
Oborniki
Ś wiebodzin
4
Krosno Odrz.
Ż ary
1
Nowa Sól
R9
Gostynin
Kł odawa
Lubin
Ostrów Wlkp.
Rawicz
R10
Trzebnica
Legnica Wrocł aw
Syców
Jelenia
Zgorzelec
Jelcz
Ś widnica Laskowice
Gryfów- Góra
Jawor
Bolesł awiec
Ś l.
Strzelin
Brzeg
Opole
Ostrów Maz.
Zambrów
Bielsk Podl. Hajnówka
Pł oń sk
Kutno Łowicz Ż yrardów
Otwock Maz. Ł uków
Ł ódź Skierniewice Grodzisk Maz. Piaseczno
R8
Zgierz
Garwolin
Grójec
Brzeziny
R11
Zduń ska Wola
Tomaszów Maz.
Rawa Maz.
Piotrków Tryb.
Beł chatów R12 Opoczno
Wieruszów Wieluń
R14
Gliwice
Zabrze
Ruda Ś l.
Knurów
R18
Katowice
Racibórz
Rybnik
Zawiercie
Bę dzin
Chorzów
R17
Olkusz
Sosnowiec
Jaworzno
Mysł owice
Oś wię cim
Tychy
Żory
Jastrzę bie
Zdrój Cieszyn
Ż ywiec
Nowy
Targ
Starachowice
Busko Zdrój
R15
Krasnystaw
Kraś nik
Tarnów
Bochnia
Nowy
Są cz
3
Mielec
Kraków
Chrzanów
Bielsko-Biał a
Biał a
Podlaska
Puł awy
Ostrowiec Sandomierz
Ś w.
Stalowa Wola
Koniecpol
Bytom
Pionki
Branches
Interview rooms
Lublin
Skarż yskoKamienna
Kielce
Czę stochowa
Kluczbork
Lubliniec
R7
Radom
Koń skie
Radomsko
Wał brzych
Tarnowskie Góry
Dzierż oniów
Kamienna Góra
Kę dzierzyn K.
Nysa
Nowa-Ruda
Kł odzko
Przasnysz
Biał ystok
Turek
Łę czyca
Kalisz
Leszno
Gł ogów
Konin
Jarocin
Ł omż a
Ostroł ę ka
Ciechanowiec
Ciechanów
Puł tusk
R6 Legionowo Wyszków
Siemiatycze
Sokoł ów
Pł ock
Warszawa Radzymin Podl.
Woł omin
Sochaczew
Sulejówek
Siedlce
Pruszków
Miń sk
Sierpc
Wł ocł awek
Gniezno
Sokół ka
Moń ki
Racią ż
Toruń
R3
Pisz
Szczytno
Mł awa
2
Augustów
Eł k
Nidzica
Żuromin
Inowrocł aw
Ś rem
R19
Brodnica
Ś wiecie
Poznań R4
Nw. Tomyś l
Zielona
Góra
R5
Giż ycko
OlsztynMrą gowo
Ił awa Dział dowo
Grudzią dz
Bydgoszcz
Pił a
Pyrzyce
Chojnice
Pasł ę k
Ostróda
Suwał ki
Olecko
Lidzbark Warm.
Kę trzyn
Elblą g
Kwidzyn
Goleniów
Bartoszyce
Braniewo
Tczew
R13
Zamoś ć
Tomaszów
Lubelski
Jarosł aw
Rzeszów
Krosno
Cheł m
Przemyś l
Poland
Marketing and public relations costs
> 10% of overheads
> Similar cost per customer going forward
Poland
Expenses summary
> 40%
of gross
> 40%
of revenue
gross revenue
> Nearly
80%
relatively fixed in nature
> Relatively
fixed
in nature
> Target
of gross revenue
> Target
of 24%ofis73%
achievable
Poland
Costs and profit as a % of revenue
200
153
150
141
111
97
100
50
-11
0
-50
-100
D 99
-53
J 00
-41
D 00
91
3
9
J 01
D 01
88
12
J 02
Costs*
Profit
Poland
The future
> Build on successes
> Target of 1 million customers
> Target of £400 annual issue per customer
> Controlled growth
> Target of £60 pre-tax profit per customer per annum
Czech Republic
Targets
> Population
10 million
> Estimated market size
500,000
> Customers
250,000
> Target annual credit issued per customer
> Target annual profit per customer
£400
£60
Poland
Czech Republic
Progress towards targets
Target
June 2002
Estimated market size
500,000
500,000
Customers
250,000
206,000
£400
£309
£60
£19
Annual credit issued per customer
Annual profit per customer
International home credit
Central European market potential
Poland
Population (million)
Czech Hungary Slovakia
Total
39
10
10
5
64
Estimated market size (000)
2,000
500
500
250
3,250
Target customers (000)
1,000
250
250
125
1,625
Current customers (000)
576
209
33
15
844
Target annual credit issued per
customer (£)
400
400
400
270
390
60
60
60
40
58
Target annual profit
per customer (£)
International home credit
Central European market potential
> UK home credit model can be successfully introduced overseas
> Customer and agent relationship similar in all countries
> Good quality, well educated workforce essential
> Key early skills: recruitment, training, advertising, brand building
> Simple, distributed IT systems a strength
> As arrears work builds, added support and training needed
> Need to balance growth, costs and bad debt
International home credit
Lessons learned
> New country development draws heavily on central resources
> Staged, low risk approach is best
> Early introduction of a full management team covering all functions
aids development
> “In country” research is most valuable
> Pilot operation is best indicator of market dynamics
International home credit
Country selection: where next?
> Rule of law
> Relatively stable economy
> Safe to lend and collect
> Urbanised
> Can be funded in local currency
> Well educated workforce
> Sufficient potential
International home credit
Country selection: the future
> Eastern European countries not yet suitable
> Potential in Western Europe
> Potential further afield
> Low risk entry approach preferred
International home credit
The future
> Entered Hungary and Slovakia during 2001-progressing well
> Outstanding opportunities for further expansion-2003 onwards
> We will maintain our risk controlled approach
> Excellent prospects for generating additional shareholder value