More annual reports from Provident Financial:
2020 ReportPeers and competitors of Provident Financial:
SGOCO Group, Ltd.We help put people
on a path to a better
everyday life
Provident Financial plc
Annual Report and Financial
Statements 2020
Our strategic roadmap
Purpose
We help to put people on a path to a better everyday life
Read more on pages 8 to 11
Blueprint strategic drivers
Customer
progression
Human
experiences
Head
AND heart
decisions
Fighting fit
Our behaviours
Be hungry for better
Put the customer
on the team
Act like it’s yours
Our strategy
Grow customer-centric
businesses
Act responsibly
and with integrity
Maintain a secure funding
and capital structure
Read more on pages 20 to 24
Our sustainability strategy
Operating our business
of lending to our customers
in a responsible manner
Acting responsibly and sustainably
in all our stakeholder relationships
Read more on pages 30 and 70
Visit: www.providentfinancial.com
View: Corporate Responsibility
Report at www.providentfinancial.
com/sustainability/corporate-
responsibility-report-2020
C
Provident Financial plc Annual Report and Financial Statements 2020
At a glance
2.1m
£1.8bn
£674.8m
Customer numbers
(2019: 2.3m)
Amounts receivable
from customers
(2019: £2.2bn)
Regulatory capital
(2019: £697.2m)
£1.0bn
(£47.1m)1
(£113.5m)2
100%
Liquidity
(2019: £0.4bn)
Loss before tax
(2019: Adjusted profit £152.8m)
(2019: Statutory profit £119.0m)
Operational carbon
footprint offset
(2019: 100%)
At a glance
Chairman’s statement
Strategic report
1
2
4 Group overview
6 Covid-19 response
8 Our Purpose
12 Chief Executive Officer’s review
15 Chief Finance Officer’s Q&A
Investment case
17
18 Business model
20 Strategy
25 Key performance indicators
28 CCD operational review
30 PFG’s contribution to the SDGs
34 Market overview
38 Credit Card Division
42 Vehicle Finance Division
44 Consumer Credit Division
48 Risk management and principal risks
62 Relations with regulators
63 Viability statement
64 Financial review
70 Sustainability
91
Section 172
1 Adjusted
2 Statutory
Governance
99 Board leadership
and Company Purpose
99 Chairman’s introduction
102 Our Board
106 Setting our strategy
108 Promoting long-term sustainable
111
success: Board activities
The Board: steering our culture
and uniting our colleagues
113 Stakeholders and investor relations
113 How we engage effectively
with our stakeholders
114 Listening to our colleagues
116 Effective engagement with
shareholders and stakeholders:
investor relations
118 Division of responsibilities
123 Composition, succession
and evaluation
123 Board composition
124 Induction for new directors
125 Board evaluation
127 Nomination Committee Report
131 Customer, Culture and Ethics
Committee Report
133 Audit, risk and internal control
133 Audit Committee Report
138 Risk Committee Report
141 Directors’ Report
Directors’ Remuneration Report
148 Annual Statement by the Chair
of the Remuneration Committee
153 Remuneration at a glance
155 Directors’ Remuneration Policy
160 Annual Report on Remuneration
Financial statements
173 Consolidated income statement
173 Consolidated statement
of comprehensive income
173 (Loss)/earnings per share
173 Dividends per share
174 Balance sheets
175 Statements of changes
in shareholders’ equity
177 Statements of cash flows
178 Statement of accounting policies
186 Financial and capital risk management
191 Notes to the financial statements
235 Independent auditor’s report
245 Alternative performance measures
Shareholder information
247 Glossary
248 Information for shareholders
Certain alternative performance
measures (APMs) have been used
in this report (see pages 245 and 246)
Provident Financial plc Annual Report and Financial Statements 2020
1
Strategic report
Chairman’s statement
We help...
create a vision for 2021
Introduction
We have seen unprecedented levels of disruption and hardship
for many people during 2020. The Board and the Executive
Management team responded quickly to the challenges of
Covid-19 to ensure that we could continue to supply the vital
support our customers require, whilst safeguarding our
colleagues and ensuring their wellbeing.
Despite the Covid-19 crisis, we were able to make good
progress against the strategic objectives which we set out at
our Capital Markets Day in November 2019 including product
development and striving towards making our funding
structure as efficient as possible.
Covid-19
With the onset of Covid-19 during the first quarter, 2020 was
very challenging for a lot of people and the vast majority of
companies. As the UK Government placed the whole country
into lockdown on 23 March, the Executive Management team
at PFG made swift and effective decisions that positioned
the business well for the remainder of the year and beyond.
Remote working was introduced, including the provision of
several hundred laptops, and new ways of providing credit
to our customers were rolled out ahead of plan.
The financial impact of Covid-19 on the Group has been profound
and, sadly, it has not ceased at the end of 2020. As a result, the
Board took the very difficult decision to withhold the final dividend
payment with respect to our 2019 financial year, in order to
preserve our balance sheet strength given the overwhelming
uncertainty facing the UK economy. We are not proposing to
pay a dividend for our 2020 financial year either. However, it is
absolutely the Board’s intention to resume paying a dividend to
our shareholders as soon as operating conditions normalise.
Our Consumer Credit Division
In March 2021, we informed the market of our intention to
launch a Scheme of Arrangement in order to address the
issue of rising volumes of customer complaints in our home
credit business. The Board felt this was the best option to protect
the interests of all our stakeholders, including our customers,
and the most effective way to protect the Group’s wider interests
moving forward. In addition, we have taken the difficult decision
to stop serving the home credit market and move towards
closing that business over the course of 2021.
This decision was not taken lightly, and the Board undertook a
significant amount of consideration before reaching this conclusion.
In recent years, the home credit market has shrunk significantly,
reflecting changing customer preferences. The Board felt that it
would be in the best interests of our shareholders to focus on larger
market segments, including our existing sub- and near-prime
credit card and vehicle finance products, as well as new
segments including the unsecured personal loan market.
Our shareholders
We maintained a regular dialogue with our shareholders
throughout 2020 which has, in many ways, been more important
to do than ever. Issues of environmental, social and corporate
governance (ESG) are forming central parts of investment cases
for many of our largest shareholders. PFG has a sustainable,
responsible business strategy which aims to put the customer
at the heart of everything we do. Please see our Corporate
Responsibility section for more details on pages 70 to 90.
As I reflect on how difficult 2020 was
for so many people, I am extremely
proud of how all colleagues across PFG
responded. We continued to support
our customers through very challenging
circumstances, whilst not losing sight
of our strategic objectives. This focus
leaves us well positioned for the
year ahead.
Patrick Snowball
Chairman
2
Provident Financial plc Annual Report and Financial Statements 2020
Our investor relations programme for 2020 was put on hold and
all our shareholder meetings were conducted virtually. As and
when conditions allow, we plan to be more active in 2021 and
we have plans to attend more broker and industry conferences.
Our governance
The Board is responsible for the effective oversight of the Group
and determines its strategic direction and objectives. We are
committed to the highest possible standards of corporate
governance and delivering long-term, sustainable
shareholder value.
I am delighted to welcome Margot James to the Board. Margot
joined in July 2020, bringing with her a wealth of experience
from both the public and private sectors. Between 2010 and
2019, Margot served as a Member of Parliament and held a
number of ministerial offices. In 1985, she founded Shire Health
Group which provided public relations and medical educational
services to pharmaceutical companies. Margot’s roles in the
public sector provide her with a strong understanding of the
expectations of regulators and other public stakeholders, as
well as strong knowledge of corporate governance, labour
markets and UK 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.
Our people
The Board and I would like to extend our heartfelt gratitude to
Malcolm, the wider management team and everyone at PFG
for their hard work and perseverance during 2020. The fact that
we have been able to continue supporting our customers, whilst
delivering some key strategic objectives, is a significant outcome.
I am pleased to report that our Strategic Blueprint is now
embedded across everything we do at PFG and our Purpose
of helping to put our customers on a path to a better everyday
life is more relevant than ever.
Our Group and divisional Executive Committees have had to
work especially hard during 2020 to help keep colleagues across
the Group motivated during very difficult circumstances.
Towards the start of 2020, Neeraj Kapur joined as CFO and
Gary Thompson joined Vanquis Bank as Finance Director. In
July, David Shrimpton was appointed Managing Director of
Moneybarn, having carried out the role on an interim basis
for a short period and, in September, Hamish Paton joined
Consumer Credit Division (CCD) as Managing Director.
In October, Malcolm Le May, our Group CEO, took a short period
of absence to recuperate from an operation. During this time,
I held the position of Executive Chairman and took over the
day-to-day running of the business. This is reflected in our
Executive Remuneration section on pages 148 to 171.
Outlook
2021 will undoubtedly be another very challenging year as we
start to reshape the Group post-Covid-19 and following our
decision to withdraw from the home credit market.
PFG has provided essential support to some of the most financially
vulnerable in society for over 140 years. This ambition will remain
our principal focus whilst ensuring we return to generating
sustainable shareholder returns.
Patrick Snowball
Chairman
10 May 2021
Chairman’s ESG Q&A
What are your reflections on PFG’s commitment
to managing ESG issues?
Of course, if the Group is to continue to deliver the products
and services that help put our customers on a path to a
better everyday life, we need to be financially sustainable. It
is also clear, however, that there is increasing interest amongst
our stakeholders in the wider role that PFG plays in society.
This is why we have a sustainability strategy which not only
focuses on responsibly serving our customers, but also
underlines our commitment to take action to respond to
climate change. 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. It also ensures that ESG considerations
are regularly discussed and assessed by the Board,
and factored into the way we run the business.
How does the Board stay abreast of the ESG concerns
that are material to the Group’s stakeholders?
One of my first actions when I joined PFG as Chairman
in 2019 was to establish the Board’s Customer, Culture
and Ethics (CCE) Committee. This Committee is chaired by
Non-Executive Director Graham Lindsay and its membership
comprises a mix of other Board non-executive directors
and senior leaders from across the business. By having this
Committee in place, the Board is able to stay up to date of
all material ESG-related developments.
What do you see as being the most pressing ESG
issue for the Board?
ESG issues have risen in prominence for all Boards over the
past 18 months as institutional investors and other stakeholders
have made the link between ESG performance and business
strategy, and its potential to impact the bottom line. And the
events of 2020 have served to further underline the importance
to PFG of playing a role in responding to the key ESG issues,
such as climate change, inequality and poverty, and creating
a truly sustainable business. This is why the Board approved
a number of long-term objectives that are aligned with five
UN Sustainable Development Goals along with PFG’s route
map to meet the recommendations of the Task Force on
Climate-related Financial Disclosures.
How is the Board ensuring that ESG performance
is linked to PFG’s strategy?
In addition to the CCE Committee overseeing the
embedding of our Blueprint, our Remuneration Committee
also ensures that ESG performance aligns with the Group’s
strategic objectives by integrating relevant metrics into the
pay and reward systems for the senior leadership team. This
not only ensures that pay is aligned with delivering strong
financial performance that accords with our Blueprint, but
also helps to hold our senior managers to account for the
delivery of sustainable business goals.
How does PFG engage with its shareholders
on the ESG agenda?
I recognise that shareholder interest in our ESG performance
has increased in recent years, which is why we are committed
to sharing information on our ESG performance, alongside
our financial performance, with the investment community
so investors, analysts and other shareholders can see how
we have, in delivering our business activities, balanced profit
and purpose. We do this by disclosing ESG performance
information in our main corporate reports and presentations,
responding directly to requests for information from investors
and analysts, and by maintaining a presence on specific
investment indices. This enables us to share with the investment
community information on the progress we are making in
terms of delivering our business strategy in accordance with
our Purpose, and on a broader spectrum of issues such as
climate change, inclusion and diversity, and human rights.
Read more in our Corporate Responsibility Report at
www.providentfinancial.com/sustainability/
corporate-responsibility-report-2020
Provident Financial plc Annual Report and Financial Statements 2020
3
Strategic report Group overview
We help...
customers through our
market-leading businesses
As the leader in our chosen market segments, the Group meets the needs of
customers through three divisions: Vanquis Bank, Moneybarn and the Consumer
Credit Division (CCD), supported by a central corporate office. Vanquis Bank
offers a range of credit cards, unsecured personal loans and retail deposits.
Moneybarn offers secured vehicle finance on a range of asset classes, including
cars, motorbikes and light commercial vehicles. CCD offers home credit and
provided short-term online loans through Satsuma until February 2020.
Credit cards
Vehicle finance
Home credit and online loans
1.7m
91,400
311,000
Customers*
Customers*
Customers*
£150–
£4,000
£4,000–
£25,000
£100–
£2,500
Credit card limits
Loan range
Loan range
£1,000–
£5,000
3–5
years
13–104
weeks
Loan range
Loan terms
Loan terms
Read more on pages 42 and 43
Read more on pages 44 to 47
1–3
years
Loan terms
Read more on pages 38 to 41
4
Provident Financial plc Annual Report and Financial Statements 2020
* Customer numbers as at 2020 year end.
We...
understand our customers
The Group is a specialist lender focused on serving the one in five UK adults who are not well served
by mainstream lenders.
Consumers may be not be well served by mainstream lenders
for a multitude of reasons:
– looking to build or rebuild their credit rating; and
– value a more tailored product and service.
– 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;
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
then those of consumers served by mainstream providers,
requiring us to provide a more flexible approach.
Our customers’ typical characteristics
Not working/benefits/part-time and casual
Below national average (£10–15k)
Income
source
Income
levels
Full-time salaried/15–20% self-employed
Around national average (£20–30k)
Rented accommodation/social housing
Housing
Renters/c.20% mortgages
35–64 years
18–34 years
>80%
100%
Typical
age
Bank
account
25–44 years
35–54 years
100%
100%
Limited or no savings
Savings
Some savings for specific goals
Provident Financial plc Annual Report and Financial Statements 2020
5
Strategic report Covid-19 response
Our response
to Covid-19
In Q1’20, the Group faced
significant uncertainty with the
onset of the Covid-19 pandemic.
The uncertain and challenging
times required a reassessment
of the operating model to protect
our stakeholders. The need for the
whole Group to work together
was paramount and this was
delivered seamlessly.
The Covid-19 pandemic has
underlined just how important
technology is in keeping us
connected with our customers.
A great example of this is Provident
Direct. This brought the best in
face-to-face service in lending
with a continuous payment
authority (CPA) then used
for future payments.
Our customers
Our Purpose is to help put customers on a path to a better
everyday life. The relationship with our customers is a
fundamental part of our business. Meeting their needs and
expectations, while keeping colleagues safe, has been the
number one priority through the year.
Prior to the FCA regulations on payment holidays, Moneybarn
took a proactive approach to forbearance and initiated payment
holidays, contacting customers proactively to update them on
how the business was responding to the pandemic. We know
that, for a Moneybarn customer, the monthly repayment is one
of their largest monthly expenses, and that a rapid response
was needed to support our customers. Moneybarn, therefore,
saw the highest proportion of customers requiring support with
approximately 25% of customers immediately taking a payment
holiday at the onset of Covid-19. This moderated to 2% as
customers adapted to their changing financial circumstances
and have predominantly returned to their contractual
repayment profile.
In Vanquis Bank, there was relatively low take-up of payment
holidays for card customers due to the lower minimum monthly
payment required on a credit card. In addition, due to constricted
spend during the pandemic, many customers were actually
able to pay down on their existing debt. Vanquis Bank loan
customers had a higher take-up on payment holidays with
approximately 10% at the start of the pandemic moderating
down to under 5% by the end of the year.
The CCD customer base is more used to budgeting on low
incomes and less sensitive to changes in the macroeconomic
environment. A payment holiday is also a core part of the home
credit business model. Significant changes were therefore not
required in forbearance with only 5% of customers explicitly
being impacted by Covid-19 and requiring support.
The historical success of the home credit business is built on
the unique personal relationships which the Customer Experience
Managers (CEMs) develop with each of their customers over
time. Being able to maintain this relationship when a CEM
could not have a face-to-face relationship was a challenge.
However, several remote methods were created for a customer
to manage their account including online and telephone
repayments and remote loan applications followed by
e-disbursements to transfer a loan into a customer’s
bank account.
Read more on pages 8 and 9
6
Provident Financial plc Annual Report and Financial Statements 2020
New publications
have been created to
foster engagement such
as the ‘Stay Connected’
magazine providing
Group performance and
colleague achievement,
in and out of their
working day.
Payment holidays
granted in 2020 (‘000)
84
63
24
Vanquis
Bank
Moneybarn
Consumer
Credit
Division
Colleagues
Investors
Managing the health and wellbeing of colleagues was critical
when required to work remotely. In a matter of weeks, c.70% of
colleagues were enabled to work from home. Tech and Change
teams across the Group provided laptops and essential
equipment to replicate the office environment. It was essential
that colleagues had the software working to interact with both
customers and their teams.
With concern that the isolation of working from home could
affect the mental wellbeing of our colleagues, Engagement
Committees were formed to ensure colleagues continued to
interact on both a professional and social level. The executive
directors took the lead, ensuring that colleagues were kept
abreast with the latest Group developments, and broadcast
weekly vlogs throughout the year. Malcolm Le May was a
prominent contributor to these videos, providing regular
updates on achievements and developments, as well as lifting
spirits with information updates on his weekend gardening.
This more visible presence through the online platforms
and videos has been a benefit achieved through Covid-19.
The use of Teams, Skype and Zoom has also allowed many
to put a face to a name, without travel required.
Due to the uncertainty the Group faced in March, the Board took
the difficult decision to withdraw the 2019 final dividend in order
to strengthen the capital base to help withstand the uncertain
economic outlook. The Board, Group and divisional Executive
Committees and senior management also voluntarily took a
20% pay reduction to strengthen the Group when faced with such
uncertainty. The Group has not directly taken any proceeds
from the government support initiatives offered.
The tight control of capital was essential to create a sustainable
Group, able to withstand the economic uncertainty. As a result
of the withdrawal of the final dividend, the benefit from the
removal of the countercyclical capital buffer and the lower
new lending, regulatory capital headroom has significantly
increased in the year. This will benefit the Group in 2021 as the
economy continues to deteriorate.
Funding and liquidity was a key focus, particularly following
customers being supported through payment holidays. The
Group immediately increased liquid assets to £1.2bn to protect
against the uncertainty. This was in addition to the securitisation
of Moneybarn assets to provide additional funding in the first half.
Suppliers
When the first lockdown took place in 2020, various supplier
initiatives took place. An initial assessment for each supplier
was undertaken to highlight where there could be potential
risks. This was based on resources, inability to work from home
and financial status. These initial checks initiated in-depth
supplier conversations, to ensure that critical supplies to the
Group were not affected by the pandemic. This additional due
diligence ensured more regular contact with our strategic
suppliers, which allowed flexibility on both sides of the
partnership. This ensured continuity of supplies for the
Group which has continued into 2021.
Moneybarn’s
Learning and
Development team
used Skype to remotely
train more than 150
colleagues in email
admin and a new
payment holiday
process.
For colleagues who have required further support, management
has promoted the Thrive app – recommended by the NHS – to
provide access to a huge range of mental health and wellbeing
resources with practical tools to help maintain mental wellbeing,
from stress-busting techniques to a full cognitive behavioural
therapy programme and a ‘progress journey’ which helps to
monitor how colleagues are getting on.
Provident Financial plc Annual Report and Financial Statements 2020
7
Strategic report Our Purpose
Customers
We help...
support a better
quality of life
As a specialist lender, tailored
products and services are
offered to customers across
three divisions - Vanquis Bank,
Moneybarn and the Consumer
Credit Division.
Each division operates with the aim of supporting
customers through lending responsibly. The better
we understand our 2.1 million customers, the better
the service we can provide. This allows us to make
strides in becoming true customer champions.
We have remained closer to customers in 2020,
monitoring customer satisfaction and using surveys
and feedback to raise areas for improvement.
Vanquis Bank
Vanquis Bank has supported customers throughout the
pandemic by continuing to lend to existing customers and
activating payment freezes and arrangements where needed.
This was evidenced by an increased customer satisfaction
rating in the year to 91%. Colleague input was used to develop
a new customer proposition “We stand with you on your
journey to better and fairer credit”, which was introduced in
August 2020. Alongside providing credit cards, loans and retail
deposits to its customers, innovations such as Payit™ provide
customers with a quick, simple and secure way to make
repayments to their credit card without the use of a debit
card, and allow an instant update to available credit limit.
Customers (m)
2.4
2.3
2.1
2.1m
customers
18
19
20
Vanquis Bank
Moneybarn
Consumer Credit Division
Vanquis Bank
ranked as #1 in 2020
within the Bank category
on Trustpilot based
on reviews received
from customers.
Vanquis activated
its 100,000th
payment freeze
in January 2021.
Further details on how we adapted our business during
the pandemic can be found on pages 6 and 7
8
Provident Financial plc Annual Report and Financial Statements 2020
Our awards
UK’s Best Workplaces™ in 2020
by Great Places to Work (in the
Large Organisations category)
A Lotus Award for Culture
for the third year running
Best Brand at the Lending
Awards 2020
Moneyfacts Consumer
Awards – Credit Card
App of the Year
Non-Prime Lender
of the Year at the
Motor Finance
Europe Awards 2020
Moneybarn
In 2020, Moneybarn continued to offer credit when many
other lenders ceased lending to preserve capital and liquidity.
Moneybarn continued to provide for customers, many of whom
are key workers. The business partnered with Exchange & Mart
to create an online ‘vehicle finder’ which enables applicants to
search for cars tailored to the loan offer. Payment freezes were
provided to support customers when needed. Moneybarn prides
itself “on providing a service that customers love, in a way that
is simple to understand and easy to use”. The business has won
many awards in the year for the level of service and approach
to lending, including Best Brand at the Lending Awards 2020
and Non-Prime Lender of the Year at the Motor Finance Europe
Awards 2020.
Consumer Credit Division
The Consumer Credit Division was quick to react to the initial
lockdown which was essential when the face-to-face relationship
was prevented. Customer Engagement Managers (CEMs)
continued to support customers remotely and the national
roll-out of Provident Direct during March 2020 continued to
provide a remote lending solution for existing customers.
Customers were offered greater control with a wider range
of loan disbursement and repayment options, including the
introduction of e-disbursement and a wide choice of collection
methods including continuous payment authority (CPA), online,
automated IVR and debit card payments taken by the CEM
either in the home when permitted or over the phone.
Moneybarn has been
crowned Non-Prime
Lender of the Year at the
Motor Finance Europe Awards
2020. The awards celebrate
excellence and innovation
in the European motor finance
industry with Santander
Consumer UK and
KPMG among the
other big winners.
Provident Financial plc Annual Report and Financial Statements 2020
9
Strategic report Our Purpose continued
Colleagues
We help...
empower our
colleagues
Colleague engagement
(survey response)
70%
72%
19
20
Years
It is fundamental that colleagues
are proud of what they do. Their
hard work delivers our Purpose
to help put customers on a path
to a better everyday life.
The Group’s culture has continued to be developed in 2020,
whilst supporting colleagues during the challenges faced
during Covid-19. 88% of colleagues understand our Purpose
and what it is trying to achieve (+6% in the year).
There has been a huge focus on the wellbeing of all
colleagues. A programme of events was launched to support
mental health including a network of mental health first aiders
and a number of other support tools such as a Wellness Guide,
the Thrive app and a new Employee Assistance Programme.
This is a 24-hour confidential helpline to provide support
to colleagues and to help manage their mental health
and wellbeing.
KPIs
74%
60%
88%
83%
More people chose to
participate in the survey
this year (+2%)
Positive shift in how our
colleagues feel we are
bringing our Blueprint to life,
changing the culture of our
business and taking people
on the journey (+6%)
88% of colleagues understand
our Purpose and what it’s
trying to achieve (+6%)
83% of our colleagues feel
PFG is an organisation
that cares and put the
safety of its colleagues
first in response to the
Covid-19 pandemic
10
Provident Financial plc Annual Report and Financial Statements 2020
Key emerging themes
at Group level:
– Future direction of the PFG: Continued high levels of
engagement from individual colleagues to the Group’s
future direction, including how each colleague
contributes to the Group achieving its goals.
– Our Purpose: Understanding and engagement continue
to be high, with a significant increase in colleagues
stating they see daily evidence of the Blueprint being
brought to life. There are opportunities for this to
continue with the introduction of the ‘Blueprint
Behaviours’ performance management framework
which will be used fully for the first time in Q1’21.
– Leadership vs ‘my manager’: Trust and confidence
in managers continue to be high, and we have seen
an increase in sentiment towards confidence in the
leadership cohort (defined as directors/senior leaders
within a division) (+14%).
– Customer focus culture: The response to questions
related to supporting and looking after customers
has increased across the divisions, with respondents
agreeing that the interests of Provident are aligned
with the interests of the customers (+12%).
It has been vital to provide safe working environments in our
offices. We have talked with our colleagues on a daily basis to
ensure they also have safe working environments at home.
83% of our colleagues felt PFG is an organisation which cares
and put the safety of its colleagues first in response to the
Covid-19 pandemic.
Communication was key with the creation of a new Group-wide
online magazine, ‘Stay Connected’, containing guides for line
managers to support colleagues throughout the pandemic.
There was also a shift to virtual leadership communications
including regular vlogs and virtual ‘town halls’.
We continued focus on our inclusion and diversity (I&D) strategy
to reinforce our culture of supporting and developing a diverse
workforce. This has included development of our pipeline of
female talent through delivery of the Women in Leadership
Programme and increased gender pay reporting. The ‘Diversity
and Inclusion’ network was launched, comprising four affinity
groups based around gender, LGBTQ+, ethnicity and disability.
The network developed a Be Yourself Inclusion Calendar and
work has begun on updating HR management systems to
collect information from colleagues on their ethnicity, religious
beliefs, sexual orientation, disability status, caring responsibilities
and gender identity to enable us to understand our workforce
better to be able to ensure everyone feels supported. More details
can be found in the Sustainability Report on pages 77 and 78
and within the Section 172 Report.
The PFG Blueprint has continued to be embedded with the
launch of the ‘Blueprint Behaviours’ framework combined
with the launch of three ‘Better Everyday’ recognition awards
- Isolation Icon, Corona Hero and Champ in a Crisis – which
reward colleagues for outstanding performance. A Group-
wide engagement survey was rolled out to take colleagues’
feedback to improve the colleague and customer experience.
The results demonstrate noticeable improvements across the
board. Engagement increased by 2% to 72% despite a year
of disruption experienced by all colleagues. This reflects high
levels of commitment from colleagues since the beginning
of the pandemic. There has been a positive shift in how our
employees feel management are bringing the Blueprint to life,
changing the Group’s culture and taking all colleagues on this
journey (+6% to 60%).
Provident Financial plc Annual Report and Financial Statements 2020
11
Strategic report Chief Executive Officer’s review
We help...
improve our customers’ lives
Introduction
Immediately after the Government’s initial response to
Covid-19 in March 2020, the Group focused on adapting the
operations of its three divisions – Vanquis Bank, Moneybarn
and the Consumer Credit Division (CCD) – to enable them to
keep supporting customers, whilst keeping colleagues safe.
Within a matter of weeks, the vast majority of colleagues from
Vanquis Bank and Moneybarn were working remotely and
Provident Direct was introduced nationwide for CCD colleagues,
enabling remote lending and collections. Unlike many of its
competitors, Moneybarn was able to stay open throughout the
year, including during the first Government lockdown, enabling
it to capture market share and attract new customers. In
addition, all of our divisions took the decision to tighten
underwriting standards during the first half of the year.
I am pleased to report that the Group maintained its focus
on key strategic targets set out at our November 2019 Capital
Markets Day. PFG successfully tendered for £75m of its June 2023
senior bonds, Moneybarn launched a new securitisation vehicle
and Provident Direct was utilised to increasing effect in home
credit. With our third quarter update in November, we informed
the market that we had initiated an operational review of CCD
to make sure that this business was positioned to provide
shareholders with sustainable returns over the long-term.
Please see the CCD section for more details.
Towards the end of the year, PFG established a new intermediate
holding company, Provident Financial Holdings Limited, to
streamline the structure of its operating subsidiaries and ensure
that the Group is well-positioned going forward. As part of
this process, Provident Personal Credit, Provident Financial
Management Services Limited, Greenwood Personal Credit
and Provident Investments Ltd were retired as guaranteeing
subsidiaries from the Group’s fixed income securities and
Provident Financial Holdings Limited was added as a
guaranteeing subsidiary.
Group financials
Turning to the financial results for 2020, the Group reported an
adjusted loss before tax of £47.1m (FY’19 profit of £152.8m), which
reflects lower revenue year-on-year driven by lower receivables
and higher impairment as a result of Covid-19. This is consistent
with the 2020 statutory loss of £113.5m, reducing from a profit of
£119.0m in 2019. Throughout 2020, as a management team, we
focused on maintaining strong capital and liquidity positions
whilst ensuring that colleagues across the Group have all the
resources they need to work remotely.
Covid-19 had an immediate impact on our customers and
their demand for credit. It also impacted their credit scores as
unemployment started to rise. Across the Group, underwriting
standards were tightened in April in response to the changing
consumer landscape. As a result, new bookings for 2020 fell
and so did receivables. At the end of December 2020, the Group
had 2,070k customers (FY’19: 2,319k) and a total receivables
balance of £1.8bn (FY’19: £2.2bn).
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.
There is no doubt that 2020 was
a tremendously difficult year for
our customers. My colleagues across
the Group worked tirelessly to ensure
the continued support our customers
needed during these challenging
circumstances and, for that, I would
like to extend my most sincere
gratitude to everyone at PFG.
Malcolm Le May
Chief Executive Officer
12
Provident Financial plc Annual Report and Financial Statements 2020
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 £675m, equating to a
total CET1 ratio of 34.2% and a surplus above the minimum
regulatory requirement of approximately £264m. Just after
the period end, Vanquis Bank launched its first securitisation
programme, which is backed by a revolving portfolio of credit
card receivables. The notes will be held internally as an additional
liquidity contingency option initially, enhancing Vanquis Bank’s
ability to diversify its sources of funding.
CCD operational review
In November 2020, PFG communicated its intention to initiate
an operational review of CCD, to be carried about by Hamish
Paton, Managing Director, and his team. In the context of Covid-19,
rising customer complaint volumes driven by Claims Management
Companies (CMCs) and evolving customer choice dynamics,
it was clear that CCD needed to evolve its business model in
order to keep providing sustainable returns to shareholders.
On 15 March 2021, PFG informed the market of its decision to
launch a Scheme of Arrangement (the ‘Scheme’) to address
the liability of ongoing customer complaints based on historic
lending at CCD. The £65m cost of the Scheme has been recorded
as a provision in 2020. On 22 April 2021, the Court made an order
enabling CCD to convene a meeting of Scheme creditors to
consider the merits of the Scheme. CCD customers, past and
present, as well as the Financial Ombudsman Service (FOS),
now have the opportunity to vote on the Scheme. The creditors
meeting will be held on 19 July 2021 and, if creditors vote in
favour of the Scheme, the final Court sanction hearing will
be held on 30 July 2021.
In response to evolving customer demand, changing home
credit market dynamics and the desire to focus on larger market
segments, it is with regret that PFG has decided to withdraw
from the home credit market entirely and is considering a sale
of this business. The home credit business will be placed into
a managed run-off, which would be expected to conclude by
December 2021. We expect to manage the IT infrastructure and
support service expenditure lower as the receivables book falls.
At the end of March 2021, CCD had approximately 2,100 employees
and an internal consultation for these employees has started
today. It is anticipated that the cost to the Group of placing
the business into managed run-off or disposing of CCD will
be up to c.£100m.
PFG will leverage its existing expertise to expand its unsecured
personal loan product. The new loan offering will be a ‘mid-term,
mid-cost’ product and will take into account the most recent
sector regulation whilst catering much more closely to modern
customer requirements. Further details will be provided
in due course.
Payment holidays
Following FCA guidance in March 2020, payment holidays were
offered to customers in Vanquis Bank, Moneybarn and CCD of
between 1 and 3 months. Payment holiday take-up by PFG
customers peaked during H1’20, before gradually declining
throughout the second half of the year.
Vanquis Bank saw payment holiday activations grow to a peak
of 47k customers or 3.5% of total customers in June. At the end
of December, the number of Vanquis customers with an active
payment holiday was c.8.5k which equated to 0.5% of customers
or 1.4% of receivables.
For Moneybarn, payment holidays increased significantly in
April to c.19k customers or 23%. At the end of December, c.1.2k
customers had an active payment holiday, equating to 1.3%
of the total customers or 1.6% of receivables.
Within CCD, the concept of forbearance is implicit within the
business model. Payment holidays peaked during H1’20 at c.4%
of customers but, by the end of December, this had improved
to c.5.0k customers equating to 1.6% or 1.1% of receivables.
Regulation
Vanquis Bank responded to FCA guidance throughout 2020
in order to manage evolving customer requirements during
Covid-19, which included the introduction of payment deferrals
and extensions, as well as tailored support for customers who
required additional help. The persistent debt measures for
credit card lending came into effect in October having been
delayed because of Covid-19. Vanquis Bank has made good
progress in managing the level of customers in persistent
debt, through changes to the credit line increase programme,
increasing minimum payments due and enhanced
communication encouraging customers to make higher
recommended payments.
During 2020, the main regulatory changes focused on the
high-cost credit market and impacted CCD. In August, the FCA
published the findings of a review into relending by firms that
offer high-cost credit, which required businesses to ensure that
relending did not lead to worse customer outcomes. At the
same time, the Kerrigan vs. Elevate Credit (trading as Sunny)
decision was published by the High Court which, in part, focused
on affordability and creditworthiness procedures in place at
Sunny, including repeat borrowing assessments.
After the period end, in February 2021, the initial findings of the
Woolard Review were published. The recommendations included
encouraging alternatives to high-cost credit, promoting better
access to debt advice and that the FCA work with the Bank of
England and the UK Government to allow credit unions to expand
their product offering. PFG is reviewing the recommendations set
out in the Woolard Review and will look to incorporate anything
taken forward by the FCA. Notably, the Group’s new unsecured
personal loan product will be a ‘mid-cost’ offering, in keeping
with the Review’s suggestions.
Also, after the period end, at the start of February, Moneybarn
was able to start collecting vehicles from customers where a
Default Termination (DT) had occurred. Before then, as per FCA
guidance, Moneybarn was only able to collect vehicles from
Voluntary Terminations (VT).
In February 2021, CCD was informed by the FCA that it 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.
The start of the investigation period relates to the FOS decision
which was taken in February of last year.
The appointment of investigators does not mean that the FCA
has determined that rule breaches or any other contraventions
have occurred. CCD intends to work closely with the FCA in relation
to the investigation, which is unlikely to conclude until the end
of 2022 at the earliest. There is no further update at this stage.
Environmental, Social and Corporate Governance (ESG)
Issues of Environmental, Social and Corporate Governance (ESG)
are increasingly important for us and many of our largest
shareholders. PFG has a sustainable, responsible business
strategy which aims to put the customer at the heart of
everything we do. Our strategy of lending to our customers
in a responsible and sustainable way is a key aspect of the
Group’s purpose. We are constituents of the FTSE4Good and
Dow Jones Sustainability Indices and submit an annual survey
to them. We have set several long-term objectives which are
aligned with the UN’s Sustainable Development Goals and
Taskforce on Climate-related Financial Disclosures (TCFD).
We also work very closely with several charities and partners
to address issues such as access to debt advice, financial
education and consumer vulnerability issues. Please see our
Corporate Responsibility report, published today, for more details.
Provident Financial plc Annual Report and Financial Statements 2020
13
Strategic report Chief Executive Officer’s review continued
Environmental, Social and Corporate Governance (ESG)
continued
As part of PFG’s response to Covid-19, the Board and senior
management team elected to take a 20% pay cut for three
months from April 2020 and there were no bonuses paid in
respect of 2020. In June 2020, the Group repaid HMRC all
money received in respect of the Government’s job retention
scheme, as well as all deferred tax payments and to not
benefit from future Government support again.
In 2020, PFG committed c.£1.2m to its Social Impact Programme
which supports partners in tackling customer and colleague
vulnerability issues, supporting its education and skills agenda
and investing in projects which address a range of social
inclusion issues and promote community cohesion. Through
the support the Group provides to School-Home Support,
a charity working with families and children to maximise
educational opportunities, 1,710 interventions were made
with families in urgent need of support during the pandemic.
For 2020, the Group was able to offset 4,507 tonnes of CO2e,
which accounted for the Group’s annual operational footprint,
through the purchase of carbon offset certificates in the
Weyerhaeuser Carbon Sequestration Project. The Group is
targeting to be fully carbon neutral by 2040, ahead of the UK
Government’s target of 2045.
Board and senior management changes
In April, Neeraj Kapur took up his role on the Group Board as
Group Chief Financial Officer (CFO). Neeraj brings significant
relevant experience as a main board director of a FTSE
business and as a bank CFO.
The measures put in place to meet
the challenges brought on by the early
stages of Covid-19 positioned the Group
well for the requirements of 2020 from
an operational perspective.
At a divisional level, Hamish Paton was appointed as Managing
Director of CCD in September and David Shrimpton was appointed
to the same position at Moneybarn. Gary Thompson, who was
Director of Group Finance and Investor Relations for over ten
years, was appointed as Finance Director of Vanquis Bank
and Neill Moore, who has held various senior finance positions
at KPMG, Boots and FGH, was appointed to the same position
at CCD. After the period end, in February 2021, Chris Anderson
joined Moneybarn as Finance Director, having also held senior
finance positions at CitiFinancial Europe, Everyday Loans
and Secure Trust Bank.
Outlook
The Group’s credit card and vehicle finance businesses reported
improving trends during Q1’21, with credit card spend improving
and the demand for vehicle finance increasing as lockdown
restrictions eased. These positive trends, supported by the
Group’s strong balance sheet, mean that we feel confident
about how we are positioned in our markets. Over the course
of 2021, PFG intends to launch an unsecured personal loan
product in the ‘mid-cost’ segment of this £1.6bn market, an
ambition first set out at our Capital Markets Day in 2019. The
unsecured loan offering is an important step towards the Group’s
ambition of becoming a broader banking group to the financially
underserved customer. We expect to update the market with
a Capital Markets Day in the fourth quarter of 2021.
There are indications that Covid-19 will increase the size of our
addressable markets in the future, as household finances are
impacted. As a result of the Covid-19 pandemic, the 10 to 12 million
adults in the UK who sit outside of high street bank risk appetites
will likely increase. Indeed, the FCA published recently that,
over the course of 2020, the number of adults in the UK with
low financial resilience had increased from 10.7m to 14.2m.
The Group remains mindful of Government support schemes
coming to an end and the impact that this will have on the
wider economy in the UK. However, as a result of our balance
sheet strength and proactive but prudent approach to risk
management, the Group remains well positioned.
We will continue to work towards many of the objectives we set
out in our 2019 Capital Markets Day including expanding our
digital footprint, investing in new products, focusing on funding
efficiencies to become a broader banking group for the
financially underserved customer.
Malcolm Le May
Chief Executive Officer
10 May 2021
14
Chief Finance Officer’s Q&A
Q&A
with
Neeraj Kapur
Chief Finance
Officer
I was excited about joining this
purpose-driven company and
I value what the Group provides
to the underserved segment
of our society.
Q1.
What are your first impressions since joining
the Group?
Q2.
What has been your key focus in 2020?
I joined the Group in April 2020, just as the impact of
the pandemic began. I was excited about joining this
purpose-driven company and I value what the Group
provides to the underserved segment of our society.
The tone from the Board demonstrated a positive culture
as the Group was rebuilding after a number of challenging
years. I liked the strategic Blueprint and the connection to
the Group’s Purpose. We spend so much of our lives working,
it’s important that we remain connected to the Purpose
we’re delivering. The recovery which the Group had already
achieved demonstrated a strong Board and management
team. I felt part of that team very quickly. We continue to
work together on the new issues the Group faces through
the impact of the pandemic and the challenges of the
Consumer Credit Division (CCD).
Becoming CFO from 1 April meant I had to hit the ground
running. Preparing the Group for the potential impacts of
Covid-19 was the immediate priority. Being from a banking
background, I felt well placed to support Vanquis Bank, and
I also had previous experience in motor finance, but CCD
faced very different challenges due to not being able
to lend in the home.
My first response was to ensure the Group had sufficient capital,
liquidity and funding which we built quickly through April and
May, raising £0.7bn of liquidity over six weeks. My attention was
then on reforecasting to better understand the financial impact
of the pandemic. This was a very challenging and draining time
for the finance teams and I was conscious to do all I could to
protect our colleagues’ wellbeing across the Group.
Provident Financial plc Annual Report and Financial Statements 2020
15
Strategic report Chief Finance Officer’s Q&A continued
Q3.
What will be your key focus now for 2021?
To help create a more sustainable Group business model
which can serve all stakeholders. The future operating model
will need to be more dynamic in line with customer requirements.
Meeting stakeholder requirements will be a key focus of all
colleagues in order to take the Group forward.
I will also focus on ensuring the Group remains financially
secure by retaining a strong capital, liquidity and funding
structure to include the use of Vanquis Bank deposits as
much as is feasible to reinvest in the Group’s Purpose.
Q4.
Details were provided at the 2019 Capital Markets
Day (CMD) that Vanquis Bank will fund Moneybarn
through retail deposits. Is this still the case and
how will this be delivered?
The Vanquis Bank voluntary requirement was removed in 2020
and as such the Group already has access to retail deposits
from Vanquis Bank.
We are planning to fund more of the Group with retail deposits
over time as communicated at the 2019 CMD.
My focus is to help build a more
sustainable Group business model
delivering the commitments of 2019
Capital Markets Day and most
importantly our Purpose.
Q5.
Will the Group be using the Bank of England
funding schemes?
The Vanquis Bank securitisation provided contingent funding
capacity and, subject to Bank of England (BoE) approval, access
to its cheap and long-term funding schemes, e.g. TFSME.
Usage of any BoE funding will be modest and proportionate to
the bank, which will remain predominantly retail deposit funded.
16
Provident Financial plc Annual Report and Financial Statements 2020
Investment case
Reasons to invest
PFG is a market-leading FTSE 250 company. We aim to deliver long-term value for our shareholders
through our strong market positions, robust balance sheet and competitive advantages. Our investment
case is based on five key areas:
1.
We are well positioned
in the large, growing
market segments of
sub- and near-prime
credit cards, vehicle
finance and unsecured
personal loans
In the UK, there are between 10 and 12 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.
We have a
purpose-driven
strategic Blueprint,
which sets us up for
sustainable growth
2.
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.
We have a
customer-centric,
responsible culture
3.
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.
Financial resilience and
strong capital position
Over the medium term, our plan is to become a broader
banking group for the underserved customer. 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.
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.
4.
5.
Provident Financial plc Annual Report and Financial Statements 2020
17
Strategic report Business model
We are...
driven by our Purpose
Our key relationships
Customers
Our 2.1 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 specialise in serving their needs and have adapted our business
model to do so.
Colleagues
Our 4,200 colleagues are critical to delivering our tailored and understanding
business model, balancing the personal touch with the use of technology where
customers increasingly want and expect it.
Regulators and government
The nature of our customer base and the market we specialise in makes the building
and maintaining of open and trusting dialogue with policy makers and our key
regulators (the Prudential Regulation Authority (PRA), Financial Conduct Authority
(FCA) and Central Bank of Ireland (CBI)) critical to a sustainable business model.
Equity and debt investors
We secure long-term, lower-rate funding through strong relationships with our
lending banks, depositors and investors. We generate capital to deploy in growing
our business to serve more customers as well as delivering returns to shareholders.
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.
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.
18
Provident Financial plc Annual Report and Financial Statements 2020
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.
5
We collect payments due.
We offer many ways to pay in cash
and remotely. We maintain
frequent customer contact
and stay close to customers
through call centres, digital
communications and
face-to-face meetings
in the home.
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.
Customers are
at the heart of
what we do
4
We lend responsibly.
We tend to lend smaller
amounts over shorter periods
and only lend when customers
demonstrate suitability.
2
We attract customers
who we can serve.
We use many ways to reach
consumers including increasingly
digital methods, as well as
face to face and partners such
as agents and brokers.
3
We carefully assess
customer affordability
and creditworthiness.
We use internal and external data,
including face-to-face interactions,
taking into account both the
current situation and the
likely future.
Our sustainability strategy
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 journey with us, and help 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, responding to climate change,
treating suppliers fairly, and engaging with them on
environmental, social and governance (ESG) matters.
Provident Financial plc Annual Report and Financial Statements 2020
19
Strategic report Strategy
Focused
on our
strategic
objectives
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.
Key
Our Blueprint strategic drivers
Customer progression
Human experiences
Head AND heart decisions
Fighting fit
Grow customer-centric businesses
which continue to diversify to meet
customer expectations by delivering
positive outcomes and providing
positive returns for shareholders.
1
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.
Progress in 2020
– Increased demand for vehicle finance in Moneybarn as
customers have chosen to own a vehicle over travelling on
public transport including for key workers to get to work.
– Broaden Vanquis Bank card offering to additional price
points and products including Payit.
– Home credit continued to serve customers through its
Customer Experience Managers (CEMs) on a remote basis
without requiring to visit the home due to local and national
lockdown restrictions.
Challenges in 2020
– Lower credit card spend and higher repayments as a result
of lower discretionary spending during the pandemic.
– Lending tightened at the onset of Covid-19 to fully ensure
responsible lending decisions could continue to be made
based on latest customer affordability assessments.
Performance
£2.5bn
Credit issued
2.1m
Customers
£1.8bn
Amounts receivable
from customers
Read more on page 25
Read more on page 26
Read more on page 27
Risks
– Credit risk
– Conduct risk
– Information and data
– Conduct risk
– Model risk
– Operational risk
– Business resilience risk
– Information and data
– People risk
security risk
– Regulatory 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 2021
– Leverage existing expertise to expand the Group’s unsecured
personal loan product.
– Broadening of Vanquis Bank proposition including card balance
transfers and support features such as LOQBOX and Payit.
– Moneybarn will target growth in its traditional markets
and through their newly issued near-prime product.
Focus for 2021
Focus for 2021
– Vanquis Bank LOQBOX launch to build customer credit scores.
– Development of the Group’s capital stack.
– Development of the Group inclusion and diversity programme.
– Launch of Vanquis Bank securitisation with notes held
– Development of the IR programme and a 2021 CMD to
internally, diversifying the Vanquis Bank sources of funding.
communicate the Group’s ongoing strategy following
– Ongoing diversification of the non-bank group funding.
a period of significant change.
– Continue to work towards many of the objectives we set out
– Development of the Group ESG programme working
in our 2019 Capital Markets Day.
– Withdrawal from the home credit market either through
collaboratively across all divisions.
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.
managed run-off or sale.
– Deliver Scheme of Arrangement.
– The Group will adopt a product-centric view of its portfolio
going forward.
20
Provident Financial plc Annual Report and Financial Statements 2020
2
Objective
Act responsibly and with integrity
in all we do. Creating 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.
3
Objective
– Lend to customers in a sustainable manner, offering support
– Maintain a secure funding structure which meets contractual
when needed throughout the customer journey.
maturities and fund growth over the subsequent 12 months.
– Develop a positive and proactive relationship with the regulator.
– Diversify the Group’s funding sources.
– Ensure colleagues are proud of what they do and how it will
– Maintain regulatory capital headroom in excess of 5%
benefit customers’ lives.
risk-weighted exposures (c.£100m), inclusive of all PRA
– Generate sustainable profitability to provide a positive return
to shareholders.
and management buffers.
– Adopt a progressive dividend policy.
– Continue to support the communities where we lend.
– Treat all suppliers fairly.
Progress in 2020
– Supported customers through forbearance payment
– Increased CET1 ratio to 34.2%.
arrangements and holidays when their circumstances
were adversely impacted.
– Continued to provide for customers in 2020 when many
peers ceased lending due to capital and liquidity constraints.
– Average surplus liquidity of £0.6bn in 2020 to protect
the Group during the pandemic.
– Diversification of funding through the Moneybarn
securitisation and the Vanquis securitisation developed
– Increased colleague engagement scores across the Group.
for future benefit from TFSME.
– Focus on preserving balance sheet strength given the
– Senior bond tender of £75m.
Progress in 2020
overwhelming uncertainty facing the UK economy through the
very difficult decision to withhold the final 2019 dividend payment.
– Ongoing investment in the community.
Challenges in 2020
Challenges in 2020
– Increased level of alleged complaints in CCD causing a
– Capital preservation required at the onset of Covid-19
delay to the settlement of genuine customer complaints.
resulted in a cancellation of the final 2019 dividend.
– Enabling over 4,000 employees to effectively work from home.
– Interest cover covenant waiver from June 2020 agreed due
to losses incurred during the onset of Covid-19.
– Capital preservation required at the onset of Covid-19.
– No dividend being declared in respect of 2020 to retain
capital while the economy continues to stabilise.
Performance
Performance
72%
Colleague
engagement
£1.2m
Community
investment
(11.0p)
Adjusted
loss per share
34.2%
CET1 ratio
£0.9bn
Liquidity
£144m
Funding headroom
Risks
security risk
– People risk
– Liquidity and funding risk
Risks
– Capital risk
Grow customer-centric businesses
which continue to diversify to meet
customer expectations by delivering
positive outcomes and providing
positive returns for shareholders.
1
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.
Progress in 2020
– Increased demand for vehicle finance in Moneybarn as
customers have chosen to own a vehicle over travelling on
public transport including for key workers to get to work.
– Broaden Vanquis Bank card offering to additional price
points and products including Payit.
– Home credit continued to serve customers through its
Customer Experience Managers (CEMs) on a remote basis
without requiring to visit the home due to local and national
lockdown restrictions.
Challenges in 2020
– Lower credit card spend and higher repayments as a result
of lower discretionary spending during the pandemic.
– Lending tightened at the onset of Covid-19 to fully ensure
responsible lending decisions could continue to be made
based on latest customer affordability assessments.
Performance
£2.5bn
Credit issued
2.1m
Customers
£1.8bn
Amounts receivable
from customers
Risks
– Credit risk
security risk
– Regulatory risk
– Operational risk
– Business resilience risk
– Information and data
– People risk
– Conduct risk
– Model risk
Focus for 2021
personal loan product.
– Leverage existing expertise to expand the Group’s unsecured
– Broadening of Vanquis Bank proposition including card balance
transfers and support features such as LOQBOX and Payit.
– Moneybarn will target growth in its traditional markets
and through their newly issued near-prime product.
managed run-off or sale.
– Deliver Scheme of Arrangement.
– The Group will adopt a product-centric view of its portfolio
going forward.
Act responsibly and with integrity
in all we do. Creating sustainable
businesses which our stakeholders
are proud to be a part of.
2
Maintain a secure funding
and capital structure
to enable us to continue to provide
for all of our stakeholders.
3
Objective
– Lend to customers in a sustainable manner, offering support
when needed throughout the customer journey.
Objective
– Maintain a secure funding structure which meets contractual
maturities and fund growth over the subsequent 12 months.
– Develop a positive and proactive relationship with the regulator.
– Diversify the Group’s funding sources.
– Ensure colleagues are proud of what they do and how it will
benefit customers’ lives.
– Generate sustainable profitability to provide a positive return
– Maintain regulatory capital headroom in excess of 5%
risk-weighted exposures (c.£100m), inclusive of all PRA
and management buffers.
to shareholders.
– Adopt a progressive dividend policy.
– Continue to support the communities where we lend.
– Treat all suppliers fairly.
Progress in 2020
– Supported customers through forbearance payment
arrangements and holidays when their circumstances
were adversely impacted.
– Continued to provide for customers in 2020 when many
peers ceased lending due to capital and liquidity constraints.
– Increased colleague engagement scores across the Group.
Progress in 2020
– Increased CET1 ratio to 34.2%.
– Average surplus liquidity of £0.6bn in 2020 to protect
the Group during the pandemic.
– Diversification of funding through the Moneybarn
securitisation and the Vanquis securitisation developed
for future benefit from TFSME.
– Focus on preserving balance sheet strength given the
– Senior bond tender of £75m.
overwhelming uncertainty facing the UK economy through the
very difficult decision to withhold the final 2019 dividend payment.
– Ongoing investment in the community.
Challenges in 2020
– Increased level of alleged complaints in CCD causing a
delay to the settlement of genuine customer complaints.
Challenges in 2020
– Capital preservation required at the onset of Covid-19
resulted in a cancellation of the final 2019 dividend.
– Enabling over 4,000 employees to effectively work from home.
– Interest cover covenant waiver from June 2020 agreed due
– Capital preservation required at the onset of Covid-19.
– No dividend being declared in respect of 2020 to retain
capital while the economy continues to stabilise.
to losses incurred during the onset of Covid-19.
Performance
Performance
72%
Colleague
engagement
£1.2m
Community
investment
(11.0p)
Adjusted
loss per share
34.2%
CET1 ratio
£0.9bn
Liquidity
£144m
Funding headroom
Read more on page 25
Read more on page 26
Read more on page 27
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
– Withdrawal from the home credit market either through
collaboratively across all divisions.
Focus for 2021
– Vanquis Bank LOQBOX launch to build customer credit scores.
Focus for 2021
– Development of the Group’s capital stack.
– Development of the Group inclusion and diversity programme.
– Launch of Vanquis Bank securitisation with notes held
– Development of the IR programme and a 2021 CMD to
communicate the Group’s ongoing strategy following
a period of significant change.
internally, diversifying the Vanquis Bank sources of funding.
– Ongoing diversification of the non-bank group funding.
– Continue to work towards many of the objectives we set out
– Development of the Group ESG programme working
in our 2019 Capital Markets Day.
Provident Financial plc Annual Report and Financial Statements 2020
21
Strategic report
Strategy continued
Our strategy
in action
Grow…
customer-centric
businesses
Diversification of products offered by Vanquis Bank
During 2020, Vanquis continued its progress against its ambition
to create a digital bank, driving greater levels of self-service,
usage of open banking and delivering the digital experience our
customers desire. As well as providing credit cards, loans and
retail deposits to our customers, we have continued to diversify
the products we offer to meet our customer needs. In 2020, we
have invested in our app, our primary customer channel, enabling
us to be more innovative, flexible and resilient in meeting our
customers’ needs. We have also launched new services into
the app, including Payit, the result of a successful partnership with
NatWest. Payit now provides our customers with an effortless, safe
and open banking-driven payment experience and puts us
well ahead of the competition. 2020 was also the year that the
Vanquis app won Moneyfacts Consumer Award for Best Credit
Card App of the Year, voted for by our own customers.
We recognise that we need to continually evolve in an
increasingly digital and competitive landscape. Vanquis Bank’s
aim is to deliver a first-class digital customer experience on
which it can iterate over time, allowing us to meet emerging
customer needs and continuing to deliver value. We’ve launched
a new website and having listened to our customers, developed
those areas customers cared about the most: ease of use,
simplicity and feeling welcome. The new website offers improved
readability, simpler navigation, a new tone of voice and better
use of imagery. The new website also showcases the new digital
branding with a cleaner look and feel.
The website has also been underpinned by new capabilities,
including the introduction of LOQBOX into the application journey
for declined customers. LOQBOX, a credit building solution, will
give our declined customers the opportunity to save while building
their credit score to ultimately gain access to credit. This simple
and convenient integration offers a great solution for customers
who are struggling to get credit and firmly aligns with our Purpose
to help put people on a path to a better everyday life.
1.2m
92m
73%
Number of
customers
registered for
the Vanquis
mobile app
The app is well used,
with our customers
logging in six to
eight times a month
(that’s over 92 million
logins this year)
Proportion of
payments now
made via the app
(debit card and
Payit payments)
C h e r y l
Due to some
bad choices my
credit score was poor.
Vanquis offered me a
£500 limit four years ago.
My credit score shot up
and I can now move
out of rented
accommodation.
Moneybarn expanding
into the near-prime sector
In recent years Moneybarn has expanded from
not only providing cars to our customers, to also
providing motorbikes and vans for our self-employed
customers. This followed increased demand and
therefore our offering has been adapted to meet
customers’ needs.
In 2020, the credit quality of customers has
improved. The lending to tier 1, the highest credit
quality customer, doubled from 14% of lend in
January to 38% in December 2020. This reaffirmed
our intention to move into the nearer-prime market
which we have initiated in January 2021.
This proposition is expected to be a key area of
development to serve a wider market share with
the product which our current customers rate highly.
22
Provident Financial plc Annual Report and Financial Statements 2020
Act…
responsibly
and with
integrity
Supporting our customers
Customer forbearance
Covid-19 has been a difficult time for many of our customers, who
have required tailored support. Customer support and forbearance
is a fundamental part of the Group’s business model, as can be
seen in our business model on page 19. It is essential that our
customers are offered a higher level of personal service and
support than would typically be offered by prime financial
services providers.
In Vanquis Bank, clear communication and engagement have
been offered to our customers so they are aware what support
is available to them. The safeguarding of customers has been
a key priority. The bank provided over 420k individual solutions
to support customers in financial difficulty in 2020. This included
payment holidays to over 100k customers and matched pay
support through partial arrears write off to over 60k customers;
lifeline support was also offered to over 50k customers who
forgot or were unable to make a payment. This is along with a
number of other short and long-term forbearance measures.
The availability of digital channels has been increased to
allow a remote service in all our divisions. In the vehicle
finance market, many peers ceased lending but Moneybarn
continued to offer products to customers at a time when they
needed it the most. Typically supporting key workers and those
who did not want to travel on public transport. This was at the
same time as over 1,000 payment plans being agreed with
existing customers experiencing financial difficulty.
In CCD, payment holidays are already built into the business
model through the fixed cost home credit loan product.
Around 40% of customers have missed repayments at the end
of 2020 for which they have incurred no additional charges.
Our focus has been to offer enhanced flexibility and remote
support where needed.
Supporting national debt support charities
The Group has continued to support customers through the
money advice sector to ensure that any customers experiencing
financial difficulty, or other vulnerability issues, are supported.
In doing so, we agreed our partners could release the funding
provided to them, enabling funds to be repurposed for a more
immediate need. This enabled our partners to play an active
role in the emergency response to the pandemic by supporting
those individuals who may be disproportionately affected by it.
The funding provided to National Debtline enabled the
organisation to fund a specialist advisor to assist around 1,200
clients. National Debtline, a charity that is run by the Money
Advice Trust, offers free and impartial debt advice to help
callers understand their debt options and to more confidently
manage their money, offering services over the phone, via
webchat and online.
The Group also helped partners to adapt their operational
models to continue to support consumers. A fair share
contribution is made to the StepChange Debt Charity, in the
event that one of our customers enters a debt agreement
plan with the charity. This enabled the charity to continue to
provide free, independent advice and operate independently
of tax payer support.
Provident Financial plc Annual Report and Financial Statements 2020
23
Strategic report Strategy continued
Our strategy
in action
Maintain…
a secure funding
and capital
structure
Moneybarn and Vanquis Bank securitisations
In January 2020 Moneybarn signed a bilateral warehouse
securitisation with NatWest Markets. To date, £200m has been
drawn under the facility. The transaction has provided a number
of benefits to Moneybarn and the broader Provident Financial
Group. Firstly, the transaction represents PFG’s inaugural
securitisation and is therefore a source of funding diversification.
A number of Moneybarn’s direct competitors also have access to
asset-backed funding and securitisation is a strategic component
in their funding strategy. For example, Oodles, Blue Motor, Startline
and First Rand/MotoNovo all issue public ABS securities to fund
their loan books. Secondly, securitisation offers a competitive
cost of funding versus unsecured alternatives and the
warehouse facility now represents Moneybarn’s cheapest
source of funding. Finally, by arranging funding on a bilateral
basis, as opposed to a public bond issue, funding can be
drawn in phases as required, as opposed to one larger block.
This offers a high degree of flexibility.
In January 2021, Vanquis Bank established a credit card
securitisation programme and issued its inaugural transaction.
This resulted in approximately £230m of AAA notes that have
been retained on balance sheet. The notes are initially to be
held internally as an additional liquidity contingency option,
also enhancing the bank’s ability to diversify its funding sources.
The bank remains primarily retail funded. Longer term, the
securitisation provides a platform for potential public issuance
in the debt capital markets. This will offer the bank a new
source of debt funding on terms comparable to its closest
competitors such as NewDay and Capital One.
Future focus
Maintaining a secure capital and funding structure will
continue to be a priority of the Group.
A significant surplus of regulatory capital is currently held
following a contraction in amounts receivable from customers
in 2020. As lending resumes from 2021 as there is greater
certainty of the economic outlook, management will focus
more on capital efficiency.
PFG funding (£m)
2,281
£598m
2,030
69
166
250
75
125
79
69
150
175
125
1,345
1,683
Facilities
Retail deposits
Retail bonds
£685m
Institutional bonds
Senior bonds
Securitisation
RCF
Undrawn capacity
Dec
19
Dec
20
Read more on page 68
24
Provident Financial plc Annual Report and Financial Statements 2020
Key performance indicators
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
Adjusted PBT/(LBT) (£m)
R
Adjusted basic EPS (p)
R
Adjusted ROE (%)
160.1
152.81
48.7
44.11
19.2
18.21
(£47.1m)
Performance
(11.0p)
Performance
(47.1)
(11.0)
(4.5%)
Performance
(4.5%)
20-25%
Target*
18
19
20
18
19
20
18
19
20
Definition
Adjusted profit/(loss) before tax is stated
before amortisation of acquisition
intangibles and exceptional items.
Strategic focus
Profits/(losses) which will impact organic
investment within the Group or dividend
payments to the Group’s shareholders.
Comment
Losses have increased by £198m in the year
as a result of an 18% reduction in customer
receivables leading to a £190m reduction
in revenue.
Definition
Adjusted PBT/(LBT) divided by the weighted
average number of shares in issue.
Strategic focus
Demonstrates value generated/(sustained)
per shareholder.
Definition
Adjusted profit/(loss) 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.
Comment
Losses have been incurred in the year
following a reduction in gross customer
receivables leading to lower revenue
combined with increased impairment
provisions recognised due to payment
holidays and a forecast deterioration
in the macroeconomy. Share capital is
unchanged year on year.
Strategic focus
Returns generated on equity held show
how efficiently the Group is delivering
for its shareholders.
Comment
Losses have been incurred in the year
following a reduction in gross customer
receivables combined with increased
impairment provisions recognised due
to Covid-19 and a forecast deterioration
in the macroeconomy.
Cost:income ratio (%)
Customer receivables (£bn)
52.4
43.0 42.81
52.4%
Performance
38%
Target*
2.2
2.21
1.8
£1.8bn
Performance
Growth of
5-10% p.a.
Target*
18
19
20
18
19
20
Definition
Adjusted annualised operating costs
as a percentage of annualised revenue.
Strategic focus
Efficiency of the cost base in delivering returns.
Comment
Deteriorated cost:income ratio due to
a largely fixed cost base and a reduced
customer receivable leading to lower revenue.
Definition
Amounts receivable from customers as
reported on the balance sheet for the Group’s
trading divisions 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 reduced due
to lower lending, increased collections and
significant impairment provisions recognised.
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
R
Links to remuneration
Read more on pages 148 to 171
*
Targets as disclosed at the
2019 Capital Markets Day;
an update on medium-term
targets will be communicated
following the delivery of the
changes to CCD when there is
also greater certainty on the
recovery of the UK economy.
1
Refer to accounting policies
for detail of restatement.
Provident Financial plc Annual Report and Financial Statements 2020
25
Strategic report Key performance indicators continued
Act…
responsibly
and with
integrity
Employee numbers (‘000)
R
Employee engagement (%)
Dividend per share (p)
5.7
4.9
4.2
4.2k
Performance
72
74
19
74%
Performance
—
Performance
18
19
20
19
20
—
18
—
20
19
Definition
Number of people working for the Group
under contracts of employment.
Strategic focus
Number of employees delivering
for all stakeholders.
Comment
Reduced receivables and improved
efficiency have led to lower headcount,
largely in CCD.
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
Increased employee engagement
as a result of a focus on engagement
during Covid-19 and a more proactive
Group HR programme.
Definition
Dividends paid in the period to ordinary
shareholders of Provident Financial plc
per share.
Strategic focus
Dividend returns provided to our
shareholders from the value generated
by the Group.
Comment
Focus on preserving balance sheet
strength given the overwhelming
uncertainty facing the UK economy
through the very difficult decision to
withhold the final 2019 dividend payment.
Customer satisfaction
Community investment (£m)
86
90
91
Vanquis
Bank
91%
4.7
4.6
4.5
Moneybarn
4.5
Feefo rating
(out of 5)
88
91
89
1.7
1.7
CCD
89%
1.2
£1.2m
Performance
18
19
20
18
19
20
18
19
20
18
19
20
Definition
The percentage of customers surveyed who are satisfied (or more than satisfied)
with the service they have been provided.
Definition
The cash cost of contributions provided
to community projects or charities.
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.
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 continued in the year despite
losses being incurred as the Group commits
to investing in the communities we serve.
26
Provident Financial plc Annual Report and Financial Statements 2020
Maintain…
a secure funding
and capital
structure
CET1 ratio (%)
29.7
31.61
34.2
34.2%
Performance
R
Adjusted RORE (%)
R
26.0
20.01
(5.2%)
Performance
(5.2)
18
19
20
18
19
20
Definition
The ratio of the Group’s regulatory capital
to the Group’s risk-weighted assets
measured in accordance with CRD IV.
Strategic focus
Demonstrates the Group’s ability
to withstand financial distress.
Comment
CET1 ratio has increased in the year
reflecting a benefit from a 12% reduction
in risk-weighted exposures, partly offset
by losses sustained.
Definition
Adjusted profit/(loss) after tax 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
Surplus regulatory capital and CET1 % has
increased in the year as receivables have
reduced, partly offset by losses sustained.
Funding headroom (£m)
Dividend cover (x)
327.4
1.9
Key
143.7
69.1
18
19
20
£143.7m
Performance
—
Performance
>1.4x
Target
—
18
—
20
19
Definition
Available funding on committed facilities
to fund the non-bank group businesses.
Definition
Adjusted basic earnings per share divided
by dividend per share.
Strategic focus
Demonstrates liquidity immediately
available to fund the non-bank group.
Strategic focus
Proportion of earnings generated provided
to shareholders.
Comment
Funding headroom has increased in the
year as cash is held on deposit to withstand
the short-term impact of Covid-19.
Comment
Focus on preserving balance sheet
strength given the overwhelming
uncertainty facing the UK economy
through the very difficult decision to
withhold the final 2019 dividend payment.
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
R
Links to remuneration
Read more on pages 148 to 171
*
Targets as disclosed at the
2019 Capital Markets Day;
an update on medium-term
targets will be communicated
following the delivery of the
changes to CCD when there is
also greater certainty on the
recovery of the UK economy.
1
Refer to accounting policies
for detail of restatement.
Provident Financial plc Annual Report and Financial Statements 2020
27
Strategic report CCD operational review
CCD operational
review following rising
customer complaints
Adverse CCD trading performance
The Consumer Credit Division (CCD) has suffered significant
financial difficulties since 2016. Whilst there are a number of
reasons for the poor financial performance, three key factors
have led to its recent decline: i) Covid-19 lockdowns; ii) the
increasing number of customer complaints for loans which
may have been incorrectly issued; and iii) reduced customer
access to new loans following the tightening of regulatory
requirements. An operational review of CCD was announced
in November 2020 as it became clear that PFG needed to
address the viability of the division. Further details on the
Operational Review are set out below.
Rising costs of customer complaints
As previously communicated, CCD was on track to break even
on a monthly basis in 2020, prior to the impact of Covid-19.
As a result of the significant reduction in lending during the
initial stages of the pandemic, CCD receivables ended H1’20
at £147m, a decline of c.40% year on year. The level of new
credit issued continued to reduce during H2’20 resulting in the
monthly credit issued halving during 2020. As a result, revenue
reduced from £118m in H1’20 to £74m in H2’20, driving increased
losses due to the inherent high cost base of the business and
rising levels of complaint costs.
Redress payments to customers of c.£25m were incurred
in H2’20 (H2’19: c.£2.5m) including FOS redress payments.
In addition, CCD has processed balance reductions for home
credit customers of c.£11m during the same period (H2’19: c.£1.0m).
Under the regulatory regime, CCD was required to ensure that
loans issued met certain minimum creditworthiness requirements.
These requirements included an obligation to perform checks
to ensure that customers could afford to repay their loans on
the date that repayment was due. Furthermore, repeat borrowing,
if any, had to be justified and sustainable. Unfortunately, in
certain cases, CCD may have failed to meet some of these
requirements. This has led to a number of customer complaints,
largely driven by claims management companies (CMCs).
Although CCD has made a number of compensation payments
to customers in recent years, the business cannot now afford
to continue to pay the claims in full at the rate seen during
H2’20 for the reasons stated above.
Whilst compensation claims are carefully considered and only
awarded where appropriate, if compensation claims continue
to be brought against CCD at the current rate, it is likely that
CCD would need to enter into an insolvency process.
Regulatory timeline
FCA regulates
the consumer
credit market
FCA published Policy
Statement 14/16:
Detailed rules for the
price cap on HCST
credit including
feedback on CP
14/10 and final rules
FCA published
the Call for Input:
High-cost credit
including review
of the HCST credit
price cap
FCA published a
Feedback Statement
on high-cost credit
including review of
the HCST credit
price cap
FCA published
decisions involving
Lender C and Lender D
1 APR
2014
25 JUN
2014
NOV
2015
4 NOV
2015
NOV
2016
2017
JUL
2017
JAN
2018
SEP
2018
15 OCT
2018
FCA published
a statement
regarding the
voluntary imposition
of requirements on
the permission of
Wonga Group Ltd
FCA published a
statement regarding
redress provided to
certain customers of
CashEuroNet UK LLC
FCA committed
on reviewing
effectiveness of the
price cap
FCA published an
update on the Call for
Input: High-cost credit
including review of the
HCST credit price cap
FCA issued a ‘Dear
CEO’ letter to HCSTC
regarding affordability
28
Provident Financial plc Annual Report and Financial Statements 2020
Scheme of Arrangement
The regulatory dynamics set out above have changed the
operating environment materially for CCD during the second
half of 2020. When combined with the impact of Covid-19 on
CCD’s profitability, customer complaints can no longer be
treated as part of its operating costs. As a result, CCD has
decided to seek a Scheme of Arrangement, under Part 26 of
the Companies Act 2006, in relation to potential redress claims
arising from historical customer creditworthiness complaints.
Once approved by customers and the Court, a Scheme would
bring certainty, as well as the most equitable outcome for all
stakeholders and would ensure that customers with a legitimate
claim get fair access to redress payments. The Group will fund
Scheme claims with £50m and will cover further Scheme-related
costs estimated at approximately £15m. The total commitment
would be met out of PFG’s existing capital resources.
On 22 April 2021, the Court made an order enabling CCD to
convene a meeting of Scheme creditors to consider the merits
of the Scheme. CCD customers, past and present, as well as the
Financial Ombudsman Service (FOS), now have the opportunity
to vote on the Scheme. The creditors’ meeting will be held on
19 July 2021 and, if creditors vote in favour of the Scheme, the
final Court sanction hearing will be held on 30 July 2021.
The proposed Scheme is considered by the PFG Board to be
the fairest compromise that can be offered for CCD customers
and if the Scheme is not sanctioned, it is likely that CCD will be
placed into administration or liquidation. If this were to happen,
CCD customers would not be expected to receive any
redress payment.
CCD operational update
In November 2020, PFG communicated its intention to
initiate an operational review of CCD, to be carried out
by the incoming Managing Director, Hamish Paton.
Following the review, which highlighted reducing customer
demand, changing home credit market dynamics and
the desire to focus on larger addressable market segments,
PFG has now decided to withdraw from the home credit
and high-cost short-term credit markets entirely.
PFG has therefore decided that the home credit business
will be placed into a managed orderly run-off, which would
be expected to conclude by December 2021. It is, however,
considering a sale of the home credit business, either as
a whole or in part, and has received a preliminary expression
of interest. Whilst there is no guarantee that these discussions
will lead to a transaction, PFG will continue to engage with
interested parties in parallel with its market withdrawal
plans. At the end of March 2021, CCD had approximately
2,100 employees. The cost to the Group of either a sale
or a managed run-off of CCD is expected to be less
than £100m.
PPC and PFMSL
receive FCA
authorisation
Firms entering into
HC agreements
required to explain
the comparative
costs of refinancing
an existing loan
against taking
out a new loan
FCA published a
webpage on its
high-cost credit review
FCA published a
report on alternatives
to high-cost credit
Kerrigan trial
took place
FCA published
the ‘Relending
by high-cost
lenders’ review
9 NOV
2018
2018/
2019
MAR
2019
6 MAR
2019
22 JUL
2019
25-26
SEP 2019
MAR
2020
5 AUG
2020
6 AUG
2020
2 FEB
2021
Test cases on
affordability and
relending issued
against GainCredit,
Elevate and
CashEuroNet
FCA issued Portfolio
Strategy Letter to
high-cost firms
regarding affordability
and relending
FCA visited CCD
and raised no
material concerns
Kerrigan judgment
was handed down
FCA published the
Woolard Review
Provident Financial plc Annual Report and Financial Statements 2020
29
Strategic report PFG’s contribution to the SDGs
We help...
to achieve inclusive
and sustainable growth
Our Purpose of helping to put people on a path to a better
everyday life goes beyond the traditional concept of mission,
vision and values; it articulates our reason for being, helps
differentiate the Company and contributes to the generation
of trust among all our key stakeholders. Our sustainability
strategy is aligned with this Purpose and centres on two
areas: lending responsibly and acting sustainably.
This strategy is also aligned with several of the United Nations’
Sustainable Development Goals (SDGs). By doing this, we can
demonstrate how our Purpose and business strategy actively
contribute towards the achievement of these important,
global objectives and move us on a more sustainable
and inclusive path.
Integration of the SDGs into our business strategy and
plans also enables us to strengthen the identification and
management of material risks and opportunities, anticipate
consumer trends and demand as consumption and production
patterns change, attract, retain and develop the best colleagues,
and strengthen our supply chains by, for example, reducing
their exposure to the effects of climate change and depletion
of natural resources.
In aligning our sustainability strategy to the SDGs, we focus
our efforts on the Goals where our contribution can have the
most impact. These are: Goal 1: No Poverty; Goal 4: Quality
Education; Goal 5: Gender Equality; Goal 8: Decent Work
and Economic Growth; and Goal 10: Reduced Inequalities.
This does not mean that the other 12 SDGs are less important
than the five we have prioritised, as we do, in delivering on
our sustainability strategy, contribute to many of them. For
example, through our commitment to minimise PFG’s impact
on the environment, we contribute to Goal 12: Responsible
Consumption and Production and Goal 13: Climate Action.
In 2020, we established long-term objectives/targets that are
aligned with each of the above SDGs. These are set out on the
following pages, along with details of the aim and relevance
of each SDG and PFG’s main activities during 2020 and
metrics and actions that contribute to each Goal.
Lending responsibly...
Acting sustainably...
No Poverty
To end poverty in all its forms everywhere.
Quality Education
To ensure inclusive and equitable quality
education and promote lifelong learning
opportunities for all.
Gender Equality
To achieve gender equality and empower
all women and girls.
Decent Work and Economic Growth
To promote sustained, inclusive and sustainable
economic growth, full and productive employment
and decent work for all.
Reduced Inequalities
To reduce inequality within and among countries.
30
Provident Financial plc Annual Report and Financial Statements 2020
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 help put them
on a path to a better everyday life.
No Poverty
Aim
To end poverty in all its forms everywhere.
Relevance of SDG
To reduce people living in poverty, and improve access
to appropriate financial services and technology.
PFG’s objective/target
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’s main 2020 actions and achievements
Our Purpose is to help put people on a path to a better
everyday life by addressing the key barriers to financial
inclusion. We do this primarily by ensuring that our 2.1 million
customers have access to cost-effective and appropriate
products that meet their specific needs. We also invest in
activities and initiatives that address key factors which may
affect someone’s likelihood of being accepted for credit.
To contribute to this goal in 2020, we supported IncomeMax,
a community interest company that helps people, some of
whom are experiencing financial difficulties, to maximise
their household income. Through the partnership that
IncomeMax has with Vanquis Bank, customers receive
independent personal money to help them take control of
their finances and help them reduce their household bills
and increase their income. We also worked with The Money
Charity to deliver financial education workshops to help
children and young people to develop their budgeting
and money management skills.
31
Strategic report PFG’s contribution to the SDGs continued
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 other
environmental, social and governance (ESG) matters.
Quality Education
Aim
To ensure inclusive and equitable quality education
and promote lifelong learning opportunities for all.
Relevance of SDG
To improve access for children and adults to quality
education and opportunities to develop new skills as an
avenue for social mobility and reducing inequalities.
PFG’s objective/target
By 2030 we will contribute to ensuring access to inclusive
and equitable quality education and 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’s main 2020 actions and achievements
To contribute to this Goal we support children, young
people and adults to boost their education, skills and
aspirations. The work we have already done to support
Quality Education includes being the lead supporter
of National Numeracy and its National Numeracy Day
campaigns. These campaigns look to raise awareness of
the importance of numeracy and help people take steps to
improve their numeracy skills. We also continue to support
National Literacy Trust to help develop the literacy skills of
young people and give them the confidence and desire
to widen their aspirations. Finally, through our work with
School-Home Support, we place practitioners in schools
to work with young people and their families who need
support to overcome challenges at home such as poverty,
poor housing, domestic violence and other complex issues
in order to get into school. We help to provide support in
schools in Bradford and Chatham, where persistent
absence levels are high.
Gender Equality
Aim
To achieve gender equality and empower all women
and girls.
Relevance of SDG
To promote more women into senior level positions,
and reduce the gender pay gap.
PFG’s objective/target
By 2024 we will have 40% female representation
in the Group’s senior management population.
PFG’s main 2020 actions and achievements
PFG’s senior management population currently has 27%
female representation. The key actions we undertook
throughout 2020 to support this SDG include: delivering
our Next Generation Women’s Leadership Programme
to a second cohort to help strengthen the female talent
pipeline at the senior/middle management level;
improving our reporting capability through better data
collection by creating a standardised approach across the
Group for a range of diversity strands; and setting up an
affinity group linked to gender. In addition, the percentage
of women on the PFG Board is 40%.
32
Provident Financial plc Annual Report and Financial Statements 2020
Decent Work and Economic Growth
Aim
To promote sustained, inclusive and sustainable
economic growth, full and productive employment
and decent work for all.
Relevance of SDG
To ensure full and productive work, and equal pay for
work of equal value, expand access to financial services,
and support economic growth.
PFG’s objective/target
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.
Reduced Inequalities
Aim
To reduce inequality within and among countries.
Relevance of SDG
To provide an inclusive and secure workplace for all
and address key barriers to financial and social
inclusion and help people overcome them.
PFG’s objective/target
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 be because of their age/sex/
gender identity/race/ethnicity/origin/disability/ability
or where they live or what their economic status is.
PFG’s main 2020 actions and achievements
Through our Social Impact Programme, we aim to promote
sustained, inclusive and sustainable economic growth, full
and productive employment and decent work for all by
creating opportunities for all generations. We are a founding
funder of the Social Mobility Business Partnership which
provides an innovative programme bringing 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 them to pursue a career in a profession which they
may not have previously considered. We also support
charities and other organisations in the communities
we serve to help people to develop their skills and secure
employment opportunities. For example, in 2020, we funded
the Wecock Community Association in Hampshire to
provide advice to young people who are not in education,
employment or training to access work opportunities, and
our colleagues volunteered their time to deliver CV writing
and job interview skills to young people in Bradford.
PFG’s main 2020 actions and achievements
Through this Goal, our aim is to contribute to reducing
inequality by building our capabilities to better identify,
support and empower our stakeholders who may face
inequality and exclusion. We do this by supporting
community projects in areas where people are more likely
to face social and financial exclusion by providing them
grants to support local people in improving aspects of
their life. For example, we provided a grant to the Refugee
and Migrant Forum of East London to enable it to deliver
immigration casework to disadvantaged young refugees
and migrants who are entitled to be in the UK but cannot
afford to regularise their status. We also support the
Newport Yemeni Community Association in Wales to
deliver an online homework club that allows children from
the Yemeni community to engage with tutors and access
support in key subjects such as Maths, English and Science.
We also seek to ensure that we create a workplace culture
at PFG which aims reduce inequalities. In 2020, this saw us
launch our overall inclusion community which comprises
four affinity groups based around disability, ethnicity,
gender and LGBTQ+ to discuss inclusion and diversity
plans, developments and proposals across PFG.
Provident Financial plc Annual Report and Financial Statements 2020
33
Strategic report Market overview
We...
understand our markets
Market overview
Market developments Market composition
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; c.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:
– forecast rises in unemployment;
There are three main categories
of products in our market:
– revolving credit accounts, including
credit cards;
– secured loans, where an asset is used
– the end of FCA-mandated payment
as security for the loan; and
holidays; and
– reduced risk appetite from
mainstream lenders.
Our market is highly and robustly
regulated, primarily by the FCA, PRA
and CBI (in the Republic of Ireland),
with regulation subject to ongoing
evolution and change.
– unsecured loans, including personal
loans, home collected credit and
online high-cost short-term lending.
Average customer credit risk score
k
s
R
i
r
e
w
o
L
r
e
h
g
H
i
34
Vehicle finance
Credit cards
Unsecured
personal loans
Home credit
HCSTC
Provident Financial plc Annual Report and Financial Statements 2020
Note: Bubble size is proportionate to debt outstanding in the market at December 2020.
The products we offer
Revolving credit
Unsecured loans
Secured loans
Prime/mainstream
Salary finance
Salary
advance
Buy
now,
pay
later
Over-
drafts
Credit card,
store card and
retail credit
accounts
Lines of credit
APR
>20%
APR
>50%
APR
>100%
i
s
R
P
A
g
n
s
a
e
r
c
e
D
Decline/unable to lend
1st and
2nd
charge
mort-
gages
Motor finance
Personal loans
and retail
point-of-sale
finance
Guarantor loans
Rent to own
Pawnbroking
Home credit*
High-cost
short-term
credit*
We will continue to evolve our product offering through 2021, enabling us to support more consumers on their credit
journey. In particular:
– Vanquis will develop and expand its unsecured
personal loan offering in 2021.
– Moneybarn expanded into the near-prime motor
finance space in Q1’21 with APRs from 14.9-21.9%. In
addition, Moneybarn has repositioned away from higher
APR sub-prime lending through 2020, with it no longer
lending above 49.9% APR.
* These are in managed run-off.
Provident Financial plc Annual Report and Financial Statements 2020
35
Strategic report
Market overview continued
We...
understand the trends
in our markets
Key trend
Narrative
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 well placed to adapt quickly to
changes in the macro-environment
and the competitive landscape as
both evolve and return to their new
normal post-Covid-19. 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.
Digital revolution
Macroeconomic
factors
Competitive
landscape
– 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 has accelerated through Covid-19 as later
adopters have become more accustomed to
interacting digitally.
– UK economic conditions have deteriorated
through Covid-19, although the economic outlook
is improving with the OBR forecasting a return to
pre-Covid-19 GDP levels in mid-2022, six months
faster than previously forecast.
– The OBR is now forecasting peak unemployment
of 6.5% in 2021 and the furlough scheme is currently
expected to end in September 2021.
– 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 has accelerated through Covid-19 as
liquidity pressures have increased and funding
has become harder to access.
Sustainability
– There is increasing consumer, investor and political
expectation that firms will conduct their operations
in a sustainable manner.
Regulatory
environment
– 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.
36
Provident Financial plc Annual Report and Financial Statements 2020
How we are responding
– 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. We have recently launched a partnership with Exchange & Mart enabling our
customers to search for suitable vehicles through the Moneybarn website, further improving
the customer experience.
– In CCD, Provident Direct has been rolled out nationwide in 2020. This provides customers
more choice in their interactions with us (for example enabling disbursement of funds into
their bank accounts and offering remote collection options), whilst maintaining regular
contact with customers’ Customer Representative, a key feature of the home credit model
that ensures customers are well supported across the life of their loan.
Annual Report reference
– Page 22: Our strategy in
action – grow customer-
centric businesses
– We are well placed to serve customers who may be excluded from mainstream
lending due to a deterioration in the economy as we have specialist affordability and credit
risk assessments.
– Pages 184 and 185:
Impairment provisioning
– We also have a broad risk appetite offering products across a range of price points,
increasing financial inclusion across the market.
– In addition, we have the necessary controls in place to ensure we can quickly respond
to any material changes in macro conditions.
E1
Page 59: Threats to
our business model
– We have a strong balance sheet and access to low-cost retail deposit funding through
Vanquis Bank.
– In addition, we are constantly exploring opportunities to diversify our retail offering as well
as considering commercial funding options.
– Page 38: Credit card market
– Page 39: Personal loans market
– Page 42: Vehicle finance market
– Page 44: Home credit market
– Page 45: HCSTC market
– 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.
P2
Page 55: Liquidity
and funding risk
– 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.
– Pages 30 to 33: PFG’s contribution
to the SDGs
– Pages 70 to 90: Sustainability
– 2020 Corporate Responsibility
Report
– 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.
P6
Page 57: Conduct
– 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.
P5
E1
E2
Page 56: Legal
and regulatory
Page 59: Threats to
our business model
Page 60:
Responsible lending
Provident Financial plc Annual Report and Financial Statements 2020
37
Strategic report Credit Card Division
Vanquis 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.
Non-prime credit card
market stock
£5,586m
£4,640m
Vanquis
share
26%
25%
Dec
19
Dec
20
Neil Chandler
Vanquis Bank Managing Director
Market characteristics
– The credit card market is large and stable, although
the market did reduce slightly in 2020 driven by lower
consumer spending.
– 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 (118 118
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.
Money and Zopa), although these providers are yet to reach
significant scale.
– New advancements in credit cards include the use of open
banking to assess affordability and cardless credit cards.
– 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).
Covid-19 impact
– During 2020, credit card users have typically reduced
their balances. This has been driven by lower levels
of spending during Covid-19 restrictions.
– We believe that the importance of credit cards will
rebuild in the coming years as the economy recovers.
In addition, the acceleration of online shopping through
2020 coupled with the additional protections inherent
in credit card purchases could further grow the credit
card market in future years.
38
Provident Financial plc Annual Report and Financial Statements 2020
Vanquis personal loans
Vanquis Bank issues unsecured personal loans to existing credit
card customers. Having taken substantial learnings from lending
since 2016 to existing credit card customers, lending to existing
customers has continued to increase.
Non-prime personal
loan market (flow)
£2,014m
£1,332m
Vanquis
share
2%
19
2%
20
Market characteristics
– The market is of a substantial size (>£1bn) and growing.
Model
– One to five-year loans at a range of APRs.
– Providers operate at a range of price points (c.15–100% APR)
– Personal loans are typically taken to meet a specific
enabling consumers with a broad range of risk profiles
to access unsecured loans.
one-off need.
– Customers are acquired increasingly through internet
– There have been a number of new nearer-prime entrants
(e.g. Lendable and Chetwood Financial) in recent years.
affiliates, with customers then typically managing their
account through an online login or mobile app.
Market appeal
– The non-standard personal loans market is substantial
in size and growing.
– 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 Vanquis to meet
a greater level of the demand in the market.
Covid-19 impact
– In 2020, supply in the market reduced significantly as
lenders quickly adjusted to changing macro conditions
and reduced new lending.
– Through 2021, we expect the market to normalise
and lending to return towards 2019 levels as the
economy stabilises.
Provident Financial plc Annual Report and Financial Statements 2020
39
Strategic report Credit Card Division continued
Vanquis Bank – financial performance
Vanquis Bank is a leading specialist in the large and established
credit card market with strong capital and liquidity positions.
As a direct result of Covid-19, the business reported adjusted
profit before tax for 2020 of £38.0m, down from £173.5m in 2019,
and receivables at the end of the period of £1,094.3m were
approximately £368m lower than 2019 (FY’19: £1,461.5m).
As a result of underwriting standards being tightened materially
in April, new customer bookings for the year were 248k, down
from 369k in 2019. Accordingly, Vanquis Bank customer numbers
reduced by 3.1% to 1,667k during the year (FY’19: 1,720k). 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.
Vanquis Bank
started offering its
credit card and
personal loan customers
a payment holiday
from April, in advance
of FCA guidance.
During the period, lending to existing
customers continued with 166k credit
line increases (CLIs), equating to c.£140m
of additional headroom on customer
cards, and 108k interest rate reductions
were delivered to customers.
12 months ended 31 December
Customer numbers (‘000)
Period-end receivables
Average receivables1
2020
£m
1,667
1,094.3
1,233.9
1,720
1,461.5
1,459.9
2019
£m
Change
%
Revenue
Interest
481.4
(34.4)
580.9
(31.4)
(3.1%)
(25.1%)
(15.5%)
(17.1%)
(9.6%)
Net interest margin
447.0
549.5
(18.7%)
Impairment
(239.9)
(198.9)
(20.6%)
Risk-adjusted net
interest margin
Costs
207.1
350.6
(40.9%)
(169.1)
(177.1)
4.5%
Adjusted profit before tax2
38.0
173.5
(78.1%)
Annualised revenue yield3
Annualised impairment rate4
Annualised return on equity5
39.0%
19.4%
8.9%
39.8%
13.6%
32.9%
(0.8%)
(5.8%)
(24.0%)
1
2
3
Calculated as the average of month-end receivables for the 12 months
ended 31 December.
Vanquis Bank profits reflect an adjustment for the release of a ROP
provision (£8.3m) in 2020. The 2019 adjusted profit before tax reflects a net
exceptional credit of £12.4m comprising an exceptional credit of £14.2m in
respect of the release of provisions established in 2017 for the ROP refund
programme and restructuring costs of £1.8m.
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.
In response to the onset of Covid-19, new customer bookings
were reduced by 75% during Q2’20, all new loans activity was
curtailed and the Credit Line Increase (CLI) programme was
suspended. New customer booking volumes resumed in the
second half of the year, although booking activity is being
restricted to approximately 50% of pre-Covid-19 levels as risk
appetite remains cautious given the economic backdrop. The
CLI programme resumed in the second half and is currently
tracking at approximately 50% of pre-Covid-19 levels.
Receivables ended the period at £1,094.3m (FY’19: £1,461.5m),
a decrease of £368m compared with 2019. The reduction in
receivables can be attributed to lower customer bookings, the
CLI programme suspension and lower customer spending. In
April, customer spending reduced by c.40% year-on-year. By
the end of July, this had recovered to be 15% lower year-on-year.
At the end of December, impacted by Tier 3 and Tier 4 local
lockdowns and the second national lockdown, customer
spending was down by 20% year-on-year, in-line with market
trends. As a result of lower customer spending, utilisation rates
ended the year at c.53% having been c.60% in January. Customer
spending in Q1’21 continued to be heavily impacted by the UK
lockdown and was approximately 25% lower than prior year
levels. However, customer spending in April 2021 has seen a
return to normal levels.
Vanquis Bank KPIs
39.8%
39.0%
32.9%
19.4%
13.6%
19
20
40
Revenue
yield
Impairment
rate
ROE
Provident Financial plc Annual Report and Financial Statements 2020
8.9%
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.
Vanquis Bank continues to focus on enhancing its customer
proposition, which includes:
– Entering a partnership with Payit in 2020, enabling users
to make simple and secure payments to their credit card
balance without the use of a debit card. Payments are made
through the Vanquis Bank app, which has over 1 million users,
and can be made from major UK banks. It provides an instant
update to available credit and provides an updated balance
by the next working day.
– A partnership with LOQBOX, announced recently, which offers
a way for customers to improve their credit score. If a customer
applies to Vanquis Bank for a credit card and is declined,
Vanquis Bank will refer them to LOQBOX. After signing up,
LOQBOX will help customers decide how much they can
save in a year (from £20 to £200 per month) and a 0% loan
is locked away for the same amount in LOQBOX. After the
12-month period finishes, the money saved is released back
to the customer’s bank account and the loan is repaid. The
improvement in the customer’s credit rating will allow
Vanquis Bank to offer them a credit card.
Vanquis Bank remained profitable for 2020 as a whole and
has strong capital and liquidity positions resulting in £110m
of dividends being paid to the parent, Provident Financial plc
during 2020, with an additional £40m being paid following the
year end. It remains focused on enhancing its customer and
digital propositions as well as broadening its range of
products. This dual focus forms an important part of its aim of
becoming the bank for the underserved customer.
Vanquis Bank supported its customers
and colleagues throughout 2020 given
the significant disruption caused by
Covid-19. From mid-April, 80% of contact
centre and 100% of head office colleagues
were working remotely with minimal
impact on customer service levels.
Vanquis Bank generated revenue of £481.4m in 2020, down
from £580.9m in 2019 driven by the fall in customer receivables.
A slight moderation in the revenue yield to 39.0% (FY’19: 39.8%),
reflected the ongoing c.£15m annual reduction in ROP income,
the ban on the use of credit cards for gambling transactions,
which came into force in April, and changes to the basis of
charging default and over limit fees.
Interest costs increased to £34.4m during the year (FY’19: £31.4m)
reflecting the additional retail deposits raised during April and
May. Vanquis Bank operated with c.£650m of excess liquidity
over and above its regulatory requirements during the year
which has resulted in additional funding costs of approximately
£5m. This increase in interest costs was partly offset by lower
receivables and a lower interest rate environment which
benefited retail deposit costs.
The impairment charge for 2020 was £239.9m (FY’19: £198.9m),
an increase of 20% compared to 2019, which equated to an
annualised impairment rate of 19.4% at the end of December,
compared to 13.6% in FY’19.
The increase in impairment in 2020 reflects the impact of
Covid-19, the deterioration in the macroeconomic outlook, a
provision for customers entering into PD36, which came into
effect from October 2020, and the exit performance of customers
who had taken a payment holiday. The lower revenue yield
and a higher impairment rate combined to equate to the
risk-adjusted NIM reducing to 16.8% (FY’19: 24.0%).
Vanquis Bank began offering its credit card and personal loan
customers a payment holiday from April, in advance of FCA
guidance. The take-up peaked during May at c.3% of customers
and 5% of receivables. Since then, there has been a gradual
reduction in payment holiday levels with take-up as a percentage
of customers falling to 0.5% and receivables to 1.0% at the end
of December.
Costs reduced to £169.1m in 2020 (FY’19: £177.1m), reflecting the
ongoing cost efficiency programme, together with the cessation
of all discretionary spend in response to Covid-19 and lower
customer acquisition costs from lower customer bookings
during the year.
Vanquis Bank supported its customers and colleagues
throughout 2020 given the significant disruption caused by
Covid-19. From mid-April 80% of contact centre and 100% of
head office colleagues were working remotely with minimal
impact on customer service levels. During the period, lending
to existing customers continued with 166k CLIs, equating to
c.£140m of additional headroom on customer cards, and 108k
interest rate reductions were delivered to customers. Vanquis
Bank continues to place significant focus on providing additional
support to customers in financial difficulty through either:
(i) payment holidays in line with FCA guidance (to over 100k
customers); (ii) payment freezes as part of the ROP product;
and (iii) a number of other forbearance measures.
Provident Financial plc Annual Report and Financial Statements 2020
41
Strategic report Vehicle Finance Division
Moneybarn motor finance
Moneybarn was acquired by the Group in 2014, enabling us to
broaden our offering into secured motor finance. Moneybarn has
since grown at a compound annual growth rate of 27% to become a
leading player in the market. In addition, Moneybarn’s expansion into
the nearer-prime motor finance market in January 2021 provides
further opportunities for Moneybarn to support more consumers
excluded from mainstream lending.
Non-prime vehicle
finance market (flow)
£5,250m
£4,703m
Moneybarn
share
11%
11%
19
20
David Shrimpton
Moneybarn Managing Director
Market characteristics
– Motor finance is a secured product. Secured finance is a
Model
– Motor finance is typically on three to five-year secured
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.
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).
– There are numerous providers that span over a range of risk
appetites (e.g. Advantage, MoneyWay and Close Brothers).
Covid-19 impact
– Moneybarn has the broadest coverage of APRs in the
non-prime market and its recent 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.
– The motor finance market has remained resilient
through Covid-19. There has been healthy demand,
particularly amongst key workers keen to avoid using
public transport. In addition the used motor finance
market has remained robust with stable prices.
42
Provident Financial plc Annual Report and Financial Statements 2020
Moneybarn – financial performance
Moneybarn is one of the largest suppliers of vehicle finance
to underserved customers in the UK and successfully grew
its market share during 2020. The business has a strong track
record and is in an excellent position to continue to deliver good
levels of growth and strong returns. For the twelve months to
the end of 31 December 2020, Moneybarn generated an adjusted
profit before tax of £10.9m (FY’19: restated £21.1m). The fall
year-on-year was driven by higher impairment as a result
of Covid-19, which more than offset good growth in its
receivables and customer numbers.
Moneybarn was able to continue lending to its customers
throughout 2020, including the periods of national lockdown,
thanks to actions taken at the onset on Covid-19. As a result of
remaining open, Moneybarn has consolidated and increased
its market position and cemented its relationships with
key introducers.
New business volumes during 2020 were comparable to
2019 at 38.0k (FY’19: 38.8k) despite tighter underwriting criteria.
Moneybarn benefited from competitors pulling back from the
market during 2020 and, as a result, has seen an improvement
in the quality of the new business being written, e.g. the average
credit score of new customers has increased. As a result of this
improvement, the average loan value increased to its highest
level in two years, to just over £8k, which drove total credit
issued to over £300m for the first time. For the year as a whole,
approximately 38% of Moneybarn’s new lending was to people
classified as keyworkers.
Moneybarn ended the year with 91k customers, representing
an increase vs. FY’19 of 14k or 18.7%. The underlying demand for
quality used cars, especially within Moneybarn’s core market,
is expected to continue post-lockdown as concerns around
the use of public transport persists and prime- and near-prime
providers pull back from the market.
At the end of December, receivables stood at £566.6m
(FY’19 restated: £489.1m), driven by healthy new business
volumes and the average loan size increasing.
As a result of the higher receivables base, revenues during FY’20
increased by 11.9% year-on-year to £134.0m (FY’19 restated: £119.8m).
This growth was delivered despite a reduction in higher risk
lending during the period. The annualised revenue yield at the
end of December was 25.1% vs. 25.1% in December 2019. After
the period end, Moneybarn launched a near-prime offering,
designed to capture more of that market segment, priced at
14.9% APR.
Interest costs fell during the year to £24.6m (FY’19: £28.4m)
reflecting lower funding costs being offset by a higher receivables
balance. The net interest margin at the end of December stood
at 20.5% vs. 19.2% a year earlier.
Impairment increased significantly during the year to £72.7m
(FY’19 restated: £49.4m) as a result of Covid-19’s impact on the
arrears rate and increased provisions driven by a deterioration
in the macroeconomic environment. As a consequence, the
annualised impairment rate increased to 13.6% (FY’19 restated: 10.4%).
On a risk-adjusted basis, the net interest margin fell to 6.9% at
the end of December vs. 8.8% a year earlier, as a result of the
increased impairment rate. The annualised impairment rate
remained elevated during 2020 due, in part, to persistently
higher arrears levels supported by a challenging termination
process, as the company’s ability to collect vehicles was restricted.
This restriction, as per FCA guidance, was lifted on 31 January
2021. Whilst Moneybarn is now able to collect vehicles again,
it remains sensitive to customer circumstances.
Customer numbers (‘000)
Period-end receivables
Average receivables2
Revenue
Interest
Net interest margin
Impairment
Risk-adjusted net
interest margin
Costs
12 months ended 31 December
2020
£m
91.4
566.6
533.1
134.0
(24.6)
109.4
(72.7)
2019 1
£m
Change
%
77.0
489.1
476.9
119.8
(28.4)
91.4
18.7%
15.8%
11.8%
11.9%
13.4%
19.7%
(49.4)
(47.2%)
36.7
(25.8)
42.0
(12.6%)
(20.9)
(23.4%)
Adjusted profit before tax3
Annualised revenue yield4
Annualised impairment rate5
Annualised return on assets6
10.9
25.1%
13.6%
5.4%
21.1
(48.3%)
25.1%
10.4%
8.4%
—
(3.2%)
(3.0%)
1
2
3
The 2019 comparatives have been restated to retrospectively reflect the
accelerated IFRS 9 point of default from the termination of a customer
contract to when the customer has missed three contractual repayments.
Calculated as the average of month-end receivables for the 12 months
ended 31 December.
Adjusted profit before tax is stated before the amortisation of acquisition
intangibles of £7.5m (2019: £7.5m) for 2020. In 2019, adjusted profit before tax
reflects an exceptional credit of £2.6m in respect of the release of provisions
established in 2017 following completion of the FCA investigation
into affordability.
4 Revenue as a percentage of average receivables for the 12 months ended
31 December.
5 Impairment as a percentage of average receivables for the 12 months
ended 31 December.
6 Adjusted profit before interest after tax as a percentage of average
receivables for the 12 months ended 31 December.
take-up of such arrangements than the wider market.
At its peak, the take-up of a payment holiday by Moneybarn
customers was 23.0%. Following the initial one to three-month
payment holidays expiring, the overall number declined and,
at the end of December, the proportion of Moneybarn customers
with an active payment holiday was 1.3%.
Costs increased during the course of the year to £25.8m, from
£20.9m a year earlier, reflecting an increase in headcount,
volume related costs – such as credit bureau searches –
and arrangements for working remotely.
For 2021, Moneybarn will continue to target growth in its traditional
markets and, as mentioned above, has launched a near-prime
product to expand its target market.
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.
Moneybarn KPIs
25.1%
25.1%
13.6%
10.4%
8.4%
5.4%
Revenue
yield
Impairment
rate
ROA
Prior to the FCA issuing guidance to the market regarding
payment holidays, Moneybarn started working with its customers
proactively to ease any potential financial hardship they might
be experiencing. Therefore, Moneybarn experienced an earlier
19
20
Provident Financial plc Annual Report and Financial Statements 2020
43
Strategic report Consumer Credit Division
Provident Home Credit
The home credit market has experienced significant
change throughout 2020 with lenders having to quickly
adopt more remote business models, in order to continue
serving customers through Covid-19 lockdowns.
Home credit market (flow)
£890m
£592m
Provident
share
39%
39%
19
20
Hamish Paton
CCD Managing Director
Market characteristics
– Online/purely remote lending is not appropriate for
Model
– 13–104-week cash loans are typically delivered and collected
everyone. Some customers need the face-to-face service,
structure and product flexibility provided by home credit
to serve their needs responsibly.
in the home by employed Customer Representatives or
self-employed agents (depending on the lender’s
operating model).
– There are few key competitors nationally (e.g. Morses and
Loans at Home), a number of regional providers and a large
number of small local providers.
Market appeal
– The market stabilised in 2019 following the disruption caused
by the change in the Provident operating model in the UK.
– The market declined significantly in 2020 driven by a reduction
in supply as lenders adapted their models to facilitate remote
disbursement of funds and remote collections. The receivables
of lenders in the market have also fallen during 2020.
– The market is also evolving following significant recent
changes to the regulatory environment, including new
repeat lending guidance.
– Technology has improved operating efficiency and
compliance with the regulator (e.g. lending apps).
– Lenders have focused on modernising their propositions
during 2020 to provide customers with remote repayment
options and online portals.
Covid-19 impact
– Covid-19 has significantly accelerated changes in
the home credit market, including the introduction of
remote disbursement and collection options as well as
the introduction of online logins/mobile apps to support
customers managing their loans remotely.
– Significant reduction in the home credit customer
receivables combined with the rising cost of complaints
which has led to the Group regrettably deciding to
withdraw from the home credit market entirely.
44
Provident Financial plc Annual Report and Financial Statements 2020
Satsuma HCSTC
Satsuma was launched in 2013 in response to consumers’ growing
appetite to transact financially online. Satsuma had grown to
secure a top 3 position in the high-cost short-term credit market in
2019. However, it paused lending in 2020 due to Covid-19. Covid-19,
coupled with a number of changes in the regulatory environment,
has challenged the viability of the sector and resulted in a number
of competitors entering administration.
High-cost short-term
market (flow)
£820m
Satsuma
share
24%
19
£184m
8%
20
Market characteristics
– Strong levels of consumer demand.
– Supply in the market has been significantly impacted by the
exit of a number of lenders (e.g. Wonga, Sunny and Quick Quid)
with few scale operators remaining (e.g. Lending Stream).
Model
– 1–12-month fixed repayment loans managed
and repaid digitally.
– Recent technological advancements have been focused
around customer affordability (e.g. the use of Open Banking
to conduct income and expenditure assessments).
Market appeal
– There is strong underlying consumer demand
for short-term digital loans.
– In general, consumer preferences are moving
towards managing their finances online, particularly
for younger generations.
– Lenders in the market have struggled driven by restricted
access to funding, historical lending practice liabilities
and significantly increased regulation, all of which
has led to a reduction in supply in the market.
Covid-19 Impact
– During 2020, supply in the high-cost short-term credit
market reduced significantly. A number of competitors
in the market entered administration in the year
(including MyJar, Sunny, Uncle Buck and Peachy).
– Covid-19 has accelerated the adoption of digital
methods which may present greater demand for
digital loans.
Provident Financial plc Annual Report and Financial Statements 2020
45
Strategic report Consumer Credit Division continued
CCD – financial performance
The Consumer Credit Division (‘CCD’) comprises Provident
home credit and Satsuma. For 2020, CCD reported an adjusted
loss before tax of £74.9m, vs. an adjusted loss before tax for
FY’19 of £20.8m. The increased loss for the period reflects lower
receivables driving overall lower net revenue but including
increased impairment, driven by Covid-19, and significant cost
efficiencies being substantially offset by a significant increase
in complaints costs in 2020.
The home credit business responded quickly to the challenges
presented by Covid-19 by introducing several new ways of
working for its field-based colleagues in order to continue
supporting its customers. They are able to offer lending and
collections services on a fully remote basis including: taking
repayments online, over the phone or via an Allpay card,
managing loan applications remotely to new, existing or
returning customers, offering Provident Direct and utilising
central collections activity support with a particular focus on
arrears and customers missing payments consecutively.
Customer
numbers ended
the period at 311k.
Customer numbers ('000)
Period-end receivables
Average receivables1
Revenue
Interest
Net interest margin
Impairment
Risk-adjusted net interest
margin
Costs
Twelve months ended 31 December
2020
£m
311
138.9
166.0
192.4
(10.3)
182.1
(47.5)
2019
£m
Change
%
522
249.0
247.3
(40.3%)
(44.2%)
(32.9%)
295.4
(34.9%)
(9.7)
(6.2%)
285.7
(96.2)
(36.3%)
50.6%
134.6
189.5
(29.0%)
(209.5)
(210.3)
0.4%
Adjusted loss before tax2
(74.9)
(20.8)
(260.1%)
Annualised revenue yield3
Annualised impairment rate4
115.9%
28.6%
119.5%
38.9%
(3.6%)
(10.3%)
Annualised return on assets5
(31.5%)
(3.6%)
(27.9%)
1
2
3
Average of month-end receivables for the 12 months ended 31 December.
Adjusted loss before tax is stated before exceptional items of £66.6m
(2019: £14.4m).
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 loss before interest after tax as a percentage of average
receivables for the 12 months ended 31 December.
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.
CCD KPIs
119.5%
115.9%
The home credit team implemented
a process to help identify customers
indicating that they have been
impacted by Covid-19 and whose
circumstances have changed
as a result.
19
20
38.9%
28.6%
(3.6%)
(31.5%)
Revenue
yield
Impairment
rate
ROA
46
Provident Financial plc Annual Report and Financial Statements 2020
The home credit team implemented processes to help identify
customers indicating that they have been impacted by Covid-19
and whose circumstances have changed as a result. At the end
of June, there were c.8.5k customers identified which equated
to around 4% of customers and 1% of receivables. By the end of
December, this had fallen to c.5k, representing 1.6% of customers
and 1% of receivables.
Customer numbers ended the period at 311k, which represents
a reduction vs. FY’19 of c.40%, driven by significantly reduced new
customer bookings and lower total issue volumes in home
credit, and the decision in Q2 2020 to pause lending on the
HCSTC Satsuma book. This is reflected in new issue volumes
being down by c.47% vs. FY’19 in home credit as a result of
tighter underwriting standards and operational restrictions
due to Covid-19, the latter particularly in the earlier stages
of the pandemic.
CCD receivables ended the period at £138.9m, which represents
a decline of 44% year-on-year, driven by significantly lower issue
volumes and higher impairment due to Covid-19. Satsuma
receivables stood at less than £5m at the end of December as
lending to new and existing customers was paused in Q2 2020,
although collection activity remaining strong throughout
the period.
Revenue for the period was £192.4m, which equates to a reduction
of 34.9% vs. FY’19, which was driven by the fall in customer
receivables during the period. The reported revenue yield for
FY’20 was 115.9%, lower than the comparable figure for FY’19 of
119.5% due to the significant reduction in the higher-yielding
HCSTC Satsuma loan book in 2020. The net interest margin for
the year was £182.1m (FY’19: £285.7m) driven by the significantly
lower revenue recognised in the period from the lower receivables
and slightly lower yield.
Impairment for the year amounted to £47.5m, a decrease
of 50.6% vs. FY’19 of £96.2m. The lower impairment charge
year-on-year is driven by the dynamics in both the home credit
and Satsuma receivables books. Despite the significantly smaller
book year-on-year, the home credit impairment charge increased,
impacted by higher relative levels of write-off after the initial
onset of Covid-19. The collect out of the Satsuma book during
the year was stronger than initially anticipated and contributed
to a lower than expected impairment charge. As a result, the
impairment rate at the end of December was 28.6% vs. 38.9%
in FY’19 with the impact of the lower Satsuma impairment
outweighing the lower total average receivable for the year.
On a risk-adjusted basis, the net interest margin fell by 29%
year-on-year to £134.6m, with lower recognised revenue being
partly offset by lower impairment. The risk-adjusted net interest
margin as a proportion of average receivables rose to 81.1% vs.
76.6% in FY’19 driven by the lower impairment rate dynamics.
Costs fell by 0.4% during 2020 to £209.5m vs. FY’19 (£210.3m).
Total expenses were reduced significantly year-on-year driven
by lower salary costs, following management action taken in
2019 and 2020 to reduce headcount, and savings realised across
several other operating areas including travel, property, marketing
and lower commission costs in the ROI business. The cost
efficiencies were substantially offset by a significant increase
in complaint costs, primarily from the UK home credit
business, of c.£40m vs. FY’19.
Within CCD, the concept of forbearance
is implicit within the business model.
Payment holidays peaked during H1’20
at c.3% of customers but, by the end of
December, this had improved to c.5.0k
customers equating to 1.7% or 1.3%
of receivables.
47
Strategic report Risk management and principal risks
continuing to enhance our risk management capabilities while
harmonising our supporting risk infrastructure and frameworks
We are...
Q1.
How are we ensuring our risk management capabilities stay
aligned with the rapidly changing needs of the Group?
Under the leadership of the Group CRO and sponsored by the
Group Risk Committee (GRC), we have made good progress in
implementing key aspects of our risk harmonisation programme
including aligned Group risk appetite framework and measures.
When the programme is fully implemented in 2021, the Group
will have a single Enterprise Risk Management Framework
(ERMF) and associated policies, tools, systems and processes.
This is, and will continue to drive greater consistency in our
approach to risk management across all the divisions, while
reinforcing the importance of line management being
accountable for the risks they own.
Q2.
How are we responding to the significant changes in our
regulatory environment?
As a market leader across all our businesses, we are ensuring
the lessons learned from past regulatory failings are incorporated
into all aspects of our regulatory risk management and business
models. We now have stronger and more trusted regulatory
relationships, with improved insights into emerging and horizon
risks. We are beginning to leverage the strength of the Group
through an aligned approach to regulatory risk management,
as well as improved collaboration through formal cross-divisional
forums. These include customer complaints, responsible lending,
managing vulnerability and customer outcome monitoring.
Q3.
What is our main risk focus for the next 12 months?
Effective risk management is something which is integral to
our culture and underpins everything we aim to achieve as
an organisation. As our businesses continue to evolve, we are
supporting management in ensuring our customer propositions
continue to serve their changing needs, through, for example,
the launch of a personal loans loan product. We will embed
these and any other required control changes through our risk
and control self-assessment at all levels of the organisation.
This will provide ongoing assurance to the Group Board that
critical business processes continue to have adequate controls
in place, as well as allowing us as a Group to prioritise any
required investment spend for the future.
Q&A
with
David Rutherford
Group Chief
Risk Officer*
Our risk appetite framework is critical in
demonstrating the effectiveness of our
risk governance. It provides a clear line
of sight between the risk parameters
set by the Group Board and decisions
taken by management when developing
divisional business plans.
David Rutherford
Group Chief Risk Officer
*
David Rutherford served as Group CRO for the
financial year ended 2020, and until 30 April 2021.
On 1 May 2021 Gareth Cronin became Group CRO.
48
Provident Financial plc Annual Report and Financial Statements 2020
Introduction and recent developments
Introduction/overview
During 2020, the Group has continued to strengthen its risk
management capabilities. This has been significantly
influenced by the pandemic. It has highlighted that our
current risk management arrangements are resilient where
we have had to adopt an agile and flexible approach to
decision making, reflecting the significant uncertainty
in the macroeconomic environment.
Group’s approach to risk management
The Group operates a robust and dynamic approach to risk
management. This reflects the sector in which we operate and
is aligned with our Customer Blueprint, which helps put people
on a path to a better everyday life. We achieve this through
strong controls with the aim of supporting sustainable business
growth and profits, while simultaneously delivering fair customer
outcomes. Each of our divisions currently has its own risk
management frameworks (RMFs), with strategic direction
provided by the Group CRO (via the Group RMF) to drive
consistency, improved collaboration and effective
aggregation of our risk reporting.
While the Group framework is fairly recent in its adoption (12-18
months), it is becoming increasingly important in supporting
the Group Board and Executive as we move towards a more
integrated business strategy and cross-collaboration of activities.
We have plans to integrate the various divisional RMFs into a
single ERMF through 2021. This programme of ‘risk harmonisation’
will ensure our risk management capabilities continue to evolve
alongside future strategic developments. This enterprise
approach will enable a single view of all risks, while managing
these in a consistent way up, down and across the enterprise.
Risk culture
Based on the Group’s business model and guided by the Group
Board, the senior management articulates the core risk values
through our Blueprint and risk appetite framework (RAF). We
have a number of strategic risk drivers with the overall aim of
delivering sustainable profits as a Group, while 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 (SMCR).
Risk objectives are also included as part of non-financial
measures in Group and divisional executive scorecards.
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, and measured over a rolling 12-month period.
Our risk appetite is holistic and covers 10 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.
a single risk policy taxonomy, RCSA methodology, risk
systems and reporting. The majority of this is expected to be
implemented in 2021. This will be led by our newly appointed
Head of Enterprise Risk.
– We have proven our ability to manage the Group’s risks
through the pandemic despite the significant number of
challenges this has raised both internally and externally.
A more detailed overview is provided overleaf.
– We have refreshed our Group risk appetite with a move
towards more dynamic and outcome-based risk measures
to support decision making and to drive further alignment
across the divisions.
– A new model risk governance framework has been established,
led and managed by our recently appointed Head of Model
Risk. This provides ‘Group-wide’ capabilities to undertake
internal model validation which is becoming increasingly
important from both a commercial and regulatory perspective.
– Under the Risk office, we have established a number of
‘cross-divisional forums’ alongside our formal risk governance
committees to improve coordination and oversight of any
emerging risks especially in relation to conduct risks that
are inherent in our business.
– Within Vanquis, we have undertaken an extensive review
of our controls across the business through the ‘Risk
Enhancement Programme’ with a formal attestation
on its adequacy shared with the PRA.
– The Group Data Protection Office (DPO) now reports into Group
Risk, which is better aligned with its role in setting policy and
overseeing compliance. Through this transition, a comprehensive
review of its activities has been undertaken which is reflected
in the new Group Data Protection Policy.
For 2020 we have refreshed our principal risks as part of
the updated risk appetite. In addition, we have reviewed our
strategic and emerging risks with particular emphasis on
the longer-term impacts of the pandemic. The key changes
are summarised below:
Principal risk changes
– We have removed financial risk as a principal risk as this
was focused largely on financial performance measures
which are already monitored extensively by Finance and
reported monthly through the Group ExCo and Board.
– Tax risk has been removed as this is managed directly by
Group Tax (Corporate) with its own structure and tax risk
appetite approved annually by the Board. These are supported
by tax policies and processes. Any risks that warrant inclusion
in our risk reporting would still be captured under our emerging
risks (if they are material) or under our legal and regulatory
risk reporting.
– Legal and regulatory risk has been combined as this covers
all external laws and regulations which we must comply with
as a Group. In addition, financial crime is included under
legal and regulatory risk as all requirements are driven by
the regulatory (FCA) and legal (HMRC) guidance and rules.
Recent developments
The Group has continued to make significant progress on key
initiatives in strengthening and embedding its overall risk
governance, frameworks and capabilities.
– Strategy and governance risk has been added as a new
principal risk as this was a gap in our existing RAF covering
new strategic initiatives, markets, acquisitions, etc. It also
aligns to the recently approved RAF within Vanquis Bank.
– Under the leadership of the Group CRO and sponsored by
the GRC, we have formally launched our risk harmonisation
programme with the goal of consolidating the various
divisional frameworks into an integrated single ERMF for the
Group. This incorporates a number of key activities including
– Business resilience risk now falls under operational risk and
is included within our Business Continuity Management Policy.
Provident Financial plc Annual Report and Financial Statements 2020
49
Strategic report Risk management and principal risks continued
Recent developments continued
Strategic and emerging risk changes
– Our prior year risk covering threats to our industry sector
has been revised to bring out the greater impact on
our own internal business models. This recognises the
significant regulatory changes announced by the FCA and
HMRC including the Woolard Review, repeat lending in the
high-cost sector, and the Debt Respite Scheme (breathing
space). While we are responding decisively to these, there is
recognition that in some areas these threats are not always
within our direct control and require an industry approach,
e.g. indiscriminate attacks by claims management
companies (CMCs).
– A new overarching risk has been added covering the
pandemic reflecting the multiple impacts this has had
including our financial strength, regulatory challenges,
customers and colleagues.
– A specific risk has been added covering the Return to Work
(RTW) strategy for the business and how we will need to
respond to the ‘new normal’ once the direct impacts of the
pandemic recede.
– Persistent debt has now been removed as an emerging risk
with any residual elements captured under our business
model risk.
Our response to Covid-19
The risks associated with Covid-19 progressed
rapidly from a low-level emerging risk to something
that impacted all our principal risks.
From its emergence as a risk in early February, the Group
responded decisively and promptly to the impacts of the
pandemic with a number of immediate changes to our
governance arrangements at a Group and divisional level.
Like many organisations, dealing with the consequences of
the pandemic in the early stages took us into uncharted waters,
which required a flexible and agile decision making process, as
well as ‘short form governance.’ Our immediate priorities were:
– maintaining financial strength through increased liquidity
and capital to cover the immediate pandemic stress, and
rebuilding our lending volumes safely;
– ensuring we continued to deliver fair customer outcomes
at a time when our customers were in greatest need
(access to credit and implementation of forbearance
through payment holidays);
– managing the health and wellbeing of our colleagues
through revised working arrangements, home working
and technology support; and
– maintaining strong and proactive relationships with our
regulators, especially where we were forced to change critical
business processes, e.g. home credit sales and collections.
The above was successfully achieved through:
– establishment of a daily Executive Steering Committee
which acted as the decision making body and communication
forum for sharing important business updates Group wide;
– weekly Board meetings to maintain effective governance
while at the same time streamlining the amount of formal
reporting to avoid unnecessary bureaucracy;
– creation of Covid-19 risk registers and decision logs within
the divisions evidencing the rationale for any material
business changes and the impact on the control environment;
– weekly risk forums chaired by the Group CRO and attended
by the divisional CROs;
– daily key risk indicator (KRI) dashboard covering operations,
colleagues, communications and competitor impact;
– regular communications led by the Group CEO and
Managing Directors with our key regulators (PRA and FCA)
as well as key influencers in government, e.g. HMT
and industry bodies level; and
– reprioritised audit approach for evaluating controls in areas
of highest risk, e.g. liquidity reporting.
As we moved out of the emergency contingency actions
arising from the pandemic, its impacts are now incorporated
into our business-as-usual risk management. Our plans have
been revised to reflect the macroeconomic environment
and our risks recalibrated accordingly.
Vanquis Control Enhancement Programme case study
As part of our ongoing commitments to the PRA, Vanquis
commenced a programme of work early in 2020 with the
objective of developing and implementing a bank-wide
Risk Enhancement Programme. This would enable the
Vanquis Board to gain assurance that past risk management
and control weaknesses had been addressed, as well as
allow the Chair of the Bank Risk Committee to attest to that
effect to the PRA.
A programme was mobilised led by the Bank CRO with
representatives across all 3 lines of defence (3LOD) supported
by representatives from across the Group. The programme
was successfully delivered with a number of notable
outcomes including:
– Significant improvement in line management risk
maturity through completion of a First Line Control
Review (FLCR) and establishment of a Group-wide control
testing function. Executive management and the Board
can now ‘speak with confidence’ on the efficacy of
controls, alongside more targeted interventions where
additional support is required.
– In parallel, the Bank’s risk management framework
has been improved through adoption of a Group-wide
approach to measuring risk appetite, with more
quantitative outcomes and thresholds. The programme
will continue to improve and embed the end state risk
culture through colleague risk awareness and learning.
50
Provident Financial plc Annual Report and Financial Statements 2020
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.
Reviews the Group RMF annually to ensure that it remains fit for purpose and complies with relevant laws and regulations
including the Code.
Group Board
Board Committees
Group Risk Committee (GRC)
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 2018 UK Corporate Governance 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 is delegated to the GERC (opposite).
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 individual 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
Set minimum policy and control standards, establishing 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; on 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.
Provident Financial plc Annual Report and Financial Statements 2020
51
Strategic report 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
Customer progression
Human experiences
Head AND heart decisions
Fighting fit
Risk appetite framework
Strategic risk objectives
Maintain a secure and
efficient capital and
funding structure
Deliver sustainable
growth and profits
Protect and enhance
our reputation
and brand
Establish a strong
risk and customer-
centric culture
Maintain operational
resilience and
business capabilities
Capital
Credit
Legal and regulatory
People
Operational
Our principal risks
Funding and liquidity
Strategy and
governance
Conduct
Information security
and data protection
Model
Risk appetite headlines
Capital
We will meet all minimum regulatory
capital requirements and hold a
management buffer on a consolidated
basis agreed with the Board.
Funding and liquidity
The Group will ensure required
funding is in place at least 12 months
in advance.
Conduct
People
Credit
The Group will manage our credit risk
exposures through effective underwriting
processes, systems and controls to
support appropriate lending decisions.
Information security
and data protection
Strategy and
governance
We will seek new business opportunities,
both organic and inorganic, which
remain aligned to our customer,
regulatory and commercial objectives.
Operational
We will deliver fair outcomes
for our customers at all stages
of the customer lifecycle.
We will maintain a properly engaged
and skilled workforce which is aligned
to our Purpose and Group culture.
We will maintain strong information
security and data protection controls
to prevent significant customer
detriment, regulatory breaches
or reputational damage.
We will limit operational losses as
a result of control failures attributed
to people, processes and systems
including those over external suppliers.
Legal and regulatory
We will aim to avoid any material
regulatory breaches. In the event that
they do occur, we will correct them
promptly and learn from our mistakes.
Model
Through strong governance all
material models will perform in line
with expectations.
52
Provident Financial plc Annual Report and Financial Statements 2020
Key risks
Principal risks
t
c
a
p
m
I
l
a
c
i
t
i
r
C
j
r
o
a
M
e
t
a
r
e
d
o
M
r
o
n
M
i
P10
P2
P1
P3
P5
P1
Capital
P2
Liquidity and funding
P8 P6
P3
Credit
P5
P3
P6
P8
P4
P7
P9
P10
P1
P7 P4
P2
P9
Remote
Unlikely
Possible
Probable
Probability
Strategic and emerging risks
E2
E1
E3
E1
E5 E4 E2
E4
E6
E6
Probability
E3
E5
t
c
a
p
m
I
l
a
c
i
t
i
r
C
j
r
o
a
M
e
t
a
r
e
d
o
M
r
o
n
M
i
P4
P5
Strategy and governance
Legal and regulatory
P6
Conduct
P7
People
P8
Information security
and data protection
P9
Operational
P10
Model
Residual risk
Gross risk
E1
Threats to our
business model
E2
Responsible lending
E3
Pandemic (Covid-19)
E4
E5
E6
Challenge to agent
self-employed status
Risk culture and
governance
Return to Work
strategy
Residual risk
Gross risk
Remote
Unlikely
Possible
Probable
Probability
Provident Financial plc Annual Report and Financial Statements 2020
53
Strategic report Risk management and principal risks continued
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
Risk description
The risk that the Group and
bank has insufficient capital
to either meet regulatory
requirements or to sustain
the long-term viability
of the business.
3
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 Board’s current view on risk appetite is to maintain a capital buffer of more than 5% of
risk-weighted exposures due to market uncertainties. The Group has also refined the capital
buffer it maintains to be proportionate to the risk-weighted exposures and thus reflect the
current and expected state of the balance sheet.
– Preservation of capital and supporting business stability via the cancellation of the 2019
dividend in line with industry practice. The Group’s capital review (C-SREP) with the PRA
concluded in July 2020. The Group’s Pillar 2A capital requirement has been lowered from
20.65% to 18.33% during 2020 and the fixed monetary add-on in respect of pension risk has
been removed.
– As previously reported, the Group has elected to phase in the impact of adopting IFRS 9 over
a five-year 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 and which
the Group has fully adopted to maintain a robust regulatory capital position in light of the
increased impact of IFRS 9 in the current macroeconomic environment.
– The Group and bank regularly monitor the internal assessment of capital adequacy in line
with the capital adequacy rules.
– The Group has continued to actively explore a number of options to improve capital efficiency.
These include, but are not limited to, supplementing the existing capital base made up entirely
of core equity tier 1 with tier 2 debt capital to support growth and improved return on equity.
Links to strategy
Risk rating after mitigation
1
Grow
customer-centric
businesses
2
Act responsibly
and with
integrity
3
Maintain a secure
funding and capital
structure
Minor
Moderate
Major
Critical
!
Change during the year
Covid-19 impact
Increased risk
Stable
Improving
Severe
Medium
Low
54
Provident Financial plc Annual Report and Financial Statements 2020
P2 Liquidity and funding 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.
P3 Credit risk
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
– Liquidity and funding risk appetite established at Group and bank level, with thresholds
reported to and monitored by Group and bank boards.
– The Group’s current funding strategy seeks to maintain a secure funding structure by
maintaining committed facilities to meet contractual maturities and fund growth for at least
the following 12 months and maintain access to four main sources of funding comprising: (i)
the syndicated revolving bank facility; (ii) market funding, including retail bonds, institutional
bonds and private placements; (iii) securitisation; and (iv) retail deposits.
– In January 2020, the Group successfully completed a bilateral securitisation facility to fund
Moneybarn business flows, establishing and developing the securitisation capabilities within
the Group.
– The Group also delivered on a number of its other funding objectives: (i) repaid early
the remaining M&G loan facility of £25m on 14 February 2020; (ii) in line with its contractual
maturity, repaid a £25m bond on 14 April 2020; and (iii) secured intra-group funding through
Vanquis Bank.
– In June 2020, a waiver was agreed up to (but excluding) 31 December 2020. In addition, an
amendment was made to the interest cover covenant as part of the revolving credit facility (RCF)
with the lending banks. This was in response to the pandemic’s impact on the Group’s performance.
– Consistent with the Group’s strategy of cost-effective management of its liabilities and in
light of the contraction of the balance sheet in response to the pandemic in August 2020, the
Group successfully completed a tender offer for £75m of senior bonds due to mature in 2023.
– Vanquis Bank accepts retail deposits and, in line with its regulatory requirements, maintains
liquid resources to meet certain stress events as stipulated within its Internal Liquidity Adequacy
Assessment Process (ILAAP). The bank also monitors and reports its liquidity coverage requirements
(LCR) on a consolidated basis to the PRA and has reported LCR far in excess of the 100%
minimum during 2020.
– The flow of retail deposits within Vanquis Bank has continued to be strong. In 2020, Vanquis
Bank increased its retail deposit funding to bolster liquidity in response to Covid-19 and has
maintained surplus liquidity against its internal requirements (which exceed requirements in
satisfaction of the Overall Liquidity Adequacy Rule) throughout 2020.
– In 2021, Vanquis Bank has issued secured notes collateralised by a portion of the credit card
receivables book with the intention to use the notes as collateral which will be placed with the
Bank of England to support borrowings against the Sterling Monetary Framework (SMF) facilities.
These include the Discount Window Facility (DWF), Liquidity Support Operations (ILTRO), and the
Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises (TFSME).
This structure will offer three primary liquidity and funding benefits to Vanquis Bank: (i) diversification
of funding; (ii) access to Bank of England facilities; and (iii) creation of contingent liquidity.
1
2
Mitigating activities and other considerations
– The Group has faced increased credit risk through the period as a result of the pandemic
and the delayed impacts of government support schemes including furlough and
payment deferrals.
– In response to the pandemic, each division has reviewed its respective credit profiles and
has undertaken selective tightening of scorecards to ensure any higher than desired risk
segments have been addressed.
– Credit risk appetite has been refreshed to focus more on early warning indicators (EWIs)
of customer stress and predictive performance of scorecards.
– Test and learn strategies implemented in Vanquis with down-sampling of lower scoring customers
to enable data gathering without generating significant, unquantifiable risk exposure.
– Prompt adjustments incorporated into rebuilds of models to support greater confidence
in booking larger volumes of business.
– Selective plans being developed to supplement existing data sources to enhance both
credit and affordability risk, i.e. open banking.
Provident Financial plc Annual Report and Financial Statements 2020
55
Strategic report
Risk management and principal risks continued
P4 Strategy and governance
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
– Detailed business review undertaken within each division to rebase financial and operational
plans as a result of the pandemic (under 1PFG strategy).
– Operational review of CCD in progress to realign activities with the changing regulatory
environment, overseen by the Group Board.
– Scheme of Arrangement announced to cap potential liabilities in CCD back book.
– Board governance manual and Delegated Authorities Matrix (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 Remuneration
Committee (RemCo) to provide recommendations on adjustments to variable reward
where governance has failed.
– Independent internal audit assurance provided on a risk assessed basis, with agile plan
executed to reflect the pandemic.
P5 Legal and regulatory
2
Risk description
The risk that the Group is
exposed to financial loss,
fines, censure or enforcement
action due to failing to comply
with regulations (including
handbooks, codes of conduct,
financial crime, etc.).
Mitigating activities and other considerations
– The Group operates in a highly regulated environment and in a sector where its customers
are more vulnerable and need careful management.
– We remain mindful that the regulatory landscape is continually evolving and regularly
assess our risks through horizon scanning and regulatory impact assessment.
– Any regulatory actions are managed and monitored closely to ensure these are delivered
fully and within the spirit of any feedback received.
– During the pandemic, the Group and divisions have ensured very close contact with the
regulators keeping them apprised of our contingency plans, and how we are managing
capital and liquidity and ensuring our customers continue to receive appropriate support.
– 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 engages with regulatory authorities and industry bodies on forthcoming regulatory
changes, e.g. the Woolard Review and investigations, ensuring programmes are established
to deliver new regulation and legislation.
– Financial crime improvement programme largely completed in Vanquis, closing down
previous control issues.
– Further detail covering specific changes in our regulatory environment is included on page 62
including the recent notification by the FCA of an investigation into affordability and sustainability
of lending to customers in CCD (February 2020–February 2021).
Links to strategy
Risk rating after mitigation
1
Grow
customer-centric
businesses
2
Act responsibly
and with
integrity
3
Maintain a secure
funding and capital
structure
Minor
Moderate
Major
Critical
!
Change during the year
Covid-19 impact
Increased risk
Stable
Improving
Severe
Medium
Low
56
Provident Financial plc Annual Report and Financial Statements 2020
P6 Conduct
Risk description
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.
1
2
Mitigating activities and other considerations
– Conduct risk appetite refreshed providing greater focus on outcome measures.
– New conduct outcomes framework is being developed to provide improved monitoring
of customer outcomes across all high-risk interactions including lending, forbearance,
vulnerability and complaints.
– New Group Responsible Lending Policy being developed providing overarching principles for
all the divisions in response to the changing regulatory environment and sustainable lending.
– Conduct policies and procedures in place at a divisional level to ensure appropriate controls
and processes that deliver fair customer outcomes.
– During the pandemic, we have ensured throughout that our customers continue to receive
the service they need during these difficult times, and in particular the provision of payment
deferrals in line with FCA guidance.
– 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’.
P7 People
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.
2
Mitigating activities and other considerations
– Our people strategy continues to be refined with alignment of key HR processes across
the Group including performance management.
– 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.
– Led by Group HR and supported by the divisional HR teams, colleague guides have been
developed to raise awareness and understanding, covering important safety and wellbeing
measures that needed to be implemented through the pandemic.
– A number of ongoing communications have and continue to be shared with colleagues at a
Group and divisional level to keep them apprised of business changes to support wellbeing.
– We are currently formulating our Return to Work strategy which will define our future working
arrangements incorporating the learnings from the pandemic including flexible working.
– Full health and safety risk assessment completed of all our key work locations with mitigating
actions completed.
P8 Information security and data protection
2
Risk description
Sensitive data faces the
threat of misappropriation
or misuse. Failure to identify
or prevent a major security-
related threat or attack, or
react immediately and
effectively, could adversely
affect the trust of our current
or future customers in the
services we provide, our
reputation and our
operational or financial
performance.
Mitigating activities and other considerations
– Consolidated Group Data Protection Policy, maturity framework and reporting developed
and embedded.
– Data Protection Office (DPO) reporting transferred to the Group Risk function to reinforce
independence of office covering oversight arrangements.
– New data protection software rolled out across the business to enhance operational
control effectiveness.
– Group-wide internal assessment completed on information security mapping capabilities
against the ISO 27001 framework.
– Based on the above, an action plan has been developed and will be agreed with the Group
Board in May, with Internal Audit providing assurance over its implementation through 2021.
Provident Financial plc Annual Report and Financial Statements 2020
57
Strategic report
Risk management and principal risks continued
P9 Operational
Risk description
The risk of loss resulting from
inadequate or failed internal
processes, people and systems
or from external events.
Operational risk more broadly
covers a wide range of different
categories including specific
event risk, fraud, IT/systems risk,
business continuity, AML, etc.
2
Mitigating activities and other considerations
– The three lines of defence 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.
– Group business continuity plan invoked in response to the pandemic.
– New operating arrangements in place including home working for non-essential workers,
and deployment of new technology to serve our customers and support colleague collaboration.
– Full operating assessment completed covering home working to ensure key controls around
information security, data protection and colleague health and safety meet policy requirements.
– Risk harmonisation programme launched to build out single enterprise risk management
framework including control self-assessment, consolidated risk policy taxonomy and
risk reporting.
– Vanquis Control Enhancement Programme completed with attestation provided to the PRA
on risk maturity and control effectiveness.
– Central transformation and programme management capabilities being developed
alongside investment prioritisation criteria.
P10 Model
Risk description
The risk of financial losses
where models fail to perform
as expected due to poor
governance (including design
and operation).
2
Mitigating activities and other considerations
– Group Head of Model Risk recruited with resourcing plan in place to build out team.
– New Group model risk management framework developed including Model Risk Policy.
– Model inventory compiled with materiality thresholds in place to drive prioritised
independent model validation plan.
– Critical IFRS 9 models externally validated within Vanquis and Moneybarn.
– Group model risk forum established to drive standardised approach to model development
including minimum control standards.
Links to strategy
Risk rating after mitigation
1
Grow
customer-centric
businesses
2
Act responsibly
and with
integrity
3
Maintain a secure
funding and capital
structure
Minor
Moderate
Major
Critical
!
Change during the year
Covid-19 impact
Increased risk
Stable
Improving
Severe
Medium
Low
58
Provident Financial plc Annual Report and Financial Statements 2020
Strategic and emerging risks
Strategic and emerging risks are risks whose impacts are uncertain. However, over
a longer period of time they could affect the Group’s overall strategy and cause the
same impact as principal risks. Strategic and emerging risks are reviewed and
monitored on a regular basis by the GERC and GRC.
E1 Threats to our business model
!
Risk description
There is a risk that the
non-standard credit sector
in which we operate will
continue to face considerable
macroeconomic, Covid-19,
regulatory and political
headwinds resulting in
material threats to our
business model.
Mitigating activities and other considerations
– There are a number of strategic initiatives across the Group to reshape our business model
reflecting the changing regulatory environment and associated impacts on our customer
propositions, revenue and costs.
– Within CCD we have chosen to exit the home credit business in the UK and ROI, and
are implementing a robust operational strategy to optimise collection performance
of existing lending.
– In parallel, we are developing our market and product propositions in CCD and Vanquis to
better serve the evolving needs of our customer base. This includes new loan products in
both CCD and Vanquis which will make greater use of our digital capabilities, while ensuring
effective customer touch points in managing the suitability, affordability and sustainability
of our lending.
– Through our 1PFG model, we are reviewing our existing functional and operational structures
across the divisions to seek ways to drive alignment and where appropriate consolidating
structures to improve efficiency and harness the scale of the Group.
– Together these initiatives are providing the foundations for our future business model.
These changes will be supported through the refresh of our risk management framework
as well as significant enhancements including building our transformation and programme
management capabilities.
Links to Blueprint
Risk rating after mitigation
Customer
progression
Human
experiences
Head AND
heart decisions
Fighting
fit
Minor
Moderate
Major
Critical
!
Change during the year
Covid-19 impact
Increased risk
Stable
Improving
Severe
Medium
Low
Provident Financial plc Annual Report and Financial Statements 2020
59
Strategic report
Risk management and principal risks continued
E2 Responsible lending
Risk description
There is a risk that the Group
will be susceptible to claims
of irresponsible lending as
a result of past business
practices, leading to
widespread remedial
activities as well as a
significant increase in
the level of complaints
from CMCs.
Mitigating activities and other considerations
– The Group and divisions have worked continuously with the FCA and FOS to seek alignment on
interpretation of CONC rules and their application to our current and historical lending business.
– We have made a number of changes to our lending processes in response to new regulatory
guidance, further enhancing the robustness of customer creditworthiness assessments, e.g.
repeat lending.
– Within CCD we have established a model office which provides clear triggers where customer
complaints may warrant specific investigation and redress. This approach is being leveraged
in our other divisions as appropriate.
– We have recently announced plans for a Scheme of Arrangement within CCD which caps
future liabilities around past lending to £65m (including costs). Under the scheme, customers
who have complaints under the agreed scheme rules may be entitled to redress.
– We have established a Group complaints forum chaired by the Group CRO to share insights
and learn about any emerging trends related to irresponsible lending across the divisions.
– Group responsible lending forum established to assess any future proposed changes
to lending policies and rules in response to regulatory guidance and FOS adjudications.
– Customer outcomes framework being developed to provide assurance over lending
decisions at various stages of the customer journey.
E3 Pandemic (Covid-19)
Risk description
There is a risk that the
pandemic (Covid-19) will have
a long-term impact on our
future business performance
and prospects.
Mitigating activities and other considerations
– Pandemic contingency plan instigated across the Group and divisions, which has stabilised
the business.
– New value creation plans (1PFG) have been developed for each of the divisions which set out
the future strategic options as we face into the ‘new world’.
– Enhanced risk assessment and audit reviews conducted over key processes to ensure
controls continue to operate effectively during our recovery phase.
– Payment holiday strategies have been developed and rolled out to our most vulnerable
customers in line with regulatory guidance.
– Return to Work (RTW) risk assessments have been completed for each of our main sites,
home workers and agents in line with government guidance and existing
work arrangements.
– Numerous other actions are in place which are captured and monitored as part of individual
business plans and remediation efforts, e.g. tightening of credit criteria for new business.
Links to Blueprint
Risk rating after mitigation
Customer
progression
Human
experiences
Head AND
heart decisions
Fighting
fit
Minor
Moderate
Major
Critical
!
Change during the year
Covid-19 impact
Increased risk
Stable
Improving
Severe
Medium
Low
60
Provident Financial plc Annual Report and Financial Statements 2020
E4 Challenge to agent self-employed status
Risk description
The Group has been, and may
continue to be, subject to
claims brought against it by
either former agents or tax
authorities challenging the
historical employment status
of the Group’s home credit
agents in the UK and the
employment status of agents
in the Republic of Ireland (ROI).
Were the Group to be
unsuccessful in defending
such claims, it may be
required to make payments
to agents and pay additional
taxes, in particular National
Insurance contributions, to
the relevant authorities.
Mitigating activities and other considerations
– In July 2017, the Group changed the operating model of its home credit business in the UK
from a self-employed agent model to an employed workforce so as to take direct control
of all aspects of the customer relationship. In the Republic of Ireland the Group continues
to operate a self-employed agent operating model.
– Policies and procedures were in place in the UK up to the transition to the new operating
model in 2017 and continue to be in place in the Republic of Ireland to ensure that the
relationship between the business and the agents it engages is such that self-employed
status is maintained. Compliance with policies was also routinely evidenced and tested.
– To date the Group has successfully defended claims and challenges against the
employment status of its home credit agents, although there is no guarantee that this will
also be the case with future claims and challenges.
– It is understood from discussions with HMRC that they have commenced an industry-wide
review of the self-employed status of agents in the UK.
– 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, remain in the initial fact finding stages. The Group is working positively and collaboratively
with HMRC and it is expected that the review could continue for at least another year.
– HMRC has raised protective assessments which have been appealed but these are purely
a procedural matter to ensure that, in the event the review concludes that taxes are payable,
HMRC can recover such amounts in respect of the oldest year that would otherwise drop out
due to the lapse of statutory time limits.
– 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 the home credit business.
E5 Risk culture and governance
Risk description
There is a risk that our
culture and supporting risk
governance arrangements
(risk frameworks, reporting
and structures) inhibit
effective risk oversight
leading to poor risk practices
and control failures across
the Group.
Mitigating activities and other considerations
– A new Group Executive Risk Committee (GERC) has been established from January 2020
which is providing more focused discussions on the major risks we face as an organisation.
– Led by the Group CRO, we have started our risk harmonisation programme. A detailed
approach has been developed with the delivery plan in progress with regular updates
on progress provided to the GERC and GRC.
– A refreshed Group risk appetite was approved by the Group ExCo and GRC in October 2020
reflecting the impact of Covid-19 and our 1PFG ‘value creation plans’.
– Specifically, within Vanquis Bank, the Risk Enhancement Programme is driving a number of
improvements in control design and operating effectiveness with an attestation provided
to the PRA at the end of 2020.
– The Group Blueprint launched in 2019 is now being embedded to reflect the new customer culture.
E6 Return to Work strategy
Risk description
There is a risk that the Group
and its divisions are subject
to significant people risk as a
result of a prolonged period
of working remotely.
Mitigating activities and other considerations
– A preliminary analysis has been completed of a future model which supports
increased remote working.
– While this has flagged some potential risks, e.g. productivity, mental wellbeing and
the home working environment, the overall benefits significantly outweigh these
and have been benchmarked against other similar organisations.
– Based on the analysis, the Group Executive has provided a mandate to mobilise a
‘Future of Work’ programme which will shape the Return to Work strategy. This covers
a number of important areas including people and culture, IT enablement, health
and safety and operating environment.
– Any changes will be implemented on a transitional basis over the next 12 months.
Work on our longer-term property strategy is ongoing.
Provident Financial plc Annual Report and Financial Statements 2020
61
Strategic report
Relations with regulators
As a Group, building and maintaining strong and proactive
relationships with our regulators is extremely important.
It influences our strategic thinking as well as enabling us to
plan for regulatory change with greater certainty and confidence.
Over the last 12 months, we have continued to strengthen
these relationships, which has had added significance given
the pandemic and resultant increased regulatory focus on our
capital, funding and customers. In addition, while the Group
is not a regulated entity in its own right, as we seek closer
integration of the businesses it is paramount that our
regulatory interactions are effectively coordinated and managed.
assessment has identified eight of these recommendation
as being particularly relevant. These include, but are not
limited to, whether credit builder products in the market
are effective, alternatives to high-cost credit, the overall
approach to forbearance in the market, further review
of relending and a more holistic approach to customer
outcomes through regulatory reform.
Key regulatory developments
– As a result of historical regulatory infractions, in May 2018 the
Group and divisions were placed on the FCA regulatory watchlist.
The majority of these actions have now been completed
with the FCA formally confirming on 11 December 2020 that
Vanquis has now been removed, and we are expecting the
same outcome with Moneybarn in 2021.
– On 2 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 a FOS decision into the complaint
handling process in the period between 26 February 2020
and 11 February 2021. While this is still at a very preliminary
stage of investigation, a programme has been initiated to
coordinate any additional requests from the FCA.
– During the pandemic, the FCA issued specific guidance and
rules covering payment deferrals with the aim of protecting
those customers who were experiencing financial difficulty.
Each of the divisions responded promptly and effectively to
the guidance with this incorporated into existing forbearance
strategies. At its peak, the number of customers impacted
equated to 3.5% (£90m) of the Vanquis Book and 26% (£140m)
within Moneybarn. Given the short-term nature of CCD’s
lending and natural inbuilt forbearance the overall impact
was minimal.
– As part of the pandemic guidance (March 2020), the FCA
mandated that firms push back certain aspects of the
persistent debt rules until the end of October 2020. In
addition, and more recently (September 2020), Vanquis
has been reviewing its PD36 solutions with FCA engagement.
The FCA has now confirmed that they are supportive of the
approach being adopted within Vanquis.
– On 6 August 2020, the FCA issued their report findings
covering relending by firms in the high-cost lender portfolio.
This has potential widespread implications for PFG which we
are considering as part of revisions to our business models
including lending policies. This will further reinforce our
customer creditworthiness assessments to ensure all
lending remains affordable, suitable and sustainable.
– On 2 February 2021, the FCA issued the ‘Woolard Review’
assessing change and innovation in the unsecured credit
card market. There are 26 recommendations made by the
FCA within the report which are also being considered at
an industry level and within PFG. Amongst these, our initial
– On 23 February 2021, the FCA published its finalised guidance
(FG21/1) for firms on the fair treatment of vulnerable customers.
This builds on two previous consultations issued by the FCA.
The Group has detailed plans in place to assess its overall
impact and ensure our plans adequately address any
required policy changes. These include a consolidated
Group Vulnerability Policy, gap analysis against the new
guidance, improved monitoring and reporting of customer
outcomes. This is germane to PFG given the sector in which
we operate and the high concentration of customers who
possess vulnerable characteristics.
– On 4 May 2021, HMRC introduced the Debt Respite Scheme
(Breathing Space) which gives customers in problem debt
the right to legal protections from their creditors. The Group
has implemented its plans to take into account the new
requirements. In addition, we are currently updating our
forbearance and collections/recoveries policies so that
these take into consideration the wider regulatory changes
around forbearance in helping customers who are in
financial difficulty.
– The PRA has recently set out a number of rules to implement
the remaining elements of the Capital Requirements Directive
(CRD V). This covers clarifying the application of supervisory
requirements and guidance under Pillar 2, adjusting
requirements applied to remuneration policies, requiring
the establishment of intermediate parent undertakings and
updating the governance requirements applied to firms.
– Within Vanquis, we have recently submitted an attestation
to the PRA through the ‘Risk Enhancement Programme.’
This forms part of our existing commitments to the PRA
demonstrating the improvements made to our risk culture
and governance, as well as the efficacy of the control
environment through a detailed assessment of first line
controls. The attestation was provided by the Chair of the
Vanquis Risk Committee and sponsored by the divisional
Chief Risk Officer. Further enhancements are planned
throughout 2021.
– Vanquis has implemented the majority of the required
changes under the Payment Services Directive (PSD2).
This has far-reaching industry impacts both to support
integration of payment services and improve competition
by encouraging and supporting innovation, e.g. open
banking. For Vanquis, the most important activities initially
are to protect customers from fraud through safer and more
secure payments (Strong Customer Authentication).
62
Provident Financial plc Annual Report and Financial Statements 2020
Viability statement
Group viability
statement
In accordance with the 2018 FRC Corporate Governance Code,
the directors confirm that they have a reasonable expectation
that the Group will continue to operate and meet its liabilities,
as they fall due, for the viability period, deemed to be the next
three years.
The Group’s business model focuses on relatively short-term
lending to consumers and operates conservative underwriting.
Moneybarn typically issues four-year loans, while the average
time a Vanquis Bank credit card customer remains with the
business is around five years. The plan, however, which forms
the basis of this statement, is three years in length. The plan
makes certain assumptions about the regulatory environment,
future economic conditions, new strategies, products, the
acceptable performance of the Group’s divisions, the ability
to fund growth and the sustainability of the business models.
The Board’s going concern assumption in preparing the
financial statements and conclusion that the Group remains
viable is made following approval of the three-year plan
in May 2021. The plan is built on a divisional basis using a
bottom-up model, and incorporates the latest estimate for
peak unemployment and retains sufficient regulatory capital
and liquidity throughout the going concern period without the
requirement for market access.
The directors’ assessment has been made with reference to
the Group’s current financial position and prospects outlined
within the Strategic Report, combined with the factors that are
likely to affect the Group’s future performance and development.
The Group’s principal and emerging risks are included on
pages 53 to 61. Specific focus was placed over capital risk
as well as liquidity and funding risk.
The Covid-19 outbreak and its continued effects have led to a
weakening in UK unemployment, and there remains the risk of
more adverse economic scenarios given its ongoing impact.
To minimise the short-term impact of the macroeconomic
uncertainty in regulatory capital, the Group makes full use of
PRA transitional arrangements announced in 2020 in respect
of the increased Covid-19 provisions recognised. To address
the liquidity and funding risk, the three-year plan includes no
external capital debt raising requirement for the going concern
period. As such, the reforecast has been very prudently
constructed such that capital and liquidity preservation
are foremost in the Group’s planning considerations.
The Group experienced lower lending in 2020 as a result of
Covid-19, combined with a significant increase in claims of
alleged irresponsible lending claims in CCD, largely through
CMC activity. The industry dynamics have changed the operating
environment materially for CCD during the second half of 2020.
When combined with the impact of Covid-19 on its profitability,
customer complaints can no longer be treated as part of
operating costs. As a result, the Group has decided to pursue
a Scheme of Arrangement, in relation to potential redress
claims arising from customer creditworthiness complaints
based on historical lending in CCD prior to 17 December 2020.
The Group will fund legitimate claims out of existing capital
resources. The proposed Scheme is considered by the PFG
Board to be the fairest compromise that can be offered for
CCD customers and if the Scheme is not sanctioned, it is likely
that CCD will be placed into administration or liquidation.
As part of the three-year assessment of viability, the plan has
been stress tested to reflect a severe level of UK unemployment
of 12%, broadly consistent with the Group’s severe IFRS 9 scenario
and the PRA’s 2021 Solvency Stress Test. The plan has then been
further stressed to the point of non-viability after reflecting
management actions. The viability assessment concluded that
the Group viability only comes into question under unprecedented
macroeconomic conditions (20% unemployment).
As a PRA-regulated bank, which is a subsidiary of Provident
Financial plc, Vanquis Bank is required to produce a Recovery
and Resolution Plan (RRP) covering the bank and the wider Group.
The RRP outlines how Vanquis Bank and the Group would regain
viability under severe financial pressure (the recovery plan)
and failing a successful recovery, the steps the PRA could
take to resolve the situation (the resolution plan). The process
of producing the RRP involves considering, assessing and
documenting the options available to Vanquis Bank and the
Group in a severe stress situation. This not only improves the
understanding of the sources and impact of risks to viability,
but it also enables the recovery options to be mobilised
quickly and effectively, should they ever be required.
The RRP is an integral element of the overarching prudential
risk management framework incorporating the ILAAP and
ICAAP, and is produced at least annually. The ILAAP is designed
to ensure the bank meets the overall liquidity adequacy rule
and further requirements of CRD IV, whilst the ICAAP outlines
the process to ensure that Vanquis Bank and the Group
maintain adequate capital resources at all times. In the event
that the Group suffers a severe stress, then the Group could be
materially adversely affected, for example due to a breach of
a financial covenant under its debt facilities or a breach of a
regulatory requirement. In such a scenario, there is a risk that
its creditors could initiate insolvency proceedings against
the Group and/or the PRA and the FCA could exercise their
wide-ranging powers over the Group and/or Vanquis Bank.
As part of the exercise, it is assumed that the Group’s non-bank
divisions could be subjected to a controlled run-off with no, or
limited, further lending, allowing the Group to meet contractual
maturities as they fall due, in the absence of dividend payments.
The review of the three-year plan is underpinned by the regular
Board briefings provided by the Group and divisional management
and discussion of any new strategies undertaken by the Board
in its normal course of business. These reviews consider both
the market opportunity and the associated risks, principally
conduct, operational and credit risks. These risks are
considered within the Board’s risk appetite framework.
The directors also considered it appropriate to prepare the
financial statements on the going concern basis, as set out
on page 147 and page 178.
Provident Financial plc Annual Report and Financial Statements 2020
63
Strategic report Financial review
We are...
building a more sustainable
business
Financial model
To support the delivery of the Group’s Purpose, the Group
invests in customer-centric, sustainable businesses which
allow a secure funding and capital structure to be maintained.
At the Capital Markets Day in November 2019, the Group’s
medium-term targets were communicated as:
– customer receivables growth of between 5 and 10%
per annum over the next five years;
– ROE of between 20 and 25%; and
– a cost income ratio of 38%.
These targets were considered to be a sustainable level
of return for the Group, balancing the estimated impact of
known regulatory changes whilst delivering positive customer
outcomes. Management is still focused on delivering these
targets. However, following the changes announced to the
Consumer Credit Division, combined with the impact of
Covid-19 on the Group’s financial position and the pending
economic uncertainty, the timing of delivery has been delayed.
Income statement
Revenue
Funding costs
Net interest margin
Impairment
Risk-adjusted net interest margin
Costs
2020
£m
2019
(restated)
£m
807.8
(71.5)
996.1
(72.0)
736.3
924.1
(360.1)
(344.5)
376.2
579.6
(423.3)
(426.8)
Adjusted (loss)/profit before tax
(47.1)
152.8
Tax charge/(credit)
19.1
(41.0)
Adjusted (loss)/profit after tax
(28.0)
111.8
Adjusted (loss)/profit before tax
Amortisation of acquisition intangibles
Exceptional items
Statutory (loss)/profit before tax
Tax credit/(charge)
(47.1)
(7.5)
(58.9)
(113.5)
30.1
152.8
(7.5)
(26.3)
119.0
(42.6)
Adjusted (loss)/profit after tax
(83.4)
76.4
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.
I am pleased to present my first
Financial Review after becoming
the Chief Finance Officer in April 2020.
Covid-19 has significantly impacted
the Group, as has been the case for
many companies. Significant actions
have needed to be taken in the year
to create a more sustainable Group.
I’m aware of the challenges the Group
continues to face as it enters a period
of economic uncertainty. However,
I feel we have ensured the Group
is well prepared to continue
to deliver on its strategy.
Neeraj Kapur
Chief Finance Officer
64
Provident Financial plc Annual Report and Financial Statements 2020
Trading performance
Detailed analysis of the trading results of the Group’s three
operating divisions can be found on page 40 for Vanquis Bank,
43 for Moneybarn and 46 for CCD.
Loss before tax
As a result of credit lent reducing by £600m in the year,
average receivables reduced by 11.5% (£251.1m). The resulting
18.9% (£188.3m) reduction in revenue led to the Group adjusted
loss before tax of £47.1m (2019: (restated) profit before tax
of £152.8m).
An exceptional cost of £58.9m was recognised in 2020
as a result of:
– exceptional complaints provision and associated costs
in CCD (£65m);
– restructuring costs in CCD (£2.0m);
– the costs in respect of the intermediate holding company
(£1.4m); and
– pension GMP equalisation costs (£0.7m); offset by
– the release of provisions following completion of the ROP
refund programme (£8.3m); combined with
– a funding credit following the £75m tender of the senior
bonds in August (£1.9m).
This compares to an exceptional cost in 2019 of £26.3m as a
result of: (i) bid defence costs following NSF’s unsolicited offer
for the Group (£23.8m); and (ii) restructuring costs (£19.3m);
offset by (iii) a release of Vanquis Bank provisions following
completion of the ROP refund programme (£14.2m); and
(iv) a release of the Moneybarn FCA provision (£2.6m).
Loss per share (LPS)
The £188.3m reduction in revenue as a result of the contraction
in receivables combined with exceptional costs increasing by
£32.6m in 2020 largely due to the £65.0m CCD exceptional
complaints costs has resulted in a £232.5m reduction of statutory
profit to a statutory loss before tax of £113.5m (2019: (restated)
profit before tax of £119.0m).
As a result, earnings per share reduced from 29.9p per share
(restated) in 2019 to a loss per share of 32.9p in 2020. The
adjusted earnings per share reduced from 44.1p per share
(restated) in 2019 to a loss per share of 11.0p in 2020.
Gross revenue margin
Revenue represents interest and fee income and is made up
of interest income, charged on loans and credit cards across
the Group, and fee income, charged primarily by Vanquis Bank
on credit cards.
Revenue was £807.8m in 2020, reduced by 18.9% on 2019
(2019: (restated) £996.1m), which exceeds the 11.5% reduction in
average receivables from £2,184.1m in 2019 to £1,933.0m in 2020
due to the significant reduction in the higher yielding higher risk
Vanquis Bank and CCD receivables throughout the year,
compared to the steady increase in the lower yielding lower
risk Moneybarn receivables.
The revenue yield reduced from 45.6% in 2019 to 41.8% in 2020,
which reflects the reduction in the higher risk Vanquis Bank and
CCD revenue yields. The Vanquis Bank revenue yield reduced
from 39.8% to 39.0% as lower fees have been recognised following
a reduction in ROP, default and over-limit fee income. In CCD,
the revenue yield has reduced from 119.5% in 2019 to 115.9% in
2020 due to the shift in the receivables mix to the lower yielding
home credit book following the decision to pause lending
of the higher yielding Satsuma loans in February 2020.
Funding costs
Funding costs are made up of the retail deposits in Vanquis
Bank, combined with non-bank group funding through bonds
and bank borrowings. From February 2020, the Moneybarn
customer receivables were also securitised.
The funding cost reduced from £72.0m in 2019 to £71.5m in 2020,
a decrease of 0.7% despite the 11.5% reduction in average customer
receivables. This reflects the impact of holding an c.£800m
buffer due to Covid.
In Vanquis Bank, the funding rate reduced from 2.2% in 2019 to
2.8% in 2020 with the average new deposit rate reducing from
2.5% to 1.7% year on year. The increased cost reflects significant
liquidity raised at the onset of Covid-19 and the excess liquidity
of c.£650m over ILR carried through the last three-quarters of
the year which increased funding costs by c.£5m.
In the non-bank group, increased borrowings were taken to
hold £200m of cash on deposit through Q2’20 until the impact
of Covid-19 was better understood. This was offset by £110m of
dividends being received from Vanquis Bank. This increased
the average funding rate from 4.2% in the first quarter to 5.8%
in Q2. The overall non-banking group funding rate reduced
from 5.5% in 2019 to 5.3% in 2020.
Provident Financial plc Annual Report and Financial Statements 2020
65
Strategic report Financial review continued
Regulatory capital CET1
(%)
Cost:income ratio
(%)
Group RORE
(%)
Group receivables
(£bn)
31.6%
34.2%
42.8%
52.4%
20.0%
(5.2%)
£2.2bn
(+0.4%)
£1.8bn
(-18.2%)
19
20
19
20
19
20
19
20
Years
Years
Years
Years
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:
– Return on Required equity (RORE) - Profit after tax, 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 has reduced from 20.0% (restated)
in 2019 to a negative return of 5.2% in 2020. The average required
equity has reduced by £22.5m year on year. The reduction in
RORE reflects the increased losses sustained in the year as
a result of the reduced customer receivables and the
exceptional costs recognised.
– Return on tangible equity (ROTE) - Profit after tax, 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 reduction in RORE, the Group’s ROTE has
reduced from 18.7% (restated) in 2019 to a negative return of
4.9% in 2020. The average tangible equity has reduced by
25.7% year on year.
Dividend policy
The Board has not proposed a dividend in respect of 2020 due
to the losses sustained in the year and whilst the economic
outlook remains uncertain. Any future dividend policy will
take into account regulatory capital requirements, levels
of sustainable receivables growth and the resultant IFRS 9
charges. The Board is focused on the resumption of
sustainable dividends.
Net Interest Margin (NIM)
The Group’s NIM reduced by 4.2% from 42.3% in 2019 to 38.1%
in 2020, reflecting the lower levels of fees being charged to
Vanquis Bank customers and the reducing proportion of the
Satsuma customer receivables combined with a higher
funding rate as a result of carrying surplus liquidity.
Impairment rate
The Group’s impairment rate has increased from 15.8% to 18.6%
in the year primarily due to a 5.8% increase in the Vanquis Bank
impairment rate and a 3.2% increase in the Moneybarn rate offset
by a 10.3% reduction in the CCD rate as a result of the contraction
in the receivables book. The Group rate increased significantly
from 15.8% at December 2019 to 19.5% at June 2020 as the levels
of payment holidays increased to 7.2% of Group receivables
during the first half, and the macroeconomic outlook deteriorated
from a peak unemployment of 5% assumed in March to a
peak of 8% assumed at the end of H1’20.
In H2’20, the impairment rate moderated from 19.5% at June 2020
to 18.6% at December 2020 as payment holidays decreased to 1.6%
of Group receivables during the second half. The macroeconomic
outlook unemployment peak was delayed from H2’20 to Q2’21
with the peak reducing marginally from 8.0% to 7.9%. Additional
impairment provisions were also recognised in H2’20 as a result
of additional impairment provisions in response to Persistent
Debt requirements in Vanquis Bank as the effective date of
implementation was delayed from March to October 2020.
Risk-adjusted NIM
The risk-adjusted NIM has reduced from 26.5% in 2019 to 19.5%
in 2020 as a result of the 4.2% lower NIM from lower fees charged
combined with a 2.8% higher impairment rate being recognised
as a result of the higher payment holidays and deterioration
in the macroeconomy.
Cost:income ratio
The cost:income ratio has increased 9.6% in the year from
42.8% to 52.4% as a result of the £188.3m (18.9%) reduction in
revenue reflecting the 11.5% reduction in average receivables
compared to the 0.8% reduction in costs. The cost base has
not reduced in line with receivables as the operating cost
base in CCD is largely fixed; costs have also been inflated by
the rising cost of customer complaints, the increased operating
costs in Moneybarn as the business builds scale for growth,
and only a marginal reduction in the Vanquis Bank cost base
as the reduction in receivables is expected to be temporary
in nature.
66
Provident Financial plc Annual Report and Financial Statements 2020
Tax
The tax credit for 2020 represents an effective tax rate of 26.5%
(2019 (restated): 35.7%) on statutory losses before tax which
results in a tax credit of £30.1m being recognised in the year
(2019 (restated): charge of £42.6m) which principally reflects:
– the mainstream corporation tax rate of 19.0% on Group profit
before tax and the 8.0% bank corporation tax surcharge on
Vanquis Bank’s profits in excess of £25m (credit of £19.0m);
– the impact of the change in UK tax rate following the reduction
in the mainstream corporation tax rate to 17%, previously
enacted, being cancelled in 2020. The corporation tax rate
has therefore remained at 19% for 2020 (credit of £3.5m); and
– a credit in respect of prior years which primarily reflects the
benefit of claiming deductions for the costs incurred in 2019
in respect of the NSF bid defence, 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 (credit of £7.5m).
Summarised balance sheet
2020
£m
2019
(restated)
£m
Assets
Cash and balances at central banks
919.7
353.6
Amounts receivable from customers
1,799.8
2,197.7
79.7
116.5
162.4
78.0
115.3
163.3
3,078.1
2,907.8
Pension asset
Goodwill and other intangibles
Other assets
Liabilities
Retail deposits
Bank and other borrowings
Trade and other payables
Other liabilities
Cash and balances held at central banks
Cash and balances held at central banks has increased
by 160% in 2020 from £353.6m to £919.7m, which reflects the
increase in liquidity resources taken in response to Covid-19,
and has been in significant surplus to minimum PRA requirements
throughout 2020. Of the £919.7m, £833.3m is held by Vanquis
Bank in its liquid assets buffer, including other liquid resources,
solely in a Bank of England Reserve Account.
Amounts receivable from customers
– Group amounts receivable from customers reduced by
£397.9m (18.1%) in the year from £2,199.6m in 2019 to £1,799.8m
in 2020. The reduction was as a result of the 20% reduction
in lending year on year due to Covid-19 causing a tightening
of underwriting.
– Vanquis Bank receivables reduced by 25.1% to £1,094.3m
(2019: £1,461.5m) as a result of significant impairment
provisions due to payment holidays, the deteriorating
macroeconomic outlook and additional impairment
provisions in response to Persistent Debt requirements
(PD36), combined with lower customer spending, a reduced
CLI programme and lower new customer acquisitions.
– Moneybarn receivables continued to show growth and
increased by 15.8% to £566.6m (2019 (restated): £489.1m)
largely as a result of customers, many of which are key
workers, being reluctant to travel on public transport.
– CCD receivables reduced by 44.2% to £138.9m (2019: £249.0m).
The home credit receivable reduced by £70.6m due to
significantly lower issue volumes following limitations of
lending in the home. The Satsuma receivable reduced by
91% (£39.5m) following the cessation of lending from Q2’20.
The Group’s coverage ratio increased in H1’20 from 28.7% to
34.0% reflecting the significant increase in credit risk across all
divisions on the onset of Covid-19.
1,683.2
1,345.2
520.0
64.9
162.3
618.3
89.3
125.7
2,430.4
2,178.5
The Group’s coverage ratio continued to increase in H2’20
from 34.0% to 35.0% reflecting the deterioration in unemployment
combined with ongoing payment holidays and the impact of
PD36 in Vanquis Bank. This was offset by CCD where customer
provisions are based on the last 12 weeks of repayment
performance which improved, thus reducing the CCD
coverage ratio in H2’20.
Assets increased by 5.9% to £3,078.1m. This was driven by the
160.1% growth in the liquid assets offset by an 18.1% reduction
in amounts receivable from customers.
Liabilities increased by 11.6% to £2,430.4m. Deposits from
customers increased by 25.1% offset by non-bank group
funding reducing by 15.9%, the latter due to the reduction in
the CCD amounts receivable from customers, offset by growth
in Moneybarn amounts receivable from customers.
Coverage ratios
Vanquis
Moneybarn
Consumer Credit Division
Group
72%
69%
58%
30%
27%
23%
21% 23%
16%
34% 35%
29%
H2’19
H1’20 H2’20
H2’19 H1’20 H2’20
H2’19 H1’20 H2’20
H2’19 H1’20 H2’20
Provident Financial plc Annual Report and Financial Statements 2020
67
Strategic report Financial review continued
Restatement of prior period results – Moneybarn
IFRS 9 definition of Point of Default
Following the scheduled review of the Moneybarn 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) has resulted
in higher impairment charges being recognised in current
and prior periods.
The change in definition of default has not affected the 30 days
past due trigger for receivables moving to IFRS 9 stage 2. It does,
however, impact the point at which receivables should have
moved to IFRS 9 stage 3. As revenue is calculated based on
the net receivable in IFRS 9 stage 3, the change in the point of
default has resulted in lower revenue as more accounts are
considered defaulted. This does not impact profit before tax
as it is offset by an equivalent decrease in impairment charges.
Management has concluded that this is a prior period error
and has therefore retrospectively restated results. In the 2020
financial statements, the 2019 consolidated income statement,
consolidated statement of comprehensive income, balance
sheet and statement of changes in shareholders’ equity have
all been restated. An opening balance sheet as at 1 January
2019 has also been presented.
The prior year restatement has resulted in a decrease in
receivables of £3.2m and an adjustment to retained earnings
of £3.2m at 1 January 2019. The 2019 profit before tax decreased
by £9.8m, comprising an increase in impairment of £7.6m and
a reduction in revenue of £2.2m. Receivables at 31 December
2019 reduced by £13.0m.
Retail deposits
Retail deposits have increased by £338.0m in the year from
£1,345.2m at 31 December 2019 to £1,683.2m at 31 December 2020.
This reflects a £512m increase in liquid assets in response
to Covid-19.
Bank and other borrowings
The non-bank group borrowings have reduced by £98.3m
in the year from £618.3m at 31 December 2019 to £520.0m
at 31 December 2020 which was driven by a reduction in
Moneybarn and CCD receivables combined with a reduction
from the dividends and upstream loan from Vanquis Bank.
This has been offset by the largely fixed cost base in CCD
combined with the increased cost of complaints.
Funding and liquidity
The Group borrows to provide loans to customers. The Group
is generally less exposed than mainstream lenders to liquidity
risk as loans to customers are of a short-term duration whilst
the Group’s borrowing facilities extend over a number of years.
The profile of borrowing longer term and lending shorter term
creates a positive maturity mismatch.
The Group’s funding strategy is to maintain committed facilities
to pre-fund the Group’s liquidity and funding requirements for
at least the next 12 months, maintaining access to four main
sources of funding comprising: (i) the syndicated revolving
bank facility; (ii) external market funding, including retail bonds,
institutional bonds and private placements; (iii) securitisation;
and (iv) retail deposits.
Retail deposits are used to fund Vanquis Bank, combined
with a £70m loan to the non-bank group. The other sources
of liquidity fund Moneybarn, CCD and central operations
(the non-bank group).
The Group had total committed borrowing facilities, including
retail deposits, of £2,272.3m at 31 December 2020 (2019: £2,042.2m).
The flow of retail deposits within Vanquis Bank has continued
to be strong and, at 31 December 2020, Vanquis Bank had
retail deposit funding of £1,683.2m (2019: £1,345.2m), which
principally reflects the steps taken by the Group to increase
liquidity in Vanquis Bank in response to Covid-19.
In 2020, the Group delivered on a number of its funding objectives;
it: (i) signed an agreement to fund the Moneybarn receivables
book through securitisation; (ii) repaid early the remaining
M&G loan facility of £25m on 14 February 2020; (iii) in line with
its contractual maturity, repaid a £25m bond on 14 April 2020;
and (iv) successfully completed a tender offer for £75m
of senior bonds due to mature in 2023.
Group borrowings at the end of 2020 were £2,203.2m (2019:
£1,963.5m), including £15.7m (2019: £16.3m) of interest accrued on
borrowings and short-term overdrafts (net of amortising fees).
There are no imminent contractual maturities of the Group’s
facilities until a scheduled maturity of a £65m bond in
September 2021.
In January 2021, Vanquis Bank established a securitisation
programme backed by a revolving portfolio of credit card
receivables it has originated. The notes are to be held internally
as an additional liquidity contingency option initially, enhancing
Vanquis Bank’s ability to diversify its sources of funding.
Vanquis Bank remains primarily retail deposit funded.
The Group is actively exploring additional funding options
including, but not limited to:
– The refinancing of the following maturities:
– £65m retail bond maturing in September 2021;
– refinancing of Moneybarn securitisation to extend
tenor; and
– optimisation of mix of debt capital and senior debt
through tier 2 issuance.
There is further scope to: (i) change the funding mix to be
more efficient; and (ii) optimise the mix of debt capital and
senior debt in the funding profile:
– potential access to cheaper, long-term BoE funding.
Usage of any BoE funding will be modest and proportionate
to Vanquis Bank, which will remain predominantly retail
deposit funded;
– efficiencies in the Vanquis Bank liquidity levels;
– acquisition of new retail funding at significantly lower
market rates; and
– further efficiencies in Moneybarn collateral for
funding purposes, as well as Vanquis Bank funding.
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). Liquid
resources must be maintained above the 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 2020, the HQLA amounted to £833.3m (2019:
£321.9m). The increase during the year reflects steps taken to
increase liquidity resources in response to Covid-19 and has been
in significant surplus to the minimum requirements throughout
2020. Vanquis Bank currently holds its liquid assets’ buffer, including
other liquid resources, solely in a Bank of England Reserve Account.
68
Provident Financial plc Annual Report and Financial Statements 2020
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 total 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 countercyclical buffer was reduced
by the PRA to 0% as part of its response to Covid-19.
The Board monitors its risk appetite in respect of the appropriate
level of regulatory capital headroom in light of the uncertainty
caused by Covid-19.
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 2020 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
10 May 2021
As at 31 December 2020, the Group, on a consolidated basis,
and Vanquis Bank, on an individual basis, had an LCR of 2,830%
(2019: 224%) and 1,498% (2019: 485%) respectively.
Capital
The Group, incorporating Vanquis Bank, CCD, 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 solely of CET1,
which comprises shareholders’ funds, after adding back the
IFRS 9 transition adjustment, deducting the defined benefit
pension asset and intangible assets (including goodwill),
all of which are net of deferred tax.
The Group’s regulatory capital has reduced by £37m in the
year from £710m to £675m in 2020, principally reflecting the
Group’s loss after tax (£83m) offset by the 2019 full year
dividend which was cancelled (£41m) and the benefit from
the IFRS 9 transitional adjustments (£19m).
The Group’s risk-weighted assets have reduced by £271m,
largely reflecting the £300m reduction in risk-weighted exposures
in respect of customer receivables. As a result, at 31 December 2020,
the CET1 ratio, on an accrued profits basis, was 34.2% (2019: 31.6%).
The Group currently only holds regulatory capital in the form
of CET1. The Board’s current view on risk appetite is to maintain
a capital buffer in excess of 5% of risk-weighted exposures
(£98m) due to macro uncertainty.
The Basel III 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 2020 of 20.8% (2019: 23.2%)
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, 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’s capital headroom, at 31 December 2020, benefits
by £62m as a result of the dynamic 2 adjustment. 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 & capital resources
Total capital/CET1 ratio
Leverage ratio
Total capital/CET1
31 December
2020
31 December
2019
34.2%
20.8%
31.6%
23.2%
£674.8m
£709.7m
Risk-weighted exposures
£1,973.5m £2,244.3m
Provident Financial plc Annual Report and Financial Statements 2020
69
Strategic report Sustainability
We help...
create a better
everyday life
Sustainability has been an integral part of how
PFG operates its business for many years. And
this has helped us to be more resilient as we have
responded, and continue to respond, to the
challenges of Covid-19. Having sustainability
at the heart of our strategy has enabled us
to continue to help our customers through
this very difficult period, whilst at the same
time contain costs and maintain a strong
financial position.
I am also immensely proud that we’ve been
able to continue to support our colleagues and
work with our charity and community partners to
address issues such as food poverty, educational
inequality and mental health and wellbeing.
Malcolm Le May
Chief Executive Officer
Our commitment to delivering a sustainable future
The Purpose, strategic drivers and behaviours that make
up our Blueprint are at the heart of PFG’s approach to the
sustainable growth of our business. This not only enables us to
continue to provide our customers with the responsible credit
products and service that meet their particular needs, whilst
delivering fair outcomes at every stage of their journey with
us, but also helps us to address the social, environmental and
ethical challenges facing our business and society at large.
This section of the Strategic Report provides an overview of
PFG’s sustainability programme. Further information is set out
in the PFG 2020 Corporate Responsibility Report which can be
found at www.providentfinancial.com.
Engaging with our stakeholders
We are committed to acting responsibly and sustainably in all
the relationships we have with our key stakeholders. These are
our customers, colleagues, communities, suppliers, investors
(both debt and equity), regulators and government, as well as
the environment. We engage with our key stakeholders on an
ongoing basis to ensure that their views and concerns are
factored into our decision making processes. Details relating
to the relevance of these stakeholders to PFG, along with
examples of the reasons why we engage with them, are set
out on the following pages. We also engage with a number of
other stakeholders who have an interest in, or are affected by,
our business activities. These stakeholders were identified as
a result of a mapping exercise that we undertook in 2020 and
include the media, claims management companies, the
money advice sector, consumer forums and trade associations.
70
Provident Financial plc Annual Report and Financial Statements 2020
These are also important stakeholders for our business which
is why we engage with them to ensure that no issues are
arising from their perspective, and to help us to improve our
products, services and the way we operate.
Further information on how we engage with our key stakeholders,
along with details of the topics and issues on which we engage
them, and the outcomes and actions of the engagement activities
is set out where we refer to each individual key stakeholder and
in our Section 172 Statement on pages 91 to 98 of this report.
In accordance with sustainability reporting best practice, we
also engage with our stakeholders to ensure that we manage
and report on the environmental, social and governance (ESG)
issues that matter most to them and our business. We do this
by undertaking a materiality assessment at least every two
years to identify and prioritise the ESG issues that are material
to the Group. Our most recent materiality assessment was
undertaken throughout March and April 2021 by the independent
sustainability management consultancy Corporate Citizenship.
The issues that were identified as a result of the materiality
assessment exercise have been plotted on the matrix which
is set out on page 18 of the PFG 2020 Corporate Responsibility
(CR) Report.
Governing and managing sustainability
The governance and management structures we have in
place within our business ensure that we are able to continue
to align the Group’s culture more closely to the developing
needs of the customer. It also enables us to oversee the
ongoing embedding and monitoring of the culture and ethics
of the Group with regard to a range of other matters which
relate to the CR agenda, and ensure we operate our business
in a way that is consistent with being a trusted, responsible
and sustainable business.
Overall responsibility for the delivery of PFG’s Purpose and
sustainability strategy continues to rest with the Group Board
generally and Malcolm Le May, the Chief Executive Officer,
specifically. The PFG Executive Committee, which is chaired
by the Chief Executive Officer and includes the Group’s Chief
Finance Officer, General Counsel and Company Secretary,
Chief Risk Officer, Chief Information Officer, Corporate
Communications Director, HR Director, Chief Internal Auditor
and Managing Directors of the operating companies, also
plays an important role as it reviews and approves aspects
of the responsible business programme and its budget. This
Committee also continues to be tasked with overseeing the
ongoing development, embedding and monitoring of the
culture and ethics of the Group, ensuring they are aligned
with our Purpose, strategic drivers and behaviours.
Our Customer, Culture and Ethics (CCE) Committee also plays
a key role in providing oversight of matters that relate to the
sustainability agenda. The Committee is chaired by Non-Executive
Director Graham Lindsay and its non-executive director members
are Elizabeth Chambers, Margot James and Robert East. Through
active participation in Committee meetings by key senior
management members, such as the Chief Executive Officer,
Group General Counsel and Company Secretary, Group
Communications Director and Head of Sustainability, the
Committee is able to effectively challenge and discuss
the embedding of our culture and the delivery of fair
customer outcomes.
The day-to-day delivery of the PFG CR programme is carried
out by the Group’s CR team, which is supported by colleagues
from across CCD, Moneybarn and Vanquis Bank. 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.
Our Purpose
Helping to put people on a path to a better everyday life
Our sustainability strategy
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 72 and 73
Acting sustainably
Our investors
– Engage with the investment community
on sustainability matters
Read more on page 74
Our regulators and government
– Remain a responsible taxpayer
Read more on page 75
Our colleagues
– Create an inclusive and engaging workplace
Read more on pages 76 to 79
Our suppliers
– Ensure that we treat our suppliers fairly
Read more on pages 80 and 81
Our communities
– Support our Purpose through
our Social Impact Programme
Read more on pages 82 to 85
Our environment
– Respond to climate change
Read more on pages 86 to 89
Provident Financial plc Annual Report and Financial Statements 2020
71
Strategic report Sustainability continued
Our customers
Engaging with our customers
Relevance to PFG
– To ensure that we are providing our
customers with opportunities to access
products and services that are transparent,
responsible and sustainable, and which
meet their specific needs.
Reason for engagement
– To measure customer engagement across
PFG, including: customer satisfaction surveys,
Net Promoter Score surveys and complaints
monitoring through online forums, phone
calls, face-to-face surveys and focus groups.
– To engage with customers on a daily basis
to responsibly lend and provide tailored
products, assess customer vulnerability
and address any complaints.
– To support product and service
development and innovation.
PFG has enabled financial inclusion by lending responsibly to
consumers whose needs are not well served by mainstream
credit providers and helping put them on a path to a better
everyday life since 1880. We achieve this by operating tailored
business models which offer products, services and partnerships
through our three divisions, Vanquis Bank, Moneybarn and CCD,
that meet the specific needs of our customers (see pages 38
to 47 of the report for more information). This means that we
provide our customers with appropriate and affordable
amounts of credit, maintain close contact with them
throughout the term of their loan, and work with them
sympathetically if they experience difficulties.
By operating our business in accordance with our Purpose
and having a customer-centric culture, all our businesses
have been able to adapt well to the Covid-19 pandemic, which
has enabled us to implement new lending and collections
processes so that we can continue to support our customers
through what has been a challenging 2020 for many
(see page 6 of the report for more information).
Overall customer satisfaction rates
Vanquis Bank
91%
90%
86%
Moneybarn (Feefo rating)
4.7/5
4.6/5
4.5/5
18
19
20
18
19
20
Consumer Credit Division
89%
88%
91%
18
19
20
72
Provident Financial plc Annual Report and Financial Statements 2020
Maintaining customer satisfaction rates
One of the metrics we track to determine whether we are
providing our customers with products, services and partnerships
that meet their particular needs and help put them on a path
to a better everyday life is customer satisfaction. Measuring
this year on year also gives us some insight into where we can
make improvements to our offerings so that we can continually
meet or surpass customer expectations. 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. In what has been a challenging year, we have
been able to maintain high customer satisfaction ratings
across PFG.
The overall customer satisfaction rates in 2020 for each of our
brands are set out opposite on page 72.
Handling customer complaints responsibly
Ensuring that we keep customer complaints to an absolute
minimum is a good indicator that we are treating our customers
fairly and that our products, services and partnerships meet
their specific needs. 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.
Information on the customer complaints received in 2020
is set out below:
We provide the contact details of the Financial Ombudsman
Services (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 2020, the total number
of complaints referred to the FOS was 13,736 (2019: 4,253). In
addition, 8,934 (2019: 1,489) complaints that were referred to
the FOS were upheld in favour of the customer. Details relating
to the percentage of complaints that are upheld in favour of
the customer by business unit is made publicly available
twice a year on the FOS website.
Supporting customer vulnerability issues
The culture of our business is centred on delivering fair
outcomes for our customers at every stage of their journey
with us, even if they experience financial difficulties or other
vulnerability issues. We have developed relationships with
organisations and charities such as IncomeMax and the
Money Advice Trust, which provide training to our colleagues
to help them communicate effectively with such customers
and to increase understanding of the UK welfare system.
We also work with a number of money advice providers which
offer free support to consumers (some of whom may be our
own customers) who may find themselves having difficulty in
managing their debt repayments. These 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.
Vanquis Bank
(‘000)
39
34
Moneybarn
(‘000)
6
5
5
Consumer Credit
Division (‘000)
67
17
37
37
18
19
20
18
19
20
18
19
20
73
Strategic report Sustainability continued
Our investors
Engaging with our investors
Relevance to PFG
– It is key that we meet with shareholders
and engage with investors, the owners
of the Group, to maintain their support
and to keep them updated on the
Group’s progress in delivering its Purpose,
sustainable shareholder returns, strategy,
governance and culture.
Reason for engagement
– To provide accurate and timely information
such as regular financial statements and
other material announcements.
– To maintain investors’ support by keeping
them updated on the Group’s progress
in delivering its Purpose, sustainable
shareholder returns, strategy, governance
and culture.
– To engage with the investment community
on CR matters by responding to requests
for information and through our inclusion in
the DJSI World, DJSI Europe and FTSE4Good
Index Series.
Sharing ESG information with investors
and other stakeholders
Investors, regulators, government and other stakeholders are
increasingly looking for companies to be more transparent with
regard to a range of key ESG issues including their contribution
to reducing the impact of climate change and advancing
inclusion and diversity, as well as demonstrating that they are
a responsible taxpayer. This is why, in addition to publishing an
annual Corporate Responsibility Report which sets out in detail
our ESG performance, we make regular submissions to the
main sustainability investment indices and benchmarks, and
respond to requests for information from other stakeholders.
Throughout 2020, the Group engaged with:
We made our annual submission of climate change data to
CDP in August 2020. CDP requests information on the risks
and opportunities of climate change from the world’s largest
companies, on behalf of over 590 institutional investor signatories
with a combined US$110tn of assets under management and
200 plus major purchasers with over US$5.5tn in procurement
spend. Through the CDP submission, we can inform investors
of any material climate change-related risks and opportunities
and how we manage them. Our 2020 CDP submission was
rated ‘D’ which underlines our commitment to be transparent
about climate-related issues and their potential to impact our
business. Our most recent and previous CDP submissions are
published at www.cdp.net.
In November 2020, S&P Dow Jones Indices, a leading provider
of financial market indices, and RobecoSAM, the investment
specialist focused exclusively on sustainability, announced
that the Group continues to be included in both the Dow Jones
Sustainability World Index (DJSI World) and Dow Jones Sustainability
Europe Index (DJSI Europe). Inclusion in the DJSI World means
that the Group is in the top 10% of the largest 2,500 companies
in the S&P Global Broad Market Index with regard to its
sustainability performance. Being included in the DJSI Europe
means that it 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.
Following the annual review undertaken by the FTSE4Good
Advisory Committee, we were once again included in the
FTSE4Good Index Series. The FTSE4Good is an extra-financial
market index, which measures the performance of over 800
companies against a range of ESG criteria. Our overall score
in the FTSE4Good Index Series in 2020 was 4.7 out of 5.
During the summer of 2020, we engaged with ISS ESG,
the responsible investment arm of Institutional Shareholder
Services Inc, who were undertaking a corporate rating of our
ESG performance. As a result, PFG continues to be rated as
‘Prime’, meaning that we fulfil ISS ESG’s demanding requirements
regarding sustainability performance in our sector.
74
Provident Financial plc Annual Report and Financial Statements 2020
Our regulators and government
Being a responsible taxpayer
We are a fair and responsible taxpayer, and report all our tax
matters in an open, transparent and straightforward way. We
are committed to complying with all tax rules and regulations
in each of the territories in which we operate and safeguarding
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.
Further information on the Group tax strategy, including
comprehensive details on the total direct and indirect tax
contributions we pay on an annual basis and our approach
to managing tax risk, is set out on pages 71 to 75 of PFG’s 2020
CR Report which can be found at www.providentfinancial.com.
In accordance with paragraph 16(2), Schedule 19 of the Finance
Act 2016, our tax strategy, which has been approved by our Board,
can be accessed on our website at www.providentfinancial.com.
We are committed to, as a minimum,
complying with all tax rules and
regulations in each territory in which
we operate and safeguarding 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.
Engaging with our regulators
and government
Relevance to PFG
– The nature of our customer base and the
market in which we specialise makes the
building and maintaining of open and
trusting dialogue with our regulators, the
PRA, FCA and CBI, critical to the sustainability
of our business model, as is ensuring that
we engage with related stakeholders such
as the FRC, FOS and government.
Reason for engagement
– To build strong and enduring relationships
with our regulators and government
agencies to influence our strategic thinking
and enable us to plan for regulatory change
with greater certainty and confidence.
– To maintain a sustainable business model
and our reputation as a responsible lender.
– To ensure compliance with regulations and
that we avoid disputes and prosecutions.
Provident Financial plc Annual Report and Financial Statements 2020
75
Strategic report Sustainability continued
Our colleagues
Cheryl Ball
Engaging with our colleagues
Relevance to PFG
– Our colleagues have a direct stake in our
Company. They interact directly with our
customers, and therefore support the
delivery of our Purpose, and they create
and deliver the products and services
that our current and future customers
will consume. They also have a key role
to play in supporting the development
of a diverse, open and inclusive workplace
culture where everyone is a valued
member of PFG.
Reason for engagement
– To ensure that we maintain high levels
of colleague engagement.
– To support our employment practices to
enable us to attract, retain and develop the
talent we need to help us deliver our Purpose.
– To provide a stimulating and rewarding
working environment.
Supporting our colleagues
Our colleagues are the bedrock of our business and their
continued dedication and hard work is what gives PFG its
unique character and culture, which enables us to provide the
best service to our customers. The challenges we have faced
as a result of the impact of the Covid-19 pandemic have
tested the resilience and strength of all our teams more than
ever. As such, our priority during this period has been to make
sure that our colleagues can stay safe, and to look after their
wellbeing and mental health.
We also maintained our commitment to building and sustaining
an inclusive and diverse workforce, ensuring that it is engaged
and developed so that we can continue to work towards our
financial and operational objectives, as well as helping to put
our customers on a path to a better everyday life.
Mental health and wellbeing
Throughout 2020, we worked hard to ensure that all our
colleagues could access support and tools to help them
maintain positive mental health and wellbeing.
This included issuing regularly updated guidance to our line
managers throughout the year so that they can support the
colleagues they manage during the pandemic. These guides
set out a range of principles and resources for line managers
on matters including remote and flexible working, social
distancing and returning to the office, and looking after
colleague physical and mental health wellbeing.
To complement this, we have also published a stand-alone
Wellness Guide which is designed to enable all colleagues to
learn more about how they can support and promote their own
mental health and wellbeing at work. This guide includes a
number of tools to help colleagues to identify early warning signs,
such as triggers of stress, so that they can proactively maintain
their mental wellbeing and, where appropriate, get support
from their line manager, our HR teams or existing charitable
organisations such as MIND or the Bank Workers Charity.
Using technology to promote mental health
and wellbeing
To support the many hundreds of colleagues who have been
working remotely for much of 2020, it was vitally important that
we used technology to deliver mental health and wellbeing
advice and resources to them. In March 2020, following a pilot
we undertook with Vanquis Bank colleagues in 2019, we gave
all the Group’s colleagues free access to Thrive, the UK’s only
NHS-approved wellbeing app.
Since joining Provident in December
2020 I have continued to be impressed
by colleagues’ drive and commitment.
Their seamless adaptation in the year
to changing working practices emphasises
the dynamism of the workforce and makes
me proud to be part of the Group.
Cheryl Ball
Group Human Resources Director
This app includes psychological techniques and a cognitive
behaviour therapy (CBT) programme, the ability to access
further support via a Thrive coach at the touch of a button and
a comprehensive, and ever-changing programme of webinars
covering a variety of topics that help colleagues and their
families to manage their mental health and wellbeing.
We also rolled out a new Employee Assistance Programme (EAP)
to all colleagues in 2020. This is a 24-hour confidential helpline
which provides support on range of topics including debt and
consumer matters, personal and family relationships, stress and
anxiety and lifestyle addictions. It also includes a ‘Health e-Hub’
that all colleagues can access via an app or a dedicated
portal which is home to a range of wellbeing resources such
as webinars, CBT, factsheets and four-week programmes
which are designed to enable colleagues to make positive
changes to their health and wellbeing.
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Provident Financial plc Annual Report and Financial Statements 2020
Be Yourself: inclusion and diversity at PFG
Throughout 2020, we continued on the journey we have been
on for the past couple of years towards being a more inclusive
and diverse company. We are doing this because know that
our colleagues’ unique backgrounds, experiences and abilities
are at the core of our culture and vibrant workforce, and that
the communities we operate in and our customer bases are
made up of equally diverse mixes of race, gender, sexuality and
disability and other protected characteristics. So, by building
diverse teams at all levels of our business that represent and
understand these populations, we can innovate, provide the
best products and service to our customers, and contribute
to the long-term success of PFG.
But we know that having a diverse workforce alone is not enough.
Our workplace culture also needs to be inclusive, where
difference is appreciated and respected, while at the same
time making sure that differences do not act as a barrier to
participation, promotion or consideration. This is because we
believe that all colleagues have the right to be themselves,
while being treated as equals wherever they work across PFG.
The main focus of the work we have delivered over the past
18 months to create and maintain a fair, diverse and inclusive
culture for our colleagues and other stakeholders has been on
achieving a better gender balance in our senior management
population. This saw us, in 2019, become a signatory to the HM
Treasury’s Women in Finance Charter and set a target to have
40% female representation in the Group’s senior management
population by December 2024.
Building on our gender diversity work, we launched Be Yourself
in 2020, which is our programme to promote and advance
inclusion and diversity across PFG. The launch of this programme
was borne out of the recognition that our colleagues and
other stakeholders can only embrace our Purpose and move
along a path to a better everyday life if they feel that its their
path and they feel comfortable walking it.
This has seen us designate an executive sponsor for the
inclusion and diversity agenda at PFG, Gareth Cronin, PFG’s
Chief Internal Auditor (Chief Risk Officer as of 1 May 2021).
Women in Finance Charter: 2020 update
As of 31 December 2020, we had 27% female
representation in our senior management population.
Despite this percentage going down from 30% since 2019,
we believe we are on track to meet our overall target of
having 40% female representation in this population by
December 2024. Over the course of the past 12 months,
we have laid the foundation that will enable us to work
towards meeting our target. This has included:
– restructuring our Group Executive, which has enabled
us to confirm the direct reports that are included in
our defined senior management population, and
creating a talent pipeline into this population;
– initiating work to review and update the HR policies
and processes that will enable the Group’s businesses
to consistently to support the work to improve our
gender diversity performance;
– delivering the Next Generation Women’s Leadership
Programme to 21 high-potential women from across
Provident Financial Group (of these, 24% have gained
promotion); and
– reviewing our external recruitment process to ensure
a 50/50 gender balance in shortlists for all senior
leadership vacancies.
I am proud and thrilled to sponsor such
an important initiative. I’ve been with
PFG for just over a year now and have
been impressed with the colleagues we
have working throughout the business.
I’m certain that we’ll further improve
as a Group by maximising inclusion
and diversity. It’s something I’m
passionate about.
Gareth Cronin
Chief Internal Auditor (Chief Risk Officer as of 1 May 2021)
Provident Financial plc Annual Report and Financial Statements 2020
77
Strategic report Sustainability continued
Our colleagues continued
Be Yourself: inclusion and diversity at PFG continued
We also launched our overall inclusion community which
comprises four affinity groups based around disability, ethnicity,
gender and LGBTQ+. Each affinity group has a sponsor and
chair drawn from CCD, Vanquis Bank, Moneybarn and Provident
corporate office, and these meet regularly with the overall
executive sponsor to discuss inclusion and diversity plans,
developments and proposals across the inclusion community
as a whole. They also ensure that issues and updates are
circulated to the executive committees at the Group and
divisional levels. The affinity groups have a colleague lead
and are made up colleagues from across our business, with
support provided from our HR and Communications teams,
and, since their launch in September 2020, have articulated
their terms of reference and fed into the development of a Be
Yourself Inclusion Calendar which includes a range of events
that will be celebrated throughout the course of the year. In
2021, our affinity groups will be given training on the effective
running of their groups by an inclusion and diversity specialist.
Finally, through the Be Yourself programme we have started
work to update our HR management systems to collect
consistent information from our colleagues on their ethnicity,
religious beliefs, sexual orientation, disability status, caring
responsibilities and gender identity. This work will enable us
to report on these issues in a more consistent way, similar
to the way we report the gender diversity information below.
While the work to update our HR management systems is
being undertaken, we have continued to use our Colleague
Engagement Survey to ask colleagues to volunteer information
on their sexual orientation; ethnicity; impairment, health
condition or learning difference; and caring responsibilities.
This information is set out opposite.
Gender diversity data as at 31 December 2020
EDI data as at 31 December 2020*
11%
5%
Ethnic background
Percentage of colleagues
from a BAME background
Disability
Percentage of colleagues
who disclose they have an
impairment, health condition
or learning difference
7%
39%
Sexual orientation
Percentage of colleagues
who disclose they are lesbian,
gay, bisexual or transgender
Caring responsibilities
Percentage of colleagues
who disclosure they have
caring responsibilities
*
This EDI data is based on colleagues’ voluntary self-declaration via our
November 2020 engagement survey. It accounts for 74% of the PFG workforce.
Total workforce Directors
2,673
2,181
2,280
1,952
55%
45%
54%
46%
6
25
19%
81%
6
23
21%
79%
14
33
30%
70%
27%
73%
Senior
management
18
49
Middle
management
152
222
133
221
First-level
management
158
177
138
152
Colleagues
2,355
1,708
1,948
1,594
41%
59%
38%
62%
47%
53%
46%
54%
58%
42%
55%
45%
19
20
19
20
19
20
19
20
19
20
19
20
Female
Male
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Provident Financial plc Annual Report and Financial Statements 2020
Engaging our colleagues
During the challenges we have faced during 2020 it has
been important that we communicate and engage with our
colleagues on range of matters, including on mental health
and wellbeing, and colleague volunteering in the communities
we serve. We have done this through our Blueprint, Stay Connected
magazine, video blogs from our CEO and other members of
the senior management team, and work-related and social
meetings hosted on video conferencing platforms.
We also carried out our second Group-wide Colleague Survey
in November 2020. We did this so that we can determine how
engaged our colleagues are, and to understand the views they
have with regard to a range of other issues including PFG’s
leadership and management, how we support our customers
and their development and reward opportunities. This year,
74% of colleagues from across the Group took their time to
respond to the survey, up 6% on the previous year. The headline
results from the 2020 survey are set out below. As was the case
following our 2019 survey, we will, throughout 2021, convene
sessions with the individual teams within our divisions to share
more detailed findings with them and develop action plans
to address any specific issues.
Further embedding our Blueprint
Despite having to deal with a range of other priorities during
2020, we continued to integrate the Blueprint we launched in
2018 into the fabric of the business. This has seen us embed
Blueprint behaviours within our performance management
frameworks by publishing guides for colleagues and managers
that measure and reward performance against the same
criteria. These guides were also accompanied by an e-learning
module which was rolled out to all colleagues across the Group.
By continuing to embed our Blueprint within our business, we
will not only ensure that our business is focused on meeting
the developing needs of our customers to deliver better outcomes
for them, but also that we build and sustain an inclusive and
diverse workplace culture that supports the attraction and
retention of talented people, improves operational effectiveness,
delivers superior performance, and ultimately contributes
to the long-term success of the Group.
Colleague responses to key areas across the Group
17%
21%
12%
61%
19%
16%
18%
72%
70%
23%
22%
24%
52%
28%
28%
53%
30%
65%
Our
Purpose
Overall
colleague
engagement
Doing the
right thing
for customers
N70+
19%72+
N53+
24%65+
N52+
62+
N43+
25% 52+
N52+
61+
65+
N60+
I61%
N70+
25% 72+
N47+
71% 51+
74+
11%71+
Your
development
and rewards
Colleague
engagement
index
Unfavourable response
Favourable response
Your
manager
Neutral response
Working
together
Leadership
Your
role
60%
65%
43%
20%
28%
26%
52%
52%
52%
25%
24%
47%
23%
70%
27%
72%
74%
18%
10%
16%
19%
19%
15%
13%
31%
21%
11%
2020
2019
2020
2019
2020
2019
Provident Financial plc Annual Report and Financial Statements 2020
79
Strategic report18
+
17
+
19
+
21
+
I
22
+
16
+
24
+
24
+
I
23
+
12
+
28
+
19
+
I
28
+
30
+
I
20
+
19
+
23
+
25
+
27
+
21
+
31
+
26
+
I
15
+
11
+
N
16
+
13
+
I
25
+
24
+
25
+
28
+
I
18
+
10
+
19
+
11
+
I
Sustainability continued
Our suppliers
Engaging with our suppliers
Relevance to PFG
– Our suppliers play a vital role in our
operations and so it is important that we
develop strong relationships with them and
only buy products and services from those
which operate responsibly. Strong relationships
with suppliers can also mitigate risk in our
supply chain.
Reason for engagement
– To engage with suppliers to identify and
manage supply chain risks and comply
with our own policy requirements and
meet legislative requirements such
as the Modern Slavery Act 2015.
– To maintain good, long-term relationships
with suppliers so that we have the products,
services and skills required to run our business.
– To ensure prompt payment of invoices.
Responsible supply chain management
Our suppliers play a vital role in our operations, so it is
imperative that we encourage best practice within our supply
chain by ensuring we are compliant with legislation such as
the Modern Slavery Act 2015 and support supplier payment by
being signatories to the Prompt Payment Code. We also seek
to be forward thinking in our approach to supply chain
management and develop strong supplier relationships to
ensure we only procure products and services from those
who operate in a responsible manner and can help us to
minimise our climate change impacts.
Treating suppliers fairly
A significant number of the suppliers we use are small and
medium-sized businesses and we know that paying them
promptly is a key issue for them as failure to do so can result
in cash flow challenges. In recognition of this, we signed up to
the Prompt Payment Code over five years ago, which requires
us to pay suppliers within 60 days of receiving an invoice, and
aim to pay all suppliers within 30 days of receiving an invoice.
In 2020, 97% (2019: 96%) of the Group’s invoices were paid within
60 days and 92% (2019: 86%) of them were paid within 30 days.
We will continue to aim to pay all our suppliers, in particular
smaller businesses, within 30 days. As such, we support the
reform of the Code which obliges signatories to pay all small
businesses within 30 days – half the time outlined in the
original Code.
Managing human rights issues
In the conduct of our business activities, PFG will respect all
fundamental human rights. This involves, among other things,
ensuring that our procurement processes take account of the
corporate responsibility practices of our suppliers to ensure that
there are no conflicts with the Group’s culture, and understanding
the risks posed by modern slavery and human trafficking and
ensuring that they do not exist in our businesses or supply chains.
As a business with a turnover of more than £36m we are
required to produce an annual statement which describes
the steps that have been taken to prevent modern slavery
and human trafficking from occurring in our supply chain
and direct business activities. Our most recent statement,
dated May 2020, 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.
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Provident Financial plc Annual Report and Financial Statements 2020
Percentage of suppliers paid in 60 days in 2020
Group corporate office
100%
90%
Consumer Credit Division
94%
93%
Moneybarn
99%
99%
Vanquis Bank
100%
89%
19
20
19
20
19
20
19
20
Percentage of suppliers paid in 30 days in 2020*
Group corporate office
Consumer Credit Division
Moneybarn
Vanquis Bank
81%
81%
98%
100%
* This information is being reported for the first time in 2020.
81
Strategic report Sustainability continued
Our communities
2020 community investment figures explained
Total
£1,190,332
2019: £1,448,138
N87+
87+
Cash
2020: £1,035,984
2019: £1,249,818
Management costs
2020: £143,129
2019: £149,605
Value of employee time
2020: £11,219
2019: £48,715
Engaging with our communities
Relevance to PFG
– To enable us to engage with the
communities we serve to address factors
including 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.
Reason for engagement
– To ensure that we fulfil our Purpose of helping
to put people on a path to a better everyday
life by investing in activities which seek to
address key barriers to financial inclusion
and helping people overcome them.
– To encourage colleagues to volunteer
to take part in our community
investment activities.
The PFG Social Impact Programme
The Purpose that underpins PFG’s reason for being and the role
we play in the lives of our customers also informs the choices
we make in our community investment activities. This is why
the Social Impact Programme (SIP) that we launched in 2019,
following consultation with our many partners and external
experts, invests in activities and initiatives which seek to address
some of the key factors which, on their own or acting together,
can reduce someone’s likelihood to be accepted for credit.
The three pillars of our SIP strategy focus on tackling customer
and colleague vulnerability issues, supporting the education
and skills agenda and investing in projects which address
a range of social inclusion issues and promote community
cohesion. We do this because these are issues that are not
only very much aligned with our Purpose of helping to put
people on a path to a better everyday life, but also because
this supports our SDG commitments which relate to no poverty,
quality education, decent work and economic growth, and
reduced inequalities (go to pages 30 to 33 of this report
for more information).
In 2020, we committed almost £1.2m to fund a range
of activities through our SIP.
82
Provident Financial plc Annual Report and Financial Statements 2020
12
+
1
+
10
+
3
+
I
The Purpose that underpins PFG’s
reason for being and the role we play in
the lives of our customers also informs
the choices we make in our community
investment activities.
Supporting our community partners to respond
to Covid-19
Through the contact we have had with our many community
partners over the past 12 months, we know that the Covid-19
pandemic has impacted the way they operate as well as their
ability to secure funding. At the same time, it is clear that it will
be these same community and voluntary organisations that
are playing now, and will continue to play in the future, a key
role in responding to the impact that Covid-19 is having on
some of the most vulnerable in society.
Early in 2020, we agreed to honour the commitments we made
to fund our existing charity and community partners. We took
this decision because we recognise that the charities and
community organisations we already have relationships with
are either supporting communities in need right now, or will
have a fundamental role to play in supporting them in the
pandemic recovery process. In doing so, we have worked with
many of our partners to derestrict the funding that we have
provided to them, which has enabled them to repurpose it for
use in areas of immediate need (e.g to cover additional core,
service delivery and volunteering costs). This enabled our partners,
many of which are directly providing frontline community support
or disbursing grants to organisations involved in the emergency
response to the pandemic, to continue to support the communities
we serve, some of which will be facing a tougher recovery from
the impacts of Covid-19. We also worked with our partners to
ensure that, where relevant, our funding is used to develop the
advice and support that they usually deliver to recipients face
to face in local schools and colleges, community centres or our
offices into resources that can be delivered online or remotely
using technology.
A summary of the work we have delivered throughout 2020
through the Provident Financial Social Impact Programme is
set out below, with further information on our work included on
pages 51 to 67 of our 2020 CR Report at www.providentfinancial.com.
Supporting the education and skills agenda
Through this workstream, we 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.
National Literacy Trust
During the first lockdown in March, the National Literacy Trust (NLT)
provided support to over 300,000 children and young people
with printed writing materials and books and over 500,000
with access to high-quality digital literacy resources.
As part of this work, we were able to print and deliver resource
packs to local foodbanks which then provided copies to
digitally excluded families.
This need continued with each lockdown, so to support
literacy and wellbeing in disadvantaged communities during
lockdown, our work with NLT has focused on three key areas:
delivering high-quality programme content for teachers to
support the delivery of online learning and in-school teaching for
vulnerable and key workers’ children through literacytrust.org.uk;
providing reading resources and activities for parents through
wordsforlife.org.uk; and giving digitally excluded children and
young people printed resources to support their learning,
distributed through NLT’s hubs and partnerships.
National Numeracy
In 2020, we were once again a lead supporter of National
Numeracy Day. The day focuses on raising awareness of the
importance of numeracy and helps people take steps to improve
their skills. In the midst of lockdown, National Numeracy was
able to adapt the day to run as an online festival. During the
festival, people were encouraged to take the National Numeracy
Challenge as a first step to improving their number confidence
and skills. Over 54,000 people engaged with the Challenge
through May 2020 as a result of the collaborative funding from
13 companies, including PFG (go to www.nationalnumeracy.org.uk
for more information).
We are also working with National Numeracy to trial its new
‘Becoming a Numeracy Champion Training: Maths, Money
and Mindset’, for those who work in community-facing roles
and who regularly communicate directly with clients or
provide support to members of the community. The aim of
the programme is to tackle the issues around maths anxiety
in the UK and how low number confidence can impact on
someone’s ability or willingness to engage in conversations
about maths and money.
School-Home Support
School-Home Support is a charity which places practitioners
into schools across the country to work with children and families
who need support the most. We provide funding for a practitioner
at one school in Bradford and two schools in Chatham.
Throughout the year, the charity has seen demand for its services
more than quadruple but has continued delivering vital support
to families facing issues such as domestic violence and food
poverty. It also helped out with delivering digital devices to
those without access to them and we were able to partner it up
with the National Literacy Trust to provide literacy resource packs
to these families. In the lead-up to Christmas, our colleagues
also took part in a gift-giving appeal which meant that
disadvantaged children across the UK woke up to gifts
on Christmas morning.
Social Mobility Business Partnership
During the summer, some of our colleagues played virtual hosts
to young students in Bradford as part of a Work Insights Week
organised by SMBP. SMBP is a charity which provides an innovative
programme, bringing 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 which they may not have previously considered.
Usually the event we host as part of this week is held at our head
office in Bradford, but due to school closures and lockdown
restrictions the event in 2020 was delivered online. Colleagues
volunteered to deliver presentations and workshops to inspire
the young people who attended.
Provident Financial plc Annual Report and Financial Statements 2020
83
Strategic report Sustainability continued
Our communities continued
Projects supported through our PFG Social Impact Programme funds
Essex Community Foundation
Community Foundation Wales
– Basildon Community Resource Centre
– Community Engagement, Technology, Media & Arts
– Basildon Foodbank
– Citizens Advice South Essex
– Signpost
– South Essex Advocacy Services
– Hope Church Rhydyfelin
– Ystradgynlais Mind
– Inside Out Cymru
– Steps4change
– Newport Yemeni Community Association
London Community Foundation
Leeds Community Foundation
– Future M.O.L.D.S Communities
– Bradford Community Broadcasting
– Barking & Dagenham Ab Phab Youth Club
– Common Wealth Theatre
– Refugee and Migrant Forum of East London
– Muslim Women’s Council
– Rainham Foodbank
– Excel Women’s Association
– Barking & Dagenham Progress Project
– Sarah Agnes Foundation
– Empowering Deaf Society
– My Family Organisation
– Wellgate Community Farm
– Peak Tuition Academy
Kent Community Foundation
Hampshire and IOW Community Foundation
– Evelina Children’s Heart Organisation
– Medway Watersports Ltd
– Rochester Indoor Skatepark Club
– Slide Away
– Swale Gloves Amateur Boxing Club
– The Princess Project
Foundation Scotland
– Articulate Cultural Project
– Fablevision
– Feel Women’s Group
– Finding Your Feet
– Kingston Gymnastics Club
– Potential in Me
– Youth Interventions
– Enterpride
– Frontline Petersfield
– Hayling College
– Headway Portsmouth and South East Hampshire
– King’s Arms Youth Centre
– Wecock Community Association
To read more detail on the projects that we support,
view our Corporate Responsibility Report at:
www.providentfinancial.com/sustainability/corporate-
responsibility-report-2020
84
Provident Financial plc Annual Report and Financial Statements 2020
Volunteering case study
Supporting parents to get back into work
Volunteers from Vanquis Bank got involved in an
employment skills workshop for a group of parents
at King’s Cross Academy in London through our
involvement with School-Home Support. During the
session colleagues helped the parents with their
CV writing and interview skills. These are important
interventions that School-Home Support does not
have the resources to deliver, so it was fantastic that
our colleagues were able to deliver these important
sessions. Parents very much appreciated the opportunity
to work with someone in business, getting advice and
support. The activity resulted in a real boost to their
confidence and self-esteem.
Fundraising case study
Crisis at Christmas
During December 2020, we launched a fundraising
campaign to raise money for Crisis by encouraging
colleagues to do something locally, whilst fundraising
towards one central cause – homelessness. By setting
up a fundraising page we encouraged colleagues to
see this as the virtual ‘collection bucket’ that they might
have walked around the office with. We matched all their
fundraising efforts, which even included Vanquis Bank’s
Chief Risk Officer, David Poole, completing a marathon
by running a mile every hour for 26 hours.
Working with community foundations
PFG currently has community foundation partnerships in areas
where our business has high numbers of customers or colleagues.
These are with the Leeds Community Foundation, London
Community Foundation, Hampshire & Isle of Wight Foundation,
Kent Community Foundation, Community Foundation in
Wales and Foundation Scotland. Our community foundation
partnerships provide the perfect opportunity for colleagues to
input into the decision making process around how our funds
are allocated in their local communities.
Throughout 2020, we engaged with our community foundation
partners to ensure we understood the issues and challenges
they were facing as a result of the pandemic. By doing this, we
identified two issues that were priorities for them: the need to
raise funding to help build their capacity so that they can
respond to any immediate needs, and ensuring that core
funding is protected. Our partners also told us that there will
be key social and financial exclusion challenges that will need
to be addressed as the restrictions that have been in place
as a result of the pandemic start to get relaxed, and the small
charities and community organisations they fund will have
a key role to play in addressing them. We therefore took the
decision in 2020 not to divert our funding to one of the emergency
funds that were set up during the year, but to maintain our
Social Impact Programme funds to enable the small community
organisations we fund to continue their existing support
programmes. In 2020, we were able to award grants totalling
over £265,000 to 44 community organisations. Details of the
projects our grants supported during 2020 are set out on page 84.
Tackling customer and colleague vulnerability
We support the vulnerable customer agenda through
a dedicated workstream of the Group’s Social Impact
Programme. The focus of this workstream is to support
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 73.
We continue to support The Money Charity to empower
people across the UK to build the skills, knowledge, attitudes
and behaviours to make the most of their money throughout
their lives. In doing so, we ask The Money Charity to prioritise
supporting the most disadvantaged students and hard to
reach groups. In more normal circumstances, this is done
through the delivery of face-to-face workshops in schools,
colleges and other settings. Following discussion with the
charity about how best to deliver its support to schools and
adult groups impacted by ongoing Covid-19 restrictions, we
agreed to support it to convert these learning resources to be
delivered online. Entirely new content has been created for
adult workshops, tailored to the challenges individuals are
most likely to face as a result of the Covid-19 pandemic.
Encouraging colleague volunteering
We launched an updated Volunteering and Matched Funding
Policy in 2020 to encourage all colleagues from across PFG to
participate in community volunteering and fundraising activities.
Under this policy, colleagues are able to take a full day’s paid
leave to volunteer for a community organisation or charity of
their choosing. In addition, we offer a number of Company-led
opportunities to colleagues through our Social Impact Programme.
Our matched funding programme continues to be popular
with colleagues, who tell us that being able to fundraise for the
organisations that are close to their hearts is important to
them. We provide matched funding of up to £500 per person
each year, and in 2020, colleagues’ causes benefited from
matched funding of over £8,169.
85
Strategic report Sustainability continued
Our environment
Protecting the environment and responding
to climate change
We believe that delivering our Blueprint for sustainable growth
also commits us to ensuring that PFG’s impact on the environment
is kept to an absolute minimum. This is because our long-term
success is tied to the resilience of our operations, supply chains,
and the communities where our customers and colleagues live
and work. As such, it is essential that our business, alongside
other stakeholders, responds to the globally important issue of
climate change, which means embracing the Paris Agreement
and keeping global warming to 1.5 degrees Celsius above
the temperature set before the beginning of the Industrial
Revolution to avoid the worst of the predicted effects.
Managing our impact on the environment
We continue to manage our operational environmental impacts
with the environmental management system (EMS) we have had
in place for almost 20 years. This 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. The
EMS at our Bradford head office and Vanquis Bank’s business
premises in London and Chatham have been certified to the
international management standard ISO 14001:2015 since 2011
and 2018 respectively. In 2020, Moneybarn’s offices in Petersfield,
Hampshire, were also brought within the scope of this certification
which means that all PFG’s main premises are accredited to an
internationally recognised environmental management standard.
Managing climate change-related risk
In 2020, in support of the UK Green Finance Strategy, we set out
our ambition to achieve net-zero greenhouse gas emissions by
2040. We also conducted a review to identify how the Group can
work towards meeting the recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD), which also took into
account our environmental targets. In terms of the review of our
environmental targets, we determined that we will need to
achieve deeper emissions reductions that align with climate
science and the rules governing the setting of science-based
targets, while enabling us to deliver our commercial objectives.
We will therefore develop and publish a science-based carbon
reduction target and other related targets that will enable us to
realise our net-zero ambition by the end of 2021.
In terms of the TCFD, we fully support the aim of this framework
and will increase our disclosures in line with its recommendations.
A summary regarding the progress we made last year regarding
the TCFD recommendations is set out on the page opposite, with
further details included on pages 42 to 45 of our 2020 Corporate
Responsibility Report at www.providentfinancial.com.
Engaging with our environment
Relevance to PFG
– To ensure that the impacts that PFG
has on the environment, whether directly
as a result of the energy that we use,
or indirectly through the activities in our
supply chains or the use of our products,
are kept to a minimum.
Reason for engagement
– To demonstrate to our stakeholders
(e.g. investors, regulators, government
and colleagues) that we continue to meet
the requirements of ISO 14001 and are
seeking to minimise our impact
on the environment.
– To report in line with the recommendations
of the Task Force on Climate-related
Financial Disclosures by 2022.
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Provident Financial plc Annual Report and Financial Statements 2020
Our approach to managing climate-related risk
TCFD
recommendation
Ongoing progress in 2020
Focus areas for 2021
Governance
In 2020, we established a Company-wide Climate Risk
Committee to review our climate change strategy and
monitor material risks and opportunities. This Committee,
which will have its first meeting in April 2021, will be chaired
by the Group Chief Risk Officer and will report directly to the
Group Executive Committee. It will also report into the Board’s
Customer, Culture and Ethics Committee and Group Risk
Committee. Below this, the PFG Corporate Responsibility
function is responsible for monitoring climate-related issues.
Strategy
Climate change risks have the potential to impact PFG’s
business strategy through increased costs for us as a
business as well as our customers, reduced productivity of
colleagues and reputational damage. Throughout 2020 and
into 2021, we have undertaken initial work to understand what
the most material climate-related risks are to our business,
as well as the most material opportunities in the short term.
This built on work carried out by Vanquis Bank to understand
the short-term and long-term financial risks that climate
change presents to its business model. We also initiated
work to develop a methodology that will enable us, using
the risks referred to above, to undertake scenario analyses
to assess the probability and magnitude of the financial
implications of climate change to our business.
Risk
management
Throughout 2020, we undertook work to start to identify
the physical and transition climate-related risks that have
implications for PFG’s business model and stakeholders
(e.g. customers, colleagues and suppliers). This built on the
work that Vanquis Bank carried out to allocate responsibility
for identifying and managing financial risks from climate
change to the relevant senior management function(s)
(SMF(s)) most appropriate within its organisational structure
and risk profile as is requested by its regulator, the PRA.
Metrics and
targets
During 2020, we set out our overall target to be net zero by
2040. We also continued to measure and monitor our scope 1
and 2 emissions, along with some of our scope 3 emissions,
and report progress on a range of metrics covering our
direct and indirect greenhouse gas emissions.
In addition to finalising the Committee’s
terms of reference and PFG’s new
climate risk strategy, the focus for 2021
will be on agreeing the methodology
that will be used to undertake a
Group-wide climate risk scenario
analysis which takes account of our
value chain, divisions and functions,
and the different aspects of our
business models, assets, operations
and organisational structures.
Through our Committee, we will
work with colleagues from Finance,
Risk and Operations to undertake
analyses to test the impacts on our
business of the following scenarios:
one in which rapid decarbonisation
achieves a 1.5 degrees Celsius above
pre-industrial level increase; and
one where emissions remain
high (4 degrees Celsius above
pre-industrial levels) and physical
climate impacts dominate.
Once our Climate Risk Committee
has started to meet, we will be able
to ensure that material climate
change risks are integrated into our
risk management framework and
through our registers, ensuring that
the following are identified: risk driver,
description of risk, potential impact,
timeframe, whether the risk or
opportunity is direct or indirect,
likelihood and magnitude of impact.
We will also ensure that material
exposures to climate-related risks are
included within Vanquis Bank’s ICAAP.
We will set a science-based carbon
reduction target and other related
targets that will enable us to realise
our net-zero ambition by the end of
2021. To support us to do this, we will
also sign up to the ‘Business Ambition
for 1.5 degrees Celsius’ pledge.
Our environmental performance
Further details on our approach to managing our environmental performance are set out
on pages 47 to 50 of our 2020 Corporate Responsibility Report at www.providentfinancial.com.
Provident Financial plc Annual Report and Financial Statements 2020
87
Strategic report Sustainability continued
Our environment continued
Reporting and managing our carbon emissions
Greenhouse gas (GHG) emissions in 2020*
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 greenhouse gas emissions in tonnes of carbon dioxide equivalent, along with a relevant intensity ratio
(i.e. kilograms of carbon dioxide equivalent per customer) and information on underlying energy use for 2020, are set out below.
This disclosure covers the greenhouse gas emissions and energy use for the Group and its operating divisions – Vanquis Bank,
Moneybarn and the Consumer Credit Division.
1,113
0.88
408
327
(2019: 1,502)
(2018: 1,637)
Scope 2 GHG emissions –
tonnes CO2e
(2019: 1.18)
(2018: 1.61)
Scope 1 and 2 (and associated
scope 3) emissions intensity
ratio (kg of CO2e/per customer)
(2019: 700)
(2018: 1,803)
Scope 1 GHG emissions
– tonnes CO2e
(2019: 500)
(2018: 412)
Associated indirect
(scope 2) GHG emissions
– tonnes CO2e
During 2020, PFG consumed 10,768 MWh of energy.
*
Our emissions are reported in accordance with the WRI/WBCSD Greenhouse Gas (GHG) Protocol. We use an operational control consolidation approach
to account for our GHG emissions and use emission conversion factors from Defra/DECC’s GHG Conversion Factors for Company Reporting 2013.
Our GHG emissions are calculated using energy use data accessed via meters and energy suppliers, and from records of fuel use.
Scope 3 GHG emissions
The business travel of our colleagues is a significant contributor to our scope 3 GHG emissions. These emissions also include
those that are associated with the waste that we dispose of and the water used in our premises. Given the travel restrictions
that were in place during 2020, these emissions were lower than in previous years, and amounted to 2,986 tonnes of CO2e
(2019: 7,298 tonnes of CO2e).
16
4
2,073
440
327
102
24
2,986
Air travel
Rail travel
Car travel –
own vehicles
(‘grey fleet’)
Waste
collection and
management
Water use
Total
Extracting,
refining and
transportation
of raw fuel
associated
with business
travel
Extracting,
refining and
transportation
of raw fuel
associated
with scope
1 and 2
emissions
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Provident Financial plc Annual Report and Financial Statements 2020
Our operational carbon footprint
During 2020, our operational carbon footprint amounted to 4,507 tonnes of CO2e. Further details relating to this footprint
are shown in the pie chart below.
Total emissions
– 4,507 tonnes
of CO2e
9+
Scope 1 emissions – 408 tonnes of CO2e
Scope 2 emissions – 1,113 tonnes of CO2e
Scope 3 emissions – 2,986 tonnes of CO2e
Carbon offsetting
We continue to offset our direct operational carbon footprint.
We do this by financing sustainable development projects
around the world which help to mitigate the effects our
operations have on our climate.
This year, we offset 4,507 tonnes of CO2e, which accounted for
all of the Group’s 2020 operational footprint. These emissions were
offset through the purchase of carbon offset certificates in the
Weyerhaeuser Carbon Sequestration Project in La Pitanga, Uruguay.
The forest sector of Uruguay plays a significant role in the
socio-economic development of the country, especially its
interior regions. The project comprises a total of 18,191 hectares
of land previously under extensive grazing by beef cattle,
converted into forest plantations for value added, long-lived
timber products and for sequestering carbon dioxide from
the atmosphere in different pools, reverting the existing soil
degradation process that has been occurring for several years.
It will remove a total amount of 5,652,922 tonnes of carbon
dioxide in a period of 100 years or an average of 56,529 tonnes
of carbon dioxide per year.
The project also delivers a range of positive environmental
and social impacts, including:
– the reduction of rural poverty through the generation of
high-quality and stable employment, and reverting the
process of rural migration to big cities in a region of Uruguay
with elevated levels of poverty;
– the creation almost 260 job positions during the agrarian
phase and provision of support to around 70 local farmers
who are able graze cattle on the farms in the project; and
– the provision of support to important ecosystems such as
Sierra de Rios, Rio Yaguaron and Arroyo Tacuari which are
home to a number of vulnerable species or are at high risk
of extinction in the wild environment.
Through the investment we make to this project, we are also
able to contribute to four of the SDGs which relate to decent
work and economic growth, responsible consumption and
production, climate action and life on land.
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Strategic report25
+
66
+
N
Sustainability continued
Find out more
2020 Corporate
Responsibility Report
Our stand-alone 2020 CR Report provides a balanced account
of how our 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 2020 in delivering
against this strategy. The report relates to the non-financial
aspects of Provident Financial plc and its operating divisions
– Vanquis Bank, Moneybarn and CCD – in the UK and ROI,
and its key stakeholders: customers, colleagues, shareholders
and debt investors, regulators, communities, suppliers
and the environment.
For further details on our
approach to corporate
responsibility, visit
www.providentfinancial.com
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Provident Financial plc Annual Report and Financial Statements 2020
Section 172
Statement regarding section 172 of the Companies Act 2006
We listen…
Who does the Board deem to be
the Group’s key stakeholders?
Our
customers
Our
environment
Our
colleagues
Our
communities
Our
regulators
and government
(and other
bodies)
Our
suppliers
Our
investors
(equity
and debt)
We define our stakeholders as individuals or groups who have
an interest in, or are affected by, the activities of our business.
Our key stakeholders are set out above, and you can read about
why we engage with them in more detail on pages 72 to 89.
You can also read about how we generate and preserve value
over the long term on page 17 (reasons to invest); pages 18 and 19
(our Purpose and business model); pages 20 and 21 (our strategic
objectives); pages 34 to 37 (our markets); and pages 48 to 61
(risk management).
For more details on how our Board operates, and the way in
which it reaches decisions, including the matters it discussed
and debated during the year, please see pages 108 to 110.
A stakeholder mapping exercise was undertaken during the
year, and the resultant Stakeholder Map was approved by the
Customer, Culture and Ethics (CCE) Committee on 26 October.
A formal stakeholder engagement plan, based upon the
results, is being prepared for the Board’s approval in 2021.
This will ensure we continue to engage with our stakeholders
in a manner and regarding topics which are important to them
and the Group, and therefore maximising the effectiveness
of our engagement. You can find out more about these
developments within our 2020 Corporate Responsibility Report,
available at www.providentfinancial.com.
Our Corporate Social Responsibility team has also undertaken a
materiality assessment, which informed us that following the
materiality assessment exercise we undertook during the first
quarter of 2021, we confirmed that customer vulnerability,
responsible lending practices and customer satisfaction and
care were the issues that rated highest in importance to both
our business and our stakeholders. The exercise also identified
the pandemic, climate change, diversity and inclusion, and
mental health and wellbeing as issues that have grown in
importance for both internal and external stakeholders since
we last updated our materiality matrix, because of their
potential to impact our future business performance and
prospects. Further details are contained on page 18 of our
2020 Corporate Responsibility Report.
The Board received an update from the Chairman of the CCE
Committee at its November 2020 meeting on a review it had
undertaken of the s.172 duty and related external reporting
requirements, including the decisions reached and action
directed. The Committee agreed that the s.172 statement
should be more strategically relevant in its second iteration.
Provident Financial plc Annual Report and Financial Statements 2020
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Strategic report Section 172 continued
Statement regarding section 172 of the Companies Act 2006 continued
Our customers
See pages 72 and 73 for key KPIs
How
Indirect engagement during the year included the Board receiving verbal reports from the Chairman of the
CCE Committee, Graham Lindsay, regarding customer call listening sessions and associated learnings, vulnerable
customer reviews, product concept reviews, its monitoring of customer payment holiday volumes and the
outcomes and actions from the Customer Lives Survey. The Board also received regular management reporting
on customer payment holiday tracking and the levels of customers in persistent debt, which had increased as
a result of Covid-19 forbearance measures. In addition to this the Board discussed remote lending and collections
facilities within CCD and the tightening of credit underwriting. At the Corporate Planning Conference (CPC) the
Board received a UK non-standard marketplace update which provided updated customer segmentation and
market share data, outlined the risks and opportunities of the marketplace, including key regulation, and how
this impacted the Group’s product portfolio and customer proposition.
The CCE Committee reviewed the Customer Lives Survey results, the customer and Blueprint dashboards,
customer outcomes and payment holiday performance and conduced customer call listening sessions.
The CCE Committee reported to the Board as appropriate.
Topics
Lessons learned from the pandemic, including increased digitisation of the customer journey, forbearance
procedures, payment holidays, persistent debt, access to credit and product proposition.
Significant
feedback
That there were 12 million customers within the non-standard market and that the market was fluid, with 2 million
customers expected to fall into the sub-prime category as a result of the impact of Covid-19 upon their finances.
Feedback also indicated that there had been growth in both the personal loans and motor finance markets
and that customers wished to retain the use of their credit facilities wherever possible, with home credit
customers adapting to digital loan disbursement. The benefits of operating closely as a Group became
apparent, including the provision of cross-divisional support in times of significant stress. The customer
complaints root cause analysis provided valuable insights into customers’ perceptions of the Group’s
products and services, including their affordability within the context of the pandemic.
Key outcomes
– Outcomes regarding the broadening of the Group’s customer proposition were fed into the Group’s strategy
discussions at the CPC.
– Rather than reduce the amount of available credit for customers during a time when they would likely be needed
more than ever, the Board ensured that the Group increased its liquidity to responsibly accommodate
customer needs.
– Oversaw the regulatory matters and engagement regarding: the work undertaken to understand the feasibility
and appropriateness of a Scheme of Arrangement for customer complaints arising from our home credit
business; in relation to withdrawing CCD from the home credit market; and to establish a new, mostly digital,
lower cost offering. See pages 13, 28 and 29 for more information.
– The inception of remote lending and collections facilities implemented within CCD enabled customers to
safely make payments throughout the Covid-19 related disruption in line with the Group’s Purpose of helping
the customer onto a path to better financial health.
– Engagement with customers and close monitoring of operational performance highlighted opportunities
for the Group to flex its resources to reflect changing customer needs.
– The decision to tighten credit underwriting was necessary to ensure that the Group was lending responsibly
in what has proven a period of unprecedented disruption.
Principal decision – the repayment of government furlough monies
Following confirmation that the Group was able to access a
furlough grant via the Government’s Coronavirus Job Retention
Scheme (Furlough Scheme), furloughed colleagues were paid
80% of their basic salary, with the Group paying salary costs that
exceeded the furlough grant limits within the Furlough Scheme,
thereby assisting those colleagues with their financial security.
Following comments from the Chair of the Parliamentary Business
Committee regarding the status of profitable firms, the Board
further discussed the grant and considered that as the Group
had mitigated the impact of the pandemic, retaining strong
capital and liquidity positions, and there had been lower than
anticipated colleague furloughing, repayment of grant monies
should be considered.
Following a detailed assessment from management regarding
the implications of grant repayment, the Board considered the
benefits and risks to the Group, including the possible short
and long-term implications and the reputational impacts. The
Board decided that despite the impact upon the Group’s cash
flows, the repayment of the furlough monies was the right thing
to do, aligned with the Group’s values and Purpose, and clearly
communicated the Board’s belief in the future of the Group.
The Board therefore approved the repayment of furlough monies
and stipulated that no further claims be made, whilst
maintaining enhanced payments for those colleagues
who remained furloughed.
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Provident Financial plc Annual Report and Financial Statements 2020
Our colleagues
See pages 76 to 79 for key KPIs
How
Examples of direct engagement included regular vlogs by our CEO, regular colleague newsletters and internal
communication emails following external announcements in relation to Covid-19. The Colleague Forums continued
their work and our designated Non-Executive Colleague Champion, Graham Lindsay, engaged with colleagues
directly in 2020 by attending the forums and providing verbal reports to the Board regarding colleague
feedback. For further information on Graham’s work in this regard see pages 114 and 115.
Indirect engagement included the reporting to the Board of the Colleague Pulse Survey, material matters from
the CEM Survey and associated action plans, which were held more regularly during 2020 to ensure colleagues
were provided with ample opportunity to provide feedback on adapted working conditions during the pandemic.
The CCE reviewed the outcome of the Colleague Pulse Survey and considered the impact of Covid-19 upon
the Group’s colleagues.
The 2020 Colleague Survey was considered by the CCE Committee and Board in January 2021. The Board also
regularly discussed the impact of Covid-19 upon colleagues and received a Return to Work paper in June 2020
which detailed key colleague feedback in relation to office working and safety. Another indirect method of
engagement was the Board’s review of the whistleblowing reports and ongoing monitoring of the work of the
Whistleblowing Forum. Reports on colleague furloughing and reduced hours were considered by the Board
and feedback given to management as appropriate.
The Group Risk Committee (GRC) conducted a detailed risk assessment of Covid-19 upon working conditions
in September 2020 which identified, documented and mitigated the risks associated with colleagues returning
to work. At its January 2021 meeting the CCE Committee received a follow-up paper on the Future of Work and
considered the Group’s updated Workforce policies; updates on these matters were provided to the Board
by the Chair of the CCE Committee.
The Nomination Committee reviewed the Group’s talent management and succession framework, diversity within
the talent pipeline and consideration of equality, diversity and inclusion (EDI) initiatives, further details of which
are contained on pages 129 and 130.
The Remuneration Committee considered and approved a new Group-wide colleague role and reward
structure with aligned benefits at each level and coordinated training and expected behaviours. The Directors’
Remuneration Policy (DRP) and launch of a Restricted Share Plan (RSP) were considered and approved by the
Remuneration Committee and Board, which directly considered the impact of the incentivisation and retention
of colleagues. For further details, see the General Meeting (GM) and RSP principal decision on page 96.
Topics
Remote working and plans for safely returning to offices, leadership performance, furloughing and flexible
working patterns, physical and mental wellbeing and diversity and inclusion.
Significant
feedback
Positive feedback was received on the Group’s response to Covid-19 and how the Group had prioritised the
wellbeing of its colleagues, including the launch or refresh of wellness initiatives during the year. Furthermore,
whilst colleagues missed the interaction of working in offices, the majority wished to see increased flexibility
and remote working in the future. It was evident that the recognition of high performance remained an area of
focus for colleagues. The Colleague Pulse Survey indicated that engagement across the Group had increased
year on year by 6%. The CEM Survey indicated that these colleagues were supportive of adapted collection
processes and retaining onsite visits subject to being issued with appropriate personal protective equipment.
Key outcomes
– Feedback from the Colleague Forums raised awareness of the wellbeing concerns of our key workers
remaining in the office throughout the pandemic, which assisted with the decision to limit those returning
to the office and deactivate passes until the full Return to Office process had been completed.
– The generation of a new Group-wide colleague role and reward structure with aligned benefits at each level
and coordinated training and expected behaviours.
– The launch of the RSP (see the principal decision for further details).
– The approval of an updated Whistleblowing Policy.
– The issuance of personal protective equipment to CEMs to enable safe customer visits and Field Forum
feedback influenced the earlier reinstating of operational duties within CCD.
– The provision of Colleague Mental Health Toolkits for managers and the roll-out of the Thrive mental health
application across the Group.
– The launch of our new Be Yourself diversity and inclusion initiative, sponsored by members of the
executive management.
– Oversaw the regulatory matters and engagement regarding: the work undertaken to understand the
feasibility and appropriateness of a Scheme of Arrangement for customer complaints arising from our
home credit business; in relation to withdrawing CCD from the home credit market; and to establish a new,
mostly digital, lower cost offering. See pages 13, 28 and 29 for more information.
– A safe Return to Work approach was approved by the Board for those who were either unable to or faced
challenges with working from home. Colleague feedback regarding the Group’s future approach to office/
remote working was fed into the Group’s Future of Work project.
Provident Financial plc Annual Report and Financial Statements 2020
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Strategic report Section 172 continued
Statement regarding section 172 of the Companies Act 2006 continued
Our regulators & government
See page 75 for further information
How
Indirect engagement included the Board’s consideration of the ILAAP following feedback from the PRA. The
Board considered management’s report following discussions with the Gambling Commission prior to its ban
on the use of credit cards for gambling transactions. The Board received reports from management who had
liaised with Fitch in relation to the Group’s credit rating (downgraded to BB+ with negative outlook from stable
outlook). The Board received an update on proposed wearable technology in the ROI field teams following
discussions with Central Bank of Ireland, ensuring the safety of our customers and colleagues.
The Board considered and approved the tax strategy. In addition, the Board received regular updates on
discussions with HMRC regarding its industry-wide review of the historical employment status of self-employed
home credit agents, further details of which are contained on pages 61 and 231. The Board reviewed the CRO’s
regulatory horizon scanning reports which detailed all interactions with the Group’s regulators, together with
reports from the CEO on recent discussions. The Board was also kept apprised via the CEO in meetings regarding
discussions with the FCA regarding those customers categorised as being in persistent debt, the Board adding
value by authorising additional resources to successfully implement a PD36 initiative in the year.
The Board considered in detail discussions management had held with the Financial Ombudsmen Service
in relation to historical complaints and the requirement to retain such data as was appropriate in this regard.
Consideration was given and engagement undertaken with appropriate government stakeholders regarding
whether the Group would be able to access the various schemes for furloughed colleagues.
Management met with the FCA to discuss a programme of work undertaken to understand the feasibility and
appropriateness of a Scheme of Arrangement for customer complaints arising from our home credit business,
including consideration of the impact on our stakeholders. See pages 13, 28 and 29 for more information.
The Board oversaw the regulatory aspects and regulatory engagement regarding the scheme of work
undertaken to move CCD away from the home model and market to a new, lower cost offering. See page 13
for more information.
Direct forms of engagement include the proactive engagement undertaken by members of the Board and
executive management with regulators via regular meetings and membership of trade associations. In addition,
the Group CEO regularly liaised with the FCA regarding the Group’s response to Covid-19. A letter from the Board to the
Treasury outlining the Group’s approach to managing Covid-19 related risks for its customers and colleagues
was sent in March 2020. Further engagement with HM Treasury took place regards the Group’s market and
issues such as the detailed review of payment freezes crisis of credit availability. Face-to-face meetings were
conducted with some Board members as part of the PRA’s Supervisory Review and Evaluation Process in the
year. Board members received letters directly from regulators and MPs and considered these with the Board
or respective committee meetings, such as the FRC’s ‘Dear Audit Committee Chair’ letter.
Topics
The Group’s tax strategy, complaints volumes, strategic project progress such as product concepts, Covid-19
response and changes to customer-facing processes, the GM and launch of the Group’s Restricted Share Plan,
the Group’s capital and liquidity position and the risk mitigation programmes within the divisions, Financial
Crime and Risk Mitigation Programmes within VBL.
Significant
feedback
The prohibition of credit card use in gambling transactions, requirements to ensure VBL’s removal from the FCA’s
watchlist and the requirement for wearable technology within the ROI field. Management updated the Board with
feedback received from the PRA with regard to the repurchase of Company bonds within the market.
Key outcomes
– The implementation of wearable technology in the CCD field teams following discussions with Central Bank
of Ireland, ensuring the safety of our customers and colleagues.
– The removal of the use of VBL’s credit cards for gambling transactions.
– Board approval of the ILAAP.
– Approval of 2021 Group tax strategy.
– Successful completion of C-SREP.
– An extension of the deadline for PD36 customers to respond and agree a pay-down solution on their
accounts as a result of engagement with the FCA.
– The successful removal of VBL from the FCA’s watchlist in December 2020.
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Provident Financial plc Annual Report and Financial Statements 2020
Our investors (equity and debt)
See page 74 for key KPIs
How
See pages 116 and 117 for further details on how we engage our investors in our investor relations programme,
such as the AGM, stock exchange announcements and the Annual Report. A material example of the Board’s
direct engagement was Andrea Blance, SID and Remuneration Committee Chair, consulting directly with
major investors regarding the proposed changes to the Directors’ Remuneration Policy (DRP) and share plan
changes proposed at the November 2020 General Meeting (GM).
The Board indirectly engages with investors via the review of an investor relations report at each Board
meeting, which summarises engagement activities and feedback received. The Board further receives
external communication reports at each meeting, detailing public and media relations and corporate
responsibility activities. The Board reviews and approves all trading and results statements issued to the
market. The Board held a dedicated session to discuss the results of an Investor Perceptions Audit which
provided significant feedback as detailed below.
The Board considered capital allocation across the Group and approved a new Group Capital Management
Policy, setting out the coordination of capital across the Group and providing enhanced governance over the
allocation of this resource, thereby maximising financial returns. The Group Capital Management Policy would
be overseen through the Group Treasury Committee with updates provided to the Board as appropriate. The
Board considered the timing of the Interim Results following engagement with brokers to ensure there was
sufficient time to accommodate any delays through remote working and to assess the exit performance
of payment holidays.
Topics
The Investor Perceptions Audit delivered key investor feedback in areas such as the Group’s perceived
strengths, weaknesses, regulatory outlook, investors’ attitudes to market growth and the impact of Covid-19
upon the Group’s strategy. The arrangements for the AGM which had to be held behind closed doors in line
with the Government’s Stay at Home measures. For further details regarding the RSP feedback, see our
principal decision on the following page.
Significant
feedback
The Investor Perceptions Audit highlighted that investors expect that, given its strong capital and liquidity
positions and dominant position within its market, the Group will seek to capitalise upon its market share as
a result of Covid-19 upon its competitors. Future growth opportunities to become a bank for the underserved
within Vanquis Bank and further synergies between this and Moneybarn’s propositions.
Cautioned against driving ROE above what was considered to be a sustainable level, and to be kept below 25%.
Investors were understanding of the withdrawal of the 2020 dividends, noting an expectation of a low-level
resumption of dividends in 2021, subject to the Group recovering from Covid-19 related disruption. For details
of investor engagement and feedback provided for the RSP, please refer to the principal decision on the
following page.
Key outcomes
– Approval of the revised DRP and RSP at the GM on 3 November 2020.
– The withdrawal of our 2020 dividend (see the principal decision below).
– Updated Capital Allocation Policy ranking organic growth, dividends and then inorganic and capital returns
in priority order.
– The delaying in publishing the Interim Results until a detailed assessment of the Group’s going concern
position had been undertaken by the Audit Committee.
– Purchase of bonds within the market, reducing the Group’s interest charges by c.£4m in 2020 and c.£5m
for years 2021–23.
– Approval of the Capital Management Policy.
Principal decision – withdrawal of our 2019 final dividend
The Group announced on 27 March 2020 the withdrawal of the
final 2019 dividend of 16.0p per share, the cash impact of which
was £40m. The Board considered, in good faith, that the withdrawal
of the dividend would be most likely to promote the success of
the Company in the longer term and benefit its members
as a whole.
In reaching this decision, the Board had discussed the
uncertainty regarding the impact of Covid-19 upon the Group
and proposed that the Group withdraw the 2019 final dividend
in order to support a prudent and robust capital and liquidity
position. Positive engagement was undertaken with investors
following the Group’s preliminary results announcement and it
was relayed to the Board that investors would expect the Group
to be prudent in regard to its decision on whether to withdraw
the final dividend as their primary concern was the Group
maintaining appropriate capital and liquidity positions. Further
to this, the Board commissioned and received guidance from
its corporate broker with regard to the likely perception of such
a decision by shareholders and it was also noted that other
such companies had made similar decisions.
Provident Financial plc Annual Report and Financial Statements 2020
95
Strategic report Section 172 continued
Statement regarding section 172 of the Companies Act 2006 continued
Principal decision – the General Meeting (GM), Directors’ Remuneration Policy (DRP)
and Restricted Share Plan (RSP)
Shareholder feedback post the 2020 interim results announcement
had included strong support for management, agreement with
the articulated strategic direction of the Group and concern
that management had nearly no lock-in of its talent. Further
to this, the Remuneration Committee’s decision that no bonus
would be paid to the executive directors relating to the 2020
financial year further exacerbated concerns regarding talent
retention so the Remuneration Committee developed, and the
Board approved, a new DRP and RSP to address these concerns
and to support compliance with regulatory requirements
impacting the Group. Further details regarding the reasons for
the change can be found within our DRP on pages 155 to 159.
Following the Remuneration Committee’s approval of the
proposed remuneration changes, engagement with shareholders
through a consultation process was led by the Senior Independent
Director (SID) and Chair of the Remuneration Committee. The
SID sent letters to the Group’s largest shareholders explaining
the reasoning for the changes, following which meetings were
conducted between them and the SID. Following those meetings
letters were sent to other institutional shareholders and proxy
advisory bodies and meetings between them and the SID were
conducted. In total 65% of the Group’s share register was engaged
with to garner feedback on the proposals.
A paper detailing the shareholder feedback was considered at
the November Remuneration Committee meetings and in response
the Board clarified that any grant made in November 2020
under the RSP would, at a minimum, incorporate the reduction
in value of awards that was applied to awards granted in
April 2020 under the Long Term Incentive Scheme. This was
communicated to the investor bodies and the 20 largest
shareholders and uploaded to the Group website.
The feedback received influenced the final proposed DRP in the
following ways: the RSP underpin was further strengthened and
a number of financial metrics included; it was clarified that the
RSP grants were made on base salary; and a target bonus payout
of 50% of maximum was agreed. For further details, please refer
to our DRR on pages 151 and 152.
Following consideration of the feedback provided through the
shareholder consultation, the Remuneration Committee and
Board approved the proposed DRP and RSP for recommendation
to shareholders. A Notice of a GM, together with the proposed
resolutions and detailed changes to the DRP and RSP rules were
circulated to all shareholders on 9 October 2020 and the GM was
held on 3 November. Shareholder questions were encouraged
in advance of the meeting and were responded to via email as
appropriate and we were pleased to note that 76.6% of share
capital was voted at the GM, with all resolutions passing with
in excess of 96% approval.
Our suppliers
How
See pages 80 and 81 for key KPIs
A tender for the Group’s remuneration consultants was led by the SID and Remuneration Committee Chair.
In addition a tender for the Group’s external auditor was conducted by an Audit Tender Committee, led by the
Audit Committee Chairman and comprised of the Board and Audit Committee members and management.
The Board received recommendations from specially constituted Tender Committees regarding the provision
of brokerage, remuneration advisor and external audit services.
The CCE Committee reviewed the results of the Group’s Top 10 Supplier Review, which assessed the internal processes
of material suppliers to ensure they were compliant with required standards and identified opportunities for
enhancement within the supply chain. In addition, the CCE Committee received a suppler update in July 2020
regarding how the Group had adapted its corporate responsibility programme due to the Covid-19 pandemic.
The Board considered the Modern Slavery Act Declaration in March 2020.
Topics
Prompt payment, data protection, modern slavery, performance and anti-bribery and corruption. Tenders were
conducted throughout the year for the provision of brokerage, remuneration advisor and external audit services.
Significant
feedback
Feedback of the Tender Committees following robust tender processes for the provision of brokerage,
remuneration advisor and external audit services.
Key outcomes
– Continued prompt payment of suppliers, thereby remaining signatories of the Prompt Payment Code,
maintaining the Group’s reputation for high standards of business conduct.
– An agreed action plan in relation to the Group’s Top 10 Supplier Review feedback.
– Approval of the Group’s Modern Slavery Statement.
– The appointment of various new advisors, including Numis as joint brokers with Barclays, replacing
JP Morgan, the reappointment of Deloitte as the Group’s external auditor and the appointment of PwC
as the Group’s remuneration advisor.
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Provident Financial plc Annual Report and Financial Statements 2020
Our communities
See pages 82 to 85 for key KPIs
How
The Board approved Social Impact Programme delivers community investment in a number of areas
(see pages 83 and 84). The Board is kept apprised of the work of the CCE Committee in this regard and
receives regular updates on community-related matters. The CCE Committee considered the Group’s Social
Impact Programme at both its July and October meetings, approving management’s approach to funding in
light of Covid-19 related challenges within our communities.
The CCE Committee considered the Group’s commitment to the UN Sustainable Development Goals (SDGs)
at its October meeting.
Topics
Customer vulnerability, community contributions, charitable giving and volunteering activities and adaptations
to the same required as a result of Covid-19.
Significant
feedback
Concerns regarding the longer-term impacts of Covid-19 upon communities and investment. Feedback from
partners enabled the Group to highlight areas of greatest and most immediate need. We also worked closely
with our partners to ensure that where relevant, funding could be used to develop online or remote delivery
of advice and support. That alignment with SDGs would enable the Group to better manage risks, anticipate
consumer trends and demand, attract, retain and develop the best colleagues, attract capital, and strengthen
the Group’s supply chains.
Key outcomes
– The Social Impact Fund constituted a foundation in Scotland and provided 800 printed information packs
for the first Virtual Numeracy Day, in keeping with the Group’s Purpose of helping put customers on a path
to a better everyday life.
– The CCE Committee approved the Group’s commitment to six long-term ESG objectives which were aligned
with the SDGs. For further details on our ESG targets, please refer to pages 30 to 33.
– The agreement to honour commitments made to fund existing charity of community partners.
– The enabling of our partners to continue to support the communities we serve, some of which would face
a tougher recovery from the impacts of Covid-19.
Our environment
See pages 86 to 89 for key KPIs
How
We manage our environmental impacts via our Environmental Management System (EMS). You can read about
our greenhouse gas emissions, and our environmental impact and approach on pages 88 and 89. The Board
indirectly engages on environmental issues via the provision of reports and updates from the Head of Corporate
Social Responsibility via the work of its CCE Committee.
The CCE Committee received an update on climate change in October, outlining the achievement of ISO 14001
in all the divisions and Group’s implementation of the Task Force on Climate Related Disclosures Financial
Disclosures (TCFD) recommendations.
Topics
Climate change, details of greenhouse gas emissions and the achievement of TCFD objectives.
Significant
feedback
That through engagement with TCFD and the setting of long-term climate-related objectives, the Group could
align a number of key global priorities for the achievement of a more sustainable and inclusive path with our
Purpose and business strategy.
Key outcomes
– Board-level oversight of the Group’s environmental performance including briefings provided to the Board
members on TCFD.
– The Board approved the Group’s target to reach net zero by 2040.
– The CCE approved the Group committing to the six long-term ESG objectives that were aligned with both
the SDGs and TCFD.
– Annual submission to the Carbon Disclosure Project.
– The reduction in our operational carbon footprint by 42% from 9,468 CO2e in 2019 to 5,493 CO2e in 2020 with
all these emissions offset through the purchase of carbon offset certificates in the Weyerhaeuser Carbon
Sequestration Project in La Pitanga, Uruguay. For further information on the Group’s operational carbon
footprint see page 89.
Provident Financial plc Annual Report and Financial Statements 2020
97
Strategic report Section 172 continued
Statement regarding section 172 of the Companies Act 2006 continued
Covid-19 and related stakeholder engagement
A Board commissioned Steering Group was incepted
in February 2020 to plan for the potential impact on the
Group’s colleagues and customers and reported that a short
communication had been issued to colleagues confirming
the current government advice on hygiene and symptoms.
Colleagues were advised to work from home from 23 March
2020 and the Board received updates on the technology
reported to make this possible, following which the Board
approved a common set of policies and procedures for
communication to colleagues in March. Colleague Managers
received ongoing Manager Guides, outlining updated
processes and advice in relation to Covid-19 and how to
best engage with and manage their teams remotely.
Management’s enhanced communication tools and
increased use of social media was overseen by the Board.
The Board oversaw the inception of remote lending
and collections facilities implemented within CCD which
enabled customers to safely make payments throughout
the Covid-19 related disruption in line with the Group’s
Purpose of helping the customer onto a path to better
financial health.
The Board challenged and supported management in
their approach to colleague and regulator engagement
with regard to the requirements for offices to remain open
and ensuring they operated within applicable guidelines,
receiving a Return to Work paper detailing the risk assessments
undertaken prior to the reopening of the Group’s offices.
The Board further monitored management’s customer-facing
processes, including those for enhanced forbearance and
in relation to payment holidays, receiving frequent
collections performance updates.
Government guidance introduced a requirement to consult
with elected representatives on a Covid-19 related workplace
risk assessment, and colleague representatives were therefore
elected and Colleague Forums and their terms of reference
were updated across the Group to meet this requirement.
Further, a Future of Work paper was considered by the CCE
Committee in January 2021 following engagement with
colleagues from across the business regarding flexible
and remote working in the medium to long term.
The Board received frequent capital and liquidity updates from
management, including management actions to optimise
the Group’s position in preparedness for Covid-19 related
headwinds, especially in relation to undrawn credit card
balances within VBL (see the withdrawal of our 2020 dividend
principal decision on page 95). The Board monitored regulatory
capital requirements and loan covenants, overseeing the
increase in VBL’s liquid asset buffer to £1bn. The Board also
closely monitored reductions in lending volumes, decreased
collections performance and payment holiday volumes,
constructively challenging management on mitigating
actions as appropriate.
The Board discussed and agreed a proposal for the Board
directors and senior management to take a 20% reduction
in fees/salary for an initial three-month period given the
challenges facing customers and colleagues. Further the
Board monitored levels of colleagues who were furloughed
and approved the payment of 80% of their basic salary,
initially funded via a combination of the Group and the
Government; however, the Board agreed the repayment
of the monies and further details are contained within
the principal decision on page 92.
The Board held the AGM behind closed doors in line with the
government guidance at that time, ensuring that shareholders
were given the opportunity to ask questions in advance.
The Board agreed the delayed publication of the Interim
Results until management and the external auditor had
sufficient time to conduct a detailed review of the Group’s
going concern assessment.
In May detailed reports were received by the Board
in relation to the subsidiaries’ responses to Covid-19,
monitoring the impacts upon and action taken in relation to
colleagues and customers, returning to offices, the Board
advising that VBL ensure it was appropriately resourced to
capitalise upon opportunities within the market presented
by Covid-19. The Board received updates on colleagues’
Return to Work strategy, including planning and internal
communications. The CEO reported to the Board that a
survey of the field CEMs had indicated that they were
supportive of calling on customers subject to their consent
and appropriate personal protective equipment had been
issued to facilitate this. Updates to operational processes
were supported by both the Group Internal Audit and Risk
functions, which completed reviews of proposed processes
and controls and presented findings to the Board.
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Board leadership and Company Purpose
Chairman’s introduction
I am proud of the tenacity and professionalism
shown by our colleagues who have continued
to deliver our Purpose during a year of
unprecedented challenges.
G
o
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r
n
a
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c
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99 Board leadership and Company Purpose
99 Chairman’s introduction
102 Our Board
106
Setting our strategy
108
Promoting long-term sustainable success:
Board activities
111
The Board: steering our culture and uniting
our colleagues
113 Stakeholders and investor relations
113
114
116
How we engage effectively with
our stakeholders
Listening to our colleagues
Effective engagement with shareholders
and stakeholders: investor relations
118 Division of responsibilities
123 Composition, succession and evaluation
123 Board composition
124
Induction for new directors
125 Board evaluation
127 Nomination Committee Report
131
Customer, Culture and Ethics Committee Report
133 Audit, risk and internal control
133 Audit Committee Report
138 Risk Committee Report
141 Directors’ Report
Read more about our corporate responsibility strategy
in our 2020 CR Report at www.providentfinancial.com
Dear fellow shareholder,
I am pleased to introduce the Corporate Governance Report
for 2020.
Throughout 2020, we found ourselves in unprecedented times,
and the Board has been focused on guiding our Group as safely
as possible through the Covid-19 pandemic. The pandemic has
had a profound impact on how we serve our customers, work
with our colleagues and lead the Group, and we fully recognise
the importance of effective governance to our success during
such challenging circumstances. You can read more about
how we have tackled the challenges brought about by the
Covid-19 pandemic in our case study on pages 6 and 7
of the Strategic Report.
The long-term impacts of the Covid-19 pandemic on the
wider UK economy are uncertain; however, the Group has
robust contingency plans in place. We have strong capital
and liquidity positions and I am confident we have a talented
and well composed Board with the right balance of skills and
experience to provide the professional, thoughtful leadership
needed in times such as these. Embedding and monitoring
the Group’s Blueprint, Purpose, strategic drivers and behaviours,
together with the work the Board has done to rebase the strategy,
put us in a strong position.
Purpose and culture
Provident Financial is a financial services company that,
as a specialist lender, provides tailored credit products and
services to customers who have difficulty accessing credit
from mainstream providers. Reflecting on the challenges of
the Covid-19 pandemic only brings into even clearer focus
for the Board the important role the Group plays in helping
its customers on their paths to financial stability and a better
everyday life. In providing access to responsible and sustainable
credit products the Group believes it provides an essential
service for its customers. The Group seeks to represent its
wider role in society and the needs of its customers through
participation in regulatory consultations, such as the Woolard
Review. The Blueprint was developed in an evolving regulatory
and cultural landscape and this year the Board, through the
work of the CCE Committee, has continued to drive and monitor
the embedding of the Blueprint strategic drivers. You can find
further information about the work of the CCE Committee
on pages 131 and 132.
Provident Financial plc Annual Report and Financial Statements 2020
99
Governance
Board leadership and Company Purpose continued
Chairman’s introduction continued
Purpose and culture continued
The restrictions of the Covid-19 pandemic accelerated delivery
of customer initiatives, such as remote disbursement in the
Consumer Credit Division. The Board, whilst concerning itself
with the operational resilience of the Group and health and
safety of all stakeholders, has encouraged the evolution of
products, policies, infrastructure and services to benefit our
customers across all of our brands.
Operating responsibly and sustainably is central to our
business and this includes addressing the wider social,
environmental and ethical impacts of our activities. This year
we have committed to five of the UN’s Sustainable Development
Goals, and you can read more about how we will achieve this in
our Sustainability Report on pages 70 to 90 and in our standalone
Corporate Responsibility Report available on our website.
Board appointments
In 2020 we welcomed two new members to the Board.
Neeraj Kapur formally joined us on 1 April 2020 and has already
made a significant contribution. Margot James joined us on
27 July 2020 and you can read more about her appointment
in the Nomination Committee Report from page 127.
As announced to the market on 11 September 2020, and effective
for the period 23 September to 3 November 2020, I assumed
the role of Interim Executive Chairman whilst our CEO Malcolm
Le May undertook a planned medical procedure. I used this
opportunity to work more directly with senior executives and
observe from an alternative perspective some of the intricacies
of our Group operations. This allowed me to get an even clearer
picture of the challenges we face. Malcolm resumed his CEO
role on 3 November 2020, at which point I relinquished any
executive responsibilities. This was a temporary measure,
and we believe an appropriate and proportionate period of
non-compliance with Provision 9 of the Corporate Governance
Code 2016 (the Code), further details of which are in the
Directors’ Report on page 146.
Effectiveness
As Chairman, I am responsible for ensuring the Board is able
to effectively perform its responsibilities. Following our external
Board evaluation in 2019, this year I decided that an internal
evaluation was appropriate. Overall, we believe that the Board
and its Committees worked effectively during 2020 and continue
to do so. We expanded the evaluation to cover the Board’s
response to the Covid-19 pandemic and you can read more
about the outcomes on page 125. Focus areas for the Board in
2021 will include getting closer to our customers, the Group’s
IT strategy and digital engagement.
Continued refinement of the Board’s composition, bolstered
by the appointments of Margot and Neeraj, further enables
the Board in successfully discharging its responsibilities. The
Board Skills Matrix was refreshed during 2020, the results of
which have demonstrated that the Board has been strengthened
in a number of areas including digital and technology.
With the additions of Margot to the Nomination, Remuneration
and CCE Committees, and Neeraj to the Board, we believe that
there is the correct balance of skills and experience in each
Committee to operate successfully. You can read more about
the work of each of the Committees in their reports throughout
the Corporate Governance Report.
Risk & governance
The Board remains committed to the highest standards
of corporate governance to enable it to oversee effectively
the strategic direction, objectives and viability of the Group.
Work has been undertaken in recent years to enhance
and clarify the roles and responsibilities across the Group,
including the implementation of our matrix management
model with functional reporting lines in areas such as Legal
and Internal Audit. The Group continues on this harmonisation
journey toward an enterprise-wide approach to risk management.
Overseen by the Group Risk Committee (GRC), the risk
harmonisation programme incorporates: policy alignment;
standardised risk control self-assessment; a centralised risk
management system; and a Group risk appetite framework.
Amongst other deliverables due throughout 2021, the GRC
has supported management in their redesign of the
framework, principles and allocation of resource to
the harmonisation programme.
The Board has played an important role in overseeing detailed
risk assessments of the impact of the Covid-19 pandemic
upon the Group and the safety of colleagues’ Return to Work.
The Group’s risk appetite has also been re-based to consolidate
principal risks, standardise risk definitions and deliver dynamic
and outcome-based risk measures across the Group. The
Board has received assessment reports on the overall risk
profile of the Group and how this has changed in the period
including undertaking a thorough and robust review of the
principal and emerging risks.
The economic impacts of the Covid-19 pandemic continue to
be widespread, and have altered the circumstances of a large
number of our customers. Our ability to accurately predict the
risk of lending is fundamental to our business model. We have
therefore commissioned a review of underwriting across the
Group to understand and act upon the risks and opportunities
in this area. You can find more information about the work
of the GRC in its report on pages 138 to 140.
Strategic initiatives
As set out in more detail on pages 28 and 29, in March 2021
the Group announced its intention to launch a Scheme
of Arrangement (Scheme) to address the issue of rising
customer complaints in CCD. Furthermore, the operating
environment for traditional home collected credit has
evolved materially. Consumer behaviour has moved
rapidly toward digital solutions, accelerated by the
necessary physical restrictions of the Covid-19 pandemic.
To this end an operational review of CCD was conducted
between November 2020 and May 2021. These are complex
decisions and are of significant importance to the long-term
success of the Group. Our governance framework has
supported the Board to ensure that the key decisions
throughout the Scheme project have been fully considered
and made by the appropriate forums. The Group CEO
established a dedicated Steering Committee to oversee
the Scheme project at a management level which the
Board oversaw. The Board received regular updates and
considered amongst other things: the project governance
arrangements; timeline and project plans; budget and
resource; and the impact for our key stakeholders. The
Board believes the Scheme to be the best option to
protect the interests of all our stakeholders, including our
customers, and the most effective way to protect the
Group’s wider interests moving forward.
The Disclosure Committee regularly assessed the Group’s
disclosure obligations in relation to the Scheme in order
to ensure compliance with the requirements.
100
Provident Financial plc Annual Report and Financial Statements 2020
Stakeholders and s.172
Last year we presented our first section 172 (s.172) statement
that documented how the Board engaged with stakeholders
and utilised stakeholder feedback in its decision making. This
year we have sought to provide greater focus on areas of
significant strategic importance and you can find this year’s
s.172 statement on pages 91 to 98. Through the CCE Committee
the Board has furthered its work towards the development of a
stakeholder engagement strategy, through detailed stakeholder
mapping and materiality assessment exercises. You can read
more about the work of the CCE Committee in its report on
pages 131 and 132.
We made enhancements to our colleague engagement
model evolving the scope and membership of our divisional
workforce panels. These changes were of particular importance
given the significant changes in working circumstances and
have operated effectively in the period. Our designated
Non-Executive Colleague Champion, Graham Lindsay, has
executed his responsibilities admirably, particularly given the
government restrictions on travel and congregation, and has
provided the Board with valuable insight into the opinions,
concerns and wellbeing of colleagues. You can hear directly
from Graham on pages 114 and 115.
Previous plans to hold Board meetings across our various offices
have been put on hold until such time as it is safe for them
to be resumed. I look forward to being back in the office and
meeting colleagues face to face, when circumstances allow.
Following UK Government guidance and with the health,
wellbeing and safety of our colleagues, shareholders and
wider communities in mind, it was with regret that we
announced our decision to hold both our AGM in May and a
General Meeting in November without shareholders present.
The robustness and strength of our
governance framework have provided
a much needed base of solidity
from which we have managed
the business effectively.
Dividend
Following careful consideration of all the issues, including: the
directors’ responsibilities under s.172; the potential longer-term
consequences of the evolving Covid-19 pandemic; and the
uncertainties present at the time, the Board withdrew its
recommendation of the 2019 final dividend in 2020 to preserve
the capital and liquidity positions of the Group. You can find
more detail about how we reached this decision in our s.172
statement on page 95.
Restricted Share Plan and Remuneration Policy
Effective remuneration design is central to promoting our
long-term sustainable success, supporting our strategy and
driving our culture. As such, during the year we updated our
Directors’ Remuneration Policy (DRP) and introduced a Restricted
Share Plan (RSP). I am pleased to confirm, as was announced on
3 November 2020, that all proposed resolutions were passed at
our General Meeting and I thank our shareholders for the support
they have shown for the changes. You can read more about
the extensive work of the Remuneration Committee in our
Directors’ Remuneration Report (DRR) from page 148.
We have found as we have navigated the difficulties of 2020
that the robustness and strength of our governance framework
have provided a much needed base of solidity from which we
have been able to continue to manage the business effectively.
I am confident that our governance framework will continue
to provide the foundation upon which the Group can deliver
long-term sustainable growth for the benefit of our shareholders
and other stakeholders.
Patrick Snowball
Chairman
10 May 2021
Compliance with the UK Corporate
Governance Code
For the year ended 31 December 2020 the Board considers
that the appropriate corporate governance standards
were in place throughout 2020. For the period under
review, the Company complied in full with the provisions
of the UK Corporate Governance Code, except for the
one temporary and short-term (provision 9) exception
as explained in our Directors’ Report on page 146.
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.
Provident Financial plc Annual Report and Financial Statements 2020
101
Governance Board leadership and Company Purpose continued
Our Board
Patrick Snowball
Chairman
Malcolm Le May
Chief Executive Officer
Neeraj Kapur
Chief Finance Officer
N
D
D
Appointed: 21 September 2018
Appointed as CEO: 1 February 2018
Appointed: 1 April 2020
Tenure: 2 years
Tenure: 7 years
Tenure: 1 year
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.
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 them 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 of IG Group Holdings plc.
– Trustee of the Grange Festival.
– Partner at Opus Corporate Finance*
and Juno Capital LLP.
– Trustee at Peace at the Crease.
* Non-equity.
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. As a qualified
accountant, Neeraj is technically strong,
with a diverse background that commenced
as an RAF fighter pilot. 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, 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 of Edgeborough Educational Trust.
– Trustee of The Worshipful Company
of Chartered Accountants.
Committee key:
N
R
Nomination Committee
Remuneration Committee
Committee Chairman
A
C
Audit Committee
Customer, Culture
and Ethics Committee
G
D
Group Risk Committee
Disclosure Committee
102
Provident Financial plc Annual Report and Financial Statements 2020
Andrea Blance
Senior Independent Director (SID)
Elizabeth Chambers
Independent Non-Executive Director
Paul Hewitt
Independent Non-Executive Director
N
A
R
N
G
C
N
A
G
Appointed: 1 March 2017
Appointed: 31 July 2018
Appointed: 31 July 2018
Tenure: 4 years
Tenure: 2 years
Tenure: 2 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 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 &
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 of Hargreaves
Lansdown plc.
– Non-Executive Director at The Mentoring
Foundation.
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 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 of TSB Bank Plc.
– Non-Executive Director of Tilney Smith &
Williamson Ltd and subsidiaries.
– Non-Executive Director of University of
Colorado Anschutz Medical Campus
(non-profit).
– Senior Advisor to Searchlight Capital
Partners and its portfolio companies.
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.
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 of ICNH Limited
(trading as Dr Doctor).
– Non-Executive Director of Feebris Limited.
– Limited Partner at Horizon Capital Fund 3.
– Limited Partner at Exponent Fund 2.
Provident Financial plc Annual Report and Financial Statements 2020
103
Governance Board leadership and Company Purpose continued
Our Board continued
Angela Knight
Independent Non-Executive Director
Graham Lindsay
Independent Non-Executive Director
Robert East
Independent Non-Executive Director
and Chairman of Vanquis Bank Ltd
N
A
G
N
R
C
N
C
Appointed: 31 July 2018
Appointed: 1 April 2019
Appointed: 26 June 2019
Tenure: 2 years
Tenure: 2 years
Tenure: 1 year
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.
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
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.
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
services sector.
experience.
– 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:
– Senior Independent Director of TP ICAP plc.
– Non-Executive Director of Taylor Wimpey
plc and Arbuthnot Latham & Co.
– Non-Executive Director of Encore Capital
Group, Inc.
Current external appointments:
– Senior Independent Director at OneFamily.
– Vice Chair and Trustee at the Brain
Tumour Charity.
– Consultant for Trustees Unlimited.
Career and experience:
Robert worked for 32 years in various
leadership roles with Barclays Bank, latterly
as Chief Risk Officer of Absa in South Africa.
He joined Cattles Plc, a consumer finance
group, in 2008, where he led its restructuring
from 2009 and was its Chief Executive from
2010 until completion of the wind down of
the group in 2019. Having joined its board in
2011, Robert became Chairman of Skipton
Building Society in 2017, where he is helping
develop the Society’s strategy, grow its
membership and ensure it remains financially
strong. He is an Associate of the Chartered
Institute of Bankers.
Robert’s contribution to the Board,
key strengths, skills and reasons
for re-election:
Robert brings experience in, and
understanding of, retail and commercial
banking in the UK and internationally,
acquired over a 40-year career. Robert is
an experienced chairman, non-executive
director and chief executive officer, enabling
him to support a culture of openness and
debate on the Board and to challenge
management to deliver for the Group’s
shareholders and other stakeholders.
– In-depth knowledge of financial
services, consumer finance, risk
management and leadership.
– Extensive knowledge of the Group’s
regulatory environment and
expectations of the PRA and FCA.
– Track record of driving cultural change
to ensure focus on customers,
employees and value.
Current external appointments:
– Chairman of Skipton Building Society and
Director of Skipton Group Holdings Limited.
– Non-Executive Director of Hampshire
Trust Bank Plc.
– Director of RCWJ Limited.
Committee key:
N
R
Nomination Committee
Remuneration Committee
Committee Chairman
A
C
Audit Committee
Customer, Culture
and Ethics Committee
G
D
Group Risk Committee
Disclosure Committee
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Provident Financial plc Annual Report and Financial Statements 2020
Skills and experience
This diagram shows those Board
members with strong or very strong
skills or experience in some key skill
areas. This diagram, together with the
biographies, shows the combined
strength of our Board in areas central
to the Group’s sustainable success.
Leadership: culture and ethics
Margot James
Independent Non-Executive Director
Charlotte Davies
Group General Counsel
and Company Secretary
N
R
C
Chairmanship
Appointed: 27 July 2020
Appointed: 1 April 2019
Audit and financial reporting
Tenure: Less than 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 of the Warwick
Manufacturing Group.
– Member at the Court of Governors
of the London School of Economics.
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 Head of Affinity
Legal and 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 also has
legal experience in corporate, commercial,
risk management, regulatory and
governance advice.
Non-executive director
Customers
Strategy
Product development
Change management
Shareholder engagement
Banking
Sub to near-prime lending
HR, talent and employee engagement
IT and digital initiatives
Executive director
Capital management and treasury
Provident Financial plc Annual Report and Financial Statements 2020
105
Governance
Board leadership and Company Purpose continued
Setting our strategy
A fundamental role of the Board
is to determine the Group’s Purpose
and set out the strategy and
objectives for long-term success.
We describe in this section how we approach that task and
explain our monitoring of management’s execution of the strategy.
Having a clear purpose has helped focus our decision making
to support long-term sustainable growth and customer centricity.
Our Blueprint and Purpose and the strategic drivers that underpin
them have remained consistent this year, and the Board
continues to pursue the ambition to be the best and most
trusted provider of credit to the underserved. In light of this
ambition, the strategic initiatives process has been focused
on designing and developing strategic goals.
The annual Corporate Planning Conference (CPC) was held in
July 2020 in order for the Board to review the Group’s strategy
and agree the supporting initiatives and enable the Group
to respond to the impact of the Covid-19 pandemic. Board
members and executive management participated in working
sessions to discuss the future direction of the Group and the
risks and opportunities for the Group’s future success, including:
customer profile and market analysis; competitive environment;
new and evolved product offerings; sustainable growth initiatives;
profit improvement initiatives; stakeholder value; and human
resources and the future of work. The Board considered objectives
under the strategic pillars: Grow, Act and Maintain, and the
opportunities and challenges to its strategy as outlined
in our Strategic Report on pages 20 and 21.
A key output from the CPC was the recognition that ensuring
the Group had in place the appropriate capabilities, resources,
framework and tools to oversee and deliver key strategic
initiatives and change projects was a strategic imperative. As
such, a Group Transformation function has been established,
with a supporting governance structure to provide the Board
the necessary oversight. Furthermore, a Group-wide Change
Delivery Framework has been implemented to capitalise on
the benefits of increased collaboration and harmonisation
across the divisions. To this end in support of monitoring the
progress of the Group’s strategy, the Board will receive regular
reports on the prioritisation and progress of the delivery of the
strategic initiatives agreed at the CPC.
Governance in action – supporting our strategy
Blueprint in action – Covid-19 response
The Group’s Covid-19 pandemic response required us
to change the way we work across all our businesses,
including the ways in which we engage with our customers,
suppliers, investors and support our colleagues.
During the pandemic strategic guidance and direction
from the Board was required quickly and as a consequence
the Board met more frequently, with several additional
meetings taking place, particularly at the outset in
March, April and May.
The Board considered detailed reports about customer
products, the forbearance changes that had been made
within each division and how these impacted the future
strategy of the Group. The Board agreed that focus should
be maintained on the key strategic targets that had been
set out at the Capital Markets Day in November 2019,
including the launch of a new securitisation vehicle in
Moneybarn and the increased utilisation of Provident
Direct in CCD.
The unique circumstances brought about by the
Covid-19 pandemic necessitated significant operational
changes, including:
– increased availability of digital distribution channels
and self-serve payment options for customers;
– enhanced forbearance options for our customers; and
– remote working for the majority of colleagues.
At the CPC, the Board considered the ‘lessons learned’
from the initial months of the pandemic and how they
could influence our strategy. This included assessing the
risks and opportunities that the alternative ways of working
and serving our customers had presented to the Group.
In order to benefit from the learnings through this period
and address any risks that have arisen as a result of these
changes, we are undertaking a strategic review of the
future of work in each business.
Our governance structure ensures that the Board is responsible
for setting the Group’s Purpose and strategy, and provides
a framework from within which effective decision making can
occur. The Board, having determined the Group’s Purpose,
sets out the strategy and objectives for long-term success.
The Board then monitors how the executive directors, supported
by the Group Executive Committee and wider management
teams, deliver against the strategy. The governance
framework describes how and by whom decisions can be
taken, and includes our Board Governance Manuals, Delegated
Authorities Manuals, Matters Reserved for the Board and
Committee terms of reference. Together these documents
allocate responsibilities and authorities within the Group.
The Chairman and Committee Chairs are responsible for
ensuring that the Board and Committee agendas and
annual cycle of business remain focused on the right issues,
and that sufficient time is spent on strategic matters and
the delivery of long-term objectives. As described on page
120, our reporting templates require that those matters within
s.172 are reported on in all written reports, including those in
relation to new strategic initiatives presented to the Board.
Governance is critical to the Group achieving its Purpose
and the successful delivery of its strategy and the diagram
on the next page describes the key responsibilities for the
Board and its Committees in the delivery of strategy. We
believe our governance provides the appropriate framework
for the effective running of the Group, supporting appropriate,
high-quality decision making that balances the interests of
our stakeholders.
106
Provident Financial plc Annual Report and Financial Statements 2020
Board
The matters reserved to the Board include the approval and monitoring of the strategy. The governance
framework allocates responsibility for the setting of strategic objectives and desired behaviours to the
Board. It is for the Board to ensure that the objectives have been designed with due regard for the Group’s
stakeholder obligations and promote the long-term success of the Company. Supported by the GRC, the
Board also has a key role in determining the nature and extent of the Group’s principal and emerging
risks. You can read more about the responsibilities of the Board on page 118.
Group Risk
Committee
The GRC assists the Board by taking an active role in defining the Group’s risk appetite.
The risk appetite sets out the acceptable risk parameters within which the strategy can
be delivered. The GRC assesses the effectiveness of the Group’s risk management
strategy ensuring that appropriate governance arrangements and operating models
are in place to manage risks. The GRC supports the strategy through its robust scrutiny
of the Group’s principal and emerging risks and opportunities. In collaboration with
the CCE, it supports the embedding of a risk culture aligned to the strategic Blueprint.
The GRC Report is on page 138.
Audit
Committee
The duties and responsibilities of the Audit Committee in
support of the strategy are in its monitoring of the effectiveness
and integrity of key strategic programmes and systems of
internal control, such as those that identify, assess, manage and
monitor financial risks. Through this work the Audit Committee
considers the progress and quality of programme delivery and
areas of significant judgement, estimation or uncertainty
including emerging risks or issues. The Audit Committee
reviews the efficacy of external financial announcements
with a view to maintaining the Group’s reputation in the
investment market. Further details of how the Group’s
processes and internal controls work are set out on page 133.
G
o
v
e
r
n
a
n
c
e
Nomination
Committee
The Nomination Committee considers Board and
Committee composition requirements, including
experience, diversity, skills and knowledge. In its work
on senior management structure, diversity and
succession, the Nomination Committee plays an
important role in ensuring the leadership needs of
the Group are met, facilitating the right environment
for the governance arrangements to operate
effectively and the strategy to be delivered. The
Nomination Committee Report is located on page 127.
Remuneration
Committee
The Remuneration Committee’s role is to ensure that
remuneration policies and practices are designed to
support our strategy, promote long-term sustainable
success and encourage behaviours consistent with the
Group’s Purpose, values, strategy and business model.
More about the work of the Remuneration Committee
can be found on page 148.
Customer,
Culture
and Ethics
Committee
The Blueprint provides the Group with a sustainable long-term direction and
customer centricity to underpin the strategy. The CCE Committee is the Board’s
dedicated forum to consider the Group’s progress on culture and business process
to ensure that they are focused on delivering fair outcomes and aligning workforce
policies and practices. In support of the overall strategy, the CCE Committee plays
a crucial role in product governance, overseeing the design principles of new
products to ensure they align to the Group’s long-term customer and cultural
objectives. You can read more in the CCE Committee Report on page 131.
Group
Executive
Committee
The Group Executive Committee is responsible for supporting the CEO in implementing the Group’s strategy.
The Committee encourages the continued alignment of Purpose and strategy across divisions and identifies
opportunities for collaboration. Furthermore, in support of the Group’s recognition of change as a strategic
imperative, there is representation from the newly formed Group Transformation function. The Group
Executive Risk Committee (GERC) provides a dedicated forum for the Executive to consider risks and
opportunities including evaluating ways in which barriers to strategic opportunity might be mitigated.
The Committees’ terms of reference are available at:
www.providentfinancial.com/who-we-are/corporate-governance
Provident Financial plc Annual Report and Financial Statements 2020
107
Governance 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 particular 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 91 to 98. You can read about how the Board sets the strategy on pages 106 and 107.
Link to Blueprint
strategic drivers:
Customer progression
Human experiences
Head AND heart decisions
Fighting fit
Operational and financial performance, funding and capital
Board activity and outcome
– Reviewed operational and financial performance and progress against the budget at each meeting,
with the Chief Executive Officer and Chief Finance Officer presenting their own reports.
– Reviewed and approved the full and half-year results statements and trading updates.
– Reviewed and approved the Group’s medium-term funding strategy.
– Reviewed and approved the partial tender regarding the Group’s £250m 7% notes due 2023.
– Oversaw the completion of a bilateral securitisation facility to fund Moneybarn business flows.
– Reviewed the Group’s business continuity response to the Covid-19 pandemic, including how the pandemic
impacted business operations and how this could inform future business continuity planning.
– Considered the Group’s capital buffer. As announced in our interim results, the Board’s view on risk appetite
was to maintain a capital buffer in excess of £100m due to market uncertainties.
– Reviewed and approved a proposal to create an intermediate holding company in the Group.
Governance, stakeholders and risk
Board activity and outcome
– Reviewed and approved proposals for changes to the Group’s Long Term Incentive Schemes and DRP for
submission to shareholders for approval at a General Meeting held on 3 November 2020. This included
consideration of investor views arising from the investor consultation process and how these views had
been responded to. See pages 151 and 152 for more information.
– Approved the appointment of Margot James as Non-Executive Director; see page 128.
– Reviewed the results of an investor perceptions audit and received regular investor relations updates,
including updates on engagement activity. See pages 116 and 117 for details of our investor engagement.
– Considered the effectiveness of the directors and recommended them for election/re-election at the 2020 AGM.
– Reviewed and approved our principal and emerging risks, reviewed the status of risks against risk appetite,
action plans to bring risks within risk appetite and reviewed the appetite itself in response to Covid-19.
– Reviewed effectiveness of the Group’s internal control and risk management systems.
– Received updates from the Group Communications Director regarding external communication, political
and community matters.
– Considered the Group’s approach to how it manages its external reputation and how it engages with its
external stakeholders in government, regulators and media on its purpose and its societal role.
– Reviewed and approved the Group’s Modern Slavery Act Statement.
– Approved the appointment of external auditor following tender; see pages 135 and 136.
– Approved the repayment to HM Government of furlough funds received from the Coronavirus
Job Retention Scheme.
Key stakeholders
– Investors
– Customers
– Colleagues
– Debt providers
– Regulators
Link to Blueprint
strategic drivers
Link to risk
– P1, P2, P3, P9, P10,
E1 & E3
Key stakeholders
– Investors
– Customers
– Regulators
– Colleagues
– Government
– Suppliers
– Communities
Link to Blueprint
strategic drivers
Link to risk
– P4, P6, P7, P9, P10,
E3, E5 & E6
108
Provident Financial plc Annual Report and Financial Statements 2020
Link to Blueprint
strategic drivers:
Customer progression
Human experiences
Head AND heart decisions
Fighting fit
Strategy, budgets and dividends
Board activity and outcome
– Reviewed and approved the annual budget and ensured adequate resources were in place
for the Company to meet its objectives.
– Approval of the 2019 final dividend in February 2020 and subsequent withdrawal of that dividend
in response to the uncertainties driven by Covid-19 (see page 95 regarding this principal decision).
– Reviewed and approved the Group’s strategy at the CPC and monitored the progress of its delivery.
– Reviewed the Group’s strategy regarding its personal loans products.
– Reviewed product pricing changes in VBL.
– Oversaw a programme of work undertaken to understand the feasibility and appropriateness of a Scheme
of Arrangement for customer complaints arising from our home credit business, including consideration
of the impact on our stakeholders. See pages 13, 28 and 29 for more information.
– Oversaw progress of the work undertaken to withdraw CCD from the home credit market.
– Oversaw the development of a new, mostly digital, lower cost offering structured as an unsecured
personal loan. See page 13 for more information.
People and culture
Board activity and outcome
– Received a report from the designated Non-Executive employee Champion on his engagement
with colleagues and workforce panels.
– Reviewed results and action planning regarding the Colleague Survey. The Board also reviewed the results
from a Colleague Pulse Survey, including how this information would support the generation of a colleague
future working strategy.
– Reviewed whistleblowing data and enhancements to whistleblowing processes and reporting.
– Received updates on key management changes in the Group.
– Reviewed reports from each division on health and safety, including enhancement to processes.
Key stakeholders
– Investors
– Customers
– Regulators
– Colleagues
– Debt providers
– Suppliers
Link to Blueprint
strategic drivers
Link to risk
– P1, P2, P4, E1 & E3
Key stakeholders
– Investors
– Customers
– Colleagues
Link to Blueprint
strategic drivers
Link to risk
– P5, P6, P7, E3,
E5 & E6
IT, data and change
Board activity and outcome
– Received an in-depth cyber briefing, which included key risks and priorities and the impact of Covid-19.
Key stakeholders
– Customers
– Discussed and agreed key principles regarding how change initiatives are developed, approved
and implemented across the Group.
– Reviewed progress in relation to key change initiatives and enhancements to how change is managed,
governed and resourced across the Group.
– Reviewed the arrangements in place supporting the Group’s compliance with GDPR.
– Approved a contract for CCD’s IT support strategic partner.
– Colleagues
– Regulators
Link to Blueprint
strategic drivers
Link to risk
– P4, P5, P8 & E8
Provident Financial plc Annual Report and Financial Statements 2020
109
Governance Board leadership and Company Purpose continued
Promoting long-term sustainable success: Board activities continued
Link to Blueprint
strategic drivers:
Regulatory
Customer progression
Human experiences
Head AND heart decisions
Fighting fit
Board activity and outcome
– Received updates regarding the Group’s regulatory interactions and regulatory horizon scanning.
Key stakeholders
– Regulators
– Reviewed and approved the Group’s Liquidity Adequacy Assessment and Regulatory Capital Pillar 3 Disclosure.
– Customers
– Reviewed the impact of revised FCA guidance and Covid-19 on Vanquis Bank’s approach to persistent debt.
– Investors
– Reviewed the Group’s compliance with the General Data Protection Regulation.
– Received updates on complaint levels across the Group and reviewed the Group’s approach
to managing complaints.
– Oversaw the regulatory matters and engagement regarding: the work undertaken to understand the
feasibility and appropriateness of a Scheme of Arrangement for customer complaints arising from our
home credit business; in relation to withdrawing CCD from the home credit market; and to establish a new,
mostly digital, lower cost offering.
Covid-19
Board activity and outcome
In response to Covid-19, the Group established an Executive Steering Committee to oversee day-to-day
management of the Group’s response to challenges driven by Covid-19. Additionally, the Board met frequently,
particularly during the initial stages of the pandemic to oversee the Group’s response, with the Group’s
immediate priority being the safeguarding of the health and wellbeing of our colleagues and customers.
The Board oversaw the management of the impact of Covid-19 on the Group’s customers, colleagues,
regulatory obligations and engagement and its operational and financial performance. In light of Covid-19,
the Board also regularly reviewed the governance arrangements and management of the Group’s capital
and liquidity positions, and any actions required to address risks posed by Covid-19. The Board was supported
by Board committees in its response to the pandemic and you can read about this on the following pages:
– the GRC – pages 138 to 140;
– the Audit Committee – pages 133 to 137;
– the Remuneration Committee – pages 149 and 150; and
– the CCE Committee – pages 131 and 132.
Link to Blueprint
strategic drivers
Link to risk
– P5, P6, E1, E2, E4 &
E5
Key stakeholders
– Investors
– Customers
– Colleagues
– Regulators
– Government
– Debt providers
– Communities
Link to Blueprint
strategic drivers
The Disclosure Committee also regularly reviewed and assessed whether any disclosure obligations and price
sensitive information had arisen in relation to the impact of Covid-19 on the Group and considered how the
Group should appropriately keep the market updated on the impact.
Link to risk
– P1, P2, P3, P7, P9, E1,
E3 & E6
The Board reviewed how Covid-19 had impacted each of our divisions, and how each division had responded
and adapted to the challenges they faced. Furthermore, the boards and executive management at divisional
level also had oversight of each division’s response to the pandemic. You can read more about how we have
responded to Covid-19 on pages 6 and 7 and the impact of Covid-19 on the Group and its businesses on
pages 38 to 47.
The Board discussed in detail the Group’s approach for the safe return of colleagues to the office, where
necessary and in line with government guidance, and the arrangements in place to protect them. The Board
also discussed how colleague communication was being undertaken during the pandemic in order to
maintain colleague engagement whilst many of the Group’s colleagues worked remotely and flexibly.
As a result of the pandemic, the Board also took some difficult decisions including the withdrawal of the previously
announced 2019 final dividend and the holding of both the AGM and General Meeting of 3 November, behind closed
doors. You can read more about our decision to withdraw the 2019 final dividend in our s.172 statement on page 95.
Also, as noted on page 92, the Group decided to repay all furlough support to the Government.
Looking forward to 2021, key areas of focus are expected to include:
– overseeing business performance;
– continued focus on addressing and responding
– overseeing the delivery of the Group’s strategic
initiatives and change programmes;
– continuing to understand and manage the impact
of Covid-19 and its economic consequences on the
Group, including its performance and its strategy;
– monitoring the Group’s culture and customer centricity;
to the regulatory environment and maintaining working
relationships with our regulators; and
– continuing to oversee the implementation of a Scheme
of Arrangement in CCD and evolution of CCD’s customer
proposition of CCD in response to the changing market
dynamics in the high-cost credit market, including
pursuing a sale or managed run-off of the business
and establishing a new, mostly digital, lower cost
offering structured as a personal loan.
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Provident Financial plc Annual Report and Financial Statements 2020
The Board:
steering our culture
and uniting our colleagues
The Board remains focused on continuing to embed
a culture that is aligned with the Group’s Purpose
and long-term strategy.
Being a purpose-driven organisation, our Board recognises
the importance of creating and sustaining the right culture
across the Group. Our Purpose of helping to put people on
the path to a better everyday life is personified by, and will
be achieved through, our colleagues’ behaviour. This is why
we launched our Blueprint in 2019, which brings together why
the Group exists as an organisation, framed in the context of
the role that our business plays in the lives of our customers.
It also outlines the key strategic drivers of focus that will drive
both competitive advantage and commercial success for
the Group. Our Blueprint behaviours are designed to foster
a culture where the customer is forefront in our minds and
we hold ourselves and each other personally accountable
for success. Further information on our Blueprint is detailed
on the inside cover of our report.
The Board is responsible for promoting the desired culture
and ensuring that the governance framework supports its
embedding and monitoring. This enables the Board to receive
the right information, maintain the appropriate level of oversight
and to be able to challenge management on performance,
strategy and culture. 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 91 to 98 how the Board has had regard
to the interests of our stakeholders and their s.172
responsibilities to deliver long-term growth.
1
2
Leading by
example
Embedding
our culture
4
Aligning
culture and
incentives
3
Assessing
and monitoring
culture
Leading by example
Culture must be driven from the top in order to set the tone
and ensure that the Group’s decision making and behaviours
are guided by a set of values that allow for the right outcomes
to be achieved for our stakeholders.
Our Board is responsible for establishing the Group’s Purpose
and long-term strategy, aligned appropriately with stakeholders’
expectations. During the year the Board has reviewed and
approved the Group’s strategy at the CPC and monitored the
progress of its delivery, considered its stakeholders through a
combination of direct and indirect engagement, and stimulated
debate through its oversight and challenge of management.
The desired behaviours and culture are reinforced by the Board,
leading by example. Regular Board meetings were held 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 reinforced the tone from the top. Due to Covid-19
related restrictions, the Board’s direct engagement with wider
colleagues has been limited to remote means, such as our CEO’s
weekly vlog to keep colleagues informed on developments
across the Group and to recognise their contributions. Prior to
the restrictions, our Chairman visited colleagues in the Bradford
office and hosted a Colleague Forum lunch which provided
the opportunity for direct wider colleague engagement.
Culture and governance are intrinsically linked, as a healthy
culture is underpinned by good governance. We have therefore
continued to invest time during the year in reviewing, updating
and formalising the delegated authorities, roles and responsibilities
across all the divisions. The Group also aligned its corporate
support functions (Finance, Legal, Enterprise Risk, Audit,
Information Technology and Data Protection) via matrix
function management to improve communication and
resource efficiency across the Group.
The Board must operate effectively in order to deliver successful
leadership, including in relation to culture. Therefore part of the
Board’s governance framework includes an annual evaluation
of its performance, its Committees and individual directors.
The internal effectiveness evaluation this year assessed how
effectively the Board monitors and shapes culture. The evaluation
identified some successes in this area (such as the colleague
engagement mechanisms), as well as opportunity areas (such
as broader diversity amongst the Board and executives).
For further information on the evaluation process please
see page 125.
Cultivating the desired culture and delivering our long-term
strategy also requires 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.
Provident Financial plc Annual Report and Financial Statements 2020
111
Governance Board leadership and Company Purpose continued
The Board: steering our culture and uniting our colleagues continued
Embedding our culture
Last year we reported how the Board had engaged with
colleagues, through executive-led workshops and roadshows,
in rolling out the Blueprint to ensure that our Purpose and
behaviours were understood and embraced by colleagues.
This year we are pleased to report on how the Blueprint has
been lived by the Group and embedded into our everyday
working culture.
The Board oversaw our executives, supported by Group
Human Resources and Internal Communications, in the
delivery of the following initiatives to unite and support
colleagues through this challenging year:
– our Blueprint ‘Stay Connected’ magazine and regular
vlogs from the CEO;
– our colleagues were kept regularly updated on the
Government’s guidance on Covid-19, our response to the
pandemic and provided with access to support resources;
– dedicated professional mental wellbeing support
through our Thrive mobile application and Employee
Assistance Programme;
– 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;
– diversity & inclusion communities formed affinity groups
based around gender, LGBTQ+, ethnicity and disability;
– workforce panels, in the form of Colleague Forums across
each division, and a designated non-executive director
to engage with colleagues;
– a ‘Better Everyday’ award scheme to recognise colleagues
who demonstrate our Blueprint behaviours; and
– a review of existing workforce-related policies to further
embed the Blueprint into our ways of working and create a
fair, consistent experience for colleagues across all divisions.
Blueprint in action: human experiences
Our Blueprint: Stay Connected magazine was launched
this year to enable colleagues to keep in touch, share
inspiring stories and keep informed of the latest
developments across the Group. Each issue includes
a message from the CEO and key updates from each
division. Features this year have included: financial
updates from the Group Chief Finance Officer; mental
health and wellbeing articles; inspiring personal stories
from colleagues; activities that demonstrate the
Blueprint behaviours; pub quizzes; and charity
and community work.
You can read more about our colleague engagement
initiatives on pages 76 to 79.
Assessing and monitoring culture
The CCE Committee is chaired by the Group Non-Executive
Colleague Champion and the activities of the Committee are
regularly reported to the Board. As well as more qualitative
methods for assessing culture, the Committee also adopts a
quantitative evidence-based approach to their work, through
the monitoring of Blueprint and Customer Dashboards. The
key performance indicators in these dashboards measure
performance against our Blueprint and the delivery of fair
customer outcomes. Further information on the CCE
Committee is detailed on pages 131 and 132.
The Board ensures that colleagues are able to raise concerns
confidentially through appropriate whistleblowing procedures.
During the year, the Board reviewed the Annual Whistleblowing
Report and approved a new Whistleblowing Policy to increase
oversight of whistleblowing incidents and promote ethical
conduct. The new policy, which extends the level of protection
to beyond the legal definition of whistleblowing, further
promotes a ‘speak up’ culture within the Group.
Our Group-wide Colleague Engagement 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 two Group-wide Colleague
Engagement Surveys as a temperature check on the wellbeing
of colleagues and to seek their views on how the Group had
responded to the pandemic. You can find the results of our
surveys on page 79. The results are reviewed by the Board
and used to identify the key focus areas where there appears
to be misalignment between the Group’s Purpose, values
and strategy.
During the year, the Board carried out a robust assessment of
the principal and emerging risks facing the Group, as well as
reviewed risks against risk appetite. The Board also has oversight
over compliance and health & safety reports, internal audit
reviews (including management awareness ratings) and
whistleblowing statistics, which help to identify any areas
falling below expected standards and enabling the appropriate
corrective actions to be taken.
Aligning culture and incentives
Remuneration and incentives have an important role to play
in achieving a healthy culture and encouraging ethical conduct.
The Board led by example during Covid-19 disruption by opting
to take a 20% fee reduction for a period of three months. Our
Remuneration Committee has discretion to override formulaic
remuneration outcomes; to this end the Committee designed
and consulted on the introduction of an RSP, which is intended
to drive behaviours consistent with the Company’s Purpose
and values which are focused on delivering long-term sustainable
value for our stakeholders. The Board recommended and obtained
shareholder support this year for a new DRP and RSP to ensure
an appropriate balance of fixed and variable remuneration for
executive directors. You can read more about this in our DRR
on pages 148 to 171. For further information on the work of our
Remuneration Committee in ensuring that remuneration
policy and practices are aligned with the Group’s culture,
Purpose, values and strategy, please see our DRR.
The Board considered feedback from the 2019 Colleague
Engagement Surveys. Subsequently, the Remuneration
Committee ensured that improving the survey results in 2020
was embedded into the executive directors’ 2020 objectives.
Additionally, the non-financial performance objectives of our
executive directors are aligned to our Blueprint, and colleagues’
performance reviews are based around our Blueprint behaviours.
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Provident Financial plc Annual Report and Financial Statements 2020
Stakeholders and investor relations
How we engage effectively
with our stakeholders
The Board recognises that the key to the long-term success of the Group is effective engagement and consideration of our
stakeholders. This is also a fundamental aspect to how we operate as a responsible leader in our markets especially in light of the
challenges we faced during 2020, as a result of the Covid-19 pandemic. To read our s.172 statement please refer to pages 91 to 98.
Stakeholder engagement
Engaging with our colleagues
In order to ensure that the Board considers the matters set out in s.172
of the Companies Act 2006 in its discussions and decision making,
appropriate direct and indirect engagement and information
flows are key. We have set out in our s.172 statement on pages
91 to 98 more detail regarding how the Board has considered
the matters set out in s.172 of the Companies Act 2006 during the
year and the impact of that regard. We have also reported in our
s.172 statement specific examples of how the Board considered
these factors in key decisions made during the year. As described
on page 120, our reporting templates require that an assessment
of risk and also those matters within s.172 are reported on in all
Board and Committee written reports.
The effectiveness of the Board’s stakeholder engagement
and its understanding of the views and requirements of key
stakeholders, together with how it considers the matters in s.172
of the Companies Act 2006, were reviewed in the Board and
Committee effectiveness evaluation.
The CCE Committee oversees our stakeholder engagement activity
and, subsequent to the review of stakeholder engagement
commissioned by the Committee, the following actions have
been completed in 2020 to enhance stakeholder engagement
and reporting:
– the standard Board reporting templates have been
enhanced to prompt writers to consider stakeholder
impacts of their activities;
– a stakeholder map has been produced and reviewed by
the CCE Committee to understand the nature, influence
and interest that our stakeholders have in respect of our
business objectives and/or strategy; and
– s.172 training and guidance materials have been
developed and provided to subsidiary directors and
included as part of the director induction process.
Stakeholder engagement is an evolving area of governance
and in October 2020 the CCE Committee commissioned
a stakeholder materiality assessment. The results of this,
together with the stakeholder map, will be considered by the
CCE Committee during 2021 and are expected to inform the
Group’s future stakeholder engagement strategy.
The CCE Committee has utilised a number of regular reports
and activities during the year to support it in discharging its
responsibilities. These include, but are not limited to:
– the Blueprint Dashboard, which measures progress made
against our cultural key performance indicators, such as
customer outcomes and colleague engagement;
– the Customer Dashboard, which reports trends and
progress against the customer commitments made
in each of the divisions;
– regular customer call listening sessions; and
– a review of the Group’s key suppliers.
You can read in more detail about the work of the CCE Committee
on pages 131 and 132, and our Sustainability Report can be
found on pages 70 to 90. For more information about the role of
colleagues in delivering sustainable returns please read about
our business model in our Strategic Report on pages 18 and 19.
Supporting our colleagues as they navigate through the Covid-19
pandemic has become the primary focus of the Board’s colleague
engagement this year. The Board’s designated Non-Executive
Colleague Champion, Graham Lindsay, has led direct colleague
engagement on behalf of the Board. You can hear more from
Graham about his role and how messages from the Board
have been communicated to colleagues on the next page.
We use our management structure to cascade and reinforce
communications where appropriate and house communications
on our divisional intranets. Graham’s attendance at our
divisional workforce panels provided him with a direct opportunity
to thank colleagues on behalf of the Board and to engage with
them on the Board’s priorities and its view on Group performance.
Understandably there have been limitations on face-to-face
engagement during 2020 and consequently the Group has used
technology to facilitate continued consultation and dialogue
with colleagues. Divisional workforce panels have continued
to meet remotely and feedback from these has been provided
to the executive and Board to help shape and inform the decisions
made by the Group, particularly concerning remote working,
the Return to Office process and providing a Covid-19 secure
office environment. For example, the CCD workforce panel
identified Covid-19 secure ways of working that allowed
customer representatives to recommence some aspects
of their role earlier than had been expected. The divisional
workforce panels also highlighted the concerns of our key
workers who had remained in the office throughout the
pandemic regarding the possible wider Return to Work
approach, assisting in the approach taken as to how we managed
the number of other colleagues returning to the office.
The Board has received regular reports on colleague engagement
activity from both the Group HR Director and its designated
Non-Executive Colleague Champion, Graham Lindsay. You
can read more about this, and about the good progress
in our Colleague Survey results, on page 79.
Workforce policies and practices
In addition to overseeing that the Group’s workforce policies
and practices are aligned to the Blueprint, the CCE Committee
also monitored our response to the Government’s Covid-19
related rules as they evolved. A Group HR policy review has been
initiated with the objective to create one set of overall Group
HR policies, applicable across the divisions, and to deliver a
simplified, fair and consistent colleague experience. You can
read more about this and the work of the CCE Committee in
its report on pages 131 and 132 and how the GRC reviewed the
Group’s Covid-19 risk assessment on pages 138 and 139.
Investing and rewarding our workforce
You can read more about the ways in which we invest in our
workforce on pages 144 and 145 and about our approach to
rewarding our workforce on pages 166 and 167.
Provident Financial plc Annual Report and Financial Statements 2020
113
Governance Stakeholders and investor relations continued
Listening to our colleagues
Getting company culture right is
the most important thing to me, as
everything flows from it. A good culture
delivers the right outcomes for all
stakeholders, internal and external.
Graham Lindsay
Independent Non-Executive Director
That is why our Purpose ‘to help put people on a path to a
better everyday life’ is so important. This is our reason for
being; it unifies us and is something that we can get behind
both practically and emotionally. It aligns the commercial
goals with the broader needs and ambitions of all of our
stakeholders: our customers, the communities we serve,
investors, regulators, suppliers and of course our colleagues.
We must, however, take the time to seek their views and
perspectives, and build those into how we operate
and deliver goods and services to our customers.
Q. How else do you seek feedback from colleagues?
A. We have all adapted to our increasingly digital world, and
whilst I advocate seeing colleagues face to face wherever
possible, we have had some high-quality discussions using
our enabling technology. My Board colleagues and I are
in regular contact across the businesses, in normal times
making regular visits talking to staff and joining them for
various activities. This has been substituted with lots of video
conferencing interactions since March 2020. The Board also
receives all internal communication briefings, which gives
us a feel for how, and what is being communicated to the
Company’s key asset – its colleagues – and allows us to get
a sense of how our colleagues feel. We also spend time
reviewing the Colleague Surveys as soon as they are received.
Board
Graham acts as a
conduit between the
Board and our employees.
Mutual advice and guidance is
sought from employees and the
Board on key topics. Feedback is
shared to forums and more
widely in the Company
through internal
communications.
Divisional
workforce
panels
Group
Executive
Committee
Q&A
with
Graham
Lindsay
Graham Lindsay, our designated Non-Executive Colleague
Champion and Chair of the CCE Committee, has had a busy
first year in role. Below he discusses his highlights from the year,
and how the Colleague Champion role has enhanced
effective engagement for the Board…
Q. Can you talk a little about your engagement
with colleagues during the year? It must have been
different than you might have planned given the
travel restrictions of the Covid-19 pandemic?
A. I would argue that ‘first among equals’ in terms of directors’
responsibilities to all stakeholders is to listen to the views of
and engage with its own colleagues. Shareholders, in my view,
are beginning to realise how important all colleagues are in
delivering a successful company. To have open communications,
celebrate the successes, discuss areas that need improvement
and ask for their help in solving the challenges. We are fortunate
to have four elected colleague workforce panels across the
businesses, with dedicated and engaged colleagues who are
very open with their opinions, and I have spent time with them
all during the year, albeit not able to meet face to face, but
hopefully that will change soon. A lot of colleague panel focus
has been on Covid-19 and colleague and customer welfare,
which is right given the exceptional circumstances. Going
forward, I would also expect the panels to focus on other areas
like business strategy and colleague engagement, assuming
the pandemic is successfully tackled.
Q. What does s.172 of the Companies Act mean for
boards of directors and is it of benefit to companies?
A. I see the purpose of the s.172 directors’ duty being to
encourage boards of companies to create a culture whereby
decisions are made with greater consideration for the wider
impact upon the organisation, beyond the traditional emphasis
on just financial performance and strategic objectives. Some
companies, and Provident Financial Group is one of them,
have recognised that as society and its expectations are
changing, we need a radically different approach, a broader
purpose beyond customer service and profitability.
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Provident Financial plc Annual Report and Financial Statements 2020
Q. Have there been any insights that the Board
has found particularly valuable?
A. Yes, absolutely. Discussions and feedback have helped
shape remote working, the Return to Office process and the
Covid-19 secure office environment. They have helped to
interpret the Colleague Surveys and provided an insight into
the general mood, wellbeing and concerns of the workforce,
enabling support to be provided in key areas. Wellbeing
concerns expressed by key workers, who were required to
remain in the office throughout the pandemic, assisted the
decision as to how to appropriately limit those returning in
the office. Ensuring a balance of treating those within the
office and those working remotely equally and fairly was
also informed by the workforce panels, formal survey results
and informal colleague feedback.
Q. What has been your highlight of the role so far?
A. Meeting and engaging with so many dedicated colleagues
across the Group. Their passion, commitment, dedication and
support for their colleagues and their customers and a desire
to make it a better place for everyone is a shining example of
how communication, openness and creating the right culture
can only have positive outcomes. When you also consider how
Covid-19 has impacted everyone’s lives this year, their
commitment is even more remarkable.
Q. And, looking forward to next year, are there
any areas of particular focus for the Board?
A. We are building a Group agenda to continue the momentum
of positive support that has been forthcoming from the workforce
panels and amongst the topics for 2021 are customer service
initiatives, HR initiatives, wellbeing support, colleague engagement,
diversity and inclusion, HR policy review and change projects
to name but a few. I will also be focusing on culture; as I said
earlier, I believe it is very important, and as companies evolve
it can always be improved.
Blueprint in action – Covid-19 response:
colleague engagement case study
The Covid-19 pandemic presented a need to engage
quickly, frequently and consistently with our colleagues
across the Group. Communications was identified
as a key workstream in the initial business continuity
response work and the Group’s communications
framework was reviewed and enhanced.
Internal communications
The frequency of internal communications has been
increased and the format of delivery enhanced. Regular
communications include vlogs from the Group CEO,
online newsletters and virtual huddles (informal Q&A
sessions). Regular operational communications, such as
those that responded to government announcements,
ensured that colleagues were kept informed about the
Company’s approach and expectations. Colleague safety,
health and wellbeing were focused on, with the supporting
tools available to colleagues regularly reinforced. This
area continues to be a priority for the Board.
Surveys
A Colleague Survey was completed to gather data about
our colleagues’ opinions regarding the new working
arrangements, including those working from home.
Survey questions covered colleagues’ ability to work
remotely, their productivity, their physical and mental
health and general wellbeing, presenting an opportunity
for colleagues to self-identify any home workspace
requirements. Smaller subsets of colleagues have been
surveyed for specific reasons, including to help inform
the Return to Work and future of work strategies.
The Group ran an additional Colleague Pulse Survey in
June 2020 to gather insights into colleague engagement
and the annual ‘Be Open’ Colleague Engagement
Survey was undertaken in November 2020.
Workforce panels
The Group utilised the existing workforce panels, adapted
to remote meetings, and the designated NED Colleague
Champion, Graham Lindsay, to engage with colleagues.
Workforce panel terms of reference were enhanced
to recognise some additional duties and ensure the
panels were representative of our current workforce.
The workforce panels have consulted on: the Covid-19
workplace risk assessment; returning to work and
workplace practices for key workers; shaping specific
divisional operational processes; the future of work; and
mood, wellbeing and areas of specific employee concern.
The work of the workforce panels and recommendations
for ways in which they might be used to consult on future
Group-wide matters has been reported to the Board.
Provident Financial plc Annual Report and Financial Statements 2020
115
Governance Stakeholders and investor relations continued
Effective engagement with shareholders and stakeholders: investor relations
Key investor engagement themes in 2020
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 dedicated investor relations team;
– a Capital Markets Day every two years (last held in 2019);
– investor roadshows;
– the Annual Report and Financial Statements;
– investor perceptions audits;
– the Annual General Meeting (AGM);
– the Corporate Responsibility Report; and
– stock exchange announcements (RNS) and press releases;
– 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 and Chair of the Remuneration Committee have both held
meetings with investors during 2020. 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 95.
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 2020 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.
General Meeting (GM)
Andrea Blance engaged with investors through an investor consultation process prior to the Group’s GM on 3 November 2020 regarding
proposed changes to our DRP and the introduction of an RSP, seeking investor feedback. All the resolutions were passed at the GM and
you can read more about the DRP and the investor consultation on pages 151 and 152.
2020 IR Programme
2019 Trading Update
15 January 2020
Announcement
regarding the withdrawal
of the final dividend
27 March 2020
AGM
7 May 2020
JAN
FEB
MAR
APR
MAY
JU N
Preliminary Results
Announcement
27 February 2020
Q1 Trading Update
27 May 2020
Announcement
regarding the impact
of Covid-19 upon
AGM arrangements
20 April 2020
116
Provident Financial plc Annual Report and Financial Statements 2020
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
6 Attending broker conferences
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.
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 2020, and
senior management spoke at the Barclays Global Financials
Conference in September and the Goodbody Conference in
November. Such events continue to form a core part of our
shareholder engagement programme for 2021.
7 Corporate Responsibility Report (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.
3 Investor days
As shown above, 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.
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
2020 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.
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 third
quarter of 2020. 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:
– PFG has strong market positions with
long-established businesses;
– the Group’s balance sheet is a source of real
competitive advantage;
– our relationships with key stakeholders have improved
markedly in recent years;
– regulation of our markets remains a concern to some
shareholders; and
– the turnaround of CCD will be key to future performance.
Interim Results
Announcement
26 August 2020
Investor perception
study undertaken
by Tulchan
October
GM
3 November 2020
JU L
AUG
SEP
OCT
NOV
DEC
GM consultation
regarding DRP and RSP
Q3 Trading Update
4 November 2020
Provident Financial plc Annual Report and Financial Statements 2020
117
Governance Division of responsibilities
How we structure
our governance
Our Board
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:
– 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 and monitoring implementation
– approval of any major changes to the Group’s capital
of the corporate strategy;
or corporate structures.
Board committees
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.
Group Risk Committee (GRC)
The GRC 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 GRC is also
responsible for reviewing the
Internal Capital Adequacy
Assessment Process (ICAAP).
Read more on page 127
Read more on page 133
Read more on page 138
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.
Read more on page 148
Read more on page 131
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.
118
Provident Financial plc Annual Report and Financial Statements 2020
Executive Committee
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, Communications, 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 results of the Employee Opinion Survey and
the associated action plans; the Gender Pay Gap Report
and action plan; detailed product proposals; the Group’s
Business Continuity Plan including actions in response to
the Covid-19 pandemic; the Group’s principal and emerging
risks and mitigating actions; a review of the Group Code
of Ethics; and financial forecasts, including year-end
forecasting, reforecasting in response to the Covid-19
pandemic, budgets and financial scenario modelling.
Group Executive Risk Committee (GERC)
The GERC provides a dedicated forum for the
executive team to consider risk. The Group Chief Risk
Officer chairs this Committee and members include
the Group CEO, Group CFO, divisional MDs and senior
executives in HR, Communications, Internal Audit, Legal
and IT. The Committee monitors the strategic approach
to risk management across the Group. This includes
the overall coordination, review and, as appropriate,
delivery of risk management activity. The GERC supports
the Group and its divisions to operate within the risk
appetite parameters approved by the Board. Matters
that the Committee has considered this year include:
risk harmonisation and risk and control self-assessment;
regulatory contact and horizon scanning; divisional risk
management; new or material amendments to products;
the Group Business Continuity Plan including the Group’s
Covid-19 risk assessment and plans for safe Return to
Work; the Group’s Wind Down Plan; and the Group’s
risk appetite.
Governance framework
Our governance framework has been designed to
establish good governance practices that facilitate
cooperation within the Group, enabling the Board to
discharge its governance responsibilities under the
Code effectively. In addition the governance framework
provides accountability to the Company’s stakeholders
including shareholders.
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 Delegated Authorities Manual
The Delegated Authorities Manual formalises what
matters can be approved, and by whom, including
thresholds for escalation, below Board level. This year
we have reviewed and refreshed the divisional
delegated authorities manuals.
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 review the suite
of terms of reference at least annually. This year ICSA:
The Chartered Governance Institute has published
updated model terms of reference for the Risk, Audit,
Remuneration and Nomination Committees and we
have reviewed our documentation against this best
practice guidance and updated it where applicable.
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. The corporate policies
are reviewed on a regular basis and we expect them to
evolve in tandem with policy harmonisation work that
is taking place across the Group and divisions in areas
such as HR and Risk.
Provident Financial plc Annual Report and Financial Statements 2020
119
GovernanceGovernance 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 its 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 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.
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
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
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
– Recommends long-term objectives
of the Chairman
to the Board
– Is responsible for ensuring risk
management and internal controls
are in place
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 and
constructive challenge
– 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 Colleague
Champion (see pages 114 and 115
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
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 designed in such a way as to ensure that consideration is given to s.172,
risk and the Group’s culture when drafting. As well as ensuring the quality and consistency of our reporting, our templates assist
our directors in navigating the information, enabling them to focus on material matters and use their time effectively. 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 enhanced our Board reporting to include CEO, Blueprint
and Customer Dashboards.
Each Committee has an annual forward agenda plan that is based upon the duties and responsibilities documented in its terms
of reference. Group Company Secretariat monitors adherence with the terms of reference on an annual basis, thereby ensuring
that the Board and its Committees successfully deliver on their responsibilities.
120
Provident Financial plc Annual Report and Financial Statements 2020
Independence of non-executive directors
Independent non-executive directors provide independent
oversight and constructive challenge to executive directors.
As well as independence, they bring impartiality, skills and
experience, knowledge and their own personal qualities
to the boardroom.
Board balance
70+
Independent
non-executive directors 7
Executive directors
and Chairman
3
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. Margot James, who was appointed
during the year, was formally determined to be 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 142.
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.
During the year, Margot James was appointed as Independent
Non-Executive Director. A rigorous appointment process was
followed for her appointment as detailed on page 128.
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
on an ongoing basis in response to changes in their external
time commitments. For the period under review the Board is
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 developments
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.
Member attendance at Board and Committee
meetings in 2020
During the year, the Board considered
Andrea Blance’s and Elizabeth Chambers’
proposed appointments as Non-Executive
Directors of Hargreaves Lansdown plc
and TSB Bank plc respectively. The
Board took account of their existing time
commitments and resolved that they
would have sufficient time to discharge
their duties to the Company and, as
such, approved the appointments.
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, to discuss the Covid-19
pandemic, to approve appointments to the Board, to deal with
any material transactions or to approve regulatory submissions.
Provident Financial plc Annual Report and Financial Statements 2020
121
Governance30
+
N
Division of responsibilities continued
How we structure our governance continued
Member attendance at Board and Committee meetings in 2020 continued
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 2020, the absences by directors
shown below were all as a result of other pre-planned commitments, urgent personal matters or meetings which were called
at short notice.
Board member
Board
Ad hoc
Audit
Committee
Ad hoc
Nomination
Committee
Ad hoc
Remuneration
Committee
Ad hoc
Group Risk
Committee
Ad hoc
Customer,
Culture
and Ethics
Committee
Total number
of meetings
Patrick Snowball
Malcolm Le May1
Simon Thomas2
Neeraj Kapur3
Andrea Blance
Graham Lindsay
Robert East
Paul Hewitt
Elizabeth Chambers
Angela Knight4
Margot James5
9
9/9
8/8
3/3
6/6
9/9
9/9
9/9
9/9
9/9
9/9
3/3
6
6/6
6/6
—
6/6
6/6
6/6
6/6
6/6
6/6
6/6
—
6
—
—
—
—
6/6
—
—
6/6
—
6/6
—
1
—
—
—
—
1/1
—
—
1/1
—
1/1
—
4
4/4
—
—
—
4/4
4/4
4/4
4/4
4/4
4/4
2/2
1
1/1
—
—
—
1/1
1/1
0/1
0/1
0/1
1/1
—
6
—
—
—
—
6/6
6/6
—
—
—
3/3
3/3
3
—
—
—
—
3/3
3/3
—
—
—
3/3
0/2
4
—
—
—
—
—
—
—
4/4
4/4
4/4
—
1
—
—
—
—
—
—
—
1/1
1/1
1/1
—
3
—
—
—
—
—
3/3
3/3
—
3/3
—
1/1
1 Malcolm Le May took extended leave from September 2020 to November 2020 to have a pre-planned operation.
2 Simon Thomas stepped down on 31 March 2020.
3 Neeraj Kapur was appointed on 1 April 2020.
4 Angela Knight was a member of the Remuneration Committee until 31 August 2020.
5 Margot James was appointed on 27 July 2020.
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Provident Financial plc Annual Report and Financial Statements 2020
Composition, succession and evaluation
Board composition
Board composition
We believe the right Board composition is a key cornerstone
of Board effectiveness and successful delivery of the Group’s
strategy. In that regard, the Board strives to ensure that its
composition and that of its Committees is appropriate, with a
sufficient combination of skills, diversity, experience and knowledge.
In determining this, consideration is given to the length of service
of the Board as a whole to ensure membership is appropriately
refreshed. In addition, outcomes from the 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 127.
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. 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 Committee also ensures that
succession plans are in place for Board and senior management
positions and is responsible for overseeing the development
of a diverse pipeline of talent. The Board approved its Equality,
Inclusion and Diversity (EDI) Policy in December 2019, which 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. Whilst initially our EDI initiatives
were focused on driving improved gender diversity, with positive
results, the focus is now on diversity in a broader sense. The
Board’s gender and ethnicity diversity perspective has also
improved following appointments made during 2020. The Board
met and continues to meet the Hampton-Alexander target of
at least 33% female representation on the Board by December
2020. The Board also meets 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 129 and 130.
Board changes
Our Board composition has continued to evolve in 2020 and,
following a thorough search to identify appropriate candidates
with the right cultural fit, skills and experience, the Group was
pleased to welcome Margot James in July 2020 as an Independent
Non-Executive Director. The appointment of Margot was completed
at the recommendation of the Nomination Committee, providing
the Board with a wealth of expertise from her successful career
in both the public and private sectors. The refreshed Board
is appropriately sized and now reflects sufficient size and
independence to continue to operate effectively. As reported last
year, on the recommendation of the Nomination Committee,
Neeraj Kapur was appointed on 1 April 2020 as Chief Finance Officer.
More details on the role of the Nomination Committee in the
Board Appointment Process can be found on page 128.
The Board currently consists of 10 members, which includes the
Non-Executive Chairman, one Senior Independent Director, six
independent non-executive directors, and two executive directors.
Biographical details of all directors are given on pages 102 to 105.
Graham Lindsay has performed his first full year in his role as
designated Non-Executive Colleague Champion. Following
Graham’s appointment to this role, it was considered appropriate
that he chair the CCE Committee, and you can read about this
work during 2020 on pages 131 and 132.
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. As a result of the Covid-19 pandemic, time demands
on the non-executive directors have necessarily increased due
to a number of unscheduled meetings and you can read about
our Board and committee attendance levels on the previous page.
Further details on the terms and conditions of appointment of
non-executive directors and service contracts of executive
directors are available to investors for inspection at the Group’s
registered office address during normal business hours.
During 2020, the following changes to the Board took place:
– on 31 March, Simon Thomas stepped down from the Board;
– on 1 April, Neeraj Kapur was appointed to the Board
as Group Chief Finance Officer; and
– on 27 July, Margot James was appointed to the Board
as an Independent Non-Executive Director.
More details of their skills and experience can be found
on pages 102 to 105.
Directors’ Board tenure as at 10 May 2021
2014
2015
2016
2017
2018
2019
2020
2021
Total tenure
Patrick Snowball
Malcolm Le May
Neeraj Kapur
Andrea Blance
Elizabeth Chambers
Paul Hewitt
Angela Knight
Graham Lindsay
Robert East
Margot James
2 years, 7 months
2 months
3 years, 3 months
2 months
3 years, 9 months
1 year, 1 month
4 years, 1 month
2 years, 9 months
2 years, 9 months
2 years, 9 months
2 years, 1 month
1 year, 10 months
9 months
Malcolm Le May key:
Chief Executive Officer
Interim Executive Chairman
Non-Executive Director
Patrick Snowball key:
Interim Chief Executive Officer
Provident Financial plc Annual Report and Financial Statements 2020
123
Governance Composition, succession and evaluation continued
Induction for new directors
Board induction
The Chairman and General Counsel and Company Secretary
ensure that all newly appointed directors receive a comprehensive
and tailored induction programme. 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, as well as providing directors with
the opportunity 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.
The tailored induction programme
On joining the Board in 2020, Margot was provided with a
tailored induction programme which was designed to ensure
that she gained a full understanding of the Group. An example
of a programme that is individually tailored to the knowledge
and experience of each director includes the following:
One-to-one meetings
Margot met with senior management including the members
of the 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, divisional Chief Finance Directors and divisional Chief
Risk Officers. The new director 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
Each new director is provided with full access to an electronic
‘reading room’, which includes induction material, such as
various relevant policies, terms of reference, Group organisational
charts, the latest trading statements, the Annual Report and
Accounts, recent shareholder information, broker notes and
relevant regulatory correspondence.
Margot James
Independent
Non-Executive
Director
Field and site visits
Relevant arrangements are made for all new appointments
to undertake customer visits accompanied by a Customer
Representative. This gives an insight into the Consumer Credit
Division and enables directors to experience how we service
our home credit customers in line with our Purpose. This year,
given the restrictions in place due to the Covid-19 pandemic,
the field visit was tailored to be a virtual experience, which
involved Margot meeting online with representatives from
a regional home credit office with local management, who
provided her with an overview of the home credit operation
and how the team, together with the Customer Representative,
works towards achieving the best outcomes for the customer.
To preserve the safety of colleagues during the Covid-19
pandemic, director site visits were deemed non-essential.
Therefore Margot was unable to undertake these this year.
The site visits will be rescheduled when the restrictions are
lifted and when safe to do so. In November Margot participated
in virtual field experience meetings, with the Head of Field
Performance, Divisional Managers, Area Managers, Business
Managers and Customer Representatives to understand the
CCD business in more depth.
Ongoing Board training and development
The Board believes that continuous director training and
development supports its Board effectiveness. Under the
direction of the Chairman, the General Counsel and Company
Secretary facilitates Board training, and assists the Board with
ongoing professional development. The Board has an annual
training plan which was adapted this year to ensure that the
directors have further knowledge of the business. Throughout
the year the Board attended various training sessions on key
topics such as the Good Customer Outcomes Framework and
Cyber and Information Security, to gain further insight into
current key subject matters. These sessions were led by both
internal and external facilitators.
The ever-evolving regulatory landscape means that 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.
During the year the Nomination Committee reviewed and
updated the Board Skills Matrix, which will enable even more
targeted training and the continuous improvement of our
directors during 2021.
In addition, the Board also received the following
‘deep dive’ sessions:
– Customer Complaints and;
– Investor Relations Perceptions Audit Outcomes
and Recommendations.
Directors are also given access to an external online academy
tool which provides a wide array of briefings, education and
bespoke training.
124
Board evaluation
2020 internal evaluation
In line with the 2018 Code, a review of the effectiveness of the
Board, its Committees and individual directors is conducted
annually. Following the external Board evaluation which
was undertaken last year, the 2020 Board and Committee
effectiveness evaluation process was internally facilitated
by the Group General Counsel and Company Secretary.
Reflecting his role in ensuring the effectiveness of the Board,
our Chairman played a key role in the design and approach
of the annual Board and Committee effectiveness evaluation
and agreed the proposed approach with the General Counsel
and Company Secretary. The 2020 effectiveness evaluation
focused on a number of areas of Board, Committee
and Chairman effectiveness, including:
– Board composition, including diversity;
– the Board’s understanding of the views of key stakeholders;
– monitoring of culture and behaviours;
– Board oversight of risk;
– how the Board members work together to meet objectives;
– Board support, including induction, training and information;
– Board oversight of strategy; and
– oversight of succession and talent management.
The 2020 evaluation process:
1
Design and implementation of evaluation approach
The purpose and scope of the evaluation were agreed with the Board and detailed questionnaires designed and agreed
in relation to following areas: Board and Committee effectiveness; Chairman effectiveness; and individual director
effectiveness. The questionnaires were issued by the Group Company Secretariat to the Board members for completion.
2
Data collation
and analysis
3
Review of results
4
Board discussion
and actions
The responses to the
questionnaires were collated
by the Group Company
Secretariat, who 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.
The draft report on Board and
Committee effectiveness was
reviewed by the Chairman
and a final report shared with
the wider Board, including the
Chairs of each Committee.
The Senior Independent
Director reviewed the
Chairman’s effectiveness
report prior to its discussion
by the Board members
(excluding the Chairman).
At its 1 February 2021 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, including areas of
strength and enhancement, was
discussed by the directors and
provided to the Chairman by the
Senior Independent Director. The
results from individual director
effectiveness questionnaires
were discussed by the Chairman
and the individual director in the
annual performance evaluation.
Outcome of the 2020 evaluation process: Board and Committees
Following review of the findings of this year’s evaluation of the performance of the Board and its Committees, the directors
agreed that the Board and its Committees were performing effectively and discharging their duties and responsibilities.
Overall, it was felt that the Board was functioning well, with good Board composition and strong relationships across the Board.
The evaluation also highlighted opportunity areas to enhance effectiveness, and these are set out below together with a
summary of some of the Board strengths identified in this year’s evaluation.
Some of the Board strengths identified
Areas of focus to enhance performance
– Board composition, including the Board’s balance
of skills and experience.
– The quality of Board relationships and how the
Board works together to achieve objectives.
– The constructive atmosphere in the boardroom,
which encourages balanced contribution, candid
discussion, critical thinking and challenge.
– 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.
– Continue to focus on how to enhance the Board’s
oversight of risk.
– Drive continued focus on the Board’s oversight
of the Group’s IT and digital strategy.
– The effectiveness of its role in the response
– Continue to drive enhancements to the Group’s
to the Covid-19 pandemic.
strategy and how it sets its strategy.
– The understanding of the views and requirements
of regulators.
Provident Financial plc Annual Report and Financial Statements 2020
125
Governance Composition, succession and evaluation continued
Board evaluation continued
Outcome of individual director effectiveness
review, independence and reappointment
As noted above, the Chairman held an individual performance
and development discussion with the directors, utilising the
output of the evaluation process to inform his discussions
regarding the directors’ development.
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, 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
election/re-election at the 2021 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 Robert East, the Nomination Committee and Board did take
into account that he is the Chairman of Vanquis Bank, and
confirmed that he still remained independent in relation
to his appointment to the Company.
Outcome of the Chairman’s effectiveness review
As noted above, each director completed a questionnaire
on the performance of the Chairman. The review of the
Chairman’s performance focused on, amongst other matters,
the effectiveness of his relationship with the Chief Executive
Officer and other Board members, how he manages meetings
and how he manages the input of 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 discussed the feedback and areas for
development with the Chairman.
Update on areas of focus from 2019 evaluation
Focus area
Progress
Continue to enhance the Board’s
understanding of the Group’s:
customer proposition; key commercial
relationships; performance relative
to competitors; and strategic plan.
Continue to ensure the Board
dedicates appropriate time to
setting and overseeing strategy.
Continue to focus on the Board’s
understanding of colleagues and
oversight of talent management
and development.
The Board reviewed the Group’s customer proposition, key commercial relationships,
performance relative to its competitors and strategic plan at the Corporate Planning
Conference. This included detailed briefing on the UK sub-prime market and analysis
of the Group’s customer base, including both categorisation and preferences.
As noted above, the Board reviewed the Group’s strategy at its Corporate Planning
Conference during 2020. Additionally, the Board reviewed the progress of the Group’s
strategic priorities and considered such initiatives for approval during the year.
Good progress against some of the Group’s medium-term strategic objectives
has been made during 2020; see pages 20 and 21.
During 2020 the Board has reviewed the output and action planning resulting
from the 2019 Colleague Survey. The CCE Committee considered the output of a
Colleague Pulse Survey, undertaken part way through the year, which included
feedback from colleagues on changes to working practices arising from the Covid-19
pandemic. The Group’s other key colleague engagement mechanisms have also
operated during the year: the workforce panels and designated Non-Executive
employee Champion. The output of these engagement mechanisms has been
considered by both the CCE Committee and Board. See pages 113 to 115 for more
details on our engagement activities.
The Nomination Committee has reviewed and challenged the Group’s talent
management, development and succession framework and strategy and its
implementation. As part of this, the Committee reviewed and discussed the Group’s
talent pool and leadership needs in September 2020 and January 2021. You can
read more about this on page 129.
Increase focus on ensuring that the
Board has a clear understanding
of the regulatory agenda and
horizon scanning.
The GRC, which has responsibility for overseeing regulatory matters on behalf of the
Board, receives regular reports which provide key updates regarding the regulatory
agenda and horizon scanning. The GRC Chair reports to the Board on the Committee’s
discussions after each meeting.
Next year
A rigorous and formal evaluation will also be undertaken next
year. Under the 2018 Code, we are not required to undertake
an external evaluation next year; however, the Chairman
and Board will review and determine the most appropriate
evaluation process at the time.
2020
Internal
evaluation
2019
External
evaluation
(survey and
interview)
2018
Internal
evaluation
facilitated
by Senior
Independent
Director
126
Provident Financial plc Annual Report and Financial Statements 2020
Nomination Committee Report
Meeting our
leadership needs
We have further strengthened our Board and
leadership teams this year and remain focused
on ensuring they are fit to deliver long-term
sustainable value.
I am pleased to present my Nomination Committee Report for
2020. Turning first to reflect on Board changes during this year,
as reported and announced previously, Simon Thomas stepped
down from the Board at the end of March 2020 for personal
health reasons and his contribution to the Group will be
missed. On 1 April 2020, Neeraj Kapur joined the Board as our
new Chief Finance Officer and has since made a strong
contribution to the Group. As mentioned in my Chairman’s
governance statement on page 100, Margot James joined the
Board on 27 July 2020 and brings a great balance of skills and
experience from her wide-ranging career as a commercial and
entrepreneurial business owner and her work within the UK
Government. The Committee and its members formed a key
part of her recruitment and appointment process, which you
can read more about on the next page.
Board composition and succession
The Committee continues to ensure that we have a strong
and well-balanced Board with the appropriate skills, experience
and diversity to lead the Group as it navigates the opportunities
and challenges that we face in delivering our Purpose.
This year, as in each year, the Committee reviewed the
composition and balance of the Board and its Committees
taking into account a number of 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 the balance between executive
and non-executive directors. The Committee also continued
to oversee the composition of the Board through its Board
Skills Matrix, which is designed to support the Committee
and in our considerations of Board appointments, succession
planning and training and development. The Committee
reviewed the current balance of skills and progress against
previously identified improvement areas during the year. We,
as a Committee, believe the Board’s composition is appropriate
to fulfil its role effectively, and we will continue to keep this
under review.
Provident Financial plc Annual Report and Financial Statements 2020
127
Patrick Snowball
Nomination Committee Chairman
Members
Patrick Snowball (Chairman)
Andrea Blance
Elizabeth Chambers
Paul Hewitt
Angela Knight
Graham Lindsay
Robert East
Margot James (member from 27 July 2020)
Allocation of time*
19+
Diversity
Succession and talent
19%
42%
Board composition and appointments
25%
Governance
14%
*
Data includes January 2021 Committee meeting which was
rescheduled from December 2020 due to a late but necessary
change to the date and time of the Committee meeting in
response to government restrictions regarding Covid-19.
The Committee’s terms of reference are available at:
www.providentfinancial.com
Governance42
+
25
+
14
+
N
Composition, succession and evaluation continued
Nomination Committee Report continued
Board composition and succession continued
As well as reviewing the composition of the Board and
its Committees, we 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. We
are recommending to shareholders that all directors be either
elected or re-elected at the 2021 AGM. You can read about
each director’s contribution to the Board in their biographies
on pages 102 to 105.
Succession planning for Board members remains a key
priority for the Committee, and the Committee considered the
succession of the executive directors and also the succession
plan for non-executive directors during the year. Our
non-executive succession plans are based upon the skills
and experience of our directors, as informed by our Board
Skills Matrix. Read more on our executive succession planning
on the next page.
Non-executive director appointment: Margot James
The recruitment and appointment of Margot James was led
by the Committee and its members and was facilitated by
Odgers Berndtson. Other than in relation to the recruitment as
described above, Odgers Berndtson had no other connection
to the Group or directors.
Candidate
requirements
A role specification was agreed and designed to address possible enhancements to
Board composition which had been identified through the Board effectiveness evaluation
process and our Board Skills Matrix through the appointment of an additional non-executive
director. It was key that the new appointee was able to reinforce the Group’s financial
inclusion purpose and was also able to support us in ensuring that the social and
economic benefits the Group provides to the underserved are well understood
by our stakeholders.
Search process
The search was led by Odgers Berndtson. Eleven potential candidates were reviewed by
members of the Committee. To see how diversity was addressed in this process, see below.
Interviews
Following review of the potential candidates, two were interviewed by Patrick Snowball,
Andrea Blance, Angela Knight and Graham Lindsay, ahead of meetings with other Board
members. At interview, candidates were assessed against role fit, technical capability,
key aspects of our Blueprint (see below) and specific requirements of the role.
Appointment
Margot James was identified following the interviews as the preferred candidate. The
Nomination Committee recommended the appointment of Margot to the Board following
consideration of the composition of the Board and having made a determination that
Margot had sufficient time, skills, knowledge and experience to carry out the proposed
role and responsibility as a non-executive director. Margot’s appointment brings a great
balance of skills and experience to the Board, with her wide-ranging career as a commercial
and entrepreneurial business owner and her work in the UK Government. Her experience
of working in consumer policy and citizens advice and advising on labour markets enables
her to understand and promote the interests of our customers and wider stakeholders, as
we seek to deliver our Purpose of helping put people on the path to a better everyday life.
How our Blueprint informed our recent
appointment process
At interview, the assessment of candidates included
assessment against our Blueprint. Questions at interview
focused on how a candidate would support the Group in
the delivery of its strategic drivers, reinforce our ethos and
demonstrate the behaviours expected of a non-executive
director, all of which support the delivery of our Purpose.
How diversity was addressed in our recent
appointment process
Our formal Board appointment process 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, cognitive
and personal strengths; the Group worked with Odgers
Berndtson to ensure that the appointment search was
alert to all aspects of diversity and inclusion throughout
the process. The candidate specification for the
non-executive director role was prepared to clearly
recognise the value of diversity in the boardroom and
throughout the Group, particularly in enabling us to
understand our stakeholders. Furthermore, a key attribute
sought in the right candidate was someone who fosters an
environment of inclusivity and diversity at all levels. Of the
11 shortlisted candidates, eight were female and three were
male. Odgers Berndtson is accredited for the FTSE 350
category of the Enhanced Voluntary Code of Conduct for
Executive Search Firms, which specifically acknowledges
those firms with a strong track record in and promotion of
gender diversity in FTSE 350 companies against the scope
of the Davies Review.
128
Provident Financial plc Annual Report and Financial Statements 2020
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.
Key activities in 2020
Key priorities for 2021
– Considering how the outcome of the 2020 Board
evaluation should inform Board composition.
– The recruitment and appointment of Margot James
as a Non-Executive Director.
– Detailed review of the Group’s talent management
and succession framework and its talent pool.
Board evaluation outcome
During the year, the Committee reviewed the outcome of
the 2019 Board evaluation as it pertained to the composition of
the Board and the progress made in the areas where possible
enhancement had been identified. As detailed on the previous
page in relation to Margot James’ appointment, the outcome
of the 2019 Board evaluation was used to inform the recruitment
of an additional non-executive director during the year. This
year an internal effectiveness evaluation was undertaken of
the effectiveness of the Board and its Committees. The review
process is described in more detail on pages 125 and 126.
In relation to Board composition, the balance of skills and
experience on the Board was rated very highly in this year’s
evaluation and whilst the current diversity of the Board was
considered to be strong, the Board recognised the need to
remain focused on diversity in its broadest sense, including
ethnicity, cognitive styles and social backgrounds. The Committee
will continue to remain cognisant of the matters raised in the
Board and Committee evaluation as it continues to review
Board composition during 2021. The performance of the
Committee was considered as part of the annual evaluation
process and the evaluation found the performance of the
Committee to be rated highly overall.
Talent management
The Committee plays a key role in overseeing the leadership
needs of the Group. This year we reviewed in detail the Group’s
talent management and succession framework, which is
designed to support the identification, development, retention
and progression of a diverse talent pipeline. During the year,
the Committee reviewed the Group talent management
framework, which consists of processes and tools for identifying
and managing talent and succession such as: a talent
identification and growth potential tool; talent profiles; retention
risk assessment; and succession plans. In response to restrictions
implemented by the Government in its response to Covid-19,
our December 2020 Committee meeting was rescheduled
to January 2021. At this meeting, the Committee undertook
a review of a single view of talent and the collective strength
of leadership across the Group, including the Group’s
emergency, short and medium-term succession plans for
executive director and Group Executive Committee roles. As
part of the succession planning discussion, the Committee
considered where action was needed to enhance succession
plans and the how the Group was developing internal succession
candidates. As part of the talent review, the Committee discussed
the diversity of the talent pipeline, and you can read more on
this below. The Committee’s review of talent in January 2021
also included consideration of recent actions to strengthen
our senior management talent, the outcome of our talent
identification cycle and retention risk and related action plans.
Our Group Executive Committee met, and will continue to meet
to discuss succession pipeline and strength of our talent pool.
– Continue to work towards having the right mix of
diversity and skills by working to achieving a target of
33% female representation on its Executive Committee
(and its direct reports) as well as maintaining its target
at Board level.
– Continue to focus on succession planning and leadership
development across the Group to strengthen the diverse
talent pipeline and identify and seek to enhance our
Group-wide approach to talent management.
As a result of this process in 2020, a number of individuals
were identified as potential successors to key positions.
Through its discussions, the Committee also discussed the
recruitment of talent for key roles and the importance of
considering diverse candidates for those roles. During the
year, the Committee also considered non-executive director
succession and agreed that the current Board composition
was appropriate that given the relatively short tenure of
the non-executives there were no immediate succession
concerns. Furthermore, our Board Skills Matrix, which is a key
tool in the management of our leadership needs at Board
level, was reviewed and updated during the year.
Equality, diversity and inclusion
Objectives and link to strategy
The Board continues to be committed to supporting diversity
and inclusion in the boardroom and beyond. It believes that
diversity, in its broadest sense, contributes towards a high-
performing and effective Board and colleague population.
We have in place a Group-wide Equality, Diversity and Inclusion
(EDI) Policy for directors and colleagues which acknowledges
how diversity supports the Group in delivering its Purpose
and strategy, such as through enabling us to truly understand
and deliver for our diverse customer base and providing the
foundations for us to support stakeholder views, and challenge
each other by having a wider range of perspectives represented
at each level of management. 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.
Developing a diverse pipeline
Our EDI Policy requires that appointments and succession plans
are based on merit and objective criteria and, within this context,
promote diversity of gender, social and ethnic backgrounds, and
cognitive and personal strengths, thus supporting the development
of a diverse pipeline. Our HR functions across the Group are
responsible for monitoring EDI-related matters throughout our
colleagues’ life with the Group. As noted above, the Committee
held a talent review session in January 2021, which included
consideration and discussion of the diversity of the Group’s talent
pipeline and actions to enhance this. The Committee discussed
the actions undertaken to enhance diversity during the year,
including through strong focus on ensuring diverse candidate
lists for roles and through the setting of robust internal targets.
The Committee also discussed actions planned to strengthen
internal diversity data in order to set robust internal diversity
targets across broader areas of diversity.
We consider that wider EDI initiatives across the Group are
essential to the development of a diverse talent pipeline. During
the year we launched our ‘Be Yourself’ inclusion and diversity
initiative, which you can read more about on pages 77 and 78.
Provident Financial plc Annual Report and Financial Statements 2020
129
Governance Composition, succession and evaluation continued
Nomination Committee Report continued
Equality, diversity and inclusion continued
Developing a diverse pipeline continued
This included a number of plans to develop the diverse aspects of our culture and promote inclusion, including formally establishing
a series of communities around several protected characteristics and inviting colleagues to be a part of them and the launch of
our Inclusion Calendar. The four affinity groups that will make up our overall inclusion community will be based around gender,
LGBTQ+, ethnicity and disability. Each business area has an Inclusion Chair and an Executive Sponsor. During the year our CCE
Committee reviewed the Group’s long-term environmental, social and governance targets which are aligned with both the
United Nations Sustainable Development Goals that we have prioritised and the Task Force on Climate-related Financial Disclosures
recommendations, and include an objective in relation to diversity. You can read more on this on page 32. The Committee will
continue to support and encourage initiatives that strengthen the talent pipeline within the Company during 2021.
Board gender diversity
Objective
Progress and implementation
To ensure a rounded
and diverse Board and
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.
In alignment with our EDI Policy and documented Board appointment
process, our appointments to the Board and Executive Committee
continue to be made on merit, taking into account diversity in its
broadest sense and culture. The Committee regularly reviews the
composition of the Board, including diversity. Please see how diversity
and our cultural Blueprint was considered during the appointment
of Margot James on page 128. This year, the Committee also reviewed
the Board members’ skill matrices to ensure the appropriate
balance of skills and experience was in place. Diversity, equality
and inclusion remains a key focus area for Executive Committee
appointments, including ensuring diverse candidates are considered
for new appointments, and we continue to work with executive
search firms to drive diverse candidate lists. 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.
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. Please see how diversity was
considered during the appointment of Margot James on page 128.
60%
Male
Female
60+
30+
Board tenure
0-1 years
40%
3 (30%)
Following our recent appointment, the percentage of women
on the Board is 40%, exceeding the target.
2-4 years
6 (60%)
5+ years
1 (10%)
Maintain a balance
of one-third of the
directors being women
as a minimum.
Maintain a minimum
of one director from
an ethnic minority
background in support of
the Parker Review target.
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.
Following appointments during 2020, we have one director on the
Board from an ethnic minority background, meeting the target.
During the year the Committee kept under review the progress
made regarding the equality, diversity and inclusion strategy across
the Group, including the delivery of EDI initiatives. The Committee
discussed the diversity of the Group’s talent pipeline and actions
to strengthen diversity at its talent review session in January 2021.
As set out on page 78, senior management population is 27%
female. The Committee also discussed how management would
seek to strengthen internal diversity data in order to set robust
diversity targets for management across broader areas of diversity.
The Board has continued to meet its target of at least one-third of
the directors being women and has also met the target set by the
Parker Review for FTSE 250 companies to have at least one director
from an ethnic minority background by 2024.
Patrick Snowball
Nomination Committee Chairman
10 May 2021
130
Provident Financial plc Annual Report and Financial Statements 2020
BAME representation
on the Board
90+
Non-BAME 90%
BAME
10%
Executive Committee
and direct reports
gender diversity
75+
Male
75%
Female
25%
40
+
N
10
+
N
60
+
10
+
N
25
+
N
Customer, Culture and Ethics Committee Report
Monitoring our culture and strategy to deliver fair customer outcomes
Monitoring our culture
and strategy
For many of our customers, this year has been
one of unprecedented challenges, making the
Committee’s work of monitoring the delivery
of our customer-focused culture and Purpose
even more important.
As the recently appointed Chairman, I am pleased to report
on our work and achievements throughout 2020 and our
priorities for the year ahead.
At each meeting, the Committee:
– reviewed and discussed a dashboard of metrics to
oversee the embedding of the Group’s Blueprint that
was launched in 2019 (the Blueprint Dashboard);
– reviewed and discussed a dashboard of metrics
to oversee the monitoring of customer outcomes
(the Customer Dashboard);
– listened to a sample of customer calls from across the
different divisions to monitor customer outcomes and
identify any areas of improvement to be fed back to
the business; and
– received an update on colleague engagement
mechanisms, such as the Colleague Engagement Survey
and Colleague Forums.
Key Committee responsibilities
The primary role of the Committee is to monitor the Group’s
culture, stakeholders’ expectations and evolving governance
requirements, and review business processes to ensure they
are delivering fair customer outcomes. The Committee’s
principal areas of responsibilities are as follows:
– assisting the Board with the evolving corporate governance
requirements, including full compliance with the Code and
the accountabilities of the Board under s.172 of the Companies
Act to consider the interests of wider stakeholders in their
decision making. For further information on our compliance
with the Code this year please see page 101;
– examining the business policies, practices and products
in alignment with the Group’s Purpose, culture and
overall strategy;
Graham Lindsay
Customer, Culture and Ethics Committee Chairman
and designated Non-Executive Colleague Champion
Members
Graham Lindsay (Chairman)
Elizabeth Chambers
Robert East
Margot James (member from 27 July 2020)
Allocation of time
40+
Monitoring customer outcomes
and KPI tracking
Reviewing products, business
practices and policies against
the Group’s Purpose and culture
Monitoring governance, ESG
commitments and corporate
responsibility reporting
Monitoring stakeholders’ expectations
and engagement mechanisms
40%
13%
34%
13%
The Committee’s terms of reference are available at:
www.providentfinancial.com
Provident Financial plc Annual Report and Financial Statements 2020
131
Governance13
+
34
+
13
+
N
Customer, Culture and Ethics Committee Report continued
Monitoring our culture and strategy to deliver fair customer outcomes continued
Key Committee responsibilities continued
– overseeing the embedding and monitoring of the Group’s
culture and ensuring that any material issues in regard
to the culture and ethics of the Group are addressed;
– ensuring that appropriate employee engagement
mechanisms 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;
– overseeing the Group’s investment in community activities
which aims to deliver a positive impact on the local
communities within which our businesses operate; and
– examining the impact of the Group’s activities on the
environment and ensuring that the Group has a suitable
approach to managing and reporting its impact on
the environment.
The Committee adopts an evidence-based approach to its
work, using key performance indicators in the Blueprint and
Customer Dashboards to measure and benchmark progress
against set targets.
The Customer Dashboard includes set targets for a series
of measures that are based around the Financial Conduct
Authority’s (FCA) 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
at a divisional level and reported 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.
The same evidence-based approach is also taken to overseeing
the embedding of the Group’s culture through the Blueprint
Dashboard. This determines whether we are delivering our
business activities in accordance with our Purpose, strategic
drivers and behaviours. The Dashboard consists of five Blueprint
outcomes, each measured by a variety of metrics, with targets
set where appropriate. The Group’s Corporate Responsibility
Manager is a standing attendee of the Committee meetings
and has responsibility for monitoring and reporting metrics
within the Blueprint Dashboard. During the year, additional
metrics were added to the Blueprint Dashboard to widen
the range of stakeholder interests being measured.
These metrics included the number of colleague volunteering
hours, percentage of suppliers paid within 60 days of invoice
date and the greenhouse gas emissions intensity ratio. An
external benchmark of culture and colleague engagement
is also included within the Blueprint Dashboard in order to
assess our culture against a range of similar organisations
in the financial services sector.
The Committee monitors colleagues’ engagement with, and
support for, the Group’s Purpose and culture. This is measured
using metrics such as colleague volunteering hours and
results from Colleague Engagement Surveys, as well as
qualitative feedback gathered from workforce panels. This
year the Committee paid particular attention to the Group’s
engagement with colleagues on the Covid-19 pandemic and
the adequacy of support made available (such as reviewing
the Colleague Pulse Survey results and tracking progress
against the key focus areas identified from the results). 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.
Committee activities in 2020
– Reviewed progress made against the Customer Dashboard
and Blueprint Dashboard.
– Listened to customer calls and provided feedback on
whether fair customer outcomes had been achieved and
identified opportunities for improvement where appropriate.
– Reviewed and recommended to the Board the approval
of the Group’s Modern Slavery Act Statement, suggesting
improvement opportunities and actions as appropriate.
– Tracked progress made on the actions identified from the
Colleague Engagement Surveys.
– Reviewed and approved a new customer product plan,
ensuring that the product concept and design were aligned
with the Group’s Purpose and delivered fair customer outcomes.
– Considered the Group’s stakeholders and their materiality
through a stakeholder mapping exercise. Further information
on the Group’s key stakeholders can be found in the s.172
statement on page 91.
– Reviewed the previous year’s s.172 statement against the
market, considered external advice and identified areas
for enhanced reporting in this area.
– Reviewed the 2019 Corporate Responsibility Report and
external independent assurance on the report to identify
areas of enhanced reporting.
– Reviewed colleague engagement and support provided by
the Group to colleagues and local communities in response
to the Covid-19 pandemic.
– Approved the Group’s setting of six long-term environmental,
social and governance (ESG) objectives/targets that are
aligned with both the United Nations Sustainable Development
Goals and the recommendations of the Task Force on
Climate-related Financial Disclosures.
Committee priorities for 2021
– Continue to monitor the embedding of the Group’s culture
and the delivery of positive customer outcomes, and continue
to review the Group’s workforce engagement mechanisms,
provide feedback and monitor actions arising from
such engagement.
– Continue to ensure the voice of the customer is elevated
by engaging in call listening, reviewing customer feedback,
and monitoring customer surveys.
– Continue to ensure that workforce-related policies and
practices, such as gender pay and D&I, are consistent
with the Group’s values and support long-term
sustainable success.
– Continue to review and challenge the Group’s work spanning
climate risk, supply chain management and broader
ESG initiatives.
– Continue to analyse the Group’s stakeholders through
stakeholder mapping, which will determine the nature
of engagement activities, and oversee the development
of a stakeholder engagement strategy.
Graham Lindsay
Customer, Culture and Ethics Committee Chairman
10 May 2021
132
Provident Financial plc Annual Report and Financial Statements 2020
Audit, risk and internal control
Audit Committee Report
Maintaining an effective
control environment
Paul Hewitt
Audit Committee Chairman
Members
Paul Hewitt (Chairman)
Andrea Blance
Angela Knight
Allocation of time
16+
Governance
Financial reporting
External audit
Internal audit
Management reporting
16%
26%
22%
28%
8%
The Committee’s terms of reference are available at:
www.providentfinancial.com
The independent challenge and oversight
the Committee affords the Group’s external
reporting process has never been more important,
given the increased level of judgement required
in what has proven to be a highly uncertain
macroeconomic 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’s Report for the
year ended 31 December 2020. This report summarises the
activities of the Audit Committee during 2020 and confirms
compliance with the Competition and Markets Authority’s
Statutory Audit Services Order. Furthermore, I look forward
to attending the AGM on 30 June to answer any questions on
the work of the Committee subject to prevailing government
restrictions at that time.
The Committee continues to benefit from a membership
with 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 103 and 104. Angela Knight, GRC Chairman, continues
to be a member of the Committee to ensure the work of both
Committees remains coordinated.
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.
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.
Provident Financial plc Annual Report and Financial Statements 2020
133
Governance26
+
22
+
28
+
8
+
N
Audit, risk and internal control continued
Audit Committee Report continued
Key Committee responsibilities continued
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;
– 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
– reviewing and monitoring the external auditor’s
basis; and
independence and objectivity;
– keeping under review the effectiveness of the Group’s
– reviewing the effectiveness of the external audit process;
system of internal financial controls.
– developing, implementing and monitoring compliance
with the Group’s policy on the engagement of the external
auditor to supply non-audit services;
Committee activities in 2020
Committee priorities for 2021
– Completed a tender process for the Group’s external auditor, approving and
– Provide oversight
recommending to the Board the reappointment of Deloitte LLP as the Group’s external
auditor from 2022 onwards.
– Reviewed and approved the 2019 financial statements and areas of significant
judgement, including going concern basis and viability statement. Confirmed
that the 2019 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 2019.
– Reviewed and approved the external audit fees.
– Confirmed Internal Audit’s charter, statement of independence and objectivity
and effectiveness.
– Reviewed the 2019 external auditor’s full-year report, management letter and 2020
internal controls report and recommended approval of the same by the Board.
– Reviewed and approved the annual internal statement of governance, risk
management and internal control.
– Received 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.
– Reviewed and approved the interim management statement, carefully considering
contingent liability disclosures and going concern in the context of Covid-19 impact.
– 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 2021 internal audit plan.
– Received an update from internal audit regarding its Covid-19 response.
– Reviewed the underlying assumptions, including the carrying valuations of the divisions,
as part of the creation of the intermediate holding company.
– Reviewed the Committee’s adherence with its terms of reference during 2020.
of the Risk Mitigation
Programme within
Vanquis and Control
Enhancement
Programme within
Moneybarn.
– Continue to monitor
the closure of historical
overdue internal
audit actions.
– Oversee change
in audit partner
following Deloitte LLP’s
reappointment
as external auditor
in 2022.
– Provide oversight of
the 1PFG agenda and
monitor via internal
audit reporting the
Group’s ability
to execute and
govern change.
– Monitor Group Finance
transformation.
– Assess the key
assumptions of the
future CCD expected
credit losses.
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 2020, 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 2020 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 2020 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 183 to 185.
134
Provident Financial plc Annual Report and Financial Statements 2020
These and the going concern assumption were carefully
reviewed and challenged by the Committee following the
review performed 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 conclusion of this review, the Committee is of the
opinion that the Annual Report and Financial Statements 2020
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 2020
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 receives 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 has
a discussion 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.
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
2020 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 2020 and that there was a commitment from
management to maintain momentum with regard to the
embedding of a risk-aware culture.
Work conducted by Group Internal Audit and KPMG in the second
half of 2020 identified significant deficiencies in Moneybarn’s
IFRS 9 models and the control environment within its finance
function. As a result of this the Group CEO, CFO and the
Committee commissioned a function-wide review of controls
within Moneybarn’s finance function. This is being conducted
by Group Internal Audit with the support of KPMG and Group
Internal Audit and, following discussion with the Committee,
will also assess other functions within Moneybarn to provide
assurance that the wider control environment is fit for purpose.
Internal Audit
The Group operates an in-house Group Internal Audit function
which is managed by the Group Chief Internal Auditor 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.
As part of its review of Internal Audit’s effectiveness, the Committee
received Internal Audit’s 2020 self-assessment of its conformance
with both 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. The Committee confirmed
Internal Audit’s conclusion that it generally conformed with all
but three of the IPPF and all but one of the CIIA Financial Services
Code standards and agreed with Internal Audit’s plan to address
the areas where conformance could be enhanced. Following the
outlined process, the Committee confirmed the effectiveness of
the Internal Audit function for the year ended 31 December 2020.
The Audit Committee debated and approved the internal
audit plan for H1 2021 and I can confirm that the audit plan is
reflective of both the material risk themes the Group faces,
as well as the Group’s strategic drivers. The Committee is
satisfied that the Group Internal Audit function has the
appropriate resources to deliver the 2021 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 eight 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. At February’s meeting it was
concluded that Deloitte LLP was performing in line with expectations
and was considered to be independent of the Group. It was
therefore considered that Deloitte LLP be proposed to be
reappointed as the Group’s auditor for the financial year ended
31 December 2020. An annual assessment of the performance of
Deloitte LLP is undertaken following finalisation of the Annual Report
and Financial Statements and presented to the Committee in
May each year and the last assessment took place in May 2020.
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.
Further to the annual proposed reappointment of the external
auditor, on 8 October 2020, the Committee, together with the
Vanquis Audit Committee, approved selection criteria against
which tendering firms would be assessed as part of the approval
of the initiation of the Group external audit tender process. The
selection criteria focused on the audit team, their understanding
of the business, the proposed audit approach and audit quality
considerations. An evaluation panel was formed from both Group
and divisional management, including the Group CEO, CFO and
divisional MDs and FDs, who all met with the tendering firms and
provided their view on suitability based on the selection criteria.
Provident Financial plc Annual Report and Financial Statements 2020
135
Governance Audit, risk and internal control continued
Audit Committee Report continued
External auditor appointment and tenure continued
A selection panel was also formed which included all members
of the Committee, the Chair of the Vanquis Audit Committee and
the Group CFO. The analysis provided by the evaluation panel
was provided to the selection panel in advance of the tendering
firms presenting their tender submission on 4 December 2020.
Following an in-depth discussion of the selection criteria
and each firm’s strength and weaknesses, it was determined
that Deloitte LLP would be proposed for reappointment.
The recommendation was proposed to the Committee on
16 December, which recommended the reappointment to
the Group Board. This was approved and will be proposed
to shareholders at the 2022 AGM.
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.
External auditor Audit Quality Review
As reported in the 2019 Annual Report and Accounts, the
FRC concluded a review of the audit performed by Deloitte LLP
of the Group’s financial statements for the year ended
31 December 2018, for which Deloitte received a 2A rating. The
focus of the review and its reporting was on identifying areas
where improvements are required. The Chairman of the Audit
Committee received a full copy of the findings of the Audit
Quality Review team and has discussed these with Deloitte LLP.
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 three of its meetings in 2020. 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
feedback report was provided to the external auditor and
discussed by the Committee at the August 2020 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 Finance Director or 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 being 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
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 May 2020 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 £269,000 (2019: £156,000) comprising £40,000 for services
related to profit verifications for inclusion within regulatory
capital, £75,000 for reporting accountant verification of the
EMTN programme, £11,000 for the review of the ROI branch
statutory accounts and £143,000 for the Group interim review.
The ratio of audit to non-audit fees during the year was 6.4:1.
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 2020
are outlined on pages 183 to 185. In addition to the matters
set out on the next page, the Committee also considered the
going concern statement set out on page 178. 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 235 to 244.
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.
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.
This is significantly enhanced
in 2020 when past customer
performance may not be
indicative of future performance.
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.
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.
136
Provident Financial plc Annual Report and Financial Statements 2020
Issue
Judgement
Actions
Impairment of amounts receivable
from customers continued
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 2020, adjustments have been required
to impairment allowances due to Covid-19.
This may be due to customers:
– taking payment holidays;
– receiving furlough income; and
– restricted customer termination
of Moneybarn agreements.
These factors may be indicative
of increased future losses.
An assessment of macroeconomic
factors, including the latest
economic forecasts, is also required
to estimate expected losses.
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 is also taken into account.
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, including the probability of the
Scheme being approved by creditors; and
– considered the work performed by Deloitte LLP
and its views on the appropriateness of
assumptions used by management, based
on its experience.
Provisions for customer redress
The Group makes provisions for customer
remediation if all of the following are present:
Judgement is applied as
to whether the criteria for
recognition have been met:
(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 have been created in 2020 in
respect of ongoing customer claims of
irresponsible lending of home credit in
CCD and for the resulting proposed
Scheme of Arrangement (the Scheme)
to provide remediation, combined with
the costs of delivering the remediation.
– the level of valid claims which
may be received and be due
remediation in the future
based on recent experience
of valid claims volumes;
– the validity of claims being
provided at 31 December 2020
to the issuance of the Practice
Statement Letter (PSL);
– the proportion of irresponsible
lending claims which may be
upheld both internally and
by the FOS;
– the average redress payments
paid to customers both
internally and by FOS;
– claims received after the PSL
is issued are expected to be
covered by the Scheme; and
– the Scheme will be approved
by creditors.
For contingent liabilities disclosed,
judgement is required as to the
nature of the event and that
settlement is possible. Potential
outcomes are considered to
provide disclosure, including if
there are a range of outcomes
which may be disclosed.
Retirement benefit asset
The valuation of the retirement benefit
asset is dependent upon a series of
actuarial assumptions.
Judgement is applied in
formulating each of the
assumptions used in calculating
the retirement benefit asset.
The Company’s external actuary, Willis Towers
Watson, proposes the appropriate assumptions
and calculates the value of the retirement
benefit asset.
The key assumptions are in respect of the
discount rate, inflation rates and mortality
rates used to calculate the present value
of future liabilities.
This considers any adjustments
made to the key judgements to
ensure they remain appropriate
for the Group’s defined benefit
pension scheme.
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 2020 financial year.
Paul Hewitt
Audit Committee Chairman
10 May 2021
Provident Financial plc Annual Report and Financial Statements 2020
137
Governance Audit, risk and internal control continued
Risk Committee Report
Mitigating risk during
the pandemic
The pandemic has overlaid the entire operation
of Provident Financial Group. Covid-19 was
unexpected and rapidly impacted all our principal
risks. The response in turn had to be quick, agile
and flexible, as in a few days we had to operate
with a new and untried business model, where
overwhelmingly our colleagues were working
from home.
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 pandemic has overlaid the entire operation of the Group,
with Covid-19 unexpectedly and rapidly impacting all our
principal risks. The clear need was to ensure that our risk
management approach catered for this new environment,
while at the same time not losing sight of the fundamental
risks within the business and the 2020 agenda of identify,
resolve and mitigate.
The Group CRO has worked closely with me, the Committee
and the executive team, to bring about a harmonised approach
to Covid-19 and to take forward a number of important initiatives.
These have included commencing the programme to strengthen
oversight and reporting capabilities, the Risk Harmonisation
Programme and cross-divisional alignment, through a single
enterprise risk management framework (ERMF).
A Group credit underwriting review was also undertaken to
identify the material risks and potential opportunities presented
by the pandemic, as clearly the requirements of our customers
were no longer the same as they had been. Some customers
were furloughed and others were key workers, so the Committee
sought to focus on payment deferrals and forbearance for
hard pressed customers, revising affordability criteria as
appropriate. These and the Committee’s priorities, activities
and responsibilities are set out in more detail in the report.
Angela Knight
Group Risk Committee Chairman
Members
Angela Knight (Chairman)
Elizabeth Chambers
Paul Hewitt
Allocation of time
30+
Reviewing Group strategic and emerging
risks and monitoring divisional risk reporting 30%
Setting overall risk appetite, framework
and policy and risk harmonisation
Reviewing regulatory and prudential
risk reporting
18%
7%
Assessing risk management effectiveness 25%
Maintaining good governance and
approving external reporting
20%
The Committee’s terms of reference are available at:
www.providentfinancial.com
138
Provident Financial plc Annual Report and Financial Statements 2020
18
+
7
+
25
+
20
+
N
Overall, I believe that good progress has been made this year
on improving risk control in all parts of the Group, and through
the culture programme there is now a greater recognition
that every member of staff has their part to play in good risk
control and the overall benefit that comes from it. At the same
time, there is more work to be done, and so looking ahead to
2021, we see as our priorities: overseeing the implementation
of the Risk Harmonisation Programme and the management
approach to mitigating the strategic and emerging risks;
embedding further the updated customer conduct culture
which includes a customer outcomes framework; and
supporting the Board in the execution of its strategy through
the re-evaluation of the Group risk appetite framework
following the Covid-19 and related disruptions.
We are also cognisant of the legal and regulatory risks
associated with having as our Purpose the provision of finance
to the underserved. Amongst the many outcomes of the
pandemic is the probability that more of the population of this
country is likely to be in this financially challenged category
than was the case at the outset. The Committee is well aware
how important it is to continue to improve our risk management,
the controls and the culture within the organisation, to ensure
that our customers are treated fairly at all times. However the
Committee is also aware of the difficulties of meeting our
customers’ requirements in an environment in which regulatory
thinking continues to develop and third parties seek financial
benefit from opportunist challenging of the rules. To continue
to provide finance to this sector requires a stable regulatory
and legal framework, and one of the risks of concern to the
Committee, but which is outside its remit, is that the need
for this stability is not sufficiently recognised by the
relevant authorities.
The Group CRO has worked closely with me ensuring that
our risk management approach has been agile and flexible
to support the required rapid decision making in assessing the
risks arising through the Covid-19 pandemic. In the early stages
of the pandemic, the executive undertook a refreshed Covid-19
risk assessment including updated reporting to ensure the
Committee was kept fully informed of the emerging risk
landscape, thus helping the Committee guide management
through its contingency actions. Despite these unique challenges,
we continue to safely navigate through the crisis, enabled
by the Group’s robust Business Continuity Plans.
The Committee sponsored a Covid-19 risk assessment of
health and safety considerations for colleagues returning to
work within our offices, demonstrating the robust approach
taken by management to ensure their ongoing safety.
Our overall risk management oversight and reporting capabilities
continue to be strengthened via the Risk Harmonisation
Programme. This will over time drive Group and cross-divisional
alignment through a single ERMF. This covers a number of key
activities including refreshed risk appetite, consolidated risk
policy taxonomy and Risk and Control-Self Assessment (RCSA).
The Committee considered the results of a Group credit
underwriting review, which identified the material risks and
potential opportunities presented by the pandemic through
our lending activities. The Committee also supported the
resulting prioritised actions from this review.
Given the rapidly evolving regulatory environment, the Committee
has played a key role in overseeing emerging regulatory risks.
This has included: 1) the Group’s implementation of payment
deferrals/forbearance in line with the FCA’s mandated
guidance; 2) revised affordability criteria in support of our
responsible lending strategy; and 3) trends and associated
management actions in addressing customer complaints.
Committee activities in 2020
Committee priorities for 2021
– Approved the revised Group Risk Management Framework and Policy.
– Oversee the implementation of
– Reviewed the principal risks, internal control and Committee reports within
the Risk Harmonisation Programme.
the 2019 Annual Report and Financial Statements.
– Support the Board in the
– Received the prudential regulation timetable for 2020.
– Approved the Group Risk Management Framework effectiveness review.
– Received a Group CRO report covering our strategic and emerging risks.
– Reviewed in detail the divisional anti-money laundering reports.
– Monitored in detail Group complaints performance across the Group.
execution of its strategy through
the re-evaluation of the Group’s
risk appetite framework following
Covid-19 related disruption.
– Approval of the Group ICAAP,
Vanquis ILAAP and Group
liquidity assessment.
– Monitored IT resilience across the Group and the progress of the IT Modernisation
– Oversee management’s
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 management’s Covid-19 response, including refreshed business risk
assessments, colleague Return to Work arrangements and reports on payment
holidays for our customers in line with regulatory guidance.
approach to mitigating our
strategic and emerging risks.
– Further embedding of our
updated customer conduct
culture including customer
outcomes framework.
– Received a prudential risk report from the Group Treasurer.
– Approved the Committee’s revised terms of reference (ToR).
– Reviewed and approved the approach for refresh of the Group’s
Wind Down Plan (WDP).
– Received an update on gifts and hospitality.
– Reviewed the results of the Group Credit Underwriting Review.
– Received a Data Protection Plan update.
– Approved the Group’s Annual Risk Acceptance approach.
Provident Financial plc Annual Report and Financial Statements 2020
139
Governance Audit, risk and internal control continued
Risk Committee Report continued
Key Committee responsibilities
As the Group is a non-regulated parent company which owns
three individually regulated operating entities, the primary role
of the Committee is to make sure that there is an effective
enterprise risk management framework in operation which
enables effective oversight over the Group’s aggregated risk
position. 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;
–
overseen by the Group CRO, monitoring the overall effectiveness
of risk management across the Group and divisions;
– 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.
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.
– Credit risk.
– Strategy and
– Threats to our
business model.
– Responsible lending.
– Pandemic – Covid-19.
governance risk.
– Challenge to agent
– Legal and regulatory risk.
– Conduct risk.
– People risk.
– Information security
and data protection risk.
– Operational risk.
– Model risk.
self-employed status.
– General IT controls.
– Risk culture and
governance.
– Return to Work
strategy.
Risk Harmonisation Programme
The Risk Harmonisation Programme is a strategic programme
to be delivered in 2021 led by Group Risk to drive Group and
cross-divisional alignment through a single ERMF. This includes:
– a refreshed Group risk appetite with clear statements,
measures and thresholds surrounding the amount of risk
we are prepared to take as a Group;
– a move towards a single Group risk policy taxonomy. All
divisional policies will over time be replaced with single
Group policies to drive consistency, alongside aligned
standards around how we conduct our business;
– a single risk and control self-assessment methodology
which will over time further embed risk management
across the Group. This will be achieved through improved
accountability, better understanding of the risks owned by
management, and mandatory testing and reporting of
control effectiveness;
– improved risk reporting that meets the needs of all our
stakeholders at a Group and divisional level. It also provides
evidence around how we are fulfilling our responsibilities
in what is a demanding regulatory environment; and
– taken together, the above will support the Risk function in
determining the most appropriate operating model, thus
enabling it to most effectively discharge its responsibilities.
Committee review of internal 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. The directors can confirm that the Group’s key risks
have been robustly assessed. This has been achieved through
ongoing review of the emerging and principal risks by the
Committee and Board, as well as tracking of the associated
mitigating actions undertaken by management. Internal Audit
has supported the Board in this regard by providing independent
assurance over the key internal control systems.
To manage risk and ensure compliance with regulatory
obligations, the Board sets the overall risk appetite of the Group.
It seeks to ensure that the divisions (and corporate centre)
have designed, implemented and maintained effective and
appropriate risk management frameworks and processes of
their own, consistent with those set by the Group. The divisions
have day-to-day responsibility for risk management through
their regulatory responsibilities, with key risks aggregated by
Group Risk and closely monitored at the Committee. Each
division adopts a three lines of defence approach, with the
Group continually seeking opportunities to enhance the model
through improved collaboration and integration over time.
Each of the divisions is developing its 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 divisions
have continued to enhance these internal control frameworks
during the year, with greater focus on end-to-end processes
ensuring a better articulation of risks and controls.
Angela Knight
Group Risk Committee Chairman
10 May 2021
For further details regarding the principal and emerging risk
assessment, including full details of those principal and
emerging risks the Board is willing to take in order to achieve
its long-term strategic objectives, please see pages 48 to 61.
140
Provident Financial plc Annual Report and Financial Statements 2020
Directors’ Report
Our responsibilities
as a listed business
The Group remains committed to good
governance, which we believe is more
important now than ever before.
Charlotte Davies
General Counsel and Company Secretary
Introduction
In accordance with section 414C(11) of the Companies Act, the
directors present their report for the year ended 31 December 2020.
The following provisions, which the directors are required to
report on in the Directors’ Report, have been included in the
Strategic Report:
All directors, except as set out below, served throughout 2020
and up to the date of signing the Annual Report and Financial
Statements 2020. The following individual stepped down from
the Board on the following date:
– Simon Thomas
31 March 2020
With effect from the beginning of the 2020 financial year there
have been the following additions to the Board on the
following dates:
– Neeraj Kapur
1 April 2020
– future business developments (throughout the Strategic
– Margot James
27 July 2020
Report, in particular on pages 20 to 29);
– important events since the balance sheet date
(throughout the Strategic Report and on page 146);
– Viability Statement (page 63);
– greenhouse gas emissions, energy consumption
and energy efficient action (pages 88 and 89);
– risk management (pages 48 to 61);
– 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 91 to 98); 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 91 to 98).
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 102 to 105
and are incorporated into this report by reference.
Further commentary about the Board’s composition, Board
changes and Board tenure can be found on page 123.
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 2021 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.
Provident Financial plc Annual Report and Financial Statements 2020
141
Governance Directors’ Report continued
Directors’ indemnities continued
However, the Company may not provide an indemnity against:
1.
2.
3.
4.
5.
any liability incurred by the director to the Company
or to any associated company;
any liability incurred by the director to pay a criminal
or regulatory penalty;
any liability incurred by the director in defending criminal
proceedings in which they are convicted;
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
in connection with certain court applications under the
Companies Act. No indemnity was provided and no payments
pursuant to these provisions were made in 2020 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 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
Page 165
Waiver of emoluments by a director
Pages 161
and 165
Waiver of future emoluments by a director
Page 165
Non-pre-emptive issues of equity for cash
Not applicable
Item (7) in relation to major
subsidiary undertakings
Parent participation in a placing
by a listed subsidiary
Contracts of significance
Provision of services by
a controlling shareholder
Not applicable
1.
Not applicable
Page 230
Not applicable
Shareholder waivers of dividends
Page 165
Shareholder waivers of future dividends
Page 165
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.
During the year, 237,193 ordinary shares in the Company
with an aggregate nominal value of £49,163.64 were issued
to employees in relation to the Deferred Bonus Plan (DBP) at
a price of £2.2030 in relation to grants made on 30 March 2020.
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 stipulate, where it deems appropriate, controls
to manage an approved conflict of interest.
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:
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 April 2021 (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.
Schroder Investment Management
BlackRock
Redwood Capital Management
Aberforth Partners
Marathon Asset Management
Davidson Kempner Capital Management
Coltrane Asset Management CfD
Vanguard Group
Wellington Management
NBIM
16.05%
6.69%
6.69%
6.01%
5.86%
5.22%
5.04%
4.64%
3.38%
3.02%
142
Provident Financial plc Annual Report and Financial Statements 2020
Interests as at 31 December 2020 were as follows:
Schroders Plc
Marathon Asset Management LLP
Aberforth Partners LLP
BlackRock Inc
Coltrane Asset Management LP
Wellington Management Company LLP
Vanguard Group Inc.
David Kempner Capital Management LLP
Norges Bank Investment Management
Sanford DeLand Asset Management Ltd
15.74%
6.15%
5.90%
5.87%
5.83%
4.55%
4.27%
4.18%
4.00%
3.14%
All interests disclosed to the Company in accordance with DTR
5 that have occurred since 14 April 2021 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:
Patrick Snowball
Malcolm Le May
Andrea Blance
Angela Knight
Elizabeth Chambers
Paul Hewitt
Robert East
Graham Lindsay
Neeraj Kapur
Margot James
Number of shares
31 December
2020
31 December
2019
96,477
96,477
914,241
528,395
—
—
12,000
34,205
5,000
9,771
300,143
—
—
—
12,000
34,205
5,000
9,771
—
—
The above interests include those held by connected persons.
There have been no changes to the above interests between
31 December 2020 and the date of this report.
Dividend waiver
Information on dividend waivers currently in place can be
found on page 165.
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 2020 AGM. The Board is seeking renewal of these powers
at the 2021 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).
The current scheme for employees resident in the Republic
of Ireland is the Provident Financial Irish Savings-Related Share
Option Scheme 2014.
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.
Around 1,110 employees were participating in the Company’s
Save As You Earn schemes as at 31 December 2020 (2019: 1,259).
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.
Around 344 employees were participating in the SIP as at
31 December 2020 (2019: 553).
Executive share incentive schemes
Awards are also outstanding under the RSP, LTIS 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 9 November 2020. Further
information is set out on page 165.
Following approval by shareholders at the General Meeting
held on 3 November 2020, shares were awarded to the CEO
under the role-based allowance (RBA). Further information
is set out on page 156.
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 27 on page 226 of the
financial statements.
In 2020, the EBT agreed to satisfy awards made under the LTIS
in relation to 3,768,097 shares in the Company and to satisfy
RSP and CSOP options under the RSP in relation to 1,521,919 shares
and 635,686 shares respectively in the Company. The majority
of the RSP options and CSOP options granted during 2020
replaced previous awards granted during 2020 under the LTIS
and accordingly, following the grant of the RSP options and
CSOP options during the year, the EBT agreed to lapse 2020
LTIS awards in relation to 3,473,516 shares in the capital of the
Company in their entirety on 9 November 2020. The EBT subscribed
for the issue of 237,193 new shares in relation to the DBP during
the year. In 2020, the EBT also agreed to satisfy a buyout award
agreement in relation to 175,662 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 2020, the EBT held the non-beneficial
interest in 2,857,442 shares in the Company (2019: 2,853,722).
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 2020, the PF Trust had no interest in any shares
in the Company (2019: nil).
Provident Financial plc Annual Report and Financial Statements 2020
143
Governance Directors’ Report continued
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 2020, the BAYE Trust held the non-beneficial
interest in 284,183 shares (2019: 180,363 shares).
Profit and dividends
The loss before taxation, amortisation of acquisition intangibles
and exceptional items amounts to £47.1m (2019 profit: £152.8m).
The directors have declared dividends as follows:
Ordinary shares (p) per share
Interim dividend
2020
2019
Proposed final dividend
2020 (dividend withdrawn)
2019
Total ordinary dividend
2020
2019
£nil
9p
£nil
16p
£nil
16p
In March 2020, as part of our update on the impact of Covid-19,
we announced the decision to withdraw the proposal to pay a
final dividend given the uncertainties caused by the pandemic.
We later announced in August 2020 that we did not propose
an interim dividend, with the continued aim of preserving
capital and supporting business stability.
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 93 and 113.
We provide colleagues with information on matters of concern
to them through a number of mechanisms, including: workforce
panels in each division, Company briefings and updates, the
intranet, mobile applications, ‘town halls’ and internal newsletters
from our CEO and Managing Directors. Colleagues were also
kept up to date during the year in relation to the Group’s response
to the Covid-19 pandemic. 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 weekly 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 in a Q&A with our designated Non-Executive
Colleague Champion on pages 114 and 115.
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.
You can read how we encourage the involvement of UK
colleagues in the Company’s performance through an
employees’ share scheme on page 143.
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 91 to 98.
Training
The Group is fully committed to continual personal and
professional development, encouraging colleagues at all
levels to study for relevant educational qualifications.
In particular, the Group has continued with established talent
and development initiatives as part of its investment in the
career progression of its colleagues.
The Group is committed to making use of the apprenticeship
levy with focus at present on continuing to upskill our existing
colleagues. Opportunities to grow our apprenticeship
programme will be revisited in 2021 taking into consideration
the challenges we face during the global pandemic. The
Group is authorised by the Solicitors Regulation Authority and
the Institute of Chartered Accountants of England and Wales
to issue training contracts to colleagues wishing to qualify
as solicitors or chartered accountants, respectively.
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. This year the Group launched
a new diversity and inclusion initiative with specific inclusion
communities created around protected characteristics. Details
of our new inclusion communities are set out on page 77.
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 (see page 11 for more detail) 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 operates its ‘Make Work Mean More’ proposition,
which is designed to provide a total rewards package to
colleagues, which not only covers financial reward, but also
includes lifestyle, culture, wellbeing and career opportunities,
seeking to provide a suite of benefits to suit the needs of
colleagues at every stage of their personal and professional
lives. In 2019, Moneybarn launched its ‘Be Brilliant’ leadership
programme to over 50 managers and senior managers, and
onboarded 110 people on a revised new starter induction. CCD
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Provident Financial plc Annual Report and Financial Statements 2020
provides colleagues with the opportunity to find a mentor
through the ‘Mentoring for Success’ programme, which supports
the personal development of colleagues. The Group also has
mentoring programmes to focus on the personal development
of colleagues and the apprenticeship levy has enabled CCD
to provide opportunities for our existing workforce to develop
their key technical skills and achieve industry recognised
qualifications which range from digital to accountancy and HR.
Our divisions support colleague wellbeing in a number of ways,
such as through mental health training and mental health first
aiders. In 2020 we improved our Employee Assistance Programme
to provide more comprehensive support services to colleagues
who were struggling with personal issues, which you can read
more about on page 76.
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, Group HR Director,
to the Group Executive Committee. We also remain committed
to achieving 40% female senior leadership representation
by December 2024.
Pensions
The Group operates five 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.
In 2011, the Company established an Unfunded Unapproved
Retirement Benefits Scheme (UURBS), for the benefit of those
employees who are affected by the HMRC annual allowance
and lifetime allowance which applies to members of registered
pension schemes. The UURBS offered an alternative to a cash
payment in lieu of a pension benefit. This scheme was not
offered to new entrants after 2015.
In October 2013, the Group auto-enrolled all eligible staff
into a new scheme designed for auto-enrolment.
The Group also operates two defined contribution pension
schemes for employees in the Republic of Ireland.
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 has the particular risk of personal safety whilst out
collecting from customers. During 2020, CCD has implemented a
lone working safety app, device and access to an external 24/7
Alarm Receiving Centre for our UK field colleagues, to enhance our
personal safety controls. In addition, a new incident management
system has been introduced to enrich our reporting capability
and help gain a deeper insight into the health and safety of the
business. There has been an increased focus on health and
safety engagement and consultation within the business,
along with personal safety weeks, with the aim of further
embedding our workplace safety culture.
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, 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.
Compliance
The GRC 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.
Provident Financial plc Annual Report and Financial Statements 2020
145
Governance Directors’ Report continued
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 is 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 corporate
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.
Environmental management
The Group’s directors are committed to minimising the
environmental impacts of the Company’s operations, as well
as managing the risks that climate change presents to the
business and its key stakeholders. The Group’s Environmental
Management System (EMS) helps to identify, assess and
address key environmental risks and impacts; set and achieve
environmental targets; and ensure compliance with
environmental rules, regulations and policy requirements.
The EMS at the Group’s Bradford head office has been certified
to the international environmental management standard
ISO 14001:2015 since 2011, and in 2018 this was extended to include
all of Vanquis Bank’s operations in Chatham, Kent and London.
In April 2020, the ISO 14001:2015 was further extended to include
Moneybarn’s operations in Petersfield, Hampshire. The Group
has voluntarily reported greenhouse gas (GHG) emissions
and other environmental performance metrics since 2007, and
since 2013 has reported its direct and indirect GHG emissions
in line with the requirements of the Companies Act 2006
(Strategic and Directors’ Reports) Regulations 2013. This data
is independently assured by Corporate Citizenship in
accordance with the ISAE 3000 assurance standard and is
set out in the Strategic Report section of this document on
page 88, and in the Group’s 2020 Corporate Responsibility
Report at www.providentfinancial.com. This year, the Group has
also disclosed climate-related risk information in line with the
recommendations of the Financial Stability Board’s Task Force
on Climate-related Financial Disclosures (TCFD). This information
is set out on page 87. The Group has also disclosed its energy
consumption and the principal measures taken to increase
energy efficiency in line with The Companies (Directors’ Report)
and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018; this information can be found in the Strategic
Report on page 88.
Overseas branches
The Group has an overseas branch in the Republic of Ireland.
Important events since the end of the financial
year (31 December 2020)
Provisions were recognised in CCD following the year end
for a proposed Scheme of Arrangement which will provide
remediation of £50m, plus estimated costs of delivering the
settlement (£15m). The Group has decided to pursue the
Scheme, under Part 26 of the Companies Act, in relation to
potential redress claims arising from complaints based on
historic home credit lending prior to 17 December 2020
(relevant claims) and has worked collaboratively with
the FCA to get to this point.
When approved, the Scheme will remediate all outstanding
relevant claims, as well as new relevant claims received
before the proposed Scheme is sanctioned. The Group will
fund legitimate Scheme claims with £50m and will cover
further Scheme-related costs estimated at approximately
£15m. See note 25 for further detail.
On 28 January 2021, Vanquis Bank issued secured notes
collateralised against a portion of the credit card receivables
book. This is a fully retained transaction; therefore, Vanquis
Bank will keep all of the notes issued and the notes will not be
sold publicly. It is intended that the notes will be placed with
the Bank of England later in the year to support borrowings
against the Sterling Monetary Framework facilities. The
transaction issued two classes of notes with an aggregate
principal amount of £453m. The programme enhances the
Group’s ability to diversify its sources of funding.
In the March 2021 Budget, the Government announced that
the mainstream corporation tax rate would increase to 25%
from 1 April 2023. Revaluing the deferred tax balances at
31 December 2020 at 25%, to the extent they relate to temporary
differences which are expected to reverse after 1 April 2023,
gives rise to a tax credit of £8.3m.
Corporate governance statement
The Group’s Corporate Governance Report is set out on
pages 99 to 147. The Group was fully compliant with all the
provisions of the Code throughout the whole of 2020 with
the exception of the following:
Provision 9 – Interim Executive Chairman
Our CEO took a short leave of absence from late September 2020
to early November 2020 to undergo a planned heart procedure.
During this interim period, our Group Chairman temporarily
assumed the executive duties of the CEO and acted as Interim
Executive Chairman. This resulted in the Group not complying
in full with Provision 9 of the Code between the period of late
September to early November. Due to the short period of the
CEO’s absence and the Chairman’s familiarity with the business,
the Board determined this was the most appropriate way to
manage these duties during the CEO’s short absence, was
in the best interests of the Company and was a reasonable
and proportionate non-compliance with the Code provision.
Furthermore, following his stepping down as Chairman of
Sabre Group plc on 1 September 2020, it was considered that
the Chairman had sufficient time to undertake these additional
responsibilities. This decision was communicated to shareholders
and notified to the market during September 2020, prior to
taking effect. Throughout this short and temporary period of
non-compliance, the Group’s governance arrangements that
are in place to ensure appropriate independence and challenge
remained in place such as: the majority of the Board being
independent and a Senior Independent Director being in place
with a clear role and responsibilities, which are published
on our website.
Financial instruments
Details of the financial risk management objectives and
policies of the Group and the exposure of the Group to credit
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Provident Financial plc Annual Report and Financial Statements 2020
risk, liquidity risk, cash flow risk, price risk, interest rate risk and
foreign exchange rate risk are included on pages 186 to 190
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 in relation to the financial
statements
The following statement, which should be read in conjunction
with the Independent Auditor’s Report on pages 235 to 244,
is made to distinguish for shareholders the respective
responsibilities of the directors and of the external auditor
in relation to the financial statements.
The directors are responsible for preparing the Annual Report,
the Directors’ Remuneration Report and the financial statements
in accordance with applicable laws 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 international accounting standards in
conformity with the requirements of the Companies Act 2006
and International Financial Reporting Standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies
in the European Union.
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 IFRSs 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 have also considered and accepted the review
undertaken and the report provided by the Audit Committee,
as set out on pages 133 to 137 of this report, and are satisfied
that the Annual Report and Financial Statements 2020, taken as
a whole, is fair, balanced and understandable and provides the
necessary information for shareholders to assess the Company’s
position and 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 2020 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 international accounting standards in conformity
with the requirements of the Companies Act and International
Financial Reporting Standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union.
Patrick Snowball
Malcolm Le May
Neeraj Kapur
Andrea Blance
Angela Knight
Chairman
Chief Executive Officer
Chief Finance Officer
Senior Independent Director
Independent Non-Executive Director
Elizabeth Chambers
Independent Non-Executive Director
Margot James
Paul Hewitt
Independent Non-Executive Director
Independent Non-Executive Director
Graham Lindsay
Independent Non-Executive Director
Robert East
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 a resolution proposing its reappointment
will be proposed at the 2021 AGM. Following a tender process
conducted this year, Deloitte has been approved by the Board
for proposed reappointment as the Group’s external auditor
for 2022 onwards.
2021 AGM
The 2021 AGM will be held at our London office on Floor 28,
20 Fenchurch Street, London EC3M 3BY, on 30 June 2021 at 1.30pm.
The Notice of AGM, together with an explanation of the items
of business, will be contained in the circular to shareholders
dated 10 May 2021.
Approved by the Board on 10 May 2021 and signed by order
of the Board.
Charlotte Davies
General Counsel and Company Secretary
10 May 2021
Provident Financial plc Annual Report and Financial Statements 2020
147
Governance Directors’ Remuneration Report
Annual Statement by the Chair of the Remuneration Committee
Engaging positively
with our stakeholders
Remuneration continues to play a
key role in strengthening our culture
and supporting our strategy.
I am pleased to present the report of the Group
Remuneration Committee which explains how we
have engaged positively with our investors and other
stakeholders during 2020 and, in particular, as part of
the November 2020 General Meeting (GM) consultation.
Thanks to those discussions we have a modern reward
framework which is robust and flexible and further
strengthens the links with performance, our strategic
agenda, underlying Blueprint behaviours, cultural
transformation and the evolving regulatory environment.
We have achieved this principally through the
introduction of a new Directors’ Remuneration Policy
(DRP) which received shareholder approval on
3 November 2020.
Andrea Blance
Remuneration Committee Chairman
Committee members (attendance)
Andrea Blance (Chair) (9/9)
Margot James (3/5)* (member from 27 July 2020)
Angela Knight (6/6) (member until 31 August 2020)
Graham Lindsay (9/9)
The Chairman, the Group Chief Executive Officer (CEO),
the Group Human Resources Director (HRD), the Group
Reward Director and the Committee’s independent
advisor (Aon to 31 May 2020 and PwC thereafter)
attend Committee meetings by invitation. No person
is in attendance when their own remuneration
is being discussed.
For details of the responsibilities of the Committee
and the key activities over 2020 please see page 165.
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.
*
Did not attend first two meetings (which took place within weeks
of becoming a member due to existing commitments).
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Provident Financial plc Annual Report and Financial Statements 2020
Covid-19 has presented unprecedented challenges to the Company, its stakeholders and wider society over the course of 2020.
Throughout this year, the Committee has been very aware of the societal and business disruption caused by the Covid-19
pandemic and has sought to reflect this in its thinking and decisions.
2020 performance and outcomes for the executive directors in the context of the impact of Covid-19
Given the impact of Covid-19 on the Company, its stakeholders and the wider economy, the Committee felt that in line with our
strategic priority to act responsibly and with integrity, it was crucial that 2020 pay decisions were appropriate given the internal
and external contexts. Notwithstanding the significant impact on our financial performance, there were many positive aspects
of our response to the pandemic including:
– colleagues, e.g. successful transition to working from home, introduction of additional colleague wellbeing initiatives,
successful (and quick) return of colleagues from CJRS/furlough and no Covid-19 related redundancies;
– government, e.g. full (and early) repayment of CJRS/furlough support, not taking any government loans and repayment of all
amounts owing to HMRC;
– customers and society, e.g. uninterrupted service to customers, increasing digital access and proactively increasing
forbearance prior to regulatory guidance; and
– shareholders, e.g. tight management control of capital and increasing liquid assets allowed management to maximise options.
Despite this, the Committee felt it was appropriate to pay no bonus to the executive directors in respect of 2020 performance.
The table below sets out a summary of all of the decisions relating to remuneration that the Committee made during 2020.
Element of
remuneration
2019 bonus
Committee decision
Rationale
To pay the bonus in the normal manner
with no adjustment.
The 2019 bonus is reflective of the Company’s strong performance
in a challenging year, prior to the impact of Covid-19.
All eligible colleagues received their 2019 bonuses.
At the time of the bonus determination the Company’s balance
sheet, liquidity and finances were strong.
The bonus was paid prior to regulatory, and shareholder, guidance
regarding Covid-19.
2020 salary rises
The salary rises in 2020 were determined
in the normal manner for 2020.
The decisions in relation to salaries were made prior to the impact
of Covid-19 on 1 January 2020.
2020 salaries
(voluntary)
The executive directors, and senior
management, volunteered to take a 20%
reduction in base pay and all non-executive
directors a 20% reduction in fees for three
months (15 April 2020 to 15 July 2020).
The salary rises for the executive directors reflected the rise for
all colleagues, which was an underlying 2% and a similar amount
for general adjustments.
The Committee felt that this was a fair alignment of the executive
directors with the broader colleague population.
At the point the salaries of the executive directors reverted to their
normal level on 15 July 2020, 33% of CJRS/furloughed colleagues
were no longer on CJRS/furlough and paid fully by the Company.
However, there were plans in place to reinstate the balance of our
colleagues and this happened during August.
2020 bonus
Long Term
Incentive Scheme
2018 (LTIS 2018)
vesting
2020 Restricted
Share Plan
(RSP 2020) award
The Committee exercised its discretion to
reduce the bonus outcome for executive
directors to zero despite the achievement of
some of the non-financial measures, which
make up 40% of the annual bonus opportunity.
The Committee felt it would not be appropriate to exercise upwards
discretion on the 2020 targets and instead decided to exercise
downwards discretion to the achievement of the non-financial targets.
The Committee felt that this was an equitable outcome considering
the experience of all the Company’s stakeholders over the period.
This decision was taken in July 2020.
The Committee concluded that the
metric outcome was zero and therefore
no LTIS 2018 would vest.
The Committee felt that this was an equitable outcome considering
the experience of all the Company’s stakeholders over the period.
The Committee determined to make the
award to the executive directors in line
with the 2020 Remuneration Policy.
The grant included the ‘haircut’ that
was made to the LTIS 2020.
The Committee felt it was important to grant the first award following
shareholder approval to provide some lock-in and incentivisation
for the executive directors given the lack of value in their historical share
incentives and no 2020 bonus. This was discussed with shareholders
prior to the GM. In addition, the Committee has made it clear that
the actual number of shares vesting on the third anniversary of
the date of grant will be adjusted to ensure the share price used to
determine the number of shares has not resulted in a windfall gain.
The Committee feels that at present it is too early to judge whether
or not there will be any windfall gains and does not feel at this point that
it can determine a precise definition of a windfall gain but will provide a
full explanation of its decision on the level of vesting at the vesting date.
Provident Financial plc Annual Report and Financial Statements 2020
149
Directors’ Remuneration Report Directors’ Remuneration Report continued
Annual Statement by the Chair of the Remuneration Committee continued
2020 performance and outcomes for the executive directors in the context of the impact of Covid-19 continued
Committee decision
Rationale
Element of
remuneration
2020 Restricted
Share Plan
(RSP 2020) award
continued
2021 salary rises
No salary rises for the executive directors.
Average colleague salary rise in 2020
was 4%. No salary rises will be in effect
from 1 January 2021.
There will also be no increase in
non-executive director fees.
As promised at the GM, the grant of options under the Long Term
Incentive Scheme in April 2020 was cancelled for those who
participated in the new plan.
The Committee does not feel in the current circumstances that
it would be appropriate to increase the salaries for the executive
directors nor fee levels for the non-executive directors.
2021 bonus
The Committee is proposing to operate
the 2021 bonus with overall weighting in
line with the 2020 Policy applying the
performance conditions set out on
pages 156 and 157.
Shareholders were supportive of the approach to performance
conditions and weightings on approval of the Policy this year and
therefore the Committee feels that it is appropriate to continue
with this approach, given its view that fair and realistic
performance targets can be set for these performance conditions.
2021 Restricted
Share Plan award
The Committee intends to make awards
in line with the Remuneration Policy.
The Committee in 2021 will review the size of grants taking into
account business and individual performance and other factors
the Committee considers relevant.
In addition, the Committee will ensure an adjustment if it determines
that there have been windfall gains due to the share price used
to determine the grant.
Recognition of
wider workforce
£500 payment was made to each
colleague (excluding senior management)
in December 2020.
The Committee wished to recognise colleague efforts, and their
support to our customers, throughout the year.
Single total figure of remuneration for each director
The impact of paying no variable pay is clear in the single figure outcomes set out below. Full details are in the Annual Report
on Remuneration on pages 163 to 165.
Single figure remuneration (£’000)
Malcolm Le May3
Neeraj Kapur2,3
Simon Thomas1
1,507
817
857
897
Salary
Buyout
Pension
Benefits
228
Bonus
Dividends
19
20
20
19
20
1
2
3
Simon Thomas ceased to be an executive director on 1 April 2020.
Neeraj Kapur became an executive director on 1 April 2020.
The compensation for Messrs Le May and Kapur includes a 20% voluntary
salary reduction for the period from 15 April 2020 to 15 July 2020. Benefits and/or
associated insurances were not proportionally reduced for the same period
(consistent with how we treated CJRS/furloughed colleagues). This amounted
to a reduction of £35,700 for Mr Le May and £26,250 for Mr Kapur.
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Provident Financial plc Annual Report and Financial Statements 2020
A new Directors’ Remuneration Policy better
linked to strategy
In the normal course of events, we would have sought
shareholder approval for a new Directors’ Remuneration Policy
in 2022, three years after the approval of the existing Policy in
2019. However, there were a number of factors which resulted
in the Committee deciding to seek shareholder approval for
a 2020 Remuneration Policy at a GM of the Company on
3 November 2020. Shareholder feedback post the mid-year
financial announcements included strong support for
management, agreement with the articulated agenda/
direction but also concern that management had virtually no
lock-in or retention. These concerns were further exacerbated
by the Committee’s decision earlier in 2020 to pay no bonus
to the executive directors in relation to 2020. Additionally the
introduction of CRD V imposed a ‘bonus cap’ on PFG for the
first time, requiring a rebalancing of our fixed and variable
remuneration to ensure ongoing compliance.
The new Policy, including the new Restricted Share Plan (RSP),
was developed to:
– support the new Company strategy, including a better
alignment with the ‘new normal’ – market, customer and
structural change (as highlighted by the Group CEO during
the mid-year results);
Key changes in the new Policy
Element
Rationale
– align the executive directors’ ownership experience over
the period for which the 2020 Policy applies with shareholders;
– simplify our remuneration structures;
– incentivise the creation of long-term shareholder returns
through sustainable long-term performance of the Company;
– reflect the current context and the additional uncertainties
it introduces over the mid term;
– develop a remuneration approach which encourages a
focus on the long-term interests of our shareholders and
customers, rather than driving short-term performance
which may be detrimental;
– lower maximum remuneration opportunities which reflects
that our services are being provided to less affluent
members of society; and
– reflect the regulatory changes (it is currently only the CEO
who is impacted):
– this is being addressed by the introduction of role-based
allowances (RBAs) under the 2020 Policy; and
– for the CEO, the RBA will be equivalent to 15% of base
salary per year.
Introduction of the RBA for the CEO of 15%
of salary, paid in shares over three years
The introduction of an RBA has been required to maintain competitive pay levels while
complying with the regulations applicable in the financial services sector, in particular
CRD V and the associated restrictions on the ratio of fixed remuneration to variable
remuneration. Previously the Company was able to disapply this restriction on the basis of
proportionality under the previous iteration of the Capital Requirements Directive, i.e. CRD IV.
Alignment of incumbent executive
director pension with the wider
workforce (10% of salary)
Brings provision in line with the Code and corporate governance best practice.
Replacement of the LTIS with an RSP
Simplifies long-term incentive arrangements and addresses challenges set out above.
The details of the new Policy, the rationale for the changes made and details of the implementation of the Policy for 2021 are set
out on pages 155 to 159.
Links to strategy
In making changes the Committee focused on ensuring
that the variable compensation aligned with the corporate
strategic priorities. The corporate strategy is covered in detail
on pages 20 and 21 but in summary we link our compensation
to the three strategic pillars:
– grow a customer-centric business;
– act responsibly and with integrity; and
– maintain a secure funding and capital structure.
These are reflected through:
1
2
Annual bonus: we focus on the corporate scorecard which
generates the potential bonus, i.e. (i) financials (60%) –
adjusted PBT and RORE; and (ii) non-financials (40%) –
strategy, regulatory risk and conduct, investor relations,
customer and colleague; and
RSP: pure alignment with shareholders incentivises
sustainable growth while the underpin considers our
financial health, our reputation and our relationship
with customers (and the regulator).
Provident Financial plc Annual Report and Financial Statements 2020
151
Directors’ Remuneration Report Directors’ Remuneration Report continued
Annual Statement by the Chair of the Remuneration Committee continued
Engagement with stakeholders
Given the unprecedented impact of Covid-19 and the need to implement a new executive directors’ remuneration policy,
the Company has been keen to ensure that its key stakeholders have been considered in all its decisions made during 2020.
The following sets out how the Company has taken into account each of its main stakeholders:
Stakeholder
Decision
Colleagues
– The primary focus of the Company was to maintain jobs over this period. Any redundancies were due
to wider business changes.
– All colleagues have been treated equally:
– those on CJRS/furlough received 80% of their salary through the CJRS and this was mirrored by a 20%
reduction in the Board salary and fees; and
– bonuses, payable in 2020, were paid to all eligible staff.
– Terms and conditions of employment have been maintained.
Customers
– Customers have been supported through our technology and remote working teams. It is heartening that our
customer satisfaction score over the recent period was at, or above, the target set at the beginning of the year.
– Our plans have been centred around providing the normal PFG customer experience wherever possible.
Shareholders
– The objective of the Board has been to maintain our core business over this challenging period and its
scalability to ensure PFG has a leading position when the market recovers and is therefore able to generate
the shareholder returns over the longer term expected by our investors.
– The Remuneration Committee has taken into account the experience of shareholders over this period
in all its determinations in relation to executive remuneration for 2020.
– It should be noted that prior to introducing the 2020 Remuneration Policy the Committee consulted with the
Company’s top 20 shareholders, Glass Lewis, the IA and ISS on the new Policy. Details of the main areas of
discussion, comments or amendments suggested by shareholders, the Committee’s response and rationale
for the final position are set out in the Notice of General Meeting on 3 November 2020. During 2020, no further
consultation was undertaken by the Remuneration Committee.
Conclusion
We have made a great number of changes in 2020 to further
align our compensation with the expectations of shareholders
and new regulation to ensure that our Policy remains fit for
purpose. Although the 2019 Policy was operated as intended,
we are confident that we now have in place a much improved
‘pay for performance’ commitment and rigour. Notwithstanding
the positives from a difficult year, discretion was exercised by
the Committee to exercise downwards (to zero) the non-financial
measures for the Annual Bonus Plan. In the wider context the
Committee felt that this was the correct thing to do.
Outcomes of votes on remuneration resolutions
I want to thank all investors (and their representative bodies)
who provided me with feedback as part of the 2020 Remuneration
Policy consultation which has allowed us to incorporate investor
views into the 2020 Remuneration Policy and will inform the
Committee’s approach in 2021 and beyond. Our engagement with
investors was demonstrated through support for the new Policy
with voting outcomes of 97.8%, 99.9% and 96.2% for the Directors’
Remuneration Policy, variable pay limits and RSP respectively.
Andrea Blance
Remuneration Committee Chairman
10 May 2021
Shareholder vote on the 2019 Annual Report
on Remuneration
Shareholder vote on the 2020 GM
Restricted Share Plan
Fixed vs variable pay ratio
Directors’ Remuneration Policy
95+
98+
For
Against
Withheld
95%
5%
0%
For
Against
Withheld
99.7%
0.1%
0.2%
95+
96+
152
Provident Financial plc Annual Report and Financial Statements 2020
For
Against
Withheld
96.0%
3.8%
0.2%
For
Against
Withheld
96.2%
2.2%
1.6%
2
+
2
+
N
1
+
1
+
N
4
+
1
+
N
5
+
0
+
N
Remuneration at a glance
The following section sets out
– an illustration of the operation of the 2020 Policy approved at the GM on 3 November 2020;
– an illustration of the total remuneration that can be earned under the Policy;
– a summary of the outcomes under the 2020 Annual Bonus Plan and the LTIS 2018; and
– a summary of long-term incentives granted in 2020.
Illustration of the 2020 Policy
Implementation for the CEO
Vesting period
subject to continued
employment
and underpin
%
5
7
O
F
C
Two-
year
holding
period
Shares
vest after
three
years
Vested
shares
released
after two
years
,
y
r
a
a
s
l
P
S
R
f
o
%
0
0
1
O
E
C
Deferred
bonus
vests
%
5
2
1
O
F
C
Deferred
bonus
Part of the bonus
is deferred
,
y
r
a
a
s
l
f
o
%
0
5
1
O
E
C
s
t
i
f
e
n
e
b
+
Cash
bonus
Salary,
pension,
benefits
paid
s
u
n
o
b
l
a
u
n
n
A
i
n
o
s
n
e
p
+
y
r
a
a
S
l
RBA
+1
RBA
+2
RBA
+3
+4
+5
Start
of plan
(year 0)
Minimum shareholding of 200% of salary for CEO
Salary: In general, increases in line with the wider workforce
– CEO current: £714,000 – remains unchanged
– Role-based allowance (RBA): 15% of salary p.a. paid
in shares equally over three years
– CFO current: £525,000 – remains unchanged
Pension: Executive pensions aligned with the wider
workforce from 31 December 2022
– Current EDs: CEO 15%, CFO 10% (wider workforce 10%)
– New EDs: In line with the wider workforce
Annual bonus: Element of the bonus is deferred
– Maximum: CEO – 150% of salary (reduced from 175%),
CFO – 125% of salary (no change)
– Performance conditions:
– 60% financial (adjusted PBT)
– 40% non-financial:
– Strategy (20%)
– Regulatory risk and conduct (40%)
– Investor relations (10%)
– Customer (20%)
– Colleague (10%)
– CET1 underpin
– Deferral: At least 40% of the bonus is deferred
for three years in Company shares
RSP: Restricted Share Plan (replaces the LTIS)
– Frequency: Annual, rolling awards
– Award level: CEO – 100% of salary (down from LTIS
of 200%), CFO – 75% of salary (down from LTIS of 150%).
As part of the grant process the Committee will consider
the individuals’ personal and business performance for
the prior year and determine that the proposed level
of grant remains appropriate
– Performance conditions: Underpin of Committee
discretion on vesting
– Vesting: Three years with a two-year holding period
post-vesting
Shareholding requirement: Extend post-cessation
– Executive directors must continue to build a minimum
shareholding of 200% of salary
– The full requirement extends for two years post-cessation
Provident Financial plc Annual Report and Financial Statements 2020
153
Directors’ Remuneration Report
Directors’ Remuneration Report continued
Remuneration at a glance continued
Illustration of the opportunities under the Directors’ Remuneration Policy
The chart below shows an estimate of the remuneration that could be received by executive directors under the new Policy.
Remuneration (£’000)
Chief Executive Officer
Chief Finance Officer
3,112
34%
2,755
26%
39%
34%
2,327
31%
28%
970
100%
42%
35%
31%
588
100%
1,834
32%
1,638
24%
40%
36%
1,375
29%
29%
Fixed pay
43%
36%
32%
Annual bonus
RSP
Minimum
Target
Maximum Maximum
Minimum
Target
+ 50%
share price
growth
Maximum
Maximum
+ 50%
share price
growth
2020 bonus outcome
The tables below summarise performance against the targets
set for the 2020 bonus and the outcome, before and after
Committee discretion.
The Committee decided in the middle of 2020 that no bonus
would be payable in 2020. Clearly the financials, whilst acceptable
given the pandemic, were nevertheless significantly less than
the initial budget (this represents 60% of the total bonus).
Management performed well on the non-financials even
with the other challenges of the pandemic. However, the
Committee felt that any payment, with respect to the Annual
Bonus Plan, would be inappropriate given the wider societal
and business disruption caused by the Covid-19 pandemic.
Therefore no executive director, nor member of senior
management, received a bonus in 2021 with respect
to 2020 performance.
Financial
Adjusted PBT
Non-financial
Risk overlay
CET1 gateway
Performance range
Threshold
Target Maximum
85%
100%
110%
Actual Weighting
Outcome
£152.1m £178.9m £196.8m £(47.1)m
60%
100%
—
—
40%
63.5%
Satisfactory
The Group achieved a CET1 ratio of 34.2%
(significantly above our hurdle)
Total outcome before Committee discretion
Total outcome after Committee discretion
25.4%
—
LTIS 2018 vesting
The LTIS 2018 did not vest as threshold performance was not
met, despite some achievement in the risk indicator metric.
Performance condition (% of award)
Outcome
Long-term incentives granted in 2020
Following shareholder approval at the General Meeting
on 3 November 2020, the LTIS 2020 grants were cancelled
and new awards were granted under the new RSP. Details
can be found on page 165.
EPS (60%)
Relative total shareholder return (30%)
Risk indicators (10%)
—
—
—
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.
154
Provident Financial plc Annual Report and Financial Statements 2020
Directors’
Remuneration Policy
The Policy as approved at the GM on 3 November 2020 can be found in full on pages 155 to 159. The Policy is intended to apply
for three years.
Policy implementation in 2020 and proposed in 2021
The following table sets out the Policy that operated until shareholder approval of the 2020 Policy, the changes made as part
of the 2020 Policy, the implementation of the Policies in 2020 and how it proposes to implement the 2020 Policy in 2021. The Notice
of Meeting of the Company for the General Meeting sets out how the Remuneration Committee has addressed the factors in
Provision 40 of the 2018 UK Corporate Governance Code, i.e. clarity, risk, predictability, proportionality and alignment to culture,
through the new Policy.
Element of
remuneration
Salary
2019 Policy
2020 Policy
Implementation
in 2020
Rationale for change
between the 2019
Policy and 2020 Policy
Proposed
implementation
in 2021
No change.
No change.
CEO salary £714,000
(2%).
CFO salary £525,000.
Average colleague
rise 4% as follows:
– sales and sales
support – 3.7%
(3,396); and
– administrative
staff – 4.7% (1,118).
CEO salary £714,000
(0%) – Malcolm Le May.
CFO salary £525,000
(0%) – Neeraj Kapur.
Average colleague rise
0% (a number of our
lower paid staff will
be reviewed).
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.
Benefits
Benefits include
market standard
benefits.
No change.
See single figure of
remuneration table
on page 161.
No change.
See single figure of
remuneration table
on page 161.
Provident Financial plc Annual Report and Financial Statements 2020
155
Directors’ Remuneration Report Directors’ Remuneration Report continued
Directors’ Remuneration Policy continued
Policy implementation in 2020 and proposed in 2021 continued
2019 Policy
2020 Policy
Implementation
in 2020
Rationale for change
between the 2019
Policy and 2020 Policy
Proposed
implementation
in 2021
Element of
remuneration
Role-based
allowance
(RBA)
The introduction
of an RBA has been
required because
of CRD V with the
associated restrictions
on the ratio of fixed
remuneration to
variable remuneration.
Previously the
Company was able
to disapply this
restriction on the
basis of proportionality
under the previous
iteration of the Capital
Requirements
Directive, CRD IV.
To bring the 2020
Policy in line with
the regulations
applicable in the
financial service
sector.
The pension
contribution for
incumbent executive
directors will be aligned
with that of the wider
workforce from
31 December 2022.
Brings provision in
line with the Code
and corporate
governance best
practice.
This reflects an
overall deleveraging
of the remuneration
for the executive
directors; see page
151 for more details.
CEO 15% of salary.
No change.
CEO 15% of salary*.
CFO 10% of salary.
Average Company
pension contribution
is 10%.
* This will reduce to 10%
as of 31 December 2022.
CEO 150% of salary.
CFO 125% of salary.
Financial performance
conditions:
– adjusted PBT (30%);
and
– adjusted return
on required equity
(RORE) (30%).
Not part of the 2019
Policy. Introduced in
the 2020 Policy due
to regulatory
changes.
As a consolidated entity
we are now required to
meet the regulatory
remuneration
requirements including
a maximum ratio of 1:2
for fixed vs variable
compensation. To
ensure compliance for
the CEO we reduced
the annual variable
element from 175% of
base salary to 150%.
Simultaneously, we
introduced an 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.
The RBA for the CEO
was pro-rated for
2020 from the date
of approval of the
2020 Policy on
3 November 2020.
The annual RBA
for the CEO is 15% of
salary. There are no
other RBAs currently
provided within
the Company.
The allowance will
be paid in shares
in equal instalments
over three years, to
reflect the impact of
the cap on variable
pay on his total
remuneration with
a corresponding
reduction of annual
bonus potential
from 175% of base
salary to 150%.
Pension
Bonus
The Company
provides a pension
contribution
allowance that is
fair, competitive
and in line with
corporate
governance
best practice.
The maximum
value of the pension
contribution
allowance for newly
appointed executive
directors will be
aligned to that of
the wider workforce
(currently 10%
per annum).
CEO 15% of salary*.
CFO 10% of salary.
Average colleague
pension contribution
10%.
* This will reduce to 10%
as of 31 December 2022.
The Committee
will determine the
maximum annual
participation in the
Annual Bonus Plan
for each year, which
will not exceed 175%
of base salary.
Maximum participation
reduced to 150% of
base salary.
CEO 171% of salary*.
CFO 125% of salary.
* Pro-rated to take
into account the
regulatory cap
on the introduction
of the new 2020
Remuneration
Policy (175% up to
3 November 2020 and
150% from 3 November
2020 onwards).
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.
156
Provident Financial plc Annual Report and Financial Statements 2020
2019 Policy
2020 Policy
Implementation
in 2020
Rationale for change
between the 2019
Policy and 2020 Policy
Proposed
implementation
in 2021
Element of
remuneration
Bonus
continued
Strategic and
operational objectives
(40%) of which:
– strategy (20%/8%);
– regulatory risk and
conduct (40%/16%);
– investor relations
(10%/4%);
– customer (20%/8%);
and
– colleague (10%/4%).
Risk overlay and CET1
underpin.
Deferral: At least 40%
of the bonus is
deferred for three
years in Company
shares.
Simplifies long-term
incentive
arrangements
and addresses
challenges set out
on page 151.
The Committee is
intending to grant an
RSP award of 100% of
base salary to our CEO,
Malcolm Le May, and
75% of base salary to
our CFO, Neeraj Kapur.
This plan was
approved at the
November 2020 GM
and replaces the LTIS.
Performance
conditions:
– 60% financial
(adjusted PBT); and
– 40% non-financial:
– strategy (30%);
– regulatory risk
and conduct
(20%);
– investor
relations (10%);
– customer (30%);
and
– colleague (10%).
Risk overlay and
CET1 underpin.
Deferral: At least 40%
of the bonus is
deferred for three
years in Company
shares.
No bonus was paid
in respect of 2020.
See pages 162 to 165
for details of the
performance
conditions, targets
and their level
of satisfaction.
The Committee
granted an RSP
following the
approval of the RSP
and new Policy at
the General Meeting
on 3 November
2020. These RSP
awards are
conditional on the
CEO and CFO
agreeing to the
cancellation of their
LTIS 2020 awards
granted in March
2020 with a grant
value of 170% and
150% of base salary
respectively without
compensation.
Provident Financial plc Annual Report and Financial Statements 2020
157
Long Term
Incentive
Scheme (LTIS)
200% of salary
maximum annual
award for the
CEO and 150%
for the CFO.
Performance
conditions
measured over a
three-year period:
(i)
relative total
shareholder
return (TSR)
– 30%;
(ii) earnings per
share (EPS) –
60%; and
(iii) risk indicators
– 10%.
A two-year
post-vesting holding
period applies to his
LTIS award (net of tax).
The Company
obtained shareholder
approval for an RSP at
the same time as the
2020 Remuneration
Policy on 3 November.
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.
Directors’ Remuneration Report Directors’ Remuneration Report continued
Directors’ Remuneration Policy continued
Policy implementation in 2020 and proposed in 2021 continued
Element of
remuneration
Long Term
Incentive
Scheme (LTIS)
continued
2019 Policy
2020 Policy
Implementation
in 2020
Rationale for change
between the 2019
Policy and 2020 Policy
Proposed
implementation
in 2021
See table on page 165
which sets out
details of the 2020
LTIS awards, their
cancellation and the
awards of shares
under the RSP.
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
may award dividend
equivalents on
awards to the extent
that these vest.
Variable
remuneration
cap
Not required in 2019
Policy under the
regulations when
the Policy was
approved by
shareholders.
Maximum variable
remuneration per
annum is fixed at
200% of fixed
remuneration for
the relevant year.
Cap was applied
proportionately
following the
approval of the
2020 Remuneration
Policy at the General
Meeting of the
Company on
3 November 2020.
Shareholding
requirements
No post cessation
of employment
shareholding
requirements.
Normal
shareholding
requirement of
200% of salary.
Additional
requirement to hold
200% of salary for
two years following
cessation of
employment.
Applied from
March 2020.
Malus and
clawback
Standard market
practice malus
clawback provisions
as at the time the
Policy was adopted.
Provisions expanded
to refer specifically
to risk management
failure and
corporate failure.
Applied from the
approval of the 2020
Remuneration Policy
of the Company on
3 November 2020.
Maximum variable
remuneration per
annum is fixed at 200%
of fixed remuneration
for the relevant year.
200% of salary which
also must be held for
two years following
cessation of
employment.
Included in all 2021
variable incentive
awards.
Under CRD V and
the relevant PRA
Remuneration Rules,
banks and other
institutions that
are subject to CRD V
are, as a basic rule,
prevented from
paying Material Risk
Takers an amount of
variable remuneration
that is more than
100% of their fixed
remuneration (or 200%
where shareholder
approval is obtained).
Shareholders
approved such an
increase at the GM.
Ensures executive
directors focus
on long-term
sustainable
performance and
extends the length of
alignment between
management and
shareholders.
To bring the provisions
further in line with
best practice and
regulations
applicable in the
financial service
sector.
158
Provident Financial plc Annual Report and Financial Statements 2020
Element of
remuneration
Chair and
NED fees
2019 Policy
2020 Policy
Implementation
in 2020
Rationale for change
between the 2019
Policy and 2020 Policy
Proposed
implementation
in 2021
Provides a level of
fees to support
recruitment and
retention of a
Chairman and
non-executive
directors with
the necessary
experience to
advise and assist
with establishing
and monitoring
the Group’s
strategic objectives.
No change.
Chair fee £320,000.
NED Board fee
£68,000.
Committee Chair
fee £20,000.
SID fee £15,000.
No rise in fees.
Average colleague
rise 4%.
– Supplementary
fee for Committee
membership
(except the
Disclosure
Committee):
£15,000. This fee
is not paid to the
Chairs of these
Committees.
– Additional fee
information:
– Robert East
receives a
Committee fee
of £10,000 (due
to having fewer
Committee
commitments).
He also receives
a fee of £200,000
for his role as
Chairman of
Vanquis Bank.
The 2019 Policy was
in line with current
market practice and
therefore no
amendment was
required for the 2020
Remuneration Policy.
– Chair fee £320,000.
– NED Board fee
£68,000. Additional
fee for chairing the
Group Audit,
Remuneration,
Risk and Customer,
Culture and Ethics
Committees: £20,000.
– SID fee £15,000.
– Supplementary
fee for Committee
membership
(except the
Disclosure
Committee): £15,000.
This fee is not paid
to the Chairs of
these Committees.
– Additional fee
information:
– Robert East
receives a
Committee fee
of £10,000 (due
to having fewer
Committee
commitments). He
also receives a fee
of £200,000 for his
role as Chairman
of Vanquis Bank.
No rise in fees.
Average colleague
rise 0%.
Performance conditions for the Annual Bonus Plan for 2021 were set on the following basis and will be disclosed retrospectively
as we believe they are commercially sensitive:
1.
The Committee believes that during 2021, which will be materially impacted by Covid-19 and its aftermath, the Company
needs to focus less on absolute profit generated and more on the efficiency of the capital allocation used to generate the
profit; therefore, whilst the Committee has retained the profit measure, it has introduced RORE and emphasised it as equally
important as adjusted PBT.
2. The strategic and operational objectives have been focused on the successful delivery of the new Company strategy.
Provident Financial plc Annual Report and Financial Statements 2020
159
Directors’ Remuneration Report Directors’ Remuneration Report continued
Annual Report
on Remuneration
Contents
Detail
Equity interests awarded in the financial year
Payments to past directors during the financial year
Payments for loss of office during the financial year
Statement of directors’ shareholding and share interests
Performance graph and table
Percentage change in remuneration of the CEO
Relative importance of the spend on pay
Gender pay gap disclosures
Statement of the implementation of the 2020 Remuneration Policy in 2021
Consideration of matters relating to directors’ remuneration
Shareholder voting on remuneration resolutions
Page
165
161
161
170
169
170
171
168
155
161
152
The Committee is satisfied that the 2020 Remuneration Policy operated satisfactorily from its approval and that the positioning
of the Company’s remuneration against its peers is appropriate.
160
Provident Financial plc Annual Report and Financial Statements 2020
Single figure of the executive directors (audited)
The table below sets out a single figure for the total remuneration received by each director for the year ended 31 December 2020
and the prior year:
Salary/fees 1
£’000
Taxable
benefits 2
£’000
Annual
bonus 3
£’000
LTIS/RSP 4
£’000
Pension 5
£’000
Total
£’000
Total
fixed
remuneration
£’000
Total
variable
remuneration
£’000
Executive directors
Malcolm Le May
Neeraj Kapur10
Simon Thomas7
Non-executive directors
Patrick Snowball9
Andrea Blance
Elizabeth Chambers
Robert East8
Paul Hewitt
Margot James6
Angela Knight
Graham Lindsay
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
679
700
808
—
196
510
347
320
112
116
82
103
74
39
98
102
36
—
101
104
95
64
32
42
8
—
8
10
3
—
2
2
23
16
—
—
2
1
—
—
—
—
4
—
—
651
—
—
—
300
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
107
105
41
—
24
77
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
817
1,498
857
—
228
897
350
320
114
118
105
119
74
39
100
103
36
—
101
104
99
64
817
847
857
—
228
597
350
320
114
118
105
119
74
39
100
103
36
—
101
104
99
64
—
651
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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—
1
It should be noted that the above fees include a voluntary reduction of 20% for three months from 15 April 2020 to 15 July 2020. This amounted to £35,700
for Malcolm Le May and £26,250 for Neeraj Kapur.
2 Directors receive standard market comparable benefits such as medical insurance and life assurance.
3 40% of the annual bonus is deferred into shares for an additional two years.
4 All future grants of stock will be granted under the RSP.
5 Pension participation is via a defined contribution plan with no executive director having a prospective entitlement under a defined benefit plan.
6 Margot James joined the Company on 27 July 2020.
7 Simon Thomas ceased to be an executive director on 1 April 2020.
8 Robert East also receives an additional fee for his chairmanship of Vanquis Bank.
9 The fee for Patrick Snowball includes a payment of £34k for the period when he was Executive Chairman (when Malcolm Le May was on medical leave).
10 The £808,000 for Neeraj Kapur includes the ‘buyout’ costs as set out in last year’s Annual Report and Financial Statements.
Provident Financial plc Annual Report and Financial Statements 2020
161
Directors’ Remuneration Report Directors’ Remuneration Report continued
Annual Report on Remuneration continued
Committee approach to 2020 bonus determination
Notwithstanding the decision made halfway through 2020 to pay no bonus to the executive directors, the Committee felt that it
should continue to assess the metrics and the following table sets out the process the Committee followed:
Step
Element
Committee decision
Performance conditions and targets
The Committee felt able to set appropriately challenging
and realistic performance conditions and targets for 2020
at the beginning of the financial year.
However, as with many companies, the pandemic
changed the nature of the economy very rapidly.
The Committee has measured the satisfaction
of these targets to establish whether any bonus
would have been earned on the application of
the formulaic approach to their measurement.
The Committee exercised no discretion in
determining the formulaic outcome whether
to the benefit or detriment of executives.
The financial measures were not met and the
Committee did not feel that it was appropriate
to make any payments in respect of the
satisfaction of the non-financial performance
conditions (see below).
Shareholder experience
Share price
The Committee considered the reasons behind the
substantial fall in the share price during Q1 and determined
that this was as a result of the market and impact of Covid-19
and was not as a result of omissions or decisions made by
the executive directors. The share price has since moved
up over 60% since this low point.
The Committee determined that as the fall
in share price was a market-wide phenomena
and not driven by the actions or omissions
of the executive directors this would not be
considered in the final bonus determination.
Dividends
The Company did not pay a final dividend in respect
of 2019, due to the need to conserve capital, and does not
intend to pay a dividend for 2020.
No specific deduction was made due to the
impact on dividends. It was one factor which
was taken into account when making the final
decision to make no bonus payments.
Prior year financial outcomes
The Committee recognises that the prior year financial
outcomes for 2019 are higher than 2020 primarily due
to the impact of Covid-19.
As the Committee had already determined
that no bonus would be payable then this
element was not considered.
Government assistance
CJRS support
All CJRS monies have since been repaid to HMRC.
The Company did initially participate in the CJRS with
approximately 416 (8.7%) people on CJRS/furloughed. At
the date of this report all colleagues have now returned
and are being paid solely by the Company.
The salaries of the executive directors, and
fees of the Board, reflected a 20% discount in
line with the 80% paid to colleagues on CJRS/
furlough (see Covid-19 section below for
full details).
Deferral of the
payment of tax
The Company initially took advantage of the terms offered
by HMRC to defer various tax payments. This was at the
early stages of the pandemic when cash management
was paramount.
The Committee believes that because the
payments have now been made, they are not
relevant with respect to the bonus determination
for 2020.
At the date of this report all amounts owing to HMRC have
been paid and therefore the Committee does not believe
this is relevant to the bonus outcome for 2020.
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.
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Provident Financial plc Annual Report and Financial Statements 2020
Step
Element
Committee decision
Stakeholders
Colleagues
Shareholders
Customers
Other
Brand
The Company has not made any colleagues redundant
directly as an impact of Covid-19. The objective of the
Board has been to retain and support our colleagues
through this challenging period – see section below
around how the Company has supported colleagues.
No specific deduction was made due to the
impact on colleagues. It was one factor which
was taken into account when making the final
decision to make no bonus payments.
The Committee has taken into account various factors and
events which have happened in 2020 which may have
influenced the bonus decision and determined that no
bonus would be payable. The impact of Covid-19 on our
shareholders was one factor.
No specific deduction was made due to
the impact on shareholders. It was one factor
which was taken into account when making
the final decision to make no bonus payments.
The Company has provided excellent customer service
during this period as evidenced by our recent customer
satisfaction assessment which in aggregate is improving
over the last 12 months and is covered in more detail in
pages 72 and 73.
The Committee would have considered poor
customer service over the recent period as
a factor that was relevant to the final bonus
determinations for the executive directors.
However, this was not a factor in 2020.
The Committee recognises the strong brand the Company
has in the eyes of the public and this has been a key
consideration of the Committee when determining the
remuneration for executive directors. The Committee and
the Board as a whole do not want to make remuneration
decisions which negatively impact on the PFG brand.
No specific deduction was made due to the
impact on our brand. It was one factor which
was taken into account when making the final
decision to make no bonus payments.
2020 bonus outcome calculation
The tables below set out performance against the targets set for the 2020 bonus and the outcome, before the Committee used
its discretion to reduce the outcome to zero.
Details of the financial assessment
Performance range
Threshold
Target Maximum
85%
100%
110%
Actual Weighting
Outcome
Adjusted PBT
£152.1m £178.9m £196.8m £(47.1)m
Details of the non-financial assessment
The non-financial element was assessed at 63.5% achievement with this broken down as follows:
60%
100%
0.0%
0.0%
Category
Weighting
Type
Description
Strategy
30%
Corporate
Product
CPC initiatives evolving to be
1PFG, including plan and actions
for 2020 and 2021 as well as TOM
vision and plan to deliver.
Development of identified
digital strategy and ways of
working to underpin improved
product design and functionality
and deliver enhanced
customer outcomes.
Individual
weighting
Rating
Overall
assessment
15%
On target
7.5%
On target
60.5%
Financial
Effective progression of the Group
Strategic Cost Review and
strategic financial effectiveness.
7.5%
Exceeds target
Provident Financial plc Annual Report and Financial Statements 2020
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Directors’ Remuneration Report Directors’ Remuneration Report continued
Annual Report on Remuneration continued
2020 bonus outcome calculation continued
Details of the non-financial assessment continued
Category
Weighting
Type
Description
Regulatory
risk and
conduct
20%
Corporate
(i) Regulator (PRA, FCA, CBI)
understanding of Group
approach to forbearance and
complaints; and (ii) improving
the dialogue with the regulator
and changing the economic
and political perception
of the business.
Individual
weighting
Rating
Overall
assessment
10%
On target
61.5%
Risk
Improve the operational
effectiveness of risk
management and controls
across the Group and divisions.
10%
Exceeds target
Investor
and public
relations
10%
Corporate
(i) Positive investor feedback;
and (ii) investor perceptions and
feedback improved from 2019.
5%
Exceeds target
Corporate
(i) Diversification of
shareholder base; and
(ii) investor perceptions and
feedback improved from 2019.
5%
Exceeds target
75.5%
Customer
30%
Corporate
Colleague
10%
Corporate
30%
On target
5%
On target
Delivery of customer elements
of the CPC programme and
continued improvements
in the customer journey.
(i) Promote inclusion within
PFG with role model leadership
of management; (ii) improve
diversity in PFG; (iii) increase
colleague engagement with
customer and Group; and (iv)
improve talent management
and succession planning.
Corporate
Equality, Diversity and Inclusion
Policy taken into account for
all succession planning.
5%
Exceeds target
Total
61.5%
70.5%
63.5%
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 allowed 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 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. As a Group, this has required us to reassess our current
business model in a number of areas as well as implement remedies regarding the historical lending practices in CCD. At the
same time there is more work to be done as we look ahead to 2021 priorities.
As a result of the above we have made a number of individual risk adjustments.
164
Provident Financial plc Annual Report and Financial Statements 2020
It should be noted that the Committee accepted all of the recommendations made by the CRO with respect to the Group and
Vanquis Bank in terms of ex-ante and ex-post adjustment to bonus albeit that due to no bonus being available then the practicable
implications are limited. However, individual conversations about the conclusions have been had with the individuals, teams and
groups involved.
Role
CEO
CFO1
Formulaic bonus
outcome
% of salary
Maximum
(based on prior year)
% of salary
Reduction to
% of formulaic
outcome 2
2020 bonus payable
% of salary
43.4%
23.8%
93.1%
n/a
100%
100%
—
—
1 This has been pro-rated to take account of service and based on annual salary.
2
Includes consideration of shareholder experience, government support and other factors (see above).
There will be no deferred bonus due to the nil result.
LTIS 2018 vesting
The following table sets out the outcome of the LTIS 2018 targets:
Performance condition (% of award)
Threshold
Target
Maximum
EPS (60%)
Relative total shareholder return (30%)
Risk indicators (10%)
137.3p
Median
7
152.6p
167.9p
Median
Upper quartile
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