specialist lending seminar september...

Specialist Lending Seminar

September 2003

Home Collected Credit in an International Environment

Group compositionProvident Financial

UK Consumer Credit International Home Credit Motor Insurance

UK home credit Poland Czech Republic

Provident Insurance

Yes Car Credit Hungary Slovakia

Credit cards (pilot) Mexico (pilot)

2002 pre-exceptional PBT

£182.1 million

Market capitalisation

£1.6 billion

Customers

3.4 million

Composition of profit before taxProvident Financial

PBT

16%

11%

5% 68%

UK home credit

Motor insurance

International

Yes Car Credit

6 months to 30 June 2003

Strategy

> Serving customers earning moderate incomes> Growing by:

– international expansion – broader range of credit products

> Focus is on delivering value from existing businesses and from initiatives already announced

Provident Financial

We aim to be a leading international provider of simple financial services

International home creditProvident Financial

Poland Czech Republic

Slovakia Hungary Mexico

How we choose and develop a new marketInternational home credit

> Country selection> Desk research> Detailed in-country research> Pilot operation> Roll-out

Timeline of international development

Market research Single location Slow roll-out Accelerated rollout

Hungary

Czech

Poland

1995 1996 1997 1998 1999 2000

Slovakia

2001 2002 2003

Mexico(pilot)

International home credit

How we develop a new market: pilot operationInternational home credit

> Minimise financial risk> Introduce core ex-pat team of 2-4 people> Recruit and train future managers> Create local training materials> Design advertising materials> Build administrative capability> Recruit and train agents and customers> Learn to operate in local culture> Prove or amend business model> Formal ‘go’ or ‘no-go’ decision at conclusion of pilot

Developing a market: roll-outInternational home credit

> Pilot offices divided into two. One team open a new location> Local advertising supports brand awareness and staff and

agent recruitment> Train staff, then train agents> Advertise to recruit customers> Lend small amounts to customers at first and re-serve with larger

loans> Build customer base> When ready, split team to open a new office

Central Europe: customer numbers (`000)International home credit

Poland Czech Republic

6 66161

010 72

305504

0.4

660

D 98 D 99 D 00 D 01D 97 D 02

189 218

Hungary Slovakia

5 27

D 02D 01 D 02D 01

750

J 03

212

J 03 J 03

3910 55 80

D 98 D 99 D 00 D 01D 97 D 02 J 03

Annual profitsInternational home credit

Poland (£m)

(3.1)

Czech Republic (£m)

(1.1) (2.7)

0.1

(0.2)(1.5) (2.6) (2.8)

6.7

(0.6)

16.7

2.55.1

Hungary (£m)

(2.3)

Slovakia (£m)

(1.3) (2.0)

23.7

7.2

(3.1) (2.0)

D 98 D 99 D 00 D 01D 97 D 02 J 03 D 98 D 99 D 00 D 01D 97 D 02 J 03

D 02D 01 D 02D 01J 03 J 03

Annual profits/(losses) since 1999 (£m)

International home credit

Dec 99

(7.7)

June 00 Dec 00 June 01 Dec 01 June 02 Dec 02 June 03

(10.3) (5.9) (1.1) 0.83.5

10.6

19.4

Central European market potentialInternational home credit

Poland Czech Hungary Slovakia Total

Population (million)

39 10 10 5 64

Target customers (000)

1,000 250 250 125 1,625

Current customers (000)

750 212 80 39 1,081

Target annual credit issued per customer (£) 400 400 400 270 390

Target annual profit per customer (£) 60

60 60 40 58

Poland: targets and progress to dateInternational home credit

Budapest

Prague

Warsaw

Bratislava

POLAND

CZECH REPUBLICSLOVAKIA

HUNGARYAUSTRIA

GERMANY

Vienna

> Profit target: £60m p.a.

Poland: targetsInternational home credit

> Population> Customers> Annual credit issued per customer> Annual profit per customer> Annual profit

39 million1 million

£400£60

£60m

> Customer growth> Issue per customer > Gross revenue margin > Costs as % of revenue > Annual profit per customer > Annual profit

Poland: key performance driversInternational home credit

750,000£33854%

80%£37

£23.7m

1,000,000£40055%73%£60

£60m

Target12 months to30 June 2003

Poland: customers (`000)International home credit

3 10 3272

164

305

416

504561

660

750

June98

Dec98

June99

Dec99

June00

Dec00

June01

Dec01

June02

Dec02

June03

+ 34%

Poland: credit issued per customerInternational home credit

> Target increase: £338 £400> Loan sizes increase as customer base matures> Confident of reaching target

Poland: gross revenue marginInternational home credit

> Target: 55%> Current: 54%> Margin to rise as customer base matures

Poland: employee-related costsInternational home credit

Employee growth

23 78206

326

800

1,048

1,5051,594 1,617 1,6181,597

June98

Dec98

June99

Dec99

June00

Dec00

June01

Dec01

June02

Dec02

June03

+ 1.3%

8084889197111

141153

20161293

-11-41

-53-100

-50

0

50

100

150

200

D99 J00 D00 J01 D01 J02 D02 J03

Poland: costs and profit as a % of revenue (MAT)

International home credit

Costs*Profit

* Commission, bad debt, interest, expenses

Poland: profitsInternational home credit

(£m)

(1.5) (2.6) (2.8)

6.7

(0.6)

16.7

11.4

12 months to Dec 1998

12 months to Dec 1999

12 months to Dec 2000

12 months to Dec 2001

12 months to Dec 1997

12 months to Dec 2002

6 months to June

2003

Czech Republic: costs and profit as a % of revenue (MAT)

International home credit

Costs*Profit

818587908999

135

175

19151310111

-35

-75-100

-50

0

50

100

150

200

D99 J00 D00 J01 D01 J02 D02 J03

* Commission, bad debt, interest, expenses

Czech Republic: profitsInternational home credit

(£m)

(1.1) (2.7)

0.12.5

(0.2)

5.14.0

12 months to Dec 1998

12 months to Dec 1999

12 months to Dec 2000

12 months to Dec 2001

12 months to Dec 1997

12 months to Dec 2002

6 months to June

2003

Lessons learnedInternational home credit

> UK home credit model can be successfully introduced overseas> Customer and agent relationship similar in all countries> Good quality, well educated workforce essential > Key early skills: recruitment, training, advertising, brand building> Simple, distributed IT systems a strength> As arrears work builds, added support and training needed> Need to balance growth, costs and bad debt

Mexico: pilot commencedInternational home credit

> First loan made in August 2003

Mexico: country informationInternational home credit

Mexico Poland> Population 103 million 39 million> % of cities with over 10,000 people 82% 62% > Per capita annual income $8,800 $9,000> S&P country rating A- A-> Economic growth rate (2003 est.) 3.5% 3.1%> Inflation 5.1% 3.2%> Interest rate 10.2% 6.5%

Mexico: target marketInternational home credit

C Demographic26% of PopulationHousehold income between US $1,000 and US $3,000 per month.

D+/D Demographic52% of PopulationHousehold income between US $200 and US $1,000 per month.

Country selection: where next?International home credit

> No new countries before 2005> Rule of law> Relatively stable economy> Safe to lend and collect> Urbanised> Can be funded in local currency > Well educated workforce> Sufficient potential

An impressive record of growth Provident Financial

Pre-exceptional profit before tax (£m)

Year ended 31 December

34.1 43.062.5

81.1101.1

118.5136.5

145.9160.2

169.6182.1

155.0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002