Provident Financial tanks as it warns over consumer credit division
Shares in Provident Financial tanked early on Wednesday after it cautioned that its consumer credit division will see profits nearly halve in 2017 compared to a year ago, mostly due to restructuring.
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Back in February the company announced with its full-year results that it was planning to cut around 2,000 of its self-employed debt collection agents and move more people into new positions onto the company payroll. After the close on Tuesday, Provident said the recruitment of around 2,500 full-time customer experience managers is now virtually complete, but that the business has experienced higher operational disruption than planned due to the reduced agent effectiveness through the period of transition.
The subprime lender said the impact of higher operational disruption on collections performance and sales is expected to reduce the 2017 pre-exceptional profits from the consumer credit division to around £60m from £115m the year before. The one-off exceptional charge of approximately £20m in respect of redundancy, retention and training costs remains in line with previous guidance and will be reflected in the first half results.
At the group's Capital Markets Day in April 2017, it said the shortfall in contribution, primarily from weaker collections through the period of transition, was estimated at around £15m in the first half of the year.
Recent collections performance has deteriorated, particularly through May, and the effect has been reassessed at up to £40m. With the vast majority of new field based roles having been filled, the June debt collections performance is stabilising. However, the switch over to the new operating model in early July will deliver a significant step-up in resource and direct control over the field organisation, including all collections activities. From this point on, the rate of collections is expected to start normalising.
Provident said its other businesses continue to trade in line with internal plans.
Chief executive Peter Crook said: "I am disappointed to report higher than expected operational disruption from the migration of the home credit business to a new operating model. Nonetheless, the strategic rationale for the change remains strong and I am confident that it will deliver the substantial benefits previously communicated."
At 0850 BST, the shares were down 15% to 2,431p.