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27 June 2017

Doorstep lender Provident predicts profit from its consumer credit division will drop by nearly half compared to last year, due to disruption in restructuring its collections and sales teams.

It said the impact and costs of implementing a new operating model will reduce 2017 profits from its consumer credit division to around £60m, compared to £115m in 2016.

 

The new model involves employing 2,500 customer experience managers to serve customers rather than using self-employed agents. Provident said this is expected to cost around £20m in respect of redundancy, retention and training costs.

 

Last week (June 20), the sub-prime lender published an update on its transition to the new model and said the switch over will take place early next month.

 

After the initial stages of the change, the lender said it has experienced higher operational disruption than planned due to reduced agent effectiveness through the period of transition. It said this has affected its collections performance, sales penetration and customer retention.

 

The company also said its recent in-house vacancy levels have been 12 percent, more than double the rate it anticipated.

 

Provident said the shortfall in contribution, primarily from weaker collections through the period of transition, has been estimated at up to £40m in the first half of the year.

 

Credit issued for the five months to May 2017 was also £37m below the amount issued for the same period in 2016. Provident said this will have an adverse impact on profit performance through the remainder of the financial year.

 

With the majority of new roles having been filled, the lender expects July to deliver a “significant step-up” in activities.

 

Peter Crook, chief executive of Provident Financial, 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.”

 

In an update, Provident said all of the group’s other businesses continue to trade in line with internal plans. It added that Vanquis Bank has continued to experience a strong flow of new account bookings in the second quarter of 2017, while Moneybarn has continued to “deliver strong new business volumes”.

Source: – Credit Strategy

By David Petty

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