Operational disruption to weigh on Provident Financial's results

Peter Cook, CEO of Provident, said: “I am disappointed to report higher than expected operational disruption from the migration of the home credit business to a new operating model.”

Operational disruption had caused increased uncollected home credit and hit sales penetration and customer retention, Provident Financial said.

The Bradford-based lender said shortfall in contribution, mainly because of weaker collections during the transition period, was estimated to be about £40m in the first half of the year, up from the £15m hit the company forecast in April.

Provident Financial said recent collections performance had “deteriorated”, particularly in May. June collections were “stabilising”, with performance expected to normalise next month, Provident Financial said.

Credit issued for the five months to May was £37m lower than a year earlier, the company said, adding softness may continue.

“This will have an adverse impact on profit performance through the remainder of the financial year,” the company said.

The impact of higher operational disruption on collections and sales is forecast to reduce 2017 pre-exceptional profits from the consumer credit division to around £60m, from £115m a year earlier.

The company, which provides credit cards and loans to 2.4 million customers who are unable to meet the lending criteria of mainstream banks, said the business had been hit by attrition, and recent vacancy levels of 12 per cent were double the rate anticipated by the specialist lender.

Analysts at Jefferies, who rate the stock “buy”, cut earnings per share forecast by 15 per cent for 2017 and 12 per cent for 2018.

Subprime, or non-standard, lending has been growing more popular in the UK as banks have tightened their lending criteria and some people find it necessary to borrow small sums for short periods to help manage their finances.