Home credit boosts Provident

Provident Financial yesterday proved for the fifth year running that the door-to-door lending business is a money spinner with high margins by making a profit before tax of pounds 118.5m, a 17 per cent increase on the year before.

John van Kuffeler, chief executive, said the company was doing so well it was looking at the possibility of share buy-backs and other ways of improving shareholder value. It was also regularly looking at potential takeover propositions, he said.

Provident, based in Bradford, specialises in home credit, which is collected weekly byagents. It has 1.3 million customers, mostly at the lower end of the income scale. The bulk of the group pre-tax profit came from the home credit division, which made pounds 114.4m, an increase of 21 per cent.

This was achieved with much higher interest rates than conventional lenders charge. The company puts this down to the high administration costs of collecting repayments on small loans door-to-door. However, its margins have been improving.

Provident provided pounds 670m of credit for customers last year but their repayments totalled pounds 909m, 35 per cent more. The annual percentage rate works out at well over 50 per cent. With 9 per cent more customers last year, the agent network was expanded by more than 700 to nearly 9,900. Loan growth last year was 14.6 per cent. Bad debts increased less than 5 per cent to pounds 34.3m.

The company's branch network has now been replaced by regional administration centres and low-cost local interview rooms for use by agents.

Profits from the insurance business, which specialises in women drivers, second cars and third-party insurance for older cars, fell pounds 2.7m to pounds 10.6m. An increase in premiums slashed the number of policyholders from 802,000 to 595,000.

Provident said it took longer to settle claims compared with previous years. With slower payouts, cash and investments remained high and the income from these funds helped maintain insurance profits.

The dividend was raised 18 per cent to 16.5p a share. The shares rose 1p to 553.5p.