Published On: Wed, Aug 23rd, 2017

Provident Financial plunges 800,000 families into financial alarm as shares plummet

The blue-chip FTSE 100 listed company saw £1.7 billion wiped off its value after being hit by several body blows.

It is believed to be the biggest one-day stock price fall for a firm listed on the FTSE 100 index.

The company, which focuses its core business on lending to people who are struggling financially, was forced to issue its second profit warning in three months. 

It is preparing to lose up to £120million this year in its door-to-door loan division, affecting around 800,000 customers, the company said.

Shares in the company crashed by a huge 66 per cent yesterday, from £17 to 589.5p, wiping almost £1.7billion from its stock market value.

It also parted company with its chief executive Peter Crook – who earned £6.3m in pay and bonuses last year – and cancelled its dividend for shareholders.

The 137-year-old company managed to grow rapidly in the immediate years after the financial crisis, stepping in to offer credit to those unable to secure finances from banks who became more wary of lending to those they saw as risky investments.

Interest rates on such loans are typically high, with £100 borrowed from Provident over 13 weeks incurring a repayment of £143. The division has about £500m out on loan.

The Bradford-based company began to struggle after it announced it planned to change from its traditional business mode of door-to-door sales agents.

The company had hoped to become more automated in February with 2,500 “customer experience managers” but a recruitment drive actually led to a shortage of staff.

A computer bug in the new system compounded the issue as diary system for meetings failed to work.

The result has been a fall in its debt collection rates from 90% last year to just 57%.

It is also far more difficult to lend out new cash, with weekly lending £9 million lower than it was this time last year.

Those of its 2.5 million customers whose payments are late because of the disaster will not be charged extra interest or hit with any financial penalties.

However, many rely on regular visits from Provident staff for credit to tide them over – meaning the scheduling chaos could leave them dangerously short of cash.

Chairman Manjit Wolstenholme, who has taken over day-to-day running of the company after Mr Crook’s departure, said: “We’ve got people on the ground, but we have issues with the software being used by them. Agents are turning up at the wrong time when customers aren’t there.

“It’s not behaving because the data that’s in there isn’t good enough for what we need to do. This is something we should be able to do something about.”

Along with that, the company is facing an investigation by City watchdog the Financial Conduct Authority into the sale of a product that allowed people to freeze their credit card debt.

The trading statement said: “The extent of this underperformance and the elongated period of time required to return the performance of the business to acceptable levels invalidates previous guidance. The pre-exceptional loss of the business is now likely to be in a range of between £80m and £120m.”

Analyst Stuart Duncan of Peel Hunt said: “They’ve taken a model which was centuries old and have pretty much broken it.”

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