This announcement and the information herein is not for release, publication or distribution, in whole or in part, directly or indirectly, in or into the United States, Canada, New Zealand, Japan, or any other Restricted Jurisdiction in which such release, publication or distribution would be unlawful.
10 May 2019
Non-Standard Finance plc ("NSF")
Offer for Provident Financial plc ("Provident")
Why investors should ignore Provident's scaremongering
Summary
Since we launched our Offer, the Provident Board has gone to great lengths to deflect attention from its flawed strategy, regulatory breaches, broken promises and underwhelming financial performance. Its latest tactic has been to attempt to raise concerns about NSF's capital position. We explain in detail below why these concerns are completely unfounded: based on false premises, founded on incorrect assumptions and, in our view, designed to provoke doubt and fear amongst Provident Shareholders. The Enlarged NSF Group will have a robust capital position in accordance with all relevant capital requirements, and this capital position has been rigorously modelled as part of our change of control regulatory business plan that was submitted to the FCA and the PRA on 1 March 2019.
NSF finds Provident's scaremongering, on the back of incomplete knowledge and poor judgment, to be deeply disappointing and, in the context of our Offer, irresponsible. It is, however, entirely consistent with the Provident Board's previous, repeated misjudgements with respect to its own financial position and prospects as well as its complete disregard for the views of shareholders holding over 50 per cent. of its share capital.
It is clear to NSF that Provident is seeking to stoke unwarranted fear and deflect from its own enduring failings. Lest we forget, this is a Board which has presided over:
· disappointing results;
· multiple profit warnings (each of which was preceded by unwarranted reassurances);
· widespread, serious regulatory mismanagement; and
· no clear vision for Provident's future.
The employment of these tactics reaffirms our belief that our Offer - and our team - is by far the best option for Provident's customers, employees and shareholders. We therefore urge Provident Shareholders to accept our Offer without delay and, in any event, by 1.00 p.m. on 15 May 2019, being the last date on which the Offer can be declared unconditional as to acceptances, so we can begin to implement our transformation plan for the benefit of Provident's customers, employees and shareholders.
Capitalisation of the Enlarged NSF Group
Provident's attempts to raise concerns regarding NSF's capital position are completely misconceived. Provident's beliefs and assertions are founded on false premises and incorrect assumptions made without access to NSF information or engagement with NSF. They emanate from a management team that has repeatedly misjudged its own financial position and prospects. As a result, Provident has painted an entirely misleading picture of NSF's capital position.
Provident's false premises
Provident has analysed NSF on a stand-alone basis, against a metric which is not applicable to NSF on a stand-alone basis1 and has also failed to take into account the new equity to be issued as part of the transaction. This is clearly wrong. The Enlarged NSF Group's capital requirements must be assessed on a consolidated basis and must also include the Enlarged NSF Group's issued share capital. Vanquis Bank must also continue to be assessed on a stand-alone basis and, post the transaction, Vanquis' capital ratios will remain unchanged.
Provident's incorrect assumptions and assertions
Unlike Provident, NSF has taken account of its own position and the expected transaction structure to project a realistic assessment of the capital position of the Enlarged NSF Group post-transaction. On this basis our model shows that the capital position of the Enlarged NSF Group will be robust and in excess of the PRA requirements that Provident has itself disclosed.
Provident has stated that "When applying CRD IV capital rules...NSF may have a significant regulatory capital deficit". Applying bank capital standards to NSF when these are not applicable on a stand-alone basis is misleading. NSF has modelled the Enlarged NSF Group's capital position based on CRD IV capital rules and the result is a robust capital position in excess of the PRA requirements that Provident has itself disclosed.
Provident has stated that "including the impact of deducting goodwill and intangibles for regulatory capital purposes and the effect of the proposed re-capitalisation and demerger of Loans at Home, for the enlarged group to achieve the same CET1 ratio as Provident…would require c.£76m of additional equity capital resources". The incorrect assumption appears to be that we have not included the impact of those items and that, if we had, additional equity would be required. We have included the impact of those items and no additional equity is required as a result.
Provident has stated that "When combined with transaction costs, potential add-ons for operational and governance risk and integration costs, the pro-forma capital shortfall could be expected to completely absorb Provident's current capital headroom and potentially create a further deficit." The incorrect assumption appears to be that we have not taken these items into account and that, if we had, this could create a further deficit. We have taken those items into account as our model applies a capital ratio which reflects the requirements to which Provident is currently subject and, as a result, already factors in add-ons related to operational and governance risk. The Enlarged NSF Group's capital headroom after those adjustments remains in surplus.
Provident has stated that "On this basis…the pro-forma combination may not comply with Provident's equivalent CET1 ratio requirement". Provident's analysis is based on the false premises and applies the incorrect assumptions described above. As a result, this conclusion is wrong. This in turn means that Provident's assertion regarding the potential need for incremental capital is entirely false.
Provident has implied that NSF might have sought "to rely solely upon fair value accounting uplifts to fill a capital deficit". We have not relied on fair value accounting uplifts and so this assertion is, again, false.
Provident has stated that "concerns around the capital strength of the enlarged group (as a result of having to support a potential capital deficit at NSF)" could have wide-ranging consequences. This assertion flows from the false premises and incorrect assumptions summarised above. It is, again, false.
Provident should be focused on its own challenges
The Provident Board has spent plenty of time painting the distorted picture described above. The NSF Board believes that that time would have been better spent reflecting on Provident's continuing challenges; with a bit more self-examination, perhaps the Provident Board might have avoided so many self-confessed mistakes, avoided the vast destruction of shareholder value; avoided failing its customers and the associated regulatory issues; and it might not have so dismissively ignored the views of shareholders holding over 50 per cent. of Provident's share capital.
Even with access to all relevant information, the Provident Board has repeatedly misjudged its own financial position and prospects. It is therefore entirely unsurprising that, without all relevant information, they have also misjudged NSF's capital modelling. As recently as 19 October 2018, Provident was lauding its in-line performance; by 15 January 2019, this had crystallised into a profit warning resulting in a 19 per cent. share price fall.
"The group has continued to make sound progress during the third quarter on delivering its operational objectives for 2018 […] The growth and operating performance of Vanquis Bank and Moneybarn are both good and in line with management's plans […]." |
Three months later2
à |
"Vanquis Bank has delivered further customer and receivables growth although impairment has been modestly higher than expected […] The group therefore expects to report profits for 2018 towards the lower end of the range of market expectations of £151m to £166m" |
Correcting misinformation regarding guarantor lending
It has been suggested that NSF is facing an FCA investigation of its guarantor lending business. NSF is facing no such investigation. The FCA has announced a portfolio review of the entire guarantor lending sector and NSF is looking forward to participating in that review and sharing its expertise with the FCA.
Over-rewarding failure
Malcolm Le May was awarded a significant performance-based bonus for 2018.3 Institutional Shareholder Services has advised that pay by Provident during the year does not appear to be fully aligned with Provident's performance and has stated that there is scope for better disclosures on bonus and LTIS target setting. ISS has therefore recommended that Provident Shareholders vote against the resolution to approve Provident's remuneration report.
Lots of words delivering more of the same
Aside from Provident's assertions on regulatory capital, which we have shown to be entirely misleading, Provident has expended a lot of time, energy and money largely reiterating points made before. They have not, however, offered Provident Shareholders a clear plan to revitalise the business. We find it revealing that Provident produced a 21-page presentation scaremongering about our Offer and just seven pages on its own performance and its plan for the future4.
In contrast, our plan for Provident is highly detailed. Our energies are focused on delivering a brighter future for customers, employees and shareholders of the Enlarged NSF Group.
We would also note the following.
CMA process
The NSF Board reiterates its strong belief that there is a clear and adequate remedy to any competition concerns that the CMA may have relating to the Offer and that any such remedy will be expeditiously agreed with the CMA.5
As NSF continues to have constructive discussions with the CMA, the NSF Board notes that it is entirely customary to not commence the formal CMA review process until initial engagement with the CMA has concluded. It certainly does not suggest that there any serious competition concerns with the Offer.
Other regulatory matters
Provident has sought to frame customary conditions to the Offer as regulatory risks but the NSF Board remains confident that it will complete the Offer within the outlined timetable and in particular by 5 June 2019.
Other matters
The Provident Board has in recent announcements suggested that NSF faces challenges in areas ranging from its gearing to its provisions for credit losses on branch-based lending and guarantor loans. Our gearing is sustainable and entirely suitable for our strategy, balancing shareholder returns with an appropriate level of risk, and will be relatively immaterial on a combined basis, post-completion. Our provisions are entirely appropriate based on our underwriting and collections experience and practices and in addition are of course audited on an annual basis. The NSF Board is again of the view that the Provident Board is simply seeking to deflect from the real issues.
Our plan for all shareholders
The NSF plan for Provident has been developed for the benefit of all shareholders of the combined group - both those of NSF and of Provident - and NSF is keen to engage with all shareholders regarding the Offer, in particular, those Provident shareholders who have not yet accepted the Offer.
The choice for Provident Shareholders
The NSF Board believes that the Provident Board is failing to address the key issues facing the company and the Provident business is continuing to fall far short of its potential. Our Offer and clear transformation plan continue to present the best option for Provident Shareholders and all of Provident's other stakeholders.
The NSF Board urges Provident Shareholders to accept our Offer without delay and, in any event, by 1.00 p.m. on 15 May 2019, being the last date on which the Offer can be declared unconditional as to acceptances.
Commenting on today's announcement, John van Kuffeler, NSF's Group Chief Executive said:
"Provident's recent announcements simply reinforce what we have been saying for some time: Provident is either unwilling or unable to address its own failings and will go to extreme lengths to deflect from its own shortcomings. Instead of focusing on its customers, employees and shareholders, Provident has dedicated itself to performing financial analysis which is complete nonsense and which seems designed to spread unfounded fears. Our plan is clear and robust and we look forward to delivering it for the benefit of all of Provident's customers, employees and shareholders."
Enquiries:
Non-Standard Finance plc
Peter Reynolds, Director, IR and Communications |
T: +44 20 3869 9020 |
Ondra LLP (Financial Adviser to NSF)
Michael Tory
Stewart Bennett
Oliver Ives
Gurnek Teja |
T: +44 20 7082 8750 |
Deutsche Bank, London Branch (Financial Adviser to NSF)
James Arculus
Chris Raff
Nicholas Hunt
Neil Collingridge, Corporate Broking |
T: +44 20 7545 8000 |
Maitland/AMO (Public Relations Adviser to NSF)
Neil Bennett
Andy Donald
Finlay Donaldson |
T: +44 20 7379 5151 |
Shore Capital (Corporate Broker to NSF)
Mark Percy
Daniel Bush |
T: +44 20 7408 4090 |
Further Information
Capitalised terms used but not defined in this announcement have the meanings set out in the Offer Document dated 9 March 2019.
All references to time in this document are to London time.
This announcement is not intended to and does not constitute or form part of any offer to exchange or subscribe for or any invitation to exchange or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction pursuant to the Offer or otherwise. The Offer will be made solely pursuant to the terms of the Offer Document, which contains the full terms and conditions of the Offer. Any decision in respect of, or other response to, the Offer should be made only on the basis of the information contained in the Offer Document.
The contents of this announcement are not to be construed as legal, business, financial or tax advice.
This announcement does not constitute a prospectus or prospectus equivalent document.
Overseas Jurisdictions
The information contained herein is not for release, distribution or publication, directly or indirectly, in or into the United States, Canada, New Zealand, Japan or any other Restricted Jurisdiction where applicable laws prohibit its release, distribution or publication. The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the United Kingdom should inform themselves about, and observe any applicable requirements. Any failure to comply with the applicable requirements may constitute a violation of the applicable securities laws. This announcement has been prepared for the purpose of complying with English law and the City Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws of jurisdictions outside the United Kingdom.
Copies of this announcement and any formal documentation relating to the Offer are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in or into or from the United States or any other Restricted Jurisdiction and persons receiving such documents (including custodians, nominees and trustees) must not mail or otherwise forward, distribute or send it in or into or from the United States or any other Restricted Jurisdiction. Unless otherwise determined by NSF and permitted by applicable law and regulation, the Offer may not be made directly or indirectly, in or into, or by the use of mails or any means or instrumentality (including, but not limited to, facsimile, e-mail or other electronic transmission, telex or telephone) of interstate or foreign commerce of, or of any facility of a national, state or other securities exchange of the United States or any other Restricted Jurisdiction and the Offer may not be capable of acceptance by any such use, means, instrumentality or facilities.
Notice to US investors in Provident:
The Offer is being made for the securities of a UK company and is subject to UK procedural and disclosure requirements, which are different from certain of those of the United States.
For purposes of the US Securities Exchange Act of 1934, as amended (the "US Exchange Act"): the Offer will be made pursuant to Section 14(e) and Regulation 14E under the Exchange Act benefitting from the exemptions available to "Tier II" tender offers. Accordingly, the Offer will be subject to disclosure and other procedural requirements, including with respect to withdrawal rights, offer timetable, settlement procedures and timing of payments that may be different from those applicable under US domestic tender offer procedures and law, and certain rules applicable to tender offers made into the United States, including rules promulgated under Section 14(d) of the US Exchange Act, do not apply.
In accordance with, and to the extent permitted by, the City Code, normal UK market practice and Rule 14e-5 under the US Exchange Act, the Financial Advisers and their respective affiliates may continue to act as exempt principal traders in Provident Shares on the London Stock Exchange and will engage in certain other purchasing activities consistent with their respective normal and usual practice and applicable law, including Rule 14e-5 under the US Exchange Act. To the extent required to be disclosed in accordance with applicable regulatory requirements, information about any such purchases will be disclosed to the Panel by no later than 12 noon on the next "business day", as such term is defined in the City Code, and will be available from any Regulatory Information Service, including the Regulatory News Service on the London Stock Exchange website, www.londonstockexchange.com, and will also be available on NSF's website www.nsfgroupplc.com. To the extent that such information is required to be publicly disclosed in the United Kingdom in accordance with applicable regulatory requirements, this information will, as applicable, also be publicly disclosed in the United States.
For purposes of the US Securities Act of 1933, as amended (the "US Securities Act"): this document does not constitute a public offer of securities in the United States or an offer to the public in the United States to acquire or exchange securities. The New NSF Shares have not been, and will not be, registered under the US Securities Act, and may not be offered, sold or resold except in transactions exempt from, or not subject to, the registration requirements of the US Securities Act. The New NSF Shares have not been, and will not be, registered under the relevant securities laws of any other Restricted Jurisdiction and the relevant clearances have not been, and will not be, obtained from any securities commission of any Restricted Jurisdiction and no prospectus in relation to the New NSF Shares has been or will be lodged with, or registered by, any such securities commission. Accordingly, the New NSF Shares may not (unless an exemption under the relevant securities laws is applicable) be offered, sold, resold, delivered or transferred, directly or indirectly, in or into any Restricted Jurisdiction if to do so would constitute (or result in the Offer constituting) a violation of relevant laws or require registration thereof.
Important Notices relating to Financial Advisers
Ondra LLP, which is regulated in the United Kingdom by the FCA, is acting as financial adviser to NSF and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters set out in this announcement and will not be responsible to anyone other than NSF for providing the protections afforded to clients of Ondra LLP nor for providing advice in relation to any matter referred to herein.
Deutsche Bank AG is authorised under German Banking Law (competent authority: European Central Bank) and, in the United Kingdom, by the PRA. It is subject to supervision by the European Central Bank and by BaFin, Germany's Federal Financial Supervisory Authority, and is subject to limited regulation in the United Kingdom by the PRA and FCA. Neither Deutsche Bank nor any of its subsidiaries, branches or affiliates will be responsible to any person other than NSF for providing any of the protections afforded to clients of Deutsche Bank nor for providing advice in relation to any matters referred to in this announcement. Neither Deutsche Bank nor any of its subsidiaries, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Deutsche Bank in connection with this announcement, any statement contained herein, or otherwise. Deutsche Bank is acting as financial adviser to NSF and no other person in connection with the contents of this announcement.
Shore Capital, which is authorised and regulated in the United Kingdom by the FCA, acts as broker to NSF and will not regard any other person as its client and will not be responsible to anyone other than NSF for providing the protections afforded to clients of Shore Capital nor for providing advice in relation to any matter referred to herein. Neither Shore Capital nor any of its subsidiaries, associates, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Shore Capital in connection with this document, any statement contained herein, or otherwise.
Forward-Looking Statements
This announcement contains certain forward-looking statements with respect to the financial condition, results of operations and business of Provident and certain plans and objectives of NSF with respect thereto. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe', 'hope', 'aims', 'continue', 'will', 'may', 'should', 'would', 'could', or, in each case, their negative or other words of similar meaning. They appear in a number of places throughout the announcement and include statements regarding the intentions, beliefs or current expectations of the NSF and the NSF Board. These statements are based on assumptions and assessments made by NSF in light of its experience and its perception of historical trends, current conditions, future developments and other factors it believes appropriate. By their nature, forward-looking statements involve risk and uncertainty, because they relate to events and depend on circumstances that will occur in the future and the factors described in the context of such forward-looking statements in this document could cause actual results and developments to differ materially from those expressed in or implied by such forward-looking statements. Although it is believed that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct and you are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this document. NSF does not assume any obligation to update or correct the information contained in this document (whether as a result of new information, future events or otherwise), except as required by applicable law.
There are several factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are changes in the global, political, economic, business, competitive, market and regulatory forces, future exchange and interest rates, changes in tax rates and future business combinations or dispositions. No statement in this announcement is intended as a profit forecast or profit estimate and no statement in this presentation should be interpreted as such.
The forward-looking statements contained in this announcement speak only as at the date of this announcement. Except as required by the FCA, the London Stock Exchange or applicable law (including as may be required by FCA's Listing Rules, the Disclosure and Transparency Rules and the Prospectus Rules), NSF and its directors expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement, whether as a result of any change in events, conditions or circumstances or otherwise on which any such statement is based.
Ondra LLP and Deutsche Bank (and their respective affiliates) expressly disclaim any obligation or undertaking to update, review or revise any forward-looking statement contained in this announcement whether as a result of new information, future developments or otherwise.
Publication on website
A copy of this announcement will be made available, subject to certain restrictions relating to persons resident in Restricted Jurisdictions, on NSF's website at www.nsfgroupplc.com no later than 12 noon (London time) on the Business Day following this announcement. For the avoidance of doubt, the content of this website is not incorporated by reference into, and does not form part of, this announcement.
1For the avoidance of doubt, our model applies the appropriate metric to the Enlarged NSF Group on a consolidated basis.
2Provident Trading Statement, 19 October 2018, page 1; and Provident Trading Update, 15 January 2019, page 1.
3For the year ended 31 December 2018, Malcolm Le May received a bonus of £572,974. He received a total bonus of 69 per cent. of the maximum for which he was eligible, including 100 per cent. of the maximum available for key strategic non-financial and personal objectives in recognition of the 'achievements' of, among other things, delivering the ROP restitution and the rights issue.
4Provident presentation entitled "NSF: a different perspective", dated 8 May 2019 and Provident presentation entitled "Q1 and Offer Update", dated May 2019.
5The NSF Board believes that any potential concerns that the CMA may have would be limited to home credit, where NSF has already identified a clear cut remedy by way of the divestment (through demerger) of Loans at Home. Loans at Home is a viable, well-managed, independent, standalone business but is small in the context of the Enlarged NSF Group as a whole. This is based on Loans at Home in the latest financial year making an operating profit of £6.7 million out of a total pro forma combined operating profit of Provident and NSF of £190.7 million for the latest financial year. Sources: NSF Normalised operating profit before deferred consideration for year ended 31 December 2018; and Provident adjusted profit before tax for year ended 31 December 2018.
