Cattles’ future hangs in balance while Provident sparkles

CATTLES warned that its profits would be even lower than previously expected after auditors found that the group’s impairment policies had been applied incorrectly.

Only last month, the Birstall in Leeds-based lender announced that the release of preliminary results would be delayed pending completion of a review of bad loan provisions.

That announcement sent Cattles shares, which had already crashed 90% in the last 12 months, plummeting another 53%.

Now Deloitte, the group’s internal auditors have identified a breakdown in internal controls, which has resulted in the impairment policies not being applied correctly.

Cattles said that although it was still not possible to quantify the effect on the group’s financial statement, the board believed that pre-tax profits for the year ended December 31 would be substantially lower than its expectations in February.

Furthermore, the board anticipated that it will be required to enter into discussions with its banks and the holders of its outstanding Eurobonds and US Private Placement Notes.

Adding to its woes, finance director James Corr has had to step down from his role before the review is completed due to ill health. He had been due to retire this month.

In his absence, Robert East has agreed to take on his responsibilities, although his appointment to the board remains deferred until further notice.

In January, Cattles announced that it had withdrawn its application for permission to take retail deposits after it was told by the Financial Services Authority (FSA) that a licence was unlikely to be granted until the “unprecedented turmoil in the financial markets has stabilised” and the terms of its renegotiation of £635m of bank facilities had been finalised.

Discussions are ongoing with its bank syndicate regarding the refinancing of facilities due for repayment in July.

At the beginning of this year the group also revealed plans to cut around 1,000 jobs and shut its Hull office where around 400 staff are employed.

The group, which also runs the Cattles Invoice Finance subsidiary which has offices in Manchester and Liverpool and is up for sale, said the cost-cutting measures would save around £40m a year and would help to ensure that the company remained profitable.

Cattles said although it expected to win new business in 2009, volumes in its Welcome Finance division would be reduced by around 75% compared to 2008 trading levels.

In December, Cattles cancelled its final dividend of 2008 as well as this year’s interim payout in a bid to save cash.

Bad debts at the lender are up as consumers’ disposable income is squeezed.

Meanwhile, fellow Yorkshire-based financial institution Provident Financial today reported a 11.8% rise in pre-tax profits for the year ended December 31 from £115.2m to £128.8m.

The Bradford-based business, which is the market leader in home credit in the UK and Republic of Ireland, said that headroom on committed funding facilities was in excess of £250m and that £213.2m of bank facilities, which had been due to mature in March 2010, had been extended by another year.

Full year dividend maintained at 63.5p (2007: 63.5p).

Provident said that its consumer credit division had seen 6.8% growth during the period.

Vanquis Bank reported a maiden full year profit before tax of £8m compared to a loss of £0.9m in 2007. Customer number for the newly launched business were up 27.8%.

The business, which is a central underwriter using highly bespoke credit scorecards, rechecks its customers’ external credit data every month, even if a customer’s account is fully up to date.

This allows emerging signs of credit stress to be detected early and proactively managed, including reducing undrawn credit lines where appropriate.

In contrast with mainstream card issuers, Vanquis Bank also maintains sufficient call centre resource to allow it to contact all customers who fall into arrears immediately, so as to identify issues quickly and return accounts to order as soon as possible before arrears escalate.

Provident said that although the group’s businesses had a number of features that made them “more resilient” than other lender during difficult economic conditions, its strong performance was the result of decisive management actions in particular an increasingly cautious appriach to new lending.

Peter Crook, chief executive of Provident Financial, said: “The group has delivered high quality growth and a stable impairment performance in a difficult economic environment.

“We adopt a straightforward approach to lending with a strong focus on customer affordability in each of our businesses. Over a long period of time, this has proved to be the right formula and especially so during these turbulent times.”