REG - S & U PLC - Preliminary Results
29/03/2022 07:00
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RNS Number : 3604G S & U PLC 29 March 2022
29 March 2022
S&U plc
("S&U", "the Group" or "the Company")
PRELIMINARY UNAUDITED RESULTS FOR THE YEAR ENDED 31 JANUARY 2022
S&U plc (LSE: SUS), the motor finance and specialist lender, today
announces its preliminary unaudited results for the year ended 31 January
2022:
Group Key Financials:
· Profit before tax ("PBT"): £47.0m (2021: £18.1m) - average PBT
over 2 years of pandemic is therefore £32.6m pa (2020: £35.1m)
· Revenue increased by 5% to £87.9m (2021: £83.8m)
· Group amounts receivable from customers at year-end increased by
15% to £322.9m (2021: £280.9m)
· Group impairment charge of £4.1m (2021: £36.7m) - lower this
year due to less utilisation of Covid related Jan 21 provisions, lower motor
finance bad debt attrition and good collections in both businesses
· Basic earnings per share: 312.8p (2021: 120.7p)
· Final dividend of 57p per ordinary share to be paid on 8 July
2022 (2021: 43p)
· Net Borrowings at £113.6m (2021: £98.8m) - gearing at 54.9%
(2021: 54.6%)
Advantage Motor Finance Highlights:
· PBT: £43.7m (2021: £17.2m)
· Annual PBT reflects a lower than normal £3.8m forward looking
IFRS9 impairment charge (2021: Covid impacted charge £36.0m) - this charge
was £16.5m in 2020
· Total annual collections at £203.9m (2021: £180.5m)
· Annual net advances: £140.9m (2021: £102.6m) - new business
quality good
· Net receivables at £259.0m (2021: £246.8m)
Aspen Bridging Highlights:
· PBT: £3.4m (2021: £0.8m)
· Annual PBT performance underpinned by strong advances and
repayments
· Amounts receivable from customers now £63.9m (2021: £34.1m)
with only 2 loans in default
· 369 new loan facilities in 5 years with 267 repaid up to 31
January 2022 and 102 remaining on live book
Audit - our new auditor, Mazars LLP, due to their internal capacity
constraints, are still finalising their audit quality internal review
processes which were due to have concluded ahead of our preliminary
announcement. They have advised us that they anticipate formally issuing their
Audit Opinion in the coming days.
Anthony Coombs, Chairman of S&U plc stated:
"As the world reels from one crisis to another, it is apt to remember the
words of Winston Churchill, our greatest war leader: "I'm an optimist - it
does not seemtoo much use to be anything else". Like all successful businesses
with a long history, S&U recognises that it must tailor its products and
services and trim its operational tack to its economic, political and
regulatory environment, over which it may have little control but to which it
can nevertheless adapt and therefore thrive. Whilst this year's resounding
results clearly show our, and most importantly our loyal people's, ability to
do this, their work in preparing and priming the Group for both the
opportunities and challenges now facing all of us, gives me a quiet but
determined confidence in S&U's future."
Anthony Coombs S&U plc c/o SEC Newgate Communications
Financial Public Relations SEC Newgate Communications 020 7653 9848
Bob Huxford, Molly Gretton, Max Richardson
Broker Peel Hunt LLP 020 7418 8900
Adrian Trimmings, Andrew Buchanan, Rishi Shah
A conference call presentation for analysts will be held on 29(th) March 2022
at 11.00am
CHAIRMAN'S REVIEW
Introduction
In times scarred by the global pandemic, looming environmental disaster and
now a war in Ukraine, anyone claiming to see the future with any certainty
risks appearing a charlatan or a fool. Hence, without possessing any
supernatural powers of foresight, I am at least pleased to see that my
prediction last year of "a return to S&U's habitual levels of success" in
2021 has indeed now come to pass. Profit before tax for S&U plc this
year is at £47.0m (2021: £18.1m) on Group revenue of £87.9m (2021:
£83.8m). Group net assets now stand at a record, £206.7m against £181.0m
last year.
This excellent performance sees earnings per share this year at 312.8p per
ordinary share (2021: 120.7p) the best in S&U's 84-year history. The
Group's traditional financial strength, excellent collections performance and
receivables quality, mean Group Gearing remains at just 54.9% (2021: 54.6%).
Despite the unprecedented economic and social turmoil of the past two years,
first through Covid, secondly its economic aftermath and rising inflation, and
third, from the as yet unknown consequences of the Ukrainian War, these
results show that S&U plc has emerged stronger than ever and primed for a
new era of profitable growth.
Financial Highlights*
Profit before tax ("PBT"): £47.0m (2021: £18.1m)
Revenue: £87.9m (2021: £83.8m)
Earnings per share ("EPS") 312.8p (2021: 120.7p)
Group net assets: £206.7m (2021: £181.0m)
Group gearing: 54.9% (2021: 54.6%)
Group Treasury: £180m of medium-term funding against £113.6m borrowings
Group total collections: £294.3m (2021: £214.3m)
Dividend proposed: 126p per ordinary share (2021: 90p)
* key alternative performance measurement definitions are given in note 2.4
below
At Advantage, our Grimsby based motor finance business, the resilience of the
business and the strength of its relationships with its customers is evidenced
by a lower than normal loan loss provisioning charge for the year of £3.8m
(2021: £36.0m; 2020: £16.5m) reflecting good collections and less
utilisation of the impairment provisions made in the dark days of January
2021. Thus, over the past two years of Covid, Advantage has been able to
produce an average of over £30m annual profit, quite remarkably just less
than 10% lower than in the previous two years. This, despite a 20% fall in
new car production and sales over the past two years, which has constrained
supply in both the new and used car markets and hence constrained loan
transactions.
At Aspen, our five-year-old property bridging operation, profits have surged
ahead strongly over the past year. Transaction numbers have risen by nearly
70% and book quality is at its best level ever. The reward is a record profit
for the year of £3.4m (2021: £0.8m).
S&U's remarkable ability to produce consistent and long-term growth rests
on three pillars. The first is the tenacity, hard work, imagination and
ambition of our remarkable colleagues. All have adapted to Covid's disruption
by using flexible and hybrid working to their advantage. Around two-thirds
of them have now returned to normal routines of office work, and all have
embraced the real opportunities for uninterrupted concentration and focus that
hybrid working can bring. As Manchester City FC has so ably demonstrated,
our staff may not always share the same pitch, but the whole squad can
interchange for the benefit of all.
Second, they have used the pandemic period to set in place a raft of
operational improvements which are making both Advantage and Aspen more
competitive than ever. New finance products have been introduced, sales
channels diversified, both brand and digital marketing embraced, and customer
communication automated and made more efficient. All these and more are
proof of the vitality and imagination of our staff, to whom, more than ever, I
pay profound and respectful tribute.
Third, long experience has proved to us that successful lending businesses do
not exist in a vacuum. Both the attraction and affordability of all our
products depend not only upon the financial health of our customers but on
prevailing economic conditions. In turn, these depend upon health of the
British economy and in particular the motor and housing markets which we
serve. Currently, to put it mildly, the runes are mixed. Whilst the labour
market remains reasonably strong with low unemployment and rising wage rates,
high utility prices, inflation and direct and indirect taxation undoubtedly
threaten standards of living.
In the used car market, in which Advantage has so successfully operated for
over twenty years, the dichotomy is seen in the 20% fall in new car production
and sales over the past two years, contrasted to a robust 10% increase (at
1.361m) in the number of used cars financed at the point of sale (Finance and
Leasing Association). The fall in new car sales means that residual values
for used cars remain very strong and has resulted in a steady 9% recovery in
the used car finance market over the past year. Happily, Advantage has
out-performed the market, with the value of new loan advances up 37% this year
and new loan transaction numbers up 26%.
In the housing market, of interest to Aspen Bridging, although market
transaction numbers have remained subdued, house prices generally have risen
over 10% over the last year. Although the market is now cooling slightly as
interest rates rise to counter inflation and to finance two trillion pounds of
government debt, their effect on dampening demand will be offset by the
fundamental imbalance between housing demand and supply in most parts of the
UK. Happily, like Advantage, Aspen has been able to outperform the market
seeing new loan facility numbers increase by 69% over the past year.
In sum, current trends in both our businesses remain very encouraging with
current new loans this financial year already beating budget. It was our
anticipation of this accelerating growth that S&U put in place an
additional £50m of medium-term facilities last year. These now total £180m
on borrowings of £113.6m and may be augmented within the next financial year
as further growth occurs, and the macroeconomic landscape becomes clearer.
Advantage Finance ("Advantage")
Following a first ever dip in profits last year, as Covid stormed the economy,
Advantage Finance, our motor finance business, has produced a stunning come
back performance. Profits this year of £43.7m are against just £17.2m in
2021. New loan transaction numbers, even in a market constrained by the
supply of used cars are up by 26% on 2021. On revenue of £78.9m, ROCE for
the business was 19.4%. Whilst it is true that these results have benefitted
from a much lower than normal impairment charge, this partly reflected a
superb performance in collections as our loyal and conscientious customers
both maintained and improved their repayments. Monthly live collections
receipts reached a record £152.7m, 10% up on 2021. These collections
represented an average 93.21% of due (2021: 83.26%) and the year finished on a
remarkable 98.25% of due in January. They were made possible by Advantage's
close and harmonious customer relations, responsible lending, the success of a
new customer payment portal introduced last summer and, last but not least, by
the professionalism and empathy of our customer facing teams.
Receivables quality was also bolstered by the strong used car values; this
meant that both voluntary termination and bad debt numbers, and the losses
arising from them were much lower than anticipated back in January 2021.
Although Advantage expects that new loan transactions will continue to grow
this year, much will depend upon consumer confidence generally and the
economic fall-out from the current crisis in Eastern Europe. Their prognosis
has therefore been sensibly prudent with a return to increased growth forecast
for the final third of this financial year, when used car availability is
expected to have gradually returned to more normal levels.
For the longer term, a number of marketing and branding initiatives have been
introduced. They will broaden the funnel of our new business, develop new
affinity and consolidated partnerships and open direct channels to future
customers. Refining its renowned underwriting ability, Advantage continues
to help customers improve their credit ratings and to serve them with the kind
of finance product which helps them do so. To this end Advantage has
welcomed new credit reference providers and has partnered with digital
specialists, as well as recruiting in-house marketing expertise.
Again, with an eye to the future, Advantage has this year increased its
financing of electric cars. Although electric vehicles currently only
comprise about 3.5% of the UK car parc, the market is growing strongly.
Indeed 28% of new vehicles sold this year were either electric or plug in
self-charge hybrids. A working group has been set up to track the
development of this market and we expect to be able to introduce more of our
customers to it over the next few years.
Aspen Bridging
Aspen, our property bridging business set up in 2017, has produced record
results and is fulfilling our ambitions for it. Profit before Tax is a
record £3.4m (2021: £0.8m) and year end net receivables have grown to
£63.9m (2021: £34.1m). New loan facility numbers in the year rose from 80
to 135 on gross maximum LTVs at a conservative 66% average. Loans written
were £112m this year (2021: £43m) well above budget. Credit quality
remains good. 102 loans were repaid last year, generating £77m of cash
(2021: £29m). Defaults are at their lowest ever and no actual realised
losses have been incurred this year on the loan book. This is a testament to
Aspen's thorough, painstaking and rigorous approach to underwriting involving
a personal visit to every property financed.
As the business develops, new products have been introduced. Loans now range
up to £5m per deal as, in the absence of flexible mainstream bank support,
the refurbishment and small development market expands. Last year saw Aspen
trade very successfully within the Government's Coronavirus Business
Interruption Loan Scheme (CBILS). The burgeoning Buy-to-Let market has seen
Aspen introduce a 'Bridge to Let' product which is proving attractive to
smaller developers and investors. Aspen anticipates further lending growth
this year.
Considerable investment has been made in staff development and recruitment.
New business development managers and Aspen's growing credibility within the
broker community helped produce a record £27m gross loans in the final
quarter of 2021/22. As the business grows, so will staff numbers and their
experience and professional qualifications.
This year, although possibly muted in the light of macro-economic conditions,
we expect the UK housing market to continue to grow both in value and in
transaction numbers. In the long term the continued mismatch between the
demand for affordably priced housing and a relative dearth of supply will see
that it remains so. Aspen's budgets and aspirations responsibly reflect
this.
Dividends
Together with Warren Buffett, the legendary American investor, we believe that
shareholders' rewards should reflect the long-term view of the cash thrown off
by the profits of the businesses they own. We have reflected this at S&U
in a longstanding dividend approach which aims at seeing dividends twice
covered. Taking the past two years as a whole earnings per share have
averaged just over 216p thus implying a total dividend of 126p per ordinary
share this year (2021: 90p). Subject therefore to the approval of
shareholders at our AGM on 26 May 2022, we propose a final dividend of 57p per
share (2021: 43p). This final dividend will be paid on 8 July to
shareholders on the register on 17 June 2022.
Funding Review
At £113.6m at year end, net borrowings are well within our medium-term
facilities of £180m. Whilst Advantage's excellent debt quality and cautious
underwriting saw it again generate cash last year, Aspen's growth absorbed
nearly £30m of additional funds. We anticipate that current facilities will
give sufficient headroom for the anticipated organic growth in both businesses
in the next year. As usual these will be increased as required.
Governance and Regulation
The past 85 years of S&U's existence have obviously seen profound changes
in the financial services industry. Whilst technological change has been at
the forefront, the most profound change has been philosophical, and one which
could threaten the flexibility, development and success of the industry.
Previously widely accepted notions regarding the success of the free
enterprise system in harnessing the energy, motivation and multiple decisions
of millions of consumers and producers for the benefit of all, are no longer
widely held. As Milton Friedman, and even the great Adam Smith, lauded the
ability of markets, flexibly regulated to benefit the common good and improve
standards of living generally, current trends are increasingly more
interventionalist, judgemental and even "woke". As Lord David Frost recently
pointed out on his resignation from the government, this has resulted in the
mistaken and dangerous assumption that profit-making inevitably risks being at
the expense of consumers, and not for their benefit.
All this has resulted in a tsunami of regulation, sometimes ill-coordinated
and even contradictory, apparently designed to remove all risk for consumers
irrespective of circumstances. This has two serious consequences.
First, it restricts innovation, robust competition and therefore economic
growth. As Professor Tim Congdon recently pointed out it is unlikely to be a
coincidence that the UK growth rate of 3% per annum in the more lightly
regulated 1960's, has given way to a feeble 0.9% per annum rate between 2019
and 2020 in these more consumerist times.
Second, waves of new regulation, often without any parliamentary or even
ministerial scrutiny or oversight, have led to complication and uncertainty.
The Consumer Credit Act, the principal legislation for the financial services
industry, is now over 50 years old and has been constantly overlaid with
statutory instruments, codes of conduct and new consumer duties. In the
words of the Finance and Leasing Association, these have ceded control over
regulation to the regulators themselves. The industry's policemen have
effectively become its law makers. Now this process risks even further
confusion by the proposed introduction of a new Consumer Duty, which (whilst
laudably aiming for good customer outcomes) is so subjective that it risks,
according to the Finance and Leasing Association, giving "no certainty on what
good compliance looks like from the outset."
S&U has always put customers' interests first. This is not only morally
good business but is commercially vital in nurturing long-term customer
relationships and the earnings derived from them. Indeed S&U's Mission
Statement - "TRUST" - encapsulates this. Fortunately, Advantage Finance
enjoys an excellent and mutually respectful relationship with the Financial
Conduct Authority; building on this will necessitate a greater certainty and
clarity over what constitutes good conduct and compliance.
More widely, S&U's habitual responsibilities for the world around it are
itemised in its Environmental, Social and Governance Responsibilities
("ESG"). How we fulfil these, are detailed, without any virtue signalling,
in later sections on S&U's Corporate and Social Responsibility and in our
Section 172 Statement. Nevertheless, we maintain our conviction that our
principal responsibilities are to our customers, our staff and our
shareholders. This coincides with a recent survey by Henley Strategy,
reported in the Times, which showed that 74% of the British public now felt
that prioritising staff and customers should take precedence over a focus on
wider social and environmental issues. Our pragmatic approach means that the
last year has seen recruitment at Aspen fully reflect the ethnic diversity of
its West Midlands base; a selection process for a new main Board Director
which involved a majority female shortlist; the formation of a new Group wide
working party on Eco-strategy to oversee our response to becoming carbon
neutral by 2030, including the promotion of Advantage's offer for electric
vehicles. As evidence of intent, many of the Board of Advantage now either
possess or have ordered an electric vehicle.
Most of all, in these turbulent and ever-changing times, we will continue to
insist that our ESG agenda is driven by common sense and not political
fashion.
Finally, it gives me great pleasure to welcome to our Board this year two new
members. The first is my cousin Jack who replaces Fiann Coombs, whom I warmly
thank for the wise contribution he has made to our proceedings over the past
decade. As evidenced by his work at Aspen, Jack thoroughly deserves this
recognition, will continue the founding Coombs family's deep involvement with
S&U and add boundless energy and, dare I say it, youth to our Board
deliberations. The second, and latest appointee to the Board is Jeremy
Maxwell, whom we were delighted to appoint earlier this year after an
exhaustive and very thorough process, and who brings considerable talent,
wisdom and experience in marketing, particularly in the Business to Consumer
field, at Wolseley UK, Carpetright, B&Q, Screwfix and Mothercare.
Current Trading and Outlook
As the world reels from one crisis to another, it is apt to remember the words
of Winston Churchill, our greatest war leader: "I'm an optimist - it does not
seem too much use to be anything else". Like all successful businesses with a
long history, S&U recognises that it must tailor its products and services
and trim its operational tack to its economic, political and regulatory
environment, over which it may have little control but to which it can
nevertheless adapt and therefore thrive. Whilst this year's resounding results
clearly show our, and most important our loyal people's, ability to do this,
their work in preparing and priming the Group for both the opportunities and
challenges now facing all of us, gives me a quiet but determined confidence in
S&U's future.
Anthony Coombs
Chairman
28 March 2022
CONSOLIDATED INCOME STATEMENT
Year ended 31 January 2022 Note
2022 2021
£'000 £'000
Revenue 3 87,889 83,761
Cost of Sales 4 (22,891) (50,969)
Gross Profit 64,998 32,792
Administrative expenses (14,208) (11,096)
Operating profit 50,790 21,696
Finance costs (net) 5 (3,772) (3,568)
Profit before taxation 47,018 18,128
Taxation (9,036) (3,482)
Profit for the year attributable to equity holders 37,982 14,646
Earnings per share basic 7 312.8p 120.7p
Earnings per share diluted 7 312.7p 120.7p
Dividends per share
- Proposed Final Dividend 57.0p 43.0p
- Interim dividends in respect of the year 69.0p 47.0p
- Total dividend in respect of the year 126.0p 90.0p
- Paid in the year 101.0p 108.0p
All activities derive from continuing operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2022 2021
£'000 £'000
Profit for the year attributable to equity holders 37,982 14,646
Actuarial loss on defined benefit pension scheme (6) (9)
Total Comprehensive Income for the year 37,976 14,637
Items above will not be reclassified subsequently to the Income Statement
CONSOLIDATED BALANCE SHEET
31 January 2022 Note
2022 2021
£'000 £'000
ASSETS
Non current assets
Property, plant and equipment including right of use assets 2,455 2,713
Amounts receivable from customers 6 181,614 170,591
Deferred tax assets 120 109
184,189 173,413
Current Assets
Amounts receivable from customers 6 141,301 110,319
Trade and other receivables 1,739 1,106
Cash and cash equivalents - 1
143,040 111,426
Total Assets 327,229 284,839
LIABILITIES
Current liabilities
Bank overdrafts and loans (2,568) -1,295
Trade and other payables (4,347) (2,763)
Tax Liabilities (926) (593)
Lease liabilities (174) (169)
Accruals (774) (658)
(8,789) (5,478)
Non current liabilities
Borrowings (111,000) (97,500)
Lease Liabilities (243) (382)
Financial Liabilities (450) (450)
(111,693) (98,332)
Total liabilities (120,482) (103,810)
NET ASSETS 206,747 181,029
Equity
Called up share capital 1,718 1,717
Share premium account 2,301 2,301
Profit and loss account 202,728 177,011
Total equity 206,747 181,029
STATEMENT OF CHANGES IN EQUITY
Year ended 31 January 2022
Called up Share Profit
share premium and loss Total
capital account account equity
£'000 £'000 £'000 £'000
At 1 February 2020 1,715 2,301 175,458 179,474
Profit for year - - 14,646 14,646
Other comprehensive income for year - - (9) (9)
Total comprehensive income for year - - 14,637 14,637
Issue of new shares in year 2 - - 2
Cost of future share based payments - - 75 75
Tax credit on equity items - - (61) (61)
Dividends - - (13,098) (13,098)
At 31 January 2021 1,717 2,301 177,011 181,029
Profit for year - - 37,982 37,982
Other comprehensive income for year - - (6) (6)
Total comprehensive income for year - - 37,976 37,976
Issue of new shares in year 1 - - 1
Cost of future share based payments - - 39 39
Tax charge on equity items - - (35) (35)
Dividends - - (12,263) (12,263)
At 31 January 2022 1,718 2,301 202,728 206,747
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 January 2022
Note
2022 2021
£'000 £'000
Net cash (used in)/from operating activities 8 (2,094) 32,940
Cash flows used in investing activities
Proceeds on disposal of property, plant and equipment 93 103
Purchases of property, plant and equipment (377) (1,215)
Net cash used in investing activities (284) (1,112)
Cash flows from/(used in) financing activities
Dividends paid (12,263) (13,098)
Issue of new shares 1 2
Receipt of new borrowings 25,000 4,000
Repayment of borrowings (11,500) (25,000)
Increase/(decrease) in lease liabilities (134) 318
Net increase in overdraft 1,273 1,295
Net cash (used in)/from financing activities 2,377 (32,483)
Net (decrease)/increase in cash and cash equivalents (1) (655)
Cash and cash equivalents at the beginning of year 1 656
Cash and cash equivalents at the end of year - 1
Cash and cash equivalents comprise
Cash and cash in bank - 1
There are no cash and cash equivalent balances which are not available for use
by the Group (2021: £nil).
1. SHAREHOLDER INFORMATION
1.1 Preliminary Announcement
This unaudited preliminary announcement does not constitute the full
financial statements prepared in accordance with International Financial
Reporting Standards (IFRS). The unaudited preliminary announcement
was approved by the Board of directors on 28( ) March 2022.The
Company's Annual Report will be finalised subsequent to this preliminary
unaudited results announcement. The figures shown for the year ended 31
January 2022 are not statutory accounts within the meaning of section 435 of
the Companies Act 2006.
The figures shown for the year ended 31 January 2021 are not statutory
accounts. A copy of the statutory accounts has been delivered to the Registrar
of Companies, contained an unqualified audit report and did not contain an
adverse statement under section 498(2) or 498(3) of the Companies Act 2006. A
copy of this preliminary announcement will be published on the website
www.suplc.co.uk. The Directors are responsible for the maintenance and
integrity of the Company website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements differ
from legislation in other jurisdictions.
1.2 Annual General Meeting
The Annual General Meeting will be held on 26 May 2022 and further details of
arrangements will be published in the AGM notice.
1.3 Dividend
If approved at the Annual General Meeting a final dividend of 57p per Ordinary
Share is proposed, payable on 8 July 2021 with a record date of 17 June 2021.
1.4 Annual Report
The 2022 Annual Report and Financial Statements and AGM notice will be
displayed in full on our website www.suplc.co.uk in due course and also posted
to those Shareholders who have still opted to receive a hardcopy. Copies of
this announcement are available from the Company Secretary, S & U plc, 2
Stratford Court, Cranmore Boulevard, Solihull B90 4QT.
2. KEY ACCOUNTING POLICIES
The 2022 financial statements have been prepared in accordance with applicable
accounting standards and accounting policies - these key accounting policies
are a subset of the full accounting policies.
2.1 Basis of preparation
As a listed Company we are required to prepare our consolidated financial
statements in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and International Financials
Reporting Standards (IFRS) as adopted by the United Kingdom. We have also
prepared our S&U plc Company financial statements in in conformity with
the requirements of the Companies Act 2006 and International Financials
Reporting Standards (IFRS) as adopted by the United Kingdom. The financial
statements have also been prepared in accordance with International Financial
Reporting Standards as issued by the IASB. These financial statements have
been prepared under the historical cost convention. The consolidated financial
statements incorporate the financial statements of the Company and all its
subsidiaries for the year ended 31 January 2022. As discussed in the strategic
report, the directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis in
preparing the annual report and accounts.
There are no new standards which have been adopted by the group this year
which have a material impact on the financial statements of the Group.
At the date of authorisation of this preliminary announcement the directors
anticipate that the adoption in future periods of any other Standards and
interpretations which are in issue but not yet effective, will have no
material impact on the financial statements of the Group.
2.2 Revenue recognition
Interest income is recognised in the income statement for all loans and
receivables measured at amortised cost using the constant periodic rate of
return on the net investment in the loans, which is akin to an effective
interest rate (EIR) method. The EIR is the rate that exactly discounts
estimated future cash flows of the loan back to the present value of the
advance and hire purchase interest income is then recognised using the EIR.
Acceptance fees charged to customers and any direct transaction costs are
included in the calculation of the EIR. For hire purchase agreements in
Advantage Finance which are classified as credit impaired (i.e. stage 3 assets
under IFRS 9), the group recognises revenue 'net' of the impairment provision
to align the accounting treatment under IFRS 16 with the requirements of IFRS
9 and also with the treatment adopted for similar assets in Aspen. Revenue
starts to be recognised from the date of completion of the loan - after
completion hire purchase customers have a 14 day cooling off period during
which they can cancel their loan.
2.3 Impairment and measurement of amounts receivable from customers
All customer receivables are initially recognised as the amount loaned to the
customer plus direct transaction costs. After initial recognition the amounts
receivable from customers are subsequently measured at amortised cost.
The directors assess on an ongoing basis whether there is objective evidence
that a loan asset or group of loan assets is impaired and requires a deduction
for impairment. A loan asset or a group of loan assets is impaired only if
there is objective evidence of credit impairment as a result of one or more
events that occurred after the initial recognition of the loan. Objective
evidence may include evidence that a borrower or group of borrowers is
experiencing financial difficulty or delinquency in repayments. Impairment is
then calculated by estimating the future cash flows for such impaired loans,
discounting the flows to a present value using the original EIR and comparing
this figure with the balance sheet carrying value. All such impairments are
charged to the income statement. Under IFRS 9 for all stage 1 accounts which
are not credit impaired, a further collective provision for expected credit
losses in the next 12 months is calculated and charged to the income
statement.
Key assumptions in ascertaining whether a loan asset or group of loan assets
is impaired include information regarding the probability of any account going
into default (PD) and information regarding the likely eventual loss including
recoveries (LGD). These assumptions and assumptions for estimating future cash
flows are based upon observed historical data and updated to reflect current
and future conditions. As required under IFRS9, all assumptions are reviewed
regularly to take account of differences between previously estimated cash
flows on impaired debt and the eventual losses.
There are 3 classification stages under IFRS9 for the impairment of amounts
receivable from customers:
Stage 1: Not credit impaired and no significant increase in credit risk since
initial recognition
Stage 2: Not credit impaired and a significant increase in credit risk since
initial recognition
Stage 3: Credit impaired
For all loans in stages 2 and 3 a provision equal to the lifetime expected
credit loss is taken. In addition and in accordance with the provisions of
IFRS9 a collective provision for 12 months expected credit losses ("ECL") is
recognised for the remainder of the loan book. 12-month ECL is the portion of
lifetime ECL that results from default events on a financial asset that are
possible within 12 months after the reporting date.
In our Motor Finance business, all loans 1 month or more in contractual
arrears are deemed credit impaired and are therefore included in IFRS9 stage
3. This results in more of our net receivables being in stage 3 and the
associated stage 3 loan loss provisions therefore being higher than if we
adopted a more prime customer receivables approach of 3 months or more in
arrears. Our approach of 1 month or more in contractual arrears is based on
our historic observation of subsequent loan performance after customers fall 1
month or more in contractual arrears within our non-prime motor finance
customer receivables book. The expected credit loss ("ECL") is the probability
weighted estimate of credit losses.
A PD/LGD model was developed by our Motor Finance business, Advantage Finance,
to calculate the expected loss impairment provisions in accordance with
IFRS9. Stage 1 expected losses are recognised on inception/initial
recognition of a loan based on the probability of a customer defaulting in the
next 12 months. This is determined with reference to historical data updated
for current and future conditions. If a motor finance loan falls one month or
more in contractual arrears, then this is deemed credit impaired and included
in IFRS9 Stage 3. There are some motor finance loans which are up to date with
payments but the customer is in some form of forbearance and we deem this to
be a significant increase in credit risk and so these loans are included in
Stage 2. As a result of the uncertainty over the performance of customers who
were granted a payment holiday as part of the Government and FCA support
measures as a result of the Covid pandemic and have also either requested a
second payment holiday or have had a previous payment delinquency, we
have assessed these customers to have a significant increase in credit risk
and they are therefore included in Stage 2. This is why the volume of
customers in Stage 2 increased at 31 January 2021. However, if a customer's
payment holiday finished more than 12 months ago and they are unimpaired 12
months later then an account will not be in stage 2 as the customer's post
payment holiday record now indicates low risk at the reporting date. This is
why the volume of customers in stage 2 reduced at 31 January 2022. As we do
not have historical data for such customers, we made an assumption on the loss
rates associated with such customers by reference to relevant Stage 3 loss
rates. Further sensitivity over this estimation uncertainty is provided in
note 2.5.
As required under IFRS9 the expected impact of movements in the macroeconomy
is also reflected in the expected loss model calculations. For motor finance,
assessments are made to identify the correlation of the level of impairment
provision with forward looking external data regarding forecast future levels
of employment, inflation, interest rates and used car values which may affect
the customers' future propensity to repay their loan. The macroeconomic
overlay assessments for 31 January 2022 reflect that further to considering
such external macroeconomic forecast data, management have judged that there
is currently a more heightened risk of an adverse economic environment for our
customers and the value of our motor finance security. To factor in such
uncertainties, management has included an overlay for certain groups of assets
to reflect this macroeconomic outlook, based on estimated unemployment,
inflation and used vehicle price levels in future periods. Further sensitivity
over this estimation uncertainty is provided in note 2.5.
Other than the changes to the approach mentioned above, there were no
significant changes to estimation techniques applied to the calculations used
at 31 January 2022 and those used at 31 January 2021.
PD/LGD calculations for expected loss impairment provisions were also
developed for our Property Bridging business Aspen Bridging in accordance with
IFRS9. Stage 1 expected losses are recognised on inception/initial
recognition of a loan based on the probability of a customer becoming impaired
in the next 12 months. The Bridging product has a single repayment scheduled
for the end of the loan term and if a bridging loan is not granted an
extension or repaid beyond the end of the loan term then this is deemed credit
impaired and included in IFRS9 Stage 3. Due mainly to the high values of
property security attached to bridging loans, the bridging sector typically
has lower credit risk and lower impairment than other credit sectors.
Assets in both our secured loan businesses are written off once the asset has
been repossessed and sold and there is no prospect of further legal or other
debt recovery action. Where enforcement action is still taking place loans are
not written off. In motor finance where the asset is no longer present then
another indicator used to determine whether the loan should be written off is
the lack of any receipt for 12 months from that customer.
2.4 Performance Measurements
i) Risk adjusted yield as % of average monthly receivables is the gross
yield for the period (revenue minus impairment) divided by the
average amounts receivable from customers for the period.
ii) Rolling 12-month impairment to revenue % is the
impairment charged in the income statement during the 12 months prior to the
reporting date divided by the revenue for the same 12-month period. Historic
comparisons using this measure were affected by the adoption of new accounting
standards IFRS9 and IFRS16 and risk adjusted yield is considered a more
historically comparable guide to receivables performance.
iii) Return on average capital employed before cost of funds is calculated as
the Operating Profit divided by the average capital employed (total equity
plus Bank Overdrafts plus Borrowings less cash and cash equivalents)
iv) Dividend cover is the basic earnings per ordinary share declared for the
financial year dividend by the dividend per ordinary share declared for the
same financial year.
v) Group gearing is calculated as the sum of Bank Overdrafts plus Borrowings
less cash and cash equivalents divided by total equity.
vi) Group collections are the total monthly collections, settlement proceeds
and recovery collections in motor finance added to the total amount retained
from advances, customer redemptions and recovery collections in property
bridging.
2.5 Critical accounting judgements and key sources of estimation uncertainty
In preparing these financial statements, the Company has made judgements,
estimates and assumptions which affect the reported amounts within the current
and next financial year. Actual results may differ from these estimates.
Estimates and judgements are regularly reviewed based on past experience,
expectations of future events and other factors.
Critical accounting judgements
The following are the critical accounting judgements, apart from those
involving estimations (which are dealt with separately below), that the
Directors have made in the process of applying the Company's accounting
policies and that have the most significant effect on the amounts recognised
in the financial statements.
Significant increase in credit risk for classification in Stage 2
The Company's transfer criteria determine what constitutes a significant
increase in credit risk, which results in a customer being moved from Stage 1
to Stage 2. As a result of the uncertainty over the performance of customers
who were granted a payment holiday as part of the Government and FCA support
measures and have also either requested a second payment holiday or have had a
previous payment delinquency, we have assessed these customers to have a
significant increase in credit risk and they are therefore included in Stage
2. However, if a customer's payment holiday finished more than 12 months ago
and they are unimpaired 12 months later then an account will not be in stage 2
as the customer's post-holiday payment record now indicates low credit risk at
the reporting date.
Key sources of estimation uncertainty
The directors consider that the sources of estimation uncertainty which have
the most significant effect on the amounts recognised in the financial
statements are those inherent in the consumer credit markets in which we
operate relating to impairment as outlined in 1.4 above. In particular, the
Group's impairment provision is dependent on estimation uncertainty in
forward-looking on areas such as employment rates, inflation rates and used
car and property prices.
The Group implemented IFRS 9 from 1 February 2018 by developing models to
calculate expected credit losses in a range of economic scenarios. These
models involve setting modelling assumptions, weighting of economic scenarios,
the criteria of determining significant deterioration in credit quality and
the application of adjustments to model outputs. We have outlined assumptions
in our expected credit loss model in the
current year. Reasonable movement in these assumptions might have a material
impact on the impairment provision value.
Macroeconomic overlay for our motor finance business
For this overlay, the Group considers four probability-weighted scenarios in
relation to unemployment rate: base, upside, downside and severe scenarios as
follows:
Base Upside Downside Severe Weighted
(30% increase) (30 % decrease) (50% increase)
Weighting 50% 5% 40% 5%
Q1 2022 3.80% 2.66% 4.94% 5.70% 4.29%
Q1 2023 4.20% 2.94% 5.46% 6.30% 4.75%
Q1 2024 4.60% 3.22% 5.98% 6.90% 5.20%
Q1 2025 5.00% 3.50% 6.50% 7.50% 5.65%
Inflation rates have not previously been factored into the macroeconomic
overlay but at 31 January 2022 we have included them due to the extraordinary
increases currently forecast for the next 12 months period and the potential
impact on our customers and their repayments. The Group considers four
probability-weighted scenarios in relation to inflation rate: base, upside,
downside and severe scenarios as follows:
Base Upside Downside Severe Weighted
(30% increase) (30 % decrease) (50% increase)
Weighting 50% 5% 40% 5%
Q1 2022 5.70% 3.99% 7.41% 8.55% 6.44%
Q1 2023 5.20% 3.64% 6.76% 7.80% 5.88%
Q1 2024 2.10% 1.47% 2.73% 3.15% 2.37%
Q1 2025 1.60% 1.12% 2.08% 2.40% 1.81%
An increase by 0.5% in the weighted average unemployment rate would result in
an increase in the impairment loss by £856,687. A decrease by 0.5% would
result in a decrease in the impairment loss by £856,687. An increase by 0.5%
in the weighted average inflation rate would result in an increase in the
impairment loss by £401,572. A decrease by 0.5% would result in a decrease in
the impairment loss by £401,572.
3. SEGMENTAL ANALYSIS
Analyses by class of business of revenue and profit before taxation from
continuing operations
are stated below:
Revenue Profit before taxation
Year Year Year Year
ended ended ended ended
31.1.22 31.1.21 31.1.22 31.1.21
Class of business £'000 £'000 £'000 £'000
Motor finance 78,898 79,553 43,682 17,198
Property Bridging finance 8,991 4,208 3,414 813
Central costs net of central - - (78) 117
finance income
87,889 83,761 47,018 18,128
Analyses by class of business of assets and liabilities are stated below:
Assets Liabilities
Year Year Year Year
ended ended ended ended
31.1.22 31.1.21 31.1.22 31.1.21
Class of business £'000 £'000 £'000 £'000
Motor finance 262,458 250,207 (131,012) (144,036)
Property Bridging finance 64,426 34,271 (59,606) (32,213)
Central 345 361 70,136 77,748
327,229 284,839 (120,482) (98,501)
Depreciation of assets for motor finance was £427,000 (2021: £417,000), for
property bridging finance was £21,000 (2021: £18,000) and for central was
£81,000 (2021: £86,000). Fixed asset additions for motor finance were
£337,000 (2021: £1,198,000), for property bridging finance were £16,000
(2021: £14,000) and for central were £24,000 (2021: £3,000).
The net finance credit for central costs was £2,506,000 (2021: £2,577,000),
for motor finance was a cost of £4,394,000 (2021: £5,381,000) and for
property bridging finance was a cost of £1,884,000 (2020: £764,000). The tax
credit for central costs was £24,000 (2021: tax charge of £48,000), for
motor finance was a tax charge of £8,408,000 (2021: £3,265,000) and for
property bridging finance was a tax charge of £652,000 (2021: £169,000).
The significant products in motor finance are car and other vehicle loans
secured under hire purchase agreements.
The significant products in property bridging finance are bridging loans
secured on property.
The assets and liabilities of the Parent Company are classified as Central.
No geographical analysis is presented because all operations are situated in
the United Kingdom.
4. COST OF SALES
2022 2021
£'000 £'000
Loan loss provisioning charge - motor finance 3,805 35,995
Loan loss provisioning charge - property bridging finance 315 710
Total loan loss provisioning charge 4,120 36,705
Other cost of sales - motor finance 17,266 13,586
Other cost of sales - property bridging finance 1,505 678
Total cost of sales 22,891 50,969
5. FINANCE COSTS (NET)
2022 2021
£'000 £'000
31.5% cumulative preference dividend 142 142
Lease liabilities interest 17 13
Bank loan and overdraft 3,613 3,455
Interest payable and similar charges 3,772 3,610
Interest receivable - -42
Total finance costs (net) 3,772 3,568
6. AMOUNTS RECEIVABLE FROM CUSTOMERS
2022 2021
£'000 £'000
Motor finance hire purchase 350,517 339,349
Less: Loan loss provision motor finance (91,481) (92,583)
Amounts receivable from customers motor finance 259,036 246,766
Property bridging finance loans 64,525 34,475
Less: Loan loss provision property bridging finance (646) (331)
Amounts receivable from customers property bridging finance 63,879 34,144
Amounts receivable from customers 322,915 280,910
Analysis of future due date due
- Due within one year 141,301 110,319
- Due in more than one year 181,614 170,591
Amounts receivable from customers 322,915 280,910
Analysis of Security
Loans secured on vehicles under hire purchase agreements 254,933 242,039
Loans secured on property 63,879 34,144
Other loans not secured - motor finance where security no longer present 4,103 4,727
Amounts receivable from customers 322,915 280,910
The credit risk inherent in amounts receivable from customers is reviewed as
per note 2.3 and under this review the credit quality of assets which are
neither past due nor impaired was considered to be good with the exception of
1,688 vulnerable or Covid impacts payment deferral customers who although not
in arrears at 31.1.22 were assessed from a review of internal data to have a
significant increase in credit risk (2021: 6,298) . Under IFRS9 therefore
these customers although not in arrears are included in stage 2 at 31.1.22
with an increased impairment provision.
6. AMOUNTS RECEIVABLE FROM CUSTOMERS (CONTINUED)
Analysis of loan loss provision and amounts receivable from customers
(capital)
Not credit Not credit Credit
Impaired Impaired Impaired
Stage 1: Stage 2: Stage 3:
Subject to Subject to Subject to Total Amounts
12 months lifetime lifetime Provision Receivable
As at 31 January 2022 ECL ECL ECL
£'000 £'000 £'000 £'000 £'000
Motor finance (22,129) (2,769) (66,583) (91,481) 350,517
Property bridging finance (446) - (200) (646) 64,525
Total (22,575) (2,769) (66,783) (92,127) 415,042
Stage 1: Stage 2: Stage 3:
Subject to Subject to Subject to Total Amounts
12 months lifetime lifetime Provision Receivable
As at 31 January 2021 ECL ECL ECL
£'000 £'000 £'000 £'000 £'000
Motor finance (14,367) (12,759) (65,457) (92,583) 339,349
Property bridging finance (313) - (18) (331) 34,475
Total (14,680) (12,759) (65,475) (92,914) 373,824
Stage 1: Stage 2: Stage 3:
Subject to Subject to Subject to Total
12 months lifetime lifetime Provision
Analysis of Loan loss provisions ECL ECL ECL
£'000 £'000 £'000 £'000
At 1 February 2020 13,603 51 50,676 64,330
Net transfers and changes in credit risk (5,051) 11,502 17,014 23,465
New loans originated 6,302 1,219 5,719 13,240
Total impairment charge to income statement 1,251 12,721 22,733 36,705
Amount netted off revenue for stage 3 assets - - 8,891 8,891
Utilised provision on write-offs (174) (13) (16,825) (17,012)
At 31 January 2021 14,680 12,759 65,475 92,914
Net transfers and changes in credit risk (3,144) (7,462) (2,775) (13,381)
New loans originated 11,212 112 6,177 17,501
Total impairment charge to income statement 8,068 (7,350) 3,402 4,120
Amount netted off revenue for stage 3 assets - - 10,197 10,197
Utilised provision on write-offs (173) (2,640) (12,291) (15,104)
At 31 January 2022 22,575 2,769 66,783 92,127
7. EARNINGS PER ORDINARY SHARE
The calculation of earnings per ordinary share from continuing operations is
based on profit after tax of £37,982,000 (2021: £14,646,000).
The number of shares used in the basic eps calculation is the weighted average
number of shares in issue during the year of 12,142,928 (2021: 12,129,768).
There are a total of 5,500 dilutive share options in issue (2021: 17,000) and
taking into account the appropriate proportion of these dilutive options the
number of shares used in the diluted eps calculation is 12,145,096 (2021:
12,134,619).
8. RECONCILIATION OF OPERATING PROFIT TO NET CASH FROM OPERATING ACTIVITIES
2022 2021
£'000 £'000
Operating Profit 50,790 21,696
Finance costs paid (3,772) (3,610)
Finance income received - 42
Tax paid (8,749) (6,662)
Depreciation on plant, property and equipment 529 520
Loss/(profit) on disposal of plant, property and equipment 13 (13)
(Increase)/decrease in amounts receivable from customers (42,005) 20,840
(Increase)/decrease in trade and other receivables (633) 367
Increase/(decrease) in trade and other payables 1,584 (363)
Increase in accruals 116 57
Increase in cost of future share based payments 39 75
Movement in retirement benefit asset/obligations (6) (9)
Net cash from/(used in) operating activities (2,094) 32,940
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