REG - S & U PLC - Preliminary Results
28/03/2023 07:00
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RNS Number : 3814U S & U PLC 28 March 2023
28 March 2023
S&U plc
("S&U", "the Group" or "the Company")
PRELIMINARY UNAUDITED RESULTS FOR THE YEAR ENDED 31 JANUARY 2023
S&U plc (LSE: SUS), the motor finance and specialist lender, today
announces its preliminary unaudited results for the year ended 31 January
2023.
Group Key Financials:
· Profit before tax ("PBT"): £41.4m (2022: £47.0m; 2021: £18.1m;
2020 pre-pandemic: £35.1m)
· Revenue increased by 17% to £102.7m (2022: £87.9m)
· Group net receivables at year-end increased by 30% to £420.7m
(2022: £322.9m)
· Group impairment charge of £13.9m (2022: £4.1m; 2021 £36.7m;
2020 pre-pandemic: £17.2m)
· Group net finance costs at £7.5m (2022: £3.8m) higher
borrowings and increased base rates this year
· Basic earnings per share: 277.5p (2022: 312.8p; 2021: 120.7p;
2020 pre-pandemic: 239.6p)
· Final dividend of 60p per ordinary share to be paid on 7 July
2023 (2022: 57p)
· Net Borrowings at £192.4m (2022: £113.6m) - gearing at 85.5%
(2022: 54.9%)
Advantage Motor Finance Highlights:
· PBT: £37.2m (2022: £43.7m; 2021: £17.2m; 2020 pre-pandemic:
£34.0m)
· Revenue increased by 14% to £89.8m (2022: £78.9m)
· Impairment charge: £12.9m (2022: £3.8m; 2021 £36.7m; 2020
pre-pandemic: £16.5m)
· Live monthly collections at 93.6% of due (2022: 93.2%) and
continued lower bad debt attrition
· Annual net advances: £186.6m (2022: £140.9m)
· Net receivables at yearend at £306.8m (2022: £259.0m)
Aspen Bridging Highlights:
· PBT: £4.5m (2022: £3.4m; 2021: £0.8m; 2020 pre-pandemic
£1.2m)
· Annual PBT performance underpinned by strong advances and good
repayments
· Only one £80k impairment loss this year (2022: none)
· Tightened conservative valuations further and reduced LTVs in H2
2022 in anticipation of forecast 5% fall in house prices in 2023
· Amounts receivable from customers now £113.9m (2022: £63.9m)
Audit - our auditor Mazars LLP, have again this year regretfully informed us
that due to their organisational constraints, they are finalising a small
number of residual audit procedures which were due to have concluded ahead of
this 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:
"In a world still full of uncertainty, change and cloying pessimism, clarity
of purpose and vision is more crucial than ever. A former Chairman of Jaguar
Motors put it succinctly: "the absolute fundamental aim is to make money out
of satisfying customers". Current trading is good and I am confident that
our focus, our expertise and our experienced team will enable us to take
advantage of the emerging opportunities that this year will bring."
For further information, please contact:
Anthony Coombs S&U plc c/o SEC Newgate Communications
Bob Huxford, Molly Gretton, Harry Handyside SEC Newgate Communications 020 7653 9848
Andrew Buchanan, Adrian Trimmings, Sam Milford Peel Hunt LLP 020 7418 8900
A conference call presentation for analysts will be held on 28(th) March 2023
at 9.30am
CHAIRMAN'S REVIEW
Introduction
I am very pleased to report that my optimism of last year and my then "quiet
but determined confidence" in S&U's future has been vindicated by this
year's excellent results. Despite the maelstrom of a European war, political
upheaval in Britain and rising inflation, taxation and interest rates, S&U
has produced profit before tax of £41.4m, fully 27% up on the average of the
last two pandemic years, and the highest 'normalised' profit in its over
eighty-year history.
Revenue for the year was £102.7m (2022: £87.9m) and group equity has grown
by 9% to a record £224.9m. At 31 January 2023, group total assets reached
£428m for the first time, up by just over £100m in the year and by nearly
40% on pre-pandemic levels. As I predicted a year ago, S&U is indeed
"primed for a new era of profitable growth".
Although conscious of its wider societal obligations, S&U's primary
obligations are to our shareholders, our staff and our customers. For
shareholders, this is reflected this year in basic earnings per share this
year of 277.5p, which is 22% up on the average of the past four years. Staff
numbers continue to grow; we are proud to have Gold Investor in People status
at Advantage Finance, have become a Real Living Wage employer and have taken
steps to ameliorate current cost of living pressures on our staff. Service to
our customers is reflected both in their number - a record 65,200 - and in the
longstanding relationships we enjoy with them.
Financial Highlights**
Profit before tax ("PBT"): £41.4m (2022: £47.0m*)
Revenue: £102.7m (2022: £87.9m)
Earnings per share ("EPS") 277.5p (2022: 312.8p*)
Group net assets: £224.9m (2022: £206.7m)
Group gearing: 85.5% (2022: 54.9%)
Group total collections: £311.9m (2022: £294.3m)
Dividend proposed: 133p per ordinary share (2022: 126p)
*The profit for 2021/2022 was enhanced by a lower than normal loan loss
provision charge which reflected the lower use of impairment provisions made
in the previous Covid-affected financial year. The average annual profit
before tax in the two pandemic years to 31 January 2022 was £32.6m and
earnings per share averaged 216.8p.
** key alternative performance measurement definitions are given in note 2.4
below.
The results we are reporting are all the more creditable given the UK's
current economic performance and its still gloomy, although possibly
brightening, economic outlook. UK GDP continues to teeter on recession. There
was no growth in the fourth quarter of 2022 and, almost uniquely in Europe,
the UK economy is still smaller than it was before the Covid pandemic. As has
been evident over the past 12 years, productivity is feeble in the UK and is
unlikely to increase substantially since the current government lacks a clear
and robust growth strategy. Recent governments have vacillated between the
fiscal incontinence of last year and the hair shirt philosophy of the current
administration. None have espoused the regulatory, public sector and tax
simplification reforms so essential for rebooting the economy.
Nevertheless, despite all this, S&U has recently seen very strong demand
for its products particularly at Advantage. Indeed, UK economic prospects may
be brightening as, although from historically low levels, consumer confidence
is improving. Some commentators have reduced their forecast for inflation from
18% in 2022 to just 2.8% by November. Public finances have recently seen a
£30 billion improvement whilst the government surplus in January alone was
£5 billion. More pragmatic voices on the Bank of England monetary policy
committee are arguing that the declining energy price shock and the lag
effects of recent interest rate rises might mean current monetary policy could
be more effective in bringing down inflation than expected.
This optimism is evident in the sectors in which S&U operates. Despite low
consumer confidence generally, and although still constrained by supply, the
used car market remains robust. Whilst prices rose year on year by 11% to
mid-2022, as supply increased this rise is now around 3% per annum. Indeed the
average price of a used car has risen from £9,000 in 2011 to £17,600 in
2022. Whilst not overstating current consumer confidence, customers are
reacting to cost of living pressures pragmatically and in ways which favour
the products S&U offers.
Thus, whilst in 2012 just 23% of used car sales were on finance, this is now
45% (Autotrader). The number of people searching for online finance is up 28%
on pre-pandemic levels. Although transactions in 2022 have not yet reached
pre-Covid levels, the market remains buoyant. This is most graphically
illustrated at Advantage where loan applications have reached over 2.5m for
the first time this year.
These trends have enabled Advantage to attract high-quality customers and
larger average loan sizes (£7,800 now against £6,400 three years ago).
Moreover, as was seen in 2007-2009 in the "Great Financial Crisis", near prime
customers are being rationed and restricted by "mainstream" finance providers,
enabling Advantage to attract them at sensible rates of return.
The housing market upon which Aspen depends both for transaction volumes and
loan security, continues to be stronger than anticipated, despite rising
borrowing costs and the upheaval in the money markets of last autumn. Whilst
house prices have fallen slightly over the past six months this appears now to
be stabilising. Indeed ONS statistics for December show annual price growth
still 10% against a peak of 12% earlier in the year. Even allowing for an
average 5% price deflation predicted for 2023, this would imply a cumulative
increase over two years of just under 5% which further underpins Aspen's
conservatively written collateral. This conservatism gives S&U the
confidence to continue to invest in Aspen's new receivables book.
In sum, the relative buoyancy of the markets which S&U serves, coupled
with careful, experienced and watchful underwriting has allowed us to continue
to build our customer base and receivables books. This has been done in a
responsible and sustainable way, storing up future profits whilst guarding
against any further economic downturn in an uncertain world.
Advantage Finance ("Advantage")
Advantage Finance, our motor finance business proudly based in Grimsby, has
again produced near record results. Profit before tax is at £37.2m which is
not only 22% above the last two years' Covid average, but is the highest
'normalised' profit ever. Advantage's future prospects are grounded in a
record number of new transactions in the year at just under 24,000; net
receivables have therefore now reached over £300m for the first time.
Advantage now serves a record 65,200 customers.
Prudence and commercial logic both dictate that Advantage use the very
significant demand for its products to focus on excellent customers who,
buttressed by careful underwriting, good payment headroom and responsive
customer relations, will ensure good repayments even in more uncertain times.
Hence this year, particularly in the second half, has seen the introduction of
slightly larger, longer term and competitively priced loans which have
attracted near prime customers new to Advantage, which we anticipate will have
benefits for Advantage's already enviable book quality.
Quality was also boosted by Advantage's habitually conservative Credit
Committee and its underwriting. The business has sensibly adjusted its
affordability buffers throughout the year in line with the rising cost of
living, as well as its interest margins to account for rising operating and
finance costs.
Nevertheless, attracting good customers in ever larger numbers is not simply a
matter of price. It also depends on accurately targeted marketing. Here the
Advantage team has been substantially strengthened by new advisors, by
in-house recruitment and by a rebranding project which, directly and
digitally, will improve every aspect of Advantage's communication with
existing and new customers.
IT improvements are reinforcing this. Voice analytics, specialist vehicle
valuations, a new direct customer repayment portal, an improved website and a
smoother e-signature onboarding process, are just some of the initiatives the
ever restless and perfectionist Advantage teams are working on.
Of course, the ultimate arbiter of well-designed products and responsible
credit policies is the quality of collections and customer satisfaction. On
these two metrics Advantage scores very highly. In collections Advantage had
an excellent year producing live repayments at a record £161.8m (2022:
£152.7m). Advantage's collections as a percentage of due reached 93.6% which
beat both budget and last year.
Moreover, on record net receivables of nearly £307m, bad debts and voluntary
terminations were actually significantly under budget.
On customer satisfaction, Advantage's ratings on Trust Pilot reached a record
4.7 out of 5.
Both these achievements are testament to responsible underwriting, and more
particularly to Advantage's understanding and fair treatment of its customers
and its embracing of its duty of care to its customers, well before it is
mandated to do so later this year by the Financial Conduct Authority.
Whilst enjoying close links with our Regulators, both directly and through the
Finance and Leasing Association where Advantage's CEO, Graham Wheeler, plays a
prominent role, Advantage does operate in a highly - and increasingly -
regulated industry. The formal Consumer Duty introduced later this year for
all financial services companies focuses on actual, rather than anticipated,
customer outcomes, particularly for borrowers in financial difficulty.
Advantage is proud of its near 25-year history of customer service and has
responded by certifying a development plan and by embarking upon a 41 point
action list, which will also be monitored by S&U's internal auditors and
by its Audit Committee.
Although some may argue that the new Consumer Duty attempts to lay on lenders'
responsibilities for future events inevitably beyond their control, and which,
to an extent, replicates existing statutory duties of care to customers,
S&U endorses the Duty for ethical and competitive reasons. Undoubtedly,
those financial firms which best communicate their methods and products to
their customers will gain their trust, their loyalty and their commitment -
all values intrinsic to S&U's Mission Statement. As I have consistently
pointed out, ultimately good business is always good business.
As a consequence, Advantage has always maintained regular and cordial
relations with the FCA. This year this is particularly focused on making sure
that assessments of both credit worthiness and affordability are robust in an
inflationary climate. Advantage anticipated these trends by regular reviews of
its underwriting throughout the year. Indeed, it is this monitoring and
maintaining of the subtle balance between prudent underwriting and
competitively pricing products which has been the bedrock of Advantage's
success over the past 25 years.
This is also why Advantage sees the Consumer Duty giving a significant
competitive advantage to businesses which maintain the very high standards of
which they have been so rightly proud over the past 25 years.
In sum, a winning combination of a healthy market, intelligent underwriting,
efficient processes and empathetic customer relations have been rewarded at
Advantage by very good financial results. They are outlined in the business
review within my strategic report below.
Finally, the credit for this outstanding performance must go to all those who
work so hard and conscientiously at Advantage. Whilst adapting to hybrid
working, many have inevitably faced personal and financial challenges and I
pay tribute to them all. Particular mention must go to a dynamic and
enthusiastic board of directors, brilliantly led by Graham Wheeler whose
talents are recognised both at Advantage and throughout the motor finance
industry. It is in the commitment and energy of them all, that I place my
confidence in Advantage's exciting and enduring future.
Aspen Bridging
Aspen, our property bridging finance business based now in expanded office
space in Solihull, has produced a sparkling set of results. Profit before tax
is up no less than 31% to £4.46m, a record, and net receivables have
increased by £50m to £113.9m. Whilst transaction numbers rose by a more
modest 10% this was the result of a deliberate move towards larger, higher
quality loans with experienced borrowers. Thus, the average loan size rose by
11% and average blended yields were above budget.
The housing market against which 95% of Aspen's collateral is secured, is
undoubtedly slowing both due to Base Rate increases from 0.25% to 4% in the
year, and also to wider cost of living pressures. Whilst the recent Bank of
England Mortgage and Lending Report reveals more households than ever in
Britain having significant equity in their properties, house prices are
expected to fall an average 5% this year, whilst transaction numbers may
reduce further. However, Aspen has repositioned towards higher quality, less
mortgage-dependent borrowers and towards higher value properties. This is
expected to insulate the business against wider market fluctuations. Over the
past year Aspen has prudently increased its interest rates, tightened further
already conservative valuations and reduced LTVs. In mid-year the average
gross LTV for new business was 74%; it is now 66%.
This conservative approach is also reflected in Aspen's loan loss provisioning
charges which increased to £1.0m this year (2022: £0.3m), although the
business only incurred one actual loss during the year of £80,000. Each loan
underwritten in Aspen involves secondary independent assessment and a rigorous
valuation exercise including a physical inspection of the property by Aspen
staff - something which is rare in the industry.
A strong loan book also depends upon providing products which are tailored to
individual customers. Aspen is able to provide a bespoke service to borrowers
as well as being fleet of foot in the service it offers. Quarterly reviews of
staff productivity are held and new products considered. For instance, this
year saw Aspen's Bridge to Let product win new product of the year at the
Bridging and Commercial awards. It went on to comprise £22.8m of Aspen's
£134m advances this year.
Aspen runs a tight ship but a growing business requires more and properly
trained staff. Remuneration costs therefore rose this year by 26% compared to
a 44% rise in revenue. Staff numbers are now 21 against 18 a year ago. All new
staff members are expected to undertake CPD training and several have now
obtained RICS and legal qualifications. Fortunately, the local universities,
particularly Aston University, Birmingham, provide a regular supply of highly
talented and motivated individuals from a diverse local community.
Aspen's small team is characterised by hard work, growing experience and
imagination and these qualities together with a strong track record provide
the background for S&U's investment of a further £50m in the business
this year. I am confident that this will be reflected in continually improving
returns for the Group.
Dividends
Whilst acknowledging our responsibilities to wider stakeholders, S&U has
always felt a primary responsibility to its shareholders. We fulfil this by
regular engagement, and by distributing the rewards of the company success
with them; this implies our normal practice of a 50% distribution of post-tax
profits in dividends. This year the vacillations of our government over future
corporation tax rates have clouded these decisions. Therefore, in the light of
an EPS of 277.5p per share the board proposes to recommend, subject to the
approval of our shareholders at our AGM on the 25 May 2023, a final dividend
of 60p (2022: 57p) per Ordinary Share. This final dividend will be paid on 7
July 2023 to shareholders on the register on 16 June 2023. This will mean that
total dividends this year will be 133p per share (2022: 126p).
Funding and Treasury
A successful and growing business requires significant investment. Over the
past year excellent lending opportunities amongst good quality customers have
augmented Advantage's and Aspen's natural growth: S&U has therefore
invested just under £79m in net borrowings to finance a receivables book
which has grown by £98m. Net group borrowings therefore now stand at £192m.
Group medium-term facilities were increased in the autumn from £180m to
£210m and, as previously usual, more will be arranged as the business
develops. A rapidly increased Bank Rate has been budgeted for, not only in our
usual budgets but in our longer-term projections. Current signs hint that such
a view might happily prove conservative.
Nevertheless S&U plans to maintain a prudent Treasury policy. Gearing
still stands at 86% (2022:55%), well within covenanted levels. The experience
and expertise of Chris Redford, our Group Finance Director, and the finance
teams at Advantage and Aspen will ensure that this remains so.
Governance and Regulation
I will not repeat my concerns of a year ago on the importance of financial
regulation being proportionate, clear and not inhibiting a vigorous and
competitive free enterprise system. By harnessing the basic instincts of
communities and individuals to improve themselves and their families, it is
this free enterprise system - not one based on state control and intervention
- which has transformed living standards over the entire period of S&U's
existence.
But today too often this is taken for granted. New regulations, Codes of
Practice and "guidance" are never ceasing. Moreover, the government spends at
least half of the country's resources. Taxation is at its highest level since
1946. Such is the suspicion of the profit motive that detailed regulation of
every customer transaction is deemed essential both ab initio and throughout
the customer relationship.
Tragically, the gyrations and misfortunes of the current government have done
nothing to reverse these trends. There are three serious consequences. First
it destroys incentives - not just for the wealthy but for the aspirational and
much maligned middle-class who find themselves paying higher rates of tax on
the same real income.
Second, regulation can inhibit innovation. The financial services industry,
Advantage included, needs to be careful that this year's mandated focus on the
new Consumer Duty regime does not lead to postponement of new products and
innovation which would have also benefited customers.
Third, intervention and regulation enfeeble the economy and restricts economic
growth. Last year a further £74bn was "invested" in the ever-growing public
sector where productivity is both significantly less than in the private
sector, and may even in some areas be negative. Public sector output is still
7.4% below pre-pandemic levels. This is a significant cause of Britain's
decades-long decline in productivity.
On a day to day level however, S&U and Advantage in particular continue to
enjoy positive relations with their regulators. Advantage's preparations for
the Consumer Duty are well advanced, as is its Development Plan. Meanwhile,
Advantage's industry body, the Finance and Leasing Association upon which two
of our executives sit, continues to lobby for a more consistent and
coordinated legislative and regulatory regime.
More broadly, S&U continues to engage closely with the Environmental,
Social and Governance (ESG) agenda which arguably encapsulates much of the
suspicion of free enterprise to which I referred earlier. However, S&U is
formally adopting policies which both common sense and our company values
require of any good citizen. These, as the relevant sections of our strategy
report show, will concentrate in particular on targets to minimise or mitigate
our CO2 emissions.
Of course, good citizenship involves more than just 'green issues'. S&U
has a vibrant community and charity programme through the KC Trust which over
its 10-year history has contributed nearly am pounds to smaller charities,
which are reliant on their own voluntary fundraising and mainly work with
children and young adults with both physical and learning disabilities. Above
all, we give where it will really make a difference.
Finally, it gives me great pleasure to welcome Ed Ahrens, managing director of
Aspen Bridging, to the S&U board. Ed has a wealth of experience in the
banking and credit card sectors, joined us in 2015 and has since been
instrumental in creating and leading the team which is making Aspen Bridging
such a success. His appointment is just reward for his wise and energetic
contribution to the Group.
Current Trading and Outlook
"In a world still full of uncertainty, change and cloying pessimism, clarity
of purpose and vision is more crucial than ever. A former Chairman of Jaguar
Motors put it succinctly: "the absolute fundamental aim is to make money out
of satisfying customers". Current trading is good and I am confident that
our focus, our expertise and our experienced team will enable us to take
advantage of the emerging opportunities that this year will bring."
Anthony Coombs
Chairman
27 March 2023
CONSOLIDATED INCOME STATEMENT
Year ended 31 January 2023 Note
2023 2022
£'000 £'000
Revenue 3 102,714 87,889
Cost of Sales 4 (23,676) (18,771)
Impairment charge 5 (13,877) (4,120)
Gross Profit 65,161 64,998
Administrative expenses (16,256) (14,208)
Operating profit 48,905 50,790
Finance costs (net) 6 (7,495) (3,772)
Profit before taxation 41,410 47,018
Taxation (7,692) (9,036)
Profit for the year attributable to equity holders 33,718 37,982
Earnings per share basic 8 277.5p 312.8p
Earnings per share diluted 8 277.5p 312.7p
Dividends per share
- Proposed Final Dividend 60.0p 57.0p
- Interim dividends in respect of the year 73.0p 69.0p
- Total dividend in respect of the year 133.0p 126.0p
- Paid in the year 128.0p 101.0p
All activities derive from continuing operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2023 2022
£'000 £'000
Profit for the year attributable to equity holders 33,718 37,982
Actuarial loss on defined benefit pension scheme (13) (6)
Total Comprehensive Income for the year 33,705 37,976
CONSOLIDATED BALANCE SHEET
31 January 2023 Note
2023 2022
£'000 £'000
ASSETS
Non current assets
Property, plant and equipment including right of use assets 2,616 2,455
Amounts receivable from customers 7 219,305 181,614
Deferred tax assets 110 120
222,031 184,189
Current Assets
Amounts receivable from customers 7 201,405 141,301
Trade and other receivables 1,601 1,739
Cash and cash equivalents 3,137 0
206,143 143,040
Total Assets 428,174 327,229
LIABILITIES
Current liabilities
Bank overdrafts and loans - (2,568)
Trade and other payables (4,602) (4,347)
Tax Liabilities (888) (926)
Lease Liabilities (166) (174)
Accruals and deferred income (1,262) (774)
(6,918) (8,789)
Non current liabilities
Borrowings (195,500) (111,000)
Lease Liabilities (421) (243)
Financial Liabilities (450) (450)
(196,371) (111,693)
Total liabilities (203,289) (120,482)
NET ASSETS 224,885 206,747
Equity
Called up share capital 1,719 1,718
Share premium account 2,301 2,301
Profit and loss account 220,865 202,728
Total equity 224,885 206,747
STATEMENT OF CHANGES IN EQUITY
Year ended 31 January 2023
Called up Share Profit
share premium and loss Total
capital account account equity
£'000 £'000 £'000 £'000
At 1 February 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 credit on equity items - - (35) (35)
Dividends - - (12,263) (12,263)
At 31 January 2022 1,718 2,301 202,728 206,747
Profit for year - - 33,718 33,718
Other comprehensive income for year - - (13) (13)
Total comprehensive income for year - - 33,705 33,705
Issue of new shares in year 1 - - 1
Cost of future share based payments - - 6 6
Tax charge on equity items - - (28) (28)
Dividends - - (15,546) (15,546)
At 31 January 2023 1,719 2,301 220,865 224,885
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 January 2023
Note
2023 2022
£'000 £'000
Net cash used in operating activities 9 (62,760) (2,094)
Cash flows used in investing activities
Proceeds on disposal of property, plant and equipment 166 93
Purchases of property, plant and equipment (826) (377)
Net cash used in investing activities (660) (284)
Cash flows from financing activities
Dividends paid (15,546) (12,263)
Issue of new shares 1 1
Receipt of new borrowings 84,500 25,000
Repayment of borrowings - (11,500)
Increase/(decrease) in lease liabilities 170 (134)
Net increase/(decrease) in overdraft (2,568) 1,273
Net cash generated from financing activities 66,557 2,377
Net increase/(decrease) in cash and cash equivalents 3,137 (1)
Cash and cash equivalents at the beginning of year - 1
Cash and cash equivalents at the end of year 3,137 -
Cash and cash equivalents comprise
Cash and cash in bank 3,137 -
There are no cash and cash equivalent balances which are not available for use
by the Group (2022: £nil).
1. SHAREHOLDER INFORMATION
1.1 Preliminary Announcement
This unaudited preliminary announcement does not constitute the full financial
statements prepared in accordance with UK-adopted international accounting
standards. The unaudited preliminary announcement was approved by the Board of
directors on 27 March 2023. 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. 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. This announcement
has been agreed with the Company's auditors for release. 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 25 May 2023 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 60p per Ordinary
Share is proposed, payable on 7 July 2023 with a record date of 16 June 2023.
1.4 Annual Report
The 2023 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 2023 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 Group we are required to prepare our consolidated financial
statements in accordance with UK-adopted international accounting standards.
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 2023. 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.
Amortised cost includes a deduction for loan loss impairment provisions for
expected credit losses ("ECL") assessed by the directors in accordance with
the requirements of IFRS9.
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
The directors assess whether there is objective evidence that a loan asset or
group of loan assets is credit impaired and should be classified as stage 3. A
loan asset or a group of loan assets is credit 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 credit 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.
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 which is Stage 1. 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 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 our 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 were therefore included in Stage 2 until they re-established a successful
post holiday payment records. There are no payment holiday customers left in
stage 2 at 31 January 2023 as at that date all such customers are either
correctly classified in another stage or their agreement has finished This is
why the volume of customers in Stage 2 decreased at 31 January 2023.
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 2023 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 2023 and those used at 31 January 2022.
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 for the financial
year divided 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. Stage 2 currently includes customers who have a good payment
record but have been identified as vulnerable by trained staff. Vulnerability
can be driven by factors including health, life events, resilience or
capability. All customer facing staff are trained to help recognise
characteristics of vulnerability. Stage 2 previously included some pandemic
payment holiday customers but these customers have all now had 12 months to
re-establish their post holiday payment track record and are therefore now
either correctly included in another stage or their agreement has finished.
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% decrease) (30 % increase) (50% increase)
Weighting 50% 5% 40% 5%
Q1 2023 3.80% 2.66% 4.94% 5.70% 4.29%
Q1 2024 4.40% 3.08% 5.72% 6.60% 4.97%
Q1 2025 5.00% 3.50% 6.50% 7.50% 5.65%
Q1 2026 5.30% 3.71% 6.89% 7.95% 5.99%
Inflation rates were not previously factored into the macroeconomic overlay
prior to 31 January 2022 when we included them due to the extraordinary
increases forecast for the following 12 months period and the potential impact
on our customers and their repayments - high inflation and forecast inflation
were still present at 31 January 2023. 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% decrease) (30 % increase) (50% increase)
Weighting 50% 5% 40% 5%
Q1 2023 9.70% 6.79% 12.61% 14.55% 10.96%
Q1 2024 3.00% 2.10% 3.90% 4.50% 3.39%
Q1 2025 1.00% 0.70% 1.30% 1.50% 1.13%
Q1 2026 0.40% 0.28% 0.52% 0.60% 0.45%
An increase by 0.5% in the weighted average unemployment rate would result in
an increase in loan loss provisions by £1,044,494. A decrease by 0.5% would
result in a decrease in loan loss provisions by £1,044,494. An increase by
0.5% in the weighted average inflation rate would result in an increase in
loan loss provisions by £474,770. A decrease by 0.5% would result in a
decrease in loan loss provisions by £474,770.
Used vehicle price overlay and sensitivity for our motor finance business
Our used vehicle price overlay is based on used vehicle guide price
information and the mileage and condition of each vehicle is estimated which
is uncertain. It is also based on an uncertain assumption at 31.1.23 that used
car prices which increased significantly in 2021 and 2022 will fall by 13.5%.
This used vehicle price overlay has increased loan loss provisions at 31.1.23
by £6,656,000 (2022: increased provisions by £4,552,000). If used car prices
were only assumed to fall by 8.5% instead, then this would result in a
decrease in loan loss provisions of £2,815,718. If used car prices were
assumed to fall by 18.5% instead, then this would result in a further increase
in loan loss provisions of £2,717,750.
Expected loss sensitivity for our property bridging business
The PD/LGD expected loss impairment provision model calculations developed for
our Aspen bridging business have been based on extrapolating an inherently low
volume sample of historic defaults and losses to reflect the current
receivables and current market conditions. If the probability of default were
assessed to be 10% higher than these calculations then this would result in an
increase in loan loss provisions of £290,727. If the probability of default
were assessed to be 10% lower than these calculations then this would result
in a decrease in loan loss provisions of £290,727.
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
31.1.23 31.1.22 31.1.23 31.1.22
Class of business £'000 £'000 £'000 £'000
Motor finance 89,801 78,898 37,171 43,682
Property Bridging finance 12,913 8,991 4,457 3,414
Central costs net of central - - (218) (78)
finance income
102,714 87,889 41,410 47,018
Analyses by class of business of assets and liabilities are stated below:
Assets Liabilities
Year Year Year Year
ended ended ended ended
31.1.23 31.1.22 31.1.23 31.1.22
Class of business £'000 £'000 £'000 £'000
Motor finance 311,168 262,458 (164,452) (131,012)
Property Bridging finance 116,714 64,426 (109,485) (59,606)
Central 292 345 70,648 70,136
428,174 327,229 (203,289) (120,482)
Depreciation of assets for motor finance was £425,000 (2022: £427,000), for
property bridging finance was £15,000 (2022: £21,000) and for central was
£85,000 (2022: £81,000). Fixed asset additions for motor finance were
£394,000 (2022: £337,000), for property bridging finance were £13,000
(2022: £16,000) and for central were £419,000 (2022: £24,000).
The net finance credit for central costs was £2,507,000 (2022: £2,506,000),
for motor finance was a cost of £6,619,000 (2022: £4,394,000) and for
property bridging finance was a cost of £3,383,000 (2022: £1,884,000). The
tax credit for central costs was £58,000 (2022: £24,000), for motor finance
was a tax charge of £6,901,000 (2022: £8,408,000) and for property bridging
finance was a tax charge of £848,000 (2022: £652,000).
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
2023 2022
£'000 £'000
Cost of sales - motor finance 21,687 17,266
Cost of sales - property bridging finance 1,989 1,505
Total cost of sales 23,676 18,771
5. IMPAIRMENT CHARGE
2023 2022
£'000 £'000
Loan loss provisioning charge
Loan loss provisioning charge - motor finance 12,885 3,805
Loan loss provisioning charge - property bridging finance 992 315
Total impairment charge 13,877 4,120
6. FINANCE COSTS (NET)
2023 2022
£'000 £'000
31.5% cumulative preference dividend 141 142
Lease liabilities interest 12 17
Bank loan and overdraft 7,342 3,613
Total finance costs (net) 7,495 3,772
7. AMOUNTS RECEIVABLE FROM CUSTOMERS
2023 2022
£'000 £'000
Motor finance hire purchase 403,282 350,517
Less: Loan loss provision motor finance (96,465) (91,481)
Amounts receivable from customers motor finance 306,817 259,036
Property bridging finance loans 115,451 64,525
Less: Loan loss provision property bridging finance (1,558) (646)
Amounts receivable from customers property bridging finance 113,893 63,879
Amounts receivable from customers 420,710 322,915
Analysis of future due date due
- Due within one year 201,405 141,301
- Due in more than one year 219,305 181,614
Amounts receivable from customers 420,710 322,915
Analysis of Security
Loans secured on vehicles under hire purchase agreements 302,159 254,933
Loans secured on property 113,893 63,879
Other loans not secured - motor finance where security no longer present 4,658 4,103
Amounts receivable from customers 420,710 322,915
7. 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
12 months lifetime lifetime Total
As at 31 January 2023 ECL ECL ECL
£'000 £'000 £'000 £'000
Amounts receivable (capital)
Motor finance 285,050 2,236 115,996 403,282
Property bridging finance 108,378 - 7,073 115,451
Total 393,428 2,236 123,069 518,733
Loan loss provisions
Motor finance (26,640) (662) (69,163) (96,465)
Property bridging finance (1,116) - (442) (1,558)
Total (27,756) (662) (69,605) (98,023)
Amounts receivable (net)
Motor finance 258,410 1,574 46,833 306,817
Property bridging finance 107,262 - 6,631 113,893
Total 365,672 1,574 53,464 420,710
Stage 1: Stage 2: Stage 3:
Subject to Subject to Subject to
12 months lifetime lifetime Total
As at 31 January 2022 ECL ECL ECL
£'000 £'000 £'000 £'000
Amounts receivable (capital)
Motor finance 240,588 7,503 102,426 350,517
Property bridging finance 63,145 - 1,380 64,525
Total 303,733 7,503 103,806 415,042
Loan loss provisions
Motor finance (22,129) (2,769) (66,583) (91,481)
Property bridging finance (446) - (200) (646)
Total (22,575) (2,769) (66,783) (92,127)
Amounts receivable (net)
Motor finance 218,459 4,734 35,843 259,036
Property bridging finance 62,699 - 1,180 63,879
Total 281,158 4,734 37,023 322,915
7. AMOUNTS RECEIVABLE FROM CUSTOMERS (CONTINUED)
Analysis of loan loss provision and amounts receivable from customers
(capital)
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 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
Net transfers and changes in credit risk (10,020) (1,905) (1,710) (13,635)
New loans originated 15,599 148 11,765 27,512
Total impairment charge to income statement 5,579 (1,757) 10,055 13,877
Amount netted off revenue for stage 3 assets - - 8,893 8,893
Utilised provision on write-offs (398) (350) (16,126) (16,874)
At 31 January 2023 27,756 662 69,605 98,023
8. EARNINGS PER ORDINARY SHARE
The calculation of earnings per ordinary share ("eps") from continuing
operations is based on profit after tax of £33,718,000 (2022: £37,982,000).
The number of shares used in the basic eps calculation is the weighted average
number of shares in issue during the year of 12,149,205 (2022: 12,142,928).
There are a total of nil dilutive share options in issue (2022: 5,500) and
taking into account the appropriate proportion of these dilutive options the
number of shares used in the diluted eps calculation is 12,149,205 (2022:
12,145,096).
9. RECONCILIATION OF OPERATING PROFIT TO NET CASH FROM OPERATING ACTIVITIES
2023 2022
£'000 £'000
Operating Profit 48,905 50,790
Finance costs paid (7,495) (3,772)
Finance income received - -
Tax paid (7,748) (8,749)
Depreciation on plant, property and equipment 525 529
(Profit)/loss on disposal of plant, property and equipment (26) 13
Increase in amounts receivable from customers (97,795) (42,005)
Decrease/increase in trade and other receivables 138 (633)
Increase in trade and other payables 255 1,584
Increase in accruals and deferred income 488 116
Increase in cost of future share based payments 6 39
Movement in retirement benefit asset/obligations (13) (6)
Net cash used in operating activities (62,760) (2,094)
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