REG - S & U PLC - Preliminary Unaudited FY Results to 31 Jan 24
09/04/2024 07:00
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RNS Number : 7624J S & U PLC 09 April 2024
9 April 2024
S&U plc
("S&U", "the Group" or "the Company")
PRELIMINARY UNAUDITED RESULTS FOR THE YEAR ENDED 31 JANUARY 2024
S&U plc (LSE: SUS), the motor finance and specialist lender, today
announces its preliminary results for the year ended 31 January 2024.
Group Key Financials:
· Revenue increased by 12% to £115.4m (2023: £102.7m)
· Profit before tax ("PBT"): £33.6m (2023: £41.4m)
· Group net receivables at year-end increased by 10% to £462.9m
(2023: £420.7m)
· Group impairment charge of £24.2m (2023: £13.9m) reflecting
increased motor arrears during H2
· Group net finance costs at £15.0m (2023: £7.5m) on higher
borrowings and increased base rates this year
· Basic earnings per share: 209.2p (2023: 277.5p)
· Final dividend of 50p per ordinary share to be paid on 12 July
2024 (2023: 60p)
· Net Borrowings at £224.4m (2023: £192.4m) - gearing at 95.8%
(2023: 85.5%)
Advantage Motor Finance Highlights:
· Revenue increased by 9% to £98.2m (2023: £89.8m)
· PBT: £28.8m (2023: £37.2m)
· Impairment charge: £23.3m (2023: £12.9m) reflecting increased
arrears during H2
· Live monthly repayments at 92.1% of due (2023: 93.6%)
· Annual net advances: £175.9m (2023: £186.6m)
· Net receivables at year end at £332.5m (2023: £306.8m)
Aspen Bridging Highlights:
· Revenue increased by 34% to £17.3m (2023: £12.9m)
· PBT: £4.8m (2023: £4.5m)
· Annual PBT performance underpinned by good advances at sensible
Loan to Values
· Good repayments this year and impairment charge remains low at
£0.9m (2023: £1.0m)
· Amounts receivable from customers now £130.4m (2023: £113.9m)
Anthony Coombs, Chairman of S&U plc stated:
"Enthusiastic and supportive customers underpin S&U's long success and
guarantee its future. Current trends, both at Advantage and Aspen, prove that
S&U has an abundance of these and trading since our year-end is
encouraging. Of course, challenges remain. As Marcus Aurelius, a second
century Roman Emperor and Stoic philosopher once said, "sometimes the art of
living is more like wrestling than dancing". Confident in our people, business
philosophy and the markets we serve so well, we wrestle on."
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, Sam Milford Peel Hunt LLP 020 7418 8900
A conference call presentation for analysts will be held on 9(th) April 2024
at 9.30am
CHAIRMAN'S REVIEW
Introduction
Times of change and contrasting fortune often bring out the best in people.
The past year has been such a time. After a first half which saw profit before
tax ahead of both 2022/23 and budget, a combination of prolonged and raised
interest rates, a British economy sliding towards recession and, most of all,
a flurry of regulatory activity has seen profits for the year as a whole at
£33.6m against £41.4m (the highest normalised profit in S&U's history)
last year.
Whilst short of the "emerging opportunities" we foresaw a year ago, the
results do not do justice to the solid underlying trading of the Group, nor to
the sterling efforts of our staff. Working as always together, they will
continue to ensure that we shall overcome short-term challenges and restore
S&U to its habitual path of steady and sustainable growth.
The strength of S&U's trading is demonstrated by Group revenue this year
at £115.4m (2023: £102.7m) and record equity of £234.2m (2023: £224.9m).
Customer numbers in both Advantage, our Grimsby-based motor finance provider,
and at Aspen our property financier in Solihull, are at a record. So are the
Group total repayments they produce of nearly £370m, up 18.5% on 2023. Net
receivables for S&U have now reached a best ever £462.9m, and Aspen has
recently attained the £500m mark for lending over its seven-year history.
That growth has occurred whilst preserving sustainable quality. Our repayments
are one indicator of our historically good relations with our valued
customers. Thus, despite what we anticipate to be a temporary hiatus in the
last quarter, Advantage live monthly repayments as percent of due finished at
92.1% for the year (2023: 93.6%) with bad debt and voluntary termination
write-offs remaining within budget and just under 10% more than last year.
Meanwhile, not only were Aspen's profits at a record £4.8m (2023: £4.5m) but
its total repayments reached £144.4m for the first time, with just 15 loans
beyond term at year end.
Financial Highlights*
2024 2023
Revenue: £115.4m £102.7m
Profit before tax ("PBT"): £33.6m £41.4m
Earnings per share ("EPS") 209.2p 277.5p
Group net assets: £234.2m £224.9m
Group gearing*: 95.8% 85.5%
Group total repayments*: £369.8m £311.9m
Dividend proposed: 120p per ordinary share 133p
* key alternative performance measurement definitions are given in note 2.4
below.
Advantage Finance ("Advantage")
The contrast between the very creditable trading record mentioned in my
introduction and the results we announce at Advantage can be explained in two
ways. The first is a persistently higher level of borrowing costs as books
have grown and interest rates remained higher than anticipated. As a result,
on Advantage year-end borrowings £18m higher than last year, interest
payable has risen by £4.4m for the year as a whole.
Second, and even more significant, there has been an upsurge over the past
months in regulatory activity by the Financial Conduct Authority involving
inquiries into Advantage alongside, we understand, the majority of firms in
the motor lending industry. One such current inquiry is into the linking of
interest rates charged to customers to the level of commission paid by lenders
to broker introducers. Happily, Advantage is not involved since it has never
engaged in this practice which would cut across its long-standing model of
matching rate to risk.
However, another FCA inquiry focusing on affordability, forbearance and
vulnerable customers has been initiated by the FCA across the industry to ease
the perceived burden of a prolonged period of cost-of-living increases. This
FCA inquiry has increased Advantage's costs and inhibited both the range of
products we offer our customers, and our ability to sensibly help them
maintain their loan repayments - which bolsters their future credit rating.
These inquiries should not detract from the underlying strength of Advantage's
results and business model. Receivables have reached a record £332.5m (2023:
£306.8m) and revenue is up to a record £98.2m (2023: £89.8m). Total new
deal numbers were over 21,500, which was on budget. Live monthly repayments
were a record £172.1m representing 92.1% of due for the year (2023: 93.6%).
Total deal numbers written off to bad debt were 3717 of a total c. 65,000 on
the books, under budget, but up 540 on a year ago and 74% of customers were up
to date at year end, against 77.6% a year ago.
Those fundamental strengths were not reflected in Advantage's PBT of £28.8m
for two reasons. The first is that provisions prudently made on an IFRS9
estimate of future cash flows have increased by £8.2m on last year. Whether
these prove overcautious or otherwise will be evident as the year progresses.
The second relates to additional costs incurred as a result of the FCA's
inquiries in "professional fees" as well as an increase in base rate driving
extra finance costs in Advantage of over £4m on last year. Both are not
expected to persist.
More widely than just at Advantage, on an industry wide basis, this recent
upsurge in regulation has a number of important characteristics and
implications.
Before delving into the specifics, it's essential to acknowledge that S&U
endorses the FCA's objectives aimed at enhancing the consumer experience,
safeguarding customers from the infrequent but possible negligence within the
finance sector and assisting individuals in navigating challenges that may
arise during the tenure of their loan. We have consistently maintained that
lending is not a win-lose scenario, and believe that transparent,
straightforward, and mutually agreed-upon regulations serve the best interests
of both the customer and the lender. This perspective aligns with the FCA's
additional responsibilities to uphold the integrity of the UK's financial
system and to foster competitive practices that benefit consumers. By
fulfilling these roles, the FCA, along with other regulatory bodies, can more
effectively meet its broader mandate to support the international
competitiveness and growth of the UK economy.
This includes efforts to broaden access to credit for all consumer segments,
particularly those often categorized as non-prime by traditional financial
standards. Such initiatives can stimulate consumption, which constitutes a
significant portion of overall demand, thereby driving economic expansion.
In recent years, a notable trend has emerged contrary to expectations. The
workforce of the FCA has expanded to 4,289 employees, an increase of 1,100 in
the last year, paralleled by a substantial contraction in credit availability.
A February report by Clearscore, a data provider and credit scorer, in
collaboration with Ernst and Young, highlights a marked decrease in the
availability of debt products for non-standard customers over the last twelve
years. Specifically, the non-prime market has seen a reduction of more than
30% since 2019. Consequently, Clearscore/E&Y estimates indicate that the
number of people whose credit needs are not met has risen from 12 to 13
million in 2018 to 16 to 17 million. This has led to a greater reliance on
illegal money lending.
The report by Clearscore and E&Y also notes the inherent challenges in
regulation, which must consider the 'fairness' of outcomes for customers in
diverse situations. This has been reflected in the FCA's continuous issuance
of guidance, including the recent introduction of an outcome-based consumer
duty. This approach, often based on retrospective assessment, introduces a
degree of uncertainty regarding customer relationships, which in the case of
Advantage, have been established and refined over 25 years. Unintended
consequences may include a dampening effect on innovation and the introduction
of new products. Furthermore, there has been a notable decrease in industry
capital, with Ernst & Young estimating a reduction of £2 billion in
recent years, as funders grow cautious due to concerns about repayment
reliability.
Additionally, imposing restrictions on customers' ability to address their
arrears, in pursuit of comprehensive and sometimes intrusive affordability
assessments, may inadvertently lead to a preventable worsening of their credit
scores.
Central to ensuring consistent and equitable outcomes for customers is the
precise definition of terms such as 'affordability' and 'vulnerability', which
are inherently subjective and fluctuate over time, particularly in an
inflationary environment where the lines between 'essential' and
'discretionary' spending may become indistinct.
In efforts to clarify these critical issues, Advantage actively collaborates
with regulators, prioritizing the long-term interests of its customers. The
company takes pride in its high customer satisfaction ratings, evidenced by a
4.7 out of 5 score on FEEFO and Trustpilot, and remains committed to offering
a spectrum of forbearance options to assist customers facing payment
challenges, ensuring they can continue to use their vehicles whenever
feasible.
Advantage's strap line for new customers is "We see more than your score" an
initial assessment which goes alongside Advantage's traditional aim to improve
a customer's credit rating following the successful repayment of their loan.
Since a typical 'non-prime' customer has experience of credit arrears and
often default in the years prior to application, this is an approach many
customers find comforting and valuable as Advantage testimonials show. Almost
all can improve their credit score following successful repayment of an
Advantage loan.
Preparations for the Consumer Duty at Advantage last summer were thorough.
Readiness for the new Duty was overseen by independent legal advisers and then
reviewed by RSM, S&U's internal auditors. Moreover, a previous FCA review
of affordability at Advantage had been deemed satisfactory.
In response to ongoing concerns regarding the cost of living and its declared
objective to "deliver quantifiable consumer benefits," the FCA has launched
comprehensive inquiries across the industry, affecting approximately
two-thirds of non-prime motor finance companies. In anticipation of the
findings, Advantage has consented to specific limitations on its repayment
processes. These modifications have temporarily influenced monthly repayments
and recovery efforts. However, following constructive dialogues with the
regulatory body, these measures are being thoughtfully adjusted to ensure
flexibility and effectiveness.
As the motor finance industry transitions to new modes of regulation and
evolving assurance of fair customer outcomes, it is to be expected that the
mutual learning and understanding between firms and regulator will cause some
temporary disruption. In future however, Advantage expects that its long-term
experience and humane approach to every customer, irrespective of their
background, as evidenced by its industry-leading customer satisfaction and
Ombudsman "uphold" rates, will be vindicated and rightly bear fruit.
Finally, I have great pleasure in welcoming Karl Werner as the new Chief
Executive of Advantage. Karl has impressed enormously in the few months he has
been with us, and his long experience of the finance industry and its
regulation, particularly at MotoNovo and Aldermore Bank will make him a
distinguished successor to Graham Wheeler.
Aspen Bridging
Aspen has continued its impressive progress. Despite an increase in finance
costs of £3.6m, profit this year has reached a record £4.8 m (2023: £4.5m)
on revenues of £17.3 m (2023: £12.9m). Net receivables are now £130.4 m
(2023: £113.9m) following record deal numbers in the year. As Aspens'
reputation amongst the finance broking community grows, so does the quality of
deal and customer it attracts. As we foresaw last year, this has meant a
continuation of last year's higher £0.9m average loan size, whilst average
Loan to Values were under 70%, a small reduction on last year. This reflects
high quality security and the more experienced developer/investor customers
Aspen now attracts.
This is welcome, given the uncertainty surrounding the housing market, which
continues to mirror the wider economic issues of the past two years. Annual UK
residential transactions last year were 1 million, about 15% down on the year
before. However, as mortgage approvals recover, this is expected to reach 1.1
million transactions next year. Average prices for residential properties,
which are Aspens' main security, fell slightly last year but have shown recent
signs of recovery. Predictions for the current year range from a 3% average
rise at Knight Frank to a 3% price fall from Halifax. Given the prospects for
a further fall in mortgage rates and a healthy labour market feeding latent
demand, our view is that house prices will rise up to 5% on average this year,
and possibly more in the south east, where most bridging activity occurs.
These trends are also reflected in the refinance market which has seen average
falls of nearly one percent in both interest and stress test rates over the
past six months. All this is reflected in total repayments in the year by
Aspen of a record £144.4m (2023: £96.1m). A growing book requires expert
supervision, and Aspen has strengthened its risk and recoveries department by
recruiting further experience in that area. The capital receivables book of
c£133 million is high quality. Of 163 current loans, just 15 are beyond term,
up just one on last year. Only four properties were in repossession at year
end, for which recovery is in progress and adequate provision has been made.
The team at Aspen, based in Solihull in newly expanded offices, has grown to
25 from 21 two years ago. Since Aspen's live book debt has roughly doubled to
£130.4m in that period, productivity has substantially increased.
Efficiency measures are carried out quarterly; current trends on all measures
are impressive and will be maintained.
Staff are encouraged into CPD; partly as a result, staff turnover has remained
low and morale high. Aspen runs a female-managed football team, predictably
'Aspen Villa', promoted last season. Regular staff excursions and celebrations
occur, most recently to mark £500m of lending. Momentum is being maintained
with current lending at over £15m per month. Since its launch in 2017, Aspen
has more than met S&U's expectations, and great things are expected of it
in the future.
Dividends
Whilst recognising its primary responsibilities to its shareholders, S&U
has always sought to balance the interests of all its stakeholders. This
year's fall in profit together with our wish to protect our loyal staff from
recent increases in the cost of living has made this a particularly delicate
one this year.
Thus, except for senior directors, average salaries this year have matched the
rate of inflation, with more for living wage earners. Higher base interest
rates have cost the Group an additional £8m this year, and our incoherent
Government have raised the rate of corporation tax by nearly a third.
Taking all this into account, subject to the approval of shareholders at our
AGM on 6 June, the board proposes a final dividend of 50p per ordinary share
(2023: 60p). This will be paid on 12 July 2024 to the shareholders on the
register on 21 June 2024. Total dividends for the year will then be 120p per
share (2023: 133p).
Funding and Treasury
Our confidence in S&U's business strategy, in our customers and the market
we serve has been reflected in the additional £32m invested in our businesses
over the past year. Net borrowings at year-end was £224.4m (2023: £192.4m).
Current Group gearing therefore stands at 95.8%, well within banking covenants
and S&U's traditionally conservative risk appetite. The first half of the
year saw Group funding facilities increase by £70m, excluding overdrafts, to
£280m from our funding partners, comfortably in excess of our anticipated
requirements until 2026. In the meantime, we budget for the current Bank rate,
but hope for speedy reductions and a more growth-friendly approach from the
Bank of England.
Governance and Regulation
The recent period of modest economic growth, alongside political
uncertainties, has heightened awareness of the critical role that corporate
sustainability and profitability play in any functioning free-market system.
This shift in focus has even led figures like Larry Fink, who was once a
staunch advocate for corporations in the United States, to reconsider the
overriding importance of the Environmental, Social, and Governance (ESG)
agenda.
S&U's extensive experience in engaging with respectable individuals, who
may not have flawless credit histories, predates the establishment of the FCA
by seventy-five years. While acknowledging that the commercial landscape
evolves, my stance has been consistent on two fronts.
Firstly, I believe that in organizations where Christian and family values are
at the core, such as S&U, there is a natural alignment between commercial
pursuits and consumer protection. History has shown that a well-regulated
free-market system is unparalleled in enhancing welfare and living standards.
Secondly, S&U has always been a proponent of the critical role the FCA
plays in ensuring fair treatment for consumers. Nonetheless, for the markets
serving these consumers to remain stable and competitive, ensuring access is
paramount. Without this, numerous vulnerable consumers might find themselves
resorting to unregulated, and potentially illicit, lending options-a scenario
diametrically opposed to the expectations of a civilized society.
S&U's commitment to such a society is evidenced in part by the community
activities in which our employees are involved. At Group level this year saw
the tenth anniversary of the Keith Coombs Trust, named for my father and
former chairman. The Trust focuses its work on children and young people with
all kinds of disability - mental, physical and emotional. Through charities in
Birmingham, London, Kidderminster and in Africa and India, it funds and
promotes work for those who are unable to help themselves.
Finally, in challenging times we should remind ourselves that sustainable
success depends upon happy and satisfied customers and the people who serve
them. The past six months have not been easy and I pay tribute to all of them;
and also, to Graham Wheeler who, over the past four years has led Advantage
through COVID, a cost of living crisis and regulatory change. On his
retirement, I am pleased that he has now agreed to join S&U's board in a
non-executive capacity.
Current Trading and Outlook
Enthusiastic and supportive customers underpin S&U's long success and
guarantee its future. Current trends, both at Advantage and Aspen, prove that
S&U has an abundance of these and trading since our year end is
encouraging. Of course, challenges remain. As Marcus Aurelius, a second
century Roman Emperor and Stoic philosopher once said, "sometimes the art of
living is more like wrestling than dancing". Confident in our people, business
philosophy and the markets we serve so well, we wrestle on.
Anthony Coombs
Chairman
8 April 2024
CONSOLIDATED INCOME STATEMENT
Year ended 31 January 2024 Note
2024 2023
£'000 £'000
Revenue 3 115,437 102,714
Cost of Sales 4 (22,821) (23,676)
Impairment charge 5 (24,203) (13,877)
Gross Profit 68,413 65,161
Administrative expenses 6 (19,767) (16,256)
Operating profit 48,646 48,905
Finance costs 7 (15,062) (7,495)
Profit before taxation 33,584 41,410
Taxation (8,147) (7,692)
Profit for the year attributable to equity holders 25,437 33,718
Earnings per share basic 9 209.2p 277.5p
Earnings per share diluted 9 209.2p 277.5p
Dividends per share
- Proposed Final Dividend 50.0p 60.0p
- Interim dividends in respect of the year 70.0p 73.0p
- Total dividend in respect of the year 120.0p 133.0p
- Paid in the year 133.0p 128.0p
All activities derive from continuing operations
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2024 2023
£'000 £'000
Profit for the year attributable to equity holders 25,437 33,718
Actuarial loss on defined benefit pension scheme (6) (13)
Total Comprehensive Income for the year 25,431 33,705
Items above will not be reclassified subsequently to the Income Statement
CONSOLIDATED BALANCE SHEET
31 January 2024 Note
2024 2023
£'000 £'000
ASSETS
Non current assets
Property, plant and equipment including right of use assets 2,310 2,616
Amounts receivable from customers 8 241,985 219,305
Deferred tax assets 155 110
244,450 222,031
Current Assets
Amounts receivable from customers 8 220,953 201,405
Trade and other receivables 1,442 1,601
Cash and cash equivalents 1 3,137
222,396 206,143
Total Assets 466,846 428,174
LIABILITIES
Current liabilities
Bank overdrafts and loans (881) -
Trade and other payables (4,897) (4,602)
Tax Liabilities (564) (888)
Lease Liabilities (170) (166)
Accruals and deferred income (1,971) (1,262)
(8,483) (6,918)
Non current liabilities
Borrowings (223,500) (195,500)
Lease Liabilities (251) (421)
Financial Liabilities (450) (450)
(224,201) (196,371)
Total liabilities (232,684) (203,289)
NET ASSETS 234,162 224,885
Equity
Called up share capital 1,719 1,719
Share premium account 2,301 2,301
Profit and loss account 230,142 220,865
Total equity 234,162 224,885
STATEMENT OF CHANGES IN EQUITY
Year ended 31 January 2024
Called up Share Profit
share premium and loss Total
capital account account equity
£'000 £'000 £'000 £'000
At 1 February 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 credit on equity items - - (28) (28)
Dividends - - (15,546) (15,546)
At 31 January 2023 1,719 2,301 220,865 224,885
Profit for year - - 25,437 25,437
Other comprehensive income for year - - (6) (6)
Total comprehensive income for year - - 25,431 25,431
Dividends - - (16,154) (16,154)
At 31 January 2024 1,719 2,301 230,142 234,162
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 January 2024
Note
2024 2023
£'000 £'000
Net cash used in operating activities 11 (446) (55,265)
Cash flows used in investing activities
Proceeds on disposal of property, plant and equipment 76 166
Purchases of property, plant and equipment (265) (826)
Net cash used in investing activities (189) (660)
Cash flows from financing activities
Dividends paid (16,154) (15,546)
Finance cost paid (15,062) (7,495)
Issue of new shares - 1
Receipt of new borrowings 173,500 84,500
Repayment of borrowings (145,500) -
Increase/(decrease) in lease liabilities (166) 170
Net increase/(decrease) in overdraft 881 (2,568)
Net cash generated from financing activities (2,501) 59,062
Net increase/(decrease) in cash and cash equivalents (3,136) 3,137
Cash and cash equivalents at the beginning of year 3,137 -
Cash and cash equivalents at the end of year 1 3,137
Cash and cash equivalents comprise
Cash and cash in bank 1 3,137
There are no cash and cash equivalent balances which are not available for use
by the Group (2023: £nil).
1. SHAREHOLDER INFORMATION
1.1 Preliminary Announcement
The figures shown for the year ended 31 January 2024 are not statutory
accounts within the meaning of section 435 of the Companies Act 2006. The
unaudited preliminary announcement was approved by the Board of directors on 8
April 2024. The Company's Annual Report will be finalised subsequent to this
preliminary unaudited results announcement. The figures shown for the year
ended 31 January 2023 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 unaudited
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 6 June 2024 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 50p per Ordinary
Share is proposed, payable on 12 July 2024 with a record date of 21 June 2024.
1.4 Annual Report
The 2024 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 2024 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 2024. 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 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 2024 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. An overlay for used
vehicle prices was also included at 31 January 2023 as we assumed at that
point that these prices would fall by 13.5% after a large increase in the
previous 12 months. As at 31 January 2024, we have not included an overlay for
used vehicle prices as we assume that used vehicle prices will now remain
stable after the anticipated large decrease in the previous 12 months. 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 total repayments are the total live monthly repayments, 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 2.3 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% 10% 35% 5%
Q1 2024 4.40% 3.08% 5.72% 6.60% 4.84%
Q1 2025 4.70% 3.29% 6.11% 7.05% 5.17%
Q1 2026 4.90% 3.43% 6.37% 7.35% 5.39%
Q1 2027 4.90% 3.43% 6.37% 7.35% 5.39%
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 and to a lesser extent at 31 January
2024. 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% 10% 35% 5%
Q1 2024 9.70% 6.79% 12.61% 14.55% 10.96%
Q1 2025 3.00% 2.10% 3.90% 4.50% 3.39%
Q1 2026 1.00% 0.70% 1.30% 1.50% 1.13%
Q1 2027 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 £1.1m. A decrease by 0.5% would result
in a decrease in loan loss provisions by £1,108,644. An increase by 0.5% in
the weighted average inflation rate would result in an increase in loan loss
provisions by £0.5m. A decrease by 0.5% would result in a decrease in loan
loss provisions by £0.5m.
Used vehicle price overlay and sensitivity for our motor finance business
At the year ended 31 January 2024, we have assumed that used vehicle prices
will remain stable after a period when used vehicle prices increased during
years ended 31 January 2022 and 31 January 2023 and then decreased during year
ended 31 January 2024. This assumption as at 31 January 2024 has been made
after considering market trends and expectations but is uncertain. If used car
prices were assumed to fall by 5% instead, then this would result in an
increase in loan loss provisions of £3.0m. If used vehicle prices were
assumed to increase by 5% instead, then this would result in a decrease in
loan loss provisions of £3.0m.
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 £0.3m. 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 £0.3m.
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
31.1.24 31.1.23 31.1.24 31.1.23
Class of business £'000 £'000 £'000 £'000
Motor finance 98,177 89,801 28,810 37,171
Property Bridging finance 17,260 12,913 4,803 4,457
Central costs net of central - - (29) (218)
finance income
115,437 102,714 33,584 41,410
Analyses by class of business of assets and liabilities are stated below:
Assets Liabilities
Year Year Year Year
ended ended ended ended
31.1.24 31.1.23 31.1.24 31.1.23
Class of business £'000 £'000 £'000 £'000
Motor finance 335,502 311,168 (181,944) (164,452)
Property Bridging finance 130,808 116,714 (121,431) (109,485)
Central 536 292 70,691 70,648
466,846 428,174 (232,684) (203,289)
Depreciation of assets for motor finance was £399,000 (2023: £425,000), for
property bridging finance was £14,000 (2023: £15,000) and for central was
£97,000 (2023: £85,000). Fixed asset additions for motor finance were
£218,000 (2023: £394,000), for property bridging finance were £20,000
(2023: £13,000) and for central were £27,000 (2023: £419,000).
The net finance credit for central costs was £2,904,000 (2023: £2,507,000),
for motor finance was a cost of £11,018,000 (2023: £6,619,000) and for
property bridging finance was a cost of £6,948,000 (2023: £3,383,000). The
tax charge for central costs was £25,000 (2023: £58,000 credit), for motor
finance was a tax charge of £6,967,000 (2023: £6,901,000) and for property
bridging finance was a tax charge of £1,155,000 (2023: £848,000).
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
2024 2023
£'000 £'000
Cost of sales - motor finance 20,726 21,687
Cost of sales - property bridging finance 2,095 1,989
Total cost of sales 22,821 23,676
5. IMPAIRMENT CHARGE
2024 2023
£'000 £'000
Loan loss provisioning charge
Loan loss provisioning charge - motor finance 23,280 12,885
Loan loss provisioning charge - property bridging finance 923 992
Total impairment charge 24,203 13,877
6. ADMINISTRATIVE EXPENSES
2024 2023
£'000 £'000
Administrative expenses - motor finance 14,343 11,439
Administrative expenses - property bridging 2,491 2,092
Administrative expenses - central 2,933 2,752
Total administrative expenses 19,767 16,283
7. FINANCE COSTS
2024 2023
£'000 £'000
31.5% cumulative preference dividend 141 141
Lease liabilities interest 16 12
Bank loan and overdraft interest payable 14,905 7,342
Total finance costs 15,062 7,495
8. AMOUNTS RECEIVABLE FROM CUSTOMERS
2024 2023
£'000 £'000
Motor finance hire purchase 437,181 403,282
Less: Loan loss provision motor finance (104,685) (96,465)
Amounts receivable from customers motor finance 332,496 306,817
Property bridging finance loans 132,746 115,451
Less: Loan loss provision property bridging finance (2,304) (1,558)
Amounts receivable from customers property bridging finance 130,442 113,893
Amounts receivable from customers 462,938 420,710
Analysis of future due date due
- Due within one year 220,953 201,405
- Due in more than one year 241,985 219,305
Amounts receivable from customers 462,938 420,710
Analysis of Security
Loans secured on vehicles under hire purchase agreements 327,485 302,159
Loans secured on property 130,442 113,893
Other loans not secured - motor finance where security no longer present 5,011 4,658
Amounts receivable from customers 462,938 420,710
8. 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 2024 ECL ECL ECL
£'000 £'000 £'000 £'000
Amounts receivable (capital)
Motor finance 291,566 5,125 140,490 437,181
Property bridging finance 121,908 - 10,838 132,746
Total 413,474 5,125 151,328 569,927
Loan loss provisions
Motor finance (21,315) (1,323) (82,047) (104,685)
Property bridging finance (914) - (1,390) (2,304)
Total (22,229) (1,323) (83,437) (106,989)
Amounts receivable (net)
Motor finance 270,251 3,802 58,443 332,496
Property bridging finance 120,994 - 9,448 130,442
Total 391,245 3,802 67,891 462,938
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
8. 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 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
Net transfers and changes in credit risk (14,755) 565 12,331 (1,859)
New loans originated 11,863 354 13,845 26,062
Total impairment charge to income statement (2,892) 919 26,176 24,203
Amount netted off revenue for stage 3 assets - - 9,162 9,162
Utilised provision on write-offs (2,635) (258) (21,506) (24,399)
At 31 January 2024 22,229 1,323 83,437 106,989
9. EARNINGS PER ORDINARY SHARE
The calculation of earnings per ordinary share ("eps") from continuing
operations is based on profit after tax of £25,437,000 (2023: £33,718,000).
The number of shares used in the basic eps calculation is the weighted average
number of shares in issue during the year of 12,150,760 (2023: 12,149,205).
There are a total of nil dilutive share options in issue (2023: nil) and
taking into account the appropriate proportion of these dilutive options the
number of shares used in the diluted eps calculation is 12,150,760 (2023:
12,149,205).
10. CONTINGENT LIABILITIES
Our motor finance subsidiary Advantage was included in the FCA's multi-firm
Cost of Living Forbearance Outcomes review in 2023 and as a result the FCA
concluded that enhancements may be required to Advantage's approach to arrears
management and the application of forbearance. Advantage and the FCA have
been in correspondence throughout 2023/24 to discuss and agree the necessary
steps and Advantage will carry out an assessment of whether any customers were
adversely affected by its practices. Where this is found to be the case
Advantage will seek to redress any detriment.
The financial effect of any customer redress cannot be reliably assessed at
this early stage of the review. This ongoing assessment is expected to be in
advanced stages in Summer 2024, with any redress being made after that.
11. RECONCILIATION OF OPERATING PROFIT TO NET CASH FROM OPERATING ACTIVITIES
2024 2023
£'000 £'000
Operating Profit 48,646 48,905
Tax paid (8,515) (7,748)
Depreciation on plant, property and equipment 510 525
(Profit)/loss on disposal of plant, property and equipment (16) (26)
Increase in amounts receivable from customers (42,228) (97,795)
Decrease/increase in trade and other receivables 159 138
Increase in trade and other payables 295 255
Increase in accruals and deferred income 709 488
Equity-settled future share-based payments addback - 6
Movement in retirement benefit asset/obligations (6) (13)
Net cash used in operating activities (446) (55,265)
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