REG - S & U PLC - Trading Statement and Notice of Results

S&UAnnouncement

09/02/2024 07:00

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RNS Number : 5526C  S & U PLC  09 February 2024

 

9th February 2024

 

S&U plc

    ("S&U" or "the Group")

 

TRADING STATEMENT AND NOTICE OF RESULTS

 

S&U PLC, the specialist Motor and Property Finance financier, today issues
its trading update for the period from its statement of 12th December 2023 to
the Group yearend on 31st January 2024. S&U's full year results will be
announced on 9th April 2024.

 

Since S&U's last trading statement two months ago, the headwinds I
reported then of poor consumer confidence, continuing high interest rates,
cost of living pressures and regulation have, unsurprisingly, impacted the
Group's progress and profitability. The intemperate economic climate in
Britain surrounding these unfortunately persists.  Whilst we continue to
invest in the receivables which drive our future profits, we do so with
caution.

 

Thus, loan advances in the period for Advantage, our motor finance lender were
7% lower than last year. Although finance applications remain buoyant at
Advantage, and their customer profile is good, the debilitating effects on
some customers of continuing cost of living pressures and our obligations
under the Customer Duty, make such prudence essential. In contrast and more
positively, recent improvements in house price trends and mortgage rates have
allowed an uptick in lending activity at Aspen, our secured property bridging
business.

 

Inevitably, these headwinds affect collections. Thus, live monthly repayments
at Advantage for the second half of the year were 90% of due (H1 23: 94%).
Although Aspen cumulative repayments are no less than 50% up on last year,
more recently that rate of increase has slowed.

 

Although these trends, particularly at Advantage, have largely been confined
to the last quarter, a prudent approach to their likely effect on collections
will have a temporary impact on profitability.

 In particular, the reduction in the rate of collections has necessitated
increased provisioning under the IFRS9 accounting standard.  Thus, our group
profit before tax for the year ended 31 January 2024 is likely to finish
between 10% and 15% below consensus expectations of c£38m.  Nonetheless, we
expect a solid rebound; hence our continued funding investment in both
businesses of £15m during the period.

 

 

Motor Finance

The past two months have seen interesting times for Advantage. FCA approval
has now been received for the appointment of Karl Werner as the new CEO. After
an impressive handover from Graham Wheeler, Advantage's CEO for the past four
years, Karl's experience in the motor finance sector will stand him in good
stead for the commercial and regulatory opportunities and challenges of the
future.

 

During this period, the interaction with the FCA, through our Skilled Advisor
appointed as part of their industry wide investigation into customer
forbearance and affordability, has deepened. In response to this, Advantage
has made precautionary changes to its collection and repossession processes
with a particular focus on those customers in payment arrears, or who are
identified as vulnerable. Given the evolving demands of the regulatory
landscape, operating within them will require a proportionate and constructive
dialogue between Advantage and the regulator.

 

 

 

 

 

 

In the meantime, the decline in collections referred to above is reflected in
a percentage of due 4% lower than Advantage's habitual 94%.  This may be
partly seasonal and is expected to partly recover in the coming months. The
actual levels of bad debts and voluntary terminations remain within budget.

 

More certain is that the new collecting environment requires adjustment to
both pricing and risk profile at Advantage. This year, has seen Advantage
shift towards slightly larger and longer-term products aimed at a more
resilient customer base. Whilst we retain our "traditional" customer "tiers"
they constitute a smaller proportion of the total. It is this shift, rather
than an increase in transactions, which has driven a healthy rise in
receivables this year. Customer numbers are just over 66,500.

 

 

Aspen Bridging

Aspen Bridging continues to make steady progress despite a UK housing market
which remains subdued and relatively inactive. However, Halifax report a house
price rise of 1.3% in January compared to the previous month, the fourth
monthly gain in a row. Further, mortgage approvals on which around 50% of
Aspen repayments depend, are, according to the Bank of England, back over
50,000 per month against 30,000 in the summer of 2023.

 

Thus again, the watchwords for Aspen are ambition tempered by caution. Net
receivables now stand at just over £130m (2023: £114m) as the business
achieved its budgeted annual gross lending target of £144m, and has also just
achieved an impressive historical milestone of £500m of gross lending.
Collections have been slower in the period, as refinancing and sale processes
take longer. This followed an excellent performance for the year as a whole,
when repayments (excluding retentions) at £126m were more than 50% up on
2022/23. Hence loan book quality remains good. Of 167 loans, the number of
loans beyond term is 15 (December 23: 16).

 

 

Funding

Group borrowing now stands at £224m against £192m last year. Group funding
facilities of £280m provide comfortable headroom for the sustainable growth
path expected over the next two years. However, these funds come at an
increased and not readily transferable cost, and the past year has seen
interest payable by the Group rise to £15.1m from £7.5m last year.

 

 

Dividend

The past seven years has seen dividends to our loyal shareholders rise from
91p to 133p per share, an increase of 46% whilst profit before tax has risen
by 64%. It is therefore right that at a time when the cost of living, funding
and regulatory challenges have had an impact on profits, we partially protect
returns to shareholders as we also did during the pandemic.  Hence this year
we propose that S&U's second interim dividend should be 35p (2023: 38p),
payable on 8th March to shareholders on the register on 16th February.

 

 

Commenting on the Group's performance and outlook, Anthony Coombs, S&U
Chairman, said: "Faced with an array of challenges ranging from weak consumer
confidence, cost of living pressures, funding costs and regulatory activity,
2023 has not been a vintage year for either S&U or the specialist
financial services sector. Given the underlying strength, resilience and
expertise of our Group, I fully expect a resumption of S&U's habitual and
robust profit growth in the years to come."

 

 

 

 

 

 

 

[This announcement contains inside information for the purposes of Article 7
of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic
law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the Company's obligations under Article 17 of
MAR.]

 

 

For further information, please contact:

 

 

 Enquiries                                        S&U plc        c/o SEC Newgate

 Anthony Coombs

 Financial Public Relations                       SEC Newgate    020 7653 9848

 Bob Huxford, Molly Gretton, Harry Handyside

 Broker                                           Peel Hunt LLP  020 7418 8900

 Andrew Buchanan, Adrian Trimmings, Sam Milford

 

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