TIDMSUS
RNS Number : 8800T
S & U PLC
30 March 2021
30 March 2021
S&U plc
("S&U", "the Group" or "the Company")
PRELIMINARY RESULTS FOR THE YEARED 31 JANUARY 2021
S&U plc (LSE: SUS), the motor finance and specialist lender,
today announces its preliminary results for the year ended 31
January 2021:
Group Key Financials:
-- Robust and resilient re sponse to Covid pandemic
-- Profit before tax ("PBT"): GBP18.1m (2020: GBP35.1m)-
reduction primarily due to additional Covid related provisions on
motor finance - H2 profit of GBP11.8m (H1: GBP6.3m)
-- Amounts receivable from customers reduced by 7% to GBP280.9m (2020: GBP301.8m)
-- Revenue reduced by 7% at GBP83.8m (2020: GBP89. 9m)
-- Basic earnings per share : 120.7p (2020: 239.6p) - H2 eps 78.8p (H1: 41.9p)
-- Fin al dividend of 43p per ordinary share to be paid on 9 July 2021 (2020: 50p)
-- Net Borrowings at GBP98.8m (2020: GBP117.8m) - gearing at 54.6% (2020: 65.7%)
Advantage Motor Finance Highlights:
-- PBT: GBP17.2m (2020: GBP34.0m). Significant rebound in H2
from Covid impacted first half with H2 PBT: GBP11.1m (H1:
GBP6.1m)
-- H2 performance includes robust and improving collections -
less than 3,000 customers in March 2021 on payment holiday
(compared to over 15,000 active payment holidays at peak)
-- Annual PBT reflects GBP36.0m of Covid impacted forward
looking IFRS9 loan loss provisions (2020: GBP16.5m)
-- Total annual collections at GBP180.5m (2020: GBP196.5m) a
decrease of GBP16m partly reflecting smaller book and FCA mandated
payment holidays and repossession restrictions- now lifted
-- Annual net advances : GBP102.6m (2020: GBP149.0m) reflecting
lockdowns and tightened Covid related underwritin g - new business
quality good
-- Net receivables at GBP246.8m (2020: GBP280.8m) and customer
numbers : 63,000 (2020: 64,000)
Aspen Bridging Highlights:
-- PBT : GBP 0.8m (2020: GBP1.2m) - a substantial recovery in H2
(GBP0.7m) from Covid affected H1 (GBP0.1m)
-- H2 PBT performance underpinned by strong advances and repayments
-- Amounts receivable from customers now GBP34.1m (2020:
GBP21.0m) with no loans past due at March 2021
-- 234 new loan facilities in 4 years with 165 repaid up to 31
January 2021 and 69 remaining on live book
Anthony Coombs, Chairman of S&U plc stated:
"Although uncertainty still surrounds the economic climate
following Covid, the skies are definitely brightening. As I
predicted last year, the fall in c onsumer demand and confidence is
proving to be temporary and will not alter the fundamentals
underpinning the demand for the vehicles and properties S&U
finances. My confidence in our superb staff, our financial strength
and sound strategy allows me to predict a return to S&U's
habitual levels of success. We relish the challenge."
Enquiries S&U plc c/o SEC Newgate
Anthony Coombs
Financial Public Relations
Bob Huxford, Tom Carnegie, Megan
Kovach SEC Newgate 020 7653 9848
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Broker
Adrian Trimmings, Andrew Buchanan,
Rishi Shah Peel Hunt LLP 020 7418 8900
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A conference call presentation for analysts will be held on
30(th) March 2021 at 9.30am
CHAIRMAN'S REVIEW
Introduction
Both globally and in the UK, the pas t year has seen seismic
events, the like of which ha ve not been seen in peace time.
Although the Government now has a road-map out of this strange
terrain, the implications of Covid for the British economy , and
for society as a whole, defy firm predictio n .
Against such a background, S&U has this year produced a
solid and durable set of results , of which all our loyal
colleagues can be rightly proud. Profit Before Tax is GBP18.1m
(2020: GBP35 .1 m) on revenue of GBP83.8m (2020: GBP 89.9 m),
giving earnings per share of 120.7p (2020: 239.6p). Our financial
position has strengthened still further as increased cash
generation has lowered gearing to 54.6 % (2020: 65.7%). This
coupled with an extension of S&U's medium-term funding
facilities allows significant headroom for the rebound in growth we
plan for our motor finance and property bridging businesses. These
are the b al d facts.
Financial Highlights
- Profit before tax ("PBT"): GBP18.1m (2 020: GBP35.1m)
- Revenue : GBP83.8m (2020: GBP89.9m)
- Earnings per share ("EPS") : 120.7p (2020: 239.6p)
- Group net assets: GBP181 .0 m (2020: GBP179.5m)
- Group gearing* : 54 .6 % (2020: 65.7%)
- Treasury - post year-end Grou p facilities extended to GBP1 55
m
- Group collections*: GBP214 .3m (2020: GBP228.8m)
- Dividend proposed: 90p per ordinary share (2020: 120p)
* key alternative performance measurement definitions are given
in note 2.4 below
But behind these facts lies a much more important story of
perseverance, initiative and real courage as our staff have coped
with and then overcome the personal and business challenges posed
by Covid. Though some have experienced the disease, all are
thankfully safe and have adapted stoically to home-working, whilst
about 25 are manning our offices. I pay tribute to them all.
The current vaccination programme and a more coherent G
overnment polic y roadmap for Cov i d j ustify greater optimism.
The pandemic previously has undoubtedly hit the UK harder than most
in the developed world . Whatever the reasons, which range from a
dense and urbanised population, disparities in income and living
conditions and cultural attitudes, the result has been a death rate
higher than in any large country and a fall in economic output over
the past year of just over 10% - the second worst performance of
any industrialised nation .
Many of the immediate economic consequences have been postponed,
and possibly avoided , by monetary policy which has seen interest
rates at record lows and a quantitative easing programme of
GBP900bn over the past year alone. This has been matched by lo os e
fisca l policies resulting in government debt increasing to over
GBP2tr illion, the long-term consequences of which are simply
unknown. In the short term , t he results of this economic
intensive care have been undeniably positive. Although around 3.5m
people are still "temporarily" away from paid work, unemployment
still stands at just over 5.5% - well below those levels
experienced after the Global Financial Crisis. Although this may
rise next year, recent net e migration and an adaptable workforce
should mitigate this. This short macro-economic digression is
intended to demonstrate not only the uncertainties our business
faces, but also the opportunities presented to us. Personal saving
rates have recovered strongly as has consumer confidence and the
appetite to spend. This , and a recent evidence of returning
business confidence , have seen Government predictions for GDP
growth rise to 4.5% this year and 6.6% next.
All this means that S&U's habitual caution shoul d now be
seasoned with ambition and optimism for the next two years. Thus,
July to October 2020 saw the used car finance market record 120,000
to 140,000 transactions per month, the highest for over three
years. In the same period Finance and Leasing Association figures
showed the strongest used car price growth for a decade. Similarly,
the housing market, upon which Aspen's bridging loans largely
depend, has confounded early predictions of collapse; instead it
finished 2020 with a 6.3% increase in house prices , and nearly
104,000 monthly mortgage approvals (40% higher than before the
pandemic) reinforcing this incipient t ren d.
Despite the inevitable shorter-term impact of the pandemic upon
the level and quality of the Group's business, we fully expect to
see a gradual and sustained rebound in Group Profits. Current
initiatives in both businesses may even accelerate this
recovery.
This is why we have , post year-end, increased our medium-term
borrowing facilities from GBP130m to GBP 155m (d espite a fall in
Group borrowing this year of GBP19m to GBP98.8m). This will provide
ample headroom for the surge in growth in customer numbers and good
quality business we anticipate.
Advantage Finance ("Advantage")
In a year which saw the Cov id lock-downs close dealerships lead
to an initial 80% fall in loan transaction numbers, and when FCA
mandated customer repayment "holidays" affected nearly 21,000 or
about a third of Advantage's customers, Advantage Finance, our
non-prime motor finance division, has delivered a very creditable
result. Profit Before Tax is GBP17.2m (2020: GBP3 4.0 m) on revenue
of GBP79.5m (2020: GBP8 5.5 m).
Challenging market conditions due to Covid and a prudent
tightening of under-writing criteria early last year saw
transactions fall from 23,234 in 2019/20 to 15, 60 0. Overall
customer numbers stood at nearly 63,000 (2020: 64,000) and net
receivables at GBP2 46.8 m (2020: GBP28 0.8 m). The net receivables
and the lower profit reflected IFRS forward looking loan loss p
rovision s of GBP36m for the year (2020: GBP17m). Return on Capital
Employed before finance costs is 8.6% (2020: 15.2%) and Advantage's
risk adjusted y ield on average receivables was 16.4% for the year
(2020: 25.5%) (definitions are in note 1.13).
Advantage's previous track record of 20 years of continuous
profits growth has been built on three pillars , and remains
unchanged by Covid.
The first pillar is its insistence th at real profits are
reflected in cash repayments from our loyal customers. This year,
despite the payment holidays which affected nearly 21,000 of our
customers and resulted in an estimated GBP13m lower collection,
total cash collected at Advantage was GBP 18 0m against GBP 196m
last year.
This resulted in a monthly collection rate against contractual
due of nearly 84% (2020: 94%) which, despite Covid, reflects the
excellent relationships Advantage has always enjoyed with its
customers. In turn these depend upon the work Advantage does on
customer forbearance, income and expenditure analysis and
consistent customer communications. These are evidenced by
Advantage's positive and close relationships with the FCA regulator
, who recently favourably reviewed collections procedures as part
of an industry wide review.
Advantage's second pillar for success depends upon their ability
to analyse and anticipate customer circumstances and to tailor
finance products for them. This year has seen further strengthening
of its under-writing "black box" as it has continued to widen its
use of credit information and refine its scorecard. This has
enabled Advantage to cautiously under-write a record 1.5m loan
applications during the year despite Covid (2020: 1.4m) , providing
a solid platform for the selection of good quality customers in
uncertain times. Evidence of the improvement in customer repayments
this should bring about is in our first payment statistics which at
98.5% are now up on pre-Covid levels.
The third pillar of Advantage's success relates to its
relationships with its introducer brokers - strengthened this year
through their maintaining the supply of credit throughout the
various Lockdowns and by carefully testing and learning new
products to cater for changing customer needs. Th ese relationships
continue to both improve the efficiency of the loan process and ,
together with continuous improvements in our underwriting should
see a significant upturn in Advantage's approval/transaction rates.
These in turn will lead to increase in transactions growth, market
share and debt yield.
The Victorian Prime Minister Benjamin Disraeli once said "there
is no education like adversity". Advantage has used the hiatus in
growth caused by Covid to set out a strategy for major improvements
to an already successful business. Whilst the whole process is
guided by Graham Wheeler in his first - slightly over-eventful -
year as Chief Executive, great credit also goes to his team of
directors and all the staff at Advantage for the results they have
achieved and the fundamental progress they continue to make.
Aspen Bridging
Just as the more apocalyptic predictions about the UK housing
market made in early 2020 have proven wrong, so it was in the year
of Covid that Aspen, our property bridging finance provider ,
unequivocally demonstrated its potential for making a substantial
and sustained contribution to the success of the Group.
P rofit Before Tax for the year is GBP 0.8m (2020: GBP1.2m) ,
and this despite a first half during which the property market was
effectively frozen. Although this reduced profits in the first half
to just GBP118,000, Aspen produced GBP695,000 profit in the second
half. The main deficit on last year related to lower interest
income from a dearth in deals in the first half.
As a result of a strong second half when transaction numbers
more than doubled from 25 in the first half year to 55 in the
second half year, advances for the year reached GBP43.5m against
GBP31.3m last year. Average gross loan size was GBP550,000 against
GBP432,000 in the first half. As consumer confidence returned and
Aspen's product range was made more competitive, broker
relationships were developed and key partners were incentivised ,
so Aspen's loan book grew to GBP34.1m against GBP2 1.0 m last year.
In addition, rece nt months have seen the introduction of a light
development product for the burgeoning small refurbishment market ,
and CBILS (Coronavirus Business Interruption Loan Scheme)
validation which for its limited duration will bring further small
business deals at good margins.
All this has been achieved whilst tightening checks on borrowers
and on the valuations which underpin our lending policies. Loan
quality has improved over the past year and Aspen now has no loans
past due and no defaults over the entire book.
Thi s gives Aspen both the base and the momentum for the
substantial growth it expects in the coming year. As a result, our
deliberately cautious investment in the business is anticipated to
double during the coming year and this is expected to d eliver a
significant rebound in profits. This will reflect the market
credibility of the business and the hard work of both Ed Ahrens,
Chief Executive , J ack Coombs , his deputy , and their growing
team over the past year.
Dividends
Just as the wise person invests and re-invests for the
longer-term , so we have always believed that S&U's dividend
policy should reflect the long-term trading prospects of the Group
- not just the vicissitudes of the short-term. At S&U, where
shareholders capital and management's stake in it have been
invested for many years, dividends should reflect this consistency
of loyalty as well as our confidence in future trading.
Throughout the pandemic, S&U has not furloughed staff nor
taken any Government support. T herefore, we have decided this year
that a combination of confidence in the post Covid recovery , S
&U's financial strength and the prospects for our businesses
justif ies a final dividend of 43p per share (2020: 50p). Subject,
as always, to the ap proval of shareholders at our AGM on the
20(th) May 202 1, thi s final dividend will be paid on 9(th) July
2021 to those on the register on t he 18(th) June 2021.
Total dividends for this year would therefore be 90p per
ordinary share (2020: 120p). On this year 's e arnings per share of
120.7p (2020: 239.6p), this will see cover at 1.34 times (2020:
2.00 times). We expect gradually to return to our habitual ratio of
twice covered over the coming years.
Funding Review
As predicted in my statement last year, the effect of Covid
lockdowns and the robust and improving collections performance at
Advantage has resulted in significant cash generation there.
Borrowing at Advantage has fallen by GBP32m during the year . This
is partly offset by our growing investment in the shorter-term
Aspen bridging business where borrowing grew by GBP12.5m during the
year.
As a result, Group borrowing at year-end was GBP98.8m (2020:
GBP11 7.8 m). This saw S&U's traditionally strong gearing ratio
fall yet again to just 54. 6 % against 65.7% last year. Early
repayment of GBP25m of shorter dated maturity facilities during the
year means that at year-end GBP130m of medium-term facilities are
available to the Group.
Over the next two years our growth prospects and strategy will
require additional funding. This is why post year-end we have put
in place additional lo nger-term facilities of GBP50m on terms up
to eight years. This provides t otal committed Group facilit ies of
GBP155m which will be augmented as required.
Governance and Regulation
S&U has now been in business for 83 years, 60 years as a
fully listed company, and most of that time has been spent in the
highly regulated financial services sector. We note the current
trend towards ever more detailed reporting on wider ESG
responsibilities particularly through our Section 172 Statement.
However, we have always held the view that any serious company with
sustainable ambitions should recognise that it does not exist in a
vacuum. We all have responsibilities, not only to our shareholders
and staff but, morally and in our own commercial interests, to our
customers and to a wider, albeit often ill-defined, "community."
These exist in addition to demands made upon us by the FRC or the
Corporate Governance Code. Whether the box-ticking approach adopted
by some institutional advisors to these issues is either
proportionate or advance s responsible business is a matter of
debate. What is clear is that the British economy, even free from
European legislation , will struggl e to better a growth rate of
around 1.5% a year unless the corporate sector can convince the
public of the virtues of free enterprise in providing for a decent,
opportunity driven society.
That will be achieved by practical action not virtue signalling.
Examples abound. Thus, in December the Financial Conduct Authority
completed a review of collection procedures in the motor finance
industry. This followed the imposition of payment holidays and
increased concerns about vulnerable customers during the pandemic.
Following the review Advantage received positive comments for their
treatment and communication with their customers, particularly
vulnerable ones.
Again, on diversity and opportunit ies for all , it has always
been S&U's policy to recruit and promote from as wide a p ool
of talent as possible, solely on the basis of aptitude and ability.
In an ever-evolving society this should make quotas un n ecessary.
For instance, recent recruitment at Aspen has been primarily from
the "BAME" community, and from both sexes. What their sexual
preferences are is neither known nor of interest to us. All are
thriving.
B eing largely office based, S&U's direct impact on the
environment is confined to the premises we use and how we reach
them. The past year has seen substantial refurbishment and
improvement in new buildings at Advantage's Grimsby HQ. This will
reduc e our carbon footprint and, more important, provide a better
working environment for our employees. Further, the successful
adoption of home working during Covid will see this continue , so
that more flexible patterns of work in future will offer
environmental, convenience and psychological benefits for those who
value it.
Finally, like any environmentally socially responsible business,
S&U aims to ensure that the vehicles and property it finances
contribute towards a cleaner and more sustainable world. Aspen
monitors this through monitoring whether EPC and other standards,
especially for new builds, meet Governement guidelines and the
requirements of mortgage lenders. Advantage aims to ensure that the
vehicles it finances are cleaner too. Its ability to do this is
obviously constrained by our customers' preferences, which
presently favour the internal combustion engine. This is partly due
to the lack of a charging infrastructure and, primarily, to EVs
still being too expensive. Thus, even a five-year-old Nissan Leaf,
with average mileage, sells for GBP12,000, the top end of the
affordable non-prime price range.
The transition to EVs is therefore likely to be evolutionary not
revolutionary. Although EV registrations in the UK trebled last
year to 108,000 vehicles, this still comprised just 7% of UK car
sales. Even by 2030 when the sale of new ICE vehicles will be
banned, EVs are estimated to only make up 9% of the UK car
parc.
Nevertheless, Advantage foresees exciting opportunities and has
established a working party to study the development of the EV
market and to prepare strategies and products to take advantage of
it.
Current Trading and Outlook
Although uncertainty still surrounds the economic climate
following Covid, the skies are definitely brightening. As I
predicted last year the suppression of consumer demand and
confidence is likely to be temporary and will not alter the
fundamentals underpinning the demand for the vehicles and
properties S&U finances.
This is already evident in our most recent applications figures
for both Advantage and Aspen, and bodes well for the rebound in
activity we anticipate this year. Recent Government measures
announced in the Budget, particularly in relation to the extension
of the furlough, stamp duty concessions and business support
measures should, in conjunction with the vaccination programme,
make a swift return to the new economic "normal" even faster than
anticipated.
Beyond that, our ability in the UK to double our "natural" rate
of GDP growth to at least 3% per annum will depend upon the
Government's appetite for the kind of regulatory easing and tax
incentives for enterprise which Brexit brings within our reach. In
the meantime, as the teams at Aspen and Advantage have proved so
ably this year, S&U will continue to make the kind of
operational and product improvements which have been features of
the past year , and indeed of our history.
Given the pressures and dislocation they have faced in the past
year, on behalf of your Board, I pay a humbled tribute to our
superb staff, and indeed their families. It is above all my
confidence in them as well as the financial strength and strategic
direction of S&U, that allows me to predict a return to our
habitual levels of success .
Anthony Coombs
Chairman
29 March 2021
CONSOLIDATED INCOME STATEMENT
Year ended 31 January 2021 Note
2021 2020
GBP'000 GBP'000
Revenue 3 83,761 89,939
Cost of Sales 4 (50,969) (37,092)
Gross Profit 32,792 52,847
Administrative expenses (11,096) (12,863)
Operating profit 21,696 39,984
Finance costs (net) 5 (3,568) (4,850)
Profit before taxation 18,128 35,134
Taxation (3,482) (6,252)
Profit for the year attributable
to equity holders 14,646 28,882
================ ================
Earnings per share basic 7 120.7p 239.6p
Earnings per share diluted 7 120.7p 239.4p
================ ================
Dividends per share
- Proposed Final Dividend 43.0p 50.0p
- Interim dividends in respect
of the year 47.0p 70.0p
- Total dividend in respect of
the year 90.0p 120.0p
- Paid in the year 108.0p 120.0p
================ ================
All activities derive from continuing
operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
2021 2020
GBP'000 GBP'000
Profit for the year attributable
to equity holders 14,646 28,882
Actuarial loss on defined benefit
pension scheme (9) (14)
Total Comprehensive Income for
the year 14,637 28,868
---------------- ----------------
Items above will not be reclassified subsequently
to the Income Statement
CONSOLIDATED BALANCE SHEET
31 January 2021 Note
2021 2020
GBP'000 GBP'000
ASSETS
Non current assets
Property, plant and equipment including
right of use assets 2,713 2,108
Amounts receivable from customers 6 170,591 195,604
Deferred tax assets 109 94
173,413 197,806
-------------------- ---------------------
Current Assets
Amounts receivable from customers 6 110,319 106,146
Trade and other receivables 1,106 1,473
Cash and cash equivalents 1 656
111,426 108,275
-------------------- ---------------------
Total Assets 284,839 306,081
LIABILITIES
Current liabilities
Bank overdrafts and loans (1,295) -
Trade and other payables (2,763) (3,126)
Tax Liabilities (593) (3,697)
Accruals and deferred income (658) (601)
(5,309) (7,424)
-------------------- ---------------------
Non current liabilities
Borrowings (97,500) (118,500)
Lease Liabilities (551) (233)
Financial Liabilities (450) (450)
(98,501) (119,183)
-------------------- ---------------------
Total liabilities (103,810) (126,607)
NET ASSETS 181,029 179,474
==================== =====================
Equity
Called up share capital 1,717 1,715
Share premium account 2,301 2,301
Profit and loss account 177,011 175,458
Total equity 181,029 179,474
==================== =====================
STATEMENT OF CHANGES IN
EQUITY
Year ended 31 January 2021
Called
up Share Profit
share premium and loss Total
capital account account equity
GBP'000 GBP'000 GBP'000 GBP'000
At 1 February 2019 1,701 2,301 161,365 165,367
------------ ------------ -------------- ----------------
Profit for year - - 28,882 28,882
Other comprehensive income
for year - - (14) (14)
------------ ------------ -------------- ----------------
Total comprehensive income
for year - - 28,868 28,868
Issue of new shares in
year 14 - - 14
Cost of future share based
payments - - 99 99
Tax credit on equity items - - (413) (413)
Dividends - - (14,461) (14,461)
At 31 January 2020 1,715 2,301 175,458 179,474
------------ ------------ -------------- ----------------
Profit for year - - 14,646 14,646
Other comprehensive income
for year - - (9) (9)
------------ ------------ -------------- ----------------
Total comprehensive income
for year - - 14,637 14,637
Issue of new shares in
year 2 - - 2
Cost of future share based
payments - - 75 75
Tax charge on equity items - - (61) (61)
Dividends - - (13,098) (13,098)
At 31 January 2021 1,717 2,301 177,011 181,029
============ ============ ============== ================
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 January 2021
Note
2021 2020
GBP'000 GBP'000
Net cash from/(used in) operating
activities 8 32,940 4,946
Cash flows used in investing
activities
Proceeds on disposal of property,
plant and equipment 103 40
Purchases of property, plant
and equipment (1,215) (305)
Net cash used in investing activities (1,112) (265)
---------------- --------------
Cash flows (used in)/from financing
activities
Dividends paid (13,098) (14,461)
Issue of new shares 2 14
Receipt of new borrowings 4,000 10,500
Repayment of borrowings (25,000) -
Increase/(decrease) in lease
liabilities 318 (41)
Net increase/(decrease) in overdraft 1,295 (38)
Net cash (used in)/from financing
activities (32,483) (4,026)
---------------- --------------
Net (decrease)/increase in cash
and cash equivalents (655) 655
Cash and cash equivalents at
the beginning of year 656 1
---------------- --------------
Cash and cash equivalents at
the end of year 1 656
---------------- --------------
Cash and cash equivalents comprise
Cash and cash in bank 1 656
================ ==============
There are no cash and cash equivalent balances which are
not available for use by the Group (2020: GBPnil).
1. SHAREHOLDER INFORMATION
1.1 Preliminary Announcement
The figures shown for the year ended 31 January 2021 are not
statutory accounts within the meaning of section 435 of the
Companies Act 2006. The statutory accounts for the year ended 31
January 2021 on which the auditors have given an unqualified audit
report and did not contain an adverse statement under section
498(2) or 498(3) of the Companies Act 2006 will be delivered to the
Registrar of Companies after the Annual General Meeting. The
figures shown for the year ended 31 January 2020 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 20 May 2021 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
43p per Ordinary Share is proposed, payable on 9 July 2021 with a
record date of 18 June 2021.
1.4 Annual Report
The 2021 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 2021 financial statements have been prepared in accordance
with applicable accounting standards and accounting policies -
these key accounting policies are a subset of the full accounting
policies.
2.1 Basis of preparation
As a listed Company we are required to prepare our consolidated
financial statements in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006 and International Financials Reporting Standards (IFRS)
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union. The financial statements have also been
prepared in accordance with International Financial Reporting
Standards as issued by the IASB We have also prepared our S&U
plc Company financial statements in in conformity with the
requirements of the Companies Act 2006 and International Financials
Reporting Standards (IFRS) as adopted by the European Union. 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 2021. The directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. In arriving at
this reasonable expectation, the directors have considered the
current situation in respect of Covid-19 and, in particular, the
potential for increased customer repayment difficulties and
temporary challenges with asset recovery and realisation at
potentially lower residual values as well as operational
challenges. Increased repayment difficulties relate to potentially
worse customer employment and/or health situations, potentially
mitigated by government support and movement restrictions which
lower customer outgoings, as well as being potentially mitigated by
the forbearance and experience of our skilled staff. Asset recovery
and realisation challenges relate mainly to government movement
restrictions and the recently announced route map and easing of FCA
repossession restrictions are likely to prove helpful mitigants in
this respect. Operational challenges relate to the need to
mobilise
and support staff working from home, which has already been
significantly mitigated by staff support and technology. 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 these financial statements 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. Under IFRS16, credit
charge income should be recognised using the EIR. Acceptance fees
charged to customers and any direct transaction cost are included
in the calculation of the EIR. For lease 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.
2.3 Impairment and measurement of amounts receivable from
customers
All customer receivables are initially recognised at the amount
loaned to the customer plus direct transaction costs. After initial
recognition the amounts receivable from customers are subsequently
measured at amortised cost.
The directors assess on an ongoing basis whether there is
objective evidence that a loan asset or group of loan assets is
impaired and requires a deduction for impairment. A loan asset or a
group of loan assets is impaired only if there is objective
evidence of credit impairment as a result of one or more events
that occurred after the initial recognition of the loan. Objective
evidence may include evidence that a borrower or group of borrowers
is experiencing financial difficulty or delinquency in repayments.
Impairment is then calculated by estimating the future cash flows
for such impaired loans, discounting the flows to a present value
using the original EIR and comparing this figure with the balance
sheet carrying value. All such impairments are charged to the
income statement. Under IFRS 9 for all stage 1 accounts which are
not credit impaired, a further collective provision for expected
credit losses in the next 12 months is calculated and charged to
the income statement.
Key assumptions in ascertaining whether a loan asset or group of
loan assets is impaired include information regarding the
probability of any account going into default (PD) and information
regarding the likely eventual loss including recoveries (LGD. These
assumptions and assumptions for estimating future cash flows are
based upon observed historical data and updated to reflect current
and future conditions. As required under IFRS9, all assumptions are
reviewed regularly to take account of differences between
previously estimated cash flows on impaired debt and the eventual
losses.
There are 3 classification stages under IFRS9 for the impairment
of amounts receivable from customers:
Stage 1: Not credit impaired and no significant increase in
credit risk since initial recognition
Stage 2: Not credit impaired and a significant increase in
credit risk since initial recognition
Stage 3: Credit impaired
For all loans in stages 2 and 3 a provision equal to the
lifetime expected credit loss is taken In addition and in
accordance with the provisions of IFRS9 a collective provision for
12 months expected credit losses ("ECL") is recognised for the
remainder of the loan book. 12-month ECL is the portion of lifetime
ECL that results from default events on a financial asset that are
possible within 12 months after the reporting date.
In our Motor Finance business, all loans 1 month or more in
contractual arrears are deemed credit impaired and are therefore
included in IFRS9 stage 3. The expected credit loss ("ECL") is the
probability weighted estimate of credit losses.
A PD/LGD model was developed by our Motor Finance business,
Advantage Finance, to calculate the expected loss impairment
provisions in accordance with IFRS9. Stage 1 expected losses are
recognised on inception/initial recognition of a loan based on the
probability of a customer defaulting in the next 12 months. This is
determined with reference to historical data updated for current
and future conditions. If a
motor finance loan falls one month or more in contractual
arrears then this is deemed credit impaired and included in IFRS9
Stage 3. There are some motor finance loans which are up to date
with payments but the customer is in some form of forbearance and
we deem this to be a significant increase in credit risk and so
these loans are included in Stage 2. As a result of the uncertainty
over the performance of customers who were granted a payment
holiday as part of the Government and FCA support measures as a
result of the Covid pandemic and have also either requested a
second payment holiday or have had a previous payment delinquency,
we have assessed these customers to have a significant increase in
credit risk and they are therefore included in Stage 2. This is why
the volume of customers in Stage 2 has increased at 31 January
2021. As we do not have historical data for such customers, we made
an assumption on the loss rates associated with such customers by
reference to relevant Stage 3 loss rates. Further sensitivity over
this estimation uncertainty is provided in note 2.5.
As required under IFRS9 the expected impact of movements in the
macroeconomy is also reflected in the expected loss model
calculations. For motor finance, assessments are made to identify
correlation of the level of impairment provision with forward
looking external data regarding forecast future levels of
employment, interest rates and used car values which may affect the
customers' future propensity to repay their loan. In relation to
the current uncertainties around Covid impacts and the evolution of
Brexit, management have judged that there is currently a more
heightened risk of an economic downturn. To factor in such
uncertainties, management has included an overlay to reflect this
macroeconomic outlook, based on our estimated unemployment 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 2021 and those used at 31 January
2020.
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.
2.4 Performance Measurements
i) Risk adjusted yield as % of average monthly receivables is
the gross yield for the period (revenue minus impairment) divided
by the average amounts receivable from customers for the
period.
ii) Rolling 12-month impairment to revenue % is the impairment
charged in the income statement during the 12 months prior to the
reporting date divided by the revenue for the same 12-month period.
Historic comparisons using this measure were affected by the
adoption of new accounting standards IFRS9 and IFRS16 and risk
adjusted yield is considered a more historically comparable guide
to receivables performance.
iii) Return on average capital employed before cost of funds is
calculated as the Operating Profit divided by the average capital
employed (total equity plus Bank Overdrafts plus Borrowings less
cash and cash equivalents)
iv) Dividend cover is the basic earnings per ordinary share
declared for the financial year dividend by the dividend per
ordinary share declared for the same financial year.
v) Group gearing is calculated as the sum of Bank Overdrafts
plus Borrowings less cash and cash equivalents divided by total
equity.
vi) Group collections are the total monthly collections,
settlement proceeds and recovery collections in motor finance added
to the total amount retained from advances, customer redemptions
and recovery collections in property bridging.
2.5 Critical accounting judgements and key sources of estimation
uncertainty
In preparing these financial statements, the Company has made
judgements, estimates and assumptions which affect the reported
amounts within the current and next financial year. Actual results
may differ from these estimates.
Estimates and judgements are regularly reviewed based on past
experience, expectations of future events and other factors..
Critical accounting judgements
The following are the critical accounting judgements, apart from
those involving estimations (which are dealt with separately
below), that the Directors have made in the process of applying the
Company's accounting policies and that have the most significant
effect on the amounts recognised in the financial statements.
Significant increase in credit risk for classification in Stage
2
The Company's transfer criteria determine what constitutes a
significant increase in credit risk, which results in a customer
being moved from Stage 1 to Stage 2. As a result of the uncertainty
over the performance of customers who were granted a payment
holiday as part of the Government and FCA support measures and have
also either requested a second payment holiday or have had a
previous payment delinquency, we have assessed these customers to
have a significant increase in credit risk and they are therefore
included in Stage 2.
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 interest rates, employment 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.
Stage 2 loss rates
Historically the Group had very low value of receivables in the
stage 2 and as a result no significant experience in the payment
performance of customers in this stage. Directors have made an
assumption on the level of loss rate applied to stage 2
receivables. If the loss rate applied decreased by 3% it would
result in a decrease in the impairment provision by GBP996k.
Stage 3 loss rates
Due to the uncertainty over the impact of Covid-19 on the
performance of customers in stage 3, Directors have changed one of
the staging criteria for stage 3 agreements, increasing the loss
rates for customers who have requested and were granted a payment
holiday. Applying the same loss rates as customers who have not had
a payment holiday would decrease the impairment provision by
GBP2,480k.
Macroeconomic overlay
The Group considers four probability-weighted scenarios in
relation to unemployment rate: base, upside, downside and severe
scenarios. The weighted average increase in the unemployment rate
over the next four years is 2%. Due to the current uncertainty in
relation to the ongoing Covid-19 global pandemic and the recently
agreed Brexit trade agreement the choice of scenarios and
weightings are subject to a significant degree of estimation and
the Group uses external data to help this process. An increase by
0.5% in the weighted average unemployment rate would result in an
increase in the impairment loss by GBP743k. A decrease by 0.5%
would result in a decrease in the impairment loss by GBP743k.
3. SEGMENTAL ANALYSIS
Analyses by class of business of revenue and profit before
taxation from continuing operations
are stated below:
Profit before
Revenue taxation
Year Year Year Year
ended ended ended ended
31.1.21 31.1.20 31.1.21 31.1.20
Class of business GBP'000 GBP'000 GBP'000 GBP'000
Motor finance 79,553 85,465 17,198 34,027
Property Bridging
finance 4,208 4,474 813 1,205
Central costs net
of central - - 117 (98)
finance income
83,761 89,939 18,128 35,134
------------- ----------- ------------- ------------
Analyses by class of business of assets and
liabilities are stated below:
Assets Liabilities
Year Year Year Year
ended ended ended ended
31.1.21 31.1.20 31.1.21 31.1.20
Class of business GBP'000 GBP'000 GBP'000 GBP'000
Motor finance 250,207 283,776 (144,036) (178,836)
Property Bridging
finance 34,271 21,204 (32,213) (19,791)
Central 361 1,101 77,748 78,989
284,839 306,081 (98,501) (119,638)
------------- ----------- ------------- ------------
Depreciation of assets for motor finance was GBP417,000 (2020:
GBP337,000), for property bridging finance was GBP18,000 (2020:
GBP17,000) and for central was GBP86,000 (2020: GBP96,000). Fixed
asset additions for motor finance were GBP1,198,000 (2020:
GBP278,000), for property bridging finance were GBP14,000 (2020:
GBP9,000) and for central were GBP3,000 (2010: GBP18,000).
The net finance credit for central costs was GBP2,577,000 (2020:
GBP2,607,000), for motor finance was a cost of GBP5,381,000 (2020:
GBP6,597,000) and for property bridging finance was a cost of
GBP764,000 (2020: GBP861,000). The tax charge for central costs was
GBP48,000 (2020: tax credit of GBP7,000), for motor finance was a
tax charge of GBP3,265,000 (2020: GBP6,031,000) and for property
bridging finance was a tax charge of GBP169,000 (2020:
GBP229,000).
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
2021 2020
GBP'000 GBP'000
Loan loss provisioning charge
- motor finance 35,995 16,507
Loan loss provisioning charge
- property bridging finance 710 713
Total loan loss provisioning charge 36,705 17,220
Other cost of sales - motor finance 13,586 19,238
Other cost of sales - property
bridging finance 678 634
Total cost of sales 50,969 37,092
============== ================
5. FINANCE COSTS (NET)
2021 2020
GBP'000 GBP'000
31.5% cumulative preference dividend 142 142
Lease liabilities interest 13 4
Bank loan and overdraft 3,455 4,704
Interest payable and similar charges 3,610 4,850
Interest receivable (42) -
Total finance costs (net) 3,568 4,850
============== ================
6. AMOUNTS RECEIVABLE FROM CUSTOMERS
2021 2020
GBP'000 GBP'000
Motor finance hire purchase 339,349 344,131
Less: Loan loss provision motor finance (92,583) (63,374)
Amounts receivable from customers
motor finance 246,766 280,757
------------ ------------
Property bridging finance loans 34,475 21,949
Less: Loan loss provision property
bridging finance (331) (956)
Amounts receivable from customers
property bridging finance 34,144 20,993
------------ ------------
Amounts receivable from customers 280,910 301,750
============ ============
Analysis of future due date due
- Due within one year 110,319 106,146
- Due in more than one year 170,591 195,604
Amounts receivable from customers 280,910 301,750
============ ============
Analysis of Security
Loans secured on vehicles under hire
purchase agreements 242,039 275,744
Loans secured on property 34,144 20,993
Other loans not secured - motor finance
where security no longer present 4,727 5,013
Amounts receivable from customers 280,910 301,750
============ ============
The credit risk inherent in amounts receivable from customers is
reviewed as per note 2.3 and under this review the credit quality
of assets which are neither past due nor impaired was considered to
be good with the exception of 6,298 Covid impacted payment deferral
customers who although not in arrears at 31.1.21 were assessed from
a review of internal data to have a significant increase in credit
risk. Under IFRS9 therefore these customers although not in arrears
are included in stage 2 at 31.1.21 with an increased impairment
provision (2020: N/A).
6. AMOUNTS RECEIVABLE FROM CUSTOMERS (CONTINUED)
Analysis of loan loss provision and amounts receivable
from customers (capital)
Not credit Not credit Credit
Impaired Impaired Impaired
Stage Stage Stage
1: 2: 3:
Subject Subject Subject Amounts
to to to Total
12 months lifetime lifetime Provision Receivable
As at 31 January 2021 ECL ECL ECL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Motor finance (14,367) (12,759) (65,457) (92,583) 339,349
Property bridging
finance (313) - (18) (331) 34,475
Total (14,680) (12,759) (65,475) (92,914) 373,824
=========== ============== =========== ============ ===============
Stage Stage Stage
1: 2: 3:
Subject Subject Subject Amounts
to to to Total
12 months lifetime lifetime Provision Receivable
As at 31 January 2020 ECL ECL ECL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Motor finance (13,375) (51) (49,948) (63,374) 344,131
Property bridging
finance (228) - (728) (956) 21,949
Total (13,603) (51) (50,676) (64,330) 366,080
=========== ============== =========== ============ ===============
Stage Stage Stage
1: 2: 3:
Subject Subject Subject
to to to Total
12 months lifetime lifetime Provision
Analysis of Loan loss provisions ECL ECL ECL
GBP'000 GBP'000 GBP'000 GBP'000
At 1 February 2019 12,816 71 45,326 58,213
Net transfers and changes
in credit risk (5,539) (41) 8,293 2,713
New loans originated 6,551 30 7,926 14,507
Total impairment charge to
income statement 1,012 (11) 16,219 17,220
Amount netted off revenue
for stage 3 assets - - 7,292 7,292
Utilised provision
on write-offs (225) (9) (18,161) (18,395)
At 31 January 2020 13,603 51 50,676 64,330
Net transfers and changes
in credit risk (5,051) 11,502 17,014 23,465
New loans originated 6,302 1,219 5,719 13,240
Total impairment charge to
income statement 1,251 12,721 22,733 36,705
Amount netted off revenue
for stage 3 assets - - 8,891 8,891
Utilised provision
on write-offs (174) (13) (16,825) (17,012)
At 31 January 2021 14,680 12,759 65,475 92,914
============== =========== ============ ===============
7. EARNINGS PER ORDINARY SHARE
The calculation of earnings per ordinary share from continuing
operations is based on profit after tax of GBP14,646,000 (2020:
GBP28,882,000).
The number of shares used in the basic eps calculation is the
weighted average number of shares in issue during the year of
12,129,768 (2020: 12,056,027). There are a total of 17,000 dilutive
share options in issue (2020: 30,667). The number of shares used in
the diluted eps calculation is 12,134,619 (2020: 12,066,617).
8. RECONCILIATION OF OPERATING PROFIT TO NET CASH FROM OPERATING
ACTIVITIES
2021 2020
GBP'000 GBP'000
Operating Profit 21,696 39,984
Finance costs paid (3,610) (4,850)
Finance income received 42 0
Tax paid (6,662) (6,659)
Depreciation on plant, property and equipment 520 450
(Profit)/loss on disposal of plant, property
and equipment (13) 3
Decrease/(increase) in amounts receivable
from customers 20,840 (24,687)
Decrease/(increase) in trade and other receivables 367 (418)
(Decrease)/increase in trade and other payables (363) 987
Increase in accruals and deferred income 57 51
Increase in cost of future share based payments 75 99
Movement in retirement benefit asset/obligations (9) (14)
Net cash from/(used in) operating activities 32,940 4,946
======== =========
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