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
Anthony Coombs
|
S&U plc
|
c/o SEC Newgate
|
Financial Public Relations
Bob Huxford, Molly Gretton, Harry
Handyside
|
SEC Newgate
|
020 7653 9848
|
Broker
Andrew Buchanan, Adrian Trimmings,
Sam Milford
|
Peel Hunt LLP
|
020 7418 8900
|