TIDMSUS
RNS Number : 3604G
S & U PLC
29 March 2022
29 March 2022
S&U plc
("S&U", "the Group" or "the Company")
PRELIMINARY UNAUDITED RESULTS FOR THE YEARED 31 JANUARY 2022
S&U plc (LSE: SUS), the motor finance and specialist lender,
today announces its preliminary unaudited results for the year
ended 31 January 2022:
Group Key Financials:
-- Profit before tax ("PBT"): GBP47.0m (2021: GBP18.1m) -
average PBT over 2 years of pandemic is therefore GBP32.6m pa
(2020: GBP35.1m)
-- Revenue increased by 5% to GBP87.9m (2021: GBP83.8 m)
-- Group amounts receivable from customers at year-end increased
by 15% to GBP322.9m (2021: GBP280.9m)
-- Group impairment charge of GBP4.1m (2021: GBP36.7m) - lower
this year due to less utilisation of Covid related Jan 21
provisions, lower motor finance bad debt attrition and good
collections in both businesses
-- Basic earnings per share : 312.8 p (2021: 120.7p)
-- Fin al dividend of 57p per ordinary share to be paid on 8 July 2022 (2021: 43p)
-- Net Borrowings at GBP113.6m (2021: GBP98.8m) - gearing at 54.9% (2021: 54.6%)
Advantage Motor Finance Highlights:
-- PBT: GBP43.7m (2021: GBP17.2m)
-- Annual PBT reflects a lower than normal GBP3.8m forward
looking IFRS9 impairment charge (2021: Covid impacted charge
GBP36.0m) - this charge was GBP16.5m in 2020
-- Total annual collections at GBP203.9m (2021: GBP180.5m)
-- Annual net advances : GBP140.9m (2021: GBP102.6m) - new business quality good
-- Net receivables at GBP259.0m (2021: GBP246.8m)
Aspen Bridging Highlights:
-- PBT : GBP3.4 m (2021: GBP0.8m)
-- Annual PBT performance underpinned by strong advances and repayments
-- Amounts receivable from customers now GBP63.9m (2021:
GBP34.1m) with only 2 loans in default
-- 369 new loan facilities in 5 years with 267 repaid up to 31
January 2022 and 102 remaining on live book
Audit - our new auditor, Mazars LLP, due to their internal
capacity constraints, are still finalising their audit quality
internal review processes which were due to have concluded ahead of
our preliminary announcement. They have advised us that they
anticipate formally issuing their Audit Opinion in the coming
days.
Anthony Coombs, Chairman of S&U plc stated:
"As the world reels from one crisis to another, it is apt to
remember the words of Winston Churchill, our greatest war leader:
"I'm an optimist - it does not seemtoo much use to be anything
else". Like all successful businesses with a long history, S&U
recognises that it must tailor its products and services and trim
its operational tack to its economic, political and regulatory
environment, over which it may have little control but to which it
can nevertheless adapt and therefore thrive. Whilst this year's
resounding results clearly show our, and most importantly our loyal
people's, ability to do this, their work in preparing and priming
the Group for both the opportunities and challenges now facing all
of us, gives me a quiet but determined confidence in S&U's
future."
Anthony Coombs S&U plc c/o SEC Newgate Communications
Financial Public Relations
Bob Huxford, Molly
Gretton, Max Richardson SEC Newgate Communications 020 7653 9848
---------------------------- -------------------------------
Broker
Adrian Trimmings,
Andrew Buchanan, Rishi
Shah Peel Hunt LLP 020 7418 8900
---------------------------- -------------------------------
A conference call presentation for analysts will be held on
29(th) March 2022 at 11.00am
CHAIRMAN'S REVIEW
Introduction
In times scarred by the global pandemic, looming environmental
disaster and now a war in Ukraine, anyone claiming to see the
future with any certainty risks appearing a charlatan or a fool.
Hence, without possessing any supernatural powers of foresight, I
am at least pleased to see that my prediction last year of "a
return to S&U's habitual levels of success" in 2021 h as indeed
now come to pass. Profit before tax for S&U plc this year is at
GBP47 .0 m (2021: GBP18.1m) on Group revenue of GBP87.9m (2021:
GBP83.8m). Group net assets now stand at a record, GBP206.7m
against GBP181.0m last year.
This excellent performance sees earnings per share this year at
312.8p per ordinary share (2021: 120.7p) the best in S&U's
84-year history. The Group's traditional financial strength,
excellent collections performance and receivables quality, mean
Group Gearing remains at just 54.9% (2021: 54.6%). Despite the
unprecedented economic and social turmoil of the past two years,
first through Cov i d, secondly its economic aftermath and rising
inflation , and third , from the as yet unknown consequences of the
Ukrainian War, these results show that S&U plc has emerged
stronger than ever and primed for a new era of profitable
growth.
Financial Highlights*
Profit before tax ("PBT"): GBP47.0m (2021: GBP18.1m)
Revenue: GBP87.9m (2021: GBP83.8m)
------------------------ ------------------
Earnings per share
("EPS") 312.8p (2021: 120.7p)
------------------------ ------------------
Group net assets: GBP206.7m (2021: GBP181.0m)
------------------------ ------------------
Group gearing: 54.9% (2021: 54.6%)
------------------------ ------------------
Group Treasury: GBP180m of medium-term funding against
GBP113.6m borrowings
--------------------------------------------
Group total collections: GBP294.3m (2021: GBP214.3m)
------------------------ ------------------
Dividend proposed: 126p per ordinary share (2021: 90p)
------------------------ ------------------
* key alternative performance measurement definitions are given
in note 2.4 below
At Advantage, our Grimsby based motor finance business, the
resilience of the business and the strength of its relationships
with its customers is evidenced by a lower than normal loan loss
provisioning charge for the year of GBP3.8m (2021: GBP36.0m; 2020:
GBP16.5m) reflecting good collections and less utilisation of the
impairment provisions made in the dark days of January 2021. Thus,
over the past two years of Covid, Advantage has been able to
produce an average of over GBP30m annual profit , quite remarkably
just less than 10% lower than in the previous two years. This,
despite a 20% fall in new car production and sales over the past
two years, which has constrained supply in both the new and used
car markets and hence constrained l oan transactions.
At Aspen, our five-year-old property bridging operation ,
profits have surged ahead strongly over the past year. Transaction
numbers have risen by nearly 70% and book quality is at its best
level ever. The rewa rd is a record profit for the year of GBP3.4m
(2021: GBP0.8m).
S&U's remarkable ability to produce consistent and long-term
growth rests on three pillars. The first is the tenacity, hard
work, imagination and ambition of our remarkable colleagues. All
have adapted to Covid's disruption by using flexible and hybrid
working to their advantage. Around two-thirds of them have now
returned to normal routines of office work , a nd all have embraced
the real opportunities for uninterrupted concentration and focus
that hybrid working can bring. As Manchester City FC has so ably
demonstrated, our staff may not always share the same pitch, but
the whole squad can interchange for the benefit of all.
Second, they have used the pandemic period to set in place a
raft of operational improvements which are making both Advantage
and Aspen more competitive than ever. New finance products have
been introduced, sales channels diversified, both brand and digital
marketing embraced, and customer communication automated and made
more efficient. All these and more are proof of the vitality and
imagination of our staff, to whom, more than ever, I pay profound
and r espect ful tribute.
Third, long experience has proved to us that successful lending
businesses do not exist in a vacuum. Both the attraction and
affordability of all our products depend not only upon the
financial health of our customers but on prevailing economic
conditions. In turn, these depend upon health of the British
economy and in particular the motor and housing markets which we
serve. Currently, to put it mildly, the ru nes are mixed. Whilst
the labour market remains reasonably strong with low unemployment
and rising wage rates, high utility prices, inflation and direct
and indirect taxation undoubtedly threaten stand ards of
living.
In the used car market, in which Advantage has so successfully
operated for over twenty years, the dichotomy is seen in the 20%
fall in new car production and sales over the past two years ,
contrasted to a robust 10% increase (a t 1.361m ) in the number of
used cars financed at the point of sale (Finance and Leasing
Association). The fall in new car sales means that residual values
for used cars remain very strong and has resulted in a steady 9%
recovery in the used car finance market over the past year.
Happily, Advantage has out-performed the market, with the value of
new loan advances up 37% this year and new loan transaction numbers
up 26%.
In the housing market, of interest to Aspen Bridging, although
market transaction numbers have remained subdued, house prices
generally have risen over 10% over the last year . Although the
market is now cooling slightly as interest rates rise to counter
inflation and to finance two trillion pound s of government debt,
their effect on dampening demand will be offset by the fundamental
imbalance between housing demand and supply in most parts of the
UK. Happily, like Advantage, Aspen has been able to outperform the
market seeing new loan facility numbers increase by 69% over the
past year.
In sum, current trends in both our businesses remain very
encouraging with current new loans this financial year already
beating budget. It was our anticipation of this accelerating growth
that S&U put in place an additional GBP50m of medium-term
facilities last year. These now total GBP180m on borrowings of
GBP113.6m and may be augmented within the next financial year as
further growth occurs , and the macroeconomic landscape becomes
clearer.
Advantage Finance ("Advantage")
Following a first ever dip in profits last year, as Covid
stormed the economy, Advantage Finance , our motor finance business
, has produced a stunning come back performance. Profits this year
of GBP43.7m a re a gainst just GBP17.2m in 2021 . New loan t
ransacti on numbers, even in a market constrained by the supply of
used cars are up by 26% on 2021. On revenue of GBP78.9m, ROCE for
the business was 19.4%. Whilst it is true that these results have
benefitted from a much lower than normal impairment charge, this
partly reflected a superb performance in collections as our loyal
and conscientious customers both maintained and improved their
repayments. Monthly live collections receipts reached a record
GBP152.7m, 10% up on 2021. These collections re presented an
average 93.21% of due (2021: 83.26%) and the year finished on a
remarkable 98.25% of due in January. They were made possible by
Advantage's close and harmonious customer relations, responsible
lending, the success of a new customer payment portal introduced
last summer and, la st but not least, by the professionalism and
empathy of our customer facing teams.
Receivables quality was also bolstered by the strong used car
values ; this meant that both voluntary termination and bad debt
numbers, and the losses arising from them were much lower than
anticipated back in January 2021.
Although Advantage expects that new loan transactions will
continue to grow this year, much will depend upon consumer
confidence generally and the economic fall-out from the current
crisis in Eastern Europe. Their prognosis has therefore been
sensibly prudent with a return to increased growth forecast for the
final third of this financial year, when used car availability is
expected to have gradually returned to more normal levels.
For the longer term, a number of marketing and branding
initiatives have been introduced. They will broaden the funnel of
our new business , develop new affinity and consolidated
partnerships and open direct channels to future customers. Refining
its renowned underwriting ability, Advantage continues to help
customers improve their credit ratings and to serve them with the
kind of finance product which helps them do so. To this end
Advantage has welcomed new credit reference providers and has
partnered with digital specialists , as well as recruiting in-house
marketing expertise.
Again, with an eye to the future , Advantage has this year
increased its financing of electric cars. Although electric
vehicles currently only comprise about 3.5% of the UK car parc, the
market is growing strongly. Indeed 28% of new vehicles sold this
year were either electric or plug in self-charge hybrids. A working
group has been set up to track the development of this market and
we expect to be able to introduce more of our customers to it over
the next few years.
Aspen Bridging
Aspen, our property bridging business set up in 2017 , has
produced record results and is fulfilling our ambitions for it.
Profit before Tax is a record GBP3.4m (2021: GBP0.8m) and year end
net receivables have grown to GBP63.9m (2021: GBP34.1m). New loan
facility numbers in the year rose from 80 to 135 on gross maximum
LT Vs at a conservative 66% average. Loans written were GBP112m
this year (2021: GBP43m) well above budget. Credit quality remains
good. 102 loans were repaid last year, generating GBP77m of cash
(2021: GBP29m). Defaults are at their lowest ever and no actual
realised losses have been incurred this year on the loan book. This
is a testament to Aspen's thorough, painstaking and rigorous
approach to underwriting involving a personal visit to every
property financed.
As the business develops, new products have been introduced.
Loans now range up to GBP5m per deal as, in the absence of flexible
mainstream bank support, the refurbishment and small development
market expands. Last year saw Aspen trade very successfully within
the Government's Coronavirus Business Interruption Loan Scheme
(CBILS). The burgeoning Buy-to-Let market has seen Aspen introduce
a 'Bridge to Let' product which is proving attractive to smaller
developers and investors. Aspen anticipates further lending growth
this year.
Considerable investment has been made in staff development and
recruitment. New business development managers and Aspen's growing
credibility within the broker community helped produce a record
GBP27m gross loans in the final quarter of 2021/22. As the business
grows, so will staff numbers and their ex perience and professional
qualification s.
This year, although possibly muted in the light of
macro-economic conditions, we expect the UK housing market to
continue to grow both in value and in transaction numbers. In the
long term the continued mismatch between the demand for affordably
priced housing and a relative dearth of supply will see that it
remains so. Aspen's budgets and aspirations r esponsibly reflect
this.
Dividends
Together with Warren Buffet t, t he legendary American investor,
we believe that shareholders ' rewards should reflect the long-term
view of the cash thrown off by the pr ofits of the businesses they
own. We have reflected this at S&U in a longstanding dividend
approach which aims at seeing dividends twice covered. Taking the
past two years as a whole earnings per share have averaged just
over 216p thus implying a total dividend of 126p per ordinary share
this year (2021: 90p). Subject therefore to the approval of
shareholders at our AGM on 26 May 2022, we propose a final dividend
of 57p per share (2021: 43p). This final dividend will be paid on 8
July to shareholders on the register on 17 June 2022.
Funding Review
At GBP113.6m at year end, net borrowings are well within our
medium-term facilities of GBP180m. Whilst Advantage's excellent
debt quality and cautious underwriting saw it again generate cash
last year, Aspen's growth absorbed nearly GBP30m of additional
funds. We anticipate that current facilities will give sufficient
headroom for the anticipated organic growth in both businesses in
the next year. As usual these will be increased as required.
Governance and Regulation
The past 85 years of S&U's existence have obviously seen
profound changes in the financial services industry. Whilst
technological change has been at the forefront, the most profound
change has been philosophical, and one which could threaten the
flexibility, development and success of the industry. Previousl y
widely accepted notions regarding the success of the free
enterprise system in h arness ing the energy, motivation and
multiple decisions of millions of consumers and producers for the
benefit of all, are no longer widely held. As Milton Friedman , and
even the great Adam Smith , l aude d the ability of markets,
flexibly regulated to benefit the common good and improve standards
of living generally, current trends are increasingly more
interventionalist, judgemental and even "woke". As Lord David Frost
recently pointed out on his resignation from the government, this
has resulted in the mistaken and dangerous assumption that
profit-making inevitably risks being at the expense of consumers ,
and not for their benefit.
All this has resulted in a tsunami of regulation , sometimes ill
-coordinated and even contradictory , apparently designed to remove
all risk for consumers irrespective of circumstances. This has two
serious consequences.
First, it restricts innovation, robust competition and therefore
economic growth. As Professor Tim Congdon recently pointed out it
is unlikely to be a coincidence that the UK growth rate of 3% per
annum in the more l ightl y regulated 1960's, has given way to a
feeble 0.9% per annum rate between 2019 and 2020 in these more
consumerist times.
Second, waves of new regulation , often without any
parliamentary or even ministerial scrutiny or oversight , have led
to complication and uncertainty. The Consumer Credit Act, the
principal legislation for the financial services industry , is now
over 50 years old and has been constantly overlaid with statutory
instruments, codes of conduct and new consumer duties. In the words
of the Finance and Leasing Association, these have ceded control
over regulation t o the regulator s themselves. The industry's
policemen have effectively become its law makers. No w this process
risks even further confusion by the proposed introduction of a new
Consum er Duty, which (w hilst laudably aiming for good customer
outcome s) is so subjective that it risks, according to the Finance
and Leasing Association, giving "no certainty on what good
compliance looks like from the outset."
S&U has always put customers' interests first. This is not
only morally good business but is commercially vital in nurturing
long-term customer relationships and the earnings derived from
them. Indeed S&U's Mission Statement - "TRUST" - encapsulates
this. Fortunately, Advantage Finance enjoys an excellent and
mutually respect ful relationship with the Financial Conduct
Authority; building on this will necessitate a greater certainty
and clarity over what constitutes good conduct and compliance.
More widely, S&U's habitual responsibilities for the world
around it are itemised in its Environmental, Social and Governance
Responsibilities ("ESG"). How we fulfil these, are detailed,
without any virtue signalling, in later sections on S&U's
Corporate and Social Responsibility and in our Section 172
Statement. Nevertheless, we maintain our conviction that our
principal responsibilities are to our customers, our staff and our
shareholders. This coincides with a recent survey by Henley
Strategy, reported in the Times, which showed that 74% of the
British public now felt that prioritising staff and customers
should take precedence over a focus on wider social and
environmental issues. Our pragmatic approach means that the last
year has seen recruitment at Aspen fully reflect the ethnic
diversity of its West Midlands base; a selection process for a new
main Board Director which involved a majority female shortlist; the
formation of a new Group wide working party on Eco-strategy to
oversee our response to becoming carbon neutral by 2030, including
the promotion of Advantage's offer for electric vehicles. As
evidence of intent, many of the Board of Advantage now either
possess or have ordered an electric vehicle.
Most of all, in these turbulent and ever-changing times, we will
continue to insist that our ESG agenda is driven by common sense
and not political fashion.
Finally, it gives me great pleasure to welcome to our Board this
year two new members. The first is my cousin Jack who replaces
Fiann Coombs, whom I warmly thank for the wise contribution he has
made to our proceedings over the past decade. As evidenced by his
work at Aspen, Jack thoroughly deserves this recognition, will
continue the founding Coombs family's deep involvement with S&U
and add boundless energy and, dare I say it, youth to our Board
deliberations. The second, and latest appointee to the Board is
Jeremy Maxwell, whom we were delighted to appoint earlier this year
after an exhaustive and very thorough process, and who brings
considerable talent, wisdom and experience in marketing,
particularly in the Business to Consumer field, at Wolseley UK,
Carpetright, B&Q, Screwfix and Mothercare.
Current Trading and Outlook
As the world reels from one crisis to another, it is apt to
remember the words of Winston Churchill, our greatest war leader:
"I'm an optimist - it does not seem too much use to be anything
else". Like all successful businesses with a long history, S&U
recognises that it must tailor its products and services and trim
its operational tack to its economic, political and regulatory
environment, over which it may have little control but to which it
can nevertheless adapt and therefore thrive. Whilst this year's
resounding results clearly show our, and most important our loyal
people's, ability to do this, their work in preparing and priming
the Group for both the opportunities and challenges now facing all
of us, gives me a quiet but determined confidence in S&U's
future.
Anthony Coombs
Chairman
28 March 2022
CONSOLIDATED INCOME STATEMENT
Year ended 31 January 2022 Note
2022 2021
GBP'000 GBP'000
Revenue 3 87,889 83,761
Cost of Sales 4 (22,891) (50,969)
Gross Profit 64,998 32,792
Administrative expenses (14,208) (11,096)
Operating profit 50,790 21,696
Finance costs (net) 5 (3,772) (3,568)
Profit before taxation 47,018 18,128
Taxation (9,036) (3,482)
Profit for the year attributable
to equity holders 37,982 14,646
=============================== =================================
Earnings per share basic 7 312.8p 120.7p
Earnings per share diluted 7 312.7p 120.7p
=============================== =================================
Dividends per share
- Proposed Final Dividend 57.0p 43.0p
- Interim dividends in respect
of the year 69.0p 47.0p
- Total dividend in respect of
the year 126.0p 90.0p
- Paid in the year 101.0p 108.0p
=============================== =================================
All activities derive from continuing
operations.
CONSOLIDATED STATEMENT OF
COMPREHENSIVE
INCOME
2022 2021
GBP'000 GBP'000
Profit for the year attributable
to equity holders 37,982 14,646
Actuarial loss on defined benefit
pension scheme (6) (9)
Total Comprehensive Income for
the year 37,976 14,637
------------------------------- ---------------------------------
Items above will not be reclassified
subsequently to the Income Statement
CONSOLIDATED BALANCE SHEET
31 January 2022 Note
2022 2021
GBP'000 GBP'000
ASSETS
Non current assets
Property, plant and equipment
including right of use assets 2,455 2,713
Amounts receivable from
customers 6 181,614 170,591
Deferred tax assets 120 109
184,189 173,413
--------------------------------- ---------------------------------------
Current Assets
Amounts receivable from
customers 6 141,301 110,319
Trade and other receivables 1,739 1,106
Cash and cash equivalents - 1
143,040 111,426
--------------------------------- ---------------------------------------
Total Assets 327,229 284,839
LIABILITIES
Current liabilities
Bank overdrafts and loans (2,568) -1,295
Trade and other payables (4,347) (2,763)
Tax Liabilities (926) (593)
Lease liabilities (174) (169)
Accruals (774) (658)
(8,789) (5,478)
--------------------------------- ---------------------------------------
Non current liabilities
Borrowings (111,000) (97,500)
Lease Liabilities (243) (382)
Financial Liabilities (450) (450)
(111,693) (98,332)
--------------------------------- ---------------------------------------
Total liabilities (120,482) (103,810)
NET ASSETS 206,747 181,029
================================= =======================================
Equity
Called up share capital 1,718 1,717
Share premium account 2,301 2,301
Profit and loss account 202,728 177,011
Total equity 206,747 181,029
================================= =======================================
STATEMENT OF
CHANGES IN
EQUITY
Year ended 31
January 2022
Called
up Share Profit
share premium and loss Total
capital account account equity
GBP'000 GBP'000 GBP'000 GBP'000
At 1 February
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 credit on
equity items - - (61) (61)
Dividends - - (13,098) (13,098)
At 31 January
2021 1,717 2,301 177,011 181,029
-------------------- --------------------- --------------------------- ----------------------------
Profit for year - - 37,982 37,982
Other
comprehensive
income
for year - - (6) (6)
-------------------- --------------------- --------------------------- ----------------------------
Total
comprehensive
income
for year - - 37,976 37,976
Issue of new
shares in
year 1 - - 1
Cost of future
share based
payments - - 39 39
Tax charge on
equity items - - (35) (35)
Dividends - - (12,263) (12,263)
At 31 January
2022 1,718 2,301 202,728 206,747
==================== ===================== =========================== ============================
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 January 2022
Note
2022 2021
GBP'000 GBP'000
Net cash (used in)/from operating
activities 8 (2,094) 32,940
Cash flows used in investing activities
Proceeds on disposal of property,
plant and equipment 93 103
Purchases of property, plant and
equipment (377) (1,215)
Net cash used in investing activities (284) (1,112)
---------------------------- ----------------------------
Cash flows from/(used in) financing
activities
Dividends paid (12,263) (13,098)
Issue of new shares 1 2
Receipt of new borrowings 25,000 4,000
Repayment of borrowings (11,500) (25,000)
Increase/(decrease) in lease liabilities (134) 318
Net increase in overdraft 1,273 1,295
Net cash (used in)/from financing
activities 2,377 (32,483)
---------------------------- ----------------------------
Net (decrease)/increase in cash and
cash equivalents (1) (655)
Cash and cash equivalents at the
beginning of year 1 656
---------------------------- ----------------------------
Cash and cash equivalents at the
end of year - 1
---------------------------- ----------------------------
Cash and cash equivalents comprise
Cash and cash in bank - 1
============================ ============================
There are no cash and cash equivalent balances
which are not available for use by the Group
(2021: GBPnil).
1. SHAREHOLDER INFORMATION
1.1 Preliminary Announcement
This unaudited preliminary announcement does not constitute the
full financial statements prepared in accordance with International
Financial Reporting Standards (IFRS). The unaudited preliminary
announcement was approved by the Board of directors on 28 March
2022.The Company's Annual Report will be finalised subsequent to
this preliminary unaudited results announcement. The figures shown
for the year ended 31 January 2022 are not statutory accounts
within the meaning of section 435 of the Companies Act 2006.
The figures shown for the year ended 31 January 2021 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. 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 26 May 2022 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
57p per Ordinary Share is proposed, payable on 8 July 2021 with a
record date of 17 June 2021.
1.4 Annual Report
The 2022 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 2022 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) as
adopted by the United Kingdom. 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 United Kingdom. The
financial statements have also been prepared in accordance with
International Financial Reporting Standards as issued by the IASB.
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 2022. 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.
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. This results in more of our net
receivables being in stage 3 and the associated stage 3 loan loss
provisions therefore 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 customers
fall 1 month or more in contractual arrears within our non-prime
motor finance customer receivables book. The expected credit loss
("ECL") is the probability weighted estimate of credit losses.
A PD/LGD model was developed by our Motor Finance business,
Advantage Finance, to calculate the expected loss impairment
provisions in accordance with IFRS9. Stage 1 expected losses are
recognised on inception/initial recognition of a loan based on the
probability of a customer defaulting in the next 12 months. This is
determined with reference to historical data updated for current
and future conditions. If a motor finance loan falls one month or
more in contractual arrears, then this is deemed credit impaired
and included in IFRS9 Stage 3. There are some motor finance loans
which are up to date with payments but the customer is in some form
of forbearance and we deem this to be a significant increase in
credit risk and so these loans are included in Stage 2. As a result
of the uncertainty over the performance of customers who were
granted a payment holiday as part of the Government and FCA support
measures as a result of the Covid pandemic and have also either
requested a second payment holiday or have had a previous payment
delinquency, we
have assessed these customers to have a significant increase in
credit risk and they are therefore included in Stage 2. This is why
the volume of customers in Stage 2 increased at 31 January 2021.
However, if a customer's payment holiday finished more than 12
months ago and they are unimpaired 12 months later then an account
will not be in stage 2 as the customer's post payment holiday
record now indicates low risk at the reporting date. This is why
the volume of customers in stage 2 reduced at 31 January 2022. 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
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 2022 reflect that
further to considering such external macroeconomic forecast data,
management have judged that there is currently a more heightened
risk of an adverse economic environment for our customers and the
value of our motor finance security. To factor in such
uncertainties, management has included an overlay for certain
groups of assets to reflect this macroeconomic outlook, based on
estimated unemployment, inflation and used vehicle price levels in
future periods. Further sensitivity over this estimation
uncertainty is provided in note 2.5.
Other than the changes to the approach mentioned above, there
were no significant changes to estimation techniques applied to the
calculations used at 31 January 2022 and those used at 31 January
2021.
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
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. However, if a customer's payment holiday
finished more than 12 months ago and they are unimpaired 12 months
later then an account will not be in stage 2 as the customer's
post-holiday payment record now indicates low credit risk at the
reporting date.
Key sources of estimation uncertainty
The directors consider that the sources of estimation
uncertainty which have the most significant effect on the amounts
recognised in the financial statements are those inherent in the
consumer credit markets in which we operate relating to impairment
as outlined in 1.4 above. In particular, the Group's impairment
provision is dependent on estimation uncertainty in forward-looking
on areas such as employment rates, inflation rates and used car and
property prices.
The Group implemented IFRS 9 from 1 February 2018 by developing
models to calculate expected credit losses in a range of economic
scenarios. These models involve setting modelling assumptions,
weighting of economic scenarios, the criteria of determining
significant deterioration in credit quality and the application of
adjustments to model outputs. We have outlined assumptions in our
expected credit loss model in the
current year. Reasonable movement in these assumptions might
have a material impact on the impairment provision value.
Macroeconomic overlay for our motor finance business
For this overlay, the Group considers four probability-weighted
scenarios in relation to unemployment rate: base, upside, downside
and severe scenarios as follows:
Base Upside Downside Severe Weighted
(30% increase) (30 % decrease) (50% increase)
Weighting 50% 5% 40% 5%
Q1 2022 3.80% 2.66% 4.94% 5.70% 4.29%
Q1 2023 4.20% 2.94% 5.46% 6.30% 4.75%
Q1 2024 4.60% 3.22% 5.98% 6.90% 5.20%
Q1 2025 5.00% 3.50% 6.50% 7.50% 5.65%
Inflation rates have not previously been factored into the
macroeconomic overlay but at 31 January 2022 we have included them
due to the extraordinary increases currently forecast for the next
12 months period and the potential impact on our customers and
their repayments. 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% increase) (30 % decrease) (50% increase)
Weighting 50% 5% 40% 5%
Q1 2022 5.70% 3.99% 7.41% 8.55% 6.44%
Q1 2023 5.20% 3.64% 6.76% 7.80% 5.88%
Q1 2024 2.10% 1.47% 2.73% 3.15% 2.37%
Q1 2025 1.60% 1.12% 2.08% 2.40% 1.81%
An increase by 0.5% in the weighted average unemployment rate
would result in an increase in the impairment loss by GBP856,687. A
decrease by 0.5% would result in a decrease in the impairment loss
by GBP856,687. An increase by 0.5% in the weighted average
inflation rate would result in an increase in the impairment loss
by GBP401,572. A decrease by 0.5% would result in a decrease in the
impairment loss by GBP401,572.
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
31.1.22 31.1.21 31.1.22 31.1.21
Class of
business GBP'000 GBP'000 GBP'000 GBP'000
Motor
finance 78,898 79,553 43,682 17,198
Property
Bridging
finance 8,991 4,208 3,414 813
Central
costs net
of
central - - (78) 117
finance
income
87,889 83,761 47,018 18,128
------------------------- -------------------------- ------------------------- --------------------------
Analyses by class of business
of assets and liabilities are
stated below:
Assets Liabilities
Year Year Year Year
ended ended ended ended
31.1.22 31.1.21 31.1.22 31.1.21
Class of
business GBP'000 GBP'000 GBP'000 GBP'000
Motor
finance 262,458 250,207 (131,012) (144,036)
Property
Bridging
finance 64,426 34,271 (59,606) (32,213)
Central 345 361 70,136 77,748
327,229 284,839 (120,482) (98,501)
------------------------- -------------------------- ------------------------- --------------------------
Depreciation of assets for motor finance was GBP427,000 (2021:
GBP417,000), for property bridging finance was GBP21,000 (2021:
GBP18,000) and for central was GBP81,000 (2021: GBP86,000). Fixed
asset additions for motor finance were GBP337,000 (2021:
GBP1,198,000), for property bridging finance were GBP16,000 (2021:
GBP14,000) and for central were GBP24,000 (2021: GBP3,000).
The net finance credit for central costs was GBP2,506,000 (2021:
GBP2,577,000), for motor finance was a cost of GBP4,394,000 (2021:
GBP5,381,000) and for property bridging finance was a cost of
GBP1,884,000 (2020: GBP764,000). The tax credit for central costs
was GBP24,000 (2021: tax charge of GBP48,000), for motor finance
was a tax charge of GBP8,408,000 (2021: GBP3,265,000) and for
property bridging finance was a tax charge of GBP652,000 (2021:
GBP169,000).
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
2022 2021
GBP'000 GBP'000
Loan loss provisioning charge -
motor finance 3,805 35,995
Loan loss provisioning charge -
property bridging finance 315 710
Total loan loss provisioning charge 4,120 36,705
Other cost of sales - motor finance 17,266 13,586
Other cost of sales - property
bridging finance 1,505 678
Total cost of sales 22,891 50,969
=========================== ===========================
5. FINANCE COSTS (NET)
2022 2021
GBP'000 GBP'000
31.5% cumulative preference dividend 142 142
Lease liabilities interest 17 13
Bank loan and overdraft 3,613 3,455
Interest payable and similar charges 3,772 3,610
Interest receivable - -42
Total finance costs (net) 3,772 3,568
=========================== ===========================
6. AMOUNTS RECEIVABLE FROM CUSTOMERS
2022 2021
GBP'000 GBP'000
Motor finance hire purchase 350,517 339,349
Less: Loan loss provision motor finance (91,481) (92,583)
Amounts receivable from customers
motor finance 259,036 246,766
------------------------- -------------------------
Property bridging finance loans 64,525 34,475
Less: Loan loss provision property
bridging finance (646) (331)
Amounts receivable from customers
property bridging finance 63,879 34,144
------------------------- -------------------------
Amounts receivable from customers 322,915 280,910
========================= =========================
Analysis of future due date due
- Due within one year 141,301 110,319
- Due in more than one year 181,614 170,591
Amounts receivable from customers 322,915 280,910
========================= =========================
Analysis of Security
Loans secured on vehicles under hire
purchase agreements 254,933 242,039
Loans secured on property 63,879 34,144
Other loans not secured - motor finance
where security no longer present 4,103 4,727
Amounts receivable from customers 322,915 280,910
========================= =========================
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 1,688 vulnerable or Covid impacts
payment deferral customers who although not in arrears at 31.1.22
were assessed from a review of internal data to have a significant
increase in credit risk (2021: 6,298) . Under IFRS9 therefore these
customers although not in arrears are included in stage 2 at
31.1.22 with an increased impairment provision.
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
1: Stage 2: 3:
Subject Subject Subject
to to to Total Amounts
12 months lifetime lifetime Provision Receivable
As at 31
January
2022 ECL ECL ECL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Motor
finance (22,129) (2,769) (66,583) (91,481) 350,517
Property
bridging
finance (446) - (200) (646) 64,525
Total (22,575) (2,769) (66,783) (92,127) 415,042
=========== ================================ =============================== ============================== ==================================
Stage Stage
1: Stage 2: 3:
Subject Subject Subject
to to to Total Amounts
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
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
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
Net
transfers
and
changes in
credit
risk (3,144) (7,462) (2,775) (13,381)
New loans
originated 11,212 112 6,177 17,501
Total impairment charge
to income statement 8,068 (7,350) 3,402 4,120
Amount netted off
revenue
for stage 3 assets - - 10,197 10,197
Utilised
provision
on
write-offs (173) (2,640) (12,291) (15,104)
At 31
January
2022 22,575 2,769 66,783 92,127
================================ =============================== ============================== ==================================
7. EARNINGS PER ORDINARY SHARE
The calculation of earnings per ordinary share from continuing
operations is based on profit after tax of GBP37,982,000 (2021:
GBP14,646,000).
The number of shares used in the basic eps calculation is the
weighted average number of shares in issue during the year of
12,142,928 (2021: 12,129,768). There are a total of 5,500 dilutive
share options in issue (2021: 17,000) and taking into account the
appropriate proportion of these dilutive options the number of
shares used in the diluted eps calculation is 12,145,096 (2021:
12,134,619).
8. RECONCILIATION OF OPERATING PROFIT
TO NET CASH FROM OPERATING ACTIVITIES
2022 2021
GBP'000 GBP'000
Operating Profit 50,790 21,696
Finance costs paid (3,772) (3,610)
Finance income received - 42
Tax paid (8,749) (6,662)
Depreciation on plant, property and
equipment 529 520
Loss/(profit) on disposal of plant,
property and equipment 13 (13)
(Increase)/decrease in amounts receivable
from customers (42,005) 20,840
(Increase)/decrease in trade and other
receivables (633) 367
Increase/(decrease) in trade and other
payables 1,584 (363)
Increase in accruals 116 57
Increase in cost of future share based
payments 39 75
Movement in retirement benefit asset/obligations (6) (9)
Net cash from/(used in) operating
activities (2,094) 32,940
========= ========
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