Final Results

RNS Number : 3042A

S & U PLC

29 March 2012

 



                                                                                                                       29 March 2012

S&U PLC

("S&U" or "the Company")

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JANUARY 2012

S&U, Britain's foremost niche home credit and motor finance provider, today announces its preliminary results for the year ended 31 January 2012:

Key Financials:

·    Profit before taxation up 24% at £12.2m (2011: £9.9m)

·    Earnings per share up 27% at 76.1p (2011: 60.0p)

·    Revenues up 8% at £51.9m (2011: £48.0m)

·    Proposed final dividend of 18p (2011: 16p); total dividend in respect of the year increased to 41p (2011: 36p) up 14%

·    Strong balance sheet:

o Net assets increased by 10% to £54.9m (2011: £50.1m)

o Group gearing reduced to 34% (2011: 43%)

o New medium term borrowings facility with a maturity date of April 2016 put in place during year and net borrowings reduced to £18.8m at year end (2011: £21.7m)

·    Divisional highlights:

o Motor Finance excellent profit before taxation up 40% to £5.9m (2011: £4.2m); driven by 11% revenue growth and record collections quality

o Home Credit profit before taxation up 12% to £6.3m (2011: £5.6m); driven by increased trading and excellent cash generation again this year

Operational Highlights:

·    Group annual collections up over £9m on prior year

·    Increased customer numbers in both Home Credit and Motor Finance

·    New Home Credit branches opening in Glasgow, Swindon and Rotherham

·    Opportunities for sensible expansion in both businesses

Anthony Coombs, Chairman of S&U plc commented:

"I am pleased to announce an excellent year for S&U. In challenging times for many, every customer at S&U does count and it is this unique relationship which makes our continued growth both responsible and sustainable. We look to our future with quiet confidence."

Enquiries:

Anthony Coombs                                              S&U plc                                  07767 687 150

Media and Investor Relations

Will Swan/ Rebecca Whitehead                        Smithfield                                  0207 360 4900

Financial Advisers, Sponsors and Brokers

Adrian Trimmings/Jamie Cameron                    Arden Partners                          0207 614 5900

 

CHAIRMAN'S STATEMENT

I am pleased to announce an excellent year for S&U.  Profits before tax have climbed to a record £12.2m (2011: £9.9m).  Our loyal customers, both old and new, continue to appreciate the flexibility and value our services and products provide.  In challenging times for many, every customer at S&U does count and it is this unique relationship which makes our continued growth both responsible and sustainable.  We look to our future with quiet confidence.

Financial Review

Group profit before tax is £12.2m, an increase of just under a quarter on last year.  Revenue is up 8% at £51.9m.  Loansathome4U, our Home Credit division, produced profits of £6.3m against £5.6m last year - a very commendable and consistent performance from both Home Credit companies. Debt quality improved, customer numbers rose, and cash generation has continued healthily.  Advantage, our Motor Finance business, has produced another record year as profits rose to £5.9m (2011: £4.2m) and all key performance indicators were not just met but substantially exceeded.

Good lending, as many in the finance industry too often in past years had forgotten, is generally rewarded with incoming cash. Despite a growth in customer numbers and transactions in both Home Credit and Motor Finance, S&U's net bank borrowings have fallen again by £2.9m this year.  Group Gearing is now just 34% against 43% last year and 57% in 2010. This trend demonstrates the consistency and strength of our treasury policy.

Reflecting this strong profitability and cash generation, S&U's net assets have risen to £54.9m (2011: £50.1m). Net receivables before provisions are £113.1m (2011: £108.5m) and net borrowings are now down at £18.8m (2011: £21.7m). During the year we repaid a medium term loan from RBS, and our current bank facilities give us substantial head room for our predicted organic growth and further acquisitions.

Highlights

§ Profit before tax up by 24% to £12.2m (2011: £9.9m)

§ Gearing reduced to 34% (2011: 43%)

§ Earnings per share of 76p (2011: 60p)

§ Final Dividend payment of 18p (2011: 16p); annual total dividend for the year increased to 41p per ordinary share (2011: 36p)

Dividend

Our progressive but responsible approach to business is reflected in our dividend policy.  This year's performance merits an increase in both dividends and in cover.  The Board therefore proposes to recommend a final dividend of 18p per ordinary share.  This will be paid on 22 June 2012 to ordinary shareholders on the register on 20 May 2012, subject to shareholder approval at the Annual General Meeting on 1 June 2012.

Taken with the payment of the second interim dividend in March this year, this will represent a total dividend for the year of 41p (2011: 36p) per ordinary share.  Dividend cover will increase to 1.8 times from 1.67 last year.

Operating Results

Year Ended Year Ended 31 January 2012 31 January 2011 £m £m Revenue 51.9 48.0 Cost of Sales 17.9 17.1 Gross Profit 34.0 30.9 Administrative Expenses 21.2 20.0 Operating Profit 12.8 10.9 Finance Costs (Net) 0.6 1.0 Profit before Taxation 12.2 9.9

Home Credit

§ Profits increase by 12% to £6.3m (2011: £5.6m)

§ 53 weeks Home Credit trading this year versus 52 weeks last year - like for like profits increase is 7%

§ Consistent profits in both Northern and the Southern divisions

§ Customer numbers up by 2%

§ Debt quality strengthened

§ New Branches opening in Glasgow, Swindon and Rotherham

§ Acquisition of Home Credit business of Norton Finance post year end

Our Home Credit Division, trading as Loansathome4U, had a very successful year.  Profits before tax were £6.3m (2011: £5.6m) an increase of 12%.  At a time when consumers generally are justifiably cautious, the business increased customer numbers by 2%.   Debt quality has continued to improve, and this is reflected in an increase in revenue of over 7% on last year, and in lower bad debt.

The success in Home Credit depends upon nurturing the weekly and monthly relationship between representative and the customers.  In times of economic difficulty and uncertainty, customers above all value this relationship and the understanding, flexibility and convenience it brings.  Our mantra that "every customer counts" to us, is not just an empty slogan but actually describes the very ethos of our business.  Whilst our products compete on price, it is the consequent level of service to customers throughout the loan term that really distinguishes Home Credit from more remote lending.

We are therefore very confident that the current reviews by the Office of Fair Trading into higher cost credit and into the possible imposition of total charge for credit caps, will recognise the unique and beneficial place Home Credit has in providing responsible finance to over four million people throughout the UK.  We also anticipate that the Competition Commissions review of its 2006 remedies on competition and on transparency and price comparison will be similarly benign.

A strong Home Credit service is a local service, which is why we have opened another two branches, in Glasgow and Swindon this year.  Following our acquisition of the Home Credit business of Norton Finance recently, we plan to open another branch in Rotherham which will be a springboard to a stronger presence in Yorkshire generally.

As the availability of consumer credit is likely to remain constrained over the next five years, we see significant opportunities to attract customers to our kind of responsible, carefully underwritten, and flexible finance.  Although the Internet will be one route to market, more traditional ways such as customer recommendation and local contact will remain paramount.

We have therefore continued to develop our management training programmes, revised our Training Manuals for representatives and now plan to introduce the new government's re-skill qualifications for our employed and administrative staff. 

As a result, the level of professionalism and commitment of our self-employed agents and of our staff and management is, in my view at its highest for a generation.  That, above all gives us a strong base for the expansion and continued success of our Home Credit Division.

Motor Finance

§ Record profits of £5.9m (2011: £4.2m) for the twelfth successive year

§ Record collections quality as monthly repayments near £2.5m

§ Record transaction and customer numbers

§ Extended broker network and new products for franchised dealers

For the twelfth consecutive year, Advantage Finance our motor finance business based in Grimsby, has produced record profits.  This year profits before tax were £5.9m (2011: £4.2m) an increase of 40%.  Revenues are up by 11% and applications continue at around 13,000 per month, of which Advantage write around 400.

In an era when the supply of speciality and non prime finance is restricted, and likely to remain so, we foresee significant opportunities.  Advantage's state of the art underwriting and scoring systems, developed over a decade of customer service, allow it to predict future payment accurately and to select customers accordingly.  As a result, debt quality has never been better, provisioning charges have fallen on last year and collections now approach £2.5m per month.

Consequently, Advantage has been able to combine healthy growth with continuing cash generation, this year of £0.5m.  In 2013, significant opportunities for growth, and the quality of our loan book, merit a net investment into Advantage of around £4m.  This will be funded from our own resources.

Communitas, our second mortgage operation, continues its orderly run off.  Total outstanding net book debt is now just £462,000 (2011: £654,000) and the trading loss has halved again to £60,000 from £126,000 last year.

Funding

§ Gearing reduced to 34% (2011: 43%)

§ Net cash inflow from operating activities of £8m

§ Group borrowings reduced by £2.9m

§ Significant headroom for acquisitions and organic growth

Our excellent relationships with our banking partners have continued over the past year in new medium term and other facilities.  We have significant medium term headroom for new business opportunities, organic growth and Home Credit acquisitions.

Our Community

S&U, whilst maintaining focus on the service to customers and wealth creation which are the bedrock of our business, have involved themselves in fundraising and community activities for those less fortunate than themselves.  Amongst the organisations supported are Marie Curie Cancer Care, who are building a hospice in Solihull, The Foundation for Conduction Education which treats people with motor disabilities and, more recently, The Princes Trust, which provides opportunities for local youngsters in training and employment.  These and other activities, and the fun and fund raising involved, are a great credit to the people involved and reflect S&U's progressive and responsible approach to business built up over nearly 75 years.

Current Trading and Outlook

Predictions for growth, consumer spending and the labour market remain subdued for the year to come and the recent fall in High Street Sales reflects this. However, the Group's trading remains encouraging and, together with the long term market opportunities mentioned above, and the professionalism and focus of our people at S&U, we face the future with confidence.

I pay tribute to the commitment and enthusiasm of all at S&U, to the support of our Board, and most of all to the loyalty of our customers.  Together we will work hard to continue the progress of this year.

Anthony Coombs

Chairman

28 March 2012

INCOME STATEMENT

Year ended 31 January 2012

	Note			2012 £000	2011 £000
Revenue	3			51,919	48,016
Cost of sales	4			(17,870)	(17,146)
Gross profit				34,049	30,870
Administrative expenses				(21,237)	(19,937)
Operating profit				12,812	10,933
Finance costs (net)	5			(596)	(1,074)
Profit before taxation	3			12,216	9,859
Taxation				(3,281)	(2,816)
Profit for the year				8,935	7,043
Earnings per share basic	6			76.1p	60.0p
Earnings per share diluted	6			75.1p	59.5p
Dividends per share
-   Proposed Final Dividend				18.0p	16.0p
-   Interim dividends in respect of the year				23.0p	20.0p
-   Total dividend in respect of the year				41.0p	36.0p
-   Paid in the year				37.0p	35.0p

All activities derive from continuing operations.

STATEMENT OF COMPREHENSIVE INCOME

				2012 £000	2011 £000
Profit for the year				8,935	7,043
Gain on cash flow hedge				-	325
Actuarial loss on defined benefit pension scheme				(15)	(18)
Credit for future cost of share based payments				176	62
Tax charge on items taken directly to equity				16	(91)
Total Comprehensive Income for the year				9,112	7,321

BALANCE SHEET
31 January 2012

	Note	2012 £000	2011 £000
ASSETS
Non current assets
Property, plant and equipment		1,625	1,446
Amounts receivable from customers	7	27,726	25,705
Retirement benefit asset		20	15
Deferred tax assets		64	3
		29,435	27,169
Current Assets
Inventories		129	134
Amounts receivable from customers	7	49,774	49,013
Trade and other receivables		394	392
Cash and cash equivalents		17	292
		50,314	49,831
Total Assets		79,749	77,000
LIABILITIES
Current liabilities
Bank overdrafts and loans		(806)	-
Trade and other payables		(1,606)	(1,677)
Tax Liabilities		(2,101)	(1,658)
Accruals and deferred income		(1,924)	(1,148)
		(6,437)	(4,483)
Non current liabilities
Bank loans		(18,000)	(22,000)
Financial liabilities		(450)	(450)
		(18,450)	(22,450)
Total liabilities		(24,887)	(26,933)
NET ASSETS		54,862	50,067
Equity
Called up share capital		1,668	1,667
Share premium account		2,173	2,136
Profit and loss account		51,021	46,264
Total equity		54,862	50,067

STATEMENT OF CHANGES IN EQUITY

Year ended 31 January 2012

	Called up share capital £000	Share premium account £000	Profit and loss account £000	Total equity £000
At 1 February 2010	1,667	2,136	43,017	46,820
Profit for year	-	-	7,043	7,043
Other comprehensive income for year	-	-	278	278
Total comprehensive income for year	-	-	7,321	7,321
Dividends	-	-	(4,074)	(4,074)
At 31 January 2011	1,667	2,136	46,264	50,067
Profit for year	-	-	8,935	8,935
Other comprehensive income for year	-	-	177	177
Total comprehensive income for year	-	-	9,112	9,112
Issue of new shares in year	1	37	-	38
Dividends	-	-	(4,355)	(4,355)
At 31 January 2012	1,668	2,173	51,021	54,862

CASH FLOW STATEMENT

Year ended 31 January 2012

	Note	2012 £000	2011 £000
Net cash from operating activities	8	7,896	9,347
Cash flows used in investing activities
Proceeds on disposal of property, plant and equipment		65	48
Purchases of property, plant and equipment		(725)	(408)
Net cash used in investing activities		(660)	(360)
Cash flows used in financing activities
Dividends paid		(4,355)	(4,074)
Issue of new shares		38	-
Issue of new borrowings		18,000	-
Repayment of borrowings		(22,000)	(6,000)
Net increase/(decrease) in overdraft		806	(12)
Net cash used in financing activities		(7,511)	(10,086)
Net decrease in cash and cash equivalents		(275)	(1,099)
Cash and cash equivalents at the beginning of period		292	1,391
Cash and cash equivalents at the end of period		17	292
Cash and cash equivalents comprise
Cash and cash in bank		17	292

There are no cash and cash equivalent balances which are not available for use by the Group (2011: £nil).

1.       SHAREHOLDER INFORMATION

1.1 Preliminary Announcement

The figures shown for the year ended 31 January 2012 are not statutory accounts within the meaning of section 435 of the Companies Act 2006. The statutory accounts for the year ended 31 January 2012 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 2011 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 24 May 2012.

1.3 Dividend

If approved at the Annual General Meeting a final dividend of 18.0p per Ordinary Share is proposed, payable on 22 June 2012 with a record date of 1 June 2012.

1.4 Annual Report

The 2012 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, Royal House, Prince's Gate, Homer Road, Solihull, West Midlands B91 3QQ.

2.       KEY ACCOUNTING POLICIES

The 2012 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 Financial Reporting Standards (IFRS) adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation. The financial information included in this preliminary announcement does not include all the disclosures required for IFRS or the Companies Act 2006.

Both the consolidated financial statements and the financial information included in this preliminary announcement have been prepared under the historical cost convention as modified by the revaluation of derivative financial instruments to fair value.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out above. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are set out in the preliminary announcement along with the Group's objectives, policies and processes for managing its capital.  The details of the Group's financial risk management objectives, its financial instruments and hedging activities; and its exposures to credit risk, market risk and liquidity risk are set out in detail within the audited financial statements. The directors believe that the Group is well placed and has sufficient financial resources to manage its business risks successfully despite the current uncertain economic outlook.

After making enquiries, 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 preliminary announcement.

2.2 Revenue recognition

Credit charges are recognised in the income statement for all loans and receivables measured at amortised cost using the effective interest rate method (EIR). The EIR is the rate that exactly discounts estimated future cash flows of the loan back to the present value of the advance. Acceptance fees charged to customers and any direct transaction costs are included in the calculation of the EIR. Under IAS 39 credit charges on loan products continue to accrue at the EIR on all impaired capital balances  throughout the life of the agreement irrespective of the terms of the loan and whether the customer is actually being charged arrears interest. This is referred to as the gross up adjustment to revenue and is offset by a corresponding gross up adjustment to the loan loss provisioning charge to reflect the fact that this additional revenue is not collectable.

Commission received from third party insurers for brokering the sale of insurance products, for which the Group does not bear any underlying insurance risk is recognised and credited to the income statement when the brokerage service has been provided.

Sales of goods are recognised in the income statement when the product has been supplied.

2.3 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 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, default 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. For all accounts which are not impaired, a further incurred but not reported provision (IBNR) is calculated and charged to the income statement based on management's estimates of the propensity of these accounts to default from conditions which existed at the balance sheet date.

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 and information regarding the likely eventual loss including recoveries. These assumptions and assumptions for estimating future cash flows are based upon observed historical data and updated as management considers appropriate to reflect current and future conditions. All assumptions are reviewed regularly to take account of differences between previously estimated cash flows on impaired debt and the eventual losses.

3.       SEGMENTAL ANALYSIS

Analyses by class of business of revenue and profit before taxation are stated below:

		¬¾¾¾Revenue ¾¾¾®				¬ Profit before taxation®
Class of business		Year ended 31.1.12 £000		Year ended 31.1.11 £000		Year ended 31.1.12 £000		Year ended 31.1.11 £000
Consumer credit, rentals and other retail trading		34,137		31,967		6,310		5,632
Car finance		17,782		16,049		5,906		4,227
		51,919		48,016		12,216		9,859

Analyses by class of business of assets and liabilities are stated below:

		¬¾¾¾  Assets  ¾¾¾®					¬¾¾¾  Liabilities ¾¾®
Class of business		Year ended 31.1.12 £000		Year ended 31.1.11 £000			Year ended 31.1.12 £000		Year ended 31.1.11 £000
Consumer credit, rentals and other retail trading		37,087		37,407			5,922		3,718
Car finance		42,662		39,593			(30,809)		(30,651)
		79,749		77,000			(24,887)		(26,933)

Depreciation of assets for consumer credit was £381,000 (2011: £363,000) and for motor finance was £72,000 (2011: £60,000).Fixed asset additions for consumer credit were £545,000 (2011: £320,000) and for motor finance were £180,000 (2011: £88,000).

The net finance credit for consumer credit was £96,000 (2011: £69,000) and for motor finance was a cost of £692,000 (2011: £1,143,000).The tax charge for consumer credit was £1,720,000 (2011: £1,632,000) and for motor finance was £1,561,000 (2011: £1,184,000).

The significant products in consumer credit, rentals and other retail are unsecured Home Credit loans. The significant products in motor finance are car loans secured under hire purchase agreements.

The assets and liabilities of the parent Company are classified as consumer credit, rentals and other retail trading.

No geographical analysis is presented because all operations are situated in the United Kingdom.

4.       COST OF SALES

		2012	2011
		£000	£000
Loan loss provisioning charge - consumer credit, rentals and other retail trading		7,043	7,275
Loan loss provisioning charge - car finance		5,750	5,883
Total loan loss provisioning charge		12,793	13,158
Other cost of sales		5,077	3,988
Total cost of sales		17,870	17,146

5.       FINANCE COSTS (NET)

				2012 £000	2011 £000
31.5% cumulative preference dividend				142	142
Bank loan and overdraft				453	935
Other interest payable				2	2
Interest payable and similar charges				597	1,079
Interest receivable				(1)	(5)
				596	1,074

6.      EARNINGS PER ORDINARY SHARE

The calculation of earnings per Ordinary share is based on profit after tax of £8,935,000 (2011: £7,043,000).

The number of shares used in the basic eps calculation is the average number of shares in issue during the year of 11,739,721 (2011: 11,737,228).  There are a total of 156,197 dilutive share options in issue (2011: 102,197). The number of shares used in the diluted eps calculation is 11,892,430 (2011: 11,837,009).

7.       AMOUNTS RECEIVABLE FROM CUSTOMERS

			2012 £000	2011 £000
Consumer credit, rentals and other retail trading			52,849	52,982
Car finance hire purchase			60,338	55,564
			113,187	108,546
Less: Loan loss provision consumer credit			(17,604)	(17,553)
Less: Loan loss provision car finance			(18,083)	(16,275)
Amounts receivable from customers			77,500	74,718
Analysis of Security
Loans secured on vehicles under hire purchase agreements			41,587	38,221
Loans secured on residential property under 2nd mortgages			462	654
Other Loans			35,451	35,843
Amounts receivable from customers			77,500	74,718
Analysis of Overdue
Not impaired
Neither past due nor impaired			54,272	49,432
Past due up to 3 months but not impaired			9,137	9,228
Past due over 3 months but not impaired			7,029	7,197
Impaired
Past due up to 3 months			3,568	4,255
Past due up to 6 months			1,297	1,959
Past due over 6 months or default			2,197	2,647
Amounts receivable from customers			77,500	74,718

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. The above analysis of when loans are due is based upon original contract terms which are not rescheduled - the carrying amount of amounts receivable from customers whose terms have been renegotiated that would otherwise be past due or impaired is therefore £nil (2011: £nil).  

8.       RECONCILIATION OF OPERATING PROFIT TO NET CASH FROM OPERATING ACTIVITIES

	2012 £000	2011 £000
Operating Profit	12,812	10,933
Finance costs paid	(597)	(1,191)
Finance income received	1	5
Tax paid	(2,883)	(2,679)
Depreciation on plant,property and equipment	453	423
Loss on disposal of plant, property and equipment	28	36
(Increase)\decrease in amounts receivable from customers	(2,782)	1,718
Decrease in inventories	5	2
(Increase)/decrease in trade and other receivables	(2)	175
(Decrease) in trade and other payables	(71)	(212)
Increase in accruals and deferred income	776	93
Increase in cost of future share based payments	176	62
Decrease in retirement benefit obligations	(20)	(18)
Net cash from operating activities	7,896	9,347

 

END

 

 

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