BULLISH - Must read29 Jun 2010 09:52
Just had a flick through the results and this really stood out
I would like to comment on "operational gearing" because it is important to
understand this concept in order to appreciate fully the potential for enhanced
returns on shareholders' equity which we are capable of achieving. During the
turmoil in the financial markets over the past two years we strengthened our
balance sheet and took the opportunity to improve our lending terms, while
reining back new business. Our banks have been supportive, but new or increased
lending has not been available and, as a consequence, our full potential has
been restrained. Our Group has a certain level of fixed costs and we have been
able to contain bad debts and maintain a portfolio of receivables which has
generated the income to enable us to remain profitable, and indeed to increase
profits, despite a smaller portfolio. We have an excellent platform for growth
with a sound and profitable portfolio, high quality and experienced staff and
proven and reliable IT systems. If the requisite funds were to be available, we
are capable of processing substantially increased levels of new business and
maintaining a much larger loan book with very little increase in overheads.
Therefore, the vast majority of every GBP1 of additional income generated over
and above present levels would go directly to the profit line.
Not only is the present environment for day to day business favourable, but
opportunities currently exist for portfolio acquisitions on attractive terms for
those who can organise the requisite funding. Therefore, while we are confident
that we can continue to improve the profitability of our portfolio at current
levels, we are also actively seeking new sources of funding to enable us to
achieve the far greater returns which we are capable of achieving from increased
operational gearing. New funding is not easy to obtain in the current
environment, but we believe that we have the ideal platform for growth and will
keep searching. If and when we can achieve the right funding on the right terms,
while the current opportunities remain, the rewards will be substantial.
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