29 Jun 2010 07:00
PCFL / Index: AIM / Sector: Speciality & other finance
29 June 2010
Private & Commercial Finance Group plc ('PCFG' or 'the Group')
Final Results
Private & Commercial Finance Group plc, the AIM quoted finance house, announces its results for the year ended 31 March 2010.
Overview
·; Profit before tax more than doubled to £528,361
·; Balance sheet strengthened by £1.4m of new share capital and repayment of £2.3m of loan stock
·; Profit increase despite portfolio of receivables reducing by 9.4% to £121.9m
·; Ideally positioned, with much reduced competition, attractive margins on new business, new IT platform and a well spread portfolio
·; Business Finance Division and Consumer Finance Division advanced £27.0m and £16.4m of new business respectively during the year
·; Substantial opportunity - "operational gearing" potential to enhance returns on shareholders' equity
PCFG's CEO Scott Maybury said,
"These results highlight the resilience of a sound business model and a well spread portfolio. We have again demonstrated our quality and durability and whilst a doubling of profits is very commendable in the light of the economic backdrop, the profit level is below our potential. There are some excellent opportunities available in our sector resulting from reduced competition and we intend to do all we can to take advantage of them."
Chairman's Statement
It is pleasing to be able to report a doubling of profits before tax to £528,361 (2009 - £262,978) for the year ended 31 March 2010. However, I have two points to make. Firstly, we are capable of achieving far higher returns and in this regard I comment further below. Secondly, as I pointed out in last year's Annual Report, our profits are affected by the need, in accordance with the IFRS rules, to mark to market our portfolio of interest rate swaps. In the prior period this resulted in a charge to profits of £427,422. In the year ended 31 March 2010 however, the application of the IFRS rules was favourable and resulted in a contribution to the profit for the period of £190,242.
Our performance was commendable in light of the conditions which prevailed in the wider economy during the financial crisis and which led to the demise of a number of competitors. Our relative success can be attributed to a number of factors including our prudent approach to lending, our use of sophisticated information technology to support our experienced underwriters when evaluating and responding to new lending proposals, supportive banks and our policy of avoiding concentrations of risk. We have over 19,000 customers with an average outstanding balance of approximately £7,000 and no single customer accounts for more than 0.3% of our total portfolio.
There are numerous tenets of sound lending in our field, not least the need for adequate margins and sensible loan to value criteria. For many years we have fought to maintain sensible rates and terms in the face of competitors seemingly intent on disregarding them. Happily, a greater degree of common sense is now prevailing which we hope will inure to our benefit for some time to come.
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 £1 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.
The Business & Trading
Private & Commercial Finance Group is a long-established finance group with a highly efficient and scalable infrastructure and business model.
The Group has two operating divisions:
·; Business Finance Division, which provides finance for equipment, plant and vehicles for SMEs; and
·; Consumer Finance Division, which provides finance for vehicles for consumers.
Both divisions deliver high quality business, well-collateralised and with attractive margins, through national networks of established brokers. Proposals for new business are submitted via eQuote, the Group's proprietary internet-based proposal management system, which is able to filter high volumes of proposals quickly and at low cost.
During the period we wrote £43.4 million of new business compared with a figure of £60.6 million in the previous year. We remained cautious in setting terms for writing new business and we continue to be highly selective. As a result, our portfolio reduced by 9.4% to £121.9 million, which is reported net of future finance income of more than £25.0 million. The business we are writing continues to be of exceptional quality and the rates and terms are also excellent.
Competitive Environment
Our willingness to support our customers and brokers through difficult times has been increasingly recognised and appreciated in our chosen market segments. Furthermore, our standing within these markets has been boosted by the withdrawal of many competitors. Conditions therefore remain favourable.
Impairments and Provisioning
As is to be expected in a recession, our profitability has been affected by impairment charges, although these have continued to be comfortably within our range of expectations, and I am pleased to report that the early signs of improvements, noted in our Interim Report, have continued. This augurs well for reduced levels of provisioning in the future.
Balance Sheet Strengthened
We significantly strengthened our balance sheet during the period by placing £1.4 million of new ordinary shares and £0.6 million of new convertible loan stock, raising a total of £2 million after expenses, and by redeeming £2.3 million of 8% loan stock.
Regulatory Environment
We welcome the regulations implementing the European Consumer Credit Directive as they further increase barriers to entry to a consumer credit market which has already been depopulated as noted previously. We have the ability, flexibility and experience to adapt our systems, documentation and procedures to the new regime without undue expense and are confident that everything will be in place for implementation by 1 February 2011.
Funding
All our major lenders have agreed to extend the terms of their facilities and there are no scheduled maturities in the next 12 months. Our loan facilities total £120 million including our four main lenders of Barclays Bank, The Royal Bank of Scotland, Lloyds TSB and Singers Corporate Asset Finance. Banks are reluctant to increase their lending to our sector at the present time as they restructure their balance sheets and we are grateful to all our lenders, each of whom have an in-depth understanding of our business, for their confidence in us and for their on-going support.
Nonetheless, there is no doubt that the lack of additional funding is preventing us taking advantage of the many opportunities which currently exist to grow our balance sheet and benefit from the highly favourable effects of operational gearing and we are making every effort to find alternative sources of funds.
Underwriting and IT Infrastructure
Over the years we have systematically upgraded and refined our methodology for underwriting lending proposals. This has included the checks incorporated into eQuote, our bespoke, web-based proposal management system. In particular, in addition to many other tests, we have, for several years, taken into account the levels of applicants' overall indebtedness and scrutinised their income and outgoings, thus enabling us to judge their ability to service new loans. This cautious, forward-looking approach stood us in good stead during the downturn and continues to do so.
Our careful underwriting processes are one of a number of strengths of our Group which have allowed it to remain profitable through this recession. Another is the professional management of our portfolio of receivables by our in-house team. In September 2009 we successfully completed the installation of a new computer system which controls and accounts for our portfolios, and this has proved highly effective in supplementing and enhancing the efforts of our staff, as well as reducing costs. The system, the Instalment Credit and Collections Suite ('ICS'), is a market-leading finance and lease management system. ICS is as advanced in terms of technology as eQuote and we believe our whole IT infrastructure and the carefully developed processes which it operates will increase the yield from our portfolio of receivables and further enhance the value of our enterprise.
Staff
The quality, skill and hard work of our highly trained and experienced staff has been a major factor in our sustained performance. I thank them on behalf of the Board.
Outlook
As to the economic outlook for the remainder of the current accounting period, we are cautiously optimistic. We have amply demonstrated our ability to come through the last two years and our Group has ended the period stronger and better placed than when we entered it. We are seasoned and confident of our ability to surmount another downturn in the UK economy, if it should occur.
With the high quality business we are currently writing, improved position in our markets, new IT infrastructure and strengthened balance sheet, we are well placed to improve margins steadily and to prosper increasingly, even without significant growth in our portfolio. If, however, we are successful in organising increased funding and can therefore enjoy the benefits of operational gearing, the opportunities for increased returns are exponential.
Michael R Cumming
Chairman
29 June 2010
Private & Commercial Finance Group plc
Group Income Statement
| for the year ended 31 March 2010
|
|
|
2010 £'000 |
|
2009 £'000 | |
|
|
|
|
|
|
| |
| Group turnover Cost of sales |
|
| 60,200 (41,516) |
| 62,922 (41,069) | |
|
|
|
|
|
|
| |
| Gross profit Administration expenses |
|
| 18,684 (12,007) |
| 21,853 (13,039) | |
|
|
|
|
|
|
| |
| Operating profit Interest receivable Interest payable |
|
| 6,677 - (6,149) |
| 8,814 4 (8,555) | |
|
|
|
|
|
|
| |
| Profit on ordinary activities before taxation Income tax expense |
|
| 528 (150) |
| 263 (104) | |
|
|
|
|
|
|
| |
| Profit on ordinary activities after taxation |
|
| 378 |
| 159 | |
|
|
|
|
|
|
| |
| Profit for the year attributable to equity holders |
|
| 378 |
| 159 | |
|
|
|
|
|
|
| |
| Earnings per 5p ordinary share - basic and diluted |
|
| 0.9p |
| 0.6p | |
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|
|
|
| |||
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|
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Group Statement of Comprehensive Income
| for the year ended 31 March 2010 |
|
|
|
|
| |||
|
|
|
|
2010 £'000 |
|
2009 £'000 | |||
|
Profit for the year attributable to equity holders |
|
|
378 |
|
159 | |||
|
|
|
|
|
|
| |||
| Cash flow hedges - fair value gains/(losses) Income tax thereon |
|
| 1,134 (318) |
| (2,839) 795 | |||
|
|
|
|
|
|
| |||
| Other comprehensive income for the year |
|
|
816 |
|
(2,044) | |||
|
|
|
|
|
|
| |||
| Total comprehensive income for the year |
|
|
1,194 |
|
(1,885) | |||
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| Private & Commercial Finance Group plc Group Balance Sheet as at 31 March 2010
|
|
2010 £'000 |
2009 £'000 |
| ASSETS Non-current assets Goodwill Other intangible assets Property, plant and equipment Loans and receivables Deferred tax |
|
397 855 173 69,195 5,364 |
397 302 190 84,912 4,215 |
|
|
|
75,984 |
90,016 |
|
|
|
|
|
| Current assets Loans and receivables Trade and other receivables Cash and cash equivalents |
|
52,697 572 660 |
49,555 500 437 |
|
|
|
53,929 |
50,492 |
|
|
|
|
|
| Total assets |
| 129,913 | 140,508 |
|
|
|
|
|
| LIABILITIES Current liabilities Interest-bearing loans and borrowings Trade and other payables Derivative financial instruments Corporation tax Bank overdrafts |
|
8,761 1,860 320 1,361 300 |
37,370 1,154 291 1,116 - |
|
|
|
12,602 |
39,931 |
|
|
|
|
|
| Non-current liabilities Derivative financial instruments Interest-bearing loans and borrowings |
|
2,719 107,889 |
4,016 92,445 |
|
|
|
110,608 |
96,461 |
|
|
|
|
|
| Total liabilities |
| 123,210 | 136,392 |
|
|
|
|
|
| Net assets |
| 6,703 | 4,116 |
|
|
|
|
|
| Capital and reserves Called up share capital Share premium Capital reserve Other reserves Own shares Profit and loss account |
|
2,636 4,378 3,873 (1,849) (243) (2,092) |
1,428 4,192 3,873 (2,664) (243) (2,470) |
|
|
|
|
|
| Equity shareholders' funds |
| 6,703 | 4,116 |
Private & Commercial Finance Group plc
Group Statement of Changes in Equity
for the year ended 31 March 2010
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|
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| |
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| |
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|
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|
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| 2010 | 2009 |
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|
| £'000 | £'000 |
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|
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|
|
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|
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| Total comprehensive income for the year New share capital subscribed |
|
| 1,194 1,393 |
| (1,885) 44 |
|
|
|
|
|
|
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| Net addition to shareholders' funds Opening shareholders' funds |
|
| 2,587 4,116 |
| (1,841) 5,957 |
|
|
|
|
|
|
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| Closing shareholders' funds |
|
|
6,703 |
|
4,116 |
| Private & Commercial Finance Group plc Group Statement of Cash Flows for the year ended 31 March 2010
|
|
|
2010 £'000 |
|
2009 £'000 |
| Cash flows from operating activities Profit before taxation |
|
|
528 |
|
263 |
| Adjustments for: |
|
|
|
|
|
| Amortisation of other intangible assets Amortisation of issue costs Depreciation Loss on sale of property, plant and equipment Fair value movement on derivative financial instruments Decrease/(increase) in loans and receivables (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables |
|
| 166 7 72 - (190) 12,575 (73) 761 |
| 136 48 62 7 427 (4,197) 779 (779) |
| Cash flows from/(used in) operating activities Tax (paid)/received |
|
| 13,846 (1,371) |
| (3,254) 54 |
|
Net cash flows from/(used in) operating activities |
|
|
12,475 |
|
(3,200) |
|
|
|
|
|
|
|
| Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Purchase of other intangible assets |
|
|
(59) 5 (720) |
| (123) 23 (215) |
|
Net cash flows used in investing activities |
|
|
(774) |
|
(315) |
|
|
|
|
|
|
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| Cash flows from financing activities Proceeds from issue of share capital Proceeds from borrowings Repayments of borrowings |
|
|
1,360 - (13,138) |
|
- 6,540 (1,467) |
| Net cash flows (used in)/from financing activities |
|
| (11,778) |
| 5,073 |
|
|
|
|
|
|
|
| Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year |
|
| (77) 437 |
| 1,558 (1,121) |
| Cash and cash equivalents at end of the year |
|
| 360 |
| 437 |
|
Cash at bank |
|
|
660 |
|
437 |
| Bank overdrafts |
|
| (300) |
| - |
|
|
|
|
360 |
|
437 |
|
|
|
|
|
|
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| The amount of interest paid and received during the year is as follows: |
|
|
|
|
|
|
|
|
|
|
|
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| Interest paid Interest received |
|
| 6,283 - |
| 8,388 4 |
|
|
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|
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Private & Commercial Finance Group plc
Notes to the Financial Statements
1. Financial Information - the unaudited financial information set out above does not constitute the Group's statutory accounts as defined in Section 434 of the Companies Act 2006. The comparative financial information is based on the statutory accounts for the year ended 31 March 2009.
The Financial Statements for the year ended 31 March 2009, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. The statutory Financial Statements and audit opinion for the year ended 31 March 2010 will be signed on 6 August 2010 and will be delivered to the Registrar following the Company's Annual General Meeting.
2. Basis of Preparation - These consolidated statements have been prepared in accordance with IFRS and its interpretations issued by the International Accounting Standards Board, as adopted by the EU, and on the basis of the accounting policies set out in the 31 March 2009 Financial Statements as updated where necessary for new accounting standards adopted in the year.
The financial information contained within this preliminary statement was approved and authorised for issue by the Board on 22 June 2010.
3. Dividends - The directors are not recommending the payment of a final dividend.
4. Earnings per Ordinary Share - The calculation of basic and diluted earnings per ordinary share is based on profits of £378,106 (2009 - £159,265) and on 40,672,666 (2009 - 28,541,024) ordinary shares, being the weighted average number of shares in issue during the year.
Due to the level of the exercise prices and exercisable dates of the share options and convertible debt, they are not dilutive of earnings.
5. Hedge Accounting - Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly to equity and the ineffective portion is recognised immediately to the income statement. The cumulative gain or loss on the hedging instrument recognised directly to equity is reported net of tax in 'Other reserves' in the balance sheet.
6. New Accounting Standards - There has been no significant financial impact on the Group's financial statements as a result of any new or amended accounting standards in the year.
7. The 2010 Report & Financial Statements will be posted to all shareholders on 16 August 2010. Further copies can be obtained from the Secretary of the Company at 39 Victoria Street, London SW1H 0EU or can be downloaded from our website, www.pcfg.co.uk.
* * ENDS * *
For further information please visit www.pcfg.co.uk
| Scott Maybury
| Private and Commercial Finance Group plc | Tel: 020 7222 2426 |
| Felicity Edwards | St Brides Media and Finance Ltd | Tel: 020 7236 1177 |
| Tim Feather/ Matthew Johnson | Westhouse Securities Limited
| Tel: 0113 246 2610
|
Notes to Editors
Private & Commercial Finance Group plc, which is authorised and regulated by the FSA, is an AIM-quoted finance house.
PCFG has two main operating divisions: Consumer Finance - which provides a range of specially tailored finance products for consumers and Business Finance - which finances vehicles, plant and equipment for SMEs. The Group has a highly efficient and scaleable business model, utilising its specially developed internet-based proposal system to service national networks of brokers. This allows it to handle a large volume of proposals extremely quickly with proportionately low costs.