PCF.L Regulatory News (PCF)

23 Jun 2009 07:00



PCF.L / Index: AIM / Sector: Speciality & other finance

23 June 2009

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 2009 ("the year").

Overview

Robust performance - delivered a profit despite financial market conditions

Profit before tax of £262,978 is stated after charging £427,422 in respect of non-cash mark to market adjustments for interest rate derivatives to protect the Group's portfolio against future increases in cost of borrowings

Turnover increased 22 % to £62.9million (2008:£51.7million)

Funding banks continue to be supportive of PCFG, providing committed facilities to support our current plans. Terms for the renewal of the bank facility with RBS/Lloyds now agreed.

Business Finance Division and Consumer Finance Division wrote £36.7million and £23.9million of new business respectively during year ended 31 March 2009

Combined portfolios grew 3% to £134.5million (2008: £130.3million) - includes £30.4million of unearned income (2008: £29.1million) to be released over the next three to four years

Strong team delivering business of exceptional quality, well-collateralised and with attractive margins

Increasing market opportunity - many direct competitors have ceased trading or exited the market

Chairman's Statement

To have survived the turmoil in the financial sector, which has seen more than half our direct competitors cease trading or exit the market, is an achievement in itself. To be able to report a profit for the 12 month period ended 31 March 2009 during which the UK entered a severe recession is even more commendable. The profit before tax for the twelve month period was £262,978 (2008: £934,197). However, it is important to note that the profit is stated after charging £427,422 on certain interest rate derivatives which protect our portfolio against future increases in the cost of borrowings but for accounting purposes are required to be marked to market. The profit before these non-cash items would have been £690,400 (2008: £1,069,548). This accounting treatment is required by the International Financial Reporting Standards ('IFRS') rules. However, we have no intention of crystallising these losses as the derivatives form part of our long term hedging strategy. Further comment on the interest rate derivatives is included in the section on "Funding" below.

The fall in profits compared to the preceding year is not unexpected and is largely attributable to the charge related to interest rate derivatives referred to above but also to increased impairment charges and a reduction in fee income from the sale of payment protection insurance. In my Interim Statement I commented on the relentless campaign of adverse publicity about this product, which has since resulted in the Competition Commission proposing new legislation which will make it even harder to sell to customers. It is ironic that this should happen at a time when unemployment levels are increasing.

The Group's robust performance in these exceptionally difficult times is due to a number of factors including our prudent approach to new lending over the past two years, our broker-introduced business model, our use of state of the art technology, our diversified portfolio of receivables and our policy of avoiding concentrations of risk.

Our business

Private & Commercial Finance Group plc is a long-established finance group with a highly efficient infrastructure and scaleable business model. The original Private and Commercial Finance Company Limited, which we acquired in 1995, was formed in 1972 and has demonstrated the robustness of a finance house with a well spread portfolio, having come through several previous recessions. 

As planned, our Business Finance and Consumer Finance divisions wrote new business at slower rates than in 2008, conserving headroom on our banking facilities and generating cash. The focus has been and continues to be on cautiously underwriting high quality business at the most attractive rate possible. Nevertheless, the combined portfolios grew by 3% to £134.5million (2008: £130.3million) and include £30.4million of unearned income (2008: £29.1million) which will be released over the next three to four years.

The Business Finance Division, which provides finance for equipment, plant and vehicles for SMEs, wrote £36.7million of new business during the year. At 31 March 2009, this division had a portfolio of receivables which totalled £70.6million spread over 7,256 customers; and 

The Consumer Finance Division, which provides finance for cars for consumers, wrote £23.9million of new business during the year. At 31 March 2009, this division had a portfolio of receivables which totalled £63.9million spread over 12,546 customers.

Both divisions underwrite proposals received from long-established networks of finance brokers using advanced technology, namely our proposal management and underwriting system, e-Quote, in tandem with old fashioned lending principles, thorough and consistent underwriting, and careful checking of proposals. 

The Group's portfolio of receivables is managed by a highly effective, well-resourced and experienced credit control division.

Risks and economic background

Our portfolio demonstrated its robustness during the period, although it was by no means immune to the downturn in the wider economy. The percentage of accounts in arrears increased in both divisions during the last two quarters of the period. The "Sales Aid leasing" component of the Business Finance portfolio (which represents 12.5% of the Group's total portfolio), showed the most marked deterioration, although arrears remained within manageable levels. We took action to restrict this business in 2008 and ceased underwriting it altogether in February 2009. Since the end of the accounting period, the economic outlook has shown some signs of improvement and this has been reflected in lower arrears levels in the Consumer Finance Division and improved prices being achieved for remarketed vehicles and equipment. Since my Interim Statement in December 2008, which referred to the fact that forecasters were at the time speculating as to the extent of the downturn, the mood seems to have lightened and forecasters are now speculating as to the date the recession will end, with some predicting that this will be before the end of the current calendar year.

Levels of unemployment and of business failures tend to continue to rise after the economy has turned the corner (which we believe occurred in the final quarter of our accounting period) and we expect these effects to impede our progress in the current accounting period before they gradually dissipate. The Group maintains a prudent non-subjective provisioning model and impairment provisions remain adequate at reporting date at 5.9% of the portfolio (2008: 5.7%).

Competitive environment

Competition has reduced considerably and although overall demand for finance from both SMEs and consumers has fallen, so far as we are concerned the fall-off in competition is causing a net increase in demand for our services and a continuing improvement in the quality of the proposals we are receiving. We continue to operate within an industry-wide scarcity of funding and, although it can be frustrating that we are having to turn away excellent opportunities, we believe that the business which we are writing is of exceptional quality, well-collateralised and with attractive margins. 

Funding 

Our funding banks continue to be supportive and committed to maintaining our facilities, albeit at increased margins and fees. I am pleased to report that we have recently concluded negotiations with all our main funders to extend their facilities although this has entailed some significant one-off costs. Based on these facilities and the progress made to date, we have secured the facilities to support our current plans.

Our 2009 Loan Notes fall due for repayment on 30 September 2009 and our stockbrokers, Daniel Stewart & Company, are in the process of marketing replacement notes which offer a yield of 10% per annum, and a conversion option at 25 pence per ordinary share. I am pleased to note that a significant number of existing holders of the 2009 loan notes have already elected to roll their investment into the new notes and thank them for their support and confidence. Apart from the 2009 loan notes, there are no other scheduled maturities in the next year.

I commented briefly above on the results of the IFRS rules relating to derivatives. As a Group, we provide term finance to our customers at fixed rates of interest. We borrow from our banks at rates of interest linked to London Inter Bank Rate ('LIBOR'). In order to protect ourselves against increases in our borrowing costs, which would reduce margins in our portfolio, we enter into interest rate swaps to fix our borrowing costs.

The IFRS rules require us to revalue our portfolio of interest rate swaps each balance sheet date. Whilst we look to apply hedge accounting rules, the current interest rate volatility, has led us to recognise £427,422 of the movement in the fair value in the profit and loss statement and £2,044,651 directly to reserves in the balance sheet. 

We believe the likely direction for interest rates is upwards and therefore our policy of match-funding our portfolio is the only prudent course of action, notwithstanding the impact of the accounting treatment on our profits from applying IFRS rules.

Technology

In order to complement our leading-edge proposal management system, e-Quote, we commissioned a new portfolio management and accounting system in 2008 which we expected to have fully implemented by 1 May 2009. Those familiar with IT projects will not be surprised to learn that the implementation has been subject to delays but we are now confident that the new system, with its attendant improvements in efficiency, will be in place by 30 September 2009.

Staff

Our professional and experienced team performed exceptionally well in the period and continue to demonstrate their qualities both in successfully managing our portfolio and in taking advantage of the opportunities to write profitable new business whilst exercising appropriate caution. I thank them on behalf of the Board for their support and hard work during the year.

Outlook 

Although we are realists and expect the economic environment in the coming months to remain challenging, we believe that some areas of the economy are showing signs of improvement, albeit that funding shortages and increases in unemployment and business failures will persist for some time to come. We have products which are very much in demand, a robust portfolio, supportive banks, firm control of costs, a strong Board and a very capable and experienced team. The improved competitive environment, coupled with the more prudent lending terms now being offered by our remaining competitors is highly advantageous to us. The business we are currently writing is of exceptional quality which augurs well for the future. In short, we have all the resources and qualities needed to manage the business through the remainder of the recession and to prosper in the long-term.

Michael R Cumming

Chairman 

23 June 2009

Group Income Statement

for the year ended 31 March 2009

				Year ended  31 March 2009 £'000		Year ended 31 March 2008 £'000
Group turnover Cost of sales				62,922 (41,069)		51,749  (33,745)
Gross profit Administration expenses				21,853 (13,039)		18,004 (9,524)
Operating profit Interest receivable Interest payable				8,814 4 (8,555)		8,480 11 (7,557)
Profit on ordinary activities before taxation Income tax expense				263 (104)		934 (32)
Profit on ordinary activities after taxation				159		902
Profit for the year attributable to equity holders				159		902
Earnings per 5p ordinary share  - basic and diluted				0.6 p		3.6 p

Group Statement of Recognised Income and Expense

for the year ended 31 March 2009

				Year ended  31 March 2009 £'000		Year ended  31 March 2008 £'000
Profit for the year				159		902
Cashflow hedges - fair value losses net of tax				(2,044)		(620)
Expense recognised directly in equity				(2,044)		(620)
Total recognised income for the year attributable to equity holders				(1,885)		282

  Group Balance Sheet

as at 31 March 2009

		31 March 2009 £'000	31 March 2008 £'000
ASSETS Non-current assets Goodwill Other intangible assets Property, plant and equipment Loans and receivables Deferred tax		397 302 190 84,912  4,215	397 223 159 87,751  2,221
		90,016	90,751
Current assets Loans and receivables Trade and other receivables Corporation tax Cash and cash equivalents		49,555   500 - 437	42,520  1,357 241 -
		50,492	44,118
Total assets		140,508	134,869
LIABILITIES Current liabilities Interest-bearing loans and borrowings Trade and other payables Derivative financial instruments Corporation tax Bank overdrafts		37,37 01,154 291  1,116 -	155 2,176 - -  1,121
		39,931	3,452
Non-current liabilities Derivative financial instruments Interest-bearing loans and borrowings		4,016 92,445	876 124,584
		96,461	125,460
Total liabilities		136,392	128,912
Net assets		4,116	5,957
Capital and reserves Called up share capital Share premium Capital reserve Other reserves Own shares Profit and loss account		1,428  4,192  3,873 (2,664) (243) (2,470)	1,426  4,150  3,873 (620) (243) (2,629)
Equity shareholders' funds		4,116	5,957

  

Group Cash Flow Statement

for the year ended 31 March 2009

			Year ended  31 March 2009 £'000		Year ended 31 March 2008 £'000
Cash flows from operating activities Profit before taxation			263		934
Adjustments for:
Amortisation of other intangible assets Amortisation of issue costs Depreciation  Loss/(profit) on sale of property, plant and equipment Fair value movement on derivative financial instruments Increase in loans and receivables Decrease in trade and other receivables Decrease in trade and other payables			136 48 62 7 427 (4,197) 779  (779)		166 48 95 (4) 137 (39,773)  543  (651)
Cash outflow from operating activities Tax received/(paid)			(3,254) 54		(38,505) (244)
Net cash outflow from operating activities			(3,200)		(38,749)
Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Purchase of other intangible assets			(123) 23  (215)		(96) 105 (118)
Net cash outflow from investing activities			(315)		(109)
Cash flows from financing activities  Proceeds from issue of share capital Proceeds from borrowings Repayments of borrowings			- 6,540  (1,467)		1,057 38,134 (277)
Net cash inflow from financing activities			5,073		38,914
Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year			1,558  (1,121)		56  (1,177)
Cash and cash equivalents at end of the year			437		(1,121)
Cash at bank			437		-
Bank overdrafts			-		(1,121)
			437		(1,121)
The amount of interest paid and received during the year is as follows:
Interest paid Interest received			8,388 4		7,184 11

Notes to the Financial Statements

* * ENDS * *

For further information visit www.pcfg.co.uk or contact:

Private & Commercial Finance Group plc	Tel: 020 7222 2426
Scott Maybury, CEO
Hanson Westhouse Limited, Nominated Advisor	Tel: 0113 246 2610
Tim Feather
St Brides Media & Finance Limited	Tel: 020 7242 4477
Felicity Edwards

Notes to Editors:

Private & Commercial Finance Group plc, which is authorised and regulated by the Financial Services Authority, is an independent AIM-listed finance house. Through its operating subsidiaries the Company provides a carefully selected range of high quality equipment finance products tailored for both business and personal customers. The range extends from financing cars for consumers to leasing a wide range of equipment to businesses.

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