PCF.L Regulatory News (PCF)

Private & Commercial Finance Group plc

("PCFG", "Private & Commercial Finance", the "Company" or the "Group")

Preliminary Results for the year ended 31 March 2014

Private & Commercial Finance (AIM: PCF), the AIM-quoted finance house, today announces its preliminary results for the year ended 31 March 2014.

Financial Highlights:

· Reported profit before tax up 50% to £1.25 million (2013: £0.83 million)

· Return on average assets increased by 50% to 1.5% (2013: 1.0%)

· Basic earnings per share up 27% to 1.4p (2013: 1.1p)

· Net assets up 11.7% to £10.4 million (2013: £9.3 million)

· Loan loss provisioning charge fell by 11.5% to £2.0 million (2013: £2.3 million)

· £20.1 million (2013: £17.0 million) of unearned finance charges to contribute to earnings in future years

Business Highlights:

· 29% increase in new business volumes to £50.8 million (2013: £39.3 million)

· Total portfolio growth of 10.8% to £88.7 million (2013: £80.0 million)

· 36% increase in returning consumer finance customers (2013: 48%)

· Over 65% of all new business originations falling within top two credit grades

· Record low level of arrears as portfolio quality continues to improve

· Committed debt facilities of £96.0 million (2013: £95.3 million) with headroom of £14.4 million to fund growth

· The banking licence application continues to progress with completion timetabled for March 2015

Commenting on the results Scott Maybury, CEO of PCFG, said:

"There are many reasons to be positive about this strong set of results, particularly the 50% increase in profits to £1.25 million. The Group continues to originate higher volumes of new business, whilst our focus on the quality of the business underwritten is reflected in the further reduction of the loan loss provisioning charge. All of this has resulted in significant profit growth and a continuing improvement in our return on average assets, which is presently our key metric. The headroom in our debt facilities gives us the scope to continue growing our portfolio and, with work continuing on our banking licence application, I am excited about the Group's prospects in the coming years."

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

About Private & Commercial Finance Group plc

Established in 1994, Private & Commercial Finance Group plc is an AIM-quoted finance house which has two main operating divisions:

• Consumer Finance which provides finance for motor vehicles to consumers; and

• Business Finance which provides finance for vehicles, plant and equipment to SMEs.

The Group has a highly efficient and scalable business model, utilising its specially developed internet-based proposal system to service national networks of brokers and suppliers.

Chairman's statement

Private & Commercial Finance celebrated twenty years of trading earlier this year and marked the milestone with an event for the many people who have helped shape the Group's fortunes. Their support, business and advice is greatly appreciated.

Net receivables grew last year by 10.8% to £88.7 million (2013: £80.0 million) and profit before tax increased by 50% to £1.25 million (2013: £0.8 million). The Corporation Tax charge was adversely affected by the impact of the revaluation of the deferred tax asset following a reduction in the rate of corporation tax, but even so profit after tax grew by 27.5%. 

Return on average assets also increased by 50% to 1.5% (2013: 1.0%), another big step towards our target of 2% by the end of the current financial year. Throughout the year there has been a continuing reduction in the level of defaulted accounts and a further decrease in the loan loss provisioning charge. Net assets increased by 11.7% to £10.4 million (2013: £9.3 million) and fully-diluted net assets per share were 11.8p, a premium to the current share price.

Basic earnings per share increased by 27% to 1.4p (2013: 1.1p). Fully diluted earnings per share were down slightly at 0.8p (2013: 0.9p) after taking into account a full year's impact from the convertible unsecured loan notes which we issued in November 2012 and a partial impact from the final issue in September 2013.

New business volumes increased by 29% to £50.8 million (2013: 39.3 million). Our strategy of growing repeat business has been successful and it amounted to £4.2 million last year, a 36% increase on 2013 and a four-fold increase since 2011.

Developing other direct routes to market to supplement broker-introduced business is taking longer than expected and we shall redouble our efforts this year.

Lending is supported by £96 million of committed term debt facilities. These include available headroom of £14.4 million for further portfolio growth including negotiated increases of £6 million in the year.

We are exploring other opportunities to raise new debt facilities, but our key objective is to obtain a banking licence by the end of the current financial year. It is a complex and time-consuming project but a successful conclusion will transform our business by increasing the availability and reducing the cost of the funds we need to grow the business.

I am confident that profits will continue to grow and we hope to be in a position to declare a dividend after March 2015.

D G Anthony

Chairman

Chief Executive's statement

The Group continues to go from strength to strength after successfully putting in place the necessary ingredients for growth.

Excellent profits growth

The Group's profit before tax for the year ended 31 March 2014 was £1.25 million (2013: £0.83 million), an increase of 50%. We commented last year that portfolio growth would deliver the operational gearing necessary to increase profitability and this has proved to be the case. The result delivers a significant improvement in the return on average assets, from 1.0% to 1.5%, putting us within range of achieving our initial target of 2%.

The increased tax charge for the year at an overall rate of 41% (2013: 31%) reflects the revaluation of our deferred tax asset to the main rate of Corporation Tax, which reduced from 23% to 21% with effect from 1 April 2014 and will then reduce to 20% from 1 April 2015. This is a non-cash tax expense and the resultant deferred tax asset, which in effect is prepaid tax, of £1.8 million (2013: £2.4 million) will provide a shelter from the payment of Corporation Tax for the foreseeable future.

The higher than standard tax charge contributed to diluted earnings per share reducing from 0.9p to 0.8p, but this was mainly the result of the effects of a full year's dilution on the convertible unsecured loan notes which were issued in November 2012 and only had a partial impact in the previous financial year.

Costs continue to be controlled and average staff numbers were static in the year, as reflected in a fall in the ratio of administrative expenses to gross profit from 35.5% to 34.2%.

Portfolio performance and balance sheet

The portfolio grew to £88.7 million (2013: £80.0 million), an increase of 10.8% which is the first year of growth since the start of the global financial crisis. The quality of the portfolio continues to improve, with arrears and repossessions at record low levels. This resulted in a further fall in the loan loss provisioning charge from 2.8% of the average portfolio in 2013 to 2.4% this year. As at 31 March 2014, 95.6% (2013: 94.8%) of all live agreements, an important metric for the Group, were performing as up to date.

The portfolio of £88.7 million is reported net of £20.1 million (2013: £17.0 million) of unearned finance charges which are attributable to future years. These will be recognised over the next four years and provide the Group with a quality and predictability of earnings going forward.

The after-tax return on equity for the Group increased from 6.3% in 2013 to 7.4% this year.

Capital and funding

The Group issued the final tranche of convertible unsecured loan notes in September 2013. This completed the £10 million issue announced in our November 2012 Prospectus and the proceeds were used to repay the outstanding 2013 Loan Notes in full on their redemption date and to finance portfolio growth.

The Group has £96.0 million of committed debt facilities at its disposal, with undrawn headroom on these of £14.4 million. This is adequate for our portfolio growth plans in the current year; however we will continue to approach new and existing funders to ensure we always have adequate headroom to support our future growth.

The capital base of the Group continues to strengthen and the leverage ratio, excluding unsecured convertible debt, stands at 6.9 (2013: 7.0).

Our business model

Private & Commercial Finance has a proven business model for lending to both individuals and SMEs. The model requires an understanding of their finance needs, an ability to deliver excellent levels of customer service to both the underlying customers and our network of intermediaries as well as striking the right balance between risk and reward. The Group will continue to focus on its core sectors and, with future strategic initiatives to diversify how we fund ourselves, the opportunities will become even greater.

We will continue to operate a model that minimises risk by financing assets which have strong collateral characteristics and low transaction sizes, spread over a diverse customer base. The use of advanced information systems and infrastructure provides for continued operational efficiencies. This is a robust model that has been tested in the most difficult of economic conditions and provides confidence for the future.

New business and the market

The Group originated a total of £50.8 million of new business advances in the year, an increase of 29%. The greatest increase was seen in our consumer finance division, where strong consumer activity mirrored improved statistics for car sales in the UK.

New business originated with existing customers increased by 36% in the year, building on the impressive growth we achieved in the previous year. A great deal of effort is focused on retaining existing customers and this now represents the largest single introductory source of new business for our consumer finance division. At the same time, the credit quality of new business remains high with over 65% of originations falling into our top two credit grades.

Originations in our business finance division increased by 13% to £22.0 million (2013: £19.5 million) and, whilst not as strong as the growth in consumer finance division, we anticipate that SME lending will accelerate this year as the economic recovery is more widely felt and companies recommence investment in business critical assets. In anticipation of this, we recently recruited a broker development manager to focus on the expansion of this division. We expect to increase the number of new brokers in the current year, to complement the 19 added in 2014.

The consumer motor finance portfolio currently stands at £52.5 million (2013: £45.9 million) and the business finance portfolio at £36.2 million (2013: £34.1 million).

Although the initiatives launched into direct sales channels failed to deliver the level of new business volumes we hoped for, sufficient portfolio growth in our existing channels allowed us to achieve budgeted profits. The Group will continue to look for ways of broadening its sources of business and routes to market in our chosen market sectors, where we only have a small market share.

On 1 April 2014, responsibility for the regulation and supervision of consumer credit related activities passed from the Office of Fair Trading to the Financial Conduct Authority ("FCA"). The new regime under the FCA brings with it an increased burden for consumer finance companies, but we welcome the overarching focus on treating customers fairly and ensuring that they are not mis-sold inappropriate products. We have always maintained strong controls and take compliance seriously, as evidenced by the fact that we were unscathed by the Payment Protection Insurance mis-selling scandal. All of our relevant subsidiaries have the necessary Interim Permissions with the FCA and will be submitting their applications for full authorisation later in the year.

Our staff

The key to our improving performance and success comes from the contribution of our staff. The Group delivers superior levels of customer service and benefits from the strong relationships we have with all our business partners. I would like to thank everyone at Private & Commercial Finance for their commitment to the business and for the professional manner in which they conduct themselves.

Outlook and current developments

The most important strategic objective for the Group is obtaining a banking licence, to provide both a diversification in funding and the ability to grow the portfolio beyond the capabilities of our current debt facilities. The benefits of taking retail deposits are not only that we will have a more robust treasury model but also that, with a reduced cost of funds, we will be able to access new segments within our chosen markets as well as be more profitable in our existing ones. We would expect customer retention to improve further and the ability to grow our portfolio to £250 million is key to maximising the benefits of operational gearing. This is a significant project and considerable investment will be incurred this year to meet our previously stated time-frame of 31 March 2015. The Group is currently conducting the research and work necessary to design the processes and develop the operating model and policies required to complete the Prudential Regulation Authority application process.

Whilst working towards the above objective the Group will continue to increase new business originations, grow our portfolio of receivables to over £100m and continue to deliver the improvement in profitability as demonstrated in these results.

We look forward to an exciting year in the development of the Group.

S D Maybury

Chief Executive

GROUP INCOME STATEMENT

GROUP STATEMENT OF COMPREHENSIVE INCOME

GROUP BALANCE SHEET

GROUP STATEMENT OF CHANGES IN EQUITY

GROUP STATEMENT OF CASH FLOWS

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 2013.

The Financial Statements for the year ended 31 March 2013, 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 2014 are expected to be finalised in mid-July and will be delivered to the Registrar of Companies 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 2013 Financial Statements as updated where necessary for new accounting standards adopted in the year.

The financial information contained within this preliminary statement has been approved and authorised for issue by the Board.

3. Turnover and segmental analysis - Turnover represents gross rental and instalment credit income from the hire, financing and sale of equipment, and the provision of related fee based services, stated net of Value Added Tax. The Group operates in the principal areas of consumer finance for motor vehicles and business finance for vehicles, plant and equipment. All revenue is generated in the United Kingdom.

Turnover, profit on ordinary activities before taxation and loan loss provisioning charge are analysed below:

4. Income tax expense - The tax assessed for the year is higher than the standard rate of Corporation Tax in the UK of 23% (2013 - 24%). The differences are explained below. As part of the Finance Act 2014, the UK government legislated to reduce the main rate of Corporation Tax from 23% to 21% with effect from 1 April 2014 and to 20% with effect from 1 April 2015 which has been reflected in the amount of the recognised deferred tax asset.

5. Dividends - The directors are not recommending the payment of a final dividend.

6. Earnings per Ordinary Share - The calculation of basic earnings per ordinary share is based on a profit after taxation of £731,736 (2013 - £574,252) and on 52,980,732 (2013 - 52,731,151) ordinary shares, being the weighted average number of shares in issue during the year. The number of shares used in the diluted calculation is 146,371,439 (2013 - 80,637,033).

7. Return on average assets - The calculation of return on average assets is based on a profit before tax of £1,244,476 (2013: £829,558) and on average portfolio assets of £84,340,757 (2013: £81,542,080).

8. 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.

9. 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.

10. The 2014 Annual Report & Financial Statements will be posted to all shareholders on 22 July 2014. Further copies can be obtained from the Secretary of the Company at Brandon House, 180 Borough High Street, London SE1 1LB or can be downloaded from our website, www.pcfg.co.uk.