16 Dec 2008 07:00
PCF.L / Index: AIM / Sector: Speciality & other finance
16 December 2008
Private & Commercial Finance Group plc ('PCFG' or 'the Group')
Interim Statement
Private & Commercial Finance Group plc, the AIM quoted finance house, announces its results for the six months ended 30 September 2008.
Overview
15% increase in pre tax profits to £496,390 (six months ended 30 September 2007: £430,040)
36.15% increase in turnover to £31.86 million (2007: £23.4 million)
Consumer Finance and Business Finance divisions performing well
Competition in the financial lending arena declining resulting in increased demand for PCFG's services
Funding banks continue to be supportive and committed to the Group
Commissioning new technically advanced portfolio management and accounting system
Strong management team - continue to manage portfolio and influx of proposals for new business successfully
PCFG's CEO Scott Maybury said, "As the newly appointed CEO, I am delighted to announce these encouraging results during what has been an interesting time in the financial markets. There is currently a significant market opportunity for PCFG due to many of the main lenders reducing their loan activities and we are seeing increasing demand for our services. However our strategy remains one of prudence, building our business portfolio organically and maintaining high standards of procedures and training to ensure consistency throughout our operations and continued growth for the future."
Chairman's statement
In the light of the prevailing economic climate, it is pleasing to report a 15% increase in profits for the period of six months ended 30 September 2008. The profit before tax for the six month period was £496,390 (2007: £430,040) on increased turnover of £31.86 million (2007: £23.40 million).
This respectable performance, during a period which has seen more competitors withdraw from our market, is due to a number of factors including our broker-introduced business model, our diversified portfolio of receivables and our policy of avoiding concentrations of risk.
Our business
PCFG is a long-established finance group with a highly efficient and scaleable infrastructure and 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 well-diversified finance house, having come through several previous recessions.
We have two operating divisions:
The Business Finance Division which provides finance for equipment, plant and vehicles for SMEs; and
The Consumer Finance Division which provides finance for cars for consumers.
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.
Risks and economic background
The performance of our portfolio during the period was in line with our expectations. Since the end of the period, the economic outlook has deteriorated markedly. The measures taken by the Bank of England and the Chancellor, including the recent deep interest rate cuts and efforts to encourage liquidity, appear unlikely to avert a significant increase in UK unemployment. In addition, a relentless campaign of adverse publicity has been waged against payment protection insurance. Certainly, as far as we are concerned, the effect has been that customers have declined this valuable cover in increasing numbers at a time when they need it most and the income we have earned from arranging such insurance has therefore declined. The level of business failures is increasing and likely to rise further as the recession bites and we expect the collateral values of vehicles and equipment to continue to fall as demand weakens.
Our carefully underwritten portfolio of receivables has already demonstrated its robustness over the last twelve months, but we do not expect to be immune from what is happening in the wider economy. As the recession appears likely to be deeper than most forecasters, including HM Treasury, anticipated, it is now prudent for us to expect a correspondingly higher increase in customer defaults in the coming months. On the other hand, the increases in margins which we have progressively introduced since 2007, together with a number of recent cost-saving initiatives, will provide a growing measure of offset.
It is important, however, to maintain a sense of perspective. Many forecasters are speculating as to the extent of the downturn but our management team, with considerable experience in past recessions, knows that a finance house which has a well diversified portfolio with low risk concentrations, managed by a well-resourced and experienced credit control team, is best placed to weather the anticipated downturn.
Competitive environment
Competition since the start of the period has reduced considerably and although overall demand for finance from both SMEs and consumers has fallen as a result of declining confidence, so far as we are concerned the fall-off in competition is causing a net increase in demand for our services. However, our resources are not unlimited and we have taken steps, including tightening terms and increasing margins, to bring the number of applications within manageable levels. We continue to operate within an industry-wide scarcity of funding and, although it is often frustrating that we are having to turn away excellent opportunities, the business which we are writing is in line with our plans and of high quality, with attractive margins.
Funding
Our funding banks continue to be supportive and committed to maintaining our facilities, albeit at increased margins. I am pleased to report that we have successfully concluded agreement with Barclays Bank, which funds our Consumer Finance Division, to extend the term of our existing facility. We are currently in negotiation with The Royal Bank of Scotland and Lloyds TSB Bank with a view to agreeing the terms of a similar extension for funding of our Business Finance Division. The facility we have with Kaupthing Singer & Friedlander is not affected by the position of its parent company and remains committed until 2011. In addition, the Group obtained £7.5 million of new facilities in the six months to 30 September 2008 which are committed for periods of up to four years. Based on these facilities and the progress made to date, we have adequate facilities for our current growth plans.
Technology
In order to complement our leading-edge proposal management system, e-Quote, we are demonstrating our confidence in the future by commissioning a new portfolio management and accounting system which we expect to have fully implemented by 1 May 2009 and which will be as advanced as e-Quote. Although this involves a financial commitment and a detailed commissioning process involving a high level of commitment from the team, we expect the new system to pay for itself within its first two years of operation through increased efficiencies and more in-depth management information.
Board of directors and staff
On 31 October Tony Nelson stepped down as Chief Executive and was appointed Non-Executive Deputy Chairman. Having recently celebrated his 65th birthday, Tony felt that the time was right to hand over the reins to his long-standing colleagues. As a result, Scott Maybury, previously the Finance Director, was appointed Chief Executive and Zane Kerse, who had been Group Financial Controller since 2001, was appointed Finance Director to replace Scott. In addition, Robert Murray, Managing Director of our Business Finance Division, was given the additional responsibility of being Managing Director of our Consumer Finance Division.
On behalf of the board, I would like to thank Tony for all his hard work and commitment to the development of the Group over the last fifteen years and to congratulate Scott, Zane and Robert on their new appointments.
Our professional and experienced team performed well in the period and continue to demonstrate their qualities in managing both our portfolio and the influx of proposals for new business.
Outlook
Although we are realists and expect the economic environment in the coming months to be challenging, we have products which are very much in demand, a robust portfolio, supportive banks, a strong board and a very capable and experienced team. In short, all the resources and qualities needed to manage the business through the recession and to prosper in the long-term. The improved competitive environment, coupled with the more prudent lending terms now being offered by our remaining competitors, mean that our opportunities for new business on favourable terms are highly promising.
Michael R Cumming
Chairman
16 December 2008
Group Income Statement
for the six months ended 30 September 2008
| Six months ended 30 September 2008 £000's unaudited | Six months ended 30 September 2007 £000's unaudited | Year ended 31March 2008 £000's audited | |||
| Group turnover Cost of sales | 31,856 (20,269) | 23,402 (15,242) | 51,749 (33,745) | ||
| Gross profit Administration expenses | 11,587 (6,581) | 8,160 (4,305) | 18,004 (9,524) | ||
| Operating profit Interest Receivable Interest Payable | 5,006 2 (4,512) | 3,855 - (3,425) | 8,480 11 (7,557) | ||
| Profit on ordinary activities before taxation Income tax expense | 496 (139) | 430 (129) | 934 (32) | ||
| Profit on ordinary activities after taxation | 357 | 301 | 902 | ||
| Profit for the period attributable to equity holders | 357 | 301 | 902 | ||
| Earnings per 5p ordinary share - basic and diluted | 1.3p | 1.2p | 3.6p |
Group Statement of Recognised Income and Expense
for the six months ended 30 September 2008
|
| Six months ended 30 September 2008 £000's unaudited |
| Six months ended 30 September 2007 £000's unaudited |
| Year ended 31March 2008 £000's audited |
| Profit for the period | 357 | 301 | 902 | ||
| Cash flow hedges - fair value gains/(losses) net of tax |
141 |
| - |
| (620) |
| Income/(expense) recognised directly in Equity | 141 |
| - |
| (620) |
|
|
|
|
|
|
|
| Total recognised income for the period attributable to equity holders | 498 | 301 | 282 | ||
Group Balance Sheet
as at 30 September 2008
| 30 September 2008 £000's unaudited | 30 September 2007 £000's unaudited | 31March 2008 £000's audited | |
| ASSETS Non-current assets Goodwill Other intangible assets Property, plant and equipment Loans and receivables Deferred tax |
397 194 137 97,393 2,166 | 397 226 249 71,641 2,441 |
397 223 159 89,456 2,221 |
| 100,287 | 74,954 | 92,456 | |
| Current assets Loans and receivables Trade and other receivables Corporation Tax Cash and cash equivalents | 42,502 1,096 102 22 | 40,299 806 - - | 42,520 1,357 241 - |
| 43,722 | 41,105 | 44,118 | |
| Total assets | 144,009 | 116,059 | 136,574 |
| LIABILITIES Current liabilities Interest-bearing loans and borrowings Trade and other payables Derivative financial instruments Corporation tax Bank overdrafts | 2,754 3,489 623 - - | 274 4,841 10 130 1,106 | 155 3,881 876 - 1,121 |
| 6,866 | 6,361 | 6,033 | |
| Non-current liabilities Interest-bearing loans and borrowings | 130,685 | 104,219 | 124,584 |
| Total liabilities | 137,551 | 110,580 | 130,617 |
| Net assets | 6,458 | 5,479 | 5,957 |
| Capital and reserves Called-up share capital Share premium Capital reserve Other reserves Own shares Profit and loss account | 1,426 4,154 3,873 (480) (243) (2,272) | 1,298 3,781 3,873 - (243) (3,230) | 1,426 4,150 3,873 (620) (243) (2,629) |
| Equity shareholders' funds | 6,458 | 5,479 | 5,957 |
Group Cash Flow Statement
for the six months ended 30 September 2008
| Six months | Six months | Year | |
| ended | ended | ended | |
| 30 September | 30 September | 31 March | |
| 2008 | 2007 | 2008 | |
| £000's | £000's | £000's | |
| unaudited | unaudited | audited | |
| Cash flows from operating activities | |||
| Profit before taxation | 496 | 430 | 934 |
| Adjustments for: | |||
| Amortisation of other intangible assets | 71 | 85 | 166 |
| Amortisation of issue costs | 24 | - | 48 |
| Depreciation | 28 | 28 | 95 |
| (Profit)/loss on sale of property, plant and equipment | 7 | - | (4) |
| Fair value movement on derivative financial instruments | (18) | 213 | 137 |
| Increase in loans and receivables | (7,919) | (21,442) | (41,478) |
| Decrease in trade and other receivables | 221 | 1,014 | 543 |
| Increase/(decrease) in trade and other payables | (392) | 1,727 | 1,054 |
| Cash outflow from operating activities | (7,482) | (17,945) | (38,505) |
| Tax paid | - | (145) | (244) |
| Net cash outflow from operating activities | (7,482) | (18,090) | (38,749) |
| Cash flows from investing activities | |||
| Purchase of property, plant and equipment | (36) | (18) | (96) |
| Proceeds from sale of property, plant and equipment | 23 | - | 105 |
| Purchase of other intangible assets | (42) | (40) | (118) |
| Net cash outflow from investing activities | (55) | (58) | (109) |
| Cash flows from financing activities | |||
| Proceeds from issue of share capital | - | 560 | 1,057 |
| Proceeds from borrowings | 8,680 | 17,816 | 38,134 |
| Repayments of borrowings | - | (157) | (277) |
| Net cash inflow from financing activities | 8,680 | 18,219 | 38,914 |
| Net increase in cash and cash equivalents | 1,143 | 71 | 56 |
| Cash and cash equivalents at beginning of the period | (1,121) | (1,177) | (1,177) |
| Cash and cash equivalents at end of the period | 22 | (1,106) | (1, 121) |
| Cash at banks | 22 | - | - |
| Bank overdrafts | - | (1,106) | (1,121) |
| 22 | (1,106) | (1,121) | |
| The amount of interest paid and received during the period is as follows: | |||
| Interest paid | 4,447 | 3,484 | 7,184 |
| Interest received | 2 | - | 11 |
Notes:
The interim results are unaudited and do not constitute statutory accounts as defined by section 240 of the Companies Act 1985. The comparative figures for the year ended 31 March 2008 are based on the statutory accounts of the Group for that period and have been reported on by the Group's auditor and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.
The interim results have been prepared on the basis of the accounting policies set out in the Annual Report & Financial Statements for the year ended 31 March 2008.
These interim consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union.
Private & Commercial Finance Group plc allotted 5,747 fully paid 5p ordinary shares on 11 April 2008 as a result of the conversion of loan notes to the value of £4,369.
The calculation of basic earnings per ordinary share is based on a profit of £357,483 for the period and on 28,515,748 ordinary shares, being the weighted average number of ordinary shares in issue during the period.
The Group's turnover represents gross rental and instalment credit income receivable, the hire, the financing and the sale of equipment, and the provision of related fee based services, stated net of Value Added Tax.
The Group's loans and receivables portfolio of £139,895,546 is reported net of unearned future finance income of £31,082,292.
A copy of the Interim Report is being sent to all shareholders and convertible loan note holders. 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 | Hanson Westhouse Limited | Tel: 0113 246 2610 |
Notes to Editors
Private & Commercial Finance Group plc, which is authorised and regulated by the FSA, is a growing AIM-quoted finance house.
PCFG has two main operating divisions: Consumer Finance - which provides a growing 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.