S & U Regulatory News (SUS)

25 March 2014

S&U PLC

("S&U" or "the Company")

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JANUARY 2014

S&U, Britain's foremost niche home credit and motor finance provider, today announces its preliminary results for the year ended 31 January 2014:

Key Financials:

· Profit before taxation up 21% at £17.3m (2013: £14.2m)

· Earnings per share up 22% at 113.2p (2013: 92.6p)

· Revenues up 11% at £60.8m (2013: £55.0m)

· Proposed final dividend of 24p (2013: 20p); total dividend in respect of the year increased to 54p (2013: 46p) up 17%

· Strong balance sheet:

o Net assets increased by 14% to £69.4m (2013: £61.1m)

o £15.0m additional medium term borrowing facilities arranged during year

o Borrowings increased to £32.4m (2013: £20.6m); group gearing still conservative at 46.6% (2013: 33.7%)

· Divisional highlights:

o Motor Finance profit before taxation up 42% to £11.5m (2013: £8.1m); driven by 26% revenue growth and record collections quality

o Home Credit profit before taxation slightly down at £5.8m (2013: £6.1m); improved performance since H1

Operational Highlights:

· Group annual collections up over £10.0m on prior year; Home Credit stable and Motor Finance up 26%

· Further 47% increase in Motor Finance advances this year with continuing good trends in collection quality

· Home Credit; fourth quarter loan advances up 8% on last year and 2 new branches opened in the year

· Motor Finance; growth of £20.0m in net receivables and further expansion planned for 2014/15

Anthony Coombs, Chairman of S&U plc commented:

"Our record profits of £17.3m offer proof that the enduring qualities imbued by those dedicated to S&U in the past - have respect for every customer and for the quality of service this demands of us - are firmly rooted in the way we do business today. I am confident that our continued and determined pursuit of these ideals will bring further rewards."

Enquiries:

Anthony Coombs S&U plc 0121 705 7777

Media and Investor Relations

Will Swan Smithfield 0207 360 4900

Financial Advisers, Sponsors and Brokers

Adrian Trimmings Arden Partners 0207 614 5900

A presentation for analysts will be held on 25th March 2014 at 9.15am for 9.30am at the offices of Smithfield, 10 Aldersgate Street, London EC1A 4HJ

CHAIRMAN'S REVIEW

I am pleased to announce that, in the year S&U celebrated its 75th anniversary, record profit before tax of £17.3m (2013: £14.2m) was achieved. This is proof that the enduring qualities imbued by those dedicated to S&U in the past - have respect for every customer and for the quality of service this demands of us - are firmly rooted in the way we do business today. As our founder Clifford Coombs was fond of saying, "success breeds success." I am confident that our continued and determined pursuit of these ideals will bring further rich rewards.

Highlights

§ Profit before tax increased by 21% to £17.3m (2013: £14.2m)

§ Earnings per share of 113.2p (2013: 92.6p)

§ Final dividend of 24p (2013: 20p) A total for the year of 54p per share (2013: 46p)

§ Group gearing of 46.6% (2013: 33.7%) and £15.0m of additional medium-term facilities put in place

Financial Review

S&U's success this year has again been spearheaded by Advantage Finance, our motor finance lender, which now contributes around two thirds of group profit. Advantage produced yet another record year achieving profit before tax of £11.5m (2013: £8.1m) a remarkable 42% increase. Deal numbers reached a record 8,460 (2013: 6,118). Prospects for growth in a market estimated at potentially 4.5 million customers in the UK are signicant - particularly as the economy revives and a gradual recovery in consumer confidence takes place. Advantage will continue to develop products to continue this significant expansion, whilst ensuring that debt quality remains at its current best ever levels, as measured by collections performance.

I am pleased to report that the same macro-economic trends also bode well for our traditional home credit business. Here profit before tax fell slightly to £5.8m (2013: £6.1m) as our customers felt the impact of utility price increases and, to a lesser extent, the threat of benefit changes, particularly early in the year. However recent trends on both sales and cash have been promising, particularly at our peak Christmas trading period when sales increased by just under 10%. We have attracted new customers, modernised and are in course of making our IT platforms more customer friendly, and have made some small acquisitions such as Ambassador Finance in the West of Scotland, all of which justify our confidence in the future of home credit.

Loansathome4U

§ Profit before tax £5.8m (2013: £6.1m) - creditable performance given levels of consumer confidence and benefit changes

§ Organic recruitment of 5,000 new customers

§ Opened two new branches in Falkirk and Sunderland - further branches in Bridgend, Greenock and Liverpool opened in new year

§ Acquisition of Ambassador Finance serving the central belt of Scotland

§ Continued roll out of our Advantage4U pre-paid debit card

Our home credit division, trading as Loansathome4U, produced profit before tax this year of £5.8m (2013: £6.1m) a creditable result given lower levels of consumer confidence in the first three quarters of the year, and benefit changes which mainly impacted the first half.

The final quarter of the year, which included the peak Christmas trading period, saw an encouraging rise in sales over 2012, accompanied by the organic recruitment of over 5,000 new customers. Our customer quality has improved over the year, as witnessed by current levels of collections and arrears performance.

Good quality collections require us to be close to our customers and also to our representatives. For this reason we have opened 2 new branches in the year in Falkirk and Sunderland, and a further three, Bridgend, Greenock and Liverpool have been opened in the new financial year.

Our strategy for good quality and consistent growth led in February to the purchase of Ambassador Finance, serving the central belt of Scotland. We continue to seek acquisitions of comparable quality and size.

We also continue to roll out our Advantage4U pre-paid debit card which we believe will prove increasingly popular for existing customers who want to purchase goods and services on-line. We plan further investment in I.T. for home credit to improve productivity and customer service. 

Advantage Finance

§ Increased profit before tax by 42% to £11.5m (£8.1m in 2013)

§ New Loan transaction numbers increased by 38%

§ Record net receivables of £73.0m (2013: £52.5m)

§ Live customer numbers rose to 18,000

§ New product range introduced contributing to record results and future expansion

Advantage Finance, our motor finance supplier, produced an excellent profit of £11.5m against £8.1m in 2013, an increase of 42%. Transaction numbers increased by 38% and net receivables were a record £73.0m (2013: £52.5m) as live customer numbers rose to 18,000.

Whilst retaining Advantage's traditional clientele, our extended product range was successfully launched early in 2013, introducers were recruited, which contribute to these record results and form the bedrock for future expansion.

The payment performance of new customers is also improving, and collections measuring the quality of recent business and the whole book are at record levels.

Advantage's debt quality depends on its superb sales, collection and administrative teams and on its ability to analyse applicants and predict likely payment performance. These have been key factors in the improved collections and margins of recent years.

Dividends

Our dividend policy has always been characterised by its sustainability. Our habitual emphasis on both growth and stability has seen dividends per share grow since 2009 by 69%, whilst cover over that period has increased from 1.56 to over 2. I am therefore pleased that current results allow the Board to recommend a final dividend of 24p per ordinary share (2013: 20p). This will be paid on 11 July 2014 to ordinary shareholders on the share register at 20 June 2014. This dividend is of course subject to approval by shareholders at our AGM on 20 May 2014.

This means that, following our normal practice of paying interim dividends in November and April, total dividends for the year will be 54p (2013: 46p) per ordinary share, an increase of 17%. Dividend cover will increase slightly to over 2.1.

Corporate Governance and Board Changes

Changes in UK Corporate Governance are on-going. Whilst the UK Corporate Code was revised by the Financial Reporting Council as long ago as September 2012, some changes, including those on the work of the Audit and Remuneration Committees are clear, but others, for instance on the make-up of Company Boards, are still to be confirmed.

Hence, conscious as ever of our responsibilities to all our shareholders, we have adapted this year's Annual Report to accommodate new requirements in the way in which we present and justify Directors remuneration. We have also changed the way in which the Audit Committee reports particularly in the light of changing Corporate Governance requirements.

S&U has been traded on the Stock Exchange for over 50 years; as such we are well aware of our responsibilities to all shareholders and, subject to insider rules and the dictates of commercial confidentiality are always happy to share our philosophy and trading methods with our shareholders. We fully support the principles of Corporate Governance contained in the UK Corporate Governance Code. Shareholders should derive great reassurance from the identity of interest between major shareholders and themselves. This is a business model which has significantly benefited the Mittelstand in Germany over the past 30 years. Sadly it has become increasingly rare and less properly appreciated in the UK.

Much of Corporate Governance introduced recently has been designed to overcome a perceived conflict of interest between managers and shareholders rather than to encourage its identity. By contrast S&U has felt it appropriate, over the past years, to make use of the "comply and explain provisions" still explicitly allowed for companies outside the FTSE 350. An historic, although not current example, has been my combining the roles of Managing Director and Chairman. 

Further we have preferred the consistency and stability given to the Board by long-serving Non-Executive Directors, believing that their practical and deepening experience has not in any way diminished their independence, integrity or objectivity. 

We are pleased this year to welcome Katherine Innes-Ker, a very experienced and widely respected NED, to our Board; Further, this year and annually in the future, we have decided that all Board members will submit themselves for election. This, we trust, will give our shareholders every opportunity to recognise and endorse the energetic way in which our Directors oversee the Company's affairs.

Of course, the Board's composition is kept continually under review; although next year may see further changes, we believe that for now the significant current reforms in Corporate Governance, Financial Reporting and Industry Regulation make continuity and experience of our NEDs of paramount importance. I trust that our shareholders will concur.

Treasury and Funding

Increased facilities of £15.0m were arranged in the year and we maintain excellent relationships with our banking partners. Group assets increased by over £20.0m to £107.0m last year. This increase, mainly in Advantage Finance, was funded by an additional £12.0m of bank borrowings. Current facilities give us substantial headroom against £32.4m of borrowing at year end. Gearing has increased but remains a conservative 46.6% (2013: 33.7%).

While S&U has historically funded its business through equity and bank debt, other areas of funding remain under review including Corporate Retail Bonds and obtaining a deposit taking licence. I can report we have been in constructive discussions with the PRA and FCA regarding a possible application for a Deposit Taking Licence. Should we make an application and a licence be granted, the Group would have further scope to expand its lending organically, and into related areas of consumer and business finance.

Current Trading and Outlook

Notwithstanding this winter's appalling weather and the doom saying of the OECD, IMF and elsewhere of only nine months ago, both the British economy and consumer confidence are returning to unmistakeable, if not yet robust, health. This is evident in our current trading and prompts our confidence for the coming year.

But, S&U's ability to prosper from such a climate is not axiomatic. We never take progress for granted. That depends upon the dedication, energy and commitment of all those who work with us. Both within the Company and to the outside world, S&U has always portrayed itself as a family business. We make no apologies for this. It has been the bedrock and impulse for our growth over 75 years of trading. It will ensure even greater progress in the future. 

Anthony Coombs

Chairman

24 March 2014

CONSOLIDATED INCOME STATEMENT

Year ended 31 January 2014

All activities derive from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Items above will not be reclassified subsequently to the Income Statement

CONSOLIDATED BALANCE SHEET31 January 2014

STATEMENT OF CHANGES IN EQUITY

Year ended 31 January 2014

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 January 2014

There are no cash and cash equivalent balances which are not available for use by the Group (2013: £nil).

1. SHAREHOLDER INFORMATION

1.1 Preliminary Announcement

The figures shown for the year ended 31 January 2014 are not statutory accounts within the meaning of section 435 of the Companies Act 2006. The statutory accounts for the year ended 31 January 2014 on which the auditors have given an unqualified audit report and did not contain an adverse statement under section 498(2) or 498(3) of the Companies Act 2006 will be delivered to the Registrar of Companies after the Annual General Meeting. The figures shown for the year ended 31 January 2013 are not statutory accounts. A copy of the statutory accounts has been delivered to the Registrar of Companies, contained an unqualified audit report and did not contain an adverse statement under section 498(2) or 498(3) of the Companies Act 2006. This announcement has been agreed with the Company's auditors for release. A copy of this preliminary announcement will be published on the website www.suplc.co.uk. The Directors are responsible for the maintenance and integrity of the Company website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements differ from legislation in other jurisdictions.

1.2 Annual General Meeting

The Annual General Meeting will be held at 11.30am on 20 May 2014 at the Nuthurst Grange Country House Hotel, Hockley Heath, Warwickshire B94 5NL.

1.3 Dividend

If approved at the Annual General Meeting a final dividend of 24p per Ordinary Share is proposed, payable on 11 July 2014 with a record date of 20 June 2014.

1.4 Annual Report

The 2014 Annual Report and Financial Statements and AGM notice will be displayed in full on our website www.suplc.co.uk in due course and also posted to those Shareholders who have still opted to receive a hardcopy. Copies of this announcement are available from the Company Secretary, S & U plc, Royal House, Prince's Gate, Homer Road, Solihull, West Midlands B91 3QQ.

2. KEY ACCOUNTING POLICIES

The 2014 financial statements have been prepared in accordance with applicable accounting standards and accounting policies - these key accounting policies are a subset of the full accounting policies.

2.1 Basis of preparation

As a listed Company we are required to prepare our consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation. The financial information included in this preliminary announcement does not include all the disclosures required for IFRS or the Companies Act 2006.

Both the consolidated financial statements and the financial information included in this preliminary announcement have been prepared under the historical cost convention as modified by the revaluation of derivative financial instruments to fair value.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out above. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are set out in the preliminary announcement along with the Group's objectives, policies and processes for managing its capital. The details of the Group's financial risk management objectives and its exposures to credit risk, market risk and liquidity risk are set out in detail within the audited financial statements. The directors believe that the Group is well placed and has sufficient financial resources to manage its business risks successfully despite the current uncertain economic outlook.

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the preliminary announcement.

2.2 Revenue recognition

Interest income is recognised in the income statement for all loans and receivables measured at amortised cost using the effective interest rate method (EIR). The EIR is the rate that exactly discounts estimated future cash flows of the loan back to the present value of the advance. Acceptance fees charged to customers and any direct transaction costs are included in the calculation of the EIR. Under IAS 39 credit charges on loan products continue to accrue at the EIR on all impaired capital balances throughout the life of the agreement irrespective of the terms of the loan and whether the customer is actually being charged arrears interest. This is referred to as the gross up adjustment to revenue and is offset by a corresponding gross up adjustment to the loan loss provisioning charge to reflect the fact that this additional revenue is not collectable.

Commission received from third party insurers for brokering the sale of motor finance insurance products, for which the Group does not bear any underlying insurance risk is recognised and credited to the income statement when the brokerage service has been provided, after taking into account expected refunds payable on customer early settlements and policy cancellations.

Sales of goods are recognised in the income statement when the product has been supplied.

2.3 Amounts receivable from customers

All customer receivables are initially recognised at the amount loaned to the customer plus direct transaction costs. After initial recognition the amounts receivable from customers are subsequently measured at amortised cost.

The directors assess on an ongoing basis whether there is objective evidence that a loan asset or group of loan assets is impaired and requires a deduction for impairment. A loan asset or a group of loan assets is impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan. Objective evidence may include evidence that a borrower or group of borrowers is experiencing financial difficulty, default or delinquency in repayments. Impairment is then calculated by estimating the future cash flows for such impaired loans, discounting the flows to a present value using the original EIR and comparing this figure with the balance sheet carrying value. All such impairments are charged to the income statement. For all accounts which are not impaired, a further incurred but not reported provision (IBNR) is calculated and charged to the income statement based on management's estimates of the propensity of these accounts to default from conditions which existed at the balance sheet date.

Key assumptions in ascertaining whether a loan asset or group of loan assets is impaired include information regarding the probability of any account going into default and information regarding the likely eventual loss including recoveries. These assumptions and assumptions for estimating future cash flows are based upon observed historical data and updated as management considers appropriate to reflect current and future conditions. All assumptions are reviewed regularly to take account of differences between previously estimated cash flows on impaired debt and the eventual losses.

3. SEGMENTAL ANALYSIS

Analyses by class of business of revenue and profit before taxation are stated below:

Analyses by class of business of assets and liabilities are stated below:

Depreciation of assets for consumer credit was £473,000 (2013: £434,000) and for motor finance was £104,000 (2013: £81,000).Fixed asset additions for consumer credit were £604,000 (2013: £691,000) and for motor finance were £217,000 (2013: £104,000).

The net finance credit for consumer credit was £459,000 (2013: £264,000) and for motor finance was a cost of £1,186,000 (2013: £845,000).The tax charge for consumer credit was £1,385,000 (2013: £1,423,000) and for motor finance was £2,570,000 (2013: £1,927,000).

The significant products in consumer credit, rentals and other retail trading are unsecured Home Credit loans. The significant products in motor finance are car loans secured under hire purchase agreements.

The assets and liabilities of the Parent Company are classified as consumer credit, rentals and other retail trading.

No geographical analysis is presented because all operations are situated in the United Kingdom.

4. COST OF SALES

5. FINANCE COSTS (NET)

6. EARNINGS PER ORDINARY SHARE

The calculation of earnings per ordinary share is based on profit after tax of £13,382,000 (2013: £10,880,000).

The number of shares used in the basic eps calculation is the average number of shares in issue during the year of 11,777,093 (2013: 11,750,289). There are a total of 283,835 dilutive share options in issue (2013: 232,698). The number of shares used in the diluted eps calculation is 11,898,890 (2013: 11,896,338).

7. AMOUNTS RECEIVABLE FROM CUSTOMERS

The credit risk inherent in amounts receivable from customers is reviewed as per note 2.3 and under this review the credit quality of assets which are neither past due nor impaired was considered to be good. The above analysis of when loans are due is based upon original contract terms which are not rescheduled - the carrying amount of amounts receivable from customers whose terms have been renegotiated that would otherwise be past due or impaired is therefore £nil (2013: £nil).

 8. RECONCILIATION OF OPERATING PROFIT TO NET CASH FROM OPERATING ACTIVITIES