S & U Regulatory News (SUS)

24 March 2015

S&U PLC

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

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JANUARY 2015

S&U, Britain's foremost niche home credit and motor finance provider, today announces its preliminary results for the year ended 31 January 2015:

Key Financials:

· Profit before taxation up 34% at £23.2m (2014: £17.3m)

· Earnings per share up 38% at 156.0p (2014: 113.2p)

· Revenues up 22% at £74.4m (2014: £60.8m)

· Proposed final dividend of 30p (2014: 24p); total dividend in respect of the year increased to 66p (2014: 54p)

· Strong balance sheet:

o Net assets increased by 17% to £81.5m (2014: £69.4m)

o £30m additional longer term borrowing facilities arranged during the year

o Borrowings increased to £53.6m (2014: £32.4m); group gearing still conservative at 65.8% (2014: 46.6%)

· Divisional highlights:

o Motor Finance profit before taxation up 42% to £16.7m (2014: £11.5m); driven by 38% revenue growth and record collections quality

o Home Credit profit before taxation up 11% to £6.5m (2013: £5.8m); driven by 10% revenue growth

Operational Highlights:

· Group total annual collections up over £28.0m on prior year; Motor Finance up 40% and home credit up 11%

· Further 48% increase in Motor Finance advances this year - further growth planned in healthy competitive market

· Home Credit; advances up 11% on last year and three new branches opened in the year; one more planned in H1 15

· Motor Finance; growth of £33.4m in net receivables with continuing good trends in collection quality

Anthony Coombs, Chairman of S&U plc commented:

"This year Group profit has risen by 34% and substantial growth has been seen across all of our companies. Although the new Regulatory Regime, signs of emerging competition and the forthcoming General Election create the usual uncertainties, our expertise, the commitment of our people and the loyalty of our customers and introducers give us great confidence for the future."

Enquiries:

Anthony Coombs S&U plc 0121 705 7777

Media and Investor Relations

Will Swan Smithfield 0207 360 4900

Financial Advisers, Sponsors and Brokers

Chris Hardie Arden Partners 0207 614 5900

A presentation for analysts will be held on 24th March 2015 at 9.15am for 9.30am at the offices of Smithfield, 10 Aldersgate Street, London EC1A 4HJ

CHAIRMAN'S REVIEW

I am very pleased to announce another record set of results for S&U plc. Profit before tax is £23.2m (2014: £17.3m) and substantial growth has been generated across all Group companies. This is evidenced by new loan advances achieving a best ever £131m and in receivables at £141m (2014: £107m), an increase of 32%. We are proud to offer 140,000 loyal customers financial products which are fair, appropriate, flexible and popular - and rooted in standards of service which have sustained the Company for nearly 77 years. They will continue to underpin S&U's further progress.

Highlights

§ Profit before tax increased by 34% to £23.2m (2014: £17.3m)

§ Earnings per share of 156.0p (2014: 113.2p)

§ Final dividend of 30p (2014: 24p) A total for the year of 66p per share (2014: 54p)

§ Group gearing of 65.8% (2014: 46.6%) - £30m of additional longer term borrowing facilities arranged during the year

Financial Review

Whilst Advantage Finance, our Motor Finance subsidiary has produced yet another record performance, this year has also seen sterling outcomes at our Home Credit operations, trading as Loansathome4U. Both divisions have benefitted from rising consumer confidence and, latterly, a perceptible increase in disposable real incomes.

Advantage Finance produced a record profit before tax of £16.7m (2014: £11.5m), a remarkable 46% increase and over double the profits of just two years ago. This partly reflects a 48% increase in advances and, more importantly, a 40% increase in collections. These reached on average £4.7m a month against just £3.3m per month in 2013/14. As a result, debt quality is at its highest level ever. 

Our Home Credit division grasped opportunities for expansion by posting profits of £6.5m (2014: £5.8m) an 11% increase. Profits increased in both our North and South businesses and robust debt quality was evidenced by customer collections rising by 12% on net receivables up 2%. Customer household numbers rose by just over 7% throughout the year accompanied by a similar increase in our representative force.

Advantage Finance

Highlights:

§ Record profit before tax at £16.7m (2014: £11.5m) an increase of 46%

§ New loan transactions up by 41% (2014: an increase of 38%)

§ Net receivables at a record £106m (2014: £73m)

§ Record debt quality and collections

§ Live customer numbers now 25,000 (2014: 18,000)

Advantage Finance, our Grimsby based motor finance provider has produced its 15th successive set of record results. Profit before tax at £16.7m (2014: 11.5m) marked a rise of 46%. Although the returns available in a healthy market of some 7.4m annual used car sales have attracted (as we anticipated last year) increased competition, Advantage has increased transaction numbers by 41% and net receivables by 46%.

It has continued to introduce new, more flexible, products which have been very well received by Introducer Partners. Advantage's under-writing expertise enables them to responsibly match products to customers' needs which are, in turn, reflected in very high quality collections. These underpin Advantages' future earnings and provide a solid and sustainable platform for further growth. I congratulate all at Advantage for yet another fine performance. 

Loansathome4U

Highlights:

§ Profit before tax £6.5m (2014: £5.8m) an increase of 11%

§ Customer household numbers increased by 7%

§ New branches opened in Bridgend, Greenock and Liverpool. Coatbridge in Glasgow planned early this year

§ Debt quality improves further as customer collections rise by 12%

§ Representative and customer acquisition from industry consolidation.

Our Home Credit division, Loansathome4U, grew in both profitability and size. Profits before tax were £6.5m (2014: £5.8m) an increase of 11% whilst customer household numbers grew by 7%. Customer collections reflect both our responsible and customer friendly lending policies and rose by 12% against net receivables 2% higher. 

As customer numbers increased throughout the year, the stability of our business reflects both the rigour and consistency of our under-writing. We have been able to benefit from a consolidation within the Home Credit industry - a trend which has continued at the prospect of Financial Conduct Authority ("FCA") authorisation this year. The Home Credit division has also been able to benefit from re-organisation and mergers affecting three of our largest competitors. We continue to explore opportunities for attracting representatives and for business acquisition where they responsibly arise.

Dividends

As the owners of the Company, shareholders are entitled to see the success of the business responsibly reflected in both capital value and dividend yield. The current results and prospects of the Group prompt the Board to recommend a final dividend this year of 30p per ordinary share (2014: 24p). This will be paid on the 10th July 2015 to ordinary shareholders on the share register at the 19th June 2014. This dividend is, as always, subject to approval by shareholders at S&U's AGM on the 21st May 2015.

This final dividend means that total dividends for this year will be 66p (2014: 54p) per ordinary share, an increase of 22%. Dividend cover will nevertheless increase to 2.36 (2014: 2.10).

Corporate Governance, Regulation and Board Composition

The consumer finance industry faces changes in the way and in the scope, in which it is regulated. April 1st last year saw the emergence of the Financial Conduct Authority as the Regulator of both our Home Credit and Motor Finance divisions. Well-resourced and proactive, the FCA has already embarked upon thematic reviews of the consumer credit sector, including of home credit, to which S&U was pleased to contribute. This provided us with valuable feedback for the full authorisation process which begins in April this year. The FCA has also investigated the high cost short term lending sector, including pay-day lending from which home credit was sensibly and properly excluded.

Throughout our long history S&U has always prided itself on the quality of service and fair dealing it has provided its customers. It is particularly so in Home Credit, where the relationship between representative and customer is pivotal to treating customers fairly as well as to our sustainable commercial success.

None the less, the new FCA regime requires us to prove and document procedures and policies in a rigorous and more formal way. The FCA's detailed standards for conduct for the Consumer Credit Industry include Principals for Business, Senior Management Systems and Controls (SYSC), Requirements for Complaints Handling and Statements of Principle on the Code of Practice for Approved Persons. The FCA has issued significant guidance over the past year, most recently on Consumer Vulnerability just two months ago. They have also issued substantial statements on the Detailed Rules for Consumer Credit, on Risk Outlook and on Financial Incentives.

This is intended to give a large, varied and very diverse industry guidance on matters such as sales processes, product design, customer complaints and treating customers fairly, remuneration and incentives, skill requirements and much more. There are 50,000 firms which will be required to demonstrate compliance with this in detailed applications for full authorisation.

S&U has invested both in advice from specialist regulatory advisers, from specialist lawyers and from trade associations such as the Consumer Credit Association (CCA) and Finance Leasing Association (FLA). Our new Three Lines of Defence Risk Model will now formalise the way in which we do business. All of this has required new and permanent oversight committees, the appointment of compliance and customer care managers and a total review and training programme around our policies and procedures. 

As my lengthy experience on the Executive of the Consumer Credit Association confirms, much activity has resulted from some uncertainty as to how the authorisation process will work in practice. As the maker, interpreter and enforcer of its Consumer Credit Source (CONC) Rules, the FCA has undertaken to regulate in a "proportionate" way. To do otherwise would result in uncertainty, injustice, lack of investment and ultimately in the possible contraction of a consumer credit industry which, for many decades has been a valued source of consumer choice and an engine for economic growth.

Our preparations for the new regime have happily encompassed the recent appointment to the S&U Board of Graham Pedersen, formerly of the Prudential Regulation Authority, and a man of great experience in regulating the Banking, Motor Finance and Home Credit industries. Graham has agreed to Chair our new Compliance Committee and will also guide us on matters of Corporate Governance more widely.

The performance of our Board both reflects and influences that of the Company generally. S&U has long benefitted from the identity of interest and purpose of significant shareholders who are also directors. This is perceived as re-enforcing S&U's traditional approach towards responsible and sustainable growth. In this regard, last year saw the sad passing of Derek Coombs, my Uncle and predecessor as S&U Chairman. Much has been written of Derek's remarkable and varied life but, on behalf of the Board and all at S&U, I pay tribute to his dynamic and hugely beneficial contribution to the Group and to his considerable and wise counsel to us all.

Treasury and Funding

Additional term loan facilities of £30.0m were arranged in the year and we maintain excellent relationships with our funding partners - the Group has sufficient headroom to finance anticipated growth this year. Bank facilities of £70m have been confirmed through to 2018; Group borrowings at year end were £53.6m and gearing is well within budgeted levels at 66% (2014: 47%). The cash generative quality of both Home Credit and Motor Finance resides in the Group's robust debt quality.

For the longer term, S&U has invested considerable resource and expertise in its Deposit Taking Application to the Prudential Regulatory Authority (PRA) and the FCA. The decision on a formal application is now expected in H1 2015 and, if a licence is applied for and granted, we anticipate that deposits will be taken from the beginning of 2016.

Current Trading and Outlook:

Although the new Regulatory Regime, signs of emerging competition and of course the forthcoming General Election create the usual uncertainties, our expertise, the commitment of our people and the loyalty of our customers and introducers give us great confidence for the future. As the great South African golfer Gary Player once opined "the harder I practice, the luckier I get." It is the dedication and hard work of all at S&U, our entrepreneurial spirit and our service to every one of our customers which has sustained S&U for the past 77 years - and which will continue to do so.

Anthony Coombs

Chairman

23 March 2015

CONSOLIDATED INCOME STATEMENT

Year ended 31 January 2015

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 2015

STATEMENT OF CHANGES IN EQUITY

Year ended 31 January 2015

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 January 2015

There are no cash and cash equivalent balances which are not available for use by the Group (2014: £nil).

1. SHAREHOLDER INFORMATION

1.1 Preliminary Announcement

The figures shown for the year ended 31 January 2015 are not statutory accounts within the meaning of section 435 of the Companies Act 2006. The statutory accounts for the year ended 31 January 2015 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 2014 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 12 noon on 21 May 2015 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 30p per Ordinary Share is proposed, payable on 10 July 2015 with a record date of 19 June 2015.

1.4 Annual Report

The 2015 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 2015 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 £474,000 (2014: £473,000) and for motor finance was £129,000 (2014: £104,000).Fixed asset additions for consumer credit were £529,000 (2014: £604,000) and for motor finance were £601,000 (2014: £217,000).

The net finance credit for consumer credit was £527,000 (2014: £459,000) and for motor finance was a cost of £2,207,000 (2014: £1,186,000).The tax charge for consumer credit was £1,270,000 (2014: £1,385,000) and for motor finance was £3,444,000 (2014: £2,570,000).

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 £18,460,000 (2014: £13,332,000).

The number of shares used in the basic eps calculation is the average number of shares in issue during the year of 11,834,570 (2014: 11,777,093). There are a total of 240,335 dilutive share options in issue (2014: 283,835). The number of shares used in the diluted eps calculation is 11,967,224 (2014: 11,898,890).

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 (2014: £nil). 

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