Preliminary Results for Year Ended 31 January 2016

                                                                                                                                                                                             22 March 2016

S&U PLC

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

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JANUARY 2016

S&U, the motor finance and specialist lender, today announces its preliminary results for the year ended 31 January 2016:

Key Financials:

·      Profit before taxation from continuing operations up 32% at £19.5m (2015: £14.8m)

·      Earnings per share from continuing operations up 33% at 133.6p (2015: 100.1p)

·      Revenues up 25% at £45.2m (2015: £36.1m)

·      Additional profit on August 2015 disposal of home credit division of £50.1m

·      Proposed final dividend of 33p (2015: 30p); total dividend in respect of the year increased to 76p (2015: 66p)

·      Exceptional dividend of 125p per share also paid in November 2015 from proceeds of disposal

·      Strong balance sheet:

o  Net assets increased by 57% to £128.3m (2015: £81.5m)

o  Net borrowings reduced to £11.9m with £40m committed facility headroom

Motor Finance Operational Highlights:

·      16^th successive record pre-tax profit of £20.4m (2015: £16.7m)

·      Annual collections up 29% this year with live customers up 32% on prior year

·      Annual advances up 28% this year -  further growth planned in healthy competitive market

·      Growth of £38.7m in net receivables with continuing good trends in collection quality

·      Net receivables now at a record £145.1m (2015: £106.4m)

Anthony Coombs, Chairman of S&U plc commented:

"Although growth in the British economy has slowed and the Brexit debate might cause temporary uncertainty, the fundamentals influencing the labour market, inflation and living standards in Britain are sound. This is reflected in the robust health of the used sector of the motor market. We see very significant opportunities to maintain and even accelerate the steady and sustainable growth which has been S&U's hallmark."

A presentation for analysts will be held on 22nd March 2016 at 9.15am for 9.30am at the offices of Smithfield, 10 Aldersgate Street, London EC1A 4HJ

CHAIRMAN'S REVIEW

Following a momentous and successful year for your company, I am pleased to announce another record year in the growth, profitability and financial strength of S&U PLC.  Profit before tax from continuing operations is £19.5m, a 32% increase (2015: £14.8m.) and the disposal of our historic home credit business has also generated a one off profit of £50.1m this year.

Our continuing growth has been powered by another record year at our Advantage motor finance business, where live customer numbers are now over 32,000 and where monthly collections at £7m are almost double those of two years ago.

Recent trends indicate this momentum is being maintained.

Group net assets have increased to £128.3m (2015: £81.5m), net gearing is now only 9.3%, and financial headroom is hence at its highest ever level to fund further expansion of the business.

Highlights

·      Continuing PBT at £19.5m (2015: £14.8m)

·      Continuing Basic Earnings per share 133.6p (2015 100.1p)

·      Group net assets £128.3m (2015: £81.5m)

·      Group gearing at 9.3% (2015: 65.8%) and £40m of headroom for growth.

·      Dividends of 76p per share (2015: 66p)

·      Exceptional additional dividend of £1.25 per share paid in the year.

Financial Highlights

S&U's progress this year has once again been underpinned by a record performance from Advantage Finance, our Grimsby based motor finance business. Advantage profit before tax was up by 22% at £20.4m (2015:£16.7), whilst revenue rose from £36.1m to £45.2m in the year, or a 25% increase.

Advantage live customer numbers are now a record, at 32,600 (2015: 24,600) and new transactions grew by 27% to 15,100.  Given the total used car finance market has been estimated at growing to 1.1m transactions last year, the potential for a company with Advantage's broker network, underwriting expertise and excellent customer relations is enormous.

The result has been a loan book which has reached £145m net receivables, an increase of £39m on 2015. Crucially for future stable growth, historically high levels of debt quality have been maintained and underwriting techniques continuously refined.

In August last year we sold our founding Home Credit business, Loansathome4u, to Non Standard Finance PLC for £82.4m. The circular to shareholders issued then outlined the Board's reasons for doing so. Although the transaction was frankly transformative for the growth and prospects of S&U and Advantage in particular, it nevertheless represented a wrench in leaving an industry in which we had been engaged since 1938. We therefore wish Loansathome4U, and the loyal and committed people who work there, every success under its new owners.

Dividends

Quite properly, shareholders were able to share the fruits of the Loansathome4U sale through the payment last November of a special dividend of £1.25 per Ordinary share. This was accompanied by a first dividend of 20p per share (2015: 17p) followed by a second payment of 23p (2015:19p).

The continued progress being made by the Group and its trading prospects justify the Board in recommending a final dividend of 33p per ordinary share (2015:30p). This will be paid on the 8th July to ordinary shareholders on the share register at 17th June 2016. As usual, this payment is subject to approval by shareholders at the S&U AGM to be held on the 17th May 2016.

These dividends, both paid and recommended, will total 76p per share for the year, a 15% increase on the record 66p paid a year ago.  The inclusion this year of the profit on disposal of Loansathome4U gives good overall cover to our dividend payments and for future years we envisage that the Company is likely to return to nearer its historic average of two times cover.

Advantage Finance

Highlights:

·      16th successive record pre-tax profit of £20.4m (2015: £16.7m) a 22% increase.

·      Loan transactions at a record 15,100 up 27%.

·      Net receivables at a record £145m (2015: £106m)

·      Customer numbers reached a record 32,600 (2015: 24,600)

·      Cash collected at a record of percentage due and now approaching £7m per month

·      Lending rates improved despite some increase in competition.

Advantage Finance, our motor finance business, has produced its 16^th record set of pre-tax profits at £20.4m (2015: £16.7m).  Its first full decade saw profits rise to £4.2m in 2011.  In the following 5 years its reputation amongst introducers and customers for efficient and fair service, its expertise and refinement in under-writing credit risk responsibly and consistently, and its ability to develop new products to match an evolving car finance market, have been the foundations of Advantage's accelerated growth.

All have enabled Advantage to establish a leading position in a growing market and to maintain historically high margin business despite some increased competition over the past 3 years.  Crucially this has been reflected in both a 32% increase in customer numbers over the year (matched by a 36% increase in receivables) and in excellent collections both in absolute terms and also as a percentage of monies due.

Advantage continues to go from strength to strength.  Its sustainable growth is based upon a relentless quest for improvement throughout the business and I again congratulate everybody working there on a fine performance.

Funding and Development Review

The sale of our Home Credit business has seen Group Gearing fall to 9.3% (2015: 65.8%) despite the investment of a further £27m into Advantage Finance last year.  The Group has £18m in deposits and it still maintains £70m of term facilities with its banking partners, the earliest of which matures in 2018.

The current and foreseeable interest rate environment remains benign whilst, notwithstanding possible temporary distractions caused by the Brexit debate, the political climate in the UK seems more stable than a year ago.  In addition, as the size of our business and loan books grow, avenues of potential financing widen. 

Using the Group's resources, experience and expertise in related fields of finance we continue to explore acquisitions and new ventures.  We have strengthened our team in order to do this and are focussing on specialist credit related areas including motor, short-term and high margin finance businesses which are in tune with the Group's history and strategic objectives.

Regulation, Risk and Governance

2015 saw the welcome election of a majority Government; consequent changes in the hierarchy of the Financial Conduct Authority, our industry's regulator, augur a rigorous and challenging, but more proportionate regime.  In any event, Advantage Finance has long enjoyed, directly and through the Finance and Leasing Association, a good working relationship with the Regulator and we expect this to be confirmed when our recent application for renewed authorisation is processed in the coming months.

The past year has seen us reinforce the Three Lines of Defence approach for our growing motor finance business with the appointment of RSM as Group Internal Auditors who liaise with Deloitte, our statutory auditors. Audit arrangements and arrangements with specialist legal advisers are supervised by the Group Audit Committee, in order to minimise and mitigate the commercial, regulatory and legal risks all finance companies face.

A hallmark of S&U plc, and one which is increasingly rare but happily recognised by many in the investing community, is the identity of interest and long term commercial view resulting from the significant shareholdings of management and their families.  Just as last year I paid tribute to the contribution made to the Group by Derek Coombs, my late Uncle and former Chairman, so I am delighted now to welcome Jack Coombs, his son and a recently qualified alumnus of PwC, who specialises in company valuations.  Jack reports to Ed Ahrens, our Group Strategic Development Director.

Whilst our shareholding structure reinforces the Company's careful and measured approach to growth, we have responsibilities to all Shareholders and to our obligations under the Code of Corporate Governance.  To this end, I am delighted to welcome Tarek Khlat a Banker, FCA Approved Person and Wealth Manager of great experience and ability to our Board. Mr. Khlat's appointment will see Non-Executive Directors outnumber Board Executives for the first time in S&U's history and will further strengthen our Board's already rigorous oversight of the Group's activities.

Current Trading and Outlook

Although growth in the British economy has slowed and the Brexit debate might cause temporary uncertainty, the fundamentals influencing the labour market, inflation and living standards in Britain are sound.  This is reflected in the robust health of the used sector of the motor market.

We therefore see very significant opportunities to maintain and even accelerate the "steady sustainable growth" which has been S&U's hallmark.  Taking "advantage" of these opportunities is made possible by the experience and dedication to our customers of everyone who works for us.  We live in exciting and fruitful times. Long may they continue.

Anthony Coombs

Chairman

22 March 2016

CONSOLIDATED INCOME STATEMENT

Year ended 31 January 2016

(1)   restated to reflect the disposal of home credit which is now included above as discontinued operations

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Items above will not be reclassified subsequently to the Income Statement

CONSOLIDATED BALANCE SHEET
31 January 2016

STATEMENT OF CHANGES IN EQUITY

Year ended 31 January 2016

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 January 2016

There are no cash and cash equivalent balances which are not available for use by the Group (2015: £nil).

1.       SHAREHOLDER INFORMATION

1.1 Preliminary Announcement

The figures shown for the year ended 31 January 2016 are not statutory accounts within the meaning of section 435 of the Companies Act 2006. The statutory accounts for the year ended 31 January 2016 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 2015 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 17 May 2016 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 33p per Ordinary Share is proposed, payable on 8 July 2016 with a record date of 17 June 2015.

1.4 Annual Report

The 2016 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, 6 The Quadrangle, Cranmore Avenue, Solihull B90 4LE.

1.5 Disclosure of Home State

As required by the Disclosure and Transparency rules the Company announces that its Home State is the United Kingdom.

This announcement is made in accordance with the requirements of DTR 6.4.2.

2.       KEY ACCOUNTING POLICIES

The 2016 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.

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 from continuing operations are stated below:

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

Depreciation of assets for motor finance was £179,000 (2015: £129,000) and for central was £30,000 (2015: £34,000). Depreciation for discontinued home credit operations was £425,000 (2015: £440,000). Fixed asset additions for motor finance were £422,000 (2015: £601,000) and for central were £55,000 (2015: £nil). Fixed asset additions for discontinued home credit operations were £392,000 (2015: £529,000).

The net finance credit for central costs was £1,461,000 (2015: £527,000) and for motor finance was a cost of £3,243,000 (2015: £2,207,000). The tax credit for central costs was £497,000 (2015: £524,000) and for motor finance was a tax charge of £4,080,000 (2014: £3,444,000). The tax charge for discontinued home credit operations was £932,000 (2015: £1,794,000).

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 central costs net of central finance income.

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

4.       COST OF SALES

5.       FINANCE COSTS (NET)

6.     PROFIT FOR THE PERIOD FROM DISCONTINUED OPERATIONS

On 31 July 2015 all of the Loansathome4u home credit business was transferred to the subsidiary company SD Taylor Limited and that company was then sold. The disposal gives the Group an opportunity for further and faster expansion in Advantage motor finance business as well as an opportunity to explore other higher growth areas of specialist finance. The disposal was completed on 4 August 2015.

The results of the discontinued operations, which have been included in the consolidated income statement, were as follows;

As shown above a profit of £50.1m arose on the disposal being the difference between the disposal proceeds of £82.4m and the carrying value of the disposed home credit assets less transaction costs.

The net assets at the date of disposal of Loansathome4u were as follows;                                                     £000

During the six months up to the date of disposal Loansathome4u contributed £7.8m to the group's operating cash flows (year to 31.1.15 £6.8m).          

7.        EARNINGS PER ORDINARY SHARE

The calculation of earnings per ordinary share from continuing operations is based on profit after tax of £15,886,000 (2015: £11,845,000). The calculation of earnings per ordinary share from continuing and discontinued operations is based on profit after tax of £69,185,000 (2015: £18,460,000).

The number of shares used in the basic eps calculation is the average number of shares in issue during the year of 11,888,591 (2015: 11,834,570).  There are a total of 208,885 dilutive share options in issue (2015: 240,335). The number of shares used in the diluted eps calculation is 12,000,152 (2015: 11,967,224).

8.         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 (2015: £nil). 

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

Operating profit includes profit before tax on discontinued operations - note 6