Good afternoon, and welcome to the S&U plc Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time using the Q&A tab situated in the right-hand corner of your screen. Just click Q&A, scroll to the bottom, type your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Anthony Coombs, Chairman. Good afternoon, sir.
Yeah, good afternoon, and good afternoon to everybody on the call. It's nice to be speaking to you, and we're very grateful for the opportunity that Investor Meet gives us both to reach out to new shareholders and also to inform existing ones. Can I just move to the second slide? That is today's speakers. Obviously it's myself, I'm the chairman. My brother, who's deputy chairman, Chris Redford, Group Finance Director, and Graham Wheeler, Chief Executive of Advantage Finance, our motor finance subsidiary, and Ed Ahrens, who is the Chief Executive of Aspen Bridging, the property finance subsidiary we started in 2017. Next slide, please.
I think what I'd like to say is one or two words about the company, which was founded in 1938 by my brother and I's grandfather, as a home credit company. It's evolved since then. We've moved away from home credit, and we're now in motor finance, mainly for used vehicles, and we finance about 65,000 vehicles at the present time, about 23,000-24,000 a year. We're also in now, as I said, the property bridging business through Aspen, which finances really investors and refurbishers and developers of relatively small scale residential property. We lend up to about GBP 5 million per deal on that. It's a nice balance between the two different sides of the business.
I can tell you that despite the rather pessimistic and gloomy outlook that you read about in the newspapers and that you hear on the television, business at S&U is good, robust, steady and sustainable. That's how we've always tried to run the company. We're a conservative bunch, but we also temper that with a sensible amount of ambition. You can see that from the slide, not the next one, the highlighted one, but the five-year record. I think I'd like to bring that up if you could, please. Not the next slide, but the slide after that. That's it, f ive-year record, which indicates that we do like steady, sustainable growth despite the dip in January 2021, as a result of the pandemic.
We stormed back after that, at GBP 47 million, where we were able to add back a few of the provisions that we wrote off in January 2021. This year has started at GBP 20.9 million, which on an annualized basis would see us over GBP 40 million, which I think is a very good reflection against the GBP 34-GBP 35 million that we were achieving just before the pandemic. That is, I think, a steady increase in profits. When you consider that our profitability back in the 2000s was about GBP 5-GBP 7 million a year, I think that we've actually made great strides over the past 15 years and want to continue to do so.
Just talking about the existing results for the half year. Could you go back a page? There we go. Yes. That's for the six months ending 31 July. I mean, group profit is up GBP 1 million about 5% as we've recovered from the pandemic. Earnings per share 140p, and which allows us to pay a dividend. We like our dividends to be twice covered of 35p. On an annualized basis, that will be twice covered. The balance sheet is extremely strong. Our gearing has never really been above 100%, which is very low for a finance company. That's the way we like it.
It protects us from adverse interest rate movements, but at the same time gives us the opportunity to invest in the business as we actually have been doing this year to the tune of about GBP 40.8 million, because we believe in the quality of our receivables and the future profitability of the group. Very good trading in terms of Advantage, very good trading in terms of Aspen, but most important of all, the quality of their collections is extremely high. You know, any lending business depends not on what you lend, but how you collect it. We think that on both counts the Advantage and Aspen performance is extremely good, as will be explained by people who are far more knowledgeable than I in the next few slides.
For that, can I go to Chris Redford for the group financials, which in two slides time. Chris, over to you.
Thank you, Anthony. I think people more knowledgeable must be following after me, so I'll do my best in the meantime. On the income statement, just to say what's driving those profit figures that Anthony mentioned. We've had some good book debt growth, revenue up 15%, you can see at the top of the income statement on page five. Also good impairment, as Anthony mentioned, a key driver of that is the very good collections, particularly in our main business Advantage. They've had very good collections and also low bad debt attrition during the 6 months, and that's helped that figure. Falling to the bottom line, you can see the profit before tax was up by 5% during the period with growth in both of our operating businesses, which is good.
Good results therefore on profit and a dividend of 35p against 33p at this time last year, which we hope goes down well with investors. If we could turn to the next slide, please. It's a nice simple balance sheet in this company. Basically, you've got book debt, you've got reserves, and you've got borrowings. Not too much for the finance director to do on that. In terms of the main highlight in this half year, it's really been the growth in book debt in both of our operating businesses, which we're very pleased with. If we could move to page seven. In terms of the borrowings, what we try and show you on this slide is, well, where has all the cash gone?
You can see therefore the opening balance in each of our operating companies in both years, moving to the closing balance and what's caused those movements. In general, you can see that we've had healthy advances in Advantage, well up on last year and very good collection figures too. Then moving down through overheads and corporation tax and dividend. Then on Aspen, I just need to mention one thing on Aspen that moved from GBP 58.9 million in the half year to GBP 84.0 million borrowings. Very good advances again and very good collections. Last year's figures in July 2021, some of you who follow the company may remember, were affected by CBILS.
We did quite a lot of CBILS lending last year, that Aspen did very well, but there were a lot of early repayments, so they beefed up both the advances and the collections figures in July 2021 for Aspen last year. Moving on to the next slide, please. On treasury and funding, I think Anthony mentioned we've with one of our banking partners, we've added another GBP 30 million revolving credit facilities, which means that we're now at GBP 210 million worth of total committed funding facilities, against the previous GBP 180 million, and that gives us a bit more flexibility for growth. You can also see, I've tried to bring out on this slide, we've got some good maturities, nothing too close, so a healthy position there.
Gearing's at 73%, you know, still well within our appetite for gearing. He just mentions the group cash outflow again in the bottom point, including the payment of GBP 11.3 million worth of dividends during the first half year. We only have one dividend in the second half year, cash flow tends to be easier from that point of view in the second half year. I'm gonna finish, and I'm gonna hand over to Graham Wheeler, who's gonna tell you more about Advantage's performance during the first half operationally.
Thanks, Chris. I've got a few slides just to help focus on the key issues as far as Advantage Finance are concerned. The first chart shows our sales performance, and I've purposely shown quite a long period in there because it allows people to compare February last year versus February this year, et cetera, et cetera. The thing I just wanted to point out on this six bars on the right-hand side of that chart is continued growth other than April. Slight dip in April, just basically because of lack of supply in the marketplace. That came back quite strongly in the second quarter of the half year.
I guess, two main things to take out of that slide. Firstly, we're seeing continued growth and 105% of our budget, and significantly higher than last year's performance. The other thing is that the tier mix is very consistent. Now, the important part of that is we classify the risk of our customers across those different tiers. Tier E is the higher risk customers, Tier A + and A are the lower risk customers. By applying that risk rating, we apply different interest rates to each one of those different customers, which allows us to kind of flex the margin of our business, as we continue to lend.
The story from that chart is growth in terms of cases, but also a well-managed tier mix, which allows us to manage the future profitability and bad debts within our business. That's what that chart explains. Next chart, please. A little bit of background to some of the developments that have taken place that have maybe driven some of those figures. Last six months ago, we laid out some of our development plans for the coming year. We're making some fantastic progress from that point of view. We've reengineered our API to create a kinda multichannel offer. We've introduced a new scorecard back in July.
We've integrated them with one of the major black box providers, which is basically a decisioning system for credit that points the customer to the right lender as opposed to the other way around, and we've integrated with that. We've integrated our scorecard with a couple of our key brokers. That's helped to drive some of the volume that you've seen in the previous slide. We're still working on some other things, so the bits we're working on now is an integration into another decisioning system, HD Decisions, which is part of the Experian Group. Which will allow us to expand our business into the kind of aggregator websites like the comparethemarket.com and ClearScore.com and people like that.
We've made some big improvements in terms of our customer renewal activities and shown some very early positive signs of increasing levels of customer renewal. We are in the process of redesigning the whole Advantage website based on the levels of communication required as set out under the FCA's Consumer Duty, which I'll come back to in just a couple of minutes. Generally speaking, a huge amount of progress from a sales and marketing perspective that have helped support some of those sales numbers that you've seen in the previous slide. The other part of the business Anthony touched upon is the collection side. If you move on to the next slide, I'll just show you where we are from a collections perspective. You went too far. That's thank you very much.
What this slide shows is our live cash collection performance, both in terms of pounds and in terms of percentage. In a non-prime finance lending company, to be achieving 94%, 95%, 96% live cash collection is exceptional at any time. In the middle of a so-called cost of living crisis, as the media has gone into a frenzy in terms of reporting, that pushes that into an even more incredible situation. We've seen our live collection performance better than they've ever had. Our bad debts and voluntary terminations are only at 93.8% of last year. Our average loss per bad debt is much better than last year's performance.
All those things are driving a very, very strong financial performance for the business as we are collecting very high levels of cash. The obvious question is, how do we do that in the current environment? The next slide will maybe begin to explain that in a bit more detail, if you wouldn't mind clicking onto the next page. We are constantly assessing what's happening with all the data that's available to us in the marketplace. There's just a few of the pieces of information we get through the FLA. In terms of cost of living, at the front end, we've adjusted our affordability calculator in line with some of the inflationary issues that are quite obvious to everybody. We've then obviously introduced a new updated scorecard.
We've made some amendments in terms of lending values on the values of cars, just to protect ourselves in the longer term. The biggest impact from a collections perspective is how we're looking after our existing customers. We're, you know, constantly signposting customers to their advice support, providing enhanced flexibility for customers to keep them in their cars and keep them paying, even maybe not sometimes the full contractual monthly payment, but as long as we're keep them in the habit of paying, then it makes a big difference to the overall financial results. We've got specialist teams in place for vulnerable customers of all types. Really what this slide is all about is the culture of the business.
It's the human touch that we provide to customers in the most difficult times, which keeps the money rolling in and the levels of support and the levels of customer support at its highest. That's when you make the biggest differences, particularly in our marketplace. Very focused individual support to the customers delivers great results, and that's what our business is all about. Hopefully, the previous slide in terms of collections from that perspective, you've seen that level of result. If you don't mind moving on to the next, my last slide, which is the regulatory slide, which is a bit of an update on what's happening from the FCA. There's a big focus from them in terms of cost of living.
Obviously, I've explained where we are with that. There are two other issues floating about just now that the market, the FCA have got market concerns on. One is on something called commission disclosure, where the existence of full disclosure on commissions in terms of the amount paid has been a bit of an issue more recently. Where there seems to be a bit of a risk for some lenders is where the amount or the commission is discretionary. The dealer or the broker decides on the commission based on the terms set out by the finance company. That's not the situation at Advantage Finance today.
We've operated a fixed commission arrangement with our brokers and dealers for 23 years, which means that the risk of any issues regarding commission disclosure are much more limited for Advantage compared to some other people in the marketplace. From that perspective, I think we're in a great place. The last bit is the FCA have introduced their new Consumer Duty guidance in July with a 12-month implementation period. That's an upgrade to the FCA's rule book. It raises the standards for lenders to make sure that we all ensure good customer outcomes. We've now completed our gap analysis of where we are versus where we need to be by July of next year.
We're in a fantastic place in that the culture of our business is all about delivering good customer outcomes and delivering individual customer service. We've got a few issues that we need to work on in terms of some of the MI we've got and some of our evidence gathering. Then lastly, some of the customer communications. I think we'll spend a bit of time between now and July upgrading and introducing some new types of customer communication, which will make sure that by July next year, we'll be in a great place from a Consumer Duty point of view as we are with many other parts of our business. I think that's probably enough from me just now. I'm gonna hand back to Chris.
Thanks, Graham. That was really good background for you on the excellent first half results that Advantage have achieved. Thanks to Graham for explaining all that. The next three slides are more detailed book debt slides for the Advantage book. On the first of these slides that we're looking at now, you can see details of the number of loans we've done in the last four years and also the half year we've just had, and you can see some good growth there to 11,800.
On the profile of loans, you can see that the average advance has gone up again in terms of both the tier mix and also the higher average value of cars that's about it at the moment. Lastly, on the interest rate and on the average customer score, you can see the return to the normal tier mix that we were doing pre-pandemic. The two asterisk figures, 9.08% and 9.2% in January 2021 and January 2022 relate to when we pretty much withdrew from the Tier E product, which is the higher risk end of the spectrum during the pandemic. We're back in the traditional market now, and we're happy to be there. If I could move to the next slide, please. There's another standard slide that regular investors and attendees will know that we show.
What this very busy slide attempts to show is the correlation there is between how customers make their first payment and also the end outcome in terms of the number that go to bad debt after five years. The blue line is the way customers make their first repayment, and the red line is the end outcome after five years. The red line you can see is dotted since 2017. The reason it's dotted is obviously the end outcome hasn't happened yet. That dotted red line is a prediction. It is a really good chart for the parent company and other investors to look at, well, what are the early warning signals like in this business? How can we tell if the business underwriting is going well or if it's going badly?
Only one of the metrics we looked at, but it's a good one, is the first repayment quality. You can see on this chart that during the pandemic when we stayed out of tier E, the blue line was up at 99% even in some periods. We've slipped back down now to 96%-97%, but we're still quite happy. You can see that accords with where we were in the pre-pandemic era, and it still results in end outcomes of sort of 15%-20% bad debts, which is where we were pre-pandemic and represents the business mix we're doing now. If we could go to slide 17, please. This shows you the health of the book.
What we're doing on this slide is comparing the original contract arrears status of customers now at the end of the half year, at the end of July, which is the left-hand four columns, and also at the end of January as a comparator. You can see that the number of up-to-date accounts has increased from 42,600 up to 44,900. That seems to me a good measure of quality. The total live accounts has gone up from 62,000 up to 63,000. There's other statuses within there that you can look at, but all in all, it's a healthy picture and totally consistent with the picture on collections, which Graham showed in his slides earlier. After that, I will now hand over to the CEO of Aspen Bridging, Ed, who's gonna tell you a bit more about Aspen Bridging's good performance in the first half year.
Thanks, Chris, and good afternoon to all. Strong results for Aspen Bridging in the first half of 2022, really continuing success that we had throughout 2021. Record PBT at the half year of GBP 2 million, building our net receivables to GBP 90.2 million on the back of issuing 73 new loan facilities during the half year. Recent bridging market trends are showing bridging loan market prices increasing and some of the early repayments of loans starting to slow as the Bank of England increases take effect. However, the book quality has remained very robust, with only six loans on the book in a default state, all of which look to be settling within Q3.
We recently won an award for our new Bridge To Let product, Product of the Year with the Bridging & Commercial Awards, and that product is progressing well. Overall, our view is that we're cautiously positive. Market movements that are happening at the moment give us a good opportunity to maintain quality, improve margin, and slightly lower loan-to-values, as a future picture. If you'd like to turn to the next slide. Thank you. Just looking at the key trends in the business over the last few years, you can see the number of new loans on the top line, 73 for the first six months of this year. Average gross advances have increased to GBP 873. That's really a combination reflecting better underwriting overall and quality of borrower, as well as market trends. We're in control of our cost of sales.
You can see that steadily at 1.6% of gross advance and steady on the LTV. In terms of the blended yields, that's really a reflection that the market has been competitive over the last few years. We think there's an opportunity to shape that and improve that in the short term, short to medium term. Average terms have remained steady at 11 months, and you can see that our improving trend on the collection side, settlements beyond contract term are continuing to improve, and we see that as we speak. Really overall, we remain very pleased with the very good quality of our borrowers. That's it from me. I'll now hand you back over to Anthony.
Thank you. Sorry, I'm just getting back to the meeting. Thank you, Ed. Can you hear me?
Yes.
Yes, we can hear you, sir. We just can't.
Good.
We just can't see you at the moment. Your camera, I don't know if your camera's covered or blocked, but we can hear you.
Let me just get it back on. Yeah, here we are.
You can see me now, presumably?
We can't see you at present, sir.
Sorry. Okay. Well, anyway, let me just continue by saying that I hope that gives investors and potential investors an idea that here we are, a very dynamic, ambitious, but at the same time, conservatively managed company, which is very well-placed indeed to take advantage of any opportunities that come along as a result of the current economic circumstances and is very well-placed in terms of the stability of its position for the future. I would just point out that we've just had our own brokers marketing communication on these half-year results, and they quite sensibly say that they retain their buy recommendation. They see significant upside to their target price of GBP 33.
When we consider that we're just over GBP 20 at the moment, I think that gives an indication of the potential attractiveness of the shares. Irrespective of the capital position on the shares, which I think is got huge potential, they also mention the dividend yield, which has been very steady and sustainable at 7%, which I think is also attractive, or hopefully will be to IMC investors. If I can just find the IMC account again, then we can start taking questions. I've got a note of the questions anyway. Paul B asked about margins and protecting margins. Could we go to Chris to answer Paul B's question?
Yeah. Thanks for the question. I think it was submitted before the meeting. In terms of interest rate rises, clearly they're a hot topic at the minute. Yes, we are looking to pass on interest rate rises, particularly within our short-term business Aspen Bridging. You know, I think there's a market opportunity there where we can maintain quality and enhance margin and also keep a good eye on loan-to-value as well. We think the market will move in our favor there, and we can pass on rate increases. Within Advantage, it's more difficult. It's a 4- 5 year business, so we're committed there. The original healthy margins are very healthy.
Within that original margin, we're also operating a lot of forbearance, as Graham said, and collecting very well as well. It's a less important part of the model within Advantage. I think the other thing to say is we're helped versus some of our competitors by our low gearing, so we're not so exposed to interest rate increases as others.
Good. Thank you, Chris. The next question from Paul B was when are you going to retire? I don't know whether that was an invitation or a request for information. But the answer is that we're in very good fettle. We are in good form. We don't see that as necessary. You don't retire in your fifties. Actually, I'm joking. We're slightly more than that, but nevertheless, we're in good form. When we do retire, we have our eyes on a very, very good cohort of potential successors, some of whom are involved in the business, some of who may be in the future. Nevertheless, we feel that continuity in terms of control can be assured.
The next question, also from Paul B, is on the price of debt, and what the fixed and what the term. Chris, do you wanna go for that one?
Yeah. Thank you, Anthony. Historically, you can tell from our accounts we paid about 3%-4% on cost of funding. Currently, we're up at 5% after the recent increases. Just to give you some guidance, obviously, on GBP 150 million worth of average funding, a 1% increase would cost us another GBP 1.5 million on that line in the account. Not great news in terms of in the short term, but as I mentioned in the other answer, we can start to pass that on in terms of the way the businesses operate, particularly within the short-term business, Aspen. You know, in terms of the overall business model, because of our low gearing and because of the healthy margins anyway, it's not life-threatening.
Good. Thank you, Chris. Next question was on the 36.5% preference shares, and whether we plan to get rid of them. Look, they've been with us for a long time. They don't cause any problems. Certain of our shareholders like them. If you're gonna ask me where I'd prefer to put the capital, either into redeeming those dividends or into the trading activities of the company, then there would be a very simple answer, which would be the latter, the trading activities of the company. I think the answer is, if you're a preference shareholder, you're gonna be a preference shareholder for a while yet.
Now, Bill H asked about Advantage Finance's key brokers, and particularly the trend towards a wider spread of key brokers over the past few years. Graham Wheeler, would you like to say something about that?
Yeah. Of course, yeah. Thanks, Anthony. Yeah, the main I guess the three biggest brokers we operate with are the same for most people in our marketplace, which would be Zuto, Car Finance 247, and Evolution Funding. We don't deal with one-man bands because there's a level of oversight and regulation we just need to put in place for our brokers to make sure that they're representing us and other lenders to their customers properly. We deal with established brokers, and we assess both the quality of broker before we start dealing with them, and we assess them on a regular basis to make sure that they're following the regulation properly. That's where we are with them.
The top three brokers, the share of top three brokers has dropped from 44% to 34% over the last two years. I have to say that was entirely planned because my feeling when I took over as CEO was that we were overly reliant on just a few brokers in the marketplace and, you know, if the relationship falls or something goes wrong with their business, then that could have had a bigger impact on Advantage. We purposely planned to spread to increase the number of brokers and spread ourselves across a much bigger, wider broker cohort. Actually, I'm delighted to say that 44% has moved down to 34% in that particular environment.
We still want to deal with the very big brokers, but we spread our risk across lots of other people at the same time. Will their share continue to decline? Well, actually the measure of success of the business moving forward will be the diversification of our business channels and therefore, actually I think it probably will. Hope that declines a little bit further because that means we're doing a really good job in terms of building relationships with the whole market rather than just maybe two or three very, very large brokers. I kind of hope it does decline a little bit, not because of a drop in volume for the big brokers, but because we're spreading our volume from other sources of business at the same time.
Good. Thank you. Thank you, Graham. The next question was again, Bill H. What happened to your profits during the last serious recession? I suppose the last serious recession was the great financial crisis of 2009 - 2011. Do you wanna say something on that, Chris?
Yeah, happy to. Thanks, Anthony. Yeah, that actually created a good opportunity for Advantage. We were a smaller company in those days, particularly at the start of that period, 2008, 2009. Advantage built some fantastic systems, had some fantastic developing relationships with brokers. Off the back coming out of that recession, what we found was there were quite a lot more near-prime customers coming in our market because they were being turned down by banks and near-prime lenders. Advantage was able to grow significantly but in a higher quality arena. Because a lot of these people, they were only temporarily in difficulty because of some of the ebbs and flows of that GFC.
That's what happened during the last financial crisis, and if you look back at our profits, therefore our profits grew significantly after that and obviously up to near where they are today. We're reasonably confident that we can handle most aspects of the different recessions, and time will tell whether we're right on that.
Thank you, Chris. Paul, I'm gonna. I think it's Paul. I no longer have the screen in front of me.
No problem. No problem at all. We've got one final question from Matt G. If I just may read that out, Anthony, just, if you haven't got it in front of you. How are the fees that Advantage pay to their brokers moving?
Shall I take that?
Graham?
Yeah, shall I take that? Yeah. Well, they're not. We're not paying more for more business. We've got a fixed commission structure that we pay to our brokers and those arrangements have been in place for some time. The commission arrangements aren't changing. Where you get a slight change in the overall average commission is where we're moving volumes in between different brokers, 'cause they've all got maybe slightly different terms based on the size and the quality of the business they write and the volumes of business they write, et cetera. We haven't changed any of our fixed commission terms with any of our brokers.
That's fantastic. Look, that's fantastic. You've actually covered off all the questions we've had through. Of course, around further questions that come through, the company have the ability to review those. We publish responses where appropriate to do so on the Investor Meet Company platform. Anthony, if I may just ask you just for some final closing comments, before I redirect the investors to give you feedback, that'd be fantastic. Thank you.
Yeah. Thanks very much. First of all, it's been good to talk to IMC investors. Secondly, just to say that the whole point of this is not only to improve the communications but to actually encourage people to invest in the company. I think I said earlier on the reasons why I thought both for long-term reasons and the fundamental health of the business and our ability to take advantage of opportunities and to ride any storms that might be coming our way in the next year. Also for reasons of valuation in that I believe that as Peel Hunt have demonstrated and as the share price currently sadly reflects, I think that the company is insufficiently rated given the underlying performance and its prospects.
I anticipate and I'm confident that that above standard performance will be maintained and will actually increase. I'm very confident indeed about the prospects for this year and for the years thereafter. We're a company where we like to work on a family ethos. Everybody hangs together in an extremely enjoyable way. I think it's the kind of company that smaller and larger investors alike should be involved in because it's driving the growth of the British economy. With that, with those few words, thanks for attending the seminar.
Anthony, thank you very much indeed. Thank you to the full team today for your presentation. Can I please ask investors not to close the session as you'll be automatically redirected to provide your feedback in order that the team can better understand your views and expectations. This will only take a few moments to complete and is greatly valued by the company. On behalf of the management team at Investor Meet Company, we'd like to thank you for attending today's presentation. That concludes today's session, and good afternoon to you all.