To the S&U PLC Half Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. Before we begin, I would like to submit the following poll. I would now like to hand you over to Chairman Anthony Coombs. Good afternoon to you, sir.
Good afternoon, and good afternoon everybody at IMC. We very much welcome these opportunities to speak to investors, both retail investors and institutions. I am just going to go through the slides. You can see that today's speakers, if you go back one there, Harry. We have got myself, my brother Graham, who is Deputy Chairman. We have got Chris Freckelton, who is the Group Finance Director on my left. We have got Karl Werner on my right, who is the Chief Executive of Advantage Finance. On my left, we have got Ed Ahrens, who is the Chief Executive of Aspen Bridging. If we can go onto the first page of the results. We talk about our wonderful customers and staff. We are very proud of that. Our customers are the lifeblood of our business. We got 4.9 in our Trustpilot scores.
What we say about our customers and those wonderful staff who serve them is not just froth. It is backed up by research that we get from Trustpilot. Let us go on one more page. This half year, we produced some very good and solid results, with the emphasis really on future investment in our business. Which is why, with making that further GBP 40 million worth of investment in the half year, another GBP 90 million on the previous year, we are sowing for the future. The way that our business works, it basically means that our profits come about six months to a year after the initial investment. As you will see, we indicate that we are going to grow as a result of the investment we put in, and we will have a look at that in a second. If you move on.
That investment basically is evidenced by our net group receivables, which have increased by just over GBP 100 million since last year to GBP 541 million, over GBP 500 million for the first time. The quality is indicated by our group impairment charge, which has hardly risen despite that additional investment. The borrowings in order to finance it have gone up to GBP 285 million, which is showing gearing of 114%, which we do not regard as being very high for a finance company. Just looking at those profits means that we can increase our dividend to shareholders. We like to give dividends to shareholders because we, as executives of the group, are also shareholders. So we share an identity of interest.
And that's why, because we believe that the prospects for the group are very strong, we have increased the dividend from GBP 0.35 to GBP 0.36, and we anticipate that we will be able to get that replicated for our two further dividends in the year so that we can reach a significant increase on the GBP 1.15 that we paid last year. We will go into the more details about the profit of the individual companies, Advantage and Aspen, later on. But I would say that I think these are extremely good figures and that if you take out an exceptional profit that we made last year at Aspen as a result of a repayment in the half year, we are about 7% up on group profit before tax this year.
It is a bit better than the 15.6 to 15.7, which justifies the GBP 0.36 ordinary dividend that we are proposing for the first payment of this year. Okay, so next one. I am going to hand over now to Chris Freckelton, who is our Group Finance Director, and he will take you through the group financials.
Thanks, Anthony, and good afternoon everyone. Starting with the income statement, our profit before tax for the period is GBP 15.7 million against GBP 15.6 million last year. So a 1% increase. As Anthony has mentioned, the Aspen profit before tax figure last year was boosted by a large unexpected recovery, and therefore, on a like for like basis, we have observed a 7% increase in PBT year on year. Delving down into some of the key movements in the profit and loss statement. Revenue was up 11% period on period due to the higher average receivables and also some higher margin deals that we are writing for the first half in Advantage, following our rebalancing of the book to our more traditional customer base. The impairment charge was steady, as Anthony mentioned, at GBP 8.2 million, reflecting a couple of items. Obviously, Advantage repayments continued to improve.
So we were up at 92% of due versus 90% last year. That was alongside lower write-offs than we had assumed in our budget. Also improving the book quality at Aspen. The key metric we use to measure that is the number of loans that are past term at the balance sheet date, which has reduced year on year to being 17 out of 259 live loans. I guess that is all in the context of a significant increase in receivables that we have also seen in the period. Just focusing on the costs. Cost of sales have increased 32%. That is predominantly following a return in higher Advantage volumes that relates to the broker commission paid on those deals. Admin costs were well controlled and, unsurprisingly, finance costs increased around about 30%, which was alongside the growth in the borrowings.
We'll then move on to the group balance sheet. It's a relatively simple balance sheet focused on accounts receivable, borrowings, and equity. At Advantage, the net receivables have increased 22% to GBP 341.1 million, following strong lending and better repayments, meaning also lower provision requirements. At Aspen, net receivables have increased 35% following strong lending, but also to do with slower repayment patterns. Two factors for that, one of which operates in quite a challenging U.K. property market at the moment. Also we were expecting a slower repayment profile as we've moved to longer term products, as we've mentioned before. Then just focusing on borrowings, they have increased in line with the growth of the loan books and with the GBP 4.6 million of overdrafts that we have in the middle of the slide, results in net borrowings of GBP 285.1 million at the August 5th.
Then move on to the cash flow statements. This tries to break down the movements in the balance sheet positions by division, obviously on a cash basis. Overall, we've had an investment of GBP 43.3 million in the group in terms of net borrowing since the year end. As mentioned, that's reflecting strong advances in Advantage, which increased 49% from GBP 70.6 million to GBP 105 million in the table in the middle on the slide. Similar lending in Aspen, we're at GBP 102.8 million versus GBP 106.4 million last year, offset by better collections performance in Advantage and also the slower repayment profile I mentioned in Aspen, alongside GBP 9.7 million of dividend payments made in the first half as well. That has ultimately led, as Anthony mentioned, to group gearing increasing over the period, so it increased from 97% to 114% as at the August 5th.
Then just moving on to treasury and funding. Net borrowings of GBP 285 million sit comfortably within our GBP 330 million of committed facilities currently. Since the period end, Advantage has required additional funding to support growth, whereas Aspen has remained fairly neutral following a catch-up in those expected repayments. Obviously, we expect the growth observed during the period to continue alongside our mantra of strong, sustainable growth, and therefore we are in the latter stages of our securitization project. We've put an update here of essentially we've substantially concluded the legal process on two new three-year private warehouses, one for each of Advantage and Aspen, which alongside a small RCF facility, would increase our funding capacity from GBP 337 million to GBP 650 million, giving us the room to grow the business as we want, whilst also having the added benefit of reducing the overall finance cost to the group.
We hope to sign and draw down on these facilities in October. I'll now hand over to Karl to talk through Advantage.
Thanks, Chris. On the first slide, you will see some awards there. It is really good to see these peer-judged by senior managers across the industry. That means a lot, as does the recognition it gives to our entire team. We are highlighting there the best response to market conditions, which the category for that was meant to measure those that respond to difficult macros as well as all the regulatory change we have seen over the last couple of years. That is a real opportunity to give credit to our risk and our operations teams. The second one, best technology provider against 30-something other competing firms, many are the biggest names in our industry and financial services generally. That is huge kudos to our collections and IT teams.
In the world of motor finance against all others, to be named car finance provider of the year across the whole market was especially pleasing.
Could I just jump in there, Karl? Spare your blushes, but the one award that I am extremely impressed by was for motor finance chief executive of the year. In fact, it then was not just motor finance, but chief executive of the year. That was won by Karl himself, so he is too modest to say that, but very well deserved. The brilliant job he is doing.
Thank you. You said that just as we rehearsed it so perfection. If we turn to lending, thank you. We see a trend continue of sustainable, profitable growth. We illustrate for you the credit mix by risk, augmented by a huge upgrade in our credit risk capabilities and machinery in November of last year. We see month-on-month increase in lending in a difficult market from the macros, but we are getting up to 10 months into our 60-month strategy, executing it to plan to significantly grow our market share to a point to which it would represent a doubling of market share by the end of that five-year period, and we are halfway through year one of that plan. There is strong demand out there that we can grow into whilst maintaining rate and return, and we will do that.
Our right to win is based not only on our longevity and the quality of our team back in Lincolnshire, but especially our innovative plan to expand our origination channels into other areas where motor finance is originated. As you will see with the award from AI and other things I will mention on the tech front, a strong culture of innovation and fueled by the funding that Chris spoke about moments ago. If we turn to the other side of the business, the collecting side, tracking broadly in line to budget for H1. Again, some difficult macros out there, and you will see the broader trends across all motor finance, if not financial services markets that deal with that. I am especially pleased to see two things. One, that Voluntary Terminations continue to be volatile as they are in their reporting cycle, but where we expect them to be, if not slightly below.
And also the crystallized bad debt, which is not management of early arrears, but our recoveries from late arrears is tracking to be well within budget. Turning mainly then to our customers. On this slide is really just a quick summary of some of those change highlights. It really has been a half year of innovation and some significant investment in change. As it says on the front sheet, gearing for growth. Our augmentation of credit risk capabilities are ongoing. We are being very successful with scaling our AI investment. We have AI engineering expertise recruited and in-house. We have built three products and we will be releasing another fourth this side of Christmas. Not to mention the difference building out a new treasury function represents to our future growth. So a high level of satisfaction. Our growth underpinned by channels, capabilities, people, and the opportunities that exist in the market.
My final slide is just a quick regulatory touch base. We have what we need in place to manage the last elements of the Financial Conduct Authority commission issue. As you will recall from our earlier announcements, we are mainly required to administer complaints rather than remediate customers, and we are tracking well with that with a dedicated remediation team in place. We have very good, healthy, proactive, and positive engagements with our regulators. And in terms of a great measure of how we look after our customers has always been this Cost of Sales league table, and we are pleased to continue to be in the top tier. And with that, I will hand over to Chris.
Thanks, Karl. The next three slides will be familiar to most, but take a closer look at our Advantage book debt performance. During the period, we originated 10,660 deals on a slightly lower average advance of GBP 9,848, and a slightly lower customer score down at 890, which has also given us the opportunity to increase the flat interest rate per annum to 14.8% from its low last year of 13.5%. Cost of Sales have improved on last year as well, having reduced in part alongside the reduction in the average advance. If we then move on to first repayment quality. Historically, there has been a strong correlation between first payments made by customers and bad debt end outcomes after five years. The blue line and axis is first payments made, red line and axis is bad debts, and the dotted line is expected bad debts.
Following the rebalancing of our book I mentioned earlier, from Q3 2025 onwards, we have seen first payments decline from recent highs, albeit they are well within our recent history over the last 10 years. And happily, we have seen the bad debt end outcomes expected by the dotted line continue to improve, reflecting our improving collections performance, as Karl has mentioned. Then finally, just in terms of book debt performance at the August 5th versus year-end based on arrears status. For the reasons we already mentioned around collections performance, we have more of the debt in the up-to-date category at 73.1% versus 71.8% at year-end. And we also have fewer accounts in the six-plus arrears category at 4.4% versus 5.7% at year-end. And that has continued to improve post-period end as well. I will now hand over to Ed to talk you through Aspen.
Thank you, Chris. At Aspen, we continue our growth journey in what has been a subdued market so far this year. We have talked about the PBT and the comparison impact of a larger recovery last year. But we have grown the receivables to a record level of GBP 199.9 million. This is largely to do with our longer-term bridge and buy-to-let offerings. And those also come with a slightly longer, later profit profile as mentioned earlier, so we are obviously investing in there. Our lending is broadly the same as it was last year. And although our repayments have been lower, this is primarily due to the success of the longer-term products and also customers just using more of the term to the end of term before repaying. Despite all of that, our quality remains strong.
Levels of overdue numbers are similar to last year, but proportionately much lower given the larger book that we have today. And over a number of years now, we have managed to achieve an annual growth of 16%, and we believe in our ability to continue this progress in the future. Next slide, thank you. Just opening up. We have shown you this slide before, so we continue the story of how the portfolio has been developing, but I think it is important to just hover over the first perspective, which is we have had an intense focus on quality and always have done, and it is pleasing to see that we have continued with that. GBP 897 million of capital deployed with only 0.03% of capital losses, which is obviously extremely good and good for the business.
Just picking out some of the other items on that slide, a slight uptick in the average loan size where it had been coming down last year. Slightly higher on the Cost of Sales where it is a competitive market, and being a tough market, we are paying a little bit more away in terms of commission. Holding strong on the LTV and just on the blended original blended yield rates, you will see that really if you look at what has happened to that rate over the last few years, it largely follows what has happened with the base rate, which is predominantly where rates are pitched for bridging in this market. On the next line, you can see the impact of the average terms where they have been lengthening, and as discussed, what that does to help us both on growth, but obviously longer term.
I think it is worth also reflecting that thinking back over time, in 2018-2019, we had GBP 22 million worth of lending and GBP 0.8 million of profit, and we have come a long way since then. Just on my last slide, a few key points to draw out from this. We continue to progress with our longer term products that are serving us well in this market and are attracting investors. Also investing from an IT perspective. We are starting our own AI journey this quarter, starting in October, following in some of the footsteps of Advantage to help us improve our efficiency and prepare ourselves and support future growth. Lastly, and definitely not least, is the investment we continue to make in our staff in training and skills. They are the backbone of our success. I will now hand back over to Anthony.
Thank you. Well, I hope that you have seen that and that has impressed you. In particular, before we get to questions, there are obviously quite a lot of questions on our new securitization funding. Before I get there, I would like to just make the point that we have not arranged GBP 600 million worth of securitization facilities against the current level of GBP 330 million just for fun, although it has been an interesting exercise. It is because this is how we anticipate growing the business in the next few years. I think the point that I would like to, or the slide I would like to draw your attention to, is the last point on Advantage, where it says that exceptional customer demand. We have about 300,000 applications for finance per month. Probably about 180,000-200,000 of those are serious. We do 2,000 of those. There is a huge amount of potential growth.
That is why Karl is absolutely right to target to double the size of our book in the next five years. We do that on a very firm basis. We have got excellent customer relations, very good relationships with the regulator, the Financial Conduct Authority, and plans for new distribution channels to add to our existing broker channels, which I think will enable us to achieve that kind of growth. Aspen is going through choppier waters at the moment, for the very simple reason that the residential housing market is not as buoyant as any of us would like it. We hope that the new Help to Buy scheme introduced or announced yesterday by the government is going to do something to help that. Possibly, interest rates will follow a slightly more benign path than is currently anticipated.
We hope that the budget will recognize sensible growth in the housing market as being important for the general economy as well as people's housing needs. We are confident that we are in a market generally which is going to mean that we can improve Britain's currently rather under par housing stock as well as the amount of housing stock in the country. In a growing population, we need more of it, and we need it to be better. The kind of people that we serve at Aspen are doing both building and refurbishing. Just finally, the S&U, and although we have got these new initiatives and we are growth orientated and we are ambitious, but we do that on the basis that we always aim for steady sustainable growth. It is terribly easy to grow a book in the finance business and not be sustainable.
Anybody can lend money; it is actually getting it back in a sensible and sustainable and responsible way. We have got about 88 years of doing that at S&U. We have got the management team, which has got that level of experience. When I say 88 years, I am not quite that old. Nevertheless, we have got a continuity of management and a very clear business philosophy. We believe that obviously securitization will transform our ability to grow the business, and we anticipate that that will produce profit and dividends in the next few years. With that, can I thank you for your attendance, and now move on to questions from We have got Simon, Ian, James, Claudia, and Jamie all asking questions. I think now going to move to the first one, which is Simon. A lot of them are about securitization.
Simon asks, "What proportion of each pool are the two banks funding versus S&U's own retained junior interest? Zeus own note pays this at 20%-25% for a private deal. Can you confirm the actual structure falls in that range?" I am going to ask Chris to do this. Because the deal is not yet quite concluded, we anticipate that in the next week, I think we have got to be a little bit careful about what we reveal. I think you can give a general tone, Chris.
Yes. Yeah, absolutely. I think in short the answer is yes. We are in the range that Zeus provided at between 20% and 25%. My understanding that is quite typical in a private warehouse deal. Obviously as we get further down the path and hopefully at the end of this deal, potentially move to a public securitization deal for Advantage, we would expect that sort of junior interest element to reduce. No, that Zeus predictive range is accurate.
Good. Thank you. I am going to move on now. I am going to stay with securitization. James has asked a question, "With the new securitization funding strategy, is it currently envisaged that you will issue public ABS to institutional investors currently? Securitization can naturally offer higher gearing than is currently the case with bank financing. Do you think the gearing in Advantage will increase going forward?" I am going to ask you that, Chris.
Yeah. Thanks, Anthony. Exactly that. We've done or we're in the process of agreeing two private securitizations. The public securitization for Advantage would be something we'd look at at the end of this current deal. You're absolutely right that the securitization does offer higher gearing, and we're expecting to take advantage of that, pardon the pun in the years to come. Obviously once the securitization's embedded, we'll be doing another reforecasting exercise to provide a bit more surety on that going forward.
And we've got another question from [inaudible] on funding. We've got to be a little bit careful about what we say here. We don't normally give this kind of information, and possibly Chris will answer in the appropriate way. "Is your RCF priced off of LIBOR, price of LIBOR? And if so, what is the margin that you pay over that? How does the cost of securitization compare to that in terms of equivalent interest cost?" Chris.
Thanks, Anthony. So we pay off SONIA, and that will be the case under the current RCF, but also the securitization, so it's a margin over and above SONIA. In terms of cost, to Anthony's point, I'd like to get the securitizations over the line. We do think there will be a saving, but obviously we need to quantify that when the ink is dry on the deals themselves.
Well said. Then I think really that answers Matt J's question about what is the coupon on your new facilities. We're not able to give you details of that yet, but we will be presenting to investors, both retail and institutional investors, as soon as the securitization deal is completed, which we anticipate, again, as I said, in the very near future. Ian has asked two questions, or sorry, has asked a question on what is the cost of, why has the Cost of Sales commission at Motor Finance increased by almost 40%? Over to you, Karl.
It's just a pure outcome of volume year on year. The actual pound note figure per deal is all-in cost as what we apportion to a cost of a sale of a case is down, I think, GBP 46 year on year. But it's the fact that we're 49% up that means that the gross is therefore higher.
Thank you, Karl. Finally, [Horigue], I'm not even sure that we're able to say this, but I'm going to ask you. I mean, Graham, do you want to say something about this? What is your medium term ROCE target?
We're very conscious that if we're having additional facilities, if the margin we make on these additional facilities is not as you require it to be. I think one suffice to say that we're very conscious of this. We're very concerned that we get operational gearing advantages, and as a consequence of bigger volume, that we hold our margins, and so we make it worthwhile exposing ourselves to more financial risk. Because let's not pretend any different. Bigger gearing means more financial risk, that we hope we get a commensurate return as a consequence.
Absolutely right. I mean, the first thing we look at, just to reassure investors, is the P&L at the bottom line. Second we look at is the cash flow, because that's what decides the financial health of the company. The third thing we look at is the balance sheet. Because the balance sheet amplitudes everything else, but it's not quite as important as the first two. So, with that, are there any further questions that investors would like to ask us? We have two more, or one more rather. From Matt Jeeves, "Could you discuss the new scorecard and Advantage, please?" Over to you, Karl.
Okay. Give it a go. It is built within a new framework where it is partnered with Experian. We have obviously a pretty rich data set. In round terms, it has a demographic element, which is people's age and lifestyle and where they live, et cetera, et cetera, plus asset, plus history. So it is taking the latest approach from data sets from our partners, and it is deliberately enabling us to get our risk mix in better shape, especially in our core market areas, which has obviously gallantly served so long. So it is built to be good in those sectors. Secondly to that is an expenditure engine, which we have built in partnership with all the usual agencies, ONS, et cetera, and benefited from some good input from our regulator and others, during the times of [inaudible] two and a half odd years ago.
Thirdly, a much upgraded affordability engine, which has proven statistically much more reliable and successful in seeing applicants' income a lot clearer. So I hope that helps. I am not a credit risk guru, but we do have those on the payroll, thankfully, who will do a much better job of explaining it probably than I could, but.
Excellent. Okay, well, thank you, Karl, and thank you everybody for those questions that have been asked, and obviously our team for answering them, hopefully in a comprehensive and coherent way. Are there any further questions? Okay, well, if there are not, I am going to hand back to IMC and conclude the meeting.
Fantastic. Thank you very much indeed for addressing all those questions. Actually, we just received one. Would you like to address it there, Anthony?
Yes.
Go ahead.
It is quite an easy answer. Simon Elser asked, "Is the interest rate hedging being extended to Aspen?" The answer is yes.
No.
No.
No.
No, sorry.
No, we are not hedging it.
Sorry. I started to screw this way. Hedging, no. No, sorry about that.
Advantage.
I thought you meant the securitization is going to be.
Yes.
The hedging model.
Perfect, guys. Well, look, if that's all the questions from investors today, Anthony, could I just ask you for a few closing comments to wrap up?
Well, I think we've covered the waterfront pretty well. I hope that the investors agree, and that we look forward to some further good results in the next half year of the year. To the kind of growth that we anticipate in the company, that we will do so in a responsible way, and in the interests of every shareholder. Thank you for your attendance.
Fantastic. Thank you all once again for updating investors today. Could I please ask investors not to close this session, as you'll now be automatically redirected to provide your feedback, which help the company better understand your views and expectations. On behalf of the [inaudible] team, we would like to thank you for attending today's presentation, and good afternoon to you all.