Interim Results

IMMEDIATE RELEASE: S&U PLC Providers of Consumer Credit and Motor Finance INTERIM RESULTS FOR THE HALF YEAR TO 31ST JULY 2006 * HALF-YEAR PROFITS £4.8M (£5.3M) ON REVENUE £19.8M (£19.9M) IN MORE CHALLENGING FIRST HALF. * EARNINGS PER SHARE 28.4P (31.5P) - INTERIM DIVIDEND DECLARED 9P (UNCHANGED). * HOME COLLECTIONS - STEADY PROFIT GENERATED. OPPORTUNITIES BEING TAKEN TO IMPROVE BRANCH AND REPRESENTATIVE NETWORK. * HOME CREDIT CALL NUMBERS SINCE JULY 31st RUNNING AT 4% UP ON LAST YEAR, REVERSING RECENT TRENDS. * MOTOR CAR FINANCE - PROFITS £1.20M (£1.19M). A MORE SUBSTANTIAL INCREASE EXPECTED FOR THE YEAR. * THE SUB-PRIME SECTOR IS EXPECTED TO PROVIDE REAL OPPORTUNITIES FOR PROFITABLE GROWTH OVER THE NEXT FEW YEARS. Issued on behalf of S&U Plc by Simon Preston 020 7655 0500 or 07910825778 Enquiries: Derek Coombs or Anthony Coombs Chairman Managing Director S&U PLC S&U PLC Tel: 020 7655 0500 Tel: 07767 687150 Date of issue: Thursday 5th October 2006 POLHILL COMMUNICATIONS DOME HOUSE 48 ARTILLERY LANE LONDON E1 7LS Registration Number 1983318 CHAIRMAN'S STATEMENT The results for the half year ended on the 31st July 2006 show that profits before tax have reduced from £5.3 million last year to £4.8 million this year. This reduction reflects a slightly more challenging first half year for both collections and sales. Further management action already underway in these areas is expected to lead to second half improvements. Revenue totalled £19.8 million compared to £19.9 million for the comparable period last year. Our home collection business continues to generate steady profits and where appropriate we are taking selective opportunities to improve our excellent branch and representative network. Advantage Finance has achieved profits of £1.20m against £1.19m last year and is expected to provide a more substantial increase for the full year. The proposed interim dividend is unchanged at 9p per share. This will be paid on the 10th November 2006 to Ordinary Shareholders. The shares will go ex dividend on the 11th October 2006. DM Coombs Chairman 4 October 2006 MANAGING DIRECTOR'S STATEMENT Over the past 2 years I have commented on the "challenging trading and regulatory environment" for the home credit industry and upon slowing consumer confidence. The latter affects customers' appetite for credit and the propensity to repay it. Both these trends have continued over the past half year and are reflected in S&U's results; Group profit before tax is £4.76m (2005;£5.28m) whilst Group Revenue is broadly static for the period. These results reflect a period of change and uncertainty within our home credit market which is probably unparalleled over the past 25 years. The Government, its regulators and consumer group outriders have presided over a blizzard of initiatives which have distorted and disturbed relationships with our customers throughout the consumer credit industry. Statutory changes to early settlement rebates in home credit have tightened margins. Changes in bankruptcy legislation and the growth in the activities of commercial debt consolidators and their misguided counterparts in the money advice sector have made collections more challenging. Individual voluntary arrangements by debtors have increased by 200% in the last year alone. These trends have inevitably reflected in increased debt provisioning both in S&U's home credit and car finance subsidiaries. Unfortunately Government has responded to these developments by piling Ossa on Pelion. S&U shareholders will ruefully reflect upon the recent suggestion by the Competition Commission, in its review of the Home Credit Industry, that S&U has for the past 5 years been making profits which are persistently excessive compared to its cost of capital. The Competition Commission's proposed industry wide remedy, for this alleged unsatisfactory state of affairs, includes further measures on data sharing and early settlement rebates which will restrict our ability to serve our customers, raise costs and, ironically, risk increasing financial exclusion for customers. The Government's Alternative Dispute Resolution Procedures, to be introduced from next April, will further restrict the availability of credit to precisely those customers with whom the Competition Commission admitted that home credit "fitted like a glove". Small wonder that the past year has seen significant structural changes within the industry. Morses' absorption into LSB, has been followed by the closure of House of Stirling, the effective exit of Park Credit from the industry and by recent newspaper reports of the proposed sale of LSB itself. I expect this consolidation to continue. S&U can and is taking advantage of it. We have recently recruited some 70 new representatives from these companies in the past 3 months alone. An equally encouraging side effect has been that our home credit division has now been able to reverse a recent fall in customer numbers: these are now up by 4% on a year ago and the trend is improving. The Group assets continue to grow as our Advantage Motor Finance book reaches £40.1m and over 8,000 customers. Equally significant for the long term development of the Group is a successful pilot of Communitas, our new second mortgage business, which is developing a high quality niche with remortgage brokers. The resulting book now has gross receivables of over £2m so that I am reasonably confident that Communitas will break into profit early in its second year of operation. In a more challenging collecting environment, action is being taken to protect and improve the quality of our debt. At Advantage, a new Experian linked underwriting system is allowing a more rigorous processing of up to 10 times the number of previously handled applications. Legal recovery has been strengthened there to the extent that over £100,000 more cash has been recovered by this method than in the first half of last year. In home credit, IT advances have allowed much closer scrutiny of the performance of small paying accounts, whilst the widening of our loan range has improved our ability to "reactivate" dormant customers. As a result, we look to improve collection experience in the second half of the year. Irrespective of our investment in these areas and in new businesses, S&U's balance sheet remains strong. Gearing is 79% and bank facilities are in place to finance organic growth, recent small acquisitions in the home credit field and the development of our new second mortgage business. Against this background it is appropriate to announce a 9p per Ordinary Share dividend payable in November. It would be disingenuous to understate the social and regulatory changes that have made the collection and protection of our consumer credit debt more challenging than ever before. Nevertheless, with rigorous management, the right products, and sensible underwriting, I am confident that the sub-prime sector offers real opportunities for sustained and profitable growth over the next few years. Anthony Coombs 4 October 2006 INDEPENDENT REVIEW REPORT TO S & U PLC Introduction We have been instructed by the company to review the financial information for the six months ended 31 July 2006 which comprise the income statement, the balance sheet, the statement of recognised income and expense, the cash flow statement and related notes 1 to 11. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 31 July 2006. Deloitte & Touche LLP Chartered Accountants Birmingham 4 October 2006 CONSOLIDATED INCOME STATEMENT Six months ended 31 July 2006 Unaudited Unaduted Six months Six months Financial ended ended Year Ended Note 31.7.06 31.7.05 31.1.06 Revenue 2 19,758 19,945 41,275 Cost of sales 3 (5,583) (5,401) (13,143) Gross profit 14,175 14,544 28,132 Administrative expenses (8,614) (8,422) (17,314) Operating profit 5,561 6,122 10,818 Finance costs (801) (841) (1,694) Profit before taxation 2 4,760 5,281 9,124 Taxation 4 (1,428) (1,586) (2,787) Profit for the period 3,332 3,695 6,337 Earnings per share basic and 5 28.4p 31.5p 54.0p diluted All activities and earnings per share derive from continuing operations. There are no recognised gains and losses for the six months ended 31 July 2006 and comparative periods other than the profit for the period and the dividends shown above. STATEMENT OF RECOGNISED INCOME AND EXPENSE Unaudited Unaudited Financial Six months Six months year ended ended ended 31.7.06 31.7.05 31.1.06 £000 £000 £000 Profit for the Period 3,332 3,695 6,337 Actuarial gain on defined benefit - - 14 pension scheme Total recognised income and _________ _________ ________ expense for the period attributable to equity holders of 3,332 3,695 6,351 the parent _________ _________ ________ CONSOLIDATED BALANCE SHEET Six months ended 31 July 2006 Note Unaudited Unaudited 31.7.06 31.7.05 31.1.06 Restated Restated £000 (note 10) (note 10) £000 £000 ASSETS Non current assets Property, plant and equipment 2,320 2,364 2,283 Amounts receivable from 7 20,931 17,080 19,807 customers Deferred tax asset 27 - 27 Derivative financial instrument 40 - - 23,318 19,444 22,117 Current assets Inventories 120 111 81 Amounts receivable from 7 44,896 43,871 44,375 customers Trade and other receivables 846 681 619 Current income tax assets - 2,093 1,427 Cash and cash equivalents 18 24 11 45,880 46,780 46,513 Total assets 69,198 66,224 68,630 LIABILITIES Current liabilities Bank overdrafts and loans (8,074) (6,950) (8,214) Trade and other payables (863) (1,284) (953) Tax liabilities (225) (199) (198) Accruals and deferred income (1,343) (1,341) (1,303) (10,505) (9,774) (10,668) Non current liabilities Bank loans (20,000) (20,000) (20,000) Retirement benefit obligation - (23) - Deferred tax liabilities - (83) - Financial liabilities (450) (450) (450) Derivative financial instrument - - (19) (20,450) (20,556) (20,469) Total liabilities (30,955) (30,330) (31,137) NET ASSETS 38,243 35,894 37,493 Equity Called up share capital 1,667 1,667 1,667 Share premium account 2,136 2,136 2,136 Profit and loss account 34,440 32,091 33,690 TOTAL EQUITY 8 38,243 35,894 37,493 There interim statements were approved by the Board of Directors on 4 October 2006. Signed on behalf of the Board of Directors D M COOMBS AMV COOMBS Directors CONSOLIDATED CASH FLOW STATEMENT Six months ended 31 July 2006 Unaudited Unaudited Six months Six months Financial ended ended Year ended Note 31.7.06 31.7.05 31.1.06 £000 £000 £000 Net cash from operating 9 3,023 1,726 1,657 activities Cash flows from investing activities Proceeds on disposal of property, 38 50 125 plant and equipment Purchases of property, plant and (332) (343) (569) equipment Net cash used in investing (294) (293) (444) activities Cash flows from financing activities Dividends paid (2,582) (2,582) (3,639) Net (decrease)/increase in (140) 1,159 2,423 overdraft Net cash used in financing (2,722) (1,423) (1,216) activities Net increase/(decrease) in cash 7 10 (3) and cash equivalents Cash and cash equivalents at the 11 14 14 beginning of the period Cash and cash equivalents at the 18 24 11 end of the period Cash and cash equivalents comprise Cash 18 24 11 NOTES TO THE INTERIM STATEMENTS Six months ended 31 July 2006 1. ACCOUNTING POLICIES 1.1 General Information S&U plc is a company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is given in note 11 which is also the group's principal business address. All operations are situated in the United Kingdom. 1.2 Basis of preparation As a listed company we are now required to prepare our consolidated financial statements in accordance with international financial reporting standards (IFRS) as endorsed by the European Union. The date of transition to IFRS for S& U plc was 1st February 2004. These financial statements have been prepared under the historical cost convention as modified by the revaluation of derivative financial instruments to fair value. The consolidated financial statements incorporate the financial statements of the company and all its subsidiaries for the six months ended 31st July 2006.The financial information contained in this interim financial report does not constitute a set of statutory accounts and is unaudited, but subject to a review opinion. 1.3 Revenue recognition Credit charges are 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 cost are included in the calculation of the EIR. Under IAS 39 credit charges on loan products continue to accrue at the EIR on all outstanding capital balances including those impaired 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 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. Sales of goods are recognised in the income statement when the product has been supplied. 1.4 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. 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. NOTES TO THE INTERIM STATEMENTS Six months ended 31 July 2006 1.5 Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation. Certain freehold property is held at previous revalued amounts less accumulated depreciation as the group has elected to use these amounts as the deemed cost as at the date of transition to IFRS under the transitional arrangements of IFRS 1. Depreciation is provided on the cost or valuation of property, plant and equipment in order to write such cost or valuation over the expected useful lives as follows; Freehold Buildings 2% per annum straight line Computers 20% per annum straight line Fixtures and Fittings 10% per annum straight line or 20% per annum reducing balance Motor Vehicles 25% per annum reducing balance 1.6 Inventories Inventories are stated at the lower of cost or net realisable value. 1.7 Taxation Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is determined using tax rates and laws that have been enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. 1.8 Preference Shares The issued 31.5% preference share capital is carried in the balance sheet at amortised cost and shown as a financial liability. The issued 6% preference share capital is valued at par and shown as called up share capital. 1.9 Pensions The group contributes to a defined benefit pension scheme. The defined benefit pension liability at the balance sheet date is calculated as the present value of the defined benefit obligation less the fair value of the plan assets. The group also operates several defined contribution pension schemes and the pension charge represents the amount payable by the company for the financial period. 1.10 Leases Rental costs under operating leases are charged to the profit and loss account when incurred. 1.11 Investments Investments held as fixed assets are stated at cost less provision for any impairment. NOTES TO THE INTERIM STATEMENTS Six months ended 31 July 2006 1.12 Derivative financial instruments The group's activities expose it to the financial risks of changes in interest rates and the group uses interest rate derivative contracts to hedge these exposures. The group does not use derivative financial instruments for speculative purposes. The use of financial derivatives is governed by the group's policies approved by the board of directors which provides written principles on the use of financial derivatives. Changes in the fair value of derivative financial instruments that are designated effective as hedges of future cash flows are directly recognised in equity and the ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of and asset or liability then at the time the asset or liability is recognised the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects profit or loss. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised or no longer qualifies for hedge accounting. At that time any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur the net cumulative gain or loss is recognised in equity is transferred to net profit or loss for the period. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value with gains or losses reported in the income statement. 1.13 Critical accounting judgements and key sources of estimation uncertainty The key accounting judgements which the directors have made in the process of applying the group's accounting policies and which have the most significant effect on the amounts recognised in the financial statements are the judgements relating to impairment and revenue recognition in 1.4 above. The directors consider that there are no key sources of estimation uncertainty other than those inherent in the consumer credit market in which we operate. NOTES TO THE INTERIM STATEMENTS Six months ended 31 July 2006 2. ANALYSES OF REVENUE AND PROFIT BEFORE TAXATION All operations are situated in the United Kingdom. Analyses by class of business of revenue and profit before taxation are stated below: <------- Revenue -------> Six months Six months Financial ended ended Year ended 31.7.06 31.7.05 31.1.06 Class of business £000 Restated Restated (note 10) (note 10) £000 £000 Consumer credit, rentals and other retail 13,871 14,255 30,099 trading Car finance 5,887 5,690 11,176 19,758 19,945 41,275 <---- Profit before taxation ----> Six months Six months Financial ended ended Year ended 31.7.06 31.7.05 31.1.06 £000 Restated Restated (note 10) (note 10) £000 £000 Consumer credit, rentals and other retail 3,560 4,092 6,887 trading Car finance 1,200 1,189 2,237 4,760 5,281 9,124 3. COST OF SALES Six months Six months Financial ended ended Year ended 31.7.06 31.7.05 31.1.06 £000 Restated Restated (note 10) (note 10) £000 £000 Loan loss provisioning charge 4,205 3,979 9,684 Other cost of sales 1,378 1,422 3,459 5,583 5,401 13,143 4. TAXATION The actual tax charge for the period has been calculated by applying the estimated effective tax rate for the year of 30.0% (31st July 2005 30.0%) to the profit before taxation for the six months. NOTES TO THE INTERIM STATEMENTS Six months ended 31 July 2006 5. EARNINGS PER ORDINARY SHARE The calculation of earnings per Ordinary share is based on profit for the period of £3,332,000 (for the period ended 31 July 2005 - £3,695,000 and the year ended 31 January 2006 - £6,337,000). The number of shares used in the calculation is the average number of shares in issue during the period of 11,737,228 (for the period ended 31 July 2006 and the year ended 31 January 2006 - 11,737,228). Diluted earnings per share is the same as basic earnings per share as there are no dilutive shares. 6. DIVIDENDS The directors have declared an interim dividend of 9p per share (2005: 9p per share). The dividend, which amounts to approximately £1,056,000 (July 2005: £ 1,056,000), will be paid on 10 November 2006 to shareholders on the register at 13 October 2006. The shares will be quoted ex dividend on 11 October 2006. The interim financial information does not include this proposed dividend as it was declared after the balance sheet date. The final dividend paid during the period for the year ended 31 January 2006 amounted to £2,583,000 (2005: £2,583,000) being 22.0p per ordinary share (2005: 22.0p). 7. ANALYSIS OF AMOUNTS RECEIVABLE FROM CUSTOMERS All operations are situated in the United Kingdom. <---- Amounts Receivable ----> Six months Six months Financial ended ended Year ended 31.7.06 31.7.05 31.1.06 Class of business £000 Restated Restated (note 10) (note 10) £000 £000 Consumer credit, rentals and other retail 48,424 45,969 48,857 trading Car finance 40,159 35,306 37,920 88,583 81,275 86,777 Less: Loan loss provision for consumer (14,089) (13,802) (14,661) credit Less: Loan loss provision for car (8,667) (6,522) (7,934) finance 65,827 60,951 64,182 Analysed as:- due within one year 44,896 43,871 44,375 - due in more than one year 20,931 17,080 19,807 65,827 60,951 64,182 NOTES TO THE INTERIM STATEMENTS Six months ended 31 July 2006 8. ANALYSIS OF CHANGES IN TOTAL EQUITY Six months Six months Financial ended ended Year ended 31.7.06 31.7.05 31.1.06 £000 Restated Restated (note 10) (note 10) £000 £000 Total recognised income 3,332 3,695 6,351 and expense for the period Dividends paid (2,582) (2,582) (3,639) Net addition to 750 1,113 2,712 total equity Opening total 35,854 33,142 33,142 equity (as previously stated) Prior period 1,639 1,639 1,639 adjustments (note 10) Closing total 38,243 35,894 37,493 equity 9. RECONCILIATION OF PROFIT BEFORE TAX TO CASH FLOW FROM OPERATING ACTIVITIES Six months Six months Financial ended ended Year ended 31.7.06 31.7.05 31.1.06 £000 Restated Restated (note 10) (note 10) £000 £000 Profit before taxation 4,760 5,281 9,124 Tax paid - (1,454) (2,074) Depreciation on 245 260 477 plant, property and equipment Loss on disposal 12 26 41 on plant, property and equipment (Increase) in (1,645) (2,501) (5,732) amounts receivable from customers (Increase)/ (39) (20) 10 decrease in inventories (Increase)/ (227) 36 98 decrease in trade and other receivables (Decrease) in (64) (10) (353) trade and other payables Increase in 40 108 70 accruals and deferred income Fair value (59) - 19 movement in derivative (Decrease) in - - (23) retirement benefit obligations Cash flow from 3,023 1,726 1,657 operating activities NOTES TO THE INTERIM STATEMENTS Six months ended 31 July 2006 10. PRIOR YEAR ADJUSTMENTS Further to a review of our implementation of IFRS, we have: * amended the basis on which the gross-up adjustment to revenue and cost of sales is recognised under IAS 39. As a result, Revenue and Cost of Sales have been reduced by £6.1m in the six months to July 2005 and by £12.2m in the 12 months to January 2006. This adjustment does not affect profit. * reviewed the classification and measurement of the preference shares. We consider that it is more appropriate to recognise the junior preference shares as a liability measured at amortised cost and the senior preference shares as equity, recognised at par. Financial liabilities have therefore been reduced by £1.6m and called up share capital has been increased by £ 0.2m as at 31 July 2005 and 31 January 2006. The adjustments increase retained reserves by £1.6m and do not impact the profit for the period. 11. INTERIM REPORT The figures for the year ended 31 January 2006 do not constitute statutory accounts and are extracted from the audited accounts for that period, on which the auditors to the group have issued an unqualified audit report which did not contain a statement under section 237 (2) or (3) of the Companies Act 1985 and which have now been delivered to the Registrar of Companies. A copy of this Interim Report will be posted to all shareholders and will be made available to the public on our website at www.suplc.co.uk and at the Company's registered office at Royal House, Prince's Gate, Solihull, B91 3QQ.

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