Preliminary Announcement January 2007 Results

THURSDAY 29th MARCH 2007 S & U PLC Providers of Consumer Credit & Motor Finance RESULTS FOR THE YEAR TO 31st JANUARY 2007 * PRE-TAX PROFITS £8.9m (2006:£9.1M), AFTER IMPROVED SECOND HALF £4.1M (2006: £3.8M), ON REVENUE £42.8M (2006:£41.3M). * PROPOSED DIVIDEND FOR HALF YEAR 23P (2006:22P) MAKING 32P FOR YEAR (2006: 31P). EARNINGS PER SHARE 53.2P (2006:54.0P). * HOME COLLECTED CREDIT - PROFITS £6.6M (2006:£6.9M) WITH SIGNIFICANT IMPROVEMENT IN SECOND HALF. CUSTOMERS UP BY OVER 5000 AND REPRESENTATIVES BY 20%.CONTINUED CONTROLLED GROWTH EXPECTED IN 2007. * MOTOR CAR FINANCE - PROFIT £2.3M (2006:£2.2M) IN MORE CHALLENGING MARKETS. POSITION CONSOLIDATED AS A LEADER IN SUB-PRIME MARKET. * CONFIDENCE IN COMING YEAR. FURTHER GROWTH EXPECTED IN 2007/2008. Issued on behalf of S & U plc by Simon Preston 0207 655 0500 Enquiries: Anthony Coombs Managing Director S & U PLC Tel: 07767 687150 Date of issue: Thursday 29th March 2007 POLHILL COMMUNICATIONS TEL: 0207 655 0500 DOME HOUSE FAX: 0207 655 0501 48 ARTILLERY LANE WWW.POLHILL.COM LONDON E1 7LS Polwoods Limited Registration Number 1983318 CHAIRMAN'S STATEMENT Results Following the reduction in profit in the first half year I am pleased to report that second half pre-tax profits of £4.1m were £0.3m up on 2006. This profit improvement was helped by controlled second half investment and significant growth in our home collected customer numbers and representative network. Group revenue for the year grew to £42.8m compared to £41.3m for 2006. Profit on ordinary activities before tax for the year was £8.9m compared to £9.1m for 2006. Earnings per share for 2007 was 53.2p (2006: 54.0p) , maintaining good cover. We are pleased to announce a 1p increase in the second half dividend making a combined proposed dividend of 32p for the year as a whole. The second half dividend for ordinary shares of 23p per share will be paid on the 1st June 2007 and the shares will be dealt ex dividend from the 2nd May 2007. Excellent dividend payment every year since 1988 is our proud achievement and we hope to continue this trend. Home Collected Credit Our network of representatives grew by 20% in the second half year and whilst this led to increased second half costs, we were rewarded with strong Christmas sales on which our early collections are encouraging. Loan loss provisioning charges for the year rose by 7%, on revenue up by 4%, and we continue to take a justifiably cautious approach to credit control. The positive developments during the year further reinforce our strong home collected credit business and we look forward to continued controlled growth during 2007. Advantage Finance Limited - Motor Car Finance Our motor car finance company Advantage Finance Limited continues to progress and this year produced a further advance in profits to £2.3m in 2007 from £2.2m in 2006. In more challenging market conditions in 2006, the business adapted extremely well and enters 2007 having consolidated its position as a leading provider of subprime motor finance. Staff Every company is only as good as the quality and dedication of its staff and within the S&U group we are very fortunate to have a team of the highest calibre. I must take this opportunity to thank our staff on your behalf for their contribution during the year. Outlook for the Group as a whole We hope and expect the results for the coming year will justify the confidence expressed in this statement. We would like to thank all Shareholders for their support. Derek M Coombs Chairman 28th March 2007 MANAGING DIRECTOR'S REPORT Although profits before tax are slightly less than last year, a significant improvement in the second half of 2006/2007, expansion in our home credit operations during this period and, most important, good current trading lead me to be more optimistic now than for many years. Pre-tax profit for 2006/2007 was £8.9m (£9.1m in 2005/2006) on revenues up from £41.3m to £42.8m. However, Group current and non-current assets in the form of receivables from their customers grew in the year from £64.2m to £72.0m. At over 12% this was the largest increase in S&U's history. Of this no less than £4m was in our rejuvenated home credit operations. Despite the costs of adding new branches and recruiting over 80 additional Representatives throughout the country, home credit has led the Group's profits recovery in the second half and current trading, and in particular debt quality, is excellent. Further, although the ability of legislators and regulators to embark upon unnecessary and impractical consumer initiatives can never be underestimated, the current legislative environment is both more stable and predictable. Meanwhile our secured credit operations make steady progress. In a more challenging market, Advantage Finance, our motor credit subsidiary, has produced record profits at £2.3m (2006:£2.2m) and Communitas Finance, our second mortgage subsidiary launched last year, has, as I expected, achieved near break-even in its first full year of trading. We maintain our frugal approach to unnecessary overheads, which have fallen around 8% since last year at Head Office level. All this means that if current trends in trading persist, we can look forward to a resumption in Group profits growth in 2007/2008 after the hiatus of the last two years. Both this and the continued very low gearing of our company at 79% (2006: 75%) of total equity allows us to recommend an increase in dividend to 23p per Ordinary Share (2006: 22p) for the 6 months ending 31 January 2007. Operating Results Year Ended Year Ended 31st January 31st January 2007 2006 £m £m Revenue 42.8 41.3 Cost of sales (14.1) (13.2) Gross profit 28.7 28.1 Administrative Expenses (18.2) (17.3) Operating profit 10.5 10.8 Interest (1.6) (1.7) Profit before taxation 8.9 9.1 Home Credit My confidence in the recession resistant values of the home credit industry is butressed now by the significant opportunities that consolidation in the industry presents to S&U. As consumer debts have grown, so more restrictive underwriting practices from competitors outside home credit has led more consumers to appreciate the flexibility and convenience of the products we offer. Hence S&U's 6% (and accelerating) increase in home credit gross advances over the last year. Further, as the industry consolidates we increase our market share. Recent uncertainty regarding Park Credit, House of Stirling and latterly London & Scottish Bank and Morses, has given us the opportunity to increase our customer base by over 5,000 in the past year and our Representative numbers (by 20%). By profitability, S&U is now within the top two in the industry and by volume has moved up to number three. Profits this year from our home credit activities were £6.6m. Although this is 4% less than last year, this trend was reversed in the second half and allowed for very significant investment in the expansion referred to earlier. Debt quality remains good, although the activities of debt consolidators, misguided consumerists and the disposable debt culture promoted by this Government have led to an increase in loan loss provisioning of 7% on last year. Retaining, and improving, our debt quality in these conditions has seen our investment in a new Call Centre, the centralising of our customer relations, particularly in anticipation of the new Alternative Dispute Resolution regime commencing in April, and the introduction of new loan products. However, a shortening in our home credit debt profile and, in two of our subsidiaries some management reorganisation, have seen a very promising rise in overall cash collections after the year end. The Competition Commission issued its Final Inquiry Report in December and the industry is currently cooperating with it on implementing its Remedies. It was encouraging to see the Competition Commission comment upon how the home credit service fitted customers "like a glove", and how popular it is. Although we still dispute much of the industry diagnosis that led to the remedies, I see no concerns for S&U in implementing them. Indeed the now general recognition that the home credit industry provides a vital role in serving otherwise financially excluded customers should provide a more stable regulatory climate in which S&U can profitably operate in the coming years. Advantage Finance Our motor finance subsidiary has performed creditably in producing its highest ever profits of £2.3m (2006: £2.2m) in much more challenging market conditions which have seen consumer credit for used car sales down by 6% on a year ago. In this light, Advantage has maintained its sales levels whilst migrating to more aspirational customers and by providing a more comprehensive finance service to its key dealers through its network of regional Sales Managers. The quality of Advantage's debt and collections remains strong and this has been reflected in the appointment of its Underwriting and Collections Managers to the Advantage Board. With the appointment of a new Sales Manager and the reorganisation of the Advantage sales team I am confident that within its niche markets Advantage will continue to produce steady, and increasingly cash generative, growth in the coming year. Communitas Finance At a time when second mortgage lending, particularly in the United States, has come under some scrutiny, the performance of Communitas in building a book of over £2.1m net receivables and nearing break-even in its first year of trading is encouraging. Sensible and achievable business targets have been set to enable it to move into profit this year. The quality of its loan book remains strong and supervision of it has been blended with the Advantage Finance collections operation which will underpin future quality. I anticipate further growth in this secure, but inevitably more capital intensive, third leg of S&U in the coming year. Group Profit, Dividend and Earnings Per Share Year Year 6 months 6 months 6 months 6 months ended ended ended ended ended ended 31.1. 31.1. 31.1. 31.1. 31.7. 31.7. 2007 2006 2007 2006 2006 2005 £m £m £m £m £m £m Profit before tax 8.9 9.1 4.1 3.8 4.8 5.3 Profit after tax 6.2 6.3 2.9 2.6 3.3 3.7 Earnings per share 53.2 54.0 24.8 22.5 28.4 31.5 Dividends declared per 32.0 31.0 23.0 22.0 9.0 9.0 share Capital Structure, Liquidity and Treasury As our total assets have risen by 10% to £75.4m in the past year, further financing has been required. Although we retain the ability to issue equity for this purpose, both the stability and relative tax efficiency of interest rates and bank borrowing have made debt our principal source of finance in addition to retained profits. Even so our financial position is very strong. Current gearing stands at 78.9% against 75.3% last year. Our home credit business expansion and additional funds to build both Advantage and Communitas can both be comfortably accommodated within our existing banking facilities. This year S&U has made a number of small home credit purchases and we monitor very carefully opportunities both in the consolidating home credit and motor finance industries. We have the resources, if necessary, to take advantage of these. Prospects The recent expansion of our home credit business, high standards of professionalism and debt quality leave me optimistic for the future. If inflation and the domestic economy stays benign, and the employment market remains steady, I see no reason why we should not continue to profitably increase our customer base, and the business we do with them. Nevertheless, good customer service is not automatic. It depends upon the enthusiasm and commitment of our growing number of staff and representatives. I pay tribute to their professionalism and persistence over the past year. Once again, I thank fellow Directors and my colleagues throughout the Group for their robust support and look forward with confidence to a satisfying and successful year ahead. Anthony M V Coombs Managing Director 28.3.07 Note 2007 2006 £000 £000 Restated (note 11) Revenue 3 42,795 41,275 Cost of sales 4 (14,146) (13,143) ----- ----- Gross profit 28,649 28,132 Administrative expenses (18,180) (17,314) ----- ----- Operating profit 10,469 10,818 Finance costs 5 (1,539) (1,694) ----- ----- Profit before taxation 3 8,930 9,124 Taxation (2,691) (2,787) ----- ----- Profit for the year 6,239 6,337 ----- ----- Earnings per share basic and 6 53.2p 54.0p diluted Dividends per share - Proposed final dividend 23.0p 22.0p -Total dividend in respect of the 32.0p 31.0p year -Paid in the year 31.0p 31.0p ----- ----- INCOME STATEMENT Year ended 31st January 2007 All activities derive from continuing operations STATEMENT OF RECOGNISED INCOME AND EXPENSE 2007 2006 £000 £000 Profit for the Year 6,239 6,337 Actuarial gain on defined benefit 22 14 pension scheme ----- ----- Total recognised income for the year attributable to equity holders of the parent 6,261 6,351 ----- ----- Note 2007 2006 £000 £000 ASSETS Restated (note 11) Non Current Assets Property, plant and equipment 2,280 2,283 Amounts Receivable from customers 7 22,495 19,807 Derivative financial instruments 9 93 - Retirement benefit asset 40 - Deferred tax assets - 27 ----- ----- 24,908 22,117 ----- ----- Current Assets Inventories 176 81 Amounts receivable from customers 7 49,526 44,375 Trade and other receivables 784 619 Current income tax assets - 1,427 Cash and cash equivalents 5 11 ----- ----- 50,491 46,513 ----- ----- Total Assets 75,399 68,630 ----- ----- LIABILITIES Current liabilities Bank overdrafts and loans (11,647) (8,214) Trade and other payables (978) (953) Tax Liabilities (867) (198) Accruals and deferred income (1,223) (1,303) ----- ----- (14,715) (10,668) ----- ----- Non current liabilities Bank loans (20,000) (20,000) Deferred tax liabilities (130) - Financial liabilities (450) (450) Derivative financial instruments 9 - (19) ----- ----- (20,580) (20,469) ----- ----- Total liabilities (35,295) (31,137) ----- ----- NET ASSETS 40,104 37,493 ----- ----- Equity Called up share capital 1,667 1,667 Share premium account 8 2,136 2,136 Profit and loss account 8 36,301 33,690 ----- ----- Total equity 8 40,104 37,493 ----- ----- BALANCE SHEET 31st January 2007 CASH FLOW STATEMENT Year ended 31st January 2007 Note 2007 2006 £000 £000 Net cash from operating activities 10 715 1,657 Cash flows from investing activities Proceeds on disposal of property, 162 125 plant and equipment Purchases of property, plant and (666) (569) equipment ----- ----- Net cash used in investing activities (504) (444) ----- ----- Cash flows from financing activities Dividends paid (3,650) (3,639) Net increase in overdraft 3,433 2,423 ----- ----- Net cash used in financing activities (217) (1,216) ----- ----- Net (decrease) in cash and cash (6) (3) equivalents ----- ----- Cash and cash equivalents at the 11 14 beginning of period ----- ----- Cash and cash equivalents at the end 5 11 of period ----- ----- Cash and bank overdrafts comprise Cash 5 11 ----- ----- There are no cash and cash equivalent balances which are not available for use by the group (2006 £nil) 1. SHAREHOLDER INFORMATION 1.1 Preliminary Announcement The figures shown for the year ended 31 January 2007 are not statutory accounts within the meaning of section 240 of the Companies Act 1985. The statutory accounts for the year ended 31 January 2007 on which the auditors have given an unqualified audit report and did not contain an adverse statement under section 237(2) or 237(3) of the Companies Act 1985 will be delivered to the Registrar of Companies after the Annual General Meeting. The figures shown for the year ended 31 January 2006 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 237(2) or 237(3) of the Companies Act 1985. 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 on 18th May 2007. 1.3 Dividend If approved at the Annual General Meeting a final dividend of 23.0p per Ordinary Share is proposed, payable on 1st June 2007 with a record date of 4 May 2007. 1.4 Annual Report The 2007 Annual Report and Financial Statements will be posted to shareholders in due course. Copies of this announcement are available from the Company Secretary, S & U plc, Royal House, Prince's Gate, Homer Road, Solihull, West Midlands B91 3QQ. 2. KEY ACCOUNTING POLICIES The 2007 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. The financial information included in this preliminary announcement does not include all the disclosures required for IFRS or the Companies Act 1985. 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. 2.2 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 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 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. 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. 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. 2.4 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. 3. SEGMENTAL ANALYSIS Analyses by class of business of revenue and profit before taxation are stated below: ----Revenue---- ----Profit before---- taxation Class of business Year ended Year Year ended Year 31.1.07 ended 31.1.07 ended £000 31.1.06 £000 31.1.06 £000 £000 Restated (note 11) Consumer credit, 31,120 30,099 6,618 6,887 rentals and other retail Car finance 11,675 11,176 2,312 2,237 ----- ----- ----- ----- 42,795 41,275 8,930 9,124 ----- ----- ----- ----- Analyses by class of business of assets and liabilities are stated below: ----Assets---- ----Liabilities---- Class of business Year ended Year Year ended Year 31.1.07 ended 31.1.07 ended £000 31.1.06 £000 31.1.06 £000 £000 Restated (note 11) Consumer credit, rentals 43,233 38,215 (6,913) (3,786) and other retail Car finance 32,166 30,415 (28,382) (27,351) ----- ----- ----- ----- 75,399 68,630 (35,295) (31,137) ----- ----- ----- ----- Depreciation of assets for consumer credit was £398,000 (2006: £387,000) and for car finance was £80,000 (2006: £90,000) Fixed asset additions for consumer credit were £586,000 (2006: £463,000) and for car finance were £80,000 (2006: £ 106,000). The assets and liabilities of the parent company are classified as consumer credit, rentals and other retail trading. No geographical analysis is presented because all operations are situated in the United Kingdom. 4. COST OF SALES 2007 2006 £000 £000 Restated (note 11) Loan loss provisioning charge - consumer credit 6,337 5,928 Loan loss provisioning charge - car finance 4,105 3,756 ----- ----- Total Loan loss provisioning charge 10,442 9,684 Other cost of sales 3,704 3,459 ----- ----- 14,146 13,143 ----- ----- 5. FINANCE COSTS 2007 2006 £000 £000 31.5% cumulative preference dividend 142 142 Bank loan and overdraft 1,585 1,527 (Profit)/Loss on financial derivative (112) 19 instrument Other interest payable 5 6 ----- ----- Interest payable and similar charges 1,620 1,694 Interest receivable (81) - ----- ----- 1,539 1,694 ----- ----- 6. EARNINGS PER ORDINARY SHARE The calculation of earnings per Ordinary share is based on profit after tax of £6,239,000 (2006 -£6,337,000). The number of shares used in the calculation is the average number of shares in issue during the year of 11,737,228 (2006 - 11,737,228). There are no dilutive shares. 7. AMOUNTS RECEIVABLE FROM CUSTOMERS 2007 2006 £000 £000 Consumer Credit 55,622 48,857 Car finance hire purchase 40,894 37,920 ----- ----- 96,516 86,777 Less: Loan loss provision (15,459) (14,661) consumer credit Less: Loan loss provision car (9,036) (7,934) finance ----- ----- Amounts receivable from 72,021 64,182 customers Analysed as - due within one year 49,526 44,375 - due in more than one year 22,495 19,807 ----- ----- 72,021 64,182 ----- ----- 8. SHAREHOLDERS' FUNDS AND STATEMENT OF CHANGES IN EQUITY Called up Share Profit Share Premium and Total Capital Account Loss Equity Account Restated Restated (note 11) (note 11) £000 £000 £000 £000 At 1 February 2005 1,667 2,136 30,978 34,781 Actuarial gain on pension - - 14 14 Profit for year - - 6,337 6,337 Dividends - - (3,639) (3,639) ----- ----- ----- ----- At 1 February 2006 1,667 2,136 33,690 37,493 Actuarial gain on pension - - 22 22 Profit for Year - - 6,239 6,239 Dividends - - (3,650) (3,650) ----- ----- ----- ----- At 31 January 2007 1,667 2,136 36,301 40,104 ----- ----- ----- ----- 9. 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 in accordance with the accounting policy noted in 2.4 above. A 5 year hedge contract on £20m of the group's borrowings was entered into on 20th September 2005. The fair value of this contract at 31st January 2007 was estimated to be an asset of £93,000 (2006: liability of £19,000). The contract is designated as a hedge. The credit of £112,000 (2006: debit of £19,000) has been included within finance costs for the year (note 5). 10. RECONCILIATION OF OPERATING PROFIT TO NET CASH FROM OPERATING ACTIVITIES 2007 2006 £000 £000 Operating Profit 10,469 10,818 Finance costs paid (1,732) (1,675) Finance income received 81 - Tax paid (438) (2,074) Depreciation on plant,property and 478 477 equipment Loss on disposal of plant, property and 29 41 equipment (Increase) in amounts receivable from (7,839) (5,732) customers (Increase)/decrease in inventories (95) 10 (Increase)/decrease in trade and other (165) 98 receivables Increase/ (decrease) in trade and other 25 (353) payables Increase/(decrease) in accruals and (80) 70 deferred income (Decrease) in retirement benefit (18) (23) obligations ----- ----- Net cash from operating activities 715 1,657 ----- ----- 11. 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 £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 January 2006. The adjustments increase retained reserves by £1.6m and do not impact the profit for the period.

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