S&U plc (SUS) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the S&U plc investor presentation for the full year results ended 31 January 2021. [Operator Instructions] We'd like to remind you that this presentation is being recorded. And before we begin, we'd like to submit the following call. I'd now like to hand over to Anthony Coombs, Chairman, Chris Redford, CFO; and Graham Wheeler, CEO of Advantage Finance. Good afternoon.

Right. Can I thank you, Paul? And welcome, everybody, to this presentation on Investor Meet Company. Very, very nice to meet you albeit on a virtual basis. Hope you're all well and that you're thriving as much as possible in the current, rather curious conditions under which we live. But anyway, great to see you all. Just in case some of you don't know S&U, I'll just give you a very brief background of what we do. You've been introduced to our participants, Graham Wheeler and Chris Redford, so I won't say any further on that. But just to say that we work very closely as a team. And I should think the combined experience of all the 4 participants today from the S&U side in the finance industry is well over a century. So we're rather graybeards, but nevertheless, I think that helps in terms of ensuring that your money is well invested. So having said that, S&U is operating in 2 main sectors. The first is the used car motor finance sector, which is -- it's about 1.5 million cars a year in the finance part -- we have plus -- sorry, 2.5 million cars here in the finance part. We have about [indiscernible] percent of the market, which is the sector in which we operate, a 1%, about 25,000 vehicle transactions a year of the total market. And we've been doing that since 1999 when we set up Advantage Finance from scratch. And it's great that Chris Redford, who is now the Group Finance Director, was one of the founding directors of Advantage Finance back then. And so he's got more than 20 years of experience in this business, and that kind of experience and wisdom is invaluable. And talking to -- about Graham Wheeler. Graham joined us a year ago as Chief Executive of Advantage Finance. He might have thought that he could have got his timing a little bit better because he joined about 3 weeks before lockdown or the first lockdown. But I must say he's done a magnificent job in guiding the company through what has inevitably, in terms of markets as a whole, being a fairly turbulent period. In addition, in 2017, we started a property bridging business called Aspen Bridging, which is -- which has been growing steadily ever since. It made a profit in its first full year of operation and has now grown. It had a hiatus at the beginning of last year when effectively the property markets were closed, but it more than made up for that in the second half of the year with a record number of deals transacted. And the signs are very, very propitious this year for another record year, and we'll explain a little bit more to you about that when we get to the relevant slides. We -- our business philosophy as a business is basically based on steady, sustainable growth. Now obviously, we haven't been able to offer that this year, but that is our aim. And that is something that we've achieved at Advantage Finance every year, except for the latest one, since it was founded in 1999. So that's a proud record. The reason why we like steady, sustainable growth is very simple. The founding family, and obviously, I'm a member of it, whose grandfather who started the business, it's long ago, it's 1938, own a majority stake in the business. And that gives us an identity of interest with other shareholders and a feeling of responsibility in the way that we manage the business. It has huge advantages in terms of our financial strength and our credibility as we will demonstrate later on. So we would hope that investors come in to our company. Obviously, they see an opportunity in terms of the potential growth in the company. But also they follow the Warren Buffett philosophy of ensuring that what you are buying is a long-term investment with sustainable growth in terms of share value and also in terms of dividends. And that's one of the reasons why the financial position of the company is so strong, obviously led for the company by Chris Redford, the Finance Director. And that our gearing, particularly for a finance company, is low. It can and will go up if opportunities arise. But nevertheless, I think it demonstrates our caution and our commitment to our shareholders, but also to the sustainability of our earnings. So I think I've said enough, hopefully, to give you an indication of what the company does, what our philosophy is and who are the main individuals involved in leading it are. And so could I just move on to the first page of our slide, which I'm told is this -- I think I'll just refer, again, to my short-term prognosis so far as the business is concerned in the -- in Page 3 -- or Page 2 of the slide, which indicates that we've been through a difficult period, as everybody has. We've taken the opportunity during that period to actually make sure that the fundamentals of the business are working in a way that I think is more effective and more efficient than they've ever been. Our staff have been our strength. And fortunately, they're all safe and will be gradually reintroduced into the workplace when government policy and safety allows. But we do see a tremendous future in this year as the country and the economy rebounds. And as a result, we would hope to return to our, as I say, habitual levels of success. So moving on to the facts. The facts are that the group profit this year was half about what it was last year. That was mainly due to an additional GBP 19 million worth of impairments, which under IFRS 9, we were required to make in order to anticipate future cash flows likely to come into the business. And what affected that was the effect on collections, in particularly in our motor finance business of government or FCA, Financial Conduct Authority, mandated payment holidays. But nevertheless, we think that, that provisioning was absolutely right. It, I think, was probably on the conservative side of our peers. I'm pleased about that because it means we don't get any nasty surprises, and we may get even a few nice ones as the economy recovers. Our earnings per share, 120p, and we would anticipate that, that would yield a dividend of about 90p this year, which is a coverage of about 1.34x, normally worth 2x. But in line with our long-term philosophy on dividends and maintaining faith with our loyal shareholders just as we maintained faith with our loyal staff, we wanted to make sure the dividends were maintained, albeit not at the same level as it's been the case in the past. And it is our intention gradually to work our way up to twice covered dividends. But we don't see that happening in 5 minutes, although it will happen steadily over the next 2 to 3 years. Just going further down, I think it's self-explanatory, about Advantage Finance new loan volumes. I think this year was the lowest year for some time mainly because, in terms of transactions, the dealerships have been closed for, I would think, probably 2/3 of the year. And obviously, it's more difficult even with click-and-collect for customers to buy their vehicles and, therefore, for us to finance them. The Advantage profit, therefore, was reflected in that. And together with the provisions and the slightly less Advantage -- slightly less Advantage, the less advances we did, about 16,000 against 22,000 the previous year. Aspen property bridging finance had a very good second half when they did 55 deals against only 25 in the first half. The quality of the book is its best ever. The underwriting criteria have been tightened in order to take into account what is an uncertain residential property market, but one which is nevertheless improving as we speak. And for the full year, they produced GBP 800,000 worth of profit. And we would expect a substantial, and I emphasize the word substantial, rebound for '21, '22 if our plans -- and it's a relatively short-term business, average loan between 10 and 12 months, if our plans come to fruition. And finally, I just emphasize again the strong balance sheet, which has GBP 155 million of committed facilities. Now Chris Redford put GBP 25 million extra facilities into place only weeks ago, I think it's about 2 weeks ago, with one of our long-term funders. That's extended our maturities and gives us an excellent base for which to grow. And of course, if we need further facilities, then that gives us the opportunity also to improve the number -- increase the amount of facilities so we can accommodate that growth. So that gives you, I think, an overview of what's been going on, what we see as the prospects. And I hand over now to Chris Redford for the next slide.

Thanks, Anthony. I think you should have called it the exciting financial slide here. All right. All right. So first, we start, and I'd love to pick out highlights from here. So on the group income statement, clearly, the main highlight is impairment. We've got an unusual GBP 36 million impairment charge during the year, most of which relates to motor finance and is a requirement of IFRS 9 that we look at the book. And when COVID hit, we said, well, in normal circumstances, we'd expect so much future cash flow from the book from individual groups of customers. And now realistically, we're going to expect less. And that feeds into this impairment number. It was more weighted towards the first half year when it was well over GBP 21 million, and then the balance of the GBP 15 million was in the second half year. That also produced, therefore, profits that were recovering in the second half year. They went from GBP 6.3 million in the first half to GBP 11.8 million in the second half. One thing I haven't mentioned on the slide, which I should just mention, is admin expenses, we say 14%. We didn't quite say 14%. We got a one-off benefit on that line from GBP 700,000 worth of VAT recovery, long-standing due from HMRC. So just thought I'd mentioned that. You can see from the figures at the bottom that our main business, by far, is motor finance. That makes the majority of the profit. But we have high hopes, as Anthony mentioned in the highlights, for Aspen Bridging next year. Our intention is to try and get that diversification business up to about GBP 5 million profit in the course of the next couple of years. Moving on to the group balance sheet. This is very simple. It's useful for us accountants. Basically, you've only got 3 things that matter here. You've got the net receivables, the book debt, the borrowings and the reserves. And what you can see is even in a COVID-impacted year, your net assets and total equity have gone up 1%. You can see that because Advantage even in a difficult year is cash-generative, the borrowings have gone down slightly. So this is where-is-all-the-money-gone slide. So borrowings have gone down slightly. They went down from GBP 118 million to GBP 98 million, as you can see on the left-hand side of the slide. And we try and split that between motor finance and property bridging and say, well, how have we invested your cash flow in terms of what's new advances, is -- are the borrowings down because of more collections or because of less Advantage. Well, it's mostly a combination of much lower advances and a bit lower collections because of the payment holidays that Anthony mentioned in his introduction. On the smaller business property bridging, what you've seen is collection's up a bit on last year but not much. Why is that? Because we did most of our advances, as Anthony mentioned, in the second half year. And therefore, they're not due for repayment yet. So we expect collections for those businesses -- for those loans to come in more in 2021, '22. Anthony has mentioned the treasury, so I won't repeat what he said there. Group gearing, he's also mentioned. And we generated GBP 19 million cash flow during the year. So that's a brief overview of the main financial statements in summary terms. And what I'll now do is hand over to Graham Wheeler who joined us about 1.5 years ago, I think, Graham, initially, and then was appointed to the S&U Board back in February. And he has had a very eventful year with COVID, but we're very lucky to have Graham. He's handled COVID and the team -- a fantastic team. He's got an advantage of doing that brilliantly over the course of the last year, and he'll tell you a bit more about the operation at Advantage and what his future plans are.

Thanks, Chris, and good afternoon, everybody. Yes, so what I wanted to do just this afternoon is just take you through just a few slides and explain kind of operational update in terms of what and how Advantage have worked their way through the COVID pandemic and what we've been working on for the future. So this first slide is an interesting picture. It basically sums up our attitude to some of the trials and tribulations that we've all seen during the course of the past year. And every time we've had a bit of a setback, whether that's a setback in terms of the lockdown or pandemic stage or whether that's a setback in terms of the different variations of FCA guidance that we're seeing over the course of the year, basically, we just go on with it. And that's very much epitomizes the, I guess, the attitude and the culture of the business. And you'll see during the course of the next few slides just how we've used that to react to what's been going on. So the things we've been focused on during the course of this year is improving our sales offer, whilst we've been refining the business quality and underwriting, improving our collections process, maintaining regulatory standards and coping and developing our forbearance activities based on all the different variations of guidance the FCA have given us on forbearance and payment holidays. At the same time, we've been managing the core of our business. We've been looking forward in terms of some technical developments, digital markets and developing new risk to market. And we'll even have the time to have a real deep dive in terms of our strategy that we need for the business. And specifically, we've been having to look at the impending -- the electric vehicle market and the impact that, that might have on advancing our marketplace moving forward. And I'll talk to each one of those things over the course of the next few slides. From an operational perspective, we've been operating for the last, I guess, 4 to 5 months with just 30 staff in our offices in Grimsby. We are planning to increase that over the course of the next few weeks and months. All of our staff are working very well from home. We built an infrastructure that manages equally successful home working as we have office working. And I think in terms of the lockdown, I think we've all experienced that that's brought on some stresses and strains, and particularly if there our collection staff who have got their own personal situations are having to speak to customers on a daily basis who are suffering mental health issues and financial health issues. And we've sort of developed a well-being program for our staff that helps them to cope with that particular -- those particular situations. We're registered with the -- the business COVID self-testing program, and we hope to get involved in that very shortly. And in terms of the 4 stages of returning back to the office, they start on April 12. So we're going to move from 30 to 60 staff on April 12, and we'll gladly build that up to about 115 staff out of the 170 by June '21. I think the day is where that will be pretty much the new normal for Advantage moving forward because having that kind of flexible working model will certainly work for us, and will create additional spaces within the office and at the same time, to be just as efficient, if not more efficient, than we have been over the course of the past 12 months. So I guess, in summary, in this page, despite all the impacts that we suffered, the business operationally has been trading just as well as it was before. Anthony mentioned we [ caught the clock at ] the sales. The dealerships, as Anthony said earlier on, have been pretty much 2/3 to 3/4 of the year have been closed. And so they've all adapted to kind of click-and-collect delivery process. So people are buying cars on the web, click and then taking delivery where possible. Because of logistics issues, the dealers can't deliver every vehicle that people order. So what we've seen is, I call them digital tire kickers. So those are the guys that are sat at home at nighttime with an iPad or their phone or their laptop in front of them and are looking through brochures of cars on the Internet, and in some cases, looking for finance to go along with it. And what we've seen is an uptake -- a big uptake in terms of finance proposals coming through to us. But there's clearly a physical limitation in terms of the number of vehicles that can be delivered through a click-and-collect process. That tells me there's a huge opportunity and a growing opportunity. And that when things are released in the marketplace over the course of the next few weeks when dealerships open on the 12th of April, that we should see a bit of a boom in the marketplace because there seems to be some pent-up demand there that we can certainly take advantage of. And then during the course of this month, in March, we've seen our sales performance almost increase on a day-to-day basis during the course of March. So as people get ready for some form of release back in the early part -- or the later part of this month and the early part of next and even in the past 2 days, that 100% of the budget in March is now looking -- I said it's going to be 105%, 106%. So that gives everybody a feeling of how the marketplace is expected to kick back up again. At the same time we've been doing that, we've been looking at, I guess, 4 key areas in terms of sales, improving the overall quality, making sure that we're right in the right level of business, and we'll talk about that a little bit later on. Moving from a risk reduction scenario into managing risk. So last time around, we told everybody that we had withdrawn from our lower quality T&E business and some self-employed because of the inherent risks of the self-employed marketplace. And over the course of the past couple of months, we moved back into that territory. And -- but we made some adjustments in terms of our scorecard to identify characteristics, which give us a better opportunity to lend to better people even within that higher risk area. And that seems to be working very well for us, too. We're still maintaining the cost of sales of controlling commissions as far as the -- as far as the brokers are concerned. And we are testing different interest rate products for different large brokers, so that we -- previously, we had one -- effectively one set of rates for the whole marketplace. We've now got -- we've now built the ability to amend rates depending on the volume of the business and the relationship we've got with certain brokers, and that's now fully operational. And we've got slightly different rate structures for some of those brokers moving forward who have big opportunities. So all those issues have helped us to push together our sales volume and make sure that we are ready for the big boom internally that we expect to see in the used car market from, hopefully, from April 12 moving onwards. I did say I will talk about a little bit about regulation. The Financial Conduct Authority have had a huge interest both in terms of mortgage lending and in terms of motor finance and credit cards. They have issued lots of different phases of guidance, which we've been able to adapt to very, very well. More recently, they've had a couple of interesting analyses of the marketplace in terms of 2 areas. And one was how are the lenders dealing with the level of forbearance measures, are the processes robust? Are the customer interactions correct, are the documentations correct and, et cetera, et cetera. And also, they had a bit concern, not specifically with us but generally, that there was enough liquidity in the financial markets to be able to support lending in the different markets that are there. So our response has been -- we have adapted to all those collections approaches and forbearance measures. We've managed our way through that situation extremely well. We're now back into repossessing vehicles where necessary, which have been -- there's been an embargo on that during the course of this year up until February 1. And in terms of the 2 specific interrogations in the marketplace that we are seeing, we took part of both of those. We work very closely with the colleagues from the FCA in terms of analyzing our forbearance processes and policies and customer interactions. And we got a complete clean bill of health, which was great. And then we're also supplying them with, I guess, liquidity and -- liquidity monitoring study. We're supplying them with information about our liquidity position. And they very quickly realized that we were very much in control of our liquidity within S&U and Advantage and have stepped back considerably in terms of their requirements from us from a reported point of view, and again, 0 negative impact from that perspective. Whilst all those regulatory issues have been going on, we are delighted to say we have maintained our position in terms of feedback from customers. The approach we take is individual customer contact and individual customer solutions because every customer is different. And we have been getting some fantastic feedback from many of our customers, and we're still rated at -- still rated 4.8 out of 5 in the Trustpilot surveys and [indiscernible] continued, but I think that's reflective of the approach we've taken in terms of looking after customers within our business even in these very, very difficult circumstances. My last slide is just to give you a feel for the areas of development we're looking at. I split them up into 4 key areas around CRA data, sales development, technology and risk management. In terms of the CRA data, we have introduced a third credit reference agency, and we're in the process of integrating that into our systems and processes from an underwriting perspective. And we're also looking at restructuring the contract we've got with our biggest supplier, Experian. That's going to help us to move into comparison websites where lots of the brokers in our marketplace and moving towards comparison websites, like Confused.com and ClearScore.com and Comparethemarket.com, all these people. There's a move towards comparison websites within used car delivery and used car finance. And we're looking to partner with those guys moving forward, which will create as a big opportunity. But of course, the cost of searches -- credit searches has to be controlled in that very high-volume environment. And we're trying to -- we're working with Experian to find a way to allow us to step into that marketplace without the additional costs that would come with the search costs. In terms of sales development, yes, we're working on those comparison websites, and we hope to go live with our biggest broker partner over the course of the next 2 or 3 months. And we continued progress with our -- developing our affinity partnerships. This is prime lenders who are interested in supplying services to the nonprime arena but don't want to do it for themselves. Therefore, they want to -- they're looking to partner with people like ourselves and link the assistance with ours, so that we can get an opportunity to write some of that business moving forward. The partner, we've made some great progress on is -- has been affected by COVID. The guy who was leading their project at their end, really, unfortunately, succumb to the disease a couple of months ago, and it set them back a little bit. And therefore, it set the project back a little bit. But we're still making some good progress from that point of view. And then in this last data, we've had to look at electric vehicle funding. And the decision we've taken is to step into that market of financing older higher-mileage electric vehicles. The concern, I think, that everybody had was that the battery was somehow very different from the car and that there was a higher level of potential degradation in the battery power over a period of time. And given the detailed review of that marketplace, we are now very comfortable that's not the case, that batteries do not degrade at the same level as the concerns were there. And even if they do degrade slightly, it's usually 1 or 2 of the individual cells within the battery compartment. That can be very quickly and cheaply refurbished to bring the electric vehicles back to almost manufacturing power. So we're very comfortable in this marketplace, and we're going to step back into it, though I have to say that the size of the opportunity will be extremely small at the moment. But our view is that we're better to learn now where the -- and learn how to finance electric vehicles over time, so that in 5 or 6 years' time is that you see a quantum leap in terms of electric vehicles in the marketplace that we have already learned how to manage those and are well primed to take advantage of that part of the market moving forward in the future. So quite exciting times from that point of view. From a technology point of view, digital marketing, we're focusing on redesigning our website, introducing customer self-service and developing a lot of our SEO proactive activity for existing and previous customers, as I kind of pre-alluded to, giving us the capability of going direct if we need to some time in the future. And then lastly, in terms of risk management. We've now fully installed an enterprise risk management approach across the whole business. We've completed our SMCR registration and documentation for the FCA. And then even within the last few days, we've upgraded our SaaS data management system to effectively significantly upgrade the level of intelligence that we can provide within our portfolio to make us -- help us make more smart decisions moving forward. And I think that pretty much covers my slides, Chris. And I'd like to pass back on to you now.

Thank you very much, Graham. And so Graham described in good detail what his future plans are, but he also mentioned a few actions that he had to take during the year, particularly in the light of COVID. And just what the next 4 slides show you where that leaves Advantage in terms of some of statistics we normally look at. So what was the motor finance loan profile this year compared to previous years? Well, you can see on this slide, the number of loans we did was down, we've talked about that, 15,589. Most of the year, there was lockdown. It was difficult for customers to access dealerships, and we were quite cautious in our underwriting approach. As Graham mentioned earlier, we withdrew from some of the normal lower-paying quality customers who we like to serve partly as a result of less certain information on the credit reference agency. And that was a cautious approach. And what that resulted in was that the average advance -- because higher-quality customers tend to take bigger advances, the average advance went up to 6,581. The average interest rate went down to 17%. And the average customer score, which is our internal measure of customer score, went up to 900. So all those 3 things really are slight departures from what you can see with the trends in the last 6 years. And those departures reflected our cautious approach in the slightly higher average customer quality as we went through last year. One of the line I should mention is the cost of sales line. You can see that's been creeping up over the last 6 years. Well, that's as a result of more competition. The market going more towards Internet introducers. Internet introducers have a higher cost base associated with them, but that's where customers like to shop now, as Graham mentioned earlier, and therefore, that's driven the costs. Also in the last year, we didn't get quite the economies of scale. So we would see that 8 72 figure going down slightly over the course of the next year, according to our budgets. This is an exciting slide but it's a complicated slide, anyway. But it's quite a relevant slide, we think. So historically, there's been a strong correlation between first repayment quality and end outcome after 5 years. It is quite a scientific business advantage. And the risk team and the analytics team, in particular, do a fantastic job in making sure that the quality is as we expected and we're pricing it correctly. So what's happened over the years, this slide actually shows you from 2003, right, through to up-to-date almost. And the blue line shows the first cash received percentage, which is the left-hand scale. And what's that saying is that between 90% and 99% every month over the last effectively 18 years how they've paid their first payment. So that's what the blue line shows. And you can see that post-GFC, we managed to attract a higher-quality customers, so nearer prime. So at that point, the blue line went up, 2011, 2012, 2013. Since then, there's been a bit more competition in the market. It's come back down but still very high, around 95%. So those of you who have got very good eyesight, you can see at the right-hand side of the slide that in February, March last year, recent deals that we've just done didn't quite pay their payment as well. Still 94% paid their payment okay, but there's a big dip there. Why? Because everybody panicked -- or a few people panicked a bit because of COVID. Since then we did quality measures and the sensible underwriting that Graham and the team have introduced, it's gone back up again such that we're hovering again around the 98% mark, as you can see there. So what is the other thing I'm showing on this slide? Well, it's the red line. That is the outcome loss ratio after 5 years. And there's a fantastic correlation for those of you who are into mathematics between the blue line, the way customers make their first prepayments and actually where they end up after 5 years. So bad debts -- what the right-hand inverse scale is showing is that between 10% and 30% over the years have turned into bad debts after 5 years, 5 years being the normal cycle of an Advantage loan. And you can see that up to 5 years ago where the red line stops being -- a firm red line starts being a dotted red line. The correlation was very good. The dotted red line is just our latest estimate of where the outcome loss ratio might finish after 5 years. So it's less certain inherently. And that starts to depart from the blue line. Why? Because realistically, we think customers are going to get more problems post-COVID and in the post-COVID economy, and we're forecasting that at the moment, which also feeds through effectively into our provisions. So the dotted red line, particularly for recent business, may not be right, but we believe there'll still be a good correlation with the way people make their first payment. It might be just that the outcome losses are realistically a little bit lower than they have been. This is a cash slide. So it's a payback slide. What the green bar show is for every year of origin, how much money we've collected. And the blue bars show the advance, including the cost of sales. So it's like a payback is what you've invested on day 1. And what I like about this business -- one of the things -- many things I like about this business is that you know day 1 what your main outlays are, you know what the advance is, you know what the cost of sales is. That 800 figure is our biggest cost, and that's your upfront investment. And generally, it takes us about 30 months to get that investment back, a little bit longer recently because, obviously, we've had payment holidays but also we're in slightly longer term. What the green bar shows you, therefore, is on a cash basis, well, we know what we advanced, so how much to date have we actually collected back? And you can see, on average, what percent of our original investment we've actually collected back years up to Jan '16. If you go up the scale on the left-hand side are reasonably final years. And then Jan '17 onwards, clearly, we're still busy collecting those. And Jan '21 is the least certain year in terms of what we've collected so far because it's the most recent, and therefore, it's got the furthest to go. What I've also put on this slide is an end outcome estimate. For years up to Jan '16, that's pretty much where we are. We won't collect any more, and they are good results. Jan '17 onwards, clearly, it's a little bit less certain but still collecting 140% or even 131%. That's consistent with over 10% return on capital employed before cost of funds. So I hope that explains that payback slide. Just briefly on this net receivable slide, what we set out for here -- for you here is on an original contract basis, so this year, we've experienced payment holidays. This says well, payment holidays effectively are counting as arrears on this slide. So what has been the cash we've missed out on this year, we're 62% up to date; whereas last year, we were 79% up to date. And then in the middle of the slide, we've split the book for you between yet what about the people who haven't had a payment holiday, how are they paying. So you can see that nonpayment holiday accounts, and that's the bulk of our book, 44,000. You can see the performance for 15,000 who've had a payment holiday but are now starting to pay again. And you can see the performance for 3,700 accounts that are still on payment holiday typically there on a 6-month payment holiday, in line with FCA guidance as to how to treat customers that need the most forbearance. So I hope that explains some of the stats behind Advantage. And I'd like to now hand over to Anthony to talk about our property bridging business.

Thank you, Chris and Graham. Very good, indeed. And I'm going to be very brief on Aspen because we've got about 13 questions that have come through. We started Aspen in 2017 because we saw an opportunity in the refurbishment and small builder market for short-term loans, which are effectively being ignored by the mainstream banks. And I think our analysis has been proved accurate despite the hiatus in the market last year because the year before last, Aspen made GBP 1.2 million; last year, even with COVID, 800,000. And we're expecting a significant increase in profitability this year to the extent that we would want to make GBP 5 million, and therefore, a sensible contribution to group profits in the next 2, 2.5, 3 years. So we think there's huge profit growth. It's very well managed. It has strict underwriting criteria. And obviously, we regard quality as we do in the rest of our business as important as quantity, but we can answer questions about that in a few moments. I'm not going to go on too much about the outlook. I think you've got a very clear indication of our confidence in the future. And now I'm going to go on to questions. And I don't know how you want to do this, Paul? Do they want to ask...

Anthony, perhaps -- thank you very much, firstly, for the presentation to the team. Obviously, we have had a number of questions come through during the live event, and we can run over if required. But we'll have the opportunity to review all the questions submitted today on the platform as well. And just coming on to the questions and conscious of time, we had a couple of pre-submitted questions. Perhaps we could start with those, Anthony, and then we can work through the questions submitted during the event?

Yes. Okay. I'll read them because -- presumably, has everybody got them on this?

No, just you, so if you wouldn't mind reading them out, I'm happy to...

Okay. First question is based on S&U's ROCE and leverage levels, they can achieve a return on reinvested income of over 15% and do so with impressive consistency. The money you pay out is in dividends based on standard PE ratios a greater return of around 8%. If the reinvestment opportunity exists, would management consider lowering or even scrapping dividends to favor growth and create higher shareholder returns? My very short answer is that there are huge benefits of having management and shareholders co-align, if you like, in terms of their interest. My second point is that we don't live forever. And in the long run, as John Maynard Keynes said, we're all dead. And so we like dividends. And the third point that I would make is that reinvesting is great. But unfortunately, we have an inheritance tax regime in this country, which certainly doesn't favor publicly traded companies. That it means that one has to at least have a pause before you say we're going to reinvest more than we do at the present time and give 40% to the chance, whoever he or she may be. So the answer is, we'd like to try and maintain a balance between our dividends and our potential to reinvest. We would never allow dividends to get in the way of necessary investments. That is something that I can pledge. But at the same time, we do think that we will reward shareholders on a sustainable basis and will continue to do so. So that's the first question. Second question is, what do you see as the medium-term drivers of growth for Advantage? In particular, how much further structural growth might there be in the penetration rate of used car financing, whether you're seeing more prime borrowers migrating to near prime and the extent of any pullback from the market from competitors? And I'm going to give that one to Graham, Graham Wheeler.

Yes. Thanks, Anthony. I guess in terms -- first of all, in terms of organic growth, if we look at some of the volume of deals that we approved that are not taken up either from competition or whatever, those are, what I would call, the low-hanging fruit. So there's plenty of room in there for us to penetrate the market base on our current business. So I see that as organic growth moving forward in terms of growth of our business. But there are other opportunities in terms of our SEO activity in terms of existing and previous customer base, develop in a way that our brokers that we've currently got, the comparison websites that I mentioned earlier on and the kind of affinity partnerships that I've spoken about that would create -- could create substantial opportunity for us moving forward. So there's still plenty of opportunity in terms of growing our business in a number of those different areas moving forward. And in fact, this year, in terms of our volumes, we are planning -- or budgeted on a return to, in fact, a record year in terms of sales compared to previous years. So that gives you -- hopefully, gives you a sense of the level of confidence and ambition we have for growth of our existing business. In terms of the same question, which is about prime borrowers migrating to near prime, I don't think we've seen that yet. But if you think about the number of people that will have been affected by unemployment, of furloughing and the effect that's have on their finances for some people, I suspect what's going to happen over the course of the coming months and year is that people who have been affected more by COVID, who had an unblemished credit record will move down towards less prime rates and less prime products. And I guess I think that will create further opportunities for us moving forward, too. And then the last part of that question is in terms of pullback from market competitors. One or 2 of the competitors have stepped back from lending at all during the course of the last part of the pandemic last year, but they'll come back into it again. And still we have the same level of competition now than we've ever had, and that's good because that drives quality of interaction with customer, drives quality of the deal we have and from a market perspective long may that continue. And we just need to make sure that, as always, we're ahead of the game when it comes to the level of service and the level -- and our lending appetite in the marketplace. I think that's pretty much covered all of that, Anthony.

Good. Thank you very much indeed, Graham. The number of questions is growing all the time. The next one is [ Joseph D. ]. The earnings release was very positive in the terms of the opportunity to grow the business. From 2015 to 2019, the car finance business grew profit before tax at 20% per annum. From 2019 to 2007, I think that's probably wrong, the car finance business grew to profit before tax at a whopping 24% per annum. I think you meant 2009 to 2017. Can you help us to understand if that level of growth is achievable going forward over the next 5 years or 3 to 5 years or beyond? Or are those levels of growth no longer realistic for the business? Obviously, the bigger you get, the more percentage increase in growth is difficult to achieve. Why? Because the absolute amount is more. Having said that, I can say that having seen the fall in earnings this year, for reasons we've outlined, we would anticipate as a group getting back on the growth trail. And I would certainly anticipate and hope to see very significant increases in growth over the next 3 years. And those are funded into -- put into our budgets. And I would hope that they would approach in percentage terms what we've been achieving in the past, but nobody can guarantee that. And I've always been very wary of predicting high levels of growth in a finance business because, obviously, it depends upon the quality of debt and the general economic environment. But that's certainly our ambition and where we would like to get to. [ Joseph D. ], again, the property bridging business appears to be going extremely well. Congratulations, many thanks. Has your estimate of what the total scale of the property bridging business could be on a very long-term business view changed materially? Is there any chance you can help us to understand just how big this business could be on a 10-year view? We -- first of all, we don't take a 10-year view because even if you're the treasury or the office of financial statistics, you have a big enough problem in taking a 2-year view, let alone a 10-year view. So we're slightly wary of these grand strategic predictions. But we do see the significant opportunity in the Aspen business. We would certainly hope to grow it to the profits, as I said earlier, exceeded GBP 5 million. And we're going upwards in the next 2 to 3 years. That implies quite an impressive growth rate. What ultimately it can be, I don't know. It depends on the strength of the housing market. It depends upon the appetite and the ability to attract finance from smaller builders and refurbishers and buy-to-letters. But I would have thought that given the substantial structural imbalance in this country between the availability of good housing, not just any housing, good housing and the demand for it, I would have thought that actually Aspen is set fair for a period of sensible and sustainable expansion. So I'd go to [ Jerry Yu ]. Cost of sales of Advantage reduced from GBP 884 per transaction in H1 to GBP 857 H2. Is this reflective of a weaker competitive environment or some other factor? Over to you, Chris, on that one.

Okay. Thanks for the question, [ Jerry ]. Yes, obviously, both figures are a bit above what we've seen in previous years and both figures reflect the economies of scale point that I mentioned before, so GBP 857. We're always looking to save money on commissions and playing with pricing and margin to try and make sure we've got the right product in the market. And the GBP 857, I wouldn't see as a significant move indicative of the future, but I do hope on average over next year to be below GBP 872, given our commission budgets and what Graham has planned for the CRA costs.

Thank you. Thank you, Chris. Next one from [ John A. ]. Good question. Could you tell us concisely why I should consider investing in the company? What I would say, [ John ], is investing in the company, if you regard its long-term prospects is good, and therefore, that you would be holding the shares on that basis. As I said earlier, it's the Warren Buffet school of investing. And we think that our long-term prospects and the way we go about them justify that. What do you get for that long term investment? You get responsible, sustainable earnings. You get a good dividend yield. And as we've seen over the last 10 years, well, not so much over the last 4 or 5, you get capital appreciation as well. So that's my concise, hopefully, answer to your question. [ John A. ], again, what would you say are your USPs? What gives you your competitive advantages? And are they sustainable? I'm going to go on to Graham Wheeler for those.

Thanks, Anthony. I think -- if we have a USP, it's probably the -- our bespoke scorecard and systems capability in terms of change. Our scorecard is specifically designed for our marketplace. We don't -- although we take data from the credit reference agencies,to build into a scorecard, we decide our sales and their own characteristics of success. And therefore, that's the probably what's driven the success in terms of -- we call them the golden nuggets of our marketplace, picking out the deals that are most appropriate for us moving forward. And that's probably our biggest USP in terms of the mix of volume quality. And are they sustainable? Well, yes, absolutely. And we've invested heavily, as I said earlier on, in terms of our SaaS data intelligence system that's constantly analyzing the quality of business we've been writing. And we wouldn't be investing in that if we didn't think that was a long-term sustainable option for us in terms of managing our scorecard moving forward. So I think it's absolutely -- that's our advantage and absolutely sustainable.

Which I'm going to direct to you is from [ John A. ] again. Can you tell us what percentage of the market do you have where you operate? Who are your main competitors? And what share do they have? For Graham, yes, yes, yes.

If you look at the volume of approvals we give in the marketplace in the year,versus the amount of business we write, that suggests we've got about a 10% market share of approvals. So 25,000 to 250,000, so that seems to work out of that 10%. Our biggest competitor is probably Moneybarn, which is part of the Provident Group. And we've also got Oodle and Startline, and I could go on in terms of -- for another 5 minutes in terms of different competitors. There aren't any new competitors. But in terms of the market share we've got, that's about where it is. And the biggest competitor, as I said, is Moneybarn. And over the course of the past year, they've probably been about -- probably about 30% to 35% market share, which -- the question, is that a good thing or not? I guess, we'll find out when -- over the course of the next 2 or 3 years when we see the quality of their indebtedness in terms of the business they've been buying over the course of the past 12 months. Too early to say, I think, at this stage.

Thank you, Graham. And then the next one is for Chris from [ Javier R. ]. Congratulations on your great results. If current trends persist, when should we expect your gearing to increase towards 90% to 100% levels given the growth you are anticipating for the next couple of years? Thank you. So Chris?

Thanks, [ Javier ], for the question. And yes, a good question. As Anthony alluded to earlier, it depends a bit on how we continue to see the asset investment opportunity, and that's always been our view on gearing. We haven't naturally geared up just because we can. Therefore, I think the answer to your question is according to our plans. It's likely to hit sort of over 90% in 3 years' time, but it might be quicker than that if the right asset opportunity is there.

Brilliant. Thank you, Chris. And the next question is from [ Jerry Yu ]. Customers on payment holiday just decreased from just under -- have decreased from just under 5,000 to just under 3,000 now, and used car pricing is high now as you recommence repossessions. Are you anticipating reversing any of full year '21 impairment charge? Over to you, Chris.

Okay. Thank you very much again for the question. So am I anticipate reversing any of the FY '21 impairment charge? I think I don't expect it, but I'm hopeful that it might happen, particularly with the expertise that we've got in the Advantage collection section that Many of those have worked there over 10 years, some of them have worked there 20 years. And they're very good at comforting customers through difficult situations and enabling them to keep their cars and, on that basis, also keep paying for them. So if we're successful in that, then we may be able to reverse some of the impairment charge. But do I expect it? I think that would be a bit rash to say, I expect it.

Thank you, Chris. Very sensible. And could you now go to [ John A ], and I think this one is for Graham Wheeler. Could you conservatively estimate about how much of an opportunity you have from selling via comparison websites?

Again, that's a great question. Conservatively, is -- we're not experts in terms of the comparison website, so brokers are. And the specific numbers that our biggest broker is estimating is around 60,000 proposals a month at the moment in that marketplace. And that's one of the things that is driving a change in our structure with Experian because, frankly, the 60,000 searches a month, we don't want to be paying that. We want to be paying based on the success of the deal, going live rather than paying for the search, which is what we're trying to get to with Experian. And if we can be successful in that with these levels of penetration we're speaking about before, that could be 2,000, 3,000, 4,000 for us, which would be a game changer to move us -- to take us towards the kind of target level we've got in our own heads, heading towards 30,000 finance cases a year. So that's why we're really quite excited about that as an opportunity for ourselves.

Thank you, Graham. And then the next question is from [ Alejandro M. ] Can you -- and I think it's for Graham. Can you give us some color on the evolution of second half sales for 2021 quarter 1? Thank you.

That's such a difficult question. I'm not sure how to answer that one. But to be honest, what -- all I can say to you is that we have seen an increased level of finance proposal coming our way. We know that the used car market is on fire at the moment because there has been a lack of supply in the marketplace now for the best part of 4 or 5 months. We know that dealers are out buying stock to get themselves ready for a launch into the marketplace on April 12, which is pushing the used car prices in the wholesale market up. And therefore, we're expecting to see a knock-on effect both in terms of volume and blends because the vehicle prices go up, opportunity goes up. And April 12 when the dealerships open and they're all ready for moving back into the marketplace, I guess that's why we are quite -- again, are quite excited about the opportunity that will bring into quarter 1. If you look back last May, when the first lockdown was released, there was a boom in the marketplace for about 4 to 6 weeks as pent-up demand was being released, and we're expecting to see the same thing again this time around. And then after the first 6 weeks, they'll even up a little bit, and then we expect to see a kind of linear increase in terms of volumes between now and the end of the year because as people become more comfortable and more confident heading out and getting back to their lives. And I guess the last driver for all that is the old push toward preference for public transport and things like subscription financing models. I don't personally think that people are going to be comfortable doing things like that and sitting close to people in public transport, I think there's going to be a big move towards people having car ownership again because at least they can trust that the car that they're in is protecting them. And if they're going back for work, they're going to go on a second or third or fourth car in their family, and I think those -- that's a big factor for driving an increase in terms of second half car sales over the course of not just the next quarter, but for the rest of this year.

Thank you, Graham. That partly answers the next question, which is from [ John A. ]. Can you tell us what, if any, ideas you have or what actions you are taking to diversify the business, given the trend that some consumers are giving up their cars due to climate concerns? Also, changes in technology mean that people are giving up ownership and using taxi services, Uber, et cetera. And in the future, autonomous taxis, like vehicles as a service. Can I just briefly answer that one? I mean I think I won't add too much to what Graham has said. I think there is going to be a trend, which is the opposite of the one that you identify for private castles on wheels, away from the public sphere in a safe environment. And I think that, that means that the car-sharing services and the autonomous taxis, I think, are going to be very much on the back foot, over the next at least 2 or 3 years. I don't think that people outside the metropolitan areas are in any way wanting to give up their cars, whether it be for climate concerns or anything else. I think that they want to change their cars. It's one of the reasons why we're investing in investigating electric vehicle finance because that will become increasingly important over the next 10 years and that probably over the next 5 years, too. But I don't see any of these trends, meaning that car ownership per se will fall. So can I now go on to [ John A's. ] second question, which is, what is your typical margin? Can you break down any blended margin? Over to you, Chris?

Okay. Thanks for the question, [ John ]. So in motor, we talked about a 17% flat interest rate. If we think about that over a 4-year deal -- on average, we're just over 4 years. That means that the customer gets charged 68%. So if the advance is GBP 6,500, they would pay a maximum of GBP 4,420 interest. They'd also pay a GBP 325 acceptance fee and an option to purchase fee at the end if the contract gets to the end of GBP 200. So all in, therefore, on that loan, if it's a 4-year loan, you'd be talking about over GBP 5,000 in charges. Do we end up collecting all that? No, we don't. Generally, I like to think of this business as a cash business. So we advance GBP 6,500. And at the moment, I think we might collect GBP 9,500 back, which gives me a GBP 3,000 cash margin to cover my expenses and also our profit. So I hope that gives you a bit of a flavor on motor. On bridging blended margin, it's roughly 1% on the gross per month. So typically, we would lend GBP 500,000 or GBP 600,000 on a secured property deal, and the margin on that would be 1% a month. Again, that margin includes interest mainly, but also there's some fees involved. I hope that answers the question.

Thank you. Next one is, I think, for Graham, from [ Jerry Yu ]. Administrative expenses for Advantage declined substantially. Beyond the one-off VAT saving, there appears to be a further reduction of GBP 1 million in absolute terms and 0.7% as a percentage of revenue. Is this also one-off or rather a structural reduction in the cost base? Over to you Graham.

That's a great question. Actually, it proves my Scottish heritage that particular one in terms of cost management within the business. I mean the reality is that when we saw what was happening in terms of lockdown last year, the people working from home, that -- and the effects that, that was going to have on the P&L of the business, then it was right that we had a list of branch review of many of the costs within the business to make sure that we're controlled in that. That GBP 1 million that we managed to find and save had obviously had a direct impact in terms of the results that have been, I guess, you've seen over the course of the last couple of days. Is that a long-term thing? Well, we'll always control costs within our business. It's the right thing to do and exposes the old conversation, I'm sure, that I'll haggle with the Chairman over the -- and the Chief Financial Officer during the course of this year as I like to invest in other things in the future, but I guess let's watch the space.

Very good. Well done, Graham. Okay. Next one is from [ John A. ]. What are the, say, 3 things in the business you're excited about and that shareholders or potential shareholders should be watching closely? Well as a shareholder, which I am, profits is probably the most important thing that I'm excited about because it's a reflection of the success of the business. And so I'm excited about the potential for rejuvenating profits in the way that I indicated earlier on. That's number one. Number two is that I'm excited about certain areas in which we are going in terms of Advantage making -- being able to connect with our customers more directly and also in terms of the potential for financing electronic cars. And in terms of Aspen, really more generally in terms of being able to grow a very strong business. And then the final thing I would say is that we all -- it's businesses -- good businesses are people business. And I like to see people benefit, enjoy and develop their potential as a result of going to work, and that's one of the things that we are -- going to play a huge amount of stress on. And one of the things that's going to go into that is that I think we've all learned to work flexibly as a result of COVID. And I would hope that we would be able to raise people's job satisfaction levels and enjoyment of their work substantially as a result of what we've learned over COVID. So those are the 3 things. Next one from [ John A. ]. Can you talk about the share structure of the company? Does management have significant skin in the game? Well, management in terms of my brother and myself, and Jack Coombs, who runs with Ed Ahrens, the Aspen, the property bridging business, I mean, we have about 48% of the business, probably near 50%. So yes, we do have skin in the game. Does management -- I mean we do operate LTIP schemes. In the past, managers of -- with the glorious exception of Chris Redford and to a lesser extent of Ed Ahrens who's in charge of Aspen, have tended to sell their shares in order to be able to pay the tax, which is one of the problems that LTIPs generally face. We do want to encourage senior management to do that. Otherwise, we tend to incentivize senior executives and others through shadow share option schemes, which relate their bonuses to the performance of the company and the share price. So can we move on to [ Maynard P. ] who has put: COVID-related provision for the full year was GBP 19.5 million, implying an extra GBP 5.7 million for H2. Why the extra provisioning given the collections actually increased on H1 to GBP 72 million during H2? And over to you, Chris, for that one.

Yes. Thank you very much for the questions. So in terms of provisions, you're also considering future collections as well as collections within the half year, and there were 3 things I've mentioned that happened in the second half year that affected that increase in provision. So first, we had extra lockdowns. I think when I spoke to people at the half year, I expected not so many lockdowns in the second half of the year. We also had additional FCA holiday extensions, where most of the holidays we've had in the first half year were 3-month holidays, and they were extended to 6 months in some cases. And of course, what the provisioning represents is that you're providing for the outcome on that customer. And in some of those cases, particularly the ones that are still on payment holiday, we have assumed that not unreasonably and logically, I think, that they are going to be the worst customers in terms of their performance post-payment holiday. We also suffered from our repossession restrictions. Happily, they're ease now. But up to the year-end, up to 31st of January, they were still in place. So what that led to was that you had more live customer debts than normal on the books and, therefore, bigger provisions. And as we go through next year, as per another question, they will either be needed as we try and work with those customers to find our way through those difficult situations or we repossess the vehicle and sell it. So I hope that answers the questions. And the reason for the extra provisioning was basically those 3 things.

And so conscious of time as we're just running 1/4 now through in attendees time that they may have to potentially drop off. But the floor is yours if you wish to carry on just to go through some questions, but just...

Yes, yes, we want to take as many as we possibly can. Next one is [ Jerry Yu ]. And this one for Graham Wheeler. In a recent FOS decision, the ombudsman suggested reliance on ONS data and credit file checks were not always efficient. Given the FCA's requirement for lenders to update their procedures for FOS decisions, is this increasing your underwriting costs and/or is it restricting the pool of potential borrowers? Graham?

What a brilliant and detailed question. And one of the issues that not just Advantage, but the whole of the industry faces is the divergent views between FOS and the FCA. And the FCA have been very comfortable with lenders using information at ONS data and credit reference information data, et cetera, et cetera, to be able to underwrite customers. You're right, there have been a couple of unusual decisions from FOS more recently that have brought some focus on to the area of affordability checking. And us, like every other lender, we'll have a look at the sources of data, including the data that comes from open banking, which is more readily available for us just now. And we will always have a look at how we can find ways to finesse both affordability calculation and credit rating for customers. There's an increase in underwriting costs? No, it doesn't restrict potential borrowers. No, it doesn't -- it just means we will always do as we -- as we'll be as careful as we can be and use as much of the data that's available to us to make those decisions. So -- and there's clearly of angst regarding this divergent views between the ombudsman and FCA, which I would expect over the course of the coming months to be more aligned in terms of -- and move things moving forward. I think hopefully, that's covered that question, Anthony, if you're okay to move on.

Yes. That's excellent. Thank you, Graham. Next one is from [ Jerry Yu ]. What do you see as Aspen's target ROCE prefunding cost at scale? Obviously, this is not a higher-margin business as the motor finance business because it is secured lending, whilst the motor finance business is semi-secured on the vehicle and obviously on the lifestyle and capability of the customer. But we would probably see ROCE for Aspen, without giving you way too much, about 12% at scale, maybe a little bit more, but it all depends on obviously what scale we reach. Next one is from [ Bill H. ]. Did you make use of government help over the last year? And have you paid the money back? The answer is we didn't use furlough money. That was a principal decision right at the beginning, and we haven't used it since. And therefore, there isn't any money for us to pay back to the -- to our wonderful government. Next one was very nice from [ John A. ]. Thank you for doing this presentation. I hope you come back and do this again. We certainly will. We find it valuable, and hopefully you found it valuable as well. And finally, [ Jason S. ], do you normally advance -- potential customer here, I think, Graham. Do you normally advance 100% of the cost of the car?

Well, the cost of the car is -- I mean the -- the industry uses cap and glass guidance to guide for the valuation of the car, and we look at every deal individually. So it can range from 85% of the sales price to, in some cases, we go over it because of the quality of the car. So there's no hard and fast rule that we will end based on the customers' affordability, first and foremost. And if that fits within the price of the vehicle then, then that's great.

Great. Thank you, Graham, for that. And so that concludes the questions. I very much enjoyed it. I hope our audience has as well. And we do hope that, one, you learned a lot more about the company; and secondly, been impressed by what you've heard and will consider a long-term and sustainable investment in our business because certainly we'd like to have you as shareholders. Thank you, Paul.

That's fantastic. Anthony, Chris, Graham, thank you so much for that session, including the questions. You've got through a heck of a lot of them. So thank you very much. You've answered every single one. That was great. Anthony, thank you for the closing remarks and updating investors today. Can I please ask investors not to close the session? You will automatically now be redirected for the opportunity to provide your feedback. If you've accessed the meeting from our website, the feedback page will just appear. But if you've accessed via the link sent to you in e-mail, you just simply be asked to log back in. It takes just a couple of minutes to do so, so it would be greatly appreciated by the company. On behalf of the management team of S&U plc, thank you again for attending today's presentation. That concludes today's event.

Thank you.

Thank you.