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

Good afternoon, and welcome to the S&U plc preliminary results investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions it missed today and publish responses where it's appropriate to do so. Before we begin, I'd like to make the following call. And I'd now like to hand you over to Chairman, Anthony Coombs. Good afternoon to you, sir.

Good afternoon. Thank you, Alessandro. And I must say that we're very big fans of investor meet company. Why? Because one, I think it's a great idea. Secondly, because it works as well as you can actually talk to people through it. And third, because it really gives us an opportunity to get in touch with those investors, we otherwise might find difficult to be talking to, very often the retail investors. And they are particularly in a fairly narrow market for as new shares crucial to our well-being. So great to see people here, and hopefully, we can answer your questions. I just want to start off the full year results by saying that without any false modesty, we think that they're extremely good. And not only are these results good, but all the work that the business has been doing and the people in the business have been doing over the last 2 years during the pandemic will make them even better in the future. And we've laid the foundations for what we believe is going to be strong, sustainable growth in the future. And we've done that against the backlog of really, actually, it's probably the most turbulent time as any of us can remember. I won't go through the litany. But let me just say that when you consider COVID, Brexit, rising inflation, impact on real income, and now to cap it all off, the terrible situation in Ukraine, I think that we can probably say that we live in interesting times. But nevertheless, despite all that, S&U has been able to produce the kind of results that you see before you, which we're going to be discussing in a few moments. I won't introduce our speakers at the moment because they can introduce themselves when they do speak. But what I will do is just briefly highlight the results for this year. We've got a group profit of GBP 47 million. As our Group Finance Director Chris Redford will explain, that is slightly inflated by provisions, write-backs this year. But nevertheless, it is actually a record for the business in it's -- I think, it's now 84-year history, because we were founded in 1938. And that's reflected in earnings per share and in the kind of dividends that we pay. We've always had a progressive dividend policy. We like to have it twice covered. And what we've done in calculating the dividend this year is to take the earnings per share in the last 2 years and divide them by 2 and make sure that what we paid last year, 90p, now made up to an average of half the earnings -- average earnings per share the last 2 years being paid this year. And then as always, we maintain our very conservative balance sheet because we believe that sustainable earnings require sustainable funding. And that's certainly what we've got with 55% gearing. So that's what I'm going to say so far as the group is concerned. I would just add that I think although people's incomes will be constrained over the next 2 years, actually, that is something that is going to give Advantage, in particular, and probably to Aspen as well, but Advantage, in particular, a competitive thrust. And the reason for that is that building on over 80 years of experience in lending money to people who may be on constrained incomes, but in a very benevolent and understanding way. And we've had very close links with our regulator, the Financial Conduct Authority. But building on that experience and building on the, as you will see, the phenomenal underwriting expertise at Advantage, which gets more and more sophisticated every year, we are able to help people who would otherwise and possibly not enter into a contract for new car to do so, but in a sustainable way, knowing that they can afford the repayments. And that is the nonprime sector that we serve. In addition, my view is that the next couple of years, we'll see people from the near-prime sector coming to our orbit. Because they will say, "Well, I want a car, but I want it to be economical. I want it to be reliable. I wanted it to get me from A to B, but maybe not as often because I don't go to the office as much as I used to. And therefore, I want to go get a utility vehicle, a cheaper vehicle, but 1 which I know is from a lender that we will be understanding and help me through the experience." And that is something that, certainly, Advantage will be able to do. And I think my prognosis for the market is really backed up by the fact that even during the period that we've just been through, our applications for business in Advantage Finance have been at record levels and continue to be so. So I think there is a huge opportunity there, adding to which all the opportunities outlined in -- by Graham Wheeler in his paper on Advantage Finance. So just to say to you that in an uncertain world, an investment in a company with excellent growth prospects with a very sound track record of debt quality and of making profits, I think, is a very sensible proposition. So without any further ado, I'm going to hand over to Chris Redford, our Finance Director, who will take you through the financials. And that's on Page 4, if I may. Thank you. Over to you, Chris.

Thank you very much, Anthony. So as Anthony said, I'm Chris Redford. I'm the Group Finance Director of S&U plc. And I'm delighted to announce group profits this year of GBP 47 million. You can see some of the detail behind that. And I'll go through individual lines that may be more interesting. But you can also see at the bottom, we've split that GBP 47 million between the different companies. And it's pleasing to see that both motor finance and property bridging finance now have grown their profit significantly during the year, and we're delighted with that. So just a little bit of detail, therefore, on the income statement. You can see revenue have gone up to GBP 87.9 million. Good progress on that in the second half of the year as receivables in both businesses grew further. And therefore, we enter the following year with higher receivables and, therefore, good prognosis for revenue. Impairment, I've got to pause on because it does require a bit of explanation. So motor finance impairment, if you go back to pre-pandemic, was about GBP 16 million or GBP 17 million per annum. You can see that in January '21, the group impairment, which is mostly motor finance, is GBP 36.7 million on this chart and is reduced to GBP 4.1 million this year. What's caused those peaks and troughs? Well, in terms of the peak last year, we saw a lot of problems coming post-pandemic. I don't think we were alone in that. So we took some larger impairment provisions. And happily, so far, a lot of those problems haven't manifested themselves yet. Although as Anthony alluded to in his opening introduction, obviously, we've got certain challenges ahead within our markets. Impairment this year, therefore, GBP 4.1 million, it's a testament to the collections in both businesses. Both businesses have had really good credit quality and collections this year. It's slightly more benign economy that I mentioned for Advantage. But also, really good skills from our collectors in guiding some of our customers who've maybe taken FCA mandated payment holidays last year through that pandemic and saying, well, out of the other end of that saying, "We're still paying for the vehicle." So that's what's going on behind the impairment line. We've still got GBP 92 million worth of provisions in the balance sheet, which we think is conservative for some of the economic movements ahead. Just talking about one other line on there. So admin expenses, that's moved from GBP 11.1 million last year to GBP 14.2 million this year. Last year, the GBP 11.1 million was actually helped with a one-off VAT refund of nearly GBP 1 million. And also, bonuses were lower because the performance of the company wasn't as good, and also, there was the more wage restraint. This year, happily, we've been able to reward our people more. And it's very much a people business, both within better pay increases, but also within better variable pay i.e., bonuses, reflecting the super performance that both businesses have had this year. So all that leads to profit before tax of GBP 47 million versus GBP 18.1 million COVID affected last year. So moving on to the balance sheet. This is really simple balance sheet. You've really got 3 things to look at. So the receivables book being built by Graham and Ed and their teams in Advantage and in Aspen. And the borrowings and then group net equity, net assets and total equity at the bottom there has increased from GBP 181 million last year to -- strengthen further to GBP 206.7 million this year. Borrowings, GBP 115 million. The committed facility is now at GBP 180 million. And that's financing growth in book debt that you see further of the page. The next one, which we also generally show you, is the -- where is all the money gone slide. So you can see that where Advantage have spent and collected money on, and you can see what Aspen have spent and collected money on. So looking at Jan '22, in particular, you can see Advantage borrowing started at GBP 140 million. Some much better advances this year, up 37% on last year, but also some much stronger collections figures. And then Advantage paid a dividend to the group of GBP 10 million as well. So they finished on GBP 126 million borrowings for the year. If you look at Aspen Bridging, again, gross advances much higher than last year and some strong collections too with the credit quality that they're putting out to finish on GBP 58.9 million borrowings. On the left-hand side, therefore, you see our net borrowings at year-end were GBP 113.6 million, and that's split in the way shown on the chart. Finally, from me, on treasury, I think this is a rehash of what we showed you at the half year. Actually, we'd increased our group facilities to GBP 180 million at the half year. And as I mentioned before, that still gives us good headroom. I'm now going to hand over to Graham Wheeler, CEO of Advantage Finance. And he's got some exciting developments to tell you about within Advantage now and for the coming year.

I have to dial in, but let's give it a go. Yes, so I want to, just on a few slides, just give some operational performance updates in terms of what we're working on at Advantage Finance. The first slide I just like to talk about is in terms of our sales performance. When we met last year, we were seeing rising sales volume until the August and September and October. But actually because of massive stock shortages in the U.K. market, we were close to had lots of opportunity, and we were underwriting the same volume of deals as what we're writing previously. Dealers and brokers just could not deliver on the volumes of the stock because of the lack of supply in the marketplace. And we saw a little bit of a drop-off in terms of volumes as a result of that in November and December. Delighted to say that January has seen that rebound. And we are back to our normal lending position from a sales volume perspective. And that's actually continued into February and March also. Another thing I'd just like to point out in this slide is that we've managed to maintain the tier mix really well in terms of the -- against those volumes, which drives 2 things. Firstly, it drives the continuation of the quality perspective that we've had. And secondly, it drives the interest income perspective. So good news from that point of view, good news that we're beginning to get back to a more normal trading position from a sales position. So that's where we are in terms of sales. In terms of operations, we've been focusing our efforts on making ourselves operationally more efficient to compensate for some of the rising costs we're seeing elsewhere. So 4 big inch steppings that we've done in the past few months. We've introduced and also paying the portal for our customers. When they missed the first direct debit, we'll send them a link to say kind of, "Oops, we noticed you missed a payment. Please make your payment through this mobile portal." And we've seen continued growth of the utilization of that portal since we've introduced it in late August. And actually, we created well over GBP 1 million in that portal over the course of the last few months, which we're very excited about because that makes -- means that we can focus our brilliant collectors and dealing with more difficult cases rather than the simple cases that this is focused upon. We are just in the process of introducing an auto settlement portal using the same technology as the payment portal, which will allow customers to get access to the ongoing settlement figures rather than call us up. And that's going to save about 53,000 calls into our office a year by introducing the auto settlement portal. Again, in life affordability, when we make a payment arrangement with a customer, we're due to check that they can afford to make the payment they promise. And we've built an affordability check that assesses their income and outgoings. And if they're making us a promise that the system tells us that they can't really afford, they might actually go back and the conversation with the customer being show a level of flexibility that allows us to make sure that we can have a sustainable payment plan rather than one-off payment that the customer can't really sustain moving forward. And then lastly, we've introduced an automated DPA checking system, which we gather 15,000 calls in a month. And every single one of those calls we have to go through a process to check that the other person is who they say they are, and they've got the access rights to the accounts. We introduced an automated version of that, which actually introduced a product also show that productivity statement of 6.5% in our customer services operations. So 2 things: firstly, it saves inefficiency; but secondly, it massively improves the level of our compliance accuracy because we can be sure that 100% of the customers that we're speaking to have actually gone through a proper identification process. Now each one of those 4 things has a significant impact in terms of our operational efficiency. But it's worthwhile noting that every one of those has been developed -- designed and developed and managed by our own IT team. We haven't gone out to the market to build any of these things. And that gives -- should give everybody a level of confidence that we've got a high level of IT capability within our business to help us to continue to drive better performance and better efficiencies across every area of our business. So that's that particular piece of information in terms of making sure that we're managing the cost to the best of our ability. Anthony mentioned in his introduction things that are going on in the outside world that we've got little control over. So we've seen rising costs. We're seeing the -- beginning to see the impacts of what's happened -- terrible things are happening across in Ukraine. A couple of slides there from the FLA showing that credit card lending is increasing again. And inflation is heading towards the 8%. We've got to react to that with responsible lens and we'll look at our customer as well. We've got to respond to that. And we're making some amendments to our affordability calculator to make sure that there is sufficient headroom in the customers' expenditure to be able to make any payment that they had to sign up with us, and at the same time, expanding the sales channels that if there are any risks in terms of potential volume of doing that, that we are compensating that through the additional sales channels that I'll speak about in a second. As far as our existing customers are concerned, we look after those customers well. Our scorecard is important to us. But we -- it's basically important to us, but it's the level of service we provide our customers that really makes the difference in terms of how we manage accounts. So we're helping customers to understand how to claim through energy -- their energy support bill. We're giving them ideas in terms of how they can get access to the cheaper fuel costs around their home area and post in terms of how they can manage their home costs better through things like new switch, et cetera. We do that viable just now over the phone, but we're about to introduce some sign posting on our website that gives some customers some more insight into those areas, too. And actually, looking after customers through these more difficult times is what we're all about. And so we'll show the continued level of flexibility for our customers and just provide that human touch where if they have additional stress because of the some of those extra costs, we'll help them through some of those difficulties. And start approach over the course of the last 2 years through the pandemic that certainly helped to make a big difference to the financial performance that Chris spoke about a few minutes ago. In terms of the collection's performance, probably we show you the last 12 months' worth of cash collection. One of the most important aspects and a number I look at every single day is our last live cash collection performance. And you'll see there's the normal drop-off for Christmas time for December. But actually, we saw, in January, a huge comeback in terms of our live cash collection performance to the point actually for Advantage Finance, that was a record cash collection performance of over 98%. And in our segment of the marketplace, that's outstanding. And actually, since then, we've continued an incredibly strong level of cash collection since then, too. So cash collection is the driver for a lot of our performance. The other side part of the slide is how we look at it from a regulatory perspective. We still maintain a very close relationship with the FCA. And they -- every time they look at our business to give us a clean bill of health, which is brilliant. The 2 things that are coming through in the pipeline from a regulation perspective are something called new consumer duty, which will be an enhancement to the existing rule book set out by the FCA, which we expect to be -- going to be introduced a little bit later on this year. And then the other thing is the expectation will be a move towards a full open commission disclosure. Lenders have the responsibility to notify the customers of the existing -- existence of finance commission to the broker or the dealer at the moment, but we're expecting that, that will move to full open commission disclosure and that lenders will notify the customer of the amount of the commission as well. We are all ready to go with that, and we will wait on the FCA and the rest of the market being ready to introduce that particular initiative a little bit later on this year. But it's quite an important change to our overall marketplace. Last slide for me, just to give you a feel for what we're currently working on. We're currently working on an enhanced API that will give us access to more routes to market. And we're simplifying a higher purchase product to compensate for the fees that we charge in terms of acceptance fees and auction to purchase fees through interest. And by taking those fees out and compensate within the interest line, then that will be -- by simplifying that product that will give us access to the aggregator websites that are selling cars and finance online. We're also developing a new scorecard, which we hope to bring in over the course of the next few weeks, which has got a much higher level of sophistication in terms of how we weigh and score customers. And we believe that, that will give us about a 10% improvement in terms of both the volume of approvals and the quality of the customer that we're underwriting. We're going to use the opportunity to integrate some of our scorecard characteristics into a couple of our brokers and through the decisioning systems that are mentioned at the bottom last side in terms of credit card, HD decisions and motor, their automated decisioning systems that basically choose or identify the right lenders for the customers and personal characteristics. And we'll integrate into those to make it easier for us to access some of these new aggregator website markets. So that's what we're currently working on. And what we are in the close pipeline over the course of the next 6 months is to expand those aggregator website into the aggregated website market. We'll be reengineering our renewal activities to significantly increase the volume of good customers that we're keeping. So we've done a brilliant job over the last couple of years of being flexible enterprise in the level of service. We want to keep those customers. We're going to redesign the Advantage website, significantly increase and improve our digital marketing -- our direct digital marketing and customer communications and start to build a strong, identifiable brand that will allow us much more flexibility of expanding further into different channels in the near future. So that's, in a nutshell, what we're currently working on within Advantage. There's a huge amount of work and activity we've done within the business. But as the market comes back even stronger in the second half of this year, this work will give us a fantastic position to be able to move forward in terms of taking advantage of what we think will be a stronger marketplace once used and new car supply significantly improve. So I think that sums up all the activity that's taking place in Advantage now. And I'll hand back to Chris just now.

Thanks, Graham. So thanks to Graham for sharing his punch for Advantage, and I hope you agree there were very exciting plans. We now come to 4 slides, which we generally show you at our financial year-end. So they're metrics about our biggest business, Advantage Finance, and what's going on in the loan book. So these are updated slides. So I'll give a brief explanation of each slide, and then I'll pick out 1 or 2 factors, but happy to take any questions, obviously, at the end of the presentation. Advantage Finance, number of loans this year went up to 19,747. And on the second line, can you see the average advance went up to GBP 7,138 this year. Remember, a couple of factors, really, behind that. One, there was a slightly higher average tier mix, which means is a measure of quality and, therefore, is a bit in line with the 892 score that were down in a slightly lower interest rate, 16.3%. So the average tier mix drove the average value up. But also, what helped to drive the average advances was the higher price of the used cars. So moving on to the next slide. I really like this slide. So this slide shows the strong correlation right from 2003 up to 5 years ago, and then projected from 5 years ago to the current date. The strong correlation between how customers make their first repayment and the end outcome after 5 years in terms of the percentage of bad debts that we experienced on those originations. So the bad debts are shown on the inverse scale on the right-hand side in red and is the red line on the graph. And then the way customers make their first payment is shown on the blue line and the blue scale on the left-hand side of the chart. So you can see that over the years, particularly after the early years, first repayments have been very good within Advantage and may end at between 90% and 98% at best. And then you can see that if you go right up to 5 years ago, 2016, 2017, you will see that the actual end outcome, which is the strong red line, quite closely correlates with the way customers make their first payment. What's happened over the last couple of years? When I showed you this chart last year, there was a bigger gap between the dotted red line. We were expecting worse end outcomes relative to the first repayments to what we had, which at the time we thought were sensible. We expected more issues to come out of the pandemic than have actually happened. And so what's happened now this year is that the graph, the correlation, the dotted red line and outcome that we project, and for 2017-2018 business, it's quite a reasonable projection because we're quite near the end. For 2021-2022 business, obviously, it's more of a forecast. And certainly, none of the dotted red line is a guarantee. But you can see that we expect the correlation to reemerge. And that's heartening when you are involved with a business like Advantage, and you've got such a strong correlation between the early warning signs and what the end outcome is up to 5 years. This is another chart that we show you every financial year, and so it's a payback chart. So the blue bars on this chart by year of origin going up the left-hand side from January '15 to January '22. The blue bars are the amount of our upfront investment in terms of how much we've advanced each of those years and also how much we've spent on cost of sales, the cost of getting each new loan on the book. So there the blue lines going up the chart, and that gives you some guide to what we've done over the years. But then the green lines on the chart are what reflected so far. So starting at the bottom of the chart, January '15, we've collected 145% back of the original advance. And the end outcome we estimate is not much more than that because the origination year has more or less finished collecting now. If you go up the chart, we're projecting between 135%, 140%. So they're projections, but they're still good margins and obviously, if we deliver them. But you can see on this chart where we are so far in that collection journey. The last chart in this standard charts section of the presentation on Advantage Finance receivables. What this shows is how the book has moved since July '21 to end of January '22. And you can see that the up to date have gone from 68% to 72%. I should mention that this is counting payment holidays as arrears, just to give an impression of where we are against the regional contract. And another significantly positive move is the 6.01 plus, that line there, which is people who are furthest in arrears has moved from 9.55% at the end of July to 7.47% (sic) [ 7.67% ] today. So hopefully, you can see a few interesting trends on those. And I'm happy to take any questions at the end of the presentation. I'm now going to hand over to Ed Ahrens, who is the CEO of Aspen Bridging. And he's going to tell you a bit about Aspen's year and also potential developments within that business. Over to you, Ed.

Thank you, Chris. Good afternoon, everybody, and thank you for attending the presentation. Aspen Bridging has had a very good year this last year and building on the first half year results and coming in and completed the year with some record results. PBT is GBP 3.4 million for the year, and net lending of GBP 98 million, and net receivables have all come from new loan facilities of 135 through the year. Importantly, we've done all of this at the same time as having our best-ever year in terms of book quality with only 2 loans in default as at the end of the year. Our growth prospects look very, very strong for us for this year. We've widened our product range. And we've increased our acquisitions channels to support our growth ambitions. And all of this will be with a high-quality underwriting and quality result. If you could move to the next slide. Thank you. And then looking at Aspen Bridging, this really shows you our history, our progress overall since we launched that number of years ago. You can see our steady progression on new loans through those periods, obviously, with the exception of that year in 2020 at the beginning of the pandemic. But as we've got more confident about our underwriting and the quality of the book, you can see we've steadily increased our average gross advances through the period. We've been -- whilst growing strongly, we've also been investing in technology; investing in our people; maintaining our USPs, one of which is visiting all the properties for ourselves. And by doing that, we've been able to keep on top of our cost as a result relative to our profitability. Gross LTVs, our loan-to-value lending has remained largely in the same place through the years. But you can see that the market has gotten more competitive from a yield and interest rate perspective. We are well positioned there with our product range to maintain our expectations of yield and to continue to grow the book and position ourselves appropriately in the market to do that. Average terms have grown a little bit over the time as we've got better understanding and qualifying what terms people should have for their projects. And you could see that also for the second time here what we've actually been doing with extending terms has decreased people who have been running on contract terms has been reducing over that period of time, and all of this whilst developing a clean book. I'd like now to hand over back to Anthony. Thank you.

Thank you, Ed. I mean, our next few slides relates to our 5-year record, which is reassuring, indicates our position on EPS and on dividends. And obviously, we can go back even further than that, our 20-year record is as good both in terms of our performance against the market, against our peers. We just had [indiscernible] give us that information. And I think it is -- it shows an excellent long-term investment in S&U. I'm not going to go on to the future because not that we haven't got fantastic confidence, but I do want to be able to take all these questions. And we've got 21 minutes and we've got a number of questions. I think we've now got 6 or 7 questions. So could we start off by taking these questions, which seems to disappear from my screen now. One second.

Anthony, let me just jump in and say thank you very much for your presentation. [Operator Instructions]

Okay. You continue as well.

The company will take a few moments to review those questions submitted today, I'd like to remind the recording of this presentation, along with a copy of the slides and the published G&A, can be accessed via our Investor dashboard. We actually received a number of pre-submitted questions from investors, and I want to start off the Q&A session with these. The first one reads as follows. What should investors look in -- look for in a company like S&U?

What I've said already. In other words, very consistent sustainable growth with good dividends and good capital appreciation, which beat both the market and our peers over the long term. I mean I really like -- rather than the pre-submitted ones, I mean, I'd like really given the people who've attended the seminar to actually get on to some of the questions that will be submitted now. For instance, Pat H, how sustainable is the loan provisioning? I think I'd like to see that one answered, if you possibly can there, Alessandro. So could I ask Chris to take that one? Chris, you can see it in front of you, can't you?

Yes, I can see it. And thank you, Pat, for the question. It's an obvious question after the peaks and troughs that I presented in the P&L account. So if you remember, GBP 36 million last year and only GBP 4 million this year. So we don't think GBP 4 million is a sustainable figure. We'd love it if it was. But the reality of that figure is that you've had a peak in impairments in Jan '21, and that's helped a trough in impairments in Jan '22. So going back before the pandemic, as I mentioned briefly, Jan '20 GBP 16.5 million and similar figures in the years prior to that. And whilst we don't have a crystal ball, we would expect more normal impairment figures along those lines during the course of this year.

Excellent. Okay. Can I move on now to John A. Should we move on to him? And he's asked a question about Aspen and the growth path. So over to you, Ed.

Yes. Well, like I was saying, we've had steady, good growth over -- since we launched. We're focused this year on doing exactly the same and sustainable growth. We've developed very good broker relationships over the years. We were 1 of the few lenders during the pandemic that remained sensibly lending. And that's consolidated a number of those relationships as well as our channel expectations and our broadened product range. We expect that to be very sustainable. You want to add to that, Anthony?

No, no. That's excellent. I anticipate further growth of Aspen. Why? Because there's been such a fundamental and long-term imbalance between supply and the demand for housing, particularly in the kind of housing that you're financing. So that's I think why it's a tremendous market opportunity. Can we just now go on to Bill H, who wants to talk about the threat of Internet-based competitors. Can I go to you on that one, Graham? Graham Wheeler.

Thanks, Anthony. Yes, yes. Firstly, I would say that the Internet is being around from our car finance position for some time. And the existing route to market are, from our point of view, are still there. [indiscernible] But I think, Bill, you are right, there is a move towards a change in the buying process for customers from an Internet perspective, either directly to the lender or directly through brokers or aggregator websites. We've identified that, and that's exactly why we are adapting our business for that movement moving forward. So a couple of -- when I was showing a couple of slides around the decisioning systems and the aggregator websites, we're investing heavily and making sure that we're ready to be able to adapt as that part of the marketplace grows its share over the course of the coming years. And as that builds the share and we've got our capability, actually, I think we're going to be very well placed to be able to compete in that part of the marketplace. But yes, it's a great question. But actually, I think we're already begin to set up the business to be able to sit up.

Good. Thank you. And then the next one is from John A. And that concerns the average cost of capital, dividend policy and higher potential interest rates. I hand that over to Chris.

Thanks, Anthony. There's quite a few parts to the question, so I might need your help as well. And thanks, John, for the question. So the average cost of the capital for the business, I mean, raising new capital, we've always been between 3% or 4%. With recent rises in interest rates, that's nearer the 4%. I think we've asked how much will we see impact be from higher Bank of England interest rates? For current levels of borrowings, every 0.5% increase in the base rate or some near, which is pretty similar, will cost us another GBP 0.5 million. Now if we scale up the business, then the impact would be slightly bigger than that. How long do you expect to see gearing go up to fund Aspen? And what is the highest level you would be comfortable with? So we obviously have always run gearing on the asset opportunity. And therefore, if Aspen are creating new assets that are helping the company to make good returns, then we would increase the gearing. So gearing hasn't gone up that much in the last year. We're still about 55%, which is the same as we were last year. We have a covenant within our funding agreements, the lowest one of which is 100%. So we would hit that covenant if approach 100%. But it really depends on the asset opportunity in the longer term as to where we'd be comfortable with that gearing. Therefore, I hope that answers the next question in a way as well. Will the increases in the generous dividend slowdown to prioritize debt reduction in the medium term? Well, no. So we don't -- obviously, we are exposed to increases in interest rates. But if you look at our P&L accounts in total, they are not anywhere near the most significant item. And so we wouldn't deliberately slow the dividend down either to reduce our cost of funds or in preference to going a bit higher, at least, on the gearing. So I hope that answers that part of the question. Would it -- and therefore, would you be prudent to lower gearing? Again, it's more a question of the asset quality, I think, from my point of view, John, rather than what interest are doing in the current range. I'm just going to hand back to Anthony to see if he wants to add to my answers on any of them.

No, it is excellent the way that you answered those, Chris. I couldn't add anything. It's really good. Thank you. So I'm going to go to John A actually next because Richard P asked a question about the consolidation of second-hand car dealers, which I think we've dealt with already in terms of Internet-based competitors. But obviously, Richard, if we don't think we dealt with it, then obviously come back to us. But John A has just asked us to elaborate a bit on the Advantage Finance charge and on whether, in fact, customers paying in a particular way are more likely with better quality compared to somebody calls out and make some payment? I think probably go over to you for that one, Graham, because obviously, it's an interesting question.

Thank you. Yes. Yes, it's a great question because the behavior of customers is slightly different depending upon the way they pay. And you're right, John, that those that pay by regular direct debit are more likely to maintain their quality through the life of the contract. But that's where actually where Advantage Finance then comes to the floor because the level of customer interaction and the level of customer care that we give to those customers were quite -- what we do is we're trying, through the conversations and through the service provided to the customers, is get people back on to direct debit as quickly as we possibly can. But I think what you would refer to is the payment portal that we developed. What that payment portal does is that it identifies customers who missed their first direct debit. And we basically send out a link to the customer to say, we've just noticed you've missed your direct. We actually identify the same day that the bank account doesn't have the funds in place to be able to make the payment. We send the link to the customer the day and then to say, "Look, we're going to give you a call. But if you want to give the payment now, just use this mobile telephone portal to make the payment." And that's going down really well. What happens then is that there's then a follow-up process to make sure that the direct debit is put back in place and that the customers are able to maintain their payments. So yes, in answer to your question, the ones the customers that pay regularly through a direct debit traditionally have better quality through the life of the contract. But the level of service we provide does everything we can to overcome that and get customers back on to direct debit as much as possible. But with the support of none of the payment portal, that just, more than anything, it gives better the customer better access to make a payment. And secondly, it means by doing that and by clearing down some of those one-off direct debit failures, I can focus my collectors on looking after them more difficult customer situations to get the right people in my business looking after the right customers and leaving the systems to be able to deal with those customers that don't really need that level of support. So hopefully, that's given you a fairly detailed answer in terms of how we look after customers and make sure we keep them paying as often as we possibly can.

Thank you. That's great. Here we go now to Gary U's interesting question about this new scorecard and how we test it. Over to you, Graham.

It is a complicated one. Basically, what we do is we take a period of time of historically 12 months contracts and identify the behaviors of those 12 months of contracts on our system to build a new scorecard. Within building new scorecard based on the behaviors and characteristics historically on that 12-month period, and then once the scorecard has been designed, we then retro test the characteristics against the actual behaviors of the scorecard of the basis of the scorecard that were designed. So we don't actually release any new scorecard onto the system until we're 100% sure that the characteristics that were built in there have at least the best the same performance, if not better, than historically enjoyed with the customer base that we previously had. What we will do when we do introduced a new scorecard, this will then build controls in place afterwards that on a very regular basis, we'll be able to go back and retro score the month or 2 months' or 3 months' worth of contracts we have written against the first payment success rate, that chart that Chris showed, to be able to prove that new scorecard is performing in a live environment just as well as it was doing in the historical environment. So it's the very basis of how lenders operate and particularly lenders in our market operate. We need to make sure that the quality is the best we can possibly have. And the rest assured, we test the hell out of the scorecard to make sure that it's of the best quality, and it's of the best accuracy. And I wouldn't really say anything that we were not sure could improve our business.

Thank you, Graham. We've got 3 questions on electric vehicles from Bill H and from Peter W and also from Richard P, all talking about the offering of financing vehicles and how we see the environmental movement affecting demand for electric vehicles and how we're going to service it. Over to you again, Graham.

Yes, thank you. Yes, so we are in the market for financing electric vehicles. We are funding a small number of electric vehicles just now in our current marketplace, which we're delighted about. The volume of contract opportunity is a bit reduced in our segment of the marketplace just now. Because if you think about it, we're financing cars -- electric cars from maybe 5 years ago, and the battery usage of those cars were low in the 60 miles or 70 miles to a single charge. And the volume of cars that are coming through that part of the marketplace are still very small and not maybe as suitable for many customers from a used car perspective because of the power of the battery. The reason we got into it is that we knew that that's going to build over the course of the next few years. And if you think about some of the cars that are being delivered now, they've got 350 miles, 300 miles in a single charge. And we know that that's going to build over the course of the next few years. And therefore, the volume of opportunity is going to build significantly for us in 5-, 6-, 7-years' time. So we set into the marketplace to learn how to look after the electric cars. And the good news is we're beginning to learn about it because we're starting to finance them. And we're doing actually quite nicely out of it. In the same respect, I'm switching all of our company cars to electric as well so that we can actually learn ourselves how to manage electric vehicles better so we can begin to pass that over to the customer at the same time. So it's started very low, we know it's going to get bigger, and that's why we're preparing for it now.

Thank you, Graham. We've got a question now from Matt G. A bit more detail on the aggregator website at Advantage. Again, over to you, Graham.

Thank you. I think you guys are working me hard on this sounds like. Yes, the aggregator websites, as people like Autotrader and ClearScore.com and Comparethemarket.com and Confused.com, these are all the big websites that people traditionally use for things like motor insurance and home content insurance and pet insurance, et cetera. And that gives us access to a much bigger customer base because they attacking the market across every single area. And they're spending millions of pounds attracting customers into those sites. So the question about expanding the channels, traditionally in the past, our channel has been brokers. So the brokers haven't -- historically haven't really operated in the aggregator website channel themselves. They've had their own reach to the marketplace. And the volumes of applications have come our ways as a result of the as the broker market [indiscernible] Advantage. The developments, particularly over the course of the last couple of years because of the pandemic, have been in this particular area. And we believe that this will give us access to much sizable customer opportunity. And one of our processes that's moving into this area where it's talking about, they've seen the number of inquiries increased to 25,000 to 60,000 customers a month. And of course, they then filtered that down into the different finance they operate with. And we believe that as people become more and more comfortable with buying their car and buying their finance online, that, that will give us access to a bigger opportunity moving forward. And that's why we are developing our systems to be able to cope with them.

Thank you, Graham. And then Jerry U has asked a very interesting question about provision coverage. Over to you on that one, Chris.

Yes. Thanks very much, Jerry. And the question is provision coverage is still 26% for Advantage, which is high by historical standards. And despite this tight underwrite it seems to reflect an underlying concern with the book. Well, I'm a Finance Director, so I'm always concerned about something. But in this case, it doesn't really reflect any underlying concern with the book per se. So what's going on a little bit in Advantage's books is a lot of customers, 13,000 at the year-end, were ex payment holiday customers. What Graham and the collections team have done very well is kept those customers paying something for their vehicles and in their cars. But because they are further away, if you like, from the normal level of arrears, i.e., they might only be paying half payments rather than full payments, that increase -- naturally increases what we call our Stage 3 provisions. The other things that have affected the provisions this time, which are not concerns with the state of the book, they're more concerns with the economy. So for example, we've built in inflation this time to our macroeconomic overlays for IFRS 9 provisioning. And we think that's sensible in the whole history of Advantage. And the highest inflation figure we ever experienced according to the ONS was 3.8%. And obviously, we're looking at much higher figures than that this year. And Graham alluded to that in terms of some of his work on affordability. But it's sensible that we reflected in the provisioning as well. In terms of where we are this year, and obviously, we have particularly low realized impairment as well as provisioning this year. We do think that the auction prices that we've been enjoying more recently in terms of the relativity to the balance out by the customer. That is probably not a permanent feature. And at some point, I think, as Graham alluded to, car prices will moderate, and therefore, you will see a revision to more normal loss levels in terms of what we realized when we go to the auction with a typical either repossessed vehicle or a voluntary terminated vehicle, which is a consumer right under the higher purchase agreements that Advantage operates. So I hope that deals with why provisions are still quite high coverage in Advantage's balance sheet.

Thank you, Chris. I want to move on to Bill H. How do you see the balance of the product contribution between Advantage Finance and Aspen in 5-years' time? I mean obviously, Advantage Finance, irrespective of its fantastic plans, it's a slightly more mature business than Aspen, which obviously already done 135 transactions last year despite the fact that's a massive increase on the previous year, as we've said. But we do see huge potential in both businesses. And we would anticipate that probably over the next 5 years, we would like to see growth as the group as a whole grows. We'll probably see, at the moment, Aspen's about 1/7th of the profit of Advantage. In other words, GBP 3.4 million against -- sorry, 7% of the profit of Advantage, GBP 3.4 million against GBP 43 million. We would expect that to grow positively to 20% of Advantage's increasing profit over the next few years. And I would like to see that we will be talking about for Aspen, we'll be talking about more than doubling its profits over the next 2 years. And I don't see any reason why we shouldn't do that. But at the same time, increasing profitability in line with what they've always been able to achieve, which is a very good compound annual growth rate at Advantage. So inevitably, 1 more mature business is going to be caught up slightly by 1 which is more recently founded. But still, the main thrust of profits for S&U will be from Advantage motor finance. I hope that gives you an indication of where we're going, Bill, on the terms of profit. And then finally, just Liam V, who's mentioned, increased interest rates can be passed on to our clients. I'm not sure which business you're talking about there, Liam. But I think probably just to give you a shout, I think it would be nice to hear. Can we hear Ed's view on that from Aspen Finance.

Our view at the moment is that whilst the market has been very competitive, we're certainly at a stage that rates seem to have fast forwarded in terms of their lower levels. And we would expect that there would be with an increasing interest rate environment, but there would be the potential for rates to move further up. I don't think that in itself is an issue from a borrower perspective in terms of clients. It's really more a matter of balancing that with our competition and making sure that we're attracting the right quality and volume within whatever the markets are from a rates point.

And can I just ask for a similar response from Graham on that?

Yes. Thanks, Anthony. Yes, I guess we've enjoyed very stable interest rates in this country for many, many years. But the -- so I'm not expecting to make any short-term changes in interest rates in terms of our customer offering. I'd rather manage that through the tier mix that we operate with. But for sure, if we do see increases in interest rates across the -- significant increases in interest rates across the market and create is a lot bit like gravity. Unfortunately, it always ends up with a customer. And if interest rates increase significantly, every lender, regardless of where they are in the marketplace, will be looking at the handover as far as consumers are concerned. I'm afraid that's just a bit like gravity. When interest rates go up, the customers always have to pay. But we certainly aren't foreseeing any big changes in the short to medium term. I think the interest rates will continue to be relatively stable for some time.

Well, thank you. Can I just say in conclusion -- first of all, Graham, would you like to say anything in conclusion because I think you've ever been able to do that so far. Graham Coombs?

Not really. I think that it's difficult to predict beyond about 2 years likely growth rates, particularly in the uncertain environment. But what is evident is that Advantage and Aspen, both extremely adept at identifying changes in trend and changes in routes to market and then they'll continue to do so -- to be so. I mean that's going to be faced some profound changes in routes to market, we think. I think brokers undoubtedly will be disadvantaged by a disclosure of commissions. I know in America, it didn't really have a great impact. But that was probably in the pre-Internet era in large part. And I suspect this time, they may be at more impression than previously. But in any event, I think that we'll be -- we'll stay short footed and quick footed in this business.

Excellent. Thank you. Just finally to our audience I'm seeing, nice to see you again. I hope that's been useful for you. Can I just largely point to the group of people who are the most important in our business, and we end our presentation on them through our customers. And it's worthwhile looking at those slides at the end of the presentation, which are in the appendices, which I didn't do give an idea of the really heartfelt and energetic efforts we take really to get close to our customers and to give them a bespoke service. That actually applies both in our motor finance and in our bridging finance business. So with that and with the most important people, I'd like to end our contribution to this seminar.

Anthony, thank you very much, and thank you to all that answered those questions. Could I please ask investors not to close the session as you'll now be automatically redirect to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete. I'm sure it will be greatly valued by the company. On behalf of the management of S&U plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.