S&U (LSE:SUS) — Half year results for the six months ending 31st July 2020

0:03 Good morning, ladies and gentlemen, and welcome to the S and U PLC Half Year Results of 07/31/2020 Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated in the right hand corner of your screen. Simply type your question and press send. 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 submitted today and publish responses where appropriate to do so. These will be available via your Investor Meet company dashboard. I'd also like to remind you that this presentation is being recorded. Before we begin, we'd like to submit the following poll.

0:42 I'd now like to hand you over to the S and U team, Anthony Coombs, Chairman Chris Redford, CFO and Graham Wheeler, CEO of Advantage Finance. Good morning, guys. Good morning. Good morning Paul and Good morning. Well welcome to to all the investors and private client brokers who are very kindly listening to our first webinar from S and U PLC with Investor Meat Company. Great to to have you on board, and we're very grateful indeed for your interest you're showing in the company. And, we can we can wet the appetite for for becoming shareholders in S and U by the presentation that we're just about to to to give you. So so welcome, and let's start.

1:30 I'm in charge of the the the the slides at the moment, so we'll go on to the first one, which probably is best avoided given the fact that it's our photographs, but at least you know who we are. I'm Anthony Coombs, Chris Redford, group finance director, Graham Wheeler, director of S and U and chief executive of Advantage Finance, which is our major subsidiary. We have another subsidiary, which is which is Aspen Finance, which is a bridging finance company. And we're also gonna be joined soon by Graham Coombs, who's the deputy chairman of S and U. And I I just wanted to give an idea of where we sit.

2:16 Before I go on to this particular statement, I thought it'd be a good idea just to give you a brief overview of what the company is all about and where it's come from. We we're a family company. We have large family shareholdings from the Coombs family, and we were founded by my grandfather in 1938 as effectively a home credit company. He was a former director of Great Universal Stores with a man called Sarai Wilson who partly financed the the the start of of of S and U. And the the company grew until 1961. It was fully listed on the stock exchange. There was no A market then, so it's fully listed.

3:03 And it was in the business of home credit. And it developed over the years. It it expanded in the nineteen sixties into various different fields. And then in the nineteen seventies, it it it reorganized itself on the death of of my grandfather and concentrated on consumer finance, and in particular, home credit selling finance rather than selling goods to people in their homes collected on a weekly on a weekly basis. And that continued, and the company grew in strength from about 1974 to the next twenty years until 1999.

3:49 It was decided that we would like to go into the motor finance business and Advantage Finance was founded based in Grimsby. And that has been the main engine of growth and indeed the main part of the company since 2015 when we eventually sold the the home credit business to nonstandard finance after being in that business for, I think, my calculation is about seventy seven years. But it was the right thing to do. The the home credit business was not expanding as much as we wanted it to, although it was a good cash generator and it was a good strategic decision.

4:38 In we've continued to build during that period from 1999 when we started Advantage to 2015 and even to the present day. We continue to build Advantage, and it had the remarkable record of twenty years of successive increases in profit and turnover and customer numbers up until this current year, excuse me, when unfortunately COVID nineteen, as you we all know, has made an appreciable difference to company results. Although I must say no difference whatsoever to the basic quality and customer proposition of Advantage Finance, which remains the main subsidiary of S and U.

5:27 In 2017, we started for purposes of diversification, expertise and being a good market to get into for the long term. And we are long term investors in S and U as you can see from our our history. We we we're not we we we don't just go in for short term gain. We like sustainable growth and steady growth over a long period of time as we've demonstrated over the last twenty years. But we decided to start up Aspen Finance. Why? Because we believe that the housing market, particularly for short term transactions in The UK, is badly served by the mainstream banks and that there is a significant market opportunity to provide short term bridging loans, which is what Aspen does and has done for the last two and a half years. And it has been profitable during that time.

6:29 Like Advantage, the profits have suffered a little in COVID nineteen crisis, but we anticipate that once matters become normalized and who knows when that's going to take place, but we hope over the next six months then it'll be able to resume its previous progress. So that is the general background to to to S and U. You'll see what the numbers are at the moment. Last year, we made about £35,000,000 in terms of profit. That was that was a record. It it equated to to about 240 p earnings per share.

7:19 We we gave a 120 p of that in dividends to our shareholders. We like giving dividends to shareholders. Why? Because ours is a relatively small company, small to medium sized in stock market terms, and it's quite tightly held in terms of the shares. You you can buy them and particularly if you're patient,

7:45 but the the the stock is a little unliquid. And as a result, we like to reward our shareholders with a good dividend yield. And many of our institutional investors hold us as a result of their wish for income and and yield. And as you can see, you know, we're yielding at the moment between 45% as a as a stock. We anticipate even with the fall in profits, which we will discuss in a few minutes, that, excuse me, we'll be maintaining those dividends in the future. And I think that that is for the benefit of our shareholders, and that will be for the benefit of the long term credibility in investor terms of the company.

8:32 So there's a little background to the to the company. We've got a wonderful team. Most important of all is the family ethos of the company. We we, excuse me, we employ about 200 people overall, about a 180 in advantage, 20 in head office and in the Aspen part of the business. Excuse me. We regard staff relations. We regard everybody being part of the team. It's absolutely central to what we try to do in in S and U. And we have not made any effort at all sorry, made any effort at all to take advantage of the of the government's furlough scheme this time. We think it was wrong to do that and pay dividends.

9:26 We haven't had to we haven't had to make any redundancies, and we don't intend to do so given the kind of circumstances that we anticipate facing. And that has been rewarded by a fantastic response from our staff who as Graham Wheeler will indicate for advantage, have responded magnificently to working at home and moving gradually back into the office, but maintaining the productivity of the business overall. It's been fantastic. And that, I've always regarded, think, as Nita Rodick once said, who who I think start start started Body Shop, and built into a big business. She always said, good business is good business. And those two different forms of good, I think, speak worlds and speak for themselves. So so so I think that's the way that we like to operate the company. So just going on to page three, I think that speaks for itself.

10:29 We got the financial strength and the the people to to weather any difficult foreseeable economic or political or indeed health epidemic environment. And at the same time, we see, excuse me, huge opportunities using the expertise that we built up over the years to expand our business from the sixty five thousand customers that we have at the moment at Advantage and to continue the kind of growth path that we've so impressively been upon over the last twenty years when, of course, economic conditions make that sensible. Because we've always, particularly by having a background in the home credit business where you actually collect cash from people's house every week in terms of their repayment, We've always taken the view that lending of any kind, whether it be the motor finance business or in the home credit business or in the bridging business, is only as good as the kind of cash and repayments that it generates.

11:37 And that is actually something that has borne us in good stead over the past eighty three years. So without further ado, I'm gonna move on and move over to to Chris Redford, who's our excellent finance director, and he's gonna give you the highlights for the half year to the 07/31/2020. Chris? Thanks, Anthony, and and good morning, everybody. Thanks to Anthony for a good introduction to the company there, and I'll do my best to live up to his introduction to me as well. Here you have the highlights for the half year. As Anthony mentioned, it's he's not as good a performance as recently from S and U, and the reason is mainly COVID related. The second bullet point there says we we had an extra thirteen point eight million of COVID nineteen related forward looking impairment provisions. And when we get onto the p and l account, see that's the most significant factor in our result for the half year.

12:36 Advantage finance, their volume new loan volumes and receivables reduced during the initial lockdown. Car dealerships were closed and collections were affected by FCA mandated payment holidays, and we'll show you a few slides later on in the presentations about that, how that's impacted us and how it's improving now that payment holidays are unfolding. Aspen Bridge in receivables, also lower than anticipated during h one. One of the things about this company is because it is family owned and there's an alignment of investor and and management interest is that we're quite cautious people. We we we like a return, but we also know we're in a risky sector. And therefore, we we closely monitor all the trends, and and we hope we take sensible risks with investors' money.

13:29 We did pay interim dividends and final dividends for 2019, twenty and a half year, and you'll see that in the cash flow slide later on. We being cautious, we do have a strong balance sheet, and therefore, we think we can address this crisis in a slightly stronger position than some of our peers and competitors.

13:56 Here here is a brief slide on the profit and loss accounts. As I mentioned before, profit before tax for the group last half year was 17,100,000. This half year is 6,300,000. And And the the main feature within that was a a rise in impairment provisions from 7,900,000 last year to twenty one point seven million. COVID nineteen had an impact on that. IFRS nine says you have to be forward looking in your impairment provisions. And therefore, for any account in the balance sheet, what the job is is to look forward at potential future cash flows, and then you discount that back to balance sheet day at the rate of interest inherent in the loan to get the valuation of the book debt.

14:42 How that methodology has worked in the first half year is we have to allow for the impact of COVID nineteen, some of the unfolding of payment holidays and furlough and future unemployment, and that's driven the charge up from 7,900,000 to 21,700,000 in the half year. We think that's more of a one off charge. It certainly should be. Therefore, the idea of IFRS nine being forward looking is that you recognize some of the COVID impacts now as you understand them, and then there's only an adjustment going forward within the p and l account rather than another hit unless we get hit by COVID twenty or COVID twenty one, in which case I'll be wrong, and I'll come to you sheepishly and say that.

15:28 Onto the balance sheet. The balance sheet is quite simple, which is useful for me because I'm only a simple accountant. There's only two things really that matter in the balance sheet, amounts receivable and borrowings. So borrowings are simply what we currently, have borrowed from our banks and other supportive funders, and the amounts receivable is the valuation, of current book debt. We hope that's a reasonably sensible and conservative valuation, but is some uncertainty in the economy going forward and therefore, we'll continue to monitor that as payment holidays unfold particularly advantage. You can see that in the half year, as I referred to earlier, amounts receivable in both of our operating businesses have come down a bit.

16:17 There was a real impact of COVID nineteen in that, in the car dealerships for a while were closed, and therefore, we weren't doing as much new business in motor finance. But also valuers and ability to do property transactions for Aspen. Property bridging was also affected in h one because they couldn't visit properties, and therefore, it was quite hard to do the level of transactions that we'd anticipated.

16:44 So after a brief review of the key financials, I'm now gonna hand over to the excellent CEO of Advantage, Graham Wheeler, who's been very busy in his first year with the group. He had his anniversary yesterday, and and he's done a tremendous job at Advantage. We're very lucky to have Graham. And he'll tell you a bit more about the juicy stuff and what they've been doing at Advantage and and the way forward there. Thanks, Chris. Good morning. And I hope I can I hope I can step up to that kind of very kind introduction, Chris? Thank you. Yeah. What I want to do over the course of the next few slides is just give people give everybody a bit of a background around what we've been doing to cope with the impact of the pandemic on our business and some of the things we've been working on behind the scenes to prepare ourselves for the bright the bright future that we we think is within the business. So obviously, the the pandemic the country shut down on the March 23.

17:43 We were able to start working from home the following day with the majority of our staff. And during the course of the following few weeks, we got ourselves into position where all of our staff are now technical technically capable of both home working and office working. So as we move forward into this new flexible working environment that we're all we're all gonna have to participate in, We are now fully ready to be able to do that. The next stage is is shortly, we're just looking at some technical improvements in terms of telephony so that we can record in outbound calls as well as inbound calls because the initial setup was allowing us to be from a compliance position just to record some inbound calls, but we're gonna do both very shortly. We we purchased a new office block in the business park in Grimsby literally two weeks before the country locked down and we've spent the summer refurbishing that building and have actually now moved into that building with some of our people over the course of the last few weeks.

18:47 We've designed that kind of five stage return to what will be a flexible working environment. So initially, we only had, you know, half a dozen people within the building just to keep post operating and systems systems operating. We moved up to a kind of around 40 staff at the beginning of July mainly because some of our staff coming back to the point that Anthony made earlier on about the focus on the welfare of our staff. Some of our staff was struggling with, you know, the kids kids in the background and and family members, etcetera etcetera. So we brought we we brought some people back into the office. The stage with that just now is is is that we've got around 60 staff working in the office.

19:32 We originally, by the end of this week, were planning to move that to a 100, but because of the new restrictions that have been taken place in the course of The UK, we'll just slow up that a little bit. We're up to 60 and the main focus or the main reason for the increase from 40 to 60 is to handle the levels of new business that are coming our way and prepare ourselves for a step back into the marketplace for one of the segments that we haven't been working in during the summer, which I'll I'll I'll concentrate on in a couple of seconds. We eventually will get to a stage where we've got an entirely flexible operating model of people being able to work in and work outside the office. And

20:12 I think in the old days across the country, I've ever been piling into an office. I think those days are probably gone now. We've all learned over the past six months just how how comfortable it is and efficient that is for people to work from home and we want to take advantage of both the efficiencies and the well-being of our staff in the future. We've made some changes in terms of our organizational structure in terms of building up our customer contact center and our enterprise risk management structure. And then lastly, to support all of those big changes from a technical point of view, during the summer we've replaced all of our servers that gives us the flexibility to support further growth in the future and to support flexible working from both home and and and the office. So that infrastructure work that's been done during the summer is primarily to focus on supporting a new environment that we're working in the in the in the coming the coming months and years.

21:14 So that's the operational update. In terms of sales, initially when the lockdown took place, we saw because of dealerships closing and the brokers we deal with were shutting down, our volume was reduced to about 15% of of the targeted amounts. And gradually, during the course of the summer, we've managed to get that back up to I think we peaked about 85% of our sales volume. Our company we're operating on average about 80% of our sales volume. And and and what's driven that is we focused on four key areas. Firstly, to improve the overall quality of business we've got because of the uncertainties of the economy, to reduce the risk in the business that we're doing, to reduce the cost of acquisition or or commissions that we're paying in the marketplace and try to increase the margin to compensate for the the cost of the high economic risk that we'll face over over, I guess, over the course of the next few the next few months.

22:10 In terms of improving overall quality, yeah, we withdrew from the lowest tier of of business that we had had been transacting for some time and we withdrew from self employed lending. And the reason for self employed lending was we we we saw that that market was much more variable in terms of in terms of people's ability to earn. And if you remember back in March, time when when the chancellor introduced his his furloughing scheme, he was really struggling at that point to come up with a solution for self employed people and because of that, we said actually at the moment it's not doesn't really make a huge amount of sense to keep ourselves in that marketplace and we and we withdrew. The the the net effect was that our average credit score and their business significantly improved into the moment, it's it's around nine hundred nine hundred and 12 and we've as a result of that, we've seen significant improvements in our first payment success rate which is in our market and our business has always been a key indicator for the quality of the future portfolio and that's been and I think there's a slide later on that explains the impact of that within the business.

23:22 In terms of adjusted risk, yep, the low tier lending, the self employed business, we also introduced a lot of manual checks in terms of wastelands so that a, we could check the the accuracy of the the salary that people were earning that was matching the application, and secondly, to assess the employment status of the customer so that they were still fully employed by the people that said they were in the in the application and we could tell what the status they were in terms of how much of the earnings they were getting was coming from from furloughing. So we implemented that and we implemented some changes to affordability calculation so that we try to increase the level of headroom that customers had to have to be able to afford our loans. So it would again improve the quality and reduce the risk.

24:14 We spent the last couple of months looking at our commission arrangements with some of our largest brokers and we've managed to reduce commissions tactically across most of our brokers with a result of about 9% reduction in the average commission being paid last month compared to previous months. And in terms of our margin, we increased interest rates across all of our tiers. In terms of the high quality tiers, it was a marginal increase. In terms of lower quality tiers, it was a slightly larger increase. And the net effect of that is we've been able to add about 0.7% flat rate per annum. So on a four year deal, you know, that's 2.8% of the of the of the balance which was created additional margin that copes with some of those issues that we may have in the future.

25:04 In terms of our competitors, we've had a a mixed approach. Our biggest competitor back in March closed the doors completely and stopped lending.

25:17 And I think we'll send it to people redundant and who were all in the front line in terms of sales and new business. They've come back into the market recently, but I think they've lost a bit of credibility to the broker market in terms of the support they were giving them. And then on the other hand, look at other competitors who haven't changed anything at all, and I've kind of jumped into the hole that the previous the previous company left and have have done have done pretty well. My view is that they balance the sweet spot of volume versus quality of business. I'm very comfortable with the approach that advantage of PLC currently. I think we're, from that point of view, in a good position and we'll we'll probably we'll I'm sure we'll talk about that as we move on to some of the following slides. So that's that's your business.

26:05 In terms of the regulator, the FCA have been very active during the course of the summer. Most of us are aware of mortgages having payment holidays, motor finance agreements having payment holidays, credit cards, overdrafts, and every other finance agreement with payment holidays and that's affected us too. So they then the FCA have introduced two different phases of guidance for COVID affected customers starting off with a three month payment debt deferral followed up by what we're currently in this phase two which lasts until the end of October where people can still apply for further for further payment deferrals. They also banned repossessions for COVID affected customers and stipulated that payment deferrals were not arrears so they were truly payment deferrals and therefore that meant that in terms of the credit reference agencies, those customers didn't show as being being in arrears, they just showed that their account had been frozen and that's that's got some issues for the for the overall market moving forward. So up to date customers who entered the payment hall, they went at a point that were up to date and still shown as up to date even though they've maybe missed three payments And those that would enter the arrangements with Hoover, maybe two payments down or three payments down are still shown as two payments down or three payments down.

27:30 So that has the that that's the impact that's had on our industry. And of course, that feeds its way itself all the way through to credit scoring systems and credit referencing, etcetera for the future. So non COVID customers followed standard forbearance rules. The rules were that if the customer said they were COVID affected, we kind of had to accept they were COVID affected. So that was that and and to be honest, you know, our job at the time was just to keep keep that business moving forward and moving forward. And there there have been no changes to the consumer credit act rules including voluntary terminations, so the customer still has the ability to voluntary terminate should should they should they so wish. And the FCA published the draft guidance, initial draft guidance for phase three in the middle of September and published their final guidance just a couple of days ago and we have been working closely with the FCA during the course of the last few weeks along with the FLA and we welcome the latest iteration of the FCA guidance that we can talk about if we need to later on. Our response advantage was because of the volume of customers we thought were coming through, we would

28:43 expect to come through in payment holidays. We needed to automate the whole process, so we developed in the space of about two days a completely new website that allowed customers to effectively come online and then take advantage of the payment hall situation straight away. Sounds like an easy thing actually to build a quick website but our website was linked directly into our customer our customer management system so effectively it didn't touch the sides as it came through into our into our management system. In terms of phase one, it was an automated system. In terms of phase two, it was automated but we used the opportunity just to start funding customers into where it was an it was an appropriate solution to take a payment holiday, we automatically gave it where maybe there needed to be some form of support of intervention with the customer. We then tried to funnel them through into speaking to some of our really experienced and supportive collectors that would help to find the right solution for them in particular.

29:43 We restructured the collections team to kind of bring an intensive care position into higher risk accounts and we automated, we developed an automated customer communication countdown as people were heading towards the end of their payment holiday so which we we've worked with with the FCA and that was a myriad of different tools of, you know,

30:08 telephony, messaging, letters, text messages, etcetera etcetera, leading towards account down so that no customer would ever have a surprise that they were back to a back to a monthly payment and that was the kind of remit that we put in place. Behind the scenes, our data science team have been analyzing every detail of of customer behavior both during and after the related the COVID related events. And we were working with a couple of the larger consumer credit rate agencies to develop an income short categorization which allows us to identify those customers who are most affected by the virus and therefore that allows us to segment a portfolio to identify customers who need more help than others who don't, who we believe about forty percent of the people who took a payment holiday weren't affected at all in terms of the financial position in which it's an option they took and therefore we kind of automatically allow them to come back to monthly payments and those that are more affected we can spend more time trying to help those customers through some of their financial issues.

31:17 As customers begin to off board, we're seeing cash collection significantly improve and and we're at the level now we were back to back in March 2020 and and that it just shows you how things are fast moving. That bullet point of working close with the FC and the and FLA in regard to phase three. Well, actually, we created that slide last week and the and the legislation came out just two days ago. So that's how we've been managing our operations in terms of customer care and collections. We haven't stopped there. We've been thinking about how we can develop our business for the future. There are kind of four key areas that we've been working on. One is around the intelligence we use to make decisions in terms of underwriting, in terms of CRA data and we decided to go out to the market in terms of suppliers to have a look at what they can offer us and of course the price they can offer us at and we've completed our exercise. We've achieved a cost saving of 45% of our CRA costs as part of our renegotiations and to put that to put that in a in a pounds value, that's in excess of £500,000 in terms of our overall cost, which we're delighted about, but even more so because at the same time, we've been able to increase the data coverage. We take more sets of data from the from the agencies, and we've agreed now to move from a double bureau strategy to a triple bureau strategy

32:47 to give us even more coverage. So we've been getting a premium on the third major credit reference agency during the course of two thousand and twenty one. As part of that process, we've all also been testing open banking as both a solution at the front end in terms of customer underwriting but also in life customers in terms of gathering more intelligence in terms of their incomes and outgoings to help them better. It's not the panacea that people speak about because it it requires customers to sign up to the open banking arrangements and we're still, at The UK, still quite some way away from having a large number of people using that facility. However, it is the right route, a route of direction in the marketplace and by testing it, we're already taking part on that.

33:32 And that we're also looking at how we can use modern technology to improve our digital onboarding like identity management and biometrics analysis of customers so we can we can view more automated way of identifying individual customers. So from a CRA data point of view, that's what we are. From a sales development point of view, we're about to introduce some new product line up in the marketplace, targeting some improved quality. We're working with a couple of large brokers in terms of comparison websites in our marketplace and the bit that I'm actually personally most excited about is the the work we've done in terms of affinity partnerships where we saw an opportunity back in at the beginning of the year to partner with other lenders who are more focused on the prime marketplace.

34:25 So we've been able to bring one partner on board and I have it's a relatively small one. We linked our system with their system and they are feeding us the deals that don't fit their risk criteria and we've started transacting business with them. It's a relatively small one because they want to do it that way to test the processes. Excuse me. And then but more much more importantly, we've got one of the larger motor finance businesses that we're that we are we've been weaning each other during the course of the summer in terms of this this initiative. And we've now reached a position where well, in both cases, we've got nondisclosure agreements signed with them. And that on the larger one, we've just entered a formal project management infrastructure to start working towards a link between their system and our system during the course of 2021.

35:18 I'd love to be able to see who they are, but because of our NDA restrictions, I'm not allowed to, but we are very excited about that opportunity because the the it's a completely new market for us. We believe that it will give us access to much more higher quality, lower cost of acquisition business. So we're very excited about that particular initiative. Touched upon a lot of the issues in terms of risk management. The one thing I'd point out from this section is that the two bottom points, we're trying to develop an economic overlay over the top of our scorecard, taking into account things like unemployment rate, GDP rates, consumer confidence rates, and trying to lay that over the top of the scoreboard the scorecard to to try to help identify potential opportunities and risks amongst the applicant the applicants that are coming our way. We haven't got there yet, but that it's very promising and we hope to be able to bring this up bring this into our our market over the course of the the next month or so.

36:20 And then through all the segmentation work we've been doing through the data science team is segment our our our portfolio based on propensity to pay so that we can focus our really strong efforts from our our best collectors on the people that need us most and and that seems to be a much more efficient way to manage our operations. Lastly, in terms of technology, yeah, we spent a lot of time re engineering the website portal that's been through a number of iterations during the course of the summer. We are going to be moving into a self-service opportunity, a self-service system in our marketplace and over the course of the next couple of weeks, we're gonna be introducing a kind of omnichannel payment solution that gives us the ability firstly to give the ability for people on their mobile telephones just to make the payment so every one of our customers in that situation, but also use it as a URL link as a link to customers who have missed a direct debit to send them a link and say, oops, you know, sorry with that. We noticed you've missed your direct debit in the last couple of days. Here's an automatic link to make a payment from a different bank account or or whatever. And we think by just making it easy for customers to make payments, we'll see significant improvements in terms of our our default position.

37:35 And I think that's pretty much covered that point. There's a huge amount of work from a technology point of view. The objective is to kind of bring bring advantage finance much more into firstly, much more into the digital world, but the because of the quality of the people with our self managed, because all these things that we're just speaking about here have been have been done by ourselves. We haven't gone out to buy systems elsewhere. We're building these solutions ourselves and we're gonna be using that expertise to start leading the way digitally in the future in terms of customer interaction, which we think is very exciting future for Advantage. And just to give you a feel for what that looks like, the system that you'll see on the left hand side is we've been we've been speaking to Yoti about learning from them how their biometrics digits their biometrics identity system works, and we're looking at how we can bring that on board for ourselves. And then on the other two slides, that's the the snapshots of the the payment system, the omnichannel payment system that people can use just to keep their payments up to date if they've had a bit of a hiccup, a short term hiccup in their accounts.

38:42 So in a summary of five slides, we've used the summer to focus on the future of our business, to maintain the quality of the business that we're doing, focus on the right on the right level of customer, forbearance options in terms of payment holidays and others and making sure that the business infrastructure is ready for the future of our business and I think despite the fact that I started, as Anthony said, a year ago, and I couldn't have started actually from an economy point of view at the worst time. I think we've used it as an absolute opportune the time as an absolute opportunity to prepare a business for the future. And I'm personally hugely proud of the people, as Anthony said earlier on, having this this shock of people working from home and working in the office and making it life really difficult for all of us. Actually, other than payment holidays, the business hasn't really had a hiccup in that particular time, and and that's down to the that's testament to the great people that we have. And thank god we have them around because they're gonna be busy in the future with all this great business we're gonna do.

39:46 So I'll pass on to you. I'll pass back on to to Chris now who'll start taking you through some more of the financial information. Thank you very much, Graham. And it is very exciting, and I I hope Graham's talked through and you you're as excited as I am by some of the potential for the business next year. This year, we generally show shareholders every six months some some financial and, and stats about what we've been doing. We are a transparent organization, I think. Here here you see the motor finance loan profile by year of origination. So this is what is the profile of new deals which we've put on the books this year. So you can see that for each of the last five years, and you can also see it in the six months to July 2020.

40:38 So if you look at the last five years, you can see a great deal of consistency in some of the numbers. You can see an increase in the number of loans. Cost of sales has been going up, but Graham's mentioned that, he he's done something about that within, his slides. Interest rate, you can see, is pretty consistent. An average customer score go going in the right direction this year because of some of the things he said. So in terms of the six months to July 20, I would just add the comment that because volumes were down, that also helped increase the cost of sales because there's a semi fixed cost to the to that element. The fact that the advance, the interest rate, and the customer score are slightly higher or slightly lower than usual depending which one you're looking at is an indicator of the businesses withdrawal from some of the riskier businesses, customers within theory and and the self employed that Graham mentioned. So that's why average customer scores gone up. The interest rates gone down slightly, and the average advance has gone up.

41:46 This slide, I know we've had a question on this already. So first cash received, this is a very busy slide for which apologies, but it is a very powerful slide as well, and Graham alluded to it earlier. So on the left hand scale is the percent of our customers that make their first payment on on time, and that is the blue line on the chart. And you can see for every month of business going back to February o three through to June 2020, the blue line shows what percentage of our customers pay their first payment on time. And you can see that's varied. Before we had an automated scorecard up to about 2008, we were in the low 90%. Since we introduced the automated scorecard and post the GFC, we we attracted a lot more near prime business because of the withdrawal from others in the market, and there was a good opportunity for us. So the quality went up, and you can see that the first repayment also went up to 98% to 99%.

42:47 Bit more competition in the market, therefore, more competition at the quality end. So therefore, it fell back down to 97%. So nowhere near where we were before, but about 97% in '15 through to '19. What's happened in the most recent months, which I think was a question raised by a shareholder, We can you see there's a blip in March 2020? So we wrote business in March 2020. What happened there was more customers than normal canceled their direct debit. They'd only just taken out a car loan. The world was going mad due to COVID. And therefore, instead of the normal ninety seven percent, we actually got, near a ninety four percent, can you see, just for that one month. Now happily for me, since then, April, May, June, you can see the chart has shot back up to 99%, and that's a reflection, as Graham alluded to, of some of his targeting of higher quality new business. So first repayments recently are very good.

43:53 More interestingly, I think on the chart, the chart also shows a correlation with end outcomes after five years. So the red line shows up to 2015, which is five years ago. It shows in bold. And what that's showing on the inverse scale on the right is what percentage of our every 100 customers or each month's business were were bad debts at the end of five years. So you can see that that's ranged during the period from about 9% at best in that period when we were attracting better quality customers, two thousand fourteen, two thousand and thirteen. And it it raised in the early days, we were doing about 30%. We were still making money, but about 30% of the book was going bad debt.

44:41 We have attempted, but it is obviously uncertain to draw a dotted red line, which is our forecast end outcome after five years. And we think it will still correlate heavily, and and this is the power of the graph, really. It will correlate heavily with the first repayment, but there will be an adjustment due to the macroeconomic effects of COVID, we believe. And that's why the dotted red line is slightly lower, three or 4% lower, particularly towards the right hand end of the graph where the impact on people who've more recently taken out their credit is likely to be a bit more. This is prior to the changes Graham made. So I I hope you can see the correlation on that chart, and you can see that how the first repayment, as Graham said earlier, is a very good indicator of the end outcome loss after five years.

45:38 We we we thought because the situation at the end of July was pretty uncertain still in terms of a lot of our book was still on payment holiday, we thought we'd bring you more up to date with, some of the stats since then. And apologies. September's collections aren't quite on there, but we do know, I can tell you, we finished on over 12,000,000 collections, which is the left hand scale in September. And, the red the red line on the chart shows the number of customers on payment holiday. So in total, in h one, sixteen thousand five hundred of our customers went on payment holiday, and you can see that they went all on payment holiday exactly the same times. But you can see on the right hand scale that there's about 15,000 at peak in July.

46:23 And if you look at the impact of that on our cash, that has had a really big impact in h one. So whereas normally for our size of book, would expecting us to be collecting monthly cash of, just under £13,000,000 a month. In June, we we hit, just under 10,000,000, which was the impact mainly of payment holidays. Since then, as payment holidays have started to reduce, there was a small increase again in July, but there was a much bigger increase in August. And as I said, September, happily, we finished on over 12,000,000, which is getting back a bit more to normalized cash. This is another chart that we we generally show you every six months. So it shows the profile of our book. And what I've done this time on this chart is also showed you I've split out the book between payment holiday accounts, post payment holiday accounts, those that had left payment holidays already at the end of July, and also nonpayment holidays accounts. So if you look at the position at the end of January twenty, seventy 9% of our book was up to date.

47:31 It's now down to 60%, 60.5%. And you can see that a lot of customers have fallen down to the two to three months in arrears. This chart is counting payment holidays as arrears even though for provisioning and credit reporting purposes, as Graham said earlier, payment holidays do not count as arrears. By counting them arrears, what I'm trying to give you an idea of is the where the missing cash is and what that means in terms of customers who have paid and customers who haven't paid. So I hope you can see that on the nonpayment holiday accounts, they're 84% up today, and they're holding up very well. And we hope the the postpayment holiday accounts, we expect the customers who've taken a three month payment holiday, they may stay on this chart two to three months behind where they'd normally be under the contract.

48:25 But we're happy with that as long as they pay it at the end of the contract. Yeah. I like this slide. This is the where has all the money gone slide. So we what we're trying to show you is we had a £118,000,000 worth of borrowings at at at the start of the first year, half year period. And and at the end, we had a 100 and a, and what are the movements? So we've divided on the left hand chart between motor finance and property bridging, and then you can see the detail in the motor finance cash flow. So what I don't like about the statutory cash flow that we give you in the, in in the audited accounts is that it doesn't break down where what advances have you done, what collections have you done, and that's what we that important information is what we're trying to do on this chart. So you can see some of the things that we've talked about, lower advances in motor finance, due to lockdown, in particular, in the closure of car dealerships and lower collections, that visible on that chart in terms of the movement.

49:32 You can also see that in the first half year, there was a cash flow impact of the dividend of £10,500,000. So just a little bit about treasury and funding. We talked there. It's a bit more of a factual chart, and I try I want to allow some time to click for questions. So I'm just gonna move on quickly, if you don't mind, to the next chart. Aspen Bridging is our developing property bridging business. As Anthony said, it started in 2017. We think there's a good potential there. We think that potential hasn't been that affected by COVID in terms of people will still we're we're lending in the nonregulated end of bridging. So we're lending to professional people, builders, developers, people who are refurbishing properties with a view to exiting them at a profit, and and we lend to those sort of people. And Aspen net receivables were affected there during the first half by the lack of availability of transactions, and we also had a lowing lower opening balance than we anticipated, and that both of those affected profit in the first half. But I'm happy to say that in in tandem with advantage, new advances have recovered in Aspen and quite strong in June, July, August, September, and, currently, net receivables are well over 20,000,000.

50:58 Repayments were also slower during lockdown, but they've also improved since June, and they've only got five cases now beyond term, which is a good improvement and a testament. They've got a very talented team there and and their skill and perseverance in working with customers to achieve the right exit is is reflected in these figures. So I'll now hand over to Anthony Coombs just to round up. Hi there. I'm not sure if Anthony's just having a technical issue because his camera looks like he's good off. Anthony, are you there? If you could just bear with us one second, and we'll get him back for you.

51:43 Thank you very much. Chris, I just wonder whether it's it makes sense just to finish that slide off yourself. If you don't mind, Chris, we'll just grab hold of Anthony and get him on. Let me one second. Thank you. Chris or if you would just carry on through the the outlook, and I'll speak to it. Thank you very much. Thank you. We are a cautious company, but we have we we feel we've navigated the, the whirlwind of COVID very well. And and we're very excited particularly about, motor finance, which is our biggest business.

52:29 We think also Aspen's got growth potential going forward. And what we'd like to do now is to hand you back to Paul, and maybe, Paul, you could go through some questions, which will get some interaction going with the with the viewers. Got it. Anthony, are you back with us, sir? Yeah. Yeah. My my camera seems to have been at at at 90 degrees, which probably is probably actually makes me look a bit better than it would at normal. I mean, what happened, basically, was, like, I I saw one of the questions, and I went off screen to my to another application, to my Don't don't don't worry, sir. This is this is the benefit of being live. If I could just ask you to turn your camera off, which is at the top of the above chat q and a problems and handouts.

53:21 If you could just press turn camera off and then continue. Okay. So we're talking outlook, and and thanks, Chris, for stepping in on on Aspen. Can you hear me now? Yes. We can hear you. Great. Yeah. I mean, Aspen is an interesting and hopefully very profitable business in the future. We started, as I said, earlier on in 2017. In order partly to diversify our earnings, but partly to take advantage of what we saw as a significant undersupply of refurbished houses in a generally poorly stocked UK housing market and with a whole lot of people who weren't able to access finance from the banks but wanted to actually contribute to refurbishing those homes, particularly at the cheaper end of the market.

54:25 And and that's something that we've been doing for the last two years. We think that we think that Aspen has has done very well indeed, and we'll continue to do so. So far as the outlook overall for the company is concerned, obviously, it mainly relates to advantage. And it's it's my belief that what you've heard from Graham today is clearly evidence of how strong Advantage is as a company, both its people, its systems, its financial foundations, and why I think that we will not only navigate the current political and economic headwinds, but also benefit from the recovery when it occurs, as undoubtedly it will do over the next six to to to nine months. So we're very confident. We hope that that has been useful.

55:22 We've had a whole lot of questions and from you, and we we appreciate those. Just to go through them, Matt g asked, could you expand upon the new partner channels for Advantage? I think we've answered that in Graham's presentation. He also asked what percentage of shares are held by institutions in S And U? And the answer to that is, I think, about 20%, The family and its very in its various forms and it's not in concert, owns about 52%. There's another large private shareholder who owns 20%. And over the remaining 28%, I think about 20% are in institutional hands.

56:13 The Matt G also asks about when we take on impairment, and I'm certain that that the answer you got from from Chris on that was was was helpful. If it's not, please get in touch with us, we can give you a more detailed answer. And Paul L asked, what's your approach to debts that have gone bad, internal versus external agents? And how much the write offs do you intend do you tend to to recoup? Well, we've we've answered that, I think, in terms of our approach to debts through through Graham's presentation. We don't use external agents except in the most difficult cases, which are a tiny proportion of our total customers. We prefer to keep people in cars, and we prefer to deal with them ourselves.

57:10 And as to how much of the write offs do you tend to recoup? Well, we we we generally send people send cars, which we've had to repossess into the auction market, and that has been a healthy market recently. So so that is that, I think, is quite encouraging. We've covered Matt G's point on the first payment success rates in in Chris' presentation. Chris also dealt with the the facilities point that JBS raised as to why we reduced our agreed facilities from a 160 to a 130,000,000. We do have a cautious outlook, but at the same time, we will we will garner new facilities and additional facilities as the the planned loan growth justifies it.

58:05 Javier or Javier rather r asked, given current depressed environment, are you looking for potential inorganic opportunities to grow your book? Also, would you consider starting a new line of business different from motor bridging finance? Well, Javier, the answer is that we've always believed that focus is very important in terms of running any successful business. At the moment, we've got two businesses, one of which is established and is going to resume growth, the other of which is relatively new, the bridging finance business, which we will nurture into a profitable business and one that makes a substantial contribution to to group profits.

58:52 Whether we consider starting a new line of business and whether it would be on an inorganic basis, time will tell. We are inherently conservative. If we did see a new line of business which came through through a potential acquisition, we would certainly look at it. Although I must say the chances, given the capital we want to divert we we want to contribute to our to our existing businesses, the chances of actually doing an acquisition, an inorganic opportunity to grow, I think, are relatively small. I think that you buy S and U for long term sustainable growth, that is best and most assuredly gained by focusing on an existing business and growing organically.

59:43 James G asked what is the dividend policy over the next year? I can tell him basically that as I said right at the beginning, it's our policy to reward shareholders with dividend and continue to do so. We anticipate our three dividend policy being maintained. We would certainly want to we we paid a 120 p in dividends last year. We paid 22 p this time against 34 p last year. We would like overall to hit a dividend even in this difficult year of of 2021 of between 80 and a 100 p this year. Obviously, our ability to do that will depend upon not only our results this year, which depend upon collections primarily at Advantage, but also our ideas to how the business is gonna progress next year. But certainly, I would be disappointed if we didn't produce dividends between 80 and a 100 p this year, and that's certainly our aim.

1:00:49 The can the risk adjusted yield in Maynard and ROCE return to pre COVID levels with the current lockdown restrictions in place. I think it's gonna be difficult at the moment because, obviously, so much of our so much of our profitability is affected by the quality of the debt. And and we we we the quality of our debt is bound to be affected by lockdown restrictions and their economic effects, their economic effects being more important than the lockdown restrictions themselves. But we still be we we've been traditionally producing RoTE in in advantage of between 1520%, and we see no reason why we shouldn't get back at least to 15% in the longer term.

1:01:37 In the meantime, still produce returns which are interesting to shareholders. And receivables, Matt G asked a question about our receivables at 09/20. I think probably, I mean they've increased slightly on the year end, but I think probably we'll leave that until our next trading statement. And then finally Paul L said, is 80% of normal sales volume purely S and U choice rather than demand? Is it primarily driven by move up credit quality caution, used car sales very strong post lockdown. The answer is yes, you're right that it is primarily driven by a move up the credit quality.

1:02:35 Anthony, you've just disappeared there again. I'll see you there, please. So I'm just having a little technical issue there. I think he's pretty having having pretty much answered all the questions. Let's just give him a couple of seconds to see if he does come back and if he can just bear with us, please. Would you like me to carry on answering that that particular question? Or I was gonna say, Graham, if you could, that'd be fantastic. Thank you very much indeed. No problem at all. Yeah, Paul. Primarily, that is the case. Obviously, we've made a decision to kind of pull out of our low tier business and self employed. That's the the opportunity for us has has actually been, I guess, increasing during the course of the last few months. And and that and actually, we're gonna start working on that by over the course of the next week to ten days, get back in the employee business because we see there's there's quite a large segment of the self employed market. I've actually been thriving through the current environment with the with the all the people spending money on their houses rather than going holiday. There's lots of work been done in terms of with the electricians and plumbers and plasters and all these people. And we we see that these people have been thriving and they wanna get back into that very, shortly. So we'll see that that percentage of normal deals begin to increase again as we move back into the self employed marketplace.

1:04:01 But, yeah, the answer to the the simple one word answer to the question is yes. That's great. And thank you very much for picking that up. Although Anthony has just dropped off there, we have pretty much covered all those questions for investors. So thank you very much for doing that indeed. If there are any further questions that do come in, the company will be able to review those and publish answers where appropriate on the best of the company platform. Just before we wrap up, and I'm just conscious we've just come up to the hour as well, I'd like to say thank you to Anthony, Graham and Chris for updating investors today. Could I ask investors not to close the session as you will be automatically redirected for the opportunity to provide your feedback? If you've accessed the meeting from our website a few seconds after the webinar ends, the feedback page will appear in front of you.

1:04:48 You've accessed from the link in the email. Again, same process, a couple of seconds, and you'll be asked to log back in just to submit your feedback. So on behalf of S and U PLC and the team, thank you very much for attending today's presentation. That will conclude today's presentation. Thank you. Thank you. Thank you.