S&U (LSE:SUS) — Preliminary Results for the year ended 31st of January 2022

0:01 Good afternoon, and welcome to the S and U PLC preliminary results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated on the right hand corner of your screen. Just simply type in your questions 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 it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to chairman, Anthony Coombs.

0:32 Good afternoon to you, sir. Good afternoon. Thank you, Alessandra. And, I must say that, we're very we're very, big fans of investor meet company. Why? Because one, I think it's a great idea. Secondly, because it works. In other words, 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 difficulty talking to, very often the the retail investors. And they are, particularly in a fairly narrow market for SUS shares, crucial to to our to our well-being. So great to to see people here, and hopefully, we can answer your questions.

1:21 I just wanna 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 over the last two years during the pandemic will make them even better in the future. And we've laid the foundations for what we believe is gonna be strong and sustainable growth in in in the future. And we've done that against the backlog of, really, I suppose, 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 on real incomes, and now to tap to cap cap it all off, the dreadful situation in Ukraine, I think that we can probably say that we live in interesting times.

2:26 But nevertheless, despite all that, S and U has been able to produce the kind of results that you see before you, which we're going to gonna be discussing in in a few moments. The I won't introduce our speakers at the moment because they can introduce themselves when they when they do speak. But what I will do is just briefly highlight the results for for for this year. We've got a group profit of 47,000,000 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 its I think it's now eighty four 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.

3:29 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 two years and divide them by two and make sure that what we paid last year, 90 p, is now made up to an average of half the earnings average earnings per share of the last two years being paid this year. And then as always, we maintain our very conservative balance sheet because we believe that, you know, sustainable earnings require sustainable funding, and that's certainly what we've got with 55% gearing.

4:14 So that's what I'm gonna say so far as the group is concerned.

4:20 I would just just add that I think although people's incomes will be constrained over the the the next two years, actually, that is something that is gonna 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 eighty 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 every year, we are able to help people who would otherwise possibly not enter into a contract for a new car to do so, but in a sustainable way knowing that they can afford the the repayments.

5:33 And that is the non prime sector that we that we serve. In addition, my view is that the next few couple of years, we'll see people from the near prime sector coming to our 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 want it to get me to from a to b, but maybe not as often because I don't go to the office as much as I used to as I used to. And therefore, want to go get a utility vehicle, a cheaper vehicle, but one which I know is from a lender that who will be understanding and help me through the experience.

6:18 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, added to which are the opportunities outlined in by Graham Wheeler in his paper on advantage plans. 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 is a very sensible proposition.

7:16 So without any further ado, I'm gonna hand over to Chris Redford, our finance director, who will take you through the financials. And that's on page four, 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 and U PLC, and I'm delighted to announce group profits this year of £47,000,000. You 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 47,000,000 between the different companies. And it's pleasing to see that both Motor Finance and Property Bridging Finance now have have grown their profits significantly during the year, and we're delighted with that.

8:03 So just a little bit of detail there for on the income statement. You can you see revenue have gone up to 87,900,000? Good progress on that in the second half of the year as receivables in both businesses grew further.

8:19 And and therefore, we enter the following year with 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 16,000,000 or 17,000,000 per annum. You can see that in January 21, the group impairment, which is mostly motor finance, is thirty six point seven million on this chart, and it is reduced to four point one million this year. What 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 we were were alone in that. So we took some some larger impairment provisions, and happily so far, a lot of those problems haven't manifested themselves yet.

9:12 Although as Anthony alluded to in his opening introduction, obviously, we we we've got certain challenges ahead within our markets. Impairment this year, therefore, 4,100,000, it's a testament to the collections in both businesses. Both businesses have had really good credit quality and collections this year. 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 and and saying, well, out of out of the the the other end of that saying we're still we're still paying for the for the vehicle.

10:04 So that that's what's going on behind the impairment line. We've still got £92,000,000 worth of provisions in the balance sheet, which we we we think is is conservative for for for some of the economic movements ahead. Just talking about one other line on there. So admin expenses, that's moved from 11,100,000 last year to 14,200,000 this year. Last year, the 11.1 was actually helped with a one off VAT refund of nearly £1,000,000 And also bonuses were lower because the performance of the company wasn't as good, and also there was more wage restraint. This year, happily, we've been able to reward our people more, and it is very much a people business, both within better pay increases, but also within better variable pay, I e, bonuses reflecting the the superb performance that both businesses have had this year. So all that leads to profit before tax of 47,000,000 versus eighteen point one million COVID affected last year.

11:17 So moving on to the balance sheet. This is really simple balance sheet. You've really got three things to look at. So the the receivables book being built by Graham and Ed and their teams in Advantage and in Aspen, And the borrowings and then group net net equity, net assets, total equity at the bottom there has increased from 181,000,000 last year to strengthen further to 206,700,000 this year. Borrowings, 115,000,000. Committed facilities now, 180,000,000. And and that's financing growth in book debt that you see further up the page. The next one, which we also generally show you, is the where is all the money gone slide.

12:07 So you can see that where what advantage have spent and collected money on, and you can see what Aspen have spent and collected money on. So looking at January 22 in particular, you can see advantage borrowing started at a 140,000,000. 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 10,000,000 as well. So they finished on a 126,000,000 borrowings for the year. If you look at Aspen bridging, again, gross advance is much higher than last year and and some strong collections too with the credit quality that they're putting out to finish on 58,900,000 borrowings. On the left hand side, therefore, you see our net borrowings at year end are a 113,600,000, and that that split in the in the way shown on the chart.

13:05 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 a 180,000,000 at the half year. And as I mentioned before, that still gives us good headroom.

13:19 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. Yeah. 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 a rising sales volume in the through until the August and September and October. But actually because of massive stock shortages in The UK market, we were whilst we had lots of opportunity and we were underwriting the same volume of deals as we were writing previously, dealers and brokers just could not deliver the volumes of 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.

14:25 Delighted to say that January has seen that rebound, and we are back to our normal lending position from a a sales volume perspective. And that's actually continued into January into February and March also. The other 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 two things. Firstly, it drives the continuation of the quality perspective that we've had, and secondly, 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 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 the the rising costs we've seen elsewhere.

15:21 So four big things that we've done in the past few months. We've introduced an auto payment portal for our customers to when they missed their first direct debit, we send them a link to say, kind of, oops. So we noticed you've missed the payment. Please make your payment through this mobile portal, and we've seen continued growth of the utilization of that portal since we'd introduced it in late August. And, actually, we've collected well over a million pounds in that portal over the course of last few months, which we are very excited about because that makes the means that we can focus our brilliant collectors on dealing with more difficult cases rather than the, the simp 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 as the payment portal, which will allow customers to get access to the ongoing settlement figures rather than call us up, and that's gonna save about 53,000 calls into your office a year, by introducing the auto settlement portal.

16:22 Again, in life affordability, when we make a payment arrangement with a customer, we are we we're we're due to check that they can afford to make the payment they promise, and, we've built an an affordability checker 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, then we'll actually go back in in the in the conversation with the customer, be show a level of flexibility that allows us to make sure that we can have a sustainable payment plan rather than a one off payment that the customer can't really can't really sustain moving forward. And then lastly, we've introduced an automated DPA checking system, which we we gather 15,000 calls in a in a month. And every single one of those calls, have to go through a process to check that the the person is who they say they are, and they've got the access rights to the to the accounts. And we introduced an automated version of that, which actually introduced a product

17:23 productivity saving of six and a half percent in our customer services operations. So two things. Firstly, it saves an efficiency, but secondly, it massively improves the level of our of compliance accuracy because we can be sure that a 100% of the customers that we're speaking to have actually gone through a proper identification process. Now each one of those four four 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 every should give everybody a level of confidence that we've got a higher 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 of of making sure that we manage in the cost to the best of our ability.

18:23 Anthony mentioned in his introduction things that are going on in the outside world that we've got little control over. So we've we've seen rising costs. We've seen the beginning to see the impacts of what's hap the terrible things that are happening across in Ukraine. The a couple of slides there from the FLA showing that credit card lending is is increasing again, and that inflation is is they're heading towards 8%. We've got to react to that with a responsible end if we look after our customers well. We've got to respond to that, and

18:53 we're making some amendments to our affordability calculator to make sure that there is sufficient headroom in the customer's expenditure to be able to make any payment that they they sign up to 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 with that through the additional sales channels that I'll speak about in a second.

19:16 As far as our existing customers are concerned, you know, we we look after those customers well. Our scorecard is important to us, but we it's vitally 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 the energy support bill. We're giving them ideas in terms of how they can get access to the cheaper fuel fuel costs around their their home area and signpost them in terms of how they can manage their home costs better through things like

19:48 u switch, etcetera. We do that verbal just now over the phone, but we're about to introduce some signposting on our website that gives some customers some more insight into those areas too. And and actually looking after customers through these more difficult times is what we're all about. And so we'll show continued level of flexibility for our customers and just provide that human touch where they if there's if they have additional stress because of some of those some of those extra costs, we'll help them through some of those difficulties. And and it's that

20:21 approach over the course of the last three years through the pandemic that certainly helped to make a big difference to the financial performance that that we've we've spoke that Chris spoke about a few minutes ago. In terms of the collections performance, I thought we'd show you the last twelve months worth of cash collection. We one of the most important aspects and a number I look at every single day is our last live cash collection performance. You'll see there's a normal drop off for Christmas time for December, but actually, we saw in January a huge a huge comeback in terms of our live cash collection performance to the point actually for for advantage finance that was a record cash collection performance of over 98. And then our segment of the marketplace, that's, like, you know, that's outstanding. And actually, since then, we've continued an incredibly strong level of cash collection since then too.

21:11 So cash collection is the driver for a lot of our performance. The the other side part of the slide is how we're looked after from how we're looking after from a regulatory perspective. We still maintain a very close relationship with the FCA, and the

21:26 every time we they look at our business, they give us a clean bill of health, which is brilliant. The two things that are coming through in the on the pipeline from a regulation perspective are something called a 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 expectation will be a move towards a full open commission disclosure.

21:54 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're all ready to go with that, and we'll wait on the 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 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 our higher purchase product to compensate for the fees that we charge in terms of acceptance fees and options to purchase fees, through interest.

22:50 And, by simple by taking those fees out and compensate within the interest line, then that will make by simplifying that product, it'll give us access to the aggregator websites that are selling cars and finance, excuse me, 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 rate and score customers. And we believe that that will give us about a 10% improvement in terms of both the the volume of approvals and the quality of the customer that we're underwriting. We're gonna use the opportunity to integrate some of our scorecard characteristics into a couple of our brokers and through the the the the the decisioning systems that I mentioned at the bottom of that slide in terms of in terms of credit card HD decisions and motive. Are automated decisioning systems that basically choose or identify the right lender for the customer's personal characteristics, and and we'll integrate into those to make it easier for us to access some of these new aggregator website markets.

24:06 So that's what we're currently working on and what we are are in the close pipeline over the course of the next the next six months is to expand those aggregator website into the more aggregator website market. We'll be reengineering our renewal activities to significantly increase the volume of cost good customers that we're keeping since we've done a brilliant job over the last couple of years of being flexible and providing the level of service. Wanna keep those customers. We're gonna 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 allow us much more flexibility of expanding further into different channels in the 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 going on within the business. But as the market comes comes back even stronger in the second half of this year, that's 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 using new car supply significantly improve. So I think that sums up all activity that's taking place in advantages now. And I'll hand back to Chris just now. No.

25:25 Thanks, Graham. So thanks to Graham for sharing his plans for advantage, and I hope you agree they were very exciting plans. We now come to four slides which we generally show you at our financial year end. So they're metrics about our biggest business advantage finance and the what's going on in the loan book. So these are update slides. So I'll give a brief explanation of each slide, and then I'll pick out one or two factors. Happy to take any questions, obviously, at the end of the presentation. Advantage finance,

25:57 number of loans this year went up to 19,747. And on the second line, can you see the average advance went up to £7,138 this year? There are a number 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 lower down and the slightly lower interest rate, 16.3%. So the average tier mix drove the average value up, but also what helped to drive the average advance up was the the higher price of 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 five years ago and then projected from five years ago to the current day. The strong correlation between how customers make their first repayment and the end outcome after five years in terms of the percentage

27:01 of bad debts that we experience on on those originations. So the 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,

27:26 first repayments have been very good with an advantage and have meandered between 9098% at best. And and then you can see that if you go right up to five years ago, 2016, 2017, you 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.

27:54 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 was 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 end outcome that we project and for 2017, 2018 business, it's quite a reasonable projected because projection because we're quite near the end. For 2021, 2022 business, obviously, it's

28:37 it's more of a forecast, and and certainly none of the dotted red line is a guarantee. But you can see that we expect the correlation to reemerge, and 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 after five years.

29:02 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 are 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 we've spent on cost of sales, the cost of getting each new loan on the book. So they're the blue lines going up the chart, and that gives you some guide to we've what done over the years. But then the green lines on the chart are what we've collected so far. So starting at the bottom of the chart, January 15, we've collected a 145% back of the original advance. And the end outcome we estimate is not much more than that because that that origination year has more or less finished collecting now.

29:55 If you go up the chart, we're we're projecting between a 135, a 140%. So they're projections, but they're still good margins and, obviously, if 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 refinance receivables, what this shows is how the book has moved since July 21 to end of January twenty twenty two. And you can see that the up to dates have gone from 68% to 72%. It should mention that this is counting payment holidays as arrears just to give an impression of where we are against the original contract.

30:48 And another, you know, significantly positive move is the six point o one 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 today. So hopefully, can see a few interesting trend 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 Aaron, who's the CEO of Aspen Bridging, and he's gonna tell you a bit about Aspen's year and also potential developments within that business. Over to you, Ed. Thank you, Chris.

31:34 Good afternoon, everybody, and thank you for attending the presentation. Aspen Bridging's had a very good year this last year, building on the first half year results and coming in and completing the year with some record results. PBT is 3.4 for the year, and and net lending at 98,000,000, and net receivables have all come from new loan facilities of a 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 two loans in default as at the end of the year.

32:19 Our growth prospects look very, very strong for us for this year. We've widened our product range, and we've 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. 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 through those periods, obviously, with the exception of that year in 2020 at the beginning of the pandemic.

33:09 But as we've got more confidence 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 costs as a result relative to our profitability. Gross LTVs, loan to value lending has remained largely in the same place through the years. You can see that the market has got 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.

34:08 Average terms have grown a little bit over the time as we've got better at understanding and qualifying what terms people should have for their projects. And you can 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, Anthony. I mean, our our next few slides relate to our five year record, is reassuring, indicates our position on EPS and on dividends.

34:59 And, obviously, we can go back even further than that. Our twenty year record is is as good, but both in terms of our performance against the market, against our peers. We've just had Peel Hunt actually give us those that information. And I think it is it shows what an excellent long term investment is. I'm not gonna go on about to the future because not that we haven't got fantastic confidence in it, but I do wanna be able to take all these questions. And we've got twenty one minutes and we've got a number of questions. I think we've now got six or seven questions. So could we could we start off by taking these questions which seems to have disappeared from my screen now, one second.

35:53 Anthony, let me just jump in and say thank you very much for your presentation. And as Anthony said, please do continue to submit your questions using the q and a tab situated in the right hand corner. Okay. You're gonna take this. Yeah. But just while the company take a few minutes to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. We actually received a number of pre submitted questions from investors, and I want to start off the q and a session with these. The first one reads as follows. What should investors look in look for in a company like S and U? What I've said already. In other words, a very consistent sustainable growth with good dividends and good capital appreciation, which beat both the market and our peers over the long term.

36:44 I mean, I really like rather than the pre submitted ones, mean, I'd like really given the people who've who've who've attended the seminars to actually get on to some of the questions that are being submitted now. For instance, Pat H. How sustainable is the loan provisioning? I think we'd I'd like to see that one answered if we possibly can there, unless Sandra. So could I could I ask Chris to 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 for the question. It's an obvious question after the peaks and troughs that I presented in the p and l account. So if you remember, 36,000,000 last year and only 4,000,000 this year. So we don't think 4,000,000 is a a sustainable figure. We'd we'd love it if it was.

37:36 But the reality of that figure is that you've had a a peaking impairment in January 21, and that's helped a a trough in impairment in in January 22. So going back before the pandemic, as as I mentioned briefly, January 2016 and a half million similar figures in in the years prior to that. And whilst we don't have a crystal ball, we 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 aspirin and the growth path. So over to you, Ed.

38:29 Yeah. Well, like I was saying, we've had a steady good growth over the 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 one 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, Anton? No. No. That's that's that's excellent.

39:14 I anticipate further growth of Aspen. Why? Because there's been such a fundamental and long term imbalance between supply of and the demand for housing, particularly in the kind of housing that you're that you're financing. So that's, I think, why it's such a tremendous market opportunity. Can we just now go on to to 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? So thanks, Seth. Thanks, Anthony. Yep. Yeah. Firstly, I would say that the Internet's been around around from our car car finance position for some time, and the existing, routes to market are, from our point of view, are still there. So they haven't they have changed. But I think, Bill, you are right. There is there is a 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.

40:25 We we've identified that, and that's exactly why we're adapting our business for that movement move moving forward. So that a couple when I was show showing a couple of slides around the the decisioning systems and the aggregator websites, we're we're we're investing heavily and making sure that we are 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 its share, then we've got capability there. Actually, I think we're gonna be very well placed to be able to compete in that part of the marketplace. But but, yeah, it's it's a great question. But but, actually, I think we're already beginning to adapt to the business to be able to suit it. Good. Thank you. And then the next one is from John, John a, and that concerns the average cost of capital dividend policy and higher potential interest rates. I hand that over to to Chris.

41:20 Thanks, Anthony. There's quite a few parts to the question, so I might need your help as well. Right. K. Thanks, John, for the question. So the average cost of the capital for the business, you're raising new capital. We've always been between three or 4% with recent rises in interest rates. That's nearer the 4%. I I think we we've asked how much will this impact be from higher Bank of England interest rates. So for current levels of borrowings every half a percent in increase in in the base rate or Sonia, which is is pretty similar, will will cost us another £500,000. 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?

42:11 So we obviously have always run gearing on the asset opportunity. And and therefore, if Aspen are creating new asset assets that are helping the company to make good returns, then we we would increase the gearing. So gearing hasn't gone up that much in the last year. We're still about 55%, is which the same as we were last year. We have a covenant within our funding agreements, the lowest one of which is a 100%. So we would hit that covenant if we approached a 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 in a way as well. Will the increases in the generous dividend slow down to prioritize debt reduction in the medium term?

43:06 Well well, no. So we don't we are exposed to increases in interest rates. But if you look at our p and 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 our cost of funds or in in in in preference to going high a bit higher at least on the gearing. So I hope that answers that part of the question. Would it and therefore, would it 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 what interests are doing in the current range.

43:52 I'm just gonna hand back to Anthony to see if he wants to add to my answers on any of that. No. It's excellent the way that you answered those, Chris. I couldn't add anything the substance. It's really good. Thank you. So we go to excuse me. I'm gonna go to John a actually next because Richard p asked a question about the consolidation of secondary end car dealers, which I think we've dealt with already in terms of inter bay Internet based competitors. But, obviously, Richard, if if we don't think we've dealt with it, then obviously come back to us. But John A has just asked us to collaborate a bit on the advantage finance chart and on on whether in fact customers paying in a particular way are more likely to be better high quality compared to somebody who calls up and makes a payment. I think probably go over to you for that one, Graham, because obviously, you know, it's it's a it's a it's an interesting question.

44:51 Thank you. Yes. Yeah. It's a great question because the the behavior of customers is is slightly different depending upon the the way they pay. And and you 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 fore because the level of customer interaction and level of customer care that we give to those customers were were quite you know, what what we do is we try and went through the through the conversations and through the service provider of customers is get people back onto the direct direct debits as quickly as we possibly can. But I think what you would have found to was the the payment portal that we developed. Well, that what that payment portal does is it identify identifies customers who missed their first direct debit, and we basically send out a link to the customer to say, you know, we've just noticed you've missed your direct debit. We actually identify the same day if their bank account doesn't have the funds in place to be able to make the payment. We send the link to the customer that we are there and then to see, look. We're gonna give you a call, but but if you want get a payment now, just use this use this mobile telephone portal to make the payment, and, that's going down really well.

46:08 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 are there to maintain their their payments. So, yeah, an answer to your question, those are the customers that pay regular debt through a direct debit traditionally have better quality through the life of the contract, but the level of service we provide, does does everything we can to overcome that and get customers back onto direct debit as much as possible. But with the support of the none of the payment portal, that just more than anything, it gives better the customer, better access to make a payment. But 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 the more difficult cost 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 that level of support. So hopefully, that's giving you a fairly detailed answer in terms of how we look after customers and make sure we keep them keep them paying as often as we possibly can.

47:14 Thank you. That's great. Can we go now to Jerry Hughes? Interesting interesting question about this new scorecard and how we test it. Over to you, Graham. This is a complicated one. This basically, what we do is we take we take a a period of time of historically twelve months contracts and and identify the behaviors of those twelve month twelve twelve months of contracts on our system to build a new scorecard. We then build a new scorecard based on the behaviors and characteristics historically on that twelve month period. And then once the scorecard has been designed, we then retro test the characteristics against the actual behaviors of the scorecard that's that that that of the basis of the scorecard that we've designed. So we don't actually release any new scorecard onto the system until we're a 100% sure that the characteristics that were built in there have at least the best at this at this the same performance, if not better than we've historically enjoyed with the with the customer base that we've that would have previously had. What we will do when we do introduce the new scorecard is we'll then build controls in place afterwards that on a on a very regular basis, we'll be able to go back and retro score the the the month or two months or three months worth of contracts we have written against the first payment success rate that a chart that Chris showed to be able to to be able to prove that the new scorecard is performing in a live environment just as well as it was doing in the historical environment. So, you know, it's it's

48:45 the very basis of how how lenders operate and particularly lenders in our market operate. We need to make sure that the quality is as the best we could possibly have. And rest assured, we don't we we test the hell out of the scorecard to make sure that it's of the best quality and that's got the best of the best accuracy and and wouldn't release anything that we weren't sure could improve our business. Thank you, Greg. We've now got three questions on electric vehicles from Bill h and from, excuse me, and from Peter w and also from Richard p, all talking about the offering on financing vehicles and how we see the environmental movement affecting our demand for electric vehicles and how we're gonna service it. Over to you again, Graham.

49:35 Yeah. Thank you. Yeah. So we we we are 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 opportunity is is a bit reduced in our in our segment of the marketplace just now because if you think about it, we're financing cars, electric cars from maybe five years ago, and the battery usage of those cars were were allowing 60 or 70 miles to a single charge. And the box and the volume of cars that are coming through that part that part of the marketplace are still very small and not maybe as suitable for for as for for many customers from a from a used car perspective because of the power of the battery.

50:24 The reason we got into it, is that we knew that that's gonna 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 to 300 miles on the in a single charge. And we know that that's gonna build over the course of the next few years, and, therefore, the volume of opportunity is gonna build significantly for us in five, six, seven years time. So we stepped into the marketplace to learn how to look after 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've 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.

51:11 So it started very low. We know it's gonna 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 aggregate aggregator website at Advantage. Again over to you Graham. Thank you. I thought you guys are working me hard aren't you somebody? I know so well. Yeah. I mean, the the aggregator websites that it's people like auto trader and clearscore.com and comparethemarket.com and confuse.com. These are these are all the the big websites that people traditionally use for things like motor insurance and home home contents insurance and and pet insurance, etcetera. And and that gives us access to a much bigger customer base because they're attacking the market across every single area. And as and as I'm they're they're spending millions of pounds attracting customers into those sites.

52:08 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 they've had their own routes to marketplace and they've the volumes of applications have come our way as a result of the as a result of the broker market has been fantastic for advantage. The developments, particularly over the course of the last couple of years because of because of the pandemic, have been in this particular area. And we believe that this will give us access to much spiteful cost customer opportunity. And, you know, one of our purposes that's that's moving into this area already is talking about they've seen the the number of inquiries increased to 25,000 to 60,000 cost 60,000 customers a month.

53:02 And of course, they then filter that down into the different finance companies they they operate with. And we and and we believe that what as people become more and more comfortable with buying their car and buying their finance online, that that will axe 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 that. Thank you, Greg. And then Jerry Hughes asked a very interesting question about provision coverage. Over to you on that one, Chris. Yeah. Thank thanks very much, Jerry. And the question is provision coverage is still 26% for advantage, which is high by historical standards. And despite this type in the underwrite, it seemed to does this reflect any underlying concern with the book?

53:52 Well, I I'm a gloomy finance director, so I'm always concerned about something. But in this case, it doesn't really reflect any underlying concern with with the book per se. So what what's going on a little bit in advantages books is a lot of customers in 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 the the normal level of arrears, I. They might only be paying half payments rather than full payments, that increase naturally increases what we call our stage three provisions. Other 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.

54:42 So, for example, we built in inflation this time to our macroeconomic overlays for our IFRS nine provisioning, and we think that's sensible in the whole history of advantage. 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's alluded that in terms of some of his work on affordability. But it's sensible that we reflect it 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 we do think that the auction prices that we've been enjoying more recently in terms of the relativity to the the balance owed by the customer, that is is probably not a permanent feature.

55:30 And at some point, I think as Graham alluded to, car prices will moderate, and therefore, will see a a revision to more normal loss levels in terms of what we realize when we go to the auction with with a typical either repossessed vehicle or a voluntary terminated vehicle, which is a consumer right under the higher purchase agreements that Advantage operate. So I I hope hope that deals with why provisions are still quite high coverage in Advantage's balance sheet. Thank you, Chris. I wanna move on to Bill H. How do you see the balance of the profit contribution between Advantage Finance and Ashford in five years' time? I mean, obviously, Advantage Finance, you know, irrespective of its fantastic plans, a slightly more mature business than than than Aspen, which obviously only has done a 135 transactions last year despite the fact that's a massive increase on the previous year, as we've said.

56:33 But we do see huge potential at both businesses, and we would anticipate that probably the next five years, we would like to see to see growth as the group as a whole grows. We'll probably see, you know, at the moment, Aspen's, you know, about seventh a seventh of of the profit of of Advantage. In other words, 3,400,000 against sorry, 7% of the profit of Advantage. Again, 3,400,000 against 43,000,000. We would expect that to grow possibly to 20% of the advantages increasing profit over the next few years.

57:22 And, you know, I would like to see that, you know, we would be talking about for Aspen, we'd be talking about more than doubling its profits over the next over the next two 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 at at advantage. So inevitably, one more mature business is gonna be caught up slightly by one which is more recently founded, but still the main thrust of profits for S and U will be from from advantage motor buyers.

58:10 I hope that gives you an indication of where we're going, Bill, on the balance of profit. And then finally, just Liam b has has mentioned increased interest rates and 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 him a shout, I think it'd be nice to hear to hear Ed's view on that from Aspen Finance. Our view at the moment is that whilst the market's being very competitive, we're we're certainly at a stage that rates seem to have plateaued in terms of their their lower levels.

58:57 And we would expect that there would be with an increasing interest rate environment that there would be the potential for rates to move further up. I I don't think that in itself would is is is an issue from a 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 can I just ask for a similar response from Graham on that? Yeah. Thanks, Anthony. Yeah. I guess we've enjoyed very stable interest rates in this country for many, many years.

59:44 But the so 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 through the tier mix that we operate with. But but for sure, if we do see increases in interest rates across the vast significant in in increases in interest rates across the market. I'm afraid it's a little bit like gravity. Unfortunately, it always ends up with the customer. And if if interest rates increase significantly, yeah, every lender, regardless of where they are in the marketplace, will be looking at the the the the handover as far as as 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.

1:00:36 Good. Well, thank you. Can I just say, in conclusion first of all, Graham, would you like to say anything in conclusion? Because because I think, yeah, you've you've haven't been able to to do that so far. Graham Coombs. Not really. I I think that it's difficult to predict beyond about two years likely growth rates, particularly in a particularly uncertain environment. But what is evident is that, you know, Advantage and Aspen are both extremely adept at identifying, you know, changes in trend and changes in routes to market. And they they'll continue to do so to be so. I mean, there's gonna be facing profound changes in routes to market, we think. I think brokers undoubtedly will be disadvantaged by a disclosure of commissions.

1:01:28 I know in America, it didn't really have a great impact, but that was probably in the pre the pre Internet era in large part. And I suspect this time they might be under more pressure than previously. But in any event, I think that, you know, we'll we'll we'll be we'll stay sure footed and and quick footed as a business. Thanks. Just finally to to our audience, IMC. Thanking IMC again. Hope that's been useful for you. Can I just lastly point to the group of people who are the most important in our business? And we we we end our presentation on them who are our customers. And it's worthwhile looking at those slides at the end of the presentation, which are in the appendices, which I think do give us an give an idea of the real really really heartfelt and energetic efforts we we take really to get close to our customers and to give them a bespoke service.

1:02:31 That actually applies both in our motor finance and in our bridging finance business. So with that, 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 this session as you'll now be automatically redirected 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, and I'm sure will be greatly valued by the company. On behalf of the management team of S and U PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.