Private & Commercial Fin Group Plc Half-year Report (1954H)

TIDMPCF TIDMTTM

RNS Number : 1954H

Private & Commercial Fin Group Plc

06 June 2017

6 June 2017

Private & Commercial Finance Group plc

("PCF", "Private & Commercial Finance", the "Company" or the "Group")

Interim Results for the six months ended 31 March 2017

"Launch of PCF Bank on track, strong organic growth"

Private & Commercial Finance (AIM: PCF), an AIM-quoted specialist bank, today announces its interim results for the six months ended 31 March 2017.

Business Highlights:

   --      Submitted request for permission for PCF Bank to commence retail deposit operations 
   --      Raising retail deposits on track for summer 

-- New business volumes up 13% to GBP35 million for the six months period (2016: GBP31 million)

   --      Portfolio growth of 14% to GBP128 million (2016: GBP112 million) 
   --      Record low impairment charge of 0.5% (2016: 1.0%) 

-- Committed debt headroom of GBP36 million (2015: GBP25 million) to fund portfolio growth alongside retail deposits

Financial Highlights:

-- Six months underlying profit before tax up 16% to GBP2.3 million (2016: GBP2.0 million), before adjustment for GBP0.6 million of bank set-up costs

-- Six months adjusted profit before tax of GBP1.7 million (2016: GBP1.8 million) due to the costs of establishing the bank

-- Fully diluted earnings per share of 0.8p (2016: 1.0p) following conversion of remaining convertible loan notes and the investment in the bank

   --      Return on Average Assets of 2.8% (2016: 3.2%), ahead of medium-term target of 2.5% 
   --      Fully diluted after-tax Return on Equity of 10.5% (2016: 12.7%) on a larger capital base 

Commenting on the results Scott Maybury, Chief Executive of PCF, said:

"The first six months of this year have gone very well, with continued momentum in profitability and the achievement of key objectives. We saw strong organic growth with new business volumes up by 13% and an increased portfolio size of 14%. This level of growth is consistent with previous periods. We recently concluded a successful Placing and Open Offer and now have the platform in place to commence retail banking operations, reduce our cost of funds and significantly grow the business.

"It is pleasing to see that the team have been able to deliver further underlying progress whilst completing the IT and operational infrastructure for PCF Bank. Taking the first retail deposits remains on track for summer and we have already delivered a successful 'Friends and Family' trial. I look forward to updating shareholders with a new website, brand and launch of the bank in the not too distant future."

- end -

For further information, please contact:

 
 Private & Commercial Finance             Tel: +44 (0) 
  Group                                    20 7222 2426 
  Scott Maybury, Chief Executive 
  Officer 
  Robert Murray, Managing Director 
  David Bull, Finance Director 
 Tavistock Communications                 Tel: +44 (0) 
  Jos Simson / Niall Walsh                 20 7920 3150 
 Panmure Gordon (UK) Limited              Tel: +44 (0) 
  Atholl Tweedie / Adam James              20 7886 2500 
  - Corporate Finance 
  Charles Leigh-Pemberton - Corporate 
  Broking 
 Stockdale Securities                     Tel: +44 (0) 
  Robert Finlay / Richard Johnson          20 7601 6100 
  - Corporate Finance 
  Henry Willcocks - Corporate 
  Broking 
 

This announcement contains inside information, disclosed in accordance with the Market Abuse Regulation which came into effect on 3 July 2016.

About Private & Commercial Finance Group plc (www.pcfg.co.uk)

Established in 1994, Private & Commercial Finance Group plc is an AIM-quoted specialist bank which has two main operating divisions:

   --      Consumer Finance which provides finance for motor vehicles to consumers; and 
   --      Business Finance which provides finance for vehicles, plant and equipment to SMEs. 

The Group has a highly efficient and scalable business model, utilising its specially developed internet-based proposal system to service national networks of brokers and suppliers.

Chairman's Statement

For the six months ended 31(st) March 2017

I am delighted to present my first Interim Report in what has been a truly exciting period since my appointment on 6 December 2016. The following day we were granted our banking licence and since then our team has been working diligently to ensure that we execute mobilisation successfully within the twelve months period set by the Prudential Regulatory Authority ("PRA") and the Financial Conduct Authority ("FCA"). It gives me great pleasure to report that we submitted our Variation of Permissions to the regulators on 31st May 2017, enabling us to remain on target to launch PCF Bank this summer, in line with our initial estimations.

The investment in establishing PCF Bank will allow the Group to access a lower cost of funds, increasing profitability through scale and giving access to new markets. During the last six months we have continued to recruit high calibre risk and savings staff to build our banking team, fully tested our computer systems with a successful "Friends and Family" trial and put in place the governance and operational framework required by the regulators. In addition, we completed a successful Placing and Open Offer in early April, raising GBP10.5 million (before expenses) of additional equity to meet the PRA's liquidity requirements and provide us with the requisite capital to support our medium-term growth plans. We were also pleased that our GBP500,000 Open Offer was over-subscribed, confirming support amongst our retail shareholders. All the foundations are now in place for the successful launch of the bank and we will utilise the coming weeks to refine processes, complete our training programmes, put in place new business initiatives to support those growth plans and announce the branding and website for PCF Bank.

As anticipated, one-off costs relating to the banking project increased in the period to GBP553,000 (2016: GBP197,000) but remain within budget. The statutory profit before tax for the period, after expensing these banking costs, was GBP1.7 million (2016 - GBP1.8 million). Underlying profit before tax, adjusted for banking costs, however, increased by 16% to GBP2.3 million (2016 - GBP2.0 million) due to the increased size of our portfolio and a further reduction in the loan loss provisioning charge. The continuing upward trend in profitability which we have seen over the last six years together with an unchanged timetable for the launch of the bank provides us with confidence in achieving market expectations for the full year.

Profitability and balance sheet

Profitability exceeded target with a Return on Average Asset ('ROAA') of 2.8% adjusted for banking costs (2016: 3.2%), ahead of the medium-term target of 2.5%. Fully diluted earnings per share for the period was 0.8p (2016: 1.0p) and after tax Return on Equity ('ROE') was 10.5% (2016: 12.7%) both reflecting the conversion or redemption of the remaining convertible loan notes at the beginning of this period. The ongoing additional cost of running the bank are estimated at GBP1.9 million per annum, however, these are far outweighed by the positive benefits of reduced funding cost and the ability to scale the business. We reconfirm our three-year targets of an ROAA of 2.5% and an ROE of 12.5% as we transition and leverage the full potential of the banking infrastructure and additional equity.

Net Interest Margin ('NIM') in the period was 8.2% (2016: 8.8%) and is ahead of our medium-term target of 8%. The compression in NIM must be considered alongside the 46% reduction of loan loss provisioning charge to 0.5% (2016: 1.0%). Over a number of years, we have improved the credit quality of our portfolio but it is now slightly lower yielding and this is being reflected in our NIM and loan loss charge. This focus towards prime lending is key to our future growth plans but also supports our current risk appetite with regards to the credit cycle and economic environment.

Administrative expenses increased by 20% to GBP3.0 million (2016: GBP2.5 million) reflecting the increased investment in the banking project. Intangible assets increased to GBP2.1 million (2016: GBP0.8 million) reflecting the capital expenditure on new IT software licences required to establish the bank.

The portfolio of receivables increased by 14% to GBP128 million (2016: GBP112 million). The portfolio continues to perform well and its quality is excellent with 96% of the portfolio reported as neither past due nor impaired (2016: 96%). Our objective is to grow the portfolio to GBP350 million within three years and GBP750 million within five years.

The net assets of the Group as at 31 March 2017 increased by 20% to GBP27.4 million (2016: GBP22.9 million) and net assets have further increased following the recent Placing and Open Offer.

A final dividend will be recommended on the announcement of our results for the full year on 5 December 2017. We do not intend to pay an interim as well as a final dividend for the foreseeable future.

Bank mobilisation and funding

Once the Variation of Permissions is approved, the current restrictions on savings operations will be lifted and we will be able to commence trading as PCF Bank. This process can take up to 12 weeks but we hope the decision will arrive earlier. Until then we will continue to fund our business through wholesale bank facilities and we have adequate headroom of GBP36 million (2016: GBP25 million) to meet our portfolio growth targets. With retail deposits on the horizon, we have already taken steps to rationalise our senior debt facilities. We have replaced facilities and interest rate swaps with fixed rate funding which protects our margin and we expect to report interest expense and facility cost savings in the remainder of the year.

New business origination and our business model

The targeted portfolio growth to GBP750 million in five years will be achieved initially through further expansion into the prime and super-prime segments of the lending markets in which we already operate. This strategy is made possible through the significantly reduced cost of funding provided by retail deposits and these interest expense savings will enable us to offer the finance terms that are typical in those segments. This is a low risk execution of our growth strategy as we will be operating in business areas in which we already have invaluable experience and existing origination channels. With a small existing market share and the banking licence providing a more equal footing with our major competitors, we see great opportunity in both consumer motor finance and SME asset finance. Over time, this organic growth strategy will be supplemented with diversification into new asset classes through corporate activity or potentially the acquisition of specialist resource in new sectors. Our current focus is on refining our credit model, automating processes and defining the terms of business for our expansion into the prime market.

In this six months period, new business originations increased by 13% to GBP35 million (2016: GBP31 million). The strongest growth was in SME asset finance where we were best able to match credit quality criteria with our yield expectations based on the existing, more expensive funding model. The current portfolio sizes are consumer motor finance at GBP69 million (2016: GBP64 million) and SME asset finance at GBP59 million (2016: GBP48 million). There has been no change in risk appetite or compromise on credit quality.

The Group does not offer Personal Contract Purchase ('PCP') and hence is unaffected by the recent negative press comment regarding the car finance market and specifically that product. We are not, therefore, exposed to the inherent residual risk in that type of contract or vulnerable to the criticisms being made about mis-selling and poor underwriting practices for this product. We have operated in the car finance market for 20 years and have an in-depth knowledge of the risk factors, in addition to the experience of successfully administering a portfolio in difficult economic circumstances historically. We finance predominantly used vehicles on fully amortising hire purchase contracts and apply appropriate underwriting standards by taking into consideration loan-to-value, credit status, age of vehicle and affordability to assess and price risk. We are regulated by the FCA for consumer credit lending and we maintain a well-diversified portfolio of quality receivables which has in the past performed well at all points of the credit cycle.

Staff

I would like to thank the whole PCF team who continue to deliver excellent results while undertaking the considerable task of building a bank. Their commitment, skill and relentless dedication continue to be the foundation to our success.

Current trading and outlook

New business levels remain buoyant and we achieved a record month for new business originations in May 2017. There are competitive pressures in both our chosen markets and while economic uncertainty exists over the General Election, falling real incomes and the Brexit negotiations, we feel that these risks are being mitigated by our prudent and disciplined approach to lending. With a small market share, a focus on delivering excellent customer service and the upcoming ability to fund through retail deposits, the outlook for growth in both our markets is favourable.

We have delivered strong profits for the first six months, while putting in place the bank infrastructure to implement our strategy to deliver significant portfolio scale, further profitability growth and enhanced shareholder value. The long-term growth prospects of the Group are excellent and we look to the future with great confidence.

T A Franklin

Chairman

6 June 2017

GROUP STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME

 
 (GBP'000s)                      Six months   Six months        18-month 
                                      ended        ended          period 
                                   31 March     31 March    30 September 
                                       2017         2016            2016 
                                  unaudited    unaudited         audited 
 
 Interest income and similar 
  income                              9,697        9,070          22,419 
 Interest expense and 
  similar charges                   (4,545)      (4,215)         (7,542) 
                                -----------  -----------  -------------- 
 Net interest income                  5,152        4,855          14,877 
 Fees and commission income             258          208             677 
 Fees and commission expense          (336)        (262)           (847) 
                                -----------  -----------  -------------- 
 Net fee and commission 
  expense                              (78)         (54)           (170) 
 Fair Value loss on financial 
  instruments                           (4)            3               2 
                                -----------  -----------  -------------- 
 Net operating income                 5,070        4,804          14,709 
 Administration expenses            (3,049)      (2,472)         (7,996) 
 Impairment losses on 
  financial assets                    (305)        (565)         (1,586) 
                                -----------  -----------  -------------- 
 Profit before taxation               1,716        1,767           5,127 
 Income tax charge                    (347)        (353)         (1,106) 
                                -----------  -----------  -------------- 
 Profit after taxation, 
  being total comprehensive 
  income, attributable 
  to owners                           1,369        1,414           4,021 
 Earnings per 5p ordinary 
  share - basic                        0.8p         0.9p            3.2p 
 Earnings per 5p ordinary 
  share - diluted                      0.8p         0.9p            2.6p 
 
 
 Underlying adjustments 
 
   Profit before taxation    1,716   1,767     5,127 
 
   Banking Costs               553     197       506 
                            ------  ------  -------- 
 Underlying profit before 
  taxation                   2,269   1,964     5,633 
 Income tax charge           (458)   (394)   (1,212) 
                            ------  ------  -------- 
 Underlying profit after 
  taxation, being total 
  comprehensive income, 
  attributable to owners     1,811   1,570     4,421 
 

GROUP BALANCE SHEET

 
 (GBP'000s)                      Six months   Six months        18-month 
                                      ended        ended          period 
                                   31 March     31 March    30 September 
                                       2017         2016            2016 
                                  unaudited    unaudited         audited 
 Assets 
 Cash and balances at 
  central banks                       1,993           84           5,904 
 Loan and advances to 
  customers                         127,590      112,270         121,960 
 Derivative financial 
  assets                                  -            -               - 
 Property Plant and Equipment           304          108             147 
 Intangible assets                    2,058          811             764 
 Deferred tax assets                  1,338        1,326           1,424 
 Trade and other assets                 362          171             503 
                                -----------  -----------  -------------- 
 Total Assets                       133,645      114,770         130,702 
 
 Liabilities 
 Bank overdraft                           -          675               - 
 Due to banks                       104,042       89,293         103,305 
 Derivative financial 
  liabilities                             -          404             491 
 Trade and other liabilities          2,251        1,475           2,199 
                                -----------  -----------  -------------- 
 Total Liabilities                  106,293       91,847         105,995 
 
 Equity 
 Share Capital                        8,506        7,708           7,956 
 Share premium account                  558            -             174 
 Other reserves                           -        (303)           (373) 
 Own shares                           (355)        (305)           (305) 
 Retained earnings                   18,643       15,823          17,255 
                                -----------  -----------  -------------- 
 Total Equity                        27,352       22,923          24,707 
 
 Total equity and liabilities       133,645      114,770         130,702 
 

GROUP STATEMENT OF CHANGES IN EQUITY

 
 (GBP'000s)                       Six months         Six months        18-month 
                                       ended              ended          period 
                                    31 March           31 March    30 September 
                                        2017               2016            2016 
                                   unaudited          unaudited         audited 
 
 Total comprehensive income 
  for the period                       1,369              1,414           4,021 
 New share capital subscribed            934                 89           9,011 
 Share-based payments                     19                 16              37 
 Issue of own convertible 
  debt                                  (50)                  -               - 
 Transfer to distributable 
  reserves from derivative 
  instruments                            373                  -               - 
 Fair value gain/(loss) 
  on cash flow hedges                      -               (85)           (220) 
                                 -----------  -----------------  -------------- 
 Net addition to shareholders' 
  funds                                2,645              1,432          12,849 

 Opening shareholders' 
  funds                               24,707             21,491          11,858 
                                 -----------  -----------------  -------------- 
 Closing shareholders' 
  funds                               27,352             22,923          24,707 
                                 ===========  =================  ============== 
 

NOTES TO THE INTERIM REPORT

1. The interim results are unaudited and do not constitute statutory accounts as defined by section 434 of the Companies Act 2006. The comparative figures for the 18 months ended 30 September 2016 are based on the statutory accounts of the Group for that period and have been reported on by the Group's auditor and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

2. The interim results have been prepared on the basis of the accounting policies set out in the Annual Report & Financial Statements for the 18 months ended 30 September 2016.

3. These accounts are reported for the first time in banking format with the main differences in the presentation being:

-- gross profit is reported as 'interest income and similar income' with a small element reported in the 'fees and commission income'

-- banking facilities fees and broker commission fees moved from administration expenses to 'fees and commission expenses'

   --      impairment losses separately disclosed from administration expenses 

4. These interim consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union.

5. The Group operates in the principal areas of consumer finance for motor vehicles and business finance for vehicles, plant and equipment. All revenue is generated in the United Kingdom.

Profit on ordinary activities before taxation, and loan loss provisioning charge are detailed below:

 
 (GBP'000s)                       Six months    Six months        18-month 
                                       ended         ended          period 
                                    31 March      31 March    30 September 
                                        2017          2016            2016 
                                   unaudited     unaudited         audited 
 Consumer finance                        927         1,024           2,695 
 Business finance                        789           743           2,433 
 Profit on ordinary activities 
  before taxation                      1,716         1,767           5,127 
                                 -----------  ------------  -------------- 
 
 Consumer finance                      (146)         (327)         (1,036) 
 Business finance                      (159)         (238)           (550) 
                                 -----------  ------------  -------------- 
 Loan loss provisioning 
  charge                               (305)         (565)         (1,586) 
                                 -----------  ------------  -------------- 
 

6. Administration expenses includes GBP553k of one-off costs relating to the set-up of a new bank (2016: GBP197k). The costs of software and infrastructure have been included in property, plant and equipment and other intangible assets.

7. The income tax rate is 20%, representing the best estimate of the annual effective tax rate applied to operating profit before tax for the six month period.

8. The calculation of basic earnings per ordinary share for the 6 months ending 31 March 2017 is based on a profit of GBP1,369,156 for the period on 170,124,102 ordinary shares, being the weighted average number of ordinary shares in issue during the period. There were no convertible loan notes in issue in the period.

The calculation of basic earnings per ordinary share for the 6 months ending 31 March 2016 is based on a profit of GBP1,413,753 for the period on 154,162,846 ordinary shares, being the weighted average number of ordinary shares in issue during the period. The calculation of diluted earnings per ordinary share is based on profit of GBP1,501,267 for the period, before deducting interest on the convertible loan notes of GBP87,514, on 170,378,200 ordinary shares, being the dilutive weighted average number of ordinary shares in issue during the period.

The calculation of basic earnings per ordinary share for the 18 months ending 30 September 2016 is based on a profit of GBP4,020,756 for the period on 124,288,560 ordinary shares, being the weighted average number of ordinary shares in issue during the period. The calculation of diluted earnings per ordinary share is based on profit of GBP4,466,130 for the period, before deducting interest on the convertible loan notes of GBP445,374, on 170,378,200 ordinary shares, being the dilutive weighted average number of ordinary shares in issue during the period.

9. In other reserves the Group adopted hedge accounting for derivative financial instruments. The hedging reserve includes the effective portion of the change in fair value of cash flow hedging instruments. These derivative financial instruments matured on 31 March 2017 and during the six months period the cash flow hedge reserve balance transferred to distributable reserves.

10. The 2017 Interim Report and Financial Statements will be posted to all shareholders and convertible loan note holders on 6 June 2017 or shortly thereafter. Further copies can be obtained from the Company Secretary at Pinners Hall, 105-108 Old Broad Street, London EC2N 1ER or can be downloaded from our website, www.pcfg.co.uk.

This information is provided by RNS

The company news service from the London Stock Exchange

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June 06, 2017 02:00 ET (06:00 GMT)