10 August 2023

S&U plc

("S&U" or "the Group")

Trading Update and Notice of Results

S&U PLC, the specialist motor and property financier, today issues its trading update for the period from its AGM statement on 21 May 2023 to 31 July 2023. S&U will announce its half-year results on 3rd October 2023.

The group continues to trade well. It does so carefully due to the current economic headwinds impacting consumer confidence, disposable incomes, taxation and interest rates. Although the past two months have seen an uptick in transactions and the new customer pipeline, current economic policies in the UK, reduce consumer confidence and create barriers to our usual rate of sustainable growth.

Whilst the Chancellor of the Exchequer may make heroic pleas that "declinism about Britain is just wrong", the past decade has seen persistent government policies which act against a climate of entrepreneurial activity, enterprise, and growth. More recently record levels of taxation, steeply rising interest rates, massive government borrowing, and a failure to stem the tide of incessant regulation, especially in the financial services industry, have all contributed to this. The result has been 10 years of sluggish growth in the UK averaging just half a percent per annum- and a lack of faith in the free enterprise culture.

Although S&U has historically outperformed despite these challenges and will continue to do so, it does not operate in a vacuum. In such an environment protecting the quality of the Group's assets and producing responsible growth requires constant innovation and attention to detail. These produce consistently good results, although frustratingly given global investor perceptions of the UK, this is not reflected in S&U's or general stock values. Too often it feels like a tuned and trained athlete is required to continue to perform, wearing army boots on a cinder track.

Nevertheless, we persist in our drive for high standards and good service to our customers. We also continue to hope for a glimmer of consistent pro-enterprise policy from our current government.

Advantage Finance

Against such a challenging backdrop, Advantage, our motor finance business, continues to produce good results. In a slower and more price-competitive market year to date, advance levels for H1 23 finished 11% below H1 22. The focus on quality has continued and the average customer risk score continued to improve in H1 23. According to Auto Trader figures of July 2023, used car sales were up 6% in June, compared to the year before, though used car supply constraints persist. People need cars for both work and the school run, and nearly 50% of used car buyers today happily use finance, well above the average of the past 10 years and therefore prospects for H2 are good. At the end of July, Advantage has seen current net receivables reach c.£313m, nearly 12% up on July last year, reflecting the typical 4-year duration of a car loan and the strong lending volumes in H2 last year.

Although net interest margins have unsurprisingly not kept pace with the egregious interest rate rises of the past year, revenue growth is still healthy on a larger book. After the improved origination quality of recent years, strong repayments performance has also continued in the period with levels of up to-date customers exceeding our expectations.

After twenty-five years in business, Advantage continues its relentless pursuit of improvement. Underwriting standards continue to be refined, preparations for the new FCA consumer duty been made and verified, and affordability discussions with the FCA concluded.

Dialogue with the FCA continues following its industry wide Forbearance Review, particularly so given the Government's sensitivity to cost of living pressures. Advantage boasts as its customer motto "You're more than your credit score" and has always taken pride in its excellent relations with all of its customers whatever their repayment experience. All Advantage's practices aim for good customer outcomes, not only because this is morally desirable and mandatory in regulatory terms, but because it is in Advantage's long-term commercial interest. That is a concatenation which we hope and expect the FCA to clearly recognise.

Aspen Bridging

Although characterised by systemic undersupply, the UK residential property market is eventually succumbing to a combination of incessant interest rate increases, scarcer and slower mortgage and refinance availability, and a persistent diet of dire media coverage of its prospects. As a result, and as a responsible lender, Aspen has cut its cloth accordingly.

Thus, whilst new business transactions have been lower than budget, both in size and number, improvements in interest rate and lower variable costs have provided some compensation. Furthermore, good repayment quality and default control have seen impairment below budget. Net receivables at end of July were c.£104m (31.7.22: £90m), and equally important, average pipeline has more than doubled over the current period on slightly improved risk pricing.

Whilst current residential sentiment and market conditions provide challenges, solid progress at Aspen is expected in the second half of the year.

Treasury

Gearing has reduced during H1 and S&U's current borrowing of c.£184 million compares to its recently enhanced total committed borrowing facilities of £280 million. This leaves ample headroom for growth in both our businesses.

Governance

Following a period of illness, Demetrios Markou, Non-Executive Director and Chairman of the S&U Audit Committee, has announced his intention to resign at our October Board meeting.  It has been provisionally agreed that Non-Executive Director, Graham Pedersen, will take his place as Audit Committee Chairman.

We thank Demetrios for his long and distinguished service to S&U plc and wish him well on his journey to recovery.

Commenting on S&U's trading outlook, Anthony Coombs, S&U chairman, said:

"S&U continues to hone the service it provides to every customer and to ensure wherever possible that this results in outcomes which are both satisfactory and commercially rewarding. Irrespective of the economic climate, we shall continue to do so.  Given our expertise and long experience, S&U always takes a positive view of the future, and of our proven ability to provide sustainable rewards to our owners, customers and staff."