Final Results

PCFL / Index: AIM / Sector: Speciality & other finance

26 June 2012

Private & Commercial Finance Group plc ('PCFG' or 'the Group')

Final Results

Private & Commercial Finance Group plc, the AIM quoted finance house, announces its results for the year ended 31 March 2012.

Overview

·; Profit before tax up 67% to £761,148 (2011: £455,336)

·; £19 million of new funding facilities

·; Raising additional funding of not less than £8 million through the issue of convertible loan notes

·; Strong earnings per share growth

·; £11 million sale of receivables at a premium to book value

·; Return on equity (after tax) 5.4% (2011: 0.4%)

·; Equity Gearing improved to 8.7x (2011: 11.9x)

·; £83 million portfolio of receivables continues to perform well with continued reduction in overdue accounts

·; New business advances totalled £37.9 million for the year (2011: £40.8 million)

·; Shareholders' funds increased by 11% to £8.8 million

·; Net Asset Value per share increased to 16.6p (2011: 15.0p)

PCFG's CEO Scott Maybury said,

"These results reflect a solid performance from our portfolio, delivering increased profits, good earnings per share growth and a much improved return on assets compared to 2011. The sale of receivables in the year has reduced our tax charge and made a significant contribution to meeting our objective of normalising our tax rate and thereby further improving earnings per share.

"Since year end, we have obtained a further £4 million bank facility which, along with the £15 million announced in our Interim Report, will be utilised to finance new business originations, replace the receivables sold and further improve the performance of the Group."

Chairman's Statement

In my Interim Statement I set out our medium-term objective of improving the return on average portfolio assets to 2% from its previous level of 0.4%, to be achieved by developing new routes to market, improving margins, driving down operating and bad debt costs and growing the portfolio.

We have made significant progress with profits up 67% to £761,148 (2011: £455,336), exceeding market expectations. Return on average portfolio assets was 0.8% (2011: 0.4%) for the year and we achieved our key milestone performance target of a 1% return in the second half of the year.

In the past virtually all our business has been broker-sourced. Brokers will continue to be our key source of business but we shall supplement this by the appointment of a sales and marketing director and the establishment of a direct sales force in order to create new routes to market, improve business volumes, increase earnings and develop vendor relationships. All this will require considerable investment over the coming year, partly offset by planned cost-savings elsewhere in the business, but our projections indicate a very positive contribution to profit by 2013/14.

We have also re-launched our website to make it more customer-facing and to link with third party services in order to generate non-interest income. The result to date has been a 32% increase in repeat and returning customers, representing nearly 10% of business volume for the year.

We have taken steps to strengthen the balance sheet, underpin future earnings per share and provide a platform for growth and improved profitability.

Our portfolio continues to perform well, with the number and balance of past due accounts falling steadily throughout the period.

Financial Review

The results this year include a profit of £131,486 related to the sale of £11 million of receivables in March 2012. The sale benefited the Group by crystallising a deferred tax asset and improving the equity gearing ratio. As a result, we have been able to reduce the effective tax charge this year to 37% (2011: 92%), greatly increasing earnings per share and further benefiting shareholders when the future reductions in Corporation Tax to 22% come into effect over the next two years. Without the sale of receivables, the effective tax rate this year would have been 58% and we expect to further normalise our effective tax rate over the next few years.

The sale of receivables has reduced the Group's portfolio of earning assets at year end and the immediate challenge is to utilise the new and existing headroom in bank facilities to increase our portfolio with high yielding receivables of the same excellent credit quality. A portfolio acquisition similar to the one completed in July 2011, which has performed better than budgeted, is a means to this same end. We will continue to look for such opportunities.

Reflecting the profitability and strong cash generation in the year, the Group's net assets have risen to £8.8 million and the net asset value per share increased to 16.6p (2011: 15.0p).

The Business and Trading

PCFG is a long-established finance group with experienced management and an efficient and scalable infrastructure and business model.

The Group has two operating divisions:

·; Business Finance Division, which provides finance for vehicles, plant and equipment for SME's; and

·; Consumer Finance Division, which provides finance for motor vehicles for consumers.

Both divisions underwrite good quality, collateralised business with realistic margins, sourced though a national network of established brokers. Proposals for new business are submitted via eQuote, the Group's proprietary internet-based proposal management system, which is able to filter high volumes of proposals quickly and at low cost.

During the period we wrote £37.9 million of new business compared to £40.8 million in the previous year. Our portfolio reduced in the period to £83 million from £106 million, largely as a result of the sale of receivables. The portfolio is reported net of future finance income of £17 million. We have a well spread portfolio of almost 15,000 customers with no concentrations of risk: no single customer accounts for more than 0.3% of our total portfolio.

The Group has been largely unaffected by the Payment Protection Insurance scandal thanks to the procedures we adopted from the outset to ensure that the product was provided responsibly. Financially, any claims for mis-selling have been negligible, although some administrative burden has been experienced due to spurious claims.

Funding

Significant progress has been made in the year to attract new funding relationships. The Group reported £15 million of new facilities in the year and a further £4 million of new facilities since year end. These new facilities will replace amortising facilities and provide the confidence to launch new business initiatives and accelerate portfolio growth.

Agreement has been reached with all our lenders for facility extensions and at the year end the Group's borrowing had an average maturity of 2.0 years (2011: 0.8 years).

The Group is in discussions to raise not less than £8 million through the issue of convertible loan notes to our supportive shareholder Bermuda Commercial Bank Limited ("BCB"). The proceeds of the issue will be utilised:

·; to repay existing Loan Notes when they mature on 30th September 2013; and

·; to fund the growth of the Group, both organic and by way of acquisition.

It is anticipated that the loan notes will pay an annual gross coupon of 6% interest and will be convertible into one new ordinary share for every 8.5p nominal value of loan notes. The Board also intends to enable existing shareholders and existing convertible loan note holders to participate in the new issue of convertible loan notes on the same terms through an open offer over a proportion of the convertible loan notes which will otherwise be issued to BCB. The issue of the convertible loan notes will be subject to regulatory, Takeover Panel and shareholder approval. The Group will send a circular to shareholders convening a general meeting and giving further details of the open offer in due course, as appropriate.

Competitive Environment

In the second half of the year we have seen increased competition amongst finance companies as challenging economic conditions have led to fewer consumers purchasing motor vehicles and to SME's postponing investment decisions. Our long standing relationships with introductory sources stand us in good stead and the level of service we offer and consistency of approach distinguish PCFG from the competition. We remain cautious in setting terms for new business and continue to be highly selective on credit quality.

Our approach over the last few years has been defensive to preserve our funding facilities. However with the new facility headroom, all of which is term funding, and with our experience of an improving loan loss rate it makes sense to utilise our operational gearing and launch initiatives to originate higher volumes and stronger organic portfolio growth. We therefore intend to offer more competitive terms to prime customers, higher advance rates for good collateral and better volume incentives to our introductory sources.

Impairments and Provisioning

The improvement to the quality of the portfolio and the reduction in the loan loss provision charge noted in the Interim Report has continued. For both divisions, arrears and asset repossessions are at record lows and impairment charges have maintained their steadily improving trend.

Staff

My thanks to everyone at PCFG for their commitment and professionalism, and to the Board for their support in my first year as Chairman.

In May of this year, we moved offices from Victoria to London Bridge. The move went smoothly and our staff have settled into the new premises exceptionally well. They are to be congratulated for their efforts in ensuring a seamless relocation. The closure of our Croxley Green office last year along with this move to less expensive premises will deliver premises savings of £112,000 per annum.

Outlook

The economic environment will remain challenging for the foreseeable future. Even so, we intend to continue to improve return on assets towards our medium term goal of 2% after which we hope to be in a position to recommence the payment of dividends. New initiatives will generate portfolio growth and the quality of our portfolio will underpin this performance.

D G Anthony

Chairman

26 June 2012

Private & Commercial Finance Group plc

Group Income Statement

Group Statement of Comprehensive Income

Private & Commercial Finance Group plc

Group Statement of Changes in Equity

for the year ended 31 March 2012

Private & Commercial Finance Group plc

Notes to the Financial Statements

1. Financial Information - The unaudited financial information set out above does not constitute the Group's statutory accounts as defined in Section 434 of the Companies Act 2006. The comparative financial information is based on the statutory accounts for the year ended 31 March 2011.

The Financial Statements for the year ended 31 March 2011, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. The statutory Financial Statements and audit opinion for the year ended 31 March 2012 will be signed on 26 July 2012 and will be delivered to the Registrar following the Company's Annual General Meeting.

2. Basis of Preparation - These consolidated statements have been prepared in accordance with IFRS and its interpretations issued by the International Accounting Standards Board, as adopted by the EU, and on the basis of the accounting policies set out in the 31 March 2011 Financial Statements as updated where necessary for new accounting standards adopted in the year.

The financial information contained within this preliminary statement was approved and authorised for issue by the Board on 19 June 2012.

3. Income tax expense - The tax assessed for the year is higher than the standard rate for current Corporation Tax in the UK of 26% (2011 - 28%). The differences are explained below. Deferred tax has been recognised at 24% (2011 - 26%). On 21 March 2012 as part of the 2012 Budget, the UK government announced its intention to legislate to reduce the main rate of corporation tax to 24% with effect from 1 April 2012 and further by 1% per annum falling to 22% with effect from 1 April 2014.

2012 2011

£'000 £'000

--------------- ---------------

Profit on ordinary activities before tax 761 455

--------------- ---------------

Profit on ordinary activities multiplied by the standard rate

of Corporation Tax of 26% (2011 - 28%) (198) (127)

Effects of:

Expenses not deductible for taxation purposes (2) (2)

Adjustments in respect of prior years - 6

Change in tax rate (218) (335)

Utilisation of previously unrecognised losses 31 41

Losses carried back to prior years at a higher tax rate 105 -

--------------- ---------------

Total tax charge for the year (282) (417)

--------------- ---------------

4. Dividends - The directors are not recommending the payment of a final dividend. 

5. Earnings per Ordinary Share - The calculation of basic and diluted earnings per ordinary share is based on a profit of £478,883 (2011 - £37,748) and on 52,731,151 (2011 - 52,726,036) ordinary shares, being the weighted average number of shares in issue during the year. In the current financial year and the previous year the convertible loan notes were not dilutive of earnings.

6. Hedge Accounting - Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly to equity and the ineffective portion is recognised immediately to the income statement. The cumulative gain or loss on the hedging instrument recognised directly to equity is reported net of tax in 'Other reserves' in the balance sheet.

7. New Accounting Standards - There has been no significant financial impact on the Group's financial statements as a result of any new or amended accounting standards in the year.

8. The 2012 Report & Financial Statements will be posted to all shareholders on 6 August 2012. Further copies can be obtained from the Secretary of the Company at Brandon House, 180 Borough High Street, London SE1 1LB or can be downloaded from our website, www.pcfg.co.uk.

* * ENDS * *

Notes to Editors

Private & Commercial Finance Group plc, which is authorised and regulated by the FSA, is an AIM-quoted finance house.

PCFG has two main operating divisions: Consumer Finance - which provides a range of specially tailored finance products for consumers and Business Finance - which finances vehicles, plant and equipment for 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. This allows it to handle a large volume of proposals extremely quickly with proportionately low costs.