TIDMPCF
RNS Number : 9409O
PCF Group PLC
23 May 2018
23 May 2018
PCF Group plc
("PCF", the "Bank" or the "Group")
Half Year Results for the Six Months Ended 31 March 2018
New banking platform delivers increased profitability
Capital and infrastructure in place for next growth phase
PCF Group plc, the AIM-listed specialist bank, today announces
its results for the six months ended 31 March 2018. The Board is
pleased to report that trading is strong, results are in line with
market expectations and the strategy for the business is on
track.
Financial Highlights:
-- Reported profit before tax up 20% to GBP2.1 million (2017:
GBP1.7 million), notwithstanding the cost of new banking
infrastructure and resource
-- Operating income up 32% to GBP6.7 million (2017: GBP5.1 million)
-- Earnings per share maintained at 0.8p (2017: 0.8p)
-- After-tax return on equity reduced to 8.7% (2017: 10.5%)
reflecting the increased capital base and investment in the banking
model
Operational Highlights:
-- In eight months as a bank, customer deposits have reached GBP108 million (2017: Nil)
-- Awarded 2018 Best New Provider by independent savings specialist, Savings Champion
-- Portfolio growth of 40% to GBP179 million (2017: GBP128 million)
-- Excellent progress on strategic objectives and GBP350 million portfolio target
-- Boosted by the lower cost of funding, a 97% increase in new
business originations to GBP69 million (2017: GBP35 million)
-- Growth in unearned finance charges to GBP39 million (2017: GBP28 million)
Scott Maybury, CEO, commented: "This has been a rewarding
period. We set ourselves ambitious targets for our first year as a
bank and have made excellent progress towards achieving those
objectives. We came into this financial year with a significantly
higher cost base but have still delivered good growth in
profitability. We expect this to accelerate through operational
gearing, as we scale our portfolio and continue to put the new
capital and infrastructure to work."
For further information, please visit https://pcf.bank/ or
contact:
PCF Group Tel: +44 (0)
Scott Maybury, Chief Executive 20 7222 2426
Officer
Robert Murray, Managing Director
David Bull, Finance Director
Tavistock (Financial PR and IR) Tel: +44 (0)
Simon Hudson / Edward Lee / Jos 20 7920 3150
Simson
Panmure Gordon (UK) Limited (Joint Tel: +44 (0)
Broker and Nominated Adviser) 20 7886 2500
Atholl Tweedie - Corporate Finance
Charles Leigh-Pemberton - Corporate
Broking
Stockdale Securities (Joint Broker) Tel: +44 (0)
Robert Finlay / Richard Johnson 20 7601 6100
- Corporate Finance
Henry Willcocks - Corporate Broking
PCF is providing a dial-in facility for analysts and investors
for a results briefing today at 1030h. The details are set out
below:
UK Toll Number: +44 (0)2031394830
UK Toll-Free Number: 08082370030
PIN: 22896508#
About PCF Group plc
Established in 1994, PCF Group plc is the AIM-listed parent of
the new specialist bank, PCF Bank Limited. As a bank, the Group now
has the capability to increase its lending portfolio significantly,
with target portfolio sizes of GBP350 million in 2020 and GBP750
million in 2022. The Group will retain its focus on portfolio
quality and has the capability to lend increasingly to prime
segments of its existing finance markets. The Group will also seek
to diversify its lending products and asset classes through
acquisition.
PCF Bank currently offers retail savings products for
individuals and then deploys those funds through its two lending
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 track record of strong financial performance and
an efficient and scalable business model, with significant room to
grow. Utilising its technologically advanced platform, the Bank
provides both depositors and borrowers with a high level of service
and a straightforward, simple range of products tailored to suit
their needs.
For media enquiries please contact media@pcf.bank
Note: This announcement contains inside information for the
purposes of Article 7 of Regulation (EU) No 596/2014.
Chairman's Statement
For the six months ended 31 March 2018
I am pleased to present the half-year report for what will be
our first full year as a bank. The first six months have gone very
well and we have made significant progress towards achieving our
strategic objectives. Our strong growth in new business origination
has been focused on the prime market and the higher end of the
credit spectrum.
Profits, shareholder return and capital
Profit before tax for the six months ended 31 March 2018 was up
20% to GBP2.1 million (2017: GBP1.7 million). This is a strong
performance as it incorporates, for the first time in a financial
period, the full costs of operating as a bank. Becoming a bank
entails significant cost and capital, both of which, in the
short-term, have reduced the Company's return on equity to 8.7%
(2017: 10.5%). However, the benefits of the banking model have
already started to accrue with lower funding costs, the ability to
reach and retain a wider range of customers, greater flexibility to
diversify our business, access to the Sterling Monetary Framework
and a reduction in risk from relying solely on wholesale
funding.
Earnings per share was maintained at 0.8p (2017: 0.8p) and, as
the lending portfolio grows against a largely fixed cost base, we
will deliver increasing profitability. These results are also
underpinned by a lending portfolio that continues to perform well
and in line with our expectations.
The net interest margin ("NIM") for the period was largely
unchanged at 8.4% (2017: 8.3%). This was a good performance
considering the transition towards lower yielding prime lending. We
have seen competitive pressure on margins in both our divisions and
we expect our NIM to fall in time, as the prime portfolio forms a
larger part of our total lending portfolio. This can be offset by a
further reduction in funding costs, a lower impairment charge from
the better-quality portfolio and operational gearing as scale
delivers a better cost-to-income ratio.
The Group has a CET1 capital ratio of 21.6% and held 157% of
what was needed to meet the Overall Liquidity Adequacy Rule
('OLAR'). These comfortably exceed regulatory requirements and
demonstrate that we have the resources to deliver our medium-term
targets. Net assets have increased by 47% to GBP40.4 million (2017:
GBP27.4 million) and the foundations are in place for continued
profitable growth.
2018 Strategic objectives
The Board's primary objective for 2018 is to unlock the value in
our new banking model, prudently but as quickly as possible. Our
priorities are:
1. to protect the core businesses by increased lending into the
prime market while expanding our range of lending services;
2. to maintain high levels of customer and broker service at much higher volumes of origination;
3. to refine and further improve the efficiency of the bank's treasury and savings structure;
4. to maintain a clear trajectory to the 2020 portfolio target of GBP350 million; and
5. to harness the power of scale in an operationally geared model.
We have made real progress in achieving these objectives. It was
a major achievement to maintain the cost-to-income ratio for the
period at 59% (2017: 59%) as we utilised the new cheaper retail
funding to accelerate portfolio growth and generate increased
interest income. The new bank operation has resulted in a
significant increase in operational costs, including the cost of
amortising the banking infrastructure. The stated objectives of a
portfolio of GBP350 million by 2020 and GBP750 million by 2022,
with return on equity targets of 12.5% and 17.5% respectively,
provide a measure of the Board's ambition for future
profitability.
PCF Bank
Establishing ourselves as a specialist bank provides an
operating model that is increasingly diversified across both
lending and funding platforms and this provides resilience,
flexibility and opportunity.
The bank has welcomed over 2,400 new customers since inception
and deposits have increased to GBP108 million (2017: Nil). In a
relatively short period, deposits from customers have become the
largest part of the Group's funding. Demand for our savings
products remains strong and the success of our savings operation is
the result of a well received internet banking platform and simple,
fast on-boarding processes. Our customer services team offer an
excellent experience, aiming to cater for all customer needs,
including the alternative of applying by postal application.
The next development for our savings platform is the
introduction of a range of products for corporate customers and
this is expected to be launched later this year.
The Bank gained membership to the Sterling Monetary Framework on
6 November 2017. This provides us with a more efficient treasury
model with access to a Bank of England reserve account, the
discount window facilities and the Term Funding Scheme (TFS). The
Bank has recently drawn GBP25 million of funding under the TFS for
a period of four years.
New business origination and portfolio performance
New business originations have increased by 97% to GBP69 million
(2017: GBP35 million) in the period. The retail deposits have
enabled business lines to offer terms of business that are more
competitive in the prime sector of our existing markets. This
additional business was quickly accessed through our existing
routes to market and a lower cost of funds has meant we have
maintained profitability. The greater flexibility of retail
funding, in terms of both use and tenor, has allowed us to launch a
number of new products for niche assets and these have been well
received. We have also seen an increase in returning customers, as
we can now retain their business with competitive lending rates.
Finally, we launched a direct sales initiative in the light
commercial vehicle market and, although it is early days, the
outlook is promising. We finished the period with a record month
for originations in March 2018 of GBP14 million.
The lending portfolio now stands at GBP179 million (2017: GBP128
million), an increase of 40%, and is currently split between
Business Finance - GBP96 million (2017: GBP59 million) and Consumer
Finance - GBP83 million (2017: GBP69 million). The portfolio is
reported net of unearned finance charges of GBP39 million (2017:
GBP28 million). These finance charges will be attributed to income
over the next four years and provide a certainty of earnings for
future periods.
The largest increase in new business originations came from our
Business Finance Division, where new volumes increased by 111% to
GBP41 million (2017: GBP19 million). This builds on the impressive
performance in the previous year and for the first time saw
Business Finance become the largest part of our lending
portfolio.
The period saw a return to growth for our Consumer Finance
Division with originations up 81% to GBP28 million (2017: GBP16
million). The improvement is the result of launching new prime
terms supported by IT enhancements. There have been incremental
changes to the IT platform throughout the period to accommodate the
high volume nature of prime motor finance and originations have
built steadily over time, with February and March being record
months. The final phase of IT development was implemented after the
period-end and we expect new business origination to continue to
grow strongly in the second half of the year. Technological change
in the motor sector provides both a challenge and an opportunity as
we continue to adapt our risk appetite to accommodate demand for
diesel and electric vehicles.
Loan loss impairment in the period was GBP0.6 million (2017:
GBP0.3 million) which represents a charge of 0.7% (2017: 0.5%). The
part of the portfolio reported as "neither past due nor impaired"
remained stable at 96% (2017: 96%). This is consistent with the
underlying loss rates expected from the portfolio going forward.
Past periods have benefited from significant recoveries from
customers that defaulted during the financial crisis and, while
there will continue to be recoveries from this legacy portfolio,
they are now becoming immaterial to overall performance.
Governance, regulation and IFRS9
We have seen increased recruitment across the Group and we have
welcomed many new colleagues. I would like to thank all staff for
their efforts and their dedication to providing professionalism and
good customer outcomes. The leadership team has been strengthened
in the period and I congratulate the committee chairs and members
for their work in embedding the new governance structure.
The implementation of the General Data Protection Regulation
("GDPR") on 25 May 2018 requires policy, procedure and technology
changes across the Group to manage how we process and secure data
and protect the rights of individuals. The working group reported
to the Board in April that the implementation timetable will be
met. Internal audit reviewed the process and will continue to be
involved in the post implementation phase.
The accounting standard IFRS 9 (Financial Instruments) will be
implemented by the Group with effect from 1 October 2018. IFRS 9
utilises a single impairment model which is based on an expected
credit loss (ECL) methodology. In arriving at the relevant ECL,
IFRS 9 requires it to be calculated incorporating forward-looking
information, which considers future economic conditions. The move
to an ECL methodology is the most significant change introduced by
IFRS 9 which will impact on the Group's results. A working group
has been set up with the initial focus on reviewing the Group's
loan history to economic changes. The group is in the process of
building models which will form part of a parallel run in the
second half of the year. A quantitative assessment of the ECL
methodology will be available when the Group's results for the year
ending 30 September 2018 are announced in December 2018.
Current trading and outlook
The new business pipeline is strong and we are pleased with the
quality of business we are writing. This is consistent with our
cautious outlook for the UK economy in the medium-term and, in the
event of a downturn, the current impairment performance provides
comfort, as does 24 years' experience in our chosen sectors. By
maintaining prudent and responsible lending, we are confident that
we will continue to perform well in our existing markets.
We are well positioned for continued growth and for the
achievement of our 2018 strategic priorities. Our focus can then
turn to a strategy of diversification. Our ambition is to introduce
new lending classes and sectors to broaden and balance our existing
portfolio. The medium-term objective of a GBP350 million portfolio
by 2020 is within our sights and while organic growth in existing
products is the main driver for that target, the longer-term
objective of a GBP750 million portfolio will require acquisitions,
strategic partnerships or the setting up of new specialist teams.
This wide range of opportunities needs to be carefully researched
and we will be most attracted to those which use technology as the
enabler for growth and to those that provide synergies with our
current infrastructure and customer base.
We remain on track to meet our own and market expectations and
look forward to reporting continued success as the year
progresses.
T A Franklin
Chairman
GROUP STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE
INCOME
(GBP'000s) Six months ended Six months ended
31 March 31 March Twelve months ended
2018 2017 30 September
unaudited unaudited 2017
Interest income and similar income 11,648 9,697 19,970
Interest expense and similar charges (4,828) (4,545) (8,906)
----------------- ----------------- --------------------
Net interest income 6,820 5,152 11,064
Fees and commission income 248 258 512
Fees and commission expense (379) (336) (702)
----------------- ----------------- --------------------
Net fee and commission expense (131) (78) (190)
Fair value loss on financial instruments - (4) (4)
----------------- ----------------- --------------------
Operating income 6,689 5,070 10,870
Administration expenses (4,046) (3,049) (6,558)
Impairment losses on financial assets (579) (305) (679)
----------------- ----------------- --------------------
Profit before taxation 2,064 1,716 3,633
Income tax charge (413) (347) (847)
----------------- ----------------- --------------------
Profit after taxation, being total comprehensive income,
attributable to owners 1,651 1,369 2,786
Earnings per 5p ordinary share 0.8p 0.8p 1.5p
GROUP BALANCE SHEET
(GBP'000s) 31 March 31 March 30 September
2018 2017 2017
unaudited unaudited audited
Assets
Cash and balances at central banks 14,657 1,993 17,018
Available-for-sale financial investments 25,091 - 4,511
Loans and advances to customers 179,203 127,590 145,718
Property, plant and equipment 244 304 271
Goodwill and other intangible assets 3,031 2,058 2,704
Deferred tax assets 1,206 1,338 1,205
Other assets 757 362 1,041
----------- ----------- -------------
Total assets 224,189 133,645 172,468
Liabilities
Due to banks 72,198 104,042 77,067
Due to customers 108,276 - 53,120
Current tax liabilities 213 153 166
Other liabilities 3,201 2,098 3,454
----------- ----------- -------------
Total liabilities 183,888 106,293 133,807
Equity
Share capital 10,611 8,506 10,611
Share premium account 8,524 558 8,524
AFS reserve (11) - -
Own shares (355) (355) (355)
Retained earnings 21,532 18,643 19,881
----------- ----------- -------------
Total equity 40,301 27,352 38,661
Total equity and liabilities 224,189 133,645 172,468
GROUP STATEMENT OF CHANGES IN EQUITY
(GBP'000s) 31 March 31 March 30 September
2018 2017 2017
unaudited unaudited audited
Total comprehensive income for the period/year 1,651 1,369 2,786
New share capital subscribed - 934 11,460
Share-based payments - 19 52
Issue of own convertible debt - (50) (50)
Transaction costs - - (455)
Cash dividends - - (212)
Fair value gain on cash flow hedges - 373 373
Fair value loss on AFS financial instruments (11) - -
------------------ ----------- -------------
Net addition to shareholders' funds 1,640 2,645 13,954
Opening shareholders' funds 38,661 24,707 24,707
------------------ ----------- -------------
Closing shareholders' funds 40,301 27,352 38,661
================== =========== =============
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 Group balance sheet comparative figures for the year
ended 30 September 2017 are based on the statutory accounts of the
Group for that year 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. The comparative figures for
the Group statement of profit and loss and other comprehensive
income are based on the unaudited interim report for 6-months ended
31 March 2017.
2. The interim results have been prepared based on the
accounting policies set out in the Annual Report & Financial
Statements for the year ended 30 September 2017.
3. These interim consolidated financial statements have been
prepared in accordance with IAS 34 'Interim Financial Reporting' as
adopted by the European Union.
4. The accounting policies applied by the Group in these
condensed consolidated interim financial statements are
substantially the same as those applied by the Group in its
consolidated financial statements for the year ended 30 September
2017. The methodology for selecting assumptions underpinning the
fair value calculations has not changed since 30 September 2017.
The Group is assessing the impact of the following standards,
interpretations and amendments that are not yet effective. Where
already endorsed by the EU, these changes will be adopted on the
effective dates noted. Where not yet endorsed by the EU, the
adoption date is less certain.
-- Amendments to IFRS 2: Classification and Measurement of
Share-based Payment Transactions effective 2019 financial year
-- Amendments to IFRS 4: Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts effective 2019 financial year
-- Annual Improvements to IFRSs 2014-2016 effective 2019 financial years
-- IFRS 9: Financial Instruments: effective 2019 financial year (see below)
-- IFRS 15: Revenue from Contracts with Customers effective 2019 financial year
-- IFRS 16: Leases effective 2020 financial year
-- IFRS 17: Insurance contracts effective 2022 financial year (not yet endorsed by the EU)
-- IFRIC 22: Foreign Currency Transactions and Advance
Consideration effective 2019 financial year
-- IFRIC 23: Uncertainty over Income Tax Treatments effective
2020 financial year (not yet endorsed by the EU)
-- Amendments to IAS 28: Long-term Interests in Associates and
Joint Ventures effective 2020 financial year (not yet endorsed by
the EU)
-- Annual Improvements to IFRSs 2015-2017 effective 2020
financial year (not yet endorsed by the EU)
-- Amendments to IAS 19: Plan Amendment, Curtailment or
Settlement effective 2020 financial year (not yet endorsed by the
EU)
The Group continues to assess the impacts of IFRS 15 and IFRS
16. The Group has made progress in understanding the effect of IFRS
15 and IFRS 16 with the Group currently expects these standards to
have a limited impact on the Group's results, but will provide
fuller detail in the year end consolidated financial statements. In
light of the Group's significant loans and advances to customers
portfolio, the Group is still assessing the transition options of
IFRS 16, and anticipates concluding this work before the end of
this financial year.
IFRS 9
IFRS 9: 'Financial Instruments' will be implemented by the Group
with effect from 1 October 2018, in line with the standard's
requirements of applying for financial periods beginning on or
after 1 January 2018.
Classification and measurement
IFRS 9 makes changes to the measurement categories for financial
assets, with the current categories of available-for-sale and
held-to-maturity no longer being available. The measurement
categories available under IFRS 9 are amortised cost, fair value
through other comprehensive income (FVOCI) and fair value through
profit or loss (FVTPL). Assessments of the business model under
which the financial asset is held and whether or not the
contractual cash flows represent solely payments of principal and
interest (SPPI) will determine which category a financial asset is
classified under. A financial asset which is held in a 'hold to
collect' business model and which passes the SPPI test, for
example, will be held at amortised cost. The FVTPL category is
similar to that under IAS 39, with the addition that financial
assets not held in a 'hold to collect' or 'hold to collect and
sell' business model will be held at FVTPL. Financial assets that
fail the SPPI test will also be held at FVTPL. The Group
anticipates the classification and measurement requirements of IFRS
9 will have a minimal impact.
Impairment
IFRS 9 utilises a single impairment model for financial assets
held at amortised cost and FVOCI, which is based on an expected
credit loss (ECL) methodology, as opposed to the incurred loss
methodology that currently exists under IAS 39. Where a financial
asset has not experienced a significant increase in credit risk
since origination, a 12 month ECL calculation is required. Where a
financial asset has experienced a significant increase in credit
risk since origination a lifetime ECL calculation is required. In
arriving at the relevant ECL (either 12 month or lifetime), IFRS 9
requires it to be calculated incorporating forward-looking
information, which takes into account future economic condition in
a multiple scenario and probability weighted approach.
The move to an ECL methodology is the most significant change
introduced by IFRS 9 which will impact on the Group's results. A
working group has been set up with the initial focus on reviewing
the Group's loan history to economic changes. The group is in the
process of building models which will form part of a parallel run
in the second half of the year. These models will be subject to
further review and refinement for the remainder of the parallel run
period. A quantitative impact assessment of the ECL methodology
will be available when the Group's results for the year ending 30
September 2018 are announced in December 2018.
Transition
On implementation, the Group will not provide a full restatement
of comparatives but will instead reflect changes through retained
earnings, as permitted by IFRS 9.
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 ended Six months ended
31 March 31 March
2018 2017
Unaudited unaudited
Consumer finance 975 927
Business finance 1,089 789
Profit on ordinary activities before taxation 2,064 1,716
----------------- -----------------
Consumer finance (268) (146)
Business finance (311) (159)
----------------- -----------------
Loan loss provisioning charge (579) (305)
----------------- -----------------
6. 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 months period.
7. The calculation of basic earnings per ordinary share for the
6 months ended 31 March 2018 is based on a profit of GBP1,650,857
for the period on 212,219,778 ordinary shares, being the weighted
average number of ordinary shares in issue during the period.
The calculation of basic earnings per ordinary share for the 6
months ended 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.
8. AFS reserve records the gains and losses arising from changes
in the fair value of available-for-sale (AFS) financial
instruments.
9. The 2018 Interim Report and Financial Statements will be
posted to all shareholders on 6 June 2018 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.pcf.bank.
-ends-
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END
IR ATMFTMBJTBAP
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