Annual Report & Financial Statements 2015 Private & Commercial Finance Group plc 2015 Private & Commercial Finance Group plc is the parent company of a group of specialist companies engaged in the provision of finance for vehicles, plant and equipment for consumers and businesses. Contents for the year ending 31 March 2008 3 4 5 8 13 16 18 18 19 20 21 22 Company Information Board of Directors Chairman’s Statement Strategic Report Directors’ Report Independent Auditor’s Report Group Income Statement Group Statement of Comprehensive Income Group and Company Balance Sheets Group and Company Statements of Changes in Equity Group and Company Statements of Cash Flows Notes to the Financial Statements Annual Report & Financial Statements 2015 1 Company Information for the year ending 31 March 2008 Directors D G Anthony Non-executive Chairman D J Morgan Non-executive A N Nelson Non-executive N P D Winks Non-executive S D Maybury Chief Executive R J Murray Managing Director Z R Kerse Finance Director Company Secretary R J Murray Registered Office Pinners Hall 105-108 Old Broad Street London EC2N 1ER Registered Number 02863246 Auditors Nominated Adviser & Broker Joint Broker Solicitors Registrars Media & Investor Relations Ernst & Young LLP 1 More London Place London SE1 2AF Panmure Gordon (UK) Limited One New Change London EC4M 9AF Westhouse Securities Limited 110 Bishopsgate London EC2N 4AY Maclay Murray & Spens LLP One London Wall London EC2Y 5AB Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 7NH Tavistock Communications Limited 131 Finsbury Pavement London EC2A 1NT Private & Commercial Finance Group plc ordinary shares are listed on the Alternative Investment Market of the London Stock Exchange. Details of the Group, its products, recent developments, share price and analysts’ research can be found on our web-site, www.pcfg.co.uk 3 Private & Commercial Finance Group plc Annual Report & Financial Statements 2015 3 Board of Directors for the year ended 31 March 2011 David Anthony Non-executive Chairman David was appointed as a non‐executive director in July 2011. He is a Chartered Accountant and was previously Chief Executive of Hitachi Capital (UK) PLC and Chairman of Hitachi Capital Vehicle Solutions. In these roles he built Hitachi Capital (UK) PLC into one of the UK’s leading finance groups with assets of over £1.5 billion and the largest overseas operation of the Japanese parent company. He was also a non‐executive director of Secure Trust Bank from 2007 to 2010. David Morgan Non-executive Director David was appointed as a non‐executive director in July 2012. He has over thirty‐five years' experience in international banking, building his career at Standard Chartered Bank in Europe and the Far East and becoming Chief Executive for the UK and Europe in 1998. Since leaving Standard Chartered in 2003 he has been involved in a range of business advisory and non‐executive roles. He is currently a non‐executive director of Somers Limited, Bermuda Commercial Bank Limited, Waverton Investment Management Limited and Ascot Lloyd Financial Services Limited. He is also Chairman of Harlequins FC, the Premiership rugby club. Anthony Nelson Non-executive Director Tony is one of the founding directors of Private & Commercial Finance Group plc and a member of The Association of Corporate Treasurers. After qualifying as a solicitor, he held senior management positions with various multi‐nationals, including Chief Executive of McDonnell Douglas Bank Limited from 1981 to 1993 and Chief Executive of Private & Commercial Finance Group plc from 1994 to 2008. Nick Winks Non-executive Director Nick was appointed as a non‐executive director in September 2011. He is a specialist in business change management. He is also a highly experienced businessman who has held senior positions in a wide range of businesses and who has a track record of implementing appropriate changes that significantly improve shareholder value. Scott Maybury Chief Executive Scott holds a degree in business studies and is a qualified accountant. He spent six years with BHP‐Billiton, Australia’s largest multi‐national corporation, and five years with McDonnell Douglas Bank. He is one of the founding directors of Private & Commercial Finance Group plc and was previously Finance Director until October 2008. Robert Murray Managing Director Robert holds the ACIB Banking Diploma and has over thirty‐five years banking and finance experience. He heads both the Business and Consumer Finance Divisions and has extensive experience in lending to personal, corporate and international customers. He is one of the founding directors of Private & Commercial Finance Group plc. Zane Kerse Finance Director Zane is a Chartered Accountant. After qualifying with Price Waterhouse Coopers in 1989, he worked in the retail motor and financial software industries before joining Private & Commercial Finance Group plc as Financial Controller in 2001. He was appointed Finance Director in October 2008. 4 Private & Commercial Finance Group plc Annual Report and Financial Statements 2013 4 Chairman’s Statement for the year ended 31 March 2015 Profit before tax increased by 69% to £2.1 million (2014 – £1.25 million) while profit after tax more than doubled to £1.6 million (2014 – £0.7 million). Fully diluted earnings per share were 1.3p (2014 – 0.8p), an increase of 63%. Finance receivables increased by 13% to £100 million (2014 – £89 million). These results have been delivered without compromising on portfolio quality, which will underpin the future prospects of the Group. In 2012, when we put in place the funding and platform to recommence growth, we decided to focus initially on Return on Average Assets (‘ROAA’) and set ourselves a medium-term target of 2.0% from the level at that time of 0.4%. We have now exceeded that target, delivering an ROAA of 2.2% (2014 – 1.5%), as well as a fully diluted after tax Return on Equity (‘ROE’) for the year of 10.4% (2014 – 6.2%), an increase of 68%. We achieved these results through strong focus on quality and cost control, along with an improvement in operational gearing, utilising our existing infrastructure and business model to increase profitability through portfolio scale. We will remain focussed on continuing to improve our two key performance indicators as we enter the next stage in our development and are now targeting an ROAA of 2.5% and an after tax ROE of 12.5% over the medium-term. Operational gearing has also improved our ratio of administrative costs to gross profit, with the ratio falling to 33.9% (2014 – 34.2%). New business and market New business originations were up by 10% in the year to £56 million (2014 – £51 million). This growth was more broadly based than in previous years with SME lending and business confidence showing improvement as the year progressed, adding to the strong growth we have seen in the consumer motor finance market over the last couple of years. New business margins have been maintained across the Group despite an increasingly competitive market and the credit quality is matching our expectations with over 60% of originations being in our top two credit tiers. Our efforts to develop direct channels, such as retaining customers and rewarding loyalty, have continued to be successful. Repeat and direct business at £6.6 million (2014 – £5.8 million) now represents our largest single source of business at 12% of annual originations. A successful new initiative has been the introduction of an e-signature product in January 2015, further automating our new business processes and providing a strong competitive advantage. e-signature enables customers to sign their finance agreements electronically and for us to store them digitally. After a successful pilot, this product has recently been rolled out to all introducers and 49% of customers are already using this solution. This provides our introductory sources and customers with a fast, efficient and secure method of executing our finance agreements. Consumer finance industry regulation changed from 1 April 2014. The Financial Conduct Authority (‘FCA’) is the new regulator of consumer credit related activities and we have Interim Permissions for all subsidiaries engaged in such business. In January 2015 we submitted our applications for Full Authorisation and these are being dealt with under the six month authorisation process. We have always focussed on providing a high quality of service and treating customers fairly, with formal policies and procedures overseeing our activities since 1994. To strengthen our governance procedures in this area further, we have invested in an IT-based solution for maintaining our policies and procedures manuals, delivered across the Group intranet, to provide improved access and training to all staff. Our business model Private & Commercial Finance has a proven business model for lending to both individuals and SMEs. The use of information technology is at the heart of our operational efficiencies and the relationships with our customers. The model requires an understanding of their finance needs, an ability to deliver excellent levels of customer service to both the customers and our network of intermediaries, as well as striking the right balance, when underwriting, between risk and reward. 5 Private & Commercial Finance Group plc Annual Report & Financial Statements 2015 5 Chairman’s Statement The Group will continue to focus on its core sectors and, with future strategic initiatives to diversify how we fund ourselves, the opportunities to grow the business will become even greater. We will continue to operate a model that minimises risk by financing assets which have strong collateral characteristics and average low transaction sizes, spread over a diverse customer base. This is a robust model that has been tested in the most difficult of economic conditions and provides us with confidence for the future. Portfolio and balance sheet The Group operates in two different markets, consumer finance and business finance, which complement each other in terms of the infrastructure required and balancing the risk profile. Each market also provides distinct growth opportunities at different points in the economic cycle. The portfolio is reported net of £23.6 million (2014 – £20.1 million) of unearned finance charges which are attributable to future years. These will be recognised over the next four years and provide the Group with predictability and quality of earnings going forward. The quality of the portfolio continues to improve. The loan loss provisioning charge fell from £2.0 million in 2014 to £1.5 million this year, a 24% reduction that represents a charge-off rate for the year of 1.6% of the average portfolio (2014 – 2.4%). The improved credit quality is also reflected in the percentage of the portfolio that is reported as neither past due nor impaired, which was 90% this year (2014 – 85%). This compares to an equivalent 73% at the worst point during the global financial crisis. With the quality of new business originations being maintained and the Group operating in markets in which it has invaluable experience through historic performance, the portfolio should continue to perform well throughout its lifecycle. The net assets of the Group increased by 14% to £11.8 million at 31 March 2015 (2014 – £10.4 million). Capital and funding We have £112 million of committed debt facilities (2014 – £96 million). These are drawn to £89 million, leaving headroom available for future growth of £23 million (2014 – £14 million) at the year end. Increased facilities were granted throughout the year by our existing funders. Since the year end, a new £10 million facility has been awarded by British Business Bank Investments Ltd, the commercial division of the UK Government’s economic development bank. This facility has further increased the Group’s available headroom and it promotes Private & Commercial Finance to a small group of asset finance providers chosen to support the British Business Bank Investment Programme. In addition to maintaining adequate debt facilities, a key objective is to obtain a banking licence, thereby accessing retail depositors and providing a more diversified and lower cost treasury platform for the Group. The Group has submitted its business plan for consideration by the relevant authorities and is looking forward to progressing the application. We have invested considerable time researching a suitable target operating model and selecting suitable IT systems and remain committed to achieving this objective, albeit behind our original schedule. This strategy will initially incur costs but will transform the business, supporting our long-term strategy to grow beyond the constraints of wholesale funding and into a substantial financial services group. The Group’s capital base continues to strengthen and the gearing ratio, excluding unsecured convertible debt, stands at 6.7 (2014 – 6.9). Staff and resources We are fortunate to have high quality and long-serving staff with a strong commitment to customer service and I thank them for their efforts. After fourteen years’ service with the Group, Zane Kerse, our Finance Director, has advised the Board that he wishes to pursue other interests which will eventually take him back to his native New Zealand. The Board wishes him well and would like to thank him for his diligence and financial stewardship through a critical period for the Group. 6 Private & Commercial Finance Group plc This advance notice has allowed the Group to secure an excellent candidate as his proposed replacement and will also allow for a period of handover. A further announcement will be made in due course. The Group relocated to new offices in the City of London in October 2014, providing premises commensurate with our long-term growth plans. Current trading and outlook We have delivered excellent profitability in the year as the result of a growing portfolio, combined with further gains in portfolio quality and a continued focus on margin and costs. March 2015 was the best month for originations in nearly seven years and the new financial year has also started extremely well. I have strong confidence in the future success of the business and, in this regard, we will be proposing resolutions to shareholders at the Annual General Meeting in September to restructure the Company balance sheet to facilitate a return to the dividend list in due course. D G Anthony Chairman 14 July 2015 Annual Report & Financial Statements 2015 7 Strategic Report for the year ended 31 March 2015 Our Business Private & Commercial Finance Group plc is the parent company of a group of specialist finance companies engaged in the provision of finance for vehicles, plant and equipment for consumers and businesses. The Company was established in October 1993 and its shares were admitted to the Alternative Investment Market of the London Stock Exchange in September 1998. Over the last 21 years, the Group has grown both organically and by acquisition, helping over 60,000 customers with the finance of their vehicles and assets. Today, we have a portfolio of loans and finance receivables of £100 million (2014 – £89 million). We aim to serve our customers with fast and professional levels of customer service which set us apart from our competition. We're big enough to be able to meet your needs, but small enough to retain the personal consideration that is key to our service. We pride ourselves on being professional and accessible, seeking out a solution for individuals and businesses where others might not think to look. The Group has two operating divisions: l Consumer Finance Division, which provides finance for motor vehicles to consumers; and l Business Finance Division, which provides finance for vehicles, plant and equipment to SMEs. Both divisions transact good quality, collateralised business which is processed through eQuote, the Group’s internet-based proposal management system. eQuote, which is able to filter high volumes of proposals quickly and at low cost, enables us to send information and documentation to our customers, dealers and introducers electronically, therefore speeding up the application process. The Group’s risk philosophy is to: l Finance vehicles and assets which have strong collateral characteristics and readily identifiable second-hand markets. As such, the Group’s preference is to finance assets such as motor cars, light and heavy commercial vehicles, coaches, buses, manufacturing equipment and construction equipment; l Have a wide spread of risk. At 31 March 2015 the Group had over 11,000 live agreements (2014 – 11,500) with an average outstanding balance of approximately £8,500 (2014 – £6,900); l Avoid large concentrations of risk. At 31 March 2015 the largest exposure to any single customer was no greater than £620,000 (2014 – £570,000), representing 0.6% (2014 – 0.6%) of the portfolio of loans and receivables; and l Avoid the use of credit scorecards and automated decision-making processes. Instead, our team of experienced underwriters use their skills and expertise to evaluate applications on a case-by-case basis, ensuring that the customer can afford the monthly payments on their finance with us. On larger transactions, we visit the customer to find out more about their business and investment plans. Our underwriting philosophy sets us apart from many of our competitors and helps to improve the customer’s experience. 8 Private & Commercial Finance Group plc Annual Report and Financial Statements 2013 8 Flexible but responsible, we are committed to treating customers fairly every step of the way. This means you can trust us to give you straight-talking industry expertise, finance options that offer competitive rates and swift, but balanced, decision-making. Consumer Finance Division The Consumer Finance Division provides hire purchase finance to retail customers to help them acquire vehicles. Typically, this is for motor cars but we also have the specialist knowledge to enable us to finance classic cars and horseboxes. ‘Helping you get the vehicle you need’ The average transaction size at inception is approximately £10,800 and we provide finance for terms up to 60 months. Business Finance Division The Business Finance Division provides hire purchase and lease finance to sole traders, partnerships and limited companies to help them acquire vehicles, plant and equipment. The assets which we finance include motor cars, light and heavy commercial vehicles, coaches, buses, manufacturing equipment and construction equipment. Approximately 85% of finance provided is in respect of a vehicle. ‘Finance solutions that work for you’ The average transaction size at inception is approximately £28,000 and we provide finance for terms up to 60 months. The Group’s portfolio of loans and finance receivables is managed by our highly efficient and experienced in-house team, supported by the Sopra Group’s finance and lease management system, Instalment Credit and Collections Suite (‘ICS’). As a result of our effective underwriting and collections processes, the percentage of agreements up to date across the Group increased from 96% at 31 March 2014 to 97% at 31 March 2015. 9 Private & Commercial Finance Group plc Annual Report & Financial Statements 2015 9 Strategic Report Chief Executive’s Review The Group continues to go from strength to strength after successfully putting in place the necessary ingredients for growth. Excellent profits growth The Group’s profit before tax for the year ended 31 March 2015 was £2.1 million (2014 – £1.25 million), an increase of 69%. We commented last year that portfolio growth would deliver the operational gearing necessary to increase profitability and this has proved to be the case. The result delivers a significant improvement in the ROAA from 1.5% to 2.2%, exceeding our initial target of 2.0%. Fully diluted earnings per share increased from 0.8p to 1.3p. Fully diluted after tax return on equity increased from 6.2% to 10.4%. Costs continue to be controlled and average staff numbers reduced by two in the year, as reflected in a fall in the ratio of administrative expenses to gross profit from 34.2% to 33.9%. Portfolio performance The portfolio grew to £100 million (2014 – £89 million), an increase of 13%. The quality of the portfolio continues to improve, with arrears and repossessions at record low levels. This resulted in a further fall in the loan loss provisioning charge from 2.4% of the average portfolio in 2014 to 1.6% this year. At 31 March 2015, 97.1% (2014 – 95.6%) of all live agreements, an important metric for the Group, were performing as up to date. The portfolio of £100 million is reported net of £23.6 million (2014 – £20.1 million) of unearned finance charges which are attributable to future years. Capital and funding The Group has £112 million of committed debt facilities at its disposal, with undrawn headroom on these of £23 million. This is adequate for our portfolio growth plans in the current year. However, we will continue to approach new and existing funders to ensure we always have adequate headroom to support our future growth. The capital base of the Group continues to strengthen and the gearing ratio, excluding unsecured convertible debt, stands at 6.7 (2014 – 6.9). New business and the market The Group originated a total of £56 million of new business advances in the year, an increase of 10%. New business originated with existing customers increased by 13% in the year, building on the growth we achieved in the previous year. A great deal of effort is focused on retaining existing customers and this now represents the largest single introductory source of new business for our Consumer Finance Division. At the same time, the credit quality of new business remains high with over 60% of originations falling into our top two credit grades. The greatest increase in originations was seen in our Consumer Finance Division, where strong consumer activity mirrored good statistics for car sales in the UK.The consumer motor finance portfolio currently stands at £59.6 million (2014 – £52.5 million) and the business finance portfolio at £40.2 million (2014 – £36.2 million). The Group will continue to look for ways of broadening its sources of business and routes to market in our two chosen market sectors and where we only have a small market share. On 1 April 2014 responsibility for the regulation and supervision of consumer credit related activities passed from the Office of Fair Trading (‘OFT’) to the Financial Conduct Authority (‘FCA’). All of our relevant subsidiaries have the necessary Interim Permissions with the FCA and our applications for Full Authorisation were submitted in January 2015 and these are being dealt with under the six month authorisation process. 10 Private & Commercial Finance Group plc Annual Report and Financial Statements 2013 10 Outlook and current developments The most important strategic objective for the Group is obtaining a banking licence to provide both a diversification in funding and the ability to grow the portfolio beyond the capabilities of our current debt facilities. The benefits of taking retail deposits are not only that we will have a more robust treasury model but also that, with a reduced cost of funds, we will be able to access new segments within our chosen markets as well as be more profitable in our existing ones. We would expect customer retention to improve further and the ability to grow our portfolio is key to maximising the benefits of operational gearing. The Group has invested considerable time this year researching a suitable target operating model and selecting suitable IT systems for attracting and managing retail deposits. Whilst working towards the above objective, the Group will continue to increase new business originations, grow our portfolio of receivables to over £115m and continue to deliver the improvement in profitability as demonstrated in these results. We look forward to the year ahead with considerable optimism. SD Maybury Chief Executive 14 July 2015 Key performance indicators New business originations Loans and receivables portfolio Profit before taxation Return on average assets Fully diluted after tax return on equity 2015 £56.0m £99.8m £2.10m 2.2% 10.4% Group 2014 £50.8m £88.7m £1.25m 1.5% 6.2% Principal risks and uncertainties Credit risk The Group is exposed to the risk that customers owing the Group money will not fulfil their obligations. The Group regularly reviews its lending criteria as well as its credit exposure to all customers. However, default risk may arise from events which are outside the Group’s control, primarily customer under-performance due to factors such as loss of employment, family circumstances, illness, business failure, adverse economic conditions or fraud. The successful management of credit risk is central to the Group’s business. The majority of the Group’s lending is secured and amortised over the life of the assets. The credit risk from concentration is limited due to the relatively low value of each customer’s debt and to the Group’s large and diverse customer base. In order to ensure that arrears are minimised, emphasis is placed on retaining a diversified portfolio, using prudent underwriting methods and resisting the inclination to increase credit risk in the quest for increased volumes of new business. The counterparties to the Group’s financial liabilities are financial institutions. Credit risk represents operational disruption if counterparties were unable to perform completely as contracted. It is the Group’s policy to monitor the financial standing of these counterparties on an on-going basis and the exposure to any individual counterparty. The Group’s financial asset exposure to these counterparties is limited to derivatives and cash at bank. 11 Private & Commercial Finance Group plc Annual Report & Financial Statements 2015 11 Strategic Report Inadequate security The Group is exposed to the risk that the security upon which it makes advances may reduce in value, so that the Group may not recover some or all of its advances in the event of a customer default. This risk is mitigated by maintaining a diverse portfolio of customers, spreading risk across a variety of assets and sectors, lending for a period of time appropriate to the assets’ lives and forming detailed assessments on both the value of the security and the customer’s ability to service the debt. Specialist third party asset and vehicle valuations are obtained, where considered necessary. Treasury management The Group is exposed to the liquidity and interest rate risk arising from the requirement to fund its operations. Liquidity risk is the risk arising from unplanned decreases or changes in funding sources. The Group funds itself through bi-lateral facilities with UK and international banks and finance houses with original maturities of up to four years. The Group has a successful track record in fund-raising and equity placements. All the Group’s loans and receivables are at fixed rates over the term of the contract. Facilities provided by banks and finance houses are at fixed and floating rates. Interest rate swaps are used, to the extent considered appropriate, to reduce interest rate fluctuations on floating rate borrowings. To the extent that the Group’s loans and receivables are not matched by borrowings at fixed rates or by interest rate swaps, the Group has risk from changes in market interest rates. It is, and has been throughout the year, the Group’s policy that no trading in financial instruments shall be undertaken. The Group does not operate in, nor has exposure to, currencies other than Pounds Sterling. Capital management The Group’s objective is to maintain a strong capital base to support its current operations in line with relevant forecasts. Capital base for these purposes comprises shareholders’ equity less the hedging reserve and at 31 March 2015 amounted to £12.0 million (2014 – £10.3 million). The Group is not subject to external regulatory capital requirements. It is, however, required within certain of its subsidiaries’ borrowing facilities to maintain a ratio of borrowings to net worth. The Group complied with these ratios throughout the year. Funding The Group’s financial instruments include borrowings, derivatives, convertible loan notes and overdraft facilities. The main purpose of these financial instruments is to raise finance to fund the Group’s principal activities. Continued, sustainable growth is dependent on the Group seeking further debt facilities or increases to those already in place. However, the Group has adequate facility headroom for the current year and will continue to source new facilities and funding relationships. Regulatory and conduct risk The Group is subject to legislative and regulatory change within the consumer credit sector as supervised by the FCA. Conduct risk is the risk that the Group does not comply with regulatory requirements such as the way it conducts its business and treats its customers. These risks are managed through internal procedures and utilising expert external advice. The main risks arising from the Group’s financial instruments are detailed in note 21 to the Financial Statements. Approved by order of the Board on 14 July 2015. 12 Private & Commercial Finance Group plc Directors’ Report for the year ended 31 March 2015 The directors present their report and audited financial statements for the year ended 31 March 2015 (the ‘year’). Results and dividends The Group profit for the year before taxation was £2,099,451 (2014 – £1,244,476). The taxation charge for the year was £485,662 (2014 – £512,740). The directors do not recommend the payment of a final dividend (2014 – £nil). Financial highlights Group Turnover Gross profit Profit before taxation Loans and receivables (net of unearned income and impairment charges) Shareholders’ equity Net assets per share (undiluted) 2015 £’000 45,293 13,447 2,099 99,829 11,858 22.3p 2014 £’000 42,656 12,558 1,245 88,655 10,412 19.6p Principal activities The Group’s principal activities are the purchase, hire, financing and sale of vehicles and equipment and the provision of related fee-based services. The Group will continue to administer its portfolio of financial assets to improve profitability for both its Consumer Finance and Business Finance Divisions. Directors and their interests The directors of the Company during the year were those listed on page 3. The directors’ interests in the shares of the Company, all of which were beneficial interests, at 31 March 2015 are listed below. A N Nelson S D Maybury R J Murray D G Anthony At 31 March 2015 No. of ordinary shares of 5p each At 31 March 2014 No. of ordinary shares of 5p each 1,656,543 1,600,006 998,340 936,275 1,657,003 1,600,006 998,340 654,609 The following directors also held options in the Company share option plans as listed below. Further details are provided in note 7. S D Maybury R J Murray Z R Kerse At 31 March 2015 No. of ordinary shares of 5p each subject to option At 31 March 2014 No. of ordinary shares of 5p each subject to option 700,000 500,000 500,000 350,000 250,000 250,000 The Company’s Articles of Association permit it to indemnify directors in accordance with the Companies Act. 13 Annual Report and Financial Statements 2015 13 Directors’ Report Substantial shareholdings At 30 June 2015 the Company had been notified of the following interests of 3% or more in its issued ordinary share capital. Somers Limited Hendrik van Heijst Aberdeen Holdings Limited Beleggingsclub 'T Stockpaert HSBC Global Custody Nominee (UK) Limited A N Nelson S D Maybury Percentage 29.28 5.74 5.52 3.77 3.43 3.12 3.02 Hedge accounting The fair value of derivative financial instruments is recorded on the Group’s balance sheet. The cumulative gain or loss of hedging instruments recognised directly to equity is reported net of tax in ‘Other reserves’ in the balance sheet. Any gains or losses on hedge instruments deemed as ineffective are recognised directly in the income statement. Supplier payment policy and practice It is the Group’s policy that payments to suppliers are made in accordance with the terms and conditions agreed between the Group and its suppliers, provided that trading terms have been complied with. At 31 March 2015 the Group had an average of 32 days purchases outstanding in trade payables (2014 – 30 days) and the Company had an average of 36 days (2014 – 49 days). Statement of going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are set out in the Financial Statements. The Group’s policies and processes for managing its capital are described in the Strategic Report. Details of the Group’s financial risk management objectives, its financial instruments and hedging activities and its exposures to credit risk and liquidity risk are also set out in the notes to the Financial Statements. The directors have completed a formal assessment of the Group’s financial resources including the forecasts. Based on this review, the directors believe that the Group is well placed to manage its business risks successfully within the expected economic outlook. After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Financial Statements. Corporate governance The Company has had non-executive directors since May 1995. Meetings of the board of directors are held ten times a year. The Board has adopted the requirements of the ‘Corporate Governance Code for Small and Mid-Size Quoted Companies’ published by the Quoted Companies Alliance to the extent that it considers it appropriate and having regard to the Company’s size and nature. The Audit Committee consists of David Anthony (Chairman), David Morgan, Anthony Nelson and Nick Winks. The Audit Committee meets twice a year and is responsible, inter alia, for ensuring that the financial performance of the Group is properly reported and monitored and also for meeting the auditors and reviewing the reports from the auditors in relation to the Financial Statements and internal control systems. 14 Private & Commercial Finance Group plc The Remuneration Committee consists of Anthony Nelson (Chairman), David Anthony, David Morgan and Nick Winks. The Remuneration Committee is responsible, inter alia, for reviewing the performance of the executive directors and for setting the scale and structure of their remuneration and the basis of their service contracts, bearing in mind the interests of shareholders. The Remuneration Committee also determines the overall level of the allocation of share options to employees under the Company Share Option Plans. Statement of directors’ responsibilities The directors are responsible for preparing the Strategic Report, Directors’ Report and the Group Financial Statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards as adopted by the European Union. Company law requires the directors to prepare Financial Statements for each financial year. Under that law the directors must not approve the Group Financial Statements unless they are satisfied they present fairly the financial position, financial performance and cash flows of the Group for that period. In preparing those Financial Statements, the directors are required to: l l l l select suitable accounting policies in accordance with IAS 8 ‘Accounting policies, changes in accounting estimates and errors’ and then apply them consistently; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance; and state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the Financial Statements. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group Financial Statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Disclosure of information to the auditors So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of fellow directors and the Group’s auditor, each director has taken all the steps that he is obliged to take as a director in order to make himself aware of any relevant audit information and to establish that the auditor is aware of that information. Reappointment of auditors A resolution to reappoint Ernst & Young LLP as auditors will be put to the members at the Annual General Meeting. On behalf of the Board R J Murray Director and Secretary 14 July 2015 15 Annual Report and Financial Statements 2015 15 Independent Auditor’s Report to the members of Private & Commercial Finance Group plc We have audited the Financial Statements of Private & Commercial Finance Group plc for the year ended 31 March 2015 which comprise the Group Income Statement and Group Statement of Comprehensive Income, the Group and Company Balance Sheets, the Group and Company Statements of Changes in Equity, the Group and Company Statement of Cash Flows and the related notes 1 to 24. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (‘IFRS’) as adopted by the European Union and, as regards the Company Financial Statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 15, the directors are responsible for the preparation of the Group and Company Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group and Company Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the Financial Statements An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of whether the accounting policies are appropriate to the Group’s and the Company’s circumstances and have been consistently applied and adequately disclosed, the reasonableness of significant accounting estimates made by the directors and the overall presentation of the Financial Statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on the Financial Statements In our opinion: l l l l the Financial Statements give a true and fair view of the state of the Group’s and the Company’s affairs at 31 March 2015 and of the Group’s profit for the year then ended; the Group Financial Statements have been properly prepared in accordance with IFRS as adopted by the European Union; the Company Financial Statements have been properly prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006. 16 Private & Commercial Finance Group plc Independent Auditors’ Report to the members of Private & Commercial Finance Group plc Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements are prepared is consistent with the Financial Statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: l l l adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or the Company Financial Statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or l we have not received all the information and explanations we require for our audit. Michael-John Albert (Senior Statutory Auditor) For and on behalf of Ernst & Young LLP (Statutory Auditor) London 14 July 2015 17 Annual Report and Financial Statements 2015 17 Group Income Statement for the year ended 31 March 2015 Group turnover Cost of sales Gross profit Administration expenses Operating profit Interest receivable Interest payable Profit on ordinary activities before taxation Income tax expense Profit on ordinary activities after taxation Profit for the year attributable to equity holders Earnings per 5p ordinary share – basic Earnings per 5p ordinary share – diluted Note 2 3 4 5 6 19 8 8 2015 £’000 45,293 (31,846) 13,447 (6,686) 6,761 4 (4,666) 2,099 (485) 1,614 1,614 3.0p 1.3p 2014 £’000 42,656 (30,098) 12,558 (6,935) 5,623 8 (4,386) 1,245 (513) 732 732 1.4p 0.8p Group Statement of Comprehensive Income for the year ended 31 March 2015 Profit for the year Other comprehensive income that may be reclassified to the income statement in subsequent years Cash flow hedges – fair value (losses)/gains Income tax effect Total comprehensive income for the year Note 21 6 19 2015 £’000 1,614 (303) 63 (240) 1,374 2014 £’000 732 422 (93) 329 1,061 18 Private & Commercial Finance Group plc Group and Company Balance Sheets at 31 March 2015 Group Company Non-current assets Goodwill Other intangible assets Investment in subsidiary undertakings Property, plant and equipment Loans and receivables Derivative financial instruments Deferred tax Current assets Loans and receivables Trade and other receivables Corporation Tax Cash and cash equivalents Total assets Current liabilities Interest-bearing loans and borrowings Trade and other payables Derivative financial instruments Corporation Tax Bank overdrafts Non-current liabilities Derivative financial instruments Interest-bearing loans and borrowings Total liabilities Net assets Capital and reserves Issued share capital Share premium Capital reserve Other reserves Own shares Profit and loss account Shareholders’ equity Note 10 11 9 12 13 20 13 14 16 15 16 16 18 19 19 19 19 19 2015 £’000 397 514 – 105 63,680 – 1,694 66,390 36,149 1,134 – 139 37,422 103,812 10,733 1,643 22 176 703 13,277 156 78,521 78,677 91,954 11,858 2,656 4,398 3,873 (127) (305) 1,363 2014 £’000 397 646 – 84 53,134 137 1,840 56,238 35,521 930 136 283 36,870 93,108 8,241 1,302 40 – 329 9,912 – 72,784 72,784 82,696 10,412 2,651 4,395 3,873 115 (355) (267) 11,858 10,412 2015 £’000 – 514 1,000 105 3,500 – 60 5,179 9,598 280 – – 9,878 15,057 – 857 – – 11 868 – 9,763 9,763 10,631 4,426 2,656 4,398 3,873 – (305) (6,196) 4,426 2014 £’000 – – 1,000 – 3,000 – – 4,000 10,710 167 – – 10,877 14,877 – 447 – – 4 451 – 9,635 9,635 10,086 4,791 2,651 4,395 3,873 – (355) (5,773) 4,791 The financial statements were approved and authorised for issue by the board of directors on 14 July 2015. Signed on behalf of the board of directors by: S D Maybury Director Z R Kerse Director 19 Annual Report and Financial Statements 2015 19 Group and Company Statements of Changes in Equity for the year ended 31 March 2015 Total comprehensive income for the year New share capital subscribed Share-based payments Issue of own convertible debt Net addition to shareholders’ equity Opening shareholders’ equity Closing shareholders’ equity Group Company 2015 £’000 1,374 8 14 50 1,446 10,412 11,858 2014 £’000 1,061 25 2 – 1,088 9,324 10,412 2015 £’000 (437) 8 14 50 (365) 4,791 4,426 2014 £’000 (177) 25 2 – (150) 4,941 4,791 20 Private & Commercial Finance Group plc Group and Company Statements of Cash Flows for the year ended 31 March 2015 Note 11 12 4 Cash flows from operating activities Profit/(loss) before taxation Adjustments for: Amortisation of other intangible assets Amortisation of issue costs Depreciation Share-based payments Fair value movement on derivative financial instruments (Increase)/decrease in loans and receivables (Increase)/decrease in trade and other receivables Increase in trade and other payables Cash flows used in operating activities Tax received/(paid) Net cash flows used in operating activities Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Purchase of other intangible assets 12 11 Net cash flows used in investing activities Cash flows from financing activities Issue of own convertible debt Proceeds from borrowings Repayments of borrowings Net cash flows from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Cash at bank Bank overdrafts 16 Group 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 2,099 1,245 (553) (278) 184 136 29 14 (18) (11,174) (203) 331 (8,602) 35 (8,567) (83) 33 (52) (102) 50 8,842 (741) 8,151 (518) (46) (564) 139 (703) (564) 173 142 44 2 30 (8,628) (230) 251 (6,971) (55) (7,026) (8) – (172) (180) – 9,517 (2,586) 6,931 (275) 229 (46) 283 (329) (46) – 136 – 14 – 668 (113) 410 562 – 562 (105) – (514) (619) 50 – – 50 (7) (4) (11) – (11) (11) 598 – 142 – 2 – (1,061) 19 14 (1,162) – (1,162) – – – – – 4,003 (2,841) 1,162 – (4) (4) – (4) (4) 596 The amount of interest paid during the year 4,694 4,355 21 Annual Report and Financial Statements 2015 21 Notes to the Financial Statements for the year ended 31 March 2015 1 Accounting policies General information Private & Commercial Finance Group plc (‘the Company’) is a public company domiciled in the United Kingdom. Its ordinary shares are listed on the Alternative Investment Market (‘AIM’) of the London Stock Exchange. The Group Financial Statements for the year ended 31 March 2015 were authorised for issue in accordance with a resolution of the board of directors on 14 July 2015. Basis of preparation These Financial Statements are prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union, interpretations issued by the International Accounting Standards Board (‘IASB’) and the Companies Act 2006. The Financial Statements have been prepared under the historical cost convention, modified to include the mark-to-market valuation of derivatives and in accordance with applicable accounting standards. The Financial Statements are presented in Pounds Sterling and all values are rounded to the nearest thousand (£’000), except where otherwise indicated. Changes in accounting policies The accounting policies adopted are consistent with those used in the previous financial year except that the Group has adopted all standards, amendments and interpretations which became effective during the year. The adoption of these standards, amendments and interpretations did not have any effect on the financial position or performance of the Group but have resulted in additional disclosures. Basis of consolidation The Group Financial Statements consolidate the Financial Statements of Private & Commercial Finance Group plc and all of its subsidiary undertakings, of which there were thirteen at 31 March 2015 (thirteen at 31 March 2014). The Financial Statements of the subsidiaries are prepared for the same reporting year as the parent undertaking, using consistent accounting policies. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions which are recognised in assets or liabilities, are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. No income statement is presented for Private & Commercial Finance Group plc as permitted by section 408 of the Companies Act 2006. Of the profit for the financial year, a loss of £439,410 (2014 – loss of £176,994) was attributable to the Company. Significant accounting judgments, estimates and assumptions The preparation of Financial Statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors which are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying values of assets and liabilities which are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgments made by management in the application of IFRS which have a significant effect on the Financial Statements and estimates with a significant risk of material adjustment within the next financial year are provided below. 22 Private & Commercial Finance Group plc Interest Income Interest income is recognised for all financial assets measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset and allocating the interest income over its expected life. The Group reviews the expected remaining life of all financial assets measured at amortised cost at each reporting date and, where there is a change in those estimates, it makes an adjustment so that income continues to be recognised at the effective interest rate. Impairment of goodwill The Group determines whether goodwill is impaired on at least an annual basis. This requires an estimation of the value-in-use of the cash-generating units (‘CGU’) to which the goodwill is allocated. Estimating a value-in-use amount requires management to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 March 2015 was £379,149 (2014 – £379,149). Further details are provided in note 10. Loan loss provisioning The Group reviews its loans and receivables on an on-going basis to assess the level of impairment. Future cash flows are estimated on the basis of the contractual cash flows of the assets and historical loss experience. Historical loss experience is adjusted on the basis of current observable data to reflect the effect of current conditions, which did not affect the period on which the historical loss experience is based, and to remove the effect of conditions in the historical period which do not exist currently. The carrying amount of loans and receivables at 31 March 2015 was £99,828,796 (2014 – £88,654,833). Further details are provided in note 13. Property, plant and equipment Plant and equipment is stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the plant and equipment when that cost is incurred, if the recognition criteria are met. Depreciation is calculated on a straight-line basis over the useful life of the assets, as follows: Computer hardware – Office equipment, fixtures and fittings – – Operating lease equipment 3 to 4 years 5 years 1 to 7 years An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is de-recognised. The assets’ residual values, useful lives and methods of depreciation are reviewed and adjusted, if appropriate, at each reporting date. Investment in subsidiary undertakings Investments in subsidiary undertakings are initially recognised at cost. The Company recognises income from the investment only to the extent that it receives distributions from post-acquisition accumulated profits. Distributions received in excess of such profits are regarded as a recovery of investment and recognised as a reduction in the cost of the investment. At each reporting date an assessment is made as to whether there is any indication that the investment may be impaired. If such an indication exists, the Company estimates the investment’s recoverable amount. The investment is written down to the recoverable amount if this is lower than its carrying value. The impairment loss is recognised in the Company’s income statement. 23 Annual Report and Financial Statements 2015 23 Notes to the Financial Statements 1 Accounting policies (continued) Borrowing costs Borrowing costs are recognised as an expense when incurred in accordance with the effective interest rate method. Intangible assets Goodwill Goodwill arising on acquisition represents the excess of the cost of a business combination over the fair values of the Group’s share of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is not amortised but is reviewed at least annually for impairment. For the purpose of impairment testing, goodwill is allocated to each CGU. Each CGU is consistent with the Group’s primary reporting segments. Any impairment is recognised immediately through the income statement and is not subsequently reversed. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Computer software Acquired software and subsequent enhancements are capitalised as intangible assets and amortised over their useful lives (3 to 8 years) on a straight-line basis. All other software development and maintenance costs are recognised as an expense as incurred. The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each reporting date. Impairment of non-financial assets At each reporting date an assessment is made as to whether there is an indication that an asset may be impaired. If any such indication exists or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. The recoverable amount is the higher of the asset’s or CGU’s fair value less costs to sell and its value-in-use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses of continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount and a previously recognised impairment is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount nor exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. Financial assets The Group classifies its financial assets as either loans and receivables or derivative financial instruments used for hedging. In accordance with IAS 17 ‘Leases’, leases where the Group does not transfer substantially all the risks and rewards incidental to ownership of the asset are classified as operating leases. All other leases are treated as finance leases within loans and receivables. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments which are not quoted in an active market. Conditional sale agreements, hire purchase contracts and finance leases are initially recognised at the lower of fair value of the leased asset or the present value of the minimum lease payments. These loans and receivables are subsequently measured at an amount equal to the net investment in the contract, less any provision for impairment. Other loans and receivables, including personal loans, are initially recognised at fair value plus directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method, less any provision for impairment. The Group has not held any financial assets at fair value through profit or loss, held to maturity or available for sale during the year. 24 Private & Commercial Finance Group plc Impairment of financial assets The Group assesses, on an on-going basis, whether a financial asset or group of financial assets is impaired. If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred), discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of a loan loss provision. The amount of the loss is recognised in the income statement as loan loss provisioning charge. The Group first assesses whether objective evidence of impairment exists individually for financial assets which are individually significant and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Future cash flows for a group of loan assets that are collectively evaluated for impairment are estimated on the basis of contractual cash flows and historical loss experience for assets with similar credit characteristics. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Treasury shares Own equity instruments which are re-acquired treasury shares and convertible debt are deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Company’s own equity instruments. Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and at hand and short-term deposits with an original maturity of three months or less. For the purpose of the Group Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Interest-bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the liabilities are de-recognised as well as through the amortisation process. Convertible debt The component of the convertible debt which exhibits characteristics of a liability is recognised as a liability in the balance sheet, net of transaction costs. The coupon on the debt is charged as interest expense in the income statement. On issuance of the convertible debt, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond and this amount is carried as a long-term liability on the amortised cost basis until extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in shareholders’ equity, net of transaction costs. The carrying amount of the conversion option is not re-measured in subsequent years. Transaction costs are apportioned between the liability and equity components of the convertible debt based on the allocation of proceeds to the liability and equity components when the instruments are first recognised. 25 Annual Report and Financial Statements 2015 25 Notes to the Financial Statements 1 Accounting policies (continued) De-recognition of financial assets and liabilities Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is de-recognised when the rights to receive cash flows from the asset have expired or where the Group has transferred substantially all the risks and rewards of ownership. Financial liabilities A financial liability is de-recognised when the obligation under the liability is discharged, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the income statement. Issue costs The costs of issue of share capital are offset against the share premium reserve created at the time of issue. If there is insufficient premium arising on the issue, the costs would be offset against any pre-existing share premium. The costs of issue of the convertible debt are offset against the financing on origination and are subsequently amortised over the term. Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Employee benefits Short-term benefits Wages, salaries, commissions, bonuses, social security contributions, paid annual leave and non-monetary benefits, including death-in-service premiums, are accrued in the period in which the associated services are rendered by employees of the Group. Pensions Permanent staff are eligible for a contribution by the Company to their personal pension schemes equal to a fixed percentage of the staff member’s basic salary. The cost to the Company is charged to the income statement as incurred and is disclosed in note 7 of the Financial Statements. Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either the termination of employment or a voluntary redundancy offer. Share-based payment transactions The Company operates an approved and an unapproved equity-settled share option plan for its employees. For awards granted after 7 November 2002 (and not vested by 1 January 2006) and in accordance with IFRS 2 ‘Share-based payment’, an expense is recognised in respect of the fair value of employee services received in exchange for the grant of share options. A corresponding amount is recorded as an increase in equity within retained earnings. The expense is spread over the relevant vesting period and is calculated by reference to the fair value of the share options granted. In arriving at fair values, the Black-Scholes pricing model is used and estimates are made of dividend yields, share price volatility, risk-free rates and expected life of the share options. 26 Private & Commercial Finance Group plc Operating leases Group as a lessee Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Group as a lessor Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Rental income arising from operating leases is accounted for on a straight-line basis over the lease terms. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured. The following criteria must also be met: Interest income Interest income is recognised in the income statement for all financial assets measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows through the contractual life, or expected life, if shorter, of the financial asset to the net carrying amount of the financial asset. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instruments, such as early settlement options, but does not include an expectation for future credit losses. The calculation includes all fees charged to customers, such as acceptance or similar fees, and direct and incremental transactions costs, such as broker commissions. Finance income in respect of conditional sale agreements, hire purchase contracts and finance leases is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment, before tax, outstanding in respect of the contract. Insurance commission Commission received from third party insurers for all insurance broking business, for which the Group does not bear any underlying insurance risk, is credited to the income statement at inception of the policies. Other income Other income includes fees and commissions charged to customers and third parties for the collection of debts and fees charged for other services, which are credited to the income statement when the service has been provided. Taxes Current tax The charge for current tax is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using rates of tax that have been enacted, or substantively enacted, by the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Deferred tax Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements. Deferred tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Deferred tax is determined using tax rates and laws which have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. 27 Annual Report and Financial Statements 2015 27 Notes to the Financial Statements 1 Accounting policies (continued) Taxes (continued) Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The carrying amount of the deferred tax asset in respect of tax losses at 31 March 2015 was £nil (2014 – £nil) and the unrecognised deferred tax asset at 31 March 2015 was £24,517 (2014 – £25,109). Further details are provided in note 20. Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set-off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. Value Added Tax (‘VAT’) Revenues, expenses and assets are recognised net of the amount of VAT except in the case of overdue loans and receivables, other receivables and other payables which are shown inclusive of VAT. The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of other receivables or other payables in the balance sheet. Derivative financial instruments and hedging The Group uses derivative financial instruments such as interest rate swaps to hedge its exposure to interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives during the year which do not qualify for hedge accounting are taken directly to the income statement. The fair value of interest rate swap contracts is determined by discounted cash model analysis with reference to relevant market interest rates and yield curves. The Group uses cash flow hedges when hedging exposure to variability in cash flows which is attributable to a particular risk associated with a recognised asset or liability. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an on-going basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Cash flow hedges which meet the strict criteria for hedge accounting are accounted for as follows: l l l the effective portion of the gain or loss on the hedging instrument is recognised directly in equity, whilst any ineffective portion is recognised immediately in the income statement; amounts taken to equity are transferred to the income statement when the hedged transaction affects the income statement, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs; and if the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs. 28 Private & Commercial Finance Group plc Future changes in accounting policies The following accounting standards, amendments and interpretations issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Committee are effective for the Group’s accounting periods beginning on or after 1 April 2015. l l l l l l l l l l IFRS 2 (amendment) ‘Share-based Payment’ IFRS 8 (amendment) ‘Operating Segments’ IFRS 9 ‘Financial Instruments’ IFRS 11 (amendment) ‘Joint Arrangements’ IFRS 13 (amendment) ‘Fair Value Measurement’ IFRS 15 ‘Revenue from Contracts with Customers’ IAS 16 (amendment ) ‘Property Plant and Equipment’ IAS 19 (amendment) ‘Employee Benefits’ IAS 24 (amendment) ‘Related Party Disclosures’ IAS 38 (amendment) ‘Intangible Assets’ Effective from 1 July 2014 1 July 2014 1 January 2018 1 January 2016 1 July 2014 1 January 2017 1 January 2016 1 July 2014 1 July 2014 1 January 2016 IFRS 9 is replacing the ‘incurred loss’ approach of IAS 39 to impairment with a new ‘expected loss’ model. It is not practical to provide a reasonable estimate of the effect until more guidelines become available nearer the required implementation date. Other than IFRS 9, adoption of these standards and interpretations is not expected to have a material impact on the Group or Company Financial Statements. 29 Annual Report and Financial Statements 2015 29 Notes to the Financial Statements 2 Turnover and segmental analysis Turnover represents gross rental and instalment credit income from the hire, financing and sale of equipment, and the provision of related fee-based services, stated net of VAT. The Group operates in the principal areas of consumer finance for motor vehicles and business finance for vehicles, plant and equipment. Segment assets include loans and receivables, trade and other receivables, cash and cash equivalents and tax assets. Segment liabilities comprise trade and other payables, derivative financial instruments, tax liabilities and certain borrowings that can be attributed to the segment but exclude borrowings that are for general corporate purposes. No geographical analysis is presented because the Group only operates within the United Kingdom. Turnover, profit on ordinary activities before taxation and assets and liabilities are analysed in the following tables. Year ended 31 March 2015 Group Turnover Profit/(loss) on ordinary activities before taxation Year ended 31 March 2014 Group Turnover Profit/(loss) on ordinary activities before taxation Year ended 31 March 2015 Group Total assets Total liabilities Other segment items Interest payable Loan loss provisioning charge Income tax expense Year ended 31 March 2014 Group Total assets Total liabilities Other segment items Interest payable Loan loss provisioning charge Income tax expense Consumer finance £’000 Business finance £’000 Central £’000 Total £’000 24,270 21,023 – 45,293 1,624 1,087 (612) 2,099 Consumer finance £’000 Business finance £’000 Central £’000 Total £’000 22,935 19,721 – 42,656 865 599 (219) 1,245 Consumer finance £’000 63,982 54,459 (2,501) (1,060) (341) Consumer finance £’000 60,922 52,349 (2,393) (1,388) (202) Business finance £’000 38,979 29,930 (1,567) (486) (237) Business finance £’000 31,174 24,411 (1,397) (636) (383) Central £’000 851 7,565 (598) – 93 Central £’000 1,012 5,936 (596) – 72 Total £’000 103,812 91,954 (4,666) (1,546) (485) Total £’000 93,108 82,696 (4,386) (2,024) (513) 30 Private & Commercial Finance Group plc 3 Cost of sales Cost of sales represents the amortisation of finance leases and instalment credit contracts (the difference between gross rental and income recognised, in accordance with note 1) and the depreciation of operating lease assets. 4 Interest payable Interest-bearing loans and borrowings and bank overdrafts Fair value movements on derivative financial instruments 5 Profit on ordinary activities before taxation Profit on ordinary activities before taxation is stated after crediting/(charging): (a) Finance revenue Net income from finance leases Net income from instalment credit contracts Insurance commission and other income Gross profit (b) Other revenue and expenses Included in administration expenses: Loan loss provisioning charge Depreciation of property, plant and equipment Operating lease rentals payable Amortisation of other intangible assets Auditors’ remuneration – audit of the Group and Company Financial Statements – audit of the Company’s subsidiaries’ Financial Statements – other services relating to taxation 2015 £’000 (4,684) 18 (4,666) 2015 £’000 3,199 10,219 29 13,447 2015 £’000 (1,546) (29) (53) (184) (60) (65) (53) 2014 £’000 (4,356) (30) (4,386) 2014 £’000 2,975 9,432 151 12,558 2014 £’000 (2,024) (44) (72) (173) (62) (61) (35) 31 Annual Report and Financial Statements 2015 31 Notes to the Financial Statements 6 Taxation (a) Analysis of tax charge in the year Current tax UK Corporation Tax on profit of the year Adjustments in respect of prior years Total current tax Deferred tax Origination and reversal of temporary differences Adjustments in respect of prior periods Change in tax rate Total deferred tax Total tax charge for the year (b) Deferred tax on items recognised directly in equity Relating to cash flow hedges Change in tax rate 2015 £’000 (284) 8 (276) (189) (9) (11) (209) (485) 2015 £’000 63 – 63 2014 £’000 (30) – (30) (209) (17) (257) (483) (513) 2014 £’000 (97) 4 (93) (c) Factors affecting current tax charge for the year The tax assessed for the year differs from the standard rate of Corporation Tax in the UK of 21% (2014 – 23%). The differences are explained below. As part of the Finance Act 2014, the UK Government legislated to reduce the main rate of Corporation Tax from 23% to 21% with effect from 1 April 2014 and to 20% with effect from 1 April 2015, which has been reflected in the amount of the recognised deferred tax asset. Profit on ordinary activities before tax Profit on ordinary activities multiplied by standard rate of Corporation Tax in the UK of 21% (2014 – 23%) Effects of: Expenses not deductible for taxation purposes Adjustments in respect of prior periods Change in tax rate Utilisation of previously unrecognised losses Total tax charge for the year 2015 £’000 2,099 (441) (33) (1) (11) 1 (485) 2014 £’000 1,245 (286) (7) (17) (257) 54 (513) 32 Private & Commercial Finance Group plc 7 Directors’ remuneration and staff costs The aggregate payroll costs of the Group (including directors and Chairman) were: Salaries and fees Social security costs Pension costs Share-based payments The average monthly number of persons employed by the Group was: 2015 £’000 1,979 213 124 14 2,330 2015 No. 7 20 17 44 2014 £’000 1,898 236 125 2 2,261 2014 No. 7 22 17 46 Directors and administration Consumer finance Business finance Directors’ remuneration Executive directors S D Maybury R J Murray Z R Kerse Non-executive directors D G Anthony D J Morgan A N Nelson N P D Winks Salary and fees £’000 Bonus £’000 Benefits in kind £’000 Pension contributions £’000 2015 £’000 2014 £’000 100 114 103 24 15 17 15 388 – – – – – – – – 1 1 1 – – – – 3 41 11 10 – – – – 62 142 126 114 24 15 17 15 453 137 124 113 24 15 17 15 445 There are three directors receiving company contributions to personal pension schemes (2014 – three). 33 Annual Report and Financial Statements 2015 33 Notes to the Financial Statements 7 Directors’ remuneration and staff costs (continued) Share-based payments Company equity-settled share option plans The grant price is determined by reference to the average mid-market price of the Company’s ordinary shares for the three days immediately preceding the date of the grant. The options are conditional on continued employment and have a minimum vesting period of three years. If options remain unexercised after a period of ten years from the date of the grant, the options expire. Furthermore, options are forfeited if the employee leaves the Group before the options vest. The weighted average remaining contractual life is nine years (2014 – five years). Outstanding at the beginning of the year Granted during the year Expired during the year Outstanding at the end of the year Exercisable at the end of the year Group 2015 No. Company 2015 No. 941,500 941,500 850,000 (91,500) 850,000 (91,500) 1,700,000 1,700,000 – – Weighted average exercise price (pence) 27 10 43 9 – Group 2014 No. Company 2014 No. 173,000 173,000 850,000 (81,500) 850,000 (81,500) 941,500 941,500 91,500 91,500 Weighted average exercise price (pence) 47 9 51 27 43 The fair value was measured at the grant date using the Black-Scholes model. The inputs were as follows: Grant date Share price at grant date Exercise price Shares under option Vesting period Expected volatility Expected life Risk-free rate Expected dividends Fair value per model at grant date 3 December 2013 8.5p 8.5p 850,000 3 – 10 years 30% 6.5 years 0.5% nil 2.6p 10 June 2014 9.6p 9.6p 850,000 3 – 10 years 30% 6.5 years 0.5% nil 3.0p The expected volatility is based on historical volatility over a period consistent with the expected option life. The risk-free rate is based on UK Government bonds. 34 Private & Commercial Finance Group plc 8 9 Earnings per ordinary share The calculation of basic earnings per ordinary share is based on profit after taxation of £1,613,789 for the year (2014 – £731,736) on 53,066,335 (2014 – 52,980,732) ordinary shares, being the weighted average number of ordinary shares in issue during the year. The calculation of diluted earnings per ordinary share is based on profit after taxation of £2,193,948 for the year (2014 – £1,198,495), before deducting interest on the convertible loan notes of £580,159 (2014 – £466,759), on 170,378,206 (2014 – 146,371,439) ordinary shares, being the dilutive weighted average number of ordinary shares in issue during the year. Basic weighted average number of shares Effect of dilutive convertible loan notes Dilutive weighted average number of shares 2015 No. of ordinary 2014 No. of ordinary shares of 5p each shares of 5p each 53,066,335 117,311,871 52,980,732 93,390,707 170,378,206 146,371,439 Investments Company The subsidiary undertakings of Private & Commercial Finance Group plc at 31 March 2015, all of which are incorporated and operate in the United Kingdom and are registered in England and Wales, were as follows: Name of company Proportion held Nature of business PCF Group Holdings Limited AMC Trust Limited PCF Group Limited Private and Commercial Finance Company Limited PCF Asset Finance Limited PCF Business Finance Limited PCF Leasing Limited PCF Portfolio Management Limited The Asset Management Corporation Limited Henry Butcher Industrial Finance Limited PCF Equipment Leasing Limited PCF Financial Leasing Limited TMV Finance Limited *Held by a subsidiary of the Company 100% 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* Holding Company Holding Company Holding Company Instalment credit Hire purchase Hire purchase Leasing Leasing Leasing Dormant Dormant Dormant Dormant All the companies have an Accounting Reference Date of 31 March. 35 Annual Report and Financial Statements 2015 35 Notes to the Financial Statements 9 Investments (continued) Cost and net book value: At 1 April 2014 and 31 March 2015 Investment in subsidiary undertakings 2015 £’000 Investment in subsidiary undertakings 2014 £’000 1,000 1,000 The Company has an investment in PCF Group Holdings Limited. The net asset value of PCF Group Holdings Limited at 31 March 2015 was £757,063 (2014 – £1,007,063). If the investment had been sold at this valuation, any potential capital gains arising on the sale would have been exempt under the substantial shareholdings legislation. If the disposal had given rise to a loss, the loss would not be an allowable loss for tax purposes. It is the opinion of the directors that the recoverable amount of the Company’s investment in PCF Group Holdings Limited is not less than the amount at which it is stated in the Company’s Financial Statements. 10 Goodwill Cost and net book value: At 1 April 2014 and 31 March 2015 2015 £’000 397 2014 £’000 397 Goodwill relates entirely to the Group’s Consumer Finance Division and arises from the acquisition of TMV Finance Limited in November 2000. There has been no impairment to goodwill in the current or prior year. The recoverable amount of goodwill is determined from value-in-use calculations. The key assumptions for the value-in-use calculations are those regarding discount rates, growth rates, loan loss rates and direct costs. Management estimates discount rates using pre-tax rates which reflect current market assessments of the time value of money and estimates cash flows adjusted for risks specific to the Consumer Finance Division. Changes in loan loss rates and direct costs are based on historic experience and expectations of future changes in the market. The Group produces a cash flow forecast for a five year period which assumes a constant growth rate consistent with current market conditions and recent historic growth. The risk-adjusted cash flows are discounted using a pre-tax discount rate of 6.0 % (2014 – 6.0%). 36 Private & Commercial Finance Group plc 11 Other intangible assets Other intangible assets are comprised solely of computer software. Group Cost At 1 April Additions in the year Disposals in the year At 31 March Amortisation and impairment At 1 April Amortisation for the year Disposals in the year At 31 March Net book value at 31 March 2015 £’000 2,219 52 – 2,271 1,573 184 – 1,757 514 2014 £’000 2,047 172 – 2,219 1,400 173 – 1,573 646 The Company purchased the other intangible assets from another Group company on 31 March 2015 at net book value. 12 Property, plant and equipment Group Cost At 1 April Additions in the year Disposals in the year At 31 March Depreciation At 1 April Depreciation charge for the year Disposals in the year At 31 March Net book value at 31 March 2015 £’000 185 83 (100) 168 101 29 (67) 63 105 2014 £’000 177 8 – 185 57 44 – 101 84 The Company purchased the property, plant and equipment from another Group company on 31 March 2015 at net book value. 37 Annual Report and Financial Statements 2015 37 Notes to the Financial Statements 13 Loans and receivables Maximum exposure and maturity 2015 Group Maturity profile: Within one year One to five years Gross loans and receivables Unearned future finance income Loan loss provision Comprising: Current assets Non-current assets 2014 Group Maturity profile: Within one year One to five years Gross loans and receivables Unearned future finance income Loan loss provision Comprising: Current assets Non-current assets Instalment credit £’000 38,996 61,117 100,113 (19,578) (2,952) 77,583 26,960 50,623 77,583 Instalment credit £’000 37,780 50,553 88,333 (16,663) (3,571) 68,099 26,264 41,835 68,099 Finance leases £’000 12,430 15,100 27,530 (4,050) (1,234) 22,246 9,189 13,057 22,246 Finance leases £’000 12,644 12,975 25,619 (3,464) (1,599) 20,556 9,257 11,299 20,556 Total £’000 51,426 76,217 127,643 (23,628) (4,186) 99,829 36,149 63,680 99,829 Total £’000 50,424 63,528 113,952 (20,127) (5,170) 88,655 35,521 53,134 88,655 For terms relating to financial assets, loans and receivables refer to note 21. 38 Private & Commercial Finance Group plc Credit quality 2015 Group Neither past due nor impaired Past due but not impaired – one day up to one month Past due but not impaired – one month up to two months Impaired Gross loans and receivables 2014 Group Neither past due nor impaired Past due but not impaired – one day up to one month Past due but not impaired – one month up to two months Impaired Gross loans and receivables Instalment credit £’000 90,580 2,047 312 7,174 100,113 Instalment credit £’000 76,999 1,995 289 9,050 88,333 Finance leases £’000 23,706 507 11 3,306 27,530 Finance leases £’000 19,622 1,550 65 4,382 25,619 Total £’000 114,286 2,554 323 10,480 127,643 Total £’000 96,621 3,545 354 13,432 113,952 The credit risk inherent in loans and receivables is reviewed under impairment policies as detailed in note 1. Under this review, the credit quality of assets which are neither past due nor impaired were considered to be good. In the case of assets where there was evidence of non-payment or other objective evidence of impairment the assets are considered as impaired. The carrying amount of gross loans and receivables whose terms have been renegotiated which would otherwise be past due or impaired is £0.4 million at 31 March 2015 (2014 – £0.4 million). Loan loss provision 2015 Group At 1 April 2014 Utilised Additional provisions created At 31 March 2015 2014 Group At 1 April 2013 Utilised Additional provisions created At 31 March 2014 Instalment credit £’000 3,571 (1,734) 1,115 2,952 Instalment credit £’000 4,878 (2,977) 1,670 3,571 Finance leases £’000 1,599 (796) 431 1,234 Finance leases £’000 2,062 (817) 354 1,599 Total £’000 5,170 (2,530) 1,546 4,186 Total £’000 6,940 (3,794) 2,024 5,170 39 Annual Report and Financial Statements 2015 39 Notes to the Financial Statements 13 Loans and receivables (continued) Collateral Loans secured on equipment, plant and vehicles under conditional sale/hire purchase agreements Unsecured loans Finance leases of equipment, plant and vehicles 2015 £’000 98,250 1,862 27,531 2014 £’000 84,765 3,568 25,619 Gross loans and receivables 127,643 113,952 An estimate of the fair value of collateral on past due or impaired loans and receivables is not disclosed as it would be impractical to do so. Company The non-current loans and receivables as shown on the Company balance sheet of £3,500,000 (2014 – £3,000,000) comprise amounts due from subsidiary companies with repayment terms of five years or more. In current assets there are amounts of £9,597,857 (2014 – £10,710,440) due from subsidiary companies, all of which are repayable on demand. 14 Trade and other receivables Trade receivables Prepayments Other receivables Group 2015 £’000 188 126 820 1,134 Company 2015 £’000 – 126 154 280 Group 2014 £’000 81 144 705 930 Company 2014 £’000 – 64 103 167 Trade and other receivables are not interest-bearing and are generally on terms of up to 30 days. The maximum exposure to credit risk and the fair value of trade and other receivables equates to the carrying amount. 15 Trade and other payables Trade payables Taxes and social security costs Other payables Accruals Group 2015 £’000 353 52 491 747 1,643 Company 2015 £’000 142 52 – 663 857 Group 2014 £’000 438 55 472 337 1,302 Company 2014 £’000 156 55 – 236 447 Trade and other payables are not interest-bearing and are normally settled on 30 day terms. 40 Private & Commercial Finance Group plc 16 Interest-bearing loans and borrowings Current Secured loans and borrowings Non-current Secured loans and borrowings Convertible debt Total interest-bearing loans and borrowings Group 2015 £’000 10,733 10,733 68,758 9,763 78,521 89,254 Company 2015 £’000 – – – 9,763 9,763 9,763 Group 2014 £’000 8,241 8,241 63,149 9,635 72,784 81,025 Company 2014 £’000 – – – 9,635 9,635 9,635 Loans and borrowings are stated net of unamortised issue costs of £0.5 million (2014 – £0.6 million). These costs are allocated to the income statement over the term of the facility using the effective interest method. Bank overdrafts The bank overdraft has an effective interest rate of base rate plus a margin and is secured by a debenture over the individual group undertaking to which it applies. The facility is repayable on demand. Interest-bearing loans and borrowings £55.0 million term loan facility This loan has an effective interest rate of LIBOR plus a margin and a maturity date of 30 September 2016. The loan is secured by both a charge over the loans and receivables and a debenture over the assets of the group undertaking to which it applies and the guarantee of the Company. £12.0 million term loan facility This loan has an effective interest rate of LIBOR plus a margin and a maturity date of 9 January 2017. The loan is secured by both a charge over the loans and receivables and a debenture over the assets of the group undertaking to which it applies and the guarantee of the Company. £8.0 million term loan facility This loan has fixed interest rates and maturity dates of up to four years. The loan is secured by both a charge over the loans and receivables and a debenture over the assets of the group undertaking to which it applies and the guarantee of the Company. £10.5 million block discounting facility This loan has a fixed interest rate and maturity dates of up to four years. The facility is secured by both a charge over the loans and receivables and a debenture over the assets of the group undertaking to which it applies and the guarantee of the Company. £17 million block discounting facilities These loans have fixed interest rates and maturity dates of up to four years. The facilities are secured by charges over the loans and receivables of the group undertaking to which they apply. 41 Annual Report and Financial Statements 2015 41 Notes to the Financial Statements 16 Interest-bearing loans and borrowings (continued) Convertible debt In November 2012 the Company issued £5,930,000 of £1 convertible unsecured loan notes at par, by way of a placing and open offer. In 30 September 2013 the Company placed an additional £4,070,000 of £1 convertible unsecured loan notes at par. The loan notes can be converted into ordinary shares at the price of 8.5p on any interest date before 30 September 2016 subject to the proviso that any loan note holder holding a nominal value of loan notes of £1 million or more may convert their loan notes into ordinary shares on any Business Day between 1 December 2012 and 30 September 2016. The loan notes have a final maturity date of 30 September 2016 and carry an interest rate of 6%. The unamortised issue costs of the loan notes have been offset against the debt. At 31 March 2015 £32,499 of loan notes had been converted at 8.5p. The Company is unable to call and redeem the loan notes until the maturity date. Maturity of financial liabilities In one year or less or on demand In more than one year but not more than two years In more than two years but not more than five years Undrawn committed borrowing facilities Expiring in one year or less Expiring in more than one year but not more than two years Expiring in more than two years but not more than five years 2015 £’000 11,300 74,162 4,495 89,957 2015 £’000 16,442 6,346 – 22,788 2014 £’000 8,434 59,680 13,240 81,354 2014 £’000 8,523 5,881 – 14,404 Principal covenants The subsidiary companies must comply with principal lending covenants in respect of the ratio of borrowings to net worth and the ratio of profit before interest and tax to net interest expense. In both years, none of these covenants had been breached. 42 Private & Commercial Finance Group plc 17 Operating lease arrangements Operating lease arrangements where the Group or Company is lessee Future minimum rentals payable under non-cancellable property leases are as follows: Not later than one year After one year but not more than five years Group 2015 £’000 203 831 1,034 Company 2015 £’000 203 831 1,034 Group 2014 £’000 91 114 205 Company 2014 £’000 91 114 205 A 108 month property lease was entered into on 5 September 2014. The Company has an option to determine the lease on 5 September 2019. Operating lease arrangements where the Group or Company is lessor Future minimum rentals receivable under non-cancellable operating leases are £nil (2014 – £nil). 18 Issued share capital Authorised ordinary shares At 1 April 2013, 1 April 2014 and 31 March 2015 – 5p each Allotted and fully paid ordinary shares At 1 April 2013 – 5p each Exercise of convertible debt options At 1 April 2014 – 5p each Exercise of convertible debt options At 31 March 2015 – 5p each Number £’000 250,000,000 12,500 52,731,151 290,550 53,021,701 91,786 53,113,487 2,637 14 2,651 5 2,656 43 Annual Report and Financial Statements 2015 43 Share premium £’000 4,384 Capital reserve £’000 3,873 Other reserves £’000 Own shares £’000 Profit and loss account £’000 (214) (355) (1,001) Notes to the Financial Statements 19 Movements in reserves Group At 1 April 2013 Fair value gains on cash flow hedges net of tax Transfer to net profit Net gains recognised directly in equity Profit for the year Total recognised income and expense for the year Share-based payments Issue of new shares At 1 April 2014 Fair value losses on cash flow hedges net of tax Transfer to net profit Net losses recognised directly in equity Profit for the year Total recognised income and expense for the year Share-based payments Issue of new shares Issue of own convertible debt – – – – – – 11 – – – – – – – 4,395 3,873 – – – – – – 3 – – – – – – – – – At 31 March 2015 4,398 3,873 299 30 329 – 329 – – 115 (224) (18) (242) – (242) – – – (127) – – – – – – – – – – 732 732 2 – (355) (267) – – – – – – – 50 (305) – – – 1,614 1,614 16 – – 1,363 Capital reserve On 23 May 2006 the ordinary shares of 25p of the Company were divided into five new ordinary shares of 5p. Four of each of the five newly sub-divided ordinary shares were designated deferred shares. The deferred shares were purchased by the Company at nil value and cancelled, resulting in the creation of a capital reserve. Other reserves From 1 April 2007 the Group adopted hedge accounting for the existing and any new derivative financial instruments. The hedging reserve includes the effective portion of the cumulative net change in the fair value of cash flow hedging instruments relating to hedged transactions which have not yet occurred. The hedging reserve appears in ‘Other reserves’. Further information on derivative financial instruments and hedging is contained in note 1. Own shares (Employee Share Option Plan) Own shares represents 645,015 (2014 – 645,015) ordinary shares held by The PCFG Employees Benefits Trust 2003 (‘EBT’) to meet obligations under the Company’s Share Option Plans. The shares are stated at cost and their market value at 31 March 2015 was £87,077 (2014 – £54,826). If they had been sold at this value, there would have been a capital loss of £168,070 (2014 – £200,321) arising on the sale. In November 2012 EBT purchased 100,000 of £1 convertible unsecured loan notes at par to provide awards under the long-term incentive plan. The EBT issued 50,000 loan notes to key employees in the year subject to their continued employments until 30 September 2016. The remaining 50,000 loan notes are stated at cost and their market value at 31 March 2015 was £66,000. 44 Private & Commercial Finance Group plc Movements in reserves Company At 1 April 2013 Loss for the year Share premium £’000 4,384 – Total recognised income and expense for the year Share-based payments Issue of new shares – – 11 At 1 April 2014 Loss for the year 4,395 – Total recognised income and expense for the year Share-based payments Issue of new shares Issue of own convertible debt – – 3 – Capital reserve £’000 3,873 – – – – 3,873 – – – – – Own shares £’000 (355) – – – – (355) – – – – 50 Profit and loss account £’000 (5,598) (177) (177) 2 – (5,773) (439) (439) 16 – – At 31 March 2015 4,398 3,873 (305) (6,196) 20 Deferred tax asset Group Decelerated capital allowances Derivative financial instruments Other temporary differences At 1 April Recognised in income Recognised in equity At 31 March 2015 £’000 1,638 31 25 1,694 1,840 (209) 63 1,694 2014 £’000 1,860 (25) 5 1,840 2,416 (483) (93) 1,840 As part of the Finance Act 2014, the UK Government legislated to reduce the main rate of Corporation Tax from 23% to 21% with effect from 1 April 2014 and to 20% with effect from 1 April 2015. The deferred tax asset has been calculated based on a rate of 20% to the extent that it is expected to reverse in future years. There is an unrecognised deferred tax asset of £24,517 (2014 – £25,109). This asset relates to tax losses arising in prior years, which are unutilised at the reporting date. 45 Annual Report and Financial Statements 2015 45 Notes to the Financial Statements 21 Financial instruments The Group’s principal financial instruments are financial assets comprising loans and receivables and financial liabilities recorded at amortised cost, comprising overdrafts and interest-bearing loans and borrowings. The Group also enters into derivative financial instruments to reduce its exposure to interest rate fluctuations. A description of the principal risks, as well as details on how the Group manages these risks, is contained in the Strategic Report, in the section entitled ‘Principal risks and uncertainties’. Liquidity and interest rate risks The Group’s policy on funding capacity is to ensure there is always sufficient long-term funding in place. The Group endeavours to have committed borrowing facilities in place in excess of its forecast gross borrowing requirements for a minimum of the next twelve months. At 31 March 2015 the Group’s principal committed borrowing facilities totalled £112.0 million (2014 – £95.4 million) of which 21% (2014 – 16%) was undrawn. In addition, it is the Group’s policy to maintain uncommitted facilities for its working capital requirements. The contractual maturities of the Group’s and Company’s facilities are detailed in note 16 along with the Group’s committed facilities. The Group borrows at both fixed and floating interest rates and then uses derivative financial instruments to manage its exposure to interest rate fluctuations. At 31 March 2015 the proportion of the Group’s borrowings at fixed rates, including borrowings matched with derivatives, was 61% (2014 – 66%), fixed for an average period of 1.9 years (2014 – 2.2 years). In January 2015 the Group entered into an additional interest rate swap for £10 million with a forward start date of July 2015. If the start date was 31 March 2015, the proportion of the Group’s borrowings at fixed rates, including borrowings matched with derivatives, would have been 72%. Derivatives are interest rate swaps where the Group pays fixed rate interest on a quarterly basis. Based on the exposure to interest rate risk an increase in LIBOR by one half of one percentage point for the whole financial year would have had an adverse effect on profit for the year of £164,242 (2014 – £132,330) and a favourable impact on equity of £50,660 (2014 – £160,398). 46 Private & Commercial Finance Group plc The following tables set out the gross contractual maturities of the Group’s and Company’s financial instruments. Group Year ended 31 March 2015 Fixed rate Within 1 year £’000 Loans and receivables – gross 51,426 1,008 Trade and other receivables Cash and cash equivalents 139 Interest-bearing loans and borrowings Convertible debt Trade and other payables Derivative financial instruments (12,057) (598) (1,589) (253) Floating rate Derivative financial Instruments Bank overdrafts Interest-bearing loans and borrowings Group Year ended 31 March 2014 Fixed rate Within 1 year £’000 127 (703) Within 1 year £’000 Loans and receivables – gross 50,424 786 Trade and other receivables Cash and cash equivalents 283 Interest-bearing loans and borrowings Convertible debt Trade and other payables Derivative financial instruments (9,415) (599) (1,246) (307) (2,592) (58,187) 1-2 years £’000 33,397 – – (7,840) (10,267) – (224) 1-2 years £’000 181 – 2-3 years £’000 23,868 – – (3,491) – – (103) 2-3 years £’000 90 – – 3-4 years £’000 14,016 – – (1,181) – – – 3-4 years £’000 – – – 1-2 years £’000 29,124 – – 2-3 years £’000 20,048 – – 3-4 years £’000 10,731 – – (6,937) (599) – (253) (3,187) (10,274) – (224) (275) – – (102) 3-4 years £’000 188 – – 4-5 More than 5 years £’000 years £’000 4,919 – – (36) – – – 17 – – – – – – 4-5 More than 5 years £’000 years £’000 – – – – – – 4-5 More than 5 years £’000 years £’000 3,617 – – – – – – 8 – – – – – – 4-5 More than 5 years £’000 years £’000 – – – – – – Total £’000 127,643 1,008 139 (24,605) (10,865) (1,589) (580) Total £’000 398 (703) (60,779) Total £’000 113,952 786 283 (19,814) (11,472) (1,246) (886) Total £’000 991 (329) (56,901) Floating rate Derivative financial Instruments Bank overdrafts Interest-bearing loans and borrowings Within 1 year £’000 139 (329) 1-2 years £’000 260 – 2-3 years £’000 404 – (2,388) (54,513) – 47 Annual Report and Financial Statements 2015 47 Notes to the Financial Statements 21 Financial instruments (continued) Company Year ended 31 March 2015 Fixed rate Loans and receivables – gross Trade and other receivables Convertible debt Trade and other payables Company Year ended 31 March 2014 Fixed rate Within 1 year £’000 9,598 154 (598) (805) Within 1 year £’000 Loans and receivables – gross 10,710 102 Trade and other receivables (599) Convertible debt (392) Trade and other payables 1-2 years £’000 – – (10,267) – 2-3 years £’000 3-4 years £’000 4-5 More than 5 years £’000 years £’000 – – – – – – – – – – – – 3,500 – – – 1-2 years £’000 – – (599) – 2-3 years £’000 – – (10,274) – 3-4 years £’000 4-5 More than 5 years £’000 years £’000 – – – – – – – – 3,000 – – – Total £’000 13,098 154 (10,865) (805) Total £’000 13,710 102 (11,472) (392) The financial instruments are shown gross to reflect capital and interest. The amounts shown therefore are not the carrying amounts as included on the Group and Company balance sheets. Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. The following table sets out the contractual maturities of the notional value of the Group’s derivative financial instruments. Group 2015 Interest rate swaps 2014 Interest rate swaps Within 1 year £m 1-2 years £m 2-3 years £m 3-4 years £m Over 4 years £m 2.0 3.0 10.5 10.0 – 2.0 10.5 10.0 – – Total £m 22.5 25.5 The Company has no derivative financial instruments at 31 March 2015 (31 March 2014 – £nil). 48 Private & Commercial Finance Group plc for the year ended 31 March 2011 Fair values of financial instruments The following table sets out a comparison by category of carrying amounts and fair values of financial instruments that are carried in the Financial Statements. Group Financial assets Loans and receivables – net Financial liabilities Interest-bearing loans and borrowings Company Financial assets Loans and receivables – net Financial liabilities Interest-bearing loans and borrowings Book value 2015 £m Fair value 2015 £m Book value 2014 £m Fair value 2014 £m 99.8 115.4 88.7 101.8 (89.2) (89.3) (81.0) (81.1) Book value 2015 £m Fair value 2015 £m Book value 2014 £m Fair value 2014 £m 13.1 (9.8) 13.1 (9.9) 13.7 (9.6) 13.7 (9.8) Fair values are calculated by discounting cash flows at prevailing interest rates for equivalent debt instruments or by using the market interest rates for other financial assets or liabilities. The carrying value of all the other Group and Company financial instruments is regarded as a reasonable approximation of the fair value. Under IFRS 7 ‘Financial instruments: disclosures’, the Group’s derivative financial instruments are classed as Level 2 because they are not traded in an active market and the fair value is determined by discounted cash flow model analysis with reference to relevant market interest rates and yield curves. There have been no transfers between valuation levels during the year. Cash flow hedges The following table shows the impact of the Group’s cash flow hedges on the income statement and equity during the year. Amount recognised in equity Amount removed from equity as interest payable 2015 £’000 (242) 18 2014 £’000 329 (30) Effective interest rates The following profile of the Group’s financial assets and liabilities is stated after taking into account the effects of interest rate swaps referred to above. Weighted-average effective interest rate Loans and receivables Interest-bearing loans and borrowings 2015 % 14.2 5.3 2014 % 15.1 5.4 Interest on floating rate borrowing is determined by the relevant margin over LIBOR for each facility. 49 Annual Report and Financial Statements 2015 49 Notes to the Financial Statements for the year ended 31 March 2013 22 Contingent liabilities Guarantees and security Group The loan facilities in the following subsidiary undertakings are secured by a debenture over the assets of the subsidiary undertaking. PCF Group Limited Private and Commercial Finance Company Limited PCF Asset Finance Limited PCF Business Finance Limited PCF Leasing Limited Company The Company has contingent liabilities of £80.4 million at the year-end (2014 – £71.9 million) in connection with guarantees relating to banking facilities of the Group companies. 23 Related parties Apart from Directors’ remuneration disclosed in note 7 and guarantees disclosed in note 22, there were no related party transactions during the year. 24 Events after the balance sheet date No information has been identified since the balance sheet date about conditions existing at the balance sheet date which is required to be disclosed in these financial statements. 50 Private & Commercial Finance Group plc Annual Report & Financial Statements 2015 50 Avocette Limited, London Pinners Hall, 105-108 Old Broad Street, London EC2N 1ER T 020 7222 2426 F 020 7222 2985 customerservices@pcfg.co.uk www.pcfg.co.uk