1pm plc (LON:OPM) Chief Executive Officer Ian Smith caught up with DirectorsTalk for an exclusive interview to discuss their year-end trading update, how payment holidays & delays have affected the business, insolvencies & recession, strong balance sheet, new funding facilities and the outlook for the new financial year.
Q1: You’ve provided a year-end trading update; what are the key factors affecting the business results in these unusual times?
A1: I think, like many businesses in the current time have been impacted by COVID-19 pandemic, we’ve had three quarters of normal activity, if I can call it that, and then one quarter through to 31st May which has been affected by the pandemic, our year-end is 31st May.
I think what we’ve always promoted are the inherent strengths of the group in being a multi-product finance provider so we provide asset, vehicle, loan, and invoice finance to UK SMEs. We’ve also promoted the fact that we lend to a very broad range of business sectors and we’ve got this risk mitigating model of being both a lender and a broker.
When you put all of those three things together, they certainly come to the fore in these challenging times and I think they are testament to the group’s commercial resilience in these challenging times.
Added to that, we’ve proven our operational resilience in that we’ve been able to offer an uninterrupted and seamless service through remote working for the quarter and because of our personal customer service and our tailored lending solutions, that we’ve always been proud of, we’ve been able to be responsive and agile in these times.
So, all those factors when added together I think come through in our business update and I think we’ve been able to trade seamlessly and withstand the impact of COVID-19 in the fourth quarter of the year.
Q2: Presumably, you’ve had many companies requesting payment holidays or reductions; how has that affected you?
A2: Well, yes it has affected us. We have had a number of customers that have come to us to request payment delays and payment holidays as they’ve tried to withstand the effects of the pandemic.
As we said in our announcement, the forbearance that we’ve granted adds up to about £1 million worth of cash flow that we’ve forgone in the sense that that’s the amount of payment holidays and payment delays that we’ve granted. That relates to about £25 million worth of deals in our portfolio which is around 20% of our overall receivables. So, it’s not an insignificant amount but a containable amount in the sense that 20% of the portfolio is under forbearance and, as I say, about £1 million worth of deficit in cash inflow.
The strength of our balance sheet and the strength of our cash reserves have enabled us to be able to provide that support which we’ve been very happy to do without having to go back to our funding partners and ask them for matching forbearance. I think that’s a very important point because as soon as we go back to our funders and ask for forbearance, they would potentially close the front door, as it were, to new lending and we’ve been determined to keep that door open and to be open to business to be able to lend.
So, the fact that we provided forbearance to our customers was the right and proper thing to do but we haven’t had to ask for similar forbearance from our funders which is important.
Q3: There are concerns that there will be an increase in insolvencies and possibly a recession; is that a concern reflected in your trading update?
A3: Yes, it is, in the sense that we have recorded an additional bad debt provision in our trading update for the year-end.
It’s important to underline this, we have not seen any marked increase in insolvencies or bad debt write-offs in the year through to 31st May and I think we’ve not seen that because the government support schemes which are very welcome have enabled smaller businesses to withstand the impact of COVID-19 up to this point.
It is a concern that when those government support schemes run out in the fullness of time that there may be an increase in the number of businesses that can’t get back to trading as they were pre-COVID and may fail.
Therefore, what we’ve decided to do is to anticipate that and to put quite a substantial provision into our year-end numbers at the 31st May and, as we say in the announcement, we’ve put £2.1 million of additional provision in in the fourth quarter. That takes us to a position where we’ve got £5.1 million of provision in our balance sheet compared to £2.4 million this time last year.
So, as you can see, we’ve more than doubled the amount of provision and we think that’s a prudent measure to take at this point albeit I underline and I stress the fact that we haven’t seen a significant increase of write-offs at this point.
Q4: You’ve just mentioned the balance sheet but what are the key financial results for the year and how is 1pm’s balance sheet position?
A4: We originated £147 million worth of new business during the course of the financial year and that’s only 9% lower than the previous year in spite of the impact in the fourth quarter and that’s translated into revenue we expect to be £29.1 million, again about 9% down on the previous year. Taking into account that lower revenue and the bad debt provision I mentioned, we should be reporting, when the figures are audited, approximately £3 million profit before tax and exceptional items. So, a satisfactory performance in that sense.
As far as the balance sheet is concerned, we have net assets of over £55 million and as of yesterday, cash in the bank account of £4.2 million plus another £1 million of overdraft we could use if we needed to.
So, we’re well funded and we have a good strong balance sheet and a good set of funding partners so I think a satisfactory trading performance good liquidity at this point and a strong balance sheet to see us through.
Q5: Now, you’ve also announced new funding facilities for the business; can you tell us more about these and why they are important?
A5: As I say, we’ve been impacted like anybody else as a result of the pandemic and it has impacted our own business activities, particularly on our broking side.
So, our vehicles broking and our property broking saw the quickest and sharpest decline as soon as lockdown happened. So, in order to maintain our capability and maintain our capacity in those broking activities whilst the businesses begin to recover during this current financial year, we’ve taken out our own term loan, a £3.1 million term loan from our principal banker NatWest to offset the impact of COVID-19. We were delighted to do that and again, we’ve got a very strong balance sheet which enables us to do that so that’s important for our own business activities.
Separately, and as I mentioned earlier, it was very important to us to stay open for business and we want to continue to lend so very early on we decided to apply to become accredited as a Coronavirus Business Interruption Loan Scheme funding partner, CBILS. We were approved towards the end of April and we mobilised during May and we are now lending under that government supported scheme.
So, it’s been important to be able to generate new funding lines, which we’ve reported in the announcement this morning, to be able to give us the fire power, if you like, to be able to provide those CBILS loans. We’re delighted to be able to do so to help support businesses during these times.
Q6: What is your outlook for the new financial year for 1pm?
A6: Well, having made the bad debt provision in the numbers for 31st May 2020, we look forward now in this new financial year with some optimism. I think we are beginning to see recovery during the course of May and June, we are well funded, good support from our funding partners and we are seeing a return to reasonably decent levels of activity across our different funding lines.
There are still some significant uncertainties out there as we all know so we withdraw our formal guidance back in April last year and we don’t have market guidance for the current financial year and we won’t do that until we see some of those uncertainties clear.
We do feel that there is cause for some optimism for this current year and once we see those uncertainties clear and we can get back to providing some guidance for the year, we’ll also then at that point return to the subject of dividends payments. We’ve postponed our dividends for the time being, not cancelled them, and we’ll return to that subject once we can give guidance for the full year outlook.
At this point, as I say, a certain amount of optimism in trading for the rest of this financial year although clearly, it’s very early days.