Time Finance plc (LON:TIME) Chief Executive Officer Ed Rimmer caught up with DirectorsTalk to discuss record revenue and profit, lending book growth, operational efficiencies, and the group’s next phase of secured lending growth.
Q1: Ed, Time Finance has delivered record revenue and profit for the year, with PBT up 6% to £8.4 million and margins improving to 22%. What are the main drivers of that profit growth and how much further operational leverage do you believe is still available in the model?
A1: So, we’ve had another successful year, and we’re pleased with the results. The growth has continued, so that’s been good to see.
We’ve increased new business by 26% over the previous financial year and I think that’s been the main driver of the results. We’ve also focused very heavily on efficiencies, so we’ve delivered those numbers with no increase in headcount, which was very much part of our strategy that we set out.
That’s the first year of our three-year plan completed. The whole idea was to grow the book, but in a more efficient way, utilising a business improvement function that we’ve developed and that’s really about improving efficiencies, utilising better systems and making sure that we’re doing things in a generally just more efficient and effective way.
So, lots of process improvements and operational improvements focus and that’s been really a big contribution to the bottom line results that we’re seeing.
Q2: As you mentioned, own book origination rose 26% to £122 million, while the gross lending book increased 15% to £250.9 million. Can you just talk investors through the quality of that growth, and which parts of the book are contributing most?
A2: The strategy has continued to focus on hard asset finance, so that’s the element of our asset finance division, which is focused on those assets that have a value if things go wrong and we need to repossess them or at the end of the lease they have a value as well. So, things like yellow plant, lots of transport-related assets, as opposed to softer assets that the business was previously focused on some years ago. That division has seen growth of 25% this year.
The other focus has been on invoice finance, which is again our main products offering along with asset finance and that’s continued to see good growth as well, businesses needing to tap into cash flow finance facilities to support their growth. It’s obviously been a difficult environment for SMEs and working capital has been really as important as ever and we’ve seen good opportunities coming through from the invoice finance space.
So, it’s continued to be focused on those two main products and that’s where the growth has been this year.
Q3: Now, net arrears were stable at 4.8% and bad debt write-offs improved slightly to 0.9% of the average gross lending book. What does that tell you about the credit quality across the portfolio, particularly as the book continues to grow?
A3: I think that’s a key point. As the book continues to grow, then logically you’ll have more problems because that’s what happens with lending to small businesses. Lots of opportunities, but you do have some challenges and it’s obviously key to make sure that you lend to the right businesses and you have an opportunity to get your money back when things don’t quite go right. It’s a fine balance and we think we’ve got that balance right. We do have lots of experienced people in the business who are helping us to get our money back and collect on arrears.
I think the essence of what we do is understanding the markets we play in, making sure that we don’t stray into sectors that we aren’t familiar with or we don’t have experience with. That’s very much been part of the plan for the last 12 months that we’ve seen. We haven’t really diversified too much away from sectors we know and have contacts in when things don’t quite go right, to go and recover assets and make sure that assets are sold and we don’t lose money. So I think that’s been a key part.
We’ve also focused on our multi-product offering and that’s where we can improve our security. Rather than just having, let’s say, an asset finance facility in place where we have assignments effectively, ownership of the assets, we can put an invoice finance and potentially a secured loan in place as well, which gives us more control over the security. So, if things go wrong, then arguably we’re more secure and that’s been a key feature of our plan over the last 12 months as well. We’ve doubled the number of multi-product deals that we’ve put in place and that will be a feature of our growth moving forwards.
Q4: You now have over £80 million of funding headroom and remain focused on the strategy that you’ve been talking about, including more secured lending. What key milestones should investors watch from here as Time Finance moves towards the next phase of the lending book?
A4: I think that the milestones really are around that whole balance of getting the top line growth right, making sure the arrears are stable and we’ll lend into businesses that we’re comfortable with, making sure the margin improvement continues in terms of that efficiency programme, and obviously making sure then that the bottom line continues to go in the right direction. That is hugely affected by the bad debts in the business and that’s been stable, as you’ve mentioned, around 1% of the book in terms of net write-off. So it’s not one particular thing.
We could start to really see an improvement in new business, but then the efficiencies don’t come through, and the profitability doesn’t come through. Likewise, we could see the efficiencies coming through and not the new business.
So for us, it’s very much about the balance of those four things. It’s the top line growth, making sure the arrears are managed properly and we have the robust credit procedures, making sure the efficiencies are being delivered and then ultimately the bottom line. A combination of those four metrics is key really to the future.
