Preliminary Results

Accuma Group PLC 18 October 2007 Press Release 18 October 2007 Accuma Group Plc ('Accuma' or 'the Group') Preliminary Results Accuma Group Plc, a leading provider of consumer financial solutions, today announces its Preliminary Results for the year ended 31 July 2007. Highlights • Turnover more than doubled to £20.5 million (£10.0 million) • EBITDA up 32% to £2.4 million (£1.8 million) • Acquisition of Byrom Keeley & LoanLine completed • Gross Future Contracted Revenue increased to £18.3 million • Strong Balance Sheet with £3.3 million cash at year end (Currently £3.7 million) • Diluted and Adjusted (for tax and amortisation) EPS at 6.61p Commenting on the results, Charles Howson, Chief Executive of Accuma Group said: 'The past year has been a testing time for both the Group and the sector as a whole and conditions remain difficult. However, our strategy of building a full service platform has mitigated some of the pressure felt within our IVA division and we are confident this strategy will stand us in good stead for the future.' - ends - For further information: Accuma Group Plc Charles Howson, Chief Executive Tel: +44 (0) 161 751 6787 charles.howson@accumagroup.com www.accumagroup.com Daniel Stewart & Company Plc Lindsay Mair Tel: +44 (0) 20 7776 6550 lindsay.mair@danielstewart.co.uk www.danielstewart.co.uk Media enquiries: Abchurch Chris Lane / Emma Johnson Tel: +44 (0) 20 7398 7700 chris.lane@abchurch-group.com www.abchurch-group.com Chairman's Statement A Year of Market Turbulence Changes in the acceptance criteria and fee levels introduced by UK Banks and their advisers created considerable turbulence in the IVA market and this adversely affected the Group and its competitors. Two profits warnings were needed when it became apparent that the scale and length of the dispute and negotiation, was materially greater than forecast. A resolution to the issues appears to be in sight and the size of the average IVA handled by the Group still makes this business viable. The strategy of acquiring additional but complementary businesses has proved a wise one and has cushioned the Group from the full impact of the IVA shortfall. The full consumer financial solutions vision has been delivered and is a success. In addition to this a rigorous cost cutting exercise and business process review has been carried out to make the Group leaner and fitter and able to prosper at the current market fee levels. This was not an easy task and I would like to thank the executive Board members for robustly addressing the issue and delivering the necessary cost savings. Lastly I would again like to thank the staff for their hard work and enthusiasm in difficult times and to also thank our shareholders who continue to support the Group through this transitional period as we adjust to external market pressures. The Board looks forward to future growth with confidence. Charles Taylor B.Comm.CA Non-executive Chairman Chief Executive's Statement The last year has certainly been a testing time for the Group and indeed our sector. In January and again in May we highlighted the trading difficulties within our IVA division which resulted from deterioration in marketing performance, increased competition and moreover from continued creditor pressure resulting in IVA approval rates falling. This has clearly impacted our financial performance. On a divisional basis, our revenues can be analysed as follows: Turnover - £'000s EBITDA - £'000s Debt Management 2,903 1,669 Loan/Mortgage Broking 6,130 1,244 IVA Division 9,854 855 Referrals/other 1,563 159 Group Overheads - (1,502) Total 20,450 2,425 Financial Results Turnover at £20.5 million was up 105% on last year, mainly as a result of the acquisitions made in the early part of the year. Gross profit was £8.2 million (2006: £4.5 million) giving a gross profit margin of 40% compared to 45% last year. This reduction is mainly as a result of lower margins in the IVA division. Moreover, increased resource in anticipation of significant growth in the IVA market impacted both our gross margin and administration expenses that were higher than the previous year at £7.4 million (2006: £3.0 million). Included in administration expenses there was a significant increase in amortisation of intangible assets of £1.3 million (2006: £0.2 million) and fixed asset depreciation of £374k (2006: £154k). Earnings before Interest Tax Depreciation and Amortisation (EBITDA) for the year are £2.4 million compared to £1.8 million for the year to July 2006. Cash inflow from operations for the year was £1.599 million (2006: Outflow £910k) and our balance sheet remains strong with £3.7 million of cash, up £400k since July 2007 year end. Shareholders funds increased to £31.6 million from £14.2 million the previous year. Operational Review Following the acquisitions of Loan Line and Byrom Keeley in August 2006, the Group now provides a full platform of consumer financial solutions from IVAs, to informal debt management, consolidation loans and re-mortgaging. The Group's strategy of providing best advice through a full platform of solutions has in part mitigated the impact of difficulties within the IVA sector. Although this may not be entirely evident in these results, this is due to the significant investment in infrastructure to provide greater capacity that was required prior to a major change in creditor attitudes that has significantly impacted our new IVA case run rate. Following the significant changes in our sector and as reported earlier this year, major operational changes have been implemented that have resulted in significant cost savings, not least in our payroll where since March, our annual cost has been reduced by £1.1 million. Group staff numbers now stand at 206 against 251 at the end of 2006 with the reductions coming from our IVA division. In particular the group now employs 5 Insolvency Practitioners against 8 previously as IVA run rates have declined. Given increased competition, particularly with direct advertising, the Group's full service platform has become an attractive model with which we are now building stronger referral relationships. Our client acquisition strategy moving forward is focused on these affinity relationships in addition to the internet where we have seen some success at acquiring clients more efficiently through advertising and search engine optimisation, in particular through our subsidiary Thomas Charles. Debt Management Byrom Keeley was acquired in August 2006 and was relocated to our Group head office in March. This relocation has provided a more efficient referral process and in particular with pressure on IVA acceptances, debt management plans are often the only viable alternative. Consequently, performance in this division was better than anticipated and the Board is confident that Byrom Keeley will continue to contribute significantly to the group in the future. Loan/Mortgage Broking LoanLine was acquired on 4th September 2006 and is an FSA regulated secured loan and mortgage broker. Despite strong historic growth we revised our expectations for this division in February following the reduction in referrals from one particular source. Despite this, the business has performed well due to a combination of strong management and new business wins, finishing the year ahead of our revised expectation. The outlook for the loan broking sector is somewhat uncertain at this time due to the well publicised issues within the sub-prime credit market. However, with the majority of its business remaining outside of the sub prime sector, any impact should be marginal. IVA Business As reported throughout the year and in common with volume competitors, our IVA business suffered significantly from a more competitive environment and increased creditor pressure which resulted in lower approval rates. As a consequence the number of new IVA cases set up increased by only 8% to 2,646 (2006: 2,460) with a run rate across the final quarter of the year averaging 193 a month. It had been hoped that high level discussions that took place throughout the year with key stakeholders in the process would result in a streamlined process and although much progress has been made, some creditors, and their representatives, have decided to stand outside of the process that was set up by the Insolvency Service and the British Bankers Association and have enforced a fee regime that we do not believe to be in the best interest of all stakeholders and least of a ll the over-indebted consumer. This new fee structure, which is being enforced through the creditors voting process, has already seen IVA providers withdrawing from the market and others stating that they can only provide a service to those debtors with monthly contributions above circa £400, leaving many over-indebted consumers without access to an IVA; something which is contrary to stated Government policy. This new structure restricts the set up costs (nominee fee) of an IVA in most cases to just five times the client monthly contribution, including VAT. At £400 the average nominee fee equates to £1,700 net of VAT and as such is approximately a £1,000 reduction on the previous average set up fee. Despite this sizeable reduction, there are only minimal positive changes to the process. In addition, fees for managing the case on an ongoing basis will be 15% of payments made or realisations and only for the remaining term, not including the first five months contributions. Whilst the vast majority of Insolvency firms have not agreed to this new fee structure, we would only be causing our clients more hardship and suffering if we were to reject the cases because of the creditors fee capping. Like many firms, for the time being, we have decided to accept creditor enforced modifications to our fee structure whilst we continue in dialogue with the creditors concerned and indeed the Insolvency Service and our regulatory bodies. Accuma have always carried out a rigorous vetting process to ensure that the client is suitable for an IVA, that the payment offered to the creditors is the maximum the client can afford and that the payment is sustainable. Because of this our average dividend to creditors, net of fees is 40p. We will continue to provide the same high standards that have allowed us to build excellent working relationships with creditors and provide dividends that are amongst the highest in the industry. Following our trading update in May, we anticipated a significant decrease in fee levels in our future planning. As such, and with an average client payment of over £400 a month, we remain well positioned to provide IVAs and moreover, our existing bank of 6,052 cases under management with £18.3 million of future contracted revenue provide a significant income stream over the next few years. Earn-outs All three acquisitions made in the summer of 2006 have earn-out provisions in the Sale and Purchase Contract. A payment of £2.4million was made to the vendors of Byrom Keeley in April 2007 and further payments may be due depending on the financial performance for the years to December 2007 and 2008. Given progress so far this year, a provision of £2.1 million has been made in the accounts for payment due in respect of the year to December 2007. This provision has been based on pre-tax profits of £1.8million. LoanLine's vendors will be paid £1.4 million in October 2007, and a corresponding provision has been made in these accounts. One further payment equal to the pre-tax profit is possible for the year to July 2008, payable in October 2008. As pre-tax profits at Thomas Charles were below £1 million, no payment is due and based on current performance it is unlikely that any payments will be made in the future. Outlook Despite the issues that our IVA division has faced over the past year, prospects for this division and indeed for the Group remain positive. The Group is now less reliant on its IVA revenues and has reduced its operational costs significantly. Moreover, general economic conditions favour our business model. With consumer indebtedness at an all time high, disposable incomes continuing to decrease and further uncertainty in the housing market the opportunities for over-indebted individuals to seek more conventional solutions to their problems will inevitably reduce. IVAs and debt management will become more attractive in most cases both to the over-indebted consumer and indeed creditors; certainly more attractive than bankruptcy. Charles Howson Chief Executive ACCUMA GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 JULY 2007 2007 2006 Notes As restated £ £ GROUP TURNOVER Existing operations 11,417,833 9,980,429 Acquisitions 9,032,646 - 20,450,479 9,980,429 Cost of sales 12,278,928 5,500,310 GROSS PROFIT 8,171,551 4,480,119 Administration expenses 7,394,318 2,972,664 GROUP OPERATING PROFIT Existing operations (1,049,477) 1,507,455 Acquisitions 1,826,710 - 777,233 1,507,455 Interest receivable 240,853 124,340 Interest payable and similar charges 129,548 37,499 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 888,538 1,594,296 TAXATION 1 435,903 482,528 PROFIT FOR THE FINANCIAL YEAR 452,635 1,111,768 Earnings per share - Basic 2 1.40p 4.71p - Diluted 2 1.38p 4.63p ACCUMA GROUP PLC CONSOLIDATED BALANCE SHEET 31 JULY 2007 2007 2006 As Restated Notes £ £ £ £ FIXED ASSETS Intangible assets 26,350,146 6,939,462 Tangible assets 855,546 726,450 27,205,692 7,665,912 CURRENT ASSETS Debtors 8,876,714 6,064,689 Cash at bank and in hand 3,331,502 4,440,808 12,208,216 10,505,497 CREDITORS Amounts falling due within one year 4,174,426 2,120,909 NET CURRENT ASSETS 8,033,790 8,384,588 TOTAL ASSETS LESS CURRENT LIABILITIES 35,239,482 16,050,500 CREDITORS Amounts falling due after more than one year 100,894 328,705 PROVISIONS FOR LIABILITIES 3,497,579 1,502,922 NET ASSETS 31,641,009 14,218,873 CAPITAL AND RESERVES Called up share capital 3,269,673 2,573,006 Share premium account 28,407,877 11,719,907 Other reserve (1,262,595) (762,595) Share option reserve 367,251 282,387 Profit and loss account 858,803 406,168 SHAREHOLDERS' FUNDS 31,641,009 14,218,873 ACCUMA GROUP PLC CONSOLIDATED CASH FLOW STATEMENT YEAR ENDED 31 JULY 2007 Notes 2007 2006 As restated Reconciliation of operating profit to net cash outflow from £ £ operating activities Operating profit 777,233 1,507,455 Provision for share options 84,864 185,826 Loss on sale of fixed assets 12,549 Amortisation of intangible assets 1,279,378 170,669 Depreciation of tangible fixed assets 374,224 153,837 (Increase) in debtors (494,633) (3,152,909) (Decrease)/Increase in creditors (422,416) 212,194 Net cash inflow/(outflow) from operating activities 1,598,650 (910,379) CASH FLOW STATEMENT Net cash inflow/(outflow) from operating activities 1,598,650 (910,379) Returns on investments and servicing of finance 86,192 86,841 Taxation (1,013,719) (656) Capital expenditure (452,570) (242,549) Acquisitions (16,496,016) (4,136,600) Financing 15,168,157 7,602,633 (Decrease)/Increase in cash (1,109,306) 2,399,290 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS (Decrease)/Increase in cash in the year (1,109,306) 2,399,290 Cash (inflow)/outflow from (increase)/decrease in lease financing 45,233 (252,394) Cash outflow from repayment of loans 254,554 143,435 Loans and leases acquired with subsidiaries - (153,942) Change in net funds (809,519) 2,136,389 Net funds at 1 August 2006 3,916,132 1,779,743 Net funds at 31 July 2007 3,106,613 3,916,132 1 TAXATION 2007 2006 £ £ Current tax UK corporation tax Current tax on income for the year 340,858 353,614 Tax charge relating to prior periods (16,371) - 324,487 353,614 Deferred tax Changes in deferred tax balances arising from: Origination or reversal of timing differences 111,416 128,914 Tax on profit on ordinary activities 435,903 482,528 2007 2006 £ £ Profit on ordinary activities before tax 888,538 1,780,122 Profit on ordinary activities multiplied by the rate of corporation tax of 30% (2006: 30%) 266,561 534,037 Effects of: Expenses not deductible for tax purposes 43,308 60,439 Capital allowances in excess of depreciation 383,813 (20,658) Tax rate differences (17,401) (11,036) Other timing differences (335,423) (2,134) Unrelieved tax losses - (207,034) Adjustment to prior period tax charge (16,371) - Current tax charge for the year 324,487 353,614 2 EARNINGS PER SHARE The calculations of earnings per share are calculated by dividing the earnings attributable to ordinary shares by the weighted average number of shares in issue during the year. For diluted earnings per share, the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the company's ordinary shares over the year ended 31 July 2007. 31 July 31 July Basic 2007 2006 £ £ Profit for the year 452,635 1,111,768 Weighted average number of shares 32,295,911 23,592,884 Diluted Profit for the year 452,635 1,111,768 Weighted average number of shares for basic earnings per share 32,295,911 23,592,884 Share options 492,550 393,997 Weighted average number of shares 32,788,461 23,986,881 Diluted and adjusted Profit for the year 2,167,916 1,764,965 Weighted average number of shares 32,788,461 23,986,881 3. STATUS OF FINANCIAL INFORMATION The financial information set out in this report does not constitute the company's statutory accounts for the year ended 31 July 2007, but is derived from those accounts. Statutory accounts for the year ended 31 July 2007 will be delivered to the Registrar of Companies shortly. They will carry an unqualified audit report and no statements under section 237(2) or 237(3) of the Companies Act 1985. The annual report and accounts will be dispatched to shareholders as soon as practicable and a copy shall shortly be available on the Company's website. This information is provided by RNS The company news service from the London Stock Exchange
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