RNS Number:3665F
Debts.co.uk PLC
09 October 2007
Debts.co.uk plc (or the Group)
Preliminary Results for the year to 31 July 2007
Debts.co.uk plc is a leading provider of a range of solutions, including IVAs,
debt management programmes, bankruptcy and secured loans or second mortgages, to
over-indebted individuals.
HIGHLIGHTS
* Turnover up 90.2% to #11.6m (Proforma 2006: #6.1m)
* Gross profit up 95.8% to #9.4m (Proforma 2006: #4.8m)
* Reported pre-tax profit up 61.9% to #3.4m (Proforma 2006: #2.1m)
* Earnings per share up 51.2% to 13.05p (Proforma 2006: 8.63p)
* Acquisition of Adie Financial Solutions Limited provides entry into the
Scottish Trust Deed market place which has been largely unaffected by the
recent changes in the IVA market
* Move to new 30,000 sq ft offices in Chesterfield was competed in December
2006
9 October 2007
Enquiries:
Debts.co.uk plc Tel: 0870 990 9716
Paul Carter, Chief Executive Officer
Seymour Pierce Limited Tel: 020 7107 8000
Nominated Adviser
Mark Percy
Parimal Kumar
Adventis Financial PR
Chris Steele Tel: 020 7034 4759 / 07979 604 687
Tarquin Edwards Tel: 020 7034 4758 / 07879 458 364
CHAIRMAN'S STATEMENT
I am pleased to present the first full year's set of results for Debts.co.uk plc
as an AIM listed company for the year ended 31 July 2007.
The Board previously set out its objectives regarding the IVA and debt solutions
market place on its admission to the AIM market and continues to work towards
these objectives. The results for the year for the Group have been pleasing
despite the publicised difficulties across the whole of the industry.
The initial start for the year was very positive and this enabled the company to
make a strong start with its results and to develop the business and its
infrastructure. As widely reported in the media, the events that followed in
the later part of the year have caused a tough market. Competition has
increased, the number of IVAs approved in the sector has declined and fee levels
have been reduced. The directors have kept developments under constant review
and adjusted the Group business model accordingly; this is dealt with more
fully in the Chief Executive's statement below.
The acquisition of Adie Financial Solutions Limited in June 2007 opened up
additional opportunities, giving the ability to provide a full range of debt
solutions within Scotland.
The changes which are taking place in the IVA market and the associated ongoing
industry wide negotiations with creditors are providing a shape for the future
and the Group is adapting to these changes.
Meanwhile, the Board continually looks to improve Group systems and controls to
the optimum operational levels and where appropriate to ensure that the Group
meets all current and future regulatory requirements.
Bernard Asher
Chairman
9 October 2007
CHIEF EXECUTIVE'S STATEMENT
Significant growth
I am pleased to report an excellent set of results for the year ended 31 July
2007 despite the publicised poor market conditions.
The Group continues to deliver on all key performance indicators. In
particular, turnover and profits before tax have grown by 90.2% and 61.9%
respectively over the 12 months to 31 July 2007.
The year started off with strong growth on the back of key marketing and sales
activity. This led to good revenue growth and business development. The second
half saw a change in the market conditions to which the Group responded with a
slowdown in its marketing to preserve cash and profits whilst evaluating the
potential outcomes and the optimum levels of marketing spend and operational
resourcing.
The Group's insolvency subsidiaries, Neville Eckley and Synergi Partners, which
both deal primarily with IVAs, have both performed well. They saw good growth in
this area in the early half of the year, slowing down to a steady state in the
second half. The quality of proposals continued to improve as has the number of
acceptances and hence cases that continue into supervision.
The acquisition of Adie Financial Solutions Limited ('AFS'), a provider of
Trust Deeds and Sequestrations,which we announced on 25 May 2007, has performed
well and we expect this to continue. The results to 31 July 2007 include
trading from AFS for only 2 months. The Scottish market has been unaffected by
all the issues that are currently being headlined within the rest of the United
Kingdom and the Group's fee levels remain steady and the percentage of
acceptances of proposals high.
The Group's debt management subsidiary, Debtcare, has had a good growth rate
over the year and continues to be profitable.
Progress within Scarlet, the Group's secured lending brokerage division, has
been slow. Whilst performance has been steady, it has not achieved the same
levels of growth as other areas of the business. With the recent well publicised
difficulties in the sub-prime lending market and the expectation of house prices
at best showing a small percentage increase in the next 12 months, the outlook
for this business is one of slow growth.
Market Conditions
There has been a great deal of media coverage and speculation regarding the
issues currently facing the IVA industry.
IVAs still have an important role to play. They are of fundamental importance to
the UK banking industry and a key element of Government policy. It is expected
that they will remain so for the foreseeable future. General economic conditions
are such that levels of consumer indebtedness have hit record highs, long-term
interest rates could yet increase further, levels of disposable incomes are at
the lowest level as a proportion of overall income since 1997, lending volumes
are reducing and sub-prime lenders may have difficulties raising capital in the
market place to lend in the future; such conditions inevitably lead to increased
need for individuals to have to seek alternative methods to deal with debt
issues.
Industry wide negotiations with creditors have been ongoing during most of the
year with a consensus being reached on a number of areas. The area of fees has
proved difficult to reach agreement on due in part to anti-competition laws
preventing lenders and debt adviser firms coming together to agree a pricing
structure. The most likely scenario concerning an outline fee structure appears
to be one with fees based upon percentage of realisations coupled with an
extended timescale over which fees will be paid.
This structure will have a negative impact on cash flows and we have seen
evidence of this within our own business over the past 6 months as mentioned in
the Group's interim statement. Additionally, there may be a reduction in the
level of profitability earned on each case although this will be offset in part
by the introduction of more efficient processing.
The business strategy of the Group has always been to offer independent advice
to over-indebted individuals and to have a range of services available,
including those available from third parties.
I expect highly professional and efficient firms, such as ourselves, to continue
to achieve profitable growth.
Growth in resources
Over the year the Group has continued to develop its product offerings and the
requisite infrastructure. The aim is to improve the overall efficiency and
effectiveness of the Group to be able to offer a range of solutions, including
IVAs and Trust Deeds, debt management programmes, bankruptcy and secured loans
or second mortgages, to over-indebted individuals.
I was delighted that Alan Adie and his team at AFS were able to join the Group.
This has enabled us to expand our operations into the Scottish market through
Trust Deeds (the Scottish equivalent to IVAs). We have taken further
opportunity to expand operations within Scotland by taking on additional
facilities in Glasgow.
Selective acquisitions form an important part of the overall development of the
Group and we continue to seek suitable candidates which we hope will become part
of the Group.
The Group has also finished investing heavily in improving the overall
infrastructure of the business. The Chesterfield operations of the business
have moved into their new 30,000 sq ft purpose built offices.
Since the year end, I am pleased to welcome Richard Arden to the Board as
Finance Director since 17 September 2007. Richard was previously an executive
director of Westfield Contributory Health Scheme Limited, a leading provider of
health insurance to the public where his responsibilities included finance,
compliance and information communication technologies. Richard's other
experience has been at South Yorkshire Investment Fund Limited and Coopers &
Lybrand, latterly PricewaterhouseCoopers, where he qualified as a Chartered
Accountant. Richard brings with him a wealth of experience operating in a low
cost processing environment with excellent customer service.
I am also pleased that we were able to retain the experience of Stuart
Cumberland who has taken the responsibility as the Board director for Strategic
and Commercial development.
In light of the changes within the debt management industry, as outlined above,
together with the increased facilities within Chesterfield, a recent review of
the Group's operational structure was undertaken with a view to rationalise the
number of separate business units operated. The objective is to maximise
efficiency and enable effective communication and knowledge transfer throughout
the various businesses in the Group. This plan will be implemented in the next
few months and will provide a platform to withstand the current structural
changes within the IVA market place and position the Group to benefit fully from
the expected future increase in the demand for the current services provided.
Marketing strategies
The change in the market with respect to IVAs in the second half of the year
resulted in a switch in the marketing strategy. The advertising spend across
all media was increased significantly from October 2006 to February 2007 and a
large number of leads generated which have been converted into client business
across the Group in the second half of 2007. From March onwards our approach to
marketing was more cautious, with less expenditure, but with a focus on making
the most efficient use of our spend whilst at the same time reducing the
associated operating costs. The Group spend is monitored closely. The priority
is to be cash flow positive and remain profitable despite these difficult
conditions.
The business continues to generate a significant proportion of leads through
marketing activities. Advertising is generic reflecting our wide range of
products. The Group's belief that it is important to maximise our ability
through advertising to assist current and potential clients.
The Group continues to develop affiliation links with a select number of
preferred partners. In our view, this is an excellent way of providing a
balanced approach to client acquisition.
Current business overview
Since the year end the Group has continued to make progress despite the
difficult market conditions. It has remained profitable but it would be rash to
make any predictions for the outcome of the current year. We are confident and
believe that this Group has a profitable future ahead of it.
The challenges ahead continue to be those we have addressed already: to improve
the efficiency and profitability of the Group's operations. The Group has
already begun a managed process of streamlining operations to continue to
generate improved profitability. A significant and ongoing review of costs and
efficiencies, including a number of potential redundancies, has commenced.
The reduction in marketing that started in the second half of the year led to
fewer IVA proposals in the early part of the new year. More recently close
monitoring of our marketing spend has enabled an increase the number of IVA and
Trust Deed proposals and cases entering into debt management. There is also an
increasing number of proposals being accepted.
Finally, the market continuously changes and one of the keys to long-term
success is one's willingness and ability to adapt to the changing circumstances.
This is nothing new to the Group or its management. We have one of the most
experienced teams in the industry. Market turmoil may cause pain for some but
it also presents opportunities and we are well placed to take advantage of
these.
Paul Carter
CEO
Debts.co.uk plc
Group profit and loss account for the year to 31 July 2007
Group Group Pro forma Group
Year ended Period ended Year ended
31 July 2007 31 July 2006 31 July 2006
#'000 #,000 #,000
Revenue 11,598 1,593 6,105
Direct Costs (2,163) (314) (1,346)
Gross profit
9,435 1,279 4,759
Operating costs (5,993) (737) (2,673)
Operating profits
3,442 542 2,086
Net finance income/ (cost) (22) 21 17
Profit before taxation
3,420 563 2,103
Income tax expense (846) (165) (640)
Profit for the year attributable to equity holders
of the parent 2,574 398 1,463
Earnings per share
Basic earnings per ordinary share 13.05p 8.63p
Diluted earnings per ordinary share 13.04p 8.59p
There were no other gains and losses other than those recognised in the income
statement. All activities relate to continuing operations.
Debts.co.uk plc
Group consolidated balance sheet as at 31 July 2007
Group Group
As at As at
31 July 2007 31 July 2006
#,000 #,000
Assets
Non-current assets
Goodwill 1,008 -
Property, plant and equipment 519 110
1,527 110
Current Assets
Trade and other receivables 10,681 3,195
Cash and short term deposits 1,219 3,988
11,900 7,183
Total assets 13,427 7,293
Equity and liabilities
Equity attributable to equity holders of the parent
Share capital 2,109 1,944
Share premium 5,527 4,033
Merger reserve (1,513) (1,513)
Retained earnings 3,316 814
9,439 5,278
Current liabilities
Trade and other payables 1,974 884
Corporate income tax payable 1,828 959
3,802 1,843
Liabilities due after one year 186 172
Total liabilities 3,988 2,015
Total equity and liabilities 13,427 7,293
Debts.co.uk plc
Group consolidated cash flow statement for the year ended 31 July 2007
Group Pro forma Group
Year ended Year ended
31 July 2007 31 July 2006
#,000 #,000
Cash flows from operating activities
Profit from operations 3,442 2,086
Depreciation of property, plant and equipment (241) 39
Profit on disposal of property, plant and equipment 386 -
Other non-cash movement 72 -
Operating cash flows before movement in working 3,659 2,125
capital
Increase in receivables (6,676) (1,952)
(Decrease)/Increase in payables (2) 447
Cash generated from operations (3,019) 620
Income taxes paid - (220)
Net cash (used in)/ from operating activities (3,019) 400
Cash flows from investing activities
Net interest (paid)/ received (8) 1
Acquisition of Neville Eckley & Co. (including costs (402) -
of #102,000)
Acquisition of Adie Financial Solutions Limited (292) -
(including costs of #87,000) net of cash acquired of
#195,000
Acquisition of property, plant and equipment (1,173) (65)
Disposal of property, plant and equipment 653 3
Net cash used in investment activities (1,222) (61)
Cash flows from financing activities
Net (decrease)/ increase in borrowings (65) 246
Proceeds on issues of shares 1,631 5,000
Cost of share issue (72) (690)
Cost of reorganisation - (94)
Dividends paid - (967)
Net Cash from financing activities 1,494 3,495
Net (decrease)/ increase in cash and cash (2,747) 3,834
equivalents
Cash and cash equivalents at 1 August 3,966 132
Cash and cash equivalents at 31 July 1,219 3,966
Debts.co.uk plc
Statement of changes in equity for the year ended 31 July 2007
Pro forma Group Share Share Merger Retained Total
Capital Premium Reserve Earnings
#,000 #,000 #,000 #,000 #,000
Changes in equity for the year to 31
July 2006
Profit for the year 398 398
Total recognised income and expense for
the year 398 398
Reorganisation 1,513 (1,513) 570 570
Bonus issue on 16 May 2006 154 (154) -
Issue of share capital 277 4,723 5,000
Issue costs (690) (690)
Balance as at 31 July 2006 1,944 4,033 (1,513) 814 5,278
Changes in equity for the year to 31
July 2007
Profit for the year 2,574 2,574
Total recognised income and expense for
the year 2,574 2,574
Issue of share capital 165 1,566 1,731
Issue costs (72) (72)
Adjustment to reserves (72) (72)
Balance as at 31 July 2007 2,109 5,527 (1,513) 3,316 9,439
Debts.co.uk plc
Notes to the Consolidated Financial Statements for the year ended 31 July 2007
Note 1: Accounting policies
A. Significant accounting policies
Debts.co.uk plc (the Company) is a company domiciled in the United Kingdom. The
consolidated financial statements of the Company for the year ended 31 July 2007
comprise the Company and its subsidiaries (together referred to as the Group).
B. Statement of compliance
The consolidated financial statements of Debts.co.uk plc have been prepared in
accordance with International Financial Reporting Standards incorporating
International Accounting Standards as issued by the International Accounting
Standards Board (IFRS) and with those parts of the Companies Act, 1985
applicable to companies reporting under IFRS. The disclosure required by IFRS1
(First Time Adoption of International Financial Reporting) concerning the
transition from applicable accounting standards in the United Kingdom (UK GAAP)
to IFRS are shown where relevant.
C. Basis of preparation
The financial reports have been prepared under the historical cost convention.
Non-current assets are stated at the lower of carrying amount and fair value
less costs to sell.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results ultimately may differ
from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing 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 a period of
the revision and future periods if the revision affects both current and future
periods.
Judgements made by management in the application of IFRSs that have a
significant effect on the financial statements and estimates with a significant
risk of material adjustment in the next year are discussed where appropriate.
The accounting policies have been applied consistently to all periods presented
in these consolidated financial statements.
The accounting policies have been applied consistently by Group entities.
D. Basis of consolidation
Subsidiaries are entities controlled by the Company. Control exists when a
Company has the power, directly or indirectly, to govern the financial and
operational policies of an entity so as to obtain benefits from its activities.
In assessing control, potential voting rights that presently are exercisable or
convertible are taken into account. The financial statements of subsidiaries are
included in the consolidated financial statements from the date that control
commences until the date that control ceases.
Note 2: Earnings per share
Group Proforma Group
Earnings Year ended Year ended
31 July 31 July
2007 2006
Basic EPS
Reported earnings (#,000) 2,574 1,463
Reported EPS 13.05p 8.63p
Diluted EPS
Diluted reported earnings (#,000) 2,574 1,463
Reported diluted EPS 13.04p 8.59p
Group Pro forma
Year ended Year ended
Group
31 July 2007 31 July 2006
No. No.
Weighted average number of ordinary shares:
For basic earnings per share 19,718,172 16,948,259
For dilutive earnings per share 19,798,078 17,019,262
This information is provided by RNS
The company news service from the London Stock Exchange
END
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