27th Jun 2006 07:00
Debt Free Direct Group PLC27 June 2006 27 June 2006 DEBT FREE DIRECT GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 APRIL 2006 ADJUSTED PBT UP 177% TO £5.13M Debt Free Direct Group Plc, the leading debt advice and solutions company,announces its results for the year ended 30 April 2006. Michael Blackburn, Chairman, said: "The Company has continued to deliver outstanding profitable organic growth.With the benefit of a solid balance sheet and healthy cash position, the Boardis able to recommend a final dividend of 1.5p per share following on from themaiden interim dividend of 1.5p per share announced in November 2005. It is theCompany's intention to grow the dividend payment progressively, in proportionwith the Company's future growth." Andrew Redmond, Chief Executive Officer, said: "Our strong position in the rapidly growing IVA market is reflected in our 177%increase in adjusted PBT to £5.13m, compared to the prior period. This successhas been built on very strong foundations and we are well positioned to continueour profitable growth in the year ahead. In addition to our increased capacity in the UK, we are also delighted toannounce the launch of our new business in Australia in the third quarter of2006. Australian consumers' levels of over-indebtedness are running at recordlevels and Debt Free Direct Australia is targeted to grow to represent in excessof 20% of the Australian Debt Agreements (IVAs) market over the next 2 - 3years." Highlights for the year include • Financial growth on all fronts with an overall performance ahead of expectations. - Turnover up 93% to £16.23m (£8.4m in 2005) - Gross profit up 104% to £12.29m (£6.0m in 2005) - Adjusted PBT up 177% to £5.13m (£1.85m in 2005) - PBT of £4.8m (£1.54m in 2005) - PAT of £3.3m (£0.98m in 2005) • Balance sheet strengthened as a result of trading profits. - Net assets increased to £17.58m (£14.75m in 2005) • Positive net cash from trading as a result of growth in supervisory fee income. • Reduced advertising cost per new IVA as a result of improved media buying deals, new TV creative and increased conversion rate. - Average cost per new IVA £807 (£1,252 in 2005) • Increased operational efficiency - Annual turnover per employee £90K (£68K in 2005) - Adjusted PBT per employee £28K (£15K in 2005) • Growth in IVA Run-rate and market share - Annualised new IVA case run-rate has more than doubled in the last 12 months and has increased by 59% during the last 6 months. - Whilst the IVA market continues to show dramatic growth, Debt Free Direct has grown even faster with its market share exceeding 20% again in May. • Building upon a Successful Model Volumes are continuing to grow rapidly. Planning ahead, the company has takensteps to increase its capacity. - In April 2006 the company brought on stream facilities in Northern Ireland capable of completing 150 IVAs per month with immediate effect. This capacity is expected to double over the next 12 months. - In October 2006 the company will be taking on new leasehold premises in Chorley which will more than double its capacity to process IVAs. Furthermore, we expect to develop new routes to market and new products in theUK and we are excited about the long-term prospects of Debt Free DirectAustralia, which is being launched later this calendar year. Enquiries: Debt Free Direct Group plcAndrew Redmond, Chief Executive Officer 01257 240599Paul Latham, Finance Director 01257 240529 Numis SecuritiesIain McDonald 020 7776 1500Lee Aston Financial DynamicsEd Gascoigne-Pees 020 7269 7132Nick Henderson 020 7269 7114 Notes The new IVA average monthly case run-rate has been calculated consistently withprevious announcements. An IVA is recognised on issue of a finalised IVAproposal to the debtor which, based on historic experience and case data, issubject to a provision for those cases that may not be approved by the meetingof creditors. In addition, the total includes referred IVA cases. Advertising cost per new IVA has been calculated as the gross advertising spendin the year divided by total new IVAs in the year. Debt Free Direct helps individuals find the best solution to their debtproblems, based upon an analysis of their particular financial circumstances.Financial information on an individual is processed through a computer model(the Best Advice Model) developed by Debt Free Direct in order to recommend asolution suitable for that individual's particular financial circumstances. Thesolutions offered range from basic advice, such as simply destroying creditcards and curbing unnecessary expenditure, to the following solutions: • consolidation loan• re-mortgage• informal arrangement• individual voluntary arrangement (IVA)• bankruptcy Debt Free Direct is unique in the marketplace in that, unlike most of itscompetitors who sell specific products, Debt Free Direct looks to provide thebest advice to the consumer and recommends them the most appropriate service. Debt Free Direct is based in Chorley, Lancashire, and was admitted to AIM inDecember 2002. Chairman's Statement Year Ended 30 April 2006 Financial Performance In this, my first statement as your chairman, I am pleased to be able to reporton a strong period of growth in which turnover rose by 93% to £16.23million(2005 £8.4million) and profit before tax, adjusted for goodwill amortisationincreased by 177% to £5.13million (2005 £1.85million). With the benefit of asolid balance sheet and healthy cash position, the Board is able to recommend afinal dividend of 1.5p per share following on from the maiden interim dividendof 1.5p per share (2005 nil) announced in November 2005. It is the Company'sintention to grow the dividend payment progressively, in proportion with theCompany's future growth. Before the stock market correction in May 2006, our shares moved from 140.7p asat 29 April 2005 to 431.5p per share as at April 28 2006. During the year,institutional investors took advantage of an increased free float as thefounding directors re-balanced their personal portfolios. More recently, DebtFree Direct became a constituent member of the Alternative Investment Market top50 companies. Market overview Excessive optimism on the part of an increasing number of consumers allied tosome over-generous lending decisions have caused the market for individualvoluntary arrangements to develop and grow. Despite the appearance of newentrants, our share of that market has increased even further. We welcomecompetition as it allows us to differentiate our service which sets out toprovide best advice to individuals, which is crucial at a time when theiranxiety may not only be financial. Annual growth rates of some 140% in themarket also reflect a wider knowledge of this solution which our own advertisinghas helped to propagate. Even without the mooted rise in interest rates laterthis calendar year, the market will continue to show strong growth. In themedium term, the introduction of a simplified IVA will give further impetus tothe marketplace. Board and Management Gren Folwell took the company through its flotation in 2002 and presided overthe platform for growth which is coming through now. Having been involved withthe business prior to its flotation, I was delighted to succeed Gren inSeptember 2005 and I thank him on behalf of the Board for his successful periodof service. Derek Oakley joined the board in June 2005. Initially appointed as InsolvencyDirector, he has recently taken responsibility for Operations as well, allowingAndrew Redmond, the Chief Executive, to concentrate more on strategic anddevelopment matters. Derek brings a wealth of insolvency and practicalexperience to the business and is most welcome. Our staff numbers grew from 152 as at 30 April 2005, to 214 at the year end.Recruitment at all levels in the business has strengthened our capabilities. Onbehalf of the Board, I extend our thanks to all employees for their sterlingefforts throughout the year, which has enabled the Company to turn in anotherimpressive performance. Strategy and Outlook We have a clear focus on growing our market share, profitability and shareholdervalue by being the biggest and best in our marketplace. That does not mean thatwe shall turn our back on diversification, however, we have much to do in ourcore business. The Chief Executive Officer covers this area in his review. Our new financial year has got off to a strong start and your Board is confidentof making further significant progress. J M Blackburn Chairman 26 June 2006 Chief Executive Officer's Review Year Ended 30 April 2006 Financial performance The past year has been one of significant growth in all aspects of our financialperformance: - Turnover has grown by 93% to £16.23m - Gross profit has grown by 104% to £12.29m - PBT before goodwill amortisation has grown by 177% to £5.13m - PAT has grown to £3.27m, compared to £978K last year - Shareholders' funds have grown to £17.58m from £14.75m The trading results for the year and the Group's financial position at the yearend are detailed in the financial statements which follow this review. Further analysis of financial performance Drilling down from the headline figures, impressive growth has been demonstratedon all fronts: Turnover - IVA related turnover has grown by 95% to £15.26m - Commission income has grown by 66% to £974K The increase in IVA related turnover results from growth in both the new IVArun-rate and supervisory fee income generated from live cases. Whilst the market particularly focuses on the growth in new IVA cases, it is thegrowth in the "bank" of supervisory cases which is of greatest long termsignificance. Last year that "bank" grew to in excess of 5,500 live cases,generating supervisory fee income of more then £4.65m. Supervisory fee incomenow accounts for 38% of our direct profit (turnover less advertising and directlabour costs). Fundamentally, it is the growth in supervisory fee income, that has driven anincrease in net cash from trading for the first full financial year since wewere admitted to AIM. Those familiar with our business model will be aware thatthe cashflow dynamics mean that cash flows out on a case before it flows in.Historically this meant that as we grew new IVA run-rates we would experiencecash outflows. Today, given the large bank of contracted supervisory cases, theimpact of growth on cashflows is substantially outweighed by supervisory income. Advertising cost per new IVA - Average cost per new IVA has reduced by 36% this year to £807. Over the last year we have benefited from media buying deals, which have allowedus to increase our advertising spend, whilst improving our margins. Our new TVcreative launched in late 2005 has significantly increased our ability togenerate IVA leads. In addition, we have focused on improving conversions, which allow us toincrease our new IVA run-rate without incurring additional advertising spend.We anticipate that significant gains will be made in this area in the monthsahead. Increased operational efficiency Operational efficiency has improved significantly. This is perhaps bestdemonstrated by the fact that although total employee numbers have grown, annualturnover per employee has increased to £90K (an increase of 32%). Moreimportantly, Adjusted PBT per employee has increased to £28K (an increase of87%). Insights into a rapidly growing market Last year we confidently predicted organic growth in the year ahead. This yearthat message has not changed. This market originally emerged against a long term backdrop of benign economicconditions. Low interest rates and full employment, combined with readilyavailable credit and a buoyant housing market resulted in consumer spendingrunning well ahead of wage inflation. This increased spending was fuelled bydebt. Whilst the debate continues with regard to exactly how many over-indebtedconsumers are struggling with significant debts, nobody can be in any doubt thatthe total is in excess of a million people. However, this number is set to growfurther. Today, the growth in consumption continues to exceed the growth in earnings asdoes the growth in debt levels. Falling interest rates have kept manyover-indebted consumers afloat so far, but interest rates are now moving in thewrong direction from their perspective. Meanwhile the supply side of the marketplace continues to evolve. However,whilst many companies have moved towards being a multi-product supplier, westrongly believe that only Debt Free Direct can truly claim to be a "Best AdviceCompany". Fee charging debt management companies are already in long-term decline, whilstconsolidation loan advertising spend has peaked and is now falling. This hasprompted more and more over-indebted consumers to move towards the IVA as themost appropriate solution to their problem. This is evidenced by the growth in the IVA market. Numbers doubled in 2005 andare set to do so again in 2006. However, this only represents "the tip of theiceberg" and we believe that IVA numbers will continue to grow. We would inparticular point towards the following: - awareness of the IVA will grow through advertising. Our penetration of the market is set to treble over the forthcoming year. - the USA continues to show the way. The US debt market developed earlier than the UK and evidence there would suggest that, even accounting for recent growth, the IVA market will more than treble. - recent public opinion surveys suggest that the public will demand it. We strongly believe that as a "Best Advice Company", Debt Free Direct is wellplaced to prosper in the years ahead. We are "Regulation Ready" and ourlong-term investment in IT means we can demonstrate scalability of the model. Whilst we are delighted to have already grown our market share to in excess of20% we do not believe that represents the limit of our potential. Current trading and prospects It is clear from the above analysis of the market that IVA providers have yet todeliver anywhere near the number of IVAs that are needed by over-indebtedconsumers. The challenge, as it has been since we started, is threefold: - find consumers who need IVAs in ever-increasing numbers - build our capacity to deliver best advice and IVAs in ever-increasing numbers - do both the above in a cost-effective way so as to deliver maximum profit to shareholders In October we will move into new premises in Chorley, which combined with ourrecent expansion into Northern Ireland will mean that we can expand capacitysignificantly in the forthcoming year. Notwithstanding the above, the potential exists to build upon our successfulmodel. We expect that the existing market will grow and that the potentialexists to maximise further the market opportunities. We expect to develop newroutes to market (albeit strategic advertising will always remain at our core). Furthermore, we anticipate that there will be opportunities to explore newmarkets beyond the confines of the UK market. In particular we are excitedabout the prospect of launching Debt Free Direct Australia later this calendaryear. However, we are as ever mindful of shareholder value. When we make any move itwill only be when we consider that the time and opportunity is right. A Redmond Chief Executive Officer 26 June 2006 CONSOLIDATED PROFIT AND LOSS ACCOUNT YEAR ENDED 30 APRIL 2006 Year Year ended ended 30 April 30 April 06 05 Note £ £ TURNOVER 16,230,184 8,422,063 Cost of sales (3,937,504) (2,389,519) GROSS PROFIT 12,292,680 6,032,544 Administrative expensesGoodwill amortisation (311,737) (311,920)Other administrative expenses (7,434,486) (4,165,676) (7,746,223) (4,477,596) OPERATING PROFIT 4,546,457 1,554,948 Interest receivable 288,796 72,275Interest payable and similar charges (15,769) (83,972) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 4,819,484 1,543,251 Tax on profit on ordinary activities 1 (1,553,265) (564,815) PROFIT ON ORDINARY ACTIVITIES 3,266,219 978,436 Dividends (557,988) - RETAINED PROFIT FOR THE YEAR 2,708,231 978,436 Earnings per share - basic 2 8.79p 3.04pEarnings per share - diluted 2 8.55p 2.97p The group has no recognised gains or losses other than the results for the yearas set out above. All of the activities of the group are classed as continuing. CONSOLIDATED BALANCE SHEET 30 APRIL 2006 2006 2005 £ £ £FIXED ASSETSIntangible assets 1,942,193 2,250,584Tangible assets 927,837 736,848 2,870,030 2,987,432CURRENT ASSETSDebtors (including £1,389,647 due 11,964,511 6,668,952after more than one year (2004:£940,697))Cash at bank 5,366,634 6,782,385 17,331,145 13,451,337 CREDITORS: Amounts falling due within (2,558,890) (1,555,822)one year NET CURRENT ASSETS 14,772,255 11,895,515 TOTAL ASSETS LESS CURRENT LIABILITIES 17,642,285 14,882,947 CREDITORS: Amounts falling due after more than one year (25,202) (73,119) PROVISION FOR LIABILITIES AND CHARGES -Deferred Tax (20,561)Other provisions (18,000) (64,164) 17,578,522 14,745,664 CAPITAL AND RESERVESCalled-up equity share capital 373,294 369,492Share premium account 13,576,979 13,456,154Profit and loss account 3,628,249 920,018 SHAREHOLDERS' FUNDS 17,578,522 14,745,664 CONSOLIDATED CASH FLOW STATEMENT YEAR ENDED 30 APRIL 2006 Year Year ended 30 ended 30 April April 2005 2006 £ £NET CASH INFLOW FROM OPERATING ACTIVITIES 565,162 (1,617,260) RETURNS ON INVESTMENTS AND SERVICING OF FINANCEInterest received 288,796 72,275Interest paid (575) (93,381)Interest element of finance lease rental (10,896) (9,813)payments NET CASH INFLOW FROM RETURNS ON 277,325 (30,919)INVESTMENTS AND SERVICING OF FINANCE TAXATION (1,201,778) CAPITAL EXPENDITUREPayments to acquire tangible fixed assets (481,256) (248,021)Payments to acquire intangible fixed assets (4,085) (4,855) NET CASH OUTFLOW FROM CAPITAL EXPENDITURE (485,341) (252,876) ACQUISITIONS Acquisition of DFD Limited preference shares (68,462) (34,821) (557,988) - EQUITY DIVIDENDS PAID CASH OUTFLOW BEFORE FINANCING (1,471,082) (1,935,876) FINANCINGIssue of ordinary share capital 124,627 8,520,000Issue costs charged to the share premium account - (200,209)Capital element of finance lease rental payments (69,295) (61,599)Repayment of loans - (711,106) NET CASH INFLOW FROM FINANCING 55,332 7,547,086 DECREASE IN CASH (1,415,750) 5,611,208 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES Year ended Year ended 30 Apr 06 30 Apr 05 £ Operating profit 4,546,457 1,554,948Amortisation 312,476 311,920Depreciation 288,785 160,076Loss on disposal of fixed assets 1,483 -Increase in debtors (5,305,718) (4,069,121)Increase in creditors 721,679 424,917 Net cash inflow from operating activities 565,162 (1,617,260) YEAR ENDED 30 APRIL 2006 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS Year ended Year ended 30 Apr 06 30 Apr 05 £ £Decrease in cash in the period (1,415,750) 5,611,208Cash outflow from repayment of loans - 711,106Cash outflow from decrease in lease financing 69,295 61,599 Change in net debt resulting from cash flows (1,346,455) 6,383,913 New hire purchase agreement - (84,413) Change in net funds (1,346,455) 6,299,500 Net funds at 30 April 2005 6,639,107 339,607Net funds at 30 April 2006 5,292,652 6,639,107 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 APRIL 2006 1. TAX ON PROFIT ON ORDINARY ACTIVITIES Year ended Year ended 30 Apr 06 30 Apr 05 £ £ Current tax: UK Corporation tax based on the results for the period at 30% 1,522,545 522,779Deferred taxation charge- origination and reversal of timing differences 30,720 42,036 Total tax charge 1,553,265 564,815 2. EARNINGS PER SHARE The calculation of basic earnings per share is based on the profit of £3,266,219(2005: £978,436) and a weighted average number of ordinary shares in issueduring the period of 37,143,181 (2005: 32,182,064). The calculation of dilutedearnings per share is based on the profit of £3,266,219 (2005: £978,436) and adiluted weighted average number of ordinary shares of 38,185,719 (2005:33,741,364). 3. STATUS OF FINANCIAL INFORMATION The financial information set out in this report does not constitute thecompany's statutory accounts for the year ended 30 April 2006, but is derivedfrom those accounts. Statutory accounts for the year ended 30 April 2006 will bedelivered to the Registrar of Companies shortly. The auditors have reported onthe statutory accounts for the year ended 30 April 2006 and their opinion wasunqualified for these financial statements. END This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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