16th Jul 2007 07:01
Accident Exchange Group PLC16 July 2007 Accident Exchange Group Plc RESULTS FOR THE YEAR ENDED 30 APRIL 2007 Accident Exchange Group Plc ("Accident Exchange", the "Company" or the "Group")announces its audited results for the year ended 30 April 2007. These resultsare reported under International Financial Reporting Standards ("IFRS"). Highlights Financial Highlights • Revenue up 90% to £116.9m (2006: £61.4m). • Profit before taxation £13.6m (2006: £18.5m). • Adjusted (1) profit before taxation £18.0m (2006: £16.7m). • EPS 13.2p (2006: 19.9p). • Adjusted (1) EPS 18.2p (2006: 17.9p). • Year end gearing 149% (2006: 154%) - net debt £96.6m (2006: £60.7m). • Year end net overdraft (2) £13.1m (2006: £6.5m). • Enhanced banking facilities of £45.0m arranged as announced on 15 June 2007. • Proposed final dividend of 1.5p, maintaining dividend at 3.0p for the year (2006: 3.0p). Operational Highlights • Another year of strong organic growth in trading volumes. • Significant continued investment in infrastructure, personnel and fleet. • Acquisition of DCML Limited ("DCML") for £11.0 million in May 2006. • Strong growth in key business metrics: o Number of rental days up 76% to 710,000 (2006: 404,000); o Rental fleet up from 2,217 to 4,033 as at 30 April 2007; o Fleet utilisation across vehicle segments ranged from 58% to 79% for the year (2006: 60% to 87%); o Referring dealer partners up to 1,119 as at 30 April 2007 (2006: 566); o Staff numbers up from 363 to 639 as at 30 April 2007; and o Over 1.9 million Accident Management Scheme members. Legal challenge • Period overshadowed by a legal challenge significantly impacting profitability, cash flows and management time. • Robust legal opinion that we will defeat the challenge. (1) Stated before exceptional costs, costs of share based payments, amortisation of acquired intangible assets and profit on disposal of property. (2) Overdraft as at 30 April 2007 disclosed as cash in hand less utilised revolving credit facility debt. David Galloway, Non-Executive Chairman, stated: "The Board is confident of another year of significant growth in revenue; cashflows should benefit from the eventual conclusion of the legal issue and we willseek improvement in operating ratios from our increased scale, relocation ofactivities and back office functions to one location and our focus on costs,margins and fleet utilisation." CONTACTS: Accident Exchange Group Plc Steve Evans, Chief Executive 08703 009 781Martin Andrews, Group Finance Director 08703 009 781 Bankside Steve Liebmann or Simon Bloomfield 020-7367-8883 / 07802-888159 About Accident Exchange Based in Coleshill, West Midlands, Accident Exchange delivers accidentmanagement and other solutions to automotive and insurance related sectors.Fully listed, the stock code is LSE: ACE. CHAIRMAN'S STATEMENT This has been a very active year for your Company. While much was achieved indeveloping the business and record levels of revenue were delivered, eventsduring the second half of the year held back profitability and absorbed a largeamount of management time. In particular, the legal issues referred to in detailin the Business Review, and a slower than expected growth and change in mix inrental days affected both cash flow and profitability in the second half of theyear. Operationally much has been achieved. We now have a record number of referringdealers at 1,119 (2006: 566), the majority of which have exclusive contracts torefer their customers to us when they are involved in an accident. We provided710,000 rental days on hire, an increase of 76% on the previous year (2006:404,000), commenced work with a leading insurer providing mobility solutions fortheir customers and have moved into new and larger premises ("Alpha 1") bringingtogether all of our fleet delivery and administrative back office functions forthe first time. We increased our fleet of rental cars from 2,217 to 4,033, madeour first acquisition and moved from AIM to the Official List. To fund this growth and development we increased our banking loans andfacilities to £25.0 million during the year and then, subsequent to the year endand with new financiers, to £45.0 million having also raised additional equityof £12.5 million (net of expenses) in October 2006. Performance Revenue increased by 90% to £116.9 million (2006: £61.4 million). Adjustedprofit before taxation (stated before exceptional items, profit on disposal ofproperty, amortisation of acquired intangible assets and costs of share basedpayments) was £18.0 million (2006: £16.7 million). Profit before tax was £13.6million (2006: £18.5 million). Gross margin reduced from 46.8% to 36.9%,reflecting the change in the profile of credit repair, the mix of mainstream andprestige credit hire rental and reduced fleet utilisation. Basic earnings pershare was 13.2p (2006: 19.9p) and adjusted basic earnings per share was 18.2p(2006: 17.9p). It is proposed that the full year dividend should be maintained at 3.0 pence pershare (2006: 3.0 pence), in line with adjusted earnings per share for the year.Accordingly, having paid a 1.5 pence interim dividend, a final dividend of 1.5pence per share (2006: 2.0 pence per share) will be proposed at the AnnualGeneral Meeting scheduled to be held on 21 August 2007 (the "AGM"). Our performance and particularly our cash flows were adversely affected in thesecond half of the year following a legal challenge relating to some of ourolder claims. Details of this and the steps we have taken to improve cash flowsare covered in the Business Review and, whilst the issue is still not fullyresolved, our strong legal advice is that we will secure judgement in ourfavour. Our resolve to pursue legal claims in tort on behalf our customers isundiminished and, whilst we prefer to work collaboratively with insurerswherever possible, a materially more robust and litigated collection process isbeing implemented for action over the coming months as necessary. Debtor days rose from 130 to 176 over the year predominately, in the Board'sview, because of the slow down in cash collection in the second half of the yearas a result of the legal issue referred to above. Net overdraft (outstandingrevolving credit balances less cash) at 30 April 2007 was £13.1 million (2006:£6.5 million) and with hire purchase balances of £77.0 million (2006: £54.2million) overall gearing reduced to 149% from 154%. Strategy Our strategy is clear and provides the opportunity for continued focused growthon prestige dealer relationships and developments with manufacturer brands whichrecognise the profit opportunity from improved customer loyalty and brandreinforcement if they offer accident management services to those of theircustomers involved in accidents. Consolidation is taking place amongst dealership groups with most selling bothprestige and mainstream brands. Our mainstream fleet mix will reflect referralvolumes from those dealership groups whose vehicle franchises span both prestigeand mainstream and where the benefits of accident management services are fullyappreciated. This is no longer an industry where vehicle purchases should be theprimary driver to entering into an accident management partnership - servicequality drives the brand promotion, customer loyalty and hence the profitopportunity for both us and the referring partner. Insurance companies which bear the final costs of all motor accident claims, areincreasingly seeing the benefits that can be obtained from working more closelywith specialist credit hire and accident management companies. We currently haveonly modest referral revenues from insurance companies and, whilst this marketis expected to develop, we will engage with those insurers which recognise thatcustomer loyalty and the repeat business aspect of superior service providedfrom IT efficiencies and platforms most effectively drives a "lowest costsolution". The acquisition of DCML in the year is part of our strategic processas to how mobility solutions can best be implemented by large fleet managementand insurance companies. People We now employ 639 people, up from 363 a year ago. The growth in our business hasplaced enormous demands on everyone but particularly the middle and seniormanagement within the Group. The issues relating to our cash flows have also putconsiderable additional workloads and pressure on our legal and financefunctions. On behalf of the Board and the shareholders I should like to extendour thanks to all our staff who have worked so hard during a difficult period.Their energy, skill and commitment have been outstanding. As previously announced the Board was strengthened by the appointment of DakshGupta as Chief Operating Officer in January 2007. Daksh was previously aFranchise Director at Inchcape Retail UK and has an excellent understanding ofthe market in which we operate and of the benefits our service can bring to ourreferring partners. His extensive experience in achieving operationalefficiencies will be valuable as we look for margin improvement in the comingyear and beyond. Finally, I would like to thank my Board colleagues for their advice and supportduring a year that has seen a number of difficult challenges. Outlook Strong foundations have been laid and the Group continues to expand. Themanagement teams at Board level and within the operating companies have beenstrengthened significantly in the year and, whilst the legal challenge beingpropagated continues to await closure (we have several court dates fixed in thenext few months on numerous cases), we are confident, based on legal advice,that we will prevail and that cash flows should continue to improve from thoseseen during the second half of the year. Our market continues to develop and awareness of the service we offer is growingamongst the public, motor dealerships, manufacturers and insurance companies. Your Board is confident of another year of significant growth in revenue; cashflows should benefit from the eventual conclusion of the legal issue and we willseek improvement in operating ratios from our increased scale, relocation ofactivities and back office functions into one location and our focus on costs,margins and fleet utilisation. BUSINESS REVIEW Introduction This has been an extremely busy and challenging period for the Group. On theback of an expanded motor dealer referral base that has grown from 566 to 1,119,revenue grew by 90% to £116.9 million (2006: £61.4 million), headcount from 363to 639 and the rentable vehicle fleet from 2,217 to 4,033. In addition we: • acquired DCML Limited in May 2006; • arranged a £20.0 million revolving credit facility in September 2006; • raised £12.5 million (net of expenses) in a share placing in October 2006; • moved from AIM to the Official List in November 2006; • adopted IFRS during the year; and • more recently have been tactically attacking a legal challenge that impacted cash inflows throughout the majority of the second half of the year and which acted as the catalyst for the £45.0 million expanded debt facility announced on 15 June 2007. The period was overshadowed by this legal challenge (described in more detailbelow) which placed the second half of the financial year under a cloud fromwhich we believe we are about to emerge. We want to take this opportunity to place on record our thanks and gratitude toall of our referring partners who have remained supportive and complimentary ofour service throughout the past year, to all of the Group's employees andparticularly to the finance and legal teams within the Group as they have allresponded admirably to the significant demands placed on them, bothprofessionally and personally, throughout the financial year and in particularduring the last six months. Legal challenge, cash flows and financing We are facing a legal challenge that relates to a minority of outstanding claimswithin the existing debtor book. Based on advice from two leading counsel whoare acting independently of each other, we are confident that the challenge willbe defeated. Nonetheless, the effects of the challenge over the last eightmonths have been significant in many ways, including impacting adversely onprofitability, cash flows and management time. In the Board's view, cash flows were materially and adversely affected in thesecond half of the year as, to varying degrees, insurers awaited the outcome ofseveral court cases which are understood to have been orchestrated by a singlefirm of lawyers which persists in attempting to demonstrate to the courts thatvarious historic forms of our rental agreements should be deemed unenforceable.Their legal challenges have been defeated numerous times in lower courts withthe basis for their challenge seemingly having changed several times duringrecent months; nevertheless we continue to have extremely strong legal advicethat we will defeat these continuing arguments. The subject is extremelycomplicated and, as it is still a live legal issue, care must be taken not toprejudice our legal position. Suffice to say that whilst the legal challengecentres on historic versions of our rental agreements (we define them as "X" and"A" agreements and which aggregate to a debtor value of £18.5 million (includingVAT and before adjustment for settlement estimation) as at 30 April 2007)insurers also slowed down payment of more recent claims whilst, seemingly,awaiting the outcome of the legal deliberations. In our trading statement of 10 April 2007 we made reference to the fact that theindustry generally (and ourselves) utilise various techniques to conclude claimsagainst the insurer of the 'at fault party' to a motor accident. These methodsinclude individual negotiation on a claim by claim basis, negotiated blocksettlements with individual insurers and, where a claim fails to settle insidethe 90 day period under the terms of the ABI General Terms of Agreement, bylitigation against the non-paying 'at-fault' insurer. It is 'ordinary course ofbusiness' in the credit hire industry that this can involve our client (the'non-fault party' to the accident) issuing formal litigation proceedings againstthe negligent driver to recover the hire charges which are then ordinarily paidby his/her insurance company. A large percentage of these claims settle wellbefore or on the threat of litigation but, where they do not, formal proceedingswill be issued and these claims may then be defended by the third party insurer,their solicitors instructed and in what is a minority of instances, the claimsheard in court. In line with the growth in the business and, as anticipated by the Group as partof its developing collection strategies, over the last year (and last threemonths in particular) an increased number of claims have been processed by theGroup's panel of approved solicitors. Nevertheless for a period of time, as webecame aware of and absorbed the implications of the legal challenge referred toabove, we slowed down the 'ordinary course of business' process of claimssettlement via litigation whilst we sought to clarify the basis of thechallenge. Having revised and strengthened our cash collection strategies in light of therecent legal challenge we will be robust in our litigation cash collectionprocess until acceptable payment profiles are restored. We noted on 10 April2007 that, since inception, the Group had approximately 6,000 claims eitheralready with or in the process of being sent to our solicitor panel. As at 30June 2007 this number stood at 6,891. Our medium term preference is still a strategy of collaboration with insurersand we continue to work closely with those insurers which take a commercialapproach and are supportive of our relationship. To manage these and otherrelationships, we retain a highly focused settlement team which concentrates oncash collection on a claim-by-claim basis within the first 90 days of the lifeof a claim. We also respond to offers of negotiated block settlements frominsurers which deliver cost benefits to both the insurer and to the Group by wayof reduced cost of claims handling. After the 90 day period set out in the ABI agreement, insurers lose theirmotivation to settle claims because the discounted rates they enjoy forsettlement within that period have been replaced by standard market rates.Consequently we now have in place a litigation team who work with a panel of 12solicitor practices which progress files through the litigation process tosettlement. That panel has been strengthened recently and technology to link ourback office claim system with theirs is being developed to optimise thevisibility and management of outstanding claims. Our preferred option is not to litigate. Whilst we are confident that thecurrent legal challenge will fail and that the payment profile from insurerswill improve thereafter, we have engineered the capacity to respond moreaggressively and with scale if that course of action proves necessary. From the cash flow statement shown later (and from the similar cash flowstatement reported previously for the six months ended 31 October 2006 ("H1"))it can be deduced that the business generated a cash outflow (defined as cashflows before dividends, property disposal proceeds, net share issue proceeds,RCF and loan draw downs and the cash outflows in connection with the acquisitionof DCML) of only £3.2 million in H1 but this rose to a cash outflow of £17.7million in the six months ended 30 April 2007 ("H2") making an outflow for thefull year of £20.9 million (2006: £13.6 million). This increased cash outflowwas a result predominately of an increase in trade and other receivables whichrose by £9.2 million in H1, by £15.7 million in H2 and £24.9 million in the fullyear (2006: £11.1 million) as insurers extended their payment periods seeminglyawaiting the outcome of the legal challenge as described. Debtor days rose from130 at 30 April 2006 to 149 at 31 October 2006 (just as the legal challengestarted) and then to 176 by the year end. This increased consumption of working capital experienced in the second half ofthe year led us to include in the trading update of 10 April 2007 a statementthat we were exploring the appropriateness of our financing structure and thatoptions under consideration included the possibility of an equity fundraising. The first stage of this review was to explore alternative debt solutions tobetter capitalise on the leverage potential of the Group's debtor book. Thisprocess led to the announcement of a £45.0 million senior secured facility fromMorgan Stanley Bank International Limited on 15 June 2007. This facility comprises three distinct tranches all of which mature on 30September 2010. Tranche A, which was fully drawn down on 18 June 2007, comprisesa £30.0 million term loan attracting interest at LIBOR plus three per cent forusage to 30 June 2008, at LIBOR plus four per cent for continued usage to 31December 2008 and LIBOR plus five per cent for continued usage to maturity. Itis not redeemable within the first 12 months of drawdown. Tranche C comprises a£10.0 million revolving credit facility carrying the same interest coupon asTranche A. Tranche B is a £5.0 million term loan carrying an interest coupon atone per cent higher than Tranche A. As part of the fee arrangements with Morgan Stanley (which also included a 2%arrangement fee that will be amortised over the life of the facility), and asannounced on 15 June 2007, the Board has agreed, subject to shareholderapproval, to grant a warrant to Morgan Stanley over 718,571 shares at anexercise price of 105p per share (this approximating to the Company's shareprice over the short period that the terms of their facility offer wasnegotiated) ("Warrant"). This number of shares represents 1% of the Company'sissued share capital after the issue of the shares following exercise of theWarrant. Accordingly, the Board will be proposing a special resolution to grantthis Warrant at the AGM. Further details of the Warrant and of the feespotentially payable to Morgan Stanley in the absence of shareholders approvingthe Warrant will be included in the Notice of AGM. Cash inflows have improved materially from the low point of the effect of thelegal challenge, with each month showing improvement on the previous month. Wemust maintain and improve this trend before we can state definitively that thereview of our current financial structure has concluded. Operations The Group continues to focus on the supply of replacement vehicles to non-faultvictims of motor accidents and the generation of additional revenue streams fromthe development of related services. Our core market place for referrals is from automotive dealers andmanufacturers. We believe that we have a leading position in these sectors andhave relationships with over 1,119 referring partners. With this emerging scale,we see the growth potential from our existing partners to be great and we aregreatly encouraged that we continue to win new business relationships and, moreimportantly, we continue to extend and renew existing contracts. In our current push for further revenue growth and value creation, our agenda isfocused on enhancing and extending relationships with our existing businesspartners. We now have a dedicated team of people who manage and service thoserelationships and help us exceed the expectations of our partners and theircustomers every day. We are convinced that in the next few years a key differentiator for our brandpartners will be in the 'intimacy' of the service that we can provide on theirbehalf and in their name. An outstanding customer experience delivered on theirbehalf, consistently and with appropriate customer feedback will help usgenerate stronger relationships and improving returns from our existingrelationship base. The membership base of our Accident Management scheme operated on behalf of AudiUK, several large publicly quoted dealer groups and several hundred independentmotor dealers now exceeds 1.9 million consumers. The number of hires provided tothese members continues to grow. The vehicle fleet has been expanded and now comprises over 4,000 rental vehicleslocated in one of our three depots. Our service is provided throughout England,Northern Ireland, Scotland and Wales and we have plans to open one large hub andseveral satellite depots in the next 12 months in order to improve both thegeographical efficiency of the business and operational performance. Infrastructure In March 2007 we completed our operational move into Alpha 1, our 220,000 squarefeet headquarters and fleet distribution centre. The location is now fullyoperational and will cater for significant growth over the next five years. As part of the move to Alpha 1 we have invested heavily in developing our ITinfrastructure and call centre telephony to ensure that the Group can leverageits operational size without any near term resource constraint. Revenue Revenue for the year grew 90% to £116.9 million (2006: £61.4 million) withaccident management and related services, primarily credit hire revenues("credit hire revenues") comprising £88.1 million (2006: £53.0 million), ofwhich £2.8 million was contributed by DCML (2006: £nil), and credit repairrevenues aggregating to £28.8 million (2006: £8.4 million). The credit hirerevenue increase of 66% reflected an increase in rental days of 76% to 710,000(2006: 404,000) with prestige rental days of 441,000 (2006: 298,000) andmainstream rental days of 269,000 (2006: 106,000). Margins The change in mix between prestige and mainstream credit hire rental days, withprestige accounting for 62% of total rental days (2006: 74%) was a resultpredominately of certain larger dealer wins in the second half of the year andan increased internal focus in ensuring those new relationships were rolled outas effectively as possible. In so doing, there was an uplift in mainstreamactivity at the expense of prestige activity; the lower rates per day onmainstream rentals contributed to a shortfall in revenues over earlierexpectations, particularly in the fourth quarter of the financial year, with anegative impact on margins and profitability for the full year. Gross margin has reduced to 36.9% (2006: 46.8%) as a result of several factors:the overall mix of credit repair and credit hire prestige / mainstream revenues;the consequent effect on vehicle utilisation and vehicle holding costs; a changein the depreciation rate used on vehicles and an increase in our settlementprovision. These are explained in more detail below. Changed depreciation rate In the first half of the financial year we reported losses on disposal of £0.6million, averaging a loss of £865 per unit on 723 vehicles. In the absence ofthe changed depreciation rate we would have reported further losses on disposalin H2 of £0.7 million reflecting an average loss of £604 per unit on 1,096vehicles. Whilst we have improved both the size and experience of the fleet managementteam and have enjoyed greater leverage with dealers and manufacturers though ourincreased scale, such that we are now starting to drive increased manufacturersupport off our fleet purchasing prices, we felt it appropriate to increase thedepreciation rate applied to vehicles. Until now we used a straight linedepreciation rate of 20% to write vehicles off to 60% of their cost over thetwo-year period of expected ownership. The average age of vehicles disposed inthe year was 13 months, as we used an increased rate of vehicle disposal as oneof the tools required to maximise fleet utilisation across the range of vehiclecategories; this process also helped to balance the fleet in line with theprestige / mainstream revenue mix. Because of this younger than anticipated age of vehicle at disposal, and as wecontinue to align our fleet mix to revenue, we have decided to change thedepreciation rate such that vehicles are written off at the rate of 22.5% ratherthan 20%. This change in accounting basis is required to be implemented as if ithad been in place from the commencement of the financial year and therefore hasresulted in an increased depreciation charge for the year of £1.8 million. Thisis reflected in the financial statements, compared to initial expectations, asan increased depreciation charge of £1.8 million offset by a reduction in losson disposal of £0.7 million. Had the depreciation rate of 22.5% been applied toall vehicles from their original acquisition date the losses on disposal in theyear would have been £nil. Revenue recognition and settlement provision As our revenue recognition policy makes clear, we estimate the amountsreceivable for each rental transaction. The amounts due from the 'at fault'insurer depend, inter alia, on the rental value of the particular vehicle, thelength of the hire transaction and on the timing of the settlement receipt fromthe insurer (the GTA offers fully discounted rental rates to insurers if theyremit payment within 30 days and a reducing scale of discounts if payment isthen made within 60 or 90 days). Discounts are lost if payment is made after 90days and it is the cash receipt profile against debtors aged over 90 days thathas been most affected by the legal issues referred to above. Whilst we have not made any specific provision in relation to the "X" or "A"agreements referred to above, we assessed our estimate of the net tradereceivable in light of the continuing legal environment and the increased ageingof debtor days (which were 176 days at 30 April 2007 (2006: 130 days)). Thisassessment resulted in an additional charge of £1.7 million for the year. Actualsettlement adjustments being agreed with insurers generally (see exceptionalcosts note below) have not deteriorated either over the year or more recently.The adjustment resulting from the assessment above therefore reflects thepossibility of higher settlement discounts until the legal position is clarifiedand/or cash receipts via our enhanced litigation settlement process areestablished. Fleet utilisation rates Fleet utilisation reduced over the year as we realigned the fleet to revenuemix, a process that is ongoing. Across the various vehicle bands, utilisationrates ranged from 58% (2006: 60%) to 79% (2006: 87%). This resulted in anincrease in vehicle holding costs (depreciation and/or contract hire charges)which increased from 15.9% of credit hire revenues in 2006 to 22.5% in 2007. Credit repair revenues and margins As mentioned earlier credit repair revenues (which attract an approximate 5%margin) accounted for 25% of total revenues in 2007, up from 14% in 2006. Gross margins The net effect of the issues outlined above was a reduction in gross marginsfrom 46.8% to 36.9%. Commission rates were reasonably stable throughout theperiod and our focus will be on driving reduced vehicle holding costs throughlower purchase prices and improved fleet utilisation as prestige credit hirerevenues increase, the fleet is realigned over time and as recent initiatives toreduce the percentage of hire starts attracting low margin credit repair takeeffect. Overheads Overheads increased in line with headcount growth and the higher property costsreflecting the occupation of Alpha 1 (comprising 220,000 sq. ft including 70,000sq. ft of office space). It was only in the last two months of the financialyear that all departments were re-established under 'one roof' and we expectcertain cost savings to materialise in the coming year as we capitalise on ourscale and the opportunity for operating efficiencies. We also expensed £1.4million (2005: £0.5 million) in relation to the Accident Management Schemes asset out below. Exceptional costs As part of the legal challenge and its consequent effect on cashflows, weundertook a review of the financial structure of the Group which involvedconsiderable input from external advisers and the repayment of the then existingfacilities from the previous lender. We also agreed an exceptional discount on amaterial block settlement receipt in the last quarter that was materially largerthan the normal settlement discounts agreed or expected to be agreed by theGroup, reflecting the cash flow circumstances at the time. The aggregate effectof this was a charge of £1.6 million, disclosed as exceptional in so far as theyare material and one off in nature. During the year we incurred costs of £1.3 million in launching AccidentManagement Schemes for and on behalf of the majority of our referring dealer andmanufacturer partners. Due to the significant magnitude of this investment,which is expected to drive revenues in future periods, we have disclosed theexpenditure as an exceptional cost. A further £0.1 million has been expensedwithin normal operating profit in expanding the dealers' schemes that werelaunched in the prior year. We have also drawn out separately on the face of the income statement thecharges relating to the amortisation of acquired intangibles (acquired with DCML- see below) and of the non-cash charges relating to the grant of share options. Profit before taxation Profit before taxation was £13.6 million (2006: £18.5 million). 2006 benefitedfrom the one-off profit on the purchase and sale and leaseback of Alpha 1 of£2.6 million and, after adjusting for other items such as the exceptional costs,costs of share based payments and the amortisation of acquired intangible assetsin relation to DCML limited, adjusted profit before tax was £18.0 million (2006:£16.7 million). As referred to earlier, this is after the net effect of theincreased deprecation charge of £1.1 million and the additional year endsettlement provision of £1.7 million. Taxation An overall effective tax rate of 34.6% has been applied in these financialstatements (2006: 30.7%). Further details are given in note 4. The effectiverate of tax on adjusted profit before taxation was 31.7% (2006: 30.7%). Earnings per share Basic earnings per share was 13.2 pence per share down from 19.9 pence per sharein 2006. Adjusted earnings per share (before exceptional items, profit ondisposal of property, amortisation of acquired intangible assets and costs ofshare based payments) was 18.2 pence per share (2006: 17.9 pence per share). Balance sheet Capital expenditure of £68.9 million related primarily to the expansion of thevehicle fleet (3,062 unit additions costing £65.2 million) which were allacquired through the use of finance leases. Fitting out Alpha 1 saw us investinglast year's profit on disposal to install 70,000 sq ft of office space, airconditioning, car wash facilities, canteen and other infrastructure relatedspend at a total cost of £2.5 million. Other capital expenditure related to ITcomputer equipment and office fixtures and fittings plus upgraded Group serverand processing power aggregating to £1.2 million. We continue to invest in the development of our proprietary 'back office'enterprise wide operating system and, in particular, into specific functionalitythat is now used to control, plan and schedule vehicle purchases and disposals.Some £0.3 million of direct costs have been capitalised as intangible assets inrelation to these and other software developments (2006: £nil). Finance lease debt rose from £54.2 million to £77.0 million reflecting the £77.9million in new debt from vehicle replacement and expansion, offset by £7.7million being paid as initial 10% deposits (2006: £6.0 million) and £16.9million paying normal monthly repayments (2006: £7.5 million). £30.7 million offinance lease debt was repaid as a result of vehicle disposal (2006: £9.0million). Vehicle sales proceeds were £23.5 million (2006: £8.8 million). Cash flows The majority of the cash flows of the business have been explained already inthe above narrative, particularly the consumption of cash into working capitalin the second half of the financial year. Net interest of £5.7 million was paid in the year (2006: £1.9 million)reflecting finance lease interest of £5.0 million (2006: £2.0 million) and netloan and revolving credit facility interest of £0.7 million (2006: net interestincome of £0.1 million). The latter increased due to the origination of a £5.0million, six year term loan used to finance the cash component of theacquisition consideration for DCML and the utilisation of the £20.0 millionrevolving credit facility originated in September 2006 and drawn and fullyutilised in the second half of the year for the reasons already outlined. After the above items and corporation tax paid in the year of £3.9 million(2006: £3.4 million), net cash inflow from operating activities rose to £11.0million (2006: £1.4 million) as a result of improved profit before interest,depreciation and amortisation, taxation and non cash share based payments beingoffset by consumption of cash into working capital. Alongside the vehicle acquisition and finance lease repayments we received £11.4million (2006: £8.9 million) in reclaimed VAT on vehicle acquisitions; this isnot disclosed separately but is contained in the cash flow statement netted offagainst the debtor movement (the debtor sits on our balance sheet until the VATcash is reclaimed through our monthly VAT returns). In October 2006 we raised £12.5 million (net of expenses) in a placing of 4.0million new shares at a price of 325.0 pence per share. Net cash inflows from the drawdown of the revolving credit facility totalled£20.0 million (2006: n/a) and the year end drawdown of £20.0 million was offsetby year end cash balances of £6.9 million giving a net 'overdraft' position of£13.1 million (2006: £6.5 million). Dividends of £2.4 million (2006: £1.3 million) were paid in the periodreflecting the 2.0 pence final dividend for 2006 declared on 14 June 2006 andpaid on 21 July 2006, and the interim 2007 dividend of 1.5 pence declared on 13December 2006 and paid on 24 January 2007. We have proposed a final dividend for2007 of 1.5 pence in order to maintain last year's total dividend. DCML acquisition On 5 May 2006 we concluded the acquisition of DCML for a potential maximumconsideration of £12.0 million, £5.0 million of which was satisfied in cash and£3.0 million by the issue of 721,587 shares at 415.75 pence per share. Theremaining potential consideration of £4.0 million was deferred and was dependenton attaining revenue based targets to 31 December 2006. The revenue target wasnarrowly missed, resulting in reduced deferred consideration payable of £3.0million and this was satisfied on 14 March 2007 by the issue of 1,190,477 sharesat 252.0 pence per share. We still have work to do to integrate DCML fully into the business but believethat its courtesy car management software and insurance offering to dealers andmanufacturers sits well within the Group's overall strategy. The operatingprofit for the year since acquisition of £1.2 million was in line with ourexpectations at the time of acquisition and meant that in the first year ofownership it was earnings enhancing. International Financial Reporting Standards In the prospectus issued in October 2006 in connection with our move from AIM tothe Official List we included the required reconciliations from UK GAAP to IFRSfor previous periods. These reconciliations are therefore not replicated again.A copy of the prospectus is available from our web site atwww.accidentexchange.com. Summary We are still dealing with a live legal challenge to the enforceability ofhistoric terms and conditions used by the business and this is having acontinuing impact on old and current cash collection profiles. We believe ourlegal advice to be extremely robust and that we will defeat the legal challengesand that this, combined with a concerted period of direct day-to-day litigationagainst insurers, will lead to an improvement in cash flow during the currentfinancial year. This is our immediate priority. Our growth to date has been rapid. If we look back we can see that we have beenthrough an initial period of creating a vertical market opportunity within theautomotive sector which we have then implemented successfully before moving toour second phase of growth. That phase was marked by a significant 'land grab'opportunity where we have demonstrated the appetite for our services and havepenetrated the sector more successfully than any of our competitors within avery short time. We must now consolidate our position. Our second priority for the coming year isto build on the current business referral relationships and to improve thevolume and profitability of business generated through those accounts. Inparticular, we will focus on restoring the ratio of sales and profitability peremployee and on delivering lower fleet ownership costs. 2007 has been a year of continued market penetration and revenue growth. Marginswere impacted from credit repair and mainstream credit hire revenue growth andthe consequence on fleet mix and utilisation over the period. We are alreadytaking steps to restore the focus on prestige credit hire revenue growth. Our AGM is scheduled for 21 August 2007 and we will report further at that time. Consolidated Income StatementFor the year ended 30 April 2007 Year Year ended ended 30 April 30 April 2007 2006 Note £'000 £'000Revenue 116,909 61,415Cost of sales (73,752) (32,681)Gross profit 43,157 28,734Administrative expenses (23,524) (8,315)Operating profit 19,633 20,419 Finance income 135 118Finance costs (6,163) (2,030) Profit before tax analysed between:Profit before tax before profit on disposalof property, amortisation of acquiredintangible assets, cost of share based 17,981 16,659payments and exceptional costsProfit on disposal of property - 2,600Amortisation of acquired intangible assets (455) -Share based payments (275) (290)Exceptional costs 3 (3,646) (462) Profit before tax 13,605 18,507Taxation 4 (4,714) (5,680)Profit for the year 8,891 12,827 Earnings per shareBasic and diluted 5 13.2p 19.9p The Directors recommend a final dividend of 1.5 pence per share for the yearended 30 April 2007 (2006: 2.0 pence per share). Combined with the interimdividend of 1.5 pence (2006: 1.0 pence) per share paid on 24 January 2007, thisresults in a total dividend of 3.0 pence per share for the year ended 30 April2007 (2006: 3.0 pence). Consolidated Statement of Recognised Income and ExpenseFor the year ended 30 April 2007 Year ended Year ended 30 April 30 April 2007 2006 £'000 £'000Deferred tax on share options (29) 29(Expense) / income recognised directly in (29) 29equityProfit for the year 8,891 12,827Total recognised income and expense for 8,862 12,856the year Consolidated Balance SheetAt 30 April 2007 30 April 30 April 2007 2006 Note £'000 £'000AssetsNon-current assetsProperty, plant and equipment 7 73,864 49,448Goodwill 8 21,473 13,053Other intangible assets 8 3,476 124 98,813 62,625Current assetsClaims in progress 16,341 12,402Trade and other receivables 9 66,894 32,588Cash and cash equivalents 14 6,945 - 90,180 44,990Non-current assets held for sale 1,401 2,858 91,581 47,848Total assets 190,394 110,473LiabilitiesCurrent liabilitiesFinancial liabilities - borrowings 10 (60,560) (24,037)Trade and other payables (15,501) (5,597)Current tax liabilities (2,061) (2,045) (78,122) (31,679)Net current assets 13,459 16,169Non-current liabilitiesFinancial liabilities - borrowings 10 (42,959) (36,668)Deferred tax liabilities (4,658) (2,769) (47,617) (39,437)Total liabilities (125,739) (71,116)Net assets 64,655 39,357 Shareholders' equityShare capital 11 3,557 3,887Share premium 11 26,192 7,959Other reserves 11 11,472 10,846Retained earnings 11 23,434 16,665Total shareholders' equity 11 64,655 39,357 Consolidated Cash Flow StatementFor the year ended 30 April 2007 Year ended Year ended 30 April 30 April 2007 2006 Note £'000 £'000Cash flows from operating activitiesCash generated from operations 12 20,549 6,729Finance income received 109 119Finance costs paid on bank loans and (759) (47)overdraftsFinance cost element of finance lease (5,002) (1,984)paymentsTaxation paid (3,923) (3,385)Net cash inflow from operating activities 10,974 1,432 Cash flows from investing activitiesPurchase of property, plant and equipment (3,681) (1,274)Purchase of intangible assets (253) -Proceeds from sale of property 1,912 688Proceeds from sale of vehicles, plant and 27,911 8,761equipmentAcquisition of subsidiary, net of cash (4,837) -acquiredNet cash inflow from investing activities 21,052 8,175 Cash flows from financing activitiesProceeds from issue of ordinary share 13,000 8,000capitalShare issue costs (467) (277)Proceeds from borrowings 13 27,118 -Repayment of borrowings 13 (602) -Capital element of finance lease payments 13 (55,297) (22,473)Dividends paid (2,368) (1,305)Net cash used in financing activities (18,616) (16,055)Net increase / (decrease) in cash and cash 13,410 (6,448)equivalentsOverdraft at beginning of the year (6,465) (17)Cash and cash equivalents / (overdraft) at 14 6,945 (6,465)end of the year Notes to the Preliminary AnnouncementFor the year ended 30 April 2007 1. Basis of preparation The financial statements have been prepared in accordance with IFRS andInternational Finance Reporting Interpretation Committee ("IFRIC")interpretations that have been adopted by the European Union, and with thoseparts of the Companies Act 1985 applicable to those companies reporting underIFRS. The financial information set out in this preliminary announcement has beenprepared under the historical cost convention, except for the costs of sharebased payments, which are stated at fair value. The consolidated financialinformation is presented in pounds sterling and all values are rounded to thenearest thousand unless otherwise indicated. The principal accounting policies of the Group are set out in the Group's 2007annual report which will be sent to shareholders on or before 25 July 2007. Transition to IFRS The Group's consolidated financial information is now prepared in accordancewith IFRS as adopted by the European Union. The Group had previously reportedunder UK GAAP. The prospectus issued by the Company in connection with the listing of theCompany's share capital on the Official List ("the Prospectus") includedhistorical financial information presented in accordance with IFRS for the twoyears ended 30 April 2005 and 30 April 2006. The date of the opening IFRSbalance sheet for the purposes of transition to IFRS was therefore 1 May 2004.The Prospectus also included an explanation of the adjustments andreconciliation to the previously reported UK GAAP financial statements. A copy of the Prospectus is available from the Company's websitewww.accidentexchange.com. Settlement estimation and going concern Background Further details of the matters referred to below are included in the BusinessReview. The industry and the Group utilise various techniques to conclude claims againstthe insurer of the 'at fault party' to a motor accident. These methods includeindividual negotiation on a claim by claim basis, negotiated block settlementswith individual insurers and, where a claim fails to settle inside the 90 dayperiod under the terms of the ABI General Terms of Agreement, by litigationagainst the non paying "at fault" insurer. It is ordinary course of business incredit hire that this can involve the Group's client (the "non fault" party tothe accident) issuing formal litigation proceedings against the negligent driverto recover the hire charges which are then ordinarily paid by his / herinsurance company. A large percentage of these claims settle well before or onthe threat of litigation but, where they do not, formal proceedings will beissued and these claims may then be defended by the third party insurer, theirsolicitors instructed and in what is a minority of the claims the Group handles,the claims heard in court. In line with the growth in the business and, as anticipated by the Group as partof its developing collection strategies, over the last year (and three months inparticular) an increased number of claims have been processed by the Group'spanel of approved solicitors. During the course of the year one firm of defendant solicitors advanced atechnical argument that sought to reopen the issue of the enforceability of theunderlying terms and conditions used by the Group in its older rentalagreements. The Board believes, and has received opinion from leading counselaffirming the Board's view, as to the enforceability of these agreementsreferring to previous decisions in the appellate courts. In addition, changeswhich were made to the Consumer Credit Act 2006, which came into force in April2007, defeat the technical challenge as to enforceability in the future. The Board expects that various legal cases that are due to be heard in the verynear future will confirm the enforceability of the underlying terms andconditions used by the Group in its older rental agreements. Immediatelyfollowing resolution of this matter, the Group intends to aggressively pursuepayment of older debts that appears to be being delayed due to the uncertaintycaused by the pending legal cases. Settlement estimation The Group's work in progress and trade receivables require an estimation of theexpected adjustments that will arise, inter alia, on the settlement of claimsand the adjustments that arise as a result of this process impact on the levelof revenue disclosed by the Group. The estimation process is determinedprimarily on the basis of prior experience of settlements, but it is, by itsvery nature, judgemental. Furthermore the uncertainty surrounding thisestimation process has increased in the current year due to the increased ageingof trade debtors as a result of the outstanding legal issue highlighted above. Whilst the Directors believe that they have a reasonable basis for deriving thesettlement estimation process as reflected in the financial statements, thefinal resolution of the legal dispute referred to above, together with theultimate settlements agreed through negotiation with or litigation against theinsurers in relation to the outstanding work in progress and trade receivables,may be different to that which has been estimated in the preparation of thefinancial statements. Going concern basis The financial statements have been prepared on a going concern basis, whichassumes that the Group and Company will continue in operational existence forthe foreseeable future. The validity of this assumption depends in part on theGroup being able to collect debt affected by the legal case referred to above ona sufficient and timely basis and at a level of settlement that will enable theGroup to operate within its bank facilities. The Directors are of the opinion that there will be a successful outcome to theoutstanding legal issues and that outstanding claims will be collected in linewith the settlement arrangements reflected in the financial statements. Inaddition the Directors believe that there are various mitigating actions thatare available to them to enable them to manage cash flows in the short term,including the agreement of block settlements and flexibility around vehiclepurchase commitments. Therefore, taking in to account, inter alia, the recentrefinancing exercise, which increased the available bank facilities to £45.0million, the Directors believe that they continue to have reasonable grounds forpreparing the financial statements on the going concern basis. The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The consolidated balance sheet at 30 April 2007 and the consolidatedincome statement, consolidated statement of recognised income and expense,consolidated cash flow statement and associated notes for the year then endedhave been extracted from the Group's audited 2007 statutory financial statementswhich were approved by the Board on 16 July 2007 and which do not include anystatement under Section 237 of the Companies Act 1985. Audit opinion In forming their audit opinion the auditors have considered the adequacy of thedisclosures in the financial statements in relation to the settlement estimationand the preparation of the financial statements on a going concern basis whichare set out above. The Directors believe that they have a reasonable basis for deriving thesettlement estimation process as reflected in the financial statements. However,the nature of the circumstances that are described above may mean that actualsettlement levels may be different to those estimated in preparing the financialstatements. Additionally, and for the reasons set out above, the Directors have continued toprepare the financial statements on a going concern basis. Therefore thefinancial statements do not include any adjustments that would result should theGroup be unable to continue as a going concern. In view of the significance of the matters referred to above, the auditors havemodified their opinion to draw attention to the disclosures in relation to theuncertainty around the settlement estimation and the preparation of thefinancial statements on the going concern basis. However, their opinion is notqualified in either respect. 2. Revenue An analysis of the Group's revenue is as follows: Year ended Year ended 30 April 30 April 2007 2006 £'000 £'000Delivery of accident management and relatedservices, primarily credit hire of vehicles 88,101 53,041Credit repair 28,808 8,374 116,909 61,415 Revenue derived from the delivery of accident management and related services,primarily credit hire of vehicles includes £2.8 million (2006: £nil) from DCMLLimited, which was acquired on 5 May 2006. 3. Exceptional costs The following exceptional items have been separately disclosed within thefinancial statements as they are considered to be non-recurring and significantin nature: Year ended Year ended 30 April 30 April 2007 2006 £'000 £'000Costs relating to admission to Official List 760 -Exceptional settlement discount 1,002 -Refinancing costs 584 -Accident Management Scheme launch costs 1,300 462 3,646 462 The Group incurred £0.8 million of exceptional administrative expenses duringthe year in connection with its application and subsequent transfer from AIM tothe Official List of the London Stock Exchange (2006: £nil). As a result of a legal challenge as to the enforceability of certain of theGroup's historical terms and conditions certain insurers departed from theirpreviously established payment profiles. Whilst a number of leading insurersadvised that they were not pursuing these arguments the Group found it necessaryto concede a significantly enhanced settlement discount in order to crystallisea material settlement receipt from one insurer in March 2007. The settlement discount conceded by the Group was materially higher than anysettlement discount conceded by the Group either before or since, or than isexpected to be conceded on the collection of current claims in progress or tradereceivables. The concession was made at a time of considerable uncertainty asregards the legal challenge referenced in the Business Review and at a time ofmaximum utilisation of the then financing facilities available to the Group,facilities which as referenced in note 15 have been strengthened materiallysince the year end. Because of these reasons the Directors consider it appropriate to disclose thisparticular settlement discount as an exceptional cost. On 10 April 2007 the Group announced that it was undertaking a review of theappropriateness of its financing structure and on 15 June 2007 the Groupannounced that it had entered into a £45.0 million debt facility with MorganStanley. As a result, the Group's existing borrowings were redeemed and a chargeof £0.6 million (2006: £nil) has been made in respect of professional adviserfees and the accelerated amortisation of the issue costs associated with thoseborrowings. During the year the Group incurred costs of £1.3 million (2006: £0.5 million) inlaunching Accident Management Schemes for and on behalf of the majority of itsreferring dealer and manufacturer partners. Due to the significant magnitude ofthis investment, which is expected to drive revenues in future periods, thecosts have been disclosed as exceptional items. 4. Taxation Reconciliation of total tax charge for the year. The tax charge for the year is higher (2006: higher) than the standard rate ofcorporation tax in the UK of 30% (2006: 30%). The differences are explainedbelow: Year ended Year ended 30 April 30 April 2007 2006 £'000 £'000Profit before tax 13,605 18,507 Profit before tax multiplied by the rate ofcorporation tax in the UK of 30% (2006: 30%) 4,082 5,552Effect of:Expenses not deductible for tax purposes 587 208Adjustments in respect of prior years (8) 7Deferred tax on share based payment charges 53 (87)Tax on profit on ordinary activities 4,714 5,680 5. Earnings per share Basic and diluted earnings per share The calculation of the basic earnings per share is based on the earningsattributable to ordinary shareholders divided by the weighted average number ofshares in issue during the period. Whilst options were in issue over 1,189,717 of the Company's ordinary shares asat 30 April 2007 the dilutive effect of these potential ordinary shares is notconsidered to be material and consequently there is no material differencebetween basic earnings per share and diluted earnings per share. Details of the earnings and weighted average number of shares used in thecalculations are set out below: Year ended Year ended 30 April 30 April 2007 2006Earnings attributable to ordinary shareholders 8,891 12,827(£'000)Weighted average number of shares 67,468,086 64,319,615Basic and diluted earnings per share (pence) 13.2 19.9 Adjusted basic and adjusted diluted earnings per share To understand the underlying trading performance, the Directors consider itappropriate to disclose earnings per share before and after profit on disposalof property, amortisation of acquired intangible assets, exceptional costs andthe costs of share based payments. The calculation of adjusted earnings pershare is set out below: Year ended Year ended 30 April 30 April 2007 2006Earnings attributable to ordinary shareholders 8,891 12,827(£'000)Post-tax profit on disposal of property (£'000) - (1,803)Post-tax amortisation of acquired intangible 319 -assets (£'000)Post-tax cost of exceptional items (£'000) 2,747 323Post-tax cost of share based payments (£'000) 328 203Adjusted profit on ordinary activities after 12,285 11,550taxation (£'000) Weighted average number of shares 67,468,086 64,319,615 Basic and diluted earnings per share (pence) 13.2 19.9Profit on disposal of property (pence) - (2.8)Amortisation of acquired intangible fixed assets 0.5 -(pence)Cost of exceptional items (pence) 4.0 0.5Cost of share based payments (pence) 0.5 0.3Adjusted basic and diluted earnings per share 18.2 17.9(pence) 6. Equity dividends The Directors recommend a final dividend of 1.5 pence per share for the yearended 30 April 2007 (2006: 2.0 pence per share). Combined with the interimdividend of 1.5 pence (2006: 1.0 pence) per share paid on 24 January 2007, thisresults in a total dividend of 3.0 pence per share for the year ended 30 April2007 (2006: 3.0 pence). Payment will be made on 2 October 2007 to shareholderson the register on 7 September 2007. The shares will go 'ex-dividend' on 5September 2007. 7. Property, plant & equipment Leasehold property and Fixtures Freehold improve Computer and Motor property -ments equipment fittings vehicles Total £'000 £'000 £'000 £'000 £'000 £'000CostAt 1 May 2005 - - 246 181 17,964 18,391Additions 14,220 - 793 481 50,979 66,473Transfer to assets - - - - (3,568) (3,568)held for saleDisposals (14,220) - (1) - (11,977) (26,198)At 30 April 2006 - - 1,038 662 53,398 55,098Additions - 1,876 970 919 65,156 68,921Additions throughbusinesscombinations - 194 37 30 188 449Transfer to assets - - - - (1,786) (1,786)held for saleDisposals - - (212) (9) (34,553) (34,774)At 30 April 2007 - 2,070 1,833 1,602 82,403 87,908 DepreciationAt 1 May 2005 - - 6 38 1,934 1,978Charge for the year - - 233 111 7,219 7,563Transfer to assets - - - - (710) (710)held for saleDisposals - - - - (3,181) (3,181)At 30 April 2006 - - 239 149 5,262 5,650Charge for the year - 75 512 278 16,831 17,696Transfer to assets - - - - (385) (385)held for saleDisposals - - (94) (4) (8,819) (8,917)At 30 April 2007 - 75 657 423 12,889 14,044 Net book valueAt 30 April 2007 - 1,995 1,176 1,179 69,514 73,864At 30 April 2006 - - 799 513 48,136 49,448 8. Intangible assets Goodwill Software Acquired Total intangible assets £'000 £'000 £'000 £'000CostAt 1 May 2005 13,053 285 - 13,338Additions - - - -At 30 April 2006 13,053 285 - 13,338Additions 8,420 253 3,595 12,268At 30 April 2007 21,473 538 3,595 25,606 AmortisationAt 1 May 2005 - 120 - 120Charge for the year - 41 - 41At 30 April 2006 - 161 - 161Charge for the year - 41 455 496At 30 April 2007 - 202 455 657 Net book amount at 30 April 21,473 336 3,140 24,9492007Net book amount at 30 April 13,053 124 - 13,1772006 All amortisation charges are included within administrative expenses in theincome statement. Goodwill The Group's goodwill at 30 April 2007 was attributable to two cash generatingunits, Accident Exchange Limited, which was acquired on 16 April 2004 and DCMLLimited which was acquired on 5 May 2006. Software Internally generated software development costs that meet the recognitioncriteria of IAS 38 'Intangible assets' are capitalised at cost. They areamortised on a straight line basis over their estimated useful economic life of5 years. Other acquired intangible assets Assets in this class are amortised over their estimated useful lives on astraight line basis. This class comprises two items which arose on theacquisition of DCML Limited in May 2006: • Customer contracts and relationships; and • Supplier contracts and relationships. Customer contracts and relationships and supplier contracts and relationshipshave been estimated by the Directors to have useful lives of 10 years and 6years respectively. 9. Trade and other receivables 30 April 30 April 2007 2006 £'000 £'000Trade receivables 63,747 26,718VAT 265 757Proceeds from sale of property - 3,084Other debtors 342 863Prepayments and accrued income 2,540 1,166 66,894 32,588 Trade receivables represent amounts receivable for the provision of services tocustomers. The expected adjustments arising on settlement are estimated by Groupmanagement. 10. Financial liabilities - borrowings 30 April 30 April 2007 2006 £'000 £'000CurrentBank overdrafts - 6,465Revolving credit facility 20,000 -Bank loans 6,538 -Finance lease obligations 34,022 17,572 60,560 24,037Non-currentFinance lease obligations 42,959 36,668 Total borrowings 103,519 60,705 Revolving credit facility The Group entered into a £20.0 million revolving credit facility ("RCF") duringthe year, which replaced the uncommitted overdraft facility that was in place at30 April 2006. On 15 June 2007 the Group announced that it had entered into a£45.0 million secured debt facility with Morgan Stanley as a result of which the£20.0 million RCF and bank loans of £4.4 million with the Group's previousfinanciers were repaid. 11. Statement of changes in equity Share Share Other Retained Total capital premium reserves earnings £'000 £'000 £'000 £'000 £'000At 1 May 2005 3,713 410 10,846 4,824 19,793Total recognised income and - - - 12,856 12,856expenseEquity-settled share-based - - - 290 290paymentsIssue of shares 174 7,549 - - 7,723Dividends paid - - - (1,305) (1,305)At 30 April 2006 3,887 7,959 10,846 16,665 39,357Total recognised income and - - - 8,862 8,862expenseEquity-settled share-based - - - 275 275paymentsIssue of shares 296 18,233 - - 18,529Purchase of own shares (626) - 626 - -Dividends paid - - - (2,368) (2,368)At 30 April 2007 3,557 26,192 11,472 23,434 64,655 12. Cash generated from operations Reconciliation of net profit to cash generated from operations: Year Year ended ended 30 April 30 April 2007 2006 £'000 £'000Profit for the year 8,891 12,827Depreciation and other non-cash items:Depreciation 17,696 7,563Amortisation of intangible assets 496 41Loss / (profit) on disposal of vehicles, plant 620 (1)and equipmentProfit on disposal of property - (2,600)Share based payments 275 290Changes in working capital:Increase in trade and other receivables (24,865) (11,064)Increase in claims in progress (3,939) (10,020)Increase in payables 10,633 2,101Finance income (135) (118)Finance costs 6,163 2,030Tax 4,714 5,680Cash generated from operations 20,549 6,729 13. Reconciliation of cash and cash equivalents to net borrowings Year Year ended ended 30 April 30 April 2007 2006 £'000 £'000Increase / (decrease) in cash and cash 13,410 (6,448)equivalents in the periodCapital element of finance lease payments 55,297 22,473Proceeds from borrowings (27,118) -Repayment of borrowings 602 -Decrease in net borrowings resulting from cash 42,191 16,025flowsBorrowings acquired with subsidiary (194) -Inception of finance leases (77,866) (59,381)Increase in net borrowings during the period (35,869) (43,356)Net borrowings at 1 May (60,705) (17,349)Net borrowings at 30 April (96,574) (60,705) 14. Analysis of movement in net borrowings As at As at 1 May Non-cash 30 April 2006 Cash flows Acquisition items 2007 £'000 £'000 £'000 £'000 £'000Cash - 6,945 - - 6,945Bank overdraft (6,465) 6,465 - - -Cash and cash equivalents (6,465) 13,410 - - 6,945Revolving credit facility - (20,000) - - (20,000)Other bank loans - (6,516) (22) - (6,538)Finance leases (54,240) 55,297 (172) (77,866) (76,981)Net borrowings (60,705) 42,191 (194) (77,866) (96,574) 15. Post balance sheet events On 15 June 2007 the Group announced that it had entered into a senior securedcredit agreement with Morgan Stanley International Limited in respect of bankingfacilities of up to £45.0 million. The facility, which matures on 30 September 2010, comprises aggregate term loansof £35.0 million and a £10.0 million revolving credit facility. The interestrate commences at LIBOR plus 3% rising to 6% on elements of the Facilitydependent on usage. The facility is secured by a fixed and floating charge overcertain assets of the Group. As part of the arrangement fee for the facility, the Company has undertaken togrant, subject to shareholder approval, warrants in favour of Morgan Stanleyover 718,571 ordinary shares in the capital of the Company (representing 1% ofthe Company's current issued share capital after exercise of the warrants) at anexercise price of 105 pence per share. Accordingly, the necessary specialresolution will be proposed at the Company's forthcoming Annual General Meeting. Changes in tax legislation A number of changes to the UK Corporation tax system were announced in the March2007 Budget Statement and are expected to be enacted in the 2007 and 2008Finance Acts. The changes had not been substantively enacted at the balancesheet date and are therefore not included in these financial statements. The effect of the changes to be enacted in the Finance Act 2007 would be toreduce the deferred tax liability provided at 30 April 2007 by £0.3 million.This decrease in deferred tax would increase profit after tax for the year by£0.3 million and is due to the reduction in the corporation tax rate from 30% to28% with effect from 1 April 2008. The changes to be enacted in the Finance Act 2008 would have no impact on thenumbers as the Group does not have any industrial buildings. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ACE.L