Half Yearly Report

30th Dec 2009 07:00



FOR IMMEDIATE RELEASE

30 December 2009

Accident Exchange Group Plc

("Accident Exchange" or the "Group")

HALF YEARLY REPORT FOR THE SIX MONTHS ENDED 31 OCTOBER 2009

Accident Exchange Group Plc ("Accident Exchange", the "Group" or the "Company") announces its unaudited half yearly report for the six months ended 31 October 2009.

Key points

Financial

 

*  Adjusted revenue and adjusted profit before tax are stated before exceptional items, amortisation of acquired intangible assets, cost of share-based payments and change in fair value of derivative financial liability.

 

**  Restated as per note 2.

Operational

  

David Galloway, Non-Executive Chairman, commented:

"The financial crisis and the recession that has followed have altered operating conditions, imposed new challenges and exacerbated existing ones. Having discovered the systemic dishonesty in Autofocus' rate evidence during the period, we are pursuing a legal remedy against them and have also made some progress in accelerating claim settlement by improving the subsequent engagement of insurers and their defendant solicitors. Much remains to be done, however, and your Board is focused upon the recently announced strategic refocus and delivering the anticipated cost reductions."

CONTACTS:

Accident Exchange Group Plc
Steve Evans, Chief Executive	08703-009 781
Martin Andrews, Group Finance Director	08703-009 781
Singer Capital Markets Limited	020-3205-7500
Shaun Dobson, Joint Head of Corporate Finance
Bankside
Steve Liebmann or Simon Bloomfield	020-7367-8883 / 07802-888159

About Accident Exchange

Based in the West Midlands and with regional depots in Glasgow, Belfast, Warrington and Dartford, Accident Exchange delivers accident management and other solutions to automotive and insurance related sectors. Fully listed, the stock code is LSE: ACE.

  CHAIRMAN'S STATEMENT

Introduction

The UK economy has shown little improvement since July when we reported the results for the twelve months to 30 April 2009. Activity in the motor dealership sector has remained subdued, particularly within our core prestige market, as have road traffic volumes and the associated frequency of accidents. In turn, this has continued to reduce the workload of the UK vehicle repair network although we did see a small increase in rental lengths during the second quarter.

In addition to the operational and financial effects of the economic climate, we have been affected materially by evidence provided by Autofocus and used by defendant insurers against the Group's vehicle hire charges. We consider the Autofocus evidence to be dishonest in light of discoveries that we made towards the end of August 2009, and we continue to take steps to secure a judicial finding of fact against Autofocus and / or its remaining and previous employees. In the case of two of their former employees we have obtained leave of the Court to commence committal proceedings for contempt on the basis that the trial judge found there to be 'more than a reasonable prima facie case' that false statements were made by the individual acting as a witness.

We consider the adverse impact of Autofocus to have been twofold: first, we believe insurers have actively slowed down payments to the Group as they expected to benefit from the additional timeline of us litigating unpaid claims; secondly, insurers anticipated achieving a significant reduction to our charges in Court proceedings as, it is our contention, Autofocus evidence has influenced judges to award significantly lower amounts than we believe are justified.

In the face of these considerable challenges and ongoing illiquidity amongst insurers your Board has, as announced in our trading update of 27 November 2009, determined to take prompt and strong action to reduce the cost base to a level appropriate to these conditions, resulting in a smaller, refocused business.

Trading

Whilst rental days of 585,000 were slightly ahead of the comparative period (2008: 570,000), adjusted* Accident Management Revenue was 17% lower than H1 last year reflecting changes in the mix of vehicles on rent.

During the period we cut back funding of our low margin credit repair activities, enabling the Group to benefit from both reduced working capital consumption and from increased average hire lengths as insurers are slower at organising the approval of repairs resulting in longer repair periods. Previously where we did credit repair we would have organised the approval of the repair by the same independent engineer more efficiently resulting in shorter repair periods.

Settlement levels

Reflecting the economic and sector issues set out above, the level of settlement adjustments conceded to drive sufficient cash collections over the period has been materially greater than management's expectations. The effect of these higher settlement adjustments has resulted in the Group reporting a loss for the current period.

In addition to the under-recoveries reported against the trading profit for the period, as a consequence of the issues associated with the allegedly dishonest rate evidence supplied to the Courts by Autofocus, which became apparent during the period, the Group has charged a further exceptional settlement adjustment of £9.9 million in respect of trade receivables that existed as at 30 April 2009, over and above the exceptional settlement adjustment recognised in the accounts for the period ended on that date. This includes both amounts realised on the final settlement of receivables during the six month period ended 31 October 2009 (£2.5 million), as well as an additional adjustment of £7.4 million that has been made in respect of trade receivables that still remain outstanding as at 31 October 2009.

  The exceptional settlement adjustment provision of £7.4 million is a non-cash charge in the period and will continue to be reviewed based on the actual level of settlement adjustments over the second half of the year; a period where we will continue to demonstrate to the Courts and to insurers that their use of Autofocus rate evidence is unsafe, whilst also seeking to ensure that ongoing cash collections meet required levels.

Autofocus

We continue to quantify the scale of under-recoveries attributable to the use by insurers of Autofocus' evidence on spot hire rates over the last 12 months or so. We have identified over 6,500 cases where Autofocus evidence appears to have been deployed and over 2,600 cases where the claim has already been concluded, in many cases at an undervalue.

Accident Exchange Limited issued proceedings against Autofocus in the High Court in October 2009 alleging deceit,  conspiracy to cause harm by unlawful means and conspiracy to cause harm to our business. In cases involving the recovery of hire charges from an at-fault insurer most insurers appear to have ceased to rely on the evidence of Autofocus.

It remains our intention to secure a judicial finding of fact and to make applications to the Courts to seek leave to appeal out of time in those cases where it is clear that acceptance of the Autofocus evidence by the trial Judge produced an under-recovery to the Group based on unsound evidence. We understand that 13 of the 17 individuals against whom we have evidence of dishonesty have now left the employment of Autofocus.

The positive effects of unearthing the Autofocus issue are still emerging and, in particular, there has been an improvement over the past few weeks in the engagement of both insurers and solicitors representing insurers regarding the settlement of claims without us having to progress claims to Court. This is beginning to facilitate the acceleration of claim settlement with certain insurers and their solicitors and negotiations are underway over the block settlement of certain claims with certain insurers. In addition, we have reached agreement with a leading insurer to fix the future cost of our hire services in return for reduced operational and administrative effort and improved payment terms.

We are, however, continuing to use litigation when all reasonable avenues of compromise and negotiation have failed to close the claim.

Net debt, working capital and fleet financing

Net debt has reduced to £144.3 million from £174.0 million a year ago (30 April 2009: £149.8 million), reflecting primarily a £52.3 million reduction in fleet related finance lease debt to £54.2 million as at 31 October 2009 (2008: £106.5 million) and a £19.7 million increase in net bank debt to £38.1 million (2008: £18.4 million).

Reduction in the total fleet to 4,658 vehicles as at 31 October 2009 (2008: 5,992 vehicles) and the elimination of more than £40.0 million of future fleet purchase commitments in the second half of last year has enabled an increase in the age profile of the fleet with the consequent reduction in fleet finance lease debt and an improvement in overall utilisation to 66% in the period (2008: 60%).

The increase in net bank debt reflects the impact of the credit crunch and the issues narrated above regarding the impact of Autofocus rate evidence on cash collection levels and claim recoveries. Managing working capital remains the Group's primary objective, a task that the Board believes is benefitting, and will continue to benefit, from the actions of Autofocus having been exposed, together with the planned reduced cost base and lower working capital requirements of reduced trading levels consequent from the above.

In light of our intention to refocus and reduce the size of the business and as the Group's three year working capital facility expires on 30 September 2010, the Group is engaged in discussions with its principal banker and is currently nearing the conclusion of a review of its financing structure with a view to extending or refinancing its working capital facilities.

However, until new working capital facilities are concluded, and as there continues to exist a material uncertainty that cash collection and settlement levels may be lower than the Board is forecasting then, to the extent they are lower, and as set out in note 1, the Group continues to face uncertainty as regards its ability to continue to comply with existing covenants, operate within its existing bank facilities and be able to renegotiate, repay or refinance these working capital facilities.

Uncertainty also exists as regards the Group having either sufficient funding to finance its planned vehicle acquisition volumes or to be able to source vehicles from alternate rental providers so as to be able to replace maturing fleet and manage the size and mix of the fleet in response to levels of business.

Historically, we have used a wide variety of funders to finance the purchase of the Group's vehicle fleet. These facilities have ordinarily been of an uncommitted nature and several of the Group's funders withdrew available facilities earlier this year as they themselves responded to the pressures brought on them by the credit crunch. The review of the Group's funding structure also extends, at their request, to several of those funders who withdrew their facilities, with a view to securing longer term committed facilities on amended terms. We believe that these discussions can be concluded satisfactorily; however, the availability and terms of these facilities are still to be determined and there is no guarantee that they will either be obtained or that they will be obtained on terms acceptable to the Board.

Strategic refocus and cost reductions

We have also embarked on a programme of strategic change to refocus the Group's activities on higher margin  prestige business from our automotive and manufacturer referral partners, historically the mainstay of operations. We have already secured two significant new prestige manufacturer referral contracts and have allowed one low margin referral relationship to lapse.

Over the next few months we will reduce the size of our mainstream fleet further, commence materially fewer lower margin hire starts and so reduce the working capital requirements of the business. To align the cost base of the refocused business and, after a period of consultation with our staff, as announced recently, annualised reductions in fleet and employment related costs of around £24 million are targeted to be attained by the end of the current financial year at an estimated cost of c.£2 million to be incurred in the second half of the current financial year.

People

I would like to thank our staff, who have continued to work hard through these difficult trading conditions and at a time when our cost reduction plan adds personal uncertainty. Their commitment and dedication has been outstanding.

Outlook

The financial crisis and the recession that has followed have altered operating conditions, imposed new challenges and exacerbated existing ones. Having discovered the systemic dishonesty in Autofocus' rate evidence during the period, we are pursuing a legal remedy against them and have also made some progress in accelerating claim settlement by improving the subsequent engagement of insurers and their defendant solicitors. Much remains to be done, however, and your Board is focused upon the recently announced strategic refocus and delivering the anticipated cost reductions.

David Galloway

Non-Executive Chairman

30 December 2009

  FINANCIAL REVIEW

Financial results

Consistent with the changes that were first made in our results for the year ended 30 April 2009, and as narrated in note 1: "Basis of preparation" and note 2: "Change in accounting policy, restatement of prior year comparatives and change in accounting estimate", changes have been made to the magnitude and disclosure of certain items in the Statement of Comprehensive Income as compared to how we have reported in previous Interim Reports.

In particular we have changed our accounting estimates consequent from IAS 39 and IAS 18 resulting in the restatement of comparatives and the deferment of £2.9 million of other operating income (see below) to future periods. The profit effect of this is to reduce the current period loss before tax by £0.1 million compared to what would otherwise have been reported. Prior year comparatives included below have been restated accordingly.

Revenue

Adjusted revenue* for the six months ended 31 October 2009 of £64.3 million (2008: £85.0 million) reflected the effects of the credit crunch on motor dealership activity, motoring journeys and associated accident rates, and our curtailment of working capital intensive credit repair activity during the period. Accident management and related services (primarily credit hire) adjusted revenue* ("Accident Management Revenue") was £53.1 million (2008: £63.6 million). Lower margin credit repair revenue decreased to £11.2 million as a result of our curtailing this activity in the period (2008: £21.4 million).

Overall rental days for the first half were up by 3% to 585,000 (2008: 570,000). We expect rental day volumes to  decrease during the second half of this financial year as the business refocuses upon its core higher margin  referral relationships and reduces low margin activity.

Other operating income

As narrated in note 2 we amended our revenue recognition accounting policy during the year ended 30 April 2009 such that the effective interest residing within the initial recognition of revenue is now deferred and recognised in the Statement of Comprehensive Income as Other Operating Income over the expected credit period to claim closure. As such Other Operating Income of £2.4 million was recognised in the Statement of Comprehensive Income (2008: £2.3 million) with £2.9 million of future operating income having been deferred from this period's revenue recognition (2008: £3.3 million).

Gross profit and margins

Adjusted gross profit* was £23.2 million (2008: £25.8 million) and adjusted gross margin increased to 36.1%  (2008: 30.4%) principally as a result of lower depreciation charges consequent from having reduced the carrying value of fleet via the £19.6 million fleet impairment charge in the comparative period. Lower fleet volumes and improvements in CAP Monitor valuations have contributed to fleet depreciation charges reducing to £4.3 million in the period (2008: £12.8 million).

Total fleet volume was reduced by a further 207 vehicles (4%) during the period to 4,658 at 31 October 2009, building upon the reduction from 5,992 vehicles at 31 October 2008 to 4,865 vehicles at 30 April 2009, with the mix continuing to be adjusted to match anticipated rental day profiles. This fleet volume reduction was made possible by the renegotiation of terms with a number of referral partners during the year ended 30 April 2009 that removed more than £40.0 million of fleet purchase commitment.

Rental fleet utilisation for the period of 66% (2008: 60%) was materially improved over the 57% recorded for the second half of the year ended 30 April 2009, this period reflecting the onset of deterioration in the UK economy and its impact on reducing referral volumes.

After the exceptional charges set out in note 4 (primarily the Exceptional Settlement Adjustment of £9.9 million (2008: £nil) and, in the comparative period, the Fleet Impairment of £19.6 million) the Group recorded a gross profit of £13.3 million (2008: £6.2 million).

Administrative expenses

Administrative expenses before exceptional and other items reduced by 17% to £14.6 million (2008: £17.5 million). Of this cost, £10.5 million or 72% (2008: £12.4 million or 71%) related to headcount, premises, IT and communications costs; the reduction on the comparative period reflecting a package of changes to working patterns, reductions in salary, benefits and pension contributions (right up to Board level) as implemented during Spring 2009 and a reduction in headcount to 733 as at 31 October 2009 (2008: 812).

Total administrative expenses reduced to £15.2 million (2008: £18.2 million) primarily as a result of the factors above.

The Group entered into a period of consultation with its staff subsequent to the period end following the announcement, on 27 November 2009, that it is to refocus its activities on higher margin business from our automotive and manufacturer referral partners. Considerable administrative cost savings are targeted within the £24 million overall savings target as narrated in the Chairman's Statement.

Settlement estimation and impairment of receivables - Autofocus

The Group recognises revenue, claims in progress and trade receivables at amortised cost using the effective interest rate method after an allowance for any discounts that are expected to arise under the terms of the ABI General Terms of Agreement and net of any other settlement adjustments expected to arise on the settlement of claims. This judgment is made on the basis of historical and expected net recovery from the settlement of claims and is influenced by the approach taken towards recovery of amounts claimed.

Our key priority remains to ensure that the Group improves cash flow to breakeven and beyond. During the last four months of the previous financial year the Group, in common with other businesses operating in our sector, experienced a rise in settlement adjustment levels above previously anticipated and provided levels, which resulted in a decision to make an additional provision of £27.9 million against the carrying value of trade receivables and claims in progress as at 30 April 2009. At the time of determining that provision we were unaware of the potential dishonesty surrounding Autofocus rate evidence, a fact we only became aware of at the end of August 2009.

The discovery of the issues surrounding Autofocus rate evidence has added a new dimension to the difficulties of cash collection of which we were previously unaware.  It is very clear to us that insurers' use of the Autofocus rate evidence has been a core factor in their decision making processes not to pay claims either as quickly or at the levels that they did prior to relying on that evidence.

The Board believes that the events surrounding Autofocus are exceptional and have resulted in under recoveries over the last six months being higher than we anticipated when the results for the year ended 30 April 2009 were released in July 2009. We have therefore increased further the provision against claims in progress and trade receivables outstanding at 31 October 2009 to reflect the level of under recoveries experienced over the period. In addition to the under recoveries reported against the trading profit for the period, as a consequence of the issues associated with the allegedly dishonest rate evidence supplied to the courts by Autofocus, which became apparent during the period, the Group has charged a further exceptional settlement adjustment of £9.9 million in respect of trade receivables that existed as at 30 April 2009, over and above the exceptional settlement adjustment recognised in the accounts for the period ended on that date. This includes both amounts realised on the final settlement of receivables during the six month period ended 31 October 2009 (£2.5 million), as well as an additional adjustment of £7.4 million that has been made in respect of receivables that still remain outstanding as at 31 October 2009 (see note 4).  This £7.4 million non-cash provision may or may not reflect crystallised under recoveries over future months, the material uncertainty surrounding the estimation process for settlement estimation being described in note 1. The determination of the total Autofocus effect on the results for the period will be quantified with greater certainty by the time of the announcement of results for the full year to 30 April 2010, expected to be in July 2010. In the meantime, our task is to balance the flow of cash receipts from claims with the potential longer term value of a claim, bearing in mind insurers' willingness and ability to pay, combined with our own objectives of attaining and maintaining break-even collection levels.

  Further exceptional and other items

In order to present the Board's view of underlying trading performance we have consistently presented certain exceptional and other items separately within the consolidated condensed financial information. These include amortisation of acquired intangible assets of £0.3 million (2008: £0.2 million) and share-based payment charges of £0.4 million (2008: £0.5 million). The Group has also recognised a credit of £0.1 million arising from the release of an unutilised amount of an exceptional cost reduction expense provision made during the year ended 30 April 2009 (2008: £nil).

During the comparative period the Group also recognised the exceptional Fleet Impairment charge of £19.6 million and a £1.5 million profit in relation to change in the fair value of the derivative liability component of the Group's issued  Convertible Notes.

Net finance costs

Net finance costs were £7.0 million (2008: £6.7 million). Net interest payable on bank loans, principally the Morgan Stanley bank facility, net of interest receivable on cash deposits, rose to £1.6m (2008: £1.4 million) reflecting an increase in net bank borrowings, partly offset by lower LIBOR. Vehicle finance lease interest fell to £2.5 million (2008: £4.1 million) reflecting the reduction in fleet volumes and associated financing levels.

Net finance costs also include costs relating to the Convertible Notes of £2.9 million (2008: £2.7 million) comprising a 5.5% cash coupon component of £1.4 million (2008: £1.4 million) and £1.5 million (2008: £1.3 million) in aggregate in respect of accreted interest (payable only if the Convertible Notes are not converted to equity by January 2013), amortisation of issue costs and amortisation of the value attributed to the equity conversion component at inception, which was separately recognised at inception as a derivative financial liability.

There was no change in the fair value of the derivative financial liability relating to the equity conversion component of the Convertible Notes (2008: £1.5 million credit).

Loss before tax

After the exceptional and other items of £10.5 million the statutory loss before tax was £6.5 million (2008: £16.4 million). Adjusted profit before tax* increased to £4.0 million from £2.4 million in the comparative period.

Taxation

The effective rate on adjusted profit before tax* expected to be incurred by the Group in the year ending 30 April 2010 is estimated at 31.5% (2008: 31.6%).

Deferred tax assets totalled £7.0 million (2008: £3.2 million), principally comprising an asset of £6.2 million (2008: £nil) arising from prior year taxable losses and decelerated capital allowances of £1.5 million (2008: £2.2 million). The Group has an expectation that taxable profits will be generated in future years against which this deferred tax asset could be utilised. It does not, however, have sufficient evidence that the taxable loss arising in the current period as a result of charging the £9.9 million Exceptional Settlement Adjustment could be utilised in the foreseeable future and consequently no additional deferred tax asset has been recognised. The decelerated capital allowances have arisen from the reduction in the rate of capital allowances from 25% to 20%, and to just 10% for many prestige vehicles.

Earnings / loss per share

The basic loss per share (note 7) for the current period was 10.9 pence (2008: loss per share of 16.6 pence). Adjusted earnings per share* was 3.6 pence per share (2008: 2.2 pence per share).

As the current period's statutory result before taxation was a loss, fully diluted loss per share is equal to the basic loss per share of 10.9 pence (2008: 16.6 pence). Adjusted diluted earnings per share* (note 8) was 3.4 pence (2008: 2.2 pence), the dilution primarily reflecting the maximum potential dilutive effect of the Convertible Notes.

Cash flows

Cash flows from operating activities

From the Consolidated Statement of Cash Flows, it can be seen that cash flows from operating activities for the six months ended 31 October 2009 reduced to £3.8 million (2008: £18.3 million). The Board measures internally an adjusted operating cash flow as it considers that all fleet related cash flows are operating in nature. The Group's adjusted operating cash flows were as follows:

Adjusted cash outflow from operations - after fleet related cash flows	6 Months	6 Months
	ended	ended
	31 October	31 October
	2009	2008
	(Unaudited)	(Unaudited)
	£'m	£'m
Adjusted cash inflow from operations:
Operating profit / (loss)	0.5	(9.7)
Depreciation, fleet impairment and amortisation of intangible assets	5.3	33.5
(Profit) / loss on disposal of vehicles, plant and equipment	(1.3)	0.4
Cost of share based payments	0.4	0.5
EBITDA	4.9	24.7
Changes in working capital:
(Increase) / decrease in receivables and claims in progress due to:
Movement before exceptional charges	(9.8)	(13.1)
Non-cash exceptional charge for potential increased settlement adjustment	9.9	-
Decrease / (increase) in receivables and claims in progress	0.1	(13.1)
Decrease in payables	(1.8)	(0.2)
Adjusted cash inflow from operations	3.2	11.4
Fleet related cash flows:
Proceeds of vehicle disposals	13.5	12.9
VAT recovered on fleet acquisition	0.6	6.9
Capital element of finance lease payments:
Deposits	(0.5)	(4.4)
Monthly repayments	(10.2)	(16.4)
Balloon repayment at disposal	(15.2)	(14.2)
Finance cost element of finance lease payments	(2.5)	(4.1)
Total fleet related cash flows	(14.3)	(19.3)
Adjusted cash outflow from operations - after fleet related cash flows	(11.1)	(7.9)

Adjusted cash outflow from operations after fleet related cash flows rose from £7.9 million in 2008 to £11.1 million in 2009. This reflects reduced EBITDA after the £9.9 million Exceptional Settlement Adjustment of £4.9 million (2008: £24.7 million), partly offset by a £5.0 million reduction in fleet related cash outflows to £14.3 million (2008: £19.3 million) and a reduction in net working capital related cash outflows to £11.6 million (stated before the impact of the £9.9 million Exceptional Settlement Adjustment) (2008: £13.3 million).

Of the total fleet, 3,627 vehicles (78%) were owned (as opposed to contract hire or short-term rented - where cash flows are deducted from cash outflow from operations) as at 31 October 2009. This compares to 4,483 (92% of total fleet) at 30 April 2009 and 5,681 vehicles (95% of total) as at 31 October 2008. The proportion of owned vehicles has gradually reduced as fleet has been cycled and have been replaced where necessary with short-term rental vehicles as a result of asset-backed lenders ("ABL") having withdrawn funding (see note 1).

During the period 182 finance leased vehicles were acquired (2008: 1,963 vehicles) at a VAT inclusive cost of £4.6 million (2008: £44.2 million). As such, VAT recovered on fleet additions reduced to £0.6 million from £6.9 million in 2008 and the deposit paid on acquisition reduced to £0.5 million from £4.4 million.

A total of 1,039 finance leased vehicles were disposed during the period (2008: 1,141 vehicles) generating proceeds of £14.1 million of which £0.6 million was received shortly after the period end (2008: £12.9 million all of which was received before the period end) which funded the repayment of finance lease debt outstanding at disposal of £15.2 million (2008: £14.2 million). The gap per vehicle inherent in the closing fleet has narrowed as a result of CAP valuation improvements and because we are able to keep the vehicles to nearer the end of their anticipated two year life as utilisation rates are being maintained at acceptable levels.

Net cash flow from operating activities

Net interest paid fell to £5.3 million (2008: £7.0 million) reflecting a £1.6 million reduction in finance lease interest to £2.5 million (2008: £4.1 million) due to lower finance leased fleet volume. Net bank interest paid of £1.4 million was consistent with the comparative period (2008: £1.5 million) as was the cash coupon of £1.4 million paid on the Convertible Notes (2008: £1.4 million). No corporation tax was paid during the period (2008: £2.1 million) as the Group has taxable losses brought forward available for offset and the net cash outflow from operating activities was therefore £1.5 million (2008: inflow of £9.8 million).

Investing activities

In addition to the cash flows associated with finance leased fleet, other net capital expenditure reduced to £0.1 million (2008: £0.7 million) as the prior period spend included fit-out costs in relation to the Group's depot network.

Financing and net debt

Working capital facility

As at 31 October 2009, the £40.0 million Morgan Stanley Facility was fully drawn (2008: £30.0 million of £40.0 million) and cash at bank was £2.9 million (2008: £12.6 million).

The Morgan Stanley Facility has been classified within "current liabilities" in the Group's Consolidated Balance Sheet as it is repayable in September 2010. The facility was classified within "non-current liabilities" as at 30 April 2009 and 31 October 2008.

Net debt

Net debt of £144.3 million has reduced materially from the £174.0 million reported as at 31 October 2008, primarily through the reduction in finance lease debt from £106.5 million at that date to £54.2 million as at 31 October 2009. Net debt has also reduced by £5.5 million from 30 April 2009 levels, with the £14.3 million net cash outflow for the period being more than offset by a £21.3 million reduction in fleet finance lease debt. Net debt is analysed as follows:

Analysis of net debt	31 October	31 October	30 April
	2009	2008	2009
	(Unaudited)	(Unaudited)	(Audited)
	£'m	£'m	£'m
Working capital facilities drawn down	40.0	30.0	40.0
Other bank loans	1.5	2.1	1.9
Finance lease obligations	54.2	106.5	75.5
Convertible Notes	50.0	50.0	50.0
Cash at bank	(2.9)	(12.6)	(17.2)
	142.8	176.0	150.2
Derivative financial liability recognised at inception of Convertible Notes excluded from net debt	(0.6)	(0.6)	(0.6)
Convertible Notes interest accrued	4.8	2.5	3.6
Unamortised debt issue costs	(2.7)	(3.9)	(3.4)
Net debt	144.3	174.0	149.8

  Net bank debt

Net bank debt (excluding finance lease obligations and the Convertible Notes, and after offset of related debt issue costs of £0.5 million (2008: £1.1 million)) was £38.1 million (2008: £18.4 million), which includes a bank loan of £1.5 million (2008: £2.1 million) in connection with infrastructure improvements at the Group's administration centre and main fleet facility.

Finance lease obligations

Finance lease obligations fell to £54.2 million from £75.5 million at 30 April 2009 (31 October 2008: £106.5 million) reflecting £4.6 million (2008: £44.2 million) of new debt for fleet replacement net of capital repayments made in the period of £25.9 million (2008: £35.0 million), partly financed by the disposal proceeds of £13.5 million (2008: £12.9 million).

Dividends

No dividends were paid during the period and, consistent with guidance given in our Annual Report, the Board does not recommend the payment of an interim dividend (2008: nil pence per share). A dividend of £1.1 million was paid in the comparative period, being the final dividend for 2008 of 1.5 pence per share declared on 30 June 2008 and paid on 9 September 2008.

Principal risks and uncertainties

A number of principal operational and financial risks are faced by the Group that could affect its performance in the remainder of the financial year including:

settlement estimation of claims;

residual value of rental vehicles;

fleet costs, funding and efficiency (including suppliers, the price of new vehicles, availability and cost of fleet financing, and fleet utilisation);

effectiveness of cost reduction programme;

dependence on IT systems and key personnel; and

risks relating to the industry including insurance industry protocols, competition and risks associated with referring partners.

The principal financial risks and uncertainties comprise:

the nature of receivables, in that our claims against motor insurance companies can be subject to dispute which may result in financial loss to the Group. The Directors have estimated the value of trade receivables to reflect settlement amounts receivable on the basis of recent experience of collection levels;

credit risk, which arises in relation to trade receivables due to the magnitude and nature of the claims settlement process, which can be protracted, and in relation to cash on deposit;

liquidity risk exists as the Group is dependent on the availability of finance lease and to be renewed working capital facilities, the availability of which is dependent, inter alia, on maintained appetite of funders to finance vehicles and, in the case of our working capital facilities, on continued covenant compliance together with a successful outcome to the business review being undertaken on behalf of all of the Group's lenders as referred to in note 1; and

interest rate risk exists on the Group's level of overall indebtedness.

These principal risks and uncertainties are unchanged from those set out on pages 26 to 28 of the Group's Annual Report and Accounts 2009, which is available at www.accidentexchange.com, with the exception of the risks and uncertainties in relation to the effectiveness of the recently announced cost reduction programme, included for the first time in this half yearly report.

  Forward-looking statements

This interim report contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of Accident Exchange Group Plc. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this interim report. Nothing in this interim report should be construed as a profit forecast. Except as required by law, Accident Exchange Group Plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein.

  Consolidated Statement of Comprehensive Income

for the six months ended 31 October 2009

Unaudited			6 Months	6 Months	6 Months	6 Months	6 Months	6 Months
			ended	ended	ended	ended	ended	ended
			31 October	31 October	31 October	31 October	31 October	31 October
			2009	2009	2009	2008	2008	2008
			Before excep -tional and other items*	Excep -tional and other items*	Total	Before excep -tional and other items*	Excep -tional and other items*	Total
						Restated (note 2)		Restated (note 2)
Note			£'m	£'m	£'m	£'m	£'m	£'m
Revenue	3,4		64.3	(2.7)	61.6	85.0	-	85.0
Cost of sales	4		(41.1)	(7.2)	(48.3)	(59.2)	(19.6)	(78.8)
Gross profit / (loss)			23.2	(9.9)	13.3	25.8	(19.6)	6.2
Administrative expenses
Amortisation of acquired intangible assets	4		-	(0.3)	(0.3)	-	(0.2)	(0.2)
Share-based payments			-	(0.4)	(0.4)	-	(0.5)	(0.5)
Exceptional items	4		-	0.1	0.1	-	-	-
Other administrative expenses			(14.6)	-	(14.6)	(17.5)	-	(17.5)
			(14.6)	(0.6)	(15.2)	(17.5)	(0.7)	(18.2)
Other operating income	3		2.4	-	2.4	2.3	-	2.3
Operating profit / (loss)			11.0	(10.5)	0.5	10.6	(20.3)	(9.7)
Finance income	5		0.1	-	0.1	0.4		0.4
Finance costs	5		(7.1)	-	(7.1)	(8.6)	-	(8.6)
Change in fair value of derivative financial liability	5		-	-	-	-	1.5	1.5
Profit / (loss) before tax			4.0	(10.5)	(6.5)	2.4	(18.8)	(16.4)
Taxation	6		(1.3)	0.1	(1.2)	(0.8)	5.4	4.6
Profit / (loss) and comprehensive income / (expense) for the period			2.7	(10.4)	(7.7)	1.6	(13.4)	(11.8)
Earnings / (loss) per share
Basic		7	3.6p		(10.9)p	2.2p		(16.6)p
Diluted		8	3.4p		(10.9)p	2.2p		(16.6)p

*  Other items consist of amortisation of acquired intangible assets, cost of share-based payments and change in fair value of derivative financial liability. Exceptional and other items are set out in note 4.

  Consolidated Balance Sheet

at 31 October 2009

		31 October 2009	31 October 2008	30 April 2009
			Restated (note 2)
		(Unaudited)	(Unaudited)	(Audited)
	Note	£'m	£'m	£'m
Assets
Non-current assets
Property, plant and equipment	10	49.9	84.6	62.2
Goodwill		21.5	21.5	21.5
Other intangible assets		2.3	2.9	2.6
Deferred tax asset		7.0	3.2	8.2
		80.7	112.2	94.5
Current assets
Claims in progress		11.5	11.2	10.6
Trade and other receivables	11	94.8	127.2	97.0
Cash and cash equivalents	14	2.9	12.6	17.2
		109.2	151.0	124.8
Non-current assets held for sale		1.3	0.8	1.0
		110.5	151.8	125.8
Total assets		191.2	264.0	220.3
Liabilities
Current liabilities
Financial liabilities - borrowings	14	(86.2)	(52.9)	(46.3)
Trade and other payables		(22.7)	(18.8)	(24.7)
Current tax liabilities		(0.4)	(2.4)	(0.4)
		(109.3)	(74.1)	(71.4)
Net current assets		1.2	77.7	54.4
Non-current liabilities
Financial liabilities - borrowings	14	(61.0)	(133.7)	(120.7)
		(61.0)	(133.7)	(120.7)
Total liabilities		(170.3)	(207.8)	(192.1)
Net assets		20.9	56.2	28.2
Shareholders' equity
Share capital	12	3.6	3.6	3.6
Share premium		26.2	26.2	26.2
Other reserves		11.5	11.5	11.5
Retained earnings		(20.4)	14.9	(13.1)
Total shareholders' equity		20.9	56.2	28.2

  Consolidated Statement of Cash Flows

for the six months ended 31 October 2009

		6 Months	6 Months
		ended	ended
		31 October	31 October
		2009	2008
		(Unaudited)	(Unaudited)
	Note	£'m	£'m
Cash flows from operating activities
Cash generated from operations	13	3.8	18.3
Finance income received		-	0.6
Finance costs on bank loans		(1.4)	(1.5)
Finance costs on Convertible Notes		(1.4)	(1.4)
Finance cost element of finance lease payments		(2.5)	(4.1)
Taxation paid		-	(2.1)
Net cash (outflow) / inflow from operating activities		(1.5)	9.8
Cash flows from investing activities
Purchase of property, plant and equipment		(0.1)	(0.7)
Proceeds from sale of vehicles, plant and equipment		13.5	12.9
Net cash inflow from investing activities		13.4	12.2
Cash flows from financing activities
Repayment of borrowings		(0.3)	(0.2)
Capital element of finance lease payments		(25.9)	(35.0)
Purchase of own shares		-	(0.1)
Dividends paid		-	(1.1)
Net cash used in financing activities		(26.2)	(36.4)
Net decrease in cash and cash equivalents	14	(14.3)	(14.4)
Cash and cash equivalents at beginning of the period		17.2	27.0
Cash and cash equivalents at end of the period	14	2.9	12.6

  Consolidated Statement of Changes in Equity

for the six months ended 31 October 2009

	Share capital	Share premium	Other reserves	Retained earnings	Total
Six months ended 31 October 2008	£'m	£'m	£'m	£'m	£'m
At 1 May 2008 - as previously reported	3.6	26.2	11.5	30.5	71.8
Prior year adjustment (note 2)	-	-	-	(3.1)	(3.1)
At 1 May 2008 - restated	3.6	26.2	11.5	27.4	68.7
Comprehensive income
Loss for the period	-	-	-	(11.8)	(11.8)
Total comprehensive income for the period ended 31 October 2008	-	-	-	(11.8)	(11.8)
Transactions with owners
Equity-settled share-based payments	-	-	-	0.5	0.5
Purchase of own shares (note 12)	-	-	-	(0.1)	(0.1)
Dividends paid (note 9)	-	-	-	(1.1)	(1.1)
Total transactions with owners	-	-	-	(0.7)	(0.7)
At 31 October 2008	3.6	26.2	11.5	14.9	56.2
	Share capital	Share premium	Other reserves	Retained earnings	Total
Six months ended 31 October 2009	£'m	£'m	£'m	£'m	£'m
At 1 May 2009	3.6	26.2	11.5	(13.1)	28.2
Comprehensive income
Loss for the period	-	-	-	(7.7)	(7.7)
Total comprehensive income for the period ended 31 October 2009	-	-	-	(7.7)	(7.7)
Transactions with owners
Equity settled share-based payments	-	-	-	0.4	0.4
Total transactions with owners	-	-	-	0.4	0.4
At 31 October 2009	3.6	26.2	11.5	(20.4)	20.9

  Notes to the Financial Information

for the six months ended 31 October 2009

1. Basis of preparation

The consolidated condensed financial information set out in this Interim Report has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. The consolidated condensed financial information should be read in conjunction with the Group's Annual Report and Accounts for the year ended 30 April 2009 ("Annual Report"), which has been prepared in accordance with IFRSs as adopted by the European Union.

This consolidated condensed financial information is neither audited nor reviewed and does not comprise statutory financial statements within the meaning of section 434 of the Companies Act 2006. Statutory financial statements for the year ended 30 April 2009 were approved by the Board of Directors ("Board") on 29 July 2009 and subsequently delivered to the Registrar of Companies. The report of the auditors on those accounts contained an emphasis of matter but was unqualified and did not contain any statement under section 498 of the Companies Act 2006.

This consolidated condensed financial information was approved for issue by the Board of Directors on 30 December 2009.

Settlement estimation and going concern

Background

As described in the Chairman's Statement and Financial Review and as detailed in the consolidated condensed financial information and related notes, the current economic environment and the impact of Autofocus continues to adversely affect the Group's business, profitability and cash flows.

The Group recorded a loss after tax for the period of £7.7 million (2008: £11.8 million), principally as a result of increased under recoveries and after charging net exceptional and other items of £10.5 million (2008: £18.8 million) (see note 4), and a net cash outflow of £14.3 million (2008: £14.4 million). The Group had reduced working capital headroom of £2.9 million at 31 October 2009 (2008: £22.6 million) but has operated within its banking covenants and met all capital and interest payments as they fell due on its borrowings during the first half of the current financial year and in the subsequent period to date.

Given the effects of the above, and as the Group's three year working capital facility expires on 30 September 2010, the Group is currently nearing the conclusion of a review of its financing structure with its principal banker and its asset backed lenders.

The Group's financial risk management objectives and processes, and its exposures to credit risk and liquidity risk are set out in the Annual Report, together with an analysis of the maturity of its financial liabilities.

Settlement estimation

The Group recognises revenue, claims in progress and trade receivables at amortised cost using the effective interest rate method after an allowance for any discounts that are expected to arise under the terms of the ABI General Terms of Agreement and net of any other settlement adjustments expected to arise on the settlement of claims. This judgment is made on the basis of historical and expected net recovery from the settlement of claims and is influenced by the approach taken towards recovery of amounts claimed.

The uncertainty surrounding these estimation processes increased in the second half of the prior financial year as, in common with other businesses operating in our sector and for the reasons set out in the Annual Report (primarily insurers' credit crunch related illiquidity issues and their back-office cost reductions), we experienced a rise in settlement adjustment levels between 1 January 2009 and our year end on 30 April 2009.

 

This trend continued into the current period in which the level of settlement adjustments conceded to drive cash collections over the period has also been materially greater than management's expectations. The Board attributes this largely to insurers' appetite within the period to defer payments in reliance on the Autofocus rate evidence as explained in the Chairman's Statement.

In addition to the under recoveries reported against the trading profit for the period, as a consequence of the issues associated with the allegedly dishonest rate evidence supplied to the courts by Autofocus, which became apparent during the period, the Group has charged a further exceptional settlement adjustment of £9.9 million in respect of trade receivables that existed as at 30 April 2009, over and above the exceptional settlement adjustment recognised in the accounts for the period ended on that date. This includes both amounts realised on the final settlement of receivables during the six month period ended 31 October 2009 (£2.5 million), as well as an additional adjustment of £7.4 million that has been made in respect of receivables that still remain outstanding as at 31 October 2009 (see note 4).

Whilst the Directors believe that they have a reasonable basis for deriving the settlement estimation processes as reflected in the consolidated condensed financial information as at 31 October 2009, the ultimate settlements agreed through negotiation with, or litigation against, at fault parties' insurers in relation to the outstanding claims in progress and trade receivables may be higher or lower than that which has been estimated in the preparation of the financial statements and therefore represents a significant risk and a material uncertainty.

Going concern basis

The financial statements have been prepared on a going concern basis, which assumes that the Group has adequate resources to continue in operational existence for the foreseeable future.

The Group's working capital facilities are of a committed nature but expire on 30 September 2010. The Group has commenced discussions with its principal banker and is currently undergoing a review of its financing structure with a view to extending or refinancing its working capital facilities. The validity of the going concern assumption depends in part on the Group being able to renegotiate, repay or refinance these working capital facilities.

It further depends in part upon the Group's ability to collect its trade receivables on a sufficient and timely basis at a level of settlement adjustment that will enable the Group to operate within its working capital facilities and associated covenants which, as set out above, represents a significant risk and a material uncertainty.

It also depends in part upon the Group having either sufficient funding to finance its planned vehicle acquisition volumes or to be able to source vehicles from alternate rental providers so as to be able to replace maturing fleet and manage the size and mix of the fleet in response to levels of business.

Historically, the Group has used a wide variety of funders, including highly rated financial institutions and vehicle manufacturer related finance houses, to finance the purchase of its vehicle fleet. These facilities have ordinarily been of an uncommitted nature and several of the Group's funders withdrew available facilities earlier this year as they themselves responded to the pressures brought on them by the credit crunch. The review of the Group's funding structure currently ongoing also extends, at their request, to include several of those funders who withdrew their fleet funding facilities, with a view to securing longer term committed facilities on amended terms. The Board believe that these discussions can be concluded satisfactorily however, the availability and terms of these committed facilities are still to be determined and there is no guarantee that they will either be obtained or that they will be obtained on terms acceptable to the Board and hence this represents a significant risk and a material uncertainty.

 The Directors have determined to take prompt and strong action to reduce our cost base to a level appropriate to current conditions. We have embarked on a programme of strategic change to refocus the Group's activities on higher margin business from our automotive and manufacturer referral partners, historically the mainstay of operations. Over the next few months we will reduce the size of our fleet further, thereby commencing materially fewer lower margin hire starts and reducing the working capital and fleet funding requirements of the business. To align the cost base of the prestige focused business, and after a period of consultation with our staff, annualised reductions in fleet and employment related costs of around £24 million are targeted to be attained by the end of the current financial year at an estimated cost of c.£2 million to be incurred in the second half of the current financial year

The Directors believe that there are further mitigating actions that are available to them to enable them to manage cash flows in the short term, including the agreement of block settlements, flexibility around vehicle purchase commitments and the ability to rent vehicles on a short term basis from alternate sources alleviating the need for vehicle finance.

The Directors acknowledge that the combination of these circumstances represents a material uncertainty that casts significant doubt upon the Group's ability to continue to remain compliant with its current banking arrangements, to finance its planned vehicle acquisition volumes and consequently to continue as a going concern. After making enquiries, whilst considering the uncertainties described above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the financial statements.

 

2. Change in accounting policy, restatement of prior year comparatives and change in accounting estimate

The accounting policies and methods of computation applied are consistent with those set out in the Group's Annual Report, which is available from the Group's website, www.accidentexchange.com.

New accounting standards adopted in the period

IAS 1 (revised) 'Presentation of Financial Statements' is applicable to the Group for the year ending 30 April 2010, the impact of which has been reflected in the presentation of the primary statements in this interim report.

IFRS 8 'Operating Segments' is also applicable to the Group for the year ending 30 April 2010. The Group has considered this standard and concluded that it has no significant impact upon the consolidated condensed financial information as presented.

New accounting standards, amendments and interpretations that are not relevant to the Group

The following accounting standards, amendments and interpretations are effective for the first time in this reporting period:

- IFRIC 13 'Customer Loyalty Programmes';

- IFRIC 15 'Agreements for the Construction of Real Estate';

- IFRIC 16 'Hedges of a Net Investment in a Foreign Operation';

- Amendment to IFRS 2 'Share Based Payments';

- Amendment to IAS 23 'Borrowing Costs';

- Amendment to IAS 32 'Financial Instruments'; and

- Amendment to IAS 39 'Financial Instruments: Recognition and Measurement'.

The Group has considered the above standards, amendments and interpretations and concluded that they are either not relevant to the Group or that they do not have a significant impact on the Group's consolidated condensed financial information as presented.

Recent accounting developments

Certain new standards, amendments and interpretations to existing standards that have been published and which are mandatory for the Group's future accounting periods, but which have not been early adopted include:

- IFRIC 17 'Distributions of Non-cash Assets to Owners';

- IFRIC 18 'Transfers of Assets from Customers'.

- Amendment to IFRS 3 'Business Combinations'; and

- Amendment to IAS 27 'Consolidated and Separate Financial Statements';

The Group has considered the above standards, interpretations and amendments and concluded that they are either not relevant to the Group at the present time or that, other than disclosure, they would not have a significant impact on the Group's condensed financial information as presented.

Change in accounting policy - prior period adjustment

In adopting IAS 39 and IAS 18, and in particular regarding the determination of the fair value and the nominal amount (after allowances for settlement adjustments) of trade receivables and claims in progress, the Board has historically made assumptions that the future settlement periods likely to be attained from improved operational cash collection processes would show material shortening from the settlement periods suggested by the debtor days outstanding at each previous period end. As such the magnitude of the effective interest residing within the initial recognition of revenue (and therefore trade receivables and claims in progress) has previously been considered to be immaterial; with the consequence that there were no deductions from revenue to be subsequently released to the statement of comprehensive income as finance income over the length of the anticipated collection period.

However, as at 30 April 2009 the timescales for improvements in debtor days expected by the Board suggested that the effect of discounting trade receivables and claims in progress was no longer immaterial in the context of the results reported for the year.

IAS 8 requires entity management to change accounting policies where it results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity's financial position.

As a result, for the financial statements for the year ended 30 April 2009, the Board changed its approach to accounting for the effective interest rate and is now reflecting the impact of discounting given the collection periods being experienced. This change includes a restatement of the comparatives for the six months ended 31 October 2008, being a reduction in revenue consequent from discounting trade receivables and the recognition in other operating income of finance income accruing on a time basis by reference to the principal outstanding and at the effective interest rate applicable as set out in the table below. In so doing, the Board has considered the requirement of the IASB Framework paragraph 39 that the financial statements should be comparable "through time in order to identify trends in its financial position and performance".

Restatement of prior period comparatives

The Board historically treated not only all discounts arising under the ABI GTA but also all other settlement adjustments arising on claim closure as generic industry 'trade discounts' and, thereby in accordance with IAS 39, has deducted the aggregate of these amounts from revenue. The Board now treats settlement adjustments that are over and above the maximum ABI GTA level of documented discounts as an impairment against the carrying value of trade receivables as opposed to additional trade discounts and as such they are charged to cost of sales. This serves to separate the treatment of ABI GTA levels of discount from additional adjustments conceded for settlement. This is a disclosure point only as the impact on the results for the prior period ended 31 October 2008 is to increase both revenue and cost of sales by £2.3 million with loss before tax unchanged.

The impact on the prior period comparatives of the change in accounting policy and the amendment of the disclosure of a proportion of settlement adjustment described above is as follows:

Six months ended 31 October 2008 (Unaudited)	As previously reported	Change in accounting policy	Reclassification of settlement adjustments	Restated
	£'m	£'m	£'m	£'m
Revenue	86.0	(3.3)	2.3	85.0
Cost of sales	(76.5)	-	(2.3)	(78.8)
Other operating income	-	2.3	-	2.3
Loss before tax	(15.4)	(1.0)	-	(16.4)
Taxation	4.3	0.3	-	4.6
Loss for the year	(11.1)	(0.7)	-	(11.8)
Claims in progress	11.6	(0.4)	-	11.2
Trade and other receivables	132.1	(4.9)	-	127.2
Deferred tax	1.7	1.5	-	3.2
Shareholders' funds	60.0	(3.8)	-	56.2

3. Revenue and other operating income

An analysis of the Group's revenue and other operating income is as follows:

	6 Months	6 Months
	ended	ended
	31 October	31 October
	2009	2008
		Restated (note 2)
	(Unaudited)	(Unaudited)
	£'m	£'m
Delivery of accident management and related services	53.1	63.6
Credit repair	11.2	21.4
Revenue before exceptional charge	64.3	85.0
Exceptional Settlement Adjustment (note 4)	(2.7)	-
Revenue	61.6	85.0
Other operating income	2.4	2.3
	64.0	87.3

The chief operating decision-maker has been identified as the Board. The Board review the Group's internal reporting in order to assess performance and allocate resources and have determined that the Group operates in one business segment, being the delivery of accident management and other solutions to the automotive and insurance sectors. The business operates wholly within the UK, which the Board consider to be a single geographical segment. Accordingly, no information for business segment or geographical segment is required.

The Exceptional Settlement Adjustment (see note 4) relates to discounts that may arise on the collection of our charges for the delivery of accident management and related services.

Other operating income consists of interest income in relation to claims in progress and trade receivables, which is accrued on a time basis by reference to outstanding trade receivables and at the effective interest rate applicable (see note 2).

  4. Exceptional and other items

	6 Months	6 Months
	ended	ended
	31 October	31 October
	2009	2008
	(Unaudited)	(Unaudited)
	£'m	£'m
Exceptional items
Exceptional Settlement Adjustment:
- charged as an adjustment to revenue	2.7	-
- charged to cost of sales as an impairment to receivables	7.2	-
	9.9	-
Fleet impairment - charged to cost of sales	-	19.6
Cost reduction expense - credited to administrative expenses	(0.1)	-
Total exceptional items	9.8	19.6
Other items
Amortisation of acquired intangible assets	0.3	0.2
Cost of share-based payments	0.4	0.5
Change in fair value of derivative financial liability	-	(1.5)
Other items	0.7	(0.8)
Total exceptional and other items	10.5	18.8

Exceptional settlement adjustment

As a result of the credit crunch and its illiquidity consequences to insurers we narrated on pages 63 and 64 of our Annual Report the background to a decision to make an additional provision of £27.9 million against the carrying value of trade receivables and claims in progress ("FY2009 Provision") as at 30 April 2009.

The FY2009 Provision was made in recognition of the fact that insurer illiquidity issues may have continued through 2009 and to drive improvement in cash collections.

At the time of determining the FY2009 Provision we were unaware of the Autofocus rate evidence dishonesty, a fact we only became aware of towards the end of August 2009.

In addition to the under recoveries reported against the trading profit for the period, as a consequence of the issues associated with the allegedly dishonest rate evidence supplied to the courts by Autofocus, which became apparent during the period, the Group has charged a further exceptional settlement adjustment of £9.9 million in respect of trade receivables that existed as at 30 April 2009, over and above the exceptional settlement adjustment recognised in the accounts for the period ended on that date. This includes both amounts realised on the final settlement of receivables during the six month period ended 31 October 2009 (£2.5 million), as well as an additional adjustment of £7.4 million that has been made in respect of receivables that still remain outstanding as at 31 October 2009.

The aggregate amount of exceptional settlement adjustment held against the carrying value of trade receivables at 31 October 2009 was £28.5 million (30 April 2009: £27.4 million), consisting of the additional adjustment of £7.4 million and £21.1 million remaining from the exceptional settlement provision made in the year ended 30 April 2009.

The £7.4 million provision is a non-cash charge for the period and may or may not be used as we balance the flow of cash receipts from claims that have potential longer term value as we continue to demonstrate to the Courts and to insurers that their use of Autofocus rate evidence is unsafe, whilst also seeking to ensure that ongoing cash collections meet required levels.

Fleet impairment

Events during the prior period, particularly in the banking sector, led to a marked deterioration in the outlook for the UK economy and, with it, a fall in consumer confidence. As a result there was a significant reduction in demand for new and used vehicles that materially depressed forecast residual values.

In light of these events the Group reviewed the carrying value of every vehicle in its fleet as at 31 October 2008 and determined the requirement for a consequent £19.6 million exceptional impairment charge. The basis of calculation of this exceptional impairment charge is detailed on page 64 of the Annual Report.

Cost reduction expense

This credit relates to the release of an unutilised amount of a provision for exceptional cost reduction expenses charged during the year ended 30 April 2009.

Amortisation of acquired intangible assets

The amortisation of acquired intangible assets is a non-trading and non-cash charge and has been excluded in determining adjusted profit.

Cost of share based payments

The cost of share based payments is also a non-trading and non-cash charge and has been excluded in determining adjusted profit.

Change in fair value of derivative financial liability

The change in fair value of the derivative financial liability, being the equity conversion option attaching to the Convertible Notes is driven by market factors largely beyond the Group's control and has therefore been excluded in determining adjusted profit.

5. Finance income and costs

	6 Months	6 Months
	ended	ended
	31 October	31 October
	2009	2008
	(Unaudited)	(Unaudited)
	£'m	£'m
Finance income
Interest income on bank balances	(0.1)	(0.4)
Finance costs
Bank borrowings	1.7	1.8
Obligations under finance leases	2.5	4.1
Convertible Notes	2.9	2.7
Total finance costs	7.1	8.6
Change in fair value of derivative financial liability	-	(1.5)
Net finance costs	7.0	6.7

The finance costs of the Convertible Notes of £2.9 million (2008: £2.7 million) include a charge of £1.4 million (2008: £1.4 million) in respect of the 5.50% coupon payable twice yearly and £1.5 million (2008: £1.3 million) in aggregate in respect of accreted interest, amortisation of issue costs and amortisation of the value attributed to the equity conversion component at inception, which has been separately recognised as a derivative financial liability.

  6. Taxation

The total tax charge for the period of £1.2 million (2008: tax credit of £4.6 million) comprises a tax charge of £1.3 million (2008: £0.8 million) based on the estimated effective tax rate of 31.5% for the year ending 30 April 2010 applied to taxable profits before charging exceptional and other items (2008: 31.6%), and a tax credit of £0.1 million (2008: £5.4 million) in respect of the net cost of exceptional and other items. The prior period comparatives have been restated as explained in note 2.

The Group has a deferred tax asset of £7.0 million (2008: £3.2 million), which includes £6.2 million of taxable losses arising in the year ended 30 April 2009 as it has an expectation that taxable profits will be generated in future years against which this deferred tax asset could be utilised. The Group does not, however, have sufficient evidence that the taxable loss arising in the current period as a result of charging the £9.9 million Exceptional Settlement Adjustment could be utilised in the foreseeable future and consequently no additional deferred tax asset has been recognised.

7. Basic earnings / loss per share

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of shares in issue during the period. Details of the loss and weighted average number of ordinary shares used in the calculations are set out below:

	6 Months	6 Months
	ended	ended
	31 October	31 October
	2009	2008
		Restated (note 2)
	(Unaudited)	(Unaudited)
Loss attributable to ordinary shareholders (£'m)	(7.7)	(11.8)
Weighted average number of shares	70,938,544	71,060,884
Basic loss per share (pence)	(10.9)	(16.6)

Adjusted basic earnings per share

To understand the underlying trading performance, the Directors consider it appropriate to disclose basic earnings per share before exceptional and other items. The calculation of adjusted earnings per share is set out below:

	6 Months	6 Months
	ended	ended
	31 October	31 October
	2009	2008
		Restated (note 2)
	(Unaudited)	(Unaudited)
Loss attributable to ordinary shareholders (£'m)	(7.7)	(11.8)
Post-tax cost of exceptional items (£'m)	9.8	14.1
Post-tax cost of / (income from) other items (£'m)	0.5	(0.7)
Adjusted profit on ordinary activities after taxation (£'m)	2.6	1.6
Weighted average number of shares	70,938,544	71,060,884
Basic loss per share (pence)	(10.9)	(16.6)
Cost of exceptional items (pence)	13.8	19.8
Cost of / (income from) other items (pence)	0.7	(1.0)
Adjusted basic earnings per share (pence)	3.6	2.2

  8. Diluted earnings / loss per share

Diluted earnings / loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has three sources of dilutive potential ordinary shares, namely the Convertible Notes, share options and the Morgan Stanley Warrant.

The Convertible Notes had an initial conversion price of 107.7 pence per ordinary share. As set out in the Company's notice of extraordinary general meeting dated 7 December 2007 and in accordance with the terms and conditions of the Convertible Notes contained in the offering circular dated 4 January 2008, the conversion price of the Convertible Notes was subject to adjustment on the first anniversary of their issue. Accordingly, on 9 January 2009 the conversion price was adjusted to 75.4 pence per ordinary share.

For the purposes of the fully diluted weighted average number of shares, the Group is required to assume that the Convertible Notes are converted at the above price of 75.4 pence per ordinary share, which would result in the issue of 66.3 million shares. The Group's earnings / loss have been adjusted for the post-tax finance costs associated with the Convertible Notes.

For the share options and Morgan Stanley Warrant the number of potential dilutive shares represents the number of ordinary shares that would be issued upon their exercise, net of the number of ordinary shares that could have been acquired at fair value by the Company based on the monetary value of their subscription rights. Fair value is determined as the average market price of the Company's shares during the period. The share options and Morgan Stanley Warrant are only assumed to be potentially dilutive to the extent that they were 'in the money' by reference to the average market value of the Company's ordinary shares during the period.

Potential ordinary shares are treated as diluted only when their conversion to ordinary shares would decrease earnings per share or increase loss per share. The post-tax finance costs of the Convertible Notes for the period were £2.1 million (2008: £0.6 million, which is stated net of a £1.5 million credit arising from the change in the fair value of the derivative financial liability associated with the conversion option). As a consequence the issue of 66.3 million shares that would result from conversion means that the loss per share would decrease. Diluted loss per share is therefore equal to the basic loss of 10.9 pence per share (2008: loss of 16.6 pence per share).

Adjusted diluted earnings per share

The calculation of adjusted diluted earnings per share for the six months ended 31 October 2009 is set out below. It assumes the same adjustments as shown in note 7 together with the post-tax finance costs of the Convertible Notes as set out below:

	6 Months
	ended
	31 October
	2009
	(Unaudited)
Loss attributable to ordinary shareholders (£'m)	(7.7)
Post-tax finance costs of Convertible Notes (£'m)	2.1
Post-tax cost of exceptional items (£'m)	9.8
Post-tax cost of / (income from) other items (£'m)	0.5
Adjusted profit on ordinary activities after taxation (£'m)	4.7
Weighted average number of shares - diluted	137,331,614
Loss per share (pence)	(5.6)
Post-tax finance costs of Convertible Notes (pence)	1.5
Cost of exceptional items (pence)	7.1
Cost of other items (pence)	0.4
Adjusted diluted earnings per share (pence)	3.4

The issue of 66.3 million shares that would result from conversion means that adjusted earnings per share for the six months ended 31 October 2008 would increase. Adjusted diluted earnings per share for the six months ended 31 October 2008 is therefore equal to the adjusted basic earnings of 2.2 pence per share.

9. Equity dividends

	6 Months	6 Months
	ended	ended
	31 October	31 October
	2009	2008
	(Unaudited)	(Unaudited)
	£'m	£'m
Ordinary shares
Final dividend 2008 (1.5 pence per share)	-	1.1

The Directors are not recommending the payment of an interim dividend (2008: nil pence per share).

10. Property, plant and equipment

	Property, plant and equipment
	(Unaudited)
	£'m
Opening net book amount - 1 May 2009	62.2
Additions	4.1
Transfer to assets held for sale - vehicles	(1.3)
Disposals	(10.1)
Depreciation	(5.0)
Closing net book amount - 31 October 2009	49.9

The net book amount of property, plant and equipment primarily relates to motor vehicles.

11. Trade and other receivables

	31 October 2009	31 October 2008	30 April 2009
		Restated (note 2)
	(Unaudited)	(Unaudited)	(Audited)
	£'m	£'m	£'m
Trade receivables	118.2	124.6	119.5
Exceptional Settlement Adjustment (note 4)	(28.5)	-	(27.4)
Trade receivables - net	89.7	124.6	92.1
Vehicle sales proceeds	0.6	-	1.7
Other receivables	1.6	0.2	0.6
Prepayments and accrued income	2.9	2.4	2.6
	94.8	127.2	97.0

Trade receivables represent amounts receivable for the provision of services to customers. The expected adjustments arising on the settlement of receivables represents a critical judgement made by the Directors. The Directors have estimated the value of trade receivables to reflect the expected settlement amounts receivable on the basis of the prior experience of collection levels and anticipated collection profiles. Further details of the Exceptional Settlement Adjustment are set out in note 4.

  12. Share capital

	31 October 2009	31 October 2008	30 April 2009
	(Unaudited)	(Unaudited)	(Audited)
	£'m	£'m	£'m
Authorised
200,000,000 ordinary shares of 5p	10.0	10.0	10.0
Allotted, issued and fully paid
71,138,544 ordinary shares of 5p	3.6	3.6	3.6

Purchase of own shares

On 16 July 2008 the trustee of the Group's Long Term Incentive Plan ("'LTIP") acquired 200,000 ordinary shares of 5p each at a price of 55.4 pence per ordinary share. These ordinary shares were purchased to hedge the liability of previous awards made under the LTIP. The total holding of the LTIP following this transaction is 200,000 Ordinary Shares, equating to 0.28% of the Company's issued share capital.

13. Cash generated from operations

	6 Months	6 Months
	ended	ended
	31 October	31 October
	2009	2008
		Restated (note 2)
	(Unaudited)	(Unaudited)
	£'m	£'m
Net loss	(7.7)	(11.8)
Depreciation and other non-cash items:
Depreciation	5.0	13.6
Fleet impairment	-	19.6
Amortisation of intangible assets	0.3	0.3
(Profit) / loss on disposal of vehicles, plant and equipment	(1.3)	0.4
Share-based payments	0.4	0.5
Changes in working capital:
Decrease / (increase) in trade and other receivables	1.0	(17.8)
(Increase) / decrease in claims in progress	(0.9)	4.7
Decrease in payables	(1.8)	(0.2)
VAT recovered on fleet additions	0.6	6.9
Finance income	(0.1)	(0.4)
Finance costs	7.1	8.6
Change in fair value of derivative financial liability	-	(1.5)
Tax	1.2	(4.6)
Cash generated from operations	3.8	18.3

  14. Analysis of movements in net borrowings

(a) Reconciliation of cash and cash equivalents to net borrowings

	6 Months	6 Months
	ended	ended
	31 October	31 October
	2009	2008
	(Unaudited)	(Unaudited)
	£'m	£'m
Decrease in cash in the period	(14.3)	(14.4)
Capital element of finance lease payments	25.9	35.0
Repayment of borrowings	0.3	0.2
Decrease in net debt resulting from cash flows	11.9	20.8
Inception of finance leases	(4.6)	(44.2)
Increase in accrued Convertible Notes interest included in net debt	(1.2)	(1.0)
Amortisation of debt issue costs	(0.6)	(0.6)
Decrease / (increase) in net debt during the period	5.5	(25.0)
Net debt brought forward	(149.8)	(149.0)
Net debt carried forward	(144.3)	(174.0)

(b) Analysis of movement in net borrowings

	As at			As at
	30 April		Non-cash	31 October
	2009	Cash flows	items	2009
	(Audited)	(Unaudited)	(Unaudited)	(Unaudited)
	£'m	£'m	£'m	£'m
Cash	17.2	(14.3)	-	2.9
Bank loans	(41.0)	0.3	(0.3)	(41.0)
Finance leases	(75.5)	25.9	(4.6)	(54.2)
Convertible Notes	(50.5)	-	(1.5)	(52.0)
Net debt	(149.8)	11.9	(6.4)	(144.3)

15. Seasonality

The Group's trading activity can be weighted towards the darker, colder and wetter months of the year, particularly the months from October to March.

16. Related party transactions

The key management team consists of the Executive and Non-Executive Directors. Their compensation amounted to £0.6 million for the six months ended 31 October 2009 (2008: £0.6 million).

There were no other related party transactions during the six months ended 31 October 2009 that require disclosure.

17. Events after the balance sheet date

On 27 November 2009 the Group announced that it was embarking on a programme of strategic change to refocus its operations on higher margin business from its automotive and manufacturer referral partners, historically the mainstay of operations. During the second half of the current financial year we expect to reduce the size of our fleet further, thereby commencing materially fewer lower margin hire starts and reducing the working capital requirements of the business.

To align the cost base of the prestige focused business, and after a period of consultation with our staff, annualised reductions in fleet and employment related costs of around £24 million are targeted to be attained by the end of the current financial year at an estimated cost of £2 million to be incurred in the second half of the current financial year.

  Statement of Directors' Responsibilities

for the six months ended 31 October 2009

The Directors confirm that this set of consolidated condensed financial information has been prepared in accordance with IAS 34 as adopted by the EU, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 of the Disclosure and Transparency Rules, namely:

an indication of important events that have occurred during the first six months and their impact on this set of consolidated condensed financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

Details of the Board of Directors that served during the six months ended 31 October 2009 can be found on pages 24 and 25 of the Annual Report.

By order of the Board

S Evans M Andrews

Chief Executive Group Finance Director

30 December 2009

ENDIR EKLFLKLBEFBK

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Related Shares:

ACE.L