13th Dec 2007 07:00
Impact Holdings (UK) plc
("Impact" or "The Group") Not for release, publication or distribution in, or into, The United States, Canada, Australia or Japan Impact Holdings (UK) plc ("Impact" and, together with its subsidiaries, "the Group") Unaudited Interim Results
Impact Holdings (UK) plc. (AIM: IHUK), the specialist lender, announces its unaudited interim results for the six months ended 30th September 2007.
Financial Highlights
- results in line with management expectations- origination levels remain strong- EBIT of ‚£171,772*- earnings per share 0.17p*- pre-tax profit of ‚£196,249
* restated to reflect the adoption of IFRS as per note 4
Operational Highlights
- structured recovery process for provisioned exposure well progressed - good growth in primary business lines - successful incorporation of property bridging subsidiary - bank debt facilities operational to support continued growth
For further information:Impact Holdings (UK) plcPaul Davies Chief Executive Officer Tel: +44 (0)161 437 9499Chris Williams, Finance Director www.impactholdings.netDaniel Stewart & Company plcAlastair Cade, Corporate Finance Tel: +44 (0)207 776 6550
CHAIRMAN'S STATEMENT
We are pleased to report our unaudited interim financial results for the six months ended 30th September 2007. Revenue of ‚£679,793 and pre-tax profit of ‚£196,249 were in line with expectations as were cash flows and origination levels. The pre tax profit is after taking account of gross loan recoveries totalling ‚£615,287, provided against in the previous period.
The period post flotation was extremely difficult and the new management team has addressed all the problematical inherited issues, progressed the recovery process in line with a structured recovery strategy and ensured the organic lending is back on track with strong risk management processes now in place.
We are not intending to pay an interim dividend.
Business Overview
Impact's funding divisions for both solicitor lending and property bridging have been growing in accordance with management expectations.
Through continued refinement and focus on marketing and strong risk management, Impact believes it can continue to increase its market penetration in both the pre-settlement and property bridging arenas. Market research shows there is a growing use of structured finance to resolve Personal Litigation and Matrimonial Disputes and it is our belief that the total addressable market for these aspects of our business will grow significantly.
Pre-Settlement Funding
Pre-settlement funding is the provision of disbursement funding in pending personal injury cases, as well as providing claimants with advances on their compensation. Impact continues to grow its organic pre-settlement origination activity and will continue to look at other market opportunities in the solicitor and professional lending marketplace.
Property Bridging
Bridging finance is the term used to describe non amortising, interest only, short term funding (usually up to 12 months) secured on land or property. Impact's activities involve providing short term finance secured against residential and commercial property, typically through one of the following types of transaction:
- Chain-breaking mortgage;- Property development including site purchase and new-build projects;- Property conversions and refurbishments;- Acquiring properties where a surveyor recommends a retention;- Buying from auctions;- Equity release.
Impact's lending decision is based on careful consideration of a client's track record and sector of activity, as well as the proposed loan period and likely valuation of the underlying property at the time of repayment. Loans are usually repaid from refinance or proceeds of sale following, for example, refurbishment or development. Given the present uncertainty in the property market, strict underwriting and risk management assessment is adhered to.
Outlook
We expect to experience steady growth in the professional and property funding arena and management has successfully sourced sufficient funding facilities from its bankers to capitalise on the ongoing strong demand for Impact's products.
The key to the successful exploitation of the market opportunities we have identified will be the further development of our risk management controls and the expansion of our IT platform. These, together with the agreed bank debt facilities, will enable a well controlled, growing and profitable future for the Group.
Richard KilsbyNon Executive Chairman13 December 2007
Consolidated income statement
6 Months 6 Months ended ended Year ended 30-Sep-07 30-Sep-06 31-Mar-07 Unaudited Unaudited Unaudited Note ‚£ ‚£ * ‚£ *REVENUE 679,793 663,426 1,079,967Cost of sales (285,098) - (108,881) Gross Profit 394,695 663,426 971,086 Employee benefits expense (269,178) (9,501) (341,308)Other administrative expenses (532,965) (149,992) (383,851)Share based compensation (7,736) (111,275) (94,836)Bad debt recoveries 615,287 - -Bad debt provision - - (5,378,772)Impairment of goodwill - (21,377) (1,288,802)Amortisation of intangible assets (20,278) - -Depreciation (8,053) (3,149) (12,695) TOTAL ADMINISTRATION EXPENSES (222,923) (295,294) (7,500,264) PROFIT/(LOSS) FROM OPERATIONS 171,772 368,132 (6,529,178) Financial income 24,477 9,869 23,071Financial costs - (1,145) (3,113)PROFIT/(LOSS) BEFORE TAXATION 196,249 376,856 (6,509,220) Income tax expense - - - PROFIT/(LOSS) FOR THE PERIOD 196,249 376,856 (6,509,220) Profit/(Loss) per share- basic (pence) 2 0.17 0.72 (7.9)Profit /(Loss) per share - diluted (pence) 2 0.17 0.67 (7.9)
The results for the period are derived from continuing activities
* Restated to reflect the adoption of IFRS as per note 4
Consolidated Balance SheetAs at 30 September 2007 30 Sep-07 30 Sep-06 31 March-07 Unaudited Unaudited Unaudited ‚£ ‚£* ‚£*ASSETSNON CURRENT ASSETSPlant and equipment 24,348 23,985 26,131Intangible assets 101,388 - 114,028Goodwill 700,389 1,967,814 700,389 826,125 1,991,799 840,548 CURRENT ASSETSTrade receivables 6,150,417 7,519,235 2,745,777Other receivables 142,601 21,719 53,955Cash 1,351,713 1,596,284 2,359,470 7,644,731 9,137,238 5,159,202 TOTAL ASSETS 8,470,856 11,129,037 5,999,750 EQUITY AND LIABILITIESEQUITYShare capital 5,666,667 5,666,667 5,666,667Share premium account 4,759,823 4,759,823 4,759,823Share based payment reserve 381,572 279,000 373,836Profit and loss account (6,517,200) 283,902 (6,713,449) 4,290,862 10,989,392 4,086,877 CURRENT LIABILITIESAmounts due to bankers and short term 3,578,820 - 1,548,381loansTrade payables 439,768 37,945 256,566Other payables 161,406 101,700 107,926 TOTAL LIABILITIES 4,179,994 139,645 1,912,873 TOTAL EQUITY AND LIABILITIES 8,470,856 11,129,037 5,999,750
* Restated to reflect the adoption of IFRS as per note 4.
Consolidated Cash FlowFor the period to 30 September 2007 6 Months 6 Months ended ended Year ended 30-Sep-07 30-Sep-06 31-Mar-07 Unaudited Unaudited Unaudited ‚£ ‚£ * ‚£ * Profit/(loss) before tax 196,249 376,856 (6,509,220)Adjustments to reconcile profit/(loss)before tax to cash generated from/(usedin) operating activitiesShare based payments 7,736 111,275 94,836Depreciation 8,053 3,149 12,695Amortisation on intangible assets 20,278 21,377 1,288,802(Increase) in trade and other (11,534) (5,485,045) (53,757)
receivables
Decrease/(increase) in trade and other 236,682 (465,225) (240,378) payables Increase in advances to Customers net (3,481,752)
- (690,336)of impairment provisionIncrease in amount owed to lending 2,030,439 - 1,548,381
institutions
Net finance income (24,477) (8,724) (19,958)
Cash generated from (used in) operating (1,018,326) (5,446,337) (4,568,935) activities
Investing activities Acquisition of plant and equipment (6,270) (1,996) (127,446) Acquisition of intangible fixed assets (7,638)
- -Interest received 24,477 9,869 23,071Interest paid - (1,145) (3,113)Purchase of subsidiary undertaking - (108,477) (108,477) Net cash from/ (used in) investing 10,569 (101,749) (215,965)activities Financing Issue of share capital - 6,839,028 6,839,028Net cash from financing activities - 6,839,028 6,839,028
(Decrease)/increase in cash and cash (1,007,757) 1,290,942 2,054,128 equivalents
Opening cash and cash equivalents 2,359,470 305,342 305,342
Closing cash and cash equivalents 1,351,713 1,596,284 2,359,470
* Restated to reflect the adoption of the IFRS as per note 4
Consolidated Statement of Changes in EquityAs at 30 September 2007 Issued Share Share based Retained Total capital premium payment earnings equity reserve ‚£ ‚£ ‚£ ‚£ ‚£ Balance at 1 April 2006 216,667 220,795 - (204,229) 233,233Profit for the period - - - 376,856 376,856Issue of shares 5,450,000 4,539,028 - - 9,989,028Share option consideration - - 279,000 - 279,000Cost of share basedpayments - - - 111,275 111,275At 30 September 2006 5,666,667 4,759,823 279,000 283,902 10,989,392Loss for the period - - - (6,997,351) (6,997,351) Cost of share based - - 94,836 - 94,836paymentsAs at 1 April 2007 5,666,667 4,759,823 373,836 (6,713,449) 4,086,877 Profit for the period - - - 196,249 196,249Cost of share - - 7,736 - 7,736based paymentsAt 30 September 2007 5,666,667 4,759,823 381,572 (6,517,200) 4,290,862
Notes to the Interim Financial Statements
1. Accounting policies and basis of preparation
The Group's previous financial statements have been prepared under UK Generally Accepted Accounting Principles (UK GAAP). For the financial year ending 31 March 2008, the Group will prepare its annual consolidated financial statements in accordance with IFRS as adopted by the European Union (EU) and implemented in the UK.
The Group's date of transition to IFRS was 1 April 2006 at which date the Group prepared its opening IFRS balance sheet. The financial information for the 6 months ended 30 September 2007 is unaudited and has been prepared in accordance with the Group's accounting policies based on IFRS standards that are expected to apply for the financial year 2008. The comparative financial information for the 6 months ended 30 September 2006 is also unaudited and has been restated under IFRS. The Group has not applied lAS 34, Interim Financial Reporting, which is not mandatory for UK Groups, in the preparation of these interim financial statements.
The presentation of financial information under IFRS is governed by IFRS 1 'First-time Adoption of IFRS" because they are part of the period covered by the Group's first IFRS financial statement for the year ended 31 March 2007. In some cases this will require the presentation of an item in a different position, or the use of a different description in the financial statements to that adopted in the UK GAAP financial statements. These reclassifications have been described in the explanatory notes.
An explanation of how the transition from UK GAAP to IFRS has affected the Group's financial statements for the period ended 30 September 2007, 31 March 2007 and 30 September 2006 is set out in note 4.
The interim financial information has not been audited and does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985 but has been reviewed by the auditors in accordance with International Standards on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information performed by the Independent Auditor of the Entity" issued by the Auditing Practice Board. The Group's statutory accounts for the year ended 31 March 2007, prepared under UK GAAP, have been delivered to the Registrar of Companies. The report of the auditors on these accounts was unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985.
The principal accounting policies adopted in the preparation of these interim financial statements are set out below. These policies have been consistently applied to all periods presented.
The interim statements are prepared on a going concern basis, which assumes the Group will continue in operational existence for the foreseeable future. The Group's ability to meet its future working capital requirements and therefore continue as a going concern is dependent upon it being able to generate significant revenues and free cash flow. The Directors have prepared projections which they consider to be prudent and demonstrate that the business can operate within its existing cash resources. They have identified a series of realistically achievable actions and they are committed to taking to mitigate the rate of cash outflow should revenues not be secured as predicted. The Directors believe that the Group has sufficient funds for the foreseeable future and therefore the interim financial statements have been prepared on the going concern basis.
Basis of consolidation
The consolidated interim financial statements comprise the accounts of Impact Holdings (UK) plc and its subsidiary undertakings Impact Funding (UK) Limited, Impact Funding Solutions Limited, Impact IT Solutions Limited and Impact Bridging Solutions Limited up to 30 September 2007.
Revenue
Turnover and the profit for the period were derived from the Group's principal activity and arose principally in the United Kingdom. Revenue from lending operations is recognised at the time of liability of the borrower occurs.
Establishment fees are charged in accordance with the loan agreement and are brought to account on an accruals basis at the time the loan is issued and if not received at the balance sheet date, are reflected in the trade receivables.
Interest charged on outstanding loans is brought to account on an accrual basis and, if not received at the balance sheet date, is also reflected in trade receivables.
Goodwill and Intangibles
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition.
Goodwill on acquisition of subsidiaries is separately disclosed.
Goodwill is recognised as an asset and reviewed for impairment at least annually. An impairment review has been carried out by the Directors at the period end, no goodwill has been written down reflecting the present value of the anticipated net cash inflows attributable to each cash generating unit.
Goodwill is allocated to cash generating units for the purpose of impairment testing. Each of these cash generating units represents the Group's investment.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
The intangible asset, arising from software, is to be written off in equal annual instalments over its estimated useful economic life of 3 years.
Plant and equipment
Plant and equipment is initially recorded at cost. Depreciation is provided at rates calculated to write off the cost less residual value of each asset over its expected useful life, as follows:
Fixtures and fittings - 3 years straight lineMotor vehicles - 4 years straight lineComputer equipment - 3 years straight line
The assets' residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end. Computer equipment has been re-stated on transition to IFRS as it includes assets that meet the recognition criteria under IAS 38 for classification as intangible assets.
Impairment
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-‚generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Leasing commitments
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.
Employee benefits
The pension costs charged in the financial statements represent the contribution payable by the Group during the year.
Share-based compensation
The Group operates an equity-settled, share based compensation plan. The fair value of the employee services received in exchange for the grant of options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and growth targets). Non-market vesting conditions are included in the assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to reserves over the remaining vesting period. Costs are recognised in the income statement with a corresponding credit to a share based payment reserve.
The proceeds received net of any attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.
Deferred taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference-and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
The Group'sFinancial instruments
The Group's principal instruments comprise bank loans. The main purpose of these financial instruments is to raise finance for the Group's operations. The group has various financed assets, such as trade receivables, cash and short term deposits, which arise directly from its operations. It is and has been throughout the six months ended 30 September 2007 and the year ended 31 March 2007, the Group's policy that no trading in derivatives shall be undertaken.
The risk management of the business has been considerably strengthened with all new and existing counter party risk regularly assessed by an independent committee which consists of the key executives within the Group, who have experience in risk management and financial analysis.
The main risks arising from the Group's financial instruments are interest rate risk, liquidity risk and credit risk.
Interest rate risk: The interest risks are limited to the revolving credit facilities which the Group has in place.
Liquidity risk: It is the Group's policy to manage liquidity to ensure as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation
Credit risk: This is the risk of the financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group's receivables from customers. The Group has strict credit and risk assessment procedures in operation to mitigate this risk.
Borrowing facilities: At 30 September 2007, the Group holds uncommitted revolving credit facilities of ‚£15 million.
Trade and other receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate.
Financial liability
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
An instrument will be classified as a financial liability when there is a contractual obligation to deliver cash or another financial asset to another enterprise.
An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, deposits held on call with banks and other short-term highly liquid investments with original maturities of three months or less.
Borrowings
Interest-bearing bank loans and overdrafts are initially recorded at fair value, which represents the fair value of the consideration received, net of any issue costs associated with other borrowings. Borrowings are subsequently stated at amortised cost.
Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
2. Earnings per ordinary share
6 months 6 months Year ending September 2007 September 2006 March 2007 Profit/(loss) 196,249 378,856 (6,509,220) Number of shares - 113,333,333 52,464,481 82,815,525basicNumber of shares - 116,522,831 55,901,232 82,815,525diluted EPS - basic (pence) 0.17 0.72 (7.9)EPS - diluted 0.17 0.67 (7.9)(pence)
The weighted average number of ordinary shares for calculating the diluted loss per share for the year ended 31 March 2007 are identical to those for the basic loss per share. This is because the outstanding share options would have the effect of reducing the loss per ordinary share and would therefore not be dilutive under the terms of International Accounting Standard ("lAS") 33.
3. Loan facility
During the period the Group entered into a ‚£5 million loan facility with Yorkshire Bank plc, to enable it to develop its property backed loan business further.
4. Explanation of the transition to IFRS
For all periods up to and including the year ended 31 March 2007, the Group prepared its financial statements in accordance with United Kingdom Generally Accepted Accounting Practices (UK GAAP).
In preparing these interim financial statements, the Group has started from an opening balance sheet as at 1 April 2006, the Group's date of transition to IFRS, and made those changes in accounting policies and other restatements required by IFRS. The only change as a result of adopting IFRS is to the categorisation of software as an intangible fixed asset, as shown in the reconciliation between UK GAAP and IFRS below:
Reconciliation of balance sheet as at 31 March 2007
UK GAAP IFRS IFRS Effect ‚£ ‚£ ‚£ ASSETS NON CURRENT ASSETSPlant and equipment 140,159 (114,028) 26,131Intangible assets - 114,028 114,028Goodwill 700,389 700,389 840,548 - 840,548Notes
1. Under IAS38 Intangible Assets; software with a net book value of ‚£114,028 has been reclassified as intangible assets.
2. No adjustments or reclassifications are required in respect of the 6 months ended 30 September 2006 and 30 September 2007 to convert the results into IFRS. Accordingly, no reconciliations are required.
5. The Board of Directors approved the interim report on 13 December 2007.
INDEPENDENT REVIEW REPORT TO IMPACT HOLDINGS UK PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the six months ended 30 September 2007 which comprises a consolidated income statement, a consolidated balance sheet, a consolidated cash flow and the related explanatory notes that have been reviewed. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report, including the conclusion, has been prepared for and only for the Company for the purpose of meeting the requirements of the AIM Rules for Companies and for no other purpose. We do not, therefore, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Directors' Responsibilities
The interim financial report is the responsibility of, and has been approved by the directors. The directors are responsible for preparing and presenting the interim financial report in accordance with the AIM Rules for Companies.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards and International Financial Reporting Interpretations Committee ("IFRIC") pronouncements as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with the measurement and recognition criteria of International Financial Reporting Standards and International Financial Reporting Interpretations Committee ("IFRIC") pronouncements, as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the six months ended 30 September 2007 is not prepared, in all material respects, in accordance with the measurement and recognition criteria of International Financial Reporting Standards and International Financial Reporting Interpretations Committee ("IFRIC") pronouncements as adopted by the European Union, and the AIM Rules for Companies.
Baker Tilly UK Audit LLPChartered AccountantsBrazennose HouseLincoln SquareManchesterM2 5BL13 December 2007 Impact Holdings (UK) plc Registered in England number 05384161 Registered Office: 500 Style Road, Manchester, M22 5HQDIRECTORS Richard Kilsby Non - Executive ChairmanPaul Davies Chief ExecutiveChris Williams Finance Director SECRETARYChris Williams REGISTERED OFFICE500 Styal RoadManchesterM22 5HQ SOLICITORS TO THE COMPANYPannone LLP123 DeansgateManchesterM3 2BU REGISTRARSCapita RegistrarsThe Registry34 Beckenham RoadBeckenhamKentBR3 4TU
IMPACT HOLDINGS (UK) PLCRelated Shares:
IHUK.L