26th Sep 2008 07:00
IMPACT HOLDINGS (UK) PLC Preliminary results for the Year Ending 31 March 2008
Impact Holdings (UK) plc, the specialist lending business, announces its preliminary results for the year to 31 March 2008.
FINANCIAL HIGHLIGHTS
The headline financial results reveal:-
* Results in line with management expectations; * Operating losses before exceptional items of ‚£615,763; * Exceptional one off costs of ‚£1,681,799, of which ‚£1,246,529 is non-cash write off of goodwill; * Total assets up 53% to ‚£9.2 million; * Structured recovery process with ‚£1.25 million realised from previously provided bad debts; * Year end cash balances of ‚£1.1 million.
Commenting on the results Paul Davies, the Chief Executive, said "Following a difficult initial trading period and the uncertain market conditions seen over the past twelve months ongoing operations have proved difficult as we continue to re-structure the business and recruit new management and operational personnel.
Considerable effort has been spent in improving the risk management, operational and financial controls and the past twelve months have resulted in a period of organic growth but due to the uncertain economic environment the Board has decided a period of consolidation and a re-alignment of the business model is now required.
Since joining as CEO in October 2006 the emphasis has been to secure the future viability of the Group with the priorities being to ensure the Group had the necessary systems to administer and control its own loan book coupled with the securing of banking facilities.
The credit crisis which materialized in the latter part of 2007 has had a profound effect on the availability of funding in the market generally but Impact has continued to secure banking facilities to operate on a day-to-day basis. We are seeing increasing activity in our key areas of term funding solutions however the present economic uncertainty and in particular the volatility in the property market has led us to take a very conservative approach to funding new transactions until the market returns to a more stable environment.
The Group's strategy continues to be to develop the business as a niche lender and we have already earmarked a number of new opportunities which the Board is confident will generate sufficient reward when measured against the potential risks.
The future strategic objective of the Group in relation to the solicitor disbursement funding business is being assessed with the potential to become a vertically integrated Group that controls the risk of funding personal injury claims from the sourcing of claims to the completion of the legal case. This integrated model would result in the Group investing over time in a new Claims Management Company to control the quality of Personal Injury cases funded, the setting up of an insurance captive to ensure the relevant risks of funding such cases are fully insured and once the Legal Services Act allows Impact would consider investing in a law firm that would monitor and manage the personal injury cases the Group funds."
Further information:Impact Holdings (UK) plcPaul DaviesChief Executive OfficerTel: 0161 437 9499
Daniel Stewart & Company plc
Simon Leathers / Tessa Smith
Tel: 020 7776 6550
CHAIRMAN'S STATEMENT
The financial markets in 2007 and 2008 have seen unprecedented turmoil with the collapse of the sub-prime mortgage market in the USA and the global banking crisis having a profound effect. The impact and availability of inter-bank funding has constrained the market considerably leading to an increased cost of funding in the UK. This increased cost of funding has led the Financial Institutions to review their lending criteria and consequently pass these increases on to their clients and reduce the availability of credit. Impact has not been immune to this and we anticipate the restriction on the availability of increased banking lines and upward pressure on interest rates within the market as a whole will continue for the foreseeable future.
THE BOARD
The Board is committed to adhering to strong Corporate Governance and has committed to operating within a framework of prudent controls. This includes ensuring that the future risks of the business are controlled and managed by a separate Risk Committee.
The Board has been bolstered by the appointment of David Hughes with the Non-Executives now being in the majority following the resignation of our part-time Finance Director Chris Williams on 11 June who left the company as planned to concentrate on his other business interests.
STRATEGY
We remain focused on the short term niche funding market in the UK but the availability of funding lines in the present uncertain financial markets may restrict growth and profitability over the foreseeable future. There remain considerable opportunities and we aim to capitalize on the inflexibility and lack of understanding of the larger banks where possible but we remain conscious of the uncertain economic environment in which we trade.
The core business of solicitor lending, in relation to funding disbursements on personal injury cases, continues to be a market that we are lending into, albeit with a conservative approach within the credit risk function. The panel of solicitors utilise our web based system "Veracity" for accepting personal injury cases and funding and insuring them. However we intend to look at the possibility of progressing a vertically integrated model of controlling the sourcing; funding; insuring and managing of personal injury cases over the coming months. In the interim, management is reviewing the existing panel of solicitors and sourcing the claims through third party claims management companies with the risks to the business being:-
* The credit and operational quality of the firms of solicitors managing the individual personal injury claim; * The quality of the individual claims introduced to the firms of solicitors by the claims management companies.
Management now audit each individual firm of solicitors and claims management companies at least twice each year to ensure each case introduced and funded is being managed and progressed in a timely manner
The property bridging business which started to trade in July 2007 has seen considerable interest albeit the "credit crunch" has had an unprecedented effect on the marketplace and according to the Bank of England is set to get worse before it gets better. A large number of mortgage providers have simply stopped lending, others have reined in loan to values and/or applied a "cap" to their property exposure.
The attendant risks for all bridging businesses are:
* Banks/Funders are wary of exposure to the sector and may rein in their exposure; * The "take out" via refinance or property sale is slower and harder to achieve, tying up bridging business's books with potentially non performing debt; * Prices of certain locations and types of property have fallen sharply, eroding the secured margin even on short term loans and restricting the ability to allow interest roll up; * Reduced volumes of property transactions will affect the volume of good quality bridging opportunities.
Management is addressing each of these items to ensure that Impact manages its operating and financial risks in the present uncertain environment to ensure the Group has a long term future.
DIVIDEND
No dividend will be declared for the period.
TRADING REVIEW
Impact has achieved a year of progress in the implementation of its strategy for restructuring the business by the management team with the successful incorporation of our property bridging business and the continued organic growth of our solicitor lending business.
In the current economic climate, the Board remains focused on delivering in a controlled and structured way its strategic objectives and are determined to ensure that the credit quality remains stable.
OUTLOOK
There is no doubt that there will always be the opportunity for niche lending in this ever more complex financial world. However, to be able to capitalise on those opportunities will require the company to be able to react quickly, be supported by a robust credit risk function and have appropriate systems in place to determine whether it is profitable for the lender.
OPERATING AND FINANCIAL REVIEW
I believe the management team has the skills to react to and develop niche lending opportunities and feel the proposed vertically integrated solicitor lending model will reduce the risks of dealing with third party counterparties and increase the overall profitability of the Group given time.
I would like to thank the management team and staff for all their efforts and commitment to ensuring the business model gets back on track following a difficult period post flotation.
Richard KilsbyNon-Executive ChairmanCHIEF EXECUTIVE'S REVIEWPEOPLE
The key to the success of Impact's ongoing business continues to be its ability to attract high calibre individuals who can deliver the revised strategy.
Impact has therefore made two key appointments over the past few months with the recruitment of Stuart Burn as Head of Finance in April 2008 and David Hughes as Non-Executive Director in July 2008.
Stuart has joined the business as Head of Finance and was previously Practice Director of Cooper Kenyon Burrows Solicitors and has held senior positions in a number of large law firms both in the North East and North West of England. Stuart has considerable knowledge of managing solicitor practices and this knowledge is an asset in managing the disbursement funding division.
David is a Solicitor and Member of the Law Society and has, during his successful career to date, held a number of senior positions, the most recent of which was as managing partner of Yaffe Jackson Ostrin, Solicitors where he was responsible primarily for dealing with major commercial clients of the practice on property related matters. David also has considerable property interests in both the UK and Europe and acts in an advisory capacity on all legal matters and property related matters for the Group.
RISK MANAGEMENT
The risk management of the business continues to be bolstered with all new and existing counterparty risk regularly assessed by an independent Risk Committee which consists of the key executives within the Group who between them have over 60 years' experience in risk management and financial analysis.
Credit and fraud risk
The Group is exposed to the risk that clients owing the Group money will not fulfil their obligations. The Group regularly reviews credit exposure for every client, including the level of security available in the event of default. Nevertheless, credit default risk may arise from events or circumstances that are difficult to detect and handle, such as fraud.
Independent audit
The Group is exposed both financially and operationally to firms of solicitors undertaking disbursement funding. The Group undertake an audit of all cases funded at least twice each year to ensure cases are progressed to completion in a timely manner.
Inadequate security
The Group is exposed to the risk that security and undertakings upon which its loan advances are made may reduce in value, so that the Group may not recover some or all of its loan advances in an event of default. This risk is mitigated by the spread of loans and clients involved, along with a detailed assessment of the value of the security and undertakings at the time the loans are made and appropriate ongoing monitoring.
Funding and treasury
The Group relies on a mix of equity funding and both committed and uncommitted debt finance from Manchester Building Society and Yorkshire Bank in order to maintain an adequate level of working capital and to fund loan advances to the Group's clients. Letters of ongoing support have been provided by both financial institutions.
STRATEGIC OBJECTIVE
Our long term strategic objective is to deliver a group of companies that has longevity, strong risk assessment abilities and deliver a profitable brand that can evolve into a nationwide player.
Paul Davies
Chief Executive
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2008
NOTES Year Year ended ended 31/03/08 31/03/07 ‚£ ‚£ Revenue 1,590,442 1,079,967 Cost of sales (615,593) (108,881) Gross profit 974,849 971,086 Other operating expenses (1,590,612) (835,803) Exceptional: Bad debt recovery/(write off) 1,250,345 (5,378,772) Legal and Professional Fees (435,270) - Impairment of goodwill (1,246,529) (1,288,802) Operating loss 1 (1,047,217) (6,532,291) Interest receivable 74,034 23,071 Loss for the year from (973,183) (6,509,220)operations before tax Corporation Tax - - _________ _________ (973,183) (6,509,220) _________ _________ Loss per share (pence) (0.9) (7.9) Basic and Fully Diluted
No separate consolidated statement of recognised gains and losses has been presented as all such gains and losses have been dealt with in the consolidated income statement.
All activities are continuing
CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2008
2008 2007 ‚£ ‚£ (as restated- note 23) ASSETS Non-current assets Goodwill - 700,389 Other intangible asset 66,001 114,028 Property, plant and equipment 56,583 26,131 ______ ________ 122,584 840,548 Current assets Trade and other receivables including 7,955,244 2,799,732amounts falling due after more than one year Cash and cash equivalents 1,127,688 2,359,470 ________ _________ 9,082,932 5,159,202 ________ _________ Total assets 9,205,516 5,999,750Capital and reserves Share Capital 5,666,667 5,666,667 Share Premium Account 4,759,823 4,759,823 Share based payment reserve 373,836 373,836 Retained earnings (7,686,632)(6,713,449) Equity attributable to equity holders 3,113,694 4,086,877of the parent Creditors: amounts falling due within 6,091,822 1,912,873one year 9,205,516 5,999,750
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2008
2008 2007 ‚£ ‚£ Operating activities (as restated - note 23) Cash generated from/(used) in (4,992,558) (6,120,429) operations Net cash absorbed by operating (4,992,558) (6,120,429) activities Investing activities Interest received 74,034 23,071 Acquisition of subsidiaries, net of - (108,477) cash acquired Purchases of other intangible assets - (114,028) Receipts from sale of tangible assets 15,028 - Purchases of property, plant and (48,580) (13,418) equipment Net cash generated by/(used in) 40,482 (212,852) investing activities Financing activities Net proceeds from issue of ordinary - 6,839,028 shares Increase in amounts owed to lending 3,720,294 1,548,381 institutions Net cash (used in)/from financing 3,720,294 8,387,409 activities Net (decrease) /increase in cash and (1,231,782) 2,054,128 cash equivalents Cash and cash equivalents at 1 April 2,359,470 305,342 Cash and cash equivalents at end of 31 1,127,688 2,359,470 March
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2008
Attributable to the equity holders of parent
Share Share Share Profit and Total based capital premium loss payment account reserve ‚£ ‚£ ‚£ ‚£ ‚£ Balance at 1 April 2006 216,667 220,795 - (204,229) 233,233 Net losses recognised directly in equity Net loss for the year - - - (6,509,220) (6,509,220) Issue of shares 5,450,000 4,539,028 - - 9,989,028 Share-based payments - - 373,836 - 373,836
Balance as at 31 March 2007 5,666,667 4,759,823 373,836 (6,713,449) 4,086,877
Net losses recognised directly in equity Net loss for the year - - - (973,183) (973,183) Total recognised income and expense Balance at 31 March 2008 5,666,667 4,759,823 373,836 (7,686,632) 3,113,694 NOTES1. Operating loss Loss from operations has been arrived at after charging/(crediting): Year ended Year ended 31/3/08 31/3/07 ‚£ ‚£ Depreciation owned assets 18,128 12,695 - amortisation of intellectual 48,027 7,632 property Rentals under operating leases 39,756 35,706 Staff costs 540,562 356,325 Share based payments - 94,836 Exceptional bad debt (recovery)/write (1,250,345) 5,378,772 off Exceptional legal and professional 435,270 - costs Exceptional impairment of goodwill 1,246,529 1,288,802 Auditors remuneration for - statutory audit services 40,185 32,197 - tax compliance and advisory 8,643 2,550 services - corporate recovery services 159,840 - - due diligence services - 15,990 - reporting accountant services - 79,865
The financial information set out in this announcement does not constitute the Group's financial statements (as defined by s240 of the Companies Act 1985) for the year ended 31 March 2008. The results for the year ended 12 months ended 31 March 2008 are extracted from the Annual Report of Impact Holdings (UK) plc, on which the auditors have issued an unqualified report. Pursuant to AIM Rule 20 copies of the Annual Report may be downloaded from the Company's website www.impactholdings.net and will be posted to shareholders on or before 30 September 2008. Further copies will be available from the Daniel Stewart & Company, 36 Becket House, Old Jewry, London EC2R 8DD.
Notes to Editor:
Impact Holdings (UK) plc through its individual subsidiaries provides short term funding solutions, loans administration and IT support services in two specific sectors:
1. The legal disbursements market;
2. Property based bridging and development market.
In addition Impact will fund other opportunities where debt instruments or debentures provide the primary security and there are opportunities for short term bespoke funding where serviceability precludes larger lenders from entering this area.
Impact is regulated by The Office of Fair Trading through which it is licensed to lend under the Consumer Credit Act 1974 and the Financial Services Authority for regulated lending.
vendorRelated Shares:
IHUK.L