6th Jul 2007 07:00
6 JULY 2007 IMPACT HOLDINGS (UK) PLC ("Impact", "the Group", or "the Company") PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2007
Impact Holdings (UK) plc, the specialist lending business, announces its preliminary results for the year to 31 March 2007.
FINANCIAL HIGHLIGHTS 2007
Turnover ‚£1,079,967
Group Operating Loss Before Interest ‚£6,532,291
Exceptional costs ‚£6,667,574Loss before tax ‚£6,509,220Loss per share 7.9p
Year end cash balance ‚£2,359,470
FOR FURTHER INFORMATION:
Impact Holdings (UK) plc
Paul Davies, Chief Executive +44 (0) 161 437 9499
Daniel Stewart & Company plc
Alastair Cade +44 (0) 207 776 6550
CHAIRMAN'S STATEMENT
INTRODUCTION
Following the reversal of Impact Funding (UK) Ltd into Nanotech Energy plc in June of last year and the renaming of the group as Impact Holdings (UK) plc, the business has had a very difficult first trading period.
Conduct of the Impact Funding (UK) Ltd loan book and subsequent lending by original management has proved to be problematic. The entire "right to buy" disbursements loan book has been provided against. In addition a facility to one counterparty representing ‚£3.2m of the loan book, of which ‚£2m was repaid and the remaining ‚£1.2m refinanced as a term loan, has also been provided against due to the uncertainty of this being repaid.
Of the remaining loan book approximately ‚£430k has been provided against. This relates to "personal injury" disbursement loans.
The remaining loan book is likely to be repaid and is currently valued at approximately ‚£950k.
A new management team has been recruited with Paul Davies (CEO) joining in October last year and Chris Williams (FD) joining in February this year. They bring with them significantly improved skills in credit risk management.
The key to the success of this business is the analysis of the counterparty risk so as to ensure loans are only made to businesses and individuals that are likely to repay. Over the past eight months Paul Davies has bolstered the legal documentation and credit risk function.
There remains a market for short term funding solutions in areas such as personal injury and property bridging that Impact intends to exploit.
FINANCIAL RESULTS
The results for the period ending 31st March 2007 are dominated by the large bad debt provisions and are obviously disappointing when compared to the expectations at the time of the reverse. The business has made a loss for the period of ‚£6.5m, after exceptional charges relating to the write down of the loan book and related goodwill impairment charges of ‚£6.7m, and has net assets as at the year end of ‚£4.1m.
DIVIDEND
No dividend will be declared for the period.
STRATEGY
We remain focused on the short term niche funding market in the UK. We aim to capitalize on the inflexibility and lack of understanding of the larger banks.
We have now started to offer short term bridge funding relating to property and are seeing considerable interest for this product.
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, with the support of the increased credit risk controls. The number of solicitors who wish to utilise our web-based system for acquiring personal injury cases, funding and insuring them, is growing each month.
We have increased the number of claims management companies that provide cases onto the web based system, thereby improving the growth prospects.
The profitability of this business is driven by a number of factors:
* The number of cases being processed through the web based system. * The number of cases that do not proceed past the first 120 days. * The counterparty risk associated with the solicitor firms and claims management companies.
Management is addressing each of these items to ensure that Impact has a long term future.
TRADING REVIEW
Because of the issues relating to the loan book that became apparent to the new management team, Impact has not actively traded whilst the existing position was established and the credit risk function was put in place.
Management believes they have now quantified the extent of the bad debts and have instructed a corporate recovery specialist to investigate all areas of recourse. This engagement has been made on a conditional fee arrangement to limit the ongoing cost to the business.
SUSTAINABILITY
At the period end, Impact had ‚£2.4m cash on the balance sheet, enough to run the business for a period of time sufficient to allow the management to establish if the business model can be developed to provide the potential returns originally anticipated.
OUTLOOK
There is no doubt that there will always be the opportunity for niche lending in this ever more complex financial world. Capitalising on the opportunities and being able to react quickly with a solid credit risk function will dictate whether it is profitable for the lender.
I believe the new management team has the skills to react to and develop new niche lending opportunities.
I would like to thank the new management team for all their efforts over recent months and their continued commitment in what has been a difficult environment.
Richard KilsbyNon-Executive ChairmanCHIEF EXECUTIVE'S REVIEWINTRODUCTION
The year in question has proved problematical with a complete re-structure and a new management and operational team. This has resulted in a period of consolidation and analysis of the inherited loan portfolio.
TRADING
Since joining as CEO in October, the emphasis has been not only to assess and maximize the returns from the inherited loan portfolio but to secure the future viability of the Group. The priorities were therefore to ensure the Group had the necessary systems to administer and control its own loan book, coupled with the securing of banking facilities.
Until February 2006 the Group had been outsourcing the management of loans and in accordance with our desire to bring this expertise in-house, the Company purchased a software platform which eliminated some ‚£400,000 of budgeted fees for those services in 2007/8. Impact has employed two dedicated IT staff to develop the systems in order to sustain a larger loan book with a broader range of products.
In February 2007 Impact purchased for ‚£1.55m a portfolio of solicitor disbursement funding with a gross book value at the time of acquisition of ‚£ 1.86m. As part of this transaction the Manchester Building Society extended to Impact a ‚£10m revolving credit facility.
In June 2007 a new subsidiary commenced trading. Impact Bridging Solutions Limited, which provides short term funding backed by property assets. It has the ability to grow a profitable loan book and has a ‚£5m funding line in place together with the necessary regulatory licences to operate. This is already seeing good levels of activity.
The Group strategy is to develop the business as a niche lender and we have already identified a number of new opportunities.
PEOPLE
The key to the success of Impact's ongoing business is its ability to attract high calibre individuals who can deliver the strategy outlined in the placing document.
Impact has therefore made two key appointments over the past few months with the recruitment of Chris Williams as Finance Director in February 2007 and Stephen Ball as Managing Director of Impact Bridging Solutions Limited in April 2007.
Chris is a chartered accountant and equity partner in Jack Ross, a Manchester City Centre practice of Chartered Accountants who concentrate on working with the legal profession.
Stephen has a successful background in Corporate Banking and Property Development. Until recently Stephen was Managing Director of a property development company specializing in urban regeneration and prior to this he had 27 years of corporate banking experience with Barclays Bank.
RISK MANAGEMENT
The risk management of the business has been considerably bolstered with all new and existing counterparty risk regularly assessed by an independent credit committee which consists of the key executives within the Group who between them have over 60 years experience in risk management and financial analysis.
The directors consider the principal risks facing the business to be:
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.
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 arising from the placings during the year and debt finance from Manchester Building Society in order to maintain an adequate level of working capital and to fund loan advances to the Group's clients. Whilst the Group's relationship with Manchester Building Society is relatively recent, the Chief Executive is well known to the Society. As a result, the Group has a ‚£10 million facility with the Society and additionally, following the year end, the Group has secured an additional ‚£5 million funding line from Yorkshire Bank which will enable it to continue to expand its loan portfolio.
STRATEGIC OBJECTIVE
Our long term strategic objective is to deliver a group of companies that has longevity, strong credit risk assessment abilities and delivers a brand that can evolve into a nationwide player.
The Group continues to have sufficient cash resources and banking facilities to continue to develop the business model and the directors consider there is a growing demand for specialist loans. With the IT platform being further developed over the forthcoming months this will allow higher levels of business to be monitored and assessed in an effective and prudent manner.
Paul DaviesChief ExecutiveUNAUDITED PROFIT AND LOSS ACCOUNTFor the year ended 31 March 2007 Notes 2007 2007 2006 2006 ‚£ ‚£ ‚£ ‚£ GROUP TURNOVER 2 1,079,967 - Continuing operations Acquisitions 1,079,967 - Cost of sales (84,824) - Interest payable (24,057) - Gross (loss) 971,086 - Other operating expenses (835,803) (209,330) Exceptional costs - loan (5,378,772) - impairment (1,288,802) Exceptional costs - impairment of goodwill OPERATING LOSS (589,866) (209,330) Continuing operations (5,942,425) - Acquisitions Group operating loss before (6,532,291) (209,330)interest Interest receivable 23,071 5,101 LOSS ON ORDINARY ACTIVITIES (6,509,220) (204,229) BEFORE TAXATION Taxation 3 - - LOSS ON ORDINARY ACTIVITIES (6,509,220) (204,229) AFTER TAXATION (LOSS) PER SHARE 4 (7.9)p (0.5)p Basic and fully diluted
No separate Statement of Total Recognised Gains and Losses has been presented as all such gains and losses have been dealt with in the Profit and Loss Account
UNAUDITED CONSOLIDATED BALANCE SHEETAs at 31 March 2007 Group Notes 2007 2006 ‚£ ‚£ FIXED ASSETS 5 700,389 - Intangible assets 140,159 - Tangible assets - - Investments 840,548 - CURRENT ASSETS 2,799,732 198 Debtors due within one year 2,359,470 305,342 Cash at bank and in hand 5,159,202 305,540 CURRENT LIABILITIES (1,912,873) (72,307) Creditors: amounts falling due within one year NET CURRENT ASSETS 3,246,329 233,233(LIABILITIES) TOTAL ASSETS LESS CURRENT 4,086,877 233,233LIABILITIES PROVISIONS FOR LIABILITIES AND CHARGES NET ASSETS 4,086,877 233,233 CAPITAL AND RESERVES Called up share capital 6 5,666,667 216,667 Share premium account 4,759,823 220,795 Share based payment reserve 373,836 - Profit and loss account (6,713,449) (204,229) TOTAL CAPITAL EMPLOYED 4,086,877 233,233
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
As at 31 March 2007 Notes 2007 2006 ‚£ ‚£ Cash flow from operating activities 8 (4,572,048) (137,221) Returns on investments and servicing of 8 23,071 5,101finance Taxation - - Capital expenditure and financial investment 8 (127,446) - Acquisitions and disposals 8 (108,477) - Equity dividends paid - - CASH OUTFLOW BEFORE USE OF LIQUID RESOURCES (4,784,900) (132,120)AND FINANCING Management of liquid resources - - Financing 8 6,839,028 437,462 INCREASE IN CASH IN THE PERIOD 2,054,128 305,342 2007 2006 ‚£ ‚£ RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Increase in cash in the period 2,054,128 305,342 Cash inflow from increase in debt and lease - -financing Cash inflow from decrease in liquid resources - - Change in net debt resulting from cash flows 2,054,128 305,342 Loans and finance leases acquired with - -subsidiary New finance leases - - Translation difference - - MOVEMENT IN NET CASH IN THE PERIOD 2,054,128 305,342 NET CASH AT 01.04.06 305,342 - NET CASH AT 31.03.07 8 2,359,470 305,3421. BASIS OF THE ANNOUNCEMENT
The unaudited preliminary financial statements for the year ended 31 March 2007 were approved by the Board of Directors on 4 July 2007. The financial information set out above does not constitute the Company's statutory accounts for the financial years ended 31 March 2007 or 31 March 2006 but is derived from those accounts. Statutory accounts for the financial period ended 31 March 2006 have been filed with the Registrar of Companies. The auditors have reported on those accounts; their report was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for the financial year ended 31 March 2007 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
Basis of preparation
The preliminary financial statements are prepared under the historical cost convention in accordance with applicable accounting standards. The Group incurred a loss during the year of ‚£6,509,220. The directors have adopted the going concern basis of accounting having prepared projections which demonstrate that the Group has sufficient resources available to enable it to continue trading for the foreseeable future.
Basis of consolidation
The preliminary group financial statements consolidate the financial statements of Impact Holdings (UK) plc and all its subsidiary undertakings drawn up to 31 March 2007.
2. TURNOVER
The total turnover of the group for the period has been derived from its principal continuing activity undertaken solely in the UK. Turnover represents interest receivable and establishment and arrangement fees earned during the period.
3. TAXATION
The group has made a loss for the year and accordingly no corporation tax is payable. The group has losses available to carry forward and offset against future profits amounting to approximately ‚£5 million. No deferred tax asset has been provided in view of the uncertainty of the timing of the recovery of these losses.
Factors affecting tax charge for the period 2007 2006 The tax assessed for the period is lower than the ‚£ ‚£standard rate of corporation tax in the UK (30%). The differences are explained below: Loss on ordinary activities before tax (6,509,220) (204,229)
Loss on ordinary activities multiplied by the standard (1,952,766) (61,269) rate of corporation tax in the UK of 30% (2006 - 30%).
Effects of: Expenses not deductible for tax purposes 415,742 - Capital allowances in excess of depreciation 923 - Utilisation of tax losses - - Other short term timing differences 10,331 - Unrelieved tax losses 1,525,770 61,269 Adjustment to tax charge in respect of previous periods - - Current tax charge for the period - -
4. LOSS PER SHARE
The calculation of the basic and diluted earnings per share is based on the following data: Earnings Year ended 31/03/ Year ended 31/03/ 07 06 ‚£ ‚£ Earnings for the purposes of basic and (6,509,220) (204,229)diluted earnings per share Number of shares Year ended 31/03/ Year ended 31/03/ 07 06
Weighted average number of ordinary shares 82,815,525 40,599,828 for the purposes of basic earnings per
share
There is no difference between basic and diluted loss per share, as the outstanding options and warrants would have had the effect of reducing the loss per ordinary share and would therefore not be dilutive under the terms of FRS22.
5. INVESTMENTS
The company holds more than 20% of the equity of the following undertakings:-
Class of Proportion Nature of holding directly held business Subsidiary undertakings: Ordinary 100% Disbursement Funding & other loans Impact Funding (UK) Limited Ordinary 100% Disbursement Funding Impact Funding Solutions Ordinary 100% Limited IT Services to other Ordinary 100% group companies Impact IT Solutions Limited Property bridging Impact Bridging Solutions loans Limited All of the above subsidiary undertakings are registered in the UK.
Impact Bridging Solutions Limited was dormant in the period to 31 March 2007.
Impact Funding (UK) Limited Initial book Adjustments Fair value at date value of acquisition ‚£ ‚£ ‚£ Tangible fixed assets 25,408 - 25,408 Debtors 2,055,441 - 2,055,441 Cash at bank 41,523 - 41,523 TOTAL ASSETS 2,122,372 - 2,122,372 Creditors due within one year (532,563) - (532,563) NET ASSETS 1,589,809 - 1,589,809
On 19 June 2006 Impact Holdings (UK) plc acquired the entire share capital of Impact Funding (UK) Limited. The fair value of the total consideration amounted to ‚£3,579,000. The consideration was satisfied by the allotment of 31,500,000 new ordinary shares, the issue of options over 14,360,000 ordinary shares of 5p each in the company and ‚£150,000 in cash.
The above acquisition was satisfied by:
Equity shares issued 3,150,000 Share options issued to vendors 279,000 Cash 150,000 3,579,000 Net assets acquired 1,589,809 Goodwill arising on consolidation 1,989,191
Following an impairment review, the directors have written down the value of goodwill by ‚£1,288,802 to its estimated recoverable amount of ‚£700,389.
Impact Funding Solutions Limited
On 7 February 2007, Impact Funding Solutions Limited acquired the assets and liabilities of Veras Funding Solutions Limited. No consideration was paid in the process of this acquisition.
Initial book Adjustments Fair value at value date of acquisition ‚£ ‚£ ‚£ Debtor book acquired 1,550,000 - 1,550,000 Bank loan acquired (1,550,000) - (1,550,000) NET ASSETS - - - 6. SHARE CAPITAL 2007 2006 ‚£ ‚£ Authorised: 500,000,000 ordinary shares of 5p each 25,000,000 1,000,000 Allotted, issued and fully paid: 113,333,333 ordinary shares of 5p each 5,666,667 216,667
During the period the shares were consolidated into 1 share for every 10 shares. The authorised share capital was then increased by ‚£24,000,000 from ‚£ 1,000,000 to ‚£25,000,000.
On 19 June 2006, 42,500,000 ordinary shares of 5p each were issued for cash consideration of ‚£4,250,000. On the same date 31,500,000 ordinary shares of 5p each were issued as consideration for the acquisition of Impact Funding (UK) Limited.
On 25 August 2006 a further 35,000,000 ordinary shares of 5p each were issued for cash consideration of ‚£3,500,000.
The directors have authority to grant options to employees on up to 20% of the issued shares in the company.
The company has granted options, which remain exercisable, to subscribe for up to 19,584,999 ordinary shares of 5p each at prices between 10p and 30p per share, exercisable over periods up to 19 June 2016.
7. RECONCILIATION OF MOVEMENT IN GROUP SHAREHOLDERS' FUNDS
2007 2006 ‚£ ‚£ Loss for the financial year (6,509,220) (204,229) New share capital subscribed 5,450,000 216,667 Premium on shares issued in the period 5,450,000 433,333 Costs incurred (910,972) (212,538) Share based payments 94,836 Share based payments of acquisition of subsidiaries 279,000 - Net addition to shareholders' funds 3,853,644 233,233 Opening shareholders' funds 233,233 - Closing shareholders' funds 4,086,877 233,2338. CASH FLOWS 2007 2006 ‚£ ‚£ Reconciliation of operating profit to net cash inflow from operating activities Operating loss (6,532,291) (209,330) Depreciation of tangible assets 12,695 - Amortisation on intangible assets 1,288,802 - Share based payments 94,836 - Increase in debtors (53,757) (198) Increase in creditors (240,378) 72,307 Net cash flow from continuing operating (5,430,093) (137,221)activities Increase in advances to customers net of (690,336) -impairment provision Increase in amounts owed to lending 1,548,381 -institutions Net cash outflow from operating (4,572,048) (137,221)activities 2007 2006 ‚£ ‚£ Analysis of cash flows for headings netted in the cash flow statement Returns on investments and servicing of finance Interest received 23,071 5,101 Net cash inflow for returns on investment and 23,071 5,101servicing of finance 2007 2006 ‚£ ‚£ Capital expenditure and financial investment Purchase of tangible fixed assets (127,446) - Net cash outflow for capital expenditure and financial (127,446) -investment Acquisitions and disposals Purchase of subsidiary undertaking (150,000) - Net overdrafts acquired with subsidiary 41,523 - Net cash outflow for acquisitions and disposals (108,477) - Financing Issue of ordinary share capital 6,839,028 437,462 Net cash inflow from financing 6,839,028 437,462 At 1.04 Cash flow Other non At 31.032007 cash 2006 changes ‚£ ‚£ ‚£ ‚£ Cash in hand, at bank 305,342 2,054,128 - 2,359,470 Overdrafts - - - - Debt due after 1 yr - - - -- Debt due within 1 yr - - - -- Total 305,342 2,054,128 - 2,359,470
IMPACT HOLDINGS (UK) PLCRelated Shares:
IHUK.L