TIDMACE
RNS Number : 7917E
Accident Exchange Group PLC
30 December 2009
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| FOR IMMEDIATE RELEASE | 30 December 2009 |
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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: GBP64.3 million (2008**: GBP85.0 million).
* Adjusted* profit before tax: GBP4.0 million (2008**: GBP2.4 million).
* Net exceptional costs and other items: GBP10.5 million (2008: GBP18.8 million).
* Reported revenue: GBP61.6 million (2008**: GBP85.0 million).
* Reported loss before tax: GBP6.5 million (2008**: GBP16.4 million).
* Total net debt reduced to GBP144.3 million (31 October 2008: GBP174.0 million).
* 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
* Reached agreement with a leading insurance group to fix the cost of our credit
hire services in return for improved payment terms and reduced frictional
administration.
* Strategic refocus and cost reduction programme commenced shortly after the half
year end.
* Refocusing on higher margin automotive and manufacturer led referral partners.
Annualised cost savings of GBP24 million targeted by the end of the current
financial year at an estimated cost of c. GBP2 million to be incurred in the
second half of the current financial year.
* Secured two significant new prestige manufacturer referral contracts.
* Litigation continues against Autofocus and certain of their employees.
* Reduced cash collections and increased under-recoveries in period attributed to
insurers' use of subsequently discredited Autofocus rate evidence.
* Supplied rental vehicles to 19,900 customers (2008: 18,700 customers).
* Recorded 585,000 rental days (2008: 570,000 rental days).
* Fleet utilisation 66% (2008: 60%).
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:
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| Accident Exchange Group Plc | |
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| Steve Evans, Chief Executive | 08703-009 781 |
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| Martin Andrews, Group Finance | 08703-009 781 |
| Director | |
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| | |
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| Singer Capital Markets Limited | 020-3205-7500 |
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| Shaun Dobson, Joint Head of | |
| Corporate Finance | |
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| | |
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| Bankside | |
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| Steve Liebmann or Simon | 020-7367-8883 / 07802-888159 |
| Bloomfield | |
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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 GBP9.9 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 (GBP2.5 million), as well as an additional adjustment of GBP7.4
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 GBP7.4 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 GBP144.3 million from GBP174.0 million a year ago (30
April 2009: GBP149.8 million), reflecting primarily a GBP52.3 million reduction
in fleet related finance lease debt to GBP54.2 million as at 31 October 2009
(2008: GBP106.5 million) and a GBP19.7 million increase in net bank debt to
GBP38.1 million (2008: GBP18.4 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 GBP40.0 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 GBP24 million are targeted to be attained by the end of the current
financial year at an estimated cost of c.GBP2 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
GBP2.9 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 GBP0.1
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 GBP64.3 million
(2008: GBP85.0 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 GBP53.1 million
(2008: GBP63.6 million). Lower margin credit repair revenue decreased to GBP11.2
million as a result of our curtailing this activity in the period (2008: GBP21.4
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 GBP2.4
million was recognised in the Statement of Comprehensive Income (2008: GBP2.3
million) with GBP2.9 million of future operating income having been deferred
from this period's revenue recognition (2008: GBP3.3 million).
Gross profit and margins
Adjusted gross profit* was GBP23.2 million (2008: GBP25.8 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 GBP19.6 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 GBP4.3 million in the period (2008:
GBP12.8 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
GBP40.0 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 GBP9.9 million (2008: GBPnil) and, in the comparative
period, the Fleet Impairment of GBP19.6 million) the Group recorded a gross
profit of GBP13.3 million (2008: GBP6.2 million).
Administrative expenses
Administrative expenses before exceptional and other items reduced by 17% to
GBP14.6 million (2008: GBP17.5 million). Of this cost, GBP10.5 million or 72%
(2008: GBP12.4 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 GBP15.2 million (2008: GBP18.2 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 GBP24 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 GBP27.9
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 GBP9.9 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 (GBP2.5
million), as well as an additional adjustment of GBP7.4 million that has been
made in respect of receivables that still remain outstanding as at 31 October
2009 (see note 4). This GBP7.4 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 GBP0.3 million (2008: GBP0.2 million)
and share-based payment charges of GBP0.4 million (2008: GBP0.5 million). The
Group has also recognised a credit of GBP0.1 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: GBPnil).
During the comparative period the Group also recognised the exceptional Fleet
Impairment charge of GBP19.6 million and a GBP1.5 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 GBP7.0 million (2008: GBP6.7 million). Net interest
payable on bank loans, principally the Morgan Stanley bank facility, net of
interest receivable on cash deposits, rose to GBP1.6m (2008: GBP1.4 million)
reflecting an increase in net bank borrowings, partly offset by lower LIBOR.
Vehicle finance lease interest fell to GBP2.5 million (2008: GBP4.1 million)
reflecting the reduction in fleet volumes and associated financing levels.
Net finance costs also include costs relating to the Convertible Notes of GBP2.9
million (2008: GBP2.7 million) comprising a 5.5% cash coupon component of GBP1.4
million (2008: GBP1.4 million) and GBP1.5 million (2008: GBP1.3 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:
GBP1.5 million credit).
Loss before tax
After the exceptional and other items of GBP10.5 million the statutory loss
before tax was GBP6.5 million (2008: GBP16.4 million). Adjusted profit before
tax* increased to GBP4.0 million from GBP2.4 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 GBP7.0 million (2008: GBP3.2 million), principally
comprising an asset of GBP6.2 million (2008: GBPnil) arising from prior year
taxable losses and decelerated capital allowances of GBP1.5 million (2008:
GBP2.2 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 GBP9.9 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
GBP3.8 million (2008: GBP18.3 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 | 6 Months | 6 Months |
| - after fleet related cash flows | | |
+ +-------------+-------------+
| | ended | ended |
+-------------------------------------------------+-------------------------------------------------+-------------+
| | 31 October | 31 October |
+-------------------------------------------------+-------------+-------------+
| | 2009 | 2008 |
+-------------------------------------------------+-------------+-------------+
| | (Unaudited) | (Unaudited) |
+-------------------------------------------------+-------------+-------------+
| | GBP'm | GBP'm |
+-------------------------------------------------+-------------+-------------+
| Adjusted cash inflow from operations: | | |
+-------------------------------------------------+-------------+-------------+
| Operating profit / (loss) | 0.5 | (9.7) |
+-------------------------------------------------+-------------+-------------+
| Depreciation, fleet impairment and amortisation | 5.3 | 33.5 |
| of intangible assets | | |
+-------------------------------------------------+-------------+-------------+
| (Profit) / loss on disposal of vehicles, plant | (1.3) | 0.4 |
| and equipment | | |
+-------------------------------------------------+-------------+-------------+
| 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 | 9.9 | - |
| potential increased settlement | | |
| adjustment | | |
+-------------------------------------------------+-------------+-------------+
| Decrease / (increase) in receivables and claims | 0.1 | (13.1) |
| in progress | | |
+-------------------------------------------------+-------------+-------------+
| 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 | (11.1) | (7.9) |
| fleet related cash flows | | |
+-------------------------------------------------+-------------+-------------+
Adjusted cash outflow from operations after fleet related cash flows rose from
GBP7.9 million in 2008 to GBP11.1 million in 2009. This reflects reduced EBITDA
after the GBP9.9 million Exceptional Settlement Adjustment of GBP4.9 million
(2008: GBP24.7 million), partly offset by a GBP5.0 million reduction in fleet
related cash outflows to GBP14.3 million (2008: GBP19.3 million) and a reduction
in net working capital related cash outflows to GBP11.6 million (stated before
the impact of the GBP9.9 million Exceptional Settlement Adjustment) (2008:
GBP13.3 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 GBP4.6 million (2008: GBP44.2 million). As
such, VAT recovered on fleet additions reduced to GBP0.6 million from GBP6.9
million in 2008 and the deposit paid on acquisition reduced to GBP0.5 million
from GBP4.4 million.
A total of 1,039 finance leased vehicles were disposed during the period (2008:
1,141 vehicles) generating proceeds of GBP14.1 million of which GBP0.6 million
was received shortly after the period end (2008: GBP12.9 million all of which
was received before the period end) which funded the repayment of finance lease
debt outstanding at disposal of GBP15.2 million (2008: GBP14.2 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 GBP5.3 million (2008: GBP7.0 million) reflecting a
GBP1.6 million reduction in finance lease interest to GBP2.5 million (2008:
GBP4.1 million) due to lower finance leased fleet volume. Net bank interest paid
of GBP1.4 million was consistent with the comparative period (2008: GBP1.5
million) as was the cash coupon of GBP1.4 million paid on the Convertible Notes
(2008: GBP1.4 million).No corporation tax was paid during the period (2008:
GBP2.1 million) as the Group has taxable losses brought forward available for
offset and the net cash outflow from operating activities was therefore
GBP1.5 million (2008: inflow of GBP9.8 million).
Investing activities
In addition to the cash flows associated with finance leased fleet, other net
capital expenditure reduced to GBP0.1 million (2008: GBP0.7 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 GBP40.0 million Morgan Stanley Facility was fully
drawn (2008: GBP30.0 million of GBP40.0 million) and cash at bank was GBP2.9
million (2008: GBP12.6 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 GBP144.3 million has reduced materially from the GBP174.0 million
reported as at 31 October 2008, primarily through the reduction in finance lease
debt from GBP106.5 million at that date to GBP54.2 million as at 31 October
2009. Net debt has also reduced by GBP5.5 million from 30 April 2009 levels,
with the GBP14.3 million net cash outflow for the period being more than offset
by a GBP21.3 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) |
+----------------------------------------+-------------+-------------+-----------+
| | GBP'm | GBP'm | GBP'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 | (0.6) | (0.6) | (0.6) |
| recognised at inception of Convertible | | | |
| Notes excluded from net debt | | | |
+----------------------------------------+-------------+-------------+-----------+
| 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 GBP0.5 million (2008:
GBP1.1 million)) was GBP38.1 million (2008: GBP18.4 million), which includes a
bank loan of GBP1.5 million (2008: GBP2.1 million) in connection with
infrastructure improvements at the Group's administration centre and main fleet
facility.
Finance lease obligations
Finance lease obligations fell to GBP54.2 million from GBP75.5 million at 30
April 2009 (31 October 2008: GBP106.5 million) reflecting GBP4.6 million (2008:
GBP44.2 million) of new debt for fleet replacement net of capital repayments
made in the period of GBP25.9 million (2008: GBP35.0 million), partly financed
by the disposal proceeds of GBP13.5 million (2008: GBP12.9 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 GBP1.1 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 | 31 | 31 | 31 | 31 | 31 |
| | | October | October | October | October | October | October |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| | | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| | | Before | Excep | Total | Before | Excep | Total |
| | | excep | -tional | | excep | -tional | |
| | | -tional | and other | | -tional | and | |
| | | and | items* | | and other | other | |
| | | other | | | items* | items* | |
| | | items* | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| | | | | | Restated | | Restated |
| | | | | | (note 2) | | (note 2) |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| Note | GBP'm | GBP'm | GBP'm | GBP'm | GBP'm | GBP'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 / | | 23.2 | (9.9) | 13.3 | 25.8 | (19.6) | 6.2 |
| (loss) | | | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| | | | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| Administrative | | | | | | | |
| expenses | | | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| Amortisation | 4 | - | (0.3) | (0.3) | - | (0.2) | (0.2) |
| of acquired | | | | | | | |
| intangible | | | | | | | |
| assets | | | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| Share-based | | - | (0.4) | (0.4) | - | (0.5) | (0.5) |
| payments | | | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| Exceptional | 4 | - | 0.1 | 0.1 | - | - | - |
| items | | | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| Other | | (14.6) | - | (14.6) | (17.5) | - | (17.5) |
| administrative | | | | | | | |
| expenses | | | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| | | (14.6) | (0.6) | (15.2) | (17.5) | (0.7) | (18.2) |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| Other operating | 3 | 2.4 | - | 2.4 | 2.3 | - | 2.3 |
| income | | | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| | | | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| Operating profit | | 11.0 | (10.5) | 0.5 | 10.6 | (20.3) | (9.7) |
| / (loss) | | | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| 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 | 5 | - | - | - | - | 1.5 | 1.5 |
| value of | | | | | | | |
| derivative | | | | | | | |
| financial | | | | | | | |
| liability | | | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| Profit / (loss) | | 4.0 | (10.5) | (6.5) | 2.4 | (18.8) | (16.4) |
| before tax | | | | | | | |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| Taxation | 6 | (1.3) | 0.1 | (1.2) | (0.8) | 5.4 | 4.6 |
+------------------------+-----------+-----------+-----------+-----------+-----------+----------+----------+
| Profit / (loss) and | 2.7 | (10.4) | (7.7) | 1.6 | (13.4) | (11.8) |
| comprehensive income / | | | | | | |
| (expense) for the period | | | | | | |
+------------------------------------+-----------+-----------+-----------+-----------+----------+----------+
| | | | | | | | |
+-------------------------------+----+-----------+-----------+-----------+-----------+----------+----------+
| 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 | 31 October | 30 April |
| | | 2009 | 2008 | 2009 |
+-------------------------------+------+-------------+-------------+-------------+
| | | | Restated | |
| | | | (note 2) | |
+-------------------------------+------+-------------+-------------+-------------+
| | | (Unaudited) | (Unaudited) | (Audited) |
+-------------------------------+------+-------------+-------------+-------------+
| |Note | GBP'm | GBP'm | GBP'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 | | 1.3 | 0.8 | 1.0 |
| sale | | | | |
+-------------------------------+------+-------------+-------------+-------------+
| | | 110.5 | 151.8 | 125.8 |
+-------------------------------+------+-------------+-------------+-------------+
| | | | | |
+-------------------------------+------+-------------+-------------+-------------+
| Total assets | | 191.2 | 264.0 | 220.3 |
+-------------------------------+------+-------------+-------------+-------------+
| | | | | |
+-------------------------------+------+-------------+-------------+-------------+
| Liabilities | | | | |
+-------------------------------+------+-------------+-------------+-------------+
| Current liabilities | | | | |
+-------------------------------+------+-------------+-------------+-------------+
| Financial liabilities - | 14 | (86.2) | (52.9) | (46.3) |
| borrowings | | | | |
+-------------------------------+------+-------------+-------------+-------------+
| 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 - | 14 | (61.0) | (133.7) | (120.7) |
| borrowings | | | | |
+-------------------------------+------+-------------+-------------+-------------+
| | | (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 | GBP'm | GBP'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 | | (2.5) | (4.1) |
| payments | | | |
+------------------------------------------+-------+-------------+-------------+
| Taxation paid | | - | (2.1) |
+------------------------------------------+-------+-------------+-------------+
| Net cash (outflow) / inflow from | | (1.5) | 9.8 |
| operating activities | | | |
+------------------------------------------+-------+-------------+-------------+
| | | | |
+------------------------------------------+-------+-------------+-------------+
| Cash flows from investing activities | | | |
+------------------------------------------+-------+-------------+-------------+
| Purchase of property, plant and | | (0.1) | (0.7) |
| equipment | | | |
+------------------------------------------+-------+-------------+-------------+
| Proceeds from sale of vehicles, plant | | 13.5 | 12.9 |
| and equipment | | | |
+------------------------------------------+-------+-------------+-------------+
| Net cash inflow from investing | | 13.4 | 12.2 |
| activities | | | |
+------------------------------------------+-------+-------------+-------------+
| | | | |
+------------------------------------------+-------+-------------+-------------+
| Cash flows from financing activities | | | |
+------------------------------------------+-------+-------------+-------------+
| Repayment of borrowings | | (0.3) | (0.2) |
+------------------------------------------+-------+-------------+-------------+
| Capital element of finance lease | | (25.9) | (35.0) |
| payments | | | |
+------------------------------------------+-------+-------------+-------------+
| 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 | 14 | (14.3) | (14.4) |
| equivalents | | | |
+------------------------------------------+-------+-------------+-------------+
| Cash and cash equivalents at beginning | | 17.2 | 27.0 |
| of the period | | | |
+------------------------------------------+-------+-------------+-------------+
| Cash and cash equivalents at end of the | 14 | 2.9 | 12.6 |
| period | | | |
+------------------------------------------+-------+-------------+-------------+
Consolidated Statement of Changes in Equity
for the six months ended 31 October 2009
+------------------------------+----------+-----------+----------+----------+--------+
| | Share | Share | Other | Retained | Total |
| | capital | premium | reserves | earnings | |
+------------------------------+----------+-----------+----------+----------+--------+
| Six months ended | GBP'm | GBP'm | GBP'm | GBP'm | GBP'm |
| 31 October 2008 | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| At 1 May 2008 - as | 3.6 | 26.2 | 11.5 | 30.5 | 71.8 |
| previously reported | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| Prior year adjustment (note | - | - | - | (3.1) | (3.1) |
| 2) | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| 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 | - | - | - | (11.8) | (11.8) |
| for the period ended 31 | | | | | |
| October 2008 | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| Transactions with owners | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| Equity-settled share-based | - | - | - | 0.5 | 0.5 |
| payments | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| Purchase of own shares (note | - | - | - | (0.1) | (0.1) |
| 12) | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| Dividends paid (note 9) | - | - | - | (1.1) | (1.1) |
+------------------------------+----------+-----------+----------+----------+--------+
| Total transactions with | - | - | - | (0.7) | (0.7) |
| owners | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| At 31 October 2008 | 3.6 | 26.2 | 11.5 | 14.9 | 56.2 |
+------------------------------+----------+-----------+----------+----------+--------+
| | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| | Share | Share | Other | Retained | Total |
| | capital | premium | reserves | earnings | |
+------------------------------+----------+-----------+----------+----------+--------+
| Six months ended | GBP'm | GBP'm | GBP'm | GBP'm | GBP'm |
| 31 October 2009 | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| 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 | - | - | - | (7.7) | (7.7) |
| for the period ended 31 | | | | | |
| October 2009 | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| Transactions with owners | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| Equity settled share-based | - | - | - | 0.4 | 0.4 |
| payments | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| Total transactions with | - | - | - | 0.4 | 0.4 |
| owners | | | | | |
+------------------------------+----------+-----------+----------+----------+--------+
| 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 GBP7.7 million (2008:
GBP11.8 million), principally as a result of increased under recoveries and
after charging net exceptional and other items of GBP10.5 million (2008: GBP18.8
million) (see note 4), and a net cash outflow of GBP14.3 million (2008: GBP14.4
million). The Group had reduced working capital headroom of GBP2.9 million at 31
October 2009 (2008: GBP22.6 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 GBP9.9 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 (GBP2.5 million), as well as an additional adjustment of GBP7.4
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 GBP24 million are targeted to be attained by the end of
the current financial year at an estimated cost of c.GBP2 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 GBP2.3 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 | As | Change in | Reclassification | Restated |
| 31 October 2008 | previously | accounting | of settlement | |
| (Unaudited) | reported | policy | adjustments | |
+ +--------------------------+--------------+------------------+--------------+
| | GBP'm | GBP'm | GBP'm | GBP'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 | 132.1 | (4.9) | - | 127.2 |
| receivables | | | | |
+--------------------------+--------------------------+--------------+------------------+--------------+
| 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) |
+--------------------------------------------------+-------------+--------------+
| | GBP'm | GBP'm |
+--------------------------------------------------+-------------+--------------+
| Delivery of accident management and related | 53.1 | 63.6 |
| services | | |
+--------------------------------------------------+-------------+--------------+
| 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) |
+-------------------------------------------------+---------------+-------------+
| | GBP'm | GBP'm |
+-------------------------------------------------+---------------+-------------+
| Exceptional items | | |
+-------------------------------------------------+---------------+-------------+
| Exceptional Settlement Adjustment: | | |
+-------------------------------------------------+---------------+-------------+
| - charged as an adjustment to revenue | 2.7 | - |
+-------------------------------------------------+---------------+-------------+
| - charged to cost of sales as an impairment to | 7.2 | - |
| receivables | | |
+-------------------------------------------------+---------------+-------------+
| | 9.9 | - |
+-------------------------------------------------+---------------+-------------+
| Fleet impairment - charged to cost of sales | - | 19.6 |
+-------------------------------------------------+---------------+-------------+
| Cost reduction expense - credited to | (0.1) | - |
| administrative expenses | | |
+-------------------------------------------------+---------------+-------------+
| 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 | - | (1.5) |
| liability | | |
+-------------------------------------------------+---------------+-------------+
| 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 GBP27.9 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 GBP9.9 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 (GBP2.5 million), as well as an additional adjustment of GBP7.4
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 GBP28.5 million (30
April 2009: GBP27.4 million), consisting of the additional adjustment of GBP7.4
million and GBP21.1 million remaining from the exceptional settlement provision
made in the year ended 30 April 2009.
The GBP7.4 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 GBP19.6 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) |
+------------------------------------------------+--------------+-------------+
| | GBP'm | GBP'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 | - | (1.5) |
| liability | | |
+------------------------------------------------+--------------+-------------+
| Net finance costs | 7.0 | 6.7 |
+------------------------------------------------+--------------+-------------+
The finance costs of the Convertible Notes of GBP2.9 million (2008: GBP2.7
million) include a charge of GBP1.4 million (2008: GBP1.4 million) in respect of
the 5.50% coupon payable twice yearly and GBP1.5 million (2008: GBP1.3 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 GBP1.2 million (2008: tax credit of
GBP4.6 million) comprises a tax charge of GBP1.3 million (2008: GBP0.8 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 GBP0.1 million (2008: GBP5.4 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 GBP7.0 million (2008: GBP3.2 million),
which includes GBP6.2 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 GBP9.9 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 | (7.7) | (11.8) |
| (GBP'm) | | |
+------------------------------------------------+--------------+-------------+
| 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 | (7.7) | (11.8) |
| (GBP'm) | | |
+------------------------------------------------+--------------+-------------+
| Post-tax cost of exceptional items (GBP'm) | 9.8 | 14.1 |
+------------------------------------------------+--------------+-------------+
| Post-tax cost of / (income from) other items | 0.5 | (0.7) |
| (GBP'm) | | |
+------------------------------------------------+--------------+-------------+
| Adjusted profit on ordinary activities after | 2.6 | 1.6 |
| taxation (GBP'm) | | |
+------------------------------------------------+--------------+-------------+
| 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 GBP2.1
million (2008: GBP0.6 million, which is stated net of a GBP1.5 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 (GBP'm) | (7.7) |
+---------------------------------------------------------------+--------------+
| Post-tax finance costs of Convertible Notes (GBP'm) | 2.1 |
+---------------------------------------------------------------+--------------+
| Post-tax cost of exceptional items (GBP'm) | 9.8 |
+---------------------------------------------------------------+--------------+
| Post-tax cost of / (income from) other items (GBP'm) | 0.5 |
+---------------------------------------------------------------+--------------+
| Adjusted profit on ordinary activities after taxation (GBP'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) |
+--------------------------------------------------+-------------+-------------+
| | GBP'm | GBP'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) |
+------------------------------------------------------------+----------------+
| | GBP'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 | 31 October | 30 April |
| | 2009 | 2008 | 2009 |
+-------------------------------------+--------------+-------------+-------------+
| | | Restated | |
| | | (note 2) | |
+-------------------------------------+--------------+-------------+-------------+
| | (Unaudited) | (Unaudited) | (Audited) |
+-------------------------------------+--------------+-------------+-------------+
| | GBP'm | GBP'm | GBP'm |
+-------------------------------------+--------------+-------------+-------------+
| Trade receivables | 118.2 | 124.6 | 119.5 |
+-------------------------------------+--------------+-------------+-------------+
| Exceptional Settlement Adjustment | (28.5) | - | (27.4) |
| (note 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 | 31 October | 30 April |
| | 2009 | 2008 | 2009 |
+-------------------------------------+--------------+-------------+-------------+
| | (Unaudited) | (Unaudited) | (Audited) |
+-------------------------------------+--------------+-------------+-------------+
| | GBP'm | GBP'm | GBP'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) |
+--------------------------------------------------+-------------+-------------+
| | GBP'm | GBP'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 | (1.3) | 0.4 |
| and equipment | | |
+--------------------------------------------------+-------------+-------------+
| Share-based payments | 0.4 | 0.5 |
+--------------------------------------------------+-------------+-------------+
| Changes in working capital: | | |
+--------------------------------------------------+-------------+-------------+
| Decrease / (increase) in trade and other | 1.0 | (17.8) |
| receivables | | |
+--------------------------------------------------+-------------+-------------+
| (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 | - | (1.5) |
| liability | | |
+--------------------------------------------------+-------------+-------------+
| 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) |
+--------------------------------------------------+-------------+-------------+
| | GBP'm | GBP'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 | (1.2) | (1.0) |
| included in net debt | | |
+--------------------------------------------------+-------------+-------------+
| Amortisation of debt issue costs | (0.6) | (0.6) |
+--------------------------------------------------+-------------+-------------+
| Decrease / (increase) in net debt during the | 5.5 | (25.0) |
| period | | |
+--------------------------------------------------+-------------+-------------+
| 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) |
+------------------------+--------------+-------------+-------------+-------------+
| | GBP'm | GBP'm | GBP'm | GBP'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 GBP0.6 million for the six months ended 31
October 2009 (2008: GBP0.6 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 GBP24 million are targeted to be attained by the end of
the current financial year at an estimated cost of GBP2 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
This information is provided by RNS
The company news service from the London Stock Exchange
END
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