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