RNS Number:0891Z
Invocas Group plc
27 June 2007
27 June 2007
INVOCAS GROUP PLC
("Invocas" or "the Group")
RESULTS FOR THE PERIOD ENDED 31 MARCH 2007*
Invocas, one of the UK's leading providers of personal and corporate debt
solutions, is pleased to announce its results for the period ended 31 March
2007*.
Invocas' Personal Insolvency Division is firmly established as the number one
provider of Protected Trust Deeds ("PTDs"), the Scottish equivalent of
Individual Voluntary Arrangements ("IVAs"). The Corporate Solutions Division has
grown rapidly in recent years and enjoys an excellent reputation in the Scottish
market place.
Highlights
* Strong financial performance across the Group
- Turnover increased by 53% to #8.53m (2006: #5.56m)*
- Pre-tax profit grew by 39% to #3.36m (2006: #2.42m)*
- Strong cash inflow from trading of #2.1m
- Strong balance sheet with net cash of #3.4m providing significant
headroom for further growth
* Market share of 16.8% of Protected Trust Deed market for the full
period (2006: 14.8%) increasing to 17.2% for the final quarter (2006:14.2%)
* Increase of some 34% in the number of live Trust Deed cases being
administered
* Newtomorrow, our direct offering to affinity partners, lenders,
intermediaries and debtors, established successfully and providing
platform for new affinity relationships
* Possible changes in Individual Voluntary Arrangement fee arrangements
should not impact directly on Invocas' business
* The financial results in this report relate to the Company's period of trading
for the 54 weeks from the date of our flotation,17 March 2006, to 31 March 2007.
The comparative numbers for 2006 quoted in this report are for the 50 week
period to 16 March 2006 and are based on the financial results of the former
partnership, adjusted for the estimated additional costs that might have been
incurred had the business been incorporated throughout the period. The
partnership profit for that period was #3.07m and, after making allowance for an
estimated #0.65m in respect of directors' remuneration and other corporate
costs, the illustrative pre-tax profit for the period to 16 March 2006 would
have been #2.42m. The adjustment only relates to the inclusion of overheads and
the comparative turnover is unaffected.
Howard Bell, Chairman, commented:
"I am delighted to report a successful year for the Group. We have seen strong
performance in all our key business metrics including turnover and profit and
the underlying conditions in our chosen market continue to move in our favour.
We believe that the current issues with the advertising of, processing of and
charging for IVAs, whilst not directly impacting on our business, all point
towards the need to work with lenders to develop high quality, long-term,
sustainable insolvency solutions which deliver good returns to creditors in a
sensible time frame. Our chosen market positioning and existing business model
already put us in a good position to benefit from changes in the dynamics of our
sector.
I am confident of reporting further progress in the year ahead and beyond."
Website: www.invocas.com
For further information:
Invocas Group plc Tel: 020 7839 4321 on Wednesday 27 June 2007 only
John Hall, Chief Executive Tel: 0131 222 2460 thereafter
Stephen Lightley, Finance Director
Fishburn Hedges Tel: 020 7544 3133 or 07747 113 930
James Benjamin invocas@fishburn-hedges.co.uk
Andy Berry
Charles Stanley Securities Tel: 020 7149 6000
Russell Cook
Henry Fitzgerald-O'Connor
Notes to editors
Invocas is one of the UK's leading providers of personal and corporate debt
solutions. Its Personal Insolvency Division is firmly established as the number
one provider of Protected Trust Deeds (Scottish equivalent of IVAs). Its
Corporate Services Division has grown rapidly in recent years and already enjoys
an excellent reputation in the Scottish market place.
Invocas applies stringent minimum case acceptance criteria to Trust Deeds. It
will only accept a case if it is likely to progress smoothly to completion and
result in a successful outcome which balances the interests of both the indebted
individual and their creditors.
The Group's Newtomorrow service aims to provide indebted individuals with the
right advice, first time, every time. This is achieved in a caring and
professional manner by a team of highly experienced debt advisors delivering
front line advice. Further information on Newtomorrow can be found at
www.newtomorrow.com
INVOCAS GROUP PLC
CHAIRMAN'S STATEMENT
I am delighted to report a successful year for the Group. We have seen strong
performance in all our key business metrics including turnover and profit and
the underlying conditions in our chosen market continue to move in our favour.
The financial results in this report relate to the Group's first period of
trading for the 54 weeks from our admission to AIM on 17 March 2006 to 31 March
2007. The comparative figures are for the 50 week period to 16 March 2006 (the
final period of trading of the former partnership).
Turnover for the period increased 53.5% to #8.53m (2006: #5.56m). Profit before
tax grew to #3.36m with basic earnings per share of 8.01p. This gives a growth
in profit before tax of 38.8% from the estimated profit before tax for the 50
week period ended 31 March 2006 of #2.42m. (This estimate is an illustrative
figure that we provided in our interim statement for the period ended 30
September 2006, based on the profit for the former partnership for the period
ended 16 March 2006 of #3.07m, adjusted for the additional corporate costs and
Directors' remuneration of #0.65m that might have been incurred had the business
been incorporated throughout that period.)
The value of shareholders' equity at 31 March 2007 was #11.06m, including #2.29m
of retained profit. The net cash inflow from operations, after investment in
working capital of #1.31m, was #2.08m. Closing cash balances stood at #3.4m.
Our balance sheet is, therefore, in good shape, providing a solid platform for
future expansion and investment.
The business manages a mixed portfolio of both personal and corporate insolvency
cases and is the major provider of Protected Trust Deeds (PTDs) (the Scottish
equivalent of Individual Voluntary Arrangements (IVAs)). Approximately 80% of
our turnover for the period was derived from PTD work, 11% from Sequestrations
(the Scottish term for bankruptcies) and other personal insolvency services, and
the balance of 9% from formal and informal corporate insolvency services.
We could not have achieved these successes without the exceptional support and
commitment of every member of the Invocas team. I would like to extend the
thanks of the Board and shareholders to all our people for their skill,
enthusiasm and hard work in the period.
Delivering our strategy
These results were achieved through growing our market share of both the
personal and corporate insolvency markets. We delivered against our strategy of
strengthening and broadening our network of work providers and, at the same
time, successfully launched Newtomorrow, our direct offering to new affinity
partners, lenders, intermediaries and debtors. We continued to benefit from
excellent service delivery, our unique geographical coverage in Scotland and our
'professional services' ethos.
Momentum in the business remains strong and we continue to strengthen further
our position as the first choice provider of personal debt solutions in
Scotland. We are continuing to invest in the business, increasing our ability to
deliver even better service and value to our customers.
Resilient market and model
Personal insolvency legislation is different in Scotland from the rest of the UK
and it is worth stressing that the possible changes to the procedures for
advertising, performing and charging for IVA services that have been highly
publicised in the press recently will have no direct impact on Invocas. The
Board believes that this makes Invocas' model more resilient than those of the
IVA companies in some important respects.
Invocas has an excellent working relationship with The Insolvency Exchange
(TIX), which acts for a number of major creditors including HBOS Group and The
Royal Bank of Scotland plc. We worked with TIX to help them understand the
Scottish market. As a consequence, the involvement of TIX in the market place
allied to the creditor mix on PTDs (where Scottish clearing banks are normally
the dominant creditors) has meant we have not suffered the increase in rejection
rates experienced by the IVA companies.
It is worth noting that Invocas has a case failure rate of about 5%, whereas the
IVA companies have an average failure rate of about 35% (source: TIX). In the
event that pressures to link an element of remuneration to realisations reach
the PTD market, our model should serve us very well.
The Board feels strongly that Invocas' minimum acceptance criteria and our
policy of conducting face to face interviews with all debtors benefit the
longevity of our cases and contribute to our industry-leading low failure rates.
Our leads are generated via referrals rather than advertising. The majority of
our cases come from referrals from debt management companies, although an
increasing element is generated through Newtomorrow. As a result of this
approach, the cost of acquiring new business is effectively nil and advertising
issues that have beset the IVA industry do not directly affect Invocas.
Invocas continues to recognise revenue on the basis of the recoverable value of
work done by staff, subject to rigorous provisioning, as we have always done.
Our revenue is, therefore, spread over the life of our cases in direct
proportion to the amount of time spent by staff working on a particular case.
This becomes more relevant towards the end of the case as we are able to recover
the significant costs involved in bringing cases to a conclusion. Our nine
years' experience in this market gives us a unique perspective - we understand
the closure process and the costs involved.
Under Scots law, a debtor whose Trust Deed proposal has not been accepted by
creditors is entitled to petition the Court for his own Sequestration,
appointing an insolvency practitioner as his/her trustee. Invocas therefore
retain an element of control in such cases which is not mirrored in the rest of
the UK, where debtors whose IVA proposal has been rejected are effectively '
lost' to the IVA company and do not generate any revenue. In Scotland, we are
able to convert such cases to Sequestrations, providing the debtor with an
insolvency solution and generating an income stream which, due to the nature of
the process, generates a higher fee than would have been earned from a PTD.
In summary, we have an extremely robust business model which offers a number of
advantages over the IVA companies.
The market
The underlying economic fundamentals, which identify the UK as a society of
over-indebted consumers, demonstrate that the debt mountain is continuing to
grow. Total UK personal debt at the end of April 2007 stood at #1,325bn (source:
Credit Action), an increase of 10.4% over the previous year. Borrowing costs hit
a six year high in May 2007 when interest rates reached 5.5%, the fourth rise in
nine months. If interest rates stay at 5.5%, the unsecured debt write-off rate
by lenders is expected to grow from 3.1% in 2006 to 4.3% by 2009 which would be
the highest rate since 1992 (source: Experian).
In Scotland, our experience suggests that whilst the average per capita debt is
lower than in the rest of the UK, the average Scot's asset base is substantially
less. As a result, proportionately more Scots are in financial difficulties and
are seeking a voluntary solution to their debts at a much lower age.
Formal corporate insolvency appointments throughout Scotland for the year ended
31 March 2007 reduced significantly to 580 (2006: 815). This suggests that the
increasing mortgage repayments and other household costs suffered by individuals
have not manifested themselves through reduced consumer spending in the retail,
manufacturing and leisure sectors. We expect a significant increase in informal
advisory assignments and formal corporate insolvencies towards the end of 2007.
Outlook
We continue to strengthen Invocas' position as the first choice provider of
personal debt solutions in Scotland and we continue to build a high quality
niche corporate insolvency business.
We believe that the current issues with the advertising of, processing of and
charging for IVAs, whilst not directly impacting on our business, all point
towards the need to work with lenders to develop high quality, long-term,
sustainable insolvency solutions which deliver good returns to creditors in a
sensible time frame. Our chosen market positioning and existing business model
already put us in a good position to benefit from changes in the dynamics of our
sector. Further consolidation of the debt sector is both desirable and necessary
if these needs are to be met and we intend to play a full part in this process.
Invocas remains a well balanced business with a broad range of existing work
providers and a fast developing network of new providers, the revenue from which
has not yet been seen in our numbers.
With favourable economic conditions, ongoing investment in strengthening and
expanding the business, a strong financial position and an outstanding team of
management and staff, I am confident of reporting further progress in the year
ahead and beyond.
Howard Bell, Non-executive Chairman
26 June 2007
INVOCAS GROUP PLC
OPERATING REVIEW
Invocas is one of the UK's leading providers of personal and corporate debt
solutions and is Scotland's pre-eminent provider of Protected Trust Deeds (PTDs)
- the Scottish equivalent to Individual Voluntary Arrangements (IVAs).
The business
Trading for the period has been strong, with levels of activity, revenue and
profits increasing in line with market expectations. This reflects the robust
growth in personal insolvency services, which remain the Group's principal
activity.
Our approach to both customer service and delivery differentiates us from our
peer group.
We always seek to balance the interests of the lenders and the borrowers and we
continue to apply stringent minimum acceptance criteria with a view to
delivering truly sustainable solutions and optimum returns to creditors, both of
which are imperative in today's climate. We undertake face to face interviews
with debtors to obtain comfort as to their commitment to the process they are
about to commence and to confirm the completeness and accuracy of their
financial position.
Lenders recognise the benefits of our high quality service and optimum returns,
and debtors consider us to be professional, trustworthy and caring in our
approach. We believe this balanced approach puts us in the ideal position to
play a major part in the future of what is a relatively young and quickly
developing market sector.
Personal insolvencies
Some 91% of our turnover in this period has come from the provision of personal
insolvency services in Scotland. The results show that we have significantly
increased our market share of personal insolvency appointments in Scotland,
helped in part by our uniquely strong geographical spread which enables us to
access and service work all over Scotland. Our market share of the total number
of new PTD appointments in Scotland in the quarter to 31 March 2007 rose to
17.2% (2006: 14.2%).
Consumer debt remains at record levels and continues to grow, this at a time
when some commentators are predicting further increases in UK interest rates
before the end of 2007. The impact of recent rate rises on mortgage repayments
has not yet been fully felt and is likely to put even more consumers into a
position where they will find it difficult to meet their ongoing financial
obligations. The indications are that increasing mortgage payments are starting
to dampen increases in house prices and those debtors who have previously
utilised equity release by way of a re-mortgage to repay their unsecured
borrowings are likely to find it much more difficult to do so in the medium
term.
In Scotland, the number of PTD appointments increased by 15.6% to 8,302 in the
12 months ended 31 March 2007 (2006: 7,180).
The Group's number of Trust Deeds achieving protection during the period ended
31 March 2007 was 1,391 representing an increase of 30.6% (2006: 1,065). These
numbers give Invocas 16.8% of the market for the period as a whole (2006:
14.8%). This masks an ongoing gain in our market share, which increased to 17.2%
for the first quarter of 2007.
The number of Trust Deed proposals signed by the Group in the period rose by
30.2% to 1,521 (2006: 1,168). (The initial preparation of paperwork, agreement
to this by the debtor and the five week period for creditors to object means
that it commonly takes an average of eight weeks for a signed Trust Deed to
become protected).
At 31 March 2007 the Group had a portfolio of some 4,300 live Trust Deed cases
(2006: 3,200) representing an increase of some 34% in the number of cases being
administered.
During the period we have reduced the risk profile of our referral base. We now
have a larger referral base with less reliance on a small number of key
referrers. In addition, an increasing number of referrers have agreed to formal
six or twelve month referral contracts. We are now developing referral flows
from new affinity partners which are expected to start to deliver increasing
numbers of leads in the near future. We have established our Newtomorrow call
centre and website and this service is starting to deliver a regular flow of
revenue opportunities. This service is available to affinity partners, lenders,
intermediaries and debtors looking for a professional and caring approach to
finding the appropriate solution to the debtors' financial problems. The
benefits of these new sources of leads have not yet been reflected in our
revenues.
In the coming year our strategy is to broaden the range of our services by the
acquisition of quality debt solutions providers in complementary areas and by
the in-house development of additional debt solution services. Our aim is to be
able to offer a full suite of debt solutions in-house, enabling us to benefit
from the broad range of opportunities and efficiency savings this 'multiliner'
approach presents.
Corporate insolvencies
The balance of our activities comes from the provision of corporate insolvency
services in Scotland. The total number of Scottish corporate insolvencies in the
market reduced from the level in the year ended 31 March 2006. Our own number of
formal corporate insolvency appointments for the year ended 31 March 2007
reduced to 39 cases (2006: 45). However, this represents an actual increase in
our market share to 6.7% (2006: 5.5%).
In recent months, we have seen the first signs of a slowdown in consumer
spending feeding through into an increase in corporate insolvencies and we
anticipate that the current year will see an upturn in the level of corporate
fees earned. We expect to see corporate services represent a higher percentage
of our turnover than was the case in the period to 31 March 2007 and the
development of a successful corporate practice continues to be a key part of our
strategy in the future.
New work
The overall value of new work won in the period ended 31 March 2007 was #7.14m
(2006: #6.03m) representing an increase of 18.4%. As in previous years, we
anticipate that the actual turnover derived from these cases will exceed these
initial estimates by approximately 25%.
Regulation
As our Chairman has indicated, there have been changes within the Scottish
personal debt market, specifically through the involvement of TIX representing
two of the three major Scottish clearing banks. As part of this process TIX have
begun to look more closely at Trust Deed proposals in Scotland. Due to the
nature of our selective approach to case acceptance, our level of fees and
margins over time should be largely unaffected by these changes.
We understand from TIX that they raised objections to approximately 50% of all
Trust Deed proposals put to them in the month of March 2007. In comparison to
the market, we are finding that over 93% of our own Trust Deed proposals are
being accepted.
We understand that one of the principal reasons for objections has been that the
creditors now require a minimum level of dividend of 10p in the pound. This is a
non-statutory requirement but we are pleased to see that the dividend levels
that creditors are pursuing mirror the approach that Invocas has consistently
taken.
Under Scots law, a debtor who has been unable to enter into a PTD because of
creditor objections is entitled to approach the Courts to petition for his/her
own Sequestration (the Scottish term for bankruptcy). Of the approximate 7% of
our Trust Deed applications that are rejected, we are finding that a substantial
majority, approximately 75%, of those debtors will petition for their
Sequestration, with an Invocas insolvency practitioner being nominated to act as
trustee, thereby generating income for the Group.
If the banks' representatives continue to reject large numbers of Trust Deed
proposals put forward by our competitors, we envisage that the overall numbers
of PTDs in Scotland will reduce but that our market share will increase in
absolute terms and will show a considerable increase in percentage terms. We
would also expect a corresponding increase in the number of Sequestrations in
Scotland and in the number of such appointments that we will undertake.
As the fees involved in undertaking the more complicated process of a
Sequestration typically exceed those earned in a PTD by as much as 20%, we
anticipate that, with an increasing mix of Sequestration work, our level of fees
and margins over time will be unaffected by changes in the Trust Deed market.
At the time of our admission to AIM, there was the possibility of changes to the
regulations affecting PTDs but no changes were introduced by the Scottish
Executive following the consultation that was undertaken at the start of 2006.
Following the recent Scottish elections, there is uncertainty over the eventual
extent and timing of any changes in legislation in this area.
The Board will continue to play a full part in supporting evolving UK-wide
initiatives designed to safeguard the consumer and, at the same time, ensure
consistent application of best advice and best practice at all levels.
Consequently, we have become members of the Debt Resolution Forum (DRF) and have
participated in the joint British Banking Association/Insolvency Service Forums
on IVAs. I am a board member of the DRF and personally head the working party on
regulation.
We are pleased that the review of current IVA procedures in England by the BBA,
in conjunction with The Insolvency Service, the IVA industry and other
interested parties, has emphasised the importance of the voluntary insolvency
arrangement within the range of personal debt solutions in the UK and that there
is a developing consensus on the appropriate standards of marketing for IVAs,
the content of IVA proposals and the commercial requirements of lenders from
IVAs. We welcome these initiatives which, whilst not directly relevant to our
own services in Scotland, ultimately will result in improved certainty and
confidence in the debt sector.
We understand that there is a developing move within the industry towards IVA
fee structures linked to realisations and anticipate that, ultimately, Trust
Deed services will not be immune to similar commercial pressures. Where we have
had rejections of Trust Deed proposals, these have generally been in relation to
the level of proposed fees. In response to this, we have recently had
discussions with TIX regarding their expectations of fee levels in Trust Deed
proposals and have evolved a framework for fees which TIX anticipate will be
acceptable to their lenders and which will not have a material effect on our
overall fee levels and margins. Alongside this, as part of our ongoing strategy
to review our business processes, we are carrying out an evaluation of a number
of software systems and of our case processing procedures in order to identify
where both efficiency and cost savings can be introduced in order to ensure we
are able to meet any challenges which may come our way.
Possible changes to the cash flows for the IVA industry have been raised. The
Board considers that Invocas is cushioned from any effects that such changes may
have as there is no comparable split of fees in PTDs to mirror the one-off
nominee and recurring supervisory fees in IVAs. Invocas, as a professional
services company, recognises turnover and billings in line with the recoverable
value of the time charged to a case by the member of staff undertaking the work.
We therefore spread the fee over the life of a case in direct proportion to the
work required to be done at any particular stage of a case's life cycle. Our
cash flows are directly proportional to the fees charged.
Newtomorrow
Our Newtomorrow offering was launched in the Autumn of 2006 and is now well
established as a provider of debt counselling and advice services to indebted
individuals introduced to us by intermediaries, professional advisors, affinity
partners and from other sources including the internet. In the period to 31
March 2007, Newtomorrow absorbed funds of some #0.55m which clearly had an
impact on the Group profit earned in the period. However, all set up costs have
been incurred and the level of activity is increasing steadily. We have agreed
trials with a number of potentially significant affinity partners which will
take place over the next few months. We have also set in train further
development of our website with a view to sourcing a significant number of leads
via tools such as search engine optimisation. We expect Newtomorrow to continue
to grow and to contribute increasingly to both revenues and profits in the
future.
People
To service the growing demand for our services, we continue to invest in
additional staff. We have grown our headcount in the period to 31 March to 101
full time staff (2006: 70) and we continue to enjoy extremely low levels of
staff turnover.
Key to the success of our growth plans is the number of licensed insolvency
practitioners employed by the Group. We have increased the number in the Group
during the period to seven, a significant increase on the three employed at the
time of our admission to AIM in March 2006. This provides considerable case
handling capacity which will allow for significant growth in case numbers and
for these cases to be managed efficiently and professionally.
I would like to extend the thanks of the Board and shareholders to all our
staff, whether in management, operational or support functions. They have
responded extremely well to the additional challenges posed by our flotation and
to our growth in activity and their skill, enthusiasm and commitment every
single day ensure that we provide an optimum service.
Infrastructure
We continue to invest in our infrastructure and IT processes across the Group to
underpin our growth strategy. During the period, we have taken additional extra
office space in Glasgow which more than doubles the size of that office and,
since the period end, we have also relocated our Edinburgh and Aberdeen offices
to substantially bigger and more appropriate premises.
We have invested in the necessary IT spend to ensure that the Newtomorrow call
centre has a state of the art and fully scaleable call processing and management
capability to facilitate its efficient operation and we are currently
strengthening the IT platform underpinning our insolvency operations.
Acquisitions
Early in the period, we successfully concluded the acquisition of Wilson & Co, a
boutique Edinburgh-based insolvency practice. During the period we have
evaluated a number of potential acquisition opportunities, none of which, for a
variety of reasons, we felt it right to progress. The Board continues to assess
a number of opportunities in similar and related businesses with the objective
of broadening the base of our core personal debt solutions business, thereby
reducing the risk profile of the business and offering opportunities to benefit
from cross selling. We will continue to evaluate potential opportunities
diligently and will only proceed when we are convinced of the shared values and
potential synergies of a specific target.
Looking ahead
The combined number of our personal insolvency appointments that have either
achieved formal approval in the two months since the period end, or are still
pending at 31 May, has increased slightly to 512 (2006: 490). We anticipate that
the number of personal insolvencies will increase more significantly as the year
advances and we increase the number of our affinity partners. This should be
mirrored by an increase in corporate insolvencies. At the same time, we shall
progress acquisition opportunities with a view to broadening our range of debt
solutions.
We do not expect our revenues and margins to be affected significantly by any
changes in IVA practices.
The key drivers of our business are the high level of personal debt in Scotland,
our excellent relationships with lenders and work referrers, our outstanding
reputation for quality and professionalism, and our expanding customer base.
These all remain positive and I look forward to reporting further significant
progress, diversification and growth for the Group in the coming year.
John Hall, Chief Executive Officer
26 June 2007
INVOCAS GROUP PLC
Group income statement
for the period ended 31 March 2007
54 week
period ended
31 March 2007
Notes #'000
Continuing operations
Revenue 1 8,535
Direct costs 2,226
Gross profit 6,309
Marketing expenses 711
Administrative expenses 2,283
Share-based payments 60
Profit from operations 1 3,255
Investment income 109
Profit before taxation 3,364
Income tax expense 2 1,076
Profit for the period 2,288
Basic earnings per share 3 8.01p
Diluted earnings per share 3 7.85p
As permitted by section 230 of the Companies Act 1985, a separate income
statement and related notes for the holding company have not been presented in
these financial statements. The profit after taxation in the holding company was
#883,000 for the period.
INVOCAS GROUP PLC
Balance sheet
as at 31 March 2007
Notes Group Company
#'000 #'000
ASSETS
Non-current assets
Property, plant and equipment 348 -
Intangible assets 4,153 -
Investments - 60
Deferred tax assets 18 -
Total non-current assets 4,519 60
Current assets
Inventories 68 -
Trade and other receivables 5,242 8,133
Cash and cash equivalents 3,405 2,343
Total current assets 8,715 10,476
Total assets 13,234 10,536
EQUITY AND LIABILITIES
Equity attributable to equity holders of the
parent company
Share capital 4 71 71
Share premium 8,642 8,642
Share-based payment reserve 60 60
Retained earnings 2,288 883
Total equity 11,061 9,656
Non - current Liabilities
Deferred tax liabilities 19 -
Total non-current liabilities 19 -
Current liabilities
Trade and other payables 946 429
Current tax payable 1,208 451
Total current liabilities 2,154 880
Total liabilities 2,173 880
Total equity and Liabilities 13,234 10,536
INVOCAS GROUP PLC
Statements of changes in equity
for the period ended 31 March 2007
Group Attributable to equity holders of
the Company
Share
-based
Share Share Payment Retained Total
Capital Premium Reserve Earnings Equity
#'000 #'000 #'000 #'000 #'000
Opening balance - - - - -
Shares issued 71 8,642 - - 8,713
Profit for the period - - - 2,288 2,288
Employee share incentive charges - - 60 - 60
Balance at 31 March 2007 71 8,642 60 2,288 11,061
Company Attributable to equity holders of
the Company
Share
-based
Share Share Payment Retained Total
Capital Premium Reserve Earnings Equity
#'000 #'000 #'000 #'000 #'000
Opening balance - - - - -
Shares issued 71 8,642 - - 8,713
Profit for the period - - - 883 883
Employee share incentive charges - - 60 - 60
Balance at 31 March 2007 71 8,642 60 883 9,656
INVOCAS GROUP PLC
Cash flow statements
for the period ended 31 March 2007
Notes Group Company
#'000 #'000
Cash generated from operations 5 2,077 1,037
Investing activities
Purchase of property, plant and equipment (316) (28)
Purchase of intangibles (22) -
Purchase of businesses 6 (6,656) (6,656)
Transfer of cash to subsidiary as part of group reorganisation
Interest received - (328)
109 105
Net cash used in investing activities (6,885) (6,907)
Financing activities
Proceeds from the issue of ordinary shares 9,559 9,559
Share issue costs (846) (846)
Repayment of borrowings (500) (500)
Net cash generated from financing activities 8,213 8,213
Net increase in cash and cash equivalents 3,405 2,343
Cash and cash equivalents at beginning of period - -
Cash and cash equivalents at end of period 3,405 2,343
Summary of significant accounting policies
The financial statements of the Group and Company have been prepared in
accordance with International Financial Reporting Standards (IFRSs), including
International Financial Reporting Interpretations Committee (IFRIC)
interpretations as adopted for use in the European Union and in accordance with
those parts of the Companies Act 1985 applicable to companies reporting under
IFRSs.
The financial statements have been prepared on the historical cost basis, with
the exception of share based payments.
The principal accounting policies adopted are set out below.
New standards and interpretations not applied
At the date of authorisation of these financial statements, the International
Accounting Standards Board (IASB) has issued certain new/revised International
Accounting Standards (IASs), IFRSs and IFRICs that are not yet effective.
IAS1 (amended), IFRS7 and 8 are not yet due for adoption and have not been
adopted as they are not considered to have a significant impact on the financial
statements. IFRICs 1,2,4,5,6,7,9 and 12 are not relevant to the Group's affairs.
IFRICs 8, 10 and 11 are relevant to the Group's affairs and the financial
statements have been prepared in accordance with the recommendations of those
IFRICs where appropriate.
Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates and assumptions will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed in the accounting
policies below relating to impairment of intangible assets and recognition of
provisions for reducing amounts recoverable on contracts to their recoverable
value.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and enterprises controlled by the Company (its subsidiaries) made up
to 31 March each year. The excess of cost of acquisition over the fair values of
the Group's share of identifiable net assets acquired is recognised as goodwill.
Any deficiency of the cost of acquisition below the fair value of identifiable
net assets acquired (i.e. discount on acquisition) is recognised directly in the
income statement.
The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are initially measured at fair
value at the acquisition date irrespective of the extent of any minority
interest.
The results of subsidiaries acquired or disposed of during the period are
included in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal, as appropriate.
All intra-group transactions, balances, and unrealised gains on transactions
between Group companies are eliminated on consolidation. Unrealised losses are
also eliminated unless the transaction provides evidence of an impairment of the
asset transferred.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group's interest in the fair value of the identifiable
assets and liabilities of a subsidiary, associate or jointly controlled entity
at the date of acquisition.
Goodwill on acquisition of subsidiaries is included in intangible assets.
Goodwill is stated at cost less provision for impairment. The Group tests
goodwill annually for impairment or more frequently if there are indications
that goodwill might be impaired.
For the purposes of determining impairment of purchased goodwill carried in the
balance sheet, all goodwill is allocated against the appropriate business units
deemed to obtain advantage from the benefits acquired with the goodwill. These
are designated as cash generating units (CGUs). Impairment is then assessed by
comparing the recoverable amount of the relevant CGU with the carrying value of
the CGU's assets and liabilities and related goodwill. Recoverable amount is
measured as the asset's value in use. Where the recoverable amount of the CGU is
less than its carrying amount including goodwill, an impairment loss is
recognised in the income statement.
On disposal of a subsidiary, associate or jointly controlled entity, the
attributable amount of goodwill is included in the determination of the profit
or loss on disposal.
Other intangible assets
Where they meet the criteria for capitalisation under IAS38, other intangible
assets are capitalised at cost. Website development costs are amortised over a
period of three years.
Software costs are written off over the period of the relevant licence.
Property, plant and equipment
Fixtures and equipment are stated at cost less accumulated depreciation and any
recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation of assets,
other than land and properties under construction, over their estimated useful
lives, using the straight-line method, on the following bases:
Leasehold fixtures Over the life of the relevant lease
Fixtures and equipment 10%-30%
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets or, where shorter, the term of the
relevant lease.
The gain or loss arising on the disposal or retirement of an asset is determined
as the difference between the sales proceeds and the carrying amount of the
asset and is recognised in income.
Impairment of property, plant and equipment and intangible assets excluding
goodwill
At each balance sheet date, the Group reviews the carrying amounts of its
property, plant and equipment and intangible assets to determine whether there
is any indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss (if any). Where the asset
does not generate cash flows that are independent from other assets, the Group
estimates the recoverable amount of the cash-generating unit to which the asset
belongs. An intangible asset with an indefinite useful life is tested for
impairment annually and whenever there is an indication that the asset may be
impaired.
Recoverable amount is calculated as the higher of fair value less costs to sell
and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to
the asset for which the estimates of future cash flows have been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately, unless the relevant asset is carried at
a revalued amount, in which case the impairment loss is treated as a revaluation
decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset
(cash-generating unit) is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of an impairment
loss is recognised as income immediately, unless the relevant asset is carried
at a revalued amount, in which case the reversal of the impairment loss is
treated as a revaluation increase.
Investments in subsidiaries
Investments in subsidiaries are stated at cost less any provision for
impairment.
Inventories
Inventories represent the cost of time spent on cases where there is no
automatic entitlement to income at the balance sheet date. Inventories are
stated at the lower of cost and net realisable value. Cost comprises direct
labour costs and those overheads that have been incurred on the cases to date.
Net realisable value represents the estimated selling price less due provision
for those costs that may not be fully recoverable.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance
sheet when the Group has become a party to the contractual provisions of the
instrument.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less provision
for impairment. A provision for impairment of trade receivables is established
when there is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of receivables. The amount of the
provision is recognised in the income statement .
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An instrument will be
classified as a financial liability when there is a contractual obligation to
deliver cash or another financial asset to another enterprise.
Bank borrowings
All interest bearing loans and other borrowings are initially recorded at fair
value, which represents the fair value of the consideration received, net of any
issue costs associated with other borrowings. Interest bearing bank loans and
overdrafts are recorded at the proceeds received, net of direct issue costs.
Finance charges, including premiums payable on settlement or redemption, are
accounted for on an amortised cost basis to the income statement using the
effective interest method, being recognised in the income statement over the
term of such instruments at a constant rate on the carrying amount of the
instrument to the extent that they are not settled in the period in which they
arise.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on the taxable profit for the period. Taxable
profit differs from net profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
periods and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated by using tax rates that have
been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amount of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a transaction which
affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply to the
period when the asset is realised or the liability is settled. Deferred tax is
charged or credited in the income statement, except when it relates to items
credited or charged directly to equity, in which case the deferred tax is also
dealt with in equity.
Revenue recognition
Revenue in the income statement represents fees and other income earned during
the period from the provision of financial solutions to individuals experiencing
debt problems, inclusive of direct disbursements incurred on assignments but
exclusive of value added tax.
Revenue is only recognised when the outcome can be measured with sufficient
reliability. The amounts taken to revenue for the provision of professional
services are calculated on a time charged basis with due provision made for
cases for which the income due may not be recoverable. Provision is also made
for the costs of completion on cases where recovery of such costs is considered
doubtful.
Fees earned from the introduction of cases to third parties for the provision of
loan finance, debt management plans or other debt solutions are recognised when
the third party notifies that a fee has been earned.
Fees that have been billed but not received at the balance sheet date and
revenue that has been earned but not yet billed are both included net of related
provisions within trade receivables as 'amounts recoverable on contracts'.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable.
Dividend income from investments is recognised when the shareholders' rights to
receive payment have been established.
Retirement benefit costs
Payments to defined contribution retirement benefit plans are charged as an
expense as they fall due.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other
leases are classified as operating leases.
The Group as lessee
Rentals payable under operating leases are charged to income on a straight-line
basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight-line basis over the lease term.
Provisions
Provisions are recognised when the Group has a present obligation as a result of
a past event which it is probable will result in an outflow of economic benefits
that can be reliably estimated.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based Payments.
The Group issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value at the date of
grant. The fair value determined at the grant date of equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based on
the Group's estimate of shares that will eventually vest.
Fair value is measured by use of a Black-Scholes model. The expected life used
in the model has been adjusted, based on management's best estimate, for the
effect of non-transferability, exercise restrictions, and behavioural
considerations.
INVOCAS GROUP PLC
Notes to the financial statements
for the period ended 31 March 2007
1 Business and geographical segments
Business segments
For management purposes, the Group is currently organised into two
operating divisions - insolvency services and debt advisory services.
These divisions are the basis on which the Group reports its primary
segment information.
Principal activities are as follows:
Insolvency services: provision of statutory personal and corporate
insolvency services.
Debt advisory services: provision of debt advisory services and
referrals to providers of loans, debt management programmes and IVA
services.
Segment information about these businesses is presented below.
Geographical segments
The Group's operations are located in the UK. All of the Group's
turnover arose in the UK and all of the Group's assets are located in
the UK.
Segment information
Period ended 31 March 2007
Revenue Insolvency services Debt advisory services Group
#'000 #'000 #'000
External revenue 8,495 40 8,535
Inter-segment revenue (72) 72 -
Total revenue 8,423 112 8,535
Result
Profit/(loss) from operations 3,803 (548) 3,255
Income from investments 109 - 109
Profit/(loss) before tax 3,912 (548) 3,364
Income tax (expense)/credit (1,236) 160 (1,076)
Profit/(loss) after tax 2,676 (388) 2,288
1 Business and geographical segments (continued)
Assets and Liabilities
Segment assets 13,065 169 13,234
Segment equity and liabilities 13,065 169 13,234
Other Information
Capital expenditure 372 61 433
Depreciation and amortisation 47 15 62
Inter-segment revenue is charged at prevailing market rates.
2 Income tax expense
Period ended
31 March 2007
#'000
Current tax
UK Corporation tax 1,075
1,075
Deferred tax
Current year 1
1,076
Tax attributable to the Company and its subsidiaries 1,076
UK corporation tax is calculated at 30% of the estimated assessable
profit for the period.
The charge for the period can be reconciled to the profit per the
income statement as follows:
Period ended
31 March 2007
#'000 %
Profit before tax 3,364
Tax at the domestic income tax rate 30% 1,009
Tax effect of expenses that are not deductible in
determining taxable profit 67
Tax expense and effective tax rate for the period 1,076 32
3 Earnings per share
The calculation of the basic and diluted earnings per share is based
on the following data:
Period ended 31
March 2007
#'000
Profit for the period 2,288
Weighted average no. of shares in issue:
No.
For basic earnings per share 28,566,585
Effect of share options issued 567,183
For diluted earnings per share 29,133,768
Earnings per share:
Pence
Basic 8.01
Diluted 7.85
Profit for the period has been used for calculating both basic and
diluted earnings per share. The basic and diluted earnings per share
figures relate to all operations, all of which are continuing.
4 Share capital
Group and Company
2007 2007
Number #'000
Ordinary shares of 0.25 pence each
Authorised: 39,000,000 97
Issued and Fully Paid: 28,566,585 71
4 Share capital (continued)
Ordinary shares
On incorporation, the authorised share capital of the Company was #1,000
divided into 1,000 ordinary shares of #1 each, two of which were issued
credited as fully paid to the subscribers to the Company's Memorandum of
Association.
On 9 March 2006, the authorised share capital of the Company was increased
from #1,000 to #50,000 by the creation of 49,000 ordinary shares of #1
each and, on the same day, the Company issued 49,998 ordinary shares at
par.
On 14 March 2006, the authorised share capital of the Company was
increased to #97,500 by the creation of 47,500 ordinary shares of #1 each,
and each of the ordinary shares of #1 each was subdivided into 400
ordinary shares.
On 16 March 2006, the Company issued 8,566,585 ordinary shares at a price
of #1.11p per share immediately prior to its admission to AIM on 17 March
2006, giving rise to a share premium of #9,488,000.
Options
During the period, options were granted over 666,873 ordinary shares. Of
these, 99,690 lapsed during the period and at 31 March 2007 the Company
had 567,183 unissued ordinary shares of 0.25p each under the Company's
share option scheme, details of which are as follows:
Grant Date Granted in the Option Price (p) Date from which Expiry Date
period exercisable
17 March 2006 420,180 111 17 March 2009 17 March 2016
17 March 2006 91,600 111 17 March 2008 17 March 2016
16 June 2006 27,625 182 16 June 2009 16 June 2016
27 June 2006 27,778 180 27 June 2009 27 June 2016
5 Reconciliation of profit from operations to net cash from operating activities
Group Company
2007 2007
#'000 #'000
Profit from operations 3,255 1,217
Adjustments for:
Depreciation of plant and equipment 58 22
Amortisation of intangibles 4 -
Loss on disposal of plant and equipment 6 -
Share-based payments 60 -
Operating cash flows before
movements in working capital 3,383 1,239
Increase in inventories (36) -
Increase in receivables (2,135) (1,122)
Increase in payables 865 920
Cash generated from operations 2,077 1,037
6 Acquisition of businesses
Businesses acquired during the period: #'000
Haines Watts Business Recovery & Insolvency Scotland 6,500
Wilson & Co 156
6,656
On 17 March 2006, the Company acquired the business, goodwill and certain
assets and liabilities of Haines Watts Business Recovery & Insolvency
Scotland from the partners of that business for a cash consideration of
#6.5 million. This transaction has been accounted for by the purchase
method of accounting
Carrying amount and fair value
Net assets acquired: #'000
Plant and equipment 89
Trade and other receivables 3,097
Inventories 32
Trade payables (713)
2,505
Goodwill 3,995
Total consideration 6,500
Satisfied by:
Cash 6,500
The acquired business contributed #8.08 million of revenue and #3.67
million of profit before tax for the period between the date of
acquisition and the balance sheet date.
6 Acquisition of businesses (continued)
On 7 June 2006, the Company acquired the business, goodwill and certain
assets and liabilities of Wilson & Co from the owner of that business for
cash consideration of #156,000. This transaction has been accounted for by
the purchase method of accounting.
Carrying amount
and fair value
Net assets acquired: #'000
Plant and equipment 6
Trade and other receivables 10
16
Goodwill 140
Total consideration 156
Satisfied by:
Cash 151
Cost of acquisition 5
156
The acquired business contributed #343,000 of revenue and #134,000 of
profit before tax for the period between the date of acquisition and the
balance sheet date.
The financial information set out in this Preliminary Announcement, which has
been extracted from the audited accounts, does not constitute the Company's
statutory accounts for the period ended 31 March 2007.
The statutory accounts for the period ended 31 March 2007, which were approved
by the Directors on 26 June 2007, will be delivered to the Registrar of
Companies, following the Company's Annual General Meeting on 26 July at 11:00
am. The Auditors reported on the accounts for the period ended 31 March 2007;
their report was unqualified and did not contain a statement under s237(2) or
(3) of the Companies Act 1985. A copy of the Annual Report and Financial
Statements will be sent to all shareholders shortly and will be available from
the Company at Capital House, Festival Square, Edinburgh EH3 9SU.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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