RNS Number : 3659X
Potential Finance Group PLC
24 June 2008
Potential Finance Group plc
Unaudited interim results for the period ended 31 March 2008
Potential Finance Group plc announces interim results for the six months ended 31 March 2008, for the first time under IFRS
Key Highlights
* Return to group profitability
* Hire fleet now in excess of 1000
* Growth in asset finance brokerage to service wider lending market
Financial Highlights
* Gross profit shows 20% increase over the second half of 2007
* Overhead increase for the same period only 1%
* Operating profit of �113,000 for 6 months compared with �56,000 loss in March 2007
Corporate Highlights
* Hire division now well established in south west
* Retail disposal strategy for hire business now proven and benefiting from asset finance link
* Enlarged brokerage division well established and set to move into profitability
24 June 2008
Enquiries:
Colin Swanston
Group Managing Director
Vivien Ware
Finance Director
Potential Finance Group plc 01277 237 160
Philip Davies
Charles Stanley Securities 020 7149 6457
Nominated Adviser to the Company
Chairman's Statement
Introduction of International Financial Reporting Standards ('IFRS')
For the first time the Group is reporting its results under International Financial Reporting Standards (IFRS).
Results
I am pleased to report a post-tax profit of �83,000 after allowing for a share-based payment cost of �52,000. This means that
shareholders' funds have increased by �135,000 for the period.
Potential Vehicle Hire (PVH), based in Avonmouth, Bristol, continues to grow rapidly and has almost doubled its customer base since the
2007 financial year end. Funding for the fleet is spread over 12 major finance companies, and at 31st March over �5m headroom was available
for ongoing vehicle purchases. We have expanded our office accommodation and personnel to deal with the increased activity levels, but
believe that these changes will support substantial fleet growth over the coming months.
The Potential Asset Finance (PAF) portfolio continued to produce steady profits during the period. As reported at the year end, the aim
has been to enlarge our modest but successful brokerage unit, to enable us to place additional business complementary to the growth in our
own portfolio. In developing a nucleus of strong salespeople we have incurred recruitment and set-up costs, but believe we now have the team
to take the plan forward. The PAF result has also been suppressed by the development cost of our on-line proposal management solution for
customers and suppliers which is now fully operational and which has already begun to attract a large volume of new business proposals.
Potential Finance Limited (PFL), which absorbs the group listing costs, produced a small loss for the period
In March, an administrator was appointed over PFL's one remaining debtor arising from factoring. PFL did not oppose the appointment, as
the board believes that the time constraint imposed on the administration is beneficial in terms of realising PFL's security and is
currently taking legal advice in this respect.
The holding company loss, detailed in note 2 arises purely from the charge in respect of share-based payments (share options), which is
then credited to reserves.
Finance and Dividend
In view of the group's current and future requirements, the directors do not recommend payment of a dividend.
Future Prospects
We anticipate continuing growth for the rest of the year at PVH, with a limited impact on overhead. Increased numbers of asset sales
will take place, and we are working alongside certain commercial vehicle dealerships to develop an unusual and effective disposals and
marketing strategy.
We are exploring the powerful tools available as part of our vehicle rental computer system and anticipate implementation of integrated
asset management and accounting processes over the next few months. This will enhance management reporting and analysis, streamline vehicle
purchasing procedures and provide detailed data on a vehicle-by-vehicle basis as well as giving a fleet overview.
PAF will maintain its core portfolio, while exploring the possibility of adding a wholesale bank line to its existing �12.5 million
block discount funding lines, spread over 7 lenders.
Over the next few months, growth is expected to come from the brokerage arm, which is concentrating on near-prime business generated
from contacts developed with motor and other traders.
Although all finance-based companies are operating in a largely unpredictable market place, we believe that our ongoing strategy of
constant review and development of the group's activities will help to maintain a steady improvement in our performance.
24 June 2008
Group Condensed Income Statement - unaudited
Six months ended Six months ended Twelve months ended
31 March 31 March 30 September 2007
2008 2007 �'000
�'000 �'000
Notes
Revenue - continuing 2 3,557 1,588 4,082
operations
Cost of sales (2,446) (950) (2,517)
Gross profit 1,111 638 1,565
Administrative expenses (998) (694) (1,680)
Operating profit/(loss) 113 (56) (115)
Other finance revenues 14 13 27
Profit/(loss) before taxation 127 (43) (88)
Taxation 3 (44) 8 (24)
Profit/(loss) for the period
attributable to equity 83 (35) (112)
shareholders
Pence Pence Pence
Earnings per share
Profit/(loss) per share - 4 0.79 (0.33) (1.07)
basic and diluted
Group Condensed Balance Sheet - unaudited
As at As at As at
31 31 30 September
March March 2007
2008 2007 �'000
�'000 �'000
Notes
ASSETS
Non-current assets
Property, plant and equipment 10,999 1,931 6,600
Current assets
Inventories 12 45 63
Trade and other receivables 3,625 2,714 2,845
Investment in finance leases and hire
purchase contracts 4,710 4,114 4,480
Cash and cash equivalents 5 424 291 304
8,771 7,164 7,692
Non current assets
Investment in finance leases
and hire purchase contracts 7,673 7,010 8,064
TOTAL ASSETS 27,443 16,105 22,356
LIABILITIES
Current liabilities
Borrowings 5 8,565 4,013 6,407
Trade and other payables 1,726 589 1,242
10,291 4,602 7,649
Non-current liabilities
Borrowings 5 12,130 6,694 9,870
Provisions 50 - -
12,180 6,694 9,870
TOTAL LIABILITIES 22,471 11,296 17,519
SHAREHOLDERS' EQUITY
Share capital 2,618 2,618 2,618
Share premium account 3,329 3,329 3,329
Other reserves 165 11 113
Retained earnings (1,140) (1,149) (1,223)
TOTAL SHAREHOLDERS' EQUITY 5 4,972 4,809 4,837
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES 27,443 16,105 22,356
Group Condensed Cash Flow Statement - unaudited
Notes Twelve months ended
Six months ended Six months ended 30 September
31 March 31 March 2007
2008 2007 �'000
�'000 �'000
Cash flows from operating
activities
Profit/(loss) for the period 83 (35) (112)
Depreciation and other
non-cash items:
Depreciation 1,176 54 664
Share-based payments 52 - 102
Increase/(decrease) in finance 161 (1,718) (3,138)
lease balances receivable
Increase in operating (775) (520) (663)
receivables
Decrease in inventories 51 17 -
Increase in operating payables 438 203 921
Finance revenue (14) (13) (27)
Taxation 44 (8) 24
Cash generated/(absorbed) from 1,216 (2,020) (2,229)
operations
Tax paid - - (84)
Net cash flows from operating 1,216 (2,020) (2,313)
activities
Cash flows from investing
activities
Purchase of property, plant (608) (1,748) (792)
and equipment
Cash flows from financing
activities
Proceeds from borrowings 2,439 5,650 6,909
Repayment of borrowings (net
of debt issue costs) (2,986) (2,099) (4,022)
Interest received 14 13 27
Net cash flows from financing (533) 3,564 2,914
activities
Increase/(decrease) in cash
and cash equivalents for the 75 (204) (191)
period
Cash and cash equivalents at 304 495 495
start of period
Cash and cash equivalents at 5 379 291 304
end of period
Statement of Condensed Group Total Recognised Income and Expense - unaudited
Six months ended 31 Twelve months ended
Six months ended March 30 September 2007
31 March 2007 �'000
2008 �'000
�'000
Profit/(loss) for the period
and income and expense 83 (35) (112)
recognised directly in equity
Total recognised income and
expense for the period 83 (35) (112)
attributable to equity
shareholders
Reconciliation of movements in equity
Share based payment
Share premium Merger reserve Other reserves total Retained earnings
�'000 �'000 �'000
Share capital �'000 reserv
Total equity
e
�'000
�'000
Balance at 31 March 2007 2,618 3,329 (51) 62 11 (1,149)
4,809
Total recognised income and
expense - - - - - (74)
(74)
Equity settled share-based
payment transactions - - - 102 102 -
102
Balance at 30 September 2007
2,618 3,329 (51) 164 113 (1,223)
4,837
Total recognised income and
expense - - - - - 83
83
Equity settled share-based
payment transactions - - - 52 52 -
52
Balance at 31 March 2008 2,618 3,329 (51) 216 165 (1,140)
4,972
Notes to the Interim Report
1 Significant accounting policies
Potential Finance Group plc ("the Company") is a company domiciled in the United Kingdom. The consolidated interim financial statements
of the Company for the six months ended 31 March 2008 comprise the Company and its subsidiaries (together referred to as the "Group" or
"Potential Finance").
The Group's interim financial statements for the six months ended 31 March 2008 were authorised for issue by the Board of Directors on
23 June 2008.
The comparative financial information for the period ended 30 September 2007 has been extracted from the published financial statements
of the company as amended for IFRS. The comparative financial information for the period ended 31 March 2007 has been extracted from the
unaudited interim financial statements of the company.
The consolidated interim financial information does not constitute statutory accounts within the meaning of section 240 of the Companies
Act 1985. These interim results are unaudited and unreviewed by the Group's auditors. The statutory accounts for the period ended 30
September 2007 have been reported on by the Group's auditors and delivered to the registrar of companies. The report of the auditors was
unqualified and did not contain any statements under section 237(2) or (3) of the Companies Act 1985.
(a) Statement of compliance
These are the Group's first IFRS condensed consolidated interim financial statements for part of the period covered by the first
IFRS annual financial statements and IFRS1 First-time adoption of International Financial Reporting Standards has been applied. The
condensed consolidated interim financial statements do not include all of the information required for full annual financial statements.
The preparation of the condensed consolidated interim financial statements in accordance with IFRSs resulted in no significant changes
to the accounting policies as compared with the most recent annual financial statements prepared under previous GAAP. The accounting
policies have been applied consistently to all periods presented in these condensed consolidated interim financial statements. They also
have been applied in preparing an opening IFRS balance sheet at 1 October 2006 for the purposes of the transition to IFRSs, as required by
IFRS 1. The transition from previous GAAP to IFRSs had no impact on the net assets, results or cash flows reported previously by the Group.
(b) Basis of preparation
The financial statements are presented in sterling, rounded to the nearest thousand. They are prepared onthe historical cost basis.
Non-current assets are stated at the lower of carrying amount and fair value less costs to sell.
The AIM Rules require that the next annual consolidated financial statements of the company, for the year ending 30 September 2008 be
prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU ("adopted IFRSs").
This interim financial information has been prepared on the basis of the recognition and measurement requirements of adopted IFRS that
are effective at 30 September 2008, the Group's first annual reporting date at which it is required to use adopted IFRSs. Based on these
adopted IFRSs, the directors have applied the accounting policies, as set out below, which they expect to apply when the first annual IFRS
financial statements are prepared for the year ending 30 September 2008. However, the adopted IFRSs that will be effective (or available for
early adoption) in the annual financial statements for the year ending 30 September 2008 are still subject to change and to additional
interpretations and therefore cannot be determined with certainty. Accordingly, the accounting policies for that annual period will be
determined finally only when the annual financial statements are prepared for the year ending 30 September 2008.
(c) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting
rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the
condensed consolidated interim financial statements from the date that control commences until the date that control ceases.
(ii) Transactions eliminated on consolidation
Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in
preparing the condensed consolidated interim financial statements.
(d) Property, plant and equipment
(i) Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see
accounting policy i).
When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items
of property, plant and equipment.
(ii) Leased assets
Leases in terms of which the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases.
(iii) Subsequent costs
The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when
that cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of
the item can be measured reliably. All other costs are recognised in profit or loss as an expense as incurred.
(iv) Depreciation
Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property,
plant and equipment. The estimated useful lives are as follows:
Fixtures, fittings and equipment between 2 and 4 years
Motor vehicles and daily rental fleet over 4 years
Operating lease/contract hire fleet cost less residual value
over 12 months
Flexible rental fleet cost less residual value
over 36 months
The residual value, depreciation method and useful lives are reassessed annually.
(e) Financial instruments
Financial assets and liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual
provisions of the instrument. The Group does not make use of derivative financial instruments.
(f) Trade and other receivables
Trade and other receivables are stated at their cost less impairment losses (see accounting policy i).
(g) Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and selling expenses.
(h) Cash and cash equivalents
Cash and cash equivalents comprises cash balances and call deposits with an original maturity of three months or less. Bank overdrafts
that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash
equivalents for the purpose of the statement of cash flows.
(i) Impairment
The carrying amounts of the Group's assets are reviewed at each balance sheet date to determine whether there is any indication of
impairment. If any such indication exists, the asset's recoverable amount is estimated.
(i) Impairment (continued)
When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective
evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is recognised in profit or loss even
though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in profit or loss is the
difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in
profit or loss.
(i) Calculation of recoverable amount
The recoverable amount of assets is the greater of their net selling price 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 an asset that does not generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which the asset belongs.
(ii) Reversals of impairment
An impairment loss in respect of a held-to-maturity security or receivable carried at amortised cost is reversed if the subsequent
increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.
An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through profit
or loss. If the fair value of a debt instrument classified as available-for-sale increases and the increase can be related objectively to an
event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, with the amount of the
reversal recognised in profit or loss.
In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable
amount.
An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(j) Block discount loans
Amounts received in respect of the sale of future receivables from the group's investment in finance lease and hire purchase contracts
under block discount arrangements are treated as loans, which are repaid over the lives of the finance lease and hire purchase contracts.
(k) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised
in profit or loss over the period of the borrowings on an effective interest basis.
(l) Employee benefits
(i) Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in profit or loss as incurred.
(ii) Share-based payment transactions
The share option programme allows Group employees to acquire shares of the Company. The fair value of options granted is recognised as
an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during
which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a Black Scholes
model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to
reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for
vesting.
(m) Revenue
Revenue represents gross earnings under finance leases and hire purchase contracts, sourcing and sale of vehicles and flexible vehicle
rental net of Value Added Tax.
Interest income is recognised in the income statement for all interest bearing financial instruments, including loans and receivables,
using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or
liability and of allocating the interest income or the interest expense. The effective interest rate is the rate that exactly discounts the
estimated future cash flows over the expected life of the instrument or, when appropriate, a shorter period, to the net carrying amount of
the financial asset or financial liability. When calculating the effective interest rate, the future cash flows are estimated after
considering all the contractual terms of the instrument but not future credit losses. The calculation includes all amounts paid or received
by the group that are an integral part of the overall return, direct incremental transaction costs related to the acquisition, issue or
disposal of a financial instrument and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest
income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
(n) Leases
As lessor
Assets leased to customers are classified as finance leases if the lease agreements transfer substantially all the risks and rewards of
ownership to the lessee; all other leases are classified as operating leases. When assets are held subject to a finance lease, the present
value of the lease payments is recognised as a receivable within investments in finance leases and hire purchase contracts. Finance lease
income is recognised over the term of the lease using the net investment method (before tax) reflecting a constant periodic rate of return.
Operating lease assets are included within fixed assets at cost and depreciated over the life of the lease after taking into account
anticipated residual values. Operating lease rental income is recognised on a straight line basis over the life of the lease.
(o) Income tax
Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognised in profit or
loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are
not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences
relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred
tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates
enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be
realised.
(p) Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in
providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that
are different from those of other segments.
2 Segmental analysis
The Group's business segments are the primary basis of segment reporting. The business segment reporting format reflects the Group's
management and internal reporting structure.
The turnover of the group during the period derived from fees and interest on recovery accounts, from interest and charges arising on
the provision of asset finance, either under lease or hire purchase agreements, from the sourcing and sale of vehicles and from flexible
vehicle hire.
A segmental analysis of the group's activities is as follows:
Period ended 31 March 2008
Debt Factoring Asset Vehicle Holding
Segment �000 Finan Hire Company Total
ce �000 �000 �000
�000
Revenue 96 1,154 2,307 - 3,557
Operating (loss)/profit (15) (17) 197 (52) 113
Finance revenue 14
Taxation (44)
Profit for the period from continuing operations 83
Period ended 31 March 2007
Debt Factoring Asset Vehicle Holding
Segment �000 Finan Hire Company Total
ce �000 �000 �000
�000
Revenue 46 1,460 82 - 1,588
Operating loss (103) 95 (48) - (56)
Finance revenue 13
Taxation 8
Loss for the period from continuing operations (35)
Year ended 30 September 2007
Debt Factoring Asset Vehicle Holding
Segment �000 Finan Hire Company Total
ce �000 �000 �000
�000
Revenue 102 2,658 1,322 - 4,082
Operating loss (159) 193 (47) (102) (115)
Finance revenue 27
Taxation (24)
Loss for the period from continuing operations (112)
3 Taxation
The tax charge for the period has been based on the estimated effective tax rate for the full year.
4 Earnings per share
The calculation of earnings per share is based on profit of �83,000 (September 2007: �112,000 loss, March 2007: �35,000 loss) and
10,473,600 shares, being a daily average of shares in issue during the period. The weighted average share capital for earnings per share
calculated on a dilutive basis is �10,525,538.
5 Net borrowings - analysis of movement in net borrowings
Period ended 31 March 2008 At Non-cash changes At
1 October Cash flow �'000 31 March 2008
2007 �'000 �'000
�'000
Cash at bank and in hand 304 120 - 424
Bank overdraft - (45) - (45)
304 75 - 379
Borrowings - current (6,407) (556) (1,602) (8,565)
Borrowings - non-current (9,870) 1,104 (3,364) (12,130)
Total (15,973) 623 (4,966) (20,316)
Year ended 30 September 2007 At Non-cash changes At
1 October Cash flow �'000 30 September
2006 �'000 2007
�'000 �'000
Cash at bank and in hand 495 (191) - 304
Borrowings - current (2,897) (1,315) (2,195) (6,407)
Borrowings - non-current (4,259) (1,572) (4,039) (9,870)
Total (6,661) (3,078) (6,234) (15,973)
Period ended 31 March 2007 At Non-cash changes At
1 October Cash flow �'000 31 March 2007
2006 �'000 �'000
�'000
Cash at bank and in hand 495 (204) - 291
Borrowings - current (2,897) (1,116) - (4,013)
Borrowings - non-current (4,259) (2,435) - (6,694)
Total (6,661) (3,755) - (10,416)
6. Interim Statement
Copies of this interim statement are being sent to all shareholders and will be available from the Company, at Potential House, 149-157
Kings Road, Brentwood, Essex, CM14 4EG.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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