RNS Number:4091N
Compass Finance Group PLC
07 December 2006
Date: 7 December 2006
On behalf of: Compass Finance Group plc
Embargoed until: 0700hrs
COMPASS FINANCE GROUP PLC
Final audited results for the year ended 30 September 2006
The Board of Compass Finance Group plc and its subsidiaries ("the Group" or
"Compass Finance"), (AIM: CAF), the IVA and financial solutions provider, today
announces its final audited results for the year ended 30 September 2006. The
highlights are:
Highlights
* Acquisition of Budsworth & Co, delivering a presence in the growing IVA sector
* Relocation and integration of Budsworth & Co into the Group's premises in Bury
* New IVA case monthly run rate ended the year at 60 and the Debt Advisory
division currently performing at the top end of management's expectations
* Contractual completion of the Group's first lead affinity deal with one of
the UK's largest high street mortgage lenders
* Restructuring of the Consumer Loans division, following a shift in market
forces and performance
* Proposal to re-name and re-brand the Group as The Debt Advisor Group plc,
subject to shareholder approval
* Turnover of #12.9m (2005: #14.3m) reflecting the downward shift in the
secured loans market, resulting in a restructuring of the cost base as we
progress into 2007; and
* EBITDA loss of #1.3m before exceptional items (2005: profit of #0.3m) which
includes planned EBITDA loss of #0.4m arising from investment in the newly
formed Debt Advisory division
Gren Folwell, Non-Executive Chairman of Compass Finance, said:
"The Group has continued to implement its chosen strategy of offering a complete
set of financial solutions, creating greater efficiency by placing customers in
the right product set, as well as delivering annuity earnings from future
contracted IVA income. With a broader Group now operating across several
sectors, as well as restructured operations streamlined to allow us to operate
more efficiently in those sectors, the board of directors remains confident
about the Group's long-term potential."
Mike Sutcliffe, Chief Executive of Compass Finance, said:
"The strategic business model for the Group has now been completed representing
a great step forward for the business. The addition of IVA as a debt solution to
sit at the forefront of our product range consisting of IVA, debt management,
mortgages, re-mortgages as well as secured and unsecured loans, means that the
Group now offers a full in-house set of financial solutions. This business model
completes one of our key stated strategic goals."
For further information:
Compass Finance Group plc
Mike Sutcliffe (Chief Executive) 0870 950 0000
Mark Walker (Finance Director) 0870 950 0000
www.compassfinancegroupplc.co.uk
Redleaf Communications
Emma Kane/Andrew Dunn/Tom Newman 020 7822 0200
WH Ireland Limited
David Youngman 0161 832 2174
CHAIRMAN'S STATEMENT
Introduction
The year under review has seen the Group continue to implement its chosen
strategy of offering a complete set of financial solutions, creating greater
efficiency by placing customers in the right product set, as well as delivering
annuity earnings from future contracted IVA income.
The acquisition of Budsworth & Co was completed in June 2006 and was
subsequently renamed The Debt Adviser. The acquisition gives the Group a
presence in the growing IVA sector to complement our other financial products.
As part of this acquisition, the Group has started to reposition its consumer
branding and customer sourcing, moving more towards the IVA and debt management
sectors.
The secured loans market saw a significant downturn as a combination of higher
interest rates and nervousness surrounding house price inflation resulted in a
stalling effect. This combined with the Directors' belief that the direct
marketing channels had also come under increasing pressure resulted in the Group
implementing a comprehensive review and restructuring of the Consumer Loans
division.
Statutory Results
For the year to 30 September 2006, the Group reported turnover of #12.9 million
(2005: #14.3 million) and an EBITDA loss of #1.3 million before exceptional
items (2005: profit of #0.3 million), which includes planned EBITDA losses of
#0.4 million arising from investment in our newly formed Debt Advisory division.
The following table presents the earnings before interest, taxation and
depreciation (EBITDA) for the relevant periods:
2006 2005
#000 #000
Turnover 12,912 14,288
Administrative costs (14,256) (13,968)
EBITDA before exceptional items (1,344) 320
Depreciation/amortisation (579) (698)
Loss before interest, taxation and exceptional items (1,923) (378)
Exceptional items (4,478) -
Loss before interest and taxation (6,401) (378)
Interest (188) (223)
Loss before taxation (6,589) (601)
The basic and diluted loss per share for the year amounted to 10.15p (2005: loss
per share of 0.82p). Losses, however, are significantly affected by the
technical non-cash UITF17 charge in respect of share options which impacts
negatively upon the disclosed basic loss per share. Adjusting for the effects of
exceptional items, goodwill amortisation and the charge in respect of share
options, the loss per share on an adjusted and diluted basis was 2.29p (2005:
loss per share of 0.08p).
In the year to 30 September 2006, the Group received broking commission on funds
of #189 million which were lent to customers by a number of lenders (2005: #213
million).
Net debt at 30 September 2006 was #0.76 million (2005: #2.96 million) resulting
in gearing of 7% (2005: 48%). The net asset value of the Group as at 30
September 2006 was #10.35 million (2005: #6.09 million).
Dividends
In view of the financial performance for the year, the Board does not believe it
is appropriate to declare a dividend to shareholders. However, the Board
confirms its intention to implement a progressive dividend policy in the future,
subject to the Group's performance.
Current Trading and Prospects
Our Debt Advisory division is performing at the top end of management's
expectations and I would see this trend of growth continuing in 2007. Investment
has been made in people and IT infrastructure to facilitate the planned growth
in 2007 and beyond.
The recent restructuring undertaken in our Consumer Loans division has
stabilised the performance of the division and, taking a prudent view, I see
this division remaining stable throughout 2007 with our resources focused on
growing our Debt Advisory division.
On behalf of the Board, I would like to take this opportunity of thanking all
employees for their dedication and commitment to the Group in 2006, and look
forward to seeing their achievements in 2007.
With a broader Group now operating across several sectors, as well as
restructured operations streamlined to allow us to operate more efficiently in
those sectors, the Board remains confident about the Group's long-term
potential.
Gren Folwell
Non-Executive Chairman
6 December 2006
CHIEF EXECUTIVE'S REVIEW
Summary Performance
The year under review has seen the completion of an acquisition, Budsworth & Co,
the relocation and integration of that business to the Group's premises in Bury
and the restructuring of the Consumer Loans division, following a shift in
market forces and performance. The acquisition of Budsworth & Co has allowed the
Group to reposition itself into the IVA and debt management sector, a
diversification that realises a key strategic goal of the business. This
acquisition creates exciting future prospects for the Group as we broaden our
focus onto this dynamic and growing market. The IVA and debt management sector
creates a natural strategic fit with the capabilities of the Group in marketing,
processing and systems, as well as the growing overlap between applicants
requiring a broader range of solutions.
Turnover for the Group in the year was #12.9 million, down from #14.3 million in
the year ended September 2005, generating a loss before interest, tax,
depreciation, amortisation and exceptional items of #1.3 million, of which #0.9
million was attributable to the Consumer Loans division and #0.4 million to the
newly formed Debt Advisory division. The reduction in turnover experienced in
the Consumer Loans division has been the result of a downward shift in the
secured loan market, resulting in a restructuring of the cost base as we
progress into 2007.
Turnover in the Debt Advisory division was #0.3 million in the three and a half
months following the acquisition, with new IVA case run rates ending the year at
60. The Debt Advisory division is performing at the top end of our expectations
and I expect to see the increase in new IVA case run rates continue into 2007.
As a result of our performance in the Debt Advisory division, future contracted
income has increased from #0.9 million to #1.3 million in the three and a half
months following the acquisition, and active IVA cases under supervision have
risen to 333 at the year-end. The dynamics of a growing supervisory case book
mean that as we further increase our new IVA case run rates we will quickly see
higher levels of future contracted income, bringing about greater predictability
and surety.
Strategy
Following the acquisition of Budsworth & Co, the strategic business model for
the Group is now complete, a great step forward for the business. The addition
of IVA as a debt solution to sit at the forefront of our product range
consisting of IVA, debt management, mortgages, re-mortgages as well as secured
and unsecured loans, means that the Group now offers a full in-house set of
financial solutions. This business model completes one of our key stated
strategic goals.
As we have continued to reposition the Group into the debt solutions market
through IVA and debt management, clearly a growing market place, I anticipate
seeing organic growth to the fore in 2007 in our Debt Advisory division. With
the addition of IVA as a solution, we will now complete the repositioning of the
Group by rebranding to The Debt Advisor Group plc, subject to shareholder
approval at our AGM in February 2007. This repositioning of our consumer and
corporate brands is in-line with the shift in strategy to providing debt
solutions to our customers. We will continue to focus on offering a full set of
financial solutions, however we see future investment and growth coming in the
Debt Advisory division, with the Consumer Loans division remaining relatively
static.
The Group is now repositioned as a provider of IVA and debt management solutions
with the people, systems and lead sources in place to capitalise on a growing
IVA market.
Acquisition of Budsworth & Co
In July 2006, we completed the acquisition of Budsworth & Co, trading as The
Debt Advisor and The Business Debt Advisor. This acquisition has been a key
strategic step for the Group and has been the catalyst to our repositioning as
an IVA and debt management provider.
Expansion into IVA and debt management has allowed us to achieve another of our
key stated strategic goals, to diversify and desensitise our income streams from
the cash generative nature of a finance brokerage to the more stable and
predictive annuity income streams of an IVA and debt management business. As our
supervisory case book continues to build and our future contracted income
increases, we can look forward to increasingly stable income lines from our Debt
Advisory division.
Bev Budsworth, the founder of Budsworth & Co, joined the Group as Managing
Director of our newly formed Debt Advisory division with responsibility for the
growth of the IVA business. I am delighted to welcome Bev and her colleagues to
the Group.
August 2006 saw the successful relocation of Budsworth & Co to the Group's
premises in Bury, Lancashire. The relocation and integration is now fully
complete and I am pleased to report that this was a seamless transition that has
not impacted our forecast performance in the Debt Advisory division. Following
the relocation of Budsworth & Co we have sufficient space in our existing
premises to cater for the planned growth throughout the Group for the next three
years.
To support our planned growth in the Debt Advisory division, we have invested in
a new operating system designed to automate the workflow, customer and account
management for IVAs and debt management cases. We have now completed the
implementation and conversion to our new operating systems, a step that has
brought significant efficiency gains and removed cumbersome manual processes
from all stages of the case approval process, and equally importantly, has
automated the complex cashiering functions associated with management of five
year IVA plans where regular contributions are made by the debtor.
As the months since acquisition have passed, the Debt Advisory division is
performing at the top end of my expectations. I anticipate that the growth in
new IVA case run rates will continue in 2007, facilitated by the investment
already made in new systems, relocation to our premises in Bury and investment
in new lead generation.
Consumer Loans Division
As commented on in my statement of 2 October 2006, there has been a significant
downturn in the secured loans market, driven by higher interest rates and
nervousness surrounding house price inflation, resulting in a stalling effect.
As a result of this downturn, a comprehensive restructuring of the Consumer
Loans division has now been completed. This restructuring has resulted in the
cost base being reduced through the cessation of certain marketing activities
and a reduction in headcount costs, with the intention of enabling the division
to return to profitability in 2007.
The remaining marketing channels, together with the restructured workforce, have
created a more streamlined Consumer Loans division. This division is now well
placed to deliver a stable result in 2007. Due to the slow nature of the secured
loans market, growth expectations within the context of the Group remain prudent
following the restructure, with investment in growth coming from the Debt
Advisory division.
Marketing
As mentioned previously, it is our intention to re-brand the Group to The Debt
Advisor Group plc, subject to shareholder approval at our AGM in February 2007.
This rebranding will allow us to reposition our consumer brand through our web
presence and other marketing channels.
In 2006, we experienced a downturn in our main direct marketing channel of
direct mail. As this channel became increasingly competitive, applicant response
rates dropped causing the cost per lead to substantially increase to a point
where the channel was no longer viable. As a result of this we have now exited
direct mail as an acquisition channel and have streamlined all other acquisition
channels, in both our Debt Advisory division and Consumer Loans division.
All future planned growth has been based on introducer and affinity
partnerships, creating greater surety of success. It is our belief that
competitive forces in direct marketing channels will continue to drive up the
cost per lead in these channels. By focusing our growth on a larger number of
long term partnerships, we dilute the risk of losing leads from a single source,
creating more predictability over the cost of acquiring those leads through the
contracts agreed with our partners. In line with this customer acquisition
strategy the Group has contractually completed its first major high street
affinity partnership for the referral of mortgage and remortgage leads. The lead
volumes from this partnership will build throughout 2007 as we bring more
distribution centres on-line from our partner. Negotiations continue with other
major high street lead providers and we would hope to add more of these
relationships in due course.
Employees
I would like to take this opportunity to thank all of our employees for their
hard work, dedication and commitment in 2006. In a year of change, it is our
employees who have enabled us to complete, relocate and fully integrate an
acquisition, convert to new systems, as well as restructure one of our operating
divisions.
I would also like to welcome all of the new employees who have joined us through
the acquisition of Budsworth & Co and wish them success in their future careers
with the Group.
2007 Outlook
With our successful repositioning as a provider of IVA and debt management
solutions, together with mortgages, re-mortgages, secured and unsecured loans,
we look forward to the broader opportunities offered by this complete product
range. As 2007 progresses, I look forward to seeing continued and progressive
growth from our Debt Advisory division, the cornerstone of our future growth.
Our management efforts will be firmly aligned to the delivery of organic growth
in our Debt Advisory division, through expanding our affinity partnerships and
increasing our skilled resources in IVA processing, as well as maintaining the
stability of our Consumer Loans division.
Mike Sutcliffe
Chief Executive
6 December 2006
Consolidated profit and loss account
for the year ended 30 September 2006
Note 2006 2005
-----------------------------------------------
Before Exceptional After
exceptional items and exceptional
items and goodwill items and
goodwill goodwill
#'000 #'000 #'000 #'000
Turnover 2 12,912 - 12,912 14,288
-------- -------- ---------
- continuing
operations 12,592 - 12,592
- acquisitions 320 - 320
-------- -------- ---------
Administrative
expenses (14,256) - (14,256) (13,968)
-------- -------- --------- --------
(Loss) /
earnings
before
interest, tax,
depreciation,
amortisation
and
exceptional
items 2 (1,344) - (1,344) 320
Depreciation 3 (190) - (190) (202)
Amortisation
of goodwill 3 - (389) (389) (496)
Exceptional
items 3 - (4,478) (4,478) -
-------- -------- --------- -------
Operating loss 2 (1,534) (4,867) (6,401) (378)
-------- -------- ---------
- continuing
operations (1,103) (4,766) (5,869)
- acquisitions (431) (101) (532)
-------- -------- ---------
Interest
receivable and
similar income 18 - 18 29
Interest
payable and
similar
charges (206) - (206) (252)
-------- -------- --------- -------
Loss on
ordinary
activities
before
taxation (1,722) (4,867) (6,589) (601)
Tax on loss on
ordinary
activities 35 0 35 49
-------- -------- --------- -------
Retained loss
for the period (1,687) (4,867) (6,554) (552)
======== ======== ========= =======
Loss per share:
- basic and
diluted 4 (10.15p) (0.82p)
Consolidated statement of total recognised gains and losses
for the year ended 30 September 2006
There were no other gains and losses in the current or prior year other than
those reported in the consolidated profit and loss accounts above.
Consolidated balance sheet
as at 30 September 2006
Note 2006 2006 2005 2005
#000 #000 #000 #000
Fixed assets
Intangible assets 9,945 9,134
Tangible assets 905 686
------ -----
10,850 9,820
Current assets
Debtors 5 1,076 1,324
Cash at bank and in hand 1,500 240
----- -----
2,576 1,564
Creditors: amounts falling due
within one 6 (1,746) (2,312)
year ------- -------
Net current assets/(liabilities) 830 (748)
------ -----
Total assets less current 11,680 9,072
liabilities
Creditors: amounts falling due
after more 7 (1,327) (2,962)
than one year
Provisions for liabilities and - (20)
charges ------ ------
Net Assets 10,353 6,090
------ -----
Capital and reserves
Called up share capital 430 335
Share premium 12,745 5,430
Own shares (293) -
Profit and loss account (2,529) 325
------ -----
Shareholders' funds 10,353 6,090
------ -----
Consolidated cash flow statement
for the year ended September 2006
2006 2005
#000 #000
Net cash flow from operating activities (2,066) 432
Return on investments and servicing of finance (188) (219)
Taxation 30 (339)
Capital expenditure (417) (67)
Acquisitions (1,281) -
Purchase of own shares (293) -
Dividends - (100)
------- -----
Net cash outflow before financing (5,215) (293)
Financing 5,475 (917)
------- -------
Increase/(decrease) in cash in the year 1,260 (1,210)
------- -------
Reconciliation of net cash flow to movement in net debt
for the year ended 30 September 2006
2006 2005
#000 #000
Increase/(decrease) in cash in the period 1,260 (1,210)
Cash outflow from change in debt 936 917
------ -------
Changes in net debt resulting from cash flows 2,195 (293)
New finance leases - (453)
Net debt at beginning of period (2,958) (2,212)
------- -------
Net debt at end of year (762) (2,958)
Net debt comprises:
2006 2005
#000 #000
Cash at bank and in hand 1,500 240
Bank term loan (2,083) (2,817)
Hire purchase contracts and finance leases (179) (381)
------- -------
Net debt at end of year (762) (2,958)
------- -------
Compass Finance Group plc
Notes to the Preliminary Statement
1 Basis of the Preliminary Statement
The financial information set out in this Preliminary Statement has been
prepared on the same basis as that used for the statutory accounts for the
period to 30 September 2005 and in accordance with applicable UK accounting
standards. It does not, however, constitute the statutory accounts for the year
ended 30 September 2006 but is derived from those accounts. The statutory
accounts for the year ended 30 September 2006 will be delivered to the Registrar
of Companies in due course. The auditors have reported on the statutory accounts
for the year ended 30 September 2006 and their opinion is unqualified on those
financial statements.
2 Segmental Analysis
Following the acquisition of the IVA business Budsworth & Co, the Group is
organised into two business divisions, a Consumer Loans division and a Debt
Advisory division. The Consumer Loans division incorporates the finance broking
of re-mortgages and loans for clients and the Debt Advisory division includes
the provision of debt management plans and individual voluntary arrangements to
clients requiring debt restructuring solutions.
Analysis of turnover, loss before interest, tax, depreciation and amortisation
and of operating loss, both before exceptional items, by business segment for
the year:
Consumer Loans Debt Advisory Group
#000 #000 #000
Turnover 12,592 320 12,912
Loss before interest, tax,
depreciation, amortisation and
exceptional items (913) (431) (1,344)
Operating loss before exceptional
items (1,103) (431) (1,534)
3 Operating loss
2006 2005
The operating loss is stated after charging: #000 #000
Depreciation 190 202
Amortisation 389 496
Exceptional costs 4,478 -
-------- -------
Exceptional costs comprise: 2006 2005
#000 #000
-------- -------
Restructuring costs 35 -
-------- -------
Marketing due diligence and testing costs incurred in
connection 674 -
with the expansion into the IVA market -------- -------
Business integration costs incurred following the acquisition
of 69 -
Budsworth & Co -------- -------
Charge in respect of share options 3,700 -
-------- -------
Total 4,478 -
======== =======
The marketing due diligence and testing costs relate to expenditure incurred
prior to the acquisition of Budsworth & Co on research of the market for
individual voluntary arrangements and other financial solutions for over
indebted consumers. These costs have been expensed to the profit and loss
account rather than being capitalised into the cost of acquisition.
The business integration costs relate to third party expenditure incurred in
integrating systems, processes and people following the acquisition of Budsworth
& Co and have not been capitalised but have been expensed to the profit and loss
account in line with FRS7.
The charge in respect of share options arises in respect of the issue of shares
by the Group's Employee Benefit Trust. On 7 December 2005, the EBT purchased
11,725,000 ordinary shares from one of the original founders of the business at
a price of 2.5 pence per share and issued share options to certain directors and
employees at an equivalent exercise price. Notwithstanding that the options are
granted over existing shares owned by the EBT, UITF17 requires a technical
accounting charge to be recognised in the Group's profit and loss account
equivalent to the difference between the total exercise price and the market
price at the date of grant. The accounting charge totals #4,998,750 and this is
required to be charged evenly against earnings over the period during which the
options vest. The charge for the period to 30 September 2006 amounts to
#3,699,988. This does not, however, represent a cash cost to the Group and the
charge is reversed in the profit and loss account reserves.
4 Loss per share
The calculation of basic loss per share has been calculated using the loss for
the year and a weighted average number of shares in issue during the year of
64,575,475 (2005: 66,949,792). The weighted average number of shares in issue
during the year to 31 March 2006 excludes shares held in the Group's Employee
Benefit Trust as required by UITF38.
The diluted earnings per share takes the weighted average number of ordinary
shares in issue during the period to 31 March 2006, excluding shares held in the
company's EBT, and adjusts this for dilutive share options existing at the
period end. This results in a diluted weighted average number of shares of
73,591,261. The share options in issue at 31 March 2006 would however decrease
the loss per share and are therefore anti dilutive.
The diluted and adjusted earnings per share figure uses the diluted weighted
average number of shares but the loss for the period is adjusted to add back
exceptional items, goodwill amortisation and the charge in respect of share
options.
Losses per share are as follows:
basic and diluted 2006 2005
diluted and adjusted (10.15p) (0.82p)
(2.29p) (0.08p)
5 Debtors: amounts falling due within one year
2006 2005
#000 #000
Trade debtors 210 503
Corporation tax - 15
Prepayments and accrued income 751 806
Taxation and social security 115 -
1,076 1,324
6 Creditors: amounts falling due within one year
2006 2005
#000 #000
Bank loan 789 738
Obligations under hire purchase contracts and finance leases 146 165
Trade creditors 417 563
Taxation and social security 154 189
Corporation tax - -
Accruals and deferred income 240 324
Deferred consideration - 333
1,746 2,312
7 Creditors: amounts falling due after more than one year
2006 2005
#000 #000
Bank loan 1,294 2,079
Obligations under hire purchase contracts and finance leases 33 216
Deferred consideration - 667
1,327 2,962
This information is provided by RNS
The company news service from the London Stock Exchange
END
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