Regulatory News Announcement
REG-Potential Finance Interim Results
Released: 24/06/2008
Released: 24/06/2008
com:20080624:RnsX3659X
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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 operations 2 3,557 1,588 4,082
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 shareholders 83 (35) (112)
Pence Pence Pence
Earnings per share
Profit/(loss) per share - basic and diluted 4 0.79 (0.33) (1.07)
Group Condensed Balance Sheet - unaudited
As at As at As at
31 March 31 March 30 September 2007
2008 2007 £'000
Notes £'000 £'000
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 lease balances receivable 161 (1,718) (3,138)
Increase in operating receivables (775) (520) (663)
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 operations 1,216 (2,020) (2,229)
Tax paid - - (84)
Net cash flows from operating activities 1,216 (2,020) (2,313)
Cash flows from investing activities
Purchase of property, plant and equipment (608) (1,748) (792)
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 activities (533) 3,564 2,914
Increase/(decrease) in cash and cash equivalents for the
period 75 (204) (191)
Cash and cash equivalents at start of period 304 495 495
Cash and cash equivalents at end of period 5 379 291 304
Statement of Condensed Group Total Recognised Income and Expense - unaudited
Six months ended 31 March Twelve months ended 30 September 2007
Six months ended 2007 £'000
31 March £'000
2008
£'000
Profit/(loss) for the period and income and expense recognised
directly in equity 83 (35) (112)
Total recognised income and expense for the period attributable
to equity shareholders 83 (35) (112)
Reconciliation of movements in equity
Share based payment
Share premium Merger reserve Other reserves total Retained earnings
Share capital £'000 £'000 reserve £'000 £'000 Total equity
£'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 Finance Hire Company Total
£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 Finance Hire Company Total
£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 Finance Hire Company Total
£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 2007 Cash flow £'000 31 March 2008
£'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 2006 Cash flow £'000 30 September 2007
£'000 £'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 2006 Cash flow £'000 31 March 2007
£'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.
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