30 Jun 2008 07:00
Accident Exchange Group Plc
RESULTS FOR THE YEAR ENDED 30 APRIL 2008
Accident Exchange Group Plc ("Accident Exchange", the "Company" or the "Group") announces its audited results for the year ended 30 April 2008. These results are reported under International Financial Reporting Standards ("IFRS").
Highlights
Financial Highlights
Revenue: up 41% to £165.1 million (2007: £116.9 million).
Profit before taxation: £12.1 million (2007: £13.6 million).
Adjusted* profit before taxation: £16.1 million (2007: £18.0 million).
EPS: 11.7p (2007: 13.2p); adjusted* EPS: 16.3p (2007: 18.2p).
Raised £46.6 million net of expenses from the issue of £50.0 million 5.50% unsecured convertible notes due 2013.
Cash at bank £27.0 million (2007: £6.9 million); working capital headroom against bank facilities: £37.0 million (2007: £6.9 million).
Proposed final dividend of 1.5p (2007: 1.5p) resulting in total dividends for the year of 2.5p (2007: 3.0p).
* stated before amortisation of acquired intangible assets, costs of share based payments, change in fair value of derivative financial liability and exceptional costs.
Operational Highlights
Defeated the legal challenge.
Refinanced the Group's working capital facilities.
Implemented a robust strategy of pursuing claims through litigation where the insurers fail to settle within the ABI General Terms of Agreement.
Increase in daily cash receipts towards the end of the year and beyond, having defeated the legal challenge.
Further growth in key business metrics:
Supplied rental vehicles to 41,000 customers (2007: 31,000).
Number of rental days up 57% to 1.1 million (2007: 0.7 million).
Rental fleet up 20% to 4,850 vehicles (2007: 4,033 vehicles).
Staff numbers up 12% to 715 (2007: 639).
Received the Institute of Transport Management Awards for Innovation in Vehicle Remarketing 2008 and Accident Management Company of the Year 2008.
Commenced the provision of strategic and resource support for Bentley Motors' global paint and body repair network.
David Galloway, Non-Executive Chairman, stated:
"In spite of the uncertain global economic outlook, we are looking to the future with renewed confidence. The demand for the services we offer continues to grow and we see further opportunities working more closely with existing referrers, vehicle manufacturers and other referral sources and from new product initiatives that are being marketed for the first time.
"We have a strong management team, a market place which is continuing to grow and a strong balance sheet.
"Your Board is confident that the current year will be one of improving cash flow and further growth."
CONTACTS:
Accident Exchange Group Plc
Steve Evans, Chief Executive Today: 020-7367-8888; thereafter on: 08700-116-719
Martin Andrews, Group Finance Director Today: 020-7367-8888; thereafter on: 08700-053-649
Bankside
Steve Liebmann or Simon Bloomfield 020-7367-8888
About Accident Exchange
Based in Coleshill, West Midlands, Accident Exchange delivers accident management and other solutions to the automotive and insurance related sectors. Fully listed, the stock code is LSE: ACE.
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report that in spite of a very difficult year for the Group, our results for the year ended 30 April 2008 were in line with our expectations following the announcement of the £50.0 million Convertible Notes fundraising in December 2007.
As has already been well documented, the past year was exceptionally difficult. Enormous effort was expended dealing with the ramifications of and defeating the legal challenge to our terms and conditions of hire which started in late 2006 and which affected all aspects of the business, particularly our cash flows. Having defeated that challenge in October 2007, the Group's £45.0 million working capital facility put in place in June 2007 was supplemented by the issue of £50.0 million Convertible Notes in January 2008.
The legal challenge is now behind us and the management team is now able to refocus its efforts on improving cash flow and margins and to taking advantage of the substantial opportunities for growth.
Business model and market positioning
When car accidents happen, our role is to get the non fault party back on the road as quickly as possible and then look after their claim. It is well established in law that to remain mobile whilst their own car is not drivable, the non fault party is entitled to recover the costs of hiring a car similar to their own from the at fault driver's insurer.
In the event of an accident, motorists generally seek immediate assistance from either their motor insurer or their local franchised motor dealership (or an affiliated dealer-approved body shop). The owners of more expensive or prestige vehicles often have an ongoing relationship with their motor dealer and are likely to correctly perceive their dealer as being best placed to repair their damaged vehicle to manufacturer approved standards and to minimise any negative effect on the residual value of the repaired vehicle.
To date we have focused our efforts on building a strong referral network with the dealers and manufacturers of prestige cars. Accordingly, our rental fleet of 4,850 vehicles as at 30 April 2008 (2007: 4,033) includes a high proportion of prestige manufacturer brands such as BMW, Audi, Mercedes Benz, Porsche, Bentley and Aston Martin. With over 180 employed delivery drivers, we can usually provide a 'like for like' car within hours if necessary.
On referral and validation by us that we can prove that fault for the accident lies with another party, a well-defined process is initiated with the non fault driver signing a replacement vehicle hire agreement with us; the hire charges for which we recover in due course from the insurer of the at fault driver. Generally, settlement is pursued in accordance with the General Terms of Agreement between the Association of British Insurers and credit hire operators.
To speed up the repair process, we may also provide assistance to both our customer and the repairer of the vehicle by funding the repairs to our customer's vehicle and then recovering those repair costs from the insurer of the at fault driver. Whilst this credit repair business has a low margin, it facilitates our customers getting back into their own car as soon as possible.
Recovering our hire charges from the at fault insurer can be a lengthy and involved task. Whilst each claim is validated by us to ensure to our satisfaction that liability for the accident rests with the other driver, that the repair is carried out correctly and in a timely manner and that the rental charges we seek to recover are appropriate, recovery periods can sometimes be lengthy and ultimately can result in us resorting to legal means to recover the charges. This is ordinary course of business within the sector in which we operate.
Effects of the defeated legal challenge
The defeated legal challenge that questioned the enforceability of certain of our historical credit hire agreements continued through the whole of the first half of the financial year. Your Board and its advisors were always confident that we would defeat this challenge but not doing so until October 2007 put enormous strain on our financial resources as insurance companies slowed their payment cycle to us on all their debt, not just the debt which was subject to the challenge.
In response to these events we refinanced the Group, firstly with a £45.0 million working capital facility provided by Morgan Stanley (which replaced our then existing £25.0 million facility) and subsequently with the issue of the £50.0 million 5.50 per cent. Convertible Notes, again arranged and underwritten by Morgan Stanley. Given the state of the global credit markets over this period, we believe this was an excellent outcome.
The true cost to the Group of dealing with, and ultimately defeating, the legal challenge is difficult to quantify. The Board believes that the uncertainties it caused adversely affected confidence amongst our referral channels and therefore our revenue levels and, consequently, our fleet utilisation and margins. Damage was also done to the Group's reputation given some of the reckless accusations that were made in court by our opponents during the course of the challenge.
Over £0.6 million of direct legal costs were incurred on the two concurrent test cases and the other lead cases that were decided in our favour in un-appealed judgments. These costs have been expensed during the year and, subject to the successful outcome of the relevant cost hearings, may be recoverable in the future. In the lead case of Corbett v. Gaskin, both our client's costs and our own costs have already been awarded, to be paid by the defendant on an indemnity basis. The Board is optimistic in respect of the cost hearing in the second test case which is due to be determined in the near future. Without distracting ourselves from the primary task of further cash flow improvement, we will also continue to explore the options for recovering other fees incurred by, and damage caused to, the Group as a result of the behaviour of the protagonists to the legal challenge.
Since defeating the legal challenge the Group has been implementing a rigorous process of debt recovery. Debt which is older than 120 days is now transferred automatically to a recently enlarged panel of solicitors who commence litigation on behalf of our clients. The increased volume of referrals to our solicitor panel is expected to deliver further improvement in cash flows during the current year.
The legal challenge put enormous pressure on the business and, not surprisingly, our competition sought to benefit from this. However, the strength and depth of our relationships with our referring partners is reflected in the growth in referrals and revenues during the year under review. Equally important is increasing awareness amongst our referring partners of the additional customer loyalty created by the provision of effective accident management services. I am very grateful to all of our referral partners for their support during this difficult period and beyond.
Financial results and dividends
Revenue increased by 41% to £165.1 million (2007: £116.9 million). Adjusted profit before tax (stated before amortisation of acquired intangible assets, costs of share based payments, change in fair value of derivative financial liability and exceptional costs) was £16.1 million (2007: £18.0 million). Profit before tax was £12.1 million (2007: £13.6 million). Both profit before tax and adjusted profit before tax were impacted by an increase in net finance costs to £13.0 million (2007: £6.0 million). Gross margin reduced to 34.6% (2007: 36.9%), principally as a result of fleet mix and utilisation together with a higher proportion of mainstream rental days compared to prestige rental days.
Adjusted basic earnings per share was 16.3 pence (2007: 18.2 pence) and basic earnings per share was 11.7 pence (2007: 13.2 pence).
The legal challenge adversely impacted cash flows resulting in debtor days rising to 227 days as at 30 April 2008 (2007: 176 days) and required the Group to seek the additional financing already summarised as above.
As at 30 April 2008 cash at bank was £27.0 million (2007: £6.9 million). A £10.0 million revolving credit facility also remains available for draw down under the Morgan Stanley Facility, giving the Group total working capital headroom against bank facilities as at 30 April 2008 of £37.0 million (2007: £6.9 million).
Total net debt as at 30 April 2008 was £149.0 million (2007: £96.6 million) reflecting primarily an increase in vehicle finance lease obligations to £97.3 million (2007: £77.0 million) and the Convertible Notes of £50.0 million raised in the year.
Your Board is proposing a final dividend for 2008 of 1.5 pence per share (2007: 1.5 pence per share), making a total for the year of 2.5 pence per share (2007: 3.0 pence per share). Subject to the approval of shareholders at the Annual General Meeting on 6 August 2008, the final dividend will be paid on 9 September 2008 to shareholders on the register on 15 August 2008.
Strategy
With the legal challenge now behind us, management is now refocused on developing the business. Our priorities remain to:
Continue to improve cash receipts;
Focus on fleet and operational costs and thereby, with a combination of the above, improve margins; and
Maintain and enhance our position as the supplier of choice to dealers and vehicle manufacturers.
People
The Group's rate of growth, coupled with the additional challenges faced last year, put considerable demands on management and staff. Their dedication and commitment has been truly outstanding, especially in the finance and legal departments which shouldered the majority of the workload.
I am delighted that the take-up of the Sharesave scheme, introduced in February 2008, has been so positive with nearly half of all eligible employees subscribing.
Your Board and the senior management team have worked tirelessly to ensure the Group's successful refinancing. My thanks go to each and every member of the Group who have worked so very hard and to such good effect.
Outlook
In spite of the uncertain global economic outlook, we are looking to the future with renewed confidence. The demand for the services we offer continues to grow and we see further opportunities working more closely with existing referrers, vehicle manufacturers and other referral sources and from new product initiatives that are being marketed for the first time.
We have a strong management team, a market place which is continuing to grow and a strong balance sheet.
Your Board is confident that the current year will be one of improving cash flow and further growth.
David Galloway
Non-Executive Chairman
30 June 2008
BUSINESS REVIEW
Introduction
Accident Exchange is one of the UK's leading suppliers of credit hire replacement vehicles to customers of the automotive industry. We also deliver accident management and vehicle hire solutions to the contract hire, leasing and insurance related sectors and provide software services and daily rental insurance to motor dealers who themselves provide courtesy cars to their own customers.
Our business is structured to service the market through two principal operating subsidiaries: Accident Exchange Limited and DCML Limited. Accident Exchange operates from our head office in Coleshill, West Midlands, and has regional depots in Glasgow and Warrington and will shortly be opening a depot in Belfast. DCML operates from its offices in Stockport. Our services are provided throughout the whole of the UK.
Our mission is to remain number one in our chosen market sector by placing our customers at the centre of everything we do whilst continuing to build and develop an unbeatable team with shared values and with accountability for consistently delivering high levels of personal and operational performance.
Highlights of the year
Despite the enormous challenges of the past year, the Group not only prevailed against the legal challenge but also delivered revenue of £165.1 million, up 41% compared to the previous year (2007: £116.9 million). In addition we have:
Refinanced the Group's working capital facilities with working capital facility headroom at 30 April 2008 of £37.0 million (2007: £6.9 million);
Implemented a robust strategy of pursuing claims through litigation where the insurers fail to settle within the ABI General Terms of Agreement;
Seen an increase in daily cash receipts towards the end of the year and beyond, having defeated the legal challenge;
Supplied rental vehicles to 41,000 customers (2007: 31,000 customers);
Increased rental days to 1.1 million (2007: 0.7 million);
Increased our rental fleet to 4,850 vehicles (2007: 4,033 vehicles);
Received the Institute of Transport Management Awards for Innovation in Vehicle Remarketing 2008 and Accident Management Company of the Year 2008; and
Commenced the provision of strategic and resource support for Bentley Motors' global paint and body repair network;
The history of the legal challenge we faced in 2007 has been well documented and is not repeated here, save to say that it had a material impact on both the results and cash flows for the year. Nevertheless, it has now been defeated and the Board is confident cash flows will continue to improve. With the considerable distraction it represented now behind us, greater focus is being given to improvement in our cash collection processes, fleet alignment, utilisation improvement and thereby, margin improvement.
Operations
The Board did not actively seek growth opportunities during the year because of its cash consumptive consequences. However, the customer service quality implicit in our service and the strength of the relationships we have developed with our existing referrers nevertheless contributed to revenue growth of 41% in the year.
Hire starts grew from 31,000 to 41,000, rental days from 0.7 million to 1.1 million, headcount from 639 to 715 and (despite the legal challenge) cash collected from insurers from £88.7 million to £133.0 million. Operationally we are now expecting to see the benefits of scale come through in reduced vehicle costs, for example, as manufacturers increase their level of support and also in terms of a lower rate of headcount increase. The leadership skills of the senior management team, together with in-house IT system enhancements, have improved processes in the key operational aspects of the business in the year. The benefits of this, particularly in cash collection processes, are now starting to be seen, albeit not reflected in the results for the year under review.
We will continually strive for an appropriate balance between the size and shape of the rental fleet and the profile of referral volumes so that we can maintain like-for-like vehicle replacement on a brand-by-brand and model-by-model basis without utilisation being unduly affected. The Board believes the legal challenge reduced revenues in the year and, consequently, impacted fleet utilisation with H1 and H2 at broadly similar levels of 60.8% (2007: 61.2%) and 60.2% (2007: 60.1%) respectively. However, utilisation improved in the last quarter of the financial year to 63.9% and ended the year at 69.5% - very close to our targeted level of 70%.
From an operational perspective our existing depots in Coleshill, Glasgow and Warrington have very recently been supplemented by a depot in Belfast and a depot to the East of London is close to being finalised. These additional depots will enable faster delivery times as well as reduced costs of delivery.
Meanwhile we are pleased to note the recent 3.5% increase in car hire rates agreed by the Association of British Insurers under the General Terms of Agreement.
Product innovation
During the year we continued to develop our range of services. Examples of this innovation include:
Strategic accident repair consultancy for car manufacturers
Our consultancy-led approach was behind Bentley Motors' decision to engage us to provide strategic and resource support for its global paint and body repair network. Discussions are underway with other manufacturers to fulfil similar roles.
Tackling fraud for the insurance industry
In an effort to tackle both our own and the wider industry's exposure to potential fraud, we have taken a technology-led preventative approach by developing our own risk assessment software called FREDA. FREDA is used by our Asset Protection Unit which is staffed by former Special Branch and CID personnel and it has enabled us to work proactively with insurers and the Police to identify and investigate suspect individuals and increasingly sophisticated criminal gangs. The intelligence gathered has already assisted insurers and police forces across the UK.
AE Car Auction.com
The introduction of an online, trade-only disposal website for the Group's fleet not only improved the vehicle remarketing programme, but now drives it. More than 400 motor dealers use the website regularly to purchase quality used car stock, with many increasingly 'buying to order' for their customers.
Awards for innovation
Our innovative culture, dedication and commitment to delivering record breaking levels of customer service has led to us receiving a number of awards from industry associations in the last year including two Institute of Transport Management awards for "Innovation in Vehicle Remarketing 2008" and "Accident Management Company of the Year 2008".
Financial results
Revenue
Revenue for the year rose 41% to £165.1 million (2007: £116.9 million). Revenue from accident management and related services ("Accident Management Revenue") grew by 42% to £124.8 million (2007: £88.1 million), of which £3.2 million (2007: £2.8 million) was contributed by DCML. Lower margin Credit Repair Revenue grew by 40% to £40.3 million (2007: £28.8 million).
Accident Management Revenue growth of 42% reflects 1.1 million rental days compared to 0.7 million rental days for the prior year, growth of 57%. Prestige rental activity increased to 0.6 million days (2007: 0.4 million days) and mainstream vehicle rental activity increased to 0.5 million days (2007: 0.3 million days). The growth in lower margin mainstream rental days reflects certain large dealer account wins and new insurer and contract hire and leasing company referral volumes, as a result of which 47% of rental days were generated by mainstream vehicles in the year compared to 37% in the comparative period.
Gross margins
Overall gross margin has reduced to 34.6% (2007: 36.9%) principally as a result of the fleet mix and utilisation (see below), and the relative higher proportion of mainstream rental days compared to prestige rental days.
Fleet
Fleet and utilisation
Growth in Accident Management activity led to expansion of the overall rental fleet during the year. In the first half of the year the rental fleet rose from 4,033 vehicles to 4,999 vehicles. With stronger control and a fleet alignment programme exercised during the second half of the year, the rental fleet subsequently reduced in size to 4,850 vehicles as at 30 April 2008 facilitating utilisation improvement in the last quarter of the year.
In the last quarter of the year particularly, with the legal challenge and funding requirements resolved, the Board took action to dispose of additional vehicle volumes in order to attain utilisation and profit improvement rather than continuing to carry the longer term holding costs of those vehicles. This action resulted in cars being disposed of at a younger age than originally anticipated and also incurred losses against three particular model variants of one manufacturer brand where, notably, model changes took place in the year. Utilisation in the last quarter improved to 63.9% as a result and has since improved further to 67.2% today. The Board maintains its target of 70% for overall fleet utilisation.
Depreciation policy
The Board is aware that the current economic climate will place additional focus on the appropriateness of the current depreciation rate (increased from 20% to 22.5% last year) and believes that without the effect on revenue of the legal challenge, and with the additional manufacturer support now being received against more recent car purchases, the current depreciation rate is appropriate. Nevertheless, depreciation rates will be kept under review.
Vehicle disposal channels
In November 2007 the Group developed and launched AE Car Auction, a Business-to-Business internet based vehicle re-marketing programme. AE Car Auction had the aim of improving the flexibility around the disposal of the rental fleet, reducing the cost associated with vehicle disposals and maximising the proceeds from those disposals. Whilst the conventional physical auction process remains the principal disposal channel by volume, the electronic auction web site will become an increasingly important part of the Group's disposal strategy.
The Group now has more than 800 dealers registered to bid on the site and 620 vehicles with a disposal value of more than £11.5 million have been sold through this channel in the last five months. The quality of the site has been recognised by the Institute of Transport Management which has presented the Group with the award for Innovation in Vehicle Remarketing 2008.
Credit repair revenue and margin
Credit repair revenue, a driver of higher margin credit hire revenue, accounted for 24% of total revenue, broadly consistent with the prior year (2007: 25%). Credit repair margin of 5% was unchanged from the prior year. Whilst the Group has achieved significant growth in both credit hire and repair revenue during the year, the Board remains focused on re-establishing a higher proportion of prestige rental days to improve overall margins.
Administrative expenses
Total administrative expenses rose to £32.0 million (2007: £23.5 million). This included £0.6 million (2007: £0.3 million) in relation to share based payments, £1.9 million (2007: £2.6 million) of exceptional costs and £0.5 million (2007: £0.5 million) of acquired intangible asset amortisation. Of the remaining £29.0 million (2007: £20.1 million), £21.1 million or 73% (2007: £15.6 million or 78%) related to headcount, premises and IT communications related costs. We also expensed over £0.6 million of legal costs incurred in relation to the legal challenge which, subject to the successful outcome of cost hearings referred to earlier, may be recoverable in the future.
Exceptional costs
Certain of the Group's existing borrowings were repaid in June 2007 upon entering into a £45.0 million senior secured credit agreement with Morgan Stanley Bank International Limited ("Morgan Stanley") (the "Morgan Stanley Facility"). An aggregate charge of £0.9 million was incurred in respect of related professional advisor fees and termination costs associated with redemption of the repaid borrowings (see note 3).
During the year the Group incurred further administrative expenses of £1.1 million in launching Accident Management Schemes for newly acquired referral partners (2007: £1.3 million).
These amounts have been disclosed separately within the financial statements to highlight the significance of these transactions.
Profit before tax
Profit before tax of £12.1 million was lower than the prior year (2007: £13.6 million) principally as a result of higher finance costs associated with the new banking facilities and the costs associated with the Convertible Notes. Net finance costs rose to £13.0 million from £6.0 million in 2007 (see note 4). Adjusted profit before tax, which is stated before amortisation of intangible assets acquired with DCML and Red Five Vehicle Management Limited ("Red Five"), costs of share based payments, changes in fair value of derivative financial liabilities and exceptional items, was £16.1 million (2007: £18.0 million).
Taxation
The effective tax rate for the year was 31.4% (2007: 34.6%) including the effect of the disallowable nature of the £0.9 million charge in respect of the change in fair value of the derivative financial liability associated with the equity conversion option of the Convertible Notes. The effective rate of tax on adjusted profit before tax was 28.2% (2007: 31.9%). The reduction in the rate of corporation tax from 30% to 28% took effect from 1 April 2008 and has little effect upon the current tax charge for the year.
Earnings per share
Basic earnings per share (note 6) were 11.7 pence per share (2007: 13.2 pence per share) and adjusted earnings per share, which is stated before amortisation of acquired intangible assets, costs of share based payments, change in fair value of derivative financial liability and exceptional costs, were 16.3 pence per share (2007: 18.2 pence per share).
Diluted earnings per share (note 7) were 11.2 pence per share (2007: 13.1 pence per share) and adjusted diluted earnings per share were 13.8 pence per share (2007: 18.1 pence per share), primarily reflecting the maximum potential dilutive effect of the Convertible Notes.
Cash Flows
Cash flows from operating activities
From note 14 it can be seen that cash generated from operations for the year was £24.9 million (2007: £20.5 million). The Board measures internally an adjusted operating cash flow as it considers that all fleet related cash flows are operating in nature.
The Group's adjusted operating cash flows were as follows:
| Adjusted cash generated from operations | Year ended | Year ended |
| 30 April 2008 | 30 April 2007 | |
|
| £'m | £'m |
| Profit for the year | 8.3 | 8.9 |
| Depreciation and other non-cash items | ||
| Depreciation | 23.4 | 17.7 |
| Amortisation of intangible assets | 0.6 | 0.5 |
| Loss on disposal of vehicles, plant and equipment | 1.3 | 0.6 |
| Share based payments | 0.6 | 0.3 |
| Changes in working capital: | ||
| Increase in trade and other receivables | (46.7) | (36.2) |
| Decrease / (increase) in claims in progress | 0.2 | (4.0) |
| Increase in payables | 4.5 | 10.6 |
| Finance income | (0.8) | (0.1) |
| Finance costs | 13.8 | 6.1 |
| Tax | 3.8 | 4.7 |
| Fleet related cash flows | (29.1) | (20.9) |
| Adjusted cash outflow from operations - after fleet related cash flows | (20.1) | (11.8) |
Trade and other receivables increased by £46.7 million (2007: £36.2 million) reflecting increased trading levels and, in the Board's view, the detrimental impact of the legal challenge on cash flows, particularly in the first half of the year, which drove a consequent increase in debtor days to 227 days (2007: 176 days).
The Board has made several recent announcements about the increase in average cash collection levels, most recently reporting levels of £642,000 per working day. Cash collections from the solicitor process in particular continues to improve and over the last two weeks average cash collections per working day have increased further to £673,000. The Board is confident cash collection levels will continue to rise, not least as a result of the solicitor litigation strategy referred to in detail elsewhere.
Fleet related cash flows are a material cash flow for the business and are analysed as follows:
| Analysis of fleet related cash flows | Year ended | Year ended |
| 30 April 2008 | 30 April 2007 | |
|
| £'m | £'m |
| Proceeds of vehicle disposals | 43.9 | 27.9 |
| VAT recovered on fleet acquisition | 15.9 | 11.4 |
| Capital element of finance lease payments | ||
| Deposits | (10.2) | (7.9) |
| Monthly repayments | (25.2) | (16.7) |
| Balloon repayment at disposal | (46.4) | (30.6) |
| Interest element of finance lease payments | (7.1) | (5.0) |
| Fleet related cash flows | (29.1) | (20.9) |
Net cash flow from operating activities
Net interest paid of £9.8 million (2007: £5.6 million) included finance lease interest of £7.1 million, which increased compared to the prior year (£5.0 million) as a result of growth in fleet volumes. Net bank loan and revolving credit facility interest increased to £2.7 million (2007: £0.6 million), reflecting significant growth in working capital requirements as a result of higher levels of trading activity and the negative impact of the legal challenge on cash receipts from trade receivables.
After corporation tax payments of £3.5 million (2007: £3.9 million) net cash inflow from operating activities was £11.6 million (2007: £11.0 million).
Trade receivables and claims in progress
It is important that the nature of our revenue, trade receivables and claims in progress is understood. IFRS 7 "Financial Instruments Disclosure" also imposes new disclosure requirements on the Group for the first time this year.
The Group enters into agreements to provide vehicle rental and accident management services with 'non-fault' parties to road traffic accidents. The Group pursues a claim for damages arising from the accident on behalf of the non-fault party (our client), ordinarily against the insurer of the driver who was 'at fault' for the accident. As part of our overall service, and on behalf of our client, the Group may also recover other losses (e.g. insurance policy excess) sustained by our client. However, from a revenue and trade receivables or claims in progress perspective, our focus is on recovering the amount of our vehicle hire charges that arise from our client's use of our rental vehicle whilst his/her own car was being repaired.
Credit is provided to our client by us, under an exemption from the Consumer Credit Act, for a period which expires at the earlier of 364 days or the time at which the claim is settled. After this date no further contracted credit period is offered by us to our client. However, at the end of the contracted period, we may well offer 'an indulgence' to the client pending resolution of the claim, a process which may take longer than 364 days. It should be noted that there is no contractual relationship between the Group and the insurer of the at-fault driver; all claims are pursued as damages actionable in tort.
In the normal course of its business, the Group uses two principal methods to conclude claims directly with the insurer of the at-fault party. First, negotiation on a claim-by-claim basis takes place between our in-house settlement team and the at-fault insurer and then, implemented recently and gradually being applied to all trade receivables, where a claim fails to settle within 120 days of billing, claims are passed to a panel of external solicitors who, after instruction from our client, proceed with the legal process for settlement of his damages claim. In the first instance, the solicitor will merely reinforce the initial demand for payment sent by us and then, on instruction from the client, will issue formal proceedings. The solicitors' reinforcement of the intent to make a formal claim on behalf of the client can result in payment from the insurer as can the mere threat or issue of formal proceedings. More materially, the issue of formal proceedings starts a process with a court defined time scale, the end point of which is a court hearing date at which the claim will finally be determined with cash, on successful outcome, being received soon thereafter. The client remains responsible for our hire charges irrespective of the outcome at court, a risk that the client usually addresses by taking out an insurance policy that we can provide at the outset of the rental period and against which he can claim if such circumstances arise.
The robust categorisation and implementation of in-house and solicitor based collection techniques is at the heart of the Board's expectation for improvement in the cash flows of the Group in the year ending 30 April 2009 ("FY09") and beyond. Considerable claim volumes have been referred to the solicitor panel recently and over 4,000 in the last two months alone; a process that will continue in the first half of the current financial year in order to catch up on the backlog of cases caused by the legal challenge. The solicitor panel now stands at 18 firms of solicitors with 6 new firms having joined recently and thereby giving the Group the required capacity to manage expected volumes.
As trade receivables carry no "due date" and are stated at their estimated net claim value after settlement adjustments, trade receivables are considered neither 'past due' nor 'impaired', these being definitions contained within IFRS 7 and requiring consideration of disclosure. The Board reviews debtors internally according to the status of the claim through the in-house and solicitor processes and, in particular for claims sent to solicitors, whether they are 'pre issue' or whether proceedings have formally been issued.
It is the increase in the proportion and magnitude of receivables now categorised as beyond the 'proceedings issued' status which, by that definition, have a limited and court defined timescale by which they will, if required, be heard at court, as compared to a year ago that gives the Board confidence as to the expected conversion of claims to cash in FY09.
The recent effectiveness of the robust solicitor-led collection strategy is demonstrated by the increase in receivables that have progressed beyond the 'proceedings issued' stage which now stands at £26.3 million compared to £5.4 million a year ago and representing 24% of total receivables (2007: 8%).
The Board believes that the collection in the current year of those outstanding trade receivables as at 30 April 2007 was affected materially by the legal challenge. Of the total £63.8 million receivable as at 30 April 2007 there remained £33.2 million outstanding as at 30 April 2008. The Board is encouraged however by the fact that whilst only £23.7 million of the £63.8 million (37% of the total) was at solicitors on 30 April 2007, this stood at £30.2 million (91% of the total still outstanding) on 30 April 2008, of which £19.1 million is beyond the proceedings issued stage compared to only £5.4 million a year ago.
The Board believes firmly in the benefits of the ABI GTA to both insurers and credit hire companies. After the travails of 2007, the Board also believes that a period of robust and sustained litigation will demonstrate to insurers that the Group now has the scale, capacity and intent to use established law to ensure insurers pay the Group's valid claims. The Board is intent on pursuing this strategy but equally will work actively with insurers to assist them in whatever way it can (given the limitations most of them have in handling the consequent claim volumes) in situations where we perceive insurers have genuine intent to remit payment under the ABI GTA and thereby avoid the material additional legal costs they have to pay after our claim starts to incur legal costs of collection.
Further information on trade receivables is given in Note 10.
Investing activities
During the year, 2,830 vehicles were sold with net proceeds of £43.9 million (2007: 1,819 vehicles sold with net proceeds of £27.9 million). Other capital expenditure of £2.0 million (2007: £4.0 million) was incurred primarily on IT investment in relation to headcount expansion and the completion of infrastructure improvements at the Group's head office.
Financing and net debt
Total net debt was £149.0 million (2007: £96.6 million) reflecting an increase in vehicle finance lease obligations to £97.3 million (2007: £77.0 million), the Convertible Notes of £50.0 million (2007: £nil), other bank loans of £2.2 million (2007: £6.5 million), working capital facilities drawn down of £30.0 million (2007: £20.0 million) and cash at bank of £27.0 million (2007: £6.9 million) and after deducting (i) unamortised debt issue costs of £4.6 million (2007: £nil) and (ii) £0.6 million attributed to the equity conversion option of the Convertible Notes classified as a derivative financial liability and adding in accrued interest on the Convertible Notes of £1.7 million (2007: £nil).
Working capital facilities
In June 2007 we announced the refinancing and expansion of the working capital facilities available to the Group with the Morgan Stanley Facility. This facility was used, inter alia, to repay an aggregate of £24.4 million in relation to a revolving credit facility and a six year term loan from the Group's previous bankers and to provide additional working capital facilities.
As at 30 April 2008, £30.0 million of the Morgan Stanley Facility was drawn down and cash at bank was £27.0 million. A further £10.0 million revolving credit facility was also available for draw down under the Morgan Stanley Facility giving the Group total headroom against bank facilities as at 30 April 2008 of £37.0 million.
Our net bank debt (excluding finance lease obligations and the Convertible Notes, and after offset of debt issue costs) was £4.0 million (2007: £19.6 million), which includes a £2.2 million loan in connection with infrastructure improvements at the Group's head office (2007: £2.1 million).
Convertible Notes
On 8 January 2008 the Group announced that it had completed the issue of the Convertible Notes, the net proceeds of which were £46.6 million after associated expenses of £3.4 million. From these net proceeds, £5.0 million of the Morgan Stanley Facility was repaid and the remaining £41.6 million is being used to provide additional working capital funding and to support the projected growth of the Group.
Finance lease obligations
Finance lease obligations rose from £77.0 million as at 30 April 2007 to £97.3 million as at 30 April 2008, reflecting £101.9 million of new debt for fleet replacement and expansion (2007: £77.8 million) net of capital repayments of £81.8 million (2007: £55.2 million).
Debt maturity
The Morgan Stanley Facility is not repayable until September 2010 and the Convertible Notes, if not converted, not until January 2013. This gives substantial time to consider the renewal, if required, of these facilities.
The Group's finance leases are taken out on a vehicle by vehicle basis with a 10% deposit and a 50% final payment, the latter of which is financed primarily by receipt of vehicle sale proceeds. The balance of 40% is repaid monthly over, typically, 24 months.
Dividends
Dividends of £1.8 million (2007: £2.4 million) were paid during the year, consisting of the final dividend for 2007 of 1.5 pence per share declared on 16 July 2007 and paid on 2 October 2007, and the interim dividend for 2008 of 1.0 pence per share declared on 8 January 2008 and paid on 15 February 2008. The Board has proposed a final dividend for 2008 of 1.5 pence per share.
Other balance sheet items
Capital expenditure of £86.9 million (2007: £69.0 million) related principally to growth in the vehicle fleet with 3,924 vehicles acquired under VAT inclusive finance lease arrangements at a capital (VAT exclusive) cost of £85.3 million (2007: £65.2 million).
Claims in progress of £16.2 million (2007: £16.4 million) reflects both the growth in the business and a shortening of the time taken to invoice closed claims such that the number of days' sales represented by claims in progress reduced from 60 days as at 30 April 2007 to 45 days at 30 April 2008.
Our people
In addition to the Chairman's comments, our thanks go to each and every employee of Accident Exchange for their outstanding commitment over the past year. Despite the distractions, the business has continued to move forward. This would not have been possible without the efforts of everyone.
Looking ahead
The Board retains a strong focus on the task of margin improvement, maintaining revenue growth following the difficult trading conditions for the Group in 2007 and, primarily, on continuing to improve cash flows. In the short time since the issue of the Convertible Notes in January 2008, good progress has been made on many fronts and the Board is optimistic that the performance indicators will continue to improve. January 2008 was a key milestone for the Group, releasing management to dedicate its energy to normal business activities following the uncertainty surrounding the business during 2007 and to benefit from the operational process improvements instigated in the last quarter of the financial year.
Steve Evans Martin Andrews
Chief Executive Group Finance Director
30 June 2008 30 June 2008
Consolidated Income Statement
For the year ended 30 April 2008
| Year ended | Year ended | ||
| 30 April | 30 April | ||
| 2008 | 2007 | ||
|
| Note | £'m | £'m |
| Revenue | 2 | 165.1 | 116.9 |
| Cost of sales | (108.0) | (73.8) | |
| Gross profit | 57.1 | 43.1 | |
| Administrative expenses | (32.0) | (23.5) | |
| Operating profit | 25.1 | 19.6 | |
| Finance income | 4 | 0.8 | 0.1 |
| Finance costs | 4 | (13.8) | (6.1) |
| Profit before tax analysed between: | |||
| Profit before tax before amortisation of acquired intangible assets, cost of share based payments, change in fair value of derivative financial liability and exceptional costs | 16.1 | 18.0 | |
| Amortisation of acquired intangible assets | (0.5) | (0.5) | |
| Share based payments | (0.6) | (0.3) | |
| Change in fair value of derivative financial liability | 12 | (0.9) | - |
| Exceptional costs | 3 | (2.0) | (3.6) |
| Profit before tax | 12.1 | 13.6 | |
| Taxation | 5 | (3.8) | (4.7) |
| Profit for the year | 8.3 | 8.9 | |
| Earnings per share | |||
| Basic | 6 | 11.7p | 13.2p |
| Diluted | 7 | 11.2p | 13.1p |
All results are attributable to continuing operations.
The Directors recommend a final dividend of 1.5 pence per share for the year ended 30 April 2008 (2007: 1.5 pence per share). Combined with the interim dividend of 1.0 pence (2007: 1.5 pence) per share paid on 15 February 2008, this results in a total dividend of 2.5 pence per share for the year ended 30 April 2008 (2007: 3.0 pence).
Consolidated Balance Sheet
At 30 April 2008
| 30 April | 30 April | ||
| 2008 | 2007 | ||
| Note | £'m | £'m | |
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 9 | 93.7 | 73.9 |
| Goodwill | 21.5 | 21.5 | |
| Other intangible assets | 3.2 | 3.4 | |
| 118.4 | 98.8 | ||
| Current assets | |||
| Claims in progress | 16.2 | 16.4 | |
| Trade and other receivables | 10 | 113.7 | 66.9 |
| Cash and cash equivalents | 16 | 27.0 | 6.9 |
| 156.9 | 90.2 | ||
| Non-current assets held for sale | 0.3 | 1.4 | |
| 157.2 | 91.6 | ||
| Total assets | 275.6 | 190.4 | |
| Liabilities | |||
| Current liabilities | |||
| Financial liabilities - borrowings | 11 | (39.0) | (60.5) |
| Trade and other payables | 13 | (19.2) | (15.5) |
| Current tax liabilities | (2.6) | (2.0) | |
| (60.8) | (78.0) | ||
| Net current assets | 96.4 | 13.6 | |
| Non-current liabilities | |||
| Financial liabilities - borrowings | 11 | (137.0) | (43.0) |
| Derivative financial liabilities | 12 | (1.5) | - |
| Deferred tax liabilities | (4.5) | (4.7) | |
| (143.0) | (47.7) | ||
| Total liabilities |
| (203.8) | (125.7) |
| Net assets | 71.8 | 64.7 | |
| Shareholders' equity | |||
| Share capital | 3.6 | 3.6 | |
| Share premium | 26.2 | 26.2 | |
| Other reserves | 11.5 | 11.5 | |
| Retained earnings | 30.5 | 23.4 | |
| Total shareholders' equity | 71.8 | 64.7 |
Consolidated Cash Flow Statement
For the year ended 30 April 2008
| Year ended | Year ended | ||
| 30 April | 30 April | ||
| 2008 | 2007 | ||
| Note | £'m | £'m | |
| Cash flows from operating activities | |||
| Cash generated from operations | 14 | 24.9 | 20.5 |
| Finance income received | 0.6 | 0.1 | |
| Finance costs on bank loans | (3.3) | (0.7) | |
| Finance cost element of finance lease payments | (7.1) | (5.0) | |
| Taxation paid | (3.5) | (3.9) | |
| Net cash inflow from operating activities | 11.6 | 11.0 | |
| Cash flows from investing activities | |||
| Purchase of property, plant and equipment | (1.9) | (3.7) | |
| Purchase of intangible assets | (0.1) | (0.3) | |
| Proceeds from sale of property | - | 1.9 | |
| Proceeds from sale of vehicles, plant and equipment | 43.9 | 27.9 | |
| Acquisition of subsidiary, net of cash acquired | (0.2) | (4.8) | |
| Net cash inflow from investing activities |
| 41.7 | 21.0 |
| Cash flows from financing activities | |||
| Proceeds from issue of Convertible Notes | 11 | 50.0 | - |
| Convertible Notes issue costs | 11 | (3.4) | - |
| Proceeds from issue of ordinary share capital | - | 13.0 | |
| Share issue costs | - | (0.5) | |
| Proceeds from borrowings | 15 | 33.9 | 27.1 |
| Repayment of borrowings | 15 | (30.1) | (0.6) |
| Capital element of finance lease payments | 15 | (81.8) | (55.2) |
| Dividends paid | (1.8) | (2.4) | |
| Net cash used in financing activities |
| (33.2) | (18.6) |
| Net increase in cash and cash equivalents | 20.1 | 13.4 | |
| Cash and cash equivalents / (overdraft) at beginning of the year | 6.9 | (6.5) | |
| Cash and cash equivalents at end of the year | 16 | 27.0 | 6.9 |
Consolidated Statement of Changes in Equity
For the year ended 30 April 2008
| Share capital | Share premium | Other reserves | Retained earnings | Total | |
|
| £'m | £'m | £'m | £'m | £'m |
| At 1 May 2006 | 3.9 | 8.0 | 10.9 | 16.6 | 39.4 |
| Total recognised income and expense | - | - | - | 8.9 | 8.9 |
| Equity settled share based payments | - | - | - | 0.3 | 0.3 |
| Issue of shares | 0.3 | 18.2 | - | - | 18.5 |
| Purchase of own shares | (0.6) | - | 0.6 | - | - |
| Dividends paid | - | - | - | (2.4) | (2.4) |
| At 30 April 2007 | 3.6 | 26.2 | 11.5 | 23.4 | 64.7 |
| Total recognised income and expense | - | - | - | 8.3 | 8.3 |
| Equity settled share based payments | - |
| - | 0.6 | 0.6 |
| Dividends paid (note 8) | - | - | - | (1.8) | (1.8) |
| At 30 April 2008 | 3.6 | 26.2 | 11.5 | 30.5 | 71.8 |
Notes to the Final Results Announcement
For the year ended 30 April 2008
1. Basis of Preparation
The financial statements have been prepared in accordance with IFRS and International Financial Reporting Interpretations Committee ("IFRIC") interpretations that have been adopted by the European Union, and with those parts of the Companies Act 1985 applicable to those companies reporting under IFRS.
The financial information set out in this preliminary announcement has been prepared under the historical cost convention, except for the costs of share based payments and derivative financial liabilities, which are stated at fair value. The consolidated financial information is presented in pounds sterling and all values are rounded to the nearest £0.1 million unless otherwise indicated.
The principal accounting policies of the Group are set out in the Group's 2008 annual report which will be sent to shareholders in due course and which will be available from the investor relations section of the Group's website www.accidentexchange.com.
2. Revenue
An analysis of the Group's revenue is as follows:
| Year ended | Year ended | |
| 30 April | 30 April | |
| 2008 | 2007 | |
|
| £'m | £'m |
| Delivery of accident management and related services | 124.8 | 88.1 |
| Credit repair | 40.3 | 28.8 |
|
| 165.1 | 116.9 |
Revenue derived from the delivery of accident management and related services, primarily credit hire of vehicles, includes £3.2 million (2007: £2.8 million) from DCML Limited, which was acquired on 5 May 2006.
3. Exceptional costs
| Year ended | Year ended | |
| 30 April | 30 April | |
| 2008 | 2007 | |
| £'m | £'m | |
| Accident Management Scheme launch costs | 1.1 | 1.3 |
| Refinancing costs | 0.9 | 0.5 |
| Exceptional settlement discount | - | 1.0 |
| Costs relating to admission to the Official List | - | 0.8 |
|
| 2.0 | 3.6 |
During the year the Group incurred administrative expenses of £1.1 million (2007: £1.3 million) launching Accident Management Schemes for and on behalf of newly acquired referring dealer and manufacturer partners. Due to the significant magnitude of this investment both in the current and prior year, which is expected to drive revenues in future periods, the costs have been disclosed as exceptional items.
On 15 June 2007 the Group announced that it had entered into a £45.0 million senior secured credit agreement with Morgan Stanley and as a result, certain of the Group's borrowings were redeemed. A charge in aggregate of £0.9 million (2007: £0.5 million) has been made in connection with this redemption, consisting of professional adviser fees of £0.8 million (2007: £0.3 million) and accelerated amortisation of the issue costs associated with raising these previous banking facilities of £nil (2007: £0.2 million) (both charged to administrative expenses) and £0.1 million (2007: £nil) of termination costs imposed by the terms and conditions of those facilities (charged to finance costs). Details of the new borrowing facilities are set out in note 11.
During the prior year, as a result of a legal challenge as to the enforceability of certain of the Group's historical rental agreements, certain insurers departed from their previously established payment profiles. Whilst a number of leading insurers advised that they were not pursuing these arguments the Group found it necessary to concede a significantly enhanced settlement discount in order to crystallise a material settlement receipt from one insurer in March 2007. This concession was made at a time of considerable uncertainty as regards the legal challenge and at a time of maximum utilisation of the then financing facilities available to the Group, facilities which were strengthened materially during the year ended 30 April 2008 (see note 11).
The Group incurred £0.8 million of exceptional administrative expenses during the prior period in connection with its application and subsequent transfer from AIM to the Official List of the London Stock Exchange.
4. Finance income and costs
| Year ended | Year ended | |
| 30 April | 30 April | |
| 2008 | 2007 | |
|
| £'m | £'m |
| Finance income | ||
| Interest income on bank balances | 0.8 | 0.1 |
| Finance costs | ||
| Bank borrowings | (4.1) | (1.1) |
| Obligations under finance leases | (7.1) | (5.0) |
| Convertible Notes | (1.7) | - |
| Fair value adjustment on derivative financial liabilities | (0.9) | - |
| Total finance costs | (13.8) | (6.1) |
| Net finance costs | (13.0) | (6.0) |
The finance costs of the Convertible Notes of £1.7 million (2007: £nil) includes a charge of £0.9 million (2007: £nil) in respect of the 5.50% coupon payable twice yearly and £0.8 million (2007: £nil) in aggregate in respect of accreted interest, amortisation of issue costs and amortisation of the value attributed to the equity conversion component at inception, which has been separately recognised as a derivative financial liability.
5. Taxation
The standard rate of corporation tax in the UK reduced during the financial year from 30% to 28% with effect from 1 April 2008. As a result, the average standard rate of corporation tax applicable to the Group for the year was 29.8% (2007: 30%). The tax charge for the year is higher (2007: higher) than the average standard rate of corporation tax as explained below:
| Year ended | Year ended | |
| 30 April | 30 April | |
| 2008 | 2007 | |
|
| £'m | £'m |
| Profit before tax | 12.1 | 13.6 |
| Profit before tax multiplied by the rate of corporation tax in the UK of 29.8% (2007: 30.0%) | 3.6 | 4.0 |
| Effect of: | ||
| Expenses not deductible for tax purposes | 0.6 | 0.6 |
| Adjustments in respect of prior years | (0.4) | - |
| Deferred tax on share based payment charges | - | 0.1 |
| Tax on profit on ordinary activities | 3.8 | 4.7 |
6. Basic earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares in issue during the year. Details of the earnings and weighted average number of ordinary shares used in the calculations are set out below:
| Year ended | Year ended | |
| 30 April | 30 April | |
| 2008 | 2007 | |
| Earnings attributable to ordinary shareholders (£'m) | 8.3 | 8.9 |
| Weighted average number of ordinary shares | 71,138,544 | 67,468,086 |
| Basic earnings per share (pence) | 11.7 | 13.2 |
Adjusted basic earnings per share
To understand the underlying trading performance, the Directors consider it appropriate to disclose basic earnings per share before amortisation of acquired intangible assets, the costs of share based payments, the change in fair value of the derivative financial liability in relation to the Convertible Notes and exceptional costs. The calculation of adjusted earnings per share is set out below:
| Year ended | Year ended | |
| 30 April | 30 April | |
| 2008 | 2007 | |
| Earnings attributable to ordinary shareholders (£'m) | 8.3 | 8.9 |
| Post-tax amortisation of acquired intangible assets (£'m) | 0.4 | 0.4 |
| Post-tax cost of share based payments (£'m) | 0.6 | 0.3 |
| Post-tax cost of change in fair value of derivative financial liability (£'m) | 0.9 | - |
| Post-tax cost of exceptional items (£'m) | 1.4 | 2.7 |
| Adjusted profit on ordinary activities after taxation (£'m) | 11.6 | 12.3 |
| Weighted average number of ordinary shares | 71,138,544 | 67,468,086 |
| Basic earnings per share (pence) | 11.7 | 13.2 |
| Amortisation of acquired intangible fixed assets (pence) | 0.6 | 0.6 |
| Cost of share based payments (pence) | 0.8 | 0.4 |
| Change in fair value of derivative financial liability (pence) | 1.2 | - |
| Cost of exceptional items (pence) | 2.0 | 4.0 |
| Adjusted basic earnings per share (pence) | 16.3 | 18.2 |
7. Diluted earnings per share
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has three sources of dilutive potential ordinary shares, namely the Convertible Notes, share options and the Morgan Stanley Warrant.
The Convertible Notes had an initial conversion price of 107.7 pence per ordinary share. The conversion price is subject to adjustment in certain circumstances including (i) adjustments to reflect any dividends paid; and (ii) if and to the extent that the average volume weighted average price of the ordinary shares over the 15 dealing days prior to 9 January 2009 is less than 89.8 pence per share (subject to previous conversion price adjustments), provided that in this circumstance the conversion price shall not be reduced below 75.4 pence per share.
For the purposes of the fully diluted weighted average number of shares, the Group is required to assume that the Convertible Notes are convertible at a price of 75.4 pence per ordinary share, which would result in the issue of 66.3 million shares. As the Convertible Notes were issued on 8 January 2008 the time apportioned adjustment to the weighted average number of shares for the current year is 20.7 million. The Group's earnings have been adjusted for the post-tax finance costs associated with the Convertible Notes.
For the share options and Morgan Stanley Warrant the number of potential dilutive shares represents the number of ordinary shares that would be issued upon their exercise, net of the number of ordinary shares that could have been acquired at fair value by the Company based on the monetary value of their subscription rights. Fair value is determined as the average market price of the Company's shares during the year. The share options and Morgan Stanley Warrant are only assumed to be potentially dilutive to the extent that they were 'in the money' by reference to the average market value of the Company's ordinary shares during the year.
Details of the earnings and weighted average number of potential ordinary shares used in the calculations are set out below:
| Year ended | Year ended | |
| 30 April | 30 April | |
| 2008 | 2007 | |
| Earnings attributable to ordinary shareholders (£'m) | 8.3 | 8.9 |
| Post-tax finance costs of Convertible Notes (£'m) | 2.1 | - |
| Earnings used to determine diluted earnings per share (£'m) | 10.4 | 8.9 |
| Weighted average number of potential ordinary shares - diluted | 92,976,552 | 67,731,280 |
| Diluted earnings per share (pence) | 11.2 | 13.1 |
Adjusted diluted earnings per share
The calculation of adjusted diluted earnings per share is set out below assuming the same adjustments as shown in note 6 except for the post-tax cost of the change in fair value of the derivative financial liability, which is taken into account in the earnings used to determine diluted earnings per share above.
| Year ended | Year ended | |
| 30 April | 30 April | |
| 2008 | 2007 | |
| Earnings used to determine diluted earnings per share (£'m) | 10.4 | 8.9 |
| Post-tax amortisation of acquired intangible assets (£'m) | 0.4 | 0.4 |
| Post-tax cost of share based payments (£'m) | 0.6 | 0.3 |
| Post-tax cost of exceptional items (£'m) | 1.4 | 2.7 |
| Adjusted profit on ordinary activities after taxation (£'m) | 12.8 | 12.3 |
| Weighted average number of potential ordinary shares - diluted | 92,976,552 | 67,731,280 |
| Diluted earnings per share (pence) | 11.2 | 13.1 |
| Amortisation of acquired intangible fixed assets (pence) | 0.5 | 0.6 |
| Cost of share based payments (pence) | 0.6 | 0.4 |
| Cost of exceptional items (pence) | 1.5 | 4.0 |
| Adjusted diluted earnings per share (pence) | 13.8 | 18.1 |
8. Equity dividends
The Directors recommend a final dividend of 1.5 pence per share for the year ended 30 April 2008 (2007: 1.5 pence per share). Combined with the interim dividend of 1.0 pence per share (2007: 1.5 pence per share) paid on 15 February 2008, this results in a total dividend of 2.5 pence per share for the year ended 30 April 2008 (2007: 3.0 pence per share). If approved at the AGM, payment will be made on 9 September 2008 to shareholders on the register on 15 August 2008. The shares will go 'ex-dividend' on 13 August 2008.
9. Property, plant & equipment
| Leasehold property and improvements | Computer equipment | Fixtures and fittings | Motor vehicles | Total | |
|
| £'m | £'m | £'m | £'m | £'m |
| Cost | |||||
| At 1 May 2006 | - | 1.0 | 0.7 | 53.4 | 55.1 |
| Additions | 1.9 | 1.0 | 0.9 | 65.2 | 69.0 |
| Additions through business combinations | 0.2 | - | - | 0.2 | 0.4 |
| Transfer to assets held for sale | - | - | - | (1.8) | (1.8) |
| Disposals | - | (0.2) | - | (34.6) | (34.8) |
| At 30 April 2007 | 2.1 | 1.8 | 1.6 | 82.4 | 87.9 |
| Additions | 0.3 | 1.0 | 0.3 | 85.3 | 86.9 |
| Additions through business combinations | - | - | - | 0.2 | 0.2 |
| Transfer to assets held for sale | - | - | - | (0.5) | (0.5) |
| Disposals | - | (0.1) | - | (62.7) | (62.8) |
| At 30 April 2008 | 2.4 | 2.7 | 1.9 | 104.7 | 111.7 |
| Depreciation | |||||
| At 1 May 2006 | - | 0.2 | 0.1 | 5.3 | 5.6 |
| Charge for the year | 0.1 | 0.5 | 0.3 | 16.8 | 17.7 |
| Transfer to assets held for sale | - | - | - | (0.4) | (0.4) |
| Disposals | - | (0.1) | - | (8.8) | (8.9) |
| At 30 April 2007 | 0.1 | 0.6 | 0.4 | 12.9 | 14.0 |
| Charge for the year | 0.2 | 0.8 | 0.4 | 22.0 | 23.4 |
| Transfer to assets held for sale | - | - | - | (0.2) | (0.2) |
| Disposals | - | - | - | (19.2) | (19.2) |
| At 30 April 2008 | 0.3 | 1.4 | 0.8 | 15.5 | 18.0 |
| Net book value | |||||
| At 30 April 2008 | 2.1 | 1.3 | 1.1 | 89.2 | 93.7 |
| At 30 April 2007 | 2.0 | 1.2 | 1.2 | 69.5 | 73.9 |
10. Trade and other receivables
| 30 April | 30 April | |
| 2008 | 2007 | |
|
| £'m | £'m |
| Trade receivables | 110.9 | 63.8 |
| Value added tax | - | 0.3 |
| Other receivables | 0.4 | 0.3 |
| Prepayments and accrued income | 2.4 | 2.5 |
|
| 113.7 | 66.9 |
Trade receivables represent amounts receivable for the provision of services to customers. The expected adjustments arising on the settlement of receivables represents a critical judgement made by the Directors. The Directors have estimated the value of trade receivables to reflect the expected settlement amounts receivable on the basis of the prior experience of collection levels and anticipated collection profiles.
11. Financial liabilities
Borrowings
Details of borrowings are as follows:
| 30 April | 30 April | |
| 2008 | 2007 | |
|
| £'m | £'m |
| Current | ||
| Revolving credit facility | - | 20.0 |
| Bank loans | 0.5 | 6.5 |
| Finance lease obligations | 38.5 | 34.0 |
|
| 39.0 | 60.5 |
| Non-current | ||
| Bank loans | 30.5 | - |
| Finance lease obligations | 58.8 | 43.0 |
| Convertible Notes | 47.7 | - |
|
| 137.0 | 43.0 |
| Total borrowings | 176.0 | 103.5 |
Revolving credit facility and bank loans
On 15 June 2007 the Group announced that it had entered into a senior secured credit agreement with Morgan Stanley Bank International Limited in respect of banking facilities of up to £45.0 million ("Facility"). The Facility replaced a revolving credit facility of £20.0 million and bank loans of £4.4 million with the Group's previous financiers.
The Facility, which matures on 30 September 2010, comprised aggregate term loans of £35.0 million and a £10.0 million revolving credit facility. The interest rate commenced at LIBOR plus 3% and will rise to LIBOR plus 4% on 1 July 2008 and to LIBOR plus 5% on 1 January 2009. The Facility is secured by a fixed and floating charge over certain of the Group's assets.
A term loan of £5.0 million drawn down under this Facility during the year was repaid in January 2008 following the issue of the Convertible Notes as a result of which the aggregate Facility available to the Group was reduced to £40.0 million.
Bank loans of £31.0 million as at 30 April 2008 comprise term loans of £30.0 million drawn down from the Facility and a £2.2 million five year term loan in relation to leasehold property improvements at the Group's Alpha 1 headquarters, which are stated net of aggregate unamortised issue costs of £1.2 million (£0.7 million was amortised during the year through finance costs).
Convertible Notes
On 8 January 2008 the Group announced the issue of £50.0 million 5.50% convertible notes due 2013. Morgan Stanley & Co International plc acted as lead manager for the offering, the proceeds to the Group of which were £46.6 million net of associated expenses of £3.4 million.
The Convertible Notes constitute senior, unsubordinated, direct, unconditional and unsecured obligations of the Company, carry a cash payable coupon of 5.50% payable semi-annually in arrears on 8 July and 8 January commencing on 8 July 2008, and had an initial conversion price of 107.7 pence per ordinary share (which represented a 20% premium above the reference price of 89.8 pence per share which was set at the time of announcing the intention to issue the Convertible Notes). Holders of the Convertible Notes may convert the Convertible Notes into ordinary shares at the then prevailing conversion price at any time until the date falling 14 days prior to 8 January 2013.
The conversion price is subject to adjustment in certain circumstances including (i) adjustments to reflect any dividends paid; and (ii) an adjustment to the extent that the average volume weighted average prices of the ordinary shares over the 15 dealing days prior to 9 January 2009 is less than 89.8 pence per share (subject to previous conversion price adjustments), subject to a floor of 75.4 pence per share.
The conversion price has been adjusted to 106.0 pence per ordinary share following payment of the 1.0 pence per share interim dividend paid on 15 February 2008. Subject to shareholder approval at the Annual General Meeting on 6 August 2008, a further price adjustment will arise (currently expected to be approximately 1.5 pence per share) on 9 September 2008 on payment of the proposed final dividend (see note 8).
To the extent the Convertible Notes have not previously been converted, purchased and cancelled or redeemed, the Company will redeem the Convertible Notes on 8 January 2013 in cash at their accreted principal amount reflecting an overall yield to maturity of 9.75% (whereby for every £50,000 principal amount then still outstanding £63,286 will be payable in cash).
The values of the liability component and equity conversion option component were determined as at the date of issue of the Convertible Notes. The fair value of the liability component, which is disclosed separately on the balance sheet within non-current liabilities, was calculated using a market interest rate for an equivalent non-convertible instrument. The remaining amount, representing the value of the equity conversion option, is classified as a derivative financial liability in non-current borrowings.
The amount recognised in the balance sheet in relation to the Convertible Notes is as follows:
| 30 April | 30 April | |
| 2008 | 2007 | |
|
| £'m | £'m |
| Face value of Convertible Notes issued on 8 January 2008 | 50.0 | - |
| Equity conversion option component recognised at issue | (0.6) | - |
| Issue costs | (3.4) | - |
| Liability component on initial recognition at 8 January 2008 | 46.0 | - |
| Finance charges (note 4) | 1.7 | - |
| Liability component at 30 April 2008 | 47.7 | - |
12. Derivative financial liabilities
Details of derivative financial liabilities are as follows:
| 30 April | 30 April | |
| 2008 | 2007 | |
|
| £'m | £'m |
| Recognised upon issue of Convertible Notes | 0.6 | - |
| Movement in fair value during the year | 0.9 | - |
| At 30 April | 1.5 | - |
13. Trade and other payables
| 30 April | 30 April | |
| 2008 | 2007 | |
|
| £'m | £'m |
| Trade payables | 12.5 | 10.6 |
| Social security and other taxes | 2.3 | 2.3 |
| Non-trade payables | 2.3 | 1.1 |
| Accrued expenses | 2.1 | 1.5 |
|
| 19.2 | 15.5 |
14. Cash generated from operations
Reconciliation of net profit to cash generated from operations:
| Year | Year | |
| ended | ended | |
| 30 April | 30 April | |
| 2008 | 2007 | |
|
| £'m | £'m |
| Profit for the year | 8.3 | 8.9 |
| Depreciation and other non-cash items: | ||
| Depreciation | 23.4 | 17.7 |
| Amortisation of intangible assets | 0.6 | 0.5 |
| Loss on disposal of vehicles, plant and equipment | 1.3 | 0.6 |
| Share based payments | 0.6 | 0.3 |
| Changes in working capital: | ||
| Increase in trade and other receivables | (46.7) | (36.2) |
| Decrease / (increase) in claims in progress | 0.2 | (4.0) |
| Increase in payables | 4.5 | 10.6 |
| VAT recovered on fleet additions | 15.9 | 11.4 |
| Finance income | (0.8) | (0.1) |
| Finance costs | 13.8 | 6.1 |
| Tax | 3.8 | 4.7 |
| Cash generated from operations | 24.9 | 20.5 |
15. Reconciliation of cash and cash equivalents to net borrowings
| Year | Year | |
| Ended | ended | |
| 30 April | 30 April | |
| 2008 | 2007 | |
|
| £'m | £'m |
| Increase in cash and cash equivalents in the period | 20.1 | 13.4 |
| Capital element of finance lease payments | 81.8 | 55.2 |
| Proceeds from issue of Convertible Notes net of issue costs | (46.6) | - |
| Proceeds from borrowings | (33.9) | (27.1) |
| Repayment of borrowings | 30.1 | 0.6 |
| Decrease in net borrowings resulting from cash flows | 51.5 | 42.1 |
| Inception of finance leases | (101.9) | (77.8) |
| Convertible Notes interest accrued included in net debt | (1.7) | - |
| Derivative financial liability excluded from net debt | 0.6 | - |
| Amortisation of debt issue costs | (0.7) | - |
| Borrowings acquired with subsidiary | (0.2) | (0.2) |
| Increase in net borrowings during the period | (52.4) | (35.9) |
| Net borrowings at 1 May | (96.6) | (60.7) |
| Net borrowings at 30 April | (149.0) | (96.6) |
16. Analysis of movement in net borrowings
| As at | As at | ||||
| 1 May | Non-cash | 30 April | |||
| 2007 | Cash flows | Acquisition | items | 2008 | |
|
| £'m | £'m | £'m | £'m | £'m |
| Cash and cash equivalents | 6.9 | 20.1 | - | - | 27.0 |
| Revolving credit facility | (20.0) | 20.0 | - | - | - |
| Other bank loans | (6.5) | (23.8) | - | (0.7) | (31.0) |
| Finance leases | (77.0) | 81.8 | (0.2) | (101.9) | (97.3) |
| Convertible Notes | - | (46.6) | - | (1.1) | (47.7) |
| Net borrowings | (96.6) | 51.5 | (0.2) | (103.7) | (149.0) |
17. Other information
These results for the year ended 30 April 2008 together with the corresponding amounts for the year ended 30 April 2007 are extracts from the Group's Annual Report and Accounts and do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 (as amended).
The Group's Annual Report and Accounts for the year ended 30 April 2008, on which the auditors have issued a report that does not contain a statement under section 237(2) or (3) of the Companies Act 1985, will be posted to shareholders in due course and delivered to the Registrar of Companies in due course. Copies will be available from Company Secretary, Alpha 1, Canton Lane, Hams Hall, Birmingham, B46 1GA or from the Group's website www.accidentexchange.com.
The Annual General Meeting will be held at the offices of DLA Piper (UK) LLP, Victoria Square House, Victoria Square, Birmingham, B2 4DL at 11 am on Wednesday 6 August 2008.