ELEP.L Regulatory News (ELEP)

26 Oct 2007 07:01

Elephant Loans & Mortgages PLC26 October 2007 ELEP.L ELEPHANT LOANS & MORTGAGES PLC ("Elephant Loans" or the "Company") Trading Update and Corporate Restructuring The board of Elephant Loans is issuing a trading update for the six months to 30September 2007 and providing shareholders with details of a corporate restructuring. The difficulties in both the sub-prime mortgage and individual voluntary arrangement ("IVA") sectors have been well documented and over the last few months, there has been a substantial realignment of mortgage and loan products in the sub-prime sector. Several lenders have withdrawn from the market and others have tightened their underwriting criteria, principally, lowering maximumloan-to-value lending levels and raising interest rates. In the prime sector too,lenders have tightened their underwriting criteria. This has had the effect of pushing many previously prime lending clients towards sub-prime lenders. Against this background, the Company experienced a challenging first half. Sales in April and May were weak but June and July saw much improved performances. However, reflecting additional market turmoil, sales in August and September turned down as lenders reconsidered their product offerings and average loan completion times lengthened. The second half of the year has started well. In September, Elephant signed a major affinity partner agreement and this, together with the tightening of lending criteria of prime lenders, has resulted in record levels of enquiries.The board therefore expects a significantly improved second half performance. However, given the weak performance in the first half, the board believes it prudent to anticipate that profits for the full year are likely to be below current market expectations. In the light of changed market conditions and in order to ensure that the Company is well positioned for future growth, the board is implementing changes to its regional branch structure and is entering into an agreement regarding itsinsolvency solutions subsidiary, DebtSmashers Limited ("DSL"). Elephant is consolidating its south of England operations, at Ashford, Peterborough and Cardiff, into its Twickenham head office branch. The board believes that it can achieve superior financial performance and improved customer service in the southern region by centralising support functions while retaining locally home-office based mortgage advisers. This change will resultin immediate cost savings, which will be evident in the second half of the current financial year. Earlier this year the Company announced that it had entered into an agreement with Grant Thornton to act as the licensed insolvency practitioner and supervisor on all IVA cases originated by its DebtSmashers Limited subsidiary.The board of Elephant Loans believes that as a result of the market changes in both the sub-prime lending sectors and IVA markets DSL needs a higher degree autonomy and focus for it to achieve its full potential. As a result, ElephantLoans has agreed, subject to final contracts, to form a new company, DebtSmashers UK Limited ("DSU") with Philip Grady, a specialist in the marketing of insolvency and debt management services through financial professionals and aconsultant to Grant Thornton in this area. DSL will become a wholly owned subsidiary of DSU, with Elephant Loans holding a 49% stake in DSU, and Philip Grady owning 51%. The business will relocate out of Elephant's headquarters inTwickenham. Philip Grady and Gary Miller-Cheevers, Chief Executive of ElephantLoans, will be the directors of DSU. At the same time, DSU and DSL will enter into a five year referral agreement under which any loan, mortgage or otherlending requirement of DSU/DSL customers will be referred to Elephant Loans. Under this agreement, Elephant Loans will retain 100% of the commission generated on such referrals up to the first £500,000 per annum, totalling £2.5m with no additional cost over the 5 year period. If the business generated exceeds £500,000 per annum, Elephant Loans will rebate 25% of the commission in excess of £500,000 per annum to DSU/DSL. Elephant Loans will not be required to provide any further funding to DSU/DSL. The board looks forward to updating shareholders with interim results which areexpected to be published in December. For further information please contact:www.elephantloans.co.uk Elephant Loans & Mortgages plc T: 020 8892 2777Gary Miller-Cheevers, Chief Executive ARM Corporate Finance T: 020 7512 0191Nick Harriss SVS Securities T: 020 7638 5600Ian Callaway Biddicks T: 020 7448 1000Katie Tzouliadis This information is provided by RNS The company news service from the London Stock Exchange