Preliminary Results

7 Jun 2007 07:01

Elephant Loans & Mortgages PLC07 June 2007 ELEP.L ELEPHANT LOANS & MORTGAGES PLC ("Elephant Loans" or "the Group") Announces Preliminary Results for the year ended 31 March 2007 The Group acts as a sales distribution channel for specialist lenders and isregulated by the FSA. Elephant advises indebted individuals on appropriate debtsolutions, completes the entire application process and passes for approval thepre-completion pack to specialist lenders for funding. Elephant does not bearany credit risk. The debt resides on the balance sheet of the lender. HIGHLIGHTS FOR THE YEAR • Very encouraging trading performance in line with expectations • Year of investment - in core business and in new start-up subsidiary • Four branches became fully operational in H2 - taking branch network to seven and providing national coverage • Core business (Elephant Loans Ltd) performed well - completed loan and mortgage applications rose by 48% to 566 (2006: 383) - commission income increased by 22% to £2.95m (2006: 2.42m) - pre-tax profit up by 139% to £0.303m (2006: £0.127m) - profit after tax of £0.264m (2006: £0.089m) • Group introduced £39.4m of new business to specialist lenders, a rise of 28% on last year • Placing in October 2006 raised £0.965m (gross) • In Q3, established personal insolvency products subsidiary, DebtSmashers - funded by October placing - expected to break-even in current financial year • June 2007, DebtSmashers secures agreement to exclusively refer all IVA and other insolvency related customers to Grant Thornton UK LLP • Reflecting impact of higher cost base and costs of establishing start-up subsidiary, Group operating loss was £1.18m and pre-tax loss was £1.22m • Board views Group prospects very positively Donald Hammond, Chairman of Elephant Loans, commenting on the results, said, "In my first report as Chairman, I am delighted to announce that the Groupcontinues to make excellent progress. Over the course of the year under review, we significantly increased our salescapability and strengthened the senior management team to provide greatersupport for the enlarged business. We now have in place a highly effective anddynamic team whose efforts will drive the business forward. We are encouraged by the level of enquiries currently being generated andcontinue to view the future of the Group with confidence. We believe the Groupis well positioned for continuing growth in the new financial year and beyond." For further information please contact: Elephant Loans & Mortgages plc T: 020 8892 2777Donald Hammond, Executive ChairmanGary Miller-Cheevers, Chief Executive Officer ARM Corporate Finance T: 020 7512 0191Nick Harriss Biddicks T: 020 7448 1000Katie Tzouliadis http://www.elephantloans.co.uk ELEPHANT LOANS AND MORTGAGES PLCCHAIRMAN'S LETTER Introduction In my first report as Chairman, I am delighted to announce that the Groupcontinues to make excellent progress. Trading results from our core loans and mortgages packaging business are veryencouraging while our new start-up personal insolvency products packagingbusiness, DebtSmashers, is performing in line with our expectations. In all,therefore, while the costs associated with launching our new subsidiary,DebtSmashers, have adversely impacted the Group's results - in particular,masking the progress our core business has made - we are very pleased with theprogress and results of both our subsidiaries. It is important to note that we act only as a sales distribution channel forlenders and do not provide loans ourselves. Financial Results Results for the Group and for our core loans and mortgages packaging subsidiary,Elephant Loans Limited, are stated separately for greater clarity. For the year to 31 March 2007, our core loans and mortgages packaging subsidiaryarranged 566 loan and mortgage agreements for our lenders. This represents anincrease of 48% on last year (2006: 383) and was aided by significantly highervolumes of leads from our affinity partners. As a result, commission incomeincreased by 22% to £2.95m (2006: £2.42m). The business generated an operatingprofit of £536,000 (2006: £531,000) and pre-tax profits of £303,000, a rise of139% on last year's result (2006: £127,000). The Group's results were impacted by the costs of establishing our start-upsubsidiary, DebtSmashers in final quarter of the financial year. Reflectingthis, the operating loss for the Group was £1.18m and the pre-tax loss was£1.22m. The basic loss per share was 0.51p. Dividend In our Admission Document published in November 2005, we stated that we hoped tobe in a position to commence dividend payments this financial year. After dueconsideration, the Board considers it prudent to conserve resources for futureinvestment and expansion and therefore does not recommend the payment of adividend at this stage. The position will be kept under review, and it remainsthe Board's intention to commence dividend payments as soon as practical in thelight of the performance and future investment needs of the Company. Business Development Over the course of the year, we have moved the Group on significantly. Afteropening four additional branches in the final quarter of the last financialyear, we recruited new staff, both sales and support, to support the expansionof our sales capacity. These new offices take our total branch network to sevensites and provide us with a national presence. Over the year, we have alsoinvested to increase brand awareness within our marketplace, helping to improvesales. In early October, we successfully raised £965,000 before expenses via a shareplacing. The net proceeds have been used to fund the further expansion of thebusiness, mostly notably the development of DebtSmashers Ltd. DebtSmashers hasbeen established to package personal insolvency products and is entirelycomplementary to our core loans and mortgages packaging business. If thespecialist lending products which our core business, Elephant Loans, offers areunsuitable or unavailable to clients, we are able to pass customers toDebtSmashers. Equally, in the situation where a personal insolvency solution maynot be appropriate, an IVA for example, with customer consent, DebtSmashers isable to refer clients to Elephant Loans for advice. It is important to note that the approach we are taking with DebtSmashersmirrors the packaging model we have established in our existing loans andmortgages business. This means that all insolvency solutions will be processedby a mainstream insolvency practice. Board Changes In mid July 2006, David Gammond stepped down as Chairman to take on an executiverole and establish our subsidiary DebtSmashers Ltd. Subsequently in March 2007,he resigned from the Board for personal family reasons. We would like to thankhim for his contribution to the business during his time on the Board. We were delighted to appoint Maria Giambrone as Finance Director in March 2007.Maria has excellent experience and will become a key member of our young anddynamic executive management team. Robert Kelly, who had been part-time FinanceDirector, has become a Non-executive Director. Stock Exchange and Investors In July 2006 we appointed Hichens, Harrison & Co as our joint stockbrokertogether with SVS Securities plc, who originally brought us to market. In October 2006, we announced that we had successfully raised £965,000 beforeexpenses through a placement of shares at 3p per share and as a consequence, wehave welcomed a number of new investors to the share register. Investors and potential investors should recognise that the Company takes nocredit risk with the specialist loans that we arrange, as these are all placedwith third party lenders. There is no reason why the sub-prime lending problemsin the USA should have a material impact upon the profits of the Company. Thedifferences between the UK market and the United States financial systems arediscussed in greater detail by Gary Miller-Cheevers in his report. Annual General Meeting Notice of the Annual General Meeting is enclosed. The meeting will be held onthe 10th of July at 3.30 p.m. at the Institute of Directors, 116 Pall Mall, SW1Y5ED. Shareholder Relations The Group's website provides details of our products and information that may behelpful to shareholders and is found at www.elephantloans.co.uk. We are dedicated to improving communications with both current investors andinterested potential investors and continue to look for ways to ensure that ourcommunications are clear and effective. Outlook Over the course of the year under review, we significantly increased our salescapability and strengthened the senior management team to provide greatersupport for the enlarged business. We now have in place a highly effective anddynamic team whose efforts will drive the business forward. Acting as a distribution channel for lenders and insolvency practitioners, theGroup bears no credit risk on the specialist financial solutions it provides tocustomers. We are encouraged by the level of enquiries currently being generated andcontinue to view the future of the Group with confidence. We believe the Groupis well positioned for continuing growth in the new financial year and beyond. Donald HammondChairman CHIEF EXECUTIVE'S REPORT Introduction I am pleased to report on the considerable progress the Group has made in itsfirst full year's trading as an AIM quoted stock. The Group has established afirm foundation for profitable growth. Setting aside the costs incurred inestablishing our personal insolvency packaging subsidiary, DebtSmashers, ourresults show that the core business is growing strongly and looking ahead, Iview prospects for the current financial year very positively. I will be reviewing in more detail the highlights of the year but to summarise,over the year, we have achieved the following: • completed the national branch opening programme so that we now have seven fully operational branches across the UK; • significantly improved revenues derived from our 'affinity partners'; • launched our personal insolvency products packager, DebtSmashers; • significantly strengthened the management of our operations, including compliance and marketing functions; • successfully completed a placing to raise £965,000; • established our own in-house training facility, the 'Elephant Academy' to provide both sales training and compliance tuition for all staff. This will help to underpin our high customer service standards and rigorous ongoing regulatory compliance. Our core loans and mortgages packaging business delivered a pleasing financialperformance: - sales increased by 22% to £2.95m; - pre-tax profit rose by 139% to £0.303m; - net profit margin increased by 98% to 10.3%; - the number of advances improved by 48% to 566; and - the amount of money advanced by our lenders rose by 28% to £39.4m. It is particularly encouraging that a number of our lenders have agreed toincrease commission terms on future business. These agreements will benefitmargins in the current financial year. Regional Branch Operations During the year under review, we have worked hard to ensure that the four newbranches we opened in the final quarter of the last financial year performedoptimally, recruiting the right calibre personnel and receiving suitable supportfrom our central functions. Operationally, our national branch network of seven sites is now working verywell and we will continue to drive business volumes through each branch. Asignificant factor in driving volume growth is our affinity partnerrelationships from which we derive additional new business leads. It waspleasing therefore that over the year we signed a number of new affinitypartners - those companies who offer an aligned service to customers with asimilar profile to those Elephant Loans targets. Our differentiated business model of locally based, face-to-face sales fromregional branches, works very well with our customers and has proved to be ahighly attractive proposition for affinity partners. We intend to driveincreased business volumes from our seven regional branches with the continuedsupport from, and focused expansion of, our affinity partner programme. To support this, we also continue to market to our customers with: • highly focused and regular direct mail campaigns; • local radio advertising campaigns; • regional branch initiatives: - through local professional introducers; and - local leaflet drops; • drive to website campaigns through Google; and • 'video by email' campaigns. I believe that the current financial year to 2008 will see the hard work thathas been put into building our business bearing fruit. DebtSmashers Ltd The share placing that took place in October 2006 raised £965,000 beforeexpenses and was fully utilised to launch the DebtSmashers business. The costsof setting up DebtSmashers were more than was anticipated however the businessis now fully operational and trading well. The business model is a direct-to-consumer insolvency solutions provider that,in partnership with a mainstream insolvency practice, provides creditors with arealistic and acceptable net dividend, and debtors with an affordable solutionto their debt issues. DebtSmashers is run completely independently of our core business, ElephantLoans Limited but there are significant and potentially valuable cross-sellingopportunities between the two subsidiaries. Many possible customers for a personal insolvency solution (particularly homeowners), before proceeding, will want to consider the merits of a specialistloan product and, with express consent, those customers are referred to ElephantLoans. The reverse is also true; a specialist lending product may not beappropriate in certain circumstances where as an IVA or other insolvency optionmight be. In these cases, we are able to refer such customers to DebtSmashers. The Group owns a significant database of potential customers and DebtSmashers isable to market insolvency solutions to these potential customers through itscall centre. It also acts as a direct-to-consumer brand for insolvencypractitioners. DebtSmashers has signed a product endorsement deal with the TV and Snookerpersonality John Virgo and has produced a high quality DVD for use as a TVadvertisement or e-video. We have also produced a series of radio advertsfeaturing John. As forecast at the outset, DebtSmashers is expected to break-even by the end ofthe financial year to 2008. Meanwhile, we expect it to post a small loss in thefirst half of the year. General Market The market for the Group's lending debt consolidation products is significantand growing. The number of customers falling into the 'specialist lending'category (sub and near-prime credit) is increasing. Additionally, housing equitycontinues to significantly outweigh mortgage debt. The value of housing assets increased by £410bn in 2006; this should be comparedagainst a £100bn increase in mortgage balances. In 2006, the value of theprivate housing stock (£3.8 trillion) was 3.5 times the value of outstandingmortgage debt of £1.1 trillion (Source: Credit Action). As at April 2007: • average household debt in the UK stood at £8,833 (excluding mortgages) and £54,452 including mortgages; • the price of a typical house was increasing by £46 per day; • total credit card debt in March 2007 was £54.3bn with the average interest rate on credit card lending of 16.45%, which was around 11.25% above base rate; • almost five million UK credit card holders paid a penalty fee on their plastic in 2005, according to research by MoneyExpert.com and Defaqto. More than 10 per cent. of the population racked up charges for items such as late payments and exceeding credit limits; and • some 3.4 million credit card holders in the UK regularly make only the minimum repayment on their credit card. (Source: Credit Action) It appears that some commentators believe that the problems in the US sub-primemarket may transfer to the UK specialist lending sector. However, unlike the USsub-prime market which has experienced problems due to the aggressive targetingof high-risk borrowers, to win as many customers as possible, the UK market hasa far more prudent price-to-risk strategy, discounting is virtuallynon-existent, and more importantly, the market is heavily regulated by theFinancial Services Authority (FSA) from lender through to distributor,monitoring the quality of advice and the suitability of lending products. Against this backdrop, we believe that the scope for growth for our businessremains substantial. Our model, as a sales distribution channel for lenders,means that the Group does not take on any credit risk. The profile of the loansand mortgages that we pass on to our panel of specialist lenders typically hasthe following characteristics: • an average loan-to-value ratio of less than 80%; • where a 'discounted' product is offered, the discount is a minimal 1% or so, off the reversionary rate; and • customer affordability assessments are always based on the 'reversionary rate', in every case. It should be emphasised that Elephant takes on no credit risk for the loans andmortgages placed with our lenders. The debt rests on the lenders' balancesheets. Strengthened Management Over the past year, we significantly strengthened the management of ouroperations, compliance and marketing activities. Key new appointments were aNational Sales Director, Regional Sales Manager and Operations Director. I would like to thank the Board, senior management, sales executives and allsupport staff for their hard work and dedication in contributing to such asuccessful year. It is particularly encouraging to see the branches operating ina competitive, yet co-operative way to meet targets and deliver the salesresults. Prospects The Group has performed strongly over the last financial year and having createdstrong foundations, the business is well positioned to continue on its growthpath. I view prospects for the year very positively. With an experienced and committed management team in place, the focus for theyear ahead is to drive sales volumes at the seven regional branches whileensuring that costs remain under tight management. I would like to thank the shareholders who continue to support us as we expandthe business further and I look forward to updating you on progress at theinterim stage. Gary Miller-CheeversChief Executive Officer ELEPHANT LOANS AND MORTGAGES PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2007 Year to Year to Year to *Period to 31 March 2007 31 March 2007 31 March 2007 31 March 2006 Elephant DebtSmashers Consolidated Consolidated Loans Turnover 2,935 16 2,951 1,133 Direct Costs 1,235 11 1,246 352 ----------------------------------------------------- Gross Profit 1,700 5 1,705 781 Administrative Expense 1,163 1,585 2,688 796 ----------------------------------------------------- Operating Profit/(Loss) 563 (1,519) (983) (15) ----------------------------------------------------- Other operating income 33 0 33 12Branch opening costs 200 0 200 0 ----------------------------------------------------- Profit / (Loss) on ordinary activities 304 (1,519) (1,216) (27) ----------------------------------------------------- Tax on loss on ordinary activities (36) (36) (7) ----------------------------------------------------- Profit / (Loss) for the Financial Year 268 (1,519) (1,252) (20) ===================================================== Full and diluted loss per share (inpence) 0.51p 0.01p *Period to 31 March 2006 refers to the period from 17 October 2005 to 31 March2006 ELEPHANT LOANS AND MORTGAGES PLC BALANCE SHEETS AS AT 31 MARCH 2007 2007 2006 2007 2006 Group Group Company Company £000's £000's £000's £000'sFixed assetsTangible assets 440 209 - -Goodwill on consolidation 4,861 4,861 - -Investments - - 4,532 4,532 ------------------------------------- 5,301 5,070 4,532 4,532 ------------------------------------- Current assetsDebtors 336 641 1,272 352Cash at bank and in hand 1 87 - - ------------------------------------- 337 728 1,272 352 Creditors: amounts falling due within one year (955) (891) (39) (23) ------------------------------------- Net current assets (618) (163) 1,233 329 ------------------------------------- Creditors: amounts falling due after one year (188) (64) - - ------------------------------------- Net Assets 4,495 4,843 5,765 4,861 ------------------------------------- Capital and reserves Called up share capital 73 63 73 63Share premium account 5,694 4,800 5,694 4,800Profit and loss account (1,272) (20) (2) (2) -------------------------------------Shareholders' funds - Equity 4,495 4,843 5,765 4,861 ------------------------------------- ELEPHANT LOANS AND MORTGAGES PLC CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2007 Year to Period to 31 March 31 March 2007 2006 £000's £000's Net cash outflow from operating activities (816) (264) Returns on investments and servicing of financeInterest paid (33) (12) -----------------Net cash inflow (outflow) from returns oninvestments and servicing of finance (33) (12) ----------------- Tax recovered 7 - ----------------- Capital expenditure and financial investment Net payments to acquire tangible assets (118) (77)Payments to acquire investments - (23) -----------------Net cash inflow from capital expenditure (118) (100) ----------------- Net cash outflow before management of liquid resources and financing (960) (376) ----------------- FinancingIssue of shares, net of costs 904 354Net (reduction)/increase in loans (30) 109 -----------------Net cash inflow from financing 874 463 ----------------- (Reduction)/Increase in cash in the year/ period (86) 87 ----------------- *Period to 31 March 2006 refers to the period from 17 October 2005 to 31 March2006 NOTES TO THE PRELIMINARY STATEMENTS 1. Elephant Loans' Annual General Meeting will be held at 3.30pm on 10 July 2007 at Institute of Directors, Room 402, 116 Pall Mall, SW1Y 5ED. 2. The annual report and financial statements will be posted to shareholders on 8 June 2007. Further copies will be available free of charge after that date from Kate Eves, Elephant Loans & Mortgages plc, Regal House, 70 London Road, Twickenham, Middlesex, TW1 3QS. 3. An option to purchase up to 10 million shares was granted by Gary Miller-Cheevers to MintGreen Properties Ltd on 28 March 2007. The option may be exercised at any time up to five years from issue at a price of 2.5 pence per share. The shares over which the option has been granted are existing shares owned by Gary Miller-Cheevers. This information is provided by RNS The company news service from the London Stock Exchange