RNS Number : 7045W
Money Debt & Credit Group Plc
13 June 2008
Money Debt & Credit Group PLC
('Money Debt & Credit Group' or 'the Group')
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
Money Debt & Credit Group PLC, a leading provider of financial solutions to over-indebted individuals who are seeking to manage and
reduce their debt burden in a responsible manner, announces its results for the year ended 31 December 2007.
HIGHLIGHTS
* Continued growth in debt solution case numbers and revenues during the Group's second year of its start-up phase:
* Turnover: �4.1m (2006: �1.0)
* Loss for the period: �3.4m (2006 �2.8m)
* IVA business now on course to achieve profitability as a result of continued growth in case numbers and a break-even performance
in the last 3 months of 2008
* Launch of the Group's debt management business providing an effective low cost informal solution for debtors and creditors
* Current work in progress of 1,732 IVA cases and 1,325 Debt Management Plans
* Strategic partnerships and referral relationships for clients actively looking for a debt solution are now the Group's principal
route to market
* Macro-economic factors likely to lead to an increase in demand for the Group's products and services in 2008
Enquiries:
Money Debt & Credit Group PLC Tel: 01923 636800
Simon Johnson, Executive Chairman
Jon Bartman, Managing Director
Gerard Kelly, Finance Director
Smith & Williamson Corporate Finance Limited Tel: 0117 376 2000
Martyn Fraser
EXECUTIVE CHAIRMAN'S STATEMENT
This has been a very active year for the Group and whilst much was accomplished in developing our business, external factors played a
major part in shaping the fortunes of the industry.
Operational progress was significant. At the end of 2007 we had 2,172 active IVAs and 877 active Debt Management Schemes under
supervision. During the year we migrated our business model away from speculative marketing and instead created a large and growing network
of referral partnerships as our source of new clients. These partners carry out an initial evaluation of clients' circumstances, and refer
only those cases to the Group where a debt solution may be appropriate, thereby increasing the Group's conversion rates.
Performance
Total revenue increased to �4.1m (2006: �1.0m). The Group made a retained loss of �3.4m in 2007 (2006: �2.8m) reflecting the challenging
climate for our business during 2007 and also as a consequence of the costs incurred in establishing our debt management subsidiary.
As at 31 December 2007 the value of future contracted revenues from the Group's IVA book was estimated to be �5.6m after impairment.
During the year 1,750 new IVAs were completed. The continued growth in IVA case numbers, together with a restructuring and an appropriate
allocation of costs, now means that the Group's IVA business has achieved profit and loss break-even in the last 3 months of 2008.
In order to reduce our exposure to the uncertainties which arose in the IVA market, in June 2007 the Group launched its debt management
business. Debt management is a viable solution for debtors with relatively low levels of debt and less surplus income. The fixed costs
inherent in an IVA and its statutory framework are avoided, leading to an increased dividend to creditors although the downside is that
neither debtors nor creditors are bound contractually. Nevertheless, a professionally evaluated and monitored debt management scheme is, for
many creditors, their preferred option. As with an IVA, for the debtor it avoids the consequences of bankruptcy. During 2007 the Group
invested significantly in forming its debt management business. From a start during Q2 2007 this subsidiary completed 1,066 DMSs during the
year, of which, at the end of 2007 877 cases were still active. Our aim is for this subsidiary to reach cash-flow and profit break-even
during 2008. Development of our financial services and mortgage-broking business will be constrained in 2008 by the reduced appetite from mortgage lenders for sub-prime debt.
To fund our growth and development in 2007 we increased our borrowing from �3.3m to �4.2m.
People
At the end of 2007 we had 143 staff, up from 70 a year ago, largely reflecting the investment in our non-IVA businesses, primarily debt
management.
Recruiting, developing and retaining staff who can deliver the highest standards of client service and performance continues to be a key
focus for our management team.
External Environment
The sector in which the Group operates faced significant challenges in 2007. Creditors and their representatives sought to reduce IVA
acceptances and fee levels which led to a reduction in the total number of IVAs completed in the UK nationally during 2007 by 4.9%. The
equilibrium between the rights of creditors and those of debtors in the IVA process was disrupted by the tactics of certain creditors and
their representatives. We believe this resulted in IVA cases being rejected even when the IVA proposal was in the best interests of both
creditors and the debtor. Despite this unfavourable back-drop, the Group managed to grow its IVA business by 1,750 new cases.
The Group has continued to work in a co-operative and constructive way with creditors and their representatives. In December 2007, Money
Debt & Credit was among the first IVA businesses to achieve accreditation from The Insolvency Exchange, an organisation which now represents
a large body of creditors in IVAs processed by the Group. This accreditation, carried out by independent auditors, verified that business
processes operated by the Group ensure that the most appropriate solution is recommended to customers based upon their personal
circumstances and attitude towards debt.
Developments such as the R3 Protocol for Straightforward Consumer-Based IVAs, published at the end of 2007, are also welcome in
re-affirming the IVA sector's continued commitment to fairness and best practice.
Outlook
The external environment is likely to continue to exert a strong influence on the fortunes of the Group in 2008. At the end of 2007,
PWC highlighted that, despite the earlier falls in IVA numbers, more than a million people in the UK could face financial difficulties in
2008 due to a significant increase in their cost of borrowing as many fixed rate mortgage deals came to an end. The reduced availability of
credit in the wholesale and consumer markets is well-documented. Re-financing is no longer a simple option for many over-indebted
individuals. Property price rises, which created opportunities for raising finance though equity release, seem unlikely. The alignment of
these macro-economic factors is likely to see more and more individuals facing an unsustainable financial burden and lead to an increased
demand for debt solutions such as IVAs and debt management schemes provided by Money Debt & Credit.
Allied to this, the Group is seeing an increase in approaches from potential referral partners including lenders and finance companies
seeking to manage their exposure to non-performing consumer debt.
Overall I believe that for 2008 the opportunity presented to the Group outweighs any downside risk from the actions of creditors
individually or collectively. With our large and growing IVA and debt management case books, the Group expects to deliver positive operating
cash flow from Q4 2008.
Finally on behalf of the Board and the shareholders I should like to extend our thanks to all our staff who have worked so hard during a
challenging year. Their energy, skill and commitment have been outstanding.
Simon Johnson
Executive Chairman
12 June 2008
FINANCIAL STATEMENTS
Consolidated Income Statement
for the year ended 31 December 2007
Year ended 64 week period ended
31 31 December 2006
December �'000
2007
�'000
Revenue 4,115 1,035
Cost of Sales (4,492) (2,165)
Gross loss (377) (1,130)
Administrative expenses (2,820) (1,248)
Operating loss (3,197) (2,378)
Finance costs (259) (461)
Finance Income 47 8
Loss before tax (3,409) (2,831)
Tax - -
Loss for the period (3,409) (2,831)
Loss per share
Basic and diluted loss per ordinary share 8.5p 9.9p
Consolidated Balance Sheet
as at 31 December 2007
Group Group
31 December 31 December
2007 2006
�'000 �'000
Assets
Non-current assets
Property, plant & equipment 677 467
Investments - -
Total non-current assets 677 467
Current assets
Trade and other receivables 1,575 1,158
Cash and cash equivalents - 2,332
Total current assets 1,575 3,490
Total assets 2,252 3,957
Equity and liabilities
Share capital 4,000 4,000
Share premium account 1,635 1,635
Merger reserve 4,200 4,200
Reverse acquisition reserve (7,000) (7,000)
Retained loss (6,240) (2,831)
Total equity (3,405) 4
Non-current financial liabilities
Finance lease obligations 246 90
Shareholder loan 3,714 3,196
Total non-current liabilities 3,960 3,286
Current liabilities
Trade & other payables 1,561 647
Financial liability: finance lease obligations 132 20
Bank overdraft 4 -
Total current liabilities 1,697 667
Total liabilities 5,657 3,953
Total equity & liabilities 2,252 3,957
Consolidated Statement of Changes in Shareholders' Equity
for the year ended 31 December 2007
Share Capital Share Premium Merger Reserve Retained Reverse Acquisition Total
Earnings Reserve
�'000 �'000 �'000 �'000
�'000 �'000
Period to
31 December 2006
Loss for the period - - - (2,831) - (2,831)
Group reconstruction 2,800 - 4,200 - (7,000) -
Issue of share capital 1,200 1,800 - - - 3,000
Issue Costs - (165) - - - (165)
Balance as at 4,000 1,635 4,200 (2,831) (7,000) 4
31 December 2006
Loss for the period
- - - (3,409) - (3,409)
Balance as at 4,000 1,635 4,200 (6,240) (7,000) (3,405)
31 December 2007
Cash Flow Statement
for the year ended 31 December 2007
Group Group
Year ended 64 week
31 December period
2007 ended
�'000 31 December
2006
�'000
Cash flows from operating activities
Net profit/(loss) before taxation (3,409) (2,831)
Adjustments for:
Depreciation 187 54
Cost of raising equity share capital - 384
Loss on sale of property, plant and equipment 14 -
Interest payable 259 77
Interest receivable (47) (8)
Cash used by operations before changes in working (2,996) (2,324)
capital
Movement in trade and other receivables (417) (1,158)
Movement in trade and other payables 914 647
Cash used by operating activities (2,499) (2,835)
Cash flows from investing activities
Finance lease loans received 361 -
Proceeds from sale of property, plant and equipment 49 -
Loan to subsidiary company - -
Purchase of property, plant and equipment (460) (400)
Net cash used in investing activities (50) (400)
Cash flows from financing activities
Finance lease principal repayments (93) (16)
Proceeds from shareholder loan 518 3,124
Proceeds of issue of shares - 3,000
Costs of share issue - (549)
Interest paid on shareholder loan (228)
Other interest paid (31)
Interest received 47 8
Net cash from financing activities 213 5,567
Net increase in cash and cash equivalents (2,336) 2,332
Cash and cash equivalents at beginning of the 2,332 -
period
Cash and cash equivalents at the end of the period (4) 2,332
Notes to the Financial Statements
1. Basis of Preparation
The financial statements have been prepared in accordance with IFRS as adopted by the European Union and with those parts of the
Companies Act 1985 applicable to companies reporting under IFRS.
The financial statements of Money Debt & Credit Group PLC consolidate the results of the Company and all its subsidiary undertakings.
The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. The financial
statements have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) issued by the
International Accounting Standards Board (IASB). They have been prepared under the historical cost convention.
The Group has adopted for the first time IFRS 7 Financial Instruments: Disclosures in its 2007 consolidated financial statements. This
has been applied retrospectively, ie with amendments to the 2006 presentation. The adoption of IFRS 7 had no impact on the reported income
and losses or the financial position of the Group.
Other Standards or Interpretations relevant for IFRS financial statements did not become effective during the current financial year.
2. Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries) made up to 31 December 2007.
Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or
business, so as to obtain benefits from its activities, then that business or entity is classified as a subsidiary.
Inter-company balances and transactions including unrealised profits on transactions arising from intra-group transactions have been
eliminated in full.
3. Revenue Recognition
Revenue is recognised in the Group Income Statement by reference to the fair value of the services provided by the Group to individuals,
who are experiencing personal debt problems, when it can be measured reliably and taking into account any impairment loss.
These revenues consist principally of nominee and supervisory fees arising from Individual Voluntary Arrangements (IVAs) and set-up fees
and monthly management fees from Debt Management Schemes (DMSs).
IVA revenues are recognised, net of VAT, as follows:
* Nominee fees are recognised on approval of a proposal in a formal creditors meeting less a provision for cases on which a full fee
may not be recoverable.
* Supervisory fees are recognised on a monthly basis throughout the duration of an arrangement, commencing in the month in which the
IVA has been approved at the creditors meeting less a provision for cases on which a full fee may not be recoverable.
Revenues from DMSs are recognised at the point when the fees become payable by the client under the terms of the scheme and there is
sufficient surplus in the client's account for the fees to be drawn.
4. Cost of Sales
Cost of sales represents the direct costs of acquiring new business and generating fee income. It includes marketing costs, client
services staff costs, insolvency staff costs and disbursements. All of these costs are charged to the Income Statement as incurred.
5. Financial Assets
Trade and other receivables are recognised at fair value and subsequently carried at amortised cost less an allowance for doubtful
receivables (impairments). A provision for impairment is established when there is objective evidence that the Group will not be able to
collect all amounts due in full according to the original terms of the receivables. Balances are written off in the Income Statement when
the probability of recovery is assessed as being remote.
6. Going Concern
After making enquiries, examining revenue and expenditure projections and cash flow forecasts, and taking into consideration the
facilities available to the Group, the Directors have a reasonable expectation that the Group has access to adequate resources to continue
in operational existence for at least 12 months from the date of approval of the financial statements and for the foreseeable future. For
this reason they continue to adopt the going concern basis in preparing the financial statements.
7. Critical Accounting Judgements and Key Sources of Estimation Uncertainty
In the process of applying the Group's accounting policies, the Directors have considered which judgements have the most significant
effect on the amounts recognised in the financial statements. The Directors consider that the Revenue Recognition policy and the impairment
of receivables are the most significant judgements exercised. There are no other key sources of estimation uncertainty.
8. Status of Financial Information
The financial information set out in this report does not constitute the Group's statutory accounts for the period ended 31 December
2007 but is derived from those accounts. Statutory accounts for the period ended 31 December 2007 will be delivered to the Registrar of
Companies shortly. The auditors have reported on those accounts. Their report was unqualified and did not include reference to any matters
to which the auditors drew attention by way of emphasis without qualifying their report.
The Report and Financial Statements for the period ending 31 December 2007 will be sent to shareholders in due course.
13 June 2008
END
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The company news service from the London Stock Exchange
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