RNS Number:3377Q
Potential Finance Group PLC
18 March 2008
Potential Finance Group PLC
Preliminary Results for the year ended 30 September 2007
Chairman's Statement
We are pleased to report that the overall broadening of the group's activities
continues to gather momentum, and although our reported result for the year does
not appear to reflect this, we feel that much has been achieved in the last 12
months relating to the continued restructuring and future growth strategy of our
group.
We have, this year end, been required to adopt FRS20 for the first time in the
preparation of our accounts. This standard requires a calculation intended to
represent the cost of granting share options to staff and the charge arrived at
is shown as a deduction from profits; you will see the charge in the profit and
loss accounts and details of the options and calculation in note 17.
Although this notional charge affects our reported profit (turning it into a
loss), it is credited back to a reserve held in the balance sheet alongside the
profit and loss account, so that our overall reserves remain the same and there
is no cashflow implication.
If the impact of the disclosure is excluded, the group made a small profit
before tax of �14,000. Whilst this is effectively a break-even position, one
major step forward is that Potential is once again a trading group; Potential
Asset Finance Limited (PAF) has been a solid bedrock, producing reliable results
each year, despite the financial burden of carrying the group overhead structure
following the disposal of the majority of the factoring portfolio of Potential
Finance Limited, in 2005.
As reported in our interim statement, we created a new subsidiary in February
2007, Potential Vehicle Hire Limited (PVH), which has had an extremely positive
and encouraging start.
Its main activity is providing vehicles to a wide range of business users on a
flexible basis, which typically includes full maintenance and back up
facilities.
Our positive predictions at the time of the interim announcement have proved
realistic and PVH did, as anticipated make a small profit in the second half.
Even more encouraging is the month on month profit PVH has contributed since the
year end. From a standing start in February 2007, we have, at the present time,
a fleet of over 700 cars and vans spread over a client base of some 90 U.K.
businesses and average fleet utilisation since inception has been over 95%.
Our positive outlook for this new venture is based partly on our possibly not
unique, but certainly unusual, approach to the sale of ex-rental vehicles.
Working in tandem with fellow-subsidiary PAF, PVH has the benefit of an
extensive database of end-users, and a finance provider for prospective
purchasers, whether on its own portfolio or via a network of external funders.
This means that we are in a position to retail vehicles rather than selling to
trade customers or disposing through vehicle auctions, the more common routes
within the vehicle hire industry. Our website, potentialvansales.com will be
fully operational by the end of April and we plan to explore the possibility of
establishing an additional outlet in the south east, which will incorporate a
customised retail facility for vehicles which have become available for
disposal.
With a proportion of group capital reallocated to PVH, we have also reviewed our
future strategy for PAF.
Two years ago, we set up a 'broker division' specifically to place business with
other funders, rather than adding to our own portfolio. This, along with a
target to increase general fee income, reduces our dependence on capital and
exposure to movements in interest rates.
This has proved a successful diversification, enabling us to provide funding for
accounts which we consider inappropriate for our own book, perhaps due to the
size of proposed debt, or narrow margin available, and to generate income at
inception, rather than over the life of an agreement. As a result, we have taken
the decision to build upon this business model, expanding the broker unit,
currently to a sales team of 12 strategically located throughout the UK, and all
benefiting from a sales support team based in the Brentwood head office.
This development of our brokerage activity during the first few months of the
2007-8 year has involved a substantial investment in recruitment and systems,
but early indications are extremely positive and we expect rapid growth during
the remainder of the year.
The diversification that this trading division brings will, we believe, provide
a much more secure basis for growth, with the broader range of services and
funding options giving a degree of protection against the impact of the 'credit
crunch', which provides so many headlines at the present time.
We are keen to maximise the benefit of this reshaping of the Group structure and
to take advantage of the opportunities arising from the changes we have
implemented. We believe our business model moving forward can produce exciting
results, with a significantly improved return on capital, but in order to keep
gearing at a prudent level, the plan will ideally be underpinned by an injection
of new capital.
The board therefore aims to explore the possibility of raising further capital
over the next few months, and will continue to focus on identifying a strategic
investment partner in order to take advantage of the opportunity for growth over
the next three years.
Peter Cordrey
Chairman
= March 2008
Enquiries:
Potential Finance Group plc 01277 237 160
Colin Swanston
Managing Director
Vivien Ware
Finance Director
Charles Stanley Securities
Nominated Adviser
Philip Davies 020 7149 6457
Managing Director's Report
REVIEW OF THE BUSINESS
During the period under review, the nature of the group has changed
significantly with the commencement of trading by Potential Vehicle Hire Limited
(PVH). This subsidiary has benefited from the group infrastructure in terms of
planning and support, which has enabled rapid growth from a standing start.
Finance for the business is by means of hire purchase loans, and lines were in
place by the year end with twelve major funders.
Fleet size by the end of September was ahead of target and with increasing
credibility in the marketplace, sales margins continued to improve, with the
result that profits were made during the second half of the year.
Potential Asset Finance Limited (PAF) continued to trade profitably, with a
year end portfolio totalling �12.5 million receivables, spread over 900 accounts
and based largely on wheeled assets. The broker unit which was created in
January 2006 continued to grow during 2007, becoming a significant profit centre
by the year end.
This consistent performance resulted in the decision to expand this area of
activity to ensure that Potential can arrange suitable funding for a wide range
of customers, even where the proposal is unsuitable for our own portfolio, thus
protecting the relationship.
FUTURE DEVELOPMENTS
Further expansion of the PVH fleet is planned, and, as vehicles become available
for sale a retailing process will be undertaken, using the internet and trade
magazines for advertising and making use of the extensive database already built
up by PAF.
PAF's broker unit will become a more significant area of its business, with
extensive recruitment undertaken since the year end and a positive growth in
activity already evident.
The Group hopes to identify premises during this financial year, close to the
existing Brentwood head office in order to provide larger office accommodation
for the PAF sales and Group administration teams, and to provide a site for
vehicle retail and rental. It is believed that the complementary nature of the
Group businesses will be of significant benefit in terms of the planned growth
in each.
DIVIDENDS
In view of the group's current and future requirements the directors do not
recommend the payment of a dividend. The directors intend to pursue a future
dividend policy when it becomes commercially prudent to do so, subject to the
availability of sufficient distributable profits.
Colin Swanston
Managing Director
GROUP PROFIT AND LOSS ACCOUNT
for the year ended 30 September 2007
2007 2006
Restated
�000 �000
TURNOVER 4,082 2,822
Cost of sales (2,517) (1,785)
GROSS PROFIT 1,565 1,037
Administrative expenses (1,578) (1,115)
Share-based payments (notional cost) (102) (56)
(115) (134)
Other operating income - 112
OPERATING LOSS (115) (22)
Exceptional items - 110
(115) 88
Interest receivable 27 23
(88) 111
Interest payable - (35)
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (88) 76
Taxation (24) (34)
(LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION (112) 42
EARNINGS PER SHARE
Basic total (1.07)p 0.40p
Fully diluted total (1.07)p 0.40p
STATEMENT OF RECOGNISED GAINS AND LOSSES AND
NOTE OF HISTORICAL COST PROFITS AND LOSSES
For the year ended 30 September 2007
STATEMENT OF RECOGNISED GAINS AND LOSSES
2007 2006
Restated
�000 �000
(Loss)/profit on ordinary activities after taxation (112) 42
Prior year adjustment (62)
Total gains and losses recognised since the last annual report (174)
HISTORICAL COST PROFITS AND LOSSES
2007 2006
Restated
�000 �000
(Loss)/profit on ordinary activities before taxation (88) 76
Realisation of property revaluation gains of previous years - 338
Historical cost (loss)/profit on ordinary activities before taxation (88) 414
Historical cost (loss)/profit for the year retained after taxation (112) 380
GROUP BALANCE SHEET
30 September 2007
2007 2006
Restated
�000 �000
FIXED ASSETS
Tangible assets 6,600 238
CURRENT ASSETS
Stocks - vehicles for resale 63 63
Debtors 2,845 2,143
Investment in finance leases and hire purchase contracts 4,480 3,577
Cash at bank and in hand 304 495
7,692 6,278
Debtors: Amount falling due after more than one year
Investment in finance leases and hire purchase contracts 8,064 5,829
15,756 12,107
CREDITORS: Amounts falling due within one year (7,649) (3,239)
NET CURRENT ASSETS 8,107 8,868
TOTAL ASSETS LESS CURRENT LIABILITIES 14,707 9,106
CREDITORS: Amounts falling due after more than one year (9,870) (4,259)
NET ASSETS 4,837 4,847
CAPITAL AND RESERVES
Called up share capital 2,618 2,618
Share premium account 3,329 3,329
Merger reserve (51) (51)
Share-based payment reserve 164 62
Profit and loss account (1,223) (1,111)
SHAREHOLDERS' FUNDS 4,837 4,847
GROUP CASH FLOW STATEMENT
for the year ended 30 September 2007
2007 2006
�000 �000
Cash flow from operating activities (2,229) (4,410)
Returns on investments and servicing of finance 27 (12)
Taxation (84) (260)
Capital expenditure and financial investment (792) 1,964
CASH OUTFLOW BEFORE FINANCING (3,078) (2,718)
Financing 2,887 2,714
DECREASE IN CASH IN THE PERIOD (191) (4)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN DEBT
2007 2006
�000 �000
Decrease in cash in the period (191) (4)
Cash outflow from increase in debt and lease financing (2,887) (2,714)
Non-cash changes (6,234) -
Changes in net debt resulting from cash flows (9,312) (2,718)
Opening net debt (6,661) (3,943)
NET DEBT at 30 September 2007 (15,973) (6,661)
Notes
1) Preparation of accounts:
The financial information for the year ended 30 September 2006 is extracted from
the Group's financial statements to that date which received an unqualified
auditors' report and did not contain a statement under section 237(2) or (3) of
the Companies Act 1985, and which have been filed with the Registrar of
Companies. The financial information for the year ended 30 September 2007 is
extracted from the Group's financial statements to that date which received an
unqualified auditors' report and did not contain a statement under section 237
(2) or (3) of the Companies Act 1985 and which will be filed with the Registrar
of Companies. This preliminary announcement does not constitute the statutory
financial statements of the Group.
2) Earnings per share
Basic earnings per share for the year to 30 September 2007 has been calculated
on a loss on ordinary activities after taxation of �112,000 and on a weighted
average of 10,473,600 ordinary shares in issue during the year.
The fully diluted earnings per share for the year to 30 September 2007 has been
calculated on a loss on ordinary activities after taxation of �112,000 and on a
weighted average of 10,535,600 ordinary shares during the year. These figures
assume that options will be exercised if the exercise price is less than the
average market price of the shares during the year. Where the option price
exceeds the market price the options are considered not to have a diluting
effect.
Basic earnings per share for the year to 30 September 2006 has been calculated
on a profit on ordinary activities after taxation as restated of �42,000 and on
a weighted average of 10,473,600 ordinary shares in issue during the year.
The fully diluted earnings per share for the year to 30 September 2006 has been
calculated on a profit on ordinary activities after taxation as restated of
�42,000 and on a weighted average of 10,528,600 ordinary shares during the year.
These figures assume that options will be exercised if the exercise price is
less than the average market price of the shares during the year. Where the
option price exceeds the market price the options are considered not to have a
diluting effect.
3) Share-based payments
Executive share option scheme
Certain employees have been granted options over shares in the group. The grant
price is determined by reference to the mid-market price of the company's shares
on the date of grant. The vesting period is three years with an expiry date of
ten years from date of grant and options are forfeited if the employee leaves
the group before the options are exercised.
The company uses a Black-Scholes model to calculate the fair value of share
options. Key inputs to the model are as follows:
2007 2006
Average share price at date of grant 45.4p 44.8p
Average exercise price 45.4p 44.8p
Expected volatility 42.0% 42.8%
Risk free rate 4.52% 4.0%
Dividend yield - -
Expected volatility was determined by calculating the volatility of the
company's share price over the period from flotation in August 2000 to the date
of grant.
The effect of share-based payment is to create a charge to the profit and loss
account of �102,000 in the year to September 2007 (2006: �56,000; prior to 2005:
�6,000).
There is no effect on the balance sheet as at 30 September 2007 or any other
date.
4) Board approval and notice of AGM
These Preliminary Results were approved by the Board of Directors on 18 March
2008. A copy of the financial accounts is being sent to all shareholders and
will be available to the public from the Company's office at 149-157 King's
Road, Brentwood, CM14 4EG.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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