Final Results

RNS Number : 3398I
  
Cleardebt Group PLC
  
18 November 2008
  
 

ClearDebt Group Plc


('ClearDebt' or 'The Group')


Preliminary Results for the year ending 30 June 2008


ClearDebt, the AIM quoted integrated consumer debt advisory, IVA and debt management group is very pleased to announce its preliminary financial results for the year ending 30 June 2008.


Financial Highlights








2008


2007






Revenue
Gross profit/(loss)
Loss after taxation


£1,869,190
£107,807
£(697,264)




£420,963
£(226,494)
£(657,494)




Operational Highlights




247 IVAs passed in the period - 21% increase (2007: 204) 


Substantial increase in IVAs passed following the IVA protocol reached with creditors












Year ended
30 June 2008




Year ended
30 June 2007






Third quarter
Fourth quarter




67
87
====
154
====


46
31
====
77
====








New diversified product and advice model working effectively




2,499 debt management plans currently running 




Positive cash flow achieved in first quarter of current financial year




Q1 profitability in both operating businesses




Scaleable model will allow ClearDebt to continue growth on 2 fronts:




Organic: as the economy weakens and more consumers fall into serious debt




Acquisition: a number of peer companies cannot operate low cost models, providing an opportunity for acquisitions or beneficial commercial agreements




 








David Mond, CEO of ClearDebt commented,


'We believe we have now turned the corner. With the number of IVAs and DMPs growing, good pipelines, and the current economic conditions suggesting a constant flow of new enquiries to our website, we have every reason to believe that we will continue to be busy.


We have continued to demonstrate that our model is both highly efficient, and scaleable, able to cope with both the increased demand driven by the general economic conditions, but also from the highly distressed condition of a number of our peers.


IVAs must have a supervisor. With our strictly limited cost per case, and effective operating model, we believe that ClearDebt is in a position to become an industry consolidator as our peers find their models cannot cope with the new market conditions.'




Contacts 






David Mond, ClearDebt Group plc


Tel: 0161 969 2023




David Youngman, WH Ireland Limited
(Nominated adviser)


Tel: 0161 832 2174




Ruari McGirr, St Helen's Capital Plc
(Broker)


Tel: 020 7628 5582








CHAIRMAN'S STATEMENT


I present the Group's financial statements for the year ended 30 June 2008.


These are the first financial statements reported by the Group in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. The principal change to the financial statements relates to the treatment of goodwill. Goodwill is no longer amortised but is instead reviewed by the Board on an annual basis and any impairment in the carrying value is immediately recognised through the income statement. A full explanation of the transition to IFRS is included in the notes to the financial statements.


The Group made an operating loss of £1,131,950 in the year (2007: loss of £695,029) resulting in a loss after taxation of £697,264 (2007: loss of £657,494) and whilst it is disappointing to continue to record a loss there has been much progress made in the year, particularly in relation to the successful diversification of the Group's IVA activities into the debt management arena via the acquisition of Abacus (Financial Consultants) Limited ('Abacus'). 


The Group's balance sheet shows net current assets of £100,990 (2007: £1,195,387) which includes cash of £265,537 (2007: £849,795) which is sufficient to continue to develop the Group's business over the next 12 months, given the positive cash flow now being enjoyed in ClearDebt and Abacus.


The Group is now starting to reap the rewards of the Abacus acquisition both through the provision of a complete offering of appropriate debt solutions to its clients and also via the cross referral opportunities being achieved in terms of client acquisition. This, together with savings being achieved through synergies in advertising spends across the 2 divisions, leads me to look forward to the coming year with increasing confidence.




Gerald Carey 
Chairman


17 November 2008












CHIEF EXECUTIVE'S STATEMENT


The IVA Protocol reached with creditor banks in February 2008 resulted in the establishment of new benchmarks for IVA approvals. This enabled the number of IVA approvals to start to increase once again after a long period of rejections by creditors whilst the protocol was being agreed. The timing of the agreement however left it too late to show any significant improvement in our figures for the financial year as a whole. I am pleased to say however that Abacus has achieved profitability in the first quarter of the new financial year and has agreed 3,883 debt management plans ('DMP') since acquisition up and until 11 November 2008. ClearDebt Limited, since inception up and until 11 November 2008 has approved 766 cases. Income is currently being generated from 643 cases with 24 cases being successfully completed. With ClearDebt Limited having also achieved profitability in the first quarter of the new financial year the directors expect an improvement in ClearDebt's trading results as additional numbers of IVAs are processed during the coming year and Abacus continues to trade strongly.


Hence, I am guardedly optimistic regarding the future. Following the launch of our Partner Programme in June 2007, ClearDebt has now signed up over 1,100 mortgage brokers and financial advisors as ClearDebt introducers. We have also recently signed an exclusive distribution deal with The Mortgage Brain Limited making ClearDebt's Partner Programme available online to over 24,000 mortgage brokers and financial advisors within the UK.


We are also pursuing a number of other initiatives including the provision of our DMP Protect Policy with all plans undertaken by Abacus about to be rolled out and the introduction in the coming months of the ClearCash pre-paid VISA debit card which will also allow users to pay any of their bills online.


We are aware of, and closely monitor the prospects for consolidation within our industry. We still believe that our low cost model, which is closely aligned to creditors' current preferred positions, is an increasingly attractive proposition in the current market and that the Group is well positioned to capitalise on any opportunities that may arise.


THE CONSUMER DEBT MARKET


ClearDebt Group operates within the debt resolution sector, an established sub-category of financial services. Personal insolvencies have seen considerable growth over the last 3 years due to the expansion in consumer debt and the contraction in cheap credit. 


The debate within the wider financial services industry with regard to the approval criteria for IVAs was resolved in February 2008 with a new protocol being agreed between the debt industry and the creditor community. Prior to this protocol however, the debate caused a reduction in the number of IVAs passed each quarter in 2007 and the first quarter of 2008. 


Since then, the non seasonally adjusted second and third quarters of 2008 have seen increased numbers of IVAs as the economic climate has worsened, although the quarterly numbers are still not back to their peak in the quarter ended December 2006.


The new protocol has restricted the level of fees charged by the industry in general and has had the effect of bringing fees very much in line with ClearDebt's traditional low fee model. 


Whilst this protocol has had little or no effect on ClearDebt's model it has resulted in wide scale industry changes as many other IVA providers' traditional models were no longer financially viable with the new fee structure. 


As a leading member of the Debt Resolution Forum, ClearDebt has been in constant negotiation with the creditor community. We believe the new IVA Protocol launched in February 2008 will see the start of better relations with the creditor community and responsible and appropriate solutions being approved going forward.


THE CLEARDEBT MODEL


Unlike many of its major competitors in the consumer IVA market, ClearDebt has developed a low overhead, high quality model, based on Kaizen manufacturing principles and an intelligent internet interface - www.cleardebt.co.uk. This model allows the company's cost base to be kept to a minimum level whilst still providing high levels of service. It also facilitates efficient growth as there is minimal need to hire new staff until customer number thresholds have been breached. 


Due to this distinctive operating model, ClearDebt is able to offer a more effective debt resolution solution than many of its rivals. The model allows ClearDebt to offer IVAs (if that is the appropriate solution) at lower cost not only to the debtor, but also the creditor - thereby increasing the chance that an IVA will be approved by the creditor and completed by the debtor, benefiting all parties involved in the proposal.


It is significant that this provides the Group with a capacity to handle lower levels of debt than many of our major competitors. The Group believes that this will prove advantageous following the expected introduction of the proposed 'SIVA', a simplified IVA procedure scheduled for April 2009, following which the Company believes that there will be a rapid increase in lower level IVA cases. ClearDebt already has a low fee model in place and believes the introduction of SIVAs (to be known in future as Fast Track IVAs) could lead to the potential referral of large numbers of new clients directly from creditor institutions.


THE ABACUS MODEL - Debt Management Plans


Abacus provides services to indebted individuals by negotiating and putting in place a debt management plan with their creditors. The debtor makes a monthly payment to Abacus who then distributes the payment to the creditors as agreed in the plan less an administration fee at an agreed percentage of the monthly payment. An initial set up fee is also charged.  


Such plans are suitable for individuals whose debts are more manageable and rely on the goodwill of creditors as they are not a formal insolvency procedure and interest usually continues to accrue on outstanding debts. 


Many clients are cross referred between ClearDebt and Abacus allowing the Group to offer an appropriate advice solution to all individuals. 


This will become more prevalent when the current consultation process being undertaken by the Ministry of Justice into the possibility of a Regulated Debt Management Plan is completed and the industry in 2011 will see changes for which Abacus is well prepared.


OPERATIONAL REVIEW


ClearDebt Limited - IVA Division 


Since 1 July 2007, the following numbers of IVAs have been arranged:










Year ended


Year ended








30 June 2008


30 June 2007






First quarter




36




74




Second quarter


57


53




Third quarter


67


46




Fourth quarter


87


31








____


____








247


204








___


___






The impact on case numbers as a result of the rejections by creditors of cases in 2007 can be clearly seen from the drop in case numbers from the second quarter in 2007. The return to a growth trend in IVA cases follows the agreement between the British Bankers Association and The Insolvency Service of the new IVA Protocol which commenced in February 2008. Case numbers for the first quarter of the new financial year remain broadly in line with the fourth quarter level of last year with a record number of cases passed in September offsetting slightly lower numbers over July and August. The second quarter of the new financial year has started with record approvals in October, and November looks to be heading for even higher numbers.


The Board monitors several key performance indicators ('KPI's') for the business on a monthly basis including the number of cases passed, various conversion ratios from lead to cases passed and the cost per case acquired.  


Abacus (Financial Consultants) Limited - Debt Management Division 


The acquisition of Abacus has been successfully completed and the division has achieved quarterly profitability for the first time in the first quarter of the new financial year. 


As at the end of June 2008 Abacus had a total of 1,899 plans generating income. A steady run rate of approximately 300 new plans per month is currently being achieved which is leading to an increase in the net overall number of plans and generating income after allowing for failures. Currently Abacus has 2,499 paying plans in place (as at 11 November 2008).


Given that debtors often miss payments to the plans or delay in starting up newly agreed plans, the Board now only include plans which have made a payment in the current month in the KPI's for total plans in place and new plans acquired in the month. The other main KPI monitored by the Board is in relation to the value of payments made by the plans each month as this has a direct bearing on fee income which is a fixed percentage of plan payments. Revenue is only recognised by Abacus upon receipt of fees which are drawn from debtor payments as received. 


The costs of acquisition of cases and plans are also monitored closely and KPI's continue to be refined following the purchase of Abacus. As a result of cross referral particularly, from ClearDebt to Abacus, the marketing spend by both divisions is increasingly being viewed as a single spend across the Group.


FINANCIAL REVIEW


Whilst the results for the year continue to show losses at an operating level it is nevertheless pleasing that the Group is now profitable at a gross profit level, achieving a gross profit of £107,807 (2007:loss £226,494). Refinement of marketing campaigns and synergies achieved across the two divisions with respect to marketing spend have contributed most to this turnaround together with marginally reduced staff overheads in ClearDebt Limited following further automation. This provides further evidence that our efficient back office processes can handle increased volumes without additional salary overhead.


FUTURE OUTLOOK


Following the agreement of the new IVA protocol with creditors in February 2008 the IVA market has returned to some measure of normality and our low cost model means that we can accept many cases at fee levels that may not be profitable for other providers with less efficient models than our own. However there are still one or two creditor banks that are being slow to lower their hurdle rates. We expect that Government pressure will be necessary to resolve the position. 


Although the increased dividend criteria for the acceptance of IVA cases is still limiting growth in the IVA market as a whole, ClearDebt is passing a steadily rising volume of cases each month. We are however seeing a significant number of appropriate referrals from ClearDebt to Abacus for debt management plans and as a result Abacus is currently trading strongly.


Given the severe economic background in the UK and the economic outlook at present I am increasingly hopeful that the Group's businesses will continue to make substantial progress in the coming year.








David Emanuel Merton Mond FCA FCCA
Chief Executive Officer


17 November 2008












GROUP INCOME STATEMENT
For the year ended 30 June 2008


















Before separately disclosable items 


Separately disclosable items (Note 5) 






Total 






Total 












2008


2008


2008


2007








Notes


£


£


£


£




Revenue
























  - ongoing


3


486,586


-


486,586


420,963




  - acquisitions






1,382,604


-


1,382,604


-












                   


                   


                   


                   












1,869,190


-


1,869,190


420,963




Cost of sales






(1,761,383)


-


(1,761,383)


(647,457)












                   


                   


                   


                   




Gross profit/(loss)






107,807


-


107,807


(226,494)




Administrative expenses


5


(820,711)


(100,000)


(920,711)


(394,001)












                   


                   


                   


                   




Losses before interest, tax, depreciation and amortisation 






(712,904)


(100,000)


(812,904)


(620,495)




Depreciation 


11


(75,464)


-


(75,464)


(13,798)




Amortisation


10


(243,582)


-


(243,582)


(60,736)












                   


                   


                   


                   




Loss from operations 


3 & 4


(1,031,950)


(100,000)


(1,131,950)


(695,029)






























Finance costs


6


(122,505)


-


(122,505)


-




Finance income






32,595


-


32,595


37,535












                   


                   


                   


                   




Loss before taxation 






(1,121,860)


(100,000)


(1,221,860)


(657,494)




Taxation  


8


524,596  


-


524,596


-












                   


                   


                   


                   




Loss after taxation for year 






(597,264)


(100,000)


(697,264)


(657,494)












                   


                   


                   


                   




Loss per ordinary share -
 basic (pence)


9


(0.20)p


(0.03)p


(0.23)p


(0.24)P




Loss per ordinary share -
 diluted (pence)


9


(0.20)p


(0.03)p


(0.23)p


(0.24)p












                   


                  


                  


                   






The results for the period are derived from continuing activities. 


The entire loss is attributable to the equity holders of the parent company. 


No separate statement of total recognised income and expenditure is presented as all such income and expenses have been dealt with in the Group income statement above. 


 










group BALANCE SHEET 
As at 30 June 2008












2008


2007








Notes


£


£




Assets 
Non-current assets
Intangible assets






10


4,504,814


3,232,102




Property plant and equipment


11


244,056


37,315




Deferred taxation


15


403,396


-












                             


                             












5,152,266


3,269,417




Current assets
















Trade and other receivables


12


472,824 


594,246




Corporation tax repayment receivables  


8


102,793


-




Cash and cash equivalents






265,537


849,795












                              


                              












841,154


1,444,041












                             


                             




Total assets






5,993,420


4,713,458












                  


                  






















Equity and liabilities
Equity
Issued capital






16






6,091,812






5,776,812




Share premium account






279,948


407,046




Share based compensation


17


97,814


-




Retained losses






(2,416,318)


(1,719,054)












                             


                             






















Total equity






4,053,256


4,464,804












                              


                              




Current liabilities
















Trade and other payables


13


740,164


248,654












                              


                              












740,164


248,654




Non-current liabilities
















Financial liabilities


14


1,200,000


  -












                             


                             




Total liabilities






1,940,164


248,654












                             


                             




Total equity and liabilities






5,993,420


4,713,458












                  


                  




























GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2008







 


Share Capital


Share Premium


Other Reserves


Retained Losses


Total Equity




 


£


£


£


£


£




 


 


 


 


 


 




Balance as at 1 July 2006


5,141,891


52,167


-


(1,061,560)


4,132,498




Share issue


634,921


365,079


-


-


1,000,000




Share issue costs


-


(10,200)


-


-


(10,200)




Loss for the period


-


-


-


(657,494)


(657,494)




 


_____________


_____________


____________


_______________


______________




Balance as at 1 July 2007


5,776,812


407,046


-


(1,719,054)


4,464,804




Share issue


315,000


-


-


-


315,000




Share issue costs


-


(29,284)


-


-


(29,284)




Share based payment/charge


-


(97,814)


97,814


-


   -




Loss for the period


-


-


-


(697,264)


(697,264)




 


_____________


_____________


____________


_______________


______________




Balance as at 30 June 2008


6,091,812


279,948


97,814


(2,416,318)


4,053,256




 


===========================================


===========================================


========================================


=============================================


=============================================




 


 


 


 


 


 








The whole of the total equity is attributable to the shareholders of the parent company.










group cashflow statement
For the year ended 30 June 2008
















Year ended


Year ended








Notes


30 June 2008


30 June 2007












£


£




Cash flow from Continuing Operating Activities
















Loss from operations






(1,131,950)


(695,029)




Depreciation of property, plant and equipment






75,464


13,798




Amortisation of intangible assets






243,582


60,736




Decrease/(increase) in trade and other receivables






160,486


(150,859)




Increase/(decrease) in trade and other payables






185


(37,783)












                   


                  




Cash used in operations






(652,233)


(809,137)




Income tax expense






-


-












                    


                  




Cash used in operating activities






(652,233)


(809,137)






















Cash flows from investing activities
















Acquisition of subsidiary inclusive of costs, net of cash acquired


18


(1,250,014)


-




Acquisition of property, plant and equipment






(102,817)


(90,002)




Finance income






32,595


37,535




Sale of other intangible assets






25,000


-












                    


                    




Net cash absorbed by investing activities






(1,295,236)


(52,467)






















Cash flows from financing activities
















Proceeds from new loans  






1,600,000


-




Repayment of loans






(400,000)


-




Proceeds of share issue






315,000


1,000,000




Share issue costs






(29,284)


(10,200)




Interest on loans 






(122,505)


-












                    


                    




Cash generated from financing activities






1,363,211


989,800






















(Decrease)/increase in cash and cash equivalents






(584,258)


128,196




Opening cash and cash equivalents






849,795


721,599












                    


                    




Closing cash and cash equivalents






265,537


849,795












================


================














NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2008


1. General Information 


ClearDebt Group plc is a company incorporated and domiciled in the United Kingdom under the Companies Act 1985. At the date of the authorisation of the financial statements the following standards and interpretations, which have not been applied in the financial statements, were in issue but not yet effective:






IFRS 8
IAS 1
IFRIC 13
IFRIC 14
IFRIC 15
IFRIC 16
IAS 23
IAS 27
IFRS 1
IFRS 2
IFRS 3
IAS32


Operating segments
Revised - Presentation of financial statements 
Customer Loyalty Programmes
The Limit on a Defined Benefit Asset, Minimum Funding Requirement and their Interaction
Agreements for the Construction of Real Estate
Hedges of a net investment in a foreign operation
Amendment - Borrowing costs
Amendment - Consolidated and Separate Financial Statements
Amendment - First time adoption of IFRS 
Amendment - Share-based payment
Amendment - Business Combinations
Amendment - Financial instruments 'Presentation'






The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial information when the relevant standards and interpretations come into effect.


The Group's functional currency is £ sterling.


2. Significant Accounting Policies


Basis of Preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU) and in accordance with those parts of the Companies Act 1985 applicable to companies reporting under IFRS for the first time.


IFRS 1 'First time adoption of International Financial Reporting Standards' has been applied to these financial statements. The financial statements have been prepared using standards and interpretation that were issued and effective at 30 June 2008.


The financial statements have been prepared on the historic cost basis. The principal accounting policies adopted are set out below.


Going Concern
The financial statements are prepared on a going concern basis, which assumes the Group will continue in operational existence for the foreseeable future. The Group's ability to meet its future working capital requirements and therefore continue as a going concern is dependent upon it being able to generate significant revenues and free cash flow. The Directors have prepared projections which they consider to be prudent and demonstrate that the business can operate within its existing cash resources, and have identified a series of realistically achievable actions that they are committed to taking to mitigate the rate of cash outflow should revenues not be secured as predicted. Whilst the group has been loss-making to date the performance has been improving on a monthly basis during the year and the projections suggest that no further injections of funding will be required for the group to continue trading. The group is currently dependent on the support of a director consisting of a £1.2m loan due for repayment in March 2010. There is a confirmation in place that this support will continue should the group not be in a position to repay the loan and continue to meet other liabilities as they fall due. For this reason the directors consider that it is appropriate to prepare the accounts on a going concern basis.


Critical Accounting Estimates and Judgements
The preparation of the financial information in conformity with IFRS requires management to make judgement, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results which form the basis of making the judgements about carrying values of assets and liabilities that are both readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.


The principal balances that have been estimated relate to provisions in respect or ongoing litigation and the fair value of share based compensation as detailed in notes 5 and 17 in the notes to the consolidated financial statements.


Basis of Consolidation
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, it is classified as a subsidiary. The consolidated financial statements present the results of the company and its subsidiaries ('the Group') as if they formed a single entity. Inter-company transactions are therefore eliminated in full.


Business Combinations
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. 


Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair values of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition. Under the exemption allowed by IFRS 1 the previous carrying value, after separation of other intangibles, has been used as the deemed cost.


Goodwill 
Goodwill on acquisition of subsidiaries is recognised as a separate asset on the balance sheet after the recognition at fair value of any other intangible assets identified at the time of acquisition. 


Goodwill is capitalised as an intangible asset with any impairment in carrying value being recognised immediately and charged to the consolidated income statement. Where the fair value of identifiable assets, liabilities and contingent liabilities exceeds the fair value of consideration paid, the excess is credited in full to the group income statement on the acquisition date. At the date of transition to IFRS, 1 July 2006, the goodwill carrying amount under UK GAAP was tested for impairment and based on the conditions existing at the transition date no impairment was identified. Thus, the carrying amount of goodwill in the Group's IFRS opening balance was equal to the goodwill carrying amount under UK GAAP. From the date of transition to IFRS, 1 July 2006, the Group discontinued the amortisation of goodwill and implemented annual impairment tests for goodwill.  Impairment losses in respect of goodwill are recognised in the income statement. Impairment losses in respect of goodwill are not reversed.  


Goodwill has been re-stated on transition to IFRS as certain intangible assets, which were not recognised under UK GAAP, have now been separately classified, as they meet the recognition criteria under IAS 38 for an individual company.


Impairment
At each balance sheet date, the Group reviews the carrying amounts of its intangibles and property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent of other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 


Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have been adjusted.


If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.


Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.


Other Intangible Assets
Internal and externally acquired intangible assets are initially recognised at cost and subsequently amortised over their useful economic lives. The amortisation expense is shown separately on the face of the Group Income Statement. The significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows:- 






Other intangibles
Development costs
Software development costs


-
-
-


1 year straight line
4 years straight line
4 years straight line






Under IAS 38 software development costs are now classified as intangible assets, whereas previously they were included within property plant and equipment. 


Revenue 
Revenue is recognised at the fair value of amounts receivable or received in relation to a range of services provided to clients as follows:


Individual Voluntary Arrangements (IVA)
Fees are earned for arranging and administering IVAs on behalf of individuals experiencing debt problems. Generally, revenue is accrued based upon the stage of completion of specific client contracts where the outcome can be assessed with reasonable certainty and the value for that service has been agreed between the Group and the client.


Nominee fees
Nominee fees are recognised upon the approval of an IVA proposal at a creditors meeting.  


Supervisory fees
Supervisory fees are accrued on a monthly basis over the duration of the arrangement as the service is provided. 


Debt management services
Fees are receivable for the management of debts on behalf of clients experiencing financial difficulties. Fees are recognised upon receipt of client payments on the basis that these arrangements are informal and there is no certainty that economic benefits will accrue until a payment is received.


Commissions
The Group also receives commission income from the referral of loans and other products. Commissions are recorded as they become due.


Property, Plant and Equipment
All property plant and equipment are initially recorded at cost.
Depreciation is provided at rates calculated to write off the cost less residual value of each asset over its expected useful life, as follows:






Leasehold Improvements
Fixtures & fittings


-
-


25% straight line
25% straight line






Residual value and estimated remaining lives are reviewed annually.


Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event which it is probable will result in an outflow of economic benefits that can be reliably estimated. If the effect of time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money.




Share-Based Compensation
Equity-settled share based payments are measured at the fair value of services received in exchange for the grant of options. The fair value determined is recognised as an expense if it relates to trading activities or in the share premium account if it relates to the issue of equity instruments.  The total amount to be expensed over the vesting period is determined by reference to the fair value of the options or warrants granted, excluding the impact of any non-market vesting conditions (for example, profitability and growth targets). Non-market vesting conditions are included in the assumptions about the number of options or warrants that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to reserves over the remaining vesting period.


The proceeds received net of any attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.


Leasing 
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.


Financial Instruments
Financial assets and financial liabilities are recognised on the balance sheet when the Group has become a party to the contractual provisions of the instrument.
Trade and other receivables
Trade receivables are classified as loans and other receivables in accordance with IAS 39, measured on initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.


Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less and are classified as other loans and receivables in accordance with IAS39.
For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above.
Financial liabilities
Financial liabilities are classified according to the substance of the contractual arrangements entered into. An instrument will be classified as a financial liability when there is a contractual obligation to deliver cash or another financial asset to another enterprise.
Borrowings
Interest-bearing bank loans and overdrafts are classified as 'other liabilities' in accordance with IAS39. They are initially recorded at their fair value, net of any issue costs associated with borrowings. Borrowings are subsequently stated at amortised cost.


Finance charges, including premiums payable on settlement or redemption, are expensed to the income statement over the term of the instrument using an effective rate of interest and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. 


Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.


Taxation


The tax expense represents the sum of the current tax expense and deferred tax expense. Taxable losses differ from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date.


Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit.


Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based upon tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.


Equity Reserves
Reserves in respect of issued share capital represent the nominal value of shares issued. Share premium reserves represent any premium received on the issue of shares in excess of the nominal value net of transaction costs incurred in the issuance of the shares.


Other reserves comprise reserves created in respect of equity-settled share based payments charged to the share premium account.


Retained losses are realised losses after the payment of dividends when dividends are paid.


3.   Segmental Information
The Group's total income, loss before taxation and net assets were all derived from its principal activities being the provision of IVA and other financial advice and appropriate solutions to individuals experiencing personal debt problems. All the Group's activities were undertaken wholly in the United Kingdom. During the year the Group acquired the entire issued share capital of Abacus (Financial Consultants) Limited and this business comprises the Debt Management segment. 


Year ended 30 June 2008










Insolvency


Debt Management (acquired in year)


2008
Total


2007
Total








£


£


£


£




Revenue 


486,586


1,382,604


1,869,190


420,963




Cost of sales 


(533,481)


(1,227,902)


(1,761,383)


(647,457)








_________


_________


_________


_________




Gross (loss)/profit 


(46,895)


154,702


107,807


(226,494)




Administrative expenses 


(666,663)


(573,094)


(1,239,757)


(468,535)








_________


_________


_________


_________




Loss from operations


(713,558)


(418,392)


(1,131,950)


(695,029)




Finance costs 


-


(122,505)


(122,505)


-




Finance income 


32,595


-


32,595


37,535








________


_________


_________


_________




Loss before taxation 


(680,963)


(540,897)


(1,221,860)


(657,494)




Taxation


  387,161


137,435


524,596


-








_________


_________


_________


_________




Loss for year 


(293,802)


(403,462)


(697,264)


(657,494)








_________ 


_________


_________


_________






The Group's income and loss before taxation were wholly derived from the insolvency segment in the year ended 30 June 2007.


















Net operating assets are reconciled to equity funds as follows:








2008
£


2007
£




Gross operating assets












Insolvency


4,300,999


4,713,458




Debt management


1,692,421


-








________


________








5,993,420


4,713,458








________


________




Gross liabilities












Insolvency


485,977


248,654




Debt management


1,454,187


-








________


________








1,940,164


248,654








________


________


















Capital expenditure to acquire property, plant and equipment












Insolvency


50,033


90,002




Debt management


52,784


-








________


________








102,817


90,002








________


________


















Depreciation of property, plant and equipment












Insolvency


27,875


13,798




Debt management


47,589


-








________


________








75,464


13,798








________


________


















Amortisation of intangible assets












Insolvency


68,082


60,736




Debt management


175,500


-








________


________








243,582


60,736








________


________






4.    Loss from Operations 





 


2008
£


2007
£




Loss from operations is stated after charging:


 


 




Depreciation of owned assets


75,464


13,798




Amortisation


243,582


60,736




Rentals - building


56,086


-




Auditor’s remuneration – audit


12,500


16,900




Auditor’s remuneration – tax


-


2,500




Auditor’s remuneration – other services


27,350


77,000




 


========================================


=======================================




   
Amounts payable to Baker Tilly UK Audit LLP and their associates in respect of both audit and non audit services:






 


 
2008
£


 


%




Audit Services


 


 




- Statutory audit


12,500


31%




Other Services


 


 




The auditing of accounts of associates of the company pursuant to legislation.


 


 




- Audit of subsidiaries where such services are provided by Baker Tilly UK Audit LLP and their associates


 
17,500


 
44%




Other services supplied pursuant to such legislation


 


 




- Other services


6,850


17%




Tax Services


 


 




- Compliance services


-


 




- Advisory services


-


 




Corporate Finance


3,000


8%




 


-------------------------------


 




 


39,850


 




 


==============================


 






Amounts payable to Baker Tilly and their associates in respect of both audit and non audit services:




 


 
2007


 




 


£


%




Audit Services


 


 




-  Statutory audit


9,000


9%




Other Services


 


 




The auditing of accounts of associates of the company pursuant to legislation


 


 




- Audit of subsidiaries where such services are provided by Baker Tilly
    and their associates


 
7,900


 
9%




Other services supplied pursuant to such legislation


 


 




-  Interim results


-


 




Tax Services


 


 




-  Compliance services


2,500


3%




Corporate finance


77,000


79%




 


-------------------------------


 




 


96,400


 




 


==============================


 











5.         Separately Disclosable Items
 


2008


2007




 


£


£




Administrative Expenses


100,000


-




 


==================================


===================================








ClearDebt Limited ('ClearDebt') is currently taking legal action against several parties involved with the IVA Council for defamation and libel after the IVA Council sent correspondence to ClearDebt's clients (and clients of other IVA companies) alleging they had been mis-sold IVAs. The Directors of ClearDebt are confident that they will win the case but have provided £100,000 in relation to legal costs incurred to 30 June 2008 in the event the case is not successful or the defendant fails to pay any favourable judgement in full. To date the defendant has paid £100,000 into Court as part of the ongoing litigation.







6.         Finance Costs


2008


2007




 


£


£




 


 


 




Interest payable on loans


122,505


-




 


===================================


===================================




7.         Employees


 


 




 


 


 




Number of Employees


 


 




The average monthly numbers of employees (including the Directors) during the period were:




 


 


 




 


2008


2007




 


Number


Number




Directors


5


3




Advice team, management and administration


7


2




IVA processing team


9


8




DMP processing team


37


-




 


-----------------------------------


-----------------------------------




 


58


13




 


-----------------------------------


-----------------------------------











Employment costs


2008


2007




 


£


£




 


 


 




Wages and salaries


814,239


228,533




Social security costs


66,253


19,835




Pension costs


-


-




 


-----------------------------------


-----------------------------------




 


880,492


248,368




 


-----------------------------------


-----------------------------------




 


 


 











Directors’ Emoluments


2008


2007




 


£


£




 


 


 




Directors’ fees


48,000


48,000




Directors’ emoluments


77,156


19,656




 


-----------------------------------


-----------------------------------




 


125,156


67,656




Social security costs


9,876


2,515




 


-----------------------------------


-----------------------------------




Key management compensation


135,032


70,171




 


-----------------------------------


-----------------------------------




Key management consist of the statutory directors of the Group.


 


 




 


Number


Number




Number of Directors to whom retirement benefits are accruing under a money purchase scheme


-


-




 


-----------------------------------


-----------------------------------




 


£


£




 


 


 




Highest paid director amounts included above:


57,500


19,656




 


-----------------------------------


-----------------------------------










8.    Taxation


2008


2007








£


£




Analysis of current year












Current tax 












UK corporation tax repayment due


(102,793)


-








                  


                  




Deferred tax












Temporary differences, origination and reversal
Effect of tax rate changing on opening balance


(421,803)
-


-
-








                  


                  




Total deferred tax credit


(421,803)


-








                  


                  




Tax on loss for the period


(524,596)


-








                  


                  






Factors affecting charge for year





 


2008


2007




 


£


£




Loss before taxation


(1,221,860)


(657,494)




 


                  


                  




Loss multiplied by standard rate of corporation tax in the UK of 21%
(2007: 20%)


(256,590)


(131,499)




Effects of:


 


 




Expenses not deductible


3,051


233




Un-used tax losses carried forward


-


131,266




Recognition of tax losses related to previous periods


(271,057)


-




 


                  


                  




Current tax expense for year


(524,596)


-




 


                  


                  




 
9.    Loss per Ordinary Share


 


 




 


2008


2007




 


£


No of shares


Pence per share


£


No of shares


Pence per share




 


 


 


 


 


 


 




Basic loss per share


(£697,264)


303,902,042


(0.23p)


(£657,494)


273,011,039


(0.24p)




 


 


 


 


 


 


 




Diluted loss per share


(£697,264)


303,902,042


(0.23p)


(£657,494)


273,011,039


(0.24p)






The calculation of the basic loss per ordinary share is based on losses of £697,264 (2007: £657,494) and on 303,902,042 (2007: 273,011,039) ordinary shares of 2p each being the weighted average number of ordinary shares in issue during the period.


The loss for the period and the weighted average number of ordinary shares for the purpose of calculating the diluted loss per share are the same as for the basic loss per share calculation. This is because the outstanding share options would have the effect of reducing the loss per ordinary share and would therefore not be dilutive under the terms of IAS 33.




 







10. Intangible Assets


 


 


 


 


 




 


 
 
Goodwill


 
Other intangibles


 
Development costs


Software Development costs


 
 
Total




 


£


£


£


£


£




Cost - 2008


 


 


 


 


 




At 1 July 2007


3,068,986


-


80,312


155,293


3,304,591




Arising on acquisition of subsidiary


1,333,294


208,000


-


-


1,541,294




Disposals


-


(30,000)


-


-


(30,000)




 


________________


________________


________________


________________


________________




At 30 June 2008


4,402,280


178,000


80,312


155,293


4,815,885




 


=============


=============


=============


=============


=============




Amortisation – 2008


 


 


 


 


 




At 1 July 2007


-


-


35,259


37,230


72,489




Charge for year


-


175,500


23,506


44,576


243,582




Disposals


-


(5,000)


-


-


(5,000)




 


________________


________________


________________


________________


________________




At 30 June 2008


-


170,500


58,765


81,806


311,071




 


=============


=============


=============


=============


=============




Net book value


 


 


 


 


 




At 30 June 2008


4,402,280


7,500


21,547


73,487


4,504,814




 


=============


=============


=============


=============


=============




Cost – 2007


 


 


 


 


 




At 1 July 2006


3,068,986


-


80,312


80,760


3,230,058




Additions


-


-


-


74,533


74,533




 


________________


________________


________________


________________


________________




At 30 June 2007


3,068,986


-


80,312


155,293


3,304,591




 


=============


=============


=============


=============


=============




Amortisation – 2007


 


 


 


 


 




At 1 July 2006


-


-


11,753


-


11,753




Charge for year


-


-


23,506


37,230


60,736




 


________________


________________


________________


________________


________________




At 30 June 2007


-


-


35,259


37,230


72,489




 


=============


=============


=============


=============


=============




Net book value


 


 


 


 


 




At 30 June 2007


3,068,986


-


45,053


118,063


3,232,102




 


=============


=============


=============


=============


=============




At 1 July 2006


3,068,986


-


68,559


80,760


3,218,305




 


=============


=============


=============


=============


=============








Impairment Reviews


The total carrying value of £4,402,280 relating to goodwill is reviewed annually for impairment. This comprises £3,068,986 relating to the insolvency business and £1,333,294 relating to the debt management business.


For the purposes of impairment review the recoverable amount has been calculated as the value in use based on discounted future cash flow projections for a five year period.


Goodwill arising on ClearDebt Limited acquisition (insolvency business)


Revenue projections assume that the number of IVA cases approved will double over three years and then remain constant. Nominee fees per case are expected to remain at current levels for the first three years and then to increase by 4% for the remaining two years. Average supervisory fees are expected to remain constant, with IVAs lasting a maximum of 5 years. Expenses are expected to rise 10% in the first year and then approximately 5% per year for the next four years. The appropriate discount factor used in the calculations is 10%.


Assumptions are based on recent experience and estimates of how economic conditions will affect levels of activity in the business.


The group's cost of capital could increase by 2% or insolvency income fall short of projections by 8% without a matching fall in expenses before the carrying value of this part of goodwill would exceed the value in use.


Goodwill arising on Abacus (Financial Consultants) Limited acquisition (debt management business)


Monthly projections have been produced covering a five year period. Revenues are expected to grow 40% on a monthly basis over the first year, 7% over the second year and 2% for the third year, then remain constant for the rest of the period. Expenses are expected to increase at about 2% per year on a monthly basis.


The assumptions are based on recent experience of monthly growth and estimates of how economic conditions will affect levels of activity in the business. The discount factor used in the calculations is 10%.


The Group's cost of capital could increase by 18% or debt management income fall short of projections by 50% with out a matching fall in expenses before the carrying value of this part of goodwill would exceed the value in use.


Other intangible assets recognised in respect of Abacus relate to monies due from the sale of a back book of DMP clients together with the estimated value of the future revenue expected from clients acquired between April 2007 and completion of the acquisition in July 2007.


11.  Property, Plant and Equipment 







 


 


Fixtures and Fittings


Leasehold Improvements


Total




 


 


£


£


£




Cost – 2008


 


 


 


 




At 1 July 2007


 


56,082


-


56,082




Additions


 


77,636


25,181


102,817




Arising on acquisition of subsidiary


 


179,388


-


179,388




 


 


_______


_______


_______




At 30 June 2008


 


313,106


25,181


338,287




 


 


===========


===========


===========




Depreciation - 2008


 


 


 


 




At 1 July 2007


 


18,767


-


18,767




Charge for the year


 


69,116


6,348


75,464




 


 


_______


_______


_______




At 30 June 2008


 


87,883


6,348


94,231




 


 


===========


===========


===========




Net book value


 


 


 


 




At 30 June 2008


 


225,223


18,833


244,056




 


 


===========


===========


===========




Cost – 2007


 


 


 


 




At 1 July 2006


 


40,613


-


40,613




Additions


 


15,469


-


15,469




 


 


_______


_______


_______




At 30 June 2007


 


56,082


-


56,082




 


 


===========


===========


===========




Depreciation – 2007


 


 


 


 




At 1 July 2006


 


4,969


-


4,969




Charge for the year


 


13,798


-


13,798




 


 


_______


_______


_______




At 30 June 2007


 


18,767


-


18,767




 


 


===========


===========


===========




Net book value


 


 


 


 




At 30 June 2007


 


37,315


-


37,315




 


 


===========


===========


===========




At 1 July 2006


 


35,644


-


35,644




 


 


===========


===========


===========











12. Trade and other Receivables


 


 




 


2008


2007




 


£


£




Trade Receivables


212,386


147,370




Prepayments


249,412


172,291




Other receivables


   11,026


 274,585




 


_______


_______




 


472,824


594,246




 


===========


===========








Trade receivables are all due in less than one year and represent monies due in respect of  IVA nominee and supervisors fees. These monies are collected from monthly debtor receipts. The trade receivables figure is shown net of provisions in respect of IVA failures amounting to £57,313 (2007:£31,823). There are no trade receivables that are past due that have not been impaired.







 




An analysis of the provision for impairment of receivables is as follows:




 


 


 


2008


2007




 


 


 


£


£




 


 


 


 


 




At beginning of year


 


 


31,823


12,432




Charge for the year


 


 


25,490


19,391




Utilised during the year


 


 


-


-




 


 


 


                


                




At end of year


 


 


57,313


31,823




 


 


 


===========


===========




 






13.  Trade and other Payables
































2008


2007
















£


£


























Trade payables










249,180


104,356




Accruals










402,514


22,510




Other payables










88,470


121,788</