RNS Number : 0426J
Relax Group PLC
27 November 2008
For release at 07.00 Thursday November 27th 2008
Relax Group plc (Formerly Debts.co.uk plc)
Results for the year ended 31 July 2008
Highlights
Financial Highlights
* Full year EBITDA exceeds market expectations.
* Current trading levels significantly up on the same period last year.
* Total Group revenue of �12.9m (2007: �11.6m).
* EBITDA from ongoing operations, before exceptional items, of �3.0m (2007: �3.6m).
* Exceptional items of �2.769m relate to integration of acquisitions and rationalisations.
* Profit after taxation and exceptional items of �0.02m (2007: �2.574m).
* Earnings per share before exceptional items of 11.64p (2007: 13.05p)
Acquisitions, board changes and change of name
* Completion of the acquisition of Relax Finance Limited ('Relax Finance') for �3m in May 2008.
* Following the acquisition of Relax Finance, Ian Guy (Operations Directors), Carl Kroger (Sales Director) and Trevor Moore (Finance
Director) joined the board with co-founder Barry Krite (Managing Director) retiring and Richard Arden (Finance Director) stepping down.
* Name changed to 'Relax Group' to reflect the broadening of the Group's services.
* Completion of the acquisition of substantially the whole of the assets and business of PB Recovery Limited which has been fully
absorbed into the Group's existing centres in Chesterfield and Aberdeen.
Group rationalisation benefits
* Reduction in the Group operating costs of circa �2.0m per annum following the integration of the Group into our two centres in
Chesterfield and Aberdeen.
* Relax Finance is currently closing its Doncaster office and moving to our Chesterfield site which will result in further cost
savings of �0.25m per annum.
* The customer contact centre and sales teams have been fully integrated and now offer the full complement of services of the Group
which has resulted in a significant increase in the processing of debt management cases('DMPs'), individual voluntary arrangements ('IVAs')
and Protected Trust Deeds ('PTDs').
* The development and merger of the Group's databases has been completed and is now providing significant benefits to the cost of
client acquisition.
* The Group has successfully implemented the integration of the Relax Finance business to business customer acquisition model into
the debt management and Insolvency divisions. This has significantly increased volumes of enquiries as well as assisted with cash flow
through the procurement of several blue chip joint ventures providing debt management and insolvent customers with little, or no, upfront
cost. Additionally, the Group has significantly improved its search engine optimisation capabilities dramatically reducing our on line
marketing spend whilst improving its volumes of lead generation.
* The relax finance workflow management system ('RAPS') has been successfully integrated in to the debt management and insolvency
divisions significantly reducing the time required to process applications. This has resulted in greater efficiency and capacity whilst
providing detailed management information used to monitor and evaluate all business KPI's.
Current trading
* 2009 outlook is expected to exceed market expectations.
* Q3 2008 insolvency statistics show a 8.8% rise in individual insolvencies on Q2 2008 and a 4.6% rise on the same quarter in 2007.
* Improvements in IVA, DMP and PTD conversion rates have been achieved since July which has substantially offset the weakness in
secured lending and mortgage market.
* Integration of the acquired businesses and the recent enhancements to the senior management team is significantly improving levels
of profitability and cash flow in the business.
* The impact of cost reductions previously implemented has assisted current trading performance.
Bernard Asher, Chairman, stated:
"The Group has seen a major reorientation of its business focus and has significantly diversified its range of products available to its
core customer base. Current business levels are ahead by 12% and we expect levels of trading in the current year to exceed market
expectations".
Paul Carter, CEO, commented on the results:
"Demand for DMPs, IVAs and PTDs is increasing almost daily as the Credit crunch bites, as such we are of the opinion that as the fall
out of the wider economy transpires, the need and requirement for our services in 2009 will be significantly increased".
Enquiries:
Paul Carter, Chief Executive Officer 0870 990 9714
Relax Group plc
Chris Steele 07979 604 687
Tarquin Edwards 020 7034 4758
Adventis Financial PR
Mark Percy 0207 107 8000
Seymour Pierce Limited
Relax Group plc
Results for the year ended 31 July 2008
Chairman's statement
I am pleased to report on an excellent set of results particularly as the Group has seen a major reorientation of its business focus and
has significantly diversified its range of products available to its core customer base. Current business levels are ahead by 12% and we
expect levels of trading in the current year to exceed market expectations. Additionally, when benchmarked against its peers, the Group has
performed well on all key indicators.
In particular, I am delighted by the performance in the second half posting an EBITDA before exceptional of �3m compared with a
break-even position in the first half. Whilst the second half performance was lifted by a number of factors, such as the acquisition of PB
Recovery and a general reduction in the level of consumer advertising following this, this rate of operating profit growth is expected to
continue, albeit at a slightly reduced rate, into 2009.
The past year has been dominated by a number of well publicised external changes within the IVA sector which had previously formed a
large part of the Group's business. The Group was under considerable pressure as fees were experiencing sharp reductions, payment timings
were being lengthened and a high percentage of applications were being rejected.
This necessitated a complete review of our business model which culminated in the closure of our Borehamwood, March, Southend and
Coulsden offices and the consolidation of these sites within our Chesterfield head-office as well as making 42 employees redundant. These
changes were successfully completed by the end of February this year and the full effects of which will not be felt until the second half of
2008.
We have been an active participant in the discussions which took place between lenders and the insolvency industry resulting in an
agreement on acceptable IVA criteria going forward. This agreement led to a recovery in the levels of IVAs agreed by creditors in subsequent
months.
In February 2008, we raised �2.73m in connection with the acquisition of PB Recovery adding additional volumes of PBTs, IVAs and corporate
work. The assets acquired were debtors and work in progress of approximately �1.9m with further potential contracted revenue of up to �2.1m.
These cases have now been successfully integrated into our Chesterfield and Aberdeen offices.
In May 2008, we completed on the purchase of the entire share capital of Relax Finance, our most significant acquisition to date, for a
total consideration of �3m in a mix of cash, loan notes and shares. Relax Finance is a respected loan and mortgage broker whose stated aim
is the delivery of hassle free solutions for customers and has the ability through its links to a number of intermediaries and financial
institutions to attract a large number of customers to the Group. Currently our customer contact centre is attracting circa 10,000 enquiries
per month with approximately 4,620 individuals being transferred through to the sales teams.
The combined Group has also been strengthened by the appointment of Ian Guy (Operations Director), Carl Kroger (Sales Director) and
Trevor Moore (Finance Director) to the Board, all of who were part of the senior management team of Relax Finance. In addition, the
acquisition brought considerable IT and operational benefits which has enabled the Group to focus more fully on operational performance.
This focus has already begun to show through in terms of profitability and cash inflows.
Barry Krite, the co-founder and Managing Director, left the Group at the time of the Relax Finance acquisition as part of his planned
retirement and we would like to thank Barry for all his work and commitment over the past 10 years to grow the business into the success it
is today. Barry and his family still retain a significant shareholding within the Group.
During May, Chris Steele was appointed as a Non-Executive Director. Chris spent some 20 years as a stockbroker, as a partner with Kitcat
& Aitken and then with County NatWest Wood Mackenzie before becoming a director of the Manchester Exchange Bank responsible principally for
the fund management division and for group compliance. He was also non executive chairman of Nikko Fraser Green Asset Management. Latterly
he founded City Insights, an investor relations consultancy and then worked in financial PR and corporate communications. We are delighted
to have the benefit of Chris' extensive analytical and M&A experience as we pursue our objective of actively seeking acquisition
opportunities during the industry's ongoing consolidation.
Richard Arden resigned from his role as Finance Director on completion of the acquisition of Relax Finance and we would like to thank
Richard for his contribution during his time with us.
I should like to thank the Chief Executive and all our staff for their hard work and commitment and we look forward to the future
development of the Group with great confidence.
Bernard Asher
Chairman
27 November 2008
Relax Group plc
Results for the year ended 31 July 2008
CEO's statement
As I indicated in our interim statement, market conditions for the debt advisory industry were extremely tough and required quick and
decisive action by management to reorganise the Group in the first half of the year. I am delighted to say that these changes, together with
the acquisitions of PB Recovery and Relax Finance, have had a major impact on the second half of the year. In addition, the current
favourable market conditions are making a positive impact on the Group's current trading performance and 2009 will be a very exciting time
for the Industry and the Group.
Trading overview
Our reported revenue for the year was �12.9m up from �11.6m in 2007, the increase principally coming from the inclusion of one month*s
contribution following the acquisition of Relax Finance. EBITDA before exceptional items was �3m compared to �3.6m in 2007. The fall in
EBITDA is largely down to the change in fee structures resulting in less profitability on IVAs. However, as mentioned elsewhere in these
statements, our volumes have increased significantly since the year end following the acquisition of Relax Finance. In addition, the
efficiency gains from IT infrastructure improvements, reorganising the Group into 2 main trading centres and refocusing our customer
acquisition strategies will further improve profitability levels going forward.
Current customer enquires remain strong with approximately 10,000 enquiries generated per month via our contact centre and enquiries
"Hot-keyed" via 3rd party relationships. These ultimately result in approximately 650 new clients each month; 250 DMPs, 150 IVAs and PTDs,
and 250 secured loans and mortgages.
Demand for DMPs, IVAs and PTDs is increasing almost daily as the Credit crunch bites and, despite the resulting negative impact on
secured loans and mortgages due to a lack of credit in the market, we are of the opinion that as the fall out of the Credit Crunch gathers
pace, the need and requirement for our services in 2009 will significantly increase.
As a result of this additional demand we have increased our staffing requirements in our customer call centre and sales team to 77
(2007: 24).
Our cash position has also improved and continues to do so as the critical mass gained from the P B Recovery acquisition takes effect.
As mentioned at the half year, we are looking to introduce additional services lines, such as debt management for Financial Institutions,
utilities switching, general insurance services and banking facilities. These programmes are progressing well and I look forward to
announcing further progress in the future. These, together with the existing core service lines, will complete our strategy of creating a
diversified financial group providing services to over-indebted individuals and we believe this strategy will provide significant
enhancement to shareholder value in the future.
Major changes
In October 2007, we announced the rationalisation and restructuring of the Group to improve its efficiency and effectiveness. This took
place between November 2007 and February 2008. Our rationalisation enabled us to concentrate on our core activities within central
processing centres in Chesterfield and Aberdeen in order to focus on operational effectiveness and in particular cash flow and
profitability. These changes were performed without any material impact upon our capacity to handle new and existing work, however, a charge
of �675,000 was incurred in relation to revising completed work from Neville Eckley and �162,000 of pipeline work was lost through the
closure of our Borehamwood office.
The rationalisation resulted in a reduction in staff numbers of around 42 staff and the closure of all of our offices outside
Chesterfield and Aberdeen. In total this rationalisation will produce savings of circa �2m per annum.
As part of the Group's strategy of consolidating the business into 2 key locations, Relax Finance will complete its move to Chesterfield
early in 2009. The Group has provided for move costs of �120,000 in the current year.
Acquisitions
In March 2008, we completed on the acquisition of the trade and assets of PB Recovery, the benefit of which has been felt in the second
half of the year. As part of the plan to derive value from the businesses acquired, all the offices acquired were merged into our existing
infrastructure culminating in 24 redundancies and the closure of 3 offices. Exceptional costs relating to this acquisition were �68,000 in
the year.
In May 2008, we also completed on our most significant acquisition to date with the purchase of Relax Finance. This business had a
number of strategic advantages and has given the Group a better balance to its revenue, earnings and cash flow.
The introduction of the Relax Finance management team to the Group has advanced a number of key strategies, the impact of which is felt
in the current trading period, namely:
* Leveraging off Relax Finance base of introducers to provide DMP, IVA and PTD leads. This has the added advantage of removing
uncertainty in the acquisition of customers by agreeing back-ended commission arrangements providing certainty of profits and improving cash
flow;
* Generating better returns from online marketing strategies through the Group's enlarged base of websites, affiliate links and
search engine optimisation;
* Merging the front-end customer contact centre into our Chesterfield operations which has significantly improved cross-selling
opportunities, conversion rates and call handling efficiencies;
* Further development and integration of the Group's database enabling technology and significant cross-selling opportunities based
on historical enquiries;
* Utilising Relax Finance's bespoke RAPS IT system to manage and control lead generation through engaged customer to commission/ fee
earned and third party commission arrangements which has significantly improved our ability to more closely manage the sales process and
improve efficiencies; and
Despite the lack of available credit to lend to individuals, the Group is currently averaging �3m per month of secured lending which
accounts for approximately 6% of the UK market and we believe we are well placed to increase our market share in the coming months.
The outlook for the Group is extremely positive and market conditions are providing an excellent back drop from which we believe we can
significantly grow our business operations over the next 3 years.
We look forward to the next year and the further progress of the Group and are confident we will exceed market expectations in respect
of profitability, growth and cash flow.
Paul Carter
Chief Executive Officer
27 November 2008
Relax Group plc
Group profit and loss account for the year to 31 July 2008
Group Group Group Group
Year ended Year ended Year ended Year ended
31 July 2008 31 July 2008 31 July 2008 31 July 2007
Before exceptional Exceptional items After exceptional
items items
�,000 �,000 �,000 �,000
Revenue 13,760 (837) 12,923 11,598
Direct Costs (3,168) - (3,168) (2,163)
Gross profit
10,592 (837) 9,755 9,435
Operating costs (7,588) (1,932) (9,520) (5,993)
Operating profits
3,004 (2,769) 235 3,442
Net finance (cost) (221) - (221) (22)
Profit before taxation
2,783 (2,769) 14 3,420
Income tax (income) /expense 8 - 8 (846)
Profit for the year
attributable to equity holders
of the parent
2,791 (2,769) 22 2,574
Earnings per share
Basic earnings per ordinary 11.64p 0.09p 13.05p
share
Diluted earnings per ordinary 11.64p 0.09p 13.04p
share
All transactions arise from continuing operations. There were no recognised gains or losses other then the profit for the year.
Debts.co.uk plc
Group consolidated balance sheet as at 31 July 2008
Group Group
restated
As at As at
31 July 2008 31 July 2007
�,000 �,000
Assets
Non-current assets
Property, plant and equipment 620 519
Intangible assets 9,318 1,908
9,938 2,427
Current Assets
Trade and other receivables 11,781 9,781
Cash and short term deposits 886 1,219
12,667 11,000
Total assets 22,605 13,427
Equity and liabilities
Equity attributable to equity holders of the
parent
Share capital 3,049 2,109
Share premium 8,708 5,527
Merger reserve (1,513) (1,513)
Retained earnings 3,337 3,316
13,581 9,439
Current liabilities
Trade and other payables 6,545 1,974
Corporate income tax payable 1,299 1,828
7,844 3,802
Liabilities due after one year 289 186
Provision for liabilities and charges 891 -
Total liabilities 9,024 3,988
Total equity and liabilities 22,605 13,427
Relax Group plc
Group consolidated cash flow statement for the year ended 31 July 2008
Group Group
Year ended Year ended
31 July 2008 31 July 2007
�,000 �,000
Cash flows from operating activities
Profit from operations 235 3,442
Depreciation of property, plant and equipment 151 386
Profit on disposal of property, plant and (8) (241)
equipment
Other non-cash movement 20 72
Operating cash flows before movement in working 398 3,659
capital
Increase in receivables (757) (6,676)
decrease in payables (654) (2)
Cash (used in) operations (1,013) (3,019)
Income taxes paid (648) -
Net cash (used in) operating activities (1,661) (3,019)
Cash flows from investing activities
Net interest (paid) (221) (8)
Acquisition of Neville Eckley & Co. (including - (402)
costs of �102,000)
Acquisition of Adie Financial Solutions Limited - (292)
(including costs of �87,000) net of cash acquired
of �195,000
Acquisition of Relax Finance (including costs of (1,623) -
�123,000)
Acquisition of P B Recovery (including costs of (1,314) -
�104,000)
Acquisition of property, plant and equipment (83) (1,173)
Disposal of property, plant and equipment 64 653
Acquisition of intangible fixed assets (2,390) -
Net cash used in investment activities (5,567) (1,222)
Cash flows from financing activities
Net increase /(decrease) in borrowings 2,485 (65)
Proceeds on issues of shares 4,230 1,631
Cost of share issue (109) (72)
Net Cash from financing activities 6,606 1,494
Net (decrease) in cash and cash equivalents (622) (2,747)
Cash and cash equivalents at 1 August 1,219 3,966
Cash and cash equivalents at 31 July 597 1,219
Relax Group plc
Statement of changes in equity for the year ended 31 July 2008
Share Capital Share Premium Merger Reserve Retained Earnings Total
�,000 �,000 �,000 �,000 �,000
Changes in equity for the year
to 31 July 2007
Profit for the year 2,574 2,574
Total recognised income and 2,574 2,574
expense for the year
Issue of share capital 165 1,566 1,731
Issue costs (72) (72)
Adjustment to reserves (72) (72)
Balance as at 31 July 2007 2,109 5,527 (1,513) 3,316 9,439
Changes in equity for the year
to 31 July 2008
Profit for the year 22 22
Total recognised income and 22 22
expense for the year
Issue of share capital 940 3,290 4,230
Issue costs (109) (109)
Balance as at 31 July 2008 3,049 8,708 (1,513) 3,337 13,581
Relax Group plc
Notes to the Preliminary Results for the year ended 31 July 2008
1. Accounting policies
Basis of preparation
The preliminary results for the year ended 31 July 2008 have been prepared in accordance with International Financial Reporting Standards
(*IFRS*) as adopted by the EU and are in line with the Group*s accounting policies, as stated in the Group*s 2007 Annual Report and
Accounts
The financial information set out above does not constitute the Company*s statutory accounts. Statutory accounts for 2007 have been
delivered to the registrar of companies. Those for the year ended 31 July 2008 are expected to be delivered in January 2009. The auditors
have not yet reported on the accounts for the year to 31 July 2008. Their report for 2007 was unqualified and did not contain statements
under section 237 (2) or (3) of the Companies Act 1985.
Databases
Following the acquisition of Relax Finance the Directors have reconsidered the company's accounting for databases. The cost of databases
has now been capitalised as an intangible fixed asset and comprises the fair value of databases acquired as part of a business combination
or the data purchase and data capture costs of internally developed databases. The Directors consider that this new policy better reflects
the value to the business of these assets and the treatment required by IAS 38.
Databases are held at cost and are amortised on a straight line basis over three to seven years following the year of acquisition.
Following the change in accounting policy, the comparative balance sheet as at 31 July 2007 has been restated resulting in an increase in
intangible fixed asset * databases by �900,000 and a resulting reduction in other debtors of �900,000.
2. Intangible fixed assets * Databases
Included within intangible fixed assets are databases with a carrying value of �4,500,000 of which �900,000 was restated from other debtors
(note 1) and �1,210,000 is the fair value of databases acquired with Relax Finance giving a net movement in the year of �2,390,000.
3. Acquisitions
In March 2008, the Group acquired the trade and assets of P B recovery for a total consideration, including costs of �104,000, of
�1.314,000. The fair value of net assets acquired totalled �916,000 resulting in goodwill acquired of �398,000.
In May 2008, the Company acquired the entire share capital of Relax Finance for a total consideration, including costs of �123,000, of
�3,123,000. The fair value of the net liabilities acquired totalled �289,000 resulting in goodwill acquired of �3,412,000.
Relax Group plc
Notes to the Preliminary Results for the year ended 31 July 2008
4. Earnings per share
a) Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average
number of ordinary shares in issue during the year. For comparison, we also calculate the basic earnings per share for the Company before
exceptional items.
b) Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of
all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares, these being share options. For
these share options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the
average annual market share price of the Company*s shares) based on the monetary value of the subscription rights attached to outstanding
share options. The number of shares calculated as above is compared with the number of shares that would have been in issued assuming the
exercise of the share options.
Group Group Group
Earnings Year ended31 Year ended31 July2008 Year ended31 July2007
July2008
Before exceptional After exceptional items�,000
items�,000
�,000
Basic EPS
Reported earnings (�,000) 2,791 22 2,574
Reported EPS 11.64p 0.09p 13.05p
Diluted EPS
Diluted reported earnings 2,791 22 2,574
(�,000)
Reported diluted EPS 11.64p 0.09p 13.04p
No. No. No.
Weighted average number of
ordinary shares:
For basic earnings per share 23,967,227 23,967,227 19,718,172
For dilutive earnings per 23,967,227 23,967,227 19,798,078
share
Relax Group plc
Notes to the Preliminary Results for the year ended 31 July 2008
�*000s
Provision created against onerous leases 771
Provision for moving Relax Finance to Chesterfield 120
Redundancy and office closure costs 686
Revision of work 675
Abandonment of pipeline work 162
Compensation for loss of office 355
Total exceptional items 2,769
6. Related party transactions All inter group transactions between Group companies have been
eliminated on consolidation. During the year, the Company engaged Olivine Partners LLP and Olivine Capital Partners Limited of which
Stuart Cumberland is a Member and Director, respectively, to undertake corporate finance and tax advisory services. Fees payable totalled
�184,000 in the year. At the 31 July 2008, a total of �20,656 was owed. During the year the Company incurred rent in respect of the
premises at Carter Place, Gisborne Close, Staveley, Chesterfield S43 3JT of which Paul Carter is the Landlord. The total cost of the rent in
the year was �261,981. At the 31 July 2008 a total of �538 was owed by Paul Carter. During the year the Company purchased security
guarding services, fuel charges and hire charges for an electricity generator totalling �85,025 due to the requirement for a temporary
electricity supply whilst an electric substation was completed. These charges ended on 31st December and no amount was outstanding at 31 July 2008. Paul Carter has used and is currently using
Jaybuild Projects Limited on a number of personal building projects including the current offices occupied by the Group in Chesterfield and
the transactions are considered to be related by virtue of the personal relationship of Paul Carter and Jaybuild Projects Limited. As part
of the acquisition of Relax Finance, the Company issued �300,000 in the form of unsecured loan notes which bear interest on the amount
outstanding at the Barclays Bank base rate, redeemable in 20 equal monthly instalments of �15,000 each, beginning in January 2009. Ian Guy
and Carl Kroger received �153,000 and �57,000 loan notes respectively. During the year no interest was paid to Ian and Carl respectively and
at the year end �153,000 and �57,000 was outstanding on the loan notes. The Company*s subsidiary Relax Finance Limited owed Ian Guy �33,694
and Carl Kroger �5,697 at the end of the year in respect of expenses incurred but not reimbursed. 7. Post balance sheet events There are no post balance sheet events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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