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Tough year at Accident Exchange blamed on legal test cases

Accident Exchange is focused on improving cashflow and increasing its profitability after an “exceptionally difficult year” that saw profit before tax dip by £1.5 million.

Legal challenges by solicitors against its terms and conditions led to a huge jump in debtor days, leading to a refinancing of the group through securing a £45m working capital provision and an issue of £50m in convertible notes.

Nevertheless, 41% growth in revenue is an indication that of the strong relationships with its credit hire referrers, including franchised dealers, bodyshops and vehicle manufacturers, said non-executive chairman David Galloway.

He said the board is confident of further growth and improving cashflow.

"The demand for the services we offer continues to grow and we see further opportunities working more closely with existing referrers, vehicle manufacturers and other referral sources and from new product initiatives that are being marketed for the first time.

"We have a strong management team, a market place which is continuing to grow and a strong balance sheet," Galloway added.

New focus is on recovering debts. The legal challenges affected cashflow, leading debtor days to climb to 227 as at April 30 2008, however now any claims exceeding 120 days are automatically referred to the group’s legal team for litigation.

Cash collected from insurers during the period grew to £133m from £87m in the previous year.

Rentals increased by 10,000 made 41,000 customers, and rental days increased to 1.1 million from 700,000 the previous year, although a growing proportion of these were for less profitable mainstream vehicles as opposed to higher margin prestige rentals.

“Operationally we are now expecting to see the benefits of scale come through in reduced vehicle costs, for example, as manufacturers increase their level of support and also in terms of a lower rate of headcount increase.

“The leadership skills of the senior management team, together with in-house IT system enhancements, have improved processes in the key operational aspects of the business in the year.

The benefits of this, particularly in cash collection processes, are now starting to be seen,” said Galloway.

Financial highlights:

  • Revenue: up 41% to £165.1 million (2007: £116.9 million).
  • Profit before taxation: £12.1 million (2007: £13.6 million).
  • Adjusted profit before taxation: £16.1 million (2007: £18.0 million).
  • EPS: 11.7p (2007: 13.2p); adjusted* EPS: 16.3p (2007: 18.2p).
  • Raised £46.6 million net of expenses from the issue of £50.0 million 5.50% unsecured convertible notes due 2013.
  • Cash at bank £27.0 million (2007: £6.9 million); working capital headroom against bank facilities: £37.0 million (2007: £6.9 million).
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