The Board is delighted to be able to announce today not only the Interim Results for the six months ended 31 October 2007 but also, in a separate announcement, the terms of a proposed issue of £50.0 million (gross) of unsecured convertible notes ("Convertible Notes").

The Board believes that the Company's share price has for some considerable time reflected market concerns as to whether it would defeat the Enforceability Challenge (referred to below) and whether the Group was appropriately funded given its recent and consequent working capital needs.   Assuming successful completion of the Convertible Note issue, the Board believes the Group will have the necessary financial resources in place to robustly pursue its aim of developing further a proven and profitable business model in a high growth market place.  

Upon successful pricing of the Convertible Note issue, it is the Board's intention to enter into an underwriting agreement with the book runner and lead manager of the Convertible Notes.   Satisfying the conversion rights attaching to the Convertible Notes by delivery of shares (as opposed to payment of cash settlement amounts) will be subject to the approval of shareholders in an Extraordinary General Meeting ("EGM"), notice of which is intended to be posted shortly.

The Board believes that it is now able to draw a clear line under what was a very challenging twelve month period and get back to 'business as usual'. With the legal certainty, infrastructure and financial resources expected to be in place, it can resume its aim of developing an expanding, profitable business with an objective of rebuilding shareholder value in a market where demand is growing.


The Enforceability Challenge and related cash flows

Senior management has worked relentlessly during the last twelve months to defeat the erroneous and misplaced legal challenge brought in respect of the enforceability of certain of the Group's terms and conditions of hire ("Enforceability Challenge"). During the six months ended 31 October 2007 these events have, in the Board's view, also affected trading levels. It is nevertheless pleasing to be able to report continued growth in revenue and market penetration, despite the difficult trading environment and absorption of management time dealing with the Enforceability Challenge and the related impact on cash flows.

The Enforceability Challenge represented a specific threat to the recoverability of certain of the Group's trade receivables "per se" and also cast a shadow over the standing and reputation of the Group with insurers. The Board believes that the consequent recoverability of a large portion of the Group's debtor book has been delayed for a considerable period of time to the detriment of cash flow (see later) but that the debtor book is fully recoverable.

The Board's expectation that the Enforceability Challenge would be defeated has now been realised by two recent and separate but definitive court judgments handed down in August and September. The dates by which appeals in these two cases could have been made passed shortly before the period end on 19 October 2007, without any such appeals having been made.

It is normal course of business within the credit hire industry that a process of litigation is used to collect those claims not paid in accordance with the General Terms of Agreement ("GTA"). The Board considers the ongoing threat of litigation and litigation itself, often on a claim-by-claim basis, to be an important component of the Group's ongoing strategy for claim settlement and cash collection.

Whilst facing the Enforceability Challenge the Board were advised and decided to delay the escalation of ordinary course litigation that had been planned to start in November 2006 until unequivocal legal clarification was gained on the issue of enforceability. Having defeated the Enforceability Challenge, we announced on 23 October 2007 that the Group's panel solicitors had been instructed to resume use of the litigation process fully as part of our ordinary day-to-day collection process.

Following the two successful judgments in respect of the Enforceability Challenge, a number of initiatives and strategic activities have been implemented with our panel lawyers with the aim of accelerating settlement on all cases where payment has not been received under the GTA (including £17.2 million of receivables now outstanding on claims which were previously referred to as "X" and "A" rental agreements which were the subject of the Enforceability Challenge). As at 31 October 2007 8,806 claims were threatened with or in the process of formal litigation (30 June 2007: 6,891 claims) with an aggregate claim value of £48.2 million. Of these claims, 2,874 related to "X" and "A" agreements. Using solicitors to threaten litigation or to actively litigate claims is at the heart of the expected improvement in cash flows that has been hindered over the last twelve months.

The Board has improving empirical evidence that the litigation process is now starting to deliver the returns we had anticipated twelve months ago; of 4,600 claims that have been forwarded to solicitors and settled to date, we can report that approximately 48% of those claims settled before proceedings were actually issued and a further 33% of the 4,600 claims which settled did so after the formal issue of proceedings but before a case went to trial.

Dialogue with some insurers in respect of the settlement of older cases has been encouraging and normal collection activity since 19 October has been improving but because we have solicitors dealing with claims on a claim by claim basis we expect the rate of ongoing collection improvement to be steady rather than rapid. As a result, having considered a number of potential financing options, we are today announcing the proposed issue of the Convertible Notes.

In response to the cash flow impact of the Enforceability Challenge in June 2007 we announced the refinancing and expansion of the working capital facilities available to the Group with a £45.0 million facility from Morgan Stanley Bank International Limited ("Morgan Stanley Facility") which was fully drawn down as at the period end. These facilities were used, inter alia , to repay an aggregate of £24.4 million in relation to a revolving credit facility and a six year term loan from the Group's previous bankers and provide additional working capital facilities. Cash at bank at the period end was £8.7 million.

Our imperatives for this financial year as announced in July 2007 were:

• to defeat the Enforceability Challenge and implement a robust day-to-day litigation process to drive improved cash flows; and
  
  
• to consolidate the Group's position in the vertical market of automotive sector referrals, improve the volume and profitability of existing accounts, the ratio of sales and profitability per employee and deliver reduced fleet ownership costs.

We believe the first of these priorities to be well progressed and we look forward to the challenge of improving profitability ratios in the automotive sector where we have a market leading position.


Market developments

The Group's position as the dominant supplier in the automotive referral sector remains. However, over the last twelve months the marketplace in which we operate has been influenced, and the total market opportunity expanded, by many insurers modifying their own business model to embrace credit hire in order to profit from the commission and relationship management opportunity available to them by referring their own non fault customers to credit hire companies.

The Board believes that the Enforceability Challenge has had a negative effect on our ability to win more of these tenders although we have recently secured a commercial agreement which is generating credit hire referral leads from one motor insurer. To achieve more success in these market segments, the Group needs to:

• continue to deliver innovative and creative solutions;
  
  
• demonstrate an appropriately funded business to its referral partners, both now and in the future;
  
  
• access additional working capital facilities to finance the process of collecting claims not settled within the GTA; and
  
  
• be sufficiently funded to finance further growth.

The Board believes that the proposed issue of the Convertible Notes announced today will aid these objectives.


Financial Performance

Revenue

Revenue for the six months ended 31 October 2007 rose 47% to £77.4 million (2006: £52.7 million).   Accident management and related services, primarily credit hire revenue ("Credit Hire Revenue") contributed £57.5 million (2006: £40.0 million) and our lower margin credit repair revenue totalled £19.9 million, up 57% on the comparable period (2006: £12.7 million).

Whilst significant investment in headcount made during the second half of last year affected revenue per employee during that period, the Group is beginning to reap the benefits of this investment with Credit Hire Revenue improving to £95,000 per head for the period (2006: £90,000).   Credit Hire Revenue growth of 44% reflects 514,000 rental days compared to 290,000 for the comparative period.   Prestige rental days increased to 285,000 (2006: 199,000) and mainstream rental days increased to 229,000 days (2006: 91,000).   The growth in lower margin mainstream rental days reflects certain large dealer account wins in the second half of last year as a result of which 45% of rental days were generated by mainstream vehicles in the current period compared to 31% in the comparative period.


Margins

Gross margin has reduced to 34.6% (2006: 39.8%) reflecting several factors:

• the evolution of the revenue mix and the relative growth of credit repair revenue compared to higher margin credit hire revenue;
  
  
• higher fleet depreciation charges as a result of the increase last year in the depreciation rate to 22.5% (2006: 20.0%);
  
  
• an increased adjustment to settlement estimation reflecting the uncertainties arising from the Enforceability Challenge;
  
  
• the evolution of the fleet mix and the relative higher proportion of mainstream rental days compared to prestige rental days which have higher margins; and
  
  
• the operational effects of changes in fleet utilisation and mix.

Credit repair revenue (which is a necessary driver of Credit Hire Revenue) accounted for 26% of revenue, up from 24% in 2006.   Credit repair margin of 5.2% was consistent with the prior period.   Whilst the Group has achieved significant growth in both Credit Hire Revenue and credit repair revenue during the period, the Board remains focused on re-establishing a higher proportion of prestige credit hire rental days to improve overall margins.

The impact of the changed depreciation rate is evidenced in that during the period 1,565 cars were sold at an average loss per unit of £210, compared to 721 vehicles at an average loss of £900 per unit in the comparative period.   The loss on disposals reported for the period of £0.3 million represents little more than 1% of the disposal value and just 3.0% of the £10.0 million of depreciation charged on motor vehicles in the period (2006: loss of £0.6 million representing 9.9% of the £6.5 million depreciation charged).


Fleet utilisation

Expansion of the rental fleet from 4,033 vehicles at 30 April 2007 to 4,999 at the period end (2006: 2,925) reflects rental day growth and capacity increase ahead of the seasonally busier second half of the year.   Fleet utilisation rates ranged across vehicle bands from 56% to 75% during the period and were slightly lower than the range of 58% to 79% for the whole of the year ended 30 April 2007.   This was in part a consequence of cash mitigating actions taken by the Board which affected revenue and therefore utilisation.

Management attention continues to be focused upon driving required improvement in utilisation through closer alignment of fleet volume and mix to the anticipated mix of referrals from our referral partners although this remains a medium term opportunity based on the continued growth in revenue activity.


Profit before tax

Profit before tax was £6.5 million (2006: £7.9 million).   Had the changes in the depreciation rate and settlement estimation which were put into effect at 30 April 2007 been applied at the time of the preparation of the results for the comparative period profit before tax for the comparative period last year would have been £6.6 million.

Adjusted profit before tax, stated before amortisation of acquired intangible assets, costs of share based payments and exceptional items was £8.6 million.   Adjusted profit before tax for the comparative period was £9.4 million. This would have been £8.1 million had the revised depreciation and settlement estimation bases been applied to the comparative period last year.

Legal expenses of approximately £0.5 million have been incurred and expensed in the period in relation to the Enforceability Challenge.   These costs are expected to be recovered in the second half of the year.

An effective tax rate of 30.8% (2006: 32.9%) has been estimated for the current financial year and applied to the profit before tax for the half year.   The comparative effective rate of 32.9% reflects a greater proportion of non-tax deductible costs incurred in the comparative period, including exceptional administrative expenses incurred in connection with admission to the Official List.

Basic earnings per share was 6.3 pence per share (2006: 8.0 pence per share) and adjusted earnings per share (before amortisation of acquired intangible assets, costs of share based payments and exceptional items) was 8.4 pence per share (2006: 9.4 pence per share).


Net debt and cash flows

As at 31 October 2007 the Morgan Stanley Facility was fully drawn down and cash at bank was £8.7 million, increasing to £10.1 million shortly after the period end following the receipt of a net £1.4 million being gross sale proceeds of £2.5 million due on cars sold in the last week of the period and on which £1.1 million of related finance lease obligation was also settled after the period end.   With this receipt our headroom against available facilities as at 31 October 2007 was £10.1 million and our net debt (excluding finance lease obligations and after the offset of £1.6 million of unamortised debt issue costs) was £35.8 million (2006: £1.3 million).   Total net debt (including finance lease obligations of £88.1 million (2006: £72.0 million)) was £123.9 million with the above receipt (2006: £73.3 million) reflecting the expansion of the fleet as referred to earlier.

Net cash inflow from operating activities for the six months ended 31 October 2007 is down materially at £3.6 million compared to the cash inflow of £10.1 million for the comparative period.   The comparative period to 31 October 2006 was, in the Board's opinion, the last period that was unaffected by the Enforceability Challenge and the Board considers that the reduced inflow for the current period reflects the substantial impact of the Enforceability Challenge on claim settlement and the consequent absorption of working capital into trade receivables.   Note 11 discloses the increase in trade and other receivables to be £14.3 million (2006: £9.1 million) though this is after the netting off of £8.1 million (2006: 6.0 million) in VAT (see below) recovered on fleet additions.   Excluding these VAT cash receipts the absorption of cash into trade receivables was £22.4 million (2006: 15.1 million).

This shows the significant absorption of cash into trade and other receivables which is also reflected in an increase of overall debtor days from 149 as at 31 October 2006 to 203 as at 31 October 2007 (176 as at 30 April 2007).   The vigorous efforts now being placed on claim settlement is expected to improve this ratio going forward.   For completeness the fleet related cash flows comprise the following:

Other cash flows contained within the Consolidated Cash Flow Statement reflect the receipt of borrowings from the Morgan Stanley Facility of £45.0 million.   These facilities were used in part to repay an aggregate of £24.4 million in relation to a revolving credit facility and a six year term loan from the Group's previous bankers.   Other capital expenditure of £1.2 million was incurred primarily on IT investment in relation to headcount expansion and infrastructure improvement at the Group's Alpha 1 main distribution and administration centre.   The final dividend for the year ended 30 April 2007 absorbed £1.1 million (2006: £1.3 million) and corporation tax payments were £1.0 million (2006: £0.6 million).   Net interest of £0.8 million (2006: £0.4 million) was paid on the Group's bank indebtedness.


Balance Sheet

The main element of capital expenditure of £44.4 million related to growth in the vehicle fleet with 2,116 vehicles added at a capital (VAT exclusive) cost of £43.5 million, funded through VAT inclusive finance leases.   During the period 1,565 vehicles were sold for net proceeds of £23.8 million of which £2.1 million (£2.5 million including VAT) was received shortly after the period end.   Other capital expenditure included completion of the fit-out of our Alpha 1 headquarters, IT equipment and office fixtures and fittings.   Claims in progress of £14.3 million (2006: £12.0 million) reflects both the growth in the business and a shortening of the time taken to "invoice" closed claims such that the number of days' sales represented by claims in progress has reduced from 53 days as at 31 October 2006 to 44 days.


Dividends

The Board is deferring its recommendation in respect of an interim dividend until the conclusion of the EGM.   The Company's dividend policy continues to target paying an annual dividend of approximately 1/6 th of adjusted EPS.


Board

On 23 October 2007 the Board announced that Daksh Gupta, Chief Operating Officer, had tendered his resignation and that it had been accepted with immediate effect.   The role of Chief Operating Officer is not currently intended to be replaced as the Group's senior management team has been strengthened and expanded considerably over the last twelve months.   The department heads of the key business units will now report directly to the Chief Executive, Steve Evans, who is now able, with the Enforceability Challenge defeated, to devote considerably more of his time to operational aspects of the business.


Principal business risks

A number of risks faced by the Group that could affect its performance in the remainder of the financial year are set out in this Interim Report and in particular in Note 1 "Basis of preparation" to the financial information included herein.   Other risks faced by the business include dependence on key personnel, operational risks and systems, financing risks, risks associated with referring partners, environmental risks, competition, legal risks, insurance industry protocols, the nature of receivables, regulatory risks, difficulty assessing the business of the Group, seasonality, fleet costs and efficiency (including suppliers, the price of new vehicles and utilisation of the fleet), the residual value of rental vehicles and interest rates.


The Convertible Notes

The Board is also announcing today that it intends to make an offering of £50.0 million principal amount of Convertible Notes to international institutional investors (the "Offering").   The Company intends to use the proceeds of the Offering to repay £5.0 million of the Company's existing secured facility and to provide additional working capital facilities to the Company and its subsidiaries.

The Board expects to enter into an underwriting agreement with the lead manager of the convertible offering upon successful pricing of the Offering, at which time the Board also expects to issue further details in respect of the pricing at which such Offering will take place.   The Company expects to issue a circular to shareholders later this week which will also give notice of an Extraordinary General Meeting at which, inter alia , certain resolutions necessary to enable the Company to deliver shares (rather than pay cash sums) to Noteholders upon exercise by them of conversion rights will be proposed ("Circular").   It is intended that undertakings to vote in favour of these resolutions will be given by the Board in respect of 46.21% of the Company's issued share capital.

The Company will be making a statement in the Circular that in its opinion, taking into account the net proceeds of the issue of the Convertible Notes, it will have sufficient working capital for its present requirements, that is for at least the next twelve months from the date of that document.

If the Company is unable to proceed with the proposed issue of the Convertible Notes it would however need to put in place immediate alternative measures to manage the business, so far as possible, within the working capital facilities available to it.   These measures would principally include, from a non operational perspective, that of seeking alternative funding and, from an operational perspective, inter alia, the agreement of block settlements and compromised litigated claims at higher discount rates than otherwise may need to be the case,

Whilst the Board is confident that these operational measures would be effective from a working capital perspective there can be no certainty that they would be adequate to remain within the working capital facilities currently available to the Group.   Furthermore it is likely that any combination of these operational measures would have a material adverse impact on the profitability of the Group and its future growth plans.


Outlook

The Enforceability Challenge absorbed a significant amount of management time over the last twelve months and, in the Board's view, caused a material and adverse effect on both trading levels and cash flows.   Having emphatically defeated this challenge towards the very end of the half year period, the Group is continuing a robust litigation process to drive an expected improvement in cash flows in the second half and beyond.

Despite the difficult trading environment, credit hire and credit repair activity has shown continued growth and efforts are ongoing to improve the volume and relative proportion of prestige referrals and rental days and thereby to achieve an improved fleet mix and utilisation, the benefits of which are expected to be seen during the normally seasonally strong second half of the financial year.