Mike Johnson, chairman of 1pm Plc has had much to answer for on
behalf of the Bath-based small ticket lessor.
A year and a half since the company went public on AIM it wrote
off over £480,000 in bad debts, its stock price still huddles below
the IPO price of 2p and its original sub-prime business model has
turned out to be unfeasible.
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“I don’t think the shareholders are particularly ecstatic about
it,” Johnson admits. “But we’ve put a plan together, restructured
the board and brought on experienced people.”
Eager to cast away any association with the old 1pm, Johnson is
now ready to steer this once sinking ship out of troubled waters.
Calling on experience and relationships built throughout his
30-year career in leasing, he tells Leasing Life that 1pm is on
course for sustainable profit.
Evidence of 1pm’s turnaround is at least showing in the
financial results. Last month 1pm reported a return to profit,
netting £24,000 for its shareholders.
The financial improvements were the result of a tactical
decision to exit the sub-prime leasing sector, which 1pm had been
ill-equipped to manage, Johnson says.
Brought in as non-executive chairman by 1pm’s co-founders,
Anthony Williams and John Stickley, three months after it floated,
Johnson was mandated to mend the cracks in the business, which by
September 2006 had begun to show.
“It took me from November to February to do the due diligence to
establish what the problems were and in February 07 I spelt it out
to the founder shareholders,” says Johnson who has since acquired a
9.13 per cent stake in 1pm and has been reappointed as executive
chairman.
Dropping the “sub” for prime
With its high-risk customer base and lack of knowledge and
infrastructure to manage collections, it was only a matter of time
before delinquencies ran out of control.
In Johnson’s words, the old way of business at 1pm was
essentially to lend to people with a tarnished credit history and
then “crossing your fingers in the hope that they’ll pay you
back”.
“Subprime to a certainty is okay if you’ve got people with adverse
credit history but with a desire to pay. But if you’ve got an
adverse credit history and no desire to pay then you’ve got a
problem and that was really the crux of the matter,” he
explains.
At its best, the subprime business yields high returns. In its
heady days, 1pm had charged customers an effective interest rate of
30 per cent on average. With its new conservative focus, net
margins are predictably narrower these days although still a
lucrative 6 to 7 per cent on average.
Sticking to tried and tested measures, Johnson has refocused 1pm
on financing prime customers with impeccable credit histories.
Credit checks on potential customers don’t just stop at the company
in question but extend to the personal credit history of its
owners.
One of the pre-requisites of a potential lessee is that the owners
of the business must own and live in their homes, an effective if
somewhat rigid, risk management strategy.
“We don’t lend to tenants. If someone lives in rented property and
moves on and he doesn’t pay we’ll have a hell of a job finding
him.”
Things are looking brighter for the company which has kept to
its original strategy of relying purely on a network of brokers to
originate business. 1pm is writing in excess of £300,000 in new
business a month while its collections department, according to
Johnson, is showing great progress in recovering those bad
debts.
Shake-up
Last October, Stickley and Williams resigned from the board,
although both still hold substantial stakes. The board also made
some new appointments, notably Maria-Louise Hampton, who was
promoted to operations director and has been described as
instrumental in the restructuring of 1pm.
Along with the shake-up, was a share placement to recapitalise
the firm which raised £675,000 in new equity. Shareholders’ funds
now total £1.5m. Johnson and two other directors, Paul Connell and
Rodney Channon have a combined stake of 27.4 per cent in the
firm.
The strengthened balance sheet has enabled 1pm to secure new
credit lines of about £850,000 from its funders.
But 1pm is not completely out of the woods. It has plans to
raise a further £1m in equity through another exercise which
Johnson hopes to close no later than the third quarter.
Certainly, additional equity gives confidence to not just its
funders, with whom 1pm intends to negotiate for additional credit
facilities, but also ordinary investors. Its interim balance sheet
shows that total debt was 1.3 times its shareholders’ funds and
that it had £1.3m in debts falling due within a year.
Another raft of bad debts could as easily wipe out much of its
equity, although 1pm thinks this unlikely. The high level of
short-term debt is a typical feature of small leasing companies who
make use of block-discounting facilities to fund their operations.
Johnson explains.
“We’re looking to maintain control over the balance sheet and
give our funders the level of comfort they need and also enable us
to make the profit we desire,” Johnson said.
Unperturbed by the suggestion of an economic slowdown, Johnson
expects 1pm’s services to be in greater demand in this difficult
period as small companies turn to specialised financiers for their
capital needs.
“We’re not planning to do anything clever or sensational, we’ve
gone right back to basics and become a very boring run-of-the-mill
leasing company but very successful.”
1pm’s path to profit
• Write-off bad debts £482,518
• Exit sub prime market
• Replace broker network
• Tighten credit sanctioning process
• Improve collections
• Raise £675,000 in equity and possibly £1m more
• Restructure board
• Negotiate more funding lines
So far so good: key financial figures in
£’000
6-mth ended Nov ‘07 FY ended May ’07 (restated under
IFRS)
Turnover 396 872
Net profit/(loss) 24 (140)
Shareholders’ funds 1,487 831
