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Quindell PLC (WTG)

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Wednesday 05 August, 2015

Quindell PLC

2014 Results Announcement - Part 1

RNS Number : 1746V
Quindell PLC
05 August 2015
 



5 August 2015

 

Quindell Plc

("Quindell" or the "Company" or the "Group")

 Results and publication of Report and Accounts for the year ended 31 December 2014

Current trading and outlook and information on business units

Corrections and clarifications to previous disclosures

 

The Company announces

 

·     in Part 1: the Group's results for the year ended 31 December 2014. A full version of the Report and Accounts for the year ended 31 December 2014 is available at http://www.quindell.com/investors/results-presentations/;

 

·     in Part 2: information on current trading, outlook and information on the ongoing business units; and

 

·     in Part 3: Corrections, additional information and clarifications to historic regulatory and other announcements.

 

Shareholders should consider all of the information set out in this announcement prior to making any investment decision in relation to the Company and should note that only the Financial Statement section set out in Part 1 has been audited by the Company's auditor.

 

The Company has requested that its shares be restored to trading and expects the suspension to be lifted at 7.30am on 6 August 2015 and for trading to resume at 8.00am on that day.

 

Please Click Below to download the full Annual Report as a PDF

http://www.rns-pdf.londonstockexchange.com/rns/1746V_-2015-8-5.pdf

 

For further information:

Quindell Plc

Tel: 01489 864 200

Richard Rose, Non-executive Chairman


Mark Williams, Finance Director


Stephen Joseph, Head of Investor Relations




Tulchan Communications

Tel: 020 7353 4200

Tom Buchanan


Victoria Huxster




Cenkos Securities plc, Nominated Adviser and broker

Tel: 020 7397 8900

Stephen Keys


Mark Connelly


Part 1

Group results for the year ended 31 December 2014

Set out below are the Group's results and financial statements for the year ended 31 December 2014 which have been extracted from the Report and Accounts for the year ended 31 December 2014, a full version of which is available at http://www.quindell.com/investors/results-presentations/.

 

Key Summary

 

•              Completed thorough review of the historic accounts, M&A and previous public disclosures

 

•              Disposal of the PSD concluded after the year end

 

•              Group now has a strong balance sheet with approximately £535m in cash on deposit (as at 31 July 2015), with £55m in escrow accounts

 

•              Capital distribution of at least £1 per ordinary share targetted for Autumn 2015 subject to Court approval

 

•              Now a more focused, technology-led business operating in exciting and high growth sectors

 

•              New Board (with new Group CEO appointment imminent), new reporting structures and a commitment to strong governance and developing a business strategy to optimise shareholder value

 

Chairman's Report

2014 and the start of 2015 has been a challenging period for Quindell. I am pleased to say that the new Board has made significant progress in consigning the events of 2014 to the past and is well advanced in creating a solid base for the future.

A variety of factors led the business to become destabilised. Investor trust in the Company and its Board was eroded and it became clear that decisive action was necessary to bring stability back to Quindell and rebuild the confidence of employees, investors, regulators, customers and suppliers alike. A great deal has been done in a short space of time to turn the tide, and I am confident in the Company's long-term future and the potential of our businesses.

In addition to my appointment as Non-executive Chairman, we have introduced a number of new Non- executive Directors to the Company. The new Board is structured with the right level of seniority, skill, independence and governance credentials to provide the highest level of oversight. Allied to this, we have also changed the executive Directors. Mark Williams, a strong and experienced Group Finance Director is now in place and Stefan Borson, Group General Counsel, has also taken on the role of Company Secretary. We expect to announce the appointment of our new Group Chief Executive in the near future.

In December 2014, Non-executive Director and former Non-Executive Interim Chairman, David Currie engaged advisers including PricewaterhouseCoopers LLP ("PwC") to assist the Company's management in its review of the cash flows, business plans and main accounting policies that were in operation under the Company's previous management. With the Board, I worked closely with these advisers to manage the process and we have acted on their observations. In view of this, and in co- operation with the Financial Reporting Council ("FRC") and the Company's Auditor, KPMG LLP ("KPMG"), the new Board has taken a more conservative view of the Group's accounting policies and, as a result, has presented some past transactions differently. Combined with the acquisitions made in the year and subsequent disposal of the Professional Services Division ("PSD"), this has created a very complex set of accounts. I am now confident that our accounting policies are appropriate and the financial control environment is significantly improved.

On 30 March 2015, we announced that an agreement had been reached with Slater and Gordon Limited ("S&G") to dispose of the PSD and on 29 May 2015, the transaction formally completed. As well as reducing the complexity of the Group, and allowing the new Board an appropriate platform on which to develop a focused, technology-led strategy, the sale brought substantial cash onto our balance sheet and de-risked the business. As at 31 July 2015, the Company has approximately £535.0m in cash on deposit with a further £55.0m in temporary escrow accounts, with no material debt. We are confident that the open and detailed due diligence process in respect of the disposal will ensure that all of the £50.0m currently reserved in a joint escrow account for any warranty claims will be released in November 2016.

As previously announced, the Board also commenced a review to go alongside the audit of a number of the Company's historical transactions and acquisitions. This work has provided additional information in relation to these transactions and acquisitions which we include in these Financial Statements including further disclosure in respect of related party transactions. In addition, we have also published a number of corrections and clarifications in a separate announcement.

After the year end, on 23 June 2015, we were informed that the Financial Conduct Authority ("FCA") had commenced an investigation into the public statements made regarding the financial results of the Company during 2013 and 2014. Given the intense public speculation on this subject, the launch of this investigation was not a surprise and we will, of course, co-operate fully with the FCA. We intend to set up internal structures to separate the FCA investigation from our operating businesses to ensure we can deliver shareholder value without the distraction of reviews of the past.

Given the scale of change that we have experienced it is important to reiterate our belief that the businesses that remain following the disposal of the PSD have good potential in attractive sectors. We will mandate the new Group Chief Executive Officer to lead a review of our businesses and develop a business strategy, resource base and way of working to optimise shareholder value.

In respect of a capital return to shareholders, the first step will be for a full scope review of our interim Financial Statements for the period ended 30 June 2015 to be undertaken by our Auditor. KPMG will be proposed for reappointment as Auditor at the AGM. A capital return will require both the approval of shareholders and Court approval for a capital reduction and to create distributable reserves. This is a necessary step before we can make a return of capital and to commence any share buy back (if deemed appropriate). The amount of any return to shareholders will be determined at that time and, in deciding the appropriate quantum to be distributed, the Board will need to ensure the interests of creditors are adequately safeguarded (including in respect of any contingent liabilities). An appropriate amount will also be held in reserve for developing and growing our businesses.

Taking account of these requirements, the current desire of the Board remains to make a capital distribution of at least £1 per ordinary share. We also expect to receive substantial contingent consideration in respect of the sale of the PSD (a valuation of approximately £40.0m is detailed in the Strategic Report) and a release of the warranty escrow of £50.0m in November 2016.

I'd like to take this opportunity to thank all of our employees, who have continued to deliver their best work under very stressful and trying circumstances, and our investors for supporting the Company and allowing us the space and time to implement some necessary changes throughout the entire Company.

We have made huge progress in the last few months and we now have more than half a billion pounds in cash in the bank, exciting businesses in attractive sectors as well as potential for substantial deferred proceeds from the disposal of the PSD. We have some exciting opportunities to create value in our remaining businesses, and we are committed to deploy resources and energy to maximise such potential.

We now need to put the past behind us and get on with the job in hand and the team is determined to do so.

I thank our shareholders for their continued support.

Richard Rose

Non-executive Chairman

 

Strategic Report

1. Business Review

1.1 About Quindell

 

Quindell is a technology focused organisation with businesses primarily serving the insurance sector. We either deliver technology solutions or utilise technology in providing services that our customers need. We own and invest in companies that are, and are capable of, growing both in their scale and profitability.

In the UK and North America, we offer insurance technology solutions. Himex Limited ("Himex") and Quindell Solutions, Inc ("QSI") provide a usage based insurance offering, via telematics, to the major US and Canadian insurance companies, allowing them to improve their rating capabilities while enhancing their market competitiveness and their customers' insurance experience. These markets are early stage and allow for rapid profitable growth. In the UK, our Road Angel products assist in safer driving by alerting drivers to the presence of speed and safety cameras. Ingenie Limited ("Ingenie") in the UK, and increasingly in North America, is a cost effective way for new drivers to get insured by monitoring and recording their driving activities such that safe driving is rewarded by lower premiums from our partner providers. Through Quindell Enterprise Technology Solutions Limited ("QETS"), we offer insurance companies a full software solution, from policy take on to claims notification, via telematics, to claims management.

In Canada, we have one of the largest physiotherapy and rehabilitation services, PT Healthcare Solutions Corp ("PT Health"). Combining our insurance industry knowledge with the efficient use of technology, this service will be leveraged further. Quintica Group ("Quintica") is a technology services provider to telecoms companies operating in emerging markets. In the UK, Quindell Property Services ("QPS") provides and installs solar panels and cavity wall insulation to both the domestic and business customer. Business Advisory Services is an energy switching broker which helps its UK business customers obtain the most cost effective electricity supply. Maine Finance identifies appropriate life assurance solutions for UK customers, often through its QuoteSupermarket.com brand.

At the corporate level, we are a group that operates to the highest ethical standards, implementing good governance throughout our organisation.

1.2 Overview of 2014

The year ended 31 December 2014 was characterised by a number of operational and financial challenges for the Group in coping with its rapid growth both organically and through acquisition. These challenges included working capital issues and, towards the end of the year, the decision to make a strategic change in direction. This culminated with the decision to dispose of the PSD and focus the Group's future on its digital solutions businesses.

Within the PSD, Quindell Legal Services ("QLS") continued its focus on acquiring noise induced hearing loss ("NIHL") cases and acquired a further 62,000 such cases (2013: 4,000 cases). This increase in case intake was working capital intensive, absorbing approximately £71.0m of cash during 2014. This rapid growth was not matched by sufficient additional claims processing capacity and the overall progression of cases was slower than expected.

On 8 December 2014, the Board announced that in conjunction and consultation with its bankers, advisers including PwC were engaged to assist management in its review of cash flows, business plans and of the main accounting policies that were in operation under the Company's previous management. The Board has acted on the recommendations and observations reported to management by those advisers.

On 31 December 2014, following the conduct of preliminary discussions, the Group entered into an exclusivity arrangement with S&G in respect of the potential disposal of the PSD and secured an advance payment.

1.3 Overview of Financial Statements

The Financial Statements are necessarily very complex. The Board has attempted to provide in-depth disclosure on relevant accounting issues, making adjustments where appropriate, whilst complying with accounting regulations.

An overview of the main factors which have influenced the Financial Statements are:

·     Revision of accounting policies: This has necessitated restating the accounts for the years ended 31 December 2012 and 2013, the impact of which has been to reduce reported net assets, revenues and profits for those periods as well as for 2014.

·     Treatment of the PSD as an asset held for sale at the year end and its results as a discontinued operation: This treatment shows the figures relating to the PSD clearly separated from the Group's continuing businesses. This treatment reflects the Board having conducted negotiations with S&G during 2014 and having entered into an exclusivity agreement in December 2014 with a view to concluding the disposal.

·     Acquisitions and disposals of businesses in 2014: The Group made a number of acquisitions during 2014 and the accounting is complex given the "stepped" acquisition of control of some of those acquisitions and change in their status from associate to subsidiary. In addition, the Board has reviewed the resulting acquisition values and considered whether those values should be impaired. A number of impairment charges have been made.

·     Revisions to the treatment of acquisitions and investments made prior to 2014: The Board has reviewed a number of the Group's historical transactions and acquisitions with a view to ensuring that the accounting for their acquisition was correct. A number of revisions to the accounting treatment have been made. Some of the revisions affect only the treatment in the Consolidated Statement of Financial Position, others also reduce the profit which was reported for the relevant period.

·     Revisions to revenues and profits made by companies subsequently acquired by the Group: The treatment of some revenues and their associated profit, which were reported in prior periods has been revised where evidence has suggested that they should be more correctly accounted for as part of the acquisition accounting.

·     Related party transactions: Certain transactions with related parties are required to be disclosed under accounting regulations. Full disclosure has been made for 2014 and further disclosures have been made for prior periods, notwithstanding some ambiguities set out above.

The gain on the disposal of the PSD is not included in the results for the year, as the sale took place after the year end.

Further commentary on these issues is set out below. However, shareholders' attention is particularly drawn to note 3 to the Financial Statements, which provides detailed disclosures and an assessment of the effect of these revisions to the published 2012 and 2013 accounts as well as on 2014.

Basis of preparation: note 2 to the Financial Statements explains the basis on which Financial Statements have been prepared and, together with the Auditor's Report, includes information which is important to understand in reading these Financial Statements. As explained in note 2 to the Financial Statements, these Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and IFRIC interpretations adopted by the European Union ("EU"). The Financial Statements have been prepared under the historical cost convention. A summary of the significant Group accounting policies, which have been applied consistently across the Group, is set out below. The Group has reviewed its accounting policies in accordance with IAS 8 and determined that they are appropriate for the Group and have been consistently applied. The Group has adopted a revised revenue recognition policy in respect of its Services Division, as described in note 3 to the Financial Statements.

In preparing these Financial Statements the Board has taken into account all available information in the application of its accounting policies and in forming judgments. The Board has undertaken extensive investigations of historical transactions which appear to be unusual and/or with related parties using significant third party legal and accounting support. Nevertheless, although we have had discussions with certain members of the previous management team, there are a number of limitations in the information available which lead to unresolvable ambiguities in analysing the substance of certain historical acquisitions, revenue and share transactions in respect of 2011, 2012, 2013 and 2014, where the intention or commercial purpose cannot now be verified and/or in assessing the fair value to apply to certain of these transactions, as a result of weaknesses in the books and records maintained by the Company. It is also possible that there are transactions into which the Group has entered of which we are unaware. The Board would expect any such transactions affecting the 2014 statement of financial position, if material, to have been identified during the course of preparation of the Financial Statements and related work, but notes the possibility that additional related party transactions may exist which would need to be disclosed.

As set out in note 3 to the Financial Statements, the Board has revised the accounting treatment and/or fair values attributed to a number of these transactions which, based on the information now available, some of which was not made available or considered in the past, the Board now considers were accounted for incorrectly or where we have been unable to establish a reliable fair value. In the absence of further information or discussion with former management to remove any ambiguity behind these transactions, the Board considers the revised accounting to be the most appropriate presentation. Where there remain limitations to the information or ambiguities, the Board has taken an appropriately prudent view in assessing the recognition and valuation of assets and liabilities as at 31 December 2014. As a result, whilst it cannot be ruled out that there are transactions that should be reflected in the Statement of Financial position at that date of which the Board is unaware, the Board is satisfied that the Statement of Financial Position at 31 December 2014 is presented fairly in all material respects.

The Board is thus satisfied that the Financial Statements give a true and fair view of the assets, liabilities, financial position and loss for the year.

Auditor's opinion: The Auditor's opinion should be read in full and is referred to in Note 1 to the Financial Statements.

The Auditor has reported on these accounts and their report is qualified in respect of a limitation in the scope of their work and contains statements under section 498 (2) and (3) of the Companies Act 2006, concerning the keeping of adequate books and records and the provision of information and explanations that the auditor considered necessary for the purpose of their audit. It does not include a reference to any matters to which the auditor drew attention by way of emphasis.

1.4 Revision of accounting policies and prior year adjustments

The Board engaged advisers, including PwC, to assist management in its review of the appropriateness of the accounting policies in relation to revenue recognition for the PSD.

Also during the year, the FRC began a corporate reporting review, raising a number of enquiries in respect of the Financial Statements for the year ended 31 December 2012. This review ultimately focused around three primary areas: revenue recognition across the PSD; certain aspects of acquisition accounting; and certain transactions in its own shares.

In light of the FRC enquiry and the observations reported to management by its advisers, the Board has undertaken a detailed analysis of the Group's accounting policies and has made a number of revisions, having identified that certain of the policies recognising revenue and deferring case acquisition costs were largely acceptable but were at the aggressive end of acceptable practice. The review also identified that certain policies and their application were not appropriate, principally those relating to the noise induced hearing loss ("NIHL") cases revenue and related balances which became significant during 2014 In particular, the Group has co-operated with the FRC in considering any revisions required to the Financial Statements and accounting policies in order to address their concerns. These have been reflected in the Financial Statements presented. The primary revisions relating to accounting policies are in respect of the point of initial revenue recognition and its measurement and marketing costs. As part of these processes, management and its advisers held regular discussions with KPMG.

The Board decided that a more appropriate and conservative approach to accounting for revenues and, therefore, profits would be to recognise revenues at a later stage. The Board has decided to achieve this by changing the policy for revenue recognition throughout the PSD, also effectively addressing the inappropriate application of those previous policies to NIHL cases and related balances. The Board has not reviewed in detail the judgements and estimates made in the previous policy, neither has the Board formed a different view as to the economic model of the PSD.

As permitted under IAS 18, we have moved revenue and profit recognition to later in the client service cycle. Revenues and profits are now recognised, in the majority of cases, when liability is admitted by the at-fault insurer. Related costs are expensed as incurred, specifically marketing costs which had previously been deferred and expensed only as cases reported revenues and profits. Admission of liability is now generally considered to be at settlement of the case and is typically followed shortly thereafter by the invoicing and receipt of cash. The impact of these revisions has been to reduce reported net assets, revenues and profits for the 2013 and 2014 reporting periods. There remains only very limited work in progress in QLS as a result of the restatements.

A summary of the impacts of accounting policy revisions (which are attributable to discontinued activities only) on the Group's results as prepared under the old accounting policies is shown below, with full details in note 3 to the Financial Statements

Discontinued activities only

2014

Old

accounting

policies

£'000

2014

Revisions in

accounting

policy

£'000

2014

Proforma

 

 

£'000

Revenue

510,323

(289,783)

220,540

EBITDA

200,427

(299,968)

(99,541)

Pre-tax profit

175,109

(312,309)

(137,200)

 

Discontinued activities only

2013

As previously

stated

 

£'000

2013

Revisions in

accounting

policy

£'000

2013

Proforma

 

 

£'000

Revenue

294,283

(108,720)

185,563

EBITDA

137,651

(113,000)

24,651

Pre-tax profit

89,479

(144,927)

(55,448)

 

In addition we set out below a summary of the impact of these revisions on the unaudited results for the periods ended 30 June 2013 and 30 June 2014.

A full restatement of the 2014 interim results will be given when the Group publish its interim results for the period ended 30 June 2015, and these will include the effect of the accounting policy revisions, other prior year adjustments, the full impact of the acquisitions of Ingenie and Himex in 2014, and corrections to accounting errors in 2014 relating to transactions with controlled and other entities and share- based payments.

Discontinued activities only

-unaudited

H1 2014

As previously

stated

£'000

H1 2014

Revisions in

accounting

policy

£'000

H1 2014

Proforma

 

£'000

Revenue

357,335

(173,836)

183,499

EBITDA

156,008

(185,902)

(29,894)

Pre-tax profit

153,703

(192,073)

(38,370)

 

Discontinued activities only

-unaudited

H1 2013

As previously

stated

£'000

H1 2013

Revisions in

accounting

policy

£'000

H1 2013

Proforma

 

£'000

Revenue

163,313

(42,780)

120,533

EBITDA

53,983

(40,270)

13,713

Pre-tax profit

39,226

(56,233)

(17,007)

 

The Group also issued an unaudited trading statement for the three months ended 30 September 2014 on 13 October 2014, which stated a revenue and EBITDA for that period of £198.0m and £83.0m respectively. The impact of applying the Group's revised accounting policies have been to reduce revenue by £130.0m and EBITDA by £129.0m, resulting in a restated unaudited revenue of £68.0m and restated EBITDA loss of £46.0m for this period.

Details of prior year adjustments are set out in detail in note 3 to the Financial Statements, with a description of the items requiring adjustment and a summary of their impact on the Financial Statements in 2.1.8 below.

1.5 Acquisitions and Investments

During the year, the Group gained full control of Himex and Ingenie (both existing investments) and made a number of smaller investments. Further details are included in note 36 to the Financial Statements.

1.5.1 Himex

The Directors believe that Himex occupies a strong position in a growing market and has a market leading "connected car" proposition. The business enjoys the benefit of a strong technology platform, good customers, and high quality management.

On 1 January 2014, the Group gained effective control of Himex, by virtue of a call option to acquire a controlling shareholding in that company, and the Group has therefore consolidated the results of Himex since that date as required by IFRS 10. At the point of acquisition the Group's holding in Himex increased by 57.9% to 76.9%, with the consideration of £69.0m consisting of £15.0m cash and 281 million ordinary shares of 1 pence in the Company (19.3p per share before the 1 for 15 consolidation or 281p per share post-consolidation) with a fair value of £54.0m. A share purchase agreement was completed on 17 February 2014 to effect this, with shares issued in March and April 2014 totalling 303.8m, bringing the Group's total interest to 84.7%. The majority of the rest of the shares in Himex were purchased in July 2014 for 2.7 million ordinary shares of 15 pence, taking the Group's total stake to 99.9%. The financial impact of the Himex acquisition is set out in detail in note 36 to the Financial Statements, summarised in table 1.5.3 below.

As at 31 December 2014, we have performed an impairment review of the £69.1m carrying value of Himex goodwill. As a result of this review, we have made an impairment charge relating to Himex of £22.6m. In assessing the carrying value of goodwill we have considered the following factors: (a) there was a shortage of central funding for the development of the Himex business; (b) a recall of a batch of telematics devices occurred in July 2014 under a major contract which significantly impacted business volumes; and (c) litigation brought against Himex by minority shareholders of Navseeker Inc. ("Navseeker") caused a drain on management time and resource. Subject to the approval of the Court of Delaware, this matter has now been settled.

During 2013, whilst Himex was an investment (i.e. prior to its acquisition by the Company), the Group invoiced Himex £15.7m for software, services and telematics devices and was charged £10.0m by Himex for purchases. Himex was acquired on 1 January 2014 so there were no recharges with Himex as an investment in the current period. The software and services do not form part of the continuing revenue streams of the Group. As described in note 3 of the Financial Statements, a prior year adjustment has been made to remove the revenues where these relate to the Company's products and services included in the Financial Statements for the year ended 31 December 2013.

 1.5.2 Ingenie

Ingenie is an innovative broker that uses telematics technology to reward safe driving by lowering premiums. It is a B2C brand and registered trade mark and has been in existence for 5 years. Targeted primarily at young people it is marketed through multiple media channels and also has social media presence through Twitter and Facebook.

On 22 January 2014, the Company and Ingenie's vendors agreed terms for an option for Quindell to acquire 33.1% of Ingenie (to add to its existing 49.6% investment) by the issue of 122.0 million ordinary shares of 1 pence ("the Option"). The share price on this date was 21.5 pence per share ("Base Price"), valuing 100% of Ingenie at £80.0m.

Subsequently, on 4 February 2014, an option agreement was signed by the Company and Ingenie's vendors ("Original Option") regarding the Option and including a provision whereby the Option could not be called if Quindell's share price was at a 10% (or greater) discount to the Base Price agreed on 22 January 2014 (i.e. below 19.35 pence per share) ("Floor Price"). Between 22 January 2014 and 4 February 2014, the share price rose to 36 pence, valuing 100% of Ingenie at £131.0m. The Original Option was exercisable at any time from 4 February 2014 to 31 January 2015.

The Company did not exercise the Original Option between February and May 2014. In May 2014, the share price fell below the Floor Price and from June 2014 onwards never rose above the Floor Price so the Original Option was not exercisable.

On 4 July 2014, the Company and Ingenie's vendors agreed a revised option capable of being exercised within 7 days on materially varied terms which reduced the Floor Price to 180 pence (the equivalent of 12 pence adjusted the Company's 1 for 15 share consolidation in June 2014) in exchange, inter alia, for reduced lock-in volumes and periods ("Revised Option"). On 11 July 2014, the Revised Option was exercised at 181 pence, valuing 100% of Ingenie at £52.7m and Ingenie became a legal subsidiary of the Company on that date.

On 11 July 2014, in addition to the Revised Option being exercised, a sale and purchase agreement was entered into in respect of the purchase of the remaining shareholding in Ingenie and the Company increased its investment in Ingenie in total by 50.4% to 100%. The acquisition of the Ingenie shares not already owned by the Company was satisfied by the issue of 8.1 million ordinary shares of 15 pence pursuant to the Revised Option and a further 4.5 million ordinary shares of 15 pence for the remaining shares.

The accounting impact of the events above is complex but, in summary, on 4 February 2014, the Group was regarded as having acquired control over Ingenie by virtue of the Original Option. Ingenie did not become a subsidiary in legal terms, but Quindell had the ability to take control if the Original Option was exercised.

However, in line with the applicable accounting standard (IFRS 10), whilst the Company is regarded as having obtained control of Ingenie on 4 February 2014 when the share price fell below the Floor Price, it lost control in May 2014 and regained control when the Revised Option was exercised on 11 July 2014 upon exercising the Revised Option.

The financial impact of the Ingenie acquisition is set out in detail in note 36 to the Financial Statements, summarised in table 1.5.3 below.

We have performed an impairment review of the value of Ingenie's goodwill. In assessing the carrying value of goodwill, we have considered the following factors: (a) the development of Ingenie's business has suffered from brand association with its parent; (b) increased price competition as other competitors develop their offerings; and (c) delays to its roll out plans as funding was prioritised into the PSD during 2014. As a result of this review, we have made an impairment charge relating to Ingenie of £16.5m as at 31 December 2014.

During 2013, the Group invoiced Ingenie £9.4m for software and services and was charged £0.1m for purchases. During 2014, up to the date of acquisition, there were no invoices or charges between the Group and Ingenie. As described in note 3 of the Financial Statements, a prior year adjustment has been made to remove the revenues included in the Financial Statements for the year ended 31 December 2013.

The business of Ingenie occupies a strong position in a growing yet competitive market and enjoys the benefit of a strong technology platform, good customers, and high quality management.

1.5.3 Summary of the financial impact of Himex and Ingenie acquisition accounting at date of control

£'m (save where stated)


Himex

Ingenie

 

(Original Option)

Ingenie

 

(Revised Option)

Date of acquisition


1 January 2014

4 February 2014

4 July 2014

Date of disposal


n/a

7 May 2014

n/a

Fair value of business

acquired

 

 

Shares to be issued

Cash

Non controlling interest

Fair value of existing investment

117.1

 

54.0

15.0

25.8

22.3

85.6

 

38.0

-

12.3

35.5

52.7

 

19.1

-

7.5

26.1

Quindell shares issued

Ordinary shares of 1 pence

Ordinary shares of 15 pence

303.8m

2.7m

-

-

-

12.6m

What the Company

acquired

Goodwill

Intangibles

Other net assets

Deferred tax

Total

69.1

52.6

5.9

(10.5)

117.1

76.9

5.7

4.1

(1.1)

85.6

44.8

5.0

3.9

(1.0)

52.7

Carrying value at year end

At disposal


79.4 n/a

n/a

71.2

35.3 n/a

Effect on Consolidated Income Statement from acquisition accounting

Associate stepped gain/(loss) Amortisation

Immediate impairment to valuation used for the Original Option

Impairment at year end

Loss on disposal

Net

15.5

(10.3)

-

 

 

(22.6)

-

(17.4)

7.6 (0.4) (14.4)

 

 

- (5.8) (13.0)

(3.5) (0.6)

-

 

 

(16.5)

-

(20.6)

Movement in % held

As at 31 December 2013

19.0%


49.6%


Acquired

As at 31 December 2014

65.7%

99.9%


50.4%

100.0%

 

1.5.4 Connected Car Solutions Limited

 

On 5 April 2014, the Company entered into an investment and commercial agreement ("Venture") with RAC Limited ("RAC") and a newly formed company, Connected Car Solutions Limited ("CCS") to distribute Quindell's and RAC's combined connected car capabilities using the branded names and licenced intellectual property in selected markets in the UK, Canada and Europe. Pursuant to which inter alia:

·     The Company subscribed for 15.6 million shares of £1 each in CCS, (representing 51% of CCS's share capital);

·     The Company provided a loan of £1.0m to CCS on an arms- length basis;

·     RAC subscribed for 15 million shares of £1 each in CCS;

·     RAC provided a licence for the use of its brand by CCS ("RAC Brand Licence");

·     RAC sold 15% of its investment in Risk Telematics UK Limited to CCS; and

·     The Group invoiced CCS for £15.6m relating to distribution rights for its telematics related software. (This was reported as revenue in the Group's unaudited accounts to 30 June 2014. The Board consider that the treatment of this transaction within the Group's accounts was incorrect and an adjustment has been made in these accounts to reduce revenue and pre-tax profit by £15.6m.).

On the same date, the Group granted warrants to subscribe for 16.7 million ordinary shares to RAC (after adjusting for the 1 for 15 share consolidation), exercisable between the date of grant and 5 April 2016. The warrants were to vest in three tranches: the first tranche of 6.7 million warrants immediately. The second and third tranches, which totalled 10.0 million warrants, were conditional upon the achievement of certain performance conditions. On 1 September 2014, all of these warrants were cancelled prior to the achievement of the performance conditions. Immediately prior to the cancellation of the warrants, no unvested warrants were expected to meet the performance conditions. Therefore, no charge has been recorded in relation to the second and third tranches. The Group recognised a total expense of £9.0m during the year in relation to the first tranche of these warrants. Full details are shown in note 28 to the Financial Statements.

On 1 September 2014, the Company announced that it had agreed with RAC to terminate the Venture. The Company acquired RAC's shares in CCS for £15.0m and all of the warrants, as described above, were cancelled. RAC also agreed to re-purchase its brand licence and investment in Risk Telematics UK Limited. Both transactions were at original cost to RAC so no gain or loss was recorded by CCS in respect of these transactions.

1.5.5 ACH Group

On 8 January 2014, the Company acquired the group comprising a number of companies including Quayside (2801) Holdings Limited and its trading subsidiary ACH Group Management Limited ("ACH") which was a referral partner of QLS, supplying marketing leads. ACH was disposed of on 29 May 2015 as part of the disposal of the PSD. The goodwill arising on acquisition forms part of the Services Division Cash Generating Unit ("CGU") and was not subject to any impairment at 31 December 2014 in view of the gain on sale arising.

During the same period, the Group invoiced ACH £3.3m for software services and was charged £5.4m by ACH for purchases. These transactions do not form part of the continuing revenue streams of the Group.

At the same date as acquisition the Group issued 24.1 million shares of 1 pence to the shareholders of ACH Management Services Limited (formerly RTA Management Services Limited). 8.8 million of these shares were issued to R Fielding, then a Director of QLS. The Group recognised this issue as a share-based payment and has recognised the value of his shares as an expense of £1.4m in the Consolidated Income Statement within the discontinued business.

1.5.6 Crusader Assistance Group Holdings Limited

On 24 April 2013, the Company announced the acquisition (conditional on FCA approval) of Crusader Assistance Group Holdings Limited ("Crusader") which provided claims management services to UK insurance brokers in order to deploy volume into QLS and other companies within the Group. Completion of the transaction was announced on 14 January 2014. Crusader was disposed of on 29 May 2015 as part of the disposal of the PSD. The goodwill arising on acquisition forms part of the Services Division CGU and was not subject to any impairment at 31 December 2014 in view of the gain on sales arising.

During the same period, the Group invoiced Crusader £8.2m and was charged £6.2m by Crusader for purchases. These transactions do not form part of the continuing revenue streams of the Group.

A summary of the financial impact of these acquisitions is set out in the table below:

Consideration element

ACH (acquired

14 Jan 2014)

£'000

Crusader

(acquired

14 Jan 2014)

£'000

Fair value of purchase consideration

24,508

8,772

Intangible assets acquired at fair value

-

1,850

Other tangible net liabilities

acquired

2,965

(431)

Goodwill arising on acquisition

21,543

7,353

 

1.6 Change in strategic direction

During the last quarter of 2014 and first quarter of 2015, the Group underwent a significant change in strategic direction. The Board determined in December 2014 to commence a sale process for the PSD and agreed an exclusivity arrangement with S&G. On 29 May 2015, the Group concluded the disposal of the PSD for initial cash consideration of £637.0m (of which £50.0m is security for potential warranty claims and £5.0m as security for adjustments to completion accounts is held in escrow) with further contingent cash consideration becoming payable by reference to profits from NIHL cases which were current at the time of the sale. Details of this transaction are set out below and in note 37 to the Financial Statements

1.7 Continuing activities

The conclusion of the PSD disposal results in a Group now focused on insurance technology solutions carried out through its technology Solutions division and healthcare services and other services carried out through its Services division. The technology Solutions division is comprised as follows:

·     Connected car: Himex and QSI

·     Insurance brokerage utilising technology and telematics: Ingenie

·     Insurance software solutions (ICE): QETS

The priority with all of the Group's businesses will be to maximise shareholder value, whether by providing strategic direction and investment leading to growth or by seeking appropriate purchasers for selected businesses.

Operating performance during 2013 and 2014 has been measured by the Group against KPIs as part of the existing Group structure of two divisions (Services and Solutions) and therefore historical KPIs are not available for the continuing operations on a stand-alone basis. The KPIs for the Services and Solutions divisions have been set out in section 1.9 below. In assessing CGUs, these divisions are allocated into UK and Overseas components, except where businesses have not yet been integrated with existing operations, in which case they are shown as separate entity CGUs.

Since the change in the strategic direction of the Group, the Board is considering the most appropriate KPIs for assessing the performance of the continuing activities as part of the wider strategic review. It is likely that many of the KPIs will remain consistent with those previously used by the Group. However, to the extent that there are any additional areas of strategic focus, new KPIs and related targets may be developed.

1.8 Discontinued operations and assets available for sale

The results for the PSD are included within the results for 2013 and 2014 as "discontinued operations", after having been restated for the revisions in accounting policy previously described. As at 31 December 2014, the PSD is held as a separate asset and liability, both designated as held for sale. This reflects the Board having engaged in a sale process for this division prior to the year end of 31 December 2014.

In the balance sheet as at 31 December 2014, we hold an asset for sale of £304.0m and a liability of £183.0m, resulting in a net asset of £121.0m.

1.9 Business KPIs

Throughout 2014, the Board used a number of measures to determine the performance of the Group. The principal KPIs are as set out in note 6 to the Financial Statements, which provides a breakdown of EBITDA and adjusted profit before tax, and note 14 to the Financial Statements and the Income Statement and are summarised in the following table:

KPI

continuing business only

2014

£'000

2013 Restated

£'000

Revenue

72,015

61,031

Gross profit margin

30.7%

51.2%

Adjusted EBITDA

(33,272)

7,437

Adjusted (loss)/profit

before tax

(37,853)

5,726

Adjusted basic earnings

(pence per share)

(9.582)

2.369

 

1.10 Post balance sheet events - Disposal of Professional Services Division and other assets

1.10.1 Professional Services Division

The PSD disposal took place on 29 May 2015 and the consideration and estimated profit on disposal are set out in the following table:


Group £'m

Total consideration

inclusive of the cash consideration at

completion of £637m, the incremental

advance payment and estimated value of

contingent consideration

683

Included in the Group's statement of financial position as at 31 December 2014 are net assets held for sale of £121m, which when considered with other assets not disposed of (including inter-company balances and bank debt) results in an estimated overall amount of disposed Group net assets

303

Expenses and other costs of sale

17

Estimated profit on disposal

Excluding any downward adjustment from

completion accounts mechanism or warranty

claims

 

 

 

 

363

 

These figures do not include any profit or loss on trading for PSD during 2015 which will result in an equal and opposite impact on the sale profit or loss but no impact overall to the Group

During 2015, the PSD continued to trade and incurred further operating losses which resulted in a need for the Group to fund the operating losses which increased the inter-company balance and bank debts.

The sale and purchase agreement relating to the PSD includes provision for an adjustment to consideration based on a completion accounts mechanism. The amount of any adjustment is expected to fall within the range of ±£10.0m and an amount of £5.0m is held in escrow, pending the finalisation of this adjustment. The remainder of the balance of cash in escrow of £50.0m is held in a joint escrow account as security against any potential warranty claims. Subject to any claims, this escrow will be released at the end of November 2016. The warranty period for non-tax claims extends for 18 months from completion (7 years for tax claims) and warranty claims are subject to a de-minimus of £200,000 for each item (£100,000 in the case of tax claims) with an aggregate basket of £2.5m before any claim can be made under the warranties. The limit of total liability in respect of warranty claims is £100.0m. Warranties are qualified by extensive disclosure given during the due diligence and negotiation process. No warranties were given by Quindell in respect of historic accounting policies.

Of the net cash received, approximately £36.0m has been used to settle outstanding bank debt on completion, in accordance with an agreement made with the Group's bankers. We have placed the balance on safe deposit with UK regulated banks of AAA/AA rating in sterling deposits of maximum one month term. Excluding the Group's principal banker, RBS, no deposit with any one bank will exceed £150.0m.

The disposal contains an element of contingent consideration in relation to future receipts arising on NIHL cases which were current on the sale date. Given the inherent uncertainties of this business line, the parties could not agree on an appropriate valuation at completion and so the agreement provides that the Group will receive 50% of the net after tax receipts (after allowing for administrative costs) collected on the NIHL cases outstanding at completion. Approximately 53,000 NIHL cases were active and transferred at completion. Such amounts will be determined on a six monthly basis commencing on 31 December 2015. The process will continue until 30 June 2017 when a terminal value projection of expected receipts will be agreed. If no agreement is reached, the process will continue with payments every six months until the earlier of the date when a terminal value is agreed or 31 December 2018. The Company has performed a valuation exercise and has determined that a prudent estimate of the current value of the contingent consideration is approximately £39.6m.

The profit on disposal estimated above reflects the Group's consolidated position. The planned return of capital to shareholders following the disposal of the PSD is subject to the procedure described in paragraph 1.11 below.

1.10.2 Other asset sales

On 4 March 2015, the Group disposed of its interest in Nationwide Accident Repair Services Plc ("NARS") for £7.1m. On 5 January 2015, the Group part disposed of a share of its investment in 360 Globalnet Limited ("360") for £1.0m and then disposed of its remaining interest in 360 and related entities on 22 May 2015 for £5.0m (£4.2m on completion and £0.8m in cash due in August 2016). No disposal resulted in either a profit or loss on sale in comparison to the carrying value as at 31 December 2014.

1.11 Return of capital

On announcement of the disposal of the PSD on 30 March 2015, the Company announced its intention to return the majority of the proceeds of the disposal of the PSD to shareholders.

The Company proposes to achieve this via a return of capital to its shareholders, with the remainder being used for general working capital and investment purposes within the retained businesses. The precise amount of any distribution to shareholders has not yet been determined and in deciding the appropriate quantum to be distributed, the Board will need to ensure the interests of creditors are adequately safeguarded (including any contingent liabilities). An appropriate amount will also be held in reserve for developing and growing our businesses. The current desire of the Directors is that the initial tranche will be not less than £1 per ordinary share and up to £500m in total, subject to the process noted in the Chairman's Report. The Company is also seeking permission to carry out a share buy back and this may be effected by way of a tender offer. Depending on the scale and timing of any such share buy back or tender offer, the amount of cash expended on buying shares in the market will reduce the amount of cash set aside to be otherwise distributed to shareholders.

A table of current shares in issue, shares expected to be issued, and options outstanding is shown below:

Shares in issue as at 31 July 2015


444,959,317

Shares to be issued:



BE Insulated (UK) Limited

200,000


Navseeker settlement (subject to

Delaware Court approval)

684,770


PT Health (under call option agreement)

9,466,666




10,351,436

Total


455,310,753

Options outstanding as at 31 July

(not all options are vested as at 31

July 2015)



Options expiring 30/06/2019 with exercise price of 240p

7,634,288


Options expiring 30/06/2019 with exercise price of 600p

583,333


Options expiring 18/12/2024 with

exercise price of 33p

16,333,332


Options expiring 12/1/2025 with

exercise price of 68.65p

11,625,000


Total number of options outstanding


36,175,953

Total shares, to be issued shares and vested "in the money" options based on the price prior to suspension on

24 June 2015 (124.5p)


 

 

 

483,269,085

 

It is intended that the return of capital will be structured as a capital repayment, by a Court approved reduction of share capital. The Company has received confirmation from HMRC that the gain arising on the sale of the PSD benefits from the substantial shareholding exemption pursuant to Schedule 7AC to the Taxation of Chargeable Gains Act 1992 and is therefore not chargeable to tax.

In view of the proposed payment, the Directors will perform all required legal steps, including obtaining a report from our auditor, in line with s714 of the Companies Act 2006. This will allow the Company to make a determination of its distributable reserves available for the purposes of any share buy backs which it may in future wish to execute.

The Court will be requested to approve both the reduction in capital and a reconstruction of the Company's capital and reserves in order that share capital and share premium are reduced and an appropriate amount of distributable reserves are created. The creation of distributable reserves will allow for the payment of dividends in subsequent periods.

The completion of the interim Financial Statements and associated review by our auditors, along with the required Court approval process, is currently anticipated to conclude in order to allow a return of capital to shareholders during November 2015.

The Company will seek further distributions as contingent consideration from the disposal of the PSD is realised and as the £50.0m warranty escrow is released in November 2016.

1.12 Group employees

Information in relation to employees of the Group is included in the Director's Report set out below.

2. Financial Review

The PSD has been classified as a discontinued operation during 2014 and 2013 and as an asset held for sale at the year end. Accordingly, this review focuses primarily on the continuing operations of the Group unless otherwise stated. 2013 comparatives shown are as restated in the Financial Statements.

2.1 Performance and adjusted results

Revenues for the continuing businesses are up £11.0m from 2013 to 2014. The combined movement year on year for Gross Margin of a decrease of £9.1m, Normal Administration Expenses increasing by £46.7m and share of Associates profits increasing by £0.5m has combined to reduce adjusted EBITDA by £40.7m once the Amortisation and Depreciation increase of £14.6m is removed.

All the Group's continuing businesses suffered significant but not permanent market, revenue and operating challenges as a result of the Quindell corporate, organisational, reputational and cash flow problems which started in 2014. The impacts of these problems have continued into 2015 and the Directors expect it will be 2016 before they can be expected to have recovered to deliver their full potential.

2.1.1 Revenue

Revenue for 2014 for continuing operations was £72.0m (2013: £61.0m).

Principal business revenues in telematics, insurance broking and insurance related technologies within the Solutions Division rose £2.7m from 2013 to 2014 with Himex and Ingenie adding £13.1m due to their addition to the Group in early 2014. QETS fell £9.7m year on year due to a one off telematics device sale to Himex pre acquisition in 2013 that was not repeated in 2014, and a £5.0m decrease in Licence fees year on year to new customers, caused by the fallout from the Group's well publicised issues from April 2014 onwards. During 2013, three new major customers were added whilst in 2014 one was added towards the year end as the fallout started to dissipate.

Non principal business revenues in property services and healthcare services within the PSD and non principal business revenues within the Solutions Division rose from 2013 to 2014 by £8.3m, of which healthcare service provider PT Health added an extra £18.2m year on year. However PT Health only added four months activity in 2013 from acquisition and remained level across the years on a like for like basis.

2.1.2 EBITDA

Adjusted EBITDA from continuing businesses was a loss of £33.3m (2013: profit of £7.4m).

Insurance technology solutions EBITDA fell from 2013 to 2014 by £12.3m due to two key areas. Himex added losses of £3.8m to the Group for 2014. Himex is a business in its formative stage and requires investment to deliver to its potential. During 2014 it also suffered a technical issue with a major component supplier resulting in monthly telematics revenues restricted from July 2014 onwards. The issue has now been fully resolved. QETS' £9.7m revenue decrease contributed to an £8.0m fall in EBITDA for that business. The other technology and property services businesses saw EBITDA move from a profit of £1.3m in 2013 to a loss of £8.4m in 2014 primarily as a result of the Quindell corporate triggered issues noted above. Central costs were £10.0m higher year on year, with non-recurring items showing an adverse movement of £9.2m.

2.1.3 Exceptional costs

Exceptional and non-recurring costs, including impairments, were £194.4m in 2014 against £11.3m in 2013 reflecting both an exceptional year itself and the outcome of a thorough impairment review by the Board of all non-cash assets along with the establishment of prudent provisions for known liabilities. Total impairments were £157.0m (2013: £nil) as analysed below:

Impairments charge 2014

£'m

Goodwill

Intangibles

Property, plant and equipment

Associates

Investments

Stock

Debtor

126.6

9.4

0.7

1.4

1.8

1.0

16.1

Total

157.0

 

Other exceptional costs included legal disputes of £8.0m (2013: £nil), the cost of raising finance £6.1m (2013: £0.1m), exceptional share-based payments of £10.0m (2013: £4.6m), and the loss of £5.8m (2013: £nil) suffered when control was lost of a subsidiary. Full details of exceptional costs are given in note 9 to the Financial Statements.

2.1.4 Profit before tax

Loss before taxation from continuing operations was £238.0m (2013: £8.6m).

As a result of the actions taken by the Board in reviewing the carrying values of non-cash assets, the requirements of accounting standards in relation to acquisitions, the stage of maturity of our continuing businesses along with the Group's corporate issues, the Group has made a significant loss for the year. Many of the items are of a one-off nature and would not be expected to recur.

2.1.5 Cashflow

The Consolidated Cash Flow Statement reported in the Financial Statements includes cash flows from both continuing and discontinued operations. Cash used in operations before exceptional costs, net finance expense and tax was £77.9m (2013: £15.0m), with a cash outflow of £2.1m (2013: 7.3m) from exceptional costs. A further £57.0m (2013: £47.2m) was used in servicing finance, tax and investing activities resulting in a cash outflow before financing of £137.0m (2013: £69.5m). Funds generated by financing were £7.5m (2013: £217.4m) resulting in a decrease in cash and cash equivalents for the year of £129.5m (2013: £147.9m cash increase).

2.1.6 Balance Sheet

The net assets shown in the statement of financial position at 31 December 2014 were £264.0m (2013: £446.0m). This reduction is the result of the loss for the period and was particularly adversely impacted upon by the exceptional charges of £194.0m and the loss from discontinued operations of £133.2m.

The principal components of the balance sheet as at 31 December 2014 are summarised below:

As at 31 December 2014

 

By business type

£'m

Insurance technology solutions businesses

 

PSD discontinued held for sale

 

Other net assets

126

 

121

 

17

Net assets

264

 

As at 31 December 2014

 

By asset class

£'m

Non-current assets

 

Working capital excluding net cash

 

Net cash

 

Provisions and deferred tax

 

PSD discontinued held for sale

189 (33)

29 (42)

121

Net assets

264

 

2.1.7 Net cash and financing

Of the £180.0m cash that the Group started the year with, approximately £80.0m was invested in the PSD, primarily in growing the NIHL business line. £26.0m was paid in corporation taxes and the balance of £24.0m of net cash outflows utilised in financing the growth of the businesses both organically and by acquisition to leave a closing cash and cash equivalents of £50.0m.

2.1.8 Prior year adjustments

As set out in note 3 to the Financial Statements, a number of prior year adjustments have been reflected in the Financial Statements in relation to revisions to accounting policies and correction of accounting errors.

On 20 March 2014, the FRC's Conduct Committee opened an enquiry into the Group's Financial Statements for the year ended 31 December 2012. This enquiry focused on revenue recognition in the PSD. The FRC extended its enquiry to certain aspects of the Financial Statements for the year ended 31 December 2011 on 30 September 2014. The Board has co-operated with the FRC throughout its enquiry and has considered the implications arising from their findings. In reaching its conclusions, the Board has been mindful of the key concepts of relevance, reliability and understandability of the financial information being presented. Throughout this process, and co-operating with the FRC's Conduct Committee, the Board has kept the Auditor, KPMG, fully informed and, as appropriate, utilised their independent expert opinion in arriving at its conclusions.

A summary of the impacts of these adjustments is set out below, the detail and explanations are included in note 3 to the Financial Statements


Profit/(loss)

for the year

£'m

Net Assets

 

£'m

Year ended / as at 31 December

2013

As previously stated

Revisions to accounting policies

 

PSD revenue recognition and related accounting entries

 

Corrections to accounting errors / adjustments

Mission Capital reverse

acquisition

Transactions with TMC Acquisition related consideration

and share-based payments

Revenues from sales to companies

that were subsequently acquired

As restated

 

 

 

83

 

 

(130)

 

 

 

 

 

-

 

 

- (1)

 

(20)

 

 

(68)

 

 

 

668

 

 

(156)

 

 

 

(25) (2)

(19) (20)

446

Year ended / as at 31 December

2014

Proforma

Revisions to accounting policies

PSD revenue recognition and related accounting entries

As restated

 

 

 

(92) (282)

(374)

 

 

 

702 (438)

264

 

2.1.9 Earnings per share

Basic EPS was a loss of 56.411 pence per share (2013: loss of 2.348 pence per share) and adjusted basic EPS, as defined in note 14 to the Financial Statements, was a loss of 9.582 pence per share (2013: profit of 2.369 pence per share).

2.2 Dividends

A dividend of £6.2m was paid during the year (2013: £nil). The Directors do not recommend the payment of a final dividend.

2.3 Going Concern

Following the disposal of the Professional Services Division the number of entities within the Group and the Group's associated working capital requirements were significantly reduced. The cash proceeds of £637.0m have been used to repay bank loans of £40.0m and, as described above, up to £500m of the sales proceeds are expected to be repaid to shareholders as a return of capital. The Group has concluded that the remaining cash reserves, together with ongoing operating cash flows and receipts of contingent consideration from the disposal of the PSD and consideration from anticipated sales of non-core assets, will be sufficient to fund the ongoing operations of the Group's businesses together with any future development needs of those businesses.

On this basis, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Directors have not identified any material uncertainties that would cast significant doubt on the ability of the Group to continue as a going concern. As such, the Directors continue to adopt the Going Concern basis of accounting in the preparation of the Financial Statements.

2.4 Internal financial discipline

Following the disposal of the PSD we are defining the financial disciplines under which we will operate at the Group and operating company level. We have summarised below the key areas upon which we will focus:

·     Ethics. Relationships and transactions will be conducted to high ethical standards. Customers, staff and suppliers will be treated fairly and transactions will be concluded on an arms-length basis. Regulators will be communicated with on an open and prompt basis;

·     Safeguarding of assets. We will ensure that the assets of the Group are appropriately protected and managed and that maximisation of shareholder value is at the heart of all transactions involving corporate assets;

·     Cash and profit management. The Group and operating businesses will be managed such that both profits and cash are given equal focus, recognising that some operating businesses may require investment to generate increased future profit and cash. Revenues and profit growth will be balanced by a requirement for there to be appropriate realisation of profits into cash. Dividend policy will be established such that cash profit generation forms the basis of a future sustainable dividend flow to our shareholders;

·     Establishment of an Investment Committee. Operating businesses will be challenged to deliver profitable growth and the timescales for each will depend on their relative maturity and market positioning. Appropriate investment will be made by the Group in order to maximize shareholder value from these assets. Each investment will be made following a rigorous business case and evaluation process which will be subject to post investment reviews of outturn;

·     Authorisation and accountability. Matters reserved for Board approval and the control environment will be proportionate to the size of the Group. Operating and project expenditure will typically be authorised via the business planning process culminating in an approved budget in advance of the year commencing. Outside of the cycle additional expenditure can be approved subject to the appropriate justification and business case being established if appropriate. Individuals will have authority to approve expenditure to certain limits, determined by type of expenditure. Accountability for expenditure will be ensured via the regular process of business performance reporting and review.

·     Financial Planning, Reporting and Monitoring. The Group will run a business cycle as summarised below:

Mid year

Strategic review and target setting for the Group and its operating businesses.

Q3

Operating businesses perform detailed business planning and budget setting for the subsequent 3 years.

Q4

Group review and challenge of operating businesses plans. Board review and approval by year end.

Monthly

Reporting of financial results and KPIs.

Quarterly

Re-forecast of full year expected outturn and review

with Group.

 

In addition to the internal Financial Discipline, the Group will make trading statements and report full and half yearly financial results externally.

2.5 Interim Financial Statements for the period ended 30 June 2015

We intend to prepare a set of interim Financial Statements for the 6 months ended 30 June 2015 which will be subject to review by the Auditor. These Financial Statements will include the anticipated profit on disposal of the PSD in addition to the trading results of that division up to the date of sale and the results of the remaining businesses for the period ended 30 June 2015.

3. Capital management

The Group's objective is to maintain a balance sheet structure that is efficient in terms of providing long term returns to shareholders and which safeguards the Group's financial position through economic cycles.

The Group will be managed such that after the sale of the PSD and return of capital to shareholders, there is little or no external debt finance in the business and that the Group maintains sufficient liquid funds in order to be able to fund the growth aspirations of its operating businesses.

4. Principal risks and uncertainties

 

The Group is exposed to a number of risks and uncertainties which could have a material impact on its long term performance. The Directors have identified those which they regard as being the principal risks and these are set out below.

4.1 Strategic risk

The take up rate of telematics by consumers globally and in local markets over the next three to five years, influenced by factors such as end-user perceptions, rate of adoption of new technologies, regulatory drivers and the economic climate could put at risk the Group's ability to meet its strategic objectives in the areas of telematics and connected car solutions. The Group may fail to execute its ongoing strategic plan in relation to connected car and the expected benefits of that plan may not be achieved at the time or to the extent expected. The Group monitors local and global trends alongside other market commentators and analysts. Through its activities within the industry, the Group aims to be at the forefront of connected car initiatives globally.

4.2 Technological change

The markets for the Group's services can be affected by technological changes, resulting in the introduction of new products, evolving industry standards and changes to consumer behaviour and expectations. The Group regularly monitors trends in technological advancement so as to anticipate and plan for future changes and maintains close relationships with businesses and organisations which it believes will keep it to the forefront of product and service development on a sustained basis.

4.3 Key personnel and resources

The success of the Group depends to a large extent upon its executive management team and its ability to recruit and retain high calibre individuals at all relevant levels within the organisation. The Group will continue to seek to mitigate this resource risk by investing in and developing staff training programmes, competitive reward and compensation packages, incentive schemes and succession planning.

4.4 Regulatory and reputational risks

The investigation commenced by the FCA and the enquiry of the FRC may affect the Group's reputation and brand and attract negative media coverage. Failure to protect the Group's reputation and brand in the face of regulatory, legal or operational challenges could lead to a loss of trust and confidence and a decline in our existing and future customer base. In addition, regulatory investigations could also affect our ability to recruit and retain talented employees. It is also possible that regulators will seek to levy fines on the Group or Courts will award damages against the Group. Reputational issues may also affect the attractiveness of the Company's shares to new and existing investors.

Following the Group's disposal of the PSD, the parts of the Group that were regulated in the UK by the Solicitors Regulation Authority have been disposed of and that part regulated by the FCA reduced, thereby lessening ongoing regulatory risk in this area.

As a data controller, the Group is also subject to risks related to matters such as data processing and security, and data and service integrity. In the event of a breach, these risks may give rise to reputational, financial or other sanctions against some or all of the Group. Law or regulation of data use and protection may change. The Group considers these risks seriously and designs, maintains and reviews its policies and processes so as to mitigate or avoid these risks.

The pricing of products and services, the activities of major industry organisations, and the Group's ability to operate and contract in the manner that it has done so in the past, may be affected by the actions of regulatory bodies both in the UK and internationally. Such action could affect the Group's profitability either directly or indirectly. The Group continually monitors and assesses the likelihood, potential impact and opportunity provided by regulatory change, and adapts is plans and activities accordingly.

4.5 Liquidity risk

Prior to the disposal of the PSD, the Group used borrowing principally to fund its working capital needs. The Group's facilities were repaid following the completion of this disposal. In future, the Group expects to manage liquidity within its cash capacity. The Group actively forecasts, manages and reports its working capital requirements, including conducting sensitivity analyses on a regular basis to ensure that it has sufficient funds for its operations. In addition, it will manage the timing and value of any future investments in light of forecast cashflow requirements and in light of other expected cash inflows in respect of contingent consideration for NIHL claims and any proceeds from disposals of non-core assets.

4.6 Management of growth

Following the disposal of the PSD, the Group will operate at a smaller scale and be more focussed on its insurance related technology and associated markets. Growth management will be controlled through the planning cycle and include scenario planning to ensure that the businesses are resilient when expanding in key markets and geographical locations.

4.7 Market conditions

Market conditions, including general economic conditions and their effect on exchange rates, interest rates and inflation rates, may impact the ultimate value of the Group regardless of its operating performance. The Group also faces competition from other organisations, some of which may have greater resources than the Group, or be more established in a particular territory or product area. The Group's strategy is to target a balance of markets, offering a range of tailored or specialised products and services.

4.8 Foreign exchange

The international nature of the Group's operations mean that it is exposed to volatility in exchange rates. This is in respect of foreign currency denominated transactions and the translation of income statements and net assets of foreign subsidiaries. The Group has its most significant presence in North America, and therefore its most significant foreign currency exposure is in relation to US$ and CDN$. Foreign currency exposure is mitigated where possible by matching the purchasing and sales of revenue and cost transactions. The Company has not sought to mitigate its exposure to the translation of net assets although will monitor this as the exposure of the Group's overall net assets to foreign exchange movements will increase following the redistribution of capital during Q4 2015.

5. Complex and judgemental areas of accounting 

In preparing these Financial Statements, the Board has been mindful of a number of areas of accounting which are either complex in nature or are subject to other judgements or estimation uncertainty. Significant attention has been paid to ensuring that any such areas are both supportable under IFRS and other relevant accounting practice and that key assumptions used are balanced and supportable. The Board has engaged advisers to support management in certain highly technical or specialist areas of accounting analysis and support, and has acted upon their advice and observations in reaching its conclusions. The primary areas have been summarised below and are set out in more detail in note 5 to the Financial Statements:

·     Consideration of the true commercial substance of certain historical transactions. The Board has identified certain historical transactions whose true commercial substance either appears contrary to the previous accounting treatment or retains a degree of ambiguity. The Board has considered these transactions and made investigations and enquiries in order to form a view as to the appropriate accounting treatment in light of their apparent commercial substance. These matters are described further in the Strategic Report, the Basis of Preparation in note 2 to the Financial Statements and where considered appropriate has made Prior Year Adjustments as described in note 3 to the Financial Statements;

·     Determination of revised accounting policies in relation to revenue recognition in the PSD;

·     Determination of the date of control of key acquisitions where complex option arrangements were in place;

·     Determination as to whether there is control or significant influence over businesses;

·     Relationship with TMC: In reviewing a number of historic transactions, the Board has concluded, based on the evidence available to it, that TMC was at certain points in time a related party of the Group, although it never had a shareholding in TMC. However, although in some respects the nature of the relationship between TMC and the Company is unclear, the Company does not consider that the substance of the economic relationships between TMC and the Group for the years 2013 and 2014 indicate that it controlled TMC;

·     Relationship with SMI Technologies Limited ("SMI"): the Group had an investment in SMI of 19% and during the year obtained an option to increase its investment to

·     33% and has moved its treatment to an associate as at the year end. The Board has considered the nature of the relationship between SMI and the Group and whilst there are some indicators of control, as defined by IFRS 10, on balance it does not believe that the substance of the relationship between SMI and the Group for the years 2013 and 2014 indicate that it controlled SMI. SMI has been disclosed as a related party;

·     The valuation of intangible assets on acquisition;

·     CGUs and measurement and impairment of goodwill;

·     Estimation of contingent consideration payable and receivable; and

·     and consideration of the nature of past transactions, their true commercial purpose and the appropriate accounting response.

 

Mark P Williams

Group Finance Director

 

By order of the Board

 

Board of Directors

Richard Rose (age 59) Non - Executive Chairman

Richard Rose is Non-Executive Chairman of AO World plc, Crawshaw plc, Anpario plc and Blue Inc Limited. Previously, he has held a number of positions in organisations such as Booker Group plc where he was Chairman from 2007 to July 2015, AC Electrical Wholesale, where he was Chairman from2003 to 2006 and Whittard of Chelsea plc, where he was Chief Executive Officer and then Executive Chairman from 2004 to 2006.

David Currie (age 45) Non-executive Director

David Currie has worked within the financial sector for over 20 years, and his appointment has been supported by key major shareholders due to his reputation and track record within the City. David recently established Codex Capital Partners and for the prior 10 years David headed Investec Bank plc's Investment Banking division.

As part of Investec's UK management and investment committee, he oversaw more than 100 clients in both the public and private markets and worked on a wide variety of transactions across many sectors.

The Rt. Hon. Lord Howard of Lympne, CH, QC (age 74) Senior Non-executive Director

Lord Howard is the former leader of the Conservative Party, a distinguished lawyer and served as a Member of Parliament for 27 years. He filled many government posts, including Home Secretary, Secretary of State for Employment and Secretary of State for the Environment, as well as Shadow Foreign Secretary and Shadow Chancellor.

After his retirement from the House of Commons at the 2010 General Election, Lord Howard was created a Life Peer. He was created a Companion of Honour in the Queen's Birthday Honours List, 2011. Lord Howard is the Non-executive Chairman of Entrée Gold Inc. and the Non-executive Chairman of Soma Oil & Gas Holdings Limited.

Tony Illsley (age 59) Non-executive Director

Tony Illsley has held a variety of senior business positions including Chief Executive of Telewest Communications PLC, President of Pepsi Cola Asia Pacific and Senior Independent Non-Executive Director of easyJet PLC.

He is currently Senior Non-executive Director of KCOM plc, and is a Non-Executive Director of Camelot Global Services Limited and Camelot UK Lotteries Limited.

Mark Williams (age 50) Group Finance Director

Mark Williams is a Fellow of the Institute of Chartered Accountants and has nearly 30 years of finance experience.

Mark has had a varied career to date, having qualified with what is now Deloitte. His experience ranges from a technology driven entrepreneurial start up through to divisions of major international FTSE businesses and through several business cycles.

He has operated at board level for the past 15 years, including roles at AXA, Cofunds, Guardian Royal Exchange, Legal & General, Old Mutual and Skandia.

David Young (age 54) Non-executive Director

David Young qualified as an accountant with Arthur Andersen before joining Morgan Grenfell as an Investment Banker specialising in Mergers & Acquisitions. In 1994, he joined listed insurance broker Bradstock Group PLC, initially as Finance Director before becoming Chief Operating Officer and, ultimately, Chief Executive. On leaving, Mr Young joined Barchester Group, a strategic and advisory business aimed at technology businesses.

David Young has held numerous non-executive positions and audit committee chairs with insurance and financial services businesses including Partnership Assurance Group plc, the British Gas Insurance group, the Key Retirement Group and is a consultant to Independent Audit Limited.

Directors' Remuneration Report

AIM companies are not required to prepare a Directors' Remuneration Report that complies with the Companies Act 2006 and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Report) (Amendment) Regulations 2013 or the Listing Rules of the Financial Services Authority. However, the Board recognises the importance of shareholder transparency and compliance with corporate governance principles. The Company has prepared this report in order to enable a better understanding of Directors' remuneration. The information included in this report is unaudited.

The information in this report relates to the remuneration policy and arrangements that applied during the year ended 31 December 2014. Following completion of the disposal of the PSD after the year end on 29 May 2015, the Remuneration Committee has commenced a process to revise the remuneration policy and arrangements in place to ensure that they are appropriate for the future in light of the scale of change to the organisation and the new technology-led strategy. The new policies will support the Board's ability to attract high calibre executives to enable the Group to deliver optimal shareholder value. The new policy will be disclosed in the 2015 Directors' Remuneration Report.

Remuneration Committee

The Committee was chaired by Anthony Bowers until his death on 27 October 2014. For the period up until his resignation on 18 November 2014, Steve Scott was also a member of the Committee. The Committee did not meet between 27 October and 18 November 2014. The members of the Committee, for the period from 18 November 2014 to the year end (and until 29 May 2015) were Robert Burrow and David Currie.

Tony Illsley was appointed chairman of the Committee in June 2015. The additional members are David Young and Lord Howard.

The Committee will meet at least twice each year and has delegated responsibility for making recommendations to the Board regarding the remuneration and other benefits of the executive Directors, senior executives and the non-executive Chairman. The remuneration of the non-executive Directors is determined by the Board.

Senior executives of the Company may be invited to attend meetings. The Group General Counsel & Company Secretary acts as secretary to the Committee. No Director or other executive is involved in any decisions about his/her own specific remuneration.

Remuneration policy

The Board's policy is designed to promote the long-term success of the Company by rewarding senior executives with competitive but responsible salary and benefit packages combined with a significant proportion of executive remuneration dependent on performance, both short-term and long-term.

 

The Board's intention is to combine appropriate levels of fixed pay with incentive schemes that provide executives with the ability to earn above median levels for true out- performance and which encourage executive co-investment in the Company's ordinary shares.

In 2014, the remuneration packages for executive Directors comprised the following main elements:

·     basic annual salary;

·     annual bonus payments in respect of the performance of the individual and the Group calculated as a percentage of salary; and

·     share-based long-term incentives via participation in a company share option plan.

The newly formed Committee will review the appropriateness of the policy and the elements of remuneration that should be offered to the new members of the executive Board.

Basic salary

Basic salaries are reviewed by the committee annually to take effect on 1 January. In setting basic salaries the Committee assesses individual responsibilities, experience and performance and considers external market data.

Annual bonus payments

Executive Directors participate in an annual cash bonus scheme payable based on consideration of the performance of the Group, achievement of performance criteria and the individual's contribution to that performance.

Long term incentives

Prior to 2015, the Board has granted share options to reward performance at the discretion of the Committee and align the interests of executives with those of shareholders.

Service contracts

For the year ended 31 December 2014, service contracts for the executive Directors were for no fixed term and terminable on 12 months' notice from the Company or from the Director. None of the executive Directors in place in 2014 remain employed by the Group. Following completion of the disposal of the PSD, the service contracts for executive Directors will be terminable on between three and 12 months' notice from the Company or from the Director. Should an occasion arise where early termination occurs, the Company will have due regard to all relevant circumstances including the obligation of the departing Director to mitigate any loss which may be suffered.

Non-executive Directors

The non-executive Directors do not have service contracts, nor do they participate in any annual bonus share option plan, long term incentive plan or pension scheme. The services of each non-executive Director are provided under a letter of engagement which can be terminated by either party giving between one and three months' notice. Fees payable under the terms of their appointments for those Directors who served during the year are shown in the table following

Directors' emoluments 

 

The remuneration of the Directors, including the highest paid Director who was Robert Terry, was as follows:

 


 

 

 

Salary

and fees

£'000

 

 

Annual cash bonus

£'000

Other remuneration (see 1.5.5 of Strategic Report)

£'000

Contributions to personal pension schemes

£'000

 

 

Compensation for loss of office

£'000

 

 

 

Total

2014

£'000

 

 

 

Total

2013

£'000

 

Executive








R Terry (3)

792

-

-

-

(11)

1,480

2,272

1,320

L Moorse (9)

410

154

-

61

-

625

430

R Fielding (1)(9)

186

350

1,440 (10)

-

-

1,976

-


1,388

504

1,440

61

1,480

4,873

1,750

Non-executive








D Currie (2)

123

-

-

-

-

123

-

A Bowers (6)(7)

140

-

-

-

-

140

44

R Bright (4)(9)

55

-

-

-

-

55

10

R Burrow (7)(9)

60

-

-

-

-

60

29

R Cooling (4)(9)

63

-

-

-

-

63

10

S Scott (3)(7)(8)

50

-

-

-

-

50

29

J Cale (5)(7)

-

-

-

-

-

-

20

Total

1,879

504

1,440

61

1,480

5,364

1,892

 

Notes

1. Appointed 19 June 2014

2. Appointed 14 July 2014

3. Resigned 18 November 2014

4. Appointed 30 September 2013

5. Resigned 30 September 2013

6. Resigned 27 October 2014 due to death

7. Non-executive Director fees were paid to companies connected to these Directors (see note 39 to the Financial Statements)

8. Also provided services to the Group (see note 39 to the Financial Statements)

9. Resigned 29 May 2015

10. On 8 January 2014, as part of the Group's acquisition of ACH, R Fielding received 8,783,036 ordinary shares of 1 pence as consideration for his shares in ACH. The Group has treated this issue as a share-based payment and has recognised the value of his shares as an expense of £1.44m in the Financial Statements. In addition, as set out in note 3 to the Financial Statements, R Fielding received 6,600,000 ordinary shares of 1 pence as consideration for his shares in QFS which was acquired by the Group in October 2013

11. On 17 November 2014, R Terry and the Company entered into a Settlement Agreement in which the Company agreed to pay R Terry the sum of £950,000 as pay in lieu of notice, the sum of £292,000 in lieu of historic pension contributions not previously made and £238,000 in lieu of the provision of other contractual benefits

 

Directors' interests in shares   

 

The interests of the Directors in the ordinary shares of the Company were as follows:

31 Dec 2014 (1)(2)                     31 Dec 2013 (3)

 

R Terry (4)

38,100,000

(5)

684,000,000

L Moorse

1,046,666

(5)

17,850,000

A Bowers (4)

97,932


1,337,415

R Bright

225,039


1,850,611

R Burrow (4)

1,071,666


15,775,00

R Cooling

487,066


7,000,000

S Scott (4)

4,462,992

(5)

76,594,884

R Fielding

1,158,934


1,101,499

D Currie

19,500


-

The interests of the Directors in options in the ordinary shares of the Company were as follows:









31 Dec 2014


31 Dec 2013(3)

L Moorse

1,250,000


18,750,000

R Fielding

625,000


9,375,000

 

Notes

1.The final shareholding has been adjusted to reflect the 1 for 15 share consolidation that occurred on 20 June 2014

2.Or date of resignation if earlier3. Or date of appointment if later

4. Holding includes ordinary shares held as family interests or by virtue of their position as beneficiary or potential beneficiary of certain trusts of companies

5. On 5 November 2014, the Company announced that certain Directors (now former Directors) of the Company ("the EFH Directors") had entered into agreements ("Agreements") with Equities First Holdings LLC ("EFH") to facilitate a purchase of shares. Under the Agreement, the EFH Directors transferred the legal and beneficial ownership in a number of ordinary shares to EFH in return for the EFH Directors receiving a payment from EFH equal to 67 per cent of the three-day average market value per share less a financing arrangement fee of 3 per cent. (the "EFH Purchase Price"). On the maturity date of the Agreement (two years from the payment of the EFH Purchase Price), the EFH Directors informed the Company that they were contractually obliged (and intended) to purchase the transferred shares or equivalent shares from EFH at a price equal to 69 per cent. of the three-day average market value per share applicable at the date of entering into the facility, less margin calls paid. At the date of their resignation, R Terry and S Scott retained an interest in an additional 8,850,000 and 1,350,000 ordinary shares of 15 pence respectively. At 31 December 2014, L Moorse had terminated his Agreement with EFH and therefore did not have an interest in any further shares over and above those noted in the table above

No options were exercised during the year.

The mid market price of the Company's ordinary shares of 15 pence at 31 December 2014 was 39.5p and the range during the year 1 January 2014 to 31 December 2014 was 32.5p to 660.0p.

This report was approved by the Board on 4 August 2015 and signed on its behalf by:

Tony Illsley

Chairman of the Remuneration Committee

Corporate Governance Report

The Group is supportive of the principles embodied in the UK Corporate Governance Code that was issued by the FRC in 2010 and updated in 2012. This report describes how the principles of corporate governance are applied to the Group.

The Board

The Group has appointed non-executive Directors to bring an independent view to the Board and to provide a balance to the executive Directors. During the year, the Board of Directors comprised of between two and three executive Directors and between four and six independent non- executive Directors, one of whom, Anthony Bowers, was the senior independent Director until his death in October 2014. Following the resignation of Robert Terry and Steve Scott on 18 November 2014, David Currie was appointed Interim non- executive Chairman.

The Board meets monthly throughout the year, and meets at various times between these dates to discuss matters and agree actions on an ongoing basis. In preparation of each regular meeting, the Board receives a board pack with the information necessary for it to discharge its duties. The Board has responsibility for formulating, reviewing and approving the Group's strategy, its financial plans, regulatory announcements, major items of expenditure, investments, acquisitions and disposals and the Directors' Report and annual and interim Financial Statements.

Each Director has access to the advice and services of the Company Secretary and is able to take professional advice at the Group's expense.

The Group maintains appropriate insurance cover in respect of legal actions against Directors as well as against material loss or claims against the Group and reviews the adequacy of cover regularly. The Group has also entered an agreement with each of its Directors whereby the Director is indemnified against certain liabilities to third parties which might be incurred in the course of carrying out his duties as a Director. These arrangements constitute a qualifying third party indemnity provision for the purposes of the Companies Act2006.

Board committees

The Board has established four committees: audit, remuneration, nomination and disclosure (set up after year end). The Company Secretary is secretary to each committee.

Audit committee

The Audit Committee is chaired by David Young and consists of David Young, Tony Illsley and Lord Howard. It meets at least twice a year with attendance from the external auditors and internal personnel as required. The committee is responsible for:

·     ensuring that the appropriate financial reporting procedures are properly maintained and reported on;

·     meeting the auditors and reviewing their reports relating to the Group's accounts and internal control systems;

·     reviewing and monitoring the independence of the external auditor and the objectives and effectiveness of the audit process; and

·     reviewing arrangements by which staff may in confidence raise concerns about possible improprieties in matters of financial reporting or otherwise and receiving and dealing with matters reported under these arrangements.

Remuneration committee

The Remuneration Committee is currently chaired by Tony Illsley and consists of Tony Illsley, David Young and Lord Howard. It meets at least twice a year and is responsible for reviewing the performance of the executive Directors and other senior executives and for determining appropriate levels of remuneration. The Committee's report is set out above.

Nomination committee

The Nomination Committee consists of Richard Rose, Lord Howard and Tony Illsley and is chaired by Richard Rose. It meets at least once a year and reviews the size, structure and composition of the Board and makes recommendations on changes, as appropriate. It also gives consideration to succession planning in the light of developments in the business.

Disclosure committee

The Disclosure Committee was constituted in 2015 and currently consists of Mark Williams, David Young and David Currie and is chaired by Mark Williams. The role of the Disclosure Committee is to assist and inform the Board in making decisions concerning the identification of information that requires announcement pursuant to the AIM Rules for Companies and other relevant rules. The Disclosure Committee meets as necessary to consider all relevant matters. It will in particular meet in advance of the release of all trading statements and other announcements of price sensitive information to ensure that they are true, accurate and complete and to consider if they are fair, balanced and understandable.

Shareholder relations

The Company meets with institutional shareholders, shareholder representative groups, and analysts as appropriate and uses its website to encourage communication with private, existing and prospective shareholders. The Company welcomes feedback from investors about its published reports and website. Please address your feedback to our investor relations team by e-mail to investor@quindell.com or in writing to Quindell Plc, Quindell Court, 1 Barnes Wallis Road, Segensworth East, Fareham, Hampshire, PO15 5UA.

Internal control and risk management

The Group operates a system of internal control and intends to develop and review that system in accordance with guidance published by the FRC. The internal control system is designed to manage rather than eliminate the risk of failure to achieve business objectives. The Board is responsible for the system of internal control and for reviewing its effectiveness. It can only provide reasonable, but not absolute, assurance against material misstatement or loss.

Internal financial control monitoring procedures undertaken by the Board and executive team include the preparation and review of annual forecasts, review of monthly financial reports and KPIs, monitoring of performance, and the prior approval of all significant transactions.

The Company has established a policy and share dealing code relating to dealing in the Company's shares by Directors, employees and connected persons.

Going concern

The Board's consideration of the adequacy of the Group's resources to enable it to continue in operational existence for the foreseeable future is set out above.

Directors' Report

The Directors present their report and the audited Financial Statements for the year ended 31 December 2014.

Research and development

Comments on research and development activities are contained in the Chairman's Report together with the Financial Review  above.

Dividends

The Directors do not recommend the payment of a final dividend (2013: 0.1 pence). The Company paid a dividend of 0.1 pence per share (based on the ordinary shares of 1 pence nominal value at the time of payment) during the year (2013:£nil).

Significant shareholders

The Directors have been notified, or are aware of the following interests in the issued share capital of the Company:

M & G Investments (Prudential): 29,166,666 ordinary shares (representing approximately 6.55% shares in issue).

Political donations

The Group did not make any charitable or political donations in the year (2013: £nil).

Branches outside the UK

The Group operates businesses and offices outside of the UK including in Scottsdale, Arizona in the United States and Toronto, Canada.

Financial instruments

The financial instruments comprise borrowings, derivative financial instruments, cash and liquid resources and various items such as trade debtors and trade creditors that arise from its operations. The main purpose of these financial instruments is to manage the Group's operations. Further information in relation to the financial risk management objectives of the Group, the financial risk factors noted and a detailed analysis of the Group's exposure to interest risk, liquidity risk, capital risk and credit risk is included in notes 3 and 33 to the Financial Statements. Further information is also included in note 33 to the Financial Statements in relation to a derivative financial instrument (an equity swap) held during the financial year (exited prior to the end of the year). At the end of the year, the Group did not have complex financial instruments.

Directors and Company Secretary

The names of the current Directors, together with brief biographical details, are shown above. On 19 June 2014, Robert Fielding was appointed as Group Chief Executive Officer and Director. On 14 July 2014, David Currie was appointed as non-executive Director. On 27 October 2014, Anthony Bowers, senior independent non-executive Director, sadly passed away. On 18 November 2014, Robert Terry resigned as Executive Chairman and Steve Scott resigned as non-executive Director. On the same date, David Currie was appointed as Interim non-executive Chairman.

On 29 May 2015, following completion of the disposal of the PSD, Richard Rose was appointed as Non-executive Chairman and David Currie stepped down as interim non-executive Chairman but remained on the Board as non-executive Director. The Right Honourable Lord Howard of Lympne, David Young and Tony Illsley joined the Board as non-executive Directors and Mark Williams as Group Finance Director. On the same date, Robert Fielding and Laurence Moorse resigned as Directors.

On 1 July 2014, Edward Walker was appointed as Company Secretary. On 29 May 2015, Edward Walker resigned and Stefan Borson was appointed as Company Secretary.

Transactions in which one or more of the Directors had a material interest in and to which the Company, or its subsidiaries, was a party during the financial year are described in note 39 to the Financial Statements. Other than as described in that note, there were no contractual relationships between the Directors and companies with which they are connected and the Quindell Plc group of companies during the year.

Directors' indemnification

The Company has made qualifying third party indemnity provisions for the benefit of its Directors which remain in force at the date of this report.

Disabled persons policy

Applications for employment by disabled persons are always considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate retraining is arranged. It is the policy of the Group and the Company that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees.

Annual General Meeting

The Annual General Meeting of the Company will be held at Botleigh Grange, Grange Road, Hedge End, Southampton SO30 2FL on 2 September 2015 at 11:00am. The Notice of Meeting will be available to view on the Company's website, www.quindell.com, on 5 August 2015.

Employee consultation

The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters affecting them as employees and on the performance of the Group and the Company.

Statement of Directors responsibilities in respect of the Annual Report, Strategic Report, the Directors' Report and the Financial Statements

The Directors are responsible for preparing the Annual Report, Strategic Report, the Directors' Report and the Group and parent Company Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company Financial Statements for each financial year. As required by the AIM Rules for Companies they are required to prepare the Group Financial Statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company Financial Statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

·     Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company Financial Statements, the Directors are required to:

·     select suitable accounting policies and then apply them consistently;

·     make judgements and estimates that are reasonable and prudent;

·     for the Group Financial Statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;

·     for the Parent Company Financial Statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

·     prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Auditors

The Board has decided to propose the reappointment of KPMG LLP as auditors and a resolution concerning their reappointment will be proposed at the forthcoming AGM.

Disclosure of information to the auditors

In the case of each of the persons who are Directors of the Company at the date when this report is approved:

(a) so far as each Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and

 (b) each of the Directors has taken all steps that they ought to have taken as a Director to make themselves aware of any relevant audit information (as defined) and to establish that the auditors are aware of that information.

This information is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.

By order of the Board

Richard Rose

Non-executive Chairman

 

Financial Statements

Consolidated Income Statement for the year ended 31 December 2014


Note

2014

£'000

Restated

2013

£'000

Revenue




 - Solutions


33,580

38,432

 - Services


38,435

22,599

Total revenue


72,015

61,031

Cost of sales


(49,882)

(29,810)

Gross profit


22,133

31,221

Administrative expenses




 - Normal


(76,704)

(29,964)

 - Share-based payments

28

(7,432)

(2,819)

 - Impairments

9

(157,028)

-

 - Other exceptional costs

9

(37,367)

(11,325)

 - Total administrative expenses


(278,531)

(44,108)

Other income

10

18,001

4,186

Share of results of associates


712

242

Group operating loss

8

(237,685)

(8,459)

Finance income

12

553

270

Finance expense

12

(902)

(376)

Loss before taxation


(238,034)

(8,565)

Taxation

13

(3,242)

1,838

Loss after taxation for the year from continuing operations


(241,276)

(6,727)

Discontinued operations




Loss for the year from discontinued operations (attributable to equity holders of the Company)

37

(133,208)

(60,980)

Loss for the year


(374,484)

(67,707)

Attributable to:




Equity holders of the parent


(371,919)

(67,454)

Non-controlling interests

38

(2,565)

(253)



(374,484)

(67,707)





Earnings per share from continuing and discontinued operations attributable to the owners of the parent during the year


Pence

Pence

Basic loss per share




From continuing operations

14

(56.411)

(2.348)

From discontinued operations


(31.479)

(22.121)

From loss for the year


(87.890)

(24.469)





Diluted loss per share




From continuing operations

14

(56.411)

(2.348)

From discontinued operations


(31.479)

(22.121)

From loss for the year


(87.890)

(24.469)

Consolidated Statement of Comprehensive Income for the year ended 31 December 2014      

 


2014

£'000

Restated

2013

£'000

Loss after taxation

(374,484)

(67,707)

Share of other comprehensive income of associates

(1,327)

-

Items that may be reclassified in the Consolidated Income Statement:



 Exchange differences on translation of foreign operations

1,837

(4,237)

Fair value movements on available for sale assets:



 Fair value (decrease)/increase on available for sale assets

(1,500)

4,186

Fair value movements on available for sale assets taken to the Consolidated Income Statement:



 Previous fair value loss/(gain) recognised in the Consolidated Income Statement in respect of an
 investment becoming an associate on a stepped acquisition

1,500

(4,186)

Total comprehensive income for the year

(373,974)

(71,944)

Attributable to:



Equity holders of the parent

(371,409)

(71,691)

Non-controlling interests

(2,565)

(253)


(373,974)

(71,944)

 

 

Consolidated Statement of Financial Position as at 31 December 2014

 


Note

2014
£'000

Restated
2013

£'000

Restated

2012

£'000

Non-current assets





Goodwill

16

97,832

192,947

108,930

Other intangible assets

15

66,271

58,901

70,736

Property, plant and equipment

17

14,091

9,357

7,296

Interests in associates

18

7,169

39,428

-

Investments

19

4,017

3,188

7,143



189,380

303,821

194,105

Current assets





Inventories

20

3,473

318

160

Trade and other receivables

21

32,863

153,645

123,622

Corporation tax assets

13

7,196

-

-

Cash

22

42,036

199,596

48,050



85,568

353,559

171,832

Assets of disposal group classified as held for sale

37

303,674

-

-

Total current assets


389,242

353,559

171,832

Total assets


578,622

657,380

365,937

Current liabilities





Bank overdraft

22

(4,968)

(19,642)

(15,871)

Borrowings

24

(3,133)

(26,501)

(6,280)

Trade and other payables

23

(73,810)

(139,015)

(127,246)

Corporation tax

13

-

(3,690)

(7,460)

Obligations under finance leases

25

(1,081)

(610)

(479)

Provisions

26

(30,809)

(5,341)

(2,413)

Deferred tax liabilities

27

-

(56)

(533)



(113,801)

(194,855)

(160,282)

Liabilities of disposal group classified as held for sale

37

(182,845)

-

-

Total current liabilities


(296,646)

(194,855)

(160,282)

Non-current liabilities





Borrowings

24

(4,947)

(11,961)

(7,475)

Trade and other payables

23

-

(1,896)

(6,032)

Obligations under finance leases

25

(1,080)

(661)

(568)

Provisions

26

(257)

-

-

Deferred tax liabilities

27

(11,196)

(2,348)

(2,633)



(17,480)

(16,866)

(16,708)

Total liabilities


(314,126)

(211,721)

(176,990)

Net assets


264,496

445,659

188,947

Equity





Share capital

28

65,467

56,700

36,216

Share premium account

29

430,070

322,905

103,523

Reverse acquisition and merger reserve

29

178,258

113,857

63,476

Shares to be issued

29

30,744

55,505

28,635

Other reserves

29

31,036

(1,854)

(23,188)

Foreign currency translation reserve

29

(2,401)

(4,238)

(1)

Retained earnings


(472,743)

(100,962)

(19,989)

Equity attributable to equity holders of the parent


260,431

441,913

188,672

Non-controlling interests

29

4,065

3,746

275

Total equity


264,496

445,659

188,947

 

The Financial Statements of Quindell Plc, registered number 05542221, were approved and authorised for issue by the Directors on 4 August 2015 and signed on its behalf by

Mark P Williams                                                                                     

Director

Richard Rose
Director

 

Consolidated Statement of Changes in Equity for the year ended 31 December 2014        

 


Share

capital

£'000

Share premium account

£'000

Reverse acquisition and

merger

reserve

£'000

Shares to be issued

£'000

Other reserves

£'000

Foreign currency translation reserve

£'000

Non- controlling interests

£'000

Retained

earnings

£'000

Total

£'000

At 1 January 2013 as

previously stated

36,216

102,026

74,318

30,178

(1,188)

(1)

275

30,336

272,160

Effect of restatements(note 3)

-

1,497

(10,842)

(1,543)

(22,000)

-

-

(50,325)

(83,213

At 1 January 2013 as restated

36,216

103,523

63,476

28,635

(23,188)

(1)

275

(19,989)

188,947

Loss for the year as restated

-

-

-

-

-

-

(253)

(67,454)

(67,707)

Other comprehensive income

-

-

-

-

-

(4,237)

-

-

(4,237)

Total comprehensive income

-

-

-

-

-

(4,237)

(253)

(67,454)

(71,944)

Issue of share capital

20,484

226,744

50,381

(30,178)

-

-

-

-

267,431

Shares to be issued

-

-

-

57,048

22,000

-

-

(1,543)

77,505

Directly attributable costs incurred










in issuing of equity shares

-

(10,593)

-

-

-

-

-

-

(10,593)

Shares treated as held in treasury

-

-

-

-

(8,061)

-

-

-

(8,061)

Disposal of shares treated as










held in treasury

-

-

-

-

-

-

-

(8,745)

(8,745)

Transfer of prior year gain on










sale of shares held in treasury

-

3,231

-

-

-

-

-

(3,231)

-

Share-based payments

-

-

-

-

7,395

-

-

-

7,395

Non-controlling interest at










acquisition

-

-

-

-

-

-

3,838

-

3,838

Non-controlling interest acquired

-

-

-

-

-

-

(114)

-

(114)

Total transactions with owners,










recognised directly in equity

20,484

219,382

50,381

26,870

21,334

-

3,724

(13,519)

328,656

At 31 December 2013 as










restated

56,700

322,905

113,857

55,505

(1,854)

(4,238)

3,746

(100,962)

445,659

 

At 1 January 2014 as










previously stated

56,700

321,408

124,699

54,151

998

(4,238)

3,746

110,054

667,518

Effect of restatements(note 3)

-

1,497

(10,842)

1,354

(2,852)

-

-

(211,016)

(221,859)

At 1 January 2014 as restated

56,700

322,905

113,857

55,505

(1,854)

(4,238)

3,746

(100,962)

445,659

Loss for the year

-

-

-

-

-

-

(2,565)

(371,919)

(374,484)

Other comprehensive income

-

-

-

-

-

1,837

-

(1,327)

510

Total comprehensive income

-

-

-

-

-

1,837

(2,565)

(373,246)

(373,974)

Issue of share capital

8,767

105,461

64,401

(73,802)

(2,826)

-

-

-

102,001

Shares to be issued

-

-

-

73,118

-

-

-

-

73,118

Shares no longer issuable

-

-

-

(24,077)

-

-

-

24,077

-

Shares treated as held in










treasury

-

-

-

-

(36,659)

-

-

-

(36,659)

Disposal of shares treated as










held in treasury (note 29)

-

1,704

-

-

32,055

-

-

(16,432)

17,327

Share-based payments

-

-

-

-

17,386

-

-

-

17,386

Fair value adjustment to share consideration (note 29)

 

-

 

-

 

-

 

-

 

22,934

 

-

 

-

 

-

 

22,934

Dividends paid (note 41)

-

-

-

-

-

-

-

(6,180)

(6,180)

Non-controlling interest at acquisition (note 36)

 

-

 

-

 

-

 

-

 

-

 

-

 

45,655

 

-

 

45,655

Non-controlling interest

acquired (note 38)

 

-

 

-

 

-

 

-

 

-

 

-

 

(42,771)

 

-

 

(42,771)

Total transactions with










owners, recognised directly










in equity

8,767

107,165

64,401

(24,761)

32,890

-

2,884

1,465

192,811

At 31 December 2014

65,467

430,070

178,258

30,744

31,036

(2,401)

4,065

(472,743)

264,496

 

Consolidated Cash Flow Statement for the year ended 31 December 2014


Note

2014
£'000

Restated

2013

£'000

Cash flows from operating activities




Cash used in operations before exceptional costs, net finance expense and tax

31

(77,874)

(15,043)

Cash outflow from exceptional costs


(2,108)

(7,268)

Cash used in operations before net finance expense and tax


(79,982)

(22,311)

Finance expense paid


(2,135)

(2,078)

Finance income received


570

384

Corporation tax paid


(25,747)

(10,409)

Net cash used by operating activities


(107,294)

(34,414)

Cash flows from investing activities




Purchase of property, plant and equipment


(8,524)

(2,484)

Purchase of intangible fixed assets


(13,126)

(12,259)

Proceeds on disposal of property, plant and equipment


-

360

Proceeds from sale of subsidiary undertaking and sale of operations


-

2,480

Advance receipt in respect of sale of PSD


8,047

-

Proceeds from sale of investments


1,500

-

Acquisition of subsidiaries net of cash acquired


(8,746)

(6,233)

Disposal of subsidiary net of cash foregone


(3,849)

-

Purchase of associated undertakings


(500)

(10,651)

Purchase of fixed asset investments


(1,751)

-

Deposits held in escrow


(3,000)

(1,500)

Loans to investments and other parties


-

(4,898)

Dividends received from associates


208

109

Net cash used in investing activities


(29,741)

(35,076)

Cash flows from financing activities




Dividends paid


(6,180)

-

Issue of share capital


100

210,998

Cost of issuing share capital


-

(10,592)

Finance lease repayments


(910)

(635)

Additional secured loans


6,678

12,125

Repayment of secured loans


(8,247)

-

Sale of shares treated as held in treasury


17,328

4,985

Additional unsecured loan monies received


164

518

Repayment of unsecured loans


(1,386)

-

 Net cash generated from financing activities


7,547

217,399





Net (decrease)/increase in cash and cash equivalents


(129,488)

147,909

Cash and cash equivalents at the beginning of the year

22

179,954

32,179

Exchange gains/(losses) on cash and cash equivalents


16

(134)

Cash and cash equivalents at the end of the year

22

50,482

179,954

Cash and cash equivalents




Cash


69,991

199,596

Bank overdrafts


(19,509)

(19,642)


22

50,482

179,954

 

1. General information and auditor's opinion.

 

These Financial Statements are the consolidated Financial Statements of Quindell Plc, a public limited company registered and domiciled in the United Kingdom, and its subsidiaries ("the Group"). They are presented in pounds sterling, to the nearest thousand, as this is the currency of the primary economic environment in which the Group operates. The address of the registered office is Quindell Court, 1 Barnes Wallis Road, Segensworth East, Fareham, Hampshire, PO15 5UA. The nature of the Group's operations and its principal activities are set out above.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2014 or 2013.

The financial information for 2013 is derived from the statutory accounts for 2013 which have been delivered to the registrar of companies. The auditor has reported on the 2013 statutory accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006, though as further explained in notes 2 and 3 to the Preliminary results announcement in preparing the financial statements for the year ended 31 December 2014, the directors have made certain adjustments to the amounts and disclosures presented as comparatives for the year ended 31 December 2013.

Statutory accounts for the year ended 31 December 2014 will be delivered to the registrar of companies in due course. The auditor has reported on those accounts; their report is qualified in respect of a limitation in the scope of their work and contains statements under section 498 (2) and (3) of the Companies Act 2006, concerning the keeping of adequate books and records and the provision of information and explanations that the auditor considered necessary for the purpose of their audit.  It does not include a reference to any matters to which the auditor drew attention by way of emphasis.

That audit report on the statutory accounts for the year ended 31 December 2014, dated 4 August 2015, includes the following in respect of the qualified opinion:

"Basis for qualified opinion on the financial statements

The audit evidence available to us was limited in the following areas:

•              As explained in Note 3 of the group financial statements and Note 42 of the parent company financial statements, the current Directors have taken into account all available information in the application of the group and parent company's accounting policies and in forming judgments over a number of identified prior year adjustments relating to certain historical acquisitions, revenue and share transactions and the disclosure in these financial statements of previously inadequately disclosed related party and share transactions.  The current Directors have amended the accounting and disclosure of these transactions based on information that has now been made available by former members of management, former Directors and others in response to enquiries by them and by us and which was not part of the group's or parent company's records and had not previously been made available to us.

In a number of respects this information contradicts representations previously made to us by former members of management and former Directors as well as information contained in the group's and parent company's accounting records and calls into doubt the previously adopted accounting treatments of these transactions and/or the values that were attributed to the transactions.  The current Directors explain that, whilst they have made all reasonable efforts to identify all relevant information that could impact on the accounting, including making requests for information to former Directors, the intention or commercial purpose of certain of these transactions and/or the values to attribute to the transactions remain unclear.  We have not identified alternative evidence that would allow us to resolve this. It is also possible that there are transactions into which the group and parent company have entered of which the current Directors remain unaware in fulfilling their responsibilities to prepare these financial statements and to provide to us all the information and explanations that we considered necessary for the purpose of our audit.

Owing to the deficiencies in the group's and parent company's records in these regards and the significant doubts we now have over representations we received from former members of management and former Directors, we were unable to obtain sufficient appropriate audit evidence regarding these matters, which might have a material effect on the group's and parent company's net assets as at 31 December 2012 and 2013 and the group's loss for the years ended 31 December 2013 and 2014; and

•              As set out in Note 39 to the group financial statements and Note 60 of the parent company financial statements, the current Directors identified a number of previously undisclosed related party transactions (including share transactions) with former Directors and others, often but not always related to the historical acquisitions, revenue and share transactions referred to above.  We have been unable to obtain sufficient audit evidence to conclude whether or not there are additional related party transactions which would be required to be disclosed under International Accounting Standard 24 and the Companies Act 2006.

Qualified opinion on the Financial Statements

In our opinion, except for the possible effect solely on the prior years' comparative information of the matters described in "Basis for qualified opinion on financial statements" above, the financial statements give a true and fair view of the state of the group and parent company's affairs as at 31 December 2014. 

In our opinion, except for the possible effect of the matters described in "Basis for qualified opinion on financial statements" above: 

•              the financial statements give a true and fair view of the group's loss for the year ended 31 December 2014;

•              the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; 

•              the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and 

•              the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation."

That same audit report contains the following statement under section 498 (2) and section 498 (3) of Companies Act 2006: 

"In respect solely of the limitation on our work relating to a number of identified prior year adjustments and previously inadequately disclosed related party and share transactions described above: 

•              we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and