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NAHL Group PLC (NAH)

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Tuesday 17 September, 2019

NAHL Group PLC

Interim Results

RNS Number : 5091M
NAHL Group PLC
17 September 2019
 

17 September 2019

NAHL Group plc

 

("NAHL" or the "Group")

 

Interim Results

 

Performance in line with expectations; Continued strategic progress

 

NAHL (AIM: NAH), the leading UK marketing and services business focused on the UK consumer legal market, announces its Interim Results for the six months ended 30 June 2019.

 

Financial Highlights

 

·      Revenue up 3.9% to £25.8m (2018 H1: £24.9m)

·      Underlying operating profit1 up 1.7% to £6.5m (2018 H1: £6.4m) including £0.5m of planned start-up losses of new ABS law firm, National Accident Law ("NAL").  Before these losses, up 10.6% to £7.0m

·      Cash generation from operations1 ahead at £3.5m (2018 H1: £1.3m)

·      Exceptional costs of £0.8m (2018 H1: £0.1m) incurred in preparing for small claims reforms

·      Profit before tax of £4.6m after exceptional costs (2018 H1: £5.3m)

·      Basic earnings per share of 3.4p (2018 H1: 8.2p), in line with the Board's expectations, reflecting

Shifting balance of case allocation between panel law firms and Legal Services business unit, in line with strategy; and

Continued development of ABS structures, highlighted by profit attributable to JV partners of £2.6m (2018 H1: £0.6m)

·      Interim dividend of 2.6p per share (2018 H1: 3.2p)

·      Net debt1 flat at £17.6m (2018 H1: £17.4m)

 

Operational Highlights

 

·      Strategic transformation of Personal Injury ("PI") division yielding positive results

·      Successful launch of wholly owned law firm, NAL, which is scaling and performing well

·      National Accident Helpline ("NAH") marketing and placement tactics adapted to respond to continuing competitive pressures

·      Continued strong progress from Critical Care, with double digit revenue and profit growth

·      Residential Property performance reflective of continuing difficult wider market conditions

 

Post-Period End

 

·      Announced the launch of a new ABS law firm, Law Together LLP, operated in partnership with panel law firm

 

Russell Atkinson, CEO of NAHL, commented:

 

"As a Group, we are pleased with the overall progress made in the first half of the year. The strategic transformation of our Personal Injury (PI) business continues and the changes put in place are now yielding positive results.

 

"Our wholly owned law firm, National Accident Law, has made encouraging progress since its launch in April 2019 and we are continuing to grow the number of enquiries being placed through our Legal Services business unit. Our focus remains on taking an economic interest in the success of the whole claim and capturing more value over the long-term. To this end, we are pleased to announce the launch of a new law firm, Law Together LLP, to help take advantage of the opportunities ahead.

 

"In our Critical Care division, we saw another strong performance, growing operating profit by 12.6% in the period as we begin the process of investing in the technology platform to position it for further growth. Conditions within the residential property market have been well documented and remain challenging.  The leadership team in our Residential Property division are focused on a range of initiatives to grow market share.

 

"We are encouraged by the progress made in the year so far, and although fully cognisant of the challenges ahead, we remain confident of achieving a full year result in line with our underlying EPS1 expectations."

 

 

For further information please call:

 

NAHL Group PLC

Russell Atkinson (CEO)

James Saralis (CFO)

 

via FTI Consulting

Tel: +44 (0) 20 3727 1000

finnCap Ltd (NOMAD & Broker)

Julian Blunt / James Thompson (Corporate Finance)

Andrew Burdis (Corporate Broking) 

 

 

Tel: +44 (0207 220 0500

FTI Consulting (Financial PR)

Alex Beagley

James Styles

Sam Macpherson

 

Tel: +44 (0) 20 3727 1000

 

Notes to Editors

NAHL Group plc (AIM: NAH) is a leader in the Consumer Legal Services ("CLS") market. The Group provides services and products to individuals and businesses in the CLS market through its three divisions:

 

·      Personal Injury provides outsourced marketing services to law firms through National Accident Helpline and claims processing services to individuals through its Legal Services business unit, which includes the law firms Your Law, National Law Partners, Law Together and National Accident Law.

·      Critical Care provides a range of specialist services in the catastrophic and serious injury market to both claimants and defendants through Bush and Company Rehabilitation.

·      Residential Property provides marketing services to law firms and conveyancers as well as surveys to individuals through Fitzalan Partners. It also provides property searches through Searches UK.

 

More information is available at www.nahlgroupplc.co.uk

 

1 The Interim Results include alternative performance measures (APMs) because the Directors believe they provide useful information for shareholders on underlying business trends and performance.  Details of APMs are provided in Note 1.

 

Interim Management Statement

 

I am pleased to report the Group's results for the six months ended 30 June 2019.

 

Summary of Financial Performance

 

During the first half of 2019, the Group has performed in line with the Board's underlying EPS expectations.  Revenue grew by 3.9% to £25.8m (H1 2018: £24.9m) and underlying operating profit increased by 1.7% to £6.5m (H1 2018: £6.4m). 

 


Unaudited

H1 2019

£m

Unaudited

H1 2018

£m

Growth

£m

Growth

%

Personal Injury

16.2

15.5

0.7

5.1

Critical Care

6.6

6.0

0.6

10.4

Residential Property

3.0

3.4

(0.4)

(12.8)

Revenue

25.8

24.9

0.9

3.9






Personal Injury

4.8

4.6

0.2

2.8

Critical Care

2.3

2.1

0.2

12.6

Residential Property

0.1

0.6

(0.5)

(83.7)

Group Costs

(0.7)

(0.9)

0.2

(21.9)

Underlying operating profit

6.5

6.4

0.1

1.7






Start -up losses associated with NAL

0.5

-

0.5

n/a

Underlying operating profit before start-up losses associated with NAL

7.0

6.4

0.6

10.6

 

Underlying operating profit was net of £0.5m of planned start-up losses associated with the Group's new law firm, National Accident Law ("NAL").  Whilst they don't conform to the Group's definition of exceptional costs, these start-up losses comprise the operating loss for the first six months after launch, as the business is scaling up and still refining its processes.  The underlying operating profit before start-up losses associated with NAL was £7.0m, which represents growth of 10.6% on last year.

 

The Group also incurred £0.8m (H1 2018: £0.1m) of exceptional costs associated with our business transformation.  We continue to carefully manage these costs and are pleased that they remain in line with plan. 

 

After deducting minority interest payments associated with the Group's ABS law firms, which are rising as a result of increased volumes, underlying earnings per share was 7.4p (H1 2018: 9.9p), which was consistent with the Board's expectation.

 

Trading Review - Personal Injury ("PI")

 

The PI division performed in line with plan in the first half.  Revenue increased 5.1% to £16.3m and underlying operating profit increased 2.8% to £4.8m. 

 

The strategic transformation of PI continues and, pleasingly, the contribution from our Legal Services business unit is slightly ahead of expectations during the period.  This includes the Group's wholly owned law firm, NAL, which has made encouraging progress since its launch in April 2019, and we are now turning our attention to finalising our small claims proposition, albeit we still require Government confirmation of some important elements of the small claims process.

 

We are encouraged that panel demand has remained stable during the period and we have agreed a number of deals with panel firms that extend beyond the reform implementation date, currently planned for April 2020.  We continue to grow the proportion of our enquiries placed into our Legal Services business unit, in support of our chosen strategy. 

 

National Accident Helpline ("NAH") continues to operate in challenging market conditions, driven by competitive pressures.  The Board expects these to persist until the implementation date of the legal reforms.  NAH management continue to adapt the business' marketing and placement tactics to respond and optimise its performance.  As part of this, we are investing in re-platforming the NAH website in early 2020 which will keep us at the forefront of digital marketing performance.

 

Our largest ABS venture, Your Law LLP, performed ahead of expectations in the first half and continues to grow.  It has achieved damages to date of over £16m.  Together with our partner in this venture, NewLaw LLP, we are pleased with the progress made and look forward to further developing this relationship.

 

I am pleased to announce that on 16 September we entered into a contract to launch a new law firm, called Law Together LLP.  This venture, which is operated in partnership with Horwich Cohen Coghlan Solicitors, is consistent with the ongoing evolution of our ABS strategy, enabling us to maintain our placement strategy and manage the working capital demands of running personal injury claims.  Law Together is the third joint venture law firm to have been established by NAH following the launch of Your Law and National Law Partners in 2017 and is scheduled to launch in October 2019.

 

Trading Review - Critical Care

 

Our Critical Care division has had a good H1, driven largely by organic growth from its case management business.  Revenue increased 10.4% to £6.6m, and underlying operating profit was up 12.6% to £2.3m.

 

The business is progressing a number of initiatives aimed at maintaining this growth and intends to upgrade its technology platform in 2020, which will create efficiencies and deliver further process improvements.

 

Trading Review - Residential Property

 

The residential property market has deteriorated further in H1 and this has impacted our results.  First half revenue was down 12.8% to £3.0m and underlying operating profit was down 83.7% at £0.1m.  Whilst leadership changes made last year are starting to have a positive effect, the market remains very challenging.

 

Cash Conversion, Balance Sheet and Interim Dividend

 

The Group generated free cash flow1 of £0.8m in the first half (H1 2018: £(0.5)m) and underlying cash conversion increased on the same period last year to 66.5% (H1 2018: 20.3%).  Our ABS law firms made a positive contribution towards a total of £4.3m underlying operating cash flow1.

 

As at 30 June 2019 we had net debt of bank borrowings of £17.6m (H1 2018: £17.4m), which was in line with our expectations.

 

The Board is declaring an interim dividend of 2.6p per share payable on 31 October 2019 to ordinary shareholders registered on 27 September 2019. Our policy is to have a dividend cover of twice underlying EPS, before exceptional costs and non-cash charges.

 

Current Year Outlook

 

As a Board, we are pleased with the tangible results achieved within the PI division in the first half of the year and expect the Group to continue to make progress with its strategic transformation in H2.  Whilst we do not expect a noticeable improvement in the market conditions experienced by our Residential Property or PI divisions, our underlying earnings expectations for the full year remain unchanged.

 

Russell Atkinson

Chief Executive Officer

 

17 September 2019

 

1 The Interim Results include alternative performance measures (APMs) because the Directors believe they provide useful information for shareholders on underlying business trends and performance.  Details of APMs are provided in Note 1.

 

Consolidated statement of comprehensive income

for the 6 months ended 30 June 2019

 


 

 

 

 

 

Note

Unaudited

6 months

ended 30

June 2019

£000

 

 

 

Unaudited

6 months

ended 30

June 2018

£000

 

 

Audited

12 months

ended 31

December 2018

£000






Total revenue

2

25,839

24,865

48,957

Cost of sales


(12,589)

(12,217)

(24,254)

Gross profit


13,250

12,648

24,703

Administrative expenses


(8,500)

(7,269)

(14,683)

Underlying operating profit


6,465

6,360

12,132

Share-based payments


(426)

(191)

(457)

Amortisation of intangible assets acquired on business combinations


(484)

(648)

(1,270)

Exceptional items

3

(805)

(142)

(385)

Total operating profit

2

4,750

5,379

10,020

Financial income


104

98

222

Financial expense


(296)

(206)

(470)

Profit before tax


4,558

5,271

9,772

Taxation

4

(424)

(953)

(1,389)

Profit for the period and total comprehensive income


4,134

4,318

8,383






Profit and total comprehensive income is attributable to:





Owners of the company


1,561

3,758

6,674

Non-controlling interests


2,573

560

1,709



4,134

4,318

8,383

 

 



Unaudited 6 months ended

30 June 2019

Unaudited 6 months

ended

30 June

2018

Audited 12 months

ended 

31 December 2018

Basic earnings per share (p)

7

3.4

8.2

14.5

Diluted earnings per share (p)

7

3.3

8.0

14.3

 

Consolidated statement of financial position

At 30 June 2019

 


Note

Unaudited 6 months ended 30 June 2019

£000

Unaudited 6 months ended 30 June 2018

£000

Audited 12 months ended 31 December 2018

£000

Non-current assets





Goodwill


60,362

60,362

60,362

Intangibles


5,906

6,647

6,400

Property, plant and equipment


842

225

195

Deferred tax asset


152

34

177



67,262

67,268

67,134

Current assets





Trade and other receivables (including £4,955,000 (June 2018: £9,538,000, December 2018: £6,603,000) due in greater than one year)

5

33,027

29,978

28,806

Cash and cash equivalents


2,026

939

1,598



35,053

30,917

30,404

Total assets


102,315

98,185

97,538

Current liabilities





Trade and other payables

6

(17,495)

(14,770)

(15,111)

Other payables relating to legacy pre-LASPO ATE product


-

(865)

(301)

Tax payable


(726)

(1,290)

(975)



(18,221)

(16,925)

(16,387)

Non-current liabilities





Other interest-bearing loans and borrowings


(19,659)

(18,334)

(17,122)

Deferred tax liability


(1,188)

(1,500)

(1,342)



(20,847)

(19,834)

(18,464)

Total liabilities


(39,068)

(36,759)

(34,851)

Net assets


63,247

61,426

62,687






Equity





Share capital


115

115

115

Share option reserve


3,004

2,312

2,578

Share premium


14,595

14,595

14,595

Merger reserve


(66,928)

(66,928)

(66,928)

Retained earnings


110,313

110,756

111,380

Capital and reserves attributable to the owners of NAHL Group plc


61,099

60,850

61,740

Non-controlling interests


2,148

576

947

Total equity


63,247

61,426

62,687

 

Consolidated statement of changes in equity

for the 6 months ended 30 June 2019

 


Share

capital

£000

Share

option

reserve

£000

Share

premium

£000

Merger

reserve

£000

Retained

earnings

£000

 

 

Capital and reserves attributa-ble to the owners of NAHL Group plc £000

 

 

 

Non-controlling interest

£000

Total

equity

£000

Balance at 1 January 2019

115

2,578

14,595

(66,928)

111,380

61,740

947

62,687

Adjustment on initial application of IFRS 16

-

-

-

-

4

4

-

4

Adjusted balance at 1 January 2019

115

2,578

14,595

(66,928)

111,384

61,744

947

62,691

Total comprehensive income for the period









Profit for the period

-

-

-

-

1,561

1,561

2,573

4,134

Total comprehensive income

-

-

-

-

1,561

1,561

2,573

4,134

Transactions with owners, recorded directly in equity








Share-based payments

-

426

-

-

-

426

-

426

Dividends paid

-

-

-

-

(2,632)

(2,632)

-

(2,632)

Non- controlling interest member drawings

-

-

-

-

-

-

(1,372)

(1,372)

Balance at 30 June 2019

115

3,004

14,595

(66,928)

110,313

61,099

2,148

63,247



















Balance at 1 January 2018

115

2,121

14,507

(66,928)

111,893

61,708

103

61,811

Total comprehensive income for the period









Profit for the period

-

-

-

-

3,758

3,758

560

4,318

Total comprehensive income

-

-

-

-

3,758

3,758

560

4,318

Transactions with owners, recorded directly in equity









Issue of new Ordinary shares

-

-

88

-

-

88

-

88

Share-based payments

-

191

-

-

-

191

-

191

Dividends paid

-

-

-

-

(4,895)

(4,895)

-

(4,895)

Non- controlling interest member drawings

-

-

-

-

-

-

(87)

(87)

Balance at 30 June 2018

115

2,312

14,595

(66,928)

110,756

60,850

576

61,426



















Balance at 1 January 2018

115

2,121

14,507

(66,928)

111,893

61,708

103

61,811

Adjustment on initial application of IFRS 9 net of tax

-

-

-

-

(814)

(814)

-

(814)

Adjusted balance at 1 January 2018

115

2,121

14,507

(66,928)

111,079

60,894

103

60,997

Total comprehensive income for the year









Profit for the year

-

-

-

-

6,674

6,674

1,709

8,383

Total comprehensive income

-

-

-

-

6,674

6,674

1,709

8,383

Transactions with owners, recorded directly in equity









Issue of new Ordinary Shares

-

-

88

-

-

88

-

88

Member drawings

-

-

-

-

-

-

(865)

(865)

Share-based payments

-

457

-

-

-

457

-

457

Dividends paid

-

-

-

-

(6,373)

(6,373)

-

(6,373)

Balance at 31 December 2018

115

2,578

14,595

(66,928)

111,380

61,740

947

62,687


Consolidated cash flow statement

for the 6 months ended 30 June 2019

 


Note

Unaudited 6 months ended 30 June 2019

£000

Unaudited

6 months ended 30 June 2018 £000

Audited

12 months ended 31 December 2018

£000

Cash flows from operating activities





Profit for the period


4,134

4,318

8,383

Adjustments for:





Depreciation and amortisation


913

810

1,630

IFRS 9 provision movements


130

-

206

Financial income


(104)

(98)

(222)

Financial expense


296

206

470

Share-based payments


426

191

457

Taxation


424

953

1,389



6,219

6,380

12,313

Increase in trade and other receivables


(4,253)

(7,621)

(7,564)

Increase in trade and other payables


1,530

2,340

2,775

Increase/(decrease) in other payables relating to legacy pre-LASPO ATE product


-

189

(375)

Cash generation from operations


3,496

1,288

7,149

Interest paid


(240)

(154)

(474)

Tax paid


(803)

(1,338)

(2,202)

Net cash from operating activities


2,453

(204)

4,473

 

Cash flows from investing activities





Acquisition of property, plant and equipment


(118)

(42)

(145)

Acquisition of intangible assets


(190)

(156)

(640)

Disposal of property, plant and equipment


-

-

42

Interest received


6

2

35

Net cash used in investing activities


(302)

(196)

(708)

 

Cash flows from financing activities





New share issue


-

88

88

New borrowings acquired


2,500

5,375

4,125

Finance leases


(219)

-

-

Dividends paid


(2,632)

(4,895)

(6,373)

Non- controlling interest member drawings


(1,372)

(87)

(865)

Net cash (used in)/from financing activities


(1,723)

481

(3,025)

 

Net increase in cash and cash equivalents


428

81

740

Cash and cash equivalents at beginning of period


1,598

858

858

Cash and cash equivalents at end of period


2,026

939

1,598

 

Notes to the financial statements

 

1. Accounting policies

 

General Information

The half year results for the current and comparative period to 30 June have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance of Review of Interim Financial Information.

 

These half year results do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2018 were approved by the Board of Directors on 18 March 2019 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

 

Having made due enquiries the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason, they continue to adopt the going concern basis in preparing the condensed set of financial statements.

 

The condensed set of financial statements was approved by the Board of Directors on 16 September 2019.

 

Basis of preparation

 

Statement of compliance

The half year results for the current and comparative period to 30 June have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the AIM Rules of UK companies.  They do not include all of the information required for full annual financial statements and should be read in conjunction with the financial statements of the Group for the year ended 31 December 2018, which have been prepared in accordance with IFRSs as adopted by the European Union.

 

New and amended standards adopted by the Group

 

The following new or amended standards became applicable for the current reporting period:

 

IFRS 16 - Leases

 

The Group has adopted IFRS 16 'Leases' from 1 January 2019 which has changed lease accounting for lessees under operating leases. Such agreements now require recognition of an asset, representing the right to use the leased item, and a liability, representing future lease payments. Lease costs (such as property rent) are recognised in the form of depreciation and interest, rather than as an operating cost. Further information on the impact of IFRS 16 is given in Note 10.

 

Use of judgements and estimates

The preparation of financial statements in conformity with IFRSs requires management to make judgements and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and in any future years affected.

 

The preparation of the condensed set of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expense.  Actual results may differ from these estimates.

 

In preparing the condensed set of financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were of the same type as those that applied to the financial statements for the year ended 31 December 2018.

 

Significant accounting policies

The accounting policies used in the preparation of these interim financial statements for the 6 months ended 30 June 2019               are the accounting policies as applied to the Group's financial statements for the year ended 31 December 2018 with the addition of IFRS 16 which is discussed in further detail in Note 10.

 

Statutory and non-statutory measures

The Directors have presented these alternative performance measures (APMs) in the Interim Results because they believe they provide additional useful information for shareholders on underlying business trends and performance. As these APMs are not defined by IFRS, they may not be directly comparable to other companies' APMs. They are not intended to be a substitute for, or superior to, IFRS measurements and the Directors recommend that the IFRS measures should also be used when users of this document assess the performance of the Group.

 

The APMs used in the Interim Results are as defined in the 2018 Annual Report and the principles to identify adjusting items have been applied on a basis consistent with previous years with the exception of exceptional revenues arising from the release of the pre-LASPO ATE liability. Given the magnitude of the pre-LASPO ATE liability, it is no longer considered to be a material item and therefore from 1 January 2019 the Directors have made the decision to no longer include revenues related to the release of this liability as an exceptional item. The key adjusting items in arriving at the APMs are as follows:

 

IFRS 2 Share-based Payments - This is the charge for share-based payments calculated in line with IFRS 2. IFRS 2 requires the fair

value of equity instruments measured at grant date to be spread over the period during which the employees become unconditionally

entitled to the options. The calculation behind the charge can fluctuate year-on-year as new grants are made depending on inputs such

as the expected volatility, the share price, exercise price etc. and therefore the charge can vary with little correlation to the underlying

trading activities. For example, in the five years since the Group's flotation on AIM, the IFRS 2 charge has been as low as £182,000 and

as high as £1,052,000. Management therefore believe it is appropriate to exclude this charge from the underlying operating profit to

allow for greater comparability of the underlying core trading performance of the Group year-on-year.

 

IFRS 3 (Revised) Business Combinations - This is the amortisation charge for intangible assets arising on acquisitions and expenditure

arising from acquisition activity. Under IFRS 3 all acquisition costs are required to be expensed in the Group Income Statement and

intangible assets arising on acquisition are required to be amortised over their useful economic life. Management believes that it is

useful to separately identify these costs due to their materiality to the Group results and due to the fact that the amortisation is

calculated on a straight-line basis, it therefore has little correlation to the trading activities of the acquired entity in any particular year.

To allow for greater comparability of the trading results year-on-year, this charge is therefore excluded from underlying operating profit.

 

Exceptional items - These are non-recurring items that are material by nature and separately identified to allow for greater comparability of underlying Group operating results year on year. Examples of exceptional items in the current and/or previous years include

reorganisation and restructuring costs; revaluation of liability associated with legacy ATE products; and acquisition related costs.

 

Exceptional costs are separately identified to allow for greater comparability of underlying Group operating results year-on-year.

 

The APMS presented in the Interim Results are defined as follows:

 

Related IFRS

Related IFRS




measure

measure

source

Definition

Use/relevance








Underlying

operating

profit

Operating profit

Consolidated income statement

Based on the related IFRS measure

but excluding exceptional items, IFRS

2 share-based payment charges and

amortisation of intangible assets

acquired on business combinations.

Allows management and users of the financial statements to assess the underlying trading results after removing material, non-recurring items that are not reflective of the core trading activities and allows comparability of core trading performance year-on-year.

Underlying

operating

cash flow

Cash flow

from

operating

activities

Consolidated

cash flow

statement

Based on the related IFRS measure

but excluding cash flows in respect of

the items excluded from underlying

operating profit as described above.

Provides management with an indication of the amount of cash available for discretionary investing or financing after removing material non-recurring expenditure that does not reflect the underlying trading operations and allows management to monitor the conversion of underlying profit into cash.




Underlying

cash

conversion

Not defined

by IFRS

n/a

Calculated as underlying operating

cash flow divided by underlying

operating profit.


Free cash

flow

Not defined

by IFRS

n/a

Calculated as net cash generated

from operating activities less net cash

used in investing activities less

payments made to non-controlling

interests.


Underlying Basic EPS

EPS

Consolidated

income

statement

Based on the related IFRS measure

but calculated using underlying

 Profit after tax.

Allows management and users of the financial statements to assess the underlying trading results after removing material, non-recurring items that are not reflective of the core trading activities. It also allows comparability of core trading performance year-on-year.

Working Capital

Movement in receivables and movement in payables

Consolidated statement of cashflows

Working capital is not defined by IFRS. This is defined by management

as being the cash movement in trade and other receivables less the cash movement in trade and other payables.

Allows management to assess the short-term cash flows from movements in the more liquid assets.

 

Net debt

Not defined

by IFRS

Consolidated

cash flow

statement

Net debt is defined as cash and cash

equivalents less interest-bearing

borrowings net of loan arrangement

fees.

Allows management to monitor the overall level of debt in the business. As stated in the strategic report, loan funding is key to the Group's future strategy as an increasing proportion of profits and cash flows are deferred until case settlement.


 

A reconciliation of each measure is provided as follows:

 

Underlying operating profit:


Unaudited 6 months ended 30 June 2019

£000

Unaudited 6 months ended 30 June 2018

£000

Audited 12 months ended 31 December 2018

£000

IFRS measure - operating profit

4,750

5,379

10,020

Exceptional items

805

142

385

IFRS 2 share-based payment charge

426

191

457

Amortisation of intangible assets acquired on business combinations

484

648

1,270

Underlying operating profit

6,465

6,360

12,132

 

Underlying operating cash flow, underlying cash conversion and free cash flow:


Unaudited 6 months ended 30 June 2019

£000

Unaudited 6 months ended 30 June 2018

£000

Audited 12 months ended 31 December 2018

£000

IFRS measure - cash generation from operations

3,496

1,288

7,149

Exceptional items

805

142

385

Working capital movements in respect of exceptional items

-

50

50

Decrease/(increase) in liabilities relating to Pre-LASPO ATE

-

(189)

375

Underlying operating cash flow

4,301

1,291

7,959

Underlying operating profit (as above)

6,465

6,360

12,132

Underlying cash conversion

66.5%

20.3%

65.6%





Cash generation from operations

3,496

1,288

7,149

Interest paid

(240)

(154)

(474)

Tax paid

(803)

(1,338)

(2,202)

Net cash generated from operating activities

2,453

(204)

4,473

Net cash used in investing activities

(302)

(196)

(708)

Payments to non-controlling interests

(1,372)

(87)

(865)

Free cash flow

779

(487)

2,900

 

Underlying EPS:

 


Unaudited 6 months ended 30 June 2019

£000

Unaudited 6 months ended 30 June 2018

£000

Audited 12 months ended 31 December 2018

£000

IFRS measure - profit for the year attributable to shareholders

1,561

3,758

6,674

Exceptional items net of tax

652

115

312

Start-up losses associated with NAL net of tax

458

-

-

IFRS 2 share-based payment charge

426

191

457

Amortisation of intangible assets acquired on business combinations net of deferred tax

334

486

950

Underlying profit for the year attributable to shareholders

3,431

4,550

8,393

Weighted average number of shares

46,178,716

46,100,876

46,160,172

Underlying EPS

7.4

9.9

18.2

 

Working capital:


Unaudited 6 months ended 30 June 2019

£000

Unaudited 6 months ended 30 June 2018

£000

Audited 12 months ended 31 December 2018

£000

Movement in trade and other receivables

(4,253)

(7,621)

(7,564)

IFRS 9 provision movement

130

-

206

Movement in trade and other payables

1,530

2,340

2,775

Working capital

(2,593)

(5,281)

(4,583)

Pre-LASPO ATE movement

(101)

-

-

IFRS 9 opening balance adjustment

-

-

1,002

IFRS 16 adjustments to payables

676

-

-

Movement in interest accruals

(120)

(81)

(268)

IFRS measure - movement in trade and other receivables less movement in trade and other payables (including Pre-LASPO ATE liability)

(2,138)

(5,362)

(3,849)

 

Financial assets and liabilities

The Group's principal financial instruments comprise cash and cash equivalents, trade and other receivables, trade and other payables

and interest-bearing borrowings.

 

Trade and other receivables

Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition, trade and other receivables are stated at amortised cost using the effective interest method, less any impairment losses calculated in line with IFRS 9.

 

Trade and other payables

Trade and other payables are recognised initially at fair value. Subsequent to initial recognition, trade and other payables are stated at

amortised cost using the effective interest method.

 

Cash and cash equivalents

Cash and cash equivalents comprise cash balances. Cash and cash equivalents are repayable on demand and are recognised at their

carrying amount.

 

Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition,

interest-bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses.

 

2. Operating segments


Personal Injury

£000

Critical

Care

£000

Residential Property

£000

Group

£000

Underlying operations £000

Pre-LAPSO ATE        £000

Other

  items

£000

Eliminati-ons

£000

Total

£000

6 months ended 30 June 2019










Revenue

16,279

6,591

2,969

-

25,839

-

-

-

25,839

Depreciation and amortisation

(185)

(71)

(172)

(1)

(429)

-

(484)

-

(913)

Operating profit/(loss) 1

4,751

2,349

96

(731)

6,465

-

(1,715)

-

4,750

Financial income

103

-

-

1

104

-

-

-

104

Financial expenses

(1)

(1)

(2)

(292)

(296)

-

-

-

(296)

Profit/(loss) before tax

4,853

2,348

94

(1,022)

6,273

-

(1,715)

-

4,558

Trade receivables

8,673

5,106

770

-

14,549

-

-

-

14,549

Total assets3

29,289

5,753

1,666

78,332

115,040

-

-

(12,725)

102,315

Segment liabilities3

(15,457)

(1,027)

(704)

(307)

(17,495)

    - 2

-

-

(17,495)

Capital expenditure (including intangibles)

(192)

(93)

(7)

(16)

(308)

-

-

-

(308)











6 months ended 30 June 2018










Revenue

15,489

5,970

3,406

-

24,865

-

-


24,865

Depreciation and amortisation

(94)

(18)

(50)

-

(162)

-

(648)


(810)

Operating profit/(loss) 1

4,622

2,087

588

(937)

6,360

-

(981)


5,379

Financial income

97

-

-

1

98

-

-


98

Financial expenses

-

-

-

(206)

(206)

-

-


(206)

Profit/(loss) before tax

4,719

2,087

588

(1,142)

6,252

-

(981)


5,271

Trade receivables

14,572

4,655

795

-

20,022

-

-


20,022

Total Assets3

25,132

4,970

1,604

78,917

110,623


(12,438)


98,185

Segment liabilities3

(12,492)

(1,003)

(569)

(706)

(14,770)

(865)2

-


15,635

Capital expenditure (including intangibles)

21

20

157

-

198

-

-


198

 

12 months ended 31 December 2018










Revenue

29,522

12,383

6,388

-

48,293

664

-

-

48,957

Depreciation and amortisation

(195)

(48)

(117)

-

(360)

-

(1,270)

-

(1,630)

Operating profit/(loss) 1

8,424

4,520

728

(1,540)

12,132

589

(2,701)

-

10,020

Financial income

191

30

-

1

222

-

-

-

222

Financial expenses

-

(5)

-

(465)

(470)

-

-

-

(470)

Profit/(loss) before tax

8,615

4,545

728

(2,004)

11,884

589

(2,701)

-

9,772

Trade receivables

10,200

5,036

598

-

15,834

-

-

-

15,834

Total assets3

24,528

5,800

1,269

78,574

110,171

-

-

(12,633)

97,538

Segment liabilities3

(13,254)

(1,137)

(364)

(356)

(15,111)

(301)2

-

-

(15,412)

Capital expenditure (including intangibles)

 

245

188

352

-

785

-

-

-

785

1.          These are the respective underlying profits of the division.

2.          Pre-LASPO ATE liabilities include the balance of commissions received in advance that are due to be paid back to the insurance  
 provider of £200,000 (June 2018: £865,000, December 2018: £301,000). From January 2019 this balance was no longer considered to be material and going forward will now be presented as part of Personal Injury.

3.          Total assets and segment liabilities exclude intercompany loan balances as these do not form part of the operating activities of the segment.

 

Geographic information

All revenue and assets of the Group are based in the UK.

 

Operating segments

The activities of the Group are managed by the Board, which is deemed to be the chief operating decision maker (CODM). The CODM has identified the following segments for the purpose of performance assessment and resource allocation decisions. These segments are split along product lines and are consistent with those reported last year.

 

Personal Injury - Revenue from the provision of enquiries to the Panel Law Firms, based on a cost plus margin model, plus commissions received from providers for the sale of additional products by them to the Panel Law Firms and in the case of the ABSs, revenue receivable from clients for the provision of legal services.

 

Critical Care - Revenue from the provision of expert witness reports and case management support within the medico-legal framework for multi-track cases.

 

Residential Property - Revenue from the provision of online marketing services to target homebuyers and sellers in England and Wales, offering lead generation services to Panel Law Firms and surveyors in the conveyancing sector and the provision of conveyancing searches for solicitors and licensed conveyancers.

 

 Group - Costs that are incurred in managing Group activities or not specifically related to a product.

 

Pre-LASPO ATE - Revenue is commissions received from the insurance provider for the use of after the event policies by Panel Law Firms. From 1 April 2013, this product was no longer available as a result of LASPO regulatory changes. Included in the balance sheet is a liability relating to commissions received in advance that are due to be paid back to the insurance provider. No interest is due on this liability.

 

Other items - Costs associated with the acquisition of subsidiary undertakings, reorganisation costs associated with exceptional projects that are not related to the core operations of the business, share-based payments and amortisation charges on intangible assets recognised as part of business combinations.

 

3. Exceptional items


Unaudited 6 months ended 30 June 2019

£000

Unaudited 6 months ended 30 June 2018

£000

Audited 12 months ended 31 December 2018

£000

Release of pre-LASPO ATE liability and associated costs1

-

-

589

Personal Injury reorganisation costs2

(805)

(142)

(816)

Residential Property reorganisation costs3

-

-

(158)

Total

(805)

(142)

(385)

 

1.     Previously recognised liabilities for pre-LASPO ATE commissions received in advance of £664,000 were released in 2018 as a result of more favourable settlements. These have been offset by associated costs of £75,000.

2.    Personal Injury reorganisation costs relate to costs associated with exceptional projects that are not related to the core operations   
  of the business.

3.     Costs of management reorganisation in the Residential Property division.

 

4.   Taxation


Unaudited 6 months ended 30 June 2019

£000

Unaudited 6 months ended 30 June 2018

£000

Audited 12 months ended 31 December 2018

£000

Current tax expense




Current tax on income for the year

552

1,115

1,824

Adjustments in respect of prior years

-

-

(160)

Total current tax

552

1,115

1,664





Deferred tax credit




Origination and reversal of timing differences

(128)

(162)

(275)

Total deferred tax

(128)

(162)

(275)

Total expense in statement of comprehensive income

424

953

1,389

Total tax charge

424

953

1,389

 

Reconciliation of effective tax rate:

 


Unaudited 6 months ended 30 June 2019

£000

Unaudited 6 months ended 30 June 2018

£000

Audited 12 months ended 31 December 2018

£000

Profit for the period

4,134

4,318

8,383

Total tax expense

424

953

1,389

Profit before taxation

4,558

5,271

9,772





Tax using the UK corporation tax rate of 19.00% (June 2018: 19.00%, December 2018:19.00%)

866

1,001

1,856

Income disallowable for tax purposes

-

-

(6)

Non-deductible expenses

81

36

100

Adjustments in respect of prior years

-

-

(160)

Share scheme deductions

-

(18)

(18)

Non-controlling interest share of tax

(489)

(106)

(324)

Short term timing differences for which no deferred tax is recognised

(34)

40

(59)

Total tax charge

424

953

1,389

 

The Group's tax charge of £424,000 (June 2018: £953,000, December 2018: £1,389,000) represents an effective tax rate of 9.3% (June 2018: 18.1%, December 2018: 14.2%). The effective tax rate is lower than the standard corporation tax rate of 19.0% for the reasons as set out above. The most significant of these is that the Group does not account for the non-controlling interests' share of tax. This results in a reduction in effective tax rate of 10.7% (June 2018: 2.0%, December 2018: 3.3%).

 

Changes in tax rates and factors affecting the future tax charge

A reduction in the UK corporation tax rate from 19.0% to 18.0% (effective from 1 April 2020) was substantively enacted on 26 October 2015 and an additional reduction to 17.0% (effective from 1 April 2020) were substantively enacted on 6 September 2017. This will reduce the Group's future current tax charge accordingly. The deferred tax assets and liabilities at 30 June 2019have been calculated based on these rates.

 

5.   Trade and other receivables

 


Unaudited 6 months ended 30 June 2019

£000

Unaudited 6 months ended 30 June 2018

£000

Audited 12 months ended 31 December 2018

£000

Trade receivables: receivable in less than one year

13,444

12,082

13,234

Trade receivables: receivable in more than one year

1,105

7,940

2,600

Accrued income: receivable in less than one year

8,346

5,215

4,359

Accrued income: receivable in more than one year

3,850

1,597

4,003

Other receivables

208

259

308


26,953

27,093

24,504

Prepayments

990

594

673

Recoverable disbursements

5,084

2,291

3,629

Total

33,027

29,978

28,806

 

A provision against trade receivables of £779,000 (June 2018: £171,000, December 2018 £909,000) is included in the figures above.

 

6. Trade and other payables

 


Unaudited 6 months ended 30 June 2019

£000

Unaudited 6 months ended 30 June 2018

£000

Audited 12 months ended 31 December 2018

£000

Trade payables

3,642

2,360

2,493

Disbursements payable

5,359

2,320

3,712

Other taxation and social security

941

975

1,028

Other payables, accruals and deferred revenue

6,849

8,311

6,907

Customer deposits

704

804

971

Total

17,495

14,770

15,111

 

7. Earnings per share

 

The calculation of basic earnings per share at 30 June 2019 is based on profit attributable to ordinary shareholders and a weighted average number of Ordinary Shares outstanding at the end of the period as follows:

 

Profit attributable to ordinary shareholders (basic)


 

Unaudited 6 months ended 30 June

2019

£000

 

Unaudited 6 months ended 30 June

2018

£000

 

 

Audited 12 months ended 31 December  2018

£000

Profit for the period attributable to the shareholders

1,561

3,758

6,674

 

Weighted average number of Ordinary Shares (basic)

Number

 

 

 

 

 

Unaudited 6 months ended

30 June 2019

 

Unaudited 6 months ended 30 June 2018

 

Audited 12 months ended 31 December 2018

Issued Ordinary Shares at start of period


46,178,716

46,061,090

46,061,090

Weighted average number of Ordinary Shares at end of period


46,178,716

46,100,876

46,160,172

 

Basic earnings per share (p)


Unaudited 6 months ended 30 June 2019

Unaudited 6 months ended 30 June 2018

Audited 12 months ended 31 December 2019

Group (p)

3.4

8.2

14.5

 

The Company has in place share-based payment schemes to reward employees. The incremental shares available for these schemes included in the diluted earnings per share calculation are 405,859 (June 2018: 958,388; December 2018: 454,169). There are no other diluting items.

 

Diluted earnings per share (p)


Unaudited 6 months ended 30 June 2019

Unaudited    6 months ended 30 June 2018

Audited 12 months ended 31 December

 2018

Group (p)

3.3

8.0

14.3

 

8. Dividends

 

On 31 May 2019 the Group paid final dividends in respect of 2018 of £2,632,000 (2018: final dividends in respect of 2017 of £4,895,000) which represented a dividend per share of 5.7p (2018: 10.6p). The Directors have recommended an interim dividend in respect of 2019 of 2.6p (2018: interim dividend of 3.2p).

 

9. Net debt

 

Net debt comprises cash and cash equivalents, secured bank loans, loan notes and preference shares.

 


 30 June 2019

£000

 30 June

2018

£000

31 December 2018

£000

Cash and cash equivalents

2,026

939

1,598

Other interest-bearing loans and loan notes1

(19,659)

(18,334)

(17,122)

Net debt

(17,633)

(17,395)

(15,524)

 

1.   Other interest-bearing loans and loan notes are stated after deducting facility arrangement fees of £91,000 (June 2018: £166,000; December 2018: £128,000). These fees are being amortised over the term of the facility.

 

Set out below is a reconciliation of movements in net debt during the period.


30 June 2019

£000

30 June

2018

£000

31 December 2018

£000

Net increase in cash and cash equivalents

428

81

740

Cash and cash equivalents net inflow from increase in debt and debt financing

(2,500)

(5,375)

(4,125)

Movement in net borrowings resulting from cash flows

(2,072)

(5,294)

(3,385)

Non-cash release of prepaid loan arrangement fees

(37)

(37)

(75)

Net debt at beginning of period

(15,524)

(12,064)

(12,064)

Net debt at end of period

(17,633)

(17,395)

(15,524)

 

It is the Group's intention to repay the balance on the revolving credit facility in more than 12 months time and hence the gross balance of £19,750,000 is deemed to be a non-current liability.

 

10. Changes in accounting policies

 

The Group has adopted the modified retrospective approach with the right of use asset measured as if IFRS 16 had been applied since the commencement date of a lease using a discount rate based on the Group's incremental borrowing rate at the date of initial application and the lease liability at transition date as the present value of the remaining lease payments, discounted using the Group's

incremental borrowing rate at the date of initial application, adjusted by any prepayments or lease incentives recognised immediately before the date of initial application. Under the modified retrospective transition approach, the comparative information is not restated.

 

The Group has elected to apply a single discount rate to assets with similar characteristics. The Group has also elected not to recognise right of use assets and lease liabilities for short-term leases or low-value assets. The Group will continue to expense the lease payments associated with these leases on a straight-line basis over the lease term.

 

Leases

 

The Group leases property and certain items of office equipment.

 


Property

£000

Office equipment

£000

Total

£000

Right of use asset at 1 January 2019

531

109

640

Right of use asset at 30 June 2019

473

97

570

 

Impact on Financial Statements

 

1) Impact on transition

On transition to IFRS 16, the Group recognised additional right of use assets and lease liabilities recognising the difference in retained earnings. This impact on transition is summarised below.

 


Total

£000

Right of use assets presented in property, plant and equipment

640

Lease liabilities presented in other payables, accruals and deferred revenue

(673)

Release of rent-free period adjustments

37

Impact on retained earnings

4

 

2) Impacts for the period

As a result of applying IFRS 16, in relation to the leases that were previously classified as operating leases, the Group recognised £570,000 of right of use assets and £640,000 of lease liabilities as at 30 June 2019 (including new leases taken out after 1 January 2019). The right of use assets of £570,000 have been included in property, plant and equipment on the balance sheet and the lease liabilities of £640,000 have been included within other payables, accruals and deferred revenue.

 

Also, in relation to those leases under IFRS 16, the Group has recognised depreciation and interest costs, instead of operating lease expense. During the six months ended 30 June 2019, the Group recognised £187,000 of depreciation charges and £4,000 of interest costs from those leases.

 


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